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, 2021, using criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment, the Company’s management believes that, as of December 31, 2021, the Company’s internal control over financial reporting was effective based on those criteria.
The Company’s independent registered public accounting firm has audited the Company’s internal control over financial reporting as of December 31, 2021, as stated in the Report of Independent Registered Public Accounting Firm appearing under Item 8.
There were no changes in our internal control over financial reporting during the most recent fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Notes to Consolidated Financial Statements (In Thousands, Except Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Intricon Corporation is an international company and joint development manufacturer (“JDM”) of micromedical components, sub-assemblies and final devices. The Company serves as a JDM partner to leading medical device original equipment manufacturers (“OEMs”) by designing, developing, engineering, manufacturing, packaging and distributing micromedical products for high growth markets, such as diabetes, peripheral vascular, interventional pulmonology, electrophysiology and hearing healthcare. Our mission is to improve, extend and save lives by advancing innovative micromedical technologies through joint development and manufacturing partnerships with industry leading medical device companies.
The Company is headquartered in Arden Hills, Minnesota and operates globally with facilities in Minnesota, Illinois, California, Singapore, Indonesia and Germany.
Basis of Presentation – The Company prepares financial statements in conformity with accounting principles generally accepted in the United States of America.
Consolidation – The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Principles of Consolidation – The Company evaluates its voting and variable interests in entities on a qualitative and quantitative basis. The Company consolidates entities in which it concludes it has the power to direct the activities that most significantly impact an entity’s economic success and has the obligation to absorb losses or the right to receive benefits that could be significant to the entity.
Business Combinations – The Company records acquisitions in accordance with ASC 805, Business Combinations, with identifiable assets acquired and liabilities assumed recorded at their estimated fair values on the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and net intangible assets acquired is recorded as goodwill. The application of ASC 805, Business Combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between goodwill and assets that are depreciated and amortized. Our estimates are based on historical experience, information obtained from the management of the acquired companies and, when appropriate, include assistance from independent third-party appraisal firms. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events or circumstances may occur which may affect the accuracy or validity of such estimates. See Note 2 for additional detail on the Emerald Medical Services Pte., ("EMS") business combination.
Non-Controlling Interests – Since May 2020, the Company owns 54 percent of Emerald Extrusion Services LLC. (“EES”), which was acquired as part of the EMS acquisition. The Company has consolidated the results of EES for 2020 based on the Company’s ability to control the operations of the entity. The remaining ownership is accounted for as a non-controlling interest and reported as part of equity in the Consolidated Balance Sheets.
Segment Disclosures – Operating segments are identified as components of an enterprise about which separate financial information is available for evaluation by the chief operating decision-maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The CODM uses net income as our primary measure of performance. We view our operations and manage our business as one operating segment.
Use of Estimates – The Company makes 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 consolidated 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 and intangible assets, 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 – Revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, including noncash consideration, consideration paid or payable to customers and significant financing components. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer.
Individual promised goods and services in a contract are considered a performance obligation and accounted for separately if the customer can benefit from the good or service on its own or with other resources that are readily available to the customer and the good or service is separately identifiable from other promises in the arrangement. When an arrangement includes multiple performance obligations, the consideration is allocated between the performance obligations in proportion to their stand-alone selling price. Costs related to products delivered are recognized in the period incurred, unless criteria for capitalization of costs are met. Cost of goods sold consist primarily of direct labor, manufacturing overhead, materials and components.
The Company excludes from revenue taxes collected from a customer that are assessed by a governmental authority and imposed on and concurrent with a specific revenue-producing transaction.
The Company includes shipping and handling fees in revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheet.
When more than one party is involved in providing goods or services to a customer, the Company determines whether it is a principal or an agent in these transactions by evaluating the nature of its promise to the customer. The Company is a principal and therefore records revenue on a gross basis if it controls a promised good or service before transferring that good or service to the customer. The Company is an agent and records as revenue the net amount it retains for its agency services if its role is to arrange for another entity to provide the goods or services.
Performance obligations - A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation in proportion to the standalone selling price for each and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s various performance obligations and the timing or method of revenue recognition in each of the Company’s markets are discussed below.
Medical market - Customer orders from the medical market consist of a specified number of assembled and customized parts that the customer further integrates into their production process to produce market ready products. Each unit of product delivered under a customer order represents a distinct and separate performance obligation as the customer can benefit from each unit on its own or with other resources that are readily available to the customer and each unit of product is separately identifiable from other products in the arrangement. Customer orders do not include additional follow-on goods or services.
With the exception of prompt payment discounts, the transaction price for medical market products is the invoiced amount. Variable consideration in the form of refunds, credits, rebates, price concessions, pricing incentives or other items impacting transaction price are not present.
All of the Company’s products manufactured for the medical market are designed to each customer’s specifications, do not have an alternative use and cannot be sold or redirected by the Company to others. The Company considers contractual arrangements, laws and legal precedent in determining enforceable right. The Company has an enforceable right to payment for any finished or in-process units, including a reasonable margin, if the customer terminates the contract for reasons other than the Company’s failure to perform as promised within our medical diabetes market and a select customer within our other medical market. For contractual arrangements in which an enforceable right exists, control of these units is deemed to transfer to the customer over time during the manufacturing process, using the same measure of progress toward satisfying the promise to deliver the units to the customer. Consequently, the transaction price is recognized as revenue over time for contractual arrangements with an enforceable right, based on actual costs incurred in the manufacturing process to date relative to total expected costs to produce all ordered units. The transaction price for contractual arrangements without an enforceable right to payment for any finished or in-process units including a reasonable margin is recognized as revenue at a point in time.
Medical market products are invoiced when shipped and paid within normal commercial terms. The Company records a contract asset for revenue recognized over time in the production process for customized products that have not been shipped or invoiced to the customer.
Hearing health market - Customer orders from the hearing health market consist of hearing aid devices and related accessories. Each unit of product delivered under a customer order represents a distinct and separate performance obligation as the customer can benefit from each unit on its own or with other resources that are readily available to the customer and each unit of product is separately identifiable from other products in the arrangement.
With the exception of prompt payment discounts, the transaction price for the hearing health markets products is the invoiced amount. Variable consideration in the form of refunds, credits, rebates, price concessions, pricing incentives or other items impacting transaction price are not present.
Nearly all of the Company’s products manufactured for the hearing health market can be reworked without significant cost and sold to another customer in the event of the customer’s termination of an order before delivery, and therefore have an alternative use to the Company. Generally, revenue is recognized upon the transfer of control of the products which is based on shipment terms; however, in certain cases the amount of shipment is adjusted for expected future returns and related consideration received.
Professional audio market - The Company sells body-worn audio devices with application in the aviation, fire, law enforcement, safety and military markets as well as for performers and production staff in the music and stage performance markets. Each unit on a customer’s purchase order represents a distinct and separate performance obligation as the customer can benefit from each unit on its own or with other resources that are readily available to the customer and each unit is separately identifiable from the others because one does not significantly affect, modify or customize another.
Variable consideration in the form of refunds, credits, rebates, price concessions, pricing incentives or other items impacting the transaction price are not present. Invoiced amounts are deemed to approximate standalone selling price.
The products manufactured for the professional audio market can be reworked without significant cost and sold to another customer in the event of the customer’s termination of an order before delivery and therefore have an alternative use to the Company. Transfer of control of the goods, and revenue recognition, occurs at the point in time of shipment or delivery of the products to the customer depending on the applicable shipping terms. Professional audio market products are billed when shipped and paid within normal commercial terms.
Hearing health direct-to-end-consumer (DTEC) market - The hearing health DTEC business distributes hearing aids and related accessories to the end consumer and is the Company’s only business market that generates revenue from sales to the end consumer. The Company also sells a limited number of service plans for the hearing aids. Each product or service is a distinct performance obligation as each is independently useful either on its own or together with other products procured from the Company or other vendors and each product or service is separately identifiable from the others because one does not significantly affect, modify or customize another. Invoiced amounts approximate standalone selling price.
The hearing health DTEC business offers a 60-day trial period to the end consumer for hearing aids, during which customers can return the hearing aids for a full refund or exchange for a different hearing aid. The Company recognizes revenue only after completion of the 60-day trial period, when the customer’s commitment to the arrangement is deemed to exist and an enforceable right to payment is established.
The transaction price for hearing aid accessories and service plans is the invoiced amount. Variable consideration in the form of refunds, credits, rebates, price concessions, pricing incentives or other items impacting transaction price are not present. Hearing aid accessories are billed and revenue is recognized upon shipment to the customer. Invoices are paid within normal commercial terms. Annual service plans are billed along with the hearing aid at the end of the 60-day trial period or upon renewal of the service plan and paid within normal commercial terms. As the customer consumes the benefits of the service plan relatively evenly over the plan term, revenue for service plans is recognized on a straight-line basis commencing at the end of the trial period.
Sales Commissions - The Company has elected to apply the practical expedient provided by ASC 340-40-25-4 and recognize the incremental costs of obtaining contracts as an expense when incurred, as the amortization period of the assets that would have otherwise been recognized is one year or less. These costs are included in sales and marketing expenses on the Consolidated Statements of Operations.
Fair Value Measurements – The Company follows the authoritative guidance on fair value measurements and disclosures with respect to assets and liabilities that are measured at fair value on both a recurring and nonrecurring basis. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability, based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels defined as follows:
| | ● | Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities. |
| | ● | Level 2 – Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability either directly or indirectly. |
| | ● | Level 3 – Inputs are unobservable for the asset or liability. |
The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during the years ended December 31, 2021 and 2020. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.
The carrying value of cash, cash equivalents and restricted cash, accounts receivable, contract assets, 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, pension and post-retirement 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.
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.
Investment Securities – The Company invests in commercial paper, corporate notes and bonds with original maturities of less than two years. The Company classifies these investments as held to maturity based on our intent and ability to hold these investments until maturity. Investments are classified current if expected to mature within the next twelve months. These investments are recorded at amortized cost, which approximates fair value, using level 2 inputs. Investment income included in interest (expense) income, net on the Consolidated Statement of Operations was $72 and $423 during 2021 and 2020, respectively.
Accounts Receivable – Amounts recorded in receivables, net, on the Consolidated Balance Sheet include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. A provision for doubtful accounts is maintained to provide for the estimated amount of receivables that will not be collected. 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, historical trends 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 receivable. Receivables are written off once all collection attempts have failed and are based on individual credit evaluation and specific circumstances of the customer. The provision for doubtful accounts balance was $69 and $210 as of December 31, 2021 and 2020, respectively.
Inventories – Inventories are stated at the lower of cost or net realizable value. The Company reduces the carrying value of inventories for items that are determined to be excess, obsolete or slow-moving based on changes in customer demand, technology developments, or other economic factors. The cost of the inventories is determined by the first-in, first-out method.
Contract Assets - Contract assets primarily include unbilled amounts recognized as revenue for customized products manufactured for the medical market. The customized goods have no alternative use to the Company and the Company has an enforceable right to payment for performance completed to date. The Company begins revenue recognition when these goods enter the manufacturing process and continues based on a measure of progress toward completion using a cost-to-cost input method that considers labor and overhead costs incurred and materials used to date in the manufacturing process relative to total expected production costs. Given the relatively short duration of the production process, contract assets are classified as current. Contract assets are reclassified to accounts receivable upon shipment of and invoicing for the products, at which point the right to consideration becomes unconditional.
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 3 to 12 years. 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 $3,167 and $3,017 for the years ended December 31, 2021 and 2020, respectively.
Goodwill - Goodwill is reviewed for impairment annually as of October 31, or more frequently if changes in circumstances or the occurrence of events suggest impairment exists. The Company may apply a qualitative assessment to determine if it is more likely than not that goodwill is impaired. If the Company does not pass the qualitative assessment, or choses to skip the assessment, it performs a test comparing fair value of a reporting unit to its carrying value. The Company would need to recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.
The Company concluded that no impairment of goodwill occurred during the year ended December 31, 2021 or 2020.
Intangible Assets - The Company has definite-lived technology and customer relationship intangible assets that are evaluated for impairment periodically or when events or changes in circumstances indicate that the carrying amount of the intangible assets may not be recoverable. The Company evaluated the recoverability of its technology intangible assets due to delays in clinical trials to obtain the approval for new hearing products as well as the delay in the promulgation of the OTC regulations. The Company’s evaluation of the recoverability of technology intangible assets involves the comparison of undiscounted future cash flows expected to be generated by the products using these technologies over the remaining useful life of the technology assets to their respective carrying amounts. The Company’s recoverability analysis requires management to make significant estimates and assumptions related to future cash flows and the remaining useful life of the assets.
The Company concluded that no impairment of intangible assets occurred during the year ended December 31, 2021 or 2020.
Long-lived Assets – Long-lived assets are recorded at cost. The Company assesses the carrying amount for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. 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. As of December 31, 2021 and 2020 the Company has determined that no impairment of long-lived assets exists.
Leases – At inception of a contract a determination is made whether an arrangement meets the definition of a lease. A contract contains a lease if there is an identified asset and the Company has the right to control the asset. Operating leases are recorded as right-of-use (“ROU”) assets with corresponding current and noncurrent operating lease liabilities on our Consolidated Balance Sheets. Financing leases are included within property, plant, and equipment with corresponding current and noncurrent financing lease liabilities on our Consolidated Balance Sheets.
ROU assets represent our right to use an underlying asset for the duration of the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Recognition on the commencement date is based on the present value of lease payments over the lease term using an incremental borrowing rate. Leases with a term of 12 months or less at the commencement date are not recognized on the balance sheet and are expensed as incurred.
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all asset classes. Leases are accounted for at a portfolio level when similar in nature with identical or nearly identical provisions and similar effective dates and lease terms.
Investment in Partnership – Certain of the Company’s investments in equity securities are long-term, strategic investments in companies. Depending on whether the Company has significant influence over the entity, the Company accounts for these investments under the cost or equity method of accounting. Under the cost method, the Company records the investment at the amount the Company paid and recognizes income as dividends are paid. Under the equity method, the Company records the investment at the amount the Company paid and adjusts for the Company’s share of the investee’s income or loss and dividends paid. The investments are reviewed quarterly for changes in circumstances or the occurrence of events that suggest the Company’s investment may not be recoverable.
Contingent Consideration - Contingent consideration liabilities relate to estimated future payments in connection with the purchase of EMS. Contingent consideration liabilities depend on certain future events and are measured at fair value based on various level 3 inputs and assumptions including forecasts, probabilities of payment and discount rates. Amounts are classified current if expected to be paid within the next twelve months and recorded on the Consolidated Balance Sheets within other accrued liabilities. Noncurrent liabilities are classified on the Consolidated Balance Sheets within other long-term liabilities. The liabilities for contingent consideration are subject to fair value adjustments each reporting period that will be recognized through the Statement of Operations.
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, operating losses 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 allowances are established to the extent the 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 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, 2021 and 2020, 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 2003-2005, 2009-2013, 2016 and 2018.
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 the obligation is recorded on the Consolidated Balance Sheet as accrued pension liabilities.
Assumptions about the discount rate and the expected rate of return on plan assets are determined by the Company. 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 Based Compensation and Equity Plans – Under the Company stock-based compensation plans, executives, employees and outside directors receive awards of options to purchase common stock and restricted stock units. Under all awards, the terms are fixed at the grant date. For stock options, the exercise price 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. The Company expenses grant-date fair values of stock options, based on the Black-Scholes model, ratably over the vesting period of the related share-based award. Restricted stock units are valued based on the closing stock price on the date of the grant and are expensed evenly over the vesting period. The restricted stock units vest in equal, annual installments over a three-year period beginning on the first anniversary of the date of grant at which time common stock is issued with respect to vested units. The plans also permit the granting of stock awards, stock appreciation rights, restricted stock and other equity-based awards.
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. Historically, the Company has not incurred any significant amounts of warranty expense on its products.
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 amounted to $291 and $644 in 2021 and 2020, respectively, and are charged to expense when incurred.
Research and Development Costs – Research and development costs, net of customer funding, amounted to $5,315 and $5,248 in 2021 and 2020, respectively, and are charged to expense when incurred, net of customer funding. The Company accrues proceeds received under governmental grants when earned and estimable as a reduction to research and development expense.
Customer Funded Tooling Costs – The Company designs and develops molds and tools for reimbursement on behalf of several customers. The Company does not consider tooling transactions as ongoing central operations of the Company, and therefore, customer payments are not included in revenue in the Consolidated Statements of Operations. 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 expenses of $552, and $387 for the years ended December 31, 2021 and 2020, respectively, and is included in cost of goods sold 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 awards.
Comprehensive Income (Loss) – Comprehensive income (loss) consists of net income (loss), pension and post-retirement obligations and foreign currency translation adjustments and is presented in the consolidated statements of comprehensive (loss) income.
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 equity.
Subsequent Event Policy – The Company has evaluated events occurring after the date of the consolidated financial statements for events requiring recording or disclosure in the consolidated financial statements.
Reclassification - Certain prior year amounts have been reclassified for consistency with the current year presentation. The adjustments include (1) the additional revenue market of Interventional Catheters which was reclassified from Other Medical in Footnote 4 Revenue Recognition, and (2) the addition of Acquisition costs as a separate line item from Other operating expenses within Operating Expenses on the Consolidated Statement of Operations, and (3) the line items Other postretirement benefit obligations and Accrued pension liabilities reported separately in the prior year have been combined and reported in the current year as Pension and postretirement benefit obligations. These reclassifications had no impact on the reported results of operations.
Recent Accounting Pronouncements
In April 2020, the FASB issued ASU 2020-04, Reference Rate Reform Topic 848, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. Topic 848 provides optional expedients and exceptions for applying U.S. GAAP to transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 is effective as of March 12, 2020. This standard update did not have a material impact on our financial position, results of operations and cash flow.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses Topic 326, which requires certain financial assets to be measured at amortized cost net of an allowance for estimated credit losses, such that the net receivable represents the present value of expected cash collection. In addition, this standard update requires that certain financial assets be measured at amortized cost reflecting an allowance for estimated credit losses expected to occur over the life of the assets. The estimate of credit losses must be based on all relevant information including historical information, current conditions, and reasonable and supportable forecasts that affect the collectability of the amounts. Topic 326 is effective for interim and annual periods beginning January 1, 2022 for smaller reporting companies. This standard update did not have a material impact on our financial position, results of operations and cash flows.
2. BUSINESS COMBINATION
On May 18, 2020, Intricon Pte. Ltd. (“Buyer”), a wholly-owned subsidiary of the Company, acquired all of the outstanding shares of Emerald Medical Services Pte., Ltd., a Singapore company (“EMS”), pursuant to a Share Purchase Agreement dated the same date among Buyer, EMS and the direct and indirect owners of EMS. EMS, based in Singapore, is a provider of joint development medical device manufacturing services for complex catheter applications.
In addition, EMS has a 54% ownership interest in Emerald Extrusion Services LLC. (“EES), based in California. Based on this controlling financial interest, the Company has consolidated this entity. The remaining ownership is accounted for as a non-controlling interest and reported as part of equity in the Consolidated Balance Sheets.
The total purchase price of $11,815 consisted of a cash payment paid at closing of $7,128, including a post-closing working capital adjustment of $291, the issuance of 80 thousand shares of the Company’s common stock valued at $982 issued at closing, which shares will be held in an escrow account for a period of 18 months to resolve any post-closing claims by the Buyer, as well as a liability for contingent consideration of $3,414. The liability for contingent consideration consisted of a cash payment of $500 payable in the event that regulatory approval in Japan was obtained for a particular product within twelve months of closing, an earn-out payment of between $333 and $1,000 if EMS has net revenues ranging from $9.0 million to $11.0 million during the first year after closing, and additional earn-out payments equal to 28% of all EMS net revenues arising from the sale of certain products or to certain customers for each of the first three years after closing. The liability for contingent consideration is a fair value measurement based on various level 3 inputs using a scenario-based method. The key assumptions included forecasts of future revenues and the selection of the discount rate for the contingent consideration liability. The liability for contingent consideration is subject to fair value adjustments each reporting period that will be recognized through the statement of operations.Japan regulatory approval resulted in a cash payment of $500 to the sellers under the EMS purchase agreement during the fourth quarter of 2020. In addition, a cash payment of $1,000 was made to the sellers in July 2021 for meeting certain first year revenue goals. As of December 31, 2021 the remaining contingent consideration liability consisted of 28% of all EMS net revenues arising from the sale of certain products or to certain customers for the second and third year periods.
At the time of the acquisition, May 18, 2020, certain Level 3 inputs were used to determine the fair value measurement of the contingent consideration liability. These included revenue volatility of 20%, weighted average cost of capital of 25% and a discount rate of 3.5%. None of these inputs have changed as of December 31, 2021. Significant increases or decreases in these inputs in isolation could result in a significant impact on our fair value measurement.
The reconciliation of the contingent consideration liability measured and carried at fair value on a recurring basis is as follows:
| Carrying amount at December 31, 2019 | | $ | - | |
| Addition for acquisition of Emerald Medical Services | | | 3,414 | |
| Change in fair value | | | 660 | |
| Less payments | | | (500 | ) |
| Carrying amount at December 31, 2020 | | $ | 3,574 | |
| Change in fair value | | | (739 | ) |
| Less payments | | | (1,052 | ) |
| Carrying amount at December 31, 2021 | | $ | 1,783 | |
Since the acquisition, the Company has paid $1,552 of the original contingent consideration liabilities. As of December 31, 2021, approximately $1,783 remains contingent on future performance. During the period ended December 31, 2020, we recorded an increase of $660 to the fair value of contingent consideration due to forecasted revenue exceeding certain sales thresholds during the first year after closing. For the period ended December 31, 2021, we recorded a $739 change in fair value of contingent consideration within other operating expenses as a decrease in the fair value of future estimated payments due to a decrease in revenue forecasts tied to the contingent consideration.
In connection with the acquisition, the Company recorded acquisition costs of $493 for the year ended December 31, 2020 related to legal, professional fees and other miscellaneous costs. These costs are recorded within acquisition costs within the Consolidated Statements of Operations.
Our Consolidated Statements of Operations for the year ended December 31, 2021 include revenues of $14,573 and net income of $1,212 attributable to EMS and EES. Our Consolidated Statements of Operations for the year ended December 31, 2020 include revenues of $7,361 and a net loss of ($30) attributable to EMS and EES for the period from May 19 through December 31, 2020.
The final purchase price allocation of the fair value of the assets acquired and liabilities assumed is included in the table below. Cash consideration of $7,128 was paid at closing, including a post-closing working capital adjustment of $291, the issuance of 80 shares of the Company's common stock valued at $982 issued at closing, which resulted in preliminary goodwill of $4,041. We recorded identifiable assets acquired and liabilities assumed at their estimated fair value on the acquisition date and we had up to one year from the acquisition date to finalize the purchase price allocation. An intangible asset of $6,400 was recorded related to the value of identifiable customer relationships acquired. This intangible is being amortized over an 8-year useful life. Since the acquisition date, we recorded purchase accounting adjustments as increases to goodwill of $122 and $159 in 2020 and 2021 respectively, within our Consolidated Balance Sheets. The final goodwill generated from the acquisition of $4,322 represents the benefits of increased operating scale and growth opportunities through currently unidentifiable customers. The goodwill balance is not amortizable for tax purposes.
The final purchase price was allocated as follows:
| Current assets | | $ | 3,161 | |
| Machinery and equipment | | | 360 | |
| Intangible assets | | | 6,400 | |
| Goodwill | | | 4,322 | |
| Noncurrent assets | | | 169 | |
| Current liabilities | | | (1,105 | ) |
| Noncurrent liabilities | | | (1,492 | ) |
| Total consideration paid | | $ | 11,815 | |
3. RESTRUCTURING CHARGES
On May 20, 2020, the Company announced a strategic restructuring plan designed to accelerate the Company’s future growth by focusing resources on the highest potential growth areas. The plan, which was approved by the Company’s Board of Directors (“Board”), was completed as of June 30, 2020, and consisted primarily of transitioning our direct-to-end-consumer operations at Hearing Help Express to solely support partnership initiatives including the reduction of advertising expenses as well as global net workforce reductions. Total restructuring charges for the year ended December 31, 2020 were $1,171, including $732 related to one-time employee termination benefits, $326 for lease modification costs at Hearing Help Express and $113 for losses on disposal of assets.
4. REVENUE RECOGNITION
Revenue is measured based on consideration specified in the contract with a customer. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer. For contractual arrangements in which an enforceable right to payment exists, control of these units is deemed to transfer over time during the manufacturing process. Consequently, the transaction price is recognized over time. The transaction price for contractual arrangements without enforceable right to payment including a reasonable margin is recognized as revenue at a point in time.
The Company's revenue recognition policy is further detailed in "Note 1: Summary of Significant Accounting Policies".
The following tables set forth, for the periods indicated, net revenue by market:
Timing of revenue recognition for the year ended December 31, 2021:
| | | Products and services transferred at point in time | | | Products and services transferred over time | | | Total | |
| | | | | | | | | | | | | |
| Diabetes | | $ | - | | | $ | 69,733 | | | $ | 69,733 | |
| Interventional Catheters | | | 14,572 | | | | - | | | | 14,572 | |
| Other Medical | | | 8,725 | | | | 5,359 | | | | 14,084 | |
| Hearing Health Value Based DTEC | | | 3,479 | | | | - | | | | 3,479 | |
| Hearing Health Value Based ITEC | | | 8,048 | | | | - | | | | 8,048 | |
| Hearing Health Legacy OEM | | | 10,848 | | | | - | | | | 10,848 | |
| Professional Audio Communications | | | 4,442 | | | | - | | | | 4,442 | |
| Total Revenue, net | | $ | 50,114 | | | $ | 75,092 | | | $ | 125,206 | |
Timing of revenue recognition for the year ended December 31, 2020:
| | | Products and services transferred at point in time | | | Products and services transferred over time | | | Total | |
| | | | | | | | | | | | | |
| Diabetes | | $ | - | | | $ | 59,311 | | | $ | 59,311 | |
| Interventional Catheters | | | 7,361 | | | | - | | | | 7,361 | |
| Other Medical (a) | | | 6,677 | | | | 5,688 | | | | 12,365 | |
| Hearing Health Value Based DTEC | | | 4,430 | | | | - | | | | 4,430 | |
| Hearing Health Value Based ITEC | | | 5,558 | | | | - | | | | 5,558 | |
| Hearing Health Legacy OEM | | | 8,968 | | | | - | | | | 8,968 | |
| Professional Audio Communications | | | 4,780 | | | | - | | | | 4,780 | |
| Total Revenue, net | | $ | 37,774 | | | $ | 64,999 | | | $ | 102,773 | |
(a) During the quarter ended March 31, 2020, we recorded a cumulative adjustment of $1.2 million to reduce revenue within our other medical market to correct an error related to prior periods as a result of our determination that a portion of our sales being recognized over time needed to be recognized at a point in time. The adjustment included a reduction to the related cost of goods sold of $0.8 million and related impacts to reduce the contract asset and increase to inventory. The adjustment was not material to our Consolidated Financial Statements for any quarterly or annual period.
Net revenue by geography is allocated based on shipment location and set forth below:
| | | Year Ended December 31, | |
| Net Revenue to Geographical Areas | | 2021 | | | 2020 | |
| United States | | $ | 92,921 | | | $ | 75,326 | |
| Europe | | | 6,561 | | | | 5,501 | |
| Asia | | | 12,554 | | | | 11,476 | |
| All other countries | | | 13,170 | | | | 10,470 | |
| Consolidated | | $ | 125,206 | | | $ | 102,773 | |
Geographic net revenue is allocated based on shipment location of the Company's direct OEM customers. These customers then distribute products globally.
For the years ended December 31, 2021 and 2020, one customer accounted for 64% and 63% respectively, of the Company's consolidated net revenue.
Two customers combined accounted for 44% and 69% of the Company's consolidated accounts receivable at December 31, 2021 and December 31, 2020, respectively.
Two customers accounted for 100% of the Company's consolidated contract assets at December 31, 2021 and December 31, 2020.
5. LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss per share:
| | | Year Ended December 31, | |
| | | 2021 | | | 2020 | |
| Numerator: | | | | | | | | |
| Net loss | | $ | (64 | ) | | $ | (2,489 | ) |
| Less: Income allocated to non-controlling interest | | | (42 | ) | | | (35 | ) |
| Net loss attributable to Intricon shareholders | | $ | (106 | ) | | $ | (2,524 | ) |
| | | | | | | | | |
| Denominator: | | | | | | | | |
| Basic – weighted shares outstanding | | | 9,082 | | | | 8,894 | |
| Dilutive effect from stock awards | | | - | | | | - | |
| Diluted – weighted shares outstanding | | | 9,082 | | | | 8,894 | |
| | | | | | | | | |
| | | | | | | | | |
| Basic loss per share attributable to Intricon shareholders | | $ | (0.01 | ) | | $ | (0.28 | ) |
| Net loss per share: | | $ | (0.01 | ) | | $ | (0.28 | ) |
| | | | | | | | | |
| | | | | | | | | |
| Diluted loss per share attributable to Intricon shareholders | | $ | (0.01 | ) | | $ | (0.28 | ) |
| Net loss per share: | | $ | (0.01 | ) | | $ | (0.28 | ) |
Earnings per common share was based on the weighted average number of common shares outstanding during the periods when computing the basic earnings per share. When dilutive, stock options are included as equivalents using the treasury stock method when computing the diluted earnings per share. Shares represented by RSUs are also included in the dilution calculation, net of assumed proceeds and equivalent share repurchases. The Company excluded all stock awards outstanding in 2021 and 2020 from the computation of the diluted income per share because their effect would be anti-dilutive due to the Company’s net loss for all periods presented.
6. DOMESTIC AND FOREIGN INCOME TAXES
Domestic and foreign income taxes (benefits) were comprised as follows:
| Year Ended December 31, | | 2021 | | | 2020 | |
| Current | | | | | | | | |
| Federal | | $ | - | | | $ | (74 | ) |
| State | | | 13 | | | | 10 | |
| Foreign | | | 267 | | | | 157 | |
| Total Current | | $ | 280 | | | $ | 93 | |
| Deferred | | | | | | | | |
| Federal | | | - | | | | 74 | |
| State | | | - | | | | - | |
| Foreign | | | (145 | ) | | | (106 | ) |
| Total Deferred | | $ | (145 | ) | | $ | (32 | ) |
| Income Tax Expense | | $ | 135 | | | $ | 61 | |
| Income (loss) before income taxes | | | | | | | | |
| Foreign | | | 1,217 | | | | (255 | ) |
| Domestic | | | (1,146 | ) | | | (2,173 | ) |
| Total | | $ | 71 | | | $ | (2,428 | ) |
The following is a reconciliation of the statutory federal income tax rate to the effective tax rate based on income (loss):
| | | Year Ended December 31, | |
| | | 2021 | | | 2020 | |
| Tax provision at statutory rate | | | 21.0 | % | | | 21.0 | % |
| Change in valuation allowance | | | 1,019.8 | | | | (27.6 | ) |
| Impact of permanent items, including stock based compensation expense and impairment loss | | | (898.8 | ) | | | 11.0 | |
| Effect of foreign tax rates | | | (52.0 | ) | | | (0.8 | ) |
| State taxes net of federal benefit | | | (260.2 | ) | | | (3.9 | ) |
| Prior year provision to return true-up | | | 363.4 | | | | (3.2 | ) |
| Non-controlling interest | | | - | | | | 1.0 | |
| Domestic and foreign income tax rate | | | 193.2 | % | | | (2.5 | )% |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2021, and 2020 are presented below:
| | | Year Ended December 31, | |
| | | 2021 | | | 2020 | |
| Deferred tax assets: | | | | | | | | |
| Net operating loss carry forwards | | $ | 8,605 | | | $ | 8,486 | |
| Inventory | | | 570 | | | | 548 | |
| Compensation accruals | | | 1,310 | | | | 1,161 | |
| Accruals and reserves | | | 95 | | | | 92 | |
| Credits | | | 235 | | | | 235 | |
| Contract assets | | | 1,989 | | | | 1,573 | |
| Other | | | 118 | | | | 134 | |
| Total Deferred tax assets | | | 12,922 | | | | 12,229 | |
| Less: valuation allowance | | | (12,013 | ) | | | (11,395 | ) |
| Deferred tax assets net of valuation allowance | | $ | 909 | | | $ | 834 | |
| | | | | | | | | |
| Deferred tax liabilities | | | | | | | | |
| Depreciation and amortization | | | (909 | ) | | | (844 | ) |
| Identified intangibles | | | (873 | ) | | | (1,008 | ) |
| Total deferred tax liabilities | | | (1,782 | ) | | | (1,852 | ) |
| Net deferred tax | | $ | (873 | ) | | $ | (1,018 | ) |
The valuation allowance is maintained against deferred tax assets which the Company has determined are more likely than not to be unrealized. The change in valuation allowance was ($618) and ($790) for the years ended December 31, 2021 and 2020, respectively. For tax reporting purposes, the Company has actual federal and state net operating loss carryforwards of $35,933 and $14,381, respectively, as of December 31, 2021. These net operating loss carryforwards begin to expire in 2023 for federal tax purposes and began to expire in 2020 for state tax purposes. Subsequently recognized tax benefits, if any, related 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.
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 able 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 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 has analyzed all tax positions for which the statute of limitations remains open. As a result of the assessment, the Company has not recorded any liabilities for unrecognized income tax benefits or retained earnings. The Company does not have any unrecognized tax benefits as of December 31, 2021 and 2020.
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. The Company is still subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years 2003 to 2005, 2009 to 2013, 2016 and 2018. There are no on-going or pending IRS, state, or foreign examinations.
The Company recognizes penalties and interest accrued related to liability on unrecognized tax benefits in income tax expense for all periods presented. As of December 31, 2021, and 2020, the Company has no amounts accrued for the payment of interest and penalties.
The Tax Cuts and Jobs Act enacted in December of 2017 introduced a new Global Intangible Low-Taxed Income (“GILTI”) provision that requires certain income earned by foreign subsidiaries to be included currently in the gross income of the U.S. shareholder. The Company has chosen to treat GILTI as a current-period cost when incurred.
7. INVENTORIES
Inventories consisted of the following:
| | | Raw materials | | | Work-in process | | | Finished products and components | | | Total | |
| December 31, 2021 | | | | | | | | | | | | | | | | |
| Domestic | | $ | 15,201 | | | $ | 760 | | | $ | 1,892 | | | $ | 17,853 | |
| Foreign | | | 5,579 | | | | 747 | | | | 277 | | | | 6,603 | |
| Total | | $ | 20,780 | | | $ | 1,507 | | | $ | 2,169 | | | $ | 24,456 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2020 | | | | | | | | | | | | | | | | |
| Domestic | | $ | 11,371 | | | $ | 1,499 | | | $ | 2,149 | | | $ | 15,019 | |
| Foreign | | | 3,393 | | | | 968 | | | | 133 | | | | 4,494 | |
| Total | | $ | 14,764 | | | $ | 2,467 | | | $ | 2,282 | | | $ | 19,513 | |
Inventories are net of reserves of $2,908 and $2,479 for the years ended December 31, 2021 and 2020, respectively.
8. Property, Plant, and Equipment
The geographical distribution of long-lived assets net of accumulated depreciation, consisting of machinery and equipment is forth below:
| | | December 31, | | | December 31, | |
| | | 2021 | | | 2020 | |
| United States | | $ | 12,337 | | | $ | 12,539 | |
| Singapore | | | 1,346 | | | | 1,460 | |
| Other | | | 154 | | | | 178 | |
| Consolidated | | $ | 13,837 | | | $ | 14,177 | |
Long-lived assets consist of machinery and equipment with useful lives from 3 to 12 years. Depreciation expenses of $3,167 and $3,017 were recognized in fiscal years 2021 and 2020, respectively.
9. GOODWILL
The changes in the carrying amount of goodwill for the years presented are as follows:
| Carrying amount at December 31, 2019 | | $ | 9,551 | |
| Acquisition of Emerald Medical Services | | | 4,163 | |
| Carrying amount at December 31, 2020 | | | 13,714 | |
| Purchase accounting adjustment | | | 159 | |
| Carrying amount at December 31, 2021 | | $ | 13,873 | |
10. INTANGIBLE ASSETS
The changes in the carrying amount of intangible assets for the years presented are as follows:
| Carrying amount at December 31, 2019 | | $ | 5,545 | |
| Acquisition of Emerald Medical Services | | | 6,400 | |
| Additional self-fitting software costs | | | 296 | |
| Amortization of intangible assets | | | (1,456 | ) |
| Carrying amount at December 31, 2020 | | $ | 10,785 | |
| Technology access costs | | | 221 | |
| Amortization of intangible assets | | | (2,007 | ) |
| Carrying amount at December 31, 2021 | | $ | 8,999 | |
Intangible assets consisted of the following at:
| | | December 31, 2021 | |
| | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | |
| Customer list | | $ | 6,400 | | | $ | (1,267 | ) | | $ | 5,133 | |
| Technology intangibles | | | 6,946 | | | | (3,080 | ) | | | 3,866 | |
| Total | | $ | 13,346 | | | $ | (4,347 | ) | | $ | 8,999 | |
| | | December 31, 2020 | |
| | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | |
| Customer list | | $ | 6,400 | | | $ | (467 | ) | | $ | 5,933 | |
| Technology intangibles | | | 6,725 | | | | (1,873 | ) | | | 4,852 | |
| Total | | $ | 13,125 | | | $ | (2,340 | ) | | $ | 10,785 | |
Original useful lives for the customer list and technology intangible assets are between 5 and 8 years.
11. INVESTMENT IN PARTNERSHIP
Investment in partnership consisted of the following:
| | | December 31, | | | December 31, | |
| | | 2021 | | | 2020 | |
| Investment in Signison | | $ | 226 | | | $ | 418 | |
| Other | | | 247 | | | | 152 | |
| Total | | $ | 473 | | | $ | 570 | |
The Company has a 50% ownership interest in Signison as of December 31, 2021 and 2020. Signison is accounted for in the Company’s consolidated financial statements using the equity method.
12. INVESTMENT SECURITIES
The Company invests in commercial paper, corporate notes and bonds with original maturities of less than two years. The Company classifies these investments as held to maturity based on its intent and ability to hold these investments until maturity. Investments are classified current if expected to mature within the next twelve months. These investments are recorded at amortized cost, which approximates fair value, using level 2 inputs. Amortization related to discounts on investment securities was $241 and $51 in 2021 and 2020, respectively.
The maturity dates of our investments as of December 31, 2021 are as follows:
| | | Less than one year | | | 1-5 years | | | Total | |
| Commercial Paper Original Maturities of 91 Days or More | | $ | 10,987 | | | $ | - | | | $ | 10,987 | |
| Corporate Notes and Bonds | | | 8,433 | | | | 4,558 | | | | 12,991 | |
| Total Investments | | $ | 19,420 | | | $ | 4,558 | | | $ | 23,978 | |
The maturity dates of our investments as of December 31, 2020 are as follows:
| | | Less than one year | | | 1-5 years | | | Total | |
| Commercial Paper Original Maturities of 91 Days or More | | $ | 7,490 | | | $ | - | | | $ | 7,490 | |
| Corporate Notes and Bonds | | | 12,303 | | | | 5,085 | | | | 17,388 | |
| Total Investments | | $ | 19,793 | | | $ | 5,085 | | | $ | 24,878 | |
The Company also maintains excess funds within level 1 money market accounts included within cash and cash equivalents. Cash available in our money market accounts at December 31, 2021 and December 31, 2020 was $2,943 and $6,697, respectively.
13. OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following at:
| | | December 31, 2021 | | | December 31, 2020 | |
| Pension and postretirement benefit obligations | | $ | 177 | | | $ | 188 | |
| Deferred revenue | | | 141 | | | | 184 | |
| Current technology access liability | | | 493 | | | | 1,006 | |
| Current earn-out contingent consideration liability | | | 148 | | | | 1,090 | |
| Customer funded projects | | | 340 | | | | 759 | |
| TCPA litigation accrual (Note 19) | | | 1,300 | | | | - | |
| Accrued corporate expenses | | | 237 | | | | 110 | |
| Other | | | 982 | | | | 898 | |
| Total | | $ | 3,818 | | | $ | 4,235 | |
The technology access liability, reflected above, relates to amounts owed related to the Company's wireless and self-fitting hearing aid technologies.
The earn-out liability is contingent on certain future events and is measured at fair value based on various level 3 inputs and assumptions including forecasts, probabilities of payment and discount rates. Amounts are classified as current if expected to be paid within the next twelve months. The liability for contingent consideration is subject to fair value adjustments each reporting period that will be recognized through the Statement of Operations. See Note 2.
14. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following at:
| | | December 31, | | | December 31, | |
| | | 2021 | | | 2020 | |
| Noncurrent technology intangible liability | | $ | 541 | | | $ | 1,039 | |
| Noncurrent earn-out contingent consideration liability | | | 1,635 | | | | 2,484 | |
| Litigation liability (Note 19) | | | 709 | | | | 721 | |
| Other | | | 215 | | | | 154 | |
| Total | | $ | 3,100 | | | $ | 4,398 | |
15. LEASES
The Company’s leases pertain primarily to engineering, manufacturing, sales and administrative facilities, with an initial term of one year or more. The Company has three leased facilities in Minnesota, two that expire in 2022 and one that expires in 2023, one leased facility in Illinois that expires in 2022, two leased facilities in California that expire in 2022 and 2024, one leased facility in Singapore that expires in 2025, one leased facility in Indonesia that expires in 2027, and one leased facility in Germany that expires in 2022. Effective January 2022, the Company renewed the lease of its headquarters in Arden Hills, Minnesota, which was set to expire. The renewed lease terms were extended to January 2027.
Certain foreign leases allow for variable lease payments that depend on an index or a market rate adjustment for the respective country and are adjusted on an annual basis. The adjustment is recognized as incurred in the Consolidated Statement of Operations. The facility leases include options to extend for terms ranging from one year to five years. Lease options that the Company is reasonably certain to execute are included in the determination of the ROU asset and lease liability. The Company also leases equipment that include bargain purchase options at termination. These leases have been classified as finance leases.
As of December 31, 2021, the Company has a weighted-average lease term of 0.4 years for its finance leases, and 3.3 years for its operating leases. As of December 31, 2021, the Company has a weighted-average discount rate of 5.56% for its finance leases, and 4.98% for its operating leases. As of December 31, 2020, the Company has a weighted-average lease term of 0.8 years for its finance leases, and 3.8 years for its operating leases. As of December 31, 2020, the Company has a weighted-average discount rate of 5.56% for its finance leases, and 5.06% for its operating leases. Discount rates are determined based on 5-year term incremental borrowing rates at inception of the lease. Operating cash flows for the year ended December 31, 2021, and 2020 from operating leases were $2,395 and $1,950, respectively. Financing lease assets are classified as property, plant and equipment within the Consolidated Balance Sheet.
The following table summarizes lease costs by type:
| Year Ended December 31, | | 2021 | | | 2020 | |
| Lease cost | | | | | | | | |
| Finance lease cost: | | | | | | | | |
| Amortization of right-of-use assets | | $ | 21 | | | $ | 88 | |
| Interest on lease liabilities | | | 1 | | | | 3 | |
| | | | | | | | | |
| Operating lease cost | | | 2,369 | | | | 1,926 | |
| Variable lease cost* | | | 397 | | | | 611 | |
| Total lease cost | | $ | 2,788 | | | $ | 2,628 | |
*Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for our domestic and foreign building leases.
Maturities of lease liabilities are as follows:
| | | Operating Leases | | | Financing Leases | | | Total | |
| 2022 | | $ | 2,051 | | | $ | 4 | | | $ | 2,055 | |
| 2023 | | | 1,492 | | | | - | | | | 1,492 | |
| 2024 | | | 1,146 | | | | - | | | | 1,146 | |
| 2025 | | | 882 | | | | - | | | | 882 | |
| 2026 and thereafter | | | 128 | | | | - | | | | 128 | |
| Total lease payments | | | 5,699 | | | | 4 | | | | 5,703 | |
| Less: Interest | | | (461 | ) | | | - | | | | (461 | ) |
| Present value of lease liabilities | | $ | 5,238 | | | $ | 4 | | | $ | 5,242 | |
16. CURRENCY TRANSLATION AND TRANSACTION ADJUSTMENTS
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 equity, net of tax, where appropriate.
Realized foreign currency transaction amounts included in the Consolidated Statements of Operations include losses of $173 and $131 in 2021 and 2020, respectively.
17. ACCUMULATED OTHER COMPREHENSIVE INCOME
The Company records deferred gains (losses) in accumulated other comprehensive income (AOCI) related to foreign currency translation and actuarial gains (losses) related to pension and postretirement obligations. The Company recognized $83 and $20 out of AOCI and into net income for the years ended December 31, 2021 and 2020, respectively.
Balances by classification included within AOCI on the Consolidated Balance Sheets as of December 31, were as follows:
| | | 2021 | | | 2020 | |
| Foreign currency translation | | $ | (40 | ) | | $ | (344 | ) |
| Pension and postretirement obligations | | | (353 | ) | | | (335 | ) |
| Total | | $ | (393 | ) | | $ | (679 | ) |
18. SHAREHOLDERS' EQUITY
The Company has a 2006 Equity Incentive Plan and an Amended and Restated 2015 Equity Incentive Plan. The 2015 plan, which was approved by the shareholders on April 24, 2015, replaced the 2006 plan. New grants may not be made under the 2006 plan; however certain option grants under these plans remain exercisable as of December 31, 2021. The aggregate number of shares of common stock for which awards could be granted under the 2015 plan as of the date of adoption was 500 shares. Additionally, as outstanding options under the 2006 plan or 2015 plan expire, terminate, are cancelled or forfeited or are withheld in a net exercise or for withholding taxes, the shares of the Company’s common stock subject to such options will become available for issuance under the 2015 plan. The 2015 plan was amended and restated in 2020 to reflect certain corporate governance changes and to increase the number of shares of common stock that could be awarded under the 2015 plan by 500 shares, which was approved by shareholders on May 4, 2021.
Under the plans, executives, employees and outside directors receive awards of restricted stock units (RSUs), performance based restricted stock units (PRSUs) and/or options to purchase common stock. The Company may also grant stock awards, stock appreciation rights, restricted stock and other equity-based awards. 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. RSUs generally vest over three years, except that RSUs granted to directors in 2021 vest over one year. PRSUs vest upon the achievement of designated financial performance targets(s). Options under the plans generally vest over three years, and have a maximum term of 10 years.
The Company granted 130 RSUs, which is inclusive of 13 PRSUs for the year ended December 31, 2021. The RSUs vest in equal, annual installments over a three-year period beginning on the first anniversary of the date of grant at which time common stock is issued with respect to vested units except that RSUs granted to directors in 2021 vest over one year. The PRSUs will vest depending upon the achievement of total revenue in specific markets during 2023 at a threshold level (below which no PRSUs will vest), a target level and a maximum level (at which the maximum number of PRSUs will vest). The number of PRSUs that will vest between the threshold, target and maximum levels will be prorated.
Stock award activity during the periods indicated was as follows:
| | | Outstanding Awards | | | | | | | | | |
| | | Stock Options | | | RSUs | | | Total | | | Stock Option Weighted-Average Exercise Price (a) | | | Aggregate Intrinsic Value | |
| Outstanding at December 31, 2019 | | | 746 | | | | 128 | | | | 874 | | | | 6.39 | | | | | |
| Awards forfeited or cancelled | | | (1 | ) | | | (5 | ) | | | (6 | ) | | | 5.72 | | | | | |
| Awards granted | | | - | | | | 146 | | | | 146 | | | | - | | | | | |
| Awards exercised or released | | | (55 | ) | | | (52 | ) | | | (107 | ) | | | 4.88 | | | | | |
| Outstanding at December 31, 2020 | | | 690 | | | | 217 | | | | 907 | | | $ | 6.51 | | | | | |
| Awards forfeited or cancelled | | | (12 | ) | | | (4 | ) | | | (16 | ) | | | 5.48 | | | | | |
| Awards granted | | | - | | | | 130 | | | | 130 | | | | - | | | | | |
| Awards exercised or released | | | (131 | ) | | | (126 | ) | | | (257 | ) | | | 5.85 | | | | | |
| Outstanding at December 31, 2021 | | | 547 | | | | 217 | | | | 764 | | | $ | 6.69 | | | $ | 8,696 | |
| | | | | | | | | | | | | | | | | | | | | |
| Exercisable at December 31, 2020 | | | 690 | | | | | | | | 690 | | | $ | 6.51 | | | $ | 7,997 | |
| | | | | | | | | | | | | | | | | | | | | |
| Exercisable at December 31, 2021 | | | 547 | | | | | | | | 547 | | | $ | 6.69 | | | $ | 5,186 | |
| | | | | | | | | | | | | | | | | | | | | |
| Available for future grant at December 31, 2021 | | | | | | | | | | | 497 | | | | | | | | | |
The number of shares available for future grant at December 31, 2021, does not include a total of up to 215 shares subject to options outstanding under the 2006 plan which will become available for grant under the 2015 plan as outstanding options under the 2006 plan expire, terminate, are cancelled or forfeited or are withheld in a net exercise or for withholding taxes of such options.
The weighted-average remaining contractual term of options exercisable and options outstanding at December 31, 2021 was 3.5 years. The total intrinsic value of options exercised during fiscal 2021 and 2020, was $2,076 and $514, respectively. No options were issued in 2021 and 2020.
The weighted-average per share grant date fair value of restricted stock units granted was $21.35 in 2021 and $14.92 in 2020.
The Company recorded $2,184 and $2,382 of non-cash stock compensation expense for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, there was $2,168 of total non-cash stock compensation expense related to non-vested awards that is expected to be recognized over a weighted-average period of 1.72 years. During the year ended December 31, 2020, the Company recorded a cumulative non-cash stock compensation expense adjustment of $422 for individuals who are retirement eligible and therefore have vested in stock awards according to our plan. The adjustment was not material to our Consolidated Financial Statements.
The Company also has an Employee Stock Purchase Plan (the “Purchase Plan”). The Purchase Plan, as amended, provides that a maximum of 300 shares may be sold under the Purchase Plan. There were 12, and 16 shares purchased under the Purchase Plan during the years ended December 31, 2021 and 2020, respectively.
19. CONTINGENCIES AND COMMITMENTS
Asbestos Litigation
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, or have accepted the tenders but asserted a reservation of rights, or advised the Company that they need to investigate further. In addition, some of the primary and excess insurers have gone out of business, and thus coverage is not available. There are also some primary policies for years earlier than 1970 that were purchased by the Company, and coverage under those policies will be investigated. 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, most 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. As of December 31, 2021, we recorded $129 and $709 within other accrued liabilities and other long-term liabilities, respectively, within our Consolidated Balance Sheet for estimated future claims. An insurance receivable of $129 and $709 was recorded within other current assets and other assets, net, respectively, within our Consolidated Balance Sheet as of December 31, 2021 for estimated insurance recoveries.
TCPA Litigation
On October 9, 2019, plaintiff Mark Hoffman (“Hoffman”) filed a putative class action lawsuit against defendant Hearing Help Express, Inc. (“HHE”), a subsidiary of the Company, in the Federal District Court for the Western District of Washington (the "Court") alleging violations of the federal Telephone Consumer Protection Act (“TCPA”). HHE’s investigation revealed third-party lead generator Triangular Media Corp. (“Triangular”) provided Hoffman’s information to HHE. Hoffman claims he did not provide the requisite prior express written consent for autodialed telemarketing calls regarding hearing aids to be placed to his cellphone. He also claims he did not provide the requisite permission for telemarketing calls to his number registered on the Do-Not-Call (“DNC”) registry. Since the initial complaint was filed, Hoffman amended his complaint several times to add additional parties, including Triangular, Triangular’s alleged owner, an alleged entity related to Triangular called LeadCreations.Com, LLC, Intricon, Inc., and Intricon Corporation. With respect to HHE, Hoffman sought to certify a class of certain automated outbound telemarketing calls HHE allegedly made without prior consent and calls made to numbers on the DNC registry, in the last four years. Hoffman also sought to hold the Company vicariously liable for all of the calls HHE made without prior consent. The potential exposure under the TCPA is $500 per call, or $1,500 per call if the violation is deemed willful or knowing.
On July 26, 2021, the Company and the other defendants entered into a Class Action Settlement and Release ("Settlement Agreement") with Hoffman for himself and on behalf of the settlement class relating to this matter. In entering into the Settlement Agreement, the Company and the other defendants are making no admission of liability. The Settlement Agreement was submitted to the Court for preliminary approval on July 28, 2021, which was granted. The Court set a fairness and final approval hearing for January 5, 2022.
Pursuant to the Settlement Agreement, among other things, (a) the Company agreed to pay total cash consideration of $1.3 million into a settlement fund, and (b) Hoffman and the settlement class members agreed to a release of claims against the Company, Intricon, Inc. and HHE relating to any claim or potential claim relating to the marketing activities described in the complaint. The class members releasing claims include any person who received, on or after October 9, 2015, a non-emergency telephone call from or on behalf of HHE and whose contact information was received either directly or indirectly from Triangular (or its purported affiliated entity, LeadsCreations) and one other vendor who supplied phone numbers to HHE.
On January 5, 2022, the parties attended the Final Approval Hearing with the Court on the class settlement. The Court granted the motion for final approval of the class settlement and Plaintiff's Motion for Attorneys' Fees, Costs, and Service Payment. The deadline to file a notice of appeal was February 4, 2022; no appeal was filed by that date, the Settlement Agreement became effective and the $1.3 million settlement fund payment was paid. The release will be effective as to all class members who did not validly opt out of the class, regardless of whether they file a claim form and receive a payment.
Other Litigation Matters
The Company is also involved from time to time 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 the Company’s consolidated financial position, liquidity, or results of operations.
20. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution plan 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. The Company contributions to these plans were $664 and $531 for the years ended December 31, 2021, and 2020, respectively.
The Company provides post-retirement medical benefits to certain former domestic employees who met 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 is 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, 2021 and 2020 for post-retirement medical benefits:
| | | 2021 | | | 2020 | |
| Change in Projected Benefit Obligation: | | | | | | | | |
| Projected benefit obligation at January 1 | | $ | 453 | | | $ | 453 | |
| Interest cost | | | 6 | | | | 15 | |
| Actuarial loss | | | (38 | ) | | | 55 | |
| Participant contributions | | | 4 | | | | 10 | |
| Benefits paid | | | (69 | ) | | | (80 | ) |
| Projected benefit obligation at December 31 | | $ | 356 | | | $ | 453 | |
| Change in fair value of plan assets: | | | | | | | | |
| Employer contributions | | | 65 | | | | 70 | |
| Participant contributions | | | 4 | | | | 10 | |
| Benefits paid | | | (69 | ) | | | (80 | ) |
| Funded status | | $ | (356 | ) | | $ | (453 | ) |
| Current liabilities | | | 58 | | | | 71 | |
| Noncurrent liabilities | | | 298 | | | | 382 | |
| Net amount recognized | | $ | 356 | | | $ | 453 | |
| Amount recognized in other comprehensive income (loss) | | | 120 | | | | 76 | |
| Amount recognized in the consolidated statement of operations | | | 236 | | | | 377 | |
| Total | | $ | 356 | | | $ | 453 | |
Accrued post-retirement medical benefit costs are classified as Pension and post-retirement benefit obligations as of December 31, 2021 and 2020 on the Consolidated Balance Sheets.
Net periodic post-retirement medical benefit costs for 2021 and 2020 included the following components:
For measurement purposes, a 5.6% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed for 2021; the rate was assumed to decrease gradually to 4.6% by the year 2066 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.
The assumptions used for the years ended December 31 were as follows:
| | | 2021 | | | 2020 | |
| Annual increase in cost of benefits | | | 5.6 | % | | | 5.5 | % |
| Discount rate used to determine year-end obligations | | | 2.0 | % | | | 1.5 | % |
| Discount rate used to determine year-end expense | | | 1.5 | % | | | 3.5 | % |
In addition to the post-retirement medical benefits, the Company provides retirement related benefits to certain former executive employees and to certain employees of foreign subsidiaries. The combined liabilities established for all retirement benefits at December 31, 2021 and 2020 are illustrated below.
| | | 2021 | | | 2020 | |
| Current portion | | $ | 177 | | | $ | 188 | |
| Long-term portion | | | 1,093 | | | | 1,292 | |
| Total liability at December 31 | | $ | 1,270 | | | $ | 1,480 | |
The Company recorded $179 within the Consolidated Statements of Comprehensive Income (Loss) in 2021 related to actuarial gains. The Company calculated the fair values of the pension plans above utilizing a discounted cash flow, using standard life expectancy tables, annual pension payments, and a discount rate of 2.0% in 2021 and 1.5% in 2020.
Employer benefit payments (medical and pension), which reflect expected future service, are expected to be paid in the following years:
| 2022 | | $ | 177 | |
| 2023 | | | 159 | |
| 2024 | | | 141 | |
| 2025 | | | 126 | |
| 2026 | | | 111 | |
| Years 2027 and thereafter | | | 556 | |
21. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
Supplemental disclosures of cash flow information:
| | | Year Ended December 31, | |
| | | 2021 | | | 2020 | |
| Interest received | | $ | 74 | | | $ | 425 | |
| Interest paid | | | 67 | | | | 77 | |
| Income taxes received | | | - | | | | 40 | |
| Income taxes paid | | | 186 | | | | 107 | |
| | | Year Ended December 31, | |
| Noncash Investing and Financing Transactions: | | 2021 | | | 2020 | |
| Acquisition of a business through contingent consideration liabilities incurred | | | - | | | | 3,705 | |
| Acquisition of a business through issuance of common stock | | | - | | | | 982 | |
| Investment in partnerships | | | - | | | | 442 | |
Property, plant, and equipment purchases that remain in accounts payable as of December 31, 2021 and 2020 were $11 and $154, respectively.
22. SUBSEQUENT EVENTS
On February 27, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, IIN Holding Company LLC, a Delaware limited liability company (“Parent”), and IC Merger Sub Inc., a Pennsylvania corporation and a wholly owned subsidiary of Parent (“Merger Sub”). Parent and Merger Sub are owned by funds affiliated with Altaris Capital Partners, LLC. The Merger Agreement provides, subject to its terms and conditions, for the acquisition of the Company by Parent through the merger of Merger Sub with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Parent (the “Merger”).
As a result of the Merger, each share of common stock of the Company (“Common Stock”) issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”) (other than Rollover Shares (as defined below) or shares of Common Stock (a) held in treasury of the Company, (b) owned by any subsidiary of the Company, or owned by Parent, Merger Sub or any other subsidiary of Parent or (c) held by a holder who is entitled to, and who has perfected, appraisal rights for such shares under Pennsylvania law) automatically will be converted into the right to receive cash in an amount of $24.25 per share (the “Merger Consideration”), without interest, subject to any required withholding of taxes.
Prior to the closing of the Merger, Parent and certain members of management may negotiate and enter into contracts providing for a rollover of a portion of such persons’ shares of Common Stock through their contribution of such shares (the aggregate amount of shares to be contributed, if any, the “Rollover Shares”) to an affiliate of Parent in exchange for membership interests in such affiliate of Parent.
The completion of the Merger is subject to customary closing conditions, including: (i) the approval of the Merger Agreement by the Company’s shareholders (the “Company Shareholder Approval”); (ii) the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the approval of the Merger under the antitrust laws of other jurisdictions, as applicable; (iii) the absence of any laws or court orders making the Merger illegal or otherwise prohibiting the Merger; and (iv) other customary closing conditions, including the accuracy of the representations and warranties of each party (subject to certain materiality exceptions) and material compliance by each party with its covenants under the Merger Agreement. The parties expect the transaction to close in the second quarter of 2022, subject to the satisfaction or waiver of the closing conditions.