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, 1995
_____ 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, 18,373,849 shares as of March 31, 1995
HARTE-HANKS COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q REPORT
March 31, 1995
Page
Part I. Financial Information
Item 1. Interim Condensed Consolidated Financial
Statements (Unaudited)
Condensed Consolidated Balance Sheets - 3
March 31, 1995 and December 31, 1994
Consolidated Statements of Operations - 4
Three months ended March 31, 1995 and 1994
Consolidated Statements of Cash Flows - 5
Three months ended March 31, 1995 and 1994
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 12
(a) Exhibits
(b) Reports on Form 8-K
Signature 12
TABLE
Harte-Hanks Communications, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (in thousands, except per share and share amounts)
(Unaudited)
March 31, December 31,
1995 1994
Assets
Current assets
Cash.............................................. $ 3,979 $ 4,391
Accounts receivable, net.......................... 64,553 70,929
Inventory......................................... 15,875 13,454
Prepaid expenses.................................. 7,274 5,904
Current deferred income tax benefit............... 6,830 6,808
Other current assets.............................. 3,561 4,143
Total current assets............................ 102,072 105,629
Property, plant and equipment, net.................. 84,657 91,278
Goodwill, net....................................... 278,406 290,335
Other assets........................................ 6,592 9,656
Total assets.................................... $ 471,727 $ 496,898
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable.................................. $ 35,757 $ 31,229
Accrued payroll and related expenses.............. 12,121 17,996
Accrued interest.................................. 695 731
Prepaid subscriptions............................. 3,387 3,978
Current portion of film contracts................. 1,337 1,717
Income taxes payable.............................. 13,745 1,867
Other current liabilities......................... 15,612 13,165
Current portion of long term debt................. 398 469
Total current liabilities....................... 83,052 71,152
Long term debt...................................... 250,820 292,858
Other long term liabilities......................... 24,067 25,248
Total liabilities............................... 357,939 389,258
Stockholders' equity
Common stock, $1 par value, authorized 50,000,000
shares. Issued and outstanding 1995: 18,373,849
shares; 1994: 18,342,503 shares................. 18,374 18,342
Additional paid-in capital........................ 144,814 144,350
Accumulated deficit............................... (47,455) (53,107)
Minimum pension liability adjustment.............. (1,945) (1,945)
Total stockholders' equity...................... 113,788 107,640
Total liabilities and stockholders' equity...... $ 471,727 $ 496,898
<FN>
See Notes to Interim Condensed Consolidated Financial Statements.
TABLE
Harte-Hanks Communications, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31,
1995 1994
Operating revenues.................................... $130,178 $115,115
Operating expenses
Payroll............................................. 49,704 47,412
Production and distribution......................... 47,273 40,131
Advertising, selling, general and administrative.... 14,763 13,603
Depreciation........................................ 3,416 3,180
Goodwill amortization............................... 2,424 2,350
117,580 106,676
Operating income...................................... 12,598 8,439
Other expenses (income)
Interest expense.................................... 4,946 3,966
Interest income..................................... (102) (36)
Gain on divestiture................................. (12,293) --
Other, net.......................................... 443 124
(7,006) 4,054
Income before income tax expense...................... 19,604 4,385
Income tax expense.................................... 13,494 2,118
Net income............................................ $ 6,110 $ 2,267
Primary:
Earnings per common share........................... $ 0.32 $ 0.12
Weighted average common and common equivalent
shares outstanding................................ 19,139 19,051
Fully diluted:
Earnings per common share........................... $ 0.31 $ 0.12
Weighted average common and common equivalent
share outstanding................................. 20,601 20,483
<FN>
See Notes to Interim Condensed Consolidated Financial Statements.
TABLE
Harte-Hanks Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (in thousands)
(Unaudited)
Three Months Ended March 31,
1995 1994
Operating Activities
Net income.......................................... $ 6,110 $ 2,267
Add (deduct) non-cash income and expenses:
Depreciation ................................... 3,416 3,180
Goodwill amortization........................... 2,424 2,350
Amortization of option related expense.......... 240 474
Film amortization............................... 654 616
Deferred income taxes........................... (1,321) (849)
Other, net...................................... 300 236
Gain on divestiture............................. (12,293) --
Changes in operating assets and liabilities,
net of acquisitions and divestiture
Decrease in accounts receivable, net.............. 3,626 4,916
(Increase) decrease in inventory.................. (3,614) 1,268
Increase in prepaid expenses and other
current assets.................................. (1,732) (2,994)
Increase (decrease) in accounts payable........... 1,822 (3,874)
Increase in other accrued expenses
and other liabilities........................... 9,212 3,398
Other, net........................................ 222 225
Net cash provided by operating activities....... 9,066 11,213
Investing Activities
Purchases of property, plant and equipment.......... (3,344) (3,660)
Proceeds from the sale of property, plant
and equipment and divested assets................. 40,113 62
Acquisitions........................................ (5,760) --
Payments on film contracts.......................... (507) (504)
Net cash provided by (used in)
investing activities............................ 30,502 (4,102)
Financing Activities
Long term debt borrowings........................... 521,255 156,625
Payments on long term debt, including current
maturities ....................................... (561,273) (165,197)
Issuance of common stock............................ 496 183
Dividends paid...................................... (458) --
Net cash used in financing activities............. (39,980) (8,389)
Net decrease in cash................................ (412) (1,278)
Cash at beginning of year........................... 4,391 4,392
Cash at end of period............................... $ 3,979 $ 3,114
<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, 1995 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, 1994.
Certain prior period amounts have been reclassified for comparative
purposes.
Note B - Divestiture
In March 1995, the Company completed the previously announced sale of
its suburban Boston community newspapers, which consisted of three
daily and 11 weekly publications. As a result of this transaction,
the Company recognized a gain on divestiture of $2.3 million, or 11
cents per share, net of $10.0 million of income taxes.
Note C - Income Taxes
The Company's quarterly income tax provision of $13.5 million includes
$10.0 million related to the gain on divestiture. The Company's
income taxes on operations of $3.5 million were calculated using an
effective income tax rate of 47.2%. The Company's effective income
tax rate is derived by estimating pretax income and income tax expense
for the year ended December 31, 1995. 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, 1995 March 31, 1994 Change
Revenues $130,178 $115,115 13.1%
Operating expenses 117,580 106,676 10.2%
Operating income $ 12,598 $ 8,439 49.3%
Net income $ 6,191 $ 2,267 173.1%
Fully diluted earnings
per share $ 0.31 $ 0.12 158.3%
Consolidated revenues grew 13.1% to $130.2 million and operating income grew
49.3% to $12.6 million in the first quarter of 1995 as compared to the first
quarter of 1994. The most dramatic growth occurred in the direct marketing
business where revenues increased 32.1% and operating income increased
105.0%. The Company's overall growth resulted from increased business with
both new and existing customers, new products and services as well as
advertising and circulation rate increases. Operating expenses also rose
due to the growth in business as well as higher newsprint prices and postal
rates.
Net income of $6.2 million for the first quarter of 1995 includes a gain on
divestiture, net of income taxes, of $2.3 million discussed under "Gain on
Divestiture" (page 10). Excluding this net gain on divestiture, net income
was $3.9 million, or 20 cents per share, on a fully diluted basis.
Direct Marketing
Direct marketing operating results were as follows:
Three months ended
In thousands March 31, 1995 March 31, 1994 Change
Revenues $45,772 $34,651 32.1%
Operating expenses 41,094 32,369 27.0%
Operating income $ 4,678 $ 2,282 105.0%
Direct marketing revenues increased $11.1 million, or 32.1%, in the first
quarter of 1995 when compared to 1994. All service offerings experienced
growth with the most significant revenue increases occurring in database,
integrated direct marketing and response management. Direct marketing
service offerings enable Harte-Hanks customers to identify and communicate
with their marketing targets, evaluate responses and measure the
effectiveness of their marketing communications. Overall, revenue growth
resulted from increased business with both new and existing customers,
particularly in services provided to the retail, banking, financial
services, high technology industries and to international customers.
Although the majority of direct marketing revenue growth came from existing
operations, revenue growth was also affected by the October 1994 acquisition
of Select Marketing Inc., an Austin, Texas company offering response
management services, and the January 1995 acquisition of Steinert &
Associates, a New York City direct marketing communications and advertising
firm offering integrated direct marketing services.
Operating expenses increased $8.7 million, or 27.0%, in the first quarter of
1995 when compared to 1994. Payroll costs increased $3.1 million, primarily
due to increased hiring to support direct marketing's revenue growth.
Production costs increased $4.6 million due to increased volumes. Operating
expense growth was also impacted by the acquisitions made in the fourth
quarter of 1994 and the first quarter of 1995.
Shoppers
Shopper operating results were as follows:
Three months ended
In thousands March 31, 1995 March 31, 1994 Change
Revenues $43,646 $42,092 3.7%
Operating expenses 40,704 39,831 2.2%
Operating income $ 2,942 $ 2,261 30.1%
Excluding revenues from the Company's smallest shopper that was sold in
February 1994, shopper revenues grew $2.5 million, or 6.1%, in the first
quarter of 1995 as compared to 1994. Revenue increases occurred primarily
in existing circulation zones and were also due, in part, to new
circulation. Revenues in existing circulation zones rose due to increased
rates. The revenue increase due to circulation expansion resulted from an
additional 131,000 households added since March 31, 1994 as well as
increased circulation of the newsstand product. The newsstand product was
introduced in the Southern California market in late 1993. Total weekly
shopper household circulation was 7.0 million at March 31, 1995.
Excluding operating expenses from the divested shopper, first quarter
operating expenses increased $2.0 million, or 5.1%, when compared to 1994.
Postage costs increased $1.8 million, or 16.9%, due primarily to a postage
rate increase as well as to increased circulation and higher overweight
postage costs. This increase was offset partially by lower payroll costs of
$0.6 million, or 4.3%. Payroll costs decreased due to reduced headcount and
changes in commission plans. Newsprint costs were flat, despite increased
newsprint prices, due to reduced volumes. Newsprint consumption decreased,
in part, due to the implementation of pagination technology in the Company's
Southern California shopper. Pagination permits a more efficient
publication design and reduces the number of pages in the book.
Newspapers
Newspaper operating results were as follows:
Three months ended
In thousands March 31, 1995 March 31, 1994 Change
Revenues $34,878 $32,221 8.2%
Operating expenses 29,341 27,559 6.5%
Operating income $ 5,537 $ 4,662 18.8%
Newspaper revenues increased $2.6 million, or 8.2%, in the first quarter of
1995 when compared to 1994. Overall advertising revenues were up $2.0
million, or 8.0%. In particular, classified advertising revenues grew 14.6%
as a result of increases both in rates and volumes. The classified growth
was attributable to growth in automotive volumes as well as help wanted
volumes in the Company's suburban markets. Retail advertising revenues
increased 2.8% as a result of increased rates, while insert revenues rose
slightly. In addition, niche and specialty product revenues were up
primarily as a result of a direct mail initiative into South Texas, which
began in 1994. Circulation revenues increased 7.9%, reflecting home
delivery price increases in the fall of 1994.
Newspaper operating expenses increased $1.8 million, or 6.5%, in the first
quarter of 1995 when compared to 1994. Payroll costs were $0.5 million
higher, or 3.9%, due to increased sales commissions on higher advertising
volumes and normal payroll increases. Newsprint costs increased $0.5
million, or 14.6%, as a result of higher average newsprint prices offset
slightly by reduced volumes. The reduction in volumes was attributable to
newsprint savings from the new press installed in July 1994 at the Corpus
Christi Caller-Times as well as to various operating decisions that affected
newsprint consumption. Costs associated with the direct mail program also
rose due to the postal rate increase in January 1995, as well as to
increased volumes.
Television
Television operating results were as follows:
Three months ended
In thousands March 31, 1995 March 31, 1994 Change
Revenues $5,882 $6,151 -4.4%
Operating expenses 4,457 4,711 -5.4%
Operating income $1,425 $1,440 -1.0%
Revenues for the television segment decreased $0.3 million, or 4.4%, in the
first quarter of 1995 when compared to 1994. Revenues from the television
station operation decreased $0.1 million, or 2.8%, when compared to 1994,
which benefited from significant political revenue and CBS coverage of the
NFL playoffs and winter Olympics. The television segment revenue decrease
was also affected by decreased revenues from the segment's print graphics
services and the absence of a direct mail publication in the first quarter
of 1995.
First quarter expenses for the television segment decreased $0.3 million, or
5.4%, when compared to 1994 primarily due to reduced costs associated with
print graphics and direct mail services.
Gain on Divestiture
In March 1995, the Company completed the previously announced sale of its
suburban Boston community newspapers, which consisted of three daily and 11
weekly publications. As a result of this transaction, the Company
recognized a gain on divestiture of $2.3 million, or 11 cents per share, net
of $10.0 million of income taxes.
Interest Expense
Interest expense increased $1.0 million in the first quarter of 1995 when
compared to 1994 as a result of higher interest rates. Although short term
interest rates rose throughout 1994, the impact on the Company was mitigated
somewhat by more favorable pricing under terms of the Company's credit
facility. The more favorable pricing is a result of increased operating
cash flow, as defined in the Company's credit facility agreement, and
reduced debt levels. In addition, the Company is realizing lower interest
costs and commitment fees after amending its revolving credit commitment in
February 1995.
Income Taxes
The Company's income tax expense of $13.5 million for the first quarter of
1995 includes $10.0 million of income taxes relating to the gain on
divestiture. The remaining income tax expense of $3.5 million related to
operations increased $1.4 million when compared to the first quarter of
1994. The expense increase was directly related to the increased income
levels.
Liquidity and Capital Resources
Cash provided from operating activities for the three months ended March 31,
1995 was $9.1 million as compared to $11.2 million for the three months
ended March 31, 1994. Net cash inflows for investing activities were
$30.5 million as compared to outflows of $4.1 million in 1994. Year-to-date
investing activities for 1995 included $40.1 million in sales proceeds from
the sale of property, plant and equipment and divested assets. These
proceeds resulted primarily from the sale of the Boston community newspapers
and were used to reduce borrowings under the Company's credit facility.
Also included in year-to-date investing activities were expenditures of $5.8
million for acquisitions and $3.3 million for equipment purchases.
Capital resources are 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, 2001. 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, 1995, the Company had $115.0 million of unused borrowing
capacity under its credit facility, of which $24.1 million was reserved to
serve as backup for the Company's outstanding commercial paper and other
short-term borrowing facilities.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See index to Exhibits on Page 13.
(b) No reports on Form 8-K were filed for the three months ended
March 31, 1995.
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, 1995 /s/ Richard L. Ritchie
Date Richard L. Ritchie
Senior Vice President,
Finance and Chief Financial
and Accounting Officer
/TABLE
Exhibit
No. Description of Exhibit Page No.
*10(n) Second Amendment to Third Amended and Restated Loan 14
Agreement dated as of February 2, 1995 among the
Company, NationsBank of Texas, N.A., National
Westminster Bank USA, The Bank of Nova Scotia,
The First National Bank of Boston, Bank of Hawaii,
The Bank of Tokyo, LTD., Dallas Agency, Corestates
Bank, N.A. and CIBC Inc. and Toronto-Dominion (Texas),
Inc. in its Individual Capacity and as Agent.
*11 Statement Regarding Computation of Net Income 35
Common Share
*27 Financial Data Schedules 36
* Filed herewith.