EXHIBIT 13

REAL FINANCIAL STRENGTH

Harte-Hanks has real financial strength: we are profitable, with earnings per
share in 2002 exceeding those in 2001; we generate significant amounts of free
cash flow; we have a debt-free balance sheet.

Total financial integrity and honest, transparent reporting of actual results
have long been trademarks of Harte-Hanks. In these times when the failure of
some to follow these principles has damaged the public's trust in corporate
America, we have redoubled our commitment to apply our financial principles and
maintain our financial integrity.

2002 presented extraordinary challenges. The people of Harte-Hanks met these
challenges with determination and courage. Throughout the world every day, in
our data centers, cubicles, conference rooms, warehouses, executive offices,
loading docks, at client sites and on airplanes, we all rolled up our sleeves
and faced the day's work with passion and intensity. This is our report of the
results.

[GRAPHIC APPEARS HERE]

FINANCIAL CONTENTS

Management's discussion and analysis 12

Consolidated balance sheets 18

Consolidated statements of operations 19

Consolidated statements of cash flows 20

Consolidated statements of stockholders' equity and comprehensive income 21

Notes to consolidated financial statements 22

Five-year financial summary 31

Independent auditors' report 32

Corporate information 32

Directors, officers and Harte-Hanks operations 33

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company's overall performance reflects its commitment to its strategy of
remaining a market leader in the targeted media industry, introducing new
products and entering new markets, investing in technology and people, and
increasing shareholder value. Harte-Hanks is a worldwide direct and targeted
marketing company that provides direct marketing services and shopper
advertising opportunities to a wide range of local, regional, national and
international consumer and business-to-business marketers. Harte-Hanks Direct
Marketing improves the return on its clients' marketing investment with a range
of services organized around five solution points: Construct and update the
database --> Access the data --> Analyze the data --> Apply the
knowledge --> Execute the programs. Harte-Hanks Shoppers is North America's
largest owner, operator and distributor of shopper publications, with shoppers
that are zoned into more than 800 separate editions reaching more than 10
million households in California and Florida each week.

Harte-Hanks has grown internally by adding new customers and products,
cross-selling existing products, entering new markets and expanding its
international presence. In addition, the Company has used its excess cash flows
and borrowings against its credit facilities to fund several acquisitions in the
past few years. These acquisitions, as well as several previous acquisitions,
have enhanced the Company's growth over the past three years. Harte-Hanks has
funded $75.9 million in acquisitions during the period 2000 through 2002. These
acquisitions have all been in the Company's Direct Marketing segment, which
comprises approximately 63% of the Company's revenues for the year ended
December 31, 2002.

Harte-Hanks derives its revenues from the sale of direct marketing and
advertising services. As a worldwide business, direct marketing is affected by
general national and international economic trends. Shoppers operate in local
markets and are largely affected by the strength of the local economies. The
Company's principal expense items are payroll, postage, transportation and
paper.

RESULTS OF OPERATIONS

Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," under which goodwill is no longer amortized for book
purposes (See Note A of the "Notes to Consolidated Financial Statements,"
included herein). For the purposes of the Management's Discussion and Analysis
section of this report, all prior year numbers have been restated as if SFAS No.
142 had been adopted for the year.

Operating results were as follows:

In thousands 2002 % CHANGE 2001/1/ % CHANGE 2000/1/
- ----------------------------------------------------------------------------
Revenue $ 908,777 -1.0 $ 917,928 -4.5 $ 960,773
Operating expenses 758,489 -0.5 762,075 -5.7 807,759
--------- --------- ---------
Operating income $ 150,288 -3.6 $ 155,853 1.9 $ 153,014
========= ========= =========

/1/ Results as if SFAS 142 had been adopted for the period. Reported results
for the years ended December 31, 2001, and 2000, including goodwill
amortization, were operating expenses of $778,298 and $822,552
respectively, and operating income of $139,630 and $138,221 respectively.

Consolidated revenues declined 1.0% to $908.8 million while operating income
declined 3.6% to $150.3 million in 2002 compared to 2001. Overall operating
expenses decreased 0.5% to $758.5 million. The Company's overall results reflect
revenue and operating income declines in its Direct Marketing segment, partially
offset by increased revenue and operating income in the Shopper segment.

The Company's overall 2001 results reflect revenue declines in its Direct
Marketing segment, partially offset by increased revenues from the Shoppers
segment. Overall 2001 operating income results reflect increased operating
income from the Shoppers segment, partially offset by operating income declines
from its Direct Marketing segment.

DIRECT MARKETING
Direct Marketing operating results were as follows:

In thousands 2002 % CHANGE 2001/1/ % CHANGE 2000/1/
- -----------------------------------------------------------------------------
Revenue $ 573,826 -4.7 $ 601,901 -9.1 $ 662,044
Operating expenses 489,954 -2.9 504,730 -9.8 559,872
--------- --------- ---------
Operating income $ 83,872 -13.7 $ 97,171 -4.9 $ 102,172
========= ========= =========

/1/ Results as if SFAS 142 had been adopted for the period. Reported results
for the years ended December 31, 2001, and 2000, including goodwill
amortization, were operating expenses of $516,881 and $570,594
respectively, and operating income of $85,020 and $91,450 respectively.

Direct Marketing revenues decreased $28.1 million, or 4.7%, in 2002 compared to
2001. These results reflect revenue declines in most of the company's largest
vertical markets, including financial services, retail and
pharmaceutical/healthcare. Revenues from the high-tech/telecom industry sector
were flat compared to 2001. The segment's select markets group had increased
revenue, primarily from the automotive and energy sectors, that were largely
attributable to the November 2001 acquisition of Sales Support Services, Inc.
Direct Marketing experienced revenue declines in data sales, data processing,
Internet services, consulting services, personalized direct mail and targeted
mail businesses partially offset by increased revenues from software sales,
logistics operations and agency-type business. Direct Marketing revenues were
also affected by the 2001 acquisition noted above.

Operating expenses decreased $14.8 million, or 2.9%, in 2002 compared to 2001.
Labor costs decreased $19.0 million due to lower volumes and staff reductions.
Production and distribution costs increased $6.7 million, primarily due to
higher transportation costs related to higher logistics revenues and higher
temporary labor costs. General and administrative expenses decreased $2.8
million due to a decrease in bad debt expense, professional services and
business services. Depreciation expense increased $0.3 million due to new
capital investments to support future growth and improve efficiencies. Operating
expenses were also impacted by the 2001 acquisition noted above.

Direct Marketing revenues decreased $60.1 million, or 9.1% in 2001 compared to
2000. These results reflect declines in almost all of Direct Marketing's
vertical markets, including declines in the segment's largest vertical markets:
retail, financial services and high-tech/telecom. The overall decline was
partially offset by strong growth in revenue from the pharmaceutical/healthcare
industries. Direct Marketing experienced revenue declines in data processing,
agency, consulting, fulfillment, telesales, brokered customer list business,
personalized direct mail, targeted mail and logistics operations, partially
offset by increased software revenue and revenue attributable to 2001 and 2000
acquisitions.

Operating expenses decreased $55.1 million, or 9.8%, in 2001 compared to 2000.
The overall decrease in operating expenses was primarily due to the Company's
efforts to manage its cost structure in a difficult economic environment, as
well as reduced

variable expenses resulting from lower revenue levels. Labor costs declined
$16.2 million due to lower volumes and staff reductions. Production and
distribution costs decreased $28.4 million due primarily to decreased volumes
and better pricing obtained from vendors. General and administrative expenses
decreased $14.4 million due to decreases in employee expense and professional
services. Depreciation expense increased $3.7 million due to new capital
investments to support future growth and improve efficiencies. Operating
expenses were also impacted by 2001 and 2000 acquisitions.

SHOPPERS
Shopper operating results were as follows:

In thousands 2002 % CHANGE 2001/1/ % CHANGE 2000/1/
- -----------------------------------------------------------------------------
Revenue $ 334,951 6.0 $ 316,027 5.8 $ 298,729
Operating expenses 260,387 4.8 248,557 4.0 238,948
--------- --------- ---------
Operating income $ 74,564 10.5 $ 67,470 12.9 $ 59,781
========= ========= =========

/1/ Results as if SFAS 142 had been adopted for the period. Reported results
for the years ended December 31, 2001, and 2000, including goodwill
amortization, were operating expenses of $252,629 and $243,019
respectively, and operating income of $63,398 and $55,710 respectively.

Shopper revenues increased $18.9 million, or 6.0%, in 2002 compared to 2001.
Revenue increases were the result of improved sales in established markets as
well as geographic expansions into new neighborhoods in California. From a
product-line perspective, Shoppers had growth in both run-of-press (ROP, or
in-book) advertising, primarily real estate-related advertising, and its
distribution products, primarily four-color glossy flyers. These increases were
partially offset by declines in employment-related ROP advertising and coupon
book revenues.

Shopper operating expenses rose $11.8 million, or 4.8%, in 2002 compared to
2001. Labor costs increased $7.5 million due to higher volumes. Production costs
increased $4.5 million due to a $5.0 million increase in postage resulting from
higher postage rates and increased circulation and volumes. Partially offsetting
these increased postage costs were decreased paper costs due to lower rates for
both newsprint and job paper. General and administrative costs were flat, as
decreased bad debt expense was offset by higher promotion and facilities
expenses.

Shopper revenues increased $17.3 million, or 5.8%, in 2001 compared to 2000.
Revenue increases were the result of improved sales in established markets as
well as geographic expansions into new neighborhoods in both California and
Florida. On a product basis, revenue increased due to growth in distribution
products and ROP, primarily core sales and real estate-related advertising.
These increases were partially offset by declines in employment-related ROP
advertising, print-and-deliver and coupon-book revenues.

Shopper operating expenses rose $9.6 million, or 4.0%, in 2001 compared to 2000.
The increase in operating expenses was primarily due to increases in production
costs of $5.6 million, including increased postage of $3.5 million due to higher
postage rates and increased circulation and volumes. Promotion costs also
increased $2.9 million; labor costs increased $2.0 million; and insurance costs
were up $1.0 million.

ACQUISITIONS

As described in Note B of the "Notes to Consolidated Financial Statements"
included herein, the Company made three acquisitions in the past three years.

In November 2001, the Company acquired Sales Support Services, Inc. (SSS), a
leading business-to-business lead generation, order-processing and fulfillment
services company serving the automotive, energy and other industries.

The Company acquired the Detroit-based Information Resource Group, a leading
provider of business-to-business intelligence solutions to the high-tech,
telecommunications and other industries, in November 2000, and Hi-Tech Marketing
Limited (HTM), a London-based leading pan-European provider of CRM services to
the high-tech, telecommunications and financial services industries, in June
2000.

INTEREST EXPENSE/INTEREST INCOME

Interest expense decreased $1.9 million in 2002 over 2001 due primarily to lower
outstanding debt levels of the Company's revolving credit facilities. The
decrease in interest expense in 2002 was also a result of lower rates in 2002
compared to 2001. Interest expense increased $1.4 million in 2001 over 2000, due
primarily to higher outstanding debt levels during 2001 of the Company's
three-year revolving credit facility, the proceeds of which were used to
repurchase the Company's stock and fund the November 2001 acquisition of SSS.
Interest relating to the Company's unsecured credit facility obtained for the
purpose of constructing a new building in Belgium, and a note payable issued in
connection with the Company's June 2000 acquisition of HTM, also contributed to
the increase in interest expense during 2001. The increase in interest expense
in 2001 attributable to the higher debt levels was partially offset by lower
interest rates in 2001 compared to 2000. The Company's debt on December 31,
2002,

and 2001 is described in Note D of the "Notes to Consolidated Financial
Statements," included herein.

Interest income decreased $0.2 million in 2002 compared to 2001 due to lower
interest rates in 2002 compared to 2001. Interest income decreased $1.6 million
in 2001 over 2000 due to lower interest rates and lower average cash balances
during the year.

OTHER INCOME AND EXPENSE

Other net expense for 2002 primarily consists of balance-based bank charges and
stockholders expenses. During 2001 the Company realized $2.5 million in losses
on the sales of investments that were classified as available for sale and $0.9
million in losses on the sales of investments that were accounted for under the
cost method. The remaining other net expense for 2001 primarily consists of
balance-based bank charges and stockholders expenses.

INCOME TAXES

Income taxes decreased $0.4 million in 2002 and $2.1 million in 2001 due to
lower income levels. The effective income tax rates were 38.4%, 38.3%, and 38.9%
in 2002, 2001 and 2000, respectively. The effective income tax rate calculated
is higher than the federal statutory rate of 35% due to the addition of state
taxes.

CAPITAL INVESTMENTS

Net cash used in investing activities for 2002 included $17.4 million for
capital expenditures and $3.8 million for acquisition-related payments. The
capital expenditures consisted primarily of additional computer capacity,
technology, systems, new press equipment and equipment upgrades for the Direct
Marketing segment. The Shopper segment's capital expenditures were primarily
related to additional computer and other production equipment. The
acquisition-related payments, which all relate to prior years' acquisitions,
were made in the Direct Marketing segment and are discussed above in the section
titled "Acquisitions."

Net cash used in investing activities for 2001 included $28.2 million for
acquisitions and $26.4 million for capital expenditures. The acquisition
investments, which were made in the Direct Marketing segment, are discussed
above in the section titled "Acquisitions." The capital expenditures consisted
primarily of additional computer capacity, technology, systems, new press
equipment and equipment upgrades for the Direct Marketing segment. The Company
also invested in facility expansion in its Direct Marketing segment. The Shopper
segment's capital expenditures were primarily related to facility improvements
and additional computer and other production equipment.

CRITICAL ACCOUNTING POLICIES

Financial Reporting Release No. 60, released by the Securities and Exchange
Commission, requires all companies to include a discussion of critical
accounting policies or methods used in the preparation of financial statements.
Note A of the "Notes to Consolidated Financial Statements" includes a summary of
the significant accounting policies and methods used in the preparation of the
Company's Consolidated Financial Statements.

The following is a discussion of the more significant accounting policies and
methods.

REVENUE RECOGNITION

The Company recognizes revenue at the time the service is rendered or the
product is delivered. Payments received in advance of the performance of
services or delivery of the product are recorded as deferred revenue until such
time as the services are performed or the product is delivered.

As described below, significant management judgments and estimates must
sometimes be made and used in connection with the revenue recognized in any
accounting period.

For all sales the Company requires either a purchase order, a statement of work
signed by the customer, a written contract, or some other form of written
authorization from the customer.

Direct Marketing revenue is derived from a variety of services. Revenue from
services such as creative and graphics, printing, personalization of
communication pieces using laser and inkjet printing, targeted mail,
fulfillment, agency services and transportation logistics are recognized as the
work is performed. Revenue is typically based on a set price or rate given to
the customer.

Revenue from the ongoing production and delivery of data is recognized upon
completion and delivery of the work and is typically based on a set price or
rate. Revenue from time-based subscriptions is based on a set price and is
recognized ratably over the term of the subscription.

Revenue from database build services may be billed based on hourly rates or at a
set price. If billed at a set price, the database build revenue is recognized
over the contractual period, using the percentage-of-completion method based on
individual costs incurred to date compared with total estimated contract costs.

Revenue from market research and analytical services may be billed based on
hourly rates or a set price. If billed at a set price, the revenue is recognized
over the contractual period, using the percentage-of-completion method based on
individual costs incurred to date compared with total estimated contract costs.
In other instances, progress toward completion is based on performance
milestones specified in the contract where such milestones fairly reflect
progress toward contract completion.

Revenue related to e-marketing, lead management, multi-channel customer care,
inbound and outbound teleservices and technical support is typically billed
based on a set price per transaction or service provided. Revenue from these
services is recognized as the service or activity is performed.

the arrangement using the residual value method based on the fair value of the
undelivered elements. This means the Company defers revenue from the software
sale equal to the fair value of the undelivered elements. The fair value of PCS
is based upon separate sales of renewals to other customers or upon renewal
rates quoted in the contracts. The fair value of services, such as training and
consulting, is based upon separate sales of these services to other customers.

The revenue allocated to PCS is recognized ratably over the term of the support
period. Revenue allocated to professional services is recognized as the services
are performed. The revenue allocated to software products, including time-based
software licenses, is recognized, if collection is probable, upon execution of a
licensing agreement and shipment of the software or ratably over the term of the
license, depending on the structure and terms of the arrangement. If the
licensing agreement is for a term of one year or less and includes PCS, the
company recognizes the software and the PCS revenue ratably over the term of the
license.

The Company applies the provisions of Emerging Issues Task Force Issue No. 00-03
"Application of AICPA Statement of Position 97-2 to Arrangements that Include
the Right to Use Software Stored on Another Entity's Hardware" to its hosted
software service transactions.

Shopper services are considered rendered, and the revenue recognized, when all
printing, sorting, labeling and ancillary services have been provided and the
mailing material has been received by the United States Postal Service.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company maintains its allowance for doubtful accounts at a balance adequate
to reduce accounts receivable to the amount of cash expected to be realized upon
collection. The methodology used to determine the minimum allowance balance is
based on the Company's prior collection experience and is generally related to
the accounts receivable balance in various aging categories. The balance is also
influenced by specific customers' financial strength and circumstance. Accounts
that are determined to be uncollectible are written off in the period in which
they are determined to be uncollectible. Periodic changes to the allowance
balance are recorded as increases or decreases to bad debt expense, which is
included in the "Advertising, selling, general and administrative" line of the
Company's Consolidated Statements of Operations. The Company recorded bad debt
expense of $1.2 million, $4.4 million and $4.6 million for the years ended
December 31, 2002, 2001, and 2000, respectively.

RESERVE FOR WORKERS' COMPENSATION, AUTOMOBILE AND GENERAL LIABILITY

The Company has a $250,000 deductible for automobile and general liability. The
Company's deductible for workers' compensation increased from $250,000 to $1.0
million in October 2002. The estimate of loss reserves necessary for claims is
based on the Company's estimate of claims incurred as of the end of the year.
The Company uses detail loss-run claim reports provided by the insurance
administrator and applies actuarial development factors to the open claim loss
balance to determine an appropriate reserve balance. The loss-run claim reports
show all claims and an estimate of what the claim will cost. This estimate is
provided by the insurance administrator based upon its experience dealing with
similar types of claims. The Company uses the loss-run claim reports as a basis
for its reserve balance. Periodic changes to the reserve are recorded as
increases or decreases to insurance expense, which is included in the
"Advertising, selling, general and administrative" line of the Company's
Consolidated Statement of Operations.

GOODWILL

Goodwill is recorded to the extent that the purchase price exceeds the fair
value of the assets acquired in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142. Prior to the adoption of SFAS No. 142 on
January 1, 2002, goodwill was being amortized on a straight-line basis over 15
to 40 year periods. Beginning January 1, 2002, goodwill is no longer being
amortized, but instead is tested for impairment as discussed below.

The Company assesses the impairment of its goodwill in accordance with SFAS No.
142, by determining the fair value of each of its reporting units and comparing
the fair value to the carrying value for each reporting unit. The Company has
identified its reporting units as Customer Relationship Management (CRM),
Marketing Services and Shoppers. Fair value is determined using projected
discounted future cash flows and cash flow multiple models, based on historical
performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
If a reporting unit's carrying amount exceeds its fair value, the Company must
calculate the implied fair value of the reporting unit's goodwill by allocating
the reporting unit's fair value to all of its assets and liabilities (recognized
and unrecognized) in a manner similar to a purchase price allocation, and then
compare this implied fair value to its carrying amount. To the extent that the
carrying amount of goodwill exceeds its implied fair value, an impairment loss
is recorded. The Company has not recorded an impairment loss in any of the three
years ended December 31, 2002.

At December 31, 2002, and 2001, the Company's goodwill balance was $436.8
million, net of $82.0 million of accumulated amortization, and $434.5 million,
net of $82.0 million of accumulated amortization, respectively. Amortization
expense related to goodwill was $16.2 million and $14.8 million for the years
ended December 31, 2001, and 2000, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities for 2002 was $141.6 million, down $11.3
million compared to 2001. The decrease in 2002 primarily relates to collections
of a lower accounts receivable balance at December 31, 2001, than at December
31, 2000, due to decreased revenues. Net cash outflows from investing activities
were $20.7 million for 2002 compared to net cash outflows of $53.4 in 2001. The
decrease in 2002 primarily relates to less cash spent on acquisitions and lower
capital investments in 2002 than 2001. Net cash outflows from financing
activities in 2002 were $126.4 million compared to $92.0 million in 2001. The
increase in 2002 primarily relates to higher net repayments of debt and a higher
overall amount spent repurchasing stock in 2002 than 2001.

Capital resources are available from, and provided through, the Company's
unsecured credit facility. This credit facility, a three-year $125-million
variable-rate revolving loan commitment, was put in place on October 18, 2002.
All borrowings under this credit agreement are to be repaid by October 17, 2005.

Management believes that its credit facility, together with cash provided by
operating activities, will be sufficient to fund operations and anticipated
acquisitions and capital expenditures needs for the foreseeable future. As of
December 31, 2002, the Company had $110.0 million of unused borrowing capacity
under its credit facility.

FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION

From time to time, in both written reports and oral statements by senior
management, the Company may express its expectations regarding its future
performance. These "forward-looking statements" are inherently uncertain, and
investors should realize that events could turn out to be other than what senior
management expected. Set forth below are some key factors which could affect the
Company's future performance, including its revenues, net income and earnings
per share; however, the risks described below are not the only ones the Company
faces. Additional risks and uncertainties that are not presently known, or that
the Company currently considers immaterial, could also impair the Company's
business operations.

Legislation--There could be a material adverse impact on the Company's Direct
Marketing business due to the enactment of legislation or industry regulations
arising from public concern over consumer privacy issues. Restrictions or
prohibitions could be placed upon the collection and use of information that is
currently legally available.

Data Suppliers--There could be a material adverse impact on the Company's Direct
Marketing business if owners of the data the Company uses were to withdraw the
data. Data providers could withdraw their data if there is a competitive reason
to do so or if legislation is passed restricting the use of the data.

Acquisitions--In recent years the Company has made a number of acquisitions in
its Direct Marketing segment, and it expects to pursue additional acquisition
opportunities. Acquisition activities, even if not consummated, require
substantial amounts of management time and can distract from normal operations.
In addition, there can be no assurance that the synergies and other objectives
sought in acquisitions will be achieved.

Competition--Direct marketing is a rapidly evolving business, subject to
periodic technological advancements, high turnover of customer personnel who
make buying decisions, and changing customer needs and preferences.
Consequently, the Company's Direct Marketing business faces competition in all
of its offerings. The Company's Shopper business competes for advertising, as
well as for readers, with other print and electronic media. Competition comes
from local and regional newspapers, magazines, radio, broadcast and cable
television, shopper publications and other communications media that operate in
the Company's markets. The extent and nature of such competition are, in large
part, determined by the location and demographics of the markets targeted by a
particular advertiser, and the number of media alternatives in those markets.
Failure to continually improve the Company's current processes and to develop
new products and services could result in the loss of the Company's customers to
current or future competitors. In addition, failure to gain market acceptance of
new products and services could adversely affect the Company's growth.

Qualified Personnel--The Company believes that its future prospects will depend
in large part upon its ability to attract, train and retain highly skilled
technical, client services and administrative personnel. While dependent on
employment levels and general economic conditions, qualified personnel
historically have been in great demand from time to time and in the foreseeable
future will likely remain a limited resource.

Postal Rates--The Company's shopper publications and direct marketing services
depend on the United States Postal Service to deliver products. The Company's
Shoppers are delivered by standard mail, and postage is the second largest
expense, behind payroll, in the Company's Shopper business. Standard postage
rates increased at the beginning of the third quarter of 2002. Overall Shopper
postage costs are expected to grow moderately as a result of this increase as
well as anticipated increases in circulation and insert volumes. Postal rates
also influence the demand for the Company's direct marketing services even
though the cost of mailings is borne by the Company's customers and is not
directly reflected in the Company's revenues or expenses.

Paper Prices--Paper represents a substantial expense in the Company's Shopper
operations. In recent years newsprint prices have fluctuated widely, and such
fluctuations can materially affect the results of the Company's operations.

Economic Conditions--Changes in national economic conditions can affect levels
of advertising expenditures generally, and such changes can affect each of the
Company's businesses. In addition, revenues from the Company's Shopper business
are dependent to a large extent on local advertising expenditures in the markets
in which they operate. Such expenditures are substantially affected by the
strength of the local economies in those markets. Direct Marketing revenues are
dependent on national and international economics.

Interest Rates--Interest rate movements in Europe and the United States can
affect the amount of interest the Company pays related to its debt and the
amount it earns on cash equivalents. The Company's primary interest rate
exposure is to interest rate fluctuations in Europe, specifically EUROLIBOR
rates due to their impact on interest related to the Company's $125 million
credit facility. The Company also has exposure to interest rate fluctuations in
the United States, specifically money market, commercial paper and overnight
time deposit rates as these affect the Company's earnings on its excess cash.

War--War or the threat of war involving the United States could have a
significant impact on the Company's operations. War could substantially affect
the levels of advertising expenditures by clients in each of the Company's
businesses. In addition, each of the Company's businesses could be affected by
operational disruptions and a shortage of supplies and labor related to such a
war.

HARTE-HANKS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

December 31,
In thousands, except per share and share amounts 2002 2001
- ----------------------------------------------------------------------------------------------------------------------

ASSETS
Current assets
Cash and cash equivalents .......................................................... $ 25,026 $ 30,468
Accounts receivable
(less allowance for doubtful accounts of $3,025 in 2002 and $5,463 in 2001) 137,679 138,409
Inventory .......................................................................... 5,299 5,835
Prepaid expenses ................................................................... 14,070 13,411
Current deferred income tax asset .................................................. 8,129 8,378
Other current assets ............................................................... 8,409 6,306
------------ ------------
Total current assets .......................................................... 198,612 202,807
------------ ------------

Property, plant and equipment
Land ............................................................................... 3,335 3,325
Buildings and improvements ......................................................... 32,442 31,045
Software ........................................................................... 53,279 45,806
Equipment and furniture ............................................................ 178,684 178,842
------------ ------------
267,740 259,018
Less accumulated depreciation and amortization ..................................... (179,741) (152,558)
------------ ------------
87,999 106,460
Software development and equipment installations in progress ....................... 6,155 2,968
------------ ------------
Net property, plant and equipment ............................................. 94,154 109,428
------------ ------------

Intangible and other assets
Goodwill
(less accumulated amortization of $81,965 in 2002 and 2001) ....................... 436,800 434,458
Other intangible assets
(less accumulated amortization of $1,733 in 2002 and $1,133 in 2001) .............. 3,267 3,867
Other assets ....................................................................... 3,899 20,489
------------ ------------
Total intangible and other assets ............................................. 443,966 458,814
------------ ------------
Total assets .................................................................. $ 736,732 $ 771,049
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ................................................................... $ 40,746 $ 42,990
Accrued payroll and related expenses ............................................... 21,854 21,550
Customer deposits and unearned revenue ............................................. 41,775 38,617
Income taxes payable ............................................................... 9,338 10,531
Other current liabilities .......................................................... 8,048 8,086
------------ ------------
Total current liabilities ..................................................... 121,761 121,774
Long-term debt ........................................................................ 16,300 48,312
Other long-term liabilities
(including deferred income taxes of $21,602 in 2002 and $29,515 in 2001) ............. 66,138 48,597
------------ ------------
Total liabilities ............................................................. 204,199 218,683
------------ ------------

Stockholders' equity
Common stock, $1 par value, authorized 375,000,000 shares
Issued 2002: 111,534,630; 2001: 109,352,290 shares ................................ 111,535 109,352
Additional paid-in capital ......................................................... 216,149 188,158
Retained earnings .................................................................. 722,231 640,635
Less treasury stock, 2002: 21,329,896; 2001: 16,139,795 shares at cost ............. (491,793) (384,486)
Accumulated other comprehensive loss ............................................... (25,589) (1,293)
------------ ------------
Total stockholders' equity .................................................... 532,533 552,366
------------ ------------
Total liabilities and stockholders' equity .................................... $ 736,732 $ 771,049
============ ============

See Notes to Consolidated Financial Statements

HARTE-HANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31,
In thousands, except per share amounts 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------

Revenue ........................................................................ $ 908,777 $ 917,928 $ 960,773
------------ ------------ ------------
Operating expenses
Payroll ..................................................................... 324,733 335,913 350,058
Production and distribution ................................................. 324,806 313,639 336,444
Advertising, selling, general and administrative ............................ 76,222 79,826 92,330
Depreciation ................................................................ 32,128 32,079 28,494
Goodwill and intangible amortization ........................................ 600 16,841 15,226
------------ ------------ ------------
Total operating expenses ............................................... 758,489 778,298 822,552
------------ ------------ ------------
Operating income ............................................................... 150,288 139,630 138,221
Other expenses (income)
Interest expense ............................................................ 1,208 3,076 1,678
Interest income ............................................................. (274) (498) (2,062)
Other, net .................................................................. 2,004 4,614 1,746
------------ ------------ ------------
2,938 7,192 1,362
------------ ------------ ------------
Income before income taxes ..................................................... 147,350 132,438 136,859
Income tax expense ............................................................. 56,605 52,754 54,973
------------ ------------ ------------
Net income ..................................................................... $ 90,745 $ 79,684 $ 81,886
============ ============ ============

Basic earnings per common share ................................................ $ 0.98 $ 0.84 $ 0.81
============ ============ ============

Weighted-average common shares outstanding .................................. 92,648 94,808 101,276
============ ============ ============

Diluted earnings per common share .............................................. $ 0.96 $ 0.82 $ 0.78
============ ============ ============

Weighted-average common and
common equivalent shares outstanding ....................................... 94,872 97,174 104,480
============ ============ ============

A reconciliation of the effects of the adoption of Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets,"
on net income and basic and diluted earnings per share is as follows:

Net income ..................................................................... $ 90,745 $ 79,684 $ 81,886
Add back: Goodwill amortization (net of tax effect) ......................... 12,016 10,752
------------ ------------ ------------
Adjusted net income ......................................................... $ 90,745 $ 91,700 $ 92,638
============ ============ ============

Basic earnings per common share:

Net income .................................................................. $ 0.98 $ 0.84 $ 0.81
Add back: Goodwill amortization (net of tax effect) ........................ 0.13 0.10
------------ ------------ ------------
Adjusted net income ......................................................... $ 0.98 $ 0.97 $ 0.91
============ ============ ============

Diluted earnings per common share:
Net income .................................................................. $ 0.96 $ 0.82 $ 0.78
Add back: Goodwill amortization (net of tax effect) ........................ 0.12 0.11
------------ ------------ ------------
Adjusted net income ......................................................... $ 0.96 $ 0.94 $ 0.89
============ ============ ============

SFAS No. 142 is described in Note A of the Notes to Consolidated Financial
Statements.

See Notes to Consolidated Financial Statements

HARTE-HANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,
In thousands 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------

Cash Flows from Operating Activities
Net income ........................................................ $ 90,745 $ 79,684 $ 81,886
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation ................................................. 32,128 32,079 28,494
Goodwill and intangible amortization ......................... 600 16,841 15,226
Amortization of option-related compensation .................. 99 206 441
Deferred income taxes ........................................ 8,878 2,470 5,942
Other, net ................................................... 741 4,464 424
Changes in operating assets and liabilities,
net of effects from acquisitions and divestitures:
(Increase) decrease in accounts receivable, net .............. 730 47,578 (22,514)
Decrease in inventory ........................................ 536 425 839
Increase in prepaid expenses and other current assets ........ (2,762) (124) (1,848)
Increase (decrease) in accounts payable ...................... (2,244) (17,054) 1,451
Increase (decrease) in other accrued expenses
and other liabilities ....................................... 8,884 (12,350) 5,095
Other, net ................................................... 3,302 (1,278) (4,511)
------------ ------------ ------------
Net cash provided by operating activities ................. 141,637 152,941 110,925
------------ ------------ ------------

Cash Flows from Investing Activities
Acquisitions ...................................................... (3,791) (28,230) (43,873)
Purchases of property, plant and equipment ........................ (17,358) (26,445) (36,465)
Proceeds from the sale of property, plant and equipment ........... 439 492 432
Other investing activities ........................................ -- 801 391
------------ ------------ ------------
Net cash used in investing activities ..................... (20,710) (53,382) (79,515)
------------ ------------ ------------

Cash Flows from Financing Activities
Long-term borrowings .............................................. 34,000 282,000 58,494
Payments on debt .................................................. (66,531) (292,000) (5,000)
Issuance of common stock .......................................... 14,113 9,131 6,506
Issuance of treasury stock ........................................ 110 75 81
Purchase of treasury stock ........................................ (98,912) (83,664) (92,706)
Warrants repurchased .............................................. -- -- (4,317)
Dividends paid .................................................... (9,149) (7,561) (6,736)
------------ ------------ ------------
Net cash used in financing activities ..................... (126,369) (92,019) (43,678)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ................. (5,442) 7,540 (12,268)
Cash and cash equivalents at beginning of year ....................... 30,468 22,928 35,196
------------ ------------ ------------
Cash and cash equivalents at end of year ............................. $ 25,026 $ 30,468 $ 22,928
------------ ------------ ------------
Supplemental Cash Flow Information:
Non-cash investing and financing activities:
Acquisitions -- debt issued (2000) ................................ $ -- $ -- $ 6,876
------------ ------------ ------------

See Notes to Consolidated Financial Statements

HARTE-HANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE STOCKHOLDERS'
In thousands STOCK CAPITAL EARNINGS STOCK INCOME (LOSS) EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------

Balance at January 1, 2000 ........................... $ 110,445 $ 163,401 $ 493,362 $ (201,906) $ 12,316 $ 577,618
Common stock issued -- employee benefit plans ........ 294 3,711 -- -- -- 4,005
Exercise of stock options for cash and
by surrender of shares .............................. 492 2,009 -- -- -- 2,501
Tax benefit of options exercised ..................... -- 1,581 -- -- -- 1,581
Dividends paid ($0.067 per share) .................... -- -- (6,736) -- -- (6,736)
Treasury stock issued ................................ -- 11 -- 70 -- 81
Treasury stock repurchased ........................... (1,972) 1,972 -- (92,706) -- (92,706)
Warrants repurchased (net of tax of $1,511) .......... -- (2,806) -- -- -- (2,806)
Comprehensive income, net of tax:
Net income ........................................ -- -- 81,886 -- -- 81,886
Foreign currency translation adjustment ........... -- -- -- -- (1,208) (1,208)
Change in unrealized gain (loss) on long-term
investments, net of reclassification
adjustments (net of tax of $7,115) ............... -- -- -- -- (13,213) (13,213)
-------------
Total comprehensive income ........................... 67,465
--------- ---------- --------- ---------- ------------- -------------
Balance at December 31, 2000 ......................... 109,259 169,879 568,512 (294,542) (2,105) 551,003

Common stock issued -- employee benefit plans ........ 266 3,186 -- -- -- 3,452
Exercise of stock options for cash and
by surrender of shares .............................. 1,782 6,717 -- (6,350) -- 2,149
Tax benefit of options exercised ..................... -- 6,416 -- -- -- 6,416
Dividends paid ($0.08 per share) ..................... -- -- (7,561) -- -- (7,561)
Treasury stock issued ................................ -- 5 -- 70 -- 75
Treasury stock repurchased ........................... (1,955) 1,955 -- (83,664) -- (83,664)
Comprehensive income, net of tax:
Net income ........................................ -- -- 79,684 -- -- 79,684
Foreign currency translation adjustment ........... -- -- -- -- (85) (85)
Change in unrealized gain (loss) on long-term
investments, net of reclassification
adjustments (net of tax of $481) ................. -- -- -- -- 897 897
-------------
Total comprehensive income ........................... 80,496
--------- ---------- --------- ---------- ------------- -------------
Balance at December 31, 2001 ......................... 109,352 188,158 640,635 (384,486) (1,293) 552,366

Common stock issued -- employee benefit plans......... 202 3,131 -- -- -- 3,333
Exercise of stock options for cash and
by surrender of shares .............................. 2,282 13,787 -- (8,498) -- 7,571
Tax benefit of options exercised ..................... -- 10,765 -- -- -- 10,765
Dividends paid ($0.098 per share) .................... -- -- (9,149) -- -- (9,149)
Treasury stock issued ................................ -- 7 -- 103 -- 110
Treasury stock repurchased ........................... (301) 301 -- (98,912) -- (98,912)
Comprehensive income, net of tax:
Net income ........................................ -- -- 90,745 -- -- 90,745
Adjustment for minimum pension liability
(net of tax of $17,121) .......................... -- -- -- -- (26,169) (26,169)
Foreign currency translation adjustment ........... -- -- -- -- 1,873 1,873
-------------
Total comprehensive income ........................... 66,449
--------- --------- --------- ---------- ------------- -------------
Balance at December 31, 2002 ......................... $ 111,535 $ 216,149 $ 722,231 $ (491,793) $ (25,589) $ 532,533
--------- --------- --------- ---------- ------------- -------------

See Notes to Consolidated Financial Statements

HARTE-HANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

The accompanying Consolidated Financial Statements present the financial
position of Harte-Hanks, Inc. and subsidiaries (the "Company"). The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods.

All intercompany accounts and transactions have been eliminated in
consolidation. Certain prior year amounts have been reclassified for comparative
purposes.

CASH EQUIVALENTS

All highly liquid investments with an original maturity of 90 days or less at
the time of purchase are considered to be cash equivalents. Cash equivalents are
carried at cost, which approximates fair value.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

INVENTORY

Inventory, consisting primarily of newsprint and operating supplies, is stated
at the lower of cost (first-in, first-out method) or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated on the basis of cost. Depreciation of
buildings and equipment is computed generally on the straight-line method at
rates calculated to amortize the cost of the assets over their useful lives. The
general ranges of estimated useful lives are:

Buildings and improvements 10 to 40 years
Equipment and furniture 3 to 20 years
Software 3 to 10 years

GOODWILL AND OTHER INTANGIBLES

Other intangibles with definite useful lives are recorded on the basis of cost
in accordance with SFAS No. 142, and are amortized on a straight-line basis over
a period of 5 to 10 years. The Company assesses the recoverability of its other
intangibles with definite lives by determining whether the amortization of the
intangible balance over its remaining life can be recovered through projected
undiscounted future cash flows over the remaining amortization period. If
projected undiscounted future cash flows indicate that an unamortized intangible
will not be recovered, an impairment loss is recognized based on projected
discounted future cash flows. Cash flow projections are based on trends of
historical performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.

At December 31, 2002, and 2001, the Company's other intangibles with definite
useful lives balance was $3.3 million, net of $1.7 million of accumulated
amortization, and $3.9 million, net of $1.1 million of accumulated amortization.
Amortization expense related to other intangibles with definite useful lives was
$0.6 million, $0.6 million and $0.4 million for the years ended December 31,
2002, 2001, and 2000, respectively. Expected amortization expense is $0.6
million for the years ending December 31, 2003, 2004, and 2005, and $0.4 million
for the years ending December 31, 2006 and 2007.

As of December 31, 2002, and 2001, the Company does not have any intangibles
with indefinite useful lives other than goodwill.

INCOME TAXES

Income taxes are calculated using the asset and liability method required by
SFAS No. 109. Deferred income taxes are recognized for the tax consequences
resulting from "timing differences" by applying enacted statutory tax rates
applicable to future years. These "timing differences" are associated with
differences between the financial and the tax basis of existing assets and
liabilities. Under SFAS No. 109, a statutory change in tax rates will be
recognized immediately in deferred taxes and income.

EARNINGS PER SHARE

Basic earnings per common share are based upon the weighted-average number of
common shares outstanding. Diluted earnings per common share are based upon the
weighted-average number of common shares outstanding and dilutive common stock
equivalents from the assumed exercise of stock options using the treasury stock
method.

STOCK-BASED COMPENSATION

The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting For Stock-Based Compensation." Accordingly, no compensation expense
has been recognized for options granted where the exercise price is equal to the
market price of the underlying stock at the date of grant. For options issued
with an exercise price below the market price of the underlying stock on the
date of grant, the Company recognizes compensation expense under the provisions
of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," as permitted under SFAS No. 123.

Had compensation expense for the Company's options been determined based on the
fair value at the grant date for awards since January 1, 1995, consistent with
the provisions of SFAS No. 123, the Company's net income and diluted earnings
per share would have been reduced to the pro forma amounts indicated below:

In thousands, Year Ended December 31,
except per share amounts 2002 2001 2000
- ------------------------------------------------------------------------------
Net income--as reported ................ $ 90,745 $ 79,684 $ 81,886
Stock-based employee
compensation expense,
included in reported net
income, net of related
tax effects ........................... 61 124 264
Stock-based employee
compensation expense
determined under fair value
based methods for all awards,
net of related tax effects ............ (4,411) (4,362) (4,905)
---------- ---------- ----------
Net income--pro forma .................. $ 86,395 $ 75,446 $ 77,245
---------- ---------- ----------
Basic earnings
per share--as reported ................ $ 0.98 $ 0.84 $ 0.81
Basic earnings
per share--pro forma .................. $ 0.93 $ 0.80 $ 0.76
Diluted earnings
per share--as reported ................ $ 0.96 $ 0.82 $ 0.78
Diluted earnings
per share--pro forma .................. $ 0.91 $ 0.78 $ 0.74

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2002, 2001 and 2000:

Year Ended December 31,
2002 2001 2000
- ------------------------------------------------------------------------------
Expected dividend yield................. 0.5% 0.5% 0.4%
Expected stock price
volatility............................. 27.8% 21.0% 23.0%
Risk-free interest rate................. 5.4% 5.7% 5.9%
Expected life of options................ 3-10 years 3-10 years 3-10 years

STOCK SPLIT

In May 2002, the Company effected a three-for-two stock split in the form of a
50% stock dividend payable to holders of record on May 20, 2002. All share, per
share and common stock information in the Consolidated Financial Statements and
the Notes thereto has been restated to retroactively reflect the stock split.

REVENUE RECOGNITION

Direct Marketing revenue from the production and delivery of data is recognized
upon completion and shipment of the work. Revenue from database subscriptions is
recognized ratably over the term of the subscription. Service revenue from
time-and-materials services is recognized as the services are provided. Revenue
from certain service contracts is recognized over the contractual period, using
the percentage-of-completion method based on individual costs incurred to date
compared with total estimated contract costs. In other instances, progress
toward completion is based on performance milestones specified in the contract
where such milestones fairly reflect progress toward contract completion.

Revenue from software is recognized in accordance with the American Institute of
Certified Public Accountants' (AICPA) Statement of Position ("SOP") 97-2
"Software Revenue Recognition," as amended by SOP 98-9 "Modification of SOP
97-2, Software Revenue Recognition." SOP 97-2 generally requires revenue earned
on software arrangements involving multiple elements to be allocated to each
element based on the vendor-specific objective evidence of fair values of the
respective elements. In accordance with SOP 97-2, the Company has analyzed all
of the elements included in its multiple-element arrangements and determined
that it has Company-specific objective evidence of fair value to allocate
revenue to the license and postcontract customer support (PCS) component of its
software license arrangements. The revenue allocated to software products,
including time-based software licenses, is recognized, if collection is
probable, upon execution of a licensing agreement

and shipment of the software or ratably over the term of the license, depending
on the structure and terms of the arrangement. The revenue allocated to PCS is
recognized ratably over the term of the support. Revenue allocated to
professional services is recognized as the services are performed.

Shopper services are considered rendered when all printing, sorting, labeling
and ancillary services have been provided and the mailing material has been
received by the United States Postal Service.

RESERVE FOR WORKERS' COMPENSATION, AUTOMOBILE AND GENERAL LIABILITY

RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 143, "Accounting for Asset Retirement Obligations," issued in June
2001, addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived obligations that result from the
acquisition, construction, development and/or normal use of the asset. SFAS No.
143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The Company will adopt SFAS No. 143 as of
January 1, 2003. At this time the Company does not believe that the adoption of
SFAS No. 143 will have a material impact on its financial statements.

SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," issued in July 2002, addresses financial accounting and reporting
for costs associated with exit or disposal activities. SFAS No. 146 requires
that a liability be recognized for those costs only when the liability is
incurred and can be measured at fair value. This statement nullifies Emerging
Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity," which required
liability recognition for an exit cost when a company committed to an exit plan.
SFAS No. 146 is effective for exit or disposal activities that are initiated
after December 31, 2002. The Company will adopt SFAS No. 146 as of January 1,
2003. At this time the Company does not believe that the adoption of SFAS No.
146 will have a material impact on its financial statements.

In November 2002, the FASB issued Interpretation No. 45 ("FIN No. 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 requires a company,
at the time it issues a guarantee, to recognize an initial liability for the
fair value of obligations assumed under the guarantee and elaborates on existing
disclosure requirements related to guarantees and warranties. The initial
recognition requirements of FIN No. 45 are effective for guarantees issued or
modified after December 31, 2002, and adoption of the disclosure requirements
are effective for the Company during the first quarter ending after January 31,
2003. The Company does not expect the adoption of FIN No. 45 to have a
significant impact on its consolidated financial position or results of
operations.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value-based method of accounting
for stock-based employee compensation prescribed by SFAS No. 123. In addition,
SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The transition guidance and annual disclosure
provisions of SFAS No. 148 are effective for the fiscal years ending after
December 15, 2002, and the annual disclosure provisions are included in the
notes to these consolidated financial statements. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. The Company does not
expect the adoption of SFAS No. 148 to have a significant impact on its
consolidated financial position or results of operations.

NOTE B -- ACQUISITIONS

In November 2001, the Company acquired Sales Support Services, Inc. (SSS), a
leading business-to-business lead generation, order processing and fulfillment
services company serving the automotive, energy and other industries. The total
cost of the transaction was approximately $21.9 million, which was paid in cash
and with the assumption of SSS's debt. Goodwill recognized in this transaction
amounted to approximately $16.4 million and was assigned to the direct marketing
segment.

In November 2000, the Company acquired Detroit-based Information Resource Group,
a leading provider of business-to-business intelligence solutions to the
high-tech, telecommunications and other industries.

In June 2000, the Company acquired the UK-based Hi-Tech Marketing Limited (HTM),
a leading pan-European provider of CRM services to the high-tech,
telecommunications and financial services industries.

The total cash outlay in 2002 for acquisitions was $3.8 million. The total cash
outlay in 2001 for acquisitions was $28.2 million. In addition, the Company held
back $1.0 million of the purchase price related to its November acquisition of
SSS pending the final settlement of the acquired company's working capital
amount.

The total cash outlay in 2000 for acquisitions was $43.9 million. In addition,
the Company incurred $6.9 million in notes payable for its June 2000 acquisition
of HTM.

The operating results of the acquired companies have been included in the
accompanying Consolidated Financial Statements from the date of acquisition
under the purchase method of accounting. The Company has not disclosed proforma
amounts including the operating results of prior years' acquisitions, as they
are not considered material to the Company as a whole.

NOTE C -- INVESTMENTS

The Company made equity investments totaling $0.7 million and $4.0 million in
2000 and 1999, respectively. These investments were classified as other assets.
All such investments for which fair value was readily determinable were
considered to be available-for-sale and were recorded at fair value. The related
unrealized gains and losses were reported as a separate component of accumulated
other comprehensive income. All other equity investments were recorded at cost.

The Company sold all of these equity investments in 2001 and 2000 and owns no
equity investments at December 31, 2002. Proceeds from the sale of long-term
investments were $0.8 million and $1.1 million in 2001 and 2000, respectively.
Gross realized losses included in 2001 income were $3.4 million, and gross
realized gains included in 2000 income were $0.5 million. Gross gains and losses
were determined using the average cost method.

NOTE D -- LONG-TERM DEBT

Cash payments for interest were $1.3 million, $3.4 million and $1.3 million for
the years ended December 31, 2002, 2001, and 2000, respectively.

December 31,
In thousands 2002 2001
- -----------------------------------------------------------------
Revolving loan commitment, various
interest rates based on EUROLIBOR
(effective rate of 1.93% at
December 31, 2002), due
October 17, 2005....................... $ 15,000 $ 45,000
Revolving loan commitment, various
interest rates based on EURIBOR
(effective rate of 3.20% at
December 31,2002), due
July 20, 2003.......................... 1,300 3,312
Less current maturities................. -- --
---------- ----------
$ 16,300 $ 48,312
========== ==========

CREDIT FACILITIES

On October 18, 2002 the Company obtained a three-year $125 million variable rate
unsecured revolving credit facility. This $125 million facility replaced the
Company's two $100 million credit facilities which were terminated on October
18, 2002. All borrowings under this $125 million credit agreement are to be
repaid by October 17, 2005. Commitment fees on the total credit facility and
interest rates for drawn amounts are determined according to a grid based on the
Company's total debt-to-earnings ratio. Commitment fees range from .125% to
..175%. Interest rates on drawn amounts range from EUROLIBOR plus .5% to
EUROLIBOR plus .7%. This credit facility contains both affirmative and negative
covenants, and the Company has been in compliance with these covenants since
obtaining the credit facility. As of December 31, 2002, the Company had $110
million of unused borrowing capacity under this credit agreement.

On November 29, 1999, the Company obtained an unsecured credit facility in the
amount of 2.5 million Euros for the purpose of financing the construction of a
new building in Hasselt, Belgium. This facility was increased to 3.7 million
Euros on July 18, 2000. All borrowings under the original facility amount of 2.5
million Euros were repaid on December 16, 2002. All borrowings under the
increased amount of 1.2 million Euros are to be repaid by July 20, 2003. The
Company pays a commitment fee of .1% on the undrawn portion of the commitment.
Interest rates on drawn amounts are at EURIBOR plus .15%. As of December 31,
2002, the Company had no unused borrowing capacity under this credit facility.
It is the Company's intent to repay this note on July 20, 2003, with borrowings
under its three-year revolving credit facility.

NOTE E -- INCOME TAXES

The components of income tax expense (benefit) are as follows:

Year Ended December 31,
In thousands 2002 2001 2000
- ------------------------------------------------------------------------------
Current
Federal.............................. $ 41,602 $ 43,010 $ 40,502
State and local...................... 6,026 6,776 6,679
Foreign.............................. 99 498 1,850
---------- ---------- ----------
Total current............... $ 47,727 $ 50,284 $ 49,031
========== ========== ==========

Deferred
Federal.............................. $ 7,087 $ 2,716 $ 5,321
State and local...................... 1,791 (246) 621
---------- ---------- ----------
Total deferred.............. $ 8,878 $ 2,470 $ 5,942
========== ========== ==========

The differences between total income tax expense and the amount computed by
applying the statutory federal income tax rate to income before income taxes
were as follows:

Year Ended December 31,
In thousands 2002 2001 2000
- ------------------------------------------------------------------------------
Computed expected
income tax
expense ................ $ 51,572 35% $ 46,353 35% $ 47,900 35%
Net effect of state
income tax ............. 4,922 3% 4,368 3% 4,857 4%
Effect of goodwill
amortization ........... -- 0% 1,607 1% 1,633 1%
Change in the
beginning of the
year balance of
the valuation
allowance .............. 159 0% (124) 0% (112) 0%
Other, net .............. (48) 0% 550 0% 695 1%
---------- ---- --------- --- --------- ---
Income tax expense
for the period ......... $ 56,605 38% $ 52,754 40% $ 54,973 40%
========== ==== ========= == ========= ==

Total income tax expense (benefit) was allocated as follows:

Year Ended December 31,
In thousands 2002 2001 2000
- ---------------------------------------------------------------
Results of operations....... $ 56,605 $ 52,754 $ 54,973
Stockholders' equity........ (27,886) (5,935) (10,207)
---------- --------- ---------
Total....................... $ 28,719 $ 46,819 $ 44,766
========== ========= =========

The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities were as follows:

December 31,
In thousands 2002 2001
- ----------------------------------------------------------------------
Deferred tax assets:
Deferred compensation and
retirement plans ........................ $ 16,270 $ 1,336
Accrued expenses not
deductible until paid ................... 4,204 4,327
Accounts receivable, net ................. 978 1,674
Other, net ............................... 190 162
State net operating loss
carryforwards ........................... 848 759
Capital loss carryforward ................ 492 492
---------- ----------
Total gross deferred tax assets ...... 22,982 8,750
Less valuation allowance ................. (1,277) (897)
---------- ----------
Net deferred tax assets .................. 21,705 7,853
---------- ----------
Deferred tax liabilities:
Property, plant and equipment ............ (12,134) (12,878)
Goodwill ................................. (23,404) (15,474)
State income tax ......................... 360 (638)
---------- ----------
Total gross deferred
tax liabilities ..................... (35,178) (28,990)
---------- ----------
Net deferred tax liabilities ............. $ (13,473) $ (21,137)
========== ==========

The valuation allowance for deferred tax assets as of January 1, 2001, was
$455,000. The valuation allowance at December 31, 2002, relates to state net
operating losses of $784,000 and capital losses of $493,000, which are not
expected to be realized. The valuation allowance at December 31, 2001, related
to state net operating losses of $405,000 and capital losses of $492,000 that
are not expected to be realized.

The net deferred tax asset (liability) is recorded both as a current deferred
income tax asset and as other long-term liabilities based upon the
classification of the related timing difference.

Cash payments for income taxes were $37.8 million, $38.0 million and $47.8
million in 2002, 2001 and 2000, respectively.

NOTE F -- EMPLOYEE BENEFIT PLANS

Prior to January 1, 1999, the Company maintained a defined benefit pension plan
for which most of its employees were eligible. In conjunction with significant
enhancements to the Company's 401(k) plan, the Company elected to freeze
benefits under this defined benefit pension plan as of December 31, 1998.

In 1994, the Company adopted a non-qualified supplemental pension plan covering
certain employees, which provides for incremental pension payments so that total
pension payments equal those amounts that would have been payable from the
Company's principal pension plan if it were not for limitations imposed by
income tax regulation. The benefits under this supplemental pension plan will
continue to accrue as if the principal pension plan had not been frozen.

The status of the Company's defined benefit pension plans at year-end was as
follows:

Year Ended December 31,
In thousands 2002 2001
- ----------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at
beginning of year .......................... $ 85,992 $ 85,369
Service cost ................................ 581 543
Interest cost ............................... 6,662 6,045
Actuarial loss (gain) ....................... 13,435 (1,512)
Benefits paid ............................... (4,519) (4,453)
---------- ----------
Benefit obligation at end of year ........... 102,151 85,992
---------- ----------
CHANGE IN PLAN ASSETS
Fair value of plan assets
at beginning of year ....................... 79,241 90,356
Actual return on plan assets ................ (10,062) (6,662)
Benefits paid ............................... (4,519) (4,453)
---------- ----------
Fair value of plan assets
at end of year ............................. 64,660 79,241
---------- ----------
Funded status ............................... (37,491) (6,751)
Unrecognized actuarial loss ................. 47,187 17,825
Unrecognized prior service cost ............. 555 620
---------- ----------
Net amount recognized ....................... $ 10,251 $ 11,694
========== ==========

The Company's non-qualified pension plan had an accumulated benefit obligation
in excess of its assets of $12.2 million at December 31, 2002.

The weighted-average assumptions used for measurement of the defined pension
plans were as follows:

December 31,
2002 2001 2000
- ---------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS
AS OF DECEMBER 31

Discount rate................................ 6.85% 7.40% 7.50%
Expected return on plan assets............... 9.00% 9.00% 10.00%
Rate of compensation increase................ 4.00% 4.00% 4.00%

Net pension cost for both plans included the following components:

December 31,
In Thousands 2002 2001 2000
- -----------------------------------------------------------------
COMPONENTS OF NET PERIODIC
BENEFIT COST (INCOME)
Service cost ................. $ 581 $ 543 $ 338
Interest cost ................ 6,662 6,045 5,373
Expected return
on plan assets .............. (6,931) (8,820) (9,951)
Amortization of prior
service cost ................ 65 65 65
Recognized actuarial
loss (gain) ................. 1,066 64 (1,575)
--------- --------- ---------
Net periodic benefit
cost (income) ............... $ 1,443 $ (2,103) $ (5,750)
========= ========= =========

Prior to January 1, 1999, the Company also sponsored several 401(k) plans to
provide employees with additional income upon retirement. The Company generally
matched a portion of employees' voluntary before-tax contributions. Employees
were fully vested in their own contributions and generally vested in the
Company's matching contributions upon three years of service. Effective January
1, 1999, changes were made that combined all 401(k) plans and allowed for
immediate vesting of enhanced Company matching contributions. Total 401(k)
expense recognized by the Company in 2002, 2001 and 2000 was $6.4 million, $6.3
million and $6.2 million, respectively.

The 1994 Employee Stock Purchase Plan provides for a total of 6,000,000 shares
to be sold to participating employees at 85% of the fair market value at
specified quarterly investment dates. Shares available for sale totaled
3,212,655 at December 31, 2002.

NOTE G -- STOCKHOLDERS' EQUITY

In January 2003, the Company announced an increase in the regular quarterly
dividend from 2.5 cents per share to 3.0 cents per share, payable March 14,
2003, to holders of record on March 1, 2003.

In May 2002, the Company effected a three-for-two stock split in the form of a
50% stock dividend payable to holders of record on May 20, 2002. All share, per
share and common stock information has been restated to retroactively reflect
the stock split.

During 2002 the Company repurchased 5.1 million shares of its common stock for
$98.9 million under its stock repurchase program. In addition, the Company
received 0.4 million shares of its common stock, with an estimated market value
of $8.5 million, in exchange for proceeds related to stock option exercises. As
of December 31, 2002, the Company has repurchased 31.6 million shares since the
beginning of its stock repurchase program in January 1997. During this period
the Company has also received 0.9 million shares in exchange for proceeds
related to stock option exercises. Under this program, the Company had
authorization to repurchase an additional 2.3 million shares at December 31,
2002. In March 2003, the Company announced an increase of 6.0 million shares in
its stock repurchase program.

NOTE H -- STOCK OPTION PLANS

1984 PLAN

In 1984, the Company adopted a Stock Option Plan ("1984 Plan") pursuant to which
it issued to officers and key employees options to purchase shares of common
stock at prices equal to the market price on the grant date. Market price was
determined by the Board of Directors for purposes of granting stock options and
making repurchase offers. Options granted under the 1984 Plan became exercisable
five years after date of grant. There were no remaining options outstanding
under the 1984 Plan at December 31, 2002, or 2001. At December 31, 2000, options
to purchase 189,000 shares were outstanding under the 1984 Plan. No additional
options will be granted under the 1984 Plan.

1991 PLAN

The Company adopted the 1991 Stock Option Plan ("1991 Plan") pursuant to which
it issued to officers and key employees options to purchase up to 16,500,000
shares of common stock. Options have been granted at prices equal to the market
price on the grant date ("market price options") and at prices below market
price ("performance options"). As of December 31, 2002, 2001, and 2000, market
price options to purchase 8,659,127 shares, 9,049,781 shares and 9,895,538
shares, respectively, were outstanding with exercise prices ranging from $2.22
to $21.23 per share at December 31, 2002. Market price options granted prior to
January 1998 become exercisable after the fifth anniversary of their date of
grant. Beginning January 1998, market price options generally became exercisable
in 25% increments on the second, third, fourth and fifth anniversaries of their
date of grant. The weighted-average exercise price for outstanding market price
options and exercisable market price options at December 31, 2002, was $13.43
and $9.35, respectively. The weighted-average remaining life for outstanding
market price options was 6.37 years.

At December 31, 2002, 2001, and 2000, performance options to purchase 359,625
shares, 751,875 shares and 1,074,900 shares, respectively, were outstanding with
exercise prices ranging from $0.22 to $1.33 per share at December 31, 2002.
Performance options become exercisable in whole or in part after three years,
and the extent to which they become exercisable at that time depends upon the
extent to which the Company achieves certain goals established at the time the
options are granted. That portion of the performance options which does not
become exercisable at an earlier date becomes exercisable after the ninth
anniversary of the date of grant. Compensation expense of $0.1 million, $0.2
million and $0.4 million was recognized for the performance options for the
years ended December 31, 2002, 2001, and 2000, respectively. The
weighted-average exercise price for outstanding performance options and
exercisable performance options at December 31, 2002, was $0.52 and $0.44,
respectively. The weighted-average remaining life for outstanding performance
options was 2.95 years. The Company did not grant any performance options during
2002, 2001 or 2000.

The following summarizes all stock option plans activity during 2002, 2001 and
2000:

WEIGHTED
NUMBER AVERAGE
OF SHARES OPTION PRICE
- ------------------------------------------------------------------

Options outstanding
at January 1, 2000 ............... 10,325,501 $ 8.02

Granted ........................... 1,745,400 14.67
Exercised ......................... (491,988) 4.91
Cancelled ......................... (419,475) 13.47
-------------

Options outstanding
at December 31, 2000 ............. 11,159,438 9.00

Granted ........................... 1,231,650 14.81
Exercised ......................... (1,782,432) 4.84
Cancelled ......................... (807,000) 14.19
-------------

Options outstanding
at December 31, 2001 ............. 9,801,656 10.06

Granted ........................... 2,054,825 18.88
Exercised ......................... (2,282,461) 6.17
Cancelled ......................... (555,268) 12.24
-------------

Options outstanding
at December 31, 2002 ............. 9,018,752 $ 12.92
-------------

Exercisable at
December 31, 2002 ................ 3,904,482 $ 8.68
=============

The following table summarizes information about stock options outstanding at
December 31, 2002:

Outstanding Exercisable

WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ----------------------------------------------------------------------------
$0.22-$7.50 1,685,005 2.38 $ 3.99 1,607,755 $ 4.10
$8.54-$13.04 1,744,012 4.53 $ 10.33 1,486,591 $ 10.03
$13.38-$14.67 2,120,939 7.44 $ 14.24 328,443 $ 14.07
$14.75-$16.75 1,448,296 7.01 $ 16.16 481,693 $ 16.13
$18.22-$18.61 1,245,000 9.02 $ 18.22 -- $ --
$19.85-$21.23 775,500 9.65 $ 19.94 -- $ --
----------- -----------
9,018,752 6.27 $ 12.92 3,904,482 $ 8.68
----------- -----------

The weighted-average fair value of market price options granted during 2002,
2001 and 2000 was $6.75, $5.35 and $6.44, respectively. The Company did not
grant any performance options during 2002, 2001 or 2000.

NOTE I -- FAIR VALUE OF FINANCIAL INSTRUMENTS

Because of their maturities and/or variable interest rates, certain financial
instruments of the Company have fair values approximating their carrying values.
These instruments include revolving credit agreements, accounts receivable,
trade payables, and miscellaneous notes receivable and payable.

NOTE J -- COMMITMENTS AND CONTINGENCIES

At December 31, 2002, the Company had outstanding letters of credit in the
amount of $8.6 million. These letters of credit exist to support the Company's
insurance programs relating to workers' compensation, automobile and general
liability, and leases.

NOTE K -- LEASES

The Company leases certain real estate and equipment under various operating
leases. Most of the leases contain renewal options for varying periods of time.
The total rent expense applicable to operating leases was $29.7 million, $28.5
million and $26.3 million for the years ended December 31, 2002, 2001, and 2000,
respectively.

The future minimum rental commitments for all non-cancelable operating leases
with terms in excess of one year as of December 31, 2002, are as follows:

In thousands
- ------------------------------------------

2003.......................... $ 24,392
2004.......................... 18,623
2005.......................... 13,214
2006.......................... 13,179
2007.......................... 6,871
After 2007.................... 18,987
----------
$ 95,266
==========

NOTE L -- EARNINGS PER SHARE

A reconciliation of basic and diluted earnings per share (EPS) is as follows:

In thousands Year Ended December 31,
except per share amounts 2002 2001 2000
- -------------------------------------------------------------------------------
BASIC EPS
Net income ............................. $ 90,745 $ 79,684 $ 81,886
========== ========== ==========

Weighted-average common
shares outstanding used
in earnings ........................... 92,648 94,808 101,276
---------- ---------- ----------

Earnings per share ..................... $ 0.98 $ 0.84 $ 0.81
---------- ---------- ----------

DILUTED EPS

Net income ............................. $ 90,745 $ 79,684 $ 81,886
========== ========== ==========

Shares used in diluted
earnings per share
computations .......................... 94,872 97,174 104,480
---------- ---------- ----------

Earnings per share ..................... $ 0.96 $ 0.82 $ 0.78
---------- ---------- ----------

COMPUTATION OF SHARES USED
IN EARNINGS PER SHARE COMPUTATIONS

Average outstanding
common shares ......................... 92,648 94,808 101,276

Average common equivalent
shares--dilutive effect
of option shares ...................... 2,224 2,366 3,204
---------- ---------- ----------
Shares used in diluted
earnings per share
computations .......................... 94,872 97,174 104,480
========== ========== ==========
28

As of December 31, 2002, 2001, and 2000, the Company had approximately 781,000,
546,000 and 1,297,000 antidilutive market price options outstanding,
respectively, which have been excluded from the EPS calculations.

NOTE M -- SELECTED QUARTERLY DATA (UNAUDITED)

In thousands, 2002 Quarter Ended 2001 Quarter Ended
except per share amounts DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
- ----------------------------------------------------------------------------------------------------------------------------------

Revenues ................... $ 239,525 $ 226,466 $ 227,879 $ 214,907 $ 233,024 $ 224,130 $ 228,654 $ 232,120

Operating income ........... 40,190 36,656 39,981 33,461 35,173 36,046 36,559 31,852

Net income ................. 24,199 22,188 24,090 20,268 20,572 19,913 20,836 18,363

Basic earnings per share ... $ 0.27 $ 0.24 $ 0.26 $ 0.22 $ 0.22 $ 0.21 $ 0.22 $ 0.19

Diluted earnings per share . $ 0.26 $ 0.24 $ 0.25 $ 0.21 $ 0.21 $ 0.21 $ 0.21 $ 0.18

NOTE N -- BUSINESS SEGMENTS

Harte-Hanks is a highly focused targeted media company with operations in two
segments--Direct Marketing and Shoppers.

The Company's Direct Marketing segment offers a complete range of specialized,
coordinated and integrated direct marketing services from a single source. The
Company utilizes advanced technologies to enable its customers to identify,
reach and influence specific consumers or businesses. The Company's direct
marketing capabilities also strengthen the relationship between its clients and
their customers. The Company constructs and updates business-to-business and
business-to-consumer databases, accesses the data through flexible hosting
capabilities and analyzes it to help make it relevant, applies the knowledge by
putting the data to work via multi-channel programs, and executes those programs
through marketing services delivery campaigns. The Company's Direct Marketing
customers include many of America's largest retailers; financial companies
including banks, financing companies, mutual funds and insurance companies;
high-tech and telecommunications companies; and pharmaceutical companies and
healthcare organizations. Direct Marketing customers also include a growing
number of customers in such selected markets as automotive, utilities, consumer
packaged goods, hospitality, publishing, business services, energy and
government/not-for-profit. The segment's client base is both domestic and
international.

The Company's Shoppers segment produces weekly advertising publications
primarily delivered free by third-class mail to all households in a particular
geographic area. Shoppers offer advertisers a targeted, cost-effective local
advertising system, with virtually 100% penetration in their area of
distribution. Shoppers are particularly effective in large markets with high
media fragmentation in which major metropolitan newspapers generally have low
penetration.

Included in Corporate Activities are general corporate expenses. Assets of
Corporate Activities include unallocated cash and investments and deferred
income taxes.

Information on the operations of Harte-Hanks in different business segments is
set forth below based on the nature of the products and services offered.
Harte-Hanks evaluates performance based on several factors, of which the primary
financial measures are segment revenues and operating income. The accounting
policies of the business segments are the same as those described in the summary
of significant accounting policies (Note A).

NOTE N -- BUSINESS SEGMENTS (Continued)

Year Ended December 31,
In thousands 2002 2001 2000
- -------------------------------------------------------------------------------
Revenues
Direct Marketing .......................... $ 573,826 $ 601,901 $ 662,044
Shoppers .................................. 334,951 316,027 298,729
--------- --------- ---------
Total revenues .......................... $ 908,777 $ 917,928 $ 960,773
========= ========= =========

Operating income
Direct Marketing .......................... $ 83,872 $ 85,020 $ 91,450
Shoppers .................................. 74,564 63,398 55,710
Corporate Activities ...................... (8,148) (8,788) (8,939)
--------- --------- ---------
Total operating income .................. $ 150,288 $ 139,630 $ 138,221
========= ========= =========

Income before income taxes
Operating income .......................... $ 150,288 $ 139,630 $ 138,221
Interest expense .......................... (1,208) (3,076) (1,678)
Interest income ........................... 274 498 2,062
Other, net ................................ (2,004) (4,614) (1,746)
--------- --------- ---------
Total income before income taxes ........ $ 147,350 $ 132,438 $ 136,859
========= ========= =========

Depreciation
Direct Marketing .......................... $ 27,088 $ 26,769 $ 23,022
Shoppers .................................. 5,008 5,235 5,393
Corporate Activities ...................... 32 75 79
--------- --------- ---------
Total depreciation ...................... $ 32,128 $ 32,079 $ 28,494
========= ========= =========

Goodwill and intangible amortization
Direct Marketing .......................... $ 600 $ 12,769 $ 11,156
Shoppers .................................. -- 4,072 4,070
--------- --------- ---------
Total goodwill and intangible amortization $ 600 $ 16,841 $ 15,226
========= ========= =========

Capital expenditures
Direct Marketing .......................... $ 12,782 $ 22,354 $ 34,030
Shoppers .................................. 4,548 4,085 2,408
Corporate Activities ...................... 28 6 27
--------- --------- ---------
Total capital expenditures .............. $ 17,358 $ 26,445 $ 36,465
========= ========= =========

Total assets
Direct Marketing .......................... $ 518,195 $ 536,270
Shoppers .................................. 180,109 179,748
Corporate Activities ...................... 38,428 55,031
--------- ---------
Total assets ............................ $ 736,732 $ 771,049
========= =========

Information about the Company's operations in different geographic areas:

Year Ended December 31,
In thousands 2002 2001 2000
- -------------------------------------------------------------------------------
Revenues/a/
United States ............................. $ 870,700 $ 880,642 $ 917,160
Other countries ........................... 38,077 37,286 43,613
--------- --------- ---------
Total revenues .......................... $ 908,777 $ 917,928 $ 960,773
========= ========= =========

Long-lived net assets/b/
United States ............................. $ 86,324 $ 101,785
Other countries ........................... 7,830 7,643
--------- ---------
Total long-lived assets ................. $ 94,154 $ 109,428
========= =========

/a/ Geographic revenues are based on the location of the customer.
/b/ Long-lived assets are based on physical location.

FIVE-YEAR FINANCIAL SUMMARY

In thousands, except per share amounts 2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------

Statement of operations data
Revenues ................................................... $ 908,777 $ 917,928 $ 960,773 $ 829,752 $ 748,546
Operating expenses
Payroll, production and distribution ................... 649,539 649,552 686,502 606,676 553,529
Advertising, selling, general and administrative ....... 76,222 79,826 92,330 70,060 64,082
Depreciation ........................................... 32,128 32,079 28,494 24,126 21,087
Goodwill and intangible amortization ................... 600 16,841 15,226 10,662 7,890
---------- ---------- ---------- ---------- ----------
Total operating expenses ........................... 758,489 778,298 822,552 711,524 646,588
---------- ---------- ---------- ---------- ----------
Operating income .............................................. 150,288 139,630 138,221 118,228 101,958
Interest expense, net ......................................... 934 2,578 (384) (5,313) (13,281)
Net income .................................................... 90,745 79,684 81,886 72,941 68,371/a/
Earnings per common share--diluted ............................ 0.96 0.82 0.78 0.67 0.60/a/
Cash dividends per common share ............................... 0.10 0.08 0.07 0.05 0.04
Weighted-average common and
common equivalent shares outstanding--diluted ................ 94,872 97,174 104,480 108,216 114,086

Adjusted data to exclude amortization of goodwill,
net of tax effect/b/

Net income .................................................... 90,745 91,700 92,638 80,707 74,964
Earnings per common share--diluted ............................ 0.96 0.94 0.89 0.75 0.65
Segment data
Revenues
Direct Marketing ....................................... $ 573,826 $ 601,901 $ 662,044 $ 559,262 $ 493,898
Shoppers ............................................... 334,951 316,027 298,729 270,490 254,648
---------- ---------- ---------- ---------- ----------
Total revenues ......................................... $ 908,777 $ 917,928 $ 960,773 $ 829,752 $ 748,546
========== ========== ========== ========== ==========

Operating income
Direct Marketing ....................................... $ 83,872 $ 85,020 $ 91,450 $ 79,164 $ 69,648
Shoppers ............................................... 74,564 63,398 55,710 47,015 40,507
General corporate ...................................... (8,148) (8,788) (8,939) (7,951) (8,197)
---------- ---------- ---------- ---------- ----------
Total operating income ................................. $ 150,288 $ 139,630 $ 138,221 $ 118,228 $ 101,958
========== ========== ========== ========== ==========

Operating income excluding amortization of goodwill/b/
Direct Marketing ....................................... $ 83,872 $ 97,171 $ 102,172 $ 85,657 $ 73,351
Shoppers ............................................... 74,564 67,470 59,781 51,084 44,694
General corporate ...................................... (8,148) (8,788) (8,939) (7,951) (8,197)
---------- ---------- ---------- ---------- ----------
Total operating income ................................. $ 150,288 $ 155,853 $ 153,014 $ 128,790 $ 109,848
========== ========== ========== ========== ==========

Other data
Operating cash flow/c/...................................... $ 183,016 $ 188,550 $ 181,941 $ 153,016 $ 130,935
Capital expenditures ....................................... 17,358 26,445 36,465 28,928 24,443
Balance sheet data (at end of period)
Property, plant and equipment, net ......................... $ 94,154 $ 109,428 $ 112,065 $ 106,250 $ 92,274
Goodwill and other intangibles, net ........................ 440,067 438,325 439,148 409,791 290,831
Total assets ............................................... 736,732 771,049 807,105 769,427 715,213
Total long term debt ....................................... 16,300 48,312 65,370 5,000 --
Total stockholders' equity ................................. 532,533 552,366 551,003 577,618 577,091

/a/ Includes non-recurring pension gain of $1.3 million, or one cent per share,
net of $0.8 million income tax expense. Excluding this gain, earnings were
$0.59 per share.

/b/ Effective January 1, 2002, the Company adopted the provisions of SFAS No.
142, "Goodwill and Other Intangible Assets," which established new
accounting and reporting requirements for goodwill and other intangible
assets and eliminated the amortization of goodwill. See Note A for further
discussion of SFAS No. 142.

/c/ Operating cash flow is defined as operating income plus depreciation and
goodwill and intangible amortization. Operating cash flow is not intended
to represent cash flow or any other measure of performance in accordance
with accounting principles generally accepted in the United States of
America.

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Harte-Hanks, Inc.:

We have audited the accompanying consolidated balance sheets of Harte-Hanks,
Inc. and subsidiaries as of December 31, 2002, and 2001, and the related
consolidated statements of operations, cash flows, and stockholders' equity and
comprehensive income for each of the years in the three-year period ended
December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Harte-Hanks, Inc.
and subsidiaries as of December 31, 2002, and 2001, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.

As discussed in Note A to the Consolidated Financial Statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" as of January 1, 2002.

KPMG LLP

San Antonio, Texas

January 29, 2003

CORPORATE INFORMATION

COMMON STOCK

The Company's common stock is listed on the New York Stock Exchange (symbol:
HHS). The quarterly stock price ranges for 2002 and 2001 were as follows:

2002 2001
HIGH LOW HIGH LOW
- --------------------------------------------------------
First quarter......... 21.13 17.64 16.06 14.19
Second quarter........ 22.68 19.29 17.25 14.24
Third quarter......... 21.43 16.05 16.60 13.67
Fourth quarter........ 20.38 17.45 19.28 13.63

In the first quarter of 2002, dividends were paid at the rate of 2.3 cents per
share. In the second, third and fourth quarters of 2002, quarterly dividends
were paid at the rate of 2.5 cents per share. In 2001, quarterly dividends were
paid at the rate of 2.0 cents per share.

There are approximately 2,800 holders of record.

TRANSFER AGENT AND REGISTRAR
EquiServe Trust Company, N.A.
PO Box 43010
Providence, RI 02940-3010
(781) 575-3400
www.equiserve.com

ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of stockholders will be held at
10:00 a.m. on May 6, 2003, at 200 Concord Plaza Drive,
First Floor, San Antonio, Texas.

FORM 10-K ANNUAL REPORT
A copy of the Company's annual report to the Securities and Exchange
Commission on Form 10-K may be obtained, without charge, upon written
request to:

Dean Blythe, Secretary
Harte-Hanks, Inc.
P.O. Box 269
San Antonio, Texas 78291-0269

DIRECTORS

DAVID L. COPELAND
President, SIPCO, Inc.

DR. PETER T. FLAWN
President Emeritus, the
University of Texas at Austin
Chairman, Audit Committee

LARRY FRANKLIN
Chairman

WILLIAM K. GAYDEN
Chairman and Chief Executive Officer,
Merit Energy Company

CHRISTOPHER M. HARTE
Private Investor

HOUSTON H. HARTE
Vice Chairman

RICHARD HOCHHAUSER
President and Chief Executive Officer

JAMES L. JOHNSON
Chairman Emeritus, GTE Corporation
Chairman, Compensation Committee

OFFICERS

RICHARD HOCHHAUSER
President and Chief Executive Officer

CRAIG COMBEST
Senior Vice President, Direct Marketing

CHARLES DALL'ACQUA
Senior Vice President, Direct Marketing

PETER GORMAN
Senior Vice President, Shoppers

JACQUES KERREST
Senior Vice President, Finance,
and Chief Financial Officer

GARY SKIDMORE
Senior Vice President, Direct Marketing

DEAN BLYTHE
Vice President, Legal, and Secretary

KATHY CALTA
Vice President, Direct Marketing

BILL CARMAN
Vice President, Shoppers

LOREN DALTON
Vice President, Shoppers

JAMES DAVIS
Vice President, Direct Marketing

BILL GOLDBERG
Vice President, Direct Marketing

CARLOS GUZMAN
Vice President, Shoppers

SPENCER JOYNER, JR.
Vice President, Direct Marketing

FEDERICO ORTIZ
Vice President, Tax

MICHAEL PAULSIN
Vice President, Shoppers

TANN TUELLER
Vice President, Direct Marketing

JESSICA HUFF
Controller and Chief Accounting Officer

CORPORATE OFFICE - SAN ANTONIO, TEXAS http://www.harte-hanks.com

DIRECT MARKETING

Austin, Texas
Baltimore, Maryland
Bellmawr, New Jersey
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Ontario, California
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San Diego, California
Shawnee, Kansas
Sterling Heights, Michigan
Valencia, California
Vineland, New Jersey
West Bridgewater, Massachusetts
Westville, New Jersey

NATIONAL SALES HEADQUARTERS

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INTERNATIONAL OFFICES

Darmstadt, Germany
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London, United Kingdom
Madrid, Spain
Melbourne, Australia
Sao Paulo, Brazil
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Uxbridge, United Kingdom

SHOPPERS

THE FLYER

South Florida
http://www.theflyer.com

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Northern California

Southern California --
Greater Los Angeles Area

Southern California --
Greater San Diego Area

http://www.pennysaverusa.com