Our People Make It Happen Harte-Hanks, Inc. • 2001 Annual Report P.O. Box 269 San Antonio, TX 78291-0269 (210) 829-9000 www.harte-hanks.com 1235-AR-02 DIRECT MARKETING Experienced. Customer Relationship Management (CRM) and Marketing Services Our CRM capabilities strengthen the relationships between our clients and their We make customers. We construct and update business-to-business and business-to-consumer Dedicated. Poised for the future. databases. We access the data through flexible hosting capabilities and analyze it happen information to help make it relevant. We apply the knowledge by putting data to for our work via multi-channel marketing programs, and we execute those programs through OUR PEOPLE MAKE IT HAPPEN. our Marketing Services delivery programs. customers. This is the Harte-Hanks definition of direct and interactive marketing services, which we customize to meet individual client needs. Our clients choose one or many of our offerings — and over time have the opportunity to add additional offerings as needed. SHOPPER PUBLICATIONS Each week, nearly 10 million households in California and South Florida receive Harte-Hanks Shopper publications. With more than 800 separate editions, these publications offer flexible zoning and virtually 100% market penetration in their areas of distribution. Also available in searchable, online editions, shopper publications provide a powerful local advertising system. Operating Revenues Operating Income $ $961 $138 140 $918 $118 $830 JAMES DAVIS BILL CARMAN FEDERICO ORTIZ SPENCER JOYNER, JR. BILL GOLDBERG JESSICA HUFF TANN TUELLER KATHY CALTA DEAN BLYTHE 99 00 01 99 00 01 These days, the business world is engaged in a tough management (CRM), related direct and interactive After-Tax Cash Flow Earnings Per Share round of “survival of the fittest.” Obstacles and uncer- marketing solutions, and targeted advertising vehicles. tainties surprise even the most seasoned players. In the $129 $1.23 $ $1.18 end, it is not merely the strongest company that wins, but Our full-service approach — CRM professional services 126 the one that remains focused, is directed with clarity and to implementation to ongoing support; strong product TM TM vision, and adapts to a demanding, changing environment. and service brands including Allink , Trillium , $108 $1.01 nTouch and PennySaver; the use of targeted media Harte-Hanks is that company. As we navigate this from mail to Internet to Web to telephone; end-to-end amounts) per share except (in millions, difficult economic climate, Harte-Hanks is guided firmly execution from design and print to personalized mail by experienced leaders, a strong command of technology and e-mail production; and shopper ads that are highly FINANCIAL HIGHLIGHTS applications and the dedication of our people. We remain targeted by geography and all other cluster groupings unwavering in our commitment to provide our clients that are driven by geography — continues to support with world-class, end-to-end customer relationship our client-centric beliefs at all times. 99 00 01 99 00 01 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 2001 ANNUAL REPORT Company Profile Even in this age of technology, nothing is more important A SOLID HISTORY. A BRIGHT FUTURE. than PEOPLE MAKING IT HAPPEN. Based in San Antonio, TX, Harte-Hanks is a worldwide retail locations while gaining knowledge about their Understanding client needs Facing adversities, challenging ourselves — marketing company that provides end-to-end customer customers in the process. relationship management (CRM) and related and providing the right solutions and winning solutions for businesses and organizations in both Our client roster includes many Fortune 1,000 companies, At Harte-Hanks, our solutions begin with a definitive In 2001, we heard words like “economic uncertainty” consumer and business-to-business markets across including industry leaders in retail, financial services, understanding of our clients, the unique issues they and “recession.” We witnessed unspeakable horror as North America, Europe, South America and the pharmaceuticals/healthcare, high-tech/telecommunications face in their individual markets, and the challenges America came under attack and prepared a defense Pacific Rim. and automotive, among others. presented by their own financial realities. unlike any before in our history. Throughout this difficult time, the people of Harte-Hanks have banded together The people at Harte-Hanks make it happen for our In addition, Harte-Hanks owns and operates shopper Led by top talent in the direct marketing industry, as one company with a stronger understanding of the clients. Our firm grasp of technology enables us to publications that target households based on geography our people work closely with clients to define specific principles we hold dear. In this unpredictable economy, capture, analyze and disseminate customer and prospect and other demographic criteria. Zoned into more than 800 needs and develop goals. By combining extensive we continue our dedication to our clients, and we continue data at all points of contact. Our services help clients editions, our shopper publications reach nearly 10 million knowledge of our clients’ industries and a solid to hold ourselves accountable to our shareholders. generate traffic to Web sites, call/contact centers and households in California and South Florida each week. understanding of technology and its applications, we provide meaningful, measurable solutions. We believe healing and recovery are on the horizon. With strong people and a comforting range of Our leadership role in the CRM arena further helps us competitive advantages, we are confident in our close the loop between our clients and their customers. ability to overcome today’s challenges. We are Employing proven direct and interactive techniques helps 2001 2000 1999 equally confident as we plan to face tomorrow’s us develop effective contact strategies based on purchase challenges with renewed purpose and enthusiasm. patterns, channel preferences and market environments. Operating revenues $917,928 $960,773 $829,752 Operating income 139,630 138,221 118,228 Depreciation 32,079 28,494 24,126 Goodwill and intangible amortization 16,841 15,226 10,662 Operating cash flow (operating income plus depreciation and goodwill and intangible amortization) 188,550 181,941 153,016 After-tax cash flow (net income plus depreciation and goodwill and intangible amortization) 128,604 125,606 107,729 Interest expense 3,076 1,678 349 Net income 79,684 81,886 72,941 Earnings per share (diluted) 1.23 1.18 1.01 (in thousands, except per share amounts) per share except (in thousands, GARY SKIDMORE Capital expenditures 26,445 36,465 28,928 JACQUES KERREST FINANCIAL HIGHLIGHTS Average common and common DONALD CREWS equivalent shares outstanding (diluted) 64,783 69,653 72,144 CHARLES DALL’ACQUA CRAIG COMBEST PETER GORMAN 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 HARTE-HANKS, INC. 2001 ANNUAL REPORT To Our Shareholders To meet and to overcome challenges is why many applications, as well as partnerships with best-of-breed CRM Services offerings and help us capitalize on clients turn to Harte-Hanks. Our people make companies; and a “make it happen” attitude that opportunities in these strategic markets. solutions happen. permeates our delivery. Harte-Hanks continues to invest in its people, as the This year, the United States entered its first recession In Direct Marketing, we have taken advantage of caliber of our professional expertise is our most important in a decade, ending its longest peacetime economic synergies within our company, and rolled out several competitive advantage. During the year, we filled three expansion. The uncertain times were exacerbated new products and services to capitalize on our clients’ key positions through internal promotions — Kathy Calta by September 11. We are thankful that no one at needs for data quality, data management, data analysis, to group president, CRM Database; Bill Goldberg to Harte-Hanks personally experienced a loss in their information application, and direct and interactive president, national sales and strategic markets; and immediate families as a result of this terror. Some marketing services execution. Dave LaGreca to chief information officer, Direct client companies were not so fortunate. Yet we were Marketing. Additionally, Dean Blythe was named all deeply affected. “Getting back to normal” has Helped by these new products and services — Trillium vice president, legal and secretary, replacing Don ® been our nation’s and our business’s mantra. Software System Version 5.0, with Customer Key Crews who retired at the beginning of 2002 after ™ Manager; Allink Connect; Allink Xpert; Allink a long and distinguished career at Harte-Hanks. In this difficult economy, the approximately 7,500 Customer Data Management; Allink Retail Daily Sales people of Harte-Hanks distinguished themselves by Builder; Allink Daily Deposit Builder; Harte-Hanks In November, William K. Gayden was elected to delivering extraordinary results. Throughout this report M/CIS; and CI Technology Database for CRM and for our Board of Directors. Bill is chairman and chief you see names and faces of some great people who E-Business — both Harte-Hanks and its Trillium Software executive officer of Merit Energy Company in “made it happen” in 2001. They are among many division were named to the DM Review 100 as leading Dallas, TX. Before forming Merit Energy in contributors, leaders and performers — too many “business intelligence vendors for CRM.” This double 1989, he was president of Petrus Oil Company, to feature — who dedicate themselves to clients, citation is a first-time achievement for our company.