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Somero Enterprises (SOM)

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Tuesday 08 September, 2015

Somero Enterprises

Half Yearly Report

RNS Number : 3457Y
Somero Enterprises Inc.
08 September 2015
 

Somero Enterprises, Inc.

September 8, 2015

 

 

 

September 8, 2015

 

 

 

 

 

     

 

 

 

 

Interim Results for the six months ended June 30, 2015

 

Somero Enterprises, Inc.®  is pleased to report its interim results for the six months ended June 30, 2015.

 

Financial Highlights

 

· Revenue increased 20% to US$ 35.3m (H1 2014: US$ 29.5m)

· Adjusted EBITDA increased 28% to US$ 9.5m (H1 2014: US$ 7.4m)(1,2)

· Pre-tax income increased 28% to US$ 8.2m (H1 2014: US$ 6.4m)

· Adjusted net income increased 24% to US$ 6.1m (2014: US$ 4.9m)(1,3)

· Adjusted Net Income Basic EPS grew 22% to US$ 0.11 (H1 2014:  US$ 0.09)(1,2)

· Net cash at June 30, 2015  increased 36% to US$ 9.0m  (December 31, 2014: US$ 6.6m)(4)

· 1.9 US cents per share dividend declared for payment in H2 2015, a 27% increase over prior year

 

 

Business Highlights

 

· Sales in North America remained strong increasing 27% to US$ 24.1m compared to H1 2014

· Sales in EMEA increased 25% compared to H1 2014 led by the Middle East which grew to US$ 1.9m in H1 2015 (H1 2014: US$ 0.2m)

· Large line new machine sales increased 47% to US$ 15.4m compared to H1 2014.

· New products contributed US$ 1.8m in H1 2015 revenue from sales of the S-485 Laser Screed® machine introduced in October 2014


 

 

Notes:

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-GAAP measures below.

2.  Adjusted EBITDA as used herein is a calculation of the Company's net income excluding 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 as used herein is a calculation of net income plus amortization of intangibles and excluding special items.

4.  Net Cash is defined as cash and cash equivalents less borrowings under bank obligations.

 

Commenting, Jack Cooney, President and Chief Executive Officer of Somero, said:

"Somero Enterprises, Inc. is pleased to announce the healthy trading momentum referred to in recent trading updates has continued.  Revenues for H1 2015 increased 20% compared to H1 2014 driven by growth in our main regions and led by particularly strong activity levels in North America and the Middle East. We remain encouraged by trading early in H2 2015 and will continue to invest selectively in measures aimed at supporting growth into the medium and longer term.  The Board is confident Somero will deliver another strong performance this year in line with latest market expectations."

For further information, please contact:

 

Canaccord Genuity Limited

Tel: +44 20 7523 8000

Piers Coombs

Chris Robinson

Mark Whitmore

 

 

 

About Somero®

 

Somero® designs, assembles, and sells patented, laser-guided equipment that automates the process of spreading, leveling and contouring volumes of concrete for commercial flooring and other horizontal surfaces such as paved parking lots. Somero's innovative, proprietary products include the large S-22E Laser Screed®, CopperHead®, Mini Screed™ C, S-840 Laser Screed®, S-15R Laser Screed®, STS-11m Spreader, and S-485 Laser Screed® machines which employ laser-guided proprietary technology to achieve a high level of precision in concrete surface flatness at a higher rate of efficiency than conventional methods.  This results in the highest level of flat-floor precision attainable at less cost to the flooring contractor.

 

Somero's products have been sold to concrete contractors for non-residential construction projects in 93 countries and across every time zone around the globe. Laser Screed equipment has been specified for use in the construction of warehouses, assembly plants, retail centers, and other commercial construction projects that require extremely flat concrete-slab floors and 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 equipment is used to construct the concrete slab in all building types, as well as all floors in multi-story buildings.  Our target customer is the commercial concrete flooring contractor, of any size, who is ready to move to the next level of profitability with their business.  The keys to our success are the quality of our equipment, the unparalleled level of service we provide, and the investment we make in relationships with our customers.  Somero equipment and service helps our customers achieve their business and profitability goals, creating the loyalty that maintains them as a customer for life.   

 

Somero's Operations and Support Offices are located in Michigan, USA with Global Headquarters and Training Facilities in Florida, USA and an established Sales, Service and Training Facility in Shanghai, China. In addition, Somero maintains sales and service offices located in Chesterfield, England and New Delhi, India.

 

Somero has approximately 174 employees, marketing and selling products through a direct sales force, external sales representatives, and independent dealers in the Americas, Europe, 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 and Chief Executive Officer's Statement

 

 

Overview

 

Somero is again delivering growth in 2015, ending the period with revenue of US$ 35.3m vs. US$ 29.5m for H1 2014.  Key to our strong performance has been our continued efforts to seek improvement in our products, processes, services, and people. 

 

People

 

Our employees are key drivers of our growth and we have added and trained additional staff and made key promotions in line with our expansion.  We expect the remainder of 2015 to be another exciting year, continuing to offer career entry and advancement opportunities. The Board appreciates all of our employees and wishes to thank them for their hard work, dedication, and loyalty.

 

Markets

 

North America has made the largest absolute contribution to growth this period, with revenues of US$ 24.1m (H1 2014: US$ 19.0m). Our European market saw a good increase in revenues, up 36% to US$ 1.9m (H1 2014: US$ 1.4m).  Southeast Asia has also experienced growth in H1 2015 to US$ 1.0m (H1 2014:  US$ 0.4m).  The Middle East is currently performing above expectation, generating US$ 1.9m of revenues this period, compared to US$ 0.2m in H1 2014.  After a slow start in China, market conditions have stabilized but remain challenging for now.  We continue to believe the prospects for our business in China are very good and we expect this market will become a significantly larger contributor to our growth in the future as we continue to develop and deepen our presence.

 

 

New product development

 

Product development continues to be a focus of our plans for 2015 as we are always working on new and innovative ideas to introduce to the industry.

 

In H2 2015, we expect to launch the S-10A.  This machine is designed to benefit contractors with smaller to mid-sized slabs and ranging from the beginner to those ready to move to a higher level boom-out Laser Screed machine.  The S-10A is affordable, easy to navigate, and most importantly, safe to operate while achieving a high quality finished product.

 

Liquidity

Somero ended June 30, 2015 with US$ 9.0m in net cash(1), an increase of US$2.4m during H1 2015, despite $2.2M in capital expenditures during the period primarily due to investment in the Houghton facility expansion and new Fort Myers Headquarters projects. The primary driver of the net cash increase was sales growth of 20% to US$ 35.3m compared to H1 2014, converting through to cash generation. 

  

Dividend

The Board is pleased to declare an interim dividend for the six months ended June 30, 2015 of 1.9 US cents per share.   This dividend will be payable on October 19, 2015 to shareholders on the register at October 2, 2015.

 

Expansion progress

 

Earlier this year, we announced plans for expansion of both the Operations and Support Offices in Houghton MI and the new Global Headquarters and Training Facilities in Fort Myers FL.  Ground has been broken for the 20,000 square-foot expansion in Houghton, MI with an expected capital cost of US$ 1.3m and targeted completion in Q4 2015.  Land has been purchased and the design completed for the new 14,000 square-foot facility in Fort Myers, FL with an expected capital cost of US$ 4.8m and targeted completion in Q2 2016.

 

Current trading and outlook

 

US sales momentum has carried forward into 2015 as a result of our new product introductions, such as the S-485, replacement demands on outdated technology, ongoing construction growth and project backlogs our customers are experiencing. This growth trajectory is expected to result in strong sales for 2015. 

Particularly strong performance in the Middle East has positioned EMEA for growth compared to H1 2014, offsetting sluggishness in Russia and India.  In addition, we are encouraged by improved activity in Europe.

Our markets in Southeast Asia experienced solid growth in H1 2015. However, China started the year slowly, resulting in trading in H1 2015 down in comparison to H1 2014. Somero continues to progress in developing brand awareness, providing education and training on the value of high-performance flat concrete floors, and finalizing third-party equipment financing options through the Bank of China.  Our low penetration rate in China, combined with greater acceptance of flatness standards and customer willingness to use our products and services, indicates Somero has ample opportunity for growth going forward. In addition, we expect the planned launch of the Concrete College in Shanghai in Q4 2015 will play a key role to support growth in the region.

Growth is also anticipated in Latin America outside of Brazil, driven by increased activity in Mexico, attributed to the manufacturing sector.  We are also seeing positive signs of improvement in other countries in this region and remain optimistic overall on the region. 

We are very encouraged by the sound start to 2015 and the Board is confident Somero will deliver another strong performance this year in line with latest market expectations.

 

Larry Horsch

Non-Executive Chairman

 

 

Jack Cooney

President and Chief Executive Officer

September 8, 2015

 

Notes:

1. Net Cash is defined as cash and cash equivalents less total borrowings under bank obligations.


 

Somero Enterprises Inc.

Business and Financial Review

 

 

Summary of financial results

For the six months ended June 30

*  unaudited

 

2015

2014

 

 

US$ 000's

US$ 000's

 

 

Except per share data

Except per share data

 

 

 

 

Revenue

 

35,333

29,492

Cost of sales

15,895

13,318

Gross profit

 

19,438

16,174

 

 

 

 

Operating expenses

 

 

Selling expenses

3,616

3,684

Engineering expenses

540

567

General and administrative expenses

6,987

5,724

Total operating expenses

11,143

9,975

 

 

 

Operating income

8,295

6,199

Other income (expense)

 

 

Interest expense

(48)

(56)

Interest income

4

11

Foreign exchange (loss)/gain

(29)

196

Other

 

-

10

Income before income taxes

8,222

6,360

 

 

 

Provision/(benefit) for income taxes

2,849

(1,834)

Net income

 

5,373

8,194

 

 

Per Share

Per Share

 

 

US$

US$

Basic earnings per share

0.10

0.15

Diluted earnings per share

0.09

0.13

Adjusted net income basic earnings per share(1,3,4)

0.11

0.09

Adjusted net income diluted earnings per share(1,3,4)

0.11

0.08

Other data

 

 

 

 

Adjusted EBITDA(1,2,4)

9,512

7,379

Adjusted net income(1,3,4)

6,145

4,910

Depreciation expense

347

266

Amortization of intangibles

772

772

Capital expenditures

2,178

609

         

 

Notes:

1. Adjusted EBITDA and Adjusted net income 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 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 excluding tax provision, interest expense, interest income, foreign exchange gain/(loss), other expense, depreciation, amortization, and stock based compensation.

3. Adjusted net income as used herein is a calculation of net income plus amortization of intangibles and excluding special items.

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.

 

Somero Enterprises, Inc.

Net income to adjusted EBITDA reconciliation and Adjusted net income reconciliation

*  unaudited

Six months ended June 30

 

2015

US$ 000's

2014

US$ 000's

 

Adjusted EBITDA reconciliation

 

 

Net income

5,373

8,194

Tax provision/(benefit)

2,849

(1,834)

Interest expense

48

56

Interest income

(4)

(11)

Foreign exchange loss/(gain)

29

(196)

Other expense

-

(10)

Depreciation

347

266

Amortization

772

772

Stock based compensation

98

142

Adjusted EBITDA(1,2,4)

9,512

7,379

 

 

 

Adjusted net income reconciliation

 

 

Net income

5,373

8,194

Amortization

772

772

Reversal of valuation allowance for deferred tax assets

-

(4,056)

Adjusted net income reconciliation(1,3,4)

6,145

4,910

 

Notes:

1. Adjusted EBITDA and Adjusted net income 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 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 as used herein is a calculation of net income plus amortization of intangibles and excluding special items.

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.

 

Revenues

The Company's consolidated revenues increased by 20% to US$ 35.3m (H1 2014: US$ 29.5m). Company revenues consist primarily of sales from Large line products (the S22-E Large Laser Screed model and its predecessors), sales from Mid line products (the S-15R), sales from Small line products (the S-840, CopperHead, and the new S-485), Remanufactured machine sales, 3-D Profilers, and Other revenues, which consist of, among other things, revenue from sales of spare parts, Topping Spreaders, Mini Screeds, and accessories. The overall increase for the period was driven by Large line sales, Small line sales, Remanufactured sales, 3-D Profiler sales, and Other sales. The following table shows the breakdown during the six months ended 30 June 2015 and 2014:

 

 

Six months ended:

June 30, 2015

June 30, 2014

 

US$ 000's

Percentage of

Net sales

US$ 000's

Percentage of

Net sales

Large line sales

15.4

43.6%

10.5

35.6%

Mid line sales

2.3

6.5%

3.4

11.5%

Small line sales

6.3

17.8%

5.7

19.2%

Remanufactured sales

3.7

10.5%

3.1

10.4%

3-D Profiler sales

2.0

5.7%

1.6

5.4%

Other sales

5.6

15.9%

5.2

17.9%

Total

35.3

100.0%

29.5

100.0%

 

Large line sales increased to US$ 15.4m (H1 2014: US$ 10.5m) as a result of an increase in volume to 44 units (H1 2014:  30 units),  Mid line sales decreased to US$ 2.3m (H1 2014:  US$ 3.4m) due to a decrease in volume to 12 units (H1 2014: 18), Small line sales increased to US$ 6.3m (H1 2014: US$ 5.7m)  due to a slight increase in volume to 76 units (H1 2014: 70), Remanufactured sales increased to US$ 3.7m (H1 2014:  US$ 3.1m) despite a decrease in units to 23 units (H1 2014: 26) due to higher average prices, 3-D Profiler sales increased to US$ 2.0 m (H1 2014:  US$ 1.6m) due to a increase in units sold to 21 (H1 2014: 17).


 

 

Revenue by product line and geography

 

 

North America

EMEA

RoW

Total

 

2015

2014

2015

2014

2015

2014

2015

2014

US$ millions

Large line

13.7

7.5

0.4

0.7

1.3

2.3

15.4

10.5

Mid line

0.6

1.8

0.8

0.6

0.9

1.0

2.3

3.4

Small line

3.8

3.7

1.5

0.9

1.0

1.1

6.3

5.7

Remanufactured line

1.3

1.7

0.2

0.0

2.2

1.4

3.7

3.1

3-D Profiler line

1.6

1.5

0.2

0.1

0.2

0.0

2.0

1.6

Other

3.1

2.8

0.9

0.9

1.6

1.5

5.6

5.2

Total

24.1

19.0

4.0

3.2

7.2

7.3

35.3

29.5

 

 

Units by product line

 

Total

 

2015

2014

Large line

44

30

Mid line

12

18

Small line

76

70

Remanufactured line

23

26

3-D Profiler line

21

17

Total

176

161

 

Sales in North America totaled US$ 24.1m (H1 2014: US$ 19.0m) and represented 68% of total revenues (H1 2014: 64%), sales to customers in EMEA (Russia, Middle East, Europe, Scandinavia and India) contributed US$ 4.0m (H1 2014: US$ 3.2m) and sales to customers in RoW (China, Southeast Asia, Australia, Korea and Latin America) contributed US$ 7.2m (H1 2014: 7.3m).

 

Regional sales breakdown

H1 2015

H1 2014

North America

24.1

19.0

ROW (China)

3.3

4.7

EMEA (Middle East)

1.9

0.2

EMEA (Europe)

1.9

1.4

ROW (Latin America)

1.4

1.0

ROW (Southeast Asia)

1.0

0.4

ROW (Australia)

0.8

0.9

ROW (Korea)

0.7

0.3

EMEA (Scandinavia)

0.1

0.5

EMEA (India)

0.1

0.5

EMEA (Russia)

0.0

0.6

Total

35.3

29.5

 


 

Gross profit

 

Gross profit percentage improved to 55.0% compared to 54.8% in H1 2014 due to the positive impacts of price increases and productivity gains offset partly by higher product costs and product mix.

 

Operating expenses

 

Operating expenses excluding depreciation, amortization and stock based compensation for H1 2015 were US$ 10.2m (H1 2014: US$ 9.0m). The increase has been driven primarily by increased headcount, higher sales commissions and health insurance expenses.  Total employment increased to 174 as compared to 165 at the end of 2014.

 

Debt

 

There were no material changes to the Company's credit facilities in H1 2015.

 

Provision/ (benefit) for income taxes

 

The provision for income taxes was US$ 2.8m compared to a benefit of US$ 1.8m in H1 2014 due to a reversal of a non-cash valuation allowance of US$ 4.1m in H1 2014.

 

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, as well as any adjustments to income that would result from the assumed issuance. 

Potential common shares that may be issued by the Company relate to outstanding stock options and restricted stock units.  Earnings per common share has been computed based on the following:

 

Six months ended June 30

 

 

2015

US$ 000's

2014

US$ 000's

 

Income available to stockholders

5,373

8,194

 

 

 

 

 

Basic weighted shares outstanding

56,185,038

56,353,793

 

Net dilutive effect of stock options and restricted stock units

1,345,393

4,566,346

 

Diluted weighted average shares outstanding

57,530,431

60,920,139

 

 

 

 

 

 

Per Share

Per Share

 

 

US$

US$

 

Basic earnings per share

0.10

0.15

 

Diluted earnings per share

0.09

0.13

 

Basic adjusted net income per share

0.11

0.09

 

Diluted adjusted net income per share

0.11

0.08

 

Somero Enterprises, Inc.

Condensed Consolidated Balance Sheets

As of June 30, 2015 and December 31, 2014

 

*  unaudited

As of

June 30,

2015

US$ 000's

As of

December 31,

2014

US$ 000's

 

Assets

 

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

10,076

7,950

 

Accounts receivable - net

7,830

6,599

 

Inventories

8,696

8,390

 

Prepaid expenses and other assets

734

734

 

Deferred tax asset

489

174

 

Total current assets

27,825

23,847

 

Property, plant, and equipment - net

6,654

4,823

 

Intangible assets - net

3,268

4,040

 

Goodwill

2,878

2,878

 

Deferred financing costs

87

103

 

Deferred tax asset

3,342

3,505

 

Other assets

26

32

 

Total assets

44,080

39,228

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

Current liabilities:

 

 

 

Notes payable - current portion

48

266

 

Accounts payable

4,372

4,096

 

Accrued expenses

3,398

2,896

 

Income tax payable

1,674

25

 

Total current liabilities

9,492

7,283

 

Notes payable, net of current portion

1,048

1,072

 

Other liabilities

80

91

 

Total liabilities

10,620

8,446

 

 

 

 

 

 

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 authorized, 56,425,598 shares issued at June 30, 2015 and December 31, 2014:

26

26

 

Less: treasury stock, 318,866 shares as of June 30, 2015 and 232,700 shares as of December 31, 2014, at cost

(613)

(416)

 

Additional paid in capital

22,114

22,336

 

Retained earnings

13,321

10,194

 

Other comprehensive loss

(1,388)

(1,358)

 

 Total stockholders' equity

33,460

30,782

 

Total liabilities and stockholders' equity

44,080

39,228

 

See notes to unaudited consolidated financial statements.

 

 

 

Somero Enterprises, Inc.

Consolidated Statements of Comprehensive Income *

For the six months ended June 30, 2015 and 2014

 

*  unaudited

Six months ended June 30

 

2015

US$ 000's

Except per share data

2014

US$ 000's

Except per share data

 

Revenue

35,333

29,492

 

Cost of sales

15,895

13,318

 

Gross profit

19,438

16,174

 

 

 

 

 

 

Operating expenses

 

 

 

Selling expenses

3,616

3,684

 

Engineering expenses

540

567

 

General and administrative expenses

6,987

5,724

 

11,143

9,975

 

 

 

 

 

Operating income

8,295

6,199

 

Other income (expense)

 

 

 

Interest expense

(48)

(56)

 

Interest income

4

11

 

Foreign exchange (loss)/gain

(29)

196

 

Other

-

10

 

Income before income taxes

8,222

6,360

 

 

 

 

 

Provision/(benefit) for income taxes

2,849

(1,834)

 

 

 

 

 

Net income

5,373

8,194

 

 

 

 

 

Other comprehensive income

 

 

 

Cumulative translation adjustment

(20)

(203)

 

Change in fair value of derivative instruments - net of income taxes

(10)

(4)

 

Comprehensive income

5,343

7,986

 

 

 

 

 

 

Earnings per common share

 

 

 

Earnings per share basic                                                                                  

0.10

0.15

 

Earnings per share diluted                                                                                

0.09

0.13

 

 

 

 

 

 

Weighted average number of common shares outstanding                           

 

 

Basic

56,185,038

56,353,793

 

Diluted

57,530,431

60,920,139

 

See notes to unaudited consolidated financial statements.

 

*  US GAAP requires the previous Consolidated Statements of Operations to now be called Statements of Comprehensive Income

 

Somero Enterprises, Inc.

Consolidated  Statements of Changes in Stockholders' Equity

For the six months ended June 30, 2015

* unaudited

 

 

 

 

 

 

 

 

Common stock

 

Treasury stock

 

Retained earnings/

(accumulated

deficit)

US$ 000's

Other

Compre-

hensive

income (loss)

US$ 000's

 

 

Additional

paid-in

capital

US$ 000's

Total

stockholder's

equity

US$ 000's

 

 

Shares

Amount

US$ 000's

 

Shares

Amount

US$ 000's

 

Balance - December 31, 2014

56,425,598

26

22,336

232,700

(416)

10,194

(1,358)

30,782

Cumulative translation adjustment

-

-

-

-

-

-

(20)

(20)

Change in fair value of derivative instruments

-

-

-

-

-

-

(10)

(10)

Net income

-

-

-

-

-

5,373

-

5,373

Stock based compensation

-

-

98

-

-

-

-

98

Dividend

-

-

-

-

-

(2,246)

-

(2,246)

Treasury stock

-

-

-

86,166

(197)

-

-

(197)

RSUs settled for cash

-

-

(210)

-

-

-

-

(210)

Stock options settled for cash

-

-

(110)

-

-

-

-

(110)

Balance - June 30, 2015

56,425,598

26

22,114

318,866

(613)

13,321

(1,388)

33,460

 

 

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements.

 

 

 

 

 

 

                                   

 


 

Somero Enterprises, Inc.

Consolidated Statements of Cash Flows

For the six months ended June 30, 2015 and 2014

*unaudited

Six months ended June 30

 

2015

US$ 000's

2014

US$ 000's

Cash flows from operating activities:

 

 

Net income

5,373

8,194

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Deferred taxes

(152)

(3,725)

Depreciation and amortization

1,119

1,038

Amortization of deferred financing costs

16

16

Stock based compensation

98

142

Working capital changes:

 

 

Accounts receivable

(1,231)

(1,392)

Inventories

(306)

(1,829)

Prepaid expenses and other assets

-

(9)

Other assets

6

15

Accounts payable, accrued expenses and other liabilities

767

2,200

Income taxes payable

1,649

1,186

Net cash provided by operating activities

7,339

5,836

 

 

 

 

Cash flows from investing activities:

 

 

Property and equipment purchases

(2,178)

(609)

Net cash used in investing activities

(2,178)

(609)

 

 

 

 

Cash flows from financing activities:

 

 

Payment of dividend

(2,246)

(730)

Payment of RSUs

(210)

-

Purchase of treasury stock

(197)

(216)

Stock options settled for cash

(110)

(103)

Repayment of notes payable

(242)

(633)

Net cash used in financing activities

(3,005)

(1,682)

 

 

 

 

Effect of exchange rates on cash and cash equivalents

(30)

(207)

 

 

 

 

Net increase in cash and cash equivalents

2,126

3,338

 

 

 

 

Cash and cash equivalents:

 

 

Beginning of period

7,950

5,983

End of period

10,076

9,321

 

 

 

 

See notes to unaudited consolidated financial statements.

 

 

 

 

Notes to the Consolidated Financial Statements

 

1.   Organization and description of business

Nature of business

Somero Enterprises, Inc.® (the "Company" or "Somero") designs, assembles, remanufactures, sells and distributes concrete leveling, contouring and placing equipment, related parts and accessories, and training services worldwide. Somero's Operations and Support Offices are located in Michigan, USA with Global Headquarters and Training Facilities in Florida, USA. Sales and service offices are located in Chesterfield, England; Shanghai, China; and New Delhi, 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 US 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 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. 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 June 30, 2015 and December 31, 2014, the allowance for doubtful accounts was approximately US$ 701,000 and US$ 324,000, 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 periods ended June 30, 2015 nor December 31, 2014.

 

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 periods ended June 30, 2015 and December 31, 2014, the Company 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.

 

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 FOB shipping point, revenue is recognized upon shipment.  For arrangements which include FOB 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.

           

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.

 

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.  The Company is subject to a three year statute of limitations by major tax jurisdictions.

 

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 2015 and 2014. The Company is subject to a three year statute of limitations by major tax jurisdictions, and currently 2012 through 2014 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.  Compensation expense related to stock based payments was US$ 98,000 and US$ 142,000 for the six month periods ended 30 June 2015 and 2014, respectively.  The Company settled US$ 110,000 and US$ 103,000 in stock options for cash during the six month periods ended June 30, 2015 and 2014, respectively.

 

Transactions in and translation of foreign currency

The functional currency for the Company's subsidiaries outside the United States is the applicable local currency.  The preparation of the consolidated financial statements requires the translation of these financial statements to USD.  Balance sheet amounts are translated at period-end exchange rates and the statement of comprehensive income 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 comprehensive income.

 

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 using the treasury stock method.  Potential common shares that may be issued by the Company relate to outstanding stock options and restricted stock units. Earnings per common share have been computed based on the following:  

 

 

Six months ended June 30

 

2015

US$ 000's

2014

US$ 000's

 

Net income

5,373

8,194

 

 

 

Basic weighted shares outstanding

56,185,038

56,353,793

Net dilutive effect of stock options and restricted stock units

1,345,393

4,566,346

Diluted weighted average shares outstanding

57,530,431

60,920,139

 

Fair value measurement

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.

 

 

 

US$ 000's

Quoted prices

in active markets

Identical Assets

Level 1

US$ 000's

Significant other

observable inputs

Level 2

US$ 000's

Significant other

unobservable inputs

Level 3

US$ 000's

 

 

 

 

 

 

 

 

Year ended December 31, 2014

 

 

 

Asset:

 

 

 

 

Goodwill

2,878

 

 

2,878

Interest rate swap

-

 

 

-

 

 

 

 

 

 

Six months ended June 30, 2015

 

 

 

Asset:

 

 

 

 

Goodwill

2,878

 

 

2,878

Interest rate swap

(6)

 

 

(6)

 

 

New accounting pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which supersedes nearly all existing revenue recognition guidance under US GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing US GAAP.

 

The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2018.

 

3.  Inventories

Inventories consisted of the following:

 

June 30,

2015

US$ 000's

December 31,

2014

US$ 000's

 

 

Raw material

2,465

2,312

Finished goods and work in process

3,039

2,970

Remanufactured

3,192

3,108

Total

8,696

8,390

 

4.  Property, plant, and equipment

Property, plant, and equipment consisted of the following:

 

June 30,

2015

US$ 000's

December 31,

2014

US$ 000's

 

 

Land

857

207

Building and improvements

3,836

3,686

Machinery and equipment

5,110

3,760

Sub-total

9,803

7,653

 

 

 

Less:  accumulated depreciation and amortization

(3,149)

(2,830)

 

 

 

 Total

6,654

4,823

 

5.  Notes payable

The Company's debt obligations consisted of the following:

 

June 30,

2015

US$ 000's

December 31,

2014

US$ 000's

 

 

March 2016 secured revolving line of credit

-

-

March 2018 delayed draw term loan

-

218

March 2018 commercial real estate mortgage

1,096

1,120

Total bank debt

1,096

1,338

 

 

 

Less debt due within one year

(48)

(266)

 

 

 

Obligations due after one year

1,048

1,072

The Company entered into an amended credit facility in March 2013. The 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$ 1,447,000 March 2018 Commercial Real Estate Mortgage

 

The interest rate on the commercial real estate loan was 2.94% as of June 30, 2015. The Company's loan facility is secured by substantially all of its business assets. 

Future Payments

The future payments by year represent the remaining six months for 2015 and the full 12 months of each successive period for the Company's loan facility:

 

US$ 000's

2015

24

2016

48

2017

48

2018

976

Thereafter

-

Total 

1,096

 

Interest

Interest expense on the credit facility for the six months ended 30 June 2015 and 2014 was approximately US$ 46,000 and USD$ 55,000 (includes amortized swap interest fees and amortized loan origination fees) respectively.

6.  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 represent the remaining six months for 2015 and the full 12 months of each successive period as follows:

 

US$ 000's

2015

210

2016

386

2017

313

2018

275

Thereafter

153

Total 

1,337

 


 

7.  Capital leases

Interest rates on capital leases are variable and range from 4.5% to 7.3% at June 30, 2015.  Future minimum payments by year represent the remaining six months for 2015 and the full 12 months of each successive period as follows:

 

US$ 000's

2015

8

2016

16

2017

15

2018

3

Thereafter

0

Total

42

 

8.  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.

9.  Income taxes

The Company's effective tax rate for the six months ended June 30, 2015 was 34.6% compared to the federal statutory rate of 34.0%. The effective tax rate is higher than the federal statutory rate primarily due to the effect of state and foreign income taxes.

The Company is subject to US federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company was formed in 2005. The statute of limitations for all federal, foreign and state income tax matters for tax years from 2012 forward is still open. The Company has no federal, foreign or state income tax returns currently under examination.

At June 30, 2015, the Company had US$ 489,000 in current net deferred tax assets and US$ 3,342,000 in non-current net deferred tax assets recorded on its balance sheet. 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.


 

10.  Supplemental cash flow and non-cash financing disclosures

 

Six months ended June 30

 

2015

US$ 000's

2014

US$ 000's

 

Cash paid for interest

37

34

Cash paid for taxes

1,373

702

Non-cash financing activities - change in fair value of derivative instruments

10

5

 

11.  Goodwill and intangible assets

The following table reflects intangible assets:

 

Weighted average

amortization

period

June 30,

2015

US$ 000's

December 31,

2014

US$ 000's

 

 

Capitalized cost

 

 

 

Patents

12 years

18,538

18,538

Intangible assets not subject to amortization

-

49

49

 

 

18,587

18,587

Accumulated amortization

 

 

 

Patents

12 years

15,319

14,547

Intangible assets not subject to amortization

-

-

-

 

 

15,319

14,547

Net carrying costs

 

 

 

Patents

12 years

3,219

3,991

Intangible assets not subject to amortization

-

49

49

 

 

3,268

4,040

 

Future amortization of intangible assets is expected by year represent the remaining six months for 2015 and the full 12 months of each successive period as follows:

 

US$ 000's

2015

773

2016

1,545

2017

901

Thereafter

-

Total

3,219

 


 

 

12.  Subsequent events

Dividend

The Board declared an interim dividend for the six months ended June 30, 2015 of 1.9 US cents per share.   This dividend will be payable on October 19, 2015 to shareholders on the register at October 2, 2015.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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