HARTE HANKS INC - 10-Q Quarterly Report

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 June 30, 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 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 per share, 85,929,667 shares as of July 31, 2004.

HARTE-HANKS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

FORM 10-Q REPORT

June 30, 2004


		Page
Part I. Financial Information

Item 1.	Interim Condensed Consolidated Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets – June 30, 2004 and December 31, 2003	3

	Consolidated Statements of Operations – Three months ended June 30, 2004 and 2003	4

	Consolidated Statements of Operations – Six months ended June 30, 2004 and 2003	5

	Consolidated Statements of Cash Flows – Six months ended June 30, 2004 and 2003	6

	Consolidated Statements of Stockholders’ Equity and Comprehensive Income – Six months ended June 30, 2004 and twelve months ended December 31, 2003	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	18

Item 4	Controls and Procedures	18

Part II. Other Information

Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	19

Item 4.	Submission of Matters to a Vote of Security Holders	19

Item 6.	Exhibits and Reports on Form 8-K	20

(a)	Exhibits

(b)	Reports on Form 8-K

Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)

Harte-Hanks, Inc. and Subsidiaries

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


	(Unaudited) June 30, 2004			December 31, 2003
Assets
Current assets
Cash and cash equivalents	$	29,697		$	32,151
Accounts receivable, net		151,773			152,703
Inventory		4,965			5,213
Prepaid expenses		14,274			13,816
Current deferred income tax asset		9,063			7,682
Other current assets		7,269			5,732

Total current assets		217,041			217,297

Property, plant and equipment, net		105,408			97,747
Goodwill, net		448,525			437,156
Other intangible assets, net		2,367			2,667
Other assets		3,984			4,263

Total assets	$	777,325		$	759,130

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	49,307		$	47,891
Accrued payroll and related expenses		24,141			22,808
Customer deposits and unearned revenue		53,065			48,658
Income taxes payable		4,879			7,776
Other current liabilities		6,461			6,939

Total current liabilities		137,853			134,072

Long-term debt		15,000			5,000
Other long-term liabilities		71,748			64,460

Total liabilities		224,601			203,532

Stockholders’ equity
Common stock, $1 par value per share, 250,000,000 shares authorized. 113,855,016 and 113,280,794 shares issued at June 30, 2004 and December 31 2003, respectively		113,855			113,281
Additional paid-in capital		244,691			235,996
Retained earnings		836,349			798,974
Less treasury stock: 27,874,836 and 25,788,502 shares at cost at June 30, 2004 and December 31, 2003, respectively		(622,756	)		(573,863	)
Accumulated other comprehensive loss		(19,415	)		(18,790	)

Total stockholders’ equity		552,724			555,598

Total liabilities and stockholders’ equity	$	777,325		$	759,130

See Notes to Unaudited Condensed Consolidated Financial Statements.

Harte-Hanks, Inc. and Subsidiaries

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

(Unaudited)


	Three Months Ended June 30,
	2004			2003
Operating revenues	$	254,152		$	233,169

Operating expenses
Labor		97,309			88,110
Production and distribution		86,569			80,521
Advertising, selling, general and administrative		20,096			18,295
Depreciation and amortization		7,130			7,627
Intangible amortization		150			150

Total operating expenses		211,254			194,703

Operating income		42,898			38,466

Other expenses (income)
Interest expense		260			242
Interest income		(73	)		(53	)
Other, net		196			432

		383			621

Income before income taxes		42,515			37,845
Income tax expense		16,969			14,763

Net income	$	25,546		$	23,082

Basic earnings per common share	$	0.30		$	0.26

Weighted-average common shares outstanding		86,335			88,540

Diluted earnings per common share	$	0.29		$	0.26

Weighted-average common and common equivalent shares outstanding		87,963			89,999

See Notes to Unaudited Condensed Consolidated Financial Statements.

Harte-Hanks, Inc. and Subsidiaries

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

(Unaudited)


	Six Months Ended June 30,
	2004			2003
Operating revenues	$	490,404		$	449,489

Operating expenses
Labor		191,449			174,153
Production and distribution		169,921			156,366
Advertising, selling, general and administrative		40,084			36,938
Depreciation and amortization		14,194			15,433
Intangible amortization		300			300

Total operating expenses		415,948			383,190

Operating income		74,456			66,299

Other expenses (income)
Interest expense		432			451
Interest income		(291	)		(100	)
Other, net		685			1,013

		826			1,364

Income before income taxes		73,630			64,935
Income tax expense		29,295			25,475

Net income	$	44,335		$	39,460

Basic earnings per common share	$	0.51		$	0.44

Weighted-average common shares outstanding		86,894			89,187

Diluted earnings per common share	$	0.50		$	0.44

Weighted-average common and common equivalent shares outstanding		88,497			90,705

See Notes to Unaudited Condensed Consolidated Financial Statements.

Harte-Hanks, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (in thousands)

(Unaudited)


	Six Months Ended June 30,
	2004			2003
Cash Flows from Operating Activities
Net income	$	44,335		$	39,460
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		14,194			15,433
Intangible amortization		300			300
Amortization of option-related compensation		50			48
Deferred income taxes		4,898			3,348
Other, net		161			116
Changes in operating assets and liabilities, net of acquisitions:
Decrease in accounts receivable, net		1,996			4,220
Decrease (increase) in inventory		248			(108	)
(Increase) decrease in prepaid expenses and other current assets		(1,896	)		1,880
Increase in accounts payable		1,157			101
Increase (decrease) in other accrued expenses and other current liabilities		2,232			(8,367	)
Other, net		1,448			4,019

Net cash provided by operating activities		69,123			60,450

Cash Flows from Investing Activities
Acquisitions, net of cash acquired		(16,937	)		(343	)
Purchases of property, plant and equipment		(16,281	)		(16,878	)
Proceeds from sale of property, plant and equipment		63			444

Net cash used in investing activities		(33,155	)		(16,777	)

Cash Flows from Financing Activities
Long-term borrowings		25,000			20,000
Repayment of long-term borrowings		(15,000	)		(25,000	)
Issuance of common stock		7,245			7,453
Purchase of treasury stock		(48,783	)

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