-----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, HEfOPGhk5gVtaqCi+2+QjuqyT+JbUBMqt2u3PreXV/RmJuC5PpQqD/UNuczwdoIH J5+u1dShX2MvTaMOQgCtng== 0000950134-97-004013.txt : 19970520 0000950134-97-004013.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950134-97-004013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 97607506 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 FOR QUARTER ENDED MARCH 31, 1997 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, 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, 37,223,613 shares as of March 31, 1997. 2 2 HARTE-HANKS COMMUNICATIONS, INC. AND SUBSIDIARIES TABLE OF CONTENTS FORM 10-Q REPORT March 31, 1997
Page ---- Part I. Financial Information Item 1. Interim Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - 3 March 31, 1997 and December 31, 1996 Consolidated Statements of Operations - 4 Three months ended March 31, 1997 and 1996 Consolidated Statements of Cash Flows - 5 Three months ended March 31, 1997 and 1996 Notes to Interim Condensed Consolidated Financial 6 Statements Item 2. Management's Discussion and Analysis of Financial 8 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, 1997 1996 -------- ------------ Assets Current assets Cash.............................................. $ 11,088 $ 12,017 Accounts receivable, net.......................... 95,488 107,559 Inventory......................................... 12,455 13,720 Prepaid expenses.................................. 10,148 9,445 Current deferred income tax benefit............... 6,326 6,204 Other current assets.............................. 5,880 4,202 -------- -------- Total current assets............................ 141,385 153,147 Property, plant and equipment, net.................. 115,125 112,908 Goodwill, net....................................... 321,108 319,289 Other assets........................................ 6,055 6,939 -------- -------- Total assets.................................... $583,673 $592,283 ======== ======== Liabilities and Stockholders' Equity Current liabilities Accounts payable.................................. $ 40,500 $ 40,573 Accrued payroll and related expenses.............. 15,389 23,116 Customer deposits and unearned revenue............ 20,518 19,809 Income taxes payable.............................. 1,404 2,748 Other current liabilities......................... 9,952 11,481 -------- -------- Total current liabilities....................... 87,763 97,727 Long term debt...................................... 208,440 218,005 Other long term liabilities......................... 25,366 23,859 -------- -------- Total liabilities............................... 321,569 339,591 -------- -------- Stockholders' equity Common stock, $1 par value, 125,000,000 shares authorized. 37,723,613 and 36,801,701 shares issued at March 31, 1997 and December 31, 1996, respectively.................................... 37,724 36,802 Additional paid-in capital........................ 199,342 186,677 Accumulated deficit............................... 38,489 29,213 -------- -------- 275,555 252,692 Less treasury stock, 500,000 shares at cost....... 13,451 -- -------- -------- Total stockholders' equity...................... 262,104 252,692 -------- -------- Total liabilities and stockholders' equity...... $583,673 $592,283 ======== ========
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, ------------------------------ 1997 1996 ---- ---- Operating revenues.................................... $174,835 $150,611 -------- -------- Operating expenses Payroll............................................. 66,546 55,688 Production and distribution......................... 60,999 56,027 Advertising, selling, general and administrative.... 18,139 14,185 Depreciation........................................ 5,213 4,372 Goodwill amortization............................... 2,676 2,501 -------- -------- 153,573 132,773 -------- -------- Operating income...................................... 21,262 17,838 -------- -------- Other expenses (income) Interest expense................................ 3,293 3,448 Interest income................................. (72) (1,011) Other, net...................................... 257 552 -------- -------- 3,478 2,989 -------- -------- Income before income tax expense................. 17,784 14,849 Income tax expense............................... 7,767 6,532 -------- -------- Net income....................................... $ 10,017 $ 8,317 ======== ======== Primary: Earnings per common share........................... $ 0.26 $ 0.22 ======== ======== Weighted average common and common equivalent shares outstanding................................ 38,734 38,289 ======== ======== Fully diluted: Earnings per common share........................... $ 0.26 $ 0.22 ======== ======== Weighted average common and common equivalent share outstanding................................. 38,811 38,288 ======== ========
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, ---------------------------- 1997 1996 ---- ---- Operating Activities Net income.......................................... $ 10,017 $ 8,317 Add (deduct) non-cash income and expenses: Depreciation ................................... 5,213 4,372 Goodwill amortization........................... 2,676 2,501 Amortization of option related compensation..... 252 456 Film amortization............................... 429 345 Deferred income taxes........................... 1,440 333 Other, net...................................... 531 39 Changes in operating assets and liabilities, net of acquisitions and divestiture Decrease in accounts receivable, net.............. 13,291 3,444 Decrease (increase) in inventory.................. 1,265 (227) Increase in prepaid expenses and other current assets.................................. (2,063) (3,159) Increase (decrease)in accounts payable............ (902) 1,852 Decrease in other accrued expenses and other liabilities........................... (9,956) (800) Other, net........................................ 5,957 (346) --------- -------- Net cash provided by operating activities....... 28,150 17,127 --------- -------- Investing Activities Purchases of property, plant and equipment.......... (9,405) (5,143) Proceeds from the sale of property, plant and equipment and divested assets................. 1,746 16 Acquisitions........................................ (5,544) (11,590) Payments on film contracts.......................... (465) (333) --------- -------- Net cash used in investing activities............. (13,668) (17,050) --------- -------- Financing Activities Long term debt borrowings........................... 131,500 68,200 Payments on long term debt, including current maturities ....................................... (141,065) (68,112) Purchase of treasury stock.......................... (13,451) -- Issuance of common stock............................ 8,346 1,052 Dividends paid...................................... (741) (501) --------- -------- Net cash used in financing activities............. (15,411) 639 --------- -------- Net increase (decrease) in cash .................... (929) 716 Cash at beginning of year....................... 12,017 18,102 --------- -------- Cash at end of period........................... $ 11,088 $ 18,818 ========= ========
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, 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 - 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 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 (in thousands): THREE MONTHS ENDED MARCH 31, 1996
HARTE-HANKS DIMARK ADJUSTMENTS COMBINED ----------- ------- ----------- -------- Revenues $124,899 $27,377 $(1,665) $150,611 Net Income 6,385 1,932 -- 8,317
Adjustments consist of elimination of DiMark's postage costs from revenues and cost of sales to conform to Harte-Hanks' accounting classification. 7 7 NOTE C - INCOME TAXES The Company's quarterly income tax provision of $7.8 million was calculated using an effective income tax rate of 43.7%. 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. 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, 1997 March 31, 1996 Change - -------------------------------------------------------------------- Revenues $174,835 $150,611 16.1% Operating expenses 153,573 132,773 15.7% -------- -------- Operating income $ 21,262 $ 17,838 19.2% ======== ======== Net income $ 10,017 $ 8,317 ======== ======== Fully diluted earnings per share $ 0.26 $ 0.22 ======== ========
Consolidated revenues grew 16.1% to $174.8 million and operating income grew 19.2% to $21.3 million in the first quarter of 1997 when compared to the first 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 15.7% to $153.6 million. Net income grew 20.4% to $10 million, or 26 cents per share, compared to 22 cents per share on a fully diluted basis. DIRECT MARKETING Direct marketing operating results were as follows:
Three months ended In thousands March 31, 1997 March 31, 1996 Change - -------------------------------------------------------------------- Revenues $93,790 $72,512 29.3% Operating expenses 83,300 63,513 31.2% ------- ------- Operating income $10,490 $8,999 16.6% ======= =======
Direct marketing revenues increased $21.3 million, or 29.3%, in the first quarter of 1997 when compared to 1996. Response management/teleservices, database marketing, and logistics operations experienced significant revenue growth. Response management/teleservices revenues increased due to new customer gains, particularly in the high technology industry and increased business with existing customers, and, to a lesser extent, due to 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 increased sales for database creation and, to a lesser extent, due to the acquisition of Information for Marketing, a London based database marketing service provider. Logistics revenues increased due to higher product sales and new product sales to 9 9 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. Operating expenses increased $19.8 million, or 31.2%, in the first quarter of 1997 when compared to 1996. Payroll costs increased $9.4 million due to expanded hiring to support revenue growth. Also contributing to increased operating expenses were additional production costs of $7.1 million due to increased volumes. Depreciation expense increased $0.9 million due to higher levels of capital investments to support growth. Operating expenses were also impacted by the acquisitions noted above. SHOPPERS Shopper operating results were as follows: Three months ended In thousands March 31, 1997 March 31, 1996 Change - ------------------------------------------------------------------- Revenues $44,634 $42,994 3.8% Operating expenses 40,434 39,663 1.9% ------- ------- Operating income $ 4,200 $ 3,331 26.1% ======= =======
Shopper revenues increased $1.6 million, or 3.8%, in the first quarter of 1997 as compared to 1996. The increase was attributable to higher in-book advertising revenue, primarily from display advertising, as well as increased revenue from insert products. Operating expenses increased $0.8 million, or 1.9%, in the first quarter of 1997 when compared to 1996. Payroll costs increased $0.9 million primarily due to the impact of favorable operating income results on performance related plans. Additionally, general and administrative expense increased $1.2 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 $0.9 million, due primarily to lower paper prices, and decreased postage expenses. Postage costs decreased due to lower postal rates from the June 1996 postal reclassification, $0.6 million, partially offset by increased postage costs due to expansion, internal circulation growth and increased distribution volumes. Additionally, operating income benefited from a one-time state sales tax refund of $0.4 million. NEWSPAPERS Newspaper operating results were as follows: Three months ended In thousands March 31, 1997 March 31, 1996 Change - ------------------------------------------------------------------- Revenues $30,236 $29,336 3.1% Operating expenses 23,249 23,475 -1.0% ------- ------- Operating income $ 6,987 $ 5,861 19.2% ======= =======
Newspaper revenues increased $0.9 million, or 3.1%, in the first quarter of 1997 when compared to 1996. Primary product advertising revenues were up $0.9 million, or 4.7%. In particular, classified advertising revenues increased $0.6 10 10 million, or 7.9%, as a result of increases both in rates and volumes. Retail advertising revenues increased $0.3 million, or 3.1%, mainly due to increased volumes. Niche product revenue increased 12.1%, primarily due to continued growth in direct mail and a new shopper product launched in Wichita Falls. Direct mail revenues grew as a result of expansion in the Anderson and Wichita Falls markets. These advertising revenue increases were partially offset by a $0.2 million decrease in commercial printing revenue due to the absence of a print job which the customer now performs in-house. Newspaper operating expenses decreased $0.2 million, or 1.0%, in the first quarter of 1997 when compared to 1996. Paper costs decreased $0.8 million, or 17.4%, as a result of a continued decline in average newsprint prices, which began in the third quarter of 1996. Partially offsetting the decrease in paper costs were increases in labor costs of $0.4 million, or 4.2%, and a $0.1 million, or 3.6%, increase in general and administrative expense. TELEVISION Television operating results were as follows:
Three months ended In thousands March 31, 1997 March 31, 1996 Change - -------------------------------------------------------------------- Revenues $6,175 $5,769 7.0% Operating expenses 4,294 4,297 - ------ ------ Operating income $1,881 $1,472 27.8% ====== ======
Revenues for the television segment increased $0.4 million, or 7.0%, in the first quarter of 1997 when compared to 1996. Television advertising revenues increased $0.5 million primarily due to higher volumes of spot advertising. In addition, radio advertising revenue grew due to increased program sales. These revenue increases were partially offset by a decrease in graphics revenue due to the discontinuation of graphics product sales. Operating expenses remained flat during the first quarter of 1997 when compared to 1996. Recent Development On March 5, 1997, the Company announced plans to explore the divestiture of its six daily newspapers, approximately 25 associated non-daily publications and sole television station, KENS-TV, the CBS affiliate in San Antonio. Five of the six daily newspapers are in Texas -- the Corpus Christi Caller-Times, Abilene Reporter-News, Wichita Falls Times Record News, San Angelo Standard-Times and Plano Star Courier. The sixth is the Anderson Independent-Mail in South Carolina. The associated non-daily publications include community newspapers and supplemental publications. While the Company intends to pursue these divestitures, there can be no assurance that one or more transactions will be successfully negotiated or completed. Acquisition As described in Note B 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 11 11 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, and all historical information has been restated as if the pooling occurred at the beginning of the periods presented. One-time merger expenses of $12.1 million ($8.7 million after-tax) were recognized in the second quarter of 1996. Interest Expense/Interest Income Interest expense decreased $0.2 million in the first quarter of 1997 when compared to 1996 primarily due to lower effective interest rates. Interest income was down $0.9 million in the first quarter of 1997 when compared to 1996 due to interest income received in 1996 related to an income tax refund from a favorable tax settlement. Income Taxes The Company's income tax expense for the first quarter of 1997 increased $1.2 million compared to the first quarter of 1996. This increase was due to the higher income levels. The effective tax rate was 43.7% for the first quarter of 1997 and 44.0% for the first quarter of 1996. Liquidity and Capital Resources Cash provided from operating activities for the three months ended March 31, 1997 was $28.2 million, as compared to $17.1 million for the three months ended March 31, 1996. Net cash outflows for investing activities were $13.7 million as compared to outflows of $17.0 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, anticipated capital and film expenditures and debt service requirements for the foreseeable future. As of March 31, 1997, the Company had $117.0 million of unused borrowing capacity under its credit facility, of which $4.2 million was reserved to serve as backup for the Company's short-term borrowing facilities. 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. 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, 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. May 15, 1997 /s/ Larry Franklin ---------------- ---------------------- Date Larry Franklin President and Chief Executive Officer 13 13 Exhibit No. Description of Exhibit Page No. - ------- ------------------------------------------------- -------- *11 Statement Regarding Computation of Earnings per 14 Common Share *27 Financial Data Schedules 15
* Filed herewith. EX-11 2 COMPUTATION OF EARNINGS PER SHARE 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, ---------------------------- 1997 1996 ---- ---- Net income................................ $10,017 $ 8,317 ======= ======= Shares used in net earnings per share computations...................... 38,734 38,289 ======= ======= Earnings per share........................ $ .26 $ .22 ======= =======
COMPUTATION OF SHARES USED IN NET EARNINGS PER SHARE COMPUTATIONS
Three Months Ended March 31, ---------------------------- 1997 1996 ---- ---- Average outstanding common shares......... 37,131 36,773 Average common equivalent shares -- dilutive effect of option shares........ 1,603 1,516 ------ ------- Shares used in net earnings per share computations.................. 38,734 38,289 ====== =======
FULLY DILUTED
Three Months Ended March 31, ---------------------------- 1997 1996 ---- ---- Net income................................ $10,017 $ 8,317 ======= ======= Shares used in net earnings per share computations.................. 38,811 38,288 ======= ======= Earnings per share........................ $ .26 $ .22 ======= =======
COMPUTATION OF SHARES USED IN NET EARNINGS PER SHARE COMPUTATIONS
Three Months Ended March 31, ---------------------------- 1997 1996 ---- ---- Average outstanding common shares......... 37,131 36,773 Average common equivalent shares -- dilutive effect of option shares........ 1,680 1,515 ------- ------ Shares used in net earnings per share computations.................. 38,811 38,288 ======= ======
EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 MAR-31-1997 11,088 0 97,965 2,477 12,455 141,385 241,349 126,224 583,673 87,763 208,440 0 0 37,724 224,380 583,673 174,835 174,835 127,545 153,573 3,478 0 3,293 17,784 7,767 10,017 0 0 0 10,017 .26 .26
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