REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report....................
For the transition period from to
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(Jurisdiction of incorporation
or organization)
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None
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None
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Title of each class
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Name of each exchange on which registered
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Large accelerated filer ☐
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Non-accelerated filer ☐
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Emerging growth company
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6 | ||
6 | ||
6 | ||
6 | ||
A. |
[Reserved] |
6 |
B. |
Capitalization and indebtedness |
6 |
C. |
Reason for the offer and use of proceeds
|
6 |
D. |
Risk Factors |
6 |
33 | ||
A. |
History and Development of the Company
|
33 |
B. |
Business Overview |
34 |
Principal Markets |
37 | |
Manufacturing and Suppliers |
38 | |
Marketing Channels |
39 | |
Patents and Licenses |
41 | |
Competition |
42 | |
Governmental Regulation Affecting the Company
|
43 | |
C. |
Organizational Structure |
44 |
UNRESOLVED STAFF COMMENTS |
45 | |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
45 | |
Impact of Inflation and
Currency Fluctuations on Results of Operations, Liabilities and Assets |
50 | |
C. |
Research and development, patents and licenses,
etc. |
52 |
E. |
Critical Accounting Estimates |
54 |
56 | ||
A. |
Directors and Senior Management |
56 |
B. |
Compensation |
59 |
Board of Directors |
65 | |
External Directors |
65 | |
Audit Committee |
70 | |
Compensation Committee |
71 | |
D. |
Employees |
77 |
E. |
Share Ownership |
79 |
80 | ||
A. |
Major Shareholders |
80 |
B. |
Related Party Transactions |
81 |
ITEM 8. | 83 | |
A. |
Consolidated Statements and Other Financial Information |
83 |
B. |
Significant Changes |
83 |
THE OFFER AND LISTING |
84 | |
A. |
Offer and Listing Details |
84 |
Markets and Share Price History |
84 |
107 | ||
Interest Rate Risk |
107 | |
Foreign Currency Exchange Risk |
108 | |
109 | ||
110 | ||
110 | ||
110 | ||
110 | ||
Disclosure Controls and Procedures |
110 | |
Management's Annual Report on Internal Control
over Financial Reporting |
110 | |
Inherent Limitations on Effectiveness of Controls
|
111 | |
Changes in Internal Control over Financial
Reporting |
111 | |
111 | ||
111 | ||
111 | ||
111 | ||
112 | ||
Audit committee's pre-approval policies and
procedures |
112 | |
113 | ||
113 | ||
114 | ||
114 | ||
117 | ||
117 | ||
Item 16K. |
117 | |
118 | ||
118 | ||
118 | ||
118 |
• |
We may not be able to capitalize, as planned, on our Design Wins.
|
• |
The market for Cloud-based and Cloud-focused solutions is rapidly developing, and
if it develops in ways that differ from our expectations, our business could be harmed.
|
• |
The market for Edge Networking Devices to Telcos and service providers for NFV or
SD-WAN deployments is rapidly developing, and if it develops in ways that differ from our expectations, our business could be harmed.
|
• |
Rapid development of our business in the Cloud-based, Telco and service providers'
markets may require us to offer our potential customers with longer payment terms to better position ourselves in these markets, to hold
higher inventory levels and to significantly increase our need for working capital.
|
• |
Our networking and data infrastructure solution products which are targeted by us
mainly to customers in the OEM, Cloud, Telco, Mobile and related service providers' markets, are characterized by long sales cycles. |
• |
The loss of Design Wins from customers in the Cloud, Telco, Mobile and related service
providers' markets may result in significant quarterly and even annual fluctuations in our revenues.
|
• |
Rapid development of our business in the Cloud, Telco, Mobile and related service
providers' markets may lead to a decrease in our gross margins which may result in a decrease in our profitability.
|
• |
Should some of our customers explore various technologies during their development
process in ways which are not compatible with our solutions, this may result in them deciding to pursue different solutions even after
we secured Design Wins with such customers, which may impair our financial results.
|
• |
A loss of a material Design Win may lead to a decrease in the volume of orders placed
in relation to such Design Win, which would impair our financial results.
|
• |
Difficulties in the fulfillment of financial obligations of one or more of our customers
may have an adverse effect on our ability to collect consideration payable under purchase orders placed by such customers.
|
• |
We may not be successful in achieving and consummating Design Wins for our products
for the Cloud, Telco, Mobile and the service providers markets, which constitute a main source of growth. |
• |
Significant growth in markets demanding functionality similar to the functionality
offered by certain of our products may cause manufacturers to integrate such characteristics into server motherboards or increase the
market share of servers and appliances that already have such functionality in-built, eliminating the need for our products. |
• |
Our customers may replace the servers and appliances they currently use, use or sell
servers and appliances that do not require our cards, and/or incorporate cards other than ours. |
• |
We may experience difficulty in developing solutions for servers and appliances with
proprietary interfaces, which may be used by some of our potential customers. |
• |
The short lead time of customer orders versus the long lead time of our component
suppliers could result in either a surplus or lack of sufficient supplies. |
• |
The dollar cost of our operations in Israel may increase to the extent the results of inflation in Israel are not offset by a devaluation
of the NIS against the dollar. |
• |
The tax benefits available to us under Israeli law require us to meet several conditions and may be terminated or reduced in the
future, which would increase our taxes. |
• |
The government programs and benefits, which we previously received, require us to meet several conditions in order to transfer intellectual
property and know-how developed using government funding abroad, or in order to consummate a change of control. |
• |
The political environment and hostilities in Israel could harm our business. |
• |
Many of our employees in Israel are required to perform military reserve duty. |
• |
We may experience a decline in our share price, including during periods of uncertainty
in global economic conditions, and there is no guarantee that our share price will remain stable or not decline. |
• |
If we are characterized as a passive foreign investment company for U.S. federal income
tax purposes, our U.S. shareholders may suffer adverse tax consequences. |
• |
Unfavorable or unstable economic conditions in the markets in which we operate could
have a material adverse effect on our business, financial condition, or operating results. |
• |
Loss of our sources for certain key components could harm our operations. |
• |
The markets for our products change rapidly and demand for new products is difficult
to predict. |
• |
We may need to invest significantly in research and development and business development
in order to diversify our product offering and enter new markets. |
• |
Our short lead time of customer orders introduces uncertainty into our revenues and
severely limits our ability to accurately forecast future sales. |
• |
The fluctuations in components' lead time and price may adversely affect our business.
|
• |
The decrease in demand for basic/standard server adapters may adversely affect our
business. |
• |
The loss or ineffectiveness of any of our key customer relationships or a reduction
of purchase orders by such customers may have a material adverse effect on our operations and financial results. |
• |
We are dependent on key personnel. |
• |
We may not be able to protect our intellectual proprietary rights. |
• |
Inability to cooperate with and receive information from our key component manufacturers
could affect our ability to develop new products. |
• |
We may make acquisitions or pursue mergers that could disrupt our business and harm
our financial condition. |
• |
We may be subject to risks associated with laws, regulations, economic sanctions and
customer initiatives, which may force us to incur additional expenses and add complexities to our supply chain and operations. |
• |
We depend on governmental licenses for our exports. |
• |
Significant disruptions of our information technology systems or breaches of our data
security could adversely affect our business. |
• |
Substantial research and development and business development expenditures, which
could divert funds from other corporate uses and/or have a significant negative effect on our short-term results; |
• |
Diversion of management's attention from our core business; and |
• |
Entrance into markets in which we have little or no experience. |
• |
Post-merger integration problems resulting from the combination of any acquired operations
with our own operations or from the combination of two or more operations into a new merged entity; |
• |
Diversion of management's attention from our core business; |
• |
Substantial expenditures, which could divert funds from other corporate uses;
|
• |
Entering markets in which we have little or no experience; and |
• |
Loss of key employees of the acquired operations. |
(i) |
Server network interface cards (Server Adapters) - These adapters are used mostly
in networking appliances which are used both in the Cloud (including public cloud and On Premise cloud) and in the Edge. |
(ii) |
Smart Cards - Intelligent and/or programmable cards, with features such as encryption,
acceleration, data compression, redirection and switching, packet processing, time stamping, packet capture solutions, ultra-low latency
solutions, and other offloading features. These products are used mostly inside servers which are a part of Cloud, Telco and Enterprise
Data centers or at the Edge. |
(iii) |
Smart Platforms - (Edge Products) - including virtualized Customer-Premises Equipment
(vCPE) and universal Customer-Premises Equipment (uCPE) (together, "CPE"), Edge devices for SD-WAN, SASE, Telco dedicated routers and
NFV deployments. |
(i) |
Providers of applications on Network appliances, including mostly SD-WAN, Cyber Security
and Application Delivery applications; |
(ii) |
Telcos / Carriers / service providers deploying CPEs/Edge for SD-WAN, SASE and NFV;
|
(iii) |
Mobile Operators/Telcos/Carriers deploying Telco routers and 4G/5G infrastructure;
|
(iv) |
The "Cloud". |
• |
We approach a potential customer or are approached by such customer. |
• |
If the potential customer shows interest in the products and we believe that achievement
of a business relationship with the potential customer is possible, we ship products for such potential customer's evaluation. |
• |
During the evaluation process the potential customer receives a few units of the relevant
product for initial basic testing. If the evaluation process is successful, we ship products for qualification. |
• |
During the qualification process the potential customer usually purchases a larger
amount of our products for more specific testing, which may include certain adaptations of our products to its needs. |
• |
If the qualification process is successful, we enter into negotiations regarding the
terms of a business relationship. |
• |
In some cases, typically with the larger customers and with respect to Smart Cards
and Smart Platforms, the evaluation and qualification process may take 12 months or more. |
• |
Silicom Connectivity Solutions, Inc. – a private company incorporated in the
United States; and |
• |
Silicom Denmark (Fiberblaze A/S) – a private company incorporated in Denmark.
|
A. |
Operating Results |
Year
Ended December 31, |
2021 |
2022 |
2023 |
Sales |
100% |
100% |
100% |
Cost of sales |
65.4 |
65.5 |
76.9 |
Gross profit |
34.6 |
34.5 |
23.1 |
Research and development expenses
|
15.6 |
13.7 |
16.6 |
Sales and marketing expenses |
5.1 |
4.6 |
5.6 |
General and administrative expenses
|
3.6 |
3.0 |
3.4 |
Impairment of goodwill |
- |
- |
20.6 |
Operating Income |
10.2 |
13.2 |
(23.1) |
Financial income, net |
(0.1) |
1.6 |
1.1 |
Income (loss) before income taxes
|
10.0 |
14.9 |
(22.0) |
Income tax expenses (benefit) |
1.8 |
2.8 |
(0.7) |
Net Income (loss) |
8.2 |
12.2 |
(21.3) |
B. |
Liquidity and Capital
Resources |
C.
|
Research and Development, Patents
and Licenses, etc. |
D. |
Trend Information |
Name |
Age |
Position with Company |
Avi Eizenman(1) |
66 |
Active Chairman of the Board |
Shaike Orbach(2)
|
72 |
Executive Vice Chairman of the Board |
Ayelet Aya Hayak(3)
|
54 |
Director |
Ilan Erez(3) |
56 |
Director |
Eli Doron(4) |
71 |
Director |
Liron Eizenman(5)
|
38 |
President, Chief Executive Officer |
Eran Gilad |
56 |
Chief Financial Officer and Company Secretary |
(1) |
Serving an additional two-year term, commencing as of June 7, 2022. |
(2) |
Serving an additional three-year term, commencing as of June 14, 2023. |
(3) |
Serving an additional three-year term, commencing as of June 7, 2022. |
(4) |
Serving an additional three-year term, commencing as of June 3, 2021. |
(5) |
Liron Eizenman, who is the son of the active chairman of our board, Avi Eizenman, commenced serving as
our President and Chief Executive Officer, on July 1, 2022. |
• |
An employment relationship; |
• |
A business or professional relationship maintained on a regular
basis; |
• |
Control; and |
• |
Service as an office holder. |
• |
the majority includes at least a majority of the shares held
by non-controlling and disinterested shareholders who are present and voting at the meeting; or |
• |
the total number of shares held by non-controlling and disinterested
shareholders that voted against the election of the director does not exceed two percent of the aggregate voting rights in the company.
|
• |
The chairman of the board of directors; |
• |
Any director employed by or otherwise providing services to the company or to the
controlling shareholder or entity under such controlling shareholder’s control; |
• |
Any director who derives his salary primarily from a controlling shareholder;
|
• |
A controlling shareholder; or |
• |
Any relative of a controlling shareholder. |
• |
The chairman of the board of directors; |
• |
Any director employed by or otherwise providing services to the company or to the
controlling shareholder or entity under such controlling shareholder’s control; |
• |
Any director who derives his salary primarily from a controlling shareholder;
|
• |
A controlling shareholder; or |
• |
Any relative of a controlling shareholder. |
1. |
To recommend to the Board of Directors as to a compensation policy for office holders
of the company, as well as to recommend, once every three years to extend the compensation policy subject to receipt of the required corporate
approvals; |
2. |
To recommend to the Board of Directors as to any updates to the compensation policy
which may be required; |
3. |
To review the implementation of the compensation policy by the company; |
4. |
To approve transactions relating to terms of office and employment of certain company
office holders, which require the approval of the compensation committee pursuant to the Companies Law; and |
5. |
To exempt, under certain circumstances, a transaction relating to terms of office
and employment from the requirement of approval of the shareholders meeting. |
a. |
Advancement of the goals of the company, its working plan and its long term policy;
|
b. |
The creation of proper incentives for the office holders while taking into consideration,
inter alia, the company’s risk management policies; |
c. |
The company’s size and nature of its operations; |
d. |
The contributions of the relevant office holders in achieving the goals of the company
and profit in the long term in light of their positions; |
e. |
The education, skills, expertise and achievements of the relevant office holders;
|
f. |
The role of the office holders, areas of their responsibilities and previous agreements
with them; |
g. |
The correlation of the proposed compensation with the compensation of other employees
of the company, and the effect of such differences in compensation on the employment relations in the company; and |
h. |
The long term performance of the office holder. |
(i) |
the majority of the votes includes at least a majority of all the votes of shareholders
who are not controlling shareholders of the company or who do not have a personal interest in the compensation policy and participating
in the vote; abstentions shall not be included in the total of the votes of the aforesaid shareholders; or |
(ii) |
the total of opposing votes from among the shareholders described in Sub-section (i)
above does not exceed 2% of all the voting rights in the company. |
|
Female |
Male |
Non-Binary |
Did Not Disclose Gender
|
Directors |
1 |
4 |
0 |
0 |
Underrepresented Individual in Home Country Jurisdiction
|
0 |
LGBTQ+ |
0 |
Did Not Disclose Demographic Background |
0 |
As of December 31, |
2021
|
2022
|
2023
|
|||||||||
Total Employees |
315 |
306 |
246 |
|||||||||
Marketing, Sales, Customer Services |
25 |
27 |
25 |
|||||||||
Research & Development |
135 |
134 |
125 |
|||||||||
Manufacturing |
138 |
127 |
80 |
|||||||||
Corporate Operations and Administration |
17 |
18 |
16 |
Name
|
Number of Shares and Options Owned1
|
Percent of Outstanding Shares
|
||||||
Avi Eizenman |
277,418 |
4.44 |
% | |||||
Shaike Orbach |
* |
* |
||||||
Eli Doron |
* |
* |
||||||
Ayelet Aya Hayak |
* |
* |
||||||
Ilan Erez |
* |
* |
||||||
Liron Eizenman |
* |
* |
||||||
Eran Gilad |
* |
* |
||||||
All directors and office holders as a group |
289,818 |
4.64 |
% |
* |
Denotes ownership of less than 1% of the outstanding shares. |
(1) |
The table above includes the number of shares and options that are exercisable within 60 days of March 31, 2024. Ordinary shares
subject to these options are deemed beneficially owned for the purpose of computing the ownership percentage of the person or group holding
these options, but are not deemed outstanding for purposes of computing the ownership percentage of any other person. Except where otherwise
indicated, and subject to applicable community property laws, based on information furnished to us by such owners or otherwise disclosed
in any public filings, to our knowledge, the persons and entities named in the table have sole voting and dispositive power with respect
to all shares shown as beneficially owned by them. |
Name
of Shareholder |
Number
of Shares and Options Owned(1) |
Percentage
of Outstanding Shares |
Systematic Financial Management, LP (2)
|
619,912 |
10.06% |
Wellington Management Group LLP (3)
|
507,178 |
8.23% |
First Wilshire Securities Management, Inc. (4)
|
499,563 |
8.10% |
(1) |
The table above includes the number of shares and options that are exercisable within
60 days of March 31, 2024. Ordinary shares subject to these options are deemed beneficially owned for the purpose of computing the ownership
percentage of the person or group holding these options, but are not deemed outstanding for purposes of computing the ownership percentage
of any other person. Except where otherwise indicated, and subject to applicable community property laws, based on information furnished
to us by such owners or otherwise disclosed in any public filings, to our knowledge, the persons and entities named in the table have
sole voting and dispositive power with respect to all shares shown as beneficially owned by them. All the information detailed in this
table is as set forth in major shareholders' public filings, unless stated otherwise. |
(2) |
As reported on Schedule 13G filed by Systemic Financial Management, LP with the SEC
on February 13, 2024. |
(3) |
As reported on Schedule 13G/A filed by Wellington Management Group LLP, Wellington
Group Holdings LLP, Wellington Investment Advisors Holdings LLP and Wellington Management Company LLP with the SEC on February 8, 2024.
The securities as to which the Schedule was filed are owned of record by clients of one or more investment advisers, which are directly
or indirectly owned by Wellington Management Group LLP, the identities of which are set forth in Exhibit A of such Schedule 13G/A.
|
(4) |
As reported on Schedules 13G/A filed by First Wilshire Securities Management, Inc.
with the SEC on February 12, 2024. |
• |
Gross monthly base salary of NIS 70,000.
|
• |
Entitlement to the Chief Executive Officer annual bonus upon the terms and in accordance
with the formula approved by the Company’s shareholders at the Annual General Meeting held on June 8, 2016 (the “CEO
Bonus”),
|
• |
Standard social benefits package applicable to all full-time employees of the Company.
|
• |
Severance/Termination provisions. |
PERIOD |
LOW |
HIGH |
||||||
March 2024 |
14.80 |
15.90 |
||||||
February 2024 |
14.98 |
17.26 |
||||||
January 2024 |
16.74 |
19.04 |
||||||
December 2023 |
16.24 |
18.83 |
||||||
November 2023 |
14.00 |
17.01 |
||||||
October 2023 |
13.75 |
26.10 |
||||||
FINANCIAL QUARTERS DURING THE PAST TWO YEARS |
||||||||
First Quarter 2024 |
14.80 |
19.04 |
||||||
Fourth Quarter 2023 |
13.75 |
26.10 |
||||||
Third Quarter 2023 |
24.07 |
40.70 |
||||||
Second Quarter 2023 |
33.25 |
37.79 |
||||||
First Quarter 2023 |
35.25 |
50.00 |
||||||
Fourth Quarter 2022 |
34.36 |
46.94 |
||||||
Third Quarter 2022 |
32.30 |
44.47 |
||||||
Second Quarter 2022 |
31.30 |
39.57 |
||||||
FIVE MOST RECENT FULL FINANCIAL YEARS |
||||||||
2023 |
13.75 |
50.00 |
||||||
2022 |
31.30 |
51.66 |
||||||
2021 |
36.02 |
59.27 |
||||||
2020 |
20.93 |
42.55 |
||||||
2019 |
28.59 |
40.36 |
• |
Appointment or termination of our auditors;
|
• |
Appointment and dismissal of external directors, unless the company elects to opt-in
to the exemptions promulgated under the Amendment to the Relief Regulations as detailed above, under which there is no requirement to
appoint external directors;
|
• |
Approval of interested party acts and transactions requiring general meeting approval
as provided in Sections 255 and 268 to 275 of the Companies Law;
|
• |
A merger as provided in Section 320(a) of the Companies Law;
|
• |
The exercise of the powers of the board of directors, if the board of directors is
unable to exercise its powers and the exercise of any of its powers is vital for our proper management, as provided in Section 52(a) of
the Companies Law;
|
• |
Amendments to our Articles of Association; and
|
• |
Approval of an increase or decrease of the registered share capital. |
• |
All of the directors are permitted to vote on the matter and attend the meeting in
which the matter is considered; and
|
• |
The matter requires approval of the shareholders at a general meeting. |
1. |
A private placement that meets all of the following conditions: |
• |
The private placement will increase the relative holdings of a shareholder that holds
five percent or more of the company's outstanding share capital, assuming the exercise of all of the securities convertible into shares
held by that person, or that will cause any person to become, as a result of the issuance, a holder of more than five percent of the company's
outstanding share capital.
|
• |
20 percent or more of the voting rights in the company prior to such issuance are
being offered.
|
• |
All or part of the consideration for the offering is not cash or registered securities,
or the private placement is not being offered at market terms. |
2. |
A private placement which results in anyone becoming a "controlling shareholder" of
the public company. |
• |
Any amendment to the articles of association;
|
• |
An increase of the company's authorized share capital;
|
• |
A merger; or
|
• |
Approval of interested party acts and transactions that require general meeting approval
as provided in Sections 255 and 268 to 275 of the Companies Law. |
• |
Distribution
of annual and quarterly reports to shareholders – Under Israeli law we are not required to distribute annual
and quarterly reports directly to shareholders and the generally accepted business practice in Israel is not to distribute such reports
to shareholders. We do however make our audited financial statements available to our shareholders prior to our annual general meeting
and furnish our quarterly and annual financial results with the SEC on Form 6-K.
|
• |
Independence,
Nomination and Compensation of Directors – A majority of our board of directors may not necessarily be comprised
of independent directors as defined in NASDAQ Listing Rule 5605(a)(2). Our board of directors contains two external directors in accordance
with the provisions of the Companies Law. Israeli law does not require, nor do our external directors conduct, regularly scheduled meetings
at which only they are present. In addition, with the exception of our external directors, our directors are elected to our board of directors
in accordance with the provisions set forth in our amended and restated Articles of Association, as approved by our shareholders on the
Annual General Meeting which took place on June 8, 2016. According to our amended and restated Articles of Association, directors are
divided into three groups, Group A, Group B and Group C. Each group is brought for re-election once every three years, on a rotating basis,
such that at each annual general meeting of the shareholders a given group of directors is brought for election, to serve on a continuous
basis for a three-year term, until the third annual general meeting following the meeting on which such group was elected for service
and until their respective successors are duly elected, at which point their term in office shall expire. At each annual general meeting,
the annual general meeting shall be entitled to elect directors to replace the directors whose three-year term in office has expired,
and so on ad infinitum, so that each year, the term in office of one group of directors shall expire. The nominations for director which
are presented to our shareholders are generally made by our board of directors. One or more shareholders of a company holding at least
one percent of the voting power of the company may nominate a currently serving external director for an additional three-year term. Israeli
law does not require the adoption of, and our board has not adopted, a formal written charter or board resolution addressing the nomination
process and related matters. Compensation of our directors and other office holders of the Company is determined in accordance with Israeli
law. |
• |
Audit Committee –
Our audit committee does not meet with all the requirements of NASDAQ Listing Rule 5605. We are of the opinion that the members of our
audit committee comply with the requirements of NASDAQ Listing Rule 5605(c)(3) and Rule 10A-3(b) of the general rules and regulations
promulgated under the Securities Act of 1933 and all requirements under Israeli law. Our audit committee has not adopted a formal written
audit committee charter specifying the items enumerated in NASDAQ Listing Rule 5605(c)(1).
|
• |
Compensation
Committee – We follow the provisions of the Companies Law with respect to matters in connection with the composition
and responsibilities of our compensation committee, office holder compensation, and any required approval by the shareholders of such
compensation. Israeli law, and our amended and restated Articles of Association, do not require that a compensation committee composed
solely of independent members of our board of directors determine (or recommend to the board of directors for determination) an executive
officer's compensation, as required under NASDAQ's listing standards related to compensation committee independence and responsibilities;
nor do they require that the Company adopt and file a compensation committee charter. Instead, our compensation committee has been established
and conducts itself in accordance with provisions governing the composition of and the responsibilities of a compensation committee as
set forth in the Companies Law. Furthermore, the compensation of office holders is determined and approved by our compensation committee
and our Board of Directors, and in certain circumstances by our shareholders, either in consistency with our previously approved Executive
Compensation Policy or, in special circumstances in deviation therefrom, taking into account certain considerations set forth in the Companies
Law. The requirements for shareholder approval of any office holder compensation, and the relevant majority or special majority for such
approval, are all as set forth in the Companies Law. Thus, we will seek shareholder approval for all corporate actions with respect to
office holder compensation requiring such approval under the requirements of the Companies Law, including seeking prior approval of the
shareholders for the Executive Compensation Policy and for certain office holder compensation, rather than seeking approval for such corporate
actions in accordance with NASDAQ Listing Rules. |
• |
Quorum –
Under Israeli law a company is entitled to determine in its articles of association the number of shareholders and percentage of holdings
required for a quorum at a shareholders meeting. Our Articles of Association provide that a quorum of two or more shareholders, present
in person or by proxy, holding shares conferring in the aggregate more than thirty-three and a third (33 1/3 %) percent of the voting
power of the Company is required for commencement of business at a general meeting.
|
• |
Approval
of Related Party Transactions – All related party transactions are approved in accordance with the requirements
and procedures for approval of interested party acts and transactions, set forth in Sections 268 to 275 of the Companies Law.
|
• |
Shareholder
Approval – We seek shareholder approval for all corporate action requiring such approval, in accordance with
the requirements of the Companies Law.
|
• |
Equity Compensation
Plans – We do not necessarily seek shareholder approval for the establishment of, and amendments to, stock option
or equity compensation plans (as set forth in NASDAQ Listing Rule 5635(c)), as such matters are not subject to shareholder approval under
Israeli law. We will attempt to seek shareholder approval for our stock option or equity compensation plans (and the relevant annexes
thereto) to the extent required in order to ensure they are tax qualified for our employees in the United States. However, even if such
approval is not received, then the stock option or equity compensation plans will continue to be in effect, but the Company will be unable
to grant options to its U.S. employees that qualify as Incentive Stock Options for U.S. federal tax purpose. Our stock option or other
equity compensation plans are also available to our non-U.S. employees, and provide features necessary to comply with applicable non-U.S.
tax laws. |
(a) |
Amortization of expenses incurred in connection with certain public securities issuances over a three-year period; and |
(b) |
Accelerated depreciation rates on know-how, patents and/or right to use a patent or certain other intangible property rights.
|
2023 |
2022 |
|||||||
Audit Fees(1)
|
$ |
120,000 |
$ |
120,000 |
||||
Audit-Related Fees(2)
|
- |
$ |
7,500 |
|||||
Tax Fees(3)
|
$ |
22,454 |
$ |
50,128 |
(1) |
Audit Fees consist of fees for professional services rendered for the audit of the Company's annual consolidated financial statements
and services normally provided by the independent auditor in connection with statutory and regulatory filings or engagements. |
(2) |
Audit-Related Fees consist of accounting consultation and consultation on financial accounting standards, not arising as part of
the audit, as well as procedures performed over registration statements. |
(3) |
Tax Fees are the aggregate fees billed for professional services rendered for tax compliance, transfer pricing studies, and tax advice
other than in connection with the Audit. Tax compliance involves audit of original and amended tax returns, tax planning and tax advice.
|
Period
|
Total Number of Shares Purchased (1) |
Average Price Paid per
Share (US$) |
Total Number of Shares
Purchased as Part of Publicly Announced Plan |
Approximate
Dollar Value that May
Yet Be Purchased Under the Plan (US$) |
||||||||||||
May 8, 2023 - May 31, 2023 |
11,900 |
34.721 |
11,900 |
14,586,818 |
||||||||||||
June 1, 2023 - June 30, 2023 |
13,825 |
36.187 |
25,725 |
14,086,530 |
||||||||||||
July 1, 2023 - July 31, 2023 |
13,361 |
37.441 |
39,086 |
13,586,285 |
||||||||||||
August 1 2023 - August 31, 2023 |
69,960 |
26.729 |
109,046 |
11,716,329 |
||||||||||||
September 1 2023 - September 30, 2023 |
61,035 |
25.875 |
170,081 |
10,137,053 |
||||||||||||
October 1, 2023 - October 31, 2023 |
62,725 |
21.991 |
232,806 |
8,757,695 |
||||||||||||
November 1, 2023 - November 30, 2023 |
100,770 |
15.393 |
333,576 |
7,206,570 |
||||||||||||
December 1, 2023 - December 31, 2023 |
86,081 |
17.616 |
419,657 |
5,690,145 |
• |
We are not required to distribute annual and quarterly reports directly to shareholders,
but we do make our audited financial statements available to our shareholders prior to our annual general meeting and furnish our quarterly
and annual financial results with the SEC on Form 6-K; |
• |
A majority of our Board of Directors may not necessarily be comprised of independent
directors as defined in the NASDAQ Listing Rules, however, a majority of our audit committee are independent directors in accordance with
NASDAQ Listing Rule 5605(a)(2). Our directors are elected to our Board of Directors in accordance with the new directors voting mechanism
approved by our shareholders on the Annual General Meeting which took place on June 8, 2016. According to said directors voting mechanism,
directors are divided into three groups, Group A, Group B and Group C. Each group is brought for re-election once every three years, on
a rotating basis, such that at each annual general meeting of the shareholders a given group of directors is brought for election, to
serve on a continuous basis for a three-year term, until the third annual general meeting following the meeting on which such group was
elected for service and until their respective successors are duly elected, at which point their term in office shall expire. At each
annual general meeting, the annual general meeting shall be entitled to elect directors to replace the directors whose three-year term
in office has expired, and so on ad infinitum, so that each year, the term in office of one group of directors shall expire. The nominations
for director which are presented to our shareholders are generally made by our board of directors. Pursuant to the Companies Law, one
or more shareholders of a company holding at least one percent of the voting power of the company may nominate a currently serving external
director for an additional three-year term. Israeli law does not require the adoption of, and our board has not adopted, a formal written
charter or board resolution addressing the nomination process and related matters. Compensation of our directors and other office holders
of the Company is determined in accordance with Israeli law; |
• |
Our audit committee has not adopted a formal written audit committee charter specifying
the items enumerated in NASDAQ Listing Rule 5605(c)(1). We believe that the members of our audit committee comply with the requirements
of the Israeli law, as well as NASDAQ Listing Rule 5605(c)(3) and Rule 10A-3(b) of the general rules and regulations promulgated under
the Securities Act of 1933. For a detailed discussion please refer to "Item 6 – Directors, Senior Management and Employees –
Audit Committee";
|
• |
As opposed to NASDAQ Listing Rule 5620(c)(3), which sets forth a minimum quorum for
a shareholders meeting, under Israeli law a company is entitled to determine in its articles of association the number of shareholders
and percentage of holdings required for a quorum at a shareholders meeting. Our current Articles of Association provide that a quorum
of two or more shareholders, present in person or by proxy, holding shares conferring in the aggregate more than thirty-three and a third
(33 1/3 %) percent of the voting power of the Company is required;
|
• |
All related party transactions are approved in accordance with the requirements and
procedures for approval of interested party acts and transactions set forth in the Companies Law, and are not subject to the review process
set forth in NASDAQ Listing Rule 5630. For a detailed discussion please refer to "Item 10 – Additional Information – the Companies
Law";
|
• |
We seek shareholder approval for all corporate action requiring such approval in accordance
with the requirements of the Companies Law rather than under the requirements of the NASDAQ Marketplace Rules, including (but not limited
to) the appointment or termination of auditors, appointment and dismissal of directors, approval of interested party acts and transactions
requiring general meeting approval as discussed above and a merger;
|
• |
We follow the provisions of the Companies Law with respect to matters in connection
with the composition and responsibilities of our compensation committee, office holder compensation, and any required approval by the
shareholders of such compensation. Israeli law, and our amended and restated Articles of Association, do not require that a compensation
committee composed solely of independent members of our board of directors determine (or recommend to the board of directors for determination)
an executive officer's compensation, as required under NASDAQ listing standards related to compensation committee independence and responsibilities;
nor do they require that the Company adopt and file a compensation committee charter. Instead, our compensation committee has been established
and conducts itself in accordance with provisions governing the composition of and the responsibilities of a compensation committee as
set forth in the Companies Law. Furthermore, the compensation of office holders is determined and approved by our compensation committee
and our board of directors, and in certain circumstances by our shareholders, either in consistency with our previously approved Executive
Compensation Policy or, in special circumstances in deviation therefrom, taking into account certain considerations set forth in the Companies
Law. The requirements for approval by the shareholders for any office holder compensation, and the relevant majority or special majority
for such approval, are all as set forth in the Companies Law. Thus, we will seek shareholder approval for all corporate actions with respect
to office holder compensation requiring such approval under the requirements of the Companies Law, including seeking prior approval of
the shareholders for the Executive Compensation Policy and for certain office holder compensation, rather than seeking approval for such
corporate actions in accordance with NASDAQ Listing Rules; and |
• |
We do not necessarily seek shareholder approval for the establishment of, and amendments
to, stock option or equity compensation plans (as set forth in NASDAQ Listing Rule 5635(c)), as such matters are not subject to shareholder
approval under Israeli law. We will attempt to seek shareholder approval for our stock option or equity compensation plans (and the relevant
annexes thereto) to the extent required in order to ensure they are tax qualified for our employees in the United States. However, if
such approval is not received, then the stock option or equity compensation plans will continue to be in effect, but the Company will
be unable to grant options to its U.S. employees that qualify as Incentive Stock Options for U.S. federal tax purpose. Our stock option
or other equity compensation plans are also available to our non-U.S. employees, and provide features necessary to comply with applicable
non-U.S. tax laws.
|
• |
Our Board of Directors determined that the
Company meets all of the requirements of the Israeli Companies Regulations (Relief for Companies Whose Shares Are Registered for Trading
Outside of Israel), 2000 (the "Regulations"), pursuant to which Israeli companies which meet all
of the following conditions may opt-out of certain Israeli regulations governing the appointment of external directors and the composition
of the audit and compensation committees (the "Israeli Dahatz Rules"): (1) the Company's shares
are listed on a foreign stock exchange which is referenced in Section 5A(c) of the Regulations, which includes, among others, the New
York Stock Exchange (NYSE); NASDAQ Global Select Market; and NASDAQ Global Market; (2) the Company does not have a controlling shareholder;
and (3) the Company complies with the requirements of the foreign securities laws and stock exchange regulations relating to appointment
of independent directors and composition of the audit and compensation committees as applicable to companies which are incorporated under
the laws of such foreign countries. The Board of Directors approved the opt-out of the Israeli Dahatz Rules and follow the requirements
of the NASDAQ Listing Rules and the rules under the Securities Act relating to appointment of independent directors and composition of
the audit and compensation committees which are applicable to companies which are incorporated under the laws of the United States, effective
July 29, 2020. |
1.1 |
4.1 |
4.2 |
4.3 |
4.5 |
4.6 |
4.7 |
4.8 |
4.9 |
4.10 |
8.1 |
11.1 |
12.1 |
12.2 |
13.1 |
13.2 |
15.1 |
(*) |
Filed herewith. |
|
SILICOM LIMITED |
|
|
|
By:/s/ Liron Eizenman
Liron Eizenman
Chief Executive Officer |
Silicom Ltd.
Page
|
|
Report of Independent Registered Public Accounting Firm (PCAOB id:
|
F - 3
|
F - 6
|
|
F - 8
|
|
F - 9
|
|
F - 10
|
|
F - 11
|
Report of Independent Registered Public Accounting Firm
/s/
|
Certified Public Accountants (Isr.)
|
A member firm of PricewaterhouseCoopers International Limited
|
|
March 18, 2024
|
Consolidated Balance Sheets as of December 31
|
2022
|
2023
|
||||||||||
Note
|
US$ thousands
|
US$ thousands
|
|||||||||
Assets
|
|||||||||||
Current assets
|
|||||||||||
Cash and cash equivalents
|
3
|
|
|
||||||||
Marketable securities
|
2F, 4
|
|
|
||||||||
Accounts receivable:
|
|||||||||||
Trade, net
|
2G
|
|
|
|
|||||||
Other
|
5
|
|
|
||||||||
Inventories
|
6
|
|
|
||||||||
Total current assets
|
|
|
|||||||||
Marketable securities
|
2F, 4
|
|
|
||||||||
Assets held for employees' severance benefits
|
11
|
|
|
||||||||
Deferred tax assets
|
15G
|
|
|
|
|||||||
Property, plant and equipment, net
|
7
|
|
|
||||||||
Intangible assets, net
|
8
|
|
|
||||||||
Operating leases right-of-use, net
|
10
|
|
|
||||||||
Goodwill
|
16
|
|
|
||||||||
Total assets
|
|
|
Avi Eizenman
|
Liron Eizenman
|
Eran Gilad
|
||
Chairman of the Board of Directors
|
Chief Executive Officer
|
Chief Financial Officer
|
Consolidated Balance Sheets as of December 31 (Continued)
|
2022
|
2023
|
||||||||||
Note
|
US$ thousands
|
US$ thousands
|
|||||||||
Liabilities and shareholders' equity
|
|||||||||||
Current liabilities
|
|||||||||||
Trade accounts payable
|
|
|
|||||||||
Other accounts payable and accrued expenses
|
9
|
|
|
||||||||
Operating lease liabilities
|
10
|
|
|
||||||||
Total current liabilities
|
|
|
|||||||||
Long-term liabilities
|
|||||||||||
Operating lease liabilities
|
10
|
|
|
||||||||
Liability for employees' severance benefits
|
11
|
|
|
||||||||
Deferred tax liabilities
|
15G
|
|
|
|
|||||||
Total liabilities
|
|
|
|||||||||
Shareholders' equity
|
12
|
||||||||||
Ordinary shares, ILS
|
|||||||||||
authorized;
|
|||||||||||
December 31, 2022 and 2023, respectively;
|
|||||||||||
|
|||||||||||
December 31, 2022 and 2023, respectively
|
|
|
|||||||||
Additional paid-in capital
|
|
|
|||||||||
Treasury shares (at cost)
|
|||||||||||
December 31, 2022 and 2023, respectively
|
(
|
)
|
(
|
)
|
|||||||
Retained earnings
|
|
|
|||||||||
Total shareholders' equity
|
|
|
|||||||||
Total liabilities and shareholders’ equity
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Operations for the Year Ended December 31
|
2021
|
2022
|
2023
|
|||||||||||||
US$ thousands
|
|||||||||||||||
Note
|
Except for share and per share data
|
||||||||||||||
Sales
|
2N, 13
|
|
|
|
|||||||||||
Cost of sales
|
|
|
|
||||||||||||
Gross profit
|
|
|
|
||||||||||||
Operating expenses
|
|||||||||||||||
Research and development
|
|
|
|
||||||||||||
Sales and marketing
|
|
|
|
||||||||||||
General and administrative
|
|
|
|
||||||||||||
Impairment of goodwill
|
|
|
|
||||||||||||
Total operating expenses
|
|
|
|
||||||||||||
Operating income (loss)
|
|
|
(
|
)
|
|||||||||||
Financial income (expenses), net
|
14
|
(
|
)
|
|
|
||||||||||
Income (loss) before income taxes
|
|
|
(
|
)
|
|||||||||||
Income taxes
|
15
|
|
|
(
|
)
|
||||||||||
Net income (loss)
|
|
|
(
|
)
|
|||||||||||
Income per share:
|
|||||||||||||||
Basic income (loss) per ordinary share (US$)
|
2U
|
|
|
|
(
|
)
|
|||||||||
Diluted income (loss) per ordinary share (US$)
|
|
|
(
|
)
|
|||||||||||
Weighted average number of ordinary
|
|||||||||||||||
shares used to compute basic income (loss)
|
|||||||||||||||
per share (in thousands)
|
|
|
|
||||||||||||
Weighted average number of ordinary
|
|||||||||||||||
shares used to compute diluted income (loss)
|
|||||||||||||||
per share (in thousands)
|
|
|
|
Consolidated Statements of Changes in Shareholders' Equity
|
Ordinary shares
|
Additional paid-in capital
|
Treasury shares(3)
|
Retained earnings
|
Total shareholders’ equity
|
||||||||||||||||||||
Number
of shares(1)
|
US$ thousands
|
|||||||||||||||||||||||
Balance at January 1, 2021
|
|
|
|
(
|
)
|
|
|
|||||||||||||||||
Purchase of treasury shares
|
(
|
)
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||
Reissuance of treasury shares under
share-based compensation plan
|
|
*
|
|
|
|
|
||||||||||||||||||
Share-based compensation
|
-
|
|
|
|
|
|
||||||||||||||||||
Net income
|
-
|
|
|
|
|
|
||||||||||||||||||
Balance at December 31, 2021
|
|
|
|
(
|
)
|
|
|
|||||||||||||||||
Purchase of treasury shares
|
(
|
)
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||
Reissuance of treasury shares under
share-based compensation plan
|
|
|
(
|
)
|
|
(
|
)
|
|
||||||||||||||||
Share-based compensation
|
-
|
|
|
|
|
|
||||||||||||||||||
Net income
|
-
|
|
|
|
|
|
||||||||||||||||||
Balance at December 31, 2022
|
|
|
|
(
|
)
|
|
|
|||||||||||||||||
Exercise of options and RSUs(2) |
|
|||||||||||||||||||||||
Purchase of treasury shares
|
(
|
)
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||
Reissuance of treasury shares under
share-based compensation plan
|
|
*
|
|
|
|
|
||||||||||||||||||
Share-based compensation
|
-
|
|
|
|
|
|
||||||||||||||||||
Net income (loss)
|
-
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||
Balance at December 31, 2023
|
|
|
|
(
|
)
|
|
|
(1)
|
Net of shares held by Silicom Inc. and Silicom Ltd.
|
(2) |
Restricted share units (hereinafter - "RSUs"). |
(3)
|
Company shares held by the Company. Presented as a reduction of equity at their cost to the Company.
The treasury shares have no rights.
|
*
|
Less than 1 thousand.
|
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Cash Flows for the Year Ended December 31
|
2021
|
2022
|
2023
|
||||||||||
US$ thousands
|
||||||||||||
Cash flows from operating activities
|
||||||||||||
Net income (loss)
|
|
|
(
|
)
|
||||||||
Adjustments required to reconcile net income to
|
||||||||||||
net cash provided by (used in) operating activities:
|
||||||||||||
Depreciation and amortization
|
|
|
|
|||||||||
Impairment of intangible assets
|
|
|
|
|||||||||
Impairment of goodwill
|
|
|
|
|||||||||
Write-down of obsolete inventory
|
|
|
|
|||||||||
Changes in marketable securities
|
|
(
|
)
|
(
|
)
|
|||||||
Share-based compensation expense
|
|
|
|
|||||||||
Deferred taxes, net
|
|
|
(
|
)
|
||||||||
Changes in assets and liabilities:
|
||||||||||||
Accounts receivable - trade
|
(
|
)
|
|
|
||||||||
Accounts receivable - other
|
|
|
(
|
)
|
||||||||
Change in liability for employees' severance benefits, net
|
|
|
(
|
)
|
||||||||
Inventories
|
(
|
)
|
(
|
)
|
|
|||||||
Trade accounts payable
|
|
(
|
)
|
(
|
)
|
|||||||
Other accounts payable and accrued expenses
|
|
(
|
)
|
(
|
)
|
|||||||
Net cash provided by (used in) operating activities
|
|
(
|
)
|
|
||||||||
Cash flows from investing activities
|
||||||||||||
Proceeds from short term bank deposits
|
|
|
|
|||||||||
Purchase of property, plant and equipment
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Investment in intangible assets
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Proceeds from maturity of marketable securities
|
|
|
|
|||||||||
Purchases of marketable securities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Other
|
|
|
|
|||||||||
Net cash provided by (used in) investing activities
|
|
|
(
|
)
|
||||||||
Cash flows from financing activities
|
||||||||||||
Exercise of options and RSUs |
||||||||||||
Purchase of treasury shares
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Proceeds from reissuance of treasury shares upon exercise of options
|
|
|
|
|||||||||
Net cash used in financing activities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Effect of exchange rate changes on cash balances held
|
|
(
|
)
|
(
|
)
|
|||||||
Increase in cash and cash equivalents
|
|
|
|
|||||||||
Cash and cash equivalents at beginning of year
|
|
|
|
|||||||||
Cash and cash equivalents at end of year
|
|
|
|
|||||||||
Supplementary cash flow information
|
||||||||||||
A. Non-cash transactions:
|
||||||||||||
Additions of right of use assets and lease liabilities
|
|
|
|
|
||||||||
Termination of lease agreements | ( |
) |
||||||||||
Investments in property, plant and equipment
|
|
|
|
|||||||||
|
|
(
|
)
|
|||||||||
B. Cash paid (received) during the year for:
|
||||||||||||
Income taxes
|
|
(
|
)
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
On 7 October 2023, Hamas terrorists infiltrated into Israel from Gaza and carried out a terrorist attack on Israeli communities. Israeli forces subsequently began a counter-attack in Gaza, and the Israeli government has declared that Israel is at war. The war between Israel and Hamas may affect the security situation in Israel and therefore could adversely affect the Company's business, financial condition and results of operations. As of December 31, 2023, the war did not have a material effect of the Company's business, financial condition and results of operations.
F - 11
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
A. |
Financial statements in US dollars
|
B. |
Basis of presentation
|
F - 12
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
C. |
Estimates and assumptions
|
D. |
Cash and cash equivalents
|
E. |
Marketable securities
|
F - 13
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
F. |
Trade accounts receivable, net
|
G. |
Inventories
|
H. |
Assets held for employees’ severance benefits
|
I. |
Property, plant and equipment
|
%
|
|
Machinery and equipment
|
|
Office furniture and equipment
|
|
Leasehold improvements
|
|
F - 14
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
J. |
Goodwill and other intangible assets
|
K. |
Impairment of long-lived assets
|
F - 15
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
L. |
Leases
|
The Company’s lease agreements have remaining lease terms of
Some of our vehicle lease agreements include rental payments based on the actual usage of the vehicles and other lease agreements include rental payments adjusted periodically for inflation. The agreements related to leases in Israel are in Israeli Shekel ("ILS") or in ILS linked to the Israeli Consumer Price Index or to the US Dollars. The agreements related to leases in the USA are in US Dollars and the agreements related to leases in Denmark are in Danish Krone ("DKK"). The Company’s lease agreements do not contain any residual value guarantees. See Note 10.
F - 16
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
M. |
Revenue recognition
|
N. |
Cost of sales
|
O. |
Research and development costs and capitalized software development costs
|
Amortization begins once the software is ready for its intended use, generally based on the pattern in which the economic benefits will be consumed. The amortization of these costs is included in cost of revenue over the estimated life of the products. Other costs incurred in the research and development of the Company’s products are expensed as incurred.
F - 17
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
P. |
Allowance for product warranty
|
Q. |
Treasury shares
|
R. |
Income taxes
|
S. |
Share-based compensation
|
F - 18
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
S. |
Share-based compensation (cont’d)
|
T. |
Basic earnings (loss) and diluted earnings (loss) per share
|
Year ended December 31
|
||||||||||||
2021
|
2022
|
2023
|
||||||||||
Net earnings (loss) attributable to ordinary shares
|
||||||||||||
(US$ thousands)
|
|
|
(
|
)
|
||||||||
Weighted average number of ordinary shares outstanding
|
||||||||||||
used in basic earnings (loss) per ordinary share calculation
|
|
|
|
|||||||||
Add of outstanding dilutive potential ordinary shares
|
|
|
|
|||||||||
Weighted average number of ordinary shares outstanding
|
||||||||||||
used in diluted earnings (loss) per ordinary share calculation
|
|
|
|
|||||||||
Basic earnings (loss) per ordinary shares (US$)
|
|
|
(
|
)
|
||||||||
Diluted earnings (loss) per ordinary shares (US$)
|
|
|
(
|
)
|
||||||||
Weighted average number of shares related to options
|
||||||||||||
and RSUs excluded from the diluted earnings per share
|
||||||||||||
calculation because of anti-dilutive effect
|
|
|
|
F - 19
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
U.
|
Comprehensive Income
|
V.
|
Fair Value Measurements
|
F - 20
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
W.
|
Concentrations of risks
|
(1)
|
Credit risk
|
(2)
|
Significant customers
|
X.
|
Liabilities for loss contingencies
|
Y.
|
New accounting pronouncements
|
F - 21
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 3 - Cash and Cash Equivalents
|
December 31
|
||||||||
2022
|
2023
|
|||||||
US$ thousands
|
||||||||
Cash
|
|
|
||||||
Cash equivalents *
|
|
|
||||||
|
|
*
|
Comprised mainly of bank deposits in USD as at December 31, 2022 and 2023 carrying a weighted average interest rate of
|
F - 22
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 4 - Marketable Securities
|
Gross
|
Gross
|
|||||||||||||||
unrealized
|
unrealized
|
|||||||||||||||
Amortized
|
holding
|
holding
|
Aggregate
|
|||||||||||||
cost basis**
|
gains
|
(losses)
|
fair value*
|
|||||||||||||
US$ thousands
|
||||||||||||||||
At December 31, 2023
|
||||||||||||||||
Held to maturity:
|
||||||||||||||||
Corporate debt securities and government debt securities
|
||||||||||||||||
Current
|
|
|
(
|
)
|
|
|||||||||||
Non-Current (1 to 3 years)
|
|
|
(
|
)
|
|
|||||||||||
|
|
(
|
)
|
|
||||||||||||
At December 31, 2022
|
||||||||||||||||
Held to maturity:
|
||||||||||||||||
Corporate debt securities and government debt securities
|
||||||||||||||||
Current
|
|
|
(
|
)
|
|
|||||||||||
Non-Current (1 to 4 years)
|
|
|
(
|
)
|
|
|||||||||||
|
|
(
|
)
|
|
*
|
|
**
|
Including accrued interest in the amount of US$
|
The accrued interest is presented as part of other receivables on the balance sheet. |
F - 23
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 4 - Marketable Securities (Cont’d)
|
Activity in marketable securities in 2023 and 2022
|
US$ thousands
|
|||
Balance at January 1, 2022
|
|
|||
Purchases of marketable securities
|
|
|||
Changes in marketable securities, net
|
(
|
)
|
||
Proceeds from maturity of marketable securities
|
(
|
)
|
||
Balance at January 1, 2023
|
|
|||
Purchases of marketable securities
|
|
|||
Changes in marketable securities, net
|
(
|
)
|
||
Proceeds from maturity of marketable securities
|
(
|
)
|
||
Balance at December 31, 2023
|
|
Less than 12 months
|
12 months or more
|
Total
|
||||||||||||||||||||||
Held to maturity:
|
Unrealized Losses
|
Fair value
|
Unrealized Losses
|
Fair value
|
Unrealized Losses
|
Fair value
|
||||||||||||||||||
Corporate debt securities and government debt securities
|
(
|
)
|
|
(
|
)
|
|
(
|
)
|
|
F - 24
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 5 - Other Receivables
|
December 31
|
||||||||
2022
|
2023
|
|||||||
US$ thousands
|
||||||||
Advances to suppliers
|
|
|
||||||
Government authorities
|
|
|
||||||
Prepaid expense
|
|
|
||||||
Other receivables
|
|
|
||||||
|
|
Note 6 - Inventories
|
December 31
|
||||||||
2022
|
2023
|
|||||||
US$ thousands
|
||||||||
Raw materials and components
|
|
|
||||||
Products in process
|
|
|
||||||
Finished products
|
|
|
||||||
|
|
Note 7 - Property, Plant and Equipment, Net
|
December 31
|
||||||||
2022
|
2023
|
|||||||
US$ thousands
|
||||||||
Machinery and equipment
|
|
|
||||||
Office furniture and equipment
|
|
|
||||||
Leasehold improvements
|
|
|
||||||
Property, plant and equipment
|
|
|
||||||
Accumulated depreciation
|
(
|
)
|
(
|
)
|
||||
Property, Plant and equipment, net
|
|
|
F - 25
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 8 - Intangible Assets
|
December 31
|
|||||||||||
2022
|
2023
|
||||||||||
Useful life
|
US$ thousands
|
||||||||||
Original cost:
|
|||||||||||
Capitalization of software development costs
|
|
|
|
||||||||
Licenses
|
|
|
|
||||||||
|
|
||||||||||
Accumulated amortization:
|
|||||||||||
Capitalization of software development costs
|
|
|
|||||||||
Licenses
|
|
|
|||||||||
|
|
||||||||||
Intangible assets, net:
|
|||||||||||
Capitalization of software development costs
|
|
|
|||||||||
Licenses
|
|
|
|||||||||
|
|
Note 9 - Other accounts payable and accrued expenses
|
December 31
|
||||||||
2022
|
2023
|
|||||||
US$ thousands
|
||||||||
Accrued expenses
|
|
|
||||||
Employee benefits
|
|
|
||||||
Government authorities
|
|
|
||||||
Other payables
|
|
|
||||||
|
|
F - 26
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 10 - Leases
|
A.
|
The components of operating lease cost for the year ended December 31, 2021, 2022 and 2023 were as follows:
|
Year ended
December 31
|
||||||||||||
2021
|
2022
|
2023
|
||||||||||
US$ thousands
|
||||||||||||
Operating lease costs (mainly plant and offices)
|
|
|
|
|||||||||
Variable lease payments not included in the lease liability
|
|
|
|
|||||||||
Short-term lease cost
|
|
|
|
|||||||||
Total operating lease cost
|
|
|
|
B.
|
Supplemental cash flow information related to operating leases was as follows:
|
Year ended
December 31
|
||||||||||||
2021
|
2022
|
2023
|
||||||||||
US$ thousands
|
||||||||||||
Cash paid for amounts included in the measurement of lease liabilities:
|
||||||||||||
Operating cash flows from operating leases
|
|
|
|
|||||||||
Right-of-use assets obtained in exchange for lease liabilities (non-cash):
|
||||||||||||
Additions of operating leases
|
|
|
|
|
||||||||
Termination of operating leases | ( |
) |
C.
|
Supplemental balance sheet information related to operating leases was as follows:
|
December 31
|
||||||||
2022
|
2023
|
|||||||
US$ thousands
|
||||||||
Operating leases:
|
||||||||
Operating leases right-of-use
|
|
|
||||||
Current operating lease liabilities
|
|
|
||||||
Non-current operating lease liabilities
|
|
|
||||||
Total operating lease liabilities
|
|
|
F - 27
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 10 - Leases (cont’d)
|
D.
|
Supplemental balance sheet information related to operating leases was as follows (cont’d):
|
|
December 31
|
||||||||
2022
|
2023
|
|||||||
US$ thousands
|
||||||||
Weighted average remaining lease term (years)
|
|
|
||||||
Weighted average discount rate
|
|
%
|
|
%
|
E.
|
Future lease payments under non-cancellable leases as of December 31, 2023 were as follows:
|
December 31, 2023
|
||||
US$ thousands
|
||||
2024
|
|
|||
2025
|
|
|||
2026
|
|
|||
2027
|
|
|||
2028 | ||||
After 2028
|
|
|||
Total operating lease payments
|
|
|||
Less: imputed interest
|
(
|
)
|
||
Present value of lease liabilities
|
|
F - 28
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
A. |
Under Israeli law and labor agreements, Silicom is required to make severance payments to retired or dismissed employees and to employees leaving employment in certain other circumstances.
|
B. |
According to Section 14 to the Severance Pay Law ("Section 14") the payment of monthly deposits by a Company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to the employees that have entered into agreements with the Company pursuant to such Section 14. Commencing July 1, 2008, the Company has entered into agreements with a majority of its employees in order to implement Section 14. Therefore, as of that date, the payment of monthly deposits by the Company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to those employees that have entered into such agreements and therefore the Company incurs no additional liability since that date with respect to such employees. Amounts accumulated in the pension funds or insurance policies pursuant to Section 14 are not supervised or administrated by the Company and therefore neither such amounts nor the corresponding accrual are reflected in the balance sheet.
|
C. |
Consequently, the assets held for employees' severance benefits reported on the balance sheet, in respect of deposits for those employees who have signed agreements pursuant to Section 14, represent the redemption value of deposits made through June 30, 2008. The liability for employee severance benefits, with respect to those employees, represents the liability of the Company for employees' severance benefits as of June 30, 2008.
|
D. |
Expenses recorded with respect to employees' severance payments for the years ended December 31, 2021, 2022 and 2023, mainly attributed to Section 14, were US$
|
F - 29
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
A. |
On October 21, 2013, the Board resolved to adopt the Global Share Incentive Plan (2013) (the "2013 Plan") and to reserve up to
|
B. |
Options or RSUs granted to Israeli residents may be granted under Section 102 of the Israeli Income Tax Ordinance pursuant to which the awards of options, or the ordinary shares issued upon their exercise, must be deposited with a trustee for at least two years following the date of grant. Under Section 102, any tax payable by an employee from the grant or exercise of the awards is deferred until the transfer of the awards or ordinary shares by the trustee to the employee or upon the sale of the awards or ordinary shares.
|
F - 30
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
C. |
During 2020, 2022 and 2023, the Company granted
|
1. |
The vesting period of the RSUs ranges between
|
2. |
The fair value of RSUs is estimated based on the market value of the Company’s stock on the date of grant, less an estimate of dividends that will not accrue to RSUs holders prior to vesting.
|
3. |
The Company recognizes compensation expenses on these RSUs based on estimated grant date fair value, assuming that no dividend yield is expected in any of the years.
|
F - 31
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 12 - Shareholders' Equity (cont'd)
D. |
On January 31, 2019, the Company granted, in the aggregate,
|
1. |
The exercise price for the options (per ordinary share) was US$
|
2. |
The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:
|
Average Risk-free interest rate (a)
|
|
%
|
||
Expected dividend yield
|
|
%
|
||
Average expected volatility (b)
|
|
%
|
||
Termination rate
|
|
%
|
||
Suboptimal factor (c)
|
|
(a)
|
Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
|
(b)
|
Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
|
(c)
|
Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.
|
F - 32
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 12 - Shareholders' Equity (cont'd)
E. |
On June 8, 2020, the Company granted, in the aggregate,
|
1. |
The exercise price for the options (per ordinary share) was US$
|
2. |
The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:
|
Average Risk-free interest rate (a)
|
|
%
|
||
Expected dividend yield
|
|
%
|
||
Average expected volatility (b)
|
|
%
|
||
Termination rate
|
|
%
|
||
Suboptimal factor (c)
|
|
(a)
|
Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
|
(b)
|
Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
|
(c)
|
Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.
|
F - 33
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
F. |
On June 3, 2021, the Company granted, in the aggregate,
|
1. |
The exercise price for the options (per ordinary share) was US$
|
2. |
The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:
|
Average Risk-free interest rate (a)
|
|
%
|
||
Expected dividend yield
|
|
%
|
||
Average expected volatility (b)
|
|
%
|
||
Termination rate
|
|
%
|
||
Suboptimal factor (c)
|
|
(a)
|
Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
|
(b)
|
Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
|
(c)
|
Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.
|
F - 34
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
G. |
On January 27, 2022, the Company granted, in the aggregate,
|
1. |
The exercise price for the options (per ordinary share) was US$
|
2. |
The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Monte Carlo option-pricing model with the following assumptions:
|
Average Risk-free interest rate (a)
|
|
%
|
||
Expected dividend yield
|
|
%
|
||
Average expected volatility (b)
|
|
%
|
||
Termination rate
|
|
%
|
||
Suboptimal factor (c)
|
|
(a)
|
Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
|
(b)
|
Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
|
(c)
|
Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.
|
F - 35
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
H. |
On June 7, 2022, the Company granted, in the aggregate,
|
1. |
The exercise price for the options (per ordinary share) was US$
|
2. |
The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Monte Carlo option-pricing model with the following assumptions:
|
Average Risk-free interest rate (a)
|
|
%
|
||
Expected dividend yield
|
|
%
|
||
Average expected volatility (b)
|
|
%
|
||
Termination rate
|
|
%
|
||
Suboptimal factor (c)
|
|
(a)
|
Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
|
(b)
|
Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
|
(c)
|
Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.
|
F - 36
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
I. |
On July 1, 2022, the Company granted, in the aggregate,
|
1. |
The exercise price for the options (per ordinary share) was US$
|
2. |
The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Monte Carlo option-pricing model with the following assumptions:
|
Average Risk-free interest rate (a)
|
|
%
|
||
Expected dividend yield
|
|
%
|
||
Average expected volatility (b)
|
|
%
|
||
Termination rate
|
|
%
|
||
Suboptimal factor (c)
|
|
(a)
|
Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
|
(b)
|
Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
|
(c)
|
Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.
|
F - 37
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
J. |
On June 14, 2023, the Company granted, in the aggregate,
|
1. |
The exercise price for the options (per ordinary share) was US$
|
2. |
The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Monte Carlo option-pricing model with the following assumptions:
|
Average Risk-free interest rate (a)
|
|
%
|
||
Expected dividend yield
|
|
%
|
||
Average expected volatility (b)
|
|
%
|
||
Termination rate
|
|
%
|
||
Suboptimal factor (c)
|
|
(a)
|
Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
|
(b)
|
Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
|
(c)
|
Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.
|
F - 38
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 12 - Shareholders' Equity (cont'd)
|
K.
|
The following table summarizes information regarding stock options as at December 31, 2023:
|
Options outstanding
|
Options exercisable
|
|||||||||||||||
Weighted average
|
Weighted average
|
|||||||||||||||
remaining
|
remaining
|
|||||||||||||||
Exercise price
|
Number
|
contractual life
|
Number
|
contractual life
|
||||||||||||
US$
|
of options
|
(in years)
|
of options
|
(in years)
|
||||||||||||
|
|
|
|
|
F - 39
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 12 - Shareholders' Equity (cont'd)
|
L.
|
The stock option activity under the abovementioned plans is as follows:
|
Weighted
|
Weighted |
|||||||||||
Number
|
average
exercise
|
average
grant date
|
||||||||||
of options
|
price
|
fair value
|
||||||||||
US$
|
US$
|
|||||||||||
Balance at January 1, 2021
|
|
|||||||||||
Granted
|
|
|
|
|||||||||
Exercised
|
(
|
)
|
|
|
||||||||
Forfeited
|
(
|
)
|
|
|
||||||||
Balance at December 31, 2021
|
|
|||||||||||
Granted
|
|
|
|
|||||||||
Exercised
|
(
|
)
|
|
|
||||||||
Forfeited
|
(
|
)
|
|
|
||||||||
Balance at December 31, 2022
|
|
|||||||||||
Granted
|
|
|
|
|||||||||
Exercised
|
(
|
)
|
|
|
||||||||
Forfeited
|
(
|
)
|
|
|
||||||||
Expired
|
(
|
)
|
|
|
||||||||
Balance at December 31, 2023
|
|
|||||||||||
Exercisable at December 31, 2023
|
|
F - 40
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 12 - Shareholders' Equity (cont'd)
|
M.
|
The Restricted Share Units activity under the abovementioned plans is as follows:
|
Weighted
|
||||||||
Number of
|
average
|
|||||||
Restricted
|
grant date
|
|||||||
Share Units
|
fair value
|
|||||||
US$
|
||||||||
Balance at January 1, 2021
|
|
|||||||
Granted
|
|
|||||||
Vested
|
|
|||||||
Balance at December 31, 2021
|
|
|||||||
Granted
|
|
|
||||||
Forfeited
|
(
|
)
|
|
|||||
Vested
|
(
|
)
|
|
|||||
Balance at December 31, 2022
|
|
|||||||
Granted
|
|
|
||||||
Forfeited
|
(
|
)
|
|
|||||
Vested
|
(
|
)
|
|
|||||
Balance at December 31, 2023
|
|
F - 41
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 12 - Shareholders' Equity (cont'd)
|
N.
|
During 2021, 2022 and 2023, the Company recorded share-based compensation expenses. The following summarizes the allocation of the stock-based compensation expenses:
|
Year ended December 31
|
||||||||||||
2021
|
2022
|
2023
|
||||||||||
US$ thousands
|
||||||||||||
Cost of sales
|
|
|
|
|||||||||
Research and development costs
|
|
|
|
|||||||||
Selling and marketing expenses
|
|
|
|
|||||||||
General and administrative expenses
|
|
|
|
|||||||||
|
|
|
F - 42
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Geographic areas and major customers
|
A.
|
Information on sales by geographic distribution:
|
Year ended December 31
|
||||||||||||
2021
|
2022
|
2023
|
||||||||||
US$ thousands
|
||||||||||||
USA
|
|
|
|
|||||||||
North America - other
|
|
|
|
|||||||||
Israel
|
|
|
|
|||||||||
Europe
|
|
|
|
|||||||||
Asia-Pacific
|
|
|
|
|||||||||
|
|
|
B.
|
Sales to single ultimate customers exceeding 10% of sales (US$ thousands):
|
Year ended December 31
|
||||||||||||
2021
|
2022
|
2023
|
||||||||||
US$ thousands
|
||||||||||||
Customer "A"
|
|
|
|
|||||||||
Customer "B"
|
|
|
|
F - 43
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 13 - Geographic areas and major customers (cont'd)
|
C.
|
Information on Long-Lived Assets - Property, Plant and Equipment and ROU assets by geographic areas:
|
Year ended December 31
|
||||||||
2022
|
2023
|
|||||||
US$ thousands
|
||||||||
North America
|
|
|
||||||
Europe
|
|
|
||||||
Israel
|
|
|
||||||
|
|
F - 44
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 14 - Financial Income (Expenses), Net
|
Year ended December 31
|
||||||||||||
2021
|
2022
|
2023
|
||||||||||
US$ thousands
|
||||||||||||
Interest income
|
|
|
|
|||||||||
Exchange rate differences, net
|
(
|
)
|
|
|
||||||||
Bank charges
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
(
|
)
|
|
|
F - 45
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
A. |
Measurement of results for tax purposes under the Israeli Income Tax Regulations (Rules for Maintaining Accounting Records of Foreign Invested Companies and Certain Partnerships and Determining Their Taxable Income) - 1986
|
B. |
Corporate tax rate in Israel
|
C. |
Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law")
|
1.
|
On December 29, 2010, the Knesset approved the Economic Policy Law for 2011-2012, which includes an amendment to the Law for the Encouragement of Capital Investments – 1959 (hereinafter – "the Amendment to the Law"). The Amendment to the Law is effective from January 1, 2011, and its provisions will apply to preferred income derived or accrued in 2011 and thereafter by a Preferred Company, per the definition of these terms in the Amendment to the Law.
Companies can choose to not be included in the scope of the Amendment to the Law and to stay in the scope of the law before its amendment until the end of the benefits period.
Under the Amendment to the Law, upon an irrevocable election made by a Company, a uniform corporate tax rate will apply to all preferred income of such Company. The Company elected to apply the uniform corporate tax rate as of 2014. From 2017 onwards, the uniform tax rate is to be
Should the Company derive income from sources other than the Preferred Company, such income will be taxable at the regular corporate tax rates for the applicable year.
|
F - 46
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
C. |
Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law") (cont'd)
|
On June 14, 2017, the Knesset Finance Committee approved "Encouragement of Capital Investment Regulations (Preferred Technological Income and Capital Gain of Technological Enterprise) – 2017" (hereinafter: “the Regulations”), which provides rules for applying the “preferred technological enterprise” and “special preferred technological enterprise” tax benefit tracks, including the Nexus formula that provides the mechanism for allocating the technological income eligible for the benefits.
F - 47
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
C. |
Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law") (cont'd)
|
2.
|
In the event of distribution by the Company of dividends out of its retained earnings that were generated prior to the 2014 tax year and were tax exempt under the "Approved Enterprise" or "Benefited Enterprise" status, the Company would be subjected to a maximum of
Out of the Company’s retained earnings as of December 31, 2023, approximately US$
On November 15, 2021, the Israeli Parliament released its 2021-2022 Budget Law (“2021 Budget Law”). The 2021 Budget Law introduces a new dividend ordering rule that apportions every dividend between previously tax-exempt and previously taxed income. Consequently, distributions (including deemed distributions as per Section 51(h)/51B of the Investment Law) may entail additional corporate tax liability to the distributing Company. Effective August 15, 2021, dividend distributions will be treated as if made on a pro-rata basis from all types of earnings, including Exempt Profits. If such tax-exempt income is distributed, it would be taxed at the reduced corporate tax rate applicable to such income.
|
F - 48
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
D.
|
Taxation of the subsidiaries
|
1. |
The subsidiary Silicom Inc. files tax returns with US federal tax authorities and with state tax authorities in the states of New Jersey, California, Virginia, New York, New Mexico, Tennessee, Texas and Illinois.
|
2. |
The subsidiary Silicom Denmark is taxed according to the tax laws in Denmark, subject to corporate tax of
|
3. |
The Company has not provided for Israeli income tax and foreign withholding taxes on US$
|
E.
|
Tax assessments
|
1. |
For the Israeli jurisdiction the Company has final tax assessments for all years up to and including the tax year ended December 31, 2017.
|
2. |
For the US federal jurisdiction, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2019. For the New Jersey and California state jurisdictions, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2018. For the New York and Texas state jurisdictions, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2019. For the Virginia, Tennessee, and New Mexico state jurisdictions, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2020. For the Illinois state jurisdiction, Silicom Inc. has open tax assessments for the years 2020 through 2023.
|
3. |
For the Danish jurisdiction, Silicom Denmark has final tax assessments for all years up to and including the tax year ended December 31, 2019.
|
4. |
The balance of the operating loss carryforwards as of December 31, 2023, is US$
|
F - 49
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 15 - Taxes on Income (cont'd)
|
F.
|
Income (loss) before income taxes and income taxes expense (benefit) included in the consolidated statements of operations
|
Year ended December 31
|
||||||||||||
2021
|
2022
|
2023
|
||||||||||
US$ thousands
|
||||||||||||
Income (loss) before income taxes:
|
||||||||||||
Israel
|
|
|
(
|
)
|
||||||||
Foreign jurisdictions
|
|
|
|
|||||||||
|
|
(
|
)
|
|||||||||
Current taxes:
|
||||||||||||
Israel
|
|
|
|
|||||||||
Foreign jurisdictions
|
|
|
|
|||||||||
|
|
|
||||||||||
Current tax (benefits) expenses relating
|
||||||||||||
to prior years:
|
||||||||||||
Israel
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Foreign jurisdictions
|
(
|
)
|
|
(
|
)
|
|||||||
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
Deferred taxes:
|
||||||||||||
Israel
|
|
|
(
|
)
|
||||||||
Foreign jurisdictions
|
(
|
)
|
|
(
|
)
|
|||||||
|
|
(
|
)
|
|||||||||
Income tax expense (benefit)
|
|
|
(
|
)
|
F - 50
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
G.
|
Deferred tax assets and liabilities
|
December 31
|
December 31
|
|||||||
2022
|
2023
|
|||||||
US$ thousands
|
US$ thousands
|
|||||||
Deferred tax assets:
|
||||||||
Accrued employee benefits
|
|
|
||||||
Research and development costs
|
|
|
||||||
Operating loss carryforwards
|
|
|
||||||
Share based compensation
|
|
|
||||||
Intangible assets
|
|
|
||||||
Operating lease liabilities
|
|
|
||||||
Goodwill*
|
|
|
||||||
Other
|
|
|
||||||
Total deferred tax assets
|
|
|
||||||
Deferred tax liabilities:
|
||||||||
Intangible assets
|
(
|
)
|
(
|
)
|
||||
Goodwill*
|
(
|
)
|
|
|||||
Operating leases right-of-use, net
|
(
|
)
|
(
|
)
|
||||
Total deferred tax liabilities
|
(
|
)
|
(
|
)
|
||||
Net deferred tax assets
|
|
|
||||||
In Israel
|
|
|
||||||
Foreign jurisdictions
|
(
|
)
|
(
|
)
|
||||
Net deferred tax assets
|
|
|
||||||
Non-current deferred tax assets
|
|
|
||||||
Non-current deferred tax liabilities
|
(
|
)
|
(
|
)
|
F - 51
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
Note 15 - Taxes on Income (cont'd)
|
H.
|
Reconciliation of the statutory tax expense to actual tax expense
|
Year ended December 31
|
||||||||||||
2021
|
2022
|
2023
|
||||||||||
US$ thousands
|
||||||||||||
Income (loss) before income taxes
|
|
|
(
|
)
|
||||||||
Statutory tax rate in Israel
|
|
%
|
|
%
|
|
%
|
||||||
|
|
(
|
)
|
|||||||||
Increase (decrease) in taxes resulting from:
|
||||||||||||
Non-deductible operating expenses
|
|
|
|
|||||||||
Prior years adjustments
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Tax effect due to "Preferred Enterprise" status
|
(
|
)
|
|
|
|
|
||||||
Statutory rate differential
|
(
|
)
|
|
|
||||||||
Other
|
(
|
)
|
|
|
|
|||||||
Income tax expense (benefit)
|
|
|
(
|
)
|
F - 52
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
I.
|
Accounting for uncertainty in income taxes
|
F - 53
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
F - 54
Silicom Ltd. and its Subsidiaries
Notes to the Consolidated Financial Statements
In March 2024, the Company’s compensation committee and board of directors, respectively, has approved the grant of a total of
F - 55