TIDMSOM
RNS Number : 7355R
Somero Enterprises Inc.
06 May 2009
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| THIS ANNOUNCEMENT MAY NOT BE RELEASED, PUBLISHED OR DISTRIBUTED IN OR INTO |
| THE UNITED STATES, CANADA, JAPAN OR AUSTRALIA OR TO US PERSONS (AS DEFINED |
| IN REGULATION S UNDER THE US SECURITIES ACT OF 1933, AS AMENDED) OR TO |
| RESIDENTS, NATIONALS OR CITIZENS OF CANADA, JAPAN OR AUSTRALIA. |
| |
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| |
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| 6 May 2009 | |
| | |
+----------------------------------------------------+------------------------+
| Somero Enterprises, Inc. |
| |
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| Full year results for the twelve months to 31 December 2008 |
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| |
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| Revenue decreased by 21.8% to US$51.9m (2007: US$66.4m) |
| Significant reduction in net debt to US$9.7m |
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| Somero Enterprises, Inc. , ("Somero" or "the Company") is pleased to |
| report results for the twelve months to 31 December 2008. Somero is a |
| North American manufacturer of patented laser guided equipment used for |
| the spreading and leveling of high volumes of concrete for floors in the |
| construction industry. Somero has operations worldwide and is primarily |
| focused on the non-residential construction industry. |
| Financial Highlights |
| |
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| - | Significant reduction in net debt to US$9.7m (2007: US$11.1m) |
+---+------------------------------------------------------------------------+
| - | Revenue decreased by 21.8% to US$51.9m (2007: US$66.4m) |
+---+------------------------------------------------------------------------+
| - | Adjusted EBITDA decreased by 63.7% to US$6.0m (2007: US$16.5m) which |
| | includes a US$0.6m restructuring charge |
+---+------------------------------------------------------------------------+
| - | Pre-tax income decreased by 79.8% to US$2.2m (2007: US$10.7m) |
+---+------------------------------------------------------------------------+
| - | Adjusted net income before amortization decreased by 63.1% to US$4.0m |
| | (2007: US$10.8m) |
+---+------------------------------------------------------------------------+
| - | EPS before amortization down 62.2% to US$0.12 (Basic EPS: US$0.05) vs. |
| | US$0.31 in 2007 (Basic EPS: US$0.20) |
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| Business Highlights |
| |
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| - | Successful operational restructuring resulting in a planned US$10.0m |
| | reduction in operating costs |
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| - | Successful modification of bank agreements providing added covenant |
| | flexibility |
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| - | Continued focus on product development, introduction of the new Mini |
| | Screed Commercial in November 2008 and the new SXP-D in January 2009 |
+---+------------------------------------------------------------------------+
| - | Broadening revenue base, with international sales accounting for 50% |
| | of group revenue |
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| - | Continued investment in emerging markets, increasing market |
| | penetration |
+---+------------------------------------------------------------------------+
+-----------------------+-----------------------------------------------------+
| Commenting on the results Stuart Doughty, Non-Executive Chairman of Somero |
| said: |
| "As the financial crisis intensified during the year, we took immediate and |
| decisive action to reduce our cost base, and achieved a total saving in |
| 2009 operating costs of US$10.0m. This proactive restructuring allowed us |
| to modify our bank agreements to obtain added covenant flexibility and |
| stability in the year ahead. |
| "Despite the current uncertainty in the markets, and our cautious outlook |
| on the out-turn for 2009, I believe we are well placed to deliver a |
| profitable year. We remain committed to driving improved performance from |
| our growth markets, and expect to continue to make investments in these |
| markets. We also expect to benefit from our new product development program |
| which has developed a new Mini Screed and a redesigned and updated Large |
| line SXP. |
| "We remain focused on maximizing our cash generation, maintaining high |
| levels of customer support and providing continued training to our |
| employees and clients alike." |
| Jack Cooney, President and Chief Executive officer commented: |
| "There is no doubt that 2008 was a particularly difficult year. I was |
| impressed with how quickly our experienced management team reacted to the |
| rapidly changing market conditions. We finished the year in a position to |
| gain from our investments in growth markets and new products. Our brand |
| recognition, market position and products, together with an experienced |
| management team, provide us with a solid platform to remain profitable, |
| generate cash and continue debt reduction in the year ahead." |
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| |
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| For further information contact: |
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| | |
+-----------------------+-----------------------------------------------------+
| Hawkpoint | |
+-----------------------+-----------------------------------------------------+
| Christopher Kemball | +44 (0)20 7665 4500 |
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| | |
+-----------------------+-----------------------------------------------------+
| Collins Stewart | |
| Europe | |
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| Piers Coombs | +44 (0)20 7523 8000 |
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| |
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| About Somero: |
| Somero designs, manufactures and sells equipment that automates the |
| process of spreading and leveling large volumes of concrete for commercial |
| flooring and other horizontal surfaces, such as paved parking lots. |
| Somero's innovative, proprietary products, including the large SXP -D, |
| CopperHead , and new Mini Screed(TM) C Laser Screed machines employ |
| laser-guided technology to achieve a high level of precision. |
| Somero's products have been sold primarily to concrete contractors for use |
| in non-residential construction projects in over 60 countries across every |
| time zone around the globe. Laser Screed equipment has been specified for |
| use in constructing warehouses, assembly plants, retail centers and in |
| other commercial construction projects requiring extremely flat concrete |
| floors by a variety of companies, such as Costco, Home Depot, B&Q, |
| DaimlerChrysler, various Coca-Cola bottling companies, the United States |
| Postal Service, Lowe's, Toys 'R' Us and ProLogis. |
| Somero's headquarters and manufacturing operations are located in Michigan, |
| USA with Executive offices in Florida. It has a sales and service office in |
| Chesterfield, England. Somero has approximately 90 employees and markets |
| and sells its products through a direct sales force, external sales |
| representatives and independent dealers in North America, Latin America, |
| Europe, the Middle East, South Africa, Asia and Australia. Somero is listed |
| on the Alternative Investment Market of the London Stock Exchange and its |
| trading symbol is SOM.L. |
| This announcement does not constitute or form part of any offer or |
| invitation to sell, or any solicitation of any offer to purchase, any |
| securities of Somero Enterprises, Inc. (the 'Company'). |
| This announcement may not be released, published or distributed in or into |
| the United States, Canada, Japan or Australia or to US Persons (as defined |
| in Regulation S under the US Securities Act of 1933, as amended (the 'US |
| Securities Act')) or to residents, nationals or citizens of Canada, Japan |
| or Australia. The distribution of this announcement in certain other |
| jurisdictions may also be restricted by law and persons into whose |
| possession this announcement or any document or other information referred |
| to herein comes should inform themselves about and observe any such |
| restriction. Any failure to comply with these restrictions may constitute a |
| violation of the securities laws of any such jurisdiction. |
| No securities of the Company have been registered under the US Securities |
| Act. No securities of the Company may be offered or sold in the United |
| States or to US persons (as defined in Regulation S under the US Securities |
| Act) except pursuant to an effective registration statement under the US |
| Securities Act or pursuant to an available exemption from the registration |
| requirements under the US Securities Act. |
| No securities of the Company have been registered under the applicable |
| securities laws of Australia, Canada or Japan and may not be offered or |
| sold within Australia, Canada or Japan or to, or for the account or benefit |
| of citizens or residents of Australia, Canada or Japan. |
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| |
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| Somero Enterprises, Inc. (R) |
| Full year results for the twelve months to 31 December 2008 |
| |
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| Chairman's Statement |
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| |
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| Overview |
| As the depth of the financial collapse became more apparent throughout 2008 |
| our focus altered from growth to stability, and we acted quickly to reduce |
| our cost structure while continuing to make investments in our growth |
| markets. Somero's core principles - high-quality engineering, product |
| development and high levels of customer service - have served us well, and |
| our products continue to be in demand and essential to produce quality |
| flooring for projects globally. We are confident that Somero is structured |
| to maintain market share and remains ready to take advantage of |
| opportunities as they present themselves around the world. |
| Markets |
| The US led economic downturn particularly affected Large line sales and |
| spares. Small line products were less affected due to their lower capital |
| cost. Europe, Middle East and Africa enjoyed a strong first half, however, |
| sales tailed off in the second half of the year. In line with our strategic |
| ambitions for our business, we remain committed to our development in China |
| and the Middle East, maintaining our position to gain market penetration in |
| both those areas. |
| Historically, in difficult economic times, we have seen growth in the used |
| equipment line as it becomes increasingly in demand by customers continuing |
| to work but not in a position to add new equipment to their fleets. We have |
| begun an aggressive campaign in this market niche with a refurbishing |
| program suited to all price points in the marketplace. The Somero As Is |
| program, in addition to our traditional refurbishing program, includes a |
| Somero warranty, training and customer service with all equipment. We are |
| confident this program will allow us to prevail in competitive situations |
| in sales of as is equipment. |
| Whilst we remain of the view that opportunities will again exist for us to |
| successfully expand our product offering into the residential arena, we |
| have re-focused in the non-residential construction market and have |
| introduced a more powerful Mini Screed(TM). Since its introduction in late |
| 2008, the Mini Screed Commercial has gained wide acceptance. |
| People |
| It is often in times of difficult economic and market conditions that the |
| true measure of a team can be assessed. As a Board, we are continually |
| impressed with the ingenuity and resilience of our employees and would like |
| to take this opportunity to thank all employees for their performance, |
| commitment and dedication throughout the past year in these most unusual |
| and unchartered times. |
| Current Trading and Outlook |
| Despite the global slowdown, construction demand continues in specific |
| sectors and demand for ever higher building quality standards is rising. We |
| remain committed to investing in important new markets, whilst being |
| mindful of the need to regularly review our cost base against prevailing |
| market conditions. We continue to focus on maximizing our cash generation, |
| maintaining high levels of customer support and developing new products to |
| keep Somero at the forefront of this industry. After the downturn runs its |
| course, I remain confident Somero will emerge as a stronger Company, |
| better-equipped to benefit from the ensuing period of economic recovery. |
| The first quarter of 2009 was below expectations but still within bank |
| covenants. We did see a progressive increase in activity each month which |
| is the normal springtime trend and countries that had been slow or dormant |
| are showing increased levels of activity. These trends seem to be gaining |
| momentum and whilst it is too early to see if we have experienced the |
| bottom, the increase in activity is encouraging. Notwithstanding these |
| encouraging trends, the Board remains cautious on the out-turn for 2009. |
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| |
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| Stuart Doughty |
| Non-Executive Chairman |
| |
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| President and Chief Executive Officer's Review |
| |
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| Overview |
| The effect of the sudden and extensive worldwide shutdown of the financial |
| system on construction activity was mitigated with the experience of our |
| management team. We recognized the impact on our customers very early in |
| the process and acted to make swift and significant reductions to our cost |
| structure in the US and Europe. The Group is now sized to the realities of |
| the marketplace as it is operating today and has continued to make |
| investments in China and the Middle East to take advantage of growth |
| opportunities. |
| Our ability to move quickly has allowed us to meet all our debt obligations |
| and, in early 2009, we modified our banking facilities to provide |
| significant flexibility in the coming years. These are unprecedented times, |
| nevertheless management is confident that Somero's fundamentals remain |
| strong and that the strategies in place combined with our market leading |
| position will result in continued long-term growth for Somero. |
| Group revenues are US$51.9m, but the Board is pleased that the management |
| has reacted quickly to the changing market conditions by taking out costs, |
| resulting in full year adjusted EBITDA of US$6.0m and maintaining bank |
| covenant compliance at lower turnover levels. |
| As part of our overall strategic plan, the Company made further progress in |
| 2008 towards our goal of decreasing our dependence on North American |
| markets and broadening our revenue base. International sales now account |
| for 50% of group revenue, up from 40% in 2007. Our focus on cash generation |
| has resulted in a further reduction in net debt at the year end to US$9.7m |
| (2007: US$11.1m). |
| We continue to invest in training to give our team the tools to help them |
| work effectively and efficiently to get through these difficult times. |
| Operational Performance |
| Total revenue decreased US$14.5m to US$51.9m (2007: US$66.4m). As expected |
| the US suffered the vast majority of this revenue reduction (US$13.4m). Out |
| of the product groups, Large line accounted for 65.7% of the reduction with |
| Small line and Other accounting for 15.7% and 18.7% respectively. |
| We realized strong sales of the three dimensional system for concrete |
| parking lots at US$2.8m (2007: US$2.4m). The introduction of the Mini |
| Screed Commercial product in the final 2 months of the year was strong. |
| Refurbished sales remained robust at US$3.0m (2007: US$3.3m). |
| EMEA had a very strong H1 with a 27.2% increase. As the financial crises |
| shifted to Europe in H2, sales declined. Full year revenue was US$20.5m, |
| broadly in line with 2007 (US$20.7m). Australia, South Africa and Korea |
| were impacted by a dramatic currency change with 2008 revenue of US$2.3m |
| (2007: US$4.2m) but our emerging markets of China, Middle East and Latin |
| and South America showed strong growth. Latin and South America generated |
| revenue of US$2.9m (2007: US$1.8m) and China and the Middle East benefited |
| from our additional investment in sales personnel to generate total sales |
| of US$2.1m (2007: US$0.4m). |
| These emerging markets remain a key area of focus for Somero. A central |
| component of our business strategy continues to be our entry into and |
| growth within emerging international markets. We will continue to position |
| ourselves to identify and take advantage of these trends by adding |
| additional investments in these markets. |
| The implementation of our emerging markets strategy is centered on three |
| core aims: |
| To identify international logistics companies, development companies and |
| building operators with a view to ensuring Western floor flatness |
| specifications are carried through to new markets; |
| To target local contractors who are tendering for projects for these major |
| international players and local contractors with a Western joint venture |
| partner; and |
| To develop a package whereby we can provide in-depth floor construction |
| training, beyond the operator training that we currently provide, and |
| selling this training as part of the overall package of equipment and |
| services to install a concrete floor. |
| We continue to pursue these three aims and it is encouraging that |
| international refurbished sales - a key indicator of progress in these |
| emerging markets - have remained robust. |
| Product Development |
| During the year we continued to invest in product development and launched |
| a new commercial Mini-Screed product in November 2008 and subsequently |
| introduced it at our industry's premier tradeshow, the 2009 World of |
| Concrete, where it was well received. Also at the World of Concrete, we |
| introduced the new SXP-Diagnostic machine. This new innovation gives |
| full-time electrical system, hydraulic system and engine performance |
| diagnostics alerts to the operator instantly should faults occur within the |
| machine while performing on the jobsite. The development of this machine |
| came from customer input as a result of our close relationship with our |
| customers. |
| Somero Total Care warranty program was also introduced at the World of |
| Concrete. Somero 'Total Care' is an all-inclusive warranty and training |
| package for the SXP(TM)-D Laser Screed and includes a 3-year warranty on |
| all non-wear parts, scheduled 6 monthly inspection & calibration visits for |
| 3 years, classroom training for up to 4 operators and 1 day on-site |
| advanced/additional operator training per year. This new innovative program |
| is a first in the construction equipment industry and provides a high value |
| benefit to ownership with no costs in the first 3 years of ownership except |
| for wear items and consumables. The Total Care program is only available |
| for purchase at the time of the initial sale of the SXP-D, at a cost of |
| US$15,000. |
| Additional products are also in the prototyping stage. We remain confident |
| that the launch of these products will continue to provide growth |
| opportunities for Somero over the medium and longer term. |
| New Training Facility |
| The Company successfully completed the relocation of its executive offices |
| and customer training to Fort Myers, Florida, in July 2008. The |
| manufacturing plant and majority of customer service personnel remain in |
| Houghton, Michigan. With the training located in Florida, we can now offer |
| year-round classes to our customers who come from all over the world. |
| Combining our executive offices with customer training enables senior |
| management to interact with customers, giving them valuable insight into |
| understanding their businesses and markets. As of December 2008 we had 40 |
| customers come through training. |
| In 2009 we will look to expand our presence in emerging markets with all |
| product offerings. The Company's attractive fundamentals including strong |
| cash flow, good market position and products, together with an experienced |
| management team, provide us with a solid platform on which to weather the |
| global recession. |
| We look forward to delivering further on our strategic goals in the year |
| ahead. |
| Jack Cooney |
| President and Chief Executive Officer |
+-----------------------+-----------------------------------------------------+
+-------------------------------------------+--------------+---------------+
| |
+--------------------------------------------------------------------------+
| Summary of Financial Results (1) (2) (3) (4) |
+--------------------------------------------------------------------------+
| Financial Review |
+--------------------------------------------------------------------------+
| | 12 months | 12 months |
+-------------------------------------------+--------------+---------------+
| | ended | ended |
+-------------------------------------------+--------------+---------------+
| | 31-Dec-07 | 31-Dec-08 |
+-------------------------------------------+--------------+---------------+
| | US$ 000 | US$ 000 |
+-------------------------------------------+--------------+---------------+
| | | |
+-------------------------------------------+--------------+---------------+
| Revenue | 66,436 | 51,941 |
+-------------------------------------------+--------------+---------------+
| Cost of sales | 28,828 | 23,116 |
+-------------------------------------------+--------------+---------------+
| Gross profit | 37,608 | 28,825 |
+-------------------------------------------+--------------+---------------+
| Operating expenses: | | |
+-------------------------------------------+--------------+---------------+
| Selling expense | 11,949 | 11,518 |
+-------------------------------------------+--------------+---------------+
| Engineering expense | 1,831 | 1,384 |
+-------------------------------------------+--------------+---------------+
| General and administrative expense | 10,514 | 12,477 |
+-------------------------------------------+--------------+---------------+
| Restructuring | - | 582 |
+-------------------------------------------+--------------+---------------+
| Total operating expenses | 24,294 | 25,961 |
+-------------------------------------------+--------------+---------------+
| Operating income | 13,314 | 2,864 |
+-------------------------------------------+--------------+---------------+
| Other income (expense) | | |
+-------------------------------------------+--------------+---------------+
| Interest expense | (1,472) | (856) |
+-------------------------------------------+--------------+---------------+
| Interest income | 74 | 67 |
+-------------------------------------------+--------------+---------------+
| | | |
+-------------------------------------------+--------------+---------------+
| Foreign exchange gain/(loss) | 279 | 99 |
+-------------------------------------------+--------------+---------------+
| Other | (1,479) | (12) |
+-------------------------------------------+--------------+---------------+
| Income before taxes | 10,716 | 2,162 |
+-------------------------------------------+--------------+---------------+
| Provision for income taxes | 3,789 | 505 |
+-------------------------------------------+--------------+---------------+
| Net income | 6,927 | 1,657 |
+-------------------------------------------+--------------+---------------+
| Other data: | | |
+-------------------------------------------+--------------+---------------+
| Adjusted EBITDA(1)(2)(4) | 16,494 | 5,984 |
+-------------------------------------------+--------------+---------------+
| Adjusted net income before | | |
+-------------------------------------------+--------------+---------------+
| amortization (1)(3)(4) | 10,792 | 3,989 |
+-------------------------------------------+--------------+---------------+
| Depreciation expense | 378 | 373 |
+-------------------------------------------+--------------+---------------+
| Amortization of intangibles | 2,384 | 2,332 |
+-------------------------------------------+--------------+---------------+
| Capital expenditures | 491 | 589 |
+-------------------------------------------+--------------+---------------+
+-----+------------------------------------------------------------------------+
| |
+------------------------------------------------------------------------------+
| Notes: |
+------------------------------------------------------------------------------+
| 1. | Adjusted EBITDA and adjusted net income before amortization are not |
| | measurements of the Company's financial performance under US GAAP and |
| | should not be considered as an alternative to net income, operating |
| | income or any other performance measures derived in accordance with US |
| | GAAP or as an alternative to US GAAP cash flow from operating |
| | activities as a measure of profitability or liquidity. Adjusted EBITDA |
| | and adjusted net income before amortization are presented herein |
| | because management believes they are useful analytical tools for |
| | measuring the profitability and cash generation of the business. |
| | Adjusted EBITDA is also used to determine pricing and covenant |
| | compliance under the Company's credit facility and as a measurement |
| | for calculation of management incentive compensation. The Company |
| | understands that although adjusted EBITDA is frequently used by |
| | securities analysts, lenders and others in their evaluation of |
| | companies, its calculation of adjusted EBITDA may not be comparable to |
| | other similarly titled measures reported by other companies. |
+-----+------------------------------------------------------------------------+
| | |
+-----+------------------------------------------------------------------------+
| 2. | Adjusted EBITDA as used herein is a calculation of its net income plus |
| | tax provision, interest expense, interest income, foreign exchange |
| | gain, other expense, depreciation, amortization and stock based |
| | compensation. |
+-----+------------------------------------------------------------------------+
| | |
+-----+------------------------------------------------------------------------+
| 3. | Adjusted net income before amortization as used herein is a |
| | calculation of net income plus amortization of intangibles plus loss |
| | on extinguishment of debt. |
+-----+------------------------------------------------------------------------+
| | |
+-----+------------------------------------------------------------------------+
| 4. | The Company uses non-US GAAP financial measures in order to provide |
| | supplemental information regarding the Company's operating |
| | performance. The non-US GAAP financial measures presented herein |
| | should not be considered in isolation from, or as a substitute to, |
| | financial measures calculated in accordance with US GAAP. Investors |
| | are cautioned that there are inherent limitations associated with the |
| | use of each non-US GAAP financial measure. In particular, non-US GAAP |
| | financial measures are not based on a comprehensive set of accounting |
| | rules or principles, and many of the adjustments to the US GAAP |
| | financial measures reflect the exclusion of items that may have a |
| | material effect on the Company's financial results calculated in |
| | accordance with US GAAP. |
+-----+------------------------------------------------------------------------+
| |
+------------------------------------------------------------------------------+
| Adjusted net income to adjusted EBITDA |
| reconciliation and adjusted net income before |
| amortization reconciliation |
+-----+------------------------------------------------------------------------+
+-------------------------------------------+--------------+---------------+
| | 12 months | 12 months |
+-------------------------------------------+--------------+---------------+
| | ended | ended |
+-------------------------------------------+--------------+---------------+
| | 31-Dec-07 | 31-Dec-08 |
+-------------------------------------------+--------------+---------------+
| | US$ 000 | US$ 000 |
+-------------------------------------------+--------------+---------------+
| | | |
+-------------------------------------------+--------------+---------------+
| Adjusted EBITDA reconciliation | | |
+-------------------------------------------+--------------+---------------+
| Adjusted net income | 6,927 | 1,657 |
+-------------------------------------------+--------------+---------------+
| Tax provision | 3,789 | 505 |
+-------------------------------------------+--------------+---------------+
| Interest expense | 1,472 | 856 |
+-------------------------------------------+--------------+---------------+
| Interest income | (74) | (67) |
+-------------------------------------------+--------------+---------------+
| Foreign exchange gain | (279) | (99) |
+-------------------------------------------+--------------+---------------+
| Other expense | 1,479 | 12 |
+-------------------------------------------+--------------+---------------+
| Depreciation | 378 | 373 |
+-------------------------------------------+--------------+---------------+
| Amortization | 2,384 | 2,332 |
+-------------------------------------------+--------------+---------------+
| Stock based compensation | 418 | 415 |
+-------------------------------------------+--------------+---------------+
| Adjusted EBITDA | 16,494 | 5,984 |
+-------------------------------------------+--------------+---------------+
| Adjusted net income before amortization | | |
| reconciliation | | |
+-------------------------------------------+--------------+---------------+
| Net income | 6,927 | 1,657 |
+-------------------------------------------+--------------+---------------+
| Amortization | 2,384 | 2,332 |
+-------------------------------------------+--------------+---------------+
| Loss on extinguishment of debt | 1,481 | - |
+-------------------------------------------+--------------+---------------+
| Net income before amortization | 10,792 | 3,989 |
+-------------------------------------------+--------------+---------------+
+------------------------------------------------------------------------+
| |
+------------------------------------------------------------------------+
| Notes: |
| References to "Adjusted net income before amortization" in this |
| document are to Somero's net income plus amortization of intangibles |
| plus loss on extinguishment of debt. Although adjusted net income |
| before amortization is not a measure of operating income, operating |
| performance or liquidity under US GAAP, this financial measure is |
| included because management believes it will be useful to investors |
| when comparing Somero's results of operations both before and after |
| the Somero Acquisition, including by eliminating the effects of |
| increases in amortization of intangibles that have occurred as a |
| result of the write-up of these assets in connection with the Somero |
| Acquisition. Adjusted net income before amortization should not, |
| however, be considered in isolation or as a substitute for operating |
| income as determined by US GAAP, or as an indicator of operating |
| performance, or of cash flows from operating activities as determined |
| in accordance with US GAAP. Since adjusted net income before |
| amortization is not a measure determined in accordance with US GAAP |
| and is thus susceptible to varying calculations, adjusted net income |
| before amortization, as presented, may not be comparable to other |
| similarly titled measures of other companies. A reconciliation of net |
| income to adjusted EBITDA and adjusted net income before amortization |
| is presented above. |
| Revenues |
| Somero's consolidated revenues decreased by 21.8% to US$51.9m (2007: |
| US$66.4m). Somero's revenues consist primarily of sales from new Large |
| line products (the SXP-D Large Laser Screed and its predecessors), |
| sales from new Small line products (the CopperHead and PowerRake) and |
| other revenues, which consist of, among other things, revenue from |
| sales of spare parts, refurbished machines, Topping Spreaders, Mini |
| Screeds, 3D systems and accessories. The overall decrease in revenues |
| for the year was driven by reductions in each of Large line sales, |
| Small line sales and other revenues. |
| The table below shows the breakdown between Large line sales, Small |
| line sales and other revenues during the 12 months ended 31 December |
| 2007 and 2008: |
+------------------------------------------------------------------------+
+--------------+-----------+------------------+--------------+---------------+
| | | |
+--------------+------------------------------+------------------------------+
| | 12 months ended 31 December | 12 months ended 31 December |
| | 2007 | 2008 |
+--------------+------------------------------+------------------------------+
| | (US$ in | Percentage of | (US$ in | Percentage of |
| | millions) | net sales | millions) | net sales |
+--------------+-----------+------------------+--------------+---------------+
| Large line | 30.5 | 45.9% | 21.3 | 41.1% |
| sales | | | | |
+--------------+-----------+------------------+--------------+---------------+
| Small line | 18.1 | 27.3% | 15.4 | 29.6% |
| sales | | | | |
+--------------+-----------+------------------+--------------+---------------+
| Other | 17.8 | 26.8% | 15.2 | 29.3% |
| revenues | | | | |
+--------------+-----------+------------------+--------------+---------------+
| Total | 66.4 | 100% | 51.9 | 100% |
+--------------+-----------+------------------+--------------+---------------+
| |
+--------------+-----------+------------------+--------------+---------------+
+------------------------------------------------------------------------+
| Large line sales decreased to US$21.3m (2007: US$30.5m) as a result of |
| a 33.6% decrease in volume to 71 units (2007: 107), Small line sales |
| decreased to US$15.4m (2007: US$18.1m) as volumes decreased to 320 |
| (2007: 394) and other revenues, including sales of spare parts, |
| refurbished machines, Topping Spreaders, Mini Screeds, 3D systems and |
| accessories, decreased to US$15.2m (2007: US$17.8m). |
| Sales to customers located in North America comprise the majority of |
| Somero's revenue, constituting 50.5% of total revenue (2007: 59.9%), |
| while sales to customers in Europe, South Africa and the Middle East |
| combined contributed 39.6% (2007: 31.3%). The remaining sales in these |
| periods were to customers in Asia, Australia, Central America and |
| South America. The Company has been focused on international sales, |
| with revenues outside North America decreasing by 3.4% to US$25.7m |
| (2007: US$26.6m). Sales in Europe, South Africa and the Middle East |
| generated US$20.5m (2007: US$20.7m) and sales of Large line and Small |
| line products in these regions increased by 2% and 3.6% in the |
| comparable periods. |
| Sales in Asia, Australia and Latin and South America decreased to |
| US$5.2m (2007: US$5.9m) driven by a decrease in Large line volumes to |
| 9 units (2007: 12 units) and in Small line units to 28 (2007: 52 |
| units). |
| Sales to customers in North America decreased by 33.8% to US$26.2m |
| (2007: US$39.6m). |
| Gross Profit |
| Gross profit decreased by 23.4% to US$28.8m (2007: US$37.6m), with |
| gross margins declining to 55.5% (2007: 56.6%). The decrease in gross |
| margins was a result of several factors including a change in sales |
| mix from higher margin Large line to lower margin Other, and lower |
| production volumes leading to less cost absorption. |
| Operating Expenses |
| Operating expenses increased by 6.9% to US$26.0m (2007: US$24.3m). |
| This increase included US$0.8m of increased legal expenses, US$0.7m in |
| relocation costs and US$0.6m in restructuring expenses. |
| Selling expenses decreased by 3.6% to US$11.5m (2007: US$11.9m). The |
| decrease in selling expenses was primarily due to lower sales, which |
| resulted in decreased sales commissions. |
| Engineering expenses decreased by US$0.4m, or 24.4%, to US$1.4m (2007: |
| US$1.8m). The decrease was due to fewer projects being worked on in |
| 2008 as compared to 2007. |
| General and administrative expenses increased US$2.0m, or 18.7% to |
| US$12.5m (2007: US$10.5m). A substantial amount of the increase in |
| general and administrative expenses resulted from US$0.8m in increased |
| legal expenses, US$0.7m in relocation costs and increased bad debt |
| expenses. |
| Restructuring expenses amounted to US$0.6m as the Company streamlined |
| its operations with the onset of the global credit crises and |
| recession. |
| Other Income (Expenses) |
| Other expenses were US$0.7m (2007: US$2.6m). Other expenses consisted |
| of interest income, interest expense, foreign exchange gains and |
| losses and gains and losses on the disposal of assets. |
| Interest expenses were US$0.9m (2007: US$1.5m), resulting primarily |
| from continued reductions in debt as excess cash was used to pay down |
| debt. |
| Foreign exchange gains were US$0.1m (2007: US$0.3m) resulting |
| primarily from a changing US Dollar compared to the Pound Sterling and |
| the Euro. |
| Other expenses included US$12k (2007: US$1.5m), primarily resulting |
| from fewer gains and losses on the disposal of assets. |
| Provision for Income Taxes |
| The provision for income taxes decreased by US$3.3m, or 86.7%, to |
| US$0.5m (2007: US$3.8m) due to lower profitability levels. Overall, |
| Somero's effective tax rate decreased from 35.4% to 23.4% due to |
| foreign tax items. |
| Net Income |
| Net income decreased by 76.1% to US$1.7m (2007: US$6.9m). The primary |
| cause of the decrease in net income was decreased sales and increased |
| operating expenses. |
| Earnings Per Share |
| Basic earnings per share represents income available to common |
| stockholders divided by the weighted average number of shares |
| outstanding during the period. Diluted earnings per share reflect |
| additional common shares that would have been outstanding if dilutive |
| potential common shares had been issued. Potential common shares that |
| may be issued by the Company relate to outstanding stock options. |
| Earnings per common share have been computed based on the following: |
+------------------------------------------------------------------------+
+-----------------------------------+----------------+----------+----------+
| |
+--------------------------------------------------------------------------+
| | 2007 | 2008 |
+-----------------------------------+----------------+---------------------+
| | US$ 000 | US$ 000 |
+-----------------------------------+----------------+---------------------+
| Net income | 6,927 | 1,657 |
+-----------------------------------+----------------+---------------------+
| Basic weighted shares outstanding | 34,281,968 | 34,281,968 |
+-----------------------------------+----------------+---------------------+
| Net dilutive effect of stock | - | - |
| options | | |
+-----------------------------------+----------------+---------------------+
| Diluted weighted average shares | 34,281,968 | 34,281,968 |
| outstanding | | |
+-----------------------------------+----------------+---------------------+
| |
+--------------------------------------------------------------------------+
| The Company had 34,281,968 shares outstanding at 31 December 2008. |
| Earnings Per Share |
| Earnings per share at 31 December 2008 is as follows: |
+--------------------------------------------------------------------------+
| | US$ |
+----------------------------------------------------+---------------------+
| Basic earnings per share | 0.05 |
+----------------------------------------------------+---------------------+
| Diluted earnings per share | 0.05 |
+----------------------------------------------------+---------------------+
| Adjusted net income before amortization of | 0.12 |
| earnings per share | |
+----------------------------------------------------+---------------------+
| |
+--------------------------------------------------------------------------+
| |
+--------------------------------------------------------------------------+
| Consolidated Balance Sheets |
| As of 31 December 2007 and 2008 |
+--------------------------------------------------------------------------+
| | 2007 | 2008 |
+----------------------------------------------------+----------+----------+
| | US$ 000 | US$ 000 |
+----------------------------------------------------+----------+----------+
| Assets | | |
+----------------------------------------------------+----------+----------+
| Current assets: | | |
+----------------------------------------------------+----------+----------+
| Cash and cash equivalents | 3,842 | 789 |
+----------------------------------------------------+----------+----------+
| Accounts receivable - net | 4,279 | 2,434 |
+----------------------------------------------------+----------+----------+
| Inventories - net | 6,948 | 5,819 |
+----------------------------------------------------+----------+----------+
| Prepaid expenses and other assets | 860 | 800 |
+----------------------------------------------------+----------+----------+
| Income tax receivable | - | 137 |
+----------------------------------------------------+----------+----------+
| Deferred tax asset | 594 | 466 |
+----------------------------------------------------+----------+----------+
| Assets held for sale | 618 | - |
+----------------------------------------------------+----------+----------+
| Total current assets | 17,141 | 10,445 |
+----------------------------------------------------+----------+----------+
| Property, plant and equipment - net | 4,103 | 4,260 |
+----------------------------------------------------+----------+----------+
| Intangible assets - net | 19,236 | 16,872 |
+----------------------------------------------------+----------+----------+
| Goodwill | 16,400 | 16,400 |
+----------------------------------------------------+----------+----------+
| Deferred financing costs | 94 | 52 |
+----------------------------------------------------+----------+----------+
| Other assets | 135 | 75 |
+----------------------------------------------------+----------+----------+
| Total assets | 57,109 | 48,104 |
+----------------------------------------------------+----------+----------+
| | | |
+----------------------------------------------------+----------+----------+
| Liabilities and stockholders' equity | | |
+----------------------------------------------------+----------+----------+
| Current liabilities: | | |
+----------------------------------------------------+----------+----------+
| Notes Payable - current portion | 1,429 | 1,429 |
+----------------------------------------------------+----------+----------+
| Accounts payable | 4,051 | 1,960 |
+----------------------------------------------------+----------+----------+
| Accrued expenses | 2,453 | 1,279 |
+----------------------------------------------------+----------+----------+
| Income taxes payable | 374 | - |
+----------------------------------------------------+----------+----------+
| Other liabilities | 152 | 360 |
+----------------------------------------------------+----------+----------+
| Total current liabilities | 8,459 | 5,028 |
+----------------------------------------------------+----------+----------+
| Notes payable, net of current portion | 13,500 | 9,026 |
+----------------------------------------------------+----------+----------+
| Deferred income taxes | 467 | 239 |
+----------------------------------------------------+----------+----------+
| Other liabilities, net of current portion | 455 | 422 |
+----------------------------------------------------+----------+----------+
| Total liabilities | 22,881 | 14,715 |
+----------------------------------------------------+----------+----------+
| | | |
+----------------------------------------------------+----------+----------+
| Commitments and contingencies | - | - |
+----------------------------------------------------+----------+----------+
| Stockholders' equity | | |
+----------------------------------------------------+----------+----------+
| Preferred stock, US$.001 par value, 50,000,000 | - | - |
| shares authorized, no shares issued and | | |
| outstanding | | |
+----------------------------------------------------+----------+----------+
| Common stock, US$.001 par value, 80,000,000 shares | 4 | 4 |
| authorized, 34,281,968 shares issued and | | |
| outstanding at 31 December 2007 and 2008 | | |
+----------------------------------------------------+----------+----------+
| Additional paid in capital | 22,344 | 22,759 |
+----------------------------------------------------+----------+----------+
| Retained earnings | 12,128 | 11,728 |
+----------------------------------------------------+----------+----------+
| Other comprehensive income (loss) | (248) | (1,102) |
+----------------------------------------------------+----------+----------+
| Total stockholders' equity | 34,228 | 33,389 |
+----------------------------------------------------+----------+----------+
| Total liabilities and stockholders' equity | 57,109 | 48,104 |
+-----------------------------------+----------------+----------+----------+
+---------------------------------------------+-------------+--------------+
| See notes to consolidated financial statements. |
+--------------------------------------------------------------------------+
| |
+--------------------------------------------------------------------------+
| Consolidated Statements of Income |
| For the years ended 31 December 2007 and 2008 |
+--------------------------------------------------------------------------+
| | Year ended | Year ended |
| | 31 December | 31 December |
| | 2007 | 2008 |
| | US$ 000 | US$ 000 |
+---------------------------------------------+-------------+--------------+
| Revenue | 66,436 | 51,941 |
+---------------------------------------------+-------------+--------------+
| Cost of sales | 28,828 | 23,116 |
+---------------------------------------------+-------------+--------------+
| | | |
+---------------------------------------------+-------------+--------------+
| Gross profit | 37,608 | 28,825 |
+---------------------------------------------+-------------+--------------+
| | | |
+---------------------------------------------+-------------+--------------+
| Operating expenses | | |
+---------------------------------------------+-------------+--------------+
| Selling expenses | 11,949 | 11,518 |
+---------------------------------------------+-------------+--------------+
| Engineering expenses | 1,831 | 1,384 |
+---------------------------------------------+-------------+--------------+
| General and administrative expenses | 10,514 | 12,477 |
+---------------------------------------------+-------------+--------------+
| Restructuring Expense | 0 | 582 |
+---------------------------------------------+-------------+--------------+
| Total operating expenses | 24,294 | 25,961 |
+---------------------------------------------+-------------+--------------+
| | | |
+---------------------------------------------+-------------+--------------+
| Operating income | 13,314 | 2,864 |
+---------------------------------------------+-------------+--------------+
| Other income (expense) | | |
+---------------------------------------------+-------------+--------------+
| Interest expense | (1,472) | (856) |
+---------------------------------------------+-------------+--------------+
| Interest income | 74 | 67 |
+---------------------------------------------+-------------+--------------+
| Foreign exchange gain | 279 | 99 |
+---------------------------------------------+-------------+--------------+
| Other | (1,479) | (12) |
+---------------------------------------------+-------------+--------------+
| | | |
+---------------------------------------------+-------------+--------------+
| Income before income taxes | 10,716 | 2,162 |
+---------------------------------------------+-------------+--------------+
| Provision for income taxes | 3,789 | 505 |
+---------------------------------------------+-------------+--------------+
| Net income | 6,927 | 1,657 |
+---------------------------------------------+-------------+--------------+
| | | |
+---------------------------------------------+-------------+--------------+
| Earnings per common share | | |
+---------------------------------------------+-------------+--------------+
| Basic | 0.20 | 0.05 |
+---------------------------------------------+-------------+--------------+
| Diluted | 0.20 | 0.05 |
+---------------------------------------------+-------------+--------------+
| Weighted average number of common shares | | |
| outstanding | | |
+---------------------------------------------+-------------+--------------+
| Basic | 34,281,968 | 34,281,968 |
+---------------------------------------------+-------------+--------------+
| Diluted | 34,281,968 | 34,281,968 |
+---------------------------------------------+-------------+--------------+
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
| See notes to consolidated financial statements |
+--------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| |
+--------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| Consolidated Statements of Changes in Stockholders' Equity |
| For the years ended 31 December 2007 and 2008 |
+--------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| |
+--------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| | Common | Common | Common Stock | | | Other | |
| | Stock Series | Stock Series | | | | | |
| | A | B | | | | | |
+--------------------+-----------------+-----------------+---------------------+------------+-------------------+-----------------------------+----------------------------+
| | Shares | Amount | Shares | Amount | Shares | Amount | Additional | Retained earnings | Comprehensive Income (loss) | Total Stockholders' equity |
| | | | | | | | paid in | | | |
| | | | | | | | capital | | | |
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
| | Number | US$ | Number | US$ | Number | US$ | US$ | US$ | US$ 000 | US$ |
| | | 000 | | 000 | | 000 | 000 | 000 | | 000 |
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
| Balance | - | - | - | - | 34,281,968 | 4 | 21,926 | 6,343 | 2 | 28,275 |
| - 31 | | | | | | | | | | |
| Dec | | | | | | | | | | |
| 2006 | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
| Cumulative | | | | | | | | | (5) | (5) |
| translation | | | | | | | | | | |
| adjustment | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
| Change | | | | | | | | | (245) | (245) |
| in | | | | | | | | | | |
| fair | | | | | | | | | | |
| value | | | | | | | | | | |
| of | | | | | | | | | | |
| derivative | | | | | | | | | | |
| instruments | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
| Net | | | | | | | | 6,927 | | 6,927 |
| income | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
| Share | | | | | | | 418 | | | 418 |
| based | | | | | | | | | | |
| compensation | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
| Dividends | | | | | | | | (1,142) | | (1,142) |
| paid | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
| Balance | - | - | - | - | 34,281,968 | 4 | 22,344 | 12,128 | (248) | 34,228 |
| - 31 | | | | | | | | | | |
| Dec | | | | | | | | | | |
| 2007 | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
| Cumulative | | | | | | | | | (625) | (625) |
| translation | | | | | | | | | | |
| adjustment | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
| Change | | | | | | | | | (229) | (229) |
| in | | | | | | | | | | |
| fair | | | | | | | | | | |
| value | | | | | | | | | | |
| of | | | | | | | | | | |
| derivative | | | | | | | | | | |
| instruments | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
| Net | | | | | | | | 1,657 | | 1,657 |
| income | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
| Share | | | | | | | 415 | | | 415 |
| based compensation | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
| Dividends | | | | | | | | (2,057) | | (2,057) |
| paid | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
| Balance | - | - | - | - | 34,281,968 | 4 | 22,759 | 11,728 | (1,102) | 33,389 |
| - 31 | | | | | | | | | | |
| Dec | | | | | | | | | | |
| 2008 | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+------------+--------+------------+-------------------+-----------------------------+----------------------------+
+------------------------------------------------------------------------+
| See notes to consolidated financial statements. |
+------------------------------------------------------------------------+
+------------------------------------------------+--------------+--------------+----+
| Notes to the Consolidated Financial Statements |
| As of 31 December 2007 and 2008 |
+-----------------------------------------------------------------------------------+
| | Year ended | Year ended |
+------------------------------------------------+--------------+--------------+
| | 31 December | 31 December |
+------------------------------------------------+--------------+--------------+
| | 2007 | 2008 |
+------------------------------------------------+--------------+--------------+
| | US$ 000 | US$ 000 |
+------------------------------------------------+--------------+--------------+
| Cash flows from operating activities: | | |
+------------------------------------------------+--------------+--------------+
| Net income | 6,927 | 1,657 |
+------------------------------------------------+--------------+--------------+
| Adjustments to reconcile net income to net | | |
| cash provided by operating activities: | | |
+------------------------------------------------+--------------+--------------+
| Deferred taxes | 91 | (100) |
+------------------------------------------------+--------------+--------------+
| Depreciation and amortization | 2,762 | 2,705 |
+------------------------------------------------+--------------+--------------+
| Amortization of deferred financing costs | 1,380 | 42 |
+------------------------------------------------+--------------+--------------+
| Gain on sale of assets | (5) | 10 |
+------------------------------------------------+--------------+--------------+
| Share based compensation | 418 | 415 |
+------------------------------------------------+--------------+--------------+
| Working capital changes: | | |
+------------------------------------------------+--------------+--------------+
| Accounts receivable | (178) | 1,439 |
+------------------------------------------------+--------------+--------------+
| Inventories | (2,036) | 222 |
+------------------------------------------------+--------------+--------------+
| Prepaid expenses and other assets | (276) | 1 |
+------------------------------------------------+--------------+--------------+
| Other assets | (22) | 60 |
+------------------------------------------------+--------------+--------------+
| Accounts payable and other liabilities | 686 | (2,416) |
+------------------------------------------------+--------------+--------------+
| Income taxes | 587 | (511) |
+------------------------------------------------+--------------+--------------+
| Net cash provided by operating activities | 10,334 | 3,524 |
+------------------------------------------------+--------------+--------------+
| | | |
+------------------------------------------------+--------------+--------------+
| Cash flows from investing activities: | | |
+------------------------------------------------+--------------+--------------+
| Proceeds from sale of property and equipment | 25 | 680 |
+------------------------------------------------+--------------+--------------+
| Property and equipment disposals | 78 | 0 |
+------------------------------------------------+--------------+--------------+
| Property and equipment purchases | (491) | (575) |
+------------------------------------------------+--------------+--------------+
| Net cash used in investing activities | (388) | 105 |
+------------------------------------------------+--------------+--------------+
| | | |
+------------------------------------------------+--------------+--------------+
| Cash flows from financing activities: | | |
+------------------------------------------------+--------------+--------------+
| Borrowings from additional financing | 22,254 | 5,837 |
+------------------------------------------------+--------------+--------------+
| Payment for financing costs | (125) | 0 |
+------------------------------------------------+--------------+--------------+
| Repayment of notes payable | (28,325) | (10,311) |
+------------------------------------------------+--------------+--------------+
| Payment of capital lease | (657) | 0 |
+------------------------------------------------+--------------+--------------+
| Payment of dividends | (1,142) | (2,057) |
+------------------------------------------------+--------------+--------------+
| Net cash used in financing activities | (7,995) | (6,531) |
+------------------------------------------------+--------------+--------------+
| Effect of exchange rates on cash and cash | (4) | (151) |
| equivalents | | |
+------------------------------------------------+--------------+--------------+
| | | |
+------------------------------------------------+--------------+--------------+
| Net increase (decrease) in cash and cash | 1,947 | (3,053) |
| equivalents | | |
+------------------------------------------------+--------------+--------------+
| Cash and cash equivalents: | | |
+------------------------------------------------+--------------+--------------+
| Beginning of period | 1,895 | 3,842 |
+------------------------------------------------+--------------+--------------+
| End of period | 3,842 | 789 |
+------------------------------------------------+--------------+--------------+----+
+----+--------------------------------------------------+------------+----------+
| See notes to consolidated financial statements. |
+-------------------------------------------------------------------------------+
| |
+-------------------------------------------------------------------------------+
| 1. | Organization and Description of Business |
| | |
+----+--------------------------------------------------------------------------+
| | Nature of Business Somero Enterprises, Inc. (the "Company" or "Somero") |
| | designs, manufactures, refurbishes, sells and distributes concrete |
| | leveling, contouring and placing equipment, related parts and |
| | accessories, and training services worldwide. The operations are |
| | conducted from a corporate office in Houghton, Michigan, executive |
| | offices in Fort Myers, Florida, a European distribution office in the |
| | United Kingdom, and sales offices in Canada, Germany, Dubai and China. |
+----+--------------------------------------------------------------------------+
| | |
+----+--------------------------------------------------------------------------+
| 2. | Summary of Significant Accounting Policies |
| | |
+----+--------------------------------------------------------------------------+
| | Basis of Presentation The consolidated financial statements of the |
| | Company have been prepared in accordance with accounting principles |
| | generally accepted in the United States of America. |
| | Principles of Consolidation The consolidated financial statements |
| | include the accounts of Somero Enterprises, Inc. and its subsidiaries. |
| | All significant intercompany transactions and accounts have been |
| | eliminated in consolidation. |
| | Cash and Cash Equivalents Cash includes cash on hand, cash in banks, and |
| | temporary investments with a maturity of three months or less when |
| | purchased. |
| | Accounts Receivable and Allowances for Doubtful Accounts Financial |
| | instruments which potentially subject the Company to concentrations of |
| | credit risk consist primarily of accounts receivable. The Company's |
| | accounts receivable are derived from revenue earned from a diverse group |
| | of customers primarily located in the United States. The Company |
| | performs credit evaluations of its commercial customers and maintains an |
| | allowance for doubtful accounts receivable based upon the expected |
| | ability to collect accounts receivable. Allowances, if necessary, are |
| | established for amounts determined to be uncollectible based on specific |
| | identification and historical experience. As of 31 December 2007 and |
| | 2008, the allowance for doubtful accounts was approximately US$191,000 |
| | and US$650,000, respectively. Bad debts expense was US$93,000 and |
| | US$313,000 in 2007 and 2008, respectively. |
| | Inventories Inventories are stated at the lower of cost, using the first |
| | in, first out ("FIFO") method, or market. Provision for potentially |
| | obsolete or slow-moving inventory is made based on management's analysis |
| | of inventory levels and future sales forecasts. |
| | Deferred Financing Costs Deferred financing costs incurred in relation |
| | to long-term debt, are reflected net of accumulated amortization and are |
| | amortized over the expected repayment term of the debt instrument, which |
| | is four years from the debt inception date. These financing costs are |
| | being amortized using the effective interest method. |
| | Intangible Assets and Goodwill Intangible assets consist principally of |
| | customer relationships and patents, and are carried at their fair value, |
| | less accumulated amortization. Intangible assets are amortized using the |
| | straight-line method over a period of three to twelve years, which is |
| | their estimated period of economic benefit. Goodwill is not amortized |
| | but is subject to impairment tests on an annual basis, and the Company |
| | has chosen 31 December as its periodic assessment date. Goodwill |
| | represents the excess cost of the business combination over the Group's |
| | interest in the fair value of the identifiable assets and liabilities. |
| | Goodwill arose from the Company's prior sale from Dover Corporation to |
| | The Gores Group in 2005. |
| | The Company evaluates the carrying value of long-lived assets, excluding |
| | goodwill, whenever events and circumstances indicate the carrying amount |
| | of an asset may not be recoverable. For the years ended 31 December 2007 |
| | and 2008, no such events or circumstances were identified. The carrying |
| | value of a long-lived asset is considered impaired when the anticipated |
| | undiscounted cash flows from such asset (or asset group) are separately |
| | identifiable and less than the asset's (or asset group's) carrying |
| | value. In that event, a loss is recognized to the extent that the |
| | carrying value exceeds the fair value of the long-lived asset. Fair |
| | value is determined primarily using the anticipated cash flows |
| | discounted at a rate commensurate with the risk involved. (See Footnote |
| | 4 for more information.) |
| | Revenue Recognition The Company recognizes revenue on sales of |
| | equipment, parts and accessories when persuasive evidence of an |
| | arrangement exists, delivery has occurred or services have been |
| | rendered, the price is fixed or determinable, and collectability is |
| | reasonably assured. For product sales where shipping terms are F.O.B. |
| | shipping point, revenue is recognized upon shipment. For arrangements |
| | which include F.O.B. destination shipping terms, revenue is recognized |
| | upon delivery to the customer. Standard products do not have customer |
| | acceptance criteria. Revenues for training are deferred until the |
| | training is completed unless the training is deemed inconsequential or |
| | perfunctory. |
| | Warranty Liability The Company provides warranties on all equipment |
| | sales ranging from three months to three years, depending on the |
| | product. Warranty liabilities are estimated net of the warranty passed |
| | through to the Company from vendors, based on specific identification of |
| | issues and historical experience. |
| | Property, Plant and Equipment Property, plant and equipment is stated at |
| | estimated market value based on an independent appraisal at the |
| | acquisition date or at cost for subsequent acquisitions, net of |
| | accumulated depreciation and amortization. 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 building), 15 years for |
| | improvements, and 2 to 10 years for machinery and equipment. |
| | Assets Held For Sale Assets held for sale are recorded at the lower of |
| | their carrying amount or fair value less cost to sell. Depreciation is |
| | not recorded on these assets once they are classified as held for sale. |
| | In November 2007, the Company received an offer for the sale of its |
| | Corporate Office in Jaffrey, New Hampshire which it eventually accepted. |
| | The sale was completed in January 2008 and a gain of US$5,000 was |
| | recorded. |
| | Income Taxes The Company accounts for income taxes in accordance with |
| | Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting |
| | for Income Taxes. Deferred tax assets and liabilities are recognized for |
| | the future tax consequences attributable to temporary differences |
| | between the financial statement carrying amounts of existing assets and |
| | liabilities and their respective tax basis and operating loss and tax |
| | credit carryforwards. Deferred tax assets and liabilities are measured |
| | using enacted tax rates expected to apply to taxable income in the years |
| | in which those temporary differences are expected to be recovered or |
| | settled. The effect on deferred tax assets and liabilities of a change |
| | in tax rates is recognized in income in the period that includes the |
| | enactment date. Deferred tax assets are reduced by a valuation |
| | allowance, if necessary, to the extent that it appears more likely than |
| | not, that such assets will be unrecoverable |
| | The Company accounts for uncertainty in income taxes in accordance with |
| | FIN 48, Accounting for Uncertainty in Income Taxes - an interpretation |
| | of FASB Statement No. 109, Accounting for Income Taxes ("FIN 48"). See |
| | Note 13 for more information. |
| | Use of Estimates The preparation of financial statements in conformity |
| | with accounting principles generally accepted in the United States of |
| | America requires management to make estimates and assumptions that |
| | affect the amounts reported in the financial statements and accompanying |
| | notes. Actual results could differ from those estimates. |
| | Stock Based Compensation The Company accounts for its stock option |
| | issuance under SFAS No. 123R, Share Based Payment ("SFAS 123R"). SFAS |
| | 123R requires recognition of the cost of employee services received in |
| | exchange for an award of equity instruments in the financial statements |
| | over the period the employee is required to perform the services in |
| | exchange for the award (presumptively the vesting period). SFAS 123R |
| | also requires measurement of the cost of employee services in exchange |
| | for an award based on the grant-date fair value of the award. |
| | Transactions in and Translation of Foreign Currency The functional |
| | currency for the Company's subsidiaries outside the United States is the |
| | applicable local currency. Balance sheet amounts are translated at 31 |
| | December exchange rates and statement of operations accounts are |
| | translated at average rates. The resulting gains or losses are charged |
| | directly to accumulated other comprehensive income. The Company is also |
| | exposed to market risks related to fluctuations in foreign exchange |
| | rates because some sales transactions, and some assets and liabilities |
| | of its foreign subsidiaries, are denominated in foreign currencies other |
| | than the designated functional currency. Gains and losses from |
| | transactions are included as foreign exchange gain (loss) in the |
| | accompanying consolidated statements of income. |
| | Comprehensive Income Comprehensive income, which is the combination of |
| | reported net income and other comprehensive income ("OCI"). OCI is |
| | changes in equity of a business enterprise during a period from |
| | transactions and other events and circumstances from non-owner sources |
| | not included in net income. OCI was composed of the following for the |
| | years ended 31 December 2007 and 2008. Total comprehensive income for |
| | the years was approximately US$6,677,000 and US$803,000, respectively. |
+----+--------------------------------------------------------------------------+
| | | | |
+----+--------------------------------------------------+------------+----------+
| | | 2007 | 2008 |
| | | US$ 000 | US$ 000 |
+----+--------------------------------------------------+------------+----------+
| | Net Income | $6,927 | $1,657 |
+----+--------------------------------------------------+------------+----------+
| | Cumulative Translation Adjustment | (5) | (625) |
+----+--------------------------------------------------+------------+----------+
| | Change in fair value of derivative instruments | (245) | (229) |
+----+--------------------------------------------------+------------+----------+
| | Total Comprehensive Income | $6,677 | $ 803 |
+----+--------------------------------------------------+------------+----------+
+----+---------------------------------------------+--------------+-------------+
| | Earnings Per Share Basic earnings per share represents income available |
| | to common stockholders divided by the weighted average number of shares |
| | outstanding during the year. Diluted earnings per share reflect |
| | additional common shares that would have been outstanding if dilutive |
| | potential common shares had been issued, as well as any adjustment to |
| | income that would result from the assumed issuance. Potential common |
| | shares that may be issued by the Company relate to outstanding stock |
| | options. 84,210 shares have been excluded from the calculation because |
| | they are anti-dilutive. Earnings per common share have been computed |
| | based on the following: |
+----+--------------------------------------------------------------------------+
| | |
+----+--------------------------------------------------------------------------+
| | | 2007 | 2008 |
+----+---------------------------------------------+--------------+-------------+
| | Net income | US$ 000 | US$ 000 |
| | | 6,927 | 1,657 |
+----+---------------------------------------------+--------------+-------------+
| | Basic weighted average shares outstanding | 34,281,968 | 34,281,968 |
+----+---------------------------------------------+--------------+-------------+
| | Net dilutive effect of stock options | - | - |
+----+---------------------------------------------+--------------+-------------+
| | Diluted weighted average shares outstanding | 34,281,968 | 34,281,968 |
+----+---------------------------------------------+--------------+-------------+
+----+--------------------------------------------+--------------+--------------+
| | New Accounting Pronouncements |
| | In September 2006, the Financial Accounting Standards Board ("FASB") |
| | issued Financial Accounting Standard No. 157, Fair Value Measurements |
| | ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for |
| | measuring fair value in generally accepted accounting principles and |
| | expands disclosures about fair value measurements. SFAS 157 is effective |
| | for financial assets and liabilities for fiscal years beginning after |
| | November 15, 2007. In February 2008, the FASB also issued FSP FAS |
| | 157-2, Effective Date of FASB Statement No. 157, which delayed the |
| | effective date of SFAS 157 to fiscal years beginning after November 15, |
| | 2008, for non-financial assets and liabilities, except for items that |
| | are recognized or disclosed at fair value in the financial statements on |
| | a recurring basis. Certain aspects of SFAS 157 were effective as of |
| | January 1, 2008 and affected certain note disclosures. We do not |
| | anticipate that the adoption of the deferred portion of SFAS 157 will |
| | have a material impact on the Company's financial condition, results of |
| | operations or cash flows. |
| | In February 2007, the FASB issued SFAS No. 159, The Fair Value Option |
| | for Financial Assets and Financial Liabilities ("SFAS 159"). SFAS 159 |
| | provides reporting entities an option to report selected financial |
| | assets and liabilities at fair value. SFAS 159 establishes presentation |
| | and disclosure requirements designed to facilitate comparisons between |
| | companies that choose different measurement attributes for similar types |
| | of assets and liabilities. SFAS 159 also requires additional information |
| | to aid financial statement users' understanding of a reporting entity's |
| | choice to use fair value on its earnings and also requires entities to |
| | display the fair value of those affected assets and liabilities in the |
| | primary financial statements. SFAS 159 is effective as of the beginning |
| | of a reporting entity's first fiscal year beginning after November 15, |
| | 2007. Application of the standard is optional and any impacts are |
| | limited to those financial assets and liabilities to which SFAS 159 |
| | would be applied. The Company adopted SFAS 159 effective January 1, 2008 |
| | and has elected not to measure any of its current eligible financial |
| | assets or liabilities at fair value. |
| | In March 2008, the FASB issued SFAS No. 161, Disclosures about |
| | Derivative Instruments and Hedging Activities. This statement requires |
| | companies to provide enhanced disclosures about (a) how and why they use |
| | derivative instruments, (b) how derivative instruments and related |
| | hedged items are accounted for under SFAS No. 133 and its related |
| | interpretations, and (c) how derivative instruments and related hedged |
| | items affect a company's financial position, financial performance, and |
| | cash flows. SFAS No.161 is effective for financial statements for fiscal |
| | years and interim periods beginning after November 15, 2008. The Company |
| | will adopt the new disclosure requirements in the period beginning |
| | January 1, 2009. We do not believe the adoption of SFAS No.161 will have |
| | a material impact on the disclosure of the Company's Derivative |
| | Instruments and Hedging Activities. |
| | In June 2008, the FASB ratified EITF Issue No. 08-3, Accounting for |
| | Lessees for Maintenance Deposits Under Lease Arrangements (EITF 08-3). |
| | EITF 08-3 provides guidance for accounting for nonrefundable maintenance |
| | deposits. It also provides revenue recognition accounting guidance for |
| | the lessor. EITF 08-3 is effective for fiscal years beginning after |
| | December 15, 2008. We are currently assessing the impact of EITF 08-3 on |
| | our financial position and results of operations. |
+----+--------------------------------------------------------------------------+
| |
+-------------------------------------------------------------------------------+
| 3. | Inventories |
+----+--------------------------------------------------------------------------+
| | |
+----+--------------------------------------------------------------------------+
| | Inventories consisted of the following at 31 December: |
+----+--------------------------------------------------------------------------+
| | |
+----+--------------------------------------------------------------------------+
| | | 2007 | 2008 |
+----+--------------------------------------------+--------------+--------------+
| | | US$ 000 | US$ 000 |
+----+--------------------------------------------+--------------+--------------+
| | Raw materials | 3,223 | 2,078 |
+----+--------------------------------------------+--------------+--------------+
| | Finished goods and work in process | 3,725 | 3,741 |
+----+--------------------------------------------+--------------+--------------+
| | Total | 6,948 | 5,819 |
+----+--------------------------------------------+--------------+--------------+
+----+------------+--------------------------+----------------+----------+------------+
| |
+-------------------------------------------------------------------------------------+
| 4. | Goodwill and Intangible Assets |
+----+--------------------------------------------------------------------------------+
| | |
+----+--------------------------------------------------------------------------------+
| | The following table reflects intangible assets that are subject to |
| | amortization under the provisions of SFAS No. 142, Goodwill and Other |
| | Intangible Assets: |
+----+--------------------------------------------------------------------------------+
| | |
+----+--------------------------------------------------------------------------------+
| | | Weighted | 2007 | 2008 |
| | | average | US$ 000 | US$ 000 |
| | | amortization | | |
| | | period | | |
+----+---------------------------------------+----------------+----------+------------+
| | Capitalized cost | | | |
+----+---------------------------------------+----------------+----------+------------+
| | Customer relationships | 8 years | 6,300 | 6,300 |
+----+---------------------------------------+----------------+----------+------------+
| | Patents | 12 years | 18,538 | 18,538 |
+----+---------------------------------------+----------------+----------+------------+
| | Other intangibles | 3 years | 159 | 4 |
+----+---------------------------------------+----------------+----------+------------+
| | | | 24,997 | 24,842 |
+----+---------------------------------------+----------------+----------+------------+
| | Accumulated amortization | | | |
+----+---------------------------------------+----------------+----------+------------+
| | Customer relationships | 8 years | 1,903 | 2,691 |
+----+---------------------------------------+----------------+----------+------------+
| | Patents | 12 years | 3,735 | 5,278 |
+----+---------------------------------------+----------------+----------+------------+
| | Other intangibles | 3 years | 123 | 1 |
+----+---------------------------------------+----------------+----------+------------+
| | | | 5,761 | 7,970 |
+----+---------------------------------------+----------------+----------+------------+
| | Net carrying costs | | | |
+----+---------------------------------------+----------------+----------+------------+
| | Customer relationships | 8 years | 4,397 | 3,609 |
+----+---------------------------------------+----------------+----------+------------+
| | Patents | 12 years | 14,803 | 13,260 |
+----+---------------------------------------+----------------+----------+------------+
| | Other intangibles | 3 years | 36 | 3 |
+----+---------------------------------------+----------------+----------+------------+
| | | | 19,236 | 16,872 |
+----+---------------------------------------+----------------+----------+------------+
| | | | | |
+----+---------------------------------------+----------------+----------+------------+
| | Amortization expense associated with the intangible assets for the years ended |
| | 31 December 2007 and 2008 was approximately US$2,384,000 and US$2,332,000, |
| | respectively. Future amortization on intangible assets is expected to be as |
| | follows at: |
+----+--------------------------------------------------------------------------------+
| | |
+----+--------------------------------------------------------------------------------+
| | | 31 December |
| | | US$ 000 |
+----+------------+-------------------------------------------------------------------+
| | 2009 | 2,332 |
+----+------------+-------------------------------------------------------------------+
| | 2010 | 2,332 |
+----+------------+-------------------------------------------------------------------+
| | 2011 | 2,332 |
+----+------------+-------------------------------------------------------------------+
| | 2012 | 2,332 |
+----+------------+-------------------------------------------------------------------+
| | | 9,328 |
+----+------------+-------------------------------------------------------------------+
| | Thereafter | 7,544 |
+----+------------+-------------------------------------------------------------------+
| | | 16,872 |
+----+------------+-------------------------------------------------------------------+
| | | |
+----+------------+-------------------------------------------------------------------+
| | As required, the Company performed its annual goodwill impairment analysis by |
| | comparing the fair value of the reporting unit with its carrying amount. As |
| | part of this test, the Company computed fair value by preparing a discounted |
| | cash flow analysis, and a comparison of its market capitalization to that of |
| | other comparable companies. |
| | Under the discounted cash flow analysis, the cash flows were determined based |
| | on assumptions for revenue, expenses, working capital requirements, capital |
| | expenditures and were discounted at a weighted average cost of capital. These |
| | estimates were based on historical results and the available information as of |
| | 31 December 2008. |
| | The Company calculated fair value by obtaining market data of comparable |
| | companies with similar assets and liabilities. The companies selected for |
| | comparison included AIM listed companies with proprietary technology and |
| | similar gross margins to that of the Company. |
| | In addition, the Company calculated a weighted average fair value by placing a |
| | 90% weighting on the discounted cash flow approach and a 10% weighting on the |
| | comparable market approach. The analysis resulted in the weighted average fair |
| | value of the Company exceeding the carrying value of the Company. |
| | Based upon the fact that the Company's analysis resulted in the fair value of |
| | the Company exceeding the book value, management concluded that goodwill is |
| | not impaired at 31 December 2008 and no adjustments to goodwill were |
| | recorded. |
+----+------------+--------------------------+----------------+----------+------------+
+----+---------------------------------------------+------------+--------------+
| 5. | Property, plant and equipment consist of the following at 31 December: |
+----+-------------------------------------------------------------------------+
| | |
+----+-------------------------------------------------------------------------+
| | | 2007 | 2008 |
+----+---------------------------------------------+------------+--------------+
| | | US$ 000 | US$ 000 |
+----+---------------------------------------------+------------+--------------+
| | Land | 207 | 207 |
+----+---------------------------------------------+------------+--------------+
| | Buildings and improvements | 3,574 | 3,572 |
+----+---------------------------------------------+------------+--------------+
| | Machinery and equipment | 975 | 1,410 |
+----+---------------------------------------------+------------+--------------+
| | Property and equipment held under capital | - | - |
| | leases | | |
+----+---------------------------------------------+------------+--------------+
| | Equipment sold under recourse contracts | 178 | - |
+----+---------------------------------------------+------------+--------------+
| | | 4,934 | 5,189 |
+----+---------------------------------------------+------------+--------------+
| | Less: accumulated depreciation and | (831) | (929) |
| | amortization | | |
+----+---------------------------------------------+------------+--------------+
| | | 4,103 | 4,260 |
+----+---------------------------------------------+------------+--------------+
+----+---------------------------------------------+--------------+-------------+
| | Depreciation expense for the years ended 31 December 2007 and 2008, was |
| | approximately US$378,000 and US$373,000, respectively. |
+----+--------------------------------------------------------------------------+
| | |
+----+--------------------------------------------------------------------------+
| | The Company previously offered a facility to customers whereby the |
| | Company guaranteed the financing on the sale of equipment. Equipment |
| | previously sold under recourse contracts continue to be included in |
| | Property, Plant and Equipment at a net book value at 31 December 2007 of |
| | approximately US$21,000. Revenue under these arrangements has been |
| | deferred and recognized over the life of the financing arrangement, |
| | approximately five years. Deferred revenue of approximately US$20,000 |
| | related to these transactions was included in accrued expenses at 31 |
| | December 2007. The Company has made no further sales under recourse |
| | arrangements since 2003. |
+----+--------------------------------------------------------------------------+
| | |
+----+--------------------------------------------------------------------------+
| 6 | Notes payable |
+----+--------------------------------------------------------------------------+
| | |
+----+--------------------------------------------------------------------------+
| | Summary The Company executed a credit facility with a bank in March 2007 |
| | (see section entitled "Credit Facility" below). The proceeds of the new |
| | term loan and the revolving line of credit were used to pay off in full |
| | existing debt balances. The Company incurred a loss in the early |
| | extinguishment of debt of approximately US$1,481,000 which included |
| | deferred financing cost of approximately US$1,245,000. Company's debt |
| | obligations consisted of the following at 31 December: |
+----+--------------------------------------------------------------------------+
| | |
+----+--------------------------------------------------------------------------+
| | Bank debt: | 2007 | 2008 |
+----+---------------------------------------------+--------------+-------------+
| | | US$ 000 | US$ 000 |
+----+---------------------------------------------+--------------+-------------+
| | | | |
+----+---------------------------------------------+--------------+-------------+
| | Five year secured reducing revolving line | 6,000 | 2,954 |
| | of credit | | |
+----+---------------------------------------------+--------------+-------------+
| | Five year secured term loan | 8,929 | 7,501 |
+----+---------------------------------------------+--------------+-------------+
| | Less debt obligations due within one year | (1,429) | (1,429) |
+----+---------------------------------------------+--------------+-------------+
| | Obligations due after one year | 13,500 | 9,026 |
+----+---------------------------------------------+--------------+-------------+
+---+------+------+------------------------------------------------------------+------+
| | Credit Facility The Company has a credit facility with a financial |
| | institution dated 16 March 2007 that was amended in December 2008 and |
| | composed of the following at 31 December 2008 |
+----------+--------------------------------------------------------------------------+
| | |
+---+--------------------------------------------------------------------------+
| | - US$8,000,000 five year secured reducing revolving line of credit |
+---+--------------------------------------------------------------------------+
| | - US$10,000,000 five year secured reducing term loan |
+---+--------------------------------------------------------------------------+
| | |
+---+--------------------------------------------------------------------------+
| | The Company has fixed the interest rate for the revolving facility |
| | through a series of interest rate swaps and the term loan. The revolver |
| | loan's interest rate swaps initial notional amount is US$6,000,000, pays |
| | a fixed 5.20%, and had a 31 December 2008 fair market value of |
| | approximately (US$140,000) which will amortize down by approximately |
| | US$87,000 in the next 12 months. The term loan's interest rate swaps |
| | initial notional amount is US$10,000,000, pays a fixed 5.15%, and had a |
| | 31 December 2008 fair market value of approximately (US$595,000) which |
| | will amortize down by approximately US$262,000 in the next 12 months. |
| | The interest rate swaps are designated as cash flow hedges. The revolver |
| | and term loan interest rates are Libor 1-month (fixed by the interest |
| | rate swaps) plus an amount determined by the ratio of "funded debt/last |
| | 12 months adjusted EBITDA," as defined in the loan agreement. The |
| | effective interest rate at 31 December 2007 and 2008 respectively, for |
| | the revolving line of credit was 6.05% and for the term loan 6.10%. The |
| | credit facilities are secured by substantially all of the Company's |
| | assets and contain a number of restrictive covenants that among other |
| | things limit the ability of the Company to incur debt, issue capital |
| | stock, change ownership and dispose of certain assets. The revolving |
| | line of credit available reduces over the five year term and as of 31 |
| | December 2008 the borrowed balance is below the credit line available. |
| | All derivative instruments including the interest rate swaps are |
| | recognized at each balance sheet date at fair value. |
| | . |
| | Future Payments The future payments by year under the Company's debt |
| | obligations are as follows |
+---+--------------------------------------------------------------------------+
| | |
+---+--------------------------------------------------------------------------+
| | | 31 December |
| | | US$ 000 |
+---+-------------+------------------------------------------------------------+
| | 2009 | 1,429 |
+---+-------------+------------------------------------------------------------+
| | 2010 | 1,429 |
+---+-------------+------------------------------------------------------------+
| | 2011 | 1,429 |
+---+-------------+------------------------------------------------------------+
| | 2012 | 6,168 |
+---+-------------+------------------------------------------------------------+
| | | |
+---+-------------+------------------------------------------------------------+
| | Total | 10,455 |
| | payments | |
+---+------+------+------------------------------------------------------------+------+
+----+----------------------------+----------+-----------+-------------+--------------+
| | Interest Interest expense on the credit facility for the years ended 31 |
| | December 2007 and 2008, was approximately US$1,392,000 and US$861,000, |
| | respectively, related to the debt obligation. |
| | In January 2009 the Company renegotiated its loan agreements with the bank |
| | to obtain concessions on its debt service covenant and its funded debt to |
| | Adjusted EBITDA covenant. In return, the Company agreed to an immediate |
| | increase of 1.6% in its interest rate with a changed pricing grid that |
| | allows for a further maximum increase of 1.75%. The Company's maximum |
| | revolving line of credit is now set at US$8,000,000 and no changes were |
| | made to its term loan repayment schedule. The renegotiated loan agreement |
| | did not impact the interest rate swap agreements. |
| | Fair Value Measurements Effective 1 January 2008, the Company adopted SFAS |
| | No. 157. This standard establishes a consistent framework for measuring |
| | fair value and expands disclosure requirements about fair value |
| | measurements of financial assets and financial liabilities. The Company |
| | recorded no change to 1 January 2008 retained earnings as a result of |
| | adopting SFAS No. 157 |
| | These valuation techniques may be based upon observable and unobservable |
| | inputs. Observable inputs reflect market data obtained from independent |
| | sources, while unobservable inputs reflect the Company's market |
| | assumptions. These two types of inputs create the following fair value |
| | hierarchy. |
| | |
+----+--------------------------------------------------------------------------------+
| | Level 1 - Quoted prices for identical instruments in active markets. |
| | |
+----+--------------------------------------------------------------------------------+
| | Level 2 - Quoted prices for similar assets and liabilities in active |
| | markets; quoted prices for identical or similar assets and liabilities in |
| | markets that are not active; and model-derived other inputs that are |
| | observable or can be corroborated by observable market data for |
| | substantially the full term of the assets and liabilities. |
| | |
+----+--------------------------------------------------------------------------------+
| | Level 3 -Unobservable inputs for the asset or liability which are |
| | supported by little or no market activity and reflect the Company's |
| | assumptions that a market participant would use in pricing the asset or |
| | liability |
| | |
+----+--------------------------------------------------------------------------------+
| | Fair Value Measurements at Reporting Date |
+----+--------------------------------------------------------------------------------+
| | |
+----+--------------------------------------------------------------------------------+
| | Liabilities: | December | Quoted | Significant | Significant |
| | | 31, 2008 | Prices | Other | Unobservable |
| | | | In | Observable | Inputs |
| | | | Active | Inputs | (Level 3) |
| | | | Markets | (Level 2) | |
| | | | for | | |
| | | | Identical | | |
| | | | Assets | | |
| | | | (Level 1) | | |
+----+----------------------------+----------+-----------+-------------+--------------+
| | March 2007 revolver loan | ($140) | | ($140) | |
| | interest rate swap | | | | |
| | arrangement with a base | | | | |
| | rate of 5.20% and a | | | | |
| | notional amount of | | | | |
| | US$3,000,000 | | | | |
+----+----------------------------+----------+-----------+-------------+--------------+
| | March 2007 term loan | ($595) | | ($595) | |
| | interest rate swap | | | | |
| | arrangement with a base | | | | |
| | rate of 5.15% and a | | | | |
| | notional amount of | | | | |
| | US$10,000,000 | | | | |
+----+----------------------------+----------+-----------+-------------+--------------+
| | | | | | |
+----+----------------------------+----------+-----------+-------------+--------------+
| | Total interest rate swap | ($735) | | ($735) | |
| | arrangements (1) | | | | |
+----+----------------------------+----------+-----------+-------------+--------------+
| | (1) The fair value of these | | | |
| | instruments is recorded in Other | | | |
| | Liabilities. | | | |
| | | | | |
+----+----------------------------+----------+-----------+-------------+--------------+
+----+----------+--------------------------------------------------------------+
| | The Company holds interest rate swaps which are carried at fair value. |
| | The Company determines fair value based upon quoted prices when |
| | available or through the use of alternative approaches, such as model |
| | pricing, when market quotes are not readily accessible. In determining |
| | the fair value of the Company's obligations, various factors are |
| | considered including; closing exchange or over-the-counter market price |
| | quotations; time value and volatility of factors underlying options and |
| | derivative; price activity for equivalent instruments; and the |
| | Company's own credit standing. |
| | Fair Value of Financial Instruments |
| | Fair value is the price that would be received to sell an asset or paid |
| | to transfer a liability in an orderly transaction between market |
| | participants at the measurement date. Fair value estimates are made at |
| | a specific point in time, based on relevant market information about |
| | the financial instrument. These estimates are subjective in nature and |
| | involve uncertainties and matters of significant judgment and therefore |
| | cannot be determined with precision. The assumptions used have a |
| | significant effect on the estimated amounts reported. The amounts |
| | reported in the accompanying consolidated balance sheets approximate |
| | fair value due to the nature and short-term maturities of such assets |
| | and liabilities, including cash and cash equivalents, accounts |
| | receivable, accounts payable, and accrued liabilities. |
| | |
+----+-------------------------------------------------------------------------+
| 7 | Retirement Program |
| | |
+----+-------------------------------------------------------------------------+
| | The Company has a savings and retirement plan for its employees, which |
| | is intended to qualify under Section 401(k) of the Internal Revenue |
| | Code ("IRC"). This savings and retirement plan provides for voluntary |
| | contributions by participating employees, not to exceed maximum limits |
| | set forth by the IRC. The Company matched 75% of the employee's |
| | contribution up to the first 6% of the employee's compensation for the |
| | year ended 31 December 2007 and matched 100% of the employee's |
| | contribution, up to the first 6% of the employee's compensation for the |
| | year ended 31 December 2008. The Company match vests after one year of |
| | service with the Company. The Company contributed approximately |
| | US$178,000 and US$284,000 to the savings and retirement plan during the |
| | years ended 31 December 2007 and 2008, respectively. |
+----+-------------------------------------------------------------------------+
| | |
+----+-------------------------------------------------------------------------+
| 8 | Operating Leases |
| | |
+----+-------------------------------------------------------------------------+
| | The Company leases property, vehicles and office equipment under leases |
| | accounted for as operating leases without renewal options. Future |
| | minimum payments by year under non cancellable operating leases with |
| | initial terms in excess of one year were as follows |
+----+-------------------------------------------------------------------------+
| | |
+----+-------------------------------------------------------------------------+
| | | 31 December |
+----+----------+--------------------------------------------------------------+
| | | US$ 000 |
+----+----------+--------------------------------------------------------------+
| | 2009 | 358 |
+----+----------+--------------------------------------------------------------+
| | 2010 | 296 |
+----+----------+--------------------------------------------------------------+
| | 2011 | 196 |
+----+----------+--------------------------------------------------------------+
| | 2012 | 162 |
+----+----------+--------------------------------------------------------------+
| | 2013 | 82 |
+----+----------+--------------------------------------------------------------+
| | Total | 1,094 |
+----+----------+--------------------------------------------------------------+
+----+--------------------------------------------------+----------+----------+
| | Total rent expense under operating leases was approximately US$238,000 |
| | and US$335,000 for the years ended 31 December 2007 and 2008, |
| | respectively. |
+----+------------------------------------------------------------------------+
| | |
+----+------------------------------------------------------------------------+
| 9 | Supplemental Cash Flow Disclosures |
| | |
+----+------------------------------------------------------------------------+
| | | 2007 | 2008 |
+----+--------------------------------------------------+----------+----------+
| | | US$ 000 | US$ 000 |
| | | | |
+----+--------------------------------------------------+----------+----------+
| | Cash paid for interest | 1,294 | 856 |
+----+--------------------------------------------------+----------+----------+
| | | | |
+----+--------------------------------------------------+----------+----------+
| | Cash paid for taxes | 3,061 | 1,242 |
+----+--------------------------------------------------+----------+----------+
| | Non-cash financing activities - Change in fair | 245 | 229 |
| | value of derivative instruments | | |
+----+--------------------------------------------------+----------+----------+
+----+------------------------------------------------------------------------+
| 10 | Business and Credit Concentration |
| | |
+----+------------------------------------------------------------------------+
| | The Company's line of business could be significantly impacted by, |
| | among other things, the state of the general economy, the Company's |
| | ability to continue to protect its intellectual property rights, and |
| | the potential future growth of foreign competitors. Any of the |
| | foregoing may significantly affect management's estimates and the |
| | Company's performance. At 31 December 2007 and 2008, the Company had |
| | receivables from two customers which represented approximately 22% and |
| | 16% of total accounts receivable, respectively. |
+----+------------------------------------------------------------------------+
| | |
+----+------------------------------------------------------------------------+
| 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 US$4,000. Accrued interest and |
| | penalties related to unrecognized tax benefits are not included in tax |
| | expense. |
| | Somero is subject to U.S. federal income tax as well as income tax of |
| | multiple state jurisdictions. The Company began business in 2005 and |
| | therefore the statute of limitations for all federal, foreign and |
| | state income tax matters for tax years from 2005 forward are still |
| | open. Somero has no federal, foreign or state income tax returns |
| | currently under examination. |
| | A reconciliation of the beginning and ending amounts of the Company's |
| | gross unrecognized tax benefits is as follows: |
+----+------------------------------------------------------------------------+
+----+----------------------------------------------------+-----------+----------+
| | | 2007 | 2008 |
+----+----------------------------------------------------+-----------+----------+
+---+------------------------------------------------+-------+-------+-------+-------+
| | | US$ 000 | US$ 000 |
+---+------------------------------------------------+---------------+---------------+
| | Balance at January 1 | - | 128,000 |
+---+------------------------------------------------+---------------+---------------+
| | Additions related to tax positions of prior | 81,000 | |
| | years | | |
+---+------------------------------------------------+---------------+---------------+
| | Additions related to tax positions of the | 47,000 | |
| | current year | | |
+---+------------------------------------------------+---------------+---------------+
| | Reductions related to tax positions of prior | - | (124,000) |
| | years | | |
+---+------------------------------------------------+---------------+---------------+
| | Balance at December 31 | 128,000 | 4,000 |
+---+------------------------------------------------+-------+-------+-------+-------+
+------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| The Company's gross unrecognized tax benefit was reduced during the current period |
| by $47,000 as a result of a settlement with a state and reduced by $78,000 as a |
| result of the filing of amended income tax returns for the years ended December 31, |
| 2005 and December 31, 2006. |
| The provision for income taxes at 31 December, 2007 and 2008 includes the |
| following: |
+---------------------------------------------------------------------------------------+
| | | |
+------------------------+-----------------------------------+--------------------------+
| | 2007 | 2008 |
+------------------------+-----------------------------------+--------------------------+
| | US$ 000 | US$ 000 |
+------------------------+-----------------------------------+--------------------------+
| Current income tax | | |
+------------------------+-----------------------------------+--------------------------+
| Federal | 3,021 | (33) |
+------------------------+-----------------------------------+--------------------------+
| State | 315 | 69 |
+------------------------+-----------------------------------+--------------------------+
| Foreign | 362 | 513 |
+------------------------+-----------------------------------+--------------------------+
| Total current income | 3,698 | 549 |
| tax provision | | |
+------------------------+-----------------------------------+--------------------------+
| | | |
+------------------------+-----------------------------------+--------------------------+
| Deferred tax expense | | |
+------------------------+-----------------------------------+--------------------------+
| Federal | 88 | 62 |
+------------------------+-----------------------------------+--------------------------+
| State | 3 | 10 |
+------------------------+-----------------------------------+--------------------------+
| Foreign | - | (116) |
+------------------------+-----------------------------------+--------------------------+
| Total deferred tax | 91 | (44) |
| provision | | |
+------------------------+-----------------------------------+--------------------------+
| Total tax provision | 3,789 | 505 |
+------------------------+-----------------------------------+--------------------------+
| |
+---------------------------------------------------------------------------------------+
| The components of the net deferred income tax asset at 31 December were as follows: |
+---------------------------------------------------------------------------------------+
| | | |
+------------------------------------------+--------------------------+-----------------+
| | 2007 | 2008 |
+------------------------------------------+--------------------------+-----------------+
| | US$ 000 | US$ 000 |
+------------------------------------------+--------------------------+-----------------+
| Deferred tax asset (liability) | | |
+------------------------------------------+--------------------------+-----------------+
| Depreciation | (24) | (347) |
+------------------------------------------+--------------------------+-----------------+
| Intangibles | (345) | (472) |
+------------------------------------------+--------------------------+-----------------+
| Prepaid expense | (98) | (174) |
+------------------------------------------+--------------------------+-----------------+
| Share based compensation | 173 | 318 |
+------------------------------------------+--------------------------+-----------------+
| Interest rate swap | 159 | 262 |
+------------------------------------------+--------------------------+-----------------+
| Other | 262 | 640 |
+------------------------------------------+--------------------------+-----------------+
| Net deferred tax asset | 127 | 227 |
+------------------------------------------+--------------------------+-----------------+
| | | |
+------------------------------------------+--------------------------+-----------------+
| Current | 164 | 466 |
+------------------------------------------+--------------------------+-----------------+
| Non-current | (37) | (239) |
+------------------------------------------+--------------------------+-----------------+
| | 127 | 227 |
+------------------------------------------+--------------------------+-----------------+
| |
+---------------------------------------------------------------------------------------+
| The statutory federal income tax rate was 34% for the years ended 31 December 2007 |
| and 2008. Differences between the income tax expense reported in the statement of |
| operations and the amount computed by applying the statutory federal income tax |
| rate to earnings before tax are due to the following items: |
+---------------------------------------------------------------------------------------+
| | | |
+---------------+-----------------------------------+-----------------------------------+
| | 2007 | 2008 |
+---------------+-----------------------------------+-----------------------------------+
| | US$ 000 | US$ 000 |
+---------------+-----------------------------------+-----------------------------------+
| Consolidated | 10,716 | 2,162 |
| income | | |
| before tax | | |
+---------------+-----------------------------------+-----------------------------------+
| Statutory | 34% | 34% |
| rate | | |
+---------------+-----------------------------------+-----------------------------------+
| Statutory | 3,644 | 735 |
| tax expense | | |
+---------------+-----------------------------------+-----------------------------------+
| | | |
+---------------+-----------------------------------+-----------------------------------+
| State taxes | 210 | 52 |
+---------------+-----------------------------------+-----------------------------------+
| IRC Section | (197) | (35) |
| 199 | | |
| deduction | | |
+---------------+-----------------------------------+-----------------------------------+
| Meals and | 60 | 57 |
| entertainment | | |
+---------------+-----------------------------------+-----------------------------------+
| Foreign tax | | (356) |
| items | | |
+---------------+-----------------------------------+-----------------------------------+
| Other | 72 | 52 |
+---------------+-----------------------------------+-----------------------------------+
| | | |
+---------------+-----------------------------------+-----------------------------------+
| Actual tax | 3,789 | 505 |
| expense | | |
+---------------+-----------------------------------+-----------------------------------+
| | |
+------+-----------------------------------------------------------------------------------------+
| | The Company expenses research and development costs as incurred. Total research and |
| | development expense for the research and development tax credit was approximately |
| | US$866,000 and US$683,000 for the years ended 31 December 2007 and 2008, respectively. |
+------+-----------------------------------------------------------------------------------------+
| | |
+------+-----------------------------------------------------------------------------------------+
| 13 | Revenues by Geographic Region |
| | |
+------+-----------------------------------------------------------------------------------------+
| | The Company sells its product to customers throughout the world. The breakdown by |
| | location is as follows: |
+------+-----------------------------------------------------------------------------------------+
| | |
+------+-----------------------------------------------------------------------------------------+
| | | 2007 | 2008 |
+------+--------------------------+--------------------------------------------+-----------------+
| | | US$ 000 | US$ 000 |
+------+--------------------------+--------------------------------------------+-----------------+
| | United States and U.S. | 38,395 | 24,656 |
| | possessions | | |
+------+--------------------------+--------------------------------------------+-----------------+
| | Canada | 1,449 | 1,455 |
+------+--------------------------+--------------------------------------------+-----------------+
| | Rest of world | 26,592 | 25,830 |
+------+--------------------------+--------------------------------------------+-----------------+
| | | | |
+------+--------------------------+--------------------------------------------+-----------------+
| | Total | 66,436 | 51,941 |
+------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
A significant portion of the Company's long-lived assets are located in the
United States
+----+----------------------------------------+--------------------+-------------+
| 14 | Stock Based Compensation |
| | |
+----+---------------------------------------------------------------------------+
| | The Company has one share-based compensation plan, which is described |
| | below. The compensation cost that has been charged against income for the |
| | plan was approximately US$418,000 and US$415,000 for the years ended 31 |
| | December 2007 and 2008, respectively. The income tax benefit recognized |
| | for share-based compensation arrangements was approximately US$152,000 |
| | and US$148,000 for the years ended 31 December 2007 and 2008, |
| | respectively. |
| | In October 2006, the Company implemented the 2006 Stock Incentive Plan |
| | (the "Plan"). The Plan authorizes the Board of Directors to grant |
| | incentive and nonqualified stock options to employees, officers, service |
| | providers and directors of the Company for up to 3,428,197 shares of its |
| | common stock. Options granted under the Plan have a term of up to ten |
| | years and generally vest over a three-year period beginning on the date |
| | of the grant. Options under the Plan must be granted at a price not less |
| | than the fair market value at the date of grant. |
| | The fair value of each option award is estimated on the date of grant |
| | using the Black-Scholes-Merton option pricing model. The risk-free |
| | interest rate is based on the U.S. Treasury rate for the expected term at |
| | the time of grant, volatility is based on the average long-term implied |
| | volatilities of peer companies as our Company has limited trading history |
| | and the expected life is based on the average of the life of the options |
| | of 10 years and an average vesting period of 3 years. The following table |
| | illustrates the assumptions for the Black-Scholes model used in |
| | determining the fair value of options granted to employees for the years |
| | ended 31 December 2007 and 2008. |
+----+---------------------------------------------------------------------------+
| | |
+----+---------------------------------------------------------------------------+
| | | 2007 | 2008 |
| | | | |
+----+----------------------------------------+--------------------+-------------+
| | Dividend yield | 4.37% | 1.64% |
+----+----------------------------------------+--------------------+-------------+
| | Risk-free interest rate | 2.93% | 2.90% |
+----+----------------------------------------+--------------------+-------------+
| | Volatility | 25.00% | 25.50% |
+----+----------------------------------------+--------------------+-------------+
| | Expected term | 3.0 | 4.6 |
+----+----------------------------------------+--------------------+-------------+
+--------+--------+--------+-----------+--------+--------+-------------+--------+--------+
| A summary of option activity under the stock option plans as of 31 December 2008, |
| and changes during the year then ended is presented below: |
+----------------------------------------------------------------------------------------+
| | | | | |
+--------------------------+-----------+-----------------+-------------+-----------------+
| Options | Shares | Weighted- | Weighted- | Aggregate |
| | | Average | Average | Intrinsic |
| | | Exercise | Remaining | Value |
| | | Price | Contractual | |
| | | | Term (yrs) | |
+--------------------------+-----------+-----------------+-------------+-----------------+
| Outstanding at | 2,666,046 | 2.32 | - | - |
| 1 January 2008 | | | | |
+--------------------------+-----------+-----------------+-------------+-----------------+
| Granted | 532,967 | 1.83 | | |
+--------------------------+-----------+-----------------+-------------+-----------------+
| Exercised | - | - | | |
+--------------------------+-----------+-----------------+-------------+-----------------+
| Forfeited | (370,118) | 2.28 | | |
+--------------------------+-----------+-----------------+-------------+-----------------+
| Outstanding at | 2,828,895 | 2.24 | 8.10 | -- |
| 31 December 2008 | | | | |
+--------------------------+-----------+-----------------+-------------+-----------------+
| | | | | |
+--------------------------+-----------+-----------------+-------------+-----------------+
| Exercisable at | 1,646,057 | 2.33 | 7.86 | -- |
| 31 December 2008 | | | | |
+--------------------------+-----------+-----------------+-------------+-----------------+
| | |
+-----------------+----------------------------------------------------------------------+
| The weighted-average grant-date fair value of options granted was US$.24 and US$.33 |
| for the years ended December 31, 2007 and 2008, respectively. |
| A summary of the status of the Company's non-vested shares as of 31 December 2008, |
| and changes during the year then ended is presented below: |
+----------------------------------------------------------------------------------------+
| | | Weighted |
| | | Average |
+--------------------------------------+-------------------------------+-----------------+
| | Shares | Grant-Date Fair |
| | | Value |
+--------------------------------------+-------------------------------+-----------------+
| Non-vested shares as of 31 | 1,803,289 | .47 |
| December 2007 | | |
+--------------------------------------+-------------------------------+-----------------+
| Granted | 532,967 | .33 |
+--------------------------------------+-------------------------------+-----------------+
| Vested | (783,300) | .48 |
+--------------------------------------+-------------------------------+-----------------+
| Forfeited | (370,118) | .45 |
+--------------------------------------+-------------------------------+-----------------+
| Non-vested shares as of 31 | 1,182,838 | .41 |
| December 2008 | | |
+--------------------------------------+-------------------------------+-----------------+
| As of 31 December 2008, there was US$496,000 of total unrecognized compensation cost |
| related to non-vested share-based compensation arrangements granted under the |
| Company's stock option plan. That cost is expected to be recognized over the |
| expected term. The fair value of options vested in 2007 and 2008 was US$414,000 and |
| US$375,000, respectively. |
+--------+--------+--------+-----------+--------+--------+-------------+--------+--------+
This information is provided by RNS
The company news service from the London Stock Exchange
END
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