6-K

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, 2020

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 16, 2020, 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, 2019.

Attached hereto as Exhibit 99.1 are Consolidated Financial Statements as of and for the year ended December 31, 2019 (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, 2019.

Attached hereto as Exhibit 99.3 is Consent of Somekh Chaikin, Independent Registered Public Accounting Firm, a member firm of KPMG International.

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. (Registrant)
Date: March 16, 2020	By	/s/ Eran Gilad
	Eran Gilad
	Chief Financial Officer

EX-99.1

Exhibit 99.1

 

Item 1

Silicom Ltd.

and its Subsidiaries

Consolidated

 Financial Statements

As of and for the year ended

 December 31, 2019

Silicom Ltd. and its Subsidiaries

Consolidated Financial Statements as of December 31, 2019

Contents

	Page
Report of Independent Registered Public Accounting Firm	F - 3
Consolidated Balance Sheets	F - 5
Consolidated Statements of Operations	F - 7
Consolidated Statements of Changes in Shareholders’ Equity	F - 8
Consolidated Statements of Cash Flows	F - 9
Notes to the Consolidated Financial Statements	F - 10

F - 2

Report of Independent Registered Public Accounting Firm

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

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Silicom Ltd. and subsidiaries (the Company) as of December 31, 2018 and 2019, the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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, 2018 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Change in accounting principle

As discussed in Note 2N to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of ASC 842 Leases.

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 an opinion on the Company’s consolidated financial statements and an opinion 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.

F - 3

Our audits 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 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. 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.

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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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.

/s/ Somekh Chaikin

Certified Public Accountants (Isr.)

Member Firm of KPMG International

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

Tel Aviv, Israel

March 16, 2020

F - 4

Silicom Ltd. and its Subsidiaries

Consolidated Balance Sheets as of December 31

			2018		2019
	Note		US$ thousands		US$ thousands
Assets
Current assets
Cash and cash equivalents		4		26,808		16,469
Short-term bank deposits		2F		-		13,542
Marketable securities		2G, 5		1,600		14,045
Accounts receivable:
Trade, net		2H		23,453		24,936
Other		6		9,487		4,964
Related parties				364		-
Inventories		7		42,369		36,491
Total current assets				104,081		110,447
Marketable securities		2G, 5		45,612		46,542
Assets held for employees' severance benefits		11		1,517		1,640
Deferred tax assets		15G		894		1,798
Property, plant and equipment, net		8		3,670		3,574
Intangible assets, net		9		966		1,718
Operating leases right-of-use, net		10		-		3,783
Goodwill				25,561		25,561
Total assets				182,301		195,063

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

Kfar-Saba, Israel

March 16, 2020

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

F - 5

Silicom Ltd. and its Subsidiaries

Consolidated Balance Sheets as of December 31 (Continued)

			2018			2019
	Note		US$ thousands			US$ thousands
Liabilities and shareholders' equity
Current liabilities
Trade accounts payable				15,389			16,419
Other accounts payable and accrued expenses				6,133			8,823
Operating lease liabilities		10		-			1,090
Related parties				18			-
Total current liabilities				21,540			26,332
Long-term liabilities
Operating lease liabilities		10		-			2,693
Liability for employees' severance benefits		11		2,612			2,910
Deferred tax liabilities		15G		-			205
Total liabilities				24,152			32,140
Shareholders' equity		12
Ordinary shares, ILS 0.01 par value; 10,000,000 shares
authorized; 7,574,176 and 7,618,676 issued as at
December 31, 2018 and 2019, respectively;
7,559,205 and 7,351,317 outstanding as at
December 31, 2018 and 2019, respectively				22			22
Additional paid-in capital				54,621			57,130
Treasury shares (at cost) - 14,971 and 267,359 ordinary shares as at
December 31, 2018 and 2019, respectively				(38	)		(8,009	)
Retained earnings				103,544			113,780
Total shareholders' equity				158,149			162,923
Total liabilities and shareholders’ equity				182,301			195,063

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

F - 6

Silicom Ltd. and its Subsidiaries

Consolidated Statements of Operations for the Year Ended December 31

			2017			2018		2019
			US$ thousands
	Note		Except for share and per share data
Sales*		2O, 13		125,690			133,753		105,240
Cost of sales				79,762			91,697		69,146
Gross profit				45,928			42,056		36,094
Operating expenses
Research and development**				13,915			14,820		15,075
Sales and marketing				6,722			6,642		6,647
General and administrative				4,507			3,943		4,159
Contingent consideration		3		(4,642	)		-		-
Total operating expenses				20,502			25,405		25,881
Operating income				25,426			16,651		10,213
Financial income, net		14		156			923		1,646
Income before income taxes				25,582			17,574		11,859
Income taxes		15		3,868			2,937		1,623
Net income				21,714			14,637		10,236
Income per share:
Basic income per ordinary share (US$)		2U		2.912			1.938		1.361
Diluted income per ordinary share (US$)				2.856			1.912		1.352
Weighted average number of ordinary
shares used to compute basic income
per share (in thousands)				7,456			7,552		7,520
Weighted average number of ordinary
shares used to compute diluted income
per share (in thousands)				7,602			7,657		7,573

* Including sales to related parties in the amount of US$ 1,275 thousand, US$ 1,063 thousand and US$ 0 in 2017, 2018 and 2019, respectively.

** Including services from related parties in the amount of US$ 170 thousand, US$ 311 thousand and US$ 0 in 2017, 2018 and 2019, respectively.

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

F - 7

Silicom Ltd. and its Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

	Ordinary shares					Additional paid-in capital		Treasury shares			Retained earnings			Total shareholders’ equity
	Number of shares(1)			US$ thousands
Balance at
January 1, 2017		7,381,613			22		46,833		(38	)		74,575			121,392
Exercise of options and RSUs(2)		167,918			*-		2,651		-			-			2,651
Share-based compensation		-			-		2,425		-			-			2,425
Dividend (US $1.00  per share)		-			-		-		-			(7,382	)		(7,382	)
Net income		-			-		-		-			21,714			21,714
Balance at
December 31, 2017		7,549,531			22		51,909		(38	)		88,907			140,800
Exercise of options and RSUs(2)		9,674			*-		288		-			-			288
Share-based compensation		-			-		2,424		-			-			2,424
Net income		-			-		-		-			14,637			14,637
Balance at
December 31, 2018		7,559,205			22		54,621		(38	)		103,544			158,149
Exercise of options and RSUs(2)		44,500			*-		154		-			-			154
Purchase of treasury shares		(252,388	)		-		-		(7,971	)		-			(7,971	)
Share-based compensation		-			-		2,355		-			-			2,355
Net income		-			-		-		-			10,236			10,236
Balance at
December 31, 2019		7,351,317			22		57,130		(8,009	)		113,780			162,923

(1)	Net of shares held by Silicom Inc. and Silicom Ltd.
(2)	Restricted share units (hereinafter - "RSUs")
*	Less than 1 thousand.

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

F - 8

Silicom Ltd. and its Subsidiaries

Consolidated Statements of Cash Flows for the Year Ended December 31

	2017			2018			2019
	US$ thousands
Cash flows from operating activities
Net income		21,714			14,637			10,236
Adjustments required to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization		3,799			3,293			1,997
Write-down of obsolete inventory		2,918			6,211			2,106
Discount on marketable securities, net		217			32			144
Share-based compensation expense		2,425			2,424			2,355
Deferred taxes, net		453			5			(699	)
Changes in assets and liabilities:
Accounts receivable - trade		(13,237	)		16,985			(1,441	)
Accounts receivable - other		(2,475	)		(3,384	)		4,385
Accounts receivable - related parties		(208	)		261			364
Change in liability for employees' severance benefits, net		171			(79	)		175
Inventories		(10,287	)		2,540			3,529
Trade accounts payable		1,698			3,059			769
Other accounts payable and accrued expenses		(1,144	)		(314	)		2,824
Contingent consideration benefit		(4,642	)		-			-
Accounts payable - related parties		6			8			(18	)
Net cash provided by operating activities		1,408			45,678			26,726
Cash flows from investing activities
Investment in short-term bank deposits, net		-			-			(13,542	)
Purchase of property, plant and equipment		(1,690	)		(1,345	)		(1,441	)
Investment in intangible assets		(11	)		(1,022	)		(1,018	)
Proceeds from maturity of marketable securities		16,175			7,750			1,997
Purchases of marketable securities		(5,961	)		(41,670	)		(15,604	)
Net cash provided by (used in) investing activities		8,513			(36,287	)		(29,608	)
Cash flows from financing activities
Exercise of options		2,651			288			154
Dividend		(7,382	)		-			-
Purchase of treasury shares		-			-			(7,971	)
Net cash provided by (used in) financing activities		(4,731	)		288			(7,817	)
Effect of exchange rate changes on cash balances held		(86	)		108			360
Increase (decrease) in cash and cash equivalents		5,104			9,787			(10,339	)
Cash and cash equivalents at beginning of year		11,917			17,021			26,808
Cash and cash equivalents at end of year		17,021			26,808			16,469
Supplementary cash flow information
A. Non-cash transactions:
Investments in property, plant and equipment		119			146			97
B. Cash paid during the year for:
Income taxes		4,584			3,260			1,103

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

F - 9

Silicom Ltd. and its Subsidiaries

Notes to 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.

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 in US dollars

Substantially all sales of the Company are made outside of Israel (see Note 13A 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 - 10

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 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.

As of December 31, 2019, the Company's short-term bank deposits consist of bank deposits in US dollars carrying a weighted average interest rate of 2.58%. These short-term bank deposits are held with a major Israeli bank, and their use and withdrawal are not subject to any restrictions.

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 - 11

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)

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 collectibility 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.

H. Trade accounts receivable, net

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.

As of December 31, 2018 and 2019, the provision for doubtful accounts receivable amounted to US$ 20 thousand.

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.

F - 12

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

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

J. Assets held for employees’ 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 - 33
Office furniture and equipment	6 - 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.

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

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

F - 13

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)

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.

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 - 14

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

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

N. Leases

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02. The guidance establishes a right-of-use model ("ROU") that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. The Company determines if an arrangement is or contains a lease at contract inception.

A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. The Company adopted the new accounting standard ASC 842 "Leases" and all the related amendments on January 1, 2019 and used the effective date as the Company’s date of initial application. Consequently, financial information was not updated and the disclosures required under the new standard are not provided for dates and periods before January 1, 2019.

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, 2019, all of the company's leases are operating leases.

The new standard provides a number of optional practical expedients in transition. The Company chose to apply the following permitted practical expedients:

• Not to reassess its prior conclusions regarding lease identification, lease classification and initial direct costs under the new standard.

• Applying the practical expedient pertaining to the use-of hindsight.

• 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 ROU assets or lease liabilities but recognizes lease expenses over the lease term on a straight-line basis.

• Applying the practical expedient to not separate lease and non-lease components for all of the Company’s leases, other than leases of real estate.

The company did not separate lease and non-lease components for all contracts entered into before January 1, 2019 and identified as leases in accordance with Topic 840.

F - 15

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

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

N.           Leases (cont’d)

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.

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 up to 7.5 years. Some of these agreements include options to extend the leases for up to 5 years and some 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 10.

F - 16

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

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

N.            Leases (cont’d)

Prior to the adoption of the new lease standard, the Company leases consisted of real estate and cars for use in its operations, which have been classified as operating leases.

Effects of the initial application of the new standard on the Company's consolidated balance sheet as of January 1, 2019:

	According to the previous accounting policy		The change			As presented according to Topic 842
			US$ thousands
Operating leases right-of-use		-		3,424			3,424
Prepaid expenses		90		(90	)		-
Operating lease liabilities		-		(3,334	)		(3,334	)

O.            Revenue recognition

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, a new accounting standard related to revenue recognition. ASC 606 supersedes nearly all U.S. GAAP on revenue recognition and eliminated industry-specific guidance. The underlying principle of ASC 606 is to recognize revenue when a customer obtains control of the promised goods at an amount that reflects the consideration that is expected to be received in exchange for those goods. It also requires increased disclosures including the nature, amount, timing, and uncertainty of revenues and cash flows related to contracts with customers. The Company adopted ASC 606 at the beginning of the first quarter of fiscal 2018, and implemented new accounting policies and internal controls necessary to support the requirements of ASC 606. The adoption of ASC 606 did not have any impact on the Company's revenue recognition.

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. The Company identifies separated contractual performance obligations and evaluates each distinct performance obligation within a contract, whether it is satisfied at a point in time or over time.  All of the Company's performance obligations for the reported periods were satisfied at a point in time.

Revenue is allocated among performance obligations in a manner that reflects the consideration that the Company expects to be entitled to for the promised goods based on standalone selling prices (SSP). SSP are estimated for each distinct performance obligation and judgment may be required in their determination. The best evidence of SSP is the observable price of the product when the Company sell the goods separately in similar circumstances and to similar customers.

F - 17

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

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

O. Revenue recognition (cont’d)

Until January 1, 2018, revenues from sales of products were recognized upon delivery provided that the collection of the resulting receivable was reasonably assured, there was persuasive evidence of an arrangement, no significant obligations remained and the price was fixed or determinable.

Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from revenues in the consolidated statements of operations.

P. Research and development costs

Capitalization of software development costs 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. The Company started to capitalize internal software development costs during 2018. The Company did not capitalize any internal software development costs for the year ended December 31, 2017, because the cost incurred and the time between technological feasibility and product release was insignificant. 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 service 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.

F - 18

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 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 at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

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 - 19

 

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 common shares outstanding is increased to include outstanding potential common shares during the period if dilutive. Potential common 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.

	Year ended December 31
	2017		2018		2019
Net income attributable to ordinary shares
(US$ thousands)		21,714		14,637		10,236
Weighted average number of ordinary shares outstanding
used in basic income per ordinary share calculation		7,455,528		7,552,094		7,520,389
Add assumed exercise of outstanding dilutive potential
ordinary shares		146,443		105,236		52,228
Weighted average number of ordinary shares outstanding
used in diluted income per ordinary share calculation		7,601,971		7,657,330		7,572,617
Basic income per ordinary shares (US$)		2.912		1.938		1.361
Diluted income per ordinary shares (US$)		2.856		1.912		1.352
Weighted average number of shares related to options
and RSUs excluded from the diluted earnings per share
calculation because of anti-dilutive effect		-		171,086		351,610

F - 20

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, 2017, 2018 and 2019, 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 - 21

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, 2018 and 2019, the ratings of the securities in the Company's portfolio was at least A-. 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 three customers accounted for approximately 35% of its revenues in 2019. 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 13.

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.

Z.           Recent Accounting Pronouncements

(1) In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted for annual and interim periods in fiscal years beginning after December 15, 2018. In November 2019, the FASB issued ASU 2019-11, which includes several amendments to the credit losses standard (ASU 2016-13), including amendments to the reporting of expected recoveries. The Company is currently evaluating the impact of the provisions of ASU 2016-13 on its financial position, results of operations and cash flows.

(2) In December 2019, the FASB issued ASU 2019-12, which removes certain exceptions for: recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This ASU is effective for annual periods in fiscal years beginning after December 15, 2021, and interim periods in fiscal years beginning after December 15, 2022. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its consolidated balance sheets, results of operations, cash flows or presentation thereof.

F - 22

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

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

Z.           Recent Accounting Pronouncements (cont’d)

(3) In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which eliminates the requirement to calculate the implied fair value of goodwill in Step 2 of the goodwill impairment test. Under ASU 2017-04, goodwill impairment charges will be based on the excess of a reporting unit’s carrying amount over its fair value as determined in Step 1 of the testing. ASU 2017-04 is effective for interim and annual testing dates after December 15, 2019, with early adoption permitted for interim and annual goodwill impairment testing dates after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated balance sheets, results of operations, cash flows or presentation thereof.

F - 23

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. The fair value measurement of the contingent consideration was classified at level 2 and level 3 of the fair value hierarchy (see Note 2W). 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.

In connection with the contingent consideration, during 2016 the Company paid ADI an amount of US$ 3,000 thousand. Any amount not paid was charged to the statement of operations as an income.

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. The fair value measurement of the contingent consideration was classified at level 3 of the fair value hierarchy (see Note 2W). Of the total estimated purchase price of US$ 14,844 thousand, US$ 2,022 thousand was attributed to tangible assets, US$ 1,996 thousand was attributed to intangible assets, US$ 12,242 thousand was attributed to goodwill and US$ 1,416 was attributed to liabilities assumed. The goodwill is primarily attributable to the synergies expected to arise after the acquisition. None of the recognized goodwill is expected to be deductible for income tax purposes.

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). Any amount not paid was charged to the statement of operations as an income.

F - 24

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 4 - Cash and Cash Equivalents

	December 31
	2018		2019
	US$ thousands
Cash		16,147		13,382
Cash equivalents *		10,661		3,087
		26,808		16,469

* Comprised mainly of deposits in banks as at December 31, 2018 and 2019 carrying a weighted average interest rate of 2.79% and 1.04%, respectively.

F - 25

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, 2018 and 2019 are classified as ''held-to-maturity'' and consist of the following:

			Gross		Gross
			unrealized		unrealized
	Amortized		holding		holding			Aggregate
	cost basis**		gains		(losses)			fair value*
	US$ thousands
At December 31, 2019
Held to maturity:
Corporate debt securities and government debt securities
Current		14,170		24		(97	)		14,097
Non-Current		46,955		408		(112	)		47,251
		61,125		432		(209	)		61,348
At December 31, 2018
Held to maturity:
Corporate debt securities and government debt securities
Current		1,610		-		(22	)		1,588
Non-Current		46,052		-		(778	)		45,274
		47,662		-		(800	)		46,862

*	Fair value is being determined using quoted market prices in active markets (Level 2).
**	Including accrued interest in the amount of US$ 450 thousand and US$ 538 thousand as of December 31, 2018 and 2019 respectively. The accrued interest is presented as part of other account receivable on the balance sheet.

Activity in marketable securities in 2019	US$ thousands
Balance at January 1, 2019		47,662
Purchases of marketable securities		15,604
Discount on marketable securities, net		(144	)
Proceeds from maturity of marketable securities		(1,997	)
Balance at December 31, 2019		61,125

F - 26

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 on investment securities for which other-than-temporary impairments have not been recognized 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 position, at December 31, 2019:

	Less than 12 months					12 months or more					Total
	Unrealized Losses			Fair value		Unrealized Losses			Fair value		Unrealized Losses			Fair value
Held to maturity:
Corporate debt securities and government debt securities		(38	)		4,968		(171	)		20,100		(209	)		25,068

The unrealized losses 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; therefore these investments are not considered other than temporarily impaired.

Note 6 - Other Receivables

	December 31
	2018		2019
	US$ thousands
Advances to suppliers		5,260		805
Government authorities		2,916		2,758
Prepaid expense		884		553
Other receivables		427		848
		9,487		4,964

Note 7 - Inventories

	December 31
	2018		2019
	US$ thousands
Raw materials and components		19,088		20,986
Products in process		10,883		7,137
Finished products		12,398		8,368
		42,369		36,491

F - 27

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 8 - Property, Plant and Equipment, Net

	December 31
		2018		2019
	US$ thousands
Machinery and equipment		12,150		13,374
Office furniture and equipment		725		924
Leasehold improvements		2,375		2,528
Property, plant and equipment		15,250		16,826
Accumulated depreciation		(11,580	)	(13,252	)
Property, Plant and equipment, net		3,670		3,574

Depreciation expense for the years ended December 31, 2017, 2018 and 2019 were US$ 1,911 thousand, US$ 2,190 thousand and US$ 1,731 thousand, respectively.

F - 28

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 9 - Intangible Assets

			December 31
			2018		2019
	Useful life		US$ thousands
Original cost:
Capitalization of software development costs		3		928		1,946
Licenses		3		106		106
				1,034		2,052
Accumulated amortization:
Capitalization of software development costs				37		274
Licenses				31		60
				68		334
Intangible assets, Net:
Capitalization of software development costs				891		1,672
Licenses				75		46
				966		1,718

Amortization expense for the years ended December 31, 2017, 2018 and 2019 were US$ 1,888 thousand, US$ 1,103 thousand and US$ 266 thousand, respectively.

F - 29

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 10 – Leases

A.	The components of operating lease cost for the year ended December 31, 2019 were as follows:
		Year ended December 31
		2019
		US$ thousands
	Operating lease cost		1,494
	Variable lease payments not included in the lease liability		2
	Short-term lease cost		287
	Total operating lease cost		1,783

B.	Supplemental cash flow information related to operating leases was as follows:
		Year ended December 31
		2019
		US$ thousands
	Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows from operating leases		1,541
	Right-of-use assets obtained in exchange for lease obligations (non-cash):
	Operating leases		1,524

C.	Supplemental balance sheet information related to operating leases was as follows:
		December 31, 2019
		US$ thousands
	Operating leases:
	Operating leases right-of-use		3,783
	Current operating lease liabilities		1,090
	Non-current operating lease liabilities		2,693
	Total operating lease liabilities		3,783
		December 31, 2019
		US$ thousands
	Weighted average remaining lease term
	Operating leases	4.8 years
	Weighted average discount rate
	Operating leases		3.3	%

F - 30

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 10 – Leases (cont’d)

D.	Future minimum lease payments under non-cancellable leases as of December 31, 2019 were as follows:
		December 31, 2019
		US$ thousands
	2020		1,209
	2021		831
	2022		641
	2023		576
	After 2024		709
	Total operating lease payments		3,966
	Less: imputed interest		(183	)
	Present value of lease liabilities		3,783

E.	Future minimum lease payments under non-cancellable leases as of December 31, 2018, under ASC 840, Leases were as follows:
		December 31, 2018
		US$ thousands
	2019		1,394
	2020		643
	2021		449
	2022		363
	2023		363
	After 2024		643
	Total operating lease payments		3,855

F - 31

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 11 - Assets Held and Liability for Employees' Severance Benefits

A. Under Israeli law and labor agreements, Silicom is required to make severance payments to retired or dismissed employees and to employees leaving employment in certain other circumstances.

In respect of the liability to the employees, individual insurance policies are purchased and deposits are made with recognized severance pay funds.

The liability for severance pay is calculated on the basis of the latest salary paid to each employee multiplied by the number of years of employment. The liability is covered by the amounts deposited including accumulated income thereon as well as by the unfunded provision.

B. According to Section 14 to the Severance Pay Law ("Section 14") the payment of monthly deposits by a company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to the employees that have entered into agreements with the company pursuant to such Section 14. Commencing July 1, 2008, the Company has entered into agreements with a majority of its employees in order to implement Section 14. Therefore, as of that date, the payment of monthly deposits by the Company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to those employees that have entered into such agreements and therefore the Company incurs no additional liability since that date with respect to such employees. Amounts accumulated in the pension funds or insurance policies pursuant to Section 14 are not supervised or administrated by the Company and therefore neither such amounts nor the corresponding accrual are reflected in the balance sheet.

C. Consequently, the assets held for employees' severance benefits reported on the balance sheet, in respect of deposits for those employees who have signed agreements pursuant to Section 14, represent the redemption value of deposits made through June 30, 2008. The liability for employee severance benefits, with respect to those employees, represents the liability of the Company for employees' severance benefits as of June 30, 2008.

As a result of the implementation of Section 14, as described above, the liability with respect to those employees is calculated on the basis of number of years of employment as of June 30, 2008, multiplied by the latest salary paid. The liability is covered by the amounts deposited, including accumulated income thereon, as well as by the unfunded provision. Such liability will be removed, either upon termination of employment or retirement.

D. Expenses recorded with respect to employees' severance payments for the years ended December 31, 2017, 2018 and 2019 were US$ 830 thousand, US$ 605 thousand and US$ 929 thousand, respectively.

F - 32

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - 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. 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 October 21, 2013 the Board resolved to adopt the Global Share Incentive Plan (2013) (the "2013 Plan") and to reserve up to 500,000 ordinary shares for issuance under the 2013 Plan to employees, directors, officers and consultants of the Company or of any subsidiary or affiliate of the Company. In January 2018, our Board approved the increase of the number of ordinary shares reserved for issuance under the 2013 Plan by 600,000 additional ordinary shares. Grants under the 2013 Plan, whether as options, restricted stock units, restricted stock or other equity based awards, including their terms, are subject to the Board of Directors' approval. Grants to directors and certain other officers are generally subject to the approvals of the Compensation Committee as well as Board of Directors, and grants to directors or a CEO (and under certain circumstances certain other officers) will also have to be approved by the Shareholders.

B. Options or RSUs granted to Israeli residents may be granted under Section 102 of the Israeli Income Tax Ordinance pursuant to which the awards of options, or the ordinary shares issued upon their exercise, must be deposited with a trustee for at least two years following the date of grant. Under Section 102, any tax payable by an employee from the grant or exercise of the awards is deferred until the transfer of the awards or ordinary shares by the trustee to the employee or upon the sale of the awards or ordinary shares.

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

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

F - 33

 

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

C. During 2014, 2015 and 2017, the Company granted 74,000, 8,000 and 78,000 RSUs respectively to certain of its directors, employees and consultants under the 2013 Plan. In relation to those grants:

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

2. The fair value of RSUs is estimated based on the market value of the Company’s stock on the date of grant, less an estimate of dividends that will not accrue to RSUs holders prior to vesting.

3. The Company recognizes compensation expenses on these RSUs based on estimated grant date fair value, with the following assumptions:

	2014			2015			2017
Expected dividend yield		2.06	%		3.22	%		2.68	%
Termination rate		4.35	%		0	%		1.74	%

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Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

D. On July 28, 2015, the Company granted, in the aggregate, 89,907 options to certain of its directors and employees under the 2013 Plan.  In relation to this grant:

1. The exercise price for the options (per ordinary share) was US$ 26.91 and the Option expiration date was the earlier to occur of: (a) July 28, 2023; and (b) the closing price of the shares falling below US$ 13.46 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2. The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	2.08	%
Expected dividend yield	2.09	%
Average expected volatility (b)	53.01	%
Termination rate	9	%
Suboptimal factor (c)	3.4

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F - 35

 

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

E.            On June 8, 2016, the Company granted, in the aggregate, 93,660 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

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

2. The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	1.58	%
Expected dividend yield	2.42	%
Average expected volatility (b)	47.90	%
Termination rate	9	%
Suboptimal factor (c)	3.32

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F - 36

 

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

F. On January 30, 2017, the Company granted, in the aggregate, 119,925 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

1. The exercise price for the options (per ordinary share) was US$ 39.62 and the Option expiration date was the earlier to occur of: (a) January 30, 2025; and (b) the closing price of the shares falling below US$ 19.81 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2. The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

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

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F - 37

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

G. On April 30, 2018, the Company granted, in the aggregate, 137,010 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

1. The exercise price for the options (per ordinary share) was US$ 36.11 and the Option expiration date was the earlier to occur of: (a) April 30, 2026; and (b) the closing price of the shares falling below US$ 18.06 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2. The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

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

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F - 38

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

H. On January 31, 2019, the Company granted, in the aggregate, 141,928 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

1. The exercise price for the options (per ordinary share) was US$ 33.83 and the Option expiration date was the earlier to occur of: (a) January 31, 2027; and (b) the closing price of the shares falling below US$ 16.92 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2. The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

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

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F - 39

 

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

I. The following table summarizes information regarding stock options as at December 31, 2019:

	Options outstanding				Options exercisable
			Weighted average				Weighted average
			remaining				remaining
Exercise price	Number		contractual life		Number		contractual life
US$	of options		(in years)		of options		(in years)
15.28		6,575		0.7		6,575		0.7
26.91		19,332		3.6		19,332		3.6
33.27		19,706		6.3		19,706		6.3
28.38		72,198		4.4		72,198		4.4
39.62		101,838		5.1		101,838		5.1
36.11		116,257		6.3		-		-
33.83		129,341		7.1		-		-
		465,247				219,649

The aggregate intrinsic value of options outstanding as of December 31, 2018 and 2019 is US$ 835 thousand and US$ 593 thousand, respectively.

The aggregate intrinsic value of options exercisable as of December 31, 2018 and 2019 is US$ 835 thousand and US$ 593 thousand, respectively.

The total intrinsic value of options exercised during the year ended December 31, 2018 and 2019, is US$ 67 thousand and US$ 28 thousand, respectively.

F - 40

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

J. The stock option activity under the abovementioned plans is as follows:

						Weighted
				Weighted		average
	Number			average		grant date
	of options			exercise price		fair value
				US$		US$
Balance at January 1, 2017		266,005
Granted		119,925			39.62		11.89
Exercised		(124,918	)		21.46		8.46
Forfeited		(11,101	)		33.18		10.87
Balance at December 31, 2017		249,911
Granted		137,010			36.11		14.71
Exercised		(9,674	)		28.02		9.94
Forfeited		(11,752	)		36.73		13.05
Balance at December 31, 2018		365,495
Granted		141,928			33.83		13.35
Exercised		(5,500	)		28.09		10.03
Forfeited		(36,676	)		35.88		13.50
Balance at December 31, 2019		465,247
Exercisable at December 31, 2019		219,649

F - 41

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

K. The Restricted Share Units activity under the abovementioned plans is as follows:

				Weighted
	Number of			average
	Restricted			grant date
	Share Units			fair value
				US$
Balance at January 1, 2017		43,000
Granted		78,000			34.90
Vested		(43,000	)		42.52
Balance at December 31, 2017 and December 31, 2018		78,000
Vested		(39,000	)		35.36
Balance at December 31, 2019		39,000

The aggregate intrinsic value of RSUs outstanding as of December 31, 2018 and December 31, 2019 is US$ 2,725 thousand and US$ 1,297 thousand, respectively.

F - 42

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 12 - Shareholders' Equity (cont'd)

Share based compensation (cont'd)

L. During 2017, 2018 and 2019, the Company recorded share-based compensation expenses. The following summarizes the allocation of the stock-based compensation expenses:

	Year ended December 31
	2017		2018		2019
	US$ thousands
Cost of sales		320		372		437
Research and development costs		832		953		900
Selling and marketing expenses		537		569		493
General and administrative expenses		736		530		525
		2,425		2,424		2,355

As of December 31, 2019, there were US$ 1,313 thousand of unrecognized compensation costs related to outstanding stock options and RSUs to be recognized over a weighted average period of 0.88 years.

F - 43

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 13 - Geographic areas and major customers

A. Information on sales by geographic distribution:

The Company has one operating segment.

Sales are attributed to geographic distribution based on the location of the customer.

	Year ended December 31
	2017		2018		2019
	US$ thousands
North America		100,434		108,024		77,161
Europe		20,156		21,038		20,956
Asia-Pacific		5,100		4,691		7,123
		125,690		133,753		105,240

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

	Year ended December 31
	2017		2018		2019
	US$ thousands
Customer "A"		16,915		18,855		17,107
Customer "B"		*		14,506		11,030
Customer "C"		*		14,220		*
Customer "D"		25,888		*		*

* Less than 10% of sales.

F - 44

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 13 - Geographic areas and major customers (cont'd)

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

The following table presents the locations of the Company’s long-lived assets as of December 31, 2018 and 2019:

	Year ended December 31
	2018		*2019
	US$ thousands
North America		46	1,189
Europe		235	198
Israel		3,389	5,970
		3,670	7,357

* The company adopted ASC 842 "Leases" as of January 1, 2019. Therefore, the ROU asset is to be included in the long-lived assets as of December 31, 2019.

F - 45

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 14 - Financial Income (Expenses), Net

	Year ended December 31
	2017			2018			2019
	US$ thousands
Interest income		527			840			2,295
Discount on marketable securities, net		(217	)		(32	)		(144	)
Exchange rate differences, net		(45	)		208			(357	)
Bank charges		(109	)		(93	)		(148	)
		156			923			1,646

F - 46

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - 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 a "foreign invested company" (as defined in the Israeli Law for the Encouragement of Capital Investments-1959), the Company's taxable income or loss is calculated in US Dollars.

B. Corporate tax rate in Israel

Taxable income of Israeli companies was subject to tax at a rate of 24% in 2017 and at a rate of 23% from 2018 onwards.

C. Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law")

 

1. On December 29, 2010 the Knesset approved the Economic Policy Law for 2011-2012, which includes an amendment to the Law for the Encouragement of Capital Investments – 1959 (hereinafter – "the Amendment to the Law"). The Amendment to the Law is effective from January 1, 2011 and its provisions will apply to preferred income derived or accrued in 2011 and thereafter by a Preferred Company, per the definition of these terms in the Amendment to the Law.

Companies can choose to not be included in the scope of the Amendment to the Law and to stay in the scope of the law before its amendment until the end of the benefits period.

Under the Amendment to the Law, upon an irrevocable election made by a company, a uniform corporate tax rate will apply to all preferred income of such company. The Company elected to apply the uniform corporate tax rate as of 2014.  From 2017 onwards, the uniform tax rate is to be 7.5% in areas in Israel designated as Development Zone A and 16% elsewhere in Israel. The company has two facilities in Israel of which one of them is located in Development Zone A. The profits of these Preferred Companies will be freely distributable as dividends, subject to a withholding tax of 20% (or a lower rate under an applicable tax treaty).

Should the Company derive income from sources other than the Preferred Company, such income will be taxable at the regular corporate tax rates for the applicable year.

F - 47

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - 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 the event of distribution by the Company of dividends out of its retained earnings that were generated prior to 2014 tax year and were tax exempt under the "Approved Enterprise" or "Benefited Enterprise" status, the Company would be subjected to a maximum of 25% corporate tax on the amount distributed, and a further 15% withholding tax would be deducted from the amounts distributed to the shareholders.

Out of the Company’s retained earnings as of December 31, 2018 and 2019, approximately US$ 46,581 thousand and US$ 50,516 thousand respectively are tax-exempt, under the previous "Approved Enterprise" and "Benefited Enterprise" status. If such tax-exempt income is distributed as a dividend (including a liquidation dividend), it would be taxed at the reduced corporate tax rate applicable to such profits (up to 25%) and an income tax liability of up to approximately US$ 11,645 thousand and US$ 12,629 thousand would be incurred as of December 31, 2018 and 2019, respectively. The Company anticipates that any future dividends distributed pursuant to its dividend policy, will be distributed from income sources which will not impose additional tax liabilities on the Company. The Company intends to reinvest the amount of its tax-exempt income. Accordingly, no deferred income taxes have been provided on income attributable to the Company’s "Approved Enterprise" or "Benefited Enterprise". If the Company was to declare a dividend from its tax-exempt income, an income tax expense would be recognized in the period a dividend is declared.

F - 48

 

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

D.             Taxation of the subsidiaries

1. The subsidiary Silicom Inc. files tax returns to US federal tax authorities and to state tax authorities in the states of New Jersey, California, Virginia, New York, New Mexico, Tennessee and Texas.

On December 22, 2017, the Tax Cuts and Jobs Acts was enacted into law. The new legislation impacted the company by reduction of the Federal corporate income tax rate to 21% effective January 1, 2018.

2. The subsidiary Silicom Denmark is taxed according to the tax laws in Denmark.

3. The Company has not provided for Israeli income and foreign withholding taxes on US$ 7,221 thousand of its non-Israeli subsidiaries' undistributed earnings as of December 31, 2019. The earnings could become subject to tax if earnings are remitted or deemed remitted as dividends or upon sale of a subsidiary.

The Company currently has no plans to repatriate those funds and intends to indefinitely reinvest them in its non-Israeli operations. The unrecognized deferred tax liability associated with these temporary differences was approximately US$ 1,030 thousand at December 31, 2019. 

4. As of December 31, 2019, the net operating loss carry-forwards of the Companys’ subsidiaries for tax purposes amounted to approximately US$ 900 thousand. These losses are available to offset any future taxable income.

E.             Tax assessments

1. For the Israeli jurisdiction the Company has final tax assessments for all years up to and including the tax year ended December 31, 2014.

2. For the US Federal jurisdiction, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2015. For the New Jersey and California state jurisdictions, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2014. For the Virginia state jurisdiction, Silicom Inc. has open tax assessments for the years 2016 through 2019.  For the Tennessee state jurisdiction, Silicom Inc. has open tax assessments for the years 2016 through 2019.  For the New Mexico and New York state jurisdictions, Silicom Inc. has open tax assessments for the years 2017 through 2019. For the Texas state jurisdiction, Silicom Inc. has open tax assessments for the years 2018 and 2019.

3. For the Danish jurisdiction, Silicom Denmark has final tax assessments for all years up to and including the tax year ended August 31, 2014.

F - 49

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont'd)

F. Income before income taxes and income taxes expense (benefit) included in the consolidated statements of operations

	Year ended December 31
	2017			2018			2019
	US$ thousands
Income before income taxes:
Israel		23,226			14,703			9,339
Foreign jurisdiction		2,356			2,871			2,520
		25,582			17,574			11,859
Current taxes:
Israel		2,379			2,400			1,732
Foreign jurisdiction		1,095			831			611
		3,474			3,231			2,343
Current tax (benefits) expenses relating
to prior years:
Israel		12			(73	)		(17	)
Foreign jurisdiction		(71	)		(226	)		(4	)
		(59	)		(299	)		(21	)
Deferred taxes:
Israel		549			(106	)		(904	)
Foreign jurisdiction		(96	)		111			205
		453			5			(699	)
Income tax expense		3,868			2,937			1,623

F - 50

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - 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 31			December 31
	2018			2019
	US$ thousands			US$ thousands
Deferred tax assets:
Accrued employee benefits		281			327
Research and development costs		842			1,597
Tax loss carryforwards		169			196
Property, plant and equipment		48			31
Share based compensation		348			374
Intangible assets		202			347
Other		23			-
Total gross deferred tax assets		1,913			2,872
Deferred tax liabilities:
Intangible assets		(212	)		(397	)
Goodwill		(807	)		(879	)
Other		-			(3	)
Total gross deferred tax liabilities		(1,019	)		(1,279	)
Net deferred tax assets		894			1,593
In Israel		894			1,798
Foreign jurisdictions		-			(205	)
Net deferred tax assets		894			1,593
Non-current deferred tax assets		894			1,798
Non-current deferred tax liabilities		-			(205	)

F - 51

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont'd)

H. Reconciliation of the statutory tax expense to actual tax expense

	Year ended December 31
	2017			2018			2019
	US$ thousands
Income before income taxes		25,582			17,574			11,859
Statutory tax rate in Israel		24.0	%		23.0	%		23.0	%
		6,140			4,042			2,728
Increase (decrease) in taxes resulting from:
Non-deductible operating expenses, net		364			295			417
Non-taxable income		(1,114	)		-			-
Prior years adjustments		(59	)		(299	)		(21	)
Tax effect due to
"Preferred Enterprise" status*		(2,361	)		(1,398	)		(1,099	)
Taxes related to foreign jurisdictions		632			176			18
Changes in tax rate		162			-			7
Creation of deferred taxes for tax losses and
benefits from previous years for which deferred
taxes were not created in the past		-			-			(476	)
Other		104			121			49
Income tax expense		3,868			2,937			1,623

* The effect of the benefit resulting from the "Preferred Enterprise" status on net earnings per ordinary share is as follows:

	Year ended December 31
	2017		2018		2019
Basic		0.32		0.19		0.15
Diluted		0.31		0.18		0.15

F - 52

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 15 - Taxes on Income (cont’d)

I.               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 2017, 2018 and 2019 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 - 53

 

Silicom Ltd. and its Subsidiaries

Notes to the Consolidated Financial Statements

Note 16 - Subsequent Events

(1) In January 2020, the Company’s compensation committee and board of directors, respectively, have approved the grant of a total of 148,426 options and 86,000 RSUs under the Global Share Incentive Plan (2013), of which options and RSUs granted to directors and office holders are subject to the approval of the Annual General Meeting, which is currently scheduled to convene no later than June 2020, as prescribed under the Israeli Companies Law, 1999 and the Company's Amended and Restated Articles of Association.

(2) Pursuant to the share repurchase plan approved on May 2, 2019, the Company has purchased 97,577 shares of the Company's ordinary shares subsequent to December 31, 2019 and through March 6, 2020 for a total cost of US$ 3,326 thousand inclusive of transaction costs, bringing the total shares repurchased under the plan to 349,965.

(3) In late December 2019, the World Health Organization was informed of a cluster of cases of pneumonia of unknown cause discovered in Wuhan, Hubei province, in China. A novel coronavirus (COVID-19) was identified, with cases confirmed in multiple provinces in China as well as in other countries. The outbreak of such communicable diseases could result in a widespread health crisis that could adversely affect the general commercial activity and the economies and financial markets of many countries. Although, to date, the Company did not experience any material adverse effects as a result of the ongoing novel coronavirus, if it continues to spread, the Company’s operations could experience a slowdown or temporary suspension in production. In the event that the slowdown or suspension carries for a long period of time, the Company’s business could be materially and adversely affected. Countries affected may adopt certain hygiene measures, including quarantining visitors from places where any of the contagious diseases were rampant. Any prolonged restrictive measures taken by the governments of countries affected in order to control the contagious disease or other adverse public health developments may have a material and adverse effect on the Company’s business, financial condition or results of operations.

F - 54

Item 2

Management's Annual Report on Internal Control over Financial Reporting

Disclosure Controls and Procedures. 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.

Report of Management on Internal Control over Financial Reporting. Management assessed our internal control over financial reporting as of December 31, 2019, 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, 2019 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.

Attestation Report of the Registered Public Accounting Firm. Our independent registered public accounting firm, Somekh Chaikin, a member firm of KPMG International, has audited the consolidated financial statements included in this report on Form 6-K, and as part of its audit, has issued its audit report on the effectiveness of our internal control over financial reporting as of December 31, 2019. The attestation report of our independent registered public accounting firm on management's assessment of the Company's internal control over financial reporting is included on pages F-3 and F-4 of this report on Form 6-K, and is included herein by reference.

Inherent Limitations on Effectiveness of Controls

Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitation, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Changes in Internal Control over Financial Reporting

There was no change in our internal controls over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

March 16, 2020

/s/ Shaike Orbach	/s/ Eran Gilad
Chief Executive Officer	Chief Financial Officer

EX-99.2

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 in this annual 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,
	2017			2018			2019
Sales		100	%		100	%		100	%
Cost of sales		63.5			68.6			65.7
Gross profit		36.5			31.4			34.3
Research and development expenses		11.1			11.1			14.3
Sales and marketing expenses		5.3			5.0			6.3
General and administrative expenses		3.6			2.9			4.0
Contingent consideration expense (benefit)		(3.7	)		-			-
Operating Income		20.2			12.4			9.7
Financial income, net		0.2			0.7			1.6
Income before income taxes		20.4			13.1			11.3
Income tax expenses		3.1			2.2			1.6
Net Income		17.3			10.9			9.7

Sales in 2019 decreased by 21.3% to US$ 105,240 thousand compared to US$ 133,753 thousand in 2018. This decrease was mainly attributed to the lack of revenues from our largest-ever Cloud related Design Win we lost in March 2018. During 2019 we had no revenues from this Design Win.

Sales in 2018 increased moderately by 6.4% to US$ 133,753 thousand compared to US$ 125,690 thousand in 2017. Our modest growth in sales was mainly attributed to the following: On the positive side, this growth was mainly driven by our continued benefit from our success in expanding our customer base and product offering, especially in our CPE/EDGE product lines, supporting important market trends like NFV, SD-WAN and Cyber security. However, on the negative side, we lost our largest-ever Cloud related Design Win in March 2018. All of the above led to our modest growth in 2018 compared to 2017.

 

Gross profit in 2019 was US$ 36,094 thousand compared to US$ 42,056 thousand in 2018. Gross profit as a percentage of sales in 2019 was 34.3%, compared to 31.4% in 2018. The higher gross profit percentage in 2019 compared to 2018 was mainly attributed to: (i) a US$ 3.2 million write-off in 2018 related to the loss of our largest-ever Cloud related Design Win, which we announced on March 13, 2018, (ii) changes to the mix of products that we sold in 2019, 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 (not including the above mentioned write-off); the inventory write-downs as a percentage of sales in 2019 decreased to 2.0%, compared to 2.9% in 2018.

Gross profit in 2018 was US$ 42,056 thousand compared to US$ 45,928 thousand in 2017. Gross profit as a percentage of sales in 2018 was 31.4%, compared to 36.5% in 2017. The lower gross profit percentage in 2018 compared to 2017 was attributed to: (i) a US$ 3.2 million write-off related to the loss of our largest-ever Cloud related Design Win, which we announced on March 13,2018, (ii) changes to the mix of products that we sold in 2018, on which our gross profit is largely dependent, which was influenced by our strategic decision to take advantage of increased revenue potential and opportunities, and (iii) write-downs of inventory made with respect to any slow moving or obsolete inventory we can no longer use (not including the above mentioned write-off); the inventory write-downs as a percentage of sales in 2018 increased to 2.9%, compared to 2.3% in 2017.

Research and development expenses in 2019 increased moderately by 1.7% to US$ 15,075 thousand compared to US$ 14,820 thousand in 2018. 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$ 1,169 thousand to such increase, offset by the following factors: (i) a decrease in amortization of acquired intangible assets, which amounted to US$ 0 in 2019, compared to US$ 655  thousand in 2018, (ii) capitalization of internal software development costs in the amount of US$ 1,018 thousand in 2019, compared to US$ 928 thousand in 2018, (iii) a decrease in the share-based compensation which amounted to approximately US$ 900 thousand in 2019, compared to US$ 953 thousand in 2018, and to (iv) the net effect of the strengthening of the US Dollar against the  Danish Krone, on the one hand, offset by a weakening of the US Dollar against the New Israeli Shekel on the other hand,  (since a significant portion of our research and development expenses are incurred in New Israeli Shekels and Danish Krone), which amounted to approximately US$ 116 thousand.

Research and development expenses in 2018 increased by 6.5% to US$ 14,820 thousand compared to US$ 13,915 thousand in 2017. This increase was mainly attributed to the increase in the number of our research and development employees, to an increase in consultants and subcontracted work, as well as to an increase in other related research and development expenses 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$ 2,308 thousand to such increase, as well as to an increase in the share-based compensation which amounted to approximately US$ 953 thousand in 2018, compared to US$ 832 thousand in 2017, all of which were offset by capitalization of internal software development costs in the amount of US$ 928 thousand, as well as a decrease in amortization of acquired intangible assets, which amounted to approximately US$ 655 thousand in 2018, compared to US$ 1,251  thousand in 2017.

Sales and marketing expenses in 2019 increased slightly by 0.1% to US$ 6,647 thousand compared to US$ 6,642 thousand in 2018. 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$ 465 thousand, offset by a decrease in amortization of acquired intangible assets which amounted to US$ 0 in 2019, compared to US$ 384 thousand in 2018, as well as to a decrease in the share-based compensation which amounted to approximately US$ 493 thousand in 2019, compared to US$ 569 thousand in 2018.

Sales and marketing expenses in 2018 decreased by 1.2% to US$ 6,642 thousand compared to US$ 6,722 thousand in 2017. This decrease was mainly attributed to a decrease in amortization of acquired intangible assets, which amounted to approximately US$ 384 thousand in 2018, compared to US$ 637 thousand in 2017, offset by our continued investment in the promotion of our networking and data infrastructure solutions to our target markets including those driven by trends like Cloud Computing, Cyber security, SDN, NFV, Virtualization, SD-WAN and other trends, by, among others, our continued effort to expand exposure of our product offering and expanding our customer base, which contributed approximately US$ 173 thousand.

General and administrative expenses in 2019 increased by 5.5% to US$ 4,159 thousand compared to US$ 3,943 thousand in 2018. This increase was mainly attributed to various general and administrative costs which amounted to approximately US$ 244 thousand, offset by the net effect of the strengthening of the US Dollar against the Danish Krone, on the one hand, offset by a weakening of the US Dollar against the New Israeli Shekel, on the other hand  (since a significant portion of our general and administrative expenses are incurred in New Israeli Shekels and Danish Krone), which amounted to approximately US$ 28 thousand.

General and administrative expenses in 2018 decreased by 12.5% to US$ 3,943 thousand compared to US$ 4,507 thousand in 2017. This decrease was mainly attributed to a decrease in payroll related expenses attributed to general and administrative activity which amounted approximately US$ 359 thousand, as well as to a decrease in the share-based compensation, which amounted to approximately US$ 530 thousand in 2018, compared to US$ 735 thousand in 2017.

In 2018, we had a contingent consideration expense in the amount of US$ 0 compared to a contingent consideration benefit in the amount of US$ 4,642 thousand in 2017. For additional information see Note 3 to our financial statements included elsewhere in this annual report.

Financial income, net in 2019 increased by 78.3% to US$ 1,646 thousand compared to US$ 923 thousand in 2018. The increase resulted mainly from the net effect of the following factors: (i) an increase in income from investment in marketable securities and bank deposits, which was attributed to an increase in funds available for investment, which amounted to US$ 2,151 thousand in 2019 compared to US$ 808 thousand in 2018, offset by (ii) the net effect of the weakening of the US Dollar against the New Israeli Shekel, on the one hand, offset by a strengthening of the US Dollar against the Danish Krone on the other hand, which created a 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 Danish Krone) of US$ 357 thousand in 2019 compared to a net financial income of US$ 208 thousand in 2018.

Financial income, net in 2018 increased by 491.7% to US$ 923 thousand compared to US$ 156 thousand in 2017. The increase resulted from the net effect of the following factors: (i) an increase in income from investment in marketable securities, attributed to increase in the funds available for investment, which amounted to US$ 808 thousand in 2018 compared to US$ 310 thousand in 2017, (ii) a decrease in bank fees, which contributed approximately US$ 16 thousand to the increase, and (iii) a strengthening of the US Dollar against the New Israeli Shekel and the Danish Krone, which created a net financial income 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 Danish Krone) of US$ 208 thousand in 2018 compared to a net financial expenses in the amount of US$ 45 thousand in 2017.

In 2019 we recorded current income tax expenses of US$ 2,343 thousand and deferred income tax benefit of US$ 699 thousand compared to current income tax expenses of US$ 3,231 thousand and deferred income tax expenses of US$ 5 thousand in 2018. The decrease in our current income tax expenses was mainly attributed to a decrease in our income and the resulting taxable income. The change 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$ 755 thousand in 2019 compared to deferred income tax expenses in the amount of US$ 4 thousand in 2018,  (ii) a decrease in deferred income tax expenses relating to intangible assets, which amounted to US$ 40 thousand in 2019 compared to US$ 120 thousand in 2018, offset by (iii) a decrease in deferred income tax benefit relating to share-based compensation provided by us to our employees and directors, which amounted to US$ 26 thousand in 2019 compared to US$ 135 thousand in 2018. In addition, in 2019 we recorded an income tax benefit relating to prior years in the amount of US$ 21 thousand, compared to an income tax benefit relating to prior years in the amount of US$ 299 thousand in 2018.

In 2018, we recorded current income tax expenses of US$ 3,231 thousand and deferred income tax expenses of US$ 5 thousand compared to current income tax expenses of US$ 3,474 thousand and deferred income tax expenses of US$ 453 thousand in 2017. The minor decrease in our current income tax expenses was mainly attributed to a decrease in the corporate income tax rate in the US Federal jurisdiction. The decrease in the deferred income tax expenses was mainly attributed to deferred income tax expenses in relation to acquired goodwill, which amounted to US$ 127 thousand in 2018 compared to US$ 465 thousand in 2017, combined with an increase in deferred income tax benefit relating to share-based compensation provided by us to our employees and directors, which amounted to US$ 135 thousand in 2018 compared to deferred income tax expenses which amounted to US$ 33 thousand in 2017. In addition, in 2018, we recorded an income tax benefit relating to prior years in the amount of US$ 299 thousand, compared to an income tax benefit relating to prior years in the amount of US$ 59 thousand in 2017.

In 2019 we recorded net income of US$ 10,236 thousand compared to net income of US$ 14,637 thousand in 2018, a decrease of 30.1%. The decrease was mainly attributed to our lower gross profit in 2019 compared to 2018, as mentioned above.

In 2018, we recorded net income of US$ 14,637 thousand compared to net income of US$ 21,714 thousand in 2017, a decrease of 32.6%. The decrease was mainly attributed to the following factors: (i) the decrease in contingent consideration benefit which amounted to US$ 0 in 2018, compared to a contingent consideration benefit of US$ 4,642 thousand in 2017, and (ii) to our lower gross profit in 2018 compared to 2017, as mentioned above.

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, 2019, we had working capital of US$ 84,115 thousand and our current ratio (current assets to current liabilities) was 4.19. Cash and cash equivalents as of December 31, 2019 decreased by US$ 10,339 thousand to US$ 16,469 thousand, compared to US$ 26,808 thousand as of December 31, 2018. Short-term bank deposits as of December 31, 2019 increased by US$ 13,542 thousand to US$ 13,542 thousand, compared to US$ 0 as of December 31, 2018. Short-term marketable securities increased by US$ 12,445 thousand to US$ 14,045 thousand, compared to US$ 1,600 thousand as of December 31, 2018, and long-term marketable securities increased by US$ 930 thousand to US$ 46,542 thousand, compared to US$ 45,612 thousand as of December 31, 2018. The net increase of US$ 16,578 thousand in these four balance sheet items in 2019 was mainly attributed to positive cash provided by operating activities in the amount of US$ 26,726 thousand, offset by purchase of treasury shares in the amount of approximately US$ 7,971 thousand, payments in relation to purchase of property, plant and equipment which amounted to US$ 1,441 thousand, and investment in intangible assets which amounted to US$ 1,018 thousand.

Trade receivables increased to US$ 24,936 thousand as of December 31, 2019, compared to US$ 23,817 thousand as of December 31, 2018. This increase was mainly attributed to a one-time change of payment terms with one of our larger customers in 2018. Other receivables decreased to US$ 4,964 thousand as of December 31, 2019, compared to US$ 9,487 thousand as of December 31, 2018. This decrease was mainly attributed to a decrease in advances to suppliers.

Trade payables increased to US$ 16,419 thousand as of December 31, 2019, compared to US$ 15,407 thousand as of December 31, 2018. Other payables and accrued liabilities increased to US$ 8,823 thousand as of December 31, 2019, compared to US$ 6,133 thousand as of December 31, 2018. This increase was mainly attributed to an increase in our accrued expenses.

Inventories decreased to US$ 36,491 thousand as of December 31, 2019, compared to US$ 42,369 thousand as of December 31, 2018. This decrease was mainly attributed to a decrease in sales.

Cash provided by operating activities in 2019 amounted to US$ 26,726 thousand compared to cash provided by operating activities in the amount of US$ 45,678 thousand in 2018. The cash provided by operating activities in 2019 was the result of our positive operating income.

Capital expenditures on property and equipment for year ended December 31, 2019 were US$ 1,635 thousand, compared to US$ 1,740 thousand as of December 31, 2018. This decrease was mainly attributed to a decrease in investment in equipment used for production and research and development.

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 next twelve months.

EX-99.3

Exhibit 99.3

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Silicom Ltd.:

We consent to the incorporation by reference in registration statement No. 333-149144, No. 333- 185230 and No. 333-193034 on Form S-8 and registration statement No. 333-217103 on Form F- 3 of Silicom Ltd. of our report dated March 16, 2020, with respect to the consolidated balance sheets of Silicom Ltd. and its subsidiaries as of December 31, 2018 and 2019, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes, and the effectiveness of internal control over financial reporting as of December 31, 2019, which report appears in Form 6-K of Silicom Ltd. dated March 16, 2020.

Our report refers to a change to the method of accounting for leases.

/s/ Somekh Chaikin

Certified Public Accountants (Israel)

A member firm of KPMG International

Tel Aviv, Israel

March 16, 2020

XML

Leases

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

Leases

Note 10 – Leases

A.	The components of operating lease cost for the year ended December 31, 2019 were as follows:
		Year ended December 31
		2019
		US$ thousands
	Operating lease cost		1,494
	Variable lease payments not included in the lease liability		2
	Short-term lease cost		287
	Total operating lease cost		1,783

B.	Supplemental cash flow information related to operating leases was as follows:
		Year ended December 31
		2019
		US$ thousands
	Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows from operating leases		1,541
	Right-of-use assets obtained in exchange for lease obligations (non-cash):
	Operating leases		1,524

C.	Supplemental balance sheet information related to operating leases was as follows:
		December 31, 2019
		US$ thousands
	Operating leases:
	Operating leases right-of-use		3,783
	Current operating lease liabilities		1,090
	Non-current operating lease liabilities		2,693
	Total operating lease liabilities		3,783
		December 31, 2019
		US$ thousands
	Weighted average remaining lease term
	Operating leases	4.8 years
	Weighted average discount rate
	Operating leases		3.3	%

D.	Future minimum lease payments under non-cancellable leases as of December 31, 2019 were as follows:
		December 31, 2019
		US$ thousands
	2020		1,209
	2021		831
	2022		641
	2023		576
	After 2024		709
	Total operating lease payments		3,966
	Less: imputed interest		(183	)
	Present value of lease liabilities		3,783

E.	Future minimum lease payments under non-cancellable leases as of December 31, 2018, under ASC 840, Leases were as follows:
		December 31, 2018
		US$ thousands
	2019		1,394
	2020		643
	2021		449
	2022		363
	2023		363
	After 2024		643
	Total operating lease payments		3,855

XML

Other Receivables

12 Months Ended

Dec. 31, 2019

Receivables [Abstract]

Other Receivables

Note 6 - Other Receivables

	December 31
	2018		2019
	US$ thousands
Advances to suppliers		5,260		805
Government authorities		2,916		2,758
Prepaid expense		884		553
Other receivables		427		848
		9,487		4,964

XML

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

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 in US dollars

Substantially all sales of the Company are made outside of Israel (see Note 13A 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.

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 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.

As of December 31, 2019, the Company's short-term bank deposits consist of bank deposits in US dollars carrying a weighted average interest rate of 2.58%. These short-term bank deposits are held with a major Israeli bank, and their use and withdrawal are not subject to any restrictions.

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.

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 collectibility 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.

H. Trade accounts receivable, net

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.

As of December 31, 2018 and 2019, the provision for doubtful accounts receivable amounted to US$ 20 thousand.

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’ 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 - 33
Office furniture and equipment	6 - 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.

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

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

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.

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.

N. Leases  

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02. The guidance establishes a right-of-use model ("ROU") that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. The Company determines if an arrangement is or contains a lease at contract inception.

A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. The Company adopted the new accounting standard ASC 842 "Leases" and all the related amendments on January 1, 2019 and used the effective date as the Company’s date of initial application. Consequently, financial information was not updated and the disclosures required under the new standard are not provided for dates and periods before January 1, 2019.

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, 2019, all of the company's leases are operating leases.

The new standard provides a number of optional practical expedients in transition. The Company chose to apply the following permitted practical expedients:

• Not to reassess its prior conclusions regarding lease identification, lease classification and initial direct costs under the new standard.

• Applying the practical expedient pertaining to the use-of hindsight.

• 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 ROU assets or lease liabilities but recognizes lease expenses over the lease term on a straight-line basis.

• Applying the practical expedient to not separate lease and non-lease components for all of the Company’s leases, other than leases of real estate.

The company did not separate lease and non-lease components for all contracts entered into before January 1, 2019 and identified as leases in accordance with Topic 840.

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.

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 up to 7.5 years. Some of these agreements include options to extend the leases for up to 5 years and some 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 10.

Prior to the adoption of the new lease standard, the Company leases consisted of real estate and cars for use in its operations, which have been classified as operating leases.

Effects of the initial application of the new standard on the Company's consolidated balance sheet as of January 1, 2019:

	According to the previous accounting policy		The change			As presented according to Topic 842
			US$ thousands
Operating leases right-of-use		-		3,424			3,424
Prepaid expenses		90		(90	)		-
Operating lease liabilities		-		(3,334	)		(3,334	)

O.            Revenue recognition

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, a new accounting standard related to revenue recognition. ASC 606 supersedes nearly all U.S. GAAP on revenue recognition and eliminated industry-specific guidance. The underlying principle of ASC 606 is to recognize revenue when a customer obtains control of the promised goods at an amount that reflects the consideration that is expected to be received in exchange for those goods. It also requires increased disclosures including the nature, amount, timing, and uncertainty of revenues and cash flows related to contracts with customers. The Company adopted ASC 606 at the beginning of the first quarter of fiscal 2018, and implemented new accounting policies and internal controls necessary to support the requirements of ASC 606. The adoption of ASC 606 did not have any impact on the Company's revenue recognition.

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. The Company identifies separated contractual performance obligations and evaluates each distinct performance obligation within a contract, whether it is satisfied at a point in time or over time.  All of the Company's performance obligations for the reported periods were satisfied at a point in time.

Revenue is allocated among performance obligations in a manner that reflects the consideration that the Company expects to be entitled to for the promised goods based on standalone selling prices (SSP). SSP are estimated for each distinct performance obligation and judgment may be required in their determination. The best evidence of SSP is the observable price of the product when the Company sell the goods separately in similar circumstances and to similar customers.

Until January 1, 2018, revenues from sales of products were recognized upon delivery provided that the collection of the resulting receivable was reasonably assured, there was persuasive evidence of an arrangement, no significant obligations remained and the price was fixed or determinable.

Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from revenues in the consolidated statements of operations.

P. Research and development costs

Capitalization of software development costs 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. The Company started to capitalize internal software development costs during 2018. The Company did not capitalize any internal software development costs for the year ended December 31, 2017, because the cost incurred and the time between technological feasibility and product release was insignificant. 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 service 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.

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 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 at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

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.

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 common shares outstanding is increased to include outstanding potential common shares during the period if dilutive. Potential common 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.

	Year ended December 31
	2017		2018		2019
Net income attributable to ordinary shares
(US$ thousands)		21,714		14,637		10,236
Weighted average number of ordinary shares outstanding
used in basic income per ordinary share calculation		7,455,528		7,552,094		7,520,389
Add assumed exercise of outstanding dilutive potential
ordinary shares		146,443		105,236		52,228
Weighted average number of ordinary shares outstanding
used in diluted income per ordinary share calculation		7,601,971		7,657,330		7,572,617
Basic income per ordinary shares (US$)		2.912		1.938		1.361
Diluted income per ordinary shares (US$)		2.856		1.912		1.352
Weighted average number of shares related to options
and RSUs excluded from the diluted earnings per share
calculation because of anti-dilutive effect		-		171,086		351,610

V.             Comprehensive Income

For the years ended December 31, 2017, 2018 and 2019, 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.

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, 2018 and 2019, the ratings of the securities in the Company's portfolio was at least A-. 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 three customers accounted for approximately 35% of its revenues in 2019. 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 13.

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.

Z.           Recent Accounting Pronouncements

(1) In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted for annual and interim periods in fiscal years beginning after December 15, 2018. In November 2019, the FASB issued ASU 2019-11, which includes several amendments to the credit losses standard (ASU 2016-13), including amendments to the reporting of expected recoveries. The Company is currently evaluating the impact of the provisions of ASU 2016-13 on its financial position, results of operations and cash flows.

(2) In December 2019, the FASB issued ASU 2019-12, which removes certain exceptions for: recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This ASU is effective for annual periods in fiscal years beginning after December 15, 2021, and interim periods in fiscal years beginning after December 15, 2022. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its consolidated balance sheets, results of operations, cash flows or presentation thereof.

(3) In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which eliminates the requirement to calculate the implied fair value of goodwill in Step 2 of the goodwill impairment test. Under ASU 2017-04, goodwill impairment charges will be based on the excess of a reporting unit’s carrying amount over its fair value as determined in Step 1 of the testing. ASU 2017-04 is effective for interim and annual testing dates after December 15, 2019, with early adoption permitted for interim and annual goodwill impairment testing dates after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated balance sheets, results of operations, cash flows or presentation thereof.

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Leases (Tables)

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

Schedule of Operating Lease Cost

The components of operating lease cost for the year ended December 31, 2019 were as follows:
		Year ended December 31
		2019
		US$ thousands
	Operating lease cost		1,494
	Variable lease payments not included in the lease liability		2
	Short-term lease cost		287
	Total operating lease cost		1,783

Schedule of Supplemental Cash Flow Information Operating Lease

Supplemental cash flow information related to operating leases was as follows:
		Year ended December 31
		2019
		US$ thousands
	Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows from operating leases		1,541
	Right-of-use assets obtained in exchange for lease obligations (non-cash):
	Operating leases		1,524

Schedule of Supplemental Balance Sheet Information Operating Lease

Supplemental balance sheet information related to operating leases was as follows:
		December 31, 2019
		US$ thousands
	Operating leases:
	Operating leases right-of-use		3,783
	Current operating lease liabilities		1,090
	Non-current operating lease liabilities		2,693
	Total operating lease liabilities		3,783

Schedule of Additional Information Related to Operating Leases

	December 31, 2019
		US$ thousands
Weighted average remaining lease term
Operating leases		4.8 years
Weighted average discount rate
Operating leases			3.3	%

Schedule of Future Minimum Lease Payments

Future minimum lease payments under non-cancellable leases as of December 31, 2019 were as follows:
		December 31, 2019
		US$ thousands
	2020		1,209
	2021		831
	2022		641
	2023		576
	After 2024		709
	Total operating lease payments		3,966
	Less: imputed interest		(183	)
	Present value of lease liabilities		3,783

E.	Future minimum lease payments under non-cancellable leases as of December 31, 2018, under ASC 840, Leases were as follows:
		December 31, 2018
		US$ thousands
	2019		1,394
	2020		643
	2021		449
	2022		363
	2023		363
	After 2024		643
	Total operating lease payments		3,855

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Taxes on Income (Tables)

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Before Income Taxes and Income Taxes Expense (Benefit) Included in The Consolidated Statements of Operations

Income before income taxes and income taxes expense (benefit) included in the consolidated statements of operations

	Year ended December 31
	2017			2018			2019
	US$ thousands
Income before income taxes:
Israel		23,226			14,703			9,339
Foreign jurisdiction		2,356			2,871			2,520
		25,582			17,574			11,859
Current taxes:
Israel		2,379			2,400			1,732
Foreign jurisdiction		1,095			831			611
		3,474			3,231			2,343
Current tax (benefits) expenses relating
to prior years:
Israel		12			(73	)		(17	)
Foreign jurisdiction		(71	)		(226	)		(4	)
		(59	)		(299	)		(21	)
Deferred taxes:
Israel		549			(106	)		(904	)
Foreign jurisdiction		(96	)		111			205
		453			5			(699	)
Income tax expense		3,868			2,937			1,623

Deferred Tax Assets and Liabilities

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

	December 31			December 31
	2018			2019
	US$ thousands			US$ thousands
Deferred tax assets:
Accrued employee benefits		281			327
Research and development costs		842			1,597
Tax loss carryforwards		169			196
Property, plant and equipment		48			31
Share based compensation		348			374
Intangible assets		202			347
Other		23			-
Total gross deferred tax assets		1,913			2,872
Deferred tax liabilities:
Intangible assets		(212	)		(397	)
Goodwill		(807	)		(879	)
Other		-			(3	)
Total gross deferred tax liabilities		(1,019	)		(1,279	)
Net deferred tax assets		894			1,593
In Israel		894			1,798
Foreign jurisdictions		-			(205	)
Net deferred tax assets		894			1,593
Non-current deferred tax assets		894			1,798
Non-current deferred tax liabilities		-			(205	)

Reconciliation of the Statutory Tax Expense to Actual Tax Expense

Reconciliation of the statutory tax expense to actual tax expense

	Year ended December 31
	2017			2018			2019
	US$ thousands
Income before income taxes		25,582			17,574			11,859
Statutory tax rate in Israel		24.0	%		23.0	%		23.0	%
		6,140			4,042			2,728
Increase (decrease) in taxes resulting from:
Non-deductible operating expenses, net		364			295			417
Non-taxable income		(1,114	)		-			-
Prior years adjustments		(59	)		(299	)		(21	)
Tax effect due to
"Preferred Enterprise" status*		(2,361	)		(1,398	)		(1,099	)
Taxes related to foreign jurisdictions		632			176			18
Changes in tax rate		162			-			7
Creation of deferred taxes for tax losses and
benefits from previous years for which deferred
taxes were not created in the past		-			-			(476	)
Other		104			121			49
Income tax expense		3,868			2,937			1,623

* The effect of the benefit resulting from the "Preferred Enterprise" status on net earnings per ordinary share is as follows:

Schedule of Effect of the Benefit Resulting From the "Preferred Enterprise" Status on Net Earnings Per Ordinary Share

	Year ended December 31
	2017		2018		2019
Basic		0.32		0.19		0.15
Diluted		0.31		0.18		0.15

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Shareholders' Equity (Share Option Plan) (Details) - USD ($) $ in Thousands	1 Months Ended	12 Months Ended
	Jan. 31, 2018	Dec. 31, 2019	May 02, 2019	Oct. 21, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Capital gains tax		25.00%
Value of shares authorized under one-year share repurchase plan			$ 15,000
Share Option Plan 2013 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares authorized				500,000
Additional shares authorized	600,000

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Leases (Schedule of Supplemental Cash Flow Information Operating Lease) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($)
Leases [Abstract]
Operating cash flows from operating leases	$ 1,541
Right-of-use assets obtained in exchange for lease obligations (non-cash):
Operating leases	$ 1,524

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Taxes on Income (Income Before Income Taxes and Income Taxes Expense (Benefit) Included in the Consolidated Statements of Operations) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income Tax Disclosure [Abstract]
Income before income taxes, Israel	$ 9,339	$ 14,703	$ 23,226
Income before income taxes, foreign jurisdiction	2,520	2,871	2,356
Income before income taxes	11,859	17,574	25,582
Current taxes, Israel	1,732	2,400	2,379
Current taxes, foreign jurisdiction	611	831	1,095
Current taxes	2,343	3,231	3,474
Current tax (benefits) expenses relating to prior years, Israel	(17)	(73)	12
Current tax (benefits) expenses relating to prior years, foreign jurisdiction	(4)	(226)	(71)
Current tax (benefits) expenses relating to prior years	(21)	(299)	(59)
Deferred taxes, Israel	(904)	(106)	549
Deferred taxes, foreign jurisdiction	205	111	(96)
Deferred taxes	(699)	5	453
Income tax expense	$ 1,623	$ 2,937	$ 3,868

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Cash and Cash Equivalents (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Cash and Cash Equivalents [Abstract]
Cash		$ 13,382	$ 16,147
Cash equivalents	[1]	3,087	10,661
Cash and cash equivalents		$ 16,469	$ 26,808	$ 17,021	$ 11,917
Weighted average interest rate of cash on deposit		1.04%	2.79%

[1] Comprised mainly of deposits in banks as at December 31, 2018 and 2019 carrying a weighted average interest rate of 2.79% and 1.04%, respectively.

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Other Receivables (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Receivables [Abstract]
Advances to suppliers	$ 805	$ 5,260
Government authorities	2,758	2,916
Prepaid expense	553	884
Other receivables	848	427
Total other receivables	$ 4,964	$ 9,487

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Geographic areas and major customers (Schedule of Locations of Company's Long Lived Assets) (Details) - USD ($) $ in Thousands	Dec. 31, 2019	[1]	Dec. 31, 2018
Revenues from External Customers and Long-Lived Assets [Line Items]
Long lived assets	$ 7,357		$ 3,670
North America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long lived assets	1,189		46
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long lived assets	198		235
Israel [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long lived assets	$ 5,970		$ 3,389

[1] The company adopted ASC 842 "Leases" as of January 1, 2019. Therefore, the ROU asset is to be included in the long-lived assets as of December 31, 2019.

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Shareholders' Equity (Intrinsic Value of Restricted Share Units) (Narrative) (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Restricted Share Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate intrinsic value of RSUs outstanding	$ 1,297	$ 2,725

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Shareholders' Equity (Stock Option Summary) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options outstanding, number of options	465,247	365,495	249,911	266,005
Options exercisable, number of options	219,649
$15.28 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price US$	$ 15.28
Options outstanding, number of options	6,575
Options outstanding, weighted average remaining contractual life (in years)	8 months 12 days
Options exercisable, number of options	6,575
Options exercisable, weighted average remaining contractual life (in years)	8 months 12 days
$26.91 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price US$	$ 26.91
Options outstanding, number of options	19,332
Options outstanding, weighted average remaining contractual life (in years)	3 years 7 months 6 days
Options exercisable, number of options	19,332
Options exercisable, weighted average remaining contractual life (in years)	3 years 7 months 6 days
33.27 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price US$	$ 33.27
Options outstanding, number of options	19,706
Options outstanding, weighted average remaining contractual life (in years)	6 years 3 months 19 days
Options exercisable, number of options	19,706
Options exercisable, weighted average remaining contractual life (in years)	6 years 3 months 19 days
28.38 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price US$	$ 28.38
Options outstanding, number of options	72,198
Options outstanding, weighted average remaining contractual life (in years)	4 years 4 months 24 days
Options exercisable, number of options	72,198
Options exercisable, weighted average remaining contractual life (in years)	4 years 4 months 24 days
39.62 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price US$	$ 39.62
Options outstanding, number of options	101,838
Options outstanding, weighted average remaining contractual life (in years)	5 years 1 month 6 days
Options exercisable, number of options	101,838
Options exercisable, weighted average remaining contractual life (in years)	5 years 1 month 6 days
36.11 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price US$	$ 36.11
Options outstanding, number of options	116,257
Options outstanding, weighted average remaining contractual life (in years)	6 years 3 months 19 days
Options exercisable, number of options
33.83 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price US$	$ 33.83
Options outstanding, number of options	129,342
Options outstanding, weighted average remaining contractual life (in years)	7 years 1 month 6 days
Options exercisable, number of options

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Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Current assets
Cash and cash equivalents	$ 16,469	$ 26,808
Short-term bank deposits	13,542
Marketable securities	14,045	1,600
Accounts receivable:
Trade, net	24,936	23,453
Other	4,964	9,487
Related parties		364
Inventories	36,491	42,369
Total current assets	110,447	104,081
Marketable securities	46,542	45,612
Assets held for employees' severance benefits	1,640	1,517
Deferred tax assets	1,798	894
Property, plant and equipment, net	3,574	3,670
Intangible assets, net	1,718	966
Operating leases right-of-use, net	3,783
Goodwill	25,561	25,561
Total assets	195,063	182,301
Current liabilities
Trade accounts payable	16,419	15,389
Other accounts payable and accrued expenses	8,823	6,133
Operating lease liabilities	1,090
Related parties		18
Total current liabilities	26,332	21,540
Long-term liabilities
Operating lease liabilities	2,693
Liability for employees' severance benefits	2,910	2,612
Deferred tax liabilities	205
Total liabilities	32,140	24,152
Shareholders' equity
Ordinary shares, ILS 0.01 par value; 10,000,000 shares authorized; 7,574,176 and 7,618,676 issued as at December 31, 2018 and 2019, respectively; 7,559,205 and 7,351,317 outstanding as at December 31, 2018 and 2019, respectively	22	22
Additional paid-in capital	57,130	54,621
Treasury shares (at cost) - 14,971 and 267,359 ordinary shares as at December 31, 2018 and 2019, respectively	(8,009)	(38)
Retained earnings	113,780	103,544
Total shareholders' equity	162,923	158,149
Total liabilities and shareholders' equity	$ 195,063	$ 182,301

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Consolidated Statements of Changes In Shareholders' Equity - USD ($) $ in Thousands		Ordinary shares [Member]		Additional paid-in capital [Member]	Treasury shares [Member]	Retained earnings [Member]	Total
Balance at Dec. 31, 2016		$ 22		$ 46,833	$ (38)	$ 74,575	$ 121,392
Balance, shares at Dec. 31, 2016	[1]	7,381,613
Exercise of options and RSUs	[3]		[2]	2,651			2,651
Exercise of options and RSUs, shares	[1],[3]	167,918
Purchase of treasury shares
Share-based compensation				2,425			2,425
Dividend						(7,382)	(7,382)
Net income						21,714	21,714
Balance at Dec. 31, 2017		$ 22		51,909	(38)	88,907	140,800
Balance, shares at Dec. 31, 2017	[1]	7,549,531
Exercise of options and RSUs	[3]		[2]	288			288
Exercise of options and RSUs, shares	[1],[3]	9,674
Purchase of treasury shares
Share-based compensation				2,424			2,424
Net income						14,637	14,637
Balance at Dec. 31, 2018		$ 22		54,621	(38)	103,544	158,149
Balance, shares at Dec. 31, 2018	[1]	7,559,205
Exercise of options and RSUs	[3]		[2]	154			154
Exercise of options and RSUs, shares	[1],[3]	44,500
Purchase of treasury shares					(7,971)		(7,971)
Purchase of treasury shares, shares	[1]	(252,388)
Share-based compensation				2,355			2,355
Net income						10,236	10,236
Balance at Dec. 31, 2019		$ 22		$ 57,130	$ (8,009)	$ 113,780	$ 162,923
Balance, shares at Dec. 31, 2019	[1]	7,351,317

[1] Net of shares held by Silicom Inc. and Silicom Ltd.

[2] Less than 1 thousand.

[3] Restricted share units (hereinafter - "RSUs")

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Depreciation of 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 - 33
Office furniture and equipment	6 - 33
Leasehold improvements	*

*Over the shorter term of the lease or the useful life of the asset

Schedule of Effects of New Standard on Consolidated Balance Sheet

Effects of the initial application of the new standard on the Company's consolidated balance sheet as of January 1, 2019:

	According to the previous accounting policy		The change			As presented according to Topic 842
			US$ thousands
Operating leases right-of-use		-		3,424			3,424
Prepaid expenses		90		(90	)		-
Operating lease liabilities		-		(3,334	)		(3,334	)

Computation of Basic and Diluted Income Per Ordinary Share

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

	Year ended December 31
	2017		2018		2019
Net income attributable to ordinary shares
(US$ thousands)		21,714		14,637		10,236
Weighted average number of ordinary shares outstanding
used in basic income per ordinary share calculation		7,455,528		7,552,094		7,520,389
Add assumed exercise of outstanding dilutive potential
ordinary shares		146,443		105,236		52,228
Weighted average number of ordinary shares outstanding
used in diluted income per ordinary share calculation		7,601,971		7,657,330		7,572,617
Basic income per ordinary shares (US$)		2.912		1.938		1.361
Diluted income per ordinary shares (US$)		2.856		1.912		1.352
Weighted average number of shares related to options
and RSUs excluded from the diluted earnings per share
calculation because of anti-dilutive effect		-		171,086		351,610

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Financial Income (Expenses), Net

12 Months Ended

Dec. 31, 2019

Other Income and Expenses [Abstract]

Financial Income (Expenses), Net

Note 14 - Financial Income (Expenses), Net

	Year ended December 31
	2017			2018			2019
	US$ thousands
Interest income		527			840			2,295
Discount on marketable securities, net		(217	)		(32	)		(144	)
Exchange rate differences, net		(45	)		208			(357	)
Bank charges		(109	)		(93	)		(148	)
		156			923			1,646

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Acquisitions (Details) - USD ($) $ in Thousands	Oct. 28, 2015	Dec. 10, 2014	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2016	Dec. 31, 2015
Business Acquisition [Line Items]
Purchase price allocated to goodwill			$ 25,561	$ 25,561
ADI Engineering, Inc. [Member]
Business Acquisition [Line Items]
Aggregate purchase price in cash	$ 10,000
Contingent consideration	7,802
Total purchase price	17,802
Purchase price allocated to tangible assets	222
Purchase price allocated to intangibles assets	4,261
Purchase price allocated to goodwill	$ 13,319
Total obligation the company paid					$ 3,000
Silicom Denmark [Member]
Business Acquisition [Line Items]
Aggregate purchase price in cash		$ 10,161
Contingent consideration		4,683
Total purchase price		14,844
Purchase price allocated to tangible assets		2,022
Purchase price allocated to intangibles assets		1,996
Purchase price allocated to goodwill		12,242
Purchase price allocated to liabilities assumed		$ 1,416
Total obligation the company paid						$ 1,463
Percentage of contingent consideration paid in cash						90.00%
Percentage of contingent consideration paid in options to ordinary shares						10.00%

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Marketable Securities (Summary of Investment Securities in an Unrealized Loss Position) (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Investments, Debt and Equity Securities [Abstract]
Unrealized Losses, Less than 12 months	$ (38)
Unrealized Losses, 12 months or more	(171)
Unrealized Losses, Total	(209)
Fair value, Less than 12 months	4,968
Fair value, 12 months or more	20,100
Fair value, Total	$ 25,068

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Shareholders' Equity (Summary of Allocation of Stock-Based Compensation Expenses) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 2,355	$ 2,424	$ 2,425
Unrecognized compensation costs related to outstanding stock options and RSUs	$ 1,313
Unrecognized compensation costs related to outstanding stock options and RSUs, period for recognition	10 months 17 days
Cost Of Sales [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 437	372	320
Research And Development Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	900	953	832
Selling And Marketing Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	493	569	537
General And Administrative Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 525	$ 530	$ 736

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Shareholders' Equity (Intrinsic Value of Stock Options) (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Stockholders' Equity Note [Abstract]
Aggregate intrinsic value of options outstanding	$ 593	$ 835
Aggregate intrinsic value of options exercisable	593	835
Total intrinsic value of options exercised	$ 28	$ 67

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Financial Income (Expenses), Net (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Other Income and Expenses [Abstract]
Interest income	$ 2,295	$ 840	$ 527
Discount on marketable securities, net	(144)	(32)	(217)
Exchange rate differences, net	(357)	208	(45)
Bank charges	(148)	(93)	(109)
Financial income, net	$ 1,646	$ 923	$ 156

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Consolidated Balance Sheets (Parenthetical) - ₪ / shares	Dec. 31, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Ordinary shares, par value	₪ 0.01	₪ 0.01
Ordinary shares, authorized	10,000,000	10,000,000
Ordinary shares, issued	7,618,676	7,574,176
Ordinary shares, outstanding	7,351,317	7,559,205
Ordinary shares, treasury shares	267,359	14,971

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Consolidated Statements of Changes In Shareholders' Equity (Parenthetical)	12 Months Ended
	Dec. 31, 2017 $ / shares
Consolidated Statements Of Changes In Shareholders' Equity [Abstract]
Dividend per share	$ 1.00

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Cash and Cash Equivalents (Tables)

12 Months Ended

Dec. 31, 2019

Cash and Cash Equivalents [Abstract]

Schedule of Cash and Cash Equivalents

	December 31
	2018		2019
	US$ thousands
Cash		16,147		13,382
Cash equivalents *		10,661		3,087
		26,808		16,469

* Comprised mainly of deposits in banks as at December 31, 2018 and 2019 carrying a weighted average interest rate of 2.79% and 1.04%, respectively.

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Taxes on Income

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Taxes on Income

Note 15 - 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 a "foreign invested company" (as defined in the Israeli Law for the Encouragement of Capital Investments-1959), the Company's taxable income or loss is calculated in US Dollars.

B. Corporate tax rate in Israel

Taxable income of Israeli companies was subject to tax at a rate of 24% in 2017 and at a rate of 23% from 2018 onwards.

C. Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (hereinafter - the "Law")

1. On December 29, 2010 the Knesset approved the Economic Policy Law for 2011-2012, which includes an amendment to the Law for the Encouragement of Capital Investments – 1959 (hereinafter – "the Amendment to the Law"). The Amendment to the Law is effective from January 1, 2011 and its provisions will apply to preferred income derived or accrued in 2011 and thereafter by a Preferred Company, per the definition of these terms in the Amendment to the Law.

Companies can choose to not be included in the scope of the Amendment to the Law and to stay in the scope of the law before its amendment until the end of the benefits period.

Under the Amendment to the Law, upon an irrevocable election made by a company, a uniform corporate tax rate will apply to all preferred income of such company. The Company elected to apply the uniform corporate tax rate as of 2014.  From 2017 onwards, the uniform tax rate is to be 7.5% in areas in Israel designated as Development Zone A and 16% elsewhere in Israel. The company has two facilities in Israel of which one of them is located in Development Zone A. The profits of these Preferred Companies will be freely distributable as dividends, subject to a withholding tax of 20% (or a lower rate under an applicable tax treaty).

Should the Company derive income from sources other than the Preferred Company, such income will be taxable at the regular corporate tax rates for the applicable year.

2. In the event of distribution by the Company of dividends out of its retained earnings that were generated prior to 2014 tax year and were tax exempt under the "Approved Enterprise" or "Benefited Enterprise" status, the Company would be subjected to a maximum of 25% corporate tax on the amount distributed, and a further 15% withholding tax would be deducted from the amounts distributed to the shareholders.

Out of the Company’s retained earnings as of December 31, 2018 and 2019, approximately US$ 46,581 thousand and US$ 50,516 thousand respectively are tax-exempt, under the previous "Approved Enterprise" and "Benefited Enterprise" status. If such tax-exempt income is distributed as a dividend (including a liquidation dividend), it would be taxed at the reduced corporate tax rate applicable to such profits (up to 25%) and an income tax liability of up to approximately US$ 11,645 thousand and US$ 12,629 thousand would be incurred as of December 31, 2018 and 2019, respectively. The Company anticipates that any future dividends distributed pursuant to its dividend policy, will be distributed from income sources which will not impose additional tax liabilities on the Company. The Company intends to reinvest the amount of its tax-exempt income. Accordingly, no deferred income taxes have been provided on income attributable to the Company’s "Approved Enterprise" or "Benefited Enterprise". If the Company was to declare a dividend from its tax-exempt income, an income tax expense would be recognized in the period a dividend is declared.

D.             Taxation of the subsidiaries

1. The subsidiary Silicom Inc. files tax returns to US federal tax authorities and to state tax authorities in the states of New Jersey, California, Virginia, New York, New Mexico, Tennessee and Texas.

On December 22, 2017, the Tax Cuts and Jobs Acts was enacted into law. The new legislation impacted the company by reduction of the Federal corporate income tax rate to 21% effective January 1, 2018.

2. The subsidiary Silicom Denmark is taxed according to the tax laws in Denmark.

3. The Company has not provided for Israeli income and foreign withholding taxes on US$ 7,221 thousand of its non-Israeli subsidiaries' undistributed earnings as of December 31, 2019. The earnings could become subject to tax if earnings are remitted or deemed remitted as dividends or upon sale of a subsidiary.

The Company currently has no plans to repatriate those funds and intends to indefinitely reinvest them in its non-Israeli operations. The unrecognized deferred tax liability associated with these temporary differences was approximately US$ 1,030 thousand at December 31, 2019. 

4. As of December 31, 2019, the net operating loss carry-forwards of the Companys’ subsidiaries for tax purposes amounted to approximately US$ 900 thousand. These losses are available to offset any future taxable income.

E.             Tax assessments

1. For the Israeli jurisdiction the Company has final tax assessments for all years up to and including the tax year ended December 31, 2014.

2. For the US Federal jurisdiction, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2015. For the New Jersey and California state jurisdictions, Silicom Inc. has final tax assessments for all years up to and including the tax year ended December 31, 2014. For the Virginia state jurisdiction, Silicom Inc. has open tax assessments for the years 2016 through 2019.  For the Tennessee state jurisdiction, Silicom Inc. has open tax assessments for the years 2016 through 2019.  For the New Mexico and New York state jurisdictions, Silicom Inc. has open tax assessments for the years 2017 through 2019. For the Texas state jurisdiction, Silicom Inc. has open tax assessments for the years 2018 and 2019.

3. For the Danish jurisdiction, Silicom Denmark has final tax assessments for all years up to and including the tax year ended August 31, 2014.

F. Income before income taxes and income taxes expense (benefit) included in the consolidated statements of operations

	Year ended December 31
	2017			2018			2019
	US$ thousands
Income before income taxes:
Israel		23,226			14,703			9,339
Foreign jurisdiction		2,356			2,871			2,520
		25,582			17,574			11,859
Current taxes:
Israel		2,379			2,400			1,732
Foreign jurisdiction		1,095			831			611
		3,474			3,231			2,343
Current tax (benefits) expenses relating
to prior years:
Israel		12			(73	)		(17	)
Foreign jurisdiction		(71	)		(226	)		(4	)
		(59	)		(299	)		(21	)
Deferred taxes:
Israel		549			(106	)		(904	)
Foreign jurisdiction		(96	)		111			205
		453			5			(699	)
Income tax expense		3,868			2,937			1,623

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 31			December 31
	2018			2019
	US$ thousands			US$ thousands
Deferred tax assets:
Accrued employee benefits		281			327
Research and development costs		842			1,597
Tax loss carryforwards		169			196
Property, plant and equipment		48			31
Share based compensation		348			374
Intangible assets		202			347
Other		23			-
Total gross deferred tax assets		1,913			2,872
Deferred tax liabilities:
Intangible assets		(212	)		(397	)
Goodwill		(807	)		(879	)
Other		-			(3	)
Total gross deferred tax liabilities		(1,019	)		(1,279	)
Net deferred tax assets		894			1,593
In Israel		894			1,798
Foreign jurisdictions		-			(205	)
Net deferred tax assets		894			1,593
Non-current deferred tax assets		894			1,798
Non-current deferred tax liabilities		-			(205	)

H. Reconciliation of the statutory tax expense to actual tax expense

	Year ended December 31
	2017			2018			2019
	US$ thousands
Income before income taxes		25,582			17,574			11,859
Statutory tax rate in Israel		24.0	%		23.0	%		23.0	%
		6,140			4,042			2,728
Increase (decrease) in taxes resulting from:
Non-deductible operating expenses, net		364			295			417
Non-taxable income		(1,114	)		-			-
Prior years adjustments		(59	)		(299	)		(21	)
Tax effect due to
"Preferred Enterprise" status*		(2,361	)		(1,398	)		(1,099	)
Taxes related to foreign jurisdictions		632			176			18
Changes in tax rate		162			-			7
Creation of deferred taxes for tax losses and
benefits from previous years for which deferred
taxes were not created in the past		-			-			(476	)
Other		104			121			49
Income tax expense		3,868			2,937			1,623

* The effect of the benefit resulting from the "Preferred Enterprise" status on net earnings per ordinary share is as follows:

	Year ended December 31
	2017		2018		2019
Basic		0.32		0.19		0.15
Diluted		0.31		0.18		0.15

I.               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 2017, 2018 and 2019 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.

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Inventories

12 Months Ended

Dec. 31, 2019

Inventory Disclosure [Abstract]

Inventories

Note 7 - Inventories

	December 31
	2018		2019
	US$ thousands
Raw materials and components		19,088		20,986
Products in process		10,883		7,137
Finished products		12,398		8,368
		42,369		36,491

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Acquisitions

12 Months Ended

Dec. 31, 2019

Business Combinations [Abstract]

Acquisitions

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. The fair value measurement of the contingent consideration was classified at level 2 and level 3 of the fair value hierarchy (see Note 2W). 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.

In connection with the contingent consideration, during 2016 the Company paid ADI an amount of US$ 3,000 thousand. Any amount not paid was charged to the statement of operations as an income.

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. The fair value measurement of the contingent consideration was classified at level 3 of the fair value hierarchy (see Note 2W). Of the total estimated purchase price of US$ 14,844 thousand, US$ 2,022 thousand was attributed to tangible assets, US$ 1,996 thousand was attributed to intangible assets, US$ 12,242 thousand was attributed to goodwill and US$ 1,416 was attributed to liabilities assumed. The goodwill is primarily attributable to the synergies expected to arise after the acquisition. None of the recognized goodwill is expected to be deductible for income tax purposes.

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). Any amount not paid was charged to the statement of operations as an income.

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Assets Held and Liability for Employees' Severance Benefits

12 Months Ended

Dec. 31, 2019

Retirement Benefits [Abstract]

Assets Held and Liability for Employees' Severance Benefits

Note 11 - Assets Held and Liability for Employees' Severance Benefits

A. Under Israeli law and labor agreements, Silicom is required to make severance payments to retired or dismissed employees and to employees leaving employment in certain other circumstances.

In respect of the liability to the employees, individual insurance policies are purchased and deposits are made with recognized severance pay funds.

The liability for severance pay is calculated on the basis of the latest salary paid to each employee multiplied by the number of years of employment. The liability is covered by the amounts deposited including accumulated income thereon as well as by the unfunded provision.

B. According to Section 14 to the Severance Pay Law ("Section 14") the payment of monthly deposits by a company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to the employees that have entered into agreements with the company pursuant to such Section 14. Commencing July 1, 2008, the Company has entered into agreements with a majority of its employees in order to implement Section 14. Therefore, as of that date, the payment of monthly deposits by the Company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to those employees that have entered into such agreements and therefore the Company incurs no additional liability since that date with respect to such employees. Amounts accumulated in the pension funds or insurance policies pursuant to Section 14 are not supervised or administrated by the Company and therefore neither such amounts nor the corresponding accrual are reflected in the balance sheet.

C. Consequently, the assets held for employees' severance benefits reported on the balance sheet, in respect of deposits for those employees who have signed agreements pursuant to Section 14, represent the redemption value of deposits made through June 30, 2008. The liability for employee severance benefits, with respect to those employees, represents the liability of the Company for employees' severance benefits as of June 30, 2008.

As a result of the implementation of Section 14, as described above, the liability with respect to those employees is calculated on the basis of number of years of employment as of June 30, 2008, multiplied by the latest salary paid. The liability is covered by the amounts deposited, including accumulated income thereon, as well as by the unfunded provision. Such liability will be removed, either upon termination of employment or retirement.

D. Expenses recorded with respect to employees' severance payments for the years ended December 31, 2017, 2018 and 2019 were US$ 830 thousand, US$ 605 thousand and US$ 929 thousand, respectively.

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Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2019

Intangible Assets, Net (Excluding Goodwill) [Abstract]

Schedule of Net Intangible Assets

			December 31
			2018		2019
	Useful life		US$ thousands
Original cost:
Capitalization of software development costs		3		928		1,946
Licenses		3		106		106
				1,034		2,052
Accumulated amortization:
Capitalization of software development costs				37		274
Licenses				31		60
				68		334
Intangible assets, Net:
Capitalization of software development costs				891		1,672
Licenses				75		46
				966		1,718

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Financial Income (Expenses), Net (Tables)

12 Months Ended

Dec. 31, 2019

Other Income and Expenses [Abstract]

Financial Income (Expenses), Net

	Year ended December 31
	2017			2018			2019
	US$ thousands
Interest income		527			840			2,295
Discount on marketable securities, net		(217	)		(32	)		(144	)
Exchange rate differences, net		(45	)		208			(357	)
Bank charges		(109	)		(93	)		(148	)
		156			923			1,646

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Shareholders' Equity (RSUs Granted in 2014, 2015 and 2017) (Narrative) (Details) - Restricted Share Units [Member] - shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2015	Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
RSUs grant		78,000	8,000	74,000
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period from date of grant			2 years	2 years
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period from date of grant			3 years	3 years

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Leases (Schedule of Supplemental Balance Sheet Information Operating Lease) (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Operating leases:
Operating leases right-of-use	$ 3,783
Current operating lease liabilities	1,090
Non-current operating lease liabilities	2,693
Total operating lease liabilities	$ 3,783
Weighted average remaining lease term Operating leases	4 years 9 months 18 days
Weighted average discount rate Operating leases	3.30%

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Taxes on Income (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income Tax Disclosure [Line Items]
Tax rate	23.00%	23.00%	24.00%
Federal corporate income tax rate effective January 1, 2018	21.00%
Corporate tax on cash dividends distributed from exempted profits	25.00%
Withholding tax deduction from cash dividends distributed from benefited profits	20.00%
Non-Israeli subsidiaries' undistributed earnings for which Company has not provided for Israeli income and foreign withholding taxes	$ 7,221
Assumed deferred tax liability attributable to taxable temporary differences from non-Israeli subsidiaries'' undistributed earnings	1,030
Net operating loss carry-forwards	$ 900
Israel Tax Reform [Member]
Income Tax Disclosure [Line Items]
Corporate statutory tax rate on 2018 and thereafter	23.00%
Corporate statutory tax rate on 2017	24.00%
Corporate statutory tax rate on 2016	25.00%
Preferred Enterprise [Member] | Development Area A [Member]
Income Tax Disclosure [Line Items]
Corporate statutory tax rate on 2017 and thereafter	7.50%
Corporate statutory tax rate on 2016	7.50%
Preferred Enterprise [Member] | Rest Of Country [Member]
Income Tax Disclosure [Line Items]
Corporate statutory tax rate on 2016 and thereafter	16.00%
Beneficial Enterprise [Member]
Income Tax Disclosure [Line Items]
Tax exemption	$ 50,516	$ 46,581
Assumed income tax liability	$ 12,629	$ 11,645

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Subsequent Events (Details) - USD ($) $ in Thousands	1 Months Ended	4 Months Ended	12 Months Ended
	Jan. 31, 2020	May 06, 2020	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Subsequent Event [Line Items]
Options granted			141,928	137,010	119,925
Subsequent Event [Member]
Subsequent Event [Line Items]
Ordinary shares repurchased		97,577
Transaction costs		$ 3,326
Shares repurchased under the plan		349,965
Subsequent Event [Member] | Global Share Incentive Plan (2013) [Member]
Subsequent Event [Line Items]
Options granted	148,426
RSUs granted	$ 86,000

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Geographic areas and major customers (Sales to Single Customers Exceeding 10% of Sales) (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2019		Dec. 31, 2018		Dec. 31, 2017
Revenue, Major Customer [Line Items]
Sales	[1]	$ 105,240		$ 133,753		$ 125,690
Customer A [Member]
Revenue, Major Customer [Line Items]
Sales		17,107		18,855		16,915
Customer B [Member]
Revenue, Major Customer [Line Items]
Sales		11,030		14,506			[2]
Customer C [Member]
Revenue, Major Customer [Line Items]
Sales			[2]	14,220			[2]
Customer D [Member]
Revenue, Major Customer [Line Items]
Sales			[2]		[2]	$ 25,888

[1] Including sales to related parties in the amount of US$ 1,275 thousand, US$ 1,063 thousand and US$ 0 in 2017, 2018 and 2019, respectively.

[2] Less than 10% of sales.

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Shareholders' Equity (Schedule Of Restricted Share Units Activity) (Details) - Restricted Share Units [Member] - $ / shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2015	Dec. 31, 2014
Number of Restricted Share Units
Restricted Share Units, beginning balance	78,000	78,000	43,000
Restricted Share Units, granted			78,000	8,000	74,000
Restricted Share Units, vested	(39,000)		(43,000)
Restricted Share Units, ending balance	39,000	78,000	78,000
Weighted average grant date fair value
Weighted average grant date fair value, granted			$ 34.90
Weighted average grant date fair value, vested	$ 35.36		$ 42.52

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Summary of Significant Accounting Policies (Schedule of consolidated balance sheet) (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Operating leases right-of-use	$ 3,783
Prepaid expenses	553	$ 884
Operating lease liabilities	$ (3,783)
According to the previous accounting policy [Member]
Operating leases right-of-use
Prepaid expenses		90
Operating lease liabilities
The change [Member]
Operating leases right-of-use		3,424
Prepaid expenses		(90)
Operating lease liabilities		(3,334)
As presented according to Topic 842 [Member]
Operating leases right-of-use		3,424
Prepaid expenses
Operating lease liabilities		$ (3,334)

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Marketable Securities (Held-To-Maturity Securities) (Details) - USD ($) $ in Thousands		Dec. 31, 2019	Dec. 31, 2018
Schedule of Held-to-maturity Securities [Line Items]
Aggregate fair value	[1]	$ 61,348	$ 46,862
Gross unrealized holding gains		432
Gross unrealized holding (losses)		(209)	(800)
Amortized cost basis	[2]	61,125	47,662
Accrued interest on securities		538	450
Current [Member]
Schedule of Held-to-maturity Securities [Line Items]
Aggregate fair value	[1]	14,097	1,588
Gross unrealized holding gains		24
Gross unrealized holding (losses)		(97)	(22)
Amortized cost basis	[2]	14,170	1,610
Non Current [Member]
Schedule of Held-to-maturity Securities [Line Items]
Aggregate fair value	[1]	47,251	45,274
Gross unrealized holding gains		408
Gross unrealized holding (losses)		(112)	(778)
Amortized cost basis	[2]	$ 46,955	$ 46,052

[1] Fair value is being determined using quoted market prices in active markets (Level 2).

[2] Including accrued interest in the amount of US$ 450 thousand and US$ 538 thousand as of December 31, 2018 and 2019 respectively.

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Inventories (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Raw materials and components	$ 20,986	$ 19,088
Products in process	7,137	10,883
Finished products	8,368	12,398
Inventories	$ 36,491	$ 42,369

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Other Receivables (Tables)

12 Months Ended

Dec. 31, 2019

Receivables [Abstract]

Schedule of Other Receivables

	December 31
	2018		2019
	US$ thousands
Advances to suppliers		5,260		805
Government authorities		2,916		2,758
Prepaid expense		884		553
Other receivables		427		848
		9,487		4,964

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Financial Statements in US Dollars

A. Financial statements in US dollars

Substantially all sales of the Company are made outside of Israel (see Note 13A 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.

Basis of Presentation

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.

Estimates and Assumptions

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 income taxes, inventories, marketable securities, goodwill, intangible assets and share-based compensation.

Business combinations

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.

Cash and cash equivalents

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.

Short-term bank deposits

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.

As of December 31, 2019, the Company's short-term bank deposits consist of bank deposits in US dollars carrying a weighted average interest rate of 2.58%. These short-term bank deposits are held with a major Israeli bank, and their use and withdrawal are not subject to any restrictions.

Marketable securities

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.

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 collectibility 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.

Trade accounts receivable, net

H. Trade accounts receivable, net

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.

As of December 31, 2018 and 2019, the provision for doubtful accounts receivable amounted to US$ 20 thousand.

Inventories

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.

Assets held for employees' severance benefits

J. Assets held for employees’ 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.

Property, plant and equipment

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 - 33
Office furniture and equipment	6 - 33
Leasehold improvements	*

*Over the shorter term of the lease or the useful life of the asset

Goodwill and other intangible assets

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.

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

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

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.

Impairment of Long-Lived Assets

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.

Leases

N. Leases

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02. The guidance establishes a right-of-use model ("ROU") that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. The Company determines if an arrangement is or contains a lease at contract inception.

A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. The Company adopted the new accounting standard ASC 842 "Leases" and all the related amendments on January 1, 2019 and used the effective date as the Company’s date of initial application. Consequently, financial information was not updated and the disclosures required under the new standard are not provided for dates and periods before January 1, 2019.

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, 2019, all of the company's leases are operating leases.

The new standard provides a number of optional practical expedients in transition. The Company chose to apply the following permitted practical expedients:

• Not to reassess its prior conclusions regarding lease identification, lease classification and initial direct costs under the new standard.

• Applying the practical expedient pertaining to the use-of hindsight.

• 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 ROU assets or lease liabilities but recognizes lease expenses over the lease term on a straight-line basis.

• Applying the practical expedient to not separate lease and non-lease components for all of the Company’s leases, other than leases of real estate.

The company did not separate lease and non-lease components for all contracts entered into before January 1, 2019 and identified as leases in accordance with Topic 840.

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.

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 up to 7.5 years. Some of these agreements include options to extend the leases for up to 5 years and some 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 10.

Prior to the adoption of the new lease standard, the Company leases consisted of real estate and cars for use in its operations, which have been classified as operating leases.

Effects of the initial application of the new standard on the Company's consolidated balance sheet as of January 1, 2019:

	According to the previous accounting policy		The change			As presented according to Topic 842
			US$ thousands
Operating leases right-of-use		-		3,424			3,424
Prepaid expenses		90		(90	)		-
Operating lease liabilities		-		(3,334	)		(3,334	)

Revenue recognition

O.            Revenue recognition

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, a new accounting standard related to revenue recognition. ASC 606 supersedes nearly all U.S. GAAP on revenue recognition and eliminated industry-specific guidance. The underlying principle of ASC 606 is to recognize revenue when a customer obtains control of the promised goods at an amount that reflects the consideration that is expected to be received in exchange for those goods. It also requires increased disclosures including the nature, amount, timing, and uncertainty of revenues and cash flows related to contracts with customers. The Company adopted ASC 606 at the beginning of the first quarter of fiscal 2018, and implemented new accounting policies and internal controls necessary to support the requirements of ASC 606. The adoption of ASC 606 did not have any impact on the Company's revenue recognition.

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. The Company identifies separated contractual performance obligations and evaluates each distinct performance obligation within a contract, whether it is satisfied at a point in time or over time.  All of the Company's performance obligations for the reported periods were satisfied at a point in time.

Revenue is allocated among performance obligations in a manner that reflects the consideration that the Company expects to be entitled to for the promised goods based on standalone selling prices (SSP). SSP are estimated for each distinct performance obligation and judgment may be required in their determination. The best evidence of SSP is the observable price of the product when the Company sell the goods separately in similar circumstances and to similar customers.

Until January 1, 2018, revenues from sales of products were recognized upon delivery provided that the collection of the resulting receivable was reasonably assured, there was persuasive evidence of an arrangement, no significant obligations remained and the price was fixed or determinable.

Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from revenues in the consolidated statements of operations.

Research and development costs

P. Research and development costs

Capitalization of software development costs 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. The Company started to capitalize internal software development costs during 2018. The Company did not capitalize any internal software development costs for the year ended December 31, 2017, because the cost incurred and the time between technological feasibility and product release was insignificant. Other costs incurred in the research and development of the Company’s products are expensed as incurred.

Allowance for product warranty

Q. Allowance for product warranty

The Company grants service 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.

Treasury shares

R. Treasury shares

Treasury shares are recorded at cost and presented as a reduction of shareholders' equity.

Income taxes

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 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 at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Share-based compensation

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.

Basic and diluted earnings per share

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 common shares outstanding is increased to include outstanding potential common shares during the period if dilutive. Potential common 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.

	Year ended December 31
	2017		2018		2019
Net income attributable to ordinary shares
(US$ thousands)		21,714		14,637		10,236
Weighted average number of ordinary shares outstanding
used in basic income per ordinary share calculation		7,455,528		7,552,094		7,520,389
Add assumed exercise of outstanding dilutive potential
ordinary shares		146,443		105,236		52,228
Weighted average number of ordinary shares outstanding
used in diluted income per ordinary share calculation		7,601,971		7,657,330		7,572,617
Basic income per ordinary shares (US$)		2.912		1.938		1.361
Diluted income per ordinary shares (US$)		2.856		1.912		1.352
Weighted average number of shares related to options
and RSUs excluded from the diluted earnings per share
calculation because of anti-dilutive effect		-		171,086		351,610

Comprehensive Income

V.             Comprehensive Income

For the years ended December 31, 2017, 2018 and 2019, comprehensive income equals net income.

Fair Value Measurements

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.

Concentrations of risks

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, 2018 and 2019, the ratings of the securities in the Company's portfolio was at least A-. 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 three customers accounted for approximately 35% of its revenues in 2019. 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 13.

Liabilities for loss contingencies

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.

Recent Accounting Pronouncements

Z.           Recent Accounting Pronouncements

(1) In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted for annual and interim periods in fiscal years beginning after December 15, 2018. In November 2019, the FASB issued ASU 2019-11, which includes several amendments to the credit losses standard (ASU 2016-13), including amendments to the reporting of expected recoveries. The Company is currently evaluating the impact of the provisions of ASU 2016-13 on its financial position, results of operations and cash flows.

(2) In December 2019, the FASB issued ASU 2019-12, which removes certain exceptions for: recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This ASU is effective for annual periods in fiscal years beginning after December 15, 2021, and interim periods in fiscal years beginning after December 15, 2022. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its consolidated balance sheets, results of operations, cash flows or presentation thereof.

(3) In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which eliminates the requirement to calculate the implied fair value of goodwill in Step 2 of the goodwill impairment test. Under ASU 2017-04, goodwill impairment charges will be based on the excess of a reporting unit’s carrying amount over its fair value as determined in Step 1 of the testing. ASU 2017-04 is effective for interim and annual testing dates after December 15, 2019, with early adoption permitted for interim and annual goodwill impairment testing dates after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated balance sheets, results of operations, cash flows or presentation thereof.

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Geographic areas and major customers

12 Months Ended

Dec. 31, 2019

Geographic areas and major customers [Abstract]

Geographic areas and major customers

Note 13 - 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 customer.

	Year ended December 31
	2017		2018		2019
	US$ thousands
North America		100,434		108,024		77,161
Europe		20,156		21,038		20,956
Asia-Pacific		5,100		4,691		7,123
		125,690		133,753		105,240

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

	Year ended December 31
	2017		2018		2019
	US$ thousands
Customer "A"		16,915		18,855		17,107
Customer "B"		*		14,506		11,030
Customer "C"		*		14,220		*
Customer "D"		25,888		*		*

* Less than 10% of sales.

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, 2018 and 2019:

	Year ended December 31
	2018		*2019
	US$ thousands
North America		46	1,189
Europe		235	198
Israel		3,389	5,970
		3,670	7,357

* The company adopted ASC 842 "Leases" as of January 1, 2019. Therefore, the ROU asset is to be included in the long-lived assets as of December 31, 2019.

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General

12 Months Ended

Dec. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

General

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.

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Document And Entity Information	12 Months Ended
	Dec. 31, 2019
Document And Entity Information [Abstract]
Entity Registrant Name	SILICOM LTD.
Entity Central Index Key	0000916793
Document Type	6-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2019
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2019
Current Fiscal Year End Date	--12-31

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Consolidated Statements of Operations (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income Statement [Abstract]
Sales to related parties	$ 0	$ 1,063	$ 1,275
Services from related parties	$ 0	$ 311	$ 170

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Inventories (Tables)

12 Months Ended

Dec. 31, 2019

Inventory Disclosure [Abstract]

Summary of Inventories

	December 31
	2018		2019
	US$ thousands
Raw materials and components		19,088		20,986
Products in process		10,883		7,137
Finished products		12,398		8,368
		42,369		36,491

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Shareholders' Equity (Tables)

12 Months Ended

Dec. 31, 2019

Stockholders' Equity Note [Abstract]

Schedule of assumptions used in estimation of grant date fair value of RSUs

The Company recognizes compensation expenses on these RSUs based on estimated grant date fair value, with the following assumptions:

	2014			2015			2017
Expected dividend yield		2.06	%		3.22	%		2.68	%
Termination rate		4.35	%		0	%		1.74	%

Schedule of assumptions used in estimation of grant date fair value of options

The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	2.08	%
Expected dividend yield	2.09	%
Average expected volatility (b)	53.01	%
Termination rate	9	%
Suboptimal factor (c)	3.4

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	1.58	%
Expected dividend yield	2.42	%
Average expected volatility (b)	47.90	%
Termination rate	9	%
Suboptimal factor (c)	3.32

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

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

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

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

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

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

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

Stock Option Summary

The following table summarizes information regarding stock options as at December 31, 2019:

	Options outstanding				Options exercisable
			Weighted average				Weighted average
			remaining				remaining
Exercise price	Number		contractual life		Number		contractual life
US$	of options		(in years)		of options		(in years)
15.28		6,575		0.7		6,575		0.7
26.91		19,332		3.6		19,332		3.6
33.27		19,706		6.3		19,706		6.3
28.38		72,198		4.4		72,198		4.4
39.62		101,838		5.1		101,838		5.1
36.11		116,257		6.3		-		-
33.83		129,341		7.1		-		-
		465,247				219,649

Stock Option Activity

The stock option activity under the abovementioned plans is as follows:

						Weighted
				Weighted		average
	Number			average		grant date
	of options			exercise price		fair value
				US$		US$
Balance at January 1, 2017		266,005
Granted		119,925			39.62		11.89
Exercised		(124,918	)		21.46		8.46
Forfeited		(11,101	)		33.18		10.87
Balance at December 31, 2017		249,911
Granted		137,010			36.11		14.71
Exercised		(9,674	)		28.02		9.94
Forfeited		(11,752	)		36.73		13.05
Balance at December 31, 2018		365,495
Granted		141,928			33.83		13.35
Exercised		(5,500	)		28.09		10.03
Forfeited		(36,676	)		35.88		13.50
Balance at December 31, 2019		465,247
Exercisable at December 31, 2019		219,649

Schedule of Restricted Share Units activity

The Restricted Share Units activity under the abovementioned plans is as follows:

				Weighted
	Number of			average
	Restricted			grant date
	Share Units			fair value
				US$
Balance at January 1, 2017		43,000
Granted		78,000			34.90
Vested		(43,000	)		42.52
Balance at December 31, 2017 and December 31, 2018		78,000
Vested		(39,000	)		35.36
Balance at December 31, 2019		39,000

Summary of Allocation of the Stock-Based Compensation Expenses

During 2017, 2018 and 2019, the Company recorded share-based compensation expenses. The following summarizes the allocation of the stock-based compensation expenses:

	Year ended December 31
	2017		2018		2019
	US$ thousands
Cost of sales		320		372		437
Research and development costs		832		953		900
Selling and marketing expenses		537		569		493
General and administrative expenses		736		530		525
		2,425		2,424		2,355

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Summary of Significant Accounting Policies (Narrative) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($) item Customers	Dec. 31, 2018 USD ($)
Accounting Policies [Abstract]
Provision for doubtful accounts | $	$ 20	$ 20
Number of major customers | Customers	3
Percentage of revenue contributed by major customers	35.00%
Number of operating segments	1
Number of reporting units	1
Weighted average interest rate	2.58%
Remaining lease terms	7 years 6 months
Options to extend leases	5 years

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Intangible Assets

12 Months Ended

Dec. 31, 2019

Intangible Assets, Net (Excluding Goodwill) [Abstract]

Intangible Assets

Note 9 - Intangible Assets

			December 31
			2018		2019
	Useful life		US$ thousands
Original cost:
Capitalization of software development costs		3		928		1,946
Licenses		3		106		106
				1,034		2,052
Accumulated amortization:
Capitalization of software development costs				37		274
Licenses				31		60
				68		334
Intangible assets, Net:
Capitalization of software development costs				891		1,672
Licenses				75		46
				966		1,718

Amortization expense for the years ended December 31, 2017, 2018 and 2019 were US$ 1,888 thousand, US$ 1,103 thousand and US$ 266 thousand, respectively.

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Marketable Securities

12 Months Ended

Dec. 31, 2019

Investments, Debt and Equity Securities [Abstract]

Marketable Securities

Note 5 - Marketable Securities

The Company's investment in marketable securities as of December 31, 2018 and 2019 are classified as ''held-to-maturity'' and consist of the following:

			Gross		Gross
			unrealized		unrealized
	Amortized		holding		holding			Aggregate
	cost basis**		gains		(losses)			fair value*
	US$ thousands
At December 31, 2019
Held to maturity:
Corporate debt securities and government debt securities
Current		14,170		24		(97	)		14,097
Non-Current		46,955		408		(112	)		47,251
		61,125		432		(209	)		61,348
At December 31, 2018
Held to maturity:
Corporate debt securities and government debt securities
Current		1,610		-		(22	)		1,588
Non-Current		46,052		-		(778	)		45,274
		47,662		-		(800	)		46,862

*	Fair value is being determined using quoted market prices in active markets (Level 2).
**	Including accrued interest in the amount of US$ 450 thousand and US$ 538 thousand as of December 31, 2018 and 2019 respectively. The accrued interest is presented as part of other account receivable on the balance sheet.

Activity in marketable securities in 2019	US$ thousands
Balance at January 1, 2019		47,662
Purchases of marketable securities		15,604
Discount on marketable securities, net		(144	)
Proceeds from maturity of marketable securities		(1,997	)
Balance at December 31, 2019		61,125

The following table summarizes the gross unrealized losses on investment securities for which other-than-temporary impairments have not been recognized 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 position, at December 31, 2019:

	Less than 12 months					12 months or more					Total
	Unrealized Losses			Fair value		Unrealized Losses			Fair value		Unrealized Losses			Fair value
Held to maturity:
Corporate debt securities and government debt securities		(38	)		4,968		(171	)		20,100		(209	)		25,068

The unrealized losses 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; therefore these investments are not considered other than temporarily impaired.

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Taxes on Income (Deferred Tax Assets and Liabilities) (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Deferred tax assets:
Accrued employee benefits	$ 327	$ 281
Research and development costs	1,597	842
Tax loss carryforwards	196	169
Property, plant and equipment	31	48
Share based compensation	374	348
Intangible assets	347	202
Other		23
Total gross deferred tax assets	2,872	1,913
Deferred tax liabilities:
Intangible assets	(397)	(212)
Goodwill	(879)	(807)
Other	(3)
Total gross deferred tax liabilities	(1,279)	(1,019)
Net deferred tax assets	1,593	894
In Israel	1,798	894
Foreign jurisdictions	(205)
Net deferred tax assets	1,593	894
Non-current deferred tax assets	1,798	894
Non-current deferred tax liabilities	$ (205)

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Shareholders' Equity (Fair Value Assumptions) (Details) - item			1 Months Ended				12 Months Ended
		Jun. 08, 2016	Jan. 31, 2019	Apr. 30, 2018	Jan. 30, 2017	Jul. 28, 2015	Dec. 31, 2017	Dec. 31, 2015	Dec. 31, 2014
Restricted Share Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected dividend yield							2.68%	3.22%	2.06%
Termination rate							1.74%	0.00%	4.35%
36.11 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Average risk-free interest rate	[1]			2.92%
Expected dividend yield				0.00%
Average expected volatility	[2]			45.13%
Termination rate				9.00%
Suboptimal factor	[3]			3.2
$39.62 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Average risk-free interest rate	[1]				2.35%
Expected dividend yield					2.42%
Average expected volatility	[2]				43.71%
Termination rate					9.00%
Suboptimal factor	[3]				3.28
$28.38 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Average risk-free interest rate	[1]	1.58%
Expected dividend yield		2.42%
Average expected volatility	[2]	47.90%
Termination rate		9.00%
Suboptimal factor	[3]	3.32
$26.91 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Average risk-free interest rate	[1]					2.08%
Expected dividend yield						2.09%
Average expected volatility	[2]					53.01%
Termination rate						9.00%
Suboptimal factor	[3]					3.4
Share Option Plan 2013 [Member] | 33.83 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Average risk-free interest rate	[1]		2.55%
Expected dividend yield			0.00%
Average expected volatility	[2]		44.62%
Termination rate			9.00%
Suboptimal factor	[3]		3.18

[1] Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.

[2] Expected average volatility represents a weighted average standard deviation rate for the price of the Company's ordinary shares on the NASDAQ National Market.

[3] Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

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Assets Held and Liability for Employees' Severance Benefits (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Retirement Benefits [Abstract]
Severance costs	$ 929	$ 605	$ 830

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Leases (Schedule of Operating Lease Cost) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($)
Leases [Abstract]
Operating lease cost	$ 1,494
Variable lease payments not included in the lease liability	2
Short-term lease cost	287
Total operating lease cost	$ 1,783

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Summary of Significant Accounting Policies (Depreciation of Property, Plant and Equipment) (Details)	12 Months Ended
	Dec. 31, 2019
Machinery and equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Straight-line depreciation rate	15.00%
Machinery and equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Straight-line depreciation rate	33.00%
Office Furniture and Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Straight-line depreciation rate	6.00%
Office Furniture and Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Straight-line depreciation rate	33.00%
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Straight-line depreciation rate		[1]

[1] Over the shorter term of the lease or the useful life of the asset

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Property, Plant and Equipment, Net (Tables)

12 Months Ended

Dec. 31, 2019

Property, Plant and Equipment [Abstract]

Summary of Property, Plant and Equipment, Net

	December 31
		2018		2019
	US$ thousands
Machinery and equipment		12,150		13,374
Office furniture and equipment		725		924
Leasehold improvements		2,375		2,528
Property, plant and equipment		15,250		16,826
Accumulated depreciation		(11,580	)	(13,252	)
Property, Plant and equipment, net		3,670		3,574

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Geographic areas and major customers (Tables)

12 Months Ended

Dec. 31, 2019

Geographic areas and major customers [Abstract]

Sales by Geographic Region

Sales are attributed to geographic distribution based on the location of the customer.

	Year ended December 31
	2017		2018		2019
	US$ thousands
North America		100,434		108,024		77,161
Europe		20,156		21,038		20,956
Asia-Pacific		5,100		4,691		7,123
		125,690		133,753		105,240

Sales to Single Customers Exceeding 10% of Sales

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

	Year ended December 31
	2017		2018		2019
	US$ thousands
Customer "A"		16,915		18,855		17,107
Customer "B"		*		14,506		11,030
Customer "C"		*		14,220		*
Customer "D"		25,888		*		*

* Less than 10% of sales.

Schedule of Locations of Company's Long Lived Assets - Property, Plant and Equipment

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, 2018 and 2019:

	Year ended December 31
	2018		*2019
	US$ thousands
North America		46	1,189
Europe		235	198
Israel		3,389	5,970
		3,670	7,357

* The company adopted ASC 842 "Leases" as of January 1, 2019. Therefore, the ROU asset is to be included in the long-lived assets as of December 31, 2019.

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Property, Plant and Equipment, Net

12 Months Ended

Dec. 31, 2019

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment, Net

Note 8 - Property, Plant and Equipment, Net

	December 31
		2018		2019
	US$ thousands
Machinery and equipment		12,150		13,374
Office furniture and equipment		725		924
Leasehold improvements		2,375		2,528
Property, plant and equipment		15,250		16,826
Accumulated depreciation		(11,580	)	(13,252	)
Property, Plant and equipment, net		3,670		3,574

Depreciation expense for the years ended December 31, 2017, 2018 and 2019 were US$ 1,911 thousand, US$ 2,190 thousand and US$ 1,731 thousand, respectively.

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Cash and Cash Equivalents

12 Months Ended

Dec. 31, 2019

Cash and Cash Equivalents [Abstract]

Cash and Cash Equivalents

Note 4 - Cash and Cash Equivalents

	December 31
	2018		2019
	US$ thousands
Cash		16,147		13,382
Cash equivalents *		10,661		3,087
		26,808		16,469

* Comprised mainly of deposits in banks as at December 31, 2018 and 2019 carrying a weighted average interest rate of 2.79% and 1.04%, respectively.

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Taxes on Income (Reconciliation of Statutory Tax Expense To Actual Tax Expense) (Details) - USD ($) $ / shares in Units, $ in Thousands		12 Months Ended
		Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income before income taxes		$ 11,859	$ 17,574	$ 25,582
Statutory tax rate in Israel		23.00%	23.00%	24.00%
Computed expected tax		$ 2,728	$ 4,042	$ 6,140
Non-deductible operating expenses, net		417	295	364
Non-taxable income				(1,114)
Prior years adjustments		(21)	(299)	(59)
Tax effect due to "Preferred Enterprise" status	[1]	(1,099)	(1,398)	(2,361)
Taxes related to foreign jurisdictions		18	176	632
Changes in tax rate		7		162
Creation of deferred taxes for tax losses and benefits from previous years for which deferred taxes were not created in the past		(476)
Other		49	121	104
Income tax expense		$ 1,623	$ 2,937	$ 3,868
Basic		$ 1.361	$ 1.938	$ 2.912
Diluted		1.352	1.912	2.856
Preferred Enterprise - Effect on Net Earnings Per Ordinary Share [Member]
Basic		0.15	0.19	0.32
Diluted		$ 0.15	$ 0.18	$ 0.31

[1] The effect of the benefit resulting from the "Preferred Enterprise" status on net earnings per ordinary share is as follows:

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Leases (Schedule of Future Minimum Lease Payments) (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Leases [Abstract]
Year one	$ 1,209	$ 1,394
Year two	831	643
Year three	641	449
Year four	576	363
Year five		363
Thereafter	709	643
Total operating lease payments	3,966	$ 3,855
Less: imputed interest	(183)
Total operating lease liabilities	$ 3,783

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Intangible Assets (Schedule of net intangible assets) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Finite-Lived Intangible Assets [Line Items]
Original cost	$ 2,052	$ 1,034
Accumulated amortization	334	68
Intangible assets, Net	1,718	966
Amortization expense	266	1,103	$ 1,888
Capitalization of software development costs [Member]
Finite-Lived Intangible Assets [Line Items]
Original cost	1,946	928
Accumulated amortization	274	37
Intangible assets, Net	$ 1,672	891
Useful life	3 years
Licenses [Member]
Finite-Lived Intangible Assets [Line Items]
Original cost	$ 106	106
Accumulated amortization	60	31
Intangible assets, Net	$ 46	$ 75
Useful life	3 years

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Shareholders' Equity (Stock Options Granted in 2015, 2016 and 2017) (Narrative) (Details) - $ / shares		1 Months Ended				12 Months Ended
	Jun. 08, 2016	Jan. 31, 2019	Apr. 30, 2018	Jan. 30, 2017	Jul. 28, 2015	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price of options						$ 33.83	$ 36.11	$ 39.62
Share Option Plan 2013 [Member] | 33.83 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted		141,928
Exercise price of options		$ 33.83
Expiration date		Jan. 31, 2027
Closing price to determine expiration date		$ 16.92
Share Option Plan 2013 [Member] | 36.11 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted			137,010
Exercise price of options			$ 36.11
Expiration date			Apr. 30, 2026
Closing price to determine expiration date			$ 18.06
Share Option Plan 2013 [Member] | 39.62 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted				119,925
Exercise price of options				$ 39.62
Expiration date				Jan. 30, 2025
Closing price to determine expiration date				$ 19.81
Share Option Plan 2013 [Member] | 28.38 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted	93,660
Exercise price of options	$ 28.38
Expiration date	Jun. 08, 2024
Closing price to determine expiration date	$ 14.19
Share Option Plan 2013 [Member] | $26.91 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted					89,907
Exercise price of options					$ 26.91
Expiration date					Jul. 28, 2023
Closing price to determine expiration date					$ 13.46

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Geographic areas and major customers (Sales By Geographic Region) (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Revenues from External Customers and Long-Lived Assets [Line Items]
Sales attributable based on geographic location	[1]	$ 105,240	$ 133,753	$ 125,690
North America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Sales attributable based on geographic location		77,161	108,024	100,434
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Sales attributable based on geographic location		20,956	21,038	20,156
Asia Pacific [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Sales attributable based on geographic location		$ 7,123	$ 4,691	$ 5,100

[1] Including sales to related parties in the amount of US$ 1,275 thousand, US$ 1,063 thousand and US$ 0 in 2017, 2018 and 2019, respectively.

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Shareholders' Equity (Stock Option Activity) (Details) - $ / shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Stockholders' Equity Note [Abstract]
Options, beginning balance	365,495	249,911	266,005
Options, granted	141,928	137,010	119,925
Options, exercised	(5,500)	(9,674)	(124,918)
Options, forfeited	(36,676)	(11,752)	(11,101)
Options, ending balance	465,247	365,495	249,911
Options, exercisable	219,649
Weighted average exercise price, granted	$ 33.83	$ 36.11	$ 39.62
Weighted average exercise price, exercised	28.09	28.02	21.46
Weighted average exercise price, forfeited	35.88	36.73	33.18
Weighted average grant date fair value, granted	13.35	14.71	11.89
Weighted average grant date fair value, exercised	10.03	9.94	8.46
Weighted average grant date fair value, forfeited	$ 13.50	$ 13.05	$ 10.87

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Property, Plant and Equipment, Net (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Property, Plant and Equipment [Line Items]
Property, plant and equipment	$ 16,826	$ 15,250
Accumulated depreciation	(13,252)	(11,580)
Property, Plant and equipment, net	3,574	3,670
Depreciation	1,731	2,190	$ 1,911
Machinery and equipment [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment	13,374	12,150
Office Furniture and Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment	924	725
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment	$ 2,528	$ 2,375

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Summary of Significant Accounting Policies (Computation of Basic and Diluted Income Per Ordinary Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Accounting Policies [Abstract]
Net income attributable to ordinary shares (US$ thousands)	$ 10,236	$ 14,637	$ 21,714
Weighted average number of ordinary shares outstanding used in basic income per ordinary share calculation	7,520,389	7,552,094	7,455,528
Add assumed exercise of outstanding dilutive potential ordinary shares	52,228	105,236	146,443
Weighted average number of ordinary shares outstanding used in diluted income per ordinary share calculation	7,572,617	7,657,330	7,601,971
Basic income per ordinary shares (US$)	$ 1.361	$ 1.938	$ 2.912
Diluted income per ordinary shares (US$)	$ 1.352	$ 1.912	$ 2.856
Weighted average number of shares related to options and RSUs excluded from the diluted earnings per share calculation because of anti-dilutive effect	351,610	171,086

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Marketable Securities (Schedule of Reconciliation of Marketable Securities) (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Investments, Debt and Equity Securities [Abstract]
Balance	[1]	$ 47,662
Purchases of marketable securities		15,604	$ 41,670	$ 5,961
Discount on marketable securities, net		(144)	(32)	(217)
Proceeds from maturity of marketable securities		(1,997)	(7,750)	$ (16,175)
Balance	[1]	$ 61,125	$ 47,662

[1] Including accrued interest in the amount of US$ 450 thousand and US$ 538 thousand as of December 31, 2018 and 2019 respectively.

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Subsequent Events

12 Months Ended

Dec. 31, 2019

Subsequent Events [Abstract]

Subsequent Events

Note 16 - Subsequent Events

(1) In January 2020, the Company’s compensation committee and board of directors, respectively, have approved the grant of a total of 148,426 options and 86,000 RSUs under the Global Share Incentive Plan (2013), of which options and RSUs granted to directors and office holders are subject to the approval of the Annual General Meeting, which is currently scheduled to convene no later than June 2020, as prescribed under the Israeli Companies Law, 1999 and the Company's Amended and Restated Articles of Association.

(2) Pursuant to the share repurchase plan approved on May 2, 2019, the Company has purchased 97,577 shares of the Company's ordinary shares subsequent to December 31, 2019 and through March 6, 2020 for a total cost of US$ 3,326 thousand inclusive of transaction costs, bringing the total shares repurchased under the plan to 349,965.

(3) In late December 2019, the World Health Organization was informed of a cluster of cases of pneumonia of unknown cause discovered in Wuhan, Hubei province, in China. A novel coronavirus (COVID-19) was identified, with cases confirmed in multiple provinces in China as well as in other countries. The outbreak of such communicable diseases could result in a widespread health crisis that could adversely affect the general commercial activity and the economies and financial markets of many countries. Although, to date, the Company did not experience any material adverse effects as a result of the ongoing novel coronavirus, if it continues to spread, the Company’s operations could experience a slowdown or temporary suspension in production. In the event that the slowdown or suspension carries for a long period of time, the Company’s business could be materially and adversely affected. Countries affected may adopt certain hygiene measures, including quarantining visitors from places where any of the contagious diseases were rampant. Any prolonged restrictive measures taken by the governments of countries affected in order to control the contagious disease or other adverse public health developments may have a material and adverse effect on the Company’s business, financial condition or results of operations.

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Shareholders' Equity

12 Months Ended

Dec. 31, 2019

Stockholders' Equity Note [Abstract]

Shareholders' Equity

Note 12 - 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. 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 October 21, 2013 the Board resolved to adopt the Global Share Incentive Plan (2013) (the "2013 Plan") and to reserve up to 500,000 ordinary shares for issuance under the 2013 Plan to employees, directors, officers and consultants of the Company or of any subsidiary or affiliate of the Company. In January 2018, our Board approved the increase of the number of ordinary shares reserved for issuance under the 2013 Plan by 600,000 additional ordinary shares. Grants under the 2013 Plan, whether as options, restricted stock units, restricted stock or other equity based awards, including their terms, are subject to the Board of Directors' approval. Grants to directors and certain other officers are generally subject to the approvals of the Compensation Committee as well as Board of Directors, and grants to directors or a CEO (and under certain circumstances certain other officers) will also have to be approved by the Shareholders.

B. Options or RSUs granted to Israeli residents may be granted under Section 102 of the Israeli Income Tax Ordinance pursuant to which the awards of options, or the ordinary shares issued upon their exercise, must be deposited with a trustee for at least two years following the date of grant. Under Section 102, any tax payable by an employee from the grant or exercise of the awards is deferred until the transfer of the awards or ordinary shares by the trustee to the employee or upon the sale of the awards or ordinary shares.

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

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

C. During 2014, 2015 and 2017, the Company granted 74,000, 8,000 and 78,000 RSUs respectively to certain of its directors, employees and consultants under the 2013 Plan. In relation to those grants:

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

2. The fair value of RSUs is estimated based on the market value of the Company’s stock on the date of grant, less an estimate of dividends that will not accrue to RSUs holders prior to vesting.

3. The Company recognizes compensation expenses on these RSUs based on estimated grant date fair value, with the following assumptions:

	2014			2015			2017
Expected dividend yield		2.06	%		3.22	%		2.68	%
Termination rate		4.35	%		0	%		1.74	%

D. On July 28, 2015, the Company granted, in the aggregate, 89,907 options to certain of its directors and employees under the 2013 Plan.  In relation to this grant:

1. The exercise price for the options (per ordinary share) was US$ 26.91 and the Option expiration date was the earlier to occur of: (a) July 28, 2023; and (b) the closing price of the shares falling below US$ 13.46 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2. The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	2.08	%
Expected dividend yield	2.09	%
Average expected volatility (b)	53.01	%
Termination rate	9	%
Suboptimal factor (c)	3.4

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

E. On June 8, 2016, the Company granted, in the aggregate, 93,660 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

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

2. The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

Average Risk-free interest rate (a)	1.58	%
Expected dividend yield	2.42	%
Average expected volatility (b)	47.90	%
Termination rate	9	%
Suboptimal factor (c)	3.32

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

F. On January 30, 2017, the Company granted, in the aggregate, 119,925 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

1. The exercise price for the options (per ordinary share) was US$ 39.62 and the Option expiration date was the earlier to occur of: (a) January 30, 2025; and (b) the closing price of the shares falling below US$ 19.81 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2. The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

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

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

G. On April 30, 2018, the Company granted, in the aggregate, 137,010 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

1. The exercise price for the options (per ordinary share) was US$ 36.11 and the Option expiration date was the earlier to occur of: (a) April 30, 2026; and (b) the closing price of the shares falling below US$ 18.06 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2. The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

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

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

H. On January 31, 2019, the Company granted, in the aggregate, 141,928 options to certain of its directors and employees under the 2013 Plan. In relation to this grant:

1. The exercise price for the options (per ordinary share) was US$ 33.83 and the Option expiration date was the earlier to occur of: (a) January 31, 2027; and (b) the closing price of the shares falling below US$ 16.92 at any time after the date of grant. The options vest and become exercisable on the second anniversary of the date of grant.

2. The Company recognizes compensation expenses on these options based on estimated grant date fair value using the Binomial option-pricing model with the following assumptions:

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

(a)	Risk-free interest rate represents risk free US$ zero-coupon US Government Bonds at time of grant.
(b)	Expected average volatility represents a weighted average standard deviation rate for the price of the Company’s ordinary shares on the NASDAQ National Market.
(c)	Suboptimal factor represents the multiple of the increase in the market share price on the day of grant of the option which, should it come to pass, will lead to exercise of the option by the employee. It is the average suboptimal factor of the Company and similar companies.

I. The following table summarizes information regarding stock options as at December 31, 2019:

	Options outstanding				Options exercisable
			Weighted average				Weighted average
			remaining				remaining
Exercise price	Number		contractual life		Number		contractual life
US$	of options		(in years)		of options		(in years)
15.28		6,575		0.7		6,575		0.7
26.91		19,332		3.6		19,332		3.6
33.27		19,706		6.3		19,706		6.3
28.38		72,198		4.4		72,198		4.4
39.62		101,838		5.1		101,838		5.1
36.11		116,257		6.3		-		-
33.83		129,341		7.1		-		-
		465,247				219,649

The aggregate intrinsic value of options outstanding as of December 31, 2018 and 2019 is US$ 835 thousand and US$ 593 thousand, respectively.

The aggregate intrinsic value of options exercisable as of December 31, 2018 and 2019 is US$ 835 thousand and US$ 593 thousand, respectively.

The total intrinsic value of options exercised during the year ended December 31, 2018 and 2019, is US$ 67 thousand and US$ 28 thousand, respectively.

J. The stock option activity under the abovementioned plans is as follows:

						Weighted
				Weighted		average
	Number			average		grant date
	of options			exercise price		fair value
				US$		US$
Balance at January 1, 2017		266,005
Granted		119,925			39.62		11.89
Exercised		(124,918	)		21.46		8.46
Forfeited		(11,101	)		33.18		10.87
Balance at December 31, 2017		249,911
Granted		137,010			36.11		14.71
Exercised		(9,674	)		28.02		9.94
Forfeited		(11,752	)		36.73		13.05
Balance at December 31, 2018		365,495
Granted		141,928			33.83		13.35
Exercised		(5,500	)		28.09		10.03
Forfeited		(36,676	)		35.88		13.50
Balance at December 31, 2019		465,247
Exercisable at December 31, 2019		219,649

K. The Restricted Share Units activity under the abovementioned plans is as follows:

				Weighted
	Number of			average
	Restricted			grant date
	Share Units			fair value
				US$
Balance at January 1, 2017		43,000
Granted		78,000			34.90
Vested		(43,000	)		42.52
Balance at December 31, 2017 and December 31, 2018		78,000
Vested		(39,000	)		35.36
Balance at December 31, 2019		39,000

The aggregate intrinsic value of RSUs outstanding as of December 31, 2018 and December 31, 2019 is US$ 2,725 thousand and US$ 1,297 thousand, respectively.

L. During 2017, 2018 and 2019, the Company recorded share-based compensation expenses. The following summarizes the allocation of the stock-based compensation expenses:

	Year ended December 31
	2017		2018		2019
	US$ thousands
Cost of sales		320		372		437
Research and development costs		832		953		900
Selling and marketing expenses		537		569		493
General and administrative expenses		736		530		525
		2,425		2,424		2,355

As of December 31, 2019, there were US$ 1,313 thousand of unrecognized compensation costs related to outstanding stock options and RSUs to be recognized over a weighted average period of 0.88 years.

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Marketable Securities (Tables)

12 Months Ended

Dec. 31, 2019

Investments, Debt and Equity Securities [Abstract]

Held-to-Maturity Securities

The Company's investment in marketable securities as of December 31, 2018 and 2019 are classified as ''held-to-maturity'' and consist of the following:

			Gross		Gross
			unrealized		unrealized
	Amortized		holding		holding			Aggregate
	cost basis**		gains		(losses)			fair value*
	US$ thousands
At December 31, 2019
Held to maturity:
Corporate debt securities and government debt securities
Current		14,170		24		(97	)		14,097
Non-Current		46,955		408		(112	)		47,251
		61,125		432		(209	)		61,348
At December 31, 2018
Held to maturity:
Corporate debt securities and government debt securities
Current		1,610		-		(22	)		1,588
Non-Current		46,052		-		(778	)		45,274
		47,662		-		(800	)		46,862

*	Fair value is being determined using quoted market prices in active markets (Level 2).
**	Including accrued interest in the amount of US$ 450 thousand and US$ 538 thousand as of December 31, 2018 and 2019 respectively. The accrued interest is presented as part of other account receivable on the balance sheet.

Schedule of Reconciliation of Marketable Securities

Activity in marketable securities in 2019	US$ thousands
Balance at January 1, 2019		47,662
Purchases of marketable securities		15,604
Discount on marketable securities, net		(144	)
Proceeds from maturity of marketable securities		(1,997	)
Balance at December 31, 2019		61,125

Summary of Investment Securities in an Unrealized Loss Position

The following table summarizes the gross unrealized losses on investment securities for which other-than-temporary impairments have not been recognized 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 position, at December 31, 2019:

	Less than 12 months					12 months or more					Total
	Unrealized Losses			Fair value		Unrealized Losses			Fair value		Unrealized Losses			Fair value
Held to maturity:
Corporate debt securities and government debt securities		(38	)		4,968		(171	)		20,100		(209	)		25,068

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Consolidated Statements of Operations - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income Statement [Abstract]
Sales	[1]	$ 105,240	$ 133,753	$ 125,690
Cost of sales		69,146	91,697	79,762
Gross profit		36,094	42,056	45,928
Operating expenses
Research and development	[2]	15,075	14,820	13,915
Sales and marketing		6,647	6,642	6,722
General and administrative		4,159	3,943	4,507
Contingent consideration				(4,642)
Total operating expenses		25,881	25,405	20,502
Operating income		10,213	16,651	25,426
Financial income, net		1,646	923	156
Income before income taxes		11,859	17,574	25,582
Income taxes		1,623	2,937	3,868
Net income		$ 10,236	$ 14,637	$ 21,714
Income per share:
Basic income per ordinary share (US$)		$ 1.361	$ 1.938	$ 2.912
Diluted income per ordinary share (US$)		$ 1.352	$ 1.912	$ 2.856
Weighted average number of ordinary shares used to compute basic income per share (in thousands)		7,520,389	7,552,094	7,455,528
Weighted average number of ordinary shares used to compute diluted income per share (in thousands)		7,572,617	7,657,330	7,601,971

[1] Including sales to related parties in the amount of US$ 1,275 thousand, US$ 1,063 thousand and US$ 0 in 2017, 2018 and 2019, respectively.

[2] Including services from related parties in the amount of US$ 170 thousand, US$ 311 thousand and US$ 0 in 2017, 2018 and 2019, respectively.

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Cash flows from operating activities
Net income	$ 10,236	$ 14,637	$ 21,714
Adjustments required to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	1,997	3,293	3,799
Write-down of obsolete inventory	2,106	6,211	2,918
Discount on marketable securities, net	144	32	217
Share-based compensation expense	2,355	2,424	2,425
Deferred taxes, net	(699)	5	453
Changes in assets and liabilities:
Accounts receivable - trade	(1,441)	16,985	(13,237)
Accounts receivable - other	4,385	(3,384)	(2,475)
Accounts receivable - related parties	364	261	(208)
Change in liability for employees' severance benefits, net	175	(79)	171
Inventories	3,529	2,540	(10,287)
Trade accounts payable	769	3,059	1,698
Other accounts payable and accrued expenses	2,824	(314)	(1,144)
Contingent consideration benefit			(4,642)
Accounts payable - related parties	(18)	8	6
Net cash provided by operating activities	26,726	45,678	1,408
Cash flows from investing activities
Investment in short-term bank deposits, net	(13,542)
Purchase of property, plant and equipment	(1,441)	(1,345)	(1,690)
Investment in intangible assets	(1,018)	(1,022)	(11)
Proceeds from maturity of marketable securities	1,997	7,750	16,175
Purchases of marketable securities	(15,604)	(41,670)	(5,961)
Net cash provided by (used in) investing activities	(29,608)	(36,287)	8,513
Cash flows from financing activities
Exercise of options	154	288	2,651
Dividend			(7,382)
Purchase of treasury shares	(7,971)
Net cash provided by (used in) financing activities	(7,817)	288	(4,731)
Effect of exchange rate changes on cash balances held	360	108	(86)
Increase (decrease) in cash and cash equivalents	(10,339)	9,787	5,104
Cash and cash equivalents at beginning of year	26,808	17,021	11,917
Cash and cash equivalents at end of year	16,469	26,808	17,021
Supplementary cash flow information Non-cash transactions:
Investments in property, plant and equipment	97	146	119
Supplementary cash flow information Cash paid during the year for:
Income taxes	$ 1,103	$ 3,260	$ 4,584