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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
C U R R E N T R E P O R T
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
January 3, 1997
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Date of Report (Date of earliest event reported)
HA-LO Industries, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Illinois
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(State or Other Jurisdiction of Incorporation)
0-20758 36-3573412
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(Commission File Number) (IRS Employer Identification No.)
5980 Touhy Avenue, Niles, Illinois 60714
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(Address of Principal Executive Offices) (Zip Code)
(847) 647-2300
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Set forth on the following pages are the financial statements and related
pro forma financial information required by this Item 7 pertaining to the
purchase by HA-LO Industries, Inc. of certain assets used in connection with the
business of Creative Concepts in Advertising, Inc. and its affiliate, Creadis
Group.
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HA-LO INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. The accompanying pro forma combined condensed financial statements reflect
the issuance of 2,835,632 shares of HA-LO common stock for all outstanding
common stock of Creative Concepts in Advertising, Inc. and its affiliate,
Creadis Group (together CCA). The transaction, which was consummated on
January 3, 1997 has been accounted for as a pooling-of-interests in
accordance with the provisions of Accounting Principles Board Opinion No.
16.
2. Prior to its acquisition, Creative Concepts in Advertising had elected to
be treated as an S Corporation for federal income taxes. The accompanying
pro forma combined condensed financial statements include an unaudited pro
forma income tax benefit for this entity at an effective rate of 40%.
3. Earnings per share for in the accompanying pro forma combined condensed
financial statements is based on the weighted average number of shares of
HA-LO common stock outstanding, including common stock equivalents, plus
the 2,835,632 shares to issued in connection with the acquisition.
4. The unaudited combined condensed financial statements of HA-LO and CCA
exclude any non-recurring costs and expenses associated with consummating
the acquisition and combining the operations of the companies. Such costs
are expected to result in a one time after tax charge to HA-LO's earnings
of approximately $1,000,000. The charge relates primarily to transaction
costs and will occur in the first quarter of 1997.
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HA-LO Industries, Inc.
Pro Forma Combined Condensed Balance Sheets
As of December 31, 1996
<TABLE>
<CAPTION>
ASSETS
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HA-LO CCA Combined
----- --- --------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash, cash equivalents and investments $ 6,771,328 $ 352,600 $ 7,123,928
Receivables 52,551,454 18,630,158 $71,181,612
Inventories 5,776,350 5,493,772 $11,270,122
Prepaid expenses and deposits 3,116,050 969,755 4,085,805
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Total current assets 68,215,182 25,446,285 93,661,467
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PROPERTY AND EQUIPMENT, NET 9,682,494 3,772,309 13,454,803
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OTHER ASSETS 9,736,326 4,299,538 14,035,864
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$87,634,002 $33,518,132 $121,152,134
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LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
HA-LO CCA Combined
----- --- --------
CURRENT LIABILITIES:
Accounts payable 14,495,222 8,521,714 23,016,936
Accrued Expenses 10,176,645 2,215,057 12,391,702
Deferred taxes 1,058,087 - 1,058,087
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Total current liabilities 25,729,954 10,736,771 36,466,725
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LONG-TERM DEBT 2,901,785 23,301,460 26,203,245
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DEFERRED LIABILITIES 1,755,335 - 1,755,335
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SHAREHOLDERS' EQUITY 57,246,928 (520,099) 56,726,829
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87,634,002 33,518,132 121,152,134
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</TABLE>
The accompanying notes are an integral part of these balance sheets
<PAGE>
HA-LO Industries, Inc.
Pro Forma Combined Condensed Income Statements
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
HA-LO CCA Combined
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<S> <C> <C> <C>
NET SALES $ 254,887,550 $ 67,512,993 $ 322,400,543
COST OF SALES 182,442,369 46,381,906 228,824,275
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72,445,181 21,131,087 93,576,268
Gross Profit
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 57,208,006 21,537,169 78,745,175
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Income (loss) from operations 15,237,175 (406,082) 14,831,093
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OTHER INCOME (EXPENSE): 380,603 (1,750,617) (1,370,014)
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Income (loss) before taxes 15,617,778 (2,156,699) 13,461,079
PROVISION (BENEFIT) FOR INCOME TAXES 6,248,279 (862,680) 5,385,599
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NET INCOME (LOSS) FOR THE YEAR $ 9,369,499 $ (1,294,019) $ 8,075,480
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FULLY DILUTED NET INCOME PER SHARE 0.40
FULLY DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 20,416,373
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
CREATIVE CONCEPTS IN ADVERTISING, INC.
AND CREADIS GROUP, INC.
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Creative Concepts in
Advertising, Inc., and Creadis Group, Inc.:
We have audited the accompanying combined balance sheet of CREATIVE CONCEPTS IN
ADVERTISING, INC. (a Michigan corporation) AND CREADIS GROUP, INC. (an Ontario,
Canada, corporation) as of December 31, 1996, and the related combined
statements of operations, shareholders' deficit and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Creative Concepts in
Advertising, Inc. and Creadis Group, Inc. as as of December 31, 1996, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 7, 1997
<PAGE>
CREATIVE CONCEPTS IN ADVERTISING, INC.
AND CREADIS GROUP, INC.
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1996
ASSETS
CURRENT ASSETS:
Cash $ 352,600
Accounts receivable
Trade, net 17,048,687
Other 1,581,471
Inventory 5,493,772
Prepaid expenses 969,755
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Total current assets 25,446,285
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PROPERTY AND EQUIPMENT, net 3,772,309
GOODWILL, net of accumulated amortization of $179,465 4,162,585
OTHER ASSETS 136,953
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$33,518,132
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LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of notes payable $22,601,460
Note payable, shareholder 138,120
Accounts payable 8,521,714
Accrued liabilities 2,076,937
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Total current liabilities 33,338,231
NOTES PAYABLE, less current maturities 700,000
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Total liabilities 34,038,231
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SHAREHOLDERS' DEFICIT:
Common stock, $1 par value; 50,000 shares authorized;
5,000 shares issued and outstanding 5,000
Common stock, no par value; 100 shares authorized;
100 shares issued and outstanding 1
Additional paid-in capital 1,247,000
Retained deficit (1,772,100)
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Total shareholders' deficit (520,099)
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$33,518,132
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The accompanying notes are an integral part of this balance sheet.
<PAGE>
CREATIVE CONCEPTS IN ADVERTISING, INC.
AND CREADIS GROUP, INC.
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
NET SALES $67,512,993
COST OF GOODS SOLD 46,381,906
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Gross profit 21,131,087
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 21,537,169
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Loss from operations (406,082)
INTEREST EXPENSE 1,185,171
OTHER EXPENSE, net 565,446
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Net loss before taxes (2,156,699)
PROVISION FOR INCOME TAXES (Note 2) -
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Net loss $(2,156,699)
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The accompanying notes are an integral part of this statement.
<PAGE>
CREATIVE CONCEPTS IN ADVERTISING, INC.
AND CREADIS GROUP, INC.
COMBINED STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1996
Common Additional Retained
Stock Paid-in Earnings/
(Note 2) Capital (Deficit) Total
------- ---------- ----------- ----------
BALANCE, December 31, 1995 $5,001 $1,247,000 $356,100 $1,608,101
Foreign currency translation - - 28,499 28,499
Net loss
- - (2,156,699) (2,156,699)
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BALANCE, December 31, 1996 $5,001 $1,247,000 $(1,772,100) $(520,099)
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The accompanying notes are an integral part of this statement.
<PAGE>
CREATIVE CONCEPTS IN ADVERTISING, INC.
AND CREADIS GROUP, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,156,699)
Adjustments to reconcile net loss to net cash used in operating
activities-
Depreciation and amortization 989,117
Changes in assets and liabilities-
Accounts receivable (3,095,948)
Inventory (612,591)
Prepaid expenses (758,553)
Other assets (95,860)
Accounts payable (4,168,109)
Accrued liabilities 880,073
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Net cash used in operating activities (9,018,570)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,293,218)
Purchase of PMI (Note 7) (1,161,869)
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Net cash used in investing activities (3,455,087)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line-of-credit agreements 13,403,041
Net borrowings from shareholder 174,880
Foreign currency translation 28,499
Principal payments on long-term debt (892,766)
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Net cash provided by financing activities 12,713,654
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NET INCREASE IN CASH 239,997
CASH, beginning of year 112,603
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CASH, end of year $352,600
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
Cash paid for interest $(1,121,517)
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SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS--
Purchase of PMI:
Accounts receivable $ (490,135)
Inventory (1,138,243)
Prepaids (100,054)
Property and Equipment (327,961)
Goodwill (3,040,071)
Accounts payable 2,934,595
Value of note issued 1,000,000
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Net cash used to acquire PMI $(1,161,869)
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The accompanying notes are an integral part of this statement.
<PAGE>
CREATIVE CONCEPTS IN ADVERTISING, INC.
AND CREADIS GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF THE BUSINESS
The combined financial statements include the accounts of Creative Concepts
in Advertising, Inc. ("CCA") and Creadis Group, Inc. ("Creadis") (referred
to combined as the "Company"). CCA includes the accounts of 2100 East
Maple, LLC, a real estate holding company privately owned by the majority
shareholder of CCA. The majority shareholder of CCA is also the sole
shareholder of Creadis. As the entities are under common control, their
financial position and results of operations are combined in the
accompanying financial statements.
CCA is a privately held Michigan corporation and Creadis is a privately
held Canadian corporation. Both companies are primarily engaged in the
sale and distribution of specialty and monogrammed items and other
promotional merchandise. A significant portion of the total revenues of
the Company is derived from sales made to automotive manufacturers. During
1996, two customers accounted for approximately 38% and 12% of the
Company's total revenues.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company's revenues are primarily derived from drop shipment sales and
sales under its corporate fulfillment program. Revenue under both types of
sales is recognized at the time the merchandise is shipped to the customer.
ACCOUNTS RECEIVABLE
Accounts receivable includes an allowance for doubtful accounts of
approximately $2,558,000 as of December 31, 1996.
INVENTORY
Inventory is stated at the lower of cost (determined by the first-in,
first-out (FIFO) method) or market.
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PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciation is calculated
primarily using accelerated methods based on the following estimated useful
lives:
Asset Description Asset Life
--------------------------------- --------------------------
Furniture, fixtures and machinery 5-7 years
Computer equipment 3-5 years
Vehicles 3-5 years
Leasehold improvements Lesser of term of lease or
useful life
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As of December 31, 1996, property and equipment consist of the following:
Land $ 677,000
Furniture, fixtures and machinery 2,279,303
Computer equipment 2,208,286
Vehicles 229,661
Leasehold improvements 1,104,903
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6,499,153
Less- Accumulated depreciation (2,726,844)
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Net property and equipment $ 3,772,309
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ACCOUNTS PAYABLE
Included in accounts payable is approximately $2,583,000 of bank
overdrafts.
COMMON STOCK
Common stock for CCA includes 50,000 shares authorized with $1 par value,
with 5,000 shares issued and outstanding. Creadis common stock includes
100 authorized shares with no par value, with 100 shares issued and
outstanding.
INCOME TAXES
The Company has elected to be taxed as an S Corporation under the
provisions of the Internal Revenue Code. Accordingly, income of the
Company is included in the taxable income of its shareholders and the
Company does not provide or pay Federal income taxes.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported
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amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3. NOTES PAYABLE
The Company maintains a loan facility which includes a $25,000,000
revolving line of credit, with interest rates at the bank's prime rate
(8.25% at December 31, 1996) or a percentage above the Eurodollar rate. At
December 31, 1996, the Company had $21,703,912 outstanding under the
line-of-credit agreement. The note is collateralized by substantially all
of the Company's assets, requires the maintenance of several financial
ratios, and limits shareholder compensation. As of December 31, 1996, the
Company was in violation of certain financial ratio covenants. However,
this line of credit was paid in full and retired subsequent to year-end
(see Note 8).
Also included in notes payable are two notes totaling $1,597,548. These
notes accrue interest at 8%, and are payable in various instalments through
1999. The entire portion of one of the notes is classified as current in
the accompanying balance sheet due to its early retirement subsequent to
year-end (see Note 8).
4. LEASES
The Company leases real estate and equipment under various lease
agreements. The real estate lease provides that the Company will pay
taxes, maintenance, insurance and other related expenses. Management
expects that, in the normal course of business, certain leases will be
renewed or replaced by other leases. Future minimum lease payments under
these operating leases at December 31, 1996, are approximately $38,000 per
month, and expire at various times through December, 2002.
The Company leases two other facilities from its primary shareholder.
Total rent expense under these leases for the year ended December 31, 1996,
was approximately $800,000. Both of these leases were ammended subsequent
to year end in conjunction with the Company's acquisition (See Note 8).
Future rent expense under both leases total approximately $36,000 per
month. One lease with monthly expense of approximately $25,000 is
month-to-month, while the other lease with monthly expense of approximately
$11,000 expires in February, 2005.
5. TRANSACTIONS WITH RELATED PARTIES
The Company performs billing and collection functions for several companies
in unrelated industries owned or partially owned by the Company's primary
shareholder. Total net amount due from these companies as of December 31,
1996, is approximately $606,000.
Included in trade receivables is approximately $880,000 related to sales to
a company in an unrelated industry partially owned by the primary
shareholder. Total sales made to this company for the year ended
December 31, 1996, were approximately $156,000.
<PAGE>
-4-
The Company has also borrowed money from its primary shareholder. The net
amount due to the shareholder as of December 31, 1996, was $138,120.
Interest is not charged on loans made to or from the shareholder.
Included in other receivables is approximately $703,000 of receivables
other than those previously discussed within this note due from third
parties for various purposes. The primary shareholder of the Company has
personally guaranteed the collection of these receivables.
6. EMPLOYEE BENEFIT PLANS
During 1996, the Company established a 401(k) savings plan covering
substantially all employees. Employees can elect to contribute up to 15%
of their gross salary to the plan. The Company provides a 20% match for
the first $1,000 contributed by each employee. For 1996, Company
contributions to the plan were approximately $7,100.
7. ACQUISITION
In July, 1996, the Company acquired Prospective Marketing International
("PMI"), a company operating in the same industry. The acquisition of PMI
was accounted for under the purchase method of accounting, and its
operations are included in the combined financial statements from the date
of acquisition. PMI was acquired for approximately $2,000,000 in cash and
long-term notes payable and the assumption of certain liabilities
aggregating to $3,284,595. The total purchase price of $5,284,595 resulted
in $3,228,302 of goodwill which is amortized over a period of 15 years.
8. SUBSEQUENT EVENT
On January 3, 1997, the Company was acquired by HA-LO Industries, Inc.
("HA-LO"), a publicly held specialty advertising company. This acquisition
was accounted for by HA-LO as a pooling of interests. The shareholders of
the Company surrendered all outstanding stock for 2,835,632 shares of HA-LO
common stock.
<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 hereunto to duly authorized.
HA-LO INDUSTRIES, INC.
By: /s/ Gregory J. Kilrea
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Gregory J. Kilrea
Chief Financial Officer
Dated: March 18, 1997