Full year results for twelve months to 31/12/13
Somero Enterprises, Inc.
8th April 2014
Somero Enterprises, Inc.®
Full year results for the twelve months to 31 December 2013
Somero Enterprises, Inc. ®, ("Somero" or the "Company") is pleased to report results for the twelve months to 31 December 2013. 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
· Revenue increased by 40% to US$45.1m (2012: US$32.2m)
· Adjusted EBITDA increased by 114% to US$9.0m (2012: US$4.2m)1 2
· Pre-tax income of US$6.5m compared to US$1.2m in 2012
· Adjusted net income before amortization of US$7.4m (2012: US$3.4m) 3
· EPS before amortization of US$0.13 (2012: US$0.06)
· Basic EPS US$0.10 (2012: US$0.02)
· Net cash at December 31, 2013 of US$3.4m (Net debt at December 31, 2012 of US$1.9m)4
· Final dividend of 1.3 US cent per share, making a total dividend for the year of 2.2 US cent per share, an increase of 175% on the previous year.
Business Highlights
· S-22E Laser Screed® machine developed for introduction in January 2014.
· New S-15R mid-sized screed introduced in November 2013 had sales of US$0.2m.
· New STS-11M spreader introduced in 2013 had sales of $1.3m.
· North America sales growth 41% over 2012.
· Escalating sales and service presence in China resulted in a 112% increase in 2013 sales over 2012.
· Russia sales increased by 130% in 2013 over 2012.
· Australia/S.E. Asia grew by 77% as the long standing agent has expanded sales efforts in S.E. Asia.
1. The Company uses non-US GAAP financial measures in order to provide supplemental information regarding the Company's operating performance. See further information regarding non-US GAAP measures on pages 9 and 10.
2. Adjusted EBITDA as used herein is a calculation of the Company's net income plus tax provision, interest expense, interest income, foreign exchange gain/(loss), other expense, depreciation, amortization, stock based compensation and the write-down of Goodwill, as applicable
3. Adjusted net income before amortization is a calculation of net income plus amortization of intangibles.
4. Net Debt is defined as total borrowings under bank obligations less cash and cash equivalents.
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 include the Laser Screed® models - SXP®-D, the new S-22E, CopperHead®, Mini Screed™ C, S-840, S-15M, new S-15R; and the STS-11M Spreader machines which 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 90 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, Daimler, 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, USA. It has sales and service offices in Chesterfield, England and Shanghai, China.
Somero has approximately 128 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 (AIM) of the London Stock Exchange (LSE) and its trading symbol is SOM.L.
Chairman's Statement
Overview
2013 was an outstanding year for Somero with growth in six out of ten regions significantly outperforming expectations, ending the year with revenue of US$45.1m vs. US$32.2m for the previous year. New products, strong sales of existing products and our worldwide customer service programs supporting our customer base contributed to our strong growth and dominant market position. Continued investment in our people has improved quality and productivity throughout the organization.
New product development continues to be a driver for development of markets outside of North America. The S-15M and STS-11M products were well received in Latin America and the Middle East. Our China team strengthened from strong leadership, experience and training programs. We were honored to establish a strategic partnership with the China Building Materials Federation which has afforded us the opportunity to work with the government in establishing building specifications for flat floor placement.
People
To achieve our strong results, we added considerable human resources throughout the organization in 2013. Training programs were key to successfully integrating new employees into the organization. The focus on culture has already begun to improve recruiting and hiring practices and will create long-term job satisfaction for our employees. As expected, existing employees continued to contribute extensively. We believe 2014 will be an exciting year and we hope to offer career advancement opportunities. The Board thanks each one of the employees for their hard work, sacrifice, dedication and loyalty.
Markets
North America, with a strong economic recovery, led group revenues with US$25.5m (2012 US$18.1m) or 56.5% of total sales. China revenues doubled over the previous period ending at US$6.6m (2012: US$3.1m). 2013 saw strong growth in Australia and Southeast Asia, the Middle East, and Russia. European markets have started their long awaited recovery. We will continue our investment in China and India in 2014.
New Product Development
Sales of the new S-15M Laser Screed® machine and the STS-11M Topping Spreader resulted in revenues of US$1.5m in 2013. Continuous product evolution of the Large Laser Screed® line of equipment has resulted in the development of the new S-22E Laser Screed® model, which will replace the SXP®-D model. The S22-E is designed as a base Laser Screed® model with available options giving the customer more flexibility in choosing features appropriate to their needs. Our proprietary OASIS™ control system makes the equipment simpler to operate than the SXP®-D, allowing operators in emerging markets, who do not have the extensive experience of operators in mature markets, the ability to use state-of-the-art equipment with greater ease. The S-22E model was introduced at our industry tradeshow in Las Vegas in January 2014.
Product development continues to be a focus of our growth plans for 2014 and we are working on new, innovative ideas to introduce to the industry.
Current Trading & Outlook
Sales in North America started off slow due to one of the coldest winters in history, but have since begun to improve and the latest month, to 31 March, delivered one of the Company's highest ever monthly revenues. Our customers are confident that the US recovery is sound and we are expecting very solid growth in 2014. We introduced a new large, reach-over-the-concrete screed that has the first ever à la carte price to provide improved value to emerging and developed markets and interest in this product has been strong since its introduction at the World of Concrete in January. Our investments in Asia have resulted in a strong start in China and with the economic recovery in Europe, we are confident that 2014 will see another year of solid growth for the Company.
Larry Horsch
Non-Executive Chairman
President and Chief Executive Officer's Statement
Overview
2013 was an incredible year with sales up 40% over 2012 due to a strong recovery in the US and solid performance throughout the rest of the world. It was a year where all the key strategic initiatives executed perfectly. 3-D Profiler System® sales doubled as a result of our adapting the product to our S-840 model. All of our new products were a major success, we had a significant increase in YTD gross margin from 48.7% to 52.1%.
Along with cost-focused goals, we made great progress and completed many less easily measurable goals as well. Our constant focus of surveying customers for improvements resulted in a request to provide automated emails with order and shipping confirmation, along with emailed invoices. Through a process called Touchpoint Mapping, we measure customer feedback through an analytical lens, allowing us to respond to customer feedback with actionable, process driven methods. Launched in early 2013, the project resulted in two successful Touchpoint projects, improving our repair process and reducing out-of-box issues.
We installed a legal document management system which benefits the company by automating processes for document storage and review. This new system improved the accuracy of review and reduced clerical help. We also implemented a customer-based assessment system to measure the technical performance of our customer support personnel. Human Resources conducted a risk assessment that resulted in their creating employee handbooks for our China and India employees. They also put into place a new hiring system resulting in higher quality applicants for factory positions. The China Customer Support team implemented the customer support program developed in 2012.
Management continued work on the Somero Culture Program. In 2013 we formalized the program and developed our core values, launched our tagline "We are passionate about your success!" and developed a plan to implement the program throughout the organization. We have begun the implementation and have received positive feedback from the employees worldwide. We believe defined core values and culture will have a positive impact on each employee, the company, our customers and vendors.
One of our core values is simplicity. We believe simplicity is all about focusing on removing clutter or the unnecessary from our products, processes and services, until all that remains is essential and useful. We remove complexity, complication, and difficulties, whether for our customers or our employees. We make our products easy to use. We make our services customer friendly and we make our processes employee friendly. We have undertaken this value as a major initiative for 2014.
Product Development
Development of the new S-22E Laser Screed® model, designed to replace the SXP®-D model, was introduced at our industry tradeshow in January 2014. The S-22E has simpler controls and is easier to learn and use and allows the customer the ability to choose options giving them more pricing control. The S-22E has a base price of US$347k with a top price of US$384k including all options. We believe having these pricing options will positively impact customers in high tax and high tariff countries where taxes and tariffs combined can range from 25% to 80%. We also believe this machine will have a positive impact in China where financing is less available and customers often must pay upfront.
Emerging Markets/Geographic Growth
In 2013, we continued our significant investments in China and India.
Somero and The China Building Materials Federation (CBMF) partnered in 2013 and launched a China Flooring Association Summit which was held in Florida in June. The Summit was developed as a result of CMBF's desire to drive the adoption of the American Concrete Institute's ACI 117 flooring standard by the China Government as the flooring standard throughout China. Mike Poppoff and Bruce Suprenant, two highly regarded experts in the flooring industry, gave technical presentations on the placing of state-of-the-art flat floors to a group of Chinese flooring contractors and CBMF executives. As a result of the Summit, Somero was invited to China to put on a live demonstration of placing a concrete floor to a group of 100 concrete contractors in October. Messrs. Poppoff and Suprenant were also asked to present at the Annual Meeting of the CBMF in December in Guangzhou, China. The CBMF has asked Somero to establish an awards program for concrete floor placement for their membership with the inaugural awards to be awarded at the 2014 CBMF Annual Meeting.
Our China team is making great progress in the market. We are gaining market awareness and acceptance through our sales and marketing efforts, tradeshows and our relationship with CBMF. Growth in the China market is coming from new markets outside of Shanghai with 90% of our sales to new customers. We have a solid pipeline of new leads from identifying additional segments that have contributed to our strong growth. One major challenge in China is finding quality candidates for sales positions but we are continually recruiting and have ongoing sales and service training programs for our people.
In January 2014 we promoted a US Regional Sales Manager with over 20 years of experience, to the position of Vice President of International Sales. He has been with Somero for over 13 years and will manage sales related activities in Europe, Russia, India, Latin America, Middle East and Africa.
One of our top UK Sales Managers was assigned full time to the India market in 2013. In addition, we currently have two Territory Sales Managers and one Customer Support person in place along with our agent located in the south. We established a warehouse facility in India in Q3. 2013 was a challenge for us in India. The exchange rate dampened potential sales and many industries, the auto industry in particular, felt the slowdown in the India market in 2013. We exhibited at the World of Concrete tradeshow held in Hyderabad with both an outdoor and indoor stand. Although overall attendance was less than expected, we did have good traffic at the stand with existing customers and known prospects, plus several brand new prospects.
Sales in Russia were strong with solid SXP®-D model sales and the market acceptance of the S-840 model. The new S-15M Laser Screed® machine and the STS-11M Topping Spreader were widely accepted in the Middle East. Latin America struggled with the exchange rate however we sold five STS-11M units to one customer in Brazil.
Cashflow and balance sheet
Our SG&A expense control system ensured that we maximized EBITDA1. We generated US$5.3m in net cash2 after paying US$1.0m in dividends, US$1.0m in taxes, US$0.6m in stock and stock options buy backs and reducing debt by $0.5m. As a result we finished the year with a net cash position of US$3.4m.
Somero Concrete College
Our Customer Service team was exceptionally busy in 2013 with a 100% increase from 2012 in customer training events. This increase in training events, along with customer feedback, has led us to the development of the Somero Concrete College (SCC). SCC is a key element of our strategic plan to increase the customer's knowledge of high quality concrete floor installation and at the same time increase his loyalty to Somero. Somero has unique expertise that comes from our employees, support teams, customers, and networks which cannot be replicated. SCC offers a specific set of hands-on programs that shorten the learning curve for customers so they can gain a faster foothold in the concrete construction flooring market. The programs include proper placement and finishing techniques taught using wet concrete, education on proper concrete mixes to obtain high quality floors and flatness measurement to improve floor placement. Due to the immense opportunity, SCC programs will initially be offered in China. The impact of these programs will further establish Somero's presence as the source and driver of industry led standards used by Chinese customers.
Management targeting a doubling of Group revenue by 2018
Somero management has further developed the Group's five year strategic growth plan. The plan details the good growth opportunities in the US and China and growth that the expanding economies of our other regions are expected to produce. Each region has detailed growth drivers specific to that region based on the investments we have made and will be making. The growth drivers will require additional investment on a scale relatively consistent with our previous investments, with annual investment capital expenditure of circa US$0.8m. We are very confident that our team of long-term, dedicated employees, with their extensive knowledge and experience are very capable of executing this plan to provide substantial growth over this next stage of Somero's development.
Management's overall target is to double Group revenue by 2018. This is supported by an expectation that in North America, the combination of cement consumption and increases in average selling prices of our products could more than double over this period.
China is also an increasingly important market for the Group and due to a combination of a total market opportunity in China that exceeds peak 2007 sales in the US and increased market penetration of our products, management is targeting revenues in this region to triple in the five year period to 2018.
India is also a very significant market for cement consumption. Although Somero's presence in this market is in its initial starting phase and market penetration is just beginning, the Group is investing in sales and support staff to address this market and develop revenue opportunities.
In Europe, the economic recovery is at an earlier stage than in North America, but is expected to accelerate over the period of this five year plan. Management is therefore targeting a tripling of revenue growth over this period.
In the Group's other regions, covering Russia, Scandinavia, the Middle East, South America, and Australasia the Group's revenues are also expected to benefit from macro-economic growth. The Group is investing in its operations in these areas and developing its markets for the future. Management is therefore targeting growth over the period of circa 40%.
Dividend
Following a full year dividend of 0.8 US cent per share in the prior financial year, we were pleased to declare an interim dividend of 0.9 US cent per share alongside our H1 2013 results in September 2013. In reflection of Somero's continued progress and growth and the Directors' confidence in the Company's outlook, the Board was pleased to declare a final dividend of 1.3 US cent per share on April 7, 2014. This final dividend will be payable on May 12, 2014 to shareholders on the register at April 25, 2014 and together with the interim dividend represents a full year dividend to shareholders of 2.2 US cent per share, a 175% increase on the previous year.
The Company's intention is to steadily increase the dividend payout ratio to 30% of Net Income Before Amortization over the next two to three years.
Conclusion
2013 was a great year in which every employee worked hard, many travelled more than they ever have in their lives and everyone executed to perfection. I thank and commend every employee for their dedication and loyalty to the Company.
With continuous improvement in the world economy, and our sales strategy of top-down selling in India and China we anticipate another strong year in 2014.
Jack Cooney
President and Chief Executive Officer
1. Adjusted EBITDA as used herein is a calculation of the Company's net income/(loss) plus tax provision, interest expense, interest income, foreign exchange gain/(loss), other expense, depreciation, amortization, stock based compensation and the write-down of Goodwill, as applicable.
2. Net Cash is defined as total borrowings under bank obligations less cash and cash equivalents.
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/(loss), 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. 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.
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Notes: References to "Adjusted Net Income Before Amortization" in this document are to Somero's net income plus amortization of intangibles. 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 The Company's consolidated revenues increased by 40% to US$45.1m (2012: US$32.2m). Company 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 S-840 and the CopperHead), and other revenues, which consist of, among other things, revenue from sales of spare parts, refurbished machines, Topping Spreaders, Mini Screeds, 3D systems, S-15M, S-15R and accessories. The overall increase for the year was driven by all categories - Large line sales, Small line sales and Other revenues. The following table shows the breakdown between Large line sales, Small line sales and Other revenues during the 12 months ended December 31, 2013 and 2012:
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Large line sales increased to US$14.2m (2012: US$8.1m) as a result of a 68% increase in volume to 42 units (2012: 25), Small line sales increased slightly to US$10.8m (2012: US$10.1m) due to a change in sales mix towards higher priced machines while volumes decreased to 132 units (2012: 136), and Other revenues, including sales of spare parts, refurbished machines, Topping Spreaders, Mini Screeds, 3D systems, S-15M, S-15R and accessories, increased to US$20.1m (2012: US$14.0m).
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Units breakdown by geography |
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North America |
EMEA |
RoW |
Total |
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2013 |
2012 |
2013 |
2012 |
2013 |
2012 |
2013 |
2012 |
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Large Screed |
24 |
16 |
6 |
2 |
12 |
7 |
42 |
25 |
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Small Screed |
90 |
65 |
27 |
41 |
15 |
30 |
132 |
136 |
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Sales to customers located in North America contributed 57% of total revenue (2012: 56%), sales to customers in EMEA (Europe, Middle East & South Africa) contributed 17% (2012: 18%) and sales to customers in RoW (Asia, Australia, and Latin America & Pacific) contributed 26% (2012: 26%).
Sales in North America generated US$25.5m (2012: US$18.1m) which is up 41% primarily due to higher Large line (24 Large line units in 2013 vs. 16 in 2012) and higher Small line sales (90 Small line units in 2013 vs. 65 in 2012). Sales in EMEA generated US$7.8m (2012: US$5.8m) which is up 34% primarily due to higher Large line sales (6 Large line units in 2013 vs. 2 in 2012). Sales in RoW generated US$11.8m (2012: US$8.3m) which are up 42% primarily due to higher Large line sales (12 Large line units in 2013 vs. 7 in 2012).
Regional Sales Breakdown
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2013 |
2012 |
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North America |
25.5 |
18.1 |
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ROW (China) |
6.6 |
3.1 |
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EMEA (Russia) |
2.3 |
1.0 |
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EMEA (Middle East) |
2.1 |
1.0 |
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ROW (Australia) |
2.3 |
1.3 |
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EMEA (Europe) |
3.0 |
2.7 |
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EMEA (Scandinavia) |
0.4 |
0.7 |
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ROW (Korea) |
0.2 |
0.6 |
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EMEA (India) |
0.0 |
0.4 |
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ROW (South America) |
2.7 |
3.3 |
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Total |
45.1 |
32.2 |
Gross Profit
Gross profit increased to US$23.5m (2012: US$15.7m), with gross margins increasing to 52% (2012: 49%).
Operating Expenses
Operating expenses increased by 20% to US$17.1m (2012: US$14.2m). This increase was driven primarily by investments made in Emerging markets, sales commissions, insurance expenses, additional hires and management and employee profit sharing. Total employment increased to 126 from 107 in 2012.
Other Income (Expense)
Other expenses were US$0.0m (2012: US$0.2m) consisting of interest expense, interest income, foreign exchange gains and losses and gains and losses on the disposal of assets.
Provision for Income Taxes
The provision for income taxes was US$1.1m in 2013 as compared to (US$0.2m) in 2012. Overall, Somero's effective tax rate changed from 16.1% in 2012 to 16.6% in 2013 due to a significant increase in earnings before taxes not fully absorbed by its net operating loss carry forwards.
Net Income
Net income increased to US$5.4m from a net income of US$1.0m in 2012. The primary cause of the increase in net income was a 40% increase in revenues and higher gross margins. Basic earnings per share represents income available to common stockholders divided by the weighted average number of shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate to outstanding stock options. Earnings per common share have been computed based on the following:
The Company had 56,425,598 shares outstanding at December 31, 2013.
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Earnings per share at December 31, 2013 is as follows: |
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US$ |
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Basic earnings per share |
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0.10 |
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Diluted earnings per share |
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0.09 |
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Basic adjusted net income before amortization |
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0.13 |
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Diluted adjusted net income before amortization |
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0.12 |
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Consolidated Balance Sheets |
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As of December 31, 2013 and 2012 |
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2013 |
2012 |
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US$ 000 |
US$ 000 |
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Assets |
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Current Assets: |
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Cash and cash equivalents |
5,983 |
1,167 |
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Accounts receivable - net |
5,407 |
4,396 |
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Inventories |
6,781 |
6,390 |
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Prepaid expenses and other assets |
636 |
656 |
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Total current assets |
18,807 |
12,609 |
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Property, plant and equipment - net |
4,181 |
3,765 |
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Intangible assets - net |
5,585 |
7,579 |
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Goodwill |
2,878 |
2,878 |
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Deferred financing costs |
135 |
75 |
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Deferred tax asset |
428 |
0 |
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Other assets |
43 |
34 |
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Total assets |
32,057 |
26,940 |
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Liabilities and stockholders' equity |
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Current liabilities: |
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Notes payable - current portion |
1,265 |
511 |
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Accounts payable |
3,239 |
2,648 |
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Accrued expenses |
1,756 |
915 |
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Income tax payable |
525 |
170 |
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Total current liabilities |
6,785 |
4,244 |
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Notes payable, net of current portion |
1,338 |
2,568 |
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Other liabilities |
38 |
19 |
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Total liabilities |
8,161 |
6,831 |
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Stockholders' equity |
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Preferred stock, US$.001 par value, 50,000,000 shares authorized, no shares issued and outstanding |
0 |
0 |
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Common stock, US$.001 par value, 80,000,000 shares authorized, 56,425,598 shares issued and outstanding at December 31, 2013 and 2012 |
26 |
26 |
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Less: Treasury stock, 520,393 shares as of December 31, 2013 and 0 shares as of December 31, 2012 at cost |
(585) |
0 |
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Additional paid in capital |
28,508 |
28,331 |
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Accumulated deficit |
(2,774) |
(7,195) |
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Other comprehensive loss |
(1,279) |
(1,053) |
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Total stockholders' equity |
23,896 |
20,109 |
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Total liabilities and stockholders' equity |
32,057 |
26,940 |
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See notes to consolidated financial statements. |
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Consolidated Statements of Comprehensive Income* |
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For the years ended December 31, 2013 and 2012 |
|
|
|
|
|
|
|
|
|
|
|
Year ended |
Year ended |
|
|
|
December 31 |
December 31 |
|
|
|
2013 |
2012 |
|
|
|
US$ 000 |
US$ 000 |
|
|
|
except per share data |
except per share data |
|
|
|
|
|
|
Revenue |
45,078 |
32,171 |
|
|
Cost of sales |
21,536 |
16,511 |
|
|
|
|
|
|
|
Gross profit |
23,542 |
15,660 |
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
Selling expenses |
6,524 |
5,301 |
|
|
Engineering expenses |
881 |
562 |
|
|
General and administrative expenses |
9,734 |
8,386 |
|
|
Total operating expenses |
17,139 |
14,249 |
|
|
|
|
|
|
Operating income |
6,403 |
1,411 |
|
|
Other income (expense) |
|
|
|
|
|
Interest expense |
(216) |
(331) |
|
|
Interest income |
13 |
18 |
|
|
Foreign exchange gain |
249 |
99 |
|
|
Other |
2 |
18 |
|
|
|
|
|
|
Income before income taxes |
6,451 |
1,215 |
|
|
Provision for income taxes |
1,071 |
195 |
|
|
Net income |
5,380 |
1,020 |
|
|
Comprehensive income |
|
|
|
|
|
Cumulative translation adjustment |
(230) |
(118) |
|
|
Change in fair value of derivative instruments - net of income taxes |
4 |
26 |
|
Comprehensive income |
5,154 |
928 |
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
|
Earnings per share basic |
0.10 |
0.02 |
|
|
Earnings per share diluted |
0.09 |
0.02 |
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
||
|
|
Basic |
56,425,598 |
56,425,598 |
|
|
Diluted |
60,727,787 |
61,587,699 |
|
|
|
|
|
|
See notes to consolidated financial statements. |
|
|
|
*US GAAP requires the previous Consolidated Statements of Operations to now be called Consolidated Statements of Comprehensive Income.
|
Consolidated Statements of Changes in Stockholders' Equity |
|
|
|
|
|
|
||||||
|
For the years ended December 31, 2013 and 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Treasury Stock |
|
|
|
|
|
|
|
||
|
|
Shares |
Amount US$000 |
Additional Paid in Capital US$000 |
Shares |
Amount US$000 |
Accumulated deficit US$000 |
Other Compre- hensive income (loss) US$000 |
Total Stockholder's Equity US$000 |
|
|
|
|
|
Balance - January 1, 2012 |
56,425,598 |
26 |
28,165 |
0 |
0 |
(8,215) |
(961) |
19,015 |
|
|
|
|
|
Cumulative translation adjustment |
- |
- |
- |
- |
- |
- |
(118) |
(118) |
|
|
|
|
|
Change in fair value of derivative instruments |
- |
- |
- |
- |
- |
- |
26 |
26 |
|
|
|
|
|
Net income |
- |
- |
- |
- |
- |
1,020 |
- |
1,020 |
|
|
|
|
|
Stock based compensation |
- |
- |
166 |
- |
- |
- |
- |
166 |
|
|
|
|
|
Balance - December 31, 2012 |
56,425,598 |
26 |
28,331 |
0 |
0 |
(7,195) |
(1,053) |
20,109 |
|
|
|
|
|
Cumulative translation adjustment |
- |
- |
- |
- |
- |
- |
(230) |
(230) |
|
|
|
|
|
Change in fair value of derivative instruments |
- |
- |
- |
- |
- |
- |
4 |
4 |
|
|
|
|
|
Net income |
- |
- |
- |
- |
- |
5,380 |
- |
5,380 |
|
|
|
|
|
Stock based compensation |
- |
- |
177 |
- |
- |
- |
- |
177 |
|
|
|
|
|
Dividend |
- |
- |
- |
- |
- |
(959) |
- |
(959) |
|
|
|
|
|
Treasury Stock |
- |
- |
- |
520,393 |
(585) |
- |
- |
(585) |
|
|
|
|
|
Balance - December 31, 2013 |
56,425,598 |
26 |
28,508 |
520,393 |
(585) |
(2,774) |
(1,279) |
23,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated Financial Statements
As of December 31, 2013 and 2012
1. Organization and Description of Business
Nature of Business Somero Enterprises, Inc. (the "Company" or "Somero") designs, manufactures, refurbishes, sells and distributes concrete levelling, 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, distribution offices in the United Kingdom and China, and sales offices in Canada, Germany and India.
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. The Company maintains deposits primarily in one financial institution, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation ("FDIC"). The Company has not experienced any losses related to amounts in excess of FDIC limits.
Accounts Receivable and Allowances for Doubtful AccountsFinancial 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. 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 December 31, 2013 and 2012, the allowance for doubtful accounts was approximately US$324,000 and US$304,000, respectively. Bad debts expense was US$31,000 and US$38,000 in 2013 and 2012, 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 remaining term of the debt instrument. These financing costs are being amortized using the effective interest method.
Intangible Assets and Goodwill Intangible assets consist primarily of customer relationships and patents, and are carried at their fair value when acquired, 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 December 31 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 did not incur a goodwill impairment loss for the year ended December 31, 2013 or 2012. (see Note 4 for more information.)
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 year ended December 31, 2013, the Company did not incur a goodwill impairment loss and tested its other intangible assets including customer relationships and technology for impairment and found no impairment. 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 Note 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 60 days 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.
|
|
US $000 2013 |
US $000 2012 |
|||
|
Balance, January 1 |
(101) |
(73) |
|
||
|
Warranty charges |
268 |
264 |
|
||
|
Accruals |
(346) |
(292) |
|
||
|
Balance, December 31 |
(179) |
(101) |
|
||
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 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.
Income Taxes The Company determines income taxes using the asset and liability approach. Tax laws require items to be included in tax filings at different times than the items reflected in the financial statements. 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 carry forwards. 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.
In June 2006, the Financial Accounting Standards Board (FASB) issued accounting guidance to create a single model to address accounting for uncertainty in tax positions. This guidance clarifies that a tax position must be more likely than not of being sustained before being recognized in financial statements. The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns, and records a liability for uncertain tax positions. This involves a two-step approach to recognizing and measuring uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement.
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision/ (benefit) for income taxes in general and administrative expenses in the accompanying consolidated financial statements, which there were none in 2013 and 2012. The Company is subject to a three year statute of limitations by major tax jurisdictions, and currently 2010 through 2012 remain open to investigation.
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 recognizes 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). The Company measures 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 December 31 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 operations.
Comprehensive Income Comprehensive income, 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.
Earnings Per Share Basic earnings per share represents income available to common stockholders divided by the weighted average number of common 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. 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:
|
|
|
|
|
|
2013 |
2012 |
|
|
|
|
|
|
US$000 |
US$000 |
|
Net income |
|
|
|
5,380 |
1,020 |
|
|
|
|
|
|
|
|
|
|
Basic weighted shares outstanding |
|
56,425,598 |
56,425,598 |
|||
|
Net dilutive effect of stock options and RSU's |
4,302,189 |
5,162,101 |
||||
|
Diluted weighted average shares outstanding |
60,727,787 |
61,587,699 |
||||
Fair Value Measurements The Company uses fair value measurements in areas that include, but are not limited to: impairment testing of goodwill and long-lived assets and stock-based compensation arrangements. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities approximate fair value because of the short-term nature of these instruments. The carrying value of our long-term debt approximates fair value due to the variable nature of the interest rates under our Credit Facility.
The FASB has issued accounting guidance on fair value measurements. This guidance provides a common definition of fair value and a framework for measuring assets and liabilities at fair values when a particular standard prescribes it.
This guidance also specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques. 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
|
Assets: |
December 31, 2013 and 2012 US$000 |
Quoted Prices In Active Markets for Identical Assets (Level 1) US$000 |
Significant Other Observable Inputs (Level 2) US$000 |
Significant Unobservable Inputs (Level 3) US$000
|
|
Goodwill (non-recurring) |
2,878 |
|
|
2,878 |
|
Interest rate swap (recurring) |
5 |
|
|
5 |
There were no changes in Level 3 assets in 2013.
New Accounting Pronouncements
There were no new accounting pronouncements that will affect the Company's financial statements.
3. Inventories
Inventories consisted of the following at December 31, 2013 and 2012:
|
|
2013 US$ 000 |
2012 US$ 000 |
|
Raw materials |
1,794 |
2,311 |
|
Finished goods and work in process |
1,900 |
2,365 |
|
Refurbished |
3,087 |
1,714 |
|
Total |
6,781 |
6,390 |
4. Goodwill and Intangible Assets
Goodwill represents the excess of the cost of a business combination over the fair value of the net assets acquired. The Company is required to test goodwill for impairment, at the reporting unit level, annually and when events or circumstances indicate the fair value of a unit may be below its carrying value.
The Company adopted the amendments to Topic 350, Intangibles-Goodwill and Other, which permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350.
The results of the qualitative assessment indicated that Goodwill was not impaired as of December 31, 2013 and 2012, and that the value of intangible assets including customer relationships and technology was not impaired as of December 31, 2013 and 2012.
The following table reflects Other intangible assets:
|
|
Weighted average Amortization Period |
2013 US$000 |
2012 US$000 |
|
Capitalized cost |
8 years |
6,300
|
6,300 |
|
Customer relationships |
|
|
|
|
Patents |
12 years |
18,538 |
18,538 |
|
Intangible assets not subject to amortization |
|
49 |
39 |
|
|
|
24,891 |
24,881 |
|
Accumulated amortization |
|
|
|
|
Customer relationships |
8 years |
6,300 |
5,841 |
|
Patents |
12 years |
13,002 |
11,457 |
|
Intangible assets not subject to amortization |
- |
- |
- |
|
|
19,306 |
|
17,302 |
|
Net carrying costs |
|
|
|
|
Customer relationships |
8 years |
|
459 |
|
Patents |
12 years |
5,536 |
7,081 |
|
Intangible assets not subject to amortization |
|
49 |
39 |
|
|
|
5,585 |
7,579 |
Amortization expense associated with the intangible assets in each of the years ended December 31, 2013 and 2012 was approximately US$2,004,000 and US$2,333,000, respectively. Future amortization of intangible assets is expected to be as follows for the years ended:
|
|
December 31 US$ 000 |
|
2014 |
1,545 |
|
2015 |
1,545 |
|
2016 |
1,545 |
|
2017 |
901 |
|
|
5,536 |
|
Thereafter |
0 |
|
|
5,536 |
5. Property, Plant and Equipment
Property, plant and equipment consist of the following at December 31:
|
|
2013 |
2012 |
|
|
US$ 000 |
US$ 000 |
|
Land |
207 |
207 |
|
Buildings and improvements |
3,686 |
3,602 |
|
Machinery and equipment |
2,680 |
1,979 |
|
|
6,573 |
5,788 |
|
Less: accumulated depreciation and amortization |
(2,392) |
(2,023) |
|
|
4,181 |
3,765 |
Depreciation expense for the years ended December 31, 2013 and 2012 was approximately US$369,000 and US$300,000, respectively.
6. Notes Payable
The Company's debt obligations consisted of the following at December 31:
|
|
2013 |
2012 |
|
|
US$ 000 |
US$ 000 |
|
30 month secured reducing revolving line of credit |
- |
666 |
|
30 month secured reducing term loan |
- |
2,414 |
|
March 2016 secured revolving line of credit |
- |
- |
|
March 2018 delayed draw term loan |
1,435 |
- |
|
March 2018 Commercial Real Estate Mortgage |
1,168 |
- |
|
Total bank debt |
2,603 |
3,080 |
|
Less debt due within one year |
(1,265) |
(511) |
|
Obligations due after one year |
1,338 |
2,568 |
The bank's revolving line of credit is collateralized by all inventories and accounts receivable.
Future Payments The future payments by year under the Company's amended loan are as follows:
|
|
December 31 US$ 000 |
|
2014 |
1,265 |
|
2015 |
266 |
|
2016 |
48 |
|
2017 |
48 |
|
Thereafter |
976 |
|
Total payments |
2,603 |
March 2013 Amended Credit Facility The Company entered into an amended credit facility in March 2013. The new agreement will mature between March 2016 and March 2018.
· US$5,000,000 March 2016 secured revolving line of credit
· US$6,000,000 March 2018 delayed draw term loan
· US$1,477,000 March 2018 Commercial Real Estate Mortgage
The interest rate on the delayed draw loan is Libor plus a percentage based upon a covenant schedule up to a maximum of Libor plus 3% at December 31, 2013. The interest rate on the commercial real estate loan is Libor plus a percentage based upon a covenant schedule up to a maximum of Libor plus 2.92% at December 31, 2013. The Company's new loan facility is secured by substantially all of its business assets. Fees paid to the bank were US$30,000.
Interest
Interest expense on the notes payable for the years ended December 31, 2013 and 2012, was approximately US$215,000 and US$328,000, respectively, related to the debt obligations. Interest expense includes US$0 and US$26,000 in 2013 and 2012, respectively, related to the loss on cash flow hedges as a result of paying off interest rate swaps in 2009 that were recognized in the statements of operations as interest expense and removed from other comprehensive income/(loss).
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 match vests immediately. The Company contributed approximately US$201,000 to the savings and retirement plan during the year ended December 31, 2013 and contributed US$161,000 for the year of 2012.
8. Operating Leases
The Company leases property, vehicles and office equipment under leases accounted for as operating leases without renewal options. Future minimum payments by year under non-cancellable operating leases with initial terms in excess of one year were as follows:
|
|
December 31 US$ 000 |
|
2014 |
306 |
|
2015 |
284 |
|
2016 |
161 |
|
2017 |
8 |
|
Thereafter |
- |
|
Total |
759 |
9. Supplemental Cash Flow and Non-Cash Financing Disclosures
|
|
2013 US$ 000 |
2012 US$ 000 |
|
Cash paid for interest |
122 |
195 |
|
Cash paid/ (received) for taxes |
968 |
11 |
|
Non-cash financing activities - Change in fair value of derivative instruments |
(4) |
(26) |
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, vendor relationships, and the potential future growth of competitors. Any of the foregoing may significantly affect management's estimates and the Company's performance. At December 31, 2013 and 2012, the Company had two customers which represented 36% and 29% of total accounts receivables, respectively.
11. Commitments and Contingencies
The Company has entered into employment agreements with certain members of senior management. The terms of these are for renewable one year periods and include non-compete and nondisclosure provisions as well as provide for defined severance payments in the event of termination or change in control.
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 consolidated financial statements.
12. Income Taxes
The Company determines income taxes using the asset and liability approach. Tax laws require items to be included in tax filings at different times than the items reflected in the financial statements. 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 carry forwards. 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.
In June 2006, the Financial Accounting Standards Board (FASB) issued accounting guidance to create a single model to address accounting for uncertainty in tax positions. This guidance clarifies that a tax position must be more likely than not of being sustained before being recognized in financial statements. The Company evaluates tax positions that have been taken or are expected to be taken in its tax returns, and records a liability for uncertain tax positions. This involves a two-step approach to recognizing and measuring uncertain tax positions. First, tax positions are recognized if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any. Second, the tax position is measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement.
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision/ (benefit) for income taxes in general and administrative expenses in the accompanying consolidated financial statements, which there were none in 2013 and 2012. The Company is subject to a three year statute of limitations by major tax jurisdictions, and currently 2010 through 2012 remain open to investigation.
|
|
|
12/31/2013 |
12/31/2012 |
|
|
|
|
US$ 000 |
US$ 000 |
|
|
Current Income Tax |
|
|
|
|
|
Federal |
|
1,331 |
136 |
|
|
State |
|
41 |
- |
|
|
Foreign |
|
127 |
59 |
|
|
Total current income tax provision |
1,499 |
195 |
|
|
|
|
|
|
|
|
|
Deferred tax expense |
|
|
|
|
|
Federal |
|
(402) |
- |
|
|
State |
|
(26) |
- |
|
|
Foreign |
|
- |
- |
|
|
Total deferred tax provision/(benefit) |
(428) |
- |
|
|
|
|
|
|
|
|
|
Total provision |
1,071 |
195 |
|
|
|
|
|
|
|
|
|
The components of the net deferred income tax asset at December 31, 2013 and |
|
||||||||||
|
2012 were as follows: |
|
|
|
|
|||||||
|
|
|
12/31/2013 |
12/31/2012 |
|
|
||||||
|
|
|
US$ 000 |
US$ 000 |
|
|
||||||
|
Deferred Tax Asset |
|
|
|
|
|||||||
|
Intangibles - Foreign |
134 |
122 |
|
||||||||
|
Goodwill |
|
3,489 |
3,743 |
|
|||||||
|
Stock-based compensation |
164 |
102 |
|
||||||||
|
Net Operating Loss - State |
14 |
67 |
|
||||||||
|
Net Operating Loss - Foreign |
494 |
883 |
|
||||||||
|
Foreign Tax Credit Carryover |
237 |
237 |
|
||||||||
|
Other |
|
366 |
278 |
|
|
||||||
|
Gross deferred tax asset |
4,898 |
5,431 |
|
||||||||
|
|
|
|
|
|
|||||||
|
Valuation Allowance |
(4,056) |
(5,073) |
|
||||||||
|
Deferred tax asset |
842 |
359 |
|
||||||||
|
|
|
|
|
|
|||||||
|
Deferred Tax Liability |
|
|
|
||||||||
|
Depreciation |
|
(286) |
(246) |
|
|||||||
|
Prepaids |
|
(128) |
(113) |
|
|||||||
|
Net deferred tax asset (liability) |
428 |
- |
|
||||||||
|
|
|
|
|
|
|||||||
|
Current |
|
- |
- |
|
|||||||
|
Non-current |
|
428 |
- |
|
|||||||
|
Net deferred tax asset |
428 |
- |
|
||||||||
|
|
|
|
|
|
|||||||
|
Rate Reconciliation |
|
|
|
||||||||
|
Consolidated Income/(loss) before tax |
6,451 |
1,215 |
|
|
|||||||
|
Statutory rate |
|
34% |
34% |
|
|
||||||
|
Statutory tax expense |
2,193 |
413 |
|
|
|||||||
|
|
|
|
|
|
|
||||||
|
State taxes |
|
15 |
1 |
|
|
||||||
|
Revaluation of Deferred Tax Assets |
116 |
30 |
|
|
|||||||
|
Meals and Entertainment |
43 |
25 |
|
|
|||||||
|
Foreign Tax Items |
(27) |
122 |
|
|
|||||||
|
Valuation Allowance |
(1,017) |
(343) |
|
|
|||||||
|
Other |
|
(252) |
(53) |
|
|
||||||
|
Tax provision |
1,071 |
195 |
|
|
|||||||
|
|
|
|
|
|
|
||||||
At December 31, 2013, the Company had net deferred tax assets of $428 related to amortizable US goodwill. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Since realization of any future tax benefit at December 31, 2013 and 2012 was not sufficiently assured, a valuation allowance was recorded for a portion of the 2013 net deferred tax asset and a valuation allowance was provided for the full 2012 net deferred tax asset.
The Company has US$970,000 in state loss carry forwards with varying expiration dates and US$2,061,000 in foreign loss carry forwards with indefinite expiration dates.
13. Revenues by Geographic Region
The Company sells its product to customers throughout the world. The breakdown by location is as follows:
|
|
2013 US$ 000 |
2012 US$ 000 |
|
United States and U.S. possessions |
24,226 |
15,377 |
|
Canada |
1,248 |
2,758 |
|
Rest of world |
19,604 |
14,036 |
|
Total |
45,078 |
32,171 |
A significant portion of the Company's long-lived assets are located in the United States.
14. Stock Based Compensation
The Company has one stock-based compensation plan, which is described below. The compensation cost that has been charged against income/(loss) for the plan was approximately US$177,000 and US$166,000 for the years ended December 31, 2013 and 2012, respectively. The income tax effect recognized for stock based compensation was zero in each of the years ended December 31, 2013 and 2012 as the Company recorded a partial or full valuation allowance against its deferred tax assets related to stock compensation.
Stock Options
An initial grant was made in February 2010 for 2.3 million stock options as replacements for grants under the old option plan, which were cancelled when the old plan was abandoned. The grants have a three year vesting and a strike price of 30p, a 100% premium over the market price on the date of grant. The remaining stock options will only be issued for new key employees and superior performance.
Options granted under the Plan have a term of up to 10 years and generally vest over a three-year period beginning on the date of the grant. Options under the Plan must be granted at a price not less than the fair market value at the date of grant. The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The risk-free interest rate is based on the U.S. Treasury rate for the expected term at the time of grant, volatility is based on the average long-term implied volatilities of peer companies as our Company has limited trading history and the expected life is based on the average of the life of the options of 10 years and an average vesting period of 3 years. No new options were granted in 2013 and 2012.
A summary of option activity under the stock option plan as of December 31, 2013 and 2012, and changes during the year then ended is presented below:
|
Options |
Stock options |
Weighted- |
Weighted |
Aggregate |
|
|
|
Average |
Average |
Intrinsic |
|
|
|
Exercise |
Remaining |
Value |
|
|
|
Price |
Contractual |
|
|
|
|
US$ |
Term (yrs) |
|
|
Outstanding at |
|
|
|
|
|
January 1, 2012 |
3,067,345 |
0.56 |
7.76 |
- |
|
Granted |
- |
- |
- |
- |
|
Exercised |
- |
- |
- |
- |
|
Forfeited |
- |
- |
- |
- |
|
Outstanding at |
|
|
|
|
|
December 31, 2012 |
3,067,345 |
0.56 |
6.76 |
- |
|
Exercisable at |
|
|
|
|
|
December 31, 2012 |
2,259,059 |
0.59 |
6.60 |
- |
|
Outstanding at |
|
|
|
|
|
January 1, 2013 |
3,067,345 |
0.56 |
6.76 |
- |
|
Granted |
- |
- |
- |
- |
|
Exercised |
(459,566) |
0.41 |
- |
- |
|
Forfeited |
(205,691) |
2.34 |
- |
- |
|
Outstanding at |
|
|
|
|
|
December 31, 2013 |
2,402,088 |
0.44 |
5.99 |
- |
|
Exercisable at |
|
|
|
|
|
December 31, 2013 |
2,401,402 |
0.44 |
5.99 |
- |
A summary of the status of the Company's non-vested stock options as of December 31, 2013, and changes during the year then ended is presented below:
|
|
Stock Options |
Weighted Average Grant-Date Fair Value US $ |
|
Non-vested stock options as of December 31, 2012 |
808,286 |
0.05 |
|
Granted |
- |
- |
|
Vested |
(807,600) |
0.05 |
|
Forfeited |
- |
- |
|
Non-vested stock options as of December 31, 2013 |
686 |
0.05 |
As of December 31, 2013, there was US$0 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the Company's stock option plan. The fair value of options vested in 2013 and 2012 was US$51,000 and US$104,000, respectively.
Restricted Stock Units
|
The weighted-average grant-date fair value of restricted stock units was US$0.22 and US$0.16 for the years ended December 31, 2013 and 2012, respectively.
A summary of the status of the Company's non-vested restricted stock units as of December 31, 2013, and changes during the year then ended is presented below:
|
|
Average RSU's Value |
Weighted Grant Date Fair Market US$ |
|
Non-vested restricted stock units as of December 31, 2012 |
2,300,446 |
0.16 |
|
Granted |
240,453 |
0.75 |
|
Vested |
|
|
|
Forfeited |
|
|
|
Non-vested restricted stock units as of December 31, 2012 |
2,540,899 |
0.22 |
As of December 31, 2013, there was US$231,000 of total unrecognized compensation cost related to non-vested restricted stock units. Restricted stock unit expense is being recognized over the three year cliff vesting period. The weighted average remaining vesting period is 0.87 years.
15. Employee Compensation
The Board approved management bonuses and profit sharing dollars totaling $799,000 to be paid out in December 2013 based upon the Company meeting certain profitability targets.
16. Subsequent Events
Following a full year dividend of 0.8 US cent per share in the prior financial year, we were pleased to declare an interim dividend of 0.9 US cent per share alongside our H1 2013 results in September 2013. In reflection of Somero's continued progress and growth and the Directors' confidence in the Company's outlook, the Board is pleased to declare a final dividend of 1.3 US cent per share. This final dividend will be payable on May 12, 2014 to shareholders on the register at April 25, 2014 and together with the interim dividend represents a full year dividend to shareholders of 2.2 US cent per share, a 175% increase on the previous year.
The Company's intention is to steadily increase the dividend payout ratio to 30% of Net Income Before Amortization over the next two to three years.
This information is provided by RNS
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