PDF - Somero Enterprises

Section 4
Financial statements Somero Enterprises, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
As of 31 December 2006 and 2007
1 Organisation and Description of Business
Nature of Business Somero Enterprises, Inc. (the “Company” or “Somero”) designs, manufactures, refurbishes, sells and distributes concrete
levelling, contouring and placing equipment, related parts and accessories, and training services worldwide. The operations are conducted
from a corporate office in Jaffrey, New Hampshire, a single assembly facility located in Houghton, Michigan, a European distribution office
in the United Kingdom, and sales offices in Canada and Germany.
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. Reserves,
if necessary, are established for amounts determined to be uncollectible based on specific identification and historical experience.
As of 31 December 2006 and 2007, the allowance for doubtful accounts was approximately US$97,000 and US$191,000, 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 amortisation
and are amortised over the expected repayment term of the debt instrument, which is four years from the debt inception date.
These financing costs are being amortised 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 amortisation. Intangible assets are amortised using the straight-line method over a period of three to 12 years,
which is their estimated period of economic benefit. Goodwill is not amortised but is subject to impairment tests on an annual basis,
and the Company has chosen 31 December as its periodic assessment date.
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 years ended 31 December 2006 and 2007, no such events or circumstances
were identified. 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 recognised 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.
Revenue Recognition The Company recognises 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 collectibility is reasonably
assured. For product sales where shipping terms are F.O.B. shipping point, revenue is recognised upon shipment. For arrangements which
include F.O.B. destination shipping terms, revenue is recognised 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 Reserve The Company provides warranties on all equipment sales ranging from three months to one year, depending on
the product. Warranty reserves are estimated net of the warranty passed through to the Company from vendors, based on specific
identification of issues and historical experience.
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Somero Enterprises, Inc.
Annual Report and Accounts 2007