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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-9463
ULTRAK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2626358
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1301 WATERS RIDGE DRIVE
LEWISVILLE, TEXAS 75057
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 353-6500
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in a definitive proxy to be filed or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of March 15, 2002 was $10,702,912. As of that date 1,132
shares of the Registrant's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 15, 2002 was $10,536,026 As of that date 1,132 shares of
the Registrant's Common Stock were outstanding.
PART I
ITEM 1. BUSINESS
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GENERAL
Ultrak, Inc. (the "Company" or "Ultrak") is one of the leading global
electronic security companies in the world. Ultrak designs, manufactures,
markets, sells and services innovative electronic products and systems for
security and surveillance, industrial video and professional audio markets
worldwide. These products and systems include high-speed domes, monitors,
switchers, quad processors, video management systems, digital and analog
recorders, multiplexers, video transmission systems, access control systems,
cameras, lenses, observation systems, audio equipment and accessories. Brand
names include Ultrak, MaxPro, Exxis, Smart Choice and Phoenix. Customers,
defined as end users of Ultrak products and services, range from single
location, sole proprietor businesses to universities and government facilities.
Sales to the professional security markets are made through the Company's
channel partners.
Ultrak operates sales, distribution and manufacturing locations worldwide.
The Company has sales offices in six U.S. cities as well as offices in Great
Britain, Germany, Italy, Poland, Switzerland, Singapore, Australia and South
Africa. Ultrak also has active representation through Company sales
representatives and systems integrators in China, Canada, Mexico and Brazil.
Customers are supported by nine distribution centers worldwide located in Texas,
Ohio, Great Britain, Germany, Italy, Poland, Switzerland, Australia and South
Africa and manufacturing facilities located in Texas, Ohio and South Africa.
The Company was incorporated in Colorado in 1980 and re-incorporated in
Delaware in December 1995. In 1997, the Company built a 170,000-square foot
warehouse and headquarters facility (the "Headquarters Facility") known as the
Ultrak Worldwide Support Center located in the north Dallas suburb of
Lewisville, Texas.
FOURTH QUARTER 2000 CHARGE
Beginning in August 2000, the Company assembled a new management team. The
management team included a new President, Chief Financial Officer, Senior Vice
Presidents of U.S. Sales, Engineering and International Markets and Vice
Presidents of Worldwide Marketing and General Counsel. The team promptly
implemented several strategic initiatives as part of a Company-wide
restructuring program:
o to reduce personnel costs
o evaluate sales and engineering resources
o emphasize Ultrak-branded product lines
o decentralize European warehousing
o improve inventory management
o develop consistent global marketing strategies
o streamline product development process.
These strategic initiatives resulted in tremendous changes to the Company
and necessitated a significant charge of $42.3 million (the "2000 Special
Charge") in the fourth quarter of 2000. The 2000 Special Charge consisted of
severance for terminated employees in the United States and Europe, inventory
write-offs for non-Ultrak products and returned goods deemed uneconomical to
repair, lease terminations and relocation in Europe, as well as write-downs of
intangible assets, internal use software, software development costs and other
assets.
2
IMPROVEMENTS IN 2001
As a result of the management changes and the new strategic initiatives, the
Company improved margins, reduced operating losses, disposed of non-core
business units, raised additional equity capital and reduced debt levels.
Excluding the effect of the 2000 Special Charge, gross profit improved a
total of 1.4%. The margin increase is due to a more efficient slow-moving
inventory disposition program as well as a more stabilized and streamlined
product development process.
In addition to the margin improvements, operating expenses were $11.4
million less in 2001, excluding the effect of the 2000 Special Charge, which in
2001 included $1.6 million in credits, and the $4.5 million loss recorded on the
sale of the Headquarters Facility in 2001.
Operating losses in 2001 were reduced by $3.5 million from the prior year,
excluding the effect of the 2000 Special Charge and the loss recorded on the
sale of the Headquarters Facility in 2001, despite a decrease in revenue of
almost $40 million. The Company's European operations showed substantial
operating improvements in 2001.
The Belgium facility that previously housed a centralized European warehouse
management and logistics support group was sold in December 2001. All of the
inventory at that location was either scrapped or transferred to other European
subsidiaries by the end of the second quarter of 2001. French operations were
discontinued in 2001 with the sale of the French closed circuit television
("CCTV") inventory and the audio inventory. The sale of that inventory, in
addition to the transfer of the French personnel to the acquiring company,
allowed the Company to avoid $0.5 million in severance costs. Management expects
the sale of the Belgium and French businesses to yield an annual cost savings of
$1.5 million.
In order to streamline manufacturing operations, the Company closed its
manufacturing facility in Australia, but maintains a sales office and service
center in that location. Management expects this closure to generate an annual
cost savings of $1.0 million.
Part of the new strategy created by management was to dispose of non-core
business units. Consequently, the Company sold its Industrial Furnace Camera
business in July 2001 for $2.6 million. Also, in a sale-and-leaseback
transaction, the Headquarters Facility was sold at the end of 2001 for $6.6
million. This lowered the annual financing cost by one-third to $60,000 per
month. The Company retains an option to buy back the Headquarters Facility at
the end of 24 months for $6.9 million. The mortgage on the building was paid
off. The purchase of the Headquarters Facility required that George K. Broady,
the Company's Chairman and CEO, execute a personal guarantee in connection with
the sale-and-leaseback of the Headquarters Facility. As consideration for this
guarantee, the Company's Board of Directors authorized the issuance of common
stock purchase warrants to Mr. Broady. See Note D to the Company's Consolidated
Financial Statements for additional information on this transaction.
In October 2001, the Company received $4.1 million in equity from the
private placement of 2.3 million shares of unregistered common stock.
The Company reduced its line of credit by $20.4 million in 2001. This was
due in part to the $24.0 million of proceeds from the sale of its investment in
Detection Systems, Inc. in January 2001.
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STRATEGIES
The basic strategies that the current management team put in place remain
unchanged. The priorities are in margin improvement, marketing, distribution
channels and international opportunities.
o Improving gross profit margin
The strategies are focused on improving profit margins. New product launches
are oriented toward the higher-margin digital video products, the first
comprehensive digital line-up in the industry. Products are engineered to be
simpler and more modularized, which should improve manufacturing and
distribution efficiency. Aggressive cost cutting measures are being pursued for
both in-house and contract manufacturers. Products mixes are shifted toward
higher-margin cameras and video switches.
o Enhancing marketing and product management
While overall spending has been reduced, the Company is investing more in
marketing and product management. Emphasis is being made to enhance the market
awareness of Ultrak's superior products and services. A more disciplined
approach to product management has been instituted to strategically develop the
Company's product lines. Profit and loss is now being tracked for each product
line to measure profitability and to identify the impact of new marketing
initiatives.
o Expanding distribution channels
Ultrak views the end users of its security solutions as its ultimate
customers and delivers these solutions through its channel partners, primarily
dealers and installers. Management began inviting groups of dealers and
installers to the Company's Headquarters Facility for two days of training and
product demonstration ("Dealers' Days") several times throughout the second half
of 2001. Dealers' Days generated significant enthusiasm among the Company's
channel partners and increased their knowledge of the breadth of Ultrak
offerings. Management sees the building of this awareness, substantiated by the
successive introductions of new products, as a long-term process to expanding
the Company's distribution channels and increasing its revenue opportunities.
o Increasing international opportunities
Management believes that increased focus on international distribution is an
effective use of the Company's resources. Ultrak's international businesses
showed significant operating improvements. Management sees more opportunity in
distribution outside the US. Significant revenue growth in 2001 was accomplished
in Italy, Poland and South Africa. See Note K to the Company's Consolidated
Financial Statements for additional information on sales by country.
4
ACQUISITIONS
The Company did not consummate any acquisitions in 2001 or 2000. As part of
the new strategic initiatives, the priority is to further integrate existing
engineering and product development capabilities, acquired through multiple
transactions prior to 2000, rather than acquiring additional companies. Ultrak
will still consider acquisitions when appropriate opportunities are presented.
Effective March 1, 1999, the Company acquired ABM Data Systems, Inc.
("ABM"), based in Austin, Texas, which develops, sells and services computer
software for the alarm monitoring security industry, government agencies and
proprietary customers and offers support for computer software targeted for the
automated security monitoring markets, for 250,000 shares of Common Stock,
valued at $1.5 million. Effective April 1, 1999, the Company acquired 100% of
the stock of Multi Concepts 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's net income and book value. Effective July 1, 1999, the
Company acquired 100% of the stock of MACH Security Sp.z.o.o ("Mach"), based in
Szczecin, Poland. Total consideration included an initial payment of $275,000 in
cash and future contingent payments based upon a percentage of MACH net income.
DIVESTITURES
On December 31, 2001, the Company`s French subsidiary sold its CCTV
inventory and other intangibles to Bisset Technology Systems ("BTS") for a
nominal amount. BTS assumed the transfer of the Company's French CCTV employees.
No gain or loss was recorded on this sale.
On October 15, 2001, the Company's French subsidiary sold its audio
inventory and other intangibles to Audio Club for $312,000. A loss of $175,000
was recognized on this transaction in 2001.
On July 27, 2001, the Company sold the industrial furnace camera business to
Diamond Power International, Inc. for total cash consideration of $2.6 million.
The assets sold consisted primarily of accounts receivable, inventories, fixed
assets, patents, trademarks and other intangibles. A gain of $1.3 million was
recognized in 2001 on the transaction.
On September 13, 2000, the Company sold certain inventory and assets of
Monitor Dynamics, Inc. to Ameritron, Inc. for two short-term notes totaling
$925,000. These notes were paid in full by October 2001. Ameritron also entered
into an agreement to sublease a portion of Ultrak's Rancho Cucamonga facility.
No gain or loss was recorded on this sale.
On July 1, 2000, the Company sold substantially all of its UK-based
business, Intervision Express Ltd. ("Intervision"), to Norbain SD, Ltd.
("Norbain"), a UK-based distributor of CCTV and access control equipment. The
Company received approximately $2.1 million in cash for inventory and certain
other assets including use of the Intervision trade name. Ultrak retained
accounts receivable and the right to sell Ultrak branded products directly to
systems integrators and installers in Intervision's previous market of the UK
and Ireland. A loss of approximately $840,000 was recognized on the sale.
Ultrak granted Norbain distribution exclusivity for Ultrak's Diamond series
dome product line and its CCTV products in the UK and Ireland. To maintain its
exclusivity, Norbain entered into a distribution and OEM purchase agreement
whereby it must buy at least $6.0 million of Ultrak-branded CCTV products and
dome systems during the term of the agreement ending on December 31, 2002. As of
December 31, 2001, Norbain has purchased $3.2 million pursuant to the terms of
the agreement.
PRODUCTS AND SERVICES
It is the Company's objective to set new standards in quality, performance
and value by providing single-source security solutions to its customers in the
form of integrated systems. An integrated system includes more than one of the
following components controlled from a single device or console: CCTV, networked
video, access control, video management and alarm management. Ultrak
differentiates itself from the competition through its integration support
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services provided by its Integrated Systems Group ("ISG") which provides
application engineering, design, installation, implementation, training and
technical support through its dealer base. The advantages of an integrated
system to the end user are numerous. It improves ease of operation, security,
health/safety and loss prevention, and also reduces maintenance and training
costs. Ultrak's management believes that integrated systems provide customers
maximum functionality at competitive prices. Ultrak's integrated systems are
found in manufacturing facilities, airports, office complexes, government
agencies, hospitals, casinos, retail stores and other organizations.
Ultrak sells the following standard products and services to complete its
integrated systems offering:
o Full line of black-and-white and color cameras
o Nitrogen-pressurized cameras and domes for applications where a dirt-free
environment is critical
o Complete range of lenses
o High speed, remote-controlled domes and housings, including the new
Z-series, a low cost dome family targeted for cost-conscious applications
o Video transmission equipment
o Digital processors (quads and multiplexers), switchers and video
management systems, including patented video management technology
o Time-lapse and digital video recorders
o Black and white and color monitors
o Ruggedized cameras, monitors and recorders for mobile video applications
o Observations systems (monitor, quad process, camera and related
accessories packaged in one box) and accessories
o Access control systems from single door to multi-station applications over
LAN/WAN
o Public address and professional audio equipment
o Alarm management software for central monitoring and proprietary
monitoring stations
o ISG services
Ultrak relies on OEM relationships to satisfy the majority of its standard
products such as cameras, monitors, VCRs and accessories. Most of these products
are engineered to Ultrak specifications and undergo thorough technical
evaluation prior to release. Dome products are engineered and assembled by
Ultrak at its Carroll (Columbus) Ohio facility (the "Ohio Facility"). In 2002,
Ultrak is releasing its new line of low-cost domes, the Z- series, which is
targeted to retail applications.
Ultrak engineers a complete range of access control software from its
facility in Rancho Cucamonga, California (the "California Facility") and the
Headquarters Facility. Ultrak offers solutions covering a single door through
high-security, multiple location networked environments. The Company outsources
hardware manufacturing for access control products. In 2002, the Company will
introduce its next generation of PointGuard that provides multi-workstation
capabilities. The Company will also move forward with its well-known SAFEnet(TM)
application offering additional features, new hardware with flash download and
the new PB2000 processor board.
Video management, marketed under the Maxpro(TM) brand name, is being
repositioned to focus on its Mini-Max line of products, aimed at small to
mid-sized applications. Ultrak will continue with new releases of Phoenix(TM),
its central station and proprietary alarm management solution engineered at its
Austin, Texas facility (the "Austin Facility) focusing on video, accounting and
service package integration.
Through its ISG group, Ultrak also sells system design, integration and
support services through its dealers on an as needed basis. Ultrak anticipates
that these integration and support services will be a growing revenue source for
the Company based on the complexity and changing nature of the Company's
products.
6
MARKETING AND SALES
Ultrak sells through highly focused selling groups organized around its
target markets. These groups include the Professional Security Group ("PSG"),
both U.S. and international and the Diversified Sales Group ("DSG"). Ultrak's
customer-focused structure allows for individual attention to each target
market, quick response to customer needs and early identification of market
requirements. The Company reaches each target market through regional sales
professionals supported by inside sales executives, product catalogs, direct
mail, magazine advertising and industry trade shows.
PROFESSIONAL SECURITY GROUP
PSG is responsible for sales in the commercial channel. Ultrak provides one
point of sales contact to the customer, utilizing regional sales executives who
support sales across all product segments including CCTV, access control, video
management and alarm management. Customers include banks, schools, casinos,
large retail chains and government facilities. These customers include such
prominent names as Wal-Mart, American Express, Cartier, John Deere, Caterpillar
and MBNA. Regional sales executives receive support from product and market
specialists, ISG and inside sales support. ISG also works directly with the
dealer/integrator and/or the end user to define requirements, engineer the
solution and provide project management of installation and implementation when
required.
Ultrak has strong relationships with local, regional and national
dealer/integrators such as Diebold, and with regional and national distributors,
including ADI. In order to increase revenue, the sales effort is spread between
end user, dealers/systems integrators, national accounts and distribution.
Ultrak believes its role is to establish and solidify its relationship with its
channel partners, direct business opportunities to them and provide additional
competitive resources to its distributors enabling them to capture more
business. Team Ultrak and Ultrak Select, Ultrak's key dealer and distributor
programs, are used to reward loyal channel partners with special sales and
marketing incentives.
Ultrak began actively pursuing the international market in 1995. Ultrak sells
its products and systems in a number of countries including Mexico, Brazil,
Great Britain, 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, now divested), VideV (Germany),
Intervision (the United Kingdom, now divested), 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.
The majority of products are marketed under the Ultrak brand name. PSG
competitors include Pelco, Tyco (including Sensormatic), Philips, Lenel,
GE/Interlogix and others. There are a number of smaller competitors in the
digital video recording market.
7
DIVERSIFIED SALES GROUP
CONSUMER/DO-IT-YOURSELF:
Small businesses and homeowners are installing video observation systems to
replace or supplement conventional alarm systems as the cost of CCTV products
decline. The consumer/do-it-yourself security and surveillance market consists
of end users who purchase security and surveillance systems and install the
systems themselves in their small businesses or homes. Video products sold into
this market are characterized by affordability, aesthetic designs, ease of
installation/maintenance and mobility. The typical product for this market is a
wired or wireless observation system, and consists of a camera, a monitor, a
switcher or quad processor and, optionally, a video recorder. These products are
available in either black and white or color models. Ultrak markets these
products under the Exxis (TM), Focus (TM) and Smart Choice (R)brand names.
Consumer/do-it-yourself CCTV products are sold through Ultrak's call center,
mass merchandisers, warehouse clubs, electronic retail stores and office product
superstores, as well as through retail catalogs. Ultrak's call center also
offers after-market sales and technical support through telephonic interface
with consumers as well as its e-commerce website, SecurityandMore.com.
Competitors in this segment include Lorex, which sells under the Sylvania and
Lorex brand names, Mansoor Electronics, sold under the Home Sentinel brand and
numerous direct importers.
INDUSTRIAL:
This business is divided into Industrial Vision Source ("IVS") and Traffic.
IVS is a distributor of video products used in various production and
manufacturing processes. Manufacturers include Sony, Panasonic, Hitachi, and
JVC. The Company sells to this market through systems integrators who assemble
and sell equipment that incorporates video cameras. Typical applications include
machine vision, computer imaging, robotics, microscopy and high-speed
inspection. The use of industrial video offers more precise assessment than
human visual inspection and can measure image parameters that are imperceptible
to the human eye. These systems are also used to remotely monitor automated
assembly lines to ensure that each process on the assembly line is accurately
and completely performed. Additional industrial applications are emerging as new
equipment is developed and as production automation levels increase.
The industrial vision market is heavily dependent on sales to customers in
the semiconductor industry. There are numerous competitors in this segment
including name brand manufacturers selling direct, importers and other
distributors. The Company uses a combination of its own inside sales force and
outside representatives to sell these products to dealers and OEM accounts.
While most of the sales are made over the telephone, Ultrak representatives also
attend industry trade shows to meet with key customers and vendors. Advertising
and leads provided by the manufacturers supplement the Company's sales efforts
in this area.
Ultrak's Traffic division consists primarily of rugged dome products and
switching equipment, engineered by Ultrak. Sales are made through a dealers and
systems integrators. These products are specific to the traffic-surveillance
market.
BRANDING
Ultrak uses various brand names to minimize market channel conflicts and to
differentiate products by features, applications and price. The Company's
proprietary brand names, many of which are registered trademarks, include Ultrak
(R), Maxpro(TM), Videosys(R), SAFEnet(TM), Pointguard, Exxis(TM), Focus(TM),
Smart Choice(R), Phoenix(TM), Industrial Vision Source(TM),
Securityandmore.com(TM) and ESS(TM). The vast majority of the products sold by
the Company carry Ultrak brand names. The Company also sells brands such as
Panasonic, Mitsubishi, and Sony to complete the product line.
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PRODUCT DESIGN AND DEVELOPMENT
In addition to traditional research and development activities, Ultrak's
engineering and product development staff worldwide works directly with its
customers to design new products and product enhancements, and coordinates with
its contract suppliers to manufacture certain Ultrak branded products. Ultrak's
engineering staff works with its selling and marketing groups to develop new
products and product line extensions, and to promptly respond to customer needs
on a worldwide basis. Consequently, Ultrak believes that it can develop
technologically superior products with customer-desired performance capabilities
that address new applications at lower prices than competitive products. The
Company's products are becoming more software-driven to support the integration
of technologies and functions into its customers' existing networks.
Because of the complex and highly specialized requirements of Ultrak
products and systems, Ultrak's engineers are experienced in a wide range of
disciplines including charged-coupled device ("CCD") technology, analog and
digital signal processing, CCTV management and switching technology, computer
based access control technology, facility management technology and high speed
dome technology. In addition, the Company's international contract manufacturers
employ a number of engineers who are primarily dedicated to research and
development efforts of products sold by Ultrak.
In 1999, the Company introduced its computer-based SAFEnet NT system, the
Windows-NT((R)) version of Ultrak's flagship line of integrated access control
and security systems. SAFEnet NT provides a stable, flexible platform for the
integration of new functions and technologies. At the end of 2000, Ultrak
reintroduced an improved version of PointGuard, its solution to the low to
mid-range access control market, and introduced Eurocorder II, its digital video
recorder.
In the first quarter of 2002, Ultrak released upgrades of SAFEnet NT,
including new hardware, and PointGuard for multi-workstations, expanding its
range of access control solutions for low to high-end applications. Ultrak will
also introduce an expanded line of Z-series domes to cover the entry-level dome
market and ruggedized cameras for applications subject to tampering and
vandalism. Ultrak will continue its focus on digital recording options using a
combination of Ultrak manufactured products and OEM products. Ultrak believes
that the market for digital recording is highly fragmented and will require a
variety of solutions to meet diverse customer demands and requirements.
SUPPLIER RELATIONSHIPS
Contract manufacturers produce the majority of Ultrak-branded products. In
most of its vendor relationships, the Company believes the relationship is as
important to the supplier as it is to the Company. Thus, the Company believes
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.
Because of foreign production lead times, the Company normally makes
purchase commitments to its foreign suppliers three to six months in advance of
shipment. Given order lead times, accurate inventory forecasting is critical.
Ultrak's objective in 2002 is to continue reducing the working capital utilized
in its inventories, making it necessary to work closer with its suppliers to
reduce lead times.
The Company's primary contract manufacturer is ISO9001 certified. When goods
are delivered to Ultrak, a random sampling quality assurance procedure is
performed. Selected units are verified for functionality, proper packaging,
labeling and documentation, and variations greater than an agreed upon
percentage are corrected at the vendor's cost. Ultrak offers a limited warranty
on its products. The Company generally warrants that its products will conform
to Ultrak's published specifications and be free from defects in materials and
workmanship at the time of sale up to a specified period of time. Ultrak also
offers extended warranties for sale on its consumer products.
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Substantially all of the Company's purchases from its non-affiliated
contract manufacturers are made in United States Dollars or Euro; most of the
remaining purchases are made in Japanese Yen, Australian Dollars, South African
Rands and British Pounds. In 2001, the Company was adversely impacted by the
strengthening of the U.S. dollar, as its international subsidiaries import
products quoted in U.S. dollars or U.S. dollar-linked currencies.
OPERATIONS
A critical element of the Company's operations is its management information
systems. In early 1997, the Company selected SAP, a leading enterprise software
system, for its domestic information needs. As of February 1998, the Company had
successfully completed the SAP conversion process at the Headquarters Facility.
As of July 2000, the Company successfully completed the SAP conversion process
at its Ohio Facility and at its Austin Facility, effectively linking all North
American sales and manufacturing operations. As previously anticipated, SAP
united Ultrak and all of its domestic subsidiaries with a common inventory,
sales, accounting/financial and database management system. Through laptop
computers, the Ultrak domestic sales team can easily communicate with the host
system from any remote location. The Company selected "Exact", a multi-lingual,
multi-currency and Euro-compliant software for its European information needs.
Most of the Company's European operations are now operational on the "Exact"
software and linked together with a common inventory, sales, accounting and
financial system.
Ultrak's Worldwide Support Center is ISO 9002-1994 registered and transition
to the ISO 9000:2000 will be completed by September 2003. All other Ultrak
facilities are currently working to obtain ISO 9000:2000 registration.
As part of a continuing effort to improve quality, the Company has an
internal audit program. Internal auditors are trained to monitor and evaluate
the quality of Ultrak's products to ensure their reliability. These products
must meet specific requirements and are inspected at least once before they are
released to the customer. The auditors report and correct both nonconformance
and potential nonconformance by using failure rate data analysis to identify
trends. Analysis of these trends helps detect and prevent nonconforming product.
Additionally, product line audit data is analyzed to evaluate the quality of the
production process.
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 by
in-house sales personnel. After the computer system performs an automated check
of the customer's account and credit limit, the order is released for shipment.
Ultrak ships most items within 24 hours of receipt of the order. The Company's
domestic stocking warehouse locations are the Headquarters Facility and the Ohio
Facility. Approximately 90% of all domestic shipments are made from the
Headquarters Facility.
On-time delivery, order accuracy and superior customer service are the key
goals for Ultrak's operations. To further its customer service abilities, the
Company is currently evaluating new manifest software to provide instant e-mail
notification of tracking details for customer shipments. There is also an
increased focus on operational performance by reducing slow-moving inventory and
improving inventory turnover. This will reduce future carrying costs and improve
operating efficiency.
In August 2001, Ultrak implemented salesforce.com, an on-line customer
relationship management (CRM) tool, within the sales, marketing and technical
support organizations. Ultrak uses salesforce.com for sales force automation,
customer service and support and marketing automation. With salesforce.com, the
Company is able to gather customer information in a central data repository for
use in providing accurate sales forecasts, determining vertical market segment
strengths, collecting data on product issues for future development and
assigning return on investment for specific marketing activities. It also
ensures customer transactions are documented, eliminating the concern associated
with losing knowledge when a specific employee is not available to assist a
customer.
Professional in-house repair is also provided through the Headquarters
Facility. A key focus for the service center is to provide reliable and economic
repair in a professional and timely manner. The service center offers
10
standardized pricing for non-warranty repairs and offers 24-hour to 72-hour
repair service to its customers. The Company has also authorized two service
centers in Mexico to perform these repairs. Management is evaluating additional
locations in Canada and South America.
TRAINING
The Company considers continuous training of its customers to be critical in an
increasingly competitive market. In 2001, the Company's training capabilities
were expanded to include formal training certification on the MAX 1000 CCTV
switch product in the Las Vegas office. Multiple training sessions on Ultrak's
products and systems are held throughout the year with salespeople, customers
and field installation technicians attending to learn more about our technology
and products. In 2002, training will be expanded to include on-site training for
end users and systems integrators, and long distance learning computer-based
training programs. Dealers and systems integrators will be required to complete
and maintain certification for key Ultrak products, or to utilize ISG to ensure
customer satisfaction.
BACKLOG
Because purchase orders are subject to cancellation or delay by customers
with limited or no penalty, the Company's backlog is not necessarily indicative
of future revenues or earnings. Since the Company ships most products within 24
hours of receipt of the order, the Company believes that backlog is not a
significant measurement of the Company's financial position.
INTELLECTUAL PROPERTY
As part of its ongoing engineering and development activities, Ultrak seeks
patent protection on inventions covering new products and improvements when
appropriate. Ultrak currently holds a number of United States and foreign
patents and has a number of pending patent applications. Although the Company's
patents have value, the Company believes that the success of its business
depends more on innovation, sales efforts, superior customer service, technical
expertise and knowledge of its personnel and other factors. The Company also
relies upon trade secret protection for its confidential and proprietary
information. Many of the Company's brands are registered trademarks owned by the
Company.
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, ease of integration 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 to the Company's products.
The Company considers its major competitors to be Tyco (including
Sensormatic), Philips, Panasonic, Pelco, Lenel, GE/Interlogix and Samsung.
11
EMPLOYEES
As of December 31, 2001, the Company had 545 full-time employees employed
worldwide as compared with 568 full-time employees worldwide as of December 31,
2000, at 12 primary locations:
o 212 sales and sales support personnel
o 93 warehouse and manufacturing personnel
o 54 technical and service personnel
o 79 engineering and product development personnel
o 107 administrative and managerial personnel
The Company's future success will depend in large part upon its ability to
attract and retain highly skilled technical, managerial, financial and marketing
personnel, in a market where such people are in demand. No employee is
represented by a union or covered by a collective bargaining agreement and the
Company has not experienced a work stoppage or strike. The Company considers its
employee relations to be good.
ITEM 2. PROPERTIES
----------
The Company moved to the Headquarters Facility in January 1998. The
Headquarters Facility is comprised of approximately 170,000 square feet of
office and warehouse space located on 14 acres of land in Lewisville, Texas.
Prior to the end of 2000, the building was financed through a synthetic lease,
therefore keeping the asset and the liability off the balance sheet. In January
2001, the Company elected to pay down the balance of the financing from $11.5
million to $10 million, effectively acquiring the building and the mortgage
simultaneously. This amount was subsequently paid down to $6.3 million. The
Headquarters Facility was sold in December 2001 for $6.6 million in a sale and
lease back transaction. As part of the sale, the Company will lease the
Headquarters Facility for a term of 30 months beginning in January 2002 at an
annual cost of $720,000. The lease includes an option to purchase the
Headquarters Facility for $6.9 million at the end of 24 months.
The Company owns its 72,000 square foot manufacturing facility in Carroll
(Columbus), Ohio and leases its facility in Rancho Cucamonga, California.
The Company also leases additional office/distribution warehouse space in
Austin, Texas; Las Vegas, Nevada; Warrington (Manchester), Great Britain; San
Vendemiano (Venice), Italy; Dusseldorf, Germany; Crissier (Lausanne),
Switzerland; Szczecin, Poland; Perth, Australia; Johannesburg, South Africa and
Singapore.
The Company established a centralized, European headquarters facility in
Antwerp, Belgium in 1999 to coordinate efforts among its foreign operations.
Customer service under the centralized structure suffered and the cost to
operate this facility proved to be unjustified. In 2001, the Company sold the
Belgium headquarters building and discontinued centralized distribution.
Inventory was transferred to the Company's European offices located in the Great
Britain, Germany, France, Italy, Poland and Switzerland. The Company also
relocated its international administrative and financial functions to the Great
Britain where it currently maintains a sales and operations facility.
The Company considers the above facilities suitable and adequate to meet its
requirements.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company's French subsidiary is currently involved in multiple employee
suits in France. Some of the employees who were dismissed as part of the
restructuring plan implemented in the fourth quarter of 2000 have asserted that
they were wrongfully terminated. Although the Company believes these suits will
be settled on a favorable basis, a $108,000 provision against future legal costs
was recorded in the fourth quarter of 2001.
Ultrak is subject to various other legal proceedings and claims, either
asserted or unasserted, that can arise in the ordinary course of business.
Although the outcome of these claims cannot be predicted with certainty, Ultrak
does not believe that any of these existing legal matters will have a material
adverse effect on its financial conditions or results of operations.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
At a special meeting held on November 30, 2001, the stockholders approved
the exercise by the Company of an option to sell Mr. Niklaus F. Zenger
("Zenger") 293,879 additional shares of Ultrak Common Stock. The Company
previously sold Zenger 2,337,700 shares of Common Stock in a private placement
for $4,441,630.00 in aggregate proceeds. At the special meeting, stockholders
also approved the sale by Mr. George K. Broady ("Broady") of 195,351 shares of
the Company's Series A 12% Cumulative Convertible Preferred Stock ("Series A
Preferred Stock") to Zenger and the grant of voting control of 1,150,000 shares
of the Company's Common Stock owned by Broady to Zenger until June 2002.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
MARKET PRICE AND DIVIDENDS
The Company's $.01 par value common stock ("Common Stock") commenced trading
on the NASDAQ Stock Market's NASDAQ National Market ("NASDAQ National Market")
on January 18, 1994, under the symbol "ULTK". Before that time, the Common Stock
was traded in the over-the-counter market. Prices shown do not include
adjustments for retail markups, markdowns or commissions. The following table
sets forth the high and low closing prices on the NASDAQ National Market for the
periods indicated:
HIGH LOW
2001 ---- ---
Fourth quarter $ 2.82$ 1.30
Third quarter 2.52 1.18
Second quarter 3.15 2.19
First quarter 5.88 2.34
2000
Fourth quarter $ 6.50$ 2.81
Third quarter 10.25 5.75
Second quarter 11.88 6.00
First quarter 13.25 6.38
As of March 15, 2002, there were approximately 1,132 holders of record of
the Common Stock.
The Company has never paid cash dividends on the Common Stock. The Company
presently intends to retain future 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.
Dividends in the amount of $117,210 have been paid annually since the
issuance of the Series A Preferred Stock and the Company intends to continue to
pay dividends on outstanding shares of Series A Preferred Stock.
13
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, 2001, 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 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.
Consolidated Financial Statements and related notes for 1997 and 1998 are not
included. See acquisition and divestiture discussions in Item 1. Because of
these transactions, the income statement and balance sheet data presented below
may not be comparable from year to year.
YEARS ENDED DECEMBER 31
(In thousands, except per share data)
-----------------------------------------------------------------------
INCOME STATEMENT DATA: 2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Net sales.......................................... $ 161,707 $ 199,998 $ 208,201 $ 196,998 $ 177,837
Cost of sales...................................... 111,809 153,436 140,832 134,692 124,304
--------- --------- --------- --------- ---------
Gross profit....................................... 49,898 46,562 67,369 62,306 53,533
Selling, general and administrative expenses....... 48,027 71,123 56,677 49,554 45,350
Asset impairment................................... 4,466 19,798 -- -- --
Special charges.................................... -- 1,115 3,875 -- 3,122
Depreciation and amortization...................... 5,311 6,482 5,911 4,667 3,971
--------- --------- --------- --------- ---------
Total operating expenses.................... 57,804 98,518 66,463 54,221 52,443
--------- --------- --------- --------- ---------
Operating profit (loss)............................ (7,906) (51,956) 906 8,085 1,090
Other income (expense)............................. 5,542 (9,876) 1,052 461 2,953
--------- ---------- --------- --------- ---------
Income (loss) from continuing operations before
income taxes....................................... (2,364) (61,832) 1,958 8,546 4,043
Incomes tax benefit (expense)...................... 903 4,145 (1,286) (3,589) (1,726)
--------- --------- ---------- ---------- ----------
Income (loss) from continuing operations........... (1,461) (57,687) 672 4,957 2,317
Income (loss) from discontinued operations......... -- -- (107) (1,402) 84
--------- --------- --------- ---------- ---------
Net income (loss)........................... (1,461) (57,687) 565 3,555 2,401
Dividend requirements on preferred stock........... (117) (117) (117) (117) (117)
---------- ---------- ---------- ---------- ----------
Net income (loss) allocable to common stockholders. $ (1,578) $ (57,804) $ 448 $ 3,438 $ 2,284
========== ========== ========= ========= =========
Weighted average shares outstanding - diluted...... 12,183 11,686 12,300 14,776 15,224
Income (loss) per common share from continuing
operations - diluted............................... $ (0.13) $ (4.95) $ .05 $ 0.34 $ 0.15
========== ========== ========= ========= =========
Net income (loss) per common share - diluted....... $ (0.13) $ (4.95) $ .04 $ 0.24 $ 0.15
========== ========== ========= ========= =========
BALANCE SHEET DATA:............................... 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Working capital.................................... $ 28,223 $ 23,650 $ 79,714 $ 90,192 $ 94,064
Total assets....................................... 121,764 143,497 200,350 196,626 185,256
Short-term debt.................................... 15,821 37,380(1) 1,149 -- --
Long-term debt..................................... 6,600 -- 37,000 37,500 --
Stockholders' equity and equity put options........ 78,773 77,248 132,663 140,030 163,198
1 Due to losses in 2000, the line of credit was reclassified from long-term debt
to short-term debt.
14
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
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.
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.
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.
Selling, general and administrative costs include salaries, commissions and
related benefits, depreciation, telephone, advertising, warranty, printing,
product literature, sales promotion, legal, audit and other professional fees,
supplies, engineering and travel.
The Company's consolidated financial statements are denominated in U.S.
dollars and, accordingly, changes in the exchange rate between the Company's
subsidiaries' local currencies and the U.S. dollar will affect the conversion of
such subsidiaries' financial results into U.S. dollars for purposes of reporting
the Company's consolidated financial results. Translation adjustments are
reported as a separate component of stockholders' equity
A substantial portion of the Company's purchases and sales are derived from
operations outside the United States. Since the revenues and expenses of the
Company's foreign operations are generally denominated in local currency,
exchange rate fluctuations between local currencies and the U.S. dollar subject
the Company to currency exchange risks with respect to the results of its
foreign operations. Therefore, the Company is subject to these risks to the
extent that it is unable to denominate its purchases or sales in U.S. dollars or
otherwise shift to its customers or suppliers the effects of currency exchange
rate fluctuations. Such fluctuations in exchange rates could have a material
adverse effect on the Company's results of operations. The Company did not have
any foreign exchange forward or currency option contracts outstanding at
December 31, 2001.
The following discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto included herein.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results
of operations are based upon the Company's consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of financial
statements requires management 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 the reported amounts
of revenues and expenses during the reporting period. Because of the use of
estimates inherent in the Company's financial statements, actual results could
differ from those estimates.
The Company believes the following critical accounting policies are affected
by significant judgments and estimates used in the preparation of its
consolidated financial statements.
15
Inventory valuation
The Company writes down its inventories for estimated obsolescence, returned
inventory deemed not economical to repair or discontinued product lines to its
estimated net realizable value. The estimate is based upon historical results,
current and expected sales trends, the amount of current inventories on hand and
market conditions. If market conditions become less favorable than those
expected by management, then additional inventory write-downs may be required.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make payments. To estimate this
allowance, the Company analyzes the composition of its accounts receivable,
historical bad debts, customer concentrations, customer creditworthiness and
current economic trends. If the financial condition of the Company's customers
were to deteriorate and result in an impairment of their ability to make
payments, additional allowances may be required.
Goodwill
The Company periodically reviews the carrying value of its goodwill when
events and circumstances warrant such a review. As of December 31, 2001, the
method used by the Company for this review was the estimate of future cash
flows. If the carrying value of the Company's goodwill was considered impaired,
an impairment charge was recorded for the amount by which the carrying value of
the goodwill exceeds its fair value. The Company believes its estimates of
future cash flows and fair value were reasonable; however, changes in the
estimate of such cash flows and fair value could result in future impairment
charges. Effective January 1, 2002, the Company will adopt Statement of
Financial Standards (SFAS) No. 142, Goodwill and Intangible Assets. See section
captioned "New Accounting Pronouncements."
Deferred income taxes
Significant management judgment is required in determining the realization
of net deferred tax assets and the associated valuation allowance. Due to
uncertainties related to the Company's ability to utilize the net deferred tax
asset, a valuation allowance has been recorded at December 31, 2001 against a
significant portion of the net deferred tax asset balance. Based on results of
operations in future periods, the Company may need to adjust the valuation
allowance.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Intangible Assets. SFAS No.
141 is effective for all business combinations completed after June 30, 2001.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001;
however, certain provisions of this statement apply to goodwill and other
intangible assets acquired between July 1, 2001 and December 31, 2001.
Major provisions of these statements and their effective dates are as
follows:
o all business combinations initiated after June 30, 2001 must use the
purchase method of accounting;
o intangible assets acquired in a business combination must be
recorded separately from goodwill if they arise from contractual or
other legal rights or are separable from the acquired entity and can
be sold, transferred, licensed, rented or exchanged, either
individually or as part of a related contract, asset or liability;
o goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized;
16
o effective January 1, 2002, all previously recognized goodwill and
intangible assets with indefinite lives will no longer be subject to
amortization;
o effective January 1, 2002, goodwill and intangible assets with
indefinite lives will be tested for impairment annually and whenever
there is an impairment indicator; and
o all acquired goodwill must be assigned to reporting units for purposes of
impairment testing and segment reporting
The Company amortized goodwill and intangible assets acquired prior to July
1, 2001 until December 31, 2001. Beginning January 1, 2002, goodwill
amortization will no longer be recognized. The Company intends to complete a
transitional impairment test of all intangible assets as of March 31, 2002 and a
transitional fair value based impairment test of goodwill as of January 1, 2002
by June 30, 2002. Impairment losses, if any, resulting from the transitional
testing will be recognized as a cumulative effect of a change in accounting
principle.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. This
statement is effective for fiscal years beginning after June 15, 2002. The
Company does not believe that the implementation of this standard will have a
material effect on its financial position, results of operations or cash flows.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for Impairment or Disposal of Long-Lived Assets. SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement is effective for fiscal years beginning after
December 15, 2001. The Company does not believe that the implementation of this
standard will have a material effect on its financial position, results of
operations or cash flows.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales represented by
certain items in the Company's consolidated summary of income for the indicated
periods.
YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
------ ------ ------
Net sales....................... 100.0% 100.0% 100.0%
Cost of sales................... 69.1 76.7 67.6
------ ------ ------
Gross profit.................... 30.9 23.3 32.4
------ ------ ------
Selling, general and
administrative expenses......... 29.7 35.6 27.2
Depreciation and amortization... 3.3 3.2 2.8
Asset impairment................ 2.8 9.9 --
Special charges................. -- 0.6 1.9
------ ------ -----
Total operating expenses 35.8 49.3 31.9
------ ------ ------
Operating profit (loss)......... (4.9) (26.0) 0.4
Other income (expense).......... 3.4 (4.9) 0.5
------ ------- ------
Income (loss) from continuing
operations before income taxes.. (1.5) (30.9) 0.9
Income tax benefit (expense).... 0.6 2.1 (0.6)
------ ------ -------
Income (loss) from continuing
operations...................... (0.9) (28.8) 0.3
Discontinued operations,
net of tax effects.............. -- -- (0.1)
------ ------ -------
Net income (loss) .............. (0.9)% (28.8)% 0.2%
====== ====== ======
17
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000
For the year ended December 31, 2001, net sales were $161.7 million, a
decrease of $38.3 million (19%) over 2000. This decline is due to the
discontinuation of Exxis sales to Sam's Club (see Note G to the Company's
Consolidated Financial Statements), the sale of the Industrial Furnace Camera
business, the sale of the French CCTV and audio businesses, a world-wide
recession and the translation effect of a strong U.S. dollar.
Cost of sales were $111.8 million for 2001, a decrease of $41.6 million
(27%) over 2000. Gross profit margins increased to 30.9% in 2001 from 23.3% in
2000. Cost of sales for 2000 included $12.4 million in inventory write-offs
taken as part of the 2000 Special Charge. These write-offs included $9.5 million
in inventory related to discontinued product lines and returned inventory deemed
uneconomical to repair. Exclusive of the $12.4 million in inventory write-offs
in 2000, gross profit margins increased from 29.5% to 30.9%. A more favorable
product mix also contributed to the margin increase.
Selling, general and administrative expenses were $48.0 million in 2001, a
decrease of $23.0 million (32%) over 2000. These expenses represented 29.7% of
net sales in 2001, down from 35.6% in 2000. This decrease can be explained as
follows:
o $9.5 million for asset impairment charges taken in the fourth quarter of
2000 as part of the 2000 Special Charge (see Note O to the Company's
Consolidated Financial Statements for additional detail)
o $5.0 million of expense reductions in Belgium during 2001
o $4.2 million of expense reduction in France during 2001
o $2.7 million of worldwide expense reductions during 2001
o $1.6 million of income for recovery of the 2000 Special Charge during
2001
The $1.6 million recovery of the 2000 Special Charge is comprised of the
following items:
o $0.7 million for the favorable settlement of certain liabilities in
Belgium
o $0.2 million for higher than expected proceeds on the sale of the
Belgium facility
o $0.7 million for a change in the estimate of the France restructuring
accrual, primarily related to severance obligations, resulting from the
sale of the French business
As of December 31, 2001, the Company had $0.7 million remaining in restructuring
costs:
o $0.4 million for closure costs in France
o $0.2 million for the severance of one employee in France
o $0.1 million for closure costs in Belgium
An asset impairment charge of $4.5 million, 2.8% of sales, was taken in 2001
as part of the sale and refinance of the Headquarters Facility.
Included in the Company's 2000 results is an asset impairment charge of
$19.8 million, 9.9% of net sales, related write downs of goodwill, software
development costs and the impairment of internal use software. Continuing losses
in France and Germany triggered an impairment review of the long-lived assets in
these entities during the fourth quarter of 2000. The Company analyzed projected
cash flows and concluded that the entire amount of goodwill, totaling $13.1
million for the two entities was impaired. Based on an evaluation of products
under development during the fourth quarter of 2000, $2.0 million in capitalized
software development costs, which related to product designs that were abandoned
and did not correspond with future product objectives, were written off. This
charge also included $2.9 million for the impairment of internal use software.
As a result of the outsourcing of the California and Australia manufacturing
operations in 2000, it was determined that the costs related to those operations
was impaired.
18
Depreciation and amortization expenses were $5.3 million for 2001, a
decrease of $1.2 million (18%) over 2000. These expenses represented 3.3% of net
sales in 2001, up from 3.2% in 2000. The decrease in depreciation and
amortization expense relates to the disposal of fixed assets resulting from the
closure of the Belgian and French operations, goodwill impairments in France and
Germany and the impairment and disposal of internal use software and capitalized
software development costs in the U.S.
There were no special charges in 2001, but $1.1 million of special charges
were taken in 2000. These charges were for the separation of three former
executives from the Company, severance obligations related to the outsourcing of
certain manufacturing operations in California and Australia, and a proxy
solicitation contest with Detection Systems, Inc., a company in which Ultrak
held a 21% ownership stake in 2000.
Other income was $5.5 million in 2001, compared with other expenses of $9.9
million in 2000. The other income in 2001 resulted from the $7.7 million gain on
the sale of the Company's shares of common stock of Detection Systems, Inc., a
$1.3 million gain on the sale of the Industrial Furnace Camera business, offset
primarily by interest expense. The expense in 2000 consisted primarily of
foreign exchange losses, interest expense and a $0.8 million loss on the sale of
Intervision.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999
For the year ended December 31, 2000, net sales were $200.0 million, a
decrease of $8.2 million (4%) over 1999. This decrease is primarily due to the
sale of Intervision in July 2000, the scheduled phase-out of the CCTV
distribution business in France, and the declining value of the European
currencies against the U.S. dollar.
Cost of sales were $153.4 million for 2000, an increase of $12.6 million
(9%) over 1999. Gross profit margins decreased to 23.3% in 2000 from 32.4% in
1999. This increase in cost of goods sold was primarily due to the inventory
write-offs of $12.4 million taken as part of the 2000 Special Charge. These
write-offs included $9.5 million in inventory related to discontinued product
lines and returned inventory deemed uneconomical to repair. The write-off also
provided for $2.9 million of disposals related to the closure of the European
distribution center in Belgium, as well as the sale and disposal of the French
CCTV and audio product inventory.
Selling, general and administrative expenses were $71.1 million in 2000, and
increase of $14.4 million (25%) over 2000. Out of the increase, $9.5 million was
due to asset impairment charges taken in the fourth quarter of 2000. These
charges related to the closure of the European distribution center in Belgium
($3.4 million), additional bad debt provisions ($2.4 million), the sale and
disposal of the French CCTV and audio product lines ($2.0 million), severance of
33 employees in the U.S. ($0.6 million) and other write-downs.
Depreciation and amortization expenses were $6.5 million for 2000, an
increase of $0.6 million (10%) over 1999. Depreciation and amortization expenses
for 2000 were 3.2% of net sales, up from 2.8% of net sales in 1999.
Included in the Company's 2000 results is an asset impairment charge of
$19.8 million, 9.9% of net sales, related write downs of goodwill, software
development costs and the impairment of internal use software. Continuing losses
in France and Germany triggered an impairment review of the long-lived assets in
these entities during the fourth quarter of 2000. The Company analyzed projected
cash flows and concluded that the entire amount of goodwill, totaling $13.1
million for the two entities, should be impaired. Based on an evaluation of
products under development during the fourth quarter of 2000, $2.0 million in
capitalized software development costs, which related to product designs that
were abandoned and did not correspond with future product objectives, were
written off. This charge also included $2.9 million for the impairment of
internal use software. As a result of the outsourcing of the California and
Australia manufacturing operations in 2000, it was determined that the costs
related to those operations should be impaired.
Special charge expenses of $1.1 million were taken in 2000. These expenses
relate to the $1.4 million of severance and other charges recorded in the third
quarter of 2000. These charges were for the separation of three former
executives from the Company, severance obligations related to the outsourcing of
certain manufacturing operations in California and Australia, and a proxy
solicitation contest with Detection Systems, Inc., a company of which Ultrak
held a 21% share in 2000. The remaining amount is an adjustment of $0.3 million
for excess reserves as part of the 1999 special charge. This charge consisted of
a $3.9 million of severance obligations of $0.8 million and
consolidation/centralization of European activities of $3.1 million.
19
Other expenses of $9.9 million were recorded in 2000, compared with other
income of $1.1 million in 1999. The other expenses in 2000 included $5.4 million
foreign currency losses, losses on sales of investments and other charges taken
as part of the 2000 Special Charge. The additional increase in other expenses
was attributed to higher interest rates in 2000. The Company also recorded $1.3
million less income on its interest in Detection Systems, Inc. due to lower
earnings reported by that company in 2000, compared to 1999. Additional other
income items in 1999 included $0.7 million gain on the sale of investments and a
$0.4 million gain on foreign currency exchange.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced a decline in cash flows from operations in 2001 of
$5.1 million, despite a reduction in the net loss of $56.7 million in 2001. Net
cash provided by investing activities was $25.2 million in 2001, versus $2.9
million of cash used in investing activities in 2000. Although the large
increase in 2001 primarily resulted from the net proceeds on the sale of the
shares of Detection Systems, Inc. and the Industrial Furnace Camera business,
purchases of fixed assets and capitalized software were $2.0 million in 2001,
compared to $5.5 million in capital spending in 2000. This resulted in a $28.1
million increase in the cash provided by investing activities. Net cash used in
financing activities was $22.4 million in 2001, compared to negligible cash
provided by financing activities in 2000. The most significant differences
resulted from $20.4 million of net repayments on the Company's revolving line of
credit and repayments of $11.5 million on the mortgage for Headquarters Facility
in 2001. These repayments were offset by the proceeds of $6.6 million from the
sale of the Headquarters Facility, as well as $4.1 million in proceeds from the
issuance of additional Common Stock.
At December 31, 2001, the Company had $15.0 million outstanding under its
revolving credit facility. The amount outstanding was subsequently reduced to
$12.0 million during the first quarter of 2002. During the first three quarters
of 2001, the interest rate on the credit facility was adjusted to prime plus a
range of 0.0% to 0.75%, depending on the leverage ratio and other conditions,
determined on a quarterly basis. As a result of the disputes with lenders
described below, interest rates have increased since the end of the third
quarter of 2001. The rate was fixed at prime plus 3.25% during the fourth
quarter of 2001. Late in the first quarter of 2002, the rate was subsequently
increased to a flat 12.00%. The Company also pays a monthly fee of 0.375% per
annum based on the average unused borrowing availability under the credit
facility. The credit facility contains certain financial and operational
covenants, including a maximum leverage ratio, a debt service ratio and minimum
net worth amounts. The lenders alleged that the Company violated certain of
these covenants at various times during 2001, but subsequently waived the
alleged defaults.
Subsequent to December 31, 2001, an amendment (the "Eighth Amendment") to
the Company's revolving credit facility was signed at the insistence of the
lenders (see Exhibit 10.51 to this Form 10-K) that increased the interest rate
to 12.00%, reduced the lending commitment from $30 million to $20 million, and
accelerated the termination date of the facility from March 31, 2002 to February
28, 2002. The Eighth Amendment also waived certain alleged defaults by the
Company under the loan covenants and provided for the payment of certain fees,
including fees which the Company believes gave it the right to extend the
termination date of the facility back to March 31, 2002.
Although the Company paid and the lenders accepted all of the fees
prescribed by the Eighth Amendment, the lenders have asserted the Company did
not have the right to extend the termination date of the credit facility.
Consequently, subsequent to February 28, 2002, the lenders have declared the
outstanding balance of the loan to be due, increased the interest rate to
12.00%, refused to advance funds under the credit facility, and reserved the
right to commence foreclosure proceedings if their loan is not repaid in full by
April 30, 2002. Although the Company believes that the actions of the lenders
are unwarranted and in breach of their obligations under the credit facility, it
expects to repay the loan before such actions are implemented.
20
The Company has received a financing commitment from a new lender that,
combined with the tax refund described below, would repay the existing revolving
credit facility and provide sufficient funds for the Company's operations. The
Company and the new lender have approved the terms of the loan documents and the
new credit facility is expected to close on April 19, 2002, with funding to
follow shortly thereafter.
The Company expects to receive during the week of April 16, 2002 a federal
income tax refund of approximately $6.3 million from the Job Creation and Worker
Assistance Act of 2002, signed into law March 9, 2002. This statute allowed the
Company to carry back its 2001 net operating losses to the 1996 and 1997 tax
years, permitting a refund of federal income taxes previously paid for those
years. The act extended the carry back period on net operating losses to five
years from two years for losses arising in tax years ending in 2001 and 2002.
INFLATION
During the years ended December 31, 2001, 2000 and 1999, the cost of
property and equipment, lease expense and salaries and wages increased modestly.
The increases have not had a material impact on the Company's results of
operations during any of the periods.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The following discussion regarding 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, but maintains an interest swap agreement to
hedge against future rate increases. The Company is exposed to market risk from
changes in foreign currency exchange rates and interest rates, which could
affect its future results of operations and financial condition. The Company
manages its exposure to these risks through its regular operating and financing
activities.
Foreign exchange
The Company has foreign-based operations, primarily in Western Europe, which
accounted for 24% of 2001 and 2000 net sales. The strengthening of the U.S.
dollar from 2000 to 2001 had a negative impact on sales and gross profit. The
majority of inventory purchases were made in U.S. dollars. This appreciation of
the U.S. dollar against foreign currencies had an adverse impact of
approximately $0.5 million on gross profit in 2001.
The Company issues intercompany loans to its foreign subsidiaries
denominated in U.S. dollars on a long-term basis, exposing the foreign
subsidiaries to the effect of changes in spot exchange rates of their local
currency relative to the U.S. dollar. The Company does not regularly use
forward-exchange contracts to hedge these exposures. Based on the Company's
foreign currency exchange rate exposure for intercompany borrowings of
approximately $14.6 million at December 31, 2001, a 10% adverse change in
currency rates would increase accumulated other comprehensive loss by
approximately $1.5 million.
21
Interest rates
The Company's credit arrangements expose it to fluctuations in interest
rates. At December 31, 2001, the Company had $15.0 million outstanding under its
revolving line of credit, of which $10.0 million provided for interest to be
paid quarterly based on a variable rate and $5.0 million provided for a rate
fixed by an interest rate agreement. Assuming the debt is refinanced in 2002 and
the Company is no longer assessed interest at the default rates, interest rate
changes would result in a change in the amount of interest to be paid each
quarter. Based upon the borrowings and swap agreements at December 31, 2001, a
10% increase in interest rates would adversely affect the Company's financial
position, annual results of operations, or cash flows by approximately $0.1
million. Because the variable rate structure of the debt exposes us to
fluctuation in the interest rates, the Company has an interest swap agreement
that expires in 2004. The agreement provides for a fixed rate of 6.485% on $5.0
million.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The consolidated financial statements of the Company and its subsidiaries
that are required by this Item 8 are listed in Part IV under Item 14(a) of this
Annual Report on Form 10-K. Such consolidated financial statements are included
herein beginning on page F-1.
22
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Ultrak, Inc.
We have audited the accompanying consolidated balance sheets of Ultrak, Inc. and
Subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ultrak, Inc. and
Subsidiaries as of December 31, 2001 and 2000, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
Dallas, Texas
March 1, 2002, except for Note D as to which
the date is April 11, 2002
F-1
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(in thousands, except share data)
ASSETS 2001 2000
------ ------
CURRENT ASSETS
Cash and cash equivalents $ 3,300 $ 3,751
Investment in Detection Systems, Inc. - 13,909
Trade accounts receivable, less allowance for
doubtful accounts of $2,503 and $5,791 at
December 31, 2001 and 2000, respectively 25,132 32,232
Inventories 26,255 26,371
Advances for inventory purchases 71 521
Prepaid expenses and other current assets 4,043 4,394
Income tax refundable - 892
Deferred income taxes 6,309 6,337
-------- --------
Total current assets 65,110 88,407
PROPERTY, PLANT AND EQUIPMENT, at cost 33,324 26,886
Less accumulated depreciation and amortization (14,529) (11,885)
-------- --------
18,795 15,001
OTHER ASSETS
Goodwill, net of accumulated amortization of $8,124 and
$6,636 at December 31, 2001 and 2000, respectively 36,260 39,375
Other 2,095 714
-------- --------
38,355 40,089
-------- --------
Total assets $122,260 $143,497
======== ========
F-2
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
December 31,
(in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000
------ ------
CURRENT LIABILITIES
Accounts payable - trade $ 12,776 $ 13,046
Accrued expenses 5,782 6,168
Accrued restructuring costs 650 5,634
Other current liabilities 1,858 2,529
Line of credit 15,012 35,419
Other debt 809 1,961
-------- --------
Total current liabilities 36,887 64,757
FINANCING OBLIGATION 6,600 -
DEFERRED INCOME TAXES - 1,492
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, $5 par value, issuable in series; 2,000,000 shares
authorized; Series A, 12% cumulative convertible;
195,351 shares authorized, issued and outstanding 977 977
Common stock, $.01 par value; 20,000,000 shares authorized;
17,494,238 and 15,156,538 shares issued at December 31,
2001 and 2000, respectively 175 152
Additional paid-in capital 162,269 157,914
Accumulated deficit (41,804) (40,226)
Accumulated other comprehensive loss (4,161) (2,886)
Treasury stock, at cost (3,467,650 shares) (38,683) (38,683)
-------- --------
Total stockholders' equity 78,773 77,248
-------- --------
Total liabilities and stockholders' equity $122,260 $143,497
======== ========
The accompanying notes are an integral part of these statements.
F-3
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
(in thousands, except share data)
2001 2000 1999
------ ------ ------
Net sales $161,707 $199,998 $208,201
Cost of sales (exclusive of depreciation shown
separately below) 111,809 153,436 140,832
-------- -------- -----
Gross profit 49,898 46,562 67,369
Other operating costs:
Selling, general and administrative 48,027 71,123 56,677
Asset impairment 4,466 19,798 -
Special charges - 1,115 3,875
Depreciation and amortization 5,311 6,482 5,911
-------- -------- -----
57,804 98,518 66,463
-------- -------- -----
Operating profit (loss) (7,906) (51,956) 906
Other income (expense):
Interest expense (3,293) (3,743) (2,965)
Interest income 35 69 176
Gain (loss) on sale of investments 7,727 (637) 670
Gain (loss) on sale of businesses 1,090 (840) -
Foreign exchange gains (losses) (265) (4,637) 377
Equity in income of Detection Systems, Inc. - 554 1,885
Other, net 248 (642) 909
-------- -------- -----
5,542 (9,876) 1,052
-------- -------- -----
Income (loss) before income taxes (2,364) (61,832) 1,958
Income tax benefit (expense) 903 4,145 (1,286)
-------- -------- -----
Income (loss) from continuing operations (1,461) (57,687) 672
Discontinued operations, net of taxes
Loss from operations - - (107)
-------- -------- -----
NET INCOME (LOSS) (1,461) (57,687) 565
Dividend requirements on preferred stock (117) (117) (117)
-------- -------- -----
Net income (loss) allocable to common stockholders $ (1,578) $(57,804) $ 448
======== ======== =====
F-4
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
Years ended December 31,
(in thousands, except per share data)
2001 2000 1999
------ ------ ------
Income (loss) per share:
Continuing operations
Basic $(0.13) $(4.95) $ 0.05
====== ====== ======
Diluted $(0.13) $(4.95) $ 0.05
====== ====== ======
Discontinued operations
Basic $ - $ - $(0.01)
====== ====== ======
Diluted $ - $ - $(0.01)
====== ====== ======
Net income (loss)
Basic $(0.13) $(4.95) $ 0.04
====== ====== ======
Diluted $(0.13) $(4.95) $ 0.04
====== ====== ======
Number of common shares used in computations:
Basic 12,183 11,686 11,645
====== ====== ======
Diluted 12,183 11,686 12,300
====== ====== ======
The accompanying notes are an integral part of these statements.
F-5
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31,
(in thousands, except share data)
Retained Accumulated
Preferred Stock Common Stock Additional earnings other
-------------------- ------------------- paid-in (accumulated) comprehensive
Shares Amount Shares Amount capital deficit) loss
-------- ------ -------- ------- --------- ---------- ------
Balance at January 1, 1999 195,351 $977 14,703,138 $147 $153,333 $17,130 $ (967)
Comprehensive loss
Net income - - - - - - 565 -
Other comprehensive loss
Foreign currency translation
adjustment - - - - - - (2,704)
Unrealized loss on investments
held for sale, net of tax of
$292 - - - - - - (568)
Reclassification adjustment
for losses included in net
income, net of tax effect of
$89 - - - - - - 171
Total
Acquisition of business - - 250,000 2 1,493 - -
Exercise of stock options and warrants - - 28,333 1 68 - -
Stock-based compensation - - - - 250 - -
Treasury stock purchases - - - - - - -
Equity put options expired - - - - 1,564 - -
Preferred stock dividends - - - - - (117) -
------- --- ---------- --- ------- ------ ------
Balance at December 31, 1999 195,351 977 14,981,471 150 156,708 17,578 (4,068)
Treasury stock
----------------
Shares Amount Total
--------- -------- -------
Balance at January 1, 1999 3,013,350 $(32,153) $138,467
Comprehensive loss
Net income - - - 565
Other comprehensive loss
Foreign currency translation
adjustment - - (2,704)
Unrealized loss on investments
held for sale, net of tax of
$292 - - (568)
Reclassification adjustment
for losses included in net
income, net of tax effect of
$89 - - 171
-------
Total (2,536)
-------
Exercise of stock options and warrants - - 1,495
Stock-based compensation - - 69
Treasury stock purchases - - 250
Equity put options expired 454,300 (6,530) (6,530)
Preferred stock dividends - - 1,564
- - (117)
--------- ------- -------
Balance at December 31, 1999 3,467,650 (38,683) 132,662
F-6
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - CONTINUED
Years ended December 31,
(in thousands, except share data)
Retained Accumulated
Preferred Stock Common Stock Additional earnings other
-------------------- ------------------- paid-in (accumulated) comprehensive -
Shares Amount Shares Amount capital deficit) loss
-------- ------ -------- ------- --------- ---------- ------
Balance at January 1, 2000 195,351 $977 14,981,471 $150 $156,708 $ 17,578 $(4,068)
Comprehensive loss
Net loss - - - - - (57,687) -
Other comprehensive income (loss)
Foreign currency translation
adjustment - - - - - - (3,583)
Reclassification adjustment for
losses included in net loss, net
of tax of $292 - - - - - - 568
Reclassification (Note O) - - - - - - 4,197
Total
Exercise of stock options and warrants - - 175,067 2 918 - -
Stock-based compensation - - - - 25 - -
Tax benefit from employee stock
transactions - - - - 263 - -
Preferred stock dividends - - - - - (117) -
------- --- ---------- --- ------- ------- ------
Balance at December 31, 2000 195,351 977 15,156,538 152 157,914 (40,226) (2,886)
Treasury stock
--------------------
Shares Amount Total
--------- -------- -------
Balance at January 1, 2000 3,467,650 $(38,683) $132,662
Comprehensive loss
Net loss - - (57,687)
Other comprehensive income (loss)
Foreign currency translation
adjustment - - (3,583)
Reclassification adjustment for
losses included in net loss, net
of tax of $292 - - 568
Reclassification (Note O) - - 4,197
------
Total (56,505)
-------
Exercise of stock options and warrants - - 920
Stock-based compensation - - 25
Tax benefit from employee stock
transactions - - 263
Preferred stock dividends - - (117)
--------- ------- ------
Balance at December 31, 2000 3,467,650 (38,683) 77,248
The accompanying notes are an integral part of this statement.
F-7
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31,
(in thousands, except share data)
Retained Accumulated
Preferred Stock Common Stock Additional earnings other
-------------------- ------------------- paid-in (accumulated) comprehensive
Shares Amount Shares Amount capital deficit) loss
-------- ------ -------- ------- --------- ---------- ------
Balance at January 1, 2001 195,351 $977 15,156,538 $152 $157,914 $(40,226) $(2,886)
Comprehensive loss
Net loss - - - - - (1,461) -
Foreign currency translation
adjustment - - - - - - (1,275)
Total
Issuance of common stock, net of
issuance costs of $294 - - 2,337,700 23 4,125 - -
Warrants issued in connection
with building financing - - - - 230 - -
Preferred stock dividends - - - - - (117) -
--- --- ---------- --- -------- ----- ---
Balance at December 31, 2001 195,351 $977 17,494,238 $175 $162,269 $(41,804) $(4,161)
======= === ========== === ======== ======= ======
Treasury stock
-----------------
Shares Amount Total
------- ------- -------
Balance at January 1, 2001 3,467,650 $(38,683) $77,248
Comprehensive loss
Net loss - - (1,461)
Foreign currency translation
adjustment - - (1,275)
------
Total (2,736)
------
Issuance of common stock, net of
issuance costs of $294 - - 4,148
Warrants issued in connection
with building financing - - 230
Preferred stock dividends - - (117)
--------- -------- -------
Balance at December 31, 2001 3,467,650 $(38,683) $78,773
========= ======== =======
The accompanying notes are an integral part of this statement.
F-8
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(in thousands)
2001 2000 1999
------ ------ ------
Cash flows from operating activities:
Net income (loss) $ (1,461) $(57,687) $ 565
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Loss from discontinued operations - - 107
Loss on disposal of fixed assets 305 428 -
Loss (gain) on sale of investments (7,727) 637 (670)
Loss (gain) on sale of businesses (1,090) 840 -
Equity in income of Detection Systems, Inc. - (554) (1,885)
Realized foreign currency translation losses - 4,197 -
Depreciation and amortization 5,311 6,482 5,911
Provision for losses on accounts receivable 129 3,556 813
Inventory writedowns 800 12,370 2,178
Deferred income taxes (1,464) (3,015) 676
Asset impairment 4,466 19,798 -
Noncash charges reversed (1,600) - -
Other noncash expenses - 952 288
Mark-to-market interest rate swap 194 - -
Other - (370) -
Noncash changes in operating assets and liabilities
Trade accounts receivable 6,395 5,353 (4,992)
Inventories (2,073) 9,667 (5,460)
Advances for inventory purchases 450 1,422 2,935
Prepaid expenses and other current assets 133 (780) 1,698
Income tax refundable 891 (891) -
Other assets (1,151) 337 1,981
Accounts payable - trade (399) (3,384) 6,975
Accrued restructuring costs (4,355) 3,885 1,749
Accrued expenses and other current liabilities (873) (1,227) (1,237)
----- ------- ------
Net cash provided by (used in) operating
activities (3,119) 2,016 11,632
Cash flows from investing activities:
Proceeds from sale of marketable securities - 563 7,777
Purchases of marketable securities - - (4,458)
Purchases of common stock of Detection Systems, Inc. - (1) (531)
Proceeds from sale of Detection Systems, Inc. common stock 23,176 - -
Purchases of property and equipment (1,203) (4,297) (6,183)
Software development costs (775) (1,235) (1,692)
Proceeds from sale of building 1,515 - -
Proceeds from sale of businesses 2,593 2,100 -
Acquisitions, net of cash acquired (70) - (680)
------ ------ ------
Net cash provided by (used in) investing activities 25,236 (2,870) (5,767)
F-9
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
(in thousands)
2001 2000 1999
------ ------ ------
Cash flows from financing activities:
Proceeds from revolving line of credit $ 9,940 $ 20,000 $ 47,804
Repayments on revolving line of credit (30,347) (21,581) (48,304)
Proceeds from other debt - 1,204 1,149
Repayments on other debt (1,152) (393) -
Repayments on mortgage loan (11,500) - -
Proceeds from financing obligation 6,600 - -
Issu