UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the quarterly period ended September 30, 2002
------------------
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 1-7120
------
HARTE-HANKS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 74-1677284
------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Concord Plaza Drive, San Antonio, Texas 78216
------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code -- 210/829-9000
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock: $1 par value, 91,027,202 shares as of October 31, 2002.
2
HARTE-HANKS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q REPORT
September 30, 2002
<Table>
<Caption>
Page
----
Part I. Financial Information
Item 1. Interim Condensed Consolidated Financial
Statements (Unaudited)
Condensed Consolidated Balance Sheets - 3
September 30, 2002 and December 31, 2001
Consolidated Statements of Operations - Three 4
months ended September 30, 2002 and 2001
Consolidated Statements of Operations - Nine 5
months ended September 30, 2002 and 2001
Consolidated Statements of Cash Flows - Nine 6
months ended September 30, 2001 and 2000
Consolidated Statements of Stockholders' Equity 7
and Comprehensive Income - Nine months ended
September 30, 2002 and twelve months ended
December 31, 2001
Notes to Unaudited Condensed Consolidated 8
Financial Statements
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 16
Market Risk
Item 4. Controls and Procedures 17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
(a) Exhibits
(b) Reports on Form 8-K
Signature 18
</Table>
3
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Harte-Hanks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (in thousands, except share amounts)
<Table>
<Caption>
(Unaudited)
September 30, December 31,
2002 2001
-------------- --------------
Assets
Current assets
Cash and cash equivalents ......................... $ 20,130 $ 30,468
Accounts receivable, net .......................... 138,801 138,409
Inventory ......................................... 5,144 5,835
Prepaid expenses .................................. 13,896 13,411
Current deferred income tax asset ................. 8,288 8,378
Other current assets .............................. 6,940 6,306
-------------- --------------
Total current assets ........................... 193,199 202,807
Property, plant and equipment, net ................... 96,780 109,428
Goodwill, net ........................................ 436,776 434,458
Other intangibles, net ............................... 3,417 3,867
Other assets ......................................... 20,046 20,489
-------------- --------------
Total assets ................................... $ 750,218 $ 771,049
============== ==============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable .................................. $ 48,268 $ 42,990
Accrued payroll and related expenses .............. 20,589 21,550
Customer deposits and unearned revenue ............ 36,297 38,617
Income taxes payable .............................. 11,556 10,531
Other current liabilities ......................... 7,054 8,086
-------------- --------------
Total current liabilities ...................... 123,764 121,774
Long-term debt ....................................... 10,673 48,312
Other long-term liabilities .......................... 54,008 48,597
-------------- --------------
Total liabilities .............................. 188,445 218,683
-------------- --------------
Stockholders' equity
Common stock, $1 par value, 375,000,000 shares
authorized 111,421,754 and 109,352,290 shares
issued at September 30, 2002 and December 31,
2001, respectively ............................. 111,422 109,352
Additional paid-in capital ........................ 213,384 188,158
Accumulated other comprehensive income (loss) ..... 51 (1,293)
Retained earnings ................................. 700,309 640,635
Less treasury stock: 19,787,874 and 16,139,795
shares at cost at September 30, 2002 and
December 31, 2001, respectively ................ (463,393) (384,486)
-------------- --------------
Total stockholders' equity ..................... 561,773 552,366
-------------- --------------
Total liabilities and stockholders' equity ..... $ 750,218 $ 771,049
============== ==============
</Table>
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
Harte-Hanks, Inc. and Subsidiaries
Consolidated Statements of Operations (in thousands, except per share amounts)
(Unaudited)
<Table>
<Caption>
Three Months Ended September 30,
--------------------------------
2002 2001
----------- -----------
Operating revenues ............................................................... $ 226,466 $ 224,130
----------- -----------
Operating expenses
Payroll ................................................................. 80,123 79,232
Production and distribution ............................................. 82,944 77,489
Advertising, selling, general and administrative ........................ 18,744 19,059
Depreciation ............................................................ 7,849 8,072
Goodwill and intangible amortization .................................... 150 4,232
----------- -----------
189,810 188,084
----------- -----------
Operating income ................................................................. 36,656 36,046
----------- -----------
Other expenses (income)
Interest expense ........................................................ 285 637
Interest income ......................................................... (37) (57)
Other, net .............................................................. 505 2,303
----------- -----------
753 2,883
----------- -----------
Income before income taxes ....................................................... 35,903 33,163
Income tax expense ............................................................... 13,715 13,250
----------- -----------
Net income ....................................................................... $ 22,188 $ 19,913
=========== ===========
Basic:
Earnings per common share ............................................... $ 0.24 $ 0.21
=========== ===========
Weighted-average common shares outstanding .............................. 92,115 93,900
=========== ===========
Diluted:
Earnings per common share ............................................... $ 0.24 $ 0.21
=========== ===========
Weighted-average common and common equivalent
shares outstanding .................................................... 94,163 96,033
=========== ===========
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 ....................................................................... $ 22,188 $ 19,913
Add back: Goodwill amortization (net
of tax effect) ........................................................ 3,004
----------- -----------
Adjusted net income .............................................................. $ 22,188 $ 22,917
=========== ===========
Basic earnings per common share:
Net income ....................................................................... $ 0.24 $ 0.21
Add back: Goodwill amortization (net
of tax effect) ........................................................ 0.03
----------- -----------
Adjusted net income .............................................................. $ 0.24 $ 0.24
=========== ===========
Diluted earnings per common share:
Net income ....................................................................... $ 0.24 $ 0.21
Add back: Goodwill amortization (net
of tax effect) ........................................................ 0.03
----------- -----------
Adjusted net income .............................................................. $ 0.24 $ 0.24
=========== ===========
</Table>
SFAS No. 142 is described in Note B of the Notes to Unaudited Condensed
Consolidated Financial Statements.
See Notes to Unaudited Condensed Consolidated Financial Statements.
5
Harte-Hanks, Inc. and Subsidiaries
Consolidated Statements of Operations (in thousands, except per share amounts)
(Unaudited)
<Table>
<Caption>
Nine Months Ended September 30,
--------------------------------
2002 2001
-------------- --------------
Operating revenues ............................................................... $ 669,252 $ 684,904
-------------- --------------
Operating expenses
Payroll ................................................................. 241,651 253,722
Production and distribution ............................................. 236,220 230,349
Advertising, selling, general and administrative ........................ 56,511 59,978
Depreciation ............................................................ 24,322 23,769
Goodwill and intangible amortization .................................... 450 12,629
-------------- --------------
559,154 580,447
-------------- --------------
Operating income ................................................................. 110,098 104,457
-------------- --------------
Other expenses (income)
Interest expense ........................................................ 876 2,370
Interest income ......................................................... (158) (271)
Other, net .............................................................. 1,367 3,914
-------------- --------------
2,085 6,013
-------------- --------------
Income before income taxes ....................................................... 108,013 98,444
Income tax expense ............................................................... 41,467 39,332
-------------- --------------
Net income ....................................................................... $ 66,546 $ 59,112
============== ==============
Basic:
Earnings per common share ............................................... $ 0.71 $ 0.62
============== ==============
Weighted-average common shares outstanding .............................. 93,270 95,366
============== ==============
Diluted:
Earnings per common share ............................................... $ 0.70 $ 0.60
============== ==============
Weighted-average common and common equivalent
shares outstanding .................................................... 95,634 97,733
============== ==============
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 ....................................................................... $ 66,546 $ 59,112
Add back: Goodwill amortization (net
of tax effect) ......................................................... 8,946
-------------- --------------
Adjusted net income .............................................................. $ 66,546 $ 68,058
============== ==============
Basic earnings per common share:
Net income ....................................................................... $ 0.71 $ 0.62
Add back: Goodwill amortization (net
of tax effect) ......................................................... 0.09
-------------- --------------
Adjusted net income .............................................................. $ 0.71 $ 0.71
============== ==============
Diluted earnings per common share:
Net income ....................................................................... $ 0.70 $ 0.60
Add back: Goodwill amortization (net
of tax effect) ......................................................... 0.09
-------------- --------------
Adjusted net income .............................................................. $ 0.70 $ 0.70
============== ==============
</Table>
SFAS No. 142 is described in Note B of the Notes to Unaudited Condensed
Consolidated Financial Statements.
See Notes to Unaudited Condensed Consolidated Financial Statements.
6
Harte-Hanks, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (in thousands)
(Unaudited)
<Table>
<Caption>
Nine Months Ended September 30,
------------------------------
2002 2001
------------- -------------
Operating Activities
Net income ......................................................... $ 66,546 $ 59,112
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation .................................................... 24,322 23,769
Goodwill and intangible amortization ............................ 450 12,629
Amortization of option-related compensation ..................... 75 158
Deferred income taxes ........................................... 6,645 2,918
Other, net ...................................................... 510 4,026
Changes in operating assets and liabilities, net of acquisitions:
Decrease (increase) in accounts receivable, net ................. (392) 34,137
Decrease in inventory ........................................... 691 384
Decrease (increase) in prepaid expenses and other
current assets ............................................... (1,119) 477
Increase (decrease) in accounts payable ......................... 5,278 (10,348)
Increase (decrease) in other accrued expenses
and other current liabilities ................................ 1,911 (1,486)
Other, net ...................................................... 2,673 242
------------- -------------
Net cash provided by operating activities .................... 107,590 126,018
------------- -------------
Investing Activities
Acquisitions ....................................................... (3,791) (453)
Purchases of property, plant and equipment ......................... (11,903) (23,503)
Proceeds from sale of property, plant and equipment ................ 351 682
------------- -------------
Net cash used in investing activities ........................ (15,343) (23,274)
------------- -------------
Financing Activities
Long-term borrowings ............................................... 14,000 242,000
Repayment of long-term borrowings .................................. (52,000) (267,000)
Issuance of common stock ........................................... 12,685 7,330
Purchase of treasury stock ......................................... (70,474) (82,336)
Issuance of treasury stock ......................................... 76 57
Dividends paid ..................................................... (6,872) (5,701)
------------- -------------
Net cash used in financing
activities ................................................. (102,585) (105,650)
------------- -------------
Net decrease in cash ............................................... (10,338) (2,906)
Cash and cash equivalents at beginning of year ..................... 30,468 22,928
------------- -------------
Cash and cash equivalents at end of period ......................... $ 20,130 $ 20,022
============= =============
</Table>
See Notes to Unaudited Condensed Consolidated Financial Statements.
7
Harte-Hanks, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(in thousands)
(2002 Unaudited)
<Table>
<Caption>
Accumulated
Additional Other Total
Common Paid-In Retained Treasury Comprehensive Stockholders'
Stock Capital Earnings Stock Income (Loss) Equity
------------ ------------- ------------- ------------- ------------- -------------
Balance at January 1, 2001 ..... $ 109,259 $ 169,879 $ 568,512 $ (294,542) $ (2,105) $ 551,003
Common stock issued-
employee benefit plans ....... 266 3,187 -- -- -- 3,452
Exercise of stock options
for cash and by
surrender of shares .......... 1,782 6,716 -- (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 repurchase ...... (1,955) 1,955 -- (83,664) -- (83,664)
Treasury stock issued .......... -- 5 -- 70 -- 75
Comprehensive income, net of
tax:
Net income ................... -- -- 79,684 -- -- 79,684
Foreign currency
translation adjustment .... -- -- -- -- (85) (85)
Change in net 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 ....... 147 2,294 -- -- -- 2,441
Exercise of stock options
for cash and by
surrender of shares .......... 2,224 13,309 -- (8,498) -- 7,035
Tax benefit of options
exercised .................... -- 9,311 -- -- -- 9,311
Dividends paid ($0.07 per
share)- ...................... -- -- (6,872) -- -- (6,872)
Treasury stock repurchase ...... (301) 301 -- (70,474) -- (70,474)
Treasury stock issued .......... -- 11 -- 65 -- 76
Comprehensive income, net of
tax:
Net income ................... -- -- 66,546 -- -- 66,546
Foreign currency
translation adjustment .... -- -- -- -- 1,344 1,344
-------------
Total comprehensive income ..... 67,890
------------ ------------- ------------- ------------- ------------- -------------
Balance at September 30, 2002 .. $ 111,422 $ 213,384 $ 700,309 $ (463,393) $ 51 $ 561,773
============ ============= ============= ============= ============= =============
</Table>
See Notes to Unaudited Condensed Consolidated Financial Statements.
8
Harte-Hanks, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements include
the accounts of Harte-Hanks, Inc. and subsidiaries (the "Company").
The statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the three
months and nine months ended September 30, 2002 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2002. For
further information, refer to the consolidated financial statements and
footnotes included in the Company's annual report on Form 10-K for the year
ended December 31, 2001.
Certain prior period amounts have been reclassified for comparative purposes.
NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001 as well as all
purchase method business combinations completed after June 30, 2001. SFAS No.
141 also specifies criteria intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed Of". The Company does not believe any of its previously recorded
intangibles have an indefinite life and such recorded intangibles are amortized
over their respective estimated useful lives.
The Company adopted the provisions of SFAS No. 141 on July 1, 2001, and the
provisions of SFAS No. 142 on January 1, 2002. In connection with the adoption
of SFAS No. 141 and 142, the Company evaluated its existing intangible assets
and goodwill, and did not find it necessary to make any reclassifications in
order to conform to the new criteria in SFAS No. 141 for recognition apart from
goodwill. The Company has reassessed the useful lives and residual values of all
intangible assets acquired in purchase business combinations, and did not find
it necessary to make any amortization period adjustments. In addition, to the
extent an intangible asset was identified as having an indefinite useful life,
the Company was required to test the intangible asset for impairment in
accordance with the provisions of SFAS No. 142 prior to July 1, 2002.
In connection with the transitional goodwill impairment evaluation, SFAS No. 142
requires the Company to perform an assessment of whether there is an indication
that goodwill and equity-method goodwill is impaired as of the date of adoption.
The Company identified its reporting units as Customer Relationship Management
9
(CRM), Marketing Services, and Shoppers, and determined the carrying value of
each of these reporting units by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of
January 1, 2002. The Company has also estimated the fair value of each of its
reporting units using both discounted cash flows and cash flow multiple models.
In both of these models, the estimated fair value of each of the reporting units
exceeded its carrying amount, indicating that the reporting unit's goodwill and
intangibles were not impaired as of the date of adoption. Therefore it was not
necessary to perform the second step of the transitional impairment test. Had
this second step been necessary, it would have involved comparing the implied
fair value of the reporting unit's goodwill, determined 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 in accordance
with SFAS No. 141, to its carrying amount, both of which would be measured as of
January 1, 2002. Any transitional impairment loss would have been measured as of
January 1, 2002 and would have been recognized as the cumulative effect of a
change in accounting principle in the Company's statement of operations.
As of the date of adoption, January 1, 2002, the Company had unamortized
goodwill in the amount of $434.5 million and unamortized identifiable intangible
assets in the amount of $3.9 million, all of which were subject to the
transition provisions of SFAS No. 141 and 142. As of September 30, 2002, the
Company had unamortized goodwill in the amount of $436.8 and unamortized
identifiable intangible assets were $3.4 million. Amortization expense related
to goodwill was $4.1 million and $12.2 for the three months and nine months
ended September 30, 2001, respectively.
A reconciliation of the effects of the adoption of Statement No. 142 on net
income and basic and diluted earnings per share is presented on the face of the
Consolidated Statements of Operations. For the purposes of these footnotes, all
2001 numbers have been restated as if SFAS No. 142 had been adopted for the
period.
NOTE C - INCOME TAXES
The Company's quarterly income tax provision of $13.7 million was calculated
using an effective income tax rate of approximately 38.2%. The Company's nine
month income tax provision of $41.5 million, was calculated using an effective
income tax rate of approximately 38.4%. The Company's effective income tax rate
is derived by estimating pretax income and income tax expense for the year
ending December 31, 2002. The effective income tax rate calculated is higher
than the federal statutory rate of 35% due to the addition of state taxes and to
certain expenses recorded for financial reporting purposes that are not
deductible for federal income tax purposes.
NOTE D - 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 average share information in the Consolidated Financial Statements and
the Notes thereto have been restated to reflect the stock split.
10
NOTE E - EARNINGS PER SHARE
A reconciliation of basic and diluted earnings per share (EPS) is as follows:
<Table>
<Caption>
Three Months Ended September 30,
In thousands, except per share amounts 2002 2001
----------- -----------
BASIC EPS
Net Income ...................................................... $ 22,188 $ 22,917
=========== ===========
Weighted-average common shares outstanding
used in earnings per share computations ....................... 92,115 93,900
=========== ===========
Earnings per common share ....................................... $ 0.24 $ 0.24
=========== ===========
DILUTED EPS
Net Income ...................................................... $ 22,188 $ 22,917
=========== ===========
Shares used in diluted earnings per share computations .......... 94,163 96,033
=========== ===========
Earnings per common share ....................................... $ 0.24 $ 0.24
=========== ===========
Computation of shares used in earnings per share computations:
Average outstanding common shares ............................... 92,115 93,900
Average common equivalent shares -
dilutive effect of option shares .............................. 2,048 2,133
----------- -----------
Shares used in diluted earnings per share computations .......... 94,163 96,033
=========== ===========
</Table>
<Table>
<Caption>
Nine Months Ended September 30,
In thousands, except per share amounts 2002 2001
----------- -----------
BASIC EPS
Net Income ...................................................... $ 66,546 $ 68,058
=========== ===========
Weighted-average common shares outstanding
used in earnings per share computations ....................... 93,270 95,366
=========== ===========
Earnings per common share ....................................... $ 0.71 $ 0.71
=========== ===========
DILUTED EPS
Net Income ...................................................... $ 66,546 $ 68,059
=========== ===========
Shares used in diluted earnings per share computations .......... 95,634 97,733
=========== ===========
Earnings per common share ....................................... $ 0.70 $ 0.70
=========== ===========
Computation of shares used in earnings per share computations:
Average outstanding common shares ............................... 93,270 95,366
Average common equivalent shares -
dilutive effect of option shares .............................. 2,364 2,367
----------- -----------
Shares used diluted in earnings per share computations .......... 95,634 97,733
=========== ===========
</Table>
11
NOTE F - BUSINESS SEGMENTS
Harte-Hanks is a highly focused targeted media company with operations in two
segments - direct and interactive marketing and shoppers.
Information about the Company's operations in different business segments:
<Table>
<Caption>
Three Months Ended September 30
In thousands 2002 2001
--------------- ---------------
Operating revenues
Direct Marketing ....................... $ 140,872 $ 143,474
Shoppers ............................... 85,594 80,656
--------------- ---------------
Total operating revenues ........... $ 226,466 $ 224,130
=============== ===============
Operating Income
Direct Marketing ....................... $ 17,921 $ 23,688
Shoppers ............................... 20,658 18,615
Corporate Activities ................... (1,923) (2,175)
--------------- ---------------
Total operating income ............. $ 36,656 $ 40,128
=============== ===============
Income before income taxes
Operating income ....................... $ 36,656 $ 40,128
Interest expense ....................... (285) (637)
Interest income ........................ 37 57
Other, net ............................. (505) (2,303)
--------------- ---------------
Total income before income taxes ... $ 35,903 $ 37,245
=============== ===============
</Table>
<Table>
<Caption>
Nine Months Ended September 30
In thousands 2002 2001
--------------- ---------------
Operating revenues
Direct Marketing ....................... $ 419,425 $ 449,021
Shoppers ............................... 249,827 235,883
--------------- ---------------
Total operating revenues ........... $ 669,252 $ 684,904
=============== ===============
Operating Income
Direct Marketing ....................... $ 60,082 $ 72,505
Shoppers ............................... 56,208 50,865
Corporate Activities ................... (6,192) (6,734)
--------------- ---------------
Total operating income ............. $ 110,098 $ 116,636
=============== ===============
Income before income taxes
Operating income ....................... $ 110,098 $ 116,636
Interest expense ....................... (876) (2,370)
Interest income ........................ 158 271
Other, net ............................. (1,367) (3,914)
--------------- ---------------
Total income before income taxes ... $ 108,013 $ 110,623
=============== ===============
</Table>
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
For the purposes of the Management's Discussion and Analysis section of this
report, all 2001 numbers have been restated as if SFAS No. 142 had been adopted
for the period.
RESULTS OF OPERATIONS
Operating results were as follows:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
In thousands SEPT. 30, 2002 SEPT. 30, 2001 CHANGE SEPT. 30, 2002 SEPT. 30, 2001 CHANGE
-------------- -------------- ------ -------------- -------------- ------
Revenues $ 226,466 $ 224,130 1.0% $ 669,252 $ 684,904 -2.3%
Operating expenses 189,810 184,002 3.2% 559,154 568,268 -1.6%
----------- ---------- ----------- ----------
Operating income $ 36,656 $ 40,128 -8.7% $ 110,098 $ 116,636 -5.6%
=========== ========== =========== ==========
Net income $ 22,188 $ 22,917 -3.2% $ 66,546 $ 68,058 -2.2%
=========== ========== =========== ==========
Diluted earnings
per share $ 0.24 $ 0.24 0.0% $ 0.70 $ 0.70 0.0%
=========== ========== =========== ==========
</Table>
Consolidated revenues increased 1.0% to $226.5 million and operating income
declined 8.7% to $36.7 million in the third quarter of 2002 when compared to the
third quarter of 2001. Overall third quarter operating expenses increased 3.2%
to $189.8 million compared to 2001.
Net income decreased 3.2% to $22.2 million in the third quarter of 2002 when
compared to the third quarter of 2001. Diluted earnings of 24 cents per share
was flat compared to 2001. The net income decrease resulted from $3.5 million in
lower operating income, partially offset by a $0.3 million decrease in net
interest expense and a $1.8 million decrease in other non-operating expenses.
DIRECT MARKETING
Direct and interactive marketing operating results were as follows:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
In thousands SEPT. 30, 2002 SEPT. 30, 2001 CHANGE SEPT. 30, 2002 SEPT. 30, 2001 CHANGE
-------------- -------------- ------ -------------- -------------- ------
Revenues $ 140,872 $ 143,474 -1.8% $ 419,425 $ 449,021 -6.6%
Operating expenses 122,951 119,786 2.6% 359,343 376,516 -4.6%
----------- ---------- ----------- ----------
Operating income $ 17,921 $ 23,688 -24.3% $ 60,082 $ 72,505 -17.1%
=========== ========== =========== ==========
</Table>
Direct and interactive marketing revenues decreased $2.6 million, or 1.8%, in
the third quarter of 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 revenues, primarily from the automotive and
energy sectors, that were attributable to the November 2001 acquisition of Sales
Support Services, Inc. Customer Relationship Management (CRM) revenues were up
slightly compared to the prior year. CRM experienced revenue increases in agency
business, teleservices, outsourced work and fulfillment, partially offset by
declines in consulting services, internet services, software services and data
sales. CRM revenues were also affected by the acquisition noted above. Marketing
Services revenues declined from the prior year. Marketing Services experienced
revenue declines in its personalized direct mail, logistics and telesales
businesses, partially offset by increased revenues from its print operations.
Operating expenses increased $3.2 million, or 2.6%, in the third quarter of 2002
compared to 2001. Labor costs decreased $1.3 million due to lower volumes and
13
staff reductions. Production and distribution costs increased $4.0 million,
primarily due to increased outsourced costs resulting from the type and relative
mix of services performed, higher job printing costs, and higher temporary labor
costs, partially offset by lower transportation costs and decreased volumes.
General and administrative expense increased $0.6 million due to increased
professional services, royalties, insurance and employee expenses. The prior
year acquisition noted above also contributed to the overall increase in
operating expenses.
Direct and interactive marketing revenues decreased $29.6 million, or 6.6%, in
the first nine months of 2002 compared to the first nine months of 2001. Both
CRM and Marketing Services revenues declined from the prior year. These results
reflect declines in all of the segment's largest vertical markets - retail,
financial services, high-tech/telecom and pharmaceutical/healthcare. These
revenue declines were partially offset by increased revenues from the segment's
select markets group, primarily the automotive and energy sectors, and revenues
attributable to the November 2001 acquisition of Sales Support Services, Inc.
Operating expenses decreased $17.2 million, or 4.6%, in the first nine months of
2002 compared to the first nine months of 2001. The overall decrease in
operating expenses was primarily due to the Company's efforts to manage its cost
structure in response to the decline in revenues, as well as reduced variable
expenses resulting from lower revenue levels. Partially offsetting this decrease
were increased operating expenses related to the prior year acquisition noted
above. Labor costs decreased $17.5 million due to lower volumes and staff
reductions. Production and distribution costs increased $2.6 million due
primarily to increased transportation costs, partially offset by decreased
outsourced costs. General and administrative expense decreased $3.0 million due
to decreased professional services, bad debt and employee expenses.
SHOPPERS
Shopper operating results were as follows:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
In thousands SEPT. 30, 2002 SEPT. 30, 2001 CHANGE SEPT. 30, 2002 SEPT. 30, 2001 CHANGE
-------------- -------------- ------ -------------- -------------- ------
Revenues $ 85,594 $ 80,656 6.1% $ 249,827 $ 235,883 5.9%
Operating expenses 64,936 62,041 4.7% 193,619 185,018 4.6%
----------- ---------- ----------- ----------
Operating income $ 20,658 $ 18,615 11.0% $ 56,208 $ 50,865 10.5%
=========== ========== =========== ==========
</Table>
Shopper revenues increased $4.9 million, or 6.1%, in the third quarter of 2002
compared to 2001. Revenue increases were the result of improved sales in
established markets as well as new year-over-year geographic expansions into new
neighborhoods, primarily in California. From a product-line perspective,
Shoppers had growth in both ROP (in-book advertising) and its distribution
products. These increases were partially offset by declines in employment
related advertising.
Operating expenses increased $2.9 million, or 4.7%, in the third quarter of 2002
compared to 2001. Labor costs increased $2.1 million during the quarter due to
higher volumes. Production costs increased $1.5 million, including additional
postage of $1.5 million due to increased volumes and higher postage rates.
Partially offsetting these increased production costs were decreased paper costs
due to lower rates for both newsprint and job paper. General and administrative
costs decreased $0.6 million due to lower bad debt expense.
Shopper revenues increased $13.9 million, or 5.9%, in the first nine months of
2002 compared to the first nine months of 2001. Revenue increases were the
result of improved sales in established markets as well as new year-over-year
geographic expansions into new neighborhoods, primarily in California. From a
product-line perspective, Shoppers had growth in both ROP and its distribution
14
products. These increases were partially offset by declines in employment
related advertising and coupon book.
Operating expenses increased $8.6 million, or 4.6%, in the first nine months of
2002 compared to the first nine months of 2001. Labor costs increased $5.4
million during the quarter due to higher volumes. Production costs increased
$3.3 million, including additional postage of $3.7 million due to increased
volumes and higher postage rates. Partially offsetting these increased
production costs were decreased paper costs of $1.0 million due to lower rates
for both newsprint and job paper. General and administrative costs were flat
compared 2001 as increases in facilities, promotion and insurance costs were
offset by lower bad debt expense in the first nine months of 2002.
Other Income and Expense
Other net expense for the third quarter and first nine months of 2002 primarily
consists of bank charges and stockholders expenses. In the third quarter and
first nine months of 2001 the Company recorded losses of approximately $2.0
million and $3.7 million, respectively, on the write-down of investments. The
Company sold all of its remaining equity investments in the fourth quarter of
2001 and has not held any such investments during 2002.
Interest Expense/Interest Income
Interest expense decreased $0.4 million in the third quarter of 2002 and $1.5
million in the first nine months of 2002 over the same periods in 2001. The
increase was due primarily to lower debt levels and lower interest rates in the
first nine months of 2002.
Interest income was flat in the third quarter of 2002 and decreased $0.1 million
in the first nine months of 2002 compared to the same periods in 2001. These
results were due to lower cash and investment balances and lower interest rates
in the first nine months of 2002.
Income Taxes
The Company's income tax expense decreased $0.6 million in the third quarter of
2002 and $1.1 million in the first nine months of 2002 compared to the same
periods in 2001. These changes were due primarily to the changes in pre-tax
income levels. The effective tax rate was 38.2% for the third quarter of 2002
compared to 38.5% for the third quarter of 2001. The effective tax rate was
38.4% for the first nine months of 2002 compared to 38.5% for the first nine
months of 2001.
Liquidity and Capital Resources
Cash provided by operating activities for the nine months ended September 30,
2002 was $107.6 million, compared to $126.0 million for the nine months ended
September 30, 2001. The decrease in 2002 primarily relates to collections of a
lower accounts receivable balance at December 31, 2001 than at December 31,
2000. Net cash outflows from investing activities were $15.3 million for the
first nine months of 2002 compared to net cash outflows of $23.3 million for the
first nine months of 2001. The decrease in 2002 primarily relates to lower
capital expenditures in 2002 than in 2001. Net cash outflows from financing
activities were $102.6 million in 2002 compared to net cash outflows of $105.7
million in 2001. The cash outflows in 2002 and 2001 are attributable primarily
to the repurchase of the Company's stock and net repayments of borrowings.
As of September 30, 2002, capital resources were available from and provided
through the Company's two unsecured credit facilities. These credit facilities,
two $100 million variable rate, revolving loan commitments, were put in place on
15
November 4, 1999. All borrowings under the $100 million revolving Three-Year
Credit Agreement were to be repaid by November 4, 2002. On October 26, 2001 the
Company was granted a 364-day extension to its $100 million revolving 364-Day
Credit Agreement. All borrowings under the $100 million revolving 364-Day Credit
Agreement were to be repaid by October 25, 2002. As of September 30, 2002, the
Company had $193 million of unused borrowing capacity under these two credit
facilities. On October 18, 2002 the Company replaced these two credit facilities
with an unsecured $125 million variable rate revolving loan commitment with a
three year term. All borrowings under the two $100 million revolving credit
agreements were paid off as of October 18, 2002. On that same date the Company
borrowed $10 million under the new $125 million revolving Three-Year Credit
Agreement. All borrowings under the $125 million revolving Three-Year Credit
Agreement are to be repaid by October 17, 2005. Management believes that its
credit facilities, together with cash provided from operating activities, will
be sufficient to fund operations and anticipated acquisitions and capital
expenditures needs for the foreseeable future.
The Company has classified its debt at September 30, 2002 as long-term as it was
the Company's intent to refinance all outstanding balances under its credit
facilities at the time they expired. The Company was able to obtain a
replacement credit facility at comparable terms and at an amount adequate to
cover outstanding borrowings at September 30, 2002 as described above.
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
and interactive 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 and interactive 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 and interactive 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 and interactive 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 and interactive marketing
business faces competition in both of its sectors -- CRM and Marketing Services.
The Company's shopper business competes for advertising, as well as for readers,
with other
16
print and electronic media. Competition comes from local and regional
newspapers, magazines, radio, broadcast and cable television, shoppers 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 and from time to time and in the
foreseeable future will likely remain a limited resource.
Postal Rates - The Company's shoppers and direct and interactive marketing
services depend on the United States Postal Service ("USPS") 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.
Future postage rates may also be impacted by the USPS's response to the threats
to the postal service that occurred last year. 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 and interactive 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 and interactive
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's earnings are affected by changes in short-term interest rates as a
result of its revolving credit agreements, which bear interest at floating
rates. The Company does not believe that it has significant exposure to market
risks associated with changing interest rates as of September 30, 2002. The
Company does not use derivative financial instruments in its operations.
The Company's earnings are also affected by fluctuations in foreign exchange
17
rates as a result of its operations in foreign countries. Due to the level of
operations in foreign countries, the impact of fluctuations in foreign exchange
rates is not significant to the Company's overall earnings.
Item 4. Controls and Procedures
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of the Company's
management, including its Chief Executive Officer, Chief Financial Officer and
Chief Accounting Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures (as defined in Rule 13a-14(c)
under the Securities Exchange Act of 1934). Based upon that evaluation, the
Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer
concluded that the design and operation of these disclosure controls and
procedures were effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
included in the Company's periodic SEC filings. No significant changes were made
in the Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See index to Exhibits on Page 22.
(b) No Form 8-K was filed during the three months ended September 30,
2002.
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
HARTE-HANKS, INC.
November 13, 2002 /s/ Richard M. Hochhauser
----------------- ---------------------------------------
Date Richard M. Hochhauser
President and Chief Executive Officer
I, Richard M. Hochhauser, President and Chief Executive Officer of Harte-Hanks,
Inc. (the "Company") hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in the
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
19
controls which would adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weakness.
November 13, 2002 /s/ Richard M. Hochhauser
----------------- ---------------------------------------
Date Richard M. Hochhauser
President and Chief Executive Officer
20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
HARTE-HANKS, INC.
November 13, 2002 /s/ Jacques D. Kerrest
----------------- -----------------------------------
Date Jacques D. Kerrest
Senior Vice President, Finance
and Chief Financial Officer
I, Jacques D. Kerrest, Senior Vice President, Finance and Chief Financial
Officer of Harte-Hanks, Inc. (the "Company") hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in the
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
21
controls which would adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weakness.
November 13, 2002 /s/ Jacques D. Kerrest
----------------- ------------------------------------
Date Jacques D. Kerrest
Senior Vice President, Finance
and Chief Financial Officer
22
<Table>
<Caption>
Exhibit
No. Description of Exhibit Page No.
--- ---------------------- --------
3(a) Amended and Restated Certificate of Incorporation (filed as
Exhibit 3(a) to the Company's Form 10-K for the year ended
December 31, 1993 and incorporated by reference herein).
3(b) Second Amended and Restated Bylaws (filed as Exhibit 3(b) to the
Company's Form 10-Q for the nine months ended September 30, 2001
and incorporated by reference herein).
3(c) Amendment dated April 30, 1996 to Amended and Restated
Certificate of Incorporation (filed as Exhibit 3(c) to the
Company's Form 10-Q for the nine months ended September 30, 1996
and incorporated by reference herein).
3(d) Amendment dated May 5, 1998 to Amended and Restated Certificate
of Incorporation (filed as Exhibit 3(d) to the Company's Form
10-Q for the six months ended June 30, 1998 and incorporated by
reference herein).
3(e) Amended and Restated Certificate of Incorporation as amended
through May 5, 1998 (filed as Exhibit 3(e) to the Company's Form
10-Q for the six months ended June 30, 1998 and incorporated by
reference herein).
10(a) 1984 Stock Option Plan (filed as Exhibit 10(d) to the Company's
Form 10-K for the year ended December 31, 1984 and
incorporated herein by reference).
10(b) Registration Rights Agreement dated as of September 11, 1984
among HHC Holding Inc. and its stockholders (filed as Exhibit
10(b) to the Company's Form 10-K for the year ended December 31,
1993 and incorporated by reference herein).
10(c) Severance Agreement between Harte-Hanks, Inc. and Larry
Franklin, dated as of December 15, 2000 (filed as Exhibit 10(c)
to the Company's Form 10-K for the year ended December 31, 2000
and incorporated by reference herein).
10(d) Severance Agreement between Harte-Hanks, Inc. and Richard M.
Hochhauser dated as of December 15, 2000 (filed as Exhibit 10(d)
to the Company's Form 10-K for the year ended December 31, 2000
and incorporated by reference herein).
10(e) Form 1 of Severance Agreement between Harte-Hanks, Inc. and
certain Executive Officers of the Company, dated as of
December 15, 2000 (filed as Exhibit 10(e) to the Company's
Form 10-K for the year ended December 31, 2000 and
incorporated by reference herein).
10(f) Form 2 of Severance Agreement between Harte-Hanks, Inc. and
certain Executive Officers of the Company, dated as of
December 15, 2000 (filed as Exhibit 10(f) to the Company's
Form 10-K for the year ended December 31, 2000 and
incorporated by reference herein).
</Table>
23
<Table>
<Caption>
Exhibit
No. Description of Exhibit Page No.
--- ---------------------- --------
10(g) Harte-Hanks, Inc. Amended and Restated Restoration Pension Plan
dated as of January 1, 2000 (filed as Exhibit 10(f) to the
Company's Form 10-K for the year ended December 31, 1999 and
Incorporated by reference herein).
10(h) Harte-Hanks Communications, Inc. 1996 Incentive Compensation
Plan (filed as Exhibit 10(p) to the Company's Form 10-Q for the
nine months ended September 30, 1996 and incorporated by reference
herein).
10(i) Harte-Hanks, Inc. Amended and Restated 1991 Stock Option Plan
(filed as Exhibit 10(h) to the Company's Form 10-Q for the six
months ended June 30, 2000 and incorporated by reference herein).
10(j) Harte-Hanks, Inc. 1998 Director Stock Plan (filed as Exhibit 10(h)
to the Company's Form 10-Q for the six months ended June 30, 1998
and incorporated by reference herein).
10(k) Harte-Hanks, Inc. Deferred Compensation Plan (filed as Exhibit
10(i) to the Company's Form 10-K for the year ended December
31, 1998 and incorporated by reference herein).
10(l) Amendment One to Harte-Hanks, Inc. Amended and Restated
Restoration Plan dated December 18, 2000 (filed as Exhibit 10(l)
to the Company's Form 10-K for the year ended December 31, 2000
and incorporated by reference herein).
10(m) Agreement between Harte-Hanks, Inc. and Larry Franklin
regarding role of Chairman of the Board of Directors of
Harte-Hanks, Inc. dated as of April 1, 2002 (filed as Exhibit
10(m) to the Company's Form 10-Q for the three months ended
March 31, 2002 and incorporated by reference herein).
*10(n) Three-Year Credit Agreement dated as of October 18, 2002 between 24
Harte-Hanks, Inc. and the Lenders named therein for a $125
million revolving credit facility.
*21 Subsidiaries of the Company. 85
*99(a) Certification of Chief Executive Officer pursuant to 18 U.S.C 86
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
*99(b) Certification of Chief Financial Officer pursuant to 18 U.S.C 87
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
</Table>
- ---------------------
*Filed herewith