<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 June 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[X] No[ ].
As of August 10, 1998, the registrant had an aggregate of 27,732,084 shares
of its common stock outstanding.
<PAGE>
HA-LO INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION Page Number
-----------
<S> <C> <C>
Item 1. Financial Statements.
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997. 2
Consolidated Statements of Income for the three
months and six months ended June 30, 1998 and 4
1997.
Consolidated Statements of Cash Flows for the
six months ended June 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 14
of Security Holders.
Item 6. Exhibits and Reports on Form 8-K. 14
Signatures 15
</TABLE>
1
<PAGE>
PART 1. FINANCIAL INFORMATION
HA-LO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(Unaudited) (Restated)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 82,122,923 $ 2,881,815
Receivables 117,651,267 135,637,994
Related party receivable - 662,702
Inventories 30,423,251 24,346,962
Prepaid expenses & deposits 9,169,695 5,246,041
------------- -------------
Total current assets 239,367,136 168,775,514
------------- -------------
PROPERTY AND EQUIPMENT, net 30,046,697 22,006,388
------------- -------------
OTHER ASSETS:
Intangible assets relating to acquired
businesses, net 25,346,333 22,568,646
Other 5,031,115 4,873,932
------------- -------------
Total other assets 30,377,448 27,442,578
------------- -------------
$ 299,791,281 $ 218,224,480
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
HA-LO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(Unaudited) (Restated)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,727,118 $ 6,597,134
Book overdraft 10,984,368 9,919,559
Accounts payable 38,611,767 48,023,221
Accrued expenses 24,078,618 25,038,893
Due to related parties - 192,000
Deferred taxes - current 1,842,606 1,842,538
------------- -------------
Total current liabilities 78,244,477 91,613,345
------------- -------------
LONG-TERM DEBT 6,693,536 43,828,346
------------- -------------
DEFERRED LIABILITIES 1,210,871 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 27,668,160 issued
and outstanding in 1998 and 23,274,726 in 1997 189,326,133 62,155,879
Other (1,856,594) (1,985,188)
Retained earnings 26,778,186 21,381,885
Accumulated other comprehensive loss (605,328) (146,395)
------------- -------------
Total shareholders' equity 213,642,397 81,406,181
------------- -------------
$299,791,281 $ 218,224,480
------------- -------------
------------- -------------
</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
JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ---------------------------
June 30, June 30, June 30, June 30,
1998 1997 (Restated) 1998 1997 (Restated)
-------- --------------- -------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 127,888,185 $ 98,477,463 $241,973,420 $186,802,822
COST OF SALES 84,805,906 68,421,241 162,396,748 129,315,083
-------------- ------------- ------------ ------------
Gross profit 43,082,279 30,056,222 79,576,672 57,487,739
SELLING EXPENSES 15,815,221 11,596,396 31,354,181 22,092,731
GENERAL AND ADMINISTRATIVE EXPENSES 17,467,937 13,350,182 33,333,929 26,304,463
NON-RECURRING CHARGES 2,980,000 597,671 4,480,000 2,653,671
-------------- ------------- ------------ ------------
Income from operations 6,819,121 4,511,973 10,408,562 6,436,874
INTEREST INCOME(EXPENSE), NET 30,745 (441,437) (684,717) (807,643)
-------------- ------------- ------------ ------------
Income before taxes 6,849,866 4,070,536 9,723,845 5,629,231
PROVISION FOR TAXES 2,386,000 1,729,620 3,660,300 2,156,665
-------------- ------------- ------------ ------------
NET INCOME FOR THE PERIOD $ 4,463,866 $ 2,340,916 $ 6,063,545 $ 3,472,566
-------------- ------------- ------------ ------------
-------------- ------------- ------------ ------------
PRO FORMA INCOME DATA:
Net income as reported $ 4,463,866 $ 2,340,916 $ 6,063,545 $ 3,472,566
Pro forma adjustment to income taxes 354,000 (102,000) 229,800 95,200
-------------- ------------- ------------ ------------
PRO FORMA NET INCOME: $ 4,109,866 $ 2,442,916 $ 5,833,745 $ 3,377,366
-------------- ------------- ------------ ------------
-------------- ------------- ------------ ------------
EARNINGS PER SHARE (Pro forma):
Basic $ 0.16 $ 0.11 $ 0.24 $ 0.15
Diluted $ 0.15 $ 0.10 $ 0.23 $ 0.14
-------------- ------------- ------------ ------------
-------------- ------------- ------------ ------------
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 25,779,928 22,769,440 24,577,673 22,725,637
Diluted 27,131,166 23,667,977 25,882,381 23,629,044
-------------- ------------- ------------ ------------
-------------- ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
HA-LO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
----------- ------------
(Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the period $ 6,063,545 $ 3,472,566
Adjustments to reconcile net income to net
cash used for operating activities-
Depreciation and amortization 4,163,783 2,827,383
Increase in cash surrender value 82,660 29,400
Increase (decrease) in deferred liabilities - other (188,494) 78,445
Loss on disposal of assets 97,095 -
Changes in assets and liabilities, net of effects
of acquired companies -
Receivables 19,503,395 (10,439,593)
Inventories (5,408,220) (5,361,171)
Prepaid expenses and deposits (3,865,510) (1,532,139)
Accounts payable, accrued expenses and
due to related parties (7,260,301) (2,644,050)
------------ ------------
Net cash provided by (used for) operating
activities 13,187,953 (13,569,159)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (10,734,660) (3,272,220)
Proceeds from disposal of property and equipment 153,686 -
Decrease in short-term investments - 2,908,370
Increase in other assets (429,839) (71,478)
Cash paid for acquisition, including deferred
payments (3,810,890) (715,060)
------------ ------------
Net cash used for investing activities (14,821,703) (1,150,388)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on long-term debt (10,172,826) 489,845
Net borrowings (payments) under line of credit (31,926,515) 4,831,971
Increase decrease in book overdraft 1,064,809 7,052,923
Net proceeds from issuance of common stock 123,035,567 875,898
Dividend payments of acquired companies (667,244) (194,515)
Repurchase of common stock - (901,056)
------------ ------------
Net cash provided by (used for) financing
activities 81,333,791 12,155,066
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (458,933) (33,191)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND 79,241,108 (2,597,672)
EQUIVALENTS
CASH AND EQUIVALENTS, beginning of period 2,881,815 5,269,796
------------ ------------
CASH AND EQUIVALENTS, end of period $ 82,122,923 $ 2,672,124
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
HA-LO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 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 six month periods ended
June 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.
On March 31, 1998, the Company increased the shares available under its 1997
Stock Plan (as amended and restated) from 1,500,000 to 3,000,000.
During the first six months of 1998, options to acquire an aggregate of
1,281,593 shares of the Company's common stock were issued under the
Company's Stock Plans at exercise prices ranging from $24.69 to $34.94 per
share. Additionally, 508,291 options were exercised during the same period at
prices ranging from $2.67 to $25.13 per share.
6
<PAGE>
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.
<TABLE>
<CAPTION>
Three months ended June 30, Six Months Ended June 30,
----------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pro forma net income
available to common
shareholders'(A) $ 4,109,866 $ 2,442,916 $ 5,833,745 $ 3,377,366
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Average outstanding:
Common stock (B) 25,779,928 22,769,440 24,577,673 22,725,637
Effect of stock options
and warrants 1,351,238 898,537 1,304,708 903,407
------------ ----------- ----------- -----------
Common stock and common
stock equivalents (C) 27,131,166 23,667,977 25,882,381 23,629,044
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Earnings per share:
Basic (A/B) $ 0.16 $ 0.11 $ 0.24 $ 0.15
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Diluted (A/C) $ 0.15 $ 0.10 $ 0.23 $ 0.14
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
NOTE 3. STATEMENTS OF CASH FLOWS:
The supplemental schedule of non-cash activities for the six months ended
June 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 $ 4,000,000
Recognition of tax benefits from options and
restricted stock $ 3,915,975 $ 822,126
Conversion of non-operating assets to note
receivable $ - $ 1,530,159
</TABLE>
NOTE 4. RELATED-PARTY TRANSACTIONS:
In connection with an acquisition, the Vice Chairman of the Board of the
Company converted certain non-operating assets of the acquired company to a
$1,530,159 note receivable. The amounts owed under this obligation were paid
in full as of June 30, 1998.
7
<PAGE>
NOTE 5. BUSINESS COMBINATIONS:
On February 27, 1998, the Company completed the acquisition of a distributor
of promotional products, R & T Specialty, Inc., for an 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.
On June 30, 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. The acquisition has
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 of the acquired
company accounted for under the pooling-of-interests method, for the period
prior to June 30, 1998, that are included in current combined net income:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
------------------- ----------------
<S> <C> <C>
Sales -
Prior to Acquisition $122,016,443 $231,392,633
Acquired Company 5,871,742 10,580,787
------------ ------------
Net Sales $127,888,185 $241,973,420
------------ ------------
------------ ------------
Pro Forma Net Income -
Prior to acquisition $ 3,578,887 $ 5,489,114
Acquired Company 530,979 344,631
------------ ------------
Pro Forma Net Income $ 4,109,866 $ 5,833,745
------------ ------------
------------ ------------
</TABLE>
The following schedule reconciles previously reported sales and earnings to
include the acquired company accounted for under the pooling-of-interests
method:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
------------------- ----------------
<S> <C> <C>
Sales -
Previously Reported $ 94,078,206 $177,671,650
Acquired Company 4,399,257 9,131,172
------------ ------------
Net Sales $ 98,477,463 $186,802,822
------------ ------------
------------ ------------
Pro Forma Net Income (loss)
Previously Reported $ 2,595,928 $ 3,234,460
Acquired Company (153,012) 142,906
------------ ------------
Pro Forma Net Income $ 2,442,916 $ 3,377,366
------------ ------------
------------ ------------
</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 six month periods ending June
30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pro forma net income $4,109,866 $2,442,916 $5,833,745 $3,377,366
Other comprehensive
loss, net of taxes (244,100) (19,900) (275,400) (37,000)
---------- ---------- ---------- ----------
Comprehensive income $3,865,766 $2,423,016 $5,558,345 $3,340,366
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</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 on the results of
operations for the three-month and six-month periods ended June 30, 1998 or
1997, or for the year ended December 31, 1997.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Net sales for the second quarter of 1998 increased 29.9% to $127.9 million
compared to $98.5 million in the corresponding quarter of 1997. Of the $29.4
million increase, $19.6 million is due to internal growth and the remainder
is due to acquisitions.
Gross profit increased 43.3% to $43.1 million (33.7% of net sales) in the
second quarter of 1998 from $30.1 million (30.5% of net sales) in the second
quarter of 1997. As a percentage of net sales, the increase is due primarily
to increased margins in the promotional products business and a change in mix
toward promotional products.
Selling expenses as a percentage of net sales increased to 12.4% in the
second quarter of 1998 ($15.8 million) compared to 11.8% in the second
quarter of 1997 ($11.6 million). The increase as a percentage of net sales is
attributable primarily to an increase in the gross profit percentage 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 second quarter of 1998 ($17.5 million)
compared to 13.6% in the second quarter of 1997 ($13.4 million).
In connection with acquisitions accounted for as pooling-of-interests, the
Company incurred approximately $3.0 million and $0.6 million of pretax
non-recurring expenses for the second quarters of 1998 and 1997 respectively.
In the second quarter of 1998 the Company had net interest income of $31,000,
compared to net interest expense of $441,000 in the second quarter of 1997.
The change is due to a portion of the proceeds received through the public
stock offering which was completed in May, 1998 being used to paydown debt.
Excess proceeds were invested in short term government securities which the
Company intends to hold to maturity.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Net sales for the first six months of 1998 increased 29.5% to $242.0 million
compared to $186.8 million in the corresponding period of 1997. Of the $55.2
million increase, $37.2 million is due to internal growth and the remainder
is due to acquisitions.
10
<PAGE>
Gross profit increased 38.4% to $79.6 million (32.9% of net sales) in the
first six months of 1998 from $57.5 million (30.8% of net sales) in the
corresponding period of 1997. As a percentage of net sales, the increase is
attributable primarily to increased margins in the promotional products
business and a change in mix toward promotional products
Selling expenses as a percentage of net sales increased to 13.0% in the first
six months of 1998 ($31.4 million) compared to 11.8% in the corresponding
period of 1997 ($22.1 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 13.8% in the first six months of 1998 ($33.3 million) compared to
14.1% in the corresponding period of 1997 ($26.3 million). This decrease is
due to more efficient leverage of the Company's cost structure.
Operating results for the first six months of 1998 include pretax
non-recurring charges of $4.5 million. Approximately $3.0 million was
incurred to complete an acquisition accounted for using the
pooling-of-interests accounting method. The remainder related to a fire that
damaged an office and distribution facility and the closing of a warehouse
and embroidery operation that was acquired as part of a 1997 acquisition.
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 six months of 1998 the Company had net interest expense of
$685,000, compared to $808,000 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 $117.7
million. The proceeds were used to pay off substantially all debt
outstanding on its credit facilities. The remainder will be used for future
acquisitions, internal growth, working capital and general corporate purposes.
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.
11
<PAGE>
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.
As of June 30, 1998, the Company's working capital was $161.1 million
compared to $77.2 million at December 31, 1997. Capital expenditures for
property and equipment were approximately $10.7 million for the first six
months of 1998, and management expects capital expenditures to be
approximately $15 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 future 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 COMPLIANCE
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.
12
<PAGE>
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.
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
At the Annual Meeting of Shareholders held on June 2, 1998, the following
proposals were adopted by the margins indicated.
1. To elect ten directors to serve until the next Annual Meeting of
Shareholders or until their successors are duly elected and qualified.
<TABLE>
<CAPTION>
Number of Shares
For Withheld
<S> <C> <C>
Lou Weisbach 18,781,097 142,826
Linden D. Nelson 18,781,097 142,826
Seymour N. Okner 18,781,097 142,826
Richard A. Magid 18,781,097 142,826
David C. Robbins 18,781,097 142,826
Thomas Herskovits 18,781,097 142,826
Jordon R. Katz 18,781,097 142,826
Marshall J. Katz 18,781,097 142,826
Neil A. Ramo 18,781,097 142,826
Robert Sosnick 18,781,097 142,826
</TABLE>
2. To ratify the reappointment of the firm of Arthur Andersen LLP as the
Company's independent auditors for 1998.
<TABLE>
<S> <C>
For 18,910,349
Against 8,011
Abstained 5,563
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.0 - Fianancial Data Schedule for the six month period ended June 30,
1998
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended June
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: August 14, 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 JUNE 30, 1998 FORM 10Q REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 82,122,923
<SECURITIES> 0
<RECEIVABLES> 120,824,398
<ALLOWANCES> 3,173,131
<INVENTORY> 30,423,251
<CURRENT-ASSETS> 239,367,136
<PP&E> 45,781,967
<DEPRECIATION> 15,735,270
<TOTAL-ASSETS> 299,791,281
<CURRENT-LIABILITIES> 78,244,477
<BONDS> 6,693,536
0
0
<COMMON> 189,326,133
<OTHER-SE> 24,316,264
<TOTAL-LIABILITY-AND-EQUITY> 299,791,281
<SALES> 241,973,420
<TOTAL-REVENUES> 241,973,420
<CGS> 162,396,748
<TOTAL-COSTS> 162,396,748
<OTHER-EXPENSES> 69,168,110 <F1>
<LOSS-PROVISION> 753,669
<INTEREST-EXPENSE> 684,717
<INCOME-PRETAX> 9,723,845
<INCOME-TAX> 3,890,100 <F2>
<INCOME-CONTINUING> 5,833,745 <F2>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,833,745 <F2>
<EPS-PRIMARY> .24 <F2>
<EPS-DILUTED> .23 <F2>
<FN>
<F1> INCLUDES PRETAX NON-RECURRING CHARGES OF $4.5 MILLION.
APPROXIMATELY $3.0 MILLION WAS INCURRED TO COMPLETE AN
ACQUISITION ACCOUNTED FOR USING THE POOLING-OF-INTERESTS
ACCOUNTING METHOD AND THE REMAINDER RELATED TO A FIRE
IN A BRANCH OFFICE AND DISTRIBUTION FACILITY AND THE
CLOSING OF A WAREHOUSE AND EMBROIDERY OPERATION.
<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>
