Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-9463
ULTRAK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2626358
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1301 WATERS RIDGE DRIVE
LEWISVILLE, TEXAS 75057
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 353-6500
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in a definitive proxy to be filed or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of February 28, 2001 was $39,370,692. As of that date
11,688,888 shares of the Registrant's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The information required by Part III is incorporated by reference from the
Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.
FORWARD LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED OR INCORPORATED IN THIS ANNUAL REPORT ON FORM 10-K,
WHICH ARE NOT STATEMENTS OF HISTORICAL FACT CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 (THE "REFORM ACT"). FORWARD LOOKING STATEMENTS ARE MADE IN GOOD FAITH BY
ULTRAK, INC. PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE REFORM ACT. FORWARD
LOOKING STATEMENTS MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
ULTRAK, INC. TO DIFFER MATERIALLY FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS, INCLUDING
THE TIMELY DEVELOPMENT AND ACCEPTANCE OF NEW PRODUCTS, THE IMPACT OF COMPETITIVE
PRODUCTS AND PRICING, FLUCTUATIONS IN OPERATING RESULTS, ABILITY TO INTRODUCE
NEW PRODUCTS, TECHNOLOGICAL CHANGES, RELIANCE ON INTELLECTUAL PROPERTY AND OTHER
RISKS. MOREOVER, THE OBJECTIVES AND INTENTIONS SET FORTH IN THIS FORM 10-K ARE
SUBJECT TO CHANGE DUE TO DOMESTIC, GLOBAL MARKET AND ECONOMIC CONDITIONS BEYOND
THE CONTROL OF ULTRAK, INC.
PART I
ITEM 1. BUSINESS
GENERAL
Ultrak, Inc. (the "Company" or "Ultrak") is one of the leading global
electronic security companies in the world. Ultrak designs, manufactures,
markets, sells and services innovative electronic products and systems for
security and surveillance, industrial video and professional audio markets
worldwide. These products and systems include high-speed domes, monitors,
switchers, quad processors, video management systems, digital and analog
recorders, multiplexers, video transmission systems, access control systems,
cameras, lenses, observation systems, audio equipment and accessories. Brand
names include Ultrak, Diamond Electronics, MaxPro, Exxis, Smart Choice,
Phoenix and BST. Customers, defined as end users of Ultrak products and
services, range from single location mom-and-pop businesses to universities
and government facilities. Sales to the professional security markets are
through the Company's channel partners. The Company has increased sales from
$1.8 million in 1987 to $200 million in 2000.
Ultrak operates sales, distribution and manufacturing locations worldwide.
The Company has sales offices in six U.S. cities as well as offices in England,
France, Germany, Italy, Poland, Switzerland, Singapore, Australia, and South
Africa. Ultrak also has active representation through Company sales
representatives and systems integrators in China, Canada, Mexico and Brazil.
Customers are supported by eight distribution centers worldwide and
manufacturing facilities located in the United States, Australia and South
Africa.
The Company was incorporated in Colorado in 1980 and re-incorporated in
Delaware in December 1995. In 1997, the Company built a 170,000 square foot
warehouse and headquarters facility known as the Ultrak Worldwide Support Center
located in the north Dallas suburb of Lewisville, Texas.
Ultrak, Inc. was a pure distributor of OEM supplied and branded
security-electronic products as recently as six years ago. The numerous
acquisitions undertaken over the last five years brought a wide range of
product development capabilities to Ultrak, but the transformation from a
distributorship to a technology-based company has been challenging. By the
3rd quarter of 2000, the lack of execution resulted in stagnated sales and
inflated cost structures. The Company's operations generated a loss in the
third quarter of 2000. A new management team -including the President, Chief
Financial Officer, head of domestic sales and marketing, Chief of Engineering
and the executives in charge of European and Asian markets - was assembled
between August and December of 2000, and a new strategic direction was
formulated to return the Company to profitability and re-ignite growth.
This new strategy and vision created by Ultrak's new management team
resulted in tremendous changes to the Company and necessitated a significant
one-time charge for the fourth quarter of 2000. This Company-wide restructuring
program includes down-sizing the work force, re-allocating sales and engineering
resources, focusing on Ultrak-branded product lines, decentralizing European
distribution, improving inventory management, developing consistent global
marketing strategies and emphasizing value engineering in product design. A
charge for the fourth-quarter of $47 million arose directly from these actions
that consisted of
2
severance for terminated employees in the United States and Europe, inventory
write-offs for non-Ultrak products, and returned goods deemed uneconomical to
repair, lease terminations and relocation in Europe, as well as write-downs of
intangible assets, internal use software, software development costs and
other assets. The implementation of these actions began in the 4th quarter of
2000. Facility closures in Belgium and France, the last major component of
this restructuring, are expected to conclude by April 2001.
FOURTH QUARTER CHARGE
During the fourth quarter of 2000, the Company, in conjunction with
changes in key management personnel, undertook significant strategic changes
to restructure its business resulting in substantial one-time charges.
Additionally, due to the new strategic direction, various assets were
assessed and determined impaired by the management.
Between 1998 and 1999, the Company opened a European distribution
center in Antwerp, Belgium to consolidate purchasing, reduce overhead, and
create efficiencies. Because of declining sales and operational difficulties,
the Company concluded that its European distribution center would not be cost
effective. Management calculated the net realizable value of its European
distribution center assets and wrote off and/or wrote down assets that could
not be fully recovered or utilized in any other European operations. The
charges consisted of $2.7 million in inventory costs, $0.7 million in
personnel, $1.2 million of fixed assets and $2.7 million of lease termination
and other exit costs.
The Company's inability to achieve operating efficiencies and the
continuing losses in France have triggered an impairment review of the its
long-lived assets. The Company has analyzed projected cash flows and decided
to discontinue its primary business in France. This decision and the lack of
resulting future cash flows in France caused the Company to conclude that all
associated goodwill, $10.1 million, was impaired. The primary components of
the closure costs involve personnel costs of $1.1 million, write-offs of
fixed assets, accounts receivable and other assets of $1.1 million and other
exit costs of $0.6 million.
As a result of losses in Germany, management performed an impairment
review of the long-lived assets at its German subsidiary. As a result of this
review, management concluded, based on future cash flows, that the entire
amount of goodwill, $3.0 million, should be written off.
The Company wrote down $9.5 million of inventory related to
discontinued product lines and returned inventory. Management determined that
refurbishing this inventory would not be economical.
Management determined that certain U.S. positions would no longer be
necessary. As a result, the Company accrued $0.6 million of severance
compensation for 33 employees.
The new management evaluated its products under development. Based on
this evaluation, the Company wrote off capitalized software development costs
of $2.0 million related to certain product designs, which will be abandoned,
that did not correspond with future product objectives.
As a result of the outsourcing of certain manufacturing operations, it
was determined that internal use software costs, $2.9 million, related to
those operations was impaired.
The Company also recorded foreign currency losses, $4.2 million, are
related to foreign currency translation losses that were realized upon the
sale or closure of foreign operations.
Total savings from the restructuring program, on an annualized basis,
are estimated at $10 million dollars.
STRATEGY
Ultrak's new strategies will focus on five key areas:
3
o improve customer service
o establish profitability benchmark in all business units and regions
o increase gross profit margin
o improve internal and external communication, and concentrate on
Ultrak's products
o focus resources on Ultrak's own products
These new strategies will be executed on a number of fronts: improved
customer service will be achieved by timely delivering information, products and
services right the first time; adhering strictly to established margin
requirements for all of our products and projects; continual monitoring of
actual results in relation to budget; minimizing the number of returns; and
avoiding slow moving inventories with better forecasting and streamlined supply
management. In addition to the successful execution of the new strategies,
Ultrak's turnaround also depends on global organization, a strong product line
launched in 2001 and the Company's new management team.
Ultrak views the end users of its solutions as its customers and
delivers these solutions through its channel partners. The Company is
committed to satisfying the needs of its customers with complete security
solutions and measures its success by its ability to achieve this goal.
Ultrak reaches its customers by direct contact and sells to them through its
channel partners. Channel partners include key influencers/consultants,
dealers and system integrators, and distributors. Ultrak creates value for
its channel partners by creating end user demand through direct contact and
strong advertising and marketing promotions, introducing these business
opportunities to its channel partners, fulfilling demand with high quality,
easy to install solutions and providing superior technical support, service,
training, and customer care.
The Company delivers its end user solutions primarily through dealers and
system integrators, as these are the most efficient channels to serve its
customers and achieve its goals. Ultrak uses distributors as intermediaries to
reach its channel partners when immediate product availability is needed,
especially for small dealers. The Company aggressively sells plug-and-play
products to the consumer/do-it-yourself market through major retailers and uses
the Internet to educate consumers and meet the demand for easy to install
security products.
It is Ultrak's objective to improve profitability through increased sales,
cost control and margin improvement driven by value engineering, manufacturing,
cost reductions and reduced product acquisition costs. Ultrak focuses on
improving products based on customer requirements, decreasing the time it takes
to get its products to market, and building worldwide sales marketing
capabilities to take advantage of a global economy.
ACQUISITIONS
The Company did not consummate any acquisitions in 2000. Though
acquisitions contributed significantly to the Company's growth prior to 1999,
the integration of the acquired entities partly led to Ultrak's difficult
situation in 2000. As part of the new strategy, the priority is to further
integrate engineering and product development capabilities of the existing
entities rather than taking on new acquisitions. As the security industry
continues to consolidate, Ultrak will search for growth through acquisitions
when appropriate opportunities are presented.
Effective March 1, 1999, the Company acquired ABM Data Systems, Inc.
("ABM"), based in Austin, Texas, which develops, sells and services computer
software for the alarm monitoring security industry, government agencies and
proprietary customers and offers support for computer software targeted for the
automated security monitoring markets, for 250,000 shares of Common Stock,
valued at $1.5 million. Effective April 1, 1999, the Company acquired 100% of
the stock of Multi Concepts Systemes, SA ("MCS"), a Switzerland based systems
integrator of electronic security systems. Total consideration included an
initial payment of $405,000 in cash and future contingent payments based upon a
percentage of MCS's net income and book value. Effective July 1, 1999, the
Company acquired 100% of the stock of MACH Security Sp.z.o.o ("Mach"), based in
Szczecin, Poland. Total consideration included an initial payment of $275,000 in
cash and future contingent payments based upon a percentage of MACH net income.
DIVESTITURES
In August 1998, the Company completed the sale of the stock of Dental
Vision Direct, Inc. ("DVD"); a 90% owned subsidiary, to American Dental
Technologies, Inc. ("American Dental"). On March 3, 1999, the Company completed
the sale of its 10% ownership interest of Securion 24 to Mr. Mutsuo Tanaka.
On July 1, 2000, the Company sold substantially all of its UK based
business, Intervision Express Ltd., to Norbain SD, Ltd., a UK-based
distributor of CCTV and access control equipment. The Company received
approximately $2.1 million in cash for inventory and certain other assets
including use of the Intervision tradename. Ultrak retained accounts
receivable and the right to sell Ultrak branded products
4
directly to systems integrators and installers in Intervision's previous market
of the UK and Ireland. A loss of approximately $840,000 was incurred on the
sale.
Additionally, Norbain entered into a distribution and OEM purchase
agreement whereby Norbain will buy at least $6.0 million of Ultrak-branded CCTV
products and dome systems during the term of the agreement ending on December
31, 2002. In return, Ultrak granted Norbain distribution exclusivity for
Ultrak's Diamond series dome product line and its CCTV products in the UK and
Ireland as long as the above minimum purchase commitments are met.
On September 13, 2000, the Company sold inventory and certain assets to
Ameritron, Inc. for $925,000 in short term notes to be paid in monthly
installments beginning December 15, 2000. Ameritron also entered into an
agreement to sublease a portion of Ultrak's Rancho Cucamonga facility.
PRODUCTS AND SERVICES
It is the Company's objective to set new standards in quality, performance
and value by providing single-source security solutions to its customers in the
form of integrated systems. An integrated system includes more than one of the
following components controlled from a single device or console: closed circuit
television ("CCTV") products, networked video, access control, video management,
and alarm management. Ultrak differentiates itself from the competition through
its integration support services provided by its Integrated Systems Group
("ISG") which provides application engineering, design, installation,
implementation, training and technical support through its dealer base. The
advantages of an integrated system to the end user are numerous. It improves
ease of operation, security, health/safety and loss prevention, and at the same
time reduces maintenance and training costs. Ultrak's management believes that
integrated systems provide customers maximum functionality at competitive
prices. Ultrak's integrated systems are found in manufacturing facilities,
airports, office complexes, government agencies, hospitals, casinos, retail
stores and other organizations.
Ultrak sells the following standard products and services to complete its
integrated systems offering:
o Full line of black and white and color cameras
o Nitrogen-pressurized cameras and domes for applications where a
dirt-free environment is critical
o Complete range of lenses
o High speed, remote-controlled domes and housings, including the new
KD6Z series, a low cost dome family targeted for cost-conscious
applications
o Black and white and color monitors
o Time-lapse and digital video recorders
o Ruggedized cameras, monitors and recorders for mobile video
applications
o Digital processors (quads and multiplexers), switchers and video
management systems, including patented video management technology
o Video transmission equipment
o Access control systems from single door to multi-station
applications over LAN/WAN
o Alarm management software for central
monitoring and proprietary monitoring stations
o Public address and professional audio equipment
o Observations systems (monitor, quad process, camera and related
accessories packaged in one box) and accessories
o Integrated Systems Group ("ISG") services
o Leasing arrangements
Ultrak segments its products and services into two groups: standard
products and systems. Standard products include components such as cameras,
monitors, domes, VCRs and accessories. Ultrak relies on OEM relationships to
satisfy the majority of its standard products. The majority of these products
are engineered to Ultrak specifications and undergo thorough technical
evaluation prior to release. Dome products are engineered and manufactured by
Ultrak at its Carroll (Columbus) Ohio facility. In 2001, Ultrak is releasing its
new line of low-cost domes, the KD6Z series, which is targeted to retail
applications. Public address equipment is designed by Ultrak engineers in South
Africa, and manufactured by subcontractors on behalf of Ultrak.
System products, which typically offer higher margins, include access
control, video management and alarm management. Ultrak engineers a complete
range of access control software from its Rancho Cucamonga and Lewisville
facilities. Ultrak offers solutions covering a single door through
high-security, multiple location networked environments. The Company outsources
hardware manufacturing for system products. In 2001, the Company will introduce
its next generations of PointGuard that provides multi-
5
workstation capabilities. The Company will also move forward with its well-known
SafeNet application offering additional features, new hardware with flash
download, and its new ESC controller.
Video management, marketed under the MaxPro brand name, should achieve
significant sales gains due to the Company's repositioning and focus on its
Mini-Max line of products, aimed at small to mid-sized applications. Ultrak
will continue with new releases of Phoenix 2000, its central station and
proprietary alarm management solution engineered in Austin, Texas focusing on
video, accounting and service package integration.
Through its IG ISG group, Ultrak also sells system design, integration
and support services through its dealers on an as needed basis. Ultrak
anticipates that these integration and support services will be a growing
revenue source for the Company based on the complexity and changing nature of
technology. The Company also offers leasing services for standard products,
giving dealers alternate forms of financing.
MARKETING AND SALES
Ultrak sells through highly focused selling groups organized around its
target markets. These groups include Professional Security Group (U.S. and
International), and Diversified Sales Group. Ultrak's customer-focused
structure allows for individual attention to each target market, quick
response to customer needs and early identification of market requirements.
The Company reaches each target market through regional sales professionals
supported by inside sales executives, product catalogs, direct mail, magazine
advertising and industry trade shows.
Professional Security Group
The Professional Security Group ("PSG") is responsible for sales in the
commercial channel. Ultrak provides one face to the customer utilizing regional
sales executives who support sales across all product segments including CCTV,
access control, video management and alarm management. Customers range from
banks to schools and universities to casinos and large retail chains and federal
government facilities, including such prominent names as American Express,
Cartier, John Deere, Caterpillar and MBNA. Regional sales executives receive
support from product and market specialists, inside sales support and ISG. ISG
also works directly with the dealer/integrator and/or the end user to define
requirements, engineer the solution and provides project management of
installation and implementation when required.
Ultrak has strong relationships with local, regional and national
dealer/integrators such as Diebold(R), and with regional and national
distributors, including ADI(R). In order to increase revenue, the sales effort
is spread between end user, dealers/system integrators, national accounts and
distribution. Ultrak firmly believes that the best way to establish and solidify
a relationship with its channel partners is to bring business to them. Team
Ultrak and Ultrak Select, Ultrak's key dealer and distributor programs, are used
to reward loyal channel partners with special sales and marketing incentives.
Sales are tracked using a Forward Works schedule that provides anticipated sales
on a monthly basis.
Ultrak began actively pursuing the international market in 1995. In 1995
and early 1996, Ultrak sold its products and systems in a number of countries
including Mexico, Brazil, Argentina, England, France, Germany, Denmark, India,
China, South Korea, Japan, The Philippines and Australia. Since the second
quarter of 1996, the Company acquired MAXPRO (Australia), Bisset (France), VideV
(Germany), Intervision (the UK), the Videosys Group (Italy), Philtech (South
Africa), MCS (Switzerland), Mach (Poland) and established a distribution company
in Singapore, which has substantially expanded the Company's presence
internationally. See Note L to the Company's Consolidated Financial Statements
with respect to business segments.
In 2001, the Company will invest in expanding its business in the
Asia/Pacific region. Currently, less than five percent of the Company's revenues
are derived from this area. The Company also intends to expand ISG to Europe and
Asia/Pacific for the purpose of improving customer service and standardizing
field operations.
In Europe, the Company also sells to the professional audio market through
a direct sales force. Products include public address equipment for office
complexes, hotels, airports and retail stores, as well as sound reinforcement
systems for concert halls, churches, arenas and theaters. Sound reinforcement
systems include amplifiers, speakers, mixers, equalizers, microphones, CD
players, turntables and accessories. As a result of disappointing sales of CCTV
products in France, the Company is currently exploring strategic alternatives
for its CCTV distribution business in France.
6
The majority of products are marketed under the Ultrak brand name.
Competitors include Pelco, Sensormatic, Philips Burle, Lenel, Interlogics and
others. There are a number of smaller competitors in the digital video
recording market. Large security companies continue to purchase many of these
small competitors to complete product offerings in the digital category.
7
Diversified Sales Group
Consumer/do-it-yourself: small businesses and homeowners are installing
video observation systems to replace or supplement conventional alarm systems
as the cost of CCTV products decline. The consumer/do-it-yourself security
and surveillance market consists of end users who purchase security and
surveillance systems and install the systems themselves in their small
businesses or homes. Video products sold into this market are characterized
by affordability, aesthetic designs, ease of installation and maintenance and
mobility. The typical product for this market is a wired or wireless
observation system, and consists of a camera, a monitor, a switcher or quad
processor and, optionally, a video recorder. These products are available in
either black and white or color models. Ultrak markets these products under
the Exxis, Focus and Smart Choice brand names.
Consumer/do-it-yourself CCTV products are sold through mass merchandisers,
warehouse clubs, electronic retail stores, office and juvenile product
superstores, as well as through retail catalogs. Ultrak customers include Sam's,
Costco and BJ's; warehouse clubs account for the majority of sales in this
segment. Ultrak supports the consumer/do-it-yourself market through its consumer
call center, which offers after-market sales and technical support, and via the
Company's e-commerce web site, SecurityandMore.com. Competitors in this segment
include Lorex, which sells under the Sylvania and Lorex brand names, Mansoor
Electronics, sold under the Home Sentinel brand, and numerous direct importers.
Industrial: this business is divided into Industrial Vision Source
("IVS") and Traffic/Industrial. IVS is a distributor of video products used
in various production and manufacturing processes. Manufacturers include
Sony, Panasonic, Hitachi, and JVC. The Company sells to this market through
systems integrators who assemble and sell equipment that incorporates video
cameras. Typical applications include machine vision, computer imaging,
robotics, microscopy, and high-speed inspection. The use of industrial video
offers more precise assessment than human visual inspection, and can measure
image parameters that are imperceptible to the human eye. These systems are
also used to remotely monitor automated assembly lines to ensure that each
process on the assembly line is accurately and completely performed.
Additional industrial applications are emerging as new equipment is developed
and as production automation levels increase.
The industrial vision market is heavily dependent on the semiconductor
industry. There are numerous competitors in this segment including name brand
manufacturers selling direct, importers and other distributors. The Company's
strategy is to strengthen customer loyalty by supporting advanced products
with technical expertise, availability from a large inventory of products,
and superior customer support. The Company uses a combination of its own
inside sales force and outside representatives to sell these products to
dealers and OEM accounts. While most of the sales are made over the
telephone, representatives also attend industry trade shows to meet with key
customers and vendors. Advertising and leads provided from the manufacturers
supplement the sales effort in this area.
Ultrak's Traffic/Industrial division targets two separate groups: traffic
and furnace viewing. Ultrak uses independent manufacturer's representatives in
both areas. Sales in the traffic area consist primarily of rugged dome products
manufactured by Ultrak and switching equipment, and are made through a dealer or
systems integrator. The Industrial group sells a patented furnace viewing system
to monitor high temperature manufacturing processes, primarily within the steel
and glass industry. The furnace-viewing camera, known as the WallEye, penetrates
the wall of the furnace and connects with a proprietary software package to
monitor the temperature and activity within the furnace itself.
BRANDING
Ultrak uses various brand names to minimize market channel conflicts
and to differentiate products by features, applications and price. The
Company's proprietary brand names, many of which are registered trademarks,
include Ultrak, Diamond Electronics, MAXPRO, Videosys, SAFEnet, Pointguard,
Exxis, Smart Choice, Phoenix, BST, Industrial Vision Source,
SecurityandMore.com and ESS. The vast majority of the products sold by the
Company carry Ultrak brand names. The Company also sells brands such as
Panasonic(R), Mitsubishi(R), and Sony(R) to fill product line voids.
In 2001, the Company intends to build worldwide name brand recognition of
the Ultrak name, and associate Ultrak with a complete range of high-quality
security and surveillance solutions and services. Ultrak will accomplish this by
associating the Ultrak name with all of its recent acquisitions in its
advertisements and collateral material.
8
PRODUCT DESIGN AND DEVELOPMENT
In addition to traditional research and development activities, Ultrak's
engineering and product development staff worldwide works directly with its
customers to design new products and product enhancements, and coordinates with
its contract suppliers to manufacture certain Ultrak branded products. Ultrak's
engineering staff works with its selling and marketing groups to develop new
products and product line extensions, and to promptly respond to customer needs
on a worldwide basis. Consequently, Ultrak believes that it can develop
technologically superior products with customer-desired performance capabilities
that address new applications at lower prices than competitive products. The
Company's products are becoming more software-driven to support the integration
of technologies and functions into its customers' existing networks.
As of December 31, 2000, the Company had a full-time engineering staff of
59 employees compared to only four as of December 31, 1994. Because of the
complex and highly specialized requirements of Ultrak products and systems,
these employees are experienced in a wide range of engineering disciplines
including charged-coupled device ("CCD") technology, analog and digital signal
processing, CCTV management and switching technology, computer based access
control technology, facility management technology and high speed dome
technology. In addition, the Company's international contract manufacturers
employ a number of engineers who are primarily dedicated to research and
development efforts of products sold by Ultrak.
In 1999, the Company introduced its computer-based SAFEnet NT system, the
Windows-NT(R) version of Ultrak's flagship line of integrated access control and
security systems. SAFEnet NT provides a stable, flexible platform for the
integration of new functions and technologies. At the end of 2000, Ultrak
reintroduced an improved version of PointGuard, its solution to the low to
mid-range access control market, and introduced Eurocorder II, its digital video
recorder.
In 2001, Ultrak will release upgrades of SAFEnet NT, including new
hardware, and PointGuard for multi-workstations, expanding its range of
access control solutions for low to high-end applications. Ultrak will also
introduce an expanded line of KD6 domes, the KD6Z series, to cover the
entry-level dome market and ruggedized cameras for applications subject to
tampering and vandalism. Ultrak will continue its focus on digital recording
options using a combination of Ultrak manufactured products and OEM products.
Ultrak believes that the market for digital recording is highly fragmented
and will require a variety of solutions to meet diverse customer demands and
requirements.
VENDOR RELATIONSHIPS
The majority of Ultrak-branded products produced by contract manufacturers
are made exclusively for the Company, or the Company receives exclusivity with
respect to such products in the areas served by the Company. In most of its
vendor relationships, the Company believes that the relationship is as important
to the supplier as it is to the Company. Thus, the Company believes that there
is a strong, mutually advantageous basis for the trading relationship to
continue and grow. See Note H to the Company's Consolidated Financial Statements
with regard to Major Customers and Suppliers.
Because of foreign production lead times, the Company normally makes
purchase commitments to its foreign suppliers three to six months in advance
of shipment. Given order lead times, accurate inventory forecasting is
critical. Ultrak's objective in 2001 is to reduce its inventory investment,
making it necessary to work closer with its vendors to reduce lead times.
The Company's primary contract manufacturer is ISO9001 certified. When
goods are delivered to Ultrak, a random sampling quality assurance procedure is
performed. Selected units are verified for functionality, proper packaging,
labeling and documentation, and variations greater than an agreed upon
percentage are corrected at the vendor's cost. Ultrak offers a limited warranty
on its products. The Company generally warrants that its products will conform
to Ultrak's published specifications and be free from defects in materials and
workmanship at the time of sale up to a specified period of time. Ultrak also
offers extended warranties for sale on its consumer products.
Substantially all of the Company's purchases from its non-affiliated
contract manufacturers are made in United States Dollars or the Euro; the
remaining purchases are made in Japanese Yen, Australian Dollars, the South
African Rand and English Pounds. In 2000, the Company was adversely impacted
by the strengthening of the U.S. dollar, as its international subsidiaries
import products quoted in U.S. dollars or U.S. dollar-linked currencies.
9
OPERATIONS
A critical element of the Company's operations is its management
information systems. In early 1997, the Company selected SAP, a leading
enterprise software system, for its domestic information needs. As of February
1998, the Company and its related domestic facilities had successfully completed
the SAP conversion process at its Lewisville, Texas Worldwide Support Center. As
of July 2000, the Company successfully completed the SAP conversion process at
its Carroll, Ohio facility and at its Austin, Texas facility, effectively
linking all North American sales and manufacturing operations. As previously
anticipated, SAP united Ultrak and all of its domestic subsidiaries with a
common inventory, sales, accounting/financial and database management system.
Through laptop computers, the Ultrak domestic sales team can easily communicate
with the host system from any remote location. The Company selected "Exact", a
multilingual, multicurrency and Euro compliant software for its European
information needs. By mid-2000, all of the Company's European operations were
operational on the "Exact" software and linked together with a common inventory,
sales, accounting and financial system.
Ultrak believes that one of the keys to its success is its commitment to
be responsive and provide excellent service to its customers. Domestic orders
are entered into the Company's Lewisville, Texas-based SAP computer system
either directly by the customer through electronic data interchange, by
traveling sales representatives using laptop computers or by in-house sales
personnel. After the computer system performs an automated check of the
customer's account and credit limit, the order is released for shipment from
available inventory at one of the four domestic stocking warehouse locations.
Because the Company maintains a relatively large inventory of products, it ships
most items within 24 hours of receipt of the order. The Company's domestic
stocking warehouse locations are Lewisville (Dallas), Texas; Austin, Texas;
Carroll (Columbus), Ohio; and Rancho Cucamonga, California. Approximately 91% of
all domestic shipments are made from the Lewisville, Texas warehouse. The
Company is currently evaluating CRM (customer relationship management) tools and
anticipates implementation of a CRM package during 2001. The objective of
utilizing CRM is to improve customer service, improve sales effectiveness and
provide a central data warehouse for sales and technical support. Ultrak will
also use this tool as a means of tracking marketing effectiveness.
The quality assurance procedures in the Company's Ohio plant and
California facility comply with ISO9001 specifications. The Company recently
obtained ISO9001 certification on its Lewisville, Texas facility. The Company's
Ohio plant uses Kanban techniques to ensure minimal inventory of finished goods
and raw materials. The Ohio plant currently has excess capacity; the Company
intends to rationalize its other manufacturing facilities and relocate
production to the Ohio plant when practicable.
TRAINING
The Company considers continuous training of its customers to be critical
in an increasingly competitive market. In 1999, the Company's training
capabilities were doubled and there are now three training rooms at the Ultrak
Worldwide Support Center in Lewisville, Texas. Multiple training sessions on
Ultrak's products and systems are held throughout the year with salespeople,
customers and field installation technicians attending to learn more about our
technology and products. In 2001, training will be expanded to include on-site
training for end users and systems integrators, and computer-based training
programs. Dealers and systems integrators will be required to complete and
maintain certification for key Ultrak products, or to utilize ISG to ensure
customer satisfaction.
BACKLOG
Because purchase orders are subject to cancellation or delay by customers
with limited or no penalty, the Company's backlog is not necessarily indicative
of future revenues or earnings. Since the Company ships most products within 24
hours of receipt of the order, the Company believes that backlog is not a
significant measurement of the Company's financial position.
INTELLECTUAL PROPERTY
As part of its ongoing engineering and development activities, Ultrak
seeks patent protection on inventions covering new products and improvements
when appropriate. Ultrak currently holds a number of United States and foreign
patents and has a number of pending patent applications. Although the Company's
patents have value, the Company believes that the success of its business
depends more on innovation, sales efforts, superior customer service, technical
expertise and knowledge of its personnel and other factors. The Company also
relies upon trade secret protection for its confidential and proprietary
information. Many of the Company's brands are registered trademarks owned by the
Company.
10
COMPETITION
The Company faces substantial competition in each of its markets.
Significant competitive factors in the Company's markets include price, quality
and product performance, breadth of product line and customer service and
support. Some of the Company's existing and potential competitors have
substantially greater financial, manufacturing, marketing and other resources
than the Company. To compete successfully, the Company must continue to make
substantial investments in its engineering and development, marketing, sales,
customer service and support activities. There can be no assurance that
competitors will not develop products that offer price or performance features
superior the Company's products.
The Company considers its major competitors to be the CCTV and access
control operations of Sensormatic Electronics Corporation, Burle (part of
Philips Communication & Security Systems, Inc.), Panasonic, Pelco, Lenel,
and Interlogics.
EMPLOYEES
As of December 31, 2000, the Company had 568 full-time employees employed
worldwide as compared with 695 full time employees worldwide in 1999, at 14
primary locations, of which 227 were sales and sales support personnel, 46 were
warehouse/manufacturing personnel, 76 were technical/service personnel, 59 were
engineering and product development personnel and 160 were administrative and
managerial personnel. The Company's future success will depend in large part
upon its ability to attract and retain highly skilled technical, managerial,
financial and marketing personnel, in a market where such people are in demand.
No employee is represented by a union or covered by a collective bargaining
agreement and the Company has not experienced a work stoppage or strike. The
Company considers its employee relations to be good.
ITEM 2. PROPERTIES
The Company moved to its new Worldwide Support Center in January 1998.
The facility is comprised of approximately 170,000 square feet of leased
office and warehouse space located on 14 acres of land in Lewisville, Texas,
pursuant to a synthetic lease with an initial term expiring in April 2003. In
January 2001, the Company purchased its lease on its corporate headquarters
facility from the lessor for $11.5 million of which $10 million was financed
by a mortgage. The Company recently entered into an agreement to sell a
5-acre tract of undeveloped land adjacent to its Lewisville headquarters.
This transaction will be completed by April 2001. The Company also leases
additional office/distribution warehouse space in Austin, Texas; Las Vegas,
Nevada; Paris, France; Warrington (Manchester), England; Antwerp, Belgium San
Vendemiano (Venice), Italy; Dusseldorf, Germany; Crissier (Lausanne),
Switzerland; Szczecin, Poland; Perth, Australia; Johannesburg, South Africa
and Singapore.
The Company established a centralized, European headquarters facility in
Antwerp, Belgium in 1999 to coordinate efforts among its foreign operations.
Customer service under the centralized structure suffered and the cost to
operate this facility proved to be unjustified. The Company has decided to sell
the Belgium headquarters building and to discontinue centralized distribution.
Instead, inventory will be maintained as necessary at each of the Company's
European offices located in the UK, Germany, France, Italy, Poland and
Switzerland. The Company will relocate European administrative and financial
functions to the UK where it currently maintains a sales and operations
facility.
The Company owns its 72,000 square foot manufacturing facility in Carroll
(Columbus), Ohio and leases its facilities in Rancho Cucamonga, California and
Perth, Australia.
The Company believes that its manufacturing facilities are adequate to
meet the Company's present and anticipated manufacturing needs for products that
it currently manufactures.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any pending or threatened legal proceedings to
which the Company is or may be a party, which may have a materially adverse
impact on the Company. The Company knows of no legal proceedings pending or
threatened or judgments entered against any director or officer of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of 2000.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE AND DIVIDENDS
The Company's $.01 par value common stock ("Common Stock") commenced
trading on the NASDAQ Stock Market's NASDAQ National Market ("NASDAQ National
Market") on January 18, 1994, under the symbol "ULTK." Before that time, the
Common Stock was traded in the over-the-counter market. Prices shown do not
include adjustments for retail markups, markdowns or commissions. The following
table sets forth the high and low closing prices on the NASDAQ National Market
for the periods indicated:
HIGH LOW
---- ---
2000
Fourth quarter........ $ 6.50 $ 2.81
Third quarter......... 10.25 5.75
Second quarter........ 11.88 6.00
First quarter......... 13.25 6.38
1999
Fourth quarter........ $ 7.75 $ 4.75
Third quarter......... 7.75 5.69
Second quarter........ 6.75 5.50
First quarter......... 8.13 5.88
As of February 28, 2001, there were approximately 1,136 holders of record
of the Common Stock.
The Company has never paid cash dividends on the Common Stock. The Company
presently intends to retain earnings to finance the development and expansion of
its business. The declaration in the future of any cash dividends on the Common
Stock will be at the discretion of the Board of Directors and will depend upon
the earnings, capital requirements and financial position of the Company,
general economic conditions and other pertinent factors. The Company intends to
continue to pay dividends on outstanding shares of Series A Preferred Stock, all
of which are owned by George K. Broady, the Chairman and Chief Executive Officer
of the Company. Dividends in the amount of $117,210 have been paid annually to
Mr. Broady since the issuance of the Series A Preferred Stock.
12
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for the Company as of
and for the five fiscal years ended December 31, 2000, have been derived from
the consolidated financial statements of the Company and its subsidiaries, which
have been audited by Grant Thornton LLP, independent certified public
accountants. The selected consolidated financial data includes the effects of
businesses acquired in 1996, 1997, 1998 and 1999. This data should be read in
conjunction with the information set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the Consolidated
Financial Statements and related notes which are included elsewhere herein. See
acquisition and divestiture discussions in Item 1. Because of these
transactions, the income statement and balance sheet data presented below may
not be comparable from year to year.
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
(In thousands, except per share data)
INCOME STATEMENT DATA: ................................... 1996 1997 1998 1999 2000
--------- --------- --------- --------- ---------
Net sales ................................................ $ 128,977 $ 177,837 $ 196,998 $ 208,200 $ 199,998
Cost of sales ............................................ 91,566 124,304 134,692 140,831 153,436
--------- --------- --------- --------- ---------
Gross profit ............................................. 37,411 53,533 62,306 67,369 46,562
Marketing and sales expenses ............................. 15,134 26,220 29,669 34,998 35,831
General and administrative expenses ...................... 8,871 19,130 19,885 21,679 35,292
Depreciation and amortization ............................ 1,436 3,971 4,667 5,911 6,482
Asset impairment ......................................... -- -- -- -- 19,798
Special charges .......................................... -- -- -- 3,875 1,115
--------- --------- --------- --------- ---------
Total operating expenses .......................... 25,441 52,443 54,221 66,463 98,518
--------- --------- --------- --------- ---------
Operating profit (loss) .................................. 11,970 1,090 8,085 906 (51,956)
Other expense (income) ................................... 214 (2,953) (461) (1,052) 9,876
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before income
taxes .................................................... 11,756 4,043 8,546 1,958 (61,832)
Incomes tax expense (benefit) ............................ 4,004 1,726 3,589 1,286 (4,145)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations ................. 7,752 2,317 4,957 672 (57,687)
Income (loss) from discontinued operations ............... (153) 84 (1,402) (107) --
--------- --------- --------- --------- ---------
Net income (loss) ................................. 7,599 2,401 3,555 565 (57,687)
Dividend requirements on preferred stock ................. 117 117 117 117 117
--------- --------- --------- --------- ---------
Net income (loss) allocable to common stockholders ....... $ 7,482 $ 2,284 $ 3,438 $ 448 $ (57,804)
========= ========= ========= ========= =========
Weighted average shares outstanding - diluted ............ 10,445 15,224 14,776 12,300 11,686
Income (loss) per common share from continuing
operations - diluted .............................. $ 0.74 $ 0.15 $ 0.34 $ .05 $ (4.95)
========= ========= ========= ========= =========
Net income (loss) per common share - diluted ............. $ 0.73 $ 0.15 $ 0.24 $ .04 $ (4.95)
========= ========= ========= ========= =========
BALANCE SHEET DATA: ..................................... 1996 1997 1998 1999 2000
--------- --------- --------- --------- ---------
Working capital .......................................... $ 119,163 $ 94,064 $ 90,192 $ 79,714 $ 23,649
Total assets ............................................. 172,510 185,256 196,626 200,350 143,497
Short-term debt .......................................... -- -- -- 1,149 37,380*
Long-term debt ........................................... -- -- 37,500 37,000 --
Stockholders' equity and equity put options .............. 155,961 163,198 140,030 132,663 77,247
* Due to losses in 2000, the line of credit was reclassified from short-term
debt to long-term debt.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The consolidated financial statements include the accounts of Ultrak and
its 16 consolidated subsidiaries. The Company is further organized in the U.S.
into separate selling divisions; all supported by common administrative
functions such as credit, accounting, payroll, purchasing, legal, warehousing,
training and computer support services. All significant intercompany balances
and transactions among subsidiaries and divisions have been eliminated in
consolidation.
Net sales have grown from $1.8 million in 1987 to $200 million in 2000.
Increases in net sales have come from increased volume of existing products and
systems to all of the markets served by the Company, introduction of new
products and systems, creation of new selling groups to focus on new markets and
acquisitions of businesses in the security and surveillance, access control
and alarm monitoring industries.
In 1996, the Company completed three international acquisitions and made a
minority investment in a fourth company. Effective July 1, 1996, Ultrak acquired
approximately 75% of the outstanding stock of MAXPRO, a manufacturer of large
scale CCTV switching systems based in Perth, Western Australia. On February 17,
1997, the Company acquired the remaining stock of MAXPRO. On September 6, 1996,
Ultrak acquired and subsequently sold in September 1997 its interest in
approximately 24% of the outstanding stock of Lenel, a domestic security access
control software company. Effective October 1, 1996, Ultrak acquired all of the
outstanding share capital of Bisset, a distributor of CCTV and professional
audio products based in Paris, France. Effective December 1, 1996, Ultrak
acquired all of the outstanding stock of VideV, a distributor and manufacturer
of CCTV products based in Dusseldorf, Germany. All of these transactions were
accounted for as purchases and the operations have been included in the
Company's financial statements since the dates of acquisition.
In 1997, the Company completed five acquisitions and made a minority
investment in a sixth company. Effective February 1, 1997, Ultrak acquired all
of the outstanding stock of MDI, a manufacturer of security and access control
systems based in Rancho Cucamonga, California. Effective March 1, 1997, the
Company acquired all of the outstanding stock of Intervision, a distributor of
CCTV products and systems based in England. Effective April 1, 1997, Ultrak
acquired all of the outstanding stock of the Videosys Group, a distributor of
CCTV and security products and systems based in Italy. Also effective April 1,
1997, the Company acquired all of the outstanding stock of Veravision, a
manufacturer of intraoral dental camera products based in San Clemente,
California. Effective October 1, 1997, the Company acquired all of the
outstanding stock of Philtech, a manufacturer and distributor of CCTV switching
and control equipment based in South Africa. Effective November 1997, the
Company established an 80% owned company in Singapore. All of these transactions
were accounted for as purchases and the operations have been included in the
Company's financial statements since the dates of acquisition.
In 1998, the Company made one acquisition and acquired the 20% minority
interest in its Singapore operation. As of February 1, 1998, the Company
acquired the net assets of Norbain-France, a distributor of CCTV products based
in Paris, France. Effective August 1, 1998, the Company sold its 90% owned
subsidiary, DVD, to a third party.
In 1999, the Company completed three acquisitions. Effective March 1,
1999, Ultrak acquired all of the outstanding stock of ABM, which develops and
sells computer software for the alarm monitoring security industry based in
Austin, Texas. Effective April 1, 1999 Ultrak acquired all of the outstanding
stock of Multi Concepts Systemes, SA, an integrator of electronic security
systems based in Crissier, Switzerland. Effective July 1, 1999, the Company
acquired all of the outstanding stock of Mach Security, Sp. z.o.o., a
distributor of CCTV products based in Szczecin, Poland. Effective March 3, 1999,
the Company completed the sale of its 10% interest in Securion 24 to Mr. Mutsuo
Tanaka.
In 2000, the Company did not make any acquisitions. Effective July 1,
2000, the Company sold substantially all assets of Intervision to Norbain SD,
Ltd., a UK-based distributor of CCTV and access control equipment.
Additionally, Norbain entered into a distribution and OEM purchase agreement
whereby Norbain must buy at least $6.0 million of Ultrak-branded CCTV
products and dome systems through the end of 2002 to maintain distribution
exclusivity for its Diamond series dome product line and its CCTV products in
the UK and Ireland. Effective September 13, 2000, the Company sold inventory
and certain assets to Ameritron, Inc. and Ameritron also entered into an
agreement to sublease a portion of Ultrak's Rancho Cucamonga facility.
14
During the first quarter of 2001, the Company purchased new technology
that allows it to manufacture a full-range of dome products. Total
consideration included an initial payment of $750,000 in cash and a future
contingent payment of $250,000 in July 2001 based upon the achievement of
certain production and cost reduction criteria.
Product sales are recorded when goods are shipped to the customer. Most of
the Company's sales are made to its domestic customers on Net 30 or Net 60 day
credit terms after a credit review has been performed to establish
creditworthiness and to determine an appropriate credit limit. The Company's
international sales are made under varying terms depending upon the
creditworthiness of the customer, and include the use of letters of credit,
payment in advance of shipment or open trade terms. Sales to a single customer
considered to be one legal entity accounted for approximately 27% of total sales
during 2000, 21% of total sales during 1999 and 17% of total sales during 1998.
However, sales to this legal entity are made independently via two separate
business segments within the Company to two separate buying organizations within
the legal entity.
Cost of sales for most of the Company's products includes the cost of the
product shipped plus freight, customs and other costs associated with delivery
from foreign contract manufacturers or from domestic suppliers. Cost of sales
for products manufactured by Ultrak include material, direct labor and overhead
as well as an allocated portion of indirect overhead.
Marketing and sales expenses are costs related to the Company's sales
efforts, which include costs incurred by both direct employees of the Company
and independent sales representatives. Marketing and sales expenses consist
primarily of salaries, commissions and related benefits, depreciation,
telephone, advertising, warranty, printing, product literature, sales promotion
and travel-related costs.
General and administrative expenses include costs of all corporate and
general administrative functions that support the existing selling divisions as
well as provides the infrastructure for future growth. General and
administrative expenses consist primarily of salaries and related benefits of
executive, administrative, operations and engineering, research and development
personnel, legal, audit and other professional fees, supplies, other engineering
costs and travel-related costs.
Engineering, research and product development costs are included in
general and administrative expenses and consist primarily of salaries, overhead
and material costs associated with the development of new products offered by
the Company. Most R&D costs have been expensed when incurred.
During the years ended December 31, 2000 and 1999, the Company wrote off
approximately $.8 million capitalized and $1.7 million, respectively, in
software development costs primarily pertaining to its SAFEnet NT software and
its ESS software development projects. The Company's investment in engineering,
research and software development projects increased significantly during 1998,
and continued to increase on an absolute basis in 1999 with a slight decrease in
2000.
The Company's consolidated financial statements are denominated in U.S.
dollars and, accordingly, changes in the exchange rate between the Company's
subsidiaries' local currencies and the U.S. dollar will affect the conversion of
such subsidiaries' financial results into U.S. dollars for purposes of reporting
the Company's consolidated financial results. Translation adjustments are
reported as a separate component of stockholders' equity.
A substantial portion of the Company's purchases and sales are derived
from operations outside the United States. Since the revenues and expenses of
the Company's foreign operations are generally denominated in local currency,
exchange rate fluctuations between local currencies and the U.S. dollar subject
the Company to currency exchange risks with respect to the results of its
foreign operations. Therefore, the Company is subject to these risks to the
extent that it is unable to denominate its purchases or sales in U.S. dollars or
otherwise shift to its customers or suppliers the effects of currency exchange
rate fluctuations. Such fluctuations in exchange rates could have a material
adverse effect on the Company's results of operations. The Company did not have
any foreign exchange forward or currency option contracts outstanding at
December 31, 2000.
15
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto included herein.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales represented by
certain items in the Company's consolidated summary of income for the indicated
periods.
YEARS ENDED DECEMBER 31,
1998 1999 2000
------- ------- -------
Net sales .................................. 100.0% 100.0% 100.0%
Cost of sales .............................. 68.4 67.6 76.7
---- ---- ----
Gross profit ............................... 31.6 32.4 23.3
---- ---- ----
Marketing and sales expenses ............... 15.1 16.8 17.9
General and administrative
expenses ................................... 10.1 10.4 17.6
Depreciation and amortization .............. 2.4 2.8 3.2
Asset impairment ........................... -- -- 9.9
Special charges ............................ -- 1.9 0.1
Total operating expenses .......... 27.5 31.9 49.3
---- ---- ----
Operating profit ........................... 4.1 0.4 (26.0)
Other expense (income) ..................... (0.2) (0.5) 4.9
---- ---- ----
Income from continuing operations
before income taxes ........................ 4.3 0.9 (30.9)
Income taxes ............................... 1.8 0.6 (2.1)
---- ---- ----
Income from continuing
operations ................................. 2.5 0.3 (28.8)
Discontinued operations,
net of tax effects ......................... (0.7) (0.1) --
---- ---- ----
Net income ................................. 1.8% 0.2% (28.8)%
======= ======= =======
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999
For the year ended December 31, 2000, net sales were $200.0 million, a
decrease of $8.2 million (4%) over 1999. This decrease is primarily due to
the sale of Intervision Express in July 2000, the scheduled phaseout of the
CCTV distribution business in France, and the declining value of the European
currencies against the U.S. dollar.
Cost of sales were $153.4 million for 2000, an increase of $12.6
million (9%) over 1999. Gross proft margins decreased to 23.3% in 2000 from
32.4% in 1999. This increase in cost of goods sold was primarily due to the
inventory write-offs of $12.4 million taken in the fourth quarter of 2000.
This increase consisted of the $9.5 million taken as part of the fourth
quarter charge costs related to the development of the audio business in
France and costs associated with the Company's centralized Europe
headquarters in Belgium. The fourth quarter write-offs are described in more
detail in Section 1 under the caption "Fourth Quarter Charge."
Marketing and sales expenses were $35.8 million for 2000, an increase
of $.8 million (2%) over 1999. Marketing and sales expenses for 2000 were
17.9% of net sales, up from 16.8% in 1999. This increase was due to the
effect of luring additional sales support and marketing personnel in
anticipation of new product introductions and resulting sales activities, as
well as the increased travel, printing, product literature, advertising and
promotional costs associated with the introduction of new products.
General and administrative expenses were $35.3 million for 2000, an
increase of $13.6 million (63%) over 1999. General and administrative
expenses for 2000 were 17.6% of net sales, up from 10.4% of net sales in
1999. This increase consisted of severance, bad debt, and other write-offs of
$9.4 million taken as part of the fourth quarter charge. The write-offs are
described in more detail in Section 1 under the caption "Fourth Quarter
Charge." The remaining increases were due to audio development expenses in
France and costs associated with the Company's centralized European
headquarters in Belgium.
Depreciation and amortization expenses were $6.5 million for 2000, an
increase of $.6 million (10%) over 1999. Depreciation and amortization
expenses for 2000 were 3.2% of net sales, up from 2.8% of net sales in 1999.
Included in the Company's 2000 results is an asset impairment charge of
$19.8 million, 9.9% of net sales, related write downs of goodwill, software
development costs and the impairment of internal use software. These
impairments are described in more detail in Section 1 under the caption
"Fourth Quarter Charge."
Special charge expenses of $1.1 million were taken in 2000. These
expenses relate to the $1.4 million of severance and other charges recorded
in the third quarter of 2000. These charges were for the separation of three
former executives from the Company, severance obligations related to the
outsourcing of certain manufacturing operations in California and Australia,
and a proxy solicitation contest with Detection Systems, Inc., a company of
which Ultrak held a 21% share in 2000. The remaining amount is an adjustment
of $0.3 million for excess reserves as part of the 1999 special charge. A
$3.9 million special charge was recorded in 1999 related to severance
obligations of $0.8 million and consolidation/centralization of European
activities of $3.1 million.
Other expenses of $9.9 million were recorded in 2000, compared with
other income of $1.1 million in 1999. $5.4 million of these expenses are
related to foreign currency losses, losses on sales of investments and other
charges taken as part of the fourth quarter charge. These items are described
in more detail in Section 1 under the caption "Fourth Quarter Charge." The
additional increase in other expenses relates to higher interest rates in
2000. The Company also recorded less income on its interest in Detection
Systems, Inc. due to lower earnings reported by that company in 2000,
compared to 1999.
16
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
For the year ended December 31, 1999, net sales were $208.2 million, an
increase of $11.2 million (6%) over 1998. This increase was primarily due to the
internal growth from sales of new products and systems introduced in late 1998
and early 1999, and acquisitions completed during 1999.
Cost of sales were $140.8 million for 1999, an increase of $6.1 million
(5%) over 1998. Gross profit margins increased to 32.4% in 1999 from 31.6% in
1998. This increase in gross profit margin was due primarily to increased sales
of Ultrak branded products and higher margins earned on its software based
products.
Marketing and sales expenses were $35.0 million for 1999, an increase of
$5.3 million (18%) over 1998. Marketing and sales expenses for 1999 were 16.8%
of net sales, up from 15.1% in 1998. This increase was due to the effect of
acquisitions completed during 1999, the effect of hiring additional field sales
personnel and the effect of hiring additional sales support and marketing
personnel in anticipation of new product introductions and resulting sales
activities, as well as the increased travel, printing, product literature,
advertising and promotional costs associated with the introduction of new
products.
General and administrative expenses were $21.7 million for 1999, an
increase of $1.8 million (9%) over 1998. General and administrative expenses for
1999 were 10.4% of net sales, up from 10.1% of net sales in 1998. This increase
was primarily due to the effect of acquisitions in 1999 and the costs related to
the establishment of the Company's European headquarters in Antwerp, Belgium.
Depreciation and amortization expenses were $5.9 million for 1999, an increase
of $1.2 million (27%) over 1998. Depreciation and amortization expenses for 1999
were 2.9% of net sales, up from 2.4% of net sales in 1998 due to increased
capital expenditures in 1998 and 1999.
Included in the Company's 1999 results is a special charge of
$3,875,000 related to restructuring of Ultrak's Europe and domestic
operations. This restructuring effort was intended to consolidate and
centralize European activities. In the first quarter of 1999, the Company
recorded nonrecurring charges of $750,000 related to domestic severance
obligations. During the second quarter of 1999, the Company recorded
nonrecurring charges of $3,125,000 related to consolidation of four locations
into its European headquarters in Antwerp, Belgium in order to centralize
administrative, accounting and finance functions, purchasing, shipping and
billing activities. Also included in these nonrecurring charges were employee
severance and lease termination costs for the European consolidation and the
closing of three U.S. sales/distribution offices.
Other income was approximately $1.1 million for 1999, an increase of
$590,000 from 1998. This increase was due to equity in earnings of Detection
Systems, Inc. ("DETC") and gains on the sale of certain investments offset by
increased interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net decrease in cash and cash equivalents for 2000 of
approximately $1.0 million. Net cash provided by operating activities in 2000
was approximately $2.0 million, versus $12.8 million in 1999. The most
significant differences resulted from the net loss in 2000, offset by
non-cash charges and reduced inventories. Net cash used in investing
activities was approximately $2.9 million consisting primarily of purchases
of property and equipment for worldwide computer software implementations.
Net cash used in financing activities was approximately $0.1 million,
consisting primarily of net repayments on the Company's revolving line of
credit and the payment of dividends on the Company's outstanding Series A
Preferred Stock, offset by proceeds from exercises of stock options.
17
At December 31, 2000, the Company had $35.4 million outstanding under its
two-year credit facility. During the 2000 calendar year, the interest rates on
the credit facility were adjusted to prime plus a ranges of 0% to .75% on LIBOR
or range of 2.25% to 3.25%, depending on the leverage ratio. The Company was
in violation of certain financial covenants under the credit facility, but was
able to obtain waivers for such violations from its lenders in March 2001.
Subsequent to the sale of the Company's investment in Detection Systems, Inc. in
January 2001, the credit facility was paid down and reduced from $45 million to
$30 million outstanding.
On March 22, 2000, the Company entered into a new two-year credit
facility. The credit facility provides for borrowings up to $45.0 million under
a revolving line of credit based upon available collateral. Interest for the
credit facility is payable quarterly at prime plus a range of 0% to .25% or
LIBOR plus a range of 2.25% to 2.75%, depending on the leverage ratio and other
conditions, as defined, for the quarter. The credit facility contains certain
restrictive financial and operational covenants and conditions, including a
maximum leverage ratio, a debt service ratio and minimum net worth amounts. The
Company pays a quarterly unused fee of .375% per annum.
Despite the significant loss reported, cash flow from operations in
2000 was approximately $2 million. In January 2001, the proceeds from the
Detection Systems, Inc. shares were used to decrease the Company's borrowing
level to $24 million by the end of the first quarter 2001. The capacity of
the credit facility is more than sufficient to fund our current business
operations. Borrowings on the line of credit are expected to increase
somewhat by mid-year due to regular seasonality, but should return to its
current level by the end of 2001. Positive cash generation from operations
will fund the cash portion of the restructuring charge, about $5.5 million,
and the pay-down of the mortgage by $1.5 million.
18
INFLATION
During the years ended December 31, 2000, 1999 and 1998, the cost of
property and equipment, lease expense and salaries and wages increased modestly.
The increases have not had a material impact on the Company's results of
operations during any of the periods.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk includes
"forward-looking statements" that involve risks and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements. The Company does not use derivative financial instruments for
speculative or trading purposes. The Company is exposed to market risk from
changes in foreign currency exchange rates and interest rates, which could
affect its future results of operations and financial condition. The Company
manages its exposure to these risks through its regular operating and financing
activities.
Foreign exchange
The Company has foreign-based operations, primarily in Western Europe,
which accounted for 24% of 2000 net sales. The strengthening of the U.S. dollar
from 1999 to 2000 had a negative impact on sales and gross profit. Inventory
purchases were made in U.S. dollars or in currencies pegged to the U.S. dollar.
This appreciation of the U.S. dollar against the Western European currencies had
an adverse impact of about $2 million on gross profit.
The Company issues intercompany loans to its foreign subsidiaries
denominated in U.S. dollars on a long-term basis, exposing the foreign
subsidiaries to the effect of changes in spot exchange rates of their local
currency relative to the U.S. dollar. The Company does not regularly use
forward-exchange contracts to hedge these exposures. Based on the Company's
foreign currency exchange rate exposure for intercompany borrowings of
approximately $32 million at December 31, 2000, a 10% adverse change in currency
rates would reduce accumulated other comprehensive income by approximately $3.2
million.
Interest rates
The Company's credit arrangements expose it to fluctuations in interest
rates. At December 31, 2000, the Company had $35.4 million outstanding under its
revolving line of credit, which provided for interest to be paid quarterly based
on a variable rate. Thus, interest rate changes would result in a change in the
amount of interest to be paid each quarter. Based upon the interest rates and
borrowings at December 31, 2000, a 10% increase in interest rates would
adversely affect the Company's financial position, annual results of operations,
or cash flows by approximately $351,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its subsidiaries
that are required by this Item 8 are listed in Part IV under Item 14(a) of this
Annual Report on Form 10-K. Such consolidated financial statements are included
herein beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information regarding the
Company's directors to appear under the caption "Election of Directors" in the
Company's proxy statement for its 2001 Annual Meeting of Stockholders (the "2001
Proxy Statement"), which is expected to be filed with the Securities and
Exchange Commission on or about April 30, 2001. See also the list of the
Company's executive officers and related information under "Directors and
Executive Officers" in Part I of the 2001 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information to appear under
the captions "Election of Directors" and "Executive Compensation and Other
Information" in the 2001 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information with respect to
security ownership to appear under the caption "Security Ownership of Principal
Stockholders and Management" in the 2001 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information to appear under
the caption "Executive Compensation and Other Information - Certain
Transactions" in the 2001 Proxy Statement.
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statement Schedules filed as part of this Annual Report on
Form 10-K.
Financial Statements:
Report of Independent Certified Public Accountants.
Consolidated Balance Sheets as of December 31, 2000 and 1999.
Consolidated Statements of Operations for the years ended December
31, 2000, 1999 and 1998.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the years ended December
31, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements.
Additional financial information pursuant to the requirements of Form 10-K:
Report of Independent Certified Public Accountants on Schedule
Schedule II - Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are either not
applicable or the required information has been provided elsewhere in the
Consolidated Financial Statements or notes thereto.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed with the Securities and
Exchange Commission on August 4, 2000 reporting the resignation of Ted
Wlazlowski, Executive Vice President of the Company and announcing that
Peter Beare was elected President and Chief Operating Officer of the
Company.
A current Report on Form 8-K was filed with the Securities and
Exchange Commission on October 24, 2000 reporting the resignation of Tim
Torno, Vice President-Finance and Chief Financial Officer of the Company
and announcing that Chris Sharng was named Senior Vice President and Chief
Financial Officer of the Company.
(c) Exhibits
3.1 Certificate of Incorporation of the Company (filed as Exhibit 3.1 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1995)
3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995)
4.1 Form of certificate representing shares of the Common Stock (filed
as Exhibit 4.1 the Company's Registration Statement on Form S-2,
Registration No. 333-02891)
10.1 Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (filed as Exhibit
10.6 to the Company's Registration Statement on Form S-1,
Registration No. 55-3-31110)
10.2 Amendment No. 2 to Ultrak, Inc. 1988 Non-Qualified Stock Option Plan
(filed as Exhibit 10 to the Company's Current Report on Form 8-K
dated December 28, 1993)
21
10.3 Amendment No. 3 to Ultrak, Inc. 1988 Non-Qualified Stock Option Plan
(filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996)
10.4 Agreement and Plan of Reorganization, dated as of April 28, 1995,
among Diamond Electronics, Inc., the shareholders of Diamond signing
the Agreement, the Company and Diamond Purchasing Corp. (filed as
Annex A to the Company's Form S-4 dated June 28, 1995)
10.5 Employment Agreement, dated May 25, 1995, between the Company and
James D. Pritchett (filed as Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995)
10.6 Employment Agreement, dated May 25, 1995, between the Company and
Tim D. Torno (filed as Exhibit 10.22 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995)
10.7 Ultrak, Inc. Incentive Stock Option Plan (filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997)
10.8 Stock Purchase Agreement dated August 7, 1996 among Chris Davies,
Kim Rhodes, Scott Rhodes, Rhodes Davies & Associates Pty Ltd. and
the Company (filed as Exhibit 10.1 to the Company's Current Report
on Form 8-K dated August 23, 1996)
10.09 Stock Purchase Agreement dated September 26, 1996 among Maurice
Scetbon, Monda, S.A., Frida, S.A., the Company and Ultrak Holdings
Limited (filed as Exhibit 10.1 to the Company's Current Report on
Form 8-K dated October 11, 1996)
10.10 Purchase Agreement of German GmbH Share Capital, dated December 16,
1996, among all of the shareholders of VideV GmbH, Ultrak and Ultrak
Holdings Limited (filed as Exhibit 1 to the Company's Current Report
on Form 8-K dated December 31, 1996)
10.11 Agreement and Plan of Merger dated February 10, 1997 among Monitor
Dynamics, Inc., all of the shareholders of Monitor Dynamics, Inc.,
Ultrak, Inc. and MDI Acquisition Corp. (filed as Exhibit 1 to the
Company's Current Report on Form 8-K dated March 5, 1997)
10.12 Amended and Restated Loan Agreement, dated effective as of December
11, 1997, among Ultrak, Inc., Dental Vision Direct, Inc., Diamond
Electronics, Inc., Monitor Dynamics, Inc., Ultrak Operating, L.P.
and NationsBank of Texas, N.A. (filed as Exhibit 1 to the Company's
current Annual Report on Form 10-K for the year ended December 31,
1997)
10.13 Credit Agreement, dated as of February 16, 1999, among Ultrak, Inc.,
Bank One, Texas, N.A. and Certain Lenders (filed as Exhibit 10.13 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1998)
10.14 Stock Purchase Agreement dated August 5, 1998, between the Company
and American Dental Technologies, Inc. (filed as Exhibit 10.14 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1998)
10.15 Stock Sale Agreement dated February 23, 1999 between the Company and
Mutsuo Tanaka (filed as Exhibit 10.15 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998)
10.16 Employment Agreement, dated January 1, 1998, between the Company and
Ted Wlazlowski (filed as Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998)
10.17 Agreement and Plan of Merger dated March 15, 1999 among ABM Data
Systems, Inc., Robert F. James, Ultrak, Inc. and ABM Acquisition
Corp. (filed as Exhibit 1 to the Company's Current Report on Form
8-K dated March 18, 1999)
22
10.18 First Amended and Restated Credit Agreement between Ultrak, Inc.,
Bank One of Texas, N.A. and Certain Lenders, dated August 12, 1999
(filed as Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999)
10.19 Employment Agreement, dated June 1, 1999, between the Company and
Ted Wlazlowski (filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999)
10.20 Employment Agreement, dated June 1, 1999, between the Company and
Tim D. Torno (filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999)
10.21 First Amendment to First Amended and Restated Credit Agreement
between Ultrak, Inc., Bank One of Texas, N.A. and Certain Lenders,
dated November 12, 1999
10.22 Second Amendment to First Amended and Restated Credit Agreement
between Ultrak, Inc., Bank One of Texas, N.A. and Certain Lenders,
dated January 31, 2000
10.23 Third Amendment to First Amended and Restated Credit Agreement
between Ultrak, Inc., Bank One of Texas, N.A. and Certain Lenders,
dated February 29, 2000
10.24 Amendment No. 4 to Ultrak, Inc. 1988 Non-Qualified Stock Option
Plan
10.25 Amended and Restated Credit Agreement between Ultrak Operating,
L.P., American National Bank and Trust Company of Chicago and
Certain Lenders, dated March 22, 2000
10.26 First Amended and Restated Credit Agreement among Ultrak Operating,
L.P., American National Bank and Trust Company of Chicago and
Harris Trust Savings Bank, dated May 17, 2000
10.27 Amendment No. 5 to Ultrak, Inc 1988 Non-Qualified Stock Option
Plan, adopted by the Board as of January 24, 2000
*10.28 Fourth Amendment and Continuation of Waivers effective March 1,
2001 between Ultrak Operating, L.P., American National Bank and
Trust Company of Chicago and Harris Trust Savings Bank
*10.29 Fifth Amendment and Continuation of Waivers dated March 28, 2001
between Ultrak Operating, L.P., American National Bank and Trust
Company of Chicago and Harris Trust Savings Bank
*10.30 Employment Agreement, effective January 1, 2001, between the
Company and Peter Beare
*10.31 Employment Agreement, effective January 1, 2001, between the
Company and Wendy Diddell
*10.32 Employment Agreement effective January 9, 2001, between the Company
and Chris Sharng
*21.1 Subsidiaries of the Company
- -----------------
* Exhibits 10.28, 10.29, 10.30, 10.31, 10.32, and 21.1 are filed
herewith.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 29th day of
March, 2001
ULTRAK, INC.
By /s/ George K. Broady
------------------------------
George K. Broady
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
/s/George K. Broady Chairman of the Board and Chief March 29, 2001
- --------------------------------------------- Executive Officer
George K. Broady (Principal Executive Officer)
/s/ Chris Sharng Senior Vice President-Finance, Secretary, March 29, 2001
- --------------------------------------------- Treasurer and Chief Financial Officer
Chris Sharng (Principal Financial and Accounting
Officer)
/s/ Malcolm J. Gudis Director March 29, 2001
- ---------------------------------------------
Malcolm J. Gudis
/s/ Charles C. Neal Director March 29, 2001
- ---------------------------------------------
Charles C. Neal
/s/ Robert F. Sexton Director March 29, 2001
- ---------------------------------------------
Robert F. Sexton
/s/George Vincent Broady Director March 29, 2001
- ---------------------------------------------
George Vincent Broady
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Ultrak, Inc.
We have audited the accompanying consolidated balance sheets of Ultrak, Inc.
and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ultrak, Inc. and
Subsidiaries as of December 31, 2000 and 1999, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
GRANT THORNTON LLP
Dallas, Texas
March 16, 2001
F-1
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 2000 1999
------ ------
CURRENT ASSETS
Cash and cash equivalents $ 3,751,162 $ 4,757,512
Marketable securities - 600,033
Investment in Detection Systems, Inc. 13,909,069 -
Trade accounts receivable, less allowance for doubtful
accounts of $5,790,545 and $2,401,773 at
December 31, 2000 and 1999, respectively 32,232,005 41,337,442
Inventories, net 26,370,856 49,097,433
Advances for inventory purchases 521,184 1,943,617
Prepaid expenses and other current assets 4,393,954 4,230,732
Income tax refundable 891,109 -
Deferred income taxes 6,337,374 3,959,604
Net current assets of discontinued operations - 1,905,831
----------- -----------
Total current assets 88,406,713 107,832,204
PROPERTY, PLANT AND EQUIPMENT, at cost 26,885,731 30,102,403
Less accumulated depreciation and amortization (11,884,667) (9,265,181)
----------- -----------
15,001,064 20,837,222
OTHER ASSETS
Goodwill, net of accumulated amortization of $6,635,696
and $7,054,360 at December 31, 2000 and 1999,
respectively 39,374,965 56,337,690
Investment in Detection Systems, Inc. - 13,354,019
Other 713,816 1,989,373
----------- -----------
40,088,781 71,681,082
----------- -----------
Total assets $143,496,558 $200,350,508
=========== ===========
F-2
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------ ------
CURRENT LIABILITIES
Accounts payable - trade $ 13,045,832 $ 15,739,200
Accrued expenses 6,168,130 5,916,432
Accrued restructuring costs 5,634,465 1,749,073
Other current liabilities 2,529,178 3,563,705
Line of credit 35,419,017 37,000,000
Other debt 1,960,992 1,149,376
----------- -----------
Total current liabilities 64,757,614 65,117,786
DEFERRED INCOME TAXES 1,491,591 2,569,870
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, $5 par value, issuable in series; 2,000,000 shares
authorized; Series A, 12% cumulative convertible;
195,351 shares authorized, issued and outstanding 976,755 976,755
Common stock, $.01 par value; 20,000,000 shares authorized;
15,156,538 and 14,981,471 shares issued at December 31,
2000 and 1999, respectively 151,565 149,815
Additional paid-in capital 157,913,929 156,708,110
Retained earnings (accumulated deficit) (40,225,584) 17,578,720
Accumulated other comprehensive loss (2,886,201) (4,067,437)
Treasury stock, at cost (3,467,650 shares
at December 31, 2000 and 1999) (38,683,111) (38,683,111)
----------- -----------
Total stockholders' equity 77,247,353 132,662,852
----------- -----------
Total liabilities and stockholders' equity $143,496,558 $200,350,508
=========== ===========
The accompanying notes are an integral part of these statements.
F-3
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
2000 1999 1998
------ ------ ------
Net sales $199,997,621 $208,200,566 $196,997,780
Cost of sales (exclusive of depreciation shown
separately below) 153,435,231 140,831,376 134,691,839
----------- ----------- -----------
Gross profit 46,562,390 67,369,190 62,305,941
Other operating costs:
Marketing and sales 35,831,237 34,997,819 29,669,191
General and administrative 35,292,067 21,678,426 19,885,071
Depreciation and goodwill amortization 6,482,244 5,911,464 4,666,508
Asset impairment 19,798,179 - -
Special charges 1,114,943 3,875,000 -
----------- ----------- -----------
98,518,670 66,462,709 54,220,770
----------- ----------- -----------
Operating profit (loss) (51,956,280) 906,481 8,085,171
Other income (expense):
Interest expense (3,743,288) (2,964,954) (1,373,941)
Interest income 68,633 175,837 412,383
Gain (loss) on sale of investments (637,279) 669,543 675,000
Loss on sale of subsidiary (839,557) - -
Foreign exchange gains (losses) (4,637,005) 376,948 (97,838)
Equity in income of Detection Systems, Inc. 554,000 1,885,000 350,000
Other, net (641,103) 909,513 496,074
----------- ---------- --------
(9,875,599) 1,051,887 461,678
----------- ---------- -----------
Income (loss) from continuing operations
before income taxes (61,831,879) 1,958,368 8,546,849
Income tax benefit (expense) 4,144,785 (1,285,814) (3,589,676)
----------- ---------- -----------
Income (loss) from continuing operations (57,687,094) 672,554 4,957,173
Discontinued operations, net of taxes
Loss from operations - (107,022) (1,480,243)
Gain on disposal - - 77,946
----------- ---------- -----------
NET INCOME (LOSS) (57,687,094) 565,532 3,554,876
Dividend requirements on preferred stock (117,210) (117,210) (117,210)
----------- ---------- -----------
Net income (loss) allocable to common stockholders $(57,804,304) $ 448,322 $ 3,437,666
=========== ========== ===========
The accompanying notes are an integral part of these statements.
F-4
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
Years ended December 31,
2000 1999 1998
------ ------ ------
Income (loss) per common share:
Continuing operations
Basic $(4.95) $ 0.05 $ 0.37
====== ====== ======
Diluted $(4.95) $ 0.05 $ 0.34
====== ====== ======
Discontinued operations
Basic $ - $(0.01) $(0.11)
====== ====== ======
Diluted $ - $(0.01) $(0.10)
====== ====== ======
Net income (loss)
Basic $(4.95) $ 0.04 $ 0.26
====== ====== ======
Diluted $(4.95) $ 0.04 $ 0.24
====== ====== ======
The accompanying notes are an integral part of these statements.
F-5
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31,
Deferred issuance
of common
stock related to Retained
Preferred Stock Common Stock companies acquired Additional earnings
----------------- -------------------- ------------------ paid-in (accumulated
Shares Amount Shares Amount Shares Amount capital deficit)
-------- -------- ---------- -------- -------- -------- ------------ ------------
Balance at January 1, 1998 195,351 $976,755 14,445,741 $144,457 50,819 $ 508 $126,414,327 $13,692,732
Comprehensive income
Net income - - - - - - - 3,554,876
Other comprehensive income
Foreign currency translation
adjustment - - - - - - - -
Unrealized loss on investments
held for sale, net of taxes
of $88,541 - - - - - - - -
Total
Issuance of common stock - - - - (50,819) (508) - -
Acquisition of businesses - - 123,065 1,231 - - - -
Adjustment to earnout contingency - - - - - - (104,508) -
Exercise of stock options and warrants - - 134,332 1,343 - - 223,337 -
Treasury stock purchases - - - - - - - -
Equity put options expired - - - - - - 3,312,499 -
Equity put options redeemed - - - - - - 23,487,938 -
Preferred stock dividends - - - - - - - (117,210)
------- ------- ---------- ------- ------- ---- ----------- ----------
Balance at December 31, 1998 195,351 976,755 14,703,138 147,031 - - 153,333,593 17,130,398
Accumulated
other Treasury stock
comprehensive ------------------------
loss Shares Amount Total
------------- -------- ------------- ------------
Balance at January 1, 1998 $(1,868,304) 452,850 $ (4,526,071) $134,834,404
Comprehensive income
Net income - - - 3,554,876
Other comprehensive income
Foreign currency translation
adjustment 1,072,690 - - 1,072,690
Unrealized loss on investments
held for sale, net of taxes
of $88,541 (171,874) - - (171,874)
------------
Total 4,455,692
------------
Issuance of common stock - - - (508)
Acquisition of businesses - - - 1,231
Adjustment to earnout contingency - - - (104,508)
Exercise of stock options and warrants - - - 224,680
Treasury stock purchases 440,500 (4,139,433) (4,139,433)
Equity put options expired - - - 3,312,499
Equity put options redeemed - 2,120,000 (23,487,938) -
Preferred stock dividends - - - (117,210)
------------- --------- ------------ ------------
Balance at December 31, 1998 (967,488) 3,013,350 (32,153,442) 138,466,847
F-6
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED
Years ended December 31,
Deferred issuance
of common
stock related to
Preferred Stock Common Stock companies acquired Additional
----------------- -------------------- ------------------ paid-in
Shares Amount Shares Amount Shares Amount capital
-------- -------- ---------- -------- ------- -------- ------------
Balance at January 1, 1999 195,351 $976,755 14,703,138 $147,031 - $ - $153,333,593
Comprehensive loss
Net income - - - - - - -
Other comprehensive loss
Foreign currency translation
adjustment - - - - - - -
Unrealized loss on investments
held for sale, net of tax of
$292,541 - - - - - - -
Plus: reclassification adjustment
for losses included in net
income, net of tax effect of
$88,541 - - - - - - -
171,874
Total
Acquisition of business - - 250,000 2,500 - - 1,492,389
Exercise of stock options and warrants - - 28,333 284 - - 68,565
Stock-based compensation - - - - - - 250,000
Treasury stock purchases - - - - - - -
Equity put options expired - - - - - - 1,563,563
Preferred stock dividends - - - - - - -
------- -------- ---------- -------- ------ ------- ------------
Balance at December 31, 1999 195,351 976,755 14,981,471 149,815 - - 156,708,110
Retained Accumulated
earnings other Treasury stock
(accumulated comprehensive -------------------------
deficit) loss Shares Amount Total
------------ ------------- --------- ------------ ------------
Balance at January 1, 1999 $17,130,398 $ (967,488) 3,013,350 $(32,153,442) $138,466,847
Comprehensive loss
Net income 565,532 - - - 565,532
Other comprehensive loss
Foreign currency translation
adjustment - (2,703,949) - - (2,703,949)
Unrealized loss on investments
held for sale, net of tax of
$292,541 - (567,874) - - (567,874)
Plus: reclassification adjustment
for losses included in net
income, net of tax effect of
$88,541 - 171,874 - - 171,874
-------------
Total (2,534,417)
-------------
Acquisition of business - - - - 1,494,889
Exercise of stock options and warrants - - - - 68,849
Stock-based compensation - - - - 250,000
Treasury stock purchases - - 454,300 (6,529,669) (6,529,669)
Equity put options expired - - - - 1,563,563
Preferred stock dividends (117,210) - - - (117,210)
---------- ------------ --------- ------------ -------------
Balance at December 31, 1999 17,578,720 (4,067,437) 3,467,650 (38,683,111) 132,662,852
F-7
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED
Years ended December 31,
Deferred issuance
of common
stock related to
Preferred Stock Common Stock companies acquired Additional
----------------- -------------------- ------------------ paid-in
Shares Amount Shares Amount Shares Amount capital
-------- -------- ---------- -------- ------- -------- ------------
Balance at January 1, 2000 195,351 $976,755 14,981,471 $149,815 - $ - $156,708,110
Comprehensive income (loss)
Net loss - - - - - - -
Other comprehensive income (loss)
Foreign currency translation
adjustment - - - - - - -
Reclassification adjustment for
losses included in net loss, net
of tax of $292,541 - - - - - - -
Reclassification (Note B) - - - - - - -
Total
Exercise of stock options and warrants - - 175,067 1,750 - - 917,606
Stock-based compensation - - - - - - 25,450
Tax benefit from employee stock
transactions - - - - - - 262,763
Preferred stock dividends - - - - - - -
------- -------- ---------- -------- ------ ------ ------------
Balance at December 31, 2000 195,351 $976,755 15,156,538 $151,565 - $ - $157,913,929
======= ======== ========== ======== ====== ====== ============
Retained Accumulated
earnings other Treasury stock
(accumulated comprehensive --------------------------
deficit) loss Shares Amount Total
------------ ------------- ---------- ------------- ------------
Balance at January 1, 2000 $ 17,578,720 $(4,067,437) 3,467,650 $(38,683,111) $132,662,852
Comprehensive income (loss)
Net loss (57,687,094) - - - (57,687,094)
Other comprehensive income (loss)
Foreign currency translation
adjustment - (3,583,268) - - (3,583,268)
Reclassification adjustment for
losses included in net loss, net
of tax of $292,541 - 567,874 - - 567,874
Reclassification (Note B) - 4,196,630 - - 4,196,630
------------
Total (56,505,858)
------------
Exercise of stock options and warrants - - - - 919,356
Stock-based compensation - - - - 25,450
Tax benefit from employee stock
transactions - - - - 262,763
Preferred stock dividends (117,210) - - - (117,210)
------------ ----------- --------- ------------ ------------
Balance at December 31, 2000 $(40,225,584) $(2,886,201) 3,467,650 $(38,683,111) $ 77,247,353
============ =========== ========= ============ ============
The accompanying notes are an integral part of these statements.
F-8
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
2000 1999 1998
------ ------ ------
Cash flows from operating activities:
Net income (loss) $(57,687,094) $ 565,532 $ 3,554,876
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities from
continuing operations:
Loss (income) from discontinued operations - 107,022 1,480,243
Gain on disposal from discontinued operations - - (77,946)
Loss on disposal of fixed assets 428,463 - -
Gain (loss) on sale of investments 637,279 (669,543) (675,000)
Loss on sale of subsidiary 839,557 - -
Equity in income of Detection Systems, Inc. (554,000) (1,885,000) (350,000)
Realized foreign currency translation losses 4,196,630 - -
Depreciation and amortization 6,482,244 5,911,464 4,666,508
Provision for losses on accounts receivable 3,555,940 813,178 (8,103)
Noncash inventory writedowns 12,370,115 2,177,637 2,104,636
Asset impairment 19,798,179 - -
Other noncash charges 952,169 287,713 -
Deferred income taxes (3,015,450) 676,460 1,605,341
Other (370,550) - -
Changes in operating assets and liabilities
Accounts and notes receivable 5,353,332 (4,992,471) (3,719,551)
Inventories 9,667,461 (5,459,658) (10,440,583)
Advances for inventory purchases 1,422,433 2,935,236 6,541,157
Prepaid expenses and other current assets (780,225) 1,697,813 (2,408,931)
Income tax refundable (891,109) - -
Noncurrent notes and other assets 336,698 1,980,668 702,546
Accounts payable (3,384,057) 6,974,493 (4,240,203)
Accrued restructuring costs 3,885,392 1,749,073 -
Accrued and other current liabilities (1,227,078) (1,237,177) 1,075,151
----------- ---------- ----------
Net cash provided by (used in) operating
activities of continuing operations 2,016,329 11,632,440 (189,859)
Cash flows from investing activities:
Proceeds from sale of marketable securities 562,754 7,776,652 1,050,000
Purchases of marketable securities - (4,458,165) (4,018,995)
Purchases of common stock of Detection Systems, Inc. (1,050) (531,018) (12,352,949)
Purchases of property and equipment (4,296,830) (6,182,785) (12,322,627)
Software development costs (1,234,930) (1,692,199) (1,530,577)
Proceeds from sale of discontinued operations - - 3,000,000
Proceeds from sale of subsidiary 2,100,000 - -
Acquisitions, net of cash acquired - (679,878) -
----------- ---------- ----------
Net cash used in investing activities
of continuing operations (2,870,056) (5,767,393) (26,175,148)
The accompanying notes are an integral part of these statements.
F-9
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
2000 1999 1998
------ ------ ------
Cash flows from financing activities:
Proceeds from revolving line of credit $ 20,000,000 $ 47,804,192 $ 37,500,000
Repayments on revolving line of credit (21,580,983) (48,304,192) -
Proceeds from other debt 1,204,360 1,149,376 -
Repayments on other debt (392,744) - -
Decrease in restricted cash - - 3,949,690
Issuance of common stock 919,356 68,849 120,895
Purchase of treasury stock - (6,529,669) (27,627,371)
Payment of preferred stock dividends (117,210) (117,210) (117,210)
---------- ---------- ----------
Net cash provided by (used in) financing
activities of continuing operations 32,779 (5,928,654) 13,826,004
---------- ---------- ----------
Net decrease in cash and cash equivalents (820,948) (63,607) (12,539,003)
Effect of exchange rate changes on cash (185,402) (1,443,980) (247,464)
Cash provided by (used in) discontinued operations - 1,784,378 3,167,504
Cash and cash equivalents at beginning of the year 4,757,512 4,480,721 14,099,684
---------- ---------- ----------
Cash and cash equivalents at end of the year $ 3,751,162 $ 4,757,512 $ 4,480,721
========== ========== ==========
Supplemental cash flow information: Cash paid during the period for:
Interest $ 3,533,942 $ 2,322,093 $ 1,451,248
========== ========== ==========
Income taxes $ 288,102 $ 1,203,710 $ 4,049,242
========== ========== ==========
Supplemental schedule of noncash investing and financing:
Acquisition of businesses
Assets acquired $ - $ 3,581,198 $ 1,244,800
Liabilities assumed - (1,228,350) (1,200,000)
Common stock issued or issuable - (1,494,889) -
---------- ---------- ----------
- 857,959 44,800
Less cash acquired - 178,081 44,800
---------- ---------- ----------
Net cash paid for acquisitions $ - $ 679,878 $ -
========== ========== ==========
The accompanying notes are an integral part of these statements.
F-10
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Ultrak, Inc. (the "Company") is a U.S.-based multinational corporation that
designs, manufactures, markets, sells and services electronic products and
systems for the security and surveillance, industrial and medical video and
professional audio markets worldwide. These products and systems include a
broad line of cameras, lenses, high-speed dome systems, monitors, switchers,
quad processors, time-lapse recorders, multiplexers, video transmission
systems, access control systems, computerized observation and security
systems, audio equipment and accessories.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
MARKETABLE SECURITIES
The Company accounts for its marketable securities, all of which are
designated as available for sale, using Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Securities available for sale are reported at fair value, with
unrealized gains and losses, net of tax, excluded from earnings and reported
as a separate component of stockholders' equity. Realized gains and losses
on securities available for sale are reported in income in the year of sale.
INVENTORIES
Inventories are comprised principally of goods held for resale, which are
valued at the lower of cost (first-in, first-out) or market.
ADVANCES FOR INVENTORY
Advances for inventory represents payments in advance for goods purchased
primarily from the Far East. Upon receipt of the goods, advances are
classified as inventories.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are carried at cost. The provision for
depreciation is computed using the straight-line method over the estimated
useful lives of the assets.
F-11
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
INCOME (LOSS) PER SHARE
The Company computes basic income (loss) per share based on the weighted
average number of common shares outstanding. Diluted income per share is
computed based on the weighted average number of shares outstanding, plus
the number of additional common shares that would have been outstanding if
dilutive potential common shares had been issued.
GOODWILL AND AMORTIZATION
Goodwill resulting from acquisitions is being amortized using the
straight-line method over periods ranging from twenty to forty years.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates long-lived assets and intangibles held and used for
impairment whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. Impairment is recognized when the
undiscounted cash flows estimated to be generated by those assets are less
than the carrying amounts of such assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents and
debt. The fair values approximate the carrying values.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation to employees using the
intrinsic value method. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to
acquire the stock.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs incurred from the time
technological feasibility of the software is established until the software
is ready for use in its products. Research and development costs related to
software development are expensed as incurred. The capitalized costs relate
to software which will become an integral part of the Company's revenue
producing products and are amortized in relation to expected revenues from
the product or a maximum of five years, whichever is greater. The carrying
value of software development costs is regularly reviewed by the Company,
and a loss is recognized when the net realizable value by product falls
below the unamortized cost.
F-12
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
SHIPPING AND HANDLING FEES
In September 2000, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board (FASB) reached a consensus on EITF Issue No.
00-10, ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS. This consensus
requires that all shipping and handling fees charged to customers be
reported as revenue and all shipping and handling costs incurred by a seller
be reported as operating expenses. In order to conform with the EITF, these
costs have been reclassified and are now included in net sales and cost of
sales for all periods presented.
FOREIGN CURRENCY TRANSLATION
Local currencies are considered the functional currencies for the Company's
operations outside the United States. Assets and liabilities are translated
into U.S. dollars at the rate of exchange in effect at the balance sheet
date. Revenues and expenses are translated into U.S. dollars at average
monthly exchange rates prevailing during the year.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) presented in the statement of stockholders'
equity consists of net income (loss), foreign currency translation
adjustments and unrealized losses on investments held for sale.
ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. Total advertising
expense amounted to approximately $1,750,000, $1,099,000, and $1,306,000,
for the years ended December 31, 2000, 1999, and 1998, respectively.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
INCOME TAXES
The Company utilizes the asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to
affect taxable income.
F-13
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
RECLASSIFICATIONS
Certain reclassifications have been made to prior years financial statements
to conform with the 2000 presentation.
NOTE B - FOURTH QUARTER 2000 CHARGES
During the fourth quarter of 2000, the Company, in conjunction with changes
in key management personnel, made several changes in its strategic plan
which resulted in significant expenses. Additionally, based on the new
strategic direction, certain assets were assessed for impairment. The
charges to income related to these items are summarized as follows:
Closure of European distribution center $ 7,245,985
Goodwill impairment - France 10,102,531
Goodwill impairment - Germany 2,985,093
Closure of business - France 2,686,048
Inventory write-downs 9,521,427
Severance - United States 560,936
Software development costs 1,985,019
Impairment of internal use software 2,899,345
Foreign currency losses 4,196,630
Other 104,636
----------
$42,287,650
==========
CLOSURE OF EUROPEAN DISTRIBUTION CENTER
During 1998 and 1999, the Company opened a European distribution center
located in Antwerp, Belgium. The purpose of the distribution center was to
consolidate purchasing, reduce overhead and create efficiencies. Because of
declining sales and operational difficulties, the Company concluded its
European distribution center strategy would not be successful. Therefore,
the Company evaluated the net realizable value of its European distribution
center assets and wrote off and/or wrote down assets which could not be
fully recovered or utilized in the other European operations. These charges
consisted of inventory costs ($2,705,412), personnel ($667,141), fixed
assets ($1,187,478) and lease termination and other exit costs ($2,685,954).
The personnel costs provide for the termination of all of its 13 employees.
F-14
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - FOURTH QUARTER 2000 CHARGES - Continued
GOODWILL IMPAIRMENT/CLOSURE OF BUSINESS - FRANCE
The Company's continuing losses in France has triggered an impairment review
of its long-lived assets. The Company has analyzed projected cash flows and
decided to discontinue its primary business in France by April 2001. This
decision and the lack of resulting future cash flows in France caused the
Company to conclude all associated goodwill, amounting to $10,102,531, was
impaired. The primary components of the closure costs involve personnel
costs ($1,081,154), writeoffs of fixed assets, accounts receivable and other
assets ($1,100,798) and other exit costs ($504,096). The personnel costs
provide for termination of its 24 employees.
GOODWILL IMPAIRMENT - GERMANY
As a result of the unsuccessful European centralization strategy and
continuing losses in Germany, management has performed an impairment review
of its long-lived assets at its German subsidiary. As a result of this
analysis, the Company concluded, based on future undiscounted cash flows,
that the entire amount of goodwill should be written off.
INVENTORY WRITE DOWNS
Inventory write downs are related to discontinued product lines and returned
inventory which management has deemed the refurbishing not to be economic.
SEVERANCE - UNITED STATES
The Company determined certain United States positions would no longer be
necessary. As a result, severance compensation was accrued in the fourth
quarter for 33 employees.
SOFTWARE DEVELOPMENT COSTS
The Company evaluated products under development during the fourth quarter
2000. Based on this review, capitalized software development costs were
written off which related to product designs that will be abandoned and did
not correspond with future product objectives.
IMPAIRMENT OF INTERNAL USE SOFTWARE
As a result of the outsourcing of certain manufacturing operations, it was
determined that internal use software costs related to those operations was
impaired.
F-15
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - FOURTH QUARTER 2000 CHARGES - Continued
FOREIGN CURRENCY LOSSES
Foreign currency losses are related to foreign currency translation losses
that were realized upon the sale or closure of foreign operations.
SUMMARY
The cash and noncash elements of the fourth quarter 2000 charges are
$5,518,928 and $36,768,722, respectively. Details of the charges are as
follows:
Amount Accrued
Total paid in Noncash December 31,
Charge Cash Portion 2000
----------- --------- ------------ ------------
Asset impairments $19,798,179 $ - $(19,798,179) $ -
Inventory charges 12,370,115 - (12,370,115) -
Foreign currency losses 4,196,630 - (4,196,630) -
Employee severance and termination
benefits 2,327,454 (254,763) - 2,072,691
Leased facilities and other termination
costs 3,191,474 - - 3,191,474
Other 403,798 - (403,798) -
----------- --------- ------------ ----------
$42,287,650 $(254,763) $(36,768,722) $5,264,165
=========== ========= ============ ==========
Also, there were other charges in the fourth quarter for bad debt
provisions, other asset write-downs and sales of investments totaling
approximately $4.8 million.
The losses have been allocated to the statement of operations as follows:
Cost of sales $12,370,115
General and administrative 9,487,796
Asset impairment charges 19,798,179
Foreign exchange losses 4,196,630
Loss on sale of investments 637,279
Other expenses 600,000
-----------
$47,089,999
===========
F-16
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - BUSINESS COMBINATIONS
1999 BUSINESS COMBINATIONS:
ABM DATA SYSTEMS, INC.
Effective March 1, 1999, the Company acquired 100% of the common stock of
ABM Data Systems, Inc. ("ABM"), an Austin, Texas based software developer
for the alarm-monitoring segment of the security industry. Total
consideration was 250,000 shares of registered Ultrak common stock valued at
approximately $1.5 million. ABM develops, sells, and services computer
software for the alarm monitoring security industry, governmental agencies,
and proprietary customers and offers support for computer software targeted
for automated security monitoring markets.
MULTI CONCEPTS SYSTEMS, SA
Effective April 1, 1999, the Company acquired 100% of the stock of Multi
Concepts Systems, SA ("MCS"), a Switzerland based systems integrator of
electronic security systems. Total consideration included an initial payment
of $405,000 in cash and future contingent payments based upon a percentage
of MCS income and book value, as defined. MCS has been the largest European
reseller and integrator of Ultrak's SAFEnet access control system over the
past ten years.
MACH SECURITY SP.Z.O.O.
Effective July 1, 1999, the Company acquired 100% of the stock of MACH
Security Sp.z.o.o. ("Mach"), based in Szczecin, Poland. Mach is one of the
largest distributors of CCTV products in Poland. Total consideration
included an initial payment of $275,000 in cash and a future contingent
payment based upon a percentage of Mach income, as defined.
1998 BUSINESS COMBINATIONS AND DIVESTITURES:
During February 1998, the Company acquired the net assets of Norbain France
SARL, a French corporation wholly-owned by Norbain PLC, a United Kingdom
corporation, for assumption of the net liabilities of approximately $1.2
million.
In August 1998, the Company completed the sale of the stock of Dental Vision
Direct, Inc. ("DVD"), a 90% owned subsidiary, and its subsidiary,
Veravision, to American Dental Technologies, Inc. ("American Dental"). The
consideration included approximately $3.0 million in cash, a $3.9 million
short-term note and warrants to acquire 540,000 shares of American Dental
common stock. A gain on the sale of approximately $78,000 was recorded and
all prior periods have been restated to reflect the operations of DVD as
discontinued.
In March 1999, the Company completed the sale of its 10% interest in a
company in Japan for approximately $1.8 million in cash. A loss of $200,000
was recorded in other income (expense) in 1998 related to the sale.
Acquisitions during 1998 and 1999 were not significant; as a result, no pro
forma information is presented.
F-17
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
DECEMBER 31,
-----------------------------
Useful Lives 2000 1999
-------------- ----------- -----------
Machinery and equipment 3 - 7 years $ 4,312,391 $ 6,094,410
Furniture and fixtures 3 - 7 years 14,700,234 16,397,208
Software development costs 3 - 5 years 2,472,687 3,222,776
Buildings and land 20 - 30 years 5,400,419 4,388,009
------------ ------------
26,885,731 30,102,403
Accumulated depreciation (11,884,667) (9,265,181)
------------ ------------
$ 15,001,064 $ 20,837,222
============ ============
NOTE E - FINANCING ARRANGEMENTS
LINE OF CREDIT
At December 31, 2000, the Company had $35.4 million outstanding under a
credit facility which expires in March 2002. The credit facility provides
for borrowings up to $45.0 million under a revolving line of credit based
upon available collateral. When not in violation of loan covenants, the
facility provides for interest for the credit facility to be payable
quarterly at prime plus a range of 0% to .25% or LIBOR plus a range of 2.25%
to 2.75%, depending on the leverage ratio, as defined, for the quarter. The
credit facility contains certain restrictive financial and operational
covenants and conditions, including a maximum leverage ratio, a debt service
ratio and minimum net worth amounts. The Company pays a quarterly unused fee
of .375% per annum and borrowings are collateralized by substantially all
assets of the Company. During 2000, the Company was in violation of certain
loan covenants which caused the interest rates on the facility to be
adjusted to prime plus a range of 0% to .75% or LIBOR plus a range of 2.25%
to 3.25%, depending on the leverage ratio. The Company obtained waivers of
these violations as of December 31, 2000 and amended its covenants for 2001.
As a result of the loan covenant violation and net loss in 2000, all amounts
outstanding under the line of credit have been classified as a current
liability. As a result of the sale of the investment in Detection
Systems, Inc. in January 2001, the credit facility was reduced from
$45.0 million to $30.0 million.
F-18
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - FINANCING ARRANGEMENTS - Continued
At December 31, 1999, the Company had $37.0 million outstanding under its
previous line of credit and term loan. The line of credit provided for
borrowings up to $30 million, of which $17 million was outstanding at
December 31, 1999. The term loan had $20 million outstanding at December 31,
1999. Interest on the line of credit and term loan was payable monthly at
the lesser of LIBOR plus 2.75% or prime. The Company was in violation of a
certain financial covenants and obtained a waiver on January 31, 2000.
Amounts outstanding were repaid in full with proceeds from the new $45.0
million credit facility.
OTHER DEBT
The Company has other financing arrangements in Belgium which consist of
various term loans collateralized by automobiles, computer software and real
property. The loans have interest rates which vary from 4.5% to 5.5% and
require monthly payments of approximately $28,000. These loans have been
classified as current liabilities as a result of management's decision to
withdraw from Belgium.
NOTE F - STOCKHOLDERS' EQUITY
The Series A preferred stock earns dividends at the rate of 12% per annum,
payable quarterly. All dividends accrue whether or not such dividends have
been declared and whether or not there are profits, surplus, or other funds
of the Company legally available for payment.
The Company may at any time redeem all or any portion of the Series A
Preferred Stock then outstanding at the liquidation value of $5.00 per share
plus unpaid dividends. The holder of the Series A Preferred Stock may
convert any or all of the 195,351 preferred shares into shares of the
Company's common stock at any time at a conversion rate equal to 2.08 shares
of common stock per preferred share or a total of 406,981 shares of common
stock.
Each share of Series A preferred stock is entitled to vote on all matters
submitted to a vote of stockholders. Each Series A preferred share is
entitled to voting rights equal to 16.667 shares of common stock.
NOTE G - STOCK-BASED COMPENSATION
The Company's 1988 Nonqualified Stock Option Plan (the "1988 Plan"), amended
on January 24, 2000, provides for grants of options for up to 1,700,000
restricted shares and the 1997 Incentive Stock Option Plan (the "1997 Plan")
provides for grants of options for up to 400,000 shares. Shares under the
1997 Plan are awarded based upon the Company achieving one or more
definitive performance measurements for a fiscal year, including minimum
levels of economic value added, minimum levels of market value added or
attainment of the financial budget. The 1997 Plan is a formula-based plan
administered by the Compensation Committee of the Board of Directors. Option
grants under the 1997 Plan are limited to 1% of the outstanding common stock
of the Company. At December 31, 2000 and 1999, 289,012 and 619,674 shares
were available for grant under the 1988 Plan and the 1997 Plan,
respectively.
F-19
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
F-20
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - STOCK-BASED COMPENSATION - Continued
Option exercise prices are equal to the market price at the date of grant.
Shares under grant generally become exercisable in five equal annual
installments beginning one year after the date of grant, and expire after
ten years.
If the Company recognized compensation expense as permitted under Statement
of Financial Accounting Standards No. 123, based upon the fair value at the
grant date for options granted after 1994 under the 1988 Plan and 1997 Plan,
the Company's net income (loss) from continuing operations and income (loss)
per share would be reduced (increased) to the pro forma amounts indicated as
follows:
Year ended December 31,
----------------------------------------------
2000 1999 1998
-------- -------- --------
Net income (loss) from continuing operations:
As reported $(57,687,094) $672,554 $4,957,173
Pro forma $(59,288,630) $252,656 $4,381,640
Basic income per share from continuing operations:
As reported $ (4.95) $ .05 $ .37
Pro forma (5.07) $ .01 $ .32
Diluted income per share from continuing operations:
As reported $ (4.95) $ .05 $ .34
Pro forma (5.07) .01 $ .30
The fair value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: expected volatility of 55 to 80 percent; risk-free interest
rates of 4.8 to 6.5 percent; no dividend yield; and expected lives of seven
years.
The pro forma amounts presented are not representative of the amounts that
will be disclosed in the future because they do not take into effect pro
forma expense related to grants before 1995.
F-21
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - STOCK-BASED COMPENSATION - Continued
Additional information with respect to options outstanding at December 31,
2000 and changes for the three years then ended is as follows:
2000 1999 1998
---------------------- --------------------- ---------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
--------- -------- -------- -------- --------- --------
Outstanding at beginning of year 953,972 $6.56 859,170 $ 9.94 1,000,656 $ 9.26
Granted 627,500 8.23 360,500 6.15 69,500 8.80
Exercised (166,065) 5.46 (28,333) 2.43 (134,332) 1.67
Forfeited (296,838) 7.80 (237,365) 18.91 (76,654) 16.13
--------- -------- ---------
Outstanding at end of year 1,118,569 $7.31 953,972 $ 6.56 859,170 $ 9.94
========= ===== ======== ====== ========= ======
Options exercisable at end of year 344,410 $5.83 490,549 $ 5.83 475,937 $ 4.79
========= ===== ======== ====== ========= ======
Weighted average fair value per share of options granted for 2000, 1999
and 1998 were $5.71, $6.17 and $6.55, respectively.
Information about stock options outstanding at December 31, 2000 is
summarized as follows:
Options Outstanding Options Exercisable
--------------------------------------- ------------------------
Weighted
average Weighted Weighted
remaining average average
Number contractual exercise Number exercise
Range of exercise prices outstanding life price exercisable price
------------------------ ----------- ----------- -------- ----------- --------
$1.20 to $5.62 239,933 2.5 years $ 3.46 206,933 $ 3.13
$5.63 to $9.00 469,933 8.5 years 6.46 78,733 6.47
$9.01 to $13.50 351,460 8.8 years 9.30 20,600 9.60
$13.51 to $20.00 57,243 6.0 years 17.11 38,144 17.10
--------- -------
1,118,569 344,410
========= =======
F-22
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - MAJOR CUSTOMERS AND SUPPLIERS
Sales to one legal entity accounted for approximately 27% of total sales
during 2000, 21% of total sales during 1999 and 17% of total sales during
1998. However, sales to this legal entity are made independently via two
separate business segments of the Company to two separate buying
organizations within the legal entity. Loss of this customer may have a
material adverse effect on the operations of the Company.
The Company purchased in excess of 20% of its products from one contract
manufacturer in each of the three years in the period ended December 31,
2000. Although there are a limited number of manufacturers of the Company's
products, management believes there are suppliers who could provide similar
products on comparable terms. A change in suppliers could cause a delay in
and a possible loss of sales.
NOTE I - COMMITMENTS AND CONTINGENCIES
The Company leases office and warehouse space and data processing equipment
under long-term, noncancelable leases.
Minimum future rental payments for all long-term, noncancelable operating
leases are presented below:
Year ending
December 31,
------------
2001 $2,478,784
2002 2,056,749
2003 681,557
2004 178,465
2005 173,943
Thereafter 863,758
---------
$6,433,256
=========
Total rent expense was as follows:
2000 $2,574,000
1999 2,704,000
1998 2,351,000
F-23
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - INCOME TAXES
The provision (benefit) for taxes consists of the following:
Years ended December 31,
---------------------------------------------
2000 1999 1998
---------- --------- ---------
Federal
Current $(1,476,140) $ 596,425 $2,553,617
Deferred (4,396,951) 742,446 1,860,482
State (463,948) 82,313 102,871
Foreign 2,192,254 (135,370) (927,294)
---------- --------- ---------
$(4,144,785) $1,285,814 $3,589,676
========== ========= =========
The Company's effective income tax rate differed from the U.S. Federal
statutory rate as follows:
Years ended December 31,
---------------------------------------------
2000 1999 1998
---------- --------- ---------
U.S. Federal statutory rate (34.0)% 34.0% 34.0%
State taxes, net of Federal benefit (0.8) 2.5 0.8
Goodwill amortization and impairment 8.5 20.8 4.8
Other nondeductible expenses 0.1 3.5 0.9
Rate differential for foreign taxes 4.1 - -
Change in valuation allowance 15.2 - -
Other, net 0.2 4.9 1.5
---- ---- ----
(6.7)% 65.7% 42.0%
===== ==== ====
F-24
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - INCOME TAXES - Continued
The components of deferred tax assets and liabilities are as follows:
December 31,
----------------------------
2000 1999
---------- ---------
Deferred tax assets:
Inventories $ 3,947,666 $ 1,334,903
Accounts receivable 821,054 233,066
Accrued expenses 608,229 1,430,473
Net operating loss carryforwards 1,346,394 134,632
Foreign deferred tax assets 8,515,365 1,805,513
Other, net 1,539,233 353,611
---------- ---------
Gross deferred tax assets 16,777,941 5,292,198
Deferred tax liabilities:
Property, plant and equipment 2,469,067 3,075,514
Investment in Detection Systems, Inc. 1,031,930 826,950
---------- ---------
Gross deferred tax liabilities 3,500,997 3,902,464
Valuation allowance 8,431,161 -
---------- ----------
Net deferred tax asset $ 4,845,783 $ 1,389,734
========== ==========
At December 31, 2000, the Company had federal, state and foreign net
operating loss carryforwards of approximately $3,600,000, $4,600,000 and
$14,600,000, respectively. Federal net operating loss carryforwards of
$200,000 expire in 2010 and $3,400,000 of federal net operating loss
carryforwards expire in 2020. The state net operating loss carryforwards
expire in 2005 to 2020. Substantially all foreign net operating loss
carryforwards do not expire.
As of December 31, 1999, the Company believed it was more likely than not
that sufficient levels of taxable income would be generated to utilize all
foreign net operating loss carryforwards. However, with continuing foreign
losses in 2000, the Company has provided valuation allowances of
approximately $8,400,000 for foreign net operating loss carryforwards.
Management believes that the full benefit of other deferred tax assets will
be realized based on its evaluation of the Company's anticipated
profitability.
F-25
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - INVESTMENT IN DETECTION SYSTEMS, INC.
On January 12, 2001, the Company accepted an offer to tender its 21%
interest in Detection Systems, Inc. for $18 per share. The Company received
proceeds from the sale of $24.0 million in January 2001.
The Company accounts for its investment in Detection Systems, Inc. under the
equity method and the Company's share of earnings is included in income. The
difference between the Company's cost and the underlying equity in Detection
Systems, Inc. of approximately $1.6 million represents goodwill. Condensed
financial information as of March 31, 2000 and 1999 for Detection Systems,
Inc. is as follows (in thousands):
March 31,
-------------------------
2000 1999
------- -------
Current assets $68,720 $66,341
Noncurrent assets 26,898 26,471
Current liabilities 17,591 17,244
Noncurrent liabilities 19,563 19,824
Net assets 58,464 55,744
Year ended March 31,
------------------------
2000 1999
------ ------
Revenues $141,918 $138,045
Operating income 7,182 8,648
Net income 3,468 4,471
The market value of the Company's investment in Detection Systems, Inc. was
approximately $23,700,000 and $12,599,730 at December 31, 2000 and 1999,
respectively.
The amount of retained earnings (accumulated deficit) that represents
undistributed earnings from Detection Systems, Inc. was approximately
$1,757,000 and $1,497,000 at December 31, 2000 and 1999, respectively.
NOTE L - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS
The Company has four business segments: United States-Professional Security
Group (US-PSG), Diversified Sales Group (DSG), International-Professional
Security Group (International-PSG), and Supply. The segments are
differentiated by the customers serviced as follows:
F-26
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS - Continued
US-PSG
This segment consists of sales in the United States to professional
security dealers, distributors, installers and certain large end users of
professional security products.
DSG
This segment sells video and security products to industrial markets and
consumers.
INTERNATIONAL-PSG
This segment consists of sales to professional security dealers,
distributors, installers and certain large end users of professional
security products outside the United States.
SUPPLY
This segment sells to the US-PSG and International-PSG segments products
and systems manufactured by the Company's Ohio and California facilities.
The Company's underlying accounting records are maintained on a legal
entity basis for government and public reporting requirements. Segment
disclosures are on a performance basis consistent with internal
management reporting. The Company evaluates performance based on earnings
from continuing operations before income taxes and other income and
expense. The Corporate column includes corporate overhead related items.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies (Note A).
F-27
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS - Continued
The following tables provide financial data by segment for the years
ended December 31, 2000, 1999 and 1998:
US International
2000 PSG DSG PSG Supply Corporate Total
---- --------- ---------- ----------- ----------- ------------ -----------
Total revenue $ 91,400,938 $60,410,420 $ 76,622,266 $ 24,394,854 $ 6,122 $252,834,600
Intersegment revenue (967,749) - (29,427,333) (22,441,897) - (52,836,979)
----------- ---------- ----------- ----------- ------------ -----------
Revenue from external
customers $ 90,433,189 $60,410,420 $ 47,194,933 $ 1,952,957 $ 6,122 $199,997,621
=========== ========== =========== =========== ============ ===========
Operating profit (loss)
including special
charges (2,148,929) 6,033,324 (34,042,279) (4,903,183) (20,815,913) (55,876,980)
Total assets 35,968,776 16,361,528 27,977,269 11,644,375 51,544,610 143,496,558
Depreciation and
amortization expense 649,813 275,878 754,752 114,191 4,687,610 6,482,244
Capital additions 2,722,017 (89,268) 1,006,977 657,104 - 4,296,830
1999
----
Total revenue $ 92,507,727 $53,188,272 $ 81,675,409 $ 22,555,516 $ - $249,926,924
Intersegment revenue (1,512,222) - (17,658,620) (22,555,516) - (41,726,358)
----------- ---------- ----------- ----------- ------------ -----------
Revenue from external
customers $ 90,995,505 $53,188,272 $ 64,016,789 $ - $ - $208,200,566
=========== ========== =========== =========== ============ ===========
Operating profit (loss)
including special
charges $ 7,418,109 $ 7,235,687 $ (325,109) $ (629,465) $(12,792,741) $ 906,481
Total assets 48,475,248 27,700,142 46,530,723 14,099,110 63,545,285 200,350,508
Depreciation and
amortization expense 3,401,530 1,774,544 672,710 62,680 - 5,911,464
Capital additions 2,386,005 1,422,227 2,374,553 - - 6,182,785
1998
----
Total revenue $ 94,095,047 $50,345,605 $66,957,207 $ 29,385,900 $ - $240,783,759
Intersegment revenue (10,168,609) - (4,231,470) (29,385,900) - (43,785,979)
----------- ---------- ----------- ----------- ------------ -----------
Revenue from external
customers $ 83,926,438 $50,345,605 $62,725,737 $ - $ - $196,997,780
=========== ========== ========== =========== ============ ===========
Operating profit (loss) $ 8,994,267 $ 8,977,049 $ 2,009,647 $ (2,016,891) $ (9,878,901) $ 8,085,171
Total assets 43,732,291 28,905,974 36,037,253 19,127,020 68,823,457 196,625,995
Depreciation and
amortization expense 2,365,987 1,428,234 641,591 230,696 - 4,666,508
Capital additions 7,492,423 4,083,349 746,855 - - 12,322,627
F-28
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS - Continued
Financial information relating to the Company's Corporate segment is as
follows:
Year ended December 31,
----------------------------------------------
2000 1999 1998
----------- ----------- ----------
Sales and marketing expenses $ 1,401,585 $ 1,364,125 $1,398,736
Engineering and other corporate expenses 4,169,624 3,511,859 4,517,287
General and administrative expenses 14,135,883 4,271,515 3,962,878
Special charges 1,114,943 3,645,242 -
----------- ----------- ----------
Operating expenses $20,822,035 $12,792,741 $9,878,901
=========== =========== ==========
Sales by geographic area were as follows:
Year ended December 31,
-----------------------------------------------
2000 1999 1998
------------ ------------ ------------
United States $152,802,688 $144,183,777 $134,272,043
Europe 41,056,608 58,012,411 53,855,400
Other 6,138,325 6,004,378 8,870,337
------------ ------------ ------------
Total revenues $199,997,621 $208,200,566 $196,997,780
============ ============ ============
F-29
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - INCOME (LOSS) PER SHARE
Following is a reconciliation of basic and diluted earnings per share from
continuing operations:
2000 1999 1998
------------------------------- -------------------------------- --------------------------------
Income Income Income
allocable to Per allocable to Per allocable to Per
common share common share common share
stockholders Shares amount stockholders Shares amount stockholders Shares amount
------------ -------- -------- -------------- -------- -------- -------------- -------- --------
Income from continuing
operations allocable to
common stockholders $(57,804,304) 11,686,049 $(4.95) $555,344 11,644,941 $0.05 $4,839,963 13,254,782 $0.37
===== ==== ====
Effect of dilutive securities
Contingently issuable
shares -- -- -- 98,773 -- 366,690
Put options -- -- -- 428,640
Stock options -- -- -- 149,587 -- 319,057
Convertible preferred
stock -- -- 117,210 406,981 117,210 406,981
----------- ---------- -------- ---------- --------- ----------
Income from continuing
operations allocable to
common stockholders
after assumed
conversions $(57,804,304) 11,686,049 $(4.95) $672,554 12,300,282 $0.05 $4,957,173 14,776,150 $0.34
============ ========== ===== ======== ========== ===== ========= ========== ====
For 2000, 1999 and 1998, 344,410, 201,053, and 367,919 stock options were
outstanding, respectively, but not included in the computation of diluted
income per share because the options exercise price was greater than the
average market price of the common shares and, therefore, the effect would
have been antidilutive.
NOTE N - UNAUDITED QUARTERLY OPERATING RESULTS
Unaudited quarterly operating results for the years ended December 31, 2000
and 1999 are as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
2000:
Sales $52,134,341 $53,918,600 $47,265,151 $ 46,679,529
Gross profit 16,186,928 16,668,835 14,024,351 (317,724)
Net income (loss) (428,034) 69,166 (3,803,023) (53,525,203)
Income (loss) per share:
Basic $ (0.04) $ -- $ (0.33) $ (4.58)
Diluted (0.04) -- (0.33) (4.58)
F-30
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE N - UNAUDITED QUARTERLY OPERATING RESULTS - Continued
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
1999:
Sales $48,668,384 $52,323,827 $51,281,007 $55,927,348
Gross profit 15,896,840 17,125,867 16,869,988 17,476,495
Net income (loss) 338,167 (735,914) 875,760 87,519
Income (loss) per share:
Basic $ 0.03 $ (0.07) $ 0.07 $ 0.01
Diluted 0.03 (0.07) 0.07 0.01
See Note P for special charges and changes in estimates the first, second
and fourth quarters of 1999 and Note B for fourth quarter 2000 charges.
NOTE O - DISCONTINUED OPERATIONS
In December 1998, the Company discontinued operations of its Mobile Video
division which markets and installs video equipment on transit vehicles. As
discussed in Note B, the Company sold Dental Vision Direct, Inc. on August
5, 1998. The Company completed the disposal in 2000. The Company had no
revenues, expenses, or gains from discontinued operations during 2000.
Summarized financial information for discontinued operations follows:
Year Ended December 31,
--------------------------------------------
2000 1999 1998
--------- ----------- -----------
Revenues $ -- $ 615,993 $ 9,222,863
Income (loss) from the discontinued operations,
net of taxes (benefit) of $(55,132), $(750,487),
and $43,011 -- (107,022) (1,480,243)
Gain on disposal, net of taxes of $23,414 -- -- 77,946
F-31
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE O - DISCONTINUED OPERATIONS - Continued
The net assets of discontinued operations consists of the following at
December 31, 1999:
Accounts receivable $ 724,072
Inventories 1,058,624
Other current assets 123,135
----------
Total $1,905,831
==========
NOTE P - SPECIAL CHARGES AND CHANGES IN ESTIMATES
1999 SPECIAL CHARGES
During the first quarter of 1999, the Company incurred nonrecurring charges
totaling $750,000 related to severance obligations. During the second
quarter of 1999, the Company incurred nonrecurring charges totaling
$3,125,000 pertaining to restructuring costs for (1) its four European
locations including costs for employee severance, terminating leases, and
consolidation of all purchasing, shipping, and billing activity to Antwerp,
Belgium and (2) closing costs of three United States sales and distribution
offices.
The Company's exit plan commenced in June 1999 and provided for the
termination of 54 employees (19 employees in the United States and 35
employees in Europe). The exit plan was completed in 2000 and resulted in
the termination of 19 employees in the United States and 35 employees in
Europe. Upon completion of the exit plan in October 2000, the Company had
approximately $250,000 remaining in the account for leased facilities and
other termination costs. This amount has been presented as income under
caption "special charges" in the statement of operations. The restructuring
charge and the amount settled are summarized as follows:
Accrued at
December 31,
Charge Settled 2000
---------- ---------- ------------
Severance and other related employee costs $2,608,150 $2,608,150 $ -
Leased facilities and other termination costs 1,266,850 1,266,850 -
---------- ---------- ----------
$3,875,000 $3,875,000 $ -
========== ========== ==========
F-32
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE P - SPECIAL CHARGES AND CHANGES IN ESTIMATES - Continued
2000 SPECIAL CHARGES
Special charges of $1,361,241 were incurred in the quarter ended September
30, 2000. These charges included severance obligations of the Company
related to the separation of three former executives and severance
obligations related to the outsourcing of manufacturing operations in
California and Australia. Additionally, costs associated with the proxy
contest with Detection Systems, Inc. were recorded. The detail of these
charges is as follows:
Accrued at
Total December 31,
Charge Settled 2000
---------- --------- ------------
Severance $ 584,067 $219,769 $364,298
California outsourcing 84,465 78,463 6,002
Australia outsourcing 75,000 75,000 -
Detection Systems, Inc. Proxy Contest 617,709 617,709 -
---------- -------- --------
$1,361,241 $990,941 $370,300
========== ======== ========
CHANGE IN ESTIMATE
During the fourth quarter of 1999, the Company increased its allowance for
doubtful accounts for its European and South African subsidiaries by
approximately $1 million.
NOTE Q - INTERVISION SALE
On July 1, 2000, the Company sold substantially all assets of its UK-based
business, Intervision Express, Ltd. ("Intervision") to Norbain SD, Ltd.
("Norbain"), a UK-based distributor of CCTV and access control equipment.
The Company received approximately $2.1 million in cash for inventory and
certain other assets including use of the Intervision tradename. Ultrak
retained the right to sell Ultrak branded products directly to systems
integrators and installers in Intervision's previous market in the UK and
Ireland. The Company incurred a loss on the sale of approximately $840,000.
In addition, the Company granted Norbain distribution exclusivity for its
Diamond-series name product line and its CCTV products in the UK. To
maintain its exclusivity, Norbain must purchase at least $6 million of
Ultrak-branded CCTV products and dome systems through the end of 2002.
NOTE R - SUBSEQUENT EVENT
In January 2001, the Company purchased its lease on its corporate
headquarters facility from the lessor for $11.5 million of which $10 million
was financed by a mortgage.
F-33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors and Stockholders
Ultrak, Inc.
In connection with our audit of the consolidated financial statements of Ultrak,
Inc. and Subsidiaries referred to in our report dated March 16, 2001, which is
included in Part IV of this form 10-K, we have also audited Schedule II for each
of the three years in the period ended December 31, 2000. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.
Dallas, Texas
March 16, 2001
SCHEDULE II
ULTRAK, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2000, 1999 and 1998
Balance at Charged Charged Balance at
Beginning (credited) to to other End
Description of Period Operations Accounts Deductions of Period
----------- ----------- ------------- --------- ------------- -----------
Allowance for doubtful trade accounts
Year ended December 31, 2000 $2,401,773 $3,555,940 $ - (1) $(167,168)(2) $5,790,545
Year ended December 31, 1999 1,657,549 813,178 22,599 (1) (91,553)(2) 2,401,773
Year ended December 31, 1998 1,741,920 (8,103) 4,790 (1) (81,058)(2) 1,657,549
Deferred tax valuation allowance:
Year ended December 31, 2000 $ - $8,431,161 $ - $ - $8,431,161
NOTES
(1) Balances recorded from business combinations.
(2) Balances written off.