<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 JUNE 30, 1998
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 July 31, 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 JUNE 30, 1998
<TABLE>
<CAPTION>
PART I. - FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1997 and June 30, 1998. . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the three months ended
June 30, 1997 and 1998. . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Income for the nine months ended
June 30, 1997 and 1998. . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for
the nine months ended June 30, 1997 and 1998. . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . . 14
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 16
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
2
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1998
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,862 $ 3,611
Receivables, less allowance for doubtful accounts of $450 and $583. . . . . . 14,445 15,028
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,050 6,708
Prepaid expense and other current assets . . . . . . . . . . . . . . . . . . . 2,536 2,602
---------- ----------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,893 27,949
EQUIPMENT AND OTHER PROPERTY:
Lighting and sound equipment . . . . . . . . . . . . . . . . . . . . . . . . . 102,487 119,501
Machinery and tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,929 4,584
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,945 4,280
Office and computer equipment. . . . . . . . . . . . . . . . . . . . . . . . . 9,189 10,650
Work in progress and raw materials inventory . . . . . . . . . . . . . . . . . 5,343 7,930
---------- ----------
123,893 146,945
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . 55,248 68,029
---------- ----------
68,645 78,916
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,166 7,538
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96,704 $ 114,403
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . $ 12,086 $ 11,037
Unearned revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,992 3,483
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 820 594
Current portion of long-term obligations. . . . . . . . . . . . . . . . . . . . 7,824 3,245
---------- ----------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . 23,722 18,359
LONG-TERM OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,418 41,019
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,023 6,685
---------- ----------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,163 66,063
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.10 par value (10,000,000 shares authorized; no shares
outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
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) (87)
Stock purchase warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . 600 600
Cumulative foreign currency translation adjustment . . . . . . . . . . . . . 361 (336)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,013 23,113
---------- ----------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . 27,541 48,340
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . $ 96,704 $ 114,403
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1998
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Rental revenues. . . . . . . . . . . . . . . . . . . . . . . $18,170 $19,047
Product sales and services revenues. . . . . . . . . . . . . 4,015 3,482
------- -------
TOTAL REVENUES. . . . . . . . . . . . . . . . . . . . . 22,185 22,529
Rental cost. . . . . . . . . . . . . . . . . . . . . . . . . 7,032 8,396
Product sales and services cost. . . . . . . . . . . . . . . 2,737 2,627
------- -------
TOTAL COST OF SALES . . . . . . . . . . . . . . . . . . 9,769 11,023
------- -------
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . 12,416 11,506
Selling, general and administrative expense. . . . . . . . . 7,653 9,164
Research and development expense . . . . . . . . . . . . . . 1,809 1,680
------- -------
TOTAL OPERATING EXPENSES. . . . . . . . . . . . . . . . 9,462 10,844
------- -------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . 2,954 662
Interest expense (net) . . . . . . . . . . . . . . . . . . . 928 661
------- -------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . 2,026 1
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 816 1
------- -------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,210 $ 0
------- -------
------- -------
WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . . . . . . . . . 5,785,039 7,800,003
--------- ---------
--------- ---------
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING. . . . . . . . . 5,804,512 7,800,003
--------- ---------
--------- ---------
PER SHARE INFORMATION
Net income:
BASIC . . . . . . . . . . . . . . . . . . . . . . . . . $0.21 $0.00
----- -----
----- -----
DILUTED . . . . . . . . . . . . . . . . . . . . . . . . $0.21 $0.00
----- -----
----- -----
Dividends declared . . . . . . . . . . . . . . . . . . . . . $0.0000 $0.0000
------- -------
------- -------
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1998
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Rental revenues. . . . . . . . . . . . . . . . . . . . . . . . . $ 56,207 $ 54,182
Product sales and services revenues. . . . . . . . . . . . . . . 10,688 10,093
-------- --------
TOTAL REVENUES . . . . . . . . . . . . . . . . . . . . . . . . 66,895 64,275
Rental cost. . . . . . . . . . . . . . . . . . . . . . . . . . . 22,115 23,431
Product sales and services cost. . . . . . . . . . . . . . . . . 7,410 7,297
-------- --------
TOTAL COST OF SALES. . . . . . . . . . . . . . . . . . . . . . 29,525 30,728
-------- --------
GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . 37,370 33,547
Selling, general and administrative expense. . . . . . . . . . . 24,855 25,062
Research and development expense . . . . . . . . . . . . . . . . 4,872 5,143
-------- --------
TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . . . . . . 29,727 30,205
-------- --------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . 7,643 3,342
Interest expense (net) . . . . . . . . . . . . . . . . . . . . . 2,694 1,958
-------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS. . . . . . . . 4,949 1,384
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 1,993 547
-------- --------
INCOME BEFORE EXTRAORDINARY LOSS . . . . . . . . . . . . . . . . 2,956 837
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . 0 737
-------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,956 $ 100
-------- --------
-------- --------
WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . . . . . . . . . . . 5,799,098 7,682,787
--------- ---------
--------- ---------
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING. . . . . . . . . . . 5,818,571 7,683,314
--------- ---------
--------- ---------
PER SHARE INFORMATION
Income before extraordinary loss:
BASIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.51 $0.11
----- -----
----- -----
DILUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.51 $0.11
----- -----
----- -----
Net income:
BASIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.51 $0.01
----- -----
----- -----
DILUTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.51 $0.01
----- -----
----- -----
Dividends declared . . . . . . . . . . . . . . . . . . . . . . $0.1000 $0.0000
------- -------
------- -------
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1998
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,956 $ 100
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 8,490 9,879
Amortization of note discount and deferred loan fees. . . . . . . . . . . . . . 265 67
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . 94 139
Extraordinary loss from early extinguishment of debt. . . . . . . . . . . . . . 0 737
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 864 106
(Gain) on sale of equipment and other property. . . . . . . . . . . . . . . . . (41) (29)
Cost of rental equipment rented under sales-type leases . . . . . . . . . . . . 1,515 269
Provisions for ESOP and ESEP contributions. . . . . . . . . . . . . . . . . . . 189 191
Net change in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,570) 802
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,200) (5)
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (601) (2,607)
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,325) (2,285)
Accounts payable, accrued liabilities and income taxes payable. . . . . . . . 1,045 (2,925)
Unearned revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,291 385
------- -------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . 11,972 4,824
Cash flows from investing activities:
Capital expenditures, including rental equipment . . . . . . . . . . . . . . . . . (20,518) (18,342)
Acquisition of European companies, net of cash acquired. . . . . . . . . . . . . . 0 (1,730)
Proceeds from sale of equipment. . . . . . . . . . . . . . . . . . . . . . . . . . 129 67
------- -------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . (20,389) (20,005)
Cash flows from financing activities:
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . . . 16,967 63,100
Principal payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,127) (65,738)
Proceeds from issuance of distributor advances . . . . . . . . . . . . . . . . . . 604 576
Principal payments on distributor advances . . . . . . . . . . . . . . . . . . . . (1,254) (1,448)
Proceeds from payments on stockholder notes receivable . . . . . . . . . . . . . . 166 89
Proceeds from public offering of common stock. . . . . . . . . . . . . . . . . . . 0 21,307
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . (158) 0
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (564) 0
------- -------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . 7,634 17,886
Effect on cash from foreign currency translation adjustment. . . . . . . . . . . . . (500) (956)
------- -------
Net increase (decrease) during the period. . . . . . . . . . . . . . . . . . . . . . (1,283) 1,749
Cash, beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,633 1,862
------- -------
Cash, end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,350 $3,611
------- -------
------- -------
Supplemental Cash Flow Information
Cash paid for interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . $2,956 $1,972
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,765 $1,383
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
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. and subsidiaries (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 for the periods indicated. The results
of operations for the three-month and nine-month periods ended June 30, 1998 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>
<CAPTION>
September 30, June 30,
1997 1998
---- ----
<S> <C> <C>
Raw materials. . . . . . . . . . . . . . . . $3,483 $6,052
Work in progress . . . . . . . . . . . . . . 350 414
Finished goods . . . . . . . . . . . . . . . 217 242
------ ------
$4,050 $6,708
------ ------
------ ------
</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.
7
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
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 amount of $24,000 and certain stockholders
of the Company sold 300,000 shares 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 certain 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 of $737 (net of tax benefit of $481)
relating to the early extinguishment of the prior debt facility, which have been
reflected in the consolidated statement of income for the quarter ended December
31, 1997 as an extraordinary loss.
5. Net Income Per Share
During 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share," which requires dual
presentation of basic and diluted earnings per share ("EPS") on the face of the
consolidated income statement and requires a reconciliation of the numerators
and denominators of the basic and diluted EPS calculations. Accordingly, all
EPS information for all periods presented have been restated to present basic
and diluted EPS under the provisions of SFAS No. 128. Under this standard,
basic EPS is calculated using weighted average shares outstanding, whereas
diluted EPS is calculated using weighted average shares outstanding including
potential common stock which includes dilutive stock options and warrants.
6. Acquisitions
In March, 1998, the Company acquired all of the outstanding stock of the
Brussels, Belgium-based lighting and sound equipment rental companies VLB, n.v.
and EML, n.v. (the Brussels companies) for total consideration of approximately
$3,100, including related acquisition and financing costs. The Company paid
approximately $1,700 in cash and assumed approximately $1,400 in liabilities.
The acquisition was funded primarily through additional borrowings under the New
Credit Facility. This acquisition was accounted for using the purchase
8
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
method of accounting, and accordingly, only the results of operations for the
acquired companies subsequent to the acquisition are included in the
consolidated financial statements of the Company. The preliminary
determination of the excess of the purchase price over the net assets
acquired of approximately $850 was recorded by the Company as goodwill.
9
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
REVENUES. Total revenues increased 1.6%, or $0.3 million, to $22.5 million
in the three-month period ended June 30, 1998, compared to $22.2 million in the
three-month period ended June 30, 1997. The revenue increase was attributable
primarily to the factors set forth below.
Rental revenues increased 4.8%, or $0.8 million, to $19.0 million in the
three-month period ended June 30, 1998, compared to $18.2 million in the
three-month period ended June 30, 1997. This increase was primarily due to a
strong performance in North America and Asia as well as the acquisition of
the Brussels companies which were acquired in March 1998. This increase was
substantially offset by a decrease in rental revenues from sales-type leases
which was $0.0 million for the three-month period ended June 30, 1998
compared to $2.4 million for the three-month period ended June 30, 1997.
Product sales and services revenues decreased 13.3%, or $0.5 million, to $3.5
million in the three-month period ended June 30, 1998, compared to $4.0 million
in the three-month period ended June 30, 1997. This decrease was primarily
due to a decrease in design and production management services which was
partially offset by an increase in the sale of Irideon-Registered Trademark-
automated lighting products.
RENTAL COSTS. Rental costs increased 19.4%, or $1.4 million, to $8.4 million
in the three-month period ended June 30, 1998, compared to $7.0 million in the
three-month period ended June 30, 1997. Rental costs as a percentage of rental
revenues increased to 44.1% in the three-month period ended June 30, 1998, from
38.7% in the three-month period ended June 30, 1997. The increase in rental
costs as a percentage of total rental revenues was primarily due to the
reduction in rental revenues from sales-type leases for which the associated
costs as a percent of related revenues is typically less than the costs as a
percentage of revenue from sources other than sales-type leases. In addition,
to a lesser extent, pricing pressures from competitors in the three-month period
ended June 30, 1998 created an environment in which increased costs associated
with renting more equipment were incurred without a corresponding increase in
revenue.
PRODUCT SALES AND SERVICES COSTS. Product sales and services costs decreased
4.0%, or $0.1 million, to $2.6 million in the three-month period ended June 30,
1998, compared to $2.7 million in the three-month period ended June 30, 1997.
Product sales and services costs as a percentage of product sales and services
revenue increased to 75.4% in the three-month period ended June 30, 1998, from
68.1% in the three-month period ended June 30, 1997. The increase in product
sales and services cost was primarily the result of higher costs associated with
the sales of
10
<PAGE>
Irideon-Registered Trademark- automated lighting products due to increased
warranty expense associated with a defect in the initial delivery of a new
product.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased 19.8%, or $1.5 million, to $9.2 million in
the three-month period ended June 30, 1998, compared to $7.7 million in the
three-month period ended June 30, 1997. This increase resulted primarily
from the inclusion of the Brussels companies which were acquired in March,
1998. This expense as a percentage of total revenues increased to 40.7% in
the three-month period ended June 30, 1998, from 34.5% in the three-month
period ended June 30, 1997.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
decreased 7.1%, or $0.1 million, to $1.7 million in the three-month period
ended June 30, 1998, compared to $1.8 million in the three-month period ended
June 30, 1997. This expense as a percentage of total revenues decreased to
7.5% in the three-month period ended June 30, 1998, from 8.2% in the
three-month period ended June 30, 1997.
INTEREST EXPENSE. Interest expense decreased 28.8%, or $0.2 million, to $0.7
million in the three-month period ended June 30, 1998, compared to $0.9 million
in the three-month period ended June 30, 1997. This decrease was primarily
attributable to the negotiation of a new credit facility in December 1997 with
lower interest rates.
NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO NINE MONTHS ENDED JUNE 30, 1997
REVENUES. Total revenues decreased 3.9%, or $2.6 million, to $64.3 million
in the nine-month period ended June 30, 1998, compared to $66.9 million in the
nine-month period ended June 30, 1997. The revenue decrease was attributable
primarily to the factors set forth below.
Rental revenues decreased 3.6%, or $2.0 million, to $54.2 million in the
nine-month period ended June 30, 1998, compared to $56.2 million in the
nine-month period ended June 30, 1997. This decrease was primarily due to a
lower volume of sales-type leases and a decrease in revenues in Asia due to
the economic situation in that region, partially offset by a strong
performance in North America and the acquisition of the Brussels companies.
Rental revenues from sales-type leases decreased 83.8%, or $5.0 million, to
$1.0 million for the nine-month period ended June 30, 1998 compared to $6.0
million for the nine-month period ended June 30, 1997.
Product sales and services revenues decreased 5.6%, or $0.6 million, to $10.1
million in the nine-month period ended June 30, 1998, compared to $10.7 million
in the nine-month period ended June 30, 1997. This decrease was primarily due
to lower revenues from the design and construction of custom stages and stage
sets which was partially offset by an increase in revenues from the design and
production management services.
RENTAL COSTS. Rental costs increased 6.0%, or $1.3 million, to $23.4 million
in the nine-month period ended June 30, 1998, compared to $22.1 million in the
nine-month period ended June 30, 1997. Rental costs as a percentage of rental
revenues increased to 43.2% in the nine-
11
<PAGE>
month period ended June 30, 1998, from 39.3% in the nine-month period ended
June 30, 1997. The increase in rental costs as a percentage of total rental
revenues was primarily due to the reduction in rental revenues from
sales-type leases for which the associated costs as a percent of related
revenues is typically less than the costs as a percentage of revenue from
sources other than sales-type leases. In addition, to a lesser extent,
pricing pressures from competitors in the nine-month period ended June 30,
1998 created an environment in which increased costs associated with renting
more equipment were incurred without a corresponding increase in revenue.
PRODUCT SALES AND SERVICES COSTS. Product sales and services costs decreased
1.5%, or $0.1 million, to $7.3 million in the nine-month period ended June 30,
1998, compared to $7.4 million in the nine-month period ended June 30, 1997.
Product sales and services costs as a percentage of product sales and services
revenues increased to 72.3% in the nine-month period ended June 30, 1998, from
69.3% in the nine-month period ended June 30, 1997. The increase in product
sales and services costs as a percentage of the related revenues was primarily
the result of higher costs associated with the sales of the Company's
Irideon-Registered Trademark- automated lighting products due to increased
warranty expense associated with a defect in the initial delivery of a new
product and higher than anticipated costs to design and construct custom stages
and stage sets for customers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased 0.8%, or $0.2 million, to $25.1 million in
the nine-month period ended June 30, 1998, compared to $24.9 million in the
nine-month period ended June 30, 1997. This increase resulted primarily from
the addition of the Brussels companies, which were acquired in March, 1998,
and was partially offset by lower professional services, payroll and related
costs and other discretionary expenses in the first half of the fiscal year.
This expense as a percentage of total revenues increased to 39.0% in the
nine-month period ended June 30, 1998, from 37.2% in the nine-month period
ended June 30, 1997.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased 5.6%, or $0.2 million, to $5.1 million in the nine-month period
ended June 30, 1998, compared to $4.9 million in the nine-month period ended
June 30, 1997. This expense as a percentage of total revenues increased to
8.0% in the nine-month period ended June 30, 1998, from 7.3% in the
nine-month period ended June 30, 1997. This increase was primarily the result
of an increase in the employee-related costs associated with adding engineers
for the further development of new products in fiscal year 1998.
INTEREST EXPENSE. Interest expense decreased 27.3%, or $0.7 million, to $2.0
million in the nine-month period ended June 30, 1998, compared to $2.7 million
in the nine-month period ended June 30, 1997. This decrease was attributable to
the reduction in indebtedness from the use of the proceeds from the initial
public offering in October 1997 to repay $21.3 million of indebtedness and the
subsequent negotiation of a new credit facility in December 1997 with lower
interest rates.
EXTRAORDINARY LOSS. A non-cash extraordinary loss of $0.7 million was
recorded in the nine-month period ended June 30, 1998, net of $0.4 million of
tax benefit, relating to the early extinguishment of debt under the Company's
old credit facility.
12
<PAGE>
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 $12.0 million and $4.8 million for the nine-month periods ended June 30,
1997 and 1998, respectively. This decrease resulted from a decrease in
earnings and an increase in working capital.
During the fiscal year ended September 30, 1997, the Company borrowed under
a multicurrency credit agreement (the "Old Credit Agreement") to partially
finance its operations and capital expenditures. On October 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 certain 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 commitment fee and margin above LIBOR at
June 30, 1998 was 0.25% and 1.5%, respectively. 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 June 30, 1998, $38.2
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 interest rate swap agreements which 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 nine-month periods ended June 30, 1997 and 1998 were
approximately $20.5 million and $18.3 million, respectively, of which
approximately $17.5 million and $15.4 million were for rental equipment
inventories. The majority of the Company's revenues are generated through the
13
<PAGE>
rental of automated and conventional lighting equipment 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 $1.3 million at June 30,
1997 and a working capital surplus of $9.6 million at June 30, 1998. 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 June 30, 1998 is
primarily due to higher inventory purchased to maintain rental inventory and
manufacture Irideon-Registered Trademark- products, a higher cash balance,
lower accounts payable and lower current portion of long-term debt as a
result of the New Credit Agreement.
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.
YEAR 2000
The Company uses software and related technologies throughout its
business that could be adversely impacted by the Year 2000 issue. The Year
2000 issue, which is common to most businesses, concerns the inability of
information systems, primarily computer software programs, to properly
recognize and process date sensitive information as the year 2000 approaches.
The computer systems used by the Company's US based operations are believed
to be Year 2000 compliant. The Company is in the process of implementing new
software in their European based operations, with the expectation that all of
such software will function properly beyond 1999. Management of the Company
believes that the future costs required to address the Year 2000 issue will
not significantly impact its financial condition nor adversely impact
business operations. In addition, the ability of third parties with whom the
Company transacts business to adequately address their Year 2000 issues is
outside of the Company's control. There can be no assurance that the failure
of such third parties to adequately address their respective Year 2000 issues
will not have a material adverse effect on the Company's business, financial
condition and results of operations.
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
14
<PAGE>
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.
15
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.34 Amendment No. 2, dated July 31, 1998 to the
Multicurrency Credit Agreement, dated as of December
19, 1997, among the Company and SunTrust Bank,
Atlanta, as agent for the other banks thereunder
11.1 Computation of Earnings per Common Share for the
three months ended June 30, 1997 and 1998
11.2 Computation of Earnings per Common Share for the
nine months ended June 30, 1997 and 1998
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed for the quarter ended June 30,
1998.
16
<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: August 7, 1998 By: /S/ MICHAEL P. HERMAN
---------------- -----------------------
Michael P. Herman
Vice President - Finance,
Chief Financial Officer
and Secretary
17
<PAGE>
AMENDMENT NO. 2 TO
CREDIT AGREEMENT
THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT (this "AMENDMENT") dated as of
July 31, 1998, by and among VARI-LITE INTERNATIONAL, INC., a Delaware
corporation (the "BORROWER"), SUNTRUST BANK, ATLANTA, BROWN BROTHERS HARRIMAN
& CO., CHASE BANK OF TEXAS, N.A. (FORMERLY KNOWN AS TEXAS COMMERCE BANK
NATIONAL ASSOCIATION), COMERICA BANK-TEXAS and THE FIRST NATIONAL BANK OF
CHICAGO (collectively, the "LENDERS"), SUNTRUST BANK, ATLANTA, as agent and
collateral agent for the Lenders (in such capacities, the "AGENT" and
"COLLATERAL AGENT", respectively), and BROWN BROTHERS HARRIMAN & CO, as
co-agent for the Lenders (in such capacity, the "CO-AGENT").
WITNESSETH:
WHEREAS, Borrower, the Lenders, the Agent, the Collateral Agent, and the
Co-Agent are parties to a certain Multicurrency Credit Agreement dated as of
December 19, 1997, as amended by a certain Amendment No. 1 to Credit Agreement
dated as of April 21, 1998 (as so amended, the "CREDIT AGREEMENT"; defined
terms used herein without definition shall have the meanings ascribed to such
terms in the Credit Agreement);
WHEREAS, Borrower has requested, and the Lenders have agreed, that the
Credit Agreement be amended to make certain modifications therein, all as more
specifically set forth below;
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of
the conditions precedent set forth in SECTION 2 hereof, and effective as of
the Effective Date (as hereinafter defined), the Credit Agreement is hereby
amended as follows:
1.1 Section 1.01 of the Credit Agreement is hereby amended by deleting
in their entirety the defined terms "PLEDGE AGREEMENTS", "PLEDGED STOCK", and
"SWING LINE LENDER" and their accompanying definitions, and substituting in
lieu thereof the following defined terms and accompanying definitions:
"PLEDGE AGREEMENTS" shall mean, collectively, (i) that certain
Pledge and Security Agreement from Borrower in favor of the Collateral
Agent in respect of shares of Vari-Lite
<PAGE>
Asia, Inc., (ii) that certain Deed of Pledge from Borrower in favor of
the Collateral Agent in respect of shares of Vari-Lite Europe Holdings
Limited, and (iii) each other pledge agreement, security agreement, deed
of charge, and similar instrument from Borrower or any of its
Subsidiaries in favor of the Collateral Agent delivered pursuant to the
requirements of Section 6.10 hereof, in each case as the same may be
amended, restated and supplemented from time to time.
"PLEDGED STOCK" shall mean, collectively, (i) not less than 65% of
all issued and outstanding capital stock, together with not less than 65%
of all warrants, stock options, and other purchase and conversion rights
in respect of such capital stock, of Vari-Lite Europe Holdings Limited
and Vari-Lite Asia, Inc., and (ii) not less than 65% of all issued and
outstanding capital stock or other equity or ownership interests,
together with not less than 65% of all warrants, options, and other
purchase and conversion rights in respect of such capital stock or other
equity or ownership interests, of each other Subsidiary of Borrower whose
capital stock or other equity or ownership interests are subject to a
Pledge Agreement.
"SWINE LINE LENDER" shall mean SunTrust Bank, Atlanta, or any
subsequent Lender extending to Borrower the Swing Line Commitment
hereunder.
1.2 Section 1.01 of the Credit Agreement is hereby amended by adding
the following defined terms and accompanying definitions in proper
alphabetical order:
"CONSOLIDATED TANGIBLE ASSETS" shall mean, at any time, the
aggregate amount of all assets (including, without limitation, the
capitalized value of any leasehold interest under any capital lease) of
the Consolidated Companies, determined at such time in accordance with
GAAP after eliminating inter-company transactions, except (i) deferred
assets and intangible assets, (ii) patents, copyrights, trademarks, trade
names, franchises, goodwill, organizational expense, experimental expense
and other similar intangible assets, (iii) Investments not permitted
under Section 7.04, and (iv) unamortized debt discount and expense.
"NON-MATERIAL FOREIGN SUBSIDIARIES" shall mean, as of any date,
those Foreign Subsidiaries that, in the aggregate, have neither (i)
contributed more than ten percent (10%) of the Consolidated EBITDA of the
Consolidated Companies for the period of four fiscal quarters most
recently ended as of such date, nor (ii) had more than ten percent (10%)
of the Consolidated Tangible Assets of the Consolidated Companies as of
such date.
1.3 Section 2.03 of the Credit Agreement is hereby amended
by deleting the second sentence of subsection (b) thereof, and substituting in
lieu thereof the following sentence:
The aggregate principal amount of each Swing Line Borrowing shall
not be less than $100,000 or a greater integral multiple of $1,000.
2
<PAGE>
1.4 Section 6.07 of the Credit Agreement is hereby amended by deleting
subsection (c) thereof and substituting in lieu thereof the following
subsection (c):
(c) NO DEFAULT/COMPLIANCE CERTIFICATE. Together with the financial
statements required pursuant to subsections (a) and (b) above, a
certificate of a member of Senior Management of Borrower (i) to the
effect that, based upon a review of the activities of the Consolidated
Companies and such financial statements during the period covered
thereby, there exists no Event of Default and no Default under this
Agreement, or if there exists an Event of Default or a Default hereunder,
specifying the nature thereof and the proposed response thereto, (ii)
demonstrating in reasonable detail compliance as at the end of such
fiscal year or such fiscal quarter with Section 6.08 and Sections 7.01
through 7.05, and (iii) listing (by jurisdiction of incorporation) (x)
the percentage of Consolidated EBITDA for the period of four fiscal
quarters then most recently ended, and (y) the percentage of Consolidated
Tangible Assets (as of the date of the balance sheet then being
delivered), in each case attributable to the Foreign Subsidiaries
incorporated under the laws of such jurisdiction;
1.5 Section 6.10 of the Credit Agreement is hereby amended by deleting
said Section 6.10 in its entirety and substituting in lieu thereof the
following Section 6.10:
SECTION 6.10. ADDITIONAL CREDIT PARTIES AND COLLATERAL.
(a) Not later than September 15, 1998, deliver to the Collateral
Agent, for the benefit of the Lenders, duly executed Pledge Agreements
with respect to the Pledged Stock, together with such certificates as may
evidence such Pledged Stock, with appropriate stock powers and
endorsements, together with such opinions, officer's certificates and
other evidence as to the enforceability and priority of the Liens granted
thereby as may be requested by the Agent, all in form and substance
satisfactory to the Agent.
(b) Promptly after (i) the formation or acquisition of any
Subsidiary of Borrower not listed on SCHEDULE 5.01, (ii) the
domestication of any Foreign Subsidiary of Borrower that is a Subsidiary,
or (iii) the occurrence of any other event creating a new Subsidiary of
Borrower, Borrower shall execute and deliver, and cause to be executed
and delivered the following documents, in each case in form and substance
satisfactory to the Agent: (x) a Guaranty Agreement from each such
Subsidiary that is not a Foreign Subsidiary, together with related
documents of the kind described in Section 4.01(d), (e), (f), (g), (h),
and (k), and (y) a Pledge Agreement with respect to not less than
sixty-five percent (65%) of the capital stock of one or more Foreign
Subsidiaries (as specified in the immediately following sentence) if such
Foreign Subsidiary or Foreign Subsidiaries are directly owned by Borrower
or a Subsidiary that is not, and is not directly or indirectly controlled
by, a Foreign Subsidiary, together with such certificates as may evidence
such Pledged Stock, with appropriate stock powers and endorsements and
such opinions, officer's certificates and other evidence as to the
enforceability and priority of the Liens granted thereby as may be
3
<PAGE>
requested by the Agent, PROVIDED, HOWEVER, that Borrower shall not be
required at such time to execute and deliver, or cause to be executed and
delivered, a Pledge Agreement with respect to any capital stock of a
Foreign Subsidiary that may be included as one of the Non-Material Foreign
Subsidiaries without causing the portion of the Consolidated EBITDA or
Consolidated Tangible Assets contributed or possessed by such
Non-Material Foreign Subsidiaries in the aggregate (on a pro forma basis)
to exceed the specified percentage of Consolidated EBITDA or Consolidated
Tangible Assets set forth in the definition of the term "Non-Material
Foreign Subsidiaries." In complying with the requirements set forth in
the immediately preceding sentence, (i) Borrower shall pledge capital
stock of that Foreign Subsidiary or those Foreign Subsidiaries that have
contributed or possessed, or would have contributed or possessed (on a
pro forma basis), the greatest portion of such Consolidated EBITDA or
Consolidated Tangible Assets for the most recently ended fiscal quarter
of Borrower, and (ii) all other Foreign Subsidiaries whose capital stock
shall not have been pledged pursuant to this Section 6.10 shall in the
aggregate qualify (on a pro forma basis) as Non-Material Foreign
Subsidiaries as defined herein.
(c) Promptly after delivery to the Lenders of a certificate
pursuant to Section 6.07(c) indicating that the portion of the
Consolidated EBITDA or the Consolidated Tangible Assets contributed or
possessed by all Foreign Subsidiaries whose capital stock is not then
subject to a Pledge Agreement, in the aggregate, exceeds the specified
percentage of Consolidated EBITDA or Consolidated Tangible Assets set
forth in the definition of the term "Non-Material Foreign Subsidiaries,"
Borrower shall execute and deliver, and cause to be executed and
delivered, a Pledge Agreement with respect to not less than sixty-five
percent (65%) of the capital stock of one or more Foreign Subsidiaries
(as specified in the immediately following sentence) if such Foreign
Subsidiary or Foreign Subsidiaries are directly owned by Borrower or a
Subsidiary that is not, and is not directly or indirectly controlled by,
a Foreign Subsidiary, in each case together with such certificates as may
evidence such Pledged Stock, with appropriate stock powers and
endorsements and such opinions, officer's certificates and other evidence
as to the enforceability and priority of the Liens granted thereby as may
be requested by the Agent, all in form and substance satisfactory to the
Agent. In complying with the requirements set forth in the immediately
preceding sentence, (i) Borrower shall pledge capital stock of that
Foreign Subsidiary or those Foreign Subsidiaries that have contributed or
possessed, or would have contributed or possessed (on a pro forma basis),
the greatest portion of such Consolidated EBITDA or Consolidated Tangible
Assets, and (ii) all other Foreign Subsidiaries whose capital stock have
not been pledged pursuant to this Section 6.10 shall in the aggregate
qualify (on a pro forma basis) as Non-Material Foreign Subsidiaries as
defined herein.
(d) Notwithstanding anything to the contrary set forth herein, for
purposes of Section 6.10(b) and (c) above, the terms "Consolidated
EBITDA" and "Consolidated Tangible Assets", when used with reference to
one or more Foreign Subsidiaries, shall be calculated and determined for
such Foreign Subsidiary or Foreign Subsidiaries and its or their
respective Subsidiaries on a consolidated basis for the period of four
fiscal quarters of
4
<PAGE>
Borrower then most recently ended (in the case of Consolidated EBITDA)
and as of the most recently ended fiscal quarter of Borrower (in the case
of Consolidated Tangible Assets), in each case in a manner similar to the
calculation and determination of such terms as provided herein with
respect to Borrower and the other Consolidated Companies.
SECTION 2. CONDITIONS OF EFFECTIVENESS. Except as provided in Section 7
hereof with respect to the amendment herein to Section 6.10 of the Credit
Agreement, this Amendment shall become effective as of the date first above
written (the "Effective Date") on the first day when the following conditions
have been satisfied:
(a) This Amendment shall have been executed and delivered by
Borrower, the Lenders, the Agent and the Co-Agent;
(b) A new Swing Line Note substantially in the form of EXHIBIT B
to the Credit Agreement shall have been executed and delivered by
Borrower to SunTrust Bank, Atlanta;
(c) Borrower shall have executed and delivered to the Agent a
certificate of Borrower, dated as of the date hereof, signed by the
Secretary or an Assistant Secretary of Borrower, certifying (i) as to the
names, true signatures and incumbency of the officer or officers of
Borrower authorized to execute and deliver this Amendment and the Swing
Line Note, and (ii) that Borrower's Certificate of Incorporation and
Bylaws attached to such certificate have not been amended or modified and
are in full force and effect as of the date hereof; and
(d) Borrower shall have paid all amounts outstanding under that
certain Swing Line Note, dated as of December 19, 1997, executed by
Borrower in favor of Chase Bank of Texas, N.A. (formerly Texas Commerce
Bank National Association).
SECTION 3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower, without
limiting the representations and warranties provided in the Credit Agreement,
represents and warrants to the Lenders and the Agents as follows:
3.1 The execution, delivery and performance by Borrower of this
Amendment and the Swing Line Note are within Borrower's corporate powers, have
been duly authorized by all necessary corporate action (including any
necessary shareholder action) and do not and will not (a) violate any
provision of any law, rule or regulation, any judgment, order or ruling of any
court or governmental agency, the articles of incorporation or by-laws of
Borrower or any indenture, agreement or other instrument to which Borrower is
a party or by which Borrower or any of its properties is bound or (b) be in
conflict with, result in a breach of, or constitute with notice or lapse of
time or both a default under any such indenture, agreement or other instrument.
3.2 Each of this Amendment and the Swing Line Note constitutes the
legal, valid and binding obligation of Borrower, enforceable against Borrower
in accordance with its terms.
5
<PAGE>
3.3 No Default or Event of Default has occurred and is continuing as of
the Effective Date.
SECTION 4. SURVIVAL. Each of the foregoing representations and warranties
and each of the representations and warranties made in the Credit Agreement
shall be made at and as of the Effective Date. Each of the foregoing
representations and warranties shall constitute a representation and warranty
of Borrower under the Credit Agreement, and it shall be an Event of Default if
any such representation and warranty shall prove to have been incorrect or
false in any material respect at the time when made. Each of the
representations and warranties made under the Credit Agreement (including
those made herein) shall survive and not be waived by the execution and
delivery of this Amendment or any investigation by the Lenders or the Agent or
the Collateral Agent.
SECTION 5. NO WAIVER ETC. Borrower hereby agrees that nothing herein
shall constitute a waiver by the Lenders of any Default or Event of Default,
whether known or unknown, which may exist under the Credit Agreement. Borrower
hereby further agrees that no action, inaction or agreement by the Lenders,
including without limitation, any indulgence, waiver, consent or agreement
altering the provisions of the Credit Agreement which may have occurred with
respect to the non-payment of any obligation during the terms of the Credit
Agreement or any portion thereof, or any other matter relating to the Credit
Agreement, shall require or imply any future indulgence, waiver, or agreement
by the Lenders. In addition, Borrower acknowledges and agrees that it has no
knowledge of any defenses, counterclaims, offsets or objections in its favor
against any Lender with regard to any of the obligations due under the terms
of the Credit Agreement as of the date of this Amendment.
SECTION 6. AFFIRMATION OF COVENANTS. Borrower hereby affirms and restates
as of the date hereof all covenants set forth in the Credit Agreement, as
amended hereby, and such covenants are incorporated by reference herein as if
set forth herein directly.
SECTION 7. RATIFICATION OF CREDIT AGREEMENT; EFFECTIVENESS OF AMENDMENT
TO SECTION 6.10.
(a) Except as expressly amended herein, all terms, covenants and
conditions of the Credit Agreement and the other Loan Documents shall
remain in full force and effect, and the parties hereto do expressly
ratify and confirm the Credit Agreement as amended herein. All future
references to the Credit Agreement shall be deemed to refer to the Credit
Agreement as amended hereby.
(b) The Lenders and Borrower agree that the amendment herein to
Section 6.10 of the Credit Agreement shall be deemed effective as of
April 15, 1998.
SECTION 8. BINDING NATURE. This Amendment shall be binding upon and inure
to the benefit of the parties hereto, their respective heirs, successors,
successors-in-titles, and assigns.
6
<PAGE>
SECTION 9. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand
all reasonable costs and expenses of the Agent and the Collateral Agent in
connection with the preparation, execution and delivery of this Amendment and
the other instruments and documents to be delivered hereunder, including,
without limitation, the reasonable fees and out-of-pocket expenses of counsel
for the Agent and the Collateral Agent with respect thereto and with respect
to advising the Agent and the Collateral Agent as to its rights and
responsibilities hereunder and thereunder. In addition, Borrower shall pay any
and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Amendment and the other
instruments and documents to be delivered hereunder, and agrees to save the
Agent, the Collateral Agent, the Co-Agent and each Lender harmless from and
against any and all liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes.
SECTION 10. GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of Georgia.
SECTION 11. ENTIRE UNDERSTANDING. This Amendment sets forth the entire
understanding of the parties with respect to the matters set forth herein, and
shall supersede any prior negotiations or agreements, whether written or oral,
with respect thereto.
SECTION 12. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts and may
be delivered by telecopier. Each counterpart so executed and delivered shall
be deemed an original and all of which taken together shall constitute but one
and the same instrument.
[Signatures Set Forth on Next Page]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
through their authorized officers as of the date first above written.
VARI-LITE INTERNATIONAL, INC.
By: /s/ Mike Herman
------------------------------------
Name: Mike Herman
Title: Vice-President - Finance, CFO
SUNTRUST BANK, ATLANTA,
INDIVIDUALLY AND AS AGENT AND
COLLATERAL AGENT
By: /s/ John A. Fields, Jr.
------------------------------------
Name: John A. Fields, Jr.
Title: Vice President
By: /s/ Steven J. Newby
------------------------------------
Name: Steven J. Newby
Title: Corporate Banking Officer
BROWN BROTHERS HARRIMAN & CO.,
INDIVIDUALLY AND AS CO-AGENT
By: /s/ Richard J. Ragoza
------------------------------------
Name: Richard J. Ragoza
Title: Senior Credit Officer
CHASE BANK OF TEXAS, N.A.
(FORMERLY TEXAS COMMERCE BANK
NATIONAL ASSOCIATION)
By: /s/ Bruce R. Bradford
------------------------------------
Name: Bruce R. Bradford
Title: Vice President
8
<PAGE>
COMERICA BANK-TEXAS
By: /s/ David Terry
---------------------------------
Name: David Terry
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Robert McMillan
---------------------------------
Name: Robert McMillan
Title: Corporate Banking Officer
9
<PAGE>
EXHIBIT 11.1
VARI-LITE INTERNATIONAL, INC.
COMPUTATION OF INCOME PER COMMON SHARE
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1998
(In thousands except share data)
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,210 $ 0
Weighted average shares outstanding . . . . . . . . . . . . . . . . 5,785,039 7,800,003
Dilutive effect of stock warrants after application of treasury stock
method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,473 0
Shares used in calculating diluted income per share . . . . . . . . 5,804,512 7,800,003
Basic net income per share. . . . . . . . . . . . . . . . . . . . . $0.21 $0.00
Diluted net income per share. . . . . . . . . . . . . . . . . . . . $0.21 $0.00
</TABLE>
<PAGE>
EXHIBIT 11.2
VARI-LITE INTERNATIONAL, INC.
COMPUTATION OF INCOME PER COMMON SHARE
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1998
(In thousands except share data)
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Income before extraordinary loss . . . . . . . . . . . . . . . . . . $2,956 $837
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,956 $100
Weighted average shares outstanding. . . . . . . . . . . . . . . . . 5,799,098 7,682,787
Dilutive effect of stock warrants after application of treasury stock
method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,473 527
Shares used in calculating diluted income per share. . . . . . . . . 5,818,571 7,683,314
Basic income per share before extraordinary loss . . . . . . . . . . $0.51 $0.11
Diluted income per share before extraordinary loss . . . . . . . . . $0.51 $0.11
Basic net income per share . . . . . . . . . . . . . . . . . . . . . $0.51 $0.01
Diluted net income per share . . . . . . . . . . . . . . . . . . . . $0.51 $0.01
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1998 AND THE CONSOLIDATED
STATEMENTS OF INCOME FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED JUNE 30,
1998 OF VARI-LITE INTERNATIONAL, INC. AS SET FORTH IN THIS FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1998
<PERIOD-START> APR-01-1998 OCT-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 3,611 3,611
<SECURITIES> 0 0
<RECEIVABLES> 15,611 15,611
<ALLOWANCES> (583) (583)
<INVENTORY> 6,708 6,708
<CURRENT-ASSETS> 27,949 27,949
<PP&E> 146,945 146,945
<DEPRECIATION> 68,029 68,029
<TOTAL-ASSETS> 114,403 114,403
<CURRENT-LIABILITIES> 18,359 18,359
<BONDS> 0 0
0 0
0 0
<COMMON> 785 785
<OTHER-SE> 47,555 47,555
<TOTAL-LIABILITY-AND-EQUITY> 114,403 114,403
<SALES> 3,482 10,093
<TOTAL-REVENUES> 22,529 64,275
<CGS> 2,627 7,297
<TOTAL-COSTS> 11,023 30,728
<OTHER-EXPENSES> 10,844 30,205
<LOSS-PROVISION> 81 139
<INTEREST-EXPENSE> 661 1,958
<INCOME-PRETAX> 1 1,384
<INCOME-TAX> 1 547
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 737
<CHANGES> 0 0
<NET-INCOME> 0 100
<EPS-PRIMARY> 0.00 0.01
<EPS-DILUTED> 0.00 0.01
</TABLE>
