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, 2004
| ¨ | 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 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 by check mark 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 as of March 31, 2004: 87,169,841
HARTE-HANKS, INC. AND SUBSIDIARIES
FORM 10-Q REPORT
March 31, 2004
| Page | ||||
| Part I. |
Financial Information | |||
| Item 1. |
Interim Condensed Consolidated Financial Statements (Unaudited) |
|||
| Condensed Consolidated Balance Sheets—March 31, 2004 and December 31, 2003 |
3 | |||
| Consolidated Statements of Operations—Three months ended March 31, 2004 and 2003 |
4 | |||
| Consolidated Statements of Cash Flows—Three months ended March 31, 2004 and 2003 |
5 | |||
| Consolidated Statements of Stockholders’ Equity and Comprehensive Income— Three months ended March 31, 2004 and twelve months ended December 31, 2003 |
6 | |||
| Notes to Unaudited Condensed Consolidated Financial Statements |
7 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 | ||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 15 | ||
| Item 4. |
Controls and Procedures | 15 | ||
| Part II. |
Other Information | |||
| Item 2. |
Issuer Purchases of Equity Securities | 16 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 16 | ||
| (a) |
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| (b) |
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2
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Harte-Hanks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (in thousands, except share amounts)
| (Unaudited) March 31, |
December 31, 2003 |
|||||||
| Assets |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 33,160 | $ | 32,151 | ||||
| Accounts receivable, net |
145,900 | 152,703 | ||||||
| Inventory |
5,299 | 5,213 | ||||||
| Prepaid expenses |
16,492 | 13,816 | ||||||
| Current deferred income tax asset |
8,854 | 7,682 | ||||||
| Other current assets |
6,338 | 5,732 | ||||||
| Total current assets |
216,043 | 217,297 | ||||||
| Property, plant and equipment, net |
105,562 | 97,747 | ||||||
| Goodwill, net |
446,956 | 437,156 | ||||||
| Other intangible assets, net |
2,517 | 2,667 | ||||||
| Other assets |
3,762 | 4,263 | ||||||
| Total assets |
$ | 774,840 | $ | 759,130 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities |
||||||||
| Accounts payable |
$ | 45,019 | $ | 47,891 | ||||
| Accrued payroll and related expenses |
21,722 | 22,808 | ||||||
| Customer deposits and unearned revenue |
55,861 | 48,658 | ||||||
| Income taxes payable |
16,274 | 7,776 | ||||||
| Other current liabilities |
5,825 | 6,939 | ||||||
| Total current liabilities |
144,701 | 134,072 | ||||||
| Long-term debt |
— | 5,000 | ||||||
| Other long-term liabilities |
68,762 | 64,460 | ||||||
| Total liabilities |
213,463 | 203,532 | ||||||
| Stockholders’ equity |
||||||||
| Common stock, $1 par value per share, 250,000,000 shares authorized. 113,655,025 and 113,280,794 shares issued at March 31, 2004 and December 31, 2003 respectively |
113,655 | 113,281 | ||||||
| Additional paid-in capital |
241,414 | 235,996 | ||||||
| Retained earnings |
814,248 | 798,974 | ||||||
| Less treasury stock: 26,485,184 and 25,788,502 shares at cost at March 31, 2004 and December 31, 2003, respectively |
(589,206 | ) | (573,863 | ) | ||||
| Accumulated other comprehensive loss |
(18,734 | ) | (18,790 | ) | ||||
| Total stockholders’ equity |
561,377 | 555,598 | ||||||
| Total liabilities and stockholders’ equity |
$ | 774,840 | $ | 759,130 | ||||
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 March 31, |
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| 2004 |
2003 |
|||||||
| Revenues |
$ | 236,252 | $ | 216,320 | ||||
| Operating expenses |
||||||||
| Labor |
94,140 | 86,043 | ||||||
| Production and distribution |
83,352 | 75,845 | ||||||
| Advertising, selling, general and administrative |
19,988 | 18,643 | ||||||
| Depreciation and amortization |
7,064 | 7,806 | ||||||
| Intangible amortization |
150 | 150 | ||||||
| Total operating expenses |
204,694 | 188,487 | ||||||
| Operating income |
31,558 | 27,833 | ||||||
| Other expenses (income) |
||||||||
| Interest expense |
172 | 209 | ||||||
| Interest income |
(218 | ) | (47 | ) | ||||
| Other, net |
489 | 581 | ||||||
| 443 | 743 | |||||||
| Income before income taxes |
31,115 | 27,090 | ||||||
| Income tax expense |
12,326 | 10,712 | ||||||
| Net income |
$ | 18,789 | $ | 16,378 | ||||
| Basic earnings per common share. |
$ | 0.21 | $ | 0.18 | ||||
| Weighted-average common shares outstanding |
87,453 | 89,833 | ||||||
| Diluted earnings per common share |
$ | 0.21 | $ | 0.18 | ||||
| Weighted-average common and common equivalent shares outstanding |
89,030 | 91,411 | ||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
Harte-Hanks, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (in thousands)
(Unaudited)
| Three Months Ended March 31, |
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| 2004 |
2003 |
|||||||
| Cash Flows from Operating Activities |
||||||||
| Net income |
$ | 18,789 | $ | 16,378 | ||||
| Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
| Depreciation and amortization |
7,064 | 7,806 | ||||||
| Intangible amortization |
150 | 150 | ||||||
| Amortization of option-related compensation |
— | 24 | ||||||
| Deferred income taxes |
2,274 | 1,923 | ||||||
| Other, net |
146 | 55 | ||||||
| Changes in operating assets and liabilities, net of acquisitions: |
||||||||
| Decrease in accounts receivable, net |
7,811 | 10,252 | ||||||
| (Increase) decrease in inventory |
(86 | ) | 73 | |||||
| (Increase) decrease in prepaid expenses and other current assets |
(3,183 | ) | 1,477 | |||||
| Decrease in accounts payable |
(3,129 | ) | (1,074 | ) | ||||
| Increase (decrease) in other accrued expenses and other liabilities |
12,690 | (3,995 | ) | |||||
| Other, net |
2,114 | 2,531 | ||||||
| Net cash provided by operating activities |
44,640 | 35,600 | ||||||
| Cash Flows from Investing Activities |
||||||||
| Acquisitions |
(15,272 | ) | (341 | ) | ||||
| Purchases of property, plant and equipment |
(9,533 | ) | (8,059 | ) | ||||
| Proceeds from sale of property, plant and equipment |
— | 436 | ||||||
| Net cash used in investing activities |
(24,805 | ) | (7,964 | ) | ||||
| Cash Flows from Financing Activities |
||||||||
| Proceeds from long-term borrowings |
— | 20,000 | ||||||
| Repayment of long-term borrowings |
(5,000 | ) | (15,000 | ) | ||||
| Issuance of common stock |
4,848 | 1,736 | ||||||
| Purchase of treasury stock |
(15,188 | ) | (25,231 | ) | ||||
| Issuance of treasury stock |
29 | 28 | ||||||
| Dividends paid |
(3,515 | ) | (2,701 | ) | ||||
| Net cash used in financing activities |
(18,826 | ) | (21,168 | ) | ||||
| Net increase in cash and cash equivalents |
1,009 | 6,468 | ||||||
| Cash and cash equivalents at beginning of period |
32,151 | 25,026 | ||||||
| Cash and cash equivalents at end of period |
$ | 33,160 | $ | 31,494 | ||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
5
Harte-Hanks, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (in thousands)
(2004 Unaudited)
| Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Accumulated Other Comprehensive Income (Loss) |
Total Stockholders’ Equity |
||||||||||||||||||
| Balance at January 1, 2003 |
$ | 111,535 | $ | 216,149 | $ | 722,231 | $ | (491,793 | ) | $ | (25,589 | ) | $ | 532,533 | |||||||||
| Common stock issued-employee benefit plans |
213 | 3,199 | — | — | — | 3,412 | |||||||||||||||||
| Exercise of stock options for cash and by surrender of shares |
1,533 | 10,392 | — | (5,828 | ) | — | 6,097 | ||||||||||||||||
| Tax benefit of options exercised |
— | 6,282 | — | — | — | 6,282 | |||||||||||||||||
| Dividends paid ($0.12 per share) |
— | — | (10,619 | ) | — | — | (10,619 | ) | |||||||||||||||
| Treasury stock issued |
— | (26 | ) | — | 151 | — | 125 | ||||||||||||||||
| Treasury stock repurchase |
— | — | — | (76,393 | ) | — | (76,393 | ) | |||||||||||||||
| Comprehensive income, net of tax: |
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