6-K - SILC - Equibles

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16

OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of March, 2022

Commission File Number 000-23288

SILICOM LTD.

(Translation of Registrant’s name into English)

14 Atir Yeda St., P.O.Box 2164, Kfar-Sava 4464323, Israel

(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):___

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):___

On March 17, 2022, the Registrant released its Consolidated Financial Statements and registrant's review of its results of operations and financial condition as of and for the year ended December 31, 2021.

Attached hereto as Exhibit 99.1 are Consolidated Financial Statements as of and for the year ended December 31, 2021 (including the notes thereto).

Attached hereto as Exhibit 99.2 is the registrant’s review of its results of operations and financial condition as of and the year ended December 31, 2021.

Attached hereto as Exhibit 99.3 is Consent of Kesselman & Kesselman, Certified Public Accountants (Isr.), A member of PricewaterhouseCoopers International Limited.

Attached hereto as Exhibit 99.4 is Consent of Somekh Chaikin, Independent Registered Public Accounting Firm, a member firm of KPMG International.

Attached hereto as Exhibit 99.5 is Management's Annual Report on Internal Control over Financial Reporting

This Form 6-K, including all exhibits hereto, is hereby incorporated by reference into all effective registration statements filed by the registrant under the Securities Act of 1933.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SILICOM LTD.<br>(Registrant)
Date: March 17, 2022	By	/s/ Eran Gilad
	Eran Gilad
	Chief Financial Officer

SILICOM LTD. - 916793 - 2022

Exhibit99.1

Silicom Ltd.

and its Subsidiaries

Consolidated

Financial Statements

As of and for the year ended

December 31, 2021

Silicom Ltd. and its Subsidiaries

Consolidated Financial Statements as of December 31, 2021

Contents

	Page
Report of Independent Registered Public Accounting Firms (PCAOB<br> ID: 1309)	F - 3
Report of Independent<br> 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

F - 2

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Silicom Ltd.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of Silicom Ltd. and subsidiaries (the “Company”) as of December 31, 2021, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control

Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Form 6-K. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

F

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates

Capitalized internally developed software costs

As described in Note 2P to the consolidated financial statements, the Company capitalized internally developed software costs of $6.5 million as of December 31, 2021. Management applied significant judgment in determining which software projects and activities within those projects qualify for capitalization, and the timing of establishing technological feasibility. In addition, management applied judgment in determining when to cease the capitalization of costs related to internal developed software that will be placed in service.

The principal considerations for our determination that performing procedures relating to capitalized internally developed software costs is a critical audit matter are (i) there was a high degree of auditor judgment and subjectivity in applying procedures relating to capitalized internally developed software costs due to the significant amount of judgment by management when developing the estimates; (ii) significant audit effort was required in evaluating the significant assumptions relating to the estimates, such as the software projects qualification for capitalization, timing of establishing technological feasibility and time to cease capitalization;

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the effectiveness of controls relating to capitalized internally developed software costs, including controls over the software projects qualification for capitalization, timing of establishing technological feasibility and time to cease capitalization. These procedures also included, among others, (i) inspection of the products documentation; (ii) testing management’s process for estimating the capitalized internally developed software costs; and (iii) testing management’s identification of accumulated time and costs, both internal and external, associated with internal software development activities and the Company's controls over when internal developed software is placed in service and amortization started.

/s/ Kesselman & Kesselman

Certified Public Accountants (Isr.)

A member firm of PricewaterhouseCoopers International Limited

Tel-Aviv, Israel

March 16, 2022

We have served as the Company’s auditor since 2021

F

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Silicom Ltd.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Silicom Ltd. and subsidiaries (the Company) as of December 31, 2020, the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

Basis for Opinions

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Somekh Chaikin

Somekh Chaikin

Member Firm of KPMG International

We have served as the Company’s auditor since 1997 to 2021.

Tel Aviv, Israel

March 15, 2021

F

Silicom Ltd. and its Subsidiaries

Consolidated<br> Balance Sheets as of December 31
		2020	2021
	Note	US<br> thousands	US<br> thousands
Assets
Current<br> assets
Cash and cash equivalents	4
Short-term bank deposits	2F
Marketable securities	2G,<br> 5
Accounts receivable:
Trade, net	2H
Other	6
Inventories	7
Total<br> current assets
Marketable<br> securities	2G,<br> 5
Assets<br> held for employees' severance benefits	12
Deferred<br> tax assets	16G
Property,<br> plant and equipment, net	8
Intangible<br> assets, net	9
Operating<br> leases right-of-use, net	11
Goodwill
Total<br> assets

All values are in US Dollars.

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

Kfar-Saba, Israel

March 16, 2022

The accompanying notes are an integral part of these consolidated financial statements.

F - 6

Silicom Ltd. and its Subsidiaries

Consolidated<br> Balance Sheets as of December 31 (Continued)
		2020		2021
	Note	US<br> thousands		US<br> thousands
Liabilities<br> and shareholders' equity
Current<br> liabilities
Trade accounts payable
Other accounts payable<br> and accrued expenses	10
Operating lease liabilities	11
Total<br> current liabilities
Long-term<br> liabilities
Operating lease liabilities	11
Liability for employees'<br> severance benefits	12
Deferred tax liabilities	16G
Total<br> liabilities
Shareholders'<br> equity	13
Ordinary shares, ILS<br> 0.01<br> par value; 10,000,000<br> shares
authorized; 7,670,033<br> and 7,670,033<br> issued as at
December 31, 2020 and<br> 2021, respectively;
6,899,515<br> and 6,709,528<br> outstanding as at
December 31, 2020 and<br> 2021, respectively
Additional paid-in capital
Treasury shares (at cost)<br> 770,518<br> and 960,505<br> ordinary shares as at
December 31, 2020 and<br> 2021, respectively			)		)
Retained earnings
Total shareholders' equity
Total<br> liabilities and shareholders’ equity

All values are in US Dollars.

The accompanying notes are an integral part of these consolidated financial statements.

F - 7

Silicom Ltd. and its Subsidiaries

Consolidated<br> Statements of Operations for the Year Ended December 31
	2019	2020		2021
	US<br> thousands
	Except<br> for share and per share data
Sales			107,398		128,460
Cost of sales			73,632		84,072
Gross<br> profit			33,766		44,388
Operating<br> expenses
Research and development			17,244		20,091
Sales and marketing			6,209		6,599
General and administrative			4,065		4,641
Total operating expenses			27,518		31,331
Operating<br> income			6,248		13,057
Financial income, net			1,034		(152	)
Income<br> before income taxes			7,282		12,905
Income taxes			1,557		2,364
Net<br> income			5,725		10,541
Income<br> per share:
Basic income per ordinary<br> share (US)			0.804		1.544
Diluted income per ordinary<br> share (US)			0.800		1.513
Weighted average number<br> of ordinary shares used to compute basic income per share (in thousands)			7,118		6,826
Weighted average number<br> of ordinary shares used to compute diluted income per share (in thousands)			7,157		6,969

All values are in US Dollars.

The accompanying notes are an integral part of these consolidated financial statements.

F - 8

Silicom Ltd. and its Subsidiaries

Consolidated Statements of Changes inShareholders' Equity

	Ordinary shares
	Number ofshares^(1)^			US thousands
Balance at<br><br> <br>January 1, 2019		7,559,205			54,621	(38	)	103,544	158,149
Exercise<br> of options and RSUs^(2)^		44,500			154	-		-	154
Purchase<br> of treasury shares		(252,388	)		-	(7,971	)	-	(7,971	)
Share-based<br> compensation		-			2,355	-		-	2,355
Net<br> income		-			-	-		10,236	10,236
Balance at<br><br> <br>December 31, 2019		7,351,317			57,130	(8,009	)	113,780	162,923
Exercise<br> of options and RSUs^(2)^		51,357			276	-		-	276
Purchase<br> of treasury shares		(503,159	)		-	(16,798	)	-	(16,798	)
Share-based<br> compensation		-			2,711	-		-	2,711
Net<br> income		-			-	-		5,725	5,725
Balance at<br><br> <br>December 31, 2020		6,899,515			60,117	(24,807	)	119,505	154,837
Purchase<br> of treasury shares		(322,689	)		-	(14,291	)	-	(14,291	)
Reissuance<br> of treasury shares under share-based compensation plan		132,702			411	4,103		-	4,514
Share-based<br> compensation		-			2,862	-		-	2,862
Net<br> income		-			-	-		10,541	10,541
Balance at<br><br> <br>December 31, 2021		6,709,528			63,390	(34,995	)	130,046	158,463

All values are in US Dollars.

^(1)^	Net of shares held by Silicom Inc. and Silicom Ltd.
^(2)^	Restricted share units (hereinafter - "RSUs")
(3)	Company<br> shares held by the Company. Presented as a reduction of equity at their cost to the Company.
	The<br> treasury shares have no rights.
*	Less than 1 thousand.

The accompanying notes are an integral part of these consolidated financial statements.

F - 9

Silicom Ltd. and its Subsidiaries

Consolidated<br> Statements of Cash Flows for the Year Ended December 31
	2019		2020			2021
	US<br> thousands
Cash<br> flows from operating activities
Net income				5,725			10,541
Adjustments<br> required to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization				2,384			2,437
Impairment of intangible<br> assets				1,657			-
Write-down of obsolete<br> inventory				1,578			5,246
Discount on marketable<br> securities, net				244			621
Share-based compensation<br> expense				2,711			2,862
Deferred taxes, net		)		(61	)		48
Changes in assets and<br> liabilities:
Accounts receivable -<br> trade		)		3,467			(9,472	)
Accounts receivable -<br> other				(1,362	)		1,217
Accounts receivable -<br> related parties				-			-
Change in liability for<br> employees' severance benefits, net				153			138
Inventories				(13,336	)		(33,526	)
Trade accounts payable				(2,076	)		15,031
Other accounts payable<br> and accrued expenses				3,872			5,936
Accounts payable - related<br> parties		)		-			-
Net cash provided by<br> operating activities				4,956			1,079
Cash<br> flows from investing activities
Investment in short-term<br> bank deposits, net		)		8,542			5,000
Purchase of property,<br> plant and equipment		)		(1,694	)		(2,586	)
Investment in intangible<br> assets		)		(1,487	)		(3,572	)
Proceeds from maturity<br> of marketable securities				16,629			37,850
Purchases of marketable<br> securities		)		(6,558	)		(19,927	)
Net cash provided by<br> (used in) investing activities		)		15,432			16,765
Cash<br> flows from financing activities
Exercise of options				276			-
Purchase of treasury<br> shares		)		(16,798	)		(14,291	)
Proceeds from reissuance of treasury<br> shares upon exercise of options				-			4,514
Net cash used in financing<br> activities		)		(16,522	)		(9,777	)
Effect of exchange rate<br> changes on cash balances held				341			542
Increase (decrease) in<br> cash and cash equivalents		)		4,207			8,609
Cash and cash equivalents<br> at beginning of year				16,469			20,676
Cash<br> and cash equivalents at end of year				20,676			29,285
Supplementary<br> cash flow information
A. Non-cash transactions:
Investments in property,<br> plant and equipment and ROU				7,548			510
B. Cash paid during the<br> year for:
Income taxes				1,284			2,371

All values are in US Dollars.

The accompanying notes are an integral part of these consolidated financial statements.

F - 10

Silicom Ltd. and its Subsidiaries

Notesto the Consolidated Financial Statements

Note 1 - General

Silicom Ltd. is an Israeli corporation engaged in designing, manufacturing, marketing and supporting high performance networking and data infrastructure solutions for a broad range of servers, server based systems and communications devices.

The Company's shares have been traded in the United States on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") since February 1994. Since January 2, 2014 the Company's shares have been traded on the NASDAQ Global Select Market (prior thereto they were traded on the NASDAQ Global Market).

In these financial statements the terms "Company" or "Silicom" refer to Silicom Ltd. and its wholly owned subsidiaries, Silicom Connectivity Solutions, Inc. (hereinafter - "Silicom Inc.") and Silicom Denmark A/S (Fiberblaze A/S) (hereinafter – "Silicom Denmark"), whereas the term "subsidiaries" refers to Silicom Inc. and Silicom Denmark.

The significant outbreak of a contagious disease, Covid-19, which was declared a pandemic by the World Health Organization in March 2020, has resulted in a widespread health crisis that has adversely affected the economies and financial markets of many countries, resulting in a global economic downturn. As a response to the spread of Covid-19 many countries, including Israel, USA and Denmark where most of the Company's workforce is located, have been taking measures designated to limit the continued spread of Covid-19, including the closure of workplaces, restricting travel, prohibiting assembling, closing international borders and quarantining populated areas. Many Governments around the globe introduced temporary emergency regulations requiring all residents to remain in their homes along with limitations on which business are allowed to remain open and the number of workers allowed at each site. While Israel, USA and Denmark began vaccinating their population in 2020 and 2021, it is still unclear to what extent the vaccines will be able to stop the spread of the pandemic, especially because it is still unknown whether the vaccine is effective in neutralizing all variants of the virus. While the full impact of the Covid-19 pandemic is still unknown at this time, the Company is closely monitoring the developments and continually assessing the potential impact on its business. The Company's business may be adversely affected by the Covid-19 pandemic related risks, which may lead to an adverse effect on the Company's financial performance, revenue, financial position and results.

Note 2 - Summary of Significant Accounting Policies

The significant accounting policies, which are applied consistently throughout the periods presented, are as follows:

A.	Financial statements<br> in US dollars

Substantially all sales of the Company are made outside of Israel (see Note 14A regarding geographical distribution), in US dollars ("dollars"). Most purchases of materials and components, and a significant part of the marketing costs are made or incurred, primarily in dollars. Therefore, the dollar is the currency that represents the principal economic environment in which the Company operates and is thus its functional currency.

Transactions and monetary balances in other currencies are translated into the functional currency using the current exchange rate.

All exchange gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in earnings when they arise.

B.	Basis of presentation

The accompanying consolidated financial statements have been prepared with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 2- Summary of significant Accounting Policies (cont’d)

C.	Estimates and assumptions

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include revenue recognition over time, credit loss, income taxes, inventories, marketable securities, goodwill, intangible assets and share-based compensation.

D.	Business combinations

The Company accounts for business combination in accordance with ASC No. 805, "Business Combinations". ASC No. 805 requires recognition of assets acquired and liabilities assumed at the acquisition date, measured at their fair values as of that date. Any excess of the fair value of net assets acquired over purchase price and any subsequent changes in estimated contingencies are to be recorded in the consolidated statements of operations.

E.	Cash and cash equivalents

The Company considers highly liquid investments with original maturities of three months or less from the date of deposit to be cash equivalents.

F.	Short-term bank deposits

Short term bank deposits consist of bank deposits with original maturities of more than three months and up to twelve months.

G.	Marketable securities

The Company classifies its marketable securities as held-to-maturity as they are debt securities in which the Company has the intent and ability to hold to maturity. Held-to-maturity (HTM) debt securities are recorded at amortized cost adjusted for the amortization or accretion of premiums or discounts.

Premiums and discounts on debt securities are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective interest method. Such amortization and accretion are included in the "Financial income, net" line item in the consolidated statements of operations.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

G.	Marketable securities (cont’d)

The Company’s impairment policy until December 31, 2019, prior to the adoption of the new CECL standard

When other-than-temporary impairment has occurred, the amount of the other-than-temporary impairment recognized in earnings depends on whether the Company intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss.

A decline in the market value of HTM security below cost that is deemed to be other than temporary results in an impairment to reduce the carrying amount to fair value. To determine whether an impairment is other than temporary, the Company considers all available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable forecasts when developing estimate of cash flows expected to be collected. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year end, forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in.

If the Company intends to sell the security or it is more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings.

The Company’s impairment policy from January 1, 2020, following the adoption of the new CECL standard

On January 1, 2020, the Company adopted ASU 2016-13 (Topic 326) Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, as further clarified by the Financial Accounting Standards Board (the "FASB") through the issuance of additional related ASUs, which requires the measurement and recognition of current expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the previous incurred loss impairment model with an expected loss model, which requires the use of forward-looking information to calculate credit loss estimates. The Company adopted the standard under the modified retrospective approach.

H.	Trade accounts receivable, net

The Company’s accounts receivables accounting policy until December 31, 2019, prior to the adoption of the new CECL standard

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows.

The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and its customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns.

The Company’s accounts receivables accounting policy from January 1, 2020, following the adoption of the new CECL standard

The Company presents accounts receivable in the consolidated balance sheets net of allowance for credit losses for potential uncollectible amounts. The Company estimates the collectability of accounts receivable balances and adjust the allowance for credit losses based on the Company's assessment of collectability by reviewing accounts receivable on an aggregated basis where similar characteristics exist and on an individual basis when it identifies specific customers with known disputes or collectability issues. The Company also considers a number of factors to assess collectability, including the past due status, creditworthiness of the specific customer, payment history and reasonable and supportable forecasts of future economic conditions.

As of December 31, 2020 and 2021, the allowance for credit losses amounted to US$ 20 thousand.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

I.	Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the "weighted average-cost" method.

The Company writes down obsolete or slow moving inventory to its net realizable value.

J.	Assets held for employees’<br> severance benefits

Assets held for employees’ severance benefits represent contributions to severance pay funds and cash surrender value of insurance policies. The assets are recorded at their current cash redemption value.

K.	Property, plant and equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated on the straight-line basis over the estimated useful life of the assets at the following annual rates:

	%
Machinery and equipment	15<br> - 33
Office furniture<br> and equipment	6<br> - 33
Leasehold improvements	*
*	Over the shorter term of the lease or the useful life of the asset
---	---
L.	Goodwill and other intangible assets
---	---

Goodwill reflects the excess of the purchase price of business acquired over the fair value of net assets acquired. Goodwill is not amortized but instead is tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

Intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives in proportion to the economic benefits realized. This accounting policy results in amortization of such intangible assets in the straight-line method.

The Company operates in one operating segment and this segment comprises one reporting unit.

The Company’s goodwill impairment policy until December 31, 2019, prior to the adoption of ASU 2017-04

Goodwill is reviewed for impairment at least annually in accordance with ASC 350, Intangibles—Goodwill and Other. ASC 350 provides an entity the option to perform a qualitative assessment to determine whether it is more likely than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step goodwill impairment test. If this is the case, the two-step goodwill impairment test is required. If it is more likely than-not that the fair value of a reporting unit is greater than its carrying amount, the two-step goodwill impairment test is not required.

If the two-step goodwill impairment test is required, first, the fair value of the reporting unit is compared with its carrying amount (including goodwill). If the fair value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. If the fair value of the reporting unit exceeds its carrying amount, step two does not need to be performed.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

L.	Goodwill and other intangible assets (cont’d)

The Company’s goodwill impairment policy from January 1, 2020, following the adoption of ASU 2017-04

The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company performs a qualitative assessment and concludes that it is more likely than not that the fair value of a reporting unit exceeds its carrying value, goodwill is not considered impaired and the impairment test is not required. However, if the Company concludes otherwise, it is then required to perform a quantitative assessment for goodwill impairment.

The Company performs its quantitative goodwill impairment test by comparing the fair value of its reporting unit with its carrying value. If the reporting unit’s carrying value is determined to be greater than its fair value, an impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value. If the fair value of the reporting unit is determined to be greater than its carrying amount, the applicable goodwill is not impaired.

During the years ended December 31, 2019, 2020 and 2021, no impairments were found and therefore no impairment losses were recorded.

M.	Impairment of long-lived assets

In accordance with Impairment or Disposal of long-lived assets Subsections of FASB ASC Subtopic 360-10, Property, Plant, and Equipment – Overall. Long-lived assets, such as property, plant, equipment and purchased intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or an asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third party independent appraisals, as considered necessary.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

N.	Leases

The Company adopted the new accounting standard ASC 842 "Leases" and all the related amendments on January 1, 2019. The standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases with a term shorter than 12 months. This means that for those leases, the Company does not recognize right-of-use ("ROU") assets or lease liabilities, including not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition, but recognizes lease expenses over the lease term on a straight-line basis.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. As of December 31, 2021, all of the company's leases are operating leases.

On the commencement date, the lease payments shall include variable lease payments that depend on an index (such as the Consumer Price Index), initially measured using the index at the commencement date. The Company does not remeasure the lease liability for changes in future lease payments arising from changes in an index unless the lease liability is remeasured for another reason. Therefore, after initial recognition, such variable lease payments are recognized in profit or loss as they are incurred. Variable payments that depends on use of the underlying asset are not included in the lease payments. Such variable payments are recognized in profit or loss in the period in which the event or condition that triggers the payment occurs.

Upon initial recognition, the Company recognizes a liability at the present value of the lease payments to be made over the lease term, and concurrently recognizes a ROU asset at the same amount of the liability, adjusted for any prepaid lease payments. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments, the lease term and the effect on that rate of designating specific collateral with a value equal to the unpaid lease payments for that lease.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 2 - Summary of significantAccounting Policies (cont’d)

N.	Leases (cont’d)

After lease commencement, the Company measures the lease liability at the present value of the remaining lease payments using the discount rate determined at lease commencement (as long as the discount rate hasn’t been updated as a result of a reassessment event). The Company subsequently measures the ROU asset at the present value of the remaining lease payments, adjusted for the remaining balance of any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term.

The Company’s lease agreements have remaining lease terms of 2 to 9 years. Some of these agreements include options to terminate the leases immediately. 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 11.

O.	Revenue recognition

The Company derives revenues primarily from the sale of networking and data infrastructure solutions.

The Company recognizes revenue upon transfer of control of the promised goods in a contract with a customer in an amount that reflects the consideration the Company expects to receive in exchange for those products. Transfer of control occurs once the customer has the contractual right to use the product, generally upon shipment or once delivery and risk of loss has transferred to the customer. The Company accounts for a contract with customer when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Each of the Company's contracts includes one type of performance obligation. The Company evaluates each distinct performance obligation within a contract, whether it is satisfied at a point in time or over time. Most of the Company's revenues are recognized at a point in time. Revenue is recognized over time for sales of goods manufactured to unique customer specifications, in which the Company’s performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date if the customer were to terminate the contract. Revenue recognized over time is measured by the costs incurred to date relative to the estimated total direct costs to fulfill each contract. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, materials and overhead.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

P.	Research and development costs

Capitalization of software development costs (mainly salary) related to programmable components incorporated into the Company's products, are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. The company has determined that technological feasibility for its software components of hardware products is reached after all high-risk development issues have been resolved through coding and testing. 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.

Q.	Allowance for product warranty

The Company grants assurance-type warranties related to certain products to end-users. The Company estimates its obligation for such warranties to be immaterial on the basis of historical experience. Accordingly, these financial statements do not include an accrual for warranty obligations.

R.	Treasury shares

Treasury shares are recorded at cost and presented as a reduction of shareholders' equity. The Company reissues treasury shares under the Global Share Incentive Plan (2013), upon exercise of options and upon vesting of restricted stock units ("RSU"). Reissuance of treasury shares is accounted for in accordance with ASC 505-30 whereby gains are credited to additional paid-in capital and losses are charged to additional paid-in capital to the extent that previous net gains are included therein and otherwise to retained earnings.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

S.	Income taxes

Deferred taxes are accounted for under the asset and liability method based on the estimated future tax effects of temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are presented as non-current assets and liabilities and measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured as the largest amount that is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Taxes which would apply in the event of disposal of investments in foreign subsidiaries have not been taken into account in computing the deferred taxes, as the Company's intention is to hold, and not to realize the investments.

T.	Share-based compensation

The Company recognizes compensation expense based on estimated grant date fair value in accordance with ASC Topic 718, Compensation -Stock Compensation as follows:

When portions of an award vest in increments during the requisite service period (graded-vesting award), the Company’s accounting policy is to recognize compensation cost for the award over the requisite service period for each separately vesting portion of the award.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 2 - Summary of significant Accounting Policies (cont’d)

U.	Basic and diluted earnings per share

Basic income per ordinary share is calculated by dividing the net income attributable to ordinary shares, by the weighted average number of ordinary shares outstanding. Diluted income per ordinary share calculation is similar to basic income per ordinary share except that the weighted average of ordinary shares outstanding is increased to include outstanding potential ordinary shares during the period if dilutive. Potential ordinary shares arise from stock options and RSUs, and the dilutive effect is reflected by the application of the treasury stock method.

The following table summarizes information related to the computation of basic and diluted income per ordinary share for the years indicated.


		2020		2021
Net income attributable<br> to ordinary shares (US thousands)	10,236		5,725		10,541
Weighted<br> average number of ordinary shares outstandingused in basic income per ordinary share calculation	7,520,389		7,118,244		6,825,630
Add assumed exercise<br> of outstanding dilutive potential ordinary shares	52,228		38,519		143,172
Weighted<br> average number of ordinary shares outstandingused in diluted income per ordinary share calculation	7,572,617		7,156,763		6,968,802
Basic income per<br> ordinary shares (US)	1.361		0.804		1.544
Diluted income<br> per ordinary shares (US)	1.352		0.800		1.513
Weighted<br> average number of shares related to optionsexcluded from the diluted earnings per sharecalculation because of anti-dilutive<br> effect	351,610		180,916		65,534

All values are in US Dollars.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 2 - Summary of Significant Accounting Policies (cont’d)

V.	Comprehensive Income

For the years ended December 31, 2019, 2020 and 2021, comprehensive income equals net income.

W.	Fair Value Measurements

The Company's financial instruments consist mainly of cash and cash equivalents, marketable securities, trade and other receivables and trade accounts payable. The carrying amounts of these financial instruments, except for marketable securities, approximate their fair value because of the short maturity of these investments. The fair value of marketable securities is presented in Note 5 to these consolidated financial statements. Assets held for severance benefits are recorded at their current cash redemption value.

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 2 - Summary of Significant Accounting Policies (cont’d)

X.	Concentrations of risks

(1) Credit risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, short-term bank deposits, marketable securities, trade receivables and assets held for employees’ severance benefits. Cash and cash equivalents balances of the Company, which are subject to credit risk, consist of cash accounts held with major financial institutions. Short-term bank deposits balances of the Company, which are subject to credit risk, consist of short-term bank deposits held with a major Israeli Bank. Marketable securities consist of held to maturity marketable securities issued by highly rated corporations. As of December 31, 2020 and 2021, the ratings of the securities in the Company's portfolio was at least A- and BBB+ respectively. Nonetheless, these investments are subject to general credit and counterparty risks (such as that the counterparty to a financial instrument fails to meet its contractual obligations). The Company closely monitors extensions of credit and has never experienced significant credit losses.

(2) Significant customers

The Company's top four ultimate customers accounted for approximately 35% of its revenues in 2021. The Company expects that a small number of customers will continue to account for a significant portion of its revenues for the foreseeable future. See Note 14.

Y.	Liabilities for loss contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 3 – Acquisitions

A.	ADI Engineering, Inc.

On October 28, 2015 (hereinafter – "closing date") the Company acquired certain assets from ADI Engineering, Inc. (hereinafter – "ADI"), a privately-held, US-based provider of custom embedded communications and networking products, for an aggregate purchase price of US$ 10,000 thousand in cash and estimated contingent consideration of US$ 7,802 thousand in cash and in options to ordinary shares, payable in three yearly payments, after the closing, subject to the attainment of certain performance milestones until December 31, 2017. Of the total purchase price of US$ 17,802 thousand, US$ 222 thousand was attributed to tangible assets, US$ 4,261 thousand was attributed to intangible assets and US$ 13,319 thousand was attributed to goodwill. The goodwill is primarily attributable to the synergies expected to arise after the acquisition. The recognized goodwill is deductible for income tax purposes for 10 years.

B.	Silicom Denmark

On December 10, 2014 (hereinafter – "closing date"), the Company completed the acquisition of all of the outstanding shares and voting interests of Silicom Denmark, a provider of high performance application acceleration solutions, for an aggregate purchase price of US$ 10,161 thousand in cash and estimated contingent consideration of US$ 4,683 thousand in cash and in options to ordinary shares, subject to the attainment of certain performance milestones until August 31, 2015.

In connection with the contingent consideration, during 2016 the Company paid to the Silicom Denmark sellers an amount of US$ 1,463 thousand, of which 90% was paid in cash and 10% in options to ordinary shares of the Company.

In relation to this acquisition, on April 18, 2016, the Company granted, in the aggregate, 22,795 options to the Silicom Denmark sellers and to the Silicom Denmark employees (see Note 12I).

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 4 - Cash and Cash Equivalents

	December 31
	2020	2021
	US thousands
Cash			25,368
Cash<br> equivalents *			3,917
			29,285

All values are in US Dollars.

*	Comprised mainly of bank deposits in ILS as at December 31, 2020 and 2021 carrying a weighted average<br> interest rate of 0.84%<br> and 0.03%,<br> respectively.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 5 - Marketable Securities

The Company's investment in marketable securities as of December 31, 2020 and 2021 are classified as ''held-to-maturity'' and consist of the following:

	Amortized<br> <br> <br> cost<br> basis**
	US thousands
At<br> December 31, 2021
Held<br> to maturity:
Corporate<br> debt securities and government debt securities
Current		43	(19	)	8,324
Non-Current<br> (1 to 4 years)		10	(512	)	23,464
		53	(531	)	31,788
At<br> December 31, 2020
Held<br> to maturity:
Corporate<br> debt securities and government debt securities
Current		265	(102	)	35,608
Non-Current<br> (1 to 5 years)		339	-		15,704
		604	(102	)	51,312

All values are in US Dollars.

*	Fair value is being determined using Level 2 inputs.
**	Including accrued interest in the amount of US$ 412<br> thousand and US$ 227<br> thousand as of December 31, 2020 and 2021, respectively.
	The<br> accrued interest is presented as part of other receivables on the balance sheet.
Activity in marketable<br> securities in 2021	US<br> thousands
---	---	---
Balance<br> at January 1, 2020
Purchases of marketable<br> securities
Discount on marketable<br> securities, net		)
Proceeds from maturity<br> of marketable securities		)
Balance<br> at January 1, 2021
Purchases of marketable<br> securities
Discount on marketable<br> securities, net		)
Proceeds from maturity<br> of marketable securities		)
Balance<br> at December 31, 2021

All values are in US Dollars.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 5

Marketable Securities (Cont’d)

The following table summarizes the gross unrealized losses or gains on investment securities and the fair value of those securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss or gain position, at December 31, 2021:

	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
	Less than 12 months				12 months or more				Total
---	---	---	---	---	---	---	---	---	---	---	---	---
Held to maturity:	Unrealized Gains		Fair value		Unrealized Gains		Fair value		Unrealized Gains		Fair value
Corporate debt securities and government debt securities		—		—		53		5,974		53		5,974

The unrealized losses or gains on the investments were caused by changes in interest rate. The Company has the ability and intent to hold these investments until maturity and it is more likely than not that the Company will not be required to sell any of the securities before recovery.

Note 6 - Other Receivables

	December<br> 31
	2020	2021
	US thousands
Advances<br> to suppliers			333
Government<br> authorities			2,184
Prepaid<br> expense			768
Other<br> receivables			1,408
			4,693

All values are in US Dollars.

Note 7 - Inventories

	December 31
	2020	2021
	US thousands
Raw materials and<br> components			57,156
Products in process			11,186
Finished products			7,411
			75,753

All values are in US Dollars.

In the years ended December 31, 2019, 2020 and 2021, the Company recorded inventory write-downs in the amount of US$ 2,106 thousand, US$ 1,578 thousand and US$ 5,246 thousand respectively.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 8 - Property, Plant and Equipment, Net

	December 31
	2020		2021
	US thousands
Machinery<br> and equipment				17,305
Office<br> furniture and equipment				1,129
Leasehold<br> improvements				3,406
Property,<br> plant and equipment				21,840
Accumulated<br> depreciation		)		(17,264	)
Property,<br> Plant and equipment, net				4,576

All values are in US Dollars.

Depreciation expense for the years ended December 31, 2019, 2020 and 2021 were US$ 1,731 thousand, US$ 2,000 thousand and US$ 2,009 thousand, respectively.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 9

Intangible Assets

			December 31
			2020	2021
	Useful		US thousands
Original<br> cost:
Capitalization<br> of software development costs		3			6,546
Licenses		3			565
					7,111
Accumulated<br> amortization:
Capitalization<br> of software development costs					2,366
Licenses					431
					2,797
Intangible<br> assets, net:
Capitalization<br> of software development costs					4,180
Licenses					134
					4,314

All values are in US Dollars.

Amortization expense for the years ended December 31, 2019, 2020 and 2021 were US$ 266 thousand, US$ 378 thousand and US$ 428 thousand, respectively. The company recorded an impairment charge of US$ 1,657 thousand in the year ended December 31, 2020, for software that will no longer be utilized by the company and the asset value and accumulated amortization were written off. The impairment was recorded in cost of sales.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note<br> 10 – Other accounts payable and accrued expenses
	December 31
---	---	---	---
	2020	2021
	US thousands
Accrued expenses			8,664
Employee benefits			6,562
Government authorities			577
Other payables			2,779
			18,582

All values are in US Dollars.

Note 11 –

Leases

A.	The components of operating<br> lease cost for the year ended December 31, 2021 and 2020 were as follows:
	Year<br> ended<br> December<br> 31
---	---	---	---	---	---
	2019	2020		2021
	US<br> thousands
Operating lease costs<br> (mainly plant and offices)			1,623		1,921
Variable lease payments<br> not included in the lease liability			3		8
Short-term lease cost			285		278
Total operating lease<br> cost			1,911		2,207

All values are in US Dollars.

B.	Supplemental cash flow<br> information related to operating leases was as follows:
	Year<br> ended<br> December<br> 31
---	---	---	---	---	---
	2019	2020		2021
	US<br> thousands
Cash paid for amounts<br> included in the measurement of lease liabilities:
Operating cash flows<br> from operating leases			1,601		1,887
Right-of-use assets obtained<br> in exchange for lease liabilities (non-cash):
Operating leases			7,201		451

All values are in US Dollars.

C. Supplemental balance sheet information related to operating leases was as follows:

	December 31
	2020	2021
	US thousands
Operating<br> leases:
Operating<br> leases right-of-use			8,765
Current<br> operating lease liabilities			1,811
Non-current<br> operating lease liabilities			7,377
Total<br> operating lease liabilities			9,188

All values are in US Dollars.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note11 - Leases (cont’d):

C. Supplemental balance sheet information related to operating leases was as follows (cont’d):

	December 31
	2020		2021
	US thousands
Weighted<br> average remaining lease term (years)				7.3
Weighted<br> average discount rate		%		2.3	%

All values are in US Dollars.

D. Future minimum lease payments under non-cancellable leases as of December 31, 2021 were as follows:

	December 31, 2021
	US thousands
2022
2023
2024
2025
After<br> 2026
Total<br> operating lease payments
Less:<br> imputed interest		)
Present<br> value of lease liabilities

All values are in US Dollars.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 12 - Assets Held and Liability for Employees' Severance Benefits

A.	Under<br> Israeli law and labor agreements, Silicom is required to make severance payments to retired or dismissed employees and to employees leaving<br> employment in certain other circumstances.
	In<br> respect of the liability to the employees, individual insurance policies are purchased and deposits are made with recognized severance<br> pay funds.
	The<br> liability for severance pay is calculated on the basis of the latest salary paid to each employee multiplied by the number of years of<br> employment. The liability is covered by the amounts deposited including accumulated income thereon as well as by the unfunded provision.
B.	According<br> to Section 14 to the Severance Pay Law ("Section 14") the payment of monthly deposits by a company into recognized severance and pension<br> funds or insurance policies releases it from any additional severance obligation to the employees that have entered into agreements with<br> the company pursuant to such Section 14. Commencing July 1, 2008, the Company has entered into agreements with a majority of its employees<br> in order to implement Section 14. Therefore, as of that date, the payment of monthly deposits by the Company into recognized severance<br> and pension funds or insurance policies releases it from any additional severance obligation to those employees that have entered into<br> such agreements and therefore the Company incurs no additional liability since that date with respect to such employees. Amounts accumulated<br> in the pension funds or insurance policies pursuant to Section 14 are not supervised or administrated by the Company and therefore neither<br> such amounts nor the corresponding accrual are reflected in the balance sheet.
C.	Consequently,<br> the assets held for employees' severance benefits reported on the balance sheet, in respect of deposits for those employees who have signed<br> agreements pursuant to Section 14, represent the redemption value of deposits made through June 30, 2008. The liability for employee severance<br> benefits, with respect to those employees, represents the liability of the Company for employees' severance benefits as of June 30, 2008.
	As<br> a result of the implementation of Section 14, as described above, the liability with respect to those employees is calculated on the basis<br> 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,<br> including accumulated income thereon, as well as by the unfunded provision. Such liability will be removed, either upon termination of<br> employment or retirement.
D.	Expenses<br> recorded with respect to employees' severance payments for the years ended December 31, 2019, 2020 and 2021 were US$ 929<br> thousand, US$ 986<br> thousand and US$ 1,104<br> thousand, respectively.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 13 - Shareholders' Equity

Capital and reserves

On May 2, 2019, the Company's Board of Directors authorized and began implementation of a one-year share repurchase plan to repurchase up to $15 million of the Company's ordinary shares. On April 30, 2020 the Company's Board of Directors authorized another one-year share repurchase plan allowing the Company to invest up to $15 million to repurchase its ordinary shares. This plan has began as the previously announced $15 million one-year share repurchase plan was completed. On April 29, 2021 the Company's Board of Directors authorized another one-year share repurchase plan allowing the Company to invest up to $15 million to repurchase its ordinary shares. This plan has begun as the previously announced $15 million one-year share repurchase plan was completed. Repurchases may be made in the open market and will be in accordance with applicable securities laws and regulations. The timing and amount of each repurchase transaction may depend on a variety of factors. The share repurchase plan does not obligate the Company to acquire any specific number of ordinary shares and may be suspended or terminated at any time at management’s discretion.

Share based compensation

A.	On<br> October 21, 2013 the Board resolved to adopt the Global Share Incentive Plan (2013) (the "2013 Plan") and to reserve up to 500,000<br> ordinary shares for issuance under the 2013 Plan to employees, directors, officers and consultants of the Company or of any subsidiary<br> or affiliate of the Company. In January 2018, our Board approved the increase of the number of ordinary shares reserved for issuance under<br> the 2013 Plan by 600,000<br> additional ordinary shares. Grants under the 2013 Plan, whether as options, restricted stock units, restricted stock or other equity based<br> awards, including their terms, are subject to the Board of Directors' approval. Grants to directors and certain other officers are generally<br> subject to the approvals of the Compensation Committee as well as Board of Directors, and grants to directors or a CEO (and under certain<br> circumstances certain other officers) will also have to be approved by the Shareholders.
B.	Options<br> or RSUs granted to Israeli residents may be granted under Section 102 of the Israeli Income Tax Ordinance pursuant to which the awards<br> of options, or the ordinary shares issued upon their exercise, must be deposited with a trustee for at least two years following the date<br> 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<br> the awards or ordinary shares by the trustee to the employee or upon the sale of the awards or ordinary shares.
	Capital<br> gains on awards granted under the plans are subjected to tax of 25%<br> to be paid by the employee, and the Company is not entitled to a tax deduction.
	Gains<br> which are not capital gains on awards under the plans are subjected to regular tax rates on individuals, and the Company is entitled to<br> a tax deduction for such gains.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 13 -Shareholders' Equity (cont'd)

Share based compensation (cont'd)

C.	During<br> 2017 and 2020, the Company granted 78,000<br> and 86,000<br> RSUs respectively to certain of its directors, employees and consultants under the 2013 Plan. In relation to those grants:
1.	The<br> vesting period of the RSUs ranges between 2<br> to 3<br> years from the date of grant.
---	---
2.	The<br> 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<br> that will not accrue to RSUs holders prior to vesting.
3.	The Company recognizes compensation expenses on<br> these RSUs based on estimated grant date fair value, with the following assumptions:
	2017	2020
---	---	---
Expected dividend yield	2.68%	0%

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 13 -Shareholders' Equity (cont'd)

Share based compensation (cont'd)

D.	On<br> June 8, 2016, the Company granted, in the aggregate, 93,660<br> options to certain of its directors and employees under the 2013 Plan. In relation to this grant:
1.	The<br> exercise price for the options (per ordinary share) was US$ 28.38<br> and the Option expiration date was the earlier to occur of: (a) June<br> 8, 2024; and (b) the closing price of the shares falling below US$ 14.19<br> 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<br> Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model<br> with the following assumptions:
Average<br> Risk-free interest rate ^(a)^	1.58 %
---	---
Expected<br> dividend yield	2.42 %
Average<br> expected volatility ^(b)^	47.90 %
Termination rate	9<br> %
Suboptimal<br> factor ^(c)^	3.32
(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of<br> grant.
---	---
(b)	Expected average volatility represents a weighted average standard deviation rate for the price<br> 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<br> 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<br> factor of the Company and similar companies.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 13 -Shareholders' Equity (cont'd)

Share based compensation (cont'd)

E.	On<br> January 30, 2017, the Company granted, in the aggregate, 119,925<br> options to certain of its directors and employees under the 2013 Plan. In relation to this grant:
1.	The<br> exercise price for the options (per ordinary share) was US$ 39.62<br> and the Option expiration date was the earlier to occur of: (a) January<br> 30, 2025; and (b) the closing price of the shares falling below US$ 19.81<br> 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<br> 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)^	2.35<br> %
---	---
Expected dividend yield	2.42%
Average expected volatility ^(b)^	43.71<br> %
Termination rate	9<br> %
Suboptimal factor ^(c)^	3.28
(a)	Risk-free<br> interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
---	---
(b)	Expected<br> average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ<br> National Market.
(c)	Suboptimal<br> factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come<br> 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

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 13 -Shareholders' Equity (cont'd)

Share based compensation (cont'd)

F.	On<br> April 30, 2018, the Company granted, in the aggregate, 137,010<br> options to certain of its directors and employees under the 2013 Plan. In relation to this grant:
1.	The<br> exercise price for the options (per ordinary share) was US$ 36.11<br> and the Option expiration date was the earlier to occur of: (a) April<br> 30, 2026; and (b) the closing price of the shares falling below US$ 18.06<br> 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<br> 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)^	2.92<br> %
---	---
Expected dividend yield	0.0<br> %
Average expected volatility ^(b)^	45.13<br> %
Termination rate	9<br> %
Suboptimal factor ^(c)^	3.2
(a)	Risk-free<br> interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
---	---
(b)	Expected<br> average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ<br> National Market.
(c)	Suboptimal<br> 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,<br> will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 13 -Shareholders' Equity (cont'd)

Share based compensation (cont'd)

G.	On<br> January 31, 2019, the Company granted, in the aggregate, 141,928<br> options to certain of its directors and employees under the 2013 Plan. In relation to this grant:
1.	The<br> exercise price for the options (per ordinary share) was US$ 33.83<br> and the Option expiration date was the earlier to occur of: (a) January<br> 31, 2027; and (b) the closing price of the shares falling below US$ 16.92<br> 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<br> Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model<br> with the following assumptions:
Average Risk-free interest rate ^(a)^	2.55<br> %
---	---
Expected dividend yield	0.0<br> %
Average expected volatility ^(b)^	44.62<br> %
Termination rate	9<br> %
Suboptimal factor ^(c)^	3.18
(a)	Risk-free<br> interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
---	---
(b)	Expected<br> average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ<br> National Market.
(c)	Suboptimal<br> 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,<br> will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 13 -Shareholders' Equity (cont'd)

Share based compensation (cont'd)

H.	On<br> June 8, 2020, the Company granted, in the aggregate, 148,426<br> options to certain of its directors and employees under the 2013 Plan. In relation to this grant:
1.	The<br> exercise price for the options (per ordinary share) was US$ 32.54<br> and the Option expiration date was the earlier to occur of: (a) June<br> 8, 2028; and (b) the closing price of the shares falling below US$ 16.27<br> 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<br> 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)^	0.75<br> %
---	---
Expected dividend yield	0.0<br> %
Average expected volatility ^(b)^	45.29<br> %
Termination rate	9<br> %
Suboptimal factor ^(c)^	3.16
(a)	Risk-free<br> interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
---	---
(b)	Expected<br> average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ<br> National Market.
(c)	Suboptimal<br> 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,<br> will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 13 -Shareholders' Equity (cont'd)

Share based compensation (cont'd)

I.	On June 3, 2021, the Company granted,<br> in the aggregate, 133,925<br> options to certain of its directors and employees under the 2013 Plan. In relation to this grant:
1.	The exercise price for the options<br> (per ordinary share) was US$ 41.84<br> and the Option expiration date was the earlier to occur of: (a) June<br> 3, 2029; and (b) the closing price of the shares falling below US$ 20.92<br> 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<br> these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:
Average<br> Risk-free interest rate ^(a)^	1.41<br> %
---	---
Expected<br> dividend yield	0.0<br> %
Average<br> expected volatility ^(b)^	45.28<br> %
Termination rate	9<br> %
Suboptimal<br> factor ^(c)^	3.14
(a)	Risk-free<br> interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
---	---
(b)	Expected<br> average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ<br> National Market.
(c)	Suboptimal<br> 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,<br> will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 13 - Shareholders'Equity (cont'd)

Share based compensation (cont'd)

J.	The following table summarizes information<br> regarding stock options as at December 31, 2021:
					Options exercisable
---	---	---	---	---	---	---	---	---
			Weighted<br> average				Weighted<br> average
			remaining				remaining
Exercise<br> price	Number		contractual<br> life		Number		contractual<br> life
US	of<br> options		(in<br> years)		of<br> options		(in<br> 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

All values are in US Dollars.

The aggregate intrinsic value of options outstanding as of December 31, 2020 and 2021 is US$ 4,589 thousand and US$ 9,129 thousand, respectively.

The aggregate intrinsic value of options exercisable as of December 31, 2020 and 2021 is US$ 2,263 thousand and US$ 5,300 thousand, respectively.

The total intrinsic value of options exercised during the year ended December 31, 2020 and 2021, is US$ 240 thousand and US$ 2,334 thousand, respectively.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 13 -Shareholders' Equity (cont'd)

Share based compensation (cont'd)

K.	The<br> stock option activity under the abovementioned plans is as follows:
	Number<br><br> <br>of<br> options			Weighted<br> <br> <br> average<br> <br> <br> exercise<br> price	Weighted<br> <br> <br> average<br> <br> <br> grant<br> date <br> <br> fair<br> value
---	---	---	---	---	---
				US	US
Balance<br> at January 1, 2019		365,495
Granted		141,928
Exercised		(5,500	)
Forfeited		(36,676	)
Balance<br> at December 31, 2019		465,247
Granted		148,426
Exercised		(12,357	)
Forfeited		(11,269	)
Balance<br> at December 31, 2020		590,047
Granted		133,925
Exercised		(132,702	)
Forfeited		(11,749	)
Balance<br> at December 31, 2021		579,521
Exercisable<br> at December 31, 2021		315,253

All values are in US Dollars.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 13 -Shareholders' Equity (cont'd)

Share based compensation (cont'd)

L.	The<br> Restricted Share Units activity under the abovementioned plans is as follows:
	Number<br> of<br><br> <br>Restricted<br><br> <br>Share<br> Units			Weighted<br> <br> <br> average<br> <br> <br> grant<br> date <br> <br> fair<br> value
---	---	---	---	---
				US
Balance at January 1, 2019		78,000
Vested		(39,000	)
Balance<br> at December 31, 2019		39,000
Granted		86,000
Vested		(39,000	)
Balance at December 31, 2020 and December 31, 2021		86,000

All values are in US Dollars.

The aggregate intrinsic value of RSUs outstanding as of December 31, 2020 and December 31, 2021 is US$ 3,599 thousand and US$ 4,438 thousand, respectively.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 13 -Shareholders' Equity (cont'd)

Share based compensation (cont'd)

M.	During 2019, 2020 and 2021, the Company<br> recorded share-based compensation expenses. The following summarizes the allocation of the stock-based compensation expenses:
	Year ended December 31
---	---	---	---	---	---
	2019	2020		2021
	US thousands
Cost<br> of sales			535		480
Research<br> and development costs			959		1,011
Selling<br> and marketing expenses			602		697
General<br> and administrative expenses			615		674
			2,711		2,862

All values are in US Dollars.

As of December 31, 2021, there were US$ 2,721 thousand of unrecognized compensation costs related to outstanding stock options and RSUs to be recognized over a weighted average period of 1.17 years.

The total tax benefit recognized in the consolidated statements of operations related to share based compensation expenses amounted to US$ 42 thousand for the year ended December 31, 2021.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 14 - Geographic areas and major customers

A.	Information on sales by geographic distribution:
The Company has one operating segment.
---
Sales are attributed to geographic distribution based on the location of the ultimate customer.
	Year<br> ended December 31
---	---	---	---	---	---
	2019	2020		2021
	US<br> thousands
USA			64,503		88,556
North America<br> - other			639		964
Israel			12,362		9,936
Europe			23,208		19,383
Asia-Pacific			6,686		9,621
			107,398		128,460

All values are in US Dollars.

B. Sales to single ultimate customers exceeding 10% of sales (US$ thousands):

	Year<br> ended December 31
	2019	2020		2021
	US<br> thousands
Customer<br> "A"			12,278		19,184
Customer<br> "B"			4,225		10,145
Customer<br> "C"			13,468		7,788
Customer<br> "D"			13,328		7,689

All values are in US Dollars.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note14 - Geographic areas and major customers (cont'd)

C. Information on Long-Lived Assets - Property, Plant and Equipment and ROU assets by geographic areas:

The following table presents the locations of the Company’s long-lived assets as of December 31, 2020 and 2021:

	Year<br> ended December 31
	2020	2021
	US<br> thousands
North<br> America		1,014
Europe		340
Israel		11,987
		13,341

All values are in US Dollars.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 15 - FinancialIncome (Expenses), Net

	Year ended December 31
	2019		2020			2021
	US thousands
Interest income				2,197			1,548
Discount on marketable<br> securities, net		)		(244	)		(621	)
Exchange rate differences,<br> net		)		(748	)		(1,031	)
Bank charges		)		(171	)		(48	)
				1,034			(152	)

All values are in US Dollars.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note16 - Taxes on Income

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<br> a "foreign invested company" (as defined in the Israeli Law for the Encouragement of Capital Investments-1959), the taxable income<br> 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<br> regular corporate tax rate applied to taxable income of Israeli companies is 23%<br> (as from 2018 onwards).
C.	Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law")
1.	On<br> December 29, 2010 the Knesset approved the Economic Policy Law for 2011-2012, which includes an amendment to the Law for the<br> Encouragement of Capital Investments – 1959 (hereinafter – "the Amendment to the Law"). The Amendment to the Law is effective<br> from January 1, 2011 and its provisions will apply to preferred income derived or accrued in 2011 and thereafter by a Preferred Company,<br> per the definition of these terms in the Amendment to the Law.
---	---
	Companies<br> can choose to not be included in the scope of the Amendment to the Law and to stay in the scope of the<br> law before its amendment until the end of the benefits period.<br><br> <br><br><br> <br>Under<br> the Amendment to the Law, upon an irrevocable election made by a company, a uniform corporate tax rate will apply to all preferred income<br> of such company. The Company elected to apply the uniform corporate tax rate as of 2014. From 2017 onwards, the uniform tax rate<br> is to be 7.5%<br> in areas in Israel designated as Development Zone A and 16%<br> 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<br> Preferred Companies will be freely distributable as dividends, subject to a withholding tax of 20%<br> (or a lower rate under an applicable tax treaty).<br><br> <br>Should<br> the Company derive income from sources other than the Preferred Company, such income will be taxable at the regular corporate<br> tax rates for the applicable year.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note16 - Taxes on Income (cont’d)

Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law")****(cont'd)

On December 29, 2016 the Israeli Parliament (the "Knesset") enacted the "Economic Efficiency Law (Legislative Amendments for Achieving Budget Objectives in the Years 2017 and 2018) – 2016" in which the Law was also amended (hereinafter: “the Amendment”). The Amendment added new tax benefit tracks for a “preferred technological enterprise” and a “special preferred technological enterprise” which award reduced tax rates to a technological industrial enterprise for the purpose of encouraging activity relating to the development of qualifying intangible assets. The benefits will be awarded to a “preferred company” that has a “preferred technological enterprise” or a “special preferred technological enterprise” with respect to taxable “preferred technological income” per its definition in the Law. Preferred technological income that meets the conditions required in the law, will be subject to a reduced corporate tax rate of 12%, and if the preferred technological enterprise is located in "Development Area A" in Israel - to a reduced tax rate of 7.5%. A company that owns a special preferred technological enterprise will be subject to a reduced corporate tax rate of 6% regardless of the development area in which the enterprise is located. The Amendment is effective as from January 1, 2017. 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. Should the Company derive income from sources other than the “preferred technological enterprise”, such income will be taxable at the "Preferred Company" tax rate (for manufacturing activity in Israel) or regular corporate tax rates for the applicable year. As a result of the aforesaid legislation, starting 2021 the Company implement the “preferred technological enterprise” tax benefit track.

---

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note16 - Taxes on Income (cont’d)

C.	Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law")(cont'd)
2.	In<br> the event of distribution by the Company of dividends out of its retained earnings that were generated prior to the 2014 tax year<br> and were tax exempt under the "Approved Enterprise" or "Benefited Enterprise" status, the Company would be subjected to a maximum of 25%<br> corporate tax on the amount distributed, and a further 15% withholding tax would be deducted from the amounts distributed to the shareholders.
---	---
	Out<br> of the Company’s retained earnings as of December 31, 2021, approximately US$ 56,136<br> thousand are tax-exempt, under our previous "Approved Enterprise" and "Benefited Enterprise" status. If such tax-exempt income is distributed<br> as a dividend (including a liquidation dividend), it would be taxed at the regular corporate tax rate applicable to such profits (subject<br> to a maximum rate of 25%)<br> and an income tax liability of up to approximately US$ US$ 14,034<br> thousand would be incurred as of December 31, 2021. Based on the 2021 Budget Law, the Company anticipates that any future dividends distributed<br> pursuant to its dividend policy, will impose additional tax liabilities on the Company. The Company intends to reinvest its tax-exempt<br> income. Accordingly, no deferred tax liability has been recognized for income attributable to the Company’s previous "Approved Enterprise"<br> or "Benefited Enterprise" status. If the Company was to declare a dividend from its tax-exempt income, an income tax expense would be<br> recognized in the period a dividend is declared.
	On November 15, 2021, the Israeli<br> Parliament released its 2021-2022 Budget Law (“2021 Budget Law”). The 2021 Budget Law introduces a new dividend ordering rule<br> that apportions every dividend between previously tax-exempt and previously taxed income. Consequently, distributions (including deemed<br> distributions as per Section 51(h)/51B of the Investment Law) may entail additional corporate tax liability to the distributing company.<br> Effective August 15, 2021, dividend distributions will be treated as if made on a pro-rata basis from all types of earnings, including<br> Exempt Profits. If such tax-exempt income is distributed, it would be taxed at the reduced corporate tax rate applicable to such income.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note16 - Taxes on Income (cont’d)

D.	Taxation of the subsidiaries
1.	The<br> subsidiary Silicom Inc. files tax returns with US federal tax authorities and with state tax authorities in the states<br> of New Jersey, California, Virginia, New York, New Mexico, Tennessee, Texas and Illinois.<br><br> <br>The<br> federal corporate income tax rate is 21%.
---	---
2.	The subsidiary Silicom Denmark is<br> taxed according to the tax laws in Denmark, subject to corporate tax of 22%.
3.	The<br> Company has not provided for Israeli income tax and foreign withholding taxes on US$ 8,702<br> thousand of its non-Israeli subsidiaries' undistributed earnings as of December 31, 2021. The earnings could become subject to tax if<br> earnings are remitted or deemed remitted as dividends or upon sale of a subsidiary.<br><br> <br><br><br> <br>The<br> Company currently has no plans to repatriate those funds and intends to indefinitely reinvest them in its non-Israeli operations. The<br> unrecognized deferred tax liability associated with these temporary differences was approximately US$ 1,537<br> thousand at December 31, 2021.
E.	Tax assessments
---	---
1.	For<br> the Israeli jurisdiction the Company has final tax assessments for all years up to and including the tax year ended December<br> 31, 2015.
---	---
2.	For<br> the US federal jurisdiction, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December<br> 31, 2016. For the New Jersey and California state jurisdictions, Silicom Inc. has final tax assessments for all years up to and including<br> the tax year ended December 31, 2015. For the Virginia, Tennessee, New York and New Mexico state jurisdictions, Silicom Inc. has final<br> tax assessments for all years up to and including the tax year ended December 31, 2017. For the Texas state jurisdiction, Silicom Inc.<br> has open tax assessments for the years 2018 through 2020. For the Illinois state jurisdiction, Silicom Inc. has open tax assessment for<br> the year 2020.
3.	For<br> the Danish jurisdiction, Silicom Denmark has final tax assessments for all years up to and including the tax year<br> ended December 31, 2015.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note16 - Taxes on Income (cont’d)

F.	Income before income taxes and income taxes expense (benefit) included in the consolidated statements of operations
	Year<br> ended December 31
---	---	---	---	---	---	---	---	---
	2019		2020			2021
	US<br> thousands
Income<br> before income taxes:
Israel				5,565			7,486
Foreign<br> jurisdictions				1,717			5,419
				7,282			12,905
Current<br> taxes:
Israel				1,260			1,281
Foreign<br> jurisdictions				506			1,192
				1,766			2,473
Current<br> tax (benefits) expenses relating to prior years:
Israel		)		50			(10	)
Foreign<br> jurisdictions		)		(198	)		(147	)
		)		(148	)		(157	)
Deferred<br> taxes:
Israel		)		8			174
Foreign<br> jurisdictions				(69	)		(126	)
		)		(61	)		48
Income<br> tax expense				1,557			2,364

All values are in US Dollars.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note16 - Taxes on Income (cont’d)

G.	Deferred tax assets and liabilities

The tax effects of significant items comprising the Company’s deferred tax assets and liabilities are as follows:

	December<br> 31		December<br> 31
	2020		2021
	US<br> thousands		US<br> thousands
Deferred<br> tax assets:
Accrued<br> employee benefits
Research<br> and development costs
Operating<br> loss carryforwards
Share<br> based compensation
Intangible<br> assets
Operating<br> lease liabilities
Other
Total<br> deferred tax assets
Deferred<br> tax liabilities:
Intangible<br> assets		)		)
Goodwill		)		)
Operating<br> leases right-of-use, net		)		)
Other		)		)
Total<br> deferred tax liabilities		)		)
Net<br> deferred tax assets
In<br> Israel
Foreign<br> jurisdictions		)		)
Net<br> deferred tax assets
Non-current<br> deferred tax assets
Non-current<br> deferred tax liabilities		)		)

All values are in US Dollars.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note16 - Taxes on Income (cont’d)

H.	Reconciliation of the statutory tax expense to actual tax expense
	Year<br> ended December 31
---	---	---	---	---	---	---	---	---
	2019		2020			2021
	US<br> thousands
Income<br> before income taxes				7,282			12,905
Statutory<br> tax rate in Israel		%		23.0	%		23.0	%
				1,675			2,968
Increase<br> (decrease) in taxes resulting from:
Non-deductible<br> operating expenses				508			395
Prior<br> years adjustments		)		(148	)		(157	)
Tax<br> effect due to
"Preferred<br> Enterprise" status*		)		(714	)		(800	)
Statutory<br> rate differential				105			(86	)
Changes<br> in tax rate				181			223
Creation<br> of deferred taxes for tax losses and<br><br> <br>benefits<br> from previous years for which deferred<br><br> <br>taxes<br> were not created in the past		)		-			-
Other				(50	)		(179	)
Income<br> tax expense				1,557			2,364

All values are in US Dollars.

*	The effect of the benefit resulting from the "Preferred Enterprise" status on net earnings per<br> ordinary share is as follows:
	Year ended December 31
---	---	---	---	---	---	---
	2019		2020		2021
Basic		0.15		0.10		0.12
Diluted		0.15		0.10		0.11

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note16 - Taxes on Income (cont’d)

Accounting for uncertainty in income taxes The accounting literature clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The standards prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. During 2019, 2020 and 2021 the Company and its subsidiaries did not have any significant unrecognized tax benefits and thus, no related interest and penalties were accrued. In addition, the Company and its subsidiaries do not expect that the amount of unrecognized tax benefits will change significantly within the next twelve months.

F

Silicom Ltd. and its Subsidiaries

Notes

to the Consolidated Financial Statements

Note 17 - Subsequent Events

A.	In January 2022, the Company’s compensation<br> committee and board of directors, respectively, have approved the grant of a total of 121,508<br> options and 16,000<br> RSUs under the Global Share Incentive Plan (2013).
B.	In March 2022, the Company’s compensation<br> committee and board of directors, respectively, have approved the grant of a total of 26,666<br> options under the Global Share Incentive Plan (2013) of which options granted to directors and office holders are subject to the<br> approval of the Annual General Meeting, which is currently scheduled to convene no later than June 2022, as prescribed under the Israeli<br> Companies Law, 1999 and the Company's Amended and Restated Articles of Association.
---	---
C.	Pursuant to the share repurchase plan approved<br> on April 29, 2021, the Company has purchased 57,568<br> shares of the Company's ordinary shares subsequent to December 31, 2021 and through March 9, 2022 for a total cost of US$ 2,552<br> thousand inclusive of transaction costs.
---	---
D.	In February 2022, Russia launched a military invasion<br> into Ukraine. The outcome of the ongoing conflict is uncertain. At this time the Company is unable to estimate any specific impact to<br> its business, financial condition or results of operations.
---	---

F

Exhibit 99.2

A. Operating Results

You should read the following management’s discussion and analysis of our financial condition and operating results in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this report. The following table sets forth, for the periods indicated, the relationship (in percentages) of items from our Consolidated Statement of Operations Data to our total sales:

Year Ended December 31,
	2019			2020			2021
Sales		100	%		100	%		100	%
Cost of sales		65.7			68.6			65.4
Gross profit		34.3			31.4			34.6
Research and development expenses		14.3			16.1			15.6
Sales and marketing expenses		6.3			5.8			5.1
General and administrative expenses		4.0			3.8			3.5
Operating Income		9.7			5.8			10.2
Financial income, net		1.6			1.0			(0.1	)
Income before income taxes		11.3			6.8			10.0
Income tax expenses		1.5			1.5			1.8
Net Income		9.7			5.3			8.3

Sales in 2021 increased by 19.6% to $128,460 thousand compared to $107,398 thousand in 2020, reflecting the combined impact of two opposite vectors: the significant increased demand for our products on one hand, and the growing global component shortages crisis on the other hand. The increase in demand and sales was mainly attributed to the continuous success of our Smart Edge products, especially in the SD-WAN market, and to our initial penetration to the 5G/O-RAN market. Both, SD-WAN and O-RAN, are part of the significant Disaggregation and Decoupling industry trends.

Sales in 2020 were US$ 107,398 thousand compared to US$ 105,240 thousand in 2019, reflecting the significant challenges presented in 2020 by Covid-19 and the continuous impact of the main market trends on our business - the move to the Cloud and Disaggregation & Decoupling.

Gross profit in 2021 was US$ 44,388 thousand compared to US$ 33,766 thousand in 2020. Gross profit as a percentage of sales in 2021 was 34.6%, compared to 31.4% in 2020. The higher gross profit percentage in 2021 compared to 2020 was mainly attributed to: (i) a one-time US$ 1.7 million impairment of intangible assets in 2020, (ii) changes to the mix of products that we sold in 2021, on which our gross profit is largely dependent. Gross profit was also affected by, among other factors, write-downs of inventory made with respect to any slow moving or obsolete inventory we can no longer use; the inventory write-downs as a percentage of sales in 2021 increased to 4.1%, compared to 1.5% in 2020.

Gross profit in 2020 was US$ 33,766 thousand compared to US$ 36,094 thousand in 2019. Gross profit as a percentage of sales in 2020 was 31.4%, compared to 34.3% in 2019. The lower gross profit percentage in 2020 compared to 2019 was mainly attributed to: (i) a one-time US$ 1.7 million impairment of intangible assets, (ii) changes to the mix of products that we sold in 2020, on which our gross profit is largely dependent. Gross profit was also affected by, among other factors, write-downs of inventory made with respect to any slow moving or obsolete inventory we can no longer use; the inventory write-downs as a percentage of sales in 2020 decreased to 1.5%, compared to 2.0% in 2019.

Research and development expenses in 2021 increased by 16.5% to US$ 20,091 thousand compared to US$ 17,244 thousand in 2020. This increase was mainly attributed to an increase in our research and development employees' and subcontractors' related costs, required for our continued investment in new product development, enhancements to existing products and the development of new networking and connectivity technologies expanding our product offering to our target markets, which contributed approximately US$ 4,540 thousand to such increase, combined with the following factors: (i) capitalization of internal software development costs in the amount of US$ 3,562 thousand in 2021, compared to US$ 822 thousand in 2020, (ii) an increase in the share-based compensation which amounted to approximately US$ 1,011 thousand in 2021, compared to US$ 959 thousand in 2020, as well as to (iii) a weakening of the US Dollar against the New Israeli Shekel and the Danish Krone (since a significant portion of our research and development expenses are incurred in New Israeli Shekels and Danish Krone), which amounted to approximately US$ 995 thousand. Research and development expenses in 2020 increased by 14.4% to US$ 17,244 thousand compared to US$ 15,075 thousand in 2019. This increase was mainly attributed to an increase in our research and development employees’ related costs, required for our continued investment in new product development, enhancements to existing products and the development of new networking and connectivity technologies expanding our product offering to our target markets, which contributed approximately US$ 1,479 thousand to such increase, combined with the following factors: (i) capitalization of internal software development costs in the amount of US$ 822 thousand in 2020, compared to US$ 1,018 thousand in 2019, (ii) an increase in the share-based compensation which amounted to approximately US$ 959 thousand in 2020, compared to US$ 900 thousand in 2019, as well as to (iii) a weakening of the US Dollar against the New Israeli Shekel and the Danish Krone (since a significant portion of our research and development expenses are incurred in New Israeli Shekels and Danish Krone), which amounted to approximately US$ 435 thousand.

Sales and marketing expenses in 2021 increased by 6.3% to US$ 6,599 thousand compared to US$ 6,209 thousand in 2020. This increase was mainly attributed to our continued investment in the promotion of our networking and data infrastructure solutions, expanding our customer base and product offering, which contributed approximately US$ 110 thousand, as well as to an increase in the share-based compensation which amounted to approximately US$ 697 thousand in 2021, compared to US$ 602 thousand in 2020, as well as to a weakening of the US Dollar against the New Israeli Shekel and the Danish Krone (since a significant portion of our sales and marketing expenses are incurred in New Israeli Shekels and Danish Krone) which amounted to approximately US$ 185 thousand. Sales and marketing expenses in 2020 decreased by 6.6% to US$ 6,209 thousand compared to US$ 6,647 thousand in 2019. This decrease was mainly attributed to a decrease in the travel expenses in 2020 compared to 2019 as a result of the Covid-19 pandemic, which contributed approximately US$ 642 thousand, offset by an increase in the share-based compensation which amounted to approximately US$ 602 thousand in 2020, compared to US$ 493 thousand in 2019, and by a weakening of the US Dollar against the New Israeli Shekel and the Danish Krone (since a significant portion of our sales and marketing expenses are incurred in New Israeli Shekels and Danish Krone) which amounted to approximately US$ 95 thousand.

---

General and administrative expenses in 2021 increased by 14.2% to US$ 4,641 thousand compared to US$ 4,065 thousand in 2020. This increase was mainly attributed to (i) an increase in payroll related expenses attributed to general and administrative activity which amounted to approximately US$ 313 thousand, (ii) to an increase in the share-based compensation, which amounted to approximately US$ 674 thousand in 2021, compared to US$ 615 thousand in 2020, as well as to (iii) a weakening of the US Dollar against the New Israeli Shekel and the Danish Krone (since a significant portion of our general and administrative expenses are incurred in New Israeli Shekels and Danish Krone) which amounted to approximately US$ 204 thousand.

General and administrative expenses in 2020 decreased slightly by 2.3% to US$ 4,065 thousand compared to US$ 4,159 thousand in 2019. This decrease was mainly attributed to a decrease in payroll related expenses attributed to general and administrative activity which amounted to approximately US$ 203 thousand, offset by a weakening of the US Dollar against the New Israeli Shekel and the Danish Krone (since a significant portion of our general and administrative expenses are incurred in New Israeli Shekels and Danish Krone) which amounted to approximately US$ 109 thousand.

Financial expenses, net in 2021 amounted to US$ 152 thousand compared to US$ 1,034 thousand in 2020. The change is mainly attributed to the following factors: (i) a decrease in income from investment in marketable securities and bank deposits, which was attributed to a decrease in funds available for investment, which amounted to US$ 927 thousand in 2021 compared to US$ 1,953 thousand in 2020, and (ii) a weakening of the US Dollar against the New Israeli Shekel and the Danish Krone, which created net financial expenses in US Dollars from exchange rate differences (a portion of our balance sheet assets and obligations are denominated in New Israeli Shekels as well as in Danish Krone) of US$ 1,032 thousand in 2021 compared to net financial expenses of US$ 748 thousand in 2020.

Financial income, net in 2020 decreased by 37.2% to US$ 1,034 thousand compared to US$ 1,646 thousand in 2019. The decrease resulted mainly from the net effect of the following factors: (i) a decrease in income from investment in marketable securities and bank deposits, which was attributed to a decrease in funds available for investment, which amounted to US$ 1,953 thousand in 2020 compared to US$ 2,151 thousand in 2019, and (ii) a weakening of the US Dollar against the New Israeli Shekel and the Danish Krone, which created net financial expenses in US Dollars from exchange rate differences (a portion of our balance sheet assets and obligations are denominated in New Israeli Shekels as well as in Danish Krone) of US$ 748 thousand in 2020 compared to net financial expenses of US$ 357 thousand in 2019.

In 2021 we recorded current income tax expenses of US$ 2,473 thousand and deferred income tax expenses of US$ 48 thousand compared to current income tax expenses of US$ 1,766 thousand and deferred income tax benefit of US$ 61 thousand in 2020. The increase in our current income tax expenses was mainly attributed to an increase in our income and the resulting taxable income. The change in the deferred income tax expenses was mainly attributed to the following factors: (i) a deferred income tax benefit relating to research and development costs, which amounted to US$ 141 thousand in 2021, compared to a deferred income tax benefit in the amount of US$ 262 thousand in 2020, (ii) deferred income tax expenses relating to intangible assets, which amounted to US$ 25 thousand in 2021, compared to a deferred income tax benefit in the amount of US$ 134 thousand in 2020, offset by (iii) a decrease in income tax expenses relating to tax loss carryforwards, which amounted to US$ 66 thousand in 2021, compared to deferred income tax expenses which amounted to US$130 thousand in 2020. (iv) a deferred income tax benefit relating to share-based compensation provided by us to our employees and directors, which amounted to US$ 62 thousand in 2021, compared to deferred income tax expenses in the amount of US$ 9 thousand in 2020. In addition, in 2021 we recorded an income tax benefit relating to prior years in the amount of US$ 157 thousand, compared to an income tax benefit relating to prior years in the amount of US$ 148 thousand in 2020. In 2020 we recorded current income tax expenses of US$ 1,766 thousand and deferred income tax benefit of US$ 61 thousand compared to current income tax expenses of US$ 2,343 thousand and deferred income tax benefit of US$ 699 thousand in 2019. The decrease in our current income tax expenses was mainly attributed to a decrease in our income and the resulting taxable income. The decrease in the deferred income tax benefit was mainly attributed to the following factors: (i) a deferred income tax benefit relating to research and development costs, which amounted to US$ 262 thousand in 2020 compared to deferred income tax benefit in the amount of US$ 755 thousand in 2019, and (ii) deferred income tax expenses in relation to acquired goodwill, which amounted to US$ 210 thousand in 2020 compared to US$ 72 thousand in 2019. In addition, in 2020 we recorded an income tax benefit relating to prior years in the amount of US$ 148 thousand, compared to an income tax benefit relating to prior years in the amount of US$ 21 thousand in 2019.

In 2021 we recorded net income of US$ 10,541 thousand compared to net income of US$ 5,725 thousand in 2020, an increase of 84.1%. This increase was mainly attributed to the increase in our activity and sales.

In 2020 we recorded net income of US$ 5,725 thousand compared to net income of US$ 10,236 thousand in 2019, a decrease of 44.1%. The decrease was mainly attributed to our lower gross profit in 2020 compared to 2019, as mentioned above, combined with higher operating expenses we incurred in 2020 relative to operating expenses we incurred in 2019.

Impact of Inflation and Currency Fluctuations on Results of Operations, Liabilities and Assets

Since the majority of our revenues are denominated and paid in U.S. Dollars, we believe that inflation in Israel and in Denmark and fluctuations in the U.S. dollar exchange rates do not have any material effect on our revenue. Inflation in Israel or Denmark and the Israeli and Danish currency as well as U.S. dollar exchange rate fluctuations, may however, have an effect on our expenses and, as a result, on our net income/loss. The cost of our Israeli and Danish operations, as expressed in U.S. Dollars, is influenced by the extent to which any change in the rates of inflation in Israel or Denmark are not offset (or are offset on a lagging basis) by a change in valuation of the NIS or DKK in relation to the U.S. dollar.

We do not presently engage in any hedging or other transactions intended to manage the risks relating to foreign currency exchange rate or interest rate fluctuations. However, we may in the future undertake such transactions, if management determines that it is necessary to offset such risks.

B. Liquidity and Capital Resources

As of December 31, 2021, we had working capital of US$ 98,806 thousand and our current ratio (current assets to<br> current liabilities) was 2.96. Cash and cash equivalents as of December 31, 2021 increased by US$ 8,609 thousand to US$ 29,285 thousand, compared to US$ 20,676 thousand as of December 31, 2020. Short-term bank deposits as of December 31,<br> 2021 decreased by US$ 5,000 thousand to US$ 0 thousand, compared to US$ 5,000 thousand as of December 31, 2020. Short-term marketable securities decreased by US$ 26,851 thousand to US$ 8,266 thousand, compared to US$ 35,117 thousand as of<br> December 31, 2020, and long-term marketable securities increased by US$ 8,492 thousand to US$ 23,773 thousand, compared to US$ 15,281 thousand as of December 31, 2020. The net decrease of US$ 14,750 thousand in these four balance sheet<br> items in 2021 was mainly attributed to the following factors: (i) purchase of treasury shares in the amount of approximately US$ 14,291 thousand, (ii) payments in relation to purchase of property, plant and equipment which amounted to US$<br> 2,586 thousand, and (iii) to investment in intangible assets which amounted to US$ 3,572 thousand, offset by (iv) consideration received from repayment of short-term bank deposits in the amount of US$ 5,000 thousand, and (v) net cash<br> provided by operating activities in the amount of US$ 1,079 thousand.
Trade receivables increased to US$ 31,120 thousand as of December 31, 2021, compared to US$ 21,660 thousand as of<br> December 31, 2020. This increase was mainly attributed to the increase in our sales. Other receivables decreased to US$ 4,693 thousand as of December 31, 2021, compared to US$ 6,126 thousand as of December 31, 2020.
Trade payables increased to US$ 29,918 thousand as of December 31, 2021, compared to US$ 14,610 thousand as of<br> December 31, 2020. This increase was mainly attributed to the increase in our activity. Other payables and accrued liabilities increased to US$ 18,582 thousand as of December 31, 2021, compared to US$ 12,953 thousand as of December 31,<br> 2020. This increase was mainly attributed to an increase in our accrued expenses.
Inventories increased to US$ 75,753 thousand as of December 31, 2021, compared to US$ 47,650 thousand as of December<br> 31, 2020. This increase was primarily the result of an increase in our inventory purchasing, in order to secure continuous production to support our customers' expectations of a swift delivery, making the readily available inventory<br> pivotal to our business.
Cash provided by operating activities in 2021 amounted to US$ 1,079 thousand compared to cash provided by operating<br> activities in the amount of US$ 4,956 thousand in 2020. This decrease was mainly attributed to an increase in our inventory offset by an increase in our trade accounts payable.
Capital expenditures on property and equipment for the year ended December 31, 2021 were US$ 2,475 thousand,<br> compared to US$ 2,543 thousand as of December 31, 2020.
We have cash and cash equivalents that we believe are sufficient for our present requirements. Furthermore, our cash resources are sufficient to fund our operating needs for at least the<br> next twelve months.

Exhibit 99.3

      ![](image1.jpg)

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-149144, 333-185230, 333-193034, and 333-249717) of Silicom Ltd. of our report dated March 16, 2022 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 6-K.

/s/ Kesselman & Kesselman

Certified Public Accountants (Isr.)

A member of PricewaterhouseCoopers International Limited

Tel-Aviv, Israel

March 16, 2022

Derech Menachem Begin 146, Tel-Aviv-Yafo 6492103, Israel,

P.O Box 7187 Tel-Aviv 6107120 Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il

Exhibit 99.4

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in registration statements No. 333-149144, No. 333- 185230, No. 333-193034 and No. 333-249717 on Form S-8 of our report dated March 15, 2021, with respect to the consolidated financial statements of Silicom Ltd. and its subsidiaries.

/s/ Somekh Chaikin

Member Firm of KPMG International

Tel Aviv, Israel

March 14, 2022

Exhibit 99.5

Management's Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Management assessed our internal control over financial reporting as of December 31, 2021, the end of our fiscal year. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in "Internal Control — Integrated Framework (2013)."

Based on our assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2021, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. We reviewed the results of management's assessment with the audit committee of our Board of Directors.

This 6-K includes an attestation report of the Company's registered public accounting firm on management's assessment of the Company's internal control over financial reporting.