Table of Contents
(Mark One)
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
☐ 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: 001-07120
HARTE HANKS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
74-1677284
(I.R.S. Employer
Identification Number)
2 Executive Drive, Chelmsford, MA 01824
(Address of principal executive offices, including zip code)
(512) 434-1100
(Registrant’s telephone number including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock
Trading Symbol(s)
HHS
Name of each exchange on which registered
NASDAQ
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company.
See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
Table of Contents
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the closing price ($5.8) as of the last business day of the
registrant’s most recently completed second fiscal quarter (June 30, 2021), was approximately $30,396,333.
The number of shares outstanding of each of the registrant’s classes of common stock as of March 31, 2022 was 7,002,528 shares of common stock, all of one class.
Documents incorporated by reference:
Portions of the Proxy Statement to be filed for the company’s 2021 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.
THIS ANNUAL REPORT ON FORM 10-K IS BEING DISTRIBUTED TO STOCKHOLDERS IN LIEU OF A SEPARATE ANNUAL REPORT PURSUANT TO RULE 14a-3(b) OF
THE ACT.
Table of Contents
Part I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Harte Hanks, Inc. and Subsidiaries
Table of Contents
Form 10-K Report
December 31, 2021
Page
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Signatures
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
2
3
8
16
16
16
16
17
18
19
26
26
27
27
27
28
28
28
28
28
29
67
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contains “forward-looking statements” within the
meaning of the federal securities laws. All such statements are qualified by this cautionary note, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities
Act of 1933 and Section 21E of the Exchange Act. Forward-looking statements may also be included in our other public filings, press releases, our website, and oral and written
presentations by management. Statements other than historical facts are forward-looking and may be identified by words such as “may,” “will,” “expects,” “believes,” “anticipates,”
“plans,” “estimates,” “seeks,” “could,” “intends,” or words of similar meaning. Examples include statements regarding (1) our strategies and initiatives, including our ability to reduce
costs and make other adjustments to our cost structure and other actions designed to respond to market conditions and improve our performance, (2) our financial outlook for revenues,
earnings (loss) per share, operating income (loss), expense related to equity-based compensation, capital resources and other financial items, if any, (3) expectations for our businesses and
for the industries in which we operate, including the impact of economic conditions of the markets we serve on the marketing expenditures and activities of our clients and prospects,
(4) competitive factors, (5) acquisition and development plans, ( (6) expectations regarding legal proceedings and other contingent liabilities, and (7) other statements regarding future
events, conditions, or outcomes.
These forward-looking statements are based on current information, expectations, and estimates and involve risks, uncertainties, assumptions, and other factors that are difficult to predict
and that could cause actual results to vary materially from what is expressed in or indicated by the forward-looking statements. In that event, our business, financial condition, results of
operations, or liquidity could be materially adversely affected, and investors in our securities could lose part or all their investments. Some of these risks, uncertainties, assumptions, and
other factors can be found in our filings with the SEC, including the factors discussed below in this Item 1A, “Risk Factors” of this Annual Report, and any updates thereto in our Forms
10-Q and 8-K. The forward-looking statements included in this report and those included in our other public filings, press releases, our website, and oral and written presentations by
management are made only as of the respective dates thereof, and we undertake no obligation to update publicly any forward-looking statement in this report or in other documents, our
website, or oral statements for any reason, even if new information becomes available or other events occur in the future, except as required by law.
PART I
ITEM 1.
BUSINESS
INTRODUCTION
Harte Hanks, Inc., together with its subsidiaries (“Harte Hanks,” “Company,” “we,” “our,” or “us”) is a leading global customer experience company. With offices in North America,
Asia-Pacific and Europe, Harte Hanks works with some of the world’s most respected brands
We are the successor to a newspaper business started by Houston Harte and Bernard Hanks in Texas in the early 1920s. We were incorporated in Delaware on October 1, 1970. In 1972,
Harte Hanks went public and was listed on the New York Stock Exchange (“NYSE”). We became a private company in a leveraged buyout in 1984, and in 1993 we again went public and
listed our common stock on the NYSE. On July 13, 2020, we began trading on the OTCQX® Best Market (the “OTCQX”). On December 1, 2021, our stock was uplisted to be traded on
the Nasdaq Global Market® (“Nasdaq”).
All reports filed with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are publicly available. These
documents may be accessed free of charge on our website at http://www.hartehanks.com. These documents are also provided as soon as practical after they are filed with the SEC and
may also be found at the SEC’s website at www.sec.gov. Additionally, we have adopted and posted on our website a code of ethics that applies to our chief executive officer,
chief operating officer, and chief financial officer. Our website also includes our corporate governance guidelines and the charters for each of our audit, compensation, and nominating and
corporate governance committees. We will provide a printed copy of any of these documents to any requesting stockholder. These website addresses are intended to be for inactive textual
references only. None of the information on, or accessible through, these websites are part of this Form 10-K or is incorporated by reference herein.
OUR BUSINESS
Harte Hanks, Inc. is a leading global customer experience company operating in three business segments: Marketing Services, Customer Care, and Fulfillment & Logistics
Services. Our mission is to partner with clients to provide them with a robust customer-experience, or CX, strategy, data-driven analytics and actionable insights combined with seamless
program execution to better understand, attract, and engage their customers. Our services include strategic planning, data strategy, performance analytics, creative development and
execution; technology enablement; marketing automation; B2B and B2C e-commerce; cross-channel customer care; and product, print, and mail fulfillment.
Marketing Services
Our goal is to help our clients activate their audiences through digital, traditional and emerging channels. We leverage data, insights, technology, and award-winning creative to meet and
exceed, our clients’ business objectives and optimize our client’s return on investment. We provide full service multi-channel marketing from strategy to campaign execution.
Our key offerings include:
•
•
•
Strategy – Provide strategic guidance to help clients efficiently and effectively plan and execute omni-channel marketing programs that deliver business results. We leverage
data and insight tools to enhance the understanding of consumers, competitors and category dynamics, then apply those insights to develop marketing programs designed to drive
activities like customer acquisition, engagement, purchase behavior, loyalty and advocacy.
Data & Analytics – In-depth data and analytics offerings, including audience identification, profiling, segmentation and prioritization, predictive modeling and data strategy. We
provide data hygiene and cleansing to ensure the best possible results. We access broad first-party and third-party data sources, search and social media, and research through
syndicated, primary and secondary sources, and we leverage our proprietarily developed DataView tool, a comprehensive, aggregate data mart that provides a 360-degree
customer view, with over 1,500 consumer attributes enabling accurate predictive marketing to our clients.
Creative - Full-service creative development and execution spanning traditional and digital channels, including print, broadcast, direct mail, website, app, display, social, mobile,
search engine marketing, and voice.
• Marketing Technology – Website and app development, e-commerce development and enablement, database building and management, platform architecture creation, and
marketing automation to most efficiently engage, capture, enhance, and target audiences.
• Marketing As a Service - A flexible outsourcing marketing operations, solution, that works as a highly integrated extension of a client's marketing function. Blending the best of
agency and business process outsourcing process and capabilities to operationalize, manage and deliver high-performing data operations, marketing technology, demand
generation, and staff augmentation.
3
Table of Contents
Customer Care
Harte Hanks is a leading full lifecycle provider of global customer experience management services, multichannel demand generation and digital transformation. Using our integrated
onshore/offshore global delivery model, we provide our services through multiple communication channels including phone, email, social media, text messaging, chat and digital self-
service. By leveraging our strategy, talent and technology, we strive to offer solutions that help our clients enhance the experience for their customers and improve business. Those
solutions are primarily focused on:
•
•
•
Customer Experience Management - Interact and resolve consumer concerns across hardware and software platforms, healthcare benefit plans, recalls or a myriad of other
customer service issues.
CRM & Digital Transformation – Configure different CRM solutions (e.g., Oracle, Salesforce, Zendesk) to create meaningful customer interactions by connecting content
between agent or AI-driven interfaces and web-based self-help tools and community forums.
Demand Generation – Provide intelligence-based B2B solutions that understand audiences and their behaviors, and then inspire and drive action to deliver results.
We analyze a significant amount of aggregated data obtained from customer interactions on behalf of our clients. We leverage information gained from this analysis and end customer-
driven feedback to drive efficiencies, provide insights on predictive behaviors that lead to lower customer churn and help our clients innovate their core product offerings and develop
innovative product features.
Fulfillment & Logistics Services
Our goal as a business is to unlock critical sales enablement and eCommerce fulfillment channels for our customers, and our best-in-class logistics team supports the supply chain needs of
our clients in everything from time-sensitive deliveries to full scale supply chain management.
•
•
Product, Print-On-Demand, and Mail Fulfillment: Our varied product and mail fulfillment solutions include printing on demand, managing product recalls, and distributing
literature and promotional products to support B2B trade, drive marketing campaigns, and improve customer experience. GoBox provides custom solutions to engage audiences,
target customers, support conferences, and appreciate employees. Our fulfillment locations are temperature-controlled, FDA-registered, and geographically convenient and
thereby allow us to optimize print and product fulfillment to maximize customer shipping efficiency while minimizing transportation costs. We leverage our proprietary
nexTOUCH order management platform to facilitate customer orders, and we work with a variety of data sources and users to initiate the fulfillment order process.
Our new 400,000 square-foot Kansas City (KS) location is FDA registered and fully licensed for nutritional supplements, medical foods, baby formula and junior food products,
chocolates, coffee and tea, edible nuts and seeds, snack foods, pet foods, pet treats, and pet nutritional supplements.
Logistics: We provide third-party logistics and freight optimization services across the United States. We ship millions of time-sensitive materials annually through our access to
a certified fleet of over 15,000 trucks and a proprietary rate-shopping logistical system called Allink®360 designed to ensure customer products are delivered on-time and on-
budget.
Financial information about reporting segments can be found in Item 7 - Management's Discussion and Analysis of Financial Condition and Result of Operations and Item 8 - Financial
Statements and Supplementary Data under Note O.
We are known for helping clients build deep customer relationships, create connected customer experiences, and optimize each and every customer touch point in order to deliver desired
business outcomes. Realizing our clients’ success is the only valid measure of our own success, we ensure all our efforts are aligned with our clients’ business objectives and measured
against defined performance metrics. It is this commitment to our clients and their businesses that allows us to build deep and meaningful relationships with them. Our client engagements
may consist of one or a few of our service offerings – with a goal toward continuously expanding our client relationships.
Certain segments of our business rely on subcontractors and other third parties to provide a portion of our overall services in certain engagements. Over the years we have established
strong relationships with subcontractors that translate into high level service and favorable prices for our customers.
For the years ended December 31, 2021 and 2020, Harte Hanks had revenues of $194.6 million and $176.9 million, respectively.
COVID-19
In the first quarter of 2020, we took a number of precautionary measures designed to help minimize the risk of the spread of COVID-19 among our employees, including suspending all
non-essential employee travel worldwide, temporarily closing the majority of our domestic and foreign offices, extensively and frequently disinfecting our offices that remained open,
enforcing social distancing to the extent possible and requiring the majority of our employees to work remotely. While portion of our workforce has started to return to the office, many of
our employees will continue to work remotely on a more permanent basis.
We continue to closely monitor the impact of the pandemic on all aspects of our business, including the impact on our customers, employees, suppliers, supply-chain, freight costs, vendors
and business partners, as well as how it has impacted our liquidity and ability to comply with covenants in our credit agreement. The continuous emergence of variants of the virus
increases uncertainties surrounding the impact of the virus and the global economy, in general, and our business, in particular.
In connection with the pandemic, some of our customers have reduced the amount of work we provide to them while other customers have requested accommodations including
extensions of payment or restructuring of agreements. However, due to pandemic-related changes, including an increased need for contact center services, our Customer Care solutions
services secured new contracts as well as increased volume for existing customers. While the pandemic has not had a material effect on our business, liquidity or ability to comply with
covenants to date, given the dynamic nature of the pandemic, we may experience material impacts in the future. We recommend that you review “Item 1A. Risk Factors” in this
Annual Report on this Form 10-K for a further discussion on COVID-19.
4
Table of Contents
Restructuring Activities
Our management team continuously reviews and adjusts our cost structure and operating footprint, optimize our operations, and invest in improved technology. During 2020, in an effort
to right-size our operating footprint, we terminated leases in Wilkes Barre (PA) and Grand Prairie (TX) and exited our last direct mail facility in Jacksonville (FL). We completed the
migration of our fulfillment business from the Grand Prairie TX) operations into a new 400,000 square foot facility in Kansas City (KS) in December 2020. In 2020, we also successfully
reduced the footprint of our Customer Care business by reducing our Austin (TX) office location by approximately 50,000 square feet in addition to exiting one of our two Manila
(Philippines) offices since the business is operating effectively in a work-from-home environment. In the first quarter of 2021, we completed the migration of our Shawnee (KS)
operations to Kansas City (KS). The Shawnee (KS) facility lease expired on April 30, 2021. The new Kansas City (KS) location is now our primary facility in the Midwest.
For the years ended December 31, 2021 and 2020, we recorded restructuring charges of $6.4 million and $9.4 million respectively. Restructuring charges in 2021 included $2.5 million of
severance charges, $0.9 million in lease impairment expense and $3.0 million of facility related and other expenses. Restructuring charges in 2020 included lease impairment charges
related to the exit from our direct mail facilities, severance charges, capital losses from the asset disposal associated with the deal with Summit Direct Mail Inc. (“Summit”), facility related
and other expenses.
We do not expect to incur any additional restructuring expenses after December 31, 2021.
Uplisting to the NASDAQ Global Market®
During Q4 2021, the Company was approved for listing on the Nasdaq Global Market® (“Nasdaq”) after meeting the financial, liquidity and corporate governance listing requirements of
the NASDAQ. On December 1, 2021, the Company commenced trading on the NASDAQ.
Customers
Our services are marketed to specific industries or markets. We tailor our services and software products depending on the industry or market we are targeting. We believe that we are
generally able to provide services to new industries and markets by modifying our existing services and applications. We currently provide services primarily to the B2B, consumer brand,
financial services, retail, and healthcare vertical markets, in addition to a range of other select markets. Our clients include large multinational enterprises, small and medium-sized
businesses and government organizations. Our largest client (measured in revenue) generated 15.1% of total revenues in 2021. Our largest 25 clients in terms of revenue generated 72.6%
of total revenue in 2021. We generally enter into long-term contracts with our clients ranging in duration from one to three years. Most of our contracts do not require our customers to
purchase a minimum amount of services from us. In general, our contracts with our customers are terminable on short notice with little or no penalty payable on termination.
Sales and Marketing
We rely on our enterprise and solution sellers to primarily sell our products and services to new clients and task our employees supporting existing clients to expand our client relationship
through additional solutions and products. Our marketing services sales force sells a variety of solutions and services to address client’s targeted marketing needs. We maintain solution-
specific sales forces and sales groups to sell our individual products and solutions. We currently have approximately 9 employees in our sales and marketing function.
Facilities
Our services are provided at the following facilities, all of which are leased:
Domestic Offices
Austin, Texas
Chelmsford, Massachusetts
Deerfield Beach, Florida
East Bridgewater, Massachusetts
Kansas City, Kansas
International Offices
Hasselt, Belgium
Iasi, Romania
Competition
Langhorne, Pennsylvania
Lenexa, Kansas
Maitland, Florida
Trevose, Pennsylvania
Texarkana, Texas
Manila, Philippines
Uxbridge, United Kingdom
Our competition comes from local, national, and international marketing and advertising companies, and internal client resources, against whom we compete for individual projects, entire
client relationships, and marketing expenditures. Competitive factors in our industry include the quality and scope of services, technical and strategic expertise, the perceived value of the
services provided, reputation, pricing and brand recognition. We also compete against social, mobile, web-based, email, print, broadcast, and other forms of advertising for marketing and
advertising dollars in general. During 2021, we continued to see an increase in the insourcing of capabilities among our clients.
Seasonality
Our revenues tend to be higher in the fourth quarter than in other quarters during a given year. This increased revenue is a result of overall increased marketing activity prior to and during
the holiday season, and is primarily derived from our retail vertical.
5
Table of Contents
GOVERNMENT REGULATION
As a company conducting varied business activities for clients across diverse industries around the world, we are subject to a variety of domestic and international legal and regulatory
requirements that impact our business, including, for example, regulations governing consumer protection, and unfair business practices, contracts, e-commerce, intellectual property,
labor, and employment (especially wage and hour laws), securities, tax, and other laws that are generally applicable to commercial activities. We do not expect to need to make significant
capital expenditures to maintain compliance with government regulations.
We are also subject to, or affected by, numerous local, national, and international laws, regulations, and industry standards that regulate direct marketing activities, including those that
address privacy, data security, and unsolicited marketing communications. Examples of some of these laws and regulations that may be applied to, or affect, our business or the businesses
of our clients include the following:
•
•
•
•
•
•
•
•
•
•
The Federal Trade Commission’s positions regarding the processing of personal information and consumer protection consumers as expressed through its Protecting Consumer
Privacy in an Era of Rapid Change, Data Brokers, Big Data and Cross-Device Tracking reports (each of which seek to address consumer privacy, data protection, and
technological advancements related to the collection or use of personal information for marketing purposes).
Data protection laws in the United States (which are generally State specific) and in the European Union (“EU”), including the General Data Protection Regulation (EU
Regulation 679/2016), each which imposes a number of obligations with respect to the processing of personal data, and with respect to EU Regulation 679/2016 also imposes
prohibitions related to the transfer of personal information from the EU to other countries, including the U.S., that do not provide data subjects with an “adequate” level of privacy
or security, and applies to all of our products in Europe.
The Financial Services Modernization Act of 1999, or Gramm-Leach-Bliley Act (“GLB”), which, among other things, regulates the use for marketing purposes of non-public
personal financial information of consumers that is held by financial institutions. Although Harte Hanks is not considered a financial institution, many of our clients are subject to
the GLB. The GLB also includes rules relating to the physical, administrative, and technological protection of non-public personal financial information.
The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which regulates the use of protected health information for marketing purposes and requires
reasonable safeguards designed to prevent intentional or unintentional use or disclosure of protected health information.
The Fair Credit Reporting Act (“FCRA”), which governs, among other things, the sharing of consumer report information, access to credit scores, and requirements for users of
consumer report information.
The Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”), which amended the FCRA and requires, among other things, consumer credit report notice requirements
for creditors that use consumer credit report information in connection with risk-based credit pricing actions and also prohibits a business that receives consumer information
from an affiliate from using that information for marketing purposes unless the consumer is first provided a notice and an opportunity to direct the business not to use the
information for such marketing purposes, subject to certain exceptions.
Federal and state laws governing the use of email for marketing purposes, including the U.S. Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003
(“CAN-SPAM”), Canada’s Anti-Spam Legislation (“CASL”) and similar e-Privacy laws in Europe (in support of Directive 2002/58/EC).
Federal and state laws governing the use of telephones for unsolicited marketing purposes, including the Federal Trade Commission’s Telemarketing Sales Rule (“TSR”), the
Federal Communications Commission’s Telephone Consumer Protection Act (“TCPA”), various U.S. state do-not-call laws, Canada’s National Do Not Call laws and rules
(“Telecommunications Act”) and similar e-Privacy laws in Europe (in support of Directive 2002/58/EC).
Federal and state laws governing the collection and use of personal data online and via mobile devices, including but not limited to the Federal Trade Commission Act and the
Children’s Online Privacy Protection Act, which seek to address consumer privacy and protection.
Federal and state laws in the U.S., Canada, and Europe specific to data security and breach notification, which include required standards for data security and generally require
timely notifications to affected persons in the event of data security breaches or other unauthorized access to certain types of protected personal data.
There are additional consumer protection, privacy, and data security regulations in locations where we or our clients do business. These laws regulate the collection, use, disclosure, and
retention of personal data and may require consent from consumers and grant consumers other rights, such as the ability to access their personal data and to correct information in the
possession of data controllers. We and many of our clients also belong to trade associations that impose guidelines that regulate direct marketing activities, such as the Direct Marketing
Association’s Commitment to Consumer Choice.
6
Table of Contents
As a result of increasing public awareness and interest in individual privacy rights, data protection, information security, and environmental and other concerns regarding marketing
communications, federal, state, and foreign governmental and industry organizations continue to consider new legislative and regulatory proposals that would impose additional
restrictions on direct marketing services and products. Examples include data encryption standards, data breach notification requirements, consumer choice and consent restrictions, and
increased penalties against offending parties, among others.
In addition, our business, in general, and the way we do business in particular, may be affected by the impact of these restrictions on our clients and their marketing activities. These
additional regulations could increase compliance requirements and restrict or prevent the collection, management, aggregation, transfer, use, or dissemination of information or data that is
currently legally available. Additional regulations may also restrict or prevent current practices regarding unsolicited marketing communications. For example, many states have
considered implementing “do-not-mail” legislation that could impact our business and the businesses of our clients and customers. In addition, continued public interest in individual
privacy rights and data security may result in the adoption of further voluntary industry guidelines that could impact our direct marketing activities and business practices.
We cannot predict the scope of any new legislation, regulations, or industry guidelines or how courts may interpret existing and new laws. Additionally, enforcement priorities by
governmental authorities may change and impact our business either directly or through requiring our customers to alter their practices. Compliance with regulations is costly and time-
consuming for us and our clients, and we may encounter difficulties, delays, or significant expenses in connection with our compliance. We may also be exposed to significant penalties,
liabilities, reputational harm, and loss of business if we fail to comply with applicable regulations. There could be a material adverse impact on our business due to the enactment or
enforcement of legislation or industry regulations, the issuance of judicial or governmental interpretations, enforcement priorities of governmental agencies, or a change in customs arising
from public concern over consumer privacy and data security issues.
INTELLECTUAL PROPERTY RIGHTS
Our intellectual property assets include trademarks and service marks that identify our company and our services, know-how, software, and other technology that we develop for our
internal use and for license to clients and data and intellectual property licensed from third parties, such as commercial software and data providers. We generally seek to protect our
intellectual property through a combination of license agreements and trademark, service mark, copyright, patent and trade secret laws as well as through domain name registrations and
enforcement procedures. We also enter into confidentiality agreements with many of our employees, vendors, and clients and seek to limit access to and distribution of intellectual property
and other proprietary information. We pursue the protection of our trademarks and other intellectual property in the U.S. and internationally. Although we from time to time evaluate
inventions for patentability, we do not own any patents, and patents are not core to our intellectual property strategy (other than as may be incidental to commercially available technology
or software we license).
We have developed proprietary software including NexTOUCH and Allink®360, each of which are integral to our business. NexTOUCH is key to the success of our mail and product
fulfillment business while Allink®360 ensures customers' products are delivered on-time and on-budget.
HUMAN CAPITAL RESOURCES
As of December 31, 2021, Harte Hanks employed 1,937 full-time employees and 1,155 part-time employees, of which approximately 1,909 are based outside of the U.S., primarily in the
Philippines. A portion of our workforce is provided to us through staffing companies. None of our workforce is represented by labor unions. We consider our relations with our employees
to be good.
Harte Hanks believes that its employees are the key to its success. Our human capital strategy focuses on:
COVID-19 Health Measures: Since the onset of the COVID-19 pandemic, the health and safety of Harte Hanks’s employees has been our highest priority. Upon the onset of the
pandemic, Harte Hanks immediately implemented several changes to enhance COVID-19 safety and mitigate related work environment health risks including enhancing remote working
capabilities as well as other arrangements. We will continue to enhance our COVID-19 response as the pandemic unfolds by dynamically adjusting protocols currently in place to address
the then current state of the pandemic.
Diversity and Inclusion: Harte Hanks recognizes the value of diversity and inclusion within its organization and strives to ensure that its workplace reflects the diverse communities in
which it operates in order to promote collaboration, innovation, creativity and belonging. Harte Hanks is proud of its diverse workforce and cross-cultural competency and, as of
December 31, 2021, employed individuals from six different countries. As of December 31, 2021, 61% of Harte Hanks’ workforce was female. Harte Hanks is committed to continue to
recruit and employ qualified candidates regardless of their gender or cultural background.
Employee Benefits: Harte Hanks believes in the importance of offering its employees competitive salaries and wages, together with comprehensive insurance options. Harte Hanks
recognizes the importance of comprehensive healthcare benefits, including medical, prescription drug, vision and dental, and employees and their family members are provided with tools
and resources to assist in adopting and maintaining a healthy lifestyle. Harte Hanks pays the cost of basic life insurance, accidental death and dismemberment insurance, and short-term
disability for its employees. Additionally, employees may purchase supplemental life, dependent life, and long-term disability insurance.
7
Table of Contents
ITEM 1A.
RISK FACTORS
Risks Related to COVID-19
The ongoing COVID-19 pandemic may have a materially adverse effect on the Company’s business and operations.
The COVID-19 pandemic continues to impact the global economy and cause significant macroeconomic uncertainly. As a result, our operating results may be subject to fluctuations based
on the pandemic’s effect on general economic conditions and the extent to which COVID-19 ultimately impacts our business. While the pandemic and the resulting impact on the global
economy have not material adversely affected our business to date, the deterioration of economic conditions could materially reduce our sales and profitability. For instance, certain of our
clients that experienced financial distress due to the pandemic temporarily reduced the amount of services we provide to them. In addition, while we have not yet experienced material
issues with respect to collectability of accounts receivable, if the economy were to be further negatively impacted by the pandemic, such issues may arise in the future. Furthermore, the
Company faces risks due to the evolving effect of COVID-19 on our employees, customers, suppliers, and third-party providers, including the impact of actions taken by the U.S. and
foreign governments to curtail the spread of the virus, including social distancing measures and restrictions on travel and building capacity limits. In addition, if there was an outbreak of
COVID-19 at one of our facilities, we may be required to temporarily close such facility.
As a result of the COVID-19 pandemic, the majority of our employees are working remotely, a trend which we expect to continue on a permanent basis for many employees and it is
possible that this could have a negative impact on the execution of our business plans and operations. If a natural disaster, power outage, connectivity issue, or other event occurred that
impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. Further, the increase
in remote working may also result in consumer privacy, IT security, and fraud concerns.
Although we have developed and continue to develop plans to mitigate the negative impact of the COVID-19 pandemic on our business and safeguard all of our IT functions to ensure
security and data protection, such efforts may not prevent our business from being materially adversely affected. Should the adverse impacts described above (or others that are currently
unknown) occur, whether individually or collectively, we could experience declines in revenue and profitability. Such impacts could be material to our consolidated financial statements in
the first quarter of 2022 and subsequent reporting periods.
As the full extent of COVID-19’s impact on our operations, key metrics, and financial performance depends on future developments, including the duration and severity of the pandemic;
the actions taken to contain the virus or treat its impact; other actions taken by governments; businesses, and individuals in response to the virus and resulting economic disruption; and
how quickly and to what extent normal economic and operating conditions can resume, the impact from the COVID-19 pandemic on our business cannot be reasonably estimated at this
time.
Risks Related to our Business
Most of our client engagements are cancelable on short notice.
The marketing services we offer, in particular for contact center services, are generally terminable upon short notice by our clients, even if the term of the agreement (and the expected
duration of services) is several or many years. Many of our customer agreements do not have minimum volume or revenue requirements or exclusivity arrangements, so clients may (and
do) vary their actual orders from us over time based on their own business needs, their satisfaction with the quality and pricing of our services, and a variety of other competitive factors.
In addition, the timing of particular jobs or types of jobs at particular times of year (such as mail programs supporting the holiday shopping season or contact center programs supporting a
specific event) may cause significant fluctuations in the operating results of our operations in any given quarter. We depend to some extent on sales to certain industries, such as the
consumer retail industries, technology, and financial services.
To the extent these industries experience downturns whether as result of the COVID-19 pandemic, or the ongoing Russia-Ukraine war or otherwise, our clients may re-evaluate their
marketing spend, which could adversely affect the results of our operations.
A large portion of our revenue is generated from a limited number of clients. The loss of a client or significant work from one or more of our clients could adversely affect our
business.
Our largest client (measured in revenue) generated 15.1% of total revenues in 2021 and represented 14.6% of total accounts receivable as of December 31, 2021. Approximately 72.6%
of our revenue for 2021 was generated by our 25 largest clients. While we typically have multiple projects with our largest customers which would not all terminate at the same time, the
loss of one or more of our larger clients or even a single project or contract with one of our largest clients could adversely affect our business, results of operations, and financial condition
if the lost revenues are not replaced with profitable revenues from that client or other clients.
We face significant competition for individual projects, entire client relationships and advertising dollars in general.
Our business faces significant competition within each of our vertical markets and for all of our offerings. We offer our marketing services within a
dynamic business environment characterized by rapid technological change, high turnover of client personnel who make buying decisions, client
consolidations, changing client needs and preferences, continual development of competing products and services, and an evolving competitive
landscape. This competition comes from numerous local, national, and international direct marketing and advertising companies, and client internal
resources, against whom we compete for individual projects, entire client relationships, and marketing expenditures by clients and prospective clients. We
also compete against internet (social, mobile, web-based, and email), print, broadcast, and other forms of advertising for marketing and advertising dollars
in general. During 2021, we continued to see an increase in the insourcing of capabilities among our clients.
Our ability to attract new clients and to retain existing clients may, in some cases, be limited by clients’ policies on or perceptions of conflicts of interest
which may prevent us from performing similar services for competitors. Some of our clients have also sought to reduce the number of marketing vendors or
use third-party procurement organizations, all of which increases pricing pressure, and may disadvantage us relative to our competitors that have broader
and/or deeper offerings than us. Our failure to improve our current processes or to develop expertise in various technologies could result in the loss of our
clients to current or future competitors.
Current and future competitors may have significantly greater financial and other resources than we do, and they may sell competing services at lower
prices or at lower profit margins, resulting in pressures on our prices and margins.
The size of our competitors varies widely across vertical markets and service lines. Some of our competitors have significantly greater financial, technical,
marketing, and other resources than we do in one or all of our market segments. As a result, our competitors may be in a position to respond more quickly
than we can to new or emerging technologies, methodologies, and changes in customer requirements, or may devote greater resources than we can to the
development, promotion, sale, and support of innovative products and services. Moreover, new competitors or alliances among our competitors may emerge
and potentially reduce our market share, revenue, or margins. Some of our competitors also may choose to sell products or services that compete with ours
at lower prices by accepting lower margins and profitability or may be able to sell products or services that compete with ours at lower prices given
proprietary ownership of data, technical superiority, a broader or deeper product or experience set, greater capital resources or economies of scale. Price
reductions or pricing pressure by our competitors could negatively impact our margins and results of operations and could also harm our ability to retain
clients or obtain new customers on favorable terms. Competitive pricing pressures tend to increase in difficult or uncertain economic environments, due to
reduced marketing expenditures of many of our clients and prospects, and the resulting impact on the competitive business environment for marketing
service providers such as our company.
We must maintain technological competitiveness, continually improve our processes, and develop and introduce new services in a timely and cost-effective manner.
We believe that our success depends on, among other things, maintaining technological competitiveness in our products, processing functionality, and software systems and
services. Technology changes rapidly as makers of computer hardware, network systems, programming tools, computer and data architectures, operating systems, database technology, and
mobile devices continually improve their offerings. Advances in information technology may result in changing client preferences for products and product delivery channels in our
industry. The increasingly sophisticated requirements of our clients require us to continually improve our processes and provide new products and services in a timely and cost-effective
manner (whether through development, license, or acquisition). We may be unable to successfully identify, develop, and bring new and enhanced services and products to market in a
timely and cost-effective manner, such services and products may not be commercially successful, and services, products, and technologies developed by others may render our services
and products noncompetitive or obsolete.
8
Table of Contents
Our success depends on our ability to consistently and effectively deliver our services to our clients.
Our success depends on our ability to effectively and consistently staff and execute client engagements within the agreed upon time frame and
budget. Depending on the needs of our clients, our engagements may require customization, integration, and coordination of a number of complex product
and service offerings and execution across many facilities. Moreover, in some of our engagements, we rely on subcontractors and other third parties to
provide some of the services to our clients, and we cannot guarantee that these third parties will effectively deliver their services, that we will be able to
easily suspend work with contractors that are not performing adequately, or that we will have adequate recourse against these third parties in the event they
fail to effectively deliver their services. Other contingencies and events outside of our control may also impact our ability to provide our products and
services, such as the COVID-19 pandemic. Our failure to effectively and timely staff, coordinate, and execute our client engagements may adversely impact
existing client relationships, the amount or timing of payments from our clients and our reputation in the marketplace as well as our ability to secure
additional business and our resulting financial performance. In addition, our contractual arrangements with our clients and other customers may not provide
us with sufficient protections against claims for lost profits or other claims for damages.
We have recently experienced, and may experience in the future, reduced demand for our products and services due to the financial condition and
marketing budgets of our clients and other factors that may impact the industry verticals that we serve.
Marketing budgets are largely discretionary in nature, and as a consequence are easier to reduce in the short-term than other expenses. Our customers have in the past, and may in the
future, respond to their own financial constraints (whether caused by weak economic conditions, weak industry performance or client-specific issues) by reducing their marketing
spend. For instance, upon the onset of the COVID-19 pandemic a number of our clients reduced the amount of services we provide to them, for among other reasons, to preserve
liquidity. Customers may also be slow to restore their marketing budgets to prior levels during an economic recovery and may respond similarly to adverse economic conditions in the
future further exacerbating the risk. Our revenues are dependent on national, regional, and international economies and business conditions. A long-lasting economic recession, regardless
of the cause, or anemic recovery in the markets in which we operate could have material adverse effects on our business, financial position, or operating results. Similarly, industry or
company-specific factors may negatively impact our clients and prospective clients, and in turn result in reduced demand for our products and services, client insolvencies, collection
difficulties or bankruptcy preference actions related to payments received from our clients. We may also experience reduced demand as a result of consolidation of clients and prospective
clients in the industry verticals that we serve.
We must effectively manage our costs to be successful. If we do not achieve our cost management objectives, our financial results could be adversely
affected.
Our business plan and expectations for the future require that we effectively manage our cost structure, including our operating expenses and capital
expenditures across our operations. Our management team, along with members of the Board, formed a project committee focused on cost-saving
initiatives and other restructuring efforts. The committee reviewed each of our business segments and other operational areas to identify both one-time and
recurring cost-saving opportunities. In 2021, our management team continued to review and adjust our cost structure and operating footprint, optimize our
operations, and invest in improved technology. For the years ended December 31, 2021 and 2020, we recorded restructuring charges of $6.4 million and
$9.4 million, respectively, which we believe will result in meaningful future savings, some of which have already been realized. However, we may not be
able to recognize all identified potential savings and even if we are able to recognize the identified savings, such cost savings may be insufficient to achieve
our cost management objectives. To the extent that we do not successfully manage our costs our financial results may be adversely affected.
9
Table of Contents
Risks Related to our Indebtedness
Our indebtedness may adversely impact our ability to react to changes in our business or changes in general economic conditions.
As of December 31, 2021, we had $5.0 million of indebtedness outstanding, all of which was secured indebtedness. In addition, subject to compliance with the terms of the agreements
governing our indebtedness and the Certificate of Designation for our Series A Convertible Preferred Stock, we may incur additional indebtedness from time to time.
On December 21, 2021, the Company entered into a new three-year, $25.0 million asset-based revolving credit facility (the “New Credit Facility”) with the Texas Capital Bank. The New
Credit Facility replaces the Company’s previous credit facility with Texas Capital Bank , which previous facility was guaranteed by members of the Shelton family (descendants of one of
our founders) to provide credit support to the Company. The New Credit Facility did not require the Shelton family or any other third-party to guarantee the Company’s obligations.
However, each of the Company’s material subsidiaries guaranteed the Company’s obligations under the New Credit Facility (such subsidiaries, the “Guarantors”). The New Credit Facility
is secured by substantially all of the assets of the Company and the Guarantors pursuant to a Pledge and Security Agreement, dated as of December 21, 2021, between the Company, TCB
and the other grantors party thereto (the “Security Agreement”). As of December 31, 2021, we had the ability to borrow an additional $18.9 million under the New Credit Facility subject
to compliance with the facilities covenants.
See Note F, Long-Term Debt, in the Notes to Consolidated Financial Statements for further discussion on our debt.
The Company’s ability to meet its debt service obligations and refinance its current indebtedness, as well as any future debt that it may incur, will depend upon its ability to generate cash
in the future from operations, financings or asset sales, which are subject to general economic conditions, the Company’s results of operations, the state of the capital markets at the time it
seeks to refinance its debt and other factors, some of which may be beyond the Company’s control. If the Company cannot repay or refinance its debt as it becomes due, the Company may
be forced to sell assets or take other disadvantageous actions, including undertaking alternative financing plans, which may have onerous terms or may be unavailable, dedicating an
unsustainable level of the Company’s cash flow from operations to the payment of principal and interest on its indebtedness and/or reducing the amount of liquidity available for working
capital, capital expenditures and general corporate purposes.
The covenants in the New Credit Facility and the terms of our Series A preferred Stock may limit the Company’s operating and financial flexibility.
The New Credit Facility and the terms under which we borrow money under any future credit facilities or other agreements could have significant consequences for our business. The
New Credit Facility includes covenants restricting the Company's and its subsidiaries' ability to create, incur, assume or become liable for indebtedness; make certain investments; pay
dividends or repurchase the Company's stock; create, incur or assume liens; consummate mergers or acquisitions; liquidate, dissolve, suspend or cease operations; or modify accounting or
tax reporting methods (other than as required by the generally accepted accounting principles in the United States of America (“U.S. GAAP”).
Our ability to incur indebtedness is also impacted by the terms of our Series A Convertible Preferred Stock, which limits our ability to incur indebtedness without the holders’ consent to
the greater of $40 million and four times our trailing 12-month EBITDA (measured at the time such indebtedness is incurred). The holders of the Series A Convertible Preferred Stock also
have consent rights to certain fundamental transactions involving the Company. Any failure or inability to obtain new financing arrangements when needed on favorable terms could have
a material adverse impact on our liquidity position.
Covenant and ratio requirements may limit the manner in which we can conduct our business, and we may be unable to engage in favorable business activities or finance future operations
and capital needs. Specifically, the amount and terms of the Company’s indebtedness could:
•
•
•
limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, including limiting our ability to invest in our strategic
initiatives, and consequently, place us at a competitive disadvantage;
reduce the availability of our cash flows that would otherwise be available to fund working capital, capital expenditures, acquisitions, and other general corporate purposes; and
result in higher interest expense in the event of increases in interest rates, as discussed below under the Risk Factor “Interest rate increases could affect our results of operations,
cash flows, and financial position.”
In addition, a failure to comply with these restrictions or to maintain the financial measures and ratios contained in the New Credit Facility or future debt instruments could lead to an
event of default that could result in an acceleration of indebtedness.
Risks related to our pension benefit plans may adversely impact our results of operations and cash flows.
Pension benefits represent significant financial obligations. As of December 31, 2021, we had approximately $54.3 million of unfunded pension liabilities. Because of the uncertainties
involved in estimating the timing and amount of future payments and asset returns, significant estimates are required to calculate pension expense and liabilities related to our plans. We
utilize the services of independent actuaries, whose models are used to facilitate these calculations. Several key assumptions are used in the actuarial models to calculate pension expense
and liability amounts recorded in the consolidated financial statements. In particular, significant changes in actual investment returns on pension assets, discount rates, or legislative or
regulatory changes could impact future results of operations and required pension contributions. Differences between actual pension expenses and liability amounts from these estimated
expense and liabilities may adversely impact our results of operations and cash flows.
10
Table of Contents
Risks Related to Cybersecurity
Privacy, information security and other regulatory requirements may prevent or impair our ability to offer our products and services.
We are subject to and affected by numerous laws, regulations, and industry standards that regulate direct marketing activities, including those that address privacy, data protection,
processing personal information, information security, and marketing communications. Please refer to the section above entitled “Item 1. Business - Government Regulation” for
additional information regarding some of these regulations.
As a result of increasing awareness and interest in privacy rights, data protection, the fair use of personal information, consumer protection, information security, and similar matters,
national and local governments and industry organizations regularly consider and adopt new laws, rules, regulations, and guidelines that impact, restrict, and regulate our business products
and services. Whether already in place or scheduled to become effective in the future, comprehensive data protection, privacy, and marketing laws apply across the jurisdictions in
which we operate and where personal information originates, including Europe, the Philippines, and most states throughout the U.S. These mandates apply when processing personal data
for business and marketing purposes and broadly impact all marketing activities, including legitimate activities associated with profiling consumer behaviors, drawing inferences from
personal information, making automated decisions about individuals using personal information, transferring personal information between parties and jurisdictions, communicating with
existing and prospective customers, and more. Additionally, we are subject to operational obligations when processing personal information, including the adoption of governance
frameworks, regulatory registration or consultation tasks, infrastructure and data security standards and strategies, data breach detection and response solutions, conducting audits to
identify risks and more to demonstrate accountability and compliance. Other relevant compliance considerations in support of these mandates include establishing solutions in support of
broad privacy and data protection rights which are common across different jurisdictions, including those designed to offer notice to individuals, capture prior consent, grant access to
personal information, offer choices, and related controls to honor choices expressed related to if and how personal information can be processed or licensed for marketing purposes.
We anticipate new regulations will continue to be proposed and adopted in the future in the jurisdictions in which we operate and/or generate revenue. We also anticipate any new
regulation will reflect the growing trends common to current privacy, data protection and marketing laws requiring companies bear the burden of proving compliance efforts through
demonstratable records and may be subject to significant fines and penalties should they violate any substantive or technical requirement. We may implement additional safeguards,
controls and measures in response to these changes and trends; and may be required to change or limit our service offerings.
Our business may also be affected by the impact of these rules and regulations on our clients’ business and marketing activities. In addition, as we acquire new capabilities and deploy new
technologies to execute our strategy, we may be exposed to additional regulation. Current and future restrictions and regulations could increase compliance requirements and costs, and
restrict or prevent the collection, management, aggregation, transfer, use or dissemination of personal information or change the requirements so as to require other changes to our business
or our clients' businesses, practices and tolerance for risk. Additional restrictions and regulations may limit or prohibit current practices regarding marketing communications and
information quality solutions. For example, multiple states have implemented opt out legislation for telephone marketing, requiring the creation of statewide do-not call registries. Such
legislation could impact our business and the businesses of our clients and of their customers. In addition, continued public interest in privacy rights, data protection and access, and
information security may result in the adoption of further industry guidelines that could impact our direct marketing activities and business practices.
We cannot predict the scope of any new laws, rules, regulations, or industry guidelines or how courts or agencies may interpret current ones. Additionally, enforcement priorities by
governmental authorities will change over time, which may impact our business. Understanding the laws, rules, regulations, and guidelines applicable to specific client multichannel
engagements and across many jurisdictions poses a significant challenge, as such laws, rules, regulations, and guidelines are often inconsistent or conflicting, and are sometimes at odds
with client objectives. Our failure to properly comply with these regulatory requirements and client needs may materially and adversely affect our business. General compliance with
privacy, data protection, and information security obligations is costly and time-consuming, and we may encounter difficulties, delays, or significant expenses in connection with our
compliance, or because of our clients’ need to comply. We may be exposed to significant penalties, liabilities, reputational harm, and loss of business in the event that we fail to
comply. We could suffer a material adverse impact on our business due to the enactment or enforcement of legislation or industry regulations affecting us and/or our clients, the issuance of
judicial or governmental interpretations, changed enforcement priorities of governmental agencies, or a change in behavior arising from public concern over privacy, data protection, and
information security issues.
Consumer perceptions regarding the privacy and security of their data may prevent or impair our ability to offer our products and services.
Various local, national, and international regulations, as well as industry standards, give consumers varying degrees of control as to how personal data is collected, used, and shared for
marketing purposes. If, due to privacy, security, or other concerns, consumers exercise their ability to prevent or limit such data collection, use, or sharing, it may impair our ability to
provide direct marketing services for those consumers and limit our clients’ demand for our services. Additionally, privacy and security concerns may limit consumers’ willingness to
voluntarily provide data to our clients or marketing companies. Some of our services depend on voluntarily provided data. For instance, we believe that one of the most attractive offerings
of our Marketing Services segment is the provision of data-analytics to our clients. However, the ability to provide such services is at least in part dependent on the ability to collect large-
volumes of voluntarily provided data. If a significant shift the consumer behavior or governmental regulation were to inhibit our ability to collect large amounts of this data, our ability to
provide data analytics would likely be impaired.
11
Table of Contents
If we do not prevent security breaches and other interruptions to our infrastructure, we may be exposed to lawsuits, lose customers, suffer harm to our reputation, and incur
additional costs.
The services we offer involve the transmission of large amounts of sensitive and proprietary information over public communications networks, as well as the processing and storage of
confidential customer information. Unauthorized access, remnant data exposure, computer viruses, denial of service attacks, accidents, employee error or malfeasance, “social
engineering” and “phishing” attacks, intentional misconduct by computer “hackers” and other disruptions can occur, and infrastructure gaps, hardware and software vulnerabilities,
inadequate or missing security controls, and exposed or unprotected customer data can exist that (i) interfere with the delivery of services to our customers, (ii) impede our customers'
ability to do business, or (iii) compromise the security of our or our customers' systems and data, which exposes information to unauthorized third parties. We are a target of cyber-attacks
of varying degrees on a regular basis. Overtime, these attacks have become increasingly sophisticated and, in some cases, have been conducted or sponsored by “nation state” operators.
For instance, in December 2020 SolarWinds Corp. announced that it was the target of a cyberattack that inserted a vulnerability into its Orion monitoring products that could allow an
attacker to compromise any server on which the Orion products run, including those of SolarWind’s customers. While we do not have a relationship with SolarWind or utilize the Orion
product, if a similar cyber-security incident were to involve third-party software that we do utilize it could lead to unauthorized access to our servers. Although we did not experience any
material impacts from the SolarWinds event in 2020 or, more recently, from the Log4j security vulnerability that was widely publicized in December 2021, there can be no assurance that
we will not experience future events that may be material.
Our reputation and business results may be adversely impacted if we, or subcontractors upon whom we rely, do not effectively protect sensitive personal information of our clients and
our clients’ customers.
Current privacy and data security laws and industry standards impact the manner in which we capture, handle, analyze, and disseminate customer and prospect data as part of our client
engagements. In many instances, our client contracts also mandate privacy and security practices. If we fail to effectively protect and control information, especially sensitive personal
information (such as personal health information, social security numbers, or credit card numbers) of our clients and their customers or prospects in accordance with these requirements,
we may incur significant expense, suffer reputational harm, loss of business, and, in certain cases, be subjected to regulatory or governmental sanctions or litigation. These risks may be
increased due to our reliance on subcontractors and other third parties in providing a portion of our overall services in certain engagements. We cannot guarantee that these third parties
will effectively protect and handle sensitive personal information or other confidential information, or that we will have adequate recourse against these third parties in the event such third
parties fail to adequately protect and handle such sensitive or confidential information.
If our facilities are damaged, or if we are unable to access and use our facilities, our business and results of operations will be adversely affected.
Our operations rely on the ability of our employees to work at specially equipped facilities to perform services for our clients. Although we have some excess capacity and redundancy, we
do not have sufficient excess capacity or redundancy (in equipment, facilities, or personnel) to maintain service and operational levels for extended periods if we are unable to use one of
our major facilities. Outsourcing these processes to facilities not owned by us is not a viable option. Should we lose access to a facility for any reason, including as a result of a localized
outbreak of COVID-19 or another communicable disease, terrorist incident or natural disaster, our service levels are likely to decline or be suspended, clients would go without service or
secure replacement services from a competitor. As consequence of such an event, we would suffer a reduction in revenues and harm to (and loss of) client relationships.
Significant system disruptions, loss of data center capacity or interruption of telecommunication links could adversely affect our business and results of operations.
Our business is heavily dependent upon data centers and telecommunications infrastructures, which are essential to both our call center services and our database services (which require
that we efficiently and effectively create, access, manipulate, and maintain large and complex databases). In addition to the third-party data centers we use, we also operate several of our
own data centers to support both our own and our clients' needs. Our ability to protect our operations against damage or interruption from fire, flood, tornadoes, power loss,
telecommunications or equipment failure, or other disasters and events beyond our control is critical to our continued success. Likewise, as we increase our use of third-party data centers,
it is critical that the vendors providing that service adequately protect their data centers from the same risks as we are generally responsible to our client if these third-party vendors do not
protect our customers’ data and we do not have the resources to build replacement centers on our own. Our services are very dependent on links to telecommunication providers. We
believe we have taken reasonable precautions to protect our data centers and telecommunication links from events that could interrupt our operations. Any damage to the data centers we
use or any failure of our telecommunications links could materially adversely affect our ability to continue services to our clients, which could result in loss of revenues, profitability and
client confidence, and may adversely impact our ability to attract new clients and force us to expend significant company resources to repair the damage.
If our new leaders are unsuccessful, or if we continue to lose key management and are unable to attract and retain the talent required for our business, our operating results could
suffer.
Over the past three years we have replaced many of our leaders (including our Chief Executive Officer, President, Chairman, Chief Operating Officer, and Chief Financial Officer), some a
number of times. If our new leaders fail in their new and additional roles and responsibilities (and more generally if we are unable to attract additional leaders with the necessary skills to
manage our business) our business and its operating results may suffer. Further, our prospects depend in large part upon our ability to attract, train, and retain experienced technical, client
services, sales, consulting, marketing, and management personnel. While the demand for personnel is also dependent on employment levels, competitive factors, and general economic
conditions, our recent business performance may diminish our attractiveness as an employer. The loss or prolonged absence of the services of these individuals could have a material
adverse effect on our business, financial position, or operating results.
12
Table of Contents
We could fail to adequately protect our intellectual property rights and may face claims for intellectual property infringement.
Our ability to compete effectively depends in part on the protection of our technology, products, services, and brands through intellectual property right protections, including copyrights,
database rights, trade secrets, trademarks, as well as through domain name registrations, and enforcement procedures. The extent to which such rights can be protected and enforced varies
by jurisdiction, and capabilities we procure through acquisitions may have less protection than would be desirable for the use or scale we intend or need. Litigation involving patents and
other intellectual property rights has become far more common and expensive in recent years, and we face the risk of additional litigation relating to our use or future use of intellectual
property rights of third parties.
Despite our efforts to protect our intellectual property, unauthorized parties may attempt to copy or otherwise obtain and use our proprietary information and technology. Monitoring
unauthorized use of our intellectual property is difficult, and unauthorized use of our intellectual property may occur. We cannot be certain that trademark registrations will be issued, nor
can we be certain that any issued trademark registrations will give us adequate protection from competing products. For example, others may develop competing technologies or databases
on their own. Moreover, there is no assurance that our confidentiality agreements with our employees or third parties will be sufficient to protect our intellectual property and proprietary
information.
Third-party infringement claims and any related litigation against us could subject us to liability for damages, significantly increase our costs, restrict us from using and providing our
technologies, products or services or operating our business generally, or require changes to be made to our technologies, products, and services. We may also be subject to such
infringement claims against us by third parties and may incur substantial costs and devote significant management resources in responding to such claims, as we have in the recent
past. We have been, and continue to be, obligated under some agreements to indemnify our clients as a result of claims that we infringe on the proprietary rights of third parties. These
costs and distractions could cause our business to suffer. In addition, if any party asserts an infringement claim, we may need to obtain licenses to the disputed intellectual property. We
cannot assure you, however, that we will be able to obtain these licenses on commercially reasonable terms or that we will be able to obtain any licenses at all. The failure to obtain
necessary licenses or other rights may have an adverse effect on our ability to provide our products and services.
Breaches of security, or the perception that e-commerce is not secure, could severely harm our business and reputation.
Business-to-business and business-to-consumer electronic commerce requires the secure transmission of confidential information over public networks. Some of our products and services
are accessed through or are otherwise dependent on the internet. Security breaches in connection with the delivery of our products and services, or well-publicized security breaches that
may affect us or our industry (such as database intrusion) could be severely detrimental to our business, operating results, and financial condition. We cannot be certain that advances in
criminal capabilities, cryptography, or other fields will not compromise or breach the technology protecting the information systems that deliver our products, services, and proprietary
database information.
Data suppliers could withdraw data that we rely on for our products and services.
We purchase or license much of the data we use for ourselves and for our clients. Our ability to provide our customers with data is somewhat dependent on the ability to obtain this data.
There could be a material adverse impact on our business if owners of the data we use were to curtail access to the data or materially restrict the authorized uses of their data. Data
providers could withdraw their data if there is a competitive reason to do so, if there is pressure from the consumer community or if additional regulations are adopted restricting the use of
the data. We also rely upon data from other external sources to maintain our proprietary and non-proprietary databases, including data received from customers and various government
and public record sources. If a substantial number of data providers or other key data sources were to withdraw or restrict their data, if we were to lose access to data due to government
regulation, or if the collection of data becomes uneconomical, our ability to provide products and services to our clients could be materially and adversely affected, which could result in
decreased revenues, net income (loss), and earnings (loss) per share.
13
Table of Contents
We are unlikely to declare cash dividends or repurchase our shares.
Although our board of directors has in the past authorized the payment of quarterly cash dividends on our common stock, we announced in 2016 that we did not plan to declare any further
dividends for the foreseeable future. In addition, although our board has authorized stock purchase programs, we are unlikely to make any repurchases in the near term. Decisions to pay
dividends on our common stock or to repurchase our common stock will be based upon periodic determinations by our board that such dividends or repurchases are both in compliance
with all applicable laws and agreements and in the best interest of our stockholders after considering our financial condition and results of operations, the price of our common stock,
credit conditions, and such other factors as are deemed relevant by our board. The failure to pay a cash dividend or repurchase stock could adversely affect the market price of our common
stock. Further, the Certificate of Designation for our Series A Convertible Preferred Stock prohibits us from conducting any repurchases of common stock unless we obtain the consent of
the holder of such stock.
Interest rate increases could affect our results of operations, cash flows and financial position.
Interest rate fluctuations in Europe and the U.S. can affect the amount of interest we pay related to our debt and the amount we earn on cash equivalents. Our New Credit Facility bear
interest based upon the Bloomberg Short-Term Bank Yield Index Rate. Our results of operations, cash flows, and financial position could be materially or adversely affected by significant
increases in interest rates. We also have exposure to interest rate fluctuations in the U.S., specifically money market, commercial paper, and overnight time deposit rates, as these affect our
earnings on excess cash. Even with the offsetting increase in earnings on excess cash in the event of an interest rate increase, we cannot be assured that future interest rate increases will
not have a material adverse impact on our business, financial position, or operating results.
In July 2017, the United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced that, after 2021, it will stop compelling
banks to submit rates for the calculation of LIBOR. While the transition to an alternative rate is not in and of itself expected to have a material impact on the Company's earnings, the
impact of the transition on the global financial markets and the economy could affect our business.
14
Table of Contents
We are subject to risks associated with operations outside the U.S.
Harte Hanks conducts business outside of the U.S. During 2021, approximately 17.6% of our revenues were derived from operations outside the U.S., primarily Europe and Asia. We may
expand our international operations in the future as part of our growth strategy. Accordingly, our future operating results could be negatively affected by a variety of factors, some of which
are beyond our control, including:
•
•
•
•
•
•
changes in local, national, and international legal requirements or policies resulting in burdensome government controls, tariffs, restrictions, embargoes, or export license
requirements;
higher rates of inflation;
the potential for nationalization of enterprises;
less favorable labor laws that may increase employment costs and decrease workforce flexibility;
potentially adverse tax treatment;
less favorable foreign intellectual property laws that would make it more difficult to protect our intellectual property from misappropriation;
• more onerous or differing data privacy and security requirements or other marketing regulations;
•
•
•
•
longer payment cycles;
social, economic, and political instability;
regional conflicts, including Russia’s invasion of Ukraine, as well as any additional economic sanctions adopted in response to such actions;
the differing costs and difficulties of managing international operations;
• modifications to international trade policy or the imposition of increased or new tariffs, quotas or trade barriers on key commodities; and
•
geopolitical risk and adverse market conditions caused by changes in national or regional economic or political conditions (which may impact relative interest rates and the
availability, cost, and terms of mortgage funds), including with regard to Brexit.
In addition, exchange rate fluctuations may have an impact on our future costs or on future cash flows from foreign investments. We have not entered into any foreign currency forward
exchange contracts or other derivative instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. The various risks that are inherent in doing business in
the U.S. are also generally applicable to doing business anywhere else and may be exacerbated by the difficulty of doing business in numerous sovereign jurisdictions due to differences in
culture, laws, and regulations.
If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we establish and maintain internal control over financial reporting and we are also required to establish disclosure controls
and procedures under applicable SEC rules. An effective internal control environment is necessary to enable us to produce reliable financial reports and is an important component of our
efforts to prevent and detect financial reporting errors and fraud. Management is required to provide an annual assessment on the effectiveness of our internal control over financial
reporting. Our testing may reveal significant deficiencies in our internal control over financial reporting that are deemed to be material weaknesses and render our internal control over
financial reporting ineffective. In the past these assessments and similar reviews have led to the discovery of material weaknesses, all of which have been remediated. However, no
assurance can be given that we won't discover material weaknesses in the future. We have incurred and we expect to continue to incur substantial accounting and auditing expenses and
expend significant management time in complying with the requirements of Section 404.
While an effective internal control environment is necessary to enable us to produce reliable financial reports and is an important component of our efforts to prevent and detect financial
reporting errors and fraud, disclosure controls and internal control over financial reporting are generally not capable of preventing or detecting all financial reporting errors and all fraud. A
control system, no matter how well-designed and operated, is designed to reduce rather than eliminate the risk of material misstatements in our consolidated financial statements. There are
inherent limitations on the effectiveness of internal controls, including collusion, management override and failure in human judgment. A control system can provide only reasonable, not
absolute, assurance of achieving the desired control objectives and the design of a control system must reflect the fact that resource constraints exist.
If we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial
reporting that are deemed to be material weaknesses (i) we could fail to meet our financial reporting obligations; (ii) our reputation may be adversely affected and our business and
operating results could be harmed; (iii) the market price of our stock could decline; and (iv) we could be subject to litigation and/or investigations or sanctions by the SEC, or other
regulatory authorities.
There were no changes in our internal controls over financial reporting during our most recent fiscal year that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are
working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the impact of COVID-19 on our internal controls to minimize the impact on their design
and operating effectiveness.
15
Table of Contents
Fluctuation in our revenue and operating results and other factors may impact the volatility of our stock price.
The price at which our common stock has traded in recent years has fluctuated greatly and has declined significantly. Our common stock price may continue to be volatile due to a number
of factors including the following (some of which are beyond our control):
•
•
•
•
•
•
•
•
variations in our operating results from period to period and variations between our actual operating results and the expectations of securities analysts, investors, and the financial
community;
the development and sustainability of an active trading market for our common stock;
the transition of our common stock from the NYSE to the OTCQX; from OTCQX to NASDAQ;
unanticipated developments with client engagements or client demand, such as variations in the size, budget, or progress of engagements, variability in the market demand for our
services, client consolidations, and the unanticipated termination of several major client engagements;
announcements of developments affecting our businesses;
competition and the operating results of our competitors;
the overall strength of the economies of the markets we serve and general market volatility; and
other factors discussed elsewhere in this Item 1A, “Risk Factors.”
Because of these and other factors, investors in our common stock may not be able to resell their shares at or above their original purchase price.
Our certificate of incorporation and bylaws contain anti-takeover protections that may discourage or prevent strategic transactions, including a takeover of our company, even if such
a transaction would be beneficial to our stockholders.
Provisions contained in our certificate of incorporation and bylaws, in conjunction with provisions of the Delaware General Corporation Law, could delay or prevent a third party from
entering into a strategic transaction with us, even if such a transaction would benefit our stockholders. For example, our certificate of incorporation and bylaws do not allow written
consents by stockholders, and have strict advance notice and disclosure requirements for nominees and stockholder proposals. In addition, the Certificate of Designation for our Series A
Convertible Preferred Stock provides for an alternative conversion price in the event of a fundamental transaction which could also discourage strategic transactions.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our business is conducted in facilities worldwide containing aggregate space of approximately 0.9 million squares. All facilities are held under leases, which expire at dates through 2030.
See “Item 1 - Business - Facilities”. In the fourth quarter of 2020, we opened our new 300,000 square-foot fulfillment and distribution facility in Kansas City, Kansas. We have since
expanded into an additional 100,000 square-foot space and now occupy the full 400,000 square-foot facility. We hold the facility under a lease with a nine-year remaining lease term and
believe the rent is consistent with market rates. The facility is FDA registered and licensed for nutritional supplements, medical foods, baby formula and junior food products, chocolates,
coffee and tea, edible nuts and seeds, snack foods, pet foods, pet treats, and pet nutritional supplements.
We believe our facilities to be adequate for our business and operations as currently administered.
ITEM 3.
LEGAL PROCEEDINGS
Information regarding legal proceedings is set forth in Note L, Litigation and Contingencies, of the “Notes to Consolidated Financial Statements” and is incorporated herein by reference.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
16
Table of Contents
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
Our common stock was listed on the OTCQX under the symbol HRTH through November 30, 2021 and has since been listed on the NASDAQ under the symbol HHS. As of January 31,
2022, there were approximately 1,002 common stockholders of record. The last reported share price of our common stock on March 18, 2022 was $7.13. Over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Dividend Policy
The Company currently does not intend on paying any dividends for the foreseeable future. Any payment of future dividends will be at the discretion of Harte Hanke’s Board of Directors
and will depend upon, among other factors, the Company’s earnings, financial condition, current and anticipated capital requirements, plans for expansion, level of indebtedness and
contractual restrictions, restrictions in our organizational documents including the Certificate of Designation for our Series A Convertible Preferred Stock, and the provisions of the
Company’s then-existing indebtedness and other contractual arrangements. The payment of future cash dividends, if any, would be made only from assets legally available.
Issuer Purchases of Equity Securities
The following table contains information about our purchases of equity securities during the fourth quarter of 2021:
Period
October 1 - 31, 2021
November 1 - 30, 2021
December 1 - 31, 2021
Total
Total Number of
Shares
Purchased (1)
Average
Price Paid
per Share
—
—
—
—
$
$
$
$
Total Number of
Shares Purchased
as Part of a Publicly
Announced Plan (2)
—
—
—
—
—
—
—
—
Maximum Dollar
Amount that May
Yet Be Spent
Under the Plan
$
$
$
11,437,544
11,437,544
11,437,544
(1) Total number of shares purchased includes shares, if any, (i) purchased as part of our publicly announced stock repurchase program, and (ii) pursuant to our 2013 Omnibus Incentive
Plan and applicable inducement award agreements with certain executives, withheld to pay withholding taxes upon the vesting of shares.
(2) During the fourth quarter of 2021, we did not purchase any shares of our common stock through our stock repurchase program that was publicly announced in August 2014. and have
not repurchased any shares under this program since 2015. Under this program, our Board has authorized us to spend up to $20.0 million to repurchase shares of our outstanding common
stock. As of December 31, 2021, we have repurchased 150,667 shares and spent $8.6 million under this authorization. Any stock repurchase needs to be approved by our preferred
shareholder.
17
Table of Contents
ITEM 6.
SELECTED FINANCIAL DATA
Not applicable.
18
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note About Forward-Looking Statements
This report, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contains “forward-looking statements” within the
meaning of the federal securities laws. All such statements are qualified by the cautionary note included under “Forward-Looking Statements” above, which is provided pursuant to the
safe harbor provisions of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may vary materially
from what is expressed in or indicated by the forward-looking statements, for the reasons described in this MD&A, in the Risk Factors in Item 1A above or elsewhere in this Annual
Report on Form 10-K.
Overview
The following MD&A section is intended to help the reader understand the results of operations and financial condition of Harte Hanks. This section is provided as a supplement to, and
should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes included herein.
Harte Hanks, Inc. is a leading global customer experience company operating in three business segments: Marketing Services, Customer Care, and Fulfillment & Logistics Services.
Our mission is to partner with clients to provide them with CX strategy, data-driven analytics and actionable insights combined with seamless program execution to better understand,
attract, and engage their customers. Our services include strategic planning, data strategy, performance analytics, creative development and execution; technology enablement; marketing
automation; B2B and B2C e-commerce; cross-channel customer care; and product, print, and mail fulfillment.
We are affected by the general, national, and international economic and business conditions in the markets where we and our customers operate. Marketing budgets are largely
discretionary in nature, and as a consequence are easier for our clients to reduce in the short-term than all other expenses, which some of our customers did in response to the COVID-19
pandemic. Our revenues are also affected by the economic fundamentals of each industry that we serve, various market factors, including the demand for services by our clients, and the
financial condition of and budgets available to our clients, among other factors. Due to the COVID-19 pandemic and other geopolitical uncertainties, including but not limited to the
ongoing war between Russia and Ukraine, there is continued uncertainty and significant disruption in the global economy and financial markets. We remain committed to making the
investments necessary to execute our multichannel strategy while also continuing to adjust our cost structure to reduce costs.
We continue to face a challenging competitive environment. The sale of our direct mail assets and equipment to Summit in April 2020, together with the restructuring activities we
undertook over the last two years, have and will continue to result in a decrease of recurring expenses. These are all part of our efforts to prioritize our investments and focus on our core
business of partnering with our clients to seamlessly manage experiences with their customers. We believe these efforts are starting to pay-off as we experienced our first year-over-year
revenue increase in over five years. Absent any significant shocks to regional and global economic environment, we anticipate continued momentum. Together our revenue increase and
cost rationalization have enhanced our liquidity and financial flexibility, and we believe this trend will continue, although no assurance can be given that this will be the case. For
additional information, see “Liquidity and Capital Resources” section.
19
Table of Contents
Results of Operations
Operating results from operations were as follows:
In thousands, except per share amounts
Revenues
Operating expenses
Operating income (loss)
Operating margin (loss)
Other (income) expense
Income tax expense (benefit)
Net income (loss)
Diluted EPS from operations
Year ended December 31, 2021 vs. Year ended December 31, 2020
Consolidated Results
Revenues
2021
Year Ended December 31,
% Change
2020
$
$
$
$
194,596
186,957
7,639
3.9%
(8,620)
1,288
14,971
1.76
10.0% $
-0.3%
-172.2% $
-165.7%
-211.5%
-107.8%
-983.8% $
-617.6% $
176,900
187,476
(10,576)
(6.0)%
7,733
(16,615)
(1,694)
(0.34)
Revenues of $194.6 million for the year ended December 31, 2021 increased $17.7 million, or 10.0%, when compared to $176.9 million for the year ended December 31, 2020. Revenue
in our Customer Care segment increased $16.0 million, or 27.3%, to $74.7 million driven by strong project-based revenue from new clients and increases in demand by existing clients.
Revenue in our Fulfillment & Logistics Services increased $2.4 million, or 3.9%, to $63.5 million and revenue in our Marketing Services declined $0.7 million, or 1.2%, to
$56.4 million. For a discussion of the causes and reasons for the year-over-year changes in revenue see “Segment Results” below.
Among other factors, our revenue performance will depend on general economic conditions in the markets we serve and how successful we are at maintaining and growing business with
existing clients and acquiring new clients. We believe that, in the long-term, an increasing portion of overall marketing and advertising expenditures will be shifted from other advertising
media to the type of targeted media advertising we provide resulting in a benefit to our business. Targeted media advertising results can be more effectively tracked, enabling measurement
of the return on marketing investment.
Operating Expenses
Operating expenses of $187.0 million for the year ended December 31, 2021 declined $0.5 million, or 0.3%, when compared to $187.5 million for the year ended December 31, 2020.
Labor costs increased by $6.2 million, or 6.0%, when compared to the year ended December 31, 2020, primarily due to higher labor expense in our Customer Care segment driven by the
increased headcount due to the increased volume of work. Production and distribution expenses increased $1.0 million, or 2.0%, when compared to the year ended December 31, 2020,
primarily due to higher revenue partially offset by cost reduction initiatives. Advertising, Selling and General and Administrative expenses declined $3.7 million or 17.0%, primarily due
to lower facility related costs resulting from the consolidation of our locations as well as lower legal expense. Depreciation expense declined $1.0 million, or 29.2%, when compared to
the year ended December 31, 2020, primarily due to the disposal of production equipment in our Jacksonville facility which we exited in 2020.
The largest components of our operating expenses are labor, transportation expenses and outsourced costs. Each of these costs is, at least in part, variable and tends to fluctuate in line with
revenues and the demand for our services. Transportation rates have increased over the last few years due to demand and supply fluctuations within the transportation industry. Future
changes in transportation expenses will continue to impact our total production costs and total operating expenses and may have an impact on future demand for our supply chain
management services.
Postage costs of mailings are borne by our clients and are not directly reflected in our revenues or expenses.
For the years ended December 31, 2021 and 2020, we recorded restructuring charges of $6.4 million and $9.4 million, respectively. See Note N, Restructuring Activities, in the Notes to
Consolidated Financial Statements for further discussion on restructuring activities.
20
Table of Contents
Interest Expense
Interest expense, net, for the year ended December 31, 2021, decreased $0.3 million when compared to the year ended December 31, 2020. due to the write off of interest expense related
to our PPP Term Note which was forgiven in 2021, as well as the lower interest expense associated with lower debt balances outstanding under our revolving credit facility when
compared to the year ended December 31, 2020.
Other (Income) Expense, net
Total other expense, net was $0.5 million for the year ended December 31, 2021, when compared to other expense of $6.6 million for the year ended December 31, 2020. This
$6.1 million decrease in other expense was primarily attributable to a $3.7 million decrease in foreign currency revaluation expense and a $2.2 million reduction of pension expense as a
result of the higher return on investment from better asset performance as well as the lower administrative fees due to the restructuring of our pension plans in 2019.
Income Taxes
Our 2021 income tax expense was $1.3 million for the year ended December 31, 2021, when compared to tax benefit of $16.6 million for the year ended December 31, 2020. The
decrease in benefit of $17.9 million was due to the enactment of the CARES Act, which permitted the carryback of Net Operating Losses from the years 2018 through 2020 to tax years
when the federal statutory rate was 35%, resulting in the additional tax benefit.
Segment Results
The following is a discussion and analysis of the results of our reporting segments for the years ended December 31, 2021 and 2020. There are three principal financial measures reported
to our CEO (the chief operating decision maker) for use in assessing segment performance and allocating resources. Those measures are revenues, operating income (loss) and operating
income (loss) plus depreciation and amortization (“EBITDA”). For additional information, see Note O, Segment Reporting, in the Notes to Consolidated Financial Statements for further
discussion.
Marketing Services:
In thousands
Revenues
EBITDA
Operating Income
Operating Income % of Revenue
2021
Year Ended December 31,
% Change
2020
$
$
56,388
7,713
7,183
12.7%
-1.2% $
38.8% $
45.0%
46.8%
57,093
5,558
4,955
8.7%
Marketing Services segment revenue declined $0.7 million, or 1.2%, driven largely by the $3.0 million of mail and data services revenue that was transferred into Marketing Services
segment from Fulfillment & Logistics Services segment starting from July 2020 following the sale of the bulk of our direct mail operations and a $3.7 million decline in other Marketing
Services revenue for 2021 as a result of the reduction of client budgets due to the COVID-19 pandemic. The contribution margin improved by 8.7% as a result of our cost reduction
efforts.
21
Customer Care:
In thousands
Revenues
EBITDA
Operating Income
Operating Income % of Revenue
2021
Year Ended December 31,
% Change
2020
$
$
74,691
12,569
11,720
15.7%
27.3% $
82.5% $
102.4%
59.0%
58,668
6,887
5,790
9.9%
Customer Care segment revenue increased $16.0 million primarily due to additional project work and an increase in volumes with existing clients. Operating Income for the year ended
December 31, 2021 was $11.7 million, an increase of $5.9 million when compared to the prior year. This increase was driven by higher revenue from extension of COVID-19 related
project work and increased volume from other clients. The contribution margin improved by 5.8% for the year end December 31, 2021 due to the increase in revenue as well as our
restructuring efforts.
Fulfillment & Logistics Services:
In thousands
Revenues
EBITDA
Operating Income (Loss)
Operating Income (Loss) % of Revenue
2021
Year Ended December 31,
% Change
2020
$
$
63,517
6,698
5,980
9.4%
3.9% $
582.6% $
322.5%
314.1%
61,139
(1,388)
(2,688)
-4.4%
Fulfillment & Logistics Services segment revenue increased $2.4 million when compared to the prior year. The elimination of the Company's direct mail operations in the sale to
Summit resulted in a $4.7 million revenue decline as outsourced direct mail is now included in our Marketing Services segment. This decline was offset by a $7.1 million revenue increase
driven by increased demand from existing customers. Operating income was $6.0 million for 2021 when compared to an operating loss of $2.7 million in the previous year primarily
driven by the higher revenue and our cost reduction efforts.
22
Table of Contents
Liquidity and Capital Resources
Sources and Uses of Cash
Our cash and cash equivalent balances were $11.9 million and $29.4 million as of December 31, 2021 and 2020, respectively. Our cash and cash equivalent and restricted cash balances
were $15.1 million and $33.6 million as of December 31, 2021 and 2020, respectively. As of December 31, 2021, we had the ability to borrow an additional $18.9 million under our New
Credit Facility.
During 2020, we received an aggregate of $9.6 million in tax refunds related to our net operating loss (“NOL”) and capital loss carryback for the 2013-2018 tax years. We also expect
to receive additional tax refunds of $7.8 million in 2022, as a result of the change to the tax NOL carryback provisions included in the CARES Act.
Our principal sources of liquidity are cash on hand, cash provided by operating activities, and borrowings available under our New Credit Facility. Our cash is primarily used for general
corporate purposes, working capital requirements, debt service and capital expenditures.
At this time, we believe that we will be able to continue to meet our liquidity requirements and fund our fixed obligations (such as debt services, finance and operating leases and unfunded
pension plan benefit payments) and other cash needs for our operations for at least the twelve months from the date of this Annual Report through a combination of cash on hand, cash
flow from operations, and borrowings under the New Credit Facility. Although the Company believes that it will be able to meet its cash needs for the short and medium term, if
unforeseen circumstances arise the company may need to seek alternative sources of liquidity. To date, the COVID-19 pandemic has not had a material impact on the Company’s liquidity
or on the Company’s ability to meet its obligations under the New Credit Facility, including its ability to comply with all covenants. We will continue to closely monitor the impact the
COVID-19 pandemic has on the Company’s liquidity and assess whether any additional cost saving measures, including capital expenditure deferral or human capital decisions, are
needed.
Operating Activities
Net cash used in operating activities was $1.8 million for the year ended December 31, 2021, when compared to cash used by operating activities of $7.8 million for the year
ended December 31, 2020. The $6.0 million year-over-year decrease in cash used by operating activities was primarily driven by the $16.7 million higher net income which was partially
offset by $10 million non-cash gain from extinguishment of the PPP Term Note in the year ended December 31, 2021.
Investing Activities
Net cash used in investing activities was $2.9 million for the year ended December 31, 2021, when compared to cash used in investing activities of $0.8 million for the year
ended December 31, 2020. The $2.1 million decrease was mainly due to the $1.9 million of proceeds from the sale of direct mail assets and equipment in the Jacksonville facility to
Summit in 2020 and $0.3 million increase in capital expenditure in the year ended December 31, 2021, when compared to the year ended December 31, 2020. Capital expenditure for 2021
was mainly related to technology investment as well as pallet racking for our new Kansas City (KS) facility.
Financing Activities
Net cash used in financing activities was $13.4 million for the year ended December 31, 2021, when compared to $7.3 million net cash provided by financing activities for the year ended
December 31, 2020. The $20.7 million decrease was primarily due to the $10 million of cash proceeds from the PPP Term Note we received in the second quarter of 2020, when compared
to $5 million cash proceeds from New Credit Facility for the year ended December 31, 2021,and the $17.1 million paydown of the Texas Capital Credit Facility, when compared to a
$1.6 million paydown of the Texas Capital Credit Facility for the year ended December 31, 2020.
Foreign Holdings of Cash
Consolidated foreign holdings of cash as of December 31, 2021 and 2020 were $2.6 million and $2.5 million, respectively. The Company does not believe it will need to re-patriate
foreign cash holdings to meet domestic obligations.
Long Term Debt
On December 21, 2021, the Company entered into a new three-year, $25,000,000 asset-based revolving credit facility (the "New Credit Facility") with Texas Capital Bank. The
Company’s obligations under the New Credit Facility are guaranteed on a joint and several basis by the Company’s material subsidiaries (the “Guarantors”). The New Credit Facility is
secured by substantially all of the assets of the Company and the Guarantors pursuant to a Pledge and Security Agreement, dated as of December 21, 2021, between the Company, TCB
and the other grantors party thereto (the "Security Agreement").
The New Credit Facility provides for loans up to the lesser of (a) $25,000,000, and (b) the amount available under a "borrowing base" calculated primarily by reference to the Company's
cash and cash equivalents and accounts receivables. The New Credit Facility allows the Company to use up to $3,000,000 of its borrowing capacity to issue letters of credit.
The loans under the New Credit Facility accrue interest at a varying rate equal to the Bloomberg Short-Term Bank Yield Index Rate plus a margin of 2.25% per annum. The outstanding
amounts advanced under the New Credit Facility are due and payable in full on December 21, 2024.
The Company may voluntarily prepay all or any portion of the loans advanced under the New Credit Facility at any time, without premium or penalty. The New Credit Facility is subject
to mandatory prepayments (i) from the net proceeds of asset dispositions not otherwise permitted under the New Credit Facility; (ii) if the unpaid principal balance under the New Credit
Facility plus the aggregate face amount of all outstanding letters of credit exceeds the borrowing base; (iii) in an amount equal to 50% of the net proceeds of issuances of capital stock
(subject to customary exceptions); or (iv) in an amount equal to the net proceeds from any issuance of debt not otherwise permitted under the New Credit Facility.
The New Credit Facility contains certain covenants restricting the Company's and its subsidiaries' ability to create, incur, assume or become liable for indebtedness; make certain
investments; pay dividends or repurchase the Company's stock; create, incur or assume liens; consummate mergers or acquisitions; liquidate, dissolve, suspend or cease operations; or
modify accounting or tax reporting methods (other than as required by U.S. GAAP).
In connection with entering into the New Credit Facility, the Company and Texas Capital Bank terminated the old Texas Capital Credit Facility. Prior to termination of the old Texas
Capital Credit Facility, the Company used cash on hand to pay down $8.1 million outstanding and the remaining $5 million of loans outstanding were deemed to be outstanding under the
New Credit Facility. Texas Capital Bank did not require the New Credit Facility to be guaranteed by HHS Guaranty, LLC, an entity formed to provide credit support for the Company by
certain members of the Shelton family (descendants of one of the Company's founders) or any other third-party credit support.
As of December 31, 2021 and 2020, we had letters of credit in the amount of $1.1 million and $1.8 million outstanding, respectively. No amounts were drawn against these letters of credit
as of December 31, 2021 and 2020. These letters of credit exist to support insurance programs relating to workers’ compensation, automobile, and general liability. We had no other off-
balance sheet financing arrangements as of December 31, 2021 and 2020.
As of December 31, 2021, we had $5.0 million of borrowings outstanding under the New Credit Facility. As of December31, 2020, we had $17.1 million of borrowings outstanding under
the Texas Capital Facility. As of December 31, 2021, we had the ability to borrow an additional $18.9 million under the New Credit Facility.
On April 20, 2020, the Company received loan proceeds in the amount of $10.0 million under the Small Business Administration ("SBA") PPP Term Note.
On June 10, 2021, we received notice that the entire amount of our PPP Term Note was forgiven by the SBA because we used the proceeds from the loan as contemplated under the
CARES Act. We recorded the $10.0 million of debt extinguishment as "Gain from extinguishment of debt (Paycheck Protection Program Term Note)" in the Consolidated Statements of
Comprehensive Income (Loss).
23
Table of Contents
Dividends
We did not pay any dividends in either 2021 or 2020. We currently intend to retain any future earnings and do not expect to pay cash dividends on our common stock in the foreseeable
future. Any future dividend declaration can be made only upon, and subject to, approval of our Board, based on its business judgment.
Share Repurchase
During 2021 and 2020, we did not repurchase any shares of our common stock under our current stock repurchase program that was publicly announced in August 2014. Under our current
program we are authorized to spend up to $20.0 million to repurchase shares of our outstanding common stock. As of December 31, 2021, we had authorization of $11.4 million remaining
under this program. From 1997 through December 31, 2015, we repurchased 6.8 million shares for an aggregate of $1.2 billion under this program and previously announced
programs. We have not made any repurchases under the program since 2015. Any repurchases under the program would require the consent of the holders of our Series A Convertible
Preferred Stock.
Outlook
We consider such factors as total cash and cash equivalents and restricted cash, current assets, current liabilities, total debt, revenues, operating income (loss), cash flows from operations,
investing activities, and financing activities when assessing our liquidity. Our management of cash is designed to optimize returns on cash balances and to ensure that it is readily available
to meet our operating, investing, and financing requirements as they arise. We believe that there are no conditions or events, considered in the aggregate, that raise substantial doubt about
our ability to continue as a going concern for the twelve months following the issuance of the Consolidated Financial Statements.
24
Table of Contents
Critical Accounting Policies and Estimates
Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we
evaluate our estimates and assumptions based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Our actual results could
differ from these estimates under different assumptions or conditions. The areas that we believe involve the most significant management estimates and assumptions are detailed below. On
an ongoing basis, management reviews its estimates and assumptions based on currently available information.
Critical accounting policies are defined as those that, in our judgment, are most important to the portrayal of our Company’s financial condition and results of operations and which require
complex or subjective judgments or estimates. The areas that we believe involve the most significant management estimates and assumptions are detailed below.
Our Significant Accounting policies are described in Note A, Overview and Significant Accounting Policies, in the Notes to Consolidated Financial Statement.
Revenue Recognition
Application of various accounting principles in accordance with U.S. GAAP related to measurement and recognition of revenue requires us to make significant judgments and estimates.
Specifically, complex arrangements with non-standard terms and conditions may require significant contract interpretation to determine appropriate accounting. For revenue generated
from arrangements that involve third parties, there is significant judgment in evaluating whether we are the principal, and report revenue on a gross basis, or the agent, and report revenue
on a net basis.
Income Taxes
We are subject to income taxes in the United States and numerous other jurisdictions. Significant judgment is required in determining our provision for income taxes and income tax assets
and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.
We record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, we recognize
deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for
operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax
assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be
realized. For additional information on the valuation allowance see Note I, Income Taxes, in the Notes to Consolidated Financial Statements.
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities
based on the technical merits of the position. Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome
of these matters will not be materially different. We adjust these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the
extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such
determination is made and could have a material impact on our financial condition and operating results. The provision for income taxes includes the effects of any reserves that we believe
are appropriate, as well as the related net interest and penalties.
Recent Accounting Pronouncements
See Note B, Recent Accounting Pronouncements, in the Notes to Consolidated Financial Statements for a discussion of certain accounting standards that we have recently adopted and
certain accounting standards that we have not yet been required to adopt and may be applicable to our future financial condition and results of operations.
25
Table of Contents
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements required to be presented under Item 8 are presented in the Consolidated Financial Statements and the notes thereto beginning at page 32 of this Form 10-K
(Financial Statements).
26
Table of Contents
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are
designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”) as appropriate to allow timely decisions regarding required disclosure.
Our management, including our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act
as of December 31, 2021. Based upon such evaluation, our CEO and CFO concluded that the design and operation of these disclosure controls and procedures were effective, at the
“reasonable assurance” level, to ensure information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Our internal
control over financial reporting is a process designed by, or under the supervision of our CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of the Company’s financial statements for external purposes in accordance with U.S. GAAP.
Management evaluated, under the supervision of our CEO and CFO, the design and effectiveness of the Company’s internal control over financial reporting based on the framework in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”). Based on this assessment, management
concluded that internal control over financial reporting was effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during our most recent fiscal year that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are
working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the impact of COVID-19 on our internal controls to minimize the impact on their design
and operating effectiveness.
ITEM 9B.
OTHER INFORMATION
None.
27
Table of Contents
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Information required by this item will be included in an amendment hereto or a definitive proxy statement to be filed with the SEC within 120 days of the fiscal year ended December 31,
2021.
ITEM 11.
EXECUTIVE COMPENSATION
Information required by this item will be included in an amendment hereto or a definitive proxy statement to be filed with the SEC within 120 days of the fiscal year ended December 31,
2021.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by this item will be included in an amendment hereto or a definitive proxy statement to be filed with the SEC within 120 days of the fiscal year ended December 31,
2021.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this item will be included in an amendment hereto or a definitive proxy statement to be filed with the SEC within 120 days of the fiscal year ended December 31,
2021.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this item will be included in an amendment hereto or a definitive proxy statement to be filed with the SEC within 120 days of the fiscal year ended December 31,
2021.
28
Table of Contents
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
15(a)(1)
Financial Statements
PART IV
The financial statements filed as part of this report and referenced in Item 8 are presented in the Consolidated Financial Statements and the notes thereto beginning at
page 30 of this Form 10-K (Financial Statements).
15(a)(2)
Financial Statement Schedules
All schedules for which provision is made in the applicable rules and regulations of the SEC have been omitted as the schedules are not required under the related
instructions, are not applicable, or the information required thereby is set forth in the Consolidated Financial Statements or notes thereto.
15(a)(3)
Exhibits
The Exhibit Index following the Notes to Consolidated Financial Statements in this Form 10-K lists the exhibits that are filed or furnished, as applicable, as part of this
Form 10-K.
29
Table of Contents
Harte Hanks, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements (PCAOB ID: 23)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021 and 2020
Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020
Notes to Consolidated Financial Statements
31
32
33
34
35
36
All schedules for which provision is made in the applicable rules and regulations of the SEC have been omitted as the schedules are not required under the related instructions, are not
applicable, or the information required thereby is set forth in the consolidated financial statements or notes thereto.
30
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the board of directors of Harte Hanks, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Harte Hanks, Inc. and Subsidiaries (the "Company") as of December 31, 2021 and 2020, and the related consolidated
statements of comprehensive income (loss), changes in stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes
(collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with
accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below are matters arising from the current period audit of the financial statements that was communicated or required to be communicated to the
audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue from Contracts with Customers
As described in Note C to the consolidated financial statements, the Company recorded $194.6 million in revenue for the year ended December 31, 2021, which consists of three major
revenue streams. The nature of the services offered by each revenue stream is different, and the Company’s process for revenue recognition differs between each of the discrete revenue
streams. Additionally, a portion of the Company’s revenue is recognized through large volumes of low-dollar transactions. The Company’s revenue recognition processes are reliant
upon a combination of automated and manual controls which rely on several distinct information technology (IT) systems.
We identified revenue from contracts with customers as a critical audit matter. Obtaining an understanding of the complex processes and systems used in the Company’s revenue
recognition and evaluating the processes and related internal controls for multiple revenue streams required significant auditor effort, including specialized skills and knowledge related
to several distinct IT systems. Additionally, determining the nature and extent of our audit procedures and evaluating the overall sufficiency of the audit evidence required subjective
auditor judgment.
Addressing the critical audit matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial
statements. These procedures included, among others:
● Testing the design and operating effectiveness of key process-level controls related to revenue, including both manual and automated controls.
● Involving IT professionals with specialized skills and knowledge who assisted in the identification of key systems used for the processing and recording of revenue
transactions and testing the general IT controls over each of these systems.
● For a selection of transactions, comparing the amount of revenue recorded for consistency with underlying supporting documentation.
● Evaluating the overall sufficiency of the audit evidence obtained over revenue
/s/ Baker Tilly US, LLP
We have served as the Company’s auditor since 2019.
Tewksbury, Massachusetts
March 21, 2022
31
Table of Contents
Harte Hanks, Inc. and Subsidiaries Consolidated Balance Sheets
In thousands, except per share and share amounts
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Accounts receivable (less allowance of $266 at December 31, 2021 and $241 at December 31, 2020)
Unbilled accounts receivable
Contract assets
Prepaid expenses
Prepaid income tax and income tax receivable
Other current assets
Total current assets
Property, plant and equipment
Buildings and improvements
Equipment and furniture
Software
Software development and equipment installations in progress
Gross property, plant and equipment
Less accumulated depreciation
Net property, plant and equipment
Right-of-use assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable and accrued expenses
Accrued payroll and related expenses
Short-term debt
Deferred revenue and customer advances
Customer postage and program deposits
Other current liabilities
Short-term lease liabilities
Total current liabilities
Long-term debt, net of current portion
Pension liabilities - Qualified plans
Pension liabilities - Nonqualified plan
Long-term lease liabilities
Other long-term liabilities
Total liabilities
Preferred stock, $1 par value, 1,000,000 shares authorized; 9,926 shares of Series A Convertible Preferred Stock, issued and
outstanding
Stockholders’ deficit
Common stock, $1 par value, 25,000,000 shares authorized,12,121,484 shares issued, 6,976,144 and 6,599,309 shares
outstanding at December 31, 2021 and December 31, 2020, respectively
Additional paid-in capital
Retained earnings
Less treasury stock, 5,145,340 shares at cost at December 31, 2021 and 5,522,175 shares at cost at December 31, 2020
Accumulated other comprehensive loss
Total stockholders’ deficit
Total liabilities, preferred stock and stockholders’ deficit
See Accompanying Notes to Consolidated Financial Statements.
32
December 31,
2021
2020
$
11,911
3,222
41,051
8,134
622
1,948
7,456
1,031
75,375
6,430
21,189
29,949
2,691
60,259
(52,512)
7,747
22,142
2,597
107,861
$
$
16,132
7,028
—
3,942
6,496
2,291
6,553
42,442
5,000
27,359
25,140
19,215
3,697
122,853
29,408
4,154
36,023
5,510
613
2,256
7,388
886
86,238
8,882
33,650
32,693
315
75,540
(69,662)
5,878
24,750
2,632
119,498
16,294
5,248
4,926
4,661
6,497
2,903
6,663
47,192
22,174
40,512
26,978
21,295
4,747
162,898
9,723
9,723
12,121
290,711
811,094
(1,085,313)
(53,328)
(24,715)
107,861
$
12,121
383,043
796,123
(1,178,799)
(65,611)
(53,123)
119,498
$
$
$
$
Table of Contents
Harte Hanks, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss)
In thousands, except per share amounts
Operating revenue
Operating expenses
Labor
Production and distribution
Advertising, selling, general and administrative
Restructuring expense
Depreciation expense
Total operating expenses
Operating income (loss)
Other (income) expense, net
Interest expense, net
Gain from extinguishment of debt (Paycheck Protection Program Term Note)
Other, net
Total other (income) expense, net
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Less: Preferred stock dividends
Less: Earnings attributable to participating securities
Income (loss) attributable to common stockholders
Earnings (loss) per common share
Basic
Diluted
Weighted-average shares used to compute income (loss) per share attributable to common shares
Basic
Diluted
Comprehensive income (loss), net of tax
Net income (loss)
Adjustment to pension liability
Foreign currency translation adjustments
Total other comprehensive income (loss), net of tax
Year Ended December 31,
2021
2020
$
194,596
$
109,917
50,264
17,858
6,359
2,559
186,957
7,639
903
(10,000)
477
(8,620)
16,259
1,288
14,971
$
496
1,858
12,617
$
1.85
1.76
$
$
6,802
7,209
$
$
$
$
$
14,971
$
14,150
(1,867)
12,283
Comprehensive income (loss)
$
27,254
$
See Accompanying Notes to Consolidated Financial Statements.
33
176,900
103,675
49,290
21,522
9,374
3,615
187,476
(10,576)
1,164
—
6,569
7,733
(18,309)
(16,615)
(1,694)
496
—
(2,190)
(0.34)
(0.34)
6,469
6,469
(1,694)
(4,657)
2,180
(2,477)
(4,171)
Table of Contents
Harte Hanks, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Deficit
Preferred
Common
Paid-in
Retained
Treasury
Additional
Accumulated
Other
Comprehensive
In thousands
Balance at December 31, 2019
Stock-based compensation
Vesting of RSU's
Net loss
Other comprehensive loss
Balance at December 31, 2020
Exercise of stock options
Stock-based compensation
Vesting of RSU's
Net income
Other comprehensive income
Balance at December 31, 2021
See Accompanying Notes to Consolidated Financial Statements.
Stock
Stock
Capital
Earnings
(loss) income
$
$
$
9,723
—
—
—
—
9,723
—
—
—
—
—
9,723
$
$
$
$
$
797,817
—
—
(1,694)
—
796,123
—
—
—
14,971
—
811,094
$
$
447,022
753
(64,732)
—
—
383,043
$
(6,708)
1,445
(87,069)
—
—
290,711
$
12,121
—
—
—
—
12,121
—
—
—
—
—
12,121
$
$
$
34
Stock
(1,243,509) $
—
64,710
—
—
(1,178,799) $
6,802
—
86,684
—
—
(1,085,313) $
Total
Stockholders’
Equity
(Deficit)
(63,134) $
—
—
—
(2,477)
(65,611) $
—
—
—
—
12,283
(53,328) $
(49,683)
753
(22)
(1,694)
(2,477)
(53,123)
94
1,445
(385)
14,971
12,283
(24,715)
Table of Contents
Harte Hanks, Inc. and Subsidiaries Consolidated Statements of Cash Flows
In thousands
Cash Flows from Operating Activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation expense
Restructuring
Stock-based compensation
Gain from extinguishment of debt (Paycheck Protection Program Term Note)
Net pension (payment) cost
Deferred income taxes
Changes in assets and liabilities, net of dispositions:
(Increase) decrease in accounts receivable, net and contract assets
(Increase) decrease in prepaid expenses, income tax receivable and other current assets
Decrease in accounts payable and accrued expense
Decrease in other accrued expenses and liabilities
Net cash used in operating activities
Cash Flows from Investing Activities
Purchases of property, plant and equipment
Proceeds from the sale of property, plant and equipment
Net cash used in investing activities
Cash Flows from Financing Activities
Borrowings
Repayment of borrowings
Debt financing costs
Payment of finance leases
Treasury stock activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net decrease in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of year
Cash and cash equivalents and restricted cash at end of year
Supplemental disclosures
Cash paid for interest
Cash received for income taxes, net of payments
Non-cash investing and financing activities
Purchases of property, plant and equipment included in accounts payable and accrued expense
See Accompanying Notes to Consolidated Financial Statements
35
Year Ended December 31,
2021
2020
$
14,971
$
2,559
913
1,469
(10,000)
(717)
—
(9,175)
925
(395)
(2,313)
(1,763)
(3,046)
146
(2,900)
5,000
(17,100)
(795)
(227)
(291)
(13,413)
(353)
(18,429)
33,562
15,133
$
490
1,323
$
$
2,715
$
$
$
$
$
(1,694)
3,615
3,195
764
—
(7,134)
(244)
(931)
(3,469)
(997)
(945)
(7,840)
(2,699)
1,924
(775)
10,000
(1,600)
(653)
(412)
(22)
7,313
742
(560)
34,122
33,562
652
9,216
1,965
Table of Contents
Harte Hanks, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note A — Overview and Significant Accounting Policies
Background
Harte Hanks, Inc. together with its subsidiaries (“Harte Hanks,” “Company,” “we,” “our,” or “us”) is a leading global customer experience company. With offices in North America, Asia-
Pacific and Europe, Harte Hanks works with some of the world’s most respected brands.
The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business. In connection with the pandemic, some of our customers have reduced their
demand for our services while other customers have requested accommodations including extensions of payment or restructuring of agreements. In addition, some of our customers have
declared bankruptcy and it is possible that additional customers will file for bankruptcy in the coming months. Our Customer Care business has experienced increases in volumes and has
added new business from existing clients as well as new clients due to the increased demand for these services driven by COVID-19. While the COVID-19 pandemic has not had a
material adverse impact on the Company’s business operations, liquidity or ability to comply with covenants to date, the pandemic has caused significant volatility in the global markets
and has caused many companies to slow production or find alternative means for employees to perform their work. It is possible that the COVID-19 pandemic, the measures taken by
governments around the globe, including in connection with the emergence of variants of the virus and the resulting economic impact may materially and adversely affect the Company’s
results of operations, cash flows and financial position as well as the financial stability of its customers. The COVID-19 pandemic may also exacerbate other risks discussed in Part I,
“Item 1A. Risk Factors” in this Annual Report on Form-10K, which could materially affect our business, financial condition, or future results. Refer to "Item 1A. Risk Factors" in this
Annual Report on Form 10-K for a further discussion on COVID-19 and the risks the Company currently faces.
Segment Reporting
The Company operates three business segments: Marketing Services; Customer Care; and Fulfillment & Logistics Services. Our Chief Executive Officer (“CEO”) is considered to be our
chief operating decision maker. Our CEO reviews our operating results on an aggregate basis for purposes of allocating resources and evaluating financial performance by using the three
financial measures: revenue, operating income (loss) and operating income (loss) plus depreciation and amortization (EBITDA).
Geographic Concentrations
Depending on the needs of our clients, our services are provided through an integrated approach through twelve facilities worldwide, of which four are located outside of the U.S.
The following table provides information about the operations in different geographic area for the periods indicated:
In thousands
Revenue (1)
United States
Other countries
Total revenue
Year Ended December 31,
2021
2020
$
$
175,437 $
19,159
194,596 $
156,688
20,212
176,900
36
Table of Contents
In thousands
Property, plant and equipment (2)
United States
Other countries
Total property, plant and equipment
(1) Geographic revenues are based on the location of the service being performed.
(2) Property, plant and equipment are based on physical location.
Revenue and Credit Concentration
December 31,
2021
2020
$
$
7,549 $
198
7,747 $
5,495
383
5,878
One customer represented 14.6% of total accounts receivable as of December 31, 2021. The same customer comprised 15.1% of total revenue for the year ended December 31, 2021. One
customer represented 10% of total accounts receivable as of December 31, 2020. Another customer comprised 11.2% of total revenue for the year ended December 31, 2020. Our largest
25 customers in terms of revenue comprised 72.6% and 62.0% of total revenue for the years ended December 31, 2021 and 2020, respectively.
Related Party Transactions
From 2016 until October 2020, we conducted business with Wipro, whereby Wipro provided us with a variety of technology-related services. We have since terminated all service
agreements with Wipro.
Effective January 30, 2018, Wipro became a related party when it purchased 9,926 shares of our Series A Preferred Stock (which are convertible at Wipro’s option into 1,001,614 shares,
or 14% of our Common Stock as of December 31, 2021), for aggregate consideration of $9.9 million. For information pertaining to the Company’s preferred stock, See Note E,
Convertible Preferred Stock.
Consolidation
The accompanying audited consolidated financial statements include the accounts of Harte Hanks, Inc. and its subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation. As used in this report, the terms “Harte Hanks,” “the Company,” “we,” “us,” or “our” may refer to Harte Hanks, Inc., one or more of its consolidated
subsidiaries, or all of them taken as a whole, as the context may require.
Use of Estimates
Preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in
the financial statements and the accompanying notes. Actual results could differ materially from those estimates due to uncertainties. Such estimates include, but are not limited to,
estimates related to lease accounting; pension accounting; fair value for purposes of assessing long-lived assets for impairment; revenue recognition; income taxes; stock-based
compensation and contingencies. On an ongoing basis, management reviews its estimates and assumptions based on currently available information. Changes in facts and circumstances
could result in revised estimates and assumptions.
Operating Expense Presentation in the Consolidated Statements of Comprehensive Income (Loss)
The “Labor” line in the Consolidated Statements of Comprehensive Income (Loss) includes all employee payroll and benefits costs, including stock-based compensation and temporary
labor costs. The “Production and distribution” and “Advertising, selling, general and administrative” lines do not include labor, depreciation, or amortization expense.
Revenue Recognition
We recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to be entitled to receive in exchange
for those products or services based on the relevant contract. We apply the following five-step revenue recognition model:
•
•
•
•
•
Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when (or as) we satisfy the performance obligation
Certain client programs provide for adjustments to billings based upon whether we achieve certain performance criteria. In these circumstances, revenue is recognized when the foregoing
conditions are met. We record revenue net of any taxes collected from customers and subsequently remitted to governmental authorities. Any payments received in advance of the
performance of services or delivery of the product are recorded as deferred revenue until such time as the services are performed or the product is delivered. Costs incurred for search
engine marketing solutions payable to the engine host and postage costs of mailings are billed to our clients and are not directly reflected in our revenue.
37
Table of Contents
Revenue from agency and digital services, direct mail, logistics, fulfillment and contact center is recognized as the work is performed. Fees for these services are determined by the terms
set forth in each contract. These fees are typically a set fixed price or rate by transaction occurrence, service provided, time spent, or product delivered.
For arrangements requiring the design and build out of a database, revenue is not recognized until client acceptance occurs. Up-front fees billed during the setup phase for these
arrangements are deferred and direct build costs are capitalized. Pricing for these types of arrangements is typically based on a fixed price determined in the contract. Revenue from other
database marketing solutions is recognized ratably over the contractual service period. Pricing for these services is typically based on a fixed price per month or per contract.
Fair Value of Financial Instruments
Financial Accounting Standards Board ("FASB") Accounting Standard Codification ("ASC") 820, Fair Value Measurements and Disclosures, ("ASC 820") defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value
hierarchy that prioritizes the inputs used in valuation methodologies into three levels:
Level 1
Quoted prices in active markets for identical assets or liabilities.
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Because of their maturities and/or variable interest rates, certain financial instruments have fair values approximating their carrying values. These instruments include cash and cash
equivalents and restricted cash, accounts receivable, trade payables, and long-term debt. The fair value of the assets in our funded pension plan is disclosed in Note H, Employee Benefit
Plans.
Cash Equivalents
All highly liquid investments with an original maturity of 90 days or less at the time of purchase are considered to be cash equivalents. Cash equivalents are carried at cost, which
approximates fair value.
Restricted Cash
In our normal business operation, we receive cash from our customers for certain customer program service funding. As these programs impose legal restrictions on the commingling of
funds, we present this cash as restricted cash.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts which is used to reduce accounts receivable to the amount of cash expected to be collected. The methodology used to determine the
minimum allowance is based on our prior collection experience and is generally related to the accounts receivable balance in various aging categories. The balance is also influenced by
specific clients’ financial strength and circumstance. Accounts that are determined to be uncollectible are written off in the period in which they are determined to be
uncollectible. Periodic changes to the allowance of doubtful accounts balance are recorded as increases or decreases to bad debt expense, which is included in the “Advertising, selling,
general, and administrative” line of our Consolidated Statements of Comprehensive Income (Loss). The changes in the allowance for doubtful accounts consisted of the following:
In thousands
Balance at beginning of year
Net charges to expense
Amounts recovered against the allowance
Balance at end of year
Year Ended December 31,
2021
2020
241 $
95
(70)
266 $
666
115
(540)
241
$
$
38
Table of Contents
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The
general ranges of estimated useful lives are:
Buildings and improvements
Software
Equipment and furniture
Years
3 to 40
2 to 10
3 to 20
Long-lived assets such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The carrying amount of a long-lived asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset group. We recorded a $0.2 million and $0.8 million impairment of long-lived assets in 2021 and 2020, respectively.
Leases
We determine if an arrangement is a lease at its inception. Operating and finance leases are included in the lease right-of-use (“ROU”) assets and in the current portion and long-term
portion of lease liabilities on our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to
make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of each lease based on the present value of lease payments
over the lease term. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at commencement date of each
lease to determine the present value of lease payments. The operating lease ROU assets also include any lease payments made and exclude lease incentives. Our lease terms may include
options to extend or terminate the lease, which are included in the lease ROU assets when it is reasonably certain that we will exercise that option. Lease expense for lease payments is
recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain real estate
leases, we account for the lease and non-lease components as a single lease component.
Capitalization of Software Development Costs
Capitalized software costs for research and development are amortized over a five-year period. On an ongoing basis, management reviews the valuation of these software costs to
determine if there has been impairment to the carrying value of these assets, and adjusts this value accordingly.
Income Taxes
Income tax expense includes U.S. and international income taxes accounted for under the asset and liability method. Certain income and expenses are not reported in tax returns and
financial statements in the same year. Such temporary differences are reported as deferred tax. Deferred tax assets are reported net of valuation allowances where we have assessed that it
is more likely than not that a tax benefit will not be realized.
Earnings Per Share
Basic earnings per common share is based upon the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is based upon the
weighted-average number of common shares and dilutive common stock equivalents outstanding during the period. Dilutive common stock equivalents are calculated based on the
assumed exercise of stock options and vesting of unvested shares using the treasury stock method.
39
Table of Contents
Stock-Based Compensation
All share-based awards are recognized as operating expense in the “Labor” line of the Consolidated Statements of Comprehensive Income (Loss). Calculated expense is based on the fair
values of the awards on the date of grant and is recognized over the requisite service period or performance period of the awards.
Reserve for Healthcare, Workers’ Compensation, Automobile and General Liability
We are self-insured for the majority of our healthcare insurance. We pay actual medical claims up to a stop loss limit of $0.3 million. In the fourth quarter of 2016, we moved to a
guaranteed cost program for our workers’ compensation programs.
The reserve is estimated using current claims activity, historical experience, and claims incurred but not reported. We use loss development factors that consider both industry norms and
company specific information. Our liability is recorded at the estimate of the ultimate cost of claims at the balance sheet date. At December 31, 2021 and 2020, our reserve for healthcare,
workers’ compensation, net, automobile, and general liability was $1.2 million and $1.4 million, respectively. Periodic changes to the reserve for workers’ compensation, automobile and
general liability are recorded as increases or decreases to insurance expense, which is included in the “Advertising, selling, general and administrative” line of our Consolidated Statements
of Comprehensive Income (Loss). Periodic changes to the reserve for healthcare are recorded as increases or decreases to employee benefits expense, which is included in the “Labor”
line of our Consolidated Statements of Comprehensive Income (Loss).
Foreign Currencies
In most instances the functional currencies of our foreign operations are the local currencies. Assets and liabilities recorded in foreign currencies are translated in U.S. dollars at the
exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during a given month. Adjustments resulting from this translation are
charged or credited to other comprehensive income (loss).
Note B - Recent Accounting Pronouncements
Recent Accounting Guidance Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses. This ASU added a new impairment model (known as the current expected credit loss (“CECL”)
model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model
applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for
recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. As a smaller reporting company pursuant to Rule 12b-2 of
the Securities Exchange Act of 1934, as amended, these changes become effective for the Company on January 1, 2022. The Company is currently evaluating the potential impact and does
not believe the impact will be material.
40
Table of Contents
Note C - Revenue from Contracts with Customers
In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers,(ASC 606). Under ASC 606, Revenue from Contracts with
Customers, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration the entity expects to receive in
exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of the new standard, the entity performs the following five steps: (i)
identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance
obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. This standard requires disclosure of the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with customers. This standard also includes criteria for the capitalization and amortization of certain contract acquisition and
fulfillment costs.
Under ASC 606, revenue is recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to be entitled
to in exchange for those goods or services. Our contracts with customers state the terms of sale, including the description, quantity, and price of the product sold or service provided.
Payment terms can vary by contract, but the period between invoicing and when payment is due is not significant. The Company's contracts with its customers generally do not include
rights of return or a significant financing component.
Consistent with legacy U.S. GAAP, we present sales taxes assessed on revenue-producing transactions on a net basis.
41
Table of Contents
Disaggregation of Revenue
We disaggregate revenue by three key revenue streams which are aligned with our business segments. The nature of the services offered by each key revenue stream is different. The
following tables summarize revenue from contracts with customers for the years ended December 31, 2021 and 2020 from our three business segments and the pattern of revenue
recognition:
In thousands
Marketing Services
Customer Care
Fulfillment & Logistics Services
Total Revenue
In thousands
Marketing Services
Customer Care
Fulfillment & Logistics Services
Total Revenue
Revenue for
performance
obligations recognized
over time
For the Year Ended December 31, 2021
Revenue for
performance
obligations recognized
at a
point in time
$
$
48,450
74,691
55,754
178,895
$
$
7,938
—
7,763
15,701
$
$
Revenue for
performance
obligations recognized
over time
For the Year Ended December 31, 2020
Revenue for
performance
obligations recognized
at a
point in time
$
$
51,421
58,668
52,503
162,592
$
$
5,672
—
8,636
14,308
$
$
Total
56,388
74,691
63,517
194,596
Total
57,093
58,668
61,139
176,900
Our contracts with customers may consist of multiple performance obligations. If the contract contains a single performance obligation, the entire transaction price is allocated to the single
performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone
selling price (“SSP”) basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct good or service that forms part
of a single performance obligation. For most performance obligations, we determine SSP based on the price at which the performance obligation is sold separately. Although uncommon,
if the SSP is not observable through past transactions, we estimate the SSP taking into account available information such as market conditions and internally approved pricing guidelines
related to the performance obligations. Further discussion of other performance obligations in each of our major revenue streams follows:
42
Table of Contents
Marketing Services
Our Marketing Services segment delivers strategic planning, data strategy, performance analytics, creative development and execution, technology enablement, marketing automation, and
database management. We create relevancy by leveraging data, insight, and our extensive experience in leading clients as they engage their customers through digital, traditional, and
emerging channels. We are known for helping clients build deep customer relationships, create connected customer experiences, and optimize each and every customer touch point in order
to deliver desired business outcomes.
Most marketing services performance obligations are satisfied over time and often offered on a project basis. We have concluded that the best approach to measure the progress toward
completion of the project-based performance obligations is the input method, which is based on either the costs or labor hours incurred to date depending upon whether costs or labor
hours more accurately depict the transfer of value to the customer.
The variable consideration in these contracts primarily relates to time and material-based services and reimbursable out-of-pocket travel costs, both of which are estimated using the
expected value method. For time and material-based contracts, we use the “as invoiced” practical expedient.
Our database solutions are built around centralized marketing databases with services rendered to build custom databases, database hosting services, customer or target marketing lists and
data processing services.
These performance obligations, including services rendered to build a custom database, database hosting services, customer or target marketing lists and data processing services, may be
satisfied over time or at a point in time. We provide SaaS solutions to host data for customers and have concluded that they are stand-ready obligations to be recognized over time on a
monthly basis. Our promise to provide certain data related services meets the over-time recognition criteria because our services do not create an asset with an alternative use, and we have
an enforceable right to payment. For performance obligations recognized over time, we choose either the input (i.e., labor hour) or output method (i.e., number of customer records) to
measure the progress toward completion depending on the nature of the services provided. Some of our other data-related services do not meet the over-time criteria and are therefore,
recognized at a point-in-time, typically upon the delivery of a specific deliverable.
Our contracts may include outsourced print production work for our clients. These contracts may include a promise to purchase postage on behalf of our clients. In such cases, we have
determined we are an agent, rather than principal and therefore recognize net consideration as revenue.
We charge our customers for certain data-related services at a fixed transaction-based rate, e.g., per thousand customer records processed. Because the quantity of transactions is unknown
at the onset of a contract, our transaction price is variable, and we use the expected value method to estimate the transaction price. The uncertainty associated with the variable
consideration generally resolves within a short period of time since the duration of these contracts is generally less than two months.
Customer Care
We operate tele-service workstations in the United States, Asia, and Europe to provide advanced contact center solutions such as: speech, voice and video chat, integrated voice response,
analytics, social cloud monitoring, and web self-service.
Performance obligations are stand-ready obligations and are satisfied over time. With regard to account management and software as a service (“SaaS”), we use a time-elapsed output
method to recognize revenue. For performance obligations where we charge customers a transaction-based fee, we use the output method based on transaction quantities. In most cases,
our contracts provide us the right to invoice for services provided, therefore, we generally use the “as invoiced” practical expedient to recognize revenue associated with these performance
obligations unless significant discounts are offered in a contract and prices for services do not represent their SSPs.
The variable consideration in our contracts results primarily from the transaction-based fee structure of some performance obligations with their total transaction quantities to be provided
unknown at the onset of a contract, which are estimated using the expected value method.
43
Table of Contents
Fulfillment & Logistics Services
Our services, delivered internally and with our partners, include: printing, lettershop, advanced mail optimization (including commingling services), logistics and transportation
optimization, monitoring and tracking, to support traditional and specialized mailings. Our print and fulfillment centers in Massachusetts and Kansas provide custom kitting services, print
on demand, product recalls, trade marketing fulfillment, ecommerce product fulfillment, sampling programs, and freight optimization, thereby allowing our customers to distribute
literature and other marketing materials.
Most performance obligations offered within this revenue stream are satisfied over time and utilize the input or output method, depending on the nature of the service, to measure progress
toward satisfying the performance obligation. For performance obligations where we charge customers a transaction-based fee, we utilize the output method based on the quantities
fulfilled. Services provided through our fulfillment centers are typically priced at a per transaction basis and our contracts provide us the right to invoice for services provided and reflects
the value to the customer of the services transferred to date. In most cases, we use the “as invoiced” practical expedient to recognize revenue associated with these performance obligations
unless significant discounts are offered in a contract and prices for services do not represent their standalone selling prices. Prior to the closure of our direct mail production facilities, our
direct mail business contracts may have included a promise to purchase postage on behalf of our clients; in such cases, we have determined we are an agent, rather than principal and
therefore recognize net consideration as revenue.
The variable consideration in our contracts results primarily from the transaction-based fee structure of some performance obligations with their total transaction quantities to be provided
unknown at the onset of a contract, which is estimated using the expected value method.
Upfront Non-Refundable Fees
We may receive non-refundable upfront fees from customers for implementation of our SaaS database solutions products or for providing training in connection with our contact center
solutions. These activities are not deemed to transfer a separate promised service and therefore, represent advanced payments. As we do not deem these activities as transferring a separate
promised service, the receipt of such fees represents advanced payments. Where customers have an option to renew a contract, the customer is not required to pay similar upfront fees
upon renewal. As a result, we have determined that these renewal options provide for the purchase of future services at a reduced rate and therefore, provide a material right. These upfront
non-refundable fees are recognized over the period of benefit which is generally consistent with estimated customer life (four to five years for database solutions contracts and six months
to one year for contact center contracts). The balance of upfront non-refundable fees collected from customers was not material to the Company's consolidated financial statements as of
December 31, 2021 and 2020.
Transaction Price Allocated to Future Performance Obligations
We have elected to apply certain optional exemptions that limit the disclosure requirements over remaining performance obligations at period end to exclude: performance obligations that
have an original expected duration of one year or less, transactions using the “as invoiced” practical expedient, or when a performance obligation is a series and we have allocated the
variable consideration directly to the services performed. As of December 31, 2021, we had no transaction prices allocated to unsatisfied or partially satisfied performance obligations.
Contract Balances
We record a receivable when revenue is recognized prior to invoicing when we have an unconditional right to consideration (only the passage of time is required before payment of that
consideration is due) and a contract asset when the right to payment is conditional upon our future performance such as delivery of an additional good or service (e.g. customer contract
requires customer’s final acceptance of custom database solution or delivery of final marketing strategy delivery presentation before customer payment is required). If invoicing occurs
prior to revenue recognition, the unearned revenue is presented on our Consolidated Balance Sheets as a contract liability, referred to as deferred revenue. The following table summarizes
our contract balances as of December 31, 2021 and 2020:
In thousands
Contract assets
Deferred revenue and customer advances
Deferred revenue included in other long-term liabilities
$
December 31, 2021
622
3,942
756
December 31, 2020
$
613
4,661
817
Revenue recognized during the year ended December 31, 2021 from amounts included in deferred revenue as of December 31, 2020 was approximately $4.2 million. Revenue
recognized during the year ended December 31, 2020 from amounts included in deferred revenue as of December 31, 2019 was approximately $4.5 million.
44
Table of Contents
Costs to Obtain and Fulfill a Contract
We recognize an asset for the direct costs incurred to obtain and fulfill our contracts with customers to the extent that we expect to recover these costs and if the benefit is longer than one
year. These costs are amortized to expense over the expected period of the benefit in a manner that is consistent with the transfer of the related goods or services to which the asset relates.
We impair the asset when recoverability is not anticipated. We capitalized a portion of commission expense, implementation and other costs that represents the cost to obtain a contract.
The remaining unamortized contract costs were $1.5 million and $1.3 million as of December 31, 2021 and 2020, respectively. For the years presented, no impairment was recognized.
Note D - Leases
We have operating and finance leases for corporate and business offices, service facilities, call centers and certain equipment. Leases with an initial term of 12 months or less are generally
not recorded on the balance sheet, unless the arrangement includes an option to purchase the underlying asset, or an option to renew the arrangement, that we are reasonably certain to
exercise (short-term leases). Our leases have remaining lease terms of one year to nine years, some of which may include options to extend the leases for up to an additional five years.
We sublease our Fullerton (CA), Jacksonville (FL) and Uxbridge (UK) facilities. The leases and subleases for these three facilities expire at various dates, the latest being fiscal year 2023.
As of December 31, 2021, assets recorded under finance and operating leases were approximately $0.8 million and $21.4 million respectively, and accumulated amortization associated
with finance leases was $0.7 million. As of December 31, 2020, assets recorded under finance and operating leases were approximately $1.0 million and $23.8 million respectively, and
accumulated depreciation associated with finance leases was $0.5 million. Operating lease right of use assets and lease liabilities are recognized at the lease commencement date based on
the present value of lease payments over the lease term. The discount rate used to determine the commencement date present value of lease payment is the interest rate implicit in the lease,
or when that is not readily determinable, we utilized our incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to
the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.
During the year ended December 31, 2021, we impaired three leases for the facilities we no longer occupied. The resulting impairment and early termination charges are included in our
restructuring expenses for the year ended December 31, 2021. During the year ended December 31, 2020, we modified the terms of some of our existing leases which resulted in the re-
measurement of the related ROU assets and lease liabilities. We also exercised early termination options and impaired a lease for a facility we were vacating. The resulting impairment and
early termination charges are included in our restructuring expenses in the year ended December 31, 2020. Please refer to Note N - Restructuring Activities for more details.
The following tables present supplemental balance sheet information related to our financing and operating leases:
In thousands
Right-of-use Assets
Liabilities
Short-term lease liabilities
Long-term lease liabilities
Total Lease Liabilities
In thousands
Right-of-use Assets
Liabilities
Short-term lease liabilities
Long-term lease liabilities
Total Lease Liabilities
As of December 31, 2021
Operating Leases
21,382
$
Finance Leases
760
$
6,359
19,004
25,363
$
194
211
405
$
As of December 31, 2020
Operating Leases
23,793
$
Finance Leases
957
$
6,436
20,892
27,328
$
227
403
630
$
$
$
$
$
Total
22,142
6,553
19,215
25,768
Total
24,750
6,663
21,295
27,958
For the year ended December 31, 2021 and 2020, the components of lease expense were as follows:
In thousands
Operating lease cost
Finance lease cost
Amortization of right-of-use assets
Interest on lease liabilities
Total Finance lease cost
Variable lease cost
Sublease income
Total lease cost, net
Year Ended December
31, 2021
Year Ended December
31, 2020
$
$
7,745 $
195
27
222
2,604
(1,153)
9,418 $
8,646
240
45
285
3,085
(470)
11,546
45
Table of Contents
Other information related to leases was as follows:
In thousands
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Weighted Average Remaining Lease term
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
The maturities of the Company’s finance and operating lease liabilities as of December 31, 2021 are as follows:
In thousands
Year Ending December 31,
2022
2023
2024
2025
2026
2027 & Beyond
Total future minimum lease payments
Less: Imputed interest
Total lease liabilities
Year Ended December
31, 2021
Year Ended December
31, 2020
$15,287
25
227
6.16
2.16
3.45
5.41
$18,777
40
412
6.05
2.97
3.72
6.74
%
%
%
%
Operating Leases (1)
Finance Leases
$
$
6,510
5,285
3,856
2,119
2,014
8,229
28,013
2,650
25,363
$
$
209
167
48
6
—
—
430
25
405
(1) Non-cancelable sublease proceeds for the fiscal year ending December 31, 2022, and 2023 of $0.7 million and $0.2 million, respectively, are not included in the table above.
As of December 31, 2021, we have no new operating leases that have not yet commenced.
46
Table of Contents
Note E - Convertible Preferred Stock
Our Amended and Restated Certificate of Incorporation authorizes us to issue 1.0 million shares of preferred stock. On January 30, 2018, we issued 9,926 shares of our Series A Preferred
Stock to Wipro at an issue price of $1,000 per share, for gross proceeds of $9.9 million pursuant to a Certificate of Designation filed with the State of Delaware on January 29, 2018. We
incurred $0.2 million of transaction fees in connection with the issuance of the Series A Preferred Stock which were netted against the gross proceeds of $9.9 million on our Consolidated
Financial Statements.
Series A Preferred Stock has the following rights and privileges:
Liquidation Rights
In the event of a liquidation, dissolution or winding down of the Company or a Fundamental Transaction (defined in the Certificate of Designation for the Series A Preferred Stock),
whether voluntary or involuntary, the holders of the Series A Preferred Stock are entitled to receive, prior to and in preference to the holders of common stock, from the assets of the
Company available for distribution, an amount equal to the greater of (i) the original issue price, plus any dividends accrued but unpaid thereon, and (ii) such amount per share as would
have been payable had all shares of Series A Preferred Stock been converted into Common Stock immediately before such liquidation.
Upon liquidation, after the payment of all preferential amounts required to be paid to the holders of Series A Preferred Stock, the remaining assets of the Company available for
distribution to its stockholders shall be distributed among the holders of Common Stock.
Dividends
Upon liquidation, dissolution or winding down of the Company, or a Fundamental Transaction (collectively, a “Liquidation”), shares of Series A Preferred Stock which have not been
otherwise converted to common stock, shall be entitled to receive dividends that accrue at a rate of (i) 5.0% each year, or (ii) the rate that cash dividends are paid in respect of shares of
common stock (with Series A Preferred Stock being paid on an as-converted basis in such case) for such year if such rate is greater than 5.0%. Dividends on the Series A Preferred Stock
are cumulative and accrue to the holders thereof whether or not declared by the Board of Directors (the “Board”). Dividends are payable solely upon a Liquidation, and only if prior to
such Liquidation such shares of Series A Preferred Stock have not been converted to common stock. As of December 31, 2021, cumulative dividends payable to the holders of Series A
Preferred Stock upon a Liquidation totaled $1.9 million or $196.03 per share of Series A Preferred Stock.
Conversion
At the option of the holders of Series A Preferred Stock, shares of Series A Preferred Stock may be converted into common stock at a rate of 100.91 shares of common stock for one share
of Series A Preferred Stock, subject to certain future adjustments.
Voting and Other Rights
The Series A Preferred Stock does not have voting rights, except as otherwise required by law. Other rights afforded the holders of Series A Preferred Stock, under defined circumstances,
include the election and removal of one member of the Board of Directors as a separate voting class, the ability to approve certain actions of the Company prior to execution, and
preemptive rights to participate in any future issuance of new securities. In addition, under certain circumstances, the holder of the Series A Preferred Stock is entitled to appoint an
observer to our Board of Directors. The holder of the Series A Preferred Stock has elected to exercise its observer appointment rights but not exercised its right to appoint the board
member.
We determined that the Series A Preferred Stock has contingent redemption provisions allowing redemption by the holder upon certain defined events. As the event that may trigger the
redemption of the Series A Preferred Stock is not solely within our control, the Series A Preferred Stock is classified as mezzanine equity (temporary equity) in the Consolidated Balance
Sheets as of December 31, 2021 and 2020.
Note F — Long-Term Debt
As of December 31, 2021 and 2020, long-term debt was as follows:
In thousands
Revolving credit facility
Paycheck Protection Program Term Note
Total debt
Less: current portion of long-term debt
Long-term debt
Credit Facilities
December 31, 2021
5,000
—
5,000
—
5,000
$
$
December 31, 2020
17,100
10,000
27,100
(4,926)
22,174
$
$
As of December 31, 2021, we had $5.0 million of borrowings outstanding under the New Credit Facility (as defined below). As of December31, 2020, we had $17.1 million of borrowings
outstanding under the old Texas Capital Facility (as defined below). As of December 31, 2021, we had the ability to borrow an additional $18.9 million under the New Credit Facility.
As of December 31, 2021 and 2020, we had letters of credit outstanding in the amount of $1.1 million and $1.8 million, respectively. No amounts were drawn against these letters of
credit at December 31, 2021 . These letters of credit exist to support insurance programs relating to workers‘ compensation, automobile, and general liability.
On April 17, 2017, we entered into a secured credit facility with Texas Capital Bank, N.A (“Texas Capital Bank”), that provided a $20.0 million revolving credit facility (the old “Texas
Capital Credit Facility”) and for letters of credit issued by Texas Capital Bank up to $5.0 million. The old Texas Capital Credit Facility was secured by substantially all of the Company’s
and its material domestic subsidiaries’ assets. The old Texas Capital Credit Facility was guaranteed by HHS Guaranty, LLC, an entity formed to provide credit support for Harte Hanks by
certain members of the Shelton family (descendants of one of our founders). The old Texas Capital Credit Facility originally had an expiration date of April 17, 2019, at which point all
outstanding amounts would have been due. On January 9, 2018, we entered into an amendment to the old Texas Capital Credit Facility that increased the borrowing capacity to $22.0
million and extended the maturity by one year to April 17, 2020. On May 7, 2019, we entered into a second amendment to the old Texas Capital Credit Facility which further extended the
maturity of the facility by one year to April 17, 2021. On May 11, 2020, we entered into a third amendment to the old Texas Capital Credit Facility which further extended the maturity of
the facility by one year to April 17, 2022 and decreased the borrowing capacity to $19.0 million. On May 5, 2021, we entered into a fourth amendment to the old Texas Capital Credit
Facility which further extended the maturity of the facility by one year to April 17, 2023 and decreased the borrowing capacity to $15.0 million. The old Texas Capital Credit Facility
was secured by substantially all our assets and continues to be guaranteed by HHS Guaranty, LLC ("HHS").
The old Texas Capital Credit Facility was subject to customary covenants requiring insurance, legal compliance, payment of taxes, prohibition of second liens, and secondary
indebtedness, as well as the filing of quarterly and annual financial statements. The Company had been in compliance with all of the requirements.
Under the old Texas Capital Credit Facility, we were permitted to elect to accrue interest on outstanding principal balances at either LIBOR plus 1.95% or prime plus 0.75%. Unused
commitment balances accrued interest at 0.50%. We were required to pay a quarterly fee of 0.5% of the value of the collateral HHS actually pledged to secure the facility as consideration
for the guarantee, which for the year ended December 31, 2021 amounted to $0.4 million.
On December 21, 2021, the Company entered into a new three-year, $25,000,000 asset-based revolving credit facility (the "New Credit Facility") with Texas Capital Bank. The
Company’s obligations under the New Credit Facility are guaranteed on a joint and several basis by the Company’s material subsidiaries (the “Guarantors”). The New Credit Facility is
secured by substantially all of the assets of the Company and the Guarantors pursuant to a Pledge and Security Agreement, dated as of December 21, 2021, between the Company, Texas
Capital Bank and the other grantors party thereto (the "Security Agreement").
The New Credit Facility is subject to certain covenants restricting the Company's and its subsidiaries' ability to create, incur, assume or become liable for indebtedness; make certain
investments; pay dividends or repurchase the Company's stock; create, incur or assume liens; consummate mergers or acquisitions; liquidate, dissolve, suspend or cease operations; or
modify accounting or tax reporting methods (other than as required by U.S. GAAP). The Company was in compliance with all of the requirements as of December 31, 2021.
The loans under the New Credit Facility accrue interest at a varying rate equal to the Bloomberg Short-Term Bank Yield Index Rate plus a margin of 2.25% per annum. The interest rate
was 2.32% as of December 31, 2021. The outstanding amounts advanced under the New Credit Facility are due and payable in full on December 21, 2024.
In connection with entering into the New Credit Facility, the Company and Texas Capital Bank terminated the Company's old Texas Capital Credit Facility. Prior to termination of the
old Texas Capital Credit Facility, the Company used cash on hand to pay down $12.1 million outstanding under the old Texas Capital Credit Facility and the remaining $5 million of loans
outstanding under the old Texas Capital Credit Facility were deemed to be outstanding under the New Credit Facility. Unlike the old Texas Capital Credit Facility, Texas Capital Bank did
not require the New Credit Facility to be guaranteed by HHS.
Cash payments for interest were $0.5 million and $0.7 million for the years ended December 31, 2021 and 2020, respectively.
Paycheck Protection Program Term Note
On April 14, 2020, the Company entered into a promissory note with Texas Capital Bank, for an unsecured loan with a principal amount of $10.0 million made to the Company pursuant
to the Paycheck Protection Program (“PPP Term Note”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
The proceeds were used to maintain payroll or make certain permitted interest payments, lease payments and utility payments.
We applied for forgiveness of the entire $10.0 million PPP Term Note in the first quarter of 2021 because we used the proceeds from the loan as contemplated under the CARES Act. On
June 10, 2021, we received notice that the entire amount of our PPP Loan was forgiven by the SBA. We recorded the $10.0 million of debt extinguishment as "Gain from extinguishment
of debt" in the Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2021.
Note G — Stock-Based Compensation
We maintain stock incentive plans for the benefit of certain officers, directors, and employees. Our stock incentive plans provide for the ability to issue stock options, cash stock
appreciation rights, performance stock units, phantom stock units and cash performance stock units. Our cash stock appreciation rights, phantom stock units and cash performance stock
units settle solely in cash and are treated as the current liability, which are adjusted each reporting period based on changes in our stock price.
Compensation expense for stock-based awards is based on the fair values of the awards on the date of grant and is recognized on a straight-line basis over the vesting period of the entire
award in the “Labor” line of the Consolidated Statements of Comprehensive Income (Loss). We recognized $1.5 million and $0.8 million of stock-based compensation expense for the
years ended December 31, 2021 and 2020, respectively.
In May 2013, our stockholders approved the 2013 Omnibus Incentive Plan (“2013 Plan”), pursuant to which we may issue up to 500,000 shares of stock-based awards to directors,
employees, and consultants, as adjusted for the reverse stock split. The 2013 Plan replaced the stockholder-approved 2005 Omnibus Incentive Plan (“2005 Plan”), pursuant to which we
issued equity securities to directors, officers, and key employees. No additional stock-based awards will be granted under the 2005 Plan, but awards previously granted under the 2005
Plan will remain outstanding in accordance with their respective terms. In August 2018, we filed a Form S-8 to increase the total registered shares under 2013 Plan to 553,673 shares. As
of December 31, 2021 and 2020, there were 188,285 and 20,707 shares available, respectively, for grant under the 2013 Plan.
In 2020, we established our 2020 Equity Incentive Plan ("2020 Plan") which took the place of the 2015 Equity Incentive Plan (“2015 Plan”). Any shares of
common stock that remain eligible for issuance under the 2015 Plan are now eligible for issuance under the 2020 Plan. In August 2020, we filed a Form S-
8 to register up to an aggregate of 2,521,244 shares that may be issued under the 2020 Plan. The 2020 Plan provides for the issuance of stock-based awards
to directors, employees and consultants. No additional stock-based awards will be granted under the 2013 plan, but awards previously granted under the
2013 Plan will remain outstanding in accordance with their respective terms. As of December 31, 2021 and 2020, there were 1.6 million and 2.0 million
shares available, respectively, for grant under the 2020 Plan.
We granted equity awards to our Chief Executive Officer and Chief Operating Officer in 2020, as a material inducement for acceptance of such positions. These options, restricted stock,
and performance unit awards were not issued under the 2020 Plan and were not submitted for stockholder approval.
Stock Options
Options granted under the 2020 Plan, 2013 Plan or as inducement awards have an exercise price equal to the market value of the common stock on the grant date. These options become
exercisable in 25% increments on the first four anniversaries of their date of grant and expire on the tenth anniversary of their date of grant. There were no options outstanding under
the 2020 plan as of December 31, 2021 and 2020.
Options to purchase 8,565 shares granted under 2013 Plan awards were outstanding as of December 31, 2021, with exercise prices ranging from $76.80 to $115.20 per share. There
were no inducement award options outstanding at December 31, 2021 and 2020.
Options under the 2005 Plan were granted at exercise prices equal to the market value of the common stock on the grant date. All such awards have met their respective vesting dates.
Options to purchase 29,050 shares were outstanding under the 2005 Plan as of December 31, 2021, with exercise prices ranging from $76.80 to $115.20 per share. Options to purchase
31,950 shares were outstanding under the 2005 Plan as of December 31, 2020, with exercise prices ranging from $76.80 to $184.65 per share.
Options granted to officers after April 2015 vest in full upon a change in control if such options are not assumed or replaced by a publicly traded successor with an equivalent award (as
defined in such officers’ change in control severance agreements).
47
Table of Contents
The following summarizes all stock option activity during the years ended December 31, 2021 and 2020:
In thousands
Options outstanding at December 31, 2019
Adjustment and Correction
Granted in 2020
Exercised in 2020
Unvested options forfeited in 2020
Vested options expired in 2020
Options outstanding at December 31, 2020
Granted in 2021
Exercised in 2021
Unvested options forfeited in 2021
Vested options expired in 2021
Options outstanding at December 31, 2021
Vested and expected to vest at December 31, 2021
Exercisable at December 31, 2021
Number of
Shares
126,696
Weighted-
Average
Exercise Price
57.48
$
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic Value
(Thousands)
(7,500)
—
—
—
(31,449)
87,747
$
—
(31,906)
(7,411)
(10,815)
37,615
$
37,615
$
37,615
$
53.61
—
—
—
90.89
40.25
—
2.95
7.40
37.87
80.21
80.21
80.21
—
—
—
—
—
5.46
1.36
1.36
1.36
The aggregate intrinsic value at year end in the table above represents the total pre-tax intrinsic value that would have been received by the option holders if all of the in-the-money options
were exercised on December 31, 2021. The pre-tax intrinsic value is the difference between the closing price of our common stock on December 31, 2021 and the exercise price for each
in-the-money option. This value fluctuates with the changes in the price of our common stock.
The following table summarizes information about stock options outstanding at December 31, 2021:
Range of
Exercise Prices
$76.80 - 115.20
Number
Weighted-Average
Outstanding
Exercise Price
Weighted-Average
Remaining Life
(Years)
Number
Weighted-Average
Exercisable
Exercise Price
37,615
$
80.21
1.36
37,615
$
80.21
No options were granted during 2021 and 2020. As of December 31, 2021, there was no unrecognized compensation cost related to unvested stock options.
48
Table of Contents
Cash Stock Appreciation Rights
In 2016 and 2017, the Board of Directors approved grants of cash settling stock appreciation rights under the 2013 Plan. Cash stock appreciation rights vest in 25% increments on the first
four anniversaries of the date of grant and expire after 10 years. Cash stock appreciation rights settle solely in cash and are treated as a liability.
The following summarizes all cash stock appreciation rights during the year ended December 31, 2020:
Cash stock appreciation rights outstanding at December 31, 2019
Granted in 2020
Exercised in 2020
Expired in 2020
Forfeited in 2020
Cash stock appreciation rights outstanding at December 31, 2020
Number of
Units
Weighted-
Average
Grant Price
12,676
$
—
—
(9,507)
(3,169)
—
$
9.70
—
—
9.70
9.70
—
Weighted-Average
Remaining
Contractual Term
(Years)
7.48
—
The fair value of each cash stock appreciation right is estimated on the date of grant using the Black-Scholes Option-Pricing Model and is revalued at the end of each period. Changes in
fair value are recorded to the income statement as changes to expense. As of December 31, 2021, there was no unrecognized compensation cost related to unvested cash stock appreciation
right grants.
Restricted Stock Units
Restricted stock units granted as inducement awards or under the 2020 Plan and 2013 Plan vest in three equal increments on the first three anniversaries of their date of grant. Restricted
stock units settle in treasury stock and are treated as equity. Outstanding restricted stock units granted to officers as inducement awards or under the 2013 Plan vest in full (to the extent not
previously vested) upon a change in control if such unvested shares are not assumed or replaced by a publicly traded successor with an equivalent award (as such terms are defined in such
officers’ change-in-control severance agreements).
49
Table of Contents
The following summarizes all restricted stock units’ activity during 2021 and 2020:
Unvested shares outstanding at December 31, 2019
Adjustment and Correction
Granted in 2020
Vested in 2020
Forfeited in 2020
Unvested shares outstanding at December 31, 2020
Granted in 2021
Vested in 2021
Forfeited in 2021
Unvested shares outstanding at December 31, 2021
Number of
Shares
Weighted-
Average Grant
Date Fair Value
428,291
$
13,158
730,150
(303,020)
(78,870)
789,709
$
500,890
(396,407)
(247,753)
646,439
$
3.99
3.99
2.02
3.96
3.46
2.22
5.72
3.00
2.35
4.41
The fair value of each restricted stock unit is estimated on the date of grant as the closing market price of our common stock on the date of grant. As of December 31, 2021, there was
$2.3 million of total unrecognized compensation cost related to restricted stock units. This cost is expected to be recognized over a weighted average period of approximately 2.20 years.
Phantom Stock Units
In 2016 and 2017, the Board of Directors approved grants of phantom stock units under the 2013 Plan. Phantom stock units vest in 25% increments on the first four anniversaries of the
date of grant. Phantom stock units settle solely in cash and are treated as a liability. Grants of phantom stock units made to officers under the 2013 Plan vest in full (to the extent not
previously vested) upon a change in control if they are not assumed or replaced by a publicly traded successor with an equivalent award (as such terms are defined in such officers’
change-in-control severance agreements).
The following summarizes all phantom stock unit activity during 2021 and 2020:
Phantom stock units outstanding at December 31, 2019
Adjustment and Correction
Granted in 2020
Vested in 2020
Forfeited in 2020
Phantom stock units outstanding at December 31, 2020
Granted in 2021
Vested in 2021
Forfeited in 2021
Phantom stock units outstanding at December 31, 2021
Number of
Units
Weighted-
Average Grant
Date Fair Value
14,820
$
(786)
—
(8,032)
(1,656)
4,346
$
—
(4,146)
(200)
—
13.55
—
16.40
9.70
9.70
—
9.70
9.70
The fair value of each phantom stock unit is estimated on the date of grant as the closing market price of our common stock on the date of grant. Changes in our stock price will result in
adjustments to compensation expense and the corresponding liability over the applicable service period. As of December 31, 2021, there was no unrecognized compensation cost related to
phantom stock units.
50
Table of Contents
Performance Stock Units
Under the 2020 Plan and 2013 Plan and grants of inducement awards, performance stock units are a form of share-based award similar to unvested shares, except that the number of shares
ultimately issued is based on our performance against specific performance goals over a roughly three-year period. At the end of the performance period, the number of shares of stock
issued will be determined in accordance with the specified performance target(s) in a range between 0% and 100%. Performance stock units vest solely in common stock and are treated as
equity. Upon a change in control, performance stock units granted to officers vest on a pro-rated basis (based on time elapsed from the grant) to the extent not previously settled if they are
not assumed or replaced by a publicly traded successor with an equivalent award (as such terms are defined in such officers’ change-in-control severance agreements).
The following summarizes all performance stock unit activity during 2021 and 2020:
Performance stock units outstanding at December 31, 2019
Adjustment and Correction
Granted in 2020
Settled in 2020
Forfeited in 2020
Performance stock units outstanding at December 31, 2020
Granted in 2021
Vested in 2021
Forfeited in 2021
Performance stock units outstanding at December 31, 2021
Number of
Units
207,929
Weighted-
Average Grant-
Date Fair Value+E155
3.27
$
(52,632)
—
(4,225)
(118,804)
32,268
$
75,000
(13,158)
—
94,110
$
—
—
9.70
2.79
4.14
5.59
3.30
5.41
The fair value of each performance stock unit is estimated on the date of grant as the closing market price of our common stock on the date of grant, minus the present value of anticipated
dividend payments. Periodic compensation expense is based on the current estimate of future performance against specific performance goals over a three-year period and is adjusted up or
down based on those estimates. As of December 31, 2021, the total unrecognized compensation cost related to performance stock units was approximately $430,437. This cost is
expected to be recognized over a weighted average period of approximately 9.35 years.
Cash Performance Stock Units
In 2016 and 2017, the Board of Directors approved grants of cash performance stock units under the 2013 Plan. Cash performance stock units are a form of share-based award similar to
phantom stock units, except that the number of units ultimately issued is based on our performance against specific performance goals measured after a three-year period. At the end of the
performance period, the number of units vesting will be determined in accordance with specified performance target(s) in a range between 0% and 100%. Cash performance stock units
settle solely in cash and are treated as a liability. Upon a change in control, cash performance stock units granted to officers vest on a pro-rated basis (based on time elapsed from the grant)
to the extent not previously settled if they are not assumed or replaced by a publicly traded successor with an equivalent award (as such terms are defined in such officers’ change-in-
control severance agreements).
51
Table of Contents
There is no cash performance stock unit activity during 2021 and 2020.
The fair value of each cash performance stock unit is estimated on the date of grant as the closing market price of our common stock on the date of grant, minus the present value of
anticipated dividend payments. Periodic compensation expense is based on the current estimate of future performance against specific performance goals over a three-year period and is
adjusted up or down based on those estimates. As of December 31, 2021, there was no unrecognized compensation cost related to cash performance stock units.
Note H — Employee Benefit Plans
Prior to January 1, 1999, we provided a defined benefit pension plan for which most of our employees were eligible to participate (the “Qualified Pension Plan”). In conjunction with
significant enhancements to our 401(k) plan, we elected to freeze benefits under the Qualified Pension Plan as of December 31, 1998.
In 1994, we adopted a non-qualified, unfunded, supplemental pension plan (the “Restoration Pension Plan”) covering certain employees, which provides for incremental pension payments
so that total pension payments equal those amounts that would have been payable from the principal pension plan were it not for limitations imposed by income tax regulation. The
benefits under the Restoration Pension Plan were intended to provide benefits equivalent to our Qualified Pension Plan as if such plan had not been frozen. We elected to freeze benefits
under the Restoration Pension Plan as of April 1, 2014.
At the end of 2020, the Board of Directors of the Company approved the division of the Qualified Pension Plan into two distinct plans, “Qualified Pension Plan I” and “Qualified Pension
Plan II.” The assets and liabilities of the Qualified Pension Plan that were attributable to certain participants in Qualified Pension Plan II were spun off and transferred into Qualified
Pension Plan II effective as of the end of December 31, 2020, in accordance with Internal Revenue Code section 414 (I) and ERISA Section 4044.
The overfunded or underfunded status of our defined benefit post-retirement plans is recorded as an asset or liability on our balance sheets. The funded status is measured as the difference
between the fair value of plan assets and the projected benefit obligation. Periodic changes in the funded status are recognized through other comprehensive income (loss) in the
Consolidated Statements of Comprehensive Income (Loss). We currently measure the funded status of our defined benefit plans as of December 31, the date of our year-end Consolidated
Balance Sheets.
52
Table of Contents
The status of the defined benefit pension plans at year-end was as follows:
In thousands
Change in benefit obligation
Benefit obligation at beginning of year
Interest cost
Actuarial (gain) loss
Benefits paid
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Contributions
Benefits paid
Fair value of plan assets at end of year
Funded status at end of year
The following amounts have been recognized in the Consolidated Balance Sheets as of December 31:
In thousands
Current pension liabilities
Long term pension liabilities - Qualified plans
Long term pension liabilities - Nonqualified plan
Total pension liabilities
The following amounts have been recognized in accumulated other comprehensive loss, net of tax, at December 31:
In thousands
Net loss
$
$
$
$
$
$
$
$
Year Ended December 31,
2021
2020
$
198,586
4,674
(6,610)
(10,609)
186,041
$
$
$
129,348
10,977
2,025
(10,609)
131,741
(54,300) $
2021
2020
1,801
27,359
25,140
54,300
$
$
189,807
5,894
13,380
(10,495)
198,586
118,092
11,014
10,737
(10,495)
129,348
\
(69,238)
1,748
40,512
26,978
69,238
2021
2020
54,394
$
68,544
Based on current estimates, we will be required to make $1.3 million contributions to our Qualified Pension Plan II, in 2022.
We are not required to make and do not intend to make any contributions to our Restoration Pension Plan in 2022 other than to the extent needed to cover benefit payments. We made
benefit payments under this supplemental plan of $1.7 million in 2021.
The following information is presented for pension plans with an accumulated benefit obligation in excess of plan assets:
In thousands
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2021
2020
$
$
$
186,041
186,041
131,741
$
$
$
198,586
198,586
129,348
The Restoration Pension Plan had an accumulated benefit obligation of $26.9 million and $28.7 million as of December 31, 2021 and 2020, respectively.
53
Table of Contents
The following table presents the components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss) in the Consolidated Statements of
Comprehensive Income (Loss) for both plans:
In thousands
Net Periodic Benefit Cost (Pre-Tax)
Interest cost
Expected return on plan assets
Recognized actuarial loss
Net periodic benefit cost
Amounts Recognized in Other Comprehensive (Income) Loss (Pre-Tax)
Net (income) loss
Year Ended December 31,
2021
2020
$
$
4,674
(6,754)
3,441
1,361
(14,150)
Net cost recognized in net periodic benefit cost and other comprehensive (income) loss
$
(12,789) $
5,894
(5,538)
3,247
3,603
4,657
8,260
The components of net periodic benefit costs other than the service cost component are included in Other, net in our Consolidated Statement of Comprehensive Income (Loss). The
estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in 2022 is $6.6 million.
The period over which the net loss from the Qualified Pension Plan is amortized into net periodic benefit cost was the average future lifetime of all participants (approximately 17.4 years
for Qualified Pension Plan I and approximately 27.1 years for Qualified Pension Plan II ). The Qualified Pension Plan is frozen and almost all of the plan’s participants are not active
employees.
The weighted-average assumptions used for measurement of the defined pension plans were as follows:
Weighted-average assumptions used to determine net periodic benefit cost
Discount rate
Qualified Plan I
Qualified Plan II
Restoration Plan
Expected return on plan assets
Qualified Plan I
Qualified Plan II
Restoration Plan
Weighted-average assumptions used to determine benefit obligations
Discount rate
Qualified Plan I
Qualified Plan II
Restoration Plan
Year Ended December 31,
2021
2020
2.37%
2.61%
2.34%
5.50%
4.75%
n/a
December 31,
2021
2020
2.75%
2.92%
2.73%
3.20%
n/a
3.14%
4.75%
n/a
n/a
2.37%
2.61%
2.34%
The discount rate assumptions are based on current yields of investment-grade corporate long-term bonds. The expected long-term return on plan assets is based on the expected future
average annual return for each major asset class within the plan’s portfolio (which is principally comprised of equity investments) over a long-term horizon. In determining the expected
long-term rate of return on plan assets, we evaluated input from our investment consultants, actuaries, and investment management firms, including their review of asset class return
expectations, as well as long-term historical asset class returns. Projected returns by such consultants and economists are based on broad equity and bond indices. Additionally, we
considered our historical 15-year compounded returns, which have been in excess of the forward-looking return expectations.
The funded pension plan assets as of December 31, 2021 and 2020, by asset category, were as follows:
In thousands
Equity securities
Debt securities
Other
Total plan assets
2021
%
2020
%
$
$
66,324
61,689
3,728
131,741
50% $
46%
3%
100% $
79,906
34,307
15,135
129,348
62%
26%
12%
100%
The fair values presented have been prepared using values and information available as of December 31, 2021 and 2020.
54
Table of Contents
The following tables present the fair value measurements of the assets in our funded pension plan:
Significant
In thousands
Equity securities
Debt securities
Total investments, excluding investments valued at NAV
Investments valued at NAV (1)
Total plan assets
Significant
In thousands
Equity securities
Debt securities
Total investments, excluding investments valued at NAV
Investments valued at NAV (1)
Total plan assets
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Other
Significant
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
December 31,
2021
$
$
66,324
61,689
128,013
3,728
131,741
$
$
66,324
46,818
113,142
—
113,142
$
$
—
14,871
14,871
—
14,871
$
$
—
—
—
—
—
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Other
Significant
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
December 31,
2020
$
$
$
$
79,906
34,307
114,213
15,135
129,348
$
$
79,906
26,733
106,639
—
106,639
$
$
—
7,574
7,574
—
7,574
$
$
—
—
—
—
—
(1) Investment valued at net asset value ("NAV") are comprised of cash, cash equivalents, and short-term investments used to provide liquidity for the payment of benefits and other
purposes. The commingled funds are valued at NAV based on the market value of the underlying investments, which are primarily government issued securities.
The investment policy for the Qualified Pension Plans focuses on the preservation and enhancement of the corpus of the plan’s assets through prudent asset allocation, quarterly
monitoring and evaluation of investment results, and periodic meetings with investment managers.
The investment policy’s goals and objectives are to meet or exceed the representative indices over a full market cycle (3-5 years). The policy establishes the following investment mix,
which is intended to subject the principal to an acceptable level of volatility while still meeting the desired return objectives:
Qualified Pension Plan I
Equities
U.S. Large Cap
U.S. Mid Cap
U.S. Small Cap
International Equity
Developed
Emerging Markets
Fixed Income
Investment Grade
Cash Equivalent
Qualified Pension Plan II
Equities
U.S. Large Cap
U.S. Mid Cap
U.S. Small Cap
International Equity
Developed
Emerging Markets
Fixed Income
Investment Grade
Cash Equivalent
Target
39%
14%
9%
5%
8%
3%
59%
59%
2%
Target
77%
28%
18%
9%
16%
6%
21%
21%
2%
Acceptable Range
24% - 54%
9% - 19%
4% - 14%
0% - 10%
3% - 13%
0% - 6%
44% - 74%
44% - 74%
0%-40%
Acceptable Range
62% - 87%
18% - 38%
13% - 23%
4% - 14%
11% - 21%
0% - 9%
11% - 31%
11% - 31%
0%-40%
Benchmark Index
Russell 1000 TR
Russell Mid Cap Index TR
Russell 2000 TR
MSCI EAFE Net TR USD Index
MSCI Emerging Net Total Return
BBG BARC US Aggregate Bond Index
ICE BofA US 3-Month Treasury Bill Index TR
Benchmark Index
Russell 1000 TR
Russell Mid Cap Index TR
Russell 2000 TR
MSCI EAFE Net TR USD Index
MSCI Emerging Net Total Return
BBG BARC US Aggregate Bond Index
ICE BofA US 3-Month Treasury Bill Index TR
The funded pension plans provide for investment in various investment types. Investments, in general, are exposed to various risks, such as interest rate, credit, and overall market
volatility risk. Due to the level of risk associated with investments, it is reasonably possible that changes in the value of investments will occur in the near term and may impact the funded
status of these plans. To address the issue of risk, the investment policy places high priority on the preservation of the value of capital (in real terms) over a market cycle. Investments are
made in companies with a minimum five-year operating history and sufficient trading volume to facilitate, under most market conditions, prompt sale without severe market
effect. Investments are diversified across numerous market sectors and individual companies. Reasonable concentration in any one issue, issuer, industry, or geographic area is allowed if
the potential reward is worth the risk.
Investment managers are evaluated by the performance of the representative indices over a full market cycle for each class of assets. The Pension Plan Committee reviews, on a quarterly
basis, the investment portfolio of each manager, which includes rates of return, performance comparisons with the most appropriate indices, and comparisons of each manager’s
performance with a universe of other portfolio managers that employ the same investment style.
55
Table of Contents
The expected future benefit payments for both pension plans over the next ten years as of December 31, 2021 are as follows:
In thousands
2022
2023
2024
2025
2026
2027 - 2031
Total
$
$
10,973
11,181
11,296
11,364
11,486
57,435
113,735
The Company also has two pension plans in its foreign jurisdictions, the associated pension liabilities are not material.
We also sponsored a 401(k) - retirement plan in which we matched a portion of employees’ voluntary before-tax contributions prior to 2018. Under this plan, both employee and matching
contributions vest immediately. We stopped this 401(k) match program in 2018.
Note I — Income Taxes
Coronavirus Aid, Relief and Economic Security Act
In response to the COVID-19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and
Jobs Act of 2017 (“2017 Tax Act”). Under the CARES Act, corporate taxpayers may carryback net operating losses (“ NOLs”) realized during 2018 through 2020 for up to five years,
which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL
carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income
(30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020
for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act. In addition, the CARES Act raises
the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation.
As of December 31, 2020, the Company filed federal net operating loss carryback claims resulting in an income tax refund for $6.4 million and $3.2 million for tax years 2019 and 2018,
respectively. As of December 31, 2021, the Company has received the tax refunds for the tax years 2019 and 2018 and expects to receive an income tax refund of $7.8 million as a result
of the carryback of the loss generated in 2020.
The components of income tax (benefit) expense are as follows:
In thousands
Current
Federal
State and local
Foreign
Total current
Deferred
Federal
State and local
Foreign
Total deferred
Total income tax expense (benefit)
The U.S. and foreign components of income (loss) before income taxes were as follows:
In thousands
United States
Foreign
Total income (loss) before income taxes
56
Year Ended December 31,
2021
2020
(372) $
856
804
1,288 $
— $
—
—
— $
(17,286)
696
219
(16,371)
1,398
(2,163)
521
(244)
1,288 $
(16,615)
Year Ended December 31,
2021
2020
11,725 $
4,534
16,259 $
(20,683)
2,374
(18,309)
$
$
$
$
$
$
$
Table of Contents
The differences between total income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate of 21% to income (loss) before income taxes were
as follows:
In thousands
Computed expected income tax expense (benefit)
Permanent Differences
Net effect of state income taxes
Foreign subsidiary dividend inclusions
Foreign tax rate differential
Change in valuation allowance
CARES Act NOL Carryback
Stock-based compensation shortfalls
Return to Provision
Change in Rate
Credits
Adjustments to State Attributes
Gain on PPP Loan Forgiveness
Other Adjustments, net
Income tax expense (benefit) for the period
Total income tax expense (benefit) was allocated as follows:
In thousands
Income (loss) from operations
Stockholders’ deficit
Total
Year Ended December 31,
2021
2020
3,413 $
172
520
447
(224)
(1,424)
(343)
(244)
247
(373)
(403)
1,561
(2,122)
61
1,288 $
Year Ended December 31,
2021
2020
1,288 $
—
1,288 $
(3,845)
—
(223)
1,208
281
(7,538)
(6,816)
296
—
—
—
—
—
22
(16,615)
(16,615)
—
(16,615)
$
$
$
$
We expect to receive a total of tax refunds of $17.4 million from NOL Carrybacks pursuant to the CARES Act. This amount is comprised of $9.6 million already received for carryback
claims and we expect a $7.8 million refund from the carryback of the loss generated in 2020.
57
Table of Contents
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:
In thousands
Deferred tax assets
Deferred compensation and retirement plan
Accrued expenses not deductible until paid
Lease liability
Employee stock-based compensation
Accrued payroll not deductible until paid
Accounts receivable, net
Investment in foreign subsidiaries, outside basis difference
Goodwill
Interest Expense limitations
Other, net
Foreign net operating loss carryforwards
State net operating loss carryforwards
Foreign tax credit carryforwards
Federal net operating loss carryforwards
Research & Development Tax Credit Carryforward
Total gross deferred tax assets
Less valuation allowances
Net deferred tax assets
Deferred tax liabilities
Property, plant and equipment
Right-of-use asset
Prepaid Expenses
Other, net
Total gross deferred tax liabilities
Net deferred tax assets (liabilities)
A reconciliation of the beginning and ending balance of deferred tax valuation allowance is as follows:
In thousands
Balance at December 31, 2019
Deferred Income Tax Expense
Return to Provision Impact
Other Comprehensive Income
Balance at December 31, 2020
Deferred Income Tax Expense
Return to Provision Impact
Other Comprehensive Income
Balance at December 31, 2021
Year Ended December 31,
2021
2020
$
$
$
$
13,135 $
181
5,873
385
96
59
1,019
473
1,267
452
1,631
3,475
3,841
—
215
32,102
(25,894)
6,208 $
(897) $
(5,006)
(305)
—
(6,208)
— $
16,541
237
6,346
440
108
53
1,124
581
1,530
440
1,771
4,763
3,653
—
—
37,587
(30,841)
6,746
(625)
(5,583)
(318)
(220)
(6,746)
—
$
$
38,379
(7,534)
12
(16)
30,841
(1,460)
(297)
(3,190)
25,894
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The valuation
allowance for deferred tax assets was $25.9 million and $30.8 million as of December 31, 2021 and 2020, respectively. The amount of the deferred tax asset considered realizable could be
adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present, and
additional weight may be given to subjective evidence such as changes in our growth projections.
We or one of our subsidiaries file income tax returns in the U.S. federal, U.S. state, and foreign jurisdictions. For U.S. state returns, we are no longer subject to tax examinations for years
prior to 2016. For U.S. federal and foreign returns, we are no longer subject to tax examinations for years prior to 2016.
58
Table of Contents
There is no balance of unrecognized tax benefits as of December 31, 2021 and 2020. Any adjustments to this liability as a result of the finalization of audits or potential settlements would
not be material.
We have elected to classify any interest and penalties related to income taxes within income tax expense in our Consolidated Statements of Comprehensive Income (Loss).
For U.S. tax return purposes, net operating losses and tax credits are normally available to be carried forward to future years, subject to limitations as discussed below. As of December
31, 2021, the Company had no federal net operating loss carryforward. The federal foreign tax carryforward credits of $3.8 million will expire on various dates from 2023 to
2031. Federal research and development credit carryforwards of $0.2 million will begin to expire on various dates from 2035 to 2036. The Company has state NOL carryforwards of
$108.9 million, and foreign NOL carryforwards of $5.4 million.
Deferred income taxes have not been provided on the undistributed earnings of our foreign subsidiaries as these earnings have been, and under current plans will continue to be,
permanently reinvested in these subsidiaries. It is not practicable to estimate the amount of additional taxes which may be payable upon the distribution of these earnings. However,
because of the provisions in the Tax Reform Act, the tax cost of repatriation is immaterial and limited to foreign withholding taxes, currency translation and state taxes.
Note J — Earnings Per Share
In periods in which the Company has net income, the Company is required to calculate earnings per share (“EPS”) using the two-class method. The two-class method is required because
the Company’s Series A Preferred Stock is considered a participating security with objectively determinable and non-discretionary dividend participation rights. Series A Preferred
stockholders have the right to participate in dividends above their five percent dividend rate should the Company declare dividends on its common stock at a dividend rate higher than the
five percent (on an as-converted basis). Under the two-class method, undistributed and distributed earnings are allocated on a pro-rata basis to the common and the preferred stockholders.
The weighted-average number of common and preferred stock outstanding during the period is then used to calculate EPS for each class of shares.
In periods in which the Company has a net loss, basic loss per share is calculated using the treasury stock method. The treasury stock method is calculated by dividing the net loss by the
weighted-average number of common shares outstanding during the period. The two-class method is not used, because the calculation would be anti-dilutive.
59
Table of Contents
Reconciliations of basic and diluted EPS are as follows:
In thousands, except per share amounts
Numerator:
Net income (loss)
Less: Preferred stock dividend
Less: Earnings attributable to participating securities
Numerator for basic EPS: income (loss) attributable to common stockholders
Effect of dilutive securities:
Add back: Allocation of earnings to participating securities
Less: Re-allocation of earnings to participating securities considering potentially dilutive securities
Numerator for diluted EPS
Denominator:
Basic EPS denominator: weighted-average common shares outstanding
Diluted EPS denominator
Basic income (loss) per common share
Diluted income (loss) per common share
Year Ended December 31,
2021
2020
$
$
$
$
14,971 $
496
1,858
12,617
1,858
(1,766)
12,709 $
6,802
7,209
1.85 $
1.76 $
(1,694)
496
—
(2,190)
—
—
(2,190)
6,469
6,469
(0.34)
(0.34)
For the years ended December 31, 2021 and 2020, respectively, the following shares have been excluded from the calculation of shares used in the diluted EPS calculation: 46,380 and
31,906 shares of anti-dilutive market price options; 29,983 and 536,189 of anti-dilutive unvested shares; and 1,000,000 and 1,000,000 shares of anti-dilutive Series A Preferred Stock (as if
converted).
Note K — Comprehensive Income (Loss)
Comprehensive income (loss) for a period encompasses net income (loss) and all other changes in equity other than from transactions with our stockholders.
Changes in accumulated other comprehensive loss by component were as follows:
In thousands
Balance at December 31, 2019
Other comprehensive income, net of tax, before reclassifications
Amounts reclassified from accumulated other comprehensive loss, net of tax
Net current period other comprehensive (loss) income, net of tax
Balance at December 31, 2020
Other comprehensive income, net of tax, before reclassifications
Amounts reclassified from accumulated other comprehensive loss, net of tax
Net current period other comprehensive income (loss), net of tax
Balance at December 31, 2021
Defined Benefit
Pension Items
Foreign
Currency Items
Total
$
$
$
(63,887) $
—
(4,657)
(4,657)
(68,544) $
—
14,150
14,150
(54,394) $
$
$
753
2,180
—
2,180
2,933
(1,867)
—
(1,867)
1,066
$
(63,134)
2,180
(4,657)
(2,477)
(65,611)
(1,867)
14,150
12,283
(53,328)
Reclassification amounts related to the defined pension plans are included in the computation of net period pension benefit cost (see Note H, Employee Benefit Plans).
Note L — Litigation and Contingencies
In the normal course of our business, we are obligated under some agreements to indemnify our clients as a result of claims that we infringe on the proprietary rights of third parties. The
terms and duration of these commitments vary and, in some cases, may be indefinite, and certain of these commitments do not limit the maximum amount of future payments we could
become obligated to make thereunder; accordingly, our actual aggregate maximum exposure related to these types of commitments is not reasonably estimable. Historically, we have not
been obligated to make significant payments for obligations of this nature, and no liabilities have been recorded for these obligations in our consolidated financial statements.
We are also subject to various claims and legal proceedings in the ordinary course of conducting our businesses and, from time to time, we may become involved in additional claims and
lawsuits incidental to our businesses. We routinely assess the likelihood of adverse judgments or outcomes to these matters, as well as ranges of probable losses; to the extent losses are
reasonably estimable. Accruals are recorded for these matters to the extent that management concludes a loss is probable and the financial impact, should an adverse outcome occur, is
reasonable estimable.
In the opinion of management, appropriate and adequate accruals for legal matters have been made, and management believes that the probability of a material loss beyond the amounts
accrued is remote. Nevertheless, we cannot predict the impact of future developments affecting our pending or future claims and lawsuits. We expense legal costs as incurred, and all
recorded legal liabilities are adjusted as required as better information becomes available to us. The factors we consider when recording an accrual for contingencies include, among
others: (i) the opinions and views of our legal counsel; (ii) our previous experience; and (iii) the decision of our management as to how we intend to respond to the complaints.
60
Table of Contents
Note M — Certain Relationships and Related Party Transactions
As described in Note F, Long-Term Debt, the Company’s old Texas Capital Credit Facility was secured by HHS Guaranty, LLC, an entity formed to provide credit support for the
Company by certain members of the Shelton family (descendants of one of our founders). In connection with the entry into the New Credit Facility the arrangement was terminated
because Texas Capital Bank did not require third-party credit support for the borrowings under the New Credit Facility.
From 2016 until October 2020, we conducted business with Wipro, whereby Wipro provided us with a variety of technology-related services. We have since terminated all service
agreements with Wipro.
61
Table of Contents
Note N — Restructuring Activities
Our management team continuously reviews and adjusts our cost structure and operating footprint, optimize our operations, and invest in improved technology. During 2020, in an effort
to right-size our operating footprint, we terminated leases in Wilkes Barre (PA) and Grand Prairie (TX) and exited our last direct mail facility in Jacksonville (FL). We completed the
migration of our fulfillment business from the Grand Prairie (TX) operations into a new 400,000 square foot facility in Kansas City (KS) in December 2020. In the first quarter of
2021, we completed the migration of our Shawnee (KS) operations to Kansas City (KS). The Shawnee (KS) facility lease expired on April 30, 2021. The new Kansas City location is
now our primary facility in the Midwest. In 2020, we successfully reduced the footprint of our Customer Care business by reducing our Austin (TX) office location by approximately
50,000 square feet in addition to exiting one of our two Manila offices since the business is operating effectively in a work-from-home environment.
For the years ended December 31, 2021 and 2020, we recorded restructuring charges of $6.4 million and $9.4 million, respectively. The 2021 restructuring charges included $2.5 million
of severance charges, $0.9 million in lease impairment expense and $3.0 million of facility related and other expenses. The 2020 restructuring charges included $3.0 million of lease
impairment charges related to the exit from our direct mail facilities, $2.5 million of severance charges, $1.3 million in capital losses from the asset disposal associated with the Summit
deal and $2.9 million of facility related and other expenses as well as $0.3 million credit to previously accrued contract termination fees.
The following table summarizes the restructuring charges which are recorded in “Restructuring Expense” in the Consolidated Statement of Comprehensive Income (Loss).
In thousands
Adjustment to Contract termination fee
Severance
Facility, asset impairment and other expense
Lease impairment and termination expense
Fixed Asset disposal and impairment charges
Facility and other expenses
Total facility, asset impairment and other expense
Total
The following table summarizes the changes in liabilities related to restructuring activities:
In thousands
Beginning balance:
Additions
Payments
Ending balance:
$
$
Year Ended December
31, 2021
Year Ended December
31, 2020
— $
2,482
868
33
2,976
3,877
6,359 $
$
Year Ended December 31, 2021
Facility, asset
impairment and other
Severance
expense
Total
549
2,478
(2,289)
738
$
$
4 $
2
(6)
— $
(306)
2,495
2,974
1,327
2,884
7,185
9,374
553
2,480
(2,295)
738
In connection with our cost-saving and restructuring initiatives, we incurred total restructuring charges of $27.6 million through the end of 2021. For the years ended December 31,
2021, 2020 and 2019, we recognized $6.4 million, $9.4 million and $11.8 million of restructuring expense, respectively. We do not expect to incur additional restructuring charges
after 2021.
Note O — Segment Reporting
Harte Hanks is a leading global customer experience company. We have organized our operations into three business segments based on the types of products and services we provide:
Marketing Services, Customer Care, Fulfillment & Logistics Services.
Our Marketing Services segment leverages data, insight, and experience to support clients as they engage customers through digital, traditional, and emerging channels. We partner with
clients to develop strategies and tactics to identify and prioritize customer audiences in B2C and B2B transactions. Our key service offerings include strategic business, brand, marketing
and communications planning, data strategy, audience identification and prioritization, predictive modeling, creative development and execution across traditional and digital channels,
website and app development, platform architecture, database build and management, marketing automation, and performance measurement, reporting and optimization.
Our Customer Care segment offers intelligently responsive contact center solutions, which use real-time data to effectively interact with each customer. Customer contacts are handled
through phone, e-mail, social media, text messaging, chat and digital self-service support. We provide these services utilizing our advanced technology infrastructure, human resource
management skills and industry experience.
Our Fulfillment & Logistics Services segment consists of mail and product fulfillment and logistics services. We offer a variety of product fulfillment solutions, including printing on
demand, managing product recalls, and distributing literature and promotional products to support B2B trade, drive marketing campaigns, and improve customer experience. We are also a
provider of third-party logistics and freight optimization in the United States. Prior to the sale of our direct mail equipment in 2020, this segment also included our direct mail operations.
Outsourced direct mail is now included in our Marketing Services segment.
There are three principal financial measures reported to our CEO (the chief operating decision maker) for use in assessing segment performance and allocating resources. Those measures
are revenue, operating income (loss) and operating income (loss) plus depreciation and amortization (“EBITDA”). Operating income (loss) for segment reporting, disclosed below, is
revenues less operating costs and allocated corporate expenses. Segment operating expenses include allocations of certain centrally incurred costs such as employee benefits, occupancy,
information systems, accounting services, internal legal staff, and human resources administration. These costs are allocated based on actual usage or other appropriate methods.
Unallocated corporate expenses are corporate overhead expenses not attributable to the operating groups. Interest income and expense are not allocated to the segments. The Company
does not allocate assets to our reportable segments for internal reporting purposes, nor does our CEO evaluate operating segments using discrete asset information. The accounting
policies of the segments are consistent with those described in the Note A, Overview and Significant Accounting Policies.
62
Table of Contents
The following table presents financial information by segment:
Year ended December 31, 2021
Marketing
Services
Customer Care
Fulfillment &
Logistics
Services
(In thousands)
Restructuring
Unallocated
Corporate
Total
Revenues
Segment operating expense
Restructuring
Contribution margin
Overhead Allocation
EBITDA
Depreciation
Operating income (loss)
Year ended December 31, 2020
Revenues
Segment operating expense
Restructuring
Contribution margin
Overhead Allocation
EBITDA
Depreciation
Operating income (loss)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
56,388
44,251
—
12,137
4,424
7,713
530
7,183
$
$
$
$
$
$
$
$
74,691
59,200
—
15,491
2,922
12,569
849
11,720
$
$
$
$
$
$
$
$
63,517
53,666
—
9,851
3,153
6,698
718
5,980
$
$
$
$
$
$
$
$
$
—
$
—
6,359
$
(6,359) $
—
$
(6,359) $
—
$
(6,359) $
$
—
$
20,922
—
$
(20,922) $
(10,499) $
(10,423) $
462
$
(10,885) $
194,596
178,039
6,359
10,198
—
10,198
2,559
7,639
Marketing
Services
Customer Care
Fulfillment &
Logistics
Services
(In thousands)
Restructuring
Unallocated
Corporate
Total
57,093
46,492
—
10,601
5,043
5,558
603
4,955
$
$
$
$
$
$
$
$
58,668
48,298
—
10,370
3,483
6,887
1,097
5,790
$
$
$
$
$
$
$
$
63
$
61,139
$
58,679
$
—
$
2,460
3,848
$
(1,388) $
1,300
$
(2,688) $
$
—
$
—
9,374
$
(9,374) $
—
$
(9,374) $
—
$
(9,374) $
$
—
$
21,018
—
$
(21,018) $
(12,374) $
(8,644) $
615
$
(9,259) $
176,900
174,487
9,374
(6,961)
—
(6,961)
3,615
(10,576)
Table of Contents
INDEX TO EXHIBITS
We are incorporating certain exhibits listed below by reference to other Harte Hanks filings with the Securities and Exchange Commission, which we have identified in parentheses after
each applicable exhibit.
Exhibit
No.
Charter Documents
Description of Exhibit
3(a)
3(b)
3(c)
3(d)
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).
Certificate of Amendment of Incorporation dated January 31, 2018 (filed as Exhibit 3.2 to the company’s Form 8-A/A dated January 31, 2018).
Certificate of Designation of Series A Preferred Stock of Harte Hanks, Inc. (filed as Exhibit 3.1 to the company's form 8-K dated January 29, 2018).
Fifth Amended and Restated Bylaws (filed as Exhibit 3.1 to the company's Form 8-K dated December 23, 2015).
Credit Agreements
10.1(a)
Loan Agreement, dated December 21, 2021, among Harte Hanks, Inc. the subsidiary guarantors party thereto and Texas Capital Bank, National Association.
10.1(b)
10.1(c)
Security Agreement, dated December 21, 2021, between Harte Hanks, Inc. and Texas Capital Bank, National Association. (filed as Exhibit 10.2 to the company's form 8-
K dated December 21, 2021).
Small Business Administration Paycheck Protection Program Loan Note, dated as of April 14, 2020 (filed as Exhibit 10.1(e) to the company's Form 10-Q for
three months ended March 31, 2020).
Management and Director Compensatory Plans and Forms of Award Agreements
10.2(a)
Harte Hanks, Inc. Restoration Pension Plan (As Amended and Restated Effective January 1, 2008) (filed as Exhibit 10.1 to the company’s Form 8-K dated June 27, 2008).
10.2(b)
10.2(c)
Harte Hanks, Inc. 2005 Omnibus Incentive Plan (As Amended and Restated Effective February 13, 2009) (filed as Exhibit 10.1 to the company’s Form 8-K dated
February 13, 2009).
Amendment to Harte Hanks, Inc. 2005 Omnibus Incentive Plan, dated as of May 12, 2009 (incorporated by reference to Exhibit 4.4 to Harte Hanks Registration
Statement on Form S-8, filed on May 12, 2009).
10.2(d)
Form of 2005 Omnibus Incentive Plan Non-Qualified Stock Option Agreement (filed as Exhibit 10.2(i) to the company’s Form 10-K dated March 7, 2012).
10.2(e)
Form of 2005 Omnibus Incentive Plan Bonus Stock Agreement (filed as Exhibit 10.2(j) to the company’s Form 10-K dated March 7, 2012).
64
Table of Contents
10.2(f)
Form of 2005 Omnibus Incentive Plan Restricted Stock Award Agreement (filed as Exhibit 10.2(k) to the company’s Form 10-K dated March 7, 2012).
10.2(g)
Form of 2005 Omnibus Incentive Plan Performance Unit Award Agreement (filed as Exhibit 10.2(l) to the company’s Form 10-K dated March 7, 2012).
10.2(h)
Summary of Non-Employee Directors’ Compensation (included within the company’s Schedule of 14A proxy statement filed April 11, 2016).
10.2(i)
Harte Hanks, Inc. 2013 Omnibus Incentive Plan (filed as Annex A to the company’s Schedule 14A proxy statement filed April 15, 2013).
10.2(j)
10.2(k)
10.2(l)
10.2(m)
Form of 2013 Omnibus Incentive Plan Non-Qualified Stock Option Agreement (filed as Exhibit 10.4 to the company’s Registration Statement on Form S-8 dated June 7,
2013).
Form of 2013 Omnibus Incentive Plan Restricted Stock Award Agreement (General) (filed as Exhibit 10.1 to the company’s Registration Statement on Form S-8 dated
June 7, 2013).
Form of 2013 Omnibus Incentive Plan Restricted Stock Award Agreement (Director) (filed as Exhibit 10.2 to the company’s Registration Statement on Form S-8 dated
June 7, 2013).
Form of 2013 Omnibus Incentive Plan Performance Unit Award Agreement (filed as Exhibit 10.3 to the company’s Registration Statement on Form S-8 dated June 7,
2013).
10.2(n)
Form of 2013 Omnibus Incentive Plan Performance Restricted Stock Unit Award Agreement
10.2(o)
First Amendment to the Harte Hanks, Inc. Amended & Restated Restoration Pension Plan, dated October 11, 2016 (filed as Exhibit 10.1 to the company's Form 8-K dated
October 14, 2016).
10.2(p)
Form of Restricted Stock Agreement between Harte Hanks, Inc. and Jon C. Biro (filed as Exhibit 10.2 to the company's Form 8-K dated November 17, 2017).
10.2(q)
Form of Non-Qualified Stock Option Agreement between Harte Hanks, Inc. and Jon C. Biro (filed as Exhibit 10.3 to the company's Form 8-K dated November 17, 2017).
10.2(r)
Form of Performance Unit Award Agreement between Harte Hanks, Inc. and Jon C. Biro (filed as Exhibit 10.4 to the company's Form 8-K dated November 17, 2017).
10.2(s)
Harte Hanks, Inc. 2020 Equity Incentive Plan, dated as of August 3, 2020 (incorporated by reference to Appendix A of the Company’s definitive proxy statement on
Schedule 14A as filed with the Commission on May 22, 2020 (SEC File No. 001-07120)).
10.2(t)
Form of Registration Rights Agreement (filed as Exhibit 10.2 to the company's Form 8-K dated January 29, 2018).
65
Table of Contents
Executive Officer Employment-Related and Separation Agreements
10.3(a)
Form of Severance Agreement between the company and its Executive Officers (filed as Exhibit 99.3 to the company’s Form 8-K, dated February 2, 2018).
10.3(b)
Form of Employment Restrictions Agreement signed by the Corporate Officers of the company (filed as Exhibit 10.3 to the company’s Form 8-K dated March 15, 2011).
10.3 (c)
Form of Indemnification Agreement for Directors and Officers (filed as Exhibit 10.1 to the company’s 8-K dated August 2, 2012).
10.3 (d)
Form of Severance Agreement between the company and certain of its officers (filed as Exhibit 10.6 to the company’s 8-K dated June 11, 2013).
10.3 (e)
Executive Severance Policy applicable to the company’s executive officers and certain others (filed as Exhibit 10.1 to the company’s Form 8-K, dated January 30, 2015).
10.3(f)
Release Agreement between the Company and Andrew Bennett, dated as of June 22, 2021 (filed as Exhibit 10.1 to the company's Form 8-K, dated June 23, 2021).
10.3(g)
Employment Agreement between the Company and Brian Linscott, effective as of June 23, 2021 (filed as Exhibit 10.2 to the company's Form 8-K, dated June 23, 2021).
Material Agreements
Cooperation Agreement, dated July 18, 2017, by and among Harte Hanks, Inc., Sidus Investment Management, LLC, Sidus Investment Partners, L.P., Sidus Double
Alpha Fund, L.P., Sidus Double Alpha Fund, Ltd., Sidus Advisors, LLC, Michael J. Barone and Alfred V. Tobia, Jr. (filed as Exhibit 10.1 to the company's Form 8-K
dated July 19, 2017)
Cooperation Agreement dated as of May 17, 2018, by and between Harte Hanks, Inc. Houston H. Harte, Sarah Harte, Carolyn Harte, Larry D. Franklin and the Franklin
Family Foundation (filed as Exhibit 99.1 to the Company's Current Report on Form 8-K dated May 17, 2018).
Cooperation Agreement, dated May 14, 2021, by and among Harte Hanks, Inc., BLR Partners LP, BLRPart, LP, BLRGP Inc., Fondren Management, LP, FMLP Inc., the
Radoff Family Foundation, and Bradley L. Radoff. (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated May 17, 2021)
10.4(a)
10.4 (b)
10.4(c)
Other Exhibits
*10.5
*21.1
*23.1
*31.1
*31.2
*32.1
*32.2
Securities Purchase Agreement, dated January 23, 2018, by and between Harte Hanks, Inc. and Wipro, LLC (filed as Exhibit 10.1 to the company’s Form 8-K dated
January 29, 2018).
Subsidiaries of Harte Hanks, Inc.
Consent of Baker Tilly US LLP
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Furnished Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Furnished Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data Files because its XBRL tags are embedded within the Inline XBRL
Document.
*101.SCH
*101.CAL
*101.LAB
*101.PRE
*101.DEF
*104
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Labels Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Inline XBRL Definition Linkbase Document
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)
*Filed or furnished herewith, as applicable
66
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Harte Hanks, Inc. has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HARTE HANKS, INC.
By:
/s/ Brian Linscott
Brian Linscott
Chief Executive Officer
Date: March 21, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Brian Linscott
Chief Executive Officer
Date: March 21, 2022
John H. Griffin Jr., Director
Date: March 21, 2022
David L. Copeland, Director
Date: March 21, 2022
/s/ Brian Linscott
/s/ Laurilee Kearnes
Laurilee Kearnes
Vice President and Chief Financial Officer
Date: March 21, 2022
/s/ John H. Griffin, Jr.
/s/ Genevieve C. Combes
Genevieve C. Combes, Director
Date: March 21, 2022
/s/ David L. Copeland
/s/ Radoff, Bradley L
Bradley L. Radoff, Director
Date: March 21, 2022
67
HARTE HANKS SUBSIDIARY GOVERNANCE MANUAL
Office of the General Counsel
Last Updated: January 10, 2022
PREFACE
This manual is intended to serve as a general reference guide for employees. It provides basic corporate data about Harte Hanks, Inc., each of its current subsidiaries, contact information
for subsidiary governance support, an overview of the responsibilities of subsidiary officers and directors, and other subsidiary governance information. This manual does not provide a
comprehensive discussion of subsidiary governance matters or local jurisdictional variations with respect to subsidiary governance, and it does not address all potential issues that may
arise in any given situation. For assistance with questions or concerns about a particular matter, please consult with one of the individuals listed on Annex A hereto or any other member of
the legal team.
Overview
Like many large publicly traded companies, we conduct our business through several separate legal entities, known as our subsidiaries. Each of these subsidiaries are owned, directly or
indirectly, by our parent company, Harte Hanks, Inc.
When our employee signs a contract, communicates with a third party or takes other actions in accordance with job responsibilities and internal authority, that employee is ultimately
acting on behalf of Harte Hanks, Inc. or one of its direct or indirect subsidiaries, not on behalf of “Harte Hanks” generally, and not on behalf of all of its subsidiaries.
Why We Have Subsidiaries
Our global entity structure allows us to plan for national and local taxes, reduce the exposure of subsidiaries to legal risks associated with operations of other subsidiaries, and have greater
flexibility in transferring assets. We also want our local subsidiary to have a vested interest in the local community in which they operate.
Powers and Benefits of Subsidiaries
As separate legal entities, each of Harte Hanks, Inc. and its subsidiaries generally has the legal right, subject to appropriate internal corporate authorizations and procedures, to take a
variety of actions in its own name, including entering contracts, making expenditures, opening bank accounts, incurring debt, purchasing equipment and other assets and suing (and being
sued). Each subsidiary generally has its own corporate officers governing bodies (most commonly a board of directors). Ownership of subsidiaries is evidenced by stock equity interests
that are held by Harte Hanks, Inc. or another of its subsidiaries. Because each is a separate legal entity, the liabilities of a subsidiary are generally not attributed to its parent company, any
other subsidiary or any other third party.
Authority
Appropriate corporate authorizations must be obtained prior to entering into a transaction or committing a subsidiary to an obligation. All actions taken by employees on behalf of a
subsidiary, whether signing a contract, making a regulatory filing or taking any other action for which the subsidiary will be responsible, must be properly authorized. Many day-to-day
activities may be generally authorized as part of an employee’s overall responsibilities for the subsidiary and other matters may be authorized under applicable internal delegations of
authority. Some matters, however, may require additional corporate authorizations, such as approved Project Commitment Forms (PCFs), subsidiary board resolutions and/or Harte Hanks,
Inc. board resolutions. Failure to have appropriate internal authorizations prior to entering a transaction or committing a subsidiary to an obligation may subject an employee to
disciplinary action, including termination.
Governance & Obligations
After a subsidiary is formed, we must maintain its separate legal existence to achieve the business, tax, risk and liability allocation and other purposes for which it was formed. This
continuous maintenance may involve, for example, keeping separate minute books, holding annual organizational meetings to elect directors and appoint officers, making required
corporate and tax filings, avoiding commingling funds of one subsidiary with funds of another subsidiary, using appropriate letterhead when communicating with third parties, signing
contracts that correctly identify the contracting subsidiary, conducting inter-company transactions between subsidiaries pursuant to arms-length agreements, maintaining adequate
capitalization and complying with various other corporate formalities. Failure to follow subsidiary governance formalities may in some cases result in the separate legal existence of the
subsidiary being disregarded by a court. In such a case, liability of the disregarded subsidiary could be imposed on owners of that subsidiary or others.
Types and Locations
At present, Harte Hanks has 30 subsidiaries, which are formed in jurisdictions around the world –Philippines, France, England, The Netherlands, as well as U.S. jurisdictions such as
Delaware, California, New York and Florida. These subsidiaries take the form of corporations, limited liability companies and other U.S. and foreign types of entities. The type of legal
entity is chosen depending on the primary purposes for forming the entity, which in turn affects the formation process, ownership structure, liability of owners, system of management, tax
treatment and other aspects of governance.
By Alpha Code
AAC, (CDC) 6
* * *
ABO 7
ACA 8
DBM 9
FLA 10
HBA, (AWB) 11
HDB 12
HDS 13
HFR 14
HGR 15
HHD 16
HHL 18
HHM 19
HHP 20
HJX 21
HKC 22
HNE 23
HSP 24
HTM 25
HTX 26
NMO, (FMO), (SMO), (PMO), (TMO), (MOC) 27
PMB, (NCP), (SDP) 28
ROM 29
SCA, (NCA), (SDA), (WEB) 30
SMI, (MZU), (STS), (TAC), (HHMUS) 31
SSN 32
TRQ……………………….………………………………………………………………………………………… 33
TSS 34
ZHC, (HRM), (MSG), (MAC) 35
ZHH 36
BY LEGAL NAME
HARTE-HANKS DIRECT MARKETING/CINCINNATI, INC. 06
HARTE-HANKS RESPONSE MANAGEMENT/BOSTON, INC. 07
HARTE-HANKS DIRECT MARKETING/FULLERTON, INC. 08
HARTE-HANKS STRATEGIC MARKETING, INC. 09
HARTE-HANKS FLORIDA, INC. 10
HARTE HANKS DIRECT MARKETING/BALTIMORE, INC. 11
HARTE-HANKS DO BRAZIL CONSULTORIA E SERVICOS LTDA. 12
HARTE-HANKS DATA SERVICES LLC 13
HHMIX SAS 14
HARTE-HANKS GMBH 15
HARTE-HANKS DIRECT, INC. 16
HARTE HANKS LOGISTICS, LLC 18
HARTE-HANKS PHILIPPINES, INC. 19
HARTE-HANKS PRINT, INC. 20
HARTE-HANKS DIRECT MARKETING/JACKSONVILLE, LLC 21
HARTE-HANKS DIRECT MARKETING/KANSAS CITY, LLC 22
HARTE HANKS EUROPE B.V. 23
HARTE-HANKS MARKET INTELLIGENCE ESPANA LLC 24
HARTE HANKS UK LIMITED 25
HARTE-HANKS DIRECT MARKETING/DALLAS, INC. 26
NSO, INC. 27
SOUTHERN COMPRINT CO. 28
HARTE-HANKS SRL 29
HARTE-HANKS SHOPPERS, INC. 30
HARTE-HANKS RESPONSE MANAGEMENT/AUSTIN, INC. 31
SALES SUPPORT SERVICES, INC. 32
HARTE HANKS TRANQUILITY LIMITED 33
HARTE-HANKS BELGIUM N.V. 34
HARTE-HANKS STS, INC. 35
HARTE HANKS, INC. 36
STATE OF INCORPORATION:
Ohio
PRINCIPLE OFFICE ADDRESS:
2800 Wells Branch Parkway
Austin, TX 78728
COUNTY IN WHICH LOCATED:
Hamilton
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
Brian Linscott
1,000
1,000
Page Last Updated – June 24, 2021
HARTE-HANKS DIRECT MARKETING/CINCINNATI, INC.
AAC, (CDC)
F.I.N.:
31-0969327
DATE INCORPORATED:
10/01/79
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
$1.00
FOREIGN QUALIFICATIONS:
None
OFFICERS:
Brian Linscott, President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
HARTE-HANKS RESPONSE MANAGEMENT/BOSTON, INC.
ABO
Page Last Updated – June 24, 2021
(12/29/00)
(10/29/14)
(12/04/17)
STATE OF INCORPORATION:
Massachusetts
PRINCIPLE OFFICE ADDRESS:
600 North Bedford Street
East Bridgewater, MA 02333
COUNTY IN WHICH LOCATED:
Norfolk
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
Brian Linscott
Laurilee Kearnes
Jeanne M. Shaunessy
Page Last Updated – June 24, 2021
STATE OF INCORPORATION:
California
PRINCIPLE OFFICE ADDRESS:
2337 West Commonwealth Avenue
Fullerton, CA 92833
COUNTY IN WHICH LOCATED:
Orange
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
Brian Linscott
Laurilee Kearnes
5,000
5,000
1,000
1,000
F.I.N.:
04-2210147
DATE INCORPORATED:
10/22/80
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
NPV
FOREIGN QUALIFICATIONS:
New Jersey
California
Louisiana
Kansas
Missouri
Florida
Texas
North Carolina
New Mexico
Ohio
OFFICERS:
Brian Linscott, President
Jeanne M. Shaunessy, Vice President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
HARTE-HANKS DIRECT MARKETING/FULLERTON, INC.
ACA
F.I.N.:
33-0209712
DATE INCORPORATED:
12/17/86
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
$1.00
FOREIGN QUALIFICATIONS:
None
OFFICERS:
Brian Linscott, President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
STATE OF INCORPORATION:
Delaware
PRINCIPLE OFFICE ADDRESS:
2 Executive Drive
Suite 103
Chelmsford, MA 01824
COUNTY IN WHICH LOCATED:
Middlesex
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
Brian Linscott
Laurilee Kearnes
HARTE-HANKS STRATEGIC MARKETING, INC.
DBM
Page Last Updated – June 24, 2021
F.I.N.:
45-3987467
DATE INCORPORATED:
12/07/2011
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
1,000
1,000
FOREIGN QUALIFICATIONS:
$0.001
Massachusetts
(01/09/12)
OFFICERS:
Brian Linscott, President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
STATE OF INCORPORATION:
Delaware
PRINCIPLE OFFICE ADDRESS:
1101 North Lake Destiny Road
Maitland, FL 32751
COUNTY IN WHICH LOCATED:
Orange
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
Brian Linscott
Laurilee Kearnes
1,000
1,000
Page Last Updated – June 24, 2021
HARTE-HANKS FLORIDA, INC.
FLA
F.I.N.:
20-2495117
DATE INCORPORATED:
03/15/05
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
$.0.01
FOREIGN QUALIFICATIONS:
Florida
OFFICERS:
Brian Linscott, President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
(04/11/05)
STATE OF INCORPORATION:
Maryland
PRINCIPLE OFFICE ADDRESS:
2 Executive Drive, Suite 103
Chelmsford, MA 01824
COUNTY IN WHICH LOCATED:
Baltimore
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES
Authorized:
Outstanding:
1,000
1,000
Page Last Updated – June 24, 2021
HARTE HANKS DIRECT MARKETING/BALTIMORE, INC.
HBA, (AWB)
F.I.N.:
52-1129017
DATE INCORPORATED:
08/21/78
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
$1.00
REGISTERED ASSUMED NAMES:
Harte Hanks Direct Marketing/ Wilkes Barre
FOREIGN QUALIFICATIONS:
Pennsylvania
(01/06/00)
BOARD OF DIRECTORS:
Brian Linscott
Laurilee Kearnes
OFFICERS:
Brian Linscott, President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
HARTE-HANKS DO BRAZIL CONSULTORIA E SERVICOS LTDA.
HDB
Page Last Updated – December 31, 2016
STATE OF INCORPORATION:
N/A
PRINCIPLE OFFICE ADDRESS:
Avenida das Nacoes Unidas, 13797, 19th Floor
San Paulo, Brazil 04795-100
LOCATION OF INCORPORATION:
Brazil (São Paulo County)
OWNED BY:
ZHH (Harte Hanks, Inc.)
QUOTA CAPITAL
R$ 7.660.644,00 (currency Real-R$)
REGISTERED ASSUMED NAMES:
None
OFFICERS AND DIRECTORS:
Carlos Eduardo Prado, General Manager
Maria Auxiliadora Lopes Martins (nominated powers)
COMPANY REGISTRATION NUMBER:
JUCESP- 53.653/07-5
DATE INCORPORATED:
09/20/95
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
FOREIGN QUALIFICATIONS:
None
STATE OF INCORPORATION:
Maryland
PRINCIPLE OFFICE ADDRESS:
2 Executive Drive, Suite 103
Chelmsford, MA 01824
COUNTY IN WHICH LOCATED:
Anne Arundel
OWNED BY:
ZHH (Harte Hanks, Inc.)
MEMBERSHIP UNITS:
100
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
N/A
HARTE-HANKS DATA SERVICES LLC
HDS
Page Last Updated – June 24, 2021
F.I.N.:
52-2206203
DATE ORGANIZED:
12/31/99
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE
N/A
FOREIGN QUALIFICATIONS:
Pennsylvania
Kentucky
OFFICERS:
Brian Linscott, President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
(04/06/04)
(06/16/16)
STATE OF INCORPORATION:
N/A
PRINCIPLE OFFICE ADDRESS:
35 rue des Chantiers
Versailles, 78000, France
LOCATION OF INCORPORATION:
France
OWNED BY:
HNE (Harte Hanks Europe B.V.)
REGISTERED CAPITAL:
10,000 shares of FRF 100
REGISTERED ASSUMED NAMES:
None
DIRECTORS:
Brian Linscott
Page Last Updated – June 24, 2021
HHMIX SAS
HFR
F.I.N.:
98-1084858 (USA)
DATE INCORPORATED:
11/86
AGENT FOR SERVICE OF PROCESS:
N/A
PERCENT OWNED:
100%
PAR VALUE:
N/A
FOREIGN QUALIFICATIONS:
None
OFFICERS:
Brian Linscott, President
Page Last Updated – June 24, 2021
STATE OF INCORPORATION:
N/A
PRINCIPLE OFFICE ADDRESS:
De-Saint-Exupéry-Straße 8
60549 Frankfurt am Main
Deutschland / Germany
LOCATION OF INCORPORATION:
Germany
OWNED BY:
HNE (Harte Hanks Europe B.V.)
REGISTERED CAPITAL:
DM 500,000, divided into one
share of DM 331,600, three
shares of DM 50,000, two
shares of DM 6,700 and one
share of DM 5,000
REGISTERED ASSUMED NAMES:
None
DIRECTOR:
Brian Linscott
HARTE-HANKS GMBH
HGR
F.I.N.:
98-0216643 (USA)
DATE INCORPORATED:
10/08/90
PERCENT OWNED:
100%
FOREIGN QUALIFICATIONS:
None
OFFICERS:
N/A
STATE OF INCORPORATION:
New York
PRINCIPLE OFFICE ADDRESS:
3800 Horizon Blvd.
Suite 500
Trevose, PA 19053
COUNTY IN WHICH LOCATED:
Ulster
OWNED BY:
HHP (Harte-Hanks Print, Inc.)
SHARES
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
The Agency Inside Harte-Hanks
BOARD OF DIRECTORS:
Brian Linscott
Laurilee Kearnes
HARTE-HANKS DIRECT, INC.
HHD
Page Last Updated – June 24, 2021
NPV
(12/19/05)
(07/02/07)
(01/15/08)
(12/22/16)
F.I.N.:
13-3520560
DATE INCORPORATED:
05/02/89
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
200
200
FOREIGN QUALIFICATIONS:
Arizona
Florida
Pennsylvania
Texas
California
Colorado
Connecticut
Georgia
Illinois
Indiana
Maryland
Massachusetts
Michigan
Mississippi
Missouri
New Jersey
New Hampshire
New York
North Carolina
Ohio
Ontario
Tennessee
Texas
Virginia
Washington
Canadian Business Number: 731680724
Canadian Payroll Deductions Program Account:
731680724RP0001
Ontario Corporation Number: 1964654
OFFICERS:
Brian Linscott, President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
STATE OF ORGANIZATION:
Florida
PRINCIPLE OFFICE ADDRESS:
1400 East Newport Center Drive, Suite 200
Deerfield Beach, FL 33442
HARTE HANKS LOGISTICS, LLC
HHL
F.I.N.:
30-0758173
DATE ORGANIZED:
12/12/12
Page Last Updated – June 24, 2021
COUNTY IN WHICH LOCATED:
Broward
OWNED BY:
FLA (Harte-Hanks Florida, Inc. Formally known as
Harte Hanks Flyer, Inc.)
MEMBERSHIP UNITS:
100
FOREIGN QUALIFICATIONS:
California
Georgia
Massachusetts
Minnesota
North Carolina
Pennsylvania
(01/10/13)
(01/09/13)
(01/10/13)
(01/14/13)
(01/08/13)
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
REGISTERED ASSUMED NAMES:
None
SOLE AND MANAGING MEMBER:
Harte-Hanks Florida, Inc.
OFFICERS:
Brian Linscott, President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
Page Last Updated – June 24, 2021
STATE OF INCORPORATION:
N/A
PRINCIPLE OFFICE ADDRESS:
Market Market Mall, 4th Floor
Fort Bonifacio Global City
Taguig (Manila), The Philippines
LOCATION OF INCORPORATION:
Philippines
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
None
HARTE-HANKS PHILIPPINES, INC.
HHM
F.I.N.:
98-1081909 (USA)
DATE INCORPORATED:
11/03/05
P11,200,000.00
P11,200,000.00
PERCENT OWNED:
100%
PAR VALUE:
P100.00
FOREIGN QUALIFICATIONS:
None
OFFICERS AND DIRECTORS:
Jonathan S. Bondoc, President, Director
Marie Cherylle Z. Hular, Director
Martin Ignacio D. Mijares, Director, Secretary
Benjamin Chacko, Director
Amelia Batuhan, Treasurer
Sydney J. Hoffman, Assistant Treasurer
Laurilee Kearnes, Vice President
Page Last Updated – June 24, 2021
STATE OF INCORPORATION:
New Jersey
PRINCIPLE OFFICE ADDRESS:
One Matrix Drive
Monroe Township, NJ 08831
COUNTY IN WHICH LOCATED:
Gloucester
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
Brian Linscott
Laurilee Kearnes
20,000,000
1,000
HARTE-HANKS PRINT, INC.
HHP
F.I.N.:
23-2676694
DATE INCORPORATED:
01/23/92
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
NPV
FOREIGN QUALIFICATIONS:
None
OFFICERS:
Brian Linscott, President
Laurilee Kearnes, Vice President and Treasurer
HARTE-HANKS DIRECT MARKETING/JACKSONVILLE, LLC
HJX
Page Last Updated – June 24, 2021
STATE OF INCORPORATION:
Delaware
PRINCIPLE OFFICE ADDRESS:
2 Executive Drive, Suite 103
Chelmsford, MA 01824
COUNTY IN WHICH LOCATED:
Duval
OWNED BY:
FLA (Harte-Hanks Florida, Inc.)
MEMBERSHIP UNITS:
100
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
N/A
F.I.N.:
59-3759459
DATE ORGANIZED:
11/30/01
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
N/A
FOREIGN QUALIFICATIONS:
Florida
Georgia
Illinois
Kentucky
Maryland
New Mexico
North Carolina
Ohio
Pennsylvania
Texas
OFFICERS:
Richard A. Kegley, President
Brian Linscott, Vice President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
(01/01/02)
STATE OF ORGANIZATION:
Delaware
PRINCIPLE OFFICE ADDRESS:
6700 Orville Avenue, Suite 100
Kansas City, KS 66102-3126
COUNTY IN WHICH LOCATED:
Johnson
OWNED BY:
SSN (Sales Support Services, Inc.)
MEMBERSHIP UNITS:
100
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
N/A
Page Last Updated – June 24, 2021
HARTE-HANKS DIRECT MARKETING/KANSAS CITY, LLC
HKC
F.I.N.:
48-1252793
DATE ORGANIZED:
11/30/01
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
N/A
FOREIGN QUALIFICATIONS:
Kansas
Montana
Maine
OFFICERS:
Brian Linscott, President
Jeanne M. Shaunessy, Vice President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
(03/21/02)
(11/12/09)
(11/19/10)
Page Last Updated – July 30, 2018
STATE OF INCORPORATION:
N/A
PRINCIPLE OFFICE ADDRESS:
Pan-Invest
Prinses Margrietplantsoen 88
2595 BR The Hague
The Netherlands
LOCATION OF INCORPORATION:
Holland (Netherlands)
OWNED BY:
ZHH (Harte Hanks, Inc.)
CAPITAL:
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
None
DIRECTORS:
Wouter Beezemer/Pan-Invest
Brian Linscott
Laurilee Kearnes
NLG 200,000
NLG 40,000
HARTE HANKS EUROPE B.V.
HNE
F.I.N.:
98-1084277 (USA)
DATE INCORPORATED:
08/19/88
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
N/A
FOREIGN QUALIFICATIONS:
None
OFFICERS:
N/A
HARTE-HANKS MARKET INTELLIGENCE ESPANA LLC
HSP
Page Last Updated – June 24, 2021
STATE OF INCORPORATION:
Colorado
PRINCIPLE OFFICE ADDRESS:
Cl Corazon de Maria, No. 6, 3rd Floor, Suites 4 & 5
Madrid 28002
Spain
COUNTY IN WHICH LOCATED:
N/A
OWNED BY:
ZHH (Harte Hanks, Inc.)
MEMBERSHIP UNITS:
100
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
N/A
F.I.N.:
N/A
DATE INCORPORATED:
08/09/91
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
N/A
FOREIGN QUALIFICATIONS:
Spain
OFFICERS:
Brian Linscott, President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
Page Last Updated – January 9, 2019
STATE OF INCORPORATION:
N/A
PRINCIPLE OFFICE ADDRESS:
Spaces, Charter Building
Charter Place
Uxbridge UB8 1JG
United Kingdom
COUNTY IN WHICH LOCATED:
N/A
HARTE HANKS UK LIMITED
HTM (AND FORMER HIA, MZL, SDML)
COMPANY REGISTRATION NUMBER:
02435931
98-1011966 (USA)
DATE INCORPORATED:
10/25/89
AGENT FOR SERVICE OF PROCESS:
CT Corporation
OWNED BY:
ZHH (Harte Hanks, Inc.)
TRQ (Harte Hanks Tranquility Limited)
*ZHH acquired 1 share in TRQ in exchange for 25 shares of HTM, effective 12/30/2018.
PERCENT OWNED:
75%*
25%
100
100
SHARES
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
None
OFFICERS AND DIRECTORS:
Sydney J. Hoffman, Director
Peter J. Kitley, Director
Brian Linscott, President
PAR VALUE:
£1
FOREIGN QUALIFICATIONS:
None
HARTE-HANKS DIRECT MARKETING/DALLAS, INC.
HTX
Page Last Updated – June 24, 2021
STATE OF INCORPORATION:
Delaware
PRINCIPLE OFFICE ADDRESS:
2750 114th Street, Suite 100
Grand Prairie, TX 75050
COUNTY IN WHICH LOCATED:
Tarrant County, Texas
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
Brian Linscott
Laurilee Kearnes
1,000
1,000
F.I.N.:
75-2626529
DATE INCORPORATED:
06/22/07
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
NPV
FOREIGN QUALIFICATIONS:
Texas
OFFICERS:
Brian Linscott, President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
(07/02/07)
NSO, INC.
NMO, (FMO), (SMO), (PMO), (TMO), (MOC)
Page Last Updated – June 24, 2021
STATE OF INCORPORATION:
Ohio
PRINCIPLE OFFICE ADDRESS:
2800 Wells Branch Parkway
Austin, TX 78728
COUNTY IN WHICH LOCATED:
Hamilton
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
Harte Hanks Direct Marketing
(Ohio, California, New Jersey, Texas, Pennsylvania, Delaware, Illinois, New York,
Maryland,
Massachusetts, Florida, Kansas, Kentucky,
Washington)
BOARD OF DIRECTORS:
Brian Linscott
F.I.N.:
31-1190424
DATE INCORPORATED:
11/21/86
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
1,000
1,000
FOREIGN QUALIFICATIONS:
California
$1.00
(12/18/86)
Massachusetts
(12/19/95)
Texas
Pennsylvania
Illinois
Maryland
Florida
(11/07/96)
(12/18/86)
(02/24/87)
(02/17/93)
Colorado
(01/14/16)
(12/07/95)
OFFICERS:
Brian Linscott, President, Secretary and Assistant Treasurer
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
Page Last Updated – June 24, 2021
STATE OF INCORPORATION:
California
PRINCIPLE OFFICE ADDRESS:
2830 Orbiter Street
Brea, CA 92821
COUNTY IN WHICH LOCATED:
Orange
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES:
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
Brian Linscott
Laurilee Kearnes
1,500
1,070
SOUTHERN COMPRINT CO.
PMB, (NCP), (SDP)
F.I.N.:
77-0231595
DATE INCORPORATED:
10/10/89
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
NPV
FOREIGN QUALIFICATIONS:
None
OFFICERS:
Brian Linscott, President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
Page Last Updated – June 24, 2021
STATE OF INCORPORATION:
N/A
PRINCIPLE OFFICE ADDRESS:
IDEO – Sos Pacurari, nr 138,
Iasi, 700521, Romania
LOCATION OF INCORPORATION:
Romania
OWNED BY:
HTM (Harte Hanks UK Limited)
SHARES:
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
None
DIRECTORS:
Peter J. Kitley
Brian Linscott
60 at E6
60 at E6
HARTE-HANKS SRL
ROM
F.I.N.:
98-1082756 (USA)
DATE INCORPORATED:
07/17/06
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
N/A
FOREIGN QUALIFICATIONS:
None
AGENT:
Florea Anca
Page Last Updated – June 24, 2021
STATE OF INCORPORATION:
California
PRINCIPLE OFFICE ADDRESS:
2830 Orbiter Street
Brea, CA 92821
COUNTY IN WHICH LOCATED:
Orange
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES:
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
Brian Linscott
Laurilee Kearnes
250,000
15,174
HARTE-HANKS SHOPPERS, INC.
SCA, (NCA), (SDA), (WEB)
F.I.N.:
95-2269791
DATE INCORPORATED:
04/25/63
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
NPV
FOREIGN QUALIFICATIONS:
None
OFFICERS:
Brian Linscott, President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
HARTE-HANKS RESPONSE MANAGEMENT/AUSTIN, INC.
SMI, (MZU), (STS), (TAC), (HHMUS)
Page Last Updated – June 24, 2021
STATE OF INCORPORATION:
Delaware
PRINCIPLE OFFICE ADDRESS:
2800 Wells Branch Pkwy.
Austin, TX 78728
COUNTY IN WHICH LOCATED:
New Castle
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES:
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
Brian Linscott
Laurilee Kearnes
STATE OF INCORPORATION:
New Jersey
PRINCIPLE OFFICE ADDRESS:
14950 F.A.A. Boulevard, STE. 100
Fort Worth, TX 76155
COUNTY IN WHICH LOCATED:
Middlesex
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES:
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
Harte-Hanks Sales Support
BOARD OF DIRECTORS:
Brian Linscott
Laurilee Kearnes
1,000
1,000
10,000
5,617
F.I.N.:
74-2898255
DATE INCORPORATED:
06/22/07
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
HHS
PAR VALUE:
NPV
FOREIGN QUALIFICATIONS:
Arkansas
Illinois
Kansas
Texas
Florida
New Jersey
New York
OFFICERS:
Brian Linscott, Vice President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
SALES SUPPORT SERVICES, INC.
SSN
F.I.N.:
22-1664923
DATE INCORPORATED:
05/17/60
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
NPV
FOREIGN QUALIFICATIONS:
Texas
California
OFFICERS:
Brian Linscott, President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
(07/02/07)
(07/03/07)
(09/02/16)
Page Last Updated – June 24, 2021
(10/13/86)
(12/22/88)
HARTE HANKS TRANQUILITY LIMITED
TRQ
Page Last Updated – June 24, 2021
STATE OF INCORPORATION:
N/A
PRINCIPLE OFFICE ADDRESS:
Wyvern House, Wyvern Way, Rockingham Road
Uxbridge UB8 2XN
LOCATION OF INCORPORATION:
England & Wales
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES:
Authorized:
Outstanding:
*Effective 12/30/18, TRQ issued 1 additional share of stock to ZHH (increasing the
outstanding shares from 10 to 11) in exchange for 25 shares of HTM.
11*
11*
REGISTERED ASSUMED NAMES:
None
OFFICERS AND DIRECTORS:
Peter J. Kitley, Director
Brian Linscott, Director, Secretary
COMPANY REGISTRATION NUMBER:
10537757
DATE INCORPORATED:
12/22/16
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
£1
FOREIGN QUALIFICATIONS:
None
Page Last Updated – January 10, 2022
STATE OF INCORPORATION:
N/A
PRINCIPLE OFFICE ADDRESS:
Ekkelgaarden 6B
3500 Hasselt, Belgium
LOCATION OF INCORPORATION:
Belgium
OWNED BY:
ZHH (Harte Hanks, Inc.) (624 shares)
HHD (Harte-Hanks Direct, Inc.) (1 share)
HARTE-HANKS BELGIUM N.V.
TSS
F.I.N.:
98-1065119 (USA)
DATE INCORPORATED:
08/17/94
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
REGISTERED CAPITAL:
BEF 6,250,000 represented by registered shares having no par value and numbered 1
through 625
PAR VALUE:
NPV
REGISTERED ASSUMED NAMES:
None
DIRECTORS:
Brian Linscott
Laurilee Kearnes
FOREIGN QUALIFICATIONS:
None
STATE OF INCORPORATION:
Delaware
PRINCIPLE OFFICE ADDRESS:
2800 Wells Branch Parkway
Austin, TX 78728
COUNTY IN WHICH LOCATED:
New Castle
OWNED BY:
ZHH (Harte Hanks, Inc.)
SHARES:
Authorized:
Outstanding:
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
Brian Linscott
Laurilee Kearnes
1,000
1,000
STATE OF INCORPORATION:
Delaware
PRINCIPLE OFFICE ADDRESS
2 Executive Drive, Suite 103
Chelmsford, MA 01824
[Delaware Principle Address:]
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
COUNTY IN WHICH LOCATED:
Bexar County, Texas
SHARES:
Authorized:
Common Stock: 250,000,000
Preferred Stock: 1,000,000
REGISTERED ASSUMED NAMES:
None
BOARD OF DIRECTORS:
John H. Griffin, Jr., Chairman
Brian Linscott
David L. Copeland
Brad Radoff
Genni Combes.
CHIEF EXECUTIVE OFFICER:
Brian Linscott
HARTE-HANKS STS, INC.
ZHC, (HRM), (MSG) , (MAC)
F.I.N.:
20-5779914
DATE INCORPORATED:
10/19/06
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PERCENT OWNED:
100%
PAR VALUE:
$1.00
FOREIGN QUALIFICATIONS:
California
Pennsylvania
Florida
Massachusetts
OFFICERS:
Brian Linscott, President
Carolyn J. DeLuca, Vice President
Laurilee Kearnes, Vice President and Treasurer
Page Last Updated – June 11, 2019
(01/15/08)
(01/15/14)
(01/29/14)
(01/15/14)
Page Last Updated – March 28, 2019
HARTE HANKS, INC.
ZHH
F.I.N.:
74-1677284
DATE INCORPORATED:
10/01/70
AGENT FOR SERVICE OF PROCESS:
CT Corporation
PAR VALUE:
$1.00
FOREIGN QUALIFICATIONS:
Texas
PRESIDENT
Brian Linscott
CHIEF FINANCIAL OFFICER:
Laurilee Kearnes
VICE PRESIDENTS:
LAURILEE KEARNES
(02/18/71)
CONTACT INFORMATION FOR SUBSIDIARY GOVERNANCE SUPPORT
ANNEX A
A number of corporate support groups and other internal personnel play an important role in subsidiary governance matters. These groups provide support through centralized
services. The principal corporate support groups and other internal personnel include:
■ law department – responsible for a variety of subsidiary governance matters, primarily with regard to U.S., or domestic, subsidiaries, including maintaining minute books and
corporate organizational records for domestic subsidiaries; assisting with formation and other organizational matters for new domestic subsidiaries; making periodic secretary
of state filings for annual reports, qualifications to conduct business in jurisdictions other than the state of formation, and “doing business as,” or DBA, renewals for domestic
subsidiaries; administering the annual elections and appointments of domestic subsidiary directors and officers; advising on responsibilities of directors and officers; assisting
local domestic business units in preparing required subsidiary board resolutions; and assisting with the dissolution of inactive domestic subsidiaries;
■ tax department – actively involved in selecting the type of legal entity and jurisdiction of formation for new subsidiaries and in the dissolution and reorganization of existing
subsidiaries; responsible for domestic subsidiary tax filings, subsidiary capitalization and subsidiary tax planning; and manages, together with the finance and accounting
department, the flow of funds among subsidiaries through inter-company loans, dividends and capital contributions;
■ international business units – responsible for overseeing and managing subsidiary governance matters for non-U.S. formed subsidiaries, including maintaining minute books
and corporate organizational records for non-U.S. subsidiaries; assisting with the formation and other organizational matters for new non-U.S. subsidiaries; making periodic
filings for statutory accounts, annual reports, qualifications to conduct business in local jurisdictions other than the jurisdiction of formation, and other locally required filings
and renewals for non-U.S. subsidiaries; administering the annual elections and appointments of non-U.S. subsidiary directors and officers; preparing required board
resolutions for non-U.S. subsidiaries; and assisting with the dissolution of inactive non-U.S. subsidiaries; and
■ finance and accounting department – responsible for financial accounting and reporting for subsidiaries’ activities; actively involved, together with the tax department, in
managing the flow of funds among subsidiaries through inter-company loans, dividends and capital contributions; and assists local business units in establishing and
maintaining subsidiary bank accounts.
The following is a list of helpful contact information to assist employees with questions about subsidiary governance matters.
Law Department
Robert T. Wyman, General Counsel
Carolyn DeLuca, Head of Legal Services
Tax Department
Laurilee Kearnes, CFO
International Subsidiaries
2 Executive Drive, Chelmsford, MA 01824
Robert.Wyman@hartehanks.com
2 Executive Drive, Chelmsford, MA 01824
Carolyn.Deluca@hartehanks.com
2 Executive Drive, Chelmsford, MA 01824
Lauri.Kearnes@hartehanks.com
Syd Hoffman, Group SVP, Finance
(European subsidiaries)
Austin, Texas
Sydney.Hoffman@hartehanks.com
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 033-54303, 333-03045, 333-30995, 333-63105, 333-41370, 333-90022, 333-
127993, 333-159151, 333-189162, 333-189781, 333-227325, 333-227326 and 333-240325) of Harte Hanks, Inc. and Subsidiaries of our report dated March 21, 2022, relating to the
consolidated financial statements of Harte Hanks, Inc. and Subsidiaries as of and for the years ended December 31, 2021 and 2020, which appears in this Annual Report on Form 10-K for
the year ended December 31, 2021.
Exhibit 23.1
/s/ Baker Tilly US, LLP
Tewksbury, Massachusetts
March 21, 2022
Exhibit 31.1
I, Brian Linscot, Chief Executive Officer of Harte Hanks, Inc. (the “Company”), hereby certify that:
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of the Company;
Based on my knowledge, this report does not contain any untrue statement 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 report;
Based on my knowledge, the financial statements, and other financial information included in this 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 this report;
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-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial
reporting.
March 21, 2022
Date
/s/ Brian Linscott
Brian Linscott
Chief Executive Officer
Exhibit 31.2
I, Laurilee Kearnes, Vice President and Chief Financial Officer of Harte Hanks, Inc. (the “Company”), hereby certify that:
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of the Company;
Based on my knowledge, this report does not contain any untrue statement 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 report;
Based on my knowledge, the financial statements, and other financial information included in this 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 this report;
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-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial
reporting.
March 21, 2022
Date
/s/ Laurilee Kearnes
Laurilee Kearnes
Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, Brian Linscott, Chief Executive Officer of Harte Hanks, Inc. (the “Company”), hereby certify that the accompanying report on Form 10-K for the year ended December 31, 2021 and
filed with the Securities and Exchange Commission on the date hereof pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (the “Report”) by the Company
fully complies with the requirements of those sections.
I further certify that, based on my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
March 21, 2022
Date
/s/ Brian Linscott
Brian Linscott
Chief Executive Officer
Note: This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of
2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, Laurilee Kearnes, Vice President and Chief Financial Officer of Harte Hanks, Inc. (the “Company”), hereby certify that the accompanying report on Form 10-K for the year ended
December 31, 2021 and filed with the Securities and Exchange Commission on the date hereof pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (the
“Report”) by the Company fully complies with the requirements of those sections.
I further certify that, based on my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
March 21, 2022
Date
/s/ Laurilee Kearnes
Laurilee Kearnes
Vice President and Chief Financial Officer
Note: This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of
2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.