-----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, EnWvrD+sMtwmerygCL6QekW2nwAdEC41GoqR3q7Zuju5FkEIIVoXTVgraS3iapZR qMnumva1tx4rvaOp+dpKmg== 0000950134-96-002093.txt : 19960517 0000950134-96-002093.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950134-96-002093 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARTE HANKS COMMUNICATIONS INC CENTRAL INDEX KEY: 0000045919 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [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: 96564875 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 FORM 10-Q PERIOD END MARCH 31, 1996 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, 1996 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, 30,047,781 shares as of March 31, 1996. 2 2 HARTE-HANKS COMMUNICATIONS, INC. AND SUBSIDIARIES TABLE OF CONTENTS FORM 10-Q REPORT March 31, 1996 Page ---- Part I. Financial Information Item 1. Interim Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - 3 March 31, 1996 and December 31, 1995 Consolidated Statements of Operations - 4 Three months ended March 31, 1996 and 1995 Consolidated Statements of Cash Flows - 5 Three months ended March 31, 1996 and 1995 Notes to Interim Condensed Consolidated Financial 6 Statements Item 2. Management's Discussion and Analysis of Financial 7 Condition and Results of Operations Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 12 (a) Exhibits (b) Reports on Form 8-K Signature 12
3 3 Harte-Hanks Communications, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except per share and share amounts) (Unaudited)
March 31, December 31, 1996 1995 --------- ------------ Assets Current assets Cash........................................... $ 9,895 $ 6,710 Accounts receivable, net....................... 64,247 69,995 Inventory...................................... 22,552 21,285 Prepaid expenses............................... 6,546 4,973 Current deferred income tax benefit............ 6,685 6,809 Other current assets........................... 3,852 3,423 --------- --------- Total current assets........................... 113,777 113,195 Property, plant and equipment, net............. 88,829 87,908 Goodwill, net.................................. 269,246 271,511 Other assets................................... 5,399 5,101 --------- --------- Total assets................................... $ 477,251 $ 477,715 ========= ========= Liabilities and Stockholders' Equity Current liabilities Accounts payable........................... $ 34,495 $ 32,029 Accrued payroll and related expenses....... 11,651 19,057 Customer deposits and unearned revenue..... 14,084 11,585 Income taxes payable....................... 4,885 762 Other current liabilities.................. 6,486 6,947 --------- --------- Total current liabilities................ 71,601 70,380 Long term debt............................... 211,040 220,040 Other long term liabilities.................. 22,847 22,201 --------- --------- Total liabilities........................ 305,488 312,621 --------- --------- Stockholders' equity Common stock, $1 par value, authorized 50,0 shares. Issued and outstanding 1996: 30,0 shares; 1995: 29,991,709 shares.......... 30,048 29,992 Additional paid-in capital................. 156,920 156,192 Accumulated deficit........................ (15,205) (21,090) --------- --------- Total stockholders' equity............... 171,763 165,094 --------- ---------- Total liabilities and stockholders' equit $ 477,251 $ 477,715 ========= =========
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 March 31, ---------------------------- 1996 1995 --------- --------- Operating revenues.................................. $124,899 $130,178 -------- -------- Operating expenses Payroll........................................... 47,922 49,704 Production and distribution....................... 43,890 47,273 Advertising, selling, general and administrative.. 12,979 14,763 Depreciation...................................... 3,635 3,416 Goodwill amortization............................. 2,299 2,424 -------- -------- 110,725 117,580 -------- -------- Operating income.................................... 14,174 12,598 -------- -------- Other expenses (income) Interest expense.................................. 3,282 4,946 Interest income................................... (903) (102) Gain on divestiture............................... --- (12,293) Other, net........................................ 200 443 -------- --------- 2,579 (7,006) -------- -------- Income before income tax expense.................... 11,595 19,604 Income tax expense.................................. 5,210 13,494 -------- --------- Net income.......................................... $ 6,385 $ 6,110 ======== ========= Primary: Earnings per common share......................... $ 0.20 $ 0.21 ======== ======== Weighted average common and common equivalent shares outstanding.............................. 31,545 28,709 ======== ======== Fully diluted: Earnings per common share......................... $ 0.20 $ 0.20 ======== ======== Weighted average common and common equivalent share outstanding................................. 31,548 30,902 ======== ========
See Notes to Interim Condensed Consolidated Financial Statements. 5 5 Harte-Hanks Communications, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) (Unaudited)
Three Months Ended March 31, ---------------------------- 1996 1995 ---- ---- Operating Activities Net income.......................................... $ 6,385 $ 6,110 Add (deduct) non-cash income and expenses: Depreciation ................................. 3,635 3,416 Goodwill amortization......................... 2,299 2,424 Amortization of option related compensation... 401 240 Film amortization............................. 345 654 Deferred income taxes......................... 305 (1,321) Other, net.................................... 39 300 Gain on divestiture........................... --- (12,293) Changes in operating assets and liabilities, net of acquisitions and divestiture Decrease in accounts receivable, net............. 5,748 3,626 Increase in inventory............................ (1,267) (3,614) Increase in prepaid expenses and other current assets................................ (2,157) (1,732) Increase in accounts payable..................... 2,466 1,822 Increase (decrease) in other accrued expenses and other liabilities......................... (1,188) 9,212 Other, net....................................... (111) 222 -------- -------- Net cash provided by operating activities............ 16,970 9,066 -------- -------- Investing Activities Purchases of property, plant and equipment.......... (4,674) (3,344) Proceeds from the sale of property, plant and equipment and divested assets................. -- 40,113 Acquisitions........................................ -- (5,760) Payments on film contracts.......................... (333) (507) -------- -------- Net cash provided by (used in) investing activities.......................... (5,007) 30,502 -------- -------- Financing Activities Long term debt borrowings........................... 68,200 521,255 Payments on long term debt, including current maturities ...................................... (77,200) (561,273) Issuance of common stock............................ 723 496 Dividends paid...................................... (501) (458) -------- -------- Net cash used in financing activities............ (8,778) (39,980) -------- -------- Net increase(decrease)in cash ...................... 3,185 (412) Cash at beginning of year........................... 6,710 4,391 -------- -------- Cash at end of period............................... $ 9,895 $ 3,979 ======== ========
See Notes to Interim Condensed Consolidated Financial Statements. 6 6 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 three months ended March 31, 1996 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, 1995. Certain prior period amounts have been reclassified for comparative purposes. Note B - Merger 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 1,509,213 shares of Harte-Hanks Common Stock. The acquisition will be accounted for on a pooling-of- interests basis. Merger expenses related to the transaction are expected to be approximately $12 million. The following selected financial information for 1996 represents the three months ended March 31, 1996 for Harte-Hanks and the three months ended February 28, 1996 for DiMark. The financial information for 1995 represents the three months ended March 31, 1995 for Harte-Hanks and the three months ended February 28, 1995 for DiMark. Revenues and net income of the separate companies, for the time periods described above, are as follows:
1996 1995 --------- --------- Revenues: Harte-Hanks $124,899 $130,178 DiMark 26,723 21,061 Net Income: Harte-Hanks 6,385 6,110 DiMark 2,311 2,312
7 7 The Company is in the process of conforming DiMark's accounting standards and reporting periods to the Company's and, when completed, the prior historical consolidated financial statements will be restated in accordance with the pooling-of-interests method and will be reflected in the Company's ongoing reporting. As a result of this process, the Company will eliminate DiMark's postage costs from revenues and cost of sales to conform to Harte- Hanks' accounting classifications. For the three months ended February 28, 1996 and 1995, the postage amounts were $1.6 million and $2.0 million, respectively. Note C - Income Taxes The Company's quarterly income tax provision of $5.2 million was calculated using an effective income tax rate of 44.9%. The Company's effective income tax rate is derived by estimating pretax income and income tax expense for the year ended December 31, 1996. 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 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Operating results were as follows:
Three months ended In thousands March 31, 1996 March 31, 1995 Change - ------------------------------------------------------------------- Revenues $124,899 $130,178 -4.1% Operating expenses 110,725 117,580 -5.8% -------- -------- Operating income $ 14,174 $ 12,598 12.5% ======== ======== Net income $ 6,385 $ 6,191 ======== ======== Fully diluted earnings per share $ 0.20 $ 0.20 ======== ========
Excluding the sale of the Boston community newspapers in March 1995, consolidated revenues grew 1.6% to $124.9 million and operating income grew 11.7% to 14.2 million in the first quarter of 1996 when compared to the first quarter of 1995. The Company's overall growth resulted from increased business with both new and existing customers, new products and services as well as advertising and circulation rate increases. Overall operating expenses compared to 1995 were flat, excluding the sale of the Boston newspapers. Excluding the sale of the Boston newspapers, net income grew 66% to $6.4 million, or 20 cents per share, compared to 13 cents per share on a fully diluted basis. DIRECT MARKETING Direct marketing operating results were as follows:
Three months ended In thousands March 31, 1996 March 31, 1995 Change - ------------------------------------------------------------------- Revenues $46,800 $45,772 2.2% Operating expenses 41,462 41,094 0.9% ------- ------- Operating income $ 5,338 $ 4,678 14.1% ======= =======
Direct marketing revenues increased $1.0 million, or 2.2%, in the first quarter of 1996 when compared to 1995. Database and response management services experienced significant revenue growth. Database revenues increased due to higher product sales and increased database construction updates and creation revenues. Response management revenue increased due to the growth of sales lead management services, which include lead generation and lead qualification through in- bound inquiries received from 1-800 numbers and the Internet. These revenue increases were partially offset by the absence of a local hand distribution advertising business sold in July 1995 and an outsourced mailing program which the customer now performs in-house. Overall, revenue growth resulted from increased business with both new and existing customers, particularly in services provided to the banking, high technology and financial services industries and to international customers. 9 9 Operating expenses increased $0.4 million, or 0.9%, in the first quarter of 1996 when compared to 1995. Payroll costs increased $2.3 million primarily due to expanded hiring to support revenue growth in the database and response management services. Depreciation expense increased $0.5 million due to higher levels of capital investment in expanded facilities and upgraded technology to support growth. The increase was partially offset by production cost decreases of $2.4 million, primarily due to outsourced mailing programs moved in-house by customers. Operating expenses were also impacted by the sale of the local hand distribution advertising business in July 1995. SHOPPERS Shopper operating results were as follows:
Three months ended In thousands March 31, 1996 March 31, 1995 Change - ------------------------------------------------------------------ Revenues $42,994 $43,646 -1.5% Operating expenses 39,663 40,704 -2.6% ------- ------- Operating income $ 3,331 $ 2,942 13.2% ======= =======
Shopper revenues decreased $0.7 million, or 1.5%, in the first quarter of 1996 as compared to 1995. The decrease was primarily attributable to lower insert volumes as well as intentional reductions of marginal circulation in Dallas. These declines were partially offset by increased in-book advertising revenues resulting from in-column display advertisements made possible with pagination technology implemented in 1995. Operating expenses decreased $1.0 million, or 2.6%, in the first quarter of 1996 when compared to 1995. Postage expense decreased $1.2 million due to less overweight postage associated with the decreased insert volumes. Additionally, general and administrative expense decreased $1.0 million. These expense decreases were partially offset by paper cost increases of $1.0 million, or 24.5%. Paper cost increases were primarily attributable to rate increases, partially offset by reduced consumption due to the continued implementation of pagination technology. Pagination permits a more efficient publication design and reduces the number of pages in the book. NEWSPAPERS Newspaper operating results were as follows:
Three months ended In thousands March 31, 1996 March 31, 1995 Change - ------------------------------------------------------------------------------ Revenues $29,336 $34,878 -15.9% Operating expenses 23,474 29,341 -20.0% ------- ------- Operating income $ 5,862 $ 5,537 5.9% ======= =======
Excluding the sale of the Boston newspapers in March 1995, newspaper revenues increased $1.8 million, or 6.5%, in the first quarter of 1996 when compared to 1995. Overall advertising revenues were up $0.7 million, or 3.7%. In particular, classified advertising revenue increased $0.5 million, or 7.1%, as a result of increases both in rates and volumes. Retail advertising revenues increased $0.2 million, or 1.9% as a result of increased rates offset by 10 10 decreased volumes. Circulation revenue increased $0.6 million, or 8.1%, due to a home delivery rate increase in all markets and a Sunday single-copy increase at the Corpus Christi paper. Niche product revenue also increased primarily due to continued growth in direct mail, community publications and a new Internet- related revenue stream. Direct mail programs were implemented in the Anderson and San Angelo markets, and the Corpus Christi Caller-Times expanded its direct mail program to encompass Laredo, Texas in 1995. Excluding the sale of the Boston newspapers, newspaper operating expenses increased $1.6 million, or 7.3%, in the first quarter of 1996 when compared to 1995. Paper costs increased $1.3 million, or 36.1%, as a result of higher average newsprint prices. Job printing materials and postage costs also increased due to growth in direct mail volumes. TELEVISION Television operating results were as follows:
Three months ended In thousands March 31, 1996 March 31, 1995 Change - ------------------------------------------------------------------- Revenues $5,769 $5,882 -1.9% Operating expenses 4,297 4,457 -3.6% ------ ------ Operating income $1,472 $1,425 3.3% ====== ======
Revenues for the television segment decreased $0.1 million, or 1.9%, in the first quarter of 1996 when compared to 1995. Television advertising revenues were down $0.5 million due to soft national spot advertising. This decrease was nearly offset by an increase in network compensation revenue due to a renegotiated network affiliation agreement. Operating expenses decreased $0.2 million, or 3.6%, in the first quarter of 1996 when compared to 1995. The decrease was due primarily to film cost savings, which were slightly offset by higher payroll costs. Recent Development As described in Note 2 to the Notes to Interim Condensed Consolidated Financial Statements included herein, on April 30, 1996, 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. DiMark provides a full range of outsource marketing and database services to clients in the insurance, healthcare, pharmaceutical, financial services and telecommunications industries, as well as direct response printing services. Additional information with respect to the merger is set forth in the Joint Proxy Statement/Prospectus included in Harte-Hanks' Registration Statement of Form S-4 (File No. 333-2047), which is incorporated by reference herein. 11 11 Gain on Divestiture On March 31, 1995, the Company sold its 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 7 cents per share, net of $10.0 million of income taxes. Interest Expense/Interest Income Interest expense decreased $1.7 million in the first quarter of 1996 when compared to 1995, primarily due to lower debt levels. Debt levels fell due to proceeds from the March 1995 divestiture, the May 1995 conversion of the Company's 6 1/4% notes to common stock and increased cash flow from operations. Interest income increased $0.8 million in the first quarter of 1996 when compared to 1995 due to interest income related to an income tax refund that resulted from a favorable tax settlement. Income Taxes Excluding the $10.0 million of income taxes related to the gain on the March 1995 divestiture, the Company's income tax expense for the first quarter of 1996 increased $1.7 million compared to the first quarter of 1995. This increase is due to the higher income levels. Liquidity and Capital Resources Cash provided from operating activities for the three months ended March 31, 1996 was $17.0 million, as compared to $9.1 million for the three months ended March 31, 1995. Net cash outflows for investing activities were $5.0 million as compared to inflows of $30.5 million in 1995. Year-to-date investing activities for 1995 included $40.1 million in proceeds from the sale of property, plant and equipment and divested assets. These proceeds resulted primarily from the sale of the Boston community newspapers and were used to reduce borrowings under the Company's credit facility. 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 March 31, 1996, the Company had $114.0 million of unused borrowing capacity under its credit facility, of which $3.7 million was reserved to serve as backup for the Company's outstanding commercial paper and other short-term borrowing facilities. 12 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. See index to Exhibits on Page 13. (b) No reports on Form 8-K were filed for the three months ended March 31, 1996. 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. May 14, 1996 /s/ Richard L. Ritchie ------------------- ----------------------------- Date Richard L. Ritchie Senior Vice President, Finance and Chief Financial and Accounting Officer 13 13
Exhibit No. Description of Exhibit Page No. - ----------------------------------------------------------------- -------- 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). *11 Statement Regarding Computation of Net Income 14 Common Share *27 Financial Data Schedules 15
__________________________ * Filed herewith. EX-11 2 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 March 31, ---------------------------- 1996 1995 ------- -------- Net income................................ $ 6,385 $ 6,110 ======= ======== Shares used in net earnings per share computations...................... 31,545 28,709 ======= ======== Earnings per share........................ $ .20 $ .21 ======= ========
COMPUTATION OF SHARES USED IN NET EARNINGS PER SHARE COMPUTATIONS
Three Months Ended March 31, ---------------------------- 1996 1995 ------- -------- Average outstanding common shares......... 30,029 27,545 Average common equivalent shares -- dilutive effect of option shares........ 1,516 1,164 ------ ------- Shares used in net earnings per share computations.................. 31,545 28,709 ====== =======
FULLY DILUTED
Three Months Ended March 31, ---------------------------- 1996 1995 ------- -------- Net income................................ $ 6,385 $ 6,110 ======= ======== Adjusted net income for interest on convertible note..................... $ 6,385 $ 6,298 ======= ======== Shares used in net earnings per share computations.................. 31,548 30,902 ======= ======== Earnings per share........................ $ .20 $ .20 ======= ========
COMPUTATION OF SHARES USED IN NET EARNINGS PER SHARE COMPUTATIONS
Three Months Ended March 31, ---------------------------- 1996 1995 ------- -------- Average outstanding common shares......... 30,029 27,545 Average common equivalent shares -- dilutive effect of option shares........ 1,519 1,214 Dilutive effect of convertible note....... -- 2,143 ------ ------ Shares used in net earnings per share computations.................. 31,548 30,902 ====== =======
EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 MAR-31-1996 9,895 0 66,362 2,146 22,552 113,777 190,019 101,191 477,251 71,601 211,040 30,048 0 0 141,715 171,763 124,899 124,899 91,812 110,725 200 0 3,282 11,595 5,210 6,385 0 0 0 6,385 .20 .20
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