ITEM 1. BUSINESS
GENERAL
Ultrak, Inc. (the "Company" or "Ultrak") designs, manufactures, markets, sells and services innovative electronic products and systems for use in security and surveillance, industrial video and professional audio markets worldwide. These products and systems include high-speed dome systems, monitors, switchers, quad processors, time lapse recorders, multiplexers, video transmission systems, access control systems, a broad line of cameras, lenses, computerized observation and security systems, audio equipment and accessories. The Company has generated rapid growth with sales increasing from $1.8 million in 1987 to $206.4 million in 1999.
It is the Company's objective to set new standards in quality, performance and value by providing single-source Enterprise Security Solutions to its customers in the form of integrated systems whereby all closed circuit television ("CCTV") components, network video, video badging, alarms, access control, as well as facility and alarm management functions and reporting are controlled from one single console. Integrated systems better serve the end user by improving their ease of operation, security, health/safety and loss prevention, and at the same time reducing maintenance and training costs. Ultrak's management believes that integrated systems provide customers maximum functionality at the lowest possible cost.
The Company was incorporated in Colorado in 1980 and re-incorporated in Delaware in December 1995. In 1997, the Company built a 170,000 square foot warehouse and headquarters facility known as the Ultrak Worldwide Support Center located in the north Dallas suburb of Lewisville, Texas. Since January 1, 1998, the Company's new address is 1301 Waters Ridge Drive, Lewisville, Texas 75057 and its telephone number is (972) 353-6500.
Ultrak operates sales, distribution and manufacturing locations worldwide. The Company has sales facilities in six U.S. cities, England, France, Germany, Italy, Poland, Switzerland, Singapore, Australia, and South Africa, as well as active representation through Company sales representatives and systems integrators in Bejing, China, Canada, Mexico and Brazil. The Company operates an e-commerce website for the consumer/do-it-yourself markets under the name SecurityandMore.com. The Company established a centralized, European headquarters facility in Antwerp, Belgium in 1999 to coordinate efforts among its foreign operations. Customers are supported by eight distribution centers worldwide and manufacturing facilities located in the United States, Australia and South Africa.
Ultrak's products and systems include Enterprise Security Solutions and Standard Products.
ENTERPRISE SECURITY SOLUTIONS
As a technology leader in the security and surveillance markets, Ultrak distinguishes itself from its competitors by providing Ultrak's Enterprise Security Solutions ("ESS") for manufacturing facilities, airports, office complexes, government agencies, hospitals, casinos, retail stores and other organizations that increasingly need integrated electronic security and surveillance systems. that combine CCTV matrix switching, network digital video transmission, access control, video badging, intrusion detection, and alarm management and communications. These products and systems play an increasingly important role in traffic management and public safety applications.
ESS is available in a building block approach that allows customers to choose the applications that they need today, yet allows for system expansion at anytime. Included as part of ESS is the Company's DAVE (Duplex Analog Video Encoding) Technology system. Ultrak's proprietary DAVE Technology(TM) System 2000 utilizes technology that provides complete and continuous video coverage using a large array of cameras connected by a single loop of coaxial cable. The Company sells these products and systems to distributors, dealers and systems integrators through its own field sales personnel. ESS are customized and scaled to meet the needs of all of the Company's customers regardless of the business size. It is the Company's strategy to develop and acquire a comprehensive line of products and integrated systems, build worldwide sales, service and support and provide single-source solutions to its customers.
STANDARD PRODUCTS AND INTEGRATED SYSTEMS
The following Ultrak standard products and integrated systems are sold into the professional security and surveillance markets: cameras, lenses, domes and housings, monitors, time-lapse and digital recorders, ruggedized cameras, monitors and recorders for mobile video applications, digital processors (quads and multiplexers), switchers and video management systems, video transmission equipment, access control and facility management equipment.
Small businesses and homeowners are installing video observation systems to replace or supplement conventional alarm systems as CCTV continues to become more affordable . The consumer do-it-yourself security and surveillance market consists of those applications in which end users purchase security and surveillance systems and install the systems themselves in their small businesses or homes. Video products sold into this market are characterized by affordability, aesthetically appealing designs, ease of installation and maintenance and mobility. The typical consumer do-it-yourself market CCTV system can be wired or wireless and consists of a camera, a monitor, a switcher or quad processor and, optionally, a video recorder. These products are available in either black and white or color models. Consumer do-it-yourself CCTV products are sold through mass merchandisers, warehouse clubs, electronic retail stores, office and juvenile product superstores, as well as through retail catalogs. These consumer/do-it-yourself products have also been available since September 1999 through the Company's e-commerce website: SecurityandMore.com.
It is the Company's strategy to provide easy-to-install and easy-to-operate video products and systems that are "feature rich" and affordably priced. The Company continues to expand these product lines and introduce these, or similar products and systems into the European market. The Company sells these products through a combination of its own sales force and manufacturer's representatives under the Ultrak brand name.
The professional audio market includes public address equipment for office complexes, hotels, airports and retail stores. In addition, this market includes sound reinforcement systems for concert halls, churches, arenas and theaters. Ultrak produces and markets products for professional audio and sound reinforcement systems such as amplifiers, speakers, mixers, equalizers, microphones, CD players, turntables and accessories. The Company sells these systems through a direct sales force in France and through manufacturer's representatives in other countries.
Industrial and commercial video products are used in various production and manufacturing processes. The Company sells to the industrial/commercial markets through systems integrators, who assemble and sell equipment that incorporates video cameras. Video cameras are used for machine vision, computer imaging, robotics, microscopy, high-speed inspection and high temperature furnace monitoring. 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. New industrial applications are emerging as new equipment is developed and as production automation levels increase.
The Company's strategy with regard to the industrial video market is to strengthen customer loyalty by backing-up advanced products with technical expertise, a large variety of products and outstanding customer support. The Company uses a combination of its own sales force and manufacturer's representatives to sell these products to dealers and OEM accounts.
STRATEGY
Ultrak's strategy is to develop and form relationships with it's customers-the end users of the Company's solutions-and to provide them with the high quality and performance products and systems they need and desire worldwide. The Company is committed to satisfying its customers' needs with complete security solutions and measures its success by the ability to achieve this goal. The Company reaches its customers by direct contact with key influencers/consultants and sells to these customers through its channel partners, which are dealers, system integrators and distributors. Additionally, Ultrak's strategy is to provide product improvement that is driven by customer requirements and to build worldwide marketing capabilities to maximize market coverage and decrease the time it takes to get its products to market.
With the continued expansion of SecurityandMore.com, the Company's consumer/do it yourself e-commerce Website launched in September 1999, new products and information are continuously being added. In light of the high stock market valuations bestowed upon successful e-commerce companies, the Company is exploring the sale of a portion of SecurityandMore.com in an initial public offering with a later spin-off of the remaining shares to Ultrak shareholders. This scenario would provide SecurityandMore.com with sufficient capital to grow even faster and would give it the flexibility to grow unfettered.
ACQUISITIONS
Acquisitions have contributed significantly to the Company's continued growth over the past five years. The Company believes that acquisitions are an effective way to obtain new and related products and integrated systems, add experienced personnel, access additional channels of distribution, expand into new geographic territories, diversify its customer base and improve operating efficiencies through economies of scale. As the security industry continues to consolidate, Ultrak continues to search for growth through acquisitions. During 1997, the Company completed five acquisitions, made a minority investment in one company and established an 80 percent-owned subsidiary in the Pacific Rim. During 1998, the Company completed two acquisitions, acquired the minority interest in its Pacific Rim subsidiary and sold one subsidiary to a third party. During 1999, the Company completed three acquisitions and completed the sale of its minority investment in one company.
1997 ACQUISITIONS:
Monitor Dynamics
Effective February 1, 1997, the Company acquired Monitor Dynamics, Inc. ("MDI"), based in Rancho Cucamonga, California, which designs, manufactures, markets and sells high-end security and access control systems for a total of $26.1 million in cash. MDI's computer-based integrated security and access control systems are sold under the SAFEnet brandname and are used in very high-end government, defense, industrial, financial and commercial applications throughout the U.S. and Europe. MDI's systems are sold primarily through dealers and systems integrators. The acquisition of MDI provided the Company with high-end security and access control systems and products.
Intervision
Effective March 1, 1997, the Company acquired all of the outstanding share capital of Intervision Express Limited ("Intervision"), based in Preston, England (near Manchester), a distributor of CCTV products for 500,000 British Pounds ($814,000) in promissory notes and 38,822 shares of restricted Common Stock valued at $719,000. Intervision sells primarily to small and medium-sized installing dealers and systems integrators. Intervision distributes products from manufacturers such as Dedicated Micros, Toa, Hitachi and Mitsubishi. The acquisition of Intervision gave the Company a presence in the United Kingdom market and continued the expansion of its European operations.
Videosys Group
Effective April 1, 1997, the Company acquired the Videosys Group ("Videosys"), based near Venice, Italy, for total consideration of $8.37 million consisting of $5.55 million in cash and 160,000 shares of restricted Common Stock valued at $2.82 million. The Videosys Group designs, imports and distributes CCTV and related security products primarily in Italy, under the Videosys brand name. The Videosys Group sells primarily to installing dealers and systems integrators. The acquisition of the Videosys Group provided the Company with a significant presence in Italy's CCTV market.
Veravision
On April 1, 1997, the Company acquired all of the outstanding shares of capital stock of Veravision, Inc. ("Veravision"), based in San Clemente, California, which manufactures intra-oral camera products for use primarily in the dental market, for $150,000 in promissory notes, assumed debt of approximately $2.0 million and 10% of the outstanding shares of capital stock of Dental Vision Direct, Inc., a subsidiary of the Company, which shares are convertible into shares of restricted Common Stock using a formula set forth in the definitive agreement. Veravision, along with Dental Vision Direct, Inc., a 90% owned subsidiary, were both sold to a third party in August 1998. See 1998-99 Divestitures below.
Securion 24
In August 1997, the Company acquired 10% of the outstanding capital stock of Securion 24 Co., Ltd. ("Securion"), a privately held manufacturer and distributor of security products based near Tokyo, Japan, for total consideration of approximately $2.0 million in cash. The minority interest in Securion gave the Company access to the Japanese market by virtue of the Company's association with an established Japanese security company. In March 1999, the Company sold its interest in Securion. See 1998-99 Divestitures below.
Philtech
Effective October 1, 1997, the Company acquired 100% of the outstanding capital stock of Philtech Electronic Services Limited ("Philtech"), a privately-held, South African based company, for total consideration of $600,000 in cash, $300,000 of which is payable over the three years following closing. Philtech is a designer, manufacturer and supplier of CCTV switching and control equipment based in Bezvalley near Johannesburg, South Africa. The acquisition of Philtech provided the Company a presence in the rapidly growing South African market.
Ultrak Asia Ltd.
In November 1997, the Company established an 80% owned company in Singapore, Ultrak Asia Ltd. ("Ultrak Asia"), to further penetrate the Asian market with Ultrak products and systems.
1998 ACQUISITIONS:
Norbain France
During February 1998, the Company acquired the net assets of Norbain France SARL, a French corporation wholly owned by Norbain PLC, a UK corporation, for assumption of the net liabilities of approximately $1.2 million.
Ultrak Asia Ltd
In July 1998, the Company acquired the remaining 20% interest owned by a third party of Ultrak Asia for $30,000 in cash.
1999 ACQUISITIONS:
ABM Data Systems, Inc.
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. ABM is a market leader in the alarm monitoring industry, selling its software products under the Phoenix brandname. ABM's products are sold primarily through dealers, systems integrators and to Fortune 500 companies for their proprietary command centers, major national banks, state governments, universities, hospitals and others. The acquisition of ABM provides the Company access to the high-end alarm monitoring market.
Multi Concepts Systemes, SA
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 net 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 future contingent payments based upon a percentage of MACH net income, as defined.
1998-99 DIVESTITURES:
Dental Vision Direct, Inc. and Veravision
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"). DVD owned all of the outstanding stock of Veravision. The
consideration included approximately $3.0 million in cash, a $3.9 million short-term note (which was subsequently paid in full) and warrants to acquire 540,000 shares of American Dental common stock (which currently trades on the NASDAQ under the symbol "ADLI"). In addition, the Company retained rights to receive the net proceeds from the outstanding trade accounts receivable and accounts payable at the date of closing. A gain on the sale of approximately $78,000 was recorded and all prior periods have been restated to reflect the operations of DVD as discontinued.
Securion 24
On March 3, 1999, the Company completed the sale of its 10% ownership of capital stock of Securion to Mr. Mutsuo Tananka for approximately $1.8 million in cash.
MARKETING AND SALES
Ultrak operates through highly focused selling groups organized according to Ultrak's target markets. Ultrak's customer-focused structure allows for individual attention to each target market, quick response to customer needs and early identification of market requirements and new product ideas. Generally, the Company reaches each target market through regional sales professionals supported by telemarketing, product catalogs, direct mail, magazine advertising and industry trade shows.
Beginning in 1998 and continuing through 1999, the Company began implementing an internal reorganization of its sales and marketing operations known as "Team Ultrak" which promotes a unified network of sales professionals that are highly customer focused. Under this new philosophy, product supply units, customer service units and technology units have been unified to provide the Company's sales force with the means to better serve customer needs. New sales teams have been established in strategic geographic locations in the U.S. and along product lines. This team approach has been identified as a means for integrating the sales aspects of various operations acquired by the Company since 1995 and to encourage cross selling of Ultrak products. With the expansion of its sales force and its focus on "Team Ultrak" sales approach-providing solution sales versus product sales- the Company anticipates substantial growth in sales during 2000 and beyond.
Ultrak strives to meet or exceed its customers' need through the following operating principles:
o Knowing our customers, the market and our business partners
o Providing business opportunities for our business partners
o Engineering world class security solutions
o Guaranteeing best in class customer support
o Offering ongoing support programs to assure highest long term value
The Company uses various brand names for products sold through each of its selling groups to maximize market penetration of each selling group, to minimize market channel conflicts and to differentiate products by features, applications and price. The Company's proprietary brand names, many of which are registered trademarks, include Ultrak, Diamond Electronics, MAXPRO, Videosys, SAFEnet, Exxis, Smart Choice, BST, Industrial Vision Source, SecurityandMore.com and ESS. Approximately 90% of the products sold by the Company in 1999 carried Ultrak brand names, up from 87% in 1998 and 85% in 1997. The Company also sells brands such as Panasonic(R), Mitsubishi(R), and Sony(R).
Ultrak began actively pursuing the international market in 1995. In 1995 and early 1996, Ultrak sold its products and systems in a number of countries including Mexico, Brazil, Argentina, England, France, Germany, Denmark, India, China, South Korea, Japan, The Philippines and Australia. Since the second quarter of 1996, the Company acquired MAXPRO (Australia), Bisset (France), VideV (Germany), Intervision (the UK), the Videosys Group (Italy), Philtech (South Africa), MCS (Switzerland), Mach (Poland) and established a distribution company in Singapore, which has substantially expanded the Company's presence internationally. See Note K to the Company's Consolidated Financial Statements with respect to business segments.
PRODUCT DESIGN AND DEVELOPMENT
In addition to traditional research and development activities, Ultrak's engineering and product development staff worldwide works directly with its customers to design new products and product enhancements, and coordinates with its contract suppliers to manufacture certain Ultrak branded products. Ultrak has developed a highly competent engineering staff to work with its selling and marketing groups to develop new products and product line extensions that promptly respond to customer needs on a worldwide basis. Consequently, Ultrak believes that it can develop technologically superior products with customer-desired performance capabilities that address new applications at lower prices than competitive products. Increasingly, the Company's products are computer-based and software-driven to support the integration of technologies and functions into its customers' businesses.
As of December 31, 1999, the Company had a full-time engineering staff of 85 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. At the core of the Company's ESS offerings, SAFEnet NT provides a stable, flexible platform for the integration of new functions and technologies. 1999 also marked the start of a major development effort to redesign and streamline the SAFEnet field hardware which the Company expects to be completed by mid-2000 incorporating a new distributed architecture that was developed specifically for the SAFEnet system.
PRODUCTS AND SYSTEMS
The Company's motto, "Quality Products That Make a Difference," encapsulates the Company's strategy of developing technologically advanced and cost-effective products and systems that are unique and solve customers' specific needs or problems. Through in-house product development, and with the product lines the Company has obtained through acquisitions, Ultrak offers a broad line of Ultrak branded products and systems. The Company's brand names include Ultrak, Diamond Electronics, MAXPRO, VideV Systems, Videosys, SAFEnet, Exxis, Smart Choice, BST, Industrial Vision Source and ESS. Approximately 90% of the products sold by the Company in 1999 carried the Company's brand names. The Company continues to offer brands such as Panasonic, Mitsubishi, Dedicated Micros and Sony.
The Company's products and systems include a broad line of cameras, lenses, high-speed dome and housings, monitors, time-lapse and digital recorders, digital processors, switchers and video management systems, ESS, the DAVE Technology(TM) system, video transmission equipment access control and facility management equipment, control matrix switching systems and accessories, professional audio products, video printers, video otoscopes and furnace viewing products.
OPERATIONS
A critical element of the Company's operations are 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 it's related domestic facilities, had successfully completed the SAP conversion process at its Lewisville, Texas Worldwide Support Center. As previously anticipated, SAP will unite Ultrak and all of its domestic subsidiaries with a common inventory, sales, accounting/financial and database management system by mid-2000. Via laptop computers, the Ultrak domestic sales team can easily communicate with the host system from any remote location. Internationally, the Company has selected "Exact", a multilingual, multicurrency and Euro compliant software for its European information needs. By mid-2000, all of the Companies European operations will be live on the "Exact" software and will be 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 to be shipped from available inventory at one of the four domestic stocking warehouse locations. Because the Company maintains domestically a relatively large inventory of products, it ships most items within 24 hours of receipt of the order. The Company's domestic stocking
warehouse locations are Lewisville (Dallas), Texas; Austin, Texas; Rancho Cucamonga (Ontario), California; and Carroll (Columbus), Ohio. Approximately 91% of all domestic shipments are made from the Lewisville, Texas warehouse.
The Company also considers continuous training of its customers to be critical in an ever-increasing 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 continue all year with salespeople, customers and field installation technicians attending to learn more about our technology and products.
With respect to Ultrak branded products produced by contract manufacturers, most of these products are made exclusively for the Company or there are limited or no competitive sales of such products in the areas served by the Company. The Company believes that its relationships with its contract suppliers are good. In most of these relationships, the Company believes that the relationship is as important to the supplier as it is to the Company. Thus, the Company believes that there is a strong, mutually advantageous basis for the trading relationship to continue and grow. See Note G to the Company's Consolidated Financial Statements with regard to Major Customers and Suppliers.
Delivery times for products manufactured abroad vary from one week to two months, depending on the mode of transportation. Because of foreign production lead times, the Company normally makes purchase commitments to these foreign suppliers three to six months in advance of shipment. Therefore, management believes it is necessary for the Company to commit to and carry larger levels of inventory than would be necessary if it manufactured all of its products domestically. Given order lead times, accurate inventory forecasting is critical.
Substantially all of the Company's purchases from its non-affiliated contract manufacturers are made in United States Dollars or the Euro with the remaining purchases made in Japanese Yen, Australian Dollars, the South African Rand and English Pounds. To date, the Company's purchases have not been materially adversely affected by fluctuations in the valuation of any international currency. It is expected that the Company will continue to purchase the vast majority of its products in United States Dollars (for it's U.S. operations) or the Euro (for it's European operations).
To ensure complete customer service and satisfaction, Ultrak offers third-party leasing services and after-sale service for all equipment sold by the Company.
Ultrak offers a limited warranty on all products shipped. The Company generally warrants that its products will conform to Ultrak's published specifications and be free from defects in materials and workmanship at the time of sale.
When goods are delivered to Ultrak, a random sampling quality assurance procedure is performed. Selected units are verified for functionality, proper packaging, labeling and documentation. The Company's primary contract manufacturer is ISO9001 certified. The quality assurance procedures in the Company's Ohio plant and California facility comply with ISO9001 specifications. The Company is currently in the process of obtaining ISO9001 certification on its Lewisville, Texas facility, which is expected to be completed by Q2 2001.
BACKLOG
As of December 31, 1999 and 1998, the Company had approximately $14.9 million and $13.1 million respectively, in order backlog which it considered to be firm. Because purchase orders are subject to cancellation or delay by customers with limited or no penalty, the Company's backlog is not necessarily indicative of future revenues or earnings. Since the Company ships most products 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.
COMPETITION
The Company faces substantial competition in each of its markets. Significant competitive factors in the Company's markets include price, quality and product performance, breadth of product line and customer service and support. Some of the Company's existing and potential competitors have substantially greater financial, manufacturing, marketing and other resources than the Company. To compete successfully, the Company must continue to make substantial investments in its engineering and development, marketing, sales, customer service and support activities. There can be no assurance that competitors will not develop products that offer price or performance features superior the Company's products.
The Company considers its major competitors to be the CCTV and access control operations of Sensormatic Electronics Corporation, Burle (part of Philips Communication & Security Systems, Inc.), Panasonic, Pelco, Vicon Industries, Inc. and Casi- Rusco.
EMPLOYEES
As of December 31, 1999, the Company had 695 full-time employees employed worldwide at 15 primary locations and 12 field sales offices, of which 283 were sales and sales support personnel, 140 were warehouse/manufacturing personnel, 78 were technical/service personnel, 85 were engineering and product development personnel and 109 were administrative and managerial personnel. The Company's future success will depend in large part upon its ability to attract and retain highly skilled technical, managerial, financial and marketing personnel, in a market where such people are in demand. No employee is represented by a union or covered by a collective bargaining agreement and the Company has not experienced a work stoppage or strike. The Company considers its employee relations to be good.
The Company's newly adopted mission statement provides for Ultrak to be the preferred worldwide provider of end user focused security solutions while upholding these fundamental principles:
o Meet or exceed our customers' expectations
o Provide a productive, fulfilling and mutually respectful environment for our employees
o Maximize shareholder value
o Recognize that profitability is essential to our success
o Act ethically and with integrity
ITEM 2.
ITEM 2. PROPERTIES
The Company moved to its new Worldwide Support Center in January 1998. The facility is comprised of approximately 170,000 square feet of leased office and warehouse space located on 14 acres of land in Lewisville, Texas, pursuant to a lease with an initial term expiring in April 2003. There is adequate available space on the premises for expansion of the Worldwide Support Center if such expansion is deemed necessary. At the conclusion of the initial lease term, the Company has an option to acquire the facility. The Company also leases additional office/distribution warehouse space in Austin, Texas; Las Vegas, Nevada; Paris, France; Preston (Manchester), England; Antwerp, Belgium; San Vendemiano (Venice), Italy; Dusseldorf, Germany; Crissier (Lausanne), Switzerland; Szczecin, Poland; Sydney, Australia; Johannesburg, South Africa and Singapore.
The Company owns its 72,000 square foot manufacturing facility in Carroll (Columbus), Ohio and leases its manufacturing facilities in Rancho Cucamonga, California and Perth, Western Australia. The Company believes that its manufacturing facilities are adequate to meet the Company's present and anticipated manufacturing needs for products that it currently manufactures.
ITEM 3.
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.
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 1999.
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 II
ITEM 5.
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:
As of February 29, 2000, there were approximately 1,200 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.
ITEM 6.
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, 1999, 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 1995, 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. The Company has pursued an aggressive growth strategy since 1996. See pages 4-6 for a discussion of these acquisitions. Because of these transactions, the income statement and balance sheet data presented below may not be comparable from year to year.
ITEM 7.
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 15 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.
The Company has experienced substantial growth in recent years. Net sales have grown from $1.8 million in 1987 to $206.4 million in 1999. Increases in net sales have come from increased volume of sales of existing products and systems to all of the markets served by the Company, introduction and sales of new products and systems, creation of new selling groups to focus on new markets and acquisitions of businesses in the security and surveillance, access control industries 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 remainder of the outstanding stock of MAXPRO. On September 6, 1996, Ultrak acquired and subsequently sold in September 1997 its interest in approximately 24% of the outstanding stock of Lenel, a domestic security access control software company. Effective October 1, 1996, Ultrak acquired all of the outstanding share capital of Bisset, a distributor of CCTV and professional audio products based in Paris, France. Effective December 1, 1996, Ultrak acquired all of the outstanding stock of VideV, a distributor and manufacturer of CCTV products based in Dusseldorf, Germany. All of these transactions were accounted for as purchases and the operations have been included in the Company's financial statements since the dates of acquisition.
In 1997, the Company completed five acquisitions and made a minority investment in a sixth company. Effective February 1, 1997, Ultrak acquired all of the outstanding stock of MDI, a manufacturer of security and access control systems based in Rancho Cucamonga, California. Effective March 1, 1997, the Company acquired all of the outstanding stock of Intervision, a distributor of CCTV products and systems based in England. Effective April 1, 1997, Ultrak acquired all of the outstanding stock of the Videosys Group, a distributor of CCTV and security products and systems based in Italy. Also effective April 1, 1997, the Company acquired all of the outstanding stock of Veravision, a manufacturer of intraoral dental camera products based in San Clemente, California. Effective October 1, 1997, the Company acquired all of the outstanding stock of Philtech, a manufacturer and distributor of CCTV switching and control equipment based in South Africa. Effective November 1997, the Company established an 80% owned company in Singapore. All of these transactions were accounted for as purchases and the operations have been included in the Company's financial statements since the dates of acquisition.
In 1998, the Company made one acquisition and acquired the 20% minority interest in its Singapore operation. As of February 1, 1998, the Company acquired the net assets of Norbain-France, a distributor of CCTV products based in Paris, France. Effective August 1, 1998, the Company sold its 90% owned subsidiary, DVD, to a third party.
In 1999, the Company completed three acquisitions. Effective March 1, 1999, Ultrak acquired all of the outstanding stock of ABM, a company that 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.
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 one legal entity accounted for approximately 21% of total sales during 1999, 17% of total sales during 1998 and 12% of total sales during 1997. 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. During 1997, 1998 and 1999 the Company added new corporate management in several areas to help facilitate and manage its growth.
Engineering, research and product development costs are included in general and administrative expenses and consist primarily of salaries, overhead and material costs associated with the development of new products offered by the Company. All such R&D costs have been expensed when incurred.
During the years ended December 31, 1999 and 1998, the Company capitalized approximately $1.7 and $1.5 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 1997, and have continued to increase on an absolute basis in 1998 and 1999.
The Company's consolidated financial statements are denominated in dollars and, accordingly, changes in the exchange rate between the Company's subsidiaries' local currencies and the dollar will affect the conversion of such subsidiaries' financial results into dollars for purposes of reporting the Company's consolidated financial results. Translation adjustments are reported as a separate component of stockholders' equity.
A substantial portion of the Company's purchases and sales are derived from operations outside the United States. Since the revenues and expenses of the Company's foreign operations are generally denominated in local currency, exchange rate fluctuations between local currencies and the dollar subject the Company to currency exchange risks with respect to the results of its foreign operations. Therefore, the Company is subject to these risks to the extent that it is unable to denominate its purchases or sales in dollars or otherwise shift to its customers or suppliers the effects of currency exchange rate fluctuations. Such fluctuations in exchange rates could have a material adverse effect on the Company's results of operations. The Company did not have foreign exchange forward or currency option contracts outstanding at December 31, 1999.
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.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
For the year ended December 31, 1999, net sales were $206.4 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 $138.6 million for 1999, an increase of $6.9 million (5%) over 1998. Gross profit margins increased to 32.9% in 1999 from 32.6% 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 $35.5 million for 1999, an increase of $4.6 million (15%) over 1998. Marketing and sales expenses for 1999 were 17.2% of net sales, up from 15.8% 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 promotion 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 10.5% of net sales, up from 10.2% 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 our Europe and domestic operations. This restructuring effort is pursuant to a specific plan of action intended to take advantage of new opportunities and consolidation and centralization of 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 it's European headquarters in Antwerp, Belgium in order to centralize
administrative, accounting and finance functions including centralization of 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 sale of investments offset by increased interest expense.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
For the year ended December 31, 1998, net sales were $195.2 million, an increase of $20.3 million (12%) over 1997. This increase was due to the effect of new acquisitions during 1997, sales of new products introduced during late 1997 and 1998 and increased volume of sales of existing CCTV products to most of the markets served by the Company.
Cost of sales were $131.7 million for 1998, an increase of $10.8 million (9%) over 1997. Gross profit margins increased to 32.6% in 1998 from 30.9% in 1997. This increase was due to the continued increased sales levels of Ultrak-branded products, cost reductions realized on certain Ultrak-branded products and somewhat higher margins earned on software based products and other new products introduced during late 1997 and 1998.
Marketing and sales expenses were $30.9 million for 1998, an increase of $4.2 million (16%) over 1997. Marketing and sales expenses for 1998 were 15.8% of net sales, up from 15.3% in 1997. This increase was due to the effect of hiring additional sales, sales support and marketing personnel in conjunction with new product introductions and resulting sales activities, as well as the increased travel, printing, product literature, advertising and promotion costs associated with the introduction of new products.
General and administrative expenses were $19.9 million for 1998, an increase of $.8 million (4%) over 1997. General and administrative expenses for 1998 were 10.2% of net sales, down from 10.9% of net sales in 1997. This decrease was a result of less hiring and selective employee terminations later in the year and the Company's efforts to reduce its general and administrative costs as a percentage of sales. Depreciation and amortization expenses were $4.7 million for 1997, an increase of $.7 million (18%) over 1997. Depreciation and amortization expenses for 1998 were 2.4% of net sales, slightly up from 2.3% of net sales in 1997.
Other income was approximately $.5 million for 1998, a decrease of $2.5 million from 1997. This decrease was due to the Company's shift during mid 1997 to invest excess funds in marketable equity securities (including the investment in DETC) instead of interest bearing investments, the use of cash to fund the Company's stock repurchase program and the increase in expense on bank borrowings during 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net increase in cash and cash equivalents for 1999 of approximately $277,000. Net cash provided by operating activities for the period was approximately $12.8 million, primarily consisting of increases in accounts and notes payable, and decreases in advances for inventory purchases, noncurrent notes and other assets offset partially by increases in inventory and accounts receivables. Net cash used in investing activities was approximately $5.8 million consisting of purchases of marketable securities, purchases of property and equipment, primarily related to the worldwide computer software implementations, software development capitalization costs and net cash paid for acquisitions offset by proceeds from sales of marketable securities. Net cash used by financing activities was approximately $7.1 million, consisting primarily of purchases of treasury stock and the payment of dividends on the Company's outstanding Series A Preferred Stock offset by net repayments on its bank credit facility and proceeds from exercises of stock options.
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.
The Company believes that internally generated funds, available borrowings under the new credit facility and current amounts of cash will be sufficient to meet its presently anticipated needs for working capital, capital expenditures and acquisitions, if any, for at least the next 12 months.
DERIVATIVE FINANCIAL INSTRUMENTS
During 1997, the Company sold equity put options covering 2.6 million shares. As of December 31, 1998, one equity put option remained outstanding and the Company has recorded on the balance sheet its potential repurchase obligation related to the put option totaling $1.6 million at its exercise price of $12.51 per share. The single remaining put option was exercised on January 13, 1999 with the Company purchasing 125,000 shares of its Common Stock. As of December 31, 1999, there were no outstanding equity put options.
YEAR 2000 COSTS
The Year 2000 issue presented a pervasive and complex set of issues in the business environment, as virtually every computer operation within the Company could have been affected in some way by the rollover of the two-digit year value to "00". The issue is whether systems would properly recognize date sensitive information when the year changed to 2000. Systems that did not properly recognize such information could generate erroneous data or cause complete system failures. With respect to its internal systems, the Company continues the process of implementing a multi-lingual and multi-currency enterprise software at all of Ultrak's facilities worldwide. As of August 1998, the Company had successfully completed the conversion process to SAP at its Worldwide Service and Support Center, as well as four other domestic facilities. SAP's software and all associated third party applications are represented to be Year 2000 compliant and the Company has not experienced any material difficulty or events of failure with SAP. The Company's Ohio manufacturing facility existing business systems were upgraded as of September 1999, and the Company anticipates conversion of the Ohio facility to SAP by mid-2000. In January 2000, the Company successfully completed implementation of SAP at its Austin, Texas location. European implementation began in March 1999 using "Exact" software, a European multilingual, multi-currency Y2K and Euro compliant software. For all European systems that were not Year 2000 compliant, the Company has successfully converted those computer systems as of December 31, 1999. During the years ended December 31, 1999, 1998 and 1997, the Company incurred approximately $3.2 million, $6.3 million and $1.6 million, respectively, related to its implementation of SAP in the U.S and Exact in Europe. It is expected that the remaining phases of the "Exact" implementation in Europe will additionally cost approximately $500,000, which will be incurred in 2000. Such costs are expected to be capitalized and amortized over the estimated useful life of the software.
Following the millenium event on January 1, 2000, the Company has not experienced any material or adverse consequences as a result of a Year 2000 computer error. Based upon the completion of conversions to SAP in 1999 and anticipated completions in 2000, and discussions with its primary suppliers and vendors, the Company does not believe that the Year 2000 issues will have a material impact on the financial position, results of operations or cash flows of the Company. However, there can be no assurances that the Company will not experience serious unanticipated negative consequences and/or material costs in the future caused by undetected errors or defects in the technology used in the Company's internal systems, which are composed of third party software, third party hardware that contains embedded software and the Company's own software products.
INFLATION
During the years ended December 31, 1999, 1998 and 1997, 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.
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 31% of 1999 net sales. 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. In addition, many of the
foreign-based operations make sales to customers denominated in different currencies, which carry minimal market risk because the transactions normally settle quickly. The Company does not regularly use forward-exchange contracts to hedge these exposures. Based on the Company's foreign currency exchange rate exposure for intercompany borrowings of approximately $20 million at December 31, 1999, a 10% adverse change in currency rates would reduce accumulated other comprehensive income by approximately $2.0 million.
Interest rates
The Company's credit arrangements expose it to fluctuations in interest rates. At December 31, 1999, the Company had $37 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, 1999, a 10% increase in interest rates would adversely affect the Company's financial position, annual results of operations, or cash flows by approximately $300,000.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its subsidiaries that are required by this Item 8 are listed in Part IV under Item 14(a) of this report. Such consolidated financial statements are included herein beginning on page.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
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 2000 Annual Meeting of Stockholders (the "2000 Proxy Statement"), which is expected to be filed with the Securities and Exchange Commission on or about April 30, 2000. See also the list of the Company's executive officers and related information under "Directors and Executive Officers" in Part I thereof.
ITEM 11.
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 2000 Proxy Statement.
ITEM 12.
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 2000 Proxy Statement.
ITEM 13.
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 2000 Proxy Statement.
PART IV
ITEM 14.
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, 1999 and 1998.
Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
Additional financial information pursuant to the requirements of Form 10-K:
Report of Independent Certified Public Accountants on Schedule
Schedule II - Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are either not applicable or the required information has been provided elsewhere in the Consolidated Financial Statements or notes thereto.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed with the Securities and Exchange Commission on March 18, 1999 reporting the ABM Data Systems, Inc. acquisition and the resignation of James D. Pritchett, President, Chief Operating Officer and a director of the Company.
(c) Exhibits
- ----------
* Exhibits 10.21, 10.22, 10.23, 10.24, 21.1 and 27.1 are filed herewith.
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 27th day of March, 2000
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.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors Ultrak, Inc.
We have audited the accompanying consolidated balance sheets of Ultrak, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. 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. 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, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.
GRANT THORNTON LLP
Dallas, Texas February 12, 2000 (except for Note D, as to which the date is March 22, 2000)
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
December 31,
The accompanying notes are an integral part of these statements.
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
The accompanying notes are an integral part of these statements.
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - CONTINUED
Years ended December 31,
The accompanying notes are an integral part of these statements.
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31,
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
Years ended December 31,
The accompanying notes are an integral part of these statements.
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
The accompanying notes are an integral part of these statements.
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
The accompanying notes are an integral part of these statements.
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.
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Income Per Share
The Company computes basic income per share based on the weighted average number of common shares outstanding. Diluted income per share is computed based on the weighted average number of shares outstanding, plus the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued.
Goodwill and Amortization
Goodwill resulting from acquisitions is being amortized using the straight-line method over periods ranging from twenty to forty years.
Accounting for Impairment of Long-Lived Assets
The Company evaluates long-lived assets and intangibles held and used for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Impairment is recognized when the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of such assets.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, notes receivable, debt and equity put options for which the fair value approximates the carrying value.
Stock-Based Compensation
The Company accounts for stock-based compensation to employees using the intrinsic value method. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock.
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.
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Currency Translation
Translation adjustments to the financial statements of foreign subsidiaries are reflected in the consolidated financial statements as a component of other comprehensive income.
Advertising Expense
The Company expenses advertising costs as incurred. Total advertising expense amounted to approximately $1,099,000, $1,306,000, and $987,000 for the years ended December 31, 1999, 1998, and 1997, 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.
Derivative Financial Instruments
Equity put options on common stock represent the number of options sold at their respective strike price. Proceeds from the sale of equity put options on common stock are accounted for as additional paid-in capital.
Reclassifications
Certain reclassifications have been made to prior years financial statements to conform with the 1999 presentation.
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - 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.
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - BUSINESS COMBINATIONS - Continued
1997 Business Combinations:
Monitor Dynamics, Inc.
Effective February 1, 1997, the Company acquired all of the outstanding shares of capital stock of Monitor Dynamics, Inc. ("MDI") for $26.1 million in cash. MDI designs, manufactures, markets and sells high-end security and access control systems under the SAFEnet brand name. MDI's systems are used in government, defense, industrial, financial and commercial applications throughout the United States and Europe.
Intervision Express, Ltd.
Effective March 1, 1997, the Company acquired all of the outstanding share capital of Intervision Express, Ltd. ("Intervision"), a United Kingdom limited liability company. The total consideration was approximately $1.53 million dollars, including 38,822 shares of common stock valued at $719,000. Intervision distributes security and surveillance products, primarily in the United Kingdom, manufactured by the Company, Dedicated Micros, Toa, Hitachi, Mitsubishi and others.
Videosys Group
Effective April 1, 1997, the Company acquired the Videosys Group (the "Videosys Group") for total consideration of $8.37 million consisting of $5.55 million in cash and $2.82 million (160,000 shares) in common stock. In connection with the acquisition, the Company guaranteed the value of the common stock by granting put rights covering 160,000 shares at $25 per share. During 1999, the seller of Videosys exercised the put right and required the Company to repurchase 160,000 shares for $4,000,000. The Videosys Group designs, imports, and distributes security and surveillance products primarily in Italy, under the Videosys brand name.
Veravision, Inc.
Effective April 1, 1997, the Company acquired all of the issued and outstanding capital stock of Veravision, Inc. ("Veravision"). The consideration consisted of $150,000 in promissory notes, approximately $2.0 million in notes and accounts receivable due from Veravision and 10% of the common stock of DVD, a wholly-owned subsidiary of the Company. Veravision manufactures intra-oral camera products for use primarily in the dental market.
Other Acquisitions:
Additionally, in 1997, the Company acquired a 10% interest in a company in Japan for approximately $2.0 million in cash and 100% of a company based in South Africa for $300,000 in cash and $300,000 of amounts payable over a three-year period and an 80% interest in a company based in Singapore for $95,000 in cash.
Acquisitions during 1998 and 1999 were not significant; as a result, no pro forma information is presented.
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
NOTE D - FINANCING ARRANGEMENTS
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, 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.
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 certain financial covenants and obtained a waiver on January 31, 2000. Amounts outstanding were to be paid in full with proceeds from the new $45.0 million credit facility on March 22, 2000.
At December 31, 1998, the Company had $37.5 million outstanding under its previous line of credit. Interest on the line of credit at December 31, 1998 was at LIBOR plus 3%.
NOTE E - STOCKHOLDERS' EQUITY
The Series A preferred stock earns dividends at the rate of 12% per annum, payable quarterly. All dividends accrue whether or not such dividends have been declared and whether or not there are profits, surplus, or other funds of the Company legally available for payment.
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - STOCKHOLDERS' EQUITY - Continued
The Company may at any time redeem all or any portion of the Series A Preferred Stock then outstanding at the liquidation value of $5.00 per share plus unpaid dividends. The holder of the Series A Preferred Stock may convert any or all of the 195,351 preferred shares into shares of the Company's common stock at any time at a conversion rate equal to 2.08 shares of common stock per preferred share or a total of 406,981 shares of common stock.
Holders of Series A preferred stock are entitled to vote on all matters submitted to a vote of stockholders. Each Series A preferred share is entitled to voting rights equal to 16.667 shares of common stock.
NOTE F - STOCK-BASED COMPENSATION
The Company's 1988 Nonqualified Stock Option Plan (the "1988 Plan") provides for grants of options for up to 1,200,000 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, 1999, 384,669 and 261,359 shares were available for grant under the 1988 Plan and the 1997 Plan, respectively.
Option exercise prices are equal to the market price at the date of grant. Shares under grant generally become exercisable in five equal annual installments beginning one year after the date of grant, and expire after ten years.
If the Company recognized compensation expense as permitted under Statement of Financial Accounting Standards No. 123, based upon the fair value at the grant date for options granted after 1994 under the 1988 Plan and 1997 Plan, the Company's net income from continuing operations and income per share would be reduced to the pro forma amounts indicated as follows:
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - STOCK-BASED COMPENSATION - Continued
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.
Additional information with respect to options outstanding at December 31, 1999 and changes for the three years then ended is as follows:
Weighted average fair value per share of options granted for 1999, 1998 and 1997 were $6.17, $6.55 and $9.68, respectively.
Information about stock options outstanding at December 31, 1999 is summarized as follows:
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - MAJOR CUSTOMERS AND SUPPLIERS
Sales to one legal entity accounted for approximately 21% of total sales during 1999, 17% of total sales during 1998 and 12% of total sales during 1997. 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 one of these customers 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, 1999. Although there are a limited number of manufacturers of the Company's products, management believes there are suppliers who could provide similar products on comparable terms. A change in suppliers could cause a delay in and a possible loss of sales.
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company leases office and warehouse space and data processing equipment under long-term, noncancelable leases.
Minimum future rental payments for all long-term, noncancelable operating leases are presented below:
Total rent expense was as follows:
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - INCOME TAXES
The provision for taxes consists of the following:
The Company's effective income tax rate differed from the U.S. Federal statutory rate as follows:
The components of deferred tax assets and liabilities are as follows:
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - INCOME TAXES - Continued
At December 31, 1999, the Company had federal, state and foreign net operating loss carryforwards of approximately $206,000, $1,200,000 and $3,340,000, respectively. The federal net operating loss carryforwards are limited in use each year to approximately $135,000 through expiration in 2010. The state net operating loss carryforwards expire in 2005. Substantially all foreign net operating loss carryforwards do not expire.
Management believes the Company will obtain the full benefit of its deferred tax assets on the basis of its evaluation of the Company's anticipated domestic and international profitability.
NOTE J - INVESTMENT IN DETECTION SYSTEMS, INC.
The Company has acquired since 1998 an approximate 21% interest in Detection Systems, Inc. In the fourth quarter of 1998, the Company began accounting for its investment in Detection Systems, Inc. under the equity method and the Company's share of earnings is included in income as earned. The difference between the Company's cost and the underlying equity in Detection Systems, Inc. of approximately $1.6 million represents goodwill and is being amortized over thirty years. Condensed financial information as of March 31, 1999 and 1998 for Detection Systems, Inc. is as follows (in thousands):
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - INVESTMENT IN DETECTION SYSTEMS, INC. - Continued
The market value of the Company's investment in Detection Systems, Inc. was $12,599,730 and $11,493,000 at December 31, 1999 and 1998, respectively.
NOTE K - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS
The Company has four business segments: United States-Professional Security Group (US-PSG), United States-Diversified Group (US-DSG), International-Professional Security Group (International-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.
US-DSG
This segment sells video and security products to industrial markets and consumers in the United States.
International-PSG
This segment consists of sales to professional security dealers, distributors, installers and certain large end users of professional security products outside the United States.
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).
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS - Continued
The following tables provide financial data by segment for the years ended December 31, 1999, 1998 and 1997:
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS - Continued
Financial information relating to the Company's Corporate segment is as follows:
Sales by geographic area were as follows:
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - EARNINGS PER SHARE
Following is a reconciliation of basic and diluted earnings per share from continuing operations:
For 1999, 1998 and 1997, 201,053, 367,919 and 286,655 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.
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - UNAUDITED QUARTERLY OPERATING RESULTS
Unaudited quarterly operating results for the years ended December 31, 1999, 1998 and 1997 are as follows:
See Note O for special charges and changes in estimates in the fourth quarter of 1997 and the first, second and fourth quarters of 1999.
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE N - DISCONTINUED OPERATIONS
In December 1998, the Company discontinued operations of its Mobile Video division which markets and installs video equipment on transit vehicles. As discussed in Note B, the Company sold Dental Vision Direct, Inc. on August 5, 1998. The Company expects to complete the disposal in 2000.
Summarized financial information for discontinued operations follows:
The net assets of discontinued operations consists of the following:
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE O - SPECIAL CHARGES AND CHANGES IN ESTIMATES
During the fourth quarter of 1997, the Company recorded nonrecurring charges of approximately $3.1 million which consist of (1) the write-off of computer hardware and software made obsolete by the implementation of new software, (2) the cost of moving to a new headquarters building including charges for the write-off of leasehold improvements and other abandonment costs and (3) implementation costs related to new software through December 1997.
During the fourth quarter of 1997, the Company also made certain changes in estimates totaling $2.0 million consisting of provisions for excess and obsolete inventory of $1.0 million and increases in allowance for doubtful accounts for accounts receivable and other assets of $1.0 million.
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 provides for the termination of 54 employees (19 employees in the United States and 35 employees in Europe). The exit plan is expected to be completed in 2000. The restructuring charge and the amount settled are summarized as follows:
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.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES
Board of Directors Ultrak, Inc.
In connection with our audit of the consolidated financial statements of Ultrak, Inc. and Subsidiaries referred to in our report dated February 12, 2000, 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, 1999. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein.
GRANT THORNTON LLP
Dallas, Texas February 12, 2000
S-1
SCHEDULE II
ULTRAK, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1999, 1998, and 1997
Notes
(1) Balances recorded from business combinations.
(2) Balances written off.
S-2 EXHIBIT INDEX
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* Exhibits 10.21, 10.22, 10.23, 10.24, 21.1 and 27.1 are filed herewith.