-----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, REvLdTLEw03wWcHUiElZSz62wcKG2TGEAM4vNay/1rY/qE+duyocLPCqw75VLeOn ith/tAgIiwWPMHHg7bfm/g== 0001047469-98-031546.txt : 19980817 0001047469-98-031546.hdr.sgml : 19980817 ACCESSION NUMBER: 0001047469-98-031546 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: 98689269 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 JUNE 30, 1998 COMMISSION FILE NUMBER: 0-23159 Vari-Lite International, Inc. ----------------------------- (Exact name of registrant as specified in its charter) Delaware 75-2239444 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 201 Regal Row, Dallas, Texas 75247 ---------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (214) 630-1963 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[] Indicate the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date: As of July 31, 1998, there were 7,800,003 shares of Common Stock outstanding. VARI-LITE INTERNATIONAL, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
PART I. - FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 1997 and June 30, 1998. . . . . . . . . . . . . . . . 3 Consolidated Statements of Income for the three months ended June 30, 1997 and 1998. . . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Income for the nine months ended June 30, 1997 and 1998. . . . . . . . . . . . . . . . . . . . . . . 5 Consolidated Statements of Cash Flows for the nine months ended June 30, 1997 and 1998. . . . . . . . . . . . 6 Notes to Consolidated Financial Statements. . . . . . . . . . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . . 14 PART II. - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 16 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) ASSETS
SEPTEMBER 30, JUNE 30, 1997 1998 ---- ---- CURRENT ASSETS: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,862 $ 3,611 Receivables, less allowance for doubtful accounts of $450 and $583. . . . . . 14,445 15,028 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,050 6,708 Prepaid expense and other current assets . . . . . . . . . . . . . . . . . . . 2,536 2,602 ---------- ---------- TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,893 27,949 EQUIPMENT AND OTHER PROPERTY: Lighting and sound equipment . . . . . . . . . . . . . . . . . . . . . . . . . 102,487 119,501 Machinery and tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,929 4,584 Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,945 4,280 Office and computer equipment. . . . . . . . . . . . . . . . . . . . . . . . . 9,189 10,650 Work in progress and raw materials inventory . . . . . . . . . . . . . . . . . 5,343 7,930 ---------- ---------- 123,893 146,945 Less accumulated depreciation and amortization . . . . . . . . . . . . . . . 55,248 68,029 ---------- ---------- 68,645 78,916 OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,166 7,538 ---------- ---------- TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96,704 $ 114,403 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . $ 12,086 $ 11,037 Unearned revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,992 3,483 Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 820 594 Current portion of long-term obligations. . . . . . . . . . . . . . . . . . . . 7,824 3,245 ---------- ---------- TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . 23,722 18,359 LONG-TERM OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,418 41,019 DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,023 6,685 ---------- ---------- TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,163 66,063 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock, $0.10 par value (10,000,000 shares authorized; no shares outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 Common Stock, $0.10 par value (40,000,000 shares authorized; 5,800,003 and 7,800,003 shares outstanding). . . . . . . . . . . . . . . . . . . . . . . 585 785 Treasury Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (186) (186) Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 3,344 24,451 Stockholder notes receivable . . . . . . . . . . . . . . . . . . . . . . . . (176) (87) Stock purchase warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . 600 600 Cumulative foreign currency translation adjustment . . . . . . . . . . . . . 361 (336) Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,013 23,113 ---------- ---------- TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . 27,541 48,340 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . $ 96,704 $ 114,403 ---------- ---------- ---------- ----------
See accompanying notes to the consolidated financial statements. 3 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA)
1997 1998 ---- ---- Rental revenues. . . . . . . . . . . . . . . . . . . . . . . $18,170 $19,047 Product sales and services revenues. . . . . . . . . . . . . 4,015 3,482 ------- ------- TOTAL REVENUES. . . . . . . . . . . . . . . . . . . . . 22,185 22,529 Rental cost. . . . . . . . . . . . . . . . . . . . . . . . . 7,032 8,396 Product sales and services cost. . . . . . . . . . . . . . . 2,737 2,627 ------- ------- TOTAL COST OF SALES . . . . . . . . . . . . . . . . . . 9,769 11,023 ------- ------- GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . 12,416 11,506 Selling, general and administrative expense. . . . . . . . . 7,653 9,164 Research and development expense . . . . . . . . . . . . . . 1,809 1,680 ------- ------- TOTAL OPERATING EXPENSES. . . . . . . . . . . . . . . . 9,462 10,844 ------- ------- OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . 2,954 662 Interest expense (net) . . . . . . . . . . . . . . . . . . . 928 661 ------- ------- INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . 2,026 1 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 816 1 ------- ------- NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,210 $ 0 ------- ------- ------- ------- WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . . . . . . . . . 5,785,039 7,800,003 --------- --------- --------- --------- WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING. . . . . . . . . 5,804,512 7,800,003 --------- --------- --------- --------- PER SHARE INFORMATION Net income: BASIC . . . . . . . . . . . . . . . . . . . . . . . . . $0.21 $0.00 ----- ----- ----- ----- DILUTED . . . . . . . . . . . . . . . . . . . . . . . . $0.21 $0.00 ----- ----- ----- ----- Dividends declared . . . . . . . . . . . . . . . . . . . . . $0.0000 $0.0000 ------- ------- ------- -------
See accompanying notes to the consolidated financial statements. 4 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA)
1997 1998 ---- ---- Rental revenues. . . . . . . . . . . . . . . . . . . . . . . . . $ 56,207 $ 54,182 Product sales and services revenues. . . . . . . . . . . . . . . 10,688 10,093 -------- -------- TOTAL REVENUES . . . . . . . . . . . . . . . . . . . . . . . . 66,895 64,275 Rental cost. . . . . . . . . . . . . . . . . . . . . . . . . . . 22,115 23,431 Product sales and services cost. . . . . . . . . . . . . . . . . 7,410 7,297 -------- -------- TOTAL COST OF SALES. . . . . . . . . . . . . . . . . . . . . . 29,525 30,728 -------- -------- GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . 37,370 33,547 Selling, general and administrative expense. . . . . . . . . . . 24,855 25,062 Research and development expense . . . . . . . . . . . . . . . . 4,872 5,143 -------- -------- TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . . . . . . 29,727 30,205 -------- -------- OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . 7,643 3,342 Interest expense (net) . . . . . . . . . . . . . . . . . . . . . 2,694 1,958 -------- -------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS. . . . . . . . 4,949 1,384 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 1,993 547 -------- -------- INCOME BEFORE EXTRAORDINARY LOSS . . . . . . . . . . . . . . . . 2,956 837 Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . 0 737 -------- -------- NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,956 $ 100 -------- -------- -------- -------- WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . . . . . . . . . . . 5,799,098 7,682,787 --------- --------- --------- --------- WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING. . . . . . . . . . . 5,818,571 7,683,314 --------- --------- --------- --------- PER SHARE INFORMATION Income before extraordinary loss: BASIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.51 $0.11 ----- ----- ----- ----- DILUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.51 $0.11 ----- ----- ----- ----- Net income: BASIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.51 $0.01 ----- ----- ----- ----- DILUTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.51 $0.01 ----- ----- ----- ----- Dividends declared . . . . . . . . . . . . . . . . . . . . . . $0.1000 $0.0000 ------- ------- ------- -------
See accompanying notes to the consolidated financial statements. 5 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED) (In thousands)
1997 1998 ---- ---- Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,956 $ 100 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 8,490 9,879 Amortization of note discount and deferred loan fees. . . . . . . . . . . . . . 265 67 Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . 94 139 Extraordinary loss from early extinguishment of debt. . . . . . . . . . . . . . 0 737 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 864 106 (Gain) on sale of equipment and other property. . . . . . . . . . . . . . . . . (41) (29) Cost of rental equipment rented under sales-type leases . . . . . . . . . . . . 1,515 269 Provisions for ESOP and ESEP contributions. . . . . . . . . . . . . . . . . . . 189 191 Net change in assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,570) 802 Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,200) (5) Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (601) (2,607) Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,325) (2,285) Accounts payable, accrued liabilities and income taxes payable. . . . . . . . 1,045 (2,925) Unearned revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,291 385 ------- ------- Net cash provided by operating activities . . . . . . . . . . . . . . . . . . 11,972 4,824 Cash flows from investing activities: Capital expenditures, including rental equipment . . . . . . . . . . . . . . . . . (20,518) (18,342) Acquisition of European companies, net of cash acquired. . . . . . . . . . . . . . 0 (1,730) Proceeds from sale of equipment. . . . . . . . . . . . . . . . . . . . . . . . . . 129 67 ------- ------- Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . (20,389) (20,005) Cash flows from financing activities: Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . . . 16,967 63,100 Principal payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,127) (65,738) Proceeds from issuance of distributor advances . . . . . . . . . . . . . . . . . . 604 576 Principal payments on distributor advances . . . . . . . . . . . . . . . . . . . . (1,254) (1,448) Proceeds from payments on stockholder notes receivable . . . . . . . . . . . . . . 166 89 Proceeds from public offering of common stock. . . . . . . . . . . . . . . . . . . 0 21,307 Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . (158) 0 Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (564) 0 ------- ------- Net cash provided by financing activities . . . . . . . . . . . . . . . . . . 7,634 17,886 Effect on cash from foreign currency translation adjustment. . . . . . . . . . . . . (500) (956) ------- ------- Net increase (decrease) during the period. . . . . . . . . . . . . . . . . . . . . . (1,283) 1,749 Cash, beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,633 1,862 ------- ------- Cash, end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,350 $3,611 ------- ------- ------- ------- Supplemental Cash Flow Information Cash paid for interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . $2,956 $1,972 Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,765 $1,383
See accompanying notes to the consolidated financial statements. 6 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) 1. Interim Financial Information The accompanying unaudited consolidated financial statements of Vari-Lite International, Inc. and subsidiaries (the "Company") have been prepared by the Company in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company for the periods indicated. The results of operations for the three-month and nine-month periods ended June 30, 1998 are not indicative of the results of operations that may be expected for any other interim periods or for the fiscal year ending September 30, 1998. For further information, refer to the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended September 30, 1997. 2. Inventory Inventory consists of the following:
September 30, June 30, 1997 1998 ---- ---- Raw materials. . . . . . . . . . . . . . . . $3,483 $6,052 Work in progress . . . . . . . . . . . . . . 350 414 Finished goods . . . . . . . . . . . . . . . 217 242 ------ ------ $4,050 $6,708 ------ ------ ------ ------
3. Initial Public Offering On October 15, 1997, in conjunction with the Company's reincorporation in Delaware and an initial public offering, the Board of Directors of the Company created a new class of common stock and authorized 40,000,000 shares. As a result of the reincorporation, stockholders received 3.76368 shares of common stock for each share of the Company's Class A common stock and Class B common stock held by the stockholders. Share amounts and the weighted-average shares outstanding for all periods presented give retroactive effect to the recapitalization of the common stock. In addition, the Company authorized 10,000,000 shares of preferred stock which the Company's Board of Directors may issue for such consideration and on such terms as it deems desirable, including voting and conversion rights that could adversely affect the holders of common stock. 7 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) The Company filed a Registration Statement (Commission file no. 333-33559) for the public offering of 2,300,000 shares of common stock which became effective October 16, 1997. The Company sold 2,000,000 shares of common stock for $12.00 per share for an aggregate amount of $24,000 and certain stockholders of the Company sold 300,000 shares of common stock for $12.00 per share for an aggregate amount of $3,600. 4. Long-Term Debt and Extraordinary Loss On December 19, 1997, the Company entered into a five-year $50,000 multicurrency revolving credit facility (the "New Credit Facility") and canceled its existing credit facility. Borrowings under the New Credit Facility bear interest at prime or LIBOR plus a rate margin ranging from 1.00% to 2.50% based upon the Company's ratio of Adjusted Funded Debt (as defined in the New Credit Facility) to EBITDA (as defined in the New Credit Facility) and are secured by a pledge of 65% of the outstanding capital stock of certain of the Company's foreign subsidiaries. A commitment fee is charged on the average daily unused portion of the New Credit Facility at a rate ranging from 0.20% to 0.375% per annum based upon the ratio of Adjusted Funded Debt to EBITDA. The New Credit Facility contains compliance covenants, including requirements that the Company achieve certain financial ratios. In addition, the New Credit Facility places limitations on the Company's ability to incur additional indebtedness, make certain loans or investments, sell assets or reacquire the Company's stock. The Company expensed deferred financing costs of $737 (net of tax benefit of $481) relating to the early extinguishment of the prior debt facility, which have been reflected in the consolidated statement of income for the quarter ended December 31, 1997 as an extraordinary loss. 5. Net Income Per Share During 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which requires dual presentation of basic and diluted earnings per share ("EPS") on the face of the consolidated income statement and requires a reconciliation of the numerators and denominators of the basic and diluted EPS calculations. Accordingly, all EPS information for all periods presented have been restated to present basic and diluted EPS under the provisions of SFAS No. 128. Under this standard, basic EPS is calculated using weighted average shares outstanding, whereas diluted EPS is calculated using weighted average shares outstanding including potential common stock which includes dilutive stock options and warrants. 6. Acquisitions In March, 1998, the Company acquired all of the outstanding stock of the Brussels, Belgium-based lighting and sound equipment rental companies VLB, n.v. and EML, n.v. (the Brussels companies) for total consideration of approximately $3,100, including related acquisition and financing costs. The Company paid approximately $1,700 in cash and assumed approximately $1,400 in liabilities. The acquisition was funded primarily through additional borrowings under the New Credit Facility. This acquisition was accounted for using the purchase 8 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) method of accounting, and accordingly, only the results of operations for the acquired companies subsequent to the acquisition are included in the consolidated financial statements of the Company. The preliminary determination of the excess of the purchase price over the net assets acquired of approximately $850 was recorded by the Company as goodwill. 9 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997 REVENUES. Total revenues increased 1.6%, or $0.3 million, to $22.5 million in the three-month period ended June 30, 1998, compared to $22.2 million in the three-month period ended June 30, 1997. The revenue increase was attributable primarily to the factors set forth below. Rental revenues increased 4.8%, or $0.8 million, to $19.0 million in the three-month period ended June 30, 1998, compared to $18.2 million in the three-month period ended June 30, 1997. This increase was primarily due to a strong performance in North America and Asia as well as the acquisition of the Brussels companies which were acquired in March 1998. This increase was substantially offset by a decrease in rental revenues from sales-type leases which was $0.0 million for the three-month period ended June 30, 1998 compared to $2.4 million for the three-month period ended June 30, 1997. Product sales and services revenues decreased 13.3%, or $0.5 million, to $3.5 million in the three-month period ended June 30, 1998, compared to $4.0 million in the three-month period ended June 30, 1997. This decrease was primarily due to a decrease in design and production management services which was partially offset by an increase in the sale of Irideon-Registered Trademark- automated lighting products. RENTAL COSTS. Rental costs increased 19.4%, or $1.4 million, to $8.4 million in the three-month period ended June 30, 1998, compared to $7.0 million in the three-month period ended June 30, 1997. Rental costs as a percentage of rental revenues increased to 44.1% in the three-month period ended June 30, 1998, from 38.7% in the three-month period ended June 30, 1997. The increase in rental costs as a percentage of total rental revenues was primarily due to the reduction in rental revenues from sales-type leases for which the associated costs as a percent of related revenues is typically less than the costs as a percentage of revenue from sources other than sales-type leases. In addition, to a lesser extent, pricing pressures from competitors in the three-month period ended June 30, 1998 created an environment in which increased costs associated with renting more equipment were incurred without a corresponding increase in revenue. PRODUCT SALES AND SERVICES COSTS. Product sales and services costs decreased 4.0%, or $0.1 million, to $2.6 million in the three-month period ended June 30, 1998, compared to $2.7 million in the three-month period ended June 30, 1997. Product sales and services costs as a percentage of product sales and services revenue increased to 75.4% in the three-month period ended June 30, 1998, from 68.1% in the three-month period ended June 30, 1997. The increase in product sales and services cost was primarily the result of higher costs associated with the sales of 10 Irideon-Registered Trademark- automated lighting products due to increased warranty expense associated with a defect in the initial delivery of a new product. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense increased 19.8%, or $1.5 million, to $9.2 million in the three-month period ended June 30, 1998, compared to $7.7 million in the three-month period ended June 30, 1997. This increase resulted primarily from the inclusion of the Brussels companies which were acquired in March, 1998. This expense as a percentage of total revenues increased to 40.7% in the three-month period ended June 30, 1998, from 34.5% in the three-month period ended June 30, 1997. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense decreased 7.1%, or $0.1 million, to $1.7 million in the three-month period ended June 30, 1998, compared to $1.8 million in the three-month period ended June 30, 1997. This expense as a percentage of total revenues decreased to 7.5% in the three-month period ended June 30, 1998, from 8.2% in the three-month period ended June 30, 1997. INTEREST EXPENSE. Interest expense decreased 28.8%, or $0.2 million, to $0.7 million in the three-month period ended June 30, 1998, compared to $0.9 million in the three-month period ended June 30, 1997. This decrease was primarily attributable to the negotiation of a new credit facility in December 1997 with lower interest rates. NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO NINE MONTHS ENDED JUNE 30, 1997 REVENUES. Total revenues decreased 3.9%, or $2.6 million, to $64.3 million in the nine-month period ended June 30, 1998, compared to $66.9 million in the nine-month period ended June 30, 1997. The revenue decrease was attributable primarily to the factors set forth below. Rental revenues decreased 3.6%, or $2.0 million, to $54.2 million in the nine-month period ended June 30, 1998, compared to $56.2 million in the nine-month period ended June 30, 1997. This decrease was primarily due to a lower volume of sales-type leases and a decrease in revenues in Asia due to the economic situation in that region, partially offset by a strong performance in North America and the acquisition of the Brussels companies. Rental revenues from sales-type leases decreased 83.8%, or $5.0 million, to $1.0 million for the nine-month period ended June 30, 1998 compared to $6.0 million for the nine-month period ended June 30, 1997. Product sales and services revenues decreased 5.6%, or $0.6 million, to $10.1 million in the nine-month period ended June 30, 1998, compared to $10.7 million in the nine-month period ended June 30, 1997. This decrease was primarily due to lower revenues from the design and construction of custom stages and stage sets which was partially offset by an increase in revenues from the design and production management services. RENTAL COSTS. Rental costs increased 6.0%, or $1.3 million, to $23.4 million in the nine-month period ended June 30, 1998, compared to $22.1 million in the nine-month period ended June 30, 1997. Rental costs as a percentage of rental revenues increased to 43.2% in the nine- 11 month period ended June 30, 1998, from 39.3% in the nine-month period ended June 30, 1997. The increase in rental costs as a percentage of total rental revenues was primarily due to the reduction in rental revenues from sales-type leases for which the associated costs as a percent of related revenues is typically less than the costs as a percentage of revenue from sources other than sales-type leases. In addition, to a lesser extent, pricing pressures from competitors in the nine-month period ended June 30, 1998 created an environment in which increased costs associated with renting more equipment were incurred without a corresponding increase in revenue. PRODUCT SALES AND SERVICES COSTS. Product sales and services costs decreased 1.5%, or $0.1 million, to $7.3 million in the nine-month period ended June 30, 1998, compared to $7.4 million in the nine-month period ended June 30, 1997. Product sales and services costs as a percentage of product sales and services revenues increased to 72.3% in the nine-month period ended June 30, 1998, from 69.3% in the nine-month period ended June 30, 1997. The increase in product sales and services costs as a percentage of the related revenues was primarily the result of higher costs associated with the sales of the Company's Irideon-Registered Trademark- automated lighting products due to increased warranty expense associated with a defect in the initial delivery of a new product and higher than anticipated costs to design and construct custom stages and stage sets for customers. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense increased 0.8%, or $0.2 million, to $25.1 million in the nine-month period ended June 30, 1998, compared to $24.9 million in the nine-month period ended June 30, 1997. This increase resulted primarily from the addition of the Brussels companies, which were acquired in March, 1998, and was partially offset by lower professional services, payroll and related costs and other discretionary expenses in the first half of the fiscal year. This expense as a percentage of total revenues increased to 39.0% in the nine-month period ended June 30, 1998, from 37.2% in the nine-month period ended June 30, 1997. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense increased 5.6%, or $0.2 million, to $5.1 million in the nine-month period ended June 30, 1998, compared to $4.9 million in the nine-month period ended June 30, 1997. This expense as a percentage of total revenues increased to 8.0% in the nine-month period ended June 30, 1998, from 7.3% in the nine-month period ended June 30, 1997. This increase was primarily the result of an increase in the employee-related costs associated with adding engineers for the further development of new products in fiscal year 1998. INTEREST EXPENSE. Interest expense decreased 27.3%, or $0.7 million, to $2.0 million in the nine-month period ended June 30, 1998, compared to $2.7 million in the nine-month period ended June 30, 1997. This decrease was attributable to the reduction in indebtedness from the use of the proceeds from the initial public offering in October 1997 to repay $21.3 million of indebtedness and the subsequent negotiation of a new credit facility in December 1997 with lower interest rates. EXTRAORDINARY LOSS. A non-cash extraordinary loss of $0.7 million was recorded in the nine-month period ended June 30, 1998, net of $0.4 million of tax benefit, relating to the early extinguishment of debt under the Company's old credit facility. 12 LIQUIDITY AND CAPITAL RESOURCES Historically, the Company has financed its operations and capital expenditures with cash flow from operations, bank borrowings and advances from distributors and customers. The Company's operating activities generated cash flow of $12.0 million and $4.8 million for the nine-month periods ended June 30, 1997 and 1998, respectively. This decrease resulted from a decrease in earnings and an increase in working capital. During the fiscal year ended September 30, 1997, the Company borrowed under a multicurrency credit agreement (the "Old Credit Agreement") to partially finance its operations and capital expenditures. On October 21, 1997, the Company consummated the initial public offering of its common stock and used the net proceeds thereof, approximately $21.3 million, to repay indebtedness under the Old Credit Agreement. In December 1997, the Company entered into a new multicurrency credit agreement, with SunTrust Bank, Atlanta ("SunTrust"), as agent for the lenders thereunder (the "New Credit Agreement"), which replaced the Old Credit Agreement. The New Credit Agreement has a five-year term and provides the Company with a $50 million revolving credit facility, which is secured by the pledge of 65% of the capital stock of certain of the Company's foreign subsidiaries. The commitment fee on the unused portion of the facility and the interest charged on the outstanding balance of the facility are determined by a pricing grid based on the Company's ratio of Adjusted Funded Debt (as defined in the New Credit Agreement) to EBITDA (as defined in the New Credit Agreement). The commitment fee ranges from 0.2% to 0.375% and the interest rate ranges from 1.0% to 2.5% above the London interbank offering rate ("LIBOR") or SunTrust's base rate. The commitment fee and margin above LIBOR at June 30, 1998 was 0.25% and 1.5%, respectively. The New Credit Agreement includes customary negative covenants such as restrictions on the Company's ability to incur debt, make acquisitions or investments or sell assets. Also, the New Credit Agreement includes financial covenants regarding the Company's net worth, ratio of Adjusted Funded Debt to total capitalization, the ratio of Adjusted Funded Debt to EBITDA and the ratio of EBITR (as defined in the New Credit Agreement) to interest and rent expenses. As of June 30, 1998, $38.2 million was outstanding under the New Credit Agreement (based on currency exchange rates as of that date). The Company has hedged a portion of its currency fluctuation risk by borrowing in British pounds sterling and Japanese yen under both the Old Credit Agreement and the New Credit Agreement. Cash generated from the Company's England and Japan offices is typically denominated in British pounds sterling and Japanese yen, respectively, and is used to pay expenses incurred in those currencies and service the foreign currency borrowings. The Company is a party to interest rate swap agreements which fix the Company's effective interest costs under a portion of the New Credit Agreement. The Company's business requires significant capital expenditures. Capital expenditures for the nine-month periods ended June 30, 1997 and 1998 were approximately $20.5 million and $18.3 million, respectively, of which approximately $17.5 million and $15.4 million were for rental equipment inventories. The majority of the Company's revenues are generated through the 13 rental of automated and conventional lighting equipment and concert sound systems and, as such, the Company must maintain a significant amount of rental equipment to meet customer demands. The Company had a working capital deficit of $1.3 million at June 30, 1997 and a working capital surplus of $9.6 million at June 30, 1998. The Company has historically maintained working capital deficits since the bulk of its revenue-generating assets are classified as long-term assets rather than current assets. The working capital surplus at June 30, 1998 is primarily due to higher inventory purchased to maintain rental inventory and manufacture Irideon-Registered Trademark- products, a higher cash balance, lower accounts payable and lower current portion of long-term debt as a result of the New Credit Agreement. Management believes that cash flow generated from operations and borrowing capacity under the New Credit Agreement should be sufficient to fund its anticipated operating needs and capital expenditures for at least the next twelve months. However, because the Company's future operating results will depend on a number of factors, including the demand for the Company's products and services, the level of competition, the success of the Company's research and development programs, the ability to achieve competitive and technological advances and general and economic conditions and other factors beyond the Company's control, there can be no assurance that sufficient capital resources will be available to fund the expected expansion of its business beyond such period. YEAR 2000 The Company uses software and related technologies throughout its business that could be adversely impacted by the Year 2000 issue. The Year 2000 issue, which is common to most businesses, concerns the inability of information systems, primarily computer software programs, to properly recognize and process date sensitive information as the year 2000 approaches. The computer systems used by the Company's US based operations are believed to be Year 2000 compliant. The Company is in the process of implementing new software in their European based operations, with the expectation that all of such software will function properly beyond 1999. Management of the Company believes that the future costs required to address the Year 2000 issue will not significantly impact its financial condition nor adversely impact business operations. In addition, the ability of third parties with whom the Company transacts business to adequately address their Year 2000 issues is outside of the Company's control. There can be no assurance that the failure of such third parties to adequately address their respective Year 2000 issues will not have a material adverse effect on the Company's business, financial condition and results of operations. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This report includes "forward-looking statements" as that phrase is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this report, the terms "anticipate," "believe," "estimate," "will," "could," "may" and similar expressions, as they relate to management or the Company, are intended to identify forward-looking statements. Such statements reflect the current views of management with respect to future events and are subject to certain risks, uncertainties and assumptions, including without limitation the following as they relate to the Company: fluctuations in operating results and seasonality; ability to introduce new products; technological 14 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 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.34 Amendment No. 2, dated July 31, 1998 to the Multicurrency Credit Agreement, dated as of December 19, 1997, among the Company and SunTrust Bank, Atlanta, as agent for the other banks thereunder 11.1 Computation of Earnings per Common Share for the three months ended June 30, 1997 and 1998 11.2 Computation of Earnings per Common Share for the nine months ended June 30, 1997 and 1998 27.1 Financial Data Schedule (b) No reports on Form 8-K were filed for the quarter ended June 30, 1998. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VARI-LITE INTERNATIONAL, INC. Date: August 7, 1998 By: /S/ MICHAEL P. HERMAN ---------------- ----------------------- Michael P. Herman Vice President - Finance, Chief Financial Officer and Secretary 17 EX-10.34 2 EXHIBIT 10.34 AMENDMENT NO. 2 TO CREDIT AGREEMENT THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT (this "AMENDMENT") dated as of July 31, 1998, by and among VARI-LITE INTERNATIONAL, INC., a Delaware corporation (the "BORROWER"), SUNTRUST BANK, ATLANTA, BROWN BROTHERS HARRIMAN & CO., CHASE BANK OF TEXAS, N.A. (FORMERLY KNOWN AS TEXAS COMMERCE BANK NATIONAL ASSOCIATION), COMERICA BANK-TEXAS and THE FIRST NATIONAL BANK OF CHICAGO (collectively, the "LENDERS"), SUNTRUST BANK, ATLANTA, as agent and collateral agent for the Lenders (in such capacities, the "AGENT" and "COLLATERAL AGENT", respectively), and BROWN BROTHERS HARRIMAN & CO, as co-agent for the Lenders (in such capacity, the "CO-AGENT"). WITNESSETH: WHEREAS, Borrower, the Lenders, the Agent, the Collateral Agent, and the Co-Agent are parties to a certain Multicurrency Credit Agreement dated as of December 19, 1997, as amended by a certain Amendment No. 1 to Credit Agreement dated as of April 21, 1998 (as so amended, the "CREDIT AGREEMENT"; defined terms used herein without definition shall have the meanings ascribed to such terms in the Credit Agreement); WHEREAS, Borrower has requested, and the Lenders have agreed, that the Credit Agreement be amended to make certain modifications therein, all as more specifically set forth below; NOW, THEREFORE, for and in consideration of the mutual covenants contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of the conditions precedent set forth in SECTION 2 hereof, and effective as of the Effective Date (as hereinafter defined), the Credit Agreement is hereby amended as follows: 1.1 Section 1.01 of the Credit Agreement is hereby amended by deleting in their entirety the defined terms "PLEDGE AGREEMENTS", "PLEDGED STOCK", and "SWING LINE LENDER" and their accompanying definitions, and substituting in lieu thereof the following defined terms and accompanying definitions: "PLEDGE AGREEMENTS" shall mean, collectively, (i) that certain Pledge and Security Agreement from Borrower in favor of the Collateral Agent in respect of shares of Vari-Lite Asia, Inc., (ii) that certain Deed of Pledge from Borrower in favor of the Collateral Agent in respect of shares of Vari-Lite Europe Holdings Limited, and (iii) each other pledge agreement, security agreement, deed of charge, and similar instrument from Borrower or any of its Subsidiaries in favor of the Collateral Agent delivered pursuant to the requirements of Section 6.10 hereof, in each case as the same may be amended, restated and supplemented from time to time. "PLEDGED STOCK" shall mean, collectively, (i) not less than 65% of all issued and outstanding capital stock, together with not less than 65% of all warrants, stock options, and other purchase and conversion rights in respect of such capital stock, of Vari-Lite Europe Holdings Limited and Vari-Lite Asia, Inc., and (ii) not less than 65% of all issued and outstanding capital stock or other equity or ownership interests, together with not less than 65% of all warrants, options, and other purchase and conversion rights in respect of such capital stock or other equity or ownership interests, of each other Subsidiary of Borrower whose capital stock or other equity or ownership interests are subject to a Pledge Agreement. "SWINE LINE LENDER" shall mean SunTrust Bank, Atlanta, or any subsequent Lender extending to Borrower the Swing Line Commitment hereunder. 1.2 Section 1.01 of the Credit Agreement is hereby amended by adding the following defined terms and accompanying definitions in proper alphabetical order: "CONSOLIDATED TANGIBLE ASSETS" shall mean, at any time, the aggregate amount of all assets (including, without limitation, the capitalized value of any leasehold interest under any capital lease) of the Consolidated Companies, determined at such time in accordance with GAAP after eliminating inter-company transactions, except (i) deferred assets and intangible assets, (ii) patents, copyrights, trademarks, trade names, franchises, goodwill, organizational expense, experimental expense and other similar intangible assets, (iii) Investments not permitted under Section 7.04, and (iv) unamortized debt discount and expense. "NON-MATERIAL FOREIGN SUBSIDIARIES" shall mean, as of any date, those Foreign Subsidiaries that, in the aggregate, have neither (i) contributed more than ten percent (10%) of the Consolidated EBITDA of the Consolidated Companies for the period of four fiscal quarters most recently ended as of such date, nor (ii) had more than ten percent (10%) of the Consolidated Tangible Assets of the Consolidated Companies as of such date. 1.3 Section 2.03 of the Credit Agreement is hereby amended by deleting the second sentence of subsection (b) thereof, and substituting in lieu thereof the following sentence: The aggregate principal amount of each Swing Line Borrowing shall not be less than $100,000 or a greater integral multiple of $1,000. 2 1.4 Section 6.07 of the Credit Agreement is hereby amended by deleting subsection (c) thereof and substituting in lieu thereof the following subsection (c): (c) NO DEFAULT/COMPLIANCE CERTIFICATE. Together with the financial statements required pursuant to subsections (a) and (b) above, a certificate of a member of Senior Management of Borrower (i) to the effect that, based upon a review of the activities of the Consolidated Companies and such financial statements during the period covered thereby, there exists no Event of Default and no Default under this Agreement, or if there exists an Event of Default or a Default hereunder, specifying the nature thereof and the proposed response thereto, (ii) demonstrating in reasonable detail compliance as at the end of such fiscal year or such fiscal quarter with Section 6.08 and Sections 7.01 through 7.05, and (iii) listing (by jurisdiction of incorporation) (x) the percentage of Consolidated EBITDA for the period of four fiscal quarters then most recently ended, and (y) the percentage of Consolidated Tangible Assets (as of the date of the balance sheet then being delivered), in each case attributable to the Foreign Subsidiaries incorporated under the laws of such jurisdiction; 1.5 Section 6.10 of the Credit Agreement is hereby amended by deleting said Section 6.10 in its entirety and substituting in lieu thereof the following Section 6.10: SECTION 6.10. ADDITIONAL CREDIT PARTIES AND COLLATERAL. (a) Not later than September 15, 1998, deliver to the Collateral Agent, for the benefit of the Lenders, duly executed Pledge Agreements with respect to the Pledged Stock, together with such certificates as may evidence such Pledged Stock, with appropriate stock powers and endorsements, together with such opinions, officer's certificates and other evidence as to the enforceability and priority of the Liens granted thereby as may be requested by the Agent, all in form and substance satisfactory to the Agent. (b) Promptly after (i) the formation or acquisition of any Subsidiary of Borrower not listed on SCHEDULE 5.01, (ii) the domestication of any Foreign Subsidiary of Borrower that is a Subsidiary, or (iii) the occurrence of any other event creating a new Subsidiary of Borrower, Borrower shall execute and deliver, and cause to be executed and delivered the following documents, in each case in form and substance satisfactory to the Agent: (x) a Guaranty Agreement from each such Subsidiary that is not a Foreign Subsidiary, together with related documents of the kind described in Section 4.01(d), (e), (f), (g), (h), and (k), and (y) a Pledge Agreement with respect to not less than sixty-five percent (65%) of the capital stock of one or more Foreign Subsidiaries (as specified in the immediately following sentence) if such Foreign Subsidiary or Foreign Subsidiaries are directly owned by Borrower or a Subsidiary that is not, and is not directly or indirectly controlled by, a Foreign Subsidiary, together with such certificates as may evidence such Pledged Stock, with appropriate stock powers and endorsements and such opinions, officer's certificates and other evidence as to the enforceability and priority of the Liens granted thereby as may be 3 requested by the Agent, PROVIDED, HOWEVER, that Borrower shall not be required at such time to execute and deliver, or cause to be executed and delivered, a Pledge Agreement with respect to any capital stock of a Foreign Subsidiary that may be included as one of the Non-Material Foreign Subsidiaries without causing the portion of the Consolidated EBITDA or Consolidated Tangible Assets contributed or possessed by such Non-Material Foreign Subsidiaries in the aggregate (on a pro forma basis) to exceed the specified percentage of Consolidated EBITDA or Consolidated Tangible Assets set forth in the definition of the term "Non-Material Foreign Subsidiaries." In complying with the requirements set forth in the immediately preceding sentence, (i) Borrower shall pledge capital stock of that Foreign Subsidiary or those Foreign Subsidiaries that have contributed or possessed, or would have contributed or possessed (on a pro forma basis), the greatest portion of such Consolidated EBITDA or Consolidated Tangible Assets for the most recently ended fiscal quarter of Borrower, and (ii) all other Foreign Subsidiaries whose capital stock shall not have been pledged pursuant to this Section 6.10 shall in the aggregate qualify (on a pro forma basis) as Non-Material Foreign Subsidiaries as defined herein. (c) Promptly after delivery to the Lenders of a certificate pursuant to Section 6.07(c) indicating that the portion of the Consolidated EBITDA or the Consolidated Tangible Assets contributed or possessed by all Foreign Subsidiaries whose capital stock is not then subject to a Pledge Agreement, in the aggregate, exceeds the specified percentage of Consolidated EBITDA or Consolidated Tangible Assets set forth in the definition of the term "Non-Material Foreign Subsidiaries," Borrower shall execute and deliver, and cause to be executed and delivered, a Pledge Agreement with respect to not less than sixty-five percent (65%) of the capital stock of one or more Foreign Subsidiaries (as specified in the immediately following sentence) if such Foreign Subsidiary or Foreign Subsidiaries are directly owned by Borrower or a Subsidiary that is not, and is not directly or indirectly controlled by, a Foreign Subsidiary, in each case together with such certificates as may evidence such Pledged Stock, with appropriate stock powers and endorsements and such opinions, officer's certificates and other evidence as to the enforceability and priority of the Liens granted thereby as may be requested by the Agent, all in form and substance satisfactory to the Agent. In complying with the requirements set forth in the immediately preceding sentence, (i) Borrower shall pledge capital stock of that Foreign Subsidiary or those Foreign Subsidiaries that have contributed or possessed, or would have contributed or possessed (on a pro forma basis), the greatest portion of such Consolidated EBITDA or Consolidated Tangible Assets, and (ii) all other Foreign Subsidiaries whose capital stock have not been pledged pursuant to this Section 6.10 shall in the aggregate qualify (on a pro forma basis) as Non-Material Foreign Subsidiaries as defined herein. (d) Notwithstanding anything to the contrary set forth herein, for purposes of Section 6.10(b) and (c) above, the terms "Consolidated EBITDA" and "Consolidated Tangible Assets", when used with reference to one or more Foreign Subsidiaries, shall be calculated and determined for such Foreign Subsidiary or Foreign Subsidiaries and its or their respective Subsidiaries on a consolidated basis for the period of four fiscal quarters of 4 Borrower then most recently ended (in the case of Consolidated EBITDA) and as of the most recently ended fiscal quarter of Borrower (in the case of Consolidated Tangible Assets), in each case in a manner similar to the calculation and determination of such terms as provided herein with respect to Borrower and the other Consolidated Companies. SECTION 2. CONDITIONS OF EFFECTIVENESS. Except as provided in Section 7 hereof with respect to the amendment herein to Section 6.10 of the Credit Agreement, this Amendment shall become effective as of the date first above written (the "Effective Date") on the first day when the following conditions have been satisfied: (a) This Amendment shall have been executed and delivered by Borrower, the Lenders, the Agent and the Co-Agent; (b) A new Swing Line Note substantially in the form of EXHIBIT B to the Credit Agreement shall have been executed and delivered by Borrower to SunTrust Bank, Atlanta; (c) Borrower shall have executed and delivered to the Agent a certificate of Borrower, dated as of the date hereof, signed by the Secretary or an Assistant Secretary of Borrower, certifying (i) as to the names, true signatures and incumbency of the officer or officers of Borrower authorized to execute and deliver this Amendment and the Swing Line Note, and (ii) that Borrower's Certificate of Incorporation and Bylaws attached to such certificate have not been amended or modified and are in full force and effect as of the date hereof; and (d) Borrower shall have paid all amounts outstanding under that certain Swing Line Note, dated as of December 19, 1997, executed by Borrower in favor of Chase Bank of Texas, N.A. (formerly Texas Commerce Bank National Association). SECTION 3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower, without limiting the representations and warranties provided in the Credit Agreement, represents and warrants to the Lenders and the Agents as follows: 3.1 The execution, delivery and performance by Borrower of this Amendment and the Swing Line Note are within Borrower's corporate powers, have been duly authorized by all necessary corporate action (including any necessary shareholder action) and do not and will not (a) violate any provision of any law, rule or regulation, any judgment, order or ruling of any court or governmental agency, the articles of incorporation or by-laws of Borrower or any indenture, agreement or other instrument to which Borrower is a party or by which Borrower or any of its properties is bound or (b) be in conflict with, result in a breach of, or constitute with notice or lapse of time or both a default under any such indenture, agreement or other instrument. 3.2 Each of this Amendment and the Swing Line Note constitutes the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms. 5 3.3 No Default or Event of Default has occurred and is continuing as of the Effective Date. SECTION 4. SURVIVAL. Each of the foregoing representations and warranties and each of the representations and warranties made in the Credit Agreement shall be made at and as of the Effective Date. Each of the foregoing representations and warranties shall constitute a representation and warranty of Borrower under the Credit Agreement, and it shall be an Event of Default if any such representation and warranty shall prove to have been incorrect or false in any material respect at the time when made. Each of the representations and warranties made under the Credit Agreement (including those made herein) shall survive and not be waived by the execution and delivery of this Amendment or any investigation by the Lenders or the Agent or the Collateral Agent. SECTION 5. NO WAIVER ETC. Borrower hereby agrees that nothing herein shall constitute a waiver by the Lenders of any Default or Event of Default, whether known or unknown, which may exist under the Credit Agreement. Borrower hereby further agrees that no action, inaction or agreement by the Lenders, including without limitation, any indulgence, waiver, consent or agreement altering the provisions of the Credit Agreement which may have occurred with respect to the non-payment of any obligation during the terms of the Credit Agreement or any portion thereof, or any other matter relating to the Credit Agreement, shall require or imply any future indulgence, waiver, or agreement by the Lenders. In addition, Borrower acknowledges and agrees that it has no knowledge of any defenses, counterclaims, offsets or objections in its favor against any Lender with regard to any of the obligations due under the terms of the Credit Agreement as of the date of this Amendment. SECTION 6. AFFIRMATION OF COVENANTS. Borrower hereby affirms and restates as of the date hereof all covenants set forth in the Credit Agreement, as amended hereby, and such covenants are incorporated by reference herein as if set forth herein directly. SECTION 7. RATIFICATION OF CREDIT AGREEMENT; EFFECTIVENESS OF AMENDMENT TO SECTION 6.10. (a) Except as expressly amended herein, all terms, covenants and conditions of the Credit Agreement and the other Loan Documents shall remain in full force and effect, and the parties hereto do expressly ratify and confirm the Credit Agreement as amended herein. All future references to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby. (b) The Lenders and Borrower agree that the amendment herein to Section 6.10 of the Credit Agreement shall be deemed effective as of April 15, 1998. SECTION 8. BINDING NATURE. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, successors, successors-in-titles, and assigns. 6 SECTION 9. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand all reasonable costs and expenses of the Agent and the Collateral Agent in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Agent and the Collateral Agent with respect thereto and with respect to advising the Agent and the Collateral Agent as to its rights and responsibilities hereunder and thereunder. In addition, Borrower shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, and agrees to save the Agent, the Collateral Agent, the Co-Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. SECTION 10. GOVERNING LAW. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Georgia. SECTION 11. ENTIRE UNDERSTANDING. This Amendment sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto. SECTION 12. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts and may be delivered by telecopier. Each counterpart so executed and delivered shall be deemed an original and all of which taken together shall constitute but one and the same instrument. [Signatures Set Forth on Next Page] 7 IN WITNESS WHEREOF, the parties hereto have executed this Amendment through their authorized officers as of the date first above written. VARI-LITE INTERNATIONAL, INC. By: /s/ Mike Herman ------------------------------------ Name: Mike Herman Title: Vice-President - Finance, CFO SUNTRUST BANK, ATLANTA, INDIVIDUALLY AND AS AGENT AND COLLATERAL AGENT By: /s/ John A. Fields, Jr. ------------------------------------ Name: John A. Fields, Jr. Title: Vice President By: /s/ Steven J. Newby ------------------------------------ Name: Steven J. Newby Title: Corporate Banking Officer BROWN BROTHERS HARRIMAN & CO., INDIVIDUALLY AND AS CO-AGENT By: /s/ Richard J. Ragoza ------------------------------------ Name: Richard J. Ragoza Title: Senior Credit Officer CHASE BANK OF TEXAS, N.A. (FORMERLY TEXAS COMMERCE BANK NATIONAL ASSOCIATION) By: /s/ Bruce R. Bradford ------------------------------------ Name: Bruce R. Bradford Title: Vice President 8 COMERICA BANK-TEXAS By: /s/ David Terry --------------------------------- Name: David Terry Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Robert McMillan --------------------------------- Name: Robert McMillan Title: Corporate Banking Officer 9 EX-11.1 3 EX11-1_2985 EXHIBIT 11.1 VARI-LITE INTERNATIONAL, INC. COMPUTATION OF INCOME PER COMMON SHARE FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1998 (In thousands except share data)
1997 1998 ---- ---- Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,210 $ 0 Weighted average shares outstanding . . . . . . . . . . . . . . . . 5,785,039 7,800,003 Dilutive effect of stock warrants after application of treasury stock method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,473 0 Shares used in calculating diluted income per share . . . . . . . . 5,804,512 7,800,003 Basic net income per share. . . . . . . . . . . . . . . . . . . . . $0.21 $0.00 Diluted net income per share. . . . . . . . . . . . . . . . . . . . $0.21 $0.00
EX-11.2 4 EX11-2_2985 EXHIBIT 11.2 VARI-LITE INTERNATIONAL, INC. COMPUTATION OF INCOME PER COMMON SHARE FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1998 (In thousands except share data)
1997 1998 ---- ---- Income before extraordinary loss . . . . . . . . . . . . . . . . . . $2,956 $837 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,956 $100 Weighted average shares outstanding. . . . . . . . . . . . . . . . . 5,799,098 7,682,787 Dilutive effect of stock warrants after application of treasury stock method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,473 527 Shares used in calculating diluted income per share. . . . . . . . . 5,818,571 7,683,314 Basic income per share before extraordinary loss . . . . . . . . . . $0.51 $0.11 Diluted income per share before extraordinary loss . . . . . . . . . $0.51 $0.11 Basic net income per share . . . . . . . . . . . . . . . . . . . . . $0.51 $0.01 Diluted net income per share . . . . . . . . . . . . . . . . . . . . $0.51 $0.01
EX-27.1 5 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1998 AND THE CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED JUNE 30, 1998 OF VARI-LITE INTERNATIONAL, INC. AS SET FORTH IN THIS FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 9-MOS SEP-30-1998 SEP-30-1998 APR-01-1998 OCT-01-1997 JUN-30-1998 JUN-30-1998 3,611 3,611 0 0 15,611 15,611 (583) (583) 6,708 6,708 27,949 27,949 146,945 146,945 68,029 68,029 114,403 114,403 18,359 18,359 0 0 0 0 0 0 785 785 47,555 47,555 114,403 114,403 3,482 10,093 22,529 64,275 2,627 7,297 11,023 30,728 10,844 30,205 81 139 661 1,958 1 1,384 1 547 0 0 0 0 0 737 0 0 0 100 0.00 0.01 0.00 0.01
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