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 March 31, 2001 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)
DELAWARE 36-3573412
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5800 TOUHY AVENUE, NILES, ILLINOIS 60714
----------------------------------------
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: (847)600-3000
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 May 11, 2001, the registrant had an aggregate of 69,789,045 shares of its
common stock outstanding.
HA-LO INDUSTRIES, INC.
INDEX
Part I. FINANCIAL INFORMATION Page Number
-----------
Item 1. Financial Statements.
Consolidated Balance Sheets as of March 31, 2001 and
December 31, 2000. 2
Consolidated Statements of Operations for the three months
ended March 31, 2001 and 2000. 3
Consolidated Statements of Cash Flows for the three months
ended March 31, 2001 and 2000. 4
Notes to Financial Statements. 5
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations. 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote 11
of Security Holders.
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K. 11
Signatures
PART 1. FINANCIAL INFORMATION
HA-LO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
(UNAUDITED)
March 31, December 31,
(in thousands, except share amounts) 2001 2000
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,915 $ 13,444
Receivables 103,930 151,371
Net current assets of discontinued operations 13,202 9,099
Inventories 30,038 32,970
Prepaid expenses & deposits 31,702 30,599
------------ ------------
Total current assets 185,787 237,483
------------ ------------
PROPERTY AND EQUIPMENT, net 44,000 41,983
------------ ------------
OTHER ASSETS:
Intangible assets, net 265,961 265,091
Net non-current assets of discontinued operations 10,518 10,615
Other 26,296 19,805
------------ ------------
Total other assets 302,775 295,511
------------ ------------
$ 532,562 $ 574,977
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 60,829 $ 68,525
Book overdraft 11,900 8,024
Customer deposits 6,836 6,844
Accounts payable 59,421 84,188
Accrued expenses 10,997 15,572
Reserve for restructuring 3,220 3,430
------------ ------------
Total current liabilities 153,203 186,583
------------ ------------
LONG-TERM DEBT - -
RESERVE FOR RESTRUCTURING - -
DEFERRED LIABILITIES 7,203 4,463
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK:
no par value; 10,000,000 authorized
and 4,866,069 issued, net of unamortized discount 48,360 47,459
SHAREHOLDERS' EQUITY:
Common stock, no par value; 100,000,000
shares authorized and 69,774,922 issued
and outstanding in 2001 and 48,867,205 in 2000 388,414 379,583
Unearned compensation (11,301) (19,303)
Accumulated other comprehensive loss (2,270) (254)
Retained deficit (51,047) (23,554)
------------ ------------
Total shareholders' equity 323,796 336,472
------------ ------------
$ 532,562 $ 574,977
============ ============
The accompanying notes are an integral part of these balance sheets.
2
HA-LO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED
MARCH 31, 2001 AND 2000
(UNAUDITED)
Three Months Ended
-----------------------------------
March 31, March 31,
(in thousands, except per share amounts) 2001 2000
---------------- ---------------
NET SALES:
Products $ 97,740 $ 120,947
Services 15,615 14,305
---------------- ---------------
Net Sales 113,355 135,252
COST OF SALES:
Products 68,014 82,370
Services 9,764 10,766
---------------- ---------------
Cost of Sales 77,778 93,136
Gross profit 35,577 42,116
SELLING EXPENSES 18,512 21,725
GENERAL AND ADMINISTRATIVE EXPENSES 51,984 29,725
---------------- ---------------
Loss from operations (34,919) (9,334)
INTEREST EXPENSE (1,780) (892)
INTEREST INCOME 186 133
---------------- ---------------
Loss before taxes (36,513) (10,093)
BENEFIT FOR INCOME TAXES (8,667) (4,037)
---------------- ---------------
NET LOSS FROM CONTINUING OPERATIONS $ (27,846) $ (6,056)
================ ===============
ACCRETION TO REDEMPTION VALUE OF
PREFERRED STOCK $ (900) $ -
NET LOSS FROM CONTINUING OPERATIONS APPLICABLE
TO COMMON STOCKHOLDERS $ (28,746) $ (6,056)
DISCONTINUED OPERATIONS:
Income from Discontinued Operations (Net of applicable income tax
expense of $835 in 2001 and $ 962 in 2000) $ 1,253 $ 1,443
---------------- ---------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (27,493) $ (4,613)
================ ===============
LOSS PER SHARE:
Basic $ (0.41) $ (0.09)
================ ===============
LOSS PER SHARE - CONTINUING OPERATIONS
Basic $ (0.42) $ (0.12)
================ ===============
WEIGHTED AVERAGE SHARES
OUTSTANDING: 67,771 48,867
================ ===============
HA-LO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2001 and 2000
(UNAUDITED)
March 31, March 31,
(in thousands) 2001 2000
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss for the period, before accretion of preferred stock $ (27,846) $ (6,056)
Adjustments to reconcile net income to net
cash used for operating activities-
Discontinued Operations, net of tax 1,253 1,443
Depreciation and amortization 16,397 3,374
Deferred Taxes (116) -
Increase in cash surrender value - (881)
Increase in deferred liabilities - other 1,059 47
Loss on disposal of property and equipment - -
Decrease (increase) in net assets of discontinued operations 1,735 (1,124)
Changes in assets and liabilities
Receivables 47,440 32,308
Inventories 2,932 (3,078)
Prepaid expenses and deposits (6,843) (8,523)
Accounts payable, accrued expenses and
due to related parties (28,599) (5,224)
------------- -------------
Net cash provided by operating activities 7,412 12,286
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,382) (1,601)
Decrease (Increase) in other assets (376) 750
Contingent earnout payments for acquired businesses (3,635) (1,217)
------------- -------------
Net cash used for investing activities (8,393) (2,068)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit (7,697) 12,184
Increase in book overdraft 3,877 1,385
Loans to acquired company - (15,000)
Net proceeds from issuance of common stock 288 126
------------- -------------
Net cash used for financing activities (3,532) (1,305)
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (2,016) (10)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (6,529) 8,903
CASH AND EQUIVALENTS, beginning of period 13,444 9,998
------------- -------------
CASH AND EQUIVALENTS, end of period $ 6,915 $ 18,901
============= =============
The accompanying notes are an integral part of these statements.
4
HA-LO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
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 period ended March 31, 2001 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 2000 Annual
Report on Form 10-K.
NOTE 2. CAPITAL STOCK:
During the first three months of 2001, options to acquire an aggregate of
656,542 shares of the Company's common stock were issued under the Company's
Stock Plans at exercise prices ranging from $1.01 to $3.63 per share.
Additionally, 180,572 options were exercised during the same period at a price
of $1.33 per share.
Basic earnings per share is calculated using the weighted 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.
(in thousands, Three Months Ended March 31,
except per share amounts) ----------------------------
2001 2000
---- ----
Net loss applicable to common
stockholders'(A)
$(27,493) $(4,613)
Net loss from continuing operations ========= ========
applicable to common stockholders'(B)
$(28,746) $(6,056)
========= ========
Average outstanding:
Common stock (C) 67,771 48,867
Effect of stock options and warrants
- -
Common stock and common stock equivalents
(D) 67,771 48,867
====== ======
Loss per share:
Basic (A/C) $(0.41) $(0.09)
======= =======
Earnings per share from continuing operations:
Basic (B/C) $(0.42) $(0.12)
======= =======
In connection with an acquisition, the Company has an obligation to issue
additional shares of its common stock to the extent the per share value on
September 6, 2001 is less than $5.00. The greater the difference between
$5.00 and the per share market value of the stock, the more shares that must
be issued. Assuming the share value is the same on September 6, 2001 as it
was on May 14, 2001, approximately 11,500,000 additional shares would be
issued.
NOTE 3. STATEMENTS OF CASH FLOWS:
The supplemental schedule of non-cash activities for the three months ended
March 31, 2001 and 2000 includes the following:
(in thousands) 2001 2000
---- ----
Common shares issued for contingent consideration in connection
with business acquisitions, net $ 6,600 $ 853
Accretion to redemption value of preferred stock $ 900 $ -
5
NOTE 4. RELATED-PARTY TRANSACTIONS:
In the first quarter of 2001 the Company made lease payments of $47,500 to an
entity controlled by two of its directors. These payments related to the rent
on the office and warehouse facility occupied by an entity acquired in 2000.
Additionally, in the first quarter of 2001, general legal services were
provided to the Company by a law firm in which the brother of a director of
the Company is a partner. The total amount of legal fees paid to this firm
was $155,000 in the first quarter of 2001.
NOTE 5: SUBSEQUENT EVENTS:
On May 10, 2001, the Company sold its telemarketing business unit,
Market USA, to SR. Teleperformance S.A., a French joint stock company, in a
stock transaction that yielded gross proceeds of approximately $32.5 million.
Net income for the first three months of 2001 for Market USA of $625,000 is
included in income from discontinued operations in the accompanying
consolidated statement of income. Presented below are the proforma condensed
income statements assuming the transaction had been completed at the
beginning of each period presented.
CONDENSED STATEMENT OF OPERATIONS
MARCH 31, 2001 DECEMBER 31, 2000
AS AS
PRESENTED ADJ. PROFORMA PRESENTED ADJ. PROFORMA
- -------------------------------------------------------------------------------------------------------------------------
Net Sales $113,355 - $113,355 $612,107 - $612,107
Cost of Sales 77,778 - 77,778 412,722 - 412,722
- --------------------------------------------------------------------------------- ------------------------------------
Gross Profit 35,577 - 35,577 199,385 - 199,385
Selling Expenses 18,512 - 18,512 91,487 - 91,487
General and Administrative Expenses 51,984 - 51,984 172,133 - 172,133
Restructuring and Other - - - (7,672) (7,672)
- --------------------------------------------------------------------------------- ------------------------------------
Loss from Operations $(34,919) - $(34,919) $(56,563) - $(56,563)
Interest Expense, Net (1,594) - (1,594) (6,384) - (6,384)
- --------------------------------------------------------------------------------- ------------------------------------
Loss Before Income Taxes $(36,513) - $(36,513) $(62,947) - $(62,947)
- --------------------------------------------------------------------------------- ------------------------------------
Income Tax Benefit (8,667) - (8,667) (9,892) - (9,892)
- --------------------------------------------------------------------------------- ------------------------------------
Net Loss from continuing operations
$(27,846) - $(27,846) $(53,055) - $(53,055)
Accretion to Redemption Value of
Preferred Stock (900) - (900) (2,403) - (2,403)
Net Loss from continuing operations,
applicable to common stockholders
$(28,746) - $(28,746) $(55,458) - $(55,458)
- --------------------------------------------------------------------------------- ------------------------------------
Discontinued Operations, net of tax 1,253 (625) 628 5,671 (2,770) 2,901
Gain on disposal of discontinued operation - 17,385 17,385 - 15,564 15,564
- --------------------------------------------------------------------------------- ------------------------------------
Net Income(Loss) Applicable to Common
Stockholders $(27,493) 16,760 $(10,733) $(49,787) 12,794 $(36,993)
- --------------------------------------------------------------------------------- ------------------------------------
Loss per share $ (0.41) $ 0.25 $ (0.16) $ (0.84) $ 0.22 $ (0.62)
6
CONDENSED BALANCE SHEET
MARCH 31, 2001
AS
PRESENTED ADJ. PROFORMA
- -------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash & Equivalents $ 6,915 $ - $ 6,915
Receivables 103,930 - 103,930
Net Current Assets of Discontinued
Operations 13,202 (6,156) 7,046
Inventories 30,038 - 30,038
Prepaid Expenses & Deposits 31,702 2,500 34,202
------------- ------------- -------------
Total Current Assets 185,787 (3,656) 182,131
------------- ------------- -------------
Property & Equipment, Net 44,000 - 44,000
------------- ------------- -------------
Other Assets:
Intangible assets, net 265,961 - 265,961
Net Non-current Assets of Discontinued
Operations 10,518 (5,398) 5,120
Other 26,296 - 26,296
------------- ------------- -------------
Total Other Assets 302,775 (5,398) 297,377
------------- ------------- -------------
$532,562 $ (9,054) $523,508
============= ============= =============
LIABILITIES & STOCKHOLDERS EQUITY
Current Liabilities:
Current maturities of long-term debt $ 60,829 $(26,439) $ 34,390
Book overdraft 11,900 - 11,900
Customer deposits 6,836 - 6,836
Accounts payable 59,421 - 59,421
Accrued expenses 10,997 - 10,997
Reserve for restructuring 3,220 - 3,220
------------- ------------- -------------
Total current liabilities 153,203 $(26,439) 126,764
Deferred Liabilities 7,203 - 7,203
Redeemable Preferred Stock 48,360 - 48,360
Stockholders' Equity:
Common Stock 388,414 - 388,414
Other (13,571) - (13,571)
Retained earnings (51,047) 17,385 (33,662)
------------- ------------- -------------
Total Stockholders' Equity 323,796 17,385 341,181
------------- ------------- -------------
$532,562 $ (9,054) $523,508
============= ============= =============
Additionally, the Company has entered into an agreement that grants a group,
that includes its former vice-chairman the right to purchase its interest in
a joint venture for $20 million. A deposit of $6 million was received in
March 2001. An additional $6 million was received in April 2001. Assuming the
group exercises its option to purchase the remaining interest, the balance of
$8 million will be received in May 2001.
In May 2001, the Company notified former shareholders of Starbelly.com that
it believed certain of their representations and warranties contained in the
Agreement and Plan of Merger dated January 17, 2000 between HALO and
Starbelly (the Agreement) had been breached. Shortly thereafter, the former
shareholders notified the Company that they believed certain of the Company's
representations and warranties contained in the Agreement had been breached.
No further actions with respect to these notifications have occurred to date.
NOTE 6: BUSINESS SEGMENTS:
The Company's reportable segments are strategic business units that offer
different products and services. Summarized financial information by business
segment follows:
7
Three months ended
March 31,
(in thousands) 2001 2000
----------------- ------------------
Net Sales:
Branded Solutions $ 97,740 $ 120,947
Marketing services 15,615 14,305
- --------------------------------------- ----------------- ------------------
Total $ 113,355 $ 135,252
======================================= ================= ==================
Operating loss:
Branded Solutions $ (31,549) $ (5,884)
Marketing services (3,370) (3,450)
- --------------------------------------- ----------------- ------------------
Total $ (34,919) $ (9,334)
======================================= ================= ==================
NOTE 7: COMPREHENSIVE INCOME:
The Company's comprehensive income includes net income and unrealized gains and
losses from currency translation. The calculation of total comprehensive income
for the nine month periods ending March 31, 2001 and 2000 is as follows:
(in thousands) Three months ended
March 31,
----------------------------------
2001 2000
---- ----
Net loss from continuing
operations $ (26,593) $ (4,613)
Other comprehensive gain (loss), net
of taxes
(3,516) (6)
------------- ---------
Comprehensive loss
$ (30,109) $ (4,619)
============ =========
NOTE 8: RESTRUCTURING AND OTHER CHARGES:
In July 1999, the Company adopted a plan to restructure its promotional product
operations and to a lesser extent its telemarketing and marketing service
divisions. The focus of the restructuring is to centralize back office
functions, consolidate distribution capabilities and information systems and
streamline the management reporting structure. The restructuring will result in
the elimination of approximately 200 positions and the consolidation and closing
of over 20 offices/warehouses.
During the third quarter of 1999 the Company recorded a charge to operations
of $30.0 million. Major components of the charge related to lease buyouts and
accruals, asset write-downs, severance and termination costs and other
charges. In the fourth quarter of 2000 the Company reversed $7,672,000
million of the reserve as the plan was implemented more efficiently than
originally projected. The remaining reserve at December 31, 2000, of
$3,430,000, is expected to be utilized in the first half of 2001. The
following is a roll-forward of the restructuring reserve for the first three
months of 2001:
(in thousands) 12/31/00 3/31/01
Accrual Utilized Accrual
------- -------- -------
Facility consolidation $ 2,860 $ 51 $ 2,809
Asset write-downs - - -
Severance and termination costs 570 159 411
Other charges - - -
------- ------- -------
Total $ 3,430 $ 210 $ 3,220
======= ======= =======
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
The following discussion includes the Company's continuing operations only.
Therefore, the effect of the Company's brand strategy and identity and
telemarketing subsidiaries, which are reflected as discontinued operations in
the accompanying consolidated financial statements, has been excluded.
Net sales for the first quarter of 2001 decreased 16% to $113.4 million compared
to $135.3 million in the corresponding quarter of 2000. Net sales generated by
the branded solutions business segment decreased 19% to $97.7 million compared
to $120.9 million a year ago. The decrease in the branded solutions segment
is due to a combination of factors, including a decrease in consumer premium
business, certain large orders from 2000 that did not recur in 2001, and a
softening of the economy.
Gross profit as a percentage of net sales was 31.4% ($35.5 million) for the
first quarter of 2001 compared to 31.1% ($42.1 million) for the same period last
year. The decrease in the nominal value is due to the decrease in net sales. The
increase in the percentage is the net of an increase in marketing services
margins and a decrease in branded solutions margins. The marketing services
margin increase was driven by a change in service mix toward strategic rather
than lower margin execution work. The decrease in the branded solutions margin
is due to a change in the sales mix as certain lower margin programs were a
higher proportion of net sales than a year ago.
Selling expenses as a percentage of net sales increased to 16.3% in the first
quarter of 2001 ($18.5 million) compared to 16.1% in the first quarter of 2000
($21.7 million). The decrease in the nominal value is due to the decline in
sales. The slight increase in the percentage is due to slightly higher fixed
costs, primarily in sales support resources, than a year ago.
General and administrative expenses for the first quarter of 2001 were $52.0
million compared to $29.7 million for the same period last year. Of the $22.3
million increase, approximately $20 million relates to the branded solutions
business segment. Specific increases relate to amortization of Starbelly
goodwill ($13.7 million), payroll and benefits for former Starbelly employees
($1.9 million), increased occupancy costs ($2 million), and non capitalizable
technology expenses ($1.1 million). General and administrative expenses in
the marketing services segment increased $2.3 million, almost all of which
relates to increased personnel costs at the Company's promotion marketing
agency.
The above translates to an operating loss from continuing operations of $34.9
million for the first quarter of 2001 compared to an operating loss of $9.3
million in the first quarter of 2000.
In the first quarter of 2001 the Company had net interest expense of $1,594,000
compared to $759,000 of net interest expense in the first quarter of 2000. The
overall increase primarily related to the increased debt levels required to
finance the acquisition and operations of a company acquired in the second
quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a credit facility that provides for a commitment of $68
million as of March 31, 2001. Borrowings are based on eligible accounts
receivable and are secured by the Company's domestic assets. Outstanding
borrowings bear interest at the rate of prime plus 1.50%. As of March 31,
2001, the outstanding borrowings on the facility were $60.8 million.
Subsequent to March 31, 2001, the Company sold its telemarketing business
unit (see Note 5 to the Consolidated Financial Statements) for approximately
$32.5 million. Most of the proceeds were used to pay down outstanding debt
and also resulted in a further reduction of the facility commitment. As of
May 15, 2001, outstanding borrowings on the credit facility were $36.5
million.
The Company's credit facility includes various financial covenants, including
maintenance of an interest coverage ratio based on operating results for the
previous four quarters. The Company violated the covenants at March 31, 2001.
The banks have waived the existing covenant violation. The Company and its
banks have discussed the need to redefine the covenant to more attainable
levels, but until such redefinition occurs, the Company could
9
be in violation throughout 2001. The Company's financial institutions have
been cooperative in working with the Company in its efforts to dispose of
certain of its business units and management believes the banks will continue
to waive existing violations as long as the Company continues to execute its
strategies to reduce outstanding borrowings. Nonetheless, there can be no
assurances that the banks will continue to waive future covenant violations.
In addition, to its credit facility, the Company has an obligation to holders
of the redeemable preferred stock. Management is attempting to renegotiate
the terms of the preferred stock to obtain a combination of one or all of the
following: extended payment terms, modified conversion rights and a redefined
dividend rate. Preliminary discussions have been held with various preferred
stockholders. No resolution has been reached to date, and there can be no
assurances that the terms of the preferred stock will be renegotiated. As of
May 14, 2001, approximately 4,400,000 shares of preferred stock had been
submitted to the Company for redemption.
Management's strategies to continue reducing its leverage include the
following implementation of a cost reduction program which will improve
operating cash flow, and consummation of a transaction to sell another
business unit. Each of these actions are described below.
The Company hired a new Chief Executive Officer on February 22, 2001. At his
direction, the Company began an aggressive initiative to identify cost
reduction opportunities and eliminate discretionary spending. Some of the
identified opportunities have already been implemented, and various
discretionary expenditures have been eliminated. The initiative is continuing
and the first phase is expected to be completed during the second quarter of
2001, with full implementation occurring before the end of 2001. Management
believes that the result of the initiative will reduce expenses in 2001 by
$10 - $15 million. During this initiative, management will review its
business strategy. This review will result in a second quarter restructuring
and asset impairment charge of $300-325 million. Less than $5 million of the
charge will result in additional cash cost to the Company.
The Company announced a plan to divest itself of certain of its marketing
services subsidiaries in February 2001. One subsidiary has already been sold
(see Note 5 to the Consolidated Financial Statements), and the Company is
actively engaged in the sale of another. Multiple buyers for the second
subsidiary have completed their due diligence, and the Company continues
negotiating the final terms of the sale. Management expects the transaction
to be closed during the second quarter. The net proceeds from this sale are
expected to exceed $20 million. Net proceeds received will pay down
outstanding debt.
As of March 31, 2001, the Company's working capital was $32.5 million
compared to $50.9 million at December 31, 2000. Capital expenditures for
property and equipment were approximately $4.4 million for the first three
months of 2001 and management expects the capital expenditures to be less
than $10 million for 2001.
In management's opinion, proceeds from the execution of its divestiture plan,
completion of its joint venture sale, successful renegotiation of its
preferred stock obligation and the effect of its cost cutting program on
continuing operations will be sufficient to meet the liquidity and capital
needs of the Company.
FORWARD-LOOKING STATEMENTS
Statements contained in this Management's Discussion and Analysis of Financial
Condition and the Results of Operations regarding the disposition of certain
business units, the ability to negotiate lending arrangements, and the
sufficiency of actions to meet liquidity and capital needs 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. The Company does not maintain its own
manufacturing facilities and is dependent upon domestic and foreign
manufacturers for its supply of branded solutions. The branded solutions,
marketing services and telemarketing industries are very competitive. Readers
are encouraged to review HA-LO'S 2000 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.
10
PART II. OTHER INFORMATION
Item 5. Other Information
See Note 5 to the Consolidated Financial Statements regarding the
sale of Market USA.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description of Exhibit
-------- ----------------------
10.1 Amendment No.2 to Employment Agreement, dated February 22, 2001, among the Company, Promotional
Marketing, L.L.C and John R. Kelley, Jr. (1)
10.2 Agreement, between the Company and Linden D. Nelson
10.3 Agreement, dated March 21, 2001, among the Company, Ford Motor Company, Linden Nelson or a
consortium of financial investors led by him, and iDentify Licensing Management, LLC.
10.4 Agreement to Purchase Membership Interest, dated March 2001, between the Company and Linden
Nelson and group to be formed.
10.5 Letter Agreement, dated April 10, 2001, between the Company and Linden D. Nelson.
10.6 Stock Purchase Agreement by and between SR. Teleperformance S.A. and HALO Industries, Inc.
(1) Management Contract.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the first
quarter of 2001.
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: May 15, 2001 /s/ GREGORY J. KILREA
---------------------
Gregory J. Kilrea
Duly Authorized Officer
and Chief Financial Officer
11