TIDMSOM
RNS Number : 4772Z
Somero Enterprises Inc.
15 March 2017
15 March 2017
Somero Enterprises, Inc.
("Somero" or "the Company" or "the Group")
Final Results
An exceptional year of profitable growth
Somero Enterprises, Inc. (R) is pleased to report its annual
results for the twelve months ended December 31, 2016.
Financial Highlights
FY16 FY15 % Increase
----------------------------- --------- --------- -----------
Revenue US$79.4m US$70.2m 13%
----------------------------- --------- --------- -----------
Adjusted EBITDA(1,2) US$24.6m US$20.0m 23%
----------------------------- --------- --------- -----------
Adjusted EBITDA margin(1,2) 31% 29%
----------------------------- --------- --------- -----------
Profits before tax US$21.3m US$17.4m 22%
----------------------------- --------- --------- -----------
Adjusted net income(1,3) US$15.6m US$13.0m 20%
----------------------------- --------- --------- -----------
Diluted adjusted net
income per share(1,3) US$0.27 US$0.22 23%
----------------------------- --------- --------- -----------
Cash flow from operating
activities US$16.9m US$14.5m 17%
----------------------------- --------- --------- -----------
Net cash(4) US$20.2m US$12.6m 60%
----------------------------- --------- --------- -----------
Dividend per share US$0.111 US$0.069 61%
----------------------------- --------- --------- -----------
-- Annual revenues grew to a record US$ 79.4m, up 13% from 2015,
driven by strength in the Company's core geographic markets and
strong demand for new products
-- Revenue growth converted efficiently into profit and cash flows:
o Adjusted EBITDA increased 23% to a record US$ 24.6m (2015: US$
20.0m)(1,2)
o Adjusted EBITDA margin improved to 31% (2015: 29%) driven by
gross margin expansion and operating cost controls
o Profits before tax grew 22% to US$ 21.3m (2015: US$ 17.4m)
o Cash flow from operating activities increased 17% to US$ 16.9m
(2015: US$ 14.5m)
-- Balance sheet continues to strengthen:
o Net cash at 31 December 2016 grew to US$ 20.2m, a US$ 7.6m
increase over 2015(4)
o The Company fully paid off its US$ 1.0m mortgage in January
2017
-- Increased dividend payout ratio to 40% of adjusted earnings for 2016
o Final dividend of 8.6 US cents per share declared for a total
2016 dividend of 11.1 US cents per share, a 61% increase over last
year
Operational Highlights
-- Broad geographic growth and solid demand across product line:
o 6 of 11 geographic markets grew in 2016 led by North America,
Europe, Australia and China, which grew US$ 7.4m, US$ 2.3m, US$
1.3m, US$ 0.3m, respectively compared to 2015
o Boomed and Ride-on screed product lines grew US$ 2.2m and US$
1.9m, respectively compared to 2015
o 3-D Profiler System(R) revenues grew US$ 1.7m compared to
2015
o Other revenues, driven by sales of parts, accessories and the
STS-11M Topping Spreader, grew US$ 3.8m from 2015
-- New product pipeline continues to contribute significantly to growth:
o S-940 and S-10A Laser Screed(R) machine sales combined for US$
10.6m in 2016 revenue, which represented US$ 4.6m in net growth
from 2015
o Launched the entry-level S-158 Laser Screed machine in China
in Q4 2016
o Launched the SP-16 Concrete Hose Line-Pulling and Placing
System and next generation 3-D Profiler System at the World of
Concrete Trade Show in January 2017
-- Completed construction of 14,000 sq. ft. Global Headquarters
and Training facility in Fort Myers, Florida in April 2016
o Construction underway of a hands-on training facility on the
Fort Myers campus that will be the future home of the Somero
Concrete Institute scheduled to open in Q2 2017
Notes:
1. 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
below.
2. Adjusted EBITDA as used herein is a calculation of the
Company's net income plus tax provision, interest expense, interest
income, foreign exchange loss, other expense, depreciation,
amortization, and stock based compensation.
3. Adjusted net income as used herein is a calculation of net
income plus amortization of intangibles and excluding the tax
impact of stock option and RSU settlements and other special
items.
4. Net cash is defined as cash and cash equivalents less
borrowings under bank obligations exclusive of deferred financing
costs.
Jack Cooney, CEO of Somero, said:
"2016 was an excellent year for Somero. We achieved record
revenues, profits, and cash flow and ended the year with the
strongest balance sheet in our history. This was the third year of
our five-year plan to become as US$90m revenue business, and I'm
delighted to report we are already 75% of the way there with two
years to go. However, what makes me most proud, is that we were
able to achieve these results because we never lost sight of our
mission to help our customers build successful, profitable
businesses. Our employees have built an exceptional organization
that earns the loyalty of our customer base day in and day out. It
is this dedication that fills me with tremendous pride.
I am excited at the opportunities that lie ahead for Somero in
2017. We are financially stronger than ever, have the broadest
product portfolio in our history and have made significant
investments to increase our global reach. We believe we are well
positioned to capture growth in our core North American, European
and Chinese markets, extend our global footprint, and continue to
grow revenues from new products. Most importantly, we believe we
are well-positioned to continue to deliver strong results and
dividends for our shareholders and create shareholder value in the
future."
For further information, please contact:
Somero Enterprises, Inc. www.somero.com
Jack Cooney, CEO +1 239 210 6500
John Yuncza, CFO
Howard Hohmann, EVP Sales
finnCap Ltd (NOMAD and Broker)
Matt Goode (Corporate Finance) +44 (0)20 7220 0500
Carl Holmes (Corporate Finance)
Tim Redfern (Corporate Broking)
Redleaf Communications Ltd (Financial PR Advisor) somero@redleafpr.com
Rebecca Sanders-Hewett +44 (0)20 7382 4730
David Ison
Susie Hudson
The information communicated in this announcement contains
inside information for the purposes of Article 7 of the Market
Abuse Regulation (EU) No. 596/2014.
Notes to Editors:
Somero Enterprises provides industry-leading concrete-leveling
equipment, training, education and support to customers in over 90
countries. The Company's cutting-edge technology allows its
customers to install high-quality horizontal concrete floors
faster, flatter and with fewer people. Somero equipment that
incorporates laser-technology and wide-placement methods is used to
place and screed the concrete slab in all building types and has
been specified for use in a wide range of commercial construction
projects for numerous global blue-chip companies.
Somero pioneered the Laser Screed market in 1986 and has
maintained its market-leading position by continuing to focus on
bringing new products to market and developing patent-protected
proprietary designs. In addition to its products, Somero offers
customers unparalleled global service, technical support, training
and education, reflecting the Company's emphasis on helping its
customers achieve their business and profitability goals, a key
differentiator to its peers.
For more information, visit www.somero.com
Chairman's Statement
Performance and Dividend
Somero delivered excellent results in 2016, achieving record
revenues of US$ 79.4m, a 13% increase over 2015, and profits before
tax of US$ 21.3m, a 22% increase over 2015. In 2016, 6 of our 11
geographic markets grew compared to 2015 led by our core markets of
North America, Europe, and China along with a significant
contribution from Australia. On a product basis, we saw broad-based
demand in 2016 which led to sales growth in our Boomed and Ride-on
screeds and 3-D Profiler System(R) product categories, as well as
growth in Other revenues which was attributable to strong sales of
parts, accessories and the STS-11M Topping Spreader. Growth in both
the Boomed and Ride-on screed machine categories highlight the wide
range of project types, large and small, that drove demand for our
equipment in 2016. Importantly, this growth translated into a
record level of profit and free cash flow for the Company, a result
of disciplined cost control and working capital management. While
we are pleased to deliver these exceptional results to our
shareholders, we are equally pleased that each of our Somero
employees understands these results are only possible with an
unrelenting commitment to deliver innovative products, solutions
and services to our customers.
Based on the stellar 2016 performance, the Company's sound
financial position, and the Board's confidence in the Company's
future, we are pleased to report that the Board has approved
increasing the dividend payout ratio to 40% of adjusted net income
for 2016. The increase results in a final 2016 dividend of 8.6 US
cents per share which has been approved by the Board and will be
payable on 17 April 2017 to shareholders on the register at 31
March 2017. Together with the interim dividend paid in October 2016
of 2.5 US cents per share, the 2016 full year dividend payment to
shareholders is 11.1 US cents per share, a 61% increase from
2015.
Strategic Progress
Our entire organization is focused and aligned on what makes
Somero a truly exceptional business: (1) our commitment to provide
our customers access to unparalleled industry expertise, service,
training and support, and (2) our commitment to develop innovative
products and solutions that help our customers improve their
processes, quality and efficiency. Our objective is to prioritize
investment in these value drivers. In 2016, we completed our new
Global Headquarters and Training Facility in Fort Myers to provide
a state-of-the-art venue for customer training and product
demonstration. In 2017, we plan to take the next step by
constructing a hands-on training facility located on our Fort Myers
campus. This added investment is expected to enable Somero to
launch the Somero Concrete Institute in the second quarter of 2017.
We expect the Somero Concrete Institute to provide a comprehensive
educational opportunity for students from across the globe to
become certified in concrete placing and finishing, reinforcing
Somero's commitment to training and education, and helping address
the growing shortage of skilled labor in the North American
concrete contractor industry. We also plan to continue to invest in
identifying new, innovative products and solutions that help our
customers achieve their profitability goals, such as with our SP-16
Concrete Hose Line-Pulling and Placing System which launched in
January 2017 at the World of Concrete Trade Show in Las Vegas.
Our People
The dedication and hard work of Somero's 178 employees around
the globe is fundamental to our success. We could not deliver these
record-setting results for our shareholders without our most
valuable asset, our employees. On behalf of the Board, I would like
to thank all our employees across the globe for their tireless
commitment and passion for our customers' success. In return, I
look forward to working with the Board to ensure we create the most
productive and rewarding work environment possible so each of our
employees can realize their full potential.
Current Trading and Outlook
The solid momentum in North America at the end of 2016 has
carried over into 2017 driven by demand for replacement equipment,
technology upgrades, and interest in new products. We remain
encouraged by the solid level of non-residential construction
activity in the US, a view that is supported by reports from our
customers of lengthy project backlogs that extend well into 2017.
Proposals for US corporate tax reform and fiscal policy programs to
invest in US infrastructure are additional factors reinforcing our
confidence in North American growth prospects.
In Europe, the 2016 acceleration of recovery from the
recessionary low point in 2011 is expected to carry forward into
2017, driven by demand for replacement equipment, technology
upgrades, and interest in new products, much like we see in the US
which is encouraging for the future.
In China, the interest level in our products remains healthy and
we are excited by the growth opportunity in front of us. In
particular, we see solid interest in our S-158 entry level product,
which opens up the productivity oriented market segment to us that
we expect to help us grow our customer base and offer future
up-sell opportunities. We also continue to see traction with our
market development efforts to promote wide-placement methods and
flatness, levelness standards. These factors, along with our very
low market penetration in China, point to solid growth prospects
for 2017 and beyond.
In Latin America, we are expecting stable performance from
Mexico and Chile, and we have begun to see modestly increased
activity in Brazil, and are optimistic for a satisfactory
contribution to growth from the other countries in the region. In
our other markets, including the Middle East, Australia, India,
Scandinavia, Korea, and Southeast Asia, we expect to see
significant opportunities in 2017 and are encouraged by the market
climate across this broad territory.
The Board believes the Company is well-positioned to capitalize
on the many opportunities we see across our portfolio of markets
and products and we remain confident Somero is poised to deliver
another year of profitable growth to our shareholders in 2017.
Larry Horsch
Non-Executive Chairman
March 15, 2017
President and Chief Executive Officer's Review
Overview
I am very pleased to report that 2016 was an exceptional year
for Somero. Our financial results were outstanding as we ended the
year with record revenues, profits, and the strongest balance sheet
and net cash(1) position in the Company's history. We also made
meaningful investments in order to execute our growth strategy in
the years to come. We finished construction and moved into our new
14,000 square foot Global Headquarters and Training Facility in
Fort Myers, we broke ground on a new hands-on training facility on
our Fort Myers campus, we completed development of three new
products, and most importantly, we added key talent to the
organization to help lead the Company forward. As good a year as
2016 was, we are even more excited about the opportunities that lie
ahead.
Region Reviews
The performance in the North American market continues to be
strong, reflecting a healthy commercial construction environment
supported by the new political establishment. Market estimates
indicate that in 2016 North American cement consumption from
non-residential building construction grew an estimated 10.9%(2)
compared to 2015 which is consistent with the extensive project
backlogs our customers have reported. Also in 2016, North American
sales increased a robust 15% compared to 2015 to reach US$ 56.6m,
driven by an abundance of commercial construction activity combined
with a growing shortage of skilled labor in the concrete contractor
industry that in turn increased demand for Somero equipment. New
products have also been a key contributor to growth in North
America as the new S-10A and S-940 Laser Screed machines have
gained considerable traction in the market.
Our European market accelerated its recovery in 2016 with sales
growing 40% compared to 2015 to reach US$ 8.0m. Importantly, this
growth was well-balanced across our product line and on a
geographic basis, with particularly solid trading activity in
Italy, Poland, UK, Spain and the Czech Republic.
The China market stabilized in 2016 contributing US$ 6.4m in
sales for the year, a 5% increase compared to 2015. The positive
underlying market fundamentals and long-term growth prospects in
China remain intact and we have seen continued traction from our
training and educational efforts to advance awareness, acceptance
and demand for higher quality floors through wide-placement
methods. We took several important steps in 2016 to position
ourselves for future growth in China: we recruited an experienced
manager based in Shanghai to lead our sales team in China; we
successfully brought our training and educational efforts to the
job-site by hosting a Mega Product Demonstration on a
high-visibility job with one of our largest customers; and, late in
2016, we introduced our newly designed entry-level S-158 Laser
Screed machine and the S-940 Laser Screed machine to the China
market, two products that we believe will attract new
productivity-oriented customers, which is an important, incremental
market segment. Finally, while not new in 2016, our long-term
financing program continues to be a success with our equipment
shut-off capability proving to be an effective tool to secure
timely payments from customers who require a financing option. All
sales under the long-term financing program that began in Q4 2015
are current on scheduled payments, and the Company has earned over
US$ 0.2m in interest income in 2016 from financing these sales.
Sales in Australia improved substantially in 2016, growing 130%
from 2015 to reach US$ 2.3m. The considerable improvement in
Australia was driven in part by improved economic conditions
combined with the strengthening of the Australian dollar in
2016.
Sales in the Middle East grew 7% from 2015 to reach US$ 2.9m for
the year, another healthy year for the region. Driving the
performance in 2016 were strong contributions from Turkey, the
United Arab Emirates, and Saudi Arabia.
In Latin America, while sales declined 15% from 2015 to US$ 1.7m
for the year, the second half of 2016 was considerably improved
from the start of the year reflecting noticeably improved activity
levels across the region, including modest improvement in
Brazil.
In Southeast Asia, sales declined to US$ 0.4m in 2016 from US$
1.3m in 2015. However, despite the sluggish performance in 2016, we
continue to view Southeast Asia as a significant future growth
opportunity given our very low current market penetration and the
growing demand for higher quality floors in the region.
While sales in India in 2016 declined to US$ 0.1m from US$ 0.6m
in 2015, we exited the year with a solid pipeline of opportunities,
some of which were delayed as a result of the Indian banking system
reforms that slowed bank financing approvals. We also view India as
a significant future growth opportunity for Somero and will
continue to develop the market through marketing activities and by
hosting educational seminars for potential customers, engineers,
architects, and building owners that promote the benefits of higher
quality concrete floors.
As expected, sales in Russia improved only modestly to US$ 0.2m
in 2016 given the continued unstable economic and geo-political
climate in the country.
Cashflow and Balance Sheet
Driven by record revenues and profits combined with effective
working capital management, 2016 was also a year of record
operating cash flows for Somero. Operating cash flows grew to US$
16.9m, up from US$ 14.5m in 2015, and year-end 2016 net cash
balances increased to US$ 20.2m from US$ 12.6m a year ago(1) . The
growth in net cash is remarkable considering in 2016 we also paid
US$ 4.2m in dividends to shareholders and invested US$ 4.4m in
capital expenditures related largely to our expansion projects. On
top of this, I am particularly pleased that we have also increased
our dividend payout ratio to 40% of adjusted net income to return
even more of our profits to shareholders beginning with the
dividend to be paid in April 2017. The Board plans to review the
Company's cash position alongside cash requirements for current
business needs and future investment during the first half of 2017.
The Board will then assess the level of excess cash that may be
subject to distribution back to shareholders through a special
dividend later in 2017.
People
During 2016, we increased our staffing by 13 to reach 178
employees at the end of the year as we made key investments to
bring new talent into the organization to drive and support our
growth. We will continue to work on striking the right balance
between investing in new talent and leveraging our operational
scale. We are highly selective in the quality and fit of the
individuals we hire and devote a large part of the hiring process
to determine if a candidate fits the Somero culture, embraces our
core values, and will be a significant, productive contributor.
Product Development
Each year, Somero invests approximately 2% of sales on product
development with a goal of introducing at least one new product
every year. The efficiency of our product development effort is due
to our customer-focused approach that relies on a high level of
customer engagement through focus groups, surveys, and feedback we
routinely gather through interactions with our direct sales and
support staff. 2016 was another efficient year as our Engineering
team completed development of three new products: our entry-level
S-158 Laser Screed machine targeted for the Chinese market, our new
SP-16 Concrete Hose Line-Pulling and Placing System and our next
generation 3-D Profiler System. All three new products have been
well-received by the market, with the S-158 launching at the end of
2016 in China, and the SP-16 and next generation 3-D Profiler
System launching in January 2017 at the World of Concrete Trade
Show in Las Vegas, Nevada. Additionally, in 2016 we gained
significant sales traction with products that were developed in the
previous year, the S-10A and the S-940 Laser Screed machines. These
two products contributed, on a combined basis, US$ 10.6m in sales
in 2016, which represented US$ 4.6m in net growth from 2015.
Progress Towards our 2018 Strategic Objective
This was the third year of our five-year plan that targets
reaching revenues of US$ 90m in 2018. We have now roughly met 75%
of the target by reaching just over US$ 79m in revenues in 2016
with two years of the plan remaining. Given solid fundamentals in
the US and European markets, strong growth prospects in China, and
meaningful additional growth opportunities across our portfolio of
products and geographic markets, we remain confident in our ability
to meet our strategic target in 2018.
Expansion Update
In April 2016, we completed construction and moved into our new
14,000 square-foot Global Headquarters and Training Facility in
Fort Myers, Florida. The new Training Facility provides us with a
state of the art classroom environment that we have already used to
train and educate nearly 150 customer operators since we first
opened the new facility. In addition, due to increasing industry
demand for enhanced training and education, we have accelerated
plans to construct a hands-on training environment on our Fort
Myers campus. This will become part of the Somero Concrete
Institute which is planned to launch in Q2 2017. This investment
highlights Somero's continued commitment to the industry, and
further distinguishes Somero as an industry leader in training and
education. We expect to complete the project by the end of Q1 2017
for a total building cost of US$ 0.7m.
Conclusion
This was a record setting year for Somero in terms of our
financial performance, but that is only part of the story. We have
also made real strides in executing our strategy to grow the
business globally through innovative new products, expanding our
operational and training capabilities to meet the future needs of
our customers, and adding critical new talent to the organization.
We have done this while also delivering remarkable financial
results, strengthening our balance sheet and increasing our
dividend to return more cash to our shareholders.
These achievements would not be possible without our talented
management team leading the effort. I want to personally highlight
the tremendous performance of our Managers in 2016 who each
excelled at managing another year of rapid growth while keeping
focus on improving the products, solutions, and levels of service
we offer our customers. Somero's success begins with our employees'
passion and dedication to ensuring our customers achieve their
business and profitability goals. I am most proud that we have not
lost sight of that.
We anticipate another exciting year ahead for Somero, and are
looking forward to capitalizing on the significant opportunities
ahead. Through the investments we have made in 2016 and plan to
make in 2017, we believe we are well-positioned to capitalize on
expected growth in our core markets of the US, Europe and China,
capture revenues from new products and new markets, and continue to
extend and deepen our global footprint. Most importantly, we look
forward to delivering another year of remarkable results for our
shareholders.
Jack Cooney
President and Chief Executive Officer
March 15, 2017
Notes:
(1) Net Cash is defined as total cash and cash equivalents less
borrowings under bank obligations exclusive of deferred financing
costs.
(2) Percentage derived from Portland Cement Association Market
Intelligence Fall Cement Outlook report dated November 2016.
FINANCIAL REVIEW
Summary of Financial Results
Year ended Year ended
December December
31, 31,
2016 2015
US$ 000 US$ 000
Revenue 79,353 70,222
Cost of sales 34,270 31,059
----------- -----------
Gross profit 45,083 39,163
Operating expenses
Sales, marketing and customer
support 10,056 9,438
Engineering 1,071 1,031
General and administrative 12,768 11,121
Total operating expenses 23,895 21,590
----------- -----------
Operating income 21,188 17,573
Other income (expense)
Interest expense (95) (191)
Interest income 267 20
Foreign exchange loss (117) (43)
Other 34 -
----------- -----------
Income before income taxes 21,277 17,359
Provision for income taxes 7,019 5,809
Net income 14,258 11,550
----------- -----------
Other data
Adjusted EBITDA (1) (2) (4) 24,579 20,034
Adjusted net income (1) (3)
(4) 15,637 12,966
Depreciation expense 1,121 719
Amortization of intangibles 1,545 1,545
Capital expenditures 4,435 4,162
Notes:
1. Adjusted EBITDA and Adjusted net income are not measurements
of the Company's financial performance under US GAAP and should not
be considered as an alternative to net income, operating income 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 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 plus tax provision, interest expense, interest income,
foreign exchange loss, other expense, depreciation, amortization,
and stock based compensation.
3. Adjusted net income as used herein is a calculation of net
income plus amortization of intangibles and excluding the tax
impact of stock option and RSU settlements and other special
items.
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 to adjusted EBITDA reconciliation
and
Adjusted net income reconciliation
Year ended Year ended
December December
31, 2016 31, 2015
US$ 000 US$ 000
Adjusted EBITDA reconciliation
Net income 14,258 11,550
Tax provision 7,019 5,809
Interest expense 95 191
Interest income (267) (20)
Foreign exchange loss 117 43
Other (34) -
Depreciation 1,121 719
Amortization 1,545 1,545
Stock based compensation 725 197
Adjusted EBITDA 24,579 20,034
----------- -----------
Adjusted net income reconciliation
Net income 14,258 11,550
Amortization 1,545 1,545
Tax impact of stock option & RSU
settlements (166) (129)
Adjusted net income 15,637 12,966
----------- -----------
Notes:
1. Adjusted EBITDA and Adjusted net income are not measurements
of the Company's financial performance under US GAAP and should not
be considered as an alternative to net income, operating income 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 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 plus tax provision, interest expense, interest income,
foreign exchange loss, other expense, depreciation, amortization,
and stock based compensation.
3. Adjusted net income as used herein is a calculation of net
income plus amortization of intangibles and excluding the tax
impact of stock option and RSU settlements and other special
items.
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.
Revenues
The Company's consolidated revenues increased by 13% to US$
79.4m (2015: US$ 70.2m). Company revenues consist primarily of
sales from Boomed screed products, which include the S-22E, S-15R
and S-10A Laser Screed machines, sales from Ride-on screed
products, which are drive through the concrete machines that
include the S-840, S-485, S-940 and S-158 Laser Screed machines,
Remanufactured machines sales, 3-D Profiler System, and Other
Revenues which consist primarily of revenue from sales of parts and
accessories, sales of other equipment, service, training and
shipping charges. The overall increase for the year was driven by
sales of Boomed screeds, Ride-on screeds, 3-D Profiler Systems,
along with an increase in Other revenues.
Boomed screed sales increased to US$ 36.3 m (2015: US$ 34.1m) as
a result of increased volume and price increases, Ride-on screed
sales increased to US$ 14.4 m (2015: US$ 12.5m) also due to higher
volume and price increases, 3-D Profiler System sales increased to
US$ 6.1m (2015: US$ 4.4) due to increased unit sales and Other
revenues increased to US$ 16.7 m (2015: US$ 12.9m) primarily due to
increased sales of parts and accessories and increased sales of
other equipment including the STS-11M Topping Spreader.
Revenue breakdown
by geography
North America EMEA(1) ROW(2) Total
US$ in US$ in US$ in US$ in millions
millions millions millions
2016 2015
2016 2015 2016 2015 2016 2015 Net % of Net % of
sales Net sales Net
sales sales
Boomed
screeds
(3) 27.0 27.3 6.0 3.5 3.3 3.3 36.3 45.7% 34.1 48.6%
Ride-on
screeds
(4) 10.4 8.3 2.3 3.0 1.7 1.2 14.4 18.1% 12.5 17.8%
Remanufactured
machines 3.7 2.6 0.4 0.6 1.8 3.1 5.9 7.5% 6.3 9.0%
3D Profiler
System 5.4 3.8 0.2 0.3 0.5 0.3 6.1 7.7% 4.4 6.2%
Other (5) 10.1 7.2 2.8 2.2 3.8 3.5 16.7 21.0% 12.9 18.4%
Total 56.6 49.2 11.7 9.6 11.1 11.4 79.4 100.0% 70.2 100.0%
---------------- ------- ------- ----- ----- ----- ----- ------- ------- ------- -------
Notes:
1. EMEA includes the Europe, India, Middle East, Scandinavia and
Russia markets.
2. ROW includes the China, Australia, Latin America, Korea, and
Southeast Asia markets.
3. Boomed Screeds include the S-22E, S-15R, and S-10A.
4. Ride-On Screeds include the S-840, S-940, S-485, and
S-158.
5. Other includes parts, accessories, services and freight, as
well as other equipment such as the STS-11M, Copperhead, and Mini
Screed C.
Units by product
line
2016 2015
-------------------- ----- -----
Boomed screeds 130 109
Ride-on screeds 159 146
Remanufactured
machines 42 43
3D Profiler System 61 47
Total 392 345
-------------------- ----- -----
Sales to customers located in North America contributed 71% of
total revenue (2015: 70%), sales to customers in EMEA (Europe,
India, Middle East, Scandinavia, and Russia) contributed 15% (2015:
14%) and sales to customers in ROW (Southeast Asia, Australia,
Latin America, and China) contributed 14% (2015: 16%).
Sales in North America were US$ 56.6m (2015: US$ 49.2m) up 15%
driven by higher sales of Ride-on screeds, Remanufactured machines,
and an increase in Other revenues. Sales in EMEA were US$ 11.7m
(2015: US$ 9.6m) which is up 22% primarily due to an increase in
Boom screed sales. Sales in ROW were US$ 11.1m (2015: US$ 11.4m)
down modestly due to a decline in Remanufactured sales offset
partly by an increase in sales of Ride-on screeds.
Regional sales US$ in millions
2016 2015
---------------- -------- --------
North America 56.6 49.2
Europe 8.0 5.7
China 6.4 6.1
Middle East 2.9 2.7
Australia 2.3 1.0
Latin America 1.7 2.0
Scandinavia 0.5 0.5
Southeast Asia 0.4 1.3
Korea 0.3 1.0
Russia 0.2 0.1
India 0.1 0.6
---------------- -------- --------
Total 79.4 70.2
---------------- -------- --------
Gross profit
Gross profit increased to US$ 45.1m (2015: US$ 39.2m), with
gross margins improving to 56.8% (2015: 55.8%) due to price
increases, product cost reductions and productivity gains.
Operating expenses
Operating expenses increased by 11% to US$ 23.9m (2015: US$
21.6m). This increase was driven by increased commissions and
insurance associated with higher sales volume, higher personnel
costs due to wage inflation and increased average headcount,
increased benefits costs, and increased bonuses in 2016.
Other income (expense)
Other income increased to US$ 0.1m, compared to other expense of
US$ 0.2m in 2015, due to a decrease in interest expense and an
increase in interest income offset partly by an increase in foreign
exchange loss.
Provision for income taxes
The provision for income taxes was US$ 7.0m in 2016 as compared
to US$ 5.8m in 2015. Overall, Somero's effective tax rate changed
from 33.5% in 2015 to 33.0% in 2016.
Net income
Net income increased to US$ 14.3m from US$ 11.6m in 2015 due
primarily to increased sales volume, gross margin improvement and
operating cost controls. On an adjusted basis, excluding
amortization and tax benefits associated settlements of RSUs and
stock options, adjusted net income increased to US$ 15.6m from US$
13.0m in 2015. Basic earnings per share represents income available
to common stockholders divided by the weighted average number of
shares outstanding during the period. Diluted earnings 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 per common share have been
computed based on the following:
Year ended Year ended
December December
31, 31,
2016 2015
US$ 000's US$ 000's
----------- -----------
Income available to stockholders 14,258 11,550
Basic weighted shares outstanding 56,178,723 56,145,563
Net dilutive effect of stock
options and restricted stock
units 1,708,228 1,545,716
Diluted weighted average shares
outstanding 57,886,951 57,691,279
----------------------------------- ----------- -----------
The Company had 56,203,602 shares outstanding at December 31,
2016. Earnings per share at December 31, 2016 and 2015 are as
follows:
Year Ended Year Ended
December December
31, 31,
2016 2015
Per Share Per Share
US$ US$
Basic earnings per share 0.25 0.21
Diluted earnings per share 0.25 0.20
Basic adjusted earnings per
share 0.28 0.23
Diluted adjusted earnings per
share 0.27 0.22
------------------------------- ----------- -----------
Consolidated Balance Sheets
As of December 31, 2016 and
2015
As of As of
December December
31, 31, 2015
2016
US$ 000 US$ 000
Assets
Current assets:
Cash and cash equivalents 21,216 13,709
Accounts receivable - net 6,310 5,969
Inventories 8,760 8,479
Prepaid expenses and other
assets 2,428 2,135
Total current assets 38,714 30,292
Accounts receivable, non-current
- net 254 885
Property, plant and equipment
- net 11,558 8,266
Intangible assets - net 901 2,446
Goodwill 2,878 2,878
Deferred tax asset 3,351 3,529
Other assets 29 75
Total assets 57,685 48,371
-------------------------------------------- ---------- -----------
Liabilities and stockholders'
equity
Current liabilities:
Notes payable - current portion 16 16
Accounts payable 2,831 3,705
Accrued expenses 5,329 4,330
Income tax payable 147 1,044
Total current liabilities 8,323 9,095
Notes payable, net of current
portion 970 986
Other liabilities 223 84
Total liabilities 9,516 10,165
-------------------------------------------- ---------- -----------
Stockholders' equity
Preferred stock, US$.001 par - -
value, 50,000,000 shares authorized,
no shares issued and outstanding
Common stock, US$.001 par value,
80,000,000 shares authorized,
56,425,598 and 56,425,598 shares
issued and 56,203,602 and 56,106,732
shares outstanding at December
31, 2016 and 2015, respectively 26 26
Less: treasury stock, 221,996
shares as of December 31, 2016
and 318,866 shares as of December
31, 2015 at cost (483) (614)
Additional paid in capital 22,112 22,008
Retained earnings 28,480 18,432
Other comprehensive loss (1,966) (1,646)
Total stockholders' equity 48,169 38,206
------------------------------------------- ---------- -----------
Total liabilities and stockholders'
equity 57,685 48,371
-------------------------------------------- ---------- -----------
See notes to consolidated financial
statements.
Consolidated Statements of Comprehensive
Income
For the years ended December
31, 2016 and 2015
Year ended Year ended
December December
31 31
2016 2015
US$ 000 US$ 000
except except
per share per share
data data
Revenue 79,353 70,222
Cost of sales 34,270 31,059
------------------------------------------- ----------- -----------
Gross profit 45,083 39,163
------------------------------------------- ----------- -----------
Operating expenses
Sales, marketing and customer
support 10,056 9,438
Engineering 1,071 1,031
General and administrative 12,768 11,121
----------- -----------
Total operating expenses 23,895 21,590
------------------------------------------ ----------- -----------
Operating income 21,188 17,573
Other income (expense)
Interest expense (95) (191)
Interest income 267 20
Foreign exchange loss (117) (43)
Other 34 -
------------------------------------------ ----------- -----------
Income before income taxes 21,277 17,359
Provision for income taxes 7,019 5,809
Net income 14,258 11,550
------------------------------------------- ----------- -----------
Other comprehensive income (loss)
Cumulative translation adjustment (322) (280)
Change in fair value of derivative
instruments - net of income
tax 2 (8)
Total comprehensive income 13,938 11,262
Earnings per common share
Earnings per share basic 0.25 0.21
Earnings per share diluted 0.25 0.20
Weighted average number of common shares
outstanding
Basic 56,178,723 56,145,563
Diluted 57,886,951 57,691,279
See notes to consolidated financial
statements.
Consolidated Statements of Changes in Stockholders'
Equity
For the years ended December 31, 2016
and 2015
Common Stock Treasury
Stock
Shares Amount Additional Shares Amount Retained Other Total
Paid-In earnings Compre-hensive Stockholders'
Capital Loss Equity
US$ US$ US$ US$ 000 US$ US$
000 000 000 000 000
Balance -
January 1,
2015 56,425,598 26 22,336 232,700 (416) 10,194 (1,358) 30,782
-------------- ----------- ------- ----------- --------- ------- --------- --------------- --------------
Cumulative
translation
adjustment - - - - - - (280) (280)
Change in
fair value
of
derivative
instruments - - - - - - (8) (8)
Net income - - - - - 11,550 - 11,550
Stock based
compensation - - 197 - - - - 197
Dividend - - - - - (3,312) - (3,312)
Treasury
stock - - - 86,166 (198) - - (198)
RSUs settled
for cash - - (275) - - - - (275)
Stock options
settled for
cash - - (250) - - - - (250)
Balance -
December 31,
2015 56,425,598 26 22,008 318,866 (614) 18,432 (1,646) 38,206
-------------- ----------- ------- ----------- --------- ------- --------- --------------- --------------
Cumulative
translation
adjustment - - - - - - (322) (322)
Change in
fair value
of
derivative
instruments - - - - - - 2 2
Net income - - - - - 14,258 - 14,258
Stock based
compensation - - 725 - - - - 725
Dividend - - - - - (4,210) - (4,210)
Treasury
stock - - (131) (96,870) 131 - - -
RSUs settled
for cash - - (345) - - - - (345)
Stock options
settled for
cash - - (145) - - - - (145)
Balance -
December 31,
2016 56,425,598 26 22,112 221,996 (483) 28,480 (1,966) 48,169
-------------- ----------- ------- ----------- --------- ------- --------- --------------- --------------
See notes to consolidated
financial statements.
Consolidated Statements of Cash Flows
For the years ended December 31, 2016
and 2015
Year Year
ended ended
December December
31 31
2016 2015
US$ 000 US$
000
Cash flows from operating activities:
Net income 14,258 11,550
Adjustments to reconcile net income
to net cash provided by operating activities:
Deferred taxes 178 150
Depreciation and amortization 2,666 2,264
Bad debt 400 381
Amortization of deferred financing
costs 32 33
Stock based compensation 725 197
Working capital changes:
Accounts receivable (110) (1,909)
Inventories (281) (89)
Prepaid expenses and other assets (293) (128)
Other assets (3) 6
Accounts payable, accrued expenses
and other liabilities 264 1,036
Income taxes payable (897) 1,019
Net cash provided by operating activities 16,939 14,510
------------------------------------------------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property and 71 -
equipment
Property and equipment purchases (4,435) (4,162)
Net cash used in investing activities (4,364) (4,162)
------------------------------------------------- --------- ---------
Cash flows from financing activities:
Payment of dividend (4,210) (3,312)
RSUs settled for cash (345) (275)
Purchase of treasury stock - (198)
Stock options settled for cash (145) (250)
Repayment of notes payable (48) (266)
Net cash used in financing activities (4,748) (4,301)
------------------------------------------------- --------- ---------
Effect of exchange rates on cash and
cash equivalents (320) (288)
------------------------------------------------- --------- ---------
Net increase in cash and cash equivalents 7,507 5,759
Cash and cash equivalents:
Beginning of year 13,709 7,950
--------- ---------
End of year 21,216 13,709
------------------------------------------------- --------- ---------
See notes to consolidated financial
statements.
Notes to the Consolidated Financial Statements
As of December 31, 2016 and 2015
1. Organization and description of business
Nature of business
Somero Enterprises, Inc. (the "Company" or "Somero") designs,
assembles, remaunfactures, sells and distributes concrete leveling,
contouring and placing equipment, related parts and accessories,
and training services worldwide. Somero's Operations and Support
Offices are located in Michigan, USA with Global Headquarters and
Training Facilities in Florida, USA. Sales and service offices are
located in Chesterfield, England; Shanghai, China; and New Delhi,
India.
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. Certain prior year
amounts have been reclassified to conform to the current year
presentation.
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.
The Company maintains deposits primarily in one financial
institution, which may at times exceed amounts covered by insurance
provided by the U.S. Federal Deposit Insurance Corporation
("FDIC"). The Company has not experienced any losses related to
amounts in excess of FDIC limits.
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. 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 December 31, 2016 and 2015, the allowance for
doubtful accounts was approximately US$ 743,000 and US$ 698,000,
respectively. Bad debt expense was US$ 400,000 and US$ 381,000 in
2016 and 2015, respectively.
Inventories
Inventories are stated using the first in, first out ("FIFO")
method at the lower of cost or net realizable value. 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 remaining term of the debt instrument. These
financing costs are being amortized using the effective interest
method. Deferred financing costs, consisting of loan origination
fees, are reflected as an offset to notes payable on the
accompanying balance sheets.
Intangible assets and goodwill
Intangible assets consist primarily of customer relationships
and patents, and are carried at their fair value when acquired,
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 December 31 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 did not incur a goodwill impairment loss
for the year ended December 31, 2016 or 2015. (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 December 31, 2016, the Company 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.
2016 2015
US$ 000 US$ 000
-------- --------
Balance, January
1 (307) (193)
Warranty charges 478 409
Accruals (718) (523)
Balance, December
31 (547) (307)
------------------- -------- --------
Property, plant, and equipment
Property, plant and equipment is stated at cost net of
accumulated depreciation and amortization. Land is not depreciated.
Depreciation is computed 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.
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 for income taxes in general and
administrative expenses in the accompanying consolidated financial
statements. The Company is subject to a three-year statute of
limitations by major tax jurisdictions.
The Company recognizes interest and penalties related to
unrecognized tax benefits in the provision for income taxes in
general and administrative expenses in the accompanying
consolidated financial statements, which there were none in 2016
and 2015.
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 December 31 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. 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 loss in the accompanying
consolidated statements of comprehensive income.
Comprehensive income
Comprehensive income is the combination of reported net income
and other comprehensive income ("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.
Earnings per share
Basic earnings per share represents income available to common
stockholders divided by the weighted average number of common
shares outstanding during the year. Diluted earnings per share
reflect additional common shares that would have been outstanding
if dilutive potential common shares had been issued using the
treasury stock method. Potential common shares that may be issued
by the Company relate to outstanding stock options. Earnings per
common share have been computed based on the following:
Year ended Year ended
December December
31, 31,
2016 2015
US$ 000's US$ 000's
----------- -----------
Income available to stockholders 14,258 11,550
Basic weighted shares outstanding 56,178,723 56,145,563
Net dilutive effect of stock
options and restricted stock
units 1,708,228 1,545,716
Diluted weighted average
shares outstanding 57,886,951 57,691,279
----------------------------------- ----------- -----------
Fair value
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.
Quoted
prices
in active Significant Significant
markets other other
identical observable unobservable
assets inputs inputs
Level Level Level
1 2 3
US$ 000 US$ 000 US$ 000 US$ 000
--------------- -------- ----------- ------------ --------------
Year ended December
31, 2015
Asset:
Non-recurring
Goodwill 2,878 2,878
Recurring
Interest
rate swap (4) (4)
Year ended December
31, 2016
Asset:
Non-recurring
Goodwill 2,878 2,878
Recurring
Interest
rate swap (2) (2)
--------------- -------- ----------- ------------ --------------
New accounting pronouncements
In May 2014, the FASB issued Accounting Standards Update No.
2014-09, Revenue from Contracts with Customers ("ASU 2014-09"),
which supersedes nearly all existing revenue recognition guidance
under US GAAP. The core principle of ASU 2014-09 is to recognize
revenues when promised goods or services are transferred to
customers in an amount that reflects the consideration to which an
entity expects to be entitled for those goods or services. ASU
2014-09 defines a five-step process to achieve this core principle
and, in doing so, more judgment and estimates may be required
within the revenue recognition process than are required under
existing US GAAP. The standard is effective for annual periods
beginning after December 15, 2018, and interim periods therein,
using either of the following transition methods: (i) a full
retrospective approach reflecting the application of the standard
in each prior reporting period with the option to elect certain
practical expedients, or (ii) a retrospective approach with the
cumulative effect of initially adopting ASU 2014-09 recognized at
the date of adoption (which includes additional footnote
disclosures). We are currently evaluating the impact of our pending
adoption of ASU 2014-09 on our consolidated financial statements
and have not yet determined the method by which we will adopt the
standard in 2019.
In April 2015, the FASB released Accounting Standards Update No.
2015-03 - Interest - Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs. To simplify
the presentation of debt issuance costs, the update requires that
debt issuance costs related to a recognized debt liability be
presented in the balance sheet as a direct deduction from the
carrying amount of that debt liability, consistent with debt
discounts. The update is effective for financial statements issued
for fiscal years beginning after December 15, 2015 and interim
periods within fiscal years beginning after December 15, 2016. The
Company has applied the new guidance for the current period and
prior periods reflected on the balance sheet.
In July 2015, the FASB issued Accounting Standards Update No.
2015-11, Simplifying the Measurement of Inventory. The amendment
applies to inventory that is measured using first-in, first-out
(FIFO) or average cost. An entity should measure inventory within
the scope of this Update at the lower of cost and net realizable
value. Net realizable value is the estimated selling price in the
ordinary course of business, less reasonably predictable costs of
completion, disposal, and transportation. The amendments in this
Update are effective for fiscal years beginning after December 15,
2016, including interim periods within those fiscal years. The
Company has chosen early adoption. The balance sheet reflects the
new guidance for all periods.
In November 2015, the FASB issued Accounting Standards Update
No. 2015-17 Balance Sheet Classification of Deferred Taxes. To
simplify the presentation of deferred income taxes, the amendments
in this Update require that deferred tax liabilities and assets be
classified as noncurrent in a classified statement of financial
position. The amendments in this Update apply to all entities that
present a classified statement of financial position. The current
requirement that deferred tax liabilities and assets of a
tax-paying component of an entity be offset and presented as a
single amount is not affected by the amendments in this Update. The
amendments in the Update are effective for financial statements
issued for annual periods beginning after December 15, 2017. The
Company has chosen early adoption. The balance sheet reflects the
new guidance for all periods.
In February 2016, the FASB released Accounting Standard Update
2016-02, Leases. The new guidance requires lessees to recognize
lease assets and lease liabilities on the balance sheet for those
leases classified as operating leases under previous GAAP. Lessees
are required to recognize a single lease cost, amortized on a
straight-line basis over the lease term for operating leases. All
cash payments are to be classified as operating activities on the
cash flow statement. The update is effective for fiscal years
beginning after December 15, 2019, and interim periods within
fiscal years beginning after December 15, 2020. Lessees are
required to measure leases under the new guidance at the beginning
of the earliest period presented using a modified retrospective
approach. We are currently evaluating adoption of the guidance.
In March 2016, the FASB released Accounting Standards Update No.
2016-09, Improvements to Employee Share-Based Payment Accounting,
which amends ASC 718, Compensation - Stock Compensation. Under the
new guidance, because there will no longer be any excess tax
benefits from the exercise of stock options recognized in APIC,
when applying the treasury stock method for computing diluted EPS,
the assumed proceeds will not include such windfall tax
benefits.
The update is effective for annual periods beginning after
December 15, 2017, and interim periods within annual periods
beginning after December 15, 2018. The Company has chosen early
adoption. The diluted EPS information for the years ended December
31, 2016 and 2015 reflect the adoption of this guidance.
3. Inventories
Inventories consisted of the following
at December 31, 2016 and 2015:
Year ended Year ended
December December
31, 31,
2016 2015
US $ 000 US $ 000
------------- -----------
Raw material 2,574 2,576
Finished goods and
work in process 3,583 2,259
Remanufactured 2,603 3,644
Total 8,760 8,479
----------------------- ------------- -----------
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.
The results of the qualitative assessment indicated that
Goodwill was not impaired as of December 31, 2016 and 2015, and
that the value of patents was not impaired as of December 31, 2016
and 2015.
The following table reflects other intangible assets:
Year ended Year ended
Weighted December December
average 31, 31,
Amortization 2016 2015
Period US$ 000's US$ 000's
-------------- ----------- -----------
Capitalized cost
Patents 12 years 18,538 18,538
Accumulated amortization
Patents 12 years 17,637 16,092
Net carrying costs
Patents 12 years 901 2,446
Amortization expense associated with the intangible assets in
each of the years ended December 31, 2016 and 2015 was
approximately US$ 1,545,000. Remaining net intangible assets
totaling approximately US$ 901,000 will be fully amortized in
2017.
5. Property, plant, and equipment
Property, plant, and equipment consist of the following at
December 31:
2016 2015
US$ 000 US$ 000
-------- --------
Land 864 864
Building and improvements 9,483 6,325
Machinery and equipment 5,769 4,599
-------------------------------- -------- --------
16,116 11,788
Less: accumulated depreciation
and amortization (4,558) (3,522)
11,558 8,266
-------------------------------- -------- --------
Depreciation expense for the years ended December 31, 2016 and
2015 was approximately US$ 1,121,000 and US$ 719,000,
respectively.
6. Notes payable
The Company's debt obligations consisted of the following at
December 31:
2016 2015
US$ 000's US$ 000's
April 2018 commercial real
estate mortgage 1,024 1,072
February 2021 secured revolving - -
line of credit
--------------------------------- ---------- ----------
Total bank debt 1,024 1,072
--------------------------------- ---------- ----------
Less debt due within one
year (48) (48)
Obligations due after one
year 976 1,024
--------------------------------- ---------- ----------
The Company's revolving line of credit is collateralized by all
inventories and accounts receivable.
The future payments under the Company's amended loan and
scheduled related loan amortization fees are as follows for the
years ended:
2016
US$ 000's
Term loan Loan origination Net long
principal fees term debt
----------- ------------------- ------------
2017 48 32 16
2018 976 6 970
Thereafter - - -
Total 1,024 38 986
----------- ----------- ------------------- ------------
The Company entered into an amended credit facility in February
2016. The new agreement matures between April 2018 and February
2021.
-- US$ 1,447,000 April 2018 commercial real estate mortgage
-- US$ 10,000,000 February 2021 secured revolving line of credit
The interest rate on the commercial real estate mortgage was an
effective 1.87% as of December 31, 2016 and was based on the swap
rate of 1.19% plus the Applicable LIBOR margin of 1.25%. The
interest rate on the revolving line of credit is based on the
1-month LIBOR rate plus 1.25%. No amounts were drawn under the
secured revolving line of credit in 2016 or 2015. The Company's
credit facility is secured by substantially all of its business
assets.
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's matching
contributions vest immediately. The Company contributed
approximately US$ 350,000 to the savings and retirement plan during
2016 and contributed US$ 397,000 during 2015.
8. Operating leases
The Company leases property, vehicles, and office equipment
under leases accounted for as operating leases without renewal
options. Future minimum payments are as follows for the years
ended:
December
31
US$ 000
---------
2017 293
2018 255
2019 138
2020 -
Thereafter -
686
------------ ---------
9. Capital leases
Interest rates on capital leases are variable and range from
3.6% to 5.9% at December 31, 2016. This is included in accrued
expenses on the accompanying balance sheets. Future minimum
payments are as follows for the years ended:
December
31
US$ 000
---------
2017 58
2018 49
2019 32
2020 21
Thereafter -
160
------------ ---------
10. Supplemental cash flow and non-cash financing
disclosures
Year ended Year ended
December December
31, 31,
2016 2015
US$ 000 US$ 000
----------- -----------
Cash paid for interest 58 83
Cash paid for taxes 7,747 4,700
Non-cash financing activities
- change in fair value
of derivative instruments 2 (4)
------------------------------- ----------- -----------
11. 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 competitors. Any of the
foregoing may significantly affect management's estimates and the
Company's performance. At December 31, 2016 and 2015, the Company
had two customers which represented 20% and 11% of total accounts
receivable, respectively.
12. 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 non-disclosure
provisions as well as provide for defined severance payments in the
event of termination or change in control.
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 consolidated financial statements.
13. Income taxes
Income Tax Provision
Year ended Year ended
December December
31, 31,
2016 2015
US$ 000 US$ 000
----------- -----------
Current income tax
Federal 5,764 4,876
State 774 468
Foreign 303 315
Total current income
tax expense 6,841 5,659
------------------------------ ----------- -----------
Deferred tax expense
Federal 167 141
State 11 9
Foreign - -
Total deferred tax expense 178 150
------------------------------ ----------- -----------
Total tax provision 7,019 5,809
------------------------------ ----------- -----------
The components of the net deferred income tax asset at December
31, 2016 and 2015 were as follows:
Year ended Year ended
December December
31, 31,
2016 2015
US$ 000 US$ 000
----------- -----------
Bad debt allowance 263 248
Inventory reserve 109 147
UNICAP - Sec 263A 179 157
Prepaid insurance (65) (48)
Prepaid other (104) (94)
Fixed assets (517) (489)
Intangible assets 2,343 2,766
UK intangibles 134 134
Accrued warranty 223 134
Stock based compensation expense
(options & RSUs) 473 261
Italy - NOL 76 76
Foreign tax credit 237 237
Total net deferred tax assets 3,351 3,529
------------------------------------- ----------- -----------
Rate reconciliation
Consolidated income before tax 21,277 17,359
Statutory rate 34% 34%
Statutory tax expense 7,234 5,902
------------------------------------ ----------- -----------
State taxes 518 315
Foreign taxes (221) (107)
Meals and entertainment 44 53
Permanent differences due to stock
options & RSUs (125) (129)
Permanent differences due to other
items (409) (402)
Other (22) 177
Tax expense 7,019 5,809
------------------------------------ ----------- -----------
The Company has US$ 246,185 in foreign loss carry forwards with
indefinite expiration dates.
14. Revenues by geographic region
The Company sells its product to customers throughout the world.
The breakdown by location is as follows:
Year ended Year ended
December December
31, 31,
2016 2015
US$ 000 US$ 000
----------- -----------
United States and
U.S. possessions 55,805 47,621
Canada 791 1,547
Rest of World 22,757 21,054
-----------
Total 79,353 70,222
------------------- ----------- -----------
15. Stock based compensation
The Company has stock based compensation plans which are
described below. The compensation cost that has been charged
against income for the plans was approximately US$ 725,000 and US$
197,000 for the years ended December 31, 2016 and 2015,
respectively. The income tax effect recognized for stock based
compensation was US$ 0.2m and US$ 0.1m, respectively, for the years
ended December 31, 2016 and 2015.
Stock options
An initial grant was made in February 2010 for 2.3 million stock
options as replacements for grants under the old option plan, which
was cancelled when the old plan was abandoned. The grants have a
three-year vesting and a strike price of 30p, a 100% premium over
the market price on the date of grant. The remaining stock options
will only be issued for new key employees and superior
performance.
Options granted under the Plan have a term of up to 10 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. No new options were granted in 2016 and
2015.
A summary of options activity is presented below:
Options Stock Weighted-average Weighted Aggregate
options exercise average intrinsic
price remaining value
contractual
term
(years)
Outstanding at January
1, 2015 1,840,627 0.44 5.02 4,246,248
Granted - - - -
Exercised (154,266) 0.47 4.13 (350,879)
Forfeited - - - -
------------------------- ---------- ----------------- ------------- -----------
Outstanding at December
31, 2015 1,686,361 0.44 4.01 3,895,369
Exercisable at December
31, 2015 1,686,361 0.44 4.01 3,895,369
------------------------- ---------- ----------------- ------------- -----------
Outstanding at January
1, 2016 1,686,361 0.44 4.01 3,895,369
Granted - - - -
Exercised (100,000) 0.47 3.13 (227,451)
Forfeited - - - -
------------------------- ---------- ----------------- ------------- -----------
Outstanding at December
31, 2016 1,586,361 0.44 3.00 3,667,918
Exercisable at December
31, 2016 1,586,361 0.44 3.00 3,667,918
------------------------- ---------- ----------------- ------------- -----------
Options exercised in 2016 and 2015 were settled for cash of US$
0.1m and US$ 0.3m, respectively.
As of December 31, 2016 and 2015, the Company's stock options
have all been vested with no unrecognized compensation cost related
to non-vested stock-based compensation arrangements granted under
the Company's stock option plan.
Restricted Stock Units
The Company also regularly issues restricted stock units to
employees and non-executive Directors, subject to Board approval. A
summary of restricted stock unit activity in 2015 and 2016 is
presented below:
Shares Grant date
fair market
value US$
Outstanding at January
1, 2015 450,350 553,999
Granted 123,966 242,673
Vested or settled for
cash (140,788) (145,165)
Forfeited (5,183) (10,000)
Outstanding at December
31, 2015 428,345 641,507
------------------------- ---------- -------------
Outstanding at January
1, 2016 428,345 641,507
Granted 148,593 313,894
Vested and settled
for cash (159,585) (119,130)
Forfeited - -
Outstanding at December
31, 2016 417,353 836,271
------------------------- ---------- -------------
RSUs settled for cash were US$ 0.3m in 2016 and US$ 0.3m in
2015.
As of December 31, 2016, there was US$ 334,000 total
unrecognized compensation cost related to non-vested restricted
stock units. Restricted stock unit expense is being recognized over
the three year vesting period. The weighted average remaining
vesting period is 1.17 years.
Equity Bonus Plan
In 2015, the Company established the 2015 Equity Bonus Plan,
under which eligible senior managers were able to choose to receive
25% of their 2015 annual performance bonus in shares of common
stock. In March 2016, the Company issued 96,870 shares of common
stock, valued at $204,000 at the time of grant, for awards under
the 2015 Equity Bonus Plan. In November 2016, the Board approved
the 2016 Equity Bonus Plan under which eligible senior managers can
elect to receive up to 25% of their 2016 annual performance bonus
in shares of common stock. The Company expects to issue shares for
awards under the 2016 Equity Bonus Plan in 2017.
16. Employee compensation
The Board approved management bonuses and profit sharing dollars
totaling US$ 1.5m to be paid in December 2016 and early 2017 based
upon the Company meeting certain profitability targets.
17. Subsequent events
Dividend
In recognition of Somero's strong performance and the Board of
Directors' confidence in the continued growth of the Company, the
Board approved an increase to the dividend payout ratio to 40% of
adjusted net income and is pleased to announce a final 2016
dividend of 8.6 US cents per share that will be payable on April
17, 2017 to shareholders on the register at March 31, 2017.
Together with the interim dividend paid in October 2016 of 2.5 US
cents per share, this represents a full year dividend to
shareholders of 11.1 US cents per share, a 61% increase over the
previous year.
Payoff of Mortgage
On January 31, 2017, the Company paid off the remaining
outstanding principal totaling US$ 1.0m on its commercial real
estate mortgage along with accrued interest using cash on hand.
There was no prepayment penalty. There were also no changes to the
Company's US$ 10.0m secured revolving line of credit which will
expire in February 2021.
Annual General Meeting
Notice is given that the Annual General Meeting of Stockholders
(the "AGM") of the Company will be held at the offices of finnCap,
60 New Broad Street, London EC2M 1JJ on June 6, 2017 at 11:00 am
local time.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR USVBRBKAOAAR
(END) Dow Jones Newswires
March 15, 2017 03:00 ET (07:00 GMT)
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