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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, 1998
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 (Zip Code)
offices)
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, 1999, was $113,038,000. As of that date,
14,703,138 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.
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PART I
ITEM 1. BUSINESS
GENERAL
Ultrak, Inc. (the "Company" or "Ultrak") designs, manufactures, markets,
sells and services innovative electronic products and systems for use in
security and surveillance, industrial 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.
The Company has generated rapid growth with sales increasing from $1.8 million
in 1987 to $195 million in 1998.
It is the Company's objective to set new standards in quality, performance
and value by providing single-source Enterprise Security Solutions to its
customers in the form of integrated systems whereby all closed circuit
television ("CCTV") components, alarms, access control, and badging as well as
facility and alarm management functions and reporting are controlled from one
single console. Integrated systems better serve the end user by improving their
ease of operation, security, health/safety and loss prevention, and at the same
time reducing maintenance and training costs. Ultrak's management believes that
integrated systems provide customers maximum functionality at the lowest
possible cost.
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. Since January 1, 1998,
the Company's new address is 1301 Waters Ridge Drive, Lewisville, Texas 75057
and its telephone number is (972) 353-6500.
Ultrak operates sales, distribution and manufacturing locations worldwide.
The Company has sales facilities in five U.S. cities, England, France, Germany,
Italy, Singapore, Australia, and South Africa, as well as active representation
through systems integrators in China and Brazil. The Company established a
headquarters facility in Antwerp, Belgium in 1999 to coordinate efforts among
its European operations. Customers are supported by twelve distribution centers
worldwide and manufacturing facilities located in the United States, Germany,
Australia and South Africa.
Ultrak's products and systems include Enterprise Security Solutions and
Standard Products.
ENTERPRISE SECURITY SOLUTIONS
As the technology leader in the security and surveillance markets, Ultrak
distinguishes itself from its competitors by providing Ultrak's Enterprise
Security Solutions ("ESS") for manufacturing facilities, airports, office
complexes, government agencies, hospitals, casinos, retail stores and other
organizations that increasingly need integrated electronic security and
surveillance systems that combine CCTV matrix switching, digital video
transmission, access control and alarm management and communications. These
products and systems also play an increasingly important role in traffic
management and public safety applications.
Included as part of ESS is the Company's DAVE (Duplex Analog Video Encoding)
Technology system. Ultrak's proprietary DAVE Technology(TM) System 2000 is based
on technology that provides complete and continuous video coverage using a large
array of cameras connected by a single loop of coaxial cable. The Company sells
these products and systems to distributors, dealers and systems integrators
through its own field sales personnel. ESS are customized and scaled to meet the
needs of all of the Company's customers regardless of the business size. It is
the Company's strategy to develop and acquire a comprehensive line of products
and integrated systems, build worldwide sales, service and support and provide
single-source solutions to its customers.
STANDARD PRODUCTS
The following Ultrak standard products are sold into the professional
security and surveillance markets: cameras, lenses, domes and housings,
monitors, time-lapse and digital recorders, ruggedized cameras, monitors and
recorders for mobile video applications, digital processors (quads and
multiplexers), switchers and video management systems, video transmission
equipment, access control and facility management equipment.
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As CCTV becomes more affordable, small businesses and homeowners are
installing video observation systems to replace or supplement conventional alarm
systems. The consumer do-it-yourself security and surveillance market consists
of those applications in which end users 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,
aesthetically appealing designs, ease of installation and maintenance and
mobility. The typical consumer do-it-yourself market CCTV system can be wired or
wireless 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. Consumer do-it-yourself CCTV products are sold through
mass merchandisers, wholesale clubs, electronic retail stores, office and
juvenile product superstores, as well as through retail catalogs.
It is the Company's strategy to provide easy-to-install and easy-to-operate
video products and systems that are "feature rich" and affordably priced. The
Company is seeking to expand these product lines and introduce these, or similar
products and systems into the European market. These products are marketed under
the Exxis label at a certain wholesale club and under the Smart Choice and other
labels at various retail outlets. The Company sells these products through a
combination of its own sales force and manufacturer's representatives.
The professional audio market includes public address equipment for office
complexes, hotels, airports and retail stores. In addition, this market includes
sound reinforcement systems for concert halls, churches, arenas and theaters.
Ultrak produces and markets products for professional audio and sound
reinforcement systems such as amplifiers, speakers, mixers, equalizers,
microphones, CD players, turntables and accessories. The Company sells these
systems through a direct sales force in France and other countries.
Systems integrators, who assemble and sell equipment that incorporates video
to manufacturers that in turn use this equipment in their production processes,
typically purchase the Company's video products. Video cameras are used for
machine vision, computer imaging, robotics, microscopy, high-speed inspection
and high temperature furnace monitoring. Industrial video offers more precise
assessment than human visual inspection, and can measure image parameters which
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. New industrial applications are
emerging as new equipment is developed and as production automation levels
increase.
The Company's strategy with regard to the industrial video market is to
strengthen customer loyalty by backing-up advanced products with technical
expertise, a large variety of products and outstanding customer support. The
Company uses a combination of its own sales force and manufacturer's
representatives to sell these products to dealers and OEM accounts.
STRATEGY
Ultrak's strategy is to develop and form relationships with its customers
and to provide them with the high quality and performance products and systems
they need and desire worldwide. Additionally, Ultrak's strategy is to provide
product improvement that is driven by customer requirements and to build
worldwide marketing capabilities to maximize market coverage and increase the
time it takes to get its products to market. The Company seeks to implement this
strategy through integration of products and security technology through ESS,
superior customer service, highly focused sales and marketing, and value
oriented products and systems, and expects to offer products, training and
service support over the Internet beginning in the second half of 1999.
ACQUISITIONS
Acquisitions have contributed significantly to the Company's recent growth.
The Company believes that acquisitions are an effective way to obtain new CCTV
and related products and integrated systems, add experienced personnel, access
additional channels of distribution, expand into new geographic territories,
diversify its customer base and improve operating efficiencies through economies
of scale. As the security industry continues to consolidate, Ultrak will also
continue to search for growth through acquisitions. During 1996, the Company
completed three acquisitions and made a minority investment in one company
(subsequently sold in 1997). During 1997, the Company completed five
acquisitions, made a minority investment in one company and established an 80
percent-owned subsidiary in the Pacific Rim. During 1998-99, the Company
completed two acquisitions, acquired the minority interest in its Pacific Rim
subsidiary, sold one subsidiary to a third party and sold its minority
investment in one company.
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1996 ACQUISITIONS:
MAXPRO
Effective July 1, 1996, Ultrak acquired approximately 75% of the outstanding
stock of MAXPRO Systems Pty Ltd. ("MAXPRO") in exchange for approximately $8.2
million in cash and $900,000 in Ultrak Common Stock ("Common Stock") issuable
over a two-year period ending August 1, 1998. On February 17, 1997, the Company
acquired the remainder of the outstanding stock of MAXPRO for 175,000 shares of
Common Stock valued at $3.1 million. MAXPRO, a manufacturer and distributor of
CCTV products and systems based in Perth, Western Australia, added large-scale
CCTV switching systems to the Company's product line and enabled the Company to
enter several new target geographic and customer markets. MAXPRO's CCTV
switching systems consist of sophisticated matrix video switching software that
is coupled to a computer-controlled security input and output network. The
systems allow a virtually unlimited number of input and output devices,
including cameras, domes, VCRs and access control devices, to work together
seamlessly.
Lenel
In September 1996, Ultrak acquired approximately 24% of the outstanding
stock of Lenel Systems International, Inc. ("Lenel"), a privately held software
company specializing in access control, based in Fairport, New York, for $2.6
million in cash. Additionally, Ultrak received a warrant that enabled it to
increase its equity ownership in Lenel over time and signed a reseller agreement
with Lenel whereby Ultrak is a worldwide reseller of Lenel's products (excluding
Norway and Sweden).
In September 1997, the Company sold its approximately 24% interest in Lenel
and warrants for consideration comprised of a promissory note and cash totaling
$3.1 million. The promissory note and accrued interest were paid in full when
due.
Bisset
Effective October 1, 1996, Ultrak acquired all of the outstanding share
capital of Groupe Bisset, S.A. ("Bisset"), based in Paris, and one of France's
largest distributors of CCTV products, for $5.0 million in cash and a total of
456,522 shares of restricted Common Stock valued at $8.6 million. Bisset
distributes products from manufacturers such as Diamond, Mitsubishi, Samsung,
Sanyo, Ikegami and Pentax as well as Ultrak. It sells to installing dealers and
systems integrators and provides technical support and full warranty repair and
service. Bisset also designs, markets and sells audio equipment including
mixers, equalizers, speakers and public address equipment under its own brand,
BST, for the professional audio market. Bisset provided the Company with a
prominent entry into the strategically important French market and provided the
Company with expanded sales opportunities in Western Europe.
VideV
Effective December 1, 1996, the Company acquired all of the outstanding
share capital of VideV GmbH ("VideV"), based in Dusseldorf and one of Germany's
largest distributors of CCTV products, for 5,000,000 Deutsche Marks ($3.25
million) in cash and 53,820 shares of restricted Common Stock valued at
$556,000. VideV designs and distributes its own line of CCTV products under the
brand name VideV Systems and distributes products from manufacturers such as
Costar, Grundig, HiSharp and Ikegami. VideV sells primarily to installing
dealers and system integrators. The acquisition of VideV provided the Company
with a significant entry into Germany's CCTV market and increases the Company's
overall presence in Western Europe.
1997 ACQUISITIONS:
Monitor Dynamics
Effective February 1, 1997, the Company acquired Monitor Dynamics, Inc.
("MDI"), based in Rancho Cucamonga, California, which designs, manufactures,
markets and sells high-end security and access control systems for a total of
$26.1 million in cash. MDI's computer-based integrated security and access
control systems are sold under the SAFEnet brandname and are used in very
high-end government, defense, industrial, financial and commercial applications
throughout the U.S. and Europe. MDI's systems are sold primarily through dealers
and systems integrators. The acquisition of MDI provided the Company with
high-end security and access control systems and products.
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Intervision
Effective March 1, 1997, the Company acquired all of the outstanding share
capital of Intervision Express Limited ("Intervision"), based in Preston,
England (near Manchester), a distributor of CCTV products for 500,000 British
Pounds ($814,000) in promissory notes and 38,822 shares of restricted Common
Stock valued at $719,000. Intervision sells primarily to small and medium-sized
installing dealers and systems integrators. Intervision distributes products
from manufacturers such as Dedicated Micros, Toa, Hitachi and Mitsubishi. The
acquisition of Intervision gave the Company a presence in the United Kingdom
market and continued the expansion of its European operations.
Videosys Group
Effective April 1, 1997, the Company acquired the Videosys Group
("Videosys"), based near Venice, Italy, for total consideration of $8.37 million
consisting of $5.55 million in cash and 160,000 shares of restricted Common
Stock valued at $2.82 million. The Videosys Group designs, imports and
distributes CCTV and related security products primarily in Italy, under the
Videosys brand name. The Videosys Group sells primarily to installing dealers
and systems integrators. The acquisition of the Videosys Group provided the
Company with a significant presence in Italy's CCTV market.
Veravision
On April 1, 1997, the Company acquired all of the outstanding shares of capital
stock of Veravision, Inc. ("Veravision"), based in San Clemente, California,
which manufactures intra-oral camera products for use primarily in the dental
market, for $150,000 in promissory notes, assumed debt of approximately $2.0
million and 10% of the outstanding shares of capital stock of Dental Vision
Direct, Inc., a subsidiary of the Company, which shares are convertible into
shares of restricted Common Stock using a formula set forth in the definitive
agreement. Veravision, along with Dental Vision Direct, Inc., a 90% owned
subsidiary, were both sold to a third party in August 1998. See 1998-99
Divestitures below.
Securion 24
In August 1997, the Company acquired 10% of the outstanding capital stock of
Securion 24 Co., Ltd. ("Securion"), a privately held manufacturer and
distributor of security products based near Tokyo, Japan, for total
consideration of approximately $2.0 million in cash. The minority interest in
Securion gave the Company access to the Japanese market by virtue of the
Company's association with an established Japanese security company. In March
1999, the Company sold its interest in Securion. See 1998-99 Divestitures below.
Philtech
Effective October 1, 1997, the Company acquired 100% of the outstanding
capital stock of Philtech Electronic Services Limited ("Philtech"), a
privately-held, South African based company, for total consideration of $600,000
in cash, $300,000 of which is payable over the three years following closing.
Philtech is a designer, manufacturer and supplier of CCTV switching and control
equipment based in Bezvalley near Johannesburg, South Africa. The acquisition of
Philtech provided the Company a presence in the rapidly growing South African
market.
Ultrak Asia Ltd.
In November 1997, the Company established an 80% owned company in Singapore,
Ultrak Asia Ltd. ("Ultrak Asia"), to further penetrate the Asian market with
Ultrak products and systems.
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1998-99 ACQUISITIONS:
Norbain France
During February 1998, the Company acquired the net assets of Norbain France
SARL, a French corporation wholly owned by Norbain PLC, a UK corporation, for
assumption of the net liabilities of approximately $1.2 million.
Ultrak Asia Ltd
In July 1998, the Company acquired the remaining 20% interest owned by a
third party of Ultrak Asia for $30,000 in cash.
ABM Data Systems, Inc.
On March 15, 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. ABM is a market
leader in the alarm monitoring industry, selling its software products under the
Phoenix brandname. ABM's products are sold primarily through dealers, systems
integrators and to Fortune 500 companies for their proprietary command centers,
major national banks, state governments, universities, hospitals and others. The
acquisition of ABM provides the Company access to the high-end alarm monitoring
market. In addition, ABM's alarm-monitoring module will be incorporated into
Ultrak's ESS platform, which is expected to enhance value and make the system
more unique.
1998-99 DIVESTITURES:
Veravision
On August 5, 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"). DVD owned all of the outstanding stock
of Verasvision. The consideration included approximately $3.0 million in cash, a
$3.9 million short-term note (which was subsequently paid in full) and warrants
to acquire 540,000 shares of American Dental common stock (which currently
trades on the NASDAQ under the symbol "ADLI"). In addition, the Company retained
rights to receive the net proceeds from the outstanding trade accounts
receivable and accounts payable at the date of closing. A gain on the sale of
approximately $78,000 was recorded and all prior periods have been restated to
reflect the discontinued operations.
Securion 24
On March 3, 1999, the Company completed the sale of its 10% ownership of
capital stock of Securion to Mr. Mutsuo Tananka for approximately $2.0 million
in cash.
MARKETING AND SALES
Ultrak operates through highly focused selling groups organized according to
Ultrak's target markets. Ultrak's customer-focused structure allows for
individual attention to each target market, quick response to customer needs and
early identification of market requirements and new product ideas. Generally,
the Company reaches each target market through regional sales professionals
supported by telemarketing, catalogs, direct mail, magazine advertising and
industry trade shows.
In 1998, the Company began implementing an internal reorganization of its
sales and marketing operations known as "Team Ultrak" which promotes a unified
network of sales professionals that are highly customer focused. Under this new
philosophy, product supply units, customer service units and technology units
have been unified to provide the Company's sales force with the means to better
serve customer needs. New sales teams have been established in strategic
geographic locations in the U.S. and along product lines. This team approach has
been identified as a means for integrating the sales aspects of various
operations acquired by the Company since 1995 and to encourage cross selling of
Ultrak products. Together with expansion of its sales force, the Company
anticipates that this reorganization effort and the Company's focus on providing
solution sales versus product sales will contribute substantially to the growth
in sales during 1999 and beyond.
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The Company uses various brand names for products sold through each of its
selling groups to maximize market penetration of each selling group, 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, VideV Systems,
Videosys, SAFEnet, Exxis, Smart Choice, BST, Industrial Vision Source and ESS.
Approximately 87% of the products sold by the Company in 1998 carried Ultrak
brand names, up from 85% in 1997 and 82% in 1996. The Company also sells brands
such as Panasonic(R), Mitsubishi(R), and Sony(R).
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), and established a distribution company in Singapore, which has
substantially expanded the Company's presence internationally. See Note K to the
Company's Consolidated Financial Statements with respect to business segments.
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
has developed a highly competent engineering staff to work with its selling and
marketing groups to develop new products and product line extensions that
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. Increasingly, the Company's products are
computer-based and software-driven to support the integration of technologies
and functions into its customers' businesses.
As of December 31, 1998, the Company had a full-time engineering staff of 79
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 1998, the Company introduced its DAVE Graphical User Interface (GUI).
Simple to operate and simple to learn, the DAVE GUI makes in-store loss
prevention personnel more efficient at locating, tracking and identifying
shoplifting suspects. For enterprise-wide applications, the DAVE GUI provides
touch screen control, intelligent video tracking and provides large retailers
with revolutionary capabilities for improved loss prevention. The Company also
introduced its computer-based SAFEnet-NT system, the Windows-NT(R) version of
Ultrak's flagship line of integrated access control and security systems. At the
core of the Company's ESS offerings, SAFEnet-NT provides a stable, flexible
platform for the integration of new functions and technologies. 1998 also marked
the start of a major development effort to redesign and streamline the SAFEnet
field hardware. A new distributed architecture has been developed and initial
hardware prototyped and demonstrated.
PRODUCTS AND SYSTEMS
The Company's motto, "Quality Products That Make a Difference," encapsulates
the Company's strategy of developing technologically advanced and cost-effective
products and systems that are unique and solve customers' specific needs or
problems. Through in-house product development, and with the product lines the
Company has obtained through acquisitions, Ultrak offers a broad line of Ultrak
branded products and systems. The Company's brand names include Ultrak, Diamond
Electronics, MAXPRO, VideV Systems, Videosys, SAFEnet, Exxis, Smart Choice, BST,
Industrial Vision Source and ESS. Approximately 87% of the products sold by the
Company in 1998 carried Ultrak brand names. The Company continues to offer
brands such as Panasonic, Mitsubishi, Dedicated Micros and Sony.
The Company's products and systems include a broad line of cameras, lenses,
high-speed dome and housings, monitors, time-lapse and digital recorders,
digital processors, switchers and video management systems, the DAVE
Technology(TM) system, video transmission equipment access control and facility
management equipment, control matrix switching systems and accessories,
professional audio products, video printers, patient education systems, video
otoscopes and furnace viewing products.
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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 had
successfully completed the SAP conversion process at its Lewisville, Texas
Worldwide Support Center, as well as four other domestic facilities. By mid
2000, SAP will unite Ultrak and all of its domestic subsidiaries with a common
inventory, sales and database management system. Via laptop computers, the
Ultrak domestic sales team can easily communicate with the host system from any
remote location. Internationally, the Company has selected "Exact", a
multilingual, multicurrency and Euro compliant software for its European
information needs. By the end of 1999, all of the Companies European operations
will be live on the "Exact" software and will be linked together with a common
inventory sales 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 to be shipped from available inventory at one of
the six domestic stocking warehouse locations. Because the Company maintains
domestically 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; Broomfield (Denver),
Colorado; Rancho Cucamonga (Ontario), California; San Diego, California; Ft.
Lauderdale, Florida and Carroll (Columbus), Ohio. Approximately 71% of all
domestic shipments are made from the Lewisville, Texas warehouse.
With respect to Ultrak branded products produced by contract manufacturers,
most of these products are made exclusively for the Company or there are limited
or no competitive sales of such products in the areas served by the Company. The
Company believes that its relationships with its contract suppliers are good. In
most of these 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 G to the Company's Consolidated Financial
Statements with regard to Major Customers and Suppliers.
Delivery times for products manufactured abroad vary from one week to two
months, depending on the mode of transportation. Because of foreign production
lead times, the Company normally makes purchase commitments to these foreign
suppliers three to six months in advance of shipment. Therefore, management
believes it is necessary for the Company to commit to and carry larger levels of
inventory than would be necessary if it manufactured all of its products
domestically. Given order lead times, accurate inventory forecasting is
critical.
Substantially all of the Company's purchases from its non-affiliated
contract manufacturers are made in United States Dollars with the remaining
purchases made in Japanese Yen, Australian Dollars, French Francs, German
Deutschmarks, Italian Lira, the South African Rand and English Pounds. To date,
the Company's purchases have not been materially adversely affected by
fluctuations in the valuation of any international currency. It is expected that
the Company will continue to purchase the vast majority of its products in
United States Dollars.
To ensure complete customer service and satisfaction, Ultrak offers
third-party leasing services and after-sale service for all equipment sold by
the Company.
Ultrak offers a limited warranty on all products shipped. The Company
generally warrants that its products will conform to Ultrak's published
specifications and be free from defects in materials and workmanship.
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. The Company's primary contract
manufacturer as well as VideV in Germany are ISO9001 certified. The quality
assurance procedures in the Company's Ohio plant and California facility comply
with ISO9001 specifications.
BACKLOG
As of December 31, 1998 and 1997, the Company had approximately $13.1
million and $12.3 million respectively, in order backlog which it considered to
be firm. 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
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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 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, 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.
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, Vicon
Industries, Inc. and Cassi Rusco.
EMPLOYEES
As of December 31, 1998, the Company had 710 full-time employees employed
worldwide at 15 primary locations and 12 field sales offices, of which 266 were
sales and sales support personnel, 169 were warehouse/manufacturing personnel,
79 were technical/service personnel, 79 were engineering and product development
personnel and 117 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.
The Company has a formal employee partnership philosophy that the Company
believes contributes significantly to its success. During periodic "partners'
meetings," all employee-partners are informed about the state of the Company and
key events that took place during the preceding months and given the opportunity
to ask questions, make suggestions and comment.
The Company's employee partnership philosophy statement is as follows:
Ultrak's partnership philosophy is at the core of our business and extends
to our customers, suppliers and employee-partners. Each employee-partner pitches
in to get the job done, is encouraged to grow both professionally and
personally, is recognized for individual achievement, and works in a cheerful
and friendly team environment. There is no room for prima donnas or hierarchies.
All employee-partners share in the Company's profits. Ultrak extends its
partnership philosophy to its suppliers and customers as well.
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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
lease with an initial term expiring in April 2003. There is adequate available
space on the premises for expansion of the Worldwide Support Center if such
expansion is deemed necessary. At the conclusion of the initial lease term, the
Company has an option to acquire the facility. The Company also leases
additional office/distribution warehouse space in Fort Lauderdale, Florida;
Westminster, Colorado; Las Vegas, Nevada; San Diego, California; Paris, France;
Preston (Manchester), England; Antwerp, Belgium; San Vendemiano (Venice), Italy;
Dusseldorf, Germany; Sydney, Australia; Kengray, South Africa and Singapore.
The Company owns its 72,000 square foot manufacturing facility in Carroll
(Columbus), Ohio and leases its manufacturing facilities in Rancho Cucamonga,
California and Perth, Western 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 1998.
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.
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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
-------- --------
1998
First quarter......... $ 10.00 $ 8.13
Second quarter........ 10.00 8.38
Third quarter......... 9.13 6.69
Fourth quarter........ 8.75 6.88
1997
First quarter......... $ 31.50 $ 17.63
Second quarter........ 17.13 8.56
Third quarter......... 12.75 8.50
Fourth quarter........ 13.13 9.13
As of February 28, 1999, there were approximately 1,300 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.
RECENT SALES OF UNREGISTERED SECURITIES
On March 31, 1998, the Company issued 53,794 shares of Common Stock to the
former owners of VideV (residents of Germany) as deferred consideration for the
acquisition of VideV. The share price used for such issuance was $10.33 per
share. Exemption from registration was claimed under Section 4(2) of the Act.
On September 30, 1998 the Company issued 68,571 shares of Common Stock to
the former owners of MAXPRO (residents of Australia) as deferred consideration
for the acquisition of MAXPRO. The share price used for such issuance was $8.75
per share. Exemption from registration was claimed under Section 4(2) of the
Act.
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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, 1998, 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 1994, 1995, 1996, 1997 and 1998. 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. The
Company has pursued an aggressive growth strategy and, as a result, the
following selected consolidated financial date may not be comparable.
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
(In Thousands)
INCOME STATEMENT DATA: 1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
Net sales............................................ $ 73,206 $ 92,161 $ 126,539 $ 174,902 $ 195,223
Cost of sales........................................ 55,459 69,710 88,714 120,883 131,677
---------- ---------- ---------- ---------- ----------
Gross profit......................................... 17,747 22,451 37,825 54,019 63,546
Marketing and sales expenses......................... 8,272 10,811 15,548 26,706 30,909
General and administrative expenses.................. 2,686 4,652 8,871 19,130 19,885
Depreciation and amortization........................ 447 891 1,436 3,971 4,667
Special charges...................................... -- -- -- 3,122 --
---------- ---------- ---------- ---------- ----------
Total operating expenses....................... 11,405 16,354 25,855 52,929 55,461
---------- ---------- ---------- ---------- ----------
Operating profit..................................... 6,342 6,097 11,970 1,090 8,085
Other expense (income)............................... 247 1,899 214 (2,953) (461)
---------- ---------- ---------- ---------- ----------
Income from continuing operations before income
Taxes.......................................... 6,095 4,198 11,756 4,043 8,546
Inomes taxes......................................... 2,141 1,526 4,004 1,726 3,589
---------- ---------- ---------- ---------- ----------
Income from continuing operations.................... 3,954 2,672 7,752 2,317 4,957
Income (loss) from discontinued operations........... (1,354) 23 (153) 84 (1,402)
---------- ---------- ---------- ---------- ----------
Net income..................................... 2,600 2,695 7,599 2,401 3,555
Dividend requirements on preferred stock............. 117 117 117 117 117
---------- ---------- ---------- ---------- ----------
Net income allocable to common stockholders.......... $ 2,483 $ 2,578 $ 7,482 $ 2,284 $ 3,438
========== ========== ========== ========== ==========
Weighted average shares outstanding - basic.......... 6,542 6,870 9,486 13,970 13,255
Income per common share from continuing
Operations - basic............................. $ 0.41 $ 0.38 $ 0.79 $ 0.16 $ 0.37
========== ========== ========== ========== ==========
Net income per common share - basic.................. $ 0.38 $ 0.38 $ 0.79 $ 0.16 $ 0.26
========== ========== ========== ========== ==========
AS OF DECEMBER 31,
----------------------------------------------------------------------
(In Thousands)
BALANCE SHEET DATA: 1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
Working capital............................... $ 5,676 $ 9,880 $ 119,163 $ 94,064 $ 90,192
Total Assets.................................. 36,353 52,955 172,578 185,256 196,626
Short-term debt............................... 18,244 24,482 -- -- --
Long-term debt................................ -- 1,535 -- -- 37,500
Stockholder's equity and equity put options... 10,070 16,497 155,961 163,198 140,030
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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
ten 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, warehousing, training and
computer support services. All significant intercompany balances and
transactions among subsidiaries and divisions have been eliminated in
consolidation.
The Company has experienced substantial growth in recent years. Net sales
have grown from $1.8 million in 1987 to $195.2 million in 1998. Increases in net
sales have come from increased volume of sales of existing products and systems
to all of the markets served by the Company, introduction and sales of new
products and systems, creation of new selling groups to focus on new markets and
acquisitions of businesses in the security and surveillance and access control
industries.
During 1995, the Company completed three acquisitions. The largest company
acquired was Diamond, a manufacturer of CCTV security and surveillance systems
used by large retailers, of traffic management systems used by municipalities
and of industrial systems used in hazardous settings. The transaction was
accounted for as a purchase and the operations have been included in the
Company's financial statements since July 1, 1995.
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 remainder of the outstanding 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 March 1999, the Company acquired all of the outstanding stock of ABM, a
company that develops and sells computer software for the alarm monitoring
security industry.
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 line. 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 one customer
accounted for approximately 17% of total sales during 1998 and 12% of total
sales during 1996 and 1997.
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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. During 1996, 1997 and 1998 the Company added new
corporate management in several areas to help facilitate and manage its growth.
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. All such R&D costs have been expensed when incurred. During the year
ended December 31, 1998, the Company capitalized approximately $1.0 million in
software development costs in accordance with FASB #86 primarily pertaining to
its Safenet NT software and its ESS software development projects. The Company's
investment in engineering, research and software developments increased
significantly during 1996, and have continued to increase on an absolute basis
in 1997 and 1998.
The Company's consolidated financial statements are denominated in dollars
and, accordingly, changes in the exchange rate between the Company's
subsidiaries' local currencies and the dollar will affect the conversion of such
subsidiaries' financial results into 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 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 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 foreign
exchange forward or currency option contracts outstanding at December 31, 1998.
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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,
--------------------------------
1996 1997 1998
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales 70.1 69.1 67.4
------ ------ ------
Gross profit 29.9 30.9 32.6
------ ------ ------
Marketing and sales expenses 12.3 15.3 15.8
General and administrative expenses 7.0 10.9 10.2
Depreciation and amortization 1.1 2.3 2.4
Special charges -- 1.8 --
------ ------ ------
Total operating expenses 20.4 30.3 28.4
------ ------ ------
Operating profit 9.5 .6 4.2
Other expense (income) .2 (1.7) (.2)
------ ------ ------
Income from continuing operations
before income taxes 9.3 2.3 4.4
Income taxes 3.2 1.0 1.8
------ ------ ------
Income from continuing operations 6.1 1.3 2.6%
Discontinued operations,
net of tax effects (.1) .1 (.8)
------ ------ ------
Net income 6.0% 1.4% 1.8%
====== ====== ======
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
For the year ended December 31, 1998, net sales were $195.2 million, an
increase of $20.3 million (12%) over 1997. This increase was due to the effect
of the acquisitions during 1997, sales of new products introduced during late
1997 and 1998 and increased volume of sales of existing CCTV products to most of
the markets served by the Company.
Cost of sales were $131.7 million for 1998, an increase of $10.8 million
(9%) over 1997. Gross profit margins increased to 32.6% in 1998 from 30.9% in
1997. This increase was due to the continued increased sales levels of
Ultrak-branded products, cost reductions realized on certain Ultrak-branded
products and somewhat higher margins earned on ESS and other new products
introduced during late 1997 and 1998.
Marketing and sales expenses were $30.9 million for 1998, an increase of
$4.2 million (16%) over 1997. Marketing and sales expenses for 1998 were 15.8%
of net sales, up from 15.3% in 1997. This increase was due to the effect of
hiring additional sales, sales support and marketing personnel in conjunction
with new product introductions and resulting sales activities, as well as the
increased travel, printing, product literature, advertising and promotion costs
associated with the introduction of new products.
General and administrative expenses were $19.9 million for 1998, an increase
of $.8 million (4%) over 1997. General and administrative expenses for 1998 were
10.2% of net sales, down from 10.9% of net sales in 1997. This decrease was a
result of less hiring and selective employee terminations later in the year and
the Company's efforts to reduce its general and administrative costs as a
percentage of sales. Depreciation and amortization expenses were $4.7 million
for 1997, an increase of $.7 million (18%) over 1997. Depreciation and
amortization expenses for 1998 were 2.4% of net sales, slightly up from 2.3% of
net sales in 1997.
Other income was approximately $.5 million for 1998, a decrease of $2.5
million from 1997. This decrease was due to the Company's shift during mid 1997
to invest excess funds in marketable equity securities (including the investment
in Detection Systems, Inc.) instead of interest bearing investments, the use of
cash to fund the Company's stock repurchase program and the increase in expense
on bank borrowings during 1998.
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YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
For the year ended December 31, 1997, net sales were $174.9 million, an
increase of $48.3 million (38%) over 1996. This increase was due to the effect
of new acquisitions during 1996 and 1997, sales of new products introduced
during late 1996 and 1997 and increased volume of sales of existing CCTV
products to most of the markets served by the Company.
Cost of sales were $120.9 million for 1997, an increase of $32.1 million
(36%) over 1996, including approximately $1.0 million in provisions for excess
and obsolete inventory. Gross profit margins increased to 30.9% (to 31.5%
excluding the special provisions for excess and obsolete inventory) in 1996 from
29.9% in 1996. This increase was due to the continued increased sales levels of
Ultrak-branded products, cost reductions realized on certain Ultrak-branded
products, the effect of certain acquisitions (the manufactured products of which
carry higher gross profit margins than other products sold by the Company) and
somewhat higher margins earned on new products introduced during late 1996 and
1997.
Marketing and sales expenses were $26.7 million for 1997, an increase of
$11.1 million (72%) over 1996. Marketing and sales expenses for 1997 were 15.3%
of net sales, up from 12.3% in 1996. This increase was due to the effect of
acquisitions during late 1996 and 1997 and the effect in 1997 of hiring
additional sales, sales support and marketing personnel in conjunction with new
product introductions and resulting sales activities, as well as the increased
travel, printing, product literature, advertising and promotion costs associated
with the introduction of new products.
General and administrative expenses were $19.1 million for 1997, an increase
of $10.2 million (116%) over 1996, including $1.0 million in increases in
reserves for accounts receivable and other assets. General and administrative
expenses for 1997 were 10.9% (10.3% excluding the special reserves for accounts
receivable and other assets) of net sales, up from 7.0% of net sales in 1996.
This increase was a result of (i) the acquisitions in late 1996 and 1997, which
maintain certain separate administrative functions and have greater research and
development costs, as a percentage of net sales, than Ultrak's other operations
and (ii) the hiring of additional research and development and administrative
staff to support the anticipated growth in sales.
Depreciation and amortization expenses were $4.0 million for 1997, an
increase of $2.5 million (176%) over 1996. Depreciation and amortization
expenses for 1997 were 2.3% of net sales, up from 1.1% of net sales in 1996.
This increase was a result of substantially increased goodwill amortization
related to the acquisitions in late 1996 and 1997 and increased property and
equipment.
Special charges were $3.1 million for 1997, representing 1.8% of net sales
for 1997. Special charges consisted of (i) the write-off of computer hardware
and software made obsolete by the implementation of new software, (ii) the cost
of moving to a new headquarters building including the write-off of leasehold
improvements and other abandonment costs and (iii) implementation costs related
to new software through December 1997.
Other income was approximately $3.0 million for 1997, an increase of $3.2
million from 1996. This increase was due primarily to interest income and gain
on sale of investments, offset partially by $697,055 in nonrecurring costs of a
terminated merger.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net decrease in cash and cash equivalents for 1998 of
approximately $9.6 million. Net cash used in operating activities for the year
was approximately $695,000, primarily consisting of increases in accounts and
notes receivable, inventories and prepaid expenses and other current assets;
decreases in accounts payable offset partially by decreases in advances for
inventory purchases; and, increases in accrued and other current liabilities.
Net cash used in investing activities was approximately $25.7 million consisting
of cash payments for purchases of property and equipment, primarily related to
the domestic SAP computer implementation and increases in purchases of
investments, offset partially by proceeds from sale of a discontinued operation.
Cash provided by financing activities was approximately $13.8 million consisting
primarily of borrowings on its revolving line of credit, offset by the purchase
of approximately $ 27.6 million in treasury stock and the payment of dividends
on the Series A Preferred Stock.
On February 16, 1999, the Company entered into a new three-year credit
facility with two banks. The credit facility provides for combined borrowings up
to $50.0 million, comprised of a $20.0 million term facility and a $30.0 million
revolving line of credit facility. Principal payments on the $20.0 million term
facility in the quarterly amount of $833,333 commence in April 2000. Interest is
payable quarterly at prime or LIBOR plus a range of .75% to 1.25%, depending on
the leverage ratio, as defined, for the quarter. The combined credit facility
contains certain restrictive financial and operational covenants and conditions,
including a
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maximum leverage ratio, a debt service ratio and minimum net worth amounts. The
Company pays a quarterly unused fee of .125% to .25%, depending on the leverage
ratio for the quarter.
As of December 31, 1998, the Company was in violation of a certain financial
covenant of it's previous $40.0 million credit facility. The Company obtained a
waiver from the previous bank on January 15, 1999 and the amount outstanding
with the previous bank was paid in full with borrowings from the new $50.0
million credit facility on February 17, 1999.
The Company believes that internally generated funds, available borrowings
under the new credit facility and current amounts of cash will be sufficient to
meet its presently anticipated needs for working capital, capital expenditures
and acquisitions, if any, for at least the next 12 months.
DERIVATIVE FINANCIAL INSTRUMENTS
During 1997, the Company sold equity put options covering 2.6 million
shares. As of December 31, 1998, one equity put option remained outstanding and
the Company has recorded on the balance sheet its potential repurchase
obligation related to the put option totaling $1.6 million at its exercise price
of $12.51 per share. The single remaining put option was exercised on January
13, 1999 with the Company purchasing 125,000 shares of its Common Stock.
YEAR 2000 COSTS
The Company is aware of certain issues associated with the programming code
in certain of its existing computer hardware and software systems as the
millennium (Year 2000) approaches. The Company has designed and tested the most
current versions of its products to be year 2000 compliant. However, there can
be no assurances that the Company will not experience serious unanticipated
negative consequences and/or material costs caused by undetected errors or
defects in the technology used in the Company's products that may result in
material costs to the Company.
The Year 2000 issue is pervasive and complex, as virtually every computer
operation in certain of its international subsidiaries could be affected in some
way by the rollover of the two-digit year value to "00". The issue is whether
systems will properly recognize date sensitive information when the year changes
to 2000. Systems that do not properly recognize such information could generate
erroneous data or cause complete system failures. With respect to its internal
systems, the Company is in the process of implementing a multi-lingual and
multi-currency enterprise software at all of Ultrak's facilities worldwide. As
of August 1998, the Company had successfully completed the conversion process to
SAP at its Worldwide Service and Support Center, as well as four other domestic
facilities. SAP's software and all associated third party applications are
represented to be Year 2000 compliant. The Company's Ohio manufacturing facility
will not be converted to SAP in 1999, but its existing business systems will be
upgraded to a Year 2000 compliant version by December 1999. The Company began
its European implementation in early March 1999 using "Exact" software, a
European multilingual, multi-currency Y2K and Euro compliant software. For all
European systems that are currently not Year 2000 compliant, the Company will
address and convert those computer systems first in its implementation plan
which should be completed by December 1999. During the years ended December 31,
1998 and 1997, the Company incurred approximately $6.3 million and $1.6 million
respectively related to its implementation of SAP in the U.S. It is expected
that the remaining phases of the "Exact" implementation will additionally cost
approximately $800,000, which will be incurred primarily in 1999. Such costs are
expected to be capitalized and amortized over the estimated useful life of the
software.
Based upon the expected timely completion of its conversion to SAP and its
discussions with its primary suppliers and vendors, the Company does not believe
that the Year 2000 issues will have a material impact on the financial position,
results of operations or cash flows of the Company. However, there can be no
assurances that the Company will not experience serious unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in the Company's internal systems, which are composed of third
party software, third party hardware that contains embedded software and the
Company's own software products.
INFLATION
During the years ended December 31, 1998, 1997 and 1996, 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.
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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, interest rates, and investment
prices, 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 34% of 1998 net sales. The Company issues intercompany loans to
its foreign subsidiaries denominated in U.S. dollars, exposing the foreign
subsidiaries to the effect of changes in spot exchange rates of their local
currency relative to the U.S. dollar. In addition, many of the foreign-based
operations make sales to customers denominated in different currencies, which
carry minimal market risk because the transactions normally settle quickly. 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 $15.4 million at December 31, 1998, a
10% adverse change in currency rates would create an additional comprehensive
loss of approximately $1.5 million.
Interest rates
The Company's credit arrangements expose it to fluctuations in interest
rates. At December 31, 1998, the Company had $37.5 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, 1998, a 10% increase in interest rates would not
materially affect the Company's financial position, annual results of
operations, or cash flows.
Investments
The Company is exposed to fluctuations in the stock prices of investment in
its available for sale portfolio. Market fluctuations would affect the carrying
value of investments. Based upon the holdings at December 31, 1998, a 10%
decrease in market value would not materially affect the Company's financial
position, annual results of operations, or cash flows.
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
report. 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.
18
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 1999 Annual Meeting of Stockholders (the "1999
Proxy Statement"), which is expected to be filed with the Securities and
Exchange Commission on or about April 23, 1999. See also the list of the
Company's executive officers and related information under "Directors and
Executive Officers" in Part I thereof.
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 1999 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 1999 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 1999 Proxy Statement.
19
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, 1998 and 1997.
Consolidated Statements of Income for the years ended December
31, 1998, 1997 and 1996.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.
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 March 18, 1999 reporting the ABM Data Systems, Inc.
acquisition and the resignation of James D. Pritchett, President, Chief
Operating Officer and a director 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)
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)
20
21
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, 1998, among Ultrak,
Inc., Bank One, Texas, N.A. and Certain Lenders
*10.14 Stock Purchase Agreement dated August 5, 1998, between the
Company and American Dental Technologies, Inc.
*10.15 Stock Sale Agreement dated February 23, 1999 between the
Company and Mutsuo Tanaka
*10.16 Employment Agreement, dated January 1, 1998, between the
Company and Ted Wlazlowski
*21.1 Subsidiaries of the Company
*27.1 Financial Data Schedule
- ----------
* Exhibits 10.13, 10.14, 10.15, 10.16, 21.1 and 27.1 are filed herewith.
21
22
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 23rd day of
March, 1999
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 23, 1999
- ------------------------------------------------ Executive Officer
George K. Broady (Principal Executive Officer)
/s/ Tim D. Torno Vice President-Finance, Secretary, March 23, 1999
- ------------------------------------------------ Treasurer and Chief Financial Officer
Tim D. Torno (Principal Financial and Accounting
Officer)
/s/ William C. Lee Director March 23, 1999
- ------------------------------------------------
William C. Lee
/s/ Charles C. Neal Director March 23, 1999
- ------------------------------------------------
Charles C. Neal
/s/ Roland Scetbon Director March 23, 1999
Roland Scetbon
/s/ Robert F. Sexton Director March 23, 1999
- ------------------------------------------------
Robert F. Sexton
22
23
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Ultrak, Inc.
We have audited the accompanying consolidated balance sheets of Ultrak, Inc. and
Subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1998. 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 generally accepted auditing
standards. 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, 1998 and 1997, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Dallas, Texas
February 13, 1999
F-1
24
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1998 1997
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 4,480,721 $ 14,099,684
Restricted cash - 3,949,690
Investments 3,473,563 -
Trade accounts receivable, less allowance for doubtful
accounts of $1,657,549 and $1,741,920 at
December 31, 1998 and 1997, respectively 37,404,380 27,884,538
Inventories, net 46,021,960 38,103,235
Advances for inventory purchases 4,878,853 11,420,009
Prepaid expenses and other current assets 5,491,298 5,016,671
Deferred income taxes 2,956,259 3,763,463
Net current assets of discontinued operations 3,486,181 11,491,648
----------- ------------
Total current assets 108,193,215 115,728,938
PROPERTY, PLANT AND EQUIPMENT, at cost 20,654,541 8,838,063
Less accumulated depreciation and amortization (5,122,470) (3,108,642)
----------- ------------
15,532,071 5,729,421
OTHER ASSETS
Goodwill, net of accumulated amortization of $4,767,601
and $2,621,070 at December 31, 1998 and 1997,
respectively 54,861,332 55,765,438
Investment in Detection Systems, Inc. 12,702,909 -
Software development cost, less accumulated amortization
of $435,833 at December 31, 1998 1,014,678 -
Net non-current assets of discontinued operations 311,050 2,373,087
Other 4,010,740 5,659,292
----------- ------------
72,900,709 63,797,817
----------- ------------
Total assets $196,625,995 $185,256,176
============ ============
F-2
25
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------------- -------------
CURRENT LIABILITIES
Accounts payable - trade $ 8,368,265 $ 12,884,369
Accrued expenses 5,791,205 3,749,513
Other current liabilities 3,842,050 5,031,204
------------- -------------
Total current liabilities 18,001,520 21,665,086
LINE OF CREDIT 37,500,000 --
DEFERRED INCOME TAXES 1,094,065 392,686
COMMITMENTS AND CONTINGENCIES -- --
EQUITY PUT OPTIONS ON COMMON STOCK 1,563,563 28,364,000
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;
14,703,138 and 14,445,741 shares issued and outstanding at
December 31, 1998 and 1997, respectively 147,031 144,457
Deferred issuance of common stock related to companies acquired -
50,819 shares at December 31, 1997 -- 508
Additional paid-in capital 153,333,593 126,414,327
Retained earnings 17,130,398 13,692,732
Accumulated other comprehensive loss (967,488) (1,868,304)
Treasury stock, at cost (2,987,950 and 432,850 shares
at December 31, 1998 and 1997, respectively) (32,153,442) (4,526,071)
------------- -------------
Total stockholders' equity 138,466,847 134,834,404
------------- -------------
Total liabilities and stockholders' equity $ 196,625,995 $ 185,256,176
============= =============
The accompanying notes are an integral part of these statements.
F-3
26
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
1998 1997 1996
------------- ------------- -------------
Net sales $ 195,222,550 $ 174,902,001 $ 126,538,635
Cost of sales 131,676,673 120,882,700 88,714,342
------------- ------------- -------------
Gross profit 63,545,877 54,019,301 37,824,293
Other operating costs:
Marketing and sales 30,909,127 26,705,668 15,547,496
General and administrative 19,885,071 19,130,365 8,871,257
Depreciation and goodwill amortization 4,666,508 3,971,114 1,436,374
Special charges -- 3,122,000 --
------------- ------------- -------------
55,460,706 52,929,147 25,855,127
------------- ------------- -------------
Operating profit 8,085,171 1,090,154 11,969,166
Other income (expense):
Interest expense (1,373,941) (154,965) (1,066,651)
Interest income 412,383 1,853,639 628,178
Cost of terminated merger -- (697,055) --
Gain on sale of investments 675,000 1,694,664 --
Equity in income of Detection Systems, Inc. 350,000 -- --
Other, net 398,236 257,244 224,942
------------- ------------- -------------
461,678 2,953,527 (213,531)
------------- ------------- -------------
Income from continuing operations
before income taxes 8,546,849 4,043,681 11,755,635
Income taxes (3,589,676) (1,726,458) (4,003,838)
------------- ------------- -------------
Income from continuing operations 4,957,173 2,317,223 7,751,797
Discontinued operations, net of taxes
Loss (income) from operations 1,480,243 (83,491) 153,073
Gain on disposal (77,946) -- --
------------- ------------- -------------
NET INCOME 3,554,876 2,400,714 7,598,724
Dividend requirements on preferred stock (117,210) (117,210) (117,210)
------------- ------------- -------------
Net income allocable to common stockholders $ 3,437,666 $ 2,283,504 $ 7,481,514
============= ============= =============
The accompanying notes are an integral part of these statements.
F-4
27
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - CONTINUED
Years ended December 31,
1998 1997 1996
------ ------- -------
Income per common share:
Continuing operations
Basic $ 0.37 $0.16 $ 0.80
====== ===== =======
Diluted $ 0.34 $0.15 $ 0.74
====== ===== =======
Discontinued operations
Basic $(0.11) $ - $ (0.02)
====== ===== =======
Diluted $(0.10) $ - $ (0.01)
====== ===== =======
Net income
Basic $ 0.26 $0.16 $ 0.79
====== ===== =======
Diluted $ 0.24 $0.15 $ 0.73
====== ===== =======
The accompanying notes are an integral part of these statements.
F-5
28
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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 January 1, 1996 195,351 $ 976,755 7,326,935 $ 73,269 -- $ -- $ 11,518,801
---------- ---------- ---------- ---------- ---------- ---------- -------------
Comprehensive income
Net income -- -- -- -- -- -- --
Other comprehensive
income
Foreign currency
translation adjustment -- -- -- -- -- -- --
Total
Issuance of common stock -- -- -- -- 91,802 918 --
Public offering of common
stock -- -- 5,979,977 59,800 -- --
120,201,438
Acquisition of businesses -- -- 291,316 2,913 -- -- 10,068,887
Exercise of stock options
and warrants -- -- 264,873 2,649 -- -- 1,927,519
Treasury stock purchases -- -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- -------------
Balance at December 31, 1996 195,351 976,755 13,863,101 138,631 91,802 918 143,716,645
---------- ---------- ---------- ---------- ---------- ---------- -------------
Comprehensive income
Net income -- -- -- -- -- -- --
Other comprehensive
income
Foreign currency
translation adjustment -- -- -- -- -- -- --
Total
Accumulated
other Treasury stock
Retained comprehensive --------------------------------
earnings loss Shares Amount Total
------------- ------------- ------------- ------------- -------------
Balance January 1, 1996 $ 3,927,714 $ -- -- $ -- $ 16,496,539
------------- ------------- ------------- ------------- -------------
Comprehensive income
Net income 7,598,724 -- -- -- 7,598,724
Other comprehensive
income
Foreign currency
translation adjustment -- (35,000) -- -- (35,000)
-------------
Total 7,563,724
-------------
Issuance of common stock -- -- -- -- 918
Public offering of common
stock -- -- -- -- --
120,261,238
Acquisition of businesses -- -- -- -- 10,071,800
Exercise of stock options
and warrants -- -- -- -- 1,930,168
Treasury stock purchases -- -- 35,000 (246,068) (246,068)
Preferred stock dividends (117,210) -- -- -- (117,210)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1996 11,409,228 (35,000) 35,000 (246,068) 155,961,109
------------- ------------- ------------- ------------- -------------
Comprehensive income
Net income 2,400,714 -- -- -- 2,400,714
Other comprehensive
income
Foreign currency
translation adjustment -- (1,833,304) -- -- (1,833,304)
-------------
Total 567,410
-------------
The accompanying notes are an integral part of these statements.
F-6
29
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS 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
--------- ---------- ---------- ---------- ---------- ---------- ------------
Issuance of common stock -- $ -- -- $ -- (40,983) $ (410) $ --
Acquisition of businesses -- -- 574,532 5,745 -- -- 6,534,784
Exercise of stock options
and warrants -- -- 8,108 81 -- -- 42,588
Treasury stock purchases -- -- -- -- -- -- --
Proceeds from sale of
equity put options
on common stock -- -- -- -- -- -- 4,484,310
Redemption price of
equity put options -- -- -- -- -- -- (28,364,000)
preferred stock dividends -- -- -- -- -- -- --
--------- ---------- ---------- ---------- ---------- ---------- ------------
Balance at December 31, 1997 195,351 976,755 14,445,741 144,457 50,819 508 126,414,327
--------- ---------- ---------- ---------- ---------- ---------- ------------
Comprehensive income
Net income -- -- -- -- -- -- --
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 -- -- -- -- -- -- --
--------- ---------- ---------- ---------- ---------- ---------- ------------
Balance at December 31, 1998 195,351 $ 976,755 14,703,138 $ 147,031 -- $ -- $153,333,593
========= ========== ========== ========== ========== ========== ============
Accumulated
other Treasury stock
Retained comprehensive -------------------------------
earnings loss Shares Amount Total
------------- ------------- ------------- ------------- -------------
Issuance of common stock $ -- $ -- -- $ -- $ (410)
Acquisition of businesses -- -- -- -- 6,540,529
Exercise of stock options
and warrants -- -- -- -- 42,669
Treasury stock purchases -- -- 397,850 (4,280,003) (4,280,003)
Proceeds from sale of
equity put options
on common stock -- -- -- -- 4,484,310
Redemption price of
equity put options -- -- -- -- (28,364,000)
preferred stock dividends (117,210) -- -- -- (117,210)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1997 13,692,732 (1,868,304) 432,850 (4,526,071) 134,834,404
------------- ------------- ------------- ------------- -------------
Comprehensive income
Net income 3,554,876 -- -- -- 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 -- -- 435,100 (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) -- -- -- (117,210)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1998 $ 17,130,398 $ (967,488) 2,987,950 $ (32,153,442) $ 138,466,847
============= ============= ============= ============= =============
The accompanying notes are an integral part of these statements.
F-7
30
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
1998 1997 1996
------------ ------------ ------------
Cash flows from operating activities:
Net income $ 3,554,876 $ 2,400,714 $ 7,598,724
Adjustments to reconcile net income to net cash
provided by (used in) operating activities from
continuing operations:
Loss (income) from discontinued operations 1,480,243 (83,491) 153,073
Gain on disposal (77,946) -- --
Depreciation and amortization 4,666,508 3,971,114 1,436,374
Provision for losses on accounts receivable (8,103) 316,937 114,056
Provision for inventory obsolescence 2,104,636 717,062 128,423
Noncash special charges -- 3,122,000 --
Deferred income taxes 1,605,341 (2,070,458) (218,742)
Changes in operating assets and liabilities
Accounts and notes receivable (3,719,551) 894,098 (4,496,558)
Inventories (10,440,583) (4,709,115) (3,873,706)
Advances for inventory purchases 6,541,157 (6,482,564) 117,470
Prepaid expenses and other current assets (2,408,931) 409,396 (3,221,453)
Noncurrent notes and other assets (828,031) 3,532,780 (420,897)
Accounts payable (4,240,203) (6,065,780) 833,284
Accrued and other current liabilities 1,075,151 (3,254,452) (771)
------------ ------------ ------------
Net cash used in operating activities
of continuing operations (695,436) (7,301,759) (1,850,723)
Cash flows from investing activities:
Purchases of investments, net (16,346,944) -- --
Purchases of property and equipment (12,322,627) (1,995,652) (1,581,442)
Proceeds from sale of discontinued operations 3,000,000 -- --
Acquisitions, net of cash acquired -- (32,859,912) (20,503,325)
------------ ------------ ------------
Net cash used in investing activities
of continuing operations (25,669,571) (34,855,564) (22,084,767)
The accompanying notes are an integral part of these statements.
F-8
31
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
1998 1997 1996
------------- ------------- -------------
Cash flows from financing activities:
Net borrowings (repayments) on revolving line of credit $ 37,500,000 $ -- $ (27,941,212)
Decrease (increase) in restricted cash 3,949,690 (3,949,690) --
Proceeds from equity put options -- 4,484,310 --
Issuance of common stock 120,895 42,669 122,191,406
Purchase of treasury stock (27,627,371) (4,280,003) (246,068)
Payment of preferred stock dividends (117,210) (117,210) (117,210)
------------- ------------- -------------
Net cash provided by (used in) financing
activities of continuing operations 13,826,004 (3,819,924) 93,886,916
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (12,539,003) (45,977,247) 69,951,426
Effect of exchange rate changes on cash (247,464) (815,761) 42,960
Cash provided by (used in) discontinued operations 3,167,504 (10,918,015) 509,839
Cash and cash equivalents at beginning of the year 14,099,684 71,810,707 1,306,482
------------- ------------- -------------
Cash and cash equivalents at end of the year $ 4,480,721 $ 14,099,684 $ 71,810,707
============= ============= =============
Supplemental cash flow information:
Cash paid during the period for: Interest $ 1,451,248 $ 144,965 $ 1,238,894
============= ============= =============
Income taxes $ 4,049,242 $ 4,783,883 $ 4,379,656
============= ============= =============
Supplemental schedule of noncash investing and financing:
Acquisition of businesses
Assets acquired $ 1,244,800 $ 56,335,806 $ 39,692,802
Liabilities assumed (1,200,000) (12,549,752) (7,303,383)
Common stock issued or issuable -- (6,540,529) (10,072,718)
------------- ------------- -------------
44,800 37,245,525 22,316,701
Less cash acquired 44,800 4,385,613 1,813,376
------------- ------------- -------------
Net cash paid for acquisitions $ -- $ 32,859,912 $ 20,503,325
============= ============= =============
The accompanying notes are an integral part of these statements.
F-9
32
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.
Restricted Cash
Restricted cash represents collateral for outstanding equity put options.
Investments
The Company accounts for its investments 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 or 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.
F-10
33
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
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.
Income Per Share
The Company computes basic income 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,
notes receivable, debt and equity put options for which the fair value
approximates the carrying value.
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.
F-11
34
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
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 is 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.
Currency Translation
Translation adjustments to the financial statements of foreign subsidiaries
are reflected in the consolidated financial statements as a component of
other comprehensive income.
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.
Reclassifications
Certain reclassifications have been made to prior years financial statements
to conform with the 1998 presentation.
Derivative Financial Instruments
Equity put options on common stock represent the number of options sold at
their respective strike price. Proceeds from the sale of equity put options
on common stock are accounted for as additional paid-in capital.
F-12
35
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - BUSINESS COMBINATIONS
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.
On August 5, 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"). 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.
On March 3, 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.
1997 Business Combinations:
MONITOR DYNAMICS, INC.
Effective February 1, 1997, the Company acquired all of the outstanding
shares of capital stock of Monitor Dynamics, Inc. ("MDI") for $26.1 million
in cash. MDI designs, manufactures, markets and sells high-end security and
access control systems under the SAFEnet brand name. MDI's systems are used
in government, defense, industrial, financial and commercial applications
throughout the United States and Europe.
INTERVISION EXPRESS, LTD.
Effective March 1, 1997, the Company acquired all of the outstanding share
capital of Intervision Express, Ltd. ("Intervision"), a United Kingdom
limited liability company. The total consideration was approximately $1.53
million dollars, including 38,822 shares of common stock valued at $719,000.
Intervision distributes security and surveillance products, primarily in the
United Kingdom, manufactured by the Company, Dedicated Micros, Toa, Hitachi,
Mitsubishi and others.
F-13
36
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - BUSINESS COMBINATIONS - Continued
VIDEOSYS GROUP
Effective April 1, 1997, the Company acquired the Videosys Group (the
"Videosys Group") for total consideration of $8.37 million consisting of
$5.55 million in cash and $2.82 million (160,000 shares) in common stock. In
connection with the acquisition, the Company guaranteed the value of the
common stock by granting put rights covering 160,000 shares at $25 per
share. Beginning in April 1999 for one year, if the Company's stock price
falls below $20 per share for 30 consecutive days, the seller of Videosys
Group can require the common stock to be repurchased. The Videosys Group
designs, imports, and distributes security and surveillance products
primarily in Italy, under the Videosys brand name.
VERAVISION, INC.
Effective April 1, 1997, the Company acquired all of the issued and
outstanding capital stock of Veravision, Inc. ("Veravision"). The
consideration consisted of $150,000 in promissory notes, approximately $2.0
million in notes and accounts receivable due from Veravision and 10% of the
common stock of DVD, a wholly-owned subsidiary of the Company. Veravision
manufactures intra-oral camera products for use primarily in the dental
market.
Veravision and DVD were sold in 1998.
OTHER ACQUISITIONS
Additionally, in 1997, the Company acquired a 10% interest in a company in
Japan for approximately $2.0 million in cash and 100% of a company based in
South Africa for $300,000 in cash and $300,000 of amounts payable over a
three-year period and an 80% interest in a company based in Singapore for
$95,000 in cash.
1996 Business Combinations:
MAXPRO SYSTEMS PTY, LTD.
Effective July 1, 1996, the Company acquired 75% of the outstanding capital
stock of Maxpro Systems Pty, Ltd. (Maxpro), a Perth, Australia company, for
approximately $8.2 million in cash and $900,000 in common stock payable over
a two-year period. Effective February 17, 1997, the Company acquired the
remaining 25% of the outstanding capital stock of Maxpro for 175,000 shares
of common stock valued at $3.1 million. Maxpro is a manufacturer of a
computer controlled video management systems that are coupled to a computer
controlled alarm input and output network used primarily in casinos,
airports, mines, nuclear power plants, prisons and other large closed
circuit television applications.
F-14
37
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - BUSINESS COMBINATIONS - Continued
LENEL SYSTEMS INTERNATIONAL, INC.
On September 6, 1996, the Company purchased approximately 24% of the
outstanding common stock of Lenel Systems International, Inc. ("Lenel") for
$2.6 million in cash. Lenel is a software company specializing in access
control products based in Fairport, New York. In connection with the
acquisition, the Company received a warrant to acquire up to 51% of Lenel
for a price based upon Lenel's earnings.
In September 1997, the Company sold its interest in Lenel for a promissory
note and cash totaling $3.1 million. The promissory note is due within one
year and is secured by the Lenel common stock sold.
A gain on the sale of approximately $285,000 has been included in other
income in 1997.
GROUPE BISSET, S.A.
Effective October 1, 1996, the Company acquired 100% of the outstanding
share capital of Groupe Bisset, S.A. ("Bisset"), a Paris, France company,
for $5.0 million in cash and a total of 456,522 shares of common stock
valued at $8,552,900. Bisset is one of France's largest distributors of
security and surveillance and professional audio products.
VIDEV GMBH
Effective December 1, 1996, the Company acquired 100% of the outstanding
share capital of VideV GmbH ("VideV"), a Dusseldorf, Germany company. VideV
is a manufacturer and distributor of security and surveillance products.
VideV was purchased for a total of $3.25 million in cash and 53,820 shares
of common stock valued at $556,000.
All acquisitions have been accounted for as purchases and the operations of
purchased companies have been included in the Company's statement of income
since their date of acquisition. Goodwill is being amortized on the
straight-line method over periods ranging from 20 to 30 years.
F-15
38
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - BUSINESS COMBINATIONS - Continued
The unaudited pro forma information set forth below assumes acquisitions in
1997 had occurred at the beginning of 1997. The information is presented for
informational purposes only and is not necessarily indicative of the results
of operations that actually would have been achieved had the acquisitions
been consummated at that time. For the year ended December 31, 1997 the
information is as follows:
Net sales $195,649,000
============
Income from continuing operations $ 2,770,000
============
Net income $ 2,853,000
============
Per common share amounts:
Income from continuing operations
Basic $ 0.19
Diluted $ 0.18
Net income
Basic $ 0.20
Diluted $ 0.19
Acquisitions during 1998 were not significant; as a result, no pro forma
information is presented.
NOTE C - PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
December 31,
------------------------------
1998 1997
------------ ------------
Machinery and equipment $ 4,882,454 $ 1,890,199
Furniture and fixtures 13,816,787 4,992,564
Building and land 1,955,300 1,955,300
------------ ------------
20,654,541 8,838,063
Accumulated depreciation (5,122,470) (3,108,642)
------------ ------------
$ 15,532,071 $ 5,729,421
============ ============
F-16
39
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - FINANCING ARRANGEMENTS
On February 16, 1999, the Company entered into a new three-year credit
facility with two banks. The credit facility provides for combined
borrowings of up to $50.0 million, comprised of a $20.0 million term
facility and a $30.0 million revolving line of credit facility. Interest for
the combined facility is payable quarterly at prime or LIBOR plus a range of
.75% to 1.25%, depending on the leverage ratio, as defined, for the quarter.
Principal payments on the $20.0 million term facility in the quarterly
amount of $833,333 commence in April 2000. The combined credit facility
contains certain restrictive financial and operational covenants and
conditions, including a maximum leverage ratio, a debt service and minimum
net worth amounts. The Company pays a quarterly unused facility fee of .125%
to .25%, depending on the leverage ratio for the quarter.
At December 31, 1998, the Company had $37.5 million outstanding under its
previous line of credit. The Company was in violation of a certain financial
covenants and obtained a waiver on January 15, 1999. Amounts outstanding
were paid in full with proceeds from the new $50.0 million credit facility
on February 17, 1999. Interest on the line of credit at December 31, 1998
was payable monthly at the bank's LIBOR rate (5.0% at December 31, 1998)
plus 3%.
NOTE E - 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.
Holders of Series A preferred stock are 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.
During 1997 and 1998, the Company repurchased 397,850 and 2,555,100 shares,
respectively, of its common stock. As part of its share repurchase program,
during 1997 the Company sold equity put options covering 2,620,000 shares
for $4,484,310. As of December 31, 1998, 125,000 options remained
outstanding and the Company's potential repurchase obligation under these
options totaled approximately $1.6 million at an exercise price of $12.51
per share. The options were exercised on January 13, 1999 and the Company
repurchased the shares.
F-17
40
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - STOCK-BASED COMPENSATION
The Company's 1988 Nonqualified Stock Option Plan (the "1988 Plan") provided
for grants of options for up to 1,000,000 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, 1998,
181,712 and 261,359 shares were available for grant under the 1988 Plan and
the 1997 Plan, respectively.
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 from continuing operations and income per share
would be reduced to the pro forma amounts indicated as follows:
Year ended December 31,
-------------------------------------------------
1998 1997 1996
------------- ------------- -------------
Net income from continuing operations:
As reported $ 4,957,173 $ 2,317,223 $ 7,751,797
Pro forma $ 4,381,640 $ 1,884,927 $ 7,544,420
Basic income per share from continuing operations:
As reported $ .37 $ .16 $ .80
Pro forma $ .32 .13 $ .78
Diluted income per share from continuing operations:
As reported $ .34 $ .15 $ .74
Pro forma $ .30 $ .12 $ .72
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 50 to 70 percent; risk-free interest
rates of 5.5 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-18
41
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - STOCK-BASED COMPENSATION - Continued
Additional information with respect to options outstanding at December 31,
1998 and changes for the three years then ended is as follows:
1998 1997 1996
---------------------- --------------------- ---------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
--------- --------- ---------- --------- --------- ---------
Outstanding at beginning of year 1,000,656 $ 9.26 658,775 $ 4.42 666,875 $ 3.84
Granted 69,500 8.80 369,641 17.96 47,000 16.27
Exercised (134,332) 1.67 (8,108) 5.26 (21,850) 4.66
Forfeited (76,654) 16.13 (19,652) 12.16 (33,250) 5.84
--------- ---------- ---------
Outstanding at end of year 859,170 $ 9.94 1,000,656 $ 9.26 658,775 $ 4.42
========= ========= ========== ========= ========= =========
Options exercisable at
end of year 475,937 $ 4.79 511,768 $ 3.44 458,177 $ 2.94
========= ========= ========== ========= ========= =========
Weighted average fair value per share of options granted for 1998, 1997 and 1996
were $6.55, $9.68, and $11.92, respectively.
Information about stock options outstanding at December 31, 1998 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 $5.62 245,268 1.9 years $ 2.63 245,268 $ 2.63
$5.63 to $9.00 265,983 6.3 years 6.46 157,883 6.01
$9.01 to $13.50 102,500 8.7 years 9.58 17,700 9.58
$13.51 to $20.00 134,419 8.2 years 17.12 30,686 17.11
$20.01 to 26.75 111,000 8.1 years 26.05 24,400 26.09
----------- -----------
859,170 475,937
=========== ===========
F-19
42
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - MAJOR CUSTOMERS AND SUPPLIERS
One customer accounted for more than 10% of revenue in each of the three
years ended December 31, 1998. Sales to that customer were:
1998 $33,920,000
1997 22,046,000
1996 16,014,000
Loss of this customer would have a material adverse effect on the operations
of the Company.
The Company purchased in excess of 25% of its products from one contract
manufacturer in each of the three years in the period ended December 31,
1998. 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 H - 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,
------------
1999 $ 2,585,000
2000 2,307,000
2001 1,982,000
2002 1,689,000
2003 719,000
Thereafter 740,000
-----------
$10,022,000
===========
Total rent expense was as follows:
1998 $ 2,351,000
1997 1,588,000
1996 1,087,000
F-20
43
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - COMMITMENTS AND CONTINGENCIES - Continued
As discussed in Note B, the Company has a contingent obligation to
repurchase 160,000 shares of its common stock from its Videosys Group
Acquisition. Beginning in April 1999 for one year, if the Company's stock
price falls below $20 per share for 30 consecutive days, the seller of
Videosys Group can require the Company to repurchase the 160,000 shares for
$25 per share.
NOTE I - INCOME TAXES
The provision for taxes consists of the following:
Years ended December 31,
---------------------------------------------
1998 1997 1996
---------- ----------- ----------
Federal
Current $2,553,617 $ 3,330,467 $3,451,376
Deferred 1,860,482 (1,842,118) (40,565)
State 102,871 267,428 206,529
Foreign (927,294) (29,319) 386,498
---------- ----------- ----------
$3,589,676 $ 1,726,458 $4,003,838
========== ========== ==========
The Company's effective income tax rate differed from the U.S. Federal
statutory rate as follows:
Years ended December 31,
--------------------------
1998 1997 1996
---- ---- ----
U.S. Federal statutory rate 34.0% 34.0% 34.0%
State taxes, net of Federal benefit .8 2.1 1.1
Net operating loss carryforward recognized -- -- (1.3)
Goodwill amortization 4.8 9.3 1.1
Tax exempt interest and dividends -- (3.2) --
Other, net 2.4 0.5 (.8)
---- ---- ----
42.0% 42.7% 34.1%
==== ==== ====
F-21
44
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - INCOME TAXES - Continued
The components of deferred tax assets and liabilities are as follows:
December 31,
--------------------------------
1998 1997
------------- -------------
Current
Deferred tax assets:
Inventories $ 1,576,125 $ 1,737,923
Accounts receivable 338,204 522,024
Accrued expenses 1,041,930 1,503,516
------------- -------------
2,956,259 3,763,463
Noncurrent
Deferred tax assets:
Net operating loss carryforward 1,170,866 249,263
Deferred tax liabilities:
Property, plant and equipment (1,540,375) (50,874)
Other (724,556) (591,075)
------------- -------------
(1,094,065) (392,686)
------------- -------------
$ 1,862,194 $ 3,370,777
============= =============
At December 31, 1998, the Company had federal, state and foreign net
operating loss carryforwards of approximately $340,000, $1,200,000 and
$2,600,000, respectively. The federal net operating loss carryforwards are
limited in use each year to approximately $100,000 through expiration in
2010. The state net operating loss carryforwards expire in 2005.
Substantially all foreign net operating loss carryforwards do not expire.
F-22
45
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - INVESTMENTS
Investments consist of common stocks with an estimated fair value of
$3,473,563. All common stocks were purchased in 1998 at a cost of
$3,733,978. The Company has classified these securities as available for
sale. The unrealized loss is included as a component of accumulated other
comprehensive income.
NOTE K - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS
Effective March 31, 1998, the Company adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information which changes the
way the company reports information about its operating segments.
The Company has three business segments: United States-Professional Security
Group (US-PSG), United States-Diversified Group (US-DSG), and
International-Professional Security Group (International-PSG). The segments
are differentiated by the customers serviced as follows:
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.
US-DSG
This segment sells video and security products to industrial markets and
consumers in the United States.
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.
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-23
46
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS - Continued
The following tables provide financial data by segment for the years ended
December 31, 1998, 1997 and 1996:
US US International
1998 PSG DSG PSG Corporate Total
---- ------------- ------------- ------------- ------------- -------------
Total revenue $ 92,319,817 $ 50,345,605 $ 66,957,207 $ -- $ 209,622,629
Intersegment revenue (10,168,609) -- (4,231,470) -- (14,400,079)
------------- ------------- ------------- ------------- -------------
Revenue from external customers $ 82,151,208 $ 50,345,605 $ 62,725,737 $ -- $ 195,222,550
============= ============= ============= ============= =============
Operating profit $ 9,008,039 $ 10,221,536 $ 2,009,647 $ (13,154,051) $ 8,085,171
Total assets 62,859,311 28,905,974 36,037,253 68,823,457 196,625,995
Depreciation and amortization
expense 3,841,170 183,747 641,591 -- 4,666,508
Capital additions 7,492,423 4,083,349 746,855 -- 12,322,627
1997
----
Total revenue $ 78,892,610 $ 47,615,223 $ 53,473,573 $ -- $ 179,981,406
Intersegment revenue (3,555,583) -- (1,523,822) -- (5,079,405)
------------- ------------- ------------- ------------- -------------
Revenue from external customers $ 75,337,027 $ 47,615,223 $ 51,949,751 $ -- $ 174,902,001
============= ============= ============= ============= =============
Operating profit $ 3,388,804 $ 9,272,409 $ 831,999 $ (12,403,058) $ 1,090,154
Total assets 53,773,839 11,971,792 28,870,890 90,639,655 185,256,176
Depreciation and amortization
expense 3,087,679 113,300 770,135 -- 3,971,114
Capital additions 1,358,233 79,096 558,323 -- 1,995,652
1996
----
Total revenue $ 72,518,841 $ 45,628,108 $ 9,787,911 $ -- $ 127,934,860
Intersegment revenue (977,357) -- (418,868) -- (1,396,225)
------------- ------------- ------------- ------------- -------------
Revenue from external customers $ 71,541,484 $ 45,628,108 $ 9,369,043 $ -- $ 126,538,635
============= ============= ============= ============= =============
Operating profit $ 6,405,567 $ 9,052,605 $ 597,373 $ (4,086,379) $ 11,969,166
Total assets 45,964,297 5,503,605 15,059,456 106,050,757 172,578,115
Depreciation and amortization
expense 1,043,848 214,799 177,727 -- 1,436,374
Capital additions 1,320,712 127,958 132,772 -- 1,581,442
F-24
47
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS - Continued
Financial information relating to the Company's Corporate segment is as
follows:
Year ended December 31,
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
Sales and marketing $ 1,398,736 $ 1,220,932 $ 413,108
Engineering and other corporate expenses 4,517,287 4,219,669 1,725,914
General and administrative 3,962,878 3,840,457 1,947,357
Depreciation and amortization 3,275,150 -- --
Special charges -- 3,122,000 --
----------- ----------- -----------
$13,154,051 $12,403,058 $ 4,086,379
=========== =========== ===========
Sales by geographic area were as follows:
Year ended December 31,
----------------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
United States $ 128,265,343 $ 121,428,428 $ 116,750,724
Europe 56,982,490 46,696,252 5,819,225
Other 9,974,717 6,777,321 3,968,686
-------------- -------------- --------------
Total revenues $ 195,222,550 $ 174,902,001 $ 126,538,635
============== ============== ==============
F-25
48
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - EARNINGS PER SHARE
Following is a reconciliation of basic and diluted earnings per share from
continuing operations:
1998 1997 1996
-------------------------------- --------------------------------- -------------------------------
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 $4,839,962 13,254,782 $ 0.37 $2,200,013 13,969,698 $ 0.16 $7,634,587 9,485,858 $ 0.80
======= ====== ======
Effect of dilutive securities
Contingently issuable
shares -- 366,690 -- 301,981 -- 37,021
Put options -- 428,640 -- 78,126 -- --
Stock options -- 319,057 -- 467,499 -- 515,613
Convertible preferred
stock 117,210 406,981 117,210 406,981 117,210 406,981
---------- ---------- ---------- ---------- ---------- ---------
Income from continuing
operations allocable to
common stockholders after
assumed conversions $4,957,172 14,776,150 $ 0.34 $2,317,223 15,224,285 $ 0.15 $7,751,797 10,445,473 $ .74
========== ========== ======= ========== ========== ====== ========== ========== ======
For 1998, 1997 and 1996, 367,919, 286,655, and 10,000 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.
F-26
49
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - UNAUDITED QUARTERLY OPERATING RESULTS
Unaudited quarterly operating results for the years ended December 31, 1998
and 1997 are as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ------------ ------------
1998:
Sales $ 44,259,934 $ 48,518,345 $ 52,618,516 $ 49,825,755
Gross profit 13,730,647 15,529,383 17,176,078 17,109,769
Net income (loss) 580,337 1,211,673 1,863,180 (100,314)
Income (loss) per share
Basic $ 0.04 $ .09 $ 0.14 $ (.01)
Diluted 0.04 .08 0.13 (.01)
1997:
Sales $ 38,461,730 $ 41,800,882 $ 47,724,006 $ 46,915,383
Gross profit 12,415,540 13,248,807 14,928,491 13,426,463
Net income (loss) 2,034,433 876,443 2,016,607 (2,526,769)
Income (loss) per share
Basic $ 0.14 $ 0.06 $ 0.14 $ (0.18)
Diluted 0.14 0.06 0.13 (0.18)
See Note O for special charges and changes in estimates in the fourth
quarter of 1997.
F-27
50
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE N - 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 DVD on August 5, 1998.
Summarized financial information for discontinued operations follows:
Year ended December 31,
---------------------------------------------
1998 1997 1996
------------ ----------- -----------
Revenues $ 9,222,8630 $13,838,734 $10,097,489
Income (loss) from the discontinued operations,
net of taxes (benefit) of $(750,487), $43,011
and $(110,846) (1,480,243) 83,491 (153,073)
Gain on disposal, net of taxes of $23,414 77,946 - -
The net assets of discontinued operations at December 31, 1998 of
approximately $3.8 million consist of approximately $1.1 million of accounts
receivable, $2.0 million of inventories, $0.5 million of other current
assets and $0.2 million of equipment.
NOTE O - SPECIAL CHARGES AND CHANGES IN ESTIMATES
During the fourth quarter of 1997, the Company recorded nonrecurring charges
of approximately $3.1 million which consist of (1) the write-off of computer
hardware and software made obsolete by the implementation of new software,
(2) the cost of moving to a new headquarters building including charges for
the write-off of leasehold improvements and other abandonment costs and (3)
implementation costs related to new software through December 1997.
During the fourth quarter of 1997, the Company also made certain changes in
estimates totaling $2.0 million consisting of provisions for excess and
obsolete inventory of $1.0 million and increases in reserves for accounts
receivable and other assets of $1.0 million.
NOTE P - SUBSEQUENT EVENT (UNAUDITED)
On March 15, 1999, the Company acquired 100% of the common stock of ABM Data
Systems, Inc., an Austin, Texas software developer for the alarm monitoring
segment of the security industry. Consideration was 250,000 shares of
registered Ultrak common stock valued at approximately $1.8 million.
F-28
51
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors
Ultrak, Inc.
In connection with our audit of the consolidated financial statements of Ultrak,
Inc., and Subsidiaries referred to in our report dated February 13, 1999, which
is included in Part II of this Form 10-K, we have also audited Schedule II for
each of the three years in the period ended December 31, 1998. In our opinion,
this schedule presents fairly, in all material respects, the information
required to be set forth therein.
GRANT THORNTON LLP
Dallas, Texas
February 13, 1999
F-29
52
SCHEDULE II
ULTRAK, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1998, 1997, and 1996
Balance at Charged Charged Balance at
Beginning (credited) to to other End
Description of Period Operations Accounts Deductions of Period
- ----------- ---------- ------------- -------- ---------- ----------
Year ended December 31, 1998:
Allowance for doubtful trade
accounts $ 1,741,920 $ (8,103) $ 4,790(1) $ (81,058)(2) $ 1,657,549
=========== ========= ======== ========= ===========
Year ended December 31, 1997:
Allowance for doubtful trade
accounts $ 717,840 $ 316,937 $955,084(1) $(247,941)(2) $ 1,741,920
=========== ========= ======== ========= ===========
Year ended December 31, 1996:
Allowance for doubtful trade
accounts $ 434,229 $ 114,056 $395,116(1) $(225,561)(2) $ 717,840
=========== ========= ======== ========= ===========
Notes
(1) Balances recorded from business combinations.
(2) Balances written off.
F-30
53
INDEX TO EXHIBITS
Exhibit
Number Description
------- -----------
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)
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, 1998, among Ultrak,
Inc., Bank One, Texas, N.A. and Certain Lenders
*10.14 Stock Purchase Agreement dated August 5, 1998, between the
Company and American Dental Technologies, Inc.
*10.15 Stock Sale Agreement dated February 23, 1999 between the
Company and Mutsuo Tanaka
*10.16 Employment Agreement, dated January 1, 1998, between the
Company and Ted Wlazlowski
*21.1 Subsidiaries of the Company
*27.1 Financial Data Schedule
- ----------
* Exhibits 10.13, 10.14, 10.15, 10.16, 21.1 and 27.1 are filed herewith.