“As to why fictitious asset frauds are promulgated, that awaits a future post, along with other fascinating questions having to do with the nature of Beltone itself – a mysterious entity for sure – and how on earth it became a GN Resound minion (or not).” (previous post)
As the beginning of the End of Beltone Series at Hearing Economics, this is a fitting last post for 2015.
If only we’d known a year ago what we know now, we would have issued helmets. In retrospect, one can only look back in wonderment at the bewildering blitzkreig of intrigue, technological warfare, socioeconomic political upheaval, and plain old confusion that have marked, even stained, the last twelve months.
The Why of Fraud
“Why suffer sleep deprivation and drive yourself crazy keeping two sets of books if you don’t own the company and you’re not even pocketing the money?” (previous post)
A website that covers financial statement fraud gives this answer:
Top management is always motivated to keep stock prices high, not only to make shareholders happy and lower the cost of capital, but also to ensure their jobs, salaries, bonuses and stock options. When things aren’t looking good, or aren’t growing as expected, the easiest (illegal) way for some(one) at the top to maintain financial appearances is to inflate the numbers by booking fictitious sales.
By that logic, Beltone may have been shrinking or at least not growing as expected. To which the next question is “What was Beltone unit sales growth year-over-year?” The only responses forthcoming are live voice answers to analysts from Anders Boyer, then-CFO of GN Store Nord A/S1 in the 10/30 analysts conference call:
We have seen, on Beltone … a positive unit growth, but we’re not going into details of neither the units nor the mix. … I guess what we can say that obviously revenue growth has been lower than what has been reported to headquarters in prior years. … We do not provide revenue guidance on each of the subsidiaries, so we do not want to give that details.
No details, no numbers, hard to get a handle on Beltone. The following is a effort to quantify.
Beltone by the Numbers
Numbers are hard to come by and hard to crunch. They vary by source (GN Resound company reports, industry analysts, Beltone website) and currency (US, DKK and Euro values).
- Beltone stores in the US: There are somewhere between 1300 (industry analyst) and 1500 (Beltone website) stores in the Beltone network.
Beltone sales: Estimated to comprise 15-20% of GN Resound company revenues. But, they could represent up to 25% of GN company revenues in 2014/2015, due to a weaker Euro and a plummeting foreign exchange rate (Fig 1).2
- Actual Beltone revenues: Assuming Beltone accounted for 17% or 22% of last year’s GN revenue, Beltone revenue estimates range from $117M to $152M in 2014.3
- Store Productivity: Table 1 uses the above estimates to drill down to store productivity. Sources in the industry put $700/aid as a best guess for wholesale unit pricing for Beltone product. That pencils out to average annual sales somewhere between 111 to 167 units– only 9 to 14 aids/month/store.
It’s safe to say that Beltone is a large network of by-and-large small stores, with productivity similar to Miracle Ear, which industry analysts peg at around 130 hearing aids/year/store. Independents and medical practices do slightly more: Phonak’s 2015 Hearing Industry Benchmarking Survey of US provider 4 reported a median of 197 hearing aids/year/full time location, though the range was very wide.
As one industry insider sees it, Beltone orbits like the rest of us in our small planetary system of “independent” hearing aid providers:
In general the U.S. market is high price, low volume, and Beltone is not an outlier here.
Beltone By the Year: A Private Company
- 1940: Beltone founded in Chicago, Illinois, by Samuel Posen. Soon after, brother-in-law Dave Barnow joins the business. 5
- in the 1960s: “[it was] working for Beltone dealer selling door to door, mostly body aids; eyeglass had just come on the scene. Beltone really got going thanks to Dave Barnow — all the Barnows were in key positions with the Posens.”
- 1959: Dave Barnow is a founding member of the International Franchise Association, which “emerged from the frustrations of early franchisors whose enterprises were in danger of being tarnished by unscrupulous sales agents offering shady business opportunities disguised as franchises.” 6
“Beltone wanted people that were pure. It was an arms-length agreement, not a franchise, a one-sided agreement [in which] dealers decide to buy only from Beltone and Beltone agrees to only sell to them. Not a bilateral agreement, to avoid FTC scrutiny.” 7 (Beltone insider)
- 1974. Lawrence (Larry) Posen, son of Sam, named President of Beltone Electronics.8
- 1992: Beltone ranks in top five US hearing aid manufacturers. Sales, estimated at $73.9 million, put Beltone on par with Miracle Ear and Siemens.9
- 1994: Beltone pays $875,00010 to settle FTC complaints of false advertising and agrees to return “purchase price to future buyers if they are not satisfied with its products after a trial period.” 11
- 1997. Beltone Corporation sold by Larry Posen to investment firm of J.W. Childs Equity Partners. No longer private, but still murky, no one seems to remember much about Beltone in this period except this:
“They … ran it into the ground. ” (Beltone insider)
Stay tuned for the final Beltone post next week, in which GN Resound rescues Beltone by bringing it back into the hearing aid industry fold, takes it corporate, and grows its network through interesting ownership arrangements, including GN Nord’s “loans to dispensers and acquired ownership interests in dispensers“.12
References and Footnotes
1 Mr. Boyer joined GN in 2007. He was instrumental in GN’s successful turnarounds of its Resound and Netcom divisions. He resigned on December 7 of this year and is reportedly assuming a similar role in another Danish company.
2 DKK down 12-13% against the $US in the last 12 months, at the time of writing.
3 Beltone annual revenues can only be estimated from the percentage of total revenues because GN company revenue reports do not break down revenue sources.
4 450 respondents received the full report, including individual practice comparative data.
6 The International Franchise Association–celebrating 50 years of dedicated service to franchising. Franchising World, January 1, 2010.
7 By contrast, Miracle Ear through Dahlberg, was a franchise operation.
8 Lazarus G. Lawrence Posen heads Beltone. Chicago Tribune, July 16, 1974, section 3 page 11.
9 Lowe, FH. Beltone Sees Sales In New Hearing Aid. Chicago Sun-Times. September 8, 1994.
10 The agency said the $875,000 is the third-largest civil penalty it has won in a case involving violation of a consumer protection order.
11 Rumbler, B. Hearing Aid Maker Beltone Settles False Ad Complaints. Chicago Sun-Times. December 22, 1994.
12 Paraphrased from 2014 GN Store Annual Report, p 58.
feature image courtesy of newport board group