Exhibit 99.1
HARTE HANKS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The accompanying financial information reflects the historical results of Harte Hanks as adjusted on a pro forma basis to give effect to the sale of the Target Companies, as described in Item 2.01 of Harte Hanks’ Current Report on Form 8-K to which this Exhibit 99.1 is attached (the “Trillium Sale”). The accompanying unaudited pro forma condensed consolidated financial information is presented as of and for the nine months ended September 30, 2016 for Harte Hanks’ unaudited and condensed consolidated balance sheet and unaudited and condensed consolidated statement of operations. The unaudited pro forma condensed consolidated balance sheet as of September 30, 2016 is based on Harte Hanks’ balance sheet as of September 30, 2016, after giving effect to the Trillium Sale and the termination of the Credit Agreement, as described in Item 1.02 of Harte Hanks’ Current Report on Form 8-K to which this Exhibit 99.1 is attached, as if each had occurred as of September 30, 2016. The Pro forma condensed consolidated statements of operations for the nine months ended September 30, 2016, and for the years ended December 31, 2015, 2014 and 2013 assume the Trillium Sale was consummated at January 1, 2013, and give full effect to the transaction for the periods presented.
The unaudited pro forma condensed consolidated financial information (i) has been provided for informational purposes only; (ii) includes adjustments directly attributable to the transactions; and (iii) is not necessarily indicative of the operating results or financial position that would have occurred if the Trillium Sale had been completed as of the dates set forth above and does not purport to project the future financial position or operating results of Harte Hanks. The pro forma adjustments are described in the accompanying notes and are based upon available information and assumptions that are factually supportable as of the date hereof.
The following unaudited pro forma condensed consolidated financial information should be read in conjunction with Harte Hanks’ historical consolidated financial statements and related notes contained in Harte Hanks’ Annual Report on Form 10-K for the year ended December 31, 2015 and the unaudited condensed consolidated financial statements filed in Harte Hanks’ Quarterly Report on Form 10-Q for the
interim period ended September 30, 2016. The unaudited pro forma condensed consolidated financial information was prepared in accordance with Article 11 of Regulation S-X.
Condensed Consolidated Balance Sheet (Unaudited)
| | Historical | | | | | | | |
| | September 30, 2016 | | | | | | | |
In thousands, except per share and share amounts | | (Unaudited) | | Trillium | | Notes | | Pro Forma | |
ASSETS | | | | | | | | | |
Current assets | | | | | | | | | |
Cash and cash equivalents | | $ | 6,883 | | 31,207 | | 2(a) | | 38,090 | |
Accounts receivable (less allowance for doubtful accounts of $1,489 at September 30, 2016 and $974 at December 31, 2015) | | 77,779 | | 5,820 | | 2(a)(b) | | 83,599 | |
Inventory | | 1,021 | | | | | | 1,021 | |
Prepaid expenses | | 5,736 | | | | | | 5,736 | |
Prepaid income tax | | 4,562 | | | | | | 4,562 | |
Other current assets | | 2,933 | | | | | | 2,933 | |
Current assets held for sale | | 169,022 | | (169,022 | ) | 2(a) | | 0 | |
Total current assets | | 267,936 | | (131,995 | ) | | | 135,941 | |
Property, plant and equipment (less accumulated depreciation of $142,971 at September 30, 2016 and $145,137 at December 31, 2015) | | 25,908 | | | | | | 25,908 | |
Goodwill | | 73,179 | | | | | | 73,179 | |
Other intangible assets (less accumulated amortization of $1,266 | | | | | | | | | |
at September 30, 2016 and $650 at December 31, 2015) | | 3,507 | | | | | | 3,507 | |
Other assets (including deferred income taxes of $5,603 | | | | | | | | | |
at September 30, 2016 and $3,000 at December 31, 2015) | | 8,254 | | 10,776 | | 2(c) | | 19,030 | |
Total assets | | $ | 378,784 | | (121,219 | ) | | | 257,565 | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
Current liabilities | | | | | | | | | |
Current maturities of long-term debt | | $ | 61,153 | | (65,465 | ) | 2(b) | | (4,312 | ) |
Accounts payable | | 38,124 | | | | | | 38,124 | |
Accrued payroll and related expenses | | 10,379 | | | | | | 10,379 | |
Deferred revenue and customer advances | | 6,367 | | | | | | 6,367 | |
Income taxes payable | | 1,299 | | 36,769 | | 2(c) | | 38,068 | |
Customer postage and program deposits | | 9,855 | | | | | | 9,855 | |
Other current liabilities | | 5,202 | | | | | | 5,202 | |
Current liabilities held for sale | | 22,846 | | (22,846 | ) | 2(a) | | 0 | |
Total current liabilities | | 155,225 | | (51,542 | ) | | | 103,683 | |
Long-term debt | | — | | | | | | — | |
Pensions | | 53,725 | | | | | | 53,725 | |
Contingent Consideration | | 21,760 | | | | | | 21,760 | |
Other long-term liabilities (including deferred income taxes of $21,993 at September 30, 2016 and $20,672 at December 31, 2015) | | 25,516 | | (22,003 | ) | 2(c) | | 3,513 | |
Total liabilities | | 256,226 | | (73,545 | ) | | | 182,681 | |
| | | | | | | | | |
Stockholders’ equity | | | | | | | | | |
Common stock, $1 par value, 250,000,000 shares authorized 120,430,981 shares issued at September 30, 2016 and 120,146,720 shares issued at December 31, 2015 | | 120,431 | | | | | | 120,431 | |
Additional paid-in capital | | 351,011 | | (40 | ) | | | 350,971 | |
Retained earnings | | 955,347 | | (47,634 | ) | 2(a)(b)(c) | | 907,713 | |
Less treasury stock, 58,830,094 shares at cost at September 30, 2016 and 58,879,742 shares at cost at December 31, 2015 | | (1,260,053 | ) | | | | | (1,260,053 | ) |
Accumulated other comprehensive loss | | (44,178 | ) | | | | | (44,178 | ) |
Total stockholders’ equity | | 122,558 | | (47,674 | ) | | | 74,884 | |
Total liabilities and stockholders’ equity | | $ | 378,784 | | (121,219 | ) | | | 257,565 | |
Amounts may not add due to rounding.
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements
Condensed Consolidated Statements of Operations (Unaudited)
| | Historical Nine Months
Ended September 30, | | | | | | | |
In thousands, except per share amounts | | 2016 | | Trillium | | Notes | | Pro Forma | |
Operating revenues | | $ | 294,305 | | | | | | $ | 294,305 | |
Operating expenses | | | | | | | | | |
Labor | | 185,938 | | | | | | $ | 185,938 | |
Production and distribution | | 84,581 | | | | | | 84,581 | |
Advertising, selling, general and administrative | | 35,162 | | | | | | $ | 35,162 | |
Impairment of goodwill | | — | | | | | | — | |
Depreciation, software and intangible asset amortization | | 9,403 | | | | | | 9,403 | |
Total operating expenses | | 315,084 | | — | | | | 315,084 | |
Operating loss | | (20,779 | ) | | | | | $ | (20,779 | ) |
Other (income) and expenses | | | | | | | | | |
Interest expense, net | | 2,399 | | | | | | $ | 2,399 | |
Other, net | | (514 | ) | | | | | (514 | ) |
Total other expenses | | 1,885 | | — | | | | 1,885 | |
Loss from continuing operations before income taxes | | (22,664 | ) | | | | | $ | (22,664 | ) |
Income tax benefit | | (5,778 | ) | | | | | (5,778 | ) |
Loss from continuing operations | | (16,886 | ) | — | | | | (16,886 | ) |
| | | | | | | | | |
Income from discontinued operations, net of tax | | 3,980 | | (47,634 | ) | 2(d) | | (43,654 | ) |
| | | | | | | | | |
Net loss | | $ | (12,906 | ) | $ | (47,634 | ) | | | $ | (60,540 | ) |
| | | | | | | | | |
Basic earnings (loss) per common share | | | | | | | | | |
Continuing operations | | $ | (0.27 | ) | $ | — | | | | $ | (0.27 | ) |
Discontinued operations | | 0.06 | | (0.78 | ) | | | (0.72 | ) |
Basic earnings (loss) per common share | | $ | (0.21 | ) | $ | (0.78 | ) | | | $ | (0.99 | ) |
| | | | | | | | | |
Weighted-average common shares outstanding | | 61,445 | | 61,445 | | | | 61,445 | |
| | | | | | | | | |
Diluted earnings (loss) per common share | | | | | | | | | |
Continuing operations | | $ | (0.27 | ) | $ | — | | | | $ | (0.27 | ) |
Discontinued operations | | 0.06 | | (0.78 | ) | | | (0.72 | ) |
Diluted earnings (loss) per common share | | $ | (0.21 | ) | $ | (0.78 | ) | | | $ | (0.99 | ) |
| | | | | | | | | |
Weighted-average common and common equivalent shares outstanding | | 61,445 | | 61,445 | | | | 61,445 | |
| | | | | | | | | |
Net loss | | $ | (12,906 | ) | $ | (47,634 | ) | | | $ | (60,540 | ) |
Amounts may not add due to rounding.
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements
| | Historical Fiscal Year
Ended December 31, | | | | | | | |
In thousands, except per share amounts | | 2015 | | Trillium | | Notes | | Pro Forma | |
Operating revenues | | $ | 495,301 | | $ | (51,135 | ) | | | $ | 444,166 | |
Operating expenses | | | | | | | | | |
Labor | | 260,839 | | $ | (22,219 | ) | | | $ | 238,620 | |
Production and distribution | | 143,324 | | $ | (1,405 | ) | | | 141,919 | |
Advertising, selling, general and administrative | | 54,530 | | $ | (9,950 | ) | | | $ | 44,580 | |
Impairment of goodwill | | 209,938 | | | | | | 209,938 | |
Depreciation, software and intangible asset amortization | | 14,245 | | (1,868 | ) | | | 12,377 | |
Total operating expenses | | 682,876 | | (35,442 | ) | | | 647,434 | |
Operating loss | | (187,575 | ) | (15,693 | ) | | | $ | (203,268 | ) |
Other (income) and expenses | | | | | | | | | |
Interest expense, net | | 4,759 | | | | | | $ | 4,759 | |
Loss on sale | | 9,501 | | | | | | $ | 9,501 | |
Other, net | | 1,007 | | (3,524 | ) | | | (2,517 | ) |
Total other expenses | | 15,267 | | (3,524 | ) | | | 11,743 | |
Loss from continuing operations before income taxes | | (202,842 | ) | (12,169 | ) | | | $ | (215,011 | ) |
Income tax benefit | | (31,914 | ) | (4,657 | ) | | | (36,571 | ) |
Loss from continuing operations | | (170,928 | ) | (7,512 | ) | 2(d) | | (178,440 | ) |
| | | | | | | | | |
Basic earnings (loss) per common share | | | | | | | | | |
Continuing operations | | $ | (2.77 | ) | $ | (0.12 | ) | 2(d) | | $ | (2.90 | ) |
| | | | | | | | | |
Weighted-average common shares outstanding | | 61,643 | | 61,445 | | | | 61,445 | |
| | | | | | | | | |
Diluted earnings (loss) per common share | | | | | | | | | |
Continuing operations | | $ | (2.77 | ) | $ | (0.12 | ) | 2(d) | | $ | (2.90 | ) |
| | | | | | | | | |
Weighted-average common and common equivalent shares outstanding | | 61,643 | | 61,445 | | | | 61,445 | |
Amounts may not add due to rounding.
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements
In thousands, except per share amounts | | Historical Fiscal Year
Ended December 31,
2014 | | Trillium | | Notes | | Pro Forma | |
Operating revenues | | $ | 553,676 | | $ | (54,232 | ) | | | $ | 499,444 | |
Operating expenses | | | | | | | | | |
Labor | | 279,135 | | $ | (25,930 | ) | | | $ | 253,205 | |
Production and distribution | | 166,959 | | $ | (1,651 | ) | | | 165,308 | |
Advertising, selling, general and administrative | | 51,900 | | $ | (9,862 | ) | | | $ | 42,038 | |
Impairment of goodwill | | — | | | | | | — | |
Depreciation, software and intangible asset amortization | | 14,920 | | (2,032 | ) | | | 12,888 | |
Total operating expenses | | 512,914 | | (39,475 | ) | | | 473,439 | |
Operating Income | | 40,762 | | (14,757 | ) | | | $ | 26,005 | |
Other (income) and expenses | | | | | | | | | |
Interest expense, net | | 2,559 | | | | | | $ | 2,559 | |
Other, net | | 897 | | 203 | | | | 1,100 | |
Total other expenses | | 3,456 | | 203 | | | | 3,659 | |
Income from continuing operations before income taxes | | 37,306 | | (14,960 | ) | | | $ | 22,346 | |
Income tax expense | | 13,315 | | (5,725 | ) | | | 7,590 | |
Income from continuing operations | | 23,991 | | (9,235 | ) | 2(d) | | 14,756 | |
| | | | | | | | | |
Basic earnings (loss) per common share | | | | | | | | | |
Continuing operations | | $ | 0.38 | | $ | (0.15 | ) | 2(d) | | $ | 0.24 | |
| | | | | | | | | |
Weighted-average common shares outstanding | | 62,444 | | 61,445 | | | | 61,445 | |
| | | | | | | | | |
Diluted earnings (loss) per common share | | | | | | | | | |
Continuing operations | | $ | 0.38 | | $ | (0.15 | ) | 2(d) | | $ | 0.24 | |
| | | | | | | | | |
Weighted-average common and common equivalent shares outstanding | | 62,658 | | 61,445 | | | | 61,445 | |
Amounts may not add due to rounding.
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements
In thousands, except per share amounts | | Historical Fiscal Year
Ended December 31,
2013 | | Trillium | | Notes | | Pro Forma | |
Operating revenues | | $ | 559,609 | | (55,849 | ) | | | $ | 503,760 | |
Operating expenses | | | | | | | | | |
Labor | | 281,924 | | (25,961 | ) | | | $ | 255,963 | |
Production and distribution | | 161,600 | | (1,690 | ) | | | 159,910 | |
Advertising, selling, general and administrative | | 54,937 | | (9,045 | ) | | | $ | 45,892 | |
Impairment of goodwill | | 2,750 | | — | | | | 2,750 | |
Depreciation, software and intangible asset amortization | | 15,737 | | (2,052 | ) | | | 13,685 | |
Total operating expenses | | 516,948 | | (38,748 | ) | | | 478,200 | |
Operating income | | 42,661 | | (17,101 | ) | | | $ | 25,560 | |
Other (income) and expenses | | | | | | | | | |
Interest expense, net | | 2,998 | | — | | | | $ | 2,998 | |
Other, net | | 46 | | (525 | ) | | | (479 | ) |
Total other expenses | | 3,044 | | (525 | ) | | | 2,519 | |
Income from continuing operations before income taxes | | 39,617 | | (16,576 | ) | | | $ | 23,041 | |
Income tax expense | | 15,176 | | (6,344 | ) | | | 8,832 | |
Income from continuing operations | | 24,441 | | (10,232 | ) | 2(d) | | 14,209 | |
| | | | | | | | | |
Basic earnings (loss) per common share | | | | | | | | | |
Continuing operations | | $ | 0.39 | | $ | (0.17 | ) | 2(d) | | $ | 0.23 | |
| | | | | | | | | |
Weighted-average common shares outstanding | | 62,503 | | 61,445 | | | | 61,445 | |
| | | | | | | | | |
Diluted earnings (loss) per common share | | | | | | | | | |
Continuing operations | | $ | 0.39 | | $ | (0.17 | ) | 2(d) | | $ | 0.23 | |
| | | | | | | | | |
Weighted-average common and common equivalent shares outstanding | | 62,812 | | 61,445 | | | | 61,445 | |
Amounts may not add due to rounding.
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements
HARTE HANKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1 — Basis of Presentation
The accompanying unaudited pro forma condensed consolidated balance sheet as of September 30, 2016 is based on Harte Hanks’ balance sheet as of September 30, 2016, after giving effect to the Trillium Sale and the termination of the Credit Agreement as if each had occurred as of September 30, 2016. Pro forma financial information is also presented for the condensed consolidated statement of operations for the nine months ended September 30, 2016, and for the years ended December 31, 2015, 2014 and 2013. The unaudited and condensed consolidated statement of operations for the periods presented assumes the Trillium Sale was consummated at January 1, 2013, giving full effect to such transaction for the periods presented.
The following are descriptions of the columns included in the accompanying unaudited pro forma condensed consolidated financial statements:
Historical - Represents the historical condensed consolidated balance sheet of Harte Hanks as of September 30, 2016, and the historical condensed consolidated statements of operations of Harte Hanks for the nine months ended September 30, 2016, and for the years ended December 31, 2015, 2014 and 2013.
Pro Forma Adjustments - Represents the adjustments to the historical condensed consolidated balance sheet of Harte Hanks required to derive the pro forma financial position of Harte Hanks as of September 30, 2016, assuming the Trillium Sale occurred as of September 30, 2016, and the adjustments to the historical condensed consolidated statements of operations of Harte Hanks required to derive the pro forma financial position for the nine months ended September 30, 2016, and for the years ended December 31, 2015, 2014 and 2013, assuming the Trillium Sale occurred as of January 1, 2013.
NOTE 2 — PRO FORMA ADJUSTMENTS
Condensed Consolidated Balance Sheet
(a) Net cash proceeds from transactions (in thousands):
Cash consideration at closing of the transactions | | $ | 112,000 | |
Transaction-related fees paid at closing | | (4,305 | ) |
Escrow amount | | (1,370 | ) |
Termination of credit facilities (b) | | (73,984 | ) |
Net proceeds from closing of the transactions | | $ | 32,341 | |
These adjustments represent receipt of proceeds for the Trillium sale, a portion of which was used to terminate the Credit Agreement.
Note that the adjustments to the assets and liabilities from discontinued operations includes the estimated costs associated with exit or disposal activities, including the estimate for the goodwill impairment charge, as described in Item 2.05 of the Harte Hanks Form 8-K filed on December 5, 2016. Note also that, in accordance with ASC 205, Discontinued Operations and Disclosures of Disposals of Components of an Entity, we recognized that we had met the criteria to classify Trillium as held for sale. As such, the classification of the assets and liabilities of Trillium, including goodwill, were previously presented as held for sale on the condensed consolidated balances sheet, and no further pro forma adjustment is necessary to recognize Trillium assets and liabilities as discontinued operations.
(b) Termination of the credit facilities (in thousands):
Payoff of oustanding credit facility principal and unamortized discount amortization | | $ | 65,465 | |
Collateral held by Wells Fargo | | 4,451 | |
Early termination fee | | 1,260 | |
Other interest/fees | | 2,808 | |
| | $ | 73,984 | |
These adjustments represent the impact of the termination of the credit facilities, including the elimination of the associated outstanding borrowings, early termination fees, collateralization of outstanding continuing letters of credit, interest payable and unamortized loan discount. Note that the amount of debt outstanding at the time of the Trillium Sale was higher than debt outstanding at September 30, 2016.
(c) The adjustments represent the estimated impact on the deferred tax asset, deferred tax liability and income taxes payable.
Condensed Consolidated Statement of Operations
(d) These adjustments represent the impact of the transactions on income/loss from continuing operations and earnings per common share, including an estimate of the loss from the Trillium Sale and the termination of the Credit Agreement; as well as the estimated costs associated with exit or disposal activities, including the estimate for the goodwill impairment charge, as described in Item 2.05 of Harte Hanks’ Current Report on Form 8-K filed on December 5, 2016. Note also that, in accordance with ASC 205, Discontinued Operations and Disclosures of Disposals of Components of an Entity, we recognized that we had met the criteria to classify Trillium as held for sale. As such, the classification of the financial results of Trillium were previously presented as held for sale on the condensed consolidated statement of operations, and no further pro forma adjustment is necessary to recognize Trillium results of operations as discontinued operations for the period ended September 30, 2016. These results exclude any unknown future fees and/or other costs related to the Trillium Sale and termination of the Credit Agreement that cannot be estimated, as well as an adjustment for the final working capital settlement calculation, if necessary. Note that the tax impact of the Trillium Sale and termination of the Credit Agreement transactions is based on estimates and is subject to change.
