<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------
FORM 10-Q
---------
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the quarterly period ended September 30, 1998
OR
Transition report pursuant to Section 13 or 15(d) of the
- ---
Securities Exchange Act of 1934
Commission File Number: 0-21773
FIREARMS TRAINING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 57-0777018
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7340 MCGINNIS FERRY ROAD
SUWANEE, GEORGIA 30024
(Address of principal executive offices)
TELEPHONE NUMBER (770) 813-0180
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- -----
As of November 11, 1998, there were (1) 19,003,822 shares of the
Registrant's Class A Common Stock and (2) 1,694,569 shares of the Registrant's
Class B nonvoting Common Stock outstanding.
<PAGE> 2
FIREARMS TRAINING SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
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<S> <C>
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Statements of Income
Three and six months ended September 30, 1998 and 1997 ................ 3
Condensed Consolidated Balance Sheets
September 30, 1998 and March 31, 1998 ..................................4
Condensed Consolidated Statements of Cash Flows
Six months ended September 30, 1998 and 1997 .......................... 5
Notes to Condensed Consolidated Financial Statements .................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ............................................. 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS .....................................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................16
ITEM 5. OTHER INFORMATION......................................................16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ......................................17
SIGNATURES ............................................................18
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FIREARMS TRAINING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------------------ -----------------------
1998 1997 1998 1997
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 12,111 $ 19,415 $ 24,376 $ 38,024
Cost of revenues 8,061 9,105 15,612 17,346
-------- -------- -------- --------
Gross profit 4,050 10,310 8,764 20,678
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative expenses 2,128 3,959 5,303 7,891
Research and development expenses 838 1,433 2,372 2,796
Depreciation and amortization 507 208 984 384
Non-recurring restructuring charge -- -- 870 --
-------- -------- -------- --------
Total operating expenses 3,473 5,600 9,529 11,071
-------- -------- -------- --------
Operating profit 577 4,710 (765) 9,607
-------- -------- -------- --------
Other (expense) income, net:
Interest (expense) income, net (1,782) (1,466) (3,393) (2,920)
Other (expense) income, net (172) 20 (276) (7)
-------- -------- -------- --------
Total other (expense) income, net (1,954) (1,446) (3,669) (2,927)
-------- -------- -------- --------
Income (loss) before income taxes (1,377) 3,264 (4,434) 6,680
Provision (benefit) for income taxes (551) 1,175 (1,590) 2,405
-------- -------- -------- --------
Net income (loss) $ (826) $ 2,089 $ (2,844) $ 4,275
======== ======== ======== ========
Basic earnings (loss) per common share $ (0.04) $ 0.10 $ (0.14) $ 0.21
======== ======== ======== ========
Diluted earnings (loss) per common share $ (0.04) $ 0.10 $ (0.14) $ 0.20
======== ======== ======== ========
Weighted average common shares outstanding - basic 20,673 20,406 20,668 20,405
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding - diluted 20,673 21,464 20,668 21,578
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
3
<PAGE> 4
FIREARMS TRAINING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
Sept. 30, March 31,
1998 1998
---------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,560 $ 3,395
Accounts receivable, net 21,757 22,710
Inventories 16,806 17,725
Income taxes receivable, net 2,170 --
Prepaid expenses and other current assets 740 594
Deferred income taxes, net -- 1,050
--------- ---------
Total current assets 44,033 45,474
Property and equipment, net 4,096 3,971
Goodwill, net 4,800 2,751
Deferred financing costs, net 2,669 3,007
Deferred income taxes 988 1,065
Other assets 93 112
--------- ---------
$ 56,679 $ 56,380
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,829 $ 3,389
Accrued liabilities 7,874 11,060
Income taxes payable, net -- 390
Deferred income taxes, net 1,231 --
Deferred revenue 3,125 6,428
Current maturities of long-term debt 6,000 5,300
--------- ---------
Total current liabilities 21,059 26,567
--------- ---------
Long-term debt, less current maturities 64,700 57,700
--------- ---------
Other noncurrent liabilities 249 344
--------- ---------
Stockholders' equity:
Class A common stock -- --
Additional paid-in-capital 114,280 112,390
Accumulated (deficit) earnings (143,414) (140,569)
Cumulative foreign currency translation adjustment (195) (52)
--------- ---------
Total stockholders' (deficit) equity (29,329) (28,231)
--------- ---------
$ 56,679 $ 56,380
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
4
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FIREARMS TRAINING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
September 30,
----------------------
1998 1997
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,844) $ 4,275
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,322 693
Deferred income taxes 2,358 (29)
Non-cash compensation expense 71 --
Employee stock compensation plan 64 --
Changes in assets and liabilities: -- --
Accounts receivable, net 1,070 1,853
Inventories 974 (1,337)
Income taxes receivable (2,170) --
Prepaid expenses and other current assets (119) 284
Escrow and other deposits 19 1
Accounts payable (698) (2,470)
Accrued liabilities (3,458) (531)
Income taxes payable (390) (568)
Deferred revenue (3,302) 802
Noncurrent liabilities (118) (124)
-------- -------
Total adjustments (4,377) (1,426)
-------- -------
Net cash (used in) provided by operating activities (7,221) 2,849
-------- -------
Cash flows from investing activities:
Additions to property and equipment, net (803) (707)
Payments for business acquisitions, net of cash acquired (394) (2,157)
Sale of business 200 --
-------- -------
Net cash used in investing activities (997) (2,864)
-------- -------
Cash flows from financing activities:
Borrowings of long-term debt 10,000 2,000
Repayments of long-term debt (2,399) --
Retirement of common stock (75) --
Proceeds from sales of common stock -- 9
-------- -------
Net cash provided by financing activities 7,526 2,009
-------- -------
Effect of changes in foreign exchange rates (143) (56)
-------- -------
Net (decrease) increase in cash (835) 1,938
Cash, beginning of period 3,395 1,663
-------- -------
Cash, end of period $ 2,560 $ 3,601
======== =======
Supplemental disclosures of cash paid for:
Interest $ 2,916 $ 2,693
======== =======
Income taxes $ (1,322) $ 2,346
======== =======
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated statements.
5
<PAGE> 6
FIREARMS TRAINING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting of normal recurring adjustments, considered
necessary for a fair presentation have been included. Operating results for
the three and six months ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the year ended March 31,
1999. For further information, refer to the company's consolidated
financial statements and footnotes thereto for the year ended March 31,
1998.
2. ACQUISITIONS.
On April 1, 1998, FATS, Inc. acquired the outstanding stock of Dart
International, Inc. ("Dart"), a Colorado-based hunter and sports simulation
company, in exchange for 257,577 Class A common shares of the Company. The
Company recorded the acquisition using the purchase method of accounting
with approximately $2.4 million of the purchase price allocated to
goodwill. The results of the operations of Dart have been included in the
Company's consolidated statements of operations since the effective date of
the acquisition.
The following unaudited pro forma consolidated results of operations of the
Company for the three and six months ended September 30, 1997 is presented
as if the purchase of Dart, as well as the purchases of the ICAT Judgmental
Use of Force Business from SBS Technologies, Inc., and Simtran
Technologies, Inc. described in Note 2 of the Company's consolidated
financial statements for the year ended March 31, 1998, had occurred on
April 1, 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
Sept. 30, 1997 Sept. 30, 1997
-------------- --------------
<S> <C> <C>
Revenues $ 20,218 $ 40,071
Net income $ 1,701 $ 3,399
Basic earnings per share $ 0.08 $ 0.16
Diluted earnings per share $ 0.08 $ 0.16
</TABLE>
The operating results of all of the acquisitions noted above are included
in the accompanying consolidated statement of operations for the three and
six months ended September 30, 1998.
6
<PAGE> 7
3. INVENTORY.
Inventories consist primarily of simulators, computer hardware, projectors,
and component parts. Inventories are valued at the lower of cost (on a
first-in, first-out basis) or market. Cost includes materials, labor, and
manufacturing overhead. Market is defined as net realizable value.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
------------- ---------
<S> <C> <C>
Raw materials $ 8,752 $11,635
Work in progress 6,378 3,341
Finished Goods 1,676 2,749
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$16,806 $17,725
======= =======
</TABLE>
4. COMPREHENSIVE INCOME.
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and display of "comprehensive
income (loss)" and its components. Comprehensive income for the Company
consists of net income (loss) and foreign currency translation adjustments.
Total comprehensive income (loss) (in thousands of dollars) was ($930) and
$2,037 for the three-months ended September 30, 1998 and 1997,
respectively. Total comprehensive income (loss) (in thousands of dollars)
was ($2,987) and $4,219 for the six month ended September 30, 1998 and
1997, respectively.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's most recently filed Form 10-K.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 and 1997
Revenues. Revenues decreased $7.3 million, or 37.6%, to $12.1 million for the
three months ended September 30, 1998 as compared to $19.4 million for the three
months ended September 30, 1997. Sales to U.S. military customers for the three
months ended September 30, 1998, decreased by $6.6 million, or 77.9%, to $1.9
million, primarily due to decreased sales to the U.S. Marine Corps as the
Company has substantially completed deliveries under its contract with this
customer. Sales to U.S. law enforcement customers for the three months ended
September 30, 1998 increased by $1.0 million, or 47.9%, to $3.2 million
primarily attributable to various federal law enforcement sales. Sales to
International customers for the three months ended September 30, 1998 decreased
by $2.1 million, or 24.4%, to $6.5 million, including $2.4 million from the
Company's subsidiary Simtran Technologies, Inc. ("Simtran"). Sales to U.S.
Hunter/Sports customers for the three months ended September 30, 1998 increased
$321,000, or 110.3%, to $612,000 primarily attributable to the acquisition of
Dart International, Inc. ("Dart").
Cost of Revenues. Cost of revenues decreased $1.0 million, or 11.5%, to $8.1
million for the three months ended September 30, 1998 as compared to $9.1
million for the three months ended September 30, 1997. As a percentage of
revenues, cost of revenues increased to 66.6% for the three months ended
September 30, 1998 as compared to 46.9% for the three months ended September 30,
1997. The increase in cost of revenues as a percentage of revenues is
attributable to the higher costs of Simtran's products under development, as
well as the lower volume of revenues to cover the fixed portion of cost of goods
sold. During the quarter ended September 30, 1998, the Company reevaluated the
required warranty reserve based on its current systems in place which resulted
in a decrease to the established reserve.
Gross Profit. As a result of the foregoing, gross profit decreased $6.3 million,
or 60.7%, to $4.1 million, or 33.4% of revenues, for the three months ended
September 30, 1998 as compared to $10.3 million, or 53.1% of the revenues, for
the three months ended September 30, 1997.
Total Operating Expenses. Total operating expenses decreased $2.1 million, or
38.0%, to $3.5 million for the three months ended September 30, 1998 as compared
to $5.6 million for the three months ended September 30, 1997. Total operating
expenses as a percentage of revenues decreased to 28.7% for the three months
ended September 30, 1998 from 28.8% for the three months ended September 30,
1997. Selling, General & Administrative ("S, G & A") expenses decreased $1.8
million, or 46.2%, to $2.1 million for the three months ended September 30, 1998
as compared to $3.9 million for the three months ended September 30, 1997,
primarily due to the decrease in salary expenses related to the workforce
reduction implemented in June 1998 and the reduction of an incentive accrual
established in the previous year which is not expected to be paid, as well as a
decrease in agent's commission.
8
<PAGE> 9
Operating Income. As a result of the foregoing, operating income decreased $4.1
million, or 87.7%, to $0.6 million, or 4.8% of revenues, for the three months
ended September 30, 1998 as compared to $4.7 million, or 24.3% of revenues, for
the three months ended September 30, 1997.
Other (Expense) Income, net. Net interest expense totaled $1.8 million, or 14.7%
of revenues for the three months ended September 30, 1998 as compared to $1.5
million, or 7.6% for the three months ended September 30, 1997. The increase in
net interest expense is primarily the result of the Company's increased
borrowings as compared to the prior period as a result of its working capital
needs and payments for acquisitions. The increase is also attributable to the
increase in interest rates incurred as a result of the amendment in its Credit
Agreement on June 26, 1998. Other expenses, net totaled $172,000, or 1.4 % of
revenues for the three months ended September 30, 1998 as compared to other
income, net of $20,000, or 0.1% for the three months ended September 30, 1997.
The increase in other expenses, net is primarily the result of foreign currency
losses incurred due to recent fluctuations in currency exchange rates.
Provision (Benefit) for Income Taxes. The effective tax rate increased to 40.0%
of income before income taxes for the three months ended September 30, 1998 as
compared to 36.0% of income before taxes for the three months ended September
30, 1997. The overall effective tax rate for the six months ended September 30,
1998 decreased to 35.9% of income before income taxes as compared to 36.0% of
income before taxes for the six months ended September 30, 1997.
Net Income (Loss). As a result of the foregoing, net income as reported
decreased $2.9 million to a net loss of $0.8 million ($0.04 per diluted share),
or 6.8% of revenues for the three months ended September 30, 1998 as compared to
$2.1 million ($0.10 per diluted share), or 10.8% of revenues for the three
months ended September 30, 1997.
Six Months Ended September 30, 1998 and 1997
Revenues. Revenues decreased $13.6 million, or 35.9%, to $24.4 million for the
six months ended September 30, 1998 as compared to $38.0 million for the six
months ended September 30, 1997. Sales to U.S. military customers for the six
months ended September 30, 1998, decreased by $13.2 million, or 74.8%, to $4.4
million, primarily due to decreased sales to the U.S. Marine Corps as the
Company has substantially completed deliveries under its contract with this
customer. Sales to U.S. law enforcement customers for the six months ended
September 30, 1998 increased by $0.7 million, or 18.8%, to $4.6 million
primarily attributable to various federal law enforcement sales. Sales to
International customers for the six months ended September 30, 1998 decreased by
$2.0 million, or 12.8%, to $13.9 million, including $4.9 million from the
Company's subsidiary Simtran. Sales to U.S. Hunter/Sports customers for the six
months ended September 30, 1998 increased $0.8 million, or 127.2%, to $1.5
million primarily attributable to the acquisition of Dart.
Cost of Revenues. Cost of revenues decreased $1.7 million, or 10.0%, to $15.6
million for the six months ended September 30, 1998 as compared to $17.3 million
for the six months ended September 30, 1997. As a percentage of revenues, cost
of revenues increased to 64.0% for the six months ended September 30, 1998 as
compared to 45.6% for the six months ended September 30, 1997. The increase in
cost of revenues as a percentage of revenues is attributable to the higher costs
of Simtran's products under development, as well as, the lower volume of
revenues to cover the fixed portion of cost of goods sold. During the quarter
ended September 30, 1998, the
9
<PAGE> 10
Company reevaluated the required warranty reserve based on its current systems
in place which resulted in a decrease to the established reserve.
Gross Profit. As a result of the foregoing, gross profit decreased $11.9
million, or 57.6% to $8.8 million, or 36.0% of revenues, for the six months
ended September 30, 1998 as compared to $20.7 million, or 54.4% of the revenues,
for the six months ended September 30, 1997.
Total Operating Expenses. Total operating expenses decreased $1.5 million, or
13.9% to $9.5 million for the six months ended September 30, 1998 as compared to
$11.1 million for the six months ended September 30, 1997. Total operating
expenses as a percentage of revenues increased to 39.1% for the six months ended
September 30, 1998 from 29.1% for the six months ended September 30, 1997. S, G
& A expenses decreased $2.6 million, or 32.8%, as compared to the 35.9% decrease
in revenue. The decrease in S, G & A expenses is primarily due to the decrease
in salary expenses related to the workforce reduction implemented in June 1998
and the reduction of an incentive accrual established in the previous year which
is not expected to be paid, as well as a decrease in agent's commission. The
decrease in operating expenses was partially offset by the $0.9 million
non-recurring restructuring charge related to a workforce reduction and certain
other measures incurred by the Company in the first quarter of fiscal 1999. The
decrease in operating expenses was also offset by the $0.6 million increase in
depreciation and amortization expense resulting from amortization of goodwill
related to the Company's recent acquisitions.
Operating Income (Loss). As a result of the foregoing, operating income
decreased $10.3 million, to an operating loss of $0.8 million, or 3.1% of
revenues, for the six months ended September 30, 1998 as compared to $9.6
million, or 25.3% of revenues, for the six months ended September 30, 1997.
Other (Expense) Income, net. Net interest expense totaled $3.4 million, or 13.9%
of revenues for the six months ended September 30, 1998 as compared to $2.9
million, or 7.7% for the six months ended September 30, 1997. The increase in
net interest expense is primarily the result of the Company's increased
borrowings as compared to the prior period as a result of its working capital
needs and payments for acquisitions. The increase is also attributable to the
increase in interest rates incurred as a result of the amendment in its Credit
Agreement on June 26, 1998. Other expenses, net totaled $276,000, or 1.1% of
revenues for the six months ended September 30, 1998 as compared to $7,000, or
0.0% for the six months ended September 30, 1997. The increase in other
expenses, net is primarily the result of foreign currency losses incurred due to
recent fluctuations in currency exchange rates.
Provision for Income Taxes. The effective tax rate decreased to 35.9% of income
before income taxes for the six months ended September 30, 1998 as compared to
36.0% of income before taxes for the six months ended September 30, 1997.
Net Income (Loss). As a result of the foregoing, net income as reported
decreased $7.1 million to a net loss $2.8 million ($0.14 per diluted share), or
11.7% of revenues for the six months ended September 30, 1998 as compared to
$4.3 million ($0.20 per diluted share), or 11.2% of revenues for the six months
ended September 30, 1997.
10
<PAGE> 11
BACKLOG
Backlog represents customer orders that have been contracted for future
delivery. Accordingly, these orders have not yet been recognized as revenue, but
represent potential revenue. As of September 30, 1998, the Company had a backlog
of approximately $39.6 million, comprised of $21.9 million from FATS
international customers, $14.1 from Simtran's Canadian customers and $2.6
million from FATS U.S. military customers. Recognition of Simtran's backlog will
be dependent upon delivery and acceptance of its products currently under
development. Approximately $24.6 million of the contracted orders are scheduled
for delivery during fiscal year 1999.
U.S. ARMY EST PROCUREMENT PROCESS
The Company has been actively participating in a competitive bidding process for
the proposed U.S. Army Engagement Skills Trainer ("EST") program, a U.S.
military procurement award anticipated to be potentially as large as the
Company's current U.S. Marine Corps Contract 2014 which has accounted for over
$95 million in revenue since the fourth quarter of fiscal 1995. On May 14, 1998,
the Company received notification on behalf of the U.S. Army that its proposal
in response to the ongoing competition had been excluded from further
consideration due to technical disqualification. On June 2, 1998, the Company
filed an action in the United States Court of Federal Claims to protest this
decision, and to obtain an injunction against any award of the EST contract
until the Court rules on the Company's protest. As part of this action, the
Company requested that the Court order the procurement authority to continue
consideration of the Company's proposal and to engage in meaningful discussions
with the Company. Although the Company is pursuing this matter vigorously, there
can be no assurance that the Court will grant the relief requested. Furthermore,
even if the Company is successful in securing the right to continue in the
competitive bidding process, there can be no assurance that the Company would
ultimately be successful in securing the EST contract award in part or in whole.
In view of the Company's substantial completion of Marine Corps Contract 2014
and the more limited scope of other U.S. military opportunities, the failure to
secure an award of all or a portion of the U.S. Army EST contract could have a
material adverse effect on the Company's future revenues from the U.S. military,
particularly as compared with the U.S. military revenues during fiscal 1997 and
1998, and on results of operations and financial condition of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity and capital needs currently and for the near
future are to fund working capital, debt service, and capital expenditures
necessary to support its business. The Company's primary sources of liquidity
and capital resources are cash generated from operating activities, the senior
bank debt and the additional equity investment from the Centre Investors. Net
working capital was $23.0 million at September 30, 1998 and $18.9 million at
March 31, 1998.
As of November 13, 1998, the Company and the Lenders amended the NationsBank
credit agreement (the "Amendment") to provide among other things for a
relaxation of certain financial covenants for periods ending March 31, 2000, a
temporary increase in interest rates, a reduction in available borrowings of
$1.5 million immediately and another $1.5 million no later than March 31, 1999
and an immediate capital investment of $3,000,030 by affiliates of Centre
Partners Management, LLC on terms described below.
11
<PAGE> 12
The Centre Investment: As required by the Amendment, on November 13, 1998, the
Company entered into a Securities Purchase Agreement with Centre Capital
Investors II, L.P., Centre Partners Coinvestment, L.P., Centre Capital Tax
Exempt Investors II, L.P., and Centre Capital Offshore Investors II, L.P. (the
"Centre Investors") whereby the Centre Investors, for $3,000,030, purchased
18,182 units of a security comprised of 18,182 shares of Series B Preferred
Stock (the "Preferred Stock") and an aggregate 2,909,120 non-detachable warrants
to purchase Class B Non-Voting Common Stock ("Class B Stock") with an exercise
price of $1.03125. Each unit of the security includes one share of Preferred
Stock and 160 warrants, and the security bears a dividend of 8% per annum
payable quarterly in additional units of the security. The warrants in a unit
can be exercised by tendering one share of Preferred Stock, and the Preferred
Stock is subject to mandatory redemption on November 13, 2003 at the liquidation
value thereof. It is also subject to redemption at the option of the holder in
the event of a change of control of the Company as defined. In addition, as
required by the Amendment, four directors who are affiliated with the Centre
Entities agreed to receive in lieu of the annual $20,000 in directors fees
options to purchase at $1.03125 an aggregate of 106,700 shares of Class A Voting
Common Stock, exercisable in equal quarterly installments beginning December 31,
1998 which such directors will assign to Centre Partners Management LLC.
As of November 13, 1998, the Company had borrowings of $17 million and had
outstanding letters of credit of approximately $1.5 million under the amended
$23.5 million revolving credit facility. The Company believes that the cash flow
from operations combined with the borrowings under the senior bank debt and from
the Centre Investors, will be sufficient to meet the Company's presently
anticipated working capital, capital expenditure and debt service needs for at
least the next twelve months.
The Company's operating activities used cash of $7.2 million in the six months
ended September 30, 1998 and generated cash of $2.9 million in the six months
ended September 30, 1997. The $10.1 million decrease in net cash provided by
operations was primarily due to the net loss of $2.8 million in the six months
ended September 30, 1998 as compared to the net income of $4.3 million in the
six months ended September 30, 1997. The decrease in net cash provided by
operations was also due to the $2.2 million increase in income taxes receivable
primarily attributable to the net loss of the Company for the six months ended
September 30, 1998.
The Company's investing activities used cash of $1.0 million for the six months
ended September 30, 1998 and $2.9 million for the six months ended September 30,
1997. The Company's primary investing activity for the six months ended
September 30, 1998 was capital expenditures that were for equipment used in
manufacturing, R&D and general administration. The Company's other use of cash
for investing was the purchase of Dart on April 1, 1998 for $394,000, net of
cash acquired. On July 31, 1998, the Company sold substantially all of the
assets of the Company's FSS, Inc. subsidiary for $200,000. The results of
operations of this business were immaterial to the total operating results of
the Company. The approximate cost of the assets sold was $200,000; therefore, no
gain resulted from this transaction.
The Company's financing activities provided cash of $7.5 million for the six
months ended September 30, 1998. The Company's primary financing activity in the
six month period ended September 30, 1998, was the net borrowing of $7.6 million
from its credit facility to finance the working capital needs of the Company's
operations, capital expenditures and recent acquisition.
12
<PAGE> 13
The Company's indebtedness and the related covenants will have several important
effects on its future operations, including, but not limited to, the following:
(i) a portion of the Company's cash flow from operations must be dedicated to
the payment of interest on and principal of its indebtedness and will not be
available for other purposes; (ii) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, R&D,
acquisitions, general corporate purposes or other purposes may be limited; and
(iii) the Company's level of indebtedness could limit its flexibility in
reacting to business developments and changes in its industry and economic
conditions generally.
Concentration of Credit Risk
At September 30, 1998, approximately $12.6 million in accounts receivable was
due from four international customers, of which approximately $3.0 million was
secured by a performance letter of credit.
YEAR 2000
Many currently installed computer systems and software products are coded to
accept only two digit entries in date code fields. Beginning in the year 2000,
many of these systems will need to be modified to accept four digit entries or
otherwise distinguish twenty-first century dates from twentieth century dates.
As a result, over the next year and one quarter, computer systems and/or
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements.
The management of the Company is currently evaluating the Company's Year 2000
issues. Because the latest versions of the Company's products are designed to be
Year 2000 compliant, this evaluation has focused on determining the compliance
of the Company's earlier software products as implemented in the Company's
installed customers base, as well as the impact on any non-compliance of the
Company and its customers. In addition, the evaluation is designed to address
the Company's Year 2000 readiness with respect to both information technology
(IT) and non-IT systems on which the Company's operations rely. Finally, because
the Company relies upon relationships with third parties over which it can
assert little control, the Year 2000 evaluation is also assessing the risks
associated with the failure of such third parties to adequately address the Year
2000 issue.
The Company does not currently believe that the effects of any Year 2000
non-compliance in the Company's installed base of software will result in a
material adverse effect on the Company's business, financial condition or
results of operations. However, the Company's investigation is in its
preliminary stages, and no assurance can be given that the Company will not be
exposed to potential claims resulting from system problems associated with the
century change. There can also be no assurance that the Company's software
products that are designed to be Year 2000 compliant contain all necessary date
code changes. In addition, Year 2000 non-compliance in the Company's internal IT
systems or certain non-IT systems on which its operations rely or by the
Company's business partners may have an adverse impact on the Company's
business, financial condition or results of operations. Because the evaluation
of the Company's Year 2000 issue is ongoing, the Company has not estimated its
total Year 2000 remediation costs.
13
<PAGE> 14
The Company's evaluation of its Year 2000 issue includes the development of
contingency plans for business functions that are susceptible to a substantive
risk of disruption resulting from a Year 2000 related event. Because the Company
has not yet identified any business function that is materially at risk of Year
2000 related disruption, it has not yet developed detailed contingency plans
specific to Year 2000 events for any business function. The Company is prepared
for the possibility, however, that certain business functions may be hereafter
identified as at risk and will develop contingency plans for such business
functions when and if such determinations are made.
CERTAIN FORWARD LOOKING STATEMENTS
The foregoing forward-looking statements are subject to a number of factors
which could cause actual results to differ as described above and under Item 5
"Other Information". No assurance can be given that actual revenues, operating
income or net income will not be materially different than those anticipated
above.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been actively participating in a competitive bidding process for
the proposed U.S. Army Engagement Skills Trainer ("EST") program, a U.S.
military procurement award anticipated to be potentially as large as the
Company's current U.S. Marine Corps Contract 2014. On May 14, 1998, the Company
received notification on behalf of the U.S. Army that its proposal in response
to the ongoing competition had been excluded from further consideration due to
technical disqualification. On June 2, 1998, the Company filed an action in the
United States Court of Federal Claims to protest this decision, and to obtain an
injunction against any award of the EST contract until the Court rules on the
Company's protest. As part of this action, the Company requested that the Court
order the procurement authority to continue consideration of the Company's
proposal and to engage in meaningful discussions with the Company. Although the
Company is pursuing this matter vigorously, there can be no assurance that the
Court will grant the relief requested. Furthermore, even if the Company is
successful in securing the right to continue in the competitive bidding process,
there can be no assurance that the Company would ultimately be successful in
securing the EST contract award in part or in whole. In view of the Company's
substantial completion of Marine Corps Contract 2014 and the more limited scope
of other U.S. military opportunities, the failure to secure an award of all or a
portion of the U.S. Army EST contract could have a material adverse effect on
the Company's future revenues from the U.S. military, particularly as compared
with the U.S. military revenues during fiscal 1997 and 1998, and on results of
operations and financial condition of the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--U.S. Army EST
Procurement Process"
On October 3, 1997, Dart, a Company subsidiary, was sued by Advanced Interactive
Systems, Inc. ("AIS") for alleged infringement of a patent owned by AIS, U.S.
Patent No. 5,649,706 (the "706 Patent"). Dart filed its answer on December 2,
1997, denying all material allegations, asserting numerous affirmative defenses,
and counterclaiming for a judicial declaration of noninfringement, patent
invalidity, patent unenforceability, and for damages for unjust enrichment. The
parties recently settled the case and are currently in the process of finalizing
confidential settlement documentation. Upon completion of that process, the
action shall be dismissed with prejudice. In the opinion of the Company's
management, this proceeding will not have a material adverse effect on the
Company's financial position, liquidity, or results of operations.
The Company is involved in legal proceedings from time to time in the ordinary
course of its business which, in the opinion of management, will not have a
materially adverse effect on the Company's financial position, liquidity, or
results of operation.
15
<PAGE> 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Share Owners was held on Friday, August 28, 1998, in
Suwanee, Georgia, at which the following matters were submitted to a vote of the
share owners:
(a) Votes regarding the election of three Directors for a term
expiring in 2001 were as follows:
<TABLE>
<CAPTION>
FOR ABSTAIN
--- -------
<S> <C> <C>
William J. Bratton 15,809,179 92,315
Jonathan H. Kagan 15,807,181 94,313
Frank S. Jones 15,807,290 94,204
</TABLE>
(b) Votes, in the proxies' discretion, upon such other business as
may properly come before the meeting or any postponement or
adjournment thereof were as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
15,686,994 167,817 46,683
</TABLE>
ITEM 5. OTHER INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:
Certain statements in this filing, and elsewhere (such as in other filings by
the Company with the Commission, press releases, presentations by the Company or
its management and oral statements) constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, (i) those described above including the
timing and size of, and the Company's success in competing for, new contracts
awarded by military and other government customers; (ii) significant variability
in the Company's quarterly revenues and results of operations as a result of
variations in the number and size of the Company's shipments in a particular
quarter while a significant percentage of its operating expenses are fixed in
advance; (iii) concentrations of revenues from a few large customers who vary
from one period to the next; (iv) the high percentage of sales to military and
law enforcement authorities whose orders are subject to extensive government
regulations, termination for a variety of factors and budgetary constraints; (v)
a significant proportion of international sales which may be subject to
political, monetary and economic risks; (vi) the relatively undeveloped nature
of the market for small and supporting arms training simulators and the need for
continued adoption of simulation training systems if the market is to expand;
(vii) the potential for increased competition; (viii) the Company's ability to
attract and retain key personnel and adapt to changing technologies; and (ix)
other factors described in the Company's Form 10-K for the fiscal year ended
March 31, 1997 under the caption Part I and in the Company's Prospectus under
the caption "Risk Factors".
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following documents are filed with this report as exhibits:
Exhibit
Number Description
- ------ -----------
10.01 Second Amendment to the Amended and Restated Credit Agreement, dated
November 13, 1998, among the Company, NationsBank, N.A. (South) and the
other Lenders named therein.
11.01 Statement regarding computation of net income per common share.
27.01 Financial Data Schedule (for SEC use only).
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1998.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 16, 1998
FIREARMS TRAINING SYSTEMS, INC.
(Registrant)
\s\ Peter A. Marino
-----------------------------------------
Peter A. Marino
President and Chief Executive Officer
\s\ Emory O. Berry
--------------------------------------------
Emory O. Berry
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
18
<PAGE> 1
EXHIBIT 10.01
SECOND AMENDMENT dated as of November 13, 1998 (this
"Second Amendment"), to the Amended and Restated
Credit Agreement dated as of October 15, 1997, (as
amended by the First Amendment dated as of June 26,
1998, and said Amended and Restated Credit Agreement
as so amended being the "Credit Agreement"), among
Firearms Training Systems, Inc., as Parent (the
"Parent"), FATS, Inc., as Borrower (the "Borrower"),
the lenders listed on the signature pages thereto
(the "Lenders"), NationsBank, N.A., as Agent, (in
such capacity, the "Agent"), Swingline Lender and
Issuing Bank. PRIVATE
The parties hereto have agreed, subject to the terms and conditions
hereof, to further amend the Credit Agreement as provided herein.
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement (the Credit Agreement,
as amended by, and together with, this Second Amendment, and as hereinafter
amended, modified, extended or restated from time to time, being called the
"Amended Agreement").
Accordingly, the parties hereto hereby agree as follows:
SECTION 1.01. Amendments to Section 1.01. (a) Subsection (a)(v) of the
definition of "Applicable ABR Margin" is hereby amended by inserting the
following between the phrase ending "Level V Pricing Period" and "; and":
"or a Level VI Pricing Period"
(b) The definition of "Applicable Eurodollar Margin" is hereby amended
by (i) deleting the "and" at the end of subsection (a)(v); (ii) inserting the
following between subsection (a)(v) and subsection (b):
"(vi) 3.75%, if such day falls within a Level VI Pricing Period;
and";
and (iii) by deleting subsection (b) in its entirety and adding the following in
lieu thereof:
"(b) with respect to any Tranche B Loan outstanding (i) on any day
during the period commencing July 1, 1998 and ending the Second
Amendment Effective Date, 3.50%, (ii) for any day during the period
commencing the Second Amendment Effective Date, and ending September
30, 1999, 4.00% and (iii) on any other day, 3.25%."
(c) The definition of "Level V Pricing Period" is hereby deleted in its
entirety and the following definition is substituted in lieu thereof:
<PAGE> 2
""Level V Pricing Period" shall mean (a) with respect to any day
from and including the First Amendment Effective Date through the date
on which financial statements are required to be delivered pursuant to
Section 5.04(g) and (b) thereafter, subject to Section 2.07(c), any
period during which (i) the Leverage Ratio is greater than 5.00:1.00
but less than or equal to 5.50:1.00 and (ii) no Default or Event of
Default has occurred and is continuing."
(d) The definition of "Equity Issuance" is hereby amended by inserting
"and Excluded Equity Issuance" into the parenthetical between the word
"Contribution" and the end parenthesis.
(e) The following definitions are hereby added in alphabetical order:
""Capital Contribution" shall mean a contribution to the capital of
the Borrower made by the Parent in cash in an amount equal to the
shortfall needed to cause the Borrower to meet its obligations under
Section 6.15 at the times provided for in Section 7(c).
""Excluded Equity Issuance" shall mean (a) the $3 million
Preferred Stock of the Parent with warrants having no current cash
requirements and a maturity post-dating July 31, 2003 held by the
Sponsor in form and substance satisfactory to the Agent in its sole
discretion, the proceeds of which shall be contributed to the Borrower
and (b) any Capital Contribution.
""First Amendment Effective Date" shall mean June 26, 1998."
""Level VI Pricing Period" shall mean any period that is not a
Level I Pricing Period, a Level II Pricing Period, a Level III Pricing
Period, a Level IV Pricing Period or a Level V Pricing Period."
""Second Amendment Effective Date" shall mean November 13, 1998.
SECTION 1.02. Amendment to Section 2.10. Section 2.10 of the Credit
Agreement is hereby amended by adding the following between subsection (e) and
Section 2.11:
"(f) The Revolving Credit Commitments shall be permanently reduced
(i) by $1,500,000 on the Second Amendment Effective Date and (ii) by
$1,500,000 upon the earlier of (x) March 31, 1999 or (y) the collection
of $4,782,810 from the Italian Air Force III "Italian Military
Authorities Purchase Order No. 11/3443-II/4653/2." The provisions of
Section 2.10(e) shall apply to this Section 2.10(f)."
SECTION 1.03. Amendment to Section 6.04(b). Section 6.04(b) of the
Credit Agreement is hereby amended by inserting "(other than a Capital
Contribution or the contribution made in connection with the Excluded Equity
Issuance described in subsection (a) of the definition of "Excluded Equity
Issuance")" into the proviso between the phrase "the Parent" and the phrase
ending "shall be permitted only if (i)"
-2-
<PAGE> 3
SECTION 1.04. Amendment to Section 6.10(a)(D). Section 6.10(a)(D) of
the Credit Agreement is hereby amended by inserting the following between the
word "year" and the comma at the end of the subsection:
"; provided, however, that none of the four directors on the board of
the Parent representing Centre Partners Management LLC shall receive fees in an
aggregate amount equal to $80,000 for the period beginning on the Second
Amendment Effective Date and ending, and including, September 30, 1999"
SECTION 1.05. Amendment to Section 6.15. (a) Section 6.15(a) of the
Credit Agreement is hereby amended by deleting the chart therefrom in its
entirety and substituting in lieu thereof the following:
<TABLE>
<CAPTION>
"From and including To and including Ratio
------------------- ----------------- ------------
<S> <C> <C>
The Effective Date December 31, 1997 1.75 to 1.00
January 1, 1998 June 30, 1998 2.10 to 1.00
July 1, 1998 September 30, 1998 1.55 to 1.00
October 1, 1998 December 31, 1998 1.03 to 1.00
January 1, 1999 March 31, 1999 0.94 to 1.00
April 1, 1999 June 30, 1999 1.46 to 1.00
July 1, 1999 September 30, 1999 1.94 to 1.00
October 1, 1999 December 31, 1999 2.26 to 1.00
January 1, 2000 March 31, 2000 2.55 to 1.00
April 1, 2000 December 31, 2000 2.60 to 1.00
January 1, 2001 December 31, 2001 2.95 to 1.00
January 1, 2002 December 31, 2002 3.40 to 1.00
January 1, 2003 June 30, 2003 4.00 to 1.00"
</TABLE>
(b) Section 6.15(b) of the Credit Agreement is hereby amended by
deleting therefrom the chart in its entirety and substituting in lieu thereof
the following:
<TABLE>
<CAPTION>
"From and including To and including Ratio
------------------- ----------------- ------------
<S> <C> <C>
The Effective Date December 31, 1997 1.30 to 1.00
January 1, 1998 June 30, 1998 1.35 to 1.00
July 1, 1998 September 30, 1998 0.75 to 1.00
October 1, 1998 December 31, 1998 0.41 to 1.00
January 1, 1999 March 31, 1999 0.33 to 1.00
April 1, 1999 June 30, 1999 0.58 to 1.00
July 1, 1999 September 30, 1999 0.80 to 1.00
October 1, 1999 December 31, 1999 0.95 to 1.00
January 1, 2000 March 31, 2000 1.07 to 1.00
April 1, 2000 December 31, 2000 1.40 to 1.00
January 1, 2001 June 30, 2003 1.50 to 1.00"
</TABLE>
-3-
<PAGE> 4
(c) Section 6.15(c) of the Credit Agreement is hereby amended by
deleting the chart therefrom in its entirety and substituting in lieu thereof
the following:
<TABLE>
<CAPTION>
"From and including To and including Ratio
------------------- ----------------- ------------
<S> <C> <C>
The Effective Date December 31, 1997 4.80 to 1.00
January 1, 1998 March 31, 1998 4.00 to 1.00
April 1, 1998 June 30, 1998 5.50 to 1.00
July 1, 1998 September 30, 1998 8.20 to 1.00
October 1, 1998 December 31, 1998 12.13 to 1.00
January 1, 1999 March 31, 1999 11.04 to 1.00
April 1, 1999 June 30, 1999 6.86 to 1.00
July 1, 1999 September 30, 1999 5.11 to 1.00
October 1, 1999 December 31, 1999 4.50 to 1.00
January 1, 2000 March 31, 2000 4.01 to 1.00
April 1, 2000 December 31, 2000 3.10 to 1.00
January 1, 2001 December 31, 2001 2.75 to 1.00
January 1, 2002 June 30, 2003 2.25 to 1.00"
</TABLE>
SECTION 1.06. Amendment to Article VII. Section 7(c) of the Credit
Agreement is hereby amended by inserting the following between the phrase
"Article VI" and the semi-colon at the end of the subsection:
"; provided, that no Default or Event of Default shall occur under
Section 6.15 in the event (i) the Parent shall make a Capital Contribution
within 30 Business Days of such default and (ii) the Borrower and the Parent
shall give to the Agent written notice of their intention to make such Capital
Contribution within three Business Days of such default"
SECTION 1.07. Representations and Warranties. The Borrower hereby
represents and warrants to the Agents and the Lenders, as follows:
(a) The representations and warranties set forth in Article
III of the Amended Agreement, and in each other Loan Document,
including any Schedules thereto, are true and correct in all material
respects on and as of the date hereof and on and as of the Second
Amendment Effective Date (as defined below) with the same effect as if
made on and as of the date hereof or the Second Amendment Effective
Date, as the case may be, except to the extent such representations and
warranties expressly relate solely to an earlier date.
(b) Each of the Borrower and the other Loan Parties is in
compliance with all the terms and conditions of the Amended Agreement
and the other Loan Documents on its part to be observed or performed
and no Default or Event of Default has occurred or is continuing under
the Amended Agreement.
(c) The execution, delivery and performance by the Borrower of
this Second Amendment have been duly authorized by the Borrower.
-4-
<PAGE> 5
(d) This Second Amendment constitutes the legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms.
(e) The execution, delivery and performance by the Borrower of
this Second Amendment (i) does not conflict with or violate (A) any
provision of law, statute, rule or regulation, or of the articles of
incorporation or by-laws of the Borrower, (B) any order of any
Governmental Authority or (C) any provision of any indenture, agreement
or other instrument to which the Borrower is a party or by which it or
any of its property may be bound and (ii) does not require any consents
under, result in a breach of or constitute (alone or with notice or
lapse of time or both) a default or give rise to increased, additional,
accelerated or guaranteed rights of any person under any such
indenture, agreement or instrument.
SECTION 1.08. Effectiveness. This Second Amendment shall become
effective only upon satisfaction of the following conditions precedent (the
first date upon which each such condition has been satisfied being herein called
the "Second Amendment Effective Date"):
(a) The Agent shall have received duly executed counterparts
of this Second Amendment which, when taken together, bear the
authorized signatures of the Parent, the Borrower and all the Lenders.
(b) The Lenders shall be satisfied that the representations
and warranties set forth in Section 1.07 hereof are true and correct on
and as of the Second Amendment Effective Date.
(c) There shall not be any action pending or any judgment,
order or decree in effect which, in the judgment of the Lenders or
their counsel, is likely to restrain, prevent or impose materially
adverse conditions upon performance by the Borrower or any other Loan
Party of its obligations under the Loan Documents.
(d) The Lenders shall have received such other documents,
legal opinions, instruments and certificates as they shall reasonably
request and such other documents, legal opinions, instruments and
certificates shall be satisfactory in form and substance to the Lenders
and their counsel. All corporate and other proceedings taken or to be
taken in connection with this Second Amendment and all documents
incidental thereto, whether or not referred to herein, shall be
satisfactory in form and substance to the Lenders and their counsel.
(e) The Agent shall have received payment of and all fees and
expenses set forth in Section 1.10.
(f) The Borrower shall have received $3,000,000 from the
Parent in connection with the sale of Preferred Stock of the Parent
with warrants having no current cash requirements and a maturity
post-dating July 31, 2003 to the Sponsor.
-5-
<PAGE> 6
SECTION 1.09. APPLICABLE LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT
TO THE EXTENT THAT THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA MAY APPLY.
SECTION 1.10. Fees and Expenses. The Borrower shall pay an amendment
fee equal to .50% of the outstanding Commitment (after the reduction prescribed
in Section 2.10(f)(i)) and all reasonable out-of-pocket expenses incurred by the
Agent and the Lenders in connection with the preparation, negotiation,
execution, delivery and enforcement of this Second Amendment, including, but not
limited to, the reasonable fees and disbursements of counsel; provided, however
that such amendment fee and such expenses shall be excluded from the
calculations of the covenants set forth in Section 6.15 where applicable.
SECTION 1.11. Counterparts. This Second Amendment may be executed in
any number of counterparts, each of which shall constitute an original but all
of which when taken together shall constitute but one agreement.
SECTION 1.12. Credit Agreement. Except as expressly set forth herein,
the amendments provided herein shall not by implication or otherwise limit,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders, the Agent or the other Secured Parties under the Amended Agreement or
any other Loan Document, nor shall they constitute a waiver of any Default or
Event of Default, nor shall they alter, modify, amend or in any way affect any
of the terms, conditions, obligations, covenants or agreements contained in the
Amended Agreement or any other Loan Document. Each of the amendments provided
herein shall apply and be effective only with respect to the provisions of the
Amended Agreement specifically referred to by such amendment. Except as
expressly amended herein, the Amended Agreement shall continue in full force and
effect in accordance with the provisions thereof. As used in the Amended
Agreement, the terms "Agreement", "herein", "hereinafter", "hereunder", "hereto"
and words of similar import shall mean, from and after the date hereof, the
Amended Agreement.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed by their duly authorized officers, all as of the
date first above written.
FIREARMS TRAINING SYSTEMS, INC.
as Parent
By: /s/ Peter Marino
-------------------------------------------
Name: Peter Marino
Title: CEO and President
FATS, INC.
as Borrower
By: /s/ Peter Marino
-------------------------------------------
Name: Peter Marino
Title: CEO and President
NATIONSBANK, N.A., as Agent, Swingline
Lender and Issuing Bank and individually
as a Lender
By: /s/ Peter D. Griffith
-------------------------------------------
Name: Peter D. Griffith
Title: Senior Vice President
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Robert York
-------------------------------------------
Name: Robert York
Title: Senior Vice President
FIRST SOURCE FINANCIAL LLP, by First Source
Financial, Inc., as Agent/Manager
By: /s/ John P. Thacker
-------------------------------------------
Name: John P. Thacker
Title: Senior Vice President
-7-
<PAGE> 8
BHF-BANK ATKIENGESELLSCHAFT
By: /s/ Thomas Leissl
-------------------------------------------
Name: Thomas Leissl
Title: Vice President
By: /s/ Marcus Jackson
-------------------------------------------
Name: Marcus Jackson
Title: Assistant Treasurer
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Carl Drake
-------------------------------------------
Name: Carl Drake
Title: Vice President
By: /s/ Robert M. Biringer
-------------------------------------------
Name: Robert M. Biringer
Title: Executive Vice President
-8-
<PAGE> 1
EXHIBIT 11.01
FIREARMS TRAINING SYSTEMS, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BASIC EARNINGS PER SHARE(1) DILUTED EARNINGS PER SHARE(1)
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding 20,673 20,406 20,673 20,406
Shares issued upon assumed exercise of
outstanding options - - - 1,058
Weighted average common and common ---------- ---------- ---------- ----------
equivalent shares outstanding 20,673 20,406 20,673 21,464
========== ========== ========== ==========
Net income $ (826) $ 2,089 $ (826) $ 2,089
========== ========== ========== ==========
Earnings per share $ (0.04) $ 0.10 $ (0.04) $ 0.10
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
BASIC EARNINGS PER SHARE(1) DILUTED EARNINGS PER SHARE(1)
SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding 20,668 20,405 20,668 20,405
Shares issued upon assumed exercise of
outstanding options - - - 1,173
Weighted average common and common ---------- ---------- ---------- ----------
equivalent shares outstanding 20,668 20,405 20,668 21,578
========== ========== ========== ==========
Net income $ (2,844) $ 4,275 $ (2,844) $ 4,275
========== ========== ========== ==========
Earnings per share $ (0.14) $ 0.21 $ (0.14) $ 0.20
========== ========== ========== ==========
</TABLE>
- ---------
(1) Shares reflect a 100,000-for-one stock split in July 1996 in connection
with the recapitalization and a split of 1.66-for-one in October 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,560
<SECURITIES> 0
<RECEIVABLES> 21,857
<ALLOWANCES> 100
<INVENTORY> 16,806
<CURRENT-ASSETS> 44,033
<PP&E> 7,945
<DEPRECIATION> 3,849
<TOTAL-ASSETS> 56,679
<CURRENT-LIABILITIES> 21,059
<BONDS> 64,949
0
0
<COMMON> 114,280
<OTHER-SE> (143,609)
<TOTAL-LIABILITY-AND-EQUITY> 56,679
<SALES> 24,376
<TOTAL-REVENUES> 24,376
<CGS> 15,612
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<NET-INCOME> (2,844)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
