PDF - Somero Enterprises

Section 4Financial Statements: Somero Enterprises GroupNotes to the Combined Financial StatementsAs of 31 December 2003 and 2004, 30 June 2005 (unaudited) and 10 August 2005 and for the years ended 31 December 2003 and 2004,the six months ended 30 June 2005 (unaudited) and the period from 1 January 2005 through 10 August 20051 Organisation and Description of BusinessSomero Enterprises Group (the “Somero Business”) represents certain assets and certain liabilities of Dover Industries, Inc. and its affiliates(“Dover”). These financial statements represent the assets, liabilities, income, and expenses of the Somero Business as included in Dover’sfinancial statements prior to the acquisition of the Somero Business by Somero Enterprises, Inc., formerly GTG Portfolio Holdings, Inc. on10 August 2005 (see Note 17 for further discussion). The Somero Business designs, manufactures, refurbishes, sells and distributes concretelevelling, contouring and placing equipment, related parts and accessories, and training services worldwide. The operations are conductedfrom a corporate office in Jaffrey, New Hampshire, a single assembly facility located in Houghton, Michigan, and a European distributionoffice in the United Kingdom.Prior to the acquisition, the Somero Business operated as subsidiaries of Dover, not as a stand-alone entity. Therefore, the accompanyingfinancial statements do not reflect Dover’s general corporate debt, which may have been used to finance the operations of the SomeroBusiness or an allocation of Dover’s interest expense and general corporate overhead costs.2 Summary of Significant Accounting PoliciesBasis of Presentation The combined carve-out financial statements of the Somero Business have been prepared in accordance withaccounting principles generally accepted in the United States of America.Unaudited Interim Results The accompanying balance sheet as of 30June 2005 and the statements of operations and cash flows forthe six months ended 30 June 2005 are unaudited. The unaudited interim financial statements have been prepared on the same basisas the financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments,necessary to present fairly the Somero Business’ financial position as of 30 June 2005 and the results of operations and cash flows for thesix months ended 30 June 2005. The financial data and other information disclosed in these notes to the financial statements related tothe six months ended 30 June 2005 are unaudited. The results for the six months ended 30 June 2005 are not necessarily indicative of theresults to be expected for the year ended 31 December 2005 or for any other interim period or for any future year.Carve-out Financial Presentation Prior to the sale on 10 August 2005 by Dover, the Somero Business was operated as subsidiariesof Dover, and not as a stand-alone entity. Therefore, the accompanying combined financial statements are presented on a carve-out basis.Accordingly, for the respective periods, the assets and liabilities of the Somero Business have been accounted for at the historical bookvalues carried by Dover and do not reflect Dover’s general corporate debt, which may have been used to finance the operations of theSomero Business, or an allocation of Dover’s interest expense and general corporate expenses prior to the sale by Dover.Principles of Combination The combined carve-out financial statements include the assets and liabilities of the Somero Business andhave been accounted for at the historical book values carried by Dover. All significant intercompany transactions and accounts have beeneliminated in combination.Cash and Cash Equivalents Cash includes cash on hand, cash in banks and temporary investments with a maturity of three monthsor less when purchased.Accounts Receivable and Allowances for Doubtful Accounts Financial instruments that potentially subject the Somero Businessto concentrations of credit risk consist primarily of accounts receivable. The Somero Business’ accounts receivable are derived fromrevenue earned from a diverse group of customers primarily located in the United States of America. The Somero Business performscredit evaluations of its commercial customers and maintains an allowance for doubtful accounts receivable based upon the expectedability to collect accounts receivable. Reserves, if necessary, are established for amounts determined to be uncollectible based on specificidentification and historical experience. As of 31 December 2003 and 2004, 30 June 2005 and 10 August 2005 the allowance for doubtfulaccounts was approximately US$152,000, US$143,000, US$166,000 (unaudited), and US$194,000, respectively.Inventories Inventories are stated at the lower of cost, using the first-in, first-out (“FIFO”) method, or market. Provision for potentiallyobsolete or slow-moving inventory is made based on management’s analysis of inventory levels and future sales forecasts.Intangible Assets and Goodwill Intangible assets consist principally of customer relationships and patents, and are carried at their fairvalue, 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. The Somero Business evaluates the recoverability of intangible assets at least annuallyand takes into account events or circumstances that warrant revised estimates of useful lives or that indicate impairment exists. Goodwillis not amortised but is subject to impairment tests on an annual basis, and the Somero Business has chosen 31 December as its periodicassessment date. There were no impairments identified in the periods ended 31 December 2003 and 2004, 30 June 2005 (unaudited)and 10 August 2005.50Somero Enterprises, Inc.Annual Report and Accounts 2006