SomnoMed Annual Report 2015

FY2015 Annual Report · SomnoMed

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Annual Report and Accounts 2015

EUROPE/UK

CHINA

NORTH AMERICA

MIDDLE EAST

SOMERO ENTERPRISES®, INC. IS THE LEADING
MANUFACTURER OF TECHNOLOGICALLY
ADVANCED CONCRETE PLACING EQUIPMENT
AND ASSOCIATED MACHINERY.

SOMERO ENTERPRISES WAS FOUNDED IN
1985 AND HAS GROWN AND PROSPERED BY
DELIVERING SUPERIOR PRODUCTS, SERVICE,
TRAINING AND EDUCATION TO AN
INTERNATIONAL MARKET.

CONTENTS

Financial and Business Highlights
At a Glance

Strategic Report
1
2
4 Chairman’s Statement
5 Market Overview
6 Strategic Framework and Business Model
7
8 President and Chief Executive Officer’s Statement
12 Financial Review

Investment Case

Corporate Governance
16 Board of Directors
17 Directors’ Report
22 Corporate Governance
26 Directors’ Remuneration Report
29 Independent Auditor’s Report

Financial Statements
30 Consolidated Balance Sheets
31 Consolidated Statements of Comprehensive Income
32 Consolidated Statements of Changes in

Stockholders’ Equity

33 Consolidated Statements of Cash Flows
34 Notes to the Consolidated Financial Statements
46 Advisers and Corporate Information

GLOBAL
LEADERS
IN LEVELING

FINANCIAL HIGHLIGHTS
• Revenue ahead of market expectations, reflecting strong

BUSINESS HIGHLIGHTS
• Internally funded investments to increase business scale:

demand across the product portfolio:
– Total revenue increased by 18% to US$ 70.2m

(2014: US$ 59.3m)

• Efficient conversion of revenue growth into profit:
– Adjusted EBITDA increased 34% to US$ 20.0m

(2014: US$ 15.0m)(1,2)

– Adjusted EBITDA margin grew to 29% (2014: 25%) driven
by gross margin expansion and effective operating cost
controls

– Pre-tax income increased 40% to US$ 17.4m

(2014: US$ 12.4m)

– Adjusted net income grew 28% to US$ 13.0m

(2014: US$ 10.1m)(3)

– Basic adjusted net income per share grew 28% to

US$ 0.23 (2014: US$ 0.18)(3)

• Strong growth in operating cash flows:

– Net cash from operating activities increased by 18% to

US$ 14.5m

• Balance sheet continues to strengthen:

– Increased net cash at December 31, 2015 of
US$ 12.6m(4), a US$ 6.0m increase over 2014

– Post period close, successfully negotiated a five year

extension to secured revolving line of credit

• Healthy dividend increase:

– Final dividend of 5.0 US cents per share declared for a
total 2015 dividend of 6.9 US cents per share, a 25%
increase over last year

– 20,000 sq. ft. expansion of Houghton, Michigan

Operations and Support facility in 2015

– Construction underway on a 14,000 sq. ft. new Global
Headquarters and Training facility in Fort Myers, Florida

• New products continue to be a significant driver of growth:
– S-485 Laser Screed® machine revenues were US$ 3.9m

in 2015

– New product pipeline continues with introduction of the
Somero Floor Levelness SystemTM and S-10A Laser
Screed® machine in late 2015, and the S-940 Laser
Screed® machine at the World of Concrete in Las Vegas in
early 2016

• Balanced product line and geographic growth:

– Large line, Small line and 3-D Profiler System® revenues

grew 26%, 40%, and 19%, respectively

– Revenue growth led by North America, Europe and

the Middle East, which grew a combined US$ 16.0m
compared to prior year

– China remains a key target for future revenue growth

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 on page 12.

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, and stock based compensation.

3. Adjusted net income as used herein is a calculation of net income plus

amortization of intangibles and excluding the tax impact of stock option and RSU
settlements and other special items.

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

bank obligations.

Revenue

US$ 70.2m
+18.4%

70.2

59.3

45.1

m
$
S
U

EBITDA (Adjusted)

US$ 20.0m
+33.3%

20.0

15.0

m
$
S
U

9.0

EPS (Adjusted Diluted)

US$ 0.22
+29.4%

0.30

0.20

$
S
U

0.10

0.22

0.17

2013

2014

2015

2013

2014

2015

2013

2014

2015

Dividend Per Share

US$ 0.069
+25.4%

0.069

0.055

0.075

0.050

$
S
U

0.025

0.022

2013

2014

2015

Net Cash

US$ 12.6m
+90.9%

m
$
S
U

12.6

6.6

3.4

2013

2014

2015

Visit us online at www.somero.com/investors

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

AT A GLANCE

US$ 70.2M REVENUES,
GENERATED FROM
5 OFFICE LOCATIONS,
SUPPLYING
90+ COUNTRIES.

OUR UNIQUE STRENGTHS
Somero operates in global markets, with minimal direct
competition. The Company has been highly innovative throughout
its history, bringing 32 new products to market since pioneering
the Laser Screed® machine market in 1986, developing
proprietary designs that are protected by a portfolio of 55
patents. Somero offers customers a compelling value proposition
that includes not only equipment with unsurpassed quality and
performance, but also an unparalleled combination of global
service, technical support, training and education.

OUR APPLICATIONS
Somero Laser Screed® equipment is used to place and screed
the concrete slab in all building types, as well as all floors in
multi-story buildings. Somero equipment has been specified for
use in the construction of warehouses, manufacturing assembly
plants, exterior paving and parking structures, retail centers, and
other commercial construction projects that require extremely flat
concrete-slab floors by a variety of companies, such as Costco,
Home Depot, B&Q, DaimlerChrysler, various Coca-Cola bottling
companies, the United States Postal Service, Lowe’s, Toys ‘R’ Us,
and ProLogis.

2015 Revenue by region

US$ 70.2m

2015 Revenue by product group

US$ 70.2m

9.2

5.7

6.1

11.9

4.4

6.3

28.3

49.2

13.6

5.7

■ North America
■ China
■ Europe
■ Rest Of World

US$ 49.2m
US$ 6.1m
US$ 5.7m
US$ 9.2m

■ Large line
US$ 28.3m
■ Mid line
5.7m
US$
■ Small line
US$ 13.6m
■ Remanufactured
US$ 6.3m
■ 3-D Profiler Systems US$ 4.4m
■ Other
US$ 11.9m

Somero Enterprises, Inc.Annual Report and Accounts 2015OUR MISSION
Somero designs and assembles laser-guided and technologically
innovative machinery used in horizontal concrete placement to
advance the productivity, concrete flatness and efficiency of the
jobsite. Somero promotes customer training, technical support
and continuous innovation for all its products.

OUR VISION
Somero’s vision is for our innovative, cutting edge technology and
processes to be in use wherever a ready mix truck is discharging
concrete for a horizontal concrete slab. Somero technology and
equipment will enable every installation to be completed faster,
flatter and with fewer people. We will continually pass on Somero
knowledge and expertise to all our global customers.

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OUR LOCATIONS

FORT MYERS, FL, USA
Global headquarters and training facility (site under
construction).

HOUGHTON, MI, USA
Operations and support office.

NORTH AMERICA SALES US$ 49.2M

QINGPU DISTRICT, SHANGHAI, CHINA
Northeast Asia sales, support and training
facility.

CHINA SALES US$ 6.1M

NEW DELHI, INDIA
India sales and support office.

EMEA SALES US$ 9.6M

SALES & SUPPORT OFFICES
CHESTERFIELD, UK
European sales and support office.

OUR PRODUCTS
Somero’s equipment employs laser-guided proprietary technology
to achieve a high level of precision in concrete surface flatness at
a higher rate of efficiency than conventional methods, and results
in the highest level of flat-floor precision attainable at less cost to
the flooring contractor. Somero’s innovative, proprietary products
include the S-22E Laser Screed®, CopperHead®, Mini Screed™
C, S-840 Laser Screed®, S-15R Laser Screed®, STS-11m
Spreader, S-485 Laser Screed®, S-940 Laser Screed®, and S-10A
Laser Screed® machines as well as the 3-D Profiler System® and
Somero Floor Levelness SystemTM.

OUR CUSTOMERS
Somero’s products have been sold to concrete contractors for
non-residential construction projects in over 90 countries and
across every time zone around the globe. 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, education and training we
provide, and the investment we make in relationships with our
customers. Somero equipment and service help our customers
achieve their business and profitability goals, creating the loyalty
that retains them as a customer for life.

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

CHAIRMAN’S STATEMENT

An exceptional year
of growth

Performance and dividend
Somero delivered another exceptional year
of profitable growth in 2015. The Company
grew revenues to US$ 70.2m, an 18%
increase over 2014, and profits before tax
to US$ 17.4m, a 40% increase over 2014.
Our growth in 2015 came from a variety
of geographies including North America,
Europe, the Middle East, Southeast Asia and
Korea and a variety of product lines including
Large line machines, Small line machines
and our 3-D Profiler Systems®. This
performance highlights the breadth, reach
and diversity of our global business. The
efficient translation of this growth into strong
profits and free cash flow was made possible
by the continued disciplined management
of the business. While our 2015 financial
performance was remarkable, it is only a by-
product of our continued focus on delivering
innovative products, solutions and services
to our customers.

As a consequence of this stellar
performance and the Board’s confidence
in the Company’s future, we are pleased
to report that the final 2015 dividend of 5.0
US cents per share has been approved
and will be payable on April 4, 2016 to
shareholders on the register at March 18,
2016. Together with the interim dividend
paid in October 2015 of 1.9 US cents per
share, this represents a full year dividend
payment to shareholders of 6.9 US cents
per share, a 25% increase from 2014.

Strategic progress
The Company enters 2016 with increased
focus and alignment on what makes
Somero a truly exceptional business.
Somero’s unique business model rests
on two key competitive advantages: (1)
unparalleled industry expertise, service,
training and support, and (2) innovative
product leadership. As we move
forward, our mission remains to prioritize
investment in these value drivers on our
path to achieving our strategic objective
of doubling Company revenue by 2018,
compared to 2013.

Board of Directors
In October 2015, Ron Maskalunas
stepped down from the Company’s Board
of Directors and Robert Scheuer was
appointed. Throughout his nine-year tenure,
Ron served as Chairman of the Audit
Committee and played an instrumental role
in helping lead and build the Company. The
Board sincerely thanks Ron for his many
contributions over the years and welcomes
Robert to the Company. Robert brings
exceptional operational and leadership
experience to the Company, having
previously served in a series of senior
executive roles at Dover Corporation and
Kraft Foods, Inc. There have been no other
Board changes during the period.

additions, technology upgrades, and new
products. The underlying non-residential
construction market fundamentals in the US
remain strong, evidenced by lengthy project
backlogs for our customers extending well
into 2016. This gives us confidence in our
growth prospects for 2016.

In Europe, we are seeing similar carryover
of momentum into 2016, which highlights
a continued, steady recovery from the
recessionary low point in 2010-2011. The
momentum drivers in Europe are similar
to the US. In the Middle East, following
extraordinary growth in 2015, we expect
to continue to see significant opportunities
in 2016.

Our people
Somero’s success is in the hands of our
165 employees around the globe. On behalf
of the Board, I would like to thank them all
for their dedication and hard work during
the year. Without our employees’ tireless
commitment and passion for our customers’
success, we would not have delivered these
extraordinary results for our shareholders. As
a Company, we must continue to create an
environment that stretches and challenges
our people and enables them to do their
best work. I look forward to working with the
Board and the management team to make
sure that we do.

Management Equity
Bonus Program
We are also excited to announce the first
year of the new Equity Bonus Program for
senior management. Under this program,
eligible senior managers are able to
choose to receive a portion of their annual
performance bonus in shares of Company
stock. We believe that allowing our senior
management team to share in the future
performance of the Company’s share price
will further align their interests with those of
our shareholders.

Current trading and outlook
Healthy trading momentum in the US has
carried forward into 2016 from the strong
finish to 2015. The momentum is driven by
demand for replacement equipment, fleet

In Latin America, we expect stable
performance in Mexico and Chile and are
optimistic for improvement in the other
countries in the region outside of Brazil,
given its unique economic challenges.

The Asian markets remain positioned for
improvement and will be driven primarily by
increased penetration of our products. We
expect to see greater need and willingness to
use our products and services as acceptance
of wide-placement and flatness, levelness
standards grows. We will continue to support
promotion of the benefits of using wide-
placement processes to obtain high-quality,
flat and level floors through our innovative
Somero Concrete College initiative in China.
In addition, we believe providing customers
with Somero’s new direct long-term financing
options, enabled by development of Somero’s
proprietary machine shut-off capability, will have
a positive impact on sales in the region.

The Board believes the Company is
well-positioned to capitalize on global
market opportunities in the coming year
and is confident Somero will deliver
another year of solid growth.

Larry Horsch
Non-Executive Chairman
March 1, 2016

Somero Enterprises, Inc.Annual Report and Accounts 2015MARKET OVERVIEW

Global market
opportunity

Demand for Somero’s equipment is underpinned by
drivers that apply across the regions we serve - the
need for quality floors and a shortage of skilled workers
- which will help to advance market penetration.

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Market
Dynamics

NORTH AMERICA

EUROPE

CHINA

REST OF WORLD

• Largest market

• Second largest installed

• Greatest market

• Current market

• Strong recovery in

equipment pricing and
sales since recessionary
low-point in 2010-2011

• Non-residential construction

industry fundamentals
remain sound in the US

• Cement consumption from
non-residential building
construction increased
14% in 2015(1)

base of equipment

• Continued steady

improvement from the
recessionary low-point
in 2010-2011

• Region appears at an

earlier stage of recovery
than North America

opportunity for growth
outside North America

penetration very low

• Most significant

• Massive quantity of

cement consumption
– estimated to
represent nearly 58%
of 2015 world cement
consumption compared
to 3.5% for North
America(2)

opportunity in region
is India, with cement
consumption second only
to China and estimated
to represent over 7%
of 2015 world cement
consumption (more than
double North America)(2)

• Current market

• Significant opportunities

penetration very low

• Recent slowdown in
economic growth not
expected to materially
impact near-term
opportunity

in the Middle East,
Southeast Asia, Latin
America and Australia

Drivers of Growth

• US non-residential

construction spend
forecast to grow by 5%-7%
through 2019(3)

• Continued recovery
of non-residential
construction market
across mainland Europe

• Large multinational

projects requiring high-
quality floors adhering to
western standards

• Technology upgrades of

• Technology upgrades

aging fleet of
installed equipment

of aging fleet of
installed equipment

• Fleet additions

• New product introductions

• Shortage of skilled
labor in concrete
construction industry

• New product
introductions

• Shortage of skilled
labor in concrete
construction industry

• Broader domestic
acceptance of
wide-placement and
western flatness,
levelness floor
specifications

• Increased availability

of skilled labor

of long-term financing
options for customers

• Increasing shortage

of skilled labor

• Increased demand
for higher quality
concrete floors

• Broader domestic
acceptance of
wide-placement and
western flatness,
levelness floor
specifications

• Increasing shortage

Notes:
1. Percentage derived from Portland Cement Association Market Intelligence Fall Cement Outlook report dated November 2015.
2. Percentage derived from Portland Cement Association Market Intelligence World Cement Consumption report dated August 2013.
3. Estimates obtained from FMI Research Services Group 3Q 2015 Construction Outlook Report.

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

STRATEGIC FRAMEWORK AND BUSINESS MODEL

A clear strategic objective

In 2014, the Company outlined our strategic objective to double 2013 revenue of
US$ 45.1m by 2018. In 2015, the Company made significant progress towards
this goal, growing revenues by US$ 10.9m, or 18% from the prior year to reach
US$ 70.2m. Our strategic objective remains in view as we execute our plans to grow
the business through geographical expansion and product innovation.

Geographic expansion
Somero is a truly global business, supplying over 90 countries
with our unique products and services. Replicating our success
in the North American market across the globe is a key element
of our strategy. Supporting this commitment to grow the business
globally is our investment in our international employees. Since
2007, virtually all our staffing increases have been employees
based outside of North America. We will continue to make
selective investments to expand our global sales and support
coverage as we pursue this strategy.

Product innovation
2015 was a highly productive year for our Engineering team as we
completed development on three new products: our new S-940
Laser Screed and S-10A Laser Screed machines, as well as our
Somero Floor Levelness System. The S-10A Laser Screed machines
and the Somero Floor Levelness System were released in the fourth
quarter of 2015, while the S-940 Laser Screed machine was officially
released in the first quarter of 2016 at the World of Concrete in Las
Vegas. Somero will continually search for opportunities to leverage
our core technology and design capabilities to introduce innovative
new products to the industry.

SOMERO

SOMERO CUSTOMERS

END USERS

Design and assemble laser-
guided, technologically innovative
machinery used in horizontal
concrete placement and
screeding

Small, medium and large concrete
contractors and self-performing
general contractors

Small domestic organisations to large
multinational groups:

– Warehousing
– Commercial
– Industrial
– Retail
– Schools

MULTI-FACETED VALUE PROPOSITION
Somero’s unique value proposition provides benefits to both our customer and the building owner

Key differentiators

Our technology and equipment enable
every installation to be completed
faster, flatter and with fewer people.

Supported by:
– Industry expertise, service,

support, training

– Innovative product leadership

Key benefits

Þ Increases quality

Þ productivity

Þ and profit

Key outcomes

Þ Operational efficiency

Þ Improved physical

appearance

à Lower maintenance cost

à Lower forklift repair cost

Somero Enterprises, Inc.
Annual Report and Accounts 2015

INVESTMENT CASE

WHAT MAKES SOMERO UNIQUE?

WHY INVEST IN SOMERO?

While Somero sells equipment to our concrete contractor
customer base, the Company is much more than simply a
seller of equipment. Somero is committed to making our
customers successful in their businesses. We are able to
deliver on this promise through two competitive advantages
that differentiate us in the market:

1. Unparalleled industry expertise, service,

training and support

Our deep and comprehensive industry expertise means we
truly understand our customers’ business. As a result, we’re
able to provide customers with valuable insight and guidance
regarding their projects, well beyond the use of our equipment
on the jobsite.

See case study on page 9 for more information Ú

2. Innovative product leadership

Our close customer relationships enable us to develop new
and innovative products that address our customers’ needs
so they can produce higher quality floors, reduce manpower,
increase their productivity, and ultimately become more
successful in their business.

See case study on page 11 for more information Ú

• Dominant market position

• Significant barriers to entry based on technology,

education, and global technical support

•

Industry leader in introducing customer driven,
technologically advanced new products

Skilled management team with extensive
industry experience

Attractive global geographic growth opportunity:
– Solid growth and market dynamics in

developed markets

– Strong potential for growth in emerging markets

•

Strong and consistent financial performance:
– Superior margins

–

Strong conversion of revenue growth into free
cash flow

– Strong, unleveraged balance sheet

– Disciplined return of cash to shareholders

through dividends

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

PRESIDENT AND CHIEF EXECUTIVE OFFICER’S STATEMENT

A positive outlook

With strong performance in the US, the positive
upswing of momentum in Europe and contribution
from new products, we are already ahead of our
five year growth plan projections.

Overview
2015 was a tremendous year of growth
with sales increasing 18% to US$ 70.2m.
This robust growth was led by North
America where sales grew 32% to
US$ 49.2m, Europe where sales grew 58%
to US$ 5.7m, and the Middle East where
sales grew 238% to US$ 2.7m. In addition
to the strong top-line performance, we were
able to improve gross margin to 55.8%,
from 54.0% in 2014, through productivity
gains, product cost reductions and price
increases. Our gross margin expansion
combined with significant leverage in our
operating costs drove an EBITDA(1) increase
of 34% to US$ 20.0m. Finally, the strong
operating results, coupled with disciplined
working capital management, improved our
year-end net cash position to US$ 12.6m(2),
a US$ 6.0m increase from 2014. In addition,
we completed development of three
innovative products, completed a
20,000 square-foot expansion of our
Houghton, Michigan operations facility,
and are well-underway to completing
construction of our new 14,000 square-foot
global headquarters in Florida.
By all measures, 2015 truly was a
remarkable year.

Region reviews
In North America, 2015 cement
consumption from non-residential building
construction grew a robust 14%(3).
The healthy increase in non-residential
construction spending spurred customer
demand for replacement machines,
fleet additions, and technology upgrades.
This, combined with new product
introductions, price increases and a
shortage of skilled labor in the concrete
contractor industry, all contributed to
the 32% annual sales increase in
North America.

Europe continued its positive trajectory
with a solid year of growth in 2015,
with sales increasing 58% from 2014 to
US$ 5.7m. Growth in 2015 was driven by
improvements in the UK, Spain, Poland,
Italy, and Germany. Sales in the Middle
East grew to US$ 2.7m, well ahead of
expectations and driven by increased
activity in Dubai, Turkey, and Saudi Arabia.
As expected, sales in Russia remained
slow due to that country’s continued
unstable geo-political climate.

"BY ALL MEASURES,
2015 TRULY WAS A
REMARKABLE YEAR"

The China market was challenging in
2015, but market conditions stabilized
in the second half of the year and we
remain encouraged by underlying market
fundamentals and the long-term growth
prospects in the region. We ended the
year with US$ 6.1m in sales, a decrease
of US$ 3.4m from 2014. A significant
factor adversely impacting the market was
a slowdown in money flow throughout
the construction industry. To address this
factor, in the fourth quarter 2015 Somero
began offering long-term financing to
customers that requires the installation
of our machine shut-off payment
protection tool. While our experience
with this program has been very positive
to date, we will continue to develop
alternative third-party financing options for
customers. In the meantime, we expect
the Somero long-term financing program
to have a positive impact on sales.

There is a growing awareness in the
market of US floor flatness and levelness
standards as supported by the China
Flooring Association. The training and
educational efforts we are promoting
through the Somero Concrete College
in China and the efforts of our sales
engineers are increasing awareness,
acceptance and demand for higher quality
floors through wide-placement methods.
Higher wage rates in China are leading
to demand for greater automation, which
increases the value of Somero equipment.
We expect the Chinese economy will
continue to evolve towards more logistics,
big box retailing, and e-commerce,
which increase owners’ demands for
the productivity and flatness provided by
Somero equipment.

In Southeast Asia, sales increased to
US$ 1.3m in 2015 from US$ 0.7m in 2014.
We view Southeast Asia as a significant
growth opportunity for us in the coming
years given our very low current market
penetration and the growing demand for
higher quality floors in the region.

In Australia, sales decreased to US$ 1.0m
in 2015 from US$ 2.4m in 2014.
The primary factor pressuring sales
volume in 2015 was the devaluation of
the Australian dollar, which led to our
equipment becoming more expensive for
Australian customers. If this continues, it
will inhibit the growth opportunity in this
territory in 2016.

Our results in India in 2015 were flat
with 2014 as we ended the year with
US$ 0.6m in revenues for the territory.
We are still in the initial phase of
penetration of this significant market.

Somero Enterprises, Inc.Annual Report and Accounts 2015We will continue to focus our efforts to promote the benefits of
higher quality floors, increase our marketing activities, and hold
educational seminars for engineers and architects to drive
broader acceptance of wide-placement methods and flatness,
levelness standards.

People
Our staffing level of 165 employees at the end of 2015 was
unchanged from year-end 2014. We were able to support the
Company’s growth in 2015 by leveraging the investments we
made in 2014 to increase our staff. Going forward, we will
continue to selectively invest in new positions to support our 2018
strategic objective. However, more importantly than the number of
staff we employ is the quality and fit of the individuals we hire. We
devote a large part of the hiring process to determining whether a
candidate fits the Somero culture, embraces our core values, and
will be a significant, productive contributor.

Product development
On an annual basis, Somero invests approximately 2% of sales
on product development, and our goal is to introduce at least
one new product every year. Our product development effort is a
customer-driven process that relies on customer focus groups,
surveys, and feedback from our sales and technical support
staff. This allows us to remain focused on customer needs and
value requirements. 2015 was a highly productive year for our
engineering team. During the year, we completed development
of three new products: our new S-940 Laser Screed and S-10A
Laser Screed machines, as well as our Somero Floor Levelness
System. The S-10A Laser Screed machine and the Somero Floor
Levelness System were officially released in the fourth quarter of
2015, while the S-940 Laser Screed machine was released in the
first quarter of 2016. Even though these products were available
only for a small portion of the year, they contributed nearly US$
0.4m in 2015 sales on a combined basis. Similarly, sales of the
S-485 Laser Screed machine introduced in the fourth quarter of
2014 grew considerably to US$ 3.9m in 2015, up from US$ 0.9m
in 2014.

Progress towards our 2018 strategic objective
2015 was the second year of our five-year plan to double our 2013
revenues by 2018, and we have made tremendous progress towards
this target. We ended 2015 with US$ 70.2m in revenues, putting
us more than half-way towards the goal after only two years of the
plan. With solid fundamentals in the US and European markets, and
significant additional growth opportunities across our broad portfolio
of products and geographic markets, we remain confident in our
ability to achieve our strategic target in 2018.

Expansion update
In 2014, the Board and management concluded that the
anticipated growth of the business over the medium term required
an expanded facilities footprint. Consequently, we decided to
expand our Houghton, Michigan facility and planned construction
of a new global headquarters and training facility in Fort Myers,
Florida. In 2015, we made significant progress on these projects.

CASE STUDY:
CONCRETE COLLEGE SHANGHAI

Our goal is to make our customers successful
and drive industry expectations to higher levels,
which benefits both Somero and our customers.
Therefore, we believe education and training are
critical to driving demand for our products.
As a result, we developed the very first education
program of its kind, the Somero Concrete College
in Shanghai, China to provide five-day step-by-
step instruction on wide-placement techniques
and how to place a high-quality concrete slab.
The Somero Concrete College is open to
customers and non-customers, with instruction
provided by our talented team of professionals
and 3rd party experts. Topics covered during
the week include: concrete mix designs,
proper screeding and placement techniques,
finishing techniques, saw cuts and sealing,
and measuring quality floor standards.

Top picture:
Bottom picture: Hands-on learning experience at Somero Concrete College,

Somero Concrete College Classroom, Shanghai, China.

Shanghai, China.

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

PRESIDENT AND CHIEF EXECUTIVE OFFICER’S STATEMENT continued

In October 2015, we completed our 20,000
square-foot expansion of our Operations
and Support Offices in Houghton, Michigan,
for a total project cost of US$ 1.3m. The ex-
pansion provides us with a facility that is able
to support growth up to our 2018 strategic
objective and beyond.

Also in 2015 we purchased land, and
designed and began construction of a new
14,000 square-foot Global Headquarters
and Training Facility in Fort Myers, Florida
for a total expected cost of US$ 4.8m.
Ground breaking on construction occurred
in October 2015. The project remains
on budget and we expect to complete
construction and move into our new facility
in the second quarter of 2016.

Cashflow and balance sheet
Our disciplined management of operating
costs ensured we were able to efficiently
translate our growth into profits. 2015
profits before tax increased 40% to
US$ 17.4m, while EBITDA(1,2) increased
34% to US$ 20.0m. In addition, strong
operating cash flows and effective working
capital management drove considerable
strengthening of our net cash position at
year end. We ended 2015 with net cash
of US$ 12.6m(2), a US$ 6.0m increase
over 2014, even after paying US$ 3.3m in
dividends to shareholders and investing
US$ 4.2m in capital expenditures primarily
related to our construction projects. We
are entering 2016 with the strongest
balance sheet in our 30-year history.

Conclusion
This was one of the most exciting,
challenging and rewarding years I have had
the pleasure of experiencing with Somero.
By every measurement, 2015 was a
tremendous year. We grew the business
significantly, we expanded our product
portfolio with innovative new products,
we made progress in developing key new
markets, we expanded our operational and
training capabilities with investment in new
facilities, we delivered remarkable financial
performance, and we acquired key new
talent for the organization. While all of
these are considerable accomplishments,
I’m most pleased with the performance
of our Management Team, which
excelled in managing the rapid growth
we experienced while remaining focused
on the continued pursuit of improving the
products, solutions, and levels of service
we offer our customers. Our employees’
passion for our customers’ success is the
ultimate reason we have been and will
continue to be successful.

We see 2016 as an exciting year, full
of opportunity. We believe we are well
positioned to capitalize on expected
growth in our core US and other existing
markets, extend our global footprint and
grow revenues from new products.
Most importantly, we look forward to
delivering another year of superior results
for our shareholders.

Jack Cooney
President and Chief Executive Officer
March 1, 2016

Notes:
1. 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, and stock based compensation.

2. Net Cash is defined as total cash and cash

equivalents less borrowings under bank obligations.

3. Percentage derived from Portland Cement

Association’s Market Intelligence Fall Cement
Outlook report dated November 2015.

Somero Enterprises, Inc.Annual Report and Accounts 2015
CASE STUDY:
PRODUCT INNOVATION

Somero product development is a customer-
driven process through which we actively listen
to customer feedback to continually improve
our products and meet their demands and value
requirements. We target introducing at least one
new product every year, but in 2015 we exceeded
this goal by developing 3 new products: our
S-940 Laser Screed and S-10A Laser Screed
machines, and our Somero Floor Levelness System.
Each product offers new features and levels of
performance. The S-940 Laser Screed machine
provides improved traction and pulling power,
while the S-10A Laser Screed machine combines
the benefits of a boom-out screed machine with
a compact design, simplifying transportation to
and from the job-site. Our most recent innovation
is the Somero Floor Levelness System, which
provides real-time feedback to the machine
operator allowing for corrective action before the
concrete slab begins to harden. This is a significant
advancement, providing customers with peace-of-
mind and confidence in the quality of their work and
will ultimately save them time, effort and money by
avoiding rework after the concrete cures.

Top picture:
Middle picture: S-940 Laser Screed machine
Bottom picture: S-10A Laser Screed machine

Somero Floor Levelness System

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

FINANCIAL REVIEW

Summary of financial results

Revenue

Cost of sales

Gross profit

Operating expenses
Selling expenses
Engineering expenses
General and administrative expenses

Total operating expenses

Operating income

Other income/(expense)
Interest expense
Interest income
Foreign exchange loss
Other

Income before income taxes
(Benefit)/provision for income taxes

Net income

Other data
Adjusted EBITDA (1) (2) (4)
Adjusted net income (1) (3) (4)
Depreciation expense
Amortization of intangibles
Capital expenditures

Year ended
December 31,
2015
US$ 000

Year ended
December 31,
2014
US$ 000

70,222

31,059

39,163

7,491
1,031
13,068

21,590

17,573

(191)
20
(43)
-

17,359
5,809

11,550

20,034
12,966
719
1,545
4,162

59,277

27,290

31,987

7,150
1,166
11,079

19,395

12,592

(107)
39
(122)
(3)

12,399
(2,142)

14,541

14,951
10,133
553
1,545
1,221

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 the tax impact of stock option and RSU settlements and

other 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.Annual Report and Accounts 2015Net income to adjusted EBITDA reconciliation and
Adjusted net income before amortization reconciliation

Adjusted EBITDA reconciliation
Net income
Tax provision/(benefit)
Interest expense
Interest income
Foreign exchange loss
Other expense
Depreciation
Amortization
Stock based compensation

Adjusted EBITDA

Adjusted net income reconciliation
Net income
Amortization
Reversal of valuation allowance for deferred tax assets
Tax impact of stock option & RSU settlements

Adjusted net income

Year ended
December 31,
2015
US$ 000

Year ended
December 31,
2014
US$ 000

11,550
5,809
191
(20)
43
-
719
1,545
197

20,034

14,541
(2,142)
107
(39)
122
3
553
1,545
262

14,952

11,550
1,545
-
(129)

14,541
1,545
(4,056)
(1,897)

12,966

10,133

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 the tax impact of stock option and RSU settlements and

other 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

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

FINANCIAL REVIEW continued

Revenues
The Company’s consolidated revenues increased by 18% to US$ 70.2m (2014: US$ 59.3m). Company revenues consist primarily of
sales from new Large line products (the S22-E Large line Laser Screed machine and its predecessors), sales from Mid line products
(the S-15R and the new S10A), sales from Small line products (the S-840, CopperHead, and the S-485), sales of Remanufactured
machines, 3-D Profiler Systems, 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 year was driven by Large line sales, Small line sales, 3-D Profiler
System sales, and Other sales.

Large line sales increased to US$ 28.3m (2014: US$ 22.4m) as a result of increased volume and price increases. Small line sales
increased to US$ 13.6m (2014: US$ 9.7m), also due to higher volume and price increases. 3-D Profiler System sales increased to
US$ 4.4m (2014: US$ 3.7m) and Other revenues, including sales of spare parts, Topping Spreaders, Mini Screeds, and accessories,
increased modestly to US$ 12.3m (2014: US$ 11.1m).

Revenue breakdown by geography

North America
US$ in millions

EMEA
US$ in millions

Rest Of World
US$ in millions

2015

2014

2015

2014

2015

2014

Large line
Mid line
Small line
Remanufactured machines
3-D Profiler Systems
Other

Total

24.5
2.5
8.5
2.6
3.8
7.3

49.2

17.0
2.2
6.2
2.4
3.3
6.1

37.2

1.9
1.6
3.4
0.6
0.3
1.8

9.6

1.5
1.2
1.3
0.2
0.2
1.9

6.3

Units by product line

Large line
Mid line
Small line
Remanufactured machines
3-D Profiler Systems

Total

Total
US$ in millions

2015

2014

Net
sales

28.3
5.3
13.6
6.3
4.4
12.3

% of
Net sales

40.3%
7.5%
19.4%
9.0%
6.3%
17.5%

Net sales

22.4
5.9
9.7
6.5
3.7
11.1

% of
Net sales

37.8%
9.9%
16.4%
11.0%
6.2%
18.7%

1.9
1.2
1.7
3.1
0.3
3.2

3.9
2.5
2.2
3.9
0.2
3.1

11.4

15.8

70.2 100.0%

59.3 100.0%

Total

2014

64
31
126
49
40

310

2015

80
26
165
43
47

361

Sales to customers located in North America contributed 70% of total revenue (2014: 63%), sales to customers in EMEA (Europe,
India, Middle East, and South Africa) contributed 14% (2014: 11%) and sales to customers in Rest of World (“ROW”) (Southeast Asia,
Australia, Latin America, and China) contributed 16% (2014: 27%).

Sales in North America were US$ 49.2m (2014: US$ 37.2m) which is up 32% driven by higher Large line and Small line sales.
Sales in EMEA were US$ 9.6m (2014: US$ 6.3m) which is up 52% primarily due to an increase in Small line sales. Sales in ROW
were US$ 11.4m (2014: US$ 15.8m) which are down 28% primarily due to declines in Large line, Mid line and Remanufactured
machine sales.

Somero Enterprises, Inc.Annual Report and Accounts 2015
Regional sales

North America
EMEA (Europe)
ROW (Korea)
ROW (Latin America)
EMEA (India)
ROW (Australia)
ROW (Southeast Asia)
ROW (China)
EMEA (Middle East)
EMEA (Scandinavia)
EMEA (Russia)

Total

2015

49.2
5.7
1.0
2.0
0.6
1.0
1.3
6.1
2.7
0.5
0.1

70.2

2014

37.2
3.6
0.6
2.6
0.6
2.4
0.7
9.5
0.8
0.6
0.7

59.3

Gross profit
Gross profit increased to US$ 39.2m (2014: US$ 32.0m), with
gross margins increasing to 55.8% (2014: 54.0%) due to price
increases, product cost reductions, and factory efficiency.

Operating expenses
Operating expenses increased by 11% to US$ 21.6m
(2014: US$ 19.4m). This increase was driven primarily by
increased commissions and insurance associated with higher
sales volume, and higher personnel costs due in part to
increased average headcount in 2015 vs. 2014.

Other income/(expense)
Other expenses, consisting of interest expense, interest income,
and foreign exchange gains and losses, remained flat at
US$ (0.2)m.

Provision/(benefit) for income taxes
The provision for income taxes was US$ 5.8m in 2015 as
compared to a benefit of US$ 2.1m in 2014. Overall, Somero’s
effective tax rate changed from (17.3)% in 2014 to 33.5% in 2015
due to a one-time reversal of a deferred tax valuation allowance
of US$ 4.1m in 2014, and US$ 5.9m in settlements of restricted
stock units and stock options which were deductible for tax
purposes in 2014.

Net income
Net income decreased to US$ 11.6m from US$ 14.5m in 2014
due primarily to significant, non-recurring tax benefits in 2014.
On an adjusted basis, excluding amortization and tax benefits
associated with reversal of the deferred tax asset valuation
allowance and settlement of RSUs and stock options, adjusted
net income increased to US$ 13.0m from US$ 10.1m in 2014,
driven by higher sales volume, gross margin expansion and
operating cost controls. 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 reflects additional common
shares that would have been outstanding if dilutive potential
common shares had been issued.

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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:

Year ended
December 31,
2015
US$ 000

Year ended
December 31,
2014
US$ 000

Income available to stockholders

11,550

14,541

Basic weighted shares outstanding
Net dilutive effect of stock options

56,145,563 56,274,097

and restricted stock units

1,545,716

1,641,129

Diluted weighted average shares

outstanding

57,691,279 57,915,226

The Company had 56,106,732 shares outstanding at
December 31, 2015. Earnings per share at December 31, 2015
are as follows:

Year ended
December 31,
2015
per share
US$

Year ended
December 31,
2014
per share
US$

Basic earnings per share
Diluted earnings per share
Basic adjusted net income per share
Diluted adjusted net income per share

0.21
0.20
0.23
0.22

0.26
0.25
0.18
0.17

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

BOARD OF DIRECTORS

Lawrence L. Horsch
Non-Executive Chairman of the Board
Mr. Horsch, age 81, came to Somero in October 2009 with
extensive experience, having served on 26 company boards,
invested in 30 venture projects and conducted four corporate
turnarounds. He co-founded SciMed Life Systems prior to its
merger with Boston Scientific Corporation, after which he served
on the Boston Scientific Corporation board. Mr. Horsch currently
serves as the Chairman of Leuthold Funds Inc. and Pioneer
Sales Group, and in the past six years has also served on the
board of Gillette Children’s Specialty Healthcare. Mr. Horsch
has been a business consultant since 1990. He is a graduate
of the University of St. Thomas, received a Masters of Business
Administration in Finance from Northwestern University, and is a
Chartered Financial Analyst.

John T. (Jack) Cooney
President, Chief Executive Officer, and Director
Mr. Cooney, age 69, joined Somero in December 1997 and
has served as its Chief Executive since that time. He has been
a Director of the Company since August 2005. Mr. Cooney has
34 years of experience in various senior management and
sales and marketing positions. From 1995 to 1997, Mr. Cooney
served as the Chief Executive Officer of Advance Machine
Company, a US$ 145m industrial equipment manufacturer
located in Minneapolis, Minnesota, USA. From 1990 to 1995,
he was the Vice President of sales and marketing, as well as
the Vice President of manufacturing, at Ganton Technologies,
an aluminum die caster and precision machine business located
in Wisconsin, USA. Mr. Cooney has an Associate’s degree in
Industrial Engineering from Central New England College and
a Masters of Business Administration degree from College
of St. Thomas.

John Yuncza
Chief Financial Officer, Secretary and Director
Mr. Yuncza, age 44, joined Somero in May 2015 to serve as Chief
Financial Officer. Mr. Yuncza has over 20 years of experience in
various finance and senior management roles. Most recently,
Mr. Yuncza served as Chief Financial Officer of Datamax-O’Neil,
a subsidiary of Dover Corporation. Prior to his role at Datamax-
O’Neil, Mr. Yuncza held a variety of senior financial roles at
Pegasus Communications, Legg Mason Wood Walker and Fifth
Third Bancorp in addition to serving as an Audit Manager at
KPMG LLP. Mr. Yuncza earned a Bachelor of Science degree
from St. Joseph’s University in Philadelphia and an MBA from the
Yale School of Management.

Howard E. Hohmann
Executive Vice President of Sales Worldwide and Director
Mr. Hohmann, age 54, joined Somero in 1997 and currently
serves as Executive Vice President of Sales, Marketing, and
Customer Service Worldwide. Mr. Hohmann also developed
and managed Somero’s Field Support Team and was part of its
Product Development Team. Mr. Hohmann brings nearly three

decades of career expertise in the concrete industry, previously
working as Founder, Owner, and President of one of the eastern
United States’ largest and most successful concrete contractors,
placing all aspects of concrete floors from coast to coast.
Mr. Hohmann has also been a concrete flooring consultant,
teaching procedures, practices and designs, alongside the
inventors of the Somero Laser Screed® equipment. Additionally,
he has developed and managed sales in emerging markets,
and managed both marketing and inside sales departments.
Mr. Hohmann also served in the US Marine Corps.

Thomas M. Anderson
Non-Executive Director
Mr. Anderson, age 64, retired after 30 years of service as
President and Chief Executive Officer of Schwing America, Inc.
to become the President and managing partner of Schwing
Bioset, Inc. He also served as the managing partner of Concrete
Pump Repair from 1989 to 2013. Mr. Anderson participated
in compensation decisions for all three companies. He is also
a partner in Engineered Chassis Systems, a specialty truck
manufacturer. He spent 22 years on the Board of Directors of the
American Concrete Pumping Association and five years as the
President of the Concrete Pump Manufacturers Association.
Mr. Anderson previously served on the Board of Directors of
Somero Enterprises, Inc. from 1997 to 1999 prior to the sale of
the Company to Dover Corporation.

Robert Scheuer
Non-Executive Director
Mr. Scheuer, age 58, has served in a series of senior executive
roles at Dover Corporation, an US$ 8 billion Fortune 500
company. Most recently, from 2011 to 2014, Mr. Scheuer was
Chief Financial Officer and Vice President Finance of Dover
Engineered Systems, a US$ 3.8 billion business segment of
Dover Corporation. In this role, Mr. Scheuer provided strategic
guidance to the 14 operating company CEOs/CFOs in the
segment and directed over 140 global employees in FP&A,
budgeting, forecasting, acquisitions, compliance, accounting
and reporting. Prior to this role, from 2007 to 2011 Mr. Scheuer
served as Chief Financial Officer and Vice President of Finance
of Dover Industrial Products, a US$ 2.4 billion business segment
of Dover Corporation and from 1998 to 2007 as Chief Financial
Officer and Vice President of Finance of Dover Industries,
a US$ 1.2 billion business segment of Dover Corporation.
Prior to his tenure at Dover Corporation, from 1986 to 1998,
Mr. Scheuer served in a variety of leadership roles at Kraft Foods,
Inc., most recently as Controller of the Grocery Products Division,
a US$ 1.7 billion multi-brand portfolio with 6 major product
lines. Mr. Scheuer graduated from DePaul University with a BA
in Accountancy, received an MBA in Finance/Marketing from
Northwestern University-Kellogg School of Management and is
a Certified Public Accountant.

Somero Enterprises, Inc.Annual Report and Accounts 2015DIRECTORS’ REPORT

The directors present their Annual Report and the audited financial statements for the year ended December 31, 2015.

Activities
The principal activity of the Company is to design, assemble and sell equipment that automates the process of spreading and leveling
large volumes of concrete for flooring and other horizontal surfaces, as well as to provide education, training and support services for its
customers throughout the world. 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 that is home to the Somero Concrete College in
Shanghai, China. In addition, Somero maintains sales and service offices located in Chesterfield, UK and New Delhi, India.

Review of business
A fair review of the Company’s progress for the period reported, its future prospects and a description of the principal risks and
uncertainties facing the Company are set out in the Chairman’s Statement, the Chief Executive’s Statement, the Financial Review, the
Directors’ Report and the Corporate Governance Report.

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The Directors’ Report is prepared for the members of the Company and should not be relied upon by any other party for any other
purpose. The Directors’ Report (including the Chairman’s Statement, the Chief Executive’s Statement, the Financial Review and the
Corporate Governance Report) contain certain forward-looking information and statements in relation to the Company’s operations,
economic performance and financial conditions. These statements are made by the directors in good faith based on the information
available to them at the time of the approval of this report and, although they believe that the expectations reflected in such forward-
looking statements are reasonable, they should be treated with caution due to their inherent uncertainties, including both economic and
business risk factors underlying such forward-looking statements or information.

Results and dividends
The audited results for the year are set out in detail below. Dividends equal to US$ 3.3m were paid in 2015. A 5.0 US cents per share
dividend was declared for the period ending December 31, 2015, with a record date of March 18, 2016, payable on April 4, 2016.

Share capital

L Horsch
J T Cooney
J Yuncza
H Hohmann
T Anderson
R Scheuer

Ordinary shares

January 1,
2015

December 31,
2015

152,000
2,814,634
–
4,268
–
–

92,000
2,814,634
–
4,268
–
–

Somero stock is traded on the LSE AIM exchange and is therefore quoted in Pounds Sterling. The market price of the shares at
December 31, 2015 was 118.5p. The range during the 2015 period of trading was 111.5p to 155.0p.

Apart from the stockholdings listed below the Company has not been notified of any stockholdings which are 3% or more of the total
issued ordinary shares of the Company.

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

DIRECTORS’ REPORT continued

Stockholders who hold more than 3% as of February 26, 2016

Amount

% holding

6,815,025
6,641,483
5,012,701
4,811,980
3,979,959
3,958,145
3,580,405
3,138,110
2,814,634
2,716,885

12.15%
11.84%
8.93%
8.58%
7.09%
7.05%
6.38%
5.59%
5.02%
4.84%

January 1, 2015

Award/(Exercise)

Cancelled

December 31,
2015

Exercise price
US$

Earliest date from
which exercisable

154,268
249,394
1,000,000
62,715
85,704
85,704

–
–
–
–
–
(85,704)

–
–
–
–
–
–

154,268
249,394
1,000,000
62,715
85,704
–

0.47
0.24
0.47
0.47
0.47
–

2/16/2011
1/19/2010
2/16/2011
1/3/2012
2/16/2011
–

Expiry date

2/17/2020
1/20/2019
2/17/2020
1/4/2021
2/17/2020
–

January 1, 2015

Award/(Exercise)

Cancelled

December 31,
2015

Weighted average
grant date fair
market value

Vesting date

Fully vested date

6,148
1,958
–
149,046
59,977
–
–
4,391
1,398
–
76,477
30,775
4,391
1,398

–
–
9,312
–
–
64,271
32,639
–
–
6,650
(76,477)
(30,775)
(4,391)
(1,398)

–
–
–
–
–
–
–
–
–
–
–
–
–
–

6,148
1,958
9,312
149,046
59,977
64,271
32,639
4,391
1,398
6,650
–
–
–
–

0.75
1.88
1.85
0.75
1.93
1.87
2.16
0.75
1.88
1.85
–
–
–
–

3/13/2016
2/5/2017
1/27/2018
3/13/2016
1/29/2017
1/21/2018
5/18/2018
3/13/2016
2/5/2017
1/27/2018
–
–
–
–

Artemis Investment Management
Hargreave Hale
BlackRock Investment Management
Henderson Global Investors
River & Mercantile Asset Management
Ennismore Fund Management
Unicorn Asset Management
Close Asset Management
Mr. Jack Cooney*
Polar Capital

* Directors’ stock

Director stock options
Director

L Horsch
J T Cooney
J T Cooney
J T Cooney
T Anderson
R Maskalunas

Director restricted stock units

Director

L Horsch
L Horsch
L Horsch
J T Cooney
J T Cooney
J T Cooney
J Yuncza
T Anderson
T Anderson
T Anderson
M Niemela
M Niemela
R Maskalunas
R Maskalunas

Somero Enterprises, Inc.Annual Report and Accounts 2015Risks and uncertainties
The key risks and uncertainties facing the Company are
considered as part of the Company’s established process for
identifying, evaluating and managing risk. Impacts of significant
risks and their mitigation are monitored at Board meetings
throughout the year and are subject to annual review by the Audit
Committee. The key risks facing the business and the processes
in place to manage those risks are:

Bank obligations
In February 2016, the Company amended its agreement with
Citizens Bank, which renewed its loan facilities so that they
mature between April 2018 and February 2021. The Company
successfully met its bank covenants in each quarter in 2015. The
March 2018 Delayed Draw Term Loan was paid in full in the first
quarter of 2015.

Employee retention
The Company has a number of programs in place to retain
key employees including a savings and retirement match for
employees, restricted stock units (RSUs) for employees, Stock
Options for key employees, and a compensation program to
attract and retain key employees.

Economic and industry conditions
Somero’s financial performance is affected by a number of
factors, including the cyclical nature of the non-residential
concrete construction industry, as well as the varying economic
conditions of the geographic markets Somero serves, primarily
North America and Western Europe. Somero also has a growing
presence in Asia, Eastern Europe, Australia, the Middle East,
Africa and Latin America. Demand in these markets continues to
fluctuate in response to overall economic conditions and to the
amount of private sector spending on commercial construction
projects, especially by retailers such as Wal-Mart, Costco, B&Q,
and IKEA, on whose projects Somero’s Large Laser Screed
products have been utilized.

Product development
Somero invests approximately 2.0% of sales on product
development and introduces new products each year. It is a
customer driven process whereby we utilize customer focus
groups, customer surveys, and feedback from our sales and
technical support staff. This process keeps us focused on the
customer needs and value requirements. In 2015, we introduced
the S-10A. Introduced in late November, it generated US$ 0.4m
of revenue within one month of launch.

Product replacement demand
The Company’s financial performance is also dependent on the
replacement and refurbishment of older products as they reach
the end of their expected life cycles. Somero equipment is in a
period of demand for replacement and refurbishment, as older
machines reach the end of their lifecycles. Somero’s level of
replacement demand is also dependent on its ability to continue
developing enhanced models that encourage customers to
replace older machines.

Geographic expansion
Somero’s financial performance is dependent upon its ability to
successfully enter and penetrate geographic markets outside the
US. Currently, China, and Europe represent Somero’s primary
markets outside the US. Somero has primarily focused efforts
on China and Europe, with a secondary focus on Latin America,
Australia, Middle East, Asia, and India. We continue to promote
acceptance of the Company’s technology, methods and products
through our education and marketing efforts in emerging markets.

Interest rates
Somero’s financial performance is also linked to prevailing interest
rates; see “Liquidity and Capital Resources” below. In February
2016, the Company amended its agreement with the bank, which
renewed its loan facilities so that they mature between April 2018
and February 2021.

Liquidity and capital resources
Liquidity
The Company’s principal liquidity needs are for payroll, lease
obligations, purchases of component parts and trade-in inventory
(as part of making new sales), and interest and principal payments
on its long-term debt. The Company’s primary sources of liquidity
are cash balances, cash provided by operations and its available
revolving line of credit with Citizens Bank of up to US$ 10.0m.
Operations are primarily funded through existing cash.

Capital resources
Currently, the Company’s capital expenditure plans include
improvements to our manufacturing facility, online parts ordering
and other replacement information technology. One element
of Somero’s strategy is to identify and acquire businesses that
have complementary products and services. Somero may
finance such future acquisitions from internally generated funds,
bank borrowings, public or private securities offerings, or some
combination of these methods. In addition, the Company may
issue debt or equity securities as some or all of the consideration
for such acquisitions.

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

DIRECTORS’ REPORT continued

Other financial arrangements
Quantitative and qualitative disclosure about
market risk
The Company is exposed to market risk from changes in interest
rates and foreign currency exchange rates because it funds its
operations through long- and short-term borrowings and receives
revenues and incurs expenses in a variety of foreign currencies.
The Company does not currently hedge against the risk of
exchange rate fluctuations. A summary of the Company’s primary
market risk exposures follows.

Foreign currency risk
The Company’s foreign sales and results of operations are subject
to the impact of foreign currency fluctuations because it receives
revenues and incurs expenses in a variety of foreign currencies.
However, the vast majority of products and services are priced
in US dollars to significantly reduce the exposure to foreign
currency risk.

Payments to creditors
The Company’s policy is to set payment terms when agreeing the
terms of each transaction. It is the Company’s general policy to
pay suppliers according to the set terms, to ensure suppliers are
informed of the terms of payment and to abide by these terms
whenever possible.

Corporate social responsibility
Somero Enterprises believes, as a good corporate citizen, it must
care about the communities it is involved in, keep the environment
healthy, provide a safe and rewarding place to work and behave
ethically in all its business dealings.

Donations
During the year, the Company made no political donations.
Charitable donations were made in the amount of US$ 29,380
for 2015.

Somero cannot predict the level of financing that may be required
in connection with future acquisitions. As of December 31, 2015,
the Company had US$ 1.1m in aggregate principal outstanding in
term loans under its Citizens Bank Financing Agreement, and has
not drawn any amounts under the revolving portion of its Citizens
Bank Financing Agreement.

The strong performance and relationship with its bank enabled
the Company to amend its loan facilities so that they mature
between April 2018 and February 2021. The amended facility will
allow management to focus on implementation of its strategic
plan, successfully introduce new products into the market and
maximize opportunities from investments in emerging markets.

The Company’s financing agreement with Citizens Bank imposes
various restrictions and covenants on the Company which could
potentially limit its ability to respond to market conditions, to
provide for unanticipated capital investments or to take advantage
of business opportunities. The restrictive covenants include
limitations on the incurrence of additional indebtedness, limitations
on the creation of liens and limitations on asset sales and other
fundamental changes, limitations on payment of dividends and
limitations on the redemption or repurchase of outstanding
capital stock, among other restrictions. The covenants also
include financial measures such as a minimum debt service ratio,
minimum net tangible asset ratio and a maximum funded debt
to EBITDA ratio. The Company was in compliance with all debt
covenants at the end of 2015. The directors believe that funds
generated from operations, together with existing cash, will be
sufficient to meet the Company’s debt obligations over the next 12
months. The directors also expect that existing cash and available
funds from the financing agreement with Citizens Bank and funds
generated from operations will be sufficient to meet anticipated
operating requirements and to fund planned capital expenditures
for the remainder of 2016.

Somero had capital expenditures of US$ 4.2m in 2015 and
US$ 1.2m in 2014. The majority of this expenditure was related
to the new Global Headquarters and Training Facilities in Florida,
expansion of the Operations and Support facility in Michigan,
computer hardware and software upgrades, vehicle purchases
and ERP upgrades. The directors will, from time to time, evaluate
opportunities to sell equity or debt securities, and/or obtain
credit facilities from lenders, which could result in dilution to the
Company’s stockholders and increased interest expense.

Somero Enterprises, Inc.Annual Report and Accounts 2015
Employment policies
The Company supports equal opportunities in employment
and advancement and opposes all forms of unlawful or unfair
discrimination on the grounds of color, race, religion, age,
nationality, gender or marital status. Full and fair consideration is
given to applications for employment from disabled people. As
an equal opportunities employer, all our benefits are accessible to
every staff member, and we encourage and support personal and
professional development.

The Company has well established structures to communicate
with employees at every level and to encourage their involvement
regarding the Company’s performance and future activities. As an
organization, Somero Enterprises, Inc. prides itself on its honesty,
integrity and high professional standards to deliver its services to
its customers and in dealing with its staff and the public. It also
demands the maintenance of these high standards in everything
that it does. To this end, the Company has devised this policy
and procedure in order to give encouragement and support to
employees in coming forward and reporting certain types of
conduct or activities that fall short of these high standards.

Under the Public Interest Disclosure Act 1998, employees who
report wrongdoing of certain kinds have specific protection.
The Company aims to ensure that by adherence to this policy
and through proper use of the procedure, as far as possible,
any such report shall be made internally in the first instance by
making it possible for all employees to approach an appropriate
person within the Company in order to draw their concerns to the
attention of someone who has authority to act. This policy and
procedure is aimed at ensuring that any employee who wishes
to voice a concern regarding potential or actual wrongdoing on
the part of the Company or anyone with whom the Company is
associated feels sufficiently comfortable to do so.

Director training
The directors have continued to receive formal AIM compliance
training from the initial listing on the AIM to the present date.

Health and safety
The Board considers health and safety a key priority and believes
it essential to conduct business to ensure the health, safety and
welfare of all our employees and all other persons who may be
affected by our activities. This includes members of the public,
customers and trade contractors we may employ. We maintain
ISO 9001 certification for quality.

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Environment
It is our intention to take all reasonable measures to conduct
our business activities so that damage to the environment and
pollution is minimized.

John Yuncza
Company Secretary
March 1, 2016

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

CORPORATE GOVERNANCE

While the Company is not required to comply with the provisions
of the Combined Code and the UK Corporate Governance Code,
it is the intention of the directors that the Company will indeed
comply with both codes. With the exception of the following
matters, the Company is in compliance with the June 2008 edition
of FRC Combined Code on Corporate Governance and the
September 2014 UK Corporate Governance Code.

A.1.2 Senior independent director has not been named.

B.6.1 The Board has not undertaken a formal evaluation of its own
performance and that of its committees and individual directors.
As suggested by the Combined Code, as of the end of 2015,
relationships with the majority of all major stockholders have
been maintained on a regular basis keeping them fully informed
regarding the trading of the Company and any new developments.

C.3.6 Allowing for the size of the Company, there is currently
no internal audit function as suggested by the Combined Code.
The finance function continues to carry out regular and random
internal checks on all systems and procedures to ensure internal
compliance. We do not feel the need, therefore, to appoint
separate staff to carry out an internal audit function.

Auditor payments related to 2015 were US$ 165,000 and for
2014 were US$ 154,000.

Board of Directors
The Company is controlled through the Board of Directors which
is comprised of six members, three of whom are non-executive
directors. The Board considers that the Non-Executive Chairman
of the Board, Mr. Horsch, as well as Messrs. Anderson and
Scheuer, who have been appointed as non-executive directors,
are each independent in character and judgment and accordingly
considers each of them to be an independent director for the
purposes of the Combined Code.

The Company holds monthly Board meetings and more
frequent meetings as required. There is a separation of roles and
responsibilities of the Chairman and the Chief Executive. As the
Non-Executive Chairman, Mr. Horsch is responsible for leadership
of the Board, ensuring its effectiveness on all aspects of its
role and setting its agenda; ensuring that the directors receive
accurate, timely and clear information, and appropriate induction
and training; ensuring effective communication with stockholders;
and facilitating the effective contribution of non-executive directors
in particular, and ensuring constructive relations between the
executive and non-executive directors. Non-executive directors

are responsible for constructively challenging and helping to
develop proposals on strategy; scrutinizing the performance
of management in meeting agreed goals and objectives, and
monitoring the reporting of performance; satisfying themselves
on the integrity of financial information, and that financial controls
and systems of risk management are robust and defensible; and
responsibility for determining appropriate levels of remuneration
of executive directors, and having a prime role in appointing, and
where necessary removing, executive directors, and in succession
planning. The directors are provided with regular and timely
information on the financial performance of the Company together
with other reports from functional areas within the Company
as requested.

During the year, there were twelve regularly scheduled
monthly Board meetings, two Audit Committee meetings, one
Remuneration Committee meeting, one Nominations Committee
meeting, and three special meetings, with perfect attendance.

The Board is responsible for overall Company strategy, acquisition
and divestment policy, approval of major capital expenditure
projects and consideration of significant financing matters.
It monitors the exposure to key business risks, considers
environmental and employee issues and key appointments.
It ensures that all directors receive appropriate training on
appointment and then subsequently as appropriate. A budget is
established for this purpose. All directors, in accordance with the
Code, will submit themselves for re-election at least once every
three years.

The Board has three committees, the Audit Committee, the
Remuneration Committee and the Nominations Committee,
with formally delegated roles and responsibilities. Each of these
committees meets regularly, at least once each year.

The Audit Committee is comprised of Messrs. Scheuer, Anderson,
and Horsch, and is chaired by Mr. Scheuer. The Audit Committee
determines and examines any matters relating to the financial
affairs of the Company, including the terms of engagement of
the Company’s auditors and, in consultation with the auditors,
the scope of the audit. It receives and reviews reports from
management and the Company’s auditors relating to the interim
and annual accounts and the accounting and internal control
systems in use throughout the Company. In addition, it ensures
that the financial performance, position and prospects of the
Company are properly monitored and reported on. The Audit
Committee has unrestricted access to the Company’s auditors.

Somero Enterprises, Inc.Annual Report and Accounts 2015The Remuneration Committee is comprised of Messrs. Anderson,
Scheuer, and Horsch, and is chaired by Mr. Anderson. The
Remuneration Committee measures the performance of the
executive directors and key members of senior management
as a prelude to recommending their annual remuneration,
bonus awards, and awards of stock options to the Board for
final determination. The Remuneration Committee also makes
recommendations to the Board concerning the allocation of stock
options to employees.

The Nominations Committee is comprised of Messrs. Horsch,
Anderson, and Scheuer and is chaired by Mr. Horsch. The
Nominations Committee regularly reviews the structure, size and
composition (including the skills, knowledge and experience)
required of the Board compared to its current position and makes
recommendations to the Board with regard to any changes; gives
full consideration to succession planning for directors and other
senior executives in the course of its work, taking into account the
challenges and opportunities facing the Company, and what skills
and expertise are therefore needed on the Board in the future;
and is responsible for identifying and nominating for the approval
of the Board, candidates to fill Board vacancies as and when they
arise. The Nominations Committee supports equal opportunities in
employment and advancement and opposes all forms of unlawful
or unfair discrimination on the grounds of color, race, religion, age,
nationality, gender or marital status. Full and fair consideration is
given to applications for employment from disabled people. As
an equal opportunities employer, all our benefits are accessible to
every staff member and we encourage and support personal and
professional development.

The Company adopted a code for directors’ and applicable
employees’ stock dealings. The directors will comply with Rule
21 of the AIM rules relating to directors’ dealings and will take
all reasonable steps to ensure compliance by Somero’s
applicable employees.

Relations with stockholders
The directors are committed to maintaining good communications
with the stockholders and quickly respond to all queries received.

All stockholders have at least 20 working days’ notice of the AGM
at which the majority of directors are introduced and available
for questions. Institutional investors and analysts are invited to
briefings by the Company immediately after the announcement
of the Company’s full year results and all stockholders are
encouraged to participate in the Company’s AGM.

Accountability and audit
Financial reporting
A review of the performance and financial position of the
Company is included in the financial review. The Board uses this,
together with the Chairman’s Statement, the Chief Executive’s
Statement and the Directors’ Report to present a balanced and
understandable assessment of the Company’s position and
prospects. The statement of directors’ responsibilities for the
financial statements is described under the Board of Directors
section on page 22.

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Internal control
An ongoing process for identifying, evaluating, and managing the
significant risks faced by the Company has been established and
that process is reviewed regularly by the Board and accords with
the Internal Control Guidance to directors on the Combined Code.
Steps continue to be taken to embed internal control and risk
management further into the operations of the business and deal
with areas of improvement coming to management and Board
attention. The Company targets examining one to two key risk
areas each year, with the results reported to the entire Board.

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The reporting systems include formal consideration of all
significant business risks at the monthly Board meetings and are
still subject to continuous review by the Board throughout the
year. The monthly management information includes some key
risk indicators with the emphasis on early warning systems. Risk
management principles are embedded within all
significant projects.

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The directors are responsible for the system of internal control
and reviewing its effectiveness. Such a system is designed to
manage rather than eliminate the risk of failure to achieve business
objectives, and can provide only reasonable but not absolute
assurance against material misstatement or loss.

The key risk management activities are described under the
following headings:

Strategic control – The Board reviews the Company’s strategic
plans each year. On a regular basis, the Company’s significant
risks are updated and appropriate control strategies and
accountabilities are agreed.

Allocation of responsibilities and control environment – The
Board has set clear terms of reference for each of its committees
and the Company has an organizational structure with clearly
defined and documented delegation of authority to executive
management and reporting systems for financial results, risk
exposure and control assessment.

Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

CORPORATE GOVERNANCE continued

Financial control – The Company has a comprehensive system
for reporting financial results to the Board.

Quality and integrity of personnel – The Company is
committed to competence and integrity of management and
staff at all levels, through its values statement, comprehensive
recruitment, training and appraisal programs.

IT systems – The Company has established controls and
procedures over the security of data held on computer systems
and has put in place suitable disaster recovery arrangements.

During the year, the Audit Committee of the Board, comprising
three non-executive directors:
• meets regularly with the external auditors, with executive

directors attending by invitation;

• receives and considers reports relating to the monitoring of the
adequacy of the Company’s internal controls, the suitability
of its accounting policies and financial reporting and matters
arising from the external auditors work;

• monitors the nature and extent of non-audit work undertaken

by the external auditors; and

• makes recommendations to the Board on these matters.

Controls over central functions – A number of the Company’s
key functions, including treasury and taxation, are dealt with
centrally. The Chief Financial Officer reports on an as needed basis
to keep the Board updated.

Internal audit – There is no dedicated resource for internal audit
functions, which is considered sufficient for the Company due to
its size.

Role of the Executive Committee – Day-to-day management
of the Company’s activities is delegated to senior management
and is considered sufficient for the Company.

Risk management reporting and Board review – The Board
has overall responsibility for identifying, evaluating and managing
major business risks facing the Company. It annually reviews all
operating unit assessments of business risk exposure and control,
including compliance assessments, and determines appropriate
action, taking into account the recommendations of
senior management.

An ongoing review of the effectiveness of the system of internal
control for the year ended December 31, 2015 has been
maintained and has taken account of any material developments
since the year end.

Audit Committee
A summary of the process the Board (where applicable, through
its committees) has applied in reviewing the effectiveness of the
system of internal control is set out as follows:

In forming their opinion of the independence and objectivity of
the external auditors, the Audit Committee takes into account
the safeguards operating within the external auditors and that
the level of auditor fee is sufficient to enable them to fulfill their
obligations in accordance with the audit Letter of Engagement.
All audit and non-audit work performed by our external auditors
is in compliance with the independence rules promulgated by
the American Institute of CPAs (AICPA). The Chairman of the
Audit Committee makes a report to the Board following each
committee meeting and the Board receives the minutes of all
Audit Committee meetings.

The following table summarizes audit, tax, and other fees paid by
the Company to its auditor in 2015 and 2014.

Audit
Tax
Other

Year ended
December 31,
2015
US$ 000

Year ended
December 31,
2014
US$ 000

165
34
–

154
31
–

Going concern basis
The Company’s business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Directors’ Report. The financial position of the
Company, its cash flows, liquidity position and borrowing facilities
are described in the Directors’ Report. After making inquiries, the
directors have formed a judgment, at the time of approving the
financial statements, that there is a reasonable expectation that
the Company has adequate resources to continue in operational
existence for the foreseeable future. For this reason the directors
continue to adopt the going concern basis in preparing the
financial statements.

Somero Enterprises, Inc.Annual Report and Accounts 2015Compliance statement
Although not required, the Board reports on compliance with
the Combined Code throughout the accounting period. The
Company has complied throughout the accounting period ended
December 31, 2015 with the provisions outlined in Section 1 of
the Combined Code. The exceptions to the Combined Code are
noted at the beginning of the Corporate Governance section on
page 22.

The directors are responsible for preparing the Annual Report and
the financial statements. The directors have chosen to prepare
the accounts for the Company in accordance with United States
Generally Accepted Accounting Principles (US GAAP). The
Company believes it is in full compliance with all laws of the USA
where it is incorporated.

The AIM rules require the directors to prepare such financial
statements for each financial year which give a true and fair
view in accordance with US GAAP of the state of affairs of the
Company at the end of the financial year and of the profit or loss
of the Company for that period and comply with US GAAP. In
preparing those financial statements, the directors are required to:
• select suitable accounting policies and then apply them

consistently;

• make judgments and estimates that are reasonable and

prudent;

• state whether applicable accounting standards have been

followed; and

• prepare the financial statements on the going concern basis,
unless it is inappropriate to presume that the Company will
continue in business.

The directors are responsible for the system of internal control,
for safeguarding the assets of the Company, and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.

This report has been approved by the Board and adopted
for submission for ratification by the stockholders. This report
is unaudited.

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

DIRECTORS’ REMUNERATION REPORT

The members of the Remuneration Committee at year-end were Thomas Anderson (Chairman), Robert Scheuer and Larry Horsch.
During the year, Ron Maskalunas participated on the Committee until he stepped down from the Board in October 2015 and was
replaced by Robert Scheuer. The Remuneration Committee makes recommendations to the Board, within existing terms of reference,
on remuneration policy and determines, on behalf of the Board, specific remuneration packages for each of the executive directors.

L Horsch
JT Cooney
J Yuncza
H Hohmann
T Anderson
R Scheuer

Salary paid 2015

Bonus 2015

Salary 2016

Bonus opportunity 2016

Options held

$91,790
$401,138
$149,135(2)
$215,000
$65,550
$18,625(6)

–

$91,790(1)

$536,137(3) $421,195
$246,750
$236,500
$65,550(1)
$74,500(1)

–
$237,324
–
–

50%-100% of salary
Up to 50% of salary(5)

Commission(4)(5)

154,268
1,312,109
–
–
85,704
–

Restricted stock
units held

17,418
273,294
32,639
–
12,439
–

Notes:
1. Annual director fee increases have been paid in the form of RSUs.
2. Annual salary is $235,000 but amount paid in 2015 was $149,135 on a pro rata basis.
3. Includes 2014 bonus paid in 2015 as well as a portion of 2015 bonus paid prior to December 31, 2015.
4. Commission of 1.0%-1.4% on sales above US$ 45.0m.
5. 25% of bonuses and commissions will be paid in the form of company stock.
6. Annual director fee is $74,500 but amount paid in 2015 was $18,625 due to October 1, 2015 start date.

Remuneration policy
The Company’s policy is to provide executive remuneration packages which are designed to attract, motivate and retain directors of the
high caliber required and to reward them for enhancing value to stockholders. The performance measurement of the executive directors
and the determination of their annual remuneration package are undertaken by the Remuneration Committee consisting solely of non-
executive directors. The non-executive directors receive RSUs in lieu of salary increases as determined by the full Board.

In framing remuneration policy the Remuneration Committee has given consideration to the requirements of the Combined Code.

Components of remuneration
The components of remuneration are:
• basic salary and benefits determined by the Remuneration Committee and reviewed annually
• performance related bonuses having regard to profitability of the Company
• stock option incentives

Basic salary
An executive director’s basic salary is determined by the Remuneration Committee at the beginning of each year and when an individual
changes position or responsibility.

Cash compensation
In the year ended December 31, 2015, the executive directors received bonuses as shown in the table above.

Directors’ contracts
The Company has entered into employment agreements with certain members of senior management. The terms of these agreements
range from six to eighteen months and include non-compete and non-disclosure provisions as well as providing for defined severance
payments in the event of termination or change in control. If any existing contract of employment is breached by the Company in the
event of termination, the Company would be liable to pay, as damages, an amount approximating the net loss of salary and contractual
benefits for the unexpired notice period. The Remuneration Committee will seek to ensure that the director fulfills obligations to mitigate
losses and will also give consideration to phased payments where appropriate.

With the approval of the Remuneration Committee, executive directors are entitled, under their service agreements, to perform duties
outside the Company and to receive fees for those duties.

Somero Enterprises, Inc.Annual Report and Accounts 2015
Equity incentives
The Remuneration Committee approves the grant of equity awards to executive directors under the Company’s discretionary equity
incentive schemes. In 2010, the Remuneration Committee adopted Somero’s 2010 Equity Incentive Plan that made 5.6 million stock
options available to be granted, which is 10% of the 56 million shares that were issued and outstanding. At that time, all other equity
incentive plans were abandoned. Other than as disclosed above, the equity awards issued to executive directors do not have any
performance criteria attached to them. At the time they were first issued, it was not felt that performance criteria were appropriate. For
more information, see Note 15 within the Notes to the Financial Statements.

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Restricted stock units
On March 13, 2013, the Board approved an award to executive and non-executive directors under the terms of its 2010 Equity
Incentive Plan at a price of 50p per RSU for a cumulative grant of 2,540,899 units. The awarded stock units will vest in three years from
the date of the grant and require continued employment for the period. In 2015, 145,971 units were exercised or forfeited, 119,522
units issued, leaving a balance of 423,901 units as of December 31, 2015. For more information, see Note 15 within the Notes to the
Financial Statements.

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 was
cancelled. 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 options will only be issued for new key employees and superior performance. In 2015, 154,266 shares of stock options
were exercised, leaving an outstanding balance of 1,686,361 shares as of December 31, 2015. For more information, see Note 15
within the Notes to the Financial Statements.

Directors and officers insurance
The Company maintains customary D&O insurance.

Performance graph
The market price of the shares at December 31, 2015 was 118.5p. The range during the 2015 period of trading was 111.5p to 155.0p.

Somero Enterprises, Inc. Closing Share Price Data

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120

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1 / 0

3 / 1

1 / 0

4 / 1

1 / 0

5 / 1

1 / 0

6 / 1

1 / 0

7 / 1

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

DIRECTORS’ REMUNERATION REPORT continued

The remuneration of the non-executive directors is determined by the Board within the limits set out in the Articles of Association, and
is based upon independent surveys of fees paid to non-executive directors of similar companies. The remuneration paid to each non-
executive director in the year to December 31, 2015 was subject to Board approval. The letters of appointment and terms are listed in
the following chart.

Director

L Horsch
JT Cooney
J Yuncza
H Hohmann
T Anderson
R Scheuer

Approved by the Board of Directors and signed on behalf of the Board.

Thomas Anderson
Chairman of Remuneration Committee
March 1, 2016

Date of appointment

Termination date

May 20, 2014
May 19, 2015
April 20, 2015
May 19, 2015
May 20, 2014
October 21, 2015

2017 AGM
2018 AGM
2016 AGM
2018 AGM
2017 AGM
2016 AGM

Somero Enterprises, Inc.Annual Report and Accounts 2015INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders of
Somero Enterprises, Inc.

We have audited the accompanying consolidated financial statements of Somero Enterprises, Inc., a Delaware corporation,
which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements
of comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the
consolidated financial statements.

Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance
of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error.

Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement
of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Somero Enterprises, Inc. as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United States of America.

Whitley Penn LLP
Dallas, Texas, USA
March 1, 2016

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

CONSOLIDATED BALANCE SHEETS
As of December 31, 2015 and 2014

Assets
Current assets:
Cash and cash equivalents
Accounts receivable – net

Inventories

Prepaid expenses and other assets
Deferred tax asset

Total current assets
Property, plant and equipment – net
Intangible assets – net
Goodwill
Deferred financing costs
Deferred tax asset
Other assets

Total assets

Liabilities and stockholders’ equity
Current liabilities:
Notes payable – current portion
Accounts payable
Accrued expenses
Income tax payable

Total current liabilities
Notes payable, net of current portion
Other liabilities

Total liabilities

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

December 31, 2015 and 2014

Less: treasury stock, 318,866 shares as of December 31, 2015 and 232,700 shares as of

December 31, 2014 at cost

Additional paid in capital
Retained earnings
Other comprehensive loss

Total stockholders’ equity

Total liabilities and stockholders’ equity

See notes to consolidated financial statements.

As of

December 31,
2015
US$ 000

December 31,
2014
US$ 000

13,709
8,127
8,479
862
410

31,587
8,266
2,495
2,878
70
3,119
26

48,441

48
3,705
4,330
1,044

9,127
1,024
84

10,235

–

(614)
22,008
18,432
(1,646)

38,206

48,441

7,950
6,599
8,390
734
174

23,847
4,823
4,040
2,878
103
3,505
32

39,228

266
4,096
2,896
25

7,283
1,072
91

8,446

–

(416)
22,336
10,194
(1,358)

30,782

39,228

Somero Enterprises, Inc.Annual Report and Accounts 2015

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME*
For the years ended December 31, 2015 and 2014

Revenue
Cost of sales

Gross profit

Operating expenses
Selling expenses
Engineering expenses
General and administrative expenses

Total operating expenses

Operating income
Other income/(expense)

Interest expense
Interest income

Foreign exchange (loss)/gain
Other

Income before income taxes
Provision/(benefit) for income taxes

Net income

Other comprehensive income/(loss)

Cumulative translation adjustment
Change in fair value of derivative instruments – net of income tax

Other comprehensive income/(loss)

Earnings per common share
Earnings per share basic
Earnings per share diluted

Weighted average number of common shares outstanding
Basic
Diluted

See notes to consolidated financial statements.

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

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Year ended
December 31, 2015
US$ 000
except per share data

Year ended
December 31, 2014
US$ 000
except per share data

70,222
31,059

39,163

7,491
1,031
13,068

21,590

59,277
27,290

31,987

7,150
1,166
11,079

19,395

17,573

12,592

(191)
20
(43)
–

17,359
5,809

11,550

(280)
(8)

11,262

0.21
0.20

(107)
39
(122)
(3)

12,399
(2,142)

14,541

(79)
–

14,462

0.26
0.25

56,145,563
57,691,279

56,274,097
57,915,226

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the years ended December 31, 2015 and 2014

Common stock

Amount
US$ 000

Additional paid-
in capital
US$ 000

Treasury stock

Amount
US$ 000

Retained
earnings/
(accumulated
deficit)
US$ 000

Comprehensive
income/(loss)
US$ 000

Total
stockholders’
equity
US$ 000

Balance –

January 1, 2014

56,425,598

27,984

60,827

(61)

(2,774)

(1,279)

23,896

Cumulative translation

adjustment
Net income
Stock based

compensation

Dividend
Treasury stock
RSUs settled for cash
Stock options settled

for cash

Balance –

–
–

–
–
–
–

–

–
–

–
–
–
–

–

–
–

262
–
–
(4,874)

(1,036)

–
–

–
–
171,873
–

–

–
–

–
–
(355)
–

–

–
14,541

–
(1,573)
–
–

–

(79)
–

(79)
14,541

–
–
–
–

–

262
(1,573)
(355)
(4,874)

(1,036)

December 31, 2014 56,425,598

22,336

232,700

(416)

10,194

(1,358)

30,782

Cumulative translation

adjustment

Change in fair value of
derivative instruments

Net income
Stock based

compensation

Dividend
Treasury stock
RSUs settled for cash
Stock options settled

for cash

Balance –

–

–
–

–
–
–
–

–

–
–

–
–
–
–

–

–
–

197
–
–
(275)

(250)

–

–
–

–
–
86,166
–

–

–
–

–
–
(198)
–

–

(280)

–
11,550

–
(3,312)
–
–

–

(8)
–

–
–
–
–

–

(8)
11,550

197
(3,312)
(198)
(275)

(250)

December 31, 2015 56,425,598

22,008

318,866

(614)

18,432

(1,646)

38,206

See notes to consolidated financial statements.

Somero Enterprises, Inc.Annual Report and Accounts 2015CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2015 and 2014

Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:

Year ended
December 31,
2015
US$ 000

Year ended
December 31,
2014
US$ 000

11,550

14,541

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Deferred taxes
Depreciation and amortization
Amortization of deferred financing costs
Stock based compensation

Working capital changes:
Accounts receivable

Inventories

Prepaid expenses and other assets
Other assets
Accounts payable, accrued expenses and other liabilities

Income taxes payable

Net cash provided by operating activities

Cash flows from investing activities:
Proceeds from sale of property and equipment
Property and equipment purchases

Net cash used in investing activities

Cash flows from financing activities:
Payment of dividend
Payment of RSUs
Purchase of treasury stock
Stock options settled for cash
Repayment of notes payable

Net cash used in financing activities

Effect of exchange rates on cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents:
Beginning of year

End of year

See notes to consolidated financial statements.

150
2,264
33
197

(1,528)
(89)
(128)
6
1,036
1,019

(3,251)
2,098
32
262

(1,192)
(1,609)
(98)
11
2,051
(500)

14,510

12,345

–
(4,162)

(4,162)

(3,312)
(275)
(198)
(250)
(266)

(4,301)

25
(1,221)

(1,196)

(1,573)
(4,874)
(355)
(1,036)
(1,265)

(9,103)

(288)

(79)

5,759

1,967

7,950

13,709

5,983

7,950

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2015 and 2014

1. Organization and description of business
Nature of business
Somero Enterprises, Inc. (the “Company” or “Somero”) designs, assembles, refurbishes, 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, UK; 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 December 31, 2015 and 2014, the allowance for doubtful accounts was approximately
US$ 698,000 and US$ 324,000, respectively. Bad debt expense was US$ 381,000 and US$ 49,000 in 2015 and 2014, respectively.

Inventories
Inventories are stated at the lower of cost, using the first in, first out (“FIFO”) method, or market value. 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, 2015 or 2014. (See Note 4 for more information.)

Somero Enterprises, Inc.Annual Report and Accounts 2015The 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, 2015, 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. (See Note 4 for more information.)

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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.

Balance, January 1
Warranty charges
Accruals

Balance, December 31

2015
US$ 000

2014
US$ 000

(193)
409
(523)

(307)

(179)
397
(411)

(193)

Property, plant, and equipment
Property, plant and equipment is stated 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.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

2. Summary of significant accounting policies continued
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.

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 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. Earnings per common share have been computed based on the following:

Income available to stockholders

Basic weighted shares outstanding
Net dilutive effect of stock options and restricted stock units

Diluted weighted average shares outstanding

Year ended
December 31,
2015
US$ 000

Year ended
December 31,
2014
US$ 000

11,550

14,541

56,145,563 56,274,097
1,641,129

1,545,716

57,691,279 57,915,226

Somero Enterprises, Inc.Annual Report and Accounts 2015Fair value
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

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Asset:
Goodwill

Interest rate swap

Year ended December 31, 2015
Asset:
Goodwill

Interest rate swap

Quoted prices
in active markets
identical assets
Level 1
US$ 000

Significant other
observable inputs
Level 2
US$ 000

Significant other
unobservable
inputs
Level 3
US$ 000

2,878
–

2,878
(4)

US$ 000

2,878
–

2,878
(4)

New accounting pronouncements
In August 2015, the FASB deferred the effective dates by 1 year for 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 new effective date 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 2017.

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

2. Summary of significant accounting policies continued
New accounting pronouncements continued
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Simplifying the Measurement of Inventory. The amendment
applies to inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope
of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of
business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this Update are effective
for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company plans to adopt
this standard with the interim period beginning January 1, 2016 and expects no material adjustments as a result of the adoption of
this standard.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17 Balance Sheet Classification of Deferred Taxes.
To simplify the presentation of deferred income taxes, the amendments in this Update require that deferred tax liabilities and assets be
classified as noncurrent in a classified statement of financial position. The amendments in this Update apply to all entities that present
a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component
of an entity be offset and presented as a single amount is not affected by the amendments in this Update. The amendments in the
Update are effective for financial statements issued for annual periods beginning after December 15, 2017. The Company plans to
adopt this standard with the fiscal period beginning January 1, 2018 and expects no material adjustments as a result of the adoption
of this standard.

3. Inventories
Inventories consisted of the following at December 31, 2015 and 2014:

Raw material
Finished goods and work in process
Remanufactured

Total

Year ended
December 31,
2015
US$ 000

Year ended
December 31,
2014
US$ 000

2,576
2,259
3,644

8,479

2,312
2,970
3,108

8,390

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 results of the qualitative assessment indicated that goodwill was not impaired as of December 31, 2015 and 2014, and that the
value of patents was not impaired as of December 31, 2015 and 2014.

Somero Enterprises, Inc.Annual Report and Accounts 2015The following table reflects other intangible assets:

Capitalized cost
Patents
Intangible assets not subject to amortization

Accumulated amortization
Patents
Intangible assets not subject to amortization

Net carrying costs
Patents
Intangible assets not subject to amortization

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Weighted average
amortization
period

Year ended
December 31,
2015
US$ 000

Year ended
December 31,
2014
US$ 000

12 years
–

18,538
49

18,587

16,092
–

16,092

2,446
49

2,495

18,538
49

18,587

14,547
–

14,547

3,991
49

4,040

Amortization expense associated with the intangible assets in each of the years ended December 31, 2015 and 2014 was
approximately US$ 1,545,000. Future amortization of intangible assets is expected to be as follows for the years ended:

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2016
2017
Thereafter

5. Property, plant, and equipment
Property, plant, and equipment consist of the following at December 31:

Land
Building and improvements
Machinery and equipment

Less: accumulated depreciation and amortization

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December 31
US$ 000

1,545
901
–

2,446

Year ended
December 31,
2015
US$ 000

Year ended
December 31,
2014
US$ 000

864
6,325
4,599

11,788
(3,522)

8,266

207
3,686
3,760

7,653
(2,830)

4,823

Depreciation expense for the years ended December 31, 2015 and 2014 was approximately US$ 719,000 and US$ 553,000, respectively.

Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

6. Notes payable
The Company’s debt obligations consisted of the following at December 31:

March 2016 secured revolving line of credit
March 2018 delayed draw term loan
March 2018 commercial real estate mortgage

Total bank debt

Less debt due within one year

Obligations due after one year

The bank’s revolving line of credit is collateralized by all inventories and accounts receivable.

The future payments by year under the Company’s amended loan are as follows:

2016
2017
2018
Thereafter

Total

2015
US$ 000

–
–
1,072

1,072

2014
US$ 000

–
218
1,120

1,338

(48)

(266)

1,024

1,072

US$ 000

48
48
976
–

1,072

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$ 1,447,000 March 2018 Commercial Real Estate Mortgage

The interest rate on the revolving line of credit is based on the 1-month LIBOR rate plus 2.75%. The interest rate on the delayed draw
term loan was 3.17% as of December 31, 2015 and was based on the 3-month LIBOR rate plus 2.75%. The interest rate on the
commercial real estate mortgage was 2.99% as of December 31, 2015 and was based on the 1-month LIBOR rate plus 2.75%. The
Company’s loan facility is secured by substantially all of its business assets.

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 matches vests immediately. The Company contributed approximately US$ 397,000
to the savings and retirement plan during 2015 and contributed US$ 259,000 during 2014.

Somero Enterprises, Inc.Annual Report and Accounts 2015
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 represent the full 12 months of each successive period as follows:

2016
2017
2018
2019
Thereafter

US$ 000

565
382
260
144
–

1,351

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9. Capital leases
Interest rates on capital leases are variable and range from 3.6% to 5.9% at December 31, 2015. Future minimum payments by year
represent the full 12 months of each successive period as follows:

2016
2017
2018
Thereafter

10. Supplemental cash flow and non-cash financing disclosures

Cash paid for interest
Cash paid for taxes
Non-cash financing activities – change in fair value of derivative instruments

US$ 000

16
15
3
–

Year ended
December 31,
2015
US$ 000

Year ended
December 31,
2014
US$ 000

83
4,700
(4)

71
1,697
–

11. Business and credit concentration
The Company’s line of business could be significantly impacted by, among other things, the state of the general economy, the
Company’s ability to continue to protect its intellectual property rights, and the potential future growth of competitors. Any of the
foregoing may significantly affect management’s estimates and the Company’s performance. At December 31, 2015 and 2014, the
Company had two customers which represented 11% and 10% of total accounts receivable, respectively.

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

12. 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.

13. Income taxes
Income tax provision

Current income tax
Federal
State
Foreign

Total current income tax expense

Deferred tax (benefit)/expense
Federal
State
Foreign

Total deferred tax (benefit)/expense

Year ended
December 31,
2015
US$ 000

Year ended
December 31,
2014
US$ 000

4,876
468
315

5,659

141
9
-

150

954
123
32

1,109

(3,083)
43
(211)

(3,251)

Total (benefit)/provision

5,809

(2,142)

Somero Enterprises, Inc.Annual Report and Accounts 2015The components of the net deferred income tax asset at December 31, 2015 and 2014 were as follows:

Bad debt allowance
Inventory reserve
Accrued expenses
UNICAP – Sec 263A

Current deferred tax assets

Prepaid insurance
Prepaid other

Current deferred tax liabilities

Accrued warranty
Stock compensation expense (options and RSUs)
Intangible assets
UK intangibles
Italy – NOL
Foreign tax credit

Noncurrent deferred tax assets

Fixed assets

Noncurrent deferred tax liabilities

Total net deferred tax assets

Rate reconciliation
Consolidated income before tax
Statutory rate

Statutory tax expense

State taxes
Foreign taxes
Meals and entertainment
Permanent differences due to stock options and RSUs
Permanent differences due to other items
Valuation allowance
Other

Tax (benefit)/expense

The Company has US$ 246,185 in foreign loss carry forwards with indefinite expiration dates.

Year ended
December 31,
2015
US$ 000

Year ended
December 31,
2014
US$ 000

248
147
–
157

552

(48)
(94)

(142)

134
261
2,766
134
76
237

3,608

(489)

115
39
5
124

283

(53)
(56)

(109)

97
243
3,181
134
76
237

3,968

(463)

3,529

3,679

17,359
34%

5,902

315
(107)
53
(129)
(402)
–
177

12,399
34%

4,216

110
(179)
50
(1,897)
10
(4,056)
(396)

5,809

(2,142)

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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued

14. Revenues by geographic region
The Company sells its products to customers throughout the world. The breakdown by location is as follows:

United States and US possessions
Canada
Rest Of World

Total

Year ended
December 31,
2015
US$ 000

Year ended
December 31,
2014
US$ 000

47,621
1,547
21,054

70,222

36,314
841
22,122

59,277

15. Stock based compensation
The Company has one stock based compensation plan, which is described below. The compensation cost that has been charged
against income for the plan was approximately US$ 197,000 and US$ 262,000 for the years ended December 31, 2015 and 2014,
respectively. The income tax effect recognized for stock based compensation was US$ 0.1m and US$ 1.9m, respectively, for the years
ended December 31, 2015 and 2014. During 2013, the Company recorded a partial valuation allowance against its deferred tax assets
related to stock compensation that was reversed during 2014.

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 was
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 US 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 2015 and 2014.

A summary of options activity is presented below:

Options

Outstanding at January 1, 2014
Granted
Exercised
Forfeited

Outstanding at December 31, 2014
Exercisable at December 31, 2014

Outstanding at January 1, 2015
Granted
Exercised
Forfeited

Outstanding at December 31, 2015
Exercisable at December 31, 2015

Weighted
average exercise
price

Weighted average
remaining
contractual term
(years)

Aggregate
intrinsic value

0.44
–
0.42
–

0.44
0.44

0.44
–
0.47
–

0.44
0.44

5.99
–
–
–

5.02
5.02

5.02
–
4.13
–

4.01
4.01

–
–
–
–

–
–

–
–
–
–

–
–

Stock options

2,402,088
–
(561,461)
–

1,840,627
1,840,627

1,840,627
–
(154,266)
–

1,686,361
1,686,361

Options exercised in 2015 and 2014 were settled for cash of US$ 0.3m and US$ 1.0m, respectively.

Somero Enterprises, Inc.Annual Report and Accounts 2015
As of December 31, 2015 the Company’s stock options have all been vested with no 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
2015 and 2014 was US$ 0 and US$ 0 respectively.

A summary of restricted stock units activity is presented below:

Outstanding at January 1, 2014
Granted
Vested or settled for cash
Forfeited

Outstanding at December 31, 2014

Outstanding at January 1, 2015
Granted
Vested or settled for cash
Forfeited

Outstanding at December 31, 2015

RSUs settled for cash were US$ 0.3m in 2015 and US$ 4.9m in 2014.

Grant date fair
market value US$

2,540,899
188,800
(2,279,349)
–

550,151
364,002
(360,154)
–

450,350

553,999

450,350
119,522
(140,788)
(5,183)

553,999
232,673
(145,165)
(10,000)

423,901

631,507

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Restricted stock unit expense is being recognized over the three year vesting period. The weighted average remaining vesting period is
1.03 years.

16. Employee compensation
The Board approved management bonuses and profit sharing dollars totaling US$ 1.2m to be paid in December 2015 and early 2016
based upon the Company meeting certain profitability targets.

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17. Subsequent events
Dividend
In recognition of Somero’s strong performance and the Board of Directors’ confidence in the continued growth of the Company, the
Board is pleased to announce a final 2015 dividend of 5.0 US cents per share that will be payable on April 4, 2016 to shareholders on
the register at March 18, 2016. Together with the interim dividend paid in October 2015 of 1.9 US cents per share, this represents a full
year dividend to shareholders of 6.9 US cents per share. Both the full year dividend and the final dividend represent a 25% increase over
the previous year.

Change in credit facility
In February 2016 the Company amended the US$ 5,000,000 secured revolving line of credit set to expire in March 2016. Under the
amended terms, the line of credit was increased to US$ 10,000,000 and is now set to expire in February 2021. There were no changes
to assets pledged as collateral under the credit facility or to the terms of the US$ 1,447,000 Commercial Real Estate Mortgage due in
April 2018.

Annual General Meeting
Notice is given that the Annual General Meeting of Stockholders (the “AGM”) of the Company will be held at the offices of Canaccord
Genuity Limited, 88 Wood Street, London EC2V 7QR, UK on June 7, 2016 at 11:00 am local time.

Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

ADVISERS AND CORPORATE INFORMATION

Directors
Lawrence Horsch – Chairman and Non-Executive Director
John T. Cooney – President and Chief Executive Officer and
Director
John Yuncza – Chief Financial Officer and Secretary and Director
Howard E. Hohmann – Executive Vice President of Sales
Worldwide and Director
Thomas M. Anderson – Non-Executive Director
Robert Scheuer – Non-Executive Director

Registered and Head Office
Somero Enterprises, Inc.
16831 Link Court
Fort Myers, Florida 33912
USA

Registered Number
Incorporated in the State of Delaware, USA under the Delaware
General Corporation Law with registered number 3589295

Registrars
Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
Jersey
JE1 1ES
Channel Islands

Nomad
Canaccord Genuity Limited
88 Wood Street
London EC2V 7QR
UK

Broker
Canaccord Genuity Limited
88 Wood Street
London EC2V 7QR
UK

Joint Broker
FinnCap Ltd
60 New Broad Street
London EC2M 1JJ
UK

Financial PR Advisor
Redleaf Communications Ltd
First Floor
4 London Wall Buildings
Blomfield Street
London EC2M 5NT
UK

Legal
Brown Rudnick LLP
8 Clifford Street
London W1S 2LQ
UK

Auditors
Whitley Penn LLP
Suite 400
8343 Douglas Ave
Dallas, TX 75225
USA

Somero Enterprises, Inc.Annual Report and Accounts 2015
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Corporate Governance Somero Enterprises, Inc.Annual Report and Accounts 2015

NOTES

Somero Enterprises, Inc.Annual Report and Accounts 2015S

GLOBAL
LEADERS
IN LEVELING

Registered and Head Office
Somero Enterprises, Inc.
16831 Link Court
Fort Myers, Florida 33912
USA

Somero.com