Genlyte/Thomas Group Purchases Vari*Lite Sales, Manufacturing and Engineering

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On November 18, Vari-Lite International, Inc. (Nasdaq:LITE) announced that it has sold the assets of its VARI*LITE products manufacturing and sales division to Genlyte Thomas Group LLC (GTG). The sale included the VARI*LITE family of products, as well as all sales, manufacturing and engineering operations associated with this division. GTG (Nasdaq:GLYT) also acquired the VARI*LITE trademark and all patents associated with VARI*LITE products. The purchase price, which will be finalized within 30 days, is estimated to be $10.5 million - $11.5 million, which will result in a loss of approximately $4.0 million - $5.0 million.

Vari-Lite International, Inc. will ultimately change its name to VLPS Lighting Services International, Inc. to further reflect the Company's continued commitment to provide lighting systems and services to the entertainment industry.

While most in the entertainment industry are familiar with Dallas-based Vari-Lites place in history as the pioneers of automated lighting, and with their involvement in some of the worlds most prominent shows and events, fewer are familiar with Genlyte Thomas Group LLC. GTG, with headquarters in Louisville, KY, was formed in 1998 when The Genlyte Group Inc. and the Lighting Group of Thomas Industries Inc. joined forces to create the new conglomerate. With consolidated sales for 2001 of $985M, GTG is the largest manufacturer in North America dedicated exclusively to lighting products and controls, and since 1999 GTG has acquired five niche companies, not including Vari-Lite.

Stated corporate strategies include holding the #1 or #2 position in every market served, and the generation of 33% of revenues from products introduced in the past three years, with a heavy emphasis on innovation and energy efficiency. The commercial sector accounts for 72% of GTG sales.

Genlyte/Thomas designs, manufactures, markets, and sells lighting fixtures and controls for a wide variety of applications in the commercial, residential, and industrial markets. GTG operates in these three industry segments through the following divisions: Lightolier, Day-Brite, Crescent, Capri, Controls, Hadco, Gardco, Wide-Lite, Stonco, and Consumer, all in the United States and Mexico; and Canlyte, Thomas Lighting Canada, Lumec, and Ledalite, all in Canada.

In October, GTG announced its third quarter earnings per share grew to $.80, an 8.1% increase over the third quarter of 2001, and the highest third qu arter earnings per share in Genlyte's history. The company also reported record third quarter net income of $11.0 million, a 9.5% improvement over the third quarter of last year. This was the 31st consecutive increase in both earnings per share and net income over the comparable prior year's quarter reported by the company. Third quarter sales of $248.3 million were 1.7% lower than the $252.6 million reported last year. The year to date earnings per share were $2.22 and net income was $30.4 million, up 11.6% and 13.1% respectively from the comparable period in 2001. Sales during the same period declined 3.4% to $728.1 million from $753.9 million.

Larry Powers, President and Chief Executive Officer of Genlyte Thomas, commenting on the deal, told Rental & Staging Systems magazine, "Vari-Lite is the pioneer of the automated lighting industry. We saw this as an opportunity to add an established industry leader to the Genlyte Thomas Group, and are excited about the potential that this acquisition has to enhance our entertainment lighting products and controls package. VARI*LITE products are the most technically advanced in the lighting industry, utilizing computer control technologies to automate various lighting effects seamlessly. Many of these features are protected by more than 50 patents, which we acquired with this purchase. By capitalizing on our manufacturing strengths, we believe we can effectively integrate the VARI*LITE brand into our respected family of lighting businesses."

"This transaction will not have any material effect on our earnings in 2002," added Powers, "but we expect the Vari-Lite acquisition to positively impact earnings during 2003. Annual sales volume of VARI*LITE products will be in the range of $25 million to $30 million during 2003 with the potential to increase to $50 million during the subsequent three to five years. In addition, we ultimately will integrate these advanced lighting technologies into our existing products aimed at our commercial markets."

I was fortunate to speak with Rusty Brutsche', Chairman and CEO of Vari-Lite International, Inc. (which, in 2003, will be renamed VLPS Lighting Services International, Inc.) to learn his views on the sale, as well as his plans for the future with VLPS.

"Genlyte has the expertise in manufacturing, distribution and procurement to take Vari-Lite to the next level," said Brutsche. "Operating as a manufacturer and a rental company was confusing to the industry, and it limited the growth prospects of VLPS. This transaction allows VLPS Lighting Services to operate independently and to focus on its core competency, lighting rental and production services.

"Weve been a production company since 1969," Brutsche continued, "and a big part of that was building better equipment and methods to increase the quality of our shows. Starting with sound products at Showco and then lighting products at Vari-Lite, the idea was always to come up with new, innovative solutions to improve productions. I look forward to giving that a lot of attention in fact, Ive spent the last two years out on shows, talking to customers and production managers to hear about the problems that need our attention today. With our inventory well still be the largest VARI*LITE rental house in the world, their largest sales customer in the world and the master distributor for Europe and Japan. We have retained Jim Bornhorst, some of his engineering team and the Virtuoso console and its development team. Software development will continue on Virtuoso, and we will support customers that purchased units. While thats expensive, its a key part of our business and we have a large pool of well known lighting programmers that love the console."

When asked about proprietary technology in VLPS past and future, Brutsche replied, "Ive always believed in building proprietary equipment, and that wont stop. We have a non-compete agreement with Genlyte and cant violate that, but we will continue to develop methods and technologies we derive from our experience and involvement in productions and shows. I think the industry needs a more elegant, integrated power and data distribution system. I think distributed dimming is a future trend we need to be aware of these IGBT dimmers made by Genlyte that we use in the VL1000 are an amazing product, as is the Intelligent Raceway from ET. Wireless data distribution will become more commonplace. Theres still lots of improvements to be made to production lighting systems, and VLPS will be the leader in those developments."

Brutsche expressed mixed feelings about parting with Vari-Lite. "The transition to being a manufacturing company from a production company was very hard for all of us," he commented. "While Ill miss my involvement in Vari-Lite, the time has come for top quality automated lighting to become more affordable. This deal is good for consumers and the entertainment lighting business big business has finally arrived in the entertainment lighting industry in a very big way."

"Culturally, from speaking with the people at Genlyte, they are a company that like popular brands. They found our brand appealing and saw a good opportunity," commented Clay Powers of Vari-Lite. "I think this will allow us to produce products we might not have otherwise. We want to be the most preferred brand of automated lighting, and with Genlyte behind us nothing will stand in our way of achieving that goal.

"This also helps legitimize the idea that automated lighting is the future of the lighting business," Clay Powers continued. "Weve preached it for 20 years, but now what is going to happen with Genlytes manufacturing and distribution muscle? Some might think that automated lighting has reached a commodity level of saturation because Chinese and Eastern European goods have become available and driven prices downward on entry-level products. I dont think thats true because we are still selling the performance of our product to end users as long as that is the case, were not a commodity. When all of the features and prices are the same, then well be a commodity. But I believe were far away from that."

"The acquisition of Vari-Lite strengthens our growing position in the Entertainment Lighting market," said Steven Carson, Vice President and General Manager of the Genlyte Controls Division. "In the field of entertainment lighting fixtures, automated lighting appears to be the fastest growing market. Fixtures with integral dimming, color changing, and multiple patterns these all have broader applications within entertainment as well as architecture and residential lighting. I want to be clear about this Vari-Lite is a strategic acquisition for Genlyte. Our plan is to invest in and expand the VARI*LITE brand throughout the lighting industry. Genlyte likes to popularize leading edge technology, and now we have some of the best technology in the world. As far as day-to-day operations are concerned, to the customers nothing will really change. Sales, marketing and service has stayed the same, with no plans to change. We intend to maintain current distribution through established VARI*LITE dealers worldwide, and have been telling people it should be the same as last Monday. Well be moving into a single space to house both operations in a cost-effective manner and will reduce much duplicated overheard. Our buying power and manufacturing expertise will significantly affect Vari-Lites manufacturing costs. But our first focus is still the release of the Series 3000 products in Spring 2002, and we will meet that goal."

What does this mean for the future of the entertainment lighting industry? Its really too early to tell. Culturally the companies are a good mix, Genlyte being a publicly traded company and Vari-Lite being the first publicly traded company from the entertainment lighting industry. Judging from their financial performance, Genlyte appears to be a very well-managed, profitable company and Vari-Lite will most certainly benefit from their experience and solidarity. The merging of people will be good for Genlyte too there are a lot of very experienced entertainment lighting people at Vari-Lite, and they should be able to help Genlyte market and sell all of their entertainment lighting products more efficiently than ever. Rusty Brutsche might have said it best "big business has finally made it to our industry in a big way."

For more information:

Vari*Lite
214.819.3145
www.vari-lite.com

Genlyte Thomas
502 420 9500
www.genlytethomas.com

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