-----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, Ppvv2Ac6Vi+a+svRhQg88MmkfqAdMOdwD+dQGpGvrRRBpM3Adb+1QBI46g3MGndC De7H2barfYudMRcvaOMbUg== 0001047469-99-032318.txt : 19990817 0001047469-99-032318.hdr.sgml : 19990817 ACCESSION NUMBER: 0001047469-99-032318 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99691440 BUSINESS ADDRESS: STREET 1: 201 REGAL ROW CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146301963 10-Q 1 FORM 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, 1999 COMMISSION FILE NUMBER: 0-23159 Vari-Lite International, Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 75-2239444 ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 201 Regal Row, Dallas, Texas 75247 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (214) 630-1963 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] Indicate the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date: As of August 11, 1999, there were 7,800,003 shares of Common Stock outstanding. VARI-LITE INTERNATIONAL, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
PART I. - FINANCIAL INFORMATION Page Item 1. Financial Statements: Condensed Consolidated Balance Sheets as of September 30, 1998 and June 30, 1999 .............................. 3 Condensed Consolidated Statements of Income for the three months ended June 30, 1998 and 1999 ..................... 4 Condensed Consolidated Statements of Income for the nine months ended June 30, 1998 and 1999 ...................... 5 Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 1998 and 1999 ...................... 6 Notes to Condensed Consolidated Financial Statements .............. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ......................................... 12 PART II. - OTHER INFORMATION Item 1. Legal Proceedings ................................................. 19 Item 3. Defaults Upon Senior Securities ................................... 19 Item 6. Exhibits and Reports on Form 8-K .................................. 20 SIGNATURES. ................................................................ 21
2 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) ASSETS
SEPTEMBER 30, JUNE 30, 1998 1999 ------------- --------- CURRENT ASSETS: Cash ............................................................................... $ 3,838 $ 2,111 Receivables, less allowance for doubtful accounts of $900 and $735 ................. 13,471 11,683 Inventory .......................................................................... 6,075 6,035 Prepaid expense and other current assets ........................................... 1,749 2,347 --------- --------- TOTAL CURRENT ASSETS ............................................................ 25,133 22,176 EQUIPMENT AND OTHER PROPERTY: Lighting and sound equipment ....................................................... 127,763 133,085 Machinery and tools ................................................................ 5,097 5,963 Furniture and fixtures ............................................................. 4,439 4,985 Office and computer equipment ...................................................... 10,399 10,368 Work in progress and raw materials inventory ....................................... 5,320 4,897 --------- --------- 153,018 159,298 Less accumulated depreciation and amortization .................................. 71,745 80,348 --------- --------- 81,273 78,950 OTHER ASSETS .......................................................................... 8,221 8,536 --------- --------- TOTAL ASSETS .................................................................... $ 114,627 $ 109,662 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses .............................................. $ 13,189 $ 11,167 Unearned revenue ................................................................... 1,694 1,650 Income taxes payable ............................................................... 999 191 Current portion of long-term obligations ........................................... 3,049 48,912 --------- --------- TOTAL CURRENT LIABILITIES ....................................................... 18,931 61,920 LONG-TERM OBLIGATIONS ................................................................. 47,284 1,962 DEFERRED INCOME TAXES ................................................................. 3,708 2,564 --------- --------- TOTAL LIABILITIES ............................................................... 69,923 66,446 COMMITMENTS AND CONTINGENCIES (Note 11) STOCKHOLDERS' EQUITY: Preferred Stock, $0.10 par value (10,000,000 shares authorized; no shares outstanding) .................................................................... - - Common Stock, $0.10 par value (40,000,000 shares authorized; 7,800,003 and 7,800,003 shares outstanding) ................................................... 785 785 Treasury Stock ..................................................................... (186) (186) Additional paid-in capital ......................................................... 24,426 24,426 Stockholder notes receivable ....................................................... (82) (51) Stock purchase warrants ............................................................ 600 600 Accumulated other comprehensive loss - foreign currency translation adjustment .................................................................... (230) (482) Retained earnings .................................................................. 19,391 18,124 --------- --------- TOTAL STOCKHOLDERS' EQUITY ...................................................... 44,704 43,216 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................................... $ 114,627 $ 109,662 ========= =========
See notes to condensed consolidated financial statements. 3 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1999 (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA)
1998 1999 ---------- ---------- Rental revenues ........................................................... $ 19,047 $ 18,461 Product sales and services revenues........................................ 3,482 1,605 ---------- ---------- TOTAL REVENUES.......................................................... 22,529 20,066 Rental costs .............................................................. 8,396 9,331 Product sales and services costs .......................................... 2,627 1,067 ---------- ---------- TOTAL COST OF SALES .................................................... 11,023 10,398 ---------- ---------- GROSS PROFIT ........................................................... 11,506 9,668 Selling, general and administrative expense ............................... 9,164 9,162 Research and development expense .......................................... 1,680 1,205 ---------- ---------- TOTAL OPERATING EXPENSES ............................................... 10,844 10,367 ---------- ---------- OPERATING INCOME (LOSS) ................................................... 662 (699) Interest expense net ...................................................... 661 1,119 ---------- ---------- INCOME (LOSS) BEFORE INCOME TAX ........................................... 1 (1,818) Income tax expense (benefit) .............................................. 1 (718) ---------- ---------- NET INCOME (LOSS) ......................................................... 0 (1,100) Other comprehensive loss - foreign currency translation adjustments ....... (839) (23) ---------- ---------- COMPREHENSIVE LOSS ........................................................ $ (839) $ (1,123) ========== ========== WEIGHTED AVERAGE BASIC SHARES OUTSTANDING ................................. 7,800,003 7,800,003 ========== ========== WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING ............................... 7,800,003 7,800,003 ========== ========== PER SHARE INFORMATION BASIC: Net income (loss) ..................................................... $ 0.00 $ (0.14) DILUTED: Net income (loss) ..................................................... $ 0.00 $ (0.14) Dividends declared ........................................................ $ - $ -
See notes to condensed consolidated financial statements. 4 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA)
1998 1999 ---------- ---------- Rental revenues ........................................................... $ 54,182 $ 61,976 Product sales and services revenues ....................................... 10,093 6,508 ---------- ---------- TOTAL REVENUES ......................................................... 64,275 68,484 Rental costs .............................................................. 23,431 31,297 Product sales and services costs .......................................... 7,297 4,718 ---------- ---------- TOTAL COST OF SALES .................................................... 30,728 36,015 ---------- ---------- GROSS PROFIT ........................................................... 33,547 32,469 Selling, general and administrative expense ............................... 25,062 27,725 Research and development expense .......................................... 5,143 3,687 ---------- ---------- TOTAL OPERATING EXPENSES ............................................... 30,205 31,412 ---------- ---------- OPERATING INCOME .......................................................... 3,342 1,057 Interest expense net ...................................................... 1,958 3,151 ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY LOSS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ................................ 1,384 (2,094) Income taxes expense (benefit) ............................................ 547 (827) ---------- ---------- INCOME (LOSS) BEFORE EXTRAORDINARY LOSS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ................................................. 837 (1,267) Extraordinary loss ........................................................ 737 - Cumulative effect of change in accounting principle ....................... 195 - ---------- ---------- NET LOSS .................................................................. (95) (1,267) Other comprehensive loss - foreign currency translation adjustments ....... (697) (252) ---------- ---------- COMPREHENSIVE LOSS ........................................................ $ (792) $ (1,519) ========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING ....................................... 7,682,787 7,800,003 ========== ========== WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING ............................... 7,683,314 7,800,003 ========== ========== PER SHARE INFORMATION BASIC: Income (loss) before extraordinary loss and cumulative effect of change in accounting principle ............................................... $ 0.11 $ (0.16) Extraordinary loss ...................................................... (.10) - Cumulative effect of change in accounting principle . ................... (.02) - Net loss ................................................................ $ (0.01) $ (0.16) DILUTED: Income (loss) before extraordinary loss and cumulative effect of change in accounting principle ............................................... $ 0.11 $ (0.16) Extraordinary loss ...................................................... (.10) - Cumulative effect of change in accounting principle . ................... (.02) - Net loss ................................................................ $ (0.01) $ (0.16) Dividends declared ........................................................ $ - $ -
See notes to condensed consolidated financial statements. 5 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 (UNAUDITED) (In thousands)
1998 1999 --------- --------- Cash flows from operating activities: Net loss....................................................................... $ (95) $ (1,267) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization.............................................. 9,879 11,577 Amortization of note discount and deferred loan fees....................... 67 95 Provision for doubtful accounts............................................ 139 92 Extraordinary loss from early extinguishment of debt....................... 737 - Cumulative effect of change in accounting principle........................ 195 - Deferred income taxes...................................................... 106 (1,144) Gain on sale of Brilliant Stages assets and cancellation of land lease..... - (599) Gain on sale of equipment.................................................. (29) (103) Provisions for ESOP and ESEP contributions................................. 191 187 Net change in assets and liabilities: Accounts receivable.................................................... 802 1,696 Prepaid expenses....................................................... (5) (598) Inventory.............................................................. (2,607) (1,900) Other assets........................................................... (2,285) 549 Accounts payable, accrued liabilities and income taxes payable......... (2,925) (3,017) Unearned revenue....................................................... 385 (43) -------- -------- Net cash provided by operating activities.............................. 4,555 5,525 Cash flows from investing activities: Capital expenditures, including rental equipment............................... (18,073) (10,499) Acquisition of European companies.............................................. (1,730) (1,192) Proceeds from sale of Irideon and Brilliant Stages assets and cancellation of land lease................................................... - 2,892 Proceeds from sale of equipment................................................ 67 275 -------- -------- Net cash used in investing activities.................................. (19,736) (8,524) Cash flows from financing activities: Proceeds from issuance of debt................................................. 63,100 24,041 Principal payments on debt..................................................... (65,738) (22,121) Proceeds from issuance of distributor advances................................. 576 - Principal payments on distributor advances..................................... (1,448) (552) Proceeds from payments on stockholder notes receivable......................... 89 31 Proceeds from public offering of common stock.................................. 21,307 - -------- -------- Net cash provided by financing activities.............................. 17,886 1,399 Effect from foreign currency translation adjustment.............................. (956) (127) -------- -------- Net increase (decrease) during the period........................................ 1,749 (1,727) Cash, beginning of period........................................................ 1,862 3,838 -------- -------- Cash, end of period.............................................................. $ 3,611 $ 2,111 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest expense................................................. $ 1,972 $ 3,192 Cash paid for income taxes..................................................... $ 1,383 $ 1,812
See notes to condensed consolidated financial statements. 6 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) 1. Interim Financial Information The accompanying unaudited condensed consolidated financial statements of Vari-Lite International, Inc. (the "Company") have been prepared by the Company in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company. The results of operations for the three-month and nine-month periods ended June 30, 1999 are not necessarily indicative of the results of operations that may be expected for any other interim periods or for the fiscal year ending September 30, 1999. For further information, refer to the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended September 30, 1998. 2. Inventory Inventory consists of the following:
September 30, June 30, 1998 1999 ---- ---- Raw materials ................ $5,283 $5,527 Work in progress ............. 616 502 Finished goods ............... 176 6 ------ ------ $6,075 $6,035 ====== ======
3. Initial Public Offering On October 15, 1997, in conjunction with the Company's reincorporation in Delaware and an initial public offering, the Board of Directors of the Company created a new class of common stock and authorized 40,000,000 shares. As a result of the reincorporation, stockholders received 3.76368 shares of common stock for each share of the Company's Class A common stock and Class B common stock held by the stockholders. The Company filed a Registration Statement (Commission file no. 333-33559) for the public offering of 2,300,000 shares of common stock which became effective October 16, 1997. The Company sold 2,000,000 shares of common stock for $12.00 per share for an aggregate amount of $24,000 and certain stockholders of the Company sold 300,000 shares of common stock for $12.00 per share for an aggregate amount of $3,600. 7 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) 4. Long-Term Debt and Extraordinary Loss On December 19, 1997, the Company entered into a five-year $50,000 multicurrency revolving credit facility (the "New Credit Facility") and canceled its existing credit facility. The initial $50,000 commitment on the New Credit Facility, as amended, which decreased by $1,000 in the third quarter of fiscal 1999, decreases by $1,000 during the fourth quarter of fiscal 1999 and $1,500 per quarter thereafter through maturity. Borrowings under the New Credit Facility were $46,700 at June 30, 1999 and bear interest at the lender's base rate plus a rate margin ranging from 0.00% to 1.00% or LIBOR plus a rate margin ranging from 1.00% to 3.50% based upon the Company's ratio of Adjusted Funded Debt to EBITDA (as defined in the New Credit Facility) and are secured by substantially all of the assets owned by the Company's domestic subsidiaries and a pledge of 65% of the outstanding capital stock of the Company's foreign subsidiaries. A commitment fee is charged on the average daily unused portion of the New Credit Facility at a rate ranging from 0.20% to 0.50% per annum based upon the ratio of Adjusted Funded Debt to EBITDA. The New Credit Facility contains compliance covenants, including requirements that the Company achieve certain financial ratios. In addition, the New Credit Facility places limitations on annual capital expenditures and on the ability to incur additional indebtedness, make certain loans or investments, sell assets, pay dividends or reacquire the Company's stock. In December 1997, the Company expensed deferred financing costs related to the prior debt facility of $737 (net of tax benefit of $481) relating to the early extinguishment of debt, which have been reflected in the consolidated statements of income as an extraordinary loss for the nine months ended June 30, 1998. On June 30, 1999, the Company was in default of certain financial covenants contained in the New Credit Facility. The lenders under the New Credit Facility have waived all of the financial covenant defaults from June 30, 1999 through August 20, 1999. The Company's management is currently negotiating an amendment to the New Credit Facility with modified financial covenants. The terms of the amendment, which have not been finalized, may also include the payment of additional fees and/or expenses, increases in interest rate margins, repricing and/or issuance of additional common stock warrants and/or the modification of several other terms and conditions under the New Credit Facility. There can be no assurance regarding the successful completion of this amendment or whether the Company will be able to comply with such amended covenants or other terms, therefore, the outstanding balance under the New Credit Facility has been classified as current at June 30, 1999. If the Company is not successful in amending the New Credit Facility, the lenders will be entitled to pursue all rights available under the New Credit Facility. 8 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) 5. Net Income Per Share Basic earnings per share are computed based upon the weighted average number of common shares outstanding. Diluted earnings per share reflects the dilutive effect, if any, of stock options and warrants. The following is a reconciliation of shares used in calculating diluted income per share for the three-month and nine-month periods ended June 30, 1998 and 1999:
Three Months ended Nine Months ended June 30, June 30, ------------------------ ------------------------- 1998 1999 1998 1999 --------- --------- --------- --------- Weighted average shares outstanding .................. 7,800,003 7,800,003 7,682,787 7,800,003 Dilutive effect of stock options and warrants after application of treasury stock method ........ - - 527 - --------- --------- --------- --------- Shares used in calculating diluted income per share ............................................. 7,800,003 7,800,003 7,683,314 7,800,003 ========= ========= ========= =========
For the three-month and nine-month periods ended June 30, 1999, earnings per share excludes 585,300 stock options and 242,233 warrants which are anti-dilutive. For the three-month and nine-month periods ended June 30, 1998, earnings per share excludes 514,335 and 41,665 stock options, respectively. In addition, for the three-month period ended June 30, 1998, 242,233 warrants which were anti-dilutive were excluded. 9 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) 6. Accounting Standards Changes In 1998, the Accounting Standards Executive Committee ("AcSEC") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities", which requires that such costs be expensed as incurred. The Company's practice has been to record the costs of bringing significant new operations into operation as deferred charges and to amortize them over periods of not more than five years. The Company early adopted the SOP retroactively as of October 1, 1997, and restated 1998 first quarter results to record a pre-tax charge of $282 ($195 after taxes, or $0.02 per basic and diluted share) as a cumulative effect of this accounting change. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", will be effective in 1999 and requires the disclosure of certain information about the Company's operating segments on a basis consistent with the way the Company is organized and operated. This standard expands or modifies disclosures and, accordingly, will have no effect on the Company's consolidated financial position, results of operations or cash flows. In 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. This standard, which establishes new accounting and reporting standards for derivative financial instruments, must be adopted no later than the first quarter of the Company's fiscal year 2000. The Company is currently analyzing the effect of this standard and does not expect it to have a material effect on the Company's consolidated financial position, results of operations or cash flows. 7. Acquisitions In October 1998, the Company acquired the VARI*LITE-Registered Trademark- distribution rights and related assets of its French distributor for approximately $1,200 in cash, virtually all of which has been recorded as goodwill. 8. Dispositions During fiscal 1998, the Company made a strategic decision to dispose of its Irideon-Registered Trademark- architectural automated lighting product line. As a result of this decision, during 1998 the Irideon-Registered Trademark- assets were written down to their net realizable value in accordance with SFAS No. 121. On October 30, 1998, the Company sold substantially all of the Irideon-Registered Trademark- assets for its net book value, after writedown, of approximately $2,000. On December 31, 1998, the Company sold substantially all of the assets of Brilliant Stages, Ltd., one of the Company's European subsidiaries, for approximately $500, resulting in a gain of approximately $99. 9. Lease Cancellation In December 1995, the Company entered into an operating lease with an unaffiliated land developer ("Lessor"). In December 1998, the lease was canceled as a result of the sale of the land by the Lessor, resulting in a gain to the Company of approximately $500. 10 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) 10. Legal Proceedings In August 1995, the Company brought suit asserting a number of claims of infringement of several of its patents by High End Systems, Inc. ("High End") in the United States District Court for the Northern District of Texas seeking monetary damages and injunctive relief to prevent future patent infringement. In December 1998, the court approved a negotiated settlement between the Company and High End, the specific terms of which are confidential but included cash paid and to be paid to the Company, a cross license of certain patents and authorization for High End to continue to sell all of the products that were the subject of the suit. The settlement, recorded in December 1998, does not affect the sale or use of any of the Company's or High End's products or services that existed at the time of settlement. In November 1998, the Company brought suit asserting several claims of patent infringement by Martin Gruppen A/S and Martin Professional A/S (collectively, "Martin") in the United States District Court for the Eastern District of Texas seeking monetary damages and injunctive relief to prevent future infringement. On July 26, 1999, the court entered a preliminary injunction which prohibits Martin from making, using, selling, leasing or offering for sale or lease in the United States, or importing into the United States, certain Martin products. Martin has appealed this injunction to the United States Court of Appeals for the Federal Circuit and has requested a stay of the injunction pending appeal. 11. Commitments and Contingencies In the ordinary course of its business, the Company is from time to time threatened with or named as a defendant in various lawsuits, including patent infringement claims. Additionally, the Company has filed lawsuits claiming patent infringement by third parties in connection with which the Company has been subject to counterclaims. Management does not believe that these lawsuits will have a significant impact on the Company's financial position or results of operations. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998 REVENUES. Total revenues decreased 11.0%, or $2.4 million, to $20.1 million in the three-month period ended June 30, 1999, compared to $22.5 million in the three-month period ended June 30, 1998. The revenue decrease was attributable primarily to the factors set forth below. Rental revenues decreased 3.1%, or $0.5 million, to $18.5 million in the three-month period ended June 30, 1999, compared to $19.0 million in the three-month period ended June 30, 1998. This decrease was primarily due to pricing pressures from competitors. Product sales and services revenues decreased 53.9%, or $1.9 million, to $1.6 million in the three-month period ended June 30, 1999, compared to $3.5 million in the three-month period ended June 30, 1998. This decrease was primarily due to the sale of the Company's Irideon-Registered Trademark- product line in October 1998 and substantially all of the assets of the Company's Brilliant Stages, Ltd. subsidiary ("Brilliant Stages") in December 1998. RENTAL COSTS. Rental costs increased 11.1%, or $0.9 million, to $9.3 million in the three-month period ended June 30, 1999, compared to $8.4 million in the three-month period ended June 30, 1998. Rental costs as a percentage of rental revenues increased to 50.5% in the three-month period ended June 30, 1999, from 44.1% in the three-month period ended June 30, 1998. The increase in rental costs as a percentage of total rental revenues was primarily due to increased costs associated with the higher level of conventional equipment rentals, pricing pressures from competitors which resulted in increased costs associated with renting more equipment without a corresponding increase in revenue and the inclusion in rental costs of all of the costs of the operations of the European distributors that were acquired in fiscal 1998. Prior to acquiring each distributor, the Company's rental costs associated with distributor rental revenues were almost exclusively the depreciation on the equipment assigned to the distributor. After acquiring the distributor, the Company's results reflect all of the additional rental costs incurred from operating the business previously operated by the distributor. PRODUCT SALES AND SERVICES COSTS. Product sales and services costs decreased 59.4%, or $1.6 million, to $1.1 million in the three-month period ended June 30, 1999, compared to $2.6 million in the three-month period ended June 30, 1998. Product sales and services costs as a percentage of product sales and services revenue decreased to 66.5% in the three-month period ended June 30, 1999, from 75.4% in the three-month period ended June 30, 1998. The decrease in product sales and services costs as a percentage of the related revenues was primarily due to the disposition in the first quarter of fiscal 1999 of the Brilliant Stages and Irideon-Registered Trademark- operations which had higher costs as a percentage of related revenue than the balance of the product sales and service operations. 12 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense in the three-month period ended June 30, 1999 was approximately the same as in the three-month period ended June 30, 1998. However, this expense as a percentage of total revenues increased to 45.7% in the three-month period ended June 30, 1999, from 40.7% in the three-month period ended June 30, 1998 as a result of decreased revenues. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense decreased 28.3%, or $0.5 million, to $1.2 million in the three-month period ended June 30, 1999, compared to $1.7 million in the three-month period ended June 30, 1998. This expense as a percentage of total revenues decreased to 6.0% in the three-month period ended June 30, 1999, from 7.5% in the three-month period ended June 30, 1998. This decrease was primarily the result of a decrease in employee-related costs as a result of employee terminations from the restructuring of the Company in fiscal 1998. INTEREST EXPENSE. Interest expense increased 69.3%, or $0.5 million, to $1.1 million in the three-month period ended June 30, 1999, compared to $0.7 million in the three-month period ended June 30, 1998. This increase was due to higher interest rates and a higher debt level in the period ended June 30, 1999. INCOME TAXES. The effective tax rate in the three-month periods ended June 30, 1999 and 1998 was 39.5%. NINE MONTHS ENDED JUNE 30, 1999 COMPARED TO NINE MONTHS ENDED JUNE 30, 1998 REVENUES. Total revenues increased 6.6%, or $4.2 million, to $68.5 million in the nine-month period ended June 30, 1999, compared to $64.3 million in the nine-month period ended June 30, 1998. The revenue increase was attributable primarily to the factors set forth below. Rental revenues increased 14.4%, or $7.8 million, to $62.0 million in the nine-month period ended June 30, 1999, compared to $54.2 million in the nine-month period ended June 30, 1998. This increase was primarily due to the acquisition of several of the Company's European distributors in fiscal 1998. Prior to acquiring each distributor, the Company received and recognized approximately one-half of the rental revenue earned by the distributor in accordance with the terms of the distributor agreement. After acquiring each distributor, the Company's results reflect all of the revenues the distributor would have earned. In addition, the Company's sales-type lease revenues increased as a result of the conversion of several North American dealers from a monthly rental arrangement to a fully paid long-term lease program. Sales-type lease revenues increased by $2.1 million to $3.1 million in the nine-month period ended June 30, 1999, compared to $1.0 million in the nine-month period ended June 30, 1998. Finally, additional revenue increases resulted from the opening of two new offices in fiscal 1998. Product sales and services revenues decreased 35.5%, or $3.6 million, to $6.5 million in the nine-month period ended June 30, 1999, compared to $10.1 million in the nine-month period ended June 30, 1998. This decrease was primarily due to the sale of the Company's Irideon-Registered Trademark- product line in October 1998 and substantially all of the assets of Brilliant Stages in December 1998. 13 RENTAL COSTS. Rental costs increased 33.6%, or $7.9 million, to $31.3 million in the nine-month period ended June 30, 1999, compared to $23.4 million in the nine-month period ended June 30, 1998. Rental costs as a percentage of rental revenues increased to 50.5% in the nine-month period ended June 30, 1999, from 43.2% in the nine-month period ended June 30, 1998. The increase in rental costs as a percentage of total rental revenues was primarily due to increased costs associated with the higher level of conventional equipment rentals, pricing pressures from competitors which resulted in increased costs associated with renting more equipment without a corresponding increase in revenue and the inclusion of all of the costs of the European distributors that were acquired in fiscal 1998. Prior to acquiring each distributor, the Company's rental costs associated with distributor rental revenues were almost exclusively the depreciation on the equipment assigned to the distributor. After acquiring the distributor, the Company's results reflect all of the additional rental costs incurred from operating the business previously operated by the distributor. PRODUCT SALES AND SERVICES COSTS. Product sales and services costs decreased 35.3%, or $2.6 million, to $4.7 million in the nine-month period ended June 30, 1999, compared to $7.3 million in the nine-month period ended June 30, 1998. Product sales and services costs as a percentage of product sales and services revenue in the nine-month period ended June 30, 1999 was unchanged from the nine-month period ended June 30, 1998. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense increased 10.6%, or $2.6 million, to $27.7 million in the nine-month period ended June 30, 1999, compared to $25.1 million in the nine-month period ended June 30, 1998. This increase resulted primarily from the acquisition of certain of the Company's European distributors in fiscal 1998, partially offset by a $0.5 million gain from a lease cancellation in December 1998 and the sale of the Irideon-Registered Trademark- product line and the Brilliant Stages assets in the first quarter of fiscal 1999. This expense as a percentage of total revenues increased to 40.5% in the nine-month period ended June 30, 1999, from 39.0% in the nine-month period ended June 30, 1998. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense decreased 28.3%, or $1.4 million, to $3.7 million in the nine-month period ended June 30, 1999, compared to $5.1 million in the nine-month period ended June 30, 1998. This expense as a percentage of total revenues decreased to 5.4% in the nine-month period ended June 30, 1999, from 8.0% in the nine-month period ended June 30, 1998. This decrease was primarily the result of a decrease in employee-related costs as a result of employee terminations from the restructuring of the Company in fiscal 1998. INTEREST EXPENSE. Interest expense increased 60.9%, or $1.2 million, to $3.2 million in the nine-month period ended June 30, 1999, compared to $2.0 million in the nine-month period ended June 30, 1998. This increase was due to higher interest rates and a higher debt level in the period ended June 30, 1999. EXTRAORDINARY LOSS. A non-cash extraordinary loss of $0.7 million was recorded in the nine-month period ended June 30, 1998, net of $0.4 million of tax benefit, relating to the early extinguishment of debt. 14 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. During the nine-month period ended June 30, 1998, the Company recorded a cumulative effect of change in accounting principle loss of $0.2 million, net of $0.1 million of tax benefit, relating to start-up costs that had previously been capitalized. INCOME TAXES. The effective tax rate in the nine-month periods ended June 30, 1999 and 1998 was 39.5%. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company has financed its operations and capital expenditures with cash flow from operations, bank borrowings and advances from distributors and customers. The Company's operating activities generated cash flow of $4.6 million and $5.5 million for the nine-month periods ended June 30, 1998 and 1999, respectively. During fiscal 1997, the Company borrowed under a multicurrency credit agreement (the "Old Credit Agreement") to partially finance its operations and capital expenditures. On October 21, 1997, the Company consummated the initial public offering of its common stock and used the net proceeds thereof, approximately $21.3 million, to repay indebtedness under the Old Credit Agreement. On December 19, 1997, the Company entered into a five-year $50.0 million multicurrency revolving credit facility (the "New Credit Facility") and canceled its existing credit facility. The initial $50.0 million commitment on the New Credit Facility, as amended, which decreased by $1.0 million in the third quarter of fiscal 1999, decreases by $1.0 million during the fourth quarter of fiscal 1999 and $1.5 million per quarter thereafter through maturity. Borrowings under the New Credit Facility were $46.7 million at June 30, 1999 and bear interest at the lender's base rate plus a rate margin ranging from 0.00% to 1.00% or LIBOR plus a rate margin ranging from 1.00% to 3.50% based upon the Company's ratio of Adjusted Funded Debt to EBITDA (as defined in the New Credit Facility) and are secured by substantially all of the assets owned by the Company's domestic subsidiaries and a pledge of 65% of the outstanding capital stock of the Company's foreign subsidiaries. A commitment fee is charged on the average daily unused portion of the New Credit Facility at a rate ranging from 0.20% to 0.50% per annum based upon the ratio of Adjusted Funded Debt to EBITDA. The New Credit Facility contains compliance covenants, including requirements that the Company achieve certain financial ratios. In addition, the New Credit Facility places limitations on annual capital expenditures and on the ability to incur additional indebtedness, make certain loans or investments, sell assets, pay dividends or reacquire the Company's stock. In December 1997, the Company expensed deferred financing costs related to the prior debt facility of $0.7 million (net of tax benefit of $0.4 million) relating to the early extinguishment of debt, which have been reflected in the consolidated statements of income as an extraordinary loss. 15 On June 30, 1999, the Company was in default of certain financial covenants contained in the New Credit Facility. The lenders under the New Credit Facility have waived all of the financial covenant defaults from June 30, 1999 through August 20, 1999. The Company's management is currently negotiating an amendment to the New Credit Facility with modified financial covenants. The terms of the amendment, which have not been finalized, may also include the payment of additional fees and/or expenses, increases in interest rate margins, repricing and/or issuance of additional common stock warrants and/or the modification of several other terms and conditions under the New Credit Facility. There can be no assurance regarding the successful completion of this amendment or whether the Company will be able to comply with such amended covenants or other terms, therefore, the outstanding balance under the New Credit Facility has been classified as current at June 30, 1999. If the Company is not successful in amending the New Credit Facility, the lenders will be entitled to pursue all rights available under the New Credit Facility. The Company has hedged a portion of its currency fluctuation risk by borrowing in French francs, British pounds sterling and Japanese yen under its New Credit Facility. Cash generated from the Company's France, England and Japan offices is typically denominated in French francs, British pounds sterling and Japanese yen, respectively, and is used to pay expenses incurred in those currencies and service the foreign currency borrowings. The Company's business requires significant capital expenditures. Capital expenditures for the nine months ended June 30, 1998 and 1999 were approximately $18.1 million and $10.5 million, respectively, of which approximately $17.1 million and $9.9 million were for rental equipment inventories. The majority of the Company's revenues are generated through the rental of automated lighting and concert sound systems and, as such, the Company must maintain a significant amount of rental equipment to meet customer demands. The Company had a working capital surplus of $9.6 million and a working capital deficit of $39.7 million at June 30, 1998 and 1999, respectively. 16 The Company's ability to fund its anticipated operating needs and capital expenditures for at least the next twelve months is subject to the amount of cash flow generated from operations and the Company's ability to negotiate adequate borrowing capacity under an amendment to the New Credit Facility and to access additional cash through other financing sources or asset sales. The Company's future operating results will depend on a number of factors, including the demand for the Company's products and services, the level of competition, the success of the Company's research and development programs, the ability to achieve competitive and technological advances and general and economic conditions and other factors beyond the Company's control. While the Company's management believes that they will negotiate an amendment to the New Credit Facility and obtain additional cash through other financing sources, there can be no assurance that sufficient capital resources will be available to fund the Company's business during or after the next twelve months. IMPACT OF THE YEAR 2000 ISSUE The term "year 2000 issue" is a general term used to describe the various problems that may result from the improper processing of dates and date-sensitive calculations by computers and other machinery as the year 2000 is approached and reached. These problems generally arise from the fact that most of the world's computer hardware and software have historically used only 2 digits to identify the year in a date, often meaning that the computer will fail to distinguish dates in the "2000's" from dates in the "1900's". These problems may also arise from other sources as well, such as the use of special codes and conventions in software that make use of the date field. In 1995 and 1996, the Company invested approximately $2.2 million constructing a wide-area network throughout the United States and implementing Oracle financial and manufacturing applications. The Company has conducted a review of its computer systems to identify the systems that could be affected by the year 2000 issue and is attempting to ensure that its information systems and technology and computer systems are year 2000 ready. This review is part of the Company's overall upgrade of its systems and as a result the Company has no separate budget for year 2000 compliance. Expenses relating to reviewing and assessing systems are included in historical operating expenses as part of information systems and technology and 17 have not been separately identified. The Company's upgrades are substantially complete and management expects the upgrade to the European-based operations to be completed before the end of 1999 calendar year. Management believes that with the installation of the new systems, conversion to new software and modifications to existing software, the year 2000 issue will pose no significant operational problems for the Company. The Company is currently discussing with its vendors and customers the possibility of any year 2000 interface difficulties that may affect the Company. The ability of third parties with whom the Company transacts business to adequately address their year 2000 issue is, however, outside the Company's control. To date, the Company has not identified any information technology assets under the control of the Company that represent a material risk of not being year 2000 ready or for which a suitable alternative cannot be implemented. The Company does not have a contingency plan with respect to the year 2000 issue if the information systems and technology upgrade is not completed or is delayed beyond the end of 1999. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This report includes "forward-looking statements" as that phrase is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this report, the terms "anticipate," "believe," "estimate," "expect," "will," "could," "may" and similar expressions, as they relate to management or the Company, are intended to identify forward-looking statements. Such statements reflect the current views of management with respect to future events and are subject to certain risks, uncertainties and assumptions, including without limitation the following as they relate to the Company: fluctuations in operating results and seasonality; ability to introduce new products; technological changes; reliance on intellectual property; dependence on entertainment industry; competition; dependence on management; foreign exchange risk; international trade risk; dependence on key suppliers and dependence on manufacturing facility; and the year 2000 issue. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. 18 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In August 1995, the Company brought suit asserting a number of claims of infringement of several of its patents by High End Systems, Inc. ("High End") in the United States District Court for the Northern District of Texas seeking monetary damages and injunctive relief to prevent future patent infringement. In December 1998, the court approved a negotiated settlement between the Company and High End, the specific terms of which are confidential but included cash paid and to be paid to the Company, a cross license of certain patents and authorization for High End to continue to sell all of the products that were the subject of the suit. The settlement, recorded in December 1998, does not affect the sale or use of any of the Company's or High End's products or services that existed at the time of settlement. In November 1998, the Company brought suit asserting several claims of patent infringement by Martin Gruppen A/S and Martin Professional A/S (collectively, "Martin") in the United States District Court for the Eastern District of Texas seeking monetary damages and injunctive relief to prevent future infringement. On July 26, 1999, the court entered a preliminary injunction which prohibits Martin from making, using, selling, leasing or offering for sale or lease in the United States, or importing into the United States, certain Martin products. Martin has appealed this injunction to the United States Court of Appeals for the Federal Circuit and has requested a stay of the injunction pending appeal. ITEM 3. DEFAULTS UPON SENIOR SECURITIES On June 30, 1999, the Company was in default of certain financial covenants contained in the New Credit Facility. The lenders under the New Credit Facility have waived all of the financial covenant defaults from June 30, 1999 through August 20, 1999. The Company's management is currently negotiating an amendment to the New Credit Facility with modified financial covenants. The terms of the amendment, which have not been finalized, may also include the payment of additional fees and/or expenses, increases in interest rate margins, repricing and/or issuance of additional common stock warrants and/or the modification of several other terms and conditions under the New Credit Facility. There can be no assurance regarding the successful completion of this amendment or whether the Company will be able to comply with such amended covenants or other terms, therefore, the outstanding balance under the New Credit Facility has been classified as current at June 30, 1999. If the Company is not successful in amending the New Credit Facility, the lenders will be entitled to pursue all rights available under the New Credit Facility. 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.43 Temporary Waiver Agreement, dated August 12, 1999, to the Multicurrency Credit Agreement, dated as of December 19, 1997, as amended, among the Company and SunTrust Bank, Atlanta, as agent for the banks thereunder 27.1 Financial Data Schedule (b) No reports on Form 8-K were filed for the quarter ended June 30, 1999. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VARI-LITE INTERNATIONAL, INC. Date: August 11, 1999 By: /s/ MICHAEL P. HERMAN ---------------- ----------------------------------- Michael P. Herman Vice President - Finance, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) 21 EX-10.43 2 EXHIBIT 10.43 TEMPORARY WAIVER AGREEMENT THIS TEMPORARY WAIVER AGREEMENT (this "TEMPORARY WAIVER") effective as of August 12, 1999, by and among VARI-LITE INTERNATIONAL, INC., a Delaware corporation (the "BORROWER"), SUNTRUST BANK, ATLANTA, BROWN BROTHERS HARRIMAN & CO., CHASE BANK OF TEXAS, N.A. (FORMERLY KNOWN AS TEXAS COMMERCE BANK NATIONAL ASSOCIATION), COMERICA BANK-TEXAS and THE FIRST NATIONAL BANK OF CHICAGO (collectively, the "LENDERS"), SUNTRUST BANK, ATLANTA, as agent and collateral agent for the Lenders (in such capacities, the "AGENT" and "COLLATERAL AGENT", respectively), and BROWN BROTHERS HARRIMAN & CO, as co-agent for the Lenders (in such capacity, the "CO-AGENT"). W I T N E S S E T H: WHEREAS, Borrower, the Lenders, the Agent, the Collateral Agent, and the Co-Agent are parties to a certain Multicurrency Credit Agreement dated as of December 19, 1997, as amended by a certain Amendment No. 1 to Credit Agreement dated as of April 21, 1998, by a certain Amendment No. 2 to Credit Agreement dated as of July 31, 1998, by a certain Amendment No. 3 to Credit Agreement dated as of September 30, 1998, and by a certain Amendment No. 4 to Credit Agreement dated as of April 1, 1999 (as so amended, the "CREDIT AGREEMENT"; defined terms used herein without definition shall have the meanings ascribed to such terms in the Credit Agreement); WHEREAS, Borrower has requested that the Lenders agree to waive a certain Event of Default, and the Lenders are willing to do so, subject to the limitations set forth herein; NOW, THEREFORE, for and in consideration of the mutual covenants contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: SECTION 1. TEMPORARY WAIVER. The Lenders signing below hereby agree to waive, for the period from June 30, 1999 to August 20, 1999, any Event of Default that occurred as a result of Borrower's failure to be in compliance with the financial covenant requirements set forth in SECTION 6.08 of the Credit Agreement as of June 30, 1999; PROVIDED, HOWEVER, that the foregoing waiver shall be limited in all respects solely to such period of time, and the requirements to maintain the financial covenant requirements set forth in Section 6.08 of the Credit Agreement as of June 30, 1999 shall be and remain in full force and effect upon the expiration of the foregoing waiver. SECTION 2. CONDITIONS OF EFFECTIVENESS. This Agreement shall become effective as of the date first above written (the "EFFECTIVE DATE") when this Agreement shall have been executed and delivered by the Borrower and Lenders constituting the Required Lenders as provided in the Credit Agreement. SECTION 3. STATUS OF OBLIGATIONS. Borrower hereby confirms and agrees that all Loans and all other Obligations outstanding under the Credit Agreement and the other Credit Documents as of the date hereof were duly and validly created and incurred by Borrower hereunder, that all such outstanding amounts are owed in accordance with the terms of the Credit Agreement and other Credit Documents, and that there are no rights of offset, defense, counterclaim, claim or objection in favor of Borrower arising out of or with respect to any of the Loans or other Obligations of Borrower to the Agents or the Lenders, and any such rights of offset, defense, counterclaim, claims or objections have been and are hereby waived and released by Borrower. SECTION 4. RATIFICATION OF CREDIT AGREEMENT. Except as expressly amended herein, all terms, covenants and conditions of the Credit Agreement and the other Credit Documents shall remain in full force and effect, and the parties hereto do expressly ratify and confirm the Credit Agreement as amended herein. All future references to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby. SECTION 5. BINDING NATURE. This Temporary Waiver shall be binding upon and inure to the benefit of the parties hereto, their respective successors, successors-in-titles, and assigns. SECTION 6. COSTS AND EXPENSES. Borrower shall be responsible for the costs and expenses of the Agents in connection with the preparation, execution and delivery of this Temporary Waiver and the other instruments and documents to be delivered hereunder, including, without limitation, the fees and out-of-pocket expenses of counsel for the Agents with respect thereto. SECTION 7. GOVERNING LAW. THIS TEMPORARY WAIVER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA. SECTION 8. ENTIRE UNDERSTANDING. This Temporary Waiver sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto. SECTION 9. COUNTERPARTS. This Temporary Waiver may be executed in any number of counterparts and by the different parties hereto in separate counterparts and may be delivered by telecopier. Each counterpart so executed and delivered shall be deemed an original and all of which taken together shall constitute but one and the same instrument. SECTION 10. RELEASE. In consideration of the temporary waiver granted by the Lenders pursuant to Section 1 above, Borrower hereby (a) releases, acquits and forever discharges each Agent, the Co-Agent, each Lender, and each of their respective agents, employees, officers, directors, servants, representatives, attorneys, affiliates, successors and assigns (collectively, the "Released Parties") from any and all liabilities, claims, suits, debts, liens, losses, causes of action, demands, rights, damages, costs and expenses of any kind, character or nature whatsoever, known or unknown, fixed or contingent, that Borrower may have 2 or claim to have against such Lender which might arise out of or be connected with any act of commission or omission of such Lender existing or occurring on or prior to the date of this Temporary Waiver, including, without limitation, any claims, liabilities or obligations relating to or arising out of or in connection with the Credit Agreement, any other Credit Documents or this Temporary Waiver (including, without limitation, arising out of or in connection with the initiation, negotiation, closing or administration of the transactions contemplated thereby or related thereto), from the beginning of time until the execution and delivery of this release and the effectiveness of this Temporary Waiver (the "Released Claims") and (b) agree forever to refrain from commencing, instituting or prosecuting any lawsuit, action or other proceeding against the Released Parties with respect to any and all Released Claims. SECTION 11. INDEMNITY. In consideration of the temporary waiver granted by the Lenders pursuant to Section 1 above, Borrower hereby indemnify each Agent, the Co-Agent and each Lender, and their respective officers, partners, directors, employees, representatives and agents from, and hold each of them harmless against, any and all costs, losses, liabilities, claims, damages or expenses incurred by any of them (whether or not any of them is designated a party thereto) (an "Indemnitee") arising out of or by reason of any investigation, litigation or other proceeding related to this Temporary Waiver, the Credit Agreement or any other Credit Documents or any actual or proposed use of the proceeds of any of the Loans, including, without limitation, the reasonable fees and disbursements of counsel (including foreign counsel) incurred in connection with any such investigation, litigation or other proceeding; PROVIDED, HOWEVER, Borrower shall not be obligated to indemnify any Indemnitee for any of the foregoing arising out of such Indemnitee's gross negligence or willful misconduct. SECTION 12. NO WAIVER, ETC. The Borrower hereby agrees that, except as otherwise expressly provided in Section 1 hereof, nothing herein shall constitute a waiver by the Lenders of any Default or Event of Default, whether known or unknown, which may exist under the Credit Agreement. The Borrowers hereby further agree that no action, inaction or agreement by the Lenders, including without limitation, any indulgence, waiver, consent or agreement altering the provisions of the Credit Agreement which may have occurred with respect to the non-payment of any obligation under the terms of the Credit Agreement or any portion thereof, or any other matter relating to the Credit Agreement, shall require or imply any future indulgence, waiver, or agreement by the Lenders. [Signatures Set Forth on Next Page] 3 IN WITNESS WHEREOF, the parties hereto have executed this Temporary Waiver through their authorized officers as of the date first above written. VARI-LITE INTERNATIONAL, INC. By: --------------------------------------------- Name: Title: SUNTRUST BANK, ATLANTA, INDIVIDUALLY AND AS AGENT AND COLLATERAL AGENT By: --------------------------------------------- Name: Title: PER PRO BROWN BROTHERS HARRIMAN & CO., INDIVIDUALLY AND AS CO-AGENT By: --------------------------------------------- Name: Title: CHASE BANK OF TEXAS, N.A. (FORMERLY TEXAS COMMERCE BANK NATIONAL ASSOCIATION) By: --------------------------------------------- Name: Title: 4 COMERICA BANK-TEXAS By: --------------------------------------------- Name: Title: THE FIRST NATIONAL BANK OF CHICAGO By: --------------------------------------------- Name: Title: 5 EX-27.1 3 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1999 AND THE CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED JUNE 30, 1999 OF VARI-LITE INTERNATIONAL, INC. AS SET FORTH IN THIS FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 9-MOS MAR-31-1999 SEP-30-1998 JUN-30-1999 JUN-30-1999 2,111 2,111 0 0 12,418 12,418 (735) (735) 6,035 6,035 22,176 22,176 159,298 159,298 (80,348) (80,348) 109,662 109,662 61,920 61,920 0 0 0 0 0 0 0 0 43,216 43,216 109,662 109,662 1,605 6,508 20,066 68,484 1,067 4,718 10,398 36,015 10,367 31,412 60 92 1,119 3,151 (1,818) (2,094) (718) (827) 0 0 0 0 0 0 0 0 (1,100) (1,267) (0.14) (0.16) (0.14) (0.16)
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