0000950129-95-000924.txt : 19950817 0000950129-95-000924.hdr.sgml : 19950817 ACCESSION NUMBER: 0000950129-95-000924 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950810 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARTE HANKS COMMUNICATIONS INC CENTRAL INDEX KEY: 0000045919 STANDARD INDUSTRIAL CLASSIFICATION: 2711 IRS NUMBER: 741677284 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07120 FILM NUMBER: 95560361 BUSINESS ADDRESS: STREET 1: 200 CONCORD PLAZA DR STE 800 CITY: SAN ANTONIO STATE: TX ZIP: 78216 BUSINESS PHONE: 2108299000 FORMER COMPANY: FORMER CONFORMED NAME: HARTE HANKS NEWSPAPERS INC DATE OF NAME CHANGE: 19771010 10-Q 1 HARTE-HANKS COMMUNICATIONS, INC. DATED 06/30/95 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 June 30, 1995 / / 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 1-7120 HARTE-HANKS COMMUNICATIONS, INC. (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 (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, 19,890,782 shares as of June 30, 1995. 2 2 HARTE-HANKS COMMUNICATIONS, INC. AND SUBSIDIARIES TABLE OF CONTENTS FORM 10-Q REPORT June 30, 1995
Page ---- Part I. Financial Information Item 1. Interim Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - 3 June 30, 1995 and December 31, 1994 Consolidated Statements of Operations - 4 Three months ended June 30, 1995 and 1994 Consolidated Statements of Operations - 5 Six months ended June 30, 1995 and 1994 Consolidated Statements of Cash Flows - 6 Six months ended June 30, 1995 and 1994 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 4. Submission of Matters to a Vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 15 (a) Exhibits (b) Reports on Form 8-K Signature 15
3 3 Harte-Hanks Communications, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except per share and share amounts) -------------------------------------------------------------------------------- (Unaudited)
June 30, December 31, 1995 1994 -------- ------------ Assets Current assets Cash ............................................. $ 5,825 $ 4,391 Accounts receivable, net ......................... 68,528 70,929 Inventory ........................................ 17,184 13,454 Prepaid expenses ................................. 6,002 5,904 Current deferred income tax benefit .............. 7,064 6,808 Other current assets ............................. 3,593 4,143 ----------- ----------- Total current assets .......................... 108,196 105,629 Property, plant and equipment, net .................. 86,399 91,278 Goodwill, net ....................................... 276,108 290,335 Other assets ........................................ 6,319 9,656 ----------- ----------- Total assets .................................. $ 477,022 $ 496,898 =========== =========== Liabilities and Stockholders' Equity Current liabilities Accounts payable ................................. $ 33,023 $ 31,229 Accrued payroll and related expenses ............. 14,320 17,996 Accrued interest ................................. 549 731 Prepaid subscriptions ............................ 3,204 3,978 Current portion of film contracts ................ 934 1,717 Income taxes payable ............................. 1,658 1,867 Other current liabilities ........................ 14,199 13,165 Current portion of long term debt ................ 50 469 ----------- ----------- Total current liabilities ..................... 67,937 71,152 Long term debt ...................................... 241,720 292,858 Other long term liabilities ......................... 24,271 25,248 ----------- ----------- Total liabilities ............................. 333,928 389,258 ----------- ----------- Stockholders' equity Common stock, $1 par value, authorized 50,000,000 shares. Issued and outstanding 1995: 19,890,782 shares; 1994: 18,342,503 shares ............... 19,891 18,342 Additional paid-in capital ....................... 164,377 144,350 Accumulated deficit .............................. (39,229) (53,107) Minimum pension liability adjustment ............. (1,945) (1,945) ----------- ----------- Total stockholders' equity .................... 143,094 107,640 ----------- ----------- Total liabilities and stockholders' equity .... $ 477,022 $ 496,898 =========== ===========
See Notes to Interim Condensed Consolidated Financial Statements. 4 4 Harte-Hanks Communications, Inc. and Subsidiaries Consolidated Statements of Operations (in thousands, except per share amounts) -------------------------------------------------------------------------------- (Unaudited)
Three Months Ended June 30, --------------------------- 1995 1994 ---- ---- Operating revenues ................................ $ 133,808 $ 126,866 ---------- ---------- Operating expenses Payroll ........................................ 47,125 47,219 Production and distribution .................... 46,020 44,049 Advertising, selling, general and administrative................................ 14,213 12,330 Depreciation ................................... 3,331 3,156 Goodwill amortization .......................... 2,298 2,352 ---------- ---------- 112,987 109,106 ---------- ---------- Operating income .................................. 20,821 17,760 ---------- ---------- Other expenses (income) Interest expense ............................... 4,157 4,144 Interest income ................................ (37) (55) Other, net ..................................... 409 153 ---------- ---------- 4,529 4,242 ---------- ---------- Income before income tax expense .................. 16,292 13,518 Income tax expense ................................ 7,564 6,579 ---------- ---------- Net income ........................................ $ 8,728 $ 6,939 ========== ========== Primary: Earnings per common share ...................... $ 0.44 $ 0.36 ========== ========== Weighted average common and common equivalent shares outstanding .......................... 19,831 19,031 ========== ========== Fully diluted: Earnings per common share ...................... $ 0.43 $ 0.35 ========== ========== Weighted average common and common equivalent share outstanding ........................... 20,757 20,483 ========== ==========
See Notes to Interim Condensed Consolidated Financial Statements. 5 5 Harte-Hanks Communications, Inc. and Subsidiaries Consolidated Statements of Operations (in thousands, except per share amounts) -------------------------------------------------------------------------------- (Unaudited)
Six Months Ended June 30, ------------------------- 1995 1994 ---- ---- Operating revenues ................................ $ 263,986 $ 241,981 ---------- ---------- Operating expenses Payroll ........................................ 96,829 94,631 Production and distribution .................... 93,293 84,180 Advertising, selling, general and administrative................................ 28,976 25,933 Depreciation ................................... 6,747 6,336 Goodwill amortization .......................... 4,722 4,702 ---------- ---------- 230,567 215,782 ---------- ---------- Operating income .................................. 33,419 26,199 ---------- ---------- Other expenses (income) Interest expense ............................... 9,103 8,110 Interest income ................................ (139) (91) Other, net ..................................... 852 277 Gain on divestiture ............................ (12,293) -- ---------- ---------- (2,477) 8,296 ---------- ---------- Income before income tax expense .................. 35,896 17,903 Income tax expense ................................ 21,058 8,697 ---------- ---------- Net income ........................................ $ 14,838 $ 9,206 ========== ========== Net income per share -- primary ................... $ 0.76 $ 0.48 ========== ========== Weighted average common and common equivalent shares outstanding .......................... 19,485 19,041 ========== ========== Net income per share -- fully diluted ............. $ 0.73 $ 0.47 ========== ========== Weighted average common and common equivalent share outstanding ........................... 20,679 20,483 ========== ==========
See Notes to Interim Condensed Consolidated Financial Statements. 6 6 Harte-Hanks Communications, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) -------------------------------------------------------------------------------- (Unaudited)
Six Months Ended June 30, ------------------------- 1995 1994 ---- ---- Operating Activities Net income ..................................... $ 14,838 $ 9,206 Add (deduct) non-cash income and expenses: Depreciation ............................. 6,747 6,336 Goodwill amortization .................... 4,722 4,702 Amortization of option related expense ... 836 789 Film amortization ........................ 1,284 1,233 Deferred income taxes .................... (1,450) (1,521) Other, net ............................... 330 235 Gain on divestiture ...................... (12,293) -- Changes in operating assets and liabilities, net of acquisitions and divestiture Increase in accounts receivable, net ........ (349) (275) Increase in inventory ....................... (4,923) (2,045) Increase in prepaid expenses and other current assets ........................... (931) (2,933) Increase (decrease) in accounts payable ..... 1,227 (1,980) Increase (decrease) in other accrued expenses and other liabilities .................... (2,421) 5,120 Other, net .................................. (86) (315) ---------- ---------- Net cash provided by operating activities.............................. 7,531 18,552 ---------- ---------- Investing Activities Purchases of property, plant and equipment ..... (8,411) (7,835) Proceeds from the sale of property, plant and equipment and divested assets ............ 40,034 126 Acquisitions ................................... (5,760) -- Payments on film contracts ..................... (1,065) (964) ---------- ---------- Net cash provided by (used in) investing activities ..................... 24,798 (8,673) ---------- ---------- Financing Activities Long term debt borrowings ...................... 739,964 224,028 Payments on long term debt, including current maturities .................................. (771,521) (233,936) Issuance of common stock ....................... 1,622 429 Dividends paid ................................. (960) -- ---------- ---------- Net cash used in financing activities ....... (30,895) (9,479) ---------- ---------- Net decrease in cash ........................... 1,434 400 Cash at beginning of year ...................... 4,391 4,392 ---------- ---------- Cash at end of period .......................... $ 5,825 $ 4,792 ========== ==========
See Notes to Interim Condensed Consolidated Financial Statements. 7 7 Harte-Hanks Communications, Inc. and Subsidiaries Notes to Interim Condensed Consolidated Financial Statements (Unaudited) Note A - Financial Statements The accompanying unaudited Interim Condensed Consolidated Financial Statements include the accounts of Harte-Hanks Communications, 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 six months ended June 30, 1995 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, 1994. Certain prior period amounts have been reclassified for comparative purposes. Note B - Divestiture In March 1995, the Company completed the previously announced sale of its suburban Boston community newspapers, which consisted of three daily and 11 weekly publications. As a result of this transaction, the Company recognized a gain on divestiture of $2.3 million, or 11 cents per share, net of $10.0 million of income taxes. Note C - Income Taxes The Company's quarterly income tax calculation is based on an effective income tax rate that is derived by estimating pretax income and income tax expense for the entire year ended December 31, 1995. Included in the year-to-date income tax provision of $21.1 million is $10.0 million related to the gain on divestiture. Excluding the effect of the gain, applying the estimated annual effective income tax rate of 46.7% to the pretax operating income results for the six months ended June 30, 1995 results in an income tax expense of $11.1 million. 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. 8 8 Note D - Long Term Debt On May 26, 1995, the Company issued 1,428,571 shares of common stock upon conversion of the $20 million principal amount of the Company's 6 1/4% convertible notes. Accordingly, the Company transferred $20 million less $0.1 million of unamortized issue costs, to stockholders' equity. 9 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Operating results were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED IN THOUSANDS JUNE 30, 1995 JUNE 30, 1994 CHANGE JUNE 30, 1995 JUNE 30, 1994 CHANGE ------------ ------------- ------------- ------ ------------- ------------- ------ Revenues $133,808 $126,866 5.5% $263,986 $241,981 9.1% Operating expenses 112,987 109,106 3.6% 230,567 215,782 6.9% -------- -------- -------- -------- Operating income $ 20,821 $ 17,760 17.2% $ 33,419 $ 26,199 27.6% ======== ======== ======== ======== Net income $ 8,728 $ 6,939 25.8% $ 14,838 $ 9,206 61.2% ======== ======== ======== ======== Fully diluted earnings per share $ 0.43 $ 0.35 22.9% $ 0.73 $ 0.47 55.3% ======== ======== ======== ========
Excluding the results of the Boston community newspapers sold on March 31, 1995, consolidated revenues grew 12.4% to $133.8 million and operating income grew 21.8% to $20.8 million in the second quarter of 1995 as compared to the second quarter of 1994. The most dramatic growth occurred in the direct marketing business where revenues increased 25.8% and operating income increased 75.4%. The Company's overall growth in both the quarter and first six months resulted from increased business with both new and existing customers, new products and services as well as advertising and circulation rate increases. Operating expenses in both periods also rose due to the growth in business as well as higher newsprint prices and postal rates. Net income of $14.8 million for the first half of 1995 includes a gain on divestiture of $2.3 million, net of income taxes, discussed under "Gain on Divestiture" (page 13). Excluding this net gain on divestiture, net income was $12.6 million, or 62 cents per share, on a fully diluted basis. Direct Marketing Direct marketing operating results were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED IN THOUSANDS JUNE 30, 1995 JUNE 30, 1994 CHANGE JUNE 30, 1995 JUNE 30, 1994 CHANGE ------------ ------------- ------------- ------ ------------- ------------- ------ Revenues $49,528 $39,377 25.8% $95,300 $74,028 28.7% Operating expenses 41,724 34,927 19.5% 82,818 67,296 23.1% ------- ------- ------- ------- Operating income $ 7,804 $ 4,450 75.4% $12,482 $ 6,732 85.4% ======= ======= ======= =======
Direct marketing revenues increased $10.2 million, or 25.8%, in the second quarter of 1995 when compared to 1994. All service offerings achieved growth, with the most significant increases occurring in database, integrated direct marketing and response management services. Direct marketing service offerings enable Harte-Hanks' customers to identify and communicate with their marketing targets, evaluate responses and measure the effectiveness of their marketing communications. Overall, revenue growth resulted from increased business with existing customers through cross-selling and leveraging the Company's 10 10 advertising and marketing expertise within service offerings. In addition, revenue growth was generated by new customers, particularly in the retail, financial services and high technology industries, as well as by international customers. Although the majority of direct marketing's revenue growth came from existing operations, a portion of the increase was attributable to the acquisitions of Select Marketing, Inc., an Austin, Texas response management company, and Steinert & Associates, a New York City advertising and marketing communications firm, which occurred in October 1994 and January 1995, respectively. Second quarter operating expenses increased $6.8 million, or 19.5%, when compared to 1994. Payroll costs were up $3.8 million as a result of increased hiring to support revenue growth. Also contributing to the increase in operating expenses were additional general and administrative and production costs of $1.7 million and $1.1 million, respectively, due to increased volumes. The acquisitions noted above were another contributing factor. Direct marketing revenues increased $21.3 million, or 28.7%, in the first six months of 1995 as compared to the comparable 1994 period. Increased revenues reflect growth in all core service offerings, particularly in database, integrated direct marketing and response management. The revenue increase during this time period was also affected by the acquisitions. Year-to-date 1995 operating expenses rose $15.5 million, or 23.1%, when compared to 1994. Payroll costs increased $6.9 million due to additional hiring to support revenue growth. In addition, production costs increased $5.6 million due to increased volumes. The remainder of the increased operating expenses was driven by acquisitions and, to a lesser extent, general and administrative costs incurred as a result of overall growth. Shoppers Shopper operating results were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED IN THOUSANDS JUNE 30, 1995 JUNE 30, 1994 CHANGE JUNE 30, 1995 JUNE 30, 1994 CHANGE ------------ ------------- ------------- ------ ------------- ------------- ------ Revenues $48,285 $45,350 6.5% $91,931 $87,442 5.1% Operating expenses 41,838 39,634 5.6% 82,542 79,465 3.9% ------- ------- ------- ------- Operating income $ 6,447 $ 5,716 12.8% $ 9,389 $ 7,977 17.7% ======= ======= ======= =======
Shopper revenues grew $2.9 million, or 6.5%, in the second quarter of 1995 as compared to 1994. Revenue increases occurred primarily in existing circulation zones, driven primarily by rate increases, and were also due, in part, to adjacent geographic circulation expansion. Total weekly shopper household circulation was 7.0 million at June 30, 1995. Second quarter operating expenses increased $2.2 million, or 5.6%, when compared to 1994. Postage costs increased $1.4 million, primarily due to a 14% postage rate increase as well as to increased circulation. In addition, production costs increased $0.5 million, primarily due to higher color printing costs and volumes. Newsprint costs increased $0.4 million, or 12.0%, due to higher newsprint prices, offset by reduced consumption due in part to new 11 11 pagination technology in the Company's Southern California and Miami shoppers. Pagination technology permits a more efficient publication design and reduces the number of pages in the book. The increase in production costs was partially offset by lower payroll costs of $0.5 million, or 3.3%, due in part, to reduced headcount, made possible by the Company's new technology as well as changes in commission plans. Excluding revenues from the Company's smallest shopper that was sold in February 1994, year-to-date revenues increased $5.4 million, or 6.3%, as compared to 1994. Revenue growth for the first six months of 1995 was primarily attributable to increased advertising rates in existing circulation zones as well as new circulation from household expansion and increased circulation of the newsstand product. Excluding operating expenses from the divested shopper, year-to-date operating costs increased $4.2 million, or 5.4%, in the first six months of 1995 as compared to 1994. Postage costs increased $3.2 million, due primarily to a postage rate increase as well as to increased circulation. In addition, color printing costs and newsprint increases contributed to increased operating costs. Higher production costs were primarily a result of increased color printing costs and volumes. Newsprint costs increased due to higher newsprint prices, offset in part by reduced volumes due to the new pagination technology. The increased operating costs were partially offset by lower payroll costs of $1.1 million due to reduced headcount and changes in commission plans. Newspapers Newspaper operating results were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED IN THOUSANDS JUNE 30, 1995 JUNE 30, 1994 CHANGE JUNE 30, 1995 JUNE 30, 1994 CHANGE ------------ ------------- ------------- ------ ------------- ------------- ------ Revenues $29,282 $34,791 -15.8% $64,160 $67,012 -4.3% Operating expenses 22,339 27,794 -19.6% 51,680 55,353 -6.6% ------- ------- ------- ------- Operating income $ 6,943 $ 6,997 - 0.8% $12,480 $11,659 7.0% ======= ======= ======= =======
Newspaper revenues decreased $5.5 million, or 15.8%, in the second quarter of 1995 when compared to 1994. This decrease is due to the March 1995 divestiture of the Company's Boston community newspapers. Excluding the results from the Boston community newspapers, second quarter newspaper revenues increased 8.7%, $2.3 million, to $29.3 million. Advertising revenues were up $1.0 million, or 5.4%. In particular, classified advertising revenues grew 9.5% as a result of increases both in rates and volumes. The classified growth was attributable to increased revenues from automotive and help wanted. Retail advertising revenues increased 1.8% on slightly lower volumes. Insert revenues rose 7.0% on increased volumes. In addition, niche and specialty product revenues grew primarily due to a direct mail initiative into South Texas, begun in 1994, and to audiotext, a new revenue stream for the newspapers. Circulation revenues increased 10.3%, reflecting home delivery price increases implemented in the fall of 1994. Newspaper operating expenses decreased $5.5 million, or 19.6%, in the second quarter of 1995 when compared to 1994. Excluding the divested Boston community 12 12 newspapers, operating expenses increased $1.7 million, or 8.3% in the second quarter of 1995. Newsprint costs increased $0.9 million, or 30.6%, as a result of higher average newsprint prices offset slightly by reduced volumes. The reduction in volumes was attributable to newsprint savings from the new press installed in July 1994 at the Corpus Christi Caller-Times as well as to various operating decisions to control newsprint consumption. Costs associated with the direct mail program also rose due to increased volumes as well as the January 1995 postal rate increase. Newspaper revenues decreased $2.9 million, or 4.3%, in the first half of 1995 when compared to 1994. Excluding the divested Boston newspapers' results, year-to-date revenues increased 8.1%, or $4.3 million, as compared to 1994. Advertising revenues were up $1.9 million, or 5.3%. In particular, classified advertising revenues grew 11.1% as a result of increases both in rates and volumes. The classified revenue growth was primarily attributable to increases in help wanted and automotive categories. Insert revenues increased 3.1% as a result of increased volumes, while retail advertising revenues rose slightly. In addition, niche and specialty product revenues were up primarily as a result of a South Texas direct mail initiative and audiotext revenues. Circulation revenues increased 9.3%, reflecting home delivery price increases in the fall of 1994. First half newspaper operating expenses decreased $3.7 million, or 6.6%, when compared to 1994. Excluding the divested Boston newspapers, operating expenses increased $2.9 million, or 7.1% over 1994. Newsprint costs increased $1.3 million, or 21.9%, as a result of higher average newsprint prices offset slightly by reduced volumes. Postage costs associated with the direct mail program also increased. Television Television operating results were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED IN THOUSANDS JUNE 30, 1995 JUNE 30, 1994 CHANGE JUNE 30, 1995 JUNE 30, 1994 CHANGE ------------ ------------- ------------- ------ ------------- ------------- ------ Revenues $6,713 $ 7,348 - 8.6% $12,595 $13,499 - 6.7% Operating expenses 4,667 4,775 - 2.3% 9,124 9,486 - 3.8% ------ ------- ------- ------- Operating income $2,046 $ 2,573 -20.5% $ 3,471 $ 4,013 -13.5% ====== ======= ======= =======
Revenues for the television segment decreased $0.6 million, or 8.6%, in the second quarter of 1995 when compared to 1994. The majority of this decline, $0.4 million, was due to lower national advertising revenues as a result of weak CBS network ratings during the February and May 1995 rating periods. At the Company's initiative, a new network affiliation agreement was negotiated and will commence later this year. Television segment revenues were also affected by the absence of a direct mail publication in 1995. Second quarter operating expenses for the television segment decreased $0.1 million, or 2.3%, when compared to the same period in 1994. The decrease was attributable to the absence of costs associated with the direct mail publication and to effective management of payroll and sales commission costs. Partially offsetting these cost reductions was an increase in general and 13 13 administrative costs, which primarily resulted from costs associated with the change from a diary rating service to a metered rating service. Revenues for the television segment decreased $0.9 million, or 6.7%, in the first half of 1995 when compared to 1994. Contributing to these results were lower national advertising revenues reflecting weak CBS network performance. In addition, the first quarter of 1994 benefited from political revenue and CBS coverage of the National Football League playoffs and winter Olympics. First half operating expenses for the television segment decreased $0.4 million, or 3.8%, when compared to the same time period in 1994. The decrease was due to lower payroll costs and direct mail publication production costs offset partially by higher metered rating service costs as discussed above. Gain on Divestiture In March 1995, the Company completed the previously announced sale of its suburban Boston community newspapers, which consisted of three daily and 11 weekly publications. As a result of this transaction, the Company recognized a gain on divestiture of $2.3 million, or 11 cents per share, net of $10.0 million of income taxes. Interest Expense Interest expense remained relatively constant for the second quarter of 1995 when compared to 1994. Interest expense for the first six months of 1995 increased $1.0 million from the same period in 1994 due primarily to higher interest rates experienced during 1995 partially offset by reduced borrowing levels. Although short-term interest rates rose throughout 1994, the impact on the Company was mitigated somewhat by more favorable pricing under terms of the Company's credit facility. The more favorable pricing is a result of increased operating cash flow, as defined in the Company's credit facility agreement, and reduced debt levels. In addition, the Company is realizing lower interest costs and commitment fees after amending its revolving credit commitment in February 1995. In May 1995, the $20 million principal amount of the Company's 6 1/4% convertible notes due September 15, 2002 were converted into 1,428,571 shares of common stock. The conversion will result in annual interest expense savings of $1.3 million going forward. Income Taxes Income tax expense increased $1.0 million in the second quarter of 1995 when compared to the same period in 1994. The expense increase was primarily due to increased income levels. Year-to-date income tax expense of $21.1 million includes $10.0 million of income taxes relating to the gain on divestiture. The remaining income tax expense of $11.1 million related to operations increased $2.4 million when compared to 1994. 14 14 Liquidity and Capital Resources Cash provided from operating activities for the six months ended June 30, 1995 was $7.5 million as compared to $18.6 million for the six months ended June 30, 1994. Net cash inflows for investing activities were $24.8 million as compared to outflows of $8.7 million in 1994. Investing activities for the first six months of 1995 included $40.0 million in sales proceeds from the sale of property, plant and equipment and divested assets. Also included in investing activities were expenditures of $5.8 million for acquisitions and $8.4 million for capital investments. Cash provided from operating activities and the sale of the Boston community newspapers were used to reduce borrowings under the Company's credit facility and to make capital investments and acquisitions. Capital resources are available from and provided through the Company's unsecured credit facility. All borrowings under the revolving credit facility are to be repaid by December 31, 2001. Management believes that its credit facility, together with cash provided from operating activities, will be sufficient to fund operations, anticipated capital and film expenditures and debt service requirements for the foreseeable future. As of June 30, 1995, the Company had $90 million of unused borrowing capacity under its credit facility, of which $10 million was reserved to serve as backup for the Company's outstanding commercial paper and other short-term borrowing facilities. 15 15 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company held its annual meeting of stockholders on May 19, 1995. At the meeting the stockholders were requested to vote on the election of Larry Franklin, Edward H. Harte and James L. Johnson as Class II directors for three year terms. The result of the vote was as follows: Director Votes For Withheld -------- --------- -------- Larry Franklin 16,685,730 3,628 Edward H. Harte 16,685,863 3,495 James L. Johnson 16,682,880 6,478 The names of each other director whose term of office continued after the meeting are: Dr. Peter T. Flawn, Christopher M. Harte, Houston H. Harte and Andrew B. Shelton. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. See index to Exhibits on Page 16. (b) No reports on Form 8-K were filed for the six months ended June 30, 1995. 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 COMMUNICATIONS, INC. August 10, 1995 /s/ Richard L. Ritchie --------------- ---------------------------- Date Richard L. Ritchie Senior Vice President, Finance and Chief Financial and Accounting Officer 16
16 Exhibit No. Description of Exhibit Page No. ------- ---------------------- -------- *11 Statement Regarding Computation of Net Income 35 Common Share *27 Financial Data Schedules 37
--------------- * Filed herewith. EX-11 2 STMT REGARDING COMPUTATION OF NET INCOME 1 Exhibit 11 HARTE-HANKS COMMUNICATIONS, INC. AND SUBSIDIARIES EARNINGS PER SHARE COMPUTATIONS (in thousands, except per share data) PRIMARY
Three Months Ended June 30, --------------------------- 1995 1994 ---- ---- Net income ............................................................ $ 8,728 $ 6,939 ======== ======== Shares used in net earnings per share computations ................................................. 19,831 19,031 ======== ======== Earnings per share .................................................... $ .44 $ .36 ======== ========
COMPUTATION OF SHARES USED IN NET EARNINGS PER SHARE COMPUTATIONS
Three Months Ended June 30, --------------------------- 1995 1994 ---- ---- Average outstanding common shares ..................................... 18,939 18,178 Average common equivalent shares -- dilutive effect of option shares ................................... 892 853 -------- -------- Shares used in net earnings per share computations ............................................. 19,831 19,031 ======== ========
FULLY DILUTED
Three Months Ended June 30, --------------------------- 1995 1994 ---- ---- Net income ............................................................ $ 8,728 $ 6,939 ======== ======== Adjusted net income for interest on convertible note ................................................ $ 8,853 $ 7,127 ======== ======== Shares used in net earnings per share computations ............................................. 20,757 20,483 ======== ======== Earnings per share .................................................... $ .43 $ .35 ======== ========
COMPUTATION OF SHARES USED IN NET EARNINGS PER SHARE COMPUTATIONS
Three Months Ended June 30, --------------------------- 1995 1994 ---- ---- Average outstanding common shares ..................................... 18,939 18,178 Average common equivalent shares -- dilutive effect of option shares ................................... 939 876 Dilutive effect of convertible note ................................... 879 1,429 -------- -------- Shares used in net earnings per share computations ............................................. 20,757 20,483 ======== ========
35 2 Exhibit 11 HARTE-HANKS COMMUNICATIONS, INC. AND SUBSIDIARIES EARNINGS PER SHARE COMPUTATIONS (in thousands, except per share data) PRIMARY
Six Months Ended June 30, ------------------------- 1995 1994 ---- ---- Net income ............................................................ $14,838 $ 9,206 ======= ======= Shares used in net earnings per share computations ................................................. 19,485 19,041 ======= ======= Earnings per share .................................................... $ .76 $ .48 ======= =======
COMPUTATION OF SHARES USED IN NET EARNINGS PER SHARE COMPUTATIONS
Six Months Ended June 30, ------------------------- 1995 1994 ---- ---- Average outstanding common shares ..................................... 18,651 18,162 Average common equivalent shares -- dilutive effect of option shares ................................... 834 879 ------- ------- Shares used in net earnings per share computations ............................................. 19,485 19,041 ======= =======
FULLY DILUTED
Six Months Ended June 30, ------------------------- 1995 1994 ---- ---- Net income ............................................................ $14,838 $ 9,206 ======= ======= Adjusted net income for interest on convertible note ................................................ $15,151 $ 9,582 ======= ======= Shares used in net earnings per share computations ............................................. 20,679 20,483 ======= ======= Earnings per share .................................................... $ .73 $ .47 ======= =======
COMPUTATION OF SHARES USED IN NET EARNINGS PER SHARE COMPUTATIONS
Six Months Ended June 30, ------------------------- 1995 1994 ---- ---- Average outstanding common shares ..................................... 18,651 18,162 Average common equivalent shares -- dilutive effect of option shares ................................... 874 892 Dilutive effect of convertible note ................................... 1,154 1,429 ------- ------- Shares used in net earnings per share computations ............................................. 20,679 20,483 ======= =======
36 EX-27 3 FINANCIAL DATA SCHEDULE
5 1000 6-MOS DEC-31-1995 JUN-30-1995 5,825 0 70,940 (2,911) 17,184 108,196 182,046 95,647 477,022 67,937 241,720 19,891 0 0 123,203 143,094 263,986 263,986 190,122 230,567 (11,580) 0 9,103 35,896 21,058 14,838 0 0 0 14,838 .76 .73