<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, 1999
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 August 11, 1999,
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, 1999
<TABLE>
<CAPTION>
PART I. - FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
September 30, 1998 and June 30, 1999 .............................. 3
Condensed Consolidated Statements of Income for
the three months ended June 30, 1998 and 1999 ..................... 4
Condensed Consolidated Statements of Income for
the nine months ended June 30, 1998 and 1999 ...................... 5
Condensed Consolidated Statements of Cash Flows for
the nine months ended June 30, 1998 and 1999 ...................... 6
Notes to Condensed Consolidated Financial Statements .............. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 12
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings ................................................. 19
Item 3. Defaults Upon Senior Securities ................................... 19
Item 6. Exhibits and Reports on Form 8-K .................................. 20
SIGNATURES. ................................................................ 21
</TABLE>
2
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1999
------------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash ............................................................................... $ 3,838 $ 2,111
Receivables, less allowance for doubtful accounts of $900 and $735 ................. 13,471 11,683
Inventory .......................................................................... 6,075 6,035
Prepaid expense and other current assets ........................................... 1,749 2,347
--------- ---------
TOTAL CURRENT ASSETS ............................................................ 25,133 22,176
EQUIPMENT AND OTHER PROPERTY:
Lighting and sound equipment ....................................................... 127,763 133,085
Machinery and tools ................................................................ 5,097 5,963
Furniture and fixtures ............................................................. 4,439 4,985
Office and computer equipment ...................................................... 10,399 10,368
Work in progress and raw materials inventory ....................................... 5,320 4,897
--------- ---------
153,018 159,298
Less accumulated depreciation and amortization .................................. 71,745 80,348
--------- ---------
81,273 78,950
OTHER ASSETS .......................................................................... 8,221 8,536
--------- ---------
TOTAL ASSETS .................................................................... $ 114,627 $ 109,662
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses .............................................. $ 13,189 $ 11,167
Unearned revenue ................................................................... 1,694 1,650
Income taxes payable ............................................................... 999 191
Current portion of long-term obligations ........................................... 3,049 48,912
--------- ---------
TOTAL CURRENT LIABILITIES ....................................................... 18,931 61,920
LONG-TERM OBLIGATIONS ................................................................. 47,284 1,962
DEFERRED INCOME TAXES ................................................................. 3,708 2,564
--------- ---------
TOTAL LIABILITIES ............................................................... 69,923 66,446
COMMITMENTS AND CONTINGENCIES (Note 11)
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; 7,800,003 and
7,800,003 shares outstanding) ................................................... 785 785
Treasury Stock ..................................................................... (186) (186)
Additional paid-in capital ......................................................... 24,426 24,426
Stockholder notes receivable ....................................................... (82) (51)
Stock purchase warrants ............................................................ 600 600
Accumulated other comprehensive loss - foreign currency translation
adjustment .................................................................... (230) (482)
Retained earnings .................................................................. 19,391 18,124
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ...................................................... 44,704 43,216
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................................... $ 114,627 $ 109,662
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1999
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Rental revenues ........................................................... $ 19,047 $ 18,461
Product sales and services revenues........................................ 3,482 1,605
---------- ----------
TOTAL REVENUES.......................................................... 22,529 20,066
Rental costs .............................................................. 8,396 9,331
Product sales and services costs .......................................... 2,627 1,067
---------- ----------
TOTAL COST OF SALES .................................................... 11,023 10,398
---------- ----------
GROSS PROFIT ........................................................... 11,506 9,668
Selling, general and administrative expense ............................... 9,164 9,162
Research and development expense .......................................... 1,680 1,205
---------- ----------
TOTAL OPERATING EXPENSES ............................................... 10,844 10,367
---------- ----------
OPERATING INCOME (LOSS) ................................................... 662 (699)
Interest expense net ...................................................... 661 1,119
---------- ----------
INCOME (LOSS) BEFORE INCOME TAX ........................................... 1 (1,818)
Income tax expense (benefit) .............................................. 1 (718)
---------- ----------
NET INCOME (LOSS) ......................................................... 0 (1,100)
Other comprehensive loss - foreign currency translation adjustments ....... (839) (23)
---------- ----------
COMPREHENSIVE LOSS ........................................................ $ (839) $ (1,123)
========== ==========
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING ................................. 7,800,003 7,800,003
========== ==========
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING ............................... 7,800,003 7,800,003
========== ==========
PER SHARE INFORMATION
BASIC:
Net income (loss) ..................................................... $ 0.00 $ (0.14)
DILUTED:
Net income (loss) ..................................................... $ 0.00 $ (0.14)
Dividends declared ........................................................ $ - $ -
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Rental revenues ........................................................... $ 54,182 $ 61,976
Product sales and services revenues ....................................... 10,093 6,508
---------- ----------
TOTAL REVENUES ......................................................... 64,275 68,484
Rental costs .............................................................. 23,431 31,297
Product sales and services costs .......................................... 7,297 4,718
---------- ----------
TOTAL COST OF SALES .................................................... 30,728 36,015
---------- ----------
GROSS PROFIT ........................................................... 33,547 32,469
Selling, general and administrative expense ............................... 25,062 27,725
Research and development expense .......................................... 5,143 3,687
---------- ----------
TOTAL OPERATING EXPENSES ............................................... 30,205 31,412
---------- ----------
OPERATING INCOME .......................................................... 3,342 1,057
Interest expense net ...................................................... 1,958 3,151
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY LOSS AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ................................ 1,384 (2,094)
Income taxes expense (benefit) ............................................ 547 (827)
---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE ................................................. 837 (1,267)
Extraordinary loss ........................................................ 737 -
Cumulative effect of change in accounting principle ....................... 195 -
---------- ----------
NET LOSS .................................................................. (95) (1,267)
Other comprehensive loss - foreign currency translation adjustments ....... (697) (252)
---------- ----------
COMPREHENSIVE LOSS ........................................................ $ (792) $ (1,519)
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING ....................................... 7,682,787 7,800,003
========== ==========
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING ............................... 7,683,314 7,800,003
========== ==========
PER SHARE INFORMATION
BASIC:
Income (loss) before extraordinary loss and cumulative effect of change
in accounting principle ............................................... $ 0.11 $ (0.16)
Extraordinary loss ...................................................... (.10) -
Cumulative effect of change in accounting principle . ................... (.02) -
Net loss ................................................................ $ (0.01) $ (0.16)
DILUTED:
Income (loss) before extraordinary loss and cumulative effect of change
in accounting principle ............................................... $ 0.11 $ (0.16)
Extraordinary loss ...................................................... (.10) -
Cumulative effect of change in accounting principle . ................... (.02) -
Net loss ................................................................ $ (0.01) $ (0.16)
Dividends declared ........................................................ $ - $ -
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................................... $ (95) $ (1,267)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization.............................................. 9,879 11,577
Amortization of note discount and deferred loan fees....................... 67 95
Provision for doubtful accounts............................................ 139 92
Extraordinary loss from early extinguishment of debt....................... 737 -
Cumulative effect of change in accounting principle........................ 195 -
Deferred income taxes...................................................... 106 (1,144)
Gain on sale of Brilliant Stages assets and cancellation of land lease..... - (599)
Gain on sale of equipment.................................................. (29) (103)
Provisions for ESOP and ESEP contributions................................. 191 187
Net change in assets and liabilities:
Accounts receivable.................................................... 802 1,696
Prepaid expenses....................................................... (5) (598)
Inventory.............................................................. (2,607) (1,900)
Other assets........................................................... (2,285) 549
Accounts payable, accrued liabilities and income taxes payable......... (2,925) (3,017)
Unearned revenue....................................................... 385 (43)
-------- --------
Net cash provided by operating activities.............................. 4,555 5,525
Cash flows from investing activities:
Capital expenditures, including rental equipment............................... (18,073) (10,499)
Acquisition of European companies.............................................. (1,730) (1,192)
Proceeds from sale of Irideon and Brilliant Stages assets and
cancellation of land lease................................................... - 2,892
Proceeds from sale of equipment................................................ 67 275
-------- --------
Net cash used in investing activities.................................. (19,736) (8,524)
Cash flows from financing activities:
Proceeds from issuance of debt................................................. 63,100 24,041
Principal payments on debt..................................................... (65,738) (22,121)
Proceeds from issuance of distributor advances................................. 576 -
Principal payments on distributor advances..................................... (1,448) (552)
Proceeds from payments on stockholder notes receivable......................... 89 31
Proceeds from public offering of common stock.................................. 21,307 -
-------- --------
Net cash provided by financing activities.............................. 17,886 1,399
Effect from foreign currency translation adjustment.............................. (956) (127)
-------- --------
Net increase (decrease) during the period........................................ 1,749 (1,727)
Cash, beginning of period........................................................ 1,862 3,838
-------- --------
Cash, end of period.............................................................. $ 3,611 $ 2,111
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense................................................. $ 1,972 $ 3,192
Cash paid for income taxes..................................................... $ 1,383 $ 1,812
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
1. Interim Financial Information
The accompanying unaudited condensed 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 condensed 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-month and nine-month periods ended June 30, 1999 are not
necessarily indicative of the results of operations that may be expected for any
other interim periods or for the fiscal year ending September 30, 1999.
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, 1998.
2. Inventory
Inventory consists of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1998 1999
---- ----
<S> <C> <C>
Raw materials ................ $5,283 $5,527
Work in progress ............. 616 502
Finished goods ............... 176 6
------ ------
$6,075 $6,035
====== ======
</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.
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.
7
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
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. The initial $50,000 commitment on the
New Credit Facility, as amended, which decreased by $1,000 in the third
quarter of fiscal 1999, decreases by $1,000 during the fourth quarter of
fiscal 1999 and $1,500 per quarter thereafter through maturity. Borrowings
under the New Credit Facility were $46,700 at June 30, 1999 and bear interest
at the lender's base rate plus a rate margin ranging from 0.00% to 1.00% or
LIBOR plus a rate margin ranging from 1.00% to 3.50% based upon the Company's
ratio of Adjusted Funded Debt to EBITDA (as defined in the New Credit
Facility) and are secured by substantially all of the assets owned by the
Company's domestic subsidiaries and 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 0.50% 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 annual capital
expenditures and on the ability to incur additional indebtedness, make
certain loans or investments, sell assets, pay dividends or reacquire the
Company's stock. In December 1997, 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 statements of income as an extraordinary loss for the nine
months ended June 30, 1998.
On June 30, 1999, the Company was in default of certain financial
covenants contained in the New Credit Facility. The lenders under the New
Credit Facility have waived all of the financial covenant defaults from June
30, 1999 through August 20, 1999. The Company's management is currently
negotiating an amendment to the New Credit Facility with modified financial
covenants. The terms of the amendment, which have not been finalized, may
also include the payment of additional fees and/or expenses, increases in
interest rate margins, repricing and/or issuance of additional common stock
warrants and/or the modification of several other terms and conditions under
the New Credit Facility. There can be no assurance regarding the successful
completion of this amendment or whether the Company will be able to comply
with such amended covenants or other terms, therefore, the outstanding
balance under the New Credit Facility has been classified as current at June
30, 1999. If the Company is not successful in amending the New Credit
Facility, the lenders will be entitled to pursue all rights available under
the New Credit Facility.
8
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
5. Net Income Per Share
Basic earnings per share are computed based upon the weighted average
number of common shares outstanding. Diluted earnings per share reflects the
dilutive effect, if any, of stock options and warrants.
The following is a reconciliation of shares used in calculating diluted
income per share for the three-month and nine-month periods ended June 30, 1998
and 1999:
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
June 30, June 30,
------------------------ -------------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average shares outstanding .................. 7,800,003 7,800,003 7,682,787 7,800,003
Dilutive effect of stock options and warrants
after application of treasury stock method ........ - - 527 -
--------- --------- --------- ---------
Shares used in calculating diluted income per
share ............................................. 7,800,003 7,800,003 7,683,314 7,800,003
========= ========= ========= =========
</TABLE>
For the three-month and nine-month periods ended June 30, 1999,
earnings per share excludes 585,300 stock options and 242,233 warrants which are
anti-dilutive. For the three-month and nine-month periods ended June 30, 1998,
earnings per share excludes 514,335 and 41,665 stock options, respectively. In
addition, for the three-month period ended June 30, 1998, 242,233 warrants which
were anti-dilutive were excluded.
9
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
6. Accounting Standards Changes
In 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities", which requires that such costs be expensed as incurred. The
Company's practice has been to record the costs of bringing significant new
operations into operation as deferred charges and to amortize them over periods
of not more than five years. The Company early adopted the SOP retroactively as
of October 1, 1997, and restated 1998 first quarter results to record a pre-tax
charge of $282 ($195 after taxes, or $0.02 per basic and diluted share) as a
cumulative effect of this accounting change.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", will be effective in 1999 and requires the disclosure of certain
information about the Company's operating segments on a basis consistent with
the way the Company is organized and operated. This standard expands or modifies
disclosures and, accordingly, will have no effect on the Company's consolidated
financial position, results of operations or cash flows.
In 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. This standard, which establishes new
accounting and reporting standards for derivative financial instruments, must
be adopted no later than the first quarter of the Company's fiscal year 2000.
The Company is currently analyzing the effect of this standard and does not
expect it to have a material effect on the Company's consolidated financial
position, results of operations or cash flows.
7. Acquisitions
In October 1998, the Company acquired the VARI*LITE-Registered
Trademark- distribution rights and related assets of its French distributor for
approximately $1,200 in cash, virtually all of which has been recorded as
goodwill.
8. Dispositions
During fiscal 1998, the Company made a strategic decision to dispose of
its Irideon-Registered Trademark- architectural automated lighting product line.
As a result of this decision, during 1998 the Irideon-Registered Trademark-
assets were written down to their net realizable value in accordance with SFAS
No. 121. On October 30, 1998, the Company sold substantially all of the
Irideon-Registered Trademark- assets for its net book value, after writedown, of
approximately $2,000.
On December 31, 1998, the Company sold substantially all of the assets
of Brilliant Stages, Ltd., one of the Company's European subsidiaries, for
approximately $500, resulting in a gain of approximately $99.
9. Lease Cancellation
In December 1995, the Company entered into an operating lease with an
unaffiliated land developer ("Lessor"). In December 1998, the lease was canceled
as a result of the sale of the land by the Lessor, resulting in a gain to the
Company of approximately $500.
10
<PAGE>
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
10. Legal Proceedings
In August 1995, the Company brought suit asserting a number of claims
of infringement of several of its patents by High End Systems, Inc. ("High End")
in the United States District Court for the Northern District of Texas seeking
monetary damages and injunctive relief to prevent future patent infringement. In
December 1998, the court approved a negotiated settlement between the Company
and High End, the specific terms of which are confidential but included cash
paid and to be paid to the Company, a cross license of certain patents and
authorization for High End to continue to sell all of the products that were the
subject of the suit. The settlement, recorded in December 1998, does not affect
the sale or use of any of the Company's or High End's products or services that
existed at the time of settlement.
In November 1998, the Company brought suit asserting several claims of
patent infringement by Martin Gruppen A/S and Martin Professional A/S
(collectively, "Martin") in the United States District Court for the Eastern
District of Texas seeking monetary damages and injunctive relief to prevent
future infringement. On July 26, 1999, the court entered a preliminary
injunction which prohibits Martin from making, using, selling, leasing or
offering for sale or lease in the United States, or importing into the United
States, certain Martin products. Martin has appealed this injunction to the
United States Court of Appeals for the Federal Circuit and has requested a stay
of the injunction pending appeal.
11. Commitments and Contingencies
In the ordinary course of its business, the Company is from time to
time threatened with or named as a defendant in various lawsuits, including
patent infringement claims. Additionally, the Company has filed lawsuits
claiming patent infringement by third parties in connection with which the
Company has been subject to counterclaims. Management does not believe that
these lawsuits will have a significant impact on the Company's financial
position or results of operations.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
REVENUES. Total revenues decreased 11.0%, or $2.4 million, to $20.1
million in the three-month period ended June 30, 1999, compared to $22.5 million
in the three-month period ended June 30, 1998. The revenue decrease was
attributable primarily to the factors set forth below.
Rental revenues decreased 3.1%, or $0.5 million, to $18.5 million in the
three-month period ended June 30, 1999, compared to $19.0 million in the
three-month period ended June 30, 1998. This decrease was primarily due to
pricing pressures from competitors.
Product sales and services revenues decreased 53.9%, or $1.9 million,
to $1.6 million in the three-month period ended June 30, 1999, compared to
$3.5 million in the three-month period ended June 30, 1998. This decrease was
primarily due to the sale of the Company's Irideon-Registered
Trademark- product line in October 1998 and substantially all of the assets of
the Company's Brilliant Stages, Ltd. subsidiary ("Brilliant Stages") in
December 1998.
RENTAL COSTS. Rental costs increased 11.1%, or $0.9 million, to $9.3
million in the three-month period ended June 30, 1999, compared to $8.4 million
in the three-month period ended June 30, 1998. Rental costs as a percentage of
rental revenues increased to 50.5% in the three-month period ended June 30,
1999, from 44.1% in the three-month period ended June 30, 1998. The increase in
rental costs as a percentage of total rental revenues was primarily due to
increased costs associated with the higher level of conventional equipment
rentals, pricing pressures from competitors which resulted in increased costs
associated with renting more equipment without a corresponding increase in
revenue and the inclusion in rental costs of all of the costs of the operations
of the European distributors that were acquired in fiscal 1998. Prior to
acquiring each distributor, the Company's rental costs associated with
distributor rental revenues were almost exclusively the depreciation on the
equipment assigned to the distributor. After acquiring the distributor, the
Company's results reflect all of the additional rental costs incurred from
operating the business previously operated by the distributor.
PRODUCT SALES AND SERVICES COSTS. Product sales and services costs
decreased 59.4%, or $1.6 million, to $1.1 million in the three-month period
ended June 30, 1999, compared to $2.6 million in the three-month period ended
June 30, 1998. Product sales and services costs as a percentage of product sales
and services revenue decreased to 66.5% in the three-month period ended June 30,
1999, from 75.4% in the three-month period ended June 30, 1998. The decrease in
product sales and services costs as a percentage of the related revenues was
primarily due to the disposition in the first quarter of fiscal 1999 of the
Brilliant Stages and Irideon-Registered Trademark- operations which had higher
costs as a percentage of related revenue than the balance of the product sales
and service operations.
12
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense in the three-month period ended June 30, 1999 was
approximately the same as in the three-month period ended June 30, 1998.
However, this expense as a percentage of total revenues increased to 45.7% in
the three-month period ended June 30, 1999, from 40.7% in the three-month period
ended June 30, 1998 as a result of decreased revenues.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
decreased 28.3%, or $0.5 million, to $1.2 million in the three-month period
ended June 30, 1999, compared to $1.7 million in the three-month period ended
June 30, 1998. This expense as a percentage of total revenues decreased to 6.0%
in the three-month period ended June 30, 1999, from 7.5% in the three-month
period ended June 30, 1998. This decrease was primarily the result of a decrease
in employee-related costs as a result of employee terminations from the
restructuring of the Company in fiscal 1998.
INTEREST EXPENSE. Interest expense increased 69.3%, or $0.5 million, to
$1.1 million in the three-month period ended June 30, 1999, compared to $0.7
million in the three-month period ended June 30, 1998. This increase was due to
higher interest rates and a higher debt level in the period ended June 30, 1999.
INCOME TAXES. The effective tax rate in the three-month periods ended June
30, 1999 and 1998 was 39.5%.
NINE MONTHS ENDED JUNE 30, 1999 COMPARED TO NINE MONTHS ENDED JUNE 30, 1998
REVENUES. Total revenues increased 6.6%, or $4.2 million, to $68.5 million
in the nine-month period ended June 30, 1999, compared to $64.3 million in the
nine-month period ended June 30, 1998. The revenue increase was attributable
primarily to the factors set forth below.
Rental revenues increased 14.4%, or $7.8 million, to $62.0 million in the
nine-month period ended June 30, 1999, compared to $54.2 million in the
nine-month period ended June 30, 1998. This increase was primarily due to the
acquisition of several of the Company's European distributors in fiscal 1998.
Prior to acquiring each distributor, the Company received and recognized
approximately one-half of the rental revenue earned by the distributor in
accordance with the terms of the distributor agreement. After acquiring each
distributor, the Company's results reflect all of the revenues the distributor
would have earned. In addition, the Company's sales-type lease revenues
increased as a result of the conversion of several North American dealers from a
monthly rental arrangement to a fully paid long-term lease program. Sales-type
lease revenues increased by $2.1 million to $3.1 million in the nine-month
period ended June 30, 1999, compared to $1.0 million in the nine-month period
ended June 30, 1998. Finally, additional revenue increases resulted from the
opening of two new offices in fiscal 1998.
Product sales and services revenues decreased 35.5%, or $3.6 million, to
$6.5 million in the nine-month period ended June 30, 1999, compared to $10.1
million in the nine-month period ended June 30, 1998. This decrease was
primarily due to the sale of the Company's Irideon-Registered Trademark-
product line in October 1998 and substantially all of the
assets of Brilliant Stages in December 1998.
13
<PAGE>
RENTAL COSTS. Rental costs increased 33.6%, or $7.9 million, to $31.3
million in the nine-month period ended June 30, 1999, compared to $23.4 million
in the nine-month period ended June 30, 1998. Rental costs as a percentage of
rental revenues increased to 50.5% in the nine-month period ended June 30, 1999,
from 43.2% in the nine-month period ended June 30, 1998. The increase in rental
costs as a percentage of total rental revenues was primarily due to increased
costs associated with the higher level of conventional equipment rentals,
pricing pressures from competitors which resulted in increased costs associated
with renting more equipment without a corresponding increase in revenue and the
inclusion of all of the costs of the European distributors that were acquired in
fiscal 1998. Prior to acquiring each distributor, the Company's rental costs
associated with distributor rental revenues were almost exclusively the
depreciation on the equipment assigned to the distributor. After acquiring the
distributor, the Company's results reflect all of the additional rental costs
incurred from operating the business previously operated by the distributor.
PRODUCT SALES AND SERVICES COSTS. Product sales and services costs
decreased 35.3%, or $2.6 million, to $4.7 million in the nine-month period ended
June 30, 1999, compared to $7.3 million in the nine-month period ended June 30,
1998. Product sales and services costs as a percentage of product sales and
services revenue in the nine-month period ended June 30, 1999 was unchanged from
the nine-month period ended June 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased 10.6%, or $2.6 million, to $27.7 million in the
nine-month period ended June 30, 1999, compared to $25.1 million in the
nine-month period ended June 30, 1998. This increase resulted primarily from the
acquisition of certain of the Company's European distributors in fiscal 1998,
partially offset by a $0.5 million gain from a lease cancellation in December
1998 and the sale of the Irideon-Registered Trademark- product line and the
Brilliant Stages assets in the first quarter of fiscal 1999. This expense as a
percentage of total revenues increased to 40.5% in the nine-month period ended
June 30, 1999, from 39.0% in the nine-month period ended June 30, 1998.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
decreased 28.3%, or $1.4 million, to $3.7 million in the nine-month period ended
June 30, 1999, compared to $5.1 million in the nine-month period ended June 30,
1998. This expense as a percentage of total revenues decreased to 5.4% in the
nine-month period ended June 30, 1999, from 8.0% in the nine-month period ended
June 30, 1998. This decrease was primarily the result of a decrease in
employee-related costs as a result of employee terminations from the
restructuring of the Company in fiscal 1998.
INTEREST EXPENSE. Interest expense increased 60.9%, or $1.2 million, to
$3.2 million in the nine-month period ended June 30, 1999, compared to $2.0
million in the nine-month period ended June 30, 1998. This increase was due to
higher interest rates and a higher debt level in the period ended June 30, 1999.
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.
14
<PAGE>
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. During the nine-month
period ended June 30, 1998, the Company recorded a cumulative effect of change
in accounting principle loss of $0.2 million, net of $0.1 million of tax
benefit, relating to start-up costs that had previously been capitalized.
INCOME TAXES. The effective tax rate in the nine-month periods ended June
30, 1999 and 1998 was 39.5%.
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 $4.6 million and $5.5 million for the nine-month periods ended June 30,
1998 and 1999, 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 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. On December 19, 1997, the Company entered into a five-year $50.0
million multicurrency revolving credit facility (the "New Credit Facility") and
canceled its existing credit facility. The initial $50.0 million commitment on
the New Credit Facility, as amended, which decreased by $1.0 million in the
third quarter of fiscal 1999, decreases by $1.0 million during the fourth
quarter of fiscal 1999 and $1.5 million per quarter thereafter through maturity.
Borrowings under the New Credit Facility were $46.7 million at June 30, 1999 and
bear interest at the lender's base rate plus a rate margin ranging from 0.00% to
1.00% or LIBOR plus a rate margin ranging from 1.00% to 3.50% based upon the
Company's ratio of Adjusted Funded Debt to EBITDA (as defined in the New Credit
Facility) and are secured by substantially all of the assets owned by the
Company's domestic subsidiaries and 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 0.50% 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 annual capital expenditures and on the ability to
incur additional indebtedness, make certain loans or investments, sell assets,
pay dividends or reacquire the Company's stock. In December 1997, the Company
expensed deferred financing costs related to the prior debt facility of $0.7
million (net of tax benefit of $0.4 million) relating to the early
extinguishment of debt, which have been reflected in the consolidated statements
of income as an extraordinary loss.
15
<PAGE>
On June 30, 1999, the Company was in default of certain financial
covenants contained in the New Credit Facility. The lenders under the New
Credit Facility have waived all of the financial covenant defaults from June
30, 1999 through August 20, 1999. The Company's management is currently
negotiating an amendment to the New Credit Facility with modified financial
covenants. The terms of the amendment, which have not been finalized, may
also include the payment of additional fees and/or expenses, increases in
interest rate margins, repricing and/or issuance of additional common stock
warrants and/or the modification of several other terms and conditions under
the New Credit Facility. There can be no assurance regarding the successful
completion of this amendment or whether the Company will be able to comply
with such amended covenants or other terms, therefore, the outstanding
balance under the New Credit Facility has been classified as current at June
30, 1999. If the Company is not successful in amending the New Credit
Facility, the lenders will be entitled to pursue all rights available under
the New Credit Facility.
The Company has hedged a portion of its currency fluctuation risk by
borrowing in French francs, British pounds sterling and Japanese yen under its
New Credit Facility. Cash generated from the Company's France, England and Japan
offices is typically denominated in French francs, 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's business requires significant capital expenditures.
Capital expenditures for the nine months ended June 30, 1998 and 1999 were
approximately $18.1 million and $10.5 million, respectively, of which
approximately $17.1 million and $9.9 million were for rental equipment
inventories. 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 surplus of $9.6 million and a working
capital deficit of $39.7 million at June 30, 1998 and 1999, respectively.
16
<PAGE>
The Company's ability to fund its anticipated operating needs and
capital expenditures for at least the next twelve months is subject to the
amount of cash flow generated from operations and the Company's ability to
negotiate adequate borrowing capacity under an amendment to the New Credit
Facility and to access additional cash through other financing sources or
asset sales. 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. While the Company's management believes that they will negotiate an
amendment to the New Credit Facility and obtain additional cash through other
financing sources, there can be no assurance that sufficient capital resources
will be available to fund the Company's business during or after the next
twelve months.
IMPACT OF THE YEAR 2000 ISSUE
The term "year 2000 issue" is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only 2
digits to identify the year in a date, often meaning that the computer will fail
to distinguish dates in the "2000's" from dates in the "1900's". These problems
may also arise from other sources as well, such as the use of special codes and
conventions in software that make use of the date field.
In 1995 and 1996, the Company invested approximately $2.2 million
constructing a wide-area network throughout the United States and implementing
Oracle financial and manufacturing applications. The Company has conducted a
review of its computer systems to identify the systems that could be affected by
the year 2000 issue and is attempting to ensure that its information systems and
technology and computer systems are year 2000 ready. This review is part of the
Company's overall upgrade of its systems and as a result the Company has no
separate budget for year 2000 compliance. Expenses relating to reviewing and
assessing systems are included in historical operating expenses as part of
information systems and technology and
17
<PAGE>
have not been separately identified. The Company's upgrades are substantially
complete and management expects the upgrade to the European-based operations
to be completed before the end of 1999 calendar year. Management believes
that with the installation of the new systems, conversion to new software and
modifications to existing software, the year 2000 issue will pose no
significant operational problems for the Company.
The Company is currently discussing with its vendors and customers the
possibility of any year 2000 interface difficulties that may affect the Company.
The ability of third parties with whom the Company transacts business to
adequately address their year 2000 issue is, however, outside the Company's
control.
To date, the Company has not identified any information technology
assets under the control of the Company that represent a material risk of not
being year 2000 ready or for which a suitable alternative cannot be implemented.
The Company does not have a contingency plan with respect to the year 2000 issue
if the information systems and technology upgrade is not completed or is delayed
beyond the end of 1999.
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," "expect," "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; dependence on
entertainment industry; competition; dependence on management; foreign exchange
risk; international trade risk; dependence on key suppliers and dependence on
manufacturing facility; and the year 2000 issue. 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.
18
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In August 1995, the Company brought suit asserting a number of claims
of infringement of several of its patents by High End Systems, Inc. ("High End")
in the United States District Court for the Northern District of Texas seeking
monetary damages and injunctive relief to prevent future patent infringement. In
December 1998, the court approved a negotiated settlement between the Company
and High End, the specific terms of which are confidential but included cash
paid and to be paid to the Company, a cross license of certain patents and
authorization for High End to continue to sell all of the products that were the
subject of the suit. The settlement, recorded in December 1998, does not affect
the sale or use of any of the Company's or High End's products or services that
existed at the time of settlement.
In November 1998, the Company brought suit asserting several claims of
patent infringement by Martin Gruppen A/S and Martin Professional A/S
(collectively, "Martin") in the United States District Court for the Eastern
District of Texas seeking monetary damages and injunctive relief to prevent
future infringement. On July 26, 1999, the court entered a preliminary
injunction which prohibits Martin from making, using, selling, leasing or
offering for sale or lease in the United States, or importing into the United
States, certain Martin products. Martin has appealed this injunction to the
United States Court of Appeals for the Federal Circuit and has requested a stay
of the injunction pending appeal.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On June 30, 1999, the Company was in default of certain financial
covenants contained in the New Credit Facility. The lenders under the New
Credit Facility have waived all of the financial covenant defaults from June
30, 1999 through August 20, 1999. The Company's management is currently
negotiating an amendment to the New Credit Facility with modified financial
covenants. The terms of the amendment, which have not been finalized, may
also include the payment of additional fees and/or expenses, increases in
interest rate margins, repricing and/or issuance of additional common stock
warrants and/or the modification of several other terms and conditions under
the New Credit Facility. There can be no assurance regarding the successful
completion of this amendment or whether the Company will be able to comply
with such amended covenants or other terms, therefore, the outstanding
balance under the New Credit Facility has been classified as current at June
30, 1999. If the Company is not successful in amending the New Credit
Facility, the lenders will be entitled to pursue all rights available under
the New Credit Facility.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.43 Temporary Waiver Agreement, dated August 12, 1999,
to the Multicurrency Credit Agreement, dated as of
December 19, 1997, as amended, among the Company
and SunTrust Bank, Atlanta, as agent for the banks
thereunder
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed for the quarter ended June 30,
1999.
20
<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 11, 1999 By: /s/ MICHAEL P. HERMAN
---------------- -----------------------------------
Michael P. Herman
Vice President - Finance,
Chief Financial Officer
and Secretary (Principal Financial
and Accounting Officer)
21
<PAGE>
TEMPORARY WAIVER AGREEMENT
THIS TEMPORARY WAIVER AGREEMENT (this "TEMPORARY WAIVER")
effective as of August 12, 1999, 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").
W I T N E S S E T H:
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, by a certain Amendment No. 2 to
Credit Agreement dated as of July 31, 1998, by a certain Amendment No. 3 to
Credit Agreement dated as of September 30, 1998, and by a certain Amendment
No. 4 to Credit Agreement dated as of April 1, 1999 (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 that the Lenders agree to waive a
certain Event of Default, and the Lenders are willing to do so, subject to
the limitations set forth herein;
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. TEMPORARY WAIVER. The Lenders signing below hereby
agree to waive, for the period from June 30, 1999 to August 20, 1999, any
Event of Default that occurred as a result of Borrower's failure to be in
compliance with the financial covenant requirements set forth in SECTION 6.08
of the Credit Agreement as of June 30, 1999; PROVIDED, HOWEVER, that the
foregoing waiver shall be limited in all respects solely to such period of
time, and the requirements to maintain the financial covenant requirements
set forth in Section 6.08 of the Credit Agreement as of June 30, 1999 shall
be and remain in full force and effect upon the expiration of the foregoing
waiver.
SECTION 2. CONDITIONS OF EFFECTIVENESS. This Agreement shall
become effective as of the date first above written (the "EFFECTIVE DATE")
when this Agreement shall have been executed and delivered by the Borrower
and Lenders constituting the Required Lenders as provided in the Credit
Agreement.
<PAGE>
SECTION 3. STATUS OF OBLIGATIONS. Borrower hereby confirms and
agrees that all Loans and all other Obligations outstanding under the Credit
Agreement and the other Credit Documents as of the date hereof were duly and
validly created and incurred by Borrower hereunder, that all such outstanding
amounts are owed in accordance with the terms of the Credit Agreement and
other Credit Documents, and that there are no rights of offset, defense,
counterclaim, claim or objection in favor of Borrower arising out of or with
respect to any of the Loans or other Obligations of Borrower to the Agents or
the Lenders, and any such rights of offset, defense, counterclaim, claims or
objections have been and are hereby waived and released by Borrower.
SECTION 4. RATIFICATION OF CREDIT AGREEMENT. Except as expressly
amended herein, all terms, covenants and conditions of the Credit Agreement
and the other Credit 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.
SECTION 5. BINDING NATURE. This Temporary Waiver shall be
binding upon and inure to the benefit of the parties hereto, their respective
successors, successors-in-titles, and assigns.
SECTION 6. COSTS AND EXPENSES. Borrower shall be responsible
for the costs and expenses of the Agents in connection with the preparation,
execution and delivery of this Temporary Waiver and the other instruments and
documents to be delivered hereunder, including, without limitation, the fees
and out-of-pocket expenses of counsel for the Agents with respect thereto.
SECTION 7. GOVERNING LAW. THIS TEMPORARY WAIVER SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
SECTION 8. ENTIRE UNDERSTANDING. This Temporary Waiver 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 9. COUNTERPARTS. This Temporary Waiver may be executed in
any number of counterparts and by the 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.
SECTION 10. RELEASE. In consideration of the temporary waiver
granted by the Lenders pursuant to Section 1 above, Borrower hereby (a)
releases, acquits and forever discharges each Agent, the Co-Agent, each
Lender, and each of their respective agents, employees, officers, directors,
servants, representatives, attorneys, affiliates, successors and assigns
(collectively, the "Released Parties") from any and all liabilities, claims,
suits, debts, liens, losses, causes of action, demands, rights, damages,
costs and expenses of any kind, character or nature whatsoever, known or
unknown, fixed or contingent, that Borrower may have
2
<PAGE>
or claim to have against such Lender which might arise out of or be connected
with any act of commission or omission of such Lender existing or occurring
on or prior to the date of this Temporary Waiver, including, without
limitation, any claims, liabilities or obligations relating to or arising out
of or in connection with the Credit Agreement, any other Credit Documents or
this Temporary Waiver (including, without limitation, arising out of or in
connection with the initiation, negotiation, closing or administration of the
transactions contemplated thereby or related thereto), from the beginning of
time until the execution and delivery of this release and the effectiveness
of this Temporary Waiver (the "Released Claims") and (b) agree forever to
refrain from commencing, instituting or prosecuting any lawsuit, action or
other proceeding against the Released Parties with respect to any and all
Released Claims.
SECTION 11. INDEMNITY. In consideration of the temporary waiver
granted by the Lenders pursuant to Section 1 above, Borrower hereby indemnify
each Agent, the Co-Agent and each Lender, and their respective officers,
partners, directors, employees, representatives and agents from, and hold
each of them harmless against, any and all costs, losses, liabilities,
claims, damages or expenses incurred by any of them (whether or not any of
them is designated a party thereto) (an "Indemnitee") arising out of or by
reason of any investigation, litigation or other proceeding related to this
Temporary Waiver, the Credit Agreement or any other Credit Documents or any
actual or proposed use of the proceeds of any of the Loans, including,
without limitation, the reasonable fees and disbursements of counsel
(including foreign counsel) incurred in connection with any such
investigation, litigation or other proceeding; PROVIDED, HOWEVER, Borrower
shall not be obligated to indemnify any Indemnitee for any of the foregoing
arising out of such Indemnitee's gross negligence or willful misconduct.
SECTION 12. NO WAIVER, ETC. The Borrower hereby agrees that,
except as otherwise expressly provided in Section 1 hereof, 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. The
Borrowers hereby further agree 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 under 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.
[Signatures Set Forth on Next Page]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Temporary
Waiver through their authorized officers as of the date first above written.
VARI-LITE INTERNATIONAL, INC.
By:
---------------------------------------------
Name:
Title:
SUNTRUST BANK, ATLANTA,
INDIVIDUALLY AND AS AGENT AND COLLATERAL
AGENT
By:
---------------------------------------------
Name:
Title:
PER PRO BROWN BROTHERS HARRIMAN &
CO., INDIVIDUALLY AND AS CO-AGENT
By:
---------------------------------------------
Name:
Title:
CHASE BANK OF TEXAS, N.A.
(FORMERLY TEXAS COMMERCE BANK NATIONAL
ASSOCIATION)
By:
---------------------------------------------
Name:
Title:
4
<PAGE>
COMERICA BANK-TEXAS
By:
---------------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By:
---------------------------------------------
Name:
Title:
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1999 AND THE CONSOLIDATED
STATEMENTS OF INCOME FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED JUNE 30,
1999 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> MAR-31-1999 SEP-30-1998
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 2,111 2,111
<SECURITIES> 0 0
<RECEIVABLES> 12,418 12,418
<ALLOWANCES> (735) (735)
<INVENTORY> 6,035 6,035
<CURRENT-ASSETS> 22,176 22,176
<PP&E> 159,298 159,298
<DEPRECIATION> (80,348) (80,348)
<TOTAL-ASSETS> 109,662 109,662
<CURRENT-LIABILITIES> 61,920 61,920
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 43,216 43,216
<TOTAL-LIABILITY-AND-EQUITY> 109,662 109,662
<SALES> 1,605 6,508
<TOTAL-REVENUES> 20,066 68,484
<CGS> 1,067 4,718
<TOTAL-COSTS> 10,398 36,015
<OTHER-EXPENSES> 10,367 31,412
<LOSS-PROVISION> 60 92
<INTEREST-EXPENSE> 1,119 3,151
<INCOME-PRETAX> (1,818) (2,094)
<INCOME-TAX> (718) (827)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,100) (1,267)
<EPS-BASIC> (0.14) (0.16)
<EPS-DILUTED> (0.14) (0.16)
</TABLE>
