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, 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, 18,192,500 shares as of June 30, 1994
HARTE-HANKS COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q REPORT
June 30, 1994
Page
Part I. Financial Information
Item 1. Interim Condensed Consolidated Financial
Statements (Unaudited)
Condensed Consolidated Balance Sheets - 3
June 30, 1994 and December 31, 1993
Consolidated Statements of Operations - 4
Three months ended June 30, 1994 and 1993
Consolidated Statements of Operations - 5
Six months ended June 30, 1994 and 1993
Consolidated Statements of Cash Flows - 6
Six months ended June 30, 1994 and 1993
Notes to Interim Condensed Consolidated Financial 7
Statements
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II. Other Information
Item 3. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
(a) Exhibits
(b) Reports on Form 8-K
Signature 14
Harte-Hanks Communications, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (in thousands, except per share and share amounts)
(Unaudited)
June 30, December 31,
1994 1993
Assets
Current assets
Cash.............................................. $ 4,792 $ 4,392
Accounts receivable, net.......................... 61,590 61,130
Inventory......................................... 9,956 8,032
Prepaid expenses.................................. 7,680 5,385
Current deferred income tax benefit............... 5,363 4,549
Other current assets.............................. 2,838 3,765
Total current assets............................ 92,219 87,253
Property, plant and equipment, net.................. 91,936 90,809
Goodwill, net....................................... 287,984 292,944
Other assets........................................ 8,381 7,932
Total assets.................................... $ 480,520 $ 478,938
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable.................................. $ 22,278 $ 24,422
Accrued payroll and related expenses.............. 14,365 12,607
Accrued interest.................................. 718 950
Prepaid subscriptions............................. 3,821 3,753
Current portion of film contracts................. 625 1,233
Income taxes payable.............................. 2,106 235
Other current liabilities......................... 11,857 10,765
Current portion of long term debt................. 337 977
Total current liabilities....................... 56,107 54,942
Long term debt...................................... 310,819 320,087
Other long term liabilities......................... 20,095 20,045
Total liabilities............................... 387,021 395,074
Stockholders' equity
Common stock, $1 par value, authorized 50,000,000
shares. Issued and outstanding 1994: 18,192,500
shares; 1993: 18,129,400 shares................. 18,192 18,129
Additional paid-in capital........................ 143,030 142,664
Accumulated deficit............................... (67,723) (76,929)
Total stockholders' equity...................... 93,499 83,864
Total liabilities and stockholders' equity...... $ 480,520 $ 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 June 30,
1994 1993
Operating revenues.................................... $126,866 $116,011
Operating expenses
Payroll............................................. 47,219 42,804
Production and distribution......................... 44,049 41,039
Advertising, selling, general and administrative.... 12,330 11,705
Depreciation........................................ 3,156 3,061
Goodwill amortization............................... 2,352 2,761
Goodwill write-down................................. -- 55,463
109,106 156,833
Operating income (loss)............................... 17,760 (40,822)
Other expenses (income)
Interest expense.................................... 4,144 8,677
Interest income..................................... (55) (22)
Other, net.......................................... 153 391
4,242 9,046
Income (loss) before income tax expense............... 13,518 (49,868)
Income tax expense.................................... 6,579 3,299
Net income (loss)..................................... $ 6,939 $(53,167)
Net income (loss) per share -- primary................ $ .36 $ (4.43)
Weighted average common and common
equivalent shares outstanding..................... 19,031 12,007
Net income (loss) per share -- fully diluted.......... $ .35 $ (4.43)
Weighted average common and common
equivalent shares outstanding..................... 20,483 12,007
<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)
Six Months Ended June 30,
1994 1993
Operating revenues.................................... $241,981 $216,629
Operating expenses
Payroll............................................. 94,631 84,108
Production and distribution......................... 84,180 77,081
Advertising, selling, general and administrative.... 25,933 23,532
Depreciation........................................ 6,336 5,832
Goodwill amortization............................... 4,702 5,467
Goodwill write-down................................. -- 55,463
215,782 251,483
Operating income (loss)............................... 26,199 (34,854)
Other expenses (income)
Interest expense.................................... 8,110 17,146
Interest income..................................... (91) (51)
Other, net.......................................... 277 527
8,296 17,622
Income (loss) before income tax expense............... 17,903 (52,476)
Income tax expense.................................... 8,697 1,813
Net income (loss)..................................... $ 9,206 $(54,289)
Net income (loss) per share -- primary................ $ 0.48 $ (4.52)
Weighted average common and common
equivalent shares outstanding..................... 19,041 12,008
Net income (loss) per share -- fully diluted.......... $ 0.47 $ (4.52)
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)
Six Months Ended June 30,
Operating Activities
Net income (loss)................................... $ 9,206 $(54,289)
Add (deduct) non-cash income and expenses:
Depreciation ................................... 6,336 5,832
Goodwill amortization........................... 4,702 5,467
Goodwill write-down............................. -- 55,463
Bad debt expense................................ 2,062 1,971
Film amortization............................... 1,233 1,787
Deferred income taxes........................... (1,521) (358)
Other, net...................................... 235 407
Changes in operating assets and liabilities
Increase in accounts receivable, net.............. (2,337) (1,144)
Increase in inventory............................. (2,045) (293)
Increase in prepaid expenses and other
current assets.................................. (2,933) (1,362)
Decrease in accounts payable...................... (2,778) (833)
Increase in other accrued expenses
and other liabilities........................... 5,120 220
Other, net........................................ 474 (72)
Net cash provided by operating activities....... 17,754 12,796
Investing Activities
Acquisitions........................................ -- (9,783)
Purchases of property, plant and equipment.......... (7,835) (10,210)
Proceeds from the sale of property, plant
and equipment..................................... 126 479
Payments on film contracts.......................... (964) (1,859)
Net cash used in investing activities............. (8,673) (21,373)
Financing Activities
Long term debt borrowings........................... 224,826 247,655
Payments on long term debt, including current
maturities ....................................... (233,936) (238,277)
Stock transactions.................................. 429 (15)
Net cash provided by (used in) financing
activities........................................ (8,681) 9,363
Net increase in cash................................ 400 786
Cash at beginning of year........................... 4,392 3,279
Cash at end of period............................... $ 4,792 $ 4,065
<FN>
See Notes to Interim Condensed Consolidated Financial Statements.
Harte-Hanks Communications, Inc. and Subsi
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 six
months ended June 30 are not necessarily indicative of the results
that may be expected for the year ending December 31. 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 period 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 entire year ended December 31.
Applying the estimated annual effective income tax rate to the pretax
income for the six months ended June 30, 1994 results in an income tax
expense of $8.7 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, excluding the effect of the second quarter 1993 goodwill
write-down (discussed under "Goodwill Write-Down," page 12), were as
follows:
Three months ended Six months ended
In thousands June 30, 1994 June 30, 1993 Change June 30, 1994 June 30, 1993 Change
Revenues $126,866 $116,011 9.4% $241,981 $216,629 11.7%
Operating expenses 109,106 101,370 7.6% 215,782 196,020 10.1%
Operating income $ 17,760 $ 14,641 21.3% $ 26,199 $ 20,609 27.1%
Net income $ 6,939 $ 2,296 202.2% $ 9,206 $ 1,174 684.2%
Revenues grew 9.4% to $126.9 million in the second quarter of 1994 as
compared to the second quarter of 1993. The most dramatic growth occurred
in the direct marketing business where revenues increased 29.4%. The
Company's growth resulted from the development of new products and services,
shopper circulation expansion and improving general economic conditions.
The same growth factors also caused operating expenses to rise.
Direct Marketing
Direct marketing operating results were as follows:
Three months ended Six months ended
In thousands June 30, 1994 June 30, 1993 Change June 30, 1994 June 30, 1993 Change
Revenues $39,377 $30,428 29.4% $74,028 $54,694 35.3%
Operating expenses 34,927 27,210 28.4% 67,296 49,954 34.7%
Operating income $ 4,450 $ 3,218 38.3% $ 6,732 $ 4,740 42.0%
Direct marketing revenues increased $8.9 million in the second quarter of
1994 when compared to the second quarter of 1993. Revenue growth occurred
in all service categories (database, integrated direct marketing,
transportation, marketing services and data processing/addressing). The
most significant revenue increases occurred in database, marketing services
and integrated direct marketing. These service offerings enable customers
to specifically select and interact with their marketing targets.
Transportation revenues were also up sharply as a result of increased
volumes. Overall, revenue growth resulted from increased business from both
new and existing customers, particularly in services provided to the retail,
banking, mutual funds and other financial industries.
Payroll costs increased $3.1 million for the second quarter of 1994 as
compared to 1993, primarily due to increased hiring to support direct
marketing's revenue growth. Production costs also rose, mainly due to
growth-related expenses in the transportation service offering.
Direct marketing revenues increased $19.3 million in the first half of 1994
as compared to the first half of 1993. Increased revenues reflected
significant growth in all service categories, particularly in database,
integrated direct marketing, transportation and marketing services.
Revenues for the first six months of 1994 were also affected by the April
1993 acquisition of Direct Market Concepts, Inc.
First half 1994 operating expenses rose $17.3 million when compared to 1993,
reflecting increased activity as well as investments to support future
growth. First half 1994 operating expenses were also affected by the April
1993 acquisition.
Shoppers
Shopper operating results, excluding the second quarter 1993 goodwill write-
down, were as follows:
Three months ended Six months ended
In thousands June 30, 1994 June 30, 1993 Change June 30, 1994 June 30, 1993 Change
Revenues $45,350 $44,928 0.9% $87,442 $85,460 2.3%
Operating expenses 39,634 40,027 -1.0% 79,465 78,836 0.8%
Operating income $ 5,716 $ 4,901 16.6% $ 7,977 $ 6,624 20.4%
Excluding revenues from the Company's smallest shopper, sold in February
1994, shopper revenues grew $2.0 million in the second quarter of 1994 as
compared to 1993. Despite the continued weak California economy, revenues
grew as a result of circulation expansion and slight improvement in existing
circulation. During the 12 months ended June 30, 1994, circulation for the
Company's four remaining shoppers grew from 6.4 million to 6.9 million
households with the largest increases occurring in Southern California and,
to a lesser extent, Miami. Circulation increased 225,000 net households in
the first six months of 1994.
Excluding operating expenses from the divested shopper, second quarter
operating expenses increased $1.4 million. Postage costs increased $0.5
million primarily due to higher circulation and, to a lesser extent,
overweight postage. Newsprint costs were flat, with increased costs
resulting from higher volumes relating to the circulation growth offset by
average price declines. Payroll costs rose $0.8 million, and general and
administrative expenses remained flat.
Excluding revenues from the divested shopper, year-to-date revenues
increased $4.1 million as compared to 1993. Revenue growth for the first
half of 1994 was primarily attributable to circulation expansion and, to a
lesser extent, increased advertising in existing circulation zones.
Excluding operating expenses from the divested shopper, year-to-date
operating costs increased $3.1 million. Payroll, postage and newsprint
costs increased $1.3 million, $1.0 million and $0.4 million, respectively,
due to increased circulation. General and administrative expenses remained
flat.
Newspapers
Newspaper operating results, excluding the second quarter 1993 goodwill
write-down, were as follows:
Three months ended Six months ended
In thousands June 30, 1994 June 30, 1993 Change June 30, 1994 June 30, 1993 Change
Revenues $34,791 $32,935 5.6% $67,012 $62,953 6.4%
Operating expenses 27,794 27,688 0.4% 55,353 54,601 1.4%
Operating income $ 6,997 $ 5,247 33.4% $11,659 $ 8,352 39.6%
Newspaper revenues increased $1.9 million in the second quarter of 1994 when
compared to the second quarter of 1993. Advertising revenues were up 6.0%.
Classified advertising revenues grew 14.8% with strong automotive volumes.
Retail and national revenues were relatively flat, while insert revenues
rose 2.7%. In addition, niche and specialty product revenues were up as a
result of investments made to broaden the newspaper revenue base.
Circulation revenues increased 6.6%, reflecting home-delivery price
increases in the fall of 1993.
Payroll costs were $0.6 million higher in the second quarter of 1994 as
compared to the second quarter of 1993 due to increased sales commissions on
higher advertising volumes, normal payroll increases as well as investments
made to develop niche and specialty products. In addition, general and
administrative costs rose $0.3 million. Newsprint costs decreased $0.4
million as a result of lower average newsprint prices that offset slightly
higher volumes. Goodwill amortization decreased $0.4 million due to the
second quarter 1993 goodwill write-down of $52.7 million that related to the
Company's suburban newspapers in Boston and Dallas.
Year-to-date 1994 newspaper revenues grew $4.1 million when compared to
1993. Advertising revenues increased 7.0%, driven largely by volume
increases in classified advertising and niche and specialty products.
Circulation revenues increased 6.7%.
Payroll costs for the first six months of 1994 rose $1.3 million due to
increased advertising volumes in the Company's primary products, normal
payroll increases and investments made to support niche and specialty
product revenue growth. In addition, general and administrative costs
increased $0.5 million. Newsprint costs declined $0.3 million due to lower
average newsprint prices that offset higher volumes. Goodwill amortization
decreased $0.8 million due to the second quarter 1993 goodwill write-down.
Television
Television operating results were as follows:
Three months ended Six months ended
In thousands June 30, 1994 June 30, 1993 Change June 30, 1994 June 30, 1993 Change
Revenues $7,348 $7,720 -4.8% $13,499 $13,522 -0.2%
Operating expenses 4,775 5,080 -6.0% 9,486 9,777 -3.0%
Operating income $2,573 $2,640 -2.5% $ 4,013 $ 3,745 7.2%
Television advertising revenues declined $0.4 million in the second quarter
of 1994 when compared to the same period in 1993. However, the second
quarter of 1993 was affected by a number of favorable events: the favorable
impact from the closure of one of San Antonio's daily newspapers, a special
senatorial election runoff and the San Antonio Olympic Festival. Print
graphics revenues declined in the second quarter of 1994 as compared to 1993
due to the repositioning of products and services offered. This decline was
offset by revenue growth from the direct mail product introduced in 1993 and
new revenue from the radio station purchased by KENS-TV in October 1993.
Operating income decreased 2.5% to $2.6 million as a result of continued
investment in several revenue initiatives.
For the first half of 1994, television revenues remained relatively flat
when compared to 1993.
Television expenses decreased $0.3 million in both the second quarter and
first half of 1994 when compared to the same periods in 1993. In both the
second quarter and first half of 1994, film programming costs decreased due
to the expiration of certain film contracts. To a lesser degree, graphic
production costs also declined in both periods. Payroll costs remained
relatively flat in the second quarter of 1994, while they increased in the
first half due to normal payroll increases.
Other Items Affecting Operating Results
Shoppers and direct marketing have experienced stable postal rates in recent
years. While postal rates generally go up every three years, the 10.3%
increase proposed for 1995 would be the first postal rate increase in four
years.
Newsprint expense represents approximately 7% of the Company's total
operating expenses. Both newspapers and shoppers have benefited from
favorable newsprint prices in the recent past. Newsprint prices increased
about 12% in June 1994 and will impact the Company's fourth quarter and, to
a lesser extent, third quarter expenses. An additional price increase of
approximately 9% has been announced for August 15, 1994.
Interest Expense
Interest expense decreased $4.5 million in the second quarter of 1994 and
$9.0 million in the first half of 1994 when compared to the same periods in
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.
Although short term interest rates have risen in recent months, the impact
on the Company has been mitigated somewhat by more favorable pricing under
terms of the Company's credit facility as a result of increased operating
cash flow, as defined in the Company's credit facility agreement, and
reduced debt levels.
Income Taxes
The Company's income tax expense increased $3.3 million in the second
quarter of 1994 and $6.9 million in the first half of 1994 when compared to
the same periods in 1993. The expense increase was directly related to the
increased income levels.
Goodwill Write-Down
During the second quarter of 1993, the Company incurred a goodwill write-
down charge of $55.5 million. This write-down was related to the Company's
daily, semi-weekly and weekly newspapers in suburban Boston and Dallas and,
to a lesser extent, its shopper publication in Tucson. The Company sold the
Tucson shopper in February 1994.
Liquidity and Capital Resources
Cash provided from operating activities for the six months ended June 30,
1994 was $17.8 million, as compared to $12.8 million for the six months
ended June 30, 1993. Net cash outflows for investing activities were
$8.7 million for the first half of 1994, as compared to $21.4 million in
1993. Investing activities for the first quarter of 1994 included
$7.8 million in capital expenditures for equipment purchases. In 1993, the
net cash outflows for investing activities of $21.4 million consisted
primarily of capital expenditures of $10.2 million and cash expenditures on
acquisitions of $9.8 million.
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 June 30, 1994, the Company had $85.8 million of unused borrowing capacity
under its credit facility, of which $54.8 million was reserved to serve as
backup for the Company's outstanding commercial paper.
PART II. OTHER INFORMATION
Item 3. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of stockholders on May 6,
1994. At the meeting the stockholders were requested to vote on
the election of Dr. Peter T. Flawn and Christopher M. Harte as
Class I directors for three year terms. The result of the vote
are as follows:
Director Votes For Withheld
Dr. Peter T. Flawn 15,818,127 265,915
Christopher M. Harte 15,818,727 265,315
The stockholders were requested to approve the Harte-Hanks
Communications, Inc. 1994 Employee Stock Purchase Plan (the
"Stock Purchase Plan"). The vote of the stockholders on the
Stock Purchase Plan was as follows:
Votes For Votes Against Abstain
16,025,112 30,010 28,920
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See index to Exhibits on Page 15.
(b) No reports on Form 8-K were filed for the three months ended
June 30, 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.
August 12, 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.
*11 Statement Regarding Computation of Net Income (Loss) 16
Common Share
* Filed herewith.