As filed with the Securities and Exchange Commission on May 1, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
OR
☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ____________
Commission file number 0-30862
CERAGON NETWORKS LTD.
(Exact Name of Registrant as Specified in Its Charter)
Israel
(Jurisdiction of Incorporation or Organization)
3 Uri Ariav st., Bldg. A (7th Floor) PO Box 112, Rosh Ha’Ayin, Israel, 4810002
(Address of Principal Executive Offices)
Hadar Vismunski Weinberg (+972) 3-543-1369 (tel.), (+972) 3-543-1600 (fax), 3 Uri Ariav st., Bldg. A (7th
Floor) PO Box 112, Rosh Ha’Ayin, Israel, 4810002
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered |
Ordinary Shares, Par Value NIS 0.01 |
CRNT |
Nasdaq Global Select Market |
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 84,353,379 Ordinary Shares, NIS 0.01 par value.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☑
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☑
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
Accelerated filer ☒ |
Non-accelerated filer ☐ |
Emerging growth company ☐ |
|
|
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☑
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
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PART I |
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PART II |
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PART III |
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• |
references to “Ceragon,” the “Company,” “us,” “we,” “our” and the “registrant”
refer to Ceragon Networks Ltd., an Israeli company, and its consolidated subsidiaries; |
• |
references to “ordinary shares,” “our shares” and similar expressions refer to our Ordinary Shares, NIS 0.01
nominal (par) value per share; |
• |
references to “dollars,” “U.S. dollars”, “USD” and “$” are to United States Dollars;
|
• |
references to “shekels” and “NIS” are to New Israeli Shekels, the Israeli currency; |
• |
references to the “Companies Law” are to Israel’s Companies Law, 5759-1999; |
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references to the “SEC” are to the United States Securities and Exchange Commission; and |
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references to the "Nasdaq Rules" are to the rules of the Nasdaq Global Select Market. |
ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE |
• |
the effects of global economic trends, including recession, rising inflation, rising interest rates, commodity price increases and
fluctuations, commodity shortages and exposure to economic slowdown, on our and our customers’ business, financial condition and
results of operations; |
• |
the impact of delays in the transition to 5G technologies and in the 5G rollout on our revenues if such transition is developed differently
than we anticipated, either in terms of technology, use-case, timeline or otherwise; |
• |
the effect of the concentration of a major portion of our business on large mobile operators around the world from which we derive
a significant portion of our ordering, that due to their significant weight compared to the overall ordering by other customers during
the same time period, coupled with inconsistent ordering patterns and volume of business directed to us (which may deviate as a result
of parameters such as buying decisions, price lists, roll-out strategy, local market conditions and regulatory environment), creates high
volatility with respect to our financial results and results of operations, including our revenues, gross margin and cash flow;
|
• |
the effects of volatility in our revenues, margins and working capital needs and the incurrence of substantial losses and negative
cash flows that we have experienced in recent years, which if continue, would adversely affect our business and financial condition and
in such case we cannot assure that we will be able to maintain improving trends (such as the increase in our booking and backlog during
2021 and 2022) and convert our current backlog into profitability and positive operating cash flows; |
• |
if we fail to effectively cope with the high volatility in the supply needs of our customers, we may be unable to timely fulfill
our customer commitments (for example, delivery issues due to long lead time and availability of components and manufacturing power),
and may be obligated to pay expediting fees to our contract manufacturers, penalties to our customers for delays, and may be subject to
order cancelation, all of which would adversely affect our business and results of operations for a certain quarter; |
• |
we may be exposed to inventory-related losses on inventory purchased by our contract manufacturers and other suppliers, or to increased
expenses should unexpected production ramp up be required due to inaccurate forecasts or business changes. In addition, part of our inventory
may be written off, which would increase our cost of revenues; |
• |
we rely on third-party manufacturers, suppliers and service providers; such reliance may disrupt the proper and timely management
of deliveries of our products, a risk that is intensified in the case of a single source supplier; |
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the global supply of electronic components, including integrated circuits has experienced a sharp increase in demand in the past
several years, coupled with a lack of sufficient production capacity, and effect the lead-time for our components and their prices;
|
• |
the expansion of our service offering to new areas, including managed services, software-based services (SaaS) and solutions for
wireless communication networks design, might pose product development, marketing, sales, operation, implementation and support challenges
that might result in significant losses and may adversely affect our financial results; |
• |
risks related to the rapid change in the markets for our products and in related technologies and operational concepts development;
|
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risks related to our forward-looking forecasts, with respect to which there is no assurance that such forecasts will materialize
as we predicted; |
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competition from other wireless transport equipment providers and from other communication solutions that compete with our high-capacity
point-to-point wireless solutions; |
• |
the award of Design Wins may not assure or secure the materialization of an actual sale; |
• |
sensitivity to changes in demand in the wireless communication market domain and market segment at which we have focused our business
until recently, and related risks if this segment should experience a decline in demand, while our new offering that is aimed to include,
among other things, also WISPs (wireless internet service providers), private networks, software based solutions and disaggregated cell-site
routing, will take time to materialize and mature and they may not be accepted by the market and have a significant impact on our results
that could compensate for the aforementioned risk; |
• |
risks relating to the failure to attract or retain qualified and skilled “talents” and personnel and the intense competition
for such “talents” and personnel; |
• |
difficulties in predicting our gross margin as it is exposed to significant fluctuations as a result of potential changes in the
various geographical locations where we generate revenues; |
• |
our engagement in providing installation or rollout projects for our customers, which are long-term projects that are subject
to inherent risks, including early delivery of our products with delayed payment terms, delays or failures in acceptance testing
procedures, credit risks associated with our customers and their ability to manage the projects to a timely collection from their end
customer, and potential significant collection risk from our customers all of which may result in substantial period-to-period fluctuations
in our results of operations, cash flow and financial condition; |
• |
the current effect of the COVID-19 pandemic (“COVID-19”) on the global markets, on the markets in which we operate and
on our business and operations; |
• |
changes in privacy and data protection laws and increased breaches of network or information technology security along with an increase
in cyber-attack activities, which is enhanced, among other things, as a result of the application of remote operation mode (associated
with COVID-19 and current labor market trends), could have an adverse effect on our business; |
• |
the impact of complex and evolving regulatory requirements in which we operate, on our business, results of operations and financial
condition; |
• |
risks relating to macro and micro adverse effects on the global and European markets in which we operate due to the invasion of Ukraine
by Russia, such as, among others, cancellation or suspension of orders placed by Russian customers or for Russian end-users, disruption
of delivery of raw materials, oil and gas, goods, and supplies’ price increases, disruption to deliveries, shipping and transportation,
imposition of sanctions, export control restrictions and embargoes, loss of business, cyber-attacks, commodity shortages and other effects
that could have an adverse effect on us, our business, suppliers and customers; |
• |
risks related to fluctuations in currency exchange rates and restrictions related to foreign currency exchange controls;
|
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the occurrence of international, political, regulatory or economic events in emerging economies in Latin America, India, Asia Pacific
and Africa, where a majority of our sales are made; |
• |
the effect of business practices in emerging markets on legal and business conduct-related regulatory risks to which we are exposed;
and |
• |
risks relating to attempts for a hostile takeover, or shareholder activism, which may, divert our management’s and Board’s
attention and resources from our business and could give rise to perceived uncertainties as to our future direction, could result in the
loss of potential business opportunities, limit our ability to raise funds and make it more difficult for us to attract and retain qualified
personnel for positions in both management and Board levels. |
• |
new generations of products replacing older ones, including changes in products because of technological advances and cost reduction
measures; and |
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the need of our contract manufacturers to order raw materials that have long lead times and our inability to estimate exact amounts
and types of items thus needed, especially regarding the frequencies in which the final products ordered will operate. |
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The component suppliers may experience shortages in components and interrupt or delay their shipments to our contract manufacturers.
Consequently, these shortages could delay the manufacture of our products and shipments to our customers. |
• |
The component suppliers could discontinue the manufacture or supply of components used in our systems. In such an event, we or our
contract manufacturers may be unable to develop alternative sources for the components necessary to manufacture our products, which could
force us to redesign our products or buy a large stock of the component into inventory before it is discontinued. Any such redesign of
our products would likely interrupt the manufacturing process and could cause delays in our product shipments. Moreover, a significant
modification in our product design may increase our manufacturing costs and bring about lower gross margins. In addition, we may be exposed
to excess inventory of such component, which we will have to write-down in case the demand is not as high as we anticipated at the time
of buying these components. |
• |
The component suppliers may significantly increase component prices at any time and particularly if demand for certain components
increases dramatically in the global market which would have an adverse effect on the Company’s business. |
• |
The component suppliers may significantly increase the time to produce and deliver their components at any time resulting in an immediate
effect, as evidenced recently with respect to the semiconductors foundry industry. These lead time increases would delay our products’
delivery timetable and could expose us to shortage in supply or late supplies that may trigger penalties, orders cancellation and losing
some of our customers. |
• |
The component suppliers may refuse or be unable to further supply such component for various reasons, including, among other things,
their prioritization, focus, regulations, force majeure events or financial situation. |
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unexpected or inconsistent changes in regulatory requirements, including security regulations, licensing and allocation processes;
|
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unexpected changes in or imposition of tax, tariffs, customs levies or other barriers and restrictions; |
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fluctuations in foreign currency exchange rates; |
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restrictions on currency and cash repatriation; |
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the burden of complying with a variety of foreign laws, including foreign import restrictions which may be applicable to our products;
|
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difficulties in protecting intellectual property; |
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laws and business practices favoring local competitors; |
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collection delays and uncertainties; |
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business interruptions resulting from geopolitical actions, including war and acts of terrorism, or natural
disasters, emergence of a pandemic, or other widespread health emergencies (or concerns over the possibility of such an emergency, including
for example, the COVID-19 outbreak); |
• |
requirements to do business in local currency; |
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requirements to manufacture or purchase locally, including the possible transfer of knowhow and intellectual property licenses; and
|
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judicial systems that do not apply the principals of natural justice with regard to disputes with foreign nationals. |
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we may not be able to discover, or the target company may fail to provide us with, all relevant information and documents in relation
to the transaction, which could lead to a failure to achieve the objectives of acquisition and to a substantial loss; |
• |
we may fail to reveal that the due diligence materials and documents provided contain untrue statements of material facts or omit
to state a material fact necessary to make the statements therein not misleading, hence fail to achieve the objectives of acquisition
and suffer a substantial loss; |
• |
we may fail to correctly assess the due diligence investigation findings, establish a correct investment thesis or establish a correct
post-merger integration plan; |
• |
the process of integrating an acquired business including, for example, the operations, systems, technologies, products, and personnel
of the combined companies, particularly companies with large and widespread operations and/or complex products, may be prolonged due to
unforeseen difficulties; |
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the implementation of the transaction may distract and divert management’s attention from the normal daily operations of our
business; |
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we may sustain and record significant expenditure and costs associated with outstanding transactions that either did not or will
not materialize or would fail to achieve its objectives; |
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there will be increased expenses associated with the transaction, and we may need to use a substantial portion of our cash resources
or incur debt in order to cover such expenses; expenses which the combined merged companies may not be sufficient to offset; |
• |
we may generate negative cash flow as a result of such transaction, which may require fund raising that may not be available for
us; |
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we may incur unexpected accounting and other expenses associated with the transaction, such as tax expenses, write offs, amortization
expenses related to intangible assets, restructuring costs, litigation costs or such other costs derived from the acquisition; |
• |
the transaction may harm our business as currently conducted (for example, there may be a temporary loss of revenues, we may experience
loss of current key employees, customers, resellers, vendors and other business partners or companies with whom we engage today or which
relate to any acquired company); |
• |
we may be required to issue ordinary shares as part of the transaction, which would dilute our current shareholders; |
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we may need to assume material liabilities of the merged entity; |
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the failure to successfully complete the integration associated with the transaction (including integrating any acquired technology
into our products), which may cause new markets we were aiming for not to materialize or in which competitors may have a stronger market
position; or |
• |
we may fail to effectively obtain the technological improvement. |
• |
announcements of technological innovations or new commercial products by us or by our competitors; |
• |
competitors’ positions and other events related to our market; |
• |
changes in the Company’s estimations regarding forward looking statements and/or announcement of actual results that vary significantly
from such estimations; |
• |
the announcement of corporate transactions, merger and acquisition activities or other similar events by companies in our field or
industry; |
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changes and developments effecting our field or industry; |
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period to period fluctuations in our results of operations; |
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changes in financial estimates by securities analysts; |
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our earnings releases and the earnings releases of our competitors; |
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our ability to show and accurately predict revenues; |
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our need to raise additional funds and the success or failure thereof; |
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other announcements, whether by the Company or others, referring to the Company’s financial condition, results of operations
and changes in strategy; |
• |
changes in senior management or the board of directors; |
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the general state of the securities markets (with a particular emphasis on the technology and Israeli sectors thereof); |
• |
the general state of the credit markets, the volatility of which could have an adverse effect on our investments; |
• |
developments concerning material proprietary rights, including material patents; |
• |
whether we or our competitors
receive or are denied regulatory approvals; and |
• |
global and local macroeconomic developments, components shortage, effects of the Russia-Ukraine war and other global occurrences,
such as a renewed outbreak of COVID-19 or another pandemic with similar effect. |
• |
hostilities involving Israel; |
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the interruption or curtailment of trade between Israel and its present trading partners; |
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a downturn in the economic or financial condition of Israel; and |
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a full or partial mobilization of the reserve forces of the Israeli army. |
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the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q and current reports on Form
8-K; |
• |
the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of securities registered
under the Exchange Act, including extensive disclosure of compensation paid or payable to certain of our highly compensated executives
as well as disclosure of the compensation determination process; |
• |
the provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; and
|
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the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing
insider liability for profit realized from any “short-swing” trading transaction (a purchase and sale, or sale and purchase,
of the issuer’s equity securities within less than six months). |
• |
Short-haul solutions, which typically provide a wireless link capacity of up to 2 Gbps per link for backhaul, and/or a link capacity
of up to 20Gbps for fronthaul. These solutions are available for distances of several hundred feet to 10 miles. Short-haul links are deployed
in access applications (macro cells and small cells and distributed cells) wirelessly connecting the individual base-stations or base-station
element (i.e. a “central unit”, a “distributed unit” or a “radio unit”) towers to the core network.
Short-haul solutions are also used in a range of non-carrier “vertical” applications such as state and local government, public
safety, education and off-shore communication for oil and gas platforms. |
• |
Long-haul solutions, which typically provide a capacity of up to 20 Gbps, are used in the “highways” of the telecommunication
backbone network. These links are typically used to carry services at distances of 10 to 50 miles, and, using the right planning, configuration
and equipment, can also bridge distances of 100 miles and more. Long-haul solutions are also used in a range of non-carrier “vertical”
applications such as broadcast, state and local government, public safety, utilities and offshore communication for oil and gas platforms.
|
• |
In 4G, the fronthaul transport network connects Remote Radio Heads (RRHs) to distant centralized/cloud Baseband Units (BBUs), while
backhaul connects BBUs back to 4G Evolved Packet Core (EPC). In 5G, the New Radios (NR) are connected to the BBU, which can be disaggregated
into a Central Unit (CU) and a Distributed Unit (DU). The new midhaul interconnects the CU to the DU via a new, standardized 3GPP interface.
|
• |
With help from organizations such as the operator-led O-RAN Alliance, 5G fronthaul and midhaul network interface specifications are
open and defined in a structured format. This allows MNOs to purchase RUs, DUs, CUs, and the associated transport networks between them,
from anyone. We believe that this presents new market opportunities for Ceragon’s leading wireless transport solutions with our
open network architecture. |
• |
The widespread surge in network traffic in 2020 to 2022 emerging from the COVID-19 pandemic has significantly affected the way business
and individuals access information for work and leisure. National lock-ins for large parts of the population and labor market trends brought
many businesses to exercise company-wide work-from-home activities with massive use of video conferencing and cloud network communication.
Entire families stay longer at home and extensively consume video streaming and online gaming, along with video chats with friends and
relatives. The result is an increase in home broadband demand, while today’s home broadband networks are not designed for such usage
patterns. Some countries, even developed ones, lack broadband communication networks in rural areas. As a result, service providers are
required to increase network investment to match the network capabilities to the surge in broadband demand. We anticipate that the increase
in network traffic which service providers experienced amidst the pandemic will remain and may even increase, as companies and employees
adapt to broader use of telecommuting, and families adopt higher use of video calls/chats as larger portions of the world population,
young and elderly alike, use highly visual remote communication tools and high volume communication transactions. |
• |
5G enables operators to enhance their services portfolio with more use cases such as enhanced mobile broadband (eMBB) delivering
gigabit broadband, as well as address new market segments such as IoT & IIoTand mission critical applications with URLLC (Ultra Reliable
Low Latency Communications) and mMTC (Massive Machine Type Communications) services. Those services, combined with new network architectures
require higher capacity, lower latency networks and in particular higher transport capacity, far denser macro cells and small/distributed
cells grids and the implementation of network virtualization technologies and architectures, namely network slicing using SDN. Our wireless
transport solutions resolve both higher capacity, lower latency and network densification requirements with advanced capabilities, based
on our multicore™ technology for microwave narrowband spectrum (up to 224Mhz) and the use of wider bands in millimeter-wave spectrum,
up to 2,000MHz. Network virtualization requirements are addressed with layer 3 capabilities and SDN support. |
• |
Software Defined
Networking (SDN) is an emerging concept aimed at simplifying network operations
and allowing network engineers and administrators to quickly respond to a fast-changing business environment. SDN delivers network architectures
that transition networks from a world of task-specific dedicated network devices, to a world of optimization of network performance through
network intelligence incorporated within network controllers performing control functions and network devices, which perform traffic (data-plane)
transport. Our wireless transport solutions are SDN-ready, built around a powerful software-defined engine and may be incorporated within
the SDN network architecture. Our SDN architecture is envisioned to provide a set of applications that can achieve end-to-end wireless
transport network optimization by intelligently making use of the scarce network resources, such as spectrum and power consumption.
|
• |
The emergence of distributed cells presents transport challenges that differ from those of
traditional macro-cells. Distributed cells are used to provide connectivity and capacity in hot spots and underserved spots, as well as
increase coordination between adjacent cells, leading to improved service level. They also significantly reduce the cost of cell-site
equipment. This new architecture is forecasted to be present in a high percentage of advanced 5G network deployments. Our distributed-cells
wireless transport portfolio includes a variety of compact all-outdoor solutions that provide operators with optimal flexibility in meeting
their unique physical, capacity, networking, and regulatory requirements. |
• |
The introduction of a disaggregated model for hardware and software. This model allows better
scalability, simplicity and flexibility for network operators as it offers independent elements for hardware and software, allowing the
use of commercial off-the-shelf hardware, to accelerate delivery of new solutions and innovations. Different domains in the network are
being opened these days, such as the Radio Access Network - OpenRAN, the Routing in the cell-sites – DCSG (Disaggregated Cell Site
Router), and the Disaggregated Wireless Transport. |
• |
The network sharing business model is growing in popularity among mobile network operators
(MNOs) who are faced with increasing competition from over-the-top players and an ever-growing capacity crunch. Network sharing can be
particularly effective in the transport portion of mobile networks, especially as conventional macro cells evolve into super-sized macro
sites that require exponentially more bandwidth for wireless transport. It has become abundantly clear that in these new scenarios, a
new breed of wireless transport solutions with a significant investment is required. Our wireless transport solutions support network
sharing concepts by addressing both the ultra-high capacities required for carrying multiple operator traffic, as well as the policing
for ensuring that each operator’s service level agreement is maintained. |
• |
A growing market for non-mobile transport applications which includes: offshore communications for the oil and gas industry, as well
as the shipping industry, which require a unique set of solutions for use on moving rigs and vessels; broadcast networks that require
robust, highly reliable communication for the distribution of live video content either as a cost efficient alternative to fiber, or as
a backup for fiber installations; and Smart Grid networks for utilities, as well as local and national governments that seek greater energy
efficiency, reliability and scale. |
• |
A growing demand for high capacity, IP-based long-haul solutions in emerging markets where telecom and broadband infrastructure,
such as fiber, is lacking. This demand is driven by the need of service providers to connect more communities in order to bridge the digital
divide, using 4G and eventually 5G services. |
• |
Subscriber
growth continues mainly in emerging markets such as India, Africa and Latin
America, but is getting close to saturation. |
• |
Increase business
operational efficiency by reducing network related expenses. Our customers
are able to obtain the required capacity with one-quarter of the spectrum needed otherwise, double network capacity without adding more
equipment simply by remotely expanding wireless link capacity, significantly reduce energy related expenses by utilizing our energy efficient
products, use smaller antennas thereby reducing telecommunication tower leasing costs, and improve their staff productivity with the use
of a single wireless transport platform for their long-haul, short-haul and small/distributed cells transport needs. We offer a range
of solutions for quick and simple modernization of wireless networks to 4G and 5G, which significantly contribute to our customers’
ability to modernize and expand their services. |
• |
Enhance service
portfolio, quality of experience and reach. Our multicore™ technology
allows our customers to introduce new services (e.g. 5G use cases), to improve subscriber (user) quality of experience generated from
the voice, data and multimedia services that they provide to their customers and to extend their network and services reach in order to
address new markets. Our All-outdoor offering enables quicker installation and deployment, hence improving time-to-market of our customers’
services to their subscribers. |
• |
Ensure peace
of mind. Our solutions utilize the latest in microwave and millimeter-wave
technology, incorporated in-house developed System-on-Chips (baseband and RF integrated circuits), and use the latest advances in SMT
(Surface-mount technologies) based manufacturing – allowing our customers to benefit from the highest service availability across
their Ceragon-based wireless transport network. |
• |
All-outdoor solutions combine the functionality of both the indoor and outdoor units in a single, compact device. This weather-proof
enclosure is fastened to an antenna, eliminating the need for rack space or sheltering, as well as the need for air conditioning, and
is more environmentally friendly due to its lower footprint and power consumption. |
• |
Split-mount solutions consist of: |
➢ |
Indoor units which are used to process and manage information transmitted to and from the outdoor unit, aggregate multiple transmission
signals and provide a physical interface to wire-line networks. |
➢ |
Outdoor units or Radio Frequency Units (RFU), which are used to control power transmission, and provide an interface between antennas
and indoor units. They are contained in compact weather-proof enclosures fastened to antennas. Indoor units are connected to outdoor units
by standard coaxial or Cat-5 baseband cables. |
• |
All-indoor solutions refer to solutions in which the entire system (indoor unit and RFU) reside in a single rack inside a transmission
equipment room. A waveguide connection transports the radio signals to the antenna mounted on a tower. All indoor equipment is typically
used in long-haul applications. |
• |
Disaggregated wireless transport solutions offer a single radio suitable for all-outdoor, a split-mount scenario, and a networking
unit, which provides versatile and scalable hardware options based on merchant routing silicon and also provides routing capabilities
(L3) that are radio technologies aware. |
• |
Pointing accuracy solutions for high movement environments. These are advanced microwave radio systems for use on moving rigs/vessels
where the antenna is stabilized in one or two axes, azimuth or azimuth/elevation. |
• |
Antennas are used to transmit and receive microwave radio signals from one side of the wireless link to the other. These devices
are mounted on poles typically placed on rooftops, towers or buildings. We rely on third party vendors to supply this component.
|
• |
End-to-End Network Management. Our network management system uses standard management protocol to monitor and control managed devices
at both the element and network level and can be easily integrated into our customers’ existing network management systems.
|
Product |
Frequency range |
Application |
Networking & transport technologies |
IP-20C |
6-42GHz, dual-carrier |
Shorthaul, small cells, enterprise |
Carrier Ethernet |
IP-20C-HP |
4-11GHz, dual-carrier |
Longhaul |
Carrier Ethernet |
IP-20S |
6-42GHz |
Shorthaul, enterprise |
Carrier Ethernet |
IP-20E |
71-86GHz |
Shorthaul, small cells, enterprise |
Carrier Ethernet |
IP-20V |
57-66GHz |
Shorthaul, small cells, enterprise |
Carrier Ethernet |
Product |
Frequency range |
Application |
Networking & transport technologies |
IP-20N / IP-20A |
4-86GHz |
Shorthaul, Long-haul |
Carrier Ethernet, TDM |
IP-20F |
4-86GHz |
Shorthaul |
Carrier Ethernet, TDM |
IP-20G |
6-42GHz |
Shorthaul |
Carrier Ethernet, TDM |
Product |
Frequency range |
Application |
Networking & transport technologies |
IP-50E |
71-86GHz |
Shorthaul, Fronthaul, Enterprise access |
CE |
IP-50C |
6-42GHz, dual-carrier |
Shorthaul |
CE |
IP-50FX |
6-86GHz |
Shorthaul, Long-haul, Routing |
IP/MPLS, CE |
• |
SDN Controller
– Ceragon’s SDN Master is a complete controller supporting SDN protocols that can monitor and control Ceragon’s products
in an SDN environment. The SDN Master can work as a ‘standalone’ controller, or as part of an SDN solution managed by a higher
level SDN controller offered by a third-party vendor (sometimes referred to as an SDN Orchestrator), allowing full flexibility to our
customers. |
• |
SDN support
in our wireless transport products - all Ceragon IP-20 and IP-50 products
support the needed SDN protocols allowing the operator to manage these products with Ceragon SDN controllers but also with third party
SDN controllers, again, allowing full flexibility to our customers. |
• |
SDN applications
– Software (SW) tools with significant impact on our customers’ TCO (total cost of ownership), network availability, and fast
network rollout. These applications enable operators to increase their network efficiency and effectiveness with operational optimization
and automatization capabilities. With the SDN technology, Ceragon SW solutions are entering into the cloud domain allowing multiple open
and flexible deployment scenarios for our customers. Currently, Ceragon is developing and enhancing those and other SW tools in order
to expand our offering also to stand-alone SW solutions and services either as on-premise, remote or SaaS services. Ceragon recently launched
“Ceragon Insight”, which is a unified network intelligence and management software suite for wireless transport network.
It aims to provide NOC and Engineering teams with deep insight and analytics tools that save money by enabling highly effective operations,
assuring quality of service, and speeding response to ongoing and upcoming issues. |
Year Ended December 31, |
||||||||||||
Region |
2020 |
2021 |
2022 |
|||||||||
North America |
14 |
% |
16 |
% |
23 |
% | ||||||
Europe |
17 |
% |
16 |
% |
14 |
% | ||||||
Africa |
9 |
% |
8 |
% |
7 |
% | ||||||
India |
24 |
% |
30 |
% |
27 |
% | ||||||
APAC (excluding India) |
18 |
% |
11 |
% |
11 |
% | ||||||
Latin America |
18 |
% |
19 |
% |
18 |
% |
• |
Proactively
planning and executing marketing campaigns and developing content as well as communications material to promote the Ceragon products,
solutions and services to customers and prospects over the entire course of the sales-cycle. Activities include advertising, e-mail, press
releases, newsletters, marketing collateral (white papers, e-books, brochures, case studies, etc.), blogs, promotional videos and more.
This content is produced and written with search engine optimization in mind to ensure Ceragon high ranking in customer organic search
results. |
• |
Organizing and running exhibitions, seminars and events. This goes far beyond the mere planning the
logistics of the event, but customizing messaging for target audience, creating event materials, such as displays, presentations, animated
videos, demos, and most importantly promoting the event to customers and prospects to ensure successful attendance and secure customer
meetings. |
• |
for the standard character mark Ceragon Networks in Canada; |
• |
for the standard character mark CERAGON, national registrations in Morocco, Malaysia, Indonesia (under the name of Ceragon Networks
AS), Japan, Israel, Mexico, the United States, South Africa, the Philippines, Argentina, Venezuela, Peru, Canada, Nigeria, Brazil and
Colombia, United Kingdom and India, and International Registration (protection granted in Australia, Iceland, Bosnia & Herzegovina,
Korea, Switzerland, Croatia, Norway, Russia, China, Ukraine, CTM (European Union), Turkey, Singapore, Macedonia, Egypt, Kenya and Vietnam);
|
• |
for our design mark for FibeAir in the United States, Israel, United Kingdom and the European Union; |
• |
for the standard character mark FibeAir in the United States; and |
• |
for the standard character mark CeraView in Israel, United Kingdom and the European Union. |
• |
the diversification of our technologies and capabilities, which allows flexible vertical integration options, including the development
of the core technology – RFIC and modems, including SoC (System on Chip); |
• |
our focus and active involvement in shaping next generation standards and technologies, which deliver best customer value;
|
• |
our product performance, reliability and functionality, which assist our customers to achieve the highest value; |
• |
the range and maturity of our product portfolio, including the ability to provide solutions in every widely available microwave and
millimeter-wave licensed and license-exempt frequency, as well as our ability to provide both IP and circuit switch solutions and therefore
to facilitate a migration path for circuit-switched to IP-based networks; |
• |
our deign to cost structure; |
• |
our time-to-market advantage, due to having our own technology and our own chipsets; |
• |
our focus on high-capacity, point-to-point microwave and millimeter-wave technologies, which allows us to quickly adapt to our customers’
evolving needs; |
• |
the range of rollout services offering for faster deployment of an entire network and reduced total cost of ownership; |
• |
our support and technical service, experience and commitment to high quality customer service, and |
• |
our ability to expand to other vertical markets such as oil and gas and public safety, by drawing upon the capabilities of our technologies
and solutions. |
Company |
Place of Incorporation |
Ownership Interest |
|||
Ceragon Networks, Inc. |
New Jersey |
100 |
% | ||
Ceragon Networks (India) Private Limited |
India |
100 |
% |
• |
in the United States, we lease approximately 8,200 square feet of office and warehouse space in Richardson, Texas, expiring March
2024. |
• |
in India, we lease approximately 12,000 square feet of office space in New Delhi, expiring in December 2024. |
ITEM 4A. |
UNRESOLVED STAFF COMMENTS |
ITEM 5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
• |
The widespread surge in network traffic in 2020 to 2022 emerging from the COVID-19 pandemic has significantly affected the way business
and individuals access information for work and leisure. National lock-ins for large parts of the population and labor market trends brought
many businesses to exercise company-wide work-from-home activities with massive use of video conferencing and cloud network communication.
Entire families stay longer at home and extensively consume video streaming and online gaming, along with video chats with friends and
relatives. The result is an increase in home broadband demand, while today’s home broadband networks are not designed for such usage
patterns. Some countries, even developed ones, lack broadband communication networks in rural areas. As a result, service providers are
required to increase network investment to match the network capabilities to the surge in broadband demand. We anticipate that the increase
in network traffic which service providers experienced amidst the pandemic will remain and may even increase, as companies and employees
adapt to broader use of telecommuting, and families adopt higher use of video calls/chats as larger portions of the world population,
young and elderly alike, use highly visual remote communication tools and high volume communication transactions. |
• |
5G enables operators
to enhance their services portfolio with more use cases such as enhanced mobile broadband (eMBB) delivering gigabit broadband, as well
as address new market segments such as IoT & IIoT and mission critical applications with URLLC (Ultra Reliable Low Latency Communications)
and mMTC (Massive Machine Type Communications) services. Those services, combined with new network architectures require higher capacity,
lower latency networks and in particular higher transport capacity, far denser macro cells and small/distributed cells grids and the implementation
of network virtualization technologies and architectures, namely network slicing using SDN. Our wireless transport solutions resolve both
higher capacity, lower latency and network densification requirements with advanced capabilities, based on our multicore™ technology
for microwave narrowband spectrum (up to 224Mhz) and the use of wider bands in millimeter-wave spectrum, up to 2,000MHz. Network virtualization
requirements are addressed with layer 3 capabilities and SDN support. |
• |
OPEN RAN transforms Radio Access Network (RAN) technology from design to operation of the network. OPEN RAN creates the possibility
of an open RAN environment, with interoperability between different vendors over defined interfaces. In a legacy mobile network ecosystem,
RAN is proprietary where a single vendor provides proprietary radio hardware, software, and interface to enable the mobile network to
function. |
• |
RAN ecosystem is evolving towards proving the competitive landscape of RAN supplier ecosystem and network operators embracing the
transformation. Opening up RAN horizontally brings in a new range of low-cost radio players, and it gives mobile operators a choice to
optimize deployment options for specific performance requirements at a much better cost. This trend is expected to increase the size of
Best-of-Breed segment (on the account of the end-to-end market segment) that Ceragon is focusing on. |
• |
Software Defined
Networking (SDN) is an emerging concept aimed at simplifying network operations
and allowing network engineers and administrators to quickly respond to a fast-changing business environment. SDN delivers network architectures
that transition networks from a world of task-specific dedicated network devices, to a world of optimization of network performance through
network intelligence incorporated within network controllers performing control functions and network devices, which perform traffic (data-plane)
transport. Our wireless transport solutions are SDN-ready, built around a powerful software-defined engine and can be incorporated within
the SDN network architecture. Our SDN architecture is envisioned to provide a set of applications that can achieve end-to-end wireless
transport network optimization by intelligently making use of the scarce network resources, such as spectrum and power consumption.
|
• |
The emergence of distributed cells presents transport challenges that differ from those of
traditional macro-cells. Distributed cells are used to provide connectivity and capacity in hot spots and underserved spots, as well as
increase coordination between adjacent cells, leading to improved service level. They also significantly reduce the cost of cell-site
equipment. This new architecture is forecasted to be present in a high percentage of advanced 5G network deployments. Our distributed-cells
wireless transport portfolio includes a variety of compact all-outdoor solutions that provide operators with optimal flexibility in meeting
their unique physical, capacity, networking, and regulatory requirements. |
• |
The introduction of a disaggregated model for hardware and software. This model allows better
scalability, simplicity and flexibility for network operators as it offers independent elements for hardware and software, allowing the
use of commercial off-the-shelf hardware, to accelerate delivery of new solutions and innovations. |
• |
The network sharing business model is growing in popularity among mobile network operators
(MNOs) who are faced with increasing competition from over-the-top players and an ever-growing capacity crunch. Network sharing can be
particularly effective in the transport portion of mobile networks, especially as conventional macro cells evolve into super-sized macro
sites that require exponentially more bandwidth for wireless transport. It has become abundantly clear that in these new scenarios, a
new breed of wireless transport solutions with a significant investment is required. Our wireless transport solutions support network
sharing concepts by addressing both the ultra-high capacities required for carrying multiple operator traffic, as well as the policing
for ensuring that each operator’s service level agreement is maintained. |
• |
While green-field deployments tend to be all IP-based, the overwhelming portion of network infrastructure investments goes into upgrading,
or “modernizing” existing cell-sites to fit new services with a lower total cost of
ownership. Modernizing is more than a simple replacement of network equipment. It helps operators build up a network with enhanced performance,
capacity and service support. For example, Ceragon offers a variety of innovative mediation devices that eliminate the need to replace
costly antennas, which are already deployed. In doing so, we help our customers to reduce the time and the costs associated with network
upgrades. The result: a smoother upgrade cycle, short network down-time during upgrades and faster time to revenue. |
• |
A growing market for non-mobile transport applications which includes: offshore communications for the oil and gas industry, as well
as the shipping industry, which require a unique set of solutions for use on moving rigs and vessels; broadcast networks that require
robust, highly reliable communication for the distribution of live video content either as a cost efficient alternative to fiber, or as
a backup for fiber installations; and Smart Grid networks for utilities, as well as local and national governments that seek greater energy
efficiency, reliability and scale. |
• |
A growing demand for high capacity, IP-based long-haul solutions in emerging markets where telecom and broadband infrastructure,
such as fiber, is lacking. This demand is driven by the need of service providers to connect more communities in order to bridge the digital
divide, using 4G and even 5G services. |
• |
Subscriber
growth continues mainly in emerging markets such as India, Africa and Latin
America, but is getting close to saturation. |
• |
Increased competition. Our target market is characterized by vigorous, worldwide competition for market share and rapid technological
development. These factors have resulted in aggressive pricing practices and downward pricing pressures and growing competition.
|
• |
Regional pricing pressures. A significant portion of our sales derives from India, in response to the rapid build-out of cellular
networks in that country. For the years ended December 31, 2021 and 2022, 29.6% and 27.4%, respectively, of our revenues were earned in
India. Sales of our products in these markets are generally at lower gross margins in comparison to other regions. Recently, network operators
have started to share parts of their network infrastructure through cooperation agreements, which may adversely affect demand for network
equipment. |
• |
Transaction size. Competition for larger equipment orders is increasingly intensifying due to the fact that the number of large equipment
orders in any year is limited. Consequently, we generally experience greater pricing pressure when we compete for larger orders as a result
of this increased competition and demand from purchasers for greater volume discounts. As an increasing portion of our revenues is derived
from large orders, we believe that our business will be more susceptible to these pressures. |
• |
Revenue recognition; |
• |
Inventory valuation; and |
• |
Provision for credit loss (doubtful debts). |
Year Ended December 31 |
||||||||
2021 |
2022 |
|||||||
Revenues |
100 |
% |
100 |
% | ||||
Cost of revenues |
69.6 |
68.5 |
||||||
Gross profit |
30.4 |
31.5 |
||||||
Operating expenses: |
||||||||
Research and development, net |
10.1 |
10.1 |
||||||
Sales and marketing |
11.5 |
12.1 |
||||||
General and administrative |
7.1 |
11.6 |
||||||
Other operating expenses |
- |
1.4 |
||||||
Total operating expenses |
28.7 |
35.2 |
||||||
Operating income |
1.7 |
3.7 |
||||||
Financial expenses and others, net |
3.0 |
2.1 |
||||||
Taxes on income |
3.8 |
0.8 |
||||||
Net loss |
(5.1 |
) |
(6.7 |
) |
• |
Decrease of $4.2 million in services costs primarily due to a reduction in subcontractors costs. |
• |
Decrease of $1.5 million relates to a reduction in material costs. |
• |
Increase of $3.8 million due to employees and payroll related costs salaries. |
• |
Increase of $1.5 million due to higher shipping and storage costs. |
B. |
Liquidity and Capital Resources |
• |
our net loss of $19.7 million; |
• |
$6.2 million decrease in trade payables, other accounts payable and accrued expenses; |
• |
$11.2 million increase in inventories; |
• |
$5.9 million decrease in operating lease liability; and |
• |
$0.4 million accrued severance pay and pensions, net. |
• |
$11.0 million of depreciation and amortization expenses; |
• |
$18.1 million decrease in trade and other accounts receivable and prepaid expenses; |
• |
$3.6 million decrease in operating lease right-of-use assets; |
• |
$3.6 million share-based compensation expenses; and |
• |
$2.2 million increase in deferred revenues paid in advance. |
• |
our net loss of $14.8 million |
• |
$18.1 million increase in trade and other accounts receivable and prepaid expenses; |
• |
$11.9 million increase in inventories; |
• |
$4.6 million decrease in operating lease liability; and |
• |
$0.4 million accrued severance pay and pensions, net. |
• |
$12.2 million of depreciation and amortization expenses; |
• |
$8.3 million increase in deferred tax assets, net; |
• |
$5.7 million decrease in operating lease right-of-use assets; |
• |
$4.3 million increase in trade payables, other accounts payable and accrued expenses; |
• |
$2.6 million share-based compensation expenses; |
• |
$1.7 million increase in deferred revenues paid in advance; and |
• |
$0.1 million loss from sale of property and equipment, net. |
C. |
Research and Development |
D. |
Trend Information |
E. |
Critical Accounting
Estimates – see Item 5 “Critical Accounting Policies and Estimates”
above. |
ITEM 6. |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. |
Directors and Senior Management |
Name |
Age |
Position | ||
Zohar Zisapel |
74 |
Chairman of the Board of Directors | ||
Shlomo Liran (1)
|
72 |
Director | ||
Efrat Makov (1)
|
55 |
Director | ||
Rami Hadar (1) |
59 |
Director | ||
Ilan Rosen (1) |
66 |
Director | ||
David (Dudi) Ripstein (1)
|
56 |
Director | ||
Ira Palti |
65 |
Director | ||
Doron Arazi |
59 |
Chief Executive Officer | ||
Ronen Stein |
55 |
Chief Financial Officer | ||
Oz Zimerman |
59 |
Executive Vice President, Marketing & Corporate Development | ||
Hadar Vismunski Weinberg |
49 |
Executive Vice President, General Counsel & Corporate Secretary | ||
Michal Goldstein |
51 |
Executive Vice President, Global Human Resources | ||
Ulik Broida |
55 |
Executive Vice President Products | ||
Alon Klomek |
53 |
Executive Vice President, Chief Revenues Officer | ||
Dima Friedman |
54 |
Executive Vice President, Chief Operating Officer |
(1) |
Independent Director. |
B. |
Compensation |
a) |
Aggregate Executive
Compensation |
• |
Salary Costs. Salary Costs include gross salary, benefits and perquisites, including those mandated by applicable law which may include,
to the extent applicable to each Covered Office Holder, payments, contributions and/or allocations for pension, severance, car or car
allowance, medical insurance and risk insurance (e.g., life, disability, accidents), phone, convalescence pay, relocation, payments for
social security, and other benefits consistent with the Company’s guidelines. |
• |
Performance Bonus Costs. Performance Bonus Costs represent bonuses granted to the Covered Office Holder with respect to the year
ended December 31, 2022, paid in accordance with the Covered Office Holder’s performance of targets as set forth in his bonus plan,
and approved by the Company’s Compensation Committee and Board of Directors. |
• |
Equity Costs represent the expense recorded in our financial statements for the year ended December 31, 2022, with respect to equity-based
compensation granted in 2022 and in previous years. For assumptions and key variables used in the calculation of such amounts see Note
2s of our audited consolidated financial statements. |
• |
Doron Arazi – CEO- Salary Costs - $367,561; Performance Bonus Costs - $0; Equity Costs - $386,570.
|
• |
Adrian Hipkiss – Regional President of Europe and Oil & Gas until December 2022. Salary Costs
- $320,546; Performance Bonus Costs - $84,604; Equity Costs - $3,235. |
• |
Ronen Rotstein
- Regional President, North America - Salary Costs - $295,210; Performance Bonus Costs -
$94,500 Equity Costs - $79,274. |
• |
Carlos Alvarez
- Regional President, Latin America. Salary
Costs - $286,357; Performance Bonus Costs - $28,642; Equity Costs - $83,342. |
• |
Ulik Broida
- Executive Vice President Solutions Management. Salary Costs - $244,378; Performance Bonus Costs - $0;
Equity Costs - $102,652. |
C. |
Board Practices |
• |
transactions with office holders and third parties, where an office holder has a personal interest in the transaction; |
• |
employment terms of office holders; and |
• |
extraordinary transactions with controlling parties, and extraordinary transactions with a third party where a controlling party
has a personal interest in the transaction, or any transaction with the controlling shareholder or his relative regarding terms of service
provided directly or indirectly (including through a company controlled by the controlling shareholder) and terms of employment (for a
controlling shareholder who is not an office holder). A “relative” is defined in the Companies Law as spouse, sibling, parent,
grandparent, descendant, spouse’s descendant, sibling or parent and the spouse of any of the foregoing. |
• |
the majority of the shares of shareholders who have no personal interest in the transaction and who are present and voting, not taking
into account any abstentions, vote in favor; or |
• |
shareholders who have no personal interest in the transaction who vote against the transaction do not represent more than two percent
of the aggregate voting rights in the company. |
• |
a breach of his or her duty of care to us or to another person; |
• |
a breach of his or her duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume
that his or her act would not prejudice our interests; |
• |
monetary
liabilities or obligations imposed upon him or her in favor of another person;
and/or |
• |
any other event, occurrence or circumstance in respect of which we may lawfully insure an office holder. |
• |
a financial liability imposed on him or her in favor of another person by any judgment, including a settlement or an arbitration
award approved by a court. |
• |
reasonable litigation expenses, including attorney’s fees, incurred by the office holder as a result of an investigation or
proceeding instituted against him by a competent authority which concluded without the filing of an indictment against him and without
the imposition of any financial liability in lieu of criminal proceedings, or which concluded without the filing of an indictment against
him but with the imposition of a financial liability in lieu of criminal proceedings concerning a criminal offense that does not require
proof of criminal intent or in connection with a financial sanction (the phrases “proceeding concluded without the filing of an
indictment” and “financial liability in lieu of criminal proceeding” shall have the meaning ascribed to such phrases
in section 260(a)(1a) of the Companies Law); |
• |
reasonable litigation expenses, including attorneys’ fees, expended by an office holder or charged to the office holder by
a court, in a proceeding instituted against the office holder by the Company or on its behalf or by another person, or in a criminal charge
from which the office holder was acquitted, or in a criminal proceeding in which the office holder was convicted of an offense that does
not require proof of criminal intent; |
• |
expenses, including reasonable litigation expenses and legal fees, incurred by an office holder in relation to an administrative
proceeding instituted against such office holder, or payment required to be made to an injured party, pursuant to certain provisions of
the Securities Law; and/or |
• |
any other event, occurrence or circumstance in respect of which we may lawfully indemnify an office holder. |
• |
a breach by the office holder of his or her duty of loyalty, except that the company may enter into an insurance contract or indemnify
an office holder if the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
|
• |
a breach by the office holder of his or her duty of care, if such breach was intentional or reckless, but unless such breach was
solely negligent; |
• |
any act or omission intended to derive an illegal personal benefit; or |
• |
any fine, civil fine, financial sanction or monetary settlement in lieu of criminal proceedings
imposed on such office holder. |
Name |
Number of Ordinary Shares(1)
|
Percentage of Outstanding Ordinary Shares |
Number of Stock Options Held(2)
|
Exercise price of Options |
Number of RSUs Held(2)
|
|||||||||||||||
Zohar Zisapel(3)
|
7,167,174 |
8.47 |
250,000 |
$ |
2.22 – 3.70 |
- |
||||||||||||||
Ira Palti |
520,000 |
0.61 |
520,000 |
$ |
2.48 – 3.70 |
- |
||||||||||||||
All directors and senior management as a group consisting of
23 people(4) |
8,548,189 |
9.94 |
1,631,015 |
$ |
1.80 – 4.22 |
449,311 |
(1) |
Consists of ordinary shares and options to purchase ordinary shares which are vested or shall become vested within 60 days of May
1, 2023. |
(2) |
Each stock option is exercisable into one ordinary share and expires between 6 and 10 years from the date of its grant. Of the number
of stock options listed, 250,000, 520,000 and 1,631,015 options, are vested or shall become vested within 60 days of May 1, 2023 for Mr.
Zisapel, Mr. Palti and all directors and senior management as a group, respectively. No RSUs are expected to vest within 60 days of March
15, 2023. |
(3) |
The number of ordinary shares held by Zohar Zisapel includes (i) 3,694,986 ordinary shares held
by Zohar Zisapel; (ii) 250,000 ordinary shares issuable upon the exercise of options granted to Mr. Zisapel, exercisable as of May 1,
2023 or within 60 days thereafter; (iii) 1,101,245 ordinary shares are held of record by Lomsha
Ltd., an Israeli company controlled by Mr. Zisapel; (iv) 18,717 ordinary shares are held by RAD Data Communications Ltd., an Israeli company
of which Mr. Zisapel is a principal shareholder and a director; and (v) 2,102,226 Ordinary Shares are held by Michael and Klil Holdings
(93) Ltd., an Israeli company controlled by Mr. Zisapel. |
(4) |
Each of the directors and senior management other than Messrs. Zohar Zisapel and Ira Palti, beneficially owns less than 1% of the
outstanding ordinary shares as of May 1, 2023 (including options held by each such person and which are vested or shall become vested
within 60 days of May 1, 2023) and have therefore not been separately listed. |
Cumulative Ordinary Shares
Reserved for Option and
RSU Grants |
Remaining Reserved Shares
Available for Option and
RSU Grants |
Options and
RSUs
Outstanding |
Weighted Average
Exercise Price |
|||||||||||
35,593,199 |
(1) |
11,046,657 |
(2) |
7,414,071 |
(3) |
$ |
2.95 |
(4) |
(1) |
Total of 4,784,600 relates to RSU grants and 30,808,599 relates to all options grants under all the Company’s Share Option
and RSU plans commencing in 2003. |
(2) |
Total under all grants approved by the Board under all Company’s Share Option and RSU plans commencing in 2003. |
(3) |
Total of 2,108,339 relates to RSUs outstanding and 5,305,732 relates to options outstanding, under all the Company’s Share
Option and RSU plans commencing in 2003. |
(4) |
Weighted average price refers only to options (option plans before 2012 have already expired). |
Options and RSUs Outstanding |
Unvested Options and RSUs |
|||||||
Directors and senior management |
3,101,654 |
1,590,994 |
||||||
All other grantees |
4,312,417 |
3,087,743 |
ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
Name |
Number of Ordinary Shares(2)
|
Percentage of Outstanding Ordinary Shares(1)
|
||||||
Zohar Zisapel (3)
|
7,167,174 |
8.47 |
% | |||||
Joseph D. Samberg (4)
|
8,280,000 |
9.82 |
% |
(1) |
Based on 84,356,307 ordinary shares outstanding as of May 11, 2023, excluding options to purchase ordinary shares which are
vested or shall become vested within 60 days of May 1, 2023. |
(2) |
Consists of ordinary shares and options to purchase ordinary shares, which are vested or shall become vested within 60 days as of
May 1, 2023. |
(3) |
(i) 3,694,986
ordinary shares held by Zohar Zisapel; (ii) 250,000 ordinary shares issuable upon the exercise of options granted to Mr. Zisapel exercisable
as of May 1, 2023 or within 60 days thereafter;
(iii) 1,101,245 ordinary shares are held of record by Lomsha Ltd., an Israeli company controlled by Mr. Zisapel; (iv) 18,717 ordinary
shares are held by RAD Data Communications Ltd., an Israeli company of which Mr. Zisapel is a principal shareholder and a director. Mr.
Zisapel and his brother, Mr. Yehuda Zisapel, and Ms. Nava Zisapel, have shared voting and dispositive power with respect to the ordinary
shares held by RAD Data Communications Ltd.; and (v) 2,102,226 Ordinary Shares are held by Michael and Klil Holdings (93) Ltd., an Israeli
company controlled by Mr. Zisapel. The number of ordinary shares beneficially held by Zohar Zisapel is based on a Schedule 13D/A
filed by Mr. Zisapel with the SEC on February 16, 2021. |
(4) |
Joseph D. Samberg’s address is 1091 Boston Post Road, Rye, NY 10580. |
• |
the holders of the ordinary shares resulting from the conversion of such preferred shares; and |
• |
Yehuda Zisapel and Zohar Zisapel. |
ITEM 8. |
FINANCIAL INFORMATION |
ITEM 9. |
THE OFFER AND LISTING |
• |
the expenditures are approved by the relevant Israeli government ministry, determined by the field of research; |
• |
the research and development is for the promotion or development of the company; and |
• |
the research and development is carried out by or on behalf of the company seeking the deduction. |
• |
deduction of purchases of know-how, patents and the right to use a patent over an eight-year period for tax purposes; |
• |
deduction over a three-year period of specified expenses incurred with the issuance and listing of shares on the Tel Aviv Stock Exchange
or on a recognized stock exchange outside of Israel (including Nasdaq); |
• |
the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies;
and |
• |
accelerated depreciation rates on equipment and buildings. |
• |
holds the ordinary shares as a capital asset; |
• |
qualifies as a resident of the United States within the meaning of the U.S.-Israel tax treaty; and |
• |
is entitled to claim the benefits available to the person by the U.S.-Israel tax treaty. |
• |
an individual citizen or resident of the United States; |
• |
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United
States or under the laws of the United States, any political subdivision thereof or the District of Columbia; |
• |
an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
• |
a trust (i) if a court within the United States is able to exercise primary supervision over its administration and one or more U.S.
persons have the authority to control all of its substantial decisions or (ii) that has in effect a valid election under applicable U.S.
Treasury Regulations to be treated as a U.S. person. |
• |
are broker-dealers or insurance companies; |
• |
have elected mark-to-market accounting; |
• |
are tax-exempt organizations or retirement plans; |
• |
are grantor trusts; |
• |
are S corporations; |
• |
are certain former citizens or long-term residents of the United States; |
• |
are financial institutions; |
• |
hold ordinary shares as part of a straddle, hedge or conversion transaction with other investments; |
• |
acquired their ordinary shares upon the exercise of employee stock options or otherwise as compensation; |
• |
are real estate investment trusts or regulated investment companies; |
• |
own directly, indirectly or by attribution at least 10% of our shares (by vote or value); or |
• |
have a functional currency that is not the U.S. dollar. |
• |
the item is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States and, in the
case of a resident of a country which has a treaty with the United States, the item is attributable to a permanent establishment, or in
the case of an individual, the item is attributable to a fixed place of business in the United States; or |
• |
the non-U.S. holder is an individual who holds the ordinary shares as a capital asset and is present in the United States for 183
days or more in the taxable year of the disposition, and certain other conditions are met. |
ITEM 12. |
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. |
ITEM 13. |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. |
ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. |
ITEM 15. |
CONTROLS AND PROCEDURES |
(a) |
Disclosure Controls and Procedures |
(b) |
Management’s Annual Report on Internal Control Over Financial Reporting |
(i) |
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of the Company; |
(ii) |
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and |
(iii) |
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements. |
(d) |
Changes in Internal Controls Over Financial Reporting |
ITEM 16A. |
AUDIT COMMITTEE FINANCIAL EXPERT |
ITEM 16B. |
CODE OF ETHICS |
ITEM 16C. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Year Ended December 31, |
||||||||||||||||
2021 |
2022 |
|||||||||||||||
Services Rendered |
Fees |
Percentages |
Fees |
Percentages |
||||||||||||
Audit Fees (1)
|
$ |
678,000 |
93 |
% |
$ |
706,142 |
91 |
% | ||||||||
Audit related fees (2)
|
$ |
8,500 |
1 |
% |
$ |
5,000 |
1 |
% | ||||||||
Tax Fees (3)
|
$ |
45,000 |
6 |
% |
$ |
59,644 |
8 |
% | ||||||||
Total
|
$ |
731,500 |
100 |
% |
$ |
770,786 |
100 |
% |
(1) |
Audit fees consist of services that would normally be provided in connection with statutory and regulatory filings or engagements,
including services that generally only the independent accountant can reasonably provide. |
(2) |
Audit related fees principally relates to assistance with audit services and consultation |
(3) |
Tax fees relate to tax compliance, planning and advice |
ITEM 16D. |
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
ITEM 16E. |
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
ITEM 16F. |
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
- |
Compensation
Committee Charter: We have opted out of the requirement to adopt and file a compensation committee charter as set forth in Nasdaq
Rule 5605(d)(1). Instead, our Compensation Committee conducts itself in accordance with provisions governing the establishment (but not
the composition) and the responsibilities of a compensation committee as set forth in the Companies Law and as further stipulated in our
Compensation Policy. |
- |
Shareholder
Approval: We have opted out of the requirement for shareholder approval of stock option plans and other equity-based compensation
arrangements as set forth in Nasdaq Rule 5635. Nevertheless, as required under the Companies Law, shareholder voting procedures are followed
for the approval of equity-based compensation of certain office holders or employees, such as our CEO and members of our Board of Directors.
Equity based compensation arrangements with other office holders are approved by our Compensation Committee and our Board of Directors,
provided they are consistent with our Compensation Policy, and in special circumstances in deviation therefrom, taking into account certain
considerations as set forth in the Companies Law. |
- |
Annual
General Meetings of Shareholders: We have opted out of the requirement for conducting annual meetings as set forth in Nasdaq Rule
5620(a), which requires Ceragon to hold its annual meetings of shareholders within twelve months of the end of its fiscal year end. Instead,
Ceragon is following home country practice and law in this respect. The Companies Law requires that an annual meeting of shareholders
be held every year, and not later than 15 months following the last annual meeting (see in Item 10.B above –”Additional
Information –Voting, Shareholders’ Meetings and Resolutions”). |
- |
Quorum
at General Meetings of Shareholders: We have opted out of the requirement set under Rule 5620(c) of the Nasdaq Rules, which requires
the presence of two or more shareholders holding at least 33 1/3%, and in lieu follow our home country practice and Israeli law, according
to which the quorum for any shareholders meeting will be the presence (in person or by Proxy) of two or more shareholders holding at least
25% of the voting rights in the aggregate - within half an hour from the time set for opening the meeting. |
- |
Distribution
of Annual Reports: We have chosen to follow our home country practice in lieu of the requirements of Nasdaq Rule 5250(d)(1), relating
to an issuer’s furnishing of its annual report to shareholders. Specifically, we file annual reports on Form 20-F, which contain
financial statements audited by an independent accounting firm, electronically with the SEC, and also post a copy on our website.
|
ITEM 16H. |
MINE SAFETY DISCLOSURE |
ITEM 16I. |
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
ITEM 17. |
FINANCIAL STATEMENTS |
ITEM 18. |
FINANCIAL STATEMENTS |
Index to Consolidated Financial Statements |
Page |
Reports of Independent Registered Public Accounting Firm |
F-2 - F-5 |
Consolidated Balance Sheets |
F-6 - F-7 |
Consolidated Statements of Operations |
F-8 |
Consolidated Statements of Comprehensive Income (loss) |
F-9 |
Consolidated Statements of Changes in Shareholders’ Equity |
F-10 |
Consolidated Statements of Cash Flows |
F-11 - F-12 |
Notes to Consolidated Financial Statements |
F-13 - F-47 |
ITEM 19. |
EXHIBITS |
1.1 |
2.1 |
4.1 |
4.2 |
4.3 |
4.4 |
4.5 |
4.6 |
4.7 |
4.8 |
4.9 |
4.10 |
4.11 |
4.12 |
4.13 |
4.14 |
4.15 |
4.16 |
4.17 |
4.18 |
8.1 |
12.1 |
12.2 |
13.1 |
15.1 |
101 |
Inline XBRL Instance Document |
101 |
SCH Inline XBRL Taxonomy Extension Schema Document |
101 |
CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101 |
DEF Inline XBRL Taxonomy Extension Definition Linkbase Document |
101 |
LAB Inline XBRL Taxonomy Extension Labels Linkbase Document |
101 |
PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
By: /s/ Doron Arazi. |
Name: Doron Arazi |
Title: President and Chief Executive Officer |
Page
|
|
F-2 - F-5
|
|
F-6 - F-7
|
|
F-8
|
|
F-9
|
|
F-10
|
|
F-11 - F-12
|
|
F-13 - F-47
|
Inventory valuation
|
||
Description of the Matter
|
The Company’s inventories totaled $72.0 million as of December 31, 2022. As explained in Note 2 to the consolidated financial statements, the Company assesses the value of all inventories, including raw materials, finished goods and spare parts, in each reporting period. Reserves for potentially obsolete inventory are made based on management's analysis of inventory aging, future sales forecasts, and market conditions.
Auditing the valuation of obsolete inventory reserves involved subjective auditor judgment because management’s estimate relies on significant assumptions such as the future salability of the inventory, the assessment by inventory age, future usage and market demand for the Company's products.
|
|
How we Addressed the Matter in Our Audit
|
We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s obsolete inventory reserve process. This included management’s assessment of the assumptions and data underlying the obsolete inventory valuation.
Our substantive audit procedures included, among others, evaluating the significant assumptions stated above and the accuracy and completeness of the underlying data that management used to value obsolete inventory. We performed inquiries of appropriate non-financial personnel including operational employees, regarding obsolete inventory items and other factors to corroborate management's assertions regarding qualitative judgments about obsolete inventories. We also compared the cost of on-hand inventories to customer demand forecasts and historical sales and evaluated adjustments to sales forecasts for specific product considerations such as technological changes or alternative uses. We also assessed the historical accuracy of management estimates by comparing the forecasted sales to actual utilization of inventory.
|
December 31,
|
||||||||||||
Note
|
2021
|
2022
|
||||||||||
ASSETS
|
||||||||||||
CURRENT ASSETS:
|
||||||||||||
Cash and cash equivalents
|
$
|
17,079
|
$
|
22,948
|
||||||||
Trade receivables (net of allowance for credit losses of $ 7,470 and $ 22,410 at December 31, 2021 and 2022, respectively)
|
10
|
107,826
|
100,034
|
|||||||||
Other accounts receivable and prepaid expenses
|
3
|
17,179
|
15,756
|
|||||||||
Inventories
|
4
|
61,398
|
72,009
|
|||||||||
Total current assets
|
203,482
|
210,747
|
||||||||||
NON-CURRENT ASSETS:
|
||||||||||||
Trade receivables (net of allowance for credit losses of $1,117 and $0 at December 31, 2021 and 2022, respectively)
|
10
|
10,484
|
-
|
|||||||||
Severance pay and pension fund
|
5,648
|
4,633
|
||||||||||
Property and equipment, net
|
5
|
29,383
|
29,456
|
|||||||||
Intangible assets, net
|
6
|
6,274
|
8,208
|
|||||||||
Operating lease right-of-use assets
|
13
|
20,233
|
17,962
|
|||||||||
Other non-current assets
|
17,059
|
18,312
|
||||||||||
Total long-term assets
|
89,081
|
78,571
|
||||||||||
Total assets
|
$
|
292,563
|
$
|
289,318
|
Year ended
December 31,
|
||||||||||||||||
Note
|
2020
|
2021
|
2022
|
|||||||||||||
Revenues
|
17
|
$
|
262,881
|
$
|
290,766
|
$
|
295,173
|
|||||||||
Cost of revenues
|
187,236
|
202,389
|
202,110
|
|||||||||||||
Gross profit
|
75,645
|
88,377
|
93,063
|
|||||||||||||
Operating expenses:
|
||||||||||||||||
Research and development, net
|
30,997
|
29,473
|
29,690
|
|||||||||||||
Sales and marketing
|
33,021
|
33,509
|
35,795
|
|||||||||||||
General and administrative
|
19,199
|
20,589
|
34,295
|
|||||||||||||
Other operating expenses
|
1b
|
|
-
|
-
|
4,220
|
|||||||||||
Total operating expenses
|
83,217
|
83,571
|
104,000
|
|||||||||||||
Operating income (loss)
|
(7,572
|
)
|
4,806
|
(10,937
|
)
|
|||||||||||
Financial expenses and others, net
|
18
|
5,923
|
8,625
|
6,306
|
||||||||||||
Loss before taxes on income
|
(13,495
|
)
|
(3,819
|
)
|
(17,243
|
)
|
||||||||||
Taxes on income
|
15c
|
|
2,618
|
11,009
|
2,446
|
|||||||||||
Equity loss in affiliates
|
979
|
-
|
-
|
|||||||||||||
Net loss
|
$
|
(17,092
|
)
|
$
|
(14,828
|
)
|
$
|
(19,689
|
)
|
|||||||
Net loss per share:
|
||||||||||||||||
Basic and diluted net loss per share
|
$
|
(0.21
|
)
|
$
|
(0.18
|
)
|
$
|
(0.23
|
)
|
|||||||
Weighted average number of ordinary shares used in computing basic and diluted net loss per share
|
81,149,687
|
83,414,831
|
84,132,982
|
Year ended
December 31,
|
||||||||||||
2020
|
2021
|
2022
|
||||||||||
Net loss
|
$
|
(17,092
|
)
|
$
|
(14,828
|
)
|
$
|
(19,689
|
)
|
|||
Other comprehensive income (loss):
|
||||||||||||
Change in foreign currency translation adjustment
|
(929
|
)
|
(325
|
)
|
353
|
|||||||
Cash flow hedges:
|
||||||||||||
Change in net unrealized gains
|
1,752
|
346
|
(4,057
|
)
|
||||||||
Amounts reclassified into net loss
|
(225
|
)
|
(1,460
|
)
|
2,055
|
|||||||
Net change
|
1,527
|
(1,114
|
)
|
(2,002
|
)
|
|||||||
Other comprehensive income (loss), net
|
598
|
(1,439
|
)
|
(1,649
|
)
|
|||||||
Total of comprehensive loss
|
$
|
(16,494
|
)
|
$
|
(16,267
|
)
|
$
|
(21,338
|
)
|
Ordinary shares
|
Share
capital
|
Additional
paid-in
capital
|
Treasury shares at cost
|
Accumulated other comprehensive loss
|
Accumulated deficit
|
Total shareholders' equity
|
||||||||||||||||||||||
Balance as of January 1, 2020
|
80,662,805
|
215
|
418,062
|
(20,091
|
)
|
(8,666
|
)
|
(229,099
|
)
|
160,421
|
||||||||||||||||||
Cumulative effect of adoption of ASU Topic 326
|
-
|
-
|
-
|
-
|
-
|
(700
|
)
|
(700
|
)
|
|||||||||||||||||||
Exercise of options and vesting of RSU's
|
1,040,561
|
3
|
1,234
|
-
|
-
|
-
|
1,237
|
|||||||||||||||||||||
Share-based compensation expense
|
-
|
-
|
1,662
|
-
|
-
|
-
|
1,662
|
|||||||||||||||||||||
Other comprehensive income, net
|
-
|
-
|
-
|
-
|
598
|
-
|
598
|
|||||||||||||||||||||
Net loss
|
-
|
-
|
-
|
-
|
-
|
(17,092
|
)
|
(17,092
|
)
|
|||||||||||||||||||
Balance as of December 31, 2020
|
81,703,366
|
218
|
420,958
|
(20,091
|
)
|
(8,068
|
)
|
(246,891
|
)
|
146,126
|
||||||||||||||||||
Exercise of options and vesting of RSU's
|
2,228,230
|
6
|
4,724
|
-
|
-
|
-
|
4,730
|
|||||||||||||||||||||
Share-based compensation expense
|
-
|
-
|
2,562
|
-
|
-
|
-
|
2,562
|
|||||||||||||||||||||
Other comprehensive loss, net
|
-
|
-
|
-
|
-
|
(1,439
|
)
|
-
|
(1,439
|
)
|
|||||||||||||||||||
Net loss
|
-
|
-
|
-
|
-
|
-
|
(14,828
|
)
|
(14,828
|
)
|
|||||||||||||||||||
Exercise of options and vesting of RSU's
|
||||||||||||||||||||||||||||
83,931,596
|
$
|
224
|
$
|
428,244
|
$
|
(20,091
|
)
|
$
|
(9,507
|
)
|
$
|
(261,719
|
)
|
$
|
137,151
|
|||||||||||||
Balance as of December 31, 2021
|
||||||||||||||||||||||||||||
Exercise of options and vesting of RSU's
|
422,085
|
|
)
|
410
|
-
|
-
|
-
|
410
|
||||||||||||||||||||
Share-based compensation expense
|
-
|
-
|
3,560
|
-
|
-
|
-
|
3,560
|
|||||||||||||||||||||
Other comprehensive loss, net
|
-
|
-
|
-
|
-
|
(1,649
|
)
|
-
|
(1,649
|
)
|
|||||||||||||||||||
Net loss
|
-
|
-
|
-
|
-
|
-
|
(19,689
|
)
|
(19,689
|
)
|
|||||||||||||||||||
Balance as of December 31, 2022
|
84,353,681
|
$
|
224
|
$
|
432,214
|
$
|
(20,091
|
)
|
$
|
(11,156
|
)
|
$
|
(281,408
|
)
|
$
|
119,783
|
Year ended
December 31,
|
||||||||||||
2020
|
2021
|
2022
|
||||||||||
Cash flows from operating activities:
|
||||||||||||
Net loss
|
$
|
(17,092
|
)
|
$
|
(14,828
|
)
|
$
|
(19,689
|
)
|
|||
Adjustments required to reconcile net loss to net cash provided by (used in) operating activities:
|
||||||||||||
Depreciation and amortization
|
12,861
|
12,246
|
11,040
|
|||||||||
Loss from sale of property and equipment, net
|
-
|
82
|
20
|
|||||||||
Share-based compensation expense
|
1,662
|
2,562
|
3,560
|
|||||||||
Increase (decrease) in accrued severance pay and pensions, net
|
488
|
(418
|
)
|
(445
|
)
|
|||||||
Decrease (increase) in trade receivables, net
|
9,345
|
(11,150
|
)
|
18,428
|
||||||||
Increase in other accounts receivable and prepaid expenses (including other long-term assets)
|
(6,661
|
)
|
(6,976
|
)
|
(345
|
)
|
||||||
Decrease (increase) in inventories
|
9,919
|
(11,908
|
)
|
(11,155
|
)
|
|||||||
Decrease in operating lease right-of-use assets
|
5,121
|
5,713
|
3,571
|
|||||||||
Increase (decrease) in trade payables
|
1,953
|
5,883
|
(2,018
|
)
|
||||||||
Increase in deferred revenues
|
2,988
|
1,672
|
2,229
|
|||||||||
Decrease (increase) in deferred tax assets, net
|
(173
|
)
|
8,279
|
-
|
||||||||
Decrease in operating lease liability
|
(5,112
|
)
|
(4,620
|
)
|
(5,937
|
)
|
||||||
Increase (decrease) in other accounts payable and accrued expenses (including other long-term liabilities)
|
1,946
|
(1,556
|
)
|
(4,154
|
)
|
|||||||
Net cash provided by (used in) operating activities
|
17,245
|
(15,019
|
)
|
(4,895
|
)
|
|||||||
Cash flows from investing activities:
|
||||||||||||
Purchase of property and equipment
|
(6,077
|
)
|
(9,383
|
)
|
(10,464
|
)
|
||||||
Proceeds from sale of property and equipment
|
-
|
200
|
-
|
|||||||||
Purchase of intangible assets
|
(412
|
)
|
(212
|
)
|
(1,957
|
)
|
||||||
Net cash used in investing activities
|
(6,489
|
)
|
(9,395
|
)
|
(12,421
|
)
|
Year ended
December 31,
|
||||||||||||
2020
|
2021
|
2022
|
||||||||||
Cash flows from financing activities:
|
||||||||||||
Proceeds from (repayment of) bank credits and loans, net
|
(8,621
|
)
|
9,800
|
22,700
|
||||||||
Proceeds from exercise of stock options
|
1,237
|
4,730
|
410
|
|||||||||
Net cash provided by (used in) financing activities
|
(7,384
|
)
|
14,530
|
23,110
|
||||||||
Translation adjustments on cash and cash equivalents
|
(210
|
)
|
(138
|
)
|
75
|
|||||||
Increase (decrease) in cash and cash equivalents
|
3,162
|
(10,022
|
)
|
5,869
|
||||||||
Cash and cash equivalents at the beginning of the year
|
23,939
|
27,101
|
17,079
|
|||||||||
Cash and cash equivalents at the end of the year
|
$
|
27,101
|
$
|
17,079
|
$
|
22,948
|
||||||
Supplemental disclosure of cash flow information:
|
||||||||||||
Cash paid for income taxes
|
$
|
3,003
|
$
|
1,995
|
$
|
1,871
|
||||||
Cash paid for interest on bank loans and factoring fees
|
$
|
1,137
|
$
|
1,280
|
$
|
3,456
|
NOTE 1:- |
GENERAL
|
a. |
Ceragon Networks Ltd. ("the Company") is a global innovator and leading solutions provider of wireless transport. The Company helps operators and other service providers worldwide increase operational efficiency and enhance end customers’ quality of experience with innovative wireless backhaul and fronthaul solutions. The Company’s unique multicore technology and disaggregated approach to wireless transport provides highly reliable, fast to deploy, high-capacity wireless transport for 5G and 4G networks with minimal use of spectrum, power, real estate, and labor resources. It enables increased productivity, as well as simple and quick network modernization. The Company delivers a complete portfolio of turnkey end-to-end AI-based managed and professional services that ensure efficient network rollout and optimization to achieve the highest value for its customers.
|
b. |
In the summer of 2022, Aviat Networks Inc. (“Aviat”), a competitor of the Company has launched a hostile takeover attempt against the Company, after purchasing more than 5% of the Company outstanding shares. Total expenses associated with the hostile takeover amounted to $4,220 for the year ended December 31, 2022 and presented as part of the other operating expenses in the Company's consolidated financial statements.
|
F - 13
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES
a.Basis of presentation:
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP").
b.Use of estimates:
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. Actual results could differ from those estimates.
On an ongoing basis, the Company's management evaluates estimates, including those related to intangible assets, tax assets and liabilities, fair values of share-based awards, inventory write-offs, warranty provision and allowance for credit loss. Such estimates are based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
c.Financial statements in U.S. dollars:
A majority of the revenues of the Company and certain of its subsidiaries are generated in U.S. dollars ("dollars"). In addition, a substantial portion of the Company's and certain of its subsidiaries' costs is incurred in dollars. Since management believes that the dollar is the currency of the primary economic environment in which the Company and its subsidiaries operate and considers the non-U.S. subsidiaries to be a direct, integral extension of the parent company's operations, the dollar is its functional and reporting currency.
Accordingly, amounts in currencies other than U.S dollars have been re-measured in accordance with ASC topic 830, "Foreign Currency Matters" ("ASC 830") as follows:
Monetary balances - at the exchange rate in effect on the balance sheet date. Consolidated statements of operations items - average exchange rates prevailing during the year.
All exchange gains and losses from the re-measurement mentioned above are reflected in the statement of operations in financial expenses and others, net.
The financial statements of the Company's Brazilian subsidiary, whose functional currency is not the dollar, have been re-measured and translated into dollars. All amounts on the balance sheets have been translated into the dollar using the exchange rates in effect on the relevant balance sheet dates. All amounts in the statements of operations have been translated into the dollar using the average exchange rate for the relevant periods. The resulting translation adjustments are reported as a component of accumulated other comprehensive income (loss) in shareholders' equity.
F - 14
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
d.Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its subsidiaries ("the Group"). Intercompany balances and transactions including profits from intercompany sales not yet realized outside the Group, have been eliminated upon consolidation.
e.Cash equivalents:
Cash equivalents include short-term unrestricted, highly liquid investments that are readily convertible to cash and with original maturities of three months or less, at acquisition.
f.Inventories:
Inventories are stated at the lower of cost or net realizable value. Inventory write-offs are provided to cover risks arising from slow-moving items, technological obsolescence, excess inventories, discontinued products, and for market prices lower than cost, if any.
The Company periodically evaluates the quantities on hand relative to historical and projected sales volume (which is determined based on an assumption of future demand and market conditions) and the age of the inventory. At the point of the loss recognition, a new lower cost basis for that inventory is established. In addition, if required, the Company records a liability for firm non-cancelable and unconditional purchase commitments with contract manufacturers for quantities in excess of the Company's future demands forecast consistent with its valuation of excess and obsolete inventory.
Inventory includes costs of products delivered to customers and not recognized as cost of sales, where revenues in the related arrangements were not recognized.
Cost is determined for all types of inventory using the moving average cost method plus indirect costs.
g.Long-term trade receivables
Long-term trade receivables, with payment terms in excess of one year that are considered collectible, are recorded at their estimated present values.
h.Property and equipment:
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets, at the following annual rates:
|
% |
|
|
Computers, manufacturing and peripheral equipment |
6 – 33 |
Office, furniture and equipment |
Mainly 15 |
Leasehold improvements |
Over the shorter of the term of the lease or useful life of the asset |
i.Intangible assets, net:
Intangible assets consist of technology and incurred software development costs capitalized in accordance with ASC 985-20, "Software - Costs of Software to be Sold, Leased, or Marketed".
Intangible assets that are considered to have definite useful life are amortized using the straight-line basis over their estimated useful lives.
j.Impairment of long-lived assets:
The Company's long-lived assets are reviewed for impairment in accordance with ASC topic 360," Property Plant and Equipment", ("ASC 360"), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. During the years 2020, 2021 and 2022,
impairment losses have been recognized.k.Income taxes:
The Company account for income taxes in accordance with ASC topic 740, "Income Taxes", ("ASC 740"). This Statement prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and for carry forward losses deferred taxes are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that some portion or all of the deferred tax asset will not be realized.
ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes.
F - 16
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company elected to classify interest expenses and penalties recognized in the financial statements as income taxes.
l.Revenue recognition:
The Company recognizes revenue when (or as) it satisfies performance obligations by transferring promised products or services to its customers in an amount that reflects the consideration the Company expects to receive. The Company applies the following five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer. For each contract, the Company considers the promise to transfer tangible products, network roll-out, professional services and customer support, each of which are distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to rebates and adjustments to determine the net consideration to which the Company expects to receive. As the Company’s standard payment terms are less than one year, the contracts have no significant financing component. The Company allocates the transaction price to each distinct performance obligation based on their relative standalone selling price. Revenue from tangible products is recognized at a point in time when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied).
The revenues from customer support and extended warranty is recognized ratably over the contract period and the costs associated with these contracts are recognized as incurred. Revenues from network roll-out and professional services are recognized when the Company's performance obligation is satisfied, usually upon customer acceptance.
The Company accounts for rebates and stock rotations provided to customers as variable consideration, based on historical analysis of credit memo data, rebate plans and stock rotation arrangements, as a deduction from revenue in the period in which the revenue is recognized.
F - 17
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
m.Research and development expenses, net:
Research and development expenses, net of government grants, are charged to the statement of operations as incurred, except for development expenses which were capitalized in accordance with ASC 985-20 "Software – Costs of Software to be Sold, Leased, or Marketed" (see i above).
n.Warranty costs:
The Company generally offers a standard limited warranty, including parts and labor for an average period of 1-3 years for its products. The Company estimates the costs that may be incurred under its basic limited warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company's warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary.
The Company recorded income (expenses) from decrease (increase) of warranty provision for the years ended December 31, 2020, 2021 and 2022 in the amount of $178, $(417) and $290 respectively. As of December 31, 2021 and 2022, the warranty provision was $1,691 and $1,401 respectively.
o.Derivative instruments:
The Company has instituted a foreign currency cash flow hedging program using foreign currency forward and option contracts ("derivative instruments") in order to hedge the exposure to variability in expected future cash flows resulting from changes in related foreign currency exchange rates. These transactions are designated as cash flow hedges, as defined under ASC topic 815, "Derivatives and Hedging".
ASC 815 requires companies to recognize all of their derivative instruments as either assets or liabilities in the financial statements at fair value. The Company measured the fair value of the contracts in accordance with ASC topic 820, "Fair value Measurement and Disclosures" at Level 2 (see also note 2t). The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.
For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge or a cash flow hedge.
F - 18
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For derivative instruments that don’t meet the definition of a hedge, the changes in the fair value are included immediately in earnings in “Financial expenses and others, net”, in each reporting period.
The Company's cash flow hedging program is to hedge against the risk of overall changes in cash flows resulting from forecasted foreign currency of salary and rent payments during the year. The Company hedges portions of its forecasted expenses denominated in NIS with forward exchange contracts.
p.Concentrations of credit risk:
Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents, and trade receivables.
The majority of the Company's cash and cash equivalents are maintained in U.S. dollar. Generally, these cash and cash equivalents may be redeemed upon demand. Management believes that the financial institutions that hold the Company's and its subsidiaries' cash and cash equivalents are institutions with high credit standing, and accordingly, minimal credit risk exists with respect to these assets.
The Company's trade receivables are geographically diversified and derived from sales to customers all over the world. The Company and its subsidiaries generally do not require collateral; however, in certain circumstances, the Company and its subsidiaries may require letters of credit, additional guarantees or advance payments.
The Company and its subsidiaries perform ongoing credit evaluations of their customers and insure certain trade receivables under credit insurance policies.
q.Transfers of financial assets:
ASC 860 "Transfers and Servicing", ("ASC 860"), establishes a standard for determining when a transfer of financial assets should be accounted for as a sale. The Company's arrangements are such that the underlying conditions are met for the transfer of financial assets to qualify for accounting as a sale. The transfers of financial assets are typically performed by the factoring of receivables to four financial institutions.
F - 19
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
As of December 31, 2021, and 2022, the Company sold trade receivables to several different financial institutions in a total net amount of $ 36,047 and $ 29,070, respectively. Control and risk of those trade receivables were fully transferred in accordance with ASC 860.
During the years ended on December 31, 2020, 2021 and 2022, the Company recorded amounts of $ 575, $ 905 and $ 1,262, respectively, as financial expense related to its factoring arrangements.
r.Severance pay:
The Company's severance pay liability for its Israeli employees is calculated pursuant to Israel's Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date. Employees are entitled to one month's salary for each year of employment or a portion thereof. The Company's liability for all of its employees in Israel is covered by monthly deposits with pension funds, insurance policies and an accrual. The value of the funds deposited into pension funds and insurance policies is recorded as an asset - severance pay fund - in the Company's balance sheet.
The severance pay fund includes the deposited funds and accumulated adjustments to the Israeli Consumer Price Index up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israel's Severance Pay Law or labor agreements. The value of the deposited funds in insurance policies, is based on the cash surrendered value of these policies and includes profits / losses.
Starting April 2009, the Company's agreements with new employees in Israel are under section 14 of the Severance Pay Law -1963. The Company's contributions for severance pay shall replace its severance obligation, no additional calculations shall be conducted between the parties regarding the matter of severance pay and no additional payments shall be made by the Company to the employee. Further, the related obligation and amounts deposited on behalf of such obligation are not stated on the balance sheet, as the Company is legally released from obligation to employees once the deposit amounts have been paid.
As of December 2021 and 2022, accrued severance pay amounted to $8,453 and $7,284 respectively. Severance expense for the years ended December 31, 2020, 2021 and 2022, amounted to approximately $2,538, $1,906 and $2,859, respectively.
The Company accounts for its obligations for pension and other postretirement benefits in accordance with ASC 715, "Compensation - Retirement Benefits". For more information refer to note 11.
F - 20
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
s.Accounting for stock-based compensation:
ASC topic 718, "Compensation - Stock Compensation", ("ASC 718"), requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated statements of operations.
The Company estimates the fair value of stock options granted under ASC 718 using the binomial model with the following assumptions for 2020, 2021 and 2022:
|
|
December 31, |
||||
|
|
2020 |
|
2021 |
|
2022 |
|
|
|
|
|
|
|
Dividend yield |
|
0% |
|
0% |
|
0% |
Volatility |
|
60% - 85% |
|
66% - 87% |
|
47% - 73% |
Risk free interest |
|
0.1% - 1.0% |
|
0.1% - 1.3% |
|
2.1% - 4.1% |
Early exercise multiple |
|
1.5 - 1.6 |
|
1.55 |
|
2.20 |
Risk-free interest rates are based on the yield from U.S. Treasury zero-coupon bonds with a term equivalent to the contractual life of the options; volatility of price of the Company's shares based upon actual historical stock price movements. The Early exercise factor is representing the value of the underlying stock as a multiple of the exercise price of the option which, if achieved, results in exercise of the option.
Early exercise multiple is based on actual historical exercise activity. The expected term of the options granted is derived from output of the option valuation model and represents the period of time that options granted are expected to be outstanding.
The Company recognizes compensation expense using the accelerated method for all awards ultimately expected to vest. Estimated forfeitures are based on historical pre-vesting forfeitures and on management's estimates. ASC topic 718 requires forfeitures to be estimated and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
t.Fair value of financial instruments:
The Company applies ASC 820, "Fair Value Measurements and Disclosures". Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.
F - 21
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The hierarchy is broken down into three levels based on the inputs as follows:
Level 1 -Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2 -Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 -Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3.
The following methods and assumptions were used by the Company and its subsidiaries in estimating their fair value disclosures for financial instruments.
The carrying amounts of cash and cash equivalents, trade receivables, other accounts receivable, trade payables, and other accounts payable and accrued expenses approximate their fair values due to the short-term maturities of such instruments.
The derivative instruments are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.
F - 22
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
u.Comprehensive income:
The Company accounts for comprehensive income in accordance with ASC topic 220, "Comprehensive Income". This statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income generally represents all changes in shareholders' equity during the period except those resulting from investments by, or distributions to, shareholders.
The components of accumulated other comprehensive income - (“AOCI”) were as follows:
|
|
Unrealized Gains (Losses) on Cash Flow Hedges |
|
|
Foreign Currency Translation Adjustments |
|
|
Total |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Balance as of January 1, 2022 |
|
$ |
731 |
|
|
$ |
(10,238 |
) |
|
$ |
(9,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
|
(4,057 |
) |
|
|
353 |
|
|
|
(3,704 |
) |
Amounts reclassified from AOCI |
|
|
2,055 |
|
|
|
- |
|
|
|
2,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
(2,002 |
) |
|
|
353 |
|
|
|
(1,649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2022 |
|
$ |
(1,271 |
) |
|
$ |
(9,885 |
) |
|
$ |
(11,156 |
) |
The effects on net loss of amounts reclassified from AOCI for the year ended December 31, 2022 derive from realized losses on cash flow hedges, included in cost of sales and operating expenses.
v.Treasury shares:
The Company repurchased its ordinary shares on the open-market and holds such shares as Treasury shares. The Company presents the cost of repurchased treasury shares as a reduction of shareholders' equity.
w.Basic and diluted net earnings per share:
Basic net earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year. Diluted net earnings per share is computed based on the weighted average number of ordinary shares outstanding during each year, plus dilutive potential ordinary shares considered outstanding during the year, in accordance with ASC topic 260, "Earnings Per Share" ("ASC 260").
The total weighted average number of shares related to the outstanding options and RSU's excluded from the calculations of diluted net earnings per share due to their anti-dilutive effect was 4,204,381, 1,695,149 and 5,599,666 for the years ended December 31, 2020, 2021 and 2022, respectively.
F - 23
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)
x.Equity method investment
Investments in companies that are not controlled but over which the Company can exercise significant influence are presented using the equity method of accounting.
y.Impact of recently issued Accounting Standards:
The Company has reviewed recent accounting pronouncements and concluded that they are either not applicable to its business or that no material effect is expected on the consolidated financial statements as a result of their future adoption.
NOTE 3:-OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
|
|
December 31, |
|
|||||
|
|
2021 |
|
|
2022 |
|
||
|
|
|
|
|
|
|
||
Government authorities |
|
$ |
9,022 |
|
|
$ |
7,867 |
|
Deferred charges and prepaid expenses |
|
|
6,214 |
|
|
|
6,087 |
|
Deposits receivable |
|
|
279 |
|
|
|
473 |
|
Advances to suppliers |
|
|
256 |
|
|
|
405 |
|
Hedging asset |
|
|
852 |
|
|
|
8 |
|
Other |
|
|
556 |
|
|
|
916 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,179 |
|
|
$ |
15,756 |
|
NOTE 4:-INVENTORIES
|
|
December 31, |
|
|||||
|
|
2021 |
|
|
2022 |
|
||
|
|
|
|
|
|
|
||
Raw materials |
|
$ |
22,581 |
|
|
$ |
35,111 |
|
Work in progress |
|
|
423 |
|
|
|
143 |
|
Finished products |
|
|
38,394 |
|
|
|
36,755 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
61,398 |
|
|
$ |
72,009 |
|
During the years ended December 31, 2020, 2021 and 2022, the Company recorded inventory write-offs for excess inventory and slow-moving inventory in a total amount of $2,919 $ 1,907 and $1,980, respectively that have been included in cost of revenues.
As of December 31, 2022, the Company has an outstanding inventory purchase orders with its suppliers in the amount of $18,162. The commitments are due primarily within one year.
NOTE 5:-PROPERTY AND EQUIPMENT, NET
|
|
December 31, |
|
|||||
|
|
2021 |
|
|
2022 |
|
||
Cost: |
|
|
|
|
|
|
||
Computers, manufacturing, peripheral equipment |
|
$ |
133,465 |
|
|
$ |
143,522 |
|
Office furniture and equipment |
|
|
2,341 |
|
|
|
2,372 |
|
Leasehold improvements |
|
|
1,460 |
|
|
|
1,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
137,266 |
|
|
|
147,588 |
|
Accumulated depreciation: |
|
|
|
|
|
|
|
|
Computers, manufacturing, peripheral equipment |
|
|
105,300 |
|
|
|
115,260 |
|
Office furniture and equipment |
|
|
1,578 |
|
|
|
1,724 |
|
Leasehold improvements |
|
|
1,005 |
|
|
|
1,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
107,883 |
|
|
|
118,132 |
|
|
|
|
|
|
|
|
|
|
Depreciated cost |
|
$ |
29,383 |
|
|
$ |
29,456 |
|
Depreciation expenses for the years ended December 31, 2020, 2021 and 2022 were $10,668, $11,845 and $10,620 respectively.
Changes of property and equipment not resulted in cash outflows as of December 31, 2020, 2021 and 2022 amounted to $1,562, $1,058 and $ 586, respectively.
NOTE 6:-INTANGIBLE ASSETS, NET
Intangible assets:
The following table sets forth the components of intangible assets:
|
|
December 31, |
|
|||||
|
|
2021 |
|
|
2022 |
|
||
Original amounts: |
|
|
|
|
|
|
||
Technology |
|
$ |
4,325 |
|
|
$ |
6,679 |
|
Software development costs |
|
|
2,879 |
|
|
|
2,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,204 |
|
|
|
9,558 |
|
|
|
|
|
|
|
|
|
|
Accumulated amortization: |
|
|
|
|
|
|
|
|
Technology |
- | 17 | ||||||
Software development costs |
|
|
930 |
|
|
|
1,333 |
|
|
|
|
|
|
|
|
|
|
930 | 1,350 | |||||||
Net amounts: |
|
|
|
|
|
|
|
|
Technology |
|
|
4,325 |
|
|
|
6,662 |
|
Software development costs |
|
|
1,949 |
|
|
|
1,546 |
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
$ |
6,274 |
|
|
$ |
8,208 |
|
F - 25
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 6:-INTANGIBLE ASSETS, NET (Cont.)
2023
|
587
|
|||
2024
|
617
|
|||
2025
|
1,389
|
|||
2026
|
1,320
|
|||
2027
|
969
|
|||
2028 and thereafter
|
3,326
|
|||
Total expected amortization
|
8,208
|
NOTE 7:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
|
December 31, |
|
|||||
|
|
2021 |
|
|
2022 |
|
||
|
|
|
|
|
|
|
|
|
Employees and payroll accruals |
|
$ |
11,799 |
|
|
$ |
10,047 |
|
Provision for warranty costs |
|
|
1,691 |
|
|
|
1,401 |
|
Government authorities |
|
|
2,223 |
|
|
|
1,815 |
|
Accrued expenses |
|
|
2,403 |
|
|
|
2,376 |
|
Advanced payments from customers |
|
|
5,044 |
|
|
|
3,604 |
|
Hedging Liability |
|
|
313 |
|
|
|
1,423 |
|
Other |
|
|
231 |
|
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,704 |
|
|
$ |
20,864 |
|
F - 26
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 8:-
|
CREDIT LINES
|
NOTE 9:- DERIVATIVE INSTRUMENTS
The Company enters into foreign currency forward and option contracts with financial institutions to protect against the exposure to changes in exchange rates of several foreign currencies that are associated with forecasted cash flows and existing assets and liabilities. The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.
Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.
F - 27
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 9:- DERIVATIVE INSTRUMENTS (Cont.)
The fair value of derivative contracts in the consolidated balance sheets at December 31, 2021 and December 31, 2022 were as follows:
|
|
Other accounts receivable and prepaid expenses |
|
|
Other accounts payable and accrued expenses |
|
||
|
|
December 31, 2021 |
|
|||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
||
Currency forward contracts |
|
$ |
743 |
|
|
$ |
(12 |
) |
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
Currency forward and option contracts |
|
|
109 |
|
|
|
(301 |
) |
|
|
|
|
|
|
|
|
|
Total derivatives |
|
$ |
852 |
|
|
$ |
(313 |
) |
|
|
Other accounts receivable and prepaid expenses |
|
|
Other accounts payable and accrued expenses |
|
||
|
|
December 31, 2022 |
|
|||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
||
Currency forward contracts |
|
$ |
- |
|
|
$ |
(1,271 |
) |
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
Currency forward and option contracts |
|
|
8 |
|
|
|
(152 |
) |
|
|
|
|
|
|
|
|
|
Total derivatives |
|
$ |
8 |
|
|
$ |
(1,423 |
) |
The notional amounts for derivatives contracts were as follows:
December 31, |
||||||||
|
|
2021 |
|
|
2022 |
|
||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
||
Currency forward contracts |
|
$ |
41,832 |
|
|
$ |
42,848 |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
Currency forward and option contracts |
|
$ |
34,304 |
|
|
$ |
16,082 |
|
The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions is up to 12 months.
F - 28
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 10:- CREDIT LOSSES
The Company is exposed to credit losses primarily through sales to customers. The Company’s expected loss allowance methodology for trade receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status.
The estimate of amount of trade receivable that may not be collected is based on the geographic location of the trade receivable balances, aging of the trade receivable balances, the financial condition of customers and the Company’s historical experience with customers in similar geographies.
Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default.
The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of trade receivables to present the net amount expected to be collected:
|
December 31, |
|||||||
|
2021 |
2022 |
||||||
|
||||||||
Balance, at beginning of Period |
$ |
6,198 |
$ |
8,587 |
||||
Provision for expected credit losses |
3,087 |
14,489 |
||||||
Amounts written off charged against the allowance and others |
(698 |
) |
(666 |
) |
||||
|
||||||||
Balance, at end of period |
$ |
8,587 |
$ |
22,410 |
NOTE 11:- PENSION LIABILITIES, NET
The Norwegian subsidiary Ceragon Networks AS (formerly "Nera Networks AS") has defined contribution schemes and four unfunded pension plans.
Under the defined contributions scheme Ceragon Networks AS makes a payment to the insurance company who administer the fund on behalf of the employee. Ceragon Networks AS has no liabilities relating to such schemes after the payment to the insurance company. As of December 31, 2022, all active employees are in this scheme. The contribution and the corresponding social security taxes are recognized as payroll expenses in the period to which the employee's services are rendered. The defined pension contribution schemes meet the requirements of the law on compulsory occupational pension.
Defined benefit scheme was stopped for admission from December 1, 2007, and persons that were employed after that date were automatically entered into the defined contribution scheme. The schemes give right to defined future benefits. These are mainly dependent on the number of qualifying employment years, salary level at pension age, and the amount of benefits from the national insurance scheme. The commitment related to the pension scheme is covered through an insurance company.
F - 29
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 11:-PENSION LIABILITIES, NET (Cont.)
AFP-scheme - in force from 1 January 2011, the AFP-scheme is a defined benefit multi-enterprise scheme, but is recognized in the accounts as a defined contribution scheme until reliable and sufficient information is available for the group to recognize its proportional share of pension cost, pension liability and pension funds in the scheme. Ceragon Networks AS's liabilities are therefore not recognized as liability in the balance sheet.
The liabilities in respect of Ceragon Networks AS's unfunded pension plans together represent 100% of the PBO (Projected Benefit Obligation) of the entire group.
The following tables provide a reconciliation of the changes in the plans' benefits obligation for the year ended December 31, 2021 and 2022, and the statement of funds status as of December 31, 2021 and 2022:
|
|
December 31, |
|
|||||
|
|
2021 |
|
2022 |
|
|||
Change in projected benefit obligation |
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year |
|
|
2,510 |
|
|
2,512 |
|
|
Interest cost |
|
|
38 |
|
|
37 |
|
|
Expenses paid |
|
|
(170 |
) |
|
(153 |
) |
|
Exchange rates differences |
|
|
(85 |
) |
|
(252 |
) |
|
Actuarial loss |
|
|
219 |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year |
|
$ |
2,512 |
|
$ |
2,170 |
|
The assumptions used in the measurement of the Company' benefits obligations as of December 31, 2021 and 2022 are as follows:
|
|
December 31, |
|
|||||
|
|
2021 |
|
2022 |
|
|||
Weighted-average assumptions |
|
|
|
|
|
|
|
|
Discount rate |
|
|
1.90 |
% |
|
3.00 |
% |
|
Rate of compensation increase |
|
|
2.75 |
% |
|
3.50 |
% |
The amounts reported for net periodic pension costs and the respective benefit obligation amounts are dependent upon the actuarial assumptions used. The Company reviews historical trends, future expectations, current market conditions and external data to determine the assumptions. The discount rate is the covered bond. For purposes of calculating the 2022 net periodic benefit cost and the 2022 benefit obligation, the Company has used a discount rate of 3.00%. The rate of compensation increase is determined by the Company, based upon its long-term plans for such increases.
The following table provides the components of net periodic benefits cost for the years ended December 31, 2020, 2021 and 2022:
|
|
December 31, |
|
|||||||||
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|||
Components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Interest cost |
|
|
52 |
|
|
|
38 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
52 |
|
|
$ |
38 |
|
|
$ |
37 |
|
F - 30
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 11:-PENSION LIABILITIES, NET (Cont.)
Benefit payments are expected to be paid as follows:
|
|
December 31, |
|
|
|
|
2022 |
|
|
2023 |
|
|
140 |
|
2024 |
|
|
134 |
|
2025 |
|
|
137 |
|
2026 |
|
|
147 |
|
2027 and thereafter |
|
|
1,612 |
|
|
|
|
|
|
|
|
$ |
2,170 |
|
Regarding the policy for amortizing actuarial gains or losses for pension and post-employment plans, the Company has chosen to charge the actuarial gains or losses to statement of operations.
Interest cost and actuarial gain or losses are presented in financial expenses and others, net.
For the years ended December 31, 2020, 2021 and 2022, an actuarial loss of $241, $219 and $26 respectively, was recognized in "finance expenses and others, net".
NOTE 12:-COMMITMENTS AND CONTINGENT LIABILITIES
a.Leases
See Note 13 “Leases” for lease related commitments as of December 31, 2022.
b.During 2020, 2021 and 2022, the Company received several grants from the Israeli Innovation Authority ("IIA"). The grants require the Company to comply with the requirements of the Research and Development Law, however, the Company is not obligated to pay royalties on sales of products based on technology or know how developed from the grants. In a case involving the transfer of technology or know how developed from the grants outside of Israel, the Company may be required to pay royalties related to past sales of products based on the technology or the developed know how. The Company recorded income from IIA grants for the years ended December 31, 2020, 2021 and 2022 in the amount of $996, $691 and $460, respectively.
c.Charges and guarantees:
As of December 31, 2021 and 2022, the Company provided guarantees in an aggregate amount of $37,236 and $28,737 (including bank guarantee disclosed in Note 12d), respectively, with respect to tender offer guarantees, financial guarantees, warranty guarantees and performance guarantees to its customers.
d.Litigations
The Company is currently involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.
F - 31
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 12:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
1) |
Class action claim (District Court of Tel Aviv - Economic Department) |
On January 6, 2015 the Company was served with a motion to approve a purported class action, naming the Company, its Chief Executive Officer and its directors as defendants (the “Defendants”). The motion was filed with the District Court of Tel-Aviv (the “Court”). The purported class action alleges breaches of duties by making false and misleading statements in the Company's SEC filings and public statements. The class action claimed amount is $75,000.
On June 21, 2015, the Defendants filed their response to the motion, arguing that the motion should be dismissed.
On May 27, 2021, following a lengthy procedure that included filing of various pleadings and affidavits, evidentiary hearings, and submission of summaries, the Court ruled to certify the Motion as a class action, while applying the Israeli Law (“the Ruling”). According to the Ruling, the class action shall include several causes of action according to the Israeli Securities Act and the Israeli Torts Ordinance, concerning the alleged misleading statements in the Company’s SEC filings. According to the Ruling, it is possible that the Company included misleading statements in the Company’s SEC filings.
On June 9, 2021 the Court issued a decision suggesting that the parties will refer the case to a mediation procedure.
The Company believes that the Ruling is erroneous and that the Defendants has strong defense arguments, and therefore, on September 12, 2021, filed a motion for a rehearing on behalf of the Defendants in order to revert the Ruling (the “Rehearing Motion”).
On October 20, 2021, the Plaintiff submitted his response to the Rehearing Motion and the Defendants submitted their reply to the Plaintiff’s response on November 23, 2021.
In light of the fact that the Ruling applied and was based upon Israeli Law (instead of the relevant foreign law), the Tel Aviv Stock Exchange filed a motion requesting the Court to allow it to join the proceedings as Amicus Curiae, in order to express its principle opinion that the applicable law, in so far as dual listed companies are concerned, is the foreign law, as well as regarding the negative implications of the Court’s application of Israeli law on dual listed companies.
Meanwhile, and without delaying or derogating from the Rehearing Motion, the Company agreed to the Court’s suggestion that the parties will refer the case to a mediation procedure, and designated the retired Judge B. Arnon as a mediator. After several mediation meetings were held, the mediation process ended without reaching a settlement.
F - 32
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 12:-COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
On January 3, 2022 a hearing was held in Court in the Rehearing Motion before the Honorable Justices K. Kabub, R. Ronen and T. Avrahami. Following the hearing, on January 25, 2022, the Attorney General joined the proceedings of the Rehearing Motion and submitted his position in collaboration with the Securities Authority. The Attorney General’s principle position as outlined, was that the applicable law in so far as dual listed companies are concerned is the foreign law, and in our case - US law.
On January 27, 2022, a judgment was rendered in the Rehearing Motion. The Court ruled that the Ruling was erroneous as it applied Israeli Law, instead of foreign law, and held accordingly that the law that will apply is US law. The Court further held that the case will be returned to the first judicial instance and will be adjudicated as a class claim under the US law. The Court commented that the Company’s claims based upon the Statute of Limitations should prima facie also be adjudicated under the US law.
On March 20, 2022, following the Court's decision, the Plaintiff filed to the first judicial instance, an amended class action claim, based on provisions of US law. The Plaintiff estimated the amended claim amount at $ 52,099.
On June 28, 2022, following a joint application filed by the parties in order to approve certain procedural matters, the Court issued a decision suggesting that the parties should consider initiating another mediation procedure. On July 5, 2022, following the Court's decision, the parties filed a notice, informing the Court that they believe that the time to consider initiating another mediation procedure, will be only after the parties submit their pleadings.
On November 3, 2022, the Defendants submitted their Statement of Defense, based on U.S law.
On February 5, 2023, the Plaintiff submitted his response to the Defendants’ Statement of Defense.
A preliminary hearing is scheduled for June 19, 2023.
As was held in the judgement rendered in the Rehearing Motion, U.S law presents a higher bar for Plaintiffs in comparison to Israeli law in proving claims regarding misleading representations to investors. However, given that the class action is being adjudicated under U.S law and that the Court has yet to address the parties’ pleadings, the Company’s attorneys cannot asses, at this preliminary stage, the chances of the class action to be accepted.
2) |
Claim against Station Enterprises Ltd. regarding breach of the Lease Agreement |
A dispute has arisen between the Company and Station Enterprises Ltd, with respect to the lease agreement signed between the parties on April 11, 2019 (the "Lease Agreement"), under which the Company leases its offices and labs in Rosh Haayin.
The Company, the lessee, claims that Station Enterprises was late in delivering the possession to the lessee and has not fulfilled its maintenance and management obligations. Therefore, the Company claims that Station Enterprises breached its contractual obligations, causing the Company damages and expenses.
F - 33
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 13:-LEASES
The Company`s leases include offices and warehouses for its facilities worldwide, as well as car leases, which are all classified as operating leases. Certain leases include renewal options that are under the Company`s sole discretion. The renewal options were included in the right of use (“ROU”) and liability calculation if it was reasonably certain that the Company will exercise the option.
The components of lease expense and supplemental cash flow information related to leases for the years ended December 31, 2021 and 2022 were as follows:
|
Year ended December 31, |
|||||||||||
|
2020 |
2021 |
2022 |
|||||||||
|
||||||||||||
Components of lease expense |
||||||||||||
Operating lease cost |
$ |
5,484 |
$ |
4,869 |
$ |
4,428 |
||||||
Short-term lease |
$ |
43 |
$ |
100 |
$ |
52 |
||||||
Total lease expenses |
$ |
5,527 |
$ |
4,969 |
$ |
4,480 |
|
Year ended December 31, |
|||||||||||
|
2020 |
2021 |
2022 |
|||||||||
|
||||||||||||
Supplemental cash flow information |
||||||||||||
Cash paid for amounts included in the measurement of lease liabilities |
$ |
5,489 |
$ |
4,843 |
$ |
4,497 |
||||||
|
||||||||||||
Supplemental non-cash information related to lease liabilities arising from obtaining ROU assets |
$ |
1,773 |
$ |
19,166 |
$ |
1,300 |
For the year ended December 31, 2022, the weighted average remaining lease term is approximately seven years, and the weighted average discount rate is 5 percent. The discount rate was determined based on the estimated collateralized borrowing rate of the Company, adjusted to the specific lease term and location of each lease.
Maturities of lease liabilities as of December 31, 2022 were as follows:
2023 |
3,799 |
|||
2024 |
2,774 |
|||
2025 |
2,290 |
|||
2026 |
2,101 |
|||
2027and thereafter |
8,819 |
|||
Total operating lease payments |
19,783 |
|||
Less: imputed interest |
2,851 |
|||
Present value of lease liability |
16,932 |
F - 34
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 14:- |
SHAREHOLDERS' EQUITY
|
a. |
General:
|
b. |
Stock options plans:
|
1. |
In 2003, the Company adopted a share option plan which has been extended or replaced from time to time. To date, the plan that is currently in effect is the Amended and Restated Share Option and RSU Plan as amended August 10, 2014 (the “Plan”). Under the Plan, options and RSUs may be granted to officers, directors, employees and consultants of the Company or its subsidiaries. The options vest primarily over four years, subject to certain exceptions. The options expire between to ten years from the date of grant. The Plan expires in December 2023. The Company needs to reserve, and the Board of Directors has reserved, sufficient authorized but unissued Shares for purposes of the Plan subject to adjustments as provided in the Plan. Since the last amendment in 2014, the Company has reserved 14,957,511 units under the Plan. As of December 31, 2022, an aggregate of 1,043,964 ordinary shares were available for future grants under the plan.
|
2. |
The following table summarizes the activities for the Company’s stock options for the year ended December 31, 2022:
|
Year ended
December 31, 2022
|
||||||||||||||||
Number
of options
|
Weighted
average
exercise
price
|
Weighted average remaining contractual term
(in years)
|
Aggregate
intrinsic
value
|
|||||||||||||
Outstanding at beginning of year
|
5,186,446
|
$
|
3.40
|
4.01
|
$
|
534
|
||||||||||
Granted
|
1,478,696
|
2.33
|
||||||||||||||
Exercised
|
(226,116
|
)
|
1.81
|
|||||||||||||
Forfeited or expired
|
(1,133,294
|
)
|
4.42
|
|||||||||||||
Outstanding at end of the year
|
5,305,732
|
$
|
2.95
|
3.83
|
$
|
19
|
||||||||||
Options exercisable at end of the year
|
2,735,334
|
$
|
2.99
|
2.86
|
$
|
3
|
||||||||||
Vested and expected to vest
|
4,052,658
|
$
|
2.96
|
3.50
|
$
|
10
|
F - 35
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 14:- |
SHAREHOLDERS' EQUITY (Cont.)
|
Year ended
December 31, 2022
|
||||||||
Number of RSUs
|
Aggregate intrinsic
value
|
|||||||
Unvested at beginning of year
|
699,679
|
$
|
1,805
|
|||||
Granted
|
1,805,163
|
|||||||
Vested
|
(195,969
|
)
|
||||||
Forfeited
|
(200,534
|
)
|
||||||
Unvested at end of the year
|
2,108,339
|
$
|
4,027
|
|||||
Vested and expected to vest
|
1,564,025
|
$
|
2,987
|
Year ended
December 31,
|
||||||||||||
2020
|
2021
|
2022
|
||||||||||
Cost of revenues
|
$
|
110
|
$
|
289
|
$
|
587
|
||||||
Research and development, net
|
243
|
236
|
405
|
|||||||||
Sales and marketing
|
545
|
700
|
1,355
|
|||||||||
General and administrative
|
764
|
1,337
|
1,213
|
|||||||||
Total share-based compensation expenses
|
$
|
1,662
|
$
|
2,562
|
$
|
3,560
|
c. |
Dividends:
|
F - 36
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 15:-TAXES ON INCOME
a.Israeli taxation:
1.Measurement of taxable income:
The Company has elected to file its tax return under the Israeli Income Tax Regulations 1986 (Principles Regarding the Management of Books of Account of Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income). Accordingly, starting tax year 2003, results of operations in Israel are measured in terms of earnings in U.S. dollars.
2.Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the "Law"):
According to the Law, the Company is entitled to various tax benefits by virtue of the "Approved Enterprise" status granted to part of their enterprises, as implied by this Law. The principal benefits by virtue of the Law are:
According to the provisions of the Law, the Company has chosen to enjoy the "Alternative" track. Under this track, the Company is tax exempt in the first two years of the benefit period and subject to tax at the reduced rate of 10%-25% for the remaining benefit period. The benefit period under Approved Enterprise starts with the first year the benefited enterprise earns taxable income, provided that 14 years have not passed since the approval was granted and 12 years have not passed since the enterprise began operating.
Generally, a company that is Abundant in Foreign Investment is entitled to an extension of the benefits period by an additional five years.
The tax benefits under the Approved Enterprise are conditional upon the fulfillment of the conditions stipulated by the Law, regulations published and the letters of approval for the investments in the approved enterprises. Non-compliance with the conditions may cancel all or part of the benefits and refund of the amount of the benefits, including interest.
The Company has three capital investment programs that have been granted Approved Enterprise status, under the Law.
As of December 31, 2022, the 14 years have passed for the three Approved Enterprise programs.
Income from sources other than the "Approved Enterprise" during the benefit period will be subject to the tax at the regular tax rate.
The Company believes it will continue to enjoy its current tax benefits in accordance with the provisions of the Investment Law prior to the 2005 Amendment.
F - 37
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 15:-TAXES ON INCOME (Cont.)
In December 2016, the Knesset passed an additional amendment to the Law which provides for additional benefits to Preferred Technological Enterprises by reducing the tax rate on preferred Technological Enterprise income (as such is defined in Amendment 73) to 12% (the "Amendment"). This Amendment came into effect in May 2017 when the Minister of Finance promulgated the regulations for its implementation. The Company has evaluated the effect of the adoption of the Amendment on its financial statements, and as of the date of the approval of the financial statements, the Company did not apply the Amendment. The Company may change its position in the future.
3.Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:
The Encouragement Law provides several tax benefits for industrial companies. An industrial company is defined as a company resident and located in Israel, at least 90% of the income of which in a given tax year exclusive of income from specified Government loans, capital gains, interest and dividends, is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose major activity in a given tax year is industrial production activity.
Management believes that the Company is currently qualified as an "industrial company" under the Encouragement Law and, as such, enjoys tax benefits, including: (1) deduction of purchase of know-how and patents and/or right to use a patent over an eight-year period; (2) the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies and an industrial holding company; (3) accelerated depreciation rates on equipment and buildings; and (4) expenses related to a public offering on the Tel-Aviv Stock Exchange and on recognized stock markets outside of Israel, are deductible in equal amounts over three years.
Eligibility for benefits under the Encouragement Law is not subject to receipt of prior approval from any Governmental authority. No assurance can be given that the Israeli tax authorities will agree that the Company qualifies, or, if the Company qualifies, that the Company will continue to qualify as an industrial company or that the benefits described above will be available to the Company in the future.
4.Tax rates:
Taxable income of Israeli companies was subject to tax at the rate - 23% in the years 2020, 2021 and 2022.
The effective tax rate payable by a company which is taxed under the Investment Law may be considerably lower (see also note 15.a2 above). Israeli corporations are generally taxed at the corporate income tax rate on their capital gains.
The Company's tax assessments through 2016 tax year are considered final.
F - 38
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 15:-TAXES ON INCOME (Cont.)
b. |
Income taxes for non-Israeli subsidiaries:
|
c. |
The income tax expense for the years ended December 31, 2020, 2021 and 2022 consisted of the following:
|
|
|
Year ended December 31, |
|
|||||||||
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Current |
|
$ |
2,641 |
|
|
$ |
2,181 |
|
|
$ |
1,140 |
|
Deferred |
|
|
(23 |
) |
|
|
8,828 |
|
|
|
1,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,618 |
|
|
$ |
11,009 |
|
|
$ |
2,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic (Israel) |
|
$ |
839 |
|
|
$ |
8,844 |
|
|
$ |
664 |
|
Foreign |
|
|
1,779 |
|
|
|
2,165 |
|
|
|
1,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,618 |
|
|
$ |
11,009 |
|
|
$ |
2,446 |
|
d.Deferred income taxes:
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
F - 39
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 15:-TAXES ON INCOME (Cont.)
Significant components of the Company's deferred tax assets and liabilities are as follows:
December 31,
|
||||||||
2021
|
2022
|
|||||||
Deferred tax assets:
|
||||||||
Net operating loss carry forward
|
$
|
64,353
|
$
|
65,148
|
||||
Temporary differences:
|
||||||||
Allowance for credit loss
|
13,595
|
17,087
|
||||||
Research and development
|
6,003
|
6,092
|
||||||
Lease liabilities
|
4,975
|
3,891
|
||||||
Unrealized foreign exchange gains/losses
|
1,197
|
2,285
|
||||||
Vacation
|
539
|
591
|
||||||
Severance
|
1,012
|
1,090
|
||||||
Other
|
-
|
1,652
|
||||||
Deferred tax assets before valuation allowance
|
91,674
|
97,836
|
||||||
Valuation allowance
|
(86,191
|
)
|
(93,529
|
)
|
||||
Deferred tax assets
|
5,483
|
4,307
|
||||||
Deferred tax liabilities:
|
||||||||
Property and equipment, net
|
(315
|
)
|
(145
|
)
|
||||
Right-of-use lease assets
|
(4,609
|
)
|
(4,140
|
)
|
||||
Unrealized foreign exchange gains/losses
|
(303
|
)
|
-
|
|
||||
Other
|
(256
|
)
|
(22
|
) | ||||
Deferred tax asset, net
|
$
|
-
|
$
|
-
|
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized in each tax jurisdiction. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded valuation allowance amounting $86,191 and $93,529 as of December 31, 2021 and 2022 respectively.
e. |
Net operating loss carry forward and capital loss:
|
NOTE 15:-TAXES ON INCOME (Cont.)
f.Income (Loss) before taxes is comprised as follows:
|
Year ended
December 31,
|
||||||||||||
2020
|
2021
|
2022
|
||||||||||
Domestic
|
$
|
(24,192
|
)
|
$
|
(5,430
|
)
|
$
|
(20,850
|
)
|
|||
Foreign
|
10,697
|
1,611
|
3,607
|
|||||||||
$
|
(13,495
|
)
|
$
|
(3,819
|
)
|
$
|
(17,243
|
)
|
g.Reconciliation of the theoretical tax expense to the actual tax expense:
Reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company and the actual tax expense as reported in the statements of operations is as follows:
|
|
Year ended December 31, |
|
|||||||||
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|||
Income (loss) before taxes as reported in the consolidated statements of operations |
|
$ |
(13,495 |
) |
|
$ |
(3,819 |
) |
|
$ |
(17,243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory tax rate |
|
|
23 |
% |
|
|
23 |
% |
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Theoretical tax expenses (income) on the above amount at the Israeli statutory tax rate |
|
$ |
(3,104 |
) |
|
$ |
(878 |
) |
|
$ |
(3,966 |
) |
Non-deductible expenses and other permanent differences |
|
|
(111 |
) |
|
|
(1,602 |
) |
|
|
265 |
|
Non-deductible expenses related to employee stock options |
|
|
383 |
|
|
|
590 |
|
|
|
819 |
|
Deferred tax assets on losses and other temporary differences for which valuation allowance was provided, net |
|
|
5,318 |
|
|
|
12,326 |
|
|
|
5,378 |
|
Other |
|
|
132 |
|
|
|
573 |
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual tax expense (benefit) |
|
$ |
2,618 |
|
|
$ |
11,009 |
|
|
$ |
2,446 |
|
NOTE 15:-TAXES ON INCOME (Cont.)
h.A reconciliation of the beginning and ending balances of unrecognized tax benefits related to uncertain tax positions is as follows:
|
|
December 31, |
|
|||||
|
|
2021 |
|
|
2022 |
|
||
|
|
|
|
|
|
|
||
Beginning balance |
|
$ |
2,421 |
|
|
$ |
2,367 |
|
Decreases in tax positions for prior years |
|
|
(538 |
) |
|
|
(537 |
) |
Increases related to tax positions taken during prior years |
|
|
59 |
|
|
|
132 |
|
Increase related to tax positions taken during the current year |
|
|
425 |
|
|
|
330 |
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
2,367 |
|
|
$ |
2,291 |
|
The Company has further accrued $349 due to interest and penalty related to uncertain tax positions as of December 31, 2022.
NOTE 16:-
|
REVENUES
|
Year ended
December
31, 2021
|
Year ended
December
31, 2022
|
|||||||
Balance, beginning of the period
|
$
|
10,987
|
$
|
12,659
|
||||
New performance obligations
|
6,329
|
6,458
|
||||||
Reclassification to revenue as a result of satisfying performance obligations
|
(4,657
|
)
|
(4,229
|
)
|
||||
Balance, end of the period
|
12,659
|
14,888
|
||||||
Less: long-term portion of deferred revenue
|
9,275
|
11,545
|
||||||
Current portion, end of period
|
$
|
3,384
|
$
|
3,343
|
F - 42
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 16:-
|
REVENUES (Cont.)
|
2024
|
2025 and
thereafter
|
|||||||
Unsatisfied performance obligations
|
670
|
10,875
|
NOTE 17:- |
SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION
|
a. |
The Company applies ASC topic 280, "Segment Reporting", ("ASC 820"). The Company operates in one reportable segment (see Note 1 for a brief description of the Company's business). The total revenues are attributed to geographic areas based on the location of the end customer.
|
b. |
The following tables present total revenues for the years ended December 31, 2020, 2021 and 2021 and long-lived assets as of December 31, 2021 and 2022:
|
Year ended
December 31,
|
||||||||||||
2020
|
2021
|
2022
|
||||||||||
Revenues:
|
||||||||||||
North America (*)
|
$
|
38,165
|
$
|
47,505
|
$
|
67,108
|
||||||
Europe
|
44,832
|
47,382
|
42,909
|
|||||||||
Africa
|
23,497
|
23,165
|
19,324
|
|||||||||
Asia-Pacific and Middle East
|
47,677
|
32,008
|
32,970
|
|||||||||
India
|
62,047
|
86,088
|
80,957
|
|||||||||
Latin America
|
46,663
|
54,618
|
51,905
|
|||||||||
$
|
262,881
|
$
|
290,766
|
$
|
295,173
|
(*) As of December 31, 2022, 2021 and 2020 87%, 72% and 79% represents revenues in the United States.
NOTE 17:- |
SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.)
|
Long-lived assets, net:
|
December 31,
|
|||||||
2021
|
2022
|
|||||||
Israel
|
$
|
42,192
|
$
|
41,076
|
||||
Others
|
7,424
|
6,342
|
||||||
Total long-lived assets, net (*)
|
$
|
49,616
|
$
|
47,418
|
c. |
Major customer data as a percentage of total revenues:
|
NOTE 18:-
|
SELECTED STATEMENTS OF OPERATIONS DATA
|
a. |
Financial expenses and others, net:
|
Year ended
December 31,
|
||||||||||||
2020
|
2021
|
2022
|
||||||||||
Financial income:
|
||||||||||||
Interest on deposits
|
$
|
79
|
$
|
160
|
$
|
107
|
||||||
Foreign currency translation differences and derivatives
|
1,330
|
571
|
3,054
|
|||||||||
Others
|
807
|
-
|
-
|
|||||||||
2,216
|
731
|
3,161
|
||||||||||
Financial expenses:
|
||||||||||||
Bank charges and interest on loans
|
(4,130
|
)
|
(4,650
|
)
|
(5,016
|
)
|
||||||
Foreign currency translation differences and derivatives
|
(3,716
|
)
|
(4,449
|
)
|
(4,451
|
)
|
||||||
Others
|
(293
|
)
|
(257
|
)
|
-
|
|||||||
(8,139
|
)
|
(9,356
|
)
|
(9,467
|
)
|
|||||||
$
|
(5,923
|
)
|
$
|
(8,625
|
)
|
$
|
(6,306
|
)
|
F - 44
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 18:-
|
SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)
|
b. |
Net loss per share:
|
Year ended
December 31,
|
||||||||||||
2020
|
2021
|
2022
|
||||||||||
Numerator:
|
||||||||||||
Numerator for basic and diluted net loss per share - loss available to shareholders of Ordinary shares
|
$
|
(17,092
|
)
|
$
|
(14,828
|
)
|
$
|
(19,689
|
)
|
|||
Denominator:
|
||||||||||||
Denominator for basic and diluted net loss per share – adjusted weighted average number of Ordinary shares
|
81,149,687
|
83,414,831
|
84,132,982
|
F - 45
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 19:-
|
RELATED PARTY BALANCES AND TRANSACTIONS
|
F - 46
CERAGON NETWORKS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
NOTE 19:-
|
RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)
|
Year ended
December 31,
|
||||||||||||
2020
|
2021
|
2022
|
||||||||||
Revenues
|
$
|
5,843
|
$
|
394
|
$
|
47
|
||||||
Cost of revenues
|
$
|
4,715
|
$
|
1,125
|
$
|
345
|
||||||
Research and development expenses
|
$
|
1,245
|
$
|
608
|
$
|
115
|
||||||
Sales and marketing expenses
|
$
|
731
|
$
|
617
|
$
|
284
|
||||||
General and administrative expenses
|
$
|
913
|
$
|
1,527
|
$
|
1,040
|
||||||
Purchase of property and equipment
|
$
|
274
|
$
|
175
|
$
|
180
|
|
December 31,
|
|||||||
2021
|
2022
|
|||||||
Trade payables, other accounts payable and accrued expenses
|
$
|
376
|
$
|
380
|
||||
Trade Receivables
|
$
|
78
|
$
|
-
|
F - 47
By and between: |
The entities enumerated in Appendix 1 of the Credit Agreement
|
in their function as Lenders (the “Lenders”) |
of the first part
|
And: |
Bank Hapoalim Ltd.
|
(“Bank Hapoalim”) |
of the second part
|
And: |
Ceragon Networks Ltd.
|
(the “Borrower”) |
of the third part
|
Whereas: |
on March 14, 2013 the Borrower entered into a credit agreement with the Lenders, inclusive of its appendices and attachments, as amended and as shall be amended from time to time (the “Credit Agreement”)
in and under which, inter alia, the Borrower was provided with the “credit”; and
|
Whereas: |
at the beginning of 2022 the global financial system is expected to reduce the use of the LIBOR interest rate; and
|
Whereas: |
the Parties decided that the interest to replace the LIBOR interest rate in the Credit Agreement would be the SOFR interest rate, as defined below in this Amendment Document; and
|
Whereas: |
in reliance on the correctness of the declarations and representations of the Borrower in the Credit Agreement and in this Amendment Document, as set forth below, and performance of all its undertakings as set forth in the Credit Agreement
as amended in this Amendment Document, it was agreed to make amendment in Credit Agreement, all subject and pursuant to the terms and conditions of the Credit Agreement and this Amendment Document.
|
1. |
General
|
1.1 |
The preamble to this Amendment Document constitutes an integral part hereof. All terms mentioned heretofore and hereinafter in this Amendment Document shall have the meaning given to them in the Credit Agreement, unless explicitly stated
otherwise.
|
1.2 |
For the avoidance of doubt, it is agreed that this Amendment Document constitutes part of the Credit Documents, as defined in section 2 of the Credit Agreement.
|
1.3 |
In addition to any declaration, representation or undertaking of the Borrower in the “Credit Documents” (as this term is defined in the Credit Agreement) or in any other agreement or document delivered or to be delivered to the Lenders in
connection with the credit or in connection with the security, and without prejudicing or derogating from any of the foregoing (except as required from this Amendment Document), the Borrower declares, confirms and undertakes to the Lenders
and office holders as follows:
|
1.3.1 |
the Borrower fully and accurately performed and is continuing to perform all the provisions of the Credit Agreement;
|
1.3.2 |
all the Borrower’s representations set forth in the Credit Agreement (with the exception of those set forth in sections 15.1.2, 15.1.3(a), 15.1.5, 15.1.6, 15.1.10, 15.1.11, 15.1.12 and 15.1.16 and also with the exception of the
representation in section 15.1.1 only with respect to the fact that the Borrower’s shares are listed for trading on the Tel Aviv Stock Exchange Ltd.) remain in effect and are correct and complete as of the date of signature of this Amendment
Document;
|
1.3.3 |
(a) the Borrower obtained all the decisions, agreements, authorizations, permits and approvals required under its documents of incorporation, under the provisions of any law and at the instruction of any authority whatsoever in connection
with making this Amendment Document or in connection with the Credit Agreement and its appendices; (b) there is no need to adopt decisions or provide any additional consents or approvals; (c) all measures and acts required were taken to
lawfully approve its entering into this Amendment Document; (d) all the Borrower’s undertakings under, within or in connection with this Amendment Document or the Credit Agreement or the other Credit Documents are lawful, in existence, valid,
binding and enforceable against it according to their terms.
|
2. |
Amendment of Credit Agreement
|
2.1 |
Updating the definition of the LIBOR. Section 2 of the Credit Agreement shall be amended so
that the definition of the term “LIBOR” shall be deleted and in its place shall be added the following definition:
|
“SOFR” – Secured Overnight Financing Rate
|
Variable interest at the Daily Simple SOFR reference rate and/or at the Term SOFR reference rate, all pursuant to the provisions of section 3.7.5 below.
|
2.2 |
Anywhere in the Credit Agreement where the word “LIBOR” appears shall be replaced by the word: “SOFR”.
|
2.3 |
The Credit Agreement shall be amended so that after section 3.7.4 of the Credit Agreement, the following section shall be inserted:
|
“3.7.5 |
Anywhere in this Agreement where the word “SOFR” appears, the following provisions shall apply:
|
3.7.5.1 |
The decision whether to provide credit at the Daily Simple SOFR reference rate and/or at the Term SOFR reference rate shall be at the sole discretion of each individual Lender.
|
3.7.5.2 |
The definition of the Daily Simple SOFR rate and/or the Term SOFR rate (including, but without derogating – the method of determination of interest, the identity of the publishing entity, the date of publication of the interest, etc.) is not uniform between the various Lenders, and therefore any provision of credit on the basis of SOFR shall be according to the accepted methodology and definitions at each individual Lender, at the sole
discretion of such Lender.
|
3.7.5.3 |
At the time of provision of credit on the basis of SOFR, the Borrower shall sign all the accepted credit documents at each individual Lender referring, inter alia, to the definition of the Daily
Simple SOFR rate and/or the Term SOFR rate.”
|
2.4 |
Replacement of Appendix 3.6.1.1 of the Credit Agreement. Appendix 3.6.1.1 of the Credit
Agreement shall be replaced by the Appendix 3.6.1.1 of this Amendment Document.
|
2.5 |
Section 16.16 of the Credit Agreement shall be amended in such manner that the last sentence in the section shall be deleted (the sentence commencing with the word “Furthermore” and ending with the word “secured”) and it shall be replaced
by the following sentence:
|
3. |
Miscellaneous
|
3.1 |
Unless explicitly determined otherwise in this Amendment Document, the conditions and undertakings set forth in this Amendment Document do not derogate or prejudice or alter any other undertaking of the Borrower to the Lenders or the
validity of any security whatsoever provided in favor of the Security Trustee for the Lenders according to and under the Credit Agreement or the other Credit Documents or any other document or agreement delivered or to be delivered to the
Lenders or any office holder in connection with the credit, and they shall continue to remain in full and binding effect, including any provisions relating to the rights of the Lenders to make the credit immediately payable, all pursuant and
subject to the terms and conditions of the Credit Documents.
|
3.2 |
This Amendment Document, unless explicitly stated herein otherwise, is in addition to and shall not derogate from, alter or prejudice the provisions of the Credit Agreement and the Amendment Documents, and except as explicitly stated in
this Amendment Document, all rights of the Lenders and the Borrower under the Credit Agreement, the Amendment Documents and under the provisions of any law, are saved absolutely.
|
3.3 |
This Amendment Document may be signed by the Parties to it in one copy or several separate copies by any of the Parties, which shall jointly constitute one document.
|
__________________________
Ceragon Networks Ltd.
|
___________________________
Bank Hapoalim Ltd.
(as Lender, in its position as Credit Manager and in its position as Security Trustee)
|
___________________________________
First International Bank of Israel Ltd.
(as Lender)
|
|
________________________
HSBC Bank PLC
(as Lender)
|
|
___________________________
Bank Leumi Le-Israel B.M.
(as Lender)
|
__________________________
Date
|
________________________
Attorney signature and stamp
|
4. |
We hereby request that you provide us, on ___________ / by no later than _________ (hereinafter, the “Withdrawal Date”) with a loan in the amount of ________________ (_________________) US Dollars2
(hereinafter, the “Withdrawal Amount”)3 for a period of 4: month / two months / three months / four months / five months / six months / another period of5: _________
(hereinafter, the “Loan Period”), which shall bear variable interest at the Daily Simple SOFR reference rate at the Daily Simple SOFR rate (for a period of ______) with an additional rate of ____% per
annum and/or at the Term SOFR reference rate (for a period of______) with an additional rate of __% per annum 6 (subject only to your having provided us with the Withdrawal Amount in our account at your bank on the requested
Withdrawal Date constituting your approval of the aforesaid interest rate7) with an Interest Period of:8 month / three months / six months / another period of: ____________ (hereinafter, the “Interest Period”).
|
1 |
The Withdrawal Application must be delivered to the Lender by registered mail, fax or in any other manner to be agreed with the Lender. If on the date of submission of the Application an original copy of the Application is not delivered,
the Lender must be furnished with an original copy of the Withdrawal Application by registered mail by no later than 7 (seven) business days after the date of this Withdrawal Application.
|
2 |
In the event it is agreed in advance and in writing with the relevant Lender that the loan will be provided in New Israeli Shekels or in foreign currency which is not US dollars, the currency name shall be altered.
|
3 |
Please specify an amount of not less than 200,000 (Two Hundred Thousand) US dollars.
|
4 |
Please choose the relevant loan period.
|
5 |
Another loan period may be chosen, if the prior written consent of the relevant Lender is granted, provided that the period is shorter than six months.
|
6 |
In the event it is agreed in advance and in writing with the relevant Lender that the loan will be provided in New Israeli Shekels, the “SOFR” shall be replaced by the quoted basic interest rate - “Prime”.
|
7 |
It is hereby clarified, for the avoidance of doubt only, that nothing in this Withdrawal Application shall derogate from the provisions of the Credit Agreement in relation to withdrawal of loans.
|
8 |
The Interest Period in relation to a loan shall be one month; however, (a) in relation to loans for a period of three months an Interest Period of three months may be chosen, (b) in relation to loans for a period of six months, an
Interest Period of three months or six months may be chosen, (c) in relation to loans for a period longer than one month but shorter than three months (not including three months) and in relation for a period longer than three months but
shorter than six months (not including six months), different Interest Period may be chosen, if the Lender’s prior written consent was given.
|
5. |
The nominal annual interest rate as of ____________ is __%.
|
6. |
The adjusted annual interest rate as of ____________ is __%.
|
7. |
The nominal annual default interest rate as of _________ is __%.
|
8. |
The adjusted annual default interest rate as of _________ is __%.
|
9. |
We hereby declare and undertake the following:
|
9.1 |
The Withdrawal Date is a business day during the availability period;
|
9.2 |
The Withdrawal Amount requested does not exceed the unutilized balance of the line of credit of the loans at the Lender;
|
9.3 |
The Loan Period does not terminate after the final date of payment;
|
9.4 |
No Event of Default occurred (without taking into account cure and/or waiting periods, if any are granted under the provisions of the Credit Agreement), which was not remedied by the date of this Withdrawal Application and no Event of
Default shall occur (without taking into account cure and/or waiting periods, if any are granted under the provisions of the Credit Agreement) in consequence of extending of the loan under this Withdrawal Application;
|
9.5 |
All the representations set forth in section 15 of the Credit Agreement, with the exception of those set forth in sections: 15.1.1 (only with respect to the fact that the Borrower’s shares are listed for trading on the Tel Aviv Stock
Exchange Ltd.), 15.1.2, 15.1.3(a), 15.1.5, 15.1.6, 15.1.10, 15.1.11, 15.1.16, 15.1.25, and 15.1.28 to 15.1.30 of the Credit Agreement are true and accurate, as of the Withdrawal Date.
|
10. |
Any term not defined in this Withdrawal Application shall have the meaning ascribed to it in the Credit Agreement.
|
11. |
Our application is being submitted pursuant to the provisions of the Credit Agreement and constitutes a Credit Document, as this agreement term is defined in the Credit Agreement.
|
|
Sincerely,
____________________
Ceragon Networks Ltd.
|
By and between: |
The entities enumerated in Appendix 1 of the Credit Agreement
|
in their function as lenders (the “Lenders”) |
of the first part
|
And: |
Bank Hapoalim Ltd.
|
(“Bank Hapoalim”) |
of the second part
|
And: |
Ceragon Networks Ltd.
|
(the “Borrower”) |
of the third part
|
Whereas: |
on March 14, 2013 the Borrower entered into a credit agreement with the Lenders, inclusive of its appendices and attachments, as amended and as shall be amended from time to time (the “Credit Agreement”)
in and under which, inter alia, the Borrower was provided with the “credit”; and
|
Whereas: |
the Borrower approached the Lenders and requested to draw up various amendments to the Credit Agreement, as set forth below in this Amendment Document; and
|
Whereas: |
in reliance on the correctness of the declarations and representations of the Borrower in the Credit Agreement and in this Amendment Document, as set forth below, and performance of all its undertakings as set forth in the Credit Agreement
as amended in this Amendment Document, the Lenders accepted the Borrower’s request, all subject and pursuant to the terms and conditions of the Credit Agreement and this Amendment Document.
|
1. |
General
|
1.1 |
The preamble to this Amendment Document constitutes an integral part hereof. All terms mentioned heretofore and hereinafter in this Amendment Document shall have the meaning given to them in the Credit Agreement, unless explicitly stated
otherwise.
|
1.2 |
For the avoidance of doubt, it is agreed that this Amendment Document constitutes part of the Credit Documents, as defined in section 2 of the Credit Agreement.
|
1.3 |
In addition to any declaration, representation or undertaking of the Borrower in the “Credit Documents” (as this term is defined in the Credit Agreement) or in any other agreement or document delivered or to be delivered to the Lenders in
connection with the credit or in connection with the securities, and without prejudicing or derogating from any of the foregoing (except as required from this Amendment Document), the Borrower declares, confirms and undertakes to the Lenders
and office holders as follows:
|
1.3.1 |
the Borrower fully and accurately performed and is continuing to perform all the provisions of the Credit Agreement;
|
1.3.2 |
all the Borrower’s representations set forth in the Credit Agreement (with the exception of those set forth in sections 15.1.2, 15.1.3(a), 15.1.5, 15.1.6, 15.1.10, 15.1.11, 15.1.12 and 15.1.16 and also with the exception of the
representation in section 15.1.1 only with respect to the representation that the Borrower’s shares are listed for trading on the Tel Aviv Stock Exchange Ltd.) remain in effect and are true and complete as of the date of signature of this
Amendment Document;
|
1.3.3 |
(a) the Borrower obtained all the decisions, agreements, authorizations, permits and approvals required under its documents of incorporation, under the provisions of any law and at the instruction of any authority whatsoever in connection
with making this Amendment Document or in connection with the Credit Agreement and its appendices; (b) there is no need to adopt decisions or provide any additional consents or approvals; (c) all measures and acts required were taken to
lawfully approve its entering into this Amendment Document; (d) all the Borrower’s undertakings under, within or in connection with this Amendment Document or the Credit Agreement or the other Credit Documents are lawful, in existence, valid,
binding and enforceable against it according to their terms.
|
2. |
Extension of Final Repayment Date
|
2.1 |
Commencing on the date of signature of this Amendment Document, section 2 of the Credit Agreement shall be amended so that the existing definition “Final Repayment Date” therein shall be deleted and
the following shall be inserted in its place:
|
““Final Repayment Date” |
means June 30, 2023”.
|
3. |
Increasing the Loans Limits and Decreasing the Bank Guarantees Limit
|
3.1 |
Without derogating from the provisions of sections 18.8 and 18.9 of the Credit Agreement, commencing on the date of signature of this Amendment Document:
|
(a) |
The loans limits amount set forth in Appendix 1 of the Credit Agreement shall be amended so that the total loans limits allocated by all the Lenders jointly shall increase and reach the sum of USD 62,200,000 (Sixty Two Million Two Hundred
Thousand), and the portion of each of the Lenders in the loans limits shall be as set forth in Appendix 1 of the Credit Agreement (as shall be amended in this Amendment Document).
|
(b) |
The bank guarantees limits amount set forth in Appendix 1 of the Credit Agreement shall be amended so that the total bank guarantees limits to be allocated by all the Lenders jointly shall be reduced to the sum of USD 57,800,000 (Fifty
Seven Million Eight Hundred Thousand), as follows, and the portion of each of the Lenders in the bank guarantees limits shall be as set forth in Appendix 1 of the Credit Agreement (as shall be amended in this Amendment Document).
|
(c) |
If, following the reduction in the bank guarantees limits as stated in subsection (b) above, the amount of the utilized bank guarantees limit allocated by a specific Lender (“Utilization Amount”) was
greater than the bank guarantees limit amount allocated by the Lender in question (the “Limit Amount”) – the difference between the Utilization Amount and the Limit Amount shall be deemed the amount
utilized from the loans limit allocated by the Lender in question and not as the amount utilized from the bank guarantees limit.
For example only: if, before the amendment under this Amendment Document,
the loans limit amount allocated by a Lender was NIS 50 million, from which NIS 40 million was utilized, whereas the bank guarantees limit that was allocated by the Lender in question was NIS 30 million, from which NIS 25 was utilized,
and following the amendment under this Amendment Document the loans limit amount increased to NIS 60 million and the bank guarantees limit amount was reduced to NIS 20 million, then the Utilization Amount of the guarantees limit shall be
NIS 20 million and the Utilization Amount of the loans limit shall be NIS 45 million.
|
3.2 |
Commencing on the date of signature of this Amendment Document, Appendix 1 of the Credit Agreement shall be replaced by the Appendix 1 attached to this Amendment Document, according to the
amendments set forth in section 3.1 above.
|
3.3 |
Commencing on the date of signature of this Amendment Document, section 16.28.5 of the Credit Agreement shall be amended so that Appendix 16.28.5 of the Credit Agreement shall be replaced by the Appendix
16.28.5 attached to this Amendment Document.
|
3.4 |
The Borrower undertakes that commencing on the date of signature of this Amendment Document, at least once every quarter, the amount utilized by the Borrower from the loans limit in relation to each Lender, shall not exceed the loans Limit
Amount allotted by the Lender in question, according to the portion of each Lender in the loans limit, as set forth in Appendix 1 of the Credit Agreement in the version in effect immediately prior to the entry into effect of this Amendment
document (this version of Appendix 1 is attached herewith as Appendix 3.4 of this Document).
|
4. |
Customer Portfolio Insurance
|
4.1 |
The Credit Agreement shall be amended so that after section 16.30 of the Credit Agreement, the following sections shall be inserted:
|
5. |
Payments
|
5.1 |
The Borrower undertakes to pay: (a) Bank Hapoalim, in its position as Credit Manager, and also (b) each Lender, via the Credit Manager, a special one-time agreed payment in connection with the amendment of the Credit Agreement, all as set
forth in the cover letter to be signed concurrently with the signature of this Amendment Document by the Borrower.
|
5.2 |
Any payment as set forth above shall be deemed final and absolute, and shall not be returned to the Borrower for any reason whatsoever.
|
6. |
Miscellaneous
|
6.1 |
Unless explicitly determined otherwise in this Amendment Document, the conditions and undertakings set forth in this Amendment Document do not derogate or prejudice or alter any other undertaking of the Borrower to the Lenders or the
validity of any security whatsoever provided in favor of the Security Trustee for the Lenders according to and under the Credit Agreement or the other Credit Documents or any other document or agreement delivered or to be delivered to the
Lenders or any office holder in connection with the credit, and they shall continue to remain in full and binding effect, including any provisions relating to the rights of the Lenders to make the credit immediately payable, all pursuant and
subject to the terms and conditions of the Credit Documents.
|
6.2 |
This Amendment Document, unless explicitly stated herein otherwise, is in addition to and shall not derogate from, alter or prejudice the provisions of the Credit Agreement and the Amendment Documents, and except as explicitly stated in
this Amendment Document, all rights of the Lenders and the Borrower under the Credit Agreement, the Amendment Documents and under the provisions of any law, are saved absolutely.
|
6.3 |
This Amendment Document may be signed by the Parties to it in one copy or several separate copies by any of the Parties, which shall jointly constitute one document.
|
__________________________
Ceragon Networks Ltd.
|
___________________________
Bank Hapoalim Ltd.
(as Lender, in its position as Credit Manager and in its position as Security Trustee)
|
___________________________________
First International Bank of Israel Ltd.
(as Lender)
|
|
________________________
HSBC Bank PLC
(as Lender)
|
|
___________________________
Bank Leumi Le-Israel B.M.
(as Lender)
|
__________________________
Date
|
________________________
Attorney signature and stamp
|
Version for signature
|
Appendix 1 of Credit Agreement (Amendment Document No. 15)
|
1. |
Each of the terms in this Appendix shall have the meaning ascribed to them in the Credit Agreement.
|
2. |
The list of lenders is as set forth in this Appendix.
|
Loans Limit Amount Allocated by Lender
|
Bank Guarantees Limit Amount Allocated by Lender
|
Permitted Risk Limit Amount
|
|||
1.
|
Bank Hapoalim Ltd.
|
Name: Ms. Yael Nasatzky
Address: Business Division in the Business
Department, Head Office, Bank Hapoalim Ltd., 23 Menachem Begin Road, Tel Aviv-Jaffa
Telephone: 03-5674300; fax: 03-6014926
email:
yael.nasatsky-shapiro@poalim.co.il
|
USD 31,100,000 (Thirty-One Million One Hundred Thousand)
|
USD 34,900,000 (Thirty-Four Million Nine Hundred Thousand)
|
USD 5,427,586 (Five Million Four Hundred Twenty-Seven Thousand Five Hundred Eighty-Six)
|
2.
|
Bank Leumi Le-Israel B.M.
|
Name: Mr. Danny Shapira
Address: Hi-Tech Division, Business Department, Bank
Leumi, 34 Yehuda Halevy Street, Tel Aviv-Jaffa 65136
Telephone: 076-885-9184; fax: 077-8959184
email: Danny.Shapira@BankLeumi.co.il
|
USD 12,300,000 (Twelve Million Three Hundred Thousand)
|
USD 11,900,000 (Eleven Million Nine Hundred Thousand)
|
USD 1,000,000 (One Million)
|
3.
|
First International Bank of Israel Ltd.
|
Name: Ms. Naama Magid
Telephone: 03-5196239; fax: 03-5196944
email: magid.n@fibi.co.il
Name: Hezi Cupryk
Telephone: 03-619599; fax: 03-5196944
email: Cupryk.H@fibi.co.il
Address: Energy, Chemical and Technology Sector, in
the Business Department, The First International Bank of Israel Ltd., 42 Rothschild Street, Tel Aviv-Jaffa
|
USD 10,000,000 (Ten Million)
|
USD 7,000,000 (Seven Million)
|
USD 3,982,759 (Three Million Nine Hundred Eighty-Two Thousand Seven Hundred Fifty-Nine)
|
4.
|
HSBC BANK PLC (Tel Aviv Branch)
|
Name: Ms. Rina Klier
Address: 2 Jabotinsky Street, Ramat Gan, Amot Atrium
Building, 30th floor, 5250501
Telephone: 03-7101244; fax: 03-7101144
email: rinaklier@hsbc.com
|
USD 8,800,000 (Eight Million Eight Hundred Thousand)
|
USD 4,000,000 (Four Million)
|
USD 400,000 (Four Hundred Thousand)
|
Total
|
USD 62,200,000 (Sixty-Two Million Two Hundred Thousand)
|
USD 57,800,000 (Fifty-Seven Million Eight Hundred Thousand)
|
USD 10,810,345 (Ten Million Eight Hundred Ten Thousand Three Hundred Forty-Five)
|
Version for signature
|
Appendix 16.28.5 of Credit Agreement (Amendment Document No. 15)
|
1. |
Each of the terms in this Appendix shall have the meaning ascribed to them in the Credit Agreement.
|
2. |
The utilization amounts set forth in this Appendix 16.28.5 below are correct as of the __ day of ________, _________ (in relation to calendar quarter no. ____ for the year __________).
|
Loans Limit Amount
|
Amount Utilized by the Borrower from the Loans Limit1
|
Bank Guarantees Limit
|
Amount Utilized by the Borrower from the Bank Guarantees Limit
|
|
Total
|
USD 62,200,000 (Sixty-Two Million Two Hundred Thousand)
|
USD ____________ (______________)
|
USD 57,800,000 (Fifty-Seven Million Eight Hundred Thousand)
|
USD ____________ (______________)
|
1. |
I have reviewed this annual report on Form 20-F of Ceragon Networks Ltd.;
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the company as of, and for, the periods presented in this report;
|
4. |
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
|
(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the
company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
|
(c) |
evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
|
(d) |
disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is
reasonably likely to materially affect, the company’s internal control over financial reporting; and
|
5. |
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee
of the company’s board of directors (or persons performing the equivalent functions):
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s
ability to record, process, summarize and report financial information; and
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
|
1. |
I have reviewed this annual report on Form 20-F of Ceragon Networks Ltd.;
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the company as of, and for, the periods presented in this report;
|
4. |
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
|
(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the
company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
|
(c) |
evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
|
(d) |
disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is
reasonably likely to materially affect, the company’s internal control over financial reporting; and
|
5. |
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee
of the company’s board of directors (or persons performing the equivalent functions):
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s
ability to record, process, summarize and report financial information; and
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
(1) |
Registration Statement (Form F-3 No. 333-237809) of Ceragon Networks Ltd. and
|
(2) |
Registration Statements (Form S-8 No. 333-117849, 333-136633, 333-158983, 333-164064, 333-173480, 333-187953, 333-204090, 333-231529, 333-237509, 333-259877 and 333-268602)
pertaining to securities to be offered to employees in employee benefit plans of Ceragon Networks Ltd. of our reports dated May 1, 2023, with respect to the consolidated financial statements of Ceragon Networks Ltd. and the effectiveness of
internal control over financial reporting of Ceragon Networks Ltd. included in this Annual Report (Form 20-F) of Ceragon Networks Ltd. for the year ended December 31, 2022.
|
/s/ KOST FORER GABBAY & KASIERER
|
||
Tel-Aviv
|
KOST FORER GABBAY & KASIERER
|
|
May 1, 2023
|
A Member of EY Global
|