CSTE Caesarstone Ltd

Presented net of investment grants received in the total amount of $7,693. Non cash pre-tax impairment charges (see also Note 2k). 0001504379FYfalseDeriving mainly from provision for labor related, provision for loss contingencies and lease accounting in accordance with ASC842. Deriving mainly from the provision for slow moving inventory and IRS section 263(a). Certain subsidiaries have tax loss carry-forwards totaling approximately $30,964 which can be carried forward and offset against taxable income, these carry-forward tax losses have no expiration date. In addition to the above, the Company carried back its 2020 U.S. subsidiaries losses in accordance with the CARES act. In 2022, includes $1,789 Acquired through business combination of Magrab. The Company performs its annual testing of goodwill in the fourth quarter of each year. Between annual testing dates, the Company monitors factors such as its market capitalization, comparable company market multiples and macroeconomic conditions to identify conditions that could impact the Company’s assumptions utilized in the etermination of the estimated fair values of the Company’s reporting unit. As a result of a decrease in the Company’s market capitalization, comparable company market multiples, projected future cash flows and an increase in the Company's weighted average cost of capital due to increases in the risk free rate and applicable risk premiums, the Company determined that a triggering event occurred during the fourth quarter and performed a quantitative goodwill impairment test. As a result, the Company recorded a pre-tax, non-cash goodwill impairment charge of $44,829. Customer relationships represent the underlying relationships and agreements with Magrab's customer base. In assessing the value of the Customer Relationships, the Company used an income approach method. The Customer Relationships’ economic useful life is estimated at approximately 8 years, amortized using the straight-line method. The goodwill is primarily attributable to expected synergies resulting from the acquisition. P3YP4YP4YIL(1) Total lease payments have not been reduced by sublease rental payments of approximately $496 due in the future under non-cancelable subleases. Credit line in Israel - assumed during 2022 from Bank Leumi. The credit line agreement contains customary covenants mainly related to Debt to EBITDA ratio and to Tangible assets ratio. As of December 31, 2022 the Company is in compliance with the covenants under the credit line agreement. Credit line and bank loan in Lioli - As of December 31, 2021 the Company was not in compliance with the covenants under the loan agreement in Lioli and therefore presented as a short term loan. During 2022, the Company engaged with another bank and signed a new loan agreement. The new loan agreement with the bank in Lioli contains customary covenants. The financial covenants under the agreement requires Lioli to maintain 700 million INR of own capital contribution. The Loan Agreement also contains certain customary negative covenants that require Lioli to refrain from certain actions unless bank’s consent obtained. As of December 31, 2022 the Company is in compliance with the covenants under the loan agreement, and therefore only the current maturitites of the loan presented as a short term loan (see also Note 15). 0001504379 2020-01-01 2020-12-31 0001504379 2021-01-01 2021-12-31 0001504379 2022-01-01 2022-12-31 0001504379 2019-12-31 0001504379 2020-12-31 0001504379 2021-12-31 0001504379 2022-12-31 0001504379us-gaap:OfficeEquipmentMember 2021-12-31 0001504379us-gaap:OfficeEquipmentMember 2022-12-31 0001504379us-gaap:VehiclesMember 2021-12-31 0001504379us-gaap:VehiclesMember 2022-12-31 0001504379us-gaap:BuildingAndBuildingImprovementsMember 2021-12-31 0001504379us-gaap:BuildingAndBuildingImprovementsMember 2022-12-31 0001504379us-gaap:MachineryAndEquipmentMember 2021-12-31 0001504379us-gaap:MachineryAndEquipmentMember 2022-12-31 0001504379us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2021-12-31 0001504379us-gaap:OtherCapitalizedPropertyPlantAndEquipmentMember 2022-12-31 0001504379cste:AssetImpairmentMember 2021-12-31 0001504379cste:AssetImpairmentMember 2022-12-31 0001504379cste:TeneMember 2016-09-05 0001504379cste:MifaleiSdotYamMember 2016-09-01 2016-09-05 0001504379cste:KibbutzSdotYamMembercste:ManpowerAgreementMember 2022-01-01 2022-12-31 0001504379cste:KibbutzSdotYamMembercste:KibbutzServicesMember 2022-01-01 2022-12-31 0001504379cste:KibbutzSdotYamMembercste:LandUseAgreementMember 2011-12-31 0001504379cste:KibbutzSdotYamMembercste:LandUseAgreementMember 2022-12-31 0001504379cste:KibbutzSdotYamMembercste:LandUseAgreementMember 2022-01-01 2022-12-31 0001504379cste:AdditionalLeasedAreaMembercste:KibbutzSdotYamMembercste:LandUseAgreementMember 2022-01-01 2022-12-31 0001504379cste:LandUseAgreementWithKibbutzMember 2020-01-01 2020-12-31 0001504379cste:LandUseAgreementWithKibbutzMember 2021-12-31 0001504379cste:KibbutzSdotYamMembercste:ConstructionOfAccessRoadMember 2022-01-01 2022-12-31 0001504379cste:KibbutzSdotYamMembercste:PavingCommitmentMember 2022-01-01 2022-12-31 0001504379cste:KibbutzSdotYamMembercste:LandUseAgreementMember 2013-08-01 2013-08-06 0001504379cste:WarehouseSiteMembercste:KibbutzSdotYamMembercste:LandUseAgreementMember 2022-01-01 2022-12-31 0001504379cste:KibbutzSdotYamMember 2012-01-01 2012-12-31 0001504379cste:KibbutzSdotYamMember 2022-01-01 2022-12-31 0001504379cste:TeneMember 2022-01-01 2022-12-31 0001504379cste:KibbutzSdotYamMembercste:ManpowerAgreementMember 2021-01-01 2021-12-31 0001504379cste:KibbutzSdotYamMembercste:ManpowerAgreementMember 2020-01-01 2020-12-31 0001504379cste:KibbutzSdotYamMembercste:KibbutzServicesMember 2021-01-01 2021-12-31 0001504379cste:KibbutzSdotYamMembercste:KibbutzServicesMember 2020-01-01 2020-12-31 0001504379cste:LandUseAgreementWithKibbutzMember 2022-01-01 2022-12-31 0001504379cste:KibbutzSdotYamMembercste:LandUseAgreementMember 2021-01-01 2021-12-31 0001504379cste:KibbutzSdotYamMembercste:LandUseAgreementMember 2020-01-01 2020-12-31 0001504379cste:KibbutzSdotYamMember 2022-12-31 0001504379cste:KibbutzSdotYamMember 2021-12-31 0001504379cste:LandPurchaseAgreementAndLeasebackMembercste:KibbutzSdotYamMember 2022-01-01 2022-12-31 0001504379cste:LandPurchaseAgreementAndLeasebackMembercste:KibbutzSdotYamMember 2021-01-01 2021-12-31 0001504379cste:LandPurchaseAgreementAndLeasebackMembercste:KibbutzSdotYamMember 2020-01-01 2020-12-31 0001504379cste:ShareholdersLoanMember 2022-12-31 0001504379us-gaap:CommonStockMember 2020-01-01 2020-12-31 0001504379us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-12-31 0001504379us-gaap:RetainedEarningsMember 2020-01-01 2020-12-31 0001504379us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-12-31 0001504379us-gaap:NoncontrollingInterestMember 2020-01-01 2020-12-31 0001504379us-gaap:TreasuryStockMember 2020-01-01 2020-12-31 0001504379us-gaap:CommonStockMember 2021-01-01 2021-12-31 0001504379us-gaap:AdditionalPaidInCapitalMember 2021-01-01 2021-12-31 0001504379us-gaap:RetainedEarningsMember 2021-01-01 2021-12-31 0001504379us-gaap:NoncontrollingInterestMember 2021-01-01 2021-12-31 0001504379us-gaap:TreasuryStockMember 2021-01-01 2021-12-31 0001504379us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-01-01 2021-12-31 0001504379us-gaap:CommonStockMember 2022-01-01 2022-12-31 0001504379us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-12-31 0001504379us-gaap:RetainedEarningsMember 2022-01-01 2022-12-31 0001504379us-gaap:NoncontrollingInterestMember 2022-01-01 2022-12-31 0001504379us-gaap:TreasuryStockMember 2022-01-01 2022-12-31 0001504379us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-01-01 2022-12-31 0001504379us-gaap:CommonStockMember 2020-12-31 0001504379us-gaap:AdditionalPaidInCapitalMember 2020-12-31 0001504379us-gaap:RetainedEarningsMember 2020-12-31 0001504379us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-12-31 0001504379us-gaap:NoncontrollingInterestMember 2020-12-31 0001504379us-gaap:TreasuryStockMember 2020-12-31 0001504379us-gaap:CommonStockMember 2021-12-31 0001504379us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0001504379us-gaap:RetainedEarningsMember 2021-12-31 0001504379us-gaap:NoncontrollingInterestMember 2021-12-31 0001504379us-gaap:TreasuryStockMember 2021-12-31 0001504379us-gaap:CommonStockMember 2022-12-31 0001504379us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0001504379us-gaap:RetainedEarningsMember 2022-12-31 0001504379us-gaap:NoncontrollingInterestMember 2022-12-31 0001504379us-gaap:TreasuryStockMember 2022-12-31 0001504379us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-12-31 0001504379us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-12-31 0001504379us-gaap:TreasuryStockMember 2019-12-31 0001504379us-gaap:NoncontrollingInterestMember 2019-12-31 0001504379us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0001504379us-gaap:RetainedEarningsMember 2019-12-31 0001504379us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001504379us-gaap:CommonStockMember 2019-12-31 0001504379country:US 2021-12-31 0001504379country:US 2022-12-31 0001504379country:CA 2021-12-31 0001504379country:CA 2022-12-31 0001504379country:AU 2021-12-31 0001504379country:AU 2022-12-31 0001504379srt:AsiaMember 2021-12-31 0001504379srt:AsiaMember 2022-12-31 0001504379us-gaap:EMEAMember 2021-12-31 0001504379us-gaap:EMEAMember 2022-12-31 0001504379country:IL 2021-12-31 0001504379country:IL 2022-12-31 0001504379country:US 2020-01-01 2020-12-31 0001504379country:US 2021-01-01 2021-12-31 0001504379country:US 2022-01-01 2022-12-31 0001504379country:CA 2020-01-01 2020-12-31 0001504379country:CA 2021-01-01 2021-12-31 0001504379country:CA 2022-01-01 2022-12-31 0001504379srt:LatinAmericaMember 2020-01-01 2020-12-31 0001504379srt:LatinAmericaMember 2021-01-01 2021-12-31 0001504379srt:LatinAmericaMember 2022-01-01 2022-12-31 0001504379country:AU 2020-01-01 2020-12-31 0001504379country:AU 2021-01-01 2021-12-31 0001504379country:AU 2022-01-01 2022-12-31 0001504379srt:AsiaMember 2020-01-01 2020-12-31 0001504379srt:AsiaMember 2021-01-01 2021-12-31 0001504379srt:AsiaMember 2022-01-01 2022-12-31 0001504379us-gaap:EMEAMember 2020-01-01 2020-12-31 0001504379us-gaap:EMEAMember 2021-01-01 2021-12-31 0001504379us-gaap:EMEAMember 2022-01-01 2022-12-31 0001504379country:IL 2020-01-01 2020-12-31 0001504379country:IL 2021-01-01 2021-12-31 0001504379country:IL 2022-01-01 2022-12-31 0001504379cste:GrantThorntonAuditPtyLtdMember 2022-01-01 2022-12-31 0001504379srt:MaximumMember 2022-01-01 2022-12-31 0001504379srt:MinimumMember 2022-01-01 2022-12-31 0001504379cste:DevelopmentAreaOneMember 2015-06-01 2015-06-30 0001504379us-gaap:MachineryAndEquipmentMember 2015-06-01 2015-06-30 0001504379us-gaap:BuildingMember 2015-06-01 2015-06-30 0001504379us-gaap:InternalRevenueServiceIRSMember 2022-01-01 2022-12-31 0001504379us-gaap:AustralianTaxationOfficeMember 2022-01-01 2022-12-31 0001504379us-gaap:InlandRevenueSingaporeIRASMember 2022-01-01 2022-12-31 0001504379us-gaap:CanadaRevenueAgencyMember 2022-01-01 2022-12-31 0001504379us-gaap:HerMajestysRevenueAndCustomsHMRCMember 2022-01-01 2022-12-31 0001504379us-gaap:MinistryOfFinanceIndiaMember 2022-01-01 2022-12-31 0001504379us-gaap:AustralianTaxationOfficeMemberus-gaap:EarliestTaxYearMember 2022-01-01 2022-12-31 0001504379us-gaap:CanadaRevenueAgencyMemberus-gaap:EarliestTaxYearMember 2022-01-01 2022-12-31 0001504379us-gaap:InternalRevenueServiceIRSMemberus-gaap:EarliestTaxYearMember 2022-01-01 2022-12-31 0001504379us-gaap:InlandRevenueSingaporeIRASMemberus-gaap:EarliestTaxYearMember 2022-01-01 2022-12-31 0001504379us-gaap:HerMajestysRevenueAndCustomsHMRCMemberus-gaap:EarliestTaxYearMember 2022-01-01 2022-12-31 0001504379us-gaap:MinistryOfFinanceIndiaMemberus-gaap:EarliestTaxYearMember 2022-01-01 2022-12-31 0001504379cste:ForeignResidentsFromPreferredEnterpriseEarningsMember 2014-01-01 2014-12-31 0001504379cste:AttributableToApprovedEnterpriseProgramsMember 2022-12-31 0001504379us-gaap:IsraelTaxAuthorityMemberus-gaap:EarliestTaxYearMember 2022-01-01 2022-12-31 0001504379cste:TaxAuthoritySwedenMemberus-gaap:EarliestTaxYearMember 2022-01-01 2022-12-31 0001504379cste:TaxAuthoritySwedenMember 2022-01-01 2022-12-31 0001504379us-gaap:HerMajestysRevenueAndCustomsHMRCMembercste:TaxYear2023Member 2022-01-01 2022-12-31 0001504379us-gaap:CustomerRelationshipsMember 2021-12-31 0001504379us-gaap:CustomerRelationshipsMember 2022-12-31 0001504379cste:MagrabNaturtsenAbMemberus-gaap:CustomerRelationshipsMember 2022-12-31 0001504379cste:LioliCeramicaPvtLtdMember 2020-10-05 0001504379cste:LioliCeramicaPvtLtdMember 2020-10-01 2020-10-05 0001504379cste:OmicronAcquisitionMember 2020-12-31 0001504379cste:OmicronAcquisitionMember 2020-01-01 2020-12-31 0001504379us-gaap:CostOfGoodsTotalMemberus-gaap:SupplierConcentrationRiskMember 2022-01-01 2022-12-31 0001504379us-gaap:CostOfGoodsTotalMemberus-gaap:SupplierConcentrationRiskMembercste:PolatMadenSanayiveTicaretMember 2022-01-01 2022-12-31 0001504379us-gaap:CostOfGoodsTotalMemberus-gaap:SupplierConcentrationRiskMembercste:MikromanMadencilikSanveMember 2022-01-01 2022-12-31 0001504379cste:LioliCeramicaPvtLtdMember 2021-01-01 2021-12-31 0001504379cste:LioliCeramicaPvtLtdMember 2022-12-31 0001504379cste:LioliCeramicaPvtLtdMember 2021-12-31 0001504379cste:LioliCeramicaPvtLtdMember 2022-03-01 2022-03-31 0001504379cste:LioliMembercste:LioliCeramicaPvtLtdMember 2022-03-31 0001504379cste:MagrabNaturtsenAbMember 2022-01-01 2022-12-31 0001504379cste:MagrabNaturtsenAbMember 2022-12-31 0001504379cste:MagrabNaturtsenAbMember 2022-07-06 0001504379cste:MagrabNaturtsenAbMember 2022-07-01 2022-07-06 0001504379us-gaap:OtherCurrentAssetsMemberus-gaap:ForeignExchangeContractMemberus-gaap:NondesignatedMember 2021-12-31 0001504379us-gaap:OtherCurrentAssetsMemberus-gaap:ForeignExchangeContractMemberus-gaap:NondesignatedMember 2022-12-31 0001504379cste:AccruedExpensesAndOtherLiabilitiesMemberus-gaap:ForeignExchangeContractMemberus-gaap:NondesignatedMember 2022-12-31 0001504379cste:AccruedExpensesAndOtherLiabilitiesMemberus-gaap:ForeignExchangeContractMemberus-gaap:NondesignatedMember 2021-12-31 0001504379cste:AccruedExpensesAndOtherLiabilitiesMembercste:StyreneForwardContractMemberus-gaap:NondesignatedMember 2022-12-31 0001504379us-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMember 2021-01-01 2021-12-31 0001504379us-gaap:ForeignExchangeContractMemberus-gaap:NondesignatedMember 2022-01-01 2022-12-31 0001504379us-gaap:ForeignExchangeContractMemberus-gaap:NondesignatedMember 2021-01-01 2021-12-31 0001504379cste:StyreneForwardContractMemberus-gaap:NondesignatedMember 2022-01-01 2022-12-31 0001504379cste:StyreneForwardContractMemberus-gaap:NondesignatedMember 2021-01-01 2021-12-31 0001504379us-gaap:ForeignExchangeContractMemberus-gaap:NondesignatedMemberus-gaap:OtherExpenseMember 2022-01-01 2022-12-31 0001504379cste:StyreneForwardContractMemberus-gaap:NondesignatedMemberus-gaap:OtherExpenseMember 2022-01-01 2022-12-31 0001504379us-gaap:InventoryValuationReserveMember 2021-12-31 0001504379us-gaap:InventoryValuationReserveMember 2020-12-31 0001504379us-gaap:InventoryValuationReserveMember 2022-01-01 2022-12-31 0001504379us-gaap:InventoryValuationReserveMember 2021-01-01 2021-12-31 0001504379us-gaap:InventoryValuationReserveMember 2022-12-31 0001504379srt:MinimumMemberus-gaap:MachineryAndEquipmentMember 2022-01-01 2022-12-31 0001504379srt:MaximumMemberus-gaap:MachineryAndEquipmentMember 2022-01-01 2022-12-31 0001504379us-gaap:MachineryAndEquipmentMember 2022-01-01 2022-12-31 0001504379srt:MinimumMemberus-gaap:OfficeEquipmentMember 2022-01-01 2022-12-31 0001504379srt:MinimumMemberus-gaap:VehiclesMember 2022-01-01 2022-12-31 0001504379srt:MinimumMemberus-gaap:BuildingMember 2022-01-01 2022-12-31 0001504379srt:MaximumMemberus-gaap:OfficeEquipmentMember 2022-01-01 2022-12-31 0001504379srt:MaximumMemberus-gaap:VehiclesMember 2022-01-01 2022-12-31 0001504379srt:MaximumMemberus-gaap:BuildingMember 2022-01-01 2022-12-31 0001504379us-gaap:OfficeEquipmentMember 2022-01-01 2022-12-31 0001504379us-gaap:VehiclesMember 2022-01-01 2022-12-31 0001504379us-gaap:EmployeeStockOptionMember 2022-01-01 2022-12-31 0001504379us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember 2022-12-31 0001504379us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember 2021-12-31 0001504379us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember 2022-12-31 0001504379us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember 2021-12-31 0001504379us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember 2022-12-31 0001504379us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember 2021-12-31 0001504379us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember 2022-12-31 0001504379us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember 2021-12-31 0001504379us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2020-12-31 0001504379cste:AccumulatedLossesOnMaketableSecutrititesMember 2020-12-31 0001504379us-gaap:AccumulatedTranslationAdjustmentMember 2020-12-31 0001504379us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2021-01-01 2021-12-31 0001504379cste:AccumulatedLossesOnMaketableSecutrititesMember 2021-01-01 2021-12-31 0001504379us-gaap:AccumulatedTranslationAdjustmentMember 2021-01-01 2021-12-31 0001504379us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2021-12-31 0001504379us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2022-01-01 2022-12-31 0001504379cste:AccumulatedLossesOnMaketableSecutrititesMember 2022-01-01 2022-12-31 0001504379us-gaap:AccumulatedTranslationAdjustmentMember 2022-01-01 2022-12-31 0001504379us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2021-01-01 2021-12-31 0001504379srt:MinimumMemberus-gaap:EmployeeStockOptionMember 2022-01-01 2022-12-31 0001504379srt:MaximumMemberus-gaap:EmployeeStockOptionMember 2022-01-01 2022-12-31 0001504379srt:MinimumMemberus-gaap:EmployeeStockOptionMember 2021-01-01 2021-12-31 0001504379srt:MaximumMemberus-gaap:EmployeeStockOptionMember 2021-01-01 2021-12-31 0001504379 2017-12-31 0001504379us-gaap:ForeignExchangeForwardMemberus-gaap:NondesignatedMember 2022-12-31 0001504379us-gaap:ForeignExchangeForwardMemberus-gaap:NondesignatedMember 2021-12-31 0001504379us-gaap:RestrictedStockUnitsRSUMember 2022-01-01 2022-12-31 0001504379us-gaap:OtherCurrentAssetsMembercste:StyreneForwardContractMemberus-gaap:NondesignatedMember 2022-12-31 0001504379us-gaap:OtherCurrentAssetsMembercste:StyreneForwardContractMemberus-gaap:NondesignatedMember 2021-12-31 0001504379cste:AccruedExpensesAndOtherLiabilitiesMembercste:StyreneForwardContractMemberus-gaap:NondesignatedMember 2021-12-31 0001504379us-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:OperatingIncomeLossMember 2022-01-01 2022-12-31 0001504379us-gaap:ForeignExchangeContractMemberus-gaap:NondesignatedMemberus-gaap:OtherExpenseMember 2021-01-01 2021-12-31 0001504379cste:StyreneForwardContractMemberus-gaap:NondesignatedMemberus-gaap:OtherExpenseMember 2021-01-01 2021-12-31 0001504379cste:AccumulatedLossesOnDerivativeInstrumentsMember 2021-12-31 0001504379us-gaap:AccumulatedTranslationAdjustmentMember 2022-12-31 0001504379cste:AccumulatedLossesOnMaketableSecutrititesMember 2022-12-31 0001504379us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2022-01-01 2022-12-31 0001504379us-gaap:OtherCurrentAssetsMemberus-gaap:ForeignExchangeContractMemberus-gaap:DesignatedAsHedgingInstrumentMember 2021-12-31 0001504379us-gaap:OtherCurrentAssetsMemberus-gaap:ForeignExchangeContractMemberus-gaap:DesignatedAsHedgingInstrumentMember 2022-12-31 0001504379us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember 2021-12-31 0001504379us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember 2022-12-31 0001504379cste:AccruedExpensesAndOtherLiabilitiesMembercste:ForeignExchangeContractOneMemberus-gaap:NondesignatedMember 2022-12-31 0001504379cste:AccruedExpensesAndOtherLiabilitiesMembercste:ForeignExchangeContractOneMemberus-gaap:NondesignatedMember 2021-12-31 0001504379us-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMember 2022-01-01 2022-12-31 0001504379cste:AccumulatedGainOnMaketableSecutrititesMember 2022-12-31 0001504379cste:AccumulatedGainOnMaketableSecutrititesMember 2021-12-31 0001504379cste:AccumulatedLossesOnDerivativeInstrumentsMember 2022-12-31 0001504379us-gaap:AccumulatedTranslationAdjustmentMember 2021-12-31 0001504379cste:AccumulatedLossesOnMaketableSecutrititesMember 2021-12-31 0001504379us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2022-12-31 0001504379us-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:OperatingIncomeLossMember 2021-01-01 2021-12-31 0001504379dei:BusinessContactMember 2022-01-01 2022-12-31 0001504379 2020-02-01 2020-02-29 0001504379cste:IncentiveCompensationPlanMember 2022-12-31 0001504379cste:IncentiveCompensationPlanMember 2020-09-01 2020-09-17 0001504379cste:IncentiveCompensationPlanMember 2020-09-17 0001504379us-gaap:CostOfSalesMember 2021-01-01 2021-12-31 0001504379us-gaap:CostOfSalesMember 2022-01-01 2022-12-31 0001504379us-gaap:ResearchAndDevelopmentExpenseMember 2021-01-01 2021-12-31 0001504379us-gaap:ResearchAndDevelopmentExpenseMember 2022-01-01 2022-12-31 0001504379us-gaap:SellingAndMarketingExpenseMember 2021-01-01 2021-12-31 0001504379us-gaap:SellingAndMarketingExpenseMember 2022-01-01 2022-12-31 0001504379us-gaap:GeneralAndAdministrativeExpenseMember 2021-01-01 2021-12-31 0001504379us-gaap:GeneralAndAdministrativeExpenseMember 2022-01-01 2022-12-31 0001504379us-gaap:RestrictedStockUnitsRSUMembercste:RangeOneMember 2022-12-31 0001504379us-gaap:RestrictedStockUnitsRSUMembercste:RangeOneMember 2022-01-01 2022-12-31 0001504379cste:RangeTwoMember 2022-12-31 0001504379cste:RangeTwoMember 2022-01-01 2022-12-31 0001504379cste:RangeThreeMember 2022-12-31 0001504379cste:RangeThreeMember 2022-01-01 2022-12-31 0001504379cste:RangeFourMember 2022-12-31 0001504379cste:RangeFourMember 2022-01-01 2022-12-31 0001504379cste:RangeFiveMember 2022-12-31 0001504379cste:RangeFiveMember 2022-01-01 2022-12-31 0001504379us-gaap:RestrictedStockUnitsRSUMember 2021-12-31 0001504379us-gaap:RestrictedStockUnitsRSUMember 2022-12-31 0001504379us-gaap:EmployeeStockOptionMember 2021-12-31 0001504379us-gaap:EmployeeStockOptionMember 2022-12-31 0001504379us-gaap:EmployeeStockOptionMember 2021-01-01 2021-12-31 0001504379us-gaap:EmployeeStockOptionMember 2020-01-01 2020-12-31 0001504379cste:HealthClaimsMember 2022-01-01 2022-12-31 0001504379cste:IndividualClaimsMember 2022-01-01 2022-12-31 0001504379cste:MotionRecognizedAsClassActionMember 2022-01-01 2022-12-31 0001504379cste:NewSilicosisClaimMember 2014-04-27 0001504379 2018-01-01 2018-01-04 0001504379cste:NewSilicosisClaimMember 2022-12-31 0001504379cste:NewSilicosisClaimMember 2021-12-31 0001504379cste:NewSilicosisClaimMember 2022-01-01 2022-12-31 0001504379cste:NewSilicosisClaimMember 2021-01-01 2021-12-31 0001504379 2021-01-01 2021-01-15 0001504379us-gaap:CorporateBondSecuritiesMember 2022-12-31 0001504379us-gaap:CorporateBondSecuritiesMember 2021-12-31 0001504379us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2021-12-31 0001504379currency:INR 2022-12-31 0001504379currency:INR 2021-12-31 iso4217:CAD cste:Claim cste:Country iso4217:EUR iso4217:ILS iso4217:ILSxbrli:shares xbrli:pure iso4217:INR iso4217:SEK xbrli:shares utr:sqm iso4217:USD iso4217:USDxbrli:shares

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Caesarstone Ltd.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Caesarstone Ltd. (and subsidiaries) (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, based on our audits and the report of other auditors, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We did not audit the financial statements of Caesarstone Australia Pty Ltd., a wholly-owned subsidiary, which reflect total assets of constituting 11% at December 31, 2022 and 2021, and total revenues constituting 17% in 2022, 18% in 2021 and 21% in 2020 of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Caesarstone Australia Pty Ltd., is based solely on the report of the other auditors.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 15, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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

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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
 

F - 2

---

 

	Provision for bodily injury claims related to exposure to silica dust
Description of the matter	As described in note 11 to the consolidated financial statements, the Company is subject to numerous claims mainly by fabricators, their employees or the National Insurance Institute ("NII"), alleging that fabricators contracted illnesses, including silicosis, through exposure to silica particles during cutting, polishing, sawing, grinding, breaking, crushing, drilling, sanding or sculpting Company's products. The Company recognized a provision in relation to Silicosis claims when an unfavorable outcome was probable and the amount of the loss could be reasonably estimated. In order to determine the liability amount, the Company consults with legal counsels.   Auditing the Company’s accounting for the Silicosis provision was complex due to the significant estimation required in determining the Company’s liability amount of $36 million. The estimate of the provision involved significant estimation uncertainty primarily due to the different stages of legal claims and the probability of loss, which in turn led to a high degree of auditor judgment and effort in performing procedures and evaluating management's conclusions related to these legal claims.
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 accounting of Silicosis claims provision, including management's assessment of the assumptions and data underlying the provision valuation.   To evaluate the Company's assessment of the probability of incurrence of a loss and whether the loss was reasonably estimated, among other procedures, we read the minutes of the meeting of the committees of the board of directors and gained an understanding of the claims by inquiring of the external and internal legal counsels regarding the allegations. We also obtained external and internal legal counsels confirmation letters as well as a management representation letter.   Our substantive procedures also included testing the accuracy, completeness and reasonableness of the underlying data used in management's provision assessment and attending meetings between management and legal counsels to determine a range of reasonably possible loss. We tested management’s assumptions by comparing prior period's estimates versus actual prior period's results and evaluating events occurring up to date of the auditor's report. We also inquired the legal counsels regarding the likelihood of the outcome of the claims and evaluated the Company’s legal contingency disclosures included in Note 11 to the consolidated financial statements.

 

F - 3

---

 

	Impairment of Goodwill and Long-lived assets
Description of the matter	As reflected in the Company’s consolidated financial statements, in Note 2l and 2k, as of December 31, 2022, the Company’s recorded a goodwill impairment charge of $44.8 million and an impairment charge of $26.4 Million for Long lived assets related to Sdot Yam production facility.   As disclosed in Note 7 and 2 to the consolidated financial statements, goodwill is tested for impairment at least annually or more frequently if indicators of impairment arise. If the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying amount, a quantitative fair value test is performed. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value is recognized.   Long-lived assets (assets group) to be held and used, are reviewed for impairment whenever events or circumstances indicate the carrying amount of the long-lived assets may not be recoverable. Recoverability of the Long-lived assets (assets group) is measured by a comparison of the undiscounted future cash flows the Long-lived assets (assets group) is expected to generate to the carrying amounts of the assets group. If such evaluation indicates that the carrying amount of the long lived assets (assets group) is not recoverable, an impairment loss is calculated based on the excess of the carrying amount of the long- lived assets (assets group) over its fair value.   The Management identified indicators for impairment in the fourth quarter of 2022. Consequently, Management performed an impairment assessment of goodwill and impairment test of the long-lived assets of Sdot Yam production facility. Auditing the Company's impairment test for goodwill and long-lived assets (asset groups) of Sdot Yam production facility was complex and highly judgmental due to the significant estimation and assumptions in determining the fair value of the reporting unit and the fair value of the long-lived assets (assets group). In particular, the fair value estimates of the reporting unit were sensitive to changes in significant assumptions such as discount rate, revenue growth rate, operating margins, working capital, weighted average cost of capital, estimated spend on capital expenditures. These assumptions are sensitive to and affected by the expected future market or economic conditions, and industry and company-specific qualitative factors.   Furthermore, management's significant assumptions used in determining the fair value of long-lived assets (assets group) of Sdot Yam production facility included estimation of the fair value for a unit of equipment (machine, storage facility, etc.) according to the age of the equipment, its condition and the estimated value according to accepted equipment prices in the relevant market (local or international market). These assumptions are sensitive and affected by the specific market and industry qualitive factors.
How we addressed the matter in our audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill and long-lived assets (assets group) impairment assessment process. Among other, we tested controls over management's review of the significant assumptions in estimating the fair value of the reporting unit and the fair value of the long-lived assets (assets group) of Sdot yam production facility the of the Company. To test the estimated fair value of the company, our audit procedures included, among others, assessing methodologies and testing the significant assumptions and underlying data used by the Company. We evaluated the Company’s valuation process by comparing the significant assumptions to current industry and economic trends, we analyzed management’s forecasted revenue including the revenue growth rate, profitability margins, working capital, discount rate and estimated spend on capital expenditures to identify, understand and evaluate the changes as compared to the historical results and to selected guideline companies in the industry. In addition, we performed a sensitivity analysis of significant assumptions to evaluate the changes in the fair value of the Company resulting from changes in the assumptions. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates. In addition, our valuation specialists performed independent comparative calculations to estimate the acquired entity’s weighted average cost of capital.   To test the estimated fair value of the long-lived assets (assets group) of Sdot yam production facility, our audit procedures included, among others, understanding the company's valuation process, using a professional with specialized skills and knowledge to review the valuation, understand the work assumptions and the selected data used as part of the assessment. In addition, we performed a sensitivity analysis using performed independent comparative calculation to estimate the fair value of the long-lived assets (assets group) of the Sdot yam production facility.   We also evaluated the related disclosures for goodwill and long lived assets included in Notes 2l, 2k, 6 and 7 to the consolidated financial statements.

 

/s/KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
We have served as the Company's auditor since 2004
Tel-Aviv, Israel
March 15, 2023

 

F - 4

---

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and the Board of Directors of Caesarstone Ltd.

 

Opinion on Internal Control over Financial Reporting

We have audited Caesarstone Ltd. and subsidiaries’ internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework (the COSO criteria). In our opinion, Caesarstone Ltd. and subsidiaries (the Company) based on our audit and the report of other auditors maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

 

We did not examine the effectiveness of internal control over financial reporting of Caesarstone Australia Pty Ltd. a wholly owned subsidiary, whose financial statements reflect total assets and revenues constituting 11% and 17%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022. The effectiveness of Caesarstone Australia Pty Ltd.’s internal control over financial reporting was audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the effectiveness of Caesarstone Australia Pty Ltd.’s internal control over financial reporting, is based solely on the report of the other auditors.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated March 15, 2023 expressed an unqualified opinion thereon, based on our audit and the report of the other auditors.

 

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

 

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

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

 

/s/KOST FORER GABBAY & KASIERER A Member of Ernst & Young Global

Tel-Aviv, Israel

March 15, 2023

 

F - 5

---

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share data)

 

						December 31,
		Note				2022				2021
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term bank credit and current maturities of long- term bank loan			8			$	26,135			$	12,523
Trade payables							62,194				81,369
Related party and other loan			14				283				2,276
Short term legal settlements and loss contingencies			11				17,595				22,592
Accrued expenses and other liabilities			9				58,777				64,534
Total current liabilities							164,984				183,294
LONG-TERM LIABILITIES:
Long-term other loans and financing liability of land from related parties			14				483				6,240
Long-term bank loan			15				4,340				-
Accrued severance pay							4,750				5,500
Deferred tax liabilities, net			12				4,288				4,992
Long-term warranty provision							1,262				1,280
Long term legal settlements and loss contingencies			11				19,572				20,859
Long-term operating lease liabilities			10				124,353				143,324
Total long-term liabilities							159,048				182,195
COMMITMENTS AND CONTINGENT LIABILITIES			11
REDEEMABLE NON-CONTROLLING INTEREST			1,2				7,903				7,869
EQUITY:			13
Share capital-
Ordinary shares of NIS 0.04 par value - 200,000,000 shares authorized at December 31, 2022 and 2021; 34,610,399 and 35,756,166 issued at December 31, 2022 and 2021, respectively; 34,507,303 and 34,473,070 shares outstanding at December 31, 2022 and 2021, respectively							371				371
Additional paid-in capital							163,431				161,929
Capital fund related to non-controlling interest							(5,587	)			(5,587	)
Accumulated other comprehensive loss, net							(9,578	)			(704	)
Retained earnings							311,839				377,716
Treasury shares at cost – 1,103,096 ordinary shares at December 31, 2022 and 2021							(39,430	)			(39,430	)
Total equity							421,046				494,295
Total liabilities and equity							752,981				867,653

 

The accompanying notes are an integral part of the consolidated financial statements

 

F - 7

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

---

U.S. dollars in thousands (except per share data)

 

		Year ended December 31,
		2022				2021				2020
Revenues		$	690,806			$	643,892			$	486,412
Cost of revenues			527,561				472,394				352,470
Gross profit			163,245				171,498				133,942
Operating expenses:
Research and development			4,098				4,216				3,974
Selling and marketing			94,412				85,725				62,047
General and administrative			51,596				50,845				39,081
Goodwill and long lived assets impairment charges			71,258				-				-
Legal settlements and loss contingencies, net			568				3,283				6,319
Total operating expenses			221,932				144,069				111,421
Operating income (loss)			(58,687	)			27,429				22,521
Finance expenses (income), net			(3,079	)			7,590				10,199
Income (loss) before taxes on income			(55,608	)			19,839				12,322
Taxes on income			758				1,950				4,700
Net income (loss)		$	(56,366	)		$	17,889			$	7,622
Net income (loss) attributable to non-controlling interest			688				(1,077	)			404
Net income (loss) attributable to controlling interest		$	(57,054	)		$	18,966			$	7,218
Basic and diluted net income (loss) per share of Ordinary shares		$	(1.66	)		$	0.51			$	0.21
Weighted average number of Ordinary shares used in computing basic income (loss) per share (in thousands)			34,488				34,462				34,419
Weighted average number of Ordinary shares used in computing diluted income (loss) per share (in thousands)			34,488				34,570				34,474

 

The accompanying notes are an integral part of the consolidated financial statements

F - 8

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

---

U.S. dollars in thousands

 

		Year ended December 31,
		2022				2021				2020
Net income (loss)		$	(56,366	)		$	17,889			$	7,622
Other comprehensive income (loss) before tax:
Foreign currency translation adjustments			(8,932	)			(2,186	)			4,386
Unrealized income (loss) on foreign currency cash flow hedge			(699	)			329				-
Unrealized income (loss) on available for sale marketable securities			(84	)			(59	)			21
Income tax expense related to components of other comprehensive loss			(11	)			(26	)			(8	)
Total other comprehensive income (loss), net of tax			(9,726	)			(1,942	)			4,399
Comprehensive income (loss)			(66,092	)			15,947				12,021
Less - comprehensive income (loss) attributable to non-controlling interest			164				1,232				(432	)
Comprehensive income (loss) attributable to controlling interest		$	(65,928	)		$	17,179			$	11,589

 

The accompanying notes are an integral part of the consolidated financial statements

 

F - 9

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

---

U.S. dollars in thousands (except share data)

 

		Common stock								Additional paid-in				Retained				Accumulated other comprehensive income (loss),				Capital fund related to non- controlling				Treasury				Total
		Shares				Amount				capital				earnings				net (1)				interest				shares				equity
Balance as of January 1, 2020			34,397,776				371				157,225				368,433				(3,288	)			(5,587	)			(39,430	)			477,724
																							-
Other comprehensive loss			-				-				-				-				4,371				-				-				4,371
Net income			-				-				-				7,218				-				-				-				7,218
Equity-based compensation expense related to employees (2)			-				-				2,858				-				-				-				-				2,858
Dividend paid			-				-				-				(4,821	)			-				-				-				(4,821	)
Cashless exercise of options and RSUs			39,520				(*	)			(*	)			-				-				-				-				-
Balance as of December 31, 2020			34,437,296				371				160,083				370,830				1,083				(5,587	)			(39,430	)			487,350
																							-
Other comprehensive loss			-				-				-				-				(1,787	)			-				-				(1,787	)
Net income attributable to controlling interest			-				-				-				18,966				-				-				-				18,966
Equity-based compensation expense related to employees (2)			-				-				1,846				-				-				-				-				1,846
Adjustment to redemption value of the non-controlling interest			-				-				-				(1,399	)			-				-				-				(1,399	)
Dividend paid			-				-				-				(10,681	)			-				-				-				(10,681	)
Cashless exercise of options and RSUs			35,774				(*	)			(*	)			-				-				-				-				-
Balance as of December 31, 2021			34,473,070				371				161,929				377,716				(704	)			(5,587	)			(39,430	)			494,295
																							-
Other comprehensive loss			-				-				-				-				(8,874	)			-				-				(8,874	)
Net income (loss) attributable to controlling interest			-				-				-				(57,054	)			-				-				-				(57,054	)
Equity-based compensation expense related to employees (2)			-				-				1,502				-				-				-				-				1,502
Adjustment to redemption value of the non-controlling interest			-				-				-				(198	)			-				-				-				(198	)
Dividend paid			-				-				-				(8,625	)			-				-				-				(8,625	)
Cashless exercise of options and RSUs			34,233				(*	)			(*	)			-				-				-				-				-
Balance as of December 31, 2022			34,507,303				371				163,431				311,839				(9,578	)			(5,587	)			(39,430	)			421,046

 

(1)	Accumulated other comprehensive income (loss), net, comprised of foreign currency translation, hedging transactions and marketable securities.
(2)	See also Note 13.
(*)	Less than $1.

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

 

F - 10

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

---

U.S. dollars in thousands

 

		Year ended December 31,
		2022				2021				2020
Cash flows from operating activities:
Net income (loss)		$	(56,366	)		$	17,889			$	7,622
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			36,344				35,407				29,460
Share-based compensation expense			1,502				1,846				2,858
Accrued severance pay, net			(58	)			121				(14	)
Changes in deferred tax, net			(5,693	)			(4,473	)			(895	)
Capital loss (gain) from sale of property, plant and equipment			67				(3	)			340
Decrease (increase) in trade receivables			2,612				815				6,070
Decrease (increase) in other accounts receivable and prepaid expenses			3,645				(9,036	)			9,318
Decrease (increase) in inventories			(40,884	)			(54,189	)			313
Increase (decrease) in trade payables			(21,032	)			28,277				(17,938	)
Increase (decrease) in warranty provision			(119	)			112				(371	)
Legal settlements and loss contingencies, net			568				3,283				6,319
Decrease (increase) in right of use assets			28,056				25,906				(12,154	)
Changes in lease liabilities			(36,478	)			(22,085	)			16,126
Contingent consideration related to acquisition			120				(288	)			-
Amortization of premium and accretion of discount on marketable securities, net			238				412				161
Changes in accrued interest related to marketable securities			74				42				(1	)
Goodwill and long-lived assets impairment chargesd			71,258				-				-
Increase (decrease) in accrued expenses and other liabilities including related party			(7,165	)			(3,352	)			404
Net cash (used in) provided by operating activities			(23,311	)			20,684				47,618
Cash flows from investing activities:
Net cash paid for acquisitions			(2,245	)			-				(28,962	)
Purchase of property, plant and equipment			(17,801	)			(31,477	)			(19,824	)
Proceeds from sale of property, plant and equipment			12				9				13
Repayment of assumed shareholders loan related to acquisition			-				(1,966	)			-
Investment in marketable securities			-				(11,738	)			(24,456	)
Sales and maturity of marketable securities			12,401				10,395				5,271
Proceeds from (investment in) long-term deposits			348				(108	)			(347	)
Net cash used in investing activities			(7,285	)			(34,885	)			(68,305	)

 

The accompanying notes are an integral part of the consolidated financial statements

 

F - 11

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

---

U.S. dollars in thousands

 

		Year ended December 31,
		2022				2021				2020
Cash flows from financing activities:
Dividend paid		$	(8,625	)		$	(10,681	)		$	(4,821	)
Assuming (repayment) of short-term bank credit and loans, net			18,640				(11,761	)			(18	)
Contingent consideration related to acquisition			-				(1,492	)			-
Repayment of a financing liability of land			(859	)			(1,320	)			(1,245	)
Net cash used in financing activities			9,156				(25,254	)			(6,084	)
Effect of exchange rate differences on cash and cash equivalents			(794	)			(478	)			1,647
Increase (decrease) in cash and cash equivalents			(22,234	)			(39,933	)			(25,124	)
Cash and cash equivalents at beginning of year			74,315				114,248				139,372
Cash and cash equivalents at end of year		$	52,081			$	74,315			$	114,248
Cash received (paid) during the year for:
Interest paid		$	(1,159	)		$	(1,915	)		$	-
Interest received		$	439			$	465			$	460
Tax paid		$	(4,968	)		$	(7,377	)		$	(3,676	)
Non cash activity during the year for:
Changes in trade payables balances related to purchase of property, plant and equipment		$	(925	)		$	(56	)		$	(356	)
Operating lease liabilities and right-of-use assets		$	18,569			$	57,343			$	60,750

 

The accompanying notes are an integral part of the consolidated financial statements

 

F - 12

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)
 

NOTE 1:-

GENERAL

 

a.

General:

 

Caesarstone Ltd., incorporated under the laws of the State of Israel, was founded in 1987.

 

Caesarstone Ltd. and its subsidiaries (collectively, the "Company" or "Caesarstone") develop, manufacture and market, high quality engineered quartz and other materials sold under the Company's premium Caesarstone brand. The Company's products are sold in over 50 countries through a combination of direct sales in certain markets and indirectly through a network of independent distributors in other markets. The Company's products are primarily used as kitchen countertops in the renovation and remodeling markets and in the new buildings’ construction market. Other applications include vanity tops, wall panels, back splashes, floor tiles, stairs and other interior surfaces that are used in a variety of residential and non-residential applications.

 

The Company has subsidiaries in Australia, Singapore, Canada, United Kingdom, Sweden, India and the United States which are engaged in the manufacturing, marketing and selling of the Company's products in different geographic areas.

 

The Company manufactures its quartz products in three manufacturing facilities located in Kibbutz Sdot-Yam in central Israel, Bar-Lev Industrial Park in northern Israel and Richmond-Hill, Georgia in the U.S. which operates under the Company’s subsidiary in the United States, Caesarstone Technologies USA, Inc. Following the acquisition of Lioli (see also b below) the Company also manufactures porcelain in its plant in India.

 

b.

Acquisition of Lioli Ceramica Pvt Ltd:

 

On October 5, 2020, the Company completed the acquisition of 55% of the shares of Lioli Ceramica Pvt Ltd ("Lioli"), a producer of porcelain countertop slabs in the total net consideration of $13,574.

 

The consideration included a contingent consideration arrangement that requires the Company to pay up to approximately $10,000 of additional consideration to Lioli’s minority shareholders subject to reaching certain EBITDA achievement. The fair value of the contingent consideration arrangement at the acquisition date was $1,492. During 2021 the criteria was partially met, and an additional related consideration amount of approximately $1,780 paid during 2021.

 

As of October 5, 2020, the fair value of the 45% non-controlling interests in Lioli amounted to $7,269. The fair value of the non-controlling interests was valued based on the transaction price and a Put Option criterion that the minority awarded in accordance with the share purchase agreement.

 

As part of the agreement, the Company granted Lioli’s minority shareholders a put option and Lioli’s minority shareholders granted the Company a call option for its interest, each exercisable any time after April 1, 2024 and before the 20th anniversary of the acquisition date based on a mechanism as set forth in the agreement between the parties.

During March 2022, the Company participated in rights offering in Lioli, and purchased additional 9,870,000 shares in amount of approximately $2.5 million. Following this oferring, the Company holds 60.4% of Lioli's shares on a fully diluted basis.

 

As of December 31, 2022 and 2021, the Company revaluated minority Put Option, in accordance with ASC 820 "Fair Value Measurements and Disclosures", at level 3, and based on it the non-controling interest fair value in Lioli amounted to $7,903 and to $7,869, respectively.

 

c.

Acquisition of Omicron Supplies, LLC:

 

On December 31, 2020, the Company, through its fully owned U.S. subsidiary, completed the acquisition of 100% of the shares of Omicron Supplies, LLC ("Omicron"), a stone supplier in the U.S., for a total net cash consideration of $18,830.

 

F - 13

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 1:-

GENERAL (Cont.)

 

d.

Acquisition of Magrab Naturtsen AB:

 

On July 6, 2022, the Company completed the acquisition of 100% of the shares of Magrab Naturtsen AB ("Magrab"), a stone supplier in Sweden, for a total net consideration of approximately $3,109.

 

The consideration included a contingent consideration arrangement that requires the Company to pay up to approximately SEK 10,500 (approximately $1,000) of additional consideration to Magrab’s former shareholder to be paid in the first and second anniversary following the acquisition date. The fair value of the contingent consideration arrangement at the acquisition date was $875. The acquisition agreement included addtional contingent consideration in a form of an earn-out arrangement with Magrab’s former shareholder, that requires the Company to pay up to approximately SEK 4,000 (approximately $380) of additional amounts subject to reaching certain Revenues and EBITDA achievements during two years following the acquisition date. In order to receive the earn-out payments Magrab's former shareholder have to remain as a full-time employee of the Company at the expiry of the earn-out periods, and therefore this earn-out arrangement does not meet the cotingent consideration criteria under ASC805 "Business Combinations”.

 

The Magrab acquisition was accounted for as a business combination in accordance with ASC 805 "Business Combinations”.

 

The following table summarizes the purchase price allocation of Magrab Acquisition at the acquisition date:

 

Components of Purchase Price:
Cash		$	2,607
Contingent consideration			875
Less: Cash acquired			373
Net for allocation			3,109
Allocation of Purchase Price:
Net tangible assets (liabilities):
Trade receivables and other current assets, net			524
Property, plant and equipment, net			41
Inventories, net			1,233
ROU assets			446
Trade payables			(523	)
Accrued expenses and other liabilities			(378	)
Short-term lease liability			(22	)
Long-term lease and other non-current liabilities			(424	)
Total net tangible assets			897
Identifiable intangible assets:
Customer relationships (1)			1,789
Deferred tax liabilities			(369	)
Total identifiable intangible assets acquired			1,420
Goodwill (2)			792
Total purchase price allocation		$	3,109

 

F - 14

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 1:-

GENERAL (Cont.)

	(1)	Customer relationships represent the underlying relationships and agreements with Magrab's customer base. In assessing the value of the Customer Relationships, the Company used an income approach method. The Customer Relationships’ economic useful life is estimated at approximately 8 years, amortized using the straight-line method.

 

(2)

The goodwill is primarily attributable to expected synergies resulting from the acquisition.

 

In 2022, the Company recognized $80 of aggregate acquisition-related costs that were expensed in the consolidated statement of income in general and administrative expenses.

 

Pro forma results of operations related to this acquisition have not been prepared because they are not material to the Company’s consolidated statements of income.

 

e.

Major suppliers:

 

In 2022, the Company acquired approximately 69% of its quartz consumption from Turkey, of which approximately 54% was supplied by Mikroman Madencilik San ve TIC.LTD.STI ("Mikroman"), constituting approximately 37% of Company's total quartz, and approximately 24% was supplied by Polat Maden Sanayi ve Ticaret A.Ş. (“Polat”), constituting approximately 16% of Company’s total quartz. If Mikroman or Polat cease supplying the Company with quartz or if the Company's supply of quartz generally from Turkey is adversely impacted, the Company's other suppliers may be unable to meet the Company's quartz requirements. In that case, the Company would need to locate and qualify alternate suppliers, which could take time, increase costs and require adjustments to the appearance of the Company's products. As a result, the Company may experience a delay in manufacturing, which could materially and adversely impact the Company's results of operations.

 

F - 15

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").

 

a.

Use of estimates:

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The Company's management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they were made.

 

b.

Financial statements in U.S. dollars:

 

The Company's revenues are generated in various currencies mainly in U.S. dollars (USD), Australian dollars (AUD) and Canadian dollars (CAD). In addition, most of the Company's costs are incurred in USD, NIS and EUR.

 

The Company’s management believes that the USD is the primary currency of the economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the USD.

 

The functional currency of the Company's foreign subsidiaries is the local currency in which the relevant subsidiary operates.

Accordingly, monetary accounts maintained in currencies other than the USD are re-measured into dollars in accordance with Accounting Standards Codification ("ASC") 830, "Foreign Currency Matters" (“ASC 830”). All transaction gains and losses resulting from the re-measurement of monetary balance sheet items denominated in non-USD currencies are reflected in the statements of operations as financial income or expenses as appropriate.

The financial statements of the Company’s subsidiaries of which the functional currency is not the USD have been translated into the USD. All amounts on the balance sheets have been translated into the USD using the exchange rates in effect on the relevant balance sheet dates. All amounts in the statements of income have been translated into the USD using the monthly average exchange rate in accordance with ASC 830. The resulting translation adjustments are reported as a component of accumulated other comprehensive income (loss), net in shareholders' equity.

 

F - 16

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

c.

Principles of consolidation:

 

The consolidated financial statements include the accounts of the Company and its wholly and majority-owned subsidiaries (see also Note 1). Inter-company transactions and balances, including profit from inter-company sales not yet realized outside of the Company, have been eliminated upon consolidation.

 

d.

Cash equivalents:

 

Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at the date acquired.

 

e.

Short-term bank deposits:

 

Short-term bank deposits are deposits with original maturities of more than three months but less than one year. Short-term bank deposits are presented at their cost, which approximates their fair value.

 

f.

Marketable securities:

 

Marketable securities consist of corporate and governmental bonds. The Company determines the appropriate classification of marketable securities at the time of purchase and re-evaluates such designation at each balance sheet date. In accordance with FASB ASC No. 320 “Investments - Debt and Equity Securities”, the Company classifies marketable securities as available-for-sale ("AFS").

 

Available-for-sale securities are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate component of stockholders’ equity, net of taxes.

 

Realized gains and losses on sales of marketable securities, as determined on a specific identification basis, are included in financial income (expenses), net. The amortized cost of marketable securities is adjusted for amortization of premium and accretion of discount to maturity, both of which, together with interest, are included in financial income (expenses), net.

The Company classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable securities with maturities of 12 months or less are classified as short-term and marketable securities with maturities greater than 12 months are classified as long-term.

The Company assessed AFS debt securities with an amortized cost basis in excess of estimated fair value to determine what amount of that difference, if any, is caused by expected credit losses in accordance with ASC 326. Allowance for credit losses on AFS debt securities are recognized as a charge of credit loss expenses (income), net, on the consolidated statements of comprehensive income, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive income (loss) in stockholders' equity. The Company did not record credit loss allowance on its marketable securities during the year ended December 31, 2022 and 2021.

 

F - 17

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

g.

Derivatives:

 

ASC 815, “Derivative and Hedging” ("ASC 815"), requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position at fair value.

 

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, cash flow hedge or a hedge of a net investment in a foreign operation.

 

Derivative instruments designated as hedging instruments:

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 effective portion of 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 during which the hedged transaction affects earnings.

 

The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change.

 

To hedge against the risk of overall changes in cash flows resulting from foreign currency salary and other recurring payments during the periods, the Company has instituted a foreign currency cash flow hedging program.

 

These forward contracts are designated as cash flow hedges, as defined by ASC 815, and are all effective, as their critical terms match the underlying transactions being hedged.

 

As of December 31, 2022 and 2021, the notional amount of these forward contracts into which the Company entered was $41,699, and $17,089, respectively, and the unrealized income recorded in accumulated other comprehensive income, net, from the Company's currency forward NIS transactions was $333 and $297, respectively.

 

Derivative instruments not designated as hedging instruments:

In addition to the derivatives that are designated as hedges as discussed above, the Company enters into certain foreign exchange forward and options contracts to limit its exposure to foreign currencies. In addition, the Company entered into derivative instruments to partially manage its exposure to movements associated with the Styrene prices.

 

Gains and losses related to such derivative instruments are recorded in financial expenses, net. At December 31, 2022 and 2021, the notional amount of foreign exchange and styrene forward and option contracts into which the Company entered was $13,247 and $59,068, respectively. The foreign exchange and styrene forward and options contracts will expire at various times through 2022.

 

F - 18

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The following tables present fair value amounts of, and gains and losses recorded in relation to, the Company's derivative instruments and related hedged items:

		Balance sheet		Fair value of derivative instruments
				Year ended December 31,
				2022				2021
Derivative assets:
Derivatives designated as hedging instruments:
Foreign exchange option and forward contracts		Other accounts receivable and prepaid expenses			39				1,400
Derivatives not designated as hedging instruments:
Foreign exchange option and forward contracts		Other accounts receivable and prepaid expenses			333				297
Styrene forward contract		Other accounts receivable and prepaid expenses			-				204
Total					371				1,901
Derivative liabilities:
Derivatives designated as hedging instruments:
Foreign exchange option and forward contracts		Accrued expenses and other liabilities			(450	)			-
Derivatives not designated as hedging instruments:
Foreign exchange option and forward contracts		Accrued expenses and other liabilities			(62	)			(329	)
Styrene forward contract		Accrued expenses and other liabilities			(430	)			-
Total					(942	)			(329	)

 

F - 19

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

The following tables present fair value amounts of, and gains and losses recorded in relation to, the Company's derivative instruments and related hedged items:

 

		Gain (loss) recognized in other comprehensive income, net							Gain (loss) recognized in statements of income
		Year ended December 31,							Statements of income		Year ended December 31,
		2022				2021			Item		2022				2021
Derivatives designated as hedging instruments:
Foreign exchange forward contract			(709	)			297		Cost of revenues and  Operating expenses			(2,555	)			(68	)
Derivatives not designated as hedging instruments:
Foreign exchange forward and options contracts			-				-		Financial expenses, net			1,506				2,135
Styrene forward contracts			-				-		Financial expenses, net			520				2,192
Total			(709	)			297					(529	)			4,259

 

h.

Inventories:

 

Inventories are stated at the lower of cost and net realizable value. The Company periodically evaluates the quantities on hand relative to historical and projected sales volumes, aging, current and historical selling prices and contractual obligations to maintain certain levels of raw material quantities. Based on these evaluations, inventory provision is provided to cover risks arising from slow-moving items, discontinued products, excess inventories, net realizable value lower than cost and adjusted revenue forecasts.

 

Cost is determined as follows:

 

Raw Materials - cost is determined on a standard cost basis which approximates actual costs on a weighted average basis.

 

Work-in progress and finished products - are based on standard cost (which approximates actual cost on a weighted average basis) which includes raw materials cost, labor and manufacturing overhead.

 

Finished goods are stated at the lower of cost and net realizable value.

 

F - 20

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

h.

Inventories (cont.):

 

The following table provides the details of the change in the Company's provision for inventory write-downs:

 

		December 31,
		2022				2021
Inventory provision, beginning of year		$	16,789			$	16,607
Increase in inventory provision			11,165				7,671
Write off			(6,216	)			(7,489	)
Inventory provision, end of year		$	21,738			$	16,789

 

i.

Property, plant and equipment, net:

 

1.

Property, plant and equipment are stated at cost, net of accumulated depreciation and investment grants.

 

2.

Costs recorded prior to a production line completion are reflected as construction in progress, which are recorded building and machinery assets at the date of purchase. Construction in progress includes direct expenditures for the construction of the production line and is stated at cost. Capitalized costs include costs incurred under the construction contract: advisory, consulting and direct internal costs (including labor) and operating costs incurred during the construction and installation phase.

 

3.

Depreciation is calculated using the straight-line method over the estimated useful life of the assets at the following annual rates:

	%
Machinery and manufacturing equipment	4 - 33 (mainly 10)
Office equipment and furniture	7 - 33 (mainly 7)
Motor vehicles	10 - 30 (mainly 20)
Buildings	4 - 5
Leasehold improvements	Over the shorter of the term of the lease or the life of the asset

 

F - 21

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

j.

Leases:

 

The Company determines if an arrangement is a lease at inception and recognize in accordance with ASC 842 “Leases”. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in the Company’s consolidated balance sheets.

 

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

 

The Company uses incremental borrowing rates based on the Company's implied credit rating which was based on Moody's Investors Service Rating Methodology for the Building Materials Industry (such credit rating was notched up due to collateralization) at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives, if any. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expenses for lease payments are recognized on a straight-line basis over the lease term. See also Note 10.

 

k.

Impairment of long-lived assets:

 

The Company's long-lived assets (assets group) to be held or used, including right of use assets, tangible and finite-lived intangible assets (other than goodwill), are reviewed for impairment in accordance with ASC 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.

 

The Company's evaluation of recoverability is performed at the lowest level of assets group to which identifiable cash flows are largely independent of the cash flows of other asset group. Recoverability of the asset group is measured by a comparison of the aggregate undiscounted future cash flows the asset group is expected to generate to the carrying amounts of the asset group. If such evaluation indicates that the carrying amount of the asset group is not recoverable, an impairment loss is calculated based on the excess of the carrying amount of the asset group over its fair value.

 

During the fourth quarter, the Company identified indicators for impairment, among others, global market conditions, slow down in demand resulting in lower production utilization in certain plants, increased inflation and higher interest rates. The Company identified four asset groups: Sdot Yam production facility, Bar Lev production facility, US production and distribution activity (without the products produced in the Israeli plants, Sdot-Yam and Bar Lev), and Lioli porcelain activity. The Company recorded an impairment charge for the excess of the book value over its fair value related to Sdot Yam production facility assets group, in the amount of $26,429. The impairment charge is presented in a separate line item in the Company's consolidated statements of income.

 

In addition to the recoverability assessment, the Company routinely reviews the remaining estimated useful lives of property and equipment and finite-lived intangible assets. If the Company reduces the estimated useful life assumption for any asset, the remaining unamortized balance would be amortized or depreciated over the revised estimated useful life.

 

F - 22

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

	l.	Goodwill:

 

Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired in the acquisition. Under ASC 350, "Intangibles-Goodwill and Other" ("ASC 350") goodwill is not amortized but instead is tested for impairment at least annually (or more frequently if impairment indicators arise).

 

The goodwill impairment test is performed according to the following principles:

 

(1)

An initial qualitative assessment may be performed to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.

 

(2)

If the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying amount, a quantitative fair value test is performed. An impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value is recognized.

 

The Company performs an annual goodwill impairment test during the fourth quarter of each fiscal year, or more frequently, if an event occurs or circumstances change that would indicate the carrying amount may be impaired. The Company operates as one reporting unit, and concluded that all of the Company's reporting units should be aggregated and deemed as a single reporting unit for the purpose of performing the goodwill impairment test in accordance with ASC 350-20-35-35, since they have similar economic characteristics.

 

The fair value of the reporting unit was estimated in accordance with ASC 820, "Fair Value Measurements". The Company applies assumptions that marketplace participants would consider in determining the fair value of its reporting unit.

 

The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment. Significant estimates used in the fair value methodologies include estimates of future cash flows, future short-term and long-term growth rates and weighted average cost of capital.

 

As of December 31, 2022, the company performed an impairment test of the goodwill in accordance with ASC350, and recognized a full impairment charge for its goodwill balances in the amount of $44,829. (see also Note 7).

 

F - 23

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

	m.	Warranty:

 

The Company generally provides a standard (i.e. assurance type) warranty for its products, for various periods, depending on the type of product and the country in which the Company does business. The Company records a provision for the estimated cost to repair or replace products under warranty at the time of sale. Factors that affect the Company's warranty reserve include the number of units sold, historical and anticipated rates of warranty repairs and the cost per repair.

 

The following table provides the details of the change in the Company's warranty accrual:

 

		2022				2021
January 1,		$	2,680			$	2,579
Charged to costs and expenses relating to new sales			1,461				1,559
Costs of product warranty claims			(1,923	)			(1,538	)
Foreign currency translation adjustments			283				80
December 31,		$	2,501			$	2,680

 

n.

Revenue recognition:

 

Revenues are recognized in accordance with ASC 606, revenue from contracts with customers when control of the promised goods or services is transferred to the customers, in an amount that the Company expects in exchange for those goods or services.

 

The Company applies the following five steps in accordance to ASC 606: (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.

 

1.        Identify the contract with a customer:

 

A  contract is an agreement between two or more parties that creates enforceable rights and obligations. In evaluating the contract, the Company analyzes the customer’s intent and ability to pay the amount of promised consideration (credit risk) and considers the probability of collecting substantially all of the consideration. The Company determines whether collectability is probable on a customer-by-customer basis pursuant to various criteria including Company’s historical experience, credit insurance and other inputs.

 

2.        Identify the performance obligations in the contract:

 

At a contract’s inception, the Company assesses the goods or services promised in a contract with a customer and identifies the performance obligations. The main performance obligation is a delivery of the Company’s products.

 

F - 24

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

3.        Determine the transaction price:

 

The Company’s products that are sold through agreements with distributors are non-exchangeable, non-refundable, non-returnable and without any rights of price protection or stock rotation. Accordingly, the Company considers all the distributors to be end-consumers.

 

For certain revenue transactions with specific customers, the Company is responsible also for the fabrication and installation of its products. The Company recognizes such revenues upon receipt of acceptance evidence from the end consumer which occurs upon completion of the installation.

 

Although, in general, the Company does not grant rights of return, there are certain instances where such rights are granted. The Company maintains a provision for returns in accordance with ASC 606, which is estimated, based primarily on historical experience as well as management judgment, and is recorded through a reduction of revenue.

 

4.        Allocate the transaction price to the performance obligations in the contract:

 

The majority of the Company’s revenues are sales of goods, therefore there is one main performance obligation that absorbs the transaction price.

 

5.        Recognize revenue when a performance obligation is satisfied:

 

Revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer. Control transfers at a point in time, which affects when revenue is recorded. The majority of Company’s revenues deriving from sales of products which are recognized when control is transferred.

 

o.

Research and development costs:

 

Research and development costs are charged to the statement of income as incurred.

 

p.

Income taxes:

 

The Company and its subsidiaries account for income taxes in accordance with ASC 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 financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

 

F - 25

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

p.

Income taxes (cont.):

The Company accounts for its uncertain tax positions in accordance with ASC 740-10. ASC 740-10 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. 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 classifies interest and penalties on income taxes as taxes on income.

 

q.

Advertising expenses:

 

Advertising costs are expensed as incurred. Advertising expenses for the years ended December 31, 2022, 2021 and 2020 were $14,777, $15,307 and $14,457, respectively.

 

r.

Concentrations of credit risk:

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities and trade receivables. The Company's cash and cash equivalents are invested primarily in USD, mainly with major banks in Israel.

 

The Company's debt marketable securities include investments in highly-rated corporate debentures (located mainly in U.S.) and governmental bonds. The financial institution that holds the Company's debt marketable securities is a major financial institution located in the United States. The Company believes that its marketable securities portfolio is a diverse portfolio of highly-rated securities and the Company's investment policy limits the amount the Company may invest in an issuer (see Note 2f).

 

The Company's trade receivables are derived from sales to customers located mainly in the United States, Australia, Canada, Israel and Europe. The Company performs ongoing credit evaluations of its customers and to date has not experienced any substantial losses. In certain circumstances, the Company requires letters of credit or prepayments. An allowance for credit losses is provided with respect to specific receivables that the Company has determined to be doubtful of collection. For those receivables not specifically reviewed, provisions are recorded, based upon the age of the receivable, the collection history, current economic trends and management estimates of future economic conditions.

 

No customer represented 10% or more of the Company’s total accounts receivables, net as of December 31, 2022 and 2021.

 

F - 26

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The following table provides the detail of the change in the Company's allowance for credit loss:

		2022				2021
January 1,		$	9,036			$	6,783
Charges to expenses			2,141				2,437
Write offs			(1,144	)			(121	)
Foreign currency translation adjustments			(277	)			(63	)
December 31,		$	9,756			$	9,036

 

s.

Severance pay:

 

The Company's liability for severance pay, with respect to its Israeli employees, is calculated pursuant to Israeli severance pay law and employee agreements based on the most recent salary of the employees. The Company's liability for all of its Israeli employees is provided for by monthly deposits with insurance policies and by an accrual. The value of these policies is recorded as an asset on the Company's balance sheet.

 

The deposited funds include profits or losses accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligations pursuant to Israeli severance pay law or labor agreements.

 

Majority of the agreements with employees specifically state, in accordance with section 14 of the Severance Pay Law, 1963 ("Section 14"), that the Company's contributions for severance pay shall be instead of severance compensation and that upon release of the policy to the employee, 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, since the Company has signed agreements with its employees under Section 14, the related obligation and amounts deposited on behalf of such obligation are not stated on the balance sheet, as they are legally released from obligation to employees once the deposit amounts have been paid.

 

Severance pay expenses for the years ended December 31, 2022, 2021 and 2020 amounted to approximately $2,614 $2,539 and $2,292, respectively. 

 

F - 27

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

	t.	Fair value of financial instruments:

 

In accordance with ASC 820, the Company measures the below assets and liabilities at fair value using the various valuation techniques. The assets and liabilities are classified within Level 1 for using quoted market prices, and Level 2 for alternative pricing sources and models utilizing market observable inputs, also using third party appraisers.

 

The following table sets forth the Company’s assets and liabilities that were measured at fair value as of December 31, 2022 and 2021 by level within the fair value hierarchy:

 

		Fair Value		Fair value measurements as of December 31,
Description		Hierarchy		2022				2021
Measured at fair value on a recurring basis:
Assets:
Cash equivalents:
Money market mutual funds		Level 1		$	27			$	175
Short-term marketable securities:
Corporate bonds		Level 2		$	7,077			$	10,751
Governmental bonds		Level 2		$	-			$	477
Derivative assets		Level 2		$	371			$	1,901
Long-term marketable securities:
Corporate bonds		Level 2		$	-			$	8,647
Governmental bonds		Level 2		$	-			$	-
Liabilities:
Contingent Consideration		Level 2		$	995			$	-
Derivative liabilities		Level 2		$	(942	)		$	(329	)
Redeemable Non-Controlling Interest		Level 3		$	7,903			$	7,869

 

F - 28

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

t. Fair value of financial instruments: (cont.)

Measured at fair value on a nonrecurring basis:

(a) As of December 31, 2022, in accordance with Subtopic 360-10, long-lived assets held and used were written down to their fair value, resulting in an impairment charge of $26,429, related to Property Plant and Equipment included in Sdot Yam facility production, which was included in the consolidated statements of income for the period. As of December 31, 2021, there were no indicators for fair value measurement of the long-lived assets held or used.

(b) As of December 31, 2022, in accordance with Subtopic 350-20, goodwill was written down in an impairment charge of $44,829, which was included in the consolidated statements of income for the period. As of December 31, 2021, no impairment was identified.

 

The carrying amounts of financial instruments not measured at fair value, including cash and cash equivalents, trade receivables, other accounts receivables, trade payables, accrued expenses and other liabilities, short term loans and short term bank credit, approximate their fair value due to the short-term maturities of such instruments. 

	u.	Basic and diluted net income (loss) per share:

 

Basic net income (loss) per share ("Basic EPS") is computed by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.  

 

Diluted net income (loss) per share ("Diluted EPS") gives effect to all dilutive potential ordinary shares outstanding during the period. The computation of Diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings. The dilutive effect of outstanding stock options is computed using the treasury stock method. For the years ended December 31, 2022, 2021 and 2020 there were 0, 1,344,673 and 1,414,812 outstanding stock options, respectively, that were excluded from the computation of Diluted EPS, that would have had an anti dilutive effect if included.  

 

F - 29

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

	v.	Comprehensive income and accumulated other comprehensive income (loss):

 

Comprehensive income consists of two components, net income and other comprehensive income ("OCI"). OCI refers to revenue, expenses, and gains and losses that under U.S. GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Company’s OCI consists of foreign currency translation adjustments from those subsidiaries not using the USD as their functional currency and net deferred gains and losses on certain derivative instruments accounted for as cash flow hedges and marketable securities.

 

The total accumulated other comprehensive income ("AOCI"), net of tax was comprised as follows:

 

		December 31,
		2022				2021
Accumulated loss on marketable securities		$	(125	)		$	(40	)
Accumulated income (loss) on derivative instruments			(412	)			297
Accumulated foreign currency translation differences and other			(9,041	)			(961	)
Total accumulated other comprehensive loss, net		$	(9,578	)		$	(704	)

 

F - 30

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The following table summarizes the changes in AOCI, net of taxes for the year ended:

		Unrealized gains (losses) on derivative instruments				Unrealized gains (losses) on marketable securities				Accumulated foreign currency translation differences and other				Total
Balance at January 1, 2021			-				13				1,070				1,083
Other comprehensive income (loss) before reclassifications			229				(53	)			(2,031	)			(1,855	)
Amounts reclassified from AOCI			68				-				-				68
Net current period OCI			297				(53	)			(2,031	)			(1,787	)
Balance at December 31, 2021			297				(40	)			(961	)			(704	)
Other comprehensive income (loss) before reclassifications			(3,264	)			(85	)			(8,080	)			(11,429	)
Amounts reclassified from AOCI			2,555				-				-				2,555
Net current period OCI			(709	)			(85	)			(8,080	)			(8,874	)
Balance at December 31, 2022			(412	)			(125	)			(9,041	)			(9,578	)

 

The following table shows the amounts reclassified from AOCI into the Consolidated Statements of Income, and the associated financial statement line item, for 2022 and 2021:

 

		December 31,
		2022				2021
Affected line item in the consolidated statements of income
Cost of revenues		$	1,921			$	52
Research and development			68				2
Marketing and selling			249				6
General and administrative			317				8
Total loss		$	2,555			$	68

 

F - 31

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.):

 

w.

Accounting for stock-based compensation:

 

Equity share based payment:

 

The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation-Stock Compensation" ("ASC 718"). 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 Company accounts for employees and directors’ share-based payment awards classified as equity awards using the grant-date fair value method. The fair value of share-based payment transactions is recognized as an expense over the requisite service period. The Company’s accounting policy is to account for forfeitures as they occur.

 

The exercise price of each option is generally Company's stock price on the date of the grant. Options generally become exercisable over approximately three to four-year period, subject to the continued employment. All options expire after 7 years from the date of grant. In addition, commencing in 2015 the Company granted certain of its employees and officers with restricted stock units ("RSUs"), vesting over approximately a four-year period from the grant date. RSUs fair value is measured at the grant date based on the market value of Company's common stock. RSUs that are cancelled or forfeited become available for future grants.

 

In 2022 and 2021, the Company estimated the fair value of stock options granted using the Black-Scholes option pricing model with the following weighted average assumptions:

 

		December 31,
		2022			2021
Dividend yield		0 - 3%			0 - 3%
Expected volatility		40-45.0%			45-48.0%
Risk-free interest rate		1-4.3%			1-1.5%
Expected life (in years)		4-5.5			4-5.5

The Company used volatility data in accordance with ASC 718 and based on Company's historical data.

The computation of risk free interest rate is based on the rate available on the date of grant of a zero-coupon U.S. government bond with a remaining term equal to the expected term of the option.

 

F - 32

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The expected term of options granted is calculated using the simplified method (being the average between the vesting periods and the contractual life of the options).

For the vast majority of the options granted in 2022 and 2021, the dividend yield is zero, due to adjustment mechanism with respect to the exercise price upon payment of a dividend. For those options granted without adjustment mechanism, the dividend yield applied is 3%.

 

x.

Redeemable non-controlling interest:

 

Following the acquisition of Lioli during 2020, the Company is party to a put and call arrangement with respect to the remaining 45% non-controlling interest in Lioli. Due to the existing put and call arrangements, the non-controlling interest is considered to be redeemable and is recorded on the balance sheet as a redeemable non-controlling interest outside of permanent equity.

 

During March 2022, the Company participated in rights offering in Lioli, and purchased additional 9,870,000 shares in amount of approximately $2.5 million. Following this oferring, the Company holds 60.4% of Lioli's shares on a fully diluted basis.

 

The redeemable non-controlling interest is recognized at the higher of: i) the accumulated earnings associated with the non-controlling interest, or ii) the redemption value as of the balance sheet date (see also Note 1b).

 

The following table provides a reconciliation of the redeemable non-controlling interest:

 

		Year ended December 31,
		2022				2021				2020
Beginning of the year		$	7,869			$	7,701			$	-
Assuming the non controlling interest due to acquisition			-				-				7,269
Net income (loss) attributable to non-controlling interest			688				(1,077	)			404
Adjustment to Put option value (*)			198				1,399				-
Foreign currency translation adjustments			(852	)			(154	)			28
Redeemable non-controlling interest - end of the year		$	7,903			$	7,869			$	7,701

 

(*)	See also Note 1b.

 

F - 33

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

y.

Contingencies:

 

The Company is involved in various product liability, commercial, government investigations, environmental claims and other legal proceedings that arise from time to time in the course of business. The Company records accruals for these types of contingencies to the extent that the Company concludes their occurrence is probable and that the related liabilities are estimable. When accruing these costs, the Company will recognize an accrual in the amount within a range of loss that is the best estimate within the range. When no amount within the range is a better estimate than any other amount, the Company accrues for the minimum amount within the range. The Company records anticipated recoveries under existing insurance contracts that are probable of occurring at the amount that is expected to be collected. Legal costs are expensed as incurred. For unasserted claims or assessments, the Company followed the accounting guidance in ASC 450Contingencies, in which the Company must first determine that the probability that an assertion will be made is likely, then, a determination as to the likelihood of an unfavorable outcome and the ability to reasonably estimate the potential loss is made.

 

z.

Business combination:

 

The Company accounts for business combinations by applying the provisions of ASC 805, Business Combination, and allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets.

 

Significant estimates in valuing certain intangible assets include, but are not limited to future expected cash flows from acquired customer relationship and acquired trademarks from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.  During the measurement period, which does not exceed one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding adjustment to goodwill. Upon the finalization of the measurement period, any subsequent adjustments are recorded to earnings.

 

Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred. See also Note 1.

 

F - 34

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

aa.

Impact of recently issued accounting standards:

 

Recently issued accounting standards and not yet adopted by the Company:

 

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606). This guidance is effective for fiscal years beginning after 15 December 2022 and interim periods within those fiscal years. Early adoption is permitted.

 

NOTE 3:-       MARKETABLE SECURITIES

The following is a summary of available-for-sale marketable securities at December 31, 2022:

		Amortized cost				Gross unrealized gains				Gross unrealized losses				Accrued Interest				Fair value
Available-for-sale – matures within one year:
Corporate bonds		$	7,164			$	-			$	126			$	39			$	7,077
Total		$	7,164			$	-			$	126			$	39			$	7,077

 

F - 35

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 3: MARKETABLE SECURITIES  (Cont.)

The following is a summary of available-for-sale marketable securities at December 31, 2021:

		Amortized cost				Gross unrealized gains				Gross unrealized losses				Accrued Interest				Fair value
Available-for-sale – matures within one year:
Corporate bonds		$	10,688			$	2			$	4			$	65			$	10,751
Governmental bonds			472				-				-				5				477
Total		$	11,160			$	2			$	4			$	70			$	11,228
Available for-sale – matures after one year:
Corporate bonds		$	8,642			$	-			$	38			$	43			$	8,647
Governmental bonds			-				-				-				-				-
Total		$	8,642			$	-			$	38			$	43			$	8,647
Total		$	19,802			$	2			$	42			$	113			$	19,875

As of December 31, 2022 and 2021 the Company didn’t record an allowance for credit losses for its AFS marketable debt securities.

 

NOTE 4:-

OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

 

		December 31,
		2022				2021
Prepaid expenses		$	6,313			$	5,882
Government authorities			13,005				14,289
Advances to suppliers			3,439				5,541
Derivatives			371				1,901
Other receivables (*)			9,442				7,830
		$	32,570			$	35,443

 

(*) Including mainly insurance receivables, see also note 11.

 

NOTE 5:-

INVENTORIES

 

		December 31,
		2022				2021
Raw materials		$	32,443			$	35,896
Work-in-progress			4,058				2,948
Finished goods			201,731				165,881
		$	238,232			$	204,725

 

F - 36

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 6:-

PROPERTY, PLANT AND EQUIPMENT, NET

 

		December 31,
		2022				2021
Cost:
Machinery and manufacturing equipment, net (1)		$	334,156			$	325,188
Office equipment and furniture			36,079				32,362
Motor vehicles			5,139				5,150
Buildings and leasehold improvements			129,679				142,868
Prepaid expenses related to operating lease (2)			939				939
			505,992				506,507
Accumulated depreciation and impairment:
Machinery and manufacturing equipment, net			230,063				207,365
Office equipment and furniture			24,491				21,278
Motor vehicles			3,832				3,664
Buildings and leasehold improvements			51,722				52,896
Prepaid expenses related to operating lease			163				154
Impairment of fixed assets (3)			26,429				-
			336,700				285,357
Depreciated cost		$	169,292			$	221,150

 

(1)

Presented net of investment grants received in the total amount of $7,693.

 

(2)

Until 2012, the Company leased land from the Israel Lands Administration ("ILA") for its Bar-Lev manufacturing facility. The lease term started on February 6, 2005. The lease is for an initial non-cancellable term of 49 years, with a renewal option of an additional 49 years.

 

(3)

Non cash pre-tax impairment charges (see also Note 2k).

 

Depreciation expense were $33,813, $32,394 and $28,829 for the years ended December 31, 2022, 2021 and 2020, respectively.

 

F - 37

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 7:-

GOODWILL AND INTANGIBLES

 

a.        Goodwill:

 

The changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021 are as follows:

 

Balance as of January 1, 2021		$	47,472
Foreign currency translation adjustments			(1,672	)
Balance as of December 31, 2021			45,800
Acquired through business combination (*)			792
Goodwill Impairment (**)			(44,829	)
Foreign currency translation adjustments			(1,763	)
Balance as of December 31, 2022		$	-

 

(*) Resulting from Magrab acquisition, see also Notes 1(d).

 

(**) The Company performs its annual testing of goodwill in the fourth quarter of each year in accordance with ASC 350 (see also Note 2l). During the fourth quarter of 2022, completed an impairment test of its reporting unit and  following factors such as a decrease in the Company's market value, lower then expected projected future cash flows and higher interest rates, the Company recorded a pre-tax, non-cash goodwill impairment charge in the amount of $44,829.

 

b.        Intangible assets:

 

		December 31,
		2022				2021
Original amounts:
Customer relationships (*)		$	13,983			$	12,193
Accumulated amortization:
Customer relationships			(5,067	)			(2,537	)
Foreign currency translation adjustment			(99	)			(29	)
Total intangibles assets		$	8,817			$	9,627

 

(*)

In 2022, includes $1,789 Acquired through business combination of Magrab.

(1)

Amortization expense amounted to $2,531 and $2,435 for the years ended December 31, 2022 and 2021, respectively.

(2)

Estimated amortization expenses for the following years as of December 31, 2022:

 

2023			$	2,662
2024				2,662
2025				2,427
2026				224
2027 and on				842
			$	8,817

 

F - 38

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 8:-

SHORT-TERM BANK CREDIT AND CURRENT MATURITIES OF LONG-TERM LOAN

 

Short-term bank credit and loans are classified as follows:

 

			Weighted average interest
			December 31,								December 31,
	Currency		2022				2021				2022				2021
			%
Short-term bank credit (*)	USD			6.3				-			$	21,183			$	-
Short-term bank credit (**)	INR			7.6				11.4			$	2,674			$	3,034
Current maturities of Long- term bank loan and other (**)	INR			7.6				11.4			$	2,278			$	9,489
Total											$	26,135			$	12,523

 

As of December 31, 2022 and 2021, the Company had short-term and revolving credit lines of approximately $53,113 and $18,860 (out of which $26,135 and $12,523, respectively, were utilized and outstanding, and presented in the table above), respectively, from various banks in Israel and India. The Company's current credit lines, if not extended, will expire through 2023.

 

(*) Credit line in Israel - assumed during 2022 from Bank Leumi. The credit line agreement contains customary covenants mainly related to Debt to EBITDA ratio and to Tangible assets ratio. As of December 31, 2022 the Company is in compliance with the covenants under the credit line agreement.

 

(**) Credit line and bank loan in Lioli - As of December 31, 2021 Lioli’s bank loan was presented as short term loan since it was not in compliance with the covenants under its loan agreement . During 2022, Lioli engaged with a new bank and signed a new loan agreement. The new loan agreement with the bank includes customary covenants. The financial covenants under the new agreement requires Lioli to maintain 700 million INR of own capital contribution. The new loan Agreement also includes certain customary negative covenants that require Lioli to refrain from certain actions unless bank’s consent obtained. As of December 31, 2022 Lioli is in compliance with the covenants under its new loan agreement, and therefore the Company presented such loan amount in  current maturitites and long term loan based on loan repayment schedule. (see also Note 15).

 

NOTE 9:-

ACCRUED EXPENSES AND OTHER LIABILITIES

 

		December 31,
		2022				2021
Employees and payroll accruals		$	13,029			$	17,676
Accrued expenses			12,003				10,508
Advances from customers			1,998				2,690
Taxes payable			4,892				6,013
Warranty provision			1,239				1,400
Derivatives			942				329
Sales return provision			604				2,315
Operating lease liability short-term			22,741				22,772
Contingent consideration liability and other			1,329				831
		$	58,777			$	64,534

 

F - 39

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 10:-

LEASES

 

As of December 31, 2022, the Company had operating lease agreements for facilities and vehicles in the United States, Canada, Australia, United Kingdom, European Union, Israel, India, Sweden and Singapore. The Company’s leases have remaining lease terms of up to 14 years, some of which include options to extend the leases for up to five years. Such options are included in the lease term when it is reasonably certain that the option will be exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet, the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company does not separate non-lease components from the lease components to which they relate, and instead accounts for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes. The Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. During 2021, the Company's lease fees related to the Land Use Agreement with the Kibbutz were amended. The amendment included an increase in the lease fees and was not accounted for as a new lease. As a result of the amendment, the operating lease right of use asset and liability increased by approximately $35.6 million. See also note 14c.

 

a.

The following table summarizes the Company’s lease-related assets and liabilities recorded on the consolidated balance sheet:

 

	Classification		December 31, 2022				December 31, 2021
Assets:
Operating lease assets	Operating lease right-of-use assets		$	144,098			$	154,652
Total lease assets			$	144,098			$	154,652
Liabilities:
Current lease liabilities	Accrued expenses and other liabilities			22,741				22,772
Long-term lease liabilities	Long-term operating lease liabilities			124,353				143,324
Total lease liabilities			$	147,094			$	166,096

 

Lease term and discount rate:

 

	December 31, 2022		December 31, 2021
Weighted-average remaining lease term — operating leases	7.92 years		8.82 years
Weighted-average discount rate — operating leases	2.47%		2.12%

 

F - 40

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 10:-   LEASES (CONT.)

 

b.

The components of operating lease cost for the year ended December 31, 2022 were as follows:

 

		December 31, 2022				December 31, 2021
Operating lease cost:
Operating lease expense		$	27,583			$	25,083
Variable lease expense			1,940				2,985
Short-term lease expense			183				20
Sublease income			(999	)			(819	)
Total operating lease cost		$	28,707			$	27,269

 

c.

The maturity of the Company’s operating lease liabilities for contracts with lease term greater than one year as of December 31, 2022 are as follows:

 

		December 31,
2023		$	25,561
2024			23,111
2025			20,285
2026			18,826
2027			16,048
2028 and thereafter			57,237
Total future lease payments (1)			161,068
Less imputed interest			(13,974	)
Total		$	147,094

 

(1)	Total lease payments have not been reduced by sublease rental payments of approximately $496 due in the future under non-cancelable subleases.

 

d.

For additional information regarding lease transactions between related parties, refer to Note 14.

 

F - 41

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 10:-   LEASES (CONT.)

 

e.

The following table presents supplemental cash flow information related to the lease costs for operating leases:

 

		December 31, 2022				December 31, 2021
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows for operating leases		$	26,003			$	24,051
Right-of-use assets obtained in exchange for new operating lease liabilities:
Operating leases		$	18,569			$	57,342

 

NOTE 11:-

COMMITMENTS AND CONTINGENT LIABILITIES

 

a.

Legal proceedings and contingencies:

 

Claim by former South African distributor

 

In December 2007, the Company terminated its agency agreement with its former South African agent, World of Marble and Granite (“WOMAG”), on the basis that WOMAG had breached the agreement. During the years the Company and WOMAG filed counter claims in the court of South Africa and in Israel.

 

Following negotiations held during 2020 between the parties, on January 15, 2021, the Company paid WOMAG an amount of approximately EUR 7.2 million ($8,900) as part of the settlement for the majority of WOMAG’s claim for breach of contract. The remaining minimal disputed amounts were settled during 2022.

 

Bodily injury claims related to exposure to silica dust:

 

Overview:

 

The Company is subject to numerous claims mainly by fabricators, their employees or National Insurance Institute (the Israeli insurance institute  -"NII" or Australian states workers compensation regulators), alleging that fabricators contracted illnesses, including silicosis, through exposure to silica particles during cutting, polishing, sawing, grinding, breaking, crushing, drilling, sanding or sculpting Company's products.

 

F - 42

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 11:-

COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

 

Individual claims in Israel

 

As of December 31, 2022, the Company is subject to 163 pending bodily injury claims (out of which 162 are individual claims and NII subrogation or related future probable claims, and one claim recognized as a class action) that have been submitted in Israel since 2008 against the Company directly, or that have named the Company as third-party defendant by fabricators or their employees in Israel, by the injurer's successors, by the NII or by others.

 

As of December 31, 2022, the Company has 9 pending pre-litigation demand letters on behalf of certain fabricators in Israel.

 

Most of the claims in Israel do not specify a total amount of damages sought, as the plaintiff’s future damages are intended to be determined at trial.

 

In November 2015 and in May 2017, the Company entered into agreements with the State of Israel and with its main distributors in Israel, respectively, with the consent of its insurance carriers, under which the Company agreed with the State and each of its main distributors to cooperate, subject to certain terms, with respect to the management of the individual claims that have been filed and claims that may be submitted during a certain time period (NII claims are excluded from the Company’s agreement with the State) and on the apportionments of the total liability between the Company , the State, and the distributors, if found, in such claims. During January 2020, the State of Israel approved an additional 5 year extension to its agreement with the company.

 

Class action in Israel:

 

In April 27, 2014, a lawsuit by a single plaintiff and a motion for the recognition of this lawsuit as a class action was filed against the Company in the Central District Court in Israel. The plaintiff alleges that, if the lawsuit is recognized as a class action, the claim against the Company is estimated to be NIS 216 million (approximately $56,180). In addition, the claim includes an unstated sum in compensation for special and general damages.

 

On January 4, 2018, the Company and the plaintiff submitted to the Israeli District Court a settlement agreement, which was approved in July 2021. The claim was dismissed and during 2022, the Company paid without any admission of liability, an aggregate amount of NIS 9.0 million (approximately $2,557) to fund certain safety related expenses at fabrication facilities in Israel, as well as plaintiff’s compensation and legal expenses. The above mentioned fund will be fully utilized during fiscal year 2023.

 

During 2021 the Company received refund of NIS 7.0 million (approximately $2,100) from its insurance carrier which was recorded as a reduction of legal settlements expenses.

 

F - 43

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 11:-

COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

 

Individual claims in Australia:

 

As of December 31, 2022, Company’s subsidiary in Australia is subject to 58 pending bodily injury claims that have been submitted in Australia since 2018 against it directly, or that have named the Company as third-party defendant by fabricators in Australia.

 

Commencing 2021, the Company reassessed the expected outcome of the individual product liability claims in Australia following Company's and its insurance carrier consent for several settlements. Based on this development and also based on its legal advisors’, contingent losses related to the product liability individual claims are probable, and pursuant to ASC 450, an accrual has been recorded for the loss contingencies related to such claims.

 

Summary of the claims mentioned:

 

In order to reasonably estimate the losses for bodily injury claims in Israel and Australia reflected in the table below, the Company performed a case-by-case analysis with its legal advisors of the relevant facts that were reasonably available to it, related to the claims filed, including, among other things, the specific known or estimated health condition of the claimants, their ages, salaries, related probable future subrogation claims from the NII, and other factors that might have an impact on the final outcome of such claims. The Company will continue to regularly monitor changes in facts for each claim and will update its best estimate if required.

 

Accordingly, the reserve for all the above mentioned bodily injury claims (including class action) as of December 31, 2022 and 2021 totaled to $35,980 and $42,940 respectively, of which $16,408 and $22,081 is reported in short term legal settlements and loss contingencies and $19,572 and $20,859 is reported in long-term liabilities. The Company currently cannot estimate the number of claimants that may file claims in the future or the nature of their claims in order to conclude probability or the range of loss.

 

The Company updated its provision in 2022, 2021 and 2020 to reflect the outstanding claims in the below table, and provided a provision also for related NII unasserted claims, based on its legal advisors’ and according to ASC 450, taking into consideration new claims filed, settlements reached and other new information available.

 

F - 44

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 11:-

COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

A summary of bodily injury claims for which the Company provided provision is as follows:

		Year ended December 31,
		2022				2021				2020
Outstanding claims, January 1,			203				173				156
New claims			87				73				38
Settled and dismissed claims			(69	)			(43	)			(21	)
Outstanding claims, December 31 (*)			221				203				173

(*) As of December 31, 2022, not including 8 pending claims filed against the Company in the United States which are at an early stage.

Insurance

 

The Company maintains insurance for product liability claims, including for bodily injury claims related to exposure to silica dust. The Company has purchased insurance policies for the period from 2008 and to date from several insurance carriers that provide coverage for product liability losses, subject to certain terms and conditions, and the related defense costs up to a certain limit per case and per policy year.

 

As of December 31, 2022, the Company has regional product liability insurance policies, other than in Israel and Australia. Specifically, in the United States and Canada, local policy covers up to $20 mililion and CAD 20 million respectively, per claim or per year, subject to certain terms and limitations, with relatively low deductibles.

 

The collectability of the Company's insurance receivables is regularly evaluated, and the amounts recorded are probable of collection. This conclusion is based on analysis of the terms of the underlying insurance policies, experience in successfully recovering individual product liability claims from Company's insurers, the insurance carrier was party to the agreement with the State of Israel and the financial ability of the insurance carriers to pay the claims and the relevant facts and applicable law.

 

As of December 31, 2022, and 2021, the insurance receivable totaled to $7,306 and $6,748, respectively, of which $7,306 and $6,299 is reported in the other accounts receivable and prepaid expenses and $0 and $449 is in other long-term receivables.

 

In 2022 and 2021, the legal settlements and loss contingencies expenses related to the bodily injury claims related to exposure to silica dust totaled to $597 and $3,417, respectively, which reflects the deductible amounts for claims covered by insurance policies, claims not covered and the impact of settlements including the related legal costs.

 

F - 45

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 11:-

COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

 

General:

 

From time to time, the Company is involved in other legal proceedings and claims in the ordinary course of business related to a range of matters. While the outcome of these other claims cannot be predicted with certainty, the Company monitors and estimates the possible loss deriving from these claims based on new information available and based on its legal advisors, and believes that it recorded an adequate reserve for these claims in accordance with ASC 450.

 

b.

Purchase obligation:

 

The Company's significant contractual obligations and commitments as of December 31, 2022, are for purchase obligations to certain suppliers and amounted to $12,961 for the fiscal year 2023.

 

c.

Pledges and guarantees:

 

1.

As of December 31, 2022, the Company had outstanding guarantees and letters of credit with various expiration dates in a principal amount of approximately $13,293 related to facilities, machinery and equipment, and other miscellaneous guarantees.

 

2.

See also note 15.

 

F - 46

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 12:-

TAXES ON INCOME

 

a.

Israeli taxation:

 

1.

Corporate tax rate:

 

The corporate tax rate in Israel was 23% in 2022 and 2021, and 2020.

 

2.

Foreign Exchange Regulations:

 

Under the Foreign Exchange Regulations, Caesarstone Ltd. calculates its tax liability in U.S. Dollars according to certain orders. The tax liability, as calculated in U.S. Dollars is translated into New Israeli Shekels according to the exchange rate as of December 31st of each year.

 

3.

Tax benefits under Israel's Law for the Encouragement of Industry (Taxes), 1969:

 

The Company is an "Industrial Company," as defined by the Law for the Encouragement of Industry (Taxes), 1969, and as such, the Company is entitled to certain tax benefits, primarily amortization of costs relating to know-how and patents over eight years, accelerated depreciation and the right to deduct public issuance expenses for tax purposes.

 

4.

Tax benefits under the Law for the Encouragement of Capital Investments, 1959:

 

According to the Law for the Encouragement of Capital Investments, 1959 (the "Encouragement Law"), the Company is entitled to various tax benefits by virtue of the "Preferred Enterprise" status granted to its enterprises, in accordance with the Encouragement Law.

 

The Company chose to be taxed according to the "Preferred Enterprise" track under Amendment No. 68 to the Encouragement Law (the "Amendment No. 68"). In order to implement Amendment No. 68 and to be taxed under the "Preferred Enterprise" track, the Company waived the tax benefits of the previous tracks -"Approved Enterprise" and "Beneficiary Enterprise" - under the Encouragement Law, starting from the 2011 tax year.

 

The principal benefits by virtue of the Encouragement Law are the following:

 

Tax benefits and reduced tax rates under the Preferred Enterprise track:

 

The tax rate on preferred income from a Preferred Enterprise commencing 2017 is 16% and in development area A – 7.5% (relates to Company's manufacturing plant in Bar-Lev industrial zone).

 

In order to receive benefits as a "Preferred Enterprise," Amendment No. 68 states certain conditions must be met. The basic condition for receiving the benefits under Amendment No. 68 is that the enterprise contributes to the country's economic growth and is a competitive factor for the gross domestic product (a "competitive enterprise"). In order to comply with this condition, the Encouragement Law prescribes various requirements.

 

F - 47

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 12:-

TAXES ON INCOME (Cont.)

As for industrial enterprises, in each tax year, one of the following conditions must be met:

 

1.

Its main field of activity is biotechnology or nanotechnology as approved by the Head of the Administration of Industrial Research and Development.

 

2.

The industrial enterprise's sales revenues in a specific market during the tax year do not exceed 75% of its total sales for that tax year. A "market" is defined as a separate country or customs territory.

 

3.

At least 25% of the industrial enterprise's overall revenues during the tax year were generated from the enterprise's sales in a specific market with a population of at least 14 million starting from 2012 tax year.

 

Amendment No. 68 also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise's earnings as discussed above will be subject to tax at a rate of 20% from 2014 and onwards (or a reduced rate under an applicable double tax treaty).

 

Since the Company chose to apply the provisions of Amendment No. 68, by submitting the waiver form before June 30, 2015, the Company is eligible to distribute taxed earnings derived from a Beneficiary Enterprise and/or Approved Enterprise to an Israeli company without being subject to withholding tax.

 

In development area A, in addition to the tax benefits, as mentioned above, some of the Company's facilities are eligible for grants at rate of 20% and/or loans, subject to an approval of the Israeli Investment Center.

 

Accelerated depreciation:

 

The Company is eligible for a deduction of accelerated depreciation on machinery and equipment used by the Approved Enterprise or the Beneficiary Enterprise or the Preferred Enterprise at a rate of 200% (or 400% for buildings) from the first year of the asset's operation.

 

F - 48

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 12:-

TAXES ON INCOME (Cont.)

Conditions for entitlement to benefits:

 

The above mentioned benefits are contingent upon the fulfillment of the conditions stipulated by the Encouragement Law, regulations published thereunder and the letters of approval for the investments in the Preferred Enterprises, as discussed above. Non-compliance with the conditions may cancel all or part of the benefits and require a refund of the amount of the benefits, including interest. The Company's management believes that the Company meets the aforementioned conditions.

 

The tax-exempt income attributable to the Approved Enterprise cannot be distributed to shareholders without subjecting the Company to taxes. If dividends are distributed out of tax-exempt profits, the Company will then become liable for tax at the rate applicable to its profits from the Approved Enterprise in the year in which the income was earned, as if it was not under the "Alternative benefits track" (taxed at the rate of no more than 25% as of December 31, 2022). Under the Encouragement Law, tax-exempt income generated under the Approved Enterprise status will be taxed, among other things, upon a dividend distribution or complete liquidation in accordance with the Encouragement Law. 

 

In November 2021, amendment No. 74 to the Investment Law (the “Trapped Earnings Law”) came into effect. Amendment 74 to the Encouragement Law:

On November 15, 2021, the Economic Efficiency Law (Legislative Amendments for Achieving Budget Targets for the 2021 and 2022 Budget Years), 2021 ("the Economic Efficiency Law"), was enacted. This Law establishes a temporary order allowing Israeli companies to release tax-exempt earnings ("trapped earnings" or "accumulated earnings") accumulated until December 31, 2020, through a mechanism established for a reduced corporate income tax rate applicable to those earnings ("the Temporary Order"). In addition to the reduced corporate income tax (CIT) rate, Article 74 to the Encouragement Law was amended whereby effective from August 15, 2021, for any dividend distribution (including a dividend as per Article 51B to the Encouragement Law) by a company which has trapped earnings, there will be a requirement to allocate a portion of that distribution to the trapped earnings.

 

The Company distributed dividends during November 2021 and during  September 2022, both was partially attributed to the above amendment. 

 

Of the Company's retained earnings as of December 31, 2022, approximately $21,768 is tax-exempt earnings attributable to its Approved Enterprise.

 

As of December 31, 2022, if the income attributed to the Approved Enterprise would have been distributed as a dividend, the Company would have incurred a tax liability of approximately $5,442.

 

F - 49

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 12:-

TAXES ON INCOME (Cont.)

According to the Temporary Order, the reduction of CIT will apply to earnings that are released (with no requirement for an actual distribution) within a period of one year from the date of enactment of the Temporary Order. The reduction in the CIT is dependent on the proportion of the trapped earnings that are released in relation to the total trapped earnings, and on the foreign investment percentage in the years the earnings were generated. Consequently, the larger the proportion of the trapped earnings that are released, the lower the tax in respect of the distribution. The minimum tax rate applied to the company is 10%. Further, a company that elects to pay a reduced CIT is required to invest in its industrial enterprise a designated amount in accordance with the Economic Efficiency Law within a period of five years commencing from the tax year in which the election is made. The designated investment should be utilized for the acquisition of production assets, and/or investments in research and development and/or compensation to additional new employees.

 

The Company did not apply to such order.

	b.	Non-Israeli subsidiaries taxation:

 

Non-Israeli subsidiaries are taxed based on tax laws in their countries of residence.

 

Statutory tax rates for Non-Israeli subsidiaries are as follows:

 

Company incorporated in United States – 25.8% tax rate (federal and state).

Company incorporated in Australia - 30% tax rate.

Company incorporated in Singapore - 17% tax rate.

Company incorporated in Canada – 26.6% tax rate (federal and state).

Company incorporated in England – 19% tax rate (from 2023 – 25%).

Company incorporated in India – 30% tax rate.

Company incorporated in Sweden – 20.6% tax rate.

 

Israeli income taxes and foreign withholding taxes were not provided for undistributed earnings of the Company's foreign subsidiaries. The Company intends to reinvest these earnings indefinitely in the foreign subsidiaries. Accordingly, no deferred income taxes have been provided. If these earnings were distributed to Israel in the form of dividends or otherwise, the Company would be subject to additional Israeli income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes.

 

F - 50

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 12:-

TAXES ON INCOME (Cont.)

c.

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. Significant components of the Company's deferred tax assets and liabilities are as follows:

		December 31,
		2022				2021
Deferred tax assets:
Goodwill and Intangible assets		$	253			$	291
Other temporary differences (1)			10,763				13,307
Temporary differences related to inventory (2)			8,150				6,909
Carryforward losses, deductions and credits (3)			4,569				1,584
Less-valuation allowance			(1,796	)			(717	)
Total deferred tax assets			21,939				21,374
Deferred tax liabilities:
Property and equipment			(5,846	)			(10,507	)
Intangible Assets			(1,687	)			(2,006	)
Other temporary differences			(2,443	)			(2,973	)
Total deferred tax liabilities			(9,976	)			(15,486	)
Deferred tax assets, net		$	11,963			$	5,888

(1)	Deriving mainly from provision for labor related, provision for loss contingencies and lease accounting in accordance with ASC842.
(2)	Deriving mainly from the provision for slow moving inventory and IRS section 263(a).
(3)	Certain subsidiaries have tax loss carry-forwards totaling approximately $30,964 which can be carried forward and offset against taxable income, these carry-forward tax losses have no expiration date. In addition to the above, the Company carried back its 2020 U.S. subsidiaries losses in accordance with the CARES act.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the schedule of reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

 

F - 51

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 12:-

TAXES ON INCOME (Cont.)

d.

A reconciliation of the Company's effective tax rate to the statutory tax rate in Israel is as follows:

 

		Year ended December 31,
		2022				2021				2020
Income (loss) before taxes on income		$	(55,608	)		$	19,839			$	12,322
Statutory tax rate in Israel			23	%			23	%			23	%
Income (loss) taxes at statutory rate		$	(12,790	)		$	4,563			$	2,834
Increase (decrease) in tax expenses resulting from:
Tax benefit arising from reduced rate as an "Preferred Enterprise"			2,622				(1,245	)			(120	)
Non-deductible expenses, net			10,745				1,039				1,764
Decrease in taxes from prior years, also related to settlement with tax authorities			(735	)			(1,502	)			(868	)
Tax adjustment in respect of foreign subsidiaries' different tax rates			(239	)			(650	)			(251	)
Uncertain tax position			-				110				1,659
Changes in valuation allowance			1,079				(385	)			(280	)
Others			76				20				(38	)
Income tax expense		$	758			$	1,950			$	4,700
Effective tax rate			(1	)%			10	%			38	%
Per share amounts (basic and diluted) of the tax benefit resulting from an "Preferred Enterprise"		$	0.12			$	(0.04	)		$	(0.00	)

 

F - 52

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 12:-

TAXES ON INCOME (Cont.)

e.

Income (loss) before taxes on income is comprised as follows:

 

		Year ended December 31,
		2022				2021				2020
Domestic		$	(18,671	)		$	19,539			$	12,859
Foreign			(36,937	)			300				(537	)
		$	(55,608	)		$	19,839			$	12,322

 

f.

Tax expenses on income are comprised as follows:

 

		Year ended December 31,
		2022				2021				2020
Current taxes		$	6,832			$	6,423			$	5,597
Deferred taxes			(6,074	)			(4,473	)			(897	)
		$	758			$	1,950			$	4,700
Domestic		$	436			$	1,190			$	3,886
Foreign			322				760				814
		$	758			$	1,950			$	4,700

 

g.

Tax assessments:

 

The Company operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited or subject to review by both domestic and foreign authorities. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. The following describes the open tax years, by major tax jurisdiction, as of December 31, 2022:

 

Israel 2019 – present

Australia 2017 - present

Canada 2017 - present

United States 2018 - present

Singapore 2017 - present

England 2018 – present

India 2021 - present

Sweden 2021 - present

 

F - 53

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 12:-

TAXES ON INCOME (Cont.)

h.

Uncertain tax positions:

 

The balances at December 31, 2022 and 2021 include a liability for unrecognized tax benefits of $2,891 and $3,773, respectively, for tax positions which are uncertain of being sustained.

 

A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:

Gross tax liabilities at January 1, 2020		$	4,913
Increase in tax positions for current year			1,659
Addition of tax position of prior years			118
Decrease in tax position resulting from settlement			(3,027	)
Gross tax liabilities at December 31, 2020			3,663
Increase in tax positions for current year			110
Gross tax liabilities at December 31, 2021			3,773
Release of tax position of prior years			(882	)
Gross tax liabilities at December 31, 2022		$	2,891

 

The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company's tax audits are resolved in a manner not consistent with management's expectations, the Company could be required to adjust the provision for income taxes in the period such resolution occurs. The Company does not expect uncertain tax positions to change significantly over the next 12 months, except in the case of settlements with tax authorities, the likelihood and timing of which is difficult to estimate.

 

F - 54

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 13:-

SHAREHOLDERS' EQUITY

 

a.

The Company's share capital consisted of the following as of December 31, 2022 and 2021:

 

		Authorized								Outstanding
		December 31,								December 31,
		2022				2021				2022				2021
		Number of shares
Ordinary shares of NIS 0.04 par value each		$	200,000,000			$	200,000,000			$	34,507,303			$	34,473,070

 

b.

Ordinary shares:

 

Ordinary shares confer on their holders voting rights and the right to receive dividends.

 

c.

Dividends:

 

In February 2020 the Company revised its dividend policy so that cash dividend will be distributed up to 50% of the year to date reported net income attributable to controlling interest less any amounts already paid as dividend for the respective period, provided that such calculated dividend is not less than $0.10. Any dividend payment is subject to approval by the Company’s board of directors.

 

Pursuant to the above policy the Company paid a total amount of $8,625 and $10,681 in 2022 and 2021, respectively, of dividend mostly out of its non-tax exempt profit under the beneficiary enterprise (see also note 12).

 

F - 55

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 13:-

SHAREHOLDERS' EQUITY (Cont.)

d.

Compensation plan:

 

On January 1, 2011, the Board of Directors adopted the Caesarstone Ltd 2011 Incentive Compensation Plan (the “2011 Plan”) pursuant to which non-employee directors, officers, employees and consultants may receive stock options and RSUs exercisable for ordinary shares, if certain conditions are met. Under the plan the Company can grant up to 3,275,000 ordinary shares. On September 17, 2020 the Board of Directors adopted Caesarstone Ltd 2020 Share incentive plan (the “2020 Plan”). Under the 2020 Plan up to 2,500,000 ordinary shares may be granted. In addition, any shares that remain available for issuance under the 2011 Plan, as of the Effective Date, which shall not exceed 1,000,000 Shares, may also be granted under the 2020 Plan.

 

As of December 31, 2022, there were 1,621,037 options and restricted stock units (RSUs) outstanding under the Plans and 2,029,913 shares available or reserved for future issuance under the plan.

 

As of December 31, 2022, there was $2,173 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted to employees and directors under the Plan. That cost is expected to be recognized over a weighted-average period of 2.8 years.

 

The following is a summary of activities relating to the Company’s stock options granted to employees under the Company’s plan during the year ended December 31, 2022:

 

		Number of options				Weighted average exercise price				Aggregate intrinsic value
Outstanding - beginning of the year			1,600,575				16.87				47
Granted			233,100				10.27
Exercised			-				-
Forfeited			(287,525	)			21.74
Outstanding - end of the year			1,546,150				14.58				-
Options exercisable at the end of the year			839,013				16.94				-
Vested and expected to vest			839,013				16.94				-

 

The weighted average fair value of options granted during 2022, 2021 and 2020 was $3.8, $5.2 and $4.9 per option. The weighted average fair value of options vested during 2022, 2021 and 2020 was $12.30, $14.07 and $8.32 per option. The intrinsic value of options exercised during 2022, 2021 and 2020 was $0, $0 and $0. 

 

F - 56

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 13:-

SHAREHOLDERS' EQUITY (Cont.)

The intrinsic value of exercisable options (the difference between the Company’s closing share price on the last trading day in fiscal year 2022 and the average exercise price of in-the-money options, multiplied by the number of in-the-money options) included above represents the amount that would have been received by the option holders had all option holders exercised their options on December 31, 2022. This amount changes based on the fair market value of the Company’s ordinary shares.

 

The following is a summary of activities relating to the Company’s RSUs granted to employees under the Plan during the year ended December 31, 2022:

 

		Number of RSUs				Weighted average fair value				Aggregate intrinsic value
Outstanding - end of the year			83,228				13.92				940
Granted			34,965				9.25
Exercised			(34,298	)			14.79
Forfeited			(9,008	)			5.38
Outstanding - end of the year			74,887				12.17				428
RSUs exercisable at the end of the year			-				-				-
Vested and expected to vest			74,887				12.17				428

 

The awards outstanding as of December 31, 2022 have been separated into ranges of exercise price, as follows:

 

				Awards outstanding												Awards exercisable
Exercise price				Number of options				Weighted average remaining contractual life (years)				Weighted average exercise price per share				Number of options				Weighted average remaining contractual life (years)				Weighted average exercise price
$	0.01 (RSUs)				74,887				5.75			$	0.01				-				-			$	-
$	6.9-9.5				200,100				6.49			$	8.59				4,000				4.35			$	9.48
$	10.2-19.7				1,180,050				4.03			$	13.59				669,013				3.41			$	14.04
$	20.3-30.2				128,000				1.59			$	26.98				128,000				1.59			$	26.98
$	31.5-41.5				38,000				0.23			$	34.95				38,000				0.23			$	34.95
					1,621,037												839,013

 

F - 57

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 13:-

SHAREHOLDERS' EQUITY (Cont.)

Compensation expenses related to options and RSUs granted were recorded in the consolidated statements of operations, as follows:

 

		December 31,
		2022				2021
Cost of revenues		$	315			$	321
Research and development expenses			69				89
Marketing and selling expenses			201				269
General and administrative expenses			917				1,167
Total		$	1,502			$	1,846

 

NOTE 14:-

TRANSACTIONS WITH RELATED PARTIES AND OTHER LOAN

 

The Company's controlling shareholder, Kibbutz Sdot-Yam (the “Kibbutz"), has an ownership interest in the Company of approximately 30.3%, as of December 31, 2022.

 

On September 5, 2016, Kibbutz Sdot-Yam entered into a term sheet with Tene Investment in Projects 2016 Limited Partnership (“Tene”), pursuant to which both the Kibbutz and Tene are deemed the Company’s controlling shareholders under the Israeli Companies Law. Pursuant to the agreement, the parties agreed, among other things, to vote at general meetings of the shareholders of the Company in the same manner, following discussions intended to reach an agreement on any matters proposed to be voted upon, with Tene determining the manner in which both parties shall vote if no agreement is reached, except with respect to certain carved-out matters, with respect to which, Mifalei Sdot-Yam will determine the manner in which both parties shall vote if no agreement is reached. The term sheet provides for the sale of 1,000,000 ordinary shares by Kibbutz Sdot-Yam to Tene as well as a call option conferring upon Tene for a period of five years the right to purchase from Mifalei Sdot-Yam up to 2,000,000 ordinary shares. On February 20, 2018, the term of the call option was extended by an additional two-year period.

 

As of December 31, 2022 the Kibbutz and Tene beneficially own 14,029,494 ordinary shares (or approximately 40.7% of the outstanding).

 

The Company is party to a series of agreements with the Kibbutz that govern different aspects of the Company's relationship and are described below.

 

a.

Manpower agreement with the Kibbutz:

 

On July 2011, the Company entered into a manpower agreement with Kibbutz Sdot-Yam such was automatically renewed during 2022 for additional one year term, and will be automatically renewed again, unless one of the parties gives six months’ prior notice, for additional one-year periods.

 

F - 58

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 14:-

TRANSACTIONS WITH RELATED PARTIES AND OTHER LOAN (Cont.)

On July 30, 2015, and on October 14, 2018, following the approval of Company's audit committee, compensation committee and board of directors, Company's shareholders approved an addendum to the Manpower Agreement by and between Kibbutz Sdot-Yam and the Company, with respect to the engagement of office holders affiliated with Kibbutz Sdot-Yam, for an additional three-year term as of the date of the shareholders’ approval.

 

During 2021, following the approval of Company’s audit committee and the board of directors, the manpower agreement is valid through 2030.

 

Under the manpower agreement and its addendum, Kibbutz Sdot-Yam will provide the Company with labor services staffed by Kibbutz members, candidates for Kibbutz membership and Kibbutz residents (“Kibbutz Appointees”). The consideration to be paid for each Kibbutz Appointee will be based on the Company's total cost of employment for a non-Kibbutz Appointee employee performing a similar role. The number of Kibbutz Appointees may change in accordance with the Company's needs. Under the manpower agreement, the Company will notify Kibbutz Sdot-Yam of any roles that require staffing, and if the Kibbutz offers candidates with skills similar to other candidates, the Company will give preference to hiring of the relevant Kibbutz members. Kibbutz Sdot-Yam is entitled under this agreement, at its sole discretion, to discontinue the engagement of any Kibbutz Appointee of manpower services through his or her employment by Kibbutz Sdot-Yam and require such appointee to become employed directly by the Company.

 

The manpower agreement and addendum also includes Kibbutz Sdot-Yam’s obligation to customary liability, insurance, indemnification and confidentiality and intellectual property provisions. Office holders who are Kibbutz Appointees shall have all benefits applicable to Company's other office holders, including without limitation, directors’ and officers’ liability insurance, and Company's indemnification and exemption undertaking.

 

Manpower service fees paid were $1,768, $1,803 and $2,106 for the years ended December 31, 2022, 2021 and 2020, respectively.

 

F - 59

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 14:-

TRANSACTIONS WITH RELATED PARTIES AND OTHER LOAN (Cont.)

b.

Services from the Kibbutz:

 

On July 30, 2015, following the approval of the audit committee and the board, Company’s shareholders approved an amended services agreement pursuant to which, Kibbutz Sdot-Yam will continue to provide various services it provides in the ordinary course of Company's business, for a period of three years commencing as of the date of approval by the shareholders.

 

On October 14, 2021, following the approval of the audit committee and the board, Company’s shareholders approved a further amended services agreement (“Amended Services Agreement”) for an additional period of three years.

 

The amount that the Company pays to Kibbutz Sdot-Yam under the Amended Services Agreement depends on the scope of services the Company will receive and is based on rates specified in such agreement which were determined based on market terms, taking into account the added value of consuming services from Kibbutz Sdot-Yam, considering its physical proximity to Company’s manufacturing plant in Sdot-Yam and its expertise.

 

The amounts the Company pays for the services are subject to certain adjustments for increases in the Israeli consumer price index. In addition, the Amended Services Agreement grants Kibbutz Sdot-Yam right of first proposal in special projects with respect to the metal workshop services. The amended services agreement also outlines the distribution mechanism between the Company and the Kibbutz for certain expenses and payments due to local authorities, such as certain taxes and fees in connection with the Company’s business facilities. Each party may terminate such agreement upon a material breach, following a 30-day prior notice, or upon liquidation of the other party, following a 45-days’ prior notice.

 

The Company's net service fees paid to the Kibbutz pursuant to the Original and Amended Services Agreements were $1,334, $1,468 and $1,315 for the years ended December 31, 2022, 2021 and 2020, respectively.

 

F - 60

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 14:-

TRANSACTIONS WITH RELATED PARTIES AND OTHER LOAN (Cont.)

c.

Land Use Agreement with the Kibbutz:

 

Land leased to Kibbutz Sdot-Yam by the ILA and the Caesarea Development Corporation

 

The Company's principal offices and research and development facilities, as well as one of its two manufacturing facilities, are located on the grounds of the Kibbutz and include buildings spaces of approximately 30,744 square meters and unbuilt areas of approximately 60,870 square meters.

 

The Company signed a land use agreement with the Kibbutz, which has a term of 20 years commencing on April 1, 2012. Under the land use agreement, Kibbutz Sdot-Yam permits the Company to use approximately 100,000 square meters of land, consisting of facilities and unbuilt areas, in consideration for an annual fee of NIS 12.9 million (approximately $4,000) in 2013 and thereafter, (this amount does not include approximately NIS 62,000 (approximately $19) for an additional area that the Company has leased on the grounds of Kibbutz Sdot-Yam due to the Company's needs and Kibbutz Sdot-Yam's consent under the same terms as the land use agreement), plus VAT, adjusted every six months based on any increase of the Israeli consumer price index compared to the index as of January 2011.

 

During January 2018, the Kibbutz requested to increase the fees due to it, pursuant to the land lease agreement. Following the assessment of an appointed appraiser and negotiations between the Company and the Kibbutz, it was agreed to increase the fees under such agreement, such that for the year 2018 the Company paid additional amount of NIS 950,000 (approximately $250), and commencing 2019 and on the Company was paying an additional annual amount of NIS 1,100,000 (approximately $342).

 

As per the agreement, the annual fee may be adjusted after January 1, 2021 and every three years thereafter, at the election of  Kibbutz Sdot-Yam by obtaining an updated appraisal. The appraiser will be mutually agreed upon or, in the absence of agreement, will be chosen by Kibbutz Sdot-Yam out of the list of appraisers recommended at that time by Bank Leumi Le-Israel ("Bank Leumi").  During 2021, The Kibbutz elected this option and the parties mutually agreed upon a land appraiser, and based on its study the fees were adjusted for 2021 onwards for annual amount of approximately NIS 18,600,000 (approximately $5,980), linked to the Israeli consumer price index.

 

Under the land use agreement, the Company may not terminate the operation of either of its two production lines at its plant in Kibbutz Sdot-Yam as long as the Company continues to operate production lines elsewhere in Israel, and its headquarters must remain at Kibbutz Sdot-Yam. The Company may also not decrease or return to Kibbutz Sdot-Yam any part of the land underlying the land use agreement; however, it may submit a written request to Kibbutz Sdot-Yam to return certain lands. Kibbutz Sdot-Yam will have three months to accept or reject such request, in its sole discretion, provided that if it does not respond within such three-month period, the Company will be entitled to sublease such lands to a person approved in advance by Kibbutz Sdot-Yam. In such event, the Company will continue to be liable to Kibbutz Sdot-Yam with respect to such lands.

 

Pursuant to the land use agreement, if the Company needs additional facilities on the land that the Company is permitted to use in Kibbutz Sdot-Yam, subject to obtaining the permits required by law, Kibbutz Sdot-Yam will build such facilities for the Company, by using the proceeds of a loan that the Company will make to Kibbutz Sdot-Yam, which loan shall be repaid to the Company by off-setting the monthly additional payment that the Company will pay for such new facilities and, if not fully repaid during the land use agreement term, upon termination thereof.

 

In addition, the Company has committed to fund the cost of construction, up to a maximum of NIS 3.3 million (approximately $1,100) plus VAT, required to change the access road leading to Kibbutz Sdot-Yam and its facilities, such that the entrance of the Company's facilities will be separated from the entrance into Kibbutz Sdot-Yam. In addition, the Company has committed to pay NIS 200,000 (approximately $64) plus VAT to cover the cost of paving an area of land leased from Kibbutz Sdot-Yam with such payment to be deducted in monthly installments over a four-year period beginning in the year that the construction completed, from the lease payments to be made to Kibbutz Sdot-Yam under the land use agreement related to the Company's Sdot-Yam facility.

 

F - 61

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 14:-

TRANSACTIONS WITH RELATED PARTIES AND OTHER LOAN (Cont.)

d.

Financing liability of land:

 

Pursuant to the Land Use Agreement, the Company has entered into an agreement with Kibbutz Sdot-Yam dated August 6, 2013, under which Kibbutz Sdot-Yam acquired additional land of approximately 12,800 square meters on the grounds near the Company's Bar-Lev facility, which the Company required in connection with the construction of the fifth production line at the Company's Bar-Lev manufacturing facility, leased it to the Company for a monthly fee of approximately NIS 70,000 (approximately $22).

 

Under the agreement, Kibbutz Sdot-Yam committed to (i) acquire the long-term leasing rights of the Additional Bar-Lev Land from the ILA, (ii) perform preparation work and construction, in conjunction with the administrative body of Bar-Lev industrial park and other contractors according to Company’s plans, (iii) build a warehouse according Company’s plans, and (iv) obtain all permits and approvals required for performing the preparation work of the Additional Bar-Lev Land and for the building of the warehouse. The warehouse in Bar-Lev will be situated both on the current and new land. The finance of the building of the warehouse will be made through a loan that will be granted by the Company to Kibbutz Sdot-Yam, in the amount of the total cost related to the building of the warehouse and such loan, including principle and interest, shall be repaid by setoff of the lease due to Kibbutz Sdot Yam by the Company for its use of the warehouse. The principle amount of such loan will bear an interest at a rate of 1.4% a year. On November 30, 2015 the land preparation work had been completed and the holding of the Additional Bar-Lev Land was delivered to the Company. As of December 31, 2022, the construction of the warehouse has not started yet.

 

The Company's payments pursuant to the land use agreement totaled $5,684, $5,305 and $4,690 for the years ended December 31, 2022, 2021 and 2020, respectively.

Pursuant to a land purchase and leaseback agreement, dated as of March 31, 2011, which became effective upon the Company’s IPO, between the Company and Kibbutz Sdot-Yam, the Company completed the selling of the rights in the lands and facilities of the Bar-Lev Industrial Center (the "Bar-Lev Grounds") to Kibbutz Sdot-Yam in consideration for NIS 43.7 million (approximately $10,900). The land purchase agreement was executed simultaneously with the execution of a land use agreement. Pursuant to the land use agreement, Kibbutz Sdot-Yam permits the Company to use the Bar-Lev Grounds for a period of 10 years commencing on September 2012 that will be automatically renewed, unless the Company gives two years prior notice, for a ten-year term in consideration for an annual fee of NIS 4.1 million (approximately $1,200) to be linked to increases in the Israeli consumer price index. As per the agreement, the fee is subject to adjustment following January 1, 2021 and every three years thereafter at the option of Kibbutz Sdot-Yam if Kibbutz Sdot-Yam chooses to obtain an appraisal that supports such an increase. The appraiser would be mutually agreed upon or, in the absence of agreement, will be chosen by Kibbutz Sdot-Yam from a list of assessors recommended at that time by Bank Leumi. During 2021, The Kibbutz elected this option and the parties mutually agreed upon a land appraiser, and based on its study the fees were adjusted for 2021 onwards for total annual amount of approximately NIS 8,100,000 (approximately $2,600), linked to the Israeli consumer price index.

 

The transaction was not qualified as "sale lease-back" accounting under both ASC 840 and ASC 842 and the Company recorded the entire amount received as consideration as a liability.

 

The financing liability of land from a related party was matured in August 31, 2022.

 

The balance at December 31, 2022 and 2021, includes $0 and $102 of deferred tax assets on the Company liability and a $0 and $680 deferred tax liability on the buildings depreciation during the next years due to temporary differences between the carrying amounts of the property and the liability for financial reporting purposes and the amounts used for income tax purposes.

 

The Company's payments pursuant to the land purchase agreement and leaseback totaled $2,479, $2,360 and $1,244 for the years ended December 31, 2022, 2021 and 2020, respectively.

 

F - 62

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 14:-

TRANSACTIONS WITH RELATED PARTIES AND OTHER LOAN (Cont.)

e.

Details on transactions and balances with related parties and other loan:

 

1.

The Company has, from time to time, entered into transactions with its shareholders (the Kibbutz). The following table summarizes such transactions:

 

		Year ended December 31,
		2022				2021				2020
Cost of revenues		$	8,870			$	8,157			$	7,200
Research and development		$	574			$	547			$	406
Selling and marketing		$	730			$	723			$	638
General and administrative		$	951			$	873			$	913
Finance expenses, net		$	(392	)		$	106			$	491

 

2.

Balances with related party and other loan:

 

		December 31,
		2022				2021
Financing liability of land from related party- current maturities, and other related party balances (1)		$	283			$	2,276
Long-term financing liability of land from a related party (1)		$	-			$	5,693
Other loans (2)		$	483			$	547

 

1.

Mainly reflects a financing leaseback of $10,900 related to Bar-Lev transaction from September 2012, that was granted to the Company by Kibbutz Sdot-Yam. The term of the leaseback was 10 years, ended on August 2022, and therefore is not part of the balance at year end.

 

2.

During 2021, subject to certain conditions and regulatory approvals met by Lioli, the Company assumed 55% of the shareholders loan in Lioli.

F - 63

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 15:-

LONG-TERM BANK LOAN

 

a.

As part of the Lioli’s acquisition in 2020, the Company assumed also a bank loan from commercial banks in India. As of December 31, 2021, the loan was presented under Short-term bank credit due to certain unmet covenents with the bank of India (see also Note 8).

 

b.

During 2022, lioli refinanced its old loan and signed on a new loan agreement with HDFC Bank. The new loan is denominated in Indian rupee and as of Dec 31, 2022 the new loan carries interest rate of 7.4% (MCLR+0.20%). The long-term loan repayable in equal monthly installment till September 2025 and outstanding balance as of December 31, 2022 is $4,340.

 

c.

The new loan is secured by creating charge on Lioli’s land, building and plant and machineries and current assets including stock, receivables and other current assets. The Company has also provided the stand by letter of credit as a security.

 

NOTE 16:-

MAJOR CUSTOMER AND GEOGRAPHIC INFORMATION

 

a.

The Company manages its business on the basis of one reportable segment. The data is presented in accordance with Accounting Standard Codification 280, "Segments Reporting" ("ASC 280"). The following is a summary of revenue and long-lived assets (including Property, plant and equipment, intangible assets and operating lease right-of-use assets) by geographic area. Revenues are attributed to geographic areas based on the location of end customers.

 

The following table presents total revenues for the years ended December 31, 2022, 2021 and 2020, respectively:

 

		Year ended December 31,
		2022				2021				2020
USA		$	342,293			$	305,353			$	207,496
Canada			93,377				84,467				72,492
Latin America			4,481				4,702				2,149
Australia			116,284				118,714				103,587
Asia			34,607				30,390				14,566
EMEA			63,320				60,836				45,201
Israel			36,444				39,430				40,921
		$	690,806			$	643,892			$	486,412

F - 64

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 16:-

MAJOR CUSTOMER AND GEOGRAPHIC INFORMATION (Cont.)

No customer represented 10% or more of the Company’s total revenues for the years ended December 31, 2022, 2021 and 2020.

 

b.

The following table presents total long-lived assets as of December 31, 2022 and 2021:

 

		December 31,
		2022				2021
USA		$	149,173			$	156,998
Canada			3,292				4,413
Australia			10,337				13,143
Asia			24,353				28,453
EMEA			8,488				7,626
Israel			126,564				174,796
		$	322,207			$	385,429

NOTE 17:-

SELECTED SUPPLEMENTARY STATEMENTS OF INCOME DATA

 

a.

Finance (income) expense, net:

 

		Year ended December 31,
		2022				2021				2020
Finance expenses:
Interest in respect credit cards and bank fees		$	5,380			$	4,702			$	3,254
Interest in respect of loans			346				2,035				1,053
Amortization/accretion of premium/discount on marketable securities			237				200				161
Realized gain/loss from marketable securities, net			-				134				11
Changes in derivatives fair value			1,509				-				3,427
Foreign exchange transactions losses			3,818				6,023				7,128
			11,290				13,094				15,034
Finance income:
Interest in respect of cash and cash equivalent and short-term bank deposits			20				147				657
Changes in derivatives fair value			-				4,950				-
Interest income from marketable securities			287				407				213
Foreign exchange transactions gains			14,062				-				3,965
			14,369				5,504				4,835
Finance expenses (income), net		$	(3,079	)		$	7,590			$	10,199

 

F - 65

---

CAESARSTONE LTD. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

---

U.S. dollars in thousands (except share data)

 

NOTE 17:-

SELECTED SUPPLEMENTARY STATEMENTS OF INCOME DATA (CONT)

b.

Net earnings (loss) per share:

 

The following table sets forth the computation of basic and diluted net earnings per share:

 

Numerator:

 

		Year ended December 31,
		2022				2021				2020
Net income (loss) attributable to controlling interest, as reported		$	(57,054	)		$	18,966			$	7,218
Adjustment to redemption value of non-controlling interest			(198	)			(1,399	)			-
Numerator for basic and diluted net income (loss) per share		$	(57,252	)		$	17,567			$	7,218

 

Denominator:

 

		Year ended December 31,
		2022				2021				2020
Denominator for basic income (loss) per share			34,488				34,462				34,419
Effect of dilutive stock based awards			-				108				55
Denominator for diluted income (loss) per share			34,488				34,570				34,474

 

Earnings per share:

 

Basic and diluted earnings (loss) per share

$

(1.66

)

$

0.51

$

0.21

 

F - 66

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors and Shareholders

Caesarstone Australia Pty Ltd

 

Opinion on the financial statements

We have audited the accompanying balance sheets of Caesarstone Australia Pty Ltd  (the “Company”) as of December 31, 2022 and 2021, the related statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”) (not included herein). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 15, 2023 expressed an unqualified opinion.

 

Basis for opinion

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

 

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

 

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Impairment of Goodwill

In accordance with ASC 350 Intangibles – Goodwill and Other, goodwill is allocated to the Company’s reporting units. Caesarstone Australia is considered its own reporting unit with AUD $22.245 million goodwill allocated prior to assessment of impairment. For each reporting unit to which goodwill has been allocated, the Company is required to assess the impairment of goodwill annually. Management assessed the fair value of the Australian company as a reporting unit, and determined an impairment loss of AUD $22.245 million. We identified the impairment of goodwill as a critical audit matter.

 

The principal considerations for our determination that impairment of goodwill is a critical audit matter are the level of management judgement and estimation uncertainty involved in the valuation of the fair value of the reporting unit.

 

Our audit procedures related to the impairment of goodwill included the following, among others:

•	Obtaining an understanding, evaluating the design and operating effectiveness of the controls around the goodwill impairment process;

•	Assessing the reasonableness of management’s determination of the reporting unit and the allocation of goodwill;

•	Assessing management’s impairment model for compliance with ASC 350 and ASC 820;

•	Obtaining an understanding of the significant inputs and assumptions in management’s model, and assessing for reasonableness including:

o	Reviewing the key inputs of the model and corroborating key assumptions against supporting documentation;

 

F - 67

---

o	Assessing the appropriateness of revenue growth assumptions in management’s forecast of cash flows in the current operating environment;

o	Engaging our internal valuation specialists to assess the appropriateness of the impairment model as a fair value approach consistent with ASC 820;

o	Engaging our internal valuation specialists to develop a range of independent estimates of the discount rate and comparing those to the discount rate selected by management;

o	Performing sensitivity analysis on the significant inputs and assumptions made by management in preparing the valuation model; and

•	Assessing the adequacy of disclosures in the financial report.

 

Bodily injury claims related to exposure to silica dust

Caesarstone Australia is facing a growing number of legal claims under workers’ compensation for bodily injury claims related to exposure to silica dust. Caesarstone Australia also have insurance which is expected to cover some of the costs of settling claims. In accordance with ASC 450-20 Loss Contingencies, a loss must be recognised when the loss is reasonably estimable. We identified the liability for bodily injury claims as a critical audit matter.

 

The principal considerations for our determination that the liability for bodily injury claims is a critical audit matter are the significant judgements and estimates involved in determining the loss liability to be recognized, including estimating the settlement amounts, claim amounts and expected portions payable by Caesarstone Australia.

 

Our audit procedures related to the bodily injury claims related to exposure to silica dust included the following, among others:

•	Obtaining an understanding, evaluating the design and operating effectiveness of the controls around the recognition and measurement of the liability;

•	Inquiring directly with all the Company’s attorneys utilized throughout the year;

•	Obtaining an understanding of the significant inputs and assumptions in management’s estimate of the liability and assessing for reasonableness including:

o	Inquiring with the Company’s attorneys and management regarding the status of open legal claims, relevant claim amounts, and other key assumptions and judgements;

o	Assessing the reasonableness of assumptions by reference to historical settlement amounts;

o	Recalculating the estimated claim liability; and

•	Assessing the adequacy of disclosures in the financial report.

 

/s/ GRANT THORNTON AUDIT PTY LTD

 

We have served as the Company’s auditor since 2008.

 

Melbourne, Australia

March 15, 2023

 

F - 68

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors and Shareholders

Caesarstone Australia Pty Ltd

 

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of Caesarstone Australia Pty Ltd (the “Company”) as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the financial statements of the Company as of and for the year ended December 31, 2022, and our report dated March 15, 2023 expressed an unqualified opinion on those financial statements.

 

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

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

 

/s/ GRANT THORNTON AUDIT PTY LTD

 

Melbourne, Australia

March 15, 2023

 

F - 69

---