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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-9463
ULTRAK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2626358
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1301 WATERS RIDGE DRIVE
LEWISVILLE, TEXAS 75057
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 353-6500
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in a definitive proxy to be filed or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of February 29, 2000 was $128,372,000. As of that date 11,670,188
shares of the Registrant's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The information required by Part III is incorporated by reference from the
Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.
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PART I
ITEM 1. BUSINESS
GENERAL
Ultrak, Inc. (the "Company" or "Ultrak") designs, manufactures, markets,
sells and services innovative electronic products and systems for use in
security and surveillance, industrial video and professional audio markets
worldwide. These products and systems include high-speed dome systems, monitors,
switchers, quad processors, time lapse recorders, multiplexers, video
transmission systems, access control systems, a broad line of cameras, lenses,
computerized observation and security systems, audio equipment and accessories.
The Company has generated rapid growth with sales increasing from $1.8 million
in 1987 to $206.4 million in 1999.
It is the Company's objective to set new standards in quality, performance
and value by providing single-source Enterprise Security Solutions to its
customers in the form of integrated systems whereby all closed circuit
television ("CCTV") components, network video, video badging, alarms, access
control, as well as facility and alarm management functions and reporting are
controlled from one single console. Integrated systems better serve the end user
by improving their ease of operation, security, health/safety and loss
prevention, and at the same time reducing maintenance and training costs.
Ultrak's management believes that integrated systems provide customers maximum
functionality at the lowest possible cost.
The Company was incorporated in Colorado in 1980 and re-incorporated in
Delaware in December 1995. In 1997, the Company built a 170,000 square foot
warehouse and headquarters facility known as the Ultrak Worldwide Support Center
located in the north Dallas suburb of Lewisville, Texas. Since January 1, 1998,
the Company's new address is 1301 Waters Ridge Drive, Lewisville, Texas 75057
and its telephone number is (972) 353-6500.
Ultrak operates sales, distribution and manufacturing locations worldwide.
The Company has sales facilities in six U.S. cities, England, France, Germany,
Italy, Poland, Switzerland, Singapore, Australia, and South Africa, as well as
active representation through Company sales representatives and systems
integrators in Bejing, China, Canada, Mexico and Brazil. The Company operates an
e-commerce website for the consumer/do-it-yourself markets under the name
SecurityandMore.com. The Company established a centralized, European
headquarters facility in Antwerp, Belgium in 1999 to coordinate efforts among
its foreign operations. Customers are supported by eight distribution centers
worldwide and manufacturing facilities located in the United States, Australia
and South Africa.
Ultrak's products and systems include Enterprise Security Solutions and
Standard Products.
ENTERPRISE SECURITY SOLUTIONS
As a technology leader in the security and surveillance markets, Ultrak
distinguishes itself from its competitors by providing Ultrak's Enterprise
Security Solutions ("ESS") for manufacturing facilities, airports, office
complexes, government agencies, hospitals, casinos, retail stores and other
organizations that increasingly need integrated electronic security and
surveillance systems. that combine CCTV matrix switching, network digital video
transmission, access control, video badging, intrusion detection, and alarm
management and communications. These products and systems play an increasingly
important role in traffic management and public safety applications.
ESS is available in a building block approach that allows customers to
choose the applications that they need today, yet allows for system expansion at
anytime. Included as part of ESS is the Company's DAVE (Duplex Analog Video
Encoding) Technology system. Ultrak's proprietary DAVE Technology(TM) System
2000 utilizes technology that provides complete and continuous video coverage
using a large array of cameras connected by a single loop of coaxial cable. The
Company sells these products and systems to distributors, dealers and systems
integrators through its own field sales personnel. ESS are customized and scaled
to meet the needs of all of the Company's customers regardless of the business
size. It is the Company's strategy to develop and acquire a comprehensive line
of products and integrated systems, build worldwide sales, service and support
and provide single-source solutions to its customers.
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STANDARD PRODUCTS AND INTEGRATED SYSTEMS
The following Ultrak standard products and integrated systems are sold into
the professional security and surveillance markets: cameras, lenses, domes and
housings, monitors, time-lapse and digital recorders, ruggedized cameras,
monitors and recorders for mobile video applications, digital processors (quads
and multiplexers), switchers and video management systems, video transmission
equipment, access control and facility management equipment.
Small businesses and homeowners are installing video observation systems to
replace or supplement conventional alarm systems as CCTV continues to become
more affordable . The consumer do-it-yourself security and surveillance market
consists of those applications in which end users purchase security and
surveillance systems and install the systems themselves in their small
businesses or homes. Video products sold into this market are characterized by
affordability, aesthetically appealing designs, ease of installation and
maintenance and mobility. The typical consumer do-it-yourself market CCTV system
can be wired or wireless and consists of a camera, a monitor, a switcher or quad
processor and, optionally, a video recorder. These products are available in
either black and white or color models. Consumer do-it-yourself CCTV products
are sold through mass merchandisers, warehouse clubs, electronic retail stores,
office and juvenile product superstores, as well as through retail catalogs.
These consumer/do-it-yourself products have also been available since September
1999 through the Company's e-commerce website: SecurityandMore.com.
It is the Company's strategy to provide easy-to-install and easy-to-operate
video products and systems that are "feature rich" and affordably priced. The
Company continues to expand these product lines and introduce these, or similar
products and systems into the European market. The Company sells these products
through a combination of its own sales force and manufacturer's representatives
under the Ultrak brand name.
The professional audio market includes public address equipment for office
complexes, hotels, airports and retail stores. In addition, this market includes
sound reinforcement systems for concert halls, churches, arenas and theaters.
Ultrak produces and markets products for professional audio and sound
reinforcement systems such as amplifiers, speakers, mixers, equalizers,
microphones, CD players, turntables and accessories. The Company sells these
systems through a direct sales force in France and through manufacturer's
representatives in other countries.
Industrial and commercial video products are used in various production and
manufacturing processes. The Company sells to the industrial/commercial markets
through systems integrators, who assemble and sell equipment that incorporates
video cameras. Video cameras are used for machine vision, computer imaging,
robotics, microscopy, high-speed inspection and high temperature furnace
monitoring. The use of industrial video offers more precise assessment than
human visual inspection, and can measure image parameters that are imperceptible
to the human eye. These systems are also used to remotely monitor automated
assembly lines to ensure that each process on the assembly line is accurately
and completely performed. New industrial applications are emerging as new
equipment is developed and as production automation levels increase.
The Company's strategy with regard to the industrial video market is to
strengthen customer loyalty by backing-up advanced products with technical
expertise, a large variety of products and outstanding customer support. The
Company uses a combination of its own sales force and manufacturer's
representatives to sell these products to dealers and OEM accounts.
STRATEGY
Ultrak's strategy is to develop and form relationships with it's
customers-the end users of the Company's solutions-and to provide them with the
high quality and performance products and systems they need and desire
worldwide. The Company is committed to satisfying its customers' needs with
complete security solutions and measures its success by the ability to achieve
this goal. The Company reaches its customers by direct contact with key
influencers/consultants and sells to these customers through its channel
partners, which are dealers, system integrators and distributors. Additionally,
Ultrak's strategy is to provide product improvement that is driven by customer
requirements and to build worldwide marketing capabilities to maximize market
coverage and decrease the time it takes to get its products to market.
With the continued expansion of SecurityandMore.com, the Company's
consumer/do it yourself e-commerce Website launched in September 1999, new
products and information are continuously being added. In light of the high
stock market valuations bestowed upon successful e-commerce companies, the
Company is exploring the sale of a portion of SecurityandMore.com in an initial
public offering with a later spin-off of the remaining shares to Ultrak
shareholders. This scenario would provide SecurityandMore.com with sufficient
capital to grow even faster and would give it the flexibility to grow
unfettered.
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ACQUISITIONS
Acquisitions have contributed significantly to the Company's continued
growth over the past five years. The Company believes that acquisitions are an
effective way to obtain new and related products and integrated systems, add
experienced personnel, access additional channels of distribution, expand into
new geographic territories, diversify its customer base and improve operating
efficiencies through economies of scale. As the security industry continues to
consolidate, Ultrak continues to search for growth through acquisitions. During
1997, the Company completed five acquisitions, made a minority investment in one
company and established an 80 percent-owned subsidiary in the Pacific Rim.
During 1998, the Company completed two acquisitions, acquired the minority
interest in its Pacific Rim subsidiary and sold one subsidiary to a third party.
During 1999, the Company completed three acquisitions and completed the sale of
its minority investment in one company.
1997 ACQUISITIONS:
Monitor Dynamics
Effective February 1, 1997, the Company acquired Monitor Dynamics, Inc.
("MDI"), based in Rancho Cucamonga, California, which designs, manufactures,
markets and sells high-end security and access control systems for a total of
$26.1 million in cash. MDI's computer-based integrated security and access
control systems are sold under the SAFEnet brandname and are used in very
high-end government, defense, industrial, financial and commercial applications
throughout the U.S. and Europe. MDI's systems are sold primarily through dealers
and systems integrators. The acquisition of MDI provided the Company with
high-end security and access control systems and products.
Intervision
Effective March 1, 1997, the Company acquired all of the outstanding share
capital of Intervision Express Limited ("Intervision"), based in Preston,
England (near Manchester), a distributor of CCTV products for 500,000 British
Pounds ($814,000) in promissory notes and 38,822 shares of restricted Common
Stock valued at $719,000. Intervision sells primarily to small and medium-sized
installing dealers and systems integrators. Intervision distributes products
from manufacturers such as Dedicated Micros, Toa, Hitachi and Mitsubishi. The
acquisition of Intervision gave the Company a presence in the United Kingdom
market and continued the expansion of its European operations.
Videosys Group
Effective April 1, 1997, the Company acquired the Videosys Group
("Videosys"), based near Venice, Italy, for total consideration of $8.37 million
consisting of $5.55 million in cash and 160,000 shares of restricted Common
Stock valued at $2.82 million. The Videosys Group designs, imports and
distributes CCTV and related security products primarily in Italy, under the
Videosys brand name. The Videosys Group sells primarily to installing dealers
and systems integrators. The acquisition of the Videosys Group provided the
Company with a significant presence in Italy's CCTV market.
Veravision
On April 1, 1997, the Company acquired all of the outstanding shares of
capital stock of Veravision, Inc. ("Veravision"), based in San Clemente,
California, which manufactures intra-oral camera products for use primarily in
the dental market, for $150,000 in promissory notes, assumed debt of
approximately $2.0 million and 10% of the outstanding shares of capital stock of
Dental Vision Direct, Inc., a subsidiary of the Company, which shares are
convertible into shares of restricted Common Stock using a formula set forth in
the definitive agreement. Veravision, along with Dental Vision Direct, Inc., a
90% owned subsidiary, were both sold to a third party in August 1998. See
1998-99 Divestitures below.
Securion 24
In August 1997, the Company acquired 10% of the outstanding capital stock of
Securion 24 Co., Ltd. ("Securion"), a privately held manufacturer and
distributor of security products based near Tokyo, Japan, for total
consideration of approximately $2.0 million in cash. The minority interest in
Securion gave the Company access to the Japanese market by virtue of the
Company's association with an established Japanese security company. In March
1999, the Company sold its interest in Securion. See 1998-99 Divestitures below.
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Philtech
Effective October 1, 1997, the Company acquired 100% of the outstanding
capital stock of Philtech Electronic Services Limited ("Philtech"), a
privately-held, South African based company, for total consideration of $600,000
in cash, $300,000 of which is payable over the three years following closing.
Philtech is a designer, manufacturer and supplier of CCTV switching and control
equipment based in Bezvalley near Johannesburg, South Africa. The acquisition of
Philtech provided the Company a presence in the rapidly growing South African
market.
Ultrak Asia Ltd.
In November 1997, the Company established an 80% owned company in Singapore,
Ultrak Asia Ltd. ("Ultrak Asia"), to further penetrate the Asian market with
Ultrak products and systems.
1998 ACQUISITIONS:
Norbain France
During February 1998, the Company acquired the net assets of Norbain France
SARL, a French corporation wholly owned by Norbain PLC, a UK corporation, for
assumption of the net liabilities of approximately $1.2 million.
Ultrak Asia Ltd
In July 1998, the Company acquired the remaining 20% interest owned by a
third party of Ultrak Asia for $30,000 in cash.
1999 ACQUISITIONS:
ABM Data Systems, Inc.
Effective March 1, 1999, the Company acquired ABM Data Systems, Inc.
("ABM"), based in Austin, Texas, which develops, sells and services computer
software for the alarm monitoring security industry, government agencies and
proprietary customers and offers support for computer software targeted for the
automated security monitoring markets, for 250,000 shares of Common Stock,
valued at $1.5 million. ABM is a market leader in the alarm monitoring industry,
selling its software products under the Phoenix brandname. ABM's products are
sold primarily through dealers, systems integrators and to Fortune 500 companies
for their proprietary command centers, major national banks, state governments,
universities, hospitals and others. The acquisition of ABM provides the Company
access to the high-end alarm monitoring market.
Multi Concepts Systemes, SA
Effective April 1, 1999, the Company acquired 100% of the stock of Multi
Concepts Systemes, SA ("MCS"), a Switzerland based systems integrator of
electronic security systems. Total consideration included an initial payment of
$405,000 in cash and future contingent payments based upon a percentage of MCS
net income and book value, as defined. MCS has been the largest European
reseller and integrator of Ultrak's SAFEnet access control system over the past
ten years.
MACH Security Sp.z.o.o
Effective July 1, 1999, the Company acquired 100% of the stock of MACH
Security Sp.z.o.o ("Mach"), based in Szczecin, Poland. Mach is one of the
largest distributors of CCTV products in Poland. Total consideration included an
initial payment of $275,000 in cash and future contingent payments based upon a
percentage of MACH net income, as defined.
1998-99 DIVESTITURES:
Dental Vision Direct, Inc.
and Veravision
In August 1998, the Company completed the sale of the stock of Dental Vision
Direct, Inc. ("DVD"); a 90% owned subsidiary, to American Dental Technologies,
Inc. ("American Dental"). DVD owned all of the outstanding stock of Veravision.
The
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consideration included approximately $3.0 million in cash, a $3.9 million
short-term note (which was subsequently paid in full) and warrants to acquire
540,000 shares of American Dental common stock (which currently trades on the
NASDAQ under the symbol "ADLI"). In addition, the Company retained rights to
receive the net proceeds from the outstanding trade accounts receivable and
accounts payable at the date of closing. A gain on the sale of approximately
$78,000 was recorded and all prior periods have been restated to reflect the
operations of DVD as discontinued.
Securion 24
On March 3, 1999, the Company completed the sale of its 10% ownership of
capital stock of Securion to Mr. Mutsuo Tananka for approximately $1.8 million
in cash.
MARKETING AND SALES
Ultrak operates through highly focused selling groups organized according to
Ultrak's target markets. Ultrak's customer-focused structure allows for
individual attention to each target market, quick response to customer needs and
early identification of market requirements and new product ideas. Generally,
the Company reaches each target market through regional sales professionals
supported by telemarketing, product catalogs, direct mail, magazine advertising
and industry trade shows.
Beginning in 1998 and continuing through 1999, the Company began
implementing an internal reorganization of its sales and marketing operations
known as "Team Ultrak" which promotes a unified network of sales professionals
that are highly customer focused. Under this new philosophy, product supply
units, customer service units and technology units have been unified to provide
the Company's sales force with the means to better serve customer needs. New
sales teams have been established in strategic geographic locations in the U.S.
and along product lines. This team approach has been identified as a means for
integrating the sales aspects of various operations acquired by the Company
since 1995 and to encourage cross selling of Ultrak products. With the expansion
of its sales force and its focus on "Team Ultrak" sales approach-providing
solution sales versus product sales- the Company anticipates substantial growth
in sales during 2000 and beyond.
Ultrak strives to meet or exceed its customers' need through the following
operating principles:
o Knowing our customers, the market and our business partners
o Providing business opportunities for our business partners
o Engineering world class security solutions
o Guaranteeing best in class customer support
o Offering ongoing support programs to assure highest long term value
The Company uses various brand names for products sold through each of its
selling groups to maximize market penetration of each selling group, to minimize
market channel conflicts and to differentiate products by features, applications
and price. The Company's proprietary brand names, many of which are registered
trademarks, include Ultrak, Diamond Electronics, MAXPRO, Videosys, SAFEnet,
Exxis, Smart Choice, BST, Industrial Vision Source, SecurityandMore.com and ESS.
Approximately 90% of the products sold by the Company in 1999 carried Ultrak
brand names, up from 87% in 1998 and 85% in 1997. The Company also sells brands
such as Panasonic(R), Mitsubishi(R), and Sony(R).
Ultrak began actively pursuing the international market in 1995. In 1995 and
early 1996, Ultrak sold its products and systems in a number of countries
including Mexico, Brazil, Argentina, England, France, Germany, Denmark, India,
China, South Korea, Japan, The Philippines and Australia. Since the second
quarter of 1996, the Company acquired MAXPRO (Australia), Bisset (France), VideV
(Germany), Intervision (the UK), the Videosys Group (Italy), Philtech (South
Africa), MCS (Switzerland), Mach (Poland) and established a distribution company
in Singapore, which has substantially expanded the Company's presence
internationally. See Note K to the Company's Consolidated Financial Statements
with respect to business segments.
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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
has developed a highly competent engineering staff to work with its selling and
marketing groups to develop new products and product line extensions that
promptly respond to customer needs on a worldwide basis. Consequently, Ultrak
believes that it can develop technologically superior products with
customer-desired performance capabilities that address new applications at lower
prices than competitive products. Increasingly, the Company's products are
computer-based and software-driven to support the integration of technologies
and functions into its customers' businesses.
As of December 31, 1999, the Company had a full-time engineering staff of 85
employees compared to only four as of December 31, 1994. Because of the complex
and highly specialized requirements of Ultrak products and systems, these
employees are experienced in a wide range of engineering disciplines including
charged-coupled device ("CCD") technology, analog and digital signal processing,
CCTV management and switching technology, computer based access control
technology, facility management technology and high speed dome technology. In
addition, the Company's international contract manufacturers employ a number of
engineers who are primarily dedicated to research and development efforts of
products sold by Ultrak.
In 1999, the Company introduced its computer-based SAFEnet NT system, the
Windows-NT(R) version of Ultrak's flagship line of integrated access control and
security systems. At the core of the Company's ESS offerings, SAFEnet NT
provides a stable, flexible platform for the integration of new functions and
technologies. 1999 also marked the start of a major development effort to
redesign and streamline the SAFEnet field hardware which the Company expects to
be completed by mid-2000 incorporating a new distributed architecture that was
developed specifically for the SAFEnet system.
PRODUCTS AND SYSTEMS
The Company's motto, "Quality Products That Make a Difference," encapsulates
the Company's strategy of developing technologically advanced and cost-effective
products and systems that are unique and solve customers' specific needs or
problems. Through in-house product development, and with the product lines the
Company has obtained through acquisitions, Ultrak offers a broad line of Ultrak
branded products and systems. The Company's brand names include Ultrak, Diamond
Electronics, MAXPRO, VideV Systems, Videosys, SAFEnet, Exxis, Smart Choice, BST,
Industrial Vision Source and ESS. Approximately 90% of the products sold by the
Company in 1999 carried the Company's brand names. The Company continues to
offer brands such as Panasonic, Mitsubishi, Dedicated Micros and Sony.
The Company's products and systems include a broad line of cameras, lenses,
high-speed dome and housings, monitors, time-lapse and digital recorders,
digital processors, switchers and video management systems, ESS, the DAVE
Technology(TM) system, video transmission equipment access control and facility
management equipment, control matrix switching systems and accessories,
professional audio products, video printers, video otoscopes and furnace viewing
products.
OPERATIONS
A critical element of the Company's operations are its management
information systems. In early 1997, the Company selected SAP, a leading
enterprise software system, for its domestic information needs. As of February
1998, the Company and it's related domestic facilities, had successfully
completed the SAP conversion process at its Lewisville, Texas Worldwide Support
Center. As previously anticipated, SAP will unite Ultrak and all of its domestic
subsidiaries with a common inventory, sales, accounting/financial and database
management system by mid-2000. Via laptop computers, the Ultrak domestic sales
team can easily communicate with the host system from any remote location.
Internationally, the Company has selected "Exact", a multilingual, multicurrency
and Euro compliant software for its European information needs. By mid-2000, all
of the Companies European operations will be live on the "Exact" software and
will be linked together with a common inventory, sales, accounting and financial
system.
Ultrak believes that one of the keys to its success is its commitment to be
responsive and provide excellent service to its customers. Domestic orders are
entered into the Company's Lewisville, Texas-based SAP computer system either
directly by the customer through electronic data interchange, by traveling sales
representatives using laptop computers or by in-house sales personnel. After the
computer system performs an automated check of the customer's account and credit
limit, the order is released to be shipped from available inventory at one of
the four domestic stocking warehouse locations. Because the Company maintains
domestically a relatively large inventory of products, it ships most items
within 24 hours of receipt of the order. The Company's domestic stocking
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warehouse locations are Lewisville (Dallas), Texas; Austin, Texas; Rancho
Cucamonga (Ontario), California; and Carroll (Columbus), Ohio. Approximately 91%
of all domestic shipments are made from the Lewisville, Texas warehouse.
The Company also considers continuous training of its customers to be
critical in an ever-increasing competitive market. In 1999, the Company's
training capabilities were doubled and there are now three training rooms at the
Ultrak Worldwide Support Center in Lewisville, Texas. Multiple training sessions
on Ultrak's products and systems are continue all year with salespeople,
customers and field installation technicians attending to learn more about our
technology and products.
With respect to Ultrak branded products produced by contract manufacturers,
most of these products are made exclusively for the Company or there are limited
or no competitive sales of such products in the areas served by the Company. The
Company believes that its relationships with its contract suppliers are good. In
most of these relationships, the Company believes that the relationship is as
important to the supplier as it is to the Company. Thus, the Company believes
that there is a strong, mutually advantageous basis for the trading relationship
to continue and grow. See Note G to the Company's Consolidated Financial
Statements with regard to Major Customers and Suppliers.
Delivery times for products manufactured abroad vary from one week to two
months, depending on the mode of transportation. Because of foreign production
lead times, the Company normally makes purchase commitments to these foreign
suppliers three to six months in advance of shipment. Therefore, management
believes it is necessary for the Company to commit to and carry larger levels of
inventory than would be necessary if it manufactured all of its products
domestically. Given order lead times, accurate inventory forecasting is
critical.
Substantially all of the Company's purchases from its non-affiliated
contract manufacturers are made in United States Dollars or the Euro with the
remaining purchases made in Japanese Yen, Australian Dollars, the South African
Rand and English Pounds. To date, the Company's purchases have not been
materially adversely affected by fluctuations in the valuation of any
international currency. It is expected that the Company will continue to
purchase the vast majority of its products in United States Dollars (for it's
U.S. operations) or the Euro (for it's European operations).
To ensure complete customer service and satisfaction, Ultrak offers
third-party leasing services and after-sale service for all equipment sold by
the Company.
Ultrak offers a limited warranty on all products shipped. The Company
generally warrants that its products will conform to Ultrak's published
specifications and be free from defects in materials and workmanship at the time
of sale.
When goods are delivered to Ultrak, a random sampling quality assurance
procedure is performed. Selected units are verified for functionality, proper
packaging, labeling and documentation. The Company's primary contract
manufacturer is ISO9001 certified. The quality assurance procedures in the
Company's Ohio plant and California facility comply with ISO9001 specifications.
The Company is currently in the process of obtaining ISO9001 certification on
its Lewisville, Texas facility, which is expected to be completed by Q2 2001.
BACKLOG
As of December 31, 1999 and 1998, the Company had approximately $14.9
million and $13.1 million respectively, in order backlog which it considered to
be firm. Because purchase orders are subject to cancellation or delay by
customers with limited or no penalty, the Company's backlog is not necessarily
indicative of future revenues or earnings. Since the Company ships most products
within 24 hours of receipt of the order, the Company believes that backlog is
not a significant measurement of the Company's financial position.
INTELLECTUAL PROPERTY
As part of its ongoing engineering and development activities, Ultrak seeks
patent protection on inventions covering new products and improvements when
appropriate. Ultrak currently holds a number of United States and foreign
patents and has a number of pending patent applications. Although the Company's
patents have value, the Company believes that the success of its business
depends more on innovation, sales efforts, superior customer service, technical
expertise and knowledge of its personnel and other factors. The Company also
relies upon trade secret protection for its confidential and proprietary
information. Many of the Company's brands are registered trademarks owned by the
Company.
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COMPETITION
The Company faces substantial competition in each of its markets.
Significant competitive factors in the Company's markets include price, quality
and product performance, breadth of product line and customer service and
support. Some of the Company's existing and potential competitors have
substantially greater financial, manufacturing, marketing and other resources
than the Company. To compete successfully, the Company must continue to make
substantial investments in its engineering and development, marketing, sales,
customer service and support activities. There can be no assurance that
competitors will not develop products that offer price or performance features
superior the Company's products.
The Company considers its major competitors to be the CCTV and access
control operations of Sensormatic Electronics Corporation, Burle (part of
Philips Communication & Security Systems, Inc.), Panasonic, Pelco, Vicon
Industries, Inc. and Casi- Rusco.
EMPLOYEES
As of December 31, 1999, the Company had 695 full-time employees employed
worldwide at 15 primary locations and 12 field sales offices, of which 283 were
sales and sales support personnel, 140 were warehouse/manufacturing personnel,
78 were technical/service personnel, 85 were engineering and product development
personnel and 109 were administrative and managerial personnel. The Company's
future success will depend in large part upon its ability to attract and retain
highly skilled technical, managerial, financial and marketing personnel, in a
market where such people are in demand. No employee is represented by a union or
covered by a collective bargaining agreement and the Company has not experienced
a work stoppage or strike. The Company considers its employee relations to be
good.
The Company's newly adopted mission statement provides for Ultrak to be the
preferred worldwide provider of end user focused security solutions while
upholding these fundamental principles:
o Meet or exceed our customers' expectations
o Provide a productive, fulfilling and mutually respectful environment for
our employees
o Maximize shareholder value
o Recognize that profitability is essential to our success
o Act ethically and with integrity
ITEM 2. PROPERTIES
The Company moved to its new Worldwide Support Center in January 1998. The
facility is comprised of approximately 170,000 square feet of leased office and
warehouse space located on 14 acres of land in Lewisville, Texas, pursuant to a
lease with an initial term expiring in April 2003. There is adequate available
space on the premises for expansion of the Worldwide Support Center if such
expansion is deemed necessary. At the conclusion of the initial lease term, the
Company has an option to acquire the facility. The Company also leases
additional office/distribution warehouse space in Austin, Texas; Las Vegas,
Nevada; Paris, France; Preston (Manchester), England; Antwerp, Belgium; San
Vendemiano (Venice), Italy; Dusseldorf, Germany; Crissier (Lausanne),
Switzerland; Szczecin, Poland; Sydney, Australia; Johannesburg, South Africa and
Singapore.
The Company owns its 72,000 square foot manufacturing facility in Carroll
(Columbus), Ohio and leases its manufacturing facilities in Rancho Cucamonga,
California and Perth, Western Australia. The Company believes that its
manufacturing facilities are adequate to meet the Company's present and
anticipated manufacturing needs for products that it currently manufactures.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any pending or threatened legal proceedings to
which the Company is or may be a party, which may have a materially adverse
impact on the Company. The Company knows of no legal proceedings pending or
threatened or judgments entered against any director or officer of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of 1999.
9
<PAGE> 10
FORWARD LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED OR INCORPORATED IN THIS ANNUAL REPORT ON FORM 10-K,
WHICH ARE NOT STATEMENTS OF HISTORICAL FACT CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 (THE "REFORM ACT"). FORWARD LOOKING STATEMENTS ARE MADE IN GOOD FAITH BY
ULTRAK, INC. PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE REFORM ACT. FORWARD
LOOKING STATEMENTS MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
ULTRAK, INC. TO DIFFER MATERIALLY FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS, INCLUDING
THE TIMELY DEVELOPMENT AND ACCEPTANCE OF NEW PRODUCTS, THE IMPACT OF COMPETITIVE
PRODUCTS AND PRICING, FLUCTUATIONS IN OPERATING RESULTS, ABILITY TO INTRODUCE
NEW PRODUCTS, TECHNOLOGICAL CHANGES, RELIANCE ON INTELLECTUAL PROPERTY AND OTHER
RISKS. MOREOVER, THE OBJECTIVES AND INTENTIONS SET FORTH IN THIS FORM 10-K ARE
SUBJECT TO CHANGE DUE TO DOMESTIC, GLOBAL MARKET AND ECONOMIC CONDITIONS BEYOND
THE CONTROL OF ULTRAK, INC.
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<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE AND DIVIDENDS
The Company's $.01 par value common stock ("Common Stock") commenced trading
on the NASDAQ Stock Market's NASDAQ National Market ("NASDAQ National Market")
on January 18, 1994, under the symbol "ULTK." Before that time, the Common Stock
was traded in the over-the-counter market. Prices shown do not include
adjustments for retail markups, markdowns or commissions. The following table
sets forth the high and low closing prices on the NASDAQ National Market for the
periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
1999
<S> <C> <C>
First quarter......... $ 8.13 $5.88
Second quarter........ 6.75 5.50
Third quarter......... 7.75 5.69
Fourth quarter........ 7.75 4.75
1998
First quarter......... $10.00 $8.13
Second quarter........ 10.00 8.38
Third quarter......... 9.13 6.69
Fourth quarter........ 8.75 6.88
</TABLE>
As of February 29, 2000, there were approximately 1,200 holders of record of
the Common Stock.
The Company has never paid cash dividends on the Common Stock. The Company
presently intends to retain earnings to finance the development and expansion of
its business. The declaration in the future of any cash dividends on the Common
Stock will be at the discretion of the Board of Directors and will depend upon
the earnings, capital requirements and financial position of the Company,
general economic conditions and other pertinent factors. The Company intends to
continue to pay dividends on outstanding shares of Series A Preferred Stock, all
of which are owned by George K. Broady, the Chairman and Chief Executive Officer
of the Company. Dividends in the amount of $117,210 have been paid annually to
Mr. Broady since the issuance of the Series A Preferred Stock.
11
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for the Company as of and
for the five fiscal years ended December 31, 1999, have been derived from the
consolidated financial statements of the Company and its subsidiaries, which
have been audited by Grant Thornton LLP, independent certified public
accountants. The selected consolidated financial data includes the effects of
businesses acquired in 1995, 1996, 1997, 1998 and 1999. This data should be read
in conjunction with the information set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the Consolidated
Financial Statements and related notes which are included elsewhere herein. The
Company has pursued an aggressive growth strategy since 1996. See pages 4-6 for
a discussion of these acquisitions. Because of these transactions, the income
statement and balance sheet data presented below may not be comparable from year
to year.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
(In thousands)
INCOME STATEMENT DATA: 1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales ..................................... $ 92,161 $ 126,539 $ 174,902 $ 195,223 $ 206,436
Cost of sales ................................. 69,710 88,714 120,883 131,677 138,561
--------- --------- --------- --------- ---------
Gross profit .................................. 22,451 37,825 54,019 63,546 67,875
Marketing and sales expenses .................. 10,811 15,548 26,706 30,909 35,504
General and administrative expenses ........... 4,652 8,871 19,130 19,885 21,679
Depreciation and amortization ................. 891 1,436 3,971 4,667 5,911
Special charges ............................... -- -- 3,122 -- 3,875
--------- --------- --------- --------- ---------
Total operating expenses ................. 16,354 25,855 52,929 55,461 66,969
--------- --------- --------- --------- ---------
Operating profit .............................. 6,097 11,970 1,090 8,085 906
Other expense (income) ........................ 1,899 214 (2,953) (461) (1,052)
--------- --------- --------- --------- ---------
Income from continuing operations before
income taxes ............................. 4,198 11,756 4,043 8,546 1,958
Incomes taxes ................................. 1,526 4,004 1,726 3,589 1,286
--------- --------- --------- --------- ---------
Income from continuing operations ............. 2,672 7,752 2,317 4,957 672
Income (loss) from discontinued operations .... 23 (153) 84 (1,402) (107)
--------- --------- --------- --------- ---------
Net income ............................... 2,695 7,599 2,401 3,555 565
Dividend requirements on preferred stock ...... 117 117 117 117 117
--------- --------- --------- --------- ---------
Net income allocable to common stockholders ... $ 2,578 $ 7,482 $ 2,284 $ 3,438 $ 448
========= ========= ========= ========= =========
Weighted average shares outstanding - basic ... 6,870 9,486 13,970 13,255 11,645
Income per common share from continuing
Operations - basic ....................... $ 0.38 $ 0.80 $ 0.16 $ 0.37 $ .05
========= ========= ========= ========= =========
Net income per common share - basic ........... $ 0.38 $ 0.79 $ 0.16 $ 0.26 $ .04
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: 1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Working capital ................................. $ 9,880 $119,163 $ 94,064 $ 90,192 $ 79,714
Total assets .................................... 52,955 172,510 185,256 196,626 200,350
Short-term debt ................................. 24,482 -- -- -- --
Long-term debt .................................. 1,535 -- -- 37,500 37,000
Stockholder's equity and equity put options ..... 16,497 155,961 163,198 140,030 132,663
</TABLE>
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<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The consolidated financial statements include the accounts of Ultrak and its
15 consolidated subsidiaries. The Company is further organized in the U.S. into
separate selling divisions; all supported by common administrative functions
such as credit, accounting, payroll, purchasing, legal, warehousing, training
and computer support services. All significant intercompany balances and
transactions among subsidiaries and divisions have been eliminated in
consolidation.
The Company has experienced substantial growth in recent years. Net sales
have grown from $1.8 million in 1987 to $206.4 million in 1999. Increases in net
sales have come from increased volume of sales of existing products and systems
to all of the markets served by the Company, introduction and sales of new
products and systems, creation of new selling groups to focus on new markets and
acquisitions of businesses in the security and surveillance, access control
industries and alarm monitoring industries.
In 1996, the Company completed three international acquisitions and made a
minority investment in a fourth company. Effective July 1, 1996, Ultrak acquired
approximately 75% of the outstanding stock of MAXPRO, a manufacturer of large
scale CCTV switching systems based in Perth, Western Australia. On February 17,
1997, the Company acquired the remainder of the outstanding stock of MAXPRO. On
September 6, 1996, Ultrak acquired and subsequently sold in September 1997 its
interest in approximately 24% of the outstanding stock of Lenel, a domestic
security access control software company. Effective October 1, 1996, Ultrak
acquired all of the outstanding share capital of Bisset, a distributor of CCTV
and professional audio products based in Paris, France. Effective December 1,
1996, Ultrak acquired all of the outstanding stock of VideV, a distributor and
manufacturer of CCTV products based in Dusseldorf, Germany. All of these
transactions were accounted for as purchases and the operations have been
included in the Company's financial statements since the dates of acquisition.
In 1997, the Company completed five acquisitions and made a minority
investment in a sixth company. Effective February 1, 1997, Ultrak acquired all
of the outstanding stock of MDI, a manufacturer of security and access control
systems based in Rancho Cucamonga, California. Effective March 1, 1997, the
Company acquired all of the outstanding stock of Intervision, a distributor of
CCTV products and systems based in England. Effective April 1, 1997, Ultrak
acquired all of the outstanding stock of the Videosys Group, a distributor of
CCTV and security products and systems based in Italy. Also effective April 1,
1997, the Company acquired all of the outstanding stock of Veravision, a
manufacturer of intraoral dental camera products based in San Clemente,
California. Effective October 1, 1997, the Company acquired all of the
outstanding stock of Philtech, a manufacturer and distributor of CCTV switching
and control equipment based in South Africa. Effective November 1997, the
Company established an 80% owned company in Singapore. All of these transactions
were accounted for as purchases and the operations have been included in the
Company's financial statements since the dates of acquisition.
In 1998, the Company made one acquisition and acquired the 20% minority
interest in its Singapore operation. As of February 1, 1998, the Company
acquired the net assets of Norbain-France, a distributor of CCTV products based
in Paris, France. Effective August 1, 1998, the Company sold its 90% owned
subsidiary, DVD, to a third party.
In 1999, the Company completed three acquisitions. Effective March 1, 1999,
Ultrak acquired all of the outstanding stock of ABM, a company that develops and
sells computer software for the alarm monitoring security industry based in
Austin, Texas. Effective April 1, 1999 Ultrak acquired all of the outstanding
stock of Multi Concepts Systemes, SA, an integrator of electronic security
systems based in Crissier, Switzerland. Effective July 1, 1999, the Company
acquired all of the outstanding stock of Mach Security, Sp. z.o.o., a
distributor of CCTV products based in Szczecin, Poland.
Product sales are recorded when goods are shipped to the customer. Most of
the Company's sales are made to its domestic customers on Net 30 or Net 60 day
credit terms after a credit review has been performed to establish
creditworthiness and to determine an appropriate credit limit. The Company's
international sales are made under varying terms depending upon the
creditworthiness of the customer, and include the use of letters of credit,
payment in advance of shipment or open trade terms. Sales to one legal entity
accounted for approximately 21% of total sales during 1999, 17% of total sales
during 1998 and 12% of total sales during 1997. However, sales to this legal
entity are made independently via two separate business segments within the
Company to two separate buying organizations within the legal entity.
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<PAGE> 14
Cost of sales for most of the Company's products includes the cost of the
product shipped plus freight, customs and other costs associated with delivery
from foreign contract manufacturers or from domestic suppliers. Cost of sales
for products manufactured by Ultrak include material, direct labor and overhead
as well as an allocated portion of indirect overhead.
Marketing and sales expenses are costs related to the Company's sales
efforts, which include costs incurred by both direct employees of the Company
and independent sales representatives. Marketing and sales expenses consist
primarily of salaries, commissions and related benefits, depreciation,
telephone, advertising, warranty, printing, product literature, sales promotion
and travel-related costs.
General and administrative expenses include costs of all corporate and
general administrative functions that support the existing selling divisions as
well as provides the infrastructure for future growth. General and
administrative expenses consist primarily of salaries and related benefits of
executive, administrative, operations and engineering, research and development
personnel, legal, audit and other professional fees, supplies, other engineering
costs and travel-related costs. During 1997, 1998 and 1999 the Company added new
corporate management in several areas to help facilitate and manage its growth.
Engineering, research and product development costs are included in general
and administrative expenses and consist primarily of salaries, overhead and
material costs associated with the development of new products offered by the
Company. All such R&D costs have been expensed when incurred.
During the years ended December 31, 1999 and 1998, the Company capitalized
approximately $1.7 and $1.5 million, respectively, in software development costs
primarily pertaining to its SAFEnet NT software and its ESS software development
projects. The Company's investment in engineering, research and software
development projects increased significantly during 1997, and have continued to
increase on an absolute basis in 1998 and 1999.
The Company's consolidated financial statements are denominated in dollars
and, accordingly, changes in the exchange rate between the Company's
subsidiaries' local currencies and the dollar will affect the conversion of such
subsidiaries' financial results into dollars for purposes of reporting the
Company's consolidated financial results. Translation adjustments are reported
as a separate component of stockholders' equity.
A substantial portion of the Company's purchases and sales are derived from
operations outside the United States. Since the revenues and expenses of the
Company's foreign operations are generally denominated in local currency,
exchange rate fluctuations between local currencies and the dollar subject the
Company to currency exchange risks with respect to the results of its foreign
operations. Therefore, the Company is subject to these risks to the extent that
it is unable to denominate its purchases or sales in dollars or otherwise shift
to its customers or suppliers the effects of currency exchange rate
fluctuations. Such fluctuations in exchange rates could have a material adverse
effect on the Company's results of operations. The Company did not have foreign
exchange forward or currency option contracts outstanding at December 31, 1999.
14
<PAGE> 15
The following discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto included herein.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales represented by
certain items in the Company's consolidated summary of income for the indicated
periods.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1998 1999
---------- ---------- ---------
<S> <C> <C> <C>
Net sales .................................. 100.0% 100.0% 100.0%
Cost of sales .............................. 69.1 67.4 67.1
---------- ---------- ----------
Gross profit ............................... 30.9 32.6 32.9
---------- ---------- ----------
Marketing and sales expenses ............... 15.3 15.8 17.2
General and administrative expenses ........ 10.9 10.2 10.5
Depreciation and amortization .............. 2.3 2.4 2.9
Special charges ............................ 1.8 -- 1.9
---------- ---------- ----------
Total operating expenses .......... 30.3 28.4 32.5
---------- ---------- ----------
Operating profit ........................... .6 4.2 .4
Other expense (income) ..................... (1.7) (.2) (.5)
---------- ---------- ----------
Income from continuing operations
before income taxes ........................ 2.3 4.4 .9
Income taxes ............................... 1.0 1.8 .6
---------- ---------- ----------
Income from continuing operations .......... 1.3 2.6 .3
Discontinued operations,
net of tax effects ......................... .1 (.8) --
---------- ---------- ----------
Net income ................................. 1.4% 1.8% .3%
========== ========== ==========
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
For the year ended December 31, 1999, net sales were $206.4 million, an
increase of $11.2 million (6%) over 1998. This increase was primarily due to the
internal growth from sales of new products and systems introduced in late 1998
and early 1999, and acquisitions completed during 1999.
Cost of sales were $138.6 million for 1999, an increase of $6.9 million (5%)
over 1998. Gross profit margins increased to 32.9% in 1999 from 32.6% in 1998.
This increase in gross profit margin was due primarily to increased sales of
Ultrak branded products and higher margins earned on its software based
products.
Marketing and sales expenses were $35.5 million for 1999, an increase of
$4.6 million (15%) over 1998. Marketing and sales expenses for 1999 were 17.2%
of net sales, up from 15.8% in 1998. This increase was due to the effect of
acquisitions completed during 1999, the effect of hiring additional field sales
personnel and the effect of hiring additional sales support and marketing
personnel in anticipation of new product introductions and resulting sales
activities, as well as the increased travel, printing, product literature,
advertising and promotion costs associated with the introduction of new
products.
General and administrative expenses were $21.7 million for 1999, an increase
of $1.8 million (9%) over 1998. General and administrative expenses for 1999
were 10.5% of net sales, up from 10.2% of net sales in 1998. This increase was
primarily due to the effect of acquisitions in 1999 and the costs related to the
establishment of the Company's European headquarters in Antwerp, Belgium.
Depreciation and amortization expenses were $5.9 million for 1999, an increase
of $1.2 million (27%) over 1998. Depreciation and amortization expenses for 1999
were 2.9% of net sales, up from 2.4% of net sales in 1998 due to increased
capital expenditures in 1998 and 1999. .
Included in the Company's 1999 results is a special charge of $3,875,000
related to restructuring of our Europe and domestic operations. This
restructuring effort is pursuant to a specific plan of action intended to take
advantage of new opportunities and consolidation and centralization of European
activities. In the first quarter of 1999, the Company recorded nonrecurring
charges of $750,000 related to domestic severance obligations. During the second
quarter of 1999, the Company recorded nonrecurring charges of $3,125,000 related
to consolidation of four locations into it's European headquarters in Antwerp,
Belgium in order to centralize
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<PAGE> 16
administrative, accounting and finance functions including centralization of
purchasing, shipping and billing activities. Also included in these nonrecurring
charges were employee severance and lease termination costs for the European
consolidation and the closing of three U.S. sales/distribution offices.
Other income was approximately $1.1 million for 1999, an increase of
$590,000 from 1998. This increase was due to equity in earnings of Detection
Systems, Inc. ("DETC") and gains on sale of investments offset by increased
interest expense.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
For the year ended December 31, 1998, net sales were $195.2 million, an
increase of $20.3 million (12%) over 1997. This increase was due to the effect
of new acquisitions during 1997, sales of new products introduced during late
1997 and 1998 and increased volume of sales of existing CCTV products to most of
the markets served by the Company.
Cost of sales were $131.7 million for 1998, an increase of $10.8 million
(9%) over 1997. Gross profit margins increased to 32.6% in 1998 from 30.9% in
1997. This increase was due to the continued increased sales levels of
Ultrak-branded products, cost reductions realized on certain Ultrak-branded
products and somewhat higher margins earned on software based products and other
new products introduced during late 1997 and 1998.
Marketing and sales expenses were $30.9 million for 1998, an increase of
$4.2 million (16%) over 1997. Marketing and sales expenses for 1998 were 15.8%
of net sales, up from 15.3% in 1997. This increase was due to the effect of
hiring additional sales, sales support and marketing personnel in conjunction
with new product introductions and resulting sales activities, as well as the
increased travel, printing, product literature, advertising and promotion costs
associated with the introduction of new products.
General and administrative expenses were $19.9 million for 1998, an increase
of $.8 million (4%) over 1997. General and administrative expenses for 1998 were
10.2% of net sales, down from 10.9% of net sales in 1997. This decrease was a
result of less hiring and selective employee terminations later in the year and
the Company's efforts to reduce its general and administrative costs as a
percentage of sales. Depreciation and amortization expenses were $4.7 million
for 1997, an increase of $.7 million (18%) over 1997. Depreciation and
amortization expenses for 1998 were 2.4% of net sales, slightly up from 2.3% of
net sales in 1997.
Other income was approximately $.5 million for 1998, a decrease of $2.5
million from 1997. This decrease was due to the Company's shift during mid 1997
to invest excess funds in marketable equity securities (including the investment
in DETC) instead of interest bearing investments, the use of cash to fund the
Company's stock repurchase program and the increase in expense on bank
borrowings during 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net increase in cash and cash equivalents for 1999 of
approximately $277,000. Net cash provided by operating activities for the period
was approximately $12.8 million, primarily consisting of increases in accounts
and notes payable, and decreases in advances for inventory purchases, noncurrent
notes and other assets offset partially by increases in inventory and accounts
receivables. Net cash used in investing activities was approximately $5.8
million consisting of purchases of marketable securities, purchases of property
and equipment, primarily related to the worldwide computer software
implementations, software development capitalization costs and net cash paid for
acquisitions offset by proceeds from sales of marketable securities. Net cash
used by financing activities was approximately $7.1 million, consisting
primarily of purchases of treasury stock and the payment of dividends on the
Company's outstanding Series A Preferred Stock offset by net repayments on its
bank credit facility and proceeds from exercises of stock options.
On March 22, 2000, the Company entered into a new two-year credit facility.
The credit facility provides for borrowings up to $45.0 million under a
revolving line of credit based upon available collateral. Interest for the
credit facility is payable quarterly at prime plus a range of 0% to .25% or
LIBOR plus a range of 2.25% to 2.75%, depending on the leverage ratio and other
conditions, as defined, for the quarter. The credit facility contains certain
restrictive financial and operational covenants and conditions, including a
maximum leverage ratio, a debt service ratio and minimum net worth amounts. The
Company pays a quarterly unused fee of .375% per annum.
The Company believes that internally generated funds, available borrowings
under the new credit facility and current amounts of cash will be sufficient to
meet its presently anticipated needs for working capital, capital expenditures
and acquisitions, if any, for at least the next 12 months.
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<PAGE> 17
DERIVATIVE FINANCIAL INSTRUMENTS
During 1997, the Company sold equity put options covering 2.6 million
shares. As of December 31, 1998, one equity put option remained outstanding and
the Company has recorded on the balance sheet its potential repurchase
obligation related to the put option totaling $1.6 million at its exercise price
of $12.51 per share. The single remaining put option was exercised on January
13, 1999 with the Company purchasing 125,000 shares of its Common Stock. As of
December 31, 1999, there were no outstanding equity put options.
YEAR 2000 COSTS
The Year 2000 issue presented a pervasive and complex set of issues in the
business environment, as virtually every computer operation within the Company
could have been affected in some way by the rollover of the two-digit year value
to "00". The issue is whether systems would properly recognize date sensitive
information when the year changed to 2000. Systems that did not properly
recognize such information could generate erroneous data or cause complete
system failures. With respect to its internal systems, the Company continues the
process of implementing a multi-lingual and multi-currency enterprise software
at all of Ultrak's facilities worldwide. As of August 1998, the Company had
successfully completed the conversion process to SAP at its Worldwide Service
and Support Center, as well as four other domestic facilities. SAP's software
and all associated third party applications are represented to be Year 2000
compliant and the Company has not experienced any material difficulty or events
of failure with SAP. The Company's Ohio manufacturing facility existing business
systems were upgraded as of September 1999, and the Company anticipates
conversion of the Ohio facility to SAP by mid-2000. In January 2000, the Company
successfully completed implementation of SAP at its Austin, Texas location.
European implementation began in March 1999 using "Exact" software, a European
multilingual, multi-currency Y2K and Euro compliant software. For all European
systems that were not Year 2000 compliant, the Company has successfully
converted those computer systems as of December 31, 1999. During the years ended
December 31, 1999, 1998 and 1997, the Company incurred approximately $3.2
million, $6.3 million and $1.6 million, respectively, related to its
implementation of SAP in the U.S and Exact in Europe. It is expected that the
remaining phases of the "Exact" implementation in Europe will additionally cost
approximately $500,000, which will be incurred in 2000. Such costs are expected
to be capitalized and amortized over the estimated useful life of the software.
Following the millenium event on January 1, 2000, the Company has not
experienced any material or adverse consequences as a result of a Year 2000
computer error. Based upon the completion of conversions to SAP in 1999 and
anticipated completions in 2000, and discussions with its primary suppliers and
vendors, the Company does not believe that the Year 2000 issues will have a
material impact on the financial position, results of operations or cash flows
of the Company. However, there can be no assurances that the Company will not
experience serious unanticipated negative consequences and/or material costs in
the future caused by undetected errors or defects in the technology used in the
Company's internal systems, which are composed of third party software, third
party hardware that contains embedded software and the Company's own software
products.
INFLATION
During the years ended December 31, 1999, 1998 and 1997, the cost of
property and equipment, lease expense and salaries and wages increased modestly.
The increases have not had a material impact on the Company's results of
operations during any of the periods.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk includes
"forward-looking statements" that involve risks and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements. The Company does not use derivative financial instruments for
speculative or trading purposes. The Company is exposed to market risk from
changes in foreign currency exchange rates and interest rates which could affect
its future results of operations and financial condition. The Company manages
its exposure to these risks through its regular operating and financing
activities.
Foreign exchange
The Company has foreign-based operations, primarily in Western Europe, which
accounted for 31% of 1999 net sales. The Company issues intercompany loans to
its foreign subsidiaries denominated in U.S. dollars on a long-term basis,
exposing the foreign subsidiaries to the effect of changes in spot exchange
rates of their local currency relative to the U.S. dollar. In addition, many of
the
17
<PAGE> 18
foreign-based operations make sales to customers denominated in different
currencies, which carry minimal market risk because the transactions normally
settle quickly. The Company does not regularly use forward-exchange contracts to
hedge these exposures. Based on the Company's foreign currency exchange rate
exposure for intercompany borrowings of approximately $20 million at December
31, 1999, a 10% adverse change in currency rates would reduce accumulated other
comprehensive income by approximately $2.0 million.
Interest rates
The Company's credit arrangements expose it to fluctuations in interest
rates. At December 31, 1999, the Company had $37 million outstanding under its
revolving line of credit, which provided for interest to be paid quarterly based
on a variable rate. Thus, interest rate changes would result in a change in the
amount of interest to be paid each quarter. Based upon the interest rates and
borrowings at December 31, 1999, a 10% increase in interest rates would
adversely affect the Company's financial position, annual results of operations,
or cash flows by approximately $300,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its subsidiaries
that are required by this Item 8 are listed in Part IV under Item 14(a) of this
report. Such consolidated financial statements are included herein beginning on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information regarding the
Company's directors to appear under the caption "Election of Directors" in the
Company's proxy statement for its 2000 Annual Meeting of Stockholders (the "2000
Proxy Statement"), which is expected to be filed with the Securities and
Exchange Commission on or about April 30, 2000. See also the list of the
Company's executive officers and related information under "Directors and
Executive Officers" in Part I thereof.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information to appear under
the captions "Election of Directors" and "Executive Compensation and Other
Information" in the 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information with respect to
security ownership to appear under the caption "Security Ownership of Principal
Stockholders and Management" in the 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information to appear under
the caption "Executive Compensation and Other Information - Certain
Transactions" in the 2000 Proxy Statement.
19
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statement Schedules filed as part of this Annual Report on
Form 10-K.
Financial Statements:
Report of Independent Certified Public Accountants.
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Income for the years ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
Additional financial information pursuant to the requirements of Form 10-K:
Report of Independent Certified Public Accountants on Schedule
Schedule II - Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are either not
applicable or the required information has been provided elsewhere in the
Consolidated Financial Statements or notes thereto.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed with the Securities and
Exchange Commission on March 18, 1999 reporting the ABM Data Systems,
Inc. acquisition and the resignation of James D. Pritchett, President,
Chief Operating Officer and a director of the Company.
(c) Exhibits
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of the Company (filed as Exhibit
3.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995)
3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995)
4.1 Form of certificate representing shares of the Common Stock
(filed as Exhibit 4.1 the Company's Registration Statement on
Form S-2, Registration No. 333-02891)
10.1 Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (filed as
Exhibit 10.6 to the Company's Registration Statement on Form
S-1, Registration No. 55-3-31110)
10.2 Amendment No. 2 to Ultrak, Inc. 1988 Non-Qualified Stock
Option Plan (filed as Exhibit 10 to the Company's Current
Report on Form 8-K dated December 28, 1993)
10.3 Amendment No. 3 to Ultrak, Inc. 1988 Non-Qualified Stock
Option Plan (filed as Exhibit 10.3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
10.4 Agreement and Plan of Reorganization, dated as of April 28,
1995, among Diamond Electronics, Inc., the shareholders of
Diamond signing the Agreement, the Company and Diamond
Purchasing Corp. (filed as Annex A to the Company's Form S-4
dated June 28, 1995)
10.5 Employment Agreement, dated May 25, 1995, between the Company
and James D. Pritchett (filed as Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995)
10.6 Employment Agreement, dated May 25, 1995, between the Company
and Tim D. Torno (filed as Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995)
10.7 Ultrak, Inc. Incentive Stock Option Plan (filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997)
10.8 Stock Purchase Agreement dated August 7, 1996 among Chris
Davies, Kim Rhodes, Scott Rhodes, Rhodes Davies & Associates
Pty Ltd. and the Company (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K dated August 23, 1996)
10.09 Stock Purchase Agreement dated September 26, 1996 among
Maurice Scetbon, Monda, S.A., Frida, S.A., the Company and
Ultrak Holdings Limited (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K dated October 11, 1996)
10.10 Purchase Agreement of German GmbH Share Capital, dated
December 16, 1996, among all of the shareholders of VideV
GmbH, Ultrak and Ultrak Holdings Limited (filed as Exhibit 1
to the Company's Current Report on Form 8-K dated December 31,
1996)
10.11 Agreement and Plan of Merger dated February 10, 1997 among
Monitor Dynamics, Inc., all of the shareholders of Monitor
Dynamics, Inc., Ultrak, Inc. and MDI Acquisition Corp. (filed
as Exhibit 1 to the Company's Current Report on Form 8-K dated
March 5, 1997)
10.12 Amended and Restated Loan Agreement, dated effective as of
December 11, 1997, among Ultrak, Inc., Dental Vision Direct,
Inc., Diamond Electronics, Inc., Monitor Dynamics, Inc.,
Ultrak Operating, L.P. and NationsBank of Texas, N.A. (filed
as Exhibit 1 to the Company's current Annual Report on Form
10-K for the year ended December 31, 1997)
10.13 Credit Agreement, dated as of February 16, 1999, among Ultrak,
Inc., Bank One, Texas, N.A. and Certain Lenders (filed as
Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998)
10.14 Stock Purchase Agreement dated August 5, 1998, between the
Company and American Dental Technologies, Inc. (filed as
Exhibit 10.14 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998)
10.15 Stock Sale Agreement dated February 23, 1999 between the
Company and Mutsuo Tanaka (filed as Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998)
10.16 Employment Agreement, dated January 1, 1998, between the
Company and Ted Wlazlowski (filed as Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998)
10.17 Agreement and Plan of Merger dated March 15, 1999 among ABM
Data Systems, Inc., Robert F. James, Ultrak, Inc. and ABM
Acquisition Corp. (filed as Exhibit 1 to the Company's Current
Report on Form 8-K dated March 18, 1999)
10.18 First Amended and Restated Credit Agreement between Ultrak,
Inc., Bank One of Texas, N.A. and Certain Lenders, dated
August 12, 1999 (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999)
10.19 Employment Agreement, dated June 1, 1999, between the Company
and Ted Wlazlowski (filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999)
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C>
10.20 Employment Agreement, dated June 1, 1999, between the Company
and Tim D. Torno (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999)
*10.21 First Amendment to First Amended and Restated Credit Agreement
between Ultrak, Inc., Bank One of Texas, N.A. and Certain
Lenders, dated November 12, 1999
*10.22 Second Amendment to First Amended and Restated Credit
Agreement between Ultrak, Inc., Bank One of Texas, N.A. and
Certain Lenders, dated January 31, 2000
*10.23 Third Amendment to First Amended and Restated Credit Agreement
between Ultrak, Inc., Bank One of Texas, N.A. and Certain
Lenders, dated February 29, 2000
*10.24 Amendment No. 4 to Ultrak, Inc. 1988 Non-Qualified Stock
Option Plan
*21.1 Subsidiaries of the Company
*27.1 Financial Data Schedule
</TABLE>
- ----------
* Exhibits 10.21, 10.22, 10.23, 10.24, 21.1 and 27.1 are filed herewith.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 27th day of
March, 2000
ULTRAK, INC.
By /s/ George K. Broady
------------------------------------
George K. Broady
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/ George K. Broady Chairman of the Board and Chief March 27, 2000
- ------------------------------------------------ Executive Officer
George K. Broady (Principal Executive Officer)
/s/ Tim D. Torno Vice President-Finance, Assistant Secretary, March 27, 2000
- ------------------------------------------------ Treasurer and Chief Financial Officer
Tim D. Torno (Principal Financial and Accounting
Officer)
/s/ Malcolm J. Guddis Director March 27, 2000
- ------------------------------------------------
Malcolm J. Guddis
/s/ Charles C. Neal Director March 27, 2000
- ------------------------------------------------
Charles C. Neal
/s/ Roland Scetbon Director March 27, 2000
- ------------------------------------------------
Roland Scetbon
/s/ Robert F. Sexton Director March 27, 2000
- ------------------------------------------------
Robert F. Sexton
/s/ George Vincent Broady Director March 27, 2000
-----------------------------------------------
George Vincent Broady
</TABLE>
23
<PAGE> 24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Ultrak, Inc.
We have audited the accompanying consolidated balance sheets of Ultrak, Inc. and
Subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ultrak, Inc. and
Subsidiaries as of December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
GRANT THORNTON LLP
Dallas, Texas
February 12, 2000 (except for Note D, as to
which the date is March 22, 2000)
F-1
<PAGE> 25
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,757,512 $ 4,480,721
Marketable securities 600,033 3,473,563
Trade accounts receivable, less allowance for doubtful
accounts of $2,401,773 and $1,657,549 at
December 31, 1999 and 1998, respectively 41,337,442 37,404,380
Inventories, net 49,097,433 46,021,960
Advances for inventory purchases 1,943,617 4,878,853
Prepaid expenses and other current assets 4,230,732 5,491,298
Deferred income taxes 3,959,604 2,956,259
Net current assets of discontinued operations 1,905,831 3,486,181
------------- -------------
Total current assets 107,832,204 108,193,215
PROPERTY, PLANT AND EQUIPMENT, at cost 26,879,627 20,574,475
Less accumulated depreciation and amortization (9,016,169) (5,484,992)
------------- -------------
17,863,458 15,089,483
OTHER ASSETS
Goodwill, net of accumulated amortization of $7,054,360
and $4,767,601 at December 31, 1999 and 1998,
respectively 56,337,690 54,861,332
Investment in Detection Systems, Inc. 13,354,019 12,702,909
Software development cost, less accumulated amortization
of $249,012 and $73,311 at December 31, 1999 and 1998 2,973,764 1,457,266
Net noncurrent assets of discontinued operations -- 311,050
Other 1,989,373 4,010,740
------------- -------------
74,654,846 73,343,297
------------- -------------
Total assets $ 200,350,508 $ 196,625,995
============= =============
</TABLE>
F-2
<PAGE> 26
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
December 31,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable - trade $ 15,739,200 $ 8,368,265
Accrued expenses 5,916,432 5,791,205
Accrued restructuring costs 1,749,073 --
Other current liabilities 4,713,081 3,842,050
------------- -------------
Total current liabilities 28,117,786 18,001,520
LINE OF CREDIT 37,000,000 37,500,000
DEFERRED INCOME TAXES 2,569,870 1,094,065
COMMITMENTS AND CONTINGENCIES -- --
EQUITY PUT OPTIONS ON COMMON STOCK -- 1,563,563
STOCKHOLDERS' EQUITY
Preferred stock, $5 par value, issuable in series; 2,000,000 shares
authorized; Series A, 12% cumulative convertible;
195,351 shares authorized, issued and outstanding 976,755 976,755
Common stock, $.01 par value; 20,000,000 shares authorized;
14,981,471 and 14,703,138 shares issued at December 31,
1999 and 1998, respectively 149,815 147,031
Additional paid-in capital 156,708,110 153,333,593
Retained earnings 17,578,720 17,130,398
Accumulated other comprehensive loss (4,067,437) (967,488)
Treasury stock, at cost (3,442,250 and 2,987,950 shares
at December 31, 1999 and 1998, respectively) (38,683,111) (32,153,442)
------------- -------------
Total stockholders' equity 132,662,852 138,466,847
------------- -------------
Total liabilities and stockholders' equity $ 200,350,508 $ 196,625,995
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 27
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 206,436,552 $ 195,222,550 $ 174,902,001
Cost of sales (exclusive of depreciation shown
separately below) 138,561,105 131,676,673 120,882,700
------------- ------------- -------------
Gross profit 67,875,447 63,545,877 54,019,301
Other operating costs:
Marketing and sales 35,504,076 30,909,127 26,705,668
General and administrative 21,678,426 19,885,071 19,130,365
Depreciation and goodwill amortization 5,911,464 4,666,508 3,971,114
Special charges 3,875,000 -- 3,122,000
------------- ------------- -------------
66,968,966 55,460,706 52,929,147
------------- ------------- -------------
Operating profit 906,481 8,085,171 1,090,154
Other income (expense):
Interest expense (2,964,954) (1,373,941) (154,965)
Interest income 175,837 412,383 1,853,639
Cost of terminated merger -- -- (697,055)
Gain on sale of investments 669,543 675,000 1,694,664
Foreign exchange gains (losses) 376,948 (97,838) --
Equity in income of Detection Systems, Inc. 1,885,000 350,000 --
Other, net 909,513 496,074 257,244
------------- ------------- -------------
1,051,887 461,678 2,953,527
------------- ------------- -------------
Income from continuing operations
before income taxes 1,958,368 8,546,849 4,043,681
Income taxes (1,285,814) (3,589,676) (1,726,458)
------------- ------------- -------------
Income from continuing operations 672,554 4,957,173 2,317,223
Discontinued operations, net of taxes
Loss (income) from operations 107,022 1,480,243 (83,491)
Gain on disposal -- (77,946) --
------------- ------------- -------------
NET INCOME 565,532 3,554,876 2,400,714
Dividend requirements on preferred stock (117,210) (117,210) (117,210)
------------- ------------- -------------
Net income allocable to common stockholders $ 448,322 $ 3,437,666 $ 2,283,504
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 28
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - CONTINUED
Years ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Income per common share:
Continuing operations
Basic $ 0.05 $ 0.37 $ 0.16
====== ====== ======
Diluted $ 0.05 $ 0.34 $ 0.15
====== ====== ======
Discontinued operations
Basic $(0.01) $(0.11) $ --
====== ====== ======
Diluted $(0.01) $(0.10) $ --
====== ====== ======
Net income
Basic $ 0.04 $ 0.26 $ 0.16
====== ====== ======
Diluted $ 0.04 $ 0.24 $ 0.15
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 29
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31,
<TABLE>
<CAPTION>
Deferred issuance
of common
stock related to
Preferred Stock Common Stock companies acquired
----------------------------- ----------------------------- ------------------------------
Shares Amount Shares Amount Shares Amount
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 195,351 976,755 13,863,101 $ 138,631 91,802 $ 918
Comprehensive income
Net income -- -- -- -- -- --
Other comprehensive
income
Foreign currency
translation adjustment -- -- -- -- -- --
Total
Issuance of common stock -- -- -- -- (40,983) (410)
Acquisition of businesses -- -- 574,532 5,745 -- --
Exercise of stock options
and warrants -- -- 8,108 81 -- --
Treasury stock purchases -- -- -- -- -- --
Proceeds from sale of
equity put options
on common stock -- -- -- -- -- --
Redemption price of
equity put options -- -- -- -- -- --
preferred stock dividends -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31, 1997 195,351 976,755 14,445,741 144,457 50,819 508
------------- ------------- ------------- ------------- ------------- -------------
Comprehensive income
Net income -- -- -- -- -- --
Other comprehensive
income
Foreign currency
translation adjustment -- -- -- -- -- --
Unrealized loss on
investments
held for sale, net
of taxes of $88,541 -- -- -- -- -- --
Total
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Additional other Treasury stock
paid-in Retained comprehensive -----------------------------
capital earnings loss Shares Amount Total
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 143,716,645 $ 11,409,228 $ (35,000) 35,000 $ (246,068) $155,961,109
Comprehensive income
Net income -- 2,400,714 -- -- -- 2,400,714
Other comprehensive
income
Foreign currency
translation adjustment -- -- (1,833,304) -- -- (1,833,304)
-------------
Total 567,410
-------------
Issuance of common stock -- -- -- -- -- (410)
Acquisition of businesses 6,534,784 -- -- -- -- 6,540,529
Exercise of stock options
and warrants 42,588 -- -- -- -- 42,669
Treasury stock purchases -- -- -- 397,850 (4,280,003) (4,280,003)
Proceeds from sale of
equity put options
on common stock 4,484,310 -- -- -- -- 4,484,310
Redemption price of
equity put options (28,364,000) -- -- -- -- (28,364,000)
preferred stock dividends -- (117,210) -- -- -- (117,210)
------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31, 1997 126,414,327 13,692,732 (1,868,304) 432,850 (4,526,071) 134,834,404
------------- ------------- ------------- ------------- ------------- -------------
Comprehensive income
Net income -- 3,554,876 -- -- -- 3,554,876
Other comprehensive
income
Foreign currency
translation adjustment -- -- 1,072,690 -- -- 1,072,690
Unrealized loss on
investments
held for sale, net
of taxes of $88,541 -- -- (171,874) -- -- (171,874)
-------------
Total 4,455,692
-------------
</TABLE>
F-6
<PAGE> 30
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
Years ended December 31,
<TABLE>
<CAPTION>
Deferred issuance
of common
stock related to
Preferred Stock Common Stock companies acquired
----------------------------- ----------------------------- ------------------------------
Shares Amount Shares Amount Shares Amount
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock -- $ -- -- $ -- (50,819) $ (508)
Acquisition of businesses -- -- 123,065 1,231 -- --
Adjustment to earnout contingency -- -- -- -- -- --
Exercise of stock options
and warrants -- -- 134,332 1,343 -- --
Treasury stock purchases -- -- -- --
Equity put options expired -- -- -- -- -- --
Equity put options redeemed -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31, 1998 195,351 976,755 14,703,138 147,031 -- --
Comprehensive loss
Net income -- -- -- -- -- --
Other comprehensive
loss
Foreign currency
translation adjustment -- -- -- -- -- --
Unrealized loss on
investments held for
sale, net of tax of
$292,541 -- -- -- -- -- --
Plus: reclassification
adjustment for losses
included in net
earnings, net of tax
effect of $88,541 -- -- -- -- -- --
Total
Acquisition of business -- -- 250,000 2,500 -- --
Exercise of stock options
and warrants -- -- 28,333 284 -- --
Stock-based compensation -- -- -- -- -- --
Treasury stock purchases -- -- -- -- -- --
Equity put options expired -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31, 1999 195,351 $ 976,755 14,981,471 $ 149,815 -- $ --
============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Additional other Treasury stock
paid-in Retained comprehensive -----------------------------
capital earnings loss Shares Amount Total
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock $ -- $ -- $ -- -- $ -- $ (508)
Acquisition of businesses -- -- -- -- -- 1,231
Adjustment to earnout contingency (104,508) -- -- -- -- (104,508)
Exercise of stock options
and warrants 223,337 -- -- -- -- 224,680
Treasury stock purchases -- -- -- 435,100 (4,139,433) (4,139,433)
Equity put options expired 3,312,499 -- -- -- -- 3,312,499
Equity put options redeemed 23,487,938 -- -- 2,120,000 (23,487,938) --
Preferred stock dividends -- (117,210) -- -- -- (117,210)
------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31, 1998 153,333,593 17,130,398 (967,488) 2,987,950 (32,153,442) 138,466,847
Comprehensive loss
Net income -- 565,532 -- -- -- 565,532
Other comprehensive
loss
Foreign currency
translation adjustment -- -- (2,703,949) -- -- (2,703,949)
Unrealized loss on
investments held for
sale, net of tax of
$292,541 -- -- (567,874) -- -- (567,874)
Plus: reclassification
adjustment for losses
included in net
earnings, net of tax
effect of $88,541 -- -- 171,874 -- -- 171,874
-------------
Total (2,534,417)
-------------
Acquisition of business 1,492,389 -- -- -- -- 1,494,889
Exercise of stock options
and warrants 68,565 -- -- -- -- 68,849
Stock-based compensation 250,000 -- -- -- -- 250,000
Treasury stock purchases -- -- -- 454,300 (6,529,669) (6,529,669)
Equity put options expired 1,563,563 -- -- -- -- 1,563,563
Preferred stock dividends -- (117,210) -- -- -- (117,210)
------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31, 1999 $ 156,708,110 $ 17,578,720 $ (4,067,437) 3,442,250 $ (38,683,111) $ 132,662,852
============= ============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 31
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 565,532 $ 3,554,876 $ 2,400,714
Adjustments to reconcile net income to net cash
provided by (used in) operating activities from
continuing operations:
Loss (income) from discontinued operations 107,022 1,480,243 (83,491)
Gain on disposal -- (77,946) --
Gain on sale of investments (669,543) (675,000) (1,694,664)
Equity in income of Detection Systems, Inc. (1,885,000) (350,000) --
Depreciation and amortization 5,911,464 4,666,508 3,971,114
Provision for losses on accounts receivable 813,178 (8,103) 316,937
Provision for inventory obsolescence 2,177,637 2,104,636 717,062
Noncash special charges 287,713 -- 3,122,000
Deferred income taxes 676,460 1,605,341 (2,070,458)
Changes in operating assets and liabilities
Accounts and notes receivable (4,992,471) (3,719,551) 894,098
Inventories (5,459,658) (10,440,583) (4,709,115)
Advances for inventory purchases 2,935,236 6,541,157 (6,482,564)
Prepaid expenses and other current assets 1,697,813 (2,408,931) 409,396
Noncurrent notes and other assets 1,980,668 702,546 3,532,780
Accounts payable 6,974,493 (4,240,203) (6,065,780)
Accrued restructuring costs 1,749,073 -- --
Accrued and other current liabilities (87,801) 1,075,151 (3,254,452)
------------ ------------ ------------
Net cash provided by (used in) operating
activities of continuing operations 12,781,816 (189,859) (8,996,423)
Cash flows from investing activities:
Proceeds from sale of marketable securities 7,776,652 1,050,000 17,948,298
Purchases of marketable securities (4,458,165) (4,018,995) (16,253,634)
Purchases of common stock of Detection Systems, Inc. (531,018) (12,352,949) --
Purchases of property and equipment (6,182,785) (12,322,627) (1,995,652)
Software development costs (1,692,199) (1,530,577) --
Proceeds from sale of discontinued operations -- 3,000,000 --
Acquisitions, net of cash acquired (679,878) -- (32,859,912)
------------ ------------ ------------
Net cash used in investing activities
of continuing operations (5,767,393) (26,175,148) (33,160,900)
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE> 32
ULTRAK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from revolving line of credit $ 47,804,192 $ 37,500,000 $ --
Repayments on revolving line of credit (48,304,192) -- --
Decrease (increase) in restricted cash -- 3,949,690 (3,949,690)
Proceeds from equity put options -- -- 4,484,310
Issuance of common stock 68,849 120,895 42,669
Purchase of treasury stock (6,529,669) (27,627,371) (4,280,003)
Payment of preferred stock dividends (117,210) (117,210) (117,210)
------------ ------------ ------------
Net cash provided by (used in) financing
activities of continuing operations (7,078,030) 13,826,004 (3,819,924)
------------ ------------ ------------
Net decrease in cash and cash equivalents (63,607) (12,539,003) (45,977,247)
Effect of exchange rate changes on cash (1,443,980) (247,464) (815,761)
Cash provided by (used in) discontinued operations 1,784,378 3,167,504 (10,918,015)
Cash and cash equivalents at beginning of the year 4,480,721 14,099,684 71,810,707
------------ ------------ ------------
Cash and cash equivalents at end of the year $ 4,757,512 $ 4,480,721 $ 14,099,684
============ ============ ============
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 2,322,093 $ 1,451,248 $ 144,965
============ ============ ============
Income taxes $ 1,203,710 $ 4,049,242 $ 4,783,883
============ ============ ============
Supplemental schedule of noncash investing and financing:
Acquisition of businesses
Assets acquired $ 3,581,198 $ 1,244,800 $ 56,335,806
Liabilities assumed (1,228,350) (1,200,000) (12,549,752)
Common stock issued or issuable (1,494,889) -- (6,540,529)
------------ ------------ ------------
857,959 44,800 37,245,525
Less cash acquired 178,081 44,800 4,385,613
------------ ------------ ------------
Net cash paid for acquisitions $ 679,878 $ -- $ 32,859,912
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE> 33
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Ultrak, Inc. (the "Company") is a U.S.-based multinational corporation that
designs, manufactures, markets sells and services electronic products and
systems for the security and surveillance, industrial and medical video and
professional audio markets worldwide. These products and systems include a
broad line of cameras, lenses, high-speed dome systems, monitors, switchers,
quad processors, time-lapse recorders, multiplexers, video transmission
systems, access control systems, computerized observation and security
systems, audio equipment and accessories.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Marketable Securities
The Company accounts for its marketable securities, all of which are
designated as available for sale, using Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Securities available for sale are reported at fair value, with
unrealized gains and losses, net of tax, excluded from earnings and reported
as a separate component of stockholders' equity. Realized gains and losses
on securities available for sale are reported in income in the year of sale.
Inventories
Inventories are comprised principally of goods held for resale, which are
valued at the lower of cost (first-in, first-out) or market.
Advances for Inventory
Advances for inventory represents payments in advance for goods purchased
primarily from the Far East. Upon receipt of the goods, advances are
classified as inventories.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are carried at cost. The provision for
depreciation is computed using the straight-line method over the estimated
useful lives of the assets.
F-10
<PAGE> 34
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
Income Per Share
The Company computes basic income per share based on the weighted average
number of common shares outstanding. Diluted income per share is computed
based on the weighted average number of shares outstanding, plus the number
of additional common shares that would have been outstanding if dilutive
potential common shares had been issued.
Goodwill and Amortization
Goodwill resulting from acquisitions is being amortized using the
straight-line method over periods ranging from twenty to forty years.
Accounting for Impairment of Long-Lived Assets
The Company evaluates long-lived assets and intangibles held and used for
impairment whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. Impairment is recognized when the
undiscounted cash flows estimated to be generated by those assets are less
than the carrying amounts of such assets.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
notes receivable, debt and equity put options for which the fair value
approximates the carrying value.
Stock-Based Compensation
The Company accounts for stock-based compensation to employees using the
intrinsic value method. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to
acquire the stock.
Software Development Costs
The Company capitalizes software development costs incurred from the time
technological feasibility of the software is established until the software
is ready for use in its products. Research and development costs related to
software development are expensed as incurred. The capitalized costs relate
to software which will become an integral part of the Company's revenue
producing products and are amortized in relation to expected revenues from
the product or a maximum of five years, whichever is greater. The carrying
value of software development costs is regularly reviewed by the Company,
and a loss is recognized when the net realizable value by product falls
below the unamortized cost.
F-11
<PAGE> 35
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
Currency Translation
Translation adjustments to the financial statements of foreign subsidiaries
are reflected in the consolidated financial statements as a component of
other comprehensive income.
Advertising Expense
The Company expenses advertising costs as incurred. Total advertising
expense amounted to approximately $1,099,000, $1,306,000, and $987,000 for
the years ended December 31, 1999, 1998, and 1997, respectively.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Income Taxes
The Company utilizes the asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to
affect taxable income.
Derivative Financial Instruments
Equity put options on common stock represent the number of options sold at
their respective strike price. Proceeds from the sale of equity put options
on common stock are accounted for as additional paid-in capital.
Reclassifications
Certain reclassifications have been made to prior years financial statements
to conform with the 1999 presentation.
F-12
<PAGE> 36
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - BUSINESS COMBINATIONS
1999 Business Combinations:
ABM Data Systems, Inc.
Effective March 1, 1999, the Company acquired 100% of the common stock of
ABM Data Systems, Inc. ("ABM"), an Austin, Texas based software developer
for the alarm-monitoring segment of the security industry. Total
consideration was 250,000 shares of registered Ultrak common stock valued at
approximately $1.5 million. ABM develops, sells, and services computer
software for the alarm monitoring security industry, governmental agencies,
and proprietary customers and offers support for computer software targeted
for automated security monitoring markets.
Multi Concepts Systems, SA
Effective April 1, 1999, the Company acquired 100% of the stock of Multi
Concepts Systems, SA ("MCS"), a Switzerland based systems integrator of
electronic security systems. Total consideration included an initial payment
of $405,000 in cash and future contingent payments based upon a percentage
of MCS income and book value, as defined. MCS has been the largest European
reseller and integrator of Ultrak's SAFEnet access control system over the
past ten years.
Mach Security Sp.z.o.o.
Effective July 1, 1999, the Company acquired 100% of the stock of MACH
Security Sp.z.o.o. ("Mach"), based in Szczecin, Poland. Mach is one of the
largest distributors of CCTV products in Poland. Total consideration
included an initial payment of $275,000 in cash and a future contingent
payment based upon a percentage of Mach income, as defined.
1998 Business Combinations and Divestitures:
During February 1998, the Company acquired the net assets of Norbain France
SARL, a French corporation wholly-owned by Norbain PLC, a United Kingdom
corporation, for assumption of the net liabilities of approximately $1.2
million.
In August 1998, the Company completed the sale of the stock of Dental Vision
Direct, Inc. ("DVD"), a 90% owned subsidiary, and its subsidiary,
Veravision, to American Dental Technologies, Inc. ("American Dental"). The
consideration included approximately $3.0 million in cash, a $3.9 million
short-term note and warrants to acquire 540,000 shares of American Dental
common stock. A gain on the sale of approximately $78,000 was recorded and
all prior periods have been restated to reflect the operations of DVD as
discontinued.
In March 1999, the Company completed the sale of its 10% interest in a
company in Japan for approximately $1.8 million in cash. A loss of $200,000
was recorded in other income (expense) in 1998 related to the sale.
F-13
<PAGE> 37
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - BUSINESS COMBINATIONS - Continued
1997 Business Combinations:
Monitor Dynamics, Inc.
Effective February 1, 1997, the Company acquired all of the outstanding
shares of capital stock of Monitor Dynamics, Inc. ("MDI") for $26.1 million
in cash. MDI designs, manufactures, markets and sells high-end security and
access control systems under the SAFEnet brand name. MDI's systems are used
in government, defense, industrial, financial and commercial applications
throughout the United States and Europe.
Intervision Express, Ltd.
Effective March 1, 1997, the Company acquired all of the outstanding share
capital of Intervision Express, Ltd. ("Intervision"), a United Kingdom
limited liability company. The total consideration was approximately $1.53
million dollars, including 38,822 shares of common stock valued at $719,000.
Intervision distributes security and surveillance products, primarily in the
United Kingdom, manufactured by the Company, Dedicated Micros, Toa, Hitachi,
Mitsubishi and others.
Videosys Group
Effective April 1, 1997, the Company acquired the Videosys Group (the
"Videosys Group") for total consideration of $8.37 million consisting of
$5.55 million in cash and $2.82 million (160,000 shares) in common stock. In
connection with the acquisition, the Company guaranteed the value of the
common stock by granting put rights covering 160,000 shares at $25 per
share. During 1999, the seller of Videosys exercised the put right and
required the Company to repurchase 160,000 shares for $4,000,000. The
Videosys Group designs, imports, and distributes security and surveillance
products primarily in Italy, under the Videosys brand name.
Veravision, Inc.
Effective April 1, 1997, the Company acquired all of the issued and
outstanding capital stock of Veravision, Inc. ("Veravision"). The
consideration consisted of $150,000 in promissory notes, approximately $2.0
million in notes and accounts receivable due from Veravision and 10% of the
common stock of DVD, a wholly-owned subsidiary of the Company. Veravision
manufactures intra-oral camera products for use primarily in the dental
market.
Other Acquisitions:
Additionally, in 1997, the Company acquired a 10% interest in a company in
Japan for approximately $2.0 million in cash and 100% of a company based in
South Africa for $300,000 in cash and $300,000 of amounts payable over a
three-year period and an 80% interest in a company based in Singapore for
$95,000 in cash.
Acquisitions during 1998 and 1999 were not significant; as a result, no pro
forma information is presented.
F-14
<PAGE> 38
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Machinery and equipment $ 6,094,410 $ 4,802,388
Furniture and fixtures 16,397,208 13,816,787
Buildings and land 4,388,009 1,955,300
------------ ------------
26,879,627 20,574,475
Accumulated depreciation (9,016,169) (5,484,992)
------------ ------------
$ 17,863,458 $ 15,089,483
============ ============
</TABLE>
NOTE D - FINANCING ARRANGEMENTS
On March 22, 2000, the Company entered into a new two-year credit facility.
The credit facility provides for borrowings up to $45.0 million under a
revolving line of credit based upon available collateral. Interest for the
credit facility is payable quarterly at prime plus a range of 0% to .25% or
LIBOR plus a range of 2.25% to 2.75%, depending on the leverage ratio, as
defined, for the quarter. The credit facility contains certain restrictive
financial and operational covenants and conditions, including a maximum
leverage ratio, a debt service ratio and minimum net worth amounts. The
Company pays a quarterly unused fee of .375% per annum.
At December 31, 1999, the Company had $37.0 million outstanding under its
previous line of credit and term loan. The line of credit provided for
borrowings up to $30 million, of which $17 million was outstanding at
December 31, 1999. The term loan had $20 million outstanding at December 31,
1999. Interest on the line of credit and term loan was payable monthly at
the lesser of LIBOR plus 2.75% or prime. The Company was in violation of
certain financial covenants and obtained a waiver on January 31, 2000.
Amounts outstanding were to be paid in full with proceeds from the new $45.0
million credit facility on March 22, 2000.
At December 31, 1998, the Company had $37.5 million outstanding under its
previous line of credit. Interest on the line of credit at December 31, 1998
was at LIBOR plus 3%.
NOTE E - STOCKHOLDERS' EQUITY
The Series A preferred stock earns dividends at the rate of 12% per annum,
payable quarterly. All dividends accrue whether or not such dividends have
been declared and whether or not there are profits, surplus, or other funds
of the Company legally available for payment.
F-15
<PAGE> 39
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - STOCKHOLDERS' EQUITY - Continued
The Company may at any time redeem all or any portion of the Series A
Preferred Stock then outstanding at the liquidation value of $5.00 per share
plus unpaid dividends. The holder of the Series A Preferred Stock may
convert any or all of the 195,351 preferred shares into shares of the
Company's common stock at any time at a conversion rate equal to 2.08 shares
of common stock per preferred share or a total of 406,981 shares of common
stock.
Holders of Series A preferred stock are entitled to vote on all matters
submitted to a vote of stockholders. Each Series A preferred share is
entitled to voting rights equal to 16.667 shares of common stock.
NOTE F - STOCK-BASED COMPENSATION
The Company's 1988 Nonqualified Stock Option Plan (the "1988 Plan") provides
for grants of options for up to 1,200,000 shares and the 1997 Incentive
Stock Option Plan (the "1997 Plan") provides for grants of options for up to
400,000 shares. Shares under the 1997 Plan are awarded based upon the
Company achieving one or more definitive performance measurements for a
fiscal year, including minimum levels of economic value added, minimum
levels of market value added or attainment of the financial budget. The 1997
Plan is a formula-based plan administered by the Compensation Committee of
the Board of Directors. Option grants under the 1997 Plan are limited to 1%
of the outstanding common stock of the Company. At December 31, 1999,
384,669 and 261,359 shares were available for grant under the 1988 Plan and
the 1997 Plan, respectively.
Option exercise prices are equal to the market price at the date of grant.
Shares under grant generally become exercisable in five equal annual
installments beginning one year after the date of grant, and expire after
ten years.
If the Company recognized compensation expense as permitted under Statement
of Financial Accounting Standards No. 123, based upon the fair value at the
grant date for options granted after 1994 under the 1988 Plan and 1997 Plan,
the Company's net income from continuing operations and income per share
would be reduced to the pro forma amounts indicated as follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net income from continuing operations:
As reported $ 672,554 $ 4,957,173 $ 2,317,223
Pro forma $ 252,656 $ 4,381,640 $ 1,884,927
Basic income per share from continuing operations:
As reported $ .05 $ .37 $ .16
Pro forma $ .01 $ .32 .13
Diluted income per share from continuing operations:
As reported $ .05 $ .34 $ .15
Pro forma $ .01 $ .30 $ .12
</TABLE>
F-16
<PAGE> 40
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - STOCK-BASED COMPENSATION - Continued
The fair value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: expected volatility of 55 to 80 percent; risk-free interest
rates of 4.8 to 6.5 percent; no dividend yield; and expected lives of seven
years.
The pro forma amounts presented are not representative of the amounts that
will be disclosed in the future because they do not take into effect pro
forma expense related to grants before 1995.
Additional information with respect to options outstanding at December 31,
1999 and changes for the three years then ended is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 859,170 $ 9.94 1,000,656 $ 9.26 658,775 $ 4.42
Granted 360,500 6.15 69,500 8.80 369,641 17.96
Exercised (28,333) 2.43 (134,332) 1.67 (8,108) 5.26
Forfeited (237,365) 18.91 (76,654) 16.13 (19,652) 12.16
---------- ---------- ----------
Outstanding at end of year 953,972 $ 6.56 859,170 $ 9.94 1,000,656 $ 9.26
========== ========== ========== ========== ========== ==========
Options exercisable at end of year 490,549 $ 5.83 475,937 $ 4.79 511,768 $ 3.44
========== ========== ========== ========== ========== ==========
</TABLE>
Weighted average fair value per share of options granted for 1999, 1998
and 1997 were $6.17, $6.55 and $9.68, respectively.
Information about stock options outstanding at December 31, 1999 is
summarized as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
--------------------------------------- -------------------------
Weighted
average Weighted Weighted
remaining average average
Number contractual exercise Number exercise
Range of exercise prices outstanding life price exercisable price
------------------------ ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.20 to $5.62 224,935 1.4 years $ 2.73 216,936 $ 2.65
$5.63 to $9.00 575,151 7.6 years 6.19 190,501 6.00
$9.01 to $13.50 74,500 7.8 years 9.58 38,000 9.58
$13.51 to $20.00 78,386 7.0 years 17.11 44,512 17.11
$20.01 to 26.75 1,000 6.7 years 23.75 600 23.75
--------- ---------
953,972 490,549
========= =========
</TABLE>
F-17
<PAGE> 41
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - MAJOR CUSTOMERS AND SUPPLIERS
Sales to one legal entity accounted for approximately 21% of total sales
during 1999, 17% of total sales during 1998 and 12% of total sales during
1997. However, sales to this legal entity are made independently via two
separate business segments of the Company to two separate buying
organizations within the legal entity. Loss of one of these customers may
have a material adverse effect on the operations of the Company.
The Company purchased in excess of 20% of its products from one contract
manufacturer in each of the three years in the period ended December 31,
1999. Although there are a limited number of manufacturers of the Company's
products, management believes there are suppliers who could provide similar
products on comparable terms. A change in suppliers could cause a delay in
and a possible loss of sales.
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company leases office and warehouse space and data processing equipment
under long-term, noncancelable leases.
Minimum future rental payments for all long-term, noncancelable operating
leases are presented below:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
2000 $2,998,000
2001 2,525,000
2002 1,943,000
2003 744,000
2004 245,000
Thereafter 761,000
----------
$9,216,000
==========
</TABLE>
Total rent expense was as follows:
<TABLE>
<S> <C>
1999 $2,704,000
1998 2,351,000
1997 1,588,000
</TABLE>
F-18
<PAGE> 42
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - INCOME TAXES
The provision for taxes consists of the following:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal
Current $ 596,425 $ 2,553,617 $ 3,330,467
Deferred 742,446 1,860,482 (1,842,118)
State 82,313 102,871 267,428
Foreign (135,370) (927,294) (29,319)
----------- ----------- -----------
$ 1,285,814 $ 3,589,676 $ 1,726,458
=========== =========== ===========
</TABLE>
The Company's effective income tax rate differed from the U.S. Federal
statutory rate as follows:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
U.S. Federal statutory rate 34.0% 34.0% 34.0%
State taxes, net of Federal benefit 2.5 0.8 2.1
Meals and entertainment 3.5 0.9 1.7
Goodwill amortization 20.8 4.8 9.3
Tax exempt interest and dividends -- -- (3.2)
Other, net 4.9 1.5 (1.2)
------ ------ ------
65.7% 42.0% 42.7%
====== ====== ======
</TABLE>
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Current
Deferred tax assets:
Inventories $1,447,979 $1,576,125
Accounts receivable 310,382 338,204
Accrued expenses 1,918,341 1,041,930
Other 282,902 --
---------- ----------
3,959,604 2,956,259
========== ==========
</TABLE>
F-19
<PAGE> 43
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - INCOME TAXES - Continued
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Noncurrent
Deferred tax assets:
Net operating loss carryforward $ 1,370,889 $ 1,170,866
Deferred tax liabilities:
Property, plant and equipment (2,924,793) (1,540,375)
Investment in Detection Systems, Inc. (826,950) (129,500)
Other (189,016) (595,056)
----------- -----------
(2,569,870) (1,094,065)
----------- -----------
$ 1,389,734 $ 1,862,194
=========== ===========
</TABLE>
At December 31, 1999, the Company had federal, state and foreign net
operating loss carryforwards of approximately $206,000, $1,200,000 and
$3,340,000, respectively. The federal net operating loss carryforwards are
limited in use each year to approximately $135,000 through expiration in
2010. The state net operating loss carryforwards expire in 2005.
Substantially all foreign net operating loss carryforwards do not expire.
Management believes the Company will obtain the full benefit of its deferred
tax assets on the basis of its evaluation of the Company's anticipated
domestic and international profitability.
NOTE J - INVESTMENT IN DETECTION SYSTEMS, INC.
The Company has acquired since 1998 an approximate 21% interest in Detection
Systems, Inc. In the fourth quarter of 1998, the Company began accounting
for its investment in Detection Systems, Inc. under the equity method and
the Company's share of earnings is included in income as earned. The
difference between the Company's cost and the underlying equity in Detection
Systems, Inc. of approximately $1.6 million represents goodwill and is being
amortized over thirty years. Condensed financial information as of March 31,
1999 and 1998 for Detection Systems, Inc. is as follows (in thousands):
<TABLE>
<CAPTION>
March 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Current assets $66,341 $68,520
Noncurrent assets 26,471 25,524
Current liabilities 17,244 23,576
Noncurrent liabilities 19,824 19,204
Net assets 55,744 51,264
</TABLE>
F-20
<PAGE> 44
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - INVESTMENT IN DETECTION SYSTEMS, INC. - Continued
<TABLE>
<CAPTION>
Years ended March 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues $138,045 $126,343
Operating income 8,648 4,832
Net income 4,471 1,382
</TABLE>
The market value of the Company's investment in Detection Systems, Inc. was
$12,599,730 and $11,493,000 at December 31, 1999 and 1998, respectively.
NOTE K - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS
The Company has four business segments: United States-Professional Security
Group (US-PSG), United States-Diversified Group (US-DSG),
International-Professional Security Group (International-PSG), and Supply.
The segments are differentiated by the customers serviced as follows:
US-PSG
This segment consists of sales in the United States to professional
security dealers, distributors, installers and certain large end users
of professional security products.
US-DSG
This segment sells video and security products to industrial markets and
consumers in the United States.
International-PSG
This segment consists of sales to professional security dealers,
distributors, installers and certain large end users of professional
security products outside the United States.
Supply
This segment sells to the US-PSG and International-PSG segments products
and systems manufactured by the Company's Ohio and California
facilities.
The Company's underlying accounting records are maintained on a legal
entity basis for government and public reporting requirements. Segment
disclosures are on a performance basis consistent with internal
management reporting. The Company evaluates performance based on
earnings from continuing operations before income taxes and other income
and expense. The Corporate column includes corporate overhead related
items. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies (Note A).
F-21
<PAGE> 45
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS - Continued
The following tables provide financial data by segment for the years ended
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
US US International
1999 PSG DSG PSG Supply Corporate Total
- ---- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $ 90,743,713 $ 53,188,272 $ 81,675,409 $ 22,555,516 $ -- $ 248,162,910
Intersegment revenue (1,512,222) -- (17,658,620) (22,555,516) -- (41,726,358)
------------- ------------- ------------- ------------- ------------- -------------
Revenue from external
customers $ 89,231,491 $ 53,188,272 $ 64,016,789 $ -- $ -- $ 206,436,552
============= ============= ============= ============= ============= =============
Operating profit (loss)
including special charges $ 7,418,109 $ 7,235,687 $ (325,109) $ (629,465) $ (12,792,741) $ 906,481
Total assets 48,475,248 27,700,142 46,530,723 14,099,110 63,545,285 200,350,508
Depreciation and
amortization expense 3,401,530 1,774,544 672,710 62,680 -- 5,911,464
Capital additions 2,386,005 1,422,227 2,374,553 -- -- 6,182,785
1998
- ----
Total revenue $ 92,319,817 $ 50,345,605 $ 66,957,207 $ 29,385,900 $ -- $ 239,008,529
Intersegment revenue (10,168,609) -- (4,231,470) (29,385,900) -- (43,785,979)
------------- ------------- ------------- ------------- ------------- -------------
Revenue from external
customers $ 82,151,208 $ 50,345,605 $ 62,725,737 $ -- $ -- $ 195,222,550
============= ============= ============= ============= ============= =============
Operating profit (loss) $ 8,994,267 $ 8,977,049 $ 2,009,647 $ (2,016,891) $ (9,878,901) $ 8,085,171
Total assets 43,732,291 28,905,974 36,037,253 19,127,020 68,823,457 196,625,995
Depreciation and
amortization expense 2,365,987 1,428,234 641,591 230,696 -- 4,666,508
Capital additions 7,492,423 4,083,349 746,855 -- -- 12,322,627
1997
- ----
Total revenue $ 78,892,610 $ 47,615,223 $ 53,473,573 $ 26,966,587 $ -- $ 206,947,993
Intersegment revenue (2,153,532) -- (2,925,873) (26,966,587) -- (32,045,992)
------------- ------------- ------------- ------------- ------------- -------------
Revenue from external
customers $ 76,739,078 $ 47,615,223 $ 50,547,700 $ -- $ -- $ 174,902,001
============= ============= ============= ============= ============= =============
Operating profit (loss)
including special charges $ 6,447,233 $ 8,221,438 $ 831,999 $ (2,007,458) $ (12,403,058) $ 1,090,154
Total assets 33,903,773 11,971,792 28,870,890 19,870,066 90,639,655 185,256,176
Depreciation and
amortization expense 1,842,123 1,164,271 770,135 194,585 -- 3,971,114
Capital additions 1,358,233 79,096 558,323 -- -- 1,995,652
</TABLE>
F-22
<PAGE> 46
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - SEGMENT DISCLOSURE AND FOREIGN OPERATIONS - Continued
Financial information relating to the Company's Corporate segment is as
follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Sales and marketing expenses $ 1,364,125 $ 1,398,736 $ 1,220,932
Engineering and other corporate expenses 3,511,859 4,517,287 4,219,669
General and administrative expenses 4,271,515 3,962,878 3,840,457
Special charges 3,645,242 -- 3,122,000
----------- ----------- -----------
Operating loss $12,792,741 $ 9,878,901 $12,403,058
=========== =========== ===========
</TABLE>
Sales by geographic area were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
United States $142,419,763 $132,496,813 $124,354,301
Europe 58,012,411 53,855,400 44,510,358
Other 6,004,378 8,870,337 6,037,342
------------ ------------ ------------
Total revenues $206,436,552 $195,222,550 $174,902,001
============ ============ ============
</TABLE>
F-23
<PAGE> 47
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - EARNINGS PER SHARE
Following is a reconciliation of basic and diluted earnings per share from
continuing operations:
<TABLE>
<CAPTION>
1999 1998
------------------------------------- -------------------------------------
Income Income
allocable to Per allocable to Per
common share common share
stockholders Shares amount stockholders Shares amount
------------ ---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations allocable to
common stockholders $ 555,344 11,644,941 $ 0.05 $4,839,963 13,254,782 $ 0.37
=========== ===========
Effect of dilutive securities
Contingently issuable
shares -- 98,773 -- 366,690 --
Put options -- -- -- 428,640 --
Stock options -- 149,587 -- 319,057 --
Convertible preferred
stock 117,210 406,981 117,210 406,981 --
---------- ---------- ---------- ----------
Income from continuing
operations allocable to
common stockholders after
assumed conversions $ 672,554 12,300,282 $ 0.05 $4,957,173 14,776,150 $ 0.34
========== ========== =========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
1997
-------------------------------------
Income
allocable to Per
common share
stockholders Shares amount
------------ ---------- -----------
<S> <C> <C> <C>
Income from continuing
operations allocable to
common stockholders $2,200,013 13,969,698 $ 0.16
===========
Effect of dilutive securities
Contingently issuable
shares -- 301,981
Put options -- 78,126
Stock options -- 467,499
Convertible preferred
stock 117,210 406,981
---------- ----------
Income from continuing
operations allocable to
common stockholders after
assumed conversions $2,317,223 15,224,285 $ 0.15
========== ========== ===========
</TABLE>
For 1999, 1998 and 1997, 201,053, 367,919 and 286,655 stock options were
outstanding, respectively, but not included in the computation of diluted
income per share because the options exercise price was greater than the
average market price of the common shares and, therefore, the effect would
have been antidilutive.
F-24
<PAGE> 48
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - UNAUDITED QUARTERLY OPERATING RESULTS
Unaudited quarterly operating results for the years ended December 31, 1999,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ------------ ------------
1999:
- -----
<S> <C> <C> <C> <C>
Sales $ 48,668,384 $ 52,323,827 $ 51,281,007 $ 54,163,334
Gross profit 15,896,840 17,125,867 16,869,988 17,982,752
Net income (loss) 338,167 (735,914) 875,760 87,519
Income (loss) per share:
Basic $ 0.03 $ (0.07) $ 0.07 $ 0.01
Diluted 0.03 (0.07) 0.07 0.01
1998:
- -----
Sales $ 44,259,934 $ 48,518,345 $ 52,618,516 $ 49,825,755
Gross profit 13,730,647 15,529,383 17,176,078 17,109,769
Net income (loss) 580,337 1,211,673 1,863,180 (100,314)
Income (loss) per share:
Basic $ 0.04 $ 0.09 $ 0.14 $ (0.01)
Diluted 0.04 0.08 0.13 (0.01)
1997:
- -----
Sales $ 38,461,730 $ 41,800,882 $ 47,724,006 $ 46,915,383
Gross profit 12,415,540 13,248,807 14,928,491 13,426,463
Net income (loss) 2,034,433 876,443 2,016,607 (2,526,769)
Income (loss) per share:
Basic $ 0.14 $ 0.06 $ 0.14 $ (0.18)
Diluted 0.14 0.06 0.13 (0.18)
</TABLE>
See Note O for special charges and changes in estimates in the fourth
quarter of 1997 and the first, second and fourth quarters of 1999.
F-25
<PAGE> 49
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE N - DISCONTINUED OPERATIONS
In December 1998, the Company discontinued operations of its Mobile Video
division which markets and installs video equipment on transit vehicles. As
discussed in Note B, the Company sold Dental Vision Direct, Inc. on August
5, 1998. The Company expects to complete the disposal in 2000.
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 615,993 $ 9,222,863 $13,838,734
Income (loss) from the discontinued operations,
net of taxes (benefit) of $(55,132), $(750,487),
and $43,011 (107,022) (1,480,243) 83,491
Gain on disposal, net of taxes of $23,414 -- 77,946 --
</TABLE>
The net assets of discontinued operations consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Accounts receivable $ 724,072 $1,060,966
Inventories 1,058,624 1,953,726
Other current assets 123,135 471,489
Equipment and other -- 311,050
---------- ----------
Total $1,905,831 $3,797,231
========== ==========
</TABLE>
F-26
<PAGE> 50
ULTRAK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE O - SPECIAL CHARGES AND CHANGES IN ESTIMATES
During the fourth quarter of 1997, the Company recorded nonrecurring charges
of approximately $3.1 million which consist of (1) the write-off of computer
hardware and software made obsolete by the implementation of new software,
(2) the cost of moving to a new headquarters building including charges for
the write-off of leasehold improvements and other abandonment costs and (3)
implementation costs related to new software through December 1997.
During the fourth quarter of 1997, the Company also made certain changes in
estimates totaling $2.0 million consisting of provisions for excess and
obsolete inventory of $1.0 million and increases in allowance for doubtful
accounts for accounts receivable and other assets of $1.0 million.
During the first quarter of 1999, the Company incurred nonrecurring charges
totaling $750,000 related to severance obligations. During the second
quarter of 1999, the Company incurred nonrecurring charges totaling
$3,125,000 pertaining to restructuring costs for (1) its four European
locations including costs for employee severance, terminating leases, and
consolidation of all purchasing, shipping, and billing activity to Antwerp,
Belgium and (2) closing costs of three United States sales and distribution
offices.
The Company's exit plan commenced in June 1999 and provides for the
termination of 54 employees (19 employees in the United States and 35
employees in Europe). The exit plan is expected to be completed in 2000. The
restructuring charge and the amount settled are summarized as follows:
<TABLE>
<CAPTION>
Accrued at
December 31,
Charge Settled 1999
----------- ----------- -----------
<S> <C> <C> <C>
Severance and other related employee costs $ 2,608,150 $(1,689,343) $ 918,807
Leased facilities and other termination costs 1,266,850 (436,584) 830,266
----------- ----------- -----------
$ 3,875,000 $(2,125,927) $ 1,749,073
=========== =========== ===========
</TABLE>
During the fourth quarter of 1999, the Company increased its allowance for
doubtful accounts for its European and South African subsidiaries by
approximately $1 million.
F-27
<PAGE> 51
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES
Board of Directors
Ultrak, Inc.
In connection with our audit of the consolidated financial statements of Ultrak,
Inc. and Subsidiaries referred to in our report dated February 12, 2000, which
is included in Part IV of this Form 10-K, we have also audited Schedule II for
each of the three years in the period ended December 31, 1999. In our opinion,
this schedule presents fairly, in all material respects, the information
required to be set forth therein.
GRANT THORNTON LLP
Dallas, Texas
February 12, 2000
S-1
<PAGE> 52
SCHEDULE II
ULTRAK, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Balance at Charged Charged Balance at
Beginning (credited) to to other End
Description of Period Operations Accounts Deductions of Period
----------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful trade accounts
Year ended December 31, 1999 $1,657,549 $ 813,178 $ 22,599(1) $ (91,553)(2) $2,401,773
Year ended December 31, 1998 1,741,920 (8,103) 4,790(1) (81,058)(2) 1,657,549
Year ended December 31, 1997 717,840 316,937 955,084(1) (247,941)(2) 1,741,920
</TABLE>
Notes
(1) Balances recorded from business combinations.
(2) Balances written off.
S-2
<PAGE> 53
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
INDEX DESCRIPTION
- ------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company (filed as Exhibit
3.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995)
3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995)
4.1 Form of certificate representing shares of the Common Stock
(filed as Exhibit 4.1 the Company's Registration Statement on
Form S-2, Registration No. 333-02891)
10.1 Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (filed as
Exhibit 10.6 to the Company's Registration Statement on Form
S-1, Registration No. 55-3-31110)
10.2 Amendment No. 2 to Ultrak, Inc. 1988 Non-Qualified Stock
Option Plan (filed as Exhibit 10 to the Company's Current
Report on Form 8-K dated December 28, 1993)
10.3 Amendment No. 3 to Ultrak, Inc. 1988 Non-Qualified Stock
Option Plan (filed as Exhibit 10.3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
10.4 Agreement and Plan of Reorganization, dated as of April 28,
1995, among Diamond Electronics, Inc., the shareholders of
Diamond signing the Agreement, the Company and Diamond
Purchasing Corp. (filed as Annex A to the Company's Form S-4
dated June 28, 1995)
10.5 Employment Agreement, dated May 25, 1995, between the Company
and James D. Pritchett (filed as Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995)
10.6 Employment Agreement, dated May 25, 1995, between the Company
and Tim D. Torno (filed as Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995)
10.7 Ultrak, Inc. Incentive Stock Option Plan (filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997)
10.8 Stock Purchase Agreement dated August 7, 1996 among Chris
Davies, Kim Rhodes, Scott Rhodes, Rhodes Davies & Associates
Pty Ltd. and the Company (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K dated August 23, 1996)
10.09 Stock Purchase Agreement dated September 26, 1996 among
Maurice Scetbon, Monda, S.A., Frida, S.A., the Company and
Ultrak Holdings Limited (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K dated October 11, 1996)
10.10 Purchase Agreement of German GmbH Share Capital, dated
December 16, 1996, among all of the shareholders of VideV
GmbH, Ultrak and Ultrak Holdings Limited (filed as Exhibit 1
to the Company's Current Report on Form 8-K dated December 31,
1996)
</TABLE>
<PAGE> 54
<TABLE>
<S> <C>
10.11 Agreement and Plan of Merger dated February 10, 1997 among
Monitor Dynamics, Inc., all of the shareholders of Monitor
Dynamics, Inc., Ultrak, Inc. and MDI Acquisition Corp. (filed
as Exhibit 1 to the Company's Current Report on Form 8-K dated
March 5, 1997)
10.12 Amended and Restated Loan Agreement, dated effective as of
December 11, 1997, among Ultrak, Inc., Dental Vision Direct,
Inc., Diamond Electronics, Inc., Monitor Dynamics, Inc.,
Ultrak Operating, L.P. and NationsBank of Texas, N.A. (filed
as Exhibit 1 to the Company's current Annual Report on Form
10-K for the year ended December 31, 1997)
10.13 Credit Agreement, dated as of February 16, 1999, among Ultrak,
Inc., Bank One, Texas, N.A. and Certain Lenders (filed as
Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998)
10.14 Stock Purchase Agreement dated August 5, 1998, between the
Company and American Dental Technologies, Inc. (filed as
Exhibit 10.14 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998)
10.15 Stock Sale Agreement dated February 23, 1999 between the
Company and Mutsuo Tanaka (filed as Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998)
10.16 Employment Agreement, dated January 1, 1998, between the
Company and Ted Wlazlowski (filed as Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998)
10.17 Agreement and Plan of Merger dated March 15, 1999 among ABM
Data Systems, Inc., Robert F. James, Ultrak, Inc. and ABM
Acquisition Corp. (filed as Exhibit 1 to the Company's Current
Report on Form 8-K dated March 18, 1999)
10.18 First Amended and Restated Credit Agreement between Ultrak,
Inc., Bank One of Texas, N.A. and Certain Lenders, dated
August 12, 1999 (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999)
10.19 Employment Agreement, dated June 1, 1999, between the Company
and Ted Wlazlowski (filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999)
10.20 Employment Agreement, dated June 1, 1999, between the Company
and Tim D. Torno (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999)
*10.21 First Amendment to First Amended and Restated Credit Agreement
between Ultrak, Inc., Bank One of Texas, N.A. and Certain
Lenders, dated November 12, 1999
*10.22 Second Amendment to First Amended and Restated Credit
Agreement between Ultrak, Inc., Bank One of Texas, N.A. and
Certain Lenders, dated January 31, 2000
*10.23 Third Amendment to First Amended and Restated Credit Agreement
between Ultrak, Inc., Bank One of Texas, N.A. and Certain
Lenders, dated February 29, 2000
*10.24 Amendment No. 4 to Ultrak, Inc. 1988 Non-Qualified Stock
Option Plan
*21.1 Subsidiaries of the Company
*27.1 Financial Data Schedule
</TABLE>
- ----------
* Exhibits 10.21, 10.22, 10.23, 10.24, 21.1 and 27.1 are filed herewith.
<PAGE> 1
EXHIBIT 10.21
FIRST AMENDMENT
TO
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT is entered into as of November 12, 1999, among ULTRAK,
INC., a Delaware corporation ("Borrower"), certain lenders, and BANK ONE, TEXAS,
N.A., as Administrative Agent ("Administrative Agent").
Borrower, Administrative Agent and Lenders are party to that certain
First Amended and Restated Credit Agreement (as renewed, extended, amended and
restated, the "Credit Agreement") dated as of August 12, 1999, providing for,
among other things, a revolving credit facility and a term loan facility. The
parties to this Amendment have agreed to amend the Credit Agreement as set forth
herein.
1. Defined Terms; References. Unless otherwise stated in this
Amendment (a) terms defined in the Credit Agreement have the same meanings when
used in this Amendment and (b) references to "Sections," "Schedules" and
"Exhibits" are to sections, schedules and exhibits to the Credit Agreement.
2. Amendments.
a. Section 1.1 is amended by deleting therefrom the following
defined terms: (i) Adjusted Fixed Assets, and (ii) Book Value.
b. The following defined terms in Section 1.1 are amended in
their entirety as follows:
"Borrowing Base" means, at any time, the sum, without
duplication, of (a) 80% of Eligible Accounts plus (b) 50% of
Eligible Inventory, plus (c) 50% of the Market Value of
Borrower's Permitted Investment in Detection Systems, Inc.,
plus (d) 80% of the Market Value of Borrower's Permitted
Public Company Holdings, plus (e) 100% of the then-current
account balance in the Money Market Account.
"Permitted Acquisition" means any Acquisition for
which the prior written consent of Required Lenders has been
obtained (such consent to be in the sole and absolute
discretion of each of those Lenders).
c. Section 3.2(c) is amended by adding a new clause (iv) as
follows:
(iv) Immediately upon the sale of any of Borrower's
investment in Detection Systems, Inc., Borrower shall make a
mandatory prepayment on the Obligation to Administrative Agent
(with any related Funding Loss) in an amount equal to 100% of
the Net Proceeds of such sale or other disposition.
Notwithstanding Section 3.11, the amount prepaid to
Administrative Agent may be applied against either the
Principal Debt under the Revolving Facility or the Term Loan
or any other portion of the Obligation, in the sole and
absolute discretion of Administrative Agent and Required
Lenders.
d. Section 3.2(f) is amended by adding a new clause (iv) as
follows:
(iv) Immediately upon the sale of any of Borrower's
investment in Detection Systems, Inc., Borrower shall make a
mandatory prepayment on the Obligation to Administrative Agent
(with any related Funding Loss) in an amount equal to 100% of
the
<PAGE> 2
Net Proceeds of such sale or other disposition.
Notwithstanding Section 3.11, the amount prepaid to
Administrative Agent may be applied against either the
Principal Debt under the Revolving Facility or the Term Loan
or any other portion of the Obligation, in the sole and
absolute discretion of Administrative Agent and Required
Lenders. No such mandatory prepayment that is applied against
the Term Loan may be reborrowed.
e. Section 8.4 is amended in its entirety as follows:
8.4 Inspections. Upon reasonable request and at least
5-days' advance notice (but during the pendency of an Event of
Default, no advance notice is required), each Company shall
allow Administrative Agent or any Lender (or their respective
Representatives) to inspect any of that Company's properties,
to review reports, files and other records and to make and
take away copies, to conduct tests or investigations and to
discuss any of its affairs, conditions and finances with its
other creditors, directors, officers, employees, outside
accountants or representatives from time to time, during
reasonable business hours (but during the pendency of an Event
of Default, at any time). Without limiting the foregoing, the
Companies shall allow Administrative Agent and Lenders to
perform field examinations to test such systems and controls
of the Companies as they deem appropriate, such field
examinations at any time prior to an Event of Default to occur
no more frequently than once per calendar quarter (provided
that such limitation shall not apply after the occurrence and
during the continuation of an Event of Default). Borrower
shall reimburse Administrative Agent and each Lender for the
reasonable expenses of each such field examination (the
expected expense relating to each such field exam is $10,000).
f. Section 9.7(g) is amended in its entirety as follows:
(g) Borrower's investment in Detection Systems, Inc.
as of November 12, 1999, provided that any part of such
investment that is sold or otherwise disposed of may not be
subsequently reacquired;
g. Section 9.8 is amended in its entirety as follows:
9.8 Distributions; Other Payments. No Company may
declare, make or pay any Distribution except (i) Distributions
paid in the form of additional equity that is not required to
be redeemed or is redeemable at the option of the holder if
certain events or conditions occur or exist or otherwise, (ii)
Distributions to Borrower from any other Company, (iii)
Distributions from a Foreign Subsidiary to Ultrak Holdings,
(iv) Distributions from Ultrak Operating to Ultrak GP and
Ultrak LP, (v) Distributions of up to $117,210 per year
representing preferred stock dividends from Borrower to Mr.
George K. Broady made in respect of Borrower's Series A
Preferred Stock, and (vi) from November 12, 1999, through the
entire remaining term that this agreement is in effect, up to
an aggregate of $100,000 in stock repurchases by the Companies
(for the avoidance of doubt, the restriction set forth in this
clause (vi) shall apply to the Companies taken as a whole and
is not meant to apply to each Company individually).
h. Section 9.9 is amended in its entirety as follows:
9.9 Disposition of Assets. No Company may sell,
assign, lease, transfer or otherwise dispose of any of its
assets (including, without limitation, equity interests in any
2
<PAGE> 3
other Company) other than a Permitted Asset Sale.
Notwithstanding the foregoing, Borrower may sell its Permitted
Investments described in SECTION 9.7(f) without being required
to prepay the Obligation.
i. Section 10.4 is amended in its entirety as follows:
10.4 Capital Expenditures. For any fiscal year of
Borrower, capital expenditures for the acquisition,
construction, improvement or replacement of land, buildings,
equipment or other fixed or capital assets or leaseholds
(excluding expenditures properly chargeable to repairs or
maintenance) for the Companies shall not exceed (a) $6,700,000
for Borrower's fiscal year ending December 31, 1999, and (b)
$4,000,000 for any fiscal year thereafter.
j. Schedule H is amended in its entirety, and all references in
the Credit Documents shall be deemed to refer to, the Schedule
H attached hereto as Annex A.
k. Schedule J is amended in its entirety, and all references in
the Credit Documents shall be deemed to refer to, the Schedule
J attached hereto as Annex B.
3. Conditions Precedent. Notwithstanding any contrary provisions
contained in the Credit Documents, this Amendment is not effective unless and
until:
a. the representations and warranties in this Amendment are true
and correct;
b. Administrative Agent receives counterparts of this Amendment
executed by each party named below; and
c. Administrative Agent receives a copy of the resolutions
adopted by the Board of Directors of Borrower authorizing the
transactions contemplated by this Amendment (such resolutions
being in form and substance acceptable to Administrative
Agent), certified as true and correct by the Secretary or an
Assistant Secretary of Borrower.
4. Ratifications. This Amendment modifies and supersedes all
inconsistent terms and provisions of the Credit Documents, and except as
expressly modified and superseded by this Amendment, the Credit Documents are
ratified and confirmed and continue in full force and effect. The parties hereto
agree that the Credit Documents, as amended by this Amendment, continue to be
legal, valid, binding and enforceable in accordance with their respective terms.
Without limiting the generality of the foregoing, Borrower hereby ratifies and
confirms that all Liens heretofore granted to Administrative Agent on behalf of
Lenders were intended to, do, and continue to secure the full payment and
performance of the Obligation. Borrower agrees to perform such acts and duly
authorize, execute, acknowledge, deliver, file and record such additional
assignments, security agreements, modifications or amendments to any of the
foregoing, and such other agreements, documents, and instruments as
Administrative Agent may reasonably request in order to perfect and protect
those Liens and preserve and protect the rights of Administrative Agent and
Lenders in respect of all present and future Collateral.
5. Representations and Warranties. Borrower hereby represents and
warrants to Administrative Agent and Lenders that (a) this Amendment and any
other Credit Documents to be delivered under this Amendment have been duly
executed and delivered by or on behalf of Borrower and each other Company party
to them, (b) no action of, or filing with, any Governmental Authority is
required to authorize, or is otherwise required in connection with, the
execution, delivery, and performance by Borrower or any other
3
<PAGE> 4
Company of this Amendment or any other Credit Document to be delivered under
this Amendment, (c) this Amendment and any other Credit Documents to be
delivered under this Amendment are valid and binding upon Borrower and the other
Companies and are enforceable against Borrower and such other Companies in
accordance with their respective terms, except as limited by any applicable
Debtor Relief Laws, (d) the execution, delivery and performance by Borrower and
the other Companies of this Amendment and any other Credit Documents to be
delivered under this Amendment do not require the consent of any other Person
and do not and will not constitute a violation of any Governmental Requirements,
agreements or understandings to which Borrower or any other Company is a party
or by which Borrower is bound, (e) the representations and warranties contained
in the Credit Agreement, as amended by this Amendment, and any other Credit
Documents are true and correct in all material respects as of the date of this
Amendment, and (f) as of the date of this Amendment, no Event of Default or
Potential Default exists.
6. Waiver. Effective only upon receipt by Administrative Agent of this
Amendment executed by each Person named below, this Amendment shall become
notice to Borrower that Administrative Agent and Lenders hereby temporarily
waive any Event of Default or Potential Default arising under the Credit
Agreement with respect to the Companies' non-compliance with Sections 10.1 and
10.2 for the period ending September 30, 1999. The waivers set forth in the
immediately-preceding sentence shall expire on January 31, 2000, and be of no
further force and effect, and the Events of Default thus temporarily waived
fully reinstated, unless Required Lenders agree in writing before January 31,
2000 to a permanent waiver of such Events of Default. Except as stated above (i)
this waiver is not a consent or waiver in respect of any existing or future
Events of Default or Potential Defaults or a waiver of Lender's rights to insist
upon Borrower's compliance with its obligations under each Credit Document and
(ii) each Credit Document is unchanged and continues in full force and effect.
7. Inspections. The parties hereto contemplate that Administrative
Agent will perform a field examination of the Companies within 45 days of the
date of this Amendment in accordance with its rights under Section 8.4 of the
Credit Agreement. The parties hereto further contemplate that Wells Fargo Bank
(Texas), National Association will perform its own field examination of the
Companies approximately 60 days following the conclusion of the Bank One, Texas,
N.A. examination described above. In both cases, Borrower shall reimburse
Administrative Agent and Wells Fargo Bank (Texas), National Association,
respectively, for their reasonable expenses in connection with such field
examinations (such expenses are not expected to exceed $10,000 per examination).
The Companies also hereby consent to Administrative Agent and any Lender who
performs any field examination or other inspection of the Companies to discuss
the results of such field examination or inspection with Administrative Agent
and the other Lenders and to provide copies of any documents, reports or
analyses prepared or obtained in connection with such field examination or
inspection to Administrative Agent and the other Lenders. Administrative Agent
and each Lender hereby agree that any such documents, reports or analyses that
might from time to time be provided to it by any other party to this Amendment
(other than a Company) shall be delivered to it as a courtesy of the party
delivering it, that Administrative Agent and each such Lender has the
opportunity to inform itself from other sources as to any relevant information
regarding the Companies in order to make its own independent credit decisions,
and releases the party delivering any such documents, reports or analyses from
any liability whatsoever relating to errors or omissions contained therein. It
is contemplated that Administrative Agent and Wells Fargo Bank (Texas), National
Association will promptly provide to each other copies of any final reports
prepared in connection with the field examinations referred to above. In no way
will the terms of this paragraph limit or restrict the ability of Administrative
Agent and the other Lenders from exercising their inspection rights in
accordance with Section 8.4 of the Credit Agreement.
8. References. All references in the Credit Documents to the "Credit
Agreement" refer to the Credit Agreement as amended by this Amendment. This
Amendment is a "Credit Document" referred to in
4
<PAGE> 5
the Credit Agreement and the provisions relating to Credit Documents in the
Credit Agreement are incorporated by reference, the same as if set forth
verbatim in this Amendment.
9. Counterparts. This Amendment may be executed in any number of
counterparts with the same effect as if all signatories had signed the same
document.
10. Parties Bound. This Amendment binds and inures to the benefit of
Borrower, Lenders and Administrative Agent and, subject to Section 14.12 of the
Credit Agreement, their respective successors and assigns.
11. Entirety. THIS AMENDMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS
AMENDMENT, AND THE OTHER CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES FOR THE TRANSACTIONS HEREIN AND THEREIN, AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT BETWEEN THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK
SIGNATURE PAGES FOLLOW
5
<PAGE> 6
EXECUTED as of the date first stated above.
Address for Notice ULTRAK, INC., as Borrower
Ultrak, Inc.
1301 Waters Ridge Drive
Lewisville, Texas 75057
Attn: Mr. Tim D. Torno,
Vice President - Finance By:
Fax No.: (972) 353-6679 ---------------------------------------
Tim D. Torno, Vice President - Finance
Address for Notice BANK ONE, TEXAS, N.A.,
as Administrative Agent and a Lender
Bank One, Texas, N.A.
1717 Main Street, 3rd Floor
Dallas, Texas 75201
Attn: Alan L. Miller, By:
Vice President ---------------------------------------
Fax No.: (214) 290-2305 Alan L. Miller, Vice President
Address for Notice WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION,
Wells Fargo Bank (Texas), as a Lender
National Association
1445 Ross @ Field, 3rd Floor
Dallas, Texas 75202
Attn: Kyle Hranicky, By:
Vice President ---------------------------------------
Fax No.: (214) 969-0370 Kyle Hranicky, Vice President
<PAGE> 7
To induce Administrative Agent and Lenders to enter into this
Amendment, each guarantor named below (a) consents and agrees to this
Amendment's execution and delivery, (b) ratifies and confirms that all
guaranties, assurances, and Liens granted, conveyed, or assigned to
Administrative Agent on behalf of Lenders under the Credit Documents are not
released, diminished, impaired, reduced, or otherwise adversely affected by this
or any prior amendment, and continue to guarantee, assure, and secure the full
payment and performance of all present and future Obligation, (c) agrees to
perform such acts and duly authorize, execute, acknowledge, deliver, file and
record such additional guaranties, assignments, security agreements, deeds of
trust, mortgages, and other agreements, documents, instruments, and certificates
as Administrative Agent may reasonably deem necessary or appropriate in order to
create, perfect, preserve, and protect those guaranties, assurances, and Liens,
and (d) waives notice of acceptance of this consent and agreement, which consent
and agreement binds each of the undersigned and their respective successors and
permitted assigns and inures to Administrative Agent and Lenders and their
respective successors and permitted assigns.
ULTRAK GP, INC.
By:
------------------------------------------
Tim D. Torno, Vice President - Finance
ULTRAK, LP, INC.
By:
------------------------------------------
Tim D. Torno, Vice President - Finance
ULTRAK OPERATING, L.P.
By: Ultrak GP, Inc. its General Partner
By:
------------------------------------------
Tim D. Torno, Vice President - Finance
DIAMOND ELECTRONICS, INC.
By:
------------------------------------------
Tim D. Torno, Vice President - Finance
MONITOR DYNAMICS, INC.
<PAGE> 8
By:
------------------------------------------
Tim D. Torno, Vice President - Finance
ABM DATA SYSTEMS, INC.
By:
------------------------------------------
Tim D. Torno, Vice President - Finance
<PAGE> 9
Annex A
to
First Amendment
to
First Amended and Restated Credit Agreement
EXHIBIT H
BORROWING BASE REPORT
FOR THE MONTH ENDED , (the "SUBJECT MONTH")
----------------- ----------
ADMINISTRATIVE AGENT: Bank One, Texas, N.A. DATE: ,
------------
BORROWER: Ultrak, Inc.
================================================================================
This report is delivered under the First Amended and Restated Credit
Agreement (as renewed, extended and amended, the "CREDIT AGREEMENT") dated as of
August 12, 1999, between Borrower, certain Lenders and Administrative Agent.
Terms defined in the Credit Agreement have the same meanings when used, unless
otherwise defined, in this report.
<TABLE>
<CAPTION>
==================================================================== ===========================================
LINE AT END OF SUBJECT QUARTER
- -------------------------------------------------------------------- -------------------------------------------
<S> <C> <C>
1. Total Accounts - Line 1 minus Line 2(d) $
- -------------------------------------------------------------------- ----------------------- -------------------
2. Accounts excluded from the Borrowing Base due to the $
exclusions set forth in the definition of "Eligible
Accounts"
- -------------------------------------------------------------------- ----------------------- -------------------
(a) Excluded under clause (a) $
- -------------------------------------------------------------------- ----------------------- -------------------
(b) Excluded under clause (b) $
- -------------------------------------------------------------------- ----------------------- -------------------
(c) Excluded under clause (c) $
- -------------------------------------------------------------------- ----------------------- -------------------
(d) Total ineligible Accounts - sum of Lines 2(a), $
2(b) and 2(c)
- -------------------------------------------------------------------- ----------------------- -------------------
3. Total Eligible Accounts - Line 1 minus Line 2(d) $
- -------------------------------------------------------------------- ----------------------- -------------------
4. 80% of Line 3 $
- -------------------------------------------------------------------- ----------------------- -------------------
5. Total Inventory $
- -------------------------------------------------------------------- ----------------------- -------------------
6. Inventory excluded from the Borrowing Base due to the $
exclusions set forth in the definition of "Eligible
Inventory"
- -------------------------------------------------------------------- ----------------------- -------------------
7. Total Eligible Inventory - Line 5 minus Line 6 $
- -------------------------------------------------------------------- ----------------------- -------------------
8. 50% of Line 7 $
- -------------------------------------------------------------------- ----------------------- -------------------
9. Market Value of Borrower's Permitted Investment in $
Detection Systems, Inc.
- -------------------------------------------------------------------- ----------------------- -------------------
10. 50% of Line 9 $
- -------------------------------------------------------------------- ----------------------- -------------------
11. Market Value of Borrower's Permitted Public Company $
Holdings (a complete listing of such holdings and their
current Market Values is attached hereto) plus the
balance in the Money Market Account (a statement for
such account dated the last day of the Subject Month is
attached hereto)
- -------------------------------------------------------------------- ----------------------- -------------------
12. 80% of Line 11 $
- -------------------------------------------------------------------- ----------------------- -------------------
13. Balance in the Money Market Account $
- -------------------------------------------------------------------- ----------------------- -------------------
14. 100% of Line 13 $
- -------------------------------------------------------------------- ----------------------- -------------------
15. Borrowing Base -- Sum of Line 3, Line 8, Line 10, Line $
12 and Line 14
- -------------------------------------------------------------------- ----------------------- -------------------
16. Total Commitments $50,000,000
- -------------------------------------------------------------------- ----------------------- -------------------
17. Commitment usage plus LC Exposure $
- -------------------------------------------------------------------- ----------------------- -------------------
18. Lesser of either Line 15 or Line 16 minus Line 17 $
- -------------------------------------------------------------------- ----------------------- -------------------
19. Availability -- either $
(a) If Line 18 is negative -- the amount to be repaid
- -------------------------------------------------------------------- ----------------------- -------------------
(b) if Line 18 is positive -- the amount available $
==================================================================== ======================= ===================
</TABLE>
<PAGE> 10
On behalf of, and in my capacity as an officer of, Borrower, I certify
that, as of the last day of the Subject Month and on the date of this report (a)
I am the undersigned officer of Borrower, (b) no Material Adverse Event, Event
of Default or Potential Default exists, (c) a review of the activities of
Borrower during the Subject Month has been made under my supervision with a view
to determining the amount of the current Borrowing Base, (d) the accounts
receivable of the Domestic Companies included in the Borrowing Base above meet
all conditions in the Credit Agreement to qualify for inclusion in the Borrowing
Base, (e) the inventory of the Domestic Companies included in the Borrowing Base
above meet all conditions in the Credit Agreement to qualify for inclusion in
the Borrowing Base, (f) the Permitted Investments and Permitted Public Company
Holdings included in the Borrowing Base above meet all conditions in the Credit
Agreement to qualify for inclusion in the Borrower Base, (g) all of the
representations and warranties of the Companies in the Credit Documents are true
and correct in all material respects (unless they speak to a specific date or
are based on facts which have changed by transactions contemplated or expressly
permitted by the Credit Documents), (h) the Companies have otherwise complied
with all of their obligations under the Credit Documents, and (i) the attached
accounts receivable aging and inventory listings are true, correct and complete.
ULTRAK, INC.
By:
--------------------------------
Name:
------------------------------
Title:(1)
-----------------------------
- --------
(1) Must be Borrower's president, chief financial officer or treasurer.
<PAGE> 11
Annex B
to
First Amendment
to
First Amended and Restated Credit Agreement
EXHIBIT J
PERMITTED ACQUISITION COMPLIANCE CERTIFICATE
ADMINISTRATIVE AGENT: Bank One, Texas, N.A. DATE:____________________
BORROWER: Ultrak, Inc.
================================================================================
This certificate is delivered under the First Amended and Restated
Credit Agreement dated as of August 12, 1999 (as renewed, extended and amended,
the "CREDIT AGREEMENT") between Borrower, certain Lenders and Administrative
Agent. Terms defined in the Credit Agreement have the same meanings when used
unless otherwise defined in this certificate.
__________________[name of Company] intends to acquire _____________
[the "SUBJECT ACQUISITION"], on ________________, ____ (the "ACQUISITION DATE").
In connection with such Subject Acquisition, Borrower hereby confirms the
following:
10 all of the representations and warranties under the Credit
Documents are true and correct immediately prior to and after
giving effect to the Subject Acquisition;
20 the consent of Required Lenders to the Subject Acquisition has
been obtained and Borrower has delivered to Administrative
Agent all information regarding the Acquisition requested by
Administrative Agent.
30 after giving effect to the Subject Acquisition, any Debt (if
any) incurred or assumed by the Companies in connection with
the Subject Acquisition will be permitted by SECTION 9.2.
40 prior to the consummation of the Subject Acquisition, Borrower
has delivered to Administrative Agent all supplements to, or
revisions of, Schedules 7.3 and 7.8 to of the Credit Agreement
which are required to make the disclosures in such Schedules
accurate after giving effect to the Subject Acquisition, and
has obtained the consent of Required Lenders with respect to
such revised or supplemental Schedules (|_| check here if no
such revised or supplemental Schedules are required as a
result of the Subject Acquisition).
ULTRAK, INC.
By:
--------------------------------
Name:
------------------------------
(1)Title:
--------------------------
- --------
(1) Must be a Responsible Officer of Borrower.
<PAGE> 1
EXHIBIT 10.22
SECOND AMENDMENT
TO
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT is entered into as of January 31, 2000, among ULTRAK, INC.,
a Delaware corporation ("Borrower"), the lenders executing this Amendment
("Lenders"), and BANK ONE, TEXAS, N.A., as Administrative Agent ("Administrative
Agent").
Borrower, Administrative Agent and Lenders are party to that certain First
Amended and Restated Credit Agreement (as renewed, extended, amended and
restated, the "Credit Agreement") dated as of August 12, 1999, providing for,
among other things, a revolving credit facility and a term loan facility. The
parties to this Amendment have agreed to amend the Credit Agreement as set forth
herein.
1. Defined Terms; References. Unless otherwise stated in this Amendment (a)
terms defined in the Credit Agreement have the same meanings when used in this
Amendment and (b) references to "Sections," "Schedules" and "Exhibits" are to
sections, schedules and exhibits to the Credit Agreement.
2. Amendments.
1. Section 1.1 is amended by deleting therefrom the following defined
terms: (i) Domestic Sublimit and (ii) Eurocurrency Sublimit.
2. A new definition is hereby added to Section 1.1:
"Domestic Borrowing" means a borrowing of Dollars through a
domestic (United States) office of a Lender.
3. The following defined terms in Section 1.1 are amended in their entirety
as follows:
"Base Rate Borrowing" means a Domestic Borrowing advanced to
Borrower through Administrative Agent in accordance with SECTION 2.3,
which Borrowing bears interest at the sum of the Base Rate plus the
Applicable Margin.
"Default Rate" means, for any day, an annual interest rate equal
from day to day to (i) for amounts owing in respect of Eurocurrency
Borrowings, the lesser of either (a) the Eurocurrency Rate plus 4.0%
or (b) the Maximum Rate, and (ii) for all other amounts owing under or
in respect of the Credit Documents, the lesser of either (a) the Base
Rate plus 2.5% or (b) the Maximum Rate.
"Eurocurrency Lending Installation" means Administrative Agent's
Lending Installation in London, England (or such other Lending
Installation as may be designated by Administrative Agent from time to
time) that manages fundings and payments in respect of Eurocurrency
Borrowings.
"LC Subfacility" means a subfacility of the Revolving Facility
for the issuance of LCs, as described in SECTION 2.4, under which the
LC Exposure may never exceed $5,000,000 in the aggregate. For the
avoidance of doubt, LCs may only be requested or issued as a Dollar
commitment to be funded as a Domestic Borrowing under the Revolving
ULTRAK-SECOND AMENDMENT TO CREDIT AGREEMENT
<PAGE> 2
Facility and all communications from Borrower in respect of LCs shall
be with Administrative Agent.
"LIBOR Rate Borrowing" means a Domestic Borrowing advanced to
Borrower through Administrative Agent in accordance with SECTION 2.3,
which Borrowing bears interest at the sum of the LIBOR Rate plus the
Applicable Margin.
"Permitted Intercompany Advances" means loans, advances or
extensions of credit by Borrower to its Foreign Subsidiaries from
funds loaned to Borrower as Eurocurrency Borrowings. For the avoidance
of doubt, no loans, advances or extensions of credit may be made by
Borrower or any Domestic Company to any Foreign Subsidiary except for
loans made with the proceeds of Eurocurrency Borrowings.
4. Section 2.2 is amended by adding "and" at the end of Section 2.2(d),
changing the semi-colon at the end of Section 2.2(e) to a period and
deleting Sections 2.2(f) and 2.2(g).
5. Section 2.6 is amended by deleting the third sentence ("Any partial
terminations . . . Domestic Sublimit.") in its entirety.
6. Section 3.2(b) is amended in its entirety to read as follows:
(b) Revolving Facility Principal. The Principal Debt under the
Revolving Facility is due and payable on the Revolving Facility
Termination Date. Before that date, Borrower may at any time prepay,
without penalty (except as provided in this agreement) and in whole or
in part, the Principal Debt under the Revolving Facility, so long as
(i) each voluntary partial prepayment must be in a principal amount
not less than (A) $50,000, or a greater integral multiple of $50,000,
in the case of prepayments of Domestic Borrowings and (B) $500,000 (or
its Dollar Equivalent) in the case or prepayments of Eurocurrency
Borrowings, (ii) Borrower shall pay any related Funding Loss upon
demand, and (iii) in the case of prepayments of Eurocurrency
Borrowings, Borrower has given the Eurocurrency Lending Installation
four days' advance notice of its intention to make such prepayment.
Conversions under SECTION 3.10 are not prepayments.
7. Section 3.2(c)(iii) ("If the aggregate principal amount . . . the
Eurocurrency Sublimit.") is deleted in its entirety.
8. Section 3.10(a) is amended to change the caption to "Domestic
Borrowings" and to amend the last sentence in its entirety to read as
follows:
For the avoidance of doubt, no portion of any Domestic Borrowing may
be converted to a Eurocurrency Borrowing (but, subject to compliance
with the other terms and conditions of this Agreement, a Eurocurrency
Borrowing may be made to pay all or any portion of any Domestic
Borrowing).
9. Section 3.10(b) is amended to change the caption to "Eurocurrency
Borrowings" and to amend the last sentence in its entirety to read as
follows:
For the avoidance of doubt, no portion of any Eurocurrency Borrowing
may be converted to a Base Rate Borrowing or a LIBOR Rate Borrowing
(but, subject to compliance with the other terms and conditions of
this Agreement, a Domestic Borrowing may be made to pay any
Eurocurrency Borrowing).
ULTRAK-SECOND AMENDMENT TO CREDIT AGREEMENT
2
<PAGE> 3
10. In Section 3.15, the phrase "in the case of Borrowings under the
Domestic Sublimit" appearing in clause (i) is changed to "in the case of
Domestic Borrowings", and the phrase "in the case of Borrowings under the
Eurocurrency Sublimit" appearing in clause (ii) is changed to "in the case
of Eurocurrency Borrowings".
11. The caption of Section 3.17(a) is changed to "Domestic Borrowings", and
the caption of Section 3.17(b) is changed to "Eurocurrency Borrowings".
12. Exhibit E to the Credit Agreement (Borrowing Request) is hereby
replaced by Exhibit E attached as Annex A to this Amendment, and all
references in the Credit Documents shall be deemed to refer to the Exhibit
E attached hereto.
13. The covenants and agreements contained in the Amendment Fee letter
dated January 31, 2000 among Lenders and Borrower (the "Fee Letter") are
incorporated herein and into the Credit Agreement by reference the same as
if set forth in full herein and therein.
1. Conditions Precedent. Notwithstanding any contrary provisions contained
in the Credit Documents, this Amendment is not effective unless and until:
a. the representations and warranties in this Amendment are true and
correct;
b. Administrative Agent receives counterparts of this Amendment
executed by each party named below;
c. the fees due and payable pursuant to the Fee Letter and legal
fees and other expenses incurred by Lenders for which Borrower is
responsible have been paid in full, and
d. Administrative Agent receives a copy of the resolutions adopted
by the Board of Directors of Borrower authorizing the
transactions contemplated by this Amendment (such resolutions
being in form and substance acceptable to Administrative Agent),
certified as true and correct by the Secretary or an Assistant
Secretary of Borrower.
4. Ratifications. This Amendment modifies and supersedes all inconsistent
terms and provisions of the Credit Documents, and except as expressly modified
and superseded by this Amendment, the Credit Documents are ratified and
confirmed and continue in full force and effect. The parties hereto agree that
the Credit Documents, as amended by this Amendment, continue to be legal, valid,
binding and enforceable in accordance with their respective terms. Without
limiting the generality of the foregoing, Borrower hereby ratifies and confirms
that all Liens heretofore granted to Administrative Agent on behalf of Lenders
were intended to, do, and continue to secure the full payment and performance of
the Obligation. Borrower agrees to perform such acts and duly authorize,
execute, acknowledge, deliver, file and record such additional assignments,
security agreements, modifications or amendments to any of the foregoing, and
such other agreements, documents, and instruments as Administrative Agent may
reasonably request in order to perfect and protect those Liens and preserve and
protect the rights of Administrative Agent and Lenders in respect of all present
and future Collateral.
5. Representations and Warranties. Borrower hereby represents and warrants
to Administrative Agent and Lenders that (a) this Amendment and any other Credit
Documents to be delivered under this Amendment have been duly executed and
delivered by or on behalf of Borrower and each other Company party to them, (b)
no action of, or filing with, any Governmental Authority is required to
authorize, or is otherwise required in connection with, the execution, delivery,
and performance by Borrower or any other Company of this Amendment or any other
Credit Document to be delivered under this Amendment, (c) this Amendment and
ULTRAK-SECOND AMENDMENT TO CREDIT AGREEMENT
3
<PAGE> 4
any other Credit Documents to be delivered under this Amendment are valid and
binding upon Borrower and the other Companies and are enforceable against
Borrower and such other Companies in accordance with their respective terms,
except as limited by any applicable Debtor Relief Laws, (d) the execution,
delivery and performance by Borrower and the other Companies of this Amendment
and any other Credit Documents to be delivered under this Amendment do not
require the consent of any other Person and do not and will not constitute a
violation of any Governmental Requirements, agreements or understandings to
which Borrower or any other Company is a party or by which Borrower is bound,
(e) the representations and warranties contained in the Credit Agreement, as
amended by this Amendment, and any other Credit Documents are true and correct
in all material respects as of the date of this Amendment, and (f) as of the
date of this Amendment, no Event of Default or Potential Default exists, other
than those waived until February 29, 2000 pursuant to Section 6 of this
Amendment.
6. Waiver. Effective only upon receipt by Administrative Agent of this
Amendment executed by each Person named below, this Amendment shall become
notice to Borrower that Administrative Agent and Lenders hereby temporarily
waive any Event of Default or Potential Default arising under the Credit
Agreement with respect to the Companies' non-compliance with Sections 10.1 and
10.2 for the period ending September 30 and December 31, 1999. The waivers set
forth in the immediately-preceding sentence shall expire on February 29, 2000,
and be of no further force and effect, and the Events of Default thus
temporarily waived fully reinstated, unless Required Lenders agree in writing
before February 29, 2000 to a permanent waiver of such Events of Default. Except
as stated above (i) this waiver is not a consent or waiver in respect of any
existing or future Events of Default or Potential Defaults or a waiver of
Lender's rights to insist upon Borrower's compliance with its obligations under
each Credit Document and (ii) each Credit Document is unchanged and continues in
full force and effect.
7. References. All references in the Credit Documents to the "Credit
Agreement" refer to the Credit Agreement as amended by this Amendment. This
Amendment is a "Credit Document" referred to in the Credit Agreement and the
provisions relating to Credit Documents in the Credit Agreement are incorporated
by reference, the same as if set forth verbatim in this Amendment.
8. Counterparts. This Amendment may be executed in any number of
counterparts with the same effect as if all signatories had signed the same
document.
9. Parties Bound. This Amendment binds and inures to the benefit of
Borrower, Lenders and Administrative Agent and, subject to Section 14.12 of the
Credit Agreement, their respective successors and assigns.
10. Entirety. THIS AMENDMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS
AMENDMENT, AND THE OTHER CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES FOR THE TRANSACTIONS HEREIN AND THEREIN, AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT BETWEEN THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK
SIGNATURE PAGES FOLLOW
ULTRAK-SECOND AMENDMENT TO CREDIT AGREEMENT
4
<PAGE> 5
EXECUTED on _________, 2000, but effective as of January 31, 2000.
Address for Notice ULTRAK, INC., as Borrower
Ultrak, Inc.
1301 Waters Ridge Drive
Lewisville, Texas 75057
Attn: Mr. Tim D. Torno,
Vice President-Finance By:
Fax No.: (972) 353-6679 -------------------------------------
Tim D. Torno, Vice President-Finance
Address for Notice BANK ONE, TEXAS, N.A.,
as Administrative Agent and a Lender
Bank One, Texas, N.A.
1717 Main Street, 3rd Floor
Dallas, Texas 75201
Attn: Alan L. Miller, By:
Vice President --------------------------------------
Fax No.: (214) 290-2305 Alan L. Miller, Vice President
Address for Notice WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION,
Wells Fargo Bank (Texas), as a Lender
National Association
1445 Ross @ Field, 3rd Floor
Dallas, Texas 75202
Attn: Kyle Hranicky, By:
Vice President --------------------------------------
Fax No.: (214) 969-0370 Kyle Hranicky, Vice President
ULTRAK-SECOND AMENDMENT TO CREDIT AGREEMENT
<PAGE> 6
To induce Administrative Agent and Lenders to enter into this Amendment,
each guarantor named below (a) consents and agrees to this Amendment's execution
and delivery, (b) ratifies and confirms that all guaranties, assurances, and
Liens granted, conveyed, or assigned to Administrative Agent on behalf of
Lenders under the Credit Documents are not released, diminished, impaired,
reduced, or otherwise adversely affected by this or any prior amendment, and
continue to guarantee, assure, and secure the full payment and performance of
all present and future Obligation, (c) agrees to perform such acts and duly
authorize, execute, acknowledge, deliver, file and record such additional
guaranties, assignments, security agreements, deeds of trust, mortgages, and
other agreements, documents, instruments, and certificates as Administrative
Agent may reasonably deem necessary or appropriate in order to create, perfect,
preserve, and protect those guaranties, assurances, and Liens, and (d) waives
notice of acceptance of this consent and agreement, which consent and agreement
binds each of the undersigned and their respective successors and permitted
assigns and inures to Administrative Agent and Lenders and their respective
successors and permitted assigns.
ULTRAK GP, INC.
By:
--------------------------------------
Tim D. Torno, Vice President-Finance
ULTRAK, LP, INC.
By:
--------------------------------------
Tim D. Torno, Vice President-Finance
ULTRAK OPERATING, L.P.
By: Ultrak GP, Inc. its General Partner
By:
--------------------------------------
Tim D. Torno, Vice President-Finance
DIAMOND ELECTRONICS, INC.
By:
--------------------------------------
Tim D. Torno, Vice President-Finance
MONITOR DYNAMICS, INC.
By:
--------------------------------------
Tim D. Torno, Vice President-Finance
ABM DATA SYSTEMS, INC.
By:
--------------------------------------
Tim D. Torno, Vice President-Finance
ULTRAK-SECOND AMENDMENT TO CREDIT AGREEMENT
<PAGE> 7
Annex A
to
First Amendment
to
First Amended and Restated Credit Agreement
EXHIBIT E
BORROWING REQUEST
ADMINISTRATIVE AGENT: Bank One, Texas, N.A. DATE: _______________, _____
BORROWER: Ultrak, Inc.
================================================================================
This request is delivered under the First Amended and Restated Credit
Agreement (as renewed, extended, and amended, the "CREDIT AGREEMENT") dated as
of August 12, 1999, between Borrower, certain Lenders, and Administrative Agent.
Terms defined in the Credit Agreement have the same meanings when used -- unless
otherwise defined -- in this request.
Borrower requests a Borrowing under the Revolving Facility (the "REQUESTED
BORROWING") to be funded on ____________________, _____(1) (the "REQUESTED
BORROWING DATE") in the amount and of the Type set forth below(2):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Type of Borrowing Amount Interest Rate Category
- --------------------------------------------------------------------------------
<S> <C> <C>
Domestic Borrowing(3) $ [ ] LIBOR Rate
[ ] Base Rate
- --------------------------------------------------------------------------------
Eurocurrency Borrowing(4) $ [ ] Eurocurrency Rate
(please state the Eurocurrency in which the
Requested Borrowing is to be made:
--------------)
- --------------------------------------------------------------------------------
</TABLE>
If a LIBOR Rate Borrowing or a Eurocurrency Rate Borrowing, the Requested
Borrowing is to be made in the following amounts with the following Interest
Period(s):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Amount Interest Period(s)
- --------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
- --------
(1) Must be a Business Day prior to the Revolving Facility Termination Date. -
(2) Separate Borrowing Requests must be submitted for Domestic Borrowings and
Eurocurrency Borrowings. -
(3) All Domestic Borrowing Requests must be properly delivered to
Administrative Agent's offices in Dallas, Texas. -
(4) All Eurocurrency Borrowing Requests must be properly delivered to the
Eurocurrency Lending Installation. -
ULTRAK-SECOND AMENDMENT TO CREDIT AGREEMENT
<PAGE> 8
Borrower certifies that as of the Requested Borrowing Date -- after giving
effect to the Requested Borrowing -- (a) the representations and warranties of
Borrower in the Credit Documents are true and correct in all material respects
except to the extent that (i) a representation or warranty speaks to a specific
date or (ii) the facts on which a representation or warranty is based have
changed by transactions or conditions contemplated or permitted by the Credit
Documents, (b) no Event of Default, Potential Material Adverse Event or
Borrowing Base Deficiency exists or will be created as a result of the Requested
Borrowing, and (d) Borrower has otherwise complied with all conditions of the
Credit Documents to permit the Requested Borrowing to be extended.
ULTRAK, INC.
By:
-----------------------------------------
Name:
---------------------------------------
(5)Title:
-------------------------------------
- --------
(5) Must be a Responsible Officer of Borrower or another officer designated by
Borrower as having authority to execute and - deliver Borrowing Requests on
its behalf.
ULTRAK-SECOND AMENDMENT TO CREDIT AGREEMENT
<PAGE> 1
EXHIBIT 10.23
THIRD AMENDMENT
TO
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT is entered into as of February 29, 2000, among ULTRAK, INC.,
a Delaware corporation ("Borrower"), the lenders executing this Amendment
("Lenders"), and BANK ONE, TEXAS, N.A., as Administrative Agent ("Administrative
Agent").
Borrower, Administrative Agent and Lenders are party to that certain First
Amended and Restated Credit Agreement (as renewed, extended, amended and
restated, the "Credit Agreement") dated as of August 12, 1999, providing for,
among other things, a revolving credit facility and a term loan facility. The
parties to this Amendment have agreed to amend the Credit Agreement as set forth
herein.
1. Defined Terms; References. Unless otherwise stated in this Amendment (a)
terms defined in the Credit Agreement have the same meanings when used in this
Amendment and (b) references to "Sections," "Schedules" and "Exhibits" are to
sections, schedules and exhibits to the Credit Agreement.
2. Amendments.
1. Section 1.1 is amended as follows:
1. Subparagraphs (a) and (d) of the definition of "Applicable Margin"
are amended by changing the Applicable Margin for Base Rate Borrowings
from zero percent (0.000%) to three-fourths of one percent (0.750%).
2. Sections 2.2 and 2.3 (and any other provisions of the Credit Agreement
necessary to conform to the intent of this amendment) are amended to
provide that all Borrowings after February 29, 2000, may only be Domestic
Borrowings and may only be Base Rate Borrowings. No further Eurocurrency
Borrowings or LIBOR Rate Borrowings will be permitted. Each Eurocurrency
Borrowing and LIBOR Rate Borrowing outstanding on February 29, 2000, will
be automatically converted to a Base Rate Borrowing on the last day of the
Interest Period for each such Eurocurrency Borrowing and LIBOR Rate
Borrowing.
1. Conditions Precedent. Notwithstanding any contrary provisions contained in
the Credit Documents, this Amendment is not effective unless and until:
3. the representations and warranties in this Amendment are true and
correct;
4. Administrative Agent receives counterparts of this Amendment executed by
each party named below;
5. all legal fees and other expenses for which Borrower is responsible
pursuant to other documents and agreements and all legal fees and other
expenses incurred by Administrative Agent and Lenders in connection with
this Amendment have been paid in full by Borrower,
6. Administrative Agent receives a copy of the resolutions adopted by the
Board of Directors of Borrower authorizing the transactions contemplated by
this Amendment (such resolutions being in form and substance acceptable to
Administrative Agent), certified as true and correct by the Secretary or an
Assistant Secretary of Borrower, and
ULTRAK-THIRD AMENDMENT TO CREDIT AGREEMENT
Page 1
<PAGE> 2
7. Lenders receive from Borrower a written commitment from the Asset Based
Lending Group of Bank One or Wells Fargo or from lenders other than Bank
One and Wells Fargo to refinance in full the indebtedness under the Credit
Agreement.
4. Ratifications. This Amendment modifies and supersedes all inconsistent
terms and provisions of the Credit Documents, and except as expressly modified
and superseded by this Amendment, the Credit Documents are ratified and
confirmed and continue in full force and effect. The parties hereto agree that
the Credit Documents, as amended by this Amendment, continue to be legal, valid,
binding and enforceable in accordance with their respective terms. Without
limiting the generality of the foregoing, Borrower hereby ratifies and confirms
that all Liens heretofore granted to Administrative Agent on behalf of Lenders
were intended to, do, and continue to secure the full payment and performance of
the Obligation. Borrower agrees to perform such acts and duly authorize,
execute, acknowledge, deliver, file and record such additional assignments,
security agreements, modifications or amendments to any of the foregoing, and
such other agreements, documents, and instruments as Administrative Agent may
reasonably request in order to perfect and protect those Liens and preserve and
protect the rights of Administrative Agent and Lenders in respect of all present
and future Collateral.
5. Representations and Warranties. Borrower hereby represents and warrants to
Administrative Agent and Lenders that (a) this Amendment and any other Credit
Documents to be delivered under this Amendment have been duly executed and
delivered by or on behalf of Borrower and each other Company party to them, (b)
no action of, or filing with, any Governmental Authority is required to
authorize, or is otherwise required in connection with, the execution, delivery,
and performance by Borrower or any other Company of this Amendment or any other
Credit Document to be delivered under this Amendment, (c) this Amendment and any
other Credit Documents to be delivered under this Amendment are valid and
binding upon Borrower and the other Companies and are enforceable against
Borrower and such other Companies in accordance with their respective terms,
except as limited by any applicable Debtor Relief Laws, (d) the execution,
delivery and performance by Borrower and the other Companies of this Amendment
and any other Credit Documents to be delivered under this Amendment do not
require the consent of any other Person and do not and will not constitute a
violation of any Governmental Requirements, agreements or understandings to
which Borrower or any other Company is a party or by which Borrower is bound,
(e) the representations and warranties contained in the Credit Agreement, as
amended by this Amendment, and any other Credit Documents are true and correct
in all material respects as of the date of this Amendment, and (f) as of the
date of this Amendment, no Event of Default or Potential Default exists, other
than those waived until March 31, 2000 pursuant to Section 6 of this Amendment.
6. Waiver. Effective only upon receipt by Administrative Agent of this
Amendment executed by each Person named below and of the Third Amendment to
Operative Agreements of even date herewith amending the relevant TROL Financing
documents executed by the parties thereto, this Amendment shall become notice to
Borrower that Administrative Agent and Lenders hereby temporarily waive any
Event of Default or Potential Default arising under the Credit Agreement with
respect to the Companies' non-compliance with Sections 10.1 and 10.2 for the
period ending September 30 and December 31, 1999. The waivers set forth in the
immediately-preceding sentence shall expire on March 31, 2000, and be of no
further force and effect, and the Events of Default thus temporarily waived
fully reinstated, unless Required Lenders agree in writing before March 31, 2000
to a permanent waiver of such Events of Default. Except as stated above (i) this
waiver is not a consent or waiver in respect of any existing or future Events of
Default or Potential Defaults or a waiver of Lender's rights to insist upon
Borrower's compliance with its obligations under each Credit Document and (ii)
each Credit Document is unchanged and continues in full force and effect.
ULTRAK-THIRD AMENDMENT TO CREDIT AGREEMENT
Page 2
<PAGE> 3
7. References. All references in the Credit Documents to the "Credit
Agreement" refer to the Credit Agreement as amended by this Amendment. This
Amendment is a "Credit Document" referred to in the Credit Agreement and the
provisions relating to Credit Documents in the Credit Agreement are incorporated
by reference, the same as if set forth verbatim in this Amendment.
8. Counterparts. This Amendment may be executed in any number of counterparts
with the same effect as if all signatories had signed the same document.
9. Parties Bound. This Amendment binds and inures to the benefit of Borrower,
Lenders and Administrative Agent and, subject to Section 14.12 of the Credit
Agreement, their respective successors and assigns.
10. Entirety. THIS AMENDMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS
AMENDMENT, AND THE OTHER CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES FOR THE TRANSACTIONS HEREIN AND THEREIN, AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT BETWEEN THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES.
EXECUTED on March 3, 2000, but effective as of February 29, 2000.
Address for Notice ULTRAK, INC., as Borrower
Ultrak, Inc.
1301 Waters Ridge Drive
Lewisville, Texas 75057
Attn: Mr. Tim D. Torno,
Vice President - Finance By:
Fax No.: (972) 353-6679 ---------------------------------------
Tim D. Torno, Vice President - Finance
Address for Notice BANK ONE, TEXAS, N.A.,
as Administrative Agent and a Lender
Bank One, Texas, N.A.
1717 Main Street, 3rd Floor
Dallas, Texas 75201
Attn: Alan L. Miller, By:
Vice President ---------------------------------------
Fax No.: (214) 290-2305 Alan L. Miller, Vice President
Address for Notice WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION,
Wells Fargo Bank (Texas), as a Lender
National Association
1445 Ross @ Field, 3rd Floor
Dallas, Texas 75202
Attn: Kyle Hranicky, By:
Vice President ---------------------------------------
Fax No.: (214) 969-0370 Kyle Hranicky, Vice President
To induce Administrative Agent and Lenders to enter into this Amendment,
each guarantor named below (a) consents and agrees to this Amendment's execution
and delivery, (b) ratifies and confirms that all
ULTRAK-THIRD AMENDMENT TO CREDIT AGREEMENT
Page 3
<PAGE> 4
guaranties, assurances, and Liens granted, conveyed, or assigned to
Administrative Agent on behalf of Lenders under the Credit Documents are not
released, diminished, impaired, reduced, or otherwise adversely affected by this
or any prior amendment, and continue to guarantee, assure, and secure the full
payment and performance of all present and future Obligation, (c) agrees to
perform such acts and duly authorize, execute, acknowledge, deliver, file and
record such additional guaranties, assignments, security agreements, deeds of
trust, mortgages, and other agreements, documents, instruments, and certificates
as Administrative Agent may reasonably deem necessary or appropriate in order to
create, perfect, preserve, and protect those guaranties, assurances, and Liens,
and (d) waives notice of acceptance of this consent and agreement, which consent
and agreement binds each of the undersigned and their respective successors and
permitted assigns and inures to Administrative Agent and Lenders and their
respective successors and permitted assigns.
ULTRAK GP, INC.
By:
------------------------------------------------
Tim D. Torno, Vice President - Finance
ULTRAK, LP, INC.
By:
------------------------------------------------
Tim D. Torno, Vice President - Finance
ULTRAK OPERATING, L.P.
By: Ultrak GP, Inc. its General Partner
By:
------------------------------------------------
Tim D. Torno, Vice President - Finance
DIAMOND ELECTRONICS, INC.
By:
------------------------------------------------
Tim D. Torno, Vice President - Finance
MONITOR DYNAMICS, INC.
By:
------------------------------------------------
Tim D. Torno, Vice President - Finance
ABM DATA SYSTEMS, INC.
By:
------------------------------------------------
Tim D. Torno, Vice President - Finance
ULTRAK-THIRD AMENDMENT TO CREDIT AGREEMENT
Page 4
<PAGE> 1
EXHIBIT 10.24
AMENDMENT NO. 4
TO
ULTRAK, INC.
1988 NON-QUALIFIED STOCK OPTION PLAN
This Amendment No. 4 amends the Ultrak, Inc. 1988 Non-Qualified Stock
Option Plan adopted by the Board of Directors (the "Board") of Ultrak, Inc., a
Delaware corporation (the "Company"), on April 15, 1988, as amended affective
November 1, 1991, December 28, 1993 and September 27, 1996 (the "Plan").
WITNESSETH
WHEREAS, the Plan provided that the Company may grant options to purchase
up to an aggregate of 5,000,000 shares of the Company's Common Stock, no par
value ("Common Stock"), pursuant to the Plan; and
WHEREAS, Section 4(f) of the Plan provides that the number of shares of
Common Stock for which options may be granted to persons participating under the
Plan shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from the subdivision or
consolidation of shares of Common Stock; and
WHEREAS, on December 17, 1993 the stockholders of the Company approved,
effective December 28, 1993, a one for six reverse stock split in the form of a
reclassification of the Company's Common Stock and, as a result, the authorized
number of shares of Common Stock under the Plan was revised from 5,000,000 to
833,334; and
WHEREAS, pursuant to Section 7 of the Plan, on September 27, 1996, the
Board approved an increase in the number of authorized shares of Common Stock
under the Plan from 833,334 to 1,000,000;
WHEREAS, pursuant to Section 7 of the Plan, on March 30, 1999, the Board
approved an increase in the number of authorized shares of Common Stock under
the Plan from 1,000,000 to 1,200,000.
NOW, THEREFORE, in consideration of the foregoing, effective March 30,
1999, Section 2 of the Plan is amended to read in its entirely as follows:
"2. Stock Subject to Option. Subject to adjustment as provided in
Sections 4(h) and 4(j) hereof, Options may be granted by the Company
from time to time to purchase up to an aggregate of 1,200,000 shares of the
Company's authorized but unissued Common Stock, provided that the
number of reasonable in relation to the purpose of the Program. Shares that
by reason of the expiration of an Option or otherwise are no longer
subject to purchase pursuant to an Option granted under the Program
may be re-Optioned under the Program. The Company shall not be
required, upon the exercise of any such exemption, registration or
other qualification of such shares under state or Federal law, rule or
regulation as the Company shall determine to be necessary or desirable.
This Amendment No. 4 to the Plan was adopted by the Board as of March 30,
1999.
________________________________________
George K. Broady
Chairman of the Board
and Chief Executive Officer.
________________________________________
Mark L. Weintrub
General Counsel and Secretary
<PAGE> 1
EXHIBIT 21.1
ULTRAK, INC.
SUBSIDIARIES OF ULTRAK, INC.
1. Ultrak Operating, L.P., a Texas limited partnership
2. Ultrak GP, Inc., a Delaware corporation
3. Ultrak LP, Inc., a Delaware corporation
4. Diamond Electronics, Inc., an Ohio corporation, dba Ultrak Ohio
5. Ultrak Holdings Limited, a United Kingdom private limited liability company
6. Ultrak France, SAS (f/k/a Groupe Bisset, S.A.), a French corporation
7. Ultrak (Asia Pacific) Pty. Ltd., an Australian corporation
8. VideV GmbH, a German corporation, dba Ultrak Germany
9. Monitor Dynamics, Inc. a California corporation
10. Intervision Express Limited, a United Kingdom private limited liability
company
11. Security Procurement, B.V., a Dutch corporation
12. Ultrak South Africa (f/k/a Philtech Electronic Services), a South African
corporation
13. Casarotto Security, SpA, an Italian company
14. Videosys Ltd., a United Kingdom private limited liability company
15. Ultrak Asia Pte. Ltd., a Singapore company
16. Ultrak Europe, N.V., a Belgium company
17. Ultrak Benelux, N.V., a Belgium company
18. Security Warranty, Inc., a Texas corporation
19. ABM Data Systems, Inc., a Texas corporation
20. Mach Security, Sp.z. O.O, a polish limited liability company
21. MCS-ULTRAK, S.A., a Swiss company
22. Security Procurement France, S.A., a French corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,757,512
<SECURITIES> 0
<RECEIVABLES> 43,739,215
<ALLOWANCES> 2,401,773
<INVENTORY> 49,097,433
<CURRENT-ASSETS> 107,832,204
<PP&E> 26,879,627
<DEPRECIATION> 9,016,169
<TOTAL-ASSETS> 200,350,508
<CURRENT-LIABILITIES> 28,117,786
<BONDS> 0
0
976,755
<COMMON> 149,815
<OTHER-SE> 131,536,282
<TOTAL-LIABILITY-AND-EQUITY> 200,350,508
<SALES> 206,436,552
<TOTAL-REVENUES> 206,436,552
<CGS> 138,561,105
<TOTAL-COSTS> 138,561,105
<OTHER-EXPENSES> 63,093,966
<LOSS-PROVISION> 3,875,000
<INTEREST-EXPENSE> 2,964,954
<INCOME-PRETAX> 1,958,368
<INCOME-TAX> 1,285,814
<INCOME-CONTINUING> 672,554
<DISCONTINUED> 107,022
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 565,532
<EPS-BASIC> .04
<EPS-DILUTED> .04
</TABLE>
