ANNUAL REPO RT 201 2
CONNECTIVITY
CREATES
OPPORTUNITIES.
BODY-WORN DEVICES.
More intelligent.
Better connected.
Made smaller.
CONNECTIVITY
CREATES
OPPORTUNITIES.
AT INTRICON, WE ARE SHIFTING THE POINT OF CARE.
IntriCon designs, develops and manufactures body-worn devices.
These advanced products help medical, healthcare and professional
communications companies meet the rising demand for smaller, more
intelligent and better connected devices.
As part of an industry-wide effort to reduce the cost of healthcare, our
body-worn medical devices help shift the point of care from more expensive
settings, like hospitals and clinics, to less expensive ones, such as the home
or Internet. We accomplish this by putting more intelligence into our devices,
connecting patients and caregivers in non-traditional ways. This shift is enabled
by advanced technologies, such as our ultra-low-power (ULP) wireless and
digital signal processing (DSP), allowing intervention to be administered
by a broader range of professionals and technicians.
IntriCon is headquartered in Arden Hills, Minn., a suburb of Minneapolis/St. Paul.
We employ more than 550 people at facilities in the United States, Europe
and Asia. IntriCon common stock is traded on the NASDAQ Global Market
under the symbol “IIN.”
IntriCon 2012 Annual Report | 01
CORE TECHNOLOGIES
DRIVE OUR
FUTURE.
A SOLID FOUNDATION.
The marketplace demands
world-class technology and
connectivity. At IntriCon,
we deliver. Our proprietary
technologies create new and
exciting opportunities that will
help us expand on key ongoing
initiatives moving forward. This
solid foundation of technology
strengthens our ability to develop
new innovative products that
shift the point of care for more
customers worldwide.
Global
footprint.
We currently have five manufacturing facilities located in Minnesota, Maine, Singapore and Indonesia.
Our global manufacturing footprint allows us to offer our customers low-cost, high-quality devices.
Additionally it positions us to pursue other high-volume opportunities that are emerging across our
core businesses. We have effectively implemented our rigorous quality management system both
domestically and internationally, to ensure our global manufacturing processes meet the numerous
regulatory agency requirements.
02 | IntriCon 2012 Annual Report
ULTRA-LOW-POWER DIGITAL
SIGNAL PROCESSING
miniature
TRANSD CERS
MINIATURE TRANSDUCERS
Our miniature microphone, receiver and
Digital signal processing, or DSP,
micro-coil technology enhance the reliability,
converts real-world analog signals into
sensitivity, supply voltage and output level
a digital format. Through our nanoDSP
in body-worn devices — allowing us to
technology, IntriCon offers an extensive
make devices that are extremely portable
range of incredibly small ultra-low-power
and perform well in noisy or hazardous
(ULP) DSP amplifiers for hearing, medical
environments. IntriCon’s technology is
and professional audio applications.
well-suited for applications in the medical,
aviation, entertainment, fire, law enforcement,
safety and military markets.
ULTRA-LOW-POWER
WIRELESS CONNECTIVITY
miniaturization
MINIATURIZATION
Wireless capabilities are especially critical
At IntriCon, we are experts in miniaturization.
in body-worn devices. IntriCon’s BodyNet®
Our core miniaturization technology allows us
ULP technology — including the nanoLink®
to make high-tech devices that are one cubic
and PhysioLink™ wireless systems —
inch and smaller. We also specialize in devices
transmits critical body measurements
that run on very low power. Less power
to caregivers, connects hearing devices
means a smaller battery — and this permits
to situational listening accessories,
us to reduce size even further and develop
and wirelessly links audio feeds for
devices that fit into the palm of a hand.
professional communications.
IntriCon 2012 Annual Report | 03
Financial Highlights
(dollars in thousands, except per-share data)
Fiscal Year Ended December 31,
Net sales
Gross profit percentage
Research and development expense
Income (loss) from continuing operations
Net earnings (loss)
Diluted net income (loss) per share
At December 31,
Cash
Working capital
Current liabilities
Funded debt
Shareholders’ equity
2012
$63,933
23.4%
4,694
1,000
709
0.12
2012
$ 226
8,893
11,667
9,905
18,722
2011
$56,058
22.6%
4,876
(1,425)
(1,425)
(0.25)
2011
$ 1 19
8,207
13,451
10,750
17,446
2010
$58,697
25.6%
4,485
655
361
0.07
2010
$ 281
8,615
9,149
7,860
18,571
$58,697
$56,058
$63,933
25.6%
22.6% 23.4%
$0.12
2012
$0.07
2010
2011
2010
2011
2012
Q1
2010
2011
2012
$(0.25)
Net Sales (dollars in thousands)
Gross Profit Percentage
EPS
04 | IntriCon 2012 Annual Report
TO OUR
SHAREHOLDERS
2012 was our strongest revenue year in five years,
and we reported gains across all of our businesses
as we returned the company to profitability.
Equally important, we invested in further developing
our core technologies, enhancing and leveraging our
global manufacturing infrastructure, and securing
new market-changing programs with industry leaders.
Over the past several years we have made
substantial investments in our core technology
portfolio and global manufacturing infrastructure.
We believe this ongoing commitment positions
us well for the future as we pursue other
high-potential opportunities.
The next phase of our long-term strategy is to
leverage IntriCon’s technology, product platforms
and manufacturing capabilities into two large
growth opportunities: the value hearing health
market — where we will work to bring additional
low-cost, high-quality, high-performing devices
to consumers; and, the biotelemetry market
— connecting people with caregivers through
technology. To that end, we will increase our
investments in marketing and sales in 2013.
This will allow us to further advance our core
technology portfolio and new product platforms,
as well as strengthen customer relations and
expand our market knowledge.
IntriCon 2012 Annual Report | 05
Amazingly small.
Unbelievably comfortable.
The all-new patent-pending
APT™ D Open ITC hearing
device is powered by
IntriCon’s Overtus™ DSP
amplifier and features the
Reliant CLEAR™ adaptive
feedback canceller and the
AcousTAP™ acoustic push
button. The APT D’s design is
so small it does not occlude
a user’s ear canal, and the
replaceable wax guard
system enhances the robust
mechanical design. These
unique features create stable
and effective amplification
and easy integration into
existing fitting systems.
FEATURING:
Core Technologies
Incorporated:
ULP DSP, Miniaturization
2012 Results
For 2012, IntriCon reported net sales of $63.9 million and net income
of $709,000, or $0.12 per diluted share. This is up from 2011 net sales of
$56.1 million and a net loss of $(1.4 million), or $(0.25) per diluted share.
As a percentage of 2012 sales, healthcare-related revenue (hearing health
and medical combined) totaled 75.5 percent (37.2 percent hearing health
and 38.3 percent medical), with professional audio communications at
24.5 percent. This was relatively consistent with 2011 levels.
Gross profit margins rose for 2012 to 23.4 percent, up from 22.6 percent
in the prior year, primarily due to volume increases.
Value Hearing Health: Rapidly Emerging Market Opportunity
We believe the emerging value hearing health market offers significant
growth potential for IntriCon. Two of the main contributing factors include
the aging population and the low penetration rate, primarily due to high costs
to purchase a hearing device and inconveniences in the conventional hearing
health distribution channel. This has created the opportunity for alternative
care models, such as the insurance channel and personal sound amplifier
product (PSAP) channel.
Regarding the insurance channel, we partnered with hi HealthInnovations,
a UnitedHealth Group company, to become their supplier of hearing aids.
We met hi HealthInnovations’ initial product ramp-up needs for hearing aids
early in 2012 and, as expected, we received minimal new orders in the second
half of 2012. However, we remain optimistic about the long-term prospects of
this market-changing program.
hi HealthInnovations continues to make progress building the infrastructure
to provide high-quality, affordable hearing health care to a broad range of
customers. During the year, UnitedHealthcare expanded its hi HealthInnovations
program to more than 26 million people enrolled in its employer-sponsored
and individual health benefit plans. This opened additional avenues for IntriCon
and has the potential to drive significant growth in 2013, specifically in the
second half of the year.
In personal sound amplifier products, the FDA has created a PSAP category;
it is analogous to “reader glasses” in the optical market and provides a cost-
effective sound amplification device. These devices 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.
06 | IntriCon 2012 Annual Report
We also believe there are niches in the conventional hearing health channel
that will embrace our value hearing health proposition, as high costs constrain
their growth potential. Additionally, there is a large international market, most
notably in the so-called BRIC countries (Brazil, Russia, India and China) for this
type of product offering.
IntriCon is very well positioned to serve these value hearing health market
channels. Our DSP platforms, such as the APT™ and the Lumen™, provide better
clarity and an improved ability to filter out background noise — at attractive
pricing points. We believe these platforms, combined with our recently
introduced Audion6™, a six-channel hearing aid amplifier, will drive market share
gains into all channels of the emerging value hearing health market.
Medical Biotelemetry Growth: Strong Results and Potential
In the medical space, IntriCon had a record revenue year, increasing the top-line
nearly 7 percent from 2011. Our technology connects patients and caregivers in
non-traditional ways. We help shift the point of care from traditional settings such
as hospitals, to non-traditional settings like the home. We accomplish this with
devices that are more advanced, smaller and lightweight.
IntriCon currently has a strong presence in both the diabetes and cardiac
diagnostic monitoring biotelemetry markets. For diabetes, IntriCon has
partnered with Medtronic to manufacture their wireless continuous glucose
monitors that measure glucose levels and deliver real-time blood glucose
trend information. Along with the wireless glucose monitor, IntriCon also
manufactures a variety of related accessories. Further, we believe there are
opportunities to expand our diabetes product offering with Medtronic, as well
as move into new markets.
On the cardiac front, we began delivery of demo units of our two FDA-approved
wireless cardiac diagnostic monitoring (CDM) devices — Centauri™ and Sirona™—
to targeted customers to compile feedback. Additionally, we hired a CDM
industry veteran to further advance IntriCon’s cardiac program and elevate
our devices with market-demanded features.
Looking ahead, we plan to build a marketing infrastructure to target other
emerging biotelemetry and home care markets, such as sleep apnea, that could
benefit from our capabilities to develop devices that are more technologically
advanced, smaller and lightweight.
Professional Communications: Record Year
Professional audio communications sales were very strong in 2012, rising nearly
30 percent to a record level. We completed delivery on our significant contract
with the Singapore government, providing technically advanced headsets to
be worn in difficult listening environments. We also saw steady growth in our
securities business. Although the Singapore government contract has been
fulfilled in 2012, we believe there is potential for additional future contracts
with that entity and other agencies.
IntriCon 2012 Annual Report | 07
Sirona™ is IntriCon’s
second-generation cardiac
diagnostic monitoring
(CDM) product platform,
allowing physicians to
monitor patient cardiac
events remotely. The
Sirona platform, which
incorporates the PhysioLink™
technology, is essentially
two products in one design
because it can be used
as an event recorder, a
holter monitor, or both.
PhysioLink enables audio
and data streaming to
ear-worn and body-worn
applications over distances
of up to five meters. Sirona
provides to physicians
important diagnostic
evaluation of patients
who experience transient
symptoms that may
suggest cardiac arrhythmia.
FEATURING:
Core Technologies
Incorporated:
ULP DSP, ULP Wireless,
Miniaturization
Leveraging IntriCon’s Global Manufacturing Capabilities
Having a global manufacturing footprint is necessary to compete in today’s
cost-competitive environment. In 2011, we established a 15,000-square-foot
manufacturing facility in Batam, Indonesia. Our Indonesia and Singapore
locations give us the ability to provide lower-cost options to our customers,
as well as the chance to pursue other high-volume opportunities that are
emerging across our core businesses. During the year, we continued to
transfer select, labor-intensive programs to our lower-cost facilities. In an
effort to drive further margin improvement and remain cost competitive,
we will continue that shift in 2013.
IntriCon’s products are becoming increasingly complex. And regulations
around the quality of our products and services are intensifying. We must
demonstrate our commitment to manufacturing quality based on
implementing effective quality management systems, compliance
with numerous international regulatory agency requirements, sound
environmental policies and a robust safety culture. We have built our
internal infrastructure and are fine-tuning our policies and processes to
meet these demands, both domestically and internationally.
Looking Ahead
We are pleased with our 2012 results — delivering double-digit revenue
growth, improved margins and a profitable bottom line. However, we are
focused on growing a bigger and better IntriCon. We believe we are more
attractively positioned today than ever before.
In 2013, we plan to build on our success. Our primary goals are to increase
revenue, improve margins and grow our bottom line. We will do so by:
• Placing a heightened focus on marketing;
• Raising the percentage of proprietary, higher-margin
IntriCon technology we incorporate into our products; and
• Leveraging our low-cost manufacturing footprint.
We’re optimistic about our opportunities in 2013 and our ability to execute
and deliver growth for our shareholders.
The Lumen™ 1000 BTE
hearing device and family
of accessories are the
perfect system to enhance
a customer’s hearing
experience. The stylishly
designed hearing device
is driven by IntriCon’s
advanced Scenic amplifier
and enhanced by the
sophisticated and intuitive
PhysioLink™ wireless
technology, providing
clear communication.
The family of accessories,
including flexStream,™
voiceStream™ and
tvStream™ allow audio
or music, television audio,
or a companion’s voice to
be wirelessly broadcasted
directly to the hearing device.
FEATURING:
Core Technologies
Incorporated:
ULP DSP, ULP Wireless,
Miniaturization
Sincerely,
Mark Gorder
President and Chief Executive Officer
IntriCon Corporation
March 13, 2013
08 | IntriCon 2012 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
or
For the transition period from _______________ to _______________.
Commission File Number 1-5005
INTRICON CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of
incorporation or organization)
1260 Red Fox Road
Arden Hills, Minnesota
(Address of principal executive offices)
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Shares, $1 par value per share
23-1069060
(I.R.S. Employer Identification No.)
55112
(Zip Code)
(651) 636-9770
Name of each exchange on
which registered
The NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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. (Check one):
Large accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined by rule 12b-2 of the Act). Yes No
The aggregate market value of the voting common shares held by non-affiliates of the registrant on June 30, 2012 was $32,658,582.
Common shares held by each officer and director and by each person who owns 10% or more of the outstanding common shares have
been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
The number of outstanding shares of the registrant’s common shares on February 27, 2013 was 5,687,539.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s definitive proxy statement for the 2013 annual meeting of shareholders are incorporated by reference into
Part III of this report; provided, however, that the Audit Committee Report and any other information in such Proxy Statement that is
not required to be included in this Annual Report on Form 10-K, shall not be deemed to be incorporated herein or filed for the
purposes of the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended.
2
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Table of Contents
Business
PART I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Properties
Item 2.
Legal Proceedings
Item 3.
Mine Safety Disclosures
Item 4.
Item 4A. Executive Officers of the Registrant
PART II
Item 5.
Securities
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Controls and Procedures
Item 9A
Item 9B. Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
SIGNATURES
EXHIBIT INDEX
3
ITEM 1. Business
Company Overview
PART I
IntriCon Corporation (together with its subsidiaries referred herein as the “Company”, or “IntriCon”, “we”, “us” or “our”) is an
international company engaged in designing, developing, engineering and manufacturing body-worn devices. The Company serves the
body-worn device market by designing, developing, engineering and manufacturing micro-miniature products, microelectronics,
micro-mechanical assemblies and complete assemblies, primarily for bio-telemetry devices, hearing instruments and professional
audio communication devices. The Company, headquartered in Arden Hills, Minnesota, has facilities in Minnesota, California, Maine,
Singapore, Indonesia and Germany, and operates through subsidiaries. The Company is a Pennsylvania corporation formed in 1930.
The Company has gone through several transformations since its formation. The Company’s core business of body-worn devices was
established in 1993 through the acquisition of Resistance Technologies Inc., now known as IntriCon, Inc. The majority of IntriCon’s
current management came to the Company with the Resistance Technologies Inc. acquisition, including IntriCon’s President and
CEO, who was a co-founder of Resistance Technologies Inc.
Currently, the Company operates in one operating segment, the body-worn device segment. In 2009, the Company decided to exit its
non-core electronic products segment, to allow for greater focus on its body-worn device segment. On May 28, 2010, the Company
completed the sale of substantially all of the assets of its electronics business to an affiliate of Shackleton Equity Partners
(“Shackleton”). For all periods presented, the Company has classified its former electronics products segment as discontinued
operations. Unless otherwise indicated, the following description of our business refers only to our continuing operations.
Information contained in this Annual Report on Form 10-K and expressed in U.S. dollars or number of shares are presented in
thousands (000s), except for per share data and as otherwise noted.
Business Highlights
Major Events in 2012
In August 2012, the Company sold its 50% interest in its Global Coils joint venture, to joint venture partner Audemars SA. Global
Coils is in the business of marketing, designing, manufacturing, and selling audio coils to the hearing health industry. Audemars paid
$426 in cash at closing and will make future payments, both one time and recurring, as specified in the purchase agreement. Audemars
also transferred certain hearing health inventory to IntriCon. The Company recorded a gain on the sale of $822, or $.14 per diluted
share, in the gain on sale of investment in partnership line of the accompanying statement of operations.
In December 2012, the Company amended its credit facilities with The PrivateBank and Trust Company. Terms of the amendment
included, among other things, permitting the Company to borrow an additional $1,250 by increasing the Company’s term loan facility
to $4,000, while keeping the existing amortization schedule in place. In addition, the amendment eliminated the minimum EBITDA
covenant, reset certain other financial covenants and changed the dates of covenant compliance from monthly to quarterly. Lastly, the
amendment increased the inventory cap on the borrowing base from $3,000 to $3,500 and removed eligible equipment from the base.
The Company is using the facilities to fund current growth opportunities, expand the Company’s overseas low-cost manufacturing
infrastructure and meet anticipated working capital requirements. The credit facilities are further described in Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
Major Events in 2011
In October 2011, the Company announced it entered into a manufacturing agreement to become a supplier of hearing aids to
hi HealthInnovations, a UnitedHealth Group company. hi HealthInnovations launched a suite of high-tech, lower-cost hearing devices
for the estimated 36 million Americans with hearing loss. An estimated 75 to 80 percent of people in the United States who
can benefit from hearing devices do not use them, largely due to the high cost. hi HealthInnovations is offering consumers
technically advanced hearing aids, including those based on IntriCon’s new APT™ Open in-the-canal (ITC) hearing aid platform. The
Company devoted a considerable amount of time, resources and capital during 2011 to securing the agreement and preparing for the
program’s launch.
During the second quarter of 2011, IntriCon established a subsidiary in Indonesia. During the third quarter of 2011, the Company
signed a lease agreement for a manufacturing facility in Batam, Indonesia. The purpose of the expansion is to increase the Company’s
low cost manufacturing presence in Asia. The Company has been transferring labor intensive product assembly to the facility. The
Company commenced manufacturing at the facility in October 2011.
4
Major Events in 2010
On May 28, 2010 the Company completed the sale of substantially all of the assets of its electronics business to an affiliate of
Shackleton, pursuant to an Asset Purchase Agreement dated May 28, 2010. Shackleton paid $850 cash at closing for the assets and
assumed certain operating liabilities of IntriCon’s electronics business, subject to an accounts receivable adjustment. As part of the
sale, the Company recognized a gain, net of taxes, of $35.
The Company relocated its Singapore facility during the 2010 fiscal year, as required by the Singapore government, which is
redeveloping the land where the former Singapore facility was located. In connection with the relocation, the Company entered into a
lease agreement for a new facility in Singapore.
Core Technologies Overview:
IntriCon serves the body-worn device market by designing, developing, engineering and manufacturing micro-miniature products,
microelectronics, micro-mechanical assemblies and complete assemblies, primarily for bio-telemetry devices, hearing instruments and
professional audio communication devices. 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), Ultra-Low-Power 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. The continued advancements
in this area have allowed the Company to further enhance the mobility and effectiveness of miniature body-worn devices.
Ultra-Low-Power Digital Signal Processing
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.
During 2012 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, newly developed DSP technologies are utilized in the
Sirona cardiac diagnostic monitoring (CDM) platform.
Ultra-Low-Power 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 microphone and receiver technology has been pushing the limits of size and performance for over a decade. Our
miniature transducers, which have been incorporated into various product platforms, enhance the reliability, sensitivity, supply
voltage, and output level in body-worn devices. These enhancements allow us to make devices that are extremely portable and
perform well in noisy or hazardous environments. These small devices are well-suited for applications in the aviation, fire, law
enforcement, safety and military markets. Our technology also is used for technical surveillance by law enforcement and security
agencies, and by performers and production staff in the music and stage performance markets. Also included in our transducer line are
medical coils and micro coils used in pacemaker programming and interventional catheter positioning applications.
5
Market Overview:
Our core technologies expertise is focused on three main markets: medical bio-telemetry, value hearing health and professional audio
communications. 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 operation in “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and Note 17 “Revenue by Market” to the Company’s consolidated financial
statements included herein.
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 and manufacture 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 partnership 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 offers 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 that measure glucose levels and
deliver real-time blood glucose trend information. Along with the wireless glucose monitor, IntriCon also manufactures a variety of
related accessories. Further, we believe there are opportunities to expand our diabetes product offering with Medtronic as well as
move into new markets.
In the cardiac diagnostic monitoring market, we provide solutions for ambulatory cardiac monitoring. We entered this market through
an acquisition of Jon Barron, Inc. doing business as Datrix (“Datrix”) in 2009. Our first two product platforms, Sirona and Centauri,
received Food and Drug Administration (FDA) 510(k) approval in late 2011. The Sirona platform, which incorporates the PhysioLink
technology, is essentially two products in one design because it can be used as an event recorder, a holter monitor or both. This
platform is very small, rechargeable, and water spray proof. The features of the Centauri platform are event recording combined with
wireless transmission of the patient data to a remote service center, which then forwards the information to the doctor.
In addition, IntriCon manufactures and supplies bubble sensors and flow restrictors that monitor and control the flow of fluid in an
intravenous infusion system. IntriCon also manufactures a family of safety needle products for an original equipment manufacturing
(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.
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 to expand its reach to other large medical device and health care companies.
Value Hearing Health Market
The Company believes the value hearing health market offers significant growth opportunities. In the United States alone, there
are approximately 36 million hearing impaired individuals. This population is expected to grow significantly over the next ten years as
65-year-old-plus age demographic is one of the fastest growing segments the in the U.S., Europe and Japan. The current U.S. market
penetration into the hearing impaired population is approximately 20 percent. We believe the U.S. market penetration is low primarily
due to high costs to purchase a hearing device and inconveniences in the conventional hearing health distribution channel. This has
created the opportunity for alternative care models, such the insurance channel and personal sound amplifier (PSAP) channel.
In the insurance 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. This insurance model
has been successfully demonstrated internationally, as several countries providing a full insurance program are serving 40 to
70 percent of hearing impaired population. Further, research in the US has shown a fully insured model will drive an individual to
seek treatment at an earlier stage of hearing loss, greatly increasing the market size and penetration.
In personal sound amplifier products, the FDA has created a PSAP category; it is analogous to “reader glasses” in the optical market
and provides a cost effective sound amplification device. These devices 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.
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We also believe there are niches in the conventional hearing health channel that will embrace our value hearing health proposition, as
high costs constrain their growth potential. Additionally, we believe there is a large international market, most notably in the so-called
BRIC countries (Brazil, Russia, India and China), for this type of product offering.
We believe IntriCon is very well positioned to serve these value hearing health market channels. 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. Our DSP devices provide better clarity and an improved ability to filter out background noise at
attractive pricing points. We believe product platform introductions such as the APT™ and Lumen™ devices will drive market share
gains into all channels of the emerging value hearing health market.
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 homeland security and 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. The
Company also serves U.S. government security agencies and the Singapore government in this market. 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.
The Company sees great opportunity to market its situational listening devices (SLD’s). Much like the PSAP devices, these devices
are intended to help people hear in noisy environments like restaurants and automobiles, and listen to television, music, and direct
broadcast by wireless connection. Such devices are intended to be supplements to conventional hearing aids, which do not handle
those situations well. The SLD’s will be based on our PhysioLink technology, which were recently demonstrated at the annual
convention of the American Academy of Audiology. The product line consists of an earpiece, TV transmitter, companion microphone,
iPod/iPhone transmitter, and USB transmitter. With the emergence of advanced parallel technologies in both the SLD and PSAP
markets, the Company will likely shift recognition of many professional audio communications product sales into the value hearing
health market in future years.
For information concerning our net sales, net income and assets, see the consolidated financial statements in Item 8 of this Annual
Report on Form 10-K.
Marketing and Competition.
IntriCon intends to focus more capital and resources in marketing and sales to expand its reach into large medical device and
healthcare companies in the medical bio-telemetry and value hearing health markets outlined above. The Company believes this
will allow us to further advance our technology portfolio, new product platforms, strengthen customer relations and expand our
market knowledge.
Currently, IntriCon sells its hearing instrument components directly to domestic hearing instrument manufacturers and distributors
through an internal sales force. Sales of medical and professional audio communications products are also made primarily through an
internal sales force. In recent years, a small number of companies have accounted for a substantial portion of the Company’s sales.
In 2012, one customer accounted for approximately 21 percent of the Company’s net sales. During 2012, the top five customers
accounted for approximately $29,000, or 46 percent, of the Company’s net sales. See note 3 to the consolidated financial statements
for a discussion of net sales and long-lived assets by geographic area.
Internationally, sales representatives employed by IntriCon GmbH (“GmbH”), a wholly owned German subsidiary, solicit sales from
European hearing instrument, medical device and professional audio communications manufacturers and suppliers.
IntriCon believes that it is the largest supplier worldwide of micro-miniature electromechanical components to hearing instrument
manufacturers and that its full product line, automated manufacturing process and low cost manufacturing capabilities in Asia, allow it
to compete effectively with other manufacturers within this market. In the market of hybrid amplifiers and molded plastic faceplates,
hearing instrument manufacturers produce a substantial portion of their internal needs for these components.
IntriCon markets its high performance microphone products to the radio communication and professional audio industries and has
several larger competitors who have greater financial resources. IntriCon holds a small market share in the global market for
microphone capsules and other related products.
Employees. As of December 31, 2012, the Company had a total of 569 full time equivalent employees, of whom 33 are executive and
administrative personnel, 18 are sales personnel, 30 are engineering personnel and 488 are operations personnel. The Company
considers its relations with its employees to be satisfactory. None of the Company’s employees are represented by a union.
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As a supplier of parts for consumer and medical products, IntriCon is subject to claims for personal injuries allegedly caused by its
products. The Company maintains what it believes to be adequate insurance coverage.
Research and Development. IntriCon conducts research and development activities primarily to improve its existing products and
proprietary technology. The Company is committed to increasing its investment in the research and development of proprietary
technologies, such as the ULP nanoDSP and ULP wireless technologies. The Company believes the continued development of key
proprietary technologies will be the catalyst for long-term revenues and margin growth. Research and development expenditures were
$4,694, $4,876, and $4,485 in 2012, 2011 and 2010, respectively. These amounts are net of customer and grant reimbursed research
and development.
IntriCon owns a number of United States patents which cover a number of product designs and processes. Although the Company
believes that these patents collectively add value to the Company, the costs associated with the submission of patent applications are
expensed as incurred given the uncertainty of the patents providing future economic benefit to the Company.
Regulation. A large portion of our business operates in a marketplace subject to extensive and rigorous regulation by the FDA and by
comparable agencies in foreign countries. In the United States, the FDA regulates the design control, development, manufacturing,
labeling, record keeping, and surveillance procedures for medical devices.
United States Food and Drug Administration
FDA regulations classify medical devices based on perceived risk to public health as either Class I, II or III devices. Class I devices
are subject to general controls, Class II devices are subject to special controls and Class III devices are subject to pre-market approval
(“PMA”) requirements. While most Class I devices are exempt from pre-market submission, it is necessary for most Class II devices
to be cleared by a 510(k) pre-market notification prior to marketing. 510(k) establishes that the device is “substantially equivalent” to
a legally marketed predicate device which was legally marketed prior to May 28, 1976 or which itself has been found to be
substantially equivalent, through the 510(k) process, after May 28, 1976. It is “substantially equivalent” if it has the same intended use
and the same technological characteristics as the predicate. The 510(k) pre-market notification must be supported by data establishing
the claim of substantial equivalence to the satisfaction of the FDA. The process of obtaining a 510(k) clearance typically can take
several months to a year or longer. If the product is notably new or different and substantial equivalence cannot be established, the
FDA will require the manufacturer to submit a PMA application for a Class III device that must be reviewed and approved by the
FDA prior to sale and marketing of the device in the United States. The process of obtaining PMA approval can be expensive,
uncertain, lengthy and frequently requires anywhere from one to several years from the date of FDA submission, if approval is
obtained at all. The FDA controls the indicated uses for which a product may be marketed and strictly prohibits the marketing of
medical devices for unapproved uses. The FDA can withdraw products from the market for failure to comply with laws or the
occurrence of safety risks.
All of our current hearing aid devices are air conduction devices and, as such, are Class I medical devices, exempt from the 510(k)
submission process. They are typically marketed to FDA approved manufacturers with IntriCon assisting in the design, development
and production. Our ECG recorder devices are classified as Class II medical devices and have received 510(k) clearance from the
FDA. Our manufacturing operations are subject to periodic inspections by the FDA, whose primary purpose is to audit the Company’s
compliance with the Quality System Regulations published by the FDA and other applicable government standards. Strict regulatory
action may be initiated in response to audit deficiencies or to product performance problems. We believe that our manufacturing and
quality control procedures are in compliance with the requirements of the FDA regulations and this has been substantiated with no
findings cited during our most recent FDA audit in April of 2010.
Recent concerns have been raised by the public, internal FDA staff and Congress as to whether the current FDA 510(k) program
achieves its goals of making safe and effective devices available to the public while also fostering innovation. In August 2010, the
FDA Center for Devices and Radiological Health (“CDRH”) released two major FDA reports recommending changes to be taken by
CDRH. The first report provides recommendations on how to strengthen the 510(k) program and the second report provided
recommendations on how to incorporate new scientific information into regulatory decision making. The recommendations were
adopted in 2011 and are not anticipated to have a significant impact on the Company.
International Regulation
International regulatory bodies have established varying regulations governing product standards, packaging and labeling
requirements, import restrictions, tariff regulations, duties and tax. Many of these regulations are similar to those of the FDA. We
believe we are in compliance with the regulatory requirements in the foreign countries in which our medical devices are marketed.
The registration system for our medical devices in the EU requires that our quality system conform to international quality standards
and that our medical devices conform to “essential requirements” set forth by the Medical Device Directive (“MDD”). Manufacturing
facilities and processes under which our ECG recorder devices are produced are inspected and audited by our International
Organization for Standardization (“ISO”) registrar British Standards Institute (“BSI”). Our authorized representative, CE Partner 4U,
maintains our technical file and registers our products with competent authorities in all EU member states. Manufacturing facilities
8
and processes under which all of our other medical devices are produced are inspected and audited annually by the BSI. These audits
verify our compliance with the essential requirements of the MDD. These certifying bodies verify that our quality system conforms to
the international quality standard ISO 13485:2003 and that our products conform to the “essential requirements” and “supplementary
requirements” set forth by the MDD for the class of medical devices we produce. These certifying bodies also certify our conformity
with both the quality standards and the MDD requirements, entitling us to place the “CE” mark on all of our ECG recorder devices.
Our Hearing Aid devices typically bear the CE mark of our customers who assume regulatory responsibilities for those devices.
Third Party Reimbursement
The availability and level of reimbursement from third-party payers for procedures utilizing our products is significant to our business.
Our products are purchased primarily by OEM customers who sell into clinics, hospitals and other end-users, who in turn bill various
third party payers for the services provided to the patients. These payers, which include Medicare, Medicaid, private health insurance
plans and managed care organizations, reimburse all or part of the costs and fees associated with the procedures utilizing our products.
In response to the national focus on rising health care costs, a number of changes to reduce costs have been proposed or have begun to
emerge. There have been, and may continue to be, proposals by legislators, regulators and third party payers to curb these costs. The
development or increased use of more cost effective treatments for diseases could cause such payers to decrease or deny
reimbursement for surgeries or devices to favor alternatives that do not utilize our products. A significant number of Americans enroll
in some form of managed care plan. Higher managed care utilization typically drives down the payments for health care procedures,
which in turn places pressure on medical supply prices. This causes hospitals to implement tighter vendor selection and certification
processes, by reducing the number of vendors used, purchasing more products from fewer vendors and trading discounts on price for
guaranteed higher volumes to vendors. Hospitals have also sought to control and reduce costs over the last decade by joining group
purchasing organizations or purchasing alliances. We cannot predict what continuing or future impact these practices, the existing or
proposed legislation, or such third-party payer measures within a constantly changing healthcare landscape may have on our future
business, financial condition or results of operations.
Forward-Looking Statements
Certain statements included or incorporated by reference in this Annual Report on Form 10-K or the Company’s other public filings
and releases, which are not historical facts, or that include forward-looking terminology such as “may”, “will”, “believe”, “anticipate”,
“expect”, “should”, “optimistic” or “continue” 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 “Business,” “Legal Proceedings, “Risk Factors,” Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Notes to the Consolidated Financial Statements, such as the Company’s ability to compete,
statements concerning the hi HealthInnovations program, the divestiture of its electronic products segment and its Global Coils joint
venture interest, strategic alliances and their benefits, the adequacy of insurance coverage, government regulation, potential increases
in demand for the Company’s products, net operating loss carryforwards, the ability to meet cash requirements for operating needs, the
ability to meet liquidity needs, assumptions used to calculate future levels of funding of employee benefit plans, the adequacy of
insurance coverage, 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, 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 body-worn device markets, the effect of compliance with environmental
protection laws and other government regulations, estimates of goodwill impairments and amortization expense of other intangible
assets, estimates of asset impairment, 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. Forward-
looking statements are subject to risks and uncertainties and may be affected by various risks, uncertainties and other factors that can
cause actual results and developments to be materially different from those expressed or implied by such forward-looking statements,
including, without limitation, the risk factors discussed in Item 1A of this Annual Report on Form 10-K.
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.
Available Information
The Company files or furnishes its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy
statements and other information with the SEC. You may read and copy any reports, statements and other information that the
Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, on official business
days during the hours of 10:00 a.m. to 3:00 p.m. You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The Company’s reports, proxy and information statements and other SEC filings are also
available on the SEC’s Internet site as part of the EDGAR database (http://www.sec.gov).
9
The Company maintains an internet web site at www.IntriCon.com. The Company maintains a link to the SEC’s website by which
you may review its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.
The information on the website listed above, is not and should not be considered part of this annual report on Form 10-K and is not
incorporated by reference in this document. This website is and is only intended to be an inactive textual reference.
In addition, we will provide, at no cost (other than for exhibits), paper or electronic copies of our reports and other filings made with
the SEC. Requests should be directed to:
Corporate Secretary
IntriCon Corporation
1260 Red Fox Road
Arden Hills, MN 55112
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ITEM 1A. Risk Factors
You should carefully consider the risks described below. If any of the risks events actually occur, our business, financial condition or
results of future operations could be materially adversely affected. This Annual Report on Form 10-K contains forward-looking
statements that involve risk and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking
statements as a result of many factors, including the risks faced by us described below and elsewhere in this Annual Report on
Form 10-K.
We have experienced and expect to continue to experience fluctuations in our results of operations, which could adversely
affect us.
Factors that affect our results of operations include, but are not limited to, the volume and timing of orders received, changes in the
global economy and financial markets, changes in the mix of products sold, market acceptance of our products and our customer’s
products, competitive pricing pressures, global currency valuations, the availability of electronic components that we purchase from
suppliers, our ability to meet demand, our ability to introduce new products on a timely basis, the timing of new product
announcements and introductions by us or our competitors, changing customer requirements, delays in new product qualifications, and
the timing and extent of research and development expenses. These factors have caused and may continue to cause us to experience
fluctuations in operating results on a quarterly and/or annual basis. These fluctuations could materially adversely affect our business,
financial condition and results of operations, which in turn, could adversely affect the price of our common stock.
The loss of one or more of our major customers could adversely affect our results of operations.
We are dependent on a small number of customers for a large portion of our revenues. In fiscal year 2012, our largest customer
accounted for approximately 21 percent of our net sales and our five largest customers accounted for approximately 46 percent of our
net sales. A significant decrease in the sales to or loss of any of our major customers could have a material adverse effect on our
business and results of operations. Our revenues are largely dependent upon the ability of customers to develop and sell products that
incorporate our products. No assurance can be given that our major customers will not experience financial, technical or other
difficulties that could adversely affect their operations and, in turn, our results of operations.
We may not be able to collect outstanding accounts receivable from our customers.
Some of our customers purchase our products on credit, which may cause a concentration of accounts receivable among some of our
customers. As of December 31, 2012, we had accounts receivable, less allowance for doubtful accounts, of $7,171, which represented
approximately 38 percent of our shareholders’ equity as of that date. As of that date, two customers accounted for a combined total of
24 percent of our accounts receivable. Our financial condition and profitability may be harmed if one or more of our customers are
unable or unwilling to pay these accounts receivable when due.
There are risks under our manufacturing agreement with hi HealthInnovations.
In 2011, we entered into a manufacturing agreement with hi HealthInnovations, a UnitedHealth Group company, to supply hearing
aids. Under the agreement, we are required to establish and maintain a certain level of manufacturing, supply chain and delivery
capacity. We devoted considerable time, resources and capital during 2012 and 2011 securing the agreement and preparing for the
program’s launch. hi HealthInnovations is not required to purchase any minimum amount under the manufacturing agreement and
may cease purchases at any time. We also agreed that during the term of the agreement, we would not sell hearing aids or accessories
to another health insurer or directly to consumers. For more information, see our Current Report on Form 8-K filed with the SEC on
November 14, 2011.
Royalties under the sale of our interest in the Global Coils joint venture may be less than estimated.
In August 2012, the Company sold its 50% interest in its Global Coils joint venture, to its joint venture partner Audemars SA. The
consideration for the sale included cash, inventory and royalty payments. Included in the gain on sale are the estimated royalty
payments which the Company measured at fair value based on level 3 inputs which are considered unobservable inputs that are not
corroborated by market data. The Company used future estimated cash flows discounted to their present value to calculate fair value.
Actual royalty payments may differ from the Company’s estimate which could adversely affect the Company’s results of operations in
future periods.
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Despite signs of improvement in economic conditions, the current domestic economic environment could cause a severe
disruption in our operations.
Our business has been negatively impacted by the recent domestic economic environment. If the economy does not continue to
improve or worsens, there could be several severely negative implications to our business that may exacerbate many of the risk factors
we identified including, but not limited to, the following:
Liquidity:
• The domestic economic environment and the associated credit crisis could worsen and reduce liquidity and this could have a
negative impact on financial institutions and the country’s financial system, which could, in turn, have a negative impact on
our business.
• We may not be able to borrow additional funds under our existing credit facility and may not be able to expand our existing
facility if our lender becomes insolvent or its liquidity is limited or impaired or if we fail to meet covenant levels going
forward. In addition, we may not be able to renew our existing credit facility at the conclusion of its current term or renew it
on terms that are favorable to us.
Demand:
• Any deterioration in the economy or a return to recession could result in lower sales to our customers. Additionally, our
customers may not have access to sufficient cash or short-term credit to obtain our products or services.
Prices:
• Certain markets could experience deflation, which would negatively impact our average prices and reduce our margins.
Our operations could be adversely affected by changes in the federal budget.
The federal government is under increasing pressure to reduce the budget deficit. This could result in a general reduction in
U.S. healthcare and defense spending and could cause our customers to delay, reduce or cancel their purchases of our products. Future
actions or inactions of the United States government, including a failure to increase the government debt limit, reductions in the size
of the U.S budget, including automatic across-the-board budget cuts, or sequestrations, reductions in the Medicare and Medicaid
programs, potential tax increases or a temporary shutdown of the federal government, could affect purchases by our customers, disrupt
financial markets and adversely affect economic conditions generally, all of which could have a material adverse effect on our results
of operation and financial condition.
Health care policy changes, including U.S. health care reform legislation signed in 2010, may have a material adverse effect
on us.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education
Affordability Reconciliation Act of 2010. The legislation imposes significant new taxes on medical device makers in the form of a
2.3% excise tax on all U.S. medical device sales beginning in January 2013. Under the legislation, the total cost to the medical device
industry is expected to be approximately $20 billion over ten years. This significant increase in the tax burden on our industry could
have a material, negative impact on our results of operations and our cash flows either directly, through taxes on us, or indirectly
through others in our value chain being subject to the tax. We currently estimate the direct impact of the excise tax on us to be
minimal; however, if facts or circumstances change in our business relationships, we could be subject to customer pricing pressures or
required to pay additional taxes under the rules. Other elements of this legislation, such as comparative effectiveness research, an
independent payment advisory board, payment system reforms, including shared savings pilots, and other provisions, could
meaningfully change the way health care is developed and delivered, and may materially impact numerous aspects of our business.
If we are unable to continue to develop new products that are inexpensive to manufacture, our results of operations could be
adversely affected.
We may not be able to continue to achieve our historical profit margins due to advancements in technology. The ability to continue
our profit margins is dependent upon our ability to stay competitive by developing products that are technologically advanced and
inexpensive to manufacture.
Our need for continued investment in research and development may increase expenses and reduce our profitability.
Our industry is characterized by the need for continued investment in research and development. If we fail to invest sufficiently in
research and development, our products could become less attractive to potential customers and our business and financial condition
could be materially and adversely affected. As a result of the need to maintain or increase spending levels in this area and the
difficulty in reducing costs associated with research and development, our operating results could be materially harmed if our research
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and development efforts fail to result in new products or if revenues fall below expectations. In addition, as a result of our
commitment to invest in research and development, management believes that research and development expenses as a percentage of
revenues could increase in the future.
We operate in a highly competitive business and if we are unable to be competitive, our financial condition could be adversely
affected.
Several of our competitors have been able to offer more standardized and less technologically advanced hearing and professional
audio communication products at lower prices. Price competition has had an adverse effect on our sales and margins. There can be
no assurance that we will be able to maintain or enhance our technical capabilities or compete successfully with our existing and
future competitors.
Merger and acquisition activity in our hearing health market has resulted in a smaller customer base. Reliance on fewer
customers may have an adverse effect on us.
Several of our customers in the hearing health market have undergone mergers or acquisitions, resulting in a smaller customer base
with larger customers. If we are unable to maintain satisfactory relationships with the reduced customer base, it may adversely affect
our operating profits and revenue.
Unfavorable legislation in the hearing health market may decrease the demand for our products, and may negatively impact
our financial condition.
In some of our foreign markets, government subsidies cover a portion of the cost of hearing aids. A change in legislation that would
reduce or eliminate these subsidies could decrease the demand for our hearing health products. This could result in an adverse effect
on our operating results. We are unable to predict the likelihood of any such legislation.
Our failure to obtain required governmental approvals and maintain regulatory compliance for our required products would
impact our ability to generate revenue from those products.
The markets in which our business operates are subject to extensive and rigorous regulation by the FDA and by comparable agencies
in foreign countries. In the United States, the FDA regulates the design control, development, manufacturing, labeling, record keeping,
and surveillance procedures for our medical devices.
The process of obtaining marketing clearance or approvals from the FDA for new products and new applications for existing products
can be time-consuming and expensive, and there is no assurance that such clearance/approvals will be granted, or that the FDA review
will not involve delays that would adversely affect our ability to commercialize additional products or additional applications for
existing products. Some of our products in the research and development stage may be subject to a lengthy and expensive pre-market
approval process with the FDA. The FDA has the authority to control the indicated uses of a device. Products can also be withdrawn
from the market due to failure to comply with regulatory standards or the occurrence of unforeseen problems. The FDA regulations
depend heavily on administrative interpretation, and there can be no assurance that future interpretations made by the FDA or other
regulatory bodies, with possible retroactive effect, will not adversely affect us.
The registration system for our medical devices in the EU requires that our quality system conform to international quality standards.
Manufacturing facilities and processes under which our ECG recorder devices are produced are inspected and audited by various
certifying bodies. These audits verify our compliance with applicable requirements and standards. Further, the FDA, various state
agencies and foreign regulatory agencies inspect our facilities to determine whether we are in compliance with various regulations
relating to quality systems, such as manufacturing practices, validation, testing, quality control, product labeling and product
surveillance. A determination that we are in violation of such regulations could lead to imposition of civil penalties, including fines,
product recalls or product seizures, suspensions or shutdown of production and, in extreme cases, criminal sanctions, depending on the
nature of the violation.
Implementation of our growth strategy may not be successful, which could affect our ability to increase revenues.
Our growth strategy includes developing new products and entering new markets, as well as identifying and integrating acquisitions.
Our ability to compete in new markets will depend upon a number of factors including, among others:
•
•
•
•
•
•
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our ability to create demand for products in new markets;
our ability to manage growth effectively;
our ability to strengthen our sales and marketing presence;
our ability to successfully identify, complete and integrate acquisitions;
our ability to respond to changes in our customers’ businesses by updating existing products and introducing, in a timely
fashion, new products which meet the needs of our customers;
the quality of our new products; and
our ability to respond rapidly to technological change.
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The failure to do any of the foregoing could have a material adverse effect on our business, financial condition and results of
operations. In addition, we may face competition in these new markets from various companies that may have substantially greater
research and development resources, marketing and financial resources, manufacturing capability and customer support organizations.
We have foreign operations in Singapore, Indonesia and Germany, and various factors relating to our international operations
could affect our results of operations.
In 2012, we operated in Singapore, Indonesia and Germany. Approximately 23 percent of our revenues were derived from our
facilities in these countries in 2012. As of December 31, 2012 approximately 26 percent of our long-lived assets are located in these
countries. Political or economic instability in these countries could have an adverse impact on our results of operations due to
diminished revenues in these countries. Our future revenues, costs of operations and profit results could be affected by a number of
factors related to our international operations, including changes in foreign currency exchange rates, changes in economic conditions
from country to country, changes in a country’s political condition, trade protection measures, licensing and other legal requirements
and local tax issues. Unanticipated currency fluctuations in the euro, Singapore dollar and other currencies could lead to lower
reported consolidated revenues due to the translation of this currency into U.S. dollars when we consolidate our revenues and results
from operations.
The recent recessions in Europe and the debt crisis in certain countries in the European Union could negatively affect our
ability to conduct business in those geographies.
The continuing debt crisis in certain European countries could cause the value of the euro to deteriorate, reducing the purchasing
power of our European customers. Financial difficulties experienced by our suppliers and customers, including distributors, could
result in product delays and inventory issues; risks to accounts receivable could also include delays in collection and greater bad debt
expense. Also, the effect of the debt crisis in certain European countries could have an adverse effect on the capital markets generally,
specifically impacting our ability and the ability of our customers to finance our and their respective businesses on acceptable terms, if
at all, the availability of materials and supplies and demand for our products.
We may explore acquisitions that complement or expand our business. We may not be able to complete these transactions and
these transactions, if executed, pose significant risks and may materially adversely affect our business, financial condition and
operating results.
We intend to explore opportunities to buy other businesses or technologies that could complement, enhance or expand our current
business or product lines or that might otherwise offer us growth opportunities. We may have difficulty finding these opportunities or,
if we do identify these opportunities, we may not be able to complete the transactions for various reasons, including a failure to secure
financing. Any transactions that we are able to identify and complete may involve a number of risks, including: the diversion of our
management’s attention from our existing business to integrate the operations and personnel of the acquired or combined business or
joint venture; possible adverse effects on our operating results during the integration process; unanticipated liabilities; and our possible
inability to achieve the intended objectives of the transaction. In addition, we may not be able to successfully or profitably integrate,
operate, maintain and manage our newly acquired operations or employees. In addition, future acquisitions may result in dilutive
issuances of equity securities or the incurrence of additional debt.
We may experience difficulty in paying our debt when it comes due, which could limit our ability to obtain financing.
As of December 31, 2012, we had bank indebtedness of $9,905 and additional indebtedness of $262 payable to the former shareholder
of Datrix. Our ability to pay the principal and interest on our indebtedness as it comes due will depend upon our current and future
performance. Our performance is affected by general economic conditions and by financial, competitive, political, business and other
factors. Many of these factors are beyond our control. We believe that availability under our existing credit facility combined with
funds expected to be generated from operations and control of capital spending will be sufficient to meet our anticipated cash
requirements for operating needs for at least the next 12 months. If, however, we are unable to renew these facilities or obtain waivers
(see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital
Resources”) in the future or do not generate sufficient cash or complete such financings on a timely basis, we may be required to seek
additional financing or sell equity 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 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 and performance.
If we fail to meet our financial and other covenants under our loan agreements with our lenders, absent a waiver, we will be in
default of the loan agreements and our lenders can take actions that would adversely affect our business.
There can be no assurances that we will be able to maintain compliance with the financial and other covenants in our loan agreements.
In the event we are unable to comply with these covenants during future periods, it is uncertain whether our lenders will grant waivers
for our non-compliance. If there is an event of default by us under our loan agreements, our lenders have the option to, among other
14
things, accelerate any and all of our obligations under the loan agreements which would have a material adverse effect on our
business, financial condition and results of operations.
Our success depends on our senior management team and if we are not able to retain them, it could have a materially adverse
effect on us.
We are highly dependent upon the continued services and experience of our senior management team, including Mark S. Gorder, our
President, Chief Executive Officer and director. We depend on the services of Mr. Gorder and the other members of our senior
management team to, among other things, continue the development and implementation of our business strategies and maintain and
develop our client relationships. We do not maintain key-man life insurance for any members of our senior management team.
Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and
adversely impact our reputation and results of operations.
Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our information
technology (IT) systems to sophisticated and targeted measures known as advanced persistent threats. While we employ
comprehensive measures to prevent, detect, address and mitigate these threats (including access controls, vulnerability assessments,
continuous monitoring of our IT networks and systems and maintenance of backup and protective systems), cybersecurity incidents,
depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of
critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations.
The potential consequences of a material cybersecurity incident include reputational damage, litigation with third parties, diminution
in the value of our investment in research, development and engineering, and increased cybersecurity protection and remediation
costs, which in turn could adversely affect our competitiveness and results of operations.
Our future success depends in part on the continued service of our engineering and technical personnel and our ability to
identify, hire and retain additional personnel.
There is intense competition for qualified personnel in our markets. We may not be able to continue to attract and retain engineers or
other qualified personnel necessary for the development and growth of our business or to replace engineers or other qualified
personnel who may leave our employ in the future. The failure to retain and recruit key technical personnel could cause additional
expense, potentially reduce the efficiency of our operations and could harm our business.
We and/or our customers may be unable to protect our and their proprietary technology and intellectual property rights or
keep up with that of competitors.
Our ability to compete effectively against other companies in our markets depends, in part, on our ability and the ability of our
customers to protect our and their current and future proprietary technology under patent, copyright, trademark, trade secret and unfair
competition laws. We cannot assure that our means of protecting our proprietary rights in the United States or abroad will be adequate,
or that others will not develop technologies similar or superior to our technology or design around the proprietary rights we own or
license. In addition, we may incur substantial costs in attempting to protect our proprietary rights.
Also, despite the steps taken by us to protect our proprietary rights, it may be possible for unauthorized third parties to copy or
reverse-engineer aspects of our and our customers’ products, develop similar technology independently or otherwise obtain and use
information that we or our customers regard as proprietary. We and our customers may be unable to successfully identify or prosecute
unauthorized uses of our or our customers’ technology.
If we become subject to material intellectual property infringement claims, we could incur significant expenses and could be
prevented from selling specific products.
We may become subject to material claims that we infringe the intellectual property rights of others in the future. We cannot assure
that, if made, these claims will not be successful. Any claim of infringement could cause us to incur substantial costs defending
against the claim even if the claim is invalid, and could distract management from other business. Any judgment against us could
require substantial payment in damages and could also include an injunction or other court order that could prevent us from offering
certain products.
Environmental liability and compliance obligations may affect our operations and results.
Our manufacturing operations are subject to a variety of environmental laws and regulations as well as internal programs and policies
governing:
air emissions;
•
• wastewater discharges;
•
•
the storage, use, handling, disposal and remediation of hazardous substances, wastes and chemicals; and
employee health and safety.
15
If violations of environmental laws occur, we could be held liable for damages, penalties, fines and remedial actions. Our operations
and results could be adversely affected by any material obligations arising from existing laws, as well as any required material
modifications arising from new regulations that may be enacted in the future. We may also be held liable for past disposal of
hazardous substances generated by our business or former businesses or businesses we acquire. In addition, it is possible that we may
be held liable for contamination discovered at our present or former facilities.
We are subject to numerous asbestos-related lawsuits, which could adversely affect our financial position, results of operations
or liquidity.
We are 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 we sold in March 2005. Due to the non-informative nature
of the complaints, we do not know whether any of the complaints state valid claims against us. Certain insurance carriers have
informed us 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, we have other primary and excess insurance policies that we
believe 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 our tender of defense of these cases, or have denied coverage, or have accepted the tenders
but asserted a reservation of rights and/or advised us that they need to investigate further. Because settlement payments are applied to
all years a litigant was deemed to have been exposed to asbestos, we believe we 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 we will be required to pay; accordingly, we expect that our litigation
costs will increase in the future as the older policies are exhausted. 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. If our insurance policies do not cover the costs and any awards for the asbestos-related lawsuits, we will have to use
our cash or obtain additional financing to pay the asbestos-related obligations and settlement costs. There is no assurance that we will
have the cash or be able to obtain additional financings on favorable terms to pay asbestos related obligations or settlements should
they occur. The ultimate outcome of any legal matter cannot be predicted with certainty. In light of the significant uncertainty
associated with asbestos lawsuits, there is no guarantee that these lawsuits will not materially adversely affect our financial position,
results of operations or liquidity.
The market price of our common stock has been and is likely to continue to be volatile and there has been limited trading
volume in our stock, which may make it difficult for shareholders to resell common stock when they want to and at prices they
find attractive.
The market price of our common stock has been and is likely to be highly volatile, and there has been limited trading volume in
our common stock. The common stock market price could be subject to wide fluctuations in response to a variety of factors, including
the following:
•
•
•
•
•
•
•
•
announcements of fluctuations in our or our competitors’ operating results;
the timing and announcement of sales or acquisitions of assets by us or our competitors;
changes in estimates or recommendations by securities analysts;
adverse or unfavorable publicity about our products, technologies or us;
the commencement of material litigation, or an unfavorable verdict, against us;
terrorist attacks, war and threats of attacks and war;
additions or departures of key personnel; and
sales of common stock.
In addition, the stock market in recent years has experienced significant price and volume fluctuations. Such volatility has affected
many companies irrespective of, or disproportionately to, the operating performance of these companies. These broad fluctuations
and limited trading volume may materially adversely affect the market price of our common stock, and your ability to sell our
common stock.
Most of our outstanding shares are available for resale in the public market without restriction. The sale of a large number of these
shares could adversely affect the share price and could impair our ability to raise capital through the sale of equity securities or make
acquisitions for common stock.
“Anti-takeover” provisions may make it more difficult for a third party to acquire control of us, even if the change in control
would be beneficial to shareholders.
We are a Pennsylvania corporation. Anti-takeover provisions in Pennsylvania law and our charter and bylaws could make it more
difficult for a third party to acquire control of us. These provisions could adversely affect the market price of the common stock and
could reduce the amount that shareholders might receive if we are sold. For example, our charter provides that the board of directors
16
may issue preferred stock without shareholder approval. In addition, our bylaws provide for a classified board, with each board
member serving a staggered three-year term. Directors may be removed by shareholders only with the approval of the holders of at
least two-thirds of all of the shares outstanding and entitled to vote.
Further, under an agreement that we entered into with hi HealthInnovations, a UnitedHealth Group company, in connection with our
manufacturing agreement, we are required to, among other things, offer to United Healthcare Services, Inc. the right to complete the
acquisition of our company by a health insurer on the same terms and conditions and the right to participate in certain other sales of
our company, all of which may have an anti-takeover effect. For more information, see our Current Report on Form 8-K filed with the
SEC on November 14, 2011.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or
prevent fraud. As a result, current and potential shareholders and customers could lose confidence in our financial reporting,
which could harm our business, the trading price of our stock and our ability to retain our current customers or obtain
new customers.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, referred to as Section 404, we are required to include in our Annual
Reports on Form 10-K, our management’s report on internal control over financial reporting. Currently, we are not required to include
a report of our independent registered public accounting firm on our internal controls because we are a “smaller reporting company”
under SEC rules; therefore, shareholders do not have the benefit of an independent review of our internal controls. While we have
reported no “material weaknesses” in the Form 10-K for the fiscal year ended December 31, 2012, we cannot guarantee that we will
not have “material weaknesses” reported by our management in the future. Compliance with the requirements of Section 404 is
expensive and time-consuming. If in the future we fail to complete this evaluation in a timely manner, or if we determine that we have
a material weakness, we could be subject to regulatory scrutiny and a loss of public confidence in our internal control over financial
reporting. In addition, any failure to establish an effective system of disclosure controls and procedures could cause our current and
potential investors and customers to lose confidence in our financial reporting and disclosure required under the Securities Exchange
Act of 1934, which could adversely affect our business and the market price of our common stock.
17
ITEM 1B. Unresolved Staff Comments
Not Applicable.
ITEM 2.
Properties
The Company leases eight facilities, five domestically and three internationally, as follows:
•
•
•
•
•
a 47,000 sq. ft. manufacturing facility in Arden Hills, Minnesota, which also serves as the Company’s headquarters, from a
partnership consisting of two former officers of IntriCon Inc. and Mark S. Gorder who serves as the president and CEO of the
Company and on the Company’s Board of Directors. At this facility, the Company manufactures body-worn devices, other
than plastic component parts. Annual base rent expense, including real estate taxes and other charges, is approximately $490.
The Company believes the terms of the lease agreement are comparable to those which could be obtained from unaffiliated
third parties. As amended, this lease expires in October 2013, subject to one option to renew for a three year period.
a 46,000 sq. ft. building in Vadnais Heights, Minnesota at which IntriCon produces plastic component parts for body-worn
devices. Annual base rent expense, including real estate taxes and other charges, is approximately $382. This lease expires in
June 2016.
two buildings in Camden, Maine, which contain manufacturing facilities and offices and consist of a total of 32,000 square
feet. Annual base rent expense on the 25,000 square foot facility, including real estate taxes and other charges, is
approximately $109. This lease expires in June 2014. Annual base rent expense on the 7,000 square foot facility, including
real estate taxes and other charges, is approximately $62. This lease expires in June 2017.
a 4,000 square foot building in Escondido, California, which houses assembly operations and administrative offices relating
to our cardiac monitoring business. Annual base rent expense, including real estate taxes and other charges, is approximately
$35. This lease expires in April 2014.
a 28,000 square foot building in Singapore which houses production facilities and administrative offices. Annual base rent
expense, including real estate taxes and other charges, of the 24,000 square foot portion of the building is approximately
$340. This lease expires in October 2015. Annual base rent expense on the remaining 4,000 square foot portion is
approximately $57. This lease expires in August 2013.
• A 15,000 square foot facility in Indonesia which houses production facilities. Annual base rent expense, including real estate
•
taxes and other charges is approximately $4. This lease expires in July 2016.
a 2,000 square foot facility in Germany which houses sales and administrative offices. Annual base rent expense, including
real estate taxes and other charges, is approximately $39. This lease expires in June 2017.
See notes 13 and 14 to the Company’s consolidated financial statements in Item 8 of the Annual Report on Form 10-K.
ITEM 3.
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.
18
The Company’s former wholly owned French subsidiary, Selas SAS, filed for insolvency in France and is being managed by a court
appointed judiciary administrator. The Company may be subject to additional litigation or liabilities as a result of the French
insolvency proceeding.
The Company is also involved in other lawsuits arising in the normal course of business, as further described in Note 13 to the
consolidated financial statements in Item 8. 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 the Company’s consolidated
financial position, liquidity, or results of operations.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 4A. Executive Officers of the Registrant
The names, ages and offices (as of February 28, 2013) of the Company’s executive officers were as follows:
Name
Mark S. Gorder
Scott Longval
Christopher D. Conger
Michael P. Geraci
Dennis L. Gonsior
Greg Gruenhagen
Age
66
36
52
54
54
59
Position
President, Chief Executive Officer and Director of the Company
Chief Financial Officer and Treasurer of the Company
Vice President, Research and Development
Vice President, Sales and Marketing
Vice President, Global Operations
Vice President, Corporate Quality and Regulatory Affairs
Mr. Gorder joined the Company in October 1993 when Resistance Technology, Inc. (RTI) (now known as IntriCon, Inc.) was
acquired by the Company. Mr. Gorder received a Bachelor of Arts degree in Mathematics from the St. Olaf College, a Bachelor of
Science degree in Electrical Engineering from the University of Minnesota and a Master of Business Administration from the
University of Minnesota. Prior to the acquisition, Mr. Gorder was President and one of the founders of RTI, which began operations in
1977. Mr. Gorder was promoted to Vice President of the Company and elected to the Board of Directors in April 1996. In
December 2000, he was elected President and Chief Operating Officer and in April 2001, Mr. Gorder assumed the role of Chief
Executive Officer.
Mr. Longval has served as the Company’s Chief Financial Officer since July 2006. Mr. Longval received a Bachelor of Science
degree in Accounting from the University of St. Thomas. Prior to being appointed as CFO, Mr. Longval served as the Company’s
Corporate Controller since September 2005. Prior to joining the Company, Mr. Longval was Principal Project Analyst at
ADC Telecommunications, Inc., a provider of innovative network infrastructure products and services, from March 2005 until
September 2005. From May 2002 until March 2005 he was employed by Accellent, Inc., formerly MedSource Technologies, a
provider of outsourcing solutions to the medical device industry, most recently as Manager of Financial Planning and Analysis. From
September 1998 until April 2002, he was employed by Arthur Andersen, most recently as experienced audit senior.
Mr. Conger joined the Company in September 1997. Mr. Conger received a Bachelor of Science degree in Electrical Engineering from
the University of Missouri and a Master of Science degree in Electrical Engineering from the University of Minnesota. He has served
as the Company’s Vice President of Research and Development since February 2005. Prior to that, Mr. Conger served as Director of
Research and Development since 1997. Before joining IntriCon, Mr. Conger served in various positions in the hearing health industry
including 3M Company and Siemens.
Mr. Geraci joined the Company in October 1983. Mr. Geraci received a Bachelor of Science degree in Electrical Engineering from
Bradley University and a Master of Business Administration from the University of Minnesota – Carlson School of Business. He has
served as the Company’s Vice President of Sales and Marketing since January 1995.
Mr. Gonsior joined the Company in February 1982. Mr. Gonsior received a Bachelor of Science degree from Saint Cloud State
University. He has served as the Company’s Vice President of Operations since January 1996.
Mr. Gruenhagen joined the Company in November 1984. Mr. Gruenhagen received a Bachelor of Science degree from Iowa State
University. He has served as the Company’s Vice President of Corporate Quality and Regulatory Affairs since December 2007. Prior
to that, Mr. Gruenhagen served as Director of Corporate Quality since 2004 and Director of Project Management since 2000.
19
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
The Company’s common shares are listed on the NASDAQ Global Market under the ticker symbol “IIN”.
Market and Dividend Information
The high and low sale prices of the Company’s common stock during each quarterly period during the past two years were as follows:
2012
Market
Price Range
2011
Market
Price Range
Quarter
First...................................................................
Second ..............................................................
Third .................................................................
Fourth ...............................................................
$
High
7.50
7.17
6.57
5.38
$
Low
5.53
6.12
3.91
4.03
$
High
4.27
5.12
4.60
7.22
$
Low
3.75
3.66
2.84
3.20
The closing sale price of the Company’s common stock on February 27, 2013, was $4.65 per share.
At February 27, 2013 the Company had 300 shareholders of record of common stock. Such number does not reflect shareholders who
beneficially own common stock in nominee or street name.
The Company currently intends to retain any future earnings to support operations and to finance the growth and development of its
business and does not intend to pay cash dividends on its common stock for the foreseeable future. Any payment of future dividends
will be at the discretion of the Board of Directors and will depend upon, among other things, the Company’s earnings, financial
condition, capital requirements, level of indebtedness, contractual restrictions with respect to the payment of dividends, and other
factors that the Board of Directors deems relevant. Terms of the Company’s banking agreements prohibit the payment of cash
dividends without prior bank approval.
See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters — Equity
Compensation Plans” of this Annual Report on Form 10-K for disclosure regarding our equity compensation plans.
In 2012, the Company did not sell any unregistered securities and did not repurchase any of its securities.
20
ITEM 6.
Selected Financial Data
Five-Year Summary of Operations
Years ended December 31,
2012
2011
2010
2009 (b)
2008
Sales, net .......................................................
$
63,933
$
56,058
$
58,697
$
51,676
$
57,908
Gross profit ...................................................
Operating expenses .......................................
14,976
13,976
Interest expense .............................................
Equity in income (loss) of partnerships ........
Gain on sale of investment in partnership .....
Other income (expense), net .........................
Income (loss) from continuing operations
before income taxes and discontinued
operations ..................................................
Income tax (expense) benefit ........................
Income (loss) from continuing operations
before discontinued operations ..................
Gain on sale of discontinued operations, net
of income taxes ..........................................
Income (loss) from discontinued operations,
net of income taxes ....................................
(755)
(116)
822
(78)
873
(164)
709
—
—
12,666
13,858
(609)
174
—
42
(1,585)
160
(1,425)
—
—
15,013
13,419
(655)
(135)
—
(4)
800
(145)
655
35
(329)
11,051
11,681
(836)
(150)
—
(220)
(1,836)
34
(1,802)
—
(2,119)
14,657
12,360
(678)
(4)
—
(36)
1,579
(265)
1,314
—
(276)
Net income (loss) ..........................................
$
709
$
(1,425)
$
361
$
(3,921)
$
1,038
Basic income (loss) per share:
Continuing operations ...............................
Discontinued operations ............................
Net income (loss) .......................................
Diluted income (loss) per share:
Continuing operations ...............................
Discontinued operations ............................
Net income (loss) .......................................
Weighted average number of shares
outstanding during year:
Basic ..........................................................
Diluted .......................................................
$
$
$
$
.13
—
.13
.12
—
.12
$
$
$
$
(.25)
—
(.25)
(.25)
—
(.25)
$
$
$
$
.12
(.05)
.07
.12
(.05)
.07
$
$
$
$
(.34)
(.39)
(.73)
(.34)
(.39)
(.73)
$
$
$
$
.25
(.05)
.20
.24
(.05)
.19
5,669
5,888
5,599
5,599
5,484
5,535
5,394
5,394
5,314
5,539
21
Other Financial Highlights
Years ended December 31,
2012
2011
2010
2009(b)
2008
Working capital (a) .......................................
Total assets ....................................................
Long-term debt .............................................
Shareholders’ equity .....................................
Depreciation and amortization ......................
$
$
$
$
$
8,893
39,132
7,222
18,722
2,150
$
$
$
$
$
8,207
40,730
8,217
17,446
2,258
$
$
$
$
$
8,615
36,267
6,465
18,571
2,601
$
$
$
$
$
8,504
37,363
7,730
17,489
2,470
$
$
$
$
$
10,602
39,462
6,188
20,312
2,426
(a) Working capital is equal to current assets less current liabilities.
(b)
In 2009, the Company exited the Electronic Products business, which consisted of the thermistor, film capacitor and magnetic
products, and reclassified it as discontinued operations, including all previously reported amounts. Subsequently, in 2010 the
Company completed the sale of the assets of the Electronic Products business.
22
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Company Overview
IntriCon Corporation, (the “Company” or “IntriCon”, “we”, “us” or “our”) is an international firm engaged in the designing,
developing, engineering and manufacturing of body-worn devices. The Company serves the body-worn device market by designing,
developing, engineering and manufacturing micro-miniature products, microelectronics, micro-mechanical assemblies and complete
assemblies, primarily for bio-telemetry devices, hearing instruments and professional audio communication devices.
As discussed below, the Company has one operating segment - its body-worn device segment. Our expertise in this segment is focused
on three main markets: medical, hearing health and professional audio communications. Within these chosen markets, we combine
ultra-miniature mechanical and electronics capabilities with proprietary technology – including ultra low power (ULP) wireless and
digital signal processing (DSP) capabilities – that enhances the performance of body-worn devices.
Business Highlights
In August 2012, the Company sold its 50% interest in its Global Coils joint venture, to joint venture partner Audemars SA. Global
Coils is in the business of marketing, designing, manufacturing, and selling audio coils to the hearing health industry. Audemars paid
$426 in cash at closing and will make future payments, both one time and recurring, as specified in the purchase agreement. Audemars
also transferred certain hearing health inventory to IntriCon. The Company recorded a gain on the sale of $822, or $.14 per diluted
share, in the gain on sale of investment in partnership line of the accompanying statement of operations.
In December 2012, the Company amended its credit facilities with The PrivateBank and Trust Company. Terms of the amendment
included, among other things, permitting the Company to borrow an additional $1,250 by increasing the Company’s term loan facility
to $4,000, while keeping the existing amortization schedule in place. In addition, the amendment eliminated the Minimum EBITDA
covenant, reset certain other financial covenants and changed the dates of covenant compliance from monthly to quarterly. Lastly, the
amendment increased the inventory cap on the borrowing base from $3,000 to $3,500 and removed eligible equipment from the base.
The Company is using the facilities to fund current growth opportunities, the Company’s overseas low-cost manufacturing
infrastructure and meet anticipated working capital requirements.
Forward–Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read together with our financial
statements and the related notes appearing in Item 8. of this report. This discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-
looking statements as a result of many factors, including but not limited to those under the heading “Risk Factors” in Item 1A of this
Annual Report on Form 10-K. See also Item 1. “Business—Forward-Looking Statements” for more information.
23
Results of Operations: 2012 Compared with 2011
Consolidated Net Sales
Our net sales are comprised of three main markets: medical, hearing health, and professional audio - collectively our body-worn
device segment. Below is a recap of our sales by main markets for the years ended December 31, 2012 and 2011:
Medical ......................................................................................
Hearing Health ...........................................................................
Professional Audio Communications .........................................
Consolidated net sales ................................................................
$
$
24,463
23,806
15,664
63,933
$
$
22,923
21,032
12,103
56,058
$
$
2012
2011
Change
Dollars
Percent
1,540
2,774
3,561
7,875
6.7%
13.2%
29.4%
14.0%
In 2012, we experienced a 6.7 percent increase in medical sales primarily driven by higher sales to Medtronic and other key medical
customers. Management believes the industry-wide trend to shift the point of care from expensive traditional settings, such as
hospitals, to less expensive non-traditional settings like the home, will result in growth of the medical bio-telemetry industry. 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 year ended December 31, 2012 increased 13.2 percent over the same period in 2011
driven by sales to hi HealthInnovations and sales into the nontraditional PSAP hearing health market. These gains were partially offset
by temporary declines in legacy products. In mid-2012, we satisfied hi HealthInnovations’ initial product ramp-up needs for 2012 and
in the near term we expect minimal new orders. The hi HealthInnovations program is based on a development of an innovative new
distribution channel. While hi HealthInnovations continues to make progress, there are challenges to be overcome and it is difficult to
project program needs at this time; however, we do believe in the long-term potential of this program. We continue to support hi
HealthInnovations in building the infrastructure to provide high quality, affordable hearing healthcare to their customers. Examples of
our efforts include the development and validation of hardware and software, providing quality management system support, and
device tracking and analysis support. We believe this will position hi HealthInnovations to aggressively expand this program to their
customer base. With market dynamics such as low penetration rates, an aging population, and the need for reduced cost and
convenience, the Company believes the hearing health market offers significant growth opportunities, including 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. 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. Our DSP devices provide better
clarity and an improved ability to filter out background noise at attractive pricing points. We believe product platform introductions
such as the APT™ and Lumen™ devices will drive market share gains into all channels of the emerging value hearing health market.
Net sales to the professional audio device sector increased 29.4 percent in 2012 compared to the same period in 2011. The significant
increase over the prior year was due to continued demand for securities products domestically and to the fulfillment of a large headset
contract with the Singapore government, providing technically advanced headsets to be worn in difficult listening environments.
While the Singapore government contract has been fulfilled in 2012, we believe there is potential for additional future contracts with
the Singapore government and other agencies. Additionally, we believe our extensive portfolio of communication devices that are
portable, smaller and perform well in noisy or hazardous environments will provide for future long-term growth in this market.
Gross Profit
Gross profit, both in dollars and as a percent of sales, for 2012 and 2011, were as follows:
2012
2011
Change
Dollars
Percent of
Sales
Dollars
Percent of
Sales
Dollars
Percent
Gross profit .......................
$
14,976
23.4% $
12,666
22.6% $
2,310
18.2%
In 2012, gross profit increased primarily due to greater sales across our three core markets, partially offset by infrastructure costs in
Asia and an unfavorable product mix in our professional audio communications market. The Company further expanded its low-cost
manufacturing capabilities during the year. The continued ramp-up of the Company’s Indonesian facility provides low-cost
manufacturing options to drive ongoing margin improvement and the ability to pursue additional high-volume manufacturing
opportunities. In addition, the Company increased the medical manufacturing infrastructure at its Singapore facility to support
the transfer of certain medical business. The Company has a number of initiatives to expand margins, including transferring select
labor-intensive programs to Singapore and Indonesia, and increasing the percentage of proprietary IntriCon technology into all of its
24
product platforms. However, due to the relatively fixed global cost manufacturing structure, the most immediate impact on margin
growth will be through increased revenue volume.
Sales and Marketing, General and Administrative and Research and Development Expenses
Sales and marketing, general and administrative and research and development expenses for the years ended December 31, 2012 and
2011 were:
2012
Dollars
Percent of
Sales
2011
Dollars
Percent of
Sales
Change
Dollars
Percent
Sales and marketing .....................
General and administrative ..........
Research and development ..........
$
3,324
5,958
4,694
5.2% $
9.3%
7.3%
3,185
5,797
4,876
5.7% $
10.3%
8.7%
139
161
(182)
4.3%
2.8%
(3.7)%
Sales and marketing increased over the prior year due to increased sales and related selling commissions and a headcount addition in
late 2012. Management expects to focus more capital and resources in sales and marketing in the upcoming years to expand its reach
in the medical bio-telemetry and value hearing health markets. General and administrative expenses increased over the prior year
period primarily driven by increased stock based compensation as compared to 2011. Research and development decreased over the
prior year primarily due to a temporary reduction in fee for service work by third parties.
Interest Expense
Interest expense for 2012 was $755, an increase of $146 from $609 in 2011. The increase in interest expense was primarily due to
higher average debt balances and higher interest rates as compared to the prior year.
Equity in Income (Loss) of Partnerships
The equity in income (loss) of partnerships for 2012 was $(116) compared to $174 in 2011.
The Company recorded a $166 decrease in the carrying amount of its investment in the Hearing Instrument Manufacturers Patent
Partnership (“HIMPP”) for 2012, reflecting amortization of the patents and other intangibles and the Company’s portion of the
partnership’s operating results for the year ended December 31, 2012, compared to a $34 decrease in the carrying amount of the
investment in 2011 for the amortization of the patents and other intangibles and the Company’s portion of the partnership’s operating
results for the year ended December 31, 2011.
Prior to the sale of the Global Coils joint venture interest, the Company recorded a $50 and $208 increase in the carrying amount of
IntriCon’s investment in this joint venture, reflecting the Company’s portion of the joint venture’s operating results for year ended
December 31, 2012 and 2011, respectively.
Gain on Sale of Investment in Partnership
In August 2012, the Company sold its 50% interest in its Global Coils joint venture, to its joint venture partner Audemars SA. The
Global Coils joint venture is in the business of marketing, designing, manufacturing, and selling audio coils to the hearing health
industry. Audemars paid $426 in cash at closing and will make future payments, both one time and recurring, as specified in the
purchase agreement. Audemars also transferred certain hearing health inventory to IntriCon. The Company recorded a gain on the sale
of $822 in the gain on sale of investment in partnership line of the accompanying statement of operations.
The net gain was computed as follows:
Cash proceeds ........................................................................................................................... $
Receivables ...............................................................................................................................
Inventory ..................................................................................................................................
Net assets disposed ...................................................................................................................
Transaction costs ......................................................................................................................
Gain on sale ........................................................................................................................... $
426
721
186
(486)
(25)
822
25
Other Income (Expense), net
In 2012, other income (expense), net was $(78) compared to $42 in 2011 primarily related to the gain (loss) on foreign
currency exchange.
Income Tax (Expense) Benefit
Income taxes were as follows:
Income tax (expense) benefit ........................................................................... $
Percentage of pre-tax income (loss) .................................................................
(164) $
18.8%
2012
2011
160
(10.1%)
The (expense) benefit in 2012 and 2011 was primarily due to foreign taxes on German and Singapore operations. The Company is in a
net operating loss position (“NOL”) for US federal income tax purposes and, consequently, minimal income tax expense from the
current period domestic operations was recognized. Our deferred tax asset related to the NOL carry forwards has been offset by a full
valuation allowance. We estimate we have approximately $19,888 of NOL carry forwards available to offset future federal income
taxes that begin to expire in 2022.
Results of Operations: 2011 Compared with 2010
Consolidated Net Sales
Below is a recap of our sales by main markets for the years ended December 31, 2011 and 2010:
2011
2010
Change
Dollars
Percent
Medical .....................................................................................
Hearing Health ..........................................................................
Professional Audio Communications ........................................
Consolidated net sales ...............................................................
$
$
22,923
21,032
12,103
56,058
$
$
24,594
21,007
13,096
58,697
$
$
(1,671)
25
(993)
(2,639)
(6.8%)
0.1%
(7.6%)
(4.5%)
In 2011, we experienced a 6.8 percent decrease medical sales primarily due to extended regulatory lead times and anticipated
fluctuations in demand. The persisting economic softness and regulatory delays has caused many patients to defer discretionary
medical procedures, and hospitals and doctors to cut back on purchases of legacy med-tech products. As a result, during the course of
2011, a few large medical customers experienced fluctuations in demand. As the year progressed, we were encouraged by the
reengagement of Medtronic and other key medical customers, driving four quarters of sequential growth.
Net sales in our hearing health business for the year ended December 31, 2011 remained flat compared to the same period in 2010
driven by growth in our DSP circuits and sales to hi HealthInnovations, offset by temporary declines in legacy products.
Net sales to the professional audio device sector decreased 7.6 percent in 2011 compared to the same period in 2010. We believe that
the primary driver of the decrease was due to the possible U.S. government shutdown and budgetary approval process which delayed
our contract product launches with certain government organizations.
Gross Profit
Gross profit, both in dollars and as a percent of sales, for 2011 and 2010, were as follows:
2011
2010
Change
Dollars
Percent of
Sales
Dollars
Percent of
Sales
Dollars
Percent
Gross profit ....................................
$
12,666
22.6% $
15,013
25.6% $
(2,347)
(15.6%)
In 2011, gross profit decreased primarily due to lower sales volumes, costs related to establishing the Company’s Indonesian facility
and ramp up costs associated with the hi HealthInnovations agreement. The decrease in gross profits was partially offset by the impact
of various profit enhancement programs.
In an effort to drive for further gross profit improvements, the Company evaluated low cost manufacturing options in Asia. In
July 2011, the Company signed a five year lease agreement for a manufacturing facility in Batam, Indonesia. The Company
commenced manufacturing at the facility in October 2011.
26
Sales and Marketing, General and Administrative and Research and Development Expenses
Sales and marketing, general and administrative and research and development expenses for the years ended December 31, 2011 and
2010 were:
2011
Dollars
Percent of
Sales
2010
Dollars
Percent of
Sales
Change
Dollars
Percent
Sales and marketing .......................
General and administrative ............
Research and development ............
$
3,185
5,797
4,876
5.7% $
10.3%
8.7%
3,133
5,801
4,485
5.3% $
9.9%
7.6%
52
(4)
391
1.7 %
(0.0%)
8.7%
Sales and marketing and general and administrative expenses were relatively flat as compared to the prior year periods. Research and
development increased over the prior year period primarily due to continued development of core technologies and research and
development to support product offerings under the hi HealthInnovations’ manufacturing agreement.
Interest Expense
Interest expense for 2011 was $609, a decrease of $46 from $655 in 2010. The decrease in interest expense was primarily due to lower
average debt balances and interest rates as compared to the prior year.
Equity in Income (Loss) of Partnerships
The equity in income (loss) of partnerships for 2011 was $174 compared to $(135) in 2010.
The Company recorded a $34 decrease in the carrying amount of its investment in HIMPP for 2011, reflecting amortization of the
patents and other intangibles and the Company’s portion of the partnership’s operating results for the year ended December 31, 2011,
compared to a $191 decrease in the carrying amount of the investment in 2010 for the amortization of the patents and other intangibles
and the Company’s portion of the partnership’s operating results for the year ended December 31, 2010.
The Company recorded a $208 and $56 increase in the carrying amount of IntriCon’s investment in the Global Coils joint venture,
reflecting the Company’s portion of the joint venture’s operating results for year ended December 31, 2011 and 2010, respectively.
Other Income (Expense), net
In 2011, other income (expense), net was $42 compared to $(4) in 2010.
Income Tax (Expense) Benefit
Income taxes were as follows:
Income tax (expense) benefit ...........................................................................
Percentage of pre-tax income (loss) .................................................................
$
160
$
(10.1%)
2011
2010
(145)
18.1%
The (expense) benefit in 2011 and 2010 was primarily due to foreign taxes on German and Singapore operations. The Company is in a
net operating loss position (“NOL”) for US federal income tax purposes and, consequently, minimal income tax expense from the
current period domestic operations was recognized. Our deferred tax asset related to the NOL carry forwards has been offset by a full
valuation allowance.
Discontinued Operations
We had no discontinued operations in 2011. We recorded a loss from discontinued operations (electronics business) in 2010
as follows:
Loss from discontinued Electronics Products Business ........................................................
$
2010
(294)
27
The 2010 net loss of $(294), or $(0.05) per diluted share, was primarily due to loss in operations, net of a $35 gain on sale of the
electronics business.
Liquidity and Capital Resources
Our primary sources of cash have been cash flows from operations, bank borrowings, and other financing transactions. For the last
three years, cash has been used for repayments of bank borrowings, purchases of equipment, establishment of an additional Asian
manufacturing facility and working capital to support research and development, including product offerings under our
hi HealthInnovations agreement.
As of December 31, 2012, we had approximately $226 of cash on hand. Sources and uses of our cash for the year ended December 31,
2012 have been from our operations, as described below.
Consolidated net working capital increased to $8,893 at December 31, 2012 from $8,207 at December 31, 2011. Our cash flows from
operating, investing and financing activities, as reflected in the statement of cash flows for the years ended December 31, are
summarized as follows:
Cash provided (used) by:
Operating activities ...................................................................................................
Investing activities ....................................................................................................
Financing activities ...................................................................................................
Effect of exchange rate changes on cash ..................................................................
$
2012
2011
2010
$
2,007
(1,109)
(799)
8
$
(3)
(2,582)
2,420
3
1,616
(1,043)
(668)
(9)
Increase (decrease) in cash .......................................................................................
$
107
$
(162)
$
(104)
Operating Activities. The most significant items that contributed to the $2,007 of cash provided by continuing operations were
increases in net income and decreases in inventory and receivables partially offset by decreases in accounts payable. Days sales in
inventory decreased from 95 at December 31, 2011 to 78 at December 31, 2012. Days payables outstanding decreased from 64 days at
December 31, 2011 to 39 days at December 31, 2012.
Investing Activities. Net cash used by investing activities consisted of purchases of property, plant and equipment of $1,735 primarily
related to the infrastructure investment at our Asian facilities. Partially offsetting the purchase of property plant and equipment was net
cash proceeds received of $626 on the sale of the 50 percent ownership interest in the Global Coils joint venture.
Financing Activities. Net cash used by financing activities of $799 was comprised primarily of borrowings under our credit facilities,
partially offset by proceeds of new borrowings.
Cash generated from operations may be affected by a number of factors. See “Forward Looking Statements” and “Item 1A: Risk
Factors” contained in this Form 10-K for a discussion of some of the factors that can negatively impact the amount of cash we
generate from our operations.
We had the following bank arrangements at December 31,:
Total availability under existing facilities ......................................................
$
13,233
$
2012
Borrowings and commitments:
Domestic revolving credit facility ...........................................................
Domestic term loans ................................................................................
Foreign overdraft and letter of credit facility ..........................................
Total borrowings and commitments ..............................................................
4,360
3,750
1,795
9,905
Remaining availability under existing facilities .............................................
$
3,328
$
2011
13,517
5,369
3,500
1,881
10,750
2,767
28
Domestic Credit Facilities
To finance a portion of the Company’s acquisition of Jon Barron, Inc. doing business as Datrix (“Datrix”) and replace the Company’s
existing credit facilities with Bank of America, including capital leases, the Company and its domestic subsidiaries entered into a
credit facility with The PrivateBank and Trust Company on August 13, 2009. The credit facility, as amended, provides 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 $4,000.
In December 2012, the Company and its domestic subsidiaries entered into a Fifth Amendment to the Loan and Security Agreement
with The PrivateBank and Trust Company. The amendment, among other things:
permitted the Company to borrow an additional $1,250 under the term loan by increasing the then current principal balance
of the term loan from $2,750 to $4,000, while keeping the existing amortization schedule in place.
increased the inventory cap on the borrowing base from $3,000 to $3,500 and removed eligible equipment from the base.
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;
eliminated the minimum EBITDA covenant and amended certain other financial covenants; and
changed the dates when covenant compliance will be tested from monthly to quarterly.
In March 2012, the Company entered into an amendment with The PrivateBank to waive certain covenant violations at December 31,
2011 and reset certain covenants in the agreement. In August 2012, the credit facility was amended to amend the fixed charge
covenant ratio and to consent to the Global Coils sale and the application of the proceeds to the pay down of the revolving
credit facility.
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 3.00% - 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 0.25% - 1.25% 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 our domestic credit facilities was 4.52%, 3.93%, and 5.06% for 2012, 2011, and 2010, respectively.
The outstanding balance of the revolving credit facility was $4,360 and $5,369 at December 31, 2012 and 2011, respectively. The total
remaining availability on the revolving credit facility was approximately $2,689 and $1,935 at December 31, 2012 and 2011,
respectively. The credit facility expires on August 13, 2014 and all outstanding borrowings will become due and payable. We expect
to seek an extension of the term of this facility or a new credit facility in 2013.
The outstanding principal balance of the term loan, as amended, is payable in quarterly installments of $250, commencing with the
calendar quarter ended December 31, 2012. Any remaining principal and accrued interest is payable on August 13, 2014. 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.
During 2011, the Company entered into interest rate swaps with The PrivateBank which are accounted for as effective cash flow
hedges. The interest rate swaps had a combined initial notional amount of $5,500, with a portion of the swap amortizing on a basis
consistent with the $250 quarterly installments required under the term loan. The interest rate swaps fix the Company’s one month
LIBOR interest rate on the notional amounts at rates ranging from 4.33% - 4.62%. The interest rate swaps expire on August 13, 2014.
Interest rate swaps, which are considered derivative instruments, of $92 and $93 are reported in the balance sheets at fair value in
other current liabilities at December 31, 2012 and 2011. The impact of the interest rate swaps and related additional disclosure is not
considered material to the financial statements for 2012, 2011 and 2010.
29
The borrowers are subject to various covenants under the credit facility, including a maximum funded debt to EBITDA, a minimum
fixed charge coverage ratio and maximum capital expenditure financial covenants. Under the credit facility, except as otherwise
permitted, the borrowers may not, among other things: incur or permit to exist any indebtedness; grant or permit to exist any liens or
security interests on their assets or pledge the stock of any subsidiary; make investments; be a party to any merger or consolidation, or
purchase of all or substantially all of the assets or equity of any other entity; sell, transfer, convey or lease all or any substantial part of
its assets or capital securities; sell or assign, with or without recourse, any receivables; issue any capital securities; make any
distribution or dividend (other than stock dividends), whether in cash or otherwise, to any of its equityholders; purchase or redeem any
of its equity interests or any warrants, options or other rights to equity; enter into any transaction with any of its affiliates or with any
director, officer or employee of any borrower; be a party to any unconditional purchase obligations; cancel any claim or debt owing to
it; make payment on or changes to any subordinated debt; enter into any agreement inconsistent with the provisions of the credit
facility or other agreements and documents entered into in connection with the credit facility; engage in any line of business other than
the businesses engaged in on the date of the credit facility and businesses reasonably related thereto; or permit its charter, bylaws or
other organizational documents to be amended or modified in any way which could reasonably be expected to materially adversely
affect the interests of the lender. The Company was in compliance with all applicable covenants under the credit facility as of
December 31, 2012.
Upon the occurrence and during the continuance of an event of default (as defined in the credit facility), the lender may, among other
things: terminate its commitments to the borrowers (including terminating or suspending its obligation to make loans and advances);
declare all outstanding loans, interest and fees to be immediately due and payable; take possession of and sell any pledged assets and
other collateral; and exercise any and all rights and remedies available to it under the Uniform Commercial Code or other applicable
law. In the event of the insolvency or bankruptcy of any borrower, all commitments of the lender will automatically terminate and all
outstanding loans, interest and fees will be immediately due and payable. Events of default include, among other things, failure to pay
any amounts when due; material misrepresentation; default in the performance of any covenant, condition or agreement to be
performed that is not cured within 20 days after notice from the lender; default in the performance of obligations under certain
subordinated debt, which includes the Company’s note payable to the former shareholder of Datrix (including actual or attempted
termination of a subordination agreement with the former shareholder of Datrix); default in the payment of other indebtedness or other
obligation with an outstanding principal balance of more than $50, or of any other term, condition or covenant contained in the
agreement under which such obligation is created, the effect of which is to allow the other party to accelerate such payment or to
terminate the agreements; a breach by a borrower under certain material agreements, the result of which breach is the suspension of
the counterparty’s performance thereunder, delivery of a notice of acceleration or termination of such agreement; the insolvency or
bankruptcy of any borrower; the entrance of any judgment against any borrower in excess of $50, which is not fully covered by
insurance; any divestiture of assets or stock of a subsidiary constituting a substantial portion of borrowers’ assets; the occurrence of a
change in control (as defined in the credit facility); certain collateral impairments; a contribution failure with respect to any employee
benefit plan that gives rise to a lien under ERISA; and the occurrence of any event which lender determines could be reasonably
expected to have a material adverse effect (as defined in the credit facility).
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 a $1,977 line of credit. The
international credit agreement was modified in August 2010 and again in August 2011 to allow for an additional total of $736
in borrowing under the existing base to fund the Singapore facility relocation, Batam facility construction and various other capital
needs with varying due dates from 2013 to 2015. 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 3.89% and 4.28% for the years ended
December 31, 2012 and 2011. The outstanding balance was $1,795 and $1,881 at December 31, 2012 and 2011, respectively. The
total remaining availability on the international senior secured credit agreement was approximately $639 and $832 at December 31,
2012 and 2011, respectively.
Datrix Promissory Note
A portion of the purchase price of the Datrix acquisition was paid by the issuance of a promissory note to the seller in the amount of
$1,050 bearing annual interest at 6%. In August 2012, the Company amended the agreement to change the remaining installment of
$350 from the original due date of August 13, 2012 to equal monthly principal and interest payments starting in October 1, 2012 over
a one year period.
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 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
30
conditions in the financial and equity capital markets, as well as our own financial condition. 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.
Contractual Obligations
The following table represents our contractual obligations and commercial commitments, excluding interest expense, as of
December 31, 2012.
Contractual Obligations
Total
Less than
1 Year
1-3 Years
3-5 Years
More than
5 Years
Payments Due by Period
Domestic credit facility .......................
Domestic term loan .............................
Domestic note payable ........................
Foreign overdraft and letter of credit
facility ..............................................
Pension and other post retirement
benefit obligations ...........................
Operating leases ..................................
Total contractual obligations ...............
$
$
4,360
3,750
262
1,795
1,248
4,000
15,415
$
$
—
1,000
262
1,683
189
1,449
4,583
$
$
4,360
2,750
—
112
351
1,874
9,447
$
$
—
—
—
—
306
677
983
$
$
—
—
—
—
402
—
402
There are certain provisions in the underlying contracts that could accelerate our contractual obligations as noted above.
Foreign Currency Fluctuation
Generally, the effect of changes in foreign currencies on our results of operations is partially or wholly offset by our ability to make
corresponding price changes in the local currency. From time to time, the impact of fluctuations in foreign currencies may have a
material effect on the financial results of the Company. Foreign currency transaction amounts included in the statements of operation
include losses of $177, $17 and $134 in 2012, 2011 and 2010, respectively. See Note 10 to the Company’s consolidated financial
statements included herein.
Off-Balance Sheet Obligations
We had no material off-balance sheet obligations as of December 31, 2012 other than the operating leases disclosed above.
Related Party Transactions
For a discussion of related party transactions, see Note 14 to the Company’s consolidated financial statements included herein.
Litigation
For a discussion of litigation, see “Item 3. Legal Proceedings” and Note 13 to the Company’s consolidated financial statements
included herein.
New Accounting Pronouncements
See “New Accounting Pronouncements” set forth in Note 1 of the Notes to the Consolidated Financial Statements under Item 8 of this
Annual Report on Form 10-K, for information pertaining to recently adopted accounting standards or accounting standards to be
adopted in the future.
Critical Accounting Policies and Estimates
The significant accounting policies of the Company are described in Note 1 to the consolidated financial statements and have been
reviewed with the audit committee of our Board of Directors. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the
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 of their importance to the consolidated financial
statements and possibility that future events affecting them may differ markedly. The accounting policies of the Company with
significant estimates and assumptions are described below.
Revenue Recognition
The Company recognizes revenue when the customer takes ownership, primarily upon product shipment, and assumes risk of
loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed
or determinable.
31
Customers have 30 days to notify the Company if the product is damaged or defective. Beyond that, there are no significant
obligations that remain after shipment other than warranty obligations. Contracts with customers do not include product return rights,
however, the Company may elect in certain circumstances to accept returns of products. The Company records revenue for product
sales net of returns. Sales and use tax are reported on a net basis. The Company defers recognition of revenue on discounts to
customers if discounts are considered significant.
In general, the Company warrants its products to be free from defects in material and workmanship and will fully conform to and
perform to specifications for a period of one year. The Company develops a warranty reserve based on historical experience. While
the Company’s warranty costs have historically been within its expectations, the Company cannot guarantee that it will continue to
experience the same warranty return rates or repair costs that it has experienced in the past.
Accounts Receivable Reserves
This reserve is an estimate of the amount of accounts receivable that are uncollectible. The reserve is based on a combination of
specific customer knowledge, general economic conditions and historical trends. Management believes the results could be materially
different if economic conditions change for our customers.
Inventory Valuation
Inventory is recorded at the lower of our cost or market value. Market value is an estimate of the future net realizable value of our
inventory. It is based on historical trends, product life cycles, forecasts of future inventory needs and on-hand inventory levels.
Management believes reserve levels could be materially affected by changes in technology, our customer base, customer needs,
general economic conditions and the success of certain Company sales programs.
Goodwill and Intangible Assets
Goodwill is reviewed for impairment annually on November 30th of each year or more frequently if changes in circumstances or
the occurrence of events suggest impairment exists. Consistent with prior years, in 2012 the Company utilized the two-step
impairment analysis and elected not to use the qualitative assessment or “step zero” approach. In the two-step impairment analysis, in
step one, the fair value of each reporting unit is compared to its carrying value, including goodwill. If the fair value exceeds the
carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the fair value, the
goodwill of the reporting unit is potentially impaired and the Company would then complete step two in order to measure
the impairment loss. In step two, the Company would calculate the implied fair value of goodwill by deducting the fair value of all
tangible and intangible net assets (including unrecognized intangible assets) of the reporting unit from the fair value of the reporting
unit. If the implied fair value of goodwill is less than the carrying value of goodwill, the Company would recognize an impairment
loss, in the period identified, equal to the difference. The Company has concluded that no impairment of goodwill or intangible assets
existed as of November 30, 2012.
Long-lived Assets
The carrying value of long-lived assets is periodically assessed to insure their carrying value does not exceed the undiscounted cash
flows expected to be generated from their expected use and eventual disposition. This assessment includes certain assumptions related
to future needs for the asset to help generate future cash flow. Changes in those assessments, future economic conditions or
technological changes could have a material adverse impact on the carrying value of these assets.
Deferred Taxes
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected
future taxable income in making this assessment. Actual future operating results, as well as changes in our future performance, could
have a material impact on the valuation allowance.
Employee Benefit Obligations
We provide retirement and health care insurance for certain domestic and retirees and former Selas employees. We measure the costs
of our obligation based on our best estimate. The net periodic costs are recognized as employees render the services necessary to earn
the post-retirement benefit. Several assumptions and statistical variables are used in the models to calculate the expense and liability
related to the plans. We determine assumptions about the discount rate, the expected rate of return on plan assets and the future rate of
compensation increases. The actuarial models also use assumptions on demographic factors such as retirement, mortality and turnover.
Changes in actuarial assumptions could vary materially from actual results due to economic events and different rates of retirement,
mortality and withdrawal.
32
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
ITEM 8.
Financial Statements and Supplementary Data
Management’s Report on Internal Control over Financial Reporting
Management of IntriCon Corporation and its subsidiaries (“the Company”) is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Rules 13a-15(f) of the Securities Exchange Act of 1934. The
Company’s internal control over financial reporting is designed 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. The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a
material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31,
2012, using criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, the Company’s management believes that, as of December 31, 2012, the
Company’s internal control over financial reporting was effective based on those criteria.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm
pursuant to a provision of the Dodd Frank Act, which eliminated such requirement for “smaller reporting companies,” as defined in
SEC regulations, such as IntriCon.
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) during the most recent fiscal quarter covered by this report that would have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial reporting.
33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders, Audit Committee and Board of Directors
IntriCon Corporation and Subsidiaries
Arden Hills, MN
We have audited the accompanying consolidated balance sheets of IntriCon Corporation and Subsidiaries (the Company) as of
December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive income (loss), shareholders’
equity and cash flows for the years ended December 31, 2012, 2011 and 2010. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of its internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
IntriCon Corporation and Subsidiaries as of December 31, 2012 and 2011 and the results of their operations and cash flows for the
years ended December 31, 2012, 2011 and 2010, in conformity with accounting principles generally accepted in the United States
of America.
/s/ Baker Tilly Virchow Krause, LLP
Minneapolis, Minnesota
March 13, 2013
34
IntriCon Corporation
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
Years ended December 31
2012
2011
2010
Sales, net .........................................................................................................
$
63,933
$
56,058
$
58,697
Costs of sales ..................................................................................................
Gross profit .....................................................................................................
Operating expenses:
Sales and marketing ........................................................................................
General and administrative .............................................................................
Research and development .............................................................................
Total operating expenses .............................................................................
Operating income (loss) ..................................................................................
Interest expense ...............................................................................................
Equity in income (loss) of partnerships ..........................................................
Gain on sale of investment in partnership .......................................................
Other income (expense), net ...........................................................................
Income (loss) from continuing operations before income taxes and
discontinued operations ...............................................................................
Income tax (expense) benefit ..........................................................................
Income (loss) before discontinued operations .................................................
Loss from discontinued operations, net of income taxes ................................
Gain on sale of discontinued operations, net of income taxes ........................
Net income (loss) ............................................................................................
Basic income (loss) per share:
Continuing operations ..............................................................................
Discontinued operations ...........................................................................
Net income (loss) .....................................................................................
Diluted income (loss) per share:
Continuing operations ..............................................................................
Discontinued operations ...........................................................................
Net income (loss) .....................................................................................
$
$
$
$
$
48,957
14,976
3,324
5,958
4,694
13,976
1,000
(755)
(116)
822
(78)
873
(164)
709
—
—
709
.13
—
.13
.12
—
.12
$
$
$
$
$
43,392
12,666
3,185
5,797
4,876
13,858
(1,192)
(609)
174
—
42
(1,585)
160
(1,425)
—
—
(1,425)
(.25)
—
(.25)
(.25)
—
(.25)
$
$
$
$
$
43,684
15,013
3,133
5,801
4,485
13,419
1,594
(655)
(135)
—
(4)
800
(145)
655
(329)
35
361
.12
(.05)
.07
.12
(.05)
.07
See accompanying notes to the consolidated financial statements.
35
IntriCon Corporation
Consolidated Statements of Comprehensive Income (Loss)
(In Thousands)
Net income (loss) ..........................................................................................................
Change in fair value of interest rate swap .....................................................................
Loss on foreign currency translation adjustment ..........................................................
Comprehensive income (loss) .......................................................................................
$
$
709
1
(13)
697
$
$
(1,425)
(93)
(60)
(1,578)
$
$
361
35
(58)
338
2012
Years ended December 31,
2011
2010
See accompanying notes to the consolidated financial statements.
36
IntriCon Corporation
Consolidated Balance Sheets (In Thousands, Except Per Share Amounts)
At December 31,
Current assets:
Cash ...............................................................................................................................................
Restricted cash ...............................................................................................................................
Accounts receivable, less allowance for doubtful accounts of $154 and $223 at December 31,
2012 and 2011, respectively .......................................................................................................
Inventories .....................................................................................................................................
Refundable income taxes ...............................................................................................................
Other current assets ........................................................................................................................
Total current assets..................................................................................................................
Machinery and equipment ..........................................................................................................
Less: Accumulated depreciation .............................................................................................
Net machinery and equipment ................................................................................................
Goodwill ........................................................................................................................................
Investment in partnerships .............................................................................................................
Other assets, net .............................................................................................................................
Total assets .....................................................................................................................................
Current liabilities:
Checks written in excess of cash ....................................................................................................
Current maturities of long-term debt .............................................................................................
Accounts payable ...........................................................................................................................
Accrued salaries, wages and commissions .....................................................................................
Deferred gain .................................................................................................................................
Partnership payable ........................................................................................................................
Income taxes payable .....................................................................................................................
Other accrued liabilities .................................................................................................................
Total current liabilities ............................................................................................................
Long-term debt, less current maturities .........................................................................................
Other postretirement benefit obligations ........................................................................................
Accrued pension liabilities .............................................................................................................
Deferred gain .................................................................................................................................
Other long-term liabilities ..............................................................................................................
Total liabilities ........................................................................................................................
Commitments and contingencies (note 13)
Shareholders’ equity:
Common stock, $1.00 par value per share; 20,000 shares authorized; 5,687 and 5,646 shares
issued and outstanding at December 31, 2012 and 2011, respectively. ......................................
Additional paid-in capital ..............................................................................................................
Accumulated deficit .......................................................................................................................
Accumulated other comprehensive loss .........................................................................................
Total shareholders’ equity .......................................................................................................
Total liabilities and shareholders’ equity .......................................................................................
2012
2011
$
$
226
563
$
$
$
$
7,171
11,117
—
1,483
20,560
40,796
34,012
6,784
9,709
773
1,306
39,132
637
2,945
4,045
1,786
110
—
96
2,048
11,667
7,222
590
510
275
146
20,410
5,687
15,797
(2,360)
(402)
18,722
39,132
$
$
119
540
8,545
11,720
82
652
21,658
39,170
32,164
7,006
9,709
1,283
1,074
40,730
396
2,883
6,298
1,617
110
240
—
1,907
13,451
8,217
685
431
385
115
23,284
5,646
15,259
(3,069)
(390)
17,446
40,730
See accompanying notes to the consolidated financial statements.
37
IntriCon Corporation
Consolidated Statements of Cash Flows (In Thousands)
Years ended December 31,
2012
2011
2010
$
709
$
(1,425)
$
361
Cash flows from operating activities:
Net income (loss) ............................................................................................
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Gain on sale of discontinued operations ......................................................
Depreciation and amortization .....................................................................
Stock-based compensation ..........................................................................
Loss (gains) on sale of property and equipment ..........................................
Deferred taxes ..............................................................................................
Change in deferred gain ...............................................................................
Allowance for doubtful accounts .................................................................
Equity in (income) loss of partnerships .......................................................
Gain on sale of investment in partnership ...................................................
Changes in operating assets and liabilities:
Accounts receivable .................................................................................
Inventories................................................................................................
Other assets ..............................................................................................
Accounts payable .....................................................................................
Accrued expenses .....................................................................................
Other liabilities .........................................................................................
Net cash provided (used) by continuing operations ........................................
Cash flows from investing activities:
Purchases of property, plant and equipment ................................................
Proceeds from sale of discontinued operations, net .....................................
Proceeds from sale of investment in partnership .........................................
Other ............................................................................................................
Net cash used by investing activities ..............................................................
Cash flows from financing activities:
Proceeds from stock purchases and exercise of stock options .....................
Proceeds from long-term borrowings ..........................................................
Repayments of long-term debt ....................................................................
Payments of partnership payable .................................................................
Change in restricted cash .............................................................................
Change in checks written in excess of cash .................................................
Net cash (used) provided by financing activities ............................................
—
2,150
414
36
(7)
(110)
(69)
116
(822)
1,555
789
(972)
(2,252)
240
230
2,007
(1,735)
—
626
—
(1,109)
159
17,269
(18,211)
(240)
(17)
241
(799)
8
107
119
226
—
2,258
214
8
(169)
(110)
4
(174)
—
(354)
(3,391)
(303)
3,155
376
(92)
(3)
(2,582)
—
—
—
(2,582)
230
16,685
(14,145)
(260)
(77)
(13)
2,420
3
(162)
281
(35)
2,601
474
28
40
(110)
(7)
135
—
(1,192 )
(164 )
159
(468 )
(223)
17
1,616
(1,811)
775
—
(7)
(1,043)
261
12,194
(13,074)
(260 )
(96)
307
(668 )
(9 )
(104 )
385
281
Effect of exchange rate changes on cash .........................................................
Increase (decrease) in cash ..............................................................................
Cash beginning of year ...................................................................................
Cash end of year .............................................................................................
$
$
119
$
See accompanying notes to the consolidated financial statements.
38
IntriCon Corporation
Consolidated Statements of Shareholders’ Equity
(In Thousands)
Balance December 31, 2009 ........................................
Exercise of stock options .............................................
Shares issued under the Employee Stock Purchase
Plan ..........................................................................
Shares issued in lieu of cash for services ....................
Stock option expense ...................................................
Net income (loss) .........................................................
Comprehensive income (loss) .....................................
Balance December 31, 2010 ........................................
Exercise of stock options .............................................
Shares issued under the Employee Stock Purchase
Plan ..........................................................................
Shares issued in lieu of cash for services ....................
Stock option expense ...................................................
Retirement of Treasury Shares ....................................
Net income (loss) .........................................................
Comprehensive income (loss) .....................................
Balance December 31, 2011 ........................................
Exercise of stock options .............................................
Shares issued under the Employee Stock Purchase
Plan ..........................................................................
Shares issued in lieu of cash for services ....................
Stock option expense ...................................................
Net income (loss) .........................................................
Comprehensive income (loss) .....................................
Balance December 31, 2012 ........................................
Common
Stock
Number of
Shares
5,986
69
15
3
Common
Stock
$
Amount
$
5,986 $
69
Additional
Paid-in
Capital
14,987
126
50
7
474
15
3
Retained
Deficit
$ (2,005)
361
6,073
69
$
6,073 $
69
15,644
91
$ (1,644)
$
17
3
17
3
(516)
(516)
53
6
214
(749)
(1,425)
5,646
20
$
5,646 $
20
15,259
30
$ (3,069)
$
20
1
20
1
89
5
414
709
5,687
$
5,687 $
15,797
$ (2,360)
$
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Shareholders’
Equity
$
(214)
$
(1,265)
$
17,489
195
65
10
474
361
(23)
18,571
160
70
9
214
—
(1,425)
(153)
17,446
50
109
6
414
709
(12)
18,722
(23)
(237)
$
(1,265)
$
1,265
(153)
(390)
$
—
$
(12)
(402)
$
—
$
See accompanying notes to the consolidated financial statements.
39
Notes to Consolidated Financial Statements (In Thousands, Except Per Share Data)
IntriCon Corporation
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Headquartered in Arden Hills, Minnesota, IntriCon Corporation (formerly Selas Corporation of America) (referred to as the Company,
we, us or our) is an international company engaged in designing, developing, engineering and manufacturing body-worn devices. The
Company serves the body-worn device market by designing, developing, engineering and manufacturing micro-miniature products,
microelectronics, micro-mechanical assemblies and complete assemblies, primarily for bio-telemetry devices, hearing instruments and
professional audio communication devices. In addition to its operations in Minnesota, the Company has facilities in California, Maine,
Singapore, Indonesia and Germany.
Basis of Presentation – In the fourth quarter of 2009, the Company initiated its plan to divest its non-core electronics segment to
allow for greater focus on its body-worn device segment. On May 28, 2010, the Company completed the sale of substantially all of the
assets of its electronics business to an affiliate of Shackleton Equity Partners. For all periods presented, the Company classified its
former electronics products segment as discontinued operations. Consequently, the financial statements and footnote disclosures
reflect continuing operations. See further information in Note 2.
Consolidation – The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All
material intercompany transactions and balances have been eliminated in consolidation.
Segment Disclosures – A business segment is a distinguishable component of an enterprise that is engaged in providing an individual
product or service or a group of related products or services and that is subject to risks and returns that are different from those of
other business segments. The Company’s segments have similar economic characteristics and are similar in the nature of the products
sold, type of customers, methods used to distribute the Company’s products and regulatory environment. Management believes that
the Company meets the criteria for aggregating the components of its only operating segment of continuing operations into a single
reporting segment.
Use of Estimates – Management of the Company has made a number of estimates and assumptions relating to the reporting of assets
and liabilities, the recording of reported amounts of revenues and expenses and the disclosure of contingent assets and liabilities to
prepare these financial statements. Actual results could differ from those estimates. Considerable management judgment is necessary
in estimating future cash flows and other factors affecting the valuation of goodwill, intangible assets, and employee benefit
obligations including the operating and macroeconomic factors that may affect them. The Company uses historical financial
information, internal plans and projections and industry information in making such estimates.
Revenue Recognition – The Company recognizes revenue when the customer takes ownership, primarily upon product shipment, and
assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price
is fixed or determinable.
Customers have 30 days to notify the Company if the product is damaged or defective. Beyond that, there are no significant
obligations that remain after shipment other than warranty obligations. Contracts with customers do not include product return rights,
however, the Company may elect in certain circumstances to accept returns of products. The Company records revenue for product
sales net of returns. Sales and use tax are reported on a net basis. The Company defers recognition of revenue on discounts to
customers if discounts are considered significant.
In general, the Company warrants its products to be free from defects in material and workmanship and will fully conform to and
perform to specifications for a period of one year. The Company develops a warranty reserve based on historical experience. While
the Company’s warranty costs have historically been within its expectations, the Company cannot guarantee that it will continue to
experience the same warranty return rates or repair costs that it has experienced in the past.
Shipping and Handling Costs – The Company includes shipping and handling revenues in sales and shipping and handling costs in
cost of sales.
Fair Value of Financial Instruments – The carrying value of cash, accounts receivable, notes payable, and trade accounts payables,
approximate fair value because of the short maturity of those instruments. The fair values of the Company’s long-term debt
obligations approximate their carrying values based upon current market rates of interest.
Concentration of Cash – The Company deposits its cash in what management believes are high credit quality financial institutions.
The balance, at times, may exceed federally insured limits.
40
Restricted Cash – Restricted cash consists of deposits required to secure a credit facility at our Singapore location and deposits
required to fund retirement related benefits for certain employees of foreign subsidiaries.
Accounts Receivable – The Company reviews customers’ credit history before extending unsecured credit and establishes an
allowance for uncollectible accounts based upon factors surrounding the credit risk of specific customers and other information.
Invoices are generally due 30 days after presentation. Accounts receivable over 30 days are considered past due. The Company does
not accrue interest on past due accounts receivables. Receivables are written off once all collection attempts have failed and are based
on individual credit evaluation and specific circumstances of the customer. Accounts receivable are shown net of allowance for
uncollectible accounts of $154 and $223 at December 31, 2012 and 2011, respectively.
Inventories – Inventories are stated at the lower of cost or market. The cost of the inventories was determined by the first-in, first-out
methods.
Property, Plant and Equipment – Property, plant and equipment are carried at cost. Depreciation is computed on a straight-line basis
using estimated useful lives of 5 to 40 years for buildings and improvements, and 3 to 12 years for machinery and equipment.
Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of
the asset. Improvements are capitalized and expenditures for maintenance, repairs and minor renewals are charged to expense when
incurred. At the time assets are retired or sold, the costs and accumulated depreciation are eliminated and the resulting gain or loss, if
any, is reflected in the consolidated statement of operations. Depreciation expense was $1,921, $1,994, and $2,127 for the years ended
December 31, 2012, 2011, and 2010, respectively.
Impairment of Long-lived Assets and Long-lived Assets to be Disposed of – The Company reviews its long-lived assets, certain
identifiable intangibles, and goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount
of an asset group to future net undiscounted cash flows expected to be generated by the asset group. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. To date, the
Company has determined that no impairment of long-lived assets from continuing operations exists.
Goodwill is reviewed for impairment annually on November 30th of each year or more frequently if changes in circumstances or
the occurrence of events suggest impairment exists.. Consistent with prior years, in 2012 the Company utilized the two-step
impairment analysis and elected not to use the qualitative assessment or “step zero” approach. In the two-step impairment analysis, in
step one, the fair value of each reporting unit is compared to its carrying value, including goodwill. If the fair value exceeds the
carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the fair value, the
goodwill of the reporting unit is potentially impaired and the Company would then complete step two in order to measure the
impairment loss. In step two, the Company would calculate the implied fair value of goodwill by deducting the fair value of all
tangible and intangible net assets (including unrecognized intangible assets) of the reporting unit from the fair value of the reporting
unit. If the implied fair value of goodwill is less than the carrying value of goodwill, the Company would recognize an impairment
loss, in the period identified, equal to the difference. The Company has concluded that no impairment of goodwill or intangible assets
existed as of November 30, 2012.
Other assets, net – The principal amounts included in other assets, net are a prepaid technology fee, debt issuance costs, and a
technology fee. The debt issuance costs are being amortized over the related term utilizing the interest method and are included in
interest expense, and the other assets are being amortized over their estimated useful life on a straight-line basis. Debt issuance cost
included in interest expense was $136, $142 and $135 for the years ended December 31, 2012, 2011, and 2010, respectively.
Amortization expense was $229, $264, and $262 for the years ended December 31, 2012, 2011, and 2010, respectively.
Investments in Partnerships – Certain of the Company’s investments in equity securities are long-term, strategic investments in
companies. The Company accounts for these investments under the equity method of accounting and records the investment at the
amount the Company paid for its initial investment and adjusts for the Company’s share of the investee’s income or loss and dividends
paid. The Company’s investments include an investment in Hearing Instrument Manufacturers Patent Partnership (K/S HIMPP) and a
50% interest in a joint venture with a Swiss company through August 2012, when the Company sold its 50% ownership interest. The
investments in partnerships and sale of the joint venture are more fully described in Note 16. The partnership interests are reviewed
quarterly for changes in circumstances or the occurrence of events that suggest the Company’s investment may not be recoverable. To
date there have been no impairment losses recognized.
Income Taxes – Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. Valuation reserves are established to the extent the lack of future benefit from the deferred tax assets
realization is more likely than not unable to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is
41
recognized in income in the period that includes the enactment date. The Company recognizes accrued interest and penalties related to
uncertain tax positions in income tax expense. At December 31, 2012, the Company had no accrual for the payment of tax related
interest and there was no tax interest or penalties recognized in the consolidated statements of operations. The Company’s federal and
state tax returns are potentially open to examinations for fiscal years 2009-2012 and state tax returns for the fiscal year 2008-2012.
Employee Benefit Obligations – The Company provides pension and health care insurance for certain domestic retirees and
employees of its operations discontinued in 2005. These obligations have been included in continuing operations as the Company
retained these obligations. The Company also provides retirement related benefits for certain foreign employees. The Company
measures the costs of its obligation based on actuarial determinations. The net periodic costs are recognized as employees render the
services necessary to earn the post-retirement benefit and are recorded on the consolidated balance sheet as accrued pension liabilities.
Several assumptions and statistical variables are used in the models to calculate the expense and liability related to the plans.
Assumptions about the discount rate, the expected rate of return on plan assets and the future rate of compensation increases are
determined by the Company. Note 9 includes disclosure of these rates on a weighted-average basis, encompassing the plans. The
actuarial models also use assumptions on demographic factors such as retirement, mortality and turnover. The Company believes the
assumptions are within accepted guidelines and ranges. However, these actuarial assumptions could vary materially from actual results
due to economic events and different rates of retirement, mortality and withdrawal.
Stock Option Plan – Under the various Company stock-based compensation plans, executives, employees and outside directors
receive awards of options to purchase common stock. Under all awards, the terms are fixed at the grant date. Generally, the exercise
price equals the market price of the Company’s stock on the date of the grant. Options under the plans generally vest from one to three
years, and the option’s maximum term is 10 years. Options issued to directors vest from one to three years. One of the plans also
permits the granting of stock awards, stock appreciation rights, restricted stock units and other equity based awards. The Company
expenses grant-date fair values of stock options and awards ratably over the vesting period of the related share-based award. See
Note 11 for additional information.
Product Warranty – The Company offers a warranty on various products and services. The Company estimates the costs that may be
incurred under its warranties and records a liability in the amount of such costs at the time the product is sold. Factors that affect the
Company’s warranty liability include the number of units sold, historical and anticipated rates of warranty claims and cost per claim.
The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. The amount
of the reserve recorded is equal to the costs to repair or otherwise satisfy the claim. The following table presents changes in the
Company’s warranty liability for the years ended December 31, 2012, 2011 and 2010.
Beginning of the year balance ...........................................................
$
82
$
105
$
2012
2011
Warranty expense .............................................................................
Closed warranty claims .....................................................................
End of the year balance .....................................................................
$
42
(51)
73
$
27
(50)
82
$
2010
71
116
(82 )
105
Patent Costs – Costs associated with the submission of a patent application are expensed as incurred given the uncertainty of the
patents providing future economic benefit to the Company.
Advertising Costs – Advertising costs are charged to expense as incurred.
Research and Development Costs – Research and development costs, net of customer funding, amounted to $4,694, $4,876, and
$4,485 in 2012, 2011 and 2010, respectively, and are charged to expense when incurred.
Customer Funded Tooling Costs – The Company designs and develops molds and tools for reimbursement on behalf of several
customers. Costs associated with the design and development of the molds and tools are charged to expense, net of the customer
reimbursement amount. Net customer funded tooling resulted in income of $336, $266 and $35 for the years ended December 31,
2012, 2011 and 2010, respectively, and is included in research and development costs in the consolidated statements of operations.
Income (loss) Per Share – Basic income (loss) per share is computed by dividing net income (loss) by the weighted average
number of shares of common stock outstanding during the year. Diluted income (loss) per common share reflects the potential dilution
of securities that could share in the earnings. The Company uses the treasury stock method for calculating the dilutive effect of
stock options.
Comprehensive Income (Loss) – Comprehensive income (loss) consists of net income (loss), change in fair value of derivative
instruments and foreign currency translation adjustments and is presented in the consolidated statements of comprehensive
income (loss).
42
Foreign Currency Translation – The Company’s German subsidiary accounts for its transactions in its functional currency, the
Euro. Foreign assets and liabilities are translated into United States dollars using the year-end exchange rates. Equity is translated at
average historical exchange rates. Results of operations are translated using the average exchange rates throughout the year.
Translation gains or losses are accumulated as a separate component of shareholders’ equity.
Derivative Financial Instruments – When deemed appropriate, the Company enters into derivative instruments. We do not use
derivative financial instruments for speculative or trading purposes. All derivative transactions are linked to an existing balance sheet
item or firm commitment, and the notional amount does not exceed the value of the exposure being hedged.
We recognize all derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or
intent for holding the instrument. Changes in the fair value of derivative financial instruments are recognized periodically in
shareholders’ equity as a component of accumulated other comprehensive income (loss) on the consolidated statements of operations.
Generally, changes in fair values of derivatives accounted for as cash flow hedges, to the extent they are effective as hedges, are
recorded in accumulated other comprehensive income (loss), net of tax or, if ineffective, on the consolidated statements of operations.
New Accounting Pronouncements
In July 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible
Assets for Impairment,” allows the Company to use the so-called “step zero” approach and perform optional quantitative analysis and
based on the results skip the remaining two steps. If step zero is not selected the Company is required to perform the two-step analysis
for impairment testing of indefinite-lived intangible assets other than goodwill. The standard is effective for annual and interim
impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. As of December 31,
2012 the Company has adopted the standard but elected not to use step zero.
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update number 2011-05,
Comprehensive Income (Topic 220) — Presentation of Comprehensive Income (“ASU 2011-05”), to require an entity to present the
total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to
present the components of other comprehensive income as part of the statement of equity. In December 2011, the FASB issued ASU
No. 2011-12, Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of
Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05 (“ASU 2011-12”), which defers the
effective date of those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments. The adoption of ASU
2011-05 and ASU 2011-12 resulted in a change in how the Company presented the components of comprehensive income upon
adoption effective January 1, 2012. As required by ASU 2011-05, the adoption was applied retrospectively to all prior periods
presented. The adoption did not have an effect on comprehensive income (loss) for the periods presented.
2. DISCONTINUED OPERATIONS
In December 2009, the Company’s Board of Directors authorized management to exit the non-core electronics products segment
operated by its wholly-owned subsidiary, RTI Electronics, Inc. and divest the assets used in the business. The decision to exit the
electronics products segment was made to allow the Company to focus on its core body-worn device segment. In connection with its
decision to divest the electronics business, the Company evaluated assets for impairment and costs of terminating employees and
recorded the following: (i) an impairment charge of $685 relating to goodwill, (ii) a reduction to realizable value of $720 to tangible
assets, and (iii) $275 in employee termination costs for the year ended December 31, 2009. Additional costs related to employee
terminations of approximately $200 were recorded during the first half of 2010.
On May 28, 2010 the Company completed the sale of substantially all of the assets of its electronics business to an affiliate of
Shackleton Equity Partners (“Shackleton”), pursuant to an Asset Purchase Agreement dated May 28, 2010. Shackleton paid $850 cash
at closing for the assets and assumed certain operating liabilities of IntriCon’s electronics business, subject to an accounts
receivable adjustment.
43
The Company recorded a net gain on sale of $35. The net gain was computed as follows during the second quarter of the 2010
fiscal year:
Cash ...........................................................................................................................................
Accounts receivable, net ............................................................................................................
Inventory, net .............................................................................................................................
Other current assets ...................................................................................................................
Property and equipment, net ......................................................................................................
Other assets................................................................................................................................
Accounts payable ......................................................................................................................
Accrued expenses ......................................................................................................................
Long-term debt ..........................................................................................................................
Total .......................................................................................................................................
Cash proceeds received from Shackleton ..................................................................................
Net assets sold ...........................................................................................................................
Transaction costs .......................................................................................................................
Gain on sale of discontinued operations ................................................................................
$
$
$
4
773
383
16
72
26
(356)
(130)
(48)
740
850
(740)
(75)
35
The following table shows the results of operations of the Company’s electronic products segment for the 2010 fiscal year:
Year Ended
December 31, 2010
Sales, net ........................................................................................................................
Operating costs and expenses ........................................................................................
Loss on impairment of long lived asset and goodwill ....................................................
Operating loss ................................................................................................................
Other expense, net ..........................................................................................................
Loss from operations before income tax benefit ............................................................
Income tax expense (benefit) .........................................................................................
Net loss from discontinued operations ...........................................................................
$
$
2,346
(2,670)
—
(324)
(5)
(329)
—
(329)
As discussed above, along with the decision to divest the electronics business, the Company evaluated assets for impairment as of
December 31, 2009. There was no additional impairment identified and recorded during the 2010 fiscal year.
3. GEOGRAPHIC INFORMATION
The geographical distribution of long-lived assets and net sales to geographical areas as of and for the years ended December 31 is set
forth below:
Long-lived Assets
United States .......................................................................................
Other – primarily Asia ........................................................................
Consolidated .......................................................................................
$
$
5,263
1,862
7,125
$
$
5,382
2,014
7,396
December 31,
2012
December 31,
2011
Long-lived assets consist of property and equipment and certain other assets as they 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.
44
Net Sales to Geographical Areas
2012
Years ended December 31,
2011
2010
United States .......................................................................................
Germany .............................................................................................
China ...................................................................................................
Switzerland .........................................................................................
Singapore ............................................................................................
France .................................................................................................
Japan ...................................................................................................
United Kingdom .................................................................................
Turkey .................................................................................................
Hong Kong ..........................................................................................
Vietnam ...............................................................................................
All other countries ..............................................................................
Consolidated .......................................................................................
$
$
44,840
1,986
2,790
1,134
3,326
1,480
1,205
2,210
495
573
1,219
2,675
63,933
$
$
39,912
1,979
1,745
1,122
715
1,424
1,473
1,480
766
1,026
1,110
3,306
56,058
$
$
40,108
2,517
3,531
764
1,367
1,625
1,810
799
401
757
1,330
3,688
58,697
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.
One customer accounted for 21 percent, 22 percent and 22 percent of the Company’s consolidated net sales in 2012, 2011 and 2010,
respectively. During 2012, 2011 and 2010, the top five customers accounted for approximately $29,000, $25,000 and $25,000 or
46 percent, 44 percent and 42 percent of the Company’s consolidated net sales, respectively.
At December 31, 2012, two customers accounted for accounted for a combined 24 percent of the Company’s consolidated accounts
receivable. One customer accounted for 12 percent of the Company’s consolidated accounts receivable at December 31, 2011.
4. GOODWILL
The Company performed the required goodwill impairment test as of November 30th for each of the years ended December 31, 2012,
2011 and 2010. The Company completed or obtained an analysis to assess the fair value of its reporting units to determine whether
goodwill was impaired and the extent of such impairment, if any for the years ended December 31, 2012, 2011 and 2010. Based upon
this analysis, the Company determined that its current goodwill balance was not impaired as of the date of testing.
The changes in the carrying amount of goodwill for the years presented are as follows:
9,717
Carrying amount at December 31, 2009 ...............................................
(8)
Revision to prior year purchase price allocation ...................................
9,709
Carrying amount at December 31, 2010 ...............................................
Changes to the carrying amount............................................................
—
Carrying amount at December 31, 2011 and 2012 ................................ $ 9,709
5. INVENTORIES
Inventories consisted of the following:
December 31,
Raw materials
Work-in process
Finished products
and components
Total
2012
Domestic .........................................................
Foreign ............................................................
Total ............................................................
2011
Domestic .........................................................
Foreign ............................................................
Total ............................................................
$
$
$
$
1,618
285
1,903
1,793
1,078
2,871
$
$
$
$
2,433
233
2,666
2,317
160
2,477
$
$
$
$
8,044
3,073
11,117
8,308
3,412
11,720
3,993
2,555
6,548
4,198
2,174
6,372
$
$
$
$
45
6. SHORT AND LONG-TERM DEBT
Short and long-term debt at December 31were as follows:
Domestic Asset-Based Revolving Credit Facility ......................................
Foreign Overdraft and Letter of Credit Facility .........................................
Domestic Term Loan .................................................................................
Note Payable Datrix Purchase....................................................................
Total Debt ..................................................................................................
Less: Current maturities .............................................................................
Total Long Term Debt ...............................................................................
2012
4,360
1,795
3,750
262
10,167
(2,945)
7,222
$
$
2011
5,369
1,881
3,500
350
11,100
(2,883)
8,217
$
$
Domestic credit facility ........
Domestic term loan ..............
Domestic note payable .........
Foreign overdraft and letter
of credit facility ................
$
2013
—
1,000
262
1,683
$
2014
4,360
2,750
—
89
$
Total debt .............................
$
2,945
$
7,199
$
Domestic Credit Facilities
Payments Due by Period
2016
2015
2017
—
—
—
23
23
$
$
—
—
—
—
—
$
$
$
Thereafter
—
—
—
—
—
$
—
—
—
—
—
$
Total
4,360
3,750
262
1,795
$
10,167
To finance a portion of the Company’s acquisition of Jon Barron, Inc. doing business as Datrix (“Datrix”) and replace the Company’s
existing credit facilities with Bank of America, including capital leases, the Company and its domestic subsidiaries entered into a
credit facility with The PrivateBank and Trust Company on August 13, 2009. The credit facility, as amended, provides 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 $4,000.
In December 2012, the Company and its domestic subsidiaries entered into a Fifth Amendment to the Loan and Security Agreement
with The PrivateBank and Trust Company. The amendment, among other things:
permitted the Company to borrow an additional $1,250 under the term loan by increasing the then current principal balance
of the term loan from $2,750 to $4,000, while keeping the existing amortization schedule in place.
increased the inventory cap on the borrowing base from $3,000 to $3,500 and removed eligible equipment from the base.
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;
eliminated the minimum EBITDA covenant and amended certain other financial covenants; and
changed the dates when covenant compliance will be tested from monthly to quarterly.
In March 2012, the Company entered into an amendment with The PrivateBank to waive certain covenant violations at December 31,
2011 and reset certain covenants in the agreement. In August 2012, the credit facility was amended to amend the fixed charge
covenant ratio and to consent to the Global Coils sale and the application of the proceeds to the pay down of the revolving
credit facility.
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 3.00% - 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 0.25% - 1.25% 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.
46
Weighted average interest on our domestic credit facilities was 4.52%, 3.93%, and 5.06% for 2012, 2011, and 2010, respectively.
The outstanding balance of the revolving credit facility was $4,360 and $5,369 at December 31, 2012 and 2011, respectively. The total
remaining availability on the revolving credit facility was approximately $2,689 and $1,935 at December 31, 2012 and 2011,
respectively. The credit facility expires on August 13, 2014 and all outstanding borrowings will become due and payable. We expect
to seek an extension of the term of this facility or a new credit facility in 2013.
The outstanding principal balance of the term loan, as amended, is payable in quarterly installments of $250, commencing with the
calendar quarter ended December 31, 2012. Any remaining principal and accrued interest is payable on August 13, 2014. 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.
During 2011, the Company entered into interest rate swaps with The PrivateBank which are accounted for as effective cash flow
hedges. The interest rate swaps had a combined initial notional amount of $5,500, with a portion of the swap amortizing on a basis
consistent with the $250 quarterly installments required under the term loan. The interest rate swaps fix the Company’s one month
LIBOR interest rate on the notional amounts at rates ranging from 4.33% - 4.62%. The interest rate swaps expire on August 13, 2014.
Interest rate swaps, which are considered derivative instruments, of $92 and $93 are reported in the balance sheets at fair value in
other current liabilities at December 31, 2012 and 2011. The impact of the interest rate swaps and related additional disclosure is not
considered material to the financial statements for 2012, 2011 and 2010.
The borrowers are subject to various covenants under the credit facility, including a maximum funded debt to EBITDA, a minimum
fixed charge coverage ratio and maximum capital expenditure financial covenants. Under the credit facility, except as otherwise
permitted, the borrowers may not, among other things: incur or permit to exist any indebtedness; grant or permit to exist any liens or
security interests on their assets or pledge the stock of any subsidiary; make investments; be a party to any merger or consolidation, or
purchase of all or substantially all of the assets or equity of any other entity; sell, transfer, convey or lease all or any substantial part of
its assets or capital securities; sell or assign, with or without recourse, any receivables; issue any capital securities; make any
distribution or dividend (other than stock dividends), whether in cash or otherwise, to any of its equity holders; purchase or redeem
any of its equity interests or any warrants, options or other rights to equity; enter into any transaction with any of its affiliates or with
any director, officer or employee of any borrower; be a party to any unconditional purchase obligations; cancel any claim or debt
owing to it; make payment on or changes to any subordinated debt; enter into any agreement inconsistent with the provisions of the
credit facility or other agreements and documents entered into in connection with the credit facility; engage in any line of business
other than the businesses engaged in on the date of the credit facility and businesses reasonably related thereto; or permit its charter,
bylaws or other organizational documents to be amended or modified in any way which could reasonably be expected to materially
adversely affect the interests of the lender. The Company was in compliance with all applicable covenants under the credit facility as
of December 31, 2012.
Upon the occurrence and during the continuance of an event of default (as defined in the credit facility), the lender may, among other
things: terminate its commitments to the borrowers (including terminating or suspending its obligation to make loans and advances);
declare all outstanding loans, interest and fees to be immediately due and payable; take possession of and sell any pledged assets and
other collateral; and exercise any and all rights and remedies available to it under the Uniform Commercial Code or other applicable
law. In the event of the insolvency or bankruptcy of any borrower, all commitments of the lender will automatically terminate and all
outstanding loans, interest and fees will be immediately due and payable. Events of default include, among other things, failure to pay
any amounts when due; material misrepresentation; default in the performance of any covenant, condition or agreement to be
performed that is not cured within 20 days after notice from the lender; default in the performance of obligations under certain
subordinated debt, which includes the Company’s note payable to the former shareholder of Datrix (including actual or attempted
termination of a subordination agreement with the former shareholder of Datrix); default in the payment of other indebtedness or other
obligation with an outstanding principal balance of more than $50, or of any other term, condition or covenant contained in the
agreement under which such obligation is created, the effect of which is to allow the other party to accelerate such payment or to
terminate the agreements; a breach by a borrower under certain material agreements, the result of which breach is the suspension of
the counterparty’s performance thereunder, delivery of a notice of acceleration or termination of such agreement; the insolvency or
bankruptcy of any borrower; the entrance of any judgment against any borrower in excess of $50, which is not fully covered by
insurance; any divestiture of assets or stock of a subsidiary constituting a substantial portion of borrowers’ assets; the occurrence of a
change in control (as defined in the credit facility); certain collateral impairments; a contribution failure with respect to any employee
benefit plan that gives rise to a lien under ERISA; and the occurrence of any event which lender determines could be reasonably
expected to have a material adverse effect (as defined in the credit facility).
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 a $1,977 line of credit. The
international credit agreement was modified in August 2010 and again in August 2011 to allow for an additional total of $736 in
borrowing under the existing base to fund the Singapore facility relocation, Batam facility construction and various other capital
47
needs with varying due dates from 2013 to 2015. 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 3.89% and 4.28% for the years ended
December 31, 2012 and 2011. The outstanding balance was $1,795 and $1,881 at December 31, 2012 and 2011, respectively. The
total remaining availability on the international senior secured credit agreement was approximately $639 and $832 at December 31,
2012 and 2011, respectively.
Datrix Promissory Note
A portion of the purchase price of the Datrix acquisition was paid by the issuance of a promissory note to the seller in the amount of
$1,050 bearing annual interest at 6%. In August 2012, the Company amended the agreement to change the remaining installment of
$350 from the original due date of August 13, 2012 to equal monthly principal and interest payments starting in October 1, 2012 over
a one year period.
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities at December 31:
Taxes, including payroll withholdings and excluding income taxes ...............
Accrued professional fees ...............................................................................
Pension ............................................................................................................
Postretirement benefit obligations ..................................................................
Other ...............................................................................................................
8. DOMESTIC AND FOREIGN INCOME TAXES
Domestic and foreign income taxes (benefits) were comprised as follows:
Current
Federal .........................................................................................................
State .............................................................................................................
Foreign ........................................................................................................
Deferred
Federal .........................................................................................................
State .............................................................................................................
Foreign ........................................................................................................
$
$
$
2012
2011
12
254
36
112
1,634
2,048
$
$
27
223
91
165
1,401
1,907
2012
Years ended December 31,
2011
2010
$
—
9
162
171
—
—
(7)
(7)
$
—
(33)
42
9
—
—
(169)
(169)
—
6
99
105
—
—
40
40
Income taxes (benefit) .....................................................................................
$
164
$
(160)
$
145
Income (loss) from continuing operations
before income taxes is as follows:
Foreign ............................................................................................................
Domestic .........................................................................................................
$
$
1,217
(344)
873
$
$
(636)
(949)
(1,585)
$
$
634
166
800
48
The following is a reconciliation of the statutory federal income tax rate to the effective tax rate based on income (loss) from
continuing operations:
Tax provision at statutory rate ........................................................................
Change in valuation allowance .......................................................................
Impact of permanent items, including stock based compensation expense ....
Effect of foreign tax rates ...............................................................................
State taxes net of federal benefit .....................................................................
Effect of dividend of foreign subsidiary in prior year .....................................
Prior year provision to return true-up .............................................................
Other ...............................................................................................................
2012
Years ended December 31,
2011
2010
34.0%
(31.89)
13.39
(13.98)
(0.84)
0.0
21.12
(3.01)
(34.0)%
39.9
6.32
5.21
(2.12)
0.0
(23.12)
(2.28)
34.0%
(53.03)
22.73
(2.97)
1.21
30.61
0.0
(10.12)
Domestic and foreign income tax rate ............................................................
18.79%
(10.09)%
22.43%
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 2012, and 2011 are presented below:
Deferred tax assets:
Net operating loss carry forwards and credits – United States ....................
Depreciation and amortization .....................................................................
Inventory related timing differences ............................................................
Compensation accruals ................................................................................
Accruals and reserves ..................................................................................
Other
Total deferred tax assets .......................................................................
Less: valuation allowance .....................................................................
Deferred tax assets net of valuation allowance .....................................
Deferred tax liabilities:
Plant and equipment, due to differences in depreciation and capitalized
interest- Foreign .......................................................................................
Total deferred tax liabilities .........................................................................
Net deferred tax ...........................................................................................
2012
2011
$
$
$
$
7,135
—
426
972
126
94
8,753
8,746
7
—
—
7
$
$
$
$
7,071
132
475
963
159
210
9,010
9,010
—
—
—
—
The valuation allowance is maintained against deferred tax assets which the Company has determined are more likely than not unable
to be realized. The change in valuation allowance was $(264), $649 and $(399) for the years ended December 31, 2012, 2011 and
2010, respectively. As of December 31, 2012, the Company has net operating loss carryforwards for Federal tax purposes of
approximately $19,888. Subsequently recognized tax benefits, if any, relating to the valuation allowance for deferred tax assets
or realization of net operating loss carryforwards will be reported in the consolidated statements of operations. If substantial changes
in the Company’s ownership occur, there could be an annual limitation on the amount of the carryforwards that are available to
be utilized.
Excluded from the Company’s net operating loss carryforwards is $105 in tax deductions resulting from the exercise of non-qualified
stock options. Because the Company is currently in an NOL position, the $105 windfall is not recorded through additional paid-in
capital until the tax benefit is recognized through a reduction in actual tax payments. For tax reporting purposes, the Company has
actual federal and state net operating loss carryforwards of $19,993 and $5,823, respectively, as of December 31, 2012. These net
operating loss carryforwards begin to expire in 2022 for federal tax purposes and 2017 for state tax purposes.
The Company has not recognized a deferred tax liability relating to cumulative undistributed earnings of controlled foreign
subsidiaries in Germany and Singapore that are essentially permanent in duration. If some or all of the undistributed earnings of the
controlled foreign subsidiaries are remitted to the Company in the future, income taxes, if any, after the application of foreign tax
credits will be provided at that time. Determination of the amount of unrecognized tax liability related to undistributed earnings in
foreign subsidiaries is not currently practical.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The Company regularly assesses the likelihood that the deferred tax assets will be
recovered from future taxable income. The Company considers projected future taxable income and ongoing tax planning strategies,
then records a valuation allowance to reduce the carrying value of the net deferred taxes to an amount that is more likely than not
unable to be realized. Based upon the Company’s assessment of all available evidence, including the previous three years of United
States based taxable income and loss after permanent items, estimates of future profitability, and the Company’s overall prospects of
49
future business, the Company determined that it is more likely than not that the Company will not be able to realize a portion of the
deferred tax assets in the future. The Company will continue to assess the potential realization of deferred tax assets on an annual
basis, or an interim basis if circumstances warrant. If the Company’s actual results and updated projections vary significantly from the
projections used as a basis for this determination, the Company may need to change the valuation allowance against the gross deferred
tax assets.
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would
more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount
recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate
settlement with the relevant taxing authority. The Company had analyzed all tax positions for which the statute of limitations remains
open. As a result of the assessment, the Company has not recorded any liabilites for unrecognized income tax benefits or retained
earnings. The Company does not have any unrecognized tax benefits as of December 31, 2012 and 2011.
The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations
within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to
apply. With few exceptions, the Company is no longer subject to U.S. federal and local, or non-U.S. income tax examinations by tax
authorities for the years starting before 2009 and state for the years starting before 2008. There are no other on-going or pending IRS,
state, or foreign examinations.
The Company recognizes penalties and interest accrued related to unrecognized tax benefits in income tax expense for all periods
presented. During the tax years ended December 31, 2012, 2011 and 2010 the Company has no amounts accrued for the payment of
interest and penalties.
9. EMPLOYEE BENEFIT PLANS
The Company has defined contribution plans for most of its domestic employees. Under these plans, eligible employees may
contribute amounts through payroll deductions supplemented by employer contributions for investment in various investments
specified in the plans. In the second quarter of 2009, the Company elected to suspend employer contributions into the defined
contribution plans. The Company contribution to these plans was $0 for 2012, 2011, and 2010, respectively. The Company has
restored employer matching contributions to the defined contribution plans effective as of January 1, 2013.
The Company provides post-retirement medical benefits to certain domestic full-time employees who meet minimum age and service
requirements. In 1999, a plan amendment was instituted which limits the liability for post-retirement benefits beginning January 1,
2000 for certain employees who retire after that date. This plan amendment resulted in a $1,100 unrecognized prior service cost
reduction which will be recognized as employees render the services necessary to earn the post-retirement benefit. The Company’s
policy is to pay the cost of these post-retirement benefits when required on a cash basis. The Company also has provided certain
foreign employees with retirement related benefits.
The following table presents the amounts recognized in the Company’s consolidated balance sheets at December 31, 2012 and 2011
for post-retirement medical benefits:
Change in Projected Benefit Obligation
Projected benefit obligation at January 1 ........................................................
Interest cost .....................................................................................................
Actuarial loss ..................................................................................................
Participant contributions .................................................................................
Benefits paid ...................................................................................................
Projected benefit obligation at December 31 ..................................................
Change in fair value of plan assets
Employer contributions ...................................................................................
Participant contributions .................................................................................
Benefits paid ...................................................................................................
Funded status ..................................................................................................
Amount recognized in consolidated balance sheets
Current liabilities ............................................................................................
Noncurrent liabilities ......................................................................................
Net amount recognized ...................................................................................
Amount recognized in other comprehensive income
Unrecognized net actuarial gain ......................................................................
Total ................................................................................................................
$
$
$
50
2012
2011
850
43
(47)
60
(204)
702
144
60
(204)
(702)
112
590
702
—
—
$
$
$
875
47
130
85
(287)
850
202
85
(287)
(850)
165
685
850
—
—
Accrued post-retirement medical benefit costs are classified as other post-retirement benefit obligations as of December 31, 2012 and
2011.
Net periodic post-retirement medical benefit costs for 2012, 2011, and 2010 included the following components:
Service cost ..................................................................................................... $
Interest cost .....................................................................................................
Net periodic post-retirement medical benefit cost .......................................... $
2012
—
43
43
$
$
2011
2010
—
47
47
$
$
—
49
49
For measurement purposes, a 7.0% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate)
was assumed for 2013; the rate was assumed to decrease gradually to 3.5% by the year 2018 and remain at that level thereafter. The
difference in the health care cost trend rate assumption may have a significant effect on the amounts reported. Employer contributions
for 2013 are expected to be approximately $112.
The assumptions used for the years ended December 31 were as follows:
Annual increase in cost of benefits .................................................................
Discount rate used to determine year-end obligations ....................................
Discount rate used to determine year-end expense .........................................
2012
2011
2010
8.0%
4.5%
5.5%
8.0%
5.5%
6.0%
8.0%
6.0%
6.0%
The following employer benefit payments, which reflect expected future service, are expected to be paid:
2013 .............................................................................................
2014 .............................................................................................
2015 .............................................................................................
2016 .............................................................................................
2017 .............................................................................................
Years 2018 – 2022 .......................................................................
$
112
101
91
82
73
243
The Company provides retirement related benefits to former executive employees and to certain employees of foreign subsidiaries.
The Company has consistently applied various assumptions in determining the fair market value of these liabilities including discount
rates, and mortality tables. The liabilities established for these benefits at December 31, 2012 and 2011 are illustrated below.
Current portion ................................................................................................
Long-term portion ...........................................................................................
$
$
36
510
Total liability at December 31 ........................................................................
$
546
$
91
431
522
10. CURRENCY TRANSLATION AND TRANSACTION ADJUSTMENTS
2012
2011
All assets and liabilities of foreign operations in which the functional currency is not the U.S. dollar are translated into U.S. dollars at
prevailing rates of exchange in effect at the balance sheet date. Revenues and expenses are translated using average rates of exchange
for the year. Adjustments resulting from the process of translating the financial statements of foreign subsidiaries into U.S. dollars are
reported as a separate component of shareholders’ equity, net of tax, where appropriate.
Foreign currency transaction amounts included in the consolidated statements of operations include a loss of $177, $17, and $134 in
2012, 2011 and 2010.
51
11. COMMON STOCK AND STOCK OPTIONS
The Company has a 2001 stock option plan, a non-employee directors’ stock option plan and a 2006 Equity Incentive Plan. New
grants may not be made under the 2001 and the non-employee directors’ stock option plans; however certain option grants under these
plans remain exercisable as of December 31, 2012. The aggregate number of shares of common stock for which awards could be
granted under the 2006 Equity Incentive Plan as of the date of adoption was 699 shares. The Plan was amended in 2010 and 2012 to
authorize an additional 250 and 300 shares, respectively, for issuance under the Plan. Additionally, as outstanding options under the
2001 stock option plan and non-employee directors’ stock option plan expire, the shares of the Company’s common stock subject to
the expired options will become available for issuance under the 2006 Equity Incentive Plan.
Under the various plans, executives, employees and outside directors receive awards of options to purchase common stock. Under the
2006 equity incentive plan, 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 December 31, 2012. 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 2006 equity incentive plan. The director program gives each non-employee director the right under the 2006
Equity Incentive Plan to elect to have some or all of his quarterly director fees paid in common shares rather than cash. There were
1, 3 and 3 shares issued in lieu of cash for director fees under the director program for each of the years ended December 31, 2012,
2011 and 2010, 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 2006 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 years
ended December 31, 2012, 2011 and 2010, respectively.
Stock option activity during the periods indicated is as follows:
Number of Shares
Weighted-average
Exercise Price
Aggregate
Intrinsic Value
Outstanding at December 31, 2009 ....................................................
1,054
$
Options forfeited .............................................................................
Options granted ..............................................................................
Options exercised ...........................................................................
Outstanding at December 31, 2010 ....................................................
Options forfeited .............................................................................
Options granted ..............................................................................
Options exercised ...........................................................................
Outstanding at December 31, 2011 ....................................................
Options forfeited .............................................................................
Options granted ..............................................................................
Options exercised ...........................................................................
Outstanding at December 31, 2012 ....................................................
Exercisable at December 31, 2011 .....................................................
Exercisable at December 31, 2012 .....................................................
Available for future grant at January 1, 2012 ....................................
Available for future grant at December 31, 2012 ...............................
52
(40)
127
(69)
1,072
(95)
177
(69)
1,085
(3)
182
(20)
1,244
840
925
239
359
$
$
$
5.67
4.97
3.44
3.11
5.60
3.07
4.43
2.30
5.84
6.76
6.42
2.54
5.97
6.32
6.13
$
$
$
432
1,422
425
The number of shares available for future grant at December 31, 2012, does not include a total of up to 267 shares subject to options
outstanding under the 2001 stock option plan and non-employee directors’ stock option plan which will become available for grant
under the 2006 Equity Incentive Plan in the event of the expiration of said options.
The weighted-average remaining contractual term of options exercisable and outstanding at December 31, 2012, were 4.46 and
5.54 years, respectively. The total intrinsic value of options exercised during fiscal 2012, 2011, and 2010, was $84, $163, and
$55, respectively.
The weighted-average per share fair value of options granted was $3.84, $2.57, and $1.86, in 2012, 2011, and 2010, respectively,
using the Black-Scholes option-pricing model.
For disclosure purposes, the fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-
pricing model with the following weighted average assumptions:
Dividend yield ................................................................
Expected volatility .........................................................
Risk-free interest rate .....................................................
Expected life (years) ......................................................
2012
0.0%
68.94 – 72.71%
.83 – 1.10%
5.0 – 6.0
2011
0.0%
68.68 – 69.22%
2.06 - 2.22%
5.0
2010
0.0%
62.03 – 62.16%
2.35 - 2.52%
5.0
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 Company calculates expected volatility for stock options and awards using the Company’s historical volatility.
The expected term for stock options and awards is calculated based on the Company’s estimate of future exercise at the time of grant.
The Company currently estimates a five percent forfeiture rate for stock options and continually reviews this estimate.
The risk-free rates for the expected terms of the stock options and awards and the employee stock purchase plan is based on the
U.S. Treasury yield curve in effect at the time of grant.
The Company recorded $414, $214, and $474 of non-cash stock option expense for the years ended December 31, 2012, 2011 and
2010, respectively. As of December 31, 2012, there was $685 of total unrecognized compensation costs related to non-vested awards
that is expected to be recognized over a weighted-average period of 1.67 years.
The Company also has an Employee Stock Purchase Plan (the “Purchase Plan”). The Purchase Plan initially provided that a maximum
of 100 shares may be sold under the Purchase Plan as of the date of adoption. On April 27, 2011, the Company’s shareholders
approved an amendment to the Purchase Plan to increase the number of shares which may be purchased under the plan by an
additional 100 shares. There were 20, 17, and 15 shares purchased under the plan for the years ended December 31, 2012, 2011 and
2010, respectively.
53
12. INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted income (loss) per share:
Numerators:
Income (loss) before discontinued operations ...............................................
Loss from discontinued operations, net of taxes and gain on sale ................
Net income (loss) ..........................................................................................
Denominator:
Basic – weighted shares outstanding ............................................................
Weighted shares assumed upon exercise of stock options ............................
Diluted – weighted shares outstanding .........................................................
Basic earnings (loss) per share:
Continuing operations ...................................................................................
Discontinued operations ................................................................................
Basic earnings (loss) per share: .....................................................................
Diluted earnings (loss) per share:
Continuing operations ...................................................................................
Discontinued operations ................................................................................
Diluted earnings (loss) per share: ..................................................................
$
$
$
$
$
$
Twelve months ended December 31,
2011
2012
2010
709
—
709
$
$
5,669
219
5,888
.13
—
.13
.12
—
.12
$
$
$
$
(1,425)
—
(1,425)
5,599
—
5,599
(.25)
—
(.25)
(.25)
—
(.25)
$
$
$
$
$
$
655
(294)
361
5,484
51
5,535
0.12
(0.05)
0.07
0.12
(0.05)
0.07
The Company excluded stock options of 411, 1,085, and 575, in 2012, 2011, and 2010, respectively, from the computation of the
diluted income per share as their effect would be anti-dilutive. For additional disclosures regarding the stock options, see Note 11.
13. CONTINGENCIES AND COMMITMENTS
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 wholly owned French subsidiary, Selas SAS, filed for insolvency in France and is being managed by a court
appointed judiciary administrator. The Company may be subject to additional litigation or liabilities as a result of the French
insolvency proceeding.
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.
54
Total rent expense for 2012, 2011, and 2010 under leases pertaining primarily to engineering, manufacturing, sales and administrative
facilities, with an initial term of one year or more, aggregated $1,531, $1,497, and $1,365, respectively. Remaining rentals payable
under such leases are as follows: 2013- $1,363; 2014 - $860; 2015 - $946; 2016 - $447; 2017 - $223, which includes two leased
facilities in Minnesota that expire in 2013 and 2016, two leased facilities in Maine that expire in 2014 and 2017, one leased facility
in California that expires in 2014, one leased facility in Singapore that expires in 2015, one leased facility in Indonesia that expires
in 2016 and one leased facility in Germany that expires in 2017. Certain leases contain renewal options as defined in the
lease agreements.
On October 5, 2007, the Company entered into employment agreements with its executive officers. The agreements call for payments
ranging from seven months to two years base salary and unpaid bonus, if any, to the executives should there be a change of control as
defined in the agreement and the executives are not retained for a period of at least one year following such change of control. Under
the agreements, all stock options granted to the executives would vest immediately and be exercisable in accordance with the terms of
such stock options. The Company also agreed that if it enters into an agreement to sell substantially all of its assets, it will obligate
the buyer to fulfill its obligations pursuant to the agreements. The agreements terminate, except to the extent that any obligation
remains unpaid, upon the earlier of termination of the executive’s employment prior to a change of control or asset sale for any reason
or the termination of the executive after a change of control for any reason other than by involuntary termination as defined in
the agreements.
On July 20, 2008, the Company entered into a strategic alliance agreement with Dynamic Hearing Pty Ltd (“Dynamic Hearing”).
Effective October 1, 2008, Dynamic Hearing granted a license to the Company to use certain of Dynamic Hearing’s technology. The
initial term of the agreement was five years from the date of execution with an extension available upon agreement of the parties
within two months of the expiration of the initial term; however, either party had ability to terminate the agreement after the second
year of the term upon three months notice. The Company agreed to pay Dynamic Hearing: (i) an annual fee for access to the
technology licensed pursuant to the agreement and (ii) an additional “second component” fee to maintain exclusive rights granted to
the Company with respect to hearing health products. Additionally, IntriCon agreed to make royalty payments on products that
incorporate Dynamic Hearing’s technology, and Dynamic Hearing has also agreed to provide the Company with engineering and other
services in connection with the licensed technology. Minimal royalty payments were made for the years ended December 31, 2012
2011, and 2010. The Company recorded $1,000 payable to Dynamic Hearing for the first two years of exclusive license fees described
above which was paid during 2010. In January of 2011, the strategic alliance agreement was amended to, among other things, remove
the “second component” fee for the remainder of the term and extend the date after which either party can terminate the agreement
through December 2012. Exclusive rights and engineering and other services were amortized through September 2010. The
technology access fee will be amortized through September 2017, the estimated useful life and is included in other assets, net on the
balance sheet. The technology access fee asset was $380 and $312 as of December 31, 2012 and 2011, respectively.
14. 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 was approximately $490, $486 and $477 for each of the years ended 2012,
2011 and 2010.
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 our
Board of Directors. The Company paid approximately $174, $217, and $205 to Blank Rome LLP for legal services and costs in 2012,
2011 and 2010, respectively. The Chairman of our Board of Directors is considered independent under applicable NASDAQ and SEC
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.
15. STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information:
Interest received ...........................................................................................................
Interest paid..................................................................................................................
Income taxes paid ........................................................................................................
Shares issued for director services in lieu of fees ........................................................
Retirement of treasury shares .......................................................................................
Receivables on the sale of Global Coils .......................................................................
2012
$
55
1
594
5
6
—
721
Years ended December 31,
2011
$
$
1
461
4
10
1,265
—
2010
2
531
7
10
—
—
16. INVESTMENT IN PARTNERSHIPS
In December 2006, the Company joined the Hearing Instrument Manufacturers Patent Partnership (K/S HIMPP). Members of the
partnership include the largest six hearing aid manufacturers as well as several other smaller manufacturers. The purchase price of
$1,800 included a 9% equity interest in K/S HIMPP as well as a license agreement that grants the Company access to over
45 US registered patents. The Company accounted for the K/S HIMPP investment using the equity method of accounting for common
stock, as the equity interest is deemed to be “more than minor”. The company paid the final principal installment under the purchase
agreement of $240 in 2012. The investment in the partnership exceeded underlying net assets by approximately $1,475 at the time of
the agreement. Based on the final assessment of the partnership, the Company determined that approximately $345 of the excess of the
investment over the underlying partnership net assets relates to underlying patents (amortized on a straight-line basis over ten years).
The remaining $1,130 of the excess of the investment over the underlying partnership net assets was assigned to the non-exclusive
patent license agreement (amortized on a straight-line basis over ten years). The Company recorded a $166, $34 and $191 decrease in
the carrying amount of the investment, reflecting amortization of the patents, patent license agreement and the Company’s portion of
the partnership’s operating results for the years ended December 31, 2012, 2011 and 2010, respectively. The carrying amount of the
K/S HIMPP partnership is $773 and $903 at December 31, 2012 and 2011, respectively. As of December 31, 2012, amortization
remaining for each of the years ending December 31, 2013 through 2016 is $148.
In August 2012, the Company sold its 50% interest in its Global Coils joint venture to its joint venture partner Audemars SA. The
Global Coils joint venture is in the business of marketing, designing, manufacturing, and selling audio coils to the hearing health
industry. Audemars paid $426 in cash at closing and will make future payments, both one time and recurring, as specified in the
purchase agreement. Audemars also transferred certain hearing health inventory to IntriCon. The Company recorded a gain on the sale
of $822 in the gain on sale of investment in partnership line of the accompanying statement of operations.
The net gain was computed as follows:
Cash proceeds ...................................................................................... $
Receivables ..........................................................................................
Inventory ..............................................................................................
Net assets disposed ..............................................................................
Transaction costs ..................................................................................
Gain on sale ...................................................................................... $
426
721
186
(486)
(25)
822
The receivables are made up of installment payments and estimated royalties and are included in other current assets and other assets
on the balance sheet based on payment terms. The Company measured the fair value of the estimated royalties based on level 3 inputs
which are considered unobservable inputs that are not corroborated by market data. The Company used future estimated cash flows
discounted to their present value to calculate fair value. The discount rate used was the value-weighted average of the Company’s
estimated cost of capital derived using both known and estimated customary market metrics. Actual royalty payments may differ from
the Company’s estimate which could adversely affect the Company’s results of operations.
Prior to the sale of the Company’s Global Coils joint venture, the Company recorded a $50 increase in the carrying amount of the
investment, reflecting the Company’s portion of the joint venture’s operating results for the year ended December 31, 2012. The
Company recorded an increase of approximately $208 and $56 in the carrying amount of the investment for the years ended December
31, 2011 and 2010. The carrying amount of the investment was $0 and $380 at December 31, 2012 and 2011, respectively. The
Company had a receivable of approximately $376 related to management fees as of December 31, 2011.
17. REVENUE BY MARKET
The following table set forth, for the periods indicated, net revenue by market:
Body-Worn Device Segment
Medical ........................................................................................................................
Hearing Health .............................................................................................................
Professional Audio Communications ...........................................................................
Years Ended December 31,
2011
2012
2010
$
$
24,463
23,806
15,664
$
22,923
21,032
12,103
24,594
21,007
13,096
Total Net Sales .............................................................................................................
$
63,933
$
56,058
$
58,697
56
ITEM 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report (the “Evaluation Date”), the
Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive
Officer (principal executive officer) and the Chief Financial Officer (principal financial officer), of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls
and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and
forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting. The report of management required under this
Item 9A is contained in Item 8 of this Annual Report on Form 10-K under the caption “Management’s Report on Internal Control
Over Financial Reporting.”
Changes in Internal Controls over Financial Reporting. There were no changes in our internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter covered by
this report that would 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.
ITEM 9B. Other Information
None.
57
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
The information called for by Item 10 is incorporated by reference from the Company’s definitive proxy statement relating to its 2013
annual meeting of shareholders, including but not necessarily limited to the sections of the 2013 proxy statement entitled “Proposal 1
– Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance.”
The information concerning executive officers contained in Item 4A hereof is incorporated by reference into this Item 10.
Code of Ethics
The Company has adopted a code of ethics that applies to its directors, officers and employees, including its principal executive
officer, principal financial and accounting officer, controller and persons performing similar functions. Copies of the Company’s code
of ethics are available without charge upon written request directed to Cari Sather, Director of Human Resources, IntriCon
Corporation, 1260 Red Fox Road, Arden Hills, MN 55112. The Company intends to satisfy the disclosure requirement under Item 10
of Form 8-K regarding any future amendments to a provision of its code of ethics by posting such information on the Company’s
website: www.intricon.com.
ITEM 11. Executive Compensation
The information called for by Item 11 is incorporated by reference from the Company’s definitive proxy statement relating to its 2013
annual meeting of shareholders, including but not necessarily limited to the sections of the 2013 proxy statement entitled “Director
Compensation for 2012,” and “Executive Compensation”.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The information called for by Item 12 is incorporated by reference from the Company’s definitive proxy statement relating to its 2013
annual meeting of shareholders, including but not necessarily limited to the section of the 2013 proxy statement entitled “Share
Ownership of Certain Beneficial Owners, Directors and Certain Officers.”
Equity Compensation Plan Information
The following table details information regarding the Company’s existing equity compensation plans as of December 31, 2012:
Plan Category
Equity compensation plans approved by security holders(1) .........
Equity compensation plans not approved by security holders(2) ...
Total ...............................................................................................
(a)
Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights
(b)
Weighted-
average exercise
price of
outstanding
options, warrants
and rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
1,139 $
105 $
1,244 $
6.19
3.68
5.97
447
—
447
(1) The amount shown in column (c) includes 359 shares issuable under the Company’s 2006 Equity Incentive Plan (the “2006 Plan”)
and 88 shares available for purchase under the Company’s Employee Stock Purchase Plan. Under the terms of the 2006 Plan, as
outstanding options under the Company’s 2001 Stock Option Plan and Non-Employee Directors’ Stock Option Plan expire, the shares
of common stock subject to the expired options will become available for issuance under the 2006 Plan. As of December 31, 2012,
267 shares of common stock were subject to outstanding options under the 2001 Stock Option Plan and Non-Employee Directors’
Stock Option Plan. Accordingly, if any of these options expire, the shares of common stock subject to expired options also will be
available for issuance under the 2006 Plan.
(2) Represents shares issuable under the Non-Employee Directors Stock Option Plan, the (“Non-Employee Directors Plan”), pursuant
to which directors who are not employees of the Company or any of its subsidiaries were eligible to receive options. The exercise
price of the option was the fair market value of the stock on the date of grant. Options become exercisable in equal one-third annual
installments beginning one year from the date of grant, except that the vesting schedule for discretionary grants is determined by the
Compensation Committee. As a result of the approval of the 2006 Plan by the shareholders at the 2006 annual meeting of
shareholders, no further grants will be made pursuant to the Non-Employee Directors Plan.
58
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information called for by Item 13 is incorporated by reference from the Company’s definitive proxy statement relating to its 2013
annual meeting of shareholders, including but not necessarily limited to the sections of the 2013 proxy statement entitled “Certain
Relationships and Related Party Transactions” and “Independence of the Board of Directors.”
ITEM 14. Principal Accounting Fees and Services
The information called for by Item 14 is incorporated by reference from the Company’s definitive proxy statement relating to its 2013
annual meeting of shareholders, including but not necessarily limited to the sections of the 2013 proxy statement entitled “Independent
Registered Public Accounting Fee Information.”
ITEM 15. Exhibits, Financial Statement Schedules
PART IV
(a)
1)
The following documents are filed as a part of this report:
Financial Statements – The consolidated financial statements of the Registrant are set forth in Item 8 of Part II of this report.
Consolidated Statements of Operations for the years ended December 31, 2012, 2011 and 2010.
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2012, 2011 and 2010.
Consolidated Balance Sheets at December 31, 2012 and 2011.
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010.
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2012, 2011 and 2010.
Notes to Consolidated Financial Statements.
2)
Financial Statement Schedules
59
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
SUPPLEMENTARY INFORMATION
To the Shareholders, Audit Committee and Board of Directors
IntriCon Corporation and Subsidiaries
Arden Hills, Minnesota
Our audits were made for the purpose of forming an opinion on the basic 2012, 2011 and 2010 consolidated financial statements of
IntriCon Corporation and Subsidiaries taken as a whole. The consolidated supplemental schedule II is presented for purposes of
complying with the Securities Exchange Commission’s rules and is not a part of the basic consolidated financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of the 2012, 2011 and 2010 basic consolidated financial
statements and, in our opinion, is fairly stated in all materials respects in relation to the basic consolidated financial statements taken
as a whole.
/s/ BAKER TILLY VIRCHOW KRAUSE, LLP
Minneapolis, Minnesota
March 13, 2013
Schedule II - Valuation and Qualifying Accounts
INTRICON CORPORATION AND SUBSIDIARY COMPANIES
Valuation and Qualifying Accounts
December 31, 2012, 2011 and 2010.
Description
Year ended December 31, 2012
Allowance for doubtful accounts ......................................
Deferred tax asset valuation allowance .............................
Year ended December 31, 2011
Allowance for doubtful accounts ......................................
Deferred tax asset valuation allowance .............................
Year ended December 31, 2010
Allowance for doubtful accounts ......................................
Deferred tax asset valuation allowance .............................
$
$
$
$
$
$
a) Uncollectible accounts written off.
Balance at
beginning
of Year
“Addition”
charged to
costs and
expense
“Less”
deductions
Balance
at end
of year
223
9,010
219
8,361
226
8,760
$
$
$
$
$
$
1
—
5
649
50
1,069
$
$
$
$
$
$
70(a) $
$
264
1(a) $
$
—
57(a) $
$
1,468
154
8,746
223
9,010
219
8,361
All other schedules are omitted because they are not applicable, or because the required information is included in the consolidated
financial statements or notes thereto.
3)
2.1
2.2
Exhibits –
Asset purchase agreement dated March 31, 2005 among the Company and Selas Heat Technology, LLP (Schedules and
exhibits are omitted pursuant to Regulation S-K, Item 601(b)(2); IntriCon Corporation agrees to furnish a copy of such
schedules and/or exhibits to the Securities and Exchange Commission upon request) (Incorporated by reference from the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.)
Asset Purchase Agreement by and among IntriCon Corporation, TI Acquisition Corporation, Tibbetts Industries, Inc. and
certain shareholders of Tibbetts Industries, Inc. dated April 19, 2007. (Incorporated by reference from the Company’s
Current Report on Form 8-K filed with the Commission on April 23, 2007.)
60
2.3
3.1
3.2
Asset Purchase Agreement dated as of May 28, 2010 among RTIE Holdings LLC, RTI Electronics, Inc., and IntriCon
Corporation. (Schedules and exhibits are omitted pursuant to Regulation S-K, Item 601(b)(2); IntriCon Corporation
agrees to furnish a copy of such schedules and/or exhibits to the Securities and Exchange Commission upon request.)
(Incorporated by reference from the Company’s Current Report on Form 8-K filed with the Commission on June 3,
2010.)
The Company’s Amended and Restated Articles of Incorporation, as amended. (Incorporated by reference from the
Company’s Current Report on Form 8-K filed with the Commission on April 24, 2008.)
The Company’s Amended and Restated By-Laws. (Incorporated by reference from the Company’s Current Report on
Form 8-K filed with the Commission October 12, 2007.)
+ 10.1.1 2001 Stock Option Plan. (Incorporated by reference from the Company’s Annual Report on Form 10-K for the year
ended December 31, 2000.)
+ 10.1.2 Form of Stock Option Agreement issued to executive officers pursuant to the 2001 Stock Option Plan. (Incorporated by
reference from the Company’s Current Report on Form 8-K filed with the Commission on April 26, 2005.)
+ 10.2
Supplemental Retirement Plan (amended and restated effective January 1, 1995). (Incorporated by reference from the
Company’s Annual Report on Form 10-K for the year ended December 31, 1995.)
10.3.1
10.3.2
Amended and Restated Office/Warehouse Lease, between Resistance Technology, Inc. and Arden Partners I. L.L.P. (of
which Mark S. Gorder is one of the principal owners) dated November 1, 1996. (Incorporated by reference from the
Company’s Annual Report on Form 10-K for the year ended December 31, 1996.)
Amended and Restated Office/Warehouse Lease Second Extension Agreement dated as of October 20, 2011
between IntriCon Inc. and Arden Partners I, L.L.P. (Incorporated by reference from the Company’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2011.)
+ 10.4.1 Amended and Restated Non-Employee Directors’ Stock Option Plan. (Incorporated by reference from the Company’s
Annual Report on Form 10-K for the year ended December 31, 2001.)
+ 10.4.2 Form of Non-employee director Option Agreement for options issued pursuant to the Amended and Restated Non-
Employee Directors Stock Option Plan. (Incorporated by reference from the Company’s Current Report on Form 8- K
filed with the Commission on October 3, 2005.)
+ 10.5
2006 Equity Incentive Plan. (Incorporated by reference from Appendix A to the Company’s proxy statement filed with
the SEC on March 15, 2010.)
+ 10.6
Form of Stock Option Agreement issued to executive officers pursuant to the 2006 Equity Incentive Plan. (Incorporated
by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.)
+ 10.7
Form of Stock Option Agreement issued to directors pursuant to the 2006 Equity Incentive Plan. (Incorporated by
reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.)
+ 10.8
Non-Employee Directors Stock Fee Election Program. (Incorporated by reference from the Company’s Annual Report
on Form 10-K for the year ended December 31, 2006.)
+ 10.9
+ 10.10
10.11
Non-Employee Director and Executive Officer Stock Purchase Program, as amended. (Incorporated by reference from
the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.)
Deferred Compensation Plan. (Incorporated by reference from the Company’s Current Report on Form 8-K filed with
the Commission on May 17, 2006.)
Land and Building Lease Agreement between Resistance Technology, Inc. and MDSC Partners, LLP dated June 15,
2006. (Incorporated by reference from the Company’s Current Report on Form 8-K filed with the Commission on
June 21, 2006.)
61
10.12
Agreement by and between K/S HIMPP and IntriCon Corporation dated December 1, 2006 and the schedules thereto.
(Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.)
+ 10.13
Employment Agreement with Mark S. Gorder. (Incorporated by reference from the Company’s Current Report on
Form 8-K filed with the Commission October 12, 2007.)
+ 10.14
Form of Employment Agreement with executive officers. (Incorporated by reference from the Company’s Current
Report on Form 8-K filed with the Commission October 12, 2007.)
10.15
10.16
10.17.1
10.17.2
10.17.3
10.17.4
10.17.5
10.17.6
10.18
10.19.1
10.19.2
Strategic Alliance Agreement among IntriCon Corporation and Dynamic Hearing Pty Ltd effective as of October 1,
2008 (Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31,
2008.)
First Amendment to Strategic Alliance Agreement among IntriCon Corporation and Dynamic Hearing Pty Ltd effective
as of January 1, 2011 (Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended
December 31, 2011.)
Loan and Security Agreement dated as of August 13, 2009 by and among IntriCon Corporation, RTI Electronics, Inc.,
IntriCon Tibbetts Corporation, IntriCon Datrix Corporation (f/k/a Jon Barron, Inc.) and The PrivateBank and Trust
Company (Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2009.)
First Amendment and Waiver dated March 12, 2010 to Loan and Security Agreement dated as of August 13, 2009 by
and among IntriCon Corporation, RTI Electronics, Inc., IntriCon Tibbetts Corporation, IntriCon Datrix Corporation and
The PrivateBank and Trust Company. (Incorporated by reference from the Company’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2010.)
Second Amendment to Loan and Security Agreement and Limited Consent dated as of August 12, 2011 to Loan and
Security Agreement dated as of August 13, 2009 by and among IntriCon Corporation, IntriCon, Inc., IntriCon Tibbetts
Corporation, IntriCon Datrix Corporation and The PrivateBank and Trust Company (Incorporated by reference from the
Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.)
Third Amendment to Loan and Security Agreement and Waiver dated as of March 1, 2012 to Loan and Security
Agreement dated as of August 13, 2009 by and among IntriCon Corporation, IntriCon, Inc., IntriCon Tibbetts
Corporation, IntriCon Datrix Corporation and The PrivateBank and Trust Company (incorporated by reference to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2012).
Fourth Amendment to Loan and Security Agreement and Consent among the Company, IntriCon, Inc., IntriCon Tibbetts
Corporation , IntriCon Datrix Corporation and The PrivateBank and Trust Company, dated as of August 6, 2012
(incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2012.)
Fifth Amendment to Loan and Security Agreement among the Company, IntriCon, Inc., IntriCon Tibbetts Corporation,
IntriCon Datrix Corporation and The PrivateBank and Trust Company, dated as of December 21, 2012. (incorporated by
reference to the Company’s Current Report on Form 8-K filed with the Commission on December 21, 2012.)
Revolving Credit Note issued to The PrivateBank and Trust Company dated August 13, 2009 (Incorporated by reference
from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.)
Term Note issued to The PrivateBank and Trust Company dated August 13, 2009 (Incorporated by reference from the
Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.)
Term Note dated August 12, 2011 from IntriCon Corporation, IntriCon, Inc., IntriCon Tibbetts Corporation and IntriCon
Datrix Corporation to The PrivateBank and Trust Company (Incorporated by reference from the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2011.)
10.20
Subordinated Non-Negotiable Promissory Note issued to Jon V. Barron dated August 13, 2009 (Incorporated by
reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.)
62
10.21
Amended and Restated Sale or Change of Control, Exclusivity and Noncompete Agreement dated November 12, 2011
between IntriCon Corporation and United Healthcare Services, Inc. (Incorporated by reference from the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.)
+ 10.22
Annual Incentive Plan for Executives and Key Employees. (Incorporated by reference from the Company’s Quarterly
21*
23.1*
31.1*
31.2*
32.1*
32.2*
99.1
101†
Report on Form 10-Q for the quarter ended March 31, 2012.)
List of significant subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm (Baker Tilly Virchow Krause, LLP).
Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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
Certification of principal financial officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Shareholders Agreement dated October 10, 2011 by and among the Company, United Healthcare Services, Inc., Mark S.
Gorder, Michael J. McKenna, Robert N. Masucci, Nicolas A. Giordano, Philip N. Seamon, Christopher D. Conger,
Michael P. Geraci, Scott Longval, Dennis L. Gonsior, and Greg Gruenhagen (Incorporated by reference from the
Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.)
The following materials from IntriCon Corporation’s Annual Report on Form 10-K for the year ended December 31,
2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the
years ended December 31, 2012, 2011 and 2010; (ii) Consolidated Statements of Comprehensive Income (Loss);
(iii) Consolidated Balance Sheets as of December 31, 2012 and 2011; (iv) Consolidated Statements of Cash Flows for
the years ended December 31, 2012, 2011 and 2010; (v) Consolidated Statements of Shareholders’ Equity for the years
ended December 31, 2012, 2011 and 2010; and (vi) Notes to Consolidated Financial Statements.
* Filed herewith.
+ Denotes management contract, compensatory plan or arrangement.
† Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not
filed for purposes of Section 18 of the Exchange Act and otherwise are not subject to liability under those sections.
63
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
INTRICON CORPORATION
(Registrant)
By:
/s/ Scott Longval
Scott Longval
Chief Financial Officer, Treasurer and Secretary
Dated: March 13, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
/s/ Mark S. Gorder
Mark S. Gorder
President and Chief Executive
Officer and Director (principal executive officer)
March 13, 2013
/s/ Scott Longval
Scott Longval
Chief Financial Officer
Treasurer and Secretary
(principal accounting and financial officer)
March 13, 2013
/s/Nicholas A. Giordano
Nicholas A. Giordano
Director
March 13, 2013
/s/Robert N. Masucci
Robert N. Masucci
Director
March 13, 2013
/s/ Michael J. McKenna
Michael J. McKenna
Director
March 13, 2013
/s/ Philip N. Seamon
Philip N. Seamon
Director
March 13, 2013
64
EXHIBIT INDEX
EXHIBITS:
21
23.1
31.1
31.2
32.1
32.2
101†
†
List of significant subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm (Baker Tilly Virchow Krause, LLP).
Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.
Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.
The following materials from IntriCon Corporation’s Annual Report on Form 10-K for the year ended December 31,
2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for
the years ended December 31, 2012, 2011 and 2010; (ii) Consolidated Statements of Comprehensive Income (Loss);
(iii) Consolidated Balance Sheets as of December 31, 2012 and 2011; (iv) Consolidated Statements of Cash Flows for
the years ended December 31, 2012, 2011 and 2010; (v) Consolidated Statements of Shareholders’ Equity for the years
ended December 31, 2012, 2011 and 2010; and (vi) Notes to Consolidated Financial Statements.
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part
of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended,
are deemed not filed for purposes of Section 18 of the Exchange Act and otherwise are not subject to liability under
those sections.
65
Significant Subsidiaries of
IntriCon Corporation
Subsidiary
IntriCon GmbH
Vertrieb von Elecktronikteilen
IntriCon, Inc. (formerly Resistance Technology, Inc.)
IntriCon PTE LTD.
PT IntriCon Indonesia
IntriCon Tibbetts Corporation
IntriCon Datrix Corporation
EXHIBIT 21.1
Place of Incorporation
Germany
Minnesota
Singapore
Indonesia
Maine
California
66
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 33-33712) and Forms S-8
(No. 333-16377, 333-66433, 333-59694, 333-129104, 333-134256, 333-145577, 333-168586, 333-173837 and 333-181160)
of IntriCon Corporation and Subsidiaries of our reports dated March 13, 2013, relating to the consolidated financial statements and
the financial statement schedule, which appear on pages 34 and 60 of this annual report on Form 10-K for the year ended
December 31, 2012.
EXHIBIT 23.1
/s/ BAKER TILLY VIRCHOW KRAUSE, LLP
Minneapolis, Minnesota
March 13, 2013
67
EXHIBIT 31.1
I, Mark S. Gorder, certify that:
1. I have reviewed this annual report on Form 10-K of IntriCon Corporation;
CERTIFICATION
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)
b)
c)
d)
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;
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;
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
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(s) 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)
b)
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
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: March 13, 2013
/s/ Mark S. Gorder
Chief Executive Officer
(principal executive officer)
68
EXHIBIT 31.2
I, Scott Longval, certify that:
1. I have reviewed this annual report on Form 10-K of IntriCon Corporation;
CERTIFICATION
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)
b)
c)
d)
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;
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;
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
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(s) 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)
b)
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
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: March 13, 2013
/s/ Scott Longval
Chief Financial Officer
(principal financial officer)
69
CERTIFICATION PURSUANT TO
18 U.S.C.SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
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)
2)
the annual report on Form 10-K of the Company for the year ended December 31, 2012 (the “Report”) fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 13, 2013
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.
/s/ Mark S. Gorder
Mark S. Gorder
President and Chief Executive Officer
(principal executive officer)
70
CERTIFICATION PURSUANT TO
18 U.S.C.SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
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)
2)
the annual report on Form 10-K of the Company for the year ended December 31, 2012 (the “Report”) fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 13, 2013
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.
/s/ Scott Longval
Scott Longval
Chief Financial Officer and Treasurer (principal financial officer)
71
Management
Mark S. Gorder
President and Chief Executive Officer
Legal Counsel
Blank Rome LLP
Philadelphia, Pennsylvania
J. Scott Longval
Chief Financial Officer, Secretary and Treasurer
Auditors
Christopher D. Conger
Vice President, Research and Development
Michael P. Geraci
Vice President, Sales and Marketing
Greg Gruenhagen
Vice President, Quality and Regulatory Affairs
Dennis L. Gonsior
Vice President, Global Operations
Directors
Michael J. McKenna
Chairman of the Board of IntriCon Corporation,
Retired Vice Chairman,
President and Director,
Crown Cork & Seal Company, Inc.
Nicholas A. Giordano
Business Consultant,
Former President and Chief Executive Officer,
Philadelphia Stock Exchange
Mark S. Gorder
President and Chief Executive Officer,
IntriCon Corporation
Robert N. Masucci
Chairman, Barclay Brand Ferndon, Inc.
Chairman, Montgomery Capital Advisors, Inc.
Philip N. Seamon
President, Philip N. Seamon, Inc.
Retired Senior Managing Director,
Corporate Finance,
FTI Consulting, Inc.
Baker Tilly Virchow Krause, LLP
Minneapolis, Minnesota
Transfer Agent and Registrar
Broadridge
1717 Arch Street, Suite 1300
Philadelphia, Pennsylvania 19103
www.broadridge.com
1.800.353.0103
Locations
IntriCon Corporation Headquarters
1260 Red Fox Road
Arden Hills, Minnesota 55112
Phone: 651.636.9770
Fax: 651.636.8944
intricon.com
IntriCon, Inc.
1260 Red Fox Road
Arden Hills, Minnesota 55112
IntriCon Datrix Corporation
340 State Place
Escondido, California 92029
IntriCon Tibbetts Corporation
5 Colcord Avenue
Camden, Maine 04843
IntriCon PTE LTD
Admirax Building #02-01 to 06
8 Admiralty Street
Singapore 757438
IntriCon Gmbh
Kesselschmiedstr. 10
D-75354 Freising, Germany
PT IntriCon Indonesia
Batam Indo Industrial Park
Lot 202 Level 1
Mukakuming, Batam, Indonesia 29433
IntriCon Corporation
1260 Red Fox Road
Arden Hills, Minnesota 55112
Phone: 651.636.9770
Fax: 651.636.8944
intricon.com