<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER: 0-23159
Vari-Lite International, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2239444
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Regal Row, Dallas, Texas 75247
- ---------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (214) 630-1963
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 the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date: As of February 11, 1998,
there were 7,800,003 shares of Common Stock outstanding.
<PAGE>
VARI-LITE INTERNATIONAL, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
<TABLE>
PART I. - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1997. . . . . . . . . . . . 3
Consolidated Statements of Income for
the three months ended December 31, 1996 and 1997 . . . . . . . 4
Consolidated Statement of Stockholders' Equity for
the three months ended December 31, 1997. . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for
the three months ended December 31, 1996 and 1997 . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . 12
PART II. - OTHER INFORMATION
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 13
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
2
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VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
ASSETS
<TABLE>
SEPTEMBER 30, DECEMBER 31,
1997 1997
------------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,862 $ 2,262
Receivables, less allowance for doubtful accounts of $450 and $483 . 14,445 15,029
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,050 5,531
Prepaid expense and other current assets . . . . . . . . . . . . . . 2,536 2,501
---------- ----------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . 22,893 25,323
EQUIPMENT AND OTHER PROPERTY:
Lighting and sound equipment . . . . . . . . . . . . . . . . . . . . 102,487 107,005
Machinery and tools. . . . . . . . . . . . . . . . . . . . . . . . . 2,929 2,819
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . 3,945 3,958
Office and computer equipment. . . . . . . . . . . . . . . . . . . . 9,189 9,845
Work in progress and raw materials inventory . . . . . . . . . . . . 5,343 4,259
---------- ----------
123,893 127,886
Less accumulated depreciation and amortization . . . . . . . . . 55,248 58,375
---------- ----------
68,645 69,511
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,166 5,260
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96,704 $ 100,094
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . $ 12,086 $ 9,168
Unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 2,992 2,600
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 820 807
Current portion of long-term obligations . . . . . . . . . . . . . . 7,824 3,655
---------- ----------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . 23,722 16,230
LONG-TERM OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 38,418 27,630
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 7,023 6,742
---------- ----------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . 69,163 50,602
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.10 par value (10,000,000 shares authorized;
no shares outstanding) . . . . . . . . . . . . . . . . . . . . . . - -
Common Stock, $0.10 par value (40,000,000 shares authorized;
5,800,003 and 7,800,003 shares outstanding). . . . . . . . . . . . 585 785
Treasury Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . (186) (186)
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 3,344 24,451
Stockholder notes receivable . . . . . . . . . . . . . . . . . . . . (176) (166)
Stock purchase warrants. . . . . . . . . . . . . . . . . . . . . . . 600 600
Cumulative foreign currency translation adjustment . . . . . . . . . 361 474
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . 23,013 23,534
---------- ----------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . 27,541 49,492
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . $ 96,704 $ 100,094
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to the consolidated financial statements.
3
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VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
1996 1997
---------- ----------
<S> <C> <C>
Rental revenues. . . . . . . . . . . . . . . . . . . . . . $ 18,488 $ 19,170
Product sales and services revenues. . . . . . . . . . . . 3,838 3,349
---------- ----------
TOTAL REVENUES . . . . . . . . . . . . . . . . . . . 22,326 22,519
Rental cost. . . . . . . . . . . . . . . . . . . . . . . . 6,793 7,567
Product sales and services cost. . . . . . . . . . . . . . 2,686 2,314
---------- ----------
TOTAL COST OF SALES. . . . . . . . . . . . . . . . . 9,479 9,881
---------- ----------
GROSS PROFIT . . . . . . . . . . . . . . . . . . . . 12,847 12,638
Selling, general and administrative expense. . . . . . . . 8,969 8,257
Research and development expense . . . . . . . . . . . . . 1,454 1,573
---------- ----------
TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . 10,423 9,830
---------- ----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . 2,424 2,808
Interest expense (net) . . . . . . . . . . . . . . . . . . 873 729
---------- ----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS. . . . . 1,551 2,079
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 625 821
---------- ----------
INCOME BEFORE EXTRAORDINARY LOSS . . . . . . . . . . . . . 926 1,258
Extraordinary loss . . . . . . . . . . . . . . . . . . . . 0 737
---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . $ 926 $ 521
---------- ----------
---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . . . . . . . . 5,822,676 7,452,177
---------- ----------
---------- ----------
PER SHARE INFORMATION
Income before extraordinary loss:
BASIC. . . . . . . . . . . . . . . . . . . . . . . . $ 0.16 $ 0.17
---------- ----------
---------- ----------
DILUTED . . . . . . . . . . . . . . . . . . . . . . $ 0.16 $ 0.17
---------- ----------
---------- ----------
Net income:
BASIC. . . . . . . . . . . . . . . . . . . . . . . . $ 0.16 $ 0.07
---------- ----------
---------- ----------
DILUTED . . . . . . . . . . . . . . . . . . . . . . $ 0.16 $ 0.07
---------- ----------
---------- ----------
Dividends declared . . . . . . . . . . . . . . . . . . . . $ 0.0525 $ 0.0000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to the consolidated financial statements.
4
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VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
PREFERRED STOCK COMMON STOCK TREASURY STOCK ADDITIONAL
---------------- ---------------- ---------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1997 - $ - 5,845,167 $585 (45,164) $(186) $ 3,344
Payments on stockholder notes receivable
Initial public offering 2,000,000 200 21,107
Net effect of translation adjustment
Net income
------ ------ --------- ------ ------ ----- -------
BALANCE, DECEMBER 31, 1997 - $ - 7,845,167 $785 (45,164) $(186) $24,451
------ ------ --------- ------ ------ ----- -------
------ ------ --------- ------ ------ ----- -------
<CAPTION>
CUMULATIVE
FOREIGN
STOCKHOLDER STOCK CURRENCY
NOTES PURCHASE TRANSLATION RETAINED
RECEIVABLE WARRANTS ADJUSTMENT EARNINGS TOTAL
---------- -------- ---------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1997 $(176) $600 $361 $23,013 $27,541
Payments on stockholder notes receivable 10 10
Initial public offering 21,307
Net effect of translation adjustment 113 113
Net income 521 521
----- ---- ---- ------- -------
BALANCE, DECEMBER 31, 1997 $(166) $600 $474 $23,534 $49,492
----- ---- ---- ------- -------
----- ---- ---- ------- -------
</TABLE>
See accompanying notes to the consolidated financial statements.
5
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VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
1996 1997
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 926 $ 521
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . 2,740 3,192
Amortization of note discount and deferred loan fees . . . . 102 54
Provision for doubtful accounts. . . . . . . . . . . . . . . 25 31
Extraordinary loss from early extinguishment of debt . . . . 0 737
Deferred income taxes. . . . . . . . . . . . . . . . . . . . 170 200
Loss (gain) on sale of equipment and other property. . . . . 43 (38)
Cost of rental equipment rented under sales-type leases. . . 38 111
Provisions for ESOP and ESEP contributions . . . . . . . . . 63 63
Net change in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . (327) (615)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . (973) 22
Inventory. . . . . . . . . . . . . . . . . . . . . . . . (446) (1,481)
Other assets . . . . . . . . . . . . . . . . . . . . . . (203) (893)
Accounts payable, accrued liabilities and income
taxes payable. . . . . . . . . . . . . . . . . . . . . 2,311 (2,993)
Unearned revenue . . . . . . . . . . . . . . . . . . . . 879 (391)
------- --------
Net cash provided by (used in) operating activities. . . 5,348 (1,480)
Cash flows from investing activities:
Capital expenditures, including rental equipment . . . . . . . (4,476) (4,078)
Proceeds from sale of equipment. . . . . . . . . . . . . . . . 105 67
------- --------
Net cash used in investing activities. . . . . . . . . . (4,371) (4,011)
Cash flows from financing activities:
Proceeds from issuance of debt . . . . . . . . . . . . . . . . 2,549 43,033
Principal payments on debt . . . . . . . . . . . . . . . . . . (2,225) (58,354)
Proceeds from issuance of distributor advances . . . . . . . . 195 277
Principal payments on distributor advances . . . . . . . . . . (383) (205)
Proceeds from payments on stockholder notes receivable . . . . 9 10
Proceeds from public offering of common stock. . . . . . . . . 0 21,307
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (403) 0
------- --------
Net cash provided by (used in) financing activities. . . (258) 6,068
Effect on cash from foreign currency translation adjustment. . . (588) (177)
------- --------
Net increase during the period . . . . . . . . . . . . . . . . . 131 400
Cash, beginning of period. . . . . . . . . . . . . . . . . . . . 2,633 1,862
------- --------
Cash, end of period. . . . . . . . . . . . . . . . . . . . . . . $ 2,764 $ 2,262
------- --------
------- --------
Supplemental Cash Flow Information
Cash paid for interest expense . . . . . . . . . . . . . . . . $ 950 $ 805
Cash paid for income taxes . . . . . . . . . . . . . . . . . . $ 524 $ 477
</TABLE>
See accompanying notes to the consolidated financial statements.
6
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VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
1. Interim Financial Information
The accompanying unaudited consolidated financial statements of Vari-Lite
International, Inc. (the "Company") have been prepared by the Company in
accordance with generally accepted accounting principles for interim financial
information and 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, the consolidated financial statements contain
all adjustments, consisting of normal recurring adjustments, considered
necessary to present fairly the consolidated financial position, results of
operations and cash flows of the Company. The results of operations for the
three months ended December 31, 1997 are not indicative of the results of
operations that may be expected for any other interim periods or for the fiscal
year ending September 30, 1998.
For further information, refer to the consolidated financial statements and
accompanying notes included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1997.
2. Inventory
Inventory consists of the following:
<TABLE>
September 30, December 31,
1997 1997
-------- --------
<S> <C> <C>
Raw materials $3,483 $4,923
Work in progress 350 418
Finished goods 217 190
------ ------
$4,050 $5,531
------ ------
------ ------
</TABLE>
3. Initial Public Offering
On October 15, 1997, in conjunction with the Company's reincorporation
in Delaware and an initial public offering, the Board of Directors of the
Company created a new class of common stock and authorized 40,000,000 shares.
As a result of the reincorporation, stockholders received 3.76368 shares of
common stock for each share of the Company's Class A common stock and Class B
common stock held by the stockholders. Share amounts and the weighted-average
shares outstanding for all periods presented give retroactive effect to the
recapitalization of the common stock. In addition, the Company authorized
10,000,000 shares of preferred stock which the Company's Board of Directors
may issue for such consideration and on such terms as it deems desirable,
including voting and conversion rights that could adversely affect the
holders of common stock.
The Company filed a Registration Statement (Commission file no.
333-33559) for the public offering of 2,300,000 shares of common stock which
became effective October 16, 1997. The Company sold 2,000,000 shares of
common stock for $12.00 per share for an aggregate
7
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amount of $24,000 and certain stockholders of the Company sold 300,000 of
common stock for $12.00 per share for an aggregate amount of $3,600.
4. Long-Term Debt and Extraordinary Loss
On December 19, 1997, the Company entered into a five-year $50,000
multicurrency revolving credit facility (the "New Credit Facility") and
canceled its existing credit facility. Borrowings under the New Credit
Facility bear interest at prime or LIBOR plus a rate margin ranging from
1.00% to 2.50% based upon the Company's ratio of Adjusted Funded Debt (as
defined in the New Credit Facility) to EBITDA (as defined in the New Credit
Facility) and are secured by a pledge of 65% of the outstanding capital stock
of the Company's foreign subsidiaries. A commitment fee is charged on the
average daily unused portion of the New Credit Facility at a rate ranging
from 0.20% to 0.375% per annum based upon the ratio of Adjusted Funded Debt
to EBITDA. The New Credit Facility contains compliance covenants, including
requirements that the Company achieve certain financial ratios. In addition,
the New Credit Facility places limitations on the Company's ability to incur
additional indebtedness, make certain loans or investments, sell assets or
reacquire the Company's stock. The Company expensed deferred financing costs
related to the prior debt facility of $737 (net of tax benefit of $481)
relating to the early extinguishment of debt, which have been reflected in
the consolidated statement of income as an extraordinary loss.
5. Net Income Per Share
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share," in fiscal 1998. Under this
standard, basic earnings per share is calculated using weighted average
shares outstanding, whereas diluted earnings per share is calculated using
weighted average shares outstanding including common stock equivalents,
including stock options when dilutive. The weighted average number of shares
of common stock outstanding during the three months ended December 31, 1996
and 1997 was 5,822,676 and 7,452,177, respectively. The effect of this
change was less than $0.01 per share for both periods presented.
Net income per common share for the three months ended December 31, 1997
was computed on a pro forma basis, which gives effect to the Company's
initial public offering as if it had occurred on the first day of the fiscal
quarter and reflects the pro forma reduction of interest expense.
8
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VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1996
REVENUES. Total revenues increased 0.9%, or $0.2 million, to $22.5
million in the three-month period ended December 31, 1997, compared to $22.3
million in the three-month period ended December 31, 1996. The revenue
increase was attributable primarily to the factors set forth below.
Rental revenues increased 3.7%, or $0.7 million, to $19.2 million in the
three-month period ended December 31, 1997, compared to $18.5 million in the
three-month period ended December 31, 1996, which was primarily due to a
strong performance in North America across all key market segments.
Partially offsetting the increased North American revenues was a decrease in
rental revenues earned in the Asian markets. Rental revenues from sales-type
leases accounted for approximately $0.4 million of the increase in rental
revenues for the three-month period ended December 31, 1997.
Product sales and service revenues decreased 12.7%, or $0.5 million, to
$3.3 million in the three-month period ended December 31, 1997, compared to
$3.8 million in the three-month period ended December 31, 1996. This
decrease was primarily due to lower sales of the Company's Irideon-Registered
Trademark- automated lighting products which decreased 42.1%, or $0.8 million,
to $1.1 million in the three-month period ended December 31, 1997, compared
to $1.9 million in the three-month period ended December 31, 1996. In the
three-month period ended December 31, 1996 the Company introduced two new
Irideon-Registered Trademark- products - AR5-TM- and Composer-Registered
Trademark- - and consequently shipped a large backlog during the quarter.
The decrease in Irideon-Registered Trademark- product sales was partially
offset by an increase of $0.3 million from the design and production
management services provided to the Company's customers.
RENTAL COSTS. Rental costs increased 11.4%, or $0.8 million, to $7.6
million in the three-month period ended December 31, 1997, compared to $6.8
million in the three-month period ended December 31, 1996. Rental costs as a
percentage of rental revenues increased to 39.5% in the three-month period
ended December 31, 1997, from 36.7% in the three-month period ended December
31, 1996. The increase in rental costs as a percentage of total rental
revenues was primarily due to an increase in depreciation associated with an
increase in the Company's rental inventory.
PRODUCT SALES AND SERVICE COSTS. Product sales and service costs
decreased 13.9%, or $0.4 million, to $2.3 million in the three-month period
ended December 31, 1997, compared to $2.7 million in the three-month period
ended December 31, 1996. Product sales and service costs as a percentage of
product sales and service revenue decreased to 69.1% in the three-month
period ended December 31, 1997, from 70.0% in the three-month period ended
December 31, 1996.
9
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The decrease in product sales and service costs as a percentage of the
related revenues was primarily due to the Company's Irideon-Registered
Trademark- product line, which experienced improved production efficiencies.
Partially offsetting this decrease was an increase in product sales and
service costs as a percentage of the related revenues for the Company's
design and production management services to businesses, which includes costs
subcontracted to others by the Company. Product sales and service costs
associated with subcontracted services constituted a higher percentage of the
total product sales and services revenue in the three-month period ended
December 31, 1997 as compared to the three-month period ended December 31,
1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense decreased 7.9%, or $0.7 million, to $8.3 million in
the three-month period ended December 31, 1997, compared to $9.0 million in
the three-month period ended December 31, 1996. This decrease resulted
primarily from lower contract labor, payroll and related costs and other
discretionary expenses. This expense as a percentage of total revenues
decreased to 36.7% in the three-month period ended December 31, 1997, from
40.2% in the three-month period ended December 31, 1996.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased 8.2%, or $0.1 million, to $1.6 million in the three-month period
ended December 31, 1997, compared to $1.5 million in the three-month period
ended December 31, 1996. This expense as a percentage of total revenues
increased to 7.0% in the three-month period ended December 31, 1997, from
6.5% in the three-month period ended December 31, 1996. This increase was
primarily the result of an increase in the employee-related costs associated
with adding research and development engineers during three-month period
ended December 31, 1997.
INTEREST EXPENSE. Interest expense decreased 16.5%, or $0.2 million, to
$0.7 million in the three-month period ended December 31, 1997, compared to
$0.9 million in the three-month period ended December 31, 1996. This
decrease was attributable to the reduction in indebtedness from the use of
the proceeds from the initial public offering to repay $21.3 million of
indebtedness.
EXTRAORDINARY LOSS. A non-cash extraordinary loss of $0.7 million was
recorded in the three-month period ended December 31, 1997, net of $0.4
million of tax benefit, relating to the early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations and capital
expenditures with cash flow from operations, bank borrowings and advances
from distributors and customers. The Company's operating activities
generated cash flow of $5.3 million and ($1.5) million for the three-month
periods ended December 31, 1996 and 1997, respectively.
During fiscal 1997, the Company borrowed under a multicurrency credit
agreement (the "Old Credit Agreement") to partially finance its operations
and capital expenditures. On October
10
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21, 1997, the Company consummated the initial public offering of its common
stock and used the net proceeds thereof, approximately $21.3 million, to
repay indebtedness under the Old Credit Agreement. In December 1997, the
Company entered into a new multicurrency credit agreement, with SunTrust
Bank, Atlanta ("SunTrust"), as agent for the lenders thereunder (the "New
Credit Agreement"), which replaced the Old Credit Agreement. The New Credit
Agreement has a five-year term and provides the Company with a $50 million
revolving credit facility, which is secured by the pledge of 65% of the
capital stock of the Company's foreign subsidiaries. The commitment fee on
the unused portion of the facility and the interest charged on the
outstanding balance of the facility are determined by a pricing grid based on
the Company's ratio of Adjusted Funded Debt (as defined in the New Credit
Agreement) to EBITDA (as defined in the New Credit Agreement). The
commitment fee ranges from 0.2% to 0.375% and the interest rate ranges from
1.0% to 2.5% above the London interbank offering rate ("LIBOR") or SunTrust's
base rate. The initial commitment fee and margin above LIBOR are fixed
through March 31, 1998, at 0.25% and 1.5%, respectively, and can be fixed
through June 30, 1998 by payment of a $25,000 fee. The New Credit Agreement
includes customary negative covenants such as restrictions on the Company's
ability to incur debt, make acquisitions or investments or sell assets.
Also, the New Credit Agreement includes financial covenants regarding the
Company's net worth, ratio of Adjusted Funded Debt to total capitalization,
the ratio of Adjusted Funded Debt to EBITDA and the ratio of EBITR (as
defined in the New Credit Agreement) to interest and rent expenses. As of
December 31, 1997, $26.5 million was outstanding under the New Credit
Agreement (based on currency exchange rates as of that date).
The Company has hedged a portion of its currency fluctuation risk by
borrowing in British pounds sterling and Japanese yen under both the Old
Credit Agreement and the New Credit Agreement. Cash generated from the
Company's England and Japan offices is typically denominated in British
pounds sterling and Japanese yen, respectively, and is used to pay expenses
incurred in those currencies and service the foreign currency borrowings.
The Company is a party to three interest rate swap agreements which will fix
the Company's effective interest costs under a portion of the New Credit
Agreement.
The Company's business requires significant capital expenditures.
Capital expenditures for the three months ended December 31, 1996 and 1997
were approximately $4.5 million and $4.1 million, respectively, of which
approximately $3.9 million were for rental equipment inventories for both
years. The majority of the Company's revenues are generated through the
rental of automated lighting and concert sound systems and, as such, the
Company must maintain a significant amount of rental equipment to meet
customer demands.
The Company had a working capital deficit of $2.1 million at December
31, 1996 and a working capital surplus of $9.1 million at December 31, 1997.
The Company has historically maintained working capital deficits since the
bulk of its revenue-generating assets are classified as long-term assets
rather than current assets. The working capital surplus at December 31, 1997
is primarily due to higher accounts receivable and lower long-term debt as a
result of the New Credit Agreement.
11
<PAGE>
Management believes that cash flow generated from operations and
borrowing capacity under the New Credit Agreement should be sufficient to
fund its anticipated operating needs and capital expenditures for at least
the next twelve months. However, because the Company's future operating
results will depend on a number of factors, including the demand for the
Company's products and services, the level of competition, the success of the
Company's research and development programs, the ability to achieve
competitive and technological advances and general and economic conditions
and other factors beyond the Company's control, there can be no assurance
that sufficient capital resources will be available to fund the expected
expansion of its business beyond such period.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements" as that phrase is
defined in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. When used in this
report, the terms "anticipate," "believe," "estimate," "will," "could," "may"
and similar expressions, as they relate to management or the Company, are
intended to identify forward-looking statements. Such statements reflect the
current views of management with respect to future events and are subject to
certain risks, uncertainties and assumptions, including without limitation
the following as they relate to the Company: fluctuations in operating
results and seasonality; ability to introduce new products; technological
changes; reliance on intellectual property; capitalized litigation costs;
dependence on entertainment industry; competition; dependence on management;
foreign exchange risk; international trade risk; dependence on key suppliers
and dependence on manufacturing facility. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
12
<PAGE>
PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
SUMMARY OF SALES OF SECURITIES
The Company filed a Registration Statement (Commission file
no. 333-33559) for the public offering of 2,300,000 shares of
common stock, $0.10 par value with the Securities and Exchange
Commission, which became effective October 16, 1997. The managing
underwriters were A.G. Edwards & Sons, Inc. and EVEREN Securities,
Inc. The Company sold 2,000,000 shares of common stock for $12.00
per share for an aggregate amount of $24,000,000 on October 21,
1997. Certain stockholders of the Company sold 300,000 shares of
common stock for $12.00 per share for an aggregate amount of
$3,600,000 on November 19, 1997.
Expenses incurred for the Company's account in connection with
the issuance and distribution of the common stock registered were
as follows:
<TABLE>
<S> <C>
Underwriting discounts and commissions $1,680,000
Other Expenses ($288,000 accrued as of December 31, 1997) 1,013,000(1)
----------
Total $2,693,000
----------
----------
</TABLE>
(1) There were no direct or indirect payments to directors,
officers or persons owning ten percent or more of the
Company's securities, or their associates or affiliates.
However, out-of-pocket expenses (i.e., travel, lodging
and meals) incurred directly in connection with the
offering were reimbursed and are included in other
expenses.
The net offering proceeds to the Company were $21,307,000 all
of which was used to repay indebtedness under the Company's credit
facility in effect at the time of the offering. The offering has
terminated.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Computation of Earnings per Common Share for the
three months ended December 31, 1997
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed for the quarter ended
December 31, 1997.
13
<PAGE>
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.
VARI-LITE INTERNATIONAL, INC.
Date: February 11, 1998 By: /s/ MICHAEL P. HERMAN
------------------------------
Michael P. Herman
Vice President - Finance,
Chief Financial Officer
and Secretary
14
<PAGE>
EXHIBIT 11.1
VARI-LITE INTERNATIONAL, INC.
COMPUTATION OF INCOME PER COMMON SHARE
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
(In thousands except per share data)
<TABLE>
1996 1997
---------- ----------
<S> <C> <C>
Income before extraordinary loss . . . . . . . . . . . . $ 926 $ 1,258
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 926 $ 521
Weighted average shares outstanding. . . . . . . . . . . 5,822,676 7,452,177
Dilutive effect of stock warrants after application
of treasury stock method . . . . . . . . . . . . . . . 19,473 15,015
Shares used in calculating diluted income per share. . . 5,842,149 7,467,192
Basic income per share before extraordinary loss . . . . $ 0.16 $ 0.17
Diluted income per share before extraordinary loss . . . $ 0.16 $ 0.17
Basic income per share after extraordinary loss. . . . . $ 0.16 $ 0.07
Diluted income per share after extraordinary loss. . . . $ 0.16 $ 0.07
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND THE
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
OF VARI-LITE INTERNATIONAL, INC. AS SET FORTH IN THIS FORM 10-Q AND IS QUALIFIED
IN ITS ENTIRETRY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,262
<SECURITIES> 0
<RECEIVABLES> 15,512
<ALLOWANCES> (483)
<INVENTORY> 5,531
<CURRENT-ASSETS> 25,323
<PP&E> 127,886
<DEPRECIATION> (58,375)
<TOTAL-ASSETS> 100,094
<CURRENT-LIABILITIES> 16,230
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 49,492
<TOTAL-LIABILITY-AND-EQUITY> 100,094
<SALES> 3,349
<TOTAL-REVENUES> 22,519
<CGS> 2,314
<TOTAL-COSTS> 9,881
<OTHER-EXPENSES> 9,830
<LOSS-PROVISION> 483
<INTEREST-EXPENSE> 729
<INCOME-PRETAX> 2,079
<INCOME-TAX> 821
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 737
<CHANGES> 0
<NET-INCOME> 521
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
