<PAGE>

                                   UNITED STATES 
                         SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C.  20549
                                          
                                     FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES AND EXCHANGE
                                    ACT OF 1934
                                          
                    FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
                                          
                         COMMISSION FILE NUMBER:  0-23159
                                          
                           Vari-Lite International, Inc.
                           -----------------------------
               (Exact name of registrant as specified in its charter)
                                          
                     Delaware                               75-2239444
                     --------                               ----------
          (State or other jurisdiction of                (I.R.S. Employer
          incorporation or organization)                 Identification No.)
                                          
            201 Regal Row, Dallas, Texas                       75247
            ----------------------------                       -----
       (Address of principal executive offices)              (Zip Code)
                                          
       Registrant's telephone number including area code: (214) 630-1963
                                                          --------------

       Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days. Yes [X]  No[]
                                          
Indicate the number of shares outstanding of each of the Issuer's classes of 
common stock, as of the latest practicable date:  As of  July 31, 1998, there 
were 7,800,003 shares of Common Stock outstanding.
                                          

<PAGE>

                            VARI-LITE INTERNATIONAL, INC.
                        INDEX TO QUARTERLY REPORT ON FORM 10-Q
                         FOR THE QUARTER ENDED JUNE 30, 1998

<TABLE>
<CAPTION>
PART I. - FINANCIAL INFORMATION                                            Page
<S>                                                                        <C>
Item 1. Financial Statements 
        Consolidated Balance Sheets as of 
        September 30, 1997 and June 30, 1998. . . . . . . . . . . . . . . .  3

        Consolidated Statements of Income for the three months ended
        June 30, 1997 and 1998. . . . . . . . . . . . . . . . . . . . . . .  4

        Consolidated Statements of Income for the nine months ended 
        June 30, 1997 and 1998. . . . . . . . . . . . . . . . . . . . . . .  5

        Consolidated Statements of Cash Flows for
        the nine months ended June 30, 1997 and 1998. . . . . . . . . . . .  6

        Notes to Consolidated Financial Statements. . . . . . . . . . . . .  7

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . . 14


PART II. - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 16

SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

</TABLE>


                                        2

<PAGE>

                    VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES

                             CONSOLIDATED BALANCE SHEETS

                                    (UNAUDITED)

                           (IN THOUSANDS EXCEPT SHARE DATA)

                                      ASSETS
<TABLE>
<CAPTION>
                                                                                   SEPTEMBER 30,        JUNE 30,
                                                                                       1997               1998
                                                                                       ----               ----
<S>                                                                                <C>                 <C>
CURRENT ASSETS:
   Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $    1,862          $    3,611
   Receivables, less allowance for doubtful accounts of $450 and  $583. . . . . .      14,445              15,028
   Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       4,050               6,708
   Prepaid expense and other current assets . . . . . . . . . . . . . . . . . . .       2,536               2,602
                                                                                   ----------          ----------
       TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . .      22,893              27,949
EQUIPMENT AND OTHER PROPERTY:
   Lighting and sound equipment . . . . . . . . . . . . . . . . . . . . . . . . .     102,487             119,501
   Machinery and tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       2,929               4,584
   Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . .       3,945               4,280
   Office and computer equipment. . . . . . . . . . . . . . . . . . . . . . . . .       9,189              10,650
   Work in progress and raw materials inventory . . . . . . . . . . . . . . . . .       5,343               7,930
                                                                                   ----------          ----------
                                                                                      123,893             146,945
     Less accumulated depreciation and amortization . . . . . . . . . . . . . . .      55,248              68,029
                                                                                   ----------          ----------
                                                                                       68,645              78,916
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       5,166               7,538
                                                                                   ----------          ----------
       TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   96,704          $  114,403
                                                                                   ----------          ----------
                                                                                   ----------          ----------
                            LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . .  $   12,086          $   11,037
  Unearned revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       2,992               3,483
  Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         820                 594
  Current portion of long-term obligations. . . . . . . . . . . . . . . . . . . .       7,824               3,245
                                                                                   ----------          ----------
       TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . .      23,722              18,359
  LONG-TERM OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      38,418              41,019
  DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       7,023               6,685
                                                                                   ----------          ----------
       TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .      69,163              66,063
  COMMITMENTS AND CONTINGENCIES 
  STOCKHOLDERS' EQUITY:
     Preferred Stock, $0.10 par value (10,000,000 shares authorized; no shares 
       outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           0                   0
     Common Stock, $0.10 par value (40,000,000 shares authorized; 5,800,003 and 
       7,800,003 shares outstanding). . . . . . . . . . . . . . . . . . . . . . .         585                 785
     Treasury Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (186)               (186)
     Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . .       3,344              24,451
     Stockholder notes receivable . . . . . . . . . . . . . . . . . . . . . . . .        (176)                (87)
     Stock purchase warrants. . . . . . . . . . . . . . . . . . . . . . . . . . .         600                 600
     Cumulative foreign currency translation adjustment . . . . . . . . . . . . .         361                (336)
     Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      23,013              23,113
                                                                                   ----------          ----------
       TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . .      27,541              48,340
                                                                                   ----------          ----------
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . .  $   96,704          $  114,403
                                                                                   ----------          ----------
                                                                                   ----------          ----------
</TABLE>

      See accompanying notes to the consolidated financial statements.


                                    3
<PAGE>

                    VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES

                          CONSOLIDATED STATEMENTS OF INCOME 

                  FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1998
                                          
                                    (UNAUDITED)

                           (IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                                   1997         1998
                                                                   ----         ----
<S>                                                            <C>          <C>
Rental revenues. . . . . . . . . . . . . . . . . . . . . . .     $18,170      $19,047
Product sales and services revenues. . . . . . . . . . . . .       4,015        3,482
                                                                 -------      -------
     TOTAL REVENUES. . . . . . . . . . . . . . . . . . . . .      22,185       22,529
Rental cost. . . . . . . . . . . . . . . . . . . . . . . . .       7,032        8,396
Product sales and services cost. . . . . . . . . . . . . . .       2,737        2,627
                                                                 -------      -------
     TOTAL COST OF SALES . . . . . . . . . . . . . . . . . .       9,769       11,023
                                                                 -------      -------
     GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . .      12,416       11,506
Selling, general and administrative expense. . . . . . . . .       7,653        9,164
Research and development expense . . . . . . . . . . . . . .       1,809        1,680
                                                                 -------      -------
     TOTAL OPERATING EXPENSES. . . . . . . . . . . . . . . .       9,462       10,844
                                                                 -------      -------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . .       2,954          662
Interest expense (net) . . . . . . . . . . . . . . . . . . .         928          661
                                                                 -------      -------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . .       2,026            1
Income taxes . . . . . . . . . . . . . . . . . . . . . . . .         816            1
                                                                 -------      -------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . .     $ 1,210      $     0
                                                                 -------      -------
                                                                 -------      -------

WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . . . . . . . . .   5,785,039    7,800,003
                                                               ---------    ---------
                                                               ---------    ---------

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING. . . . . . . . .   5,804,512    7,800,003
                                                               ---------    ---------
                                                               ---------    ---------
PER SHARE INFORMATION
Net income:
     BASIC . . . . . . . . . . . . . . . . . . . . . . . . .       $0.21        $0.00
                                                                   -----        -----
                                                                   -----        -----
     DILUTED . . . . . . . . . . . . . . . . . . . . . . . .       $0.21        $0.00
                                                                   -----        -----
                                                                   -----        -----

Dividends declared . . . . . . . . . . . . . . . . . . . . .     $0.0000      $0.0000
                                                                 -------      -------
                                                                 -------      -------
</TABLE>

           See accompanying notes to the consolidated financial statements.


                                          4
<PAGE>

                    VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES

                          CONSOLIDATED STATEMENTS OF INCOME 

                  FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1998
                                          
                                    (UNAUDITED)

                           (IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                                             1997              1998
                                                                             ----              ----
<S>                                                                      <C>               <C>
Rental revenues. . . . . . . . . . . . . . . . . . . . . . . . .          $ 56,207          $ 54,182
Product sales and services revenues. . . . . . . . . . . . . . .            10,688            10,093
                                                                          --------          --------
  TOTAL REVENUES . . . . . . . . . . . . . . . . . . . . . . . .            66,895            64,275
Rental cost. . . . . . . . . . . . . . . . . . . . . . . . . . .            22,115            23,431
Product sales and services cost. . . . . . . . . . . . . . . . .             7,410             7,297
                                                                          --------          --------
  TOTAL COST OF SALES. . . . . . . . . . . . . . . . . . . . . .            29,525            30,728
                                                                          --------          --------
  GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . . . .            37,370            33,547
Selling, general and administrative expense. . . . . . . . . . .            24,855            25,062
Research and development expense . . . . . . . . . . . . . . . .             4,872             5,143
                                                                          --------          --------
  TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . . . . . .            29,727            30,205
                                                                          --------          --------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . .             7,643             3,342
Interest expense (net) . . . . . . . . . . . . . . . . . . . . .             2,694             1,958
                                                                          --------          --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS. . . . . . . .             4,949             1,384
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .             1,993               547
                                                                          --------          --------
INCOME BEFORE EXTRAORDINARY LOSS . . . . . . . . . . . . . . . .             2,956               837
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . .                 0               737
                                                                          --------          --------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . .          $  2,956          $    100
                                                                          --------          --------
                                                                          --------          --------

WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . . . . . . . . . . .         5,799,098         7,682,787
                                                                         ---------         ---------
                                                                         ---------         ---------

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING. . . . . . . . . . .         5,818,571         7,683,314
                                                                         ---------         ---------
                                                                         ---------         ---------
PER SHARE INFORMATION
Income before extraordinary loss:
  BASIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . .             $0.51             $0.11
                                                                             -----             -----
                                                                             -----             -----
  DILUTED  . . . . . . . . . . . . . . . . . . . . . . . . . . .             $0.51             $0.11
                                                                             -----             -----
                                                                             -----             -----
Net income:
  BASIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . .             $0.51             $0.01
                                                                             -----             -----
                                                                             -----             -----
  DILUTED. . . . . . . . . . . . . . . . . . . . . . . . . . . .             $0.51             $0.01
                                                                             -----             -----
                                                                             -----             -----

  Dividends declared . . . . . . . . . . . . . . . . . . . . . .           $0.1000           $0.0000
                                                                           -------           -------
                                                                           -------           -------
</TABLE>

               See accompanying notes to the consolidated financial statements.


                                              5
<PAGE>

                    VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF CASH FLOWS

                   FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1998
                                          
                                    (UNAUDITED)

                                   (In thousands)
<TABLE>
<CAPTION>
                                                                                          1997          1998
                                                                                          ----          ----
<S>                                                                                     <C>           <C>
Cash flows from operating activities:
  Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $2,956        $  100
  Adjustments to reconcile net income to net cash provided by operating activities:
     Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .      8,490         9,879
     Amortization of note discount and deferred loan fees. . . . . . . . . . . . . .        265            67
     Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . .         94           139
     Extraordinary loss from early extinguishment of debt. . . . . . . . . . . . . .          0           737
     Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        864           106
     (Gain) on sale of equipment and other property. . . . . . . . . . . . . . . . .        (41)          (29)
     Cost of rental equipment rented under sales-type leases . . . . . . . . . . . .      1,515           269
     Provisions for ESOP and ESEP contributions. . . . . . . . . . . . . . . . . . .        189           191
      Net change in assets and liabilities:
       Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (1,570)          802
       Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (1,200)           (5)
       Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (601)       (2,607)
       Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (1,325)       (2,285)
       Accounts payable, accrued liabilities and income taxes payable. . . . . . . .      1,045        (2,925)
       Unearned revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,291           385
                                                                                        -------       -------
       Net cash provided by operating activities . . . . . . . . . . . . . . . . . .     11,972         4,824
 
Cash flows from investing activities:
  Capital expenditures, including rental equipment . . . . . . . . . . . . . . . . .    (20,518)      (18,342)
  Acquisition of European companies, net of cash acquired. . . . . . . . . . . . . .          0        (1,730)
  Proceeds from sale of equipment. . . . . . . . . . . . . . . . . . . . . . . . . .        129            67
                                                                                        -------       -------
       Net cash used in investing activities . . . . . . . . . . . . . . . . . . . .    (20,389)      (20,005)

Cash flows from financing activities:
  Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . . .     16,967        63,100
  Principal payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (8,127)      (65,738)
  Proceeds from issuance of distributor advances . . . . . . . . . . . . . . . . . .        604           576
  Principal payments on distributor advances . . . . . . . . . . . . . . . . . . . .     (1,254)       (1,448)
  Proceeds from payments on stockholder notes receivable . . . . . . . . . . . . . .        166            89
  Proceeds from public offering of common stock. . . . . . . . . . . . . . . . . . .          0        21,307
  Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (158)            0
  Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (564)            0
                                                                                        -------       -------
       Net cash provided by financing activities . . . . . . . . . . . . . . . . . .      7,634        17,886
Effect on cash from foreign currency translation adjustment. . . . . . . . . . . . .       (500)         (956)
                                                                                        -------       -------
Net increase (decrease) during the period. . . . . . . . . . . . . . . . . . . . . .     (1,283)        1,749
Cash, beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      2,633         1,862
                                                                                        -------       -------
Cash, end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $1,350        $3,611
                                                                                        -------       -------
                                                                                        -------       -------

 Supplemental Cash Flow Information
  Cash paid for interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .     $2,956        $1,972
  Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $1,765        $1,383

</TABLE>

               See accompanying notes to the consolidated financial statements.


                                              6
<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. and subsidiaries (the "Company") have been prepared by the
Company in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
     In the opinion of management, the consolidated financial statements contain
all adjustments, consisting of normal recurring adjustments, considered
necessary to present fairly the consolidated financial position, results of
operations and cash flows of the Company for the periods indicated. The results
of operations for the three-month and nine-month periods ended June 30, 1998 are
not indicative of the results of operations that may be expected for any other
interim periods or for the fiscal year ending September 30, 1998.
     For further information, refer to the consolidated financial statements and
accompanying notes included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1997.
     
2. Inventory
     Inventory consists of the following:

<TABLE>
<CAPTION>
                                                        September 30,   June 30,
                                                             1997        1998
                                                             ----        ----
     <S>                                                <C>            <C>
     Raw materials. . . . . . . . . . . . . . . .          $3,483      $6,052
     Work in progress . . . . . . . . . . . . . .             350         414
     Finished goods . . . . . . . . . . . . . . .             217         242
                                                           ------      ------
                                                           $4,050      $6,708
                                                           ------      ------
                                                           ------      ------
</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. Share amounts and the weighted-average shares
outstanding for all periods presented give retroactive effect to the
recapitalization of the common stock. In addition, the Company authorized
10,000,000 shares of preferred stock which the Company's Board of Directors may
issue for such consideration and on such terms as it deems desirable, including
voting and conversion rights that could adversely affect the holders of common
stock. 


                                       7
<PAGE>

                    VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          
                                    (UNAUDITED)

                          (IN THOUSANDS EXCEPT SHARE DATA)


     The Company filed a Registration Statement (Commission file no. 333-33559)
for the public offering of 2,300,000 shares of common stock which became
effective October 16, 1997.   The Company sold 2,000,000 shares of common stock
for $12.00 per share for an aggregate amount of $24,000 and certain stockholders
of the Company sold 300,000 shares of common stock for $12.00 per share for an
aggregate amount of $3,600.
     
4. Long-Term Debt and Extraordinary Loss
     On December 19, 1997, the Company entered into a five-year $50,000
multicurrency revolving credit facility (the "New Credit Facility") and canceled
its existing credit facility.  Borrowings under the New Credit Facility bear
interest at prime or LIBOR plus a rate margin ranging from 1.00% to 2.50% based
upon the Company's ratio of Adjusted Funded Debt (as defined in the New Credit
Facility) to EBITDA (as defined in the New Credit Facility) and are secured by a
pledge of 65% of the outstanding capital stock of certain of the Company's
foreign subsidiaries.  A commitment fee is charged on the average daily unused
portion of the New Credit Facility at a rate ranging from 0.20% to 0.375% per
annum based upon the ratio of Adjusted Funded Debt to EBITDA.  The New Credit
Facility contains compliance covenants, including requirements that the Company
achieve certain financial ratios.  In addition, the New Credit Facility places
limitations on the Company's ability to incur additional indebtedness, make
certain loans or investments, sell assets or reacquire the Company's stock. The
Company expensed deferred financing costs of $737 (net of tax benefit of $481)
relating to the early extinguishment of the prior debt facility, which have been
reflected in the consolidated statement of income for the quarter ended December
31, 1997 as an extraordinary loss.
     
5. Net Income Per Share
     During 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share," which requires dual
presentation of basic and diluted earnings per share ("EPS") on the face of the
consolidated income statement and requires a reconciliation of the numerators
and denominators of the basic and diluted EPS calculations.  Accordingly, all
EPS information for all periods presented have been restated to present basic
and diluted EPS under the provisions of SFAS No. 128.  Under this standard,
basic EPS is calculated using weighted average shares outstanding, whereas
diluted EPS is calculated using weighted average shares outstanding including
potential common stock which includes dilutive stock options and warrants.  

6. Acquisitions
     In March, 1998, the Company acquired all of the outstanding stock of the
Brussels, Belgium-based lighting and sound equipment rental companies VLB, n.v.
and EML, n.v. (the Brussels companies) for total consideration of approximately
$3,100, including related acquisition and financing costs.  The Company paid
approximately $1,700 in cash and assumed approximately $1,400 in liabilities.
The acquisition was funded primarily through additional borrowings under the New
Credit Facility. This acquisition was accounted for using the purchase 


                                       8
<PAGE>

              VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES 

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          
                               (UNAUDITED)

                    (IN THOUSANDS EXCEPT SHARE DATA)


method of accounting, and accordingly, only the results of operations for the 
acquired companies subsequent to the acquisition are included in the 
consolidated financial statements of the Company.  The preliminary 
determination of the excess of the purchase price over the net assets 
acquired of approximately $850 was recorded by the Company as goodwill.  


                                       9
<PAGE>

VARI-LITE INTERNATIONAL, INC. AND SUBSIDIARIES 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


RESULTS OF OPERATIONS


THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997


   REVENUES.   Total revenues increased 1.6%, or $0.3 million, to $22.5 million
in the three-month period ended June 30, 1998, compared to $22.2 million in the
three-month period ended June 30, 1997.  The revenue increase was attributable
primarily to the factors set forth below. 
   
   Rental revenues increased 4.8%, or $0.8 million, to $19.0 million in the 
three-month period ended June 30, 1998, compared to $18.2 million in the 
three-month period ended June 30, 1997.  This increase was primarily due to a 
strong performance in North America and Asia as well as the acquisition of 
the Brussels companies which were acquired in March 1998.  This increase was 
substantially offset by a decrease in rental revenues from sales-type leases 
which was $0.0 million for the three-month period ended June 30, 1998 
compared to $2.4 million for the three-month period ended June 30, 1997. 
   
   Product sales and services revenues decreased 13.3%, or $0.5 million, to $3.5
million in the three-month period ended June 30, 1998, compared to $4.0 million
in the three-month period ended June 30, 1997.  This decrease was primarily 
due to a decrease in design and production management services which was 
partially offset by an increase in the sale of Irideon-Registered Trademark- 
automated lighting products. 
   
   RENTAL COSTS.  Rental costs increased 19.4%, or $1.4 million, to $8.4 million
in the three-month period ended June 30, 1998, compared to $7.0 million in the
three-month period ended June 30, 1997.  Rental costs as a percentage of rental
revenues increased to 44.1% in the three-month period ended June 30, 1998, from
38.7% in the three-month period ended June 30, 1997.  The increase in rental
costs as a percentage of total rental revenues was primarily due to the
reduction in rental revenues from sales-type leases for which the associated
costs as a percent of related revenues is typically less than the costs as a
percentage of revenue from sources other than sales-type leases.  In addition,
to a lesser extent, pricing pressures from competitors in the three-month period
ended June 30, 1998 created an environment in which increased costs associated
with renting more equipment were incurred without a corresponding increase in
revenue.
   
   PRODUCT SALES AND SERVICES COSTS.  Product sales and services costs decreased
4.0%, or $0.1 million, to $2.6 million in the three-month period ended June 30,
1998, compared to $2.7 million in the three-month period ended June 30, 1997. 
Product sales and services costs as a percentage of product sales and services
revenue increased to 75.4% in the three-month period ended June 30, 1998, from
68.1% in the three-month period ended June 30, 1997.  The increase in product
sales and services cost was primarily the result of higher costs associated with
the sales of 


                                       10
<PAGE>

Irideon-Registered Trademark- automated lighting products due to increased 
warranty expense associated with a defect in the initial delivery of a new 
product.
   
   SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and 
administrative expense increased 19.8%, or $1.5 million, to $9.2 million in 
the three-month period ended June 30, 1998, compared to $7.7 million in the 
three-month period ended June 30, 1997.  This increase resulted primarily 
from the inclusion of the Brussels companies which were acquired in March, 
1998.  This expense as a percentage of total revenues increased to 40.7% in 
the three-month period ended June 30, 1998, from 34.5% in the three-month 
period ended June 30, 1997.
   
   RESEARCH AND DEVELOPMENT EXPENSE.  Research and development expense 
decreased 7.1%, or $0.1 million, to $1.7 million in the three-month period 
ended June 30, 1998, compared to $1.8 million in the three-month period ended 
June 30, 1997. This expense as a percentage of total revenues decreased to 
7.5% in the three-month period ended June 30, 1998, from 8.2% in the 
three-month period ended June 30, 1997.
   
   INTEREST EXPENSE.  Interest expense decreased 28.8%, or $0.2 million, to $0.7
million in the three-month period ended June 30, 1998, compared to $0.9 million
in the three-month period ended June 30, 1997.  This decrease was primarily
attributable to the negotiation of a new credit facility in December 1997 with
lower interest rates.
   
NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO NINE MONTHS ENDED JUNE 30, 1997

   REVENUES.   Total revenues decreased 3.9%, or $2.6 million, to $64.3 million
in the nine-month period ended June 30, 1998, compared to $66.9 million in the
nine-month period ended June 30, 1997.  The revenue decrease was attributable
primarily to the factors set forth below. 
   
   Rental revenues decreased  3.6%, or $2.0 million, to $54.2 million in the 
nine-month period ended June 30, 1998, compared to $56.2 million in the 
nine-month period ended June 30, 1997.  This decrease was primarily due to a 
lower volume of sales-type leases and a decrease in revenues in Asia due to 
the economic situation in that region, partially offset by a strong 
performance in North America and the acquisition of the Brussels companies.  
Rental revenues from sales-type leases decreased 83.8%, or $5.0 million, to 
$1.0 million for the nine-month period ended June 30, 1998 compared to $6.0 
million for the nine-month period ended June 30, 1997. 
   
   Product sales and services revenues decreased 5.6%, or $0.6 million, to $10.1
million in the nine-month period ended June 30, 1998, compared to $10.7 million
in the nine-month period ended June 30, 1997.  This decrease was primarily due
to lower revenues from the design and construction of custom stages and stage
sets which was partially offset by an increase in revenues from the design and
production management services. 
   
   RENTAL COSTS.  Rental costs increased 6.0%, or $1.3 million, to $23.4 million
in the nine-month period ended June 30, 1998, compared to $22.1 million in the
nine-month period ended June 30, 1997. Rental costs as a percentage of rental
revenues increased to 43.2% in the nine-


                                         11
<PAGE>

month period ended June 30, 1998, from 39.3% in the nine-month period ended 
June 30, 1997. The increase in rental costs as a percentage of total rental 
revenues was primarily due to the reduction in rental revenues from 
sales-type leases for which the associated costs as a percent of related 
revenues is typically less than the costs as a percentage of revenue from 
sources other than sales-type leases.  In addition, to a lesser extent, 
pricing pressures from competitors in the nine-month period ended June 30, 
1998 created an environment in which increased costs associated with renting 
more equipment were incurred without a corresponding increase in revenue.
   
   PRODUCT SALES AND SERVICES COSTS.  Product sales and services costs decreased
1.5%, or $0.1 million, to $7.3 million in the nine-month period ended June 30,
1998, compared to $7.4 million in the nine-month period ended June 30, 1997. 
Product sales and services costs as a percentage of product sales and services
revenues increased to 72.3% in the nine-month period ended June 30, 1998, from
69.3% in the nine-month period ended June 30, 1997. The increase in product
sales and services costs as a percentage of the related revenues was primarily
the result of higher costs associated with the sales of the Company's
Irideon-Registered Trademark- automated lighting products due to increased
warranty expense associated with a defect in the initial delivery of a new 
product and higher than anticipated costs to design and construct custom stages
and stage sets for customers.
   
   SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and 
administrative expense increased 0.8%, or $0.2 million, to $25.1 million in 
the nine-month period ended June 30, 1998, compared to $24.9 million in the 
nine-month period ended June 30, 1997.  This increase resulted primarily from 
the addition of the Brussels companies, which were acquired in March, 1998, 
and was partially offset by lower professional services, payroll and related 
costs and other discretionary expenses in the first half of the fiscal year.  
This expense as a percentage of total revenues increased to 39.0% in the 
nine-month period ended June 30, 1998, from 37.2% in the nine-month period 
ended June 30, 1997.
   
   RESEARCH AND DEVELOPMENT EXPENSE.  Research and development expense 
increased 5.6%, or $0.2 million, to $5.1 million in the nine-month period 
ended June 30, 1998, compared to $4.9 million in the nine-month period ended 
June 30, 1997. This expense as a percentage of total revenues increased to 
8.0% in the nine-month period ended June 30, 1998, from 7.3% in the 
nine-month period ended June 30, 1997. This increase was primarily the result 
of an increase in the employee-related costs associated with adding engineers 
for the further development of new products in fiscal year 1998.
   
   INTEREST EXPENSE.  Interest expense decreased 27.3%, or $0.7 million, to $2.0
million in the nine-month period ended June 30, 1998, compared to $2.7 million
in the nine-month period ended June 30, 1997.  This decrease was attributable to
the reduction in indebtedness from the use of the proceeds from the initial
public offering in October 1997 to repay $21.3 million of indebtedness and the
subsequent negotiation of a new credit facility in December 1997 with lower
interest rates.
   
   EXTRAORDINARY LOSS.  A non-cash extraordinary loss of $0.7 million was
recorded in the nine-month period ended June 30, 1998, net of $0.4 million of
tax benefit, relating to the early extinguishment of debt under the Company's
old credit facility.


                                         12
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     Historically, the Company has financed its operations and capital
expenditures with cash flow from operations, bank borrowings and advances from
distributors and customers.  The Company's operating activities generated cash
flow of $12.0 million and $4.8 million for the nine-month periods ended June 30,
1997 and 1998, respectively. This decrease resulted from a decrease in 
earnings and an increase in working capital.
  
     During the fiscal year ended September 30, 1997, the Company borrowed under
a multicurrency credit agreement (the "Old Credit Agreement") to partially
finance its operations and capital expenditures.  On October 21, 1997, the
Company consummated the initial public offering of its common stock and used the
net proceeds thereof, approximately $21.3 million, to repay indebtedness under
the Old Credit Agreement.  In December 1997, the Company entered into a new
multicurrency credit agreement, with SunTrust Bank, Atlanta ("SunTrust"), as
agent for the lenders thereunder (the "New Credit Agreement"), which replaced
the Old Credit Agreement.  The New Credit Agreement has a five-year term and
provides the Company with a $50 million revolving credit facility, which is
secured by the pledge of 65% of the capital stock of certain of the Company's
foreign subsidiaries.  The commitment fee on the unused portion of the facility
and the interest charged on the outstanding balance of the facility are
determined by a pricing grid based on the Company's ratio of Adjusted Funded
Debt (as defined in the New Credit Agreement) to EBITDA (as defined in the New
Credit Agreement).  The commitment fee ranges from 0.2% to 0.375% and the
interest rate ranges from 1.0% to 2.5% above the London interbank offering rate
("LIBOR") or SunTrust's base rate.  The commitment fee and margin above LIBOR at
June 30, 1998 was 0.25% and 1.5%, respectively.  The New Credit Agreement
includes customary negative covenants such as restrictions on the Company's
ability to incur debt, make acquisitions or investments or sell assets.  Also,
the New Credit Agreement includes financial covenants regarding the Company's
net worth, ratio of Adjusted Funded Debt to total capitalization, the ratio of
Adjusted Funded Debt to EBITDA and the ratio of EBITR (as defined in the New
Credit Agreement) to interest and rent expenses.  As of June 30, 1998, $38.2
million was outstanding under the New Credit Agreement (based on currency
exchange rates as of that date).

     The Company has hedged a portion of its currency fluctuation risk by
borrowing in British pounds sterling and Japanese yen under both the Old Credit
Agreement and the New Credit Agreement.  Cash generated from the Company's
England and Japan offices is typically denominated in British pounds sterling
and Japanese yen, respectively, and is used to pay expenses incurred in those
currencies and service the foreign currency borrowings.  The Company is a party
to interest rate swap agreements which fix the Company's effective interest
costs under a portion of the New Credit Agreement.

     The Company's business requires significant capital expenditures. Capital
expenditures for the nine-month periods ended June 30, 1997 and 1998 were
approximately $20.5 million and $18.3 million, respectively, of which
approximately $17.5 million and $15.4 million were for rental equipment
inventories.  The majority of the Company's revenues are generated through the


                                       13
<PAGE>

rental of automated and conventional lighting equipment and concert sound
systems and, as such, the Company must maintain a significant amount of rental
equipment to meet customer demands.

     The Company had a working capital deficit of $1.3 million at June 30, 
1997 and a working capital surplus of $9.6 million at June 30, 1998.  The 
Company has historically maintained working capital deficits since the bulk 
of its revenue-generating assets are classified as long-term assets rather 
than current assets. The working capital surplus at June 30, 1998 is 
primarily due to higher inventory purchased to maintain rental inventory and 
manufacture Irideon-Registered Trademark- products, a higher cash balance, 
lower accounts payable and lower current portion of long-term debt as a 
result of the New Credit Agreement.

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

YEAR 2000
     The Company uses software and related technologies throughout its 
business that could be adversely impacted by the Year 2000 issue.  The Year 
2000 issue, which is common to most businesses, concerns the inability of 
information systems, primarily computer software programs, to properly 
recognize and process date sensitive information as the year 2000 approaches. 
The computer systems used by the Company's US based operations are believed 
to be Year 2000 compliant.  The Company is in the process of implementing new 
software in their European based operations, with the expectation that all of 
such software will function properly beyond 1999.  Management of the Company 
believes that the future costs required to address the Year 2000 issue will 
not significantly impact its financial condition nor adversely impact 
business operations.  In addition, the ability of third parties with whom the 
Company transacts business to adequately address their Year 2000 issues is 
outside of the Company's control.  There can be no assurance that the failure 
of such third parties to adequately address their respective Year 2000 issues 
will not have a material adverse effect on the Company's business, financial 
condition and results of operations.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
     This report includes "forward-looking statements" as that phrase is defined
in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.  When used in this report, the
terms "anticipate," "believe," "estimate," "will," "could," "may" and similar
expressions, as they relate to management or the Company, are intended to
identify forward-looking statements.  Such statements reflect the current views
of management with respect to future events and are subject to certain risks,
uncertainties and assumptions, including without limitation the following as
they relate to the Company:  fluctuations in operating results and seasonality;
ability to introduce new products; technological 


                                       14
<PAGE>

changes; reliance on intellectual property; capitalized litigation costs; 
dependence on entertainment industry; competition; dependence on management; 
foreign exchange risk; international trade risk; dependence on key suppliers 
and dependence on manufacturing facility.  Should one or more of these risks 
or uncertainties materialize, or should underlying assumptions prove 
incorrect, actual results may vary materially from those described herein.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
     Not applicable.


                                       15
<PAGE>

PART II  OTHER INFORMATION

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
          (a) Exhibits
                 10.34     Amendment No. 2, dated July 31, 1998 to the
                           Multicurrency Credit Agreement, dated as of December
                           19, 1997, among the Company and SunTrust Bank,
                           Atlanta, as agent for the other banks thereunder
                  11.1     Computation of Earnings per Common Share for the
                           three months ended June 30, 1997 and 1998
                  11.2     Computation of Earnings per Common Share for the
                           nine months ended June 30, 1997 and 1998
                  27.1     Financial Data Schedule 


          (b) No reports on Form 8-K were filed for the quarter ended June 30,
          1998.


                                       16
<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:  August 7, 1998      By:  /S/ MICHAEL P. HERMAN
     ----------------         -----------------------
                              Michael P. Herman
                              Vice President - Finance,
                              Chief Financial Officer
                              and Secretary


                                       17