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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, 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, 85,320,612 shares as of October 31, 2004.

 

Table of Contents

HARTE-HANKS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

FORM 10-Q REPORT

September 30, 2004

 

                 Page

Part I. Financial Information

     
Item 1.   Interim Condensed Consolidated Financial Statements (Unaudited)     
        Condensed Consolidated Balance Sheets – September 30, 2004 and December 31, 2003    3
        Consolidated Statements of Operations – Three months ended September 30, 2004 and 2003    4
        Consolidated Statements of Operations – Nine months ended September 30, 2004 and 2003    5
        Consolidated Statements of Cash Flows – Nine months ended September 30, 2004 and 2003    6
        Consolidated Statements of Stockholders’ Equity and Comprehensive Income – Nine months ended September 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.

   Unregistered Sales of Equity Securities and Use of Proceeds    19
Item 6.   Exhibits    19

 

2

Table of Contents

Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)

 

Harte-Hanks, Inc. and Subsidiaries

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

 

     (Unaudited)
September 30,
2004
     December 31,
2003
  

Assets

                 

Current assets

                 

Cash and cash equivalents

    $ 19,135     $ 32,151  

Accounts receivable, net

      181,579       152,703  

Inventory

      5,793       5,213  

Prepaid expenses

      16,041       13,816  

Current deferred income tax asset

      8,813       7,682  

Other current assets

      7,882       5,732  
    
 

Total current assets

      239,243       217,297  

Property, plant and equipment, (less accumulated depreciation of $206,678 in 2004 and $194,987 in 2003)

      104,651       97,747  

Goodwill, (less accumulated amortization of $81,973 in 2004 and 2003)

      448,762       437,156  

Other intangible assets, (less accumulated amortization of $2,783 in 2004 and $2,333 in 2003)

      2,217       2,667  

Other assets

      3,815       4,263  
    
 

Total assets

    $ 798,688     $ 759,130  
    
 

Liabilities and Stockholders’ Equity

                 

Current liabilities

                 

Accounts payable

    $ 49,565     $ 47,891  

Accrued payroll and related expenses

      32,599       22,808  

Customer deposits and unearned revenue

      54,283       48,658  

Income taxes payable

      5,765       7,776  

Other current liabilities

      7,028       6,939  
    
 

Total current liabilities

      149,240       134,072  

Long-term debt

      20,000       5,000  

Other long-term liabilities

      74,472       64,460  
    
 

Total liabilities

      243,712       203,532  
    
 

Stockholders’ equity

                 

Common stock, $1 par value per share, 250,000,000 shares authorized. 114,176,842 and 113,280,794 shares issued at September 30, 2004 and December 31, 2003, respectively

      114,177       113,281  

Additional paid-in capital

      249,756       235,996  

Retained earnings

      858,587       798,974  

Less treasury stock: 28,935,200 and 25,788,502 shares at cost at September 30, 2004 and December 31, 2003, respectively

      (648,590 )     (573,863 )

Accumulated other comprehensive loss

      (18,954 )     (18,790 )
    
 

Total stockholders’ equity

      554,976       555,598  
    
 

Total liabilities and stockholders’ equity

    $ 798,688     $ 759,130  
    
 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

3

Table of Contents

Harte-Hanks, Inc. and Subsidiaries

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

(Unaudited)

 

    

Three Months Ended

September 30,

  
     2004
     2003
  

Operating revenues

    $ 262,566     $ 239,366  
    
 

Operating expenses

                 

Labor

      99,726       88,442  

Production and distribution

      91,326       84,906  

Advertising, selling, general and administrative

      20,987       20,264  

Depreciation and amortization

      6,871       7,090  

Intangible amortization

      150       150  
    
 

Total operating expenses

      219,060       200,852  
    
 

Operating income

      43,506       38,514  
    
 

Other expenses (income)

                 

Interest expense

      239       199  

Interest income

      (31 )     (32 )

Other, net

      243       488  
    
 
       451       655  
    
 

Income before income taxes

      43,055       37,859  

Income tax expense

      17,402       14,935  
    
 

Net income

    $ 25,653     $ 22,924  
    
 

Basic earnings per common share

    $ 0.30     $ 0.26  
    
 

Weighted-average common shares outstanding

      85,612       88,288  
    
 

Diluted earnings per common share

    $ 0.29     $ 0.26  
    
 

Weighted-average common and common equivalent shares outstanding

      87,259       89,571  
    
 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

4

Table of Contents

Harte-Hanks, Inc. and Subsidiaries

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

(Unaudited)

 

    

Nine Months Ended

September 30,

  
     2004
     2003
  

Operating revenues

    $ 752,970     $ 688,855  
    
 

Operating expenses

                 

Labor

      291,175       262,595  

Production and distribution

      261,247       241,272  

Advertising, selling, general and administrative

      61,071       57,202  

Depreciation and amortization

      21,065       22,523  

Intangible amortization

      450       450  
    
 

Total operating expenses

      635,008       584,042  
    
 

Operating income

      117,962       104,813  
    
 

Other expenses (income)

                 

Interest expense

      671       650  

Interest income

      (322 )     (132 )

Other, net

      928       1,501  
    
 
       1,277       2,019  
    
 

Income before income taxes

      116,685       102,794  

Income tax expense

      46,697       40,410  
    
 

Net income

    $ 69,988     $ 62,384  
    
 

Basic earnings per common share

    $ 0.81     $ 0.70  
    
 

Weighted-average common shares outstanding

      86,467       88,887  
    
 

Diluted earnings per common share

    $ 0.79     $ 0.69  
    
 

Weighted-average common and common equivalent shares outstanding

      88,084       90,327  
    
 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

5

Table of Contents

Harte-Hanks, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (in thousands)

(Unaudited)

 

     Nine Months Ended
September 30,
  
     2004
     2003
  

Cash Flows from Operating Activities

                 

Net income

    $ 69,988     $ 62,384  

Adjustments to reconcile net income to cash provided by operating activities:

                 

Depreciation and amortization

      21,065       22,523  

Intangible amortization

      450       450  

Amortization of option-related compensation

      76       72  

Deferred income taxes

      7,220       9,103  

Other, net

      314       297  

Changes in operating assets and liabilities, net of acquisitions:

                 

Increase in accounts receivable, net

      (27,810 )     (6,615 )

(Increase) decrease in inventory

      (580 )     472  

(Increase) decrease in prepaid expenses and other current assets

      (4,276 )     110  

Increase in accounts payable

      1,415       9,204  

Increase (decrease) in other accrued expenses and other current liabilities

      14,107       (1,252 )

Other, net

      2,452       (8,836 )
    
 

Net cash provided by operating activities

      84,421       87,912  
    
 

Cash Flows from Investing Activities

                 

Acquisitions, net of cash acquired

      (17,173 )     (343 )

Purchases of property, plant and equipment

      (22,115 )     (25,683 )

Proceeds from sale of property, plant and equipment

      181       444  
    
 

Net cash used in investing activities

      (39,107 )     (25,582 )
    
 

Cash Flows from Financing Activities

                 

Long-term borrowings

      45,000       45,000  

Repayment of long-term borrowings

      (30,000 )     (36,300 )

Issuance of common stock

      9,786       10,069  

Purchase of treasury stock

      (72,862 )     (68,483 )

Issuance of treasury stock