UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 1-5005
INTRICON CORPORATION
(Exact name of registrant as specified in its charter)
| Pennsylvania | 23-1069060 | |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
| incorporation or organization) | ||
| 1260 Red Fox Road | ||
| Arden Hills, Minnesota | 55112 | |
| (Address of principal executive offices) | (Zip Code) |
| (651) 636-9770 | ||
| (Registrant’s telephone number, including area code) | ||
| N/A |
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer ☐ (Do not check if a smaller reporting company) | Smaller reporting company ☒ |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No
The number of outstanding shares of the registrant’s common stock, $1.00 par value, on April 30, 2016 was 5,985,532.
INTRICON CORPORATION
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(See accompanying notes to the consolidated condensed financial statements)
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(See accompanying notes to the consolidated condensed financial statements)
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(See accompanying notes to the consolidated condensed financial statements)
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(See accompanying notes to the consolidated condensed financial statements)
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INTRICON CORPORATION
Notes to Consolidated Condensed Financial Statements (Unaudited) (In Thousands, Except Per Share Data)
1. General
In the opinion of management, the accompanying consolidated condensed financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly IntriCon Corporation’s (“IntriCon” or the “Company”) consolidated financial position as of March 31, 2016 and December 31, 2015, and the consolidated results of its operations and cash flows for the three months ended March 31, 2016 and 2015. Results of operations for the interim periods are not necessarily indicative of the results of operations expected for the full year or any other interim period.
The Company has evaluated subsequent events occurring after the date of the consolidated financial statements for events requiring recording or disclosure in the financial statements.
2. New Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued its final standard on accounting for leases. This standard, issued as ASU 2016-02, requires that an entity that is a lessee recognize lease assets and lease liabilities on the balance sheet for all leases and disclose key information about leasing arrangements. The core principle of this update is that a “lessee should recognize the assets and liabilities that arise from leases.” This update is effective for financial statement periods beginning after December 15, 2018, with earlier application permitted. The Company has not yet determined the impact of this pronouncement on its financial statements and related disclosures.
In March 2016, the FASB issued its final standard on simplifying the accounting for share-based payment awards. This standard, issued as ASU 2016-09, simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification on the statement of cash flows, and accounting for forfeitures. This update is effective for financial statement periods beginning after December 15, 2016, with early adoption permitted. The Company has not yet determined the impact of this pronouncement on its financial statements and related disclosures.
3. Geographic Information
The geographical distribution of long-lived assets to geographical areas consisted of the following at:
| March
31, 2016 |
December
31, 2015 |
|||||||
| United States | $ | 5,393 | $ | 5,125 | ||||
| Other – primarily Singapore and Indonesia | 1,513 | 1,617 | ||||||
| Consolidated | $ | 6,906 | $ | 6,742 | ||||
Long-lived assets consist of property and equipment and certain other assets that are difficult to move and relatively illiquid. Excluded from long-lived assets are investments in partnerships, patents, license agreements and goodwill. The Company capitalizes long-lived assets pertaining to the production of specialized parts. These assets are periodically reviewed to assure the net realizable value from the estimated future production based on forecasted cash flows exceeds the carrying value of the assets.
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The geographical distribution of net sales to geographical areas for the three months ended March 31, 2016 and 2015 were as follows:
| Three Months Ended | ||||||||
| Net Sales to Geographical Areas | March 31, 2016 | March 31, 2015 | ||||||
| United States | $ | 11,924 | $ | 12,452 | ||||
| Europe | 3,297 | 1,840 | ||||||
| Asia | 2,868 | 2,012 | ||||||
| All other countries | 169 | 298 | ||||||
| Consolidated | $ | 18,258 | $ | 16,602 | ||||
Geographic net sales are allocated based on the location of the customer. All other countries include net sales primarily to various countries in Europe and in the Asian Pacific. Customer concentrations greater than 10% of consolidated net sales and account receivable are disclosed below.
For the three months ended March 31, 2016, one customer accounted for 39% of the Company’s consolidated net sales. For the three months ended March 31, 2015, one customer accounted for 39% of the Company’s consolidated net sales.
At March 31, 2016, two customers combined accounted for 25% of the Company’s consolidated accounts receivable. At December 31, 2015, two customers accounted for a combined 27% of the Company’s consolidated accounts receivable.
4. Inventories
Inventories consisted of the following at:
| Raw materials | Work-in process | Finished products and components | Total | |||||||||||||
| March 31, 2016 | ||||||||||||||||
| Domestic | $ | 5,888 | $ | 2,310 | $ | 3,153 | $ | 11,351 | ||||||||
| Foreign | 2,135 | 572 | 498 | 3,205 | ||||||||||||
| Total | $ | 8,023 | $ | 2,882 | $ | 3,651 | $ | 14,556 | ||||||||
| December 31, 2015 | ||||||||||||||||
| Domestic | $ | 6,514 | $ | 1,706 | $ | 2,801 | $ | 11,021 | ||||||||
| Foreign | 2,472 | 636 | 343 | 3,451 | ||||||||||||
| Total | $ | 8,986 | $ | 2,342 | $ | 3,144 | $ | 14,472 | ||||||||
5. Short and Long-Term Debt
Short and long-term debt is summarized as follows:
| March
31, 2016 |
December
31, 2015 |
|||||||
| Domestic Asset-Based Revolving Credit Facility | $ | 6,600 | $ | 4,674 | ||||
| Foreign Overdraft and Letter of Credit Facility | 944 | 913 | ||||||
| Domestic Term-Loan | 4,000 | 4,250 | ||||||
| Total Debt | 11,544 | 9,837 | ||||||
| Less: Current maturities | (1,941 | ) | (1,908 | ) | ||||
| Total Long-Term Debt | $ | 9,603 | $ | 7,929 | ||||
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Domestic Credit Facilities
The Company and its domestic subsidiaries are parties to a credit facility with The PrivateBank and Trust Company. The credit facility, as amended through March 31, 2016, provided for:
| ▪ | an $8,000 revolving credit facility, with a $200 sub facility for letters of credit. Under the revolving credit facility, the availability of funds depends on a borrowing base composed of stated percentages of the Company’s eligible trade receivables and eligible inventory, and eligible equipment less a reserve; and |
| ▪ | a term loan in the original amount of $5,000. |
In April 2016, the Company and its domestic subsidiaries entered into an Eighth Amendment to the Loan and Security Agreement with The PrivateBank and Trust Company. The amendment, among other things:
| ▪ | increased the Company’s term loan to $6,000 from its then current balance of $4,000, as a result of which the Company borrowed an additional $2,000 under the term loan facility; |
| ▪ | increased the Company’s revolving credit facility borrowing capacity to $9,000 from its current capacity of $8,000; |
| ▪ | increased the inventory cap on the borrowing base from $3,500 to $4,000. Under the revolving credit facility as amended, the availability of funds depends on a borrowing base composed of stated percentages of the Company’s eligible trade receivables and inventory, less a reserve; and |
| ▪ | increased the maximum leverage ratio from 2.50 to 2.75 through December 31, 2016; |
All of the borrowings under this agreement have been characterized as either a current or long-term liability on our balance sheet in accordance with the repayment terms described more fully below.
Loans under the credit facility are secured by a security interest in substantially all of the assets of the Company and its domestic subsidiaries including a pledge of the stock of its domestic subsidiaries. Loans under the credit facility bear interest at varying rates based on the Company’s leverage ratio of funded debt / EBITDA, at the option of the Company, at:
| ▪ | the London InterBank Offered Rate (“LIBOR”) plus 2.50% to 4.00%, or |
| ▪ | the base rate, which is the higher of (a) the rate publicly announced from time to time by the lender as its “prime rate” and (b) the Federal Funds Rate plus 0.5%, plus 0.00% to 1.25%; in each case, depending on the Company’s leverage ratio. |
Interest is payable monthly in arrears, except that interest on LIBOR based loans is payable at the end of the one, two or three month interest periods applicable to LIBOR based loans. IntriCon is also required to pay a non-use fee equal to 0.25% per year of the unused portion of the revolving line of credit facility, payable quarterly in arrears.
Weighted average interest on the revolving credit facility was 3.67% for the three months ended March 31, 2016 and 3.68% for the year ended December 31, 2015. The outstanding balance of the revolving credit facility was $6,600 and $4,674 at March 31, 2016 and December 31, 2015, respectively. The total availability on the revolving credit facility was approximately $1,400 and $3,326 at March 31, 2016 and December 31, 2015, respectively.
The outstanding principal balance of the term loan, as amended, is payable in quarterly installments of $250. Any remaining principal and accrued interest is payable on February 28, 2019. IntriCon is also required to use 100% of the net cash proceeds of certain asset sales (excluding inventory and certain other dispositions), sale of capital securities or issuance of debt to pay down the term loan.
The Company was in compliance with the financial covenants under the facility as of March 31, 2016.
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Foreign Credit Facility
In addition to its domestic credit facilities, the Company’s wholly-owned subsidiary, IntriCon, PTE LTD., entered into an international senior secured credit agreement with Oversea-Chinese Banking Corporation Ltd. that provides for an asset based line of credit. Borrowings bear interest at a rate of .75% to 2.5% over the lender’s prevailing prime lending rate. Weighted average interest on the international credit facilities was 3.35% and 3.37% for the three months ended March 31, 2016 and the year ended December 31, 2015, respectively. The outstanding balance was $944 and $913 at March 31, 2016 and December 31, 2015, respectively. The total remaining availability on the international senior secured credit agreement was approximately $786 and $817 at March 31, 2016 and December 31, 2015, respectively.
6. Income Taxes
Income tax expense for the three months ended March 31, 2016 was $34 compared to $155 for the same period in 2015. The expense for the three months ended March 31, 2016 and 2015, was primarily due to foreign operations. The Company has net operating loss carryforwards for U.S. federal income tax purposes and, consequently, minimal federal benefit or expense from the domestic operations was recognized as the deferred tax asset has a full valuation allowance.
The following was the income (loss) before income taxes for each jurisdiction in which the Company has operations for the three months ended March 31, 2016 and 2015.
| Three Months Ended | ||||||||
| March 31, 2016 | March 31, 2015 | |||||||
| United States | $ | (332 | ) | $ | (310 | ) | ||
| Singapore | 204 | 541 | ||||||
| Indonesia | 18 | 20 | ||||||
| United Kingdom | 55 | — | ||||||
| Germany | 70 | 188 | ||||||
| Income before income taxes | $ | 15 | $ | 439 | ||||
7. Shareholders’ Equity and Stock-based Compensation
The Company has a 2006 Equity Incentive Plan and a 2015 Equity Incentive Plan. The 2015 Equity Incentive Plan, which was approved by the shareholders on April 24, 2015, replaced the 2006 Equity Incentive Plan. New grants may not be made under the 2006 plan; however certain option grants under the 2006 plan remain exercisable as of March 31, 2016. The aggregate number of shares of common stock for which awards could be granted under the 2015 Equity Incentive Plan as of the date of adoption was 500 shares. Additionally, as outstanding options under the 2006 plan expire, the shares of the Company’s common stock subject to the expired options will become available for issuance under the 2015 Equity Incentive Plan.
Under both plans, executives, employees and outside directors receive awards of options to purchase common stock. In addition, the Company may also grant stock awards, stock appreciation rights, restricted stock units and other equity-based awards, although no such awards, other than awards under the director program and management purchase program described below, had been granted as of March 31, 2016. Under all awards, the terms are fixed on the grant date. Generally, the exercise price of stock options equals the market price of the Company’s stock on the date of the grant. Options under the plans generally vest over three years, and have a maximum term of 10 years.
Additionally, the board has established the non-employee directors’ stock fee election program, referred to as the director program, as an award under the 2015 Equity Incentive Plan. The director program gives each non-employee director the right under the 2015 Equity Incentive Plan to elect to have some or all of his quarterly director fees paid in common shares rather than cash. No shares were issued in lieu of cash for director fees under the director program for the three months ended March 31, 2016 and 2015, respectively.
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On July 23, 2008, the Compensation Committee of the Board of Directors approved the non-employee director and executive officer stock purchase program, referred to as the management purchase program, as an award under the 2015 Plan. The purpose of the management purchase program is to permit the Company’s non-employee directors and executive officers to purchase shares of the Company’s Common Stock directly from the Company. Pursuant to the management purchase program, as amended, participants may elect to purchase shares of Common Stock from the Company not exceeding an aggregate of $100 during any fiscal year. Participants may make such election one time during each twenty business day period following the public release of the Company’s earnings announcement, referred to as a window period, and only if such participant is not in possession of material, non-public information concerning the Company and subject to the discretion of the Board to prohibit any transactions in Common Stock by directors and executive officers during a window period. There were no shares purchased under the management purchase program during the three months ended March 31, 2016 and 2015, respectively.
Stock option activity as of and during the three months ended March 31, 2016 was as follows:
| Number of Shares | Weighted-average Exercise Price |
Aggregate Intrinsic Value |
||||||||||
| Outstanding at December 31, 2015 | 1,324 | $ | 6.36 | |||||||||
| Options forfeited or cancelled | — | — | ||||||||||
| Options granted | 128 | 7.58 | ||||||||||
| Options exercised | (1 | ) | 3.16 | |||||||||
| Outstanding at March 31, 2016 | 1,451 | $ | 6.47 | $ | 1,440 | |||||||
| Exercisable at March 31, 2016 | 1,101 | $ | 6.35 | $ | 1,323 | |||||||
| Available for future grant at December 31, 2015 | 490 | |||||||||||
| Available for future grant at March 31, 2016 | 363 | |||||||||||
The number of shares available for future grants at March 31, 2016 does not include a total of up to 1,281 shares subject to options outstanding under the 2006 plan as of March 31, 2016, which will become available for grant under the 2015 Equity Incentive Plan in the event of the expiration, cancellation or surrender of such options.
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of subjective assumptions, including the expected stock price volatility. Because the Company’s options have characteristics different from those of traded options, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options. The weighted average fair value of options granted was $7.58 for options granted during the three months ended March 31, 2016. The weighted average fair value of options granted was $4.37 for options granted during the three months ended March 31, 2015.
The Company calculates expected volatility for stock options and awards using the Company’s historical volatility.
The Company currently estimates a zero percent forfeiture rate for stock options, but will continue to review this estimate in future periods.
The risk-free rates for the expected terms of the stock options and awards are based on the U.S. Treasury yield curve in effect at the time of grant.
The weighted average remaining contractual life of options exercisable at March 31, 2016 was 4.29 years.
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The Company recorded $181 of non-cash stock option expense for the three months ended March 31, 2016. The Company recorded $169 of non-cash stock option expense for the three months ended March 31, 2015. As of March 31, 2016, there was $1,139 of total unrecognized compensation costs related to non-vested awards that are expected to be recognized over a weighted-average period of 2.17 years.
The Company also has an Employee Stock Purchase Plan (the “Purchase Plan”). The Purchase Plan, as amended, through March 31, 2016, provides that a maximum of 200 shares may be sold under the Purchase Plan. There were 4 shares purchased under the plan for the three months ended March 31, 2016 and a total of 3 shares purchased for the three months ended March 31, 2015. On April 28, 2016, the shareholders approved an amendment to this plan to increase the authorized shares by an additional 100 shares.
8. Income Per Share
The following table presents a reconciliation between basic and diluted earnings per share:
| Three Months Ended | ||||||||
| March 31, 2016 | March 31, 2015 | |||||||
| Numerator: | ||||||||
| Net income attributable to IntriCon shareholders | $ | 15 | $ | 284 | ||||
| Denominator: | ||||||||
| Basic – weighted shares outstanding | 5,981 | 5,849 | ||||||
| Weighted shares assumed upon exercise of stock options | 247 | 378 | ||||||
| Diluted – weighted shares outstanding | 6,228 | 6,227 | ||||||
| Net income (loss) per share attributable to IntriCon shareholders: | ||||||||
| Basic | $ | 0.00 | $ | 0.05 | ||||
| Diluted | $ | 0.00 | $ | 0.05 | ||||
The dilutive impact summarized above relates to the periods when the average market price of Company stock exceeded the exercise price of the potentially dilutive option securities granted. Earnings per common share was based on the weighted average number of common shares outstanding during the periods when computing the basic earnings per share. When dilutive, stock options are included as equivalents using the treasury stock method when computing the diluted earnings per share. Individual components of basic and diluted income (loss) per share may not sum to the total income (loss) per share due to rounding.
9. Legal Proceedings
The Company is a defendant along with a number of other parties in lawsuits alleging that plaintiffs have or may have contracted asbestos-related diseases as a result of exposure to asbestos products or equipment containing asbestos sold by one or more named defendants. These lawsuits relate to the discontinued heat technologies segment which was sold in March 2005. Due to the non-informative nature of the complaints, the Company does not know whether any of the complaints state valid claims against the Company. Certain insurance carriers have informed the Company that the primary policies for the period August 1, 1970-1978 have been exhausted and that the carriers will no longer provide defense and insurance coverage under those policies. However, the Company has other primary and excess insurance policies that the Company believes afford coverage for later years. Some of these other primary insurers have accepted defense and insurance coverage for these suits, and some of them have either ignored the Company’s tender of defense of these cases, or have denied coverage, or have accepted the tenders but asserted a reservation of rights and/or advised the Company that they need to investigate further. Because settlement payments are applied to all years a litigant was deemed to have been exposed to asbestos, the Company believes that it will have funds available for defense and insurance coverage under the non-exhausted primary and excess insurance policies. However, unlike the older policies, the more recent policies have deductible amounts for defense and settlements costs that the Company will be required to pay; accordingly, the Company expects that its litigation costs will increase in the future. Further, many of the policies covering later years (approximately 1984 and thereafter) have exclusions for any asbestos products or operations, and thus do not provide insurance coverage for asbestos-related lawsuits. The Company does not believe that the asserted exhaustion of some of the primary insurance coverage for the 1970-1978 period will have a material adverse effect on its financial condition, liquidity, or results of operations. Management believes that the number of insurance carriers involved in the defense of the suits, and the significant number of policy years and policy limits under which these insurance carriers are insuring the Company, make the ultimate disposition of these lawsuits not material to the Company’s consolidated financial position or results of operations.
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The Company’s former French subsidiary, Selas SAS, filed for insolvency in France. The Company may be subject to additional litigation or liabilities as a result of the French insolvency proceeding, including liabilities under guarantees aggregating approximately $445.
The Company is also involved in other lawsuits arising in the normal course of business. While it is not possible to predict with certainty the outcome of these matters, management is of the opinion that the disposition of these lawsuits and claims will not materially affect our consolidated financial position, liquidity or results of operations.
10. Related-Party Transactions
One of the Company’s subsidiaries leases office and factory space from a partnership consisting of three present or former officers of the subsidiary, including Mark Gorder, a member of the Company’s Board of Directors and the President and Chief Executive Officer of the Company. The subsidiary is required to pay all real estate taxes and operating expenses. The total base rent expense, real estate taxes and other charges incurred under the lease were approximately $121 for the three months ended March 31, 2016 and approximately $122 for the three months ended March 31, 2015.
The Company uses the law firm of Blank Rome LLP for legal services. A partner of that firm is the son-in-law of the Chairman of the Company’s Board of Directors. For the three months ended March 31, 2016, the Company paid that firm approximately $67 for legal services and costs. For the three months ended March 31, 2015, the Company paid that firm approximately $48 for legal services and costs. The Chairman of our Board of Directors is considered independent under applicable Nasdaq and Securities Exchange Commission rules because (i) no payments were made to the Chairman or the partner directly in exchange for the services provided by the law firm and (ii) the amounts paid to the law firm did not exceed the thresholds contained in the Nasdaq standards. Furthermore, the aforementioned partner does not provide any legal services to the Company and is not involved in billing matters.
11. Revenue by Market
The following tables set forth, for the periods indicated, net revenue by market:
| Three Months Ended | ||||||||
| March
31, 2016 |
March
31, 2015 |
|||||||
| Medical | $ | 10,033 | $ | 8,957 | ||||
| Hearing Health | 6,468 | 5,564 | ||||||
| Professional Audio Communications | 1,757 | 2,081 | ||||||
| Total Revenue | $ | 18,258 | $ | 16,602 | ||||
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
Headquartered in Arden Hills, Minnesota, IntriCon Corporation (together with its subsidiaries referred to as the “Company”, “IntriCon,” “we”, “us” or “our”) is an international company engaged in designing, developing, engineering and manufacturing body-worn devices. In addition to its operations in Minnesota, the Company has facilities in California, Singapore, Indonesia, the United Kingdom and Germany.
Information contained in this section of this Quarterly Report on Form 10-Q and expressed in U.S. dollars is presented in thousands (000s), except for per share data and as otherwise noted.
Market Overview
IntriCon serves the body-worn device market by designing, developing, engineering, manufacturing and distributing micro-miniature products, microelectronics, micro-mechanical assemblies, complete assemblies and software solutions, primarily for the emerging value hearing health market, the medical bio-telemetry market and the professional audio communication market. Revenue from the medical bio-telemetry and value hearing health markets is reported on the respective medical and hearing health lines in the discussion of our results of operations in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 11 “Revenue by Market” to the Company’s consolidated condensed financial statements included herein.
Value Hearing Health Market
The Company believes the value hearing health (VHH) market offers significant growth opportunities. In the United States alone, there are approximately 37.5 million adults that report some degree of hearing loss. In adults the most common cause of hearing loss is aging and noise. In fact, by the age of 65 year old, one out of three people have hearing loss. The hearing impaired population is expected to grow significantly over the next decade due to an aging population and more frequent exposure to loud sounds that can cause noise-induced hearing loss. It is estimated that hearing aids can help more than 90 percent of people with hearing loss, however the current market penetration into the U.S. hearing impaired population is approximately 20 percent, a percentage that has remained essentially unchanged for the last four decades. In early January, the U.S. Food and Drug Administration (FDA) weighed in on low hearing aid penetration rates with an announcement that highlighted statistics from the National Institute on Deafness and Other Communication Disorders. They found that 37.5 million U.S. adults aged 18 and older report some form of hearing loss. However, only 30 percent of adults over 70, and 16 percent of those aged 20 to 69, who could benefit from wearing hearing aids, have ever used them. Based on these statistics, the FDA has reopened the public comment period on draft guidance related to the agency’s premarket requirements for hearing aids and PSAPs. The FDA’s intent is to consider ways in which regulation can support further penetration into the hearing market. In April 2016, the U.S. Food and Drug Administration (FDA) hosted a public workshop to gather stakeholder and public input on draft guidance related to the agency’s premarket requirements for hearing aids and PSAPs. The FDA’s intent is to consider ways in which regulation can support further device penetration into the hearing market.
In October 2015, the President’s Council of Advisors on Science & Technology (PCAST), the group that makes policy recommendations to the President, also addressed the low hearing health market penetration levels IntriCon has long pointed out. PCAST indicated that untreated hearing loss in the United States is a substantial national problem, and supported this assessment with references to the barriers to access. The group recommended revising FDA regulations and changing the current distribution channel, as well as creating new channels to increase the opportunities for consumer choice. A link to both the FDA announcement and the PCAST letter can be found on our website, www.Intricon.com.
We believe the U.S. market penetration is low primarily due to the high costs to purchase hearing aids, consolidation at the retail level and inconveniences in the distribution channel. These factors have created the opportunity for alternative care models, such as the value hearing aid (VHA) channel and personal sound amplifier (PSAP) channel. The VHA channel is outcome based focused and requires the best device and software technology, to provide the most efficient, lowest cost solution to the consumer. We believe IntriCon has positioned itself as a leader in these channels through significant, on-going investments in sales and marketing and research and development. The Company is aggressively pursuing prospective partnerships and customers who can benefit from our value proposition and the VHA and PSAP channels.
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In the VHA channel, the Company entered into a manufacturing agreement with hi HealthInnovations, a UnitedHealth Group company, to become their supplier of hearing aids. At the beginning of 2012, hi HealthInnovations launched a suite of high-tech, lower-cost hearing devices for their Medicare and Part D participants and later in the year announced they were increasing this offering to the over 26 million people enrolled in their employer-sponsored and individual health benefit plans. In 2012, they expanded their offering to include a hearing aid discount program for health plans. This program is available nationwide to all health insurers, including employer-sponsored, individual and Medicare plans. The insurance model has been successfully demonstrated internationally, where several countries providing a full insurance program are serving 40 to 70 percent of the hearing impaired population. Further, research in the U.S. has shown a fully insured model will encourage an individual to seek treatment at an earlier stage of hearing loss, greatly increasing the market size and penetration. The Company also has various international VHA initiatives. On November 3, 2015, the Company acquired the assets of PC Werth to gain direct access to the NHS and to have greater control over its efforts to accelerate new market penetration into the United Kingdom. Our integration plan, which will include site relocation, reallocating resources and leveraging corporate infrastructure, is proceeding on schedule and we anticipate these efforts to be complete by the end of the 2016 third quarter. PC Werth, through its partnership with IntriCon, has been appointed as one of the main suppliers to the National Health Service (NHS) Supply Chain’s National Framework. The NHS is widely seen as the most efficient hearing aid delivery system in the world, supplying an estimated 1.4 million hearing aids annually. We believe IntriCon is well positioned to serve their needs, and we’re developing new technologies to further enhance delivery efficiencies and product standards in the future.
We also believe there are niches in the conventional hearing health channel that will embrace our VHA proposition in the United States and Europe. High costs of conventional devices and retail consolidation have constrained the growth potential of the independent audiologist and dispenser. We believe our software and product offering can provide independent audiologists and dispensers the ability to compete with larger retailers, such as Costco, and manufacturer owned retail distributors. In Europe, we recently secured a two-year supply agreement with AudioNova International, one of Europe’s leading hearing aid providers, operating more than 1,300 retail stores in 11 countries. Through our new supply agreement, AudioNova will offer hearing devices manufactured by IntriCon. AudioNova’s smartsound brand is based on IntriCon’s Audion™ amplifier, and offers technically advanced features at value hearing health price points. AudioNova has begun rollout of the smartsound brand in the Netherlands and intends to expand the program to other targeted European countries in the future. In the third quarter of 2015, we announced a joint venture with The Academy of Doctors of Audiology (ADA) to provide hearing instruments and educational resources to audiologists and their patients. The joint venture operates as a limited liability company under the name “earVenture LLC”. earVenture was officially launched in November 2015 at the ADA conference. We expect that this joint venture will capitalize on our established reputation as a leading provider of high quality, low-cost hearing aids and the ADA’s respected position as the only national membership association focused on ownership of the audiology profession through autonomous practice and clinical excellence. To date, more than 400 of the 1,200 ADA members have registered to join the earVenture program and we have delivered initial units. In 2016, earVenture began rolling-out a comprehensive marketing and sales plan to convert those registered members to consistent customers, as well as solicit non-registered ADA members to join the program.
In the past few years the PSAP channel, which includes ear worn devices that provide cost effective sound amplification, has begun to emerge. These sound amplification devices are not regulated by the FDA, as they are not hearing aids and make no claims of compensating for hearing loss. They can be purchased “off-the-shelf” and are not fit or prescribed to meet a specific individual’s needs; rather these devices amplify sound and tend to be used in noisy or challenging environments. They have a significantly lower retail price to the consumer than traditional hearing aids.
Additionally, the Company believes there is great potential to market its situational listening devices (SLD’s). Similar to the PSAP devices, the Company’s SLD’s are intended to help people hear in noisy environments, like restaurants and automobiles, and listen to television, music, and direct broadcasts by wireless connection. Such devices are intended to be supplements to conventional hearing aids, which do not handle those situations well. The product line consists of an earpiece, TV transmitter, companion microphone, iPod/iPhone transmitter, and USB transmitter.
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Medical Bio-Telemetry
In the medical bio-telemetry market, the Company is focused on sales of bio-telemetry devices for life-critical diagnostic monitoring. Using our nanoDSP and BodyNet™ technology platforms, the Company manufactures microelectronics, micro-mechanical assemblies, high-precision injection-molded plastic components and complete bio-telemetry devices for emerging and leading medical device manufacturers. The medical industry is faced with pressures to reduce the cost of healthcare. Driven by core technologies, such as the IntriCon Physiolink™ that wirelessly connects patients and care givers in non-traditional ways, IntriCon helps shift the point of care from expensive traditional settings, such as hospitals, to less expensive non-traditional settings like the home. IntriCon currently serves this market by offering medical manufacturers the capabilities to design, develop, manufacture and distribute medical devices that are easier to use, are more miniature, use less power, and are lighter. Increasingly, the medical industry is looking for wireless, low-power capabilities in their devices. We have a strategic relationship with Advanced Medical Electronics Corp. (AME) that allows us to develop new bio-telemetry devices that better connect patients and care givers, providing critical information and feedback. Through the further development of our ULP BodyNet family, we believe the bio-telemetry markets offer significant opportunity.
IntriCon currently has a strong presence in both the diabetes and cardiac diagnostic monitoring bio-telemetry markets. For diabetes, IntriCon has partnered with Medtronic to manufacture their wireless continuous glucose monitors, sensors, and related accessories that measure glucose levels and deliver real-time blood glucose trend information. Our Medtronic business posted record revenue in 2015, led by the MiniLink REAL-Time Transmitter and related accessories sales, which are incorporated in Medtronic’s MiniMed 530G insulin pump and continuous glucose monitoring, or CGM, system. We also manufacture various accessories associated with Medtronic’s CGM system, including the recently announced MiniMed Connect, which links the MiniMed pump and CGM to certain smart devices providing users with a discrete and real-time view of their blood sugar information. In addition to the MiniMed 530G system, the products we manufacture also support Medtronic’s international insulin pump system offerings, such as the recently unveiled MiniMed 640G system. Further, we believe there are opportunities to expand our diabetes product offering with Medtronic, as well as move into new markets outside of the diabetes market.
In the cardiac diagnostic monitoring market, we provide solutions for ambulatory cardiac monitoring. Our first two product platforms, Sirona and Centauri, received FDA 510(k) approval in late 2011. The Sirona platform, which incorporates the PhysioLink technology, is essentially two products in one design: it can be used as an event recorder, a holter monitor or both. This platform is very small, rechargeable, and water spray proof. IntriCon is receiving feedback from its customers about the treatment flexibility and economic benefits of remote patient monitoring. The Company has contracts in place with lead customers for the Sirona platform and anticipates expanding that customer base during 2016.
IntriCon has a suite of medical coils and micro coils that it offers to various original equipment manufacturing (OEM) customers. These products are currently used in pacemaker programming and interventional catheter positioning applications.
IntriCon manufactures bubble sensors and flow restrictors that monitor and control the flow of fluid in an intravenous infusion system as well as a family of safety needle products for an OEM customer that utilizes IntriCon’s insert and straight molding capabilities. These products are assembled using full automation, including built-in quality checks within the production lines.
Lastly, IntriCon is targeting other emerging biotelemetry and home care markets, such as sleep apnea, that could benefit from its capabilities to develop devices that are more technologically advanced, smaller and lightweight. To do so, IntriCon is focusing more capital and resources in sales and marketing and research and development to expand its reach to other large medical device and health care companies.
Professional Audio Communications
IntriCon entered the high-quality audio communication device market in 2001, and now has a line of miniature, professional audio headset products used by customers focusing on emergency response needs. The line includes several communication devices that are extremely portable and perform well in noisy or hazardous environments. These products are well suited for applications in the fire, law enforcement, safety, aviation and military markets. In addition, the Company has a line of miniature ear- and head-worn devices used by performers and support staff in the music and stage performance markets. We believe performance in difficult listening environments and wireless operations will continue to improve as these products increasingly include our proprietary nanoDSP, wireless nanoLink and PhysioLink technologies.
Core Technologies Overview
Our core technologies expertise is focused on three main markets: medical bio-telemetry, value hearing health and professional audio communications. Over the past several years, the Company has increased investments in the continued development of four critical core technologies: Ultra-Low-Power (ULP) Digital Signal Processing (DSP), ULP Wireless, Microminiaturization, and Miniature Transducers. These four core technologies serve as the foundation of current and future product platform development, designed to meet the rising demand for smaller, portable, more advanced devices and the need for greater efficiencies in the delivery models. The continued advancements in this area have allowed the Company to further enhance the mobility and effectiveness of miniature body-worn devices.
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ULP DSP
DSP converts real-world analog signals into a digital format. Through our nanoDSP™ technology, IntriCon offers an extensive range of ULP DSP amplifiers for hearing, medical and professional audio applications. Our proprietary nanoDSP incorporates advanced ultra-miniature hardware with sophisticated signal processing algorithms to produce devices that are smaller and more effective.
The Company further expanded its DSP portfolio including improvements to its Reliant CLEAR™ feedback canceller, offering increased added stable gain and faster reaction time. Additionally, the newly developed DSP technologies are utilized in our recently unveiled Audion8™ and Audion16™, our new eight-channel and wide dynamic range compression sixteen-channel hearing aid amplifiers. The amplifiers are feature-rich and are designed to fit a wide array of applications. In addition to multiple compression channels, the amplifiers have a complete set of proven adaptive features which greatly improve the user experience.
ULP Wireless
Wireless connectivity is fast becoming a required technology, and wireless capabilities are especially critical in new body-worn devices. IntriCon’s BodyNet™ ULP technology, including the nanoLink™ and PhysioLink™ wireless systems, offers solutions for transmitting the body’s activities to caregivers, and wireless audio links for professional communications and surveillance products. Potential BodyNet applications include electrocardiogram (ECG) diagnostics and monitoring, diabetes monitoring, sleep apnea studies and audio streaming for hearing devices.
IntriCon is in the final stages of commercializing its PhysioLink wireless technology, which will be incorporated into product platforms serving the medical, hearing health and professional audio communication markets. This system is based on 2.4GHz proprietary digital radio protocol in the industrial-scientific-medical (ISM) frequency band and enables audio and data streaming to ear-worn and body-worn applications over distances of up to five meters.
Microminiaturization
IntriCon excels at miniaturizing body-worn devices. We began honing our microminiaturization skills over 30 years ago, supplying components to the hearing health industry. Our core miniaturization technology allows us to make devices for our markets that are one cubic inch and smaller. We also are specialists in devices that run on very low power, as evidenced by our ULP wireless and DSP. Less power means a smaller battery, which enables us to reduce size even further, and develop devices that fit into the palm of one’s hand.
Miniature Transducers
IntriCon’s advanced transducer technology has been pushing the limits of size and performance for over a decade. Included in our transducer line are our miniature medical coils and micro coils used in pacemaker programming and interventional catheter positioning applications. We believe with the increase of greater interventional care that our coil technology harbors significant value.
Forward-Looking and Cautionary Statements
Certain statements included in this Quarterly Report on Form 10-Q or documents the Company files with the Securities and Exchange Commission, which are not historical facts, or that include forward-looking terminology such as “may”, “will”, “believe”, “anticipate”, “expect”, “should”, “optimistic” “continue”, “estimate”, “intend”, “plan”, “would”, “could”, “guidance”, “potential”, “opportunity”, “project”, “forecast”, “confident”, “projections”, “schedule”, “designed”, “future”, “discussion”, “if” or the negative thereof or other variations thereof, are forward-looking statements (as such term is defined in Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933, and the regulations thereunder), which are intended to be covered by the safe harbors created thereby. These statements may include, but are not limited to statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to the Company’s Condensed Consolidated Financial Statements” such as net operating loss carryforwards, the ability to meet cash requirements for operating needs, the ability to meet liquidity needs, assumptions used to calculate future level of funding of employee benefit plans, the adequacy of insurance coverage and the impact of new accounting pronouncements and litigation. Forward-looking statements also include, without limitation, statements as to the Company’s expected future results of operations and growth, strategic alliances and their benefits, government regulation, potential increases in demand for the Company’s products, the Company’s ability to meet working capital requirements, the Company’s business strategy, the expected increases in operating efficiencies, anticipated trends in the Company’s markets, estimates of goodwill impairments and amortization expense of other intangible assets, the effects of changes in accounting pronouncements, the effects of litigation and the amount of insurance coverage, and statements as to trends or the Company’s or management’s beliefs, expectations and opinions.
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Forward-looking statements are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially from those in the forward-looking statements. In addition to the factors discussed in this Quarterly Report on Form 10-Q, certain risks, uncertainties and other factors can cause actual results and developments to be materially different from those expressed or implied by such forward-looking statements, including, without limitation, the following:
| ▪ | our ability to successfully implement our business and growth strategy; |
| ▪ | risks arising in connection with the insolvency of our former subsidiary, Selas SAS, and potential liabilities and actions arising in connection with the insolvency; |
| ▪ | the volume and timing of orders received by the Company, particularly from Medtronic and hi HealthInnovations; |
| ▪ | changes in estimated future cash flows; |
| ▪ | our ability to collect our accounts receivable; |
| ▪ | foreign currency movements in markets that we serve; |
| ▪ | changes in the global economy and financial markets; |
| ▪ | weakening demand for our products due to general economic conditions; |
| ▪ | changes in the mix of products sold; |
| ▪ | our ability to meet demand; |
| ▪ | changes in customer requirements; |
| ▪ | timing and extent of research and development expenses; |
| ▪ | FDA approval, timely release and acceptance of our products; |
| ▪ | competitive pricing pressures; |
| ▪ | pending and potential future litigation; |
| ▪ | cost and availability of electronic components and commodities for our products; |
| ▪ | our ability to create and market products in a timely manner and develop products that are inexpensive to manufacture; |
| ▪ | our ability to comply with covenants in our debt agreements or to obtain waivers if we do not comply; |
| ▪ | our ability to repay debt when it comes due; |
| ▪ | ability to obtain extensions of our current credit facility or a new credit facility; |
| ▪ | the loss of one or more of our major customers; |
| ▪ | our ability to identify, complete and integrate acquisitions; |
| ▪ | effects of legislation; |
| ▪ | effects of foreign operations; |
| ▪ | our ability to develop new products; |
| ▪ | our ability to recruit and retain engineering and technical personnel; |
| ▪ | the costs and risks associated with research and development investments; |
| ▪ | the recent recessions in Europe and the debt crisis in certain countries in the European Union; |
| ▪ | our ability and the ability of our customers to protect intellectual property; |
| ▪ | cybersecurity threats; |
| ▪ | loss of members of our senior management team; and |
| ▪ | other risk factors set forth in our most recent Annual Report on Form 10-K or any prior Quarterly Report on Form 10-Q, which are incorporated by reference into this Report. |
For a description of these and other risks, see Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, and other risks described elsewhere in this Quarterly Report on Form 10-Q, or in other filings the Company makes from time to time with the Securities and Exchange Commission. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company.
Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period.
Certain accounting estimates and assumptions are particularly sensitive because their significance to the consolidated condensed financial statements and the possibility that future events affecting them may differ markedly. The accounting policies of the Company with significant estimates and assumptions include the Company’s revenue recognition, accounts receivable reserves, inventory valuation, goodwill, long-lived assets, deferred taxes policies and employee benefit obligations. These and other significant accounting policies are described in and incorporated by reference from “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 1 to the financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
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Results of Operations
Sales, net
Our net sales are comprised of three main markets: medical, hearing health, and professional audio communications. Below is a summary of our sales by main markets for the three months ended March 31, 2016 and 2015:
| Change | ||||||||||||||||
| Three Months Ended March 31 | 2016 | 2015 | Dollars | Percent | ||||||||||||
| Medical | $ | 10,033 | $ | 8,957 | $ | 1,076 | 12.0 | % | ||||||||
| Hearing Health | 6,468 | 5,564 | 904 | 16.2 | % | |||||||||||
| Professional Audio Communications | 1,757 | 2,081 | (324 | ) | -15.6 | % | ||||||||||
| Consolidated Net Sales | $ | 18,258 | $ | 16,602 | $ | 1,656 | 10.0 | % | ||||||||
For the three months ended March 31, 2016, we experienced an increase of 12.0% in net sales in the medical market compared to the same period in 2015. Medtronic revenues were up year-over-year and we continue to anticipate Medtronic revenue growth throughout 2016 driven by market share growth for legacy products and the introduction of new products. IntriCon currently serves this market by offering medical manufacturers the capabilities to design, develop and manufacture medical devices that are easier to use, are more miniature, use less power, and are lighter. IntriCon has a strong presence in both the diabetes market, with its Medtronic partnership, and cardiac diagnostic monitoring bio-telemetry market. The Company believes there are growth opportunities in these markets as well other emerging biotelemetry and home care markets, such as sleep apnea, that could benefit from its capabilities to develop devices that are more technologically advanced, smaller and lightweight.
Net sales in our hearing health business for the three months ended March 31, 2016 increased 16.2% compared to the same period in 2015. The increase for the three months ended March 31, 2016 was primarily due to increases in the value hearing health market. The Company remains very optimistic about the progress that has been made and the long term prospects of the value hearing health market. Market dynamics, such as low penetration rates, an aging population, and the need for reduced cost and convenience, have resulted in the emergence of alternative care models, such the insurance channel and PSAP channel. IntriCon believes it is very well positioned to serve these value hearing health market channels. The Company will be aggressively pursuing larger customers who can benefit from our value proposition. Over the past several years, the Company has invested heavily in core technologies, product platforms and its global manufacturing capabilities geared to provide high-tech, lower-cost hearing devices.
Net sales to the professional audio device sector decreased 15.6% for the three months ended March 31, 2016 compared to the same period in 2015. IntriCon will continue to leverage its core technology in professional audio to support existing customers, as well as pursue related hearing health and medical product opportunities.
Gross profit
Gross profit, both in dollars and as a percent of sales, for the three months ended March 31, 2016 and 2015, was as follows:
| 2016 | 2015 | Change | ||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||
| Three Months Ended March 31 | Dollars | of Sales | Dollars | of Sales | Dollars | Percent | ||||||||||||||||||
| Gross Profit | $ | 5,114 | 28.0 | % | $ | 4,328 | 26.1 | % | $ | 786 | 18.2 | % | ||||||||||||
The 2016 gross profit increase over the comparable prior year period was primarily due to higher overall sales volumes.
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Sales and Marketing, General and Administrative and Research and Development Expenses
Sales and marketing, general and administrative and research and development expenses for the three months ended March 31, 2016 and 2015 were as follows:
| 2016 | 2015 | Change | ||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||
| Three Months Ended March 31 | Dollars | of Sales | Dollars | of Sales | Dollars | Percent | ||||||||||||||||||
| Sales and Marketing | $ | 1,196 | 6.6 | % | $ | 987 | 5.9 | % | $ | 209 | 21.2 | % | ||||||||||||
| General and Administrative | 2,291 | 12.5 | % | 1,709 | 10.3 | % | 582 | 34.1 | % | |||||||||||||||
| Research and Development | 1,416 | 7.8 | % | 1,226 | 7.4 | % | 190 | 15.5 | % | |||||||||||||||
Sales and marketing increased over the prior year due to increased costs at IntriCon UK. General and administrative expenses were greater than the prior year period primarily due to increased support costs along with costs at IntriCon UK. Research and development increased over the prior year three month period primarily due to increased outside service and support costs.
Interest expense
Net interest expense for the three months ended March 31, 2016 was $126 compared to $103 for the comparable three month period in 2015. The increase in interest expense was primarily due to higher average debt balances compared to the prior year period.
Other income (expense)
Other income (expense) for the three months ended March 31, 2016 was $(70) compared to other income of $136 for the same period in 2015. The change in other income (expense) primarily related to a royalty earned in the 2015 first quarter which did not reoccur in 2016.
Income tax expense
Income tax expense for the three months ended March 31, 2016 was $34 compared to $155 for the same period in 2015. The expense decrease for the three months ended March 31, 2016 was primarily due to lower taxable income generated by foreign operations.
Liquidity and Capital Resources
As of March 31, 2016, we had $553 of cash on hand. Sources of our cash for the three months ended March 31, 2016 have been from our financing activities, as described below. The Company’s cash flows from operating, investing and financing activities, as reflected in the statement of cash flows, are summarized as follows:
| Three Months Ended | ||||||||
| March 31, 2016 | March 31, 2015 | |||||||
| Cash provided by (used in): | ||||||||
| Operating activities | $ | (933 | ) | $ | 1,171 | |||
| Investing activities | (642 | ) | (711 | ) | ||||
| Financing activities | 1,659 | 617 | ||||||
| Effect of exchange rate changes on cash | 100 | (196 | ) | |||||
| Increase in cash | $ | 184 | $ | 881 | ||||
The most significant items that contributed to the $(933) of cash used in operating activities were increases in accounts receivable and other assets and a decrease in accrued expenses partially offset by an increase in accounts payable and add backs for non-cash depreciation and stock compensation.
Net cash used in investing activities of $(642) consisted of purchases of property, plant and equipment.
Net cash provided by financing activities of $1,659 was comprised primarily of proceeds from long-term borrowings partially offset by repayments of borrowings under our credit facilities.
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The effect of exchange rate changes on cash fluctuated largely due to the dollar strengthening in comparison to the euro.
The Company had the following bank arrangements:
| March 31, 2016 | December 31, 2015 | |||||||
| Total borrowing capacity under existing facilities | $ | 13,730 | $ | 13,980 | ||||
| Facility Borrowings: | ||||||||
| Domestic revolving credit facility | 6,600 | 4,674 | ||||||
| Domestic term loan | 4,000 | 4,250 | ||||||
| Foreign overdraft and letter of credit facility | 944 | 913 | ||||||
| Total borrowings and commitments | 11,544 | 9,837 | ||||||
| Remaining availability under existing facilities | $ | 2,186 | $ | 4,143 | ||||
Domestic Credit Facilities
The Company and its domestic subsidiaries are parties to a credit facility with The PrivateBank and Trust Company. The credit facility, as amended through March 31, 2016, provided for:
| ▪ | an $8,000 revolving credit facility, with a $200 sub facility for letters of credit. Under the revolving credit facility, the availability of funds depends on a borrowing base composed of stated percentages of the Company’s eligible trade receivables and eligible inventory, and eligible equipment less a reserve; and |
| ▪ | a term loan in the original amount of $5,000. |
In April 2016, the Company and its domestic subsidiaries entered into an Eighth Amendment to the Loan and Security Agreement with The PrivateBank and Trust Company. The amendment, among other things:
| ▪ | increased the Company’s term loan to $6,000 from its then current balance of $4,000, as a result of which the Company borrowed an additional $2,000 under the term loan facility; |
| ▪ | increased the Company’s revolving credit facility borrowing capacity to $9,000 from its then current capacity of $8,000; |
| ▪ | increased the inventory cap on the borrowing base from $3,500 to $4,000. Under the revolving credit facility as amended, the availability of funds depends on a borrowing base composed of stated percentages of the Company’s eligible trade receivables and inventory, less a reserve; and |
| ▪ | increased the maximum leverage ratio from 2.50 to 2.75 through December 31, 2016; |
All of the borrowings under this agreement have been characterized as either a current or long-term liability on our balance sheet in accordance with the repayment terms described more fully below.
Loans under the credit facility are secured by a security interest in substantially all of the assets of the Company and its domestic subsidiaries including a pledge of the stock of its domestic subsidiaries. Loans under the credit facility bear interest at varying rates based on the Company’s leverage ratio of funded debt / EBITDA, at the option of the Company, at:
| ▪ | the London InterBank Offered Rate (“LIBOR”) plus 2.50% to 4.00%, or |
| ▪ | the base rate, which is the higher of (a) the rate publicly announced from time to time by the lender as its “prime rate” and (b) the Federal Funds Rate plus 0.5%, plus 0.00% to 1.25%; in each case, depending on the Company’s leverage ratio. |
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Interest is payable monthly in arrears, except that interest on LIBOR based loans is payable at the end of the one, two or three month interest periods applicable to LIBOR based loans. IntriCon is also required to pay a non-use fee equal to 0.25% per year of the unused portion of the revolving line of credit facility, payable quarterly in arrears.
Weighted average interest on the revolving credit facility was 3.67% for the three months ended March 31, 2016 and 3.68% for the year ended December 31, 2015. The outstanding balance of the revolving credit facility was $6,600 and $4,674 at March 31, 2016 and December 31, 2015, respectively. The total availability on the revolving credit facility was approximately $1,400 and $3,326 at March 31, 2016 and December 31, 2015, respectively.
The outstanding principal balance of the term loan, as amended, is payable in quarterly installments of $250. Any remaining principal and accrued interest is payable on February 28, 2019. IntriCon is also required to use 100% of the net cash proceeds of certain asset sales (excluding inventory and certain other dispositions), sale of capital securities or issuance of debt to pay down the term loan.
The Company was in compliance with the financial covenants under the facility as of March 31, 2016.
Foreign Credit Facility
In addition to its domestic credit facilities, the Company’s wholly-owned subsidiary, IntriCon, PTE LTD., entered into an international senior secured credit agreement with Oversea-Chinese Banking Corporation Ltd. that provides for an asset based line of credit. Borrowings bear interest at a rate of .75% to 2.5% over the lender’s prevailing prime lending rate. Weighted average interest on the international credit facilities was 3.35% and 3.37% for the three months ended March 31, 2016 and the year ended December 31, 2015, respectively. The outstanding balance was $944 and $913 at March 31, 2016 and December 31, 2015, respectively. The total remaining availability on the international senior secured credit agreement was approximately $786 and $817 at March 31, 2016 and December 31, 2015, respectively.
Capital Adequacy
We believe that funds expected to be generated from operations, the available borrowing capacity through our revolving credit loan facilities and the control of capital spending will be sufficient to meet our anticipated cash requirements for operating needs and for repayment of maturing debt for at least the next 12 months. If, however, we do not generate sufficient cash from operations, or if we incur additional unanticipated liabilities, we may be required to seek additional financing or sell equity or debt on terms which may not be as favorable as we could have otherwise obtained. No assurance can be given that any refinancing, additional borrowing or sale of equity or debt will be possible when needed or that we will be able to negotiate acceptable terms. In addition, our access to capital is affected by prevailing conditions in the financial and equity capital markets, as well as our own financial condition. Furthermore, if we fail to meet our financial and other covenants under our loan agreements, absent waiver, we will be in default of the loan agreements and our lenders could take action that would adversely affect our business. There can be no assurance that our lenders will provide a waiver of any default in our loan covenants. While management believes that we will be able to meet our liquidity needs for at least the next 12 months, no assurance can be given that we will be able to do so.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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ITEM 4. Controls and Procedures
The Company’s management, with the participation of its chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of March 31, 2016 (the “Disclosure Controls Evaluation”). Based on the Disclosure Controls Evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective to provide a reasonable level of assurance that: (i) information required to be disclosed by the Company in the reports the Company files or submits under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) information required to be disclosed in the reports the Company files or submits under Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure, all in accordance with Exchange Act Rule 13a-15(e).
There were no changes in the Company’s internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), during the quarter ended March 31, 2016, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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The information contained in note 9 to the Consolidated Condensed Financial Statements in Part I of this quarterly report is incorporated by reference herein.
In addition to the foregoing and the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, which could materially affect the Company’s business, financial condition or future results. The risk factors in the Company’s Annual Report on Form 10-K have not materially changed. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures.
Not applicable.
None.
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| (a) | Exhibits |
| 10.1* | Eighth Amendment to Loan and Security Agreement among the Company, IntriCon, Inc., IntriCon Tibbetts Corporation and The PrivateBank and Trust Company, dated as of April 15, 2016. |
| 10.2* | Third Amended and Restated Term Note from the Company, IntriCon, Inc. and IntriCon Tibbetts Corporation to The PrivateBank and Trust Company dated April 15, 2016. |
| 10.3* | Amended and Restated Revolving Note from the Company, IntriCon, Inc. and IntriCon Tibbetts Corporation to The PrivateBank and Trust Company dated April 15, 2016. |
| 10.4+ | Employee Stock Purchase Plan, as amended (incorporated by reference from Appendix A to the Company’s proxy statement filed with the SEC on March 11, 2016). |
| 10.5*+ | Amendment No. 2 to Equity Plans. |
| 31.1* | Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2* | Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1* | Certification of principal executive officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2* | Certification of principal financial officer to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101* | The following materials from IntriCon Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Condensed Balance Sheets as of March 31, 2016, (Unaudited) and December 31, 2015; (ii) Consolidated Condensed Statements of Operations (Unaudited) for the Three Months Ended March 31, 2016, and 2015; (iii) Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited) for the Three Months Ended March 31, 2016, and 2015; (iv) Consolidated Condensed Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2016, and 2015; and (v) Notes to Consolidated Condensed Financial Statements (Unaudited) |
| * | Filed herewith. |
| + | Denotes management contract, compensatory plan or arrangement. |
| 25 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| INTRICON CORPORATION | ||
| (Registrant) | ||
| Date: May 12, 2016 | By: | /s/ Mark S. Gorder |
| Mark S. Gorder | ||
| President and Chief Executive Officer | ||
| (principal executive officer) | ||
| Date: May 12, 2016 | By: | /s/ Scott Longval |
| Scott Longval | ||
| Chief Financial Officer and Treasurer | ||
| (principal financial officer) | ||
| 26 |
| 10.1* | Eighth Amendment to Loan and Security Agreement among the Company, IntriCon, Inc., IntriCon Tibbetts Corporation and The PrivateBank and Trust Company, dated as of April 15, 2016. |
| 10.2* | Third Amended and Restated Term Note from the Company, IntriCon, Inc. and IntriCon Tibbetts Corporation to The PrivateBank and Trust Company dated April 15, 2016. |
| 10.3* | Amended and Restated Revolving Note from the Company, IntriCon, Inc. and IntriCon Tibbetts Corporation to The PrivateBank and Trust Company dated April 15, 2016. |
| 10.4+ | Employee Stock Purchase Plan, as amended (incorporated by reference from Appendix A to the Company’s proxy statement filed with the SEC on March 11, 2016). |
| 10.5*+ | Amendment No. 2 to Equity Plans. |
| 31.1* | Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2* | Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1* | Certification of principal executive officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2* | Certification of principal financial officer to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101* | The following materials from IntriCon Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Condensed Balance Sheets as of March 31, 2016, (Unaudited) and December 31, 2015; (ii) Consolidated Condensed Statements of Operations (Unaudited) for the Three Months Ended March 31, 2016, and 2015; (iii) Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited) for the Three Months Ended March 31, 2016, and 2015; (iv) Consolidated Condensed Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2016, and 2015; and (v) Notes to Consolidated Condensed Financial Statements (Unaudited) |
| * | Filed herewith. |
| + | Denotes management contract, compensatory plan or arrangement. |
| 27 |
EXHIBIT 10.1
EIGHTH AMENDMENT TO Loan AND SECURITY AGREEMENT
THIS EIGHTH AMENDMENT TO Loan AND SECURITY AGREEMENT (this “Amendment”) is made and entered into as of April 15, 2016, by and among INTRICON CORPORATION, a Pennsylvania corporation, INTRICON, INC. (formerly known as Resistance Technology, Inc.), a Minnesota corporation (successor-by-merger to Intricon Datrix Corporation (formerly known as Jon Barron, Inc.) (d/b/a Datrix), a California corporation), INTRICON TIBBETTS CORPORATION (formerly known as TI Acquisition Corporation), a Maine corporation (each, a “Borrower”; collectively, the “Borrowers”), and THE PRIVATEBANK AND TRUST COMPANY, an Illinois banking corporation (the “Bank”).
RECITALS:
A. The Borrowers and the Bank are parties to a certain Loan and Security Agreement dated as of August 13, 2009, as amended by a First Amendment dated as of March 12, 2010, as further amended by a Second Amendment dated as of August 12, 2011, as further amended by a Third Amendment dated as of March 1, 2012, as further amended by a Fourth Amendment dated as of August 6, 2012, as further amended by a Fifth Amendment dated December 21, 2012, as further amended by a Sixth Amendment dated February 14, 2014 and as further amended by a Seventh Amendment dated March 31, 2015 (as so amended, the “Loan Agreement”). All capitalized terms not otherwise defined herein shall have the meanings given to them in the Loan Agreement.
B. The Borrowers have requested that the Bank amend certain provisions of the Loan Agreement, and the Bank has agreed to so amend the Loan Agreement upon the terms and subject to the conditions set forth in this Amendment.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the nature, receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Delivery of Documents. At or prior to the execution of this Amendment, and as a condition precedent to the effectiveness of this Amendment, the Borrowers shall have satisfied the following conditions and delivered or caused to be delivered to the Bank the following documents each dated such date and in form and substance satisfactory to the Bank and duly executed by all appropriate parties:
(a) This Amendment, duly executed by the Borrowers.
(b) The Third Amended and Restated Term Note, made payable by the Borrowers to the order of the Bank in the principal amount of $6,000,000 and otherwise in form and substance acceptable to the Bank (the “Term Note”).
(c) The Amended and Restated Revolving Note, made payable by the Borrowers to the order of the Bank in the principal amount of $9,000,000 and otherwise in form and substance acceptable to the Bank (the “Revolving Note”).
(d) With respect to each Borrower, a copy of the resolutions of the Board of Directors of such Borrower authorizing the execution, delivery and performance of this Amendment, the Term Note and the Revolving Note certified as true and accurate by an officer of such Borrower, along with a certificate of such officer which (i) certifies that there has been no amendment to either the Articles of Incorporation or the Bylaws of such Borrower since true and accurate copies of the same were last delivered and certified to the Bank, and that said Articles of Incorporation and the Bylaws remain in full force and effect as of the date of this Amendment, (ii) identifies each officer of such Borrower authorized to execute this Amendment and any other instrument or agreement executed by such Borrower in connection with this Amendment, and (iii) sets forth specimen signatures of each officer of such Borrower referred to above and identifies the office or offices held by such officer.
(e) The Bank shall have received an amendment fee in the amount of $15,000, which fee shall be non-refundable when paid and wholly earned when received.
(f) Such other documents or instruments as the Bank may reasonably require.
Section 2. Amendments.
(a) Definitions. Section 1.1 of the Loan Agreement is amended by adding in appropriate alphabetical order, or amending and restating, as applicable, the following terms:
“Borrowing Base Amount” shall mean:
(a) an amount equal to eighty-five percent (85%) of the net amount (after deduction of such reserves and allowances as the Bank deems proper and necessary in the exercise of its commercially reasonable judgment) of all Eligible Accounts of all Borrowers; provided, however, that for all Eligible Accounts for which Medtronic, Inc., United Healthcare or any subsidiary thereof, is the Account Debtor, the foregoing reference to 85% shall be deemed to be 90%; plus
(b) the lesser of (i) an amount equal to fifty percent (50%) of the lower of cost or market value (after deduction of such reserves and allowances as the Bank deems proper and necessary in the exercise of its commercially reasonable judgment) of all Eligible Inventory of all Borrowers, and (ii) Four Million and 00/100 Dollars ($4,000,000.00).
“LIBOR Rate” shall mean a per annum rate of interest equal to the greater of (a) 0% and (b) LIBOR for the relevant Interest Period, which LIBOR Rate shall remain fixed during such Interest Period.
“Pledged Entities” means, collectively, Inc. and, until such time that Tibbetts is dissolved in accordance with Section 8.2 herein, Tibbetts.
“Revolving Loan Commitment” shall mean Nine Million and 00/100 Dollars ($9,000,000.00).
“Term Note” means a term note in the form prepared by and acceptable to the Bank, dated as of the date of the Eighth Amendment to this Agreement, in the original principal amount of $6,000,000 and maturing on the Term Loan Maturity Date, duly executed by the Borrowers and made jointly and severally payable to the order of the Bank, together with any and all renewal, extension, modification or replacement notes executed by the Borrowers and delivered to the Bank and given in substitution therefor.
| 2 |
(b) Amended Definition. The definition of “Applicable Base Rate Margin,” “Applicable LIBOR Rate Margin,” “Applicable LOC Fee” and “Applicable Non-Use Fee” is hereby amended by inserting to the end thereof the following sentence: “From the date of the Eighth Amendment to this Agreement to and including the Determination Date in June 2016, the pricing associated with Tier II will be in effect.”
(c) Term Loan Provisions.
(i) Section 2.2(a) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
(a) Term Loan.
(i) The Bank has made term loans to the Borrowers in accordance with the terms of this Agreement, in connection with the Second Amendment to this Agreement, the Fifth Amendment to this Agreement and the Seventh Amendment to this Agreement (the “Prior Term Loans”). Immediately before giving effect to the Eighth Amendment to this Agreement, the aggregate outstanding principal balance of the Prior Term Loans was $4,000,000 and the Borrowers’ obligation to pay the Prior Term Loans was evidenced by the Second Amended and Restated Term Note of the Borrowers dated March 31, 2015 and payable to the order of the Bank in the original principal amount of $5,000,000 (the “Prior Term Note”).
(ii) The Bank agrees to make a new term loan to the Borrowers in the amount of $2,000,000 (the “Eighth Amendment Term Loan”) on the date the conditions precedent to the Eighth Amendment to this Agreement are satisfied and from and after such date, the Prior Term Loan and the Eighth Amendment Term Loan will be deemed to be a single term loan in the original principal amount of $6,000,000 and will be referred to as the “Term Loan”. The obligation of the Borrowers to pay the principal of, and interest on, the Term Loan shall be evidenced by the Term Note. The Borrowers will use the proceeds of the Eighth Amendment Term Loan for the purposes of prepaying the Borrowers’ Revolving Loans in part and financing their working capital requirements and general corporate purposes. The Term Loan may be prepaid in whole or in part at any time subject to Section 2.2(e), but shall be due in full on the Term Loan Maturity Date, unless the credit extended under the Term Loan is otherwise accelerated, terminated or extended as provided in this Agreement.
(ii) Section 2.2(c) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
(c) Term Loan Principal Payments. The outstanding principal balance of the Term Loan shall be repaid in equal quarterly installments of $250,000, payable on the last day of each calendar quarter, commencing with the calendar quarter ending June 30, 2016, and the remaining unpaid principal of the Term Loan, together with all accrued and unpaid interest thereon, shall be due and payable on the Term Loan Maturity Date. Principal amounts repaid on the Term Note may not be borrowed again.
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(d) Borrowers’ Existence. Section 8.2 of the Loan Agreement is hereby amended to insert to the end thereof a new sentence to read as follows:
Notwithstanding anything to the contrary in this Section 8.2, Tibbetts may be dissolved within 30 days after the date of the Eighth Amendment to this Agreement, provided that, (i) at the time thereof and immediately after giving effect thereto, no Unmatured Event of Default or Event of Default shall have occurred and be continuing and (ii) the Borrowers shall provide evidence to the Bank of the dissolution of Tibbetts promptly after effectiveness thereof.
(e) Investments.
(i) Section 9.3(e) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
(e) Investments listed on Schedule 9.3 as of the date of the Eighth Amendment to this Agreement, including Investments in the Foreign Subsidiaries of Borrowers, provided that Investments made in IntriCon UK, Ltd. shall be subject to the limitations set forth in clause (g) of this Section 9.3;
(ii) Section 9.3(g) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
(g) Investments in the Potential Investments as contemplated by the agreements delivered to the Bank in connection with the Seventh Amendment to this Agreement and, after delivery to the Bank of such documents as the Bank may reasonably request, other Investments in businesses related to the core business activities of the Borrowers made on or after the date of the Seventh Amendment to this Agreement, including, among others, Investments made in Intricon UK Ltd., provided that (i) immediately before and immediately after giving effect to any such Investment, no Unmatured Event of Default or Event of Default shall have occurred and be continuing and (ii) aggregate amount of such Investments (net of all repayments, returns of capital, interest payments, dividends and distributions received after the date of the Seventh Amendment to this Agreement) does not exceed $4,000,000 at any time;
(f) Change of Legal Status. Section 9.13 of the Loan Agreement is hereby amended to insert to the end thereof a new sentence to read as follows:
Notwithstanding anything to the contrary in this Section 9.13, Tibbetts may be dissolved in accordance with Section 8.2 of this Agreement.
| 4 |
(g) Funded Debt to EBITDA. Section 10.2 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
10.2 Funded Debt to EBITDA. As of each of the measurement dates set forth in the chart below, the Borrowers and their respective consolidated Subsidiaries shall maintain a ratio of: (a) consolidated Funded Debt as of such date, minus the aggregate collected cash balance in Deposit Accounts of the Borrowers maintained with the Bank as of such date; to (b) consolidated EBITDA (the “Leverage Ratio”) for the period of twelve (12) consecutive calendar months then-ended of not greater than the amount set forth opposite such measurement date in the chart below:
| Measurement Date | Maximum Leverage Ratio |
| December 31, 2015 | 2.50 to 1.00 |
| March 31, 2016 | 2.75 to 1.00 |
| June 30, 2016 | 2.75 to 1.00 |
| September 30, 2016 | 2.75 to 1.00 |
| December 31, 2016 | 2.75 to 1.00 |
| March 31, 2017 and the last day of each calendar quarter ending thereafter | 2.50 to 1.00 |
(h) Schedules. Schedules 7.1, 7.28, and 9.3 to the Loan Agreement are hereby replaced in their entirety with Schedules 7.1, 7.28, and 9.3 attached hereto.
Section 3. Tibbets Representations and Release. The Borrowers represent and warrant that Tibbetts has no material assets, liabilities or operations. The Bank agrees that, subject to satisfaction of the requirements set forth in Section 8.2 of the Loan Agreement, as amended by this Amendment, Tibbetts will be deemed to be automatically released and discharged of any Obligations under the Loan Agreement and will no longer constitute an Obligor thereunder or under any other Loan Document. The Bank’s release and discharge will be deemed to occur automatically and concurrently with (but immediately prior to the effectiveness of) the dissolution of Tibbetts, without any further action on the part of the Bank or the Borrowers. Notwithstanding the foregoing, to the extent that any Collateral is transferred by Tibbetts to a Borrower in connection with the dissolution of Tibbetts, such Collateral shall remain subject to the Bank’s security interest in such Collateral.
Section 4. Representations; No Default. Each Borrower represents and warrants that: (a) the representation and warranties contained in Section 7 of the Loan Agreement are true and correct in all material respects, as though made on the date hereof, except to the extent such representation and warranty, by its express terms, relates solely to a prior date, and except that the representations and warranties contained in Section 7.26 of the Loan Agreement shall be true and correct in all material respects, as though made on the date of the financial statements most recently delivered to the Bank pursuant to Section 8.8(a) of the Loan Agreement; (b) such Borrower has the power and legal right and authority to enter into this Amendment and has duly authorized the execution and delivery of this Amendment and other agreements and documents executed and delivered by such Borrower in connection herewith; (c) neither this Amendment nor the agreements contained herein contravene or constitute an Unmatured Event of Default or Event of Default under the Loan Agreement or a default under any other agreement, instrument or indenture to which such Borrower is a party or a signatory, or any provision of such Borrower’s Articles of Incorporation or Bylaws or, to the best of such Borrower’s knowledge, any other agreement or requirement of law, or result in the imposition of any lien or other encumbrance on any of its property under any agreement binding on or applicable to such Borrower or any of its property except, if any, in favor of the Bank; (d) no consent, approval or authorization of or registration or declaration with any party, including but not limited to any governmental authority, is required in connection with the execution and delivery by the Borrower of this Amendment or other agreements and documents executed and delivered by such Borrower in connection herewith or the performance of obligations of such Borrower herein described, except for those which such Borrower has obtained or provided and as to which such Borrower has delivered certified copies of documents evidencing each such action to the Bank; (e) no events have taken place and no circumstances exist at the date hereof which would give such Borrower grounds to assert a defense, offset or counterclaim to the obligations of such Borrower under the Loan Agreement or any of the other Loan Documents; (f) there are no known claims, causes of action, suits, debts, liens, obligations, liabilities, demands, losses, costs and expenses (including attorneys’ fees) of any kind, character or nature whatsoever, fixed or contingent, which such Borrower may have or claim to have against the Bank, which might arise out of or be connected with any act of commission or omission of the Bank existing or occurring on or prior to the date of this Amendment, including, without limitation, any claims, liabilities or obligations arising with respect to the indebtedness evidenced by the Notes (as defined in the Loan Agreement); and (g) after giving effect to this Amendment, no Unmatured Event of Default or Event of Default has occurred and is continuing under the Loan Agreement.
| 5 |
Section 5. Affirmation; Further References. The Bank and each Borrower acknowledge and affirm that the Loan Agreement, as hereby amended, is hereby ratified and confirmed in all respects and all terms, conditions and provisions of the Loan Agreement (except as amended by this Amendment) and of each of the other Loan Documents shall remain unmodified and in full force and effect. All references in any document or instrument to the Loan Agreement are hereby amended and shall refer to the Loan Agreement as amended by this Amendment.
Section 6. Severability. Whenever possible, each provision of this Amendment and any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be interpreted in such manner as to be effective, valid and enforceable under the applicable law of any jurisdiction, but, if any provision of this Amendment or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be held to be prohibited, invalid or unenforceable under the applicable law, such provision shall be ineffective in such jurisdiction only to the extent of such prohibition, invalidity or unenforceability, without invalidating or rendering unenforceable the remainder of such provision or the remaining provisions of this Amendment or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto in such jurisdiction, or affecting the effectiveness, validity or enforceability of such provision in any other jurisdiction.
Section 7. Successors. This Amendment shall be binding upon the Borrowers, the Bank and their respective successors and assigns, and shall inure to the benefit of the Borrowers, the Bank and to the respective successors and assigns of the Bank.
Section 8. Costs and Expenses. Each Borrower agrees to reimburse the Bank, upon execution of this Amendment, for all reasonable out-of-pocket expenses (including attorneys’ fees and legal expenses of counsel for the Bank) incurred in connection with the Loan Agreement, including in connection with the negotiation, preparation and execution of this Amendment and all other documents negotiated, prepared and executed in connection with this Amendment, and in enforcing the obligations of the Borrowers under this Amendment, and to pay and save the Bank harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment.
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Section 9. Headings. The headings of various sections of this Amendment have been inserted for reference only and shall not be deemed to be a part of this Amendment.
Section 10. Counterparts; Digital Copies. This Amendment may be executed in several counterparts as deemed necessary or convenient, each of which, when so executed, shall be deemed an original, provided that all such counterparts shall be regarded as one and the same document, and any party to this Amendment may execute any such agreement by executing a counterpart of such agreement. A facsimile or digital copy (.pdf) of this signed Amendment shall be deemed to be an original thereof.
Section 11. Release of Rights and Claims. Each Borrower, for itself and its successors and assigns, hereby releases, acquits, and forever discharges Bank and its successors and assigns for any and all manner of actions, suits, claims, charges, judgments, levies and executions occurring or arising from the transactions entered into with Bank prior to entering into this Amendment whether known or unknown, liquidated or unliquidated, fixed or contingent, direct or indirect which such Borrower may have against Bank.
Section 12. Governing Law. This Amendment shall be governed by the internal laws of the State of Minnesota, without giving effect to conflict of law principles thereof.
Section 13. No Waiver. Nothing contained in this Amendment (or in any other agreement or understanding between the parties) shall constitute a waiver of, or shall otherwise diminish or impair, the Bank’s rights or remedies under the Loan Agreement or any of the other Loan Documents, or under applicable law.
[Remainder of page intentionally blank; signature page follows]
| 7 |
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first above written.
| BORROWERS: | INTRICON
CORPORATION, a Pennsylvania corporation | |
| By | /s/ Scott Longval | |
| Scott Longval, Chief Financial Officer | ||
| INTRICON,
INC. (formerly known as Resistance Technology, Inc.), a Minnesota corporation | ||
| By | /s/ Scott Longval | |
| Scott Longval, Chief Financial Officer | ||
| INTRICON
TIBBETTS CORPORATION (formerly known as TI Acquisition Corporation), a Maine corporation | ||
| By | /s/ Scott Longval | |
| Scott Longval, Chief Financial Officer | ||
[Signature page to Eighth Amendment to Loan and Security Agreement]
| BANK: | THE PRIVATEBANK AND TRUST COMPANY, an Illinois banking corporation | |
| By | /s/ Leanne Manning | |
| Leanne Manning, Managing Director | ||
[Signature page to Eighth Amendment to Loan and Security Agreement]
SCHEDULE 7.1
TO
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
Schedule 7.1
Corporate Status
| Current Name | Jurisdiction of Organization |
Org. ID Number |
Other Name or Trade Name in the Last Five Years |
Foreign Qualification |
Address of Principal Place of Business |
| IntriCon Corporation | Pennsylvania | 323408 | Selas Corporation of America |
None |
IntriCon Corporation 1260 Red Fox Road |
| IntriCon Inc. | Minnesota | 2712444 | Resistance Technology, Inc. Intricon Datrix Corporation (f/k/a Jon Barron, Inc.) |
None | IntriCon, Inc. 1260 Red Fox Road Arden Hills, MN 55112 |
| IntriCon Tibbetts Corporation | Maine | 20071509D | TIAC Acquisition Corporation |
None | IntriCon Tibbetts Corporation 5 Colcord Avenue Camden, ME 04843 |
SCHEDULE 7.28
TO
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
Schedule 7.28
PLEDGED EQUITY INTERESTS
| Pledged Entity | Authorized Capital Stock |
Issued and Outstanding Capital Stock |
Owners of Capital Stock |
|
IntriCon, INC
|
500,000 shares of common stock, par value $0.10 per share | 442,173 | Intricon Corporation |
|
intricon tibbetts corporation
|
100 shares, no par value | 100 | Intricon Corporation |
SCHEDULE 9.3
TO
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
Schedule 9.3
Investments
| Description | Type | Interest |
| 1) Hearing Instrument Manufacturers Patent Partnership (HIMPP) |
Danish LP | Limited Partner, 9% ownership |
| 2) IntriCon GmbH | Equity Interest | 90% owned by IntriCon, Inc. |
| 3) IntriCon Pte Ltd | Equity Interest | 100% owned by IntriCon, Inc. |
| 4) IntriCon UK Ltd. | Equity Interest | 100% owned by IntriCon, Inc. |
EXHIBIT 10.2
THIRD AMENDED AND RESTATED TERM NOTE
| $6,000,000 | Minneapolis, Minnesota |
| April 15, 2016 |
FOR VALUE RECEIVED, the undersigned, INTRICON CORPORATION, a Pennsylvania corporation, INTRICON, INC. (formerly known as Resistance Technology, Inc.), a Minnesota corporation (successor-by-merger to Intricon Datrix Corporation (formerly known as Jon Barron, Inc.) (d/b/a Datrix), a California corporation), and INTRICON TIBBETTS CORPORATION (formerly known as TI Acquisition Corporation), a Maine corporation (each, a “Borrower”; collectively, the “Borrowers”), hereby JOINTLY AND SEVERALLY promise to pay to the order of THE PRIVATEBANK AND TRUST COMPANY, an Illinois state banking corporation (the “Bank”), the principal sum of SIX MILLION AND NO/100 DOLLARS ($6,000,000), payable in periodic installments on the dates and in the amounts set forth in the Loan Agreement (as hereinafter defined), with one final balloon payment on the Term Loan Maturity Date. The actual amount due and owing from time to time hereunder shall be evidenced by Bank’s records of receipts and disbursements with respect to the Term Loan, which shall, absent manifest error, be conclusive evidence of such amount.
Each Borrower further promises to pay interest on the aggregate unpaid principal amount hereof at the rates provided in the Loan Agreement from the date hereof until payment in full hereof. Accrued interest shall be payable on the dates specified in the Loan Agreement.
All payments of principal and interest under this Third Amended and Restated Term Note (the “Note”) shall be made in lawful money of the United States of America in immediately available funds at the Bank’s office at 50 South 6th Street, Suite 1415, Minneapolis, MN 55402, or at such other place as may be designated by the Bank to the Borrowers in writing.
This Note is the Term Note referred to in, and evidences indebtedness incurred under, a Loan and Security Agreement dated as of August 13, 2009 (as previously amended, as further amended on or about the date hereof and as the same may be hereafter further amended, modified or supplemented from time to time, the “Loan Agreement”), among the Borrowers and the Bank, to which Loan Agreement reference is made for a statement of the terms and provisions thereof, including those under which the Borrowers are permitted and required to make prepayments and repayments of principal of such indebtedness and under which such indebtedness may be declared to be immediately due and payable. Capitalized terms used here and not otherwise defined herein have the meanings ascribed to them in the Loan Agreement.
All parties hereto, whether as makers, endorsers or otherwise, severally waive presentment, demand, protest and notice of dishonor in connection with this Note.
This Note is made under and governed by the internal laws of the State of Minnesota.
This Note amends, restates and replaces, but does not evidence repayment of or constitute a novation with respect to, that certain Second Amended and Restated Term Note, dated March 31, 2015 made payable jointly and severally by the Borrowers to the order of the Bank in the original principal amount of $5,000,000.00.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the undersigned have caused this Note to be executed as of the date first set forth above.
| INTRICON
CORPORATION, a Pennsylvania corporation | ||
| By | /s/ Scott Longval | |
| Scott Longval, Chief Financial Officer | ||
| INTRICON,
INC. (formerly known as Resistance Technology, Inc.), a Minnesota corporation | ||
| By | /s/ Scott Longval | |
| Scott Longval, Chief Financial Officer | ||
| INTRICON
TIBBETTS CORPORATION (formerly known as TI Acquisition Corporation), a Maine corporation | ||
| By | /s/ Scott Longval | |
| Scott Longval, Chief Financial Officer | ||
[Third Amended and Restated Term Note]
EXHIBIT 10.3
AMENDED AND RESTATED REVOLVING NOTE
| $9,000,000 | Minneapolis, Minnesota |
| April 15, 2016 |
FOR VALUE RECEIVED, the undersigned, INTRICON CORPORATION, a Pennsylvania corporation, INTRICON, INC. (formerly known as Resistance Technology, Inc.), a Minnesota corporation (successor-by-merger to Intricon Datrix Corporation (formerly known as Jon Barron, Inc.) (d/b/a Datrix), a California corporation), and INTRICON TIBBETTS CORPORATION (formerly known as TI Acquisition Corporation), a Maine corporation (each, a “Borrower”; collectively, the “Borrowers”), hereby JOINTLY AND SEVERALLY promise to pay to the order of THE PRIVATEBANK AND TRUST COMPANY, an Illinois state banking corporation (the “Bank”), the principal sum of NINE MILLION AND NO/100 DOLLARS ($9,000,000), or if less, the then aggregate unpaid principal amount of the Revolving Loans as may be borrowed by the Borrowers (or any of them) under the Loan Agreement (as hereinafter defined). The actual amount due and owing from time to time hereunder shall be evidenced by Bank’s records of receipts and disbursements with respect to the Revolving Loans, which shall, absent manifest error, be conclusive evidence of such amount.
Each Borrower further promises to pay interest on the aggregate unpaid principal amount hereof at the rates provided in the Loan Agreement from the date hereof until payment in full hereof. Accrued interest shall be payable on the dates specified in the Loan Agreement.
All payments of principal and interest under this Amended and Restated Revolving Note (the “Note”) shall be made in lawful money of the United States of America in immediately available funds at the Bank’s office at 50 South 6th Street, Suite 1415, Minneapolis, MN 55402, or at such other place as may be designated by the Bank to the Borrowers in writing.
This Note is the Revolving Note referred to in, and evidences indebtedness incurred under, a Loan and Security Agreement dated as of August 13, 2009 (as previously amended, as further amended on or about the date hereof and as the same may be hereafter further amended, modified or supplemented from time to time, the “Loan Agreement”), among the Borrowers and the Bank, to which Loan Agreement reference is made for a statement of the terms and provisions thereof, including those under which the Borrowers are permitted and required to make prepayments and repayments of principal of such indebtedness and under which such indebtedness may be declared to be immediately due and payable. Capitalized terms used here and not otherwise defined herein have the meanings ascribed to them in the Loan Agreement.
All parties hereto, whether as makers, endorsers or otherwise, severally waive presentment, demand, protest and notice of dishonor in connection with this Note.
This Note is made under and governed by the internal laws of the State of Minnesota.
This Note amends, restates and replaces, but does not evidence repayment of or constitute a novation with respect to, that certain Revolving Note, dated August 13, 2009 made payable jointly and severally by the Borrowers to the order of the Bank in the original principal amount of $8,000,000.00.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the undersigned have caused this Note to be executed as of the date first set forth above.
| INTRICON
CORPORATION, a Pennsylvania corporation | ||
| By | /s/ Scott Longval | |
| Scott Longval, Chief Financial Officer | ||
| INTRICON,
INC. (formerly known as Resistance Technology, Inc.), a Minnesota corporation | ||
| By | /s/ Scott Longval | |
| Scott Longval, Chief Financial Officer | ||
| INTRICON
TIBBETTS CORPORATION (formerly known as TI Acquisition Corporation), a Maine corporation | ||
| By | /s/ Scott Longval | |
| Scott Longval, Chief Financial Officer | ||
[Amended and Restated Revolving Note]
EXHIBIT 10.5
Amendment No. 2 to Equity Plans
Background
WHEREAS, IntriCon Corporation (the “Company”) has adopted an Amended and Restated Non-Employee Directors Stock Option Plan (the “Directors Plan”), a 2001 Stock Option Plan, as amended (the “2001 Plan”) and a 2006 Equity Incentive Plan, as amended (the “2006 Plan” and, collectively with the Director Plan and the 2001 Plan, the “Plans”); and
WHEREAS, upon recommendation of the Compensation Committee which administers the Plans, the Board of Directors has determined to amend the Plans to permit option holders under the Plans that die, become disabled or retire to exercise stock options granted under the Plans for the balance of the term of the stock options; and
WHERAS, under applicable Internal Revenue Service regulations and applicable rules and interpretations of the Nasdaq Stock Market, the amendments described below do not require shareholder approval and are permitted to be adopted by the Board.
NOW, THEREFORE, intending to be legally bound hereby, the Plans are hereby amended as follows:
1. Amendment to Directors Plan.
| 1.1 | All capitalized terms used and not defined in this Section 1 shall have the meanings given to them in the Directors Plan. |
| 1.2 | For the avoidance of doubt, all outstanding stock options previously granted under the Directors Plan have become fully vested and exercisable. |
| 1.3 | Clauses (e), (f) and (g) of Section 6 of the Directors Plan are amended and restated in their entirety to read hereinafter as follows: |
“(e) Termination of Service of a Non-Employee Director as Director. If a Non-Employee Director’s service as a director of the Company terminates prior to the expiration of the original term of the Non-Employee Directors Option (the “Expiration Date”) due to the disability (within the meaning of section 22(e)(3) of the Code), death or Retirement (as defined in the Company’s 2006 Equity Incentive Plan, as amended (“2006 Plan”), and including in the case of a director who meets the age and years of service requirements in the definition of Retirement in clause 6(e) of the 2006 Plan, the failure to be re-nominated for election, the failure to be re-elected by the shareholders, removal by shareholders or the Board (other than a removal for Cause (as defined in the 2006 Plan)) and resignation) of such Director, then notwithstanding anything to the contrary in Option Agreement evidencing such Option, such Option may be exercised by the Non-Employee Director at any time prior to the Expiration Date of such Option. If a Non-Employee Director ceases to be a Director for any other reason, then such Option may be exercised by the Non-Employee Director at any time prior to the earlier of (i) the Expiration Date of such Option, or (ii) the date three months after the date of such termination of service as a director, unless (in the case of this clause (ii)) the Committee provided for a different period in its action granting the Option. In the event of the Non-Employee Director’s disability, such Option may be exercised by the Non-Employee Directors legal representative. In the event of the Non-Employee Director’s death, such Option may be exercised by the Non-Employee Director’s estate, personal representative or beneficiary who acquired the right to exercise such Option by bequest or inheritance or by reason of the death of the Non-Employee Director.
(f) [intentionally omitted].
(g) [intentionally omitted].”
| 1.4 | The exercise periods set forth above shall be available for all Options previously issued under the Directors Plan, regardless of any language to the contrary contained in the Option Agreement evidencing such Options. |
2. Amendment to 2001 Plan.
| 2.1 | All capitalized terms used and not defined in this Section 2 shall have the meanings given to them in the 2001 Plan. |
| 2.2 | For the avoidance of doubt, all outstanding stock options previously granted under the 2001 Plan have become fully vested and exercisable. |
| 2.3 | Clauses (f), (g) and (h) of Section 7 of the 2001Plan are amended and restated in their entirety to read hereinafter as follows: |
“(f) Retirement. If an Optionee retires in accordance with the retirement policy of the Company, or with the express consent of the Board, prior to the original expiration date fixed for his or her Option, such Option may be exercised, to the extent of the number of shares with respect to which the Optionee could have exercised it on the date of such Termination of Employment, or to any greater extent permitted by the Committee, by the Optionee at any time prior to the original expiration date specified in the Option Agreement. “Retirement” does not include Termination of Employment for Cause, even if the Optionee is otherwise eligible to retire.
(g) Disability. If an Optionee becomes disabled (within the meaning of section 22(e)(3) of the Code) prior to the original expiration date fixed for his or her Option, and the Optionee’s Termination of Employment occurs as a consequence of such disability, such Option may be exercised, to the extent of the number of shares with respect to which the Optionee could have exercised it on the date of such Termination of Employment, or to any greater extent permitted by the Committee, by the Optionee at any time prior to the original expiration date specified in the Option Agreement. In the event of the Optionee’s legal disability, such Option may be exercised by the Optionee’s legal representative.
| 2 |
(h) Death. If an Optionee’s Termination of Employment occurs as a result of death, prior to the original expiration date fixed for his or her Option, or if the Optionee dies following his or her Termination of Employment under clause (e) but prior to the expiration date fixed for his or her Option under clause (e), such Option may be exercised, to the extent of the number of shares with respect to which the Optionee could have exercised it on the date of his or her death, or to any greater extent permitted by the Committee, by the Optionee’s estate, personal representative, or beneficiary who acquired the right to exercise such Option by bequest or inheritance or by reason of the death of the Optionee. Such post-death exercise may occur at any time prior to the original expiration date specified in such Option.”
| 2.4 | The exercise periods set forth above shall be available for all Options previously issued under the 2001 Plan, regardless of any language to the contrary contained in the Option Agreement evidencing such Options. |
3. Amendment to 2006 Plan.
| 3.1 | All capitalized terms used and not defined in this Section 3 shall have the meanings given to them in the 2006 Plan. |
| 3.2 | The first two paragraphs of Section 6.1 of the 2006 Plan are amended and restated in their entirety to read hereinafter as follows: |
“6.1 Termination of Service by Death or Permanent Disability or Retirement. If a Participant who is an Employee or director ceases to be an Employee or director, or if there is a termination of the consulting, service or other relationship in respect of which a non-Employee Participant was granted an Award under the Plan (such termination of employment or other relationship referred to as a “Status Change”) in any case by reason of death or Permanent Disability or Retirement (which, in the case of a director who meets the age and years of service requirement in the definition of Retirement in clause (e) below, shall include, without limitation, the failure to be re-nominated for election, the failure to be re-elected by the shareholders, removal by shareholders or the Board (other than a removal for Cause) and resignation), the following rules shall apply, unless otherwise determined by the Committee:
(a) All Options and SARs held by the Participant at the time of such Status Change shall automatically become exercisable in full and shall continue to be exercisable by the Participant or his or her heirs, executor, administrator or other legal representative for a period equal to the unexpired term of the Option or SAR.”
| 3 |
| 3.3 | The exercise periods set forth above shall be available for all Options previously issued under the 2006 Plan, regardless of any language to the contrary contained in the Award evidencing such Options. |
| 4. | No Other Amendment. Except as set forth above, the Plans shall continue in full force and effect in accordance with their respective terms. |
| 4 |
EXHIBIT 31.1
CERTIFICATION Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
I, Mark S. Gorder, certify that:
1. I have reviewed this quarterly report on Form 10-Q of IntriCon Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 12, 2016 | /s/ Mark S. Gorder |
| Mark S. Gorder Chief Executive Officer (principal executive officer) |
EXHIBIT 31.2
CERTIFICATION Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
I, Scott Longval, certify that:
1. I have reviewed this quarterly report on Form 10-Q of IntriCon Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 12, 2016 | /s/ Scott Longval |
| Scott Longval Chief Financial Officer and Treasurer (principal financial officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark S. Gorder, Chief Executive Officer (principal executive officer) of IntriCon Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
| 1) | the quarterly report on Form 10-Q of the Company for the quarterly period ended March 31, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 12, 2016
| /s/ Mark S. Gorder | |
| Mark S. Gorder President and Chief Executive Officer (principal executive officer) |
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Scott Longval, Chief Financial Officer (principal financial officer) of IntriCon Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
| 1) | the quarterly report on Form 10-Q of the Company for the quarterly period ended March 31, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 12, 2016
| /s/ Scott Longval | |
| Scott Longval Chief Financial Officer and Treasurer (principal financial officer) |
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.
Document And Entity Information - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Apr. 30, 2016 |
|
| Document And Entity Information [Abstract] | ||
| Document Type | 10-Q | |
| Amendment Flag | false | |
| Document Period End Date | Mar. 31, 2016 | |
| Document Fiscal Year Focus | 2016 | |
| Document Fiscal Period Focus | Q1 | |
| Entity Registrant Name | INTRICON CORP | |
| Entity Central Index Key | 0000088790 | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Common Stock, Shares Outstanding | 5,985,532 |
Consolidated Condensed Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Mar. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Consolidated Condensed Balance Sheets [Abstract] | ||
| Accounts receivable, allowance for doubtful accounts | $ 136 | $ 135 |
| Common shares, par value | $ 1.00 | $ 1.00 |
| Common shares, shares authorized | 20,000,000 | 20,000,000 |
| Common shares, shares issued | 5,986,000 | 5,981,000 |
| Common shares, shares outstanding | 5,986,000 | 5,981,000 |
Consolidated Condensed Statements of Operations - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
| Consolidated Condensed Statements of Operations [Abstract] | ||
| Sales, net | $ 18,258 | $ 16,602 |
| Cost of sales | 13,144 | 12,274 |
| Gross profit | 5,114 | 4,328 |
| Operating expenses: | ||
| Sales and marketing | 1,196 | 987 |
| General and administrative | 2,291 | 1,709 |
| Research and development | 1,416 | 1,226 |
| Total operating expenses | 4,903 | 3,922 |
| Operating income | 211 | 406 |
| Interest expense | (126) | (103) |
| Other income (expense) | (70) | 136 |
| Income from continuing operations before income taxes | 15 | 439 |
| Income tax expense | 34 | 155 |
| Net income (loss) | (19) | 284 |
| Less: Loss allocated to non-controlling interest | (34) | |
| Net income attributable to IntriCon shareholders | $ 15 | $ 284 |
| Net income (loss) per share attributable to IntriCon shareholders: | ||
| Basic | $ 0.00 | $ 0.05 |
| Diluted | $ 0.00 | $ 0.05 |
| Average shares outstanding: | ||
| Basic | 5,981 | 5,849 |
| Diluted | 6,228 | 6,227 |
Consolidated Condensed Statements Of Comprehensive Income (Loss) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
| Consolidated Condensed Statements of Comprehensive Income (Loss) [Abstract] | ||
| Net income (loss) | $ (19) | $ 284 |
| Interest rate swap, net of taxes of $0 | (37) | (2) |
| Pension and postretirement obligations, net of taxes of $0 | 5 | |
| Foreign currency translation adjustment, net of taxes of $0 | 30 | (108) |
| Comprehensive income | $ (21) | $ 174 |
Consolidated Condensed Statements Of Comprehensive Income (Loss) (Parenthetical) $ in Thousands |
15 Months Ended |
|---|---|
|
Mar. 31, 2016
USD ($)
| |
| Consolidated Condensed Statements of Comprehensive Income (Loss) [Abstract] | |
| Interest rate swap, tax | $ 0 |
| Pension and postretirement obligations, tax | 0 |
| Foreign currency translation adjustment, tax | $ 0 |
General |
3 Months Ended |
|---|---|
Mar. 31, 2016 | |
| General [Abstract] | |
| General | 1. General In the opinion of management, the accompanying consolidated condensed financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly IntriCon Corporation's (“IntriCon” or the “Company”) consolidated financial position as of March 31, 2016 and December 31, 2015, and the consolidated results of its operations and cash flows for the three months ended March 31, 2016 and 2015. Results of operations for the interim periods are not necessarily indicative of the results of operations expected for the full year or any other interim period. The Company has evaluated subsequent events occurring after the date of the consolidated financial statements for events requiring recording or disclosure in the financial statements.
|
New Accounting Pronouncements |
3 Months Ended |
|---|---|
Mar. 31, 2016 | |
| New Accounting Pronouncements [Abstract] | |
| New Accounting Pronouncements | 2. New Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) issued its final standard on accounting for leases. This standard, issued as ASU 2016-02, requires that an entity that is a lessee recognize lease assets and lease liabilities on the balance sheet for all leases and disclose key information about leasing arrangements. The core principle of this update is that a "lessee should recognize the assets and liabilities that arise from leases." This update is effective for financial statement periods beginning after December 15, 2018, with earlier application permitted. The Company has not yet determined the impact of this pronouncement on its financial statements and related disclosures. In March 2016, the FASB issued its final standard on simplifying the accounting for share-based payment awards. This standard, issued as ASU 2016-09, simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification on the statement of cash flows, and accounting for forfeitures. This update is effective for financial statement periods beginning after December 15, 2016, with early adoption permitted. The Company has not yet determined the impact of this pronouncement on its financial statements and related disclosures.
|
Geographic Information |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Geographic Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Geographic Information | 3. Geographic Information The geographical distribution of long-lived assets to geographical areas consisted of the following at:
Long-lived assets consist of property and equipment and certain other assets that are difficult to move and relatively illiquid. Excluded from long-lived assets are investments in partnerships, patents, license agreements and goodwill. The Company capitalizes long-lived assets pertaining to the production of specialized parts. These assets are periodically reviewed to assure the net realizable value from the estimated future production based on forecasted cash flows exceeds the carrying value of the assets. The geographical distribution of net sales to geographical areas for the three months ended March 31, 2016 and 2015 were as follows:
Geographic net sales are allocated based on the location of the customer. All other countries include net sales primarily to various countries in Europe and in the Asian Pacific. Customer concentrations greater than 10% of consolidated net sales and account receivable are disclosed below. For the three months ended March 31, 2016, one customer accounted for 39% of the Company’s consolidated net sales. For the three months ended March 31, 2015, one customer accounted for 39% of the Company’s consolidated net sales. At March 31, 2016, two customers combined accounted for 25% of the Company’s consolidated accounts receivable. At December 31, 2015, two customers accounted for a combined 27% of the Company’s consolidated accounts receivable.
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Inventories |
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories | 4. Inventories
Inventories consisted of the following at:
|
Short And Long-Term Debt |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Short And Long-Term Debt [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Short And Long-Term Debt | 5. Short and Long-Term Debt Short and long-term debt is summarized as follows:
Domestic Credit Facilities The Company and its domestic subsidiaries are parties to a credit facility with The PrivateBank and Trust Company. The credit facility, as amended through March 31, 2016, provided for:
In April 2016, the Company and its domestic subsidiaries entered into an Eighth Amendment to the Loan and Security Agreement with The PrivateBank and Trust Company. The amendment, among other things:
All of the borrowings under this agreement have been characterized as either a current or long-term liability on our balance sheet in accordance with the repayment terms described more fully below. Loans under the credit facility are secured by a security interest in substantially all of the assets of the Company and its domestic subsidiaries including a pledge of the stock of its domestic subsidiaries. Loans under the credit facility bear interest at varying rates based on the Company’s leverage ratio of funded debt / EBITDA, at the option of the Company, at:
Interest is payable monthly in arrears, except that interest on LIBOR based loans is payable at the end of the one, two or three month interest periods applicable to LIBOR based loans. IntriCon is also required to pay a non-use fee equal to 0.25% per year of the unused portion of the revolving line of credit facility, payable quarterly in arrears. Weighted average interest on the revolving credit facility was 3.67% for the three months ended March 31, 2016 and 3.68% for the year ended December 31, 2015. The outstanding balance of the revolving credit facility was $6,600 and $4,674 at March 31, 2016 and December 31, 2015, respectively. The total availability on the revolving credit facility was approximately $1,400 and $3,326 at March 31, 2016 and December 31, 2015, respectively. The outstanding principal balance of the term loan, as amended, is payable in quarterly installments of $250. Any remaining principal and accrued interest is payable on February 28, 2019. IntriCon is also required to use 100% of the net cash proceeds of certain asset sales (excluding inventory and certain other dispositions), sale of capital securities or issuance of debt to pay down the term loan. The Company was in compliance with the financial covenants under the facility as of March 31, 2016. Foreign Credit Facility In addition to its domestic credit facilities, the Company’s wholly-owned subsidiary, IntriCon, PTE LTD., entered into an international senior secured credit agreement with Oversea-Chinese Banking Corporation Ltd. that provides for an asset based line of credit. Borrowings bear interest at a rate of .75% to 2.5% over the lender’s prevailing prime lending rate. Weighted average interest on the international credit facilities was 3.35% and 3.37% for the three months ended March 31, 2016 and the year ended December 31, 2015, respectively. The outstanding balance was $944 and $913 at March 31, 2016 and December 31, 2015, respectively. The total remaining availability on the international senior secured credit agreement was approximately $786 and $817 at March 31, 2016 and December 31, 2015, respectively.
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Income Taxes |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes | 6. Income Taxes Income tax expense for the three months ended March 31, 2016 was $34 compared to $155 for the same period in 2015. The expense for the three months ended March 31, 2016 and 2015, was primarily due to foreign operations. The Company has net operating loss carryforwards for U.S. federal income tax purposes and, consequently, minimal federal benefit or expense from the domestic operations was recognized as the deferred tax asset has a full valuation allowance. The following was the income (loss) before income taxes for each jurisdiction in which the Company has operations for the three months ended March 31, 2016 and 2015.
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Shareholders' Equity And Stock-Based Compensation |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' Equity and Stock-based Compensation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' Equity And Stock-Based Compensation | 7. Shareholders’ Equity and Stock-based Compensation The Company has a 2006 Equity Incentive Plan and a 2015 Equity Incentive Plan. The 2015 Equity Incentive Plan, which was approved by the shareholders on April 24, 2015, replaced the 2006 Equity Incentive Plan. New grants may not be made under the 2006 plan; however certain option grants under the 2006 plan remain exercisable as of March 31, 2016. The aggregate number of shares of common stock for which awards could be granted under the 2015 Equity Incentive Plan as of the date of adoption was 500 shares. Additionally, as outstanding options under the 2006 plan expire, the shares of the Company’s common stock subject to the expired options will become available for issuance under the 2015 Equity Incentive Plan.
Under both plans, executives, employees and outside directors receive awards of options to purchase common stock. In addition, the Company may also grant stock awards, stock appreciation rights, restricted stock units and other equity-based awards, although no such awards, other than awards under the director program and management purchase program described below, had been granted as of March 31, 2016. Under all awards, the terms are fixed on the grant date. Generally, the exercise price of stock options equals the market price of the Company’s stock on the date of the grant. Options under the plans generally vest over three years, and have a maximum term of 10 years. Additionally, the board has established the non-employee directors’ stock fee election program, referred to as the director program, as an award under the 2015 Equity Incentive Plan. The director program gives each non-employee director the right under the 2015 Equity Incentive Plan to elect to have some or all of his quarterly director fees paid in common shares rather than cash. No shares were issued in lieu of cash for director fees under the director program for the three months ended March 31, 2016 and 2015, respectively. On July 23, 2008, the Compensation Committee of the Board of Directors approved the non-employee director and executive officer stock purchase program, referred to as the management purchase program, as an award under the 2015 Plan. The purpose of the management purchase program is to permit the Company’s non-employee directors and executive officers to purchase shares of the Company’s Common Stock directly from the Company. Pursuant to the management purchase program, as amended, participants may elect to purchase shares of Common Stock from the Company not exceeding an aggregate of $100 during any fiscal year. Participants may make such election one time during each twenty business day period following the public release of the Company’s earnings announcement, referred to as a window period, and only if such participant is not in possession of material, non-public information concerning the Company and subject to the discretion of the Board to prohibit any transactions in Common Stock by directors and executive officers during a window period. There were no shares purchased under the management purchase program during the three months ended March 31, 2016 and 2015, respectively. Stock option activity as of and during the three months ended March 31, 2016 was as follows:
The number of shares available for future grants at March 31, 2016 does not include a total of up to 1,281 shares subject to options outstanding under the 2006 plan as of March 31, 2016, which will become available for grant under the 2015 Equity Incentive Plan in the event of the expiration, cancellation or surrender of such options. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of subjective assumptions, including the expected stock price volatility. Because the Company’s options have characteristics different from those of traded options, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options. The weighted average fair value of options granted was $7.58 for options granted during the three months ended March 31, 2016. The weighted average fair value of options granted was $4.37 for options granted during the three months ended March 31, 2015. The Company calculates expected volatility for stock options and awards using the Company’s historical volatility. The Company currently estimates a zero percent forfeiture rate for stock options, but will continue to review this estimate in future periods. The risk-free rates for the expected terms of the stock options and awards are based on the U.S. Treasury yield curve in effect at the time of grant. The weighted average remaining contractual life of options exercisable at March 31, 2016 was 4.29 years. The Company recorded $181 of non-cash stock option expense for the three months ended March 31, 2016. The Company recorded $169 of non-cash stock option expense for the three months ended March 31, 2015. As of March 31, 2016, there was $1,139 of total unrecognized compensation costs related to non-vested awards that are expected to be recognized over a weighted-average period of 2.17 years. The Company also has an Employee Stock Purchase Plan (the “Purchase Plan”). The Purchase Plan, as amended, through March 31, 2016, provides that a maximum of 200 shares may be sold under the Purchase Plan. There were 4 shares purchased under the plan for the three months ended March 31, 2016 and a total of 3 shares purchased for the three months ended March 31, 2015. On April 28, 2016, the shareholders approved an amendment to this plan to increase the authorized shares by an additional 100 shares.
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Income Per Share |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Per Share | 8. Income Per Share The following table presents a reconciliation between basic and diluted earnings per share:
The dilutive impact summarized above relates to the periods when the average market price of Company stock exceeded the exercise price of the potentially dilutive option securities granted. Earnings per common share was based on the weighted average number of common shares outstanding during the periods when computing the basic earnings per share. When dilutive, stock options are included as equivalents using the treasury stock method when computing the diluted earnings per share. Individual components of basic and diluted income (loss) per share may not sum to the total income (loss) per share due to rounding.
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Legal Proceedings |
3 Months Ended |
|---|---|
Mar. 31, 2016 | |
| Legal Proceedings [Abstract] | |
| Legal Proceedings | 9. Legal Proceedings The Company is a defendant along with a number of other parties in lawsuits alleging that plaintiffs have or may have contracted asbestos-related diseases as a result of exposure to asbestos products or equipment containing asbestos sold by one or more named defendants. These lawsuits relate to the discontinued heat technologies segment which was sold in March 2005. Due to the non-informative nature of the complaints, the Company does not know whether any of the complaints state valid claims against the Company. Certain insurance carriers have informed the Company that the primary policies for the period August 1, 1970-1978 have been exhausted and that the carriers will no longer provide defense and insurance coverage under those policies. However, the Company has other primary and excess insurance policies that the Company believes afford coverage for later years. Some of these other primary insurers have accepted defense and insurance coverage for these suits, and some of them have either ignored the Company’s tender of defense of these cases, or have denied coverage, or have accepted the tenders but asserted a reservation of rights and/or advised the Company that they need to investigate further. Because settlement payments are applied to all years a litigant was deemed to have been exposed to asbestos, the Company believes that it will have funds available for defense and insurance coverage under the non-exhausted primary and excess insurance policies. However, unlike the older policies, the more recent policies have deductible amounts for defense and settlements costs that the Company will be required to pay; accordingly, the Company expects that its litigation costs will increase in the future. Further, many of the policies covering later years (approximately 1984 and thereafter) have exclusions for any asbestos products or operations, and thus do not provide insurance coverage for asbestos-related lawsuits. The Company does not believe that the asserted exhaustion of some of the primary insurance coverage for the 1970-1978 period will have a material adverse effect on its financial condition, liquidity, or results of operations. Management believes that the number of insurance carriers involved in the defense of the suits, and the significant number of policy years and policy limits under which these insurance carriers are insuring the Company, make the ultimate disposition of these lawsuits not material to the Company's consolidated financial position or results of operations. The Company’s former French subsidiary, Selas SAS, filed for insolvency in France. The Company may be subject to additional litigation or liabilities as a result of the French insolvency proceeding, including liabilities under guarantees aggregating approximately $445. The Company is also involved in other lawsuits arising in the normal course of business. While it is not possible to predict with certainty the outcome of these matters, management is of the opinion that the disposition of these lawsuits and claims will not materially affect our consolidated financial position, liquidity or results of operations.
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Related-Party Transactions |
3 Months Ended |
|---|---|
Mar. 31, 2016 | |
| Related-Party Transactions [Abstract] | |
| Related-Party Transactions | 10. Related-Party Transactions One of the Company’s subsidiaries leases office and factory space from a partnership consisting of three present or former officers of the subsidiary, including Mark Gorder, a member of the Company’s Board of Directors and the President and Chief Executive Officer of the Company. The subsidiary is required to pay all real estate taxes and operating expenses. The total base rent expense, real estate taxes and other charges incurred under the lease were approximately $121 for the three months ended March 31, 2016 and approximately $122 for the three months ended March 31, 2015. The Company uses the law firm of Blank Rome LLP for legal services. A partner of that firm is the son-in-law of the Chairman of the Company’s Board of Directors. For the three months ended March 31, 2016, the Company paid that firm approximately $67 for legal services and costs. For the three months ended March 31, 2015, the Company paid that firm approximately $48 for legal services and costs. The Chairman of our Board of Directors is considered independent under applicable Nasdaq and Securities Exchange Commission rules because (i) no payments were made to the Chairman or the partner directly in exchange for the services provided by the law firm and (ii) the amounts paid to the law firm did not exceed the thresholds contained in the Nasdaq standards. Furthermore, the aforementioned partner does not provide any legal services to the Company and is not involved in billing matters.
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Revenue By Market |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue By Market [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue By Market | 11.Revenue by Market The following tables set forth, for the periods indicated, net revenue by market:
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Geographic Information (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Geographic Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Geographical Distribution Of Long-Lived Assets |
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| Geographical Distribution Of Net Sales |
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Inventories (Tables) |
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Inventories |
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Short And Long-Term Debt (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Short And Long-Term Debt [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary Of Short And Long-Term Debt |
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Income Taxes (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income (Loss) Before Income Taxes By Jurisdiction |
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Shareholders' Equity And Stock-Based Compensation (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' Equity and Stock-based Compensation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Stock Option Activity |
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Income Per Share (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reconciliation Between Basic And Diluted Earnings Per Share |
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Revenue By Market (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue By Market [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Net Revenue By Market |
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Geographic Information (Narrative) (Details) $ in Thousands |
3 Months Ended | 12 Months Ended | |
|---|---|---|---|
|
Mar. 31, 2016
USD ($)
customer
|
Mar. 31, 2015
USD ($)
customer
|
Dec. 31, 2015
customer
|
|
| Revenue, Major Customer [Line Items] | |||
| Sales, net | $ | $ 18,258 | $ 16,602 | |
| Net Sales [Member] | One Customer [Member] | |||
| Revenue, Major Customer [Line Items] | |||
| Number of customers | 1 | ||
| Percentage of sales and/or receivables | 39.00% | ||
| Net Sales [Member] | Two Customers [Member] | |||
| Revenue, Major Customer [Line Items] | |||
| Number of customers | 1 | ||
| Percentage of sales and/or receivables | 39.00% | ||
| Accounts Receivable [Member] | Two Customers [Member] | |||
| Revenue, Major Customer [Line Items] | |||
| Number of customers | 2 | 2 | |
| Percentage of sales and/or receivables | 25.00% | 27.00% | |
Geographic Information (Geographical Distribution Of Long-Lived Assets) (Details) - USD ($) $ in Thousands |
Mar. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Consolidated | $ 6,906 | $ 6,742 |
| USA [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Consolidated | 5,393 | 5,125 |
| Other - Primarily Singapore And Indonesia [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Consolidated | $ 1,513 | $ 1,617 |
Geographic Information (Geographical Distribution Of Net Sales) (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Net sales | $ 18,258 | $ 16,602 |
| USA [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Net sales | 11,924 | 12,452 |
| Europe [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Net sales | 3,297 | 1,840 |
| Asia [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Net sales | 2,868 | 2,012 |
| All Other Countries [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Net sales | $ 169 | $ 298 |
Inventories (Schedule Of Inventories) (Details) - USD ($) $ in Thousands |
Mar. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Inventory [Line Items] | ||
| Raw materials | $ 8,023 | $ 8,986 |
| Work-in process | 2,882 | 2,342 |
| Finished products and components | 3,651 | 3,144 |
| Total | 14,556 | 14,472 |
| Domestic [Member] | ||
| Inventory [Line Items] | ||
| Raw materials | 5,888 | 6,514 |
| Work-in process | 2,310 | 1,706 |
| Finished products and components | 3,153 | 2,801 |
| Total | 11,351 | 11,021 |
| Foreign [Member] | ||
| Inventory [Line Items] | ||
| Raw materials | 2,135 | 2,472 |
| Work-in process | 572 | 636 |
| Finished products and components | 498 | 343 |
| Total | $ 3,205 | $ 3,451 |
Short And Long-Term Debt (Summary Of Short And Long-Term Debt) (Details) - USD ($) $ in Thousands |
Mar. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Debt Instrument [Line Items] | ||
| Total Debt | $ 11,544 | $ 9,837 |
| Less: Current maturities | (1,941) | (1,908) |
| Total long-term debt | 9,603 | 7,929 |
| Domestic Asset-Based Revolving Credit Facility [Member] | ||
| Debt Instrument [Line Items] | ||
| Total Debt | 6,600 | 4,674 |
| Foreign Overdraft And Letter Of Credit Facility [Member] | ||
| Debt Instrument [Line Items] | ||
| Total Debt | 944 | 913 |
| Domestic Term-Loan [Member] | ||
| Debt Instrument [Line Items] | ||
| Total Debt | $ 4,000 | $ 4,250 |
Income Taxes (Narrative) (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
| Income Taxes [Abstract] | ||
| Income tax expense | $ 34 | $ 155 |
Income Taxes (Income (Loss) Before Income Taxes By Jurisdiction) (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
| Operating Loss Carryforwards [Line Items] | ||
| Income from continuing operations before income taxes | $ 15 | $ 439 |
| United States [Member] | ||
| Operating Loss Carryforwards [Line Items] | ||
| Income (loss) before income taxes, United States | (332) | (310) |
| Singapore [Member] | ||
| Operating Loss Carryforwards [Line Items] | ||
| Income (loss) before income taxes, Foreign | 204 | 541 |
| Indonesia [Member] | ||
| Operating Loss Carryforwards [Line Items] | ||
| Income (loss) before income taxes, Foreign | 18 | 20 |
| United Kingdom [Member] | ||
| Operating Loss Carryforwards [Line Items] | ||
| Income (loss) before income taxes, Foreign | 55 | |
| Germany [Member] | ||
| Operating Loss Carryforwards [Line Items] | ||
| Income (loss) before income taxes, Foreign | $ 70 | $ 188 |
Income Per Share (Reconciliation Between Basic And Diluted Earnings Per Share) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
| Income Per Share [Abstract] | ||
| Net income attributable to IntriCon shareholders | $ 15 | $ 284 |
| Basic - weighted shares outstanding | 5,981 | 5,849 |
| Weighted shares assumed upon exercise of stock options | 247 | 378 |
| Diluted - weighted shares outstanding | 6,228 | 6,227 |
| Basic | $ 0.00 | $ 0.05 |
| Diluted | $ 0.00 | $ 0.05 |
Legal Proceedings (Details) $ in Thousands |
Mar. 31, 2016
USD ($)
|
|---|---|
| Legal Proceedings [Abstract] | |
| Selas SAS, Liabilities | $ 445 |
Related-Party Transactions (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
| Related-Party Transactions [Abstract] | ||
| Total base rent expense, real estate taxes and other charges | $ 121 | $ 122 |
| Legal services and costs | $ 67 | $ 48 |
Revenue By Market (Schedule Of Net Revenue By Market) (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
| Revenue, Major Customer [Line Items] | ||
| Total Revenue | $ 18,258 | $ 16,602 |
| Medical [Member] | ||
| Revenue, Major Customer [Line Items] | ||
| Total Revenue | 10,033 | 8,957 |
| Hearing Health [Member] | ||
| Revenue, Major Customer [Line Items] | ||
| Total Revenue | 6,468 | 5,564 |
| Professional Audio Communications [Member] | ||
| Revenue, Major Customer [Line Items] | ||
| Total Revenue | $ 1,757 | $ 2,081 |
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