TIDMSOM
RNS Number : 0979M
Somero Enterprises Inc.
18 May 2010
+-----+--------------------------------------------------------------+
| THIS ANNOUNCEMENT MAY NOT BE RELEASED, PUBLISHED OR DISTRIBUTED IN |
| OR INTO THE UNITED STATES, CANADA, JAPAN OR AUSTRALIA OR TO US |
| PERSONS (AS DEFINED IN REGULATION S UNDER THE US SECURITIES ACT OF |
| 1933, AS AMENDED) OR TO RESIDENTS, NATIONALS OR CITIZENS OF |
| CANADA, JAPAN OR AUSTRALIA. |
+--------------------------------------------------------------------+
| |
+--------------------------------------------------------------------+
| For immediate release |
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| 18 May 2010 |
+--------------------------------------------------------------------+
| Somero Enterprises, Inc. |
+--------------------------------------------------------------------+
| |
+--------------------------------------------------------------------+
| Full year results for the twelve months to 31 December 2009 |
+--------------------------------------------------------------------+
| |
+--------------------------------------------------------------------+
| Somero Enterprises, Inc. , ("Somero" or the "Company") is pleased |
| to report results for the twelve months to 31 December 2009. |
| Somero is a North American manufacturer of patented laser guided |
| equipment used for the spreading and leveling of high volumes of |
| concrete for floors in the construction industry. Somero has |
| operations worldwide and is primarily focused on the |
| non-residential construction industry. |
| |
+--------------------------------------------------------------------+
| Financial Highlights |
+--------------------------------------------------------------------+
| - | Full year revenue and operating results in line with |
| | management's expectations following 23 November 2009 trading |
| | update |
+-----+--------------------------------------------------------------+
| - | Revenue decreased by 53% to US$24.2m (2008: US$51.9m) |
+-----+--------------------------------------------------------------+
| - | Adjusted EBITDA decreased by 87% to US$0.8m (2008: US$6.0m) |
| | which includes a US$0.2m restructuring charge (2) (3) |
+-----+--------------------------------------------------------------+
| - | Pre-tax loss at US$16.6m (2008 Pre-tax income: US$2.2m) |
+-----+--------------------------------------------------------------+
| - | Adjusted net income/(loss) before amortization decreased to |
| | US$(13.1m) (2008: US$4.0m) (2) (4) |
+-----+--------------------------------------------------------------+
| - | EPS before amortization US($0.29) (Basic EPS: US($0.34)) vs. |
| | US$0.12 in 2008 (Basic EPS: US$0.05) |
+-----+--------------------------------------------------------------+
| - | Non-cash write down of US$13.5m Goodwill |
+-----+--------------------------------------------------------------+
| |
+--------------------------------------------------------------------+
| Business Highlights |
+--------------------------------------------------------------------+
| - | Use of proceeds from June 2009 placing reduced net debt from |
| | US$9.7m at the end of 2008 to US$5.9m at 31 December 2009 |
| | (1) |
+-----+--------------------------------------------------------------+
| - | Successful modification of bank agreements providing added |
| | covenant flexibility throughout 2010 |
+-----+--------------------------------------------------------------+
| - | Operating costs (excluding depreciation and amortization) in |
| | 2010 expected to be around US$8.6m, down from a level of |
| | US$23.3m in 2008. Cost reductions included a 10% reduction |
| | in employee compensation |
+-----+--------------------------------------------------------------+
| - | Continued focus on product development with the introduction |
| | of the new PowerRake 3.0 in November 2009, the new Mini |
| | Rake and the introduction of 3D Profiler System capability |
| | to our Small line equipment in January 2010 |
+-----+--------------------------------------------------------------+
| - | First full year of sales for the Mini Screed(TM) Commercial |
| | accounted for 6.3% of total Company revenues |
+-----+--------------------------------------------------------------+
| - | Increased investment in Asia as a result of continued strong |
| | interest and results |
+-----+--------------------------------------------------------------+
| - | Increased focus on opportunities for growth in international |
| | markets supported by the re-launch of our website in over 50 |
| | languages |
+-----+--------------------------------------------------------------+
| - | Implemented a new share option plan to retain and |
| | incentivize management |
+-----+--------------------------------------------------------------+
| - | Lawrence Horsch appointed Non-Executive Chairman in October |
| | 2009 |
+-----+--------------------------------------------------------------+
| | |
+-----+--------------------------------------------------------------+
| 1 | Net Debt is defined as total borrowings under bank |
| | obligations less cash and cash equivalents. |
+-----+--------------------------------------------------------------+
| 2 | The Company uses non-US GAAP financial measures in order to |
| | provide supplemental information regarding the Company's |
| | operating performance. See further information regarding |
| | non-GAAP?measures on pages 6 and 7. |
+-----+--------------------------------------------------------------+
| 3 | Adjusted EBITDA as used herein is a calculation of its net |
| | income/(loss) plus tax provision/(benefit), interest |
| | expense, interest income, foreign exchange gain, other |
| | expense, depreciation, amortization, stock based |
| | compensation and the write-down of Goodwill. |
+-----+--------------------------------------------------------------+
| 4 | Adjusted net income/(loss) before amortization is a |
| | calculation of income/(loss) plus Amortization of |
| | Intangibles. |
+-----+--------------------------------------------------------------+
| |
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| Enquiries |
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| Hawkpoint Partners Limited |
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| Chris Robinson |
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| Serge Rissi |
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| +44 (0)20 7665 4500 |
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| |
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| Collins Stewart Europe |
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| Piers Coombs |
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| +44 (0)20 7523 8000 |
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| |
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| About Somero |
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| Somero designs, manufactures and sells equipment that automates |
| the process of spreading and leveling large volumes of concrete |
| for commercial flooring and other horizontal surfaces, such as |
| paved parking lots. Somero's innovative, proprietary products, |
| including the large SXP -D, CopperHead , and new Mini Screed(TM) C |
| Laser Screed machines employ laser-guided technology to achieve a |
| high level of precision. |
| |
| Somero's products have been sold primarily to concrete contractors |
| for use in non-residential construction projects in over 60 |
| countries across every time zone around the globe. Laser Screed |
| equipment has been specified for use in constructing warehouses, |
| assembly plants, retail centers and in other commercial |
| construction projects requiring extremely flat concrete floors by |
| a variety of companies, such as Costco, Home Depot, B&Q, Daimler, |
| various Coca-Cola bottling companies, the United States Postal |
| Service, Lowe's, Toys 'R' Us and ProLogis. |
| |
| Somero's headquarters and manufacturing operations are located in |
| Michigan, USA with Executive offices in Florida. It has a sales |
| and service office in Chesterfield, England. |
| |
| Somero has approximately 56 employees and markets and sells its |
| products through a direct sales force, external sales |
| representatives and independent dealers in North America, Latin |
| America, Europe, the Middle East, South Africa, Asia and |
| Australia. Somero is listed on the Alternative Investment Market |
| of the London Stock Exchange and its trading symbol is SOM.L. |
| |
| This announcement does not constitute or form part of any offer or |
| invitation to sell, or any solicitation of any offer to purchase, |
| any securities of Somero Enterprises, Inc. (the 'Company'). |
| |
| This announcement may not be released, published or distributed in |
| or into the United States, Canada, Japan or Australia or to US |
| Persons (as defined in Regulation S under the US Securities Act of |
| 1933, as amended (the 'US Securities Act')) or to residents, |
| nationals or citizens of Canada, Japan or Australia. The |
| distribution of this announcement in certain other jurisdictions |
| may also be restricted by law and persons into whose possession |
| this announcement or any document or other information referred to |
| herein comes should inform themselves about and observe any such |
| restriction. Any failure to comply with these restrictions may |
| constitute a violation of the securities laws of any such |
| jurisdiction. |
| |
| No securities of the Company have been registered under the US |
| Securities Act. No securities of the Company may be offered or |
| sold in the United States or to US persons (as defined in |
| Regulation S under the US Securities Act) except pursuant to an |
| effective registration statement under the US Securities Act or |
| pursuant to an available exemption from the registration |
| requirements under the US Securities Act. |
| |
| No securities of the Company have been registered under the |
| applicable securities laws of Australia, Canada or Japan and may |
| not be offered or sold within Australia, Canada or Japan or to, or |
| for the account or benefit of citizens or residents of Australia, |
| Canada or Japan. |
| |
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| Somero Enterprises, Inc |
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| |
+--------------------------------------------------------------------+
| Full year results for the twelve months to 31 December 2009 |
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| |
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| Chairman's Statement |
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| |
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| Overview |
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| In my short time as Chairman, I have become very familiar with the |
| serious issues facing the Company and have been impressed with the |
| management team's rapid response to these challenges. |
| |
| The Company is focused on maintaining profitability and its solid |
| relationship with its lending bank. This focus has allowed the |
| Company to continue to implement its strategic plan, successfully |
| introducing new products into the market and maximizing |
| opportunities from investments in emerging markets. |
| |
| Our lending bank remains supportive and we have re-set a 2009 |
| year-end covenant and quarterly covenants in 2010 so that they are |
| aligned with Somero's 2010 budget. The first quarter of 2010 was |
| within bank covenants. |
| |
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| Markets |
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| Despite the global recession and a 53% reduction in revenues, our |
| emerging market operations performed well in 2009 with |
| international sales accounting for 47% of total Group revenues, |
| down from 50% in 2008. Following this strong result, the Company |
| intends to continue its program of investment in emerging markets |
| in 2010. Mature market revenue declines were driven by lower |
| levels of business for our customers. |
| |
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| New Product Development |
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| Following its introduction in late 2008, the Mini Screed(TM) |
| Commercial generated 6.3% of total Company revenues in its first |
| full year of sales. In 2009, new product development focused on |
| Small line equipment with the introduction of a more powerful |
| PowerRake , a lower-cost Mini Rake and the new development of |
| utilizing the 3D Profiler System on Small line Laser Screed |
| equipment. We also introduced a new Large line machine, the SXP-D, |
| which quickly gained market recognition due to its new diagnostic |
| capabilities and the Somero Total Care program, an innovative |
| three year total warranty program. |
| |
| Our refurbished program continued to be successful in 2009 with |
| Small line refurbished equipment sales increasing by 84% over 2008 |
| with more than 62% of sales from North America. |
| |
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| Board |
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| On behalf of the Board, I would like to thank Stuart Doughty, the |
| former non-executive Chairman who stepped down from the Board in |
| the second half of 2009, for his years of service to the Company. |
| |
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| People |
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| The Board would like to take this opportunity to thank all |
| employees for their performance, commitment and dedication |
| throughout the past year. We commend their sacrifice to the |
| Company by accepting a 10% compensation reduction. |
| |
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| Non-cash charge |
+--------------------------------------------------------------------+
| The Company's analysis of its Goodwill accounts resulted in a |
| one-time, non-cash write down of US$13.5m. |
| |
+--------------------------------------------------------------------+
| Current Trading & Outlook |
+--------------------------------------------------------------------+
| 2010 revenues to date are consistent with our previously indicated |
| expectations. We believe our markets are at or near their bottom |
| and we continue to focus on every sales opportunity, while |
| maintaining tight controls on cost. |
| |
| We have seen some increase in sales activity in selected regions. |
| We are confident that Somero is well positioned to grow as we |
| pursue the increasing internationalization of our business and |
| focus on new product development. Notwithstanding encouraging |
| trends, the Board remains cautious on the outcome for 2010. |
| |
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| Larry Horsch |
| Non-Executive Chairman |
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| |
+--------------------------------------------------------------------+
| President and Chief Executive Officer's Statement |
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| |
+--------------------------------------------------------------------+
| Overview |
+--------------------------------------------------------------------+
| The unprecedented depth and length of the worldwide recession |
| required considerable focus on our bank relationship and |
| covenants. The management team reacted promptly making swift and |
| significant reductions to our cost structure. Despite these cost |
| reductions, the Company remained true to its strategic plan which |
| includes focusing on product development and growing the Company's |
| presence in emerging markets. During the restructuring there was |
| minimal reduction in sales personnel recognizing the critical |
| requirement to retain key staff in order to take advantage of |
| opportunities as markets start to grow. |
| |
| We pursued our product development with a single-minded focus to |
| introduce new products. We introduced the new PowerRake 3.0 in |
| November 2009, and the new Mini Rake and the 3D Profiler System |
| capability for our Small line equipment in January 2010. As we |
| came into 2009 we introduced the As Is program, which utilized |
| some of our trade-in machines, the SXP -D, a new Large line |
| machine, and the Somero Total Care program, an innovative three |
| year total warranty program for the SXP -D. These new programs |
| have had a significant impact on revenues. |
| |
| New equipment sales are very dependent on taking trade-ins. |
| Recognizing trade-ins increase our inventory, we introduced a |
| program of selling that equipment in As Is condition. This program |
| has been very effective in minimizing our inventory growth. The As |
| Is program allowed us to continue taking customer trade-ins and, |
| along with the Somero Total Care program, drove new equipment |
| sales that would not have happened without these programs. |
| |
| The redesign of our website was initiated in late 2009 and |
| launched in January. Enhancements to the technology and design |
| will provide our customers easier access to product information |
| and customer support. By utilizing Google(TM) translation software |
| on the website, our customers have the ability to roughly |
| translate major portions of the information they need in over 50 |
| languages. |
| |
+--------------------------------------------------------------------+
| Product Development |
+--------------------------------------------------------------------+
| The introduction of the new Large line machine, the SXP(TM)-D is a |
| significant success. This new innovation provides full-time |
| electrical system, hydraulic system and engine performance |
| diagnostics alerts to the operator instantly should faults occur |
| during operation. The machine was developed in response to |
| customer feedback and is an excellent example of our close |
| relationship with our customers. |
| |
| The PowerRake 3.0 is a new concept for the raking machine that |
| utilizes a two mast system allowing the contractor to place the |
| concrete at more precise levels before screeding. This improves |
| the final floor quality, making the machine an important asset to |
| the contractor. |
| |
| The new Mini Rake is a complimentary product to the Mini |
| Screed(TM) Commercial. It is a lower-cost raking machine that |
| levels the concrete in front of the Mini Screed utilizing only one |
| person. It improves the quality of the floor and reduces labor for |
| the contractor. |
| |
| The introduction of 3D Profiler System for our Small line |
| equipment gives our customers additional utilization for their |
| equipment. Previously only available on Large line screeds, the 3D |
| system allows the contractor to create parking lots, parking |
| garages, and other three dimensional projects using their small |
| Laser Screed equipment. The increased utilization of their |
| equipment provides more profit for the contractor. |
| |
| In our continuing efforts to get customer input, we conducted |
| formal customer surveys during the World of Concrete tradeshow to |
| gather feedback on our products for future product development. |
| |
+--------------------------------------------------------------------+
| Emerging Markets/Geographic Growth |
+--------------------------------------------------------------------+
| Emerging markets remain a key growth opportunity for Somero. We |
| will continue to position ourselves to identify and take advantage |
| of opportunities by adding additional investments in these |
| markets. |
| |
| The implementation of our emerging markets strategy continues on |
| three core aims: |
+--------------------------------------------------------------------+
| - | To identify international logistics companies, development |
| | companies and building operators to ensure Western floor |
| | flatness specifications are carried through to new markets; |
+-----+--------------------------------------------------------------+
| - | To target local contractors tendering for projects for these |
| | major international players and local contractors with a |
| | Western joint venture partner; and |
+-----+--------------------------------------------------------------+
| - | To develop a package whereby we can provide in-depth floor |
| | construction training, beyond the operator training that we |
| | currently provide, and selling this training as part of the |
| | overall package of equipment and services to install a |
| | concrete floor. |
+-----+--------------------------------------------------------------+
| |
+--------------------------------------------------------------------+
| We continue to pursue these three core aims as we increase our |
| penetration and investment in emerging markets. |
| |
| We were encouraged by activity at our annual industry tradeshow, |
| the World of Concrete, and indications from attendees were that |
| activity levels are increasing. In 2010 we will look to continuing |
| development of new and innovative products to satisfy our |
| customers' needs and to expand our presence in emerging markets. |
+--------------------------------------------------------------------+
| |
+--------------------------------------------------------------------+
| Jack Cooney |
| President and Chief Executive Officer |
+-----+--------------------------------------------------------------+
+-----------------------------------------+-----------+--------------+
| Summary of Financial Results |
+--------------------------------------------------------------------+
| | Year | Year ended |
| | ended | |
+-----------------------------------------+-----------+--------------+
| | 31 | 31 December, |
| | December, | |
+-----------------------------------------+-----------+--------------+
| | 2008 | 2009 |
+-----------------------------------------+-----------+--------------+
| | US$ 000 | US$ 000 |
+-----------------------------------------+-----------+--------------+
| Revenue | 51,941 | 24,227 |
+-----------------------------------------+-----------+--------------+
| Cost of sales | 23,116 | 12,550 |
+-----------------------------------------+-----------+--------------+
| Gross profit | 28,825 | 11,677 |
+-----------------------------------------+-----------+--------------+
| | | |
+-----------------------------------------+-----------+--------------+
| Operating expenses | | |
+-----------------------------------------+-----------+--------------+
| Selling expenses | 11,518 | 5,366 |
+-----------------------------------------+-----------+--------------+
| Engineering expenses | 1,384 | 673 |
+-----------------------------------------+-----------+--------------+
| General and administrative expenses | 12,477 | 7,636 |
+-----------------------------------------+-----------+--------------+
| Restructuring expenses | 582 | 240 |
+-----------------------------------------+-----------+--------------+
| Goodwill impairment | 0 | 13,522 |
+-----------------------------------------+-----------+--------------+
| Total operating expenses | 25,961 | 27,437 |
+-----------------------------------------+-----------+--------------+
| Operating income/(loss) | 2,864 | (15,760) |
+-----------------------------------------+-----------+--------------+
| Other income (expense) | | |
+-----------------------------------------+-----------+--------------+
| Interest expense | (856) | (949) |
+-----------------------------------------+-----------+--------------+
| Interest income | 67 | 3 |
+-----------------------------------------+-----------+--------------+
| Foreign exchange gain | 99 | 100 |
+-----------------------------------------+-----------+--------------+
| Other | (12) | 7 |
+-----------------------------------------+-----------+--------------+
| Income/(loss) before income taxes | 2,162 | (16,599) |
+-----------------------------------------+-----------+--------------+
| Provision/(benefit) for income taxes | (505) | 1,214 |
+-----------------------------------------+-----------+--------------+
| Net income/(loss) | 1,657 | (15,385) |
+-----------------------------------------+-----------+--------------+
| Other data | | |
+-----------------------------------------+-----------+--------------+
| Adjusted EBITDA (1) (2) (4) | 5,984 | 807 |
+-----------------------------------------+-----------+--------------+
| Adjusted net income/(loss) before | 3,989 | (13,052) |
| amortization (1) (3) (4) | | |
+-----------------------------------------+-----------+--------------+
| Depreciation expense | 373 | 339 |
+-----------------------------------------+-----------+--------------+
| Amortization of intangibles | 2,332 | 2,333 |
+-----------------------------------------+-----------+--------------+
| Capital expenditures | 589 | 49 |
+-----------------------------------------+-----------+--------------+
+-----+--------------------------------------------------------------+
| Notes: |
+--------------------------------------------------------------------+
| 1 | Adjusted EBITDA and Adjusted income/(loss) Before |
| | Amortization are not measurements of the Company's financial |
| | performance under US GAAP and should not be considered as an |
| | alternative to income/(loss), operating income/(loss) or any |
| | other performance measures derived in accordance with US |
| | GAAP or as an alternative to US GAAP cash flow from |
| | operating activities as a measure of profitability or |
| | liquidity. Adjusted EBITDA and Adjusted Net Income/(loss) |
| | Before Amortization are presented herein because management |
| | believes they are useful analytical tools for measuring the |
| | profitability and cash generation of the business. Adjusted |
| | EBITDA is also used to determine pricing and covenant |
| | compliance under the Company's credit facility and as a |
| | measurement for calculation of management incentive |
| | compensation. The Company understands that although Adjusted |
| | EBITDA is frequently used by securities analysts, lenders |
| | and others in their evaluation of companies, its calculation |
| | of Adjusted EBITDA may not be comparable to other similarly |
| | titled measures reported by other companies. |
+-----+--------------------------------------------------------------+
| 2 | Adjusted EBITDA as used herein is a calculation of its net |
| | income/(loss) plus tax provision/(benefit), interest |
| | expense, interest income, foreign exchange gain, other |
| | expense, depreciation, amortization, stock based |
| | compensation. |
+-----+--------------------------------------------------------------+
| 3 | Adjusted Net Income/(loss) Before Amortization as used |
| | herein is a calculation of Net Income/(loss) plus |
| | Amortization of Intangibles. |
+-----+--------------------------------------------------------------+
| 4 | The Company uses non-US GAAP financial measures in order to |
| | provide supplemental information regarding the Company's |
| | operating performance. The non-US GAAP financial measures |
| | presented herein should not be considered in isolation from, |
| | or as a substitute to, financial measures calculated in |
| | accordance with US GAAP. Investors are cautioned that there |
| | are inherent limitations associated with the use of each |
| | non-US GAAP financial measure. In particular, non-US GAAP |
| | financial measures are not based on a comprehensive set of |
| | accounting rules or principles, and many of the adjustments |
| | to the US GAAP financial measures reflect the exclusion of |
| | items that may have a material effect on the Company's |
| | financial results calculated in accordance with US GAAP. |
+-----+--------------------------------------------------------------+
| |
+--------------------------------------------------------------------+
| Net Income/(loss) to Adjusted EBITDA?Reconciliation and Adjusted |
| Net Income/(loss) Before Amortization Reconciliation |
+-----+--------------------------------------------------------------+
+-----------------------------------------+-----------+--------------+
| | 12 months | 12 months |
| | ended | ended |
+-----------------------------------------+-----------+--------------+
| | 31-Dec-08 | 31-Dec-09 |
+-----------------------------------------+-----------+--------------+
| | US$ 000 | US$ 000 |
+-----------------------------------------+-----------+--------------+
| Adjusted EBITDA reconciliation | | |
+-----------------------------------------+-----------+--------------+
| Net income/(loss) | 1,657 | (15,385) |
+-----------------------------------------+-----------+--------------+
| Tax provision/(benefit) | 505 | (1,214) |
+-----------------------------------------+-----------+--------------+
| Interest expense | 856 | 949 |
+-----------------------------------------+-----------+--------------+
| Interest income | (67) | (3) |
+-----------------------------------------+-----------+--------------+
| Foreign exchange gain | (99) | (100) |
+-----------------------------------------+-----------+--------------+
| Other expense | 12 | (7) |
+-----------------------------------------+-----------+--------------+
| Depreciation | 373 | 339 |
+-----------------------------------------+-----------+--------------+
| Amortization | 2,332 | 2,333 |
+-----------------------------------------+-----------+--------------+
| Stock based compensation | 415 | 373 |
+-----------------------------------------+-----------+--------------+
| Goodwill impairment | 0 | 13,522 |
+-----------------------------------------+-----------+--------------+
| Adjusted EBITDA | 5,984 | 807 |
+-----------------------------------------+-----------+--------------+
| Adjusted net income/(loss) before | | |
| amortization reconciliation | | |
+-----------------------------------------+-----------+--------------+
| Net income/(loss) | 1,657 | (15,385) |
+-----------------------------------------+-----------+--------------+
| Amortization | 2,332 | 2,333 |
+-----------------------------------------+-----------+--------------+
| Adjusted net income/(loss) before | 3,989 | (13,052) |
| amortization reconciliation | | |
+-----------------------------------------+-----------+--------------+
+------------------------------------------------------------------+
| Notes: References to "Adjusted Net Income/(loss) Before |
| Amortization" in this document are to Somero's net income/(loss) |
| plus amortization of intangibles. Although Adjusted Net |
| Income/(loss) Before Amortization is not a measure of operating |
| income/(loss), operating performance or liquidity under US GAAP, |
| this financial measure is included because management believes |
| it will be useful to investors when comparing Somero's results |
| of operations both before and after the Somero Acquisition, |
| including by eliminating the effects of increases in |
| amortization of intangibles that have occurred as a result of |
| the write-up of these assets in connection with the Somero |
| Acquisition. Adjusted Net Income/(loss) Before Amortization |
| should not, however, be considered in isolation or as a |
| substitute for operating income/(loss) as determined by US GAAP, |
| or as an indicator of operating performance, or of cash flows |
| from operating activities as determined in accordance with US |
| GAAP. Since Adjusted Net Income/(loss) Before Amortization is |
| not a measure determined in accordance with US GAAP and is thus |
| susceptible to varying calculations, Adjusted Net Income/(loss) |
| Before Amortization, as presented, may not be comparable to |
| other similarly titled measures of other companies. A |
| reconciliation of net income/(loss) to Adjusted EBITDA and |
| Adjusted Net Income/(loss) Before Amortization is presented |
| above. |
+------------------------------------------------------------------+
| |
+------------------------------------------------------------------+
| Revenues |
+------------------------------------------------------------------+
| Somero's consolidated revenues decreased by 53% to US$24.2m |
| (2008: US$51.9m). Somero's revenues consist primarily of sales |
| from new Large line products (the SXP-D Large Laser Screed and |
| its predecessors), sales from new Small line products (the |
| CopperHead and PowerRake) and other revenues, which consist of, |
| among other things, revenue from sales of spare parts, |
| refurbished machines, Topping Spreaders, Mini Screeds, 3D |
| systems and accessories. The overall decrease in revenues for |
| the year was driven by reductions in each of Large line sales, |
| Small line sales and other revenues. The following table shows |
| the breakdown between Large line sales, Small line sales and |
| other revenues during the 12 months ended 31 December 2008 and |
| 2009: |
+------------------------------------------------------------------+
+---------------+---------------+---------------+---------------+----------------+
| | 12 months | | 12 months | |
| | ended | | ended | |
| | 31 December | | 31 December | |
| | 2008 | | 2009 | |
+---------------+---------------+---------------+---------------+----------------+
| | (US$ in | Percentage of | (US$ in | Percentage of |
| | millions) | net sales | millions) | net sales |
+---------------+---------------+---------------+---------------+----------------+
| Large line | 21.3 | 41.1% | 9.0 | 37.2% |
| sales | | | | |
+---------------+---------------+---------------+---------------+----------------+
| Small line | 15.4 | 29.6% | 5.6 | 23.1% |
| sales | | | | |
+---------------+---------------+---------------+---------------+----------------+
| Other | 15.2 | 29.3% | 9.6 | 39.7% |
| revenues | | | | |
+---------------+---------------+---------------+---------------+----------------+
| Total | 51.9 | 100% | 24.2 | 100% |
+---------------+---------------+---------------+---------------+----------------+
+------------------------------------------------------------------+
| Large line sales decreased to US$9.0m (2008: US$21.3m) as a |
| result of a 55% decrease in volume to 32 units (2008: 71), Small |
| line sales decreased to US$5.6m (2008: US$15.4m) as volumes |
| decreased to 119 (2008: 320) and other revenues, including sales |
| of spare parts, refurbished machines, Topping Spreaders, Mini |
| Screeds, 3D systems and accessories, decreased to US$9.6m (2008: |
| US$15.2m). |
| |
| Sales to customers located in North America comprise the |
| majority of Somero's revenue, constituting 53% of total revenue |
| (2008: 51%), while sales to customers in Europe, South Africa |
| and the Middle East combined contributed 31% (2008: 40%). The |
| remaining sales in these periods were to customers in Asia, |
| Australia, Central America and South America. Sales in Europe, |
| South Africa and the Middle East generated US$7.6m (2008: |
| US$20.5m) with sales of Large line and Small line products in |
| these regions decreasing by 67% and 72% respectively. |
| |
| Sales in Asia, Australia and Latin and South America decreased |
| to US$3.7m (2008: US$5.2m) driven by a decrease in Large line |
| volumes to 7 units (2008: 9 units) and in Small line units to 19 |
| (2008: 28 units). |
+------------------------------------------------------------------+
| |
+------------------------------------------------------------------+
| Gross Profit |
+------------------------------------------------------------------+
| Gross profit decreased to US$11.7m (2008: US$28.8m), with gross |
| margins declining to 48% (2008: 55%). The decrease in gross |
| margins was a result of several factors including a change in |
| sales mix from higher margin Large line and Small line to lower |
| margin Other and lower production volumes leading to less cost |
| absorption. Increased discounting, particularly on Large line, |
| was also a factor. |
+------------------------------------------------------------------+
| |
+------------------------------------------------------------------+
| Operating Expenses |
+------------------------------------------------------------------+
| Operating expenses excluding goodwill impairment decreased by |
| 46% to US$13.9m (2008: US$26.0m). This decrease was driven by |
| the restructurings at the end of 2008 and in 2009, lower sales |
| which resulted in decreased sales commissions, the elimination |
| of some engineering and administrative personnel and fewer |
| projects being worked on in 2009 as compared to 2008. |
| Restructuring expenses amounted to US$0.2m as the Company |
| continued to streamline its operations during the global |
| recession. Total employment is down from approximately 90 to 56 |
| people for the period. The company recorded a US$13.5 non-cash |
| goodwill impairment charge. |
+------------------------------------------------------------------+
| |
+------------------------------------------------------------------+
| Other Income (Expense) |
+------------------------------------------------------------------+
| Other expenses were US$0.8m (2008: US$0.7m). Other expenses |
| consisted of interest income, interest expense, foreign exchange |
| gains and losses and gains and losses on the disposal of assets. |
+------------------------------------------------------------------+
| |
+------------------------------------------------------------------+
| Provision/(benefit) for Income Taxes |
+------------------------------------------------------------------+
| The provision/(benefit) for income taxes was US($1.2m) in 2009 |
| as compared to US$0.5m in 2008 due to a net loss. Overall, |
| Somero's effective tax rate changed from 23.4% to 7.3% due to a |
| net loss and a valuation allowance. The Company has filed its |
| 2009 US Federal Tax Return and expects a refund of US$1,041,000 |
| due to the ability to carry the 2009 loss back to previous tax |
| years. |
+------------------------------------------------------------------+
| |
+------------------------------------------------------------------+
| Net Income/(loss) |
+------------------------------------------------------------------+
| Net income/(loss) decreased to US$(15.4m) from US$1.7m in 2008. |
| The primary cause of the decrease in net income/(loss) was a |
| non-cash goodwill impairment charge and decreased sales. Basic |
| Earnings/(loss) Per Share represents income available to common |
| stockholders divided by the weighted average number of shares |
| outstanding during the period. Diluted earnings/(loss) per share |
| reflect additional common shares that would have been |
| outstanding if dilutive potential common shares had been issued. |
| Potential common shares that may be issued by the Company relate |
| to outstanding stock options. Earnings/(loss) per common share |
| have been computed based on the following: |
+------------------------------------------------------------------+
+-----------------------------------------+------------+--------------+
| | 2008 | 2009 |
| | US$ 000 | US$ 000 |
+-----------------------------------------+------------+--------------+
| Net income/(loss) | 1,657 | (15,385) |
+-----------------------------------------+------------+--------------+
| Basic weighted shares outstanding | 34,281,968 | 45,748,122 |
+-----------------------------------------+------------+--------------+
| Net dilutive effect of stock options | - | - |
+-----------------------------------------+------------+--------------+
| Diluted weighted average shares | 34,281,968 | 45,748,122 |
| outstanding | | |
+-----------------------------------------+------------+--------------+
+------------------------------------------------------------------+
| The Company had 56,425,598 shares outstanding at 31 December |
| 2009. |
+------------------------------------------------------------------+
+-----------------------------------------+-----------+--------------+
| Earnings/(loss) Per Share |
+--------------------------------------------------------------------+
| Earnings/(loss) per share at 31 | | |
| December 2009 is as follows: | | |
+-----------------------------------------+-----------+--------------+
| | | US$ |
+-----------------------------------------+-----------+--------------+
| Basic earnings/(loss) per share | | (0.34) |
+-----------------------------------------+-----------+--------------+
| Diluted earnings/(loss) per share | | (0.34) |
+-----------------------------------------+-----------+--------------+
| Diluted earnings/(loss) per share | | (0.29) |
+-----------------------------------------+-----------+--------------+
+---------------------------------------+----------+-------------+
| Consolidated Balance Sheets | | |
+---------------------------------------+----------+-------------+
| | | |
+---------------------------------------+----------+-------------+
| As of 31 December 2008 and 2009 | | |
+---------------------------------------+----------+-------------+
+----------+-------------------------------------+----------+-------------+
| | | 2008 | 2009 |
| | | US$ 000 | US$ 000 |
+----------+-------------------------------------+----------+-------------+
| Assets | | |
+------------------------------------------------+----------+-------------+
| Current Assets: | | |
+------------------------------------------------+----------+-------------+
| | Cash and cash equivalents | 789 | 34 |
+----------+-------------------------------------+----------+-------------+
| | Accounts receivable - net | 2,434 | 2,152 |
+----------+-------------------------------------+----------+-------------+
| | Inventories - net | 5,819 | 6,177 |
+----------+-------------------------------------+----------+-------------+
| | Prepaid expenses and other assets | 800 | 720 |
+----------+-------------------------------------+----------+-------------+
| | Income tax receivable | 137 | 1,228 |
+----------+-------------------------------------+----------+-------------+
| | Deferred tax asset | 466 | 0 |
+----------+-------------------------------------+----------+-------------+
| | Total current assets | 10,445 | 10,311 |
+----------+-------------------------------------+----------+-------------+
| Property, plant and equipment - net | 4,260 | 3,954 |
+------------------------------------------------+----------+-------------+
| Intangible assets - net | 16,872 | 14,538 |
+------------------------------------------------+----------+-------------+
| Goodwill | 16,400 | 2,878 |
+------------------------------------------------+----------+-------------+
| Deferred financing costs | 52 | 10 |
+------------------------------------------------+----------+-------------+
| Deferred tax asset | 0 | 4 |
+------------------------------------------------+----------+-------------+
| Other assets | 75 | 35 |
+------------------------------------------------+----------+-------------+
| Total assets | 48,104 | 31,730 |
+------------------------------------------------+----------+-------------+
| | | | |
+----------+-------------------------------------+----------+-------------+
| Liabilities and stockholders' equity | | |
+------------------------------------------------+----------+-------------+
| Current liabilities: | | |
+------------------------------------------------+----------+-------------+
| | Notes payable - current portion | 1,429 | 460 |
+----------+-------------------------------------+----------+-------------+
| | Accounts payable | 1,960 | 1,911 |
+----------+-------------------------------------+----------+-------------+
| | Accrued expenses | 1,279 | 414 |
+----------+-------------------------------------+----------+-------------+
| | Other liabilities | 360 | 0 |
+----------+-------------------------------------+----------+-------------+
| | Total current liabilities | 5,028 | 2,785 |
+----------+-------------------------------------+----------+-------------+
| Notes payable, net of current portion | 9,026 | 5,493 |
+------------------------------------------------+----------+-------------+
| Deferred income taxes | 239 | 0 |
+------------------------------------------------+----------+-------------+
| Other liabilities, net of current portion | 422 | 107 |
+------------------------------------------------+----------+-------------+
| Total liabilities | 14,715 | 8,385 |
+------------------------------------------------+----------+-------------+
| | | | |
+----------+-------------------------------------+----------+-------------+
| Stockholders' equity | | |
+------------------------------------------------+----------+-------------+
| | Preferred stock, US$.001 par value, | 0 | 0 |
| | 50,000,000 shares authorized, no | | |
| | shares issued and outstanding | | |
+----------+-------------------------------------+----------+-------------+
| | Common stock, US$.001 par value, | 4 | 26 |
| | 80,000,000 shares authorized, | | |
| | 34,281,968 and 56,425,598 shares | | |
| | issued and outstanding at December | | |
| | 31, 2008 and December 31, 2009, | | |
| | respectively | | |
+----------+-------------------------------------+----------+-------------+
| | Additional paid in capital | 22,759 | 28,025 |
+----------+-------------------------------------+----------+-------------+
| | Retained earnings | 11,728 | (3,657) |
+----------+-------------------------------------+----------+-------------+
| | Other comprehensive loss | (1,102) | (1,049) |
+----------+-------------------------------------+----------+-------------+
| | Total stockholders' equity | 33,389 | 23,345 |
+----------+-------------------------------------+----------+-------------+
| Total liabilities and stockholders' equity | 48,104 | 31,730 |
+------------------------------------------------+----------+-------------+
| | | | |
+----------+-------------------------------------+----------+-------------+
| See notes to consolidated financial | | |
| statements. | | |
+------------------------------------------------+----------+-------------+
| | | |
+------------------------------------------------+----------+-------------+
| Consolidated Statements of Operations | | |
+----------+-------------------------------------+----------+-------------+
+----------+-------------------------------------+-------------+-------------+
| For the years ended 31 December 2008 and 2009 | | |
+------------------------------------------------+-------------+-------------+
| | Year | Year ended |
| | ended 31 | 31 December |
| | December | |
+------------------------------------------------+-------------+-------------+
| | 2008 | 2009 |
| | US$ 000 | US$ 000 |
+------------------------------------------------+-------------+-------------+
| | except | except per |
| | per | share data |
| | share | |
| | data | |
+------------------------------------------------+-------------+-------------+
| | | |
+------------------------------------------------+-------------+-------------+
| Revenue | 51,941 | 24,227 |
+------------------------------------------------+-------------+-------------+
| Cost of sales | 23,116 | 12,550 |
+------------------------------------------------+-------------+-------------+
| | | | |
+----------+-------------------------------------+-------------+-------------+
| Gross profit | 28,825 | 11,677 |
+------------------------------------------------+-------------+-------------+
| | | | |
+----------+-------------------------------------+-------------+-------------+
| Operating expenses | | |
+------------------------------------------------+-------------+-------------+
| | Selling expenses | 11,518 | 5,366 |
+----------+-------------------------------------+-------------+-------------+
| | Engineering expenses | 1,384 | 673 |
+----------+-------------------------------------+-------------+-------------+
| | General and administrative expenses | 12,477 | 7,636 |
+----------+-------------------------------------+-------------+-------------+
| | Restructuring expenses | 582 | 240 |
+----------+-------------------------------------+-------------+-------------+
| | Goodwill impairment | 0 | 13,522 |
+----------+-------------------------------------+-------------+-------------+
| | Total operating expenses | 25,961 | 27,437 |
+----------+-------------------------------------+-------------+-------------+
| | | | |
+----------+-------------------------------------+-------------+-------------+
| Operating income/(loss) | 2,864 | (15,760) |
+------------------------------------------------+-------------+-------------+
| Other income (expense) | | |
+------------------------------------------------+-------------+-------------+
| | Interest expense | (856) | (949) |
+----------+-------------------------------------+-------------+-------------+
| | Interest income | 67 | 3 |
+----------+-------------------------------------+-------------+-------------+
| | Foreign exchange gain | 99 | 100 |
+----------+-------------------------------------+-------------+-------------+
| | Other | (12) | 7 |
+----------+-------------------------------------+-------------+-------------+
| | | | |
+----------+-------------------------------------+-------------+-------------+
| Income/(loss) before income taxes | 2,162 | (16,599) |
+------------------------------------------------+-------------+-------------+
| Provision/(benefit) for income taxes | 505 | (1,214) |
+------------------------------------------------+-------------+-------------+
| Net income/(loss) | 1,657 | (15,385) |
+------------------------------------------------+-------------+-------------+
| | | | |
+----------+-------------------------------------+-------------+-------------+
| | | | |
+----------+-------------------------------------+-------------+-------------+
| Earnings/(loss) per common share | | |
+------------------------------------------------+-------------+-------------+
| | Basic | 0.05 | (0.34) |
+----------+-------------------------------------+-------------+-------------+
| | Diluted | 0.05 | (0.34) |
+----------+-------------------------------------+-------------+-------------+
| Weighted average number of common shares outstanding |
+----------------------------------------------------------------------------+
| | Basic | 34,281,968 | 45,748,122 |
+----------+-------------------------------------+-------------+-------------+
| | Diluted | 34,281,968 | 45,748,122 |
+----------+-------------------------------------+-------------+-------------+
| | | | |
+----------+-------------------------------------+-------------+-------------+
| See notes to consolidated financial | | |
| statements. | | |
+----------+-------------------------------------+-------------+-------------+
+----------------------------------------------------------------------+
| Consolidated Statements of Changes in Stockholders' Equity |
+----------------------------------------------------------------------+
+--------------------+-------------+--------+------------+----------+------------+---------------+
| For the years ended 31 December 2008 and 2009 |
+------------------------------------------------------------------------------------------------+
| | | | | | Other | |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| | Common | Additional | | Comprehen- | Total |
| | Stock | | | | |
+--------------------+----------------------+------------+----------+------------+---------------+
| | | | paid | Retained | sive | stockholders' |
| | | | In | | | |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| | Shares | Amount | capital | earnings | income | equity |
| | | | | | (loss) | |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| | | US$ | US$ | US$ | US$ | US$ |
| | | 000 | 000 | 000 | 000 | 000 |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| Balance - 1 | 34,218,968 | 4 | 22,344 | 12,128 | (248) | 34,228 |
| January 2008 | | | | | | |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| Cumulative | - | - | - | - | (625) | (625) |
| translation | | | | | | |
| adjustment | | | | | | |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| Change in fair | - | - | - | - | (229) | (229) |
| value of | | | | | | |
| derivative | | | | | | |
| instruments | | | | | | |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| Net income/(loss) | - | - | - | 1,657 | - | 1,657 |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| Share based | - | - | 415 | - | - | 415 |
| compensation | | | | | | |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| Dividend | - | - | - | (2,057) | - | (2,057) |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| Balance - 31 | 34,281,968 | 4 | 22,759 | 11,728 | (1,102) | 33,389 |
| December 2008 | | | | | | |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| Cumulative | - | - | - | - | (185) | (185) |
| translation | | | | | | |
| adjustment | | | | | | |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| Change in fair | - | - | - | - | 238 | 238 |
| value of | | | | | | |
| derivative | | | | | | |
| instruments | | | | | | |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| Net income/(loss) | - | - | - | (15,385) | - | (15,385) |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| Share based | - | - | 373 | - | - | 373 |
| compensation | | | | | | |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| Equity issue | 22,143,630 | 22 | 4,893 | - | - | 4,915 |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| Balance - 31 | 56,425,598 | 26 | 28,025 | (3,657) | (1,049) | 23,345 |
| December 2009 | | | | | | |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| | | | | | | |
+--------------------+-------------+--------+------------+----------+------------+---------------+
| See notes to consolidated financial statements. |
+--------------------+-------------+--------+------------+----------+------------+---------------+
+----------------------------------------+---------+----------+----------------+
| Consolidated Statements of Cash Flows | | |
+----------------------------------------+--------------------+----------------+
| | | |
+----------------------------------------+--------------------+----------------+
| For the years ended 31 December 2008 | | |
| and 2009 | | |
+----------------------------------------+--------------------+----------------+
| | Year ended | Year ended |
+----------------------------------------+--------------------+----------------+
| | 31 December | 31 December |
+----------------------------------------+--------------------+----------------+
| | 2008 | 2009 |
+----------------------------------------+--------------------+----------------+
| | US$ 000 | US$ 000 |
+----------------------------------------+--------------------+----------------+
| Cash flows from operating activities: | | |
+----------------------------------------+--------------------+----------------+
| Net income/(loss) | 1,657 | (15,385) |
+----------------------------------------+---------+---------------------------+
| Adjustments to reconcile net income/(loss) to net cash provided by/(used |
| in) operating activities: |
+------------------------------------------------------------------------------+
| Deferred taxes | (100) | 223 |
+----------------------------------------+--------------------+----------------+
| Depreciation and amortization | 2,705 | 2,672 |
+----------------------------------------+--------------------+----------------+
| Amortization of deferred financing | 42 | 42 |
| costs | | |
+----------------------------------------+--------------------+----------------+
| Loss/(gain) on sale of assets | 10 | (8) |
+----------------------------------------+--------------------+----------------+
| Share based compensation | 415 | 373 |
+----------------------------------------+--------------------+----------------+
| Goodwill impairment | 0 | 13,522 |
+----------------------------------------+--------------------+----------------+
| Working capital changes: | | |
+----------------------------------------+--------------------+----------------+
| Accounts receivable | 1,439 | 86 |
+----------------------------------------+--------------------+----------------+
| Inventories | 222 | (161) |
+----------------------------------------+--------------------+----------------+
| Prepaid expenses and other assets | 1 | 80 |
+----------------------------------------+--------------------+----------------+
| Other assets | 60 | 41 |
+----------------------------------------+--------------------+----------------+
| Accounts payable and other | (2,416) | (1,660) |
| liabilities | | |
+----------------------------------------+--------------------+----------------+
| Income taxes payable | (511) | (1,020) |
+----------------------------------------+--------------------+----------------+
| Net cash provided by/(used in) | 3,524 | (1,195) |
| operating activities | | |
+----------------------------------------+--------------------+----------------+
| | | |
+----------------------------------------+--------------------+----------------+
| Cash flows from investing activities: | | |
+----------------------------------------+--------------------+----------------+
| Proceeds from sale of property and | 680 | 23 |
| equipment | | |
+----------------------------------------+--------------------+----------------+
| Property and equipment purchases | (575) | (49) |
+----------------------------------------+--------------------+----------------+
| Net cash provided by/(used in) | 105 | (26) |
| investing activities | | |
+----------------------------------------+--------------------+----------------+
| | | |
+----------------------------------------+--------------------+----------------+
| Cash flows from financing activities: | | |
+----------------------------------------+--------------------+----------------+
| Borrowings from additional financing | 5,837 | 37,593 |
+----------------------------------------+--------------------+----------------+
| Repayment of notes payable | (10,311) | (42,095) |
+----------------------------------------+--------------------+----------------+
| Payment of dividends | (2,057) | 0 |
+----------------------------------------+--------------------+----------------+
| Proceeds from equity issue, net of | 0 | 4,915 |
| costs | | |
+----------------------------------------+--------------------+----------------+
| Net cash provided by/(used in) | (6,531) | 413 |
| financing activities | | |
+----------------------------------------+--------------------+----------------+
| | | |
+----------------------------------------+--------------------+----------------+
| Effect of exchange rates on cash and | (151) | 53 |
| cash equivalents | | |
+----------------------------------------+--------------------+----------------+
| | | |
+----------------------------------------+--------------------+----------------+
| Net (decrease) in cash and cash | (3,053) | (755) |
| equivalents | | |
+----------------------------------------+--------------------+----------------+
| | | |
+----------------------------------------+--------------------+----------------+
| Cash and cash equivalents: | | |
+----------------------------------------+--------------------+----------------+
| Beginning of year | 3,842 | 789 |
+----------------------------------------+--------------------+----------------+
| End of year | 789 | 34 |
+----------------------------------------+--------------------+----------------+
| | | |
+----------------------------------------+--------------------+----------------+
| See notes to consolidated financial | | |
| statements. | | |
+----------------------------------------+--------------------+----------------+
| | | | |
+----------------------------------------+---------+----------+----------------+
+-----+--------------------------------------------------------------+
| Notes to the Consolidated Financial Statements |
| As of 31 December 2008 and 2009 |
+--------------------------------------------------------------------+
| 1. | Organization and Description of Business |
+-----+--------------------------------------------------------------+
| | Nature of Business Somero Enterprises, Inc. (the "Company" |
| | or "Somero") designs, manufactures, refurbishes, sells and |
| | distributes concrete leveling, contouring and placing |
| | equipment, related parts and accessories, and training |
| | services worldwide. The operations are conducted from a |
| | corporate office in Houghton, Michigan, executive offices in |
| | Fort Myers, Florida, a European distribution office in the |
| | United Kingdom, and sales offices in Canada, Germany, Dubai |
| | and China |
+-----+--------------------------------------------------------------+
| 2. | Summary of Significant Accounting Policies |
+-----+--------------------------------------------------------------+
| | Basis of Presentation The consolidated financial statements |
| | of the Company have been prepared in accordance with |
| | accounting principles generally accepted in the United |
| | States of America. |
| | |
| | Principles of Consolidation The consolidated financial |
| | statements include the accounts of Somero Enterprises, Inc. |
| | and its subsidiaries. All significant intercompany |
| | transactions and accounts have been eliminated in |
| | consolidation. |
| | |
| | Cash and Cash Equivalents Cash includes cash on hand, cash |
| | in banks, and temporary investments with a maturity of three |
| | months or less when purchased. |
| | |
| | Accounts Receivable and Allowances for Doubtful Accounts |
| | Financial instruments which potentially subject the Company |
| | to concentrations of credit risk consist primarily of |
| | accounts receivable. The Company's accounts receivable are |
| | derived from revenue earned from a diverse group of |
| | customers primarily located in the United States. The |
| | Company performs credit evaluations of its commercial |
| | customers and maintains an allowance for doubtful accounts |
| | receivable based upon the expected ability to collect |
| | accounts receivable. Allowances, if necessary, are |
| | established for amounts determined to be uncollectible based |
| | on specific identification and historical experience. As of |
| | 31 December 2008 and 2009, the allowance for doubtful |
| | accounts was approximately US$650,000 and US$232,000, |
| | respectively. Bad debts expense/(income) was US$313,000 and |
| | US$(51,000) in 2008 and 2009, respectively. |
| | |
| | Inventories Inventories are stated at the lower of cost, |
| | using the first in, first out ("FIFO") method, or market. |
| | Provision for potentially obsolete or slow-moving inventory |
| | is made based on management's analysis of inventory levels |
| | and future sales forecasts. |
| | |
| | Deferred Financing Costs Deferred financing costs incurred |
| | in relation to long-term debt, are reflected net of |
| | accumulated amortization and are amortized over the expected |
| | repayment term of the debt instrument, which is four years |
| | from the debt inception date. These financing costs are |
| | being amortized using the effective interest method. |
| | |
| | Intangible Assets and Goodwill Intangible assets consist |
| | principally of customer relationships and patents, and are |
| | carried at their fair value, less accumulated amortization. |
| | Intangible assets are amortized using the straight-line |
| | method over a period of three to twelve years, which is |
| | their estimated period of economic benefit. Goodwill is not |
| | amortized but is subject to impairment tests on an annual |
| | basis, and the Company has chosen 31 December as its |
| | periodic assessment date. Goodwill represents the excess |
| | cost of the business combination over the Group's interest |
| | in the fair value of the identifiable assets and |
| | liabilities. Goodwill arose from the Company's prior sale |
| | from Dover Corporation to The Gores Group in 2005. The |
| | Company incurred a goodwill impairment loss for the year |
| | ended 31 December 2009 (see Note 4 for more information.) |
| | |
| | The Company evaluates the carrying value of long-lived |
| | assets, excluding goodwill, whenever events and |
| | circumstances indicate the carrying amount of an asset may |
| | not be recoverable. For the year ended 31 December 2009, the |
| | Company incurred a goodwill impairment loss and tested its |
| | other intangible assets including customer relationships and |
| | technology for impairment and found no impairment. The |
| | carrying value of a long-lived asset is considered impaired |
| | when the anticipated undiscounted cash flows from such asset |
| | (or asset group) are separately identifiable and less than |
| | the asset's (or asset group's) carrying value. In that |
| | event, a loss is recognized to the extent that the carrying |
| | value exceeds the fair value of the long-lived asset. Fair |
| | value is determined primarily using the anticipated cash |
| | flows discounted at a rate commensurate with the risk |
| | involved. (See Note 4 for more information.) |
| | |
| | Revenue Recognition The Company recognizes revenue on sales |
| | of equipment, parts and accessories when persuasive evidence |
| | of an arrangement exists, delivery has occurred or services |
| | have been rendered, the price is fixed or determinable, and |
| | collectability is reasonably assured. For product sales |
| | where shipping terms are F.O.B. shipping point, revenue is |
| | recognized upon shipment. For arrangements which include |
| | F.O.B. destination shipping terms, revenue is recognized |
| | upon delivery to the customer. Standard products do not |
| | have customer acceptance criteria. Revenues for training |
| | are deferred until the training is completed unless the |
| | training is deemed inconsequential or perfunctory. |
| | |
| | Warranty Liability The Company provides warranties on all |
| | equipment sales ranging from 60 days to three years, |
| | depending on the product. Warranty liabilities are |
| | estimated net of the warranty passed through to the Company |
| | from vendors, based on specific identification of issues and |
| | historical experience. |
| | |
| | Property, Plant and Equipment Property, plant and equipment |
| | is stated at estimated market value based on an independent |
| | appraisal at the acquisition date or at cost for subsequent |
| | acquisitions, net of accumulated depreciation and |
| | amortization. Land is not depreciated. Depreciation is |
| | computed on buildings using the straight-line method over |
| | the estimated useful lives of the assets, which is 31.5 to |
| | 40 years for buildings (depending on the nature of the |
| | building), 15 years for improvements, and 2 to 10 years for |
| | machinery and equipment. |
| | |
| | Income Taxes The Company determines income taxes using the |
| | asset and liability approach. Tax laws require items to be |
| | included in tax filings at different times than the items |
| | reflected in the financial statements. Deferred tax assets |
| | and liabilities are recognized for the future tax |
| | consequences attributable to temporary differences between |
| | the financial statement carrying amounts of existing assets |
| | and liabilities and their respective tax basis and operating |
| | loss and tax credit carry forwards. Deferred tax assets and |
| | liabilities are measured using enacted tax rates expected to |
| | apply to taxable income in the years in which those |
| | temporary differences are expected to be recovered or |
| | settled. The effect on deferred tax assets and liabilities |
| | of a change in tax rates is recognized in income in the |
| | period that includes the enactment date. Deferred tax assets |
| | are reduced by a valuation allowance, if necessary, to the |
| | extent that it appears more likely than not, that such |
| | assets will be unrecoverable. |
| | |
| | In June 2006, the Financial Accounting Standards Board |
| | (FASB) issued accounting guidance to create a single model |
| | to address accounting uncertainty in tax positions. This |
| | guidance clarifies that a tax position must be more likely |
| | than not of being sustained before being recognized in |
| | financial statements. The Company evaluates tax positions |
| | that have been taken or are expected to be taken in its tax |
| | returns, and records a liability for uncertain tax |
| | positions. This involves a two-step approach to recognizing |
| | and measuring uncertain tax positions. First, tax positions |
| | are recognized if the weight of available evidence indicates |
| | that it is more likely than not that the position will be |
| | sustained upon examination, including resolution of related |
| | appeals or litigation processes, if any. Second, the tax |
| | position is measured as the largest amount of tax benefit |
| | that has a greater than 50% likelihood of being realized |
| | upon settlement. The Company recognizes interest and |
| | penalties related to unrecognized tax benefits in the |
| | provision/(benefit) for income taxes in the accompanying |
| | consolidated financial statements. |
| | |
| | Use of Estimates The preparation of financial statements in |
| | conformity with accounting principles generally accepted in |
| | the United States of America requires management to make |
| | estimates and assumptions that affect the amounts reported |
| | in the financial statements and accompanying notes. Actual |
| | results could differ from those estimates. |
| | |
| | Stock Based Compensation The Company recognizes the cost of |
| | employee services received in exchange for an award of |
| | equity instruments in the financial statements over the |
| | period the employee is required to perform the services in |
| | exchange for the award (presumptively the vesting period). |
| | The Company measures the cost of employee services in |
| | exchange for an award based on the grant-date fair value of |
| | the award. |
| | |
| | Transactions in and Translation of Foreign Currency The |
| | functional currency for the Company's subsidiaries outside |
| | the United States is the applicable local currency. Balance |
| | sheet amounts are translated at 31 December exchange rates |
| | and statement of operations accounts are translated at |
| | average rates. The resulting gains or losses are charged |
| | directly to accumulated other comprehensive income/(loss). |
| | The Company is also exposed to market risks related to |
| | fluctuations in foreign exchange rates because some sales |
| | transactions, and some assets and liabilities of its foreign |
| | subsidiaries, are denominated in foreign currencies other |
| | than the designated functional currency. Gains and losses |
| | from transactions are included as foreign exchange gain |
| | (loss) in the accompanying consolidated statements of |
| | operations. |
| | |
| | Comprehensive Income/(loss) Comprehensive income/(loss), is |
| | the combination of reported net income/(loss) and other |
| | comprehensive income/(loss) ("OCI"). OCI is changes in |
| | equity of a business enterprise during a period from |
| | transactions and other events and circumstances from |
| | non-owner sources not included in net income/(loss). OCI was |
| | composed of the following for the years ended 31 December |
| | 2008 and 2009. Total comprehensive income/(loss) for the |
| | years was approximately US$803,000 and US$(15,332,000), |
| | respectively. |
+-----+--------------------------------------------------------------+
+-------------------------------------+-----------+--------------+
| | 2008 | 2009 |
+-------------------------------------+-----------+--------------+
| | US$000 | US$000 |
+-------------------------------------+-----------+--------------+
| Net Income/(loss) | $1,657 | $(15,385) |
+-------------------------------------+-----------+--------------+
| Cumulative Translation Adjustment | (625) | (185) |
+-------------------------------------+-----------+--------------+
| Change in fair value of derivative | (229) | 238 |
| instruments - net of income taxes | | |
+-------------------------------------+-----------+--------------+
| Total Comprehensive Income/(loss) | $803 | $(15,332) |
+-------------------------------------+-----------+--------------+
+-----+--------------------------------------------------------------+
| | Earnings/(loss) Per Share Basic earnings/(loss) per share |
| | represents income/(loss) available to common stockholders |
| | divided by the weighted average number of shares outstanding |
| | during the year. Diluted earnings/(loss) per share reflect |
| | additional common shares that would have been outstanding if |
| | dilutive potential common shares had been issued. Potential |
| | common shares that may be issued by the Company relate to |
| | outstanding stock options. All common stock equivalents |
| | were anti-dilutive at 31 December 2009. Earnings/(loss) per |
| | common share have been computed based on the following: |
+-----+--------------------------------------------------------------+
+-----------------------------------+------------+------------+
| | 2008 | 2009 |
+-----------------------------------+------------+------------+
| | US$ 000 | US$ 000 |
+-----------------------------------+------------+------------+
| Net income/(loss) | 1,657 | (15,385) |
+-----------------------------------+------------+------------+
| Basic weighted average shares | 34,281,968 | 45,748,122 |
| outstanding | - | - |
| Net dilutive effect of stock | | |
| options | | |
+-----------------------------------+------------+------------+
| Diluted weighted average shares | 34,281,968 | 45,748,122 |
| outstanding | | |
+-----------------------------------+------------+------------+
+-----+--------------------------------------------------------------+
| | Fair Value Measurements The Company uses fair value |
| | measurements in areas that include, but are not limited to: |
| | impairment testing of goodwill and long-lived asset and |
| | share-based compensation arrangements. The carrying values |
| | of cash and cash equivalents, accounts receivable, accounts |
| | payable, and other current assets and liabilities |
| | approximate fair value because of the short-term nature of |
| | these instruments. The carrying value of our long-term debt |
| | approximates fair value due to the variable nature of the |
| | interest rates under our Credit Facility. |
| | |
| | The FASB has issued accounting guidance on fair value |
| | measurements. This guidance provides a common definition of |
| | fair value and a framework for measuring assets and |
| | liabilities at fair values when a particular standard |
| | prescribes it. |
| | |
| | This guidance also specifies a fair value hierarchy based |
| | upon the observability of inputs used in valuation |
| | techniques. These valuation techniques may be based upon |
| | observable and unobservable inputs. Observable inputs |
| | reflect market data obtained from independent sources, while |
| | unobservable inputs reflect the Company's market |
| | assumptions. These two types of inputs create the following |
| | fair value hierarchy. |
| | |
+-----+--------------------------------------------------------------+
| - | Level 1 - Quoted prices for identical instruments in active |
| | markets. |
+-----+--------------------------------------------------------------+
| - | Level 2 - Quoted prices for similar assets and liabilities |
| | in active markets; quoted prices for identical or similar |
| | assets and liabilities in markets that are not active; and |
| | model-derived other inputs that are observable or can be |
| | corroborated by observable market data for substantially the |
| | full term of the assets and liabilities. |
+-----+--------------------------------------------------------------+
| - | Level 3 -Unobservable inputs for the asset or liability |
| | which are supported by little or no market activity and |
| | reflect the Company's assumptions that a market participant |
| | would use in pricing the asset or liability. |
+-----+--------------------------------------------------------------+
| | |
+-----+--------------------------------------------------------------+
| | Fair Value Measurements at Reporting Date |
+-----+--------------------------------------------------------------+
+----------+---------------+---------------+---------------+----------------+
| Assets: | 31 December | Quoted Prices | Significant | Significant |
| | 2009 | In Active | Other | Unobservable |
| | US$000 | Markets for | Observable | Inputs |
| | | Identical | Inputs | (Level 3) |
| | | Assets | | US$000 |
| | | (Level 1) | (Level 2) | |
| | | US$000 | US$000 | |
+----------+---------------+---------------+---------------+----------------+
| Goodwill | 2,878 | | | 2,878 |
+----------+---------------+---------------+---------------+----------------+
+-----+--------------------------------------------------------------+
| Refer to Footnote 4 for the goodwill impairment impact upon |
| earnings. |
+--------------------------------------------------------------------+
| | |
+-----+--------------------------------------------------------------+
| | New Accounting Pronouncements |
+-----+--------------------------------------------------------------+
| | In March 2008, the FASB issued accounting guidance on |
| | disclosures about derivative instruments and hedging |
| | activities. The standards require companies to provide |
| | enhanced disclosures about (a) how and why they use |
| | derivative instruments, (b) how derivative instruments and |
| | related hedged items are accounted for, and (c) how |
| | derivative instruments and related hedged items affect a |
| | company's financial position, financial performance, and |
| | cash flows. The Company adopted the new disclosure |
| | requirements in the period beginning 1 January 2009. |
| | |
| | In June 2008, the FASB issued guidance on accounting for |
| | nonrefundable maintenance deposits. It also provides revenue |
| | recognition accounting guidance for the lessor. The standard |
| | is effective for fiscal years beginning after 15 December |
| | 2008. The Company adopted the new disclosure requirements |
| | in the period beginning 1 January 2009 and there was little |
| | impact upon the Company's consolidated financial statements. |
| | |
| | The FASB issued guidance on measuring the fair value of |
| | certain alternative investments that are effective for |
| | periods beginning after 15 December 2009. Its intent is to |
| | offer investors a practical expedient for measuring the fair |
| | value of investments in certain entities that calculate net |
| | asset value per share. This guidance is not expected to |
| | have any impact upon 2010 financial position and operations. |
| | |
| | The FASB issued guidance on accounting for distributions to |
| | shareholders with components of stock and cash that are |
| | effective for periods beginning after 15 December 2009. It |
| | clarifies that the stock portion of a distribution to |
| | shareholders that allows them to elect to receive cash or |
| | stock with a potential limitation on the total amount of |
| | cash that all shareholders can elect to receive in the |
| | aggregate is considered a share issuance that is reflected |
| | to the EPS prospectively and is not a stock dividend. This |
| | guidance is not expected to have any impact upon 2010 |
| | financial position and operations. |
| | |
| | The FASB issued guidance on accounting and reporting for |
| | decreases in ownership of a subsidiary that are effective |
| | for periods ending after 15 December 2009. This guidance |
| | had no impact upon 2009 financial position and operations |
| | and is not expected to have any impact upon 2010 financial |
| | position and operations. |
| | |
| | The FASB issued guidance on Own-Share Lending Arrangements |
| | that are effective for periods beginning after 15 December |
| | 2009. The guidance requires an entity that enters into a |
| | share-lending arrangement on its own shares (that are |
| | classified in equity pursuant to other authoritative |
| | accounting guidance) in contemplation of a convertible debt |
| | issuance (or other financing) to initially measure the |
| | share-lending arrangement at fair value and treat it as an |
| | issuance cost and to exclude the shares borrowed under the |
| | share-lending arrangement from basic and diluted EPS. This |
| | guidance is not expected to have any impact upon 2010 |
| | financial position and operations. |
| | |
| | The FASB issued guidance on accounting for transfers of |
| | financial assets that are effective for periods beginning |
| | after 15 November 2009. The objective of this statement is |
| | to improve the relevance, representational faithfulness, and |
| | comparability of the information that a reporting entity |
| | provides in its financial statements about a transfer of |
| | financial assets; the effects of a transfer on its financial |
| | position, financial performance, and cash flows; and a |
| | transferor's continuing involvement, if any, in transferred |
| | financial assets. This guidance is not expected to have any |
| | impact upon 2010 financial position and operations. |
| | |
| | The FASB issued guidance on consolidations with variable |
| | interest entities that are effective for periods beginning |
| | after 15 November 2009. The objective of this statement is |
| | to improve the financial reporting by enterprises involved |
| | with variable interest entities and to provide more relevant |
| | and reliable information to users of financial statements. |
| | This guidance is not expected to have any impact upon 2010 |
| | financial position and operations. |
| | |
| | The FASB issued guidance on improving disclosures about fair |
| | value measurements that are effective for periods beginning |
| | after 15 December 2009. It adds new requirements for |
| | disclosures about transfers into and out of Levels 1 and 2 |
| | and separate disclosures about purchases, sales, issuances, |
| | and settlements relating to Level 3 measurements. This |
| | guidance is not expected to have any impact upon 2010 |
| | financial position and operations. |
| | |
| | The FASB issued guidance on amendments to certain |
| | recognition and disclosure requirements that are effective |
| | for periods beginning after 15 November 2009. It addresses |
| | certain implementation issues related to an entity's |
| | requirement to perform and disclose subsequent-events |
| | procedures and is effective immediately. This guidance is |
| | not expected to have any impact upon 2010 financial position |
| | and operations. |
| | |
| | Subsequent events have been evaluated through the date the |
| | consolidated financial statements were issued on 17 May |
| | 2010. No material subsequent events have occurred since 31 |
| | December 2009 that required recognition or disclosure in our |
| | consolidated financial statements other than as discussed |
| | below in Note 15. |
+-----+--------------------------------------------------------------+
| | |
+-----+--------------------------------------------------------------+
| 3. | Inventories |
+-----+--------------------------------------------------------------+
| | Inventories consisted of the following at 31 December: |
+-----+--------------------------------------------------------------+
+-----------------------------------+---------+------------+
| | 2008 | 2009 |
+-----------------------------------+---------+------------+
| | US$ 000 | US$ 000 |
+-----------------------------------+---------+------------+
| Raw materials | 2,078 | 1,547 |
+-----------------------------------+---------+------------+
| Finished goods and work in | 3,231 | 2,486 |
| process | 510 | 2,144 |
| Refurbished | | |
+-----------------------------------+---------+------------+
| Total | 5,819 | 6,177 |
+-----------------------------------+---------+------------+
+-----+--------------------------------------------------------------+
| 4. | Goodwill and Intangible Assets |
+-----+--------------------------------------------------------------+
| | Goodwill represents the excess of the cost of a business |
| | combination over the fair value of the net assets acquired. |
| | The Company is required to test goodwill for impairment, at |
| | the reporting unit level, annually and when events or |
| | circumstances indicate the fair value of a unit may be below |
| | its carrying value. |
+-----+--------------------------------------------------------------+
+-----+--------------------------------------------------------------+
| | As required, the Company performed its annual goodwill |
| | impairment analysis by comparing the fair value of the |
| | reporting unit with its carrying amount. The Company has |
| | one reporting unit which is defined as the consolidated |
| | reporting entity. As part of the test under Step 1, the |
| | Company computed fair value by preparing a discounted cash |
| | flow analysis, a market capitalization analysis and a |
| | comparison of its market capitalization to that of other |
| | comparable companies. |
| | |
| | Under the discounted cash flow analysis, the cash flows were |
| | determined based on assumptions for revenue, expenses, |
| | working capital requirements, capital expenditures and were |
| | discounted at a weighted average cost of capital. These |
| | estimates were based on historical results and the available |
| | information as of 31 December 2009. |
| | |
| | The Company calculated fair value by obtaining market data |
| | of comparable companies with similar assets and liabilities. |
| | The companies selected for comparison included comparable |
| | companies with proprietary technology and similar gross |
| | margins to that of the Company. |
| | |
| | The results of Step 1 indicated that Goodwill was impaired. |
| | The Company then performed Step 2 where it determined the |
| | fair value of all of its assets and liabilities. This step |
| | resulted in allocating a portion of the impairment from Step |
| | 1 to any assets that were below book value. The result of |
| | this analysis indicated that Goodwill was impaired by |
| | approximately US$13.5m at 31 December 2009 and that the |
| | value of its intangible assets including customer |
| | relationships and technology was not impaired. Prior to 31 |
| | December 2009, there were no accumulated impairment losses. |
| | |
| | The following table reflects Other intangible assets: |
+-----+--------------------------------------------------------------+
+------------------------+--------------+-------------+--------------+
| | Weighted | | |
| | average | | |
+------------------------+--------------+-------------+--------------+
| | amortization | 2008 | 2009 |
| | period | US$000 | US$000 |
+------------------------+--------------+-------------+--------------+
| Capitalized cost | | | |
+------------------------+--------------+-------------+--------------+
| Customer relationships | 8 years | 6,300 | 6,300 |
+------------------------+--------------+-------------+--------------+
| Patents | 12 years | 18,538 | 18,538 |
+------------------------+--------------+-------------+--------------+
| Other intangibles | 3 years | 4 | 4 |
+------------------------+--------------+-------------+--------------+
| | | 24,842 | 24,842 |
+------------------------+--------------+-------------+--------------+
| Accumulated | | | |
| amortization | | | |
+------------------------+--------------+-------------+--------------+
| Customer relationships | 8 years | 2,691 | 3,479 |
+------------------------+--------------+-------------+--------------+
| Patents | 12 years | 5,278 | 6,823 |
+------------------------+--------------+-------------+--------------+
| Other intangibles | 3 years | 1 | 2 |
+------------------------+--------------+-------------+--------------+
| | | 7,970 | 10,304 |
+------------------------+--------------+-------------+--------------+
| Net carrying costs | | | |
+------------------------+--------------+-------------+--------------+
| Customer relationships | 8 years | 3,609 | 2,821 |
+------------------------+--------------+-------------+--------------+
| Patents | 12 years | 13,260 | 11,715 |
+------------------------+--------------+-------------+--------------+
| Other intangibles | 3 years | 3 | 2 |
+------------------------+--------------+-------------+--------------+
| | | 16,872 | 14,538 |
+------------------------+--------------+-------------+--------------+
+-----+--------------------------------------------------------------+
| | Amortization expense associated with the intangible assets |
| | for the years ended 31 December 2008 and 2009 was |
| | approximately US$2,332,000 and US$2,333,000, respectively. |
| | Future amortization on intangible assets is expected to be |
| | as follows at: |
+-----+--------------------------------------------------------------+
+---------------------------------------------+------------------------+
| | 31 December |
| | US$ 000 |
+---------------------------------------------+------------------------+
| 2010 | 2,333 |
+---------------------------------------------+------------------------+
| 2011 | 2,331 |
+---------------------------------------------+------------------------+
| 2012 | 2,331 |
+---------------------------------------------+------------------------+
| 2013 | 2,004 |
+---------------------------------------------+------------------------+
| 2014 | 1,545 |
+---------------------------------------------+------------------------+
| | 10,544 |
+---------------------------------------------+------------------------+
| Thereafter | 3,994 |
+---------------------------------------------+------------------------+
| | 14,538 |
+---------------------------------------------+------------------------+
+-----+--------------------------------------------------------------+
| 5. | Property, Plant and Equipment |
+-----+--------------------------------------------------------------+
| | Property, plant and equipment consist of the following at 31 |
| | December: |
+-----+--------------------------------------------------------------+
+------------------------------------+---------+------------+
| | 2008 | 2009 |
+------------------------------------+---------+------------+
| | US$ 000 | US$ 000 |
+------------------------------------+---------+------------+
| Land | 207 | 207 |
+------------------------------------+---------+------------+
| Buildings and improvements | 3,572 | 3,572 |
+------------------------------------+---------+------------+
| Machinery and equipment | 1,410 | 1,423 |
+------------------------------------+---------+------------+
| | 5,189 | 5,202 |
+------------------------------------+---------+------------+
| Less: accumulated depreciation and | (929) | (1,248) |
| amortization | | |
+------------------------------------+---------+------------+
| | 4,260 | 3,954 |
+------------------------------------+---------+------------+
+-----+--------------------------------------------------------------+
| | Depreciation expense for the years ended 31 December 2008 |
| | and 2009, was approximately US$373,000 and US$339,000, |
| | respectively. |
+-----+--------------------------------------------------------------+
| | |
+-----+--------------------------------------------------------------+
| 6. | Notes Payable |
+-----+--------------------------------------------------------------+
| | The Company's debt obligations consisted of the following at |
| | 31 December: |
+-----+--------------------------------------------------------------+
+------------------------------------+---------+------------+
| | | |
+------------------------------------+---------+------------+
| | 2008 | 2009 |
+------------------------------------+---------+------------+
| | US$ 000 | US$ 000 |
+------------------------------------+---------+------------+
| Bank debt: | | |
+------------------------------------+---------+------------+
| Five year secured reducing | 2,954 | 3,883 |
| revolving line of credit | | |
+------------------------------------+---------+------------+
| Five year secured term loan | 7,501 | 2,070 |
+------------------------------------+---------+------------+
| Less debt obligations due within | (1,429) | (460) |
| one year | | |
+------------------------------------+---------+------------+
| Obligations due after one year | 9,026 | 5,493 |
+------------------------------------+---------+------------+
+-----+--------------------------------------------------------------+
| | Credit Facility The Company has a credit facility with a |
| | bank dated 16 March 2007 that has been amended multiple |
| | times and composed of the following at 31 December 2009: |
+-----+--------------------------------------------------------------+
| | |
+-----+--------------------------------------------------------------+
| - | US$7,000,000 five year secured reducing revolving line of |
| | credit |
+-----+--------------------------------------------------------------+
| - | US$2,070,000 five year secured reducing term loan |
+-----+--------------------------------------------------------------+
| | |
+-----+--------------------------------------------------------------+
| | The interest rates on the revolver and term loan are Libor |
| | 1-month and Libor 3-month, respectively, plus 4.75% per the |
| | agreed pricing grid subsequent to 31 December 2009. The |
| | interest rates were 4.48% and 4.50% on the revolver and term |
| | loan at 31 December 2009. The credit facilities are secured |
| | by substantially all of the Company's assets and contain a |
| | number of restrictive covenants that among other things |
| | limit the ability of the Company to incur debt, issue |
| | capital stock, change ownership and dispose of certain |
| | assets. |
| | |
| | In January 2010, the Company again renegotiated its loan |
| | covenants. In return for a change in covenants, the Company |
| | agreed to a reduction in its line of credit to US$5,750,000. |
| | The change in 2009 covenants allowed it to avoid missing its |
| | year end 2009 requirements. The new agreement temporarily |
| | suspends the funded debt ratio until December 31, 2010, |
| | replaces it with a quarterly EBITDA minimum target, and the |
| | change fee was US$30,000. |
| | |
| | Future Payments The future payments by year under the |
| | Company's debt obligations are as follows: |
| | |
+-----+--------------------------------------------------------------+
+------------------------------------+----------------------+
| | 31 December |
| | US$ 000 |
+------------------------------------+----------------------+
| | |
+------------------------------------+----------------------+
| 2010 | 460 |
+------------------------------------+----------------------+
| 2011 | 460 |
+------------------------------------+----------------------+
| 2012 | 5,033 |
+------------------------------------+----------------------+
| 2013 | - |
+------------------------------------+----------------------+
| 2014 | - |
+------------------------------------+----------------------+
| Total payments | 5,953 |
+------------------------------------+----------------------+
+----+---------------------------------------------------------------+
| | Interest Interest expense on the credit facility for the |
| | years ended 31 December 2008 and 2009, was approximately |
| | US$861,000 and US$949,000, respectively, related to the debt |
| | obligation. The 2009 expense includes US$380,000 of loss on |
| | cash flow hedges as a result of paying off interest rate |
| | swaps that were recognized in the statement of operations as |
| | interest expense and removed from other comprehensive |
| | income/(loss). |
| | |
+----+---------------------------------------------------------------+
| | |
+----+---------------------------------------------------------------+
| 7. | Retirement Program |
+----+---------------------------------------------------------------+
| | The Company has a savings and retirement plan for its |
| | employees, which is intended to qualify under Section 401(k) |
| | of the Internal Revenue Code ("IRC"). This savings and |
| | retirement plan provides for voluntary contributions by |
| | participating employees, not to exceed maximum limits set |
| | forth by the IRC. The Company match vests after one year of |
| | service with the Company. The Company matched 100% of the |
| | employee's contribution up to the first 6% of the employee's |
| | compensation for the year ended 31 December 2008 and matched |
| | 100% of the employee's contribution, up to the first 6% of |
| | the employee's compensation through 30 June 2009. At |
| | mid-year, the Company suspended the match. The Board of |
| | Directors at their discretion and within plan limitations may |
| | make a discretionary match at a future date to supplement the |
| | changes incurred. The Company contributed approximately |
| | US$284,000 and US$113,000 to the savings and retirement plan |
| | during the years ended 31 December 2008 and 2009, |
| | respectively. |
+----+---------------------------------------------------------------+
| | |
+----+---------------------------------------------------------------+
| 8. | Operating Leases |
+----+---------------------------------------------------------------+
| | The Company leases property, vehicles and office equipment |
| | under leases accounted for as operating leases without |
| | renewal options. Future minimum payments by year under |
| | non-cancellable operating leases with initial terms in excess |
| | of one year were as follows: |
+----+---------------------------------------------------------------+
+-------------------------------------+--------------------------+
| | 31 December |
+-------------------------------------+--------------------------+
| | US$ 000 |
+-------------------------------------+--------------------------+
| 2010 | 331 |
+-------------------------------------+--------------------------+
| 2011 | 230 |
+-------------------------------------+--------------------------+
| 2012 | 174 |
+-------------------------------------+--------------------------+
| 2013 | 82 |
+-------------------------------------+--------------------------+
| 2014 | 0 |
+-------------------------------------+--------------------------+
| Total | 817 |
+-------------------------------------+--------------------------+
+----+---------------------------------------------------------------+
| 9. | Supplemental Cash Flow and Non-Cash Financing Disclosures |
+----+---------------------------------------------------------------+
+----------------------------------------+--------+--------------+
| | 2008 | 2009 |
+----------------------------------------+--------+--------------+
| | US$ | US$ 000 |
| | 000 | |
+----------------------------------------+--------+--------------+
| Cash paid for interest | 856 | 543 |
+----------------------------------------+--------+--------------+
| | | |
+----------------------------------------+--------+--------------+
| Cash paid for taxes | 1,242 | (206) |
+----------------------------------------+--------+--------------+
| Non-cash financing activities - Change | | |
| in fair value of derivative | 229 | (238) |
| instruments | 0 | 196 |
| Inventory received in lieu of payment | | |
| | | |
+----------------------------------------+--------+--------------+
+-----+--------------------------------------------------------------+
| 10. | Business and Credit Concentration |
+-----+--------------------------------------------------------------+
| | The Company's line of business could be significantly |
| | impacted by, among other things, the state of the general |
| | economy, the Company's ability to continue to protect its |
| | intellectual property rights, and the potential future |
| | growth of foreign competitors. Any of the foregoing may |
| | significantly affect management's estimates and the |
| | Company's performance. At 31 December 2008 the Company had |
| | two customers which represented 16% of total accounts |
| | receivables and at 31 December 2009, the Company had two |
| | customers which represented approximately 30% of total |
| | accounts receivable. |
+-----+--------------------------------------------------------------+
| | |
+-----+--------------------------------------------------------------+
| 11. | Commitments and Contingencies |
+-----+--------------------------------------------------------------+
| | The Company has entered into employment agreements with |
| | certain members of senior management. The terms of these |
| | are for renewable one year periods and include non-compete |
| | and nondisclosure provisions as well as providing for |
| | defined severance payments in the event of termination or |
| | change in control. |
| | The Company entered into a 5 year or minimum purchase |
| | obligation of US$625,000 with a supplier in 2007 which it |
| | successfully negotiated away so that there is no related |
| | contingent liability as of 31 December 2009. The Company is |
| | subject to various unresolved legal actions which arise in |
| | the normal course of its business. Although it is not |
| | possible to predict with certainty the outcome of these |
| | unresolved legal actions or the range of possible losses, |
| | the Company believes these unresolved legal actions will not |
| | have a material effect on its financial statements. |
+-----+--------------------------------------------------------------+
| | |
+-----+--------------------------------------------------------------+
| 12. | Income Taxes |
+-----+--------------------------------------------------------------+
| | Somero adopted guidance from the FASB in 2007 which |
| | clarifies the accounting for uncertainty in income taxes |
| | recognized in an enterprise's financial statements. The |
| | guidance also prescribes a recognition threshold and |
| | measurement attribute for the financial statement |
| | recognition and measurement of a tax position taken or |
| | expected to be taken in a tax return. This pronouncement |
| | also provides guidance on derecognition, classification, |
| | interest and penalties, accounting in interim periods, |
| | disclosure and transition. |
| | |
| | At 31 December 2009, the Company had a gross unrecognized |
| | tax benefit (including interest and penalties) of US$4,000. |
| | |
| | Somero is subject to U.S. federal income tax as well as |
| | income tax of multiple state jurisdictions. The Company |
| | began business in 2005 and therefore the statute of |
| | limitations for all federal, foreign and state income tax |
| | matters for tax years from 2005 forward are still open. |
| | Somero has no federal, foreign or state income tax returns |
| | currently under examination. |
+-----+--------------------------------------------------------------+
+-----------------------------------------+---------+------------+
| | 2008 | 2009 |
+-----------------------------------------+---------+------------+
| | US$ 000 | US$ 000 |
+-----------------------------------------+---------+------------+
| Current Income Tax | | |
+-----------------------------------------+---------+------------+
| Federal | (33) | (951) |
+-----------------------------------------+---------+------------+
| State | 69 | 23 |
+-----------------------------------------+---------+------------+
| Foreign | 513 | (247) |
+-----------------------------------------+---------+------------+
| Total current income tax | 549 | (1,175) |
| (provision/benefit) | | |
+-----------------------------------------+---------+------------+
| | | |
+-----------------------------------------+---------+------------+
| Deferred tax expense | | |
+-----------------------------------------+---------+------------+
| Federal | 62 | (119) |
+-----------------------------------------+---------+------------+
| State | 10 | (20) |
+-----------------------------------------+---------+------------+
| Foreign | (116) | 100 |
+-----------------------------------------+---------+------------+
| Total deferred tax (provision/benefit) | (44) | (39) |
+-----------------------------------------+---------+------------+
| | | |
+-----------------------------------------+---------+------------+
| Total provision/benefit | 505 | (1,214) |
+-----------------------------------------+---------+------------+
+-----------------------------------------+---------+------------+
| The components of the net deferred income tax asset at 31 |
| December 2008 and 2009 were as follows: |
+----------------------------------------------------------------+
| | 2008 | 2009 |
+-----------------------------------------+---------+------------+
| | US$ 000 | US$ 000 |
+-----------------------------------------+---------+------------+
| Deferred Tax Asset | | |
+-----------------------------------------+---------+------------+
| Intangibles | 833 | 1,101 |
+-----------------------------------------+---------+------------+
| Intangibles - Foreign | - | 102 |
+-----------------------------------------+---------+------------+
| Goodwill | - | 3,188 |
+-----------------------------------------+---------+------------+
| Share-based compensation | 318 | 435 |
+-----------------------------------------+---------+------------+
| Net Operating Loss - State | - | 71 |
+-----------------------------------------+---------+------------+
| Net Operating Loss - Foreign | - | 89 |
+-----------------------------------------+---------+------------+
| Interest Rate Swap | 262 | - |
+-----------------------------------------+---------+------------+
| Other | 640 | 276 |
+-----------------------------------------+---------+------------+
| Gross deferred tax asset | 2,053 | 5,263 |
+-----------------------------------------+---------+------------+
| | | |
+-----------------------------------------+---------+------------+
| Valuation Allowance | - | (4,823) |
+-----------------------------------------+---------+------------+
| Deferred tax asset | 2,053 | 440 |
+-----------------------------------------+---------+------------+
| | | |
+-----------------------------------------+---------+------------+
| Deferred Tax Liability | | |
+-----------------------------------------+---------+------------+
| Depreciation | (347) | 279) |
+-----------------------------------------+---------+------------+
| Prepaids | (174) | (157) |
+-----------------------------------------+---------+------------+
| Goodwill | (1,305) | - |
+-----------------------------------------+---------+------------+
| Deferred tax liability | (1,826) | (436) |
+-----------------------------------------+---------+------------+
| | | |
+-----------------------------------------+---------+------------+
| Net deferred tax asset | 227 | 4 |
+-----------------------------------------+---------+------------+
| | | |
+-----------------------------------------+---------+------------+
| Current | 466 | - |
+-----------------------------------------+---------+------------+
| Non-current | (239) | 4 |
+-----------------------------------------+---------+------------+
| Net deferred tax asset | 227 | 4 |
+-----------------------------------------+---------+------------+
| | | |
+-----------------------------------------+---------+------------+
| Rate Reconciliation | | |
+-----------------------------------------+---------+------------+
| Consolidated income/(loss) before tax | 2,162 | (16,599) |
+-----------------------------------------+---------+------------+
| Statutory rate | 34% | 34% |
+-----------------------------------------+---------+------------+
| Statutory tax expense | 735 | (5,643) |
+-----------------------------------------+---------+------------+
| | | |
+-----------------------------------------+---------+------------+
| State taxes | 52 | (8) |
+-----------------------------------------+---------+------------+
| IRC Section 199 Deduction | (35) | - |
+-----------------------------------------+---------+------------+
| Meals and Entertainment | 57 | 28 |
+-----------------------------------------+---------+------------+
| Foreign Tax Items | (356) | 19 |
+-----------------------------------------+---------+------------+
| Valuation Allowance | - | 4,387 |
+-----------------------------------------+---------+------------+
| Other | 52 | 3 |
+-----------------------------------------+---------+------------+
| Tax provision/benefit | 505 | (1,214) |
+-----------------------------------------+---------+------------+
+-----+--------------------------------------------------------------+
| | At 31 December 2009, the Company had a net deferred tax |
| | asset. 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 the deferred |
| | tax assets is dependent upon the generation of future |
| | taxable income during the periods in which those temporary |
| | differences become deductible. Since realization of any |
| | future tax benefit at 31 December 2009 was not sufficiently |
| | assured, a valuation allowance for the amount of the 2009 |
| | net deferred tax asset was provided. At 31 December 2008, |
| | no valuation allowance was necessary; thus the valuation |
| | allowance increased approximately US$4,800,000 for the year |
| | ended 31 December 2009. |
| | |
| | The Company has filed its US Federal Tax Return for the year |
| | ended 31 December 2009, which reflected the carry back of |
| | the 2009 loss to prior years. Included in Income tax |
| | receivable on the consolidated balance sheet is US$1,041,000 |
| | reflecting the amount of the tax refund intended to be filed |
| | by the Company. |
| | |
| | The Company has US$2,200,000 in state loss carry forwards |
| | with varying expiration dates and US$300,000 in foreign loss |
| | carry forwards with indefinite expiration dates. |
| | |
| | The Company expenses research and development costs as |
| | incurred. Total research and development expense for the |
| | research and development tax credit was approximately |
| | US$683,000 and US$0 for the years ended 31 December 2008 and |
| | 2009, respectively. |
+-----+--------------------------------------------------------------+
| | |
+-----+--------------------------------------------------------------+
| 13. | Revenues by Geographic Region |
+-----+--------------------------------------------------------------+
| | The Company sells its product to customers throughout the |
| | world. The breakdown by location is as follows: |
+-----+--------------------------------------------------------------+
+-----------------------------------+----------+------------+
| | 2008 | 2009 |
+-----------------------------------+----------+------------+
| | US$ 000 | US$ 000 |
+-----------------------------------+----------+------------+
| United States and U.S. | 24,656 | 12,368 |
| possessions | | |
+-----------------------------------+----------+------------+
| Canada | 1,455 | 579 |
+-----------------------------------+----------+------------+
| Rest of world | 25,830 | 11,280 |
+-----------------------------------+----------+------------+
| Total | 51,941 | 24,227 |
+-----------------------------------+----------+------------+
+-----+--------------------------------------------------------------+
| | A significant portion of the Company's long-lived assets are |
| | located in the United States. |
+-----+--------------------------------------------------------------+
| | |
+-----+--------------------------------------------------------------+
| 14. | Stock Based Compensation |
+-----+--------------------------------------------------------------+
| | The Company has one share-based compensation plan, which is |
| | described below. The compensation cost that has been charged |
| | against income/(loss) for the plan was approximately |
| | US$415,000 and US$373,000 for the years ended 31 December |
| | 2008 and 2009, respectively. The income tax effect |
| | recognized for share based compensation was approximately a |
| | benefit of US$148,000 and an expense of US$148,000 for the |
| | years ended December 31, 2008 and 2009, respectively. |
| | In October 2006, the Company implemented the 2006 Stock |
| | Incentive Plan (the "Plan"). The Plan authorizes the Board |
| | of Directors to grant incentive and nonqualified stock |
| | options to employees, officers, service providers and |
| | directors of the Company for up to 3,428,197 shares of its |
| | common stock. Options granted under the Plan have a term of |
| | up to ten years and generally vest over a three-year period |
| | beginning on the date of the grant. Options under the Plan |
| | must be granted at a price not less than the fair market |
| | value at the date of grant. |
| | The fair value of each option award is estimated on the date |
| | of grant using the Black-Scholes-Merton option pricing |
| | model. The risk-free interest rate is based on the U.S. |
| | Treasury rate for the expected term at the time of grant, |
| | volatility is based on the average long-term implied |
| | volatilities of peer companies as our Company has limited |
| | trading history and the expected life is based on the |
| | average of the life of the options of 10 years and an |
| | average vesting period of 3 years. The following table |
| | illustrates the assumptions for the Black-Scholes model used |
| | in determining the fair value of options granted to |
| | employees for the years ended 31 December 2008 and 2009. |
+-----+--------------------------------------------------------------+
+-------------------------------------+-----------+--------------+
| | 2008 | 2009 |
+-------------------------------------+-----------+--------------+
| Dividend yield | 1.64% | 0.00% |
+-------------------------------------+-----------+--------------+
| Risk-free interest rate | 2.90% | 1.40% |
+-------------------------------------+-----------+--------------+
| Volatility | 25.50% | 47.3% |
+-------------------------------------+-----------+--------------+
| Expected term | 4.6 | 4.6 |
+-------------------------------------+-----------+--------------+
+-----+--------------------------------------------------------------+
| | A summary of option activity under the stock option plan as |
| | of 31 December 2009, and changes during the year then ended |
| | is presented below: |
+-----+--------------------------------------------------------------+
+--------------+--------------+-----------+-------------+------------+
| Options | Shares | Weighted- | Weighted- | Aggregate |
| | | Average | Average | Intrinsic |
| | | Exercise | Remaining | Value |
| | | Price | Contractual | |
| | | | Term (yrs) | |
+--------------+--------------+-----------+-------------+------------+
| | | | | |
+--------------+--------------+-----------+-------------+------------+
| Outstanding | | | | |
| at | 2,828,895 | 2.24 | - | - |
| 1 January | | | | |
| 2009 | | | | |
+--------------+--------------+-----------+-------------+------------+
| Granted | 602,885 | 0.24 | | |
+--------------+--------------+-----------+-------------+------------+
| Exercised | - | - | | |
+--------------+--------------+-----------+-------------+------------+
| Forfeited | (81,542) | 2.04 | | |
+--------------+--------------+-----------+-------------+------------+
| Outstanding | | | | |
| at | 3,350,238 | 1.88 | 7.44 | -- |
| 31 December | | | | |
| 2009 | | | | |
+--------------+--------------+-----------+-------------+------------+
| Exercisable | | | | |
| at | 2,412,439 | 2.24 | 5.64 | -- |
| 31 December | | | | |
| 2009 | | | | |
+--------------+--------------+-----------+-------------+------------+
+-----+--------------------------------------------------------------+
| | The weighted-average grant-date fair value of options |
| | granted was US$.33 and US$.09 for the years ended 31 |
| | December 2008 and 2009, respectively. |
| | |
| | A summary of the status of the Company's non-vested shares |
| | as of 31 December 2009, and changes during the year then |
| | ended is presented below: |
+-----+--------------------------------------------------------------+
+---------------------------+---------------+--------------------+
| | | Weighted Average |
+---------------------------+---------------+--------------------+
| | Shares | Grant-Date Fair |
| | | Value |
+---------------------------+---------------+--------------------+
| Non-vested shares as of | 1,182,838 | .41 |
| 31 December 2008 | | |
+---------------------------+---------------+--------------------+
| Granted | 602,885 | .09 |
+---------------------------+---------------+--------------------+
| Vested | (766,382) | .45 |
+---------------------------+---------------+--------------------+
| Forfeited | (81,542) | .39 |
+---------------------------+---------------+--------------------+
| Non-vested shares as of | 937,799 | .10 |
| 31 December 2009 | | |
+---------------------------+---------------+--------------------+
+-----+--------------------------------------------------------------+
| | As of 31 December 2009, there was US$103,000 of total |
| | unrecognized compensation cost related to non-vested |
| | share-based compensation arrangements granted under the |
| | Company's stock option plan. That cost is expected to be |
| | recognized over the vesting period. The fair value of |
| | options vested in 2008 and 2009 was US$375,000 and |
| | US$345,000, respectively. |
+-----+--------------------------------------------------------------+
| | |
+-----+--------------------------------------------------------------+
| 15. | Subsequent Events |
+-----+--------------------------------------------------------------+
| | The board felt it was critical to have a meaningful |
| | retention/incentive program for key employees while being |
| | fair to the shareholders. The Remuneration Committee has |
| | developed a substitute Stock Option plan for management |
| | retention and incentivizing. This is not expected to have a |
| | material impact upon the company's financial position or |
| | operations. The plan was authorized by the Board of |
| | Directors on 20 January 2010 and implemented 17 February |
| | 2010. |
| | |
| | There are 5.6 million shares available to be granted under |
| | the new plan which is 10% of the 56 million shares that are |
| | authorized. The initial grant was for 2.3 million shares as |
| | replacements for grants under the old option plan which were |
| | cancelled and the old plan was abandoned. The grants have a |
| | 3 year vesting and a strike price of 30P, a 100% premium |
| | over the market price on the date of grant. The remaining |
| | shares will only be issued for new key employees and |
| | superior performance. |
| | |
| | As discussed in Note 12, the Company has filed its 2009 US |
| | Federal Tax Returnand expects a refund of US$1,041,000 due |
| | to the ability to carry the 2009 loss back to previous tax |
| | years which is included in income tax receivables on the |
| | consolidated balance sheet. |
| | |
| | As discussed in Note 6, in January 2010, the Company |
| | renegotiated its loan covenants. In return for a change in |
| | covenants, the Company agreed to a reduction in its line of |
| | credit to US$5,750,000. The change in 2009 covenants |
| | allowed it to avoid missing its year end 2009 requirements. |
| | The agreement temporarily suspends the funded debt ratio |
| | until December 31, 2010, replaces it with a quarterly EBITDA |
| | minimum target, and the change fee was US$30,000. |
+-----+--------------------------------------------------------------+
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UWSVRRKAVARR
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