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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

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~~DECEMBER 3031, 2002

COMMISSION FILE NUMBER: 0-23159

Vari-Lite International, Inc. (Exact name of registrant as specified in its charter)

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		75-2239444 (I.R.S. Employer Identification No.)
201 Regal Row, Dallas, Texas (Address of principal executive offices)		75247 (Zip Code)

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

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 ý ~~Noo~~ No o

Indicate ~~the~~ the number of shares outstanding of each of the Issuer’'s classes of common stock, as of the latest practicable date: As of ~~August 15~~February 14, ~~2002~~2003, there were 7,~~800~~480,~~003 shares~~103 shares of Common Stock outstanding.

VARI-LITE INTERNATIONAL, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2002

INDEX TO QUARTERLY REPORT ON FORM 10-Q

		Page
PART I.—FINANCIAL INFORMATION
Item 1. Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2002	3
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended December 31, 2001 and 2002	4
	Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2001 and 2002	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 14.	Controls and Procedures	13
PART II.—OTHER INFORMATION
Item 1.	Legal Proceedings	14
Item 6.	Exhibits and Reports on Form 8-K	14
SIGNATURES		15

FOR THE QUARTER ENDED JUNE 30, 2002

PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements:
	Condensed Consolidated Balance Sheets as of
	September 30, 2001 and June 30, 2002
	Condensed Consolidated Statements of Income and Comprehensive
	Income (Loss) for the three months ended June 30, 2001 and 2002.
	Condensed Consolidated Statements of Income and Comprehensive
	Income (Loss) for the nine months ended June 30, 2001 and 2002.
	Condensed Consolidated Statements of Cash Flows for
	the nine months ended June 30, 2001 and 2002
	Notes to Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
PART II. - OTHER INFORMATION
Item 1.	Legal Proceedings
Item 3.	Defaults Upon Senior Securities
Item 6.	Exhibits and Reports on Form 8-K.
SIGNATURES

~~VARI–LITE~~ VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

CONDENSED CONSOLIDATED BALANCE SHEETS

			September 30, 2002			December 31, 2002
			(In thousands except share data)
ASSETS
CURRENT ASSETS:
	Cash		$	2,296		$	3,052
	Receivables, less allowance for doubtful accounts of $827 and $715			7,016			7,279
	Inventory			338			128
	Prepaid expense and other current assets			1,306			808
	Assets held for sale (Note 1)			13,097			—

		TOTAL CURRENT ASSETS		24,053			11,267
EQUIPMENT AND OTHER PROPERTY:
	Lighting and sound equipment			101,372			103,668
	Machinery and tools			1,169			1,179
	Furniture and fixtures			864			1,002
	Office and computer equipment			3,355			3,442
	Repair and maintenance inventory			384			590

				107,144			109,881
		Less accumulated depreciation and amortization		67,477			70,194

				39,667			39,687
OTHER ASSETS				580			353

		TOTAL ASSETS	$	64,300		$	51,307

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Accounts payable		$	3,709		$	4,406
	Accrued liabilities			2,500			3,312
	Unearned revenue			1,632			1,396
	Income taxes payable			329			295
	Current portion of long-term obligations			14,003			2,994
	Liabilities held for sale (Note 1)			2,068			—

		TOTAL CURRENT LIABILITIES		24,241			12,403
LONG-TERM OBLIGATIONS				6,801			6,221
DEFERRED INCOME TAXES				—			—

		TOTAL LIABILITIES		31,042			18,624
COMMITMENTS AND CONTINGENCIES (Note 4)				—			—
STOCKHOLDERS' EQUITY:
	Preferred Stock, $0.10 par value (10,000,000 shares authorized; no shares issued)			—			—
	Common Stock, $0.10 par value (40,000,000 shares authorized; 7,845,167 shares issued; 7,800,003 shares outstanding)			785			785
	Treasury Stock			(186	)		(186	)
	Additional paid-in capital			25,026			25,026
	Accumulated other comprehensive income—foreign currency translation adjustment			1,058			1,594
	Retained earnings			6,575			5,464

		TOTAL STOCKHOLDERS' EQUITY		33,258			32,683

		TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	64,300		$	51,307

(Unaudited)

(In thousands except share data)

ASSETS

	September 30, 2001			June 30, 2002
CURRENT ASSETS:
Cash	$	3,686		$	1,991
Receivables, less allowance for doubtful accounts of $603 and $849	9,679			9,550
Inventory, less valuation allowance of $407 and $5,307	15,388			12,071
Prepaid expense and other current assets	783			2,015
TOTAL CURRENT ASSETS	29,536			25,627
EQUIPMENT AND OTHER PROPERTY:
Lighting and sound equipment	103,032			104,805
Machinery and tools	3,578			3,570
Furniture and fixtures	4,207			4,788
Office and computer equipment	10,501			10,523
	121,318			123,686
Less accumulated depreciation and amortization	72,712			78,692
	48,606			44,994
OTHER ASSETS	2,076			655
TOTAL ASSETS	$	80,218		$	71,276
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	4,284		$	4,675
Accrued liabilities		3,795			3,960
Unearned revenue		1,201			1,769
Income taxes payable		146			27
Current portion of long-term obligations		4,893			18,229
TOTAL CURRENT LIABILITIES		14,319			28,660
LONG-TERM OBLIGATIONS		18,363			5,015
DEFERRED INCOME TAXES		2,209			—
TOTAL LIABILITIES		34,891			33,675
COMMITMENTS AND CONTINGENCIES (Note 4)		—			—
STOCKHOLDERS’ EQUITY:
Preferred Stock, $0.10 par value (10,000,000 shares authorized; no shares issued)		—			—
Common Stock, $0.10 par value (40,000,000 shares authorized; 7,845,167 shares issued; 7,800,003 shares outstanding)		785			785
Treasury Stock		(186	)		(186	)
Additional paid-in capital		25,026			25,026
Accumulated other comprehensive income - foreign currency translation adjustment		791			1,034
Retained earnings		18,911			10,942
TOTAL STOCKHOLDERS’ EQUITY		45,327			37,601
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	80,218		$	71,276

See notes to condensed consolidated financial statements.

VARI–-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the Three Months Ended December 31, 2001 and 2002 (Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

			2001			2002
			(In thousands except share data)
Rental revenues			$	11,119		$	12,523
Product sales and services revenues				2,044			2,856

		TOTAL REVENUES		13,163			15,379
Rental cost				5,096			5,517
Product sales and services cost				1,172			2,156

		TOTAL COST OF SALES		6,268			7,673

		GROSS PROFIT		6,895			7,706
Selling, general and administrative expense				4,857			5,885
Research and development expense				342			244

		TOTAL OPERATING EXPENSES		5,199			6,129

OPERATING INCOME				1,696			1,577
Interest expense (net)				354			548

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES				1,342			1,029
Income tax expense				517			351

INCOME FROM CONTINUING OPERATIONS				825			678
DISCONTINUED OPERATIONS (Note 1)
		Loss from operations of sales and manufacturing business (including loss on disposal of $1,000 in 2002)		(1,275	)		(1,788	)

NET LOSS				(450	)		(1,110	)
Other comprehensive income (loss)—foreign currency translation adjustment				(623	)		536

COMPREHENSIVE LOSS			$	(1,073	)	$	(574	)

WEIGHTED AVERAGE BASIC AND DILUTED SHARES OUTSTANDING				7,800,003			7,800,003

PER SHARE INFORMATION BASIC AND DILUTED:
	Net loss		$	(0.06	)	$	(0.14	)

For the Three Months Ended June 30, 2001 and 2002

(Unaudited)

(In thousands except share data)

	2001			2002
Rental revenues	$	12,572		$	10,007
Product sales and services revenues	3,012			5,578
TOTAL REVENUES	15,584			15,585
Rental cost	6,264			5,496
Product sales and services cost	1,892			3,887
TOTAL COST OF SALES	8,156			9,383
GROSS PROFIT	7,428			6,202
Selling, general and administrative expense	7,910			6,840
Research and development expense	1,318			889
Reserve for excess, slow moving and obsolete inventory	—			4,900
Write-off of receivables related to premiums paid under split-dollar life insurance policies	—			1,348
TOTAL OPERATING EXPENSES	9,228			13,977
OPERATING LOSS	(1,800		)	(7,775		)
Interest expense (net)	351			349
LOSS BEFORE INCOME TAX	(2,151		)	(8,124		)
Income tax benefit	(850		)	(1,418		)
NET LOSS	(1,301		)	(6,706		)
Other comprehensive income - foreign currency translation adjustment	118			1,265
COMPREHENSIVE LOSS.	$	(1,183	)	$	(5,441	)
WEIGHTED AVERAGE BASIC AND DILUTED SHARES OUTSTANDING	7,800,003			7,800,003
PER SHARE INFORMATION
BASIC AND DILUTED:
Net loss	$	(0.17	)	$	(0.86	)

See notes to condensed consolidated financial statements.

VARI–-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended December 31, 2001 and 2002 (Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

				2001			2002
				(In thousands)
Cash flows from operating activities:
	Net loss			$	(450	)	$	(1,110	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Depreciation and amortization			2,604			2,543
		Amortization of note discount and deferred loan fees			43			60
		Provision for doubtful accounts			71			93
		Deferred income taxes			(647	)		—
		Severance accrual			—			1,000
		Loss from the early extinguishment of debt			—			215
		(Gain) loss on sale of equipment and other property			23			(53	)
		Net change in assets and liabilities:
			Accounts receivable		898			1,388
			Prepaid expenses		(637	)		527
			Inventory		(1,139	)		253
			Other assets		30			(29	)
			Accounts payable, accrued liabilities and income taxes payable		(180	)		(1,253	)
			Unearned revenue		(409	)		(238	)

			Net cash provided by operating activities		207			3,396
Cash flows from investing activities:
	Capital expenditures, including rental equipment				(589	)		(2,116	)
	Proceeds from sale of manufacturing and sales business				—			10,647
	Proceeds from sale of equipment				35			184

			Net cash provided by (used in) investing activities		(554	)		8,715
Cash flows from financing activities:
	Proceeds from issuance of debt				14,903			25,174
	Principal payments on debt				(15,366	)		(36,929	)

			Net cash used in financing activities		(463	)		(11,755	)
Effect of exchange rate changes on cash and cash equivalents					(510	)		400

Net increase (decrease) in cash during the period					(1,320	)		756
Cash, beginning of period					3,686			2,296

Cash, end of period				$	2,366		$	3,052

Supplemental Cash Flow Information
	Cash paid for interest expense			$	376		$	235
	Cash paid for income taxes			$	639		$	247

For the Nine Months Ended June 30, 2001 and 2002

(Unaudited)

(In thousands except share data)

	2001			2002
Rental revenues	$	41,908		$	31,577
Product sales and services revenues	12,391			15,395
TOTAL REVENUES	54,299			46,972
Rental cost	19,019			16,113
Product sales and services cost	8,118			10,011
TOTAL COST OF SALES	27,137			26,124
GROSS PROFIT	27,162			20,848
Selling, general and administrative expense	24,002			20,470
Research and development expense	3,716			3,384
Gain on the sale of concert sound reinforcement business	(7,100		)	—
Reserve for excess, slow moving and obsolete inventory	—			4,900
Write-off of receivables related to premiums paid under split-dollar life insurance policies	—			1,348
TOTAL OPERATING EXPENSES	20,618			30,102
OPERATING INCOME (LOSS)	6,544			(9,254		)
Interest expense (net)	1,913			957
INCOME (LOSS) BEFORE INCOME TAX	4,631			(10,211		)
Income tax expense (benefit)	1,758			(2,243		)
NET INCOME (LOSS)	2,873			(7,968		)
Other comprehensive income - foreign currency translation adjustment	679			242
COMPREHENSIVE INCOME (LOSS)	$	3,552		$	(7,726	)
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING	7,800,003			7,800,003
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING	7,876,463			7,800,003
PER SHARE INFORMATION
BASIC:
Net income (loss)	$	0.37		$	(1.02	)
DILUTED:
Net income (loss)	$	0.36		$	(1.02	)

See notes to condensed consolidated financial statements.

VARI–-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands except share data)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended June 30, 2001 and 2002

(Unaudited)

(In thousands)

	2001			2002
Cash flows from operating activities:
Net income (loss)	$	2,873		$	(7,968	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	7,823			7,859
Amortization of note discount and deferred loan fees	362			129
Provision for doubtful accounts	138			244
Deferred income taxes	1,316			(2,209		)
Gain on sale of concert sound reinforcement business	(7,100		)	—
Reserve for excess, slow moving and obsolete inventory	—			4,900
Write-off of receivables related to premiums paid under split-dollar life insurance policies	—			1,348
Loss on sale of equipment and other property	80			214
Net change in assets and liabilities:
Accounts receivable	385			(114		)
Prepaid expenses	(124		)	(1,232		)
Inventory	(2,322		)	(1,126		)
Other assets	(460		)	(35		)
Accounts payable, accrued liabilities and income taxes payable	(1,272		)	438
Unearned revenue	(1,173		)	568
Net cash provided by operating activities	526			3,016
Cash flows from investing activities:
Capital expenditures, including rental equipment	(7,460		)	(4,615		)
Proceeds from sale of concert sound reinforcement business	11,946			—
Proceeds from sale of European operations	5,258			—
Proceeds from sale of equipment	71			87
Net cash provided by (used in) investing activities	9,815			(4,528		)
Cash flows from financing activities:
Proceeds from issuance of debt	49,288			45,894
Principal payments on debt	(60,603		)	(46,152		)
Proceeds from payments on stockholder notes receivable	19			—
Net cash used in financing activities	(11,296		)	(258		)
Effect of exchange rate changes on cash and cash equivalents	(866		)	75
Net decrease in cash during the period	(1,821		)	(1,695		)
Cash, beginning of period	4,315			3,686
Cash, end of period	$	2,494		$	1,991
Supplemental Cash Flow Information
Cash paid for interest expense	$	1,936		$	1,075
Cash paid for income taxes	$	267		$	674

See notes to condensed consolidated financial statements.

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 On November 18, 2002, the ~~opinion~~Company ofsold ~~management,~~substantially all of the ~~condensed consolidated~~assets ~~financial~~of ~~statements~~its ~~contain~~manufacturing ~~all~~and ~~adjustments~~sales business to Genlyte Thomas Group LLC ("Genlyte") for $10,647. ~~consisting~~The sale included all of ~~normal recurring~~the ~~adjustments~~sales, ~~considered~~marketing, ~~necessary~~manufacturing toand ~~present~~engineering ~~fairly~~operations associated with this business, as well as the ~~consolidated~~VARI*LITE® trademark and substantially all patents and other ~~financial~~intellectual ~~position,~~property ~~results~~associated with VARI*LITE products. This transaction resulted in a pre-tax loss of ~~operations~~$4,500, ~~and~~of ~~cash~~which ~~flows~~$3,500 was recognized in fiscal 2002 as an impairment of ~~the~~net assets ~~Company~~held for sale. The ~~results~~ remaining charge of ~~operations~~$1,000, ~~for~~which represents severance payments, was recognized in the ~~three~~first ~~and~~quarter ~~nine-month~~of ~~periods~~fiscal ~~ended~~2003. ~~June~~As 30part of this transaction, ~~2002~~the Company entered into a ~~are~~supply ~~not~~agreement, ~~necessarily~~pursuant ~~indicative~~to ofwhich Genlyte agreed to manufacture and sell to the ~~results~~Company, for a minimum of ~~operations~~ten ~~that~~years, ~~may~~all ~~be expected~~VARI*LITE ~~for~~equipment ~~any~~and ~~other~~parts ~~interim~~to ~~periods~~support orexisting ~~for~~and future VARI*LITE products and appointed the ~~fiscal~~Company ~~year~~as ~~ending~~the ~~September 30,~~exclusive ~~2002~~distributor of VARI*LITE products in Europe and Japan and a non-exclusive dealer in North America.

~~Certain~~ On October ~~reclassifications~~1, ~~have~~2002, ~~been~~the ~~made~~Company toadopted Statement of Financial Accounting Standards No. 144, "Accounting for the ~~June~~Impairment or Disposal of Long-Lived Assets." Accordingly, the September 30, ~~2001~~2002 ~~consolidated~~Balance ~~financial~~Sheet ~~statements~~has tobeen ~~conform~~reclassified to reflect the ~~presentation~~assets in and liabilities from the ~~June~~manufacturing 30and sales business as held for sale and the Statements of Operations for the three-months ended December 31, 2001 and 2002, ~~consolidated~~reflect ~~financial~~the ~~statements~~results of operations of the manufacturing and sales business as discontinued operations. The operations of the manufacturing and sales business are included only through the date of the sale.

~~For~~ In the ~~further~~opinion ~~information~~of management, ~~refer~~the condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary to present fairly the consolidated financial ~~statements~~position, ~~and~~results ~~accompanying~~of ~~notes~~operations ~~included~~and incash flows of the Company’s. ~~Annual Report~~The onresults ~~Form~~of 10operations for the three-Kmonth period ended December 31, 2002 are not necessarily indicative of the results of operations that may be expected for any other interim periods or for the fiscal year ~~ended~~ending September 30, ~~2001~~2003.

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, 2002.

2. Inventory

Inventory consists of the following:

	September 30, 2002			December 31, 2002
	September 30, 2001			June 30, 2002
Raw materials	$	13,493		$	15,688
Finished goods for resale	$	338		$	128
Inventory reserve	(407		)	(5,307		)
	$	338		$	128
Work in progress	567			474
Finished goods	1,735			1,216
	$	15,388		$	12,071

In the three-month period ended June 30, 2002, an additional reserve of $4,900 was made for excess, slow moving and obsolete inventory primarily associated with repair and maintenance parts to support the Company’s Series 200 and Series 300 automated lighting products.6

3. Debt

On December 19, 1997, the Company entered into a $50,000 multicurrency revolving credit facility (the “"Old Credit Facility”"). On December 29, 2000, VLPS Lighting Services, Inc. ("VLPS") entered into a new credit facility, which initially included a $12,000 Term Loan, a $5,000 Revolver and a $3,000 Capital Expenditure Loan. This facility ~~Borrowings~~with all subsequent amendments is herein referred to as the "New Credit Facility." On November 18, 2002, the Company used $5,000 of the proceeds from the sale of the assets of its manufacturing and sales business to Genlyte to repay a portion of the borrowings outstanding under the ~~Old~~Term Loan. Pursuant to an amendment to the New Credit Facility on December 31, 2002, the Term Loan and Capital Expenditure Loan were paid in full, the Revolver commitment was increased to $327,~~200~~500 atand ~~September~~capitalized 30loan origination fees of $215 were written off. As of December 31, 2002, there was ~~2000~~$1,597 outstanding under the Revolver. ~~Subsequent~~ Due to ~~September~~the repayment of the Term Loan and Capital Expenditure Loan, the Company classified $10,900 as current debt as of September 30, ~~2000~~2002. Borrowings under the Revolver are subject to availability under a borrowing base of eligible lighting rental assets, inventory and accounts receivable (as defined in the New Credit Facility). As of December 31, 2002, the ~~Company~~eligible ~~used~~borrowing ~~proceeds~~base exceeded the Revolver commitment of $227,~~200~~500. ~~from~~Prior to June 30, 2002, all outstanding borrowings under the ~~sale~~New Credit Facility accrued interest at the lender's base rate or LIBOR, plus a rate margin of 0.75% and 2.50%, respectively. From June 30, 2002 through December 30, 2002, all outstanding balances under the New Credit Facility accrued interest at the lender's base rate or LIBOR, plus a rate margin ranging from 1.25% to 1.75% or 3.00% to 3.50%, respectively, based upon the Company’'s ~~concert~~ratio of Adjusted Funded Debt to EBITDA (as defined in the New Credit Facility). Beginning on December 31, 2002, all outstanding balances under the New Credit Facility accrue interest at the lender's base rate or ~~sound~~LIBOR, ~~reinforcement~~plus ~~business~~a rate margin of 0.50% and ~~continental~~2.25%, ~~European~~respectively. ~~rental~~The ~~operations~~New Credit Facility is guaranteed by the Company and is secured by all of the stock and substantially all of the assets of VLPS, and a ~~funding~~pledge of 65% of the ~~London~~outstanding ~~Bank~~capital ~~Loans~~stock ~~(hereinafter~~of ~~defined)~~the toCompany's ~~reduce~~foreign ~~borrowings~~subsidiaries. A commitment fee of 0.25% is charged on the average daily unused portion of the Revolver. The New Credit Facility ~~under~~contains compliance covenants, including requirements that the ~~Old~~Company achieve certain financial ratios. In addition, the New Credit Facility places limitations on annual capital expenditures and on the ability to ~~$10~~incur additional indebtedness,~~000~~ make certain loans or investments, sell assets, pay dividends or reacquire the Company's stock. The New Credit Facility terminates on December 31, 2005. Upon termination of the New Credit Facility, the entire outstanding indebtedness thereunder becomes due and payable in full.

On Beginning ~~December~~in ~~29,~~fiscal ~~2000~~2001, ~~Vari-Lite, Inc. (“Vari-Lite”), entered a new credit facility (~~the ~~“New~~Company's ~~Credit~~London ~~Facility”),~~subsidiary ~~which~~began ~~includes~~financing ~~the~~its ~~$12,000~~capital ~~Term~~expenditures ~~Loan,~~with ~~the~~British ~~$5,000 Revolver~~pounds ~~and~~sterling ~~the~~loans ~~$3,000~~from ~~Capital~~a ~~Expenditure~~U. ~~Loan~~K. ~~The~~ ~~Term~~bank ~~Loan and Capital Expenditure Loan amortize over 84 months~~ (~~subject~~collectively, ~~to a balloon payment on termination of~~ the ~~New~~"London ~~Credit Facility~~Bank ~~as discussed below~~Loans"). ~~Borrowings~~that ~~under~~amortize ~~the~~over ~~Revolver~~48 ~~are subject~~ to ~~availability under~~60 months ~~a borrowing base of eligible inventory~~ and ~~accounts~~accrue receivable (as defined in the New Credit Facility). As of June 30, 2002, there was $2,495 outstanding under the Revolver. Prior to January 15, 2002, all outstanding borrowings under the New Credit Facility bore interest at ~~the~~various ~~lender’s~~rates ~~base rate~~ranging orfrom ~~LIBOR, plus a rate margin of 0~~7.756% ~~and~~to 29.5010%~~, respectively~~. ~~From~~ ~~January~~Borrowings ~~15, 2002 through July 31, 2002, all~~ outstanding ~~balances under the New Credit Facility bore interest~~ at ~~the lender’s base rate or LIBOR~~September 30, ~~plus~~2002 aand ~~rate margin of 0.75% or 2.50%~~December 31, ~~respectively.~~ ~~Beginning August 1,~~ 2002, ~~all outstanding balances under the New~~were ~~Credit~~approximately ~~Facility bear interest at the lender’s base rate or LIBOR~~$5,467 ~~plus~~and ~~a rate margin ranging from 1.25% to 1.75% or 3.00% to 3.50%~~$5, ~~respectively~~123, ~~based upon the Company’s ratio of Adjusted Funded Debt to EBITDA (as defined in the New Credit Facility)~~respectively. The ~~New~~London ~~Credit Facility~~Bank isLoans ~~guaranteed~~are ~~by the Company and is~~ secured by all of the ~~stock and substantially all of the~~ assets of ~~Vari-Lite and a pledge of 65% of~~ the ~~outstanding~~ ~~capital stock of the~~ Company’'s ~~foreign~~London ~~subsidiaries. A~~operations ~~commitment~~and ~~fee~~include ~~of 0.25% is charged on the average daily unused portion of the New Credit Facility. The New Credit Facility contains compliance covenants, including requirements that the Company achieve~~ certain financial ~~ratios,~~ ~~as amended on June 30~~covenants, ~~2002. In addition, the New Credit Facility places~~ limitations on ~~annual~~ capital expenditures and onintercompany ~~the~~payments ~~ability~~and ~~to incur additional indebtedness, make certain loans or investments, sell assets, pay dividends or reacquire~~ the ~~Company’s stock. The~~guarantee ~~New Credit Facility terminates on December 31, 2003. Upon termination~~ of the ~~New Credit Facility, the entire outstanding indebtedness thereunder becomes due and payable in full~~Company.

~~As of June 30, 2002, all~~ The ~~balances outstanding under the New Credit Facility were classified as current due to the likelihood that the~~ Company ~~will~~has ~~not~~borrowed bemoney ~~able~~ to ~~meet~~purchase ~~all~~computer ofequipment ~~the financial~~and ~~ratio~~office ~~covenants~~furniture ~~under~~and ~~this~~fixtures ~~facility~~and ~~beginning~~conventional onlighting ~~December 31, 2002~~equipment. ~~After~~ ~~further~~These ~~evaluation,~~loans ~~management~~are ~~also~~typically ~~believes~~amortized ~~that~~over asthree ~~of March 31, 2002, it was unlikely that the Company was going~~ to ~~meet all of these covenants as of~~ ~~December~~five ~~31,~~years ~~2002.~~and ~~Therefore,~~accrue ~~the~~interest ~~balances~~at ~~outstanding~~various ~~under~~rates ~~the~~ranging ~~New~~from ~~Credit Facility as of March 31, 2002 should also have been classified as current~~1.62% ~~The Company’s management is currently negotiating an amendment~~ to ~~the New Credit Facility with modified financial covenants and is considering other financing options to replace the New Credit Facility~~10.35%. ~~There~~Borrowings ~~can~~outstanding beunder ~~no assurances regarding the Company’s ability~~

to this ~~obtain~~type ~~additional~~of financing orat ~~the~~September 30, ~~successful completion~~2002 ofand anDecember 31, ~~amendment~~2002 towere ~~the~~approximately ~~New~~$2,324 ~~Credit~~and ~~Facility. If the Company is not successful in amending or refinancing the New Credit Facility~~$1,946, the lenders will be entitled to pursue all rights available under the New Credit Facility in the event the Company does not meet the financial ratio covenants or the terms of other compliance covenantsrespectively.

On November 23, 2000, September 27, 2001 and March 25, 2002, the Company’s London subsidiary entered into British pounds sterling loans of 4,000 (USD 5,800), 500 (USD 727) and 400 (USD 570), respectively, with a U. K. bank (collectively, the “London Bank Loans”.) The London Bank Loans accrue interest at the rate of 9.10%, 7.78% and 7.77% per annum, respectively, and amortize over 48 months, 60 months and 60 months, respectively. The London Bank Loans are secured by all of the assets of the Company’s London operations and include certain financial covenants, limitations on capital expenditures and intercompany payments and the guarantee of the Company.

The Company has borrowed money to purchase computer equipment and office furniture and fixtures and conventional lighting equipment. These loans are typically amortized over three to five years and bear interest at various rates ranging from 1.50% to 10.35%. Proceeds received under this type of financing were approximately $1,135 and $2,448 for the nine-month periods ending June 30, 2001 and 2002, respectively, and borrowings outstanding under this type of financing at June 30, 2001 and 2002 were approximately $2,367 and $3,720, respectively.

4. 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. The Company is not currently involved in any material legal proceedings.

5. Segment Reporting

In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes standards for the reporting by public business enterprises of information about product lines, geographic areas and major customers. The method for determining what information to report is based on the way that management organizes the operating segments within the Company’ for making operational decisions and assessments for financial performance. The Company's chief operating decision maker is considered to be the Company’'s Chief ~~Operating~~Executive Officer (~~“COO”~~"CEO"). The ~~COO~~CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region and by product lines for purposes of making operating decisions and ~~assessing~~ assessing financial performance. The Company has three reportable segments: North America, Europe and Asia, which are organized, managed and analyzed geographically and operate in a single industry segment. Information about the Company's operations for the three-month periods ended December 31, 2001 and 2002 is presented below:

		Three Months Ended December 31, 2001
		North America		Asia		Europe		Intercompany			Total
Net revenues from unaffiliated customers		$	5,904	$	3,357	$	3,902	$	—		$	13,163
Intersegment sales			699		5		—		(704	)		—

	Total net revenues		6,603		3,362		3,902		(704	)		13,163
Operating income (loss)			88		844		764		—			1,696
Depreciation and amortization			1,782		59		586		—			2,427
Total assets			61,925		7,751		15,924		(8,242	)		77,358

Information about the Company’s operations for the three and nine-month periods ended June 30, 2001 and 2002 is presented below:

		Three Months Ended December 31, 2002
		North America		Asia		Europe		Intercompany			Total
Net revenues from unaffiliated customers		$	7,214	$	2,556	$	5,609	$	—		$	15,379
Intersegment sales			574		4		71		(649	)		—

	Total net revenues		7,788		2,560		5,680		(649	)		15,379
Operating income (loss)			386		373		818		—			1,577
Depreciation and amortization			1,831		74		600		—			2,505
Total assets			34,660		8,942		17,175		(9,470	)		51,307

	Three Months Ended June 30, 2001
	North America			Asia			Europe		Intercompany			Total
Net revenues from unaffiliated customers	$	10,860		$	1,425		$	3,299	$	—		$	15,584
Intersegment sales	2,229			9			27		(2,265		)	—
Total net revenues	13,089			1,434			3,326		(2,265		)	15,584
Operating income (loss)	(1,621		)	(256		)	246		(169		)	(1,800		)
Depreciation and amortization	1,963			50			590		—			2,603
Total assets	66,493			7,703			17,020		(9,620		)	81,596

	Three Months Ended June 30, 2002
	North America			Asia			Europe		Intercompany			Total
Net revenues from unaffiliated customers	$	8,778		$	2,926		$	3,881	$	—		$	15,585
Intersegment sales	2,675			5			—		(2,680		)	—
Total net revenues	11,453			2,931			3,881		(2,680		)	15,585
Operating income (loss)	(7,855		)	(137		)	225		(8		)	(7,775		)
Depreciation and amortization	2,030			92			577		(61		)	2,638
Total assets	55,200			8,525			16,866		(9,315		)	71,276

	Nine Months Ended June 30, 2001
	North America		Asia		Europe		Intercompany			Total
Net revenues from unaffiliated customers	$	38,073	$	6,755	$	9,471	$	—		$	54,299
Intersegment sales	5,328		47		32		(5,407		)	—
Total net revenues	43,401		6,802		9,503		(5,407		)	54,299
Operating income	4,157		757		1,799		(169		)	6,544
Depreciation and amortization	5,838		172		1,813		—			7,823
Total assets	66,493		7,703		17,020		(9,620		)	81,596

	Nine Months Ended June 30, 2002
	North America			Asia		Europe		Intercompany			Total
Net revenues from unaffiliated customers	$	27,891		$	8,156	$	10,925	$	—		$	46,972
Intersegment sales	10,166			22		42		(10,230		)	—
Total net revenues	38,057			8,178		10,967		(10,230		)	46,972
Operating income (loss)	(9,753		)	565		790		(856		)	(9,254		)
Depreciation and amortization	6,025			219		1,724		(109		)	7,859
Total assets	55,200			8,525		16,866		(9,315		)	71,276

6. Net Loss Per Share

Basic net loss per share is computed based upon the weighted average number of common shares outstanding. Diluted net loss per share reflects the dilutive effect, if any, of stock options and warrants.

	Three Months ended December 31,
	Three Months ended June 30,		Nine Months ended June 30,
	2001	2002	~~2001~~	~~2002~~
Weighted average shares outstanding	7,800,003	7,800,003	~~7,800,003~~	~~7,800,003~~
Dilutive effect of stock options and warrants after application of treasury stock method	—	—	~~76,460~~	—
Shares used in calculating diluted net loss per share	7,800,003	7,800,003	~~7,876,463~~	~~7,800,003~~

For the three-month period ended ~~June 30~~December 31, 2001 and 2002, net loss per share excludes stock options of ~~739~~730,~~700~~200 and ~~729~~874,200, respectively, and warrants of 296,057 and 296,057, respectively, which were ~~anti-dilutive.~~ ~~For the nine-month period ended June 30, 2001, net income per share excludes stock options of 663,240 and warrants of 296,057 which were~~ anti-dilutive~~, but includes 76,460 options which were dilutive~~. ~~For~~ ~~the nine-month period ended June 30, 2002, net loss per share excludes stock options of 729,200 and warrants of 296,057 which were anti-dilutive.~~

7. ~~Dispositions~~ Subsequent Event

On In ~~October~~January 262003, ~~2000,~~ the Company ~~sold~~repurchased ~~100% of its interest in Vari-Lite International Europe~~319, ~~B.V.~~900 ~~(“VLI~~shares ~~Europe”) and 0.4%~~ of ~~its~~Common ~~interest~~Stock infor ~~Vari-Lite~~approximately Production Services, SAS, and Vari-Lite sold all of the VARI*LITEÒ lighting equipment used in those operations. VLI Europe owned 100% of Vari-Lite Production Services, N.V., 99.6% of Vari-Lite Production Services, SAS and 100% of Vari-Lite Production Services, AB. This transaction resulted in a pre-tax charge of $~~3,200~~399 which ~~was~~approximated ~~recorded as an asset impairment in~~ the ~~fourth~~ ~~quarter~~market ~~of fiscal year 2000~~value.

119

On ~~November 17,~~ ~~2000,~~ ~~the Company transferred substantially all of the assets of Showco, Inc.~~ toITEM ~~Clearsho, Inc~~2. ~~(“Clearsho”),~~MANAGEMENT'S ~~which~~DISCUSSION ~~assumed~~AND ~~certain~~ANALYSIS ofOF ~~Showco’s~~FINANCIAL ~~contract liabilities,~~CONDITION inAND ~~exchange~~RESULTS ~~for~~OF ~~the sole membership interest in Clearsho. On November 17, 2000, Showco sold 100% of its interest in Clearsho which resulted in a net pre-tax gain of $7,100.~~OPERATIONS

8. Write-off of Receivables related to Premiums paid under Split-Dollar Life Insurance Policies

On June 30, 2002, the Company and certain directors of the Company mutually agreed to terminate all of the outstanding deferred compensation and consulting agreements that existed between these parties. In addition, the Company has assigned all of its rights and obligations under split-dollar agreements with certain directors, including its obligation to pay future premiums on life insurance policies and the Company’s interest in the collateral assignment of death benefits under those policies, to the respecive directors or their designees. Under the collateral assignment, the Company was entitled to recoup the cumulative premiums paid by the Company from the cash surrender value or death benefits under the policies. As a result of the assignment, the Company wrote-off $1,348 at June 30, 2002, which represented a receivable related to premiums paid by the Company. The cancellation of the deferred compensation and consulting agreements combined with reductions in directors fees and base compensation to the Company’s CEO will result in annual cash savings of $596. Additionally, the assignment of the Company’s obligations under the split-dollar life insurance agreements will result in additional cash savings of $757 that would have been due over the remaining term of those insurance policies.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Three Months Ended ~~June 30~~December 31, 2002 Compared to Three Months Ended ~~June 30~~December 31, 2001

~~Revenues. Total~~ On ~~revenues~~November 18, ~~for~~2002, the ~~three-month~~Company ~~period~~sold ~~ended~~substantially ~~June~~all ~~30,~~of ~~2002~~the ~~were~~assets of its manufacturing and sales business to Genlyte Thomas Group LLC ("Genlyte") for $1510,647.~~6 million~~ ~~compared~~The tosale included all of the ~~three-month~~sales, ~~period~~marketing, ~~ended~~manufacturing ~~June~~and 30engineering operations associated with this business, ~~2001~~as well as the VARI*LITE® trademark and substantially all patents and other intellectual property associated with VARI*LITE products. This transaction resulted in a pre-tax loss of $~~15.6~~4,500, of which $3,500 was recognized in fiscal 2002 as an ~~million~~impairment of net assets held for sale. The ~~components~~remaining charge of ~~these~~$1,000, which represents severance payments, was recognized in the first quarter of fiscal 2003. As part of this transaction, the Company entered into a supply agreement, pursuant to which Genlyte agreed to manufacture and sell to the Company, for a minimum of ten years, all VARI*LITE equipment and parts to support existing and ~~revenues~~future ~~are~~VARI*LITE ~~set~~products ~~forth~~and ~~below~~appointed the Company as the exclusive distributor of VARI*LITE products in Europe and Japan and a non-exclusive dealer in North America.

~~Rental~~ On ~~Revenues.~~October ~~Rental revenues~~1, ~~decreased~~2002, 20the Company adopted Statement of Financial Accounting Standards No.4% 144, "Accounting for the Impairment or $2Disposal of Long-Lived Assets.6" ~~million~~Accordingly, the September 30, 2002 Balance Sheet has been reclassified to ~~$10.0~~reflect ~~million~~the inassets and liabilities from the manufacturing and sales business as held for sale and the Statements of Operations for the three-~~month period~~months ended ~~June 30~~December 31, 2001 and 2002, ~~compared~~reflect tothe ~~$12.6~~results ~~million~~of inoperations of the ~~three-month~~manufacturing ~~period ended~~and ~~June~~sales ~~30,~~business ~~2001~~as discontinued operations. ~~This~~ ~~decrease~~The ~~was due~~operations toof the ~~weak~~manufacturing ~~economy~~and sales ~~which~~business ~~continues~~are toincluded ~~have~~only athrough ~~negative~~the ~~impact~~date onof ~~live entertainment~~the ~~events~~sale.

~~Product Sales and Services~~ Revenues. ~~Product sales~~ Total ~~and services~~ revenues ~~increased~~for ~~85.2%, or $2.6 million, to $5.6 million in~~ the three-month period ended ~~June 30~~December 31, 2002, ~~compared~~were to $315.0 4 million incompared to the three-month period ended ~~June 30~~December 31, 2001. ~~This increase was due to the increase in sales~~ of ~~VARI*LITEÒ automated lighting equipment which the Company commenced selling in fiscal 2000~~$13.2 million. ~~Despite~~The ~~the~~components ~~weak economy, the Company’s product sales business continued to grow due to increases in the number~~ of ~~products~~these ~~available~~revenues ~~for~~are ~~sale,~~set ~~good~~forth ~~demand for the products internationally and increased sales and marketing efforts~~below.

Rental ~~Cost~~ Revenues. Rental ~~cost~~revenues ~~decreased~~increased 12.36%, or $01.8 4 million, to $512.5 million in the three-month period ended ~~June 30~~December 31, 2002, compared to $611.3 1 million in the three-month period ended ~~June 30~~December 31, 2001. ~~However,~~ ~~rental~~This ~~cost~~increase aswas adue ~~percentage~~to ~~of rental~~overall ~~revenues~~market ~~increased~~improvements ~~to 54.9%~~ in the ~~three-month~~Company's ~~period ended June 30,~~North ~~2002,~~American ~~from~~and ~~49.8%~~London inoffices ~~the~~and ~~three-month~~increased ~~period~~revenues ~~ended~~from ~~June~~concert ~~30,~~touring ~~2001. This~~which ~~increase~~is ~~was~~primarily ~~due~~attributable to ~~depreciation expense representing a higher percentage of~~ revenues ~~during~~earned by the ~~three-month period~~Company ~~ended~~for ~~June~~equipment ~~30,2002~~and asservices aprovided ~~result~~for ofthe Rolling ~~decreased~~Stones ~~revenues~~Licks ~~due~~World ~~to difficult~~Tour ~~economic conditions~~2002/03.

Product Sales and Services ~~Cost~~Revenues. Product sales and services ~~cost~~ revenues increased ~~105~~39.57%, or $2.0 .8 million, to $32.9 million in the three-month period ended ~~June 30~~December 31, 2002, compared to $12.9 1 million in the three-month period ended ~~June 30~~December 31, 2001. This increase was ~~primarily~~ due to ~~increased product sales~~an ~~revenue~~increase in ~~the three-month period ended June 30, 2002. Product sales and services cost as a percentage of~~ product sales ~~and~~by ~~services revenues increased to 69.7% in~~ the ~~three-month~~Company's ~~period~~foreign ~~ended June 30, 2002, from 62~~offices.8% in the three-month period ended June 30, 2001 as a result of the increased sales of recently introduced products which generally have lower gross margins than the more mature products sold by the Company.

~~Selling, General~~ Rental ~~and Administrative Expense~~Cost. Rental ~~Selling,~~cost ~~general~~increased ~~and administrative expense decreased 13~~8.52%, or $10.1 4 million, to $65.8 5 million in the three-month period ended ~~June~~ 30December 31, 2002, compared to $75.9 1 million in the three-month period ended ~~June~~December 31, 302001. However, rental cost as a percentage of rental revenues decreased to 44.1% in the three-month period ended December 31, 2002, from 45.8% in the three-month period ended December 31, 2001. This decrease was due to ~~the~~depreciation expense ~~reduction~~representing ~~efforts~~a ~~undertaken~~lower inpercentage ~~the~~of ~~first~~revenues ~~and~~during ~~third~~the ~~quarters~~three-month ofperiod ~~fiscal~~ended December 31, 2002. ~~This expense~~ as a ~~percentage~~result of ~~total~~ increased revenues ~~decreased~~compared to ~~43.9% in~~ the three-month period ended ~~June 30~~December 31, ~~2002,~~2001. ~~from~~

13 Product Sales and Services Cost. Product sales and services cost increased 84.0%, or $1.0 million, to $2.2 million in the three-month period ended December 31, 2002, compared to $1.2 million in the three-month period ended December 31, 2001. This increase was primarily due to increased new product sales. Product sales and services cost as a percentage of product sales and services revenues

~~50.8% in the three-month period ended June 30, 2001 as a result of the aforementioned expense reductions.~~10

~~Research~~ ~~and~~increased ~~Development~~to ~~Expense~~75. ~~Research and development expense decreased 32.~~5%, ~~or $0.4 million, to $0.9 million~~ in the three-month period ended ~~June 30~~December 31, 2002, ~~compared~~from ~~to $1~~57.3% ~~million~~ in the three-month period ended ~~June 30~~December 31, 2001~~. This~~ ~~decrease was~~ primarily due to ~~expense~~higher ~~reduction~~product ~~efforts~~sales ~~undertaken~~cost ~~in the first and third quarters of fiscal 2002. This expense~~ as a percentage of ~~total~~respective revenues ~~decreased~~ toassociated ~~5.7%~~with in the ~~three-month~~sale ~~period~~of ~~ended~~new ~~June~~products ~~30,~~during ~~2002, from 8.5% in~~ the three-month period ended ~~June 30~~December 31, ~~2001 as a result of the aforementioned expense reductions~~2002.

~~Reserve~~ Selling, ~~for~~General ~~Excess~~and Administrative Expense. Selling, ~~Slow~~ ~~Moving~~general and ~~Obsolete~~administrative ~~Inventory~~expense increased 21.2%, Inor $1.0 million, to $5.9 million in the three-month period ended ~~June 30~~December 31, 2002, ~~an additional~~compared ~~reserve~~to of $4.9 million ~~was~~in ~~made~~the ~~for~~three-month ~~excess,~~period ~~slow~~ended ~~moving~~December 31, ~~and~~2001. This ~~obsolete~~increase ~~inventory~~was primarily ~~associated~~due ~~with~~to ~~repair~~higher employee bonuses and ~~maintenance~~higher ~~parts~~costs ~~to support~~associated with the Company’'s ~~Series~~London ~~200~~ and ~~Series~~Tokyo ~~300~~operations ~~automated~~due ~~lighting~~to ~~products, which~~the ~~are~~currency nofluctuations ~~longer~~between ~~produced by~~ the ~~Company~~U.S. ~~but~~dollar ~~continue~~and tothe Japanese beyen ~~rented~~and ~~through the~~British ~~Company’s~~pound ~~rental~~during ~~operations.~~the ~~The~~three ~~Company~~month ~~considered~~period ~~this~~ended ~~reserve~~December 31, ~~necessary as~~2002 awhen ~~result~~compared ofto the ~~decreased~~three ~~likelihood~~month ~~that~~period ~~these~~ended ~~components~~December 31, ~~will~~2001. ~~ultimately be~~This ~~consumed~~expense ~~due~~as toa ~~decreased~~percentage ~~rental~~of total revenues ~~related~~increased to ~~these~~38.3% ~~lighting products~~in ~~during~~ the three-month period ended ~~June 30~~December 31, 2002, ~~and~~from 36.9% in the ~~market~~three-month ~~uncertainty regarding~~period ~~economic~~ended ~~conditions~~December 31, 2001.

~~Write-off~~ Research ofand ~~Receivables~~Development ~~Related to Premiums Paid under Split-Dollar Life Insurance Policies~~Expense. Research ~~On June 30, 2002, the Company cancelled all consulting~~ and ~~deferred~~development ~~compensation~~expense ~~agreements~~decreased ~~between the Company and certain directors of the Company~~28. ~~In addition~~7%, ~~the~~ ~~Company~~or ~~has assigned all of its rights and obligations~~$0.1 million, ~~under split-dollar agreements with certain directors, including its obligation~~ to ~~pay future~~ ~~premiums~~$0.2 million ~~on life insurance policies and the Company’s interest~~ in the ~~collateral~~ ~~assignment~~three-month ofperiod ~~death~~ended ~~benefits under those policies~~December 31, ~~to the respective directors or their designees. Under the collateral assignment~~2002, ~~the~~compared ~~Company was entitled~~ to ~~recoup~~$0.3 million ~~the~~in ~~cumulative premiums paid by~~ the ~~Company~~three-month ~~from~~period ~~the~~ended ~~cash~~December 31, ~~surrender~~2001. ~~value~~This orexpense ~~death~~as ~~benefits under the policies. As~~ a ~~result~~percentage of ~~the assignment, the Company expensed~~ ~~receivables~~total ~~related~~revenues decreased to ~~premiums paid under those policies of $~~1.36% ~~million during~~in the three-month period ended ~~June 30~~December 31, 2002., ~~The~~from ~~cancellation of the deferred compensation and consulting agreements combined with reductions in directors fees and base compensation to the Company’s CEO will result in annual cash savings of $0~~2.6% ~~million.~~in ~~Additionally,~~ the ~~assignment of the Company’s obligations under the split~~three-~~dollar~~month ~~life~~period ~~insurance~~ended ~~agreements~~December 31, ~~will result in additional cash savings of $0~~2001.7 ~~million~~These ~~that~~decreases ~~would~~were ~~have~~primarily ~~been~~ due ~~over the~~to ~~remaining~~cost ~~term~~reductions ofmade ~~those~~during ~~insurance~~fiscal ~~policies~~2002.

Interest Expense. Interest expense increased 54.8%, or $0.2 million, to $0.5 million in the three-month period ended ~~June 30~~December 31, 2002, iscompared ~~unchanged~~to ~~from~~$0.3 million in the three-month period ended ~~June~~December 31, 302001. This increase was due to a non-cash charge of $0.2 million in the three-month period ended December 31, 2002 relating to the write-off of capitalized loan origination costs due to the early extinguishment of debt with proceeds from the sale ~~2001~~of the manufacturing and sales business in November 2002.

~~Income~~ Discontinued ~~Taxes~~Operations. In ~~The~~November 2002, ~~effective~~the ~~tax~~Company ~~rates~~sold insubstantially all of the assets of its manufacturing and ~~three-month~~sales ~~periods~~business. ~~ended~~The ~~June~~sale 30included all of the sales, ~~2002~~marketing, manufacturing and ~~2001~~engineering ~~were~~operations ~~17.5%~~associated ~~and~~with ~~39.5%~~this business, as well as the VARI*LITE® trademark and substantially ~~respectively~~all patents and other intellectual property associated with VARI*LITE products. ~~The~~ ~~decrease~~This transaction resulted in ~~the effective~~a pre-tax ~~rate~~loss ~~during~~of ~~the~~$4.5 million, ~~three-month~~of ~~period~~which ~~ended~~$3.5 million ~~June~~was recognized ~~30,~~in fiscal 2002 isas ~~due~~an ~~to a~~impairment ~~reserve~~of net assets held for sale. The remaining charge of $1.8 0 million, ~~established~~which ~~against~~represents severance payments, was recognized in the ~~Company’s~~first ~~deferred~~quarter ~~tax~~of ~~asset.~~fiscal 2003. The ~~Company~~operating ~~considered~~results for this ~~reserve~~business ~~necessary~~are ~~due~~included toin ~~the~~discontinued ~~uncertainty~~operations. ofThe loss from discontinued operations increased 40.2% or $0.5 million, to $1.8 million in the ~~Company’s~~three-month ~~ability~~period ended December 31, 2002 compared to ~~ultimately~~$1.3 million ~~utilize~~in the ~~benefit~~three-month period ended December 31, 2001. The increase in the loss of the ~~deferred~~discontinued ~~tax~~operations ~~asset~~is asprimarily adue ~~result~~to the accrual of ~~past~~$1.0 million ~~operating~~of ~~losses~~severance expenses during the three-month period ended December 31, 2002.

14 Income Taxes. The effective tax rates in the three-month periods ended December 31, 2002 and 2001 were 34.1% and 38.5%, respectively.

Nine Months Ended June 30, 2002 Compared to Nine Months Ended June 30, 2001

Revenues. Total revenues decreased 13.5%, or $7.3 million, to $47.0 million in the nine-month period ended June 30, 2002, compared to $54.3 million in the nine-month period ended June 30, 2001. The revenue decrease was attributable primarily to the factors set forth below.

Rental Revenues. Rental revenues decreased 24.7%, or $10.3 million, to $31.6 million in the nine-month period ended June 30, 2002, compared to $41.9 million in the nine-month period ended June 30, 2001. This decrease was due to the weak economy combined with the ongoing effects of the September 11, 2001 attacks, as well as the sale of the Company’s concert sound reinforcement business in November 2000, which accounted for $1.6 million in revenues in the nine-month period ended June 30, 2001.

Product Sales and Services Revenues. Product sales and services revenues increased 24.3%, or $3.0 million, to $15.4 million in the nine-month period ended June 30, 2002, compared to $12.4 million in the nine-month period ended June 30, 2001. This increase was due to a $6.7 million increase in sales of VARI*LITEÒ automated lighting equipment which the Company commenced selling in fiscal 2000. Despite the weak economy, the Company’s product sales business continued to grow due to increases in the number of products available for sale, good demand for the products internationally and increased sales and marketing efforts. This increase was partially offset by a $3.7 million decrease in revenues due to the closing of the Company’s corporate meeting and special events management business in April 2001.

Rental Cost. Rental cost decreased 15.3%, or $2.9 million, to $16.1 million in the nine-month period ended June 30, 2002, compared to $19.0 million in the nine-month period ended June 30, 2001. This decrease was due to reduced revenues as a result of a weak economy and the sale of the Company’s concert sound reinforcement business in November 2000. Rental cost as a percentage of rental revenues increased to 51.0% in the nine-month period ended June 30, 2002, from 45.4% in the nine-month period ended June 30, 2001. This increase was primarily due to depreciation expense representing a higher percentage of revenues during the nine-month period ended June 30, 2002 as a result of decreased revenues due to difficult economic conditions.

Product Sales and Services Cost. Product sales and services cost increased 23.3%, or $1.9 million, to $10.0 million in the nine-month period ended June 30, 2002, compared to $8.1 million in the nine-month period ended June 30, 2001. This increase was due to a $4.4 million increase in cost of sales of VARI*LITEÒ automated lighting equipment offset by a $2.5 million decrease in product sales and services cost associated with the closing of the Company’s corporate meeting and special events management business in April, 2001. Product sales and services cost as a percentage of product sales and services revenues decreased to 65.0% in the nine-month period ended June 30, 2002, from 65.5% in the nine-month period ended June 30, 2001.

Selling, General and Administrative Expense. Selling, general and administrative expense decreased 14.7%, or $3.5 million, to $20.5 million in the nine-month period ended June 30, 2002, compared to $24.0 million in the nine-month period ended June 30, 2001. This decrease was primarily due to the sale of the Company’s concert sound reinforcement business in November 2000 and the closing of the Company’s corporate meeting and special events management business in April 2001, as well as expense reduction efforts undertaken in the first and third quarters of fiscal 2002. This expense as a percentage of total revenues decreased to 43.6% in the nine-month period ended June 30, 2002, from

44.2% in the nine-month period ended June 30, 2002 as a result of the aforementioned expense reductions.

Research and Development Expense. Research and development expense decreased 9.0%, or $0.3 million, to $3.4 million in the nine-month period ended June 30, 2002, compared to $3.7 million in nine-month period ended June 30, 2001. This decrease was primarily due to expense reduction efforts undertaken in the first and third quarters of fiscal 2002. This expense as a percentage of total revenues increased to 7.2% in the nine-month period ended June 30, 2002, from 6.8% in the nine-month period ended June 30, 2001 as a result of decreased revenues.

Reserve for Excess, Slow Moving and Obsolete Inventory. In the nine-month period ended June 30, 2002, an additional reserve of $4.9 million was made for excess, slow moving and obsolete inventory primarily associated with repair and maintenance parts to support the Company’s Series 200 and Series 300 automated lighting products, which are no longer produced by the Company but continue to be rented through the Company’s rental operations. The Company considered this reserve necessary as a result of the decreased likelihood that these components will ultimately be consumed due to decreased rental revenues related to these lighting products during the nine-month period ended June 30, 2002 and the market uncertainty regarding economic conditions.

Write-off of Receivables Related to Premiums Paid under Split-Dollar Life Insurance Policies. On June 30, 2002, the Company cancelled all consulting and deferred compensation agreements between the Company and certain directors of the Company. In addition, the Company has assigned all of its rights and obligations, under split-dollar agreements with certain directors, including its obligation to pay future premiums on life insurance policies and the Company’s interest in the collateral assignment of death benefits under those policies, to the respective directors or their designees. Under the collateral assignment, the Company was entitled to recoup the cumulative premiums paid by the Company from the cash surrender value or death benefits under the policies. As a result of the assignment, the Company expensed receivables related to premiums paid under those policies of $1.3 million during the nine-month period ended June 30, 2002. The cancellation of the deferred compensation and consulting agreements combined with reductions in directors fees and base compensation to the Company’s CEO will result in annual cash savings of $0.6 million. Additionally, the assignment of the Company’s obligations under the split-dollar life insurance agreements will result in additional cash savings of $0.7 million that would have been due over the remaining term of those insurance policies.

Interest Expense. Interest expense decreased 50.0%, or $1.0 million, to $0.9 million in the nine-month period ended June 30, 2002, compared to $1.9 million in the nine-month period ended June 30, 2001, as a result of reduced borrowings and lower interest rates in the nine-month period ended June 30, 2002, as well as interest income of $0.1 million from an income tax refund.

Income Taxes. The effective tax rates in the nine-month periods ended June 30, 2002 and 2001 were 22.0% and 38.0%, respectively. The decrease in the effective tax rate during the nine-month period ended June 30, 2002 is due to a reserve of $1.8 million established against the Company’s deferred tax asset. The Company considered this reserve necessary due to the uncertainty of the Company’s ability to ultimately utilize the benefit of the deferred tax asset as a result of past operating losses.

Liquidity and Capital Resources

Historically, the Company has financed its operations and capital expenditures with cash flow from operations, bank borrowings and advances from customers. ~~The~~ The Company’'s operating activities generated cash flow of $0.5 2 million and $3.0 4 million, respectively, in the ~~nine~~three-month periods ending ~~June 30~~December 31, 2001 and 2002.

On December 19, 1997, the Company entered into ~~the~~a ~~Old~~$50.0 million ~~Credit~~multicurrency ~~Facility.~~revolving ~~Borrowings~~credit ~~under~~facility (the "Old Credit ~~Facility~~ ~~were $32~~Facility").2 ~~million~~On ~~at September 30~~December 29, 2000~~. Subsequent~~, toVLPS Lighting ~~September 30~~Services, Inc. ~~2000~~("VLPS"), the Company used proceeds of $22.2 million from the sale of the Company’s concert sound reinforcement business and continental European rental operations and the funding of the London Bank Loans to reduce borrowings under the Old Credit Facility to $10.0 million.

On December 29, 2000, Vari-Lite entered into the New Credit Facility which includes the $12.0 Term Loan, the $5.0 million Revolver and the $3.0 million Capital Expenditure Loan. The Term Loan and Capital Expenditure Loan amortize over 84 months (subject to a balloon payment on termination of the New Credit Facility as discussed below). Borrowings under the Revolver are subject to availability under a borrowing base of eligible inventory and accounts receivable (as defined in the New Credit Facility). As of June 30, 2002, there was $2.5 million outstanding under the Revolver. Prior to January 15, 2002, all outstanding borrowings under the New Credit Facility bore interest at the lender’s base rate or LIBOR, plus a rate margin of 0.75% and 2.50%, respectively. Since January 15, 2002, all outstanding balances under the New Credit Facility bear interest at the lender’s base rate or LIBOR, plus a rate margin ranging from 0.25% to 0.75% or 2.00% to 2.50%, respectively, based upon the Company’s ratio of Adjusted Funded Debt to EBITDA (as defined in the New Credit Facility). From January 15, 2002 through July 31, 2002, all outstanding balances under the New Credit Facility bore interest at the lender’s base rate or LIBOR, plus a rate margin ranging of 0.75% or 2.00%, respectively. Beginning August 1, 2002, all outstanding balances under the New Credit Facility bear interest at the lender’s base rate or LIBOR, plus a rate margin ranging from 1.25% to 1.75% or 3.00% to 3.50%, respectively, based upon the Company’s ratio of Adjusted Funded Debt to EBITDA (as defined in the New Credit Facility). The New Credit Facility is guaranteed by the Company and is secured by all of the stock and substantially all of the assets of Vari-Lite and a pledge of 65% of the outstanding capital stock of the Company’s foreign subsidiaries. A commitment fee of 0.25% is charged on the average daily unused portion of the New Credit Facility. The New Credit Facility contains compliance covenants, including requirements that the Company achieve certain financial ratios, as amended on June 30, 2002. 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. The New Credit Facility terminates on December 31, 2003. Upon termination of the New Credit Facility, the entire outstanding indebtedness thereunder becomes due and payable in full.11

As entered ofinto ~~June~~a 30new credit facility, ~~2002~~which initially included a $12.0 million Term Loan, ~~all~~a $5.0 million Revolver and a $3.0 million Capital Expenditure Loan. This facility with ~~balances~~all ~~outstanding~~subsequent ~~under~~amendments is herein referred to as the "New Credit Facility." ~~were~~On ~~classified~~November 18, as2002, ~~current due~~the toCompany used $5.0 million of the ~~likelihood~~proceeds ~~that~~from the ~~Company~~sale ~~will~~of ~~not~~the beassets ~~able~~of its manufacturing and sales business to ~~meet~~Genlyte ~~all~~to repay a portion of the ~~financial~~ ~~ratio~~borrowings ~~covenants~~outstanding under ~~this~~the ~~facility~~Term ~~beginning~~Loan. Purusant to an amendment to the New Credit Facility on December 31, 2002., ~~After~~the ~~further~~Term ~~evaluation~~Loan and Capital Expenditure Loan were paid in full, ~~management~~the ~~also~~Revolver ~~believes~~commitment ~~that~~was asincreased to $7.5 million and capitalized loan origination fees of ~~March~~ $0.2 million were written off. As of December 31, 2002, itthere was ~~unlikely~~$1.6 million ~~that~~outstanding under the Revolver. Due to the repayment of the Term Loan and Capital Expenditure Loan, the Company ~~was~~classified ~~going~~$10.9 as current debt as of September 30, 2002. Borrowings under the Revolver are subject to ~~meet~~availability ~~all~~under a borrowing base of ~~these~~eligible ~~covenants~~lighting rental assets, inventory and accounts receivable (as defined in the New Credit Facility). As of December 31, 2002~~. Therefore~~, the ~~balances~~eligible borrowing base exceeded the Revolver commitment of $7.5 million. Prior to June 30, 2002, all outstanding borrowings under the New Credit Facility asaccrued interest at the lender's base rate or LIBOR, plus a rate margin of ~~March~~0.75% 31and 2.50%, respectively. From June 30, 2002 through December 30, 2002, ~~should~~all ~~also~~outstanding ~~have~~balances ~~been~~under ~~classified~~the asNew ~~current~~Credit Facility accrued interest at the lender's base rate or LIBOR, plus a rate margin ranging from 1.25% ~~The~~to 1.75% or 3.00% to 3.50%, respectively, based upon the Company’'s ~~management~~ratio ~~is currently~~of ~~negotiating~~Adjusted anFunded ~~amendment~~Debt to EBITDA (as defined in the New Credit Facility). ~~with~~Beginning ~~modified~~on December 31, 2002, all outstanding balances under the New Credit Facility accrue ~~financial~~interest ~~covenants~~at the lender's base rate or LIBOR, plus a rate margin of 0.50% and 2.25%, respectively. The New Credit Facility is ~~considering~~guaranteed ~~other~~by ~~financing~~the ~~options~~Company toand ~~replace~~is secured by all of the stock and substantially all of the assets of VLPS, and a pledge of 65% of the outstanding capital stock of the Company's foreign subsidiaries. A commitment fee of 0.25% is charged on the average daily unused portion of the Revolver. The New Credit Facility contains compliance covenants, including requirements that the Company achieve certain financial ratios. ~~There~~In ~~can~~addition, bethe noNew ~~assurances~~Credit ~~regarding~~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. The New Credit Facility terminates on December 31, 2005. Upon termination of the New Credit Facility, the entire outstanding indebtedness thereunder becomes due and payable in full.

17 Beginning in fiscal 2001, the Company's London subsidiary began financing its capital expenditures with British pounds sterling loans from a U. K. bank (collectively, the "London Bank Loans") that amortize over 48 to 60 months and accrue interest at various rates ranging from 7.6% to 9.10%. Borrowings outstanding at September 30, 2002 and December 31, 2002 were approximately $5.5 million and $5.1 million, respectively. The London Bank Loans are secured by all of the assets of the Company's London operations and include certain financial covenants, limitations on capital expenditures and intercompany payments and the guarantee of the Company.

The Company’s ~~ability~~has toborrowed ~~obtain~~money ~~additional~~to ~~financing~~purchase ~~or the~~computer ~~successful~~equipment ~~completion~~and ofoffice anfurniture ~~amendment~~and tofixtures ~~the~~and ~~New~~conventional ~~Credit~~lighting ~~Facility~~equipment. IfThese ~~the Company~~loans isare ~~not~~typically ~~successful~~amortized inover ~~amending~~three orto five ~~refinancing~~years ~~the~~and ~~New~~accrue ~~Credit~~interest ~~Facility, the~~at ~~lenders~~various ~~will~~rates beranging ~~entitled~~from 1.62% to ~~pursue~~10.35%. ~~all~~Borrowings ~~rights~~outstanding ~~available~~ under ~~the~~this ~~New Credit~~type ~~Facility~~of infinancing ~~the~~at ~~event~~September 30, ~~the~~2002 ~~Company~~and ~~does~~December 31, ~~not~~2002 ~~meet the financial ratio~~were ~~covenants~~approximately or$2.3 million ~~the~~and ~~terms~~$1.9 million, ~~of other compliance covenants~~respectively.

~~On November 23, 2000, September~~ The ~~27, 2001 and March 25, 2002, the~~ Company’'s ~~London~~business ~~subsidiary~~requires ~~entered~~significant ~~into British~~capital ~~pounds~~expenditures. ~~sterling~~Capital ~~loans~~expenditures offor ~~4.0~~the ~~million~~three ~~(USD~~months ~~5.8~~ended ~~million)~~December 31, ~~0.5~~2001 ~~million (USD 0.7 million)~~ and ~~0.4~~2002 ~~million~~were ~~(USD~~approximately $0.6 million and $2.1 million), respectively, ~~with~~of awhich U.approximately K$0. ~~bank~~4 million ~~(collectively,~~and ~~the “London Bank Loans”~~$2.)1 ~~The~~million ~~London~~were ~~Bank~~for ~~Loans~~rental ~~accrue~~and ~~interest~~demo atequipment ~~the rate of 9~~inventories.~~10%,~~ ~~7.78%~~The ~~and 7.77%~~majority ~~per~~of ~~annum,~~the ~~respectively,~~Company's ~~and~~revenues ~~amortize over 48 months, 60 months and 60~~are ~~months,~~generated ~~respectively. The~~through ~~London Bank Loans are secured by all of~~ the ~~assets~~rental of ~~the~~automated ~~Company’s~~lighting ~~London~~systems ~~operations~~ and ~~include~~, ~~certain~~as ~~financial covenants~~such, ~~limitations~~the onCompany ~~capital~~must ~~expenditures~~maintain ~~and intercompany~~a ~~payments~~significant ~~and~~amount ~~the~~of ~~guarantee~~rental ofequipment ~~the~~to ~~Company~~meet customer demands.

~~The Company has borrowed money~~ Management tobelieves ~~purchase~~that ~~computer~~cash ~~equipment~~flow ~~and~~generated ~~office~~from ~~furniture~~operations and ~~fixtures~~borrowing ~~and conventional~~capacity ~~lighting~~under ~~equipment. These loans~~the ~~are~~New ~~amortized~~Credit ~~over~~Facility ~~three~~will tobe ~~five~~sufficient ~~years and bear interest at various rates ranging from 1.50%~~ to ~~10.35%. Proceeds received~~meet ~~under this type of financing were approximately $1.1 million and $2.4 million for~~ the ~~nine-month~~anticipated ~~periods~~operating ~~ending~~cash ~~June~~needs ~~30, 2001~~ and ~~2002, respectively,~~ ~~and~~capital ~~borrowings outstanding under this type of financing at June 30, 2001 and 2002 were approximately $2.4 million and $3.7 million, respectively.~~

The Company’s business requires significant capital expenditures. Capital expenditures for the nine months ended June 30, 2001 and 2002 were approximately $7.5 million and $4.6 million, respectively, of which approximately $6.7 million and $4.4 million were for rental and demo equipment inventories. The majority of the Company’s revenues are generated through the rental of automated lighting systems and, as such, the Company must maintain a significant amount of rental equipment to meet customer demands.12

~~The Company’s ability to fund its anticipated~~ ~~operating needs and capital~~ expenditures for ~~at least~~ the next twelve months. ~~is subject~~Because 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 Company’s ability to market, sell and support products,~~ competition, ~~the success of the~~ ~~Company’s research and development programs, the ability to achieve competitive and technological advances,~~ 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 or obtain additional cash through other financing sources~~, there can be no assurance that sufficient capital resources will be available to fund the ~~Company’s~~expected ~~business during~~expansion orof ~~after~~its business ~~the~~beyond ~~next~~such ~~twelve months~~period.

Disclosure Regarding Forward-Looking Statements

This report includes “"forward–-looking statements”" as that phrase is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this report, the words “"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; technological changes; dependence on entertainment industry; competition; dependence on management; foreign exchange risk; international trade risk; and dependence on key suppliers. 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.

subject to certain risks, uncertainties and assumptions, including without limitation the following as they relate to the Company: fluctuations in operating results and seasonality; the Company’s ability to market, sell and support 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; dependence on manufacturing facility, customer demand and business and economic cycles; and changes in capital and financial markets, including the performance of companies listed on the Nasdaq National Market. 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

The Company does not believe that the market risks for the three- ~~and nine-~~month ~~periods~~period ended ~~June~~ 30December 31, 2002 substantially changed from those risks outlined for the year ended ~~September~~ September 30, ~~2001~~2002 in the Company’'s Form 10-K.

19 ITEM 14. CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a date (the "Evaluation Date"), which was within 90 days of this Report, have concluded in their judgment that, as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and designed to ensure that material information relating to the Company and its subsidiaries would be made known to them.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company's reports filed under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

There were no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the Evaluation Date.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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 infringements of its patents by third parties for which the Company has been subject to counterclaims. The Company is not currently involved in any material legal proceedings.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

As of June 30, 2002, all balances outstanding under the New Credit Facility were classified as current due to the likelihood that the Company will not be able to meet all of the financial ratio covenants under this facility beginning on December 31, 2002. After further evaluation, management also believes that as of March 31, 2002, it was unlikely that the Company was going to meet all of these covenants as of December 31, 2002. Therefore, the balances outstanding under the New Credit Facility as of March 31, 2002 should also have been classified as current. The Company’s management is currently negotiating an amendment to the New Credit Facility with modified financial covenants and is considering other financing options to replace the New Credit Facility. There can be no assurances regarding the Company’s ability to obtain additional financing or the successful completion of an amendment to the New Credit Facility. If the Company is not successful in amending or refinancing the New Credit Facility, the lenders will be entitled to pursue all rights available under the New Credit Facility in the event the Company does not meet the financial ratio covenants or the terms of other compliance covenants.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a): Exhibits
(b): Reports on Form 8-K

~~(a) Exhibits~~ A Form 8-K was filed on December 3, 2002 reporting on the sale of the Company's manufacturing and sales business.

10.72		Deferred Compensation Termination Agreement, dated June 30, 2002, between the Company and H. R. Brutsche’ III
10.73		Deferred Compensation Termination Agreement, dated June 30, 2002, between the Company and John D. Maxson
10.74		Deferred Compensation Termination Agreement, dated June 30, 2002, between the Company and James H. Clark, Jr.
10.75		Deferred Compensation Termination Agreement, dated June 30, 2002, between the Company and J. Anthony Smith
10.76		Amendment No. 1, effective June 30, 2002, to the Consulting Agreement, dated as of July 1, 1995, between the Company and John D. Maxson
10.77		Termination of Consulting Agreement, dated June 30, 2002, between the Company and James H. Clark
10.78		Termination of Consulting Agreement, dated June 30, 2002, between the Company and J. Anthony Smith
10.79		Amendment No. 2, dated as of June 30, 2002, to the Employment Agreement, dated as of July 1, 1995 between the Company and H. R. Brutsche’ III
10.80		Assignment and Assumption Agreement of Amended and Split-Dollar Life Insurance,dated as of June 30, 2002, among the Company, Brown Brothers Harriman Trust Company of Texas, trustee of the H. R. Brutsche’ III Insurance Trust, and H. R. Brutsche’ III
10.81		Assignment and Assumption Agreement of Amended and Restated Split-Dollar Life Insurance, dated as of June 30, 2002, among the Company, Brown Brothers Harriman Trust Company of Texas, trustee of the H. R. Brutsche’ III Insurance Trust, and H. R. Brutsche’ III
10.82		Assignment and Assumption Agreement of Amended and Split-Dollar Life Insurance, dated as of June 30, 2002, among the Company, James Howard Cullum Clark, and James H. Clark, Jr.
10.83		Assignment and Assumption Agreement of Amended and Restated Split-Dollar Life Insurance, dated as of June 30, 2002, among the Company, James Howard Cullum Clark, and James H. Clark, Jr.
10.84		Assignment and Assumption Agreement of Amended and Restated Split-Dollar Life Insurance, dated as of June 30, 2002, among the Company, Brown Brothers Harriman Trust Company of Texas, trustee of the John D. Maxson Irrevocable Trust, and John D. Maxson
10.85		Amendment No. 5, dated June 30, 2002, to the Financing Agreement, dated as of December 29, 2000, between Vari-Lite, Inc. and U.S. Bank National Association, formerly known as Firstar Bank, National Association

(b) No reports on Form 8-K were filed for the quarter ended June 30, 2002.

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.

		VARI-LITE INTERNATIONAL, INC.
Date: February 14, 2003		By:	/s/ JEROME L. TROJAN III Vice President—Finance, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

Date:	August 15, 2002	By:	/s/ Jerome L. Trojan III
			Vice President - Finance,
			Chief Financial Officer, Treasurer
			and Secretary (Principal Financial
			and Accounting Officer)

~~CERTIFICATION~~ ~~PURSUANT~~ ~~TO 18 U.S.C. SECTION 1350,~~ CERTIFICATIONS

ASI, H. ~~ADOPTED~~R. ~~PURSUANT~~Brutsché TOIII, ~~SECTION~~certify ~~906~~that: ~~OF THE~~

1.

I have reviewed this quarterly report on Form 10-Q of Vari-Lite International, Inc.

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report.

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended) for the registrant and we have:

(a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
(c): presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

(a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls.

6.: The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

~~SARBANES-OXLEY~~Date: ~~ACT~~February OF14, ~~2002~~2003 /s/ H. R. BRUTSCHÉ III H. R. Brutsché III Chairman of the Board and Chief Executive Officer

In connection with the Quarterly Report of Vari-Lite International, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the dates indicated below, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.16

Date:	August 15, 2002	By:	/s/ H.R. Brutsché III
			H.R. Brutsché III
			Chairman of the Board and Chief Executive Officer
Date:	August 15, 2002	By:	/s/ Jerome L. Trojan III
			Jerome L. Trojan III
			Vice President - Finance,
			Chief Financial Officer, Treasurer
			and Secretary

I, Jerome L. Trojan III, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Vari-Lite International, Inc.

2.

3.

4.

(a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
(c): presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.

5.

(a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls.

6.: The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

22Date: February 14, 2003 /s/ JEROME L. TROJAN III Jerome L. Trojan III Vice President—Finance, Chief Financial Officer, Treasurer and Secretary

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Vari-Lite International, Inc. (the "Company") on Form 10-Q for the quarterly period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacities and on the dates indicated below, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 14, 2003		By:	/s/ H. R. BRUTSCHÉ III H. R. Brutsché III Chairman of the Board and Chief Executive Officer
Date: February 14, 2003		By:	/s/ JEROME L. TROJAN III Jerome L. Trojan III Vice President—Finance, Chief Financial Officer, Treasurer and Secretary

QuickLinks

VARI-LITE INTERNATIONAL, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2002
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the Three Months Ended December 31, 2001 and 2002 (Unaudited)
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended December 31, 2001 and 2002 (Unaudited)
VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands except share data)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 14. CONTROLS AND PROCEDURES

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURES
CERTIFICATIONS
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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