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 September 30, 2003

¨ 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 incorporation or organization)	(I.R.S. Employer 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 checkmark 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 by checkmark whether registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes  x  No  ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock: $1 par value, 87,399,629 shares as of October 31, 2003.

HARTE-HANKS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

FORM 10-Q REPORT

September 30, 2003

		Page
Part I. Financial Information
Item 1.	Interim Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets – September 30, 2003 and December 31, 2002	3
	Consolidated Statements of Operations – Three months ended September 30, 2003 and 2002	4
	Consolidated Statements of Operations – Nine months ended September 30, 2003 and 2002	5
	Consolidated Statements of Cash Flows – Nine months ended September 30, 2003 and 2002	6
	Consolidated Statements of Stockholders’ Equity and Comprehensive Income – Nine months ended September 30, 2003 and twelve months ended December 31, 2002	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4	Controls and Procedures	16
Part II. Other Information
Item 6.	Exhibits and Reports on Form 8-K	17
(a)	Exhibits
(b)	Reports on Form 8-K

2

Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)

Harte-Hanks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (in thousands, except share amounts)

	September 30, 2003			December 31, 2002
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	29,745		$	25,026
Accounts receivable, net		144,294			137,679
Inventory		4,827			5,299
Prepaid expenses		13,977			14,070
Current deferred income tax asset		8,872			8,129
Other current assets		8,392			8,409
Total current assets		210,107			198,612
Property, plant and equipment, net		97,766			94,154
Goodwill, net		437,159			436,800
Other intangible assets, net		2,817			3,267
Other assets		4,225			3,899
Total assets	$	752,074		$	736,732
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	49,950		$	40,746
Accrued payroll and related expenses		20,637			21,854
Customer deposits and unearned revenue		43,082			41,775
Income taxes payable		9,387			9,338
Other current liabilities		8,034			8,048
Total current liabilities		131,090			121,761
Long-term debt		25,000			16,300
Other long-term liabilities		66,079			66,138
Total liabilities		222,169			204,199
Stockholders’ equity
Common stock, $1 par value, 375,000,000 shares authorized. 113,005,465 and 111,534,630 shares issued at September 30, 2003 and December 31, 2002, respectively		113,005			111,535
Additional paid-in capital		232,400			216,149
Retained earnings		776,623			722,231
Less treasury stock: 25,519,571 and 21,329,896 shares at cost at September 30, 2003 and December 31, 2002, respectively		(568,373	)		(491,793	)
Accumulated other comprehensive loss		(23,750	)		(25,589	)
Total stockholders’ equity		529,905			532,533
Total liabilities and stockholders’ equity	$	752,074		$	736,732

See Notes to Unaudited Condensed Consolidated Financial Statements.

3

Harte-Hanks, Inc. and Subsidiaries

Consolidated Statements of Operations (in thousands, except per share amounts)

(Unaudited)

	Three Months Ended September 30,
	2003			2002
Operating revenues	$	239,366		$	226,466
Operating expenses
Payroll		82,734			80,123
Production and distribution		89,222			82,944
Advertising, selling, general and administrative		21,656			18,744
Depreciation		7,090			7,849
Intangible amortization		150			150
Total operating expenses		200,852			189,810
Operating income		38,514			36,656
Other expenses (income)
Interest expense		199			285
Interest income		(32	)		(37	)
Other, net		488			505
		655			753
Income before income taxes		37,859			35,903
Income tax expense		14,935			13,715
Net income	$	22,924		$	22,188
Basic earnings per common share	$	0.26		$	0.24
Weighted-average common shares outstanding		88,288			92,115
Diluted earnings per common share	$	0.26		$	0.24
Weighted-average common and common equivalent shares outstanding		89,571			94,163

See Notes to Unaudited Condensed Consolidated Financial Statements.

4

Harte-Hanks, Inc. and Subsidiaries

Consolidated Statements of Operations (in thousands, except per share amounts)

(Unaudited)

	Nine Months Ended September 30,
	2003			2002
Operating revenues	$	688,855		$	669,252
Operating expenses
Payroll		247,944			241,651
Production and distribution		252,792			236,220
Advertising, selling, general and administrative		60,333			56,511
Depreciation		22,523			24,322
Intangible amortization		450			450
Total operating expenses		584,042			559,154
Operating income		104,813			110,098
Other expenses (income)
Interest expense		650			876
Interest income		(132	)		(158	)
Other, net		1,501			1,367
		2,019			2,085
Income before income taxes		102,794			108,013
Income tax expense		40,410			41,467
Net income	$	62,384		$	66,546
Basic earnings per common share	$	0.70		$	0.71
Weighted-average common shares outstanding		88,887			93,270
Diluted earnings per common share	$	0.69		$	0.70
Weighted-average common and common equivalent shares outstanding		90,327			95,634

See Notes to Unaudited Condensed Consolidated Financial Statements.

5

Harte-Hanks, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2003			2002
Cash Flows from Operating Activities
Net income	$	62,384		$	66,546
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		22,523			24,322
Intangible amortization		450			450
Amortization of option-related compensation		72			75
Deferred income taxes		9,103			6,645
Other, net		297			510
Changes in operating assets and liabilities, net of acquisitions:
Increase in accounts receivable, net		(6,615	)		(392	)
Decrease in inventory		472			691
Decrease (increase) in prepaid expenses and other current assets		110			(1,119	)
Increase in accounts payable		9,204			5,278
Increase (decrease) in other accrued expenses and other current liabilities		(1,252	)		1,911
Other, net		(8,836	)		2,673
Net cash provided by operating activities		87,912			107,590
Cash Flows from Investing Activities
Acquisitions		(343	)		(3,791	)
Purchases of property, plant and equipment		(25,683	)		(11,903	)
Proceeds from sale of property, plant and equipment		444			351
Net cash used in investing activities		(25,582	)		(15,343	)
Cash Flows from Financing Activities
Long-term borrowings		45,000			14,000
Repayment of long-term borrowings		(36,300	)		(52,000	)
Issuance of common stock		10,069			12,685
Purchase of treasury stock		(68,483	)		(70,474	)
Issuance of treasury stock		95			76
Dividends paid		(7,992	)		(6,872	)
Net cash used in financing activities		(57,611	)		(102,585	)
Net increase (decrease) in cash and cash equivalents		4,719			(10,338	)
Cash and cash equivalents at beginning of year		25,026			30,468
Cash and cash equivalents at end of period	$	29,745		$	20,130

See Notes to Unaudited Condensed Consolidated Financial Statements.

6

Harte-Hanks, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (in thousands)

(2003 Unaudited)

	Common Stock			Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance at January 1, 2002	$	109,352		$	188,158		$	640,635		$	(384,486	)	$	(1,293	)	$	552,366
Common stock issued - employee benefit plans		202			3,131			—			—			—			3,333
Exercise of stock options for cash and by surrender of shares		2,282			13,787			—			(8,498	)		—			7,571
Tax benefit of options exercised		—			10,765			—			—			—			10,765
Dividends paid ($0.098 per share)		—			—			(9,149	)		—			—			(9,149	)
Treasury stock repurchase		(301	)		301			—			(98,912	)		—			(98,912	)
Treasury stock issued		—			7			—			103			—			110
Comprehensive income, net of tax:
Net income		—			—			90,745			—			—			90,745
Adjustmentt for minimum pension liability (net of tax of $17,121)		—			—			—			—			(26,169	)		(26,169	)
Foreign currency translation adjustment		—			—			—			—			1,873			1,873
Total comprehensive income																	66,449
Balance at December 31, 2002		111,535			216,149			722,231			(491,793	)		(25,589	)		532,533
Common stock issued-employee benefit plans		161			2,376			—			—			—			2,537
Exercise of stock options for cash and by surrender of shares		1,309			8,624			—			(5,767	)		—			4,166
Tax benefit of options exercised		—			5,271			—			—			—			5,271
Dividends paid ($0.090 per share)		—			—			(7,992	)		—			—			(7,992	)
Treasury stock repurchase		—			—			—			(70,928	)		—			(70,928	)
Treasury stock issued		—			(20	)		—			115			—			95
Comprehensive income, net of tax:
Net income		—			—			62,384			—			—			62,384
Foreign currency translation adjustment		—			—			—			—			1,839			1,839
Total comprehensive income																	64,223
Balance at September 30, 2003	$	113,005		$	232,400		$	776,623		$	(568,373	)	$	(23,750	)	$	529,905

See Notes to Unaudited Condensed Consolidated Financial Statements.

7

Harte-Hanks, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Note A - Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Harte-Hanks, Inc. and subsidiaries (the “Company”).

The statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America 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 and nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 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, 2002.

Certain prior period amounts have been reclassified for comparative purposes.

Note B - Recent Accounting Pronouncements

In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure”. SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation prescribed by SFAS No. 123. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 were effective for the Company’s fiscal year ended December 31, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002 and are included in Note G of this report. At this time the Company does not intend to change to the fair value based method of accounting for stock-based employee compensation prescribed by SFAS No. 123, but instead will continue to account for stock-based compensation under Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, as permitted by SFAS No. 123. Therefore the Company’s adoption of SFAS No. 148 did not have a significant impact on its consolidated financial position or results of operations.

Note C - Income Taxes

The Company’s quarterly income tax provision of $14.9 million was calculated using an effective income tax rate of approximately 39.4%. The Company’s nine month income tax provision of $40.4 million, was calculated using an effective income tax rate of approximately 39.3%. The Company’s effective income tax rate is derived by estimating pretax income and income tax expense for the year ending December 31, 2003. 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 that are not deductible for federal income tax purposes.

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Note D - Stock Split

In May 2002, the Company effected a three-for-two stock split in the form of a 50% stock dividend payable to holders of record on May 20, 2002. All share, per share and average share information in the Consolidated Financial Statements and the Notes thereto have been restated to reflect the stock split.

Note E - Earnings Per Share

A reconciliation of basic and diluted earnings per share (EPS) is as follows:

	Three Months Ended September 30,
In thousands, except per share amounts	2003		2002
BASIC EPS
Net Income	$	22,924	$	22,188
Weighted-average common shares outstanding used in earnings per share computations		88,288		92,115
Earnings per common share	$	0.26	$	0.24
DILUTED EPS
Net Income	$	22,924	$	22,188
Shares used in diluted earnings per share computations		89,571		94,163
Earnings per common share	$	0.26	$	0.24
Computation of shares used in earnings per share computations:
Average outstanding common shares		88,288		92,115
Average common equivalent shares - dilutive effect of option shares		1,283		2,048
Shares used in diluted earnings per share computations		89,571		94,163
	Nine Months Ended September 30,
In thousands, except per share amounts	2003		2002
BASIC EPS
Net Income	$	62,384	$	66,546
Weighted-average common shares outstanding used in earnings per share computations		88,887		93,270
Earnings per common share	$	0.70	$	0.71
DILUTED EPS
Net Income	$	62,384	$	66,546
Shares used in diluted earnings per share computations		90,327		95,634
Earnings per common share	$	0.69	$	0.70
Computation of shares used in earnings per share computations:
Average outstanding common shares		88,887		93,270
Average common equivalent shares - dilutive effect of option shares		1,440		2,364
Shares used diluted in earnings per share computations		90,327		95,634

As of September 30, 2003, the Company had 753,000 antidilutive market price options outstanding which have been excluded from the EPS calculations. As of September 30, 2002 there were no antidilutive market price options outstanding.

9

Note F – Business Segments

Harte-Hanks is a highly focused targeted media company with operations in two segments – Direct Marketing and Shoppers.

Information about the Company’s operations in its two different business segments follows:

	Three Months Ended September 30
In thousands	2003			2002
Operating revenues
Direct Marketing	$	147,964		$	140,872
Shoppers		91,402			85,594
Total operating revenues	$	239,366		$	226,466
Operating Income
Direct Marketing	$	19,712		$	17,921
Shoppers		20,719			20,658
Corporate Activities		(1,917	)		(1,923	)
Total operating income	$	38,514		$	36,656
Income before income taxes
Operating income	$	38,514		$	36,656
Interest expense		(199	)		(285	)
Interest income		32			37
Other, net		(488	)		(505	)
Total income before income taxes	$	37,859		$	35,903
	Nine Months Ended September 30
In thousands	2003			2002
Operating revenues
Direct Marketing	$	424,473		$	419,425
Shoppers		264,382			249,827
Total operating revenues	$	688,855		$	669,252
Operating Income
Direct Marketing	$	53,289		$	60,082
Shoppers		57,678			56,208
Corporate Activities		(6,154	)		(6,192	)
Total operating income	$	104,813		$	110,098
Income before income taxes
Operating income	$	104,813		$	110,098
Interest expense		(650	)		(876	)
Interest income		132			158
Other, net		(1,501	)		(1,367	)
Total income before income taxes	$	102,794		$	108,013

Note G – Stock-Based Compensation

The Company has adopted the disclosure-only provisions of SFAS No. 123. Accordingly, no compensation expense has been recognized for options granted where the exercise price is equal to the market price of the underlying stock at the date of grant. For options issued with an exercise price below the market price of the underlying stock on the date of grant, the Company recognizes compensation expense under the provisions of APB No. 25, as permitted under SFAS No. 123.

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Had compensation expense for the Company’s options been determined based on the fair value at the grant date for awards since January 1, 1995, consistent with the provisions of SFAS No. 123, the Company’s net income and diluted earnings per share would have been reduced to the pro forma amounts indicated below:

	Three Months Ended September 30,
In thousands, except per share amounts	2003			2002
Net income – as reported	$	22,924		$	22,188
Stock-based employee compensation expense, included in reported net income, net of related tax effects		15			15
Stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects		(952	)		(1,083	)
Net income – pro forma	$	21,987		$	21,120
Basic earnings per share – as reported	$	0.26		$	0.24
Basic earnings per share – pro forma	$	0.25		$	0.23
Diluted earnings per share – as reported	$	0.26		$	0.24
Diluted earnings per share – pro forma	$	0.25		$	0.22
	Nine Months Ended September 30,
In thousands, except per share amounts	2003			2002
Net income – as reported	$	62,384		$	66,546
Stock-based employee compensation expense, included in reported net income, net of related tax effects		44			46
Stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects		(2,805	)		(3,081	)
Net income – pro forma	$	59,622		$	63,510
Basic earnings per share – as reported	$	0.70		$	0.71
Basic earnings per share – pro forma	$	0.67		$	0.68
Diluted earnings per share – as reported	$	0.69		$	0.70
Diluted earnings per share – pro forma	$	0.66		$	0.66

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants during the nine months ended September 30, 2003 and 2002:

	Nine Months Ended September 30, 2003		Nine Months Ended September 30, 2002
Expected dividend yield	0.63	%	0.50	%
Expected stock price volatility	26.7	%	27.8	%
Risk free interest rate	4.0	%	5.4	%
Expected Life of options	3-10 years		3-10 years

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Operating results were as follows:

	Three months ended						Nine months ended
In thousands	Sept. 30, 2003		Sept. 30, 2002		Change		Sept. 30, 2003		Sept. 30, 2002		Change
Revenues	$	239,366	$	226,466	5.7	%	$	688,855	$	669,252	2.9	%
Operating expenses		200,852		189,810	5.8	%		584,042		559,154	4.5	%
Operating income	$	38,514	$	36,656	5.1	%	$	104,813	$	110,098	-4.8	%
Net income	$	22,924	$	22,188	3.3	%	$	62,384	$	66,546	-6.3	%
Diluted earnings per share	$	0.26	$	0.24	8.3	%	$	0.69	$	0.70	-1.4	%

Consolidated revenues increased 5.7% to $239.4 million while operating income increased 5.1% to $38.5 million in the third quarter of 2003 when compared to the third quarter of 2002. Overall operating expenses compared to 2002 increased 5.8% to $200.9 million.

Net income increased 3.3% to $22.9 million while diluted earnings per share grew 8.3% to 26 cents per share. The increase in net income was a result of the increase in operating income.

Direct Marketing

Direct Marketing operating results were as follows:

	Three months ended						Nine months ended
In thousands	Sept. 30, 2003		Sept. 30, 2002		Change		Sept. 30, 2003		Sept. 30, 2002		Change
Revenues	$	147,964	$	140,872	5.0	%	$	424,473	$	419,425	1.2	%
Operating expenses		128,252		122,951	4.3	%		371,184		359,343	3.3	%
Operating income	$	19,712	$	17,921	10.0	%	$	53,289	$	60,082	-11.3	%

Direct Marketing revenues increased $7.1 million or 5.0% in the third quarter of 2003 compared to 2002. These results reflect mixed results from Direct Marketing’s largest vertical markets. Direct Marketing had increased revenues from the high-tech/telecom and healthcare/pharmaceutical industry sectors as well as from its select markets group compared to the third quarter of 2002. Revenues from the financial services and retail industries declined compared to the prior year quarter. Direct Marketing experienced increased revenues in technical support, software sales, business-to-business telesales and consulting projects, partially offset by decreased revenues from fulfillment, data processing and data sales.

Operating expenses increased $5.3 million, or 4.3%, in the third quarter of 2003 compared to 2002. Labor costs increased $1.4 million due to higher healthcare costs and higher payrolls. Production and distribution costs increased $4.3 million, primarily driven by costs related to increased volumes associated with increase revenues. General and administrative expense increased $0.5 million due to increased professional services and insurance costs (including workers compensation), partially offset by decreased business services. Depreciation expense decreased $0.9 million due to lower capital expenditures in 2002 than in recent prior years.

Direct Marketing revenues increased $5.0 million, or 1.2%, in the first nine months of 2003 compared to the first nine months of 2002. Direct Marketing had

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increased revenues from the high-tech/telecom and healthcare/pharmaceutical industry sectors as well as from its select markets group in the first nine months of 2003 compared to 2002. Revenues from the financial services and retail industries declined compared to the first nine months of the prior year.

Operating expenses increased $11.8 million, or 3.3%, in the first nine months of 2003 compared to 2002. Labor costs increased $2.8 million due to higher payrolls and higher healthcare costs and pension expense. Production and distribution costs increased $11.1 million, primarily due to higher costs related to increased volumes associated with the increased revenues, partially offset by decreased lease expense. General and administrative expense increased $0.1 million due to increased professional services, partially offset by decreased business services. Depreciation expense decreased $2.2 million due to lower capital expenditures in 2002 than in recent prior years.

Shoppers

Shopper operating results were as follows:

	Three months ended						Nine months ended
In thousands	Sept. 30, 2003		Sept. 30, 2002		Change		Sept. 30, 2003		Sept. 30, 2002		Change
Revenues	$	91,402	$	85,594	6.8	%	$	264,382	$	249,827	5.8	%
Operating expenses		70,683		64,936	8.9	%		206,704		193,619	6.8	%
Operating income	$	20,719	$	20,658	0.3	%	$	57,678	$	56,208	2.6	%

Shopper revenues increased $5.8 million, or 6.8%, in the third quarter of 2003 compared to 2002. Revenue increases were the result of improved sales in established markets as well as new year-over-year geographic expansions into new neighborhoods in California and Florida. From a product-line perspective, Shoppers had growth in both run-of-press (ROP, or in-book) advertising, primarily core sales and real estate-related advertising, and its distribution products. These increases were partially offset by declines in automotive-related ROP advertising and decreased coupon book revenues.

Operating expenses increased $5.7 million, or 8.9%, in the third quarter of 2003 compared to 2002. Labor costs increased $1.3 million due to higher benefit costs and higher volumes. Production costs increased $2.0 million, including additional postage of $0.9 million due to increased volumes and higher postage rates. General and administrative costs increased $2.3 million due to increased insurance costs (including workers compensation), bad debt expense and promotion expense. Depreciation expense increased $0.1 million due to new capital investments to support future growth.

Shopper revenues increased $14.6 million, or 5.8%, in the first nine months of 2003 compared to the first nine months of 2002. Revenue increases were the result of improved sales in established markets as well as new year-over-year geographic expansions into new neighborhoods in California and Florida. From a product-line perspective, Shoppers had growth in both run-of-press (ROP, or in-book) advertising, primarily core sales and real estate-related advertising, and its distribution products. These increases were partially offset by declines in automotive-related ROP advertising and decreased revenues from pre-printed inserts and coupon books.

Operating expenses increased $13.1 million, or 9.0%, in the first nine months of 2003 compared to the first nine months of 2002. Labor costs increased $3.7 million due to higher benefit costs and higher volumes. Production costs increased $5.4 million, including additional postage of $2.7 million due to increased volumes and higher postage rates. General and administrative costs increased $3.6 million due to increased insurance costs (including workers compensation), promotion expense and bad debt expense. Depreciation expense increased $0.4 million due to new capital investments to support future growth.

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Other Income and Expense

Other net expense for the first nine months of 2003 primarily consists of currency losses, balance-based bank charges and stockholders expenses.

Interest Expense/Interest Income

Interest expense decreased $0.1 million in the third quarter of 2003 and $0.2 million in the first nine months of 2003 over the same periods in 2002. The decrease in interest expense was due primarily to lower debt levels and lower interest rates during the first nine months of 2003.

Interest income was flat in the third quarter and first nine months of 2003 compared to the same periods in 2002. These results were due to slightly higher average cash and investment balances offset by lower interest rates in the first nine months of 2003.

Income Taxes

The Company’s income tax expense increased $1.2 million in the third quarter of 2003 and decreased $1.1 million in the first nine months of 2003 compared to the same periods in 2002. These changes were due primarily to the changes in pre-tax income levels. The effective tax rate was 39.4% for the third quarter of 2003 and 38.2% for the third quarter of 2002. The effective tax rate was 39.3% for the first nine months of 2003 and 38.4% for the first nine months of 2002.

Liquidity and Capital Resources

Cash provided by operating activities for the nine months ended September 30, 2003 was $87.9 million, compared to $107.6 million for the nine months ended September 30, 2002. Net cash outflows from investing activities were $25.6 million for the first nine months of 2003 compared to net cash outflows of $15.3 million for the first nine months of 2002. The increase in 2003 primarily relates to higher capital expenditures in 2003 than in 2002. Net cash outflows from financing activities were $57.6 million in 2003 compared to net cash outflows of $102.6 million in 2002. The decrease is attributable primarily to net borrowings of $8.7 million during the first nine months of 2003 compared to net repayment of borrowings of $38.0 million during the first nine months of 2002.

Capital resources are available from and provided through the Company’s unsecured credit facility. This credit facility, a three-year $125 million variable-rate, revolving loan commitment, was put in place on October 18, 2002. All borrowings under this credit agreement are to be repaid by October 17, 2005. As of September 30, 2003, the Company had $100 million of unused borrowing capacity under this credit facility. Management believes that its credit facilities, together with cash provided from operating activities, will be sufficient to fund operations and anticipated acquisitions and capital expenditures 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, including its revenues, net income and earnings per share; however, the risks described below are not the only ones the Company faces. Additional risks and uncertainties that are not presently known, or that the Company currently considers immaterial, could also impair the Company’s business operations.

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Legislation — There could be a material adverse impact on the Company’s Direct Marketing business due to the enactment of legislation or industry regulations, including the recent creation of do-not-call lists, arising from public concern over consumer privacy issues. Restrictions or prohibitions could be placed upon the collection and use of information that is currently legally available. Legislation enacted in the State of California affected employers in that state in general could also have a material adverse impact on the Company’s Shopper business.

Data Suppliers – There could be a material adverse impact on the Company’s Direct Marketing business if owners of the data the Company uses were to withdraw the data. Data providers could withdraw their data if there is a competitive reason to do so or if legislation is passed restricting the use of the data.

Acquisitions — Although the Company has not completed any acquisitions in 2003 or 2002, it continues to pursue acquisition opportunities, primarily in its Direct Marketing Segment. 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 all of its offerings and within each of its vertical markets. 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. Failure to continually improve the Company’s current processes and to develop new products and services could result in the loss of the Company’s customers to current or future competitors. In addition, failure to gain market acceptance of new products and services could adversely affect the Company’s growth.

Qualified Personnel — The Company believes that its future prospects will depend in large part upon its ability to attract, train and retain highly skilled technical, client services and administrative personnel. While dependent on employment levels and general economic conditions, qualified personnel historically have been in great demand and from time to time and in the foreseeable future will likely remain a limited resource.

Postal Rates – The Company’s Shoppers and Direct Marketing services depend on the United States Postal Service (“USPS”) to deliver products. The Company’s Shoppers are delivered by standard mail, and postage is the second largest expense, behind payroll, in the Company’s Shopper business. Standard postage rates increased at the beginning of the third quarter of 2002. Overall Shopper postage costs have grown moderately as a result of this increase and are expected to grow further as a result of anticipated increases in circulation and insert volumes. 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.

Paper Prices — Paper 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.

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

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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.

Interest Rates – Interest rate movements in Europe and the United States can affect the amount of interest the Company pays related to its debt and the amount it earns on cash equivalents. The Company’s primary interest rate exposure is to interest rate fluctuations in Europe, specifically EUROLIBOR rates due to their impact on interest related to the Company’s $125 million credit facility. The Company also has exposure to interest rate fluctuations in the United States, specifically money market, commercial paper and overnight time deposit rates as these affect the Company’s earnings on its excess cash.

War – War or the threat of war involving the United States could have a significant impact on the Company’s operations. War or the threat of war could substantially affect the levels of advertising expenditures by clients in each of the Company’s businesses. In addition each of the Company’s businesses could be affected by operational disruptions and a shortage of supplies and labor related to such a war or threat of war.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s earnings are affected by changes in short-term interest rates as a result of its revolving credit agreements, which bear interest at floating rates. The Company does not believe that it has significant exposure to market risks associated with changing interest rates as of September 30, 2003. The Company does not use derivative financial instruments in its operations.

The Company’s earnings are also affected by fluctuations in foreign exchange rates as a result of its operations in foreign countries. Due to the level of operations in foreign countries, the impact of fluctuations in foreign exchange rates is not significant to the Company’s overall earnings.

Item 4. Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that the design and operation of these disclosure controls and procedures were effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. No changes were made in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits. See index to Exhibits on Page 20.

(b) The Company filed a report on Form 8-K dated October 22, 2003. The report incorporated the Company’s earnings release for the period ended September 30, 2003.

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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.
November 14, 2003	/s/    RICHARD M. HOCHHAUSER
Date	Richard M. Hochhauser President and Chief Executive Officer

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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.
November 14, 2003	/s/    DEAN H. BLYTHE
Date	Dean H. Blythe Senior Vice President and Chief Financial Officer

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Exhibit No.	Description of Exhibit	Page No.
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)	Second Amended and Restated Bylaws (filed as Exhibit 3(b) to the Company’s Form 10-Q for the nine months ended September 30, 2001 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).
*31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	21
*31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	22
*32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	23
*32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	24

* Filed herewith

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