Silicom Ltd 6-K, filed Mar 17, 2022

Silicom Ltd. (SILC)

6-K 2022-03-17 For: 2021-12-31

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Added on April 06, 2026

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Silicom Ltd filed this 6-K on March 17, 2022.

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	SILICOM LTD. (Registrant)

Date: March 17, 2022	By	/s/ Eran Gilad
	Eran Gilad
	Chief Financial Officer

	Page
Report of Independent Registered Public Accounting Firms (PCAOB ID: 1309)	F - 3
Report of Independent Registered Public Accounting Firm (PCAOB ID: 1057)	F - 5
Consolidated Balance Sheets	F - 6
Consolidated Statements of Operations	F - 8
Consolidated Statements of Changes in Shareholders' Equity	F - 9
Consolidated Statements of Cash Flows	F - 10
Notes to the Consolidated Financial Statements	F - 11

Consolidated Balance Sheets as of December 31

		2020		2021
	Note	US$ thousands		US$ thousands

Assets

Current assets
Cash and cash equivalents	4		20,676		29,285
Short-term bank deposits	2F		5,000		-
Marketable securities	2G, 5		35,117		8,266
Accounts receivable:
Trade, net	2H		21,660		31,120
Other	6		6,126		4,693
Inventories	7		47,650		75,753

Total current assets			136,229		149,117

Marketable securities	2G, 5		15,281		23,773

Assets held for employees' severance benefits	12		1,833		1,882

Deferred tax assets	16G		1,790		1,616

Property, plant and equipment, net	8		4,110		4,576

Intangible assets, net	9		1,170		4,314

Operating leases right-of-use, net	11		9,913		8,765

Goodwill			25,561		25,561

Total assets			195,887		219,604


Avi Eizenman	Shaike Orbach	Eran Gilad
Chairman of the Board of Directors	Chief Executive Officer	Chief Financial Officer

Consolidated Balance Sheets as of December 31 (Continued)

		2020			2021
	Note	US$ thousands			US$ thousands

Liabilities and shareholders' equity

Current liabilities
Trade accounts payable			14,610			29,918
Other accounts payable and accrued expenses	10		12,953			18,582
Operating lease liabilities	11		1,813			1,811

Total current liabilities			29,376			50,311

Long-term liabilities
Operating lease liabilities	11		8,282			7,377
Liability for employees' severance benefits	12		3,256			3,443
Deferred tax liabilities	16G		136			10

Total liabilities			41,050			61,141

Shareholders' equity	13
Ordinary shares, ILS 0.01 par value; 10,000,000 shares
authorized; 7,670,033 and 7,670,033 issued as at
December 31, 2020 and 2021, respectively;
6,899,515 and 6,709,528 outstanding as at
December 31, 2020 and 2021, respectively			22			22
Additional paid-in capital			60,117			63,390
Treasury shares (at cost) 770,518 and 960,505 ordinary shares as at
December 31, 2020 and 2021, respectively			(24,807	)		(34,995	)
Retained earnings			119,505			130,046

Total shareholders' equity			154,837			158,463

Total liabilities and shareholders’ equity			195,887			219,604

Consolidated Statements of Operations for the Year Ended December 31

		2019		2020		2021
		US$ thousands
	Note	Except for share and per share data

Sales	2O, 14		105,240		107,398		128,460
Cost of sales			69,146		73,632		84,072

Gross profit			36,094		33,766		44,388

Operating expenses
Research and development			15,075		17,244		20,091
Sales and marketing			6,647		6,209		6,599
General and administrative			4,159		4,065		4,641

Total operating expenses			25,881		27,518		31,331

Operating income			10,213		6,248		13,057
Financial income, net	15		1,646		1,034		(152	)

Income before income taxes			11,859		7,282		12,905

Income taxes	16		1,623		1,557		2,364

Net income			10,236		5,725		10,541

Income per share:
Basic income per ordinary share (US$)	2U		1.361		0.804		1.544

Diluted income per ordinary share (US$)			1.352		0.800		1.513

Weighted average number of ordinary shares used to compute basic income per share (in thousands)			7,520		7,118		6,826

Weighted average number of ordinary shares used to compute diluted income per share (in thousands)			7,573		7,157		6,969

	Ordinary shares					Additional paid-in capital		Treasury shares⁽³⁾			Retained earnings		Total shareholders’ equity
	Number of shares⁽¹⁾			US$ thousands

Balance at January 1, 2019		7,559,205			22		54,621		(38	)		103,544		158,149

Exercise of options and RSUs⁽²⁾		44,500			*-		154		-			-		154
Purchase of treasury shares		(252,388	)		-		-		(7,971	)		-		(7,971	)
Share-based compensation		-			-		2,355		-			-		2,355
Net income		-			-		-		-			10,236		10,236

Balance at December 31, 2019		7,351,317			22		57,130		(8,009	)		113,780		162,923

Exercise of options and RSUs⁽²⁾		51,357			*-		276		-			-		276
Purchase of treasury shares		(503,159	)		-		-		(16,798	)		-		(16,798	)
Share-based compensation		-			-		2,711		-			-		2,711
Net income		-			-		-		-			5,725		5,725

Balance at December 31, 2020		6,899,515			22		60,117		(24,807	)		119,505		154,837

Purchase of treasury shares		(322,689	)		-		-		(14,291	)		-		(14,291	)
Reissuance of treasury shares under share-based compensation plan		132,702			*-		411		4,103			-		4,514
Share-based compensation		-			-		2,862		-			-		2,862
Net income		-			-		-		-			10,541		10,541

Balance at December 31, 2021		6,709,528			22		63,390		(34,995	)		130,046		158,463

⁽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.

Consolidated Statements of Cash Flows for the Year Ended December 31

	2019			2020			2021
	US$ thousands

Cash flows from operating activities
Net income		10,236			5,725			10,541

Adjustments required to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		1,997			2,384			2,437
Impairment of intangible assets		-			1,657			-
Write-down of obsolete inventory		2,106			1,578			5,246
Discount on marketable securities, net		144			244			621
Share-based compensation expense		2,355			2,711			2,862
Deferred taxes, net		(699	)		(61	)		48
Changes in assets and liabilities:
Accounts receivable - trade		(1,441	)		3,467			(9,472	)
Accounts receivable - other		4,385			(1,362	)		1,217
Accounts receivable - related parties		364			-			-
Change in liability for employees' severance benefits, net		175			153			138
Inventories		3,529			(13,336	)		(33,526	)
Trade accounts payable		769			(2,076	)		15,031
Other accounts payable and accrued expenses		2,824			3,872			5,936
Accounts payable - related parties		(18	)		-			-
Net cash provided by operating activities		26,726			4,956			1,079

Cash flows from investing activities
Investment in short-term bank deposits, net		(13,542	)		8,542			5,000
Purchase of property, plant and equipment		(1,441	)		(1,694	)		(2,586	)
Investment in intangible assets		(1,018	)		(1,487	)		(3,572	)
Proceeds from maturity of marketable securities		1,997			16,629			37,850
Purchases of marketable securities		(15,604	)		(6,558	)		(19,927	)
Net cash provided by (used in) investing activities		(29,608	)		15,432			16,765

Cash flows from financing activities
Exercise of options		154			276			-
Purchase of treasury shares		(7,971	)		(16,798	)		(14,291	)
Proceeds from reissuance of treasury shares upon exercise of options		-			-			4,514
Net cash used in financing activities		(7,817	)		(16,522	)		(9,777	)

Effect of exchange rate changes on cash balances held		360			341			542

Increase (decrease) in cash and cash equivalents		(10,339	)		4,207			8,609

Cash and cash equivalents at beginning of year		26,808			16,469			20,676
Cash and cash equivalents at end of year		16,469			20,676			29,285

Supplementary cash flow information
A. Non-cash transactions:
Investments in property, plant and equipment and ROU		1,621			7,548			510
B. Cash paid during the year for:
Income taxes		1,103			1,284			2,371

	%
Machinery and equipment	15 - 33
Office furniture and equipment	6 - 33
Leasehold improvements	*

	Year ended December 31
	2019		2020		2021
Net income attributable to ordinary shares (US$ thousands)		10,236		5,725		10,541

Weighted average number of ordinary shares outstanding used in basic income per ordinary share calculation		7,520,389		7,118,244		6,825,630

Add assumed exercise of outstanding dilutive potential ordinary shares		52,228		38,519		143,172

Weighted average number of ordinary shares outstanding used in diluted income per ordinary share calculation		7,572,617		7,156,763		6,968,802

Basic income per ordinary shares (US$)		1.361		0.804		1.544

Diluted income per ordinary shares (US$)		1.352		0.800		1.513

Weighted average number of shares related to options excluded from the diluted earnings per share calculation because of anti-dilutive effect		351,610		180,916		65,534

	December 31
	2020		2021
	US$ thousands

Cash		19,477		25,368
Cash equivalents *		1,199		3,917
		20,676		29,285

	Amortized cost basis**		Gross unrealized holding gains		Gross unrealized holding (losses)			Aggregate fair value*
	US$ thousands
At December 31, 2021
Held to maturity:
Corporate debt securities and government debt securities
Current		8,300		43		(19	)		8,324
Non-Current (1 to 4 years)		23,966		10		(512	)		23,464

		32,266		53		(531	)		31,788

At December 31, 2020
Held to maturity:
Corporate debt securities and government debt securities
Current		35,445		265		(102	)		35,608
Non-Current (1 to 5 years)		15,365		339		-			15,704

		50,810		604		(102	)		51,312

*	Fair value is being determined using Level 2 inputs.
**	Including accrued interest in the amount of US$ 412 thousand and US$ 227 thousand as of December 31, 2020 and 2021, respectively.

	The accrued interest is presented as part of other receivables on the balance sheet.

Activity in marketable securities in 2021	US$ thousands

Balance at January 1, 2020		61,125

Purchases of marketable securities		6,558
Discount on marketable securities, net		(244	)
Proceeds from maturity of marketable securities		(16,629	)

Balance at January 1, 2021		50,810

Purchases of marketable securities		19,927
Discount on marketable securities, net		(621	)
Proceeds from maturity of marketable securities		(37,850	)

Balance at December 31, 2021		32,266

	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		(531	)		25,814		—		—		(531	)		25,814

	Year ended December 31
	2019		2020		2021
	US$ thousands
Operating lease costs (mainly plant and offices)		1,494		1,623		1,921
Variable lease payments not included in the lease liability		2		3		8
Short-term lease cost		287		285		278
Total operating lease cost		1,783		1,911		2,207

	December 31, 2021
	US$ thousands

2022		1,813
2023		1,597
2024		1,235
2025		1,011
After 2026		4,090
Total operating lease payments		9,746
Less: imputed interest		(558	)
Present value of lease liabilities		9,188

	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.
		In respect of the liability to the employees, individual insurance policies are purchased and deposits are made with recognized severance pay funds.
		The liability for severance pay is calculated on the basis of the latest salary paid to each employee multiplied by the number of years of employment. The liability is covered by the amounts deposited including accumulated income thereon as well as by the unfunded provision.
	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.
		As a result of the implementation of Section 14, as described above, the liability with respect to those employees is calculated on the basis of number of years of employment as of June 30, 2008, multiplied by the latest salary paid. The liability is covered by the amounts deposited, including accumulated income thereon, as well as by the unfunded provision. Such liability will be removed, either upon termination of employment or retirement.
	D.	Expenses recorded with respect to employees' severance payments for the years ended December 31, 2019, 2020 and 2021 were US$ 929 thousand, US$ 986 thousand and US$ 1,104 thousand, respectively.

	A.	On October 21, 2013 the Board resolved to adopt the Global Share Incentive Plan (2013) (the "2013 Plan") and to reserve up to 500,000 ordinary shares for issuance under the 2013 Plan to employees, directors, officers and consultants of the Company or of any subsidiary or affiliate of the Company. In January 2018, our Board approved the increase of the number of ordinary shares reserved for issuance under the 2013 Plan by 600,000 additional ordinary shares. Grants under the 2013 Plan, whether as options, restricted stock units, restricted stock or other equity based awards, including their terms, are subject to the Board of Directors' approval. Grants to directors and certain other officers are generally subject to the approvals of the Compensation Committee as well as Board of Directors, and grants to directors or a CEO (and under certain circumstances certain other officers) will also have to be approved by the Shareholders.

	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.

		Capital gains on awards granted under the plans are subjected to tax of 25% to be paid by the employee, and the Company is not entitled to a tax deduction.

		Gains which are not capital gains on awards under the plans are subjected to regular tax rates on individuals, and the Company is entitled to a tax deduction for such gains.

	1.	The vesting period of the RSUs ranges between 2 to 3 years from the date of grant.

	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, with the following assumptions:

	1.	The exercise price for the options (per ordinary share) was US$ 28.38 and the Option expiration date was the earlier to occur of: (a) June 8, 2024; and (b) the closing price of the shares falling below US$ 14.19 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

	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)	1.58 %
Expected dividend yield	2.42 %
Average expected volatility ^(b)	47.90 %
Termination rate	9 %
Suboptimal factor ^(c)	3.32

(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.

Average Risk-free interest rate ^(a)	2.35 %
Expected dividend yield	2.42%
Average expected volatility ^(b)	43.71 %
Termination rate	9 %
Suboptimal factor ^(c)	3.28

Average Risk-free interest rate ^(a)	2.92 %
Expected dividend yield	0.0 %
Average expected volatility ^(b)	45.13 %
Termination rate	9 %
Suboptimal factor ^(c)	3.2

Average Risk-free interest rate ^(a)	2.55 %
Expected dividend yield	0.0 %
Average expected volatility ^(b)	44.62 %
Termination rate	9 %
Suboptimal factor ^(c)	3.18

Average Risk-free interest rate ^(a)	0.75 %
Expected dividend yield	0.0 %
Average expected volatility ^(b)	45.29 %
Termination rate	9 %
Suboptimal factor ^(c)	3.16

Average Risk-free interest rate ^(a)	1.41 %
Expected dividend yield	0.0 %
Average expected volatility ^(b)	45.28 %
Termination rate	9 %
Suboptimal factor ^(c)	3.14

	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)

26.91			18,329		1.6		18,329		1.6

33.27			14,865		4.3		14,865		4.3

28.38			35,533		2.4		35,533		2.4

39.62			76,176		3.1		76,176		3.1

36.11			83,016		4.3		83,016		4.3

33.83			87,334		5.1		87,334		5.1

32.54			134,343		6.4		-		-

41.84			129,925		7.4		-		-

			579,521				315,253

	Number of options			Weighted average exercise price		Weighted average grant date fair value
				US$		US$

Balance at January 1, 2019		365,495

Granted		141,928			33.83		13.35
Exercised		(5,500	)		28.09		10.03
Forfeited		(36,676	)		35.88		13.50

Balance at December 31, 2019		465,247

Granted		148,426			32.54		14.82
Exercised		(12,357	)		22.38		8.63
Forfeited		(11,269	)		33.93		14.56

Balance at December 31, 2020		590,047

Granted		133,925			41.84		16.62
Exercised		(132,702	)		34.01		12.85
Forfeited		(11,749	)		35.79		15.39

Balance at December 31, 2021		579,521
Exercisable at December 31, 2021		315,253

	Number of Restricted Share Units			Weighted average grant date fair value
				US$

Balance at January 1, 2019		78,000

Vested		(39,000	)		35.36

Balance at December 31, 2019		39,000

Granted		86,000			35.33
Vested		(39,000	)		34.43

Balance at December 31, 2020 and December 31, 2021		86,000

	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
		As a "foreign invested company" (as defined in the Israeli Law for the Encouragement of Capital Investments-1959), the taxable income or loss and the tax basis of assets and liabilities of the Company’s Israeli operations are denominated in US Dollars.
	B.	Corporate tax rate in Israel
		The regular corporate tax rate applied to taxable income of Israeli companies is 23% (as from 2018 onwards).
	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 7.5% in areas in Israel designated as Development Zone A and 16% elsewhere in Israel. The company has two facilities in Israel of which one of them is located in Development Zone A. The profits of these Preferred Companies will be freely distributable as dividends, subject to a withholding tax of 20% (or a lower rate under an applicable tax treaty). 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.

	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 25% corporate tax on the amount distributed, and a further 15% withholding tax would be deducted from the amounts distributed to the shareholders.

		Out of the Company’s retained earnings as of December 31, 2021, approximately US$ 56,136 thousand are tax-exempt, under our previous "Approved Enterprise" and "Benefited Enterprise" status. If such tax-exempt income is distributed as a dividend (including a liquidation dividend), it would be taxed at the regular corporate tax rate applicable to such profits (subject to a maximum rate of 25%) and an income tax liability of up to approximately US$ US$ 14,034 thousand would be incurred as of December 31, 2021. Based on the 2021 Budget Law, the Company anticipates that any future dividends distributed pursuant to its dividend policy, will impose additional tax liabilities on the Company. The Company intends to reinvest its tax-exempt income. Accordingly, no deferred tax liability has been recognized for income attributable to the Company’s previous "Approved Enterprise" or "Benefited Enterprise" status. If the Company was to declare a dividend from its tax-exempt income, an income tax expense would be recognized in the period a dividend is declared.

		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.