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Section 4Financial Statements: Somero Enterprises GroupNotes to the Combined Financial Statements continued3 InventoriesInventories consisted of the following at 31 December 2003 and 2004, 30 June 2005 (unaudited) and 10 August 2005:30 June31 December 31 December 2005 10 August2003 2004 (Unaudited) 2005US$ 000 US$ 000 US$ 000 US$ 000Raw materials 1,969 1,618 1,969 2,466Finished goods and work in process 5,178 3,437 3,057 2,9317,147 5,055 5,026 5,397Less: reserve for excess and obsolete inventory (1,048) (704) (706) (709)Total 6,099 4,351 4,320 4,6884 Goodwill and Intangible AssetsThe Somero Business has capitalised certain costs relating to patents and goodwill in accordance with SFAS No. 142, “Goodwill and OtherIntangible Assets” (“SFAS No. 142”) Under the provisions of SFAS No. 142, assets with a definite life are amortised over the estimated usefullife on a straight-line basis. Assets with an indefinite life are not amortised and are reviewed annually for impairment. The Somero Businesstests for impairment by comparing the fair value of each reporting unit, which has been determined by estimating the present value ofexpected future cash flows, to its carrying value. During the years ended 31 December 2003 and 2004 the Somero Business performed itsannual SFAS No. 142 impairment test and determined that no impairment loss should be recognised. For all periods presented the SomeroBusiness had goodwill in the amount of US$1,197,000.The following table reflects intangible assets that are subject to amortisation under the provisions of SFAS No. 142:Weighted30 Juneaverage 31 December 31 December 2005 10 Augustamortisation 2003 2004 (Unaudited) 2005Period US$ 000 US$ 000 US$ 000 US$ 000Capitalised cost:Customer relationships 8 years 2,990 2,990 2,990 2,990Patents 10 years 5,810 5,810 5,810 5,8108,800 8,800 8,800 8,800Accumulated amortisation:Customer relationships 8 years 374 747 933 975Patents 10 years 581 1,163 1,454 1,515955 1,910 2,387 2,490Net carrying costs:Customer relationships 8 years 2,616 2,243 2,057 2,015Patents 10 years 5,229 4,647 4,356 4,2957,845 6,890 6,413 6,31052Somero Enterprises, Inc.Annual Report and Accounts 2006
Section 4Financial Statements: Somero Enterprises Group4 Goodwill and Intangible Assets continuedAmortisation expense associated with the intangible assets for the years ended 31 December 2003 and 2004, the six months ended 30 June2005 and the period from 1 January 2005 through 10 August 2005 was approximately US$955,000, US$955,000, US$477,000 (unaudited)and US$581,000, respectively. Future amortisation on intangible assets is as follows:2005 3742006 9552007 9552008 9552009 955Thereafter 2,116US$ 0006,3105 Property, Plant, and EquipmentProperty, plant, and equipment consist of the following at 31 December 2003 and 2004, 30 June 2005 (unaudited), and 10 August 2005:30 June31 December 31 December 2005 10 August2003 2004 (Unaudited) 2005US$ 000 US$ 000 US$ 000 US$ 000Land 142 142 139 139Buildings and improvements 3,282 3,282 3,075 3,111Machinery and equipment 3,150 3,407 3,350 3,350Property held under capital lease 657 657 657 657Equipment sold under recourse contracts 793 656 494 4948,024 8,144 7,715 7,751Less: accumulated depreciation (3,509) (4,010) (4,016) (4,056)4,515 4,134 3,699 3,695Depreciation expense was approximately US$661,000, US$597,000, US$230,000 (unaudited) and US$278,000 for the years ended31 December 2003 and 2004, the six months ended 30 June 2005 (unaudited), and for the period from 1 January 2005 through 10 August2005, respectively.The Somero Business previously offered assistance to customers obtaining financing to purchase Somero equipment by guaranteeing theobligations of its customers to repay debt incurred to purchase the equipment. Equipment sold under recourse contracts relating to theseguarantees is included in property, plant and equipment as of 31 December 2003 and 2004, 30 June 2005 (unaudited) and 10 August 2005at a net book value of approximately US$668,000, US$399,000, US$266,000 (unaudited) and US$255,000, respectively. Revenue underthese arrangements is deferred and recognised over the life of the financing arrangement. Deferred revenue of approximately US$915,000,US$627,000, US$416,000 (unaudited), and US$390,000 was included on accrued expenses at 31 December 2003 and 2004, 30 June 2005and 10 August 2005, respectively.53Somero Enterprises, Inc.Annual Report and Accounts 2006
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Section 1 Overview01 Who We Are02 A
Page 4 and 5: Section 1OverviewAt a GlanceBusines
Page 6 and 7: Section 1OverviewChairman’s State
Page 8 and 9: Section 2Business ReviewPresident a
Page 10 and 11: Section 2Business ReviewWm Morrison
Page 12 and 13: Section 2Business ReviewThe complic
Page 14 and 15: Section 2Business ReviewBase slabs
Page 16 and 17: Section 2Business ReviewFinancial R
Page 18 and 19: Section 2Business ReviewFinancial R
Page 20 and 21: Section 3Management and GovernanceB
Page 22 and 23: Section 3Management and GovernanceD
Page 26 and 27: Section 3Management and GovernanceC
Page 28 and 29: Section 3Management and GovernanceC
Page 32 and 33: Section 4Financial Statements: Some
Page 62 and 63: Section 5Additional InformationAdvi
Page 64: Somero Enterprises, Inc.82 Fitzgera
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