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, 1994
_____ 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 COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-1677284
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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 the number of shares outstanding of each of the issuer's classes
of common stock: $1 par value, 18,158,400 shares as of May 10, 1994
HARTE-HANKS COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q REPORT
March 31, 1994
Page
Part I. Financial Information
Item 1. Interim Condensed Consolidated Financial
Statements (Unaudited)
Condensed Consolidated Balance Sheets - 3
March 31, 1994 and December 31, 1993
Consolidated Statements of Operations - 4
Three months ended March 31, 1994 and 1993
Consolidated Statements of Cash Flows - 5
Three months ended March 31, 1994 and 1993
Notes to Interim Condensed Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
(a) Exhibits
(b) Reports on Form 8-K
Signature 11
Harte-Hanks Communications, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (in thousands, except per share and share amounts)
(Unaudited)
March 31, December 31,
1994 1993
Assets
Current assets
Cash.............................................. $ 3,114 $ 4,392
Accounts receivable, net.......................... 56,466 61,130
Inventory......................................... 6,643 8,032
Prepaid expenses.................................. 8,583 5,385
Current deferred income tax benefit............... 4,862 4,549
Other current assets.............................. 2,927 3,765
Total current assets............................ 82,595 87,253
Property, plant and equipment, net.................. 90,907 90,809
Goodwill, net....................................... 290,336 292,944
Other assets........................................ 8,249 7,932
Total assets.................................... $ 472,087 $ 478,938
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable.................................. $ 23,331 $ 24,422
Accrued payroll and related expenses.............. 13,135 12,607
Accrued interest.................................. 557 950
Prepaid subscriptions............................. 4,025 3,753
Current portion of film contracts................. 984 1,233
Income taxes payable.............................. 2,497 235
Other current liabilities......................... 11,434 10,765
Current portion of long term debt................. 370 977
Total current liabilities....................... 56,333 54,942
Long term debt...................................... 309,247 320,087
Other long term liabilities......................... 20,193 20,045
Total liabilities............................... 385,773 395,074
Stockholders' equity
Common stock, $1 par value, authorized 50,000,000
shares. Issued and outstanding 1994: 18,158,400
shares; 1993: 18,129,400 shares................. 18,158 18,129
Additional paid-in capital........................ 142,818 142,664
Accumulated deficit............................... (74,662) (76,929)
Total stockholders' equity...................... 86,314 83,864
Total liabilities and stockholders' equity...... $ 472,087 $ 478,938
<FN>
See Notes to Interim Condensed Consolidated Financial Statements.
Harte-Hanks Communications, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31,
1994 1993
Operating revenues.................................... $115,115 $100,618
Operating expenses
Payroll............................................. 47,412 41,304
Production and distribution......................... 40,131 36,042
Advertising, selling, general and administrative.... 13,603 11,827
Depreciation........................................ 3,180 2,771
Goodwill amortization............................... 2,350 2,706
106,676 94,650
Operating income...................................... 8,439 5,968
Other expenses (income)
Interest expense.................................... 3,966 8,469
Interest income..................................... (36) (29)
Other, net.......................................... 124 136
4,054 8,576
Income (loss) before income tax expense (benefit)..... 4,385 (2,608)
Income tax expense (benefit).......................... 2,118 (1,486)
Net income (loss)..................................... $ 2,267 $ (1,122)
Net income (loss) per share -- primary................ $ .12 $ (.09)
Weighted average common and common
equivalent shares outstanding..................... 19,051 12,008
Net income (loss) per share -- fully diluted.......... $ .12 $ (.09)
Weighted average common and common
equivalent shares outstanding..................... 20,483 12,008
<FN>
See Notes to Interim Condensed Consolidated Financial Statements.
Harte-Hanks Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (in thousands)
(Unaudited)
Three Months Ended March 31,
1994 1993
Operating Activities
Net income (loss)................................... $ 2,267 $ (1,122)
Add (deduct) non-cash income and expenses:
Depreciation ................................... 3,180 2,771
Goodwill amortization........................... 2,350 2,706
Bad debt expense................................ 1,454 1,346
Film amortization............................... 616 894
Deferred income taxes........................... (849) (826)
Other, net...................................... 236 93
Changes in operating assets and liabilities
Decrease in accounts receivable, net.............. 3,462 5,174
Decrease (increase) in inventory.................. 1,268 (1,110)
Increase in prepaid expenses and other
current assets.................................. (2,994) (3,756)
Increase (decrease) in accounts payable........... (3,874) 231
Increase (decrease) in other accrued expenses
and other liabilities........................... 3,398 (5,729)
Other, net........................................ 699 (34)
Net cash provided by operating activities....... 11,213 638
Investing Activities
Purchases of property, plant and equipment.......... (3,660) (4,919)
Proceeds from the sale of property, plant
and equipment..................................... 62 490
Payments on film contracts.......................... (504) (919)
Other............................................... -- (179)
Net cash used in investing activities............. (4,102) (5,527)
Financing Activities
Long term debt borrowings........................... 156,625 31,620
Payments on long term debt, including current
maturities ....................................... (165,197) (25,885)
Other............................................... 183 (15)
Net cash provided by (used in) financing
activities........................................ (8,389) 5,720
Net increase (decrease) in cash..................... (1,278) 831
Cash at beginning of year........................... 4,392 3,279
Cash at end of period............................... $ 3,114 $ 4,110
<FN>
See Notes to Interim Condensed Consolidated Financial Statements.
Harte-Hanks Communications, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
Note A - Financial Statements
The accompanying unaudited Interim Condensed Consolidated Financial
Statements include the accounts of Harte-Hanks Communications, Inc.
and subsidiaries (the "Company").
The statements have been prepared in accordance with generally
accepted accounting principles 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 generally accepted accounting principles 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 ended March 31, 1994 are not necessarily indicative of
the results that may be expected for the year ending December 31,
1994. 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, 1993.
Certain prior year amounts have been reclassified for comparative
purposes.
Note B - Income Taxes
The Company's quarterly income tax calculation is based on an
effective income tax rate that is derived by estimating pretax income
and income tax expense for the year ended December 31, 1994. Applying
the estimated annual effective income tax rate to the pretax income
for the three months ended March 31, 1994 results in an income tax
expense of $2.1 million. 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, primarily goodwill amortization, which are not deductible
for federal income tax purposes.
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
In thousands March 31, 1994 March 31, 1993 Change
Revenues $115,115 $100,618 14.4%
Operating expenses 106,676 94,650 12.7%
Operating income $ 8,439 $ 5,968 41.4%
Net income (loss) $ 2,267 $ (1,122)
Revenues grew in all business segments in the first quarter of 1994. The
growth resulted from improving general economic conditions, the development
of new products and services, and shopper circulation expansion. The
acquisition of a direct marketing company in April 1993 and an expanded
customer base were also factors in the revenue growth. The same factors
also caused operating expenses to rise. The Company's California markets
continued to be affected by weak economic conditions.
Newspapers
Newspaper operating results were as follows:
Three months ended
In thousands March 31, 1994 March 31, 1993 Change
Revenues $32,221 $30,018 7.3%
Operating expenses 27,559 26,913 2.4%
Operating income $ 4,662 $ 3,105 50.1%
Newspaper revenues increased $2.2 million in the first quarter of 1994.
Retail and classified advertising revenues grew 5.4% and 13.5%,
respectively, due to increased volumes. The classified advertising growth
was driven primarily by automotive volume increases. In addition,
circulation revenues increased 6.7%, reflecting home-delivery price
increases in the fall of 1993 and a small increase in circulation volumes.
Payroll costs rose $0.8 million due to increased advertising volumes in the
Company's primary products as well as investments made to develop niche
publications and specialized services. In addition, general and
administrative costs increased $0.3 million related to the increased
revenues. Newsprint costs increased $0.1 million due to higher advertising
volumes partially offset by lower newsprint prices. Goodwill amortization
decreased $0.4 million due to a second quarter 1993 goodwill write-down of
$52.7 million that related to the Company's suburban newspapers in Boston
and Dallas.
Shoppers
Shopper operating results were as follows:
Three months ended
In thousands March 31, 1994 March 31, 1993 Change
Revenues $42,092 $40,532 3.8%
Operating expenses 39,831 38,809 2.6%
Operating income $ 2,261 $ 1,723 31.2%
Shopper revenues grew $1.6 million in the first quarter of 1994. Revenue
growth was primarily attributable to circulation expansion and, to a lesser
extent, increased in-book advertising in existing circulation zones. These
revenue increases were offset somewhat by lower distribution revenues and
the February sale of the Company's smallest shopper, located in Tucson.
Excluding the Tucson shopper, circulation continued to increase primarily in
the Company's Southern California market and, to a lesser extent, at the
Company's Miami shopper.
Postage costs increased $0.4 million due to higher circulation. Newsprint
costs increased $0.3 million due to increased circulation as well as higher
in-book advertising volumes in existing zones. Despite increased
circulation, payroll costs rose only slightly due to the Company's
technology investments and continued focus on controlling costs. General and
administrative expenses remained flat. The level of operating costs also
reflected the February sale of the Company's Tucson shopper.
Direct Marketing
Direct marketing operating results were as follows:
Three months ended
In thousands March 31, 1994 March 31, 1993 Change
Revenues $34,651 $24,266 42.8%
Operating expenses 32,369 22,744 42.3%
Operating income $ 2,282 $ 1,522 49.9%
The direct marketing revenue increase of $10.4 million in the first quarter
of 1994 reflected growth in all five service categories -- marketing,
database, integrated direct marketing, data processing/addressing and
transportation. Growth resulted from both new clients and new services to
existing clients, as well as the acquisition of Direct Market Concepts, Inc.
in April 1993. The rate of growth was particularly notable in the marketing
services provided to the mutual funds industry as well as in integrated
direct marketing services.
Both payroll and production costs increased in the first quarter of 1994.
Payroll costs rose $4.3 million due to normal payroll increases as well as
increased hiring to support the increased business activity, new products
and new clients. Production costs rose $3.5 million as a result of the
increased activity in all direct marketing services. These operating
expense increases were also affected by the April 1993 acquisition.
Television
Television operating results were as follows:
Three months ended
In thousands March 31, 1994 March 31, 1993 Change
Revenues $6,151 $5,802 6.0%
Operating expenses 4,711 4,697 0.3%
Operating income $1,440 $1,105 30.3%
Television revenues grew $0.3 million in the first quarter of 1994.
Television advertising revenues increased 10.9% due to political campaigns,
a strong local economy and the Olympics. In addition, television revenue
growth was slightly affected by the direct mail product introduced in 1993
and KENS-AM, the AM radio station purchased by KENS-TV in October 1993.
Offsetting these revenue increases was a decline in print graphics service
revenues due to reduced volumes.
Payroll costs increased in the first quarter of 1994 due both to normal
payroll increases and to increased payroll costs related to the KENS-AM
radio acquisition and KENS-TV's local news updates featured on CNN Headline
News. Offsetting the payroll cost increase was a decline in film
programming costs that resulted from the expiration of certain film
contracts, as well as reduced graphic production costs.
Other Items Affecting Operating Results
Both newspapers and shoppers have benefited from favorable newsprint prices,
although it is likely that prices will increase in the months ahead. In
addition, shoppers and direct marketing have experienced stable postal
rates. While postal rates generally go up every three years, the 10.3%
increase which has been proposed for 1995 would be the first postal rate
increase in four years.
Interest Expense
Interest expense decreased $4.5 million in the first quarter of 1994 when
compared to 1993 as a result of reduced debt levels and the use of less
expensive debt. The Company redeemed $100 million of the 11 7/8%
Subordinated Debentures in August 1993 with borrowings under its credit
facility. The remaining $100 million of Debentures was redeemed in December
1993, funded primarily with proceeds from the company's initial public
offering. As a result of both redemptions, the Company expects to save
approximately $18 million in annual interest based upon its effective
borrowing rate of 4.8% at March 31, 1994.
Income Taxes
The Company's income tax expense changed from an income tax
benefit of $1.5 million in the first quarter of 1993 to an expense of $2.1
million in the first quarter of 1994. The expense change was directly
related to the increased income levels.
Liquidity and Capital Resources
Cash provided from operating activities for the quarter ended March 31, 1994
was $11.2 million, as compared to $0.6 million for the quarter ended March
31, 1993. Net cash outflows for investing activities were $4.1 million for
the quarter ended March 31, 1994, as compared to $5.5 million for the
quarter ended March 31, 1993. Investing activities for the first quarter of
1994 included $3.7 million in capital expenditures for equipment purchases.
Capital resources are also available from and provided through the Company's
unsecured credit facility. All borrowings under the revolving credit
facility are to be repaid by December 31, 1999. Management believes that
its credit facility, together with cash provided from operating activities,
will be sufficient to fund operations, anticipated capital and film
expenditures and debt service requirements for the foreseeable future. As
of March 31, 1994, the Company had $72.3 million of unused borrowing
capacity under its credit facility, of which $39.5 million was reserved to
serve as backup for the Company's outstanding commercial paper.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See index to Exhibits on Page 12.
(b) No reports on Form 8-K were filed for the three months ended
March 31, 1994.
SIGNATURE
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 COMMUNICATIONS, INC.
May 10, 1994 /s/ Richard L. Ritchie
Date Richard L. Ritchie
Senior Vice President,
Finance and Chief Financial
and Accounting Officer
Exhibit
No. Description of Exhibit Page No.
10(m) Harte-Hanks Communications, Inc. Incentive Bonus
Plan (filed as Exhibit 10(m) to the Company's
Form 10-K for the year ended December 31, 1993
and incorporated herein by reference)
*11 Statement Regarding Computation of Net Income (Loss) 13
Common Share
* Filed herewith.