-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U+EfjSCw463RGi/0DJs7U7CFoDcaQ14CKIaqjrY7XOrc3LmAKTRyQyqBTMpRnM43 sDlZ473MwVDJDGvjI7JOWA== 0000950129-97-003358.txt : 19970815 0000950129-97-003358.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950129-97-003358 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARTE HANKS COMMUNICATIONS INC CENTRAL INDEX KEY: 0000045919 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PUBLISHING [2741] 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: 97662252 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. - 6/30/97 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, 1997 ------------- [ ] 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, 37,341,604 shares as of July 31, 1997. 2 2 HARTE-HANKS COMMUNICATIONS, INC. AND SUBSIDIARIES TABLE OF CONTENTS FORM 10-Q REPORT June 30, 1997
Page ---- Part I. Financial Information Item 1. Interim Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - 3 June 30, 1997 and December 31, 1996 Consolidated Statements of Operations - 4 Three months ended June 30, 1997 and 1996 Consolidated Statements of Operations - 5 Six months ended June 30, 1997 and 1996 Consolidated Statements of Cash Flows - 6 Six months ended June 30, 1997 and 1996 Consolidated Statement of Stockholders' Equity 7 Notes to Interim Condensed Consolidated Financial 8 Statements Item 2. Management's Discussion and Analysis of Financial 11 Condition and Results of Operations Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 16 (a) Exhibits (b) Reports on Form 8-K Signature 16
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, 1997 1996 ------------ ------------ Assets Current assets Cash ............................................... $ 14,156 $ 12,017 Accounts receivable, net ........................... 99,394 107,559 Inventory .......................................... 12,175 13,720 Prepaid expenses ................................... 8,492 9,445 Current deferred income tax benefit ................ 6,981 6,204 Other current assets ............................... 7,075 4,202 ------------ ------------ Total current assets ............................. 148,273 153,147 Net assets of discontinued operations ................ 207,436 210,769 Property, plant and equipment, net ................... 77,458 72,195 Goodwill, net ........................................ 144,740 142,053 Other assets ......................................... 3,313 4,442 ------------ ------------ Total assets ..................................... $ 581,220 $ 582,606 ============ ============ Liabilities and Stockholders' Equity Current liabilities Accounts payable ................................... $ 39,969 $ 40,573 Accrued payroll and related expenses ............... 17,931 23,116 Customer deposits and unearned revenue ............. 17,317 19,809 Income taxes payable ............................... 7,147 2,748 Other current liabilities .......................... 9,702 11,481 ------------ ------------ Total current liabilities ........................ 92,066 97,727 Long term debt ....................................... 192,400 218,005 Other long term liabilities .......................... 16,408 14,182 ------------ ------------ Total liabilities ................................ 300,874 329,914 ------------ ------------ Stockholders' equity Common stock, $1 par value, 125,000,000 shares authorized. 37,830,440 and 36,801,701 shares issued at June 30, 1997 and December 31, 1996, respectively ..................................... 37,830 36,802 Additional paid-in capital ......................... 201,921 186,677 Retained earnings .................................. 54,089 29,213 ------------ ------------ 293,840 252,692 Less treasury stock, 542,308 shares at cost ........ (13,494) -- ------------ ------------ Total stockholders' equity ....................... 280,346 252,692 ------------ ------------ Total liabilities and stockholders' equity ....... $ 581,220 $ 582,606 ============ ============
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, --------------------------- 1997 1996 --------- --------- Operating revenues ................................ $ 150,964 $ 122,285 --------- --------- Operating expenses Payroll .......................................... 56,143 43,418 Production and distribution ...................... 56,316 48,122 Advertising, selling, general and administrative .............................. 13,543 10,456 Depreciation ..................................... 4,072 3,332 Goodwill amortization ............................ 1,125 840 Merger costs ..................................... -- 12,136 --------- --------- 131,199 118,304 --------- --------- Operating income .................................. 19,765 3,981 --------- --------- Other expenses (income) Interest expense ................................. 1,854 1,855 Interest income .................................. (7) (52) Other, net ....................................... (566) 5 --------- --------- 1,281 1,808 --------- --------- Income from continuing operations before income tax expense ...................................... 18,484 2,173 Income tax expense ................................ 7,844 2,762 --------- --------- Net income (loss) from continuing operations ...... $ 10,640 $ (589) Net income from discontinued operations, net of income taxes .............................. $ 5,705 $ 4,495 --------- --------- Net income ........................................ $ 16,345 $ 3,906 ========= ========= Primary: Earnings per common share Continuing Operations ........................... $ 0.27 $ (0.02) Discontinued Operations ......................... $ 0.15 $ 0.12 --------- --------- Total ........................................ $ 0.42 $ 0.10 ========= ========= Weighted average common and common equivalent shares outstanding .............................. 38,832 38,551 ========= ========= Fully diluted: Earnings per common share Continuing Operations ........................... $ 0.27 $ (0.02) Discontinued Operations ......................... $ 0.15 $ 0.12 --------- --------- Total ........................................ $ 0.42 $ 0.10 ========= ========= Weighted average common and common equivalent share outstanding ............................... 38,841 38,702 ========= =========
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, ---------------------------- 1997 1996 --------- -------- Operating revenues .............................. $ 289,388 $237,791 --------- -------- Operating expenses Payroll ........................................ 109,821 86,657 Production and distribution .................... 109,410 95,483 Advertising, selling, general and administrative 27,653 20,675 Depreciation ................................... 8,041 6,465 Goodwill amortization .......................... 2,205 1,745 Merger costs ................................... -- 12,136 --------- -------- 257,130 223,161 --------- -------- Operating income ................................ 32,258 14,630 --------- -------- Other expenses (income) Interest expense ............................... 3,765 3,648 Interest income ................................ (50) (578) Other, net ..................................... (321) 549 --------- -------- 3,394 3,619 --------- -------- Income from continuing operations before income tax expense .................................... 28,864 11,011 Income tax expense .............................. 12,256 6,612 --------- -------- Net income from continuing operations ........... $ 16,608 $ 4,399 Net income from discontinued operations, net of income taxes ............................ $ 9,754 $ 7,824 --------- -------- Net income ...................................... $ 26,362 $ 12,223 ========= ======== Primary: Earnings per common share Continuing Operations ......................... $ 0.43 $ 0.11 Discontinued Operations ....................... $ 0.25 $ 0.21 --------- -------- Total ....................................... $ 0.68 $ 0.32 ========= ======== Weighted average common and common equivalent shares outstanding ............................ 38,782 38,420 ========= ======== Fully diluted: Earnings per common share Continuing Operations ........................ $ 0.43 $ 0.11 Discontinued Operations ...................... $ 0.25 $ 0.21 --------- -------- Total ....................................... $ 0.68 $ 0.32 ========= ======== Weighted average common and common equivalent share outstanding ............................ 38,824 38,495 ========= ========
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, ------------------------ 1997 1996 --------- --------- Operating Activities Net income from continuing operations ............................... $ 16,608 $ 4,399 Add (deduct) non-cash income and expenses: Depreciation ...................................................... 8,041 6,465 Goodwill amortization ............................................. 2,205 1,745 Amortization of option related compensation ....................... 406 419 Deferred income taxes ............................................. 1,101 (386) Other, net ........................................................ 528 830 Changes in operating assets and liabilities, net of acquisitions: Decrease in accounts receivable, net .............................. 9,386 1,263 Decrease in inventory ............................................. 1,545 2,713 Increase in prepaid expenses and other current assets .................................................. (1,777) (2,325) Increase (decrease)in accounts payable ............................ (1,384) 2,003 Decrease in other accrued expenses and other liabilities ........................................... (6,121) (8,036) Other, net ........................................................ 6,717 (866) --------- --------- Net cash provided by continuing operating activities ............ 37,255 8,224 --------- --------- Discontinued operations: Net income ........................................................ 9,754 7,824 Adjustment to derive cash flows from operating activities ......... 6,621 6,493 --------- --------- Net cash provided by discontinued operating activities .......... 16,375 14,317 --------- --------- Net operating activities .......................................... 53,630 22,541 --------- --------- Investing Activities Purchases of property, plant and equipment .......................... (15,138) (10,421) Proceeds from the sale of property, plant and equipment ............. 1,760 256 Acquisitions ........................................................ (5,949) (17,139) --------- --------- Net cash used in investing activities of continuing operations ...................................................... (19,327) (27,304) --------- --------- Net cash used in investing activities of discontinued operations ...................................................... (3,191) (2,448) --------- --------- Net investing activities .......................................... (22,518) (29,752) --------- --------- Financing Activities Long term debt borrowings ........................................... 193,300 142,000 Payments on long term debt, including current maturities ........................................................ (217,665) (137,755) Purchase of treasury stock .......................................... (13,494) -- Issuance of common stock ............................................ 10,372 3,611 Dividends paid ...................................................... (1,486) (1,020) --------- --------- Net cash provided by (used in) financing activities ............... (28,973) 6,836 --------- --------- Net increase(decrease)in cash ....................................... 2,139 (375) Cash at beginning of year ........................................... 12,017 18,102 --------- --------- Cash at end of period ............................................... $ 14,156 $ 17,727 ========= =========
See Notes to Interim Condensed Consolidated Financial Statements. 7 7 Harte-Hanks Communications, Inc. and Subsidiaries Consolidated Statement of Stockholders' Equity - -------------------------------------------------------------------------------- (Unaudited)
Retained Additional Earnings Total Common Paid-In (Accumulated Treasury Stockholders' In thousands Stock Capital Deficit) Stock Equity - ------------ ------- ---------- ------------ --------- ------------- Balance at January 1, 1996 ............. $36,044 $174,870 $ (9,058) $ -- $ 201,856 Common stock issued-employee benefit plans ................................ 62 1,144 -- -- 1,206 Exercise of stock options .............. 327 3,203 -- -- 3,530 Tax benefit of options exercised ....... -- 784 -- -- 784 Dividends paid ($ 0.033 per share) ..... -- -- (1,020) -- (1,020) Net income ............................. -- -- 12,223 -- 12,223 Stock issued in conjunction with acquisition earnout .................. 58 1,201 -- -- 1,259 ------- -------- -------- -------- --------- Balance at June 30, 1996 ............... $36,491 $181,202 $ 2,145 $ -- $ 219,838 ======= ======== ======== ======== ========= Balance at January 1, 1997 ............. $36,802 $186,677 $ 29,213 $ -- $ 252,692 Common stock issued-employee benefit plans ................................ 42 1,780 -- -- 1,822 Exercise of stock options .............. 986 7,700 -- -- 8,686 Tax benefit of options exercised ....... -- 5,764 -- -- 5,764 Dividends paid ($ 0.04 per share) ...... -- -- (1,486) -- (1,486) Net income ............................. -- -- 26,362 -- 26,362 Treasury stock purchase ................ -- -- -- (13,494) (13,494) ------- -------- -------- -------- --------- Balance at June 30, 1997 ............... $37,830 $201,921 $ 54,089 $(13,494) $ 280,346 ======= ======== ======== ======== =========
See Notes to Interim Condensed Consolidated Financial Statements. 8 8 Harte-Hanks Communications, 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 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, 1997 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, 1996. Certain prior period amounts have been reclassified for comparative purposes. NOTE B - DISCONTINUED NEWSPAPER AND TELEVISION OPERATIONS On May 16, 1997, the Company entered into a definitive agreement to sell to the E.W. Scripps Company (NYSE: SSP) its newspaper operations and KENS-TV, the CBS affiliate in San Antonio. The agreement called for a Morris Trust form of transaction, with an all cash backup agreement to take effect in the event the Morris Trust transaction was prevented by pending tax legislation. (The structure of and consideration specified in that Morris Trust transaction is described in the Company's Form 8-K dated May 22, 1997.) That proposed tax legislation has been enacted, and as a result, the parties have elected to proceed on the all cash basis, in which Scripps will acquire the Harte-Hanks newspaper operations, KENS-TV and KENS-AM directly for a cash price of $775 million. The closing is subject to Federal Communications Commission approval and other customary conditions. Because the newspaper and television operations represent entire business segments that will be divested, their results are reported as "discontinued operations" for all periods presented. Summarized operating results for the combined newspaper and television discontinued operations are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED In thousands JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996 - ----------------------------------- ------------- ------------- ----------------- ------------- Revenues $39,619 $37,631 $76,030 $72,736 Income before income tax expense 10,322 8,272 17,725 14,282 Income tax expense 4,617 3,777 7,971 6,458 ------- ------- ------- ------- Income from discontinued operations $ 5,705 $ 4,495 $ 9,754 $ 7,824 ======= ======= ======= =======
Summarized balance sheet data for the combined newspaper and television discontinued operations are as follows: 9 9
In thousands JUNE 30, 1997 DECEMBER 31, 1996 - ------------ ------------- ----------------- Property, plant and equipment $ 40,564 $ 40,713 Goodwill and other intangibles 174,043 177,236 Other assets 1,959 2,497 Deferred income tax liabilities 8,059 8,154 Other liabilities 1,071 1,523 -------- -------- Net assets of discontinued operations $207,436 $210,769 ======== ========
The major components of cash flows for the combined newspaper and television discontinued operations are as follows:
SIX MONTHS ENDED ---------------------------- In thousands JUNE 30, 1997 JUNE 30, 1996 - ------------ ------------- ------------- Net income from discontinued operations $ 9,754 $ 7,824 Depreciation and goodwill amortization 5,717 5,668 Film amortization 863 694 Other, net 41 131 ------- ------- Net cash provided by discontinued operations 16,375 14,317 ------- ------- Purchases of property, plant and equipment (2,288) (1,884) Payments on film contracts (919) (654) Other, net 16 90 ------- ------- Net cash used in investing activities of discontinued operations $(3,191) $(2,448) ------- -------
NOTE C - ACQUISITION Effective April 30, 1996, DiMark, Inc. ("DiMark") was merged with a wholly-owned subsidiary of the Company, and each outstanding share of DiMark common stock was converted into the right to acquire .656 of a share of common stock of Harte-Hanks. As a result, Harte-Hanks issued approximately 6.1 million shares of Harte-Hanks common stock to the shareholders of DiMark and DiMark's outstanding stock options were converted into options to acquire approximately 1.5 million shares of Harte-Hanks common stock. The merger was accounted for on a pooling-of-interests basis. Accordingly, the Company's financial statements have been restated to include the results of DiMark for all periods presented. The combined financial results include reclassifications to conform with financial statement preparation. Merger expenses related to the transaction were $12.1 million ($8.7 million, net of income taxes). Combined and separate results of the Company and DiMark during the reporting period preceding the merger were as follows: THREE MONTHS ENDED MARCH 31, 1996
In thousands HARTE-HANKS DIMARK ADJUSTMENTS COMBINED - ------------------------- ----------- ------- ----------- -------- Revenues from continuing operations $89,794 $27,377 $(1,665) $115,506 Net Income from continuing operations 3,066 1,932 -- 4,998
Adjustments consist of elimination of DiMark's postage costs from revenues and cost of sales to conform to Harte-Hanks' accounting classification. 10 10 NOTE D - INCOME TAXES The Company's quarterly income tax provision of $7.8 million for continuing operations was calculated using an effective income tax rate of 42.4%. The Company's effective income tax rate is derived by estimating pretax income and income tax expense for the year ended December 31, 1997. 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 E - NEW ACCOUNTING PRONOUNCEMENT In March 1997, the FASB issued Statement of Financial Accounting Standards No. 128, "Earnings per Share," which specifies the computing, presentation and disclosure requirements for earnings per share. SFAS 128 is effective for all periods ending after December 15, 1997 and requires retroactive restatement of prior periods EPS. The statement replaces the "primary EPS" calculation with a "basic EPS" and redefines the "dilutive EPS" computation. The Company will implement the statement in the required period. 11 11 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 May 16, 1997, the Company entered into a definitive agreement to sell 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:
THREE MONTHS ENDED SIX MONTHS ENDED In thousands JUNE 30, 1997 JUNE 30, 1996 CHANGE JUNE 30, 1997 JUNE 30, 1996 CHANGE - ---------------------- ------------- ------------- ------ ------------- ------------- ------ Revenues $150,964 $122,285 23.5% $289,388 $237,791 21.7% Operating expenses 131,199 106,168 23.6% 257,130 211,025 21.8% -------- -------- -------- -------- Operating income $ 19,765 $ 16,117 22.6% $ 32,258 $ 26,766 20.5% ======== ======== ======== ======== Net income $ 10,200 $ 8,118 25.6% $ 16,168 $ 13,106 23.4% ======== ======== ======== ======== Fully diluted earnings per share $ 0.26 $ 0.21 23.8% $ 0.42 $ 0.34 23.5% ======== ======== ======== ========
(The results above exclude the 1997 one-time investment gain -- discussed under "Other Income and Expense" -- and the 1996 one-time merger costs -- discussed in Note C of the Notes to Interim Condensed Consolidated Financial Statements included herein. Including these items, net income was $10.6 million, or 27 cents per share, in the second quarter of 1997 compared to a net loss of $0.6 million, or 2 cents per share, in 1996. On the same basis, net income for first six months of 1997 was $16.6 million, or 43 cents per share, compared to $4.4 million, or 11 cents per share, for the six months ended June 30, 1996.) Consolidated revenues from continuing operations grew 23.5% to $151 million and operating income grew 22.6% to $19.8 million in the second quarter of 1997 when compared to the second quarter of 1996. 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 1996 increased 23.6% to $131.2 million. Net income from continuing operations grew 25.6% to $10.2 million, or 26 cents per share, compared to 21 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, 1997 JUNE 30, 1996 CHANGE JUNE 30, 1997 JUNE 30, 1996 CHANGE - ------------------ ------------- ------------- ------ ------------- ------------- ------ Revenues $100,413 $73,349 36.9% $194,203 $145,861 33.1% Operating expenses 87,685 62,893 39.4% 170,985 126,406 35.3% -------- ------- -------- -------- Operating income $ 12,728 $10,456 21.7% $ 23,218 $ 19,455 19.3% ======== ======== ======== ========
12 12 Direct marketing revenues increased $27.1 million, or 36.9%, in the second quarter of 1997 when compared to 1996. Response management/teleservices, database marketing, and marketing services all experienced significant revenue growth. Response management/teleservices revenues increased due to new customer gains, particularly in the high technology industry; increased business with existing customers; and, to a lesser extent, two acquisitions in May and August 1996. The Company acquired Inquiry Handling Service, a Los Angeles based response management company that serves the high technology and electronics industries, in May and Lead Management Group, a Boston based response management, telemarketing and fulfillment company that serves the high technology industry, in August. Database marketing revenues increased primarily due to higher sales of software products; increased database processing volumes; and, to a lesser extent, the acquisition of Information for Marketing, a London based database marketing service provider. Marketing services revenues, including logistics operations, increased due to higher product sales as well as new product sales to new and existing retail industry customers. Lastly, revenues increased due to the November 1996 acquisition of Marketing Communications Inc., a Kansas City based integrated database marketing company that serves the pharmaceutical industry and others. Operating expenses increased $24.8 million, or 39.4%, in the second quarter of 1997 when compared to 1996. Payroll costs increased $12.0 million due to expanded hiring to support revenue growth. Also contributing to increased operating expenses were additional production costs of $9.1 million due to increased volumes. Depreciation expense increased $0.8 million due to higher levels of capital investment to support growth. Operating expenses were also impacted by the acquisitions noted above. Direct marketing revenues increased $48.3 million, or 33.1%, in the first six months of 1997 as compared to the comparable 1996 period. Response management/teleservices, database marketing, and logistics operations experienced significant revenue growth. Overall, revenue growth resulted from increased business with both new and existing customers, particularly in services provided to the retail, high technology, financial services, healthcare, and insurance industries, and from acquisitions. Operating expenses rose $44.6 million, or 35.3%, in the first half of 1997 when compared to the same period in 1996. Payroll costs increased $21.4 million due to expanded hiring to support revenue growth. In addition, production costs increased $16.2 million due to increased volumes. Depreciation expense increased $1.6 million due to higher levels of capital investment to support growth. The acquisitions noted above also impacted operating expense growth. SHOPPERS Shopper operating results were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED In thousands JUNE 30, 1997 JUNE 30, 1996 CHANGE JUNE 30, 1997 JUNE 30, 1996 CHANGE - ------------------ ------------- ------------- ------ ------------- ------------- ------ Revenues $50,551 $48,936 3.3% $ 95,185 $ 91,930 3.5% Operating expenses 41,488 41,550 (0.2)% 81,922 81,213 0.9% ------- ------- ------- ------- Operating income $ 9,063 $ 7,386 22.7% $ 13,263 $ 10,717 23.8% ======= ======= ======== ========
Shopper revenues increased $1.6 million, or 3.3%, in the second quarter of 1997 as compared to 1996. The increase was attributable to higher in-book advertising revenue as well as increased preprint insert volumes. Display advertising 13 13 revenues increased due to growth in the Company's core business accounts and average volume buy per customer, as well as increased in-column display advertisements. Operating expenses were flat in the second quarter of 1997 when compared to 1996. Payroll costs increased $0.3 million due to operating investments in sales staffing as well as increased revenue volumes. Additionally, general and administrative expense increased $0.6 million due to higher promotion costs. These expense increases were offset by decreased production and distribution costs, mainly due to lower paper costs. Paper costs decreased $1.0 million due to lower paper prices, slightly offset by higher distribution volumes. Shopper revenues increased $3.3 million, or 3.5%, in the first six months of 1997 as compared to the first six months of 1996. The increase was attributable to higher in-book advertising revenue, primarily from display advertising, as well as increased revenue from insert products. Year-to-date operating expenses increased $0.7 million, or 0.9%, in 1997 when compared to the same period in 1996. Payroll costs increased $1.3 million primarily due to increased revenue volumes and the impact of favorable operating income results on performance related plans. Additionally, general and administrative expense increased $1.8 million due to higher promotion costs as well as a higher provision for bad debt related to the higher revenues. These expense increases were partially offset by decreased paper costs of $2.5 million, due primarily to lower paper prices, and decreased printing and postage expenses. Offload printing costs decreased $0.3 million due to lower rates. And, postage costs decreased $0.4 million due to lower postal rates from the June 1996 postal reclassification, partially offset by increased postage costs due to expansion, internal circulation growth and increased distribution volumes. Other Income and Expense On May 16, 1997, the Company sold its 40 percent interest in SiteSpecific, an Internet-related company that was acquired by CKS Group, Inc. This transaction resulted in a gain of approximately $1.8 million in the second quarter of 1997. This investment gain was partially offset by reserves of $1.0 million for possible costs associated with a previous newspaper sale and the abandonment of minor equipment. Interest Expense/Interest Income Total interest income and expense was allocated to continuing and discontinued operations based on percentage of assets. The percentage allocated to continuing operations was approximately 58% for the first half of 1997 and 53% for the first half of 1996. Interest income and expense for continuing operations was relatively flat in the second quarter of 1997 when compared to 1996. Income Taxes The Company's income tax expense for continuing operations increased $5.1 million in the second quarter of 1997 when compared to the second quarter of 1996. This increase was due to the higher income levels and the absence of the 1996 merger related costs. The effective tax rate for continuing operations was 42.4% for the second quarter of 1997 and 43.3% for the second quarter of 1996, excluding the merger costs. 14 14 Liquidity and Capital Resources Cash provided from operating activities by continuing operations for the six months ended June 30, 1997 was $37.2 million, as compared to $8.2 million for the six months ended June 30, 1996. Net cash outflows for investing activities of continuing operations were $19.3 million as compared to outflows of $27.3 million in 1996. 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 and anticipated capital and debt service requirements for the foreseeable future. As of June 30, 1997, the Company had $134 million of unused borrowing capacity under its credit facility, of which $6.4 million was reserved to serve as backup for the Company's short-term borrowing facilities. Recent Development On July 29, 1997, the Company signed a definitive agreement with ABC, Inc., an indirect subsidiary of The Walt Disney Company, to acquire the ABC Shoppers Group. The cash transaction is valued at approximately $104 million, and the closing is subject to customary conditions. 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 business, and it expects to pursue additional acquisition opportunities in its direct marketing and shopper businesses. Acquisition activities, even if not consummated, 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 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 shopper, newspaper and television businesses compete for advertising as well as for readers and viewers 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 to the number of media alternatives in those markets. 15 15 Newsprint Prices -- Newsprint represents a substantial expense in the Company's shopper and newspaper operations. In recent years newsprint prices have fluctuated widely, and such fluctuations can materially affect the results of the Company's operations. 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 May 1998, although there can be no assurance postal rates will not increase prior to that time. 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. 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, newspaper and television businesses are 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. 16 16 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 6, 1997. At the meeting the stockholders were requested to vote on the following: 1. To elect David L. Copeland, Dr. Peter T. Flawn and Christopher M. Harte as Class I directors for a three-year term. The result of the vote was as follows: For Withheld ---------- --------- David L. Copeland 32,615,177 128,940 Dr. Peter T. Flawn 32,601,772 142,345 Christopher M. Harte 32,613,687 130,430
The names of each director whose term of office continued are: Houston H. Harte, Larry Franklin, Edward H. Harte, Richard M. Hochhauser and James L. Johnson. 2. To approve an amendment to the Harte-Hanks Communications, Inc. 1994 Employee Stock Purchase Plan to increase the aggregate number of shares of Harte-Hanks Common Stock that may be issued under such Plan from 450,000 to 1,000,000. The result of the vote was as follows: For Against Abstentions ---------- ------- ----------- 32,302,650 298,758 142,709
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. See index to Exhibits on Page 16. (b) A Form 8-K (in response to item 5 thereof) was filed dated May 22, 1997. 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 13, 1997 /s/ Jacques D. Kerrest - ---------------- --------------------------- Date Jacques D. Kerrest Senior Vice President, Finance and Chief Financial and Accounting Officer 17 17
Exhibit No. Description of Exhibit Page No. - ----- ------------------------------------------------------------------- -------- 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. 333-2047 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). 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).
18 18
Exhibit No. Description of Exhibit Page No. - ----- ------------------------------------------------------------------- -------- 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). 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) Third Amended and Restated Loan Agreement dated May 19, 1993 among the Company, The Toronto-Dominion Bank, NationsBank of Texas, N.A., Fleet Bank (formerly National Westminster Bank USA), Corestates Bank, N.A., The Bank of Nova Scotia, CIBC, Inc. and National Bank of Canada; and Toronto-Dominion (Texas), Inc., as agent (filed as Exhibit 10(j) to the Company's 10-Q for the quarter ended June 30, 1993 and incorporated by reference herein). 10(f) 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(g) Form of Severance Agreement between Harte-Hanks Communications, Inc. and certain Executive Officers of the Company, dated as of July 23, 1993 (filed as Exhibit 10(h) to the Company's Registration Statement No. 33-69202 and incorporated by reference herein).
19 19
Exhibit No. Description of Exhibit Page No. - ------- ----------------------------------------------------------------- -------- 10(h) 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(i) Harte-Hanks Communications, Inc. Pension Restoration Plan (filed as Exhibit 10(j) to the Company's Registration Statement No. 33-69202 and incorporated by reference herein). 10(j) First Amendment, dated as of November 3, 1993 to Third Amended and Restated Loan Agreement dated May 19, 1993 among the Company, The Toronto-Dominion Bank, NationsBank of Texas, N.A., Fleet Bank (formerly National Westminster Bank USA), The First National Bank of Boston, Bank of Hawaii, Corestates Bank, N.A., The Bank of Nova Scotia, CIBC, Inc., and National Bank of Canada; and Toronto-Dominion (Texas), Inc., as agent (filed as Exhibit 10(k) to the Company's Form 10-Q for the quarter ended September 30, 1993 and incorporated by reference herein). 10(k) Second Amendment to Third Amended and Restated Loan Agreement dated as of February 2, 1995 among the Company, NationsBank of Texas, N.A., Fleet Bank (formerly National Westminster Bank USA), The Bank of Nova Scotia, Bank of Boston, N.A. (formerly known as The First National Bank of Boston), Bank of Hawaii, The Bank of Tokyo-Mitsubishi, Ltd., Dallas Agency, Corestates Bank, N.A. and CIBC, Inc. and Toronto-Dominion (Texas), Inc. in its Individual Capacity and as Agent (filed as Exhibit 10(n) to the Company's Form 10-Q for the quarter ended March 31, 1995 and incorporated by reference herein). 10(l) 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(m) 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. *27 Financial Data Schedule.
EX-11 2 COMPUTATION OF EARNINGS 1 20 Exhibit 11 HARTE-HANKS COMMUNICATIONS, INC. AND SUBSIDIARIES EARNINGS PER SHARE COMPUTATIONS (in thousands, except per share data) PRIMARY
Three Months Ended June 30, ------------------------------ 1997 1996 -------- -------- Net income from continuing operations ...................... $ 10,640 $ (589) ======== ======== Shares used in net earnings per share computations ........................................ 38,832 38,551 ======== ======== Earnings per share - continuing operations ................. $ 0.27 $ (0.02) ======== ======== Net income from discontinued operations .................... $ 5,705 $ 4,495 ======== ======== Shares used in net earnings per share computations ........................................ 38,832 38,551 ======== ======== Earnings per share - discontinued operations ............... $ 0.15 $ 0.12 ======== ======== COMPUTATION OF SHARES USED IN NET EARNINGS PER SHARE COMPUTATIONS Three Months Ended June 30, ------------------------------ 1997 1996 -------- ------- Average outstanding common shares............................ 37,279 36,333 Average common equivalent shares -- dilutive effect of option shares............................. 1,553 2,218 -------- ------- Shares used in net earnings per share computations....................................... 38,832 38,551 ======== ======= FULLY DILUTED ------------- Three Months Ended June 30, ------------------------------ 1997 1996 -------- ------- Net income from continuing operations ...................... $10,640 $ (589) ======= ======== Shares used in net earnings per share computations ........................................ 38,841 38,702 ======= ======== Earnings per share - continuing operations ................. $ 0.27 $ (0.02) ======= ======== Net income from discontinued operations .................... $ 5,705 $ 4,495 ======= ======== Shares used in net earnings per share computations ........................................ 38,841 38,702 ======= ======== Earnings per share - discontinued operations ............... $ 0.15 $ 0.12 ======= ========
COMPUTATION OF SHARES USED IN NET EARNINGS PER SHARE COMPUTATIONS Three Months Ended June 30, ------------------------------ 1997 1996 -------- ------- Average outstanding common shares .......................... 37,279 36,333 Average common equivalent shares -- dilutive effect of option shares .......................... 1,562 2,369 ------ ------ Shares used in net earnings per share computations .................................... 38,841 38,702 ====== ======
EX-27 3 FINANCIAL DATA SCHEDULE
5 1000 3-MOS DEC-31-1997 JUN-30-1997 14,156 0 101,731 2,337 12,175 148,273 153,786 76,328 581,220 92,066 192,400 0 0 37,830 242,516 581,220 150,964 150,964 112,459 131,199 (566) 0 1854 18,484 7,844 10,640 5,705 0 0 16,345 0.27 0.27
-----END PRIVACY-ENHANCED MESSAGE-----