-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A/XAQHQb91J0C9usLLEcCMndmz0T0U0INFiVBrEEgJ8X1D9zDH6APBlU9bVmmuCH gsUGmkAFrZyADo2nyXURqw== 0001047469-98-020599.txt : 19980518 0001047469-98-020599.hdr.sgml : 19980518 ACCESSION NUMBER: 0001047469-98-020599 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARI LITE INTERNATIONAL INC CENTRAL INDEX KEY: 0001033491 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 752239444 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-33559 FILM NUMBER: 98623580 BUSINESS ADDRESS: STREET 1: 201 REGAL ROW CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146301963 10-Q 1 10-Q 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 MARCH 31, 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 May 1, 1998, there were 7,800,003 shares of Common Stock outstanding. VARI-LITE INTERNATIONAL, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 PART I. - FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 1997 and March 31, 1998.......................... 3 Consolidated Statements of Income (Loss) for the three months ended March 31, 1997 and 1998................. 4 Consolidated Statements of Income (Loss) for the six months ended March 31, 1997 and 1998................... 5 Consolidated Statement of Stockholders' Equity for the six months ended March 31, 1998............................ 6 Consolidated Statements of Cash Flows for the six months ended March 31, 1997 and 1998................... 7 Notes to Consolidated Financial Statements..................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 15 PART II. - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders........ 16 Item 6. Exhibits and Reports on Form 8-K............................ 16 SIGNATURES.......................................................... 17
2 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) SEPTEMBER 30, MARCH 31, ASSETS 1997 1998 ---- ---- CURRENT ASSETS: Cash.......................................... $ 1,862 $ 3,592 Receivables, less allowance for doubtful accounts of $450 and $555................... 14,445 14,307 Inventory..................................... 4,050 6,749 Prepaid expense and other current assets...... 2,536 1,994 ------- -------- TOTAL CURRENT ASSETS........................ 22,893 26,642 EQUIPMENT AND OTHER PROPERTY: Lighting and sound equipment.................. 102,487 114,179 Machinery and tools........................... 2,929 4,526 Furniture and fixtures........................ 3,945 4,163 Office and computer equipment................. 9,189 10,207 Work in progress and raw materials inventory.. 5,343 4,660 ------- -------- 123,893 137,735 Less accumulated depreciation and amortization............................... 55,248 64,568 ------- -------- 68,645 73,167 OTHER ASSETS..................................... 5,166 6,393 ------- -------- TOTAL ASSETS................................ $96,704 $106,202 ------- -------- ------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses......... $12,086 $ 9,403 Unearned revenue.............................. 2,992 1,707 Income taxes payable.......................... 820 17 Current portion of long-term obligations...... 7,824 3,204 ------- -------- TOTAL CURRENT LIABILITIES................... 23,722 14,331 LONG-TERM OBLIGATIONS............................ 38,418 35,571 DEFERRED INCOME TAXES............................ 7,023 7,121 ------- -------- TOTAL LIABILITIES........................... 69,163 57,023 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................................... 361 503 Retained earnings............................. 23,013 23,113 ------- -------- TOTAL STOCKHOLDERS' EQUITY.................. 27,541 49,179 ------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.. $96,704 $106,202 ------- -------- ------- --------
See accompanying notes to the consolidated financial statements. 3 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) 1997 1998 ---- ---- Rental revenues...................................... $19,549 $15,965 Product sales and services revenues.................. 2,835 3,262 ------- ------- TOTAL REVENUES.................................... 22,384 19,227 Rental cost.......................................... 8,290 7,468 Product sales and services cost...................... 1,987 2,356 ------- ------- TOTAL COST OF SALES............................... 10,277 9,824 ------- ------- GROSS PROFIT...................................... 12,107 9,403 Selling, general and administrative expense.......... 8,234 7,641 Research and development expense..................... 1,609 1,890 ------- ------- TOTAL OPERATING EXPENSES.......................... 9,843 9,531 ------- ------- OPERATING INCOME (LOSS).............................. 2,264 (128) Interest expense (net)............................... 893 568 ------- ------- INCOME (LOSS) BEFORE INCOME TAXES.................... 1,371 (696) Income taxes (benefit)............................... 552 (275) ------- ------- NET INCOME (LOSS).................................... $ 819 $ (421) ------- ------- ------- ------- WEIGHTED AVERAGE SHARES OUTSTANDING.................. 5,789,221 7,800,003 --------- --------- --------- --------- WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING.......... 5,808,694 7,800,003 --------- --------- --------- --------- PER SHARE INFORMATION Net income: BASIC............................................. $0.14 $(0.05) ----- ------ ----- ------ DILUTED........................................... $0.14 $(0.05) ----- ------ ----- ------ Dividends declared................................... $0.0525 $0.0000 ------- ------- ------- -------
See accompanying notes to the consolidated financial statements. 4 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) 1997 1998 ---- ---- Rental revenues...................................... $38,037 $35,135 Product sales and services revenues.................. 6,673 6,611 -------- ------- TOTAL REVENUES.................................... 44,710 41,746 Rental cost.......................................... 15,083 15,035 Product sales and services cost...................... 4,673 4,670 -------- ------- TOTAL COST OF SALES............................... 19,756 19,705 -------- ------- GROSS PROFIT...................................... 24,954 22,041 Selling, general and administrative expense.......... 17,203 15,898 Research and development expense..................... 3,063 3,463 -------- ------- TOTAL OPERATING EXPENSES.......................... 20,266 19,361 -------- ------- OPERATING INCOME..................................... 4,688 2,680 Interest expense (net)............................... 1,766 1,297 -------- ------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS.... 2,922 1,383 Income taxes......................................... 1,177 546 -------- ------- INCOME BEFORE EXTRAORDINARY LOSS..................... 1,745 837 Extraordinary loss................................... 0 737 -------- ------- NET INCOME........................................... $ 1,745 $ 100 -------- ------- -------- ------- WEIGHTED AVERAGE SHARES OUTSTANDING..................5,806,132 7,624,179 --------- --------- --------- --------- WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING..........5,826,605 7,638,372 --------- --------- --------- --------- PER SHARE INFORMATION - --------------------- ----- ----- ----- ----- ----- ----- ----- ----- Income before extraordinary loss: BASIC............................................ $0.30 $0.11 ----- ----- ----- ----- DILUTED.......................................... $0.30 $0.11 ----- ----- ----- ----- Net income: BASIC............................................ $0.30 $0.01 ----- ----- ----- ----- DILUTED.......................................... $0.30 $0.01 ----- ----- ----- ----- Dividends declared................................... $0.1050 $0.0000 ------- ------- ------- -------
See accompanying notes to the consolidated financial statements. 5 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) CUMULATIVE FOREIGN PREFERRED STOCK COMMON STOCK TREASURY STOCK ADDITIONAL STOCKHOLDER STOCK CURRENCY --------------- -------------- --------------- PAID-IN NOTES PURCHASE TRANSLATION RETAINED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE WARRANTS ADJUSTMENT EARNINGS TOTAL ------ ------ ------ ------ ------ ------ ------- ---------- -------- ----------- -------- ----- BALANCE, OCTOBER 1, 1997................. - $ - 5,845,167 $585 (45,164) $(186) $3,344 $(176) $600 $361 $23,013 $27,541 Payments on stockholder notes receivable...... 89 89 Initial public offering.............. 2,000,000 200 21,107 21,307 Net effect of translation adjustment 142 142 Net income............ 100 100 ------ ------ --------- ---- ------- ----- ------- ----- ---- ---- ------- ------- BALANCE, MARCH 31, 1998.................. - $ - 7,845,167 $785 (45,164) $(186) $24,451 $ (87) $600 $503 $23,113 $49,179 ------ ------ --------- ---- ------- ----- ------- ----- ---- ---- ------- ------- ------ ------ --------- ---- ------- ----- ------- ----- ---- ---- ------- -------
See accompanying notes to the consolidated financial statements. 6 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED) (IN THOUSANDS) 1997 1998 ---- ---- Cash flows from operating activities: Net income.................................... $1,745 $ 100 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............... 5,517 6,449 Amortization of note discount and deferred loan fees.................................. 183 59 Provision for doubtful accounts............. 58 90 Extraordinary loss from early extinguishment of debt.................................... 0 737 Deferred income taxes....................... 132 580 (Gain) on sale of equipment and other property................................... (34) (34) Cost of rental equipment rented under sales- type leases................................ 1,095 263 Provisions for ESOP and ESEP contributions.. 125 125 Net change in assets and liabilities: Accounts receivable..................... (147) 1,477 Prepaid expenses........................ (2,459) 958 Inventory............................... (751) (2,648) Other assets............................ (278) (1,156) Accounts payable, accrued liabilities and income taxes payable............... 4,159 (5,011) Unearned revenue........................ 490 (1,379) ------- ------- Net cash provided by operating activities............................. 9,835 610 Cash flows from investing activities: Capital expenditures, including rental equipment................................... (12,823) (9,490) Acquisition of Belgium companies, net of cash acquired.................................... 0 (1,697) Proceeds from sale of equipment.............. 117 67 ------- ------- Net cash used in investing activities..... (12,706) (11,120) Cash flows from financing activities: Proceeds from issuance of debt............... 8,406 54,283 Principal payments on debt................... (4,582) (62,637) Proceeds from issuance of distributor advances.................................... 237 514 Principal payments on distributor advances... (769) (1,242) Proceeds from payments on stockholder notes receivable.................................. 157 89 Proceeds from public offering of common stock....................................... 0 21,307 Purchase of treasury......................... (158) 0 Dividends paid............................... (484) 0 ------- ------- Net cash provided by financing activities............................ 2,807 12,314 Effect on cash from foreign currency translation adjustment......................... (707) (74) ------- ------- Net increase (decrease) during the period....... (771) 1,730 Cash, beginning of period....................... 2,633 1,862 ------- ------- Cash, end of period............................. $1,862 $3,592 ------- ------- ------- ------- SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest expense............... $1,700 $1,321 Cash paid for income taxes................... $ 541 $ 539
See accompanying notes to the consolidated financial statements. 7 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE 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 six-month periods ended March 31, 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: September 30, March 31, 1997 1998 ---- ---- Raw materials................................. $3,483 $6,155 Work in progress.............................. 350 360 Finished goods................................ 217 234 ------ ------ $4,050 $6,749 ------ ------ ------ ------
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. 8 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE 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 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 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 common stock equivalents, including dilutive stock options. 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. 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 method of accounting, and 9 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) 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 excess of the purchase price over the net assets acquired of approximately $850 was recorded by the Company as goodwill. 10 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997 REVENUES. Total revenues decreased 14.1%, or $3.2 million, to $19.2 million in the three-month period ended March 31, 1998, compared to $22.4 million in the three-month period ended March 31, 1997. The revenue decrease was attributable primarily to the factors set forth below. Rental revenues decreased 18.3%, or $3.6 million, to $16.0 million in the three-month period ended March 31, 1998, compared to $19.6 million in the three-month period ended March 31, 1997. This decrease was primarily due to a lower volume of sales-type leases, a decrease in revenues in Asia due to the economic situation in that region and a modest softness in the Company's European operations and was partially offset by a strong performance in North America across all key market segments. Rental revenues from sales-type leases decreased 85.0%, or $3.0 million, to $0.6 million for the three-month period ended March 31, 1998 compared to $3.6 million for the three-month period ended March 31, 1997. Product sales and service revenues increased 15.0%, or $0.4 million, to $3.2 million in the three-month period ended March 31, 1998, compared to $2.8 million in the three-month period ended March 31, 1997. This increase was primarily due to an increase in the design and production management services provided to the Company's customers. RENTAL COSTS. Rental costs decreased 9.9%, or $0.8 million, to $7.5 million in the three-month period ended March 31, 1998, compared to $8.3 million in the three-month period ended March 31, 1997. Rental costs as a percentage of rental revenues increased to 46.8% in the three-month period ended March 31, 1998, from 42.4% in the three-month period ended March 31, 1997. The increase in rental costs as a percentage of total rental revenues was primarily due to an increase in depreciation associated with an increase in the Company's rental inventory. PRODUCT SALES AND SERVICE COSTS. Product sales and service costs increased 18.6%, or $0.4 million, to $2.4 million in the three-month period ended March 31, 1998, compared to $2.0 million in the three-month period ended March 31, 1997. Product sales and service costs as a percentage of product sales and service revenue increased to 72.2% in the three-month period ended March 31, 1998, from 70.1% in the three-month period ended March 31, 1997. The increase in product sales and service cost was primarily the result of 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 decreased 7.2%, or $0.6 million, to $7.6 million in the three-month period ended March 31, 1998, compared to $8.2 million in the three-month period ended March 31, 1997. This decrease resulted primarily from lower payroll and related costs and other discretionary expenses. This 11 expense as a percentage of total revenues increased to 39.7% in the three-month period ended March 31, 1998, from 36.8% in the three-month period ended March 31, 1997. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense increased 17.5%, or $0.3 million, to $1.9 million in the three-month period ended March 31, 1998, compared to $1.6 million in the three-month period ended March 31, 1997. This expense as a percentage of total revenues increased to 9.8% in the three-month period ended March 31, 1998, from 7.2% in the three-month period ended March 31, 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 subsequent to December 31, 1996. INTEREST EXPENSE. Interest expense decreased 36.4%, or $0.3 million, to $0.6 million in the three-month period ended March 31, 1998, compared to $0.9 million in the three-month period ended March 31, 1997. This decrease was attributable to the negotiation of a new credit facility in December 1997 with lower interest rates to the Company. SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997 REVENUES. Total revenues decreased 6.6%, or $3.0 million, to $41.7 million in the six-month period ended March 31, 1998, compared to $44.7 million in the six-month period ended March 31, 1997. The revenue decrease was attributable primarily to the factors set forth below. Rental revenues decreased 7.6%, or $2.9 million, to $35.1 million in the six-month period ended March 31, 1998, compared to $38.0 million in the six-month period ended March 31, 1997. This decrease was primarily due to a lower volume of sales-type leases, a decrease in revenues in Asia due to the economic situation in that region and a modest softness in the Company's European operations and was partially offset by a strong performance in North America across all key market segments. Rental revenues from sales-type leases decreased 74.0%, or $2.7 million, to $0.9 million for the six-month period ended March 31, 1998 compared to $3.6 million for the six-month period ended March 31, 1997. Product sales and service revenues decreased 0.9%, or $0.1 million, to $6.6 million in the six-month period ended March 31, 1998, compared to $6.7 million in the six-month period ended March 31, 1997. This decrease was primarily due to lower sales of the Company's Irideon-Registered Trademark- automated lighting products which decreased 31.5%, or $0.8 million, to $1.8 million in the six-month period ended March 31, 1998, compared to $2.6 million in the six-month period ended March 31, 1997. In the six-month period ended March 31, 1997 the Company introduced two new Irideon-Registered Trademark- products - AR5-TM- and Composer-Registered Trademark- - and consequently shipped a large backlog. The decrease in Irideon-Registered Trademark- product sales was primarily offset by an increase in revenues from the design and production management services provided to the Company's customers. RENTAL COSTS. Rental costs in the six-month period ended March 31, 1998 were approximately the same as in the six-month period ended March 31, 1997. Rental costs as a percentage of rental revenues increased to 42.8% in the six-month period ended March 31, 1998, from 39.7% in the six-month period ended March 31, 1997. The increase in rental costs as a 12 percentage of total rental revenues was primarily due to an increase in depreciation associated with an increase in the Company's rental inventory. PRODUCT SALES AND SERVICE COSTS. Product sales and service costs in the six-month period ended March 31, 1998 were approximately the same as in the six-month period ended March 31, 1997. Product sales and service costs as a percentage of product sales and service revenues increased to 70.6% in the six-month period ended March 31, 1998, from 70.0% in the six-month period ended March 31, 1997. The increase in product sales and service costs as a percentage of the related revenues was primarily the result of 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 decreased 7.6%, or $1.3 million, to $15.9 million in the six-month period ended March 31, 1998, compared to $17.2 million in the six-month period ended March 31, 1997. This decrease resulted primarily from lower professional services, payroll and related costs and other discretionary expenses. This expense as a percentage of total revenues decreased to 38.1% in the six-month period ended March 31, 1998, from 38.5% in the six-month period ended March 31, 1997. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense increased 13.1%, or $0.4 million, to $3.5 million in the six-month period ended March 31, 1998, compared to $3.1 million in the six-month period ended March 31, 1997. This expense as a percentage of total revenues increased to 8.3% in the six-month period ended March 31, 1998, from 6.9% in the six-month period ended March 31, 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 subsequent to September 30, 1996. INTEREST EXPENSE. Interest expense decreased 26.6%, or $0.5 million, to $1.3 million in the six-month period ended March 31, 1998, compared to $1.8 million in the six-month period ended March 31, 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 to the Company. EXTRAORDINARY LOSS. A non-cash extraordinary loss of $0.7 million was recorded in the six-month period ended March 31, 1998, net of $0.4 million of tax benefit, relating to the early extinguishment of debt under the Company's old credit facility. 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 $9.8 million and $0.6 million for the six-month periods ended March 31, 1997 and 1998, respectively. This decrease is primarily due to a decrease in accounts payable and other accrued liabilities. 13 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 the Company's foreign subsidiaries. The commitment fee on the unused portion of the facility and the interest charged on the outstanding balance of the facility are determined by a pricing grid based on the Company's ratio of Adjusted Funded Debt (as defined in the New Credit Agreement) to EBITDA (as defined in the New Credit Agreement). The commitment fee ranges from 0.2% to 0.375% and the interest rate ranges from 1.0% to 2.5% above the London interbank offering rate ("LIBOR") or SunTrust's base rate. The initial commitment fee and margin above LIBOR is fixed through June 30, 1998, at 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 March 31, 1998, $33.8 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 six-month periods ended March 31, 1997 and 1998 were approximately $12.8 million and $9.5 million, respectively, of which approximately $10.8 million and $9.1 million were for rental equipment inventories. The majority of the Company's revenues are generated through the 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 $2.4 million at March 31, 1997 and a working capital surplus of $12.3 million at March 31, 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 March 31, 1998 is primarily due to higher inventory purchased to manufacture the new product lines, lower 14 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. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This report includes "forward-looking statements" as that phrase is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this report, the terms "anticipate," "believe," "estimate," "will," "could," "may" and similar expressions, as they relate to management or the Company, are intended to identify forward-looking statements. Such statements reflect the current views of management with respect to future events and are subject to certain risks, uncertainties and assumptions, including without limitation the following as they relate to the Company: fluctuations in operating results and seasonality; ability to introduce new products; technological changes; reliance on intellectual property; capitalized litigation costs; dependence on entertainment industry; competition; dependence on management; foreign exchange risk; international trade risk; dependence on key suppliers and dependence on manufacturing facility. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. 15 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On February 27, 1998, the Annual Meeting of Stockholders was held in Dallas, Texas. The stockholders were asked to elect two Class I directors to serve until 2001. The vote was as follows: Against or Broker/ For Witheld Non Votes --- ------- --------- John D. Maxson 5,676,660 6,211 0 C. Vincent Prothro 5,675,860 7,011 0
Messrs. Brutsche', Smith, Clark and Rettberg will continue as directors of the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.33 Amendment 1, dated April 24, 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 March 31, 1997 and 1998 11.2 Computation of Earnings per Common Share for the six months ended March 31, 1997 and 1998 27.1 Financial Data Schedule (b) No reports on Form 8-K were filed for the quarter ended March 31, 1998. 16 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: May 1, 1998 By: /s/ MICHAEL P. HERMAN ---------------------------------- Michael P. Herman Vice President - Finance, Chief Financial Officer and Secretary 17 EX-10.33 2 EXHIBIT 10.33 EXECUTION COUNTERPART AMENDMENT NO. 1 TO CREDIT AGREEMENT THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT (this "AMENDMENT") dated as of April 21, 1998, by and among VARI-LITE INTERNATIONAL, INC., a Delaware corporation (the "BORROWER"), SUNTRUST BANK, ATLANTA ("SUNTRUST"), 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 capacity, the "AGENT" and "COLLATERAL AGENT"), and BROWN BROTHERS HARRIMAN & CO, AS CO-AGENT FOR THE LENDERS (IN SUCH CAPACITY THE "CO-AGENT") WITNESSETH: WHEREAS, Borrower, the Lenders, the Agent and the Collateral Agent and the Co-Agent are parties to a certain Multicurrency Credit Agreement dated as of December 19, 1997 (as heretofore amended or modified, 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 to the covenants set forth therein, all as more specifically set forth below; WHEREAS, the parties wish to amend the Credit Agreement to reflect this agreement; 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. Section 1.01 of the Credit Agreement is hereby amended by adding the following new defined terms in alphabetical order, as follows: "INTERCREDITOR AGREEMENT" shall mean that certain Intercreditor Agreement to be entered into between the Agent and the Collateral Agent with the holders of the indebtedness outstanding pursuant to the Note Agreement relating to the sharing of proceeds of the Collateral and the collections under any guarantees, such agreement to be in form and substance satisfactory to the Agent, the Collateral Agent and each of the Lenders. "NOTE AGREEMENT" shall mean the note purchase agreement to be entered into by and among the Borrower and certain institutional investors purchasing fixed rate notes of the Borrower, such agreement to be in form and substance satisfactory to the Agent and each of the Lenders. 2. Section 6.08 of the Credit Agreement is hereby amended by deleting subsections (a) and (c) thereof in its entirety and substituting the following in lieu thereof: "(a) LEVERAGE RATIO. Maintain as of the last day of each fiscal quarter of Borrower, a maximum Leverage Ratio of no greater than sixty percent (60%). (c) FIXED CHARGE COVERAGE. Maintain as of the last day of each fiscal quarter of Borrower during the Applicable Periods set forth below, a minimum Fixed Charge Coverage Ratio of no less than the ratio set forth such Applicable Period: Applicable Period Ratio ----------------- ----- Closing Date through December 31, 1998 1.50:1.00 January 1, 1999 through September 30,1999 1.75:1.00 October 1, 1999 and thereafter 2.00:1.00."
3. Section 7.01 of the Credit Agreement is hereby amended by deleting the "and" at the end of subsection (j) thereof and by deleting subsection (k) thereof in its entirety and substituting the following in lieu thereof: "(k) Indebtedness of the Borrower outstanding pursuant to the Note Agreement in an aggregate principal amount not to exceed $30,000,000; PROVIDED THAT such Indebtedness is (i) not secured other than by Liens on the Collateral which are pari passu with the Liens on the Collateral in favor of the Collateral Agent for the benefit of the Lenders and subject to the Intercreditor Agreement, and (ii) incurred by the Borrower prior to December 31, 1998; (l) Indebtedness of the Guarantors outstanding pursuant to guarantees of the Indebtedness permitted by subsection (k) above; PROVIDED THAT, the holders of such guarantees entitled to the proceeds thereof are parties to the Intercreditor Agreement; and (m) other Indebtedness not to exceed $1,000,000 at any one time outstanding." 2 4. Section 7.02 of the Credit Agreement is hereby further amended by deleting subsection (k) thereof in its entirety and substituting the following in lieu thereof: "(k) (x) Liens in favor of the Collateral Agent securing the Obligations hereunder and (y) Liens on the Collateral securing the Indebtedness outstanding pursuant to the Note Agreement; provided, that the holder of such Liens securing the Indebtedness outstanding pursuant to the Note Agreement has entered into the Intercreditor Agreement;" 5. Sections 7.09 and 7.10 of the Credit Agreement are each hereby further amended by adding the following phrase at the end of such section: "or restrictions arising pursuant to the Note Agreement". 6. The Credit Agreement is hereby amended by the addition of the following Section 7.13: "Section 7.13. ACTIONS UNDER NOTE PURCHASE AGREEMENT. Without the prior written consent of the Agent and the Required Lenders, modify, amend or supplement the Note Purchase Agreement to (i) increase the principal amount of the indebtedness thereunder, (ii) increase the interest rate thereunder, (iii) modify any requirement of prepayment or repayment thereunder which would shorten the final maturity or average life of the indebtedness outstanding thereunder or make the requirement of prepayment more onerous, or (iv) make any more onerous any other provision thereof." SECTION 2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective as of the date first above written (the "EFFECTIVE DATE") on the first day when all of the foregoing shall have occurred: 1. This Amendment shall have been executed and delivered by Borrower and the Lenders to the Agent; and 2. The Borrower shall have paid to the Agent, for the benefit of the Lenders, an amendment fee equal to 7.5 basis points multiplied by the Master Syndicated Loan Commitment of each Lender. 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: 1. The execution, delivery and performance by Borrower of this Amendment 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 3 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. 2. This Amendment constitutes the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms. 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. 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. 4 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. 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 mailers 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] 5 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: V.P. FINANCE, CFO [CORPORATE SEAL] 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/ F. McClellan Deaver, III ------------------------------- Name: F. McClellan Deaver, III Title: Group Vice President BROWN BROTHERS HARRIMAN & CO., INDIVIDUALLY AND AS CO-AGENT By: /s/ Richard J. Ragoza ------------------------------- Name: Richard J. Ragoza Title: Senior Credit Officer 6 CHASE BANK OF TEXAS, N.A. By: /s/ Bruce R. Bradford ------------------------------- Name: Bruce R. Bradford Title: Vice President 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 7 EX-11.1 3 EXHIBIT 11.1 EXHIBIT 11.1 VARI-LITE INTERNATIONAL, INC. COMPUTATION OF INCOME (LOSS) PER COMMON SHARE FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (In thousands except share data) 1997 1998 ---- ---- Net income (loss)...................................... $819 ($421) Weighted average shares outstanding.................... 5,789,221 7,800,003 Dilutive effect of stock warrants after application of treasury stock method.................................. 19,473 0 Shares used in calculating diluted income (loss) per share............................................. 5,808,694 7,800,003 Basic net income per share............................. $0.14 ($0.05) Diluted net income per share........................... $0.14 ($0.05)
18 EX-11.2 4 EXHIBIT 11.2 EXHIBIT 11.2 VARI-LITE INTERNATIONAL, INC. COMPUTATION OF INCOME PER COMMON SHARE FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 (In thousands except share data) 1997 1998 ---- ---- Income before extraordinary loss........................ $1,745 $837 Net income.............................................. $1,745 $100 Weighted average shares outstanding..................... 5,806,132 7,624,179 Dilutive effect of stock warrants after application of treasury stock method.................................. 19,473 14,193 Shares used in calculating diluted income per share..... 5,825,605 7,638,372 Basic income per share before extraordinary loss........ $0.30 $0.11 Diluted income per share before extraordinary loss...... $0.30 $0.11 Basic net income per share.............................. $0.30 $0.01 Diluted net income per share............................ $0.30 $0.01
19 EX-27.1 5 EXHIBIT 27.1 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998 AND THE CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED MARCH 31, 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. 1,000 3-MOS 6-MOS SEP-30-1998 SEP-30-1998 JAN-01-1998 OCT-01-1997 MAR-31-1998 MAR-31-1998 3,592 3,592 0 0 14,862 14,862 (555) (555) 6,749 6,749 26,642 26,642 137,735 137,735 64,568 64,568 106,202 106,202 14,331 14,331 0 0 785 785 0 0 0 0 48,394 48,394 106,202 106,202 3,262 6,611 19,227 35,135 2,356 4,670 9,824 19,705 9,531 19,361 59 90 568 1,297 (696) 1,383 (275) 546 0 0 0 0 0 737 0 0 (421) 100 (0.05) 0.01 (0.05) 0.01
-----END PRIVACY-ENHANCED MESSAGE-----