<PAGE>

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

                                  FORM 10-Q 
             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE
                       SECURITIES AND EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998

                         COMMISSION FILE NUMBER: 0-23159

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

                Delaware                               75-2239444 
      -------------------------------               ------------------- 
      (State or other jurisdiction of               ( I.R.S. Employer
      incorporation or organization)                Identification No.)

            201 Regal Row, Dallas, Texas                    75247
     ----------------------------------------            ----------
     (Address of principal executive offices)            (Zip Code)

        Registrant's telephone number including area code: (214) 630-1963
                                                           --------------

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[ ]

     Indicate the number of shares outstanding of each of the Issuer's
classes of common stock, as of the latest practicable date: As of February 12,
1999, there were 7,800,003 shares of Common Stock outstanding.

<PAGE>

                          VARI-LITE INTERNATIONAL, INC.
                     INDEX TO QUARTERLY REPORT ON FORM 10-Q
                     FOR THE QUARTER ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
PART I. - FINANCIAL INFORMATION                                            Page
<S>      <C>                                                               <C>
Item 1.  Financial Statements
         Consolidated Balance Sheets as of
         September 30, 1998 and December 31, 1998 ..........................  3

         Consolidated Statements of Income for
         the three months ended December 31, 1997 and 1998 .................  4

         Consolidated Statements of Cash Flows for
         the three months ended December 31, 1997 and 1998 .................  5

         Notes to Consolidated Financial Statements ........................  6

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations ......................................... 10


PART II. - OTHER INFORMATION

Item 1.  Legal Proceedings ................................................. 15

Item 6.  Exhibits and Reports on Form 8-K .................................. 15

SIGNATURES ................................................................. 16
</TABLE>


                                       2
<PAGE>

                 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                   (UNAUDITED)

                        (IN THOUSANDS EXCEPT SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                      SEPTEMBER 30,   DECEMBER 31,  
                                                                           1998           1998      
                                                                       ----------     -----------   
<S>                                                                    <C>            <C>
CURRENT ASSETS:
  Cash ............................................................... $    3,838     $    3,956   
  Receivables, less allowance for doubtful accounts of $900 and $932..     13,471         14,593   
  Inventory ..........................................................      6,075          4,624   
  Prepaid expense and other current assets ...........................      1,749          1,784   
                                                                       ----------    -----------   
      TOTAL CURRENT ASSETS ...........................................     25,133         24,957   
EQUIPMENT AND OTHER PROPERTY:
  Lighting and sound equipment .......................................    127,763        128,626   
  Machinery and tools ................................................      5,097          6,320   
  Furniture and fixtures .............................................      4,439          4,542   
  Office and computer equipment ......................................     10,399         10,307   
  Work in progess and raw materials inventory ........................      5,320          4,373   
                                                                       ----------    -----------   
                                                                          153,018        154,168   
      Less accumulated depreciation and amortization .................     71,745         74,489   
                                                                       ----------    -----------   
                                                                           81,273         79,679   
OTHER ASSETS .........................................................      8,221          8,715   
                                                                       ----------    -----------   
      TOTAL ASSETS ................................................... $  114,627    $   113,351   
                                                                       ----------    -----------   
                                                                       ----------    -----------   

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable and accrued expenses .............................. $   13,189    $    11,464    
  Unearned revenue ...................................................      1,694          1,800    
  Income taxes payable ...............................................        999            393    
  Current portion of long-term obligations ...........................      3,049          2,734    
                                                                       ----------    -----------   
      TOTAL CURRENT LIABILITIES ......................................     18,931         16,391    
LONG-TERM OBLIGATIONS ................................................     47,284         48,481    
DEFERRED INCOME TAXES ................................................      3,708          3,705    
                                                                       ----------    -----------   
      TOTAL LIABILITIES ..............................................     69,923         68,577    

COMMITMENTS AND CONTINGENCIES
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)           (77)   
  Stock purchase warrants ............................................        600            600    
  Accumulated other comprehensive loss -  foreign currency 
    translation adjustment ...........................................       (230)          (407)   
  Retained earnings ..................................................     19,391         19,633    
                                                                       ----------    -----------   
      TOTAL STOCKHOLDERS' EQUITY .....................................     44,704         44,774    
                                                                       ----------    -----------   
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................... $  114,627    $   113,351   
                                                                       ----------    -----------   
                                                                       ----------    -----------   
</TABLE>

                       See notes to consolidated financial statements.
                                             3
<PAGE>

                                       
                VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME
 
             FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1998

                                 (UNAUDITED)

                       (IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                      1997                 1998
                                                                                                   ----------           ----------
<S>                                                                                                <C>                  <C>
Rental revenues .................................................................................  $   19,170           $   22,634
Product sales and services revenues .............................................................       3,349                2,614
                                                                                                   ----------           ----------

   TOTAL REVENUES ...............................................................................      22,519               25,248
Rental costs.....................................................................................       7,567               10,963
Product sales and services costs.................................................................       2,314                1,882
                                                                                                   ----------           ----------

   TOTAL COST OF SALES ..........................................................................       9,881               12,845
                                                                                                   ----------           ----------

   GROSS PROFIT .................................................................................      12,638               12,403
Selling, general and administrative expense .....................................................       8,257                9,703
Research and development expense ................................................................       1,573                1,246
                                                                                                   ----------           ----------

   TOTAL OPERATING EXPENSES .....................................................................       9,830               10,949
                                                                                                   ----------           ----------

OPERATING INCOME ................................................................................       2,808                1,454
Interest expense (net) ..........................................................................         729                1,041
                                                                                                   ----------           ----------

INCOME BEFORE INCOME TAXES, EXTRAORDINARY LOSS AND CUMULATIVE EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLE .........................................................................       2,079                  413
Income taxes ....................................................................................         821                  171
                                                                                                   ----------           ----------

INCOME BEFORE EXTRAORDINARY LOSS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE.........       1,258                  242
Extraordinary loss ..............................................................................        (737)                   -
Cumulative effect of change in accounting principle .............................................        (195)                   -
                                                                                                   ----------           ----------

NET INCOME ......................................................................................         326                  242

Other comprehensive income (loss) - foreign currency translation adjustments ....................         113                 (177)
                                                                                                   ----------           ----------
COMPREHENSIVE INCOME ............................................................................  $      439           $       65
                                                                                                   ----------           ----------
                                                                                                   ----------           ----------

WEIGHTED AVERAGE SHARES OUTSTANDING .............................................................   7,452,177            7,800,003
                                                                                                   ----------           ----------
                                                                                                   ----------           ----------

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING .....................................................   7,467,192            7,800,003
                                                                                                   ----------           ----------
                                                                                                   ----------           ----------

PER SHARE INFORMATION
BASIC:
    Income before extraordinary loss and cumulative effect of change in accounting
         principle ..............................................................................  $     0.17           $     0.03
    Extraordinary loss ..........................................................................       (0.10)                   -
    Cumulative effect of change in accounting principle .........................................       (0.03)                   -
    Net income ..................................................................................  $     0.04           $     0.03
DILUTED:
    Income before extraordinary loss and cumulative effect of change in accounting
        principle ...............................................................................  $     0.17           $     0.03
    Extraordinary loss ..........................................................................       (0.10)                   -
    Cumulative effect of change in accounting principle .........................................       (0.03)                   -
    Net income ..................................................................................  $     0.04           $     0.03

Dividends declared ..............................................................................  $        -           $        -
</TABLE>

                  See notes to consolidated financial statements.
                                       4
<PAGE>

                 VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

              FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1998

                                   (UNAUDITED)

                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                              1997           1998      
                                                                           ----------     ----------  
<S>                                                                        <C>            <C>
Cash flows from operating activities:
  Net income ............................................................. $      326     $      242   
  Adjustments to reconcile net income to net cash provided by (used in) 
    operating activities:
    Depreciation and amortization ........................................      3,192          3,859   
    Amortization of note discount and deferred loan fees .................         54             13   
    Provision for doubtful accounts ......................................         31             17   
    Extraordinary loss from early extinguishment of debt .................        737              -   
    Cumulative effect of change in accounting principle ..................        195              -   
    Deferred income taxes ................................................        200             (3)  
    Gain on sale of Brilliant Stages assets and cancellation of land lease          -           (599)  
    Loss (gain) on sale of equipment .....................................        (38)            13   
    Provisions for ESOP and ESEP contributions ...........................         63             63   
      Net change in assets and liabilities:
        Accounts receivable ..............................................       (615)        (1,139)  
        Prepaid expenses .................................................         22            (41)  
        Inventory ........................................................     (1,481)          (490)  
        Other assets .....................................................       (893)           658   
        Accounts payable, accrued liabilities and income taxes payable ...     (2,993)        (2,395)  
        Unearned revenue .................................................       (391)           106   
                                                                           ----------     ----------  
        Net cash provided by (used in) operating activities ..............     (1,591)           304   

Cash flows from investing activities:
  Capital expenditures, including rental equipment .......................     (3,967)        (2,904)  
  Acquisition of French distributor.......................................          -         (1,188)  
  Proceeds from sale of Irideon and Brilliant Stages assets and 
        cancellation of land lease .......................................          -          2,892   
  Proceeds from sale of equipment ........................................         67              -   
                                                                           ----------     ----------  
        Net cash used in investing activities ............................     (3,900)        (1,200)  

Cash flows from financing activities:
  Proceeds from issuance of debt .........................................     43,033          6,808   
  Principal payments on debt .............................................    (58,354)        (5,795)  
  Proceeds from issuance of distributor advances .........................        277              -   
  Principal payments on distributor advances .............................       (205)          (125)  
  Proceeds from payments on stockholder notes receivable .................         10              5   
  Proceeds from public offering of common stock ..........................     21,307              -   
                                                                           ----------     ----------  
        Net cash provided by financing activities ........................      6,068            893   
Effect from foreign currency translation adjustment ......................       (177)           121   
                                                                           ----------     ----------  
Net increase during the period ...........................................        400            118   
Cash, beginning of period ................................................      1,862          3,838   
                                                                           ----------     ----------  
Cash, end of period ...................................................... $    2,262     $    3,956  
                                                                           ----------     ----------  
                                                                           ----------     ----------  
SUPPLEMENTAL CASH FLOW INFORMATION
  Cash paid for interest expense ......................................... $      805     $    1,099  
  Cash paid for income taxes ............................................. $      477     $    1,133  
</TABLE>
                      See notes to consolidated financial statements.
                                             5
<PAGE>

              VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                (UNAUDITED)

                     (IN THOUSANDS EXCEPT SHARE DATA)


1. Interim Financial Information

         The accompanying unaudited consolidated financial statements of 
Vari-Lite International, Inc. (the "Company") have been prepared by the 
Company in accordance with generally accepted accounting principles for 
interim financial information and the instructions to Form 10-Q and Article 
10 of Regulation S-X. Accordingly, they do not include all of the information 
and footnotes required by generally accepted accounting principles for 
complete financial statements.

         In the opinion of management, the consolidated financial statements 
contain all adjustments, consisting of normal recurring adjustments, 
considered necessary to present fairly the consolidated financial position, 
results of operations and cash flows of the Company. The results of 
operations for the three months ended December 31, 1998 are not indicative of 
the results of operations that may be expected for any other interim periods 
or for the fiscal year ending September 30, 1999.

         For further information, refer to the consolidated financial 
statements and accompanying notes included in the Company's Annual Report on 
Form 10-K for the year ended September 30, 1998.

2. Inventory

         Inventory consists of the following:

<TABLE>
<CAPTION>
                                       September 30,    December 31,
                                           1998            1998
                                       -------------    ------------
<S>                                    <C>              <C>
            Raw materials .........       $5,283          $4,447
            Work in progress ......          616             177
            Finished goods ........          176               -
                                          ------          ------
                                          $6,075          $4,624
                                          ------          ------
                                          ------          ------
</TABLE>

3.  Initial Public Offering

         On October 15, 1997, in conjunction with the Company's 
reincorporation in Delaware and an initial public offering, the Board of 
Directors of the Company created a new class of common stock and authorized 
40,000,000 shares. As a result of the reincorporation, stockholders received 
3.76368 shares of common stock for each share of the Company's Class A common 
stock and Class B common stock held by the stockholders.

         The Company filed a Registration Statement (Commission file no. 
333-33559) for the public offering of 2,300,000 shares of common stock which 
became effective October 16, 1997. The Company sold 2,000,000 shares of 
common stock for $12.00 per share for an aggregate amount of $24,000 and 
certain stockholders of the Company sold 300,000 shares of common stock for 
$12.00 per share for an aggregate amount of $3,600.

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 committment on the 
New Credit Facility, as amended in December 1998, 

                                       6
<PAGE>
                                       
              VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                (UNAUDITED)

                     (IN THOUSANDS EXCEPT SHARE DATA)

decreases by $1,000 during each of the third and fourth quarters of fiscal 
1999 and $1,500 per quarter thereafter through maturity. Borrowings under the 
New Credit Facility bear interest at the lender's base rate 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.

5.  Net Income Per Share

         During fiscal 1998, the Company adopted Statement of Financial 
Accounting Standards ("SFAS") No. 128, "Earnings per Share." All EPS 
information for all periods presented have been restated to present basic and 
diluted EPS under the provisions of SFAS No. 128. Options to purchase shares 
of Common Stock at prices ranging from $11.875 to $13.20 were outstanding 
during the three months ended December 31, 1997 and were included in the 
computation of diluted EPS. In November 1998, options to purchase shares of 
Common Stock, which originally ranged from $7.875 to $12.00, were repriced to 
$3.75 and were outstanding during the three months ended December 31, 1998 
but were not included in the computation of diluted EPS because the exercise 
price of the options was greater than the average market price of the common 
shares.

                                       7
<PAGE>
                                       
              VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                (UNAUDITED)

                     (IN THOUSANDS EXCEPT SHARE DATA)

         The following is a computation of shares used in calculating diluted 
income per share for the three months ended December 31, 1997 and 1998:

<TABLE>
<CAPTION>
                                                                             1997               1998
                                                                          ---------           ---------
<S>                                                                       <C>                 <C>
 Weighted average shares outstanding .................................    7,452,177           7,800,003

 Dilutive effect of stock options and warrants after application 
    of treasury stock method .........................................       15,015                -
                                                                          ---------           --------- 
 Shares used in calculating diluted income per share .................    7,467,192           7,800,003
                                                                          ---------           --------- 
                                                                          ---------           --------- 
</TABLE>

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 $0.03 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 2000. The Company is currently analyzing the 

                                       8
<PAGE>
                                       
              VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                (UNAUDITED)

                     (IN THOUSANDS EXCEPT SHARE DATA)

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.  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 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.

                                       9
<PAGE>

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

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED DECEMBER 
31, 1997

      REVENUES. Total revenues increased 12.1%, or $2.7 million, to $25.2 
million in the three-month period ended December 31, 1998, compared to $22.5 
million in the three-month period ended December 31, 1997. The revenue 
increase was attributable primarily to the factors set forth below.

      Rental revenues increased 18.1%, or $3.4 million, to $22.6 million in 
the three-month period ended December 31, 1998, compared to $19.2 million in 
the three-month period ended December 31, 1997, which was primarily due to 
the acquisition of several of the Company's European distributors in fiscal 
1998. Prior to acquiring a distributor, the Company recognized approximately 
one-half of the rental revenue earned by the distributor. After acquiring a 
distributor, the Company's results reflect all of the revenues earned by the 
distributor.

      Product sales and services revenues decreased 22.0%, or $0.7 million, 
to $2.6 million in the three-month period ended December 31, 1998, compared 
to $3.3 million in the three-month period ended December 31, 1997. This 
decrease was primarily due to the sale of the Company's Irideon-Registered 
Trademark- automated lighting product line in October 1998.

      RENTAL COSTS. Rental costs increased 44.9%, or $3.4 million, to $11.0 
million in the three-month period ended December 31, 1998, compared to $7.6 
million in the three-month period ended December 31, 1997. Rental costs as a 
percentage of rental revenues increased to 48.4% in the three-month period 
ended December 31, 1998, from 39.5% in the three-month period ended December 
31, 1997. 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 a distributor, the Company's rental costs associated with 
distributor rental revenues was almost entirely the depreciation on the 
equipment assigned to the distributor. After acquiring a distributor, the 
Company's results reflect all of the additional rental costs incurred by the 
distributor.

      PRODUCT SALES AND SERVICES COSTS. Product sales and services costs 
decreased 18.7%, or $0.4 million, to $1.9 million in the three-month period 
ended December 31, 1998, compared to $2.3 million in the three-month period 
ended December 31, 1997. Product sales and services costs as a percentage of 
product sales and services revenue increased to 72.0% in the three-month 
period ended December 31, 1998, from 69.1% in the three-month period ended 
December 31, 1997. The increase in product sales and services costs as a 
percentage of the related revenues was 

                                       10
<PAGE>

primarily due to increased costs in the Company's custom stage construction 
business, which includes costs subcontracted to others by the Company. 
Product sales and services costs associated with subcontracted services 
constituted a higher percentage of the total product sales and services 
revenue in the three-month period ended December 31, 1998 as compared to the 
three-month period ended December 31, 1997.

      SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and 
administrative expense increased 17.5%, or $1.4 million, to $9.7 million in 
the three-month period ended December 31, 1998, compared to $8.3 million in 
the three-month period ended December 31, 1997. This increase resulted 
primarily from the acquisition of certain of the Company's European 
distributors in fiscal 1998, partially offset by $0.6 million in gains from a 
lease cancellation and the sale of substantially all of the assets of the 
Company's Brilliant Stages, Ltd. subsidiary. This expense as a percentage of 
total revenues increased to 38.4% in the three-month period ended December 
31, 1998, from 36.7% in the three-month period ended December 31, 1997.

      RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense 
decreased 20.8%, or $0.4 million, to $1.2 million in the three-month period 
ended December 31, 1998, compared to $1.6 million in the three-month period 
ended December 31, 1997. This expense as a percentage of total revenues 
decreased to 4.9% in the three-month period ended December 31, 1998, from 
7.0% in the three-month period ended December 31, 1997. 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 42.8%, or $0.3 million, to 
$1.0 million in the three-month period ended December 31, 1998, compared to 
$0.7 million in the three-month period ended December 31, 1997. This increase 
was due to higher interest rates and a higher debt level in the period ended 
December 31, 1998.

      EXTRAORDINARY LOSS. A non-cash extraordinary loss of $0.7 million was 
recorded in the three-month period ended December 31, 1997, net of $0.4 
million of tax benefit, relating to the early extinguishment of debt.

      CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. During the period 
ended December 31, 1997, 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. Effective tax rates in the periods ended December 31, 
1998 and 1997 were 41.4% and 39.5%, respectively.

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 

                                       11
<PAGE>

Company's operating activities used cash of $1.6 million and generated cash 
flow of $0.3 million for the three-month periods ended December 31, 1997 and 
1998, 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 $50,000 multicurrency revolving credit facility (the "New Credit 
Facility") and canceled its existing credit facility. The initial $50,000 
committment on the New Credit Facility, as amended in December 1998, 
decreases by $1,000 during each of the third and fourth quarters of fiscal 
1999 and $1,500 per quarter thereafter through maturity. Borrowings under the 
New Credit Facility bear interest at the lender's base rate 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.

         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 
is a party to three interest rate swap agreements which will fix the 
Company's effective interest costs under a portion of the New Credit 
Agreement.

         The Company's business requires significant capital expenditures. 
Capital expenditures for the three months ended December 31, 1997 and 1998 
were approximately $4.0 million and $2.9 million, respectively, of which 
approximately $3.9 million and $2.8 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 $9.1 million and $8.6 
million at December 31, 1997 and 1998, respectively. The working capital 
surplus at December 31, 1997 

                                       12
<PAGE>

and 1998 is primarily due to higher accounts receivable and lower current 
portion of long-term debt as a result of the New Credit Agreement.

         Management believes that cash flow generated from operations and 
borrowing capacity under the New Credit Agreement should be sufficient to 
fund its anticipated operating needs and capital expenditures for at least 
the next twelve months. However, because the Company's future operating 
results will depend on a number of factors, including the demand for the 
Company's products and services, the level of competition, the success of the 
Company's research and development programs, the ability to achieve 
competitive and technological advances and general and economic conditions 
and other factors beyond the Company's control, there can be no assurance 
that sufficient capital resources will be available to fund the expected 
expansion of its business beyond such period.

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 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 by the middle of the 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.

                                       13
<PAGE>

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.












                                       14
<PAGE>

PART II  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         In August 1995, the Company brought suit asserting a number of 
claims of infringement of several of its patents by High End Systems, Inc. 
("High End") in the United States District Court for the Northern District of 
Texas seeking monetary damages and injunctive relief to prevent future patent 
infringement. In December 1998, the court approved a negotiated settlement 
between the Company and High End, the specific terms of which are 
confidential but included cash paid 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.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
         (a)      Exhibits

<TABLE>
<S>               <C>      <C>
                  10.36    Amendment No. 1, effective November 2, 1998, to the
                           Deferred Compensation Agreement, dated as of July 1,
                           1995, between the Company and H.R. Brutsche III

                  10.37    Amendment No. 1, effective November 2, 1998, to the
                           Deferred Compensation Agreement, dated as of July 1,
                           1995, between the Company and John D. Maxson

                  10.38    Amendment No. 1, effective November 2, 1998, to the
                           Deferred Compensation Agreement, dated as of July 1,
                           1995, between the Company and James H. Clark, Jr.

                  10.39    Amendment No. 1, effective November 2, 1998, to the
                           Deferred Compensation Agreement, dated as of July 1,
                           1995, between the Company and J. Anthony Smith

                  27.1     Financial Data Schedule
</TABLE>

         (b)      No reports on Form 8-K were filed for the quarter ended
                  December 31, 1998.

                                       15
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.

                                            VARI-LITE INTERNATIONAL, INC.

Date:    February 12, 1999          By:     /s/ MICHAEL P. HERMAN
     ---------------------             ---------------------------------------
                                            Michael P. Herman
                                            Vice President - Finance,
                                            Chief Financial Officer
                                            and Secretary (Principal Financial
                                            and Accounting Officer)










                                       16