PDF - Somero Enterprises

Section 4Financial Statements: Somero Enterprises Group2 Summary of Significant Accounting Policies continuedRevenue Recognition – Products The Somero Business recognises revenue on sales of equipment, parts and accessories whenpersuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, andcollectibility 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 productsdo not have customer acceptance criteria. Revenues for training are deferred until the training is completed unless the training is deemedinconsequential or perfunctory.Revenue Recognition – Sale of Equipment Under Recourse Financing The Somero Business initially defers recognition of revenueassociated with equipment sold under recourse financing contracts. Revenue is recognised over the life of the contractual obligation ona straight-line basis, as is more fully described in Note 5.Warranty Reserve The Somero Business provides warranties on all equipment sales ranging from three months to one year, dependingon the product. Warranty reserves are estimated net of the warranty passed through to the Somero Business from vendors, based on issuesthat have been specifically identified as giving rise to warranty claims and historical experience.Property, Plant and Equipment Property, plant and equipment is stated at cost, net of accumulated depreciation and amortisation.Land is not depreciated. Depreciation is computed on buildings 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 buildings), 15 years for improvements, and two to five years formachinery and equipment.Income Taxes The Somero Business reports its taxable income or loss on a consolidated tax return with Dover and its affiliates. At31 December 2003 and 2004, 30 June 2005 and 10 August 2005, there was no formal tax sharing agreement in place between the SomeroBusiness, Dover and its affiliates. The Somero Business accounts for its income taxes as if it were a stand-alone taxpayer in accordance withStatement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes”. Deferred tax assets and liabilities arerecognised for the future tax consequences attributable to temporary differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilitiesare measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected tobe recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in income in the period thatincludes the enactment date. Deferred tax assets are reduced by a valuation allowance, if necessary, to the extent that it appears more likelythan not that such assets will be unrecoverable.Net Parent Company Investment The carve-out statements only reflect certain assets and liabilities included in the sale by Dover.Therefore, the transactions normally classified as equity have been presented as a single line item as Net Parent Company Investment.The Net Parent Company Investment presented constitutes the difference between the assets and liabilities of the combined SomeroBusiness and includes adjustments for advances, repayments and various charges for expenses incurred by Dover and allocated tothe Somero Business.Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affect the amounts reported in the financial statements andaccompanying notes. Actual results could differ from those estimates.Translation of Foreign Currencies The functional currency for the Somero Business’ foreign branch is the UK pound sterling. Balance sheetamounts are translated at year end and six months ended exchange rates and statement of operations accounts are translated at averagerates. The resulting gains or losses are charged directly to accumulated other comprehensive income. The Somero Business is exposed tomarket risks related to fluctuations in foreign exchange rates because some sales transactions, and the assets and liabilities of its foreignsubsidiaries, are denominated in foreign currencies. The Somero Business had no outstanding forward exchange contracts for all periods.Gains and losses from transactions denominated in foreign currencies and forward exchange contracts are included in the Somero Business’net income as foreign exchange gain (loss) in the accompanying combined statements of operations. Realised net translation gains (losses)for the years ended 31 December 2003 and 2004, the six months ended 30 June 2005 (unaudited) and the period from 1 January 2005through 10 August 2005 were approximately US$122,000, US$20,000, (US$50,000) (unaudited), and (US$90,000), respectively.Comprehensive Income Comprehensive income, which is the combination of reported net income and other comprehensive income, wascomposed only of the Somero Business’ net income and foreign exchange gains (losses) 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 2005. Total comprehensive incomefor the periods was approximately US$57,000, US$3,374,000, US$3,079,000 (unaudited), and US$3,111,000, respectively.51Somero Enterprises, Inc.Annual Report and Accounts 2006