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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
- ------ Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
- ------ Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 1-7120
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HARTE-HANKS COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 74-1677284
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Concord Plaza Drive, San Antonio, Texas 78216
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code -- 210/829-9000
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock: $1 par value, 36,491,296 shares as of June 30, 1996.
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HARTE-HANKS COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-Q REPORT
June 30, 1996
Page
----
Part I. Financial Information
Item 1. Interim Condensed Consolidated Financial
Statements (Unaudited)
Condensed Consolidated Balance Sheets - 3
June 30, 1996 and December 31, 1995
Consolidated Statements of Operations - 4
Three months ended June 30, 1996 and 1995
Consolidated Statements of Operations - 5
Six months ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows - 6
Six months ended June 30, 1996 and 1995
Notes to Interim Condensed Consolidated Financial 7
Statements
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Part II. Other Information
Item 4. Submission Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
(a) Exhibits
(b) Reports on Form 8-K
Signature 15
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Harte-Hanks Communications, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (in thousands, except per share and share
amounts)
(Unaudited)
JUNE 30, DECEMBER 31,
1996 1995
---- ----
Assets
Current assets
Cash............................................... $ 17,727 $ 18,102
Accounts receivable, net........................... 82,012 80,056
Inventory.......................................... 21,594 24,307
Prepaid expenses................................... 7,379 5,330
Current deferred income tax benefit................ 6,679 7,181
Other current assets............................... 3,739 3,477
--------- ---------
Total current assets............................. 139,130 138,453
Property, plant and equipment, net................... 106,019 102,164
Goodwill, net........................................ 293,905 283,149
Other assets......................................... 7,569 5,513
--------- ---------
Total assets..................................... $ 546,623 $ 529,279
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable.................................. $ 38,589 $ 35,768
Accrued payroll and related expenses.............. 14,401 20,677
Customer deposits and unearned revenue............ 16,832 16,174
Income taxes payable.............................. 659 1,593
Other current liabilities......................... 8,336 9,015
--------- ---------
Total current liabilities....................... 78,817 83,227
Long term debt...................................... 225,340 220,468
Other long term liabilities......................... 22,628 23,728
--------- ---------
Total liabilities............................... 326,785 327,423
--------- ---------
Stockholders' equity
Common stock, $1 par value, authorized 125,000,000
shares. Issued and outstanding 1996: 36,491,296
shares; 1995: 36,044,228 shares................. 36,491 36,044
Additional paid-in capital........................ 181,202 174,870
Retained earnings (accumulated deficit)........... 2,145 ( 9,058)
--------- ---------
Total stockholders' equity...................... 219,838 201,856
--------- ---------
Total liabilities and stockholders' equity...... $ 546,623 $ 529,279
========= =========
See Notes to Interim Condensed Consolidated Financial Statements.
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Harte-Hanks Communications, Inc. and Subsidiaries
Consolidated Statements of Operations (in thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED JUNE 30,
-----------------------------
1996 1995
---- ----
Operating revenues.................................... $159,916 $149,686
-------- --------
Operating expenses
Payroll............................................. 55,546 52,091
Production and distribution......................... 57,032 54,134
Advertising, selling, general and administrative.... 14,461 14,797
Depreciation........................................ 4,569 3,957
Goodwill amortization............................... 2,436 2,397
Merger costs........................................ 12,136 --
-------- --------
146,180 127,376
-------- --------
Operating income...................................... 13,736 22,310
-------- --------
Other expenses (income)
Interest expense.................................... 3,436 4,196
Interest income..................................... (96) (142)
Other, net.......................................... (48) 298
-------- --------
3,292 4,352
-------- --------
Income before income tax expense...................... 10,444 17,958
Income tax expense.................................... 6,538 8,257
-------- --------
Net income............................................ $ 3,906 $ 9,701
======== ========
Primary:
Earnings per share.................................. $ 0.10 $ 0.27
======== ========
Weighted average common and common equivalent
shares outstanding................................ 38,551 36,279
======== ========
Fully diluted:
Earnings per share.................................. $ 0.10 $ 0.26
======== ========
Weighted average common and common equivalent
shares outstanding................................ 38,702 37,677
======== ========
See Notes to Interim Condensed Consolidated Financial Statements.
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Harte-Hanks Communications, Inc. and Subsidiaries
Consolidated Statements of Operations (in thousands, except per share amounts)
(Unaudited)
SIX MONTHS ENDED JUNE 30,
---------------------------
1996 1995
---- ----
Operating revenues.................................... $310,527 $298,708
-------- --------
Operating expenses
Payroll............................................. 111,234 105,328
Production and distribution......................... 113,059 110,654
Advertising, selling, general and administrative.... 28,646 31,003
Depreciation........................................ 8,941 7,971
Goodwill amortization............................... 4,937 4,919
Merger costs........................................ 12,136 --
-------- --------
278,953 259,875
-------- --------
Operating income...................................... 31,574 38,833
-------- --------
Other expenses (income)
Interest expense.................................... 6,884 9,217
Interest income..................................... (1,107) (352)
Other, net.......................................... 504 739
Gain on divestitures................................ -- (12,293)
-------- --------
6,281 (2,689)
-------- --------
Income before income tax expense...................... 25,293 41,522
Income tax expense.................................... 13,070 23,398
-------- --------
Net income............................................ $ 12,223 $ 18,124
======== ========
Primary:
Earnings per share.................................. $ .32 $ .51
======== ========
Weighted average common and common equivalent
shares outstanding................................ 38,420 35,673
======== ========
Fully diluted:
Earnings per share.................................. $ .32 $ 0.49
======== ========
Weighted average common and common equivalent
shares outstanding................................ 38,495 37,511
======== ========
See Notes to Interim Condensed Consolidated Financial Statements.
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Harte-Hanks Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (in thousands)
(Unaudited)
SIX MONTHS ENDED JUNE 30,
--------------------------
1996 1995
---- ----
Cash Flows From Operating Activities
Net income.......................................... $ 12,223 $ 18,124
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation .................................... 8,941 7,971
Goodwill amortization............................ 4,937 4,919
Amortization of option related compensation...... 599 967
Film amortization................................ 694 1,284
Deferred income taxes............................ (383) (1,430)
Other, net....................................... 778 242
Gain on divestiture.............................. -- (12,293)
Changes in operating assets and liabilities, net of
effects from acquisitions and divestitures:
Decrease (increase) in accounts receivable, net.. 1,263 1,227
Decrease (increase) in inventory................. 2,713 (5,975)
Increase in prepaid expenses and other
current assets................................ (2,325) (861)
Increase (decrease)in accounts payable........... 2,003 ( 76)
Decrease in other accrued expenses
and other liabilities......................... (8,036) (1,806)
Other, net....................................... (866) (859)
-------- --------
Net cash provided by operating
activities.................................... 22,541 11,434
-------- --------
Cash Flows From Investing Activities
Purchases of property, plant and equipment.......... (12,305) (11,994)
Proceeds from the sale of property, plant
and equipment and divested assets................. 346 40,194
Acquisitions........................................ (17,139) (5,760)
Payments on film contracts.......................... (654) (1,065)
-------- --------
Net cash provided by (used in)
investing activities.......................... (29,752) 21,375
-------- --------
Cash Flows From Financing Activities
Long term debt borrowings........................... 142,000 739,964
Payments on long term debt, including current
maturities ...................................... (137,755) (772,187)
Issuance of common stock............................ 3,611 2,292
Dividends paid...................................... (1,020) (960)
-------- --------
Net cash provided by (used in) financing
activities ...................................... 6,836 (30,891)
-------- --------
Net increase (decrease) in cash..................... (375) 1,918
Cash at beginning of year........................... 18,102 11,533
Pooling adjustment to beginning of
year balance to conform fiscal years.............. -- ( 1,504)
-------- --------
Cash at end of period............................... $ 17,727 $ 11,947
======== ========
See Notes to Interim Condensed Consolidated Financial Statements.
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Harte-Hanks Communications, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
NOTE A - FINANCIAL STATEMENTS
The accompanying unaudited Interim Condensed Consolidated Financial
Statements include the accounts of Harte-Hanks Communications, Inc. and
subsidiaries (the "Company").
The statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the six months ended June 30,
1996 are not necessarily indicative of the results that may be expected
for the year ending December 31. For further information, refer to the
consolidated financial statements and footnotes included in the Company's
annual report on Form 10-K for the year ended December 31, 1995.
NOTE B - ACQUISITION
Effective April 30, 1996, DiMark, Inc. ("DiMark") was merged with a
wholly-owned subsidiary of the Company, and each outstanding share of
DiMark common stock was converted into the right to acquire .656 of a share
of common stock of Harte-Hanks. As a result, Harte-Hanks issued
approximately 6.1 million shares of Harte-Hanks common stock to the
shareholders of DiMark, and DiMark's outstanding stock options were
converted into options to acquire 1,509,213 shares of Harte-Hanks common
stock. The merger was accounted for on a pooling-of-interests basis.
Accordingly, the Company's financial statements have been restated to
include the results of DiMark for all periods presented. The combined
financial results include reclassifications to conform financial statement
preparation. Merger expenses related to the transaction were $12.1 million
($8.7 million, net of income taxes). Combined and separate results of the
Company and DiMark during the reporting periods preceding the merger were
as follows (in thousands):
THREE MONTHS ENDED
MARCH 31, 1996
HARTE-HANKS DIMARK ADJUSTMENTS COMBINED
----------- --------- ----------- ----------
Revenue $124,899 $27,377 $ (1,664) $150,612
Net income 6,385 1,923 -- 8,308
FISCAL YEAR ENDED
DEC. 31, 1995
Revenue $532,852 $77,583 $ (6,924) $603,511
Net income 33,985 6,001 $ -- $ 39,986
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Adjustments to revenue consist of elimination of DiMark's postage
costs from revenues and cost of sales to conform to Harte-Hanks'
accounting classification.
NOTE C - INCOME TAXES
The Company's quarterly income tax calculation is based on an
effective income tax rate that is derived by estimating pretax income
and income tax expense for the entire year ended December 31, 1996.
Included in the year-to- date income tax provision of $13.1 million is
$3.4 million in income tax benefits related to the merger costs.
Excluding the taxes related to the merger costs, the estimated annual
effective income tax rate of 44.1% for the six months ended June 30,
1996 resulted in $16.5 million in tax expense on income from
operations. The effective income tax rate calculated is higher than
the federal statutory rate of 35% due to the addition of state taxes
and to certain expenses recorded for financial reporting purposes
(primarily goodwill amortization), which are not deductible for
federal income tax purposes.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Operating results (excluding the 1996 merger costs and 1995 gain on
divestiture) were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
In thousands JUNE 30, 1996 JUNE 30, 1995 CHANGE JUNE 30, 1996 JUNE 30, 1995 CHANGE
- ------------ ------------- ------------- ------ ------------- ------------- ------
Revenues $159,916 $149,686 6.8% $310,527 $298,708 4.0%
Operating expenses 134,044 127,376 5.2% 266,817 259,875 2.7%
-------- -------- -------- --------
Operating income $ 25,872 $ 22,310 16.0% $ 43,710 $ 38,833 12.6%
======== ======== ======== ========
Net income $ 12,628 $ 9,701 30.2% $ 20,945 $ 13,200 58.7%
======== ======== ======== ========
Fully diluted earnings
per share $ 0.33 $ 0.26 26.9% $ 0.54 $ 0.35 54.3%
======== ======== ======== ========
(The above results exclude the 1996 one-time merger costs (discussed under
"Acquisition") and the 1995 gain on divestiture (discussed under "Gain on
Divestiture"). Including these items, net income was $3.9 million, or 10 cents
per share, in the second quarter of 1996 compared to net income of $9.7
million, or 26 cents per share, in 1995. For the first six months of 1996, net
income was $12.2 million, or 32 cents per share, compared to $18.1 million, or
49 cents per share, in 1995.)
Consolidated revenues grew 6.8% to $159.9 million, and operating income grew
16.0% to $25.9 million in the second quarter of 1996 when compared to the
second quarter of 1995. The Company's overall growth resulted from
acquisitions, increased business with both new and existing customers, new
products and services as well as advertising and circulation rate increases.
Overall operating expenses increased 5.2% over 1995. Excluding the sale of the
Boston newspapers, year-to-date revenues increased $19.2 million, or 6.5%, when
compared to the same period in 1995.
DIRECT MARKETING
Direct marketing operating results were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
In thousands JUNE 30, 1996 JUNE 30, 1995 CHANGE JUNE 30, 1996 JUNE 30, 1995 CHANGE
- ------------ ------------- ------------- ------ ------------- ------------- ------
Revenues $73,349 $65,406 12.1% $145,861 $130,022 12.2%
Operating expenses 62,893 56,114 12.1% 126,406 112,126 12.7%
------- ------- -------- --------
Operating income $10,456 $ 9,292 12.5% $ 19,455 $ 17,896 8.7%
======= ======= ======== ========
Direct marketing revenues increased $7.9 million, or 12.1%, in the second
quarter of 1996 when compared to 1995. Database, response management and
outbound telemarketing services experienced significant revenue growth.
Database revenues increased due to higher product sales as well as increased
database construction, updates and creations. Response management revenues
increased primarily due to new customer gains, particularly in the high
technology industry, and to a lesser extent due to the May 31, 1996 acquisition
of Inquiry Handling Service, a Los Angeles based response management company
that serves the high tech and electronics industries. Sales lead management,
which includes lead generation and lead qualification through inbound
inquiries, experienced significant growth both from new customers and increased
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call volumes from existing customers. Outbound telemarketing revenues
increased primarily due to the January 1996 acquisition of PRO Direct Response
Corp., a telemarketing company with a strong customer base in the financial
services industry. Second quarter revenue growth was also impacted by the
September 1995 acquisition of H&R Communications, Inc. These revenue increases
were slightly offset by the absence of an outsourced mailing program which the
customer now performs in-house and by the sale of a local hand distribution
advertising business in July 1995. Overall, revenue growth resulted from
acquisitions and increased business with both new and existing customers,
particularly in services provided to the high technology, retail, financial
services, health care and pharmaceutical industries.
Second quarter operating expenses increased $6.8 million, or 12.1%, when
compared to 1995. Payroll costs increased $3.6 million due to expanded hiring
to support revenue growth. Also contributing to the increased operating
expenses were additional production costs of $2.4 million due to increased
volumes. Depreciation expense increased $0.6 million due to higher levels of
capital investment to support growth. Operating expenses were also impacted by
the acquisitions noted above and the sale of the local hand distribution
advertising business in July 1995.
Direct marketing revenues increased $15.8 million, or 12.2%, in the first six
months of 1996 as compared to the comparable 1995 period. Database, response
management and outbound telemarketing experienced significant revenue growth.
Overall, revenue growth resulted from acquisitions and increased business,
particularly in the high technology, banking, financial services, health care
and pharmaceutical industries.
Year-to-date 1996 operating expenses rose $14.3 million, or 12.7%, when
compared to 1995. Payroll costs increased $10.2 million due to expanded hiring
to support revenue growth and to the 1995 reversal of executive compensation,
which was waived by the executives. In addition, production costs increased
$2.6 million due to increased volumes. Depreciation expense increased $1.2
million due to higher levels of capital investment to support growth. The
acquisitions also impacted operating expense growth.
SHOPPERS
Shopper operating results were as follows:
THREEE MONTHS ENDED SIX MONTHS ENDED
In thousands JUNE 30, 1996 JUNE 30, 1995 CHANGE JUNE 30, 1996 JUNE 30, 1995 CHANGE
- ------------ -------------- ------------- ------ ------------- ------------- ------
Revenues $48,936 $48,285 1.3% $ 91,930 $ 91,931 0.0%
Operating expenses 41,550 41,838 -0.7% 81,213 82,542 -1.6%
------- ------- -------- --------
Operating income $ 7,386 $ 6,447 14.6% $ 10,717 $ 9,389 14.1%
======= ======= ======== ========
Shopper revenues increased $0.7 million, or 1.3%, in the second quarter of 1996
when compared to the same period in 1995. The increase was primarily due to
increased in-book advertising revenues resulting from higher display
advertising volumes as well as increased usage of the Company's print and
deliver products. Display advertising volumes increased due to growth in the
Company's core business accounts as well as increased in-column display
advertisements made possible with pagination technology implemented in 1995.
These increases were offset by lower insert revenues as a result of reduced
volumes as well as revenue declines related to intentional reductions of
marginal circulation in Dallas.
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Shopper operating expenses decreased $0.3 million, or 0.7%, in the second
quarter of 1996 when compared to 1995. Postage expense decreased $1.3 million
due to less overweight postage associated with the lower insert volumes. In
addition, the reduced circulation in the Dallas market contributed to the
decreased expense. These decreases were offset by paper cost increases of $0.8
million. These increases were primarily attributable to higher rates. Payroll
costs also increased $0.4 million as a result of higher commissions on greater
sales volumes.
Year-to-date shopper revenues remained constant at $91.9 million when compared
to the same period in 1995. Revenue growth was experienced in both the display
advertising and print and deliver product categories. These increases were
offset by lower insert volumes as well as reduced revenues related to
circulation reduction in Dallas.
Year-to-date shopper operating expenses decreased $1.3 million, or 1.6%, in
1996 when compared to the same period in 1995. This decline was due to lower
postage costs of $2.5 million and to lower operating expenses related to the
reduction in marginal circulation in Dallas. These decreases were offset by
increased paper costs of $1.8 million, or 21.2%.
NEWSPAPERS
Newspaper operating results were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
In thousands JUNE 30, 1996 JUNE 30, 1995 CHANGE JUNE 30, 1996 JUNE 30, 1995 CHANGE
- ------------ ------------- ------------- ------ ------------- ------------- ------
Revenues $30,803 $29,282 5.2% $60,139 $64,160 -6.3%
Operating expenses 23,529 22,338 5.3% 47,004 51,680 -9.0%
------- ------- ------- -------
Operating income $ 7,274 $ 6,944 4.8% $13,135 $12,480 5.2%
======= ======= ======= =======
Newspaper revenues increased $1.5 million, or 5.2%, in the second quarter of
1996 when compared to the same period in 1995. Overall advertising revenues
were up $0.6 million, or 2.7%. In particular, classified advertising revenues
increased $0.4 million, or 6.3%, as a result of rate increases. Retail
advertising revenues were up $0.2 million, or 1.8%, due to increased rates
slightly offset by lower volumes. Circulation revenues increased $0.3 million,
or 4.9%, due to home delivery rate increases in all markets and a Sunday
single-copy rate increase at the Corpus Christi paper. Niche product revenue
increased $0.6 million primarily due to the continued growth of existing direct
mail programs as well as the launch of new programs in 1996. In addition, new
revenue initiatives in community publications, total market coverage products,
Internet and audiotext added to second quarter revenue growth.
Newspaper operating expenses increased $1.2 million, or 5.3% in the second
quarter of 1996 when compared to 1995. Newsprint expense increased $0.9
million, or 21.4%, as a result of higher average newsprint prices offset
slightly by reduced volumes. Postage costs also increased slightly due to
growth in direct mail volumes.
Excluding the sale of the Boston newspapers (discussed under "Gain on
Divestiture"), year-to-date newspaper revenues increased $3.3 million, or 5.8%,
when compared to the same period in 1995. Overall advertising revenues were up
$1.2 million, or 3.2%. In particular, classified advertising revenues
increased $1.0 million, or 6.7%, as a result of rate increases. Retail
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advertising revenues were up $0.3 million, or 1.8%, due to increased rates
slightly offset by lower volumes. Circulation revenues increased $0.9 million,
or 6.5%, due to rate increases. Niche product revenue also increased $1.1
million, primarily due to the continued growth of existing revenue streams as
well as the launch of revenue initiatives.
Excluding the sale of the Boston newspapers, year-to-date newspaper operating
expenses increased $2.8 million, or 6.4%, when compared to 1995. Newsprint
expense increased $2.1 million, or 28.2%, as a result of higher average
newsprint prices offset slightly by reduced volumes. Postage costs also
increased slightly due to growth in direct mail volumes.
TELEVISION
Television operating results were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
In thousands JUNE 30, 1996 JUNE 30, 1995 CHANGE JUNE 30, 1996 JUNE 30, 1995 CHANGE
- ------------ ------------- ------------- ------ ------------- ------------- ------
Revenues $6,828 $ 6,713 1.7% $12,597 $12,595 0.0%
Operating expenses 4,267 4,667 -8.6% 8,564 9,124 -6.1%
------ ------- ------- -------
Operating income $2,561 $ 2,046 25.2% $ 4,033 $ 3,471 16.2%
====== ======= ======= =======
Revenues for the television segment increased $0.1 million, or 1.7%, in the
second quarter of 1996 when compared to 1995. This increase was primarily
attributable to local advertising and an increase in network compensation
revenue due to a renegotiated network affiliation agreement. These increases
in revenue were partially offset by decreased national advertising demands.
Second quarter operating expenses decreased $0.4 million, or 8.6%, when
compared to the same period in 1995. The decrease was due primarily to film
cost savings, as well as effective management of other production and general
and administrative costs. Partially offsetting these cost reductions was an
increase in payroll costs due to additional investment in sales and news.
Revenues for the television segment remained relatively constant for the first
half of 1996 when compared to the same period in 1995. Increased local
advertising and network compensation revenues were offset by lower national
advertising revenues, reflecting continued weak CBS network performance.
First half operating expenses for the television segment decreased $0.6
million, or 6.1%, when compared to the same period in 1995. The decrease was
due primarily to lower film costs, which were slightly offset by higher payroll
costs.
Acquisition
As described in Note 2 to the Notes to Interim Condensed Consolidated Financial
Statements included herein, on April 30, 1996, DiMark was merged with a
wholly-owned subsidiary of the Company, and each outstanding share of DiMark
common stock was converted into the right to acquire .656 of a share of common
stock of Harte-Hanks. As a result, Harte-Hanks issued approximately 6.1
million shares of Harte-Hanks Common Stock to the shareholders of DiMark, and
DiMark's outstanding stock options were converted into options to acquire 1.5
million shares of Harte-Hanks common stock. The merger was accounted for on a
pooling-of-interests basis, and all historical information has been restated as
if the pooling occurred at the beginning of the periods presented. One-time
merger
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expenses of $12.1 million ($8.7 million after-tax) were recognized in the
second quarter of 1996.
DiMark provides a full range of outsource marketing, database services and
telemarketing to clients in the insurance, healthcare, pharmaceutical,
financial services and telecommunications industries, as well as direct
response printing services.
Interest Expense/Interest Income
Interest expense decreased $0.8 million in the second quarter of 1996 when
compared to the same period in 1995 due to lower effective interest rates and
lower debt levels. Year-to-date interest expense declined $2.3 million in the
first half of 1996 when compared to 1995, primarily due to lower debt levels
and rates. Debt levels decreased due to proceeds from the divestiture
described below in "Gain on Divestiture", the 1995 conversion of the Company's
6-1/4% notes to common stock and increased cash flow from operations.
Interest income increased $0.8 million in the first half of 1996 when compared
to 1995 due to interest income related to an income tax refund that resulted
from a favorable tax settlement.
Gain on Divestiture
In March 1995, the Company sold its suburban Boston community newspapers. As a
result of this transaction, the Company recognized a gain on divestiture of
$2.3 million, or 7 cents per share, net of $10.0 million of income taxes.
Income Taxes
Excluding the income taxes related to the 1996 merger costs and the 1995 gain
on divestiture, income tax expense in the second quarter and the first six
months of 1996 increased due to higher income levels.
Liquidity and Capital Resources
Cash provided from operating activities for the six months ended June 30, 1996
was $22.5 million as compared to $11.4 million for the same period in 1995.
Net cash outflows for investing activities were $29.8 million as compared to
inflows of $21.4 million in 1995. Investing activities for the first six
months of 1996 included acquisitions of $17.1 million and for the first six
months of 1995 included $40.2 million in proceeds from the sale of property,
plant and equipment and divested assets.
Capital resources are available from and provided through the Company's
unsecured credit facility. All borrowings under the revolving credit facility
are to be repaid by December 31, 2001. Management believes that its credit
facility, together with cash provided from operating activities, will be
sufficient to fund operations, anticipated capital and film expenditures, and
debt service requirements for the foreseeable future. As of June 30, 1996, the
Company had $96 million of unused borrowing capacity under its credit facility.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of stockholders on April 30, 1996. At the
meeting the stockholders were requested to vote on the following:
1. To approve the issuance of shares of Harte-Hanks Common Stock to
DiMark stockholders pursuant to the Agreement and Plan of Merger dated
as of February 4, 1996 by and among Harte-Hanks, HHD Acquisition Corp.,
a New Jersey corporation and wholly-owned subsidiary of Harte-Hanks
("Newco") and DiMark, Inc., a New Jersey corporation ("DiMark"),
providing for the merger of Newco with and into DiMark and the
conversion of each outstanding share of DiMark common stock, no par
value per share, into .656 of a share of Harte-Hanks common stock, par
value $1.00 per share. The result of the vote was as follows:
For Against Abstentions Nonvotes
---------- ---------- ------------ ------------
24,520,634 19,130 10,847 1,765,101
2. To elect Houston H. Harte, Andrew B. Shelton and Richard M. Hochhauser
as Class III directors for a three- year term and David L. Copeland as
a Class I director for a one-year term. The result of the vote was as
follows:
For Withheld
---------- ---------
Houston H. Harte 26,300,727 14,985
Andrew B. Shelton 26,300,733 14,979
Richard M. Hochhauser 26,299,157 16,555
David L. Copeland 26,300,474 15,238
The names of each director whose term of office continued are: Peter
T. Flawn, Larry Franklin, Christopher M. Harte, Edward H. Harte and
James L. Johnson.
3. To approve an amendment to the Certificate of Incorporation of Harte-
Hanks to increase the number of authorized shares of Harte-Hanks Common
Stock from 50,000,000 to 125,000,000. The result of the vote was as
follows:
For Against Abstentions Nonvotes
---------- ---------- ------------ -----------
23,058,863 1,485,165 10,847 1,765,101
4. To approve an amendment to the Harte-Hanks Communications, Inc. 1991
Stock Option Plan to increase the aggregate number of shares of Harte-
Hanks Common Stock that may be issued under such Plan from 3,000,000 to
4,000,000. The result of the vote was as follows:
For Against Abstentions
---------- ----------- ------------
25,723,451 570,511 21,750
5. To approve the adoption of the Harte-Hanks Communications, Inc. 1996
Incentive Compensation Plan. The result of the vote was as follows:
For Against Abstentions
----------- ---------- ------------
26,086,356 219,213 10,143
15
15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See index to Exhibits on Page 16.
(b) The company filed a report on Form 8-K dated April 30, 1996
relating to the agreement to acquire DiMark, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HARTE-HANKS COMMUNICATIONS, INC.
August 7, 1996 /s/ Richard L. Ritchie
----------------------- -----------------------------
Date Richard L. Ritchie
Senior Vice President,
Finance and Chief Financial
and Accounting Officer
16
16
Exhibit
No. Description of Exhibit Page No.
- ------- ---------------------------------------------------------------- --------
2(a) Certificate of Ownership and Merger (filed
as Exhibit 2(a) to the Company's Registration
Statement No. 33-69202 and incorporated by
reference herein).
2(b) Agreement and Plan of Merger dated as of February 4,
1996 among Harte-Hanks Communications, Inc., HHD
Acquisition Corp. and DiMark, Inc. (filed as
Appendix A to the Company's Registration Statement
No. 333-2047 and incorporated by reference herein).
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) Amended and Restated Bylaws (filed as Exhibit 3(b)
to the Company's Registration Statement No. 33-69202
and incorporated by reference herein).
*3(c) Amendment dated April 30, 1996 to Amended and 17
Restated Certificate of Incorporation.
*3(d) Amended and Restated Certificate of Incorporation 20
as amended through April 30, 1996.
4(a) Long term debt instruments are not being filed
pursuant to Section (b)(4)(iii) of Item 601 of
Regulation S-K. Copies of such instruments will
be furnished to the Commission upon request.
*10(o) Amendment No. 3 to Harte-Hanks Communications 27
(formerly HHC Holding Inc.) 1991 Stock Option Plan.
*10(p) Harte-Hanks Communications, Inc. 1996 Incentive 28
Compensation Plan.
*11 Statements Regarding Computation of Per 29
Share Earnings
*27 Financial Data Schedules 31
- -------------------------------
* Filed herewith.