<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______to______
Commission file number: 0-20758
HA-LO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
ILLINOIS 36-3573412
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5980 TOUHY AVENUE, NILES, ILLINOIS 60714
----------------------------------------
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: (847)647-2300
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[cad 157]X[cad 179] No[cad 157] [cad 179].
As of October 31, 1998, the registrant had an aggregate of 29,864,871 shares of
its common stock outstanding.
<PAGE>
HA-LO INDUSTRIES, INC.
INDEX
Part I. FINANCIAL INFORMATION PAGE NUMBER
-----------
Item 1. Financial Statements.
Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997. 2
Consolidated Statements of Income for the
three months and nine months ended
September 30, 1998 and 1997. 4
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1998
and 1997. 5
Notes to Financial Statements. 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations. 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders. 14
Item 6. Exhibits and Reports on Form 8-K. 14
Signatures 15
1
<PAGE>
PART 1. FINANCIAL INFORMATION
HA-LO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------------- ---------------
(Unaudited) (Restated)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,908,376 $ 4,873,477
Short term investments 52,619,724 -
Receivables 138,141,433 142,102,487
Related party receivable - 662,702
Inventories 31,573,372 24,346,962
Prepaid expenses & deposits 10,797,413 5,246,041
--------------- ---------------
Total current assets 236,040,318 177,231,669
--------------- ---------------
PROPERTY AND EQUIPMENT, net 36,838,248 24,174,653
--------------- ---------------
OTHER ASSETS:
Intangible assets relating to
acquired businesses, net 26,079,946 22,568,646
Other 6,279,183 6,037,649
--------------- ---------------
Total other assets 32,359,129 28,606,295
--------------- ---------------
$ 305,237,695 $ 230,012,617
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
HA-LO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEPTEMBER 31, DECEMBER 31,
1998 1997
--------------- ---------------
(Unaudited) (Restated)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 222,021 $ 6,628,334
Book overdraft 3,293,090 9,919,559
Accounts payable 42,090,473 48,068,485
Accrued expenses 25,719,999 30,746,246
Due to related parties - 192,000
Deferred taxes - current 1,913,301 1,842,538
--------------- ---------------
Total current liabilities 73,238,884 97,397,162
--------------- ---------------
LONG-TERM DEBT 1,660,460 44,046,746
--------------- ---------------
DEFERRED LIABILITIES 1,396,141 1,376,608
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; 10,000,000
shares authorized and none issued - -
Common stock, no par value: 100,000,000
shares authorized and 29,705,994 issued
and outstanding in 1998 and 24,978,206 in 1997 195,367,463 63,631,999
Other (1,792,297) (1,985,188)
Retained earnings 34,882,778 25,691,685
Accumulated other comprehensive gain (loss) 484,266 (146,395)
--------------- ---------------
Total shareholders' equity 228,942,210 87,192,101
--------------- ---------------
$ 305,237,695 $ 230,012,617
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
HA-LO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED
SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- -------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 (RESTATED) 1998 1997 (RESTATED)
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $143,192,456 $111,185,165 $396,140,102 $ 307,574,329
COST OF SALES 92,446,871 74,855,022 258,923,212 207,774,910
------------- --------------- ------------- ---------------
Gross profit 50,745,585 36,330,143 137,216,890 99,799,419
SELLING EXPENSES 19,486,097 13,753,793 53,906,405 38,260,419
GENERAL AND ADMINISTRATIVE EXPENSES 19,644,211 15,071,924 55,486,294 43,708,428
NON-RECURRING CHARGES 2,656,000 - 7,136,000 2,653,671
------------- --------------- ------------- ---------------
Income from operations 8,959,277 7,504,426 20,688,191 15,176,901
INTEREST INCOME(EXPENSE), NET 1,021,306 (547,774) 380,962 (1,344,664)
Income before taxes 9,980,583 6,956,652 21,069,153 13,832,237
------------- --------------- ------------- ---------------
PROVISION FOR TAXES 3,994,626 2,433,257 8,197,816 4,625,317
------------- --------------- ------------- ---------------
NET INCOME FOR THE PERIOD $ 5,985,957 $ 4,523,395 $ 12,871,337 $ 9,206,920
------------- --------------- ------------- ---------------
------------- --------------- ------------- ---------------
PRO FORMA INCOME DATA:
Net income as reported $ 5,985,957 $ 4,523,395 $ 12,871,337 $ 9,206,920
Pro forma adjustment to income taxes - 352,900 229,800 910,200
------------- --------------- ------------- ---------------
PRO FORMA NET INCOME: $ 5,985,957 $ 4,170,495 $ 12,641,537 $ 8,296,720
------------- --------------- ------------- ---------------
------------- --------------- ------------- ---------------
EARNINGS PER SHARE (Pro forma):
Basic $ 0.20 $ 0.17 $ 0.46 $ 0.34
Diluted $ 0.20 $ 0.16 $ 0.44 $ 0.33
------------- --------------- ------------- ---------------
------------- --------------- ------------- ---------------
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 29,614,043 24,674,882 27,392,116 24,511,038
Diluted 30,608,923 25,745,552 28,593,548 25,470,200
------------- --------------- ------------- ---------------
------------- --------------- ------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
HA-LO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
--------------------- ----------------------
(Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the period $12,871,337 $9,206,920
Adjustments to reconcile net income
to net cash provided by operating
activities-
Depreciation and amortization 6,337,635 4,474,032
Increase in cash surrender value 227,067 208,541
Increase in deferred liabilities - other 67,471 125,709
Loss on disposal of assets 97,095 -
Changes in assets and liabilities,
net of effects of acquired companies -
Receivables 5,477,722 (16,857,176)
Inventories (6,558,341) (5,412,801)
Prepaid expenses and deposits (5,493,228) (1,362,844)
Accounts payable, accrued expenses and
due to related parties (5,327,362) 10,512,892
------------- -------------
Net cash provided by operating activities 7,699,396 895,273
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (16,881,718) (5,240,629)
Proceeds from disposal of property
and equipment 153,686 -
Decrease (increase) in short-term
investments (52,619,724) 2,908,370
Increase in other assets (750,363) (481,945)
Cash paid for acquisition,
including deferred payments (4,288,520) (4,164,429)
------------- -------------
Net cash used for investing
activities (74,386,639) (6,978,633)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on
long-term debt (16,210,599) 790,338
Net borrowings (payments) under
line of credit (33,676,515) 698,238
Increase (decrease) in book overdraft (6,626,469) 2,973,289
Net proceeds from issuance of common stock 124,735,117 1,548,438
Dividend payments of acquired companies (3,680,244) (920,100)
Repurchase of common stock (901,056) (449,809)
------------- -------------
Net cash provided by financing activities 64,091,481 4,189,147
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS 630,661 (27,073)
------------- -------------
NET DECREASE IN CASH AND EQUIVALENTS (1,965,101) (1,921,286)
CASH AND EQUIVALENTS, beginning of period 4,873,477 6,131,609
------------- -------------
CASH AND EQUIVALENTS, end of period $2,908,376 $4,210,323
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
HA-LO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1. BASIS OF PRESENTATION:
The accompanying financial statements have been prepared by the Company,
without audit, in accordance with generally accepted accounting principles
for interim financial information and in conjunction with the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring matters)
considered necessary for a fair presentation have been included.
The results of operations for the three month and nine month periods ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the full year. These financial statements should be read in
conjunction with the Company's financial statements and related notes in the
Company's 1997 Annual Report on Form 10-K.
NOTE 2. CAPITAL STOCK:
On May 13, 1998, the Company completed a public offering covering 5,700,000
shares of Common Stock. Of the amount of shares offered, 3,902,000 shares
were sold by the Company, and 1,798,000 shares were sold by certain
shareholders of the Company.
In August, 1998, the Company increased the shares available under its 1997
Stock Plan (as amended and restated) from 3,000,000 to 6,000,000.
During the first nine months of 1998, options to acquire an aggregate of
1,809,143 shares of the Company's common stock were issued under the
Company's Stock Plans at exercise prices ranging from $22.31 to $34.94 per
share. Additionally, 842,645 options were exercised during the same period at
prices ranging from $2.67 to $25.75 per share.
Basic earnings per share is calculated using the average number of common shares
outstanding. Diluted earnings per share is computed on the basis of the average
number of common shares outstanding plus the effect of outstanding stock options
and warrants using the "treasury stock" method.
6
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine Months Ended
September 30, September 30,
--------------- ---------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Pro forma net income
available to common
shareholders'(A) $ 5,985,957 $ 4,170,495 $12,641,537 $ 8,296,720
=========== =========== =========== ===========
Average outstanding:
Common stock (B) 29,614,043 24,674,882 27,392,116 24,511,038
Effect of stock
options and warrants 994,880 1,070,670 1,201,432 959,162
----------- ----------- ----------- -----------
Common stock and
common stock
equivalents (C) 30,608,923 25,745,552 28,593,548 25,470,200
=========== =========== =========== ===========
Earnings per share:
Basic (A/B) $ 0.20 $ 0.17 $ 0.46 $ 0.34
=========== =========== =========== ===========
Diluted (A/C) $ 0.20 $ 0.16 $ 0.44 $ 0.33
=========== =========== =========== ===========
</TABLE>
NOTE 3. STATEMENTS OF CASH FLOWS:
The supplemental schedule of non-cash activities for the nine months ended
September 30, 1998 and 1997 includes the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Issuance of common shares in connection
with acquisition of business, net $ 218,712 $10,252,160
Recognition of tax benefits from options
and restricted stock $ 7,231,444 $ 1,301,567
Non-cash consideration in connection
with acquisition of business $ -- $ 4,500,000
Issuance of common shares in connection
With bonus $ -- $ 31,250
Conversion of non-operating assets to
note receivable $ -- $ 1,530,159
</TABLE>
NOTE 4. RELATED-PARTY TRANSACTIONS:
A member of the Board of Directors renders acquisition-consulting services to
the Company pursuant to an agreement. The director's compensation is directly
contingent upon the successful completion of an acquisition. During the third
quarter of 1998, the director earned approximately $200,000 and was granted
43,890 options at fair value and above at the date of grant related to
acquisitions.
NOTE 5. BUSINESS COMBINATIONS:
In February 1998, the Company completed the acquisition of a distributor of
promotional products, R & T Specialty, Inc., for an
7
<PAGE>
aggregate of approximately 19,400 shares of its common stock, valued at
approximately $600,000 and $750,000 in cash. The acquisition has been
accounted for using the purchase method of accounting and the results of
operations are included in the consolidated financial statements from the
date of acquisition. The acquired goodwill will be amortized on a
straight-line basis over fifteen years.
In June 1998, the Company completed the acquisition of a promotion marketing
agency, Promotional Marketing, L.L.C., (d/b/a UPSHOT), for approximately 2.2
million shares of its common stock. In August 1998, the Company completed
the acquisition of a brand identity and package design agency, Lipson
Associates, Inc. d/b/a Lipson Alport Glass & Associates ("LAGA"), for
approximately 1.7 million shares of its common stock. These acquisitions have
been accounted for using the pooling-of-interests accounting method.
Accordingly, the consolidated financial statements for all periods presented
have been restated to include the results of the acquired companies.
The following schedule details the 1998 results of operations, as adjusted to
include the acquired companies accounted for under the pooling-of-interests
method, for the period prior to acquisition:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Sales -
Prior to Acquisition $138,618,856 $369,711,489
Acquired Companies 4,573,600 26,428,613
------------ ------------
Net Sales $143,192,456 $396,140,102
============ ============
Pro Forma Net Income -
Prior to acquisition $ 5,787,457 $ 11,365,571
Acquired Companies 198,500 1,275,966
------------ ------------
Pro Forma Net Income $ 5,985,957 $ 12,641,537
============ ============
</TABLE>
The following schedule reconciles previously reported sales and earnings to
include the acquired companies accounted for under the pooling-of-interests
method:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1997
------------------ ------------------
<S> <C> <C>
Sales -
Previously Reported $100,417,469 $278,089,119
Acquired Companies 10,767,696 29,485,210
------------ ------------
Net Sales $111,185,165 $307,574,329
============ ============
Pro Forma Net Income -
Previously Reported $ 3,641,370 $ 6,875,780
Acquired Companies 529,125 1,420,940
------------ ------------
Pro Forma Net Income $ 4,170,495 $ 8,296,720
============ ============
</TABLE>
8
<PAGE>
The Company is engaged in ongoing evaluations of third parties regarding
possible acquisitions and has reached a non-binding, preliminary
understanding to acquire a European-based promotional products distributor,
however, the Company has not executed definitive agreements with respect to
such acquisition and there can be no assurance that such acquisition will
occur.
NOTE 6: ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130, "Reporting Comprehensive Income" which requires the
display of comprehensive income and its components in the financial
statements. The Company's comprehensive income includes net income and
unrealized gains and losses from currency translation. The calculation of
total comprehensive income for the three and nine month periods ending
September 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
--------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pro forma net income $5,985,957 $4,170,495 $12,641,537 $8,296,720
Other comprehensive
income (loss), net of
taxes 741,600 3,700 378,400 (16,200)
---------- ---------- ----------- ----------
Comprehensive income $6,727,557 $4,174,195 $13,019,937 $8,280,520
========== ========== =========== ==========
</TABLE>
NOTE 7: UNAUDITED SUPPLEMENTAL EARNINGS PER SHARE
A portion of the net proceeds from the public offering described above were
used to repay substantially all debt outstanding on the Company's credit
facilities. Had the debt retirement taken place on January 1, 1997, the
unaudited pro forma earnings per common and common equivalent share would not
have been materially different from that reflected in the accompanying
consolidated statements of income.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Net sales for the third quarter of 1998 increased 28.8% to $143.2 million
compared to $111.2 million in the corresponding quarter of 1997. Of the $32.0
million increase, $24.4 million was due to internal growth and the remainder
was due to acquisitions.
Gross profit increased to 35.4% of net sales ($50.7 million) in the third
quarter of 1998 from 32.7% of net sales ($36.3 million) in the third quarter
of 1997. The increase is due primarily to increased margins in the
promotional products and marketing services businesses and a change in mix
towards those businesses.
Selling expenses as a percentage of net sales increased to 13.6% in the third
quarter of 1998 ($19.5 million) compared to 12.4% in the third quarter of
1997 ($13.8 million). The increase as a percentage of net sales is
attributable primarily to a higher proportion of promotional product sales,
an increase in the gross profit percentage in the promotional product
business and increased expenditures to further the Company's brand identity,
including proprietary products and corporate visibility programs.
General and administrative expenses as a percentage of net sales remained
relatively constant at 13.7% in the third quarter of 1998 ($19.6 million)
compared to 13.6% in the third quarter of 1997 ($15.0 million).
In connection with an acquisition accounted for as a pooling-of-interests,
the Company incurred approximately $2.7 million of pretax non-recurring
expenses for the third quarter of 1998.
In the third quarter of 1998 the Company had net interest income of $1.0
million, compared to net interest expense of $547,000 in the third quarter of
1997. The change is due to a portion of the proceeds received through the
May, 1998 public stock offering being used to paydown debt. Excess proceeds
were invested in short term government securities which the Company intends
to hold to maturity.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Net sales for the first nine months of 1998 increased 28.8% to $396.1 million
compared to $307.6 million in the corresponding period of 1997. Of the $88.6
million increase, $64.5 million is due to internal growth and the remainder
is due to acquisitions.
10
<PAGE>
Gross profit increased to 34.6% of net sales ($137.2 million) in the first
nine months of 1998 from 32.4% of net sales ($99.8 million) in the
corresponding period of 1997. The increase is due to the same reasons
discussed during the three month period above.
Selling expenses as a percentage of net sales increased to 13.6% in the first
nine months of 1998 ($53.9 million) compared to 12.4% in the corresponding
period of 1997 ($38.3 million). The increase is due to the same reasons
discussed during the three month period above.
General and administrative expenses as a percentage of net sales decreased
slightly to 14.0% in the first nine months of 1998 ($55.5 million) compared
to 14.2% in the corresponding period of 1997 ($43.7 million), reflective of
better leverage of cost structure.
Operating results for the first nine months of 1998 include pretax
non-recurring charges of $7.1 million related primarily to acquisitions
completed and accounted for using the pooling-of-interests accounting method.
The 1997 results include pretax non-recurring charges totaling approximately
$2.7 million related to the completion of three acquisitions that were
accounted for using the pooling-of-interest method of accounting.
In the first nine months of 1998 the Company had net interest income of
$381,000, compared to $1.3 million of net interest expense in the
corresponding period of 1997. The decrease is a result of the paydown of debt
as a result of proceeds received through the stock offering which was
completed in May, 1998.
LIQUIDITY AND CAPITAL RESOURCES
On May 13, 1998, the Company completed a public offering for 3,902,000 shares
of its common stock and received net proceeds of approximately $117.4
million. The proceeds were used to pay off substantially all debt outstanding
on its credit facilities. The remainder will be used for future acquisitions
and to fund internal growth and working capital needs.
The Company has an unsecured credit facility totaling $65 million, consisting
of a $45 million revolving line of credit (the "Revolver") and $20 million
term acquisition loan (the "Term"). The Revolver matures on January 31,
1999 and Term borrowings mature on the sooner of five years from the date of
borrowing or June 30, 2003. The facility bears interest at either prime less
.25% or LIBOR plus between .375% and 1% based on a defined ratio. The
agreement contains certain financial covenants that the Company must meet,
including minimum tangible net worth, maximum leverage, and minimum cash flow
coverages.
In addition to the facility discussed above, one of the Company's European
subsidiaries has revolving credit facilities with several banks. These
facilities provide for borrowings of up to $5 million at rates ranging from
8-13% and are generally unsecured.
11
<PAGE>
As of September 30, 1998, the Company's working capital, including
approximately $50 million of proceeds remaining from the Company's public
stock offering, was $162.8 million compared to $79.8 million at December 31,
1997. Capital expenditures for property and equipment were approximately
$16.9 million for the first nine months of 1998, and management expects
capital expenditures to be approximately $20 million for the full year of
1998, excluding acquisitions.
The Company anticipates its current level of cash and cash equivalents as
well as cash flows from operations and funds available under its credit
facilities will be adequate to satisfy its cash needs for the foreseeable
future.
Inflation
Management does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented.
Year 2000 Readiness Disclosure
Date sensitive computer applications that currently record years in
two-digit, rather than four-digit, format may be unable to properly
categorize and process dates occurring after December 31, 1999 (the "Year
2000" problem). Programs that have this problem will not properly recognize
a year that begins with a "20" instead of the familiar "19", and if not
corrected, many computer applications could fail or create erroneous results.
The Company's operating divisions and subsidiaries utilize various software
programs and operating systems. The Company relies on its computer systems
and applications for many critical business aspects including financial
systems (including general ledger, inventory, order processing, accounts
payable and accounts receivable), customer services, infrastructure and
network and telecommunications equipment. The Company, under the direction of
the Company's Board of Directors, has formed a Year 2000 Committee to assess
the company's state of readiness and address Year 2000 issues that may effect
the Company's business.
Based on a preliminary review, the Company believes most of its computer
systems and communications technology to be Year 2000 ready. Presently, the
Company does not believe that it will incur significant costs to comply with
Year 2000 requirements outside those expenditures already planned relating to
improving the overall technological capabilities of the Company. However, the
Company has not fully investigated all issues and does not believe it has
fully identified the impact of Year 2000 compliance. Costs incurred to date
directly related to fixing Year 2000 issues, such as modifying software and
hiring Year 2000 solution providers, have been immaterial.
12
<PAGE>
The Company is also dependent on its customers, vendors and business
partners. Therefore, Year 2000 compliance problems experienced by them could
have a material adverse effect on the Company's future financial condition
and future operating results. The Company plans to institute a program to
review the status of Year 2000 compliance efforts of its significant
customers, vendors and business partners. No assurance can be given that the
Company's and the other entities efforts will completely address the Year
2000 problem.
Forward-Looking Statements
Statements contained in this Management's Discussion and Analysis of
Financial Condition and the Results of Operations regarding the amount and
nature of planned capital expenditures, continued increased margins in the
promotional products business, the percentage of the Company's future sales
that will be attributable to the promotional products business, the Company's
belief that available cash will be sufficient to satisfy its future needs,
expected costs to be incurred in relation to Year 2000 issues and HA-LO'S
anticipated profitability in 1998 are forward-looking statements that involve
substantial risks and uncertainties. Following are important factors that
could cause the Company's actual results to differ materially from those
implied by such forward-looking statements: The Company's growth will be
dependent, in large part, upon its ability to hire, motivate and retain high
quality sales representatives, most of whom are independent contractors. The
Company does not maintain its own manufacturing facilities and is dependent
upon domestic and foreign manufacturers for its supply of promotional
products. The promotional products and telemarketing industries are very
competitive. The Company has experienced and may continue to experience rapid
growth, which growth has placed and may place significant demands on its
management and resources. Increased profitability will depend upon the
Company's ability to manage its growth and to integrate acquired companies
into its existing operations. Readers are encouraged to review HA-LO'S
Prospectus dated May 13, 1998, its 1997 Annual Report on Form 10-K and
quarterly reports on Form 10-Q for other important factors that may cause
actual results to differ materially from those implied in these forward
looking-statements.
13
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 - HA-LO Industries, Inc. 1997 Stock Plan (Amended and Restated)
(Incorporated by reference to exhibit #10.1 to the Registration
Statement (No. 333-66849) on Form S-8 filed by the Company under
the Securities Act of 1933 as amended)
27.0 - Financial Data Schedule for the nine month period ended
September 30, 1998
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended
September 30, 1998.
14
<PAGE>
SIGNATURE
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.
HA-LO INDUSTRIES, INC.
Dated: November 13, 1998 /s/ GREGORY J. KILREA
---------------------
Gregory J. Kilrea
Duly Authorized Officer
and Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF INCOME AND BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEPTEMBER 30, 1998 FORM 10Q
REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2908376
<SECURITIES> 52619724
<RECEIVABLES> 141207571
<ALLOWANCES> 3066138
<INVENTORY> 31573372
<CURRENT-ASSETS> 236040318
<PP&E> 58440471
<DEPRECIATION> 21602223
<TOTAL-ASSETS> 305237695
<CURRENT-LIABILITIES> 73238884
<BONDS> 1660460
0
0
<COMMON> 195367463
<OTHER-SE> 33574747
<TOTAL-LIABILITY-AND-EQUITY> 305237695
<SALES> 396140102
<TOTAL-REVENUES> 396140102
<CGS> 258923212
<TOTAL-COSTS> 258923212
<OTHER-EXPENSES> 115271407<F1>
<LOSS-PROVISION> 1169796
<INTEREST-EXPENSE> 876330
<INCOME-PRETAX> 21069153
<INCOME-TAX> 8427616<F2>
<INCOME-CONTINUING> 12641537<F2>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12641537<F2>
<EPS-PRIMARY> .46<F2>
<EPS-DILUTED> .44<F2>
<FN>
<F1>INCLUDES PRETAX NON-RECURRING CHARGES OF $7.1 MILLION RELATED TO ACQUISTIONS
COMPLETED AND ACCOUNTED FOR USING THE POOLING-OF-INTERESTS ACCOUNTING METHOD.
<F2>A COMPANY THAT WAS ACQUIRED AND ACCOUNTED FOR USING THE POOLING-OF-INTERESTS
ACCOUNTING METHOD WAS NOT SUBJECT TO FEDERAL INCOME TAXES PRIOR TO THEIR
ACQUISITION BY THE COMPANY. NET INCOME AND NET INCOME PER SHARE AMOUNTS INCLUDE
AN UNAUDITED PROVISION FOR FEDERAL AND STATE TAXES AT AN EFFECTIVE RATE OF 40% FOR
THIS COMPANY.
</FN>
</TABLE>
