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Section 4Financial Statements: Somero Enterprises GroupNotes to the Combined Financial Statements continued10 Transactions with Affiliated CompaniesDuring the years ended 31 December 2003 and 2004, the six months ended 30 June 2005 and the period from 1 January 2005 through10 August 2005, the Somero Business was charged by Dover for various corporate expenses such as insurance, legal fees, and othermiscellaneous charges that were allocated to the Somero Business. In addition, the Somero Business had a cash pooling agreement withDover and its affiliates whereby any excess cash generated by the Somero Business was transferred daily to Dover. Dover would then paythe Somero Business interest on the accumulated balance of cash swept. All charges and credits to/from Dover have been recorded asadjustments to net parent company investment. The following table summarises expenses, credits, and other charges incurred fromDover during the years ended 31 December 2003 and 2004 and the period from 1 January 2005 through 10 August 2005:30 June31 December 31 December 2005 10 August2003 2004 (Unaudited) 2005US$ 000 US$ 000 US$ 000 US$ 000Interest income received 0 223 246 383Insurance charges (credits) 164 (1) 16 16Legal fees 6 156 55 166Miscellaneous expenses (5) 2 0 0Tax payments (refunds) (1,837) 73 0 0As discussed in Note 6, the Somero Business had a note payable to an affiliate of Dover.11 Business and Credit ConcentrationAt 31 December 2003, the Somero Business had no customers which represented more than 10% of accounts receivable. At 31 December2004 the Somero Business had one customer which represented 26% of accounts receivable. At 30 June 2004, the Somero Business had onecustomer which represented 11% (unaudited) of accounts receivable. At 10 August 2005, the Somero Business had two customers whichrepresented 22% of receivables.12 Income TaxesThe Somero Business calculates current and deferred income tax expense and deferred income tax assets and liabilities in accordance withSFAS No. 109 “Accounting for Income Taxes” (“SFAS No. 109”)”. Although the Somero Business is a subsidiary of Dover and is included in itsconsolidated return, there is no separate tax sharing arrangement. However, the business has elected to show current and deferred incometaxes as if it were computing its taxes as a stand-alone taxpayer.The provision for income taxes at 31 December 2003 and 2004, 30 June 2005 (unaudited), and 10 August 2005 includes the following:30 June31 December 31 December 2005 10 August2003 2004 (Unaudited) 2005US$ 000 US$ 000 US$ 000 US$ 000Current income tax:Federal 189 1,760 1,678 1,871State 42 280 268 307Foreign 31 109 119 41Total current income tax expense 262 2,149 2,065 2,219Deferred tax expenseFederal (274) (336) (352) (464)State (44) (53) (56) (74)Foreign – – – –Total deferred tax (benefit) expense (318) (389) (408) (538)Total tax expense (56) 1,760 1,657 1,68156Somero Enterprises, Inc.Annual Report and Accounts 2006
Section 4Financial Statements: Somero Enterprises Group12 Income Taxes continuedThe components of the net deferred income tax asset at 31 December 2003 and 2004, 30 June 2005 (unaudited), and 10 August 2005 wereas follows:30 June31 December 31 December 2005 10 August2003 2004 (Unaudited) 2005US$ 000 US$ 000 US$ 000 US$ 000Deferred tax asset (liability)Depreciation 60 78 59 60Intangibles (3,053) (2,696) (2,518) (2,478)Other 474 488 738 826Total net deferred tax asset (liability) (2,519) (2,130) (1,721) (1,592)Less: Valuation allowance – – – –Net deferred tax asset (liability) (2,519) (2,130) (1,721) (1,592)Current 474 377 737 827Non-current (2,993) (2,507) (2,458) (2,419)(2,519) (2,130) (1,721) (1,592)The statutory US federal income tax rate was 34% for all years presented. Differences between the income tax expense reported in thestatement of operations and the amount computed by applying the statutory federal income tax rate to earnings before tax are due to thefollowing items:30 June31 December 31 December 2005 10 August2003 2004 (Unaudited) 2005US$ 000 US$ 000 US$ 000 US$ 000Combined income before tax 68 5,172 4,718 4,764Statutory rate 34% 34% 34% 34%Statutory tax expense 23 1,758 1,604 1,620State taxes (1) 149 140 154R&D credit – net (49) – (32) (39)Extraterritorial income exclusion (66) (181) (72) (88)Meals and entertainment 25 31 24 30Other 12 3 (7) 4Actual tax expense (56) 1,760 1,657 1,681The extraterritorial income exclusion is an exclusion of certain foreign sales from US income tax allowed under the federal tax laws of theUnited States of America.In assessing the ability to realise net deferred tax assets, management considers whether it is more likely than not that some portion of thedeferred tax assets will be realised. The ultimate realisation of deferred tax assets is dependent upon the generation of future taxable incomeduring the periods in which those temporary differences become deductible. Management considers projected future taxable income andtax planning strategies in making this assessment, but must give greater weight to recent historical operating losses. Based on thoseconsiderations, management believes it is more likely than not that the Somero Business will realise the benefits of the net deferred taxasset at 31 December 2003 and 2004, 30 June 2005 and 10 August 2005 and has not recognised a valuation allowance against the total netdeferred tax asset. The provision for income taxes for the six months ended 30 June 2005 has been completed using an interim effective taxrate as required by Accounting Principles Board No. 28 “Interim Financial Statements.”57Somero Enterprises, Inc.Annual Report and Accounts 2006
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Section 1 Overview01 Who We Are02 A
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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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