<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
---- Exchange Act of 1934
For the quarterly period ended March 31, 1998
----------------
Transition report pursuant to Section 13 or 15(d) of the Securities
---- Exchange Act of 1934
For the transition period from to
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Commission File Number 1-7120
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HARTE-HANKS, INC. (formerly HARTE-HANKS COMMUNICATIONS, INC.)
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(Exact name of registrant as specified in its charter)
Delaware 74-1677284
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Concord Plaza Drive, San Antonio, Texas 78216
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code -- 210/829-9000
------------
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock: $1 par value, 73,602,428 shares as of April 30, 1998.
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HARTE-HANKS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q REPORT
March 31, 1998
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Interim Condensed Consolidated Financial
Statements (Unaudited)
Condensed Consolidated Balance Sheets - 3
March 31, 1998 and December 31, 1997
Consolidated Statements of Operations - 4
Three months ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows - 5
Three months ended March 31, 1998 and 1997
Consolidated Statements of Stockholders' Equity - 6
Three months ended March 31, 1998 and 1997
Notes to Interim Condensed Consolidated Financial 7
Statements
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
(a) Exhibits
(b) Reports on Form 8-K
Signature 13
</TABLE>
<PAGE> 3
3
Harte-Hanks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (in thousands, except per share
and share amounts)
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ----------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents ................................. $ 62,677 $ 83,675
Short-term investments .................................... 168,308 388,145
Accounts receivable, net .................................. 109,374 109,340
Inventory ................................................. 7,099 7,703
Prepaid expenses .......................................... 10,577 8,473
Current deferred income tax benefit ....................... 12,340 12,518
Other current assets ...................................... 2,381 3,285
---------- ----------
Total current assets ................................... 372,756 613,139
Property, plant and equipment, net ........................... 87,831 89,351
Goodwill, net ................................................ 250,701 250,363
Other assets ................................................. 2,343 2,070
---------- ----------
Total assets ........................................... $ 713,631 $ 954,923
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable .......................................... $ 53,628 $ 49,918
Accrued payroll and related expenses ...................... 17,372 23,097
Customer deposits and unearned revenue .................... 20,618 17,944
Income taxes payable ...................................... 12,484 270,440
Other current liabilities ................................. 8,610 9,950
---------- ----------
Total current liabilities .............................. 112,712 371,349
Other long term liabilities .................................. 17,863 17,337
---------- ----------
Total liabilities ...................................... 130,575 388,686
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Stockholders' equity
Common stock, $1 par value, 125,000,000 shares
authorized. 75,256,164 and 74,842,982 shares
issued at March 31, 1998 and December 31, 1997,
respectively ........................................... 75,256 74,843
Additional paid-in capital ................................ 180,200 177,238
Accumulated other comprehensive income .................... (133) (577)
Retained earnings ......................................... 375,000 362,000
---------- ----------
630,323 613,504
Less treasury stock, 1,648,608 shares at cost ............. (47,267) (47,267)
---------- ----------
Total stockholders' equity ............................. 583,056 566,237
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Total liabilities and stockholders' equity ............. $ 713,631 $ 954,923
========== ==========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
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4
Harte-Hanks, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
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<S> <C> <C>
Operating revenues .............................................. $ 177,673 $ 138,424
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Operating expenses
Payroll ...................................................... 66,834 53,678
Production and distribution .................................. 67,181 53,094
Advertising, selling, general and administrative ............. 17,241 14,110
Depreciation ................................................. 5,366 3,969
Goodwill amortization ........................................ 1,926 1,080
---------- ----------
158,548 125,931
---------- ----------
Operating income ................................................ 19,125 12,493
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Other expenses (income)
Interest expense ............................................. 70 1,911
Interest income .............................................. (5,615) (43)
Other, net ................................................... 693 245
---------- ----------
(4,852) 2,113
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Income from continuing operations before income
taxes ........................................................ 23,977 10,380
Income tax expense .............................................. 9,872 4,412
---------- ----------
Income from continuing operations ............................... 14,105 5,968
Income from discontinued operations,
net of income taxes .......................................... -- 4,049
---------- ----------
Net income ...................................................... $ 14,105 $ 10,017
========== ==========
Basic earnings per common share:
Continuing operations ..................................... $ 0.19 $ 0.08
Discontinued operations ................................... -- 0.05
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Basic earnings per common share ........................ $ 0.19 $ 0.13
========== ==========
Weighted-average common shares outstanding ................... 73,481 74,262
========== ==========
Diluted earnings per common share:
Continuing operations ..................................... $ 0.18 $ 0.08
Discontinued operations ................................... -- 0.05
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Diluted earnings per common share ...................... $ 0.18 $ 0.13
========== ==========
Weighted-average common and common equivalent
shares outstanding ........................................ 77,128 77,467
========== ==========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
<PAGE> 5
5
Harte-Hanks, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (in thousands)
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
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<S> <C> <C>
Operating Activities
Net income ............................................................. $ 14,105 $ 10,017
Adjustments to reconcile net income to cash provided
from operating activities:
Income from discontinued operations ................................. -- (4,049)
Depreciation ........................................................ 5,366 3,969
Goodwill amortization ............................................... 1,926 1,080
Amortization of option related compensation ......................... 216 252
Deferred income taxes ............................................... 104 1,450
Other, net .......................................................... (236) 516
Changes in operating assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable, net ..................... (34) 11,205
Decrease in inventory ............................................... 604 662
Increase in prepaid expenses and other
current assets ................................................... (1,200) (2,164)
Increase (decrease) in accounts payable ............................. 3,710 (1,326)
Decrease in other accrued expenses
and other liabilities ............................................ (262,347) (8,596)
Other, net .......................................................... 1,012 5,940
---------- ----------
Net cash (used in) provided by continuing
operations ..................................................... (236,774) 18,956
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Net cash provided by discontinued operating activities ................. -- 9,194
---------- ----------
Net cash (used in) provided by operating
activities ..................................................... (236,774) 28,150
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Investing Activities
Acquisitions ........................................................... (2,275) (5,544)
Purchases of property, plant and equipment ............................. (4,078) (8,599)
Proceeds from sale of property, plant and equipment .................... 183 1,719
Net proceeds from sale of and maturities of
available-for-sale short-term investments ........................... 220,564 --
Discontinued operations:
Purchases of property, plant and equipment .......................... -- (806)
Proceeds from sale of property, plant and equipment ................. -- 27
Payments on film contracts .......................................... -- (465)
---------- ----------
Net cash provided by (used in) investing
activities ..................................................... 214,394 (13,668)
---------- ----------
Financing Activities
Long-term borrowings ................................................... -- 131,500
Payments on debt, including current maturities ........................ -- (141,065)
Issuance of common stock ............................................... 2,486 8,346
Purchase of treasury stock ............................................. -- (13,451)
Dividends paid ......................................................... (1,104) (741)
---------- ----------
Net cash provided by (used in) financing
activities ..................................................... 1,382 (15,411)
---------- ----------
Net decrease in cash ................................................... (20,998) (929)
Cash and cash equivalents at beginning of year ......................... 83,675 12,017
---------- ----------
Cash and cash equivalents at end of period ............................. $ 62,677 $ 11,088
========== ==========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
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6
Harte-Hanks, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-In Retained Treasury Comprehensive Stockholders'
In thousands Stock Capital Earnings Stock Income Equity
---------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 ........ $ 73,604 $ 149,875 $ 29,213 $ -- $ -- $ 252,692
Common stock issued - employee
benefit plans ................. 85 927 -- -- -- 1,012
Exercise of stock options ......... 1,759 5,616 -- -- -- 7,375
Tax benefit of options
exercised ..................... -- 5,200 -- -- -- 5,200
Dividends paid ($0.01 per
share) ........................ -- -- (741) -- -- (741)
Net income ........................ -- -- 10,017 -- -- 10,017
Treasury stock repurchase ......... (500) 500 -- (13,451) -- (13,451)
Unrealized loss on short-term
investments (net of
tax) .......................... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1997 ......... $ 74,948 $ 162,118 $ 38,489 $ (13,451) $ -- $ 262,104
========== ========== ========== ========== ========== ==========
Balance at January 1, 1998 ........ $ 74,843 $ 177,238 $ 362,000 $ (47,267) $ (577) $ 566,237
Common stock issued - employee
benefit plans ................. 54 878 -- -- -- 932
Exercise of stock options ......... 359 1,217 -- -- -- 1,576
Tax benefit of options
exercised ..................... -- 867 -- -- -- 867
Dividends paid ($0.015 per
share) ........................ -- -- (1,105) -- -- (1,105)
Net income ........................ -- -- 14,105 -- -- 14,105
Treasury stock repurchase ......... -- -- -- -- -- --
Unrealized loss on short-term
investments (net of
tax) .......................... -- -- -- -- 444 444
---------- ---------- ---------- --------- ---------- ----------
Balance at March 31, 1998 ......... $ 75,256 $ 180,200 $ 375,000 $ (47,627) $ (133) $ 583,056
========== ========== ========== ========== ========== ==========
</TABLE>
See Notes to Interim Condensed Consolidated Financial Statements.
<PAGE> 7
7
Harte-Hanks, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited Interim Condensed Consolidated Financial Statements
include the accounts of Harte-Hanks, Inc. and subsidiaries (the "Company").
The statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 1998 are not necessarily indicative
of the results that may be expected for the year ending December 31. For further
information, refer to the consolidated financial statements and footnotes
included in the Company's annual report on Form 10-K for the year ended December
31, 1997.
Certain prior period amounts have been reclassified for comparative purposes.
NOTE B - DISCONTINUED NEWSPAPER AND TELEVISION OPERATIONS
On October 15, 1997, the Company sold its newspaper operations, KENS-TV, the CBS
affiliate in San Antonio, and KENS-AM radio to the E.W. Scripps Company (NYSE:
SSP) for a cash price of $775 million plus approximately $15 million for working
capital.
Because the newspaper and television operations represent entire business
segments that were divested, their results are reported as "discontinued
operations" for January 1, 1997 through October 15, 1997.
NOTE C - INCOME TAXES
The Company's quarterly income tax provision of $9.9 million was calculated
using an effective income tax rate of 41.2%. The Company's effective income tax
rate is derived by estimating pretax income and income tax expense for the year
ended December 31, 1998. The effective income tax rate calculated is higher than
the federal statutory rate of 35% due to the addition of state taxes and to
certain expenses recorded for financial reporting purposes (primarily goodwill
amortization) which are not deductible for federal income tax purposes.
NOTE D - EARNINGS PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." This statement requires the
presentation of basic earnings per share (EPS) and diluted EPS for reporting
periods of all public companies ending after December 15, 1997, instead of the
primary and fully diluted EPS previously reported. The new standard requires the
<PAGE> 8
8
restatement of EPS for all periods presented. EPS is calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
In thousands, except per share amount 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC EPS
Income from continuing operations ....................................... $ 14,105 $ 5,968
Income from discontinued operations ..................................... -- 4,049
---------- ----------
Net Income .............................................................. $ 14,105 $ 10,017
========== ==========
Weighted-average common shares outstanding
used in net earnings per share computations .......................... 73,481 74,262
========== ==========
Basic earnings per common share:
Continuing operations ................................................ $ 0.19 $ 0.08
Discontinued operations .............................................. -- 0.05
---------- ----------
Net income ........................................................... $ 0.19 $ 0.13
========== ==========
DILUTED EPS
Income from continuing operations ....................................... $ 14,105 $ 5,968
Income from discontinued operations ..................................... -- 4,049
---------- ----------
Net Income .............................................................. $ 14,105 $ 10,017
========== ==========
Shares used in net earnings per share computations ..................... 77,128 77,467
========== ==========
Diluted earnings per common share:
Continuing operations ................................................ $ 0.18 $ 0.08
Discontinued operations .............................................. -- 0.05
---------- ----------
Net income ........................................................... $ 0.18 $ 0.13
========== ==========
Computation of shares used in net earnings per share computations:
Average outstanding common shares ....................................... 73,481 74,262
Average common equivalent shares -
dilutive effect of option shares ..................................... 3,647 3,205
---------- ----------
Shares used in net earnings per share computations ...................... 77,128 77,467
========== ==========
</TABLE>
NOTE E - COMPREHENSIVE INCOME
The Company has adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income." This statement requires the reporting of comprehensive income and its
components in the financial statements, or in the notes to interim financial
statements, for reporting periods of all public companies ending after December
15, 1997. Comprehensive income is defined as the total nonowner changes in
equity, which includes net income and all revenues, expenses, gains and losses
that are excluded from net income under generally accepted accounting
principles, but do not result from investments by owners or distributions to
owners. The Company's total comprehensive income for the first quarter of 1998
and 1997 is equal to net income for the same periods.
NOTE F - STOCKHOLDERS' EQUITY
On March 16, 1998, the Company effected a two-for-one split of its common stock
in the form of a 100% stock dividend paid to holders of record on March 2,
1998. All share, per share and common stock amounts have been restated to
retroactively reflect the stock split.
In May 1998, the Company amended its Certificate of Incorporation to increase
its total authorized common stock to 250,000,000 shares. The financial
statements do not reflect this increase in authorized shares of common stock.
<PAGE> 9
9
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
As described in Note B of the Notes to Interim Condensed Consolidated Financial
Statements included herein, on October 15, 1997, the Company sold its newspaper
and television operations. Therefore, the newspaper and television operations
results are excluded from management's discussion and analysis of financial
condition and results of operations below.
Operating results from continuing operations -- direct marketing and shoppers --
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
In thousands MARCH 31, 1998 MARCH 31, 1997 CHANGE
-------------- -------------- ------
<S> <C> <C> <C>
Revenues $ 177,673 $ 138,424 28.4%
Operating expenses 158,548 125,931 25.9%
---------- ----------
Operating income $ 19,125 $ 12,493 53.1%
========== ==========
Net income $ 14,105 $ 5,968 136.3%
========== ==========
Diluted earnings
per share $ 0.18 $ 0.08 125.0%
========== ==========
</TABLE>
Consolidated revenues grew 28.4% to $177.7 million and operating income grew
53.1% to $19.1 million in the first quarter of 1998 when compared to the fist
quarter of 1997. The Company's overall growth resulted from increased business
with both new and existing customers and from the sale of new products and
services. Overall operating expenses compared to 1997 increased 25.9% to $158.5
million.
Net income grew 136.3% to $14.1 million, or 18 cents per share, compared to 8
cents per share on a diluted basis. The net income growth resulted from the
growth in operating income as well as from $5.6 million interest income in the
first quarter of 1998 compared to $1.9 million interest expense (allocated based
upon percentage of net assets) for the same period in 1997.
DIRECT MARKETING
Direct marketing operating results were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
In thousands MARCH 31, 1998 MARCH 31, 1997 CHANGE
-------------- -------------- ------
<S> <C> <C> <C>
Revenues $ 114,427 $ 93,790 22.0%
Operating expenses 100,351 83,300 20.5%
---------- ----------
Operating income $ 14,076 $ 10,490 34.2%
========== ==========
</TABLE>
Direct marketing revenues increased $20.6 million, or 22.0%, in the first
quarter of 1998 when compared to 1997. Database marketing, response management
and marketing services all experienced significant revenue growth. Database
marketing revenues increased primarily due to the growth in database processing
and software sales lead by the Company's Trillium product. Database marketing
revenues were also impacted by the November 1997 acquisition of Mercantile
Software Systems. Response management revenues increased due to increased
business with existing customers, new customer gains, the November 1997
acquisition of Tele Support Services and to a lessor extent the May 1997 opening
<PAGE> 10
10
of the Langhorne call center. Marketing services revenues, including logistics
operations, increased due to increased product sales as well as new product
sales to new and existing customers, primarily in the retail industry, but also
coupled with growth in the banking and pharmaceutical industries.
Operating expenses increased $17.1 million, or 20.5%, in the first quarter of
1998 when compared to 1997. Payroll costs increased $7.0 million due to expanded
hiring to support revenue growth. Also contributing to increased operating
expenses were additional production costs of $6.0 million due to increased
volumes. General and administrative expense increased $2.7 million due to
increased legal expenses and to the increased provision for bad debt related to
the increased revenues. Depreciation expense increased $1.1 million due to
higher levels of capital investment to support growth. Operating expenses were
also impacted by the acquisition noted above.
SHOPPERS
Shopper operating results were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
In thousands MARCH 31, 1998 MARCH 31, 1997 CHANGE
-------------- -------------- ------
<S> <C> <C> <C>
Revenues $ 63,246 $ 44,634 41.7%
Operating expenses 55,939 40,434 38.4%
---------- ----------
Operating income $ 7,307 $ 4,200 74.0%
========== ==========
</TABLE>
Shopper revenues increased $18.6 million, or 41.7%, in the first quarter of 1998
as compared to 1997. The increase was primarily due to the September 1997
acquisition of The ABC Shopper Group, which accounted for $16.0 million of
increase. Excluding the revenue contributed by the newly acquired units, revenue
increased $2.6 million, or 5.8% when compared to the first quarter of 1997. This
revenue increase was attributable to a favorable calendar versus prior year, to
strong employment-related in-book advertising and increased distribution product
revenues. Distribution product revenues increased due to higher volumes in four
color glossy print and deliver products and preprinted inserts.
Operating expenses increased $15.5 million, or 38.4% in the first quarter of
1998 when compared to 1997. $14.6 million of the increase was due to the revenue
growth contributed by the shopper acquisition. The remaining costs were
influenced primarily by increases in newsprint and printing services of $0.7 and
$0.5 million, respectively, that were partially offset by the decrease in
general and administrative expense of $0.5 million. Payroll costs were flat for
the period as compared to 1997.
Other Income and Expense
The Company realized a loss of approximately $0.4 million in the first quarter
1998 on the sale of equity securities that were held in its short-term
investment portfolio.
Interest Expense/Interest Income
Total Company interest income and expense were allocated to continuing and
discontinued operations based on percentage of net assets through October 15,
1997. The percentage allocated to continuing operations was approximately 58%
for the first three months of 1997.
Interest expense decreased $1.8 million in the first quarter of 1998 over the
same period in 1997 due to the extinguishment of debt with the proceeds from the
October 15, 1997 sale of the Company's newspaper and television operations.
<PAGE> 11
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Interest income increased $5.6 million in the first quarter of 1998 over the
same period in 1997 due to the short-term investment of the proceeds from the
sale of newspaper and television operations, after debt extinguishment,
operational fundings and income tax payments.
Income Taxes
The Company's income tax expense increased $5.5 million in the first quarter of
1998 when compared to the first quarter of 1997. This increase was due primarily
to the higher pre-tax income levels. The effective tax rate was 41.2% for the
first quarter of 1998 compared to 42.5% for the first quarter of 1997.
Liquidity and Capital Resources
Cash used in operating activities for the three months ended March 31, 1998 was
$236.8 million. The cash outflow from operating activities related primarily to
the first quarter 1998 payment of $265.7 million in income taxes, resulting from
the gain on the October 15, 1997 sale of newspaper and television operations.
Net cash inflows from investing activities were $214.4 million for the first
quarter of 1998. The increase of cash inflows from investing activities was
primarily attributable to sales and maturities of marketable securities totaling
$220.6 million, the proceeds of which were used to help fund the Company's tax
payments made in the first quarter of 1998. Net cash inflows from financing
activities were $1.4 million compared to outflows of $15.4 million in 1997. The
increase in cash inflows from financing activities over 1997 is attributed
primarily to the extinguishment of debt in October 1997.
Capital resources were available from and provided through the Company's
unsecured credit facility through October 15, 1997. All borrowings under the
revolving credit facility were to be repaid by December 31, 2001. However, these
outstanding borrowings ($306.3 million) were retired on October 15, 1997, funded
primarily through the proceeds received from the sale of the Company's newspaper
and television operations as described in Note B of the Notes to Interim
Condensed Consolidated Financial Statements included herein.
Management believes that the proceeds from the Company's sale of newspaper and
television operations remaining after the retirement of debt and the payment of
income taxes related to the sale, together with cash provided from operating
activities, will be sufficient to fund operations and anticipated capital
service needs for the foreseeable future.
Recent Development
On May 1, 1998, the Company sold three of its smallest shopper publications in
Dallas, TX, Wichita, KS and Springfield, MO to Central States Publishing, LLC.
Factors That May Affect Future Results and Financial Condition
From time to time, in both written reports and oral statements by senior
management, the Company may express its expectations regarding its future
performance. These "forward-looking statements" are inherently uncertain, and
investors should realize that events could turn out to be other than what senior
management expected. Set forth below are some key factors which could affect the
Company's future performance.
Acquisitions -- In recent years the Company has made a number of acquisitions in
its direct marketing and shopper businesses, and it expects to pursue additional
acquisition opportunities. Acquisition activities, even if not consummated,
<PAGE> 12
12
require substantial amounts of management time and can distract from normal
operations. In addition, there can be no assurance that the synergies and other
objectives sought in acquisitions will be achieved.
Competition -- Direct marketing is a rapidly evolving business, subject to
periodic technological advancements, high turnover of customer personnel who
make buying decisions, and changing customer needs and preferences.
Consequently, the Company's direct marketing business faces competition in each
of its three sectors -- response management/teleservices, database marketing,
and marketing services. The Company's shopper business competes for advertising,
as well as for readers, with other print and electronic media. Competition comes
from local and regional newspapers, magazines, radio, broadcast and cable
television, shoppers and other communications media that operate in the
Company's markets. The extent and nature of such competition are, in large part,
determined by the location and demographics of the markets targeted by a
particular advertiser, and the number of media alternatives in those markets.
Postal Rates -- The Company's shoppers are delivered by standard mail, and
postage is the second largest expense, behind payroll, in the Company's shopper
business. The present standard postage rates went into effect in July 1995, and
the next increase is expected in 1998. Postal rates also influence the demand
for the Company's direct marketing services even though the cost of mailings is
borne by the Company's customers and is not directly reflected in the Company's
revenues or expenses.
Newsprint Prices -- Newsprint represents a substantial expense in the Company's
shopper operations. In recent years newsprint prices have fluctuated widely, and
such fluctuations can materially affect the results of the Company's operations.
Economic Conditions -- Changes in national economic conditions can affect levels
of advertising expenditures generally, and such changes can affect each of the
Company's businesses. In addition, revenues from the Company's shopper business
is dependent to a large extent on local advertising expenditures in the markets
in which they operate. Such expenditures are substantially affected by the
strength of the local economies in those markets. Direct marketing revenues are
dependent on national and international economics.
Year 2000 Issue -- The Year 2000 issue is a result of computer programs being
written using two digits rather than four to define the applicable year. The
Company has conducted a comprehensive review of its computer systems to identify
those that could be affected by the Year 2000 issue and has developed an
implementation plan to resolve the issue. The Company is utilizing both internal
and external resources to correct or reprogram, and test the systems for the
year 2000 compliance. It is anticipated that all reprogramming efforts will be
complete by December 31, 1998, allowing adequate time for testing. The Company
is also in the process of obtaining confirmations, from primary processing
vendors and customers, that plans are being developed to address processing of
transactions in the year 2000. The Company does not expect the amounts required
to be expensed over the next two years to have a material effect on its
financial position or results of operations.
<PAGE> 13
13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See index to Exhibits on Page 14.
(b) No Form 8-K has been filed during the three months ended
March 31, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
HARTE-HANKS, INC.
May 14, 1998 /s/ Jacques D. Kerrest
------------ -------------------------------------
Date Jacques D. Kerrest
Senior Vice President, Finance and
Chief Financial and Accounting Officer
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit Page No.
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<S> <C> <C>
2(a) Certificate of Ownership and Merger (filed as Exhibit 2(a) to
the Company's Registration Statement No. 33-69202 and
incorporated by reference herein).
2(b) Agreement and Plan of Merger dated as of February 4, 1996 among
Harte-Hanks Communications, Inc., HHD Acquisition Corp. and
DiMark, Inc. (filed as Appendix A to the Company's Registration
Statement No. 333-02047 and incorporated by reference herein).
2(c) Agreement and Plan of Merger and Reorganization, dated as of May
16, 1997, by and between The E.W. Scripps Company and
Harte-Hanks Communications, Inc. (filed as Exhibit 2.1 to the
Company's Form 8-K dated May 22, 1997 and incorporated by
reference herein).
2(d) Acquisition Agreement, dated as of May 16, 1997, by and between
The E.W. Scripps Company and Harte-Hanks Communications, Inc.
(filed as Exhibit 2.2 to the Company's Form 8-K dated May 22,
1997 and incorporated by reference herein).
2(e) Stock Purchase Agreement dated as of July 26, 1997 between ABC,
Inc. and Harte-Hanks Communications, Inc. (filed as Exhibit 2(e)
to the Company's Form 10-Q for the nine months ended September
30, 1997 and incorporated by reference herein).
3(a) Amended and Restated Certificate of Incorporation (filed as
Exhibit 3(a) to the Company's Form 10-K for the year ended
December 31, 1993 and incorporated by reference herein).
3(b) Amended and Restated Bylaws (filed as Exhibit 3(b) to the
Company's Registration Statement No. 33-69202 and incorporated
by reference herein).
3(c) Amendment dated April 30, 1996 to Amended and Restated
Certificate of Incorporation (filed as Exhibit 3(c) to the
Company's Form 10-Q for the six months ended June 30, 1996 and
incorporated by reference herein).
3(d) Amended and Restated Certificate of Incorporation as amended
through April 30, 1996 (filed as Exhibit 3(d) to the Company's
Form 10-Q for the six months ended June 30, 1996 and
incorporated by reference herein).
4(a) Long term debt instruments are not being filed pursuant to
Section (b)(4)(iii) of Item 601 of Regulation S-K. Copies of
such instruments will be furnished to the Commission upon
request.
10(a) 1984 Stock Option Plan (filed as Exhibit 10(d) to the Company's
Form 10-K for the year ended December 31, 1984 and incorporated
herein by reference).
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit Page No.
- ------- ------------------------------------------------------------------- --------
<S> <C> <C>
10(b) Registration Rights Agreement dated as of September 11, 1984
among HHC Holding Inc. and its stockholders (filed as Exhibit
10(b) to the Company's Form 10-K for the year ended December 31,
1993 and incorporated by reference herein).
10(c) HHC Holding Inc. 1991 Stock Option Plan (filed as Exhibit 10(i)
to the Company's Form 10-K for the year ended December 31, 1991
and incorporated by reference herein).
10(d) Amendment to HHC Holding Inc. 1991 Stock Option Plan (filed as
Exhibit 10(j) to the Company's Form 10-K for the year ended
December 31, 1992 and incorporated by reference herein).
10(e) Severance Agreement between Harte-Hanks Communications, Inc. and
Larry Franklin, dated as of July 23, 1993 (filed as Exhibit
10(f) to the Company's Registration Statement No. 33-69202 and
incorporated by reference herein).
10(f) Form of Severance Agreement between Harte-Hanks Communications,
Inc. and certain Executive Officers of the Company, dated as of
July 7 or December 28,1997 (filed as Exhibit 10(f) to the
Company's Form 10-K for the year ended December 31, 1997 and
incorporated by reference herein).
10(g) Amendment No. 2 to HHC Holding Inc. 1991 Stock Option Plan
(filed as Exhibit 10(1) to the Company's Registration Statement
No. 33-69202 and incorporated by reference herein).
10(h) Harte-Hanks, Inc. Pension Restoration Plan (filed as Exhibit
10(j) to the Company's Registration Statement No. 33-69202 and
incorporated by reference herein).
10(i) Amendment No. 3 to Harte-Hanks Communications (formerly HHC
Holding Inc.) 1991 Stock Option Plan (filed as Exhibit 10(o) to
the Company's Form 10-Q for the six months ended June 30, 1996
and incorporated by reference herein).
10(j) Harte-Hanks Communications, Inc. 1996 Incentive Compensation
Plan (filed as Exhibit 10(p) to the Company's Form 10-Q for the
six months ended June 30, 1996 and incorporated by reference
herein).
*11 Statement Regarding Computation of Net Income (Loss) Per Common
Share 16
*21 Subsidiaries of the Company. 17
*27 Financial Data Schedule. 18
</TABLE>
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*Filed herewith
<PAGE> 1
EXHIBIT 11
HARTE-HANKS, INC. AND SUBSIDIARIES
EARNINGS PER SHARE COMPUTATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
In thousands, except per share amount 1998 1997
- ---------------------------------------------------------------------------------------------------------
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BASIC EPS
Income from continuing operations ....................................... $ 14,105 $ 5,968
Income from discontinued operations ..................................... -- 4,049
---------- ----------
Net Income .............................................................. $ 14,105 $ 10,017
========== ==========
Weighted-average common shares outstanding
used in net earnings per share computations .......................... 73,481 74,262
========== ==========
Basic earnings per common share:
Continuing operations ................................................ $ 0.19 $ 0.08
Discontinued operations .............................................. -- 0.05
---------- ----------
Net income ........................................................... $ 0.19 $ 0.13
========== ==========
DILUTED EPS
Income from continuing operations ....................................... $ 14,105 $ 5,968
Income from discontinued operations ..................................... -- 4,049
---------- ----------
Net Income .............................................................. $ 14,105 $ 10,017
========== ==========
Shares used in net earnings per share computations ..................... 77,128 77,467
========== ==========
Diluted earnings per common share:
Continuing operations ................................................ $ 0.18 $ 0.08
Discontinued operations .............................................. -- 0.05
---------- ----------
Net income ........................................................... $ 0.18 $ 0.13
========== ==========
Computation of shares used in net earnings per share computations:
Average outstanding common shares ....................................... 73,481 74,262
Average common equivalent shares -
dilutive effect of option shares ..................................... 3,647 3,205
---------- ----------
Shares used in net earnings per share computations ...................... 77,128 77,467
========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
RESTRICTED SUBSIDIARIES OF
HARTE-HANKS, INC.
As of March 31, 1998
<TABLE>
<CAPTION>
State of % of Stock
Name of Corporation Incorporation Owned
- ------------------- ------------- ----------
<S> <C> <C>
DiMark, Inc. New Jersey 100%
DiMark Marketing, Inc. Pennsylvania 100%(1)
Direct Market Concepts, Inc. Florida 100%
DMK, Inc. Delaware 100%(2)
The Flyer Publishing Corporation Florida 100%
Harte-Hanks Data Technologies, Inc. Massachusetts 100%
Harte-Hanks Delaware, Inc. Delaware 100%
Harte-Hanks Direct, Inc. Delaware 100%
Harte-Hanks Direct Marketing/Baltimore, Inc. Maryland 100%
Harte-Hanks Direct Marketing/Cincinnati, Inc. Ohio 100%
Harte-Hanks Direct Marketing/Dallas, Inc. Delaware 100%
Harte-Hanks Direct Marketing/Fullerton, Inc. California 100%
Harte-Hanks do Brazil Consultoria e Servicos Ltda. Brazil 100%(3)
Harte-Hanks Limited England 100%(3)
Harte-Hanks Market Research, Inc. New Jersey 100%
Harte-Hanks Partnership, Ltd. Texas 100%(7)
Harte-Hanks Pty. Limited Australia 100%(3)
Harte-Hanks Response Management/Boston, Inc. Massachusetts 100%
Harte-Hanks Response Management Call Centers, Inc. Delaware 100%
Harte-Hanks Response Management Europe Belgium 100%
Harte-Hanks Shoppers, Inc. California 100%
Harte-Hanks Stock Plan, Inc. Delaware 100%
H&R Communications, Inc. New Jersey 100%(2)
HTS, Inc. Connecticut 100%
Information for Marketing Limited England 100%(5)
Marketing Communications, Inc. Missouri 100%
Mars Graphic Services, Inc. New Jersey 100%(4)
Mercantile Software Systems, Inc. New Jersey 100%
Northern Comprint Co. California 100%
NSO, Inc. Ohio 100%
Pennypower Shopping News, Inc. Kansas 100%
Pennysaver Publications, Inc. Texas 100%
Potpourri Shopper, Inc. California 100%
PRO Direct Response Corp. New Jersey 100%(2)
PSP&D, Inc. Delaware 100%(6)
Select Marketing, Inc. Texas 100%
Southern Comprint Co. California 100%
Sutton Industries, Inc. Delaware 100%
</TABLE>
(1) Owned by Mars Graphic Services, Inc.
(2) Owned by DiMark Marketing, Inc.
(3) Owned by Harte-Hanks Data Technologies, Inc.
(4) Owned by DiMark, Inc.
(5) Owned by Harte-Hanks Limited
(6) Owned by Sutton Industries, Inc.
(7) 99.5% Owned by Harte-Hanks Delaware, Inc.
.5% Owned by Harte-Hanks, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 62,677
<SECURITIES> 168,308
<RECEIVABLES> 113,053
<ALLOWANCES> 3,679
<INVENTORY> 7,099
<CURRENT-ASSETS> 372,756
<PP&E> 184,139
<DEPRECIATION> 96,308
<TOTAL-ASSETS> 713,631
<CURRENT-LIABILITIES> 112,712
<BONDS> 0
0
0
<COMMON> 75,256
<OTHER-SE> 555,200
<TOTAL-LIABILITY-AND-EQUITY> 713,631
<SALES> 177,673
<TOTAL-REVENUES> 177,673
<CGS> 134,015
<TOTAL-COSTS> 158,548
<OTHER-EXPENSES> 693
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70
<INCOME-PRETAX> 23,977
<INCOME-TAX> 9,872
<INCOME-CONTINUING> 14,105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,105
<EPS-PRIMARY> .19
<EPS-DILUTED> .18
</TABLE>
