ANNUAL REPORT & ACCOUNTS - Somero Enterprises

11. Commitments and Contingencies
The Company has entered into employment agreements with certain members of senior
management. The terms of these agreements range from six months to one year 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 has entered into a 5 year or minimum purchase obligation of US$625,000 with
a supplier as of 31 December 2007. There is a related contingent liability of US$43,000 to
cancel the contract as of 31 December 2008 which declines over 5 years on a pro-rated basis.
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 FIN 48 on January 1, 2007. FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes. FIN 48 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 2008, the Company had a gross unrecognized tax benefit (including interest
and penalties) of $4,000. Accrued interest and penalties related to unrecognized tax benefits
are not included in tax expense.
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.
A reconciliation of the beginning and ending amounts of the Company's gross unrecognized
tax benefits is as follows:
2007 2008
US$000 US$000
Balance at January 1 - 128,000
Additions related to tax positions of prior years 81,000
Additions related to tax positions of the current
year
47,000
Reductions related to tax positions of prior years - (124,000)
Balance at December 31 128,000 4,000
The Company's gross unrecognized tax benefit was reduced during 2008 by US$47,000 as a
result of a settlement with a state and reduced by US$77,000 as a result of the filing of amended
income tax returns for the years ended December 31, 2005 and December 31, 2006.
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