EX-99 2 exhibit_99-1.htm

6-K

Exhibit 99.1

Silicom Ltd.

(An Israeli Corporation)

and its Consolidated Subsidiary

Condensed Interim Consolidated
Financial Statements

June 30, 2009

Silicom Ltd. (An Israeli Corporation) and its Consolidated Subsidiary

Condensed Interim Consolidated Financial Statements as of June 30, 2009

Contents

	Page
Condensed Interim Consolidated Financial Statements:
Condensed Interim Consolidated Balance Sheets	2-3
Condensed Interim Consolidated Statements of Income	4
Condensed Interim Consolidated Statements of Changes in Shareholders' Equity	5
Condensed Interim Consolidated Statements of Cash Flows	6
Notes to the Condensed Interim Consolidated Financial Statements	7-11

1

Silicom Ltd. (An Israeli Corporation) and its Consolidated Subsidiary

Condensed Interim Consolidated Balance Sheets

			June 30 2009			December 31 2008
			U.S. dollars in thousands			U.S. dollars in thousands
Assets
Current assets
Cash and cash equivalents				13,641			14,568
Marketable Securities				8,908			8,426
Accounts receivables:
Trade, net				4,063			4,849
Other				250			353
Inventories				4,880			5,269
Deferred tax assets				192			210
Total Current Assets				31,934			33,675
Marketable Securities				18,597			16,204
Assets held for employees' severance benefits				1,043			1,066
Deferred tax assets				169			234
Property, plant and equipment, net				673			795
Total assets				52,416			51,974

The accompanying notes are an integrated part of these condensed interim consolidated financial statements

2

Silicom Ltd. (An Israeli Corporation) and its Consolidated Subsidiary

Condensed Interim Consolidated Balance Sheets (Continued)

			June 30 2009			December 31 2008
			U.S. dollars in thousands			U.S. dollars in thousands
Liabilities and shareholder's equity
Current liabilities
Trade accounts payable				1,586			2,681
Other accounts payable and accrued expenses				2,255			2,054
Total current liabilities				3,841			4,735
Long-term liability
Liability for employees' severance benefits				1,892			1,905
Total liabilities				5,733			6,640
Shareholders' Equity
Share capital and additional paid in capital				33,328			33,102
Treasury shares				(38	)		(38	)
Retained earnings				13,393			12,270
Total Shareholders' equity				46,683			45,334
Total liabilities and shareholders equity				52,416			51,974

The accompanying notes are an integrated part of these condensed interim consolidated financial statements

3

Silicom Ltd. (An Israeli Corporation) and its Consolidated Subsidiary

Condensed Interim Consolidated Statements of Income

			Three-month period ended June 30,						Six-month period ended June 30,
			2009			2008			2009			2008
			U.S dollars in thousands (Except for share and per-share data)						U.S dollars in thousands (Except for share and per-share data)
Sales				4,048			5,172			9,066			12,875
Cost of sales				2,438			3,196			5,516			7,641
Gross profit				1,610			1,976			3,550			5,234
Operating Expenses
Research and development				698			827			1,335			1,684
Selling and marketing				443			629			822			1,173
General and administrative				317			382			592			791
Total operating expenses				1,458			1,838			2,749			3,648
Operating income				152			138			801			1,586
Financial income, net				192			262			536			509
Income before income taxes				344			400			1,337			2,095
Income tax expenses				88			77			214			36
Net income				256			323			1,123			2,059
Income per share
Basic income per ordinary share				0.04			0.05			0.17			0.31
Weighted average number of ordinary
shares used to compute basic income
per-share (in thousands)				6,696			6,688			6,695			6,676
Diluted income per ordinary share				0.04			0.05			0.16			0.30
Weighted average number of ordinary
shares used to compute diluted income
per-share (in thousands)				6,840			6,770			6,818			6,777

The accompanying notes are an integrated part of these consolidated condensed interim financial statements

4

Silicom Ltd. (An Israeli Corporation) and its Consolidated Subsidiary

Condensed Interim 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
December 31, 2007				6,570,876			20			31,727			(38	)		7,625			39,334
Changes during 2008
Exercise of options				14,700			*			38			-			-			38
Exercise of warrants				108,487			*			983			-			-			983
Share-based compensation				-			-			334			-			-			334
Net income				-			-			-			-			4,645			4,645
Balance at
December 31, 2008				6,694,063			20			33,082			(38	)		12,270			45,334
Changes during Six-month
period Ended June 30, 2009
Exercise of options				2,827			*			9			-			-			9
Share-based compensation				-			-			217			-			-			217
Net income				-			-			-			-			1,123			1,123
Balance at
June 30, 2009				6,696,890			20			33,308			(38	)		13,393			46,683

⁽¹⁾ Net of 14,971 shares held by the subsidiary

^(*) Less than 1 thousand.

The accompanying notes are an integrated part of these condensed interim consolidated financial statements

5

Silicom Ltd. (An Israeli Corporation) and its Consolidated Subsidiary

Condensed Interim Consolidated Statements of Cash Flows

			Six-month period ended June 30, 2009			Six-month period ended June 30, 2008
			U.S$ in thousands			U.S$ in thousands
Cash flows from operating activities
Net Income				1,123			2,059
Adjustments required to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization				220			207
Liability for employees' severance benefits, net				10			293
Expenses from marketable securities				70			2
Share based compensation expense				217			146
Deferred tax assets				83			(189	)
Accounts receivable - trade				786			2,344
Accounts receivable - other				103			(3	)
Inventories				389			(1,415	)
Trade accounts payable				(1,095	)		261
Other accounts payable and accrued expenses				201			391
Capital gains from sales of property, plant and equipment				-			(12	)
Net cash provided by operating activities				2,107			4,084
Cash flows from investing activities
Purchase of property, plant and equipment				(98	)		(460	)
Proceeds from sales of property, plant and equipment				-			13
Proceeds from maturity of marketable securities				5,800			3,200
Purchase of marketable securities				(8,745	)		(12,404	)
Net cash used in investing activities				(3,043	)		(9,651	)
Cash flows from financing activities
Exercise of options and warrants				9			964
Net cash provided by financing activities				9			964
Decrease in cash and cash equivalents				(927	)		(4,603	)
Cash and cash equivalents at beginning of period				14,568			14,216
Cash and cash equivalents at end of period				13,641			9,613
Supplementary disclosure of cash flow information:
Cash paid during the year for:
Financing expenses				53			48
Taxes on income				20			37

The accompanying notes are an integrated part of these condensed interim consolidated financial statements

6

Silicom Ltd. and its Consolidated Subsidiary
Notes to the Condensed Interim Consolidated Financial Statements

Note 1 – General

A. Description of Business

Silicom Ltd. is an Israeli corporation engaged in designing, manufacturing, marketing and supporting server networking solutions for a broad range of servers and server based systems. It also offers a broad range of its traditional PC cards, PCI cards and USB products.

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 and in Israel on the Tel Aviv Stock Exchange (“TASE”), since December 2005. Since February 11, 2008, the Company’s shares have been traded on the NASDAQ Global Market (prior thereto they were traded on the NASDAQ Capital Market).

Silicom markets its products directly, through (i) Original Equipment Manufacturers (“OEMs”) which sell the Company’s connectivity products under their own private labels or incorporate the Company’s products into their products, (ii) a worldwide network of independent distributors and (iii) its US-based subsidiary.

In these Condensed Interim Consolidated Financial Statements the terms “Company” or Silicom refer to Silicom Ltd. and its wholly owned subsidiary, Silicom Connectivity Solutions, Inc., whereas the term “subsidiary” refers to Silicom Connectivity Solutions, Inc., a wholly owned subsidiary of Silicom Ltd.

Note 2 – Significant Accounting Policies

A. Basis of Presentation and adoption of new accounting standards

The accompanying Condensed Interim Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial information included therein. It is suggested that these condensed interim consolidated financial statements be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 20-F for the year ended December 31, 2008. Results for the interim period presented are not necessarily indicative of the results to be expected for the full year.

Effective April 1, 2009, the Company adopted FSP FAS 107-1 and APB 28-1, “Interim Disclosures About Fair Value of Financial Instruments” (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 require disclosure of the fair value of the Company’s financial instruments in interim reporting periods.

Effective April 1, 2009, the Company adopted FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP FAS 115-2 and 124-2) which significantly changes the existing other-than-temporary impairment model for debt securities. It also modifies the presentation of other-than-temporary impairment losses and increases the frequency and expands required disclosures about other-than-temporary impairment for debt and equity securities. FSP FAS 115-2 and FAS 124-2 did not have a material effect on the Company’s financial statements.

7

Notes to the Condensed Interim Consolidated Financial Statements (Continued)

A. Basis of Presentation and adoption of new accounting standards (Continued)

Effective April 1, 2009, the Company adopted FSP FASB statement No. 157-4 “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, “Fair Value measurements”, when the volume and level of activity for the asset or liability have significantly decreased and when circumstances indicate a transaction is not orderly. FSP FASB statement No. 157-4 did not have a material effect on the Company’s financial statements.

Effective April 1, 2009, the Company adopted FASB SFAS No. 165, “Subsequent Events” (SFAS 165). SFAS 165 establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are available to be issued (subsequent events). These standards are largely the same guidance on subsequent events which previously existed only in auditing literature. SFAS 165 also requires disclosure of the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. This disclosure has been provided in Note 6 below.

B. Use of Estimates and Assumptions

The preparation of the Condensed Interim Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Interim Consolidated Financial Statements, and the reported amounts of revenue and expenses during the reporting period. Actual results may vary from these estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; allowances for doubtful accounts; deferred tax assets, fixed assets, inventory, investments, and share-based compensation; income tax uncertainties and other contingencies. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

Note 3 – Inventories

				June 30, 2009			December 31, 2008
				US dollars in thousands			US dollars in thousands
	Raw materials and components			$	1,881		$	2,282
	Work in progress			$	2,680		$	2,858
	Finished goods			$	319		$	129
				$	4,880		$	5,269

8

Notes to the Condensed Interim Consolidated Financial Statements (Continued)

Note 4 – Marketable Securities

As at December 31, 2008 and June 30, 2009, investment securities consist of corporate debt securities and US government agencies (“the Bonds”), which the Company classified as “held-to-maturity”.

The amortized cost, gross unrealized losses and fair value of the Bonds by major interest type were as follows:

				December 31, 2008
				Amortized cost			Gross unrealized holding losses			Fair value
				US dollars in thousands
	Up to 5%				11,867			(324	)		11,543
	5.01% - 5.34%				12,763			(213	)		12,550
					24,630			(537	)		24,093

				June 30, 2009
				Amortized cost			Gross unrealized holding losses			Fair value
				US dollars in thousands
	Up to 5%				18,601			(164	)		18,437
	5.01% - 5.3%				8,904			(83	)		8,821
					27,505			(247	)		27,258

Maturities of the Bonds were as follows as at June 30, 2009:

				Amortized cost			Fair value
				US dollars in thousands
	Current maturities				8,908			8,852
	Due after one year through 1.88 years				18,597			18,406
					27,505			27,258

The following table summarizes the gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2009:

			Less than 12 months						12 months or more						Total
Held to maturity			Unrealized Losses			Fair value			Unrealized Losses			Fair value			Unrealized Losses			Fair value
Corporate and US Government Agencies debt securities				(142	)		19,403			(105	)		7,855			(247	)		27,258

The unrealized losses on the investments were caused by interest rate increases. The Company has the ability and intent to hold these investments until maturity; therefore these investments are not considered other than temporary impaired.

9

Notes to the Condensed Interim Consolidated Financial Statements (Cont’d)

Note 5 – Share based compensation – Stock options to employees and directors

The following table summarizes information regarding stock options as at June 30, 2009:

				Options outstanding
	Exercise price US$			Number of options			Weighted average remaining contractual life (in years)
	0.90				1,950			2.57
	2.53				40,500			5.49
	3.19 - 5.75				311,173			5.08
					353,623

				Options exercisable
	Exercise price US$			Number of options			Weighted average remaining contractual life (in years)
	0.90				1,950			2.57
	2.53				40,500			5.49
	3.19 - 5.75				112,173			1.16
					154,623

The stock option activity in the six months ended June 30, 2009 is as follows:

				Number of options
	Balance at December 31, 2008				357,450
	Forfeited				(1,000	)
	Exercised				(2,827	)
	Balance at June 30, 2009				353,623
	Exercisable at June 30, 2009				154,623

10

Notes to the Condensed Interim Consolidated Financial Statements (Continued)

Note 6 – Subsequent Events

A. On July 25, 2005, the Knesset passed the law for Amendment of Income Tax Ordinance (No. 147 and Temporary Order) – 2005 (hereinafter – amendment 147), which provides for a gradual reduction in the company tax rate to 25% as from 2010.

On July 14, 2009, the Knesset Passed the law for Economic Efficiency (amendment for legislation for implementation of the economic program for 2009-2010), which provides for gradual reduction in the company tax rate to 18% as from 2016. According to the amendments the company tax rate will be reduced in the following manner: in 2009 – 26%, in 2010 – 25%, in 2011 – 24%, in 2012 – 23%, in 2013 – 22%, in 2014 – 21%, in 2015 – 20%, and from 2016 onward the tax rate will be 18%. The aforesaid change in the tax rates did not have a material effect on the Company’s financial statements.

B. Subsequent events for the period ended June 30, 2009 have been evaluated by the management of the Company through August 25, 2009, the date which these financial statements are issued on.

11