ANNUAL REPORT & ACCOUNTS - Somero Enterprises

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statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). SFAS 123R also requires measurement of 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. 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 income. Comprehensive Income Comprehensive income, which 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 nonowner sources not included in net income. OCI was composed of the following for the years ended 31 December 2007 and 2008. Total comprehensive income for the years was approximately US$6,677,000 and US$803,000, respectively. 2007 US$000 2008 US$000 Net Income $6,927 $1,657 Cumulative Translation Adjustment (5) (625) Change in fair value of derivative instruments – net of income taxes (245) (229) Total Comprehensive Income $6,677 $ 803 Earnings Per Share Basic earnings per share represents income available to common stockholders divided by the weighted average number of 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. Potential common shares that may be issued by the Company relate to outstanding stock options. 84,210 shares have been excluded from the calculation because they are anti-dilutive. Earnings per common share have been computed based on the following: 2007 2008 US$ 000 US$ 000 Net income Basic weighted average shares outstanding Net dilutive effect of stock options 6,927 34,281,968 - 1,657 34,281,968 - Diluted weighted average shares outstanding 34,281,968 34,281,968 New Accounting Pronouncements In September 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standard No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial assets and liabilities for fiscal years beginning after November 15, 2007. In February 2008, the FASB also issued FSP FAS 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, for non-financial assets and liabilities, except for items that are recognized or 31
disclosed at fair value in the financial statements on a recurring basis. Certain aspects of SFAS 157 were effective as of January 1, 2008 and affected certain note disclosures. We do not anticipate that the adoption of the deferred portion of SFAS 157 will have a material impact on the Company’s financial condition, results of operations or cash flows. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 provides reporting entities an option to report selected financial assets and liabilities at fair value. SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 also requires additional information to aid financial statement users' understanding of a reporting entity's choice to use fair value on its earnings and also requires entities to display the fair value of those affected assets and liabilities in the primary financial statements. SFAS 159 is effective as of the beginning of a reporting entity's first fiscal year beginning after November 15, 2007. Application of the standard is optional and any impacts are limited to those financial assets and liabilities to which SFAS 159 would be applied. The Company adopted SFAS 159 effective January 1, 2008 and has elected not to measure any of its current eligible financial assets or liabilities at fair value. In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. This statement requires 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 under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. SFAS No.161 is effective for financial statements for fiscal years and interim periods beginning after November 15, 2008. The Company will adopt the new disclosure requirements in the period beginning January 1, 2009. We do not believe the adoption of SFAS No.161 will have a material impact on the disclosure of the Company’s Derivative Instruments and Hedging Activities. In June 2008, the FASB ratified EITF Issue No. 08-3, Accounting for Lessees for Maintenance Deposits Under Lease Arrangements (EITF 08-3). EITF 08-3 provides guidance for accounting for nonrefundable maintenance deposits. It also provides revenue recognition accounting guidance for the lessor. EITF 08-3 is effective for fiscal years beginning after December 15, 2008. We are currently assessing the impact of EITF 08-3 on our financial position and results of operations. 3. Inventories Inventories consisted of the following at 31 December: 2007 2008 US$ 000 US$ 000 Raw materials 3,223 2,078 Finished goods and work in process 3,725 3,741 Total 6,948 5,819 32
Page 1 and 2: A NNUAL REPORT & ACCOUNTS 2008
Page 3 and 4: TABLE OF CONTENTS 01 WHO WE ARE 02
Page 5 and 6: BUSINESS HIGHLIGHTS • Successful
Page 7: P R E S I D E N T AND CHIEF EXECUTI
Page 10 and 11: F I N A N CIAL REVIEW SUMMARY OF FI
Page 12 and 13: F I N A N CIAL REVIEW Large line sa
Page 14 and 15: BOARD O F D IRECTORS Stuart J. Doug
Page 16 and 17: D I R E C TORS’ REPORT The direct
Page 18 and 19: D I R E C TORS’ REPORT New Produc
Page 20 and 21: D I R E C TORS’ REPORT Under the
Page 22 and 23: CORPORATE G OVERNANCE The Remunerat
Page 24 and 25: CORPORATE G OVERNANCE Audit service
Page 26 and 27: D I R E C T ORS’ REMUNERATION REP
Page 28 and 29: Consolidated Balance Sheets As of 3
Page 30 and 31: Consolidated Statements of Changes
Page 32 and 33: Notes to the Consolidated Financial
Page 36 and 37: 4. Goodwill and Intangible Assets T
Page 38 and 39: Credit Facility The Company has a c
Page 40 and 41: term maturities of such assets and
Page 42 and 43: The provision for income taxes at 3
Page 44 and 45: A summary of option activity under
Page 46: N O T I C E OF A NNUAL G ENERAL M E

ANNUAL REPORT & ACCOUNTS - Somero Enterprises

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