-----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, DSqYncm7bm4ciKE8rHAxW46bSJHCIBmWr2h5VLFL63en0moWnm49iDTFXqTWp5mo ncYf6pxxH118k5MBcgC+Aw== 0000950134-99-003946.txt : 19990514 0000950134-99-003946.hdr.sgml : 19990514 ACCESSION NUMBER: 0000950134-99-003946 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARTE HANKS 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: SEC FILE NUMBER: 001-07120 FILM NUMBER: 99618994 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 COMMUNICATIONS INC DATE OF NAME CHANGE: 19920703 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, 1999 1 UNITED STATES 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, 1999 -------------- 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, 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, 71,052,380 shares as of April 30, 1999. 2 2 HARTE-HANKS, INC. AND SUBSIDIARIES TABLE OF CONTENTS FORM 10-Q REPORT March 31, 1999
Page ---- Part I. Financial Information Item 1. Interim Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - March 31, 1999 and December 31, 1998 3 Consolidated Statements of Operations - Three months ended March 31, 1999 and 1998 4 Consolidated Statements of Cash Flows - Three months ended March 31, 1999 and 1998 5 Consolidated Statements of Stockholders' Equity - Three months ended March 31, 1999 and 1998 6 Notes to Interim Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 14 (a) Exhibits (b) Reports on Form 8-K Signature 15
3 3 Harte-Hanks, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except per share and share amounts) - -------------------------------------------------------------------------------- (Unaudited)
March 31, December 31, 1999 1998 ------------ ------------ Assets Current assets Cash and cash equivalents ........................ $ 32,568 $ 30,367 Short-term investments ........................... 150,531 138,874 Accounts receivable, net ......................... 126,744 127,518 Inventory ........................................ 4,420 6,485 Prepaid expenses ................................. 8,814 8,727 Current deferred income tax asset ................ 8,473 8,339 Other current assets ............................. 4,773 5,503 ------------ ------------ Total current assets .......................... 336,323 325,813 Property, plant and equipment, net .................. 93,698 92,274 Goodwill, net ....................................... 289,162 290,831 Other assets ........................................ 6,840 6,295 ------------ ------------ Total assets .................................. $ 726,023 $ 715,213 ============ ============ Liabilities and Stockholders' Equity Current liabilities Accounts payable ................................. $ 58,842 $ 56,397 Accrued payroll and related expenses ............. 17,518 23,208 Customer deposits and unearned revenue ........... 23,573 23,139 Income taxes payable ............................. 15,626 8,412 Other current liabilities ........................ 3,393 5,328 ------------ ------------ Total current liabilities ..................... 118,952 116,484 Other long term liabilities ......................... 25,370 21,638 ------------ ------------ Total liabilities ............................. 144,322 138,122 ------------ ------------ Stockholders' equity Common stock, $1 par value, 250,000,000 shares authorized. 76,076,421 and 75,789,355 shares issued at March 31, 1999 and December 31, 1998, respectively ............................... 76,076 75,789 Additional paid-in capital .......................... 192,815 189,698 Retained earnings ................................... 439,913 425,999 ------------ ------------ 708,804 691,486 Less treasury stock: 5,032,990 and 4,531,303 shares at cost at March 31, 1999 and December 31, 1998, respectively ................... (127,103) (114,395) ------------ ------------ Total stockholders' equity ........................ 581,701 577,091 ------------ ------------ Total liabilities and stockholders' equity ........ $ 726,023 $ 715,213 ============ ============
See Notes to Interim Condensed Consolidated Financial Statements. 4 4 Harte-Hanks, Inc. and Subsidiaries Consolidated Statements of Operations (in thousands, except per share amounts) - -------------------------------------------------------------------------------- (Unaudited)
Three Months Ended March 31, ------------------------------ 1999 1998 ------------ ------------ Operating revenues .................................... $ 188,128 $ 177,673 ------------ ------------ Operating expenses Payroll ............................................ 70,852 66,834 Production and distribution ........................ 69,408 67,181 Advertising, selling, general and administrative ... 16,047 17,241 Depreciation ....................................... 5,358 5,366 Goodwill amortization .............................. 2,362 1,926 ------------ ------------ 164,027 158,548 ------------ ------------ Operating income ...................................... 24,101 19,125 ------------ ------------ Other expenses (income) Interest expense ................................... 41 70 Interest income .................................... (2,098) (5,615) Other, net ......................................... 100 693 ------------ ------------ (1,957) (4,852) ------------ ------------ Income before income taxes ............................ 26,058 23,977 Income tax expense .................................... 10,724 9,872 ------------ ------------ Net income ............................................ $ 15,334 $ 14,105 ============ ============ Basic: Earnings per common share .......................... $ 0.22 $ 0.19 ============ ============ Weighted-average common shares outstanding ......... 71,193 73,481 ============ ============ Diluted: Earnings per common share .......................... $ 0.21 $ 0.18 ============ ============ Weighted-average common and common equivalent shares outstanding ............................... 73,605 77,128 ============ ============
See Notes to Interim Condensed Consolidated Financial Statements. 5 5 Harte-Hanks, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) - -------------------------------------------------------------------------------- (Unaudited)
Three Months Ended March 31, ------------------------------ 1999 1998 ------------ ------------ Operating Activities Net income .............................................. $ 15,334 $ 14,105 Adjustments to reconcile net income to cash (used in) provided by operating activities: Depreciation ......................................... 5,358 5,366 Goodwill amortization ................................ 2,362 1,926 Amortization of option-related compensation .......... 191 216 Deferred income taxes ................................ 2,584 104 Other, net ........................................... 444 (236) Changes in operating assets and liabilities, net of acquisitions: Decrease (increase) in accounts receivable, net ....... 774 (34) Decrease in inventory ................................ 2,065 604 Decrease (increase) in prepaid expenses and other current assets .................................... 643 (1,200) Increase in accounts payable ......................... 2,445 3,710 Increase in other accrued expenses and other liabilities ............................. 23 3,303 Other, net ........................................... 293 1,012 ------------ ------------ Net cash provided by continuing operations ........ 32,516 28,876 ------------ ------------ Net cash used in discontinued operating activities ...... -- (265,650) ------------ ------------ Net cash (used in) provided by operating activities ...................................... 32,516 (236,774) ------------ ------------ Investing Activities Acquisitions ............................................ (414) (2,275) Purchases of property, plant and equipment .............. (6,907) (4,078) Proceeds from sale of property, plant and equipment ..... 26 183 Net (purchases) sales and maturities of available-for-sale short-term investments ............ (11,657) 220,564 ------------ ------------ Net cash provided by (used in) investing activities ...................................... (18,952) 214,394 ------------ ------------ Financing Activities Issuance of common stock ................................ 2,757 2,486 Purchase of treasury stock .............................. (12,724) -- Issuance of treasury stock .............................. 24 -- Dividends paid .......................................... (1,420) (1,104) ------------ ------------ Net cash (used in) provided by financing activities ...................................... (11,363) 1,382 ------------ ------------ Net increase (decrease) in cash ......................... 2,201 (20,998) Cash and cash equivalents at beginning of year .......... 30,367 83,675 ------------ ------------ Cash and cash equivalents at end of period .............. $ 32,568 $ 62,677 ============ ============
See Notes to Interim Condensed Consolidated Financial Statements. 6 6 Harte-Hanks, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity - -------------------------------------------------------------------------------- (Unaudited)
Accumulated Additional Other Total Common Paid-In Retained Treasury Comprehensive Stockholders' In thousands Stock Capital Earnings Stock Income Equity ------------- --------------- ------------- -------------- ------------------ --------------- Balance at January 1, 1998 ......... $ 74,843 $ 177,238 $ 362,000 $ (47,267) $ (577) $ 566,237 Common stock issued - employee benefit plans .................. 54 878 -- -- -- 932 Exercise of stock options .......... 359 1,217 -- -- -- 1,576 Tax benefit of options exercised ...................... -- 867 -- -- -- 867 Dividends paid ($0.015 per share) ......................... -- -- (1,105) -- (1,105) Net income ......................... -- -- 14,105 -- -- 14,105 Treasury stock repurchase .......... -- -- -- -- -- -- Change in unrealized loss on short-term investments (net of tax) ........................... -- -- -- -- 444 444 ---------- ---------- ---------- ---------- ---------- ---------- Balance at March 31, 1998 .......... $ 75,256 $ 180,200 $ 375,000 $ (42,267) $ (133) $ 583,056 ========== ========== ========== ========== ========== ========== Balance at January 1, 1999 ......... $ 75,789 $ 189,698 $ 425,999 $ (114,395) $ -- $ 577,091 Common stock issued - employee benefit plans .................. 49 1,026 -- -- -- 1,075 Exercise of stock options .......... 238 1,444 -- -- -- 1,682 Tax benefit of options exercised ...................... -- 639 -- -- -- 639 Dividends paid ($0.02 per share) ......................... -- -- (1,420) -- -- (1,420) Net income ......................... -- -- 15,334 -- -- 15,334 Treasury stock repurchase .......... -- -- -- (12,724) -- (12,724) Treasury stock issued .............. -- 8 -- 16 -- 24 ---------- ---------- ---------- ---------- ---------- ---------- Balance at March 31, 1999 .......... $ 76,076 $ 192,815 $ 439,913 $ (127,103) $ -- $ 581,701 ========== ========== ========== ========== ========== ==========
See Notes to Interim Condensed Consolidated Financial Statements. 7 7 Harte-Hanks, Inc. and Subsidiaries Notes to Interim Condensed Consolidated Financial Statements (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited Interim Condensed Consolidated Financial Statements include the accounts of Harte-Hanks, Inc. and subsidiaries (the "Company"). The statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1999 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, 1998. Certain prior period amounts have been reclassified for comparative purposes. NOTE B - INCOME TAXES The Company's quarterly income tax provision of $10.7 million was calculated using an effective income tax rate of approximately 41.2%. The Company's effective income tax rate is derived by estimating pretax income and income tax expense for the year ending December 31, 1999. 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 C - EARNINGS PER SHARE A reconciliation of basic and diluted earnings per share is as follows:
Three Months Ended March 31, In thousands, except per share amount 1999 1998 ----------- ----------- BASIC EPS Net Income ...................................................... $ 15,334 $ 14,105 ========== ========== Weighted-average common shares outstanding used in earnings per share computations ....................... 71,193 73,481 ========== ========== Earnings per common share ....................................... $ 0.22 $ 0.19 ========== ========== DILUTED EPS Net Income ...................................................... $ 15,334 $ 14,105 ========== ========== Shares used in earnings per share computations .................. 73,605 77,128 ========== ========== Earnings per common share ....................................... $ 0.21 $ 0.18 ========== ========== Computation of shares used in earnings per share computations: Average outstanding common shares ............................... 71,193 73,481 Average common equivalent shares - dilutive effect of option shares .............................. 2,412 3,647 ---------- ---------- Shares used in earnings per share computations .................. 73,605 77,128 ========== ==========
8 8 NOTE D - COMPREHENSIVE INCOME The Company's total comprehensive income for the first quarter 1999 was equal to net income, whereas comprehensive income for the first quarter 1998 was $0.4 million more than net income. NOTE E - BUSINESS SEGMENTS Harte-Hanks is a highly focused targeted media company with continuing operations in two segments - direct marketing and shoppers. Information about the Company's operations in different industry segments:
- ------------------------------------------------------------------------------------ Three Months Ended March 31 In thousands 1999 1998 - ------------------------------------------------------------------------------------ Operating revenues Direct Marketing .......................... $ 124,934 $ 114,427 Shoppers .................................. 63,194 63,246 ------------ ------------ Total operating revenues .............. $ 188,128 $ 177,673 ============ ============ Operating income Direct Marketing .......................... $ 17,284 $ 14,076 Shoppers .................................. 8,785 7,307 Corporate Activities ...................... (1,968) (2,258) ------------ ------------ Total operating income ................ $ 24,101 $ 19,125 ============ ============ Income before income taxes Operating income .......................... $ 24,101 $ 19,125 Interest expense .......................... (41) (70) Interest income ........................... 2,098 5,615 Other, net ................................ (100) (693) ------------ ------------ Total income before income taxes ...... $ 26,058 $ 23,977 ============ ============
9 9 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, 1999 MARCH 31, 1998 CHANGE - ------------ -------------- -------------- ------ Revenues $ 188,128 $ 177,673 5.9% Operating expenses 164,027 158,548 3.5% ------------ ------------ Operating income $ 24,101 $ 19,125 26.0% ============ ============ Net income $ 15,334 $ 14,105 8.7% ============ ============ Diluted earnings per share $ 0.21 $ 0.18 16.7% ============ ============
Consolidated revenues grew 5.9% to $188.1 million and operating income grew 26.0% to $24.1 million in the first quarter of 1999 when compared to the first quarter of 1998. 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 1998 increased 3.5% to $164.0 million. Net income grew 8.7% to $15.3 million, or 21 cents per share, compared to 18 cents per share on a diluted basis. The net income growth resulted from the growth in operating income offset by a decrease of $3.5 million in interest income due to larger cash and investment balances in the first quarter of 1998 since divestiture related tax payments were not made until the end of the first quarter in 1998. DIRECT MARKETING Direct marketing operating results were as follows:
THREE MONTHS ENDED In thousands MARCH 31, 1999 MARCH 31, 1998 CHANGE - ------------ -------------- -------------- ------ Revenues $ 124,934 $ 114,427 9.2% Operating expenses 107,650 100,351 7.3% ----------- ----------- Operating income $ 17,284 $ 14,076 22.8% =========== ===========
Direct marketing revenues increased $10.5 million, or 9.2%, in the first quarter of 1999 compared to 1998. Revenue increases were lead by response management which had strong growth, followed by marketing services and database marketing, both of which experienced steady internal revenue growth for the quarter. Response management revenues increased due to increased inbound telemarketing and internet business with existing customers, new customer gains, and the August 1998 acquisition of Cornerstone Integrated Services. The traditional growth oriented business-to-business activities of response management had significant growth; however, total response management results were influenced by revenue declines in the outbound credit card business which began in the third quarter of 1998. The high technology industry sector contributed significantly to overall response management revenue growth. Marketing services' revenues, led by its logistics operations, increased due to increased product sales as well as new product sales to new and existing customers, primarily in the retail industry. The November 1998 acquisition of PMSI also contributed to the marketing services revenue increase. Database marketing revenues increased primarily due to the growth in database processing and software sales. The retail, insurance and pharmaceutical industries provided the largest revenue increase for database marketing. 10 10 Operating expenses increased $7.3 million, or 7.3%, in the first quarter of 1999 compared to 1998. Payroll costs increased $5.7 million due to expanded hiring to support revenue growth. Also contributing to the increased operating expenses were additional production costs of $2.1 million due to increased volumes. Depreciation and amortization expense increased $0.6 million due to goodwill associated with acquisitions and higher levels of capital investment 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, 1999 MARCH 31, 1998 CHANGE - ------------ -------------- -------------- ------ Revenues $ 63,194 $ 63,246 -0.1% Operating expenses 54,409 55,939 -2.7% ----------- ----------- Operating income $ 8,785 $ 7,307 20.2% =========== ===========
Shopper revenues decreased $.1 million, or -0.1%, in the first quarter of 1999 compared to 1998. Although revenues remained flat, after eliminating the revenues from the three small shopper publications in Dallas, TX, Wichita, KS and Springfield, MO, which were sold in April 1998, revenues increased $3.4 million, or 5.7%, in the first quarter of 1999 compared to 1998. Excluding the effects of the divestiture discussed above, revenue increases were the result of improved sales in established markets as well as new year-over-year geographic expansions into new neighborhoods, primarily in Southern California. From a product-line perspective, Shoppers had growth in both its in-book products, primarily employment and core sales, and its distribution products, primarily 4-color glossy heatset flyers and pre-printed inserts. In the quarter, Shoppers experienced slowdown in its real-estate, automotive and personals advertising segments. Operating expenses decreased $1.5 million, or -2.7%, in the first quarter of 1999 compared to 1998. The sale of the three small shopper publications mentioned above resulted in a $3.7 million reduction in operating expenses. Excluding the divestiture mentioned above, operating expenses increased $2.1 million, or 4.0%, in the first quarter of 1999 compared to 1998. The increase in operating expenses was primarily due to increases in postage of $1.0 million due to increased volumes, and additional production costs of $0.9 million. Other Income and Expense The Company realized a loss of approximately $0.4 million in the first quarter 1998 on the sale of equity securities that were held in its short-term investment portfolio. Interest Expense/Interest Income Interest income decreased $3.5 million in the first quarter of 1999 over the same period in 1998 due to larger cash and investment balances in the first quarter of 1998 since divestiture related tax payments were not made until the end of the first quarter in 1998. Income Taxes The Company's income tax expense increased $0.9 million in the first quarter compared to the first quarter of 1998. This increase was due primarily to the higher pre-tax income levels. The effective tax rate was 41.2% for the first quarter of 1999 and 1998. 11 11 Liquidity and Capital Resources Cash provided by operating activities of continued operations for the three months ended March 31, 1999 was $32.5 million. Net cash used by discontinued operations in 1998 of $265.7 million relates to the payment of income taxes on the 1997 sale of discontinued operations. Net cash outflows from investing activities were $19.0 million for the first three months of 1999 compared to net cash inflows of $214.4 million for the first three months of 1998. The cash inflows from investing activities in 1998 was primarily attributable to sales and maturities of marketable securities totaling $220.6 million, the proceeds of which were used to help fund the Company's tax payments made in the first quarter of 1998. Net cash outflows from financing activities were $11.4 million compared to net cash inflows of $1.4 million in 1998. The cash outflow from financing activities in 1999 is attributable primarily to the repurchase of treasury stock of $12.7 million in the first quarter of 1999. Management believes that the net proceeds from the Company's 1997 sale of newspaper and television operations, together with cash provided from operating activities, will be sufficient to fund operations and anticipated capital service needs for the foreseeable future. Factors That May Affect Future Results and Financial Condition From time to time, in both written reports and oral statements by senior management, the Company may express its expectations regarding its future performance. These "forward-looking statements" are inherently uncertain, and investors should realize that events could turn out to be other than what senior management expected. Set forth below are some key factors which could affect the Company's future performance. Acquisitions -- In recent years the Company has made a number of acquisitions in its direct marketing and shopper businesses, and it expects to pursue additional acquisition opportunities. Acquisition activities, even if not consummated, require substantial amounts of management time and can distract from normal operations. In addition, there can be no assurance that the synergies and other objectives sought in acquisitions will be achieved. Competition -- Direct marketing is a rapidly evolving business, subject to periodic technological advancements, high turnover of customer personnel who make buying decisions, and changing customer needs and preferences. Consequently, the Company's direct marketing business faces competition in each of its three sectors -- response management/teleservices, database marketing, and marketing services. The Company's shopper business competes for advertising, as well as for readers, with other print and electronic media. Competition comes from local and regional newspapers, magazines, radio, broadcast and cable television, shoppers and other communications media that operate in the Company's markets. The extent and nature of such competition are, in large part, determined by the location and demographics of the markets targeted by a particular advertiser, and the number of media alternatives in those markets. Postal Rates -- The Company's shoppers are delivered by standard mail, and postage is the second largest expense, behind payroll, in the Company's shopper business. The present standard postage rates went into effect in January 1999. Postal rates also influence the demand for the Company's direct marketing services even though the cost of mailings is borne by the Company's customers and is not directly reflected in the Company's revenues or expenses. Newsprint Prices -- Newsprint represents a substantial expense in the Company's shopper operations. In recent years newsprint prices have fluctuated widely, and such fluctuations can materially affect the results of the Company's operations. 12 12 Economic Conditions -- Changes in national economic conditions can affect levels of advertising expenditures generally, and such changes can affect each of the Company's businesses. In addition, revenues from the Company's shopper business 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. Year 2000 Issue -- The Year 2000 Issue is a result of computer programs being written using two digits rather than four to define the applicable year. Accordingly, computer systems that rely on two digits to define an applicable year may recognize a date using "00" as the year 1900, rather than the Year 2000 (the "Year 2000 Issue"). This could result in a system failure or miscalculations causing disruptions of operations, including, but not limited to, a temporary inability to process or transmit data or engage in normal business activities. The Company relies on computer hardware, information technology ("IT Systems") and non-information technology systems ("Non-IT Systems") to operate its business. IT Systems are used in the creation and delivery of the Company's products and services, as well as, the Company's internal operations such as billing and accounting. IT Systems include systems which use information provided by third-party data suppliers to update the Company's databases. The Company also relies on Non-IT Systems (primarily consisting of embedded technology), such as microprocessors in tape drives, printing and inserting equipment, and elevators, and on utilities, such as telecommunications and power. The Company has defined Year 2000 Compliant to mean that a process will continue to run in the same manner when dealing with dates on or after January 1, 2000, as it did before January 1, 2000. The Company has conducted a comprehensive review of its IT Systems and Non-IT Systems to identify those that could be affected by the Year 2000 Issue, and has developed a remediation plan to resolve the issue. The most important areas of focus of the Company's Year 2000 remediation plan are the Company's products and services (including its databases, software that manipulates these databases and software provided to customers); business operation support systems (billing, ordering, tracking systems, payroll and technical infrastructure (such as LANs, mail systems and websites)); and suppliers, facilities and equipment. The Company is utilizing both internal and external resources to correct or reprogram, and test the systems for the Year 2000 compliance. The Company's compliance objectives include products and services the Company has provided to customers in the past and will provide to customers in the future; all internal operating software systems and equipment; and the services, products, equipment and systems the Company has obtained and will obtain in the future from outside vendors. The Company's first objective was to remediate all products and services the Company has, or will provide, to customers. This included informing customers of their need to make their applications Year 2000 compliant to provide or accept associated files for services provided by the Company. This objective was deemed the top priority and was initiated in late 1997. In early 1998, the Company initiated action to remediate all internal business operation support systems, and the associated equipment it runs on. As part of this process, the Company developed a standard Year 2000 compliance certification memorandum to be sent to all vendors who have or are currently providing products or services to the Company, revised customer standard contract language to include a Year 2000 statement, and instituted a review process for formally responding to customer inquiries on the Company's Year 2000 compliance plans and status. The Company is also in the process of contacting its critical suppliers and other entities to determine the extent to which the Company's interface systems are vulnerable to those third parties' failure to remediate their own Year 2000 Issues. While the Company has not been informed of any 13 13 material risks associated with these entities, there is no guarantee that the systems of these critical suppliers or other entities on which the Company relies, will be timely converted and will not have an adverse effect on the Company's systems or operations. In addition to the above, the Company formed a Year 2000 Compliance Council in June 1998 to monitor the status of compliance efforts and to ensure that all compliance issues are consistently addressed. The Company's Year 2000 remediation plan consists of four key phases: Inventory/Assessment, Repair/Replacement, Testing and Compliance/Internal Certification. As related to the Company's products and services, the Company is 100%, 98%, 95% and 95% completed, respectively. With regards to business operation support systems, the Company is 100%, 98%, 95%, and 95% completed, respectively. Finally, suppliers, facilities and equipment are 100%, 97%, 97%, 97% completed, respectively. The Company has completed its high priority reprogramming and testing efforts as of March 31, 1999. Some low priority items, such as voicemail system updates, will be completed by early third quarter, however the Company can provide no assurance in this regard. The Company has spent $3.2 million of cost incurred to date related to the Year 2000 Issue. The total remaining cost of the Year 2000 project is presently estimated at $.9 million. The costs of the project and the date on which the Company believes it will complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this areas and the ability to locate and correct all relevant computer codes. The Company presently believes that with modifications to existing software and, in certain instances, conversions to new software, the Year 2000 Issue can be mitigated. As noted above, the Company has not yet completed all necessary phases of the Year 2000 remediation program. In the event that the Company does not complete any additional phases, it could experience disruptions in its operations, including among other things, a temporary inability to fulfill customer direct marketing requests (such as sales leads and personalized mailings), process financial transactions, or engage in similar normal business activities. In addition, disruptions in the economy generally resulting from the Year 2000 Issues could also materially adversely affect the Company. The Company could be subject to litigation for computer systems failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency plans are currently being developed and are anticipated to be completed by September 30, 1999. This includes developing contingency plans for products and services, as well as business operation support systems. Contingency plans already in the development process include identifying alternate providers in case the primary providers cannot meet delivery requirements, and providing specific 100-year interval windowing techniques to customers in the event their applications could not be made Year 2000 compliant. 14 14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. See index to Exhibits on Page 16. (b) No Form 8-K has been filed during the three months ended March 31, 1999. 15 15 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. HARTE-HANKS, INC. May 13, 1999 /s/ Jacques D. Kerrest ------------ ----------------------------------- Date Jacques D. Kerrest Senior Vice President, Finance and Chief Financial Officer 16 16
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. 333-02047 and incorporated by reference herein). 2(c) Agreement and Plan of Merger and Reorganization, dated as of May 16, 1997, by and between The E.W. Scripps Company and Harte-Hanks Communications, Inc. (filed as Exhibit 2.1 to the Company's Form 8-K dated May 22, 1997 and incorporated by reference herein). 2(d) Acquisition Agreement, dated as of May 16, 1997, by and between The E.W. Scripps Company and Harte-Hanks Communications, Inc. (filed as Exhibit 2.2 to the Company's Form 8-K dated May 22, 1997 and incorporated by reference herein). 2(e) Stock Purchase Agreement dated as of July 26, 1997 between ABC, Inc. and Harte-Hanks Communications, Inc. (filed as Exhibit 2(e) to the Company's Form 10-Q for the nine months ended September 30, 1997 and incorporated by reference herein). 3(a) Amended and Restated Certificate of Incorporation (filed as Exhibit 3(a) to the Company's Form 10-K for the year ended December 31, 1993 and incorporated by reference herein). 3(b) Amended and Restated Bylaws (filed as Exhibit 3(b) to the Company's Registration Statement No. 33-69202 and incorporated by reference herein). 3(c) Amendment dated April 30, 1996 to Amended and Restated Certificate of Incorporation (filed as Exhibit 3(c) to the Company's Form 10-Q for the nine months ended September 30, 1996 and incorporated by reference herein). 3(d) Amendment dated May 5, 1998 to Amended and Restated Certificate of Incorporation (filed as Exhibit 3(d) to the Company's Form 10-Q for the six months ended June 30, 1998 and incorporated by reference herein). 3(e) Amended and Restated Certificate of Incorporation as amended through May 5, 1998 (filed as Exhibit 3(e) to the Company's Form 10-Q for the six months ended June 30, 1998 and incorporated by reference herein). 4(a) Long term debt instruments are not being filed pursuant to Section (b)(4)(iii) of Item 601 of Regulation S-K. Copies of such instruments will be furnished to the Commission upon request.
17 17
Exhibit No. Description of Exhibit Page No. - ------- ---------------------- -------- 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) 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(d) Form of Severance Agreement between Harte-Hanks Communications, Inc. and certain Executive Officers of the Company, dated as of July 7 or December 28,1997 (filed as Exhibit 10(f) to the Company's Form 10-K for the year ended December 31, 1997 and incorporated by reference herein). 10(e) Harte-Hanks, Inc. Restoration Pension Plan (filed as Exhibit 10(j) to the Company's Registration Statement No. 33-69202 and incorporated by reference herein). 10(f) Harte-Hanks Communications, Inc. 1996 Incentive Compensation Plan (filed as Exhibit 10(p) to the Company's Form 10-Q for the nine months ended September 30, 1996 and incorporated by reference herein). 10(g) Harte-Hanks, Inc. Amended and Restated 1991 Stock Option Plan (filed as Exhibit 10(g) to the Company's Form 10-Q for the six months ended June 30, 1998 and incorporated by reference herein). 10(h) Harte-Hanks, Inc. 1998 Director Stock Plan (filed as Exhibit 10(h) to the Company's Form 10-Q for the six months ended June 30, 1998 and incorporated by reference herein). 10(i) Harte-Hanks, Inc. Deferred Compensation Plan (filed as Exhibit 10(i) to the Company's Form 10-K for the year ended December 31, 1998 and incorporate by reference herein). 10(j) Amendment to Harte-Hanks, Inc. Restoration Pension Plan (filed as Exhibit 10(j) to the Company's Form 10-K for the year ended December 31, 1998 and incorporate by reference herein). *11 Statement Regarding Computation of Net Income (Loss) Per Common Share 18 *21 Subsidiaries of the Company. 19 *27 Financial Data Schedule. 20
- --------------------- *Filed herewith EX-11 2 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 1 18 Exhibit 11 HARTE-HANKS, INC. AND SUBSIDIARIES EARNINGS PER SHARE COMPUTATIONS (in thousands, except per share data)
Three Months Ended March, In thousands, except per share amount 1999 1998 - --------------------------------------------------------------------------------------------- BASIC EPS Net Income ................................................... $ 15,334 $ 14,105 ========== ========== Weighted-average common shares outstanding used in earnings per share computations ................... 71,193 73,481 ========== ========== Earnings per common share .................................... $ 0.22 $ 0.19 ========== ========== DILUTED EPS Net Income ................................................... $ 15,334 $ 14,105 ========== ========== Shares used in earnings per share computations ............... 73,605 77,128 ========== ========== Earnings per common share .................................... $ 0.21 $ 0.18 ========== ========== Computation of shares used in earnings per share computations: Average outstanding common shares ............................ 71,193 73,481 Average common equivalent shares - dilutive effect of option shares .......................... 2,412 3,647 ---------- ---------- Shares used in earnings per share computations ............... 73,605 77,128 ========== ==========
EX-21 3 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21 RESTRICTED SUBSIDIARIES OF HARTE-HANKS , INC. As of March 31, 1999
State of Name of Corporation Organization % Owned - ------------------- ------------ ------- DiMark, Inc. New Jersey 100% DiMark Marketing, Inc. Pennsylvania 100%(1) Direct Market Concepts, Inc. Florida 100% DMK, Inc. Delaware 100%(2) The Flyer Publishing Corporation Florida 100% Harte-Hanks Data Technologies, Inc. Massachusetts 100% Harte-Hanks Delaware, Inc. Delaware 100% Harte-Hanks Direct, Inc. Delaware 100% Harte-Hanks Direct Marketing/Baltimore, Inc. Maryland 100% Harte-Hanks Direct Marketing/Cincinnati, Inc. Ohio 100% Harte-Hanks Direct Marketing/Dallas, Inc. Delaware 100% Harte-Hanks Direct Marketing/Fullerton, Inc. California 100% Harte-Hanks do Brazil Consultoria e Servicos Ltda. Brazil 100%(3) Harte-Hanks Limited England 100%(3) Harte-Hanks Market Research, Inc. New Jersey 100% Harte-Hanks Partnership, Ltd. Texas 100%(6) Harte-Hanks Pty. Limited Australia 100%(3) Harte-Hanks Response Management/Austin, Inc. Delaware 100% Harte-Hanks Response Management/Boston, Inc. Massachusetts 100% Harte-Hanks Response Management Call Centers, Inc. Delaware 100% Harte-Hanks Response Management Europe Belgium 100% Harte-Hanks Shoppers, Inc. California 100% Harte-Hanks Stock Plan, Inc. Delaware 100% H&R Communications, Inc. New Jersey 100%(2) HTS, Inc. Connecticut 100% Information for Marketing Limited (shell corporation) England 100%(5) Marketing Communications, Inc. Missouri 100% Mars Graphic Services, Inc. New Jersey 100%(4) NSO, Inc. Ohio 100% Printing Management Services, Inc. Delaware 100% PRO Direct Response Corp. New Jersey 100%(2) Southern Comprint Co. California 100% Spectral Resources, Inc. New York 100%
(1) Owned by Mars Graphic Services, Inc. (2) Owned by DiMark Marketing, Inc. (3) Owned by Harte-Hanks Data Technologies, Inc. (4) Owned by DiMark, Inc. (5) Owned by Harte-Hanks Limited (6) 99.5% Owned by Harte-Hanks Delaware, Inc. .5% Owned by Harte-Hanks, Inc. EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 MAR-31-1999 32,568 150,531 129,361 2,617 4,420 336,323 195,957 102,259 726,023 118,952 0 0 0 76,076 505,625 726,023 188,128 188,128 140,260 164,027 (1,998) 0 41 26,058 10,724 15,334 0 0 0 15,334 .22 .21
-----END PRIVACY-ENHANCED MESSAGE-----