-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L8fmEwwrkWnaNBcjB+kZtOuTNl/+Eh67TxclLBxUXhovpc5fjxE4I5p2MzUCmRP7 gZclG42fCova5YS4ZAIAkA== 0000950134-01-503756.txt : 20010702 0000950134-01-503756.hdr.sgml : 20010702 ACCESSION NUMBER: 0000950134-01-503756 CONFORMED SUBMISSION TYPE: SC TO-I/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20010629 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ULTRAK INC CENTRAL INDEX KEY: 0000318259 STANDARD INDUSTRIAL CLASSIFICATION: PHOTOGRAPHIC EQUIPMENT & SUPPLIES [3861] IRS NUMBER: 752626358 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-I/A SEC ACT: SEC FILE NUMBER: 005-32267 FILM NUMBER: 1672708 BUSINESS ADDRESS: STREET 1: 1301 WATERS RIDGE DRIVE CITY: LEWISVILLE STATE: TX ZIP: 75057 BUSINESS PHONE: 9722809675 MAIL ADDRESS: STREET 1: 1301 WATERS RIDGE DRIVE CITY: LEWISVILLE STATE: TX ZIP: 75057 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ULTRAK INC CENTRAL INDEX KEY: 0000318259 STANDARD INDUSTRIAL CLASSIFICATION: PHOTOGRAPHIC EQUIPMENT & SUPPLIES [3861] IRS NUMBER: 752626358 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-I/A BUSINESS ADDRESS: STREET 1: 1301 WATERS RIDGE DRIVE CITY: LEWISVILLE STATE: TX ZIP: 75057 BUSINESS PHONE: 9722809675 MAIL ADDRESS: STREET 1: 1301 WATERS RIDGE DRIVE CITY: LEWISVILLE STATE: TX ZIP: 75057 SC TO-I/A 1 d88790a1scto-ia.txt AMENDMENT NO. 1 TO SCHEDULE TO-I 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------- SCHEDULE TO (Rule 13e-4) Tender Offer Statement under Section 14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934 (Amendment No. 1) ----------------------------- ULTRAK, INC. (Name of the Subject Company (Issuer)) -------------------------------------- ULTRAK, INC. (Name of Filing Person (Offeror)) Options Under the Ultrak, Inc. 1988 Non-Qualified Stock Option Plan, as amended, to Purchase Common Stock, par value $0.01 per share. (Title of Class of Securities) 903898 40 1 (CUSIP Number of Class of Securities) (Underlying Common Stock) Chris Sharng Senior Vice President Ultrak, Inc. 1301 Waters Ridge Drive Lewisville, Texas 75057 Telephone: (972) 353-6500 ------------------------------ (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Filing Person) ------------------------------ Copy to: Richard L. Waggoner, Esq. Gardere Wynne Sewell LLP 3000 Thanksgiving Tower 1601 Elm Street Dallas, Texas 75201-4761 Telephone: (214) 999-4510 2 [ ] Check if the filing relates solely to preliminary communications made before the commencement of a tender offer. [ ] Check the appropriate boxes below to designate any transactions to which the statement relates [ ] third party tender offer subject to Rule 14d-1. [X] issuer tender offer subject to Rule 13e-4. [ ] going private transaction subject to Rule 13e-3. [ ] amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer. [ ] INTRODUCTORY STATEMENT This Amendment No. 1 amends and supplements the Tender Offer Statement on Schedule TO (the "Schedule TO") filed with the Securities and Exchange Commission on June 11, 2001, relating to the offer by Ultrak, Inc. (the "Company") to exchange options to purchase shares of its Common Stock, par value $0.01 per share, held by option holders who have not received options after December 9, 2000 under the Company's 1988 Non-Qualified Stock Option Plan, as amended (the "1988 Plan"), for new options to purchase shares of the Company's Common Stock to be granted under the 1988 Plan upon the terms and subject to conditions described in the Company's Offer to Exchange dated June 11, 2001 and the related Letter of Transmittal. Item 10. Financial Statements. Item 10 of the Schedule TO is hereby amended and supplemented to read in its entirety as follows: The financial statements, including the notes thereto, in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (pages F-1 through F-33) and in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001 (pages 3 through 12), which are attached as exhibits to the Supplement, dated June 29, 2001, to the Company's Offer to Exchange, dated June 11, 2001 (which Supplement is attached as Exhibit (a)(1)(D) hereto) are incorporated herein by reference. ITEM 12. Exhibits. Item 12 of the Schedule TO is hereby amended and restated to read in its entirety as follows so as to add Exhibit (a)(1)(D) attached hereto: (a)(1)(A)* Offer to Exchange, dated June 11, 2001 (a)(1)(B)* Form of Letter of Transmittal (a)(1)(C)* Form of Letter to Eligible Option Holders (a)(1)(D) Supplement, dated June 29, 2001, to Offer to Exchange, dated June 11, 2001 (a)(1)(E) Form of E-Mail message to Eligible Option Holders 3 (b) Not applicable (d)(1)* Ultrak, Inc. 1988 Non-Qualified Stock Option Plan, as amended (d)(2)* Form of Non-Qualified Stock Option Agreement pursuant to Ultrak, Inc. 1988 Non Qualified Stock Option Plan (g) Not applicable (h) Not applicable - ---------- * Previously filed. SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Amendment No. 1 to the Schedule TO is true, complete and correct. Dated: June 29, 2001 ULTRAK, INC. By: /s/ Chris Sharng ------------------------------------- Chris Sharng Senior Vice President, Chief Financial Officer and Secretary 4 EXHIBIT INDEX
Exhibit Number Description -------- ----------- (a) (1)(D) Supplement, dated June 29, 2001, to Offer to Exchange, dated June 11, 2001 (a) (1)(E) Form of E-Mail Message to Eligible Option Holders
EX-99.(A)(1)(D) 2 d88790a1ex99-a1d.txt SUPPLEMENT DATED 6/28/01 TO OFFER TO EXCHANGE 1 Exhibit (a)(1)(D) ULTRAK, INC. SUPPLEMENT dated June 29, 2001 to OFFER TO EXCHANGE OPTIONS UNDER THE ULTRAK, INC. 1988 NON-QUALIFIED STOCK OPTION PLAN HELD BY OPTION HOLDERS WHO HAVE NOT RECEIVED OPTIONS AFTER DECEMBER 9, 2000 dated June 11, 2001 This document supplements and amends our Offer to Exchange Options Under the Ultrak 1988 Non-Qualified Stock Option Plan Held By Option Holders Who Have Not Received Options After December 9, 2000 dated June 11, 2001 (the "offer"). Unless otherwise defined, capitalized terms used herein have the same meanings as in the offer. The terms and conditions of the offer, except as set forth herein, remain as set forth in the offer. Attached hereto as Exhibits A and B, respectively, are copies of our Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001 (in each case, excluding exhibits). The financial statements, including the notes thereto, in our Form 10-K (pages F-1 through F-33) and in our Form 10-Q (pages 3 through 12) are incorporated herein by reference. The portions of our Form 10-K and our Form 10-Q that are not incorporated herein by reference do not constitute part of this supplement or of the offer. Set forth below is the ratio of our consolidated earnings to our consolidated fixed charges for our fiscal years ended December 31, 1999 and December 31, 2000 and for our fiscal quarters ended March 31, 2000 and March 31, 2001:
Quarter Ended March 31 Year Ended December 31 ---------------------- ---------------------- 2001 2000 2000 1999 ---- ---- ---- ---- 10.65x 0.18x * 0.92x
- -------------- * Earnings were inadequate to cover fixed charges by $62,496,000 for the year ended December 31, 2000. On March 31, 2001, the book value per share of our Common Stock was $7.02. On page 3 of the Letter of Transmittal that was part of the offer and that is to be completed by option holders who wish to tender options pursuant to the offer, the last paragraph, which currently reads "I have read, understand and agree to all of the terms and conditions of the Offer," is amended to read in its entirety as follows: "I have received the Offer, as amended by the Supplement thereto dated June 29, 2001, and I agree to all of the terms and conditions of the Offer." In addition, all references in the Letter of Transmittal to the Offer to Exchange are amended so that they refer to the Offer to Exchange, as amended by the Supplement thereto dated June 29, 2001. All Letters of Transmittal signed by option holders and received by us will be deemed to be so amended. 2 EXHIBIT A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-9463 ULTRAK, INC. (Exact name of registrant as specified in its charter) DELAWARE 75-2626358 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1301 WATERS RIDGE DRIVE LEWISVILLE, TEXAS 75057 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972) 353-6500 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in a definitive proxy to be filed or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant, as of February 28, 2001 was $39,370,692. As of that date 11,688,888 shares of the Registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: The information required by Part III is incorporated by reference from the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. 3 FORWARD LOOKING STATEMENTS CERTAIN STATEMENTS CONTAINED OR INCORPORATED IN THIS ANNUAL REPORT ON FORM 10-K, WHICH ARE NOT STATEMENTS OF HISTORICAL FACT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). FORWARD LOOKING STATEMENTS ARE MADE IN GOOD FAITH BY ULTRAK, INC. PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE REFORM ACT. FORWARD LOOKING STATEMENTS MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF ULTRAK, INC. TO DIFFER MATERIALLY FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS, INCLUDING THE TIMELY DEVELOPMENT AND ACCEPTANCE OF NEW PRODUCTS, THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING, FLUCTUATIONS IN OPERATING RESULTS, ABILITY TO INTRODUCE NEW PRODUCTS, TECHNOLOGICAL CHANGES, RELIANCE ON INTELLECTUAL PROPERTY AND OTHER RISKS. MOREOVER, THE OBJECTIVES AND INTENTIONS SET FORTH IN THIS FORM 10-K ARE SUBJECT TO CHANGE DUE TO DOMESTIC, GLOBAL MARKET AND ECONOMIC CONDITIONS BEYOND THE CONTROL OF ULTRAK, INC. PART I ITEM 1. BUSINESS GENERAL Ultrak, Inc. (the "Company" or "Ultrak") is one of the leading global electronic security companies in the world. Ultrak designs, manufactures, markets, sells and services innovative electronic products and systems for security and surveillance, industrial video and professional audio markets worldwide. These products and systems include high-speed domes, monitors, switchers, quad processors, video management systems, digital and analog recorders, multiplexers, video transmission systems, access control systems, cameras, lenses, observation systems, audio equipment and accessories. Brand names include Ultrak, Diamond Electronics, MaxPro, Exxis, Smart Choice, Phoenix and BST. Customers, defined as end users of Ultrak products and services, range from single location mom-and-pop businesses to universities and government facilities. Sales to the professional security markets are through the Company's channel partners. The Company has increased sales from $1.8 million in 1987 to $200 million in 2000. Ultrak operates sales, distribution and manufacturing locations worldwide. The Company has sales offices in six U.S. cities as well as offices in England, France, Germany, Italy, Poland, Switzerland, Singapore, Australia, and South Africa. Ultrak also has active representation through Company sales representatives and systems integrators in China, Canada, Mexico and Brazil. Customers are supported by eight distribution centers worldwide and manufacturing facilities located in the United States, Australia and South Africa. The Company was incorporated in Colorado in 1980 and re-incorporated in Delaware in December 1995. In 1997, the Company built a 170,000 square foot warehouse and headquarters facility known as the Ultrak Worldwide Support Center located in the north Dallas suburb of Lewisville, Texas. Ultrak, Inc. was a pure distributor of OEM supplied and branded security-electronic products as recently as six years ago. The numerous acquisitions undertaken over the last five years brought a wide range of product development capabilities to Ultrak, but the transformation from a distributorship to a technology-based company has been challenging. By the 3rd quarter of 2000, the lack of execution resulted in stagnated sales and inflated cost structures. The Company's operations generated a loss in the third quarter of 2000. A new management team -including the President, Chief Financial Officer, head of domestic sales and marketing, Chief of Engineering and the executives in charge of European and Asian markets - was assembled between August and December of 2000, and a new strategic direction was formulated to return the Company to profitability and re-ignite growth. This new strategy and vision created by Ultrak's new management team resulted in tremendous changes to the Company and necessitated a significant one-time charge for the fourth quarter of 2000. This Company-wide restructuring program includes down-sizing the work force, re-allocating sales and engineering resources, focusing on Ultrak-branded product lines, decentralizing European distribution, improving inventory management, developing consistent global marketing strategies and emphasizing value engineering in product design. A charge for the fourth-quarter of $47 million arose directly from these actions that consisted of 2 4 severance for terminated employees in the United States and Europe, inventory write-offs for non-Ultrak products, and returned goods deemed uneconomical to repair, lease terminations and relocation in Europe, as well as write-downs of intangible assets, internal use software, software development costs and other assets. The implementation of these actions began in the 4th quarter of 2000. Facility closures in Belgium and France, the last major component of this restructuring, are expected to conclude by April 2001. FOURTH QUARTER CHARGE During the fourth quarter of 2000, the Company, in conjunction with changes in key management personnel, undertook significant strategic changes to restructure its business resulting in substantial one-time charges. Additionally, due to the new strategic direction, various assets were assessed and determined impaired by the management. Between 1998 and 1999, the Company opened a European distribution center in Antwerp, Belgium to consolidate purchasing, reduce overhead, and create efficiencies. Because of declining sales and operational difficulties, the Company concluded that its European distribution center would not be cost effective. Management calculated the net realizable value of its European distribution center assets and wrote off and/or wrote down assets that could not be fully recovered or utilized in any other European operations. The charges consisted of $2.7 million in inventory costs, $0.7 million in personnel, $1.2 million of fixed assets and $2.7 million of lease termination and other exit costs. The Company's inability to achieve operating efficiencies and the continuing losses in France have triggered an impairment review of the its long-lived assets. The Company has analyzed projected cash flows and decided to discontinue its primary business in France. This decision and the lack of resulting future cash flows in France caused the Company to conclude that all associated goodwill, $10.1 million, was impaired. The primary components of the closure costs involve personnel costs of $1.1 million, write-offs of fixed assets, accounts receivable and other assets of $1.1 million and other exit costs of $0.6 million. As a result of losses in Germany, management performed an impairment review of the long-lived assets at its German subsidiary. As a result of this review, management concluded, based on future cash flows, that the entire amount of goodwill, $3.0 million, should be written off. The Company wrote down $9.5 million of inventory related to discontinued product lines and returned inventory. Management determined that refurbishing this inventory would not be economical. Management determined that certain U.S. positions would no longer be necessary. As a result, the Company accrued $0.6 million of severance compensation for 33 employees. The new management evaluated its products under development. Based on this evaluation, the Company wrote off capitalized software development costs of $2.0 million related to certain product designs, which will be abandoned, that did not correspond with future product objectives. As a result of the outsourcing of certain manufacturing operations, it was determined that internal use software costs, $2.9 million, related to those operations was impaired. The Company also recorded foreign currency losses, $4.2 million, are related to foreign currency translation losses that were realized upon the sale or closure of foreign operations. Total savings from the restructuring program, on an annualized basis, are estimated at $10 million dollars. STRATEGY Ultrak's new strategies will focus on five key areas: 3 5 o improve customer service o establish profitability benchmark in all business units and regions o increase gross profit margin o improve internal and external communication, and concentrate on Ultrak's products o focus resources on Ultrak's own products These new strategies will be executed on a number of fronts: improved customer service will be achieved by timely delivering information, products and services right the first time; adhering strictly to established margin requirements for all of our products and projects; continual monitoring of actual results in relation to budget; minimizing the number of returns; and avoiding slow moving inventories with better forecasting and streamlined supply management. In addition to the successful execution of the new strategies, Ultrak's turnaround also depends on global organization, a strong product line launched in 2001 and the Company's new management team. Ultrak views the end users of its solutions as its customers and delivers these solutions through its channel partners. The Company is committed to satisfying the needs of its customers with complete security solutions and measures its success by its ability to achieve this goal. Ultrak reaches its customers by direct contact and sells to them through its channel partners. Channel partners include key influencers/consultants, dealers and system integrators, and distributors. Ultrak creates value for its channel partners by creating end user demand through direct contact and strong advertising and marketing promotions, introducing these business opportunities to its channel partners, fulfilling demand with high quality, easy to install solutions and providing superior technical support, service, training, and customer care. The Company delivers its end user solutions primarily through dealers and system integrators, as these are the most efficient channels to serve its customers and achieve its goals. Ultrak uses distributors as intermediaries to reach its channel partners when immediate product availability is needed, especially for small dealers. The Company aggressively sells plug-and-play products to the consumer/do-it-yourself market through major retailers and uses the Internet to educate consumers and meet the demand for easy to install security products. It is Ultrak's objective to improve profitability through increased sales, cost control and margin improvement driven by value engineering, manufacturing, cost reductions and reduced product acquisition costs. Ultrak focuses on improving products based on customer requirements, decreasing the time it takes to get its products to market, and building worldwide sales marketing capabilities to take advantage of a global economy. ACQUISITIONS The Company did not consummate any acquisitions in 2000. Though acquisitions contributed significantly to the Company's growth prior to 1999, the integration of the acquired entities partly led to Ultrak's difficult situation in 2000. As part of the new strategy, the priority is to further integrate engineering and product development capabilities of the existing entities rather than taking on new acquisitions. As the security industry continues to consolidate, Ultrak will search for growth through acquisitions when appropriate opportunities are presented. Effective March 1, 1999, the Company acquired ABM Data Systems, Inc. ("ABM"), based in Austin, Texas, which develops, sells and services computer software for the alarm monitoring security industry, government agencies and proprietary customers and offers support for computer software targeted for the automated security monitoring markets, for 250,000 shares of Common Stock, valued at $1.5 million. Effective April 1, 1999, the Company acquired 100% of the stock of Multi Concepts Systemes, SA ("MCS"), a Switzerland based systems integrator of electronic security systems. Total consideration included an initial payment of $405,000 in cash and future contingent payments based upon a percentage of MCS's net income and book value. Effective July 1, 1999, the Company acquired 100% of the stock of MACH Security Sp.z.o.o ("Mach"), based in Szczecin, Poland. Total consideration included an initial payment of $275,000 in cash and future contingent payments based upon a percentage of MACH net income. DIVESTITURES In August 1998, the Company completed the sale of the stock of Dental Vision Direct, Inc. ("DVD"); a 90% owned subsidiary, to American Dental Technologies, Inc. ("American Dental"). On March 3, 1999, the Company completed the sale of its 10% ownership interest of Securion 24 to Mr. Mutsuo Tanaka. On July 1, 2000, the Company sold substantially all of its UK based business, Intervision Express Ltd., to Norbain SD, Ltd., a UK-based distributor of CCTV and access control equipment. The Company received approximately $2.1 million in cash for inventory and certain other assets including use of the Intervision tradename. Ultrak retained accounts receivable and the right to sell Ultrak branded products 4 6 directly to systems integrators and installers in Intervision's previous market of the UK and Ireland. A loss of approximately $840,000 was incurred on the sale. Additionally, Norbain entered into a distribution and OEM purchase agreement whereby Norbain will buy at least $6.0 million of Ultrak-branded CCTV products and dome systems during the term of the agreement ending on December 31, 2002. In return, Ultrak granted Norbain distribution exclusivity for Ultrak's Diamond series dome product line and its CCTV products in the UK and Ireland as long as the above minimum purchase commitments are met. On September 13, 2000, the Company sold inventory and certain assets to Ameritron, Inc. for $925,000 in short term notes to be paid in monthly installments beginning December 15, 2000. Ameritron also entered into an agreement to sublease a portion of Ultrak's Rancho Cucamonga facility. PRODUCTS AND SERVICES It is the Company's objective to set new standards in quality, performance and value by providing single-source security solutions to its customers in the form of integrated systems. An integrated system includes more than one of the following components controlled from a single device or console: closed circuit television ("CCTV") products, networked video, access control, video management, and alarm management. Ultrak differentiates itself from the competition through its integration support services provided by its Integrated Systems Group ("ISG") which provides application engineering, design, installation, implementation, training and technical support through its dealer base. The advantages of an integrated system to the end user are numerous. It improves ease of operation, security, health/safety and loss prevention, and at the same time reduces maintenance and training costs. Ultrak's management believes that integrated systems provide customers maximum functionality at competitive prices. Ultrak's integrated systems are found in manufacturing facilities, airports, office complexes, government agencies, hospitals, casinos, retail stores and other organizations. Ultrak sells the following standard products and services to complete its integrated systems offering: o Full line of black and white and color cameras o Nitrogen-pressurized cameras and domes for applications where a dirt-free environment is critical o Complete range of lenses o High speed, remote-controlled domes and housings, including the new KD6Z series, a low cost dome family targeted for cost-conscious applications o Black and white and color monitors o Time-lapse and digital video recorders o Ruggedized cameras, monitors and recorders for mobile video applications o Digital processors (quads and multiplexers), switchers and video management systems, including patented video management technology o Video transmission equipment o Access control systems from single door to multi-station applications over LAN/WAN o Alarm management software for central monitoring and proprietary monitoring stations o Public address and professional audio equipment o Observations systems (monitor, quad process, camera and related accessories packaged in one box) and accessories o Integrated Systems Group ("ISG") services o Leasing arrangements Ultrak segments its products and services into two groups: standard products and systems. Standard products include components such as cameras, monitors, domes, VCRs and accessories. Ultrak relies on OEM relationships to satisfy the majority of its standard products. The majority of these products are engineered to Ultrak specifications and undergo thorough technical evaluation prior to release. Dome products are engineered and manufactured by Ultrak at its Carroll (Columbus) Ohio facility. In 2001, Ultrak is releasing its new line of low-cost domes, the KD6Z series, which is targeted to retail applications. Public address equipment is designed by Ultrak engineers in South Africa, and manufactured by subcontractors on behalf of Ultrak. System products, which typically offer higher margins, include access control, video management and alarm management. Ultrak engineers a complete range of access control software from its Rancho Cucamonga and Lewisville facilities. Ultrak offers solutions covering a single door through high-security, multiple location networked environments. The Company outsources hardware manufacturing for system products. In 2001, the Company will introduce its next generations of PointGuard that provides multi- 5 7 workstation capabilities. The Company will also move forward with its well-known SafeNet application offering additional features, new hardware with flash download, and its new ESC controller. Video management, marketed under the MaxPro brand name, should achieve significant sales gains due to the Company's repositioning and focus on its Mini-Max line of products, aimed at small to mid-sized applications. Ultrak will continue with new releases of Phoenix 2000, its central station and proprietary alarm management solution engineered in Austin, Texas focusing on video, accounting and service package integration. Through its IG ISG group, Ultrak also sells system design, integration and support services through its dealers on an as needed basis. Ultrak anticipates that these integration and support services will be a growing revenue source for the Company based on the complexity and changing nature of technology. The Company also offers leasing services for standard products, giving dealers alternate forms of financing. MARKETING AND SALES Ultrak sells through highly focused selling groups organized around its target markets. These groups include Professional Security Group (U.S. and International), and Diversified Sales Group. Ultrak's customer-focused structure allows for individual attention to each target market, quick response to customer needs and early identification of market requirements. The Company reaches each target market through regional sales professionals supported by inside sales executives, product catalogs, direct mail, magazine advertising and industry trade shows. Professional Security Group The Professional Security Group ("PSG") is responsible for sales in the commercial channel. Ultrak provides one face to the customer utilizing regional sales executives who support sales across all product segments including CCTV, access control, video management and alarm management. Customers range from banks to schools and universities to casinos and large retail chains and federal government facilities, including such prominent names as American Express, Cartier, John Deere, Caterpillar and MBNA. Regional sales executives receive support from product and market specialists, inside sales support and ISG. ISG also works directly with the dealer/integrator and/or the end user to define requirements, engineer the solution and provides project management of installation and implementation when required. Ultrak has strong relationships with local, regional and national dealer/integrators such as Diebold(R), and with regional and national distributors, including ADI(R). In order to increase revenue, the sales effort is spread between end user, dealers/system integrators, national accounts and distribution. Ultrak firmly believes that the best way to establish and solidify a relationship with its channel partners is to bring business to them. Team Ultrak and Ultrak Select, Ultrak's key dealer and distributor programs, are used to reward loyal channel partners with special sales and marketing incentives. Sales are tracked using a Forward Works schedule that provides anticipated sales on a monthly basis. Ultrak began actively pursuing the international market in 1995. In 1995 and early 1996, Ultrak sold its products and systems in a number of countries including Mexico, Brazil, Argentina, England, France, Germany, Denmark, India, China, South Korea, Japan, The Philippines and Australia. Since the second quarter of 1996, the Company acquired MAXPRO (Australia), Bisset (France), VideV (Germany), Intervision (the UK), the Videosys Group (Italy), Philtech (South Africa), MCS (Switzerland), Mach (Poland) and established a distribution company in Singapore, which has substantially expanded the Company's presence internationally. See Note L to the Company's Consolidated Financial Statements with respect to business segments. In 2001, the Company will invest in expanding its business in the Asia/Pacific region. Currently, less than five percent of the Company's revenues are derived from this area. The Company also intends to expand ISG to Europe and Asia/Pacific for the purpose of improving customer service and standardizing field operations. In Europe, the Company also sells to the professional audio market through a direct sales force. Products include public address equipment for office complexes, hotels, airports and retail stores, as well as sound reinforcement systems for concert halls, churches, arenas and theaters. Sound reinforcement systems include amplifiers, speakers, mixers, equalizers, microphones, CD players, turntables and accessories. As a result of disappointing sales of CCTV products in France, the Company is currently exploring strategic alternatives for its CCTV distribution business in France. 6 8 The majority of products are marketed under the Ultrak brand name. Competitors include Pelco, Sensormatic, Philips Burle, Lenel, Interlogics and others. There are a number of smaller competitors in the digital video recording market. Large security companies continue to purchase many of these small competitors to complete product offerings in the digital category. 7 9 Diversified Sales Group Consumer/do-it-yourself: small businesses and homeowners are installing video observation systems to replace or supplement conventional alarm systems as the cost of CCTV products decline. The consumer/do-it-yourself security and surveillance market consists of end users who purchase security and surveillance systems and install the systems themselves in their small businesses or homes. Video products sold into this market are characterized by affordability, aesthetic designs, ease of installation and maintenance and mobility. The typical product for this market is a wired or wireless observation system, and consists of a camera, a monitor, a switcher or quad processor and, optionally, a video recorder. These products are available in either black and white or color models. Ultrak markets these products under the Exxis, Focus and Smart Choice brand names. Consumer/do-it-yourself CCTV products are sold through mass merchandisers, warehouse clubs, electronic retail stores, office and juvenile product superstores, as well as through retail catalogs. Ultrak customers include Sam's, Costco and BJ's; warehouse clubs account for the majority of sales in this segment. Ultrak supports the consumer/do-it-yourself market through its consumer call center, which offers after-market sales and technical support, and via the Company's e-commerce web site, SecurityandMore.com. Competitors in this segment include Lorex, which sells under the Sylvania and Lorex brand names, Mansoor Electronics, sold under the Home Sentinel brand, and numerous direct importers. Industrial: this business is divided into Industrial Vision Source ("IVS") and Traffic/Industrial. IVS is a distributor of video products used in various production and manufacturing processes. Manufacturers include Sony, Panasonic, Hitachi, and JVC. The Company sells to this market through systems integrators who assemble and sell equipment that incorporates video cameras. Typical applications include machine vision, computer imaging, robotics, microscopy, and high-speed inspection. The use of industrial video offers more precise assessment than human visual inspection, and can measure image parameters that are imperceptible to the human eye. These systems are also used to remotely monitor automated assembly lines to ensure that each process on the assembly line is accurately and completely performed. Additional industrial applications are emerging as new equipment is developed and as production automation levels increase. The industrial vision market is heavily dependent on the semiconductor industry. There are numerous competitors in this segment including name brand manufacturers selling direct, importers and other distributors. The Company's strategy is to strengthen customer loyalty by supporting advanced products with technical expertise, availability from a large inventory of products, and superior customer support. The Company uses a combination of its own inside sales force and outside representatives to sell these products to dealers and OEM accounts. While most of the sales are made over the telephone, representatives also attend industry trade shows to meet with key customers and vendors. Advertising and leads provided from the manufacturers supplement the sales effort in this area. Ultrak's Traffic/Industrial division targets two separate groups: traffic and furnace viewing. Ultrak uses independent manufacturer's representatives in both areas. Sales in the traffic area consist primarily of rugged dome products manufactured by Ultrak and switching equipment, and are made through a dealer or systems integrator. The Industrial group sells a patented furnace viewing system to monitor high temperature manufacturing processes, primarily within the steel and glass industry. The furnace-viewing camera, known as the WallEye, penetrates the wall of the furnace and connects with a proprietary software package to monitor the temperature and activity within the furnace itself. BRANDING Ultrak uses various brand names to minimize market channel conflicts and to differentiate products by features, applications and price. The Company's proprietary brand names, many of which are registered trademarks, include Ultrak, Diamond Electronics, MAXPRO, Videosys, SAFEnet, Pointguard, Exxis, Smart Choice, Phoenix, BST, Industrial Vision Source, SecurityandMore.com and ESS. The vast majority of the products sold by the Company carry Ultrak brand names. The Company also sells brands such as Panasonic(R), Mitsubishi(R), and Sony(R) to fill product line voids. In 2001, the Company intends to build worldwide name brand recognition of the Ultrak name, and associate Ultrak with a complete range of high-quality security and surveillance solutions and services. Ultrak will accomplish this by associating the Ultrak name with all of its recent acquisitions in its advertisements and collateral material. 8 10 PRODUCT DESIGN AND DEVELOPMENT In addition to traditional research and development activities, Ultrak's engineering and product development staff worldwide works directly with its customers to design new products and product enhancements, and coordinates with its contract suppliers to manufacture certain Ultrak branded products. Ultrak's engineering staff works with its selling and marketing groups to develop new products and product line extensions, and to promptly respond to customer needs on a worldwide basis. Consequently, Ultrak believes that it can develop technologically superior products with customer-desired performance capabilities that address new applications at lower prices than competitive products. The Company's products are becoming more software-driven to support the integration of technologies and functions into its customers' existing networks. As of December 31, 2000, the Company had a full-time engineering staff of 59 employees compared to only four as of December 31, 1994. Because of the complex and highly specialized requirements of Ultrak products and systems, these employees are experienced in a wide range of engineering disciplines including charged-coupled device ("CCD") technology, analog and digital signal processing, CCTV management and switching technology, computer based access control technology, facility management technology and high speed dome technology. In addition, the Company's international contract manufacturers employ a number of engineers who are primarily dedicated to research and development efforts of products sold by Ultrak. In 1999, the Company introduced its computer-based SAFEnet NT system, the Windows-NT(R) version of Ultrak's flagship line of integrated access control and security systems. SAFEnet NT provides a stable, flexible platform for the integration of new functions and technologies. At the end of 2000, Ultrak reintroduced an improved version of PointGuard, its solution to the low to mid-range access control market, and introduced Eurocorder II, its digital video recorder. In 2001, Ultrak will release upgrades of SAFEnet NT, including new hardware, and PointGuard for multi-workstations, expanding its range of access control solutions for low to high-end applications. Ultrak will also introduce an expanded line of KD6 domes, the KD6Z series, to cover the entry-level dome market and ruggedized cameras for applications subject to tampering and vandalism. Ultrak will continue its focus on digital recording options using a combination of Ultrak manufactured products and OEM products. Ultrak believes that the market for digital recording is highly fragmented and will require a variety of solutions to meet diverse customer demands and requirements. VENDOR RELATIONSHIPS The majority of Ultrak-branded products produced by contract manufacturers are made exclusively for the Company, or the Company receives exclusivity with respect to such products in the areas served by the Company. In most of its vendor relationships, the Company believes that the relationship is as important to the supplier as it is to the Company. Thus, the Company believes that there is a strong, mutually advantageous basis for the trading relationship to continue and grow. See Note H to the Company's Consolidated Financial Statements with regard to Major Customers and Suppliers. Because of foreign production lead times, the Company normally makes purchase commitments to its foreign suppliers three to six months in advance of shipment. Given order lead times, accurate inventory forecasting is critical. Ultrak's objective in 2001 is to reduce its inventory investment, making it necessary to work closer with its vendors to reduce lead times. The Company's primary contract manufacturer is ISO9001 certified. When goods are delivered to Ultrak, a random sampling quality assurance procedure is performed. Selected units are verified for functionality, proper packaging, labeling and documentation, and variations greater than an agreed upon percentage are corrected at the vendor's cost. Ultrak offers a limited warranty on its products. The Company generally warrants that its products will conform to Ultrak's published specifications and be free from defects in materials and workmanship at the time of sale up to a specified period of time. Ultrak also offers extended warranties for sale on its consumer products. Substantially all of the Company's purchases from its non-affiliated contract manufacturers are made in United States Dollars or the Euro; the remaining purchases are made in Japanese Yen, Australian Dollars, the South African Rand and English Pounds. In 2000, the Company was adversely impacted by the strengthening of the U.S. dollar, as its international subsidiaries import products quoted in U.S. dollars or U.S. dollar-linked currencies. 9 11 OPERATIONS A critical element of the Company's operations is its management information systems. In early 1997, the Company selected SAP, a leading enterprise software system, for its domestic information needs. As of February 1998, the Company and its related domestic facilities had successfully completed the SAP conversion process at its Lewisville, Texas Worldwide Support Center. As of July 2000, the Company successfully completed the SAP conversion process at its Carroll, Ohio facility and at its Austin, Texas facility, effectively linking all North American sales and manufacturing operations. As previously anticipated, SAP united Ultrak and all of its domestic subsidiaries with a common inventory, sales, accounting/financial and database management system. Through laptop computers, the Ultrak domestic sales team can easily communicate with the host system from any remote location. The Company selected "Exact", a multilingual, multicurrency and Euro compliant software for its European information needs. By mid-2000, all of the Company's European operations were operational on the "Exact" software and linked together with a common inventory, sales, accounting and financial system. Ultrak believes that one of the keys to its success is its commitment to be responsive and provide excellent service to its customers. Domestic orders are entered into the Company's Lewisville, Texas-based SAP computer system either directly by the customer through electronic data interchange, by traveling sales representatives using laptop computers or by in-house sales personnel. After the computer system performs an automated check of the customer's account and credit limit, the order is released for shipment from available inventory at one of the four domestic stocking warehouse locations. Because the Company maintains a relatively large inventory of products, it ships most items within 24 hours of receipt of the order. The Company's domestic stocking warehouse locations are Lewisville (Dallas), Texas; Austin, Texas; Carroll (Columbus), Ohio; and Rancho Cucamonga, California. Approximately 91% of all domestic shipments are made from the Lewisville, Texas warehouse. The Company is currently evaluating CRM (customer relationship management) tools and anticipates implementation of a CRM package during 2001. The objective of utilizing CRM is to improve customer service, improve sales effectiveness and provide a central data warehouse for sales and technical support. Ultrak will also use this tool as a means of tracking marketing effectiveness. The quality assurance procedures in the Company's Ohio plant and California facility comply with ISO9001 specifications. The Company recently obtained ISO9001 certification on its Lewisville, Texas facility. The Company's Ohio plant uses Kanban techniques to ensure minimal inventory of finished goods and raw materials. The Ohio plant currently has excess capacity; the Company intends to rationalize its other manufacturing facilities and relocate production to the Ohio plant when practicable. TRAINING The Company considers continuous training of its customers to be critical in an increasingly competitive market. In 1999, the Company's training capabilities were doubled and there are now three training rooms at the Ultrak Worldwide Support Center in Lewisville, Texas. Multiple training sessions on Ultrak's products and systems are held throughout the year with salespeople, customers and field installation technicians attending to learn more about our technology and products. In 2001, training will be expanded to include on-site training for end users and systems integrators, and computer-based training programs. Dealers and systems integrators will be required to complete and maintain certification for key Ultrak products, or to utilize ISG to ensure customer satisfaction. BACKLOG Because purchase orders are subject to cancellation or delay by customers with limited or no penalty, the Company's backlog is not necessarily indicative of future revenues or earnings. Since the Company ships most products within 24 hours of receipt of the order, the Company believes that backlog is not a significant measurement of the Company's financial position. INTELLECTUAL PROPERTY As part of its ongoing engineering and development activities, Ultrak seeks patent protection on inventions covering new products and improvements when appropriate. Ultrak currently holds a number of United States and foreign patents and has a number of pending patent applications. Although the Company's patents have value, the Company believes that the success of its business depends more on innovation, sales efforts, superior customer service, technical expertise and knowledge of its personnel and other factors. The Company also relies upon trade secret protection for its confidential and proprietary information. Many of the Company's brands are registered trademarks owned by the Company. 10 12 COMPETITION The Company faces substantial competition in each of its markets. Significant competitive factors in the Company's markets include price, quality and product performance, breadth of product line and customer service and support. Some of the Company's existing and potential competitors have substantially greater financial, manufacturing, marketing and other resources than the Company. To compete successfully, the Company must continue to make substantial investments in its engineering and development, marketing, sales, customer service and support activities. There can be no assurance that competitors will not develop products that offer price or performance features superior the Company's products. The Company considers its major competitors to be the CCTV and access control operations of Sensormatic Electronics Corporation, Burle (part of Philips Communication & Security Systems, Inc.), Panasonic, Pelco, Lenel, and Interlogics. EMPLOYEES As of December 31, 2000, the Company had 568 full-time employees employed worldwide as compared with 695 full time employees worldwide in 1999, at 14 primary locations, of which 227 were sales and sales support personnel, 46 were warehouse/manufacturing personnel, 76 were technical/service personnel, 59 were engineering and product development personnel and 160 were administrative and managerial personnel. The Company's future success will depend in large part upon its ability to attract and retain highly skilled technical, managerial, financial and marketing personnel, in a market where such people are in demand. No employee is represented by a union or covered by a collective bargaining agreement and the Company has not experienced a work stoppage or strike. The Company considers its employee relations to be good. ITEM 2. PROPERTIES The Company moved to its new Worldwide Support Center in January 1998. The facility is comprised of approximately 170,000 square feet of leased office and warehouse space located on 14 acres of land in Lewisville, Texas, pursuant to a synthetic lease with an initial term expiring in April 2003. In January 2001, the Company purchased its lease on its corporate headquarters facility from the lessor for $11.5 million of which $10 million was financed by a mortgage. The Company recently entered into an agreement to sell a 5-acre tract of undeveloped land adjacent to its Lewisville headquarters. This transaction will be completed by April 2001. The Company also leases additional office/distribution warehouse space in Austin, Texas; Las Vegas, Nevada; Paris, France; Warrington (Manchester), England; Antwerp, Belgium San Vendemiano (Venice), Italy; Dusseldorf, Germany; Crissier (Lausanne), Switzerland; Szczecin, Poland; Perth, Australia; Johannesburg, South Africa and Singapore. The Company established a centralized, European headquarters facility in Antwerp, Belgium in 1999 to coordinate efforts among its foreign operations. Customer service under the centralized structure suffered and the cost to operate this facility proved to be unjustified. The Company has decided to sell the Belgium headquarters building and to discontinue centralized distribution. Instead, inventory will be maintained as necessary at each of the Company's European offices located in the UK, Germany, France, Italy, Poland and Switzerland. The Company will relocate European administrative and financial functions to the UK where it currently maintains a sales and operations facility. The Company owns its 72,000 square foot manufacturing facility in Carroll (Columbus), Ohio and leases its facilities in Rancho Cucamonga, California and Perth, Australia. The Company believes that its manufacturing facilities are adequate to meet the Company's present and anticipated manufacturing needs for products that it currently manufactures. ITEM 3. LEGAL PROCEEDINGS The Company is not aware of any pending or threatened legal proceedings to which the Company is or may be a party, which may have a materially adverse impact on the Company. The Company knows of no legal proceedings pending or threatened or judgments entered against any director or officer of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of the Company during the fourth quarter of 2000. 11 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET PRICE AND DIVIDENDS The Company's $.01 par value common stock ("Common Stock") commenced trading on the NASDAQ Stock Market's NASDAQ National Market ("NASDAQ National Market") on January 18, 1994, under the symbol "ULTK." Before that time, the Common Stock was traded in the over-the-counter market. Prices shown do not include adjustments for retail markups, markdowns or commissions. The following table sets forth the high and low closing prices on the NASDAQ National Market for the periods indicated:
HIGH LOW -------- ------- 2000 Fourth quarter........ $ 6.50 $ 2.81 Third quarter......... 10.25 5.75 Second quarter........ 11.88 6.00 First quarter......... 13.25 6.38 1999 Fourth quarter........ $ 7.75 $ 4.75 Third quarter......... 7.75 5.69 Second quarter........ 6.75 5.50 First quarter......... 8.13 5.88
As of February 28, 2001, there were approximately 1,136 holders of record of the Common Stock. The Company has never paid cash dividends on the Common Stock. The Company presently intends to retain earnings to finance the development and expansion of its business. The declaration in the future of any cash dividends on the Common Stock will be at the discretion of the Board of Directors and will depend upon the earnings, capital requirements and financial position of the Company, general economic conditions and other pertinent factors. The Company intends to continue to pay dividends on outstanding shares of Series A Preferred Stock, all of which are owned by George K. Broady, the Chairman and Chief Executive Officer of the Company. Dividends in the amount of $117,210 have been paid annually to Mr. Broady since the issuance of the Series A Preferred Stock. 12 14 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data for the Company as of and for the five fiscal years ended December 31, 2000, have been derived from the consolidated financial statements of the Company and its subsidiaries, which have been audited by Grant Thornton LLP, independent certified public accountants. The selected consolidated financial data includes the effects of businesses acquired in 1996, 1997, 1998 and 1999. This data should be read in conjunction with the information set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Consolidated Financial Statements and related notes which are included elsewhere herein. See acquisition and divestiture discussions in Item 1. Because of these transactions, the income statement and balance sheet data presented below may not be comparable from year to year.
YEARS ENDED DECEMBER 31, ------------------------------------------------------------- (In thousands, except per share data) INCOME STATEMENT DATA: ................................... 1996 1997 1998 1999 2000 --------- --------- --------- --------- --------- Net sales ................................................ $ 128,977 $ 177,837 $ 196,998 $ 208,200 $ 199,998 Cost of sales ............................................ 91,566 124,304 134,692 140,831 153,436 --------- --------- --------- --------- --------- Gross profit ............................................. 37,411 53,533 62,306 67,369 46,562 Marketing and sales expenses ............................. 15,134 26,220 29,669 34,998 35,831 General and administrative expenses ...................... 8,871 19,130 19,885 21,679 35,292 Depreciation and amortization ............................ 1,436 3,971 4,667 5,911 6,482 Asset impairment ......................................... -- -- -- -- 19,798 Special charges .......................................... -- -- -- 3,875 1,115 --------- --------- --------- --------- --------- Total operating expenses .......................... 25,441 52,443 54,221 66,463 98,518 --------- --------- --------- --------- --------- Operating profit (loss) .................................. 11,970 1,090 8,085 906 (51,956) Other expense (income) ................................... 214 (2,953) (461) (1,052) 9,876 --------- --------- --------- --------- --------- Income (loss) from continuing operations before income taxes .................................................... 11,756 4,043 8,546 1,958 (61,832) Incomes tax expense (benefit) ............................ 4,004 1,726 3,589 1,286 (4,145) --------- --------- --------- --------- --------- Income (loss) from continuing operations ................. 7,752 2,317 4,957 672 (57,687) Income (loss) from discontinued operations ............... (153) 84 (1,402) (107) -- --------- --------- --------- --------- --------- Net income (loss) ................................. 7,599 2,401 3,555 565 (57,687) Dividend requirements on preferred stock ................. 117 117 117 117 117 --------- --------- --------- --------- --------- Net income (loss) allocable to common stockholders ....... $ 7,482 $ 2,284 $ 3,438 $ 448 $ (57,804) ========= ========= ========= ========= ========= Weighted average shares outstanding - diluted ............ 10,445 15,224 14,776 12,300 11,686 Income (loss) per common share from continuing operations - diluted .............................. $ 0.74 $ 0.15 $ 0.34 $ .05 $ (4.95) ========= ========= ========= ========= ========= Net income (loss) per common share - diluted ............. $ 0.73 $ 0.15 $ 0.24 $ .04 $ (4.95) ========= ========= ========= ========= ========= BALANCE SHEET DATA: ..................................... 1996 1997 1998 1999 2000 --------- --------- --------- --------- --------- Working capital .......................................... $ 119,163 $ 94,064 $ 90,192 $ 79,714 $ 23,649 Total assets ............................................. 172,510 185,256 196,626 200,350 143,497 Short-term debt .......................................... -- -- -- 1,149 37,380* Long-term debt ........................................... -- -- 37,500 37,000 -- Stockholders' equity and equity put options .............. 155,961 163,198 140,030 132,663 77,247
* Due to losses in 2000, the line of credit was reclassified from short-term debt to long-term debt. 13 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The consolidated financial statements include the accounts of Ultrak and its 16 consolidated subsidiaries. The Company is further organized in the U.S. into separate selling divisions; all supported by common administrative functions such as credit, accounting, payroll, purchasing, legal, warehousing, training and computer support services. All significant intercompany balances and transactions among subsidiaries and divisions have been eliminated in consolidation. Net sales have grown from $1.8 million in 1987 to $200 million in 2000. Increases in net sales have come from increased volume of existing products and systems to all of the markets served by the Company, introduction of new products and systems, creation of new selling groups to focus on new markets and acquisitions of businesses in the security and surveillance, access control and alarm monitoring industries. In 1996, the Company completed three international acquisitions and made a minority investment in a fourth company. Effective July 1, 1996, Ultrak acquired approximately 75% of the outstanding stock of MAXPRO, a manufacturer of large scale CCTV switching systems based in Perth, Western Australia. On February 17, 1997, the Company acquired the remaining stock of MAXPRO. On September 6, 1996, Ultrak acquired and subsequently sold in September 1997 its interest in approximately 24% of the outstanding stock of Lenel, a domestic security access control software company. Effective October 1, 1996, Ultrak acquired all of the outstanding share capital of Bisset, a distributor of CCTV and professional audio products based in Paris, France. Effective December 1, 1996, Ultrak acquired all of the outstanding stock of VideV, a distributor and manufacturer of CCTV products based in Dusseldorf, Germany. All of these transactions were accounted for as purchases and the operations have been included in the Company's financial statements since the dates of acquisition. In 1997, the Company completed five acquisitions and made a minority investment in a sixth company. Effective February 1, 1997, Ultrak acquired all of the outstanding stock of MDI, a manufacturer of security and access control systems based in Rancho Cucamonga, California. Effective March 1, 1997, the Company acquired all of the outstanding stock of Intervision, a distributor of CCTV products and systems based in England. Effective April 1, 1997, Ultrak acquired all of the outstanding stock of the Videosys Group, a distributor of CCTV and security products and systems based in Italy. Also effective April 1, 1997, the Company acquired all of the outstanding stock of Veravision, a manufacturer of intraoral dental camera products based in San Clemente, California. Effective October 1, 1997, the Company acquired all of the outstanding stock of Philtech, a manufacturer and distributor of CCTV switching and control equipment based in South Africa. Effective November 1997, the Company established an 80% owned company in Singapore. All of these transactions were accounted for as purchases and the operations have been included in the Company's financial statements since the dates of acquisition. In 1998, the Company made one acquisition and acquired the 20% minority interest in its Singapore operation. As of February 1, 1998, the Company acquired the net assets of Norbain-France, a distributor of CCTV products based in Paris, France. Effective August 1, 1998, the Company sold its 90% owned subsidiary, DVD, to a third party. In 1999, the Company completed three acquisitions. Effective March 1, 1999, Ultrak acquired all of the outstanding stock of ABM, which develops and sells computer software for the alarm monitoring security industry based in Austin, Texas. Effective April 1, 1999 Ultrak acquired all of the outstanding stock of Multi Concepts Systemes, SA, an integrator of electronic security systems based in Crissier, Switzerland. Effective July 1, 1999, the Company acquired all of the outstanding stock of Mach Security, Sp. z.o.o., a distributor of CCTV products based in Szczecin, Poland. Effective March 3, 1999, the Company completed the sale of its 10% interest in Securion 24 to Mr. Mutsuo Tanaka. In 2000, the Company did not make any acquisitions. Effective July 1, 2000, the Company sold substantially all assets of Intervision to Norbain SD, Ltd., a UK-based distributor of CCTV and access control equipment. Additionally, Norbain entered into a distribution and OEM purchase agreement whereby Norbain must buy at least $6.0 million of Ultrak-branded CCTV products and dome systems through the end of 2002 to maintain distribution exclusivity for its Diamond series dome product line and its CCTV products in the UK and Ireland. Effective September 13, 2000, the Company sold inventory and certain assets to Ameritron, Inc. and Ameritron also entered into an agreement to sublease a portion of Ultrak's Rancho Cucamonga facility. 14 16 During the first quarter of 2001, the Company purchased new technology that allows it to manufacture a full-range of dome products. Total consideration included an initial payment of $750,000 in cash and a future contingent payment of $250,000 in July 2001 based upon the achievement of certain production and cost reduction criteria. Product sales are recorded when goods are shipped to the customer. Most of the Company's sales are made to its domestic customers on Net 30 or Net 60 day credit terms after a credit review has been performed to establish creditworthiness and to determine an appropriate credit limit. The Company's international sales are made under varying terms depending upon the creditworthiness of the customer, and include the use of letters of credit, payment in advance of shipment or open trade terms. Sales to a single customer considered to be one legal entity accounted for approximately 27% of total sales during 2000, 21% of total sales during 1999 and 17% of total sales during 1998. However, sales to this legal entity are made independently via two separate business segments within the Company to two separate buying organizations within the legal entity. Cost of sales for most of the Company's products includes the cost of the product shipped plus freight, customs and other costs associated with delivery from foreign contract manufacturers or from domestic suppliers. Cost of sales for products manufactured by Ultrak include material, direct labor and overhead as well as an allocated portion of indirect overhead. Marketing and sales expenses are costs related to the Company's sales efforts, which include costs incurred by both direct employees of the Company and independent sales representatives. Marketing and sales expenses consist primarily of salaries, commissions and related benefits, depreciation, telephone, advertising, warranty, printing, product literature, sales promotion and travel-related costs. General and administrative expenses include costs of all corporate and general administrative functions that support the existing selling divisions as well as provides the infrastructure for future growth. General and administrative expenses consist primarily of salaries and related benefits of executive, administrative, operations and engineering, research and development personnel, legal, audit and other professional fees, supplies, other engineering costs and travel-related costs. Engineering, research and product development costs are included in general and administrative expenses and consist primarily of salaries, overhead and material costs associated with the development of new products offered by the Company. Most R&D costs have been expensed when incurred. During the years ended December 31, 2000 and 1999, the Company wrote off approximately $.8 million capitalized and $1.7 million, respectively, in software development costs primarily pertaining to its SAFEnet NT software and its ESS software development projects. The Company's investment in engineering, research and software development projects increased significantly during 1998, and continued to increase on an absolute basis in 1999 with a slight decrease in 2000. The Company's consolidated financial statements are denominated in U.S. dollars and, accordingly, changes in the exchange rate between the Company's subsidiaries' local currencies and the U.S. dollar will affect the conversion of such subsidiaries' financial results into U.S. dollars for purposes of reporting the Company's consolidated financial results. Translation adjustments are reported as a separate component of stockholders' equity. A substantial portion of the Company's purchases and sales are derived from operations outside the United States. Since the revenues and expenses of the Company's foreign operations are generally denominated in local currency, exchange rate fluctuations between local currencies and the U.S. dollar subject the Company to currency exchange risks with respect to the results of its foreign operations. Therefore, the Company is subject to these risks to the extent that it is unable to denominate its purchases or sales in U.S. dollars or otherwise shift to its customers or suppliers the effects of currency exchange rate fluctuations. Such fluctuations in exchange rates could have a material adverse effect on the Company's results of operations. The Company did not have any foreign exchange forward or currency option contracts outstanding at December 31, 2000. 15 17 The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto included herein. RESULTS OF OPERATIONS The following table sets forth the percentage of net sales represented by certain items in the Company's consolidated summary of income for the indicated periods.
YEARS ENDED DECEMBER 31, 1998 1999 2000 ------- ------- ------- Net sales .................................. 100.0% 100.0% 100.0% Cost of sales .............................. 68.4 67.6 76.7 ------- ------- ------- Gross profit ............................... 31.6 32.4 23.3 ------- ------- ------- Marketing and sales expenses ............... 15.1 16.8 17.9 General and administrative expenses ................................... 10.1 10.4 17.6 Depreciation and amortization .............. 2.4 2.8 3.2 Asset impairment ........................... -- -- 9.9 Special charges ............................ -- 1.9 0.1 Total operating expenses .......... 27.5 31.9 49.3 ------- ------- ------- Operating profit ........................... 4.1 0.4 (26.0) Other expense (income) ..................... (0.2) (0.5) 4.9 ---- ---- ---- Income from continuing operations before income taxes ........................ 4.3 0.9 (30.9) Income taxes ............................... 1.8 0.6 (2.1) ---- ---- ---- Income from continuing operations ................................. 2.5 0.3 (28.8) Discontinued operations, net of tax effects ......................... (0.7) (0.1) -- ---- ---- ---- Net income ................................. 1.8% 0.2% (28.8)% ======= ======= =======
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999 For the year ended December 31, 2000, net sales were $200.0 million, a decrease of $8.2 million (4%) over 1999. This decrease is primarily due to the sale of Intervision Express in July 2000, the scheduled phaseout of the CCTV distribution business in France, and the declining value of the European currencies against the U.S. dollar. Cost of sales were $153.4 million for 2000, an increase of $12.6 million (9%) over 1999. Gross profit margins decreased to 23.3% in 2000 from 32.4% in 1999. This increase in cost of goods sold was primarily due to the inventory write-offs of $12.4 million taken in the fourth quarter of 2000. This increase consisted of the $9.5 million taken as part of the fourth quarter charge costs related to the development of the audio business in France and costs associated with the Company's centralized Europe headquarters in Belgium. The fourth quarter write-offs are described in more detail in Section 1 under the caption "Fourth Quarter Charge." Marketing and sales expenses were $35.8 million for 2000, an increase of $.8 million (2%) over 1999. Marketing and sales expenses for 2000 were 17.9% of net sales, up from 16.8% in 1999. This increase was due to the effect of luring additional sales support and marketing personnel in anticipation of new product introductions and resulting sales activities, as well as the increased travel, printing, product literature, advertising and promotional costs associated with the introduction of new products. General and administrative expenses were $35.3 million for 2000, an increase of $13.6 million (63%) over 1999. General and administrative expenses for 2000 were 17.6% of net sales, up from 10.4% of net sales in 1999. This increase consisted of severance, bad debt, and other write-offs of $9.4 million taken as part of the fourth quarter charge. The write-offs are described in more detail in Section 1 under the caption "Fourth Quarter Charge." The remaining increases were due to audio development expenses in France and costs associated with the Company's centralized European headquarters in Belgium. Depreciation and amortization expenses were $6.5 million for 2000, an increase of $.6 million (10%) over 1999. Depreciation and amortization expenses for 2000 were 3.2% of net sales, up from 2.8% of net sales in 1999. Included in the Company's 2000 results is an asset impairment charge of $19.8 million, 9.9% of net sales, related write downs of goodwill, software development costs and the impairment of internal use software. These impairments are described in more detail in Section 1 under the caption "Fourth Quarter Charge." Special charge expenses of $1.1 million were taken in 2000. These expenses relate to the $1.4 million of severance and other charges recorded in the third quarter of 2000. These charges were for the separation of three former executives from the Company, severance obligations related to the outsourcing of certain manufacturing operations in California and Australia, and a proxy solicitation contest with Detection Systems, Inc., a company of which Ultrak held a 21% share in 2000. The remaining amount is an adjustment of $0.3 million for excess reserves as part of the 1999 special charge. A $3.9 million special charge was recorded in 1999 related to severance obligations of $0.8 million and consolidation/centralization of European activities of $3.1 million. Other expenses of $9.9 million were recorded in 2000, compared with other income of $1.1 million in 1999. $5.4 million of these expenses are related to foreign currency losses, losses on sales of investments and other charges taken as part of the fourth quarter charge. These items are described in more detail in Section 1 under the caption "Fourth Quarter Charge." The additional increase in other expenses relates to higher interest rates in 2000. The Company also recorded less income on its interest in Detection Systems, Inc. due to lower earnings reported by that company in 2000, compared to 1999. 16 18 YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998 For the year ended December 31, 1999, net sales were $208.2 million, an increase of $11.2 million (6%) over 1998. This increase was primarily due to the internal growth from sales of new products and systems introduced in late 1998 and early 1999, and acquisitions completed during 1999. Cost of sales were $140.8 million for 1999, an increase of $6.1 million (5%) over 1998. Gross profit margins increased to 32.4% in 1999 from 31.6% in 1998. This increase in gross profit margin was due primarily to increased sales of Ultrak branded products and higher margins earned on its software based products. Marketing and sales expenses were $35.0 million for 1999, an increase of $5.3 million (18%) over 1998. Marketing and sales expenses for 1999 were 16.8% of net sales, up from 15.1% in 1998. This increase was due to the effect of acquisitions completed during 1999, the effect of hiring additional field sales personnel and the effect of hiring additional sales support and marketing personnel in anticipation of new product introductions and resulting sales activities, as well as the increased travel, printing, product literature, advertising and promotional costs associated with the introduction of new products. General and administrative expenses were $21.7 million for 1999, an increase of $1.8 million (9%) over 1998. General and administrative expenses for 1999 were 10.4% of net sales, up from 10.1% of net sales in 1998. This increase was primarily due to the effect of acquisitions in 1999 and the costs related to the establishment of the Company's European headquarters in Antwerp, Belgium. Depreciation and amortization expenses were $5.9 million for 1999, an increase of $1.2 million (27%) over 1998. Depreciation and amortization expenses for 1999 were 2.9% of net sales, up from 2.4% of net sales in 1998 due to increased capital expenditures in 1998 and 1999. Included in the Company's 1999 results is a special charge of $3,875,000 related to restructuring of Ultrak's Europe and domestic operations. This restructuring effort was intended to consolidate and centralize European activities. In the first quarter of 1999, the Company recorded nonrecurring charges of $750,000 related to domestic severance obligations. During the second quarter of 1999, the Company recorded nonrecurring charges of $3,125,000 related to consolidation of four locations into its European headquarters in Antwerp, Belgium in order to centralize administrative, accounting and finance functions, purchasing, shipping and billing activities. Also included in these nonrecurring charges were employee severance and lease termination costs for the European consolidation and the closing of three U.S. sales/distribution offices. Other income was approximately $1.1 million for 1999, an increase of $590,000 from 1998. This increase was due to equity in earnings of Detection Systems, Inc. ("DETC") and gains on the sale of certain investments offset by increased interest expense. LIQUIDITY AND CAPITAL RESOURCES The Company had a net decrease in cash and cash equivalents for 2000 of approximately $1.0 million. Net cash provided by operating activities in 2000 was approximately $2.0 million, versus $12.8 million in 1999. The most significant differences resulted from the net loss in 2000, offset by non-cash charges and reduced inventories. Net cash used in investing activities was approximately $2.9 million consisting primarily of purchases of property and equipment for worldwide computer software implementations. Net cash used in financing activities was approximately $0.1 million, consisting primarily of net repayments on the Company's revolving line of credit and the payment of dividends on the Company's outstanding Series A Preferred Stock, offset by proceeds from exercises of stock options. 17 19 At December 31, 2000, the Company had $35.4 million outstanding under its two-year credit facility. During the 2000 calendar year, the interest rates on the credit facility were adjusted to prime plus a ranges of 0% to .75% on LIBOR or range of 2.25% to 3.25%, depending on the leverage ratio. The Company was in violation of certain financial covenants under the credit facility, but was able to obtain waivers for such violations from its lenders in March 2001. Subsequent to the sale of the Company's investment in Detection Systems, Inc. in January 2001, the credit facility was paid down and reduced from $45 million to $30 million outstanding. On March 22, 2000, the Company entered into a new two-year credit facility. The credit facility provides for borrowings up to $45.0 million under a revolving line of credit based upon available collateral. Interest for the credit facility is payable quarterly at prime plus a range of 0% to .25% or LIBOR plus a range of 2.25% to 2.75%, depending on the leverage ratio and other conditions, as defined, for the quarter. The credit facility contains certain restrictive financial and operational covenants and conditions, including a maximum leverage ratio, a debt service ratio and minimum net worth amounts. The Company pays a quarterly unused fee of .375% per annum. Despite the significant loss reported, cash flow from operations in 2000 was approximately $2 million. In January 2001, the proceeds from the Detection Systems, Inc. shares were used to decrease the Company's borrowing level to $24 million by the end of the first quarter 2001. The capacity of the credit facility is more than sufficient to fund our current business operations. Borrowings on the line of credit are expected to increase somewhat by mid-year due to regular seasonality, but should return to its current level by the end of 2001. Positive cash generation from operations will fund the cash portion of the restructuring charge, about $5.5 million, and the pay-down of the mortgage by $1.5 million. 18 20 INFLATION During the years ended December 31, 2000, 1999 and 1998, the cost of property and equipment, lease expense and salaries and wages increased modestly. The increases have not had a material impact on the Company's results of operations during any of the periods. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion about the Company's market risk includes "forward-looking statements" that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The Company does not use derivative financial instruments for speculative or trading purposes. The Company is exposed to market risk from changes in foreign currency exchange rates and interest rates, which could affect its future results of operations and financial condition. The Company manages its exposure to these risks through its regular operating and financing activities. Foreign exchange The Company has foreign-based operations, primarily in Western Europe, which accounted for 24% of 2000 net sales. The strengthening of the U.S. dollar from 1999 to 2000 had a negative impact on sales and gross profit. Inventory purchases were made in U.S. dollars or in currencies pegged to the U.S. dollar. This appreciation of the U.S. dollar against the Western European currencies had an adverse impact of about $2 million on gross profit. The Company issues intercompany loans to its foreign subsidiaries denominated in U.S. dollars on a long-term basis, exposing the foreign subsidiaries to the effect of changes in spot exchange rates of their local currency relative to the U.S. dollar. The Company does not regularly use forward-exchange contracts to hedge these exposures. Based on the Company's foreign currency exchange rate exposure for intercompany borrowings of approximately $32 million at December 31, 2000, a 10% adverse change in currency rates would reduce accumulated other comprehensive income by approximately $3.2 million. Interest rates The Company's credit arrangements expose it to fluctuations in interest rates. At December 31, 2000, the Company had $35.4 million outstanding under its revolving line of credit, which provided for interest to be paid quarterly based on a variable rate. Thus, interest rate changes would result in a change in the amount of interest to be paid each quarter. Based upon the interest rates and borrowings at December 31, 2000, a 10% increase in interest rates would adversely affect the Company's financial position, annual results of operations, or cash flows by approximately $351,000. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company and its subsidiaries that are required by this Item 8 are listed in Part IV under Item 14(a) of this Annual Report on Form 10-K. Such consolidated financial statements are included herein beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 19 21 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT There is hereby incorporated by reference the information regarding the Company's directors to appear under the caption "Election of Directors" in the Company's proxy statement for its 2001 Annual Meeting of Stockholders (the "2001 Proxy Statement"), which is expected to be filed with the Securities and Exchange Commission on or about April 30, 2001. See also the list of the Company's executive officers and related information under "Directors and Executive Officers" in Part I of the 2001 Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION There is hereby incorporated by reference the information to appear under the captions "Election of Directors" and "Executive Compensation and Other Information" in the 2001 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT There is hereby incorporated by reference the information with respect to security ownership to appear under the caption "Security Ownership of Principal Stockholders and Management" in the 2001 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There is hereby incorporated by reference the information to appear under the caption "Executive Compensation and Other Information - Certain Transactions" in the 2001 Proxy Statement. 20 22 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statement Schedules filed as part of this Annual Report on Form 10-K. Financial Statements: Report of Independent Certified Public Accountants. Consolidated Balance Sheets as of December 31, 2000 and 1999. Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998. Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998. Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998. Notes to Consolidated Financial Statements. Additional financial information pursuant to the requirements of Form 10-K: Report of Independent Certified Public Accountants on Schedule Schedule II - Valuation and Qualifying Accounts Schedules not listed above have been omitted because they are either not applicable or the required information has been provided elsewhere in the Consolidated Financial Statements or notes thereto. (b) Reports on Form 8-K A Current Report on Form 8-K was filed with the Securities and Exchange Commission on August 4, 2000 reporting the resignation of Ted Wlazlowski, Executive Vice President of the Company and announcing that Peter Beare was elected President and Chief Operating Officer of the Company. A current Report on Form 8-K was filed with the Securities and Exchange Commission on October 24, 2000 reporting the resignation of Tim Torno, Vice President-Finance and Chief Financial Officer of the Company and announcing that Chris Sharng was named Senior Vice President and Chief Financial Officer of the Company. (c) Exhibits 3.1 Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 4.1 Form of certificate representing shares of the Common Stock (filed as Exhibit 4.1 the Company's Registration Statement on Form S-2, Registration No. 333-02891) 10.1 Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (filed as Exhibit 10.6 to the Company's Registration Statement on Form S-1, Registration No. 55-3-31110) 10.2 Amendment No. 2 to Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (filed as Exhibit 10 to the Company's Current Report on Form 8-K dated December 28, 1993) 21 23 10.3 Amendment No. 3 to Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996) 10.4 Agreement and Plan of Reorganization, dated as of April 28, 1995, among Diamond Electronics, Inc., the shareholders of Diamond signing the Agreement, the Company and Diamond Purchasing Corp. (filed as Annex A to the Company's Form S-4 dated June 28, 1995) 10.5 Employment Agreement, dated May 25, 1995, between the Company and James D. Pritchett (filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 10.6 Employment Agreement, dated May 25, 1995, between the Company and Tim D. Torno (filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 10.7 Ultrak, Inc. Incentive Stock Option Plan (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997) 10.8 Stock Purchase Agreement dated August 7, 1996 among Chris Davies, Kim Rhodes, Scott Rhodes, Rhodes Davies & Associates Pty Ltd. and the Company (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated August 23, 1996) 10.09 Stock Purchase Agreement dated September 26, 1996 among Maurice Scetbon, Monda, S.A., Frida, S.A., the Company and Ultrak Holdings Limited (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated October 11, 1996) 10.10 Purchase Agreement of German GmbH Share Capital, dated December 16, 1996, among all of the shareholders of VideV GmbH, Ultrak and Ultrak Holdings Limited (filed as Exhibit 1 to the Company's Current Report on Form 8-K dated December 31, 1996) 10.11 Agreement and Plan of Merger dated February 10, 1997 among Monitor Dynamics, Inc., all of the shareholders of Monitor Dynamics, Inc., Ultrak, Inc. and MDI Acquisition Corp. (filed as Exhibit 1 to the Company's Current Report on Form 8-K dated March 5, 1997) 10.12 Amended and Restated Loan Agreement, dated effective as of December 11, 1997, among Ultrak, Inc., Dental Vision Direct, Inc., Diamond Electronics, Inc., Monitor Dynamics, Inc., Ultrak Operating, L.P. and NationsBank of Texas, N.A. (filed as Exhibit 1 to the Company's current Annual Report on Form 10-K for the year ended December 31, 1997) 10.13 Credit Agreement, dated as of February 16, 1999, among Ultrak, Inc., Bank One, Texas, N.A. and Certain Lenders (filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998) 10.14 Stock Purchase Agreement dated August 5, 1998, between the Company and American Dental Technologies, Inc. (filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998) 10.15 Stock Sale Agreement dated February 23, 1999 between the Company and Mutsuo Tanaka (filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998) 10.16 Employment Agreement, dated January 1, 1998, between the Company and Ted Wlazlowski (filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998) 10.17 Agreement and Plan of Merger dated March 15, 1999 among ABM Data Systems, Inc., Robert F. James, Ultrak, Inc. and ABM Acquisition Corp. (filed as Exhibit 1 to the Company's Current Report on Form 8-K dated March 18, 1999) 22 24 10.18 First Amended and Restated Credit Agreement between Ultrak, Inc., Bank One of Texas, N.A. and Certain Lenders, dated August 12, 1999 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999) 10.19 Employment Agreement, dated June 1, 1999, between the Company and Ted Wlazlowski (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999) 10.20 Employment Agreement, dated June 1, 1999, between the Company and Tim D. Torno (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999) 10.21 First Amendment to First Amended and Restated Credit Agreement between Ultrak, Inc., Bank One of Texas, N.A. and Certain Lenders, dated November 12, 1999 10.22 Second Amendment to First Amended and Restated Credit Agreement between Ultrak, Inc., Bank One of Texas, N.A. and Certain Lenders, dated January 31, 2000 10.23 Third Amendment to First Amended and Restated Credit Agreement between Ultrak, Inc., Bank One of Texas, N.A. and Certain Lenders, dated February 29, 2000 10.24 Amendment No. 4 to Ultrak, Inc. 1988 Non-Qualified Stock Option Plan 10.25 Amended and Restated Credit Agreement between Ultrak Operating, L.P., American National Bank and Trust Company of Chicago and Certain Lenders, dated March 22, 2000 10.26 First Amended and Restated Credit Agreement among Ultrak Operating, L.P., American National Bank and Trust Company of Chicago and Harris Trust Savings Bank, dated May 17, 2000 10.27 Amendment No. 5 to Ultrak, Inc 1988 Non-Qualified Stock Option Plan, adopted by the Board as of January 24, 2000 *10.28 Fourth Amendment and Continuation of Waivers effective March 1, 2001 between Ultrak Operating, L.P., American National Bank and Trust Company of Chicago and Harris Trust Savings Bank *10.29 Fifth Amendment and Continuation of Waivers dated March 28, 2001 between Ultrak Operating, L.P., American National Bank and Trust Company of Chicago and Harris Trust Savings Bank *10.30 Employment Agreement, effective January 1, 2001, between the Company and Peter Beare *10.31 Employment Agreement, effective January 1, 2001, between the Company and Wendy Diddell *10.32 Employment Agreement effective January 9, 2001, between the Company and Chris Sharng *21.1 Subsidiaries of the Company - ---------- * Exhibits 10.28, 10.29, 10.30, 10.31, 10.32, and 21.1 are filed herewith. 23 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 29th day of March, 2001 ULTRAK, INC. By /s/ George K. Broady ------------------------------------ George K. Broady Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE /s/ George K. Broady Chairman of the Board and Chief March 29, 2001 - --------------------------------------------- Executive Officer George K. Broady (Principal Executive Officer) /s/ Chris Sharng Senior Vice President-Finance, Secretary, March 29, 2001 - --------------------------------------------- Treasurer and Chief Financial Officer Chris Sharng (Principal Financial and Accounting Officer) /s/ Malcolm J. Gudis Director March 29, 2001 - --------------------------------------------- Malcolm J. Gudis /s/ Charles C. Neal Director March 29, 2001 - --------------------------------------------- Charles C. Neal /s/ Robert F. Sexton Director March 29, 2001 - --------------------------------------------- Robert F. Sexton /s/George Vincent Broady Director March 29, 2001 - --------------------------------------------- George Vincent Broady
26 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Ultrak, Inc. We have audited the accompanying consolidated balance sheets of Ultrak, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ultrak, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. GRANT THORNTON LLP Dallas, Texas March 16, 2001 F-1 27 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31,
2000 1999 ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,751,162 $ 4,757,512 Marketable securities - 600,033 Investment in Detection Systems, Inc. 13,909,069 - Trade accounts receivable, less allowance for doubtful accounts of $5,790,545 and $2,401,773 at December 31, 2000 and 1999, respectively 32,232,005 41,337,442 Inventories, net 26,370,856 49,097,433 Advances for inventory purchases 521,184 1,943,617 Prepaid expenses and other current assets 4,393,954 4,230,732 Income tax refundable 891,109 - Deferred income taxes 6,337,374 3,959,604 Net current assets of discontinued operations - 1,905,831 ----------- ----------- Total current assets 88,406,713 107,832,204 PROPERTY, PLANT AND EQUIPMENT, at cost 26,885,731 30,102,403 Less accumulated depreciation and amortization (11,884,667) (9,265,181) ----------- ----------- 15,001,064 20,837,222 OTHER ASSETS Goodwill, net of accumulated amortization of $6,635,696 and $7,054,360 at December 31, 2000 and 1999, respectively 39,374,965 56,337,690 Investment in Detection Systems, Inc. - 13,354,019 Other 713,816 1,989,373 ----------- ----------- 40,088,781 71,681,082 ----------- ----------- Total assets $143,496,558 $200,350,508 =========== ===========
F-2 28 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED December 31,
2000 1999 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable - trade $ 13,045,832 $ 15,739,200 Accrued expenses 6,168,130 5,916,432 Accrued restructuring costs 5,634,465 1,749,073 Other current liabilities 2,529,178 3,563,705 Line of credit 35,419,017 37,000,000 Other debt 1,960,992 1,149,376 ------------ ------------ Total current liabilities 64,757,614 65,117,786 DEFERRED INCOME TAXES 1,491,591 2,569,870 COMMITMENTS AND CONTINGENCIES - - STOCKHOLDERS' EQUITY Preferred stock, $5 par value, issuable in series; 2,000,000 shares authorized; Series A, 12% cumulative convertible; 195,351 shares authorized, issued and outstanding 976,755 976,755 Common stock, $.01 par value; 20,000,000 shares authorized; 15,156,538 and 14,981,471 shares issued at December 31, 2000 and 1999, respectively 151,565 149,815 Additional paid-in capital 157,913,929 156,708,110 Retained earnings (accumulated deficit) (40,225,584) 17,578,720 Accumulated other comprehensive loss (2,886,201) (4,067,437) Treasury stock, at cost (3,467,650 shares at December 31, 2000 and 1999) (38,683,111) (38,683,111) ------------ ------------ Total stockholders' equity 77,247,353 132,662,852 ------------ ------------ Total liabilities and stockholders' equity $143,496,558 $200,350,508 ============ ============
The accompanying notes are an integral part of these statements. F-3 29 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31,
2000 1999 1998 ------------ ------------ ------------ Net sales $199,997,621 $208,200,566 $196,997,780 Cost of sales (exclusive of depreciation shown separately below) 153,435,231 140,831,376 134,691,839 ------------ ------------ ------------ Gross profit 46,562,390 67,369,190 62,305,941 Other operating costs: Marketing and sales 35,831,237 34,997,819 29,669,191 General and administrative 35,292,067 21,678,426 19,885,071 Depreciation and goodwill amortization 6,482,244 5,911,464 4,666,508 Asset impairment 19,798,179 - - Special charges 1,114,943 3,875,000 - ------------ ------------ ------------ 98,518,670 66,462,709 54,220,770 ------------ ------------ ------------ Operating profit (loss) (51,956,280) 906,481 8,085,171 Other income (expense): Interest expense (3,743,288) (2,964,954) (1,373,941) Interest income 68,633 175,837 412,383 Gain (loss) on sale of investments (637,279) 669,543 675,000 Loss on sale of subsidiary (839,557) - - Foreign exchange gains (losses) (4,637,005) 376,948 (97,838) Equity in income of Detection Systems, Inc. 554,000 1,885,000 350,000 Other, net (641,103) 909,513 496,074 ------------ ------------ ------------ (9,875,599) 1,051,887 461,678 ------------ ------------ ------------ Income (loss) from continuing operations before income taxes (61,831,879) 1,958,368 8,546,849 Income tax benefit (expense) 4,144,785 (1,285,814) (3,589,676) ------------ ------------ ------------ Income (loss) from continuing operations (57,687,094) 672,554 4,957,173 Discontinued operations, net of taxes Loss from operations - (107,022) (1,480,243) Gain on disposal - - 77,946 ------------ ------------ ------------ NET INCOME (LOSS) (57,687,094) 565,532 3,554,876 Dividend requirements on preferred stock (117,210) (117,210) (117,210) ------------ ------------ ------------ Net income (loss) allocable to common stockholders $(57,804,304) $ 448,322 $ 3,437,666 ============ =========== ============
The accompanying notes are an integral part of these statements. F-4 30 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED Years ended December 31,
2000 1999 1998 ------ ------ ------ Income (loss) per common share: Continuing operations Basic $(4.95) $ 0.05 $ 0.37 ====== ====== ====== Diluted $(4.95) $ 0.05 $ 0.34 ====== ====== ====== Discontinued operations Basic $ - $(0.01) $(0.11) ====== ====== ====== Diluted $ - $(0.01) $(0.10) ====== ====== ====== Net income (loss) Basic $(4.95) $ 0.04 $ 0.26 ====== ====== ====== Diluted $(4.95) $ 0.04 $ 0.24 ====== ====== ======
The accompanying notes are an integral part of these statements. F-5 31 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Years ended December 31,
Deferred issuance of common stock related to Retained Preferred Stock Common Stock companies acquired Additional earnings ----------------- -------------------- ------------------ paid-in (accumulated Shares Amount Shares Amount Shares Amount capital deficit) -------- -------- ---------- -------- -------- -------- ------------ ------------ Balance at January 1, 1998 195,351 $976,755 14,445,741 $144,457 50,819 $ 508 $126,414,327 $13,692,732 Comprehensive income Net income - - - - - - - 3,554,876 Other comprehensive income Foreign currency translation adjustment - - - - - - - - Unrealized loss on investments held for sale, net of taxes of $88,541 - - - - - - - - Total Issuance of common stock - - - - (50,819) (508) - - Acquisition of businesses - - 123,065 1,231 - - - - Adjustment to earnout contingency - - - - - - (104,508) - Exercise of stock options and warrants - - 134,332 1,343 - - 223,337 - Treasury stock purchases - - - - - - - - Equity put options expired - - - - - - 3,312,499 - Equity put options redeemed - - - - - - 23,487,938 - Preferred stock dividends - - - - - - - (117,210) ------- ------- ---------- ------- ------- ---- ----------- ---------- Balance at December 31, 1998 195,351 976,755 14,703,138 147,031 - - 153,333,593 17,130,398 Accumulated other Treasury stock comprehensive ------------------------ loss Shares Amount Total ------------- -------- ------------- ------------ Balance at January 1, 1998 $(1,868,304) 452,850 $ (4,526,071) $134,834,404 Comprehensive income Net income - - - 3,554,876 Other comprehensive income Foreign currency translation adjustment 1,072,690 - - 1,072,690 Unrealized loss on investments held for sale, net of taxes of $88,541 (171,874) - - (171,874) ------------ Total 4,455,692 ------------ Issuance of common stock - - - (508) Acquisition of businesses - - - 1,231 Adjustment to earnout contingency - - - (104,508) Exercise of stock options and warrants - - - 224,680 Treasury stock purchases 440,500 (4,139,433) (4,139,433) Equity put options expired - - - 3,312,499 Equity put options redeemed - 2,120,000 (23,487,938) - Preferred stock dividends - - - (117,210) ------------- --------- ------------ ------------ Balance at December 31, 1998 (967,488) 3,013,350 (32,153,442) 138,466,847
F-6 32 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED Years ended December 31,
Deferred issuance of common stock related to Preferred Stock Common Stock companies acquired Additional ----------------- -------------------- ------------------ paid-in Shares Amount Shares Amount Shares Amount capital -------- -------- ---------- -------- ------- -------- ------------ Balance at January 1, 1999 195,351 $976,755 14,703,138 $147,031 - $ - $153,333,593 Comprehensive loss Net income - - - - - - - Other comprehensive loss Foreign currency translation adjustment - - - - - - - Unrealized loss on investments held for sale, net of tax of $292,541 - - - - - - - Plus: reclassification adjustment for losses included in net income, net of tax effect of $88,541 - - - - - - - 171,874 Total Acquisition of business - - 250,000 2,500 - - 1,492,389 Exercise of stock options and warrants - - 28,333 284 - - 68,565 Stock-based compensation - - - - - - 250,000 Treasury stock purchases - - - - - - - Equity put options expired - - - - - - 1,563,563 Preferred stock dividends - - - - - - - ------- -------- ---------- -------- ------ ------- ------------ Balance at December 31, 1999 195,351 976,755 14,981,471 149,815 - - 156,708,110 Retained Accumulated earnings other Treasury stock (accumulated comprehensive ------------------------- deficit) loss Shares Amount Total ------------ ------------- --------- ------------ ------------ Balance at January 1, 1999 $17,130,398 $ (967,488) 3,013,350 $(32,153,442) $138,466,847 Comprehensive loss Net income 565,532 - - - 565,532 Other comprehensive loss Foreign currency translation adjustment - (2,703,949) - - (2,703,949) Unrealized loss on investments held for sale, net of tax of $292,541 - (567,874) - - (567,874) Plus: reclassification adjustment for losses included in net income, net of tax effect of $88,541 - 171,874 - - 171,874 ------------- Total (2,534,417) ------------- Acquisition of business - - - - 1,494,889 Exercise of stock options and warrants - - - - 68,849 Stock-based compensation - - - - 250,000 Treasury stock purchases - - 454,300 (6,529,669) (6,529,669) Equity put options expired - - - - 1,563,563 Preferred stock dividends (117,210) - - - (117,210) ---------- ------------ --------- ------------ ------------- Balance at December 31, 1999 17,578,720 (4,067,437) 3,467,650 (38,683,111) 132,662,852
F-7 33 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED Years ended December 31,
Deferred issuance of common stock related to Preferred Stock Common Stock companies acquired Additional ----------------- -------------------- ------------------ paid-in Shares Amount Shares Amount Shares Amount capital -------- -------- ---------- -------- ------- -------- ------------ Balance at January 1, 2000 195,351 $976,755 14,981,471 $149,815 - $ - $156,708,110 Comprehensive income (loss) Net loss - - - - - - - Other comprehensive income (loss) Foreign currency translation adjustment - - - - - - - Reclassification adjustment for losses included in net loss, net of tax of $292,541 - - - - - - - Reclassification (Note B) - - - - - - - Total Exercise of stock options and warrants - - 175,067 1,750 - - 917,606 Stock-based compensation - - - - - - 25,450 Tax benefit from employee stock transactions - - - - - - 262,763 Preferred stock dividends - - - - - - - ------- -------- ---------- -------- ------ ------ ------------ Balance at December 31, 2000 195,351 $976,755 15,156,538 $151,565 - $ - $157,913,929 ======= ======== ========== ======== ====== ====== ============ Retained Accumulated earnings other Treasury stock (accumulated comprehensive -------------------------- deficit) loss Shares Amount Total ------------ ------------- ---------- ------------- ------------ Balance at January 1, 2000 $ 17,578,720 $(4,067,437) 3,467,650 $(38,683,111) $132,662,852 Comprehensive income (loss) Net loss (57,687,094) - - - (57,687,094) Other comprehensive income (loss) Foreign currency translation adjustment - (3,583,268) - - (3,583,268) Reclassification adjustment for losses included in net loss, net of tax of $292,541 - 567,874 - - 567,874 Reclassification (Note B) - 4,196,630 - - 4,196,630 ------------ Total (56,505,858) ------------ Exercise of stock options and warrants - - - - 919,356 Stock-based compensation - - - - 25,450 Tax benefit from employee stock transactions - - - - 262,763 Preferred stock dividends (117,210) - - - (117,210) ------------ ----------- --------- ------------ ------------ Balance at December 31, 2000 $(40,225,584) $(2,886,201) 3,467,650 $(38,683,111) $ 77,247,353 ============ =========== ========= ============ ============
The accompanying notes are an integral part of these statements. F-8 34 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31,
2000 1999 1998 ------------ ---------- ---------- Cash flows from operating activities: Net income (loss) $(57,687,094) $ 565,532 $ 3,554,876 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities from continuing operations: Loss (income) from discontinued operations - 107,022 1,480,243 Gain on disposal from discontinued operations - - (77,946) Loss on disposal of fixed assets 428,463 - - Gain (loss) on sale of investments 637,279 (669,543) (675,000) Loss on sale of subsidiary 839,557 - - Equity in income of Detection Systems, Inc. (554,000) (1,885,000) (350,000) Realized foreign currency translation losses 4,196,630 - - Depreciation and amortization 6,482,244 5,911,464 4,666,508 Provision for losses on accounts receivable 3,555,940 813,178 (8,103) Noncash inventory writedowns 12,370,115 2,177,637 2,104,636 Asset impairment 19,798,179 - - Other noncash charges 952,169 287,713 - Deferred income taxes (3,015,450) 676,460 1,605,341 Other (370,550) - - Changes in operating assets and liabilities Accounts and notes receivable 5,353,332 (4,992,471) (3,719,551) Inventories 9,667,461 (5,459,658) (10,440,583) Advances for inventory purchases 1,422,433 2,935,236 6,541,157 Prepaid expenses and other current assets (780,225) 1,697,813 (2,408,931) Income tax refundable (891,109) - - Noncurrent notes and other assets 336,698 1,980,668 702,546 Accounts payable (3,384,057) 6,974,493 (4,240,203) Accrued restructuring costs 3,885,392 1,749,073 - Accrued and other current liabilities (1,227,078) (1,237,177) 1,075,151 ----------- ---------- ---------- Net cash provided by (used in) operating activities of continuing operations 2,016,329 11,632,440 (189,859) Cash flows from investing activities: Proceeds from sale of marketable securities 562,754 7,776,652 1,050,000 Purchases of marketable securities - (4,458,165) (4,018,995) Purchases of common stock of Detection Systems, Inc. (1,050) (531,018) (12,352,949) Purchases of property and equipment (4,296,830) (6,182,785) (12,322,627) Software development costs (1,234,930) (1,692,199) (1,530,577) Proceeds from sale of discontinued operations - - 3,000,000 Proceeds from sale of subsidiary 2,100,000 - - Acquisitions, net of cash acquired - (679,878) - ----------- ---------- ---------- Net cash used in investing activities of continuing operations (2,870,056) (5,767,393) (26,175,148)
The accompanying notes are an integral part of these statements. F-9 35 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED Years ended December 31,
2000 1999 1998 ------------ ------------ ------------ Cash flows from financing activities: Proceeds from revolving line of credit $ 20,000,000 $ 47,804,192 $ 37,500,000 Repayments on revolving line of credit (21,580,983) (48,304,192) - Proceeds from other debt 1,204,360 1,149,376 - Repayments on other debt (392,744) - - Decrease in restricted cash - - 3,949,690 Issuance of common stock 919,356 68,849 120,895 Purchase of treasury stock - (6,529,669) (27,627,371) Payment of preferred stock dividends (117,210) (117,210) (117,210) ------------ ------------ ------------ Net cash provided by (used in) financing activities of continuing operations 32,779 (5,928,654) 13,826,004 ------------ ------------ ------------ Net decrease in cash and cash equivalents (820,948) (63,607) (12,539,003) Effect of exchange rate changes on cash (185,402) (1,443,980) (247,464) Cash provided by (used in) discontinued operations - 1,784,378 3,167,504 Cash and cash equivalents at beginning of the year 4,757,512 4,480,721 14,099,684 ------------ ------------ ------------ Cash and cash equivalents at end of the year $ 3,751,162 $ 4,757,512 $ 4,480,721 =========== =========== =========== Supplemental cash flow information: Cash paid during the period for: Interest $ 3,533,942 $ 2,322,093 $ 1,451,248 =========== =========== =========== Income taxes $ 288,102 $ 1,203,710 $ 4,049,242 =========== =========== =========== Supplemental schedule of noncash investing and financing: Acquisition of businesses Assets acquired $ - $ 3,581,198 $ 1,244,800 Liabilities assumed - (1,228,350) (1,200,000) Common stock issued or issuable - (1,494,889) - ------------ ------------ ------------ - 857,959 44,800 Less cash acquired - 178,081 44,800 ------------ ------------ ------------ Net cash paid for acquisitions $ - $ 679,878 $ - ============ =========== ===========
The accompanying notes are an integral part of these statements. F-10 36 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Ultrak, Inc. (the "Company") is a U.S.-based multinational corporation that designs, manufactures, markets, sells and services electronic products and systems for the security and surveillance, industrial and medical video and professional audio markets worldwide. These products and systems include a broad line of cameras, lenses, high-speed dome systems, monitors, switchers, quad processors, time-lapse recorders, multiplexers, video transmission systems, access control systems, computerized observation and security systems, audio equipment and accessories. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. MARKETABLE SECURITIES The Company accounts for its marketable securities, all of which are designated as available for sale, using Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Securities available for sale are reported at fair value, with unrealized gains and losses, net of tax, excluded from earnings and reported as a separate component of stockholders' equity. Realized gains and losses on securities available for sale are reported in income in the year of sale. INVENTORIES Inventories are comprised principally of goods held for resale, which are valued at the lower of cost (first-in, first-out) or market. ADVANCES FOR INVENTORY Advances for inventory represents payments in advance for goods purchased primarily from the Far East. Upon receipt of the goods, advances are classified as inventories. PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION Property, plant and equipment are carried at cost. The provision for depreciation is computed using the straight-line method over the estimated useful lives of the assets. F-11 37 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued INCOME (LOSS) PER SHARE The Company computes basic income (loss) per share based on the weighted average number of common shares outstanding. Diluted income per share is computed based on the weighted average number of shares outstanding, plus the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued. GOODWILL AND AMORTIZATION Goodwill resulting from acquisitions is being amortized using the straight-line method over periods ranging from twenty to forty years. ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS The Company evaluates long-lived assets and intangibles held and used for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Impairment is recognized when the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of such assets. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and cash equivalents and debt. The fair values approximate the carrying values. STOCK-BASED COMPENSATION The Company accounts for stock-based compensation to employees using the intrinsic value method. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. SOFTWARE DEVELOPMENT COSTS The Company capitalizes software development costs incurred from the time technological feasibility of the software is established until the software is ready for use in its products. Research and development costs related to software development are expensed as incurred. The capitalized costs relate to software which will become an integral part of the Company's revenue producing products and are amortized in relation to expected revenues from the product or a maximum of five years, whichever is greater. The carrying value of software development costs is regularly reviewed by the Company, and a loss is recognized when the net realizable value by product falls below the unamortized cost. F-12 38 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued SHIPPING AND HANDLING FEES In September 2000, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) reached a consensus on EITF Issue No. 00-10, ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS. This consensus requires that all shipping and handling fees charged to customers be reported as revenue and all shipping and handling costs incurred by a seller be reported as operating expenses. In order to conform with the EITF, these costs have been reclassified and are now included in net sales and cost of sales for all periods presented. FOREIGN CURRENCY TRANSLATION Local currencies are considered the functional currencies for the Company's operations outside the United States. Assets and liabilities are translated into U.S. dollars at the rate of exchange in effect at the balance sheet date. Revenues and expenses are translated into U.S. dollars at average monthly exchange rates prevailing during the year. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) presented in the statement of stockholders' equity consists of net income (loss), foreign currency translation adjustments and unrealized losses on investments held for sale. ADVERTISING EXPENSE The Company expenses advertising costs as incurred. Total advertising expense amounted to approximately $1,750,000, $1,099,000, and $1,306,000, for the years ended December 31, 2000, 1999, and 1998, respectively. USE OF ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. INCOME TAXES The Company utilizes the asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. F-13 39 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued RECLASSIFICATIONS Certain reclassifications have been made to prior years financial statements to conform with the 2000 presentation. NOTE B - FOURTH QUARTER 2000 CHARGES During the fourth quarter of 2000, the Company, in conjunction with changes in key management personnel, made several changes in its strategic plan which resulted in significant expenses. Additionally, based on the new strategic direction, certain assets were assessed for impairment. The charges to income related to these items are summarized as follows: Closure of European distribution center $ 7,245,985 Goodwill impairment - France 10,102,531 Goodwill impairment - Germany 2,985,093 Closure of business - France 2,686,048 Inventory write-downs 9,521,427 Severance - United States 560,936 Software development costs 1,985,019 Impairment of internal use software 2,899,345 Foreign currency losses 4,196,630 Other 104,636 ----------- $42,287,650 ===========
CLOSURE OF EUROPEAN DISTRIBUTION CENTER During 1998 and 1999, the Company opened a European distribution center located in Antwerp, Belgium. The purpose of the distribution center was to consolidate purchasing, reduce overhead and create efficiencies. Because of declining sales and operational difficulties, the Company concluded its European distribution center strategy would not be successful. Therefore, the Company evaluated the net realizable value of its European distribution center assets and wrote off and/or wrote down assets which could not be fully recovered or utilized in the other European operations. These charges consisted of inventory costs ($2,705,412), personnel ($667,141), fixed assets ($1,187,478) and lease termination and other exit costs ($2,685,954). The personnel costs provide for the termination of all of its 13 employees. F-14 40 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - FOURTH QUARTER 2000 CHARGES - Continued GOODWILL IMPAIRMENT/CLOSURE OF BUSINESS - FRANCE The Company's continuing losses in France has triggered an impairment review of its long-lived assets. The Company has analyzed projected cash flows and decided to discontinue its primary business in France by April 2001. This decision and the lack of resulting future cash flows in France caused the Company to conclude all associated goodwill, amounting to $10,102,531, was impaired. The primary components of the closure costs involve personnel costs ($1,081,154), writeoffs of fixed assets, accounts receivable and other assets ($1,100,798) and other exit costs ($504,096). The personnel costs provide for termination of its 24 employees. GOODWILL IMPAIRMENT - GERMANY As a result of the unsuccessful European centralization strategy and continuing losses in Germany, management has performed an impairment review of its long-lived assets at its German subsidiary. As a result of this analysis, the Company concluded, based on future undiscounted cash flows, that the entire amount of goodwill should be written off. INVENTORY WRITE DOWNS Inventory write downs are related to discontinued product lines and returned inventory which management has deemed the refurbishing not to be economic. SEVERANCE - UNITED STATES The Company determined certain United States positions would no longer be necessary. As a result, severance compensation was accrued in the fourth quarter for 33 employees. SOFTWARE DEVELOPMENT COSTS The Company evaluated products under development during the fourth quarter 2000. Based on this review, capitalized software development costs were written off which related to product designs that will be abandoned and did not correspond with future product objectives. IMPAIRMENT OF INTERNAL USE SOFTWARE As a result of the outsourcing of certain manufacturing operations, it was determined that internal use software costs related to those operations was impaired. F-15 41 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - FOURTH QUARTER 2000 CHARGES - Continued FOREIGN CURRENCY LOSSES Foreign currency losses are related to foreign currency translation losses that were realized upon the sale or closure of foreign operations. SUMMARY The cash and noncash elements of the fourth quarter 2000 charges are $5,518,928 and $36,768,722, respectively. Details of the charges are as follows:
Amount Accrued Total paid in Noncash December 31, Charge Cash Portion 2000 ----------- --------- ------------ ------------ Asset impairments $19,798,179 $ - $(19,798,179) $ - Inventory charges 12,370,115 - (12,370,115) - Foreign currency losses 4,196,630 - (4,196,630) - Employee severance and termination benefits 2,327,454 (254,763) - 2,072,691 Leased facilities and other termination costs 3,191,474 - - 3,191,474 Other 403,798 - (403,798) - ----------- --------- ------------ ---------- $42,287,650 $(254,763) $(36,768,722) $5,264,165 =========== ========= ============ ==========
Also, there were other charges in the fourth quarter for bad debt provisions, other asset write-downs and sales of investments totaling approximately $4.8 million. The losses have been allocated to the statement of operations as follows: Cost of sales $12,370,115 General and administrative 9,487,796 Asset impairment charges 19,798,179 Foreign exchange losses 4,196,630 Loss on sale of investments 637,279 Other expenses 600,000 ----------- $47,089,999 ===========
F-16 42 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE C - BUSINESS COMBINATIONS 1999 BUSINESS COMBINATIONS: ABM DATA SYSTEMS, INC. Effective March 1, 1999, the Company acquired 100% of the common stock of ABM Data Systems, Inc. ("ABM"), an Austin, Texas based software developer for the alarm-monitoring segment of the security industry. Total consideration was 250,000 shares of registered Ultrak common stock valued at approximately $1.5 million. ABM develops, sells, and services computer software for the alarm monitoring security industry, governmental agencies, and proprietary customers and offers support for computer software targeted for automated security monitoring markets. MULTI CONCEPTS SYSTEMS, SA Effective April 1, 1999, the Company acquired 100% of the stock of Multi Concepts Systems, SA ("MCS"), a Switzerland based systems integrator of electronic security systems. Total consideration included an initial payment of $405,000 in cash and future contingent payments based upon a percentage of MCS income and book value, as defined. MCS has been the largest European reseller and integrator of Ultrak's SAFEnet access control system over the past ten years. MACH SECURITY SP.Z.O.O. Effective July 1, 1999, the Company acquired 100% of the stock of MACH Security Sp.z.o.o. ("Mach"), based in Szczecin, Poland. Mach is one of the largest distributors of CCTV products in Poland. Total consideration included an initial payment of $275,000 in cash and a future contingent payment based upon a percentage of Mach income, as defined. 1998 BUSINESS COMBINATIONS AND DIVESTITURES: During February 1998, the Company acquired the net assets of Norbain France SARL, a French corporation wholly-owned by Norbain PLC, a United Kingdom corporation, for assumption of the net liabilities of approximately $1.2 million. In August 1998, the Company completed the sale of the stock of Dental Vision Direct, Inc. ("DVD"), a 90% owned subsidiary, and its subsidiary, Veravision, to American Dental Technologies, Inc. ("American Dental"). The consideration included approximately $3.0 million in cash, a $3.9 million short-term note and warrants to acquire 540,000 shares of American Dental common stock. A gain on the sale of approximately $78,000 was recorded and all prior periods have been restated to reflect the operations of DVD as discontinued. In March 1999, the Company completed the sale of its 10% interest in a company in Japan for approximately $1.8 million in cash. A loss of $200,000 was recorded in other income (expense) in 1998 related to the sale. Acquisitions during 1998 and 1999 were not significant; as a result, no pro forma information is presented. F-17 43 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - PROPERTY, PLANT AND EQUIPMENT The components of property, plant and equipment are as follows:
DECEMBER 31, ----------------------------- Useful Lives 2000 1999 -------------- ----------- ----------- Machinery and equipment 3 - 7 years $ 4,312,391 $ 6,094,410 Furniture and fixtures 3 - 7 years 14,700,234 16,397,208 Software development costs 3 - 5 years 2,472,687 3,222,776 Buildings and land 20 - 30 years 5,400,419 4,388,009 ------------ ------------ 26,885,731 30,102,403 Accumulated depreciation (11,884,667) (9,265,181) ------------ ------------ $ 15,001,064 $ 20,837,222 ============ ============
NOTE E - FINANCING ARRANGEMENTS LINE OF CREDIT At December 31, 2000, the Company had $35.4 million outstanding under a credit facility which expires in March 2002. The credit facility provides for borrowings up to $45.0 million under a revolving line of credit based upon available collateral. When not in violation of loan covenants, the facility provides for interest for the credit facility to be payable quarterly at prime plus a range of 0% to .25% or LIBOR plus a range of 2.25% to 2.75%, depending on the leverage ratio, as defined, for the quarter. The credit facility contains certain restrictive financial and operational covenants and conditions, including a maximum leverage ratio, a debt service ratio and minimum net worth amounts. The Company pays a quarterly unused fee of .375% per annum and borrowings are collateralized by substantially all assets of the Company. During 2000, the Company was in violation of certain loan covenants which caused the interest rates on the facility to be adjusted to prime plus a range of 0% to .75% or LIBOR plus a range of 2.25% to 3.25%, depending on the leverage ratio. The Company obtained waivers of these violations as of December 31, 2000 and amended its covenants for 2001. As a result of the loan covenant violation and net loss in 2000, all amounts outstanding under the line of credit have been classified as a current liability. As a result of the sale of the investment in Detection Systems, Inc. in January 2001, the credit facility was reduced from $45.0 million to $30.0 million. F-18 44 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE E - FINANCING ARRANGEMENTS - Continued At December 31, 1999, the Company had $37.0 million outstanding under its previous line of credit and term loan. The line of credit provided for borrowings up to $30 million, of which $17 million was outstanding at December 31, 1999. The term loan had $20 million outstanding at December 31, 1999. Interest on the line of credit and term loan was payable monthly at the lesser of LIBOR plus 2.75% or prime. The Company was in violation of a certain financial covenants and obtained a waiver on January 31, 2000. Amounts outstanding were repaid in full with proceeds from the new $45.0 million credit facility. OTHER DEBT The Company has other financing arrangements in Belgium which consist of various term loans collateralized by automobiles, computer software and real property. The loans have interest rates which vary from 4.5% to 5.5% and require monthly payments of approximately $28,000. These loans have been classified as current liabilities as a result of management's decision to withdraw from Belgium. NOTE F - STOCKHOLDERS' EQUITY The Series A preferred stock earns dividends at the rate of 12% per annum, payable quarterly. All dividends accrue whether or not such dividends have been declared and whether or not there are profits, surplus, or other funds of the Company legally available for payment. The Company may at any time redeem all or any portion of the Series A Preferred Stock then outstanding at the liquidation value of $5.00 per share plus unpaid dividends. The holder of the Series A Preferred Stock may convert any or all of the 195,351 preferred shares into shares of the Company's common stock at any time at a conversion rate equal to 2.08 shares of common stock per preferred share or a total of 406,981 shares of common stock. Each share of Series A preferred stock is entitled to vote on all matters submitted to a vote of stockholders. Each Series A preferred share is entitled to voting rights equal to 16.667 shares of common stock. NOTE G - STOCK-BASED COMPENSATION The Company's 1988 Nonqualified Stock Option Plan (the "1988 Plan"), amended on January 24, 2000, provides for grants of options for up to 1,700,000 restricted shares and the 1997 Incentive Stock Option Plan (the "1997 Plan") provides for grants of options for up to 400,000 shares. Shares under the 1997 Plan are awarded based upon the Company achieving one or more definitive performance measurements for a fiscal year, including minimum levels of economic value added, minimum levels of market value added or attainment of the financial budget. The 1997 Plan is a formula-based plan administered by the Compensation Committee of the Board of Directors. Option grants under the 1997 Plan are limited to 1% of the outstanding common stock of the Company. At December 31, 2000 and 1999, 289,012 and 619,674 shares were available for grant under the 1988 Plan and the 1997 Plan, respectively. F-19 45 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED F-20 46 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - STOCK-BASED COMPENSATION - Continued Option exercise prices are equal to the market price at the date of grant. Shares under grant generally become exercisable in five equal annual installments beginning one year after the date of grant, and expire after ten years. If the Company recognized compensation expense as permitted under Statement of Financial Accounting Standards No. 123, based upon the fair value at the grant date for options granted after 1994 under the 1988 Plan and 1997 Plan, the Company's net income (loss) from continuing operations and income (loss) per share would be reduced (increased) to the pro forma amounts indicated as follows:
Year ended December 31, ---------------------------------------------- 2000 1999 1998 ------------ ----------- ---------- Net income (loss) from continuing operations: As reported $(57,687,094) $672,554 $4,957,173 Pro forma $(59,288,630) $252,656 $4,381,640 Basic income per share from continuing operations: As reported $ (4.95) $ .05 $ .37 Pro forma (5.07) $ .01 $ .32 Diluted income per share from continuing operations: As reported $ (4.95) $ .05 $ .34 Pro forma (5.07) .01 $ .30
The fair value of these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected volatility of 55 to 80 percent; risk-free interest rates of 4.8 to 6.5 percent; no dividend yield; and expected lives of seven years. The pro forma amounts presented are not representative of the amounts that will be disclosed in the future because they do not take into effect pro forma expense related to grants before 1995. F-21 47 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - STOCK-BASED COMPENSATION - Continued Additional information with respect to options outstanding at December 31, 2000 and changes for the three years then ended is as follows:
2000 1999 1998 ---------------------- --------------------- --------------------- Weighted Weighted Weighted average average average exercise exercise exercise Shares price Shares price Shares price --------- -------- -------- -------- --------- -------- Outstanding at beginning of year 953,972 $6.56 859,170 $ 9.94 1,000,656 $ 9.26 Granted 627,500 8.23 360,500 6.15 69,500 8.80 Exercised (166,065) 5.46 (28,333) 2.43 (134,332) 1.67 Forfeited (296,838) 7.80 (237,365) 18.91 (76,654) 16.13 --------- -------- --------- Outstanding at end of year 1,118,569 $7.31 953,972 $ 6.56 859,170 $ 9.94 ========= ===== ======== ====== ========= ====== Options exercisable at end of year 344,410 $5.83 490,549 $ 5.83 475,937 $ 4.79 ========= ===== ======== ====== ========= ======
Weighted average fair value per share of options granted for 2000, 1999 and 1998 were $5.71, $6.17 and $6.55, respectively. Information about stock options outstanding at December 31, 2000 is summarized as follows:
Options Outstanding Options Exercisable --------------------------------------- ------------------------ Weighted average Weighted Weighted remaining average average Number contractual exercise Number exercise Range of exercise prices outstanding life price exercisable price ------------------------ ----------- ----------- -------- ----------- -------- $1.20 to $5.62 239,933 2.5 years $ 3.46 206,933 $ 3.13 $5.63 to $9.00 469,933 8.5 years 6.46 78,733 6.47 $9.01 to $13.50 351,460 8.8 years 9.30 20,600 9.60 $13.51 to $20.00 57,243 6.0 years 17.11 38,144 17.10 --------- ------- 1,118,569 344,410 ========= =======
F-22 48 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - MAJOR CUSTOMERS AND SUPPLIERS Sales to one legal entity accounted for approximately 27% of total sales during 2000, 21% of total sales during 1999 and 17% of total sales during 1998. However, sales to this legal entity are made independently via two separate business segments of the Company to two separate buying organizations within the legal entity. Loss of this customer may have a material adverse effect on the operations of the Company. The Company purchased in excess of 20% of its products from one contract manufacturer in each of the three years in the period ended December 31, 2000. Although there are a limited number of manufacturers of the Company's products, management believes there are suppliers who could provide similar products on comparable terms. A change in suppliers could cause a delay in and a possible loss of sales. NOTE I - COMMITMENTS AND CONTINGENCIES The Company leases office and warehouse space and data processing equipment under long-term, noncancelable leases. Minimum future rental payments for all long-term, noncancelable operating leases are presented below:
Year ending December 31, ------------ 2001 $2,478,784 2002 2,056,749 2003 681,557 2004 178,465 2005 173,943 Thereafter 863,758 ---------- $6,433,256 ==========
Total rent expense was as follows: 2000 $2,574,000 1999 2,704,000 1998 2,351,000
F-23 49 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - INCOME TAXES The provision (benefit) for taxes consists of the following:
Years ended December 31, ---------------------------------------------- 2000 1999 1998 ----------- ---------- ---------- Federal Current $(1,476,140) $ 596,425 $2,553,617 Deferred (4,396,951) 742,446 1,860,482 State (463,948) 82,313 102,871 Foreign 2,192,254 (135,370) (927,294) ----------- ---------- ---------- $(4,144,785) $1,285,814 $3,589,676 =========== ========== ==========
The Company's effective income tax rate differed from the U.S. Federal statutory rate as follows:
Years ended December 31, --------------------------------------------- 2000 1999 1998 ---------- --------- --------- U.S. Federal statutory rate (34.0)% 34.0% 34.0% State taxes, net of Federal benefit (0.8) 2.5 0.8 Goodwill amortization and impairment 8.5 20.8 4.8 Other nondeductible expenses 0.1 3.5 0.9 Rate differential for foreign taxes 4.1 - - Change in valuation allowance 15.2 - - Other, net 0.2 4.9 1.5 ----- ---- ---- (6.7)% 65.7% 42.0% ===== ==== ====
F-24 50 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - INCOME TAXES - Continued The components of deferred tax assets and liabilities are as follows:
December 31, ---------------------------- 2000 1999 ---------- --------- Deferred tax assets: Inventories $ 3,947,666 $ 1,334,903 Accounts receivable 821,054 233,066 Accrued expenses 608,229 1,430,473 Net operating loss carryforwards 1,346,394 134,632 Foreign deferred tax assets 8,515,365 1,805,513 Other, net 1,539,233 353,611 ----------- ----------- Gross deferred tax assets 16,777,941 5,292,198 Deferred tax liabilities: Property, plant and equipment 2,469,067 3,075,514 Investment in Detection Systems, Inc. 1,031,930 826,950 ----------- ----------- Gross deferred tax liabilities 3,500,997 3,902,464 Valuation allowance 8,431,161 - ----------- ----------- Net deferred tax asset $ 4,845,783 $ 1,389,734 =========== ===========
At December 31, 2000, the Company had federal, state and foreign net operating loss carryforwards of approximately $3,600,000, $4,600,000 and $14,600,000, respectively. Federal net operating loss carryforwards of $200,000 expire in 2010 and $3,400,000 of federal net operating loss carryforwards expire in 2020. The state net operating loss carryforwards expire in 2005 to 2020. Substantially all foreign net operating loss carryforwards do not expire. As of December 31, 1999, the Company believed it was more likely than not that sufficient levels of taxable income would be generated to utilize all foreign net operating loss carryforwards. However, with continuing foreign losses in 2000, the Company has provided valuation allowances of approximately $8,400,000 for foreign net operating loss carryforwards. Management believes that the full benefit of other deferred tax assets will be realized based on its evaluation of the Company's anticipated profitability. F-25 51 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - INVESTMENT IN DETECTION SYSTEMS, INC. On January 12, 2001, the Company accepted an offer to tender its 21% interest in Detection Systems, Inc. for $18 per share. The Company received proceeds from the sale of $24.0 million in January 2001. The Company accounts for its investment in Detection Systems, Inc. under the equity method and the Company's share of earnings is included in income. The difference between the Company's cost and the underlying equity in Detection Systems, Inc. of approximately $1.6 million represents goodwill. Condensed financial information as of March 31, 2000 and 1999 for Detection Systems, Inc. is as follows (in thousands):
March 31, -------------------------- 2000 1999 -------- -------- Current assets $68,720 $66,341 Noncurrent assets 26,898 26,471 Current liabilities 17,591 17,244 Noncurrent liabilities 19,563 19,824 Net assets 58,464 55,744
Year ended March 31, -------------------------- 2000 1999 -------- -------- Revenues $141,918 $138,045 Operating income 7,182 8,648 Net income 3,468 4,471
The market value of the Company's investment in Detection Systems, Inc. was approximately $23,700,000 and $12,599,730 at December 31, 2000 and 1999, respectively. The amount of retained earnings (accumulated deficit) that represents undistributed earnings from Detection Systems, Inc. was approximately $1,757,000 and $1,497,000 at December 31, 2000 and 1999, respectively. NOTE L - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS The Company has four business segments: United States-Professional Security Group (US-PSG), Diversified Sales Group (DSG), International-Professional Security Group (International-PSG), and Supply. The segments are differentiated by the customers serviced as follows: F-26 52 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE L - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS - Continued US-PSG This segment consists of sales in the United States to professional security dealers, distributors, installers and certain large end users of professional security products. DSG This segment sells video and security products to industrial markets and consumers. INTERNATIONAL-PSG This segment consists of sales to professional security dealers, distributors, installers and certain large end users of professional security products outside the United States. SUPPLY This segment sells to the US-PSG and International-PSG segments products and systems manufactured by the Company's Ohio and California facilities. The Company's underlying accounting records are maintained on a legal entity basis for government and public reporting requirements. Segment disclosures are on a performance basis consistent with internal management reporting. The Company evaluates performance based on earnings from continuing operations before income taxes and other income and expense. The Corporate column includes corporate overhead related items. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (Note A). F-27 53 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE L - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS - Continued The following tables provide financial data by segment for the years ended December 31, 2000, 1999 and 1998:
US International 2000 PSG DSG PSG Supply Corporate Total ---- ------------ ----------- ------------ ------------ ------------ ------------ Total revenue $ 91,400,938 $60,410,420 $ 76,622,266 $ 24,394,854 $ 6,122 $252,834,600 Intersegment revenue (967,749) - (29,427,333) (22,441,897) - (52,836,979) ------------ ----------- ------------ ------------ ------------ ------------ Revenue from external customers $ 90,433,189 $60,410,420 $ 47,194,933 $ 1,952,957 $ 6,122 $199,997,621 ============ =========== ============ ============ ============ ============ Operating profit (loss) including special charges (2,148,929) 6,033,324 (34,042,279) (4,903,183) (20,815,913) (55,876,980) Total assets 35,968,776 16,361,528 27,977,269 11,644,375 51,544,610 143,496,558 Depreciation and amortization expense 649,813 275,878 754,752 114,191 4,687,610 6,482,244 Capital additions 2,722,017 (89,268) 1,006,977 657,104 - 4,296,830 1999 ---- Total revenue $ 92,507,727 $53,188,272 $ 81,675,409 $ 22,555,516 $ - $249,926,924 Intersegment revenue (1,512,222) - (17,658,620) (22,555,516) - (41,726,358) ------------ ----------- ------------ ------------ ------------ ------------ Revenue from external customers $ 90,995,505 $53,188,272 $ 64,016,789 $ - $ - $208,200,566 ============ =========== ============ ========== ========== ============ Operating profit (loss) including special charges $ 7,418,109 $ 7,235,687 $ (325,109) $ (629,465) $(12,792,741) $ 906,481 Total assets 48,475,248 27,700,142 46,530,723 14,099,110 63,545,285 200,350,508 Depreciation and amortization expense 3,401,530 1,774,544 672,710 62,680 - 5,911,464 Capital additions 2,386,005 1,422,227 2,374,553 - - 6,182,785 1998 ---- Total revenue $ 94,095,047 $50,345,605 $66,957,207 $ 29,385,900 $ - $240,783,759 Intersegment revenue (10,168,609) - (4,231,470) (29,385,900) - (43,785,979) ------------ ----------- ------------ ------------ ------------ ------------ Revenue from external customers $ 83,926,438 $50,345,605 $62,725,737 $ - $ - $196,997,780 ============ =========== =========== ========== ========== ============ Operating profit (loss) $ 8,994,267 $ 8,977,049 $ 2,009,647 $ (2,016,891) $ (9,878,901) $ 8,085,171 Total assets 43,732,291 28,905,974 36,037,253 19,127,020 68,823,457 196,625,995 Depreciation and amortization expense 2,365,987 1,428,234 641,591 230,696 - 4,666,508 Capital additions 7,492,423 4,083,349 746,855 - - 12,322,627
F-28 54 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE L - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS - Continued Financial information relating to the Company's Corporate segment is as follows:
Year ended December 31, ---------------------------------------------- 2000 1999 1998 ----------- ----------- ---------- Sales and marketing expenses $ 1,401,585 $ 1,364,125 $1,398,736 Engineering and other corporate expenses 4,169,624 3,511,859 4,517,287 General and administrative expenses 14,135,883 4,271,515 3,962,878 Special charges 1,114,943 3,645,242 - ----------- ----------- ---------- Operating expenses $20,822,035 $12,792,741 $9,878,901 =========== =========== ==========
Sales by geographic area were as follows:
Year ended December 31, ----------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ United States $152,802,688 $144,183,777 $134,272,043 Europe 41,056,608 58,012,411 53,855,400 Other 6,138,325 6,004,378 8,870,337 ------------ ------------ ------------ Total revenues $199,997,621 $208,200,566 $196,997,780 ============ ============ ============
F-29 55 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE M - INCOME (LOSS) PER SHARE Following is a reconciliation of basic and diluted earnings per share from continuing operations:
2000 1999 1998 ------------------------------- -------------------------------- -------------------------------- Income Income Income allocable to Per allocable to Per allocable to Per common share common share common share stockholders Shares amount stockholders Shares amount stockholders Shares amount ------------ -------- -------- -------------- -------- -------- -------------- -------- -------- Income from continuing operations allocable to common stockholders $(57,804,304) 11,686,049 $(4.95) $555,344 11,644,941 $0.05 $4,839,963 13,254,782 $0.37 ====== ===== ===== Effect of dilutive securities Contingently issuable shares -- -- -- 98,773 -- 366,690 Put options -- -- -- 428,640 Stock options -- -- -- 149,587 -- 319,057 Convertible preferred stock -- -- 117,210 406,981 117,210 406,981 ----------- ---------- -------- ---------- --------- ---------- Income from continuing operations allocable to common stockholders after assumed conversions $(57,804,304) 11,686,049 $(4.95) $672,554 12,300,282 $0.05 $4,957,173 14,776,150 $0.34 ============ ========== ====== ======== ========== ===== ========= ========== =====
For 2000, 1999 and 1998, 344,410, 201,053, and 367,919 stock options were outstanding, respectively, but not included in the computation of diluted income per share because the options exercise price was greater than the average market price of the common shares and, therefore, the effect would have been antidilutive. NOTE N - UNAUDITED QUARTERLY OPERATING RESULTS Unaudited quarterly operating results for the years ended December 31, 2000 and 1999 are as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter ----------- ----------- ----------- ------------ 2000: Sales $52,134,341 $53,918,600 $47,265,151 $ 46,679,529 Gross profit 16,186,928 16,668,835 14,024,351 (317,724) Net income (loss) (428,034) 69,166 (3,803,023) (53,525,203) Income (loss) per share: Basic $ (0.04) $ -- $ (0.33) $ (4.58) Diluted (0.04) -- (0.33) (4.58)
F-30 56 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE N - UNAUDITED QUARTERLY OPERATING RESULTS - Continued
First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- --------- --------- 1999: Sales $48,668,384 $52,323,827 $51,281,007 $55,927,348 Gross profit 15,896,840 17,125,867 16,869,988 17,476,495 Net income (loss) 338,167 (735,914) 875,760 87,519 Income (loss) per share: Basic $ 0.03 $ (0.07) $ 0.07 $ 0.01 Diluted 0.03 (0.07) 0.07 0.01
See Note P for special charges and changes in estimates the first, second and fourth quarters of 1999 and Note B for fourth quarter 2000 charges. NOTE O - DISCONTINUED OPERATIONS In December 1998, the Company discontinued operations of its Mobile Video division which markets and installs video equipment on transit vehicles. As discussed in Note B, the Company sold Dental Vision Direct, Inc. on August 5, 1998. The Company completed the disposal in 2000. The Company had no revenues, expenses, or gains from discontinued operations during 2000. Summarized financial information for discontinued operations follows:
Year Ended December 31, -------------------------------------------- 2000 1999 1998 --------- ----------- ----------- Revenues $ -- $ 615,993 $ 9,222,863 Income (loss) from the discontinued operations, net of taxes (benefit) of $(55,132), $(750,487), and $43,011 -- (107,022) (1,480,243) Gain on disposal, net of taxes of $23,414 -- -- 77,946
F-31 57 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE O - DISCONTINUED OPERATIONS - Continued The net assets of discontinued operations consists of the following at December 31, 1999: Accounts receivable $ 724,072 Inventories 1,058,624 Other current assets 123,135 ---------- Total $1,905,831 ==========
NOTE P - SPECIAL CHARGES AND CHANGES IN ESTIMATES 1999 SPECIAL CHARGES During the first quarter of 1999, the Company incurred nonrecurring charges totaling $750,000 related to severance obligations. During the second quarter of 1999, the Company incurred nonrecurring charges totaling $3,125,000 pertaining to restructuring costs for (1) its four European locations including costs for employee severance, terminating leases, and consolidation of all purchasing, shipping, and billing activity to Antwerp, Belgium and (2) closing costs of three United States sales and distribution offices. The Company's exit plan commenced in June 1999 and provided for the termination of 54 employees (19 employees in the United States and 35 employees in Europe). The exit plan was completed in 2000 and resulted in the termination of 19 employees in the United States and 35 employees in Europe. Upon completion of the exit plan in October 2000, the Company had approximately $250,000 remaining in the account for leased facilities and other termination costs. This amount has been presented as income under caption "special charges" in the statement of operations. The restructuring charge and the amount settled are summarized as follows:
Accrued at December 31, Charge Settled 2000 ---------- ---------- ------------ Severance and other related employee costs $2,608,150 $2,608,150 $ - Leased facilities and other termination costs 1,266,850 1,266,850 - ---------- ---------- ---------- $3,875,000 $3,875,000 $ - ========== ========== ==========
F-32 58 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE P - SPECIAL CHARGES AND CHANGES IN ESTIMATES - Continued 2000 SPECIAL CHARGES Special charges of $1,361,241 were incurred in the quarter ended September 30, 2000. These charges included severance obligations of the Company related to the separation of three former executives and severance obligations related to the outsourcing of manufacturing operations in California and Australia. Additionally, costs associated with the proxy contest with Detection Systems, Inc. were recorded. The detail of these charges is as follows: Accrued at Total December 31, Charge Settled 2000 ---------- --------- ------------ Severance $ 584,067 $219,769 $364,298 California outsourcing 84,465 78,463 6,002 Australia outsourcing 75,000 75,000 - Detection Systems, Inc. Proxy Contest 617,709 617,709 - ---------- -------- -------- $1,361,241 $990,941 $370,300 ========== ======== ========
CHANGE IN ESTIMATE During the fourth quarter of 1999, the Company increased its allowance for doubtful accounts for its European and South African subsidiaries by approximately $1 million. NOTE Q - INTERVISION SALE On July 1, 2000, the Company sold substantially all assets of its UK-based business, Intervision Express, Ltd. ("Intervision") to Norbain SD, Ltd. ("Norbain"), a UK-based distributor of CCTV and access control equipment. The Company received approximately $2.1 million in cash for inventory and certain other assets including use of the Intervision tradename. Ultrak retained the right to sell Ultrak branded products directly to systems integrators and installers in Intervision's previous market in the UK and Ireland. The Company incurred a loss on the sale of approximately $840,000. In addition, the Company granted Norbain distribution exclusivity for its Diamond-series name product line and its CCTV products in the UK. To maintain its exclusivity, Norbain must purchase at least $6 million of Ultrak-branded CCTV products and dome systems through the end of 2002. NOTE R - SUBSEQUENT EVENT In January 2001, the Company purchased its lease on its corporate headquarters facility from the lessor for $11.5 million of which $10 million was financed by a mortgage. F-33 59 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE Board of Directors and Stockholders Ultrak, Inc. In connection with our audit of the consolidated financial statements of Ultrak, Inc. and Subsidiaries referred to in our report dated March 16, 2001, which is included in Part IV of this form 10-K, we have also audited Schedule II for each of the three years in the period ended December 31, 2000. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. Dallas, Texas March 16, 2001 60 SCHEDULE II ULTRAK, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 2000, 1999 and 1998
Balance at Charged Charged Balance at Beginning (credited) to to other End Description of Period Operations Accounts Deductions of Period ----------- ----------- ------------- --------- ------------- ----------- Allowance for doubtful trade accounts Year ended December 31, 2000 $2,401,773 $3,555,940 $ - (1) $(167,168)(2) $5,790,545 Year ended December 31, 1999 1,657,549 813,178 22,599 (1) (91,553)(2) 2,401,773 Year ended December 31, 1998 1,741,920 (8,103) 4,790 (1) (81,058)(2) 1,657,549 Deferred tax valuation allowance: Year ended December 31, 2000 $ - $8,431,161 $ - $ - $8,431,161
NOTES (1) Balances recorded from business combinations. (2) Balances written off. 61 EXHIBIT B UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: MARCH 31, 2001 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 of (I.R.S. Employer incorporation or organization) Identification No.) 1301 Waters Ridge Drive, Lewisville, Texas 75057 (Address of principal executive offices) (Zip Code)
(972) 353-6651 (Registrant's telephone number, including area code) 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 the number of shares outstanding of each of the issuer's classes of common stock as of March 31, 2001: 11,688,888 shares of $.01 par value common stock. 62 ULTRAK, INC. AND SUBSIDIARIES QUARTER ENDED MARCH 31, 2001 INDEX
Part I: Financial Information Page No. --------------------- -------- Consolidated Balance Sheets 3 Consolidated Statements of Operations 5 Consolidated Statements of Cash Flows 7 Notes to Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Part II: Other Information 15 Signatures 16
2 63 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PAR VALUE)
MARCH 31, DECEMBER 31, 2001 2000 ---------- ------------ (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,027 $ 3,751 Investment in Detection Systems, Inc. - 13,909 Trade accounts receivable, less allowance for doubtful accounts of $5,729 and $5,791 at March 31, 2001 and December 31, 2000, respectively 28,733 32,232 Inventories, net 29,644 26,371 Advances for inventory purchases 54 521 Prepaid expenses and other current assets 5,184 4,394 Income tax refundable 869 891 Deferred income taxes 6,337 6,337 ---------- ------------ Total current assets 76,848 88,406 PROPERTY, PLANT AND EQUIPMENT, at cost 38,553 26,886 Less accumulated depreciation and amortization (12,549) (11,885) ---------- ------------ 26,004 15,001 OTHER ASSETS Goodwill, net of accumulated amortization of $6,926 and $6,636 at March 31, 2001 and December 31, 2000, respectively 37,437 39,375 Other 635 715 ---------- ------------ 38,072 40,090 ---------- ------------ Total assets $ 140,924 $ 143,497 ========== ============
The accompanying notes are an integral part of the consolidated financial statements. 3 64 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED (IN THOUSANDS, EXCEPT PAR VALUE)
MARCH 31, DECEMBER 31, 2001 2000 ---------- ------------ (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable - trade $ 10,612 $ 13,046 Accrued expenses 5,881 6,168 Accrued restructuring costs 4,590 5,634 Other current liabilities 1,872 2,529 Line of credit 24,784 35,419 Mortgage loan 7,500 - Other debt 1,140 1,961 --------- ----------- Total current liabilities 56,379 64,757 DEFERRED INCOME TAXES 1,492 1,492 STOCKHOLDERS' EQUITY Preferred stock, $5 par value, issuable in series; 2,000 shares authorized; Series A, 12% cumulative convertible; 195 shares authorized, issued and outstanding 977 977 Common stock, $.01 par value; 20,000 shares authorized; 15,157 shares at March 31, 2001 and December 31, 2000. 152 152 Additional paid-in-capital 157,914 157,914 Accumulated deficit (33,641) (40,226) Accumulated other comprehensive loss (3,666) (2,886) Treasury stock, at cost (3,468 common shares at March 31, 2001 and December 31, 2000.) (38,683) (38,683) --------- ----------- Total stockholders' equity 83,053 77,248 --------- ----------- Total liabilities and stockholders' equity $ 140,924 $ 143,497 ========= ===========
The accompanying notes are an integral part of the consolidated financial statements. 4 65 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31,2001 MARCH 31,2000 -------------- -------------- (unaudited) (unaudited) Net sales $ 44,418 $ 52,550 Cost of sales (exclusive of depreciation shown separately below) 31,114 36,490 -------- -------- Gross profit 13,304 16,060 Other operating costs: Marketing and sales 6,911 8,759 General and administrative 5,730 5,548 Depreciation and goodwill amortization 1,315 1,603 -------- -------- 13,956 15,910 -------- -------- Operating profit (loss) (652) 150 Other income (expense): Interest expense (653) (929) Interest income 25 72 Gain on sale of investments 7,762 -- Other, net 132 (44) -------- -------- 7,266 (901) -------- -------- Income (loss) before income taxes 6,614 (751) Income tax benefit -- 323 -------- -------- NET INCOME (LOSS) 6,614 (428) Dividend requirements on preferred stock (29) (29) -------- -------- Net income (loss) allocable to common stockholders $ 6,585 $ (457) ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 5 66 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31,2001 MARCH 31,2000 -------------- -------------- (unaudited) (unaudited) Net income (loss) allocable to stockholders Basic $ 0.56 $ (0.04) ============== ============== Diluted $ 0.54 $ (0.04) ============== ============== Number of common shares used in computations: Basic 11,689 11,618 Diluted 12,175 11,618
The accompanying notes are an integral part of the consolidated financial statements. 6 67 ULTRAK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, 2001 MARCH 31, 2000 ----------------- ------------------ (unaudited) (unaudited) Cash flows from operating activities: Net income (loss) $ 6,614 $ (428) Adjustments to reconcile net income (loss) to net cash used in operating activities: Gain on sale of investments (7,762) -- Depreciation and amortization 1,315 1,450 Provision for losses on accounts receivable 107 163 Provision for inventory obsolescence 290 89 Changes in operating assets and liabilities: Accounts and notes receivable 3,406 (2,792) Inventories (3,563) 1,086 Advances for inventory purchases 467 (821) Prepaid expenses and other current assets (790) (141) Income taxes refundable 22 -- Noncurrent notes and other assets 80 (777) Accounts payable (2,434) 1,389 Accrued restructuring costs (1,044) -- Accrued and other current liabilities (944) 103 -------- -------- Net cash used in operating activities (4,236) (679) Cash flows from investing activities: Proceeds from sale of marketable securities -- (237) Proceeds from the sale of Detection Systems, Inc. shares 23,211 -- Purchases of property and equipment (870) (1,499) Proceeds from sale of property and equipment 13 160 Acquisitions, net of cash acquired -- (20) -------- -------- Net cash provided by (used in) investing activities 22,354 (1,596) Cash flows from financing activities: Proceeds from revolving line of credit -- 953 Repayments on revolving line of credit (10,635) -- Repayments on other debt (821) -- Repayments of mortgage loan (4,000) -- Issuance of common stock, net of issuance costs -- 836 Payment of preferred stock dividends (29) (29) -------- -------- Net cash provided by (used in) financing activities (15,485) 1,760 Net increase (decrease) in cash and cash equivalents 2,633 (515) Effect of exchange rate changes on cash (357) (900) Cash and cash equivalents at beginning of the period 3,751 4,758 -------- -------- Cash and cash equivalents at end of the period $ 6,027 $ 3,343 ======== ======== Supplemental schedule of noncash investing and financing activities: Mortgage financing on building $ 11,500 $ --
The accompanying notes are an integral part of the consolidated financial statements. 7 68 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation: The accompanying unaudited interim consolidated financial statements include the accounts of Ultrak, Inc. and its subsidiaries ("Ultrak" or "the Company"). All significant intercompany balances and transactions have been eliminated in consolidation. The interim financial statements are prepared on an unaudited basis in accordance with accounting principles for interim reporting and do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein. The results of operations for such interim periods are not necessarily indicative of results of operations for a full year. For further information, refer to the consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2000 included in the Ultrak Annual Report on Form 10-K. 2. Earnings Per Share: The Company computes basic earnings (loss) per share based on the weighted average number of common shares outstanding. Diluted earnings 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. Following is a reconciliation of basic and diluted earnings (loss) per share:
For the Quarter Ended For the Quarter Ended March 31, 2001 March 31, 2000 ------------------------------------------ -------------------------------------------- Net Income Shares Per Share Net Income Shares Per Share (in thousands) (in thousands) Amount (in thousands) (in thousands) Amount ------------------------------------------ -------------------------------------------- Basis earnings per share: Income allocable to common stockholders $ 6,585 11,689 $0.56 $ (457) 11,618 ($0.04) Effect of Dilutive Securities Stock options - 79 - - Convertible preferred stock (29) 407 - - --------- ------ ----- --------- ------ ------ Diluted earnings per share $ 6,614 12,175 $0.54 $ (457) 11,618 ($0.04) ========= ====== ===== ========= ====== ======
For 2001 and 2000, 908,472 and 1,142,883 stock options were outstanding, respectively, but not included in the computation of diluted earnings per share because the effect would have been antidilutive. 8 69 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (Unaudited) 3. Note Payable to Bank: As of March 31, 2001, the Company had $24.8 million outstanding under its two-year credit facility. The credit facility was paid down from its December 31, 2000 level with a portion of the proceeds from the sale of Detection Systems, Inc. ("DETC") shares. As a result, the total credit facility was reduced from $45.0 million to $30.0 million. 4. Segment Disclosure and Foreign Operations: The Company has four business segments: United States-Professional Security Group (US-PSG), Diversified Sales Group (DSG), International-Professional Security Group (Int'l-PSG), and Supply. 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. DSG This segment sells video and security products to industrial markets and consumers. International-PSG This segment sells to professional security dealers, distributors, installers and certain large end users of professional security products Supply This segment sells products manufactured by the Company's Ohio, California, and Australia facilities to US-PSG, International-PSG, and third parties. 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 operations before income taxes and other income and expense. The Corporate column includes corporate overhead-related items. Prior year segment information has been reclassified to reflect changes in the Company's organizational structure in 2001. 9 70 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (Unaudited) 4. Segment Disclosure and Foreign Operations, continued: The following tables provide financial data by segment for the periods noted (in thousands):
Three months ended March 31, 2001 US-PSG DSG Int'l-PSG Supply Corporate Total --------- -------- --------- -------- ---------- --------- Total revenue $ 19,435 $ 12,896 $ 16,460 $ 7,660 $ 384 $ 56,835 Intersegment revenue (3) -- (5,366) (7,048) -- (12,417) -------- -------- -------- -------- -------- -------- Revenue from external customers $ 19,432 $ 12,896 $ 11,094 $ 612 $ 384 $ 44,418 ======== ======== ======== ======== ======== ======== Operating profit (loss) 2,826 2,418 (907) 253 (5,242) (652) Depreciation and amortization expense 100 43 92 65 1,015 1,315 Three months ended March 31, 2000 US-PSG DSG Int'l-PSG Supply Corporate Total --------- -------- --------- -------- ---------- --------- Total revenue $ 20,484 $ 17,721 $ 21,874 $ 6,671 $ 207 $ 66,957 Intersegment revenue (122) -- (7,624) (6,661) -- (14,407) -------- -------- -------- -------- -------- -------- Revenue from external customers $ 20,362 $ 17,721 $ 14,250 $ 10 $ 207 $ 52,550 ======== ======== ======== ======== ======== ======== Operating profit (loss) 2,739 3,102 (575) 119 (5,235) 150 Depreciation and amortization expense 140 82 211 30 1,140 1,603
Financial information related to the Company's Corporate segment is as follows:
Three months ended March 31, ------------------------------- 2001 2000 ------------- ------------- Sales and marketing expenses $ 534 $ 582 Engineering and other corporate expenses 2,007 2,162 General and administrative expenses 1,801 1,741 ------------ ------------ Operating expenses $ 4,342 $ 4,485 ============ ============ Sales by geographic area were as follows: Three months ended March 31, -------------------------------- 2001 2000 --------------- ------------- United States $ 33,304 $ 38,292 Europe 9,745 12,532 Other 1,369 1,726 -------------- ------------ Total revenues $ 44,418 $ 52,550 ============== ============
10 71 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (Unaudited) 5. Comprehensive Income (Loss):
(in thousands) Three months Three months ended ended March 31, 2001 March 31, 2000 --------------- --------------- Net income (loss) $ 6,614 $ (428) Other comprehensive income (loss): Currency translation adjustment (780) (1,356) Unrealized gain (loss) on investments -- 406 ------- ------- Subtotal - other comprehensive income (loss) (780) (950) ------- ------- Comprehensive income (loss) $ 5,834 $(1,378) ======= =======
Accumulated Foreign Unrealized Other The activity for the three months ended Currency Gain (Loss) Comprehensive March 31, 2001 related to the following: Items on Investments Loss ---------- ---------------- --------------- Balance as of December 31, 2000 $ (2,886) $ - $ (2,886) Current period change (780) - (780) --------- --------------- -------------- Balance as of March 31, 2001 $ (3,666) $ - $ (3,666) ========= =============== ==============
Accumulated Foreign Unrealized Other The activity for the three months ended Currency Gain (Loss) Comprehensive March 31, 2000 related to the following: Items on Investments Loss ---------- ---------------- --------------- Balance as of December 31, 1999 $ (3,500) $ (568) $ (4,068) Current period change (1,356) 406 (950) --------- --------------- -------------- Balance as of March 31, 2000 $ (4,856) $ (162) $ (5,018) ========= =============== ==============
6. Income Taxes For the three months ended March 31, 2001, the Company's effective income tax rate differed from the Federal statutory rate primarily due to non-deductible goodwill amortization, offset by the gain on the sale of its shares in DETC. For the three months ended March 31, 2000, the Company's effective income tax rate differed from the Federal statutory rate due to non-deductible goodwill amortization, offset by the difference in the Company's expected annual effective income tax rate. 11 72 ULTRAK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (UNAUDITED) 7. Special Charges As of December 31, 2000, the Company had accruals for severance and other related employee costs and leased facilities and other termination costs remaining from charges taken in 2000. The current period activity related to the remaining liabilities from these charges is summarized as follows: (in thousands):
Accrued at Accrued at December 31, 2000 Settled March 31, 2001 ----------------- ------- -------------- Severance and other related employee costs $2,437 $862 $1,575 Leased facilities and other termination costs 3,197 182 3,015 ------ ------ ------ $5,634 $1,044 $4,590 ====== ====== ======
8. Sale of Investment in Detection Systems, Inc. In January 2001, the Company accepted an offer to tender its shares in DETC. for $18 a share. Total proceeds from this transaction of $24 million were used to reduce the Company's borrowing level to $25 million at the end of the first quarter 2001. A gain of $7.8 million was also recognized in the current period related to the transaction. This gain was net of selling costs of $0.8 million for employee commissions. 12 73 ULTRAK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Three Months ended March 31, 2001 compared to the Three Months ended March 31, 2000 Results of Operations Net sales were $44.4 million for the three months ended March 31, 2001, a decrease of $8.1 million (15%) over the same period in 2000. The revenue decline was due to the sale of Intervision in July 2000, the phasing-out of the French CCTV distribution business and a stronger U.S. dollar. Gross profit margins on net sales decreased to 30% for the three months ended March 31, 2001 from 31% during the same period in 2000. This decrease in gross profit margin was due to a stronger U.S. dollar. Marketing and sales expenses were $6.9 million for the three months ended March 31, 2001, a decrease of $1.9 million (21%) over the same period in 2000. Marketing and sales expenses for the three months ended March 31, 2001 were 16% of net sales, down from 17% for the same period in 2000. This decrease was due to the sale of Intervision in July 2000 and a reduction in the number of sales and sales support personnel in France and Belgium as a result of terminations in the fourth quarter of 2000. Expenses were also lower in the US-PSG and DSG segments. The Company recognized other income of $7.3 million for the three months ended March 31, 2001, compared with other expenses of $0.9 million during the same period in 2000. The other income resulted from a $7.8 million gain on the sale the Company's shares in DETC. The proceeds from the sale were used to decrease the borrowings on the Company's credit facility. As a result, the line of credit was reduced by $10.6 million and interest expense decreased by $0.2 million compared to the first quarter of 2000. 13 74 ULTRAK, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Liquidity and Capital Resources The Company had a net increase of $2.2 million in cash and cash equivalents for the three months ended March 31, 2001. Net cash used in operating activities for the period was approximately $4.2 million versus $0.7 million for the comparable period. The most significant differences between 2001 and 2000 resulted from payments of restructuring costs during the first quarter, increases in dome inventories in Ohio, as well as reductions in accounts payable. Net cash provided by investing activities was approximately $22.4 million, consisting of the proceeds from the sale DETC shares, partially offset by equipment purchases. Net cash used in financing activities was approximately $15.5 million, consisting primarily of net reductions in the Company's line of credit and payments on its mortgage loan. As of March 31, 2001, the Company had $24.8 million outstanding under its two-year credit facility. The Company was not required to obtain waivers from its lenders during the first quarter of 2001. The credit facility was paid down from its December 31, 2000 level with a portion of the proceeds from the sale of DETC shares. In January 2001, the Company purchased the synthetic lease on its corporate headquarters facility from the lessor with a $11.5 million short-term note. Payments of $4.0 million were made during the first quarter of 2001, reducing the balance of the note to $7.5 million. The Company is currently searching for a new lender to refinance this note over a longer period in order to maximize its cash flow. In April 2001, the Company cancelled its plan to sell a 5-acre tract of undeveloped land adjacent to its corporate headquarters. The Company believes that internally generated funds, available borrowings under the bank credit facility and current amounts of cash and cash equivalents will be sufficient to meet its presently anticipated needs for working capital, capital expenditures and acquisitions, if any, for at least the next twelve months. Quantitative and Qualitative Disclosures about Market Risk There has been no material change in the Company's market risk exposure since the filing of the 2000 Annual Report on Form 10-K. 14 75 ULTRAK, INC. AND SUBSIDIARIES QUARTER ENDED MARCH 31, 2001 Part II: Other Information Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities Not Applicable Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Sixth Amendment to First Amended and Restated Credit Agreement between Ultrak Operating, L.P., Ultrak, Inc., American National Bank and Trust Company of Chicago and Harris Trust and Savings Bank, dated April 6, 2001. (b) No reports on Form 8-K were filed during the quarter ended March 31, 2001. 15 76 ULTRAK, INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements 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. ULTRAK, INC. Date: May 15, 2001 By: /s/ Chris Sharng ------------------------------- Chris Sharng Senior Vice President-Finance, Secretary, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) 16 77 ULTRAK, INC. AND SUBSIDIARIES Exhibit Index (a) Sixth Amendment to First Amended and Restated Credit Agreement between Ultrak Operating, L.P., Ultrak, Inc., American National Bank and Trust Company of Chicago and Harris Trust and Savings Bank, dated April 6, 2001. 17 \ EX-99.(A)(1)(E) 3 d88790a1ex99-a1e.txt FORM OF E-MAIL MESSAGE TO ELIGIBLE OPTION HOLDERS 1 EXHIBIT (a)(1)(E) Form of E-Mail Message to Eligible Option Holders Re: Ultrak, Inc. Stock Option Cancellation Program Several weeks ago you were sent an Offer to Exchange and a Letter of Transmittal which described in detail a program whereby you may elect to cancel your outstanding stock options under the 1988 Non-Qualified Stock Option Plan, and receive new options approximately six months and two days from the date that the cancelled options are cancelled. It has been determined that the option holders should be provided with the company's most recent financial statements to assist them in understanding of Ultrak's historical results and future prospects when deciding whether to exchange their options. Attached is a Supplement to the Offer to Exchange which includes portions of Ultrak's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001. The Supplement also contains revisions to the Letter of Transmittal. Please click on the link below to view the Supplement. Please contact Teresa Prewit at teresa.prewit@ultrak.com if you are not able to open the document or to request a hard copy of the document. I would like to remind you that the offer and withdrawal rights expire at 5:00 p.m., Lewisville, Texas time on July 10, 2001. If you are eligible to participate and wish to cancel all or a portion of your stock options granted under the 1988 Plan and be eligible to receive grants of New Options, you must complete, sign and properly and timely return the Letter of Transmittal so that it is received on or before the deadline. If you decide not to cancel your current options under the 1988 Plan, you need not do anything and your stock options will remain unchanged. Should you have any questions, please contact me at dlene.sandleback@ultrak.com or by telephone at 972-353-6455. D'Lene Sandleback Executive Paralegal ULTRAK, INC. 972.353.6455 direct 972.353.6750 fax dlene.sandleback@ultrak.com www.ultrak.com -----END PRIVACY-ENHANCED MESSAGE-----