ANNUAL REPORT & ACCOUNTS - Somero Enterprises

the years ended 31 December 2007 and 2008, no such events or circumstances were identified.
The carrying value of a long-lived asset is considered impaired when the anticipated
undiscounted cash flows from such asset (or asset group) are separately identifiable and less
than the asset’s (or asset group’s) carrying value. In that event, a loss is recognized to the extent
that the carrying value exceeds the fair value of the long-lived asset. Fair value is determined
primarily using the anticipated cash flows discounted at a rate commensurate with the risk
involved. (See Footnote 4 for more information.)
Revenue Recognition The Company recognizes revenue on sales of equipment, parts and
accessories when persuasive evidence of an arrangement exists, delivery has occurred or
services have been rendered, the price is fixed or determinable, and collectibility is reasonably
assured. For product sales where shipping terms are F.O.B. shipping point, revenue is
recognized upon shipment. For arrangements which include F.O.B. destination shipping terms,
revenue is recognized upon delivery to the customer. Standard products do not have customer
acceptance criteria. Revenues for training are deferred until the training is completed unless
the training is deemed inconsequential or perfunctory.
Warranty Liability The Company provides warranties on all equipment sales ranging from
three months to three years, depending on the product. Warranty liabilities are estimated net of
the warranty passed through to the Company from vendors, based on specific identification of
issues and historical experience.
Property, Plant and Equipment Property, plant and equipment is stated at estimated market
value based on an independent appraisal at the acquisition date or at cost for subsequent
acquisitions, net of accumulated depreciation and amortization. Land is not depreciated.
Depreciation is computed on buildings using the straight-line method over the estimated useful
lives of the assets, which is 31.5 to 40 years for buildings (depending on the nature of the
building), 15 years for improvements, and 2 to 10 years for machinery and equipment.
Assets Held For Sale Assets held for sale are recorded at the lower of their carrying amount or
fair value less cost to sell. Depreciation is not recorded on these assets once they are classified
as held for sale. In November 2007, the Company received an offer for the sale of its
Corporate Office in Jaffrey, New Hampshire which it eventually accepted. The sale was
completed in January 2008 and a gain of US$5,000 was recorded.
Income Taxes The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. Deferred tax assets are reduced by a valuation
allowance, if necessary, to the extent that it appears more likely than not, that such assets will
be unrecoverable.
The Company accounts for uncertainty in income taxes in accordance with FIN 48, Accounting
for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109, Accounting
for Income Taxes (“FIN 48”). See Note 13 for more information.
Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Stock Based Compensation The Company accounts for its stock option issuance under SFAS
No. 123R, Share Based Payment (“SFAS 123R”). SFAS 123R requires recognition of the cost
of employee services received in exchange for an award of equity instruments in the financial
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