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Ultrak Inc.

Ultrak Inc.

1301 Waters Ridge Drive
Lewisville, Texas
75057

U.S.A.
(972) 353-6500
Fax:
(972) 353-6679
Web site: http://www.ultrak.com

Public Company
Incorporated: 1980
Employees: 672
Sales: $188.7 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: ULTK
SICs: 3663 Radio & Television Broadcasting &Communications Equipment; 3669 Communications Equipment, Not Elsewhere Classified

Ultrak Inc. is a worldwide leader in the design, manufacture, marketing, selling, and servicing of innovative electronic products and systems for the security and surveillance; industrial, dental, and medical video; professional audio; traffic management; and manufacturing markets.

Some of the companys products include a broad line of cameras, lenses, high-speed dome systems, monitors, switchers, quad processors, time-lapse recorders, multiplexers, wireless video transmission systems, access control systems, computerized observation and security systems, audio equipment, video closed-circuit television systems, and accessories.

The companys closed-circuit television (CCTV) management systems are used to control hundreds and even thousands of cameras, monitors, and recorders in the gaming marketplace, one of the most complex CCTV applications. Ultraks MAXPRO CCTV management system, which allows a virtually unlimited number of output devices to work seamlessly together, is ideal for casinos and offers powerful synergies with the companys Diamond Electronicsdome systems. To effectively cater to this market, the company set up an office in Las Vegas, Nevada, and installations have been made at Harrahs, Desert Inn, and The MGM Grand in Las Vegas, as well as at many other casinos around the world.

Ultrak markets its products under its proprietary brand names (Ultrak, Exxis, Smart Choice, Beck, Mobile Video, and UltraCam, to name a few), but also markets products under licenses from Dedicated Micros, Mitsubishi, Panasonic, and Sony. The company markets to wholesale distributors, installing dealers, large end users, mass merchants, and manufacturing companies.

Private Patrols, 1969-87

In 1969, George K. Broady, a former military policeman as well as a stock analyst in the trust department of First National Bank in Dallas, invested $80,000 in building a wireless home security system before realizing the project was a dead-end.

One year later, inspired by a television news show about how few police cars were available for neighborhood patrol, Broady was convinced there was a future in home security. Confident that he could figure out how to take advantage of the opportunity, Broady invested $10,000 of his own money, bought a police car, hired a retired police officer, and entered the private patrol business with Network Security Corp. Broady went door-to-door in affluent Dallas neighborhoods, offering to provide more patrol hours as more residents joined. By 1986, the company he founded posted net income of $5.3 million on revenues of $59 million. In 1987, Broady sold Network Security to Switzerland-based conglomerate Inspectorate International for $165 million, putting over a million dollars in his own pocket and planning to go back into merchant banking.

But Inspectorate International wanted to divest themselves of the Ultrak division of Network Security, which imported alarm equipment components. They offered Ultrak to Broady for book value, $662,000, saying that otherwise the division would be shut down. Feeling a sense of loyalty to the employees he had hired, Broady took the offer, and Ultrak Inc. was created.

Surveillance Systems, 1987-96

Broady quickly narrowed the companys focus to closed-circuit television surveillance systems. Huge Japanese corporations such as Mitsubishi, Sony, and Toshiba dominated this industry. In order to compete with these giants, Broady traveled to Korea where small companies were manufacturing essentially the same products that the Japanese corporations were selling. Soon Ultrak had a system on the market which was big enough to cover a grocery store for approximately $24,000, 20 percent less than the competition.

During the next three years, Broady put up $2.5 million of his own cash and raised $1.2 million from a 1990 stock offering, putting the money into expanding Ultraks distribution to wholesalers such as Arius and King Alarm, security companies like ADT and Brinks, and installers like Wells Fargo and Mosler.

In September 1990, the company expanded by acquiring a Mancos, Colorado-based software development company, Loronix Inc., in exchange for 10 million shares of Ultrak stock. The acquisition enabled Ultrak to move quickly into the growing commercial/industrial identification badge security market. Loronixs software program translated data from an ID badge into a photograph. The system allowed a security guard to scan the badge and see a photograph of the badge holder displayed on a computer terminal, making forgery of ID badges much more difficult. The acquisition was timely since in 1991 the Federal Aviation Administration began requiring major airports to have a badge identification system to positively identify all airline and airport personnel. Other uses included management of prisoner records, identification for check cashing, and security in hospitals. The acquisition brought 85 employees, including 22 in Denver, and another subsidiary called Loss Prevention Inc. in Maryland.

Business took off in 1991 when retail giant Wal-Mart, a large account for Ultrak, began looking for a video surveillance system to retail to homes and small businesses. Broady found a Korean manufacturer who could turn out a home system that could sell for under $300. Shortly before Christmas that year, Ultrak began shipping to Sams Club a video camera and monitor that hooked to a VCR and began recording if a motion detector was triggered. The system retailed for just under $300, and included an add-on feature for another $180 that would automatically dial an emergency number and play a prerecorded break-in message. Broady marketed a similar line to discounters Target and Kmart in 1992.

In 1992, Ultrak tried to repeat its success with inexpensive surveillance outfits by selling cheap PCs into the warehouse club market. The timing was abysmal at best since bigger names in the computer industry such as Compaq, Dell, and Gateway were beginning to cut prices in order to sell to discounters. The following year, Ultrak took a $1.5 million hit as it closed its computer manufacturing operations, but the company still managed to post 1993 revenues of $80 million and net income of $804,000, down from $838,000 in 1992.

In 1994, net income was $2.5 million on revenues of $79.1 million. Sales remained steady through 1995 with net income of $2.6 million on revenues of $101.2 million.

Shopping Spree, Mid-1990s

The year 1996 was a breakthrough year for Ultrak, with a number of developments and acquisitions broadening the companys product line and geographic distribution. Ultraks products successfully made inroads into the Asian market, including China where the companys Diamond Electronics products were being used in a number of large projects such as airports. The company also began distribution in Japan, as well as in India, Indonesia, Malaysia, the Philippines, Singapore, and Thailand, where the companys MAXPRO products were being used primarily for casino applications, airports, and prisons. The South American market, including Argentina, Brazil, Chile, Honduras, Mexico, Paraguay, Peru, and Venezuela, was also developed in 1996. South Africa, where Diamond Electronics and Maxpro each secured a significant presence, became another market for Ultraks products.

In 1996, the company continued to develop its UltraCam subsidiary, which designed multimedia dental systems, creating the OpNet system, a dental operatory network system that worked with the intraoral camera already marketed by the firm.

In August of that year, the companys CCTV Management & Digital Recording Systems division was strengthened by the acquisition of an Australian CCTV management system leader called Maxpro Systems, which brought to Ultrak one of the most sophisticated computer-controlled matrix video switching systems on the market. The powerful MAX-1000 incorporated advanced VCR management functions necessary for continuous surveillance using video or alarm monitoring. The MAX-1000 was successfully installed in Londons Heathrow Airport, the Ellington and Martindale Military Airports in the United States, and various prisons in Australia and Singapore in addition to traffic and public safety application installations in Perth, Australia, and various other locations. The acquisition also strengthened the companys access to the Australian, New Zealand, and Asian markets.

Company Perspectives

Mission Statement: To be the world leader in the design, manufacture, marketing, sale and service of electronic products and systems for the security & surveillance, industrial & medical video and professional audio markets. To lead the industry in product value, innovative technology, responsiveness and quality of customer service. To be a world-class competitor in operating efficiency. To offer a working environment where the individual can thrive in a team atmosphere. To pursue what is in the best interest of our stockholders. And to do all of this while maintaining a high level of integrity.

The December 1996 acquisition of VideV, a prominent German designer, manufacturer, and marketer of CCTV systems, components, and products, added to Ultraks stable of products a sophisticated digital video recording system, designed to be one of the most advanced bank automatic teller machine security systems available on the German market, and the EuroLine brand name of products.

February 1997 brought the company U.K.-based Intervision Express, a young and aggressive marketer of products in the British CCTV market, one of the largest and most advanced in Europe. The following month, Ultrak acquired Casarotto Security, a prominent and respected player in the Italian CCTV market, which, through its exceptional purchasing skill, was able to bring the most advanced CCTV products to the Italian market at very competitive prices under the Videosys brand name. These three acquisitions immediately gave Ultrak a powerful position in three of Europes CCTV markets.

A new black-and-white camera with back-light compensation was released by the company in 1996 to complement Ultraks color, 1/3-inch CCD camera with back-light compensation. The company also designed and developed a unique digital color camera using solid-state digital signal processing technology to consistently produce the sharpest images possible at a cost close to that of conventional analog color cameras, which can be used for both conventional video and Duplex Analog Video Encoder (DAVE) applications. The acquisition of Diamond Electronics also added product innovations to the companys product line, particularly with the SmartScan III top-of-the-line, high-speed pan/tilt dome system. Diamond successfully installed its systems in traffic and public safety applications in Montgomery County, Maryland, and the Olympic Village in Atlanta, Georgia.

In March, the company released three new real-time quad systems, making Ultrak Americas largest supplier of such systems, which allow the simultaneous viewing of up to four cameras on a single monitor. The company also introduced two quad observation systems aimed at the do-it-yourself market, and ideal for residential and small commercial applications, in addition to CCTV Designer, a proprietary software package that was the first to automate the design of CCTV systems through an on-screen user questionnaire.

In September of that year, the company made a minority investment in Lenel Systems International Inc., a New York-based software company, giving it access to the latters flagship product, Lenel OnGuard Plus, which offered multimedia ID management, access control, and alarm monitoring using Windows 95- and Windows NT-based platforms. Lenels integrated multimedia systems are used to protect Microsofts headquarters in Washington state, as well as Yale Universitys campus.

Also that month, the company acquired Paris-based Groupe Bisset, making its first entry into the European CCTV market, estimated to be at least as large as the U.S. market. The French company brought its position as a leading marketer of CCTV products, as well as experience in successfully designing and marketing its own line of audio and public address equipment, marketed under the BST brand name.

Other new products in 1996 included the UltraDur camera housings, made of a special polymer compound, offering both style and strength; a real-time event recorder for continuous or event recording; and a line of CCTV camera power supplies using fuseless technology to eliminate the risk of blown fuses due to surges or shorted cables.

By the end of 1996, the company was debt-free, with $72 million in cash and cash equivalents, even after purchasing and making investments in four companies; early in 1997, the company made three more acquisitions. Added to the roster of Ultrak companies were: Maxpro Systems, a manufacturer of a powerful CCTV management system; Monitor Dynamics, a creator of high-end access control systems; Veravision, a designer of intraoral cameras for dental applications; as well as Groupe Bisset in France, VideV in Germany, Intervision Express in England, and Casarotto Security in Italy, giving the company a strong international marketing and sales presence. Revenues for the year reached $136.6 million, with total net income jumping to $7.5 million.

The company began working on access control systems, often the heart of an integrated security system, in 1996. In February 1997, the acquisition of California-based Monitor Dynamics Inc. (MDI), the leading designer, manufacturer, marketer, and seller of very high-end security and access control systems added to the companys progress in this field. MDI developed the SAFEnet system for OS/2 Warp-, Pentium-, and Windows NT-based computing, which was one of the most powerful systems of its kind on the market at the time. The SAFEnet systems redundancy and reliability made it especially suitable for high-security applications where downtime is unacceptable. MDIs high-end security and access control systems have been installed at BankOne, Caterpillar, General Motors, Honda, John Deere, MBNA, Motorola, NationsBank, Texas Instruments, and Toyota facilities, as well as at a number of U.S. government installations.

In March 1997 Ultrak entered negotiations with Checkpoint Systems Inc. about a possible merger between the two companies but, in the following month, Checkpoint retreated from the deal. Also early in 1997, Ultrak introduced its own line of camera lenses and recorders as well as released PointGuard, the companys first access control system, which included Windows 95- and Windows NT-based software, control hardware, and card readers designed to manage small- to mid-sized systems. PointGuard was easier and faster to install and set up than any other system on the market at that time.

By the end of 1997, the companys core business experienced a slight pickup. The Sams Club chain, which carried the companys consumer do-it-yourself products, began selling a new Ultrak dental camera called Ultracam, and the companys DAVE system had already been installed in six locations, with an additional 15 installations in the works, including Superfresh and Publix supermarkets. Sales in the CCTV market in the United States were slow, but overall revenue for the year reached $188.7 million, with a net income of $2.4 million.

In June 1998, the company introduced the System 2000, using Ultraks DAVE Technology. Awarded the Security Industry Association New Product Showcases coveted Practitioners Choice Award, the system was being touted as the most exciting product in the security industry. This system, which was ideal for multi-camera settings like retail stores, reduced installation and capital costs by 25 percent or more over traditional systems.

In mid-1998, the company formed a new operating unit, Ultrak Europe. With headquarters located in Antwerp, Belgium, Ultrak Europe was to be responsible for managing the companys business interests in Europe, the Middle East, and South Africa, thus poising Ultrak for future international growth.

Principal Subsidiaries

Diamond Electronics Inc.; Exxis Securities.

Principal Operating Units

Ultrak Europe.

Further Reading

Bounds, Jeff, Ultrak Struggles to Overcome Wall Streets Expectations, Dallas Business Journal, September 26, 1997, p. 4.

Checkpoint Pulls Out of Ultrak Takeover, Issues Profit Warning, Wall Street Journal, April 4, 1997, p. C13.

Checkpoint Systems Inc., Wall Street Journal, March 12, 1997, p. C22.

Dowling, Mark, Ultrak Inc. Secures Growth in Merger with Software Firm, Denver Business Journal, October 19, 1990, p. 11.

Pact Is Set to Buy Ultrak for $340 Million in Stock, Wall Street Journal, March 13, 1997, p. B5.

Shares Fall As Checkpoint and Ultrak End Talks, New York Times, April 5, 1997, p. 23.

Sullivan, R. Lee, Expensive Lessons, Forbes, January 30, 1995, p. 92.

$364 Million Security-Surveillance Merger Set, New York Times, March 12, 1997, p. C4.

Ultrak Inc., Wall Street Journal, June 25, 1997, p. B4. Ultrak Inc., Wall Street Journal, August 12, 1997, p. B7. Ultrak to Buy Back Shares, Wall Street Journal, April 9, 1997, p. B12.

Daryl F. Mallett

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