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'sCompany’s financial statements for external purposes in accordance with U.S. GAAP.
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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.
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.
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.
We have audited the accompanying consolidated balance sheets of Harte Hanks, Inc. and subsidiariesSubsidiaries (the "Company") as of December 31, 20172023 and 2016, and2022, the related consolidated statements of comprehensive income, (loss), changes in stockholders’ equity (deficit), and cash flows, for each of the two years in the period ended December 31, 2017,2023, and the related notes (collectively referred to as the “financial statements”"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, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017,2023, in conformity with accounting principles generally accepted in the United States of America.
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.
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Harte Hanks, Inc.:
We have audited the accompanying consolidated balance sheet of Harte Hanks, Inc. and subsidiaries as of December 31, 2015, and the related consolidated statements of comprehensive income (loss), changes in equity, and cash flows for each of the years in the two-year period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Harte Hanks, Inc. and subsidiaries as of December 31, 2015, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
San Antonio, Texas
March 14, 2016 except for the restatement of discontinued operations in the consolidated balance sheet, statements of comprehensive income (loss), statements of cash flows and Notes A, D, E, H, K, and N, as to which the date is June 16, 2017.
Harte Hanks, Inc. and Subsidiaries Consolidated Balance Sheets |
| | | | | | | | |
| | December 31, |
In thousands, except per share and share amounts | | 2017 | | 2016 |
ASSETS | | |
| | |
|
Current assets | | |
| | |
|
Cash and cash equivalents | | $ | 8,397 |
| | $ | 46,005 |
|
Accounts receivable (less allowance for doubtful accounts of $697 at December 31, 2017 and $1,028 at December 31, 2016) | | 81,397 |
| | 88,813 |
|
Inventory | | 587 |
| | 838 |
|
Prepaid expenses | | 5,039 |
| | 5,944 |
|
Prepaid income tax | | 3,886 |
| | 2,895 |
|
Other current assets | | 3,900 |
| | 4,934 |
|
Total current assets | | 103,206 |
| | 149,429 |
|
Property, plant and equipment | | |
| | |
|
Buildings and improvements | | 16,821 |
| | 18,673 |
|
Software | | 52,967 |
| | 53,672 |
|
Equipment and furniture | | 84,747 |
| | 92,367 |
|
Software development and equipment installations in progress | | 4,005 |
| | 600 |
|
Gross property, plant and equipment | | 158,540 |
| | 165,312 |
|
Less accumulated depreciation and amortization | | (136,753 | ) | | (141,388 | ) |
Net property, plant and equipment | | 21,787 |
| | 23,924 |
|
Goodwill | | — |
| | 34,510 |
|
Other intangible assets (less accumulated amortization of $2,184 at December 31, 2017 and $1,471 at December 31, 2016) | | 2,589 |
| | 3,302 |
|
Other assets | | 3,230 |
| | 2,272 |
|
Total assets | | $ | 130,812 |
| | $ | 213,437 |
|
| | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | |
| | |
|
Current liabilities | | |
| | |
|
Accounts payable | | 36,130 |
| | 45,563 |
|
Accrued payroll and related expenses | | 10,601 |
| | 9,990 |
|
Deferred revenue and customer advances | | 5,342 |
| | 6,505 |
|
Income taxes payable | | — |
| | 30,436 |
|
Customer postage and program deposits | | 11,443 |
| | 7,985 |
|
Other current liabilities | | 3,732 |
| | 4,188 |
|
Total current liabilities | | 67,248 |
| | 104,667 |
|
Pensions | | 59,338 |
| | 60,836 |
|
Contingent consideration | | 33,887 |
| | 29,725 |
|
Deferred tax liability, net | | 773 |
| | 11,044 |
|
Other long-term liabilities | | 4,201 |
| | 4,509 |
|
Total liabilities | | 165,447 |
| | 210,781 |
|
| | | | |
Stockholders’ equity | | |
| | |
|
Common stock, $1 par value, 25,000,000 shares authorized 12,074,661 shares issued at December 31, 2017 and 12,043,673 shares issued at December 31, 2016 | | 12,075 |
| | 12,044 |
|
Additional paid-in capital | | 457,186 |
| | 458,638 |
|
Retained earnings | | 794,583 |
| | 837,316 |
|
Less treasury stock, 5,864,641 shares at cost at December 31, 2017 and 5,879,163 shares at cost at December 31, 2016 | | (1,254,176 | ) | | (1,259,164 | ) |
Accumulated other comprehensive loss | | (44,303 | ) | | (46,178 | ) |
Total stockholders’ equity (deficit) | | (34,635 | ) | | 2,656 |
|
Total liabilities and stockholders’ equity | | $ | 130,812 |
| | $ | 213,437 |
|
See Accompanying Notes to Consolidated Financial Statements. | | | | | | | | | | | | | | |
Harte Hanks, Inc. and Subsidiaries Consolidated Balance Sheets | | December 31, |
In thousands, except per share and share amounts | | 2023 | | 2022 |
ASSETS | | | | |
Current assets | | | | |
Cash and cash equivalents | | $ | 18,364 | | | $ | 10,364 | |
Accounts receivable (less allowance of $474 and $163 at December 31, 2023 and 2022) | | 34,313 | | | 39,700 | |
Contract assets and unbilled accounts receivable | | 7,935 | | | 8,202 | |
Prepaid expenses | | 1,915 | | | 2,176 | |
Prepaid income tax and income tax receivable | | 1,758 | | | 4,262 | |
Other current assets | | 928 | | | 1,607 | |
Total current assets | | 65,213 | | | 66,311 | |
Net property, plant and equipment | | 8,855 | | | 10,523 | |
Right-of-use assets | | 25,417 | | | 19,169 | |
Other assets | | | | |
Intangible assets, net | | 2,820 | | | 3,540 | |
Goodwill | | 1,926 | | | 2,398 | |
Deferred tax assets, net | | 17,268 | | | 16,306 | |
Other long-term assets | | 1,258 | | | 1,737 | |
Total other assets | | 23,272 | | | 23,981 | |
Total assets | | $ | 122,757 | | | $ | 119,984 | |
| | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
Current liabilities | | | | |
Accounts payable and accrued expenses | | $ | 23,176 | | | $ | 22,465 | |
Accrued payroll and related expenses | | 5,615 | | | 6,679 | |
Deferred revenue and customer advances | | 3,195 | | | 4,590 | |
Customer postage and program deposits | | 1,815 | | | 1,223 | |
Other current liabilities | | 9,495 | | | 2,862 | |
Short-term lease liabilities | | 4,815 | | | 5,747 | |
Total current liabilities | | 48,111 | | | 43,566 | |
Pension liabilities - Qualified plans | | 10,540 | | | 18,674 | |
Pension liabilities - Nonqualified plan | | 18,630 | | | 19,098 | |
Long-term lease liabilities | | 23,691 | | | 16,575 | |
Other long-term liabilities | | 1,928 | | | 3,263 | |
Total liabilities | | 102,900 | | | 101,176 | |
| | | | |
Stockholders’ equity | | | | |
Common stock, $1 par value, 25,000,000 shares authorized,12,221,484 shares issued, 7,224,718 and 7,402,614 shares outstanding at December 31, 2023 and 2022, respectively | | 12,221 | | | 12,221 | |
Additional paid-in capital | | 157,889 | | | 218,411 | |
Retained earnings | | 844,920 | | | 846,490 | |
Less treasury stock, 4,996,766 shares at cost at December 31, 2023 and 4,818,870 shares at cost at December 31, 2022 | | (951,083) | | | (1,010,012) | |
Accumulated other comprehensive loss | | (44,090) | | | (48,302) | |
Total stockholders’ equity | | 19,857 | | | 18,808 | |
Total liabilities and stockholders’ equity | | $ | 122,757 | | | $ | 119,984 | |
See Accompanying Notes to Consolidated Financial Statements. |
Harte Hanks, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss)
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands, except per share amounts | | 2017 | | 2016 | | 2015 |
Operating revenues | | $ | 383,906 |
| | $ | 404,412 |
| | $ | 444,166 |
|
Operating expenses | | |
| | |
| | |
|
Labor | | 230,280 |
| | 245,298 |
| | 233,304 |
|
Production and distribution | | 109,090 |
| | 117,126 |
| | 141,920 |
|
Advertising, selling, general and administrative | | 40,384 |
| | 44,804 |
| | 44,579 |
|
Impairment of goodwill | | 34,510 |
| | 38,669 |
| | 209,938 |
|
Depreciation, software and intangible asset amortization | | 10,507 |
| | 12,352 |
| | 12,378 |
|
Total operating expenses | | 424,771 |
| | 458,249 |
| | 642,119 |
|
Operating income (loss) | | (40,865 | ) | | (53,837 | ) | | (197,953 | ) |
Other expenses | | |
| | |
| | |
|
Interest expense, net | | 4,826 |
| | 3,454 |
| | 5,016 |
|
Loss on sale | | — |
| | — |
| | 9,501 |
|
Other, net | | 6,063 |
| | 11,857 |
| | 5,956 |
|
Total other expenses | | 10,889 |
| | 15,311 |
| | 20,473 |
|
Income (loss) from continuing operations before income taxes | | (51,754 | ) | | (69,148 | ) | | (218,426 | ) |
Income tax expense (benefit) | | (9,894 | ) | | 20,630 |
| | (37,360 | ) |
Income (loss) from continuing operations | | $ | (41,860 | ) | | $ | (89,778 | ) | | $ | (181,066 | ) |
| | | | | | |
Income (loss) from discontinued operations, net of income taxes (including loss on disposal of $44,529 at December 31, 2016) | | $ | — |
| | $ | (41,159 | ) | | $ | 10,138 |
|
| | | | | | |
Net income (loss) | | $ | (41,860 | ) | | $ | (130,937 | ) | | $ | (170,928 | ) |
| | | | | | |
Basic earnings (loss) per common share | | |
| | |
| | |
|
Continuing operations | | $ | (6.76 | ) | | $ | (14.60 | ) | | $ | (29.37 | ) |
Discontinued operations | | — |
| | (6.69 | ) | | 1.64 |
|
Basic earnings (loss) per common share | | (6.76 | ) | | $ | (21.29 | ) | | $ | (27.73 | ) |
| | | | | | |
Weighted-average common shares outstanding | | 6,192 |
| | 6,149 |
| | 6,164 |
|
| | | | | | |
Diluted earnings (loss) per common share | | |
| | |
| | |
|
Continuing operations | | $ | (6.76 | ) | | $ | (14.60 | ) | | $ | (29.37 | ) |
Discontinued operations | | — |
| | (6.69 | ) | | 1.64 |
|
Diluted earnings (loss) per common share | | $ | (6.76 | ) | | $ | (21.29 | ) | | $ | (27.73 | ) |
| | | | | | |
Weighted-average common and common equivalent shares outstanding | | 6,192 |
| | 6,149 |
| | 6,164 |
|
| | | | | | |
Net income (loss) | | $ | (41,860 | ) | | $ | (130,937 | ) | | $ | (170,928 | ) |
| | | | | | |
Declared dividends per share | | $ | — |
| | $ | 0.85 |
| | $ | 3.40 |
|
| | | | | | |
Other comprehensive income (loss), net of tax | | |
| | |
| | |
|
Adjustment to pension liability | | $ | 1,559 |
| | $ | (3,062 | ) | | $ | 5,645 |
|
Foreign currency translation adjustments | | 316 |
| | 444 |
| | (1,976 | ) |
Total other comprehensive income (loss), net of tax | | 1,875 |
| | (2,618 | ) | | 3,669 |
|
Comprehensive income (loss) | | $ | (39,985 | ) | | $ | (133,555 | ) | | $ | (167,259 | ) |
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands, except per share amounts | | 2023 | | 2022 |
Operating revenue | | $ | 191,492 | | | $ | 206,278 | |
Operating expenses | | | | |
Labor | | 97,968 | | | 104,620 | |
Production and distribution | | 59,568 | | | 61,930 | |
Advertising, selling, general and administrative | | 20,673 | | | 21,893 | |
Restructuring expense | | 5,687 | | | — | |
Depreciation and amortization expense | | 4,237 | | | 2,728 | |
Total operating expenses | | 188,133 | | | 191,171 | |
Operating income | | 3,359 | | | 15,107 | |
Other expense (income), net | | | | |
Interest (income) expense, net | | (135) | | | 438 | |
Other expense (income), net | | 5,413 | | | (4,644) | |
Total other expense (income), net | | 5,278 | | | (4,206) | |
(Loss) income before income taxes | | (1,919) | | | 19,313 | |
Income tax benefit | | (349) | | | (17,463) | |
Net (loss) income | | $ | (1,570) | | | $ | 36,776 | |
| | | | |
Less: Loss from redemption of Preferred stock | | — | | | 1,380 | |
Less: Preferred stock dividends | | — | | | — | |
Less: Earnings attributable to participating securities | | — | | | — | |
(Loss) income attributable to common stockholders | | $ | (1,570) | | | $ | 35,396 | |
| | | | |
(Loss) earnings per common share | | | | |
Basic | | $ | (0.21) | | | $ | 4.98 | |
Diluted | | $ | (0.21) | | | $ | 4.75 | |
| | | | |
Weighted-average shares used to compute income per share attributable to common shares | | |
Basic | | 7,310 | | 7,101 |
Diluted | | 7,310 | | 7,457 |
| | | | |
Comprehensive income, net of tax | | | | |
Net (loss) income | | $ | (1,570) | | | $ | 36,776 | |
| | | | |
Adjustment to pension liability | | 1,664 | | | 10,274 | |
Foreign currency translation adjustments | | 2,548 | | | (5,248) | |
Total other comprehensive income, net of tax | | 4,212 | | | 5,026 | |
| | | | |
Comprehensive income | | $ | 2,642 | | | $ | 41,802 | |
See Accompanying Notes to Consolidated Financial Statements.
Harte Hanks, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive (loss) income | | Total Stockholders’ Equity (Deficit) |
Balance at December 31, 2021 | | $ | 9,723 | | | $ | 12,121 | | | $ | 290,711 | | | $ | 811,094 | | | $ | (1,085,313) | | | $ | (53,328) | | | $ | (24,715) | |
Redemption of preferred stock | | (9,723) | | | — | | | — | | | (1,380) | | | — | | | — | | | (1,380) | |
Issuance of common stock in connection with redemption of preferred stock | | — | | | 100 | | | 977 | | | — | | | — | | | — | | | 1,077 | |
Stock-based compensation | | — | | | — | | | 2,493 | | | — | | | — | | | — | | | 2,493 | |
Vesting of RSU's and issuance of Treasury stocks in connection with acquisition (see Note L) | | — | | | — | | | (75,770) | | | — | | | 75,301 | | | — | | | (469) | |
Net income | | — | | | — | | | — | | | 36,776 | | | — | | | — | | | 36,776 | |
Other comprehensive income | | | | | | | | | | | | 5,026 | | | 5,026 | |
Balance at December 31, 2022 | | $ | — | | | $ | 12,221 | | | $ | 218,411 | | | $ | 846,490 | | | $ | (1,010,012) | | | $ | (48,302) | | | $ | 18,808 | |
Stock-based compensation | | — | | | — | | | 1,418 | | | — | | | — | | | — | | | 1,418 | |
Vesting of RSU's and issuance of Treasury stocks in connection with acquisition (see Note L) | | — | | | — | | | (61,940) | | | — | | | 61,299 | | | — | | | (641) | |
Repurchase of common stock | | — | | | — | | | — | | | — | | | (2,370) | | | — | | | (2,370) | |
Net loss | | — | | | — | | | — | | | (1,570) | | | — | | | — | | | (1,570) | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 4,212 | | | 4,212 | |
Balance at December 31, 2023 | | $ | — | | | $ | 12,221 | | | $ | 157,889 | | | $ | 844,920 | | | $ | (951,083) | | | $ | (44,090) | | | $ | 19,857 | |
See Accompanying Notes to Consolidated Financial Statements.
Harte Hanks, Inc. and Subsidiaries Consolidated Statements of Cash Flows
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2017 | | 2016 | | 2015 |
Cash Flows from Operating Activities | | |
| | |
| | |
|
Net loss | | $ | (41,860 | ) | | $ | (130,937 | ) | | $ | (170,928 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities | | |
| | |
| | |
|
(Income) loss from discontinued operations, net of tax | | — |
| | 41,159 |
| | (10,138 | ) |
Loss on sale | | — |
| | — |
| | 9,501 |
|
Impairment of goodwill | | 34,510 |
| | 38,669 |
| | 209,938 |
|
Depreciation and software amortization | | 9,791 |
| | 11,531 |
| | 11,719 |
|
Intangible asset amortization | | 713 |
| | 821 |
| | 659 |
|
Stock-based compensation | | 2,662 |
| | 2,673 |
| | 5,442 |
|
Net pension cost (payments) | | 1,100 |
| | 385 |
| | (257 | ) |
Interest accretion on contingent consideration | | 4,162 |
| | 2,430 |
| | 2,337 |
|
Adjustments to fair value of contingent consideration | | — |
| | 7,018 |
| | — |
|
Amortization of debt issuance costs | | — |
| | 208 |
| | 356 |
|
Deferred income taxes | | (10,959 | ) | | 26,290 |
| | (41,569 | ) |
Other, net | | (27 | ) | | (246 | ) | | 319 |
|
Changes in assets and liabilities, net of acquisitions: | | | | | | |
Decrease (increase) in accounts receivable | | 7,416 |
| | 14,945 |
| | 7,238 |
|
Decrease (increase) in inventory | | 251 |
| | 125 |
| | 272 |
|
Decrease (increase) in prepaid expenses and other current assets | | 710 |
| | 2,723 |
| | 954 |
|
Increase (decrease) in accounts payable | | (10,398 | ) | | 9,126 |
| | 1,888 |
|
Increase (decrease) in other accrued expenses and liabilities | | (28,871 | ) | | 23,045 |
| | (10,390 | ) |
Net cash provided by (used in) continuing operations | | (30,800 | ) | | 49,965 |
| | 17,341 |
|
Net cash provided by (used in) discontinued operations | | — |
| | (35,375 | ) | | 15,945 |
|
Net cash provided by (used in) operating activities | | (30,800 | ) | | 14,590 |
| | 33,286 |
|
| | | | | | |
Cash Flows from Investing Activities | | | | | | |
Acquisitions, net of cash acquired | | — |
| | (3,500 | ) | | (29,862 | ) |
Dispositions, net of cash transferred | | — |
| | — |
| | 4,974 |
|
Purchases of property, plant and equipment | | (5,684 | ) | | (6,691 | ) | | (7,907 | ) |
Proceeds from the sale of property, plant and equipment | | 18 |
| | 755 |
| | (76 | ) |
Net cash used in investing activities within continuing operations | | (5,666 | ) | | (9,436 | ) | | (32,871 | ) |
Net cash provided by (used in) investing activities within discontinued operations | | — |
| | 109,139 |
| | (3,269 | ) |
Net cash provided by (used in) investing activities | | (5,666 | ) | | 99,703 |
| | (36,140 | ) |
| | | | | | |
Cash Flows from Financing Activities | | | | | | |
Borrowings | | 30,000 |
| | 276,302 |
| | 13,000 |
|
Repayment of borrowings | | (30,211 | ) | | (353,614 | ) | | (18,375 | ) |
Debt financing costs | | (635 | ) | | (2,484 | ) | | — |
|
Issuance of common stock | | (111 | ) | | (233 | ) | | (909 | ) |
Payment of capital leases | | (501 | ) | | (168 | ) | | — |
|
Excess tax benefits from stock-based compensation | | — |
| | — |
| | 14 |
|
Purchase of treasury stock | | — |
| | — |
| | (4,619 | ) |
Issuance of treasury stock | | — |
| | 186 |
| | 193 |
|
Dividends paid | | — |
| | (5,285 | ) | | (21,241 | ) |
Net cash used in financing activities | | (1,458 | ) | | (85,296 | ) | | (31,937 | ) |
| | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | 316 |
| | 444 |
| | (1,976 | ) |
Net increase (decrease) in cash and cash equivalents | | (37,608 | ) | | 29,441 |
| | (36,767 | ) |
Cash and cash equivalents at beginning of year | | 46,005 |
| | 16,564 |
| | 53,331 |
|
Cash and cash equivalents at end of year | | $ | 8,397 |
| | $ | 46,005 |
| | $ | 16,564 |
|
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2023 | | 2022 |
Cash Flows from Operating Activities | | | | |
Net (loss) income | | $ | (1,570) | | | $ | 36,776 | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities | | |
Depreciation and amortization expense | | 4,237 | | | 2,728 | |
Restructuring expense | | 861 | | | — | |
Stock-based compensation | | 1,418 | | | 2,355 | |
Net pension payment | | 70 | | | (1,009) | |
Deferred income taxes | | (1,474) | | | (19,843) | |
Changes in assets and liabilities, net of dispositions: | | | | |
Accounts receivable, net and contract assets | | 5,654 | | | 3,843 | |
Prepaid expenses, income tax receivable and other current assets | | 3,440 | | | 2,779 | |
Accounts payable and accrued expense | | 844 | | | 6,200 | |
Deferred revenue and customer advances | | (1,395) | | | 383 | |
Customer postage and program deposits | | 592 | | | (5,273) | |
Other accrued expenses and liabilities | | (2,200) | | | (147) | |
Net cash provided by operating activities | | 10,477 | | | 28,792 | |
| | | | |
Cash Flows from Investing Activities | | | | |
Purchases of property, plant and equipment | | (2,812) | | | (5,800) | |
Proceeds from the sale of property, plant and equipment | | 3 | | | 57 | |
Acquisition of InsideOut | | 500 | | | (5,750) | |
Net cash used in investing activities | | (2,309) | | | (11,493) | |
| | | | |
Cash Flows from Financing Activities | | | | |
| | | | |
Repayment of borrowings | | — | | | (5,000) | |
Debt financing costs | | (45) | | | (131) | |
Payment of finance leases | | (160) | | | (194) | |
Redemption of preferred stock | | — | | | (10,026) | |
Repurchase common stock | | (2,370) | | | — | |
Treasury stock activities | | (641) | | | (469) | |
Net cash used in financing activities | | (3,216) | | | (15,820) | |
| | | | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | 2,548 | | | (5,248) | |
| | | | |
Net increase (decrease) in cash and cash equivalents and restricted cash | | 7,500 | | | (3,769) | |
Cash and cash equivalents and restricted cash at beginning of year | | 11,364 | | | 15,133 | |
Cash and cash equivalents and restricted cash at end of year | | $ | 18,864 | | (1) | $ | 11,364 | |
| | | | |
(1) This amount is comprised of the below balances: | | | | |
Cash and cash equivalents | | $ | 18,364 | | | $ | 10,364 | |
Cash held in Escrow account included in other assets (see Note L) | | 500 | | | 1,000 | |
| | $ | 18,864 | | | $ | 11,364 | |
| | | | |
Supplemental disclosures | | | | |
Cash paid for interest | | $ | 244 | | | $ | 273 | |
Cash received for income taxes, net | | $ | (2,899) | | | $ | (1,391) | |
| | | | |
Non-cash investing and financing activities | | | | |
Purchases of property, plant and equipment included in accounts payable and accrued expense | | $ | 1,997 | | | $ | 2,048 | |
Issuance of common stock | | $ | — | | | $ | (1,077) | |
See Accompanying Notes to Consolidated Financial Statements
Harte Hanks, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Continued)
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2017 | | 2016 | | 2015 |
Supplemental disclosures | | | | | | |
Cash paid for interest | | $ | 292 |
| | $ | 5,672 |
| | $ | 1,679 |
|
Cash paid for income taxes, net of refunds | | $ | 32,914 |
| | $ | 2,592 |
| | $ | 10,069 |
|
Non-cash investing and financing activities | | | | | | |
Purchases of property, plant and equipment included in accounts payable | | $ | 1,434 |
| | $ | 298 |
| | $ | 315 |
|
New capital lease obligations | | $ | 57 |
| | $ | 1,259 |
| | $ | 177 |
|
See Accompanying Notes to Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
In thousands, except per share amounts | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income(loss) | | Total Stockholders’ Equity |
Balance at December 31, 2014 | | $ | 11,961 |
| | $ | 453,885 |
| | $ | 1,165,707 |
| | $ | (1,257,648 | ) | | $ | (47,229 | ) | | $ | 326,676 |
|
Exercise of stock options and release of unvested shares | | 54 |
| | 157 |
| | — |
| | (1,120 | ) | | — |
| | (909 | ) |
Net tax effect of stock options exercised and release of unvested shares | | — |
| | 1,742 |
| | — |
| | — |
| | — |
| | 1,742 |
|
Stock-based compensation | | — |
| | 5,733 |
| | — |
| | — |
| | — |
| | 5,733 |
|
Dividends paid ($3.40 per share) | | — |
| | — |
| | (21,241 | ) | | — |
| | — |
| | (21,241 | ) |
Treasury stock issued | | — |
| | (335 | ) | | — |
| | 528 |
| | — |
| | 193 |
|
Purchase of treasury stock | | — |
| | — |
| | — |
| | (4,619 | ) | | — |
| | (4,619 | ) |
Net income | | — |
| | — |
| | (170,928 | ) | | — |
| | — |
| | (170,928 | ) |
Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | 3,669 |
| | 3,669 |
|
Balance at December 31, 2015 | | $ | 12,015 |
| | $ | 461,182 |
| | $ | 973,538 |
| | $ | (1,262,859 | ) | | $ | (43,560 | ) | | $ | 140,316 |
|
Exercise of stock options and release of unvested shares | | 29 |
| | (29 | ) | | — |
| | (233 | ) | | — |
| | (233 | ) |
Net tax effect of stock options exercised and release of unvested shares | | — |
| | (1,259 | ) | | — |
| | — |
| | — |
| | (1,259 | ) |
Stock-based compensation | | — |
| | 2,486 |
| | — |
| | — |
| | — |
| | 2,486 |
|
Dividends paid ($0.85 per share) | | — |
| | — |
| | (5,285 | ) | | — |
| | — |
| | (5,285 | ) |
Treasury stock issued | | — |
| | (3,742 | ) | | — |
| | 3,928 |
| | — |
| | 186 |
|
Net loss | | — |
| | — |
| | (130,937 | ) | | — |
| | — |
| | (130,937 | ) |
Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | (2,618 | ) | | (2,618 | ) |
Balance at December 31, 2016 | | $ | 12,044 |
| | $ | 458,638 |
| | $ | 837,316 |
| | $ | (1,259,164 | ) | | $ | (46,178 | ) | | $ | 2,656 |
|
Cumulative effect of accounting change | | — |
| | 1,050 |
| | (873 | ) | | — |
| | — |
| | 177 |
|
Exercise of stock options and release of unvested shares | | 31 |
| | (30 | ) | | — |
| | (112 | ) | | — |
| | (111 | ) |
Stock-based compensation | | — |
| | 2,457 |
| | — |
| | — |
| | — |
| | 2,457 |
|
Treasury stock issued | | — |
| | (4,929 | ) | | — |
| | 5,100 |
| | — |
| | 171 |
|
Net loss | | — |
| | — |
| | (41,860 | ) | | — |
| | — |
| | (41,860 | ) |
Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | 1,875 |
| | 1,875 |
|
Balance at December 31, 2017 | | $ | 12,075 |
| | $ | 457,186 |
| | $ | 794,583 |
| | $ | (1,254,176 | ) | | $ | (44,303 | ) | | $ | (34,635 | ) |
See Accompanying Notes to Consolidated Financial Statements.
Harte Hanks, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note A — Significant Accounting PoliciesBackground and Basis of Presentation
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.
Basis of Presentation (including principles of consolidation)
Consolidation
The accompanying audited consolidated financial statements and accompanying notes are prepared in accordance with United States Generally Accepted Accounting Principles ("U.S. GAAP").
Consolidation
The accompanying consolidated financial statements presentinclude the financial position and the results of operations and cash flowsaccounts 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 ourits consolidated subsidiaries, or all of them taken as a whole.whole, as the context may require.
Reclassifications
Discontinued Operations
As discussed in Note N, Discontinued Operations, we sold our Trillium reporting unit as of December 23, 2016. As such, the results of operations, financial position, and cash flows for Trillium are reported separately as discontinued operations for all periods presentedCertain amounts in the Consolidated Financial Statements. Results of the remaining Harte Hanks business are reported as continuing operations.
Debt under the 2016 Secured Credit Facility, as defined within Note C, Long-Term Debt, was required to be repaid as a result of the Trillium transaction. In accordance with the provisions of ASC 205-20-45-6, Allocation of Interest to Discontinued Operations, we have reclassified interest expense for the 2016 Secured Credit Facility to discontinued operations for December 31, 2016 in the Consolidated Financial Statements.
Reverse Stock Split
On January 31, 2018, we executed a 1-for-10 reverse stock split (the "Reverse Stock Split"). Pursuantconsolidated financial statements related to the Reverse Stock Split, every 10 pre-split shares were exchanged for one post-split share of the Company's Common Stock. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who would otherwise have held a fractional share of the Common Stock received a cash payment in lieu thereof. In addition, our authorized Common Stock was reduced from 250 million to 25 million shares. The number of authorized shares of preferred stock remains unchanged at one million shares. See Note P, Subsequent Events, for additional information.
The Consolidated Financial Statements and Accompanying Notes to Consolidated Financial Statements give retroactive effect to the Reverse Stock Split for all periods presented, unless otherwise noted. The calculation of basic and diluted earnings (loss) per share have been determined based on a retroactive adjustment of weighted average shares outstanding for all periods presented. The reflect to the reverse stock split on shareholders' equity, an amount equal to the par value of the reduced shares from the common stock par value account was reclassified to additional paid in capital resulting in no net impact to shareholders' equity on the Consolidated Balance Sheets.
Reclassification of Prior Year Amounts
Certain prior year amountsyears have been reclassified to conform to the current yearyear’s presentation. This includes amounts related to discontinued operations, which have been reclassified for comparative purposes in all periods presented. This also includes the retrospective adoption of ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the
Operating Expense Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, resulted in the reclassification of pension expense previously recorded in Labor as of December 31, 2016 to Other, net in the Consolidated Statements of Comprehensive Loss.
Use of Estimates
The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes could differ from those estimates and assumptions. Such estimates include, but are not limited to, estimates related to pension accounting; fair value for purposes of assessing goodwill, long-lived assets, and intangible assets for impairment; income taxes; and contingencies. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances could result in revised estimates and assumptions.
Operating Expense Presentation in 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 along withand temporary labor costs. The “Production and distribution” and “Advertising, selling, general and administrative” lines do not include labor, depreciation, or amortization.amortization expense.
Note B — Significant Accounting Policies
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.
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 and operating income plus depreciation and amortization (EBITDA).
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.
Accounts Receivable and Allowance for Credit Losses
Accounts receivables are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. We make estimates of expected credit and collectability trends for the allowance for credit losses based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current and future economic conditions that may affect the Company's expectation of the collectability in determining the allowance for credit losses. Expected credit losses are recorded in the “Advertising, selling, general, and administrative” line of our Consolidated Statements of Comprehensive Income. As of December 31, 2023 and 2022, our accounts receivables, net, was $34.3 million and $39.7 million, respectively. The Company classifies unbilled receivables as Accounts receivable. The changes in the allowance for credit losses accounts consisted of the following:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2023 | | 2022 |
Balance at beginning of year | | $ | 163 | | | $ | 266 | |
Net charges to expense | | 321 | | | (92) | |
Amounts recovered against the allowance | | (10) | | | (11) | |
Balance at end of year | | $ | 474 | | | $ | 163 | |
Unbilled receivables
For the majority of service contracts, the Company performs the services prior to billing the client, and this amount is captured as an unbilled receivable included in accounts receivable, net on the consolidated balance sheet. Billing usually occurs in the month after the Company performs the services or in accordance with the specific contractual provisions.
Geographic Concentrations
Depending on the needs of our clients, our services are provided through an integrated approach through eleven 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:
| | | | | | | | | | | | | | |
Revenue(1) | | Year Ended December 31, |
In thousands | | 2023 | | 2022 |
United States | | $ | 173,162 | | | $ | 183,470 | |
Other countries | | 18,330 | | | 22,808 | |
Total revenue | | $ | 191,492 | | | $ | 206,278 | |
(1)Geographic revenues are based on the location of the service being performed.
| | | | | | | | | | | | | | |
Property, plant and equipment, net(2) | | December 31, |
In thousands | | 2023 | | 2022 |
United States | | $ | 8,005 | | | $ | 10,219 | |
Other countries | | 850 | | | 304 | |
Total property, plant and equipment | | $ | 8,855 | | | $ | 10,523 | |
(2)Property, plant and equipment are based on physical location.
Credit Risk and Concentration
Accounts receivable are typically unsecured and are derived from revenue earned from customers across different industries and countries. We perform ongoing credit evaluation of our customers and generally do not require collateral. We maintain an allowance for estimated credit losses and bad debt expense on these losses was not material during the years ended December 31, 2023 and 2022. In the event that accounts receivable collection cycle deteriorates, our operating results and financial position could be adversely affected.
Our top customer represented 11.2% and 13.0% of total accounts receivable as of December 31, 2023 and 2022, respectively.
Revenue by Top Customers
The table below sets forth the percentage of our total revenue derived from our largest customers:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | | 2022 |
Top ten customers | | 48.5 | % | | 50.6 | % |
Top twenty-five customers | | 71.7 | % | | 72.5 | % |
Our top customer represented 11.2% and 12.2% of total revenue for the year ended December 31, 2023 and 2022, respectively.
Related Party Transactions
From 2016 until October 2020, we conducted business with Wipro, LLC (“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, for aggregate consideration of $9.9 million. On December 2, 2022, we completed the repurchase of all of our outstanding Preferred Stock from Wipro and as of said date Wipro is no longer a related party.
Revenue Recognition
We recognize revenue when allupon 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 following criteria are satisfied: (i) persuasive evidence of an arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv) the service has been performed or the product has been delivered. In order to recognize revenue, we require either a purchase order, a statement of work signed by the client, a written contract, or some other formcontracts, with a customer
•Identification of written authorization from the client. Revenue thatperformance 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 not recognized at the time of sale becausewhen the foregoing conditions are not met are recognized when those conditions are subsequently met. Revenue is recognizedWe 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.
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 the contact with the client.each contract. These fees are typically a set at a 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 areis 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 areis typically based on a fixed price per month or per contract.
Cash EquivalentsFair Value of Financial Instruments
All highly liquid investments withFinancial 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 original maturity of 90 daysasset or lesspaid to transfer a liability in an orderly transaction between market participants at the timemeasurement date. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs used in valuation methodologies into three levels:
Level 1Quoted prices in active markets for identical assets or liabilities.
Level 2Observable 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 purchasethe assets or liabilities.
Level 3Unobservable inputs that are consideredsupported by little or no market activity and that are significant to bethe 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 equivalents. Cashand cash equivalents are carried at cost, which approximates fair value.
Allowance for Doubtful Accounts
We maintain our allowance for doubtful accounts adequate to reduceand restricted cash, accounts receivable, to the amount of cash expected to be collected.trade payables, and long-term debt. 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 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 consistedfair value of the following:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2017 | | 2016 | | 2015 |
Balance at beginning of year | | $ | 1,028 |
| | $ | 974 |
| | $ | 878 |
|
Net charges to expense | | 192 |
| | 711 |
| | 685 |
|
Amounts recovered against the allowance | | (523 | ) | | (657 | ) | | (589 | ) |
Balance at end of year | | $ | 697 |
| | $ | 1,028 |
| | $ | 974 |
|
Inventory
Inventory, consisting primarily of print materials and operating supplies,assets in our funded pension plan is stated at the lower of cost (first-in, first-out method) or market.
disclosed in Note H, Employee Benefit Plans.
Property, Plant and Equipment
Property, plant and equipment, net consist of the following:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2023 | | 2022 |
Property, plant and equipment | | | | |
Buildings and improvements | | $ | 4,635 | | | $ | 4,387 | |
Equipment and furniture | | 20,881 | | | 20,478 | |
Software | | 18,030 | | | 20,724 | |
Software development and equipment installations in progress | | 1,842 | | | 8,947 | |
Gross property, plant and equipment | | 45,388 | | | 54,536 | |
Less accumulated depreciation | | (36,533) | | | (44,013) | |
Net property, plant and equipment | | $ | 8,855 | | | $ | 10,523 | |
Property, plant and equipment are stated on the basis of cost.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:
| | | | | | | | |
| | Years |
| | | |
Buildings and improvements | | 3 | to | 40 years |
Software | | 2 | to | 10 years |
Equipment and furniture | | 3 | to | 20 years |
For the year ended December 31, 2023, the Company recorded $3.4 million of depreciation expense compared to $2.5 million for the year ended December 31, 2022.
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 did not record an recorded $0.1 million and $0.2 million of impairment of long-lived assets in 2017, 2016, or 2015.2023 and 2022, respectively.
CapitalLeases
We determine if an arrangement is a lease assetsat its inception. Operating and finance leases are included in property, plantthe lease right-of-use (“ROU”) assets and equipment. Capitalin 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 December 31, 2017commencement 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 2016 consisted of: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 |
| | | | | | | | |
| | December 31, |
In thousands | | 2017 | | 2016 |
Equipment and furniture | | $ | 1,774 |
| | $ | 2,357 |
|
Less accumulated depreciation | | (687 | ) | | (903 | ) |
Net book value | | $ | 1,087 |
| | $ | 1,454 |
|
Capitalized software costs for internally developed software and implementation of third-party software are amortized over a period of three to five years. 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.
Goodwill and Other Intangible Assets
Goodwill is recorded to the extent thatamount by which the purchase pricecost of an acquisitionthe acquired net assets in a business combination exceeds the fair value of the identifiable net assets acquired andon the date of purchase. Goodwill is testednot amortized. Goodwill is reviewed for impairment on an annual basis. We have established November 30 asat least annually during the date for our annual test for impairment of goodwill. Interim testing is performedfourth quarter, or more frequently if events or circumstances indicate that itoccur indicating the potential for impairment.
The Company has three reporting segments, but the current goodwill balance is “more likely than not” that goodwill might be impaired. Such events could include changesbooked in the business climate in which we operate, attrition of key personnel,Customer Care segment. During its goodwill impairment review, the current volatility in the capital markets, the company’s market capitalization compared to our book value, our recent operating performance, and financial projections.
Goodwill is tested for impairment by assessingCompany may assess qualitative factors to determine whether the existence of events or circumstances leads to a determination thatit is more likely than not that the fair value of theits reporting unit is less than its carrying amount.amount, including goodwill. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial performance of the Company. If, after assessing the totality of events or circumstances, or based on management's judgment, we determinethese qualitative factors, the Company determines that it is not more likely than not that the fair value of its reporting unit is less than its carrying amount, anthen no additional assessment is deemed necessary. Otherwise, the Company performs a quantitative goodwill impairment testtest. The Company may also elect to bypass the qualitative assessment in a period and elect to proceed to perform the quantitative goodwill impairment test. There is performed using a one-step approach. Theno goodwill impairment as of December 31, 2023.
Intangible Assets
Intangible assets consist of finite-lived intangible assets acquired through the Company’s business combinations. Such amounts are initially recorded at fair value of the reporting unit,and subsequently amortized over their useful lives using the discounted cash flowstraight-line method, is compared to its carrying amount. Ifwhich reflects the carrying amount is greater than the fair value, an impairment loss is recognized in an amount equal to the excess.pattern of benefit, and assumes no residual value.
Our acquired intangible assets are amortized on a straight-line basis over their estimated useful lives, which generally range from two to 10 years. Our acquired intangible assets do not have indefinite lives. Intangible assetsFinite-lived intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require an intangible asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that intangible asset to its carrying amount. If the carrying amount of the intangible asset may not be recoverable. The carrying amount of an intangible asset is not recoverable if iton an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.
The factors that drive the sumestimate of useful life are often uncertain and are reviewed on a periodic basis or when events occur that warrant review. Recoverability is measured by comparing the assets’ book value to future net undiscounted cash flows that the assets are expected to result fromgenerate to determine if a write-down to the use and eventual disposition of the asset.recoverable amount is appropriate. If it is determined thatsuch assets are written down, an impairment loss has occurred, the loss is measuredwill be recognized as the amount by which the carrying amountbook value of the asset group exceeds the recoverable amount. There is no impairment of our intangible asset exceeds its fair value.assets as of December 31, 2023.
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 areis based upon the weighted-average number of common shares outstanding during the period. Diluted earnings per common share areis 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.
Stock-Based Compensation
All share-based awards are recognized as operating expense in the “Labor” line of the Consolidated Statements of Comprehensive Income (Loss).Income. 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 toOur workers’ compensation programs are a guaranteed cost program for our workers' compensation and automobile programs. Prior to the change, our deductible for workers’ compensation was $0.5 million. Our deductible for general liability is $0.3 million.
program. 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. AtOn December 31, 20172023 and 2016,2022, our reserve for healthcare, workers’ compensation, net, automobile, and general liability was $3.5$1.1 million, for the year ended December 31, 2023 and $4.6 million,2022, 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).Income. 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).
Income.
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 loss.income.
Geographic Concentrations
Depending on the needs of our clients, our services are provided in an integrated approach through 32 facilities worldwide, of which 6 are located outside of the U.S.
Information about the operations in different geographic areas:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2017 | | 2016 | | 2015 |
Revenue (1) | | |
| | |
| | |
|
United States | | $ | 330,944 |
| | $ | 324,625 |
| | $ | 377,717 |
|
Other countries | | 52,962 |
| | 79,787 |
| | 66,449 |
|
Total revenue | | $ | 383,906 |
| | $ | 404,412 |
| | $ | 444,166 |
|
|
| | | | | | | | |
| | December 31, |
In thousands | | 2017 | | 2016 |
Property, plant and equipment (2) | | |
| | |
|
United States | | $ | 18,789 |
| | $ | 19,810 |
|
Other countries | | 2,998 |
| | 4,114 |
|
Total property, plant and equipment | | $ | 21,787 |
| | $ | 23,924 |
|
| |
(1) | Geographic revenues are based on the location of the service being performed. |
| |
(2) | Property, plant and equipment are based on physical location. |
Recent Accounting PronouncementsGuidance Not Yet Adopted
RecentlyIn November 2023, the FASB issued accounting pronouncements not yet adoptedstandards update (“ASU”) 2023-07, which enhances the disclosures required for reportable segments in annual and interim consolidated financial statements. ASU 2023-07 is effective for the Company for annual reporting periods beginning with the fiscal year ending November 30, 2025, and for interim reporting periods beginning in fiscal year 2026. Early adoption is permitted. The Company is currently evaluating the impact that this update will have on its disclosures in the consolidated financial statements.
Stock-Based Compensation
In May 2017,December 2023, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope2023-09, which requires enhanced income tax disclosures, including disaggregation of Modification Accounting, which provides clarified guidance on applying modification accounting to changesinformation in the terms or conditions of a share-base payment award. Thisrate reconciliation table and disaggregated information related to income taxes paid. The amendments in ASU is2023-09 are effective for annual periods, and interim periods within those annual periods, beginningthe fiscal year ending after December 15, 2017. This changeNovember 30, 2026. The Company is required to be applied prospectively to an award modified on or after the adoption date. We arecurrently evaluating the effectimpact that this update will have on ourits disclosures in the consolidated financial statements and related disclosures.statements.
Statement of Cash Flows
In August 2016, the FASBNo other new accounting pronouncements recently adopted or issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides clarified guidancehad or are expected to have a material impact on the classification of certain cash receipts and payments in the statement of cash flows. This ASU is effective for annual periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. This change is required to be applied using a retrospective transition method to each period presented. We are evaluating the effect that this will have on our consolidated financial statements and related disclosures.statements.
Leases
Note C - Operating revenue from Contracts with Customers
In February 2016, the FASB issued ASU 2016-02, Leases, which requires all operating leases to be recorded on the balance sheet. The lessee will record a liability for its lease obligations (initially measured at the present value of the future lease payments not yet paid over the lease term, and an asset for its right to use the underlying asset equal to the lease liability, adjusted for lease payments made at or before lease commencement). This ASU is effective for interim and annual periods beginning after December 15, 2018. This change is required to be applied using a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited. Early adoption is permitted. We are evaluating the effect that this will have on our consolidated financial statements and related disclosures.
Revenue Recognition
In May 2014, the FASB issued ASUUnder Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers related to revenue recognition. Under the new standard and its related amendments (collectively known as (“ASC 606)606”), 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 an entity determines 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. The newThis standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The newThis 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.
Disaggregation of Revenue
We disaggregate revenue by three key revenue streams which are aligned with our business segments. The guidance permits two methodsnature of adoption: retrospectivelythe services offered by each key revenue stream is different. The following tables summarize revenue from contracts with customers for the years ended December 31, 2023, and 2022 from our three business segments and the pattern of revenue recognition:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2023 |
In thousands | Revenue for performance obligations recognized over time | | Revenue for performance obligations recognized at a point in time | | Total |
Marketing Services | $ | 38,950 | | | $ | 4,254 | | | $ | 43,204 | |
Customer Care | 63,327 | | | — | | | 63,327 | |
Fulfillment & Logistics Services | 69,038 | | | 15,923 | | | 84,961 | |
Total Revenue | $ | 171,315 | | | $ | 20,177 | | | $ | 191,492 | |
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2022 |
In thousands | Revenue for performance obligations recognized over time | | Revenue for performance obligations recognized at a point in time | | Total |
Marketing Services | $ | 45,020 | | | $ | 7,955 | | | $ | 52,975 | |
Customer Care | 67,205 | | | — | | | 67,205 | |
Fulfillment & Logistics Services | 75,081 | | | 11,017 | | | 86,098 | |
Total Revenue | $ | 187,306 | | | $ | 18,972 | | | $ | 206,278 | |
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 prior reporting period presented (full retrospective method),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 retrospectively withto a distinct good or service that forms part of a single performance obligation. For most performance obligations, we determine SSP based on the cumulative effectprice 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 initially applying the guidance recognized at the dateother performance obligations in each of initial application (modified retrospective method). The new standard is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted, but not before the original effective date of annual reporting periods beginning after December 15, 2016.
We will adopt the new standard on January 1, 2018 utilizing the modified retrospective method. As permitted under the transition guidance, we will apply the new standard only to contracts not completed as of January 1, 2018, which represent contracts for which substantially all of the revenues have not been recognized under existing guidance.
We have established an implementation team to assist with the assessment of the impact that the new standard will have on our operations, consolidated financial statements and related disclosures. We have identified our major revenue streams follows:
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 process of finalizing our assessment and accounting policies, includingbest approach to measure the quantificationprogress toward completion of the expected effect. The adoption of ASC 606 may have a material effectproject-based performance obligations is the input method, which is based on our consolidated financial statements. Based on analysiseither the costs or labor hours incurred to date wedepending upon whether costs or labor hours more accurately depict the transfer of value to the customer.
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 identified the following potential impacts:
Under existing guidance, revenue is recognized upon completion of a specified deliverable or the service. However, the new standard introduced an additional criteria which requires certain performanceconcluded that they are stand-ready obligations to be recognized over time
if on a monthly basis. Our promise to provide certain data related services meets the performance obligation doesover-time recognition criteria because our services do not create an asset with an alternative use, and we have an enforceable right to paymentpayment. 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 performance completedour clients. These contracts may include a promise to date. Wepurchase postage on behalf of our clients. In such cases, we have determined we are currently evaluating the impact of these changes under the new standard.an agent, rather than principal and therefore recognize net consideration as revenue.
Customer Care
We enter intodeliver customer care services in the United States, Asia and Europe to provide advanced solutions such as voice, SMS/chat, email, integrated voice response, web self-service, social cloud monitoring and analytics.
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 which allowprovide us the customer or either partyright to invoice for services provided, therefore, we generally use the ability“as invoiced” practical expedient to terminate the contract for convenience without incurring a substantial termination penalty. Under existing guidance, we consider the stated term as the contract term and account for terminations when they occur. Under the new standard, the contract term is specified as the contractual periodrecognize revenue associated with these performance obligations unless significant discounts are offered in which the parties to the contract have enforceable rights and obligations. We are currently evaluating the impact these provisions may have on the measurement and allocation of the transaction price as well as any revenue recognition timing differences as compared to current guidance.
We perform certain services at the onset of a contract and we may receive a nonrefundable up-front fee from the customerprices for these services. Currently, we recognize these upfront fees when these services are completed. However, under the new standard, if these services do not represent their SSPs.
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 transfer a good or service they may not be deemed a separate performance obligation, which would require revenue recognition over the termpurchase postage on behalf of the contract including any renewal options. We are currently evaluating the impact of these changes under the new standard.
In addition,our clients; in such cases, we have determined we are an agent, rather than principal and therefore recognize net consideration as revenue.
Transaction Price Allocated to Future Performance Obligations
We have elected to apply certain optional exemptions that limit the adoption of this standard will result in several additional disclosures, including but not limited to additional information around our performance obligations, the timing of revenue recognition,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, 2023, 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 assetsasset 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, 2023 and liabilities2022:
| | | | | | | | | | | | | | |
In thousands | | December 31, 2023 | | December 31, 2022 |
Contract assets | | $ | 258 | | | $ | 309 | |
Deferred revenue and customer advances | | 3,195 | | | 4,590 | |
Deferred revenue included in other long-term liabilities | | 294 | | | 432 | |
Revenue recognized during the year ended December 31, 2023 from amounts included in deferred revenue as of December 31, 2022 was approximately $4.3 million. Revenue recognized during the year ended December 31, 2022 from amounts included in deferred revenue as of December 31, 2021 was approximately $3.7 million.
Costs to Obtain and significant judgments made that impactFulfill a Contract
We recognize an asset for the amountdirect costs incurred to obtain and timing of revenue fromfulfill our contracts with customers.customers to the extent that we expect to recover these costs and if the benefit is longer than one year. These additional disclosures will be included incosts are amortized to expense over the Company’s first quarter report on Form 10-Q. In addition, under the modified retrospective method of adoption, we will be required to disclose, for the first year subsequent to adoption, any significant revenue recognition differences under the new standard from what would have been recorded by us had historical revenue recognition guidance continued to be in effect for 2018. We will also be required to disclose the amount of each account impacted as a resultexpected period of the adoptionbenefit in a manner that is consistent with the transfer of the new standardrelated 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 whatother costs that amount would have been under historical revenue recognition guidance during 2018.
This discussion ofrepresents the expected effects of our adoption of ASC 606 represents management’s best estimates of the effects of adopting ASC 606 at the time of the preparation of this Annual Report on Form 10-K. In order to complete this assessment, we are continuing to update and enhance our internal accounting systems and internal controls over financial reporting, which will include new controls around contract inception and contract modifications, as well as periodic reviews of material contracts. In addition, we are continuing to evaluate the impacts of the new guidance, including:
Our determination as to whether contract options represent material rights
Our estimation policies for variable consideration, including usage based fees and fees based on hours incurred.
Our policies to allocate the transaction price to the performance obligations in our contracts, specifically, the determination of standalone selling prices used in the allocation.
The determination of the amounts and amortization periods for costscost to obtain a contract. The remaining unamortized contract thatcosts were $0.6 million and $1.0 million as of December 31, 2023 and 2022, respectively. They are expected to be recognized as assets. In cases whereincluded in other current assets and other assets on our balance sheet. For the period under which such capitalized costs would be amortized is less thanyears 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 electedremaining lease terms of one year to utilizeseven years, some of which may include options to extend the practical expedient method availableleases for up to an additional five years.
We sublease our Fullerton (CA), Jacksonville (FL) and Uxbridge (UK) facilities. The lease and sublease for Fullerton (CA) facility expired in April 2023, the lease and sublease for Uxbridge (UK) facility expired in October 2023, and the lease and sublease for Jacksonville (FL) facility will expire at the end of July 2024.
As of December 31, 2023, assets recorded under the new standard,finance and expense these contract costs as incurred.
Quantification of impacts from adopting the new standard, including income tax impacts.
Recently adopted accounting pronouncements
Employee Benefit Plans
In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires entities to present the service cost component of net benefit cost with the other current compensation costs. All other components of net benefit cost are to be reported outside of operating income. This ASU is effective for annual periods beginning after December 15, 2017, with early adoption permitted. This change is required to be applied using a retrospective transition method for each period presented. We adopted the update as of the first quarter of 2017. As a result of the adoption of this ASU, we reclassified $1.9leases were approximately $0.1 million and $5.3$25.3 million respectively, and accumulated amortization associated with finance leases was $0.1 million. As of pension expenseDecember 31, 2022 assets recorded under finance and operating leases were approximately $0.6 million and $18.6 million respectively, and accumulated depreciation associated with finance leases was $1.0 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 Laborthe 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, 2023, we impaired two 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, 2023. There is no impairment of leases in the year ended December 31, 2022.
The following tables present supplemental balance sheet information related to our financing and operating leases:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2023 | | As of December 31, 2022 |
In thousands | | Operating Leases | | Finance Leases | | Total | | Operating Leases | | Finance Leases | | Total |
Right-of-use Assets | | $ | 25,288 | | | $ | 129 | | | $ | 25,417 | | | $ | 18,574 | | | $ | 595 | | | $ | 19,169 | |
| | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | |
Short-term lease liabilities | | 4,773 | | | 42 | | | 4,815 | | | 5,587 | | | 160 | | | 5,747 | |
Long-term lease liabilities | | 23,687 | | | 4 | | | 23,691 | | | 16,523 | | | 52 | | | 16,575 | |
Total Lease Liabilities | | $ | 28,460 | | | $ | 46 | | | $ | 28,506 | | | $ | 22,110 | | | $ | 212 | | | $ | 22,322 | |
For the years ended December 31, 20162023 and 2015, respectively2022, the components of lease expense were as follows:
| | | | | | | | | | | | | | |
In thousands | | Year Ended December 31, 2023 | | Year Ended December 31, 2022 |
Operating lease cost | | $ | 5,526 | | | $ | 5,832 | |
Finance lease cost | | | | |
Amortization of right-of-use assets | | 123 | | | 166 | |
Interest on lease liabilities | | 7 | | | 16 | |
Total Finance lease cost | | 130 | | | 182 | |
Variable lease cost | | 2,068 | | | 1,899 | |
Sublease income | | (834) | | | (828) | |
Total lease cost, net | | $ | 6,890 | | | $ | 7,085 | |
Other information related to Other, netleases was as follows:
| | | | | | | | | | | | | | |
In thousands | | Year Ended December 31, 2023 | | Year Ended December 31, 2022 |
Supplemental Cash Flows Information | | | | |
| | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | |
Operating cash flows from operating leases | | $ | 12,525 | | | $ | 12,698 | |
Operating cash flows from finance leases | | 21 | | | 15 | |
Financing cash flows from finance leases | | 160 | | | 194 | |
| | | | |
Weighted Average Remaining Lease term (in years) | | | | |
| | | | |
Operating leases | | 6.84 | | 5.92 |
Finance leases | | 1.04 | | 1.36 |
| | | | |
Weighted Average Discount Rate | | | | |
Operating leases | | 5.65 | % | | 3.55 | % |
Finance leases | | 7.76 | % | | 5.70 | % |
The maturities of the Company’s finance and operating lease liabilities as of December 31, 2023 are as follows:
| | | | | | | | | | | | | | |
In thousands | | Operating Leases(1) | | Finance Leases |
Year Ending December 31, | | | | |
2024 | | $ | 6,173 | | | $ | 44 | |
2025 | | 4,648 | | | 3 | |
2026 | | 4,219 | | | 1 | |
2027 | | 4,191 | | | — | |
2028 | | 4,094 | | | — | |
2028 & Beyond | | 11,397 | | | — | |
Total future minimum lease payments | | 34,722 | | | 48 | |
Less: Imputed interest | | 6,262 | | | 2 | |
Total lease liabilities | | $ | 28,460 | | | $ | 46 | |
(1)Non-cancelable sublease proceeds for the fiscal year ending December 31, 2024 of $0.4 million, is not included in the Consolidated Statements of Comprehensive Loss.
Goodwill and Other Intangible Assets
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates step two from the goodwill impairment test. Under the amendments in ASU 2017-04, an entity should
recognize an impairment charge in the amount that the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. We adopted this standard in January 2017, and have applied it as necessary in our consolidated financial statements.
Stock-Based Compensation
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting, which requires entities with share-based payment awards to recognize all related excess tax benefits and tax deficiencies as income tax expenses or benefit in the income statement. This ASU is effective for interim and annual periods beginning after December 15, 2016. We have adopted the update as of the first quarter of 2017. As a result of the adoption of this ASU, excess tax benefits or deficiencies are now reflected in the Consolidated Statements of Comprehensive Loss as a component of income taxes, whereas they previously were recognized in equity. Excess tax benefits are recognized in the Consolidated Statement of Cash Flow as an operating activity, with the prior periods adjusted accordingly. We have elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The ASU was adopted on a modified retrospective basis and no prior periods were restated as a result of this change in accounting policy.
Note B — Fair Value of Financial Instruments
FASB 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:
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| | |
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. |
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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, accounts receivable, and trade payables. The fair value of the assets in our funded pension plan is disclosed in Note F, Employee Benefit Plans. The assumptions used to determine the fair value of our reporting units in Step One and Step Two of our goodwill impairment tests and the discounted cash flow model used to calculate the fair value of our 3Q Digital customer relationship, trade name and non-compete agreement intangible assets are disclosed in Note E, Goodwill and Other Intangible Assets. The summary of our acquisition related contingent consideration accounted for at fair value on a recurring basis is disclosed in Note M, Acquisition and Disposition.
Note C — Long-Term Debt
table above.
As of December 31, 20172023, we have no new operating leases that have not yet commenced.
Note E - Convertible Preferred Stock and Share Repurchase Program
Convertible Preferred Stock
Our Amended and Restated Certificate of Incorporation authorizes us to issue 1.0 million shares of preferred stock. On June 30, 2022, the Texas Capital FacilityCompany entered into a share repurchase agreement (the “Repurchase Agreement”) with Wipro, pursuant to which the Company agreed to repurchase all 9,926 shares of the Preferred Stock then outstanding in exchange for (i) a cash payment equal to its liquidation value, or total cash payment of $9,926,000 and (ii) 100,000 shares of the Company’s common stock, par value $1.00 per share (the “Common Stock”). The cash portion of the repurchase price was outstanding, butpreviously paid into escrow at eachthe signing of the Repurchase Agreement on June 30, 2022 and held in escrow until the closing of yearsthe repurchase by PNC Bank, National Association, pending the re-issuance of the Preferred Stock from the State of New Jersey. Other than the release of previously escrowed funds, no additional cash was paid by Harte Hanks at closing. On December 2, 2022, we completed the closing of our June 30, 2022 definitive agreement with Wipro.
On March 20, 2023, the Company cancelled all shares of Series A Preferred Stock pursuant to the Certificate of Elimination filed with the Secretary of State of Delaware.
Share Repurchase Program
On May 2, 2023, the Board of Directors of Harte Hanks approved a share repurchase program to maximize shareholder value with authorization to repurchase $6.5 million of the Company’s Common Stock. In the year ended December 31, 2017 and 2016,2023, we had no debt outstanding.repurchased 0.4 million shares of common stock for $2.4 million.
Note F — Long-Term Debt
Credit Facilities
Facility
On March 10, 2016, weDecember 21, 2021, the Company entered into a secured credit facility with Wells Fargo Bank, N.A. as Administrative Agent, consisting of a maximum $65.0new three year, $25.0 million asset-based revolving credit facility (the "2016 Revolving Credit Facility"“Credit Facility”), and a $45.0 million term loan facility (the "2016 Term Loan", and together with Texas Capital Bank ("TCB"). The Company’s obligations under the 2016 Revolving Credit Facility are guaranteed on a joint and several basis by the "2016 Secured Credit Facility"Company’s material subsidiaries (the “Guarantors”). The 2016 Secured Credit Facility wasis secured by substantially all the assets of our assetsthe Company and material domestic subsidiaries.the Guarantors pursuant to a Pledge and Security Agreement, dated as of December 21, 2021, between the Company, TCB and the other Guarantors party thereto (the “Security Agreement”). On December 29, 2023, the Company extended the agreement six months to June 30, 2025. The 2016 Securedextension was executed with substantially similar terms and conditions.
The Credit Facility was usedprovides for general corporate purposes,loans up to the lesser of (a) $25.0 million, and (b) the amount available under a “borrowing base” calculated primarily by reference to replace,the Company's cash and repay remaining outstanding balances on our prior debt.
Prepayment of the 2016 Securedcash equivalents and accounts receivables. The Credit Facility allows the Company to use up to $3.0 million on of its borrowing capacity to issue letters of credit.
The loans under the Credit Facility accrue interest at a varying rate equal to the Secured Overnight Financing Rate (SOFR) plus a margin of 2.25% per annum. The interest rate was required upon7.64% as of December 31, 2023. The outstanding amounts advanced under the completion of the sale of Trillium in accordance with its amended terms. The proceeds of the Trillium sale were used to repayCredit Facility are due and payable in full allon June 30, 2025. As of December 31, 2023 and 2022, we had no borrowings outstanding loans, together with interest,under the Credit Facility. As of December 31, 2023 and all other amounts due in connection with repayment (including prepayment penalties of approximately $1.3 million). The credit and guarantee agreements related to the 2016 Secured Credit Facility were likewise terminated.
On April 17, 2017,2022, we entered into a secured credit facility with Texas Capital Bank, N.A., that provides a $20 million revolving credit facility (the "Texas Capital Credit Facility"). The Texas Capital Credit Facility is being used for general corporate purposes and to provide collateral for up to $5.0 million ofhad letters of credit issued by Texas Capital Bank. The Texas Capital Credit Facility is
secured by substantially alloutstanding in the amount of the company's assets$0.8 million. No amounts were drawn against these letters of credit as of December 31, 2023 . These letters of credit exist to support insurance programs relating to workers‘ compensation, automobile, and is guaranteed by HHS Guaranty, LLC, an entity formed to provide credit support for Harte Hanks by certain membersgeneral liability. Unused commitment balances accrued fees at a rate of the Shelton family (descendants of one of our founders)0.25%.
On January 9, 2018,As of December 31, 2023, we entered intohad the ability to borrow an amendment (the "First Amendment") to the Texas Capital Credit Facility. The First Amendment (i) increases the availabilityadditional $24.2 million under the revolving credit facility from $20 million to $22 million and (ii) extends the Texas Capital Credit Facility one year to April 17, 2020. The Credit Facility remains secured by substantially all of our assets. Our fee for the collateral balance provided by HHS Guaranty, LLC also changed from an annual fee of $0.5 million to 0.5% of collateral actually pledged; we expect that the fees payable to HHS Guaranty will be substantially similar in amount under the new terms.
Pursuant to the First Amendment, the Texas Capital Credit Facility expires on April 17, 2020 at which point all outstanding principal amounts will be due. Harte Hanks can elect to accrue interest on outstanding principal balances at either LIBOR plus 1.95% or prime plus 0.75%. Unused credit balances will accrue interest at 0.50%.
The Texas Capital Credit Facility is 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. We were in compliance with all of the covenants of our credit facility at December 31, 2017.
Facility.
Cash payments for interest were $0.3 million, $5.7$0.2 million and $1.7$0.3 million for the years ended December 31, 2017, 2016,2023 and 2015,2022, respectively.
Note D — Income Taxes
The components of income tax expense (benefit) are as follows:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2017 | | 2016 | | 2015 |
Current | | |
| | |
| | |
|
Federal | | $ | 348 |
| | $ | (6,360 | ) | | $ | 2,920 |
|
State and local | | 245 |
| | (107 | ) | | 744 |
|
Foreign | | 472 |
| | 807 |
| | 545 |
|
Total current | | $ | 1,065 |
| | $ | (5,660 | ) | | $ | 4,209 |
|
| | | | | | |
Deferred | | |
| | |
| | |
|
Federal | | $ | (9,886 | ) | | $ | 18,619 |
| | $ | (38,048 | ) |
State and local | | (747 | ) | | 7,655 |
| | (3,523 | ) |
Foreign | | (326 | ) | | 16 |
| | 2 |
|
Total deferred | | $ | (10,959 | ) | | $ | 26,290 |
| | $ | (41,569 | ) |
| | | | | | |
Total income tax expense (benefit) | | $ | (9,894 | ) | | $ | 20,630 |
| | $ | (37,360 | ) |
The U.S. and foreign components of income (loss) from continuing operations before income taxes were as follows:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2017 | | 2016 | | 2015 |
United States | | $ | (49,731 | ) | | $ | (66,828 | ) | | $ | (217,920 | ) |
Foreign | | (2,023 | ) | | (2,320 | ) | | (506 | ) |
Total income (loss) from continuing operations before income taxes | | $ | (51,754 | ) | | $ | (69,148 | ) | | $ | (218,426 | ) |
The differences between total income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate to income (loss) before income taxes were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2017 | | Rate | | 2016 | | Rate | | 2015 | | Rate |
Computed expected income tax expense (benefit) | | $ | (18,114 | ) | | 35.0 | % | | $ | (24,202 | ) | | 35.0 | % | | $ | (76,449 | ) | | 35.0 | % |
Goodwill impairment basis difference | | 6,000 |
| | -11.6 | % | | 6,275 |
| | -9.1 | % | | 36,664 |
| | -16.8 | % |
Sold operations basis difference | | — |
| | — | % | | — |
| | — | % | | 686 |
| | -0.3 | % |
Net effect of state income taxes | | (559 | ) | | 1.1 | % | | (954 | ) | | 1.4 | % | | 178 |
| | -0.1 | % |
Foreign subsidiary dividend inclusions | | 440 |
| | -0.8 | % | | 843 |
| | -1.2 | % | | 557 |
| | -0.3 | % |
Foreign tax rate differential | | 187 |
| | -0.4 | % | | 722 |
| | -1.0 | % | | 291 |
| | -0.1 | % |
Change in valuation allowance | | 2,265 |
| | -4.4 | % | | 34,478 |
| | -49.9 | % | | (153 | ) | | 0.1 | % |
Non-deductible interest | | 1,280 |
| | -2.5 | % | | 3,219 |
| | -4.7 | % | | 715 |
| | -0.3 | % |
Stock-based compensation shortfalls | | 1,373 |
| | -2.7 | % | | — |
| | — | % | | — |
| | — | % |
Change in valuation allowance due to tax reform | | (13,821 | ) | | 26.7 | % | | — |
| | — | % | | — |
| | — | % |
Change in U.S. tax rate due to tax reform | | 10,391 |
| | -20.1 | % | | — |
| | — | % | | — |
| | — | % |
Other, net | | 664 |
| | -1.2 | % | | 249 |
| | -0.4 | % | | 151 |
| | -0.1 | % |
Income tax expense (benefit) for the period | | $ | (9,894 | ) | | 19.1 | % | | $ | 20,630 |
| | -29.9 | % | | $ | (37,360 | ) | | 17.1 | % |
Total income tax expense (benefit) was allocated as follows:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2017 | | 2016 | | 2015 |
Continuing operations | | $ | (9,894 | ) | | $ | 20,630 |
| | $ | (37,360 | ) |
Discontinued operations | | — |
| | 8,994 |
| | 5,446 |
|
Loss on sale of discontinued operations | | — |
| | (4,600 | ) | | — |
|
Stockholders’ equity | | 755 |
| | (782 | ) | | 2,021 |
|
Total | | $ | (9,139 | ) | | $ | 24,242 |
| | $ | (29,893 | ) |
The U.S. Tax Cuts and Jobs Act (the "Tax Reform Act”) was enacted on December 22, 2017. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a one-time repatriation tax on deemed repatriated earnings of foreign subsidiaries (the “transition tax”). The Tax Reform Act permanently reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. The main impact of the Tax Reform Act on our 2017 financial statement is the re-measurement of deferred tax balances to the new corporate tax rate, in which we recorded a deferred tax benefit of $3.4 million.
Due to the complexities involved in accounting for the recently enacted Tax Reform Act, the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 118 requires that the company include in its financial statements the reasonable estimate of the impact of the Tax Reform Act on earnings to the extent such reasonable estimate has been determined. Accordingly, our U.S. provision for income tax for 2017 is based on the reasonable estimate guidance provided by SAB 118.
Additionally, we have made a provisional estimate for the transition tax. Due to net deficits in our total accumulated post-1986 foreign earnings and profits that were previously deferred from U.S. income tax, we believe that the company will not be subject to the transition tax, and therefore we have not recorded an income tax effect for the transition tax in the current period. We will update this estimate, if necessary, as the accounting for this is complete.
Effective in 2018, the Tax Reform Act also includes a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and a base erosion anti-abuse tax (“BEAT”) measure that taxes certain payments between a U.S. corporation and its foreign subsidiaries. We do not expect that the company will be subject to these taxes and therefore we have not included any tax impacts of GILTI and BEAT in our 2017 financial statements.
We do not have all of the necessary information available to determine a reasonable estimate of the tax liability, if any, under the Tax Reform Act for our remaining outside basis difference in our foreign subsidiaries or to evaluate how the Tax Reform Act will affect our existing accounting position to indefinitely reinvest unremitted foreign earnings. We will continue to apply our existing accounting for this matter under ASC 740, Income Taxes, based on the tax law in effect prior to the enactment of the Tax Reform Act.
We re-measured the applicable deferred tax assets and liabilities based on the rates at which they are expected to reverse. However, we are still analyzing certain aspects of the Tax Reform Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.
We will continue to assess the impact from the Tax Reform Act throughout the one-year measurement period as provided by SAB 118 and will record adjustments, if necessary, in 2018.
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:
|
| | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2017 | | 2016 |
Deferred tax assets | | | | |
Deferred compensation and retirement plan | | $ | 15,017 |
| | $ | 24,715 |
|
Accrued expenses not deductible until paid | | 1,619 |
| | 3,508 |
|
Employee stock-based compensation | | 1,757 |
| | 3,321 |
|
Accrued payroll not deductible until paid | | 1,111 |
| | 1,400 |
|
Accounts receivable, net | | 179 |
| | 406 |
|
Goodwill | | 700 |
| | — |
|
Other, net | | 290 |
| | 393 |
|
Foreign net operating loss carryforwards | | 2,887 |
| | 2,271 |
|
State net operating loss carryforwards | | 3,978 |
| | 3,349 |
|
Foreign tax credit carryforwards | | 3,653 |
| | 785 |
|
Total gross deferred tax assets | | 31,191 |
| | 40,148 |
|
Less valuation allowances | | (28,350 | ) | | (40,148 | ) |
Net deferred tax assets | | $ | 2,841 |
| | $ | — |
|
| | | | |
Deferred tax liabilities | | |
| | |
|
Property, plant and equipment | | $ | (1,941 | ) | | $ | (3,060 | ) |
Goodwill and other intangibles | | (701 | ) | | (6,800 | ) |
Other, net | | (972 | ) | | (1,184 | ) |
Total gross deferred tax liabilities | | (3,614 | ) | | (11,044 | ) |
Net deferred tax liabilities | | $ | (773 | ) | | $ | (11,044 | ) |
A reconciliation of the beginning and ending balance of deferred tax valuation allowance is as follows:
|
| | | | |
In thousands | | |
Balance at December 31, 2015 | | $ | 9,958 |
|
Additions: | | |
Charged to cost and expenses | | 37,798 |
|
Deductions | | (7,608 | ) |
Balance at December 31, 2016 | | $ | 40,148 |
|
Additions: | | |
Charged to cost and expenses | | 4,111 |
|
Deductions | | (15,909 | ) |
Balance at December 31, 2017 | | $ | 28,350 |
|
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 $28.4 million and $40.1 million at December 31, 2017 and 2016, respectively. We recorded a $13.8 million deferred income tax benefit related to implementation of the applicable provisions of the Tax Reform Act. 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. federal, U.S. state, and foreign returns, we are no longer subject to tax examinations for years prior to 2013.
A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:
|
| | | | |
In thousands | | |
Balance at December 31, 2014 | | $ | — |
|
Additions for prior year tax positions | | 761 |
|
Balance at December 31, 2015 | | $ | 761 |
|
Additions for prior year tax positions | | 206 |
|
Balance at December 31, 2016 | | $ | 967 |
|
Settlements | | (761 | ) |
Balance at December 31, 2017 | | $ | 206 |
|
Included in the balance as of December 31, 2017 are $0.2 million of unrecognized tax benefits that, if recognized, would impact our effective tax rate. 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). We did not recognize any tax benefits for the reduction of accrued interest and penalties associated with the reduction of the liability for unrecognized tax benefits during the years ended December 31, 2017 and 2016. We did not have any interest and penalties accrued at December 31, 2017 or 2016.
As of December 31, 2017, we had net operating loss carryforwards that are available to reduce future taxable income and that will begin to expire in 2030.
Note E — Goodwill and Other Intangible Assets
As discussed in Note A, Significant Accounting Policies, goodwill is not amortized, but is tested for impairment on an annual basis or when circumstances exist that indicate goodwill may be impaired. Prior to the transaction resulting in the sale of Trillium, the company's goodwill was allocated between two reporting units; Customer Interaction and Trillium. As of December 31, 2016 we had one reporting unit.
During our annual impairment test in 2017, we performed a Step One analysis using a business enterprise value approach to determine the fair value of the business. The fair value of the reporting unit was estimated for the purpose of deriving an excess or deficit between the fair value and the carrying amount of the business enterprise. The fair value calculated using the discounted cash flow method was a component of the analysis. Estimated future cash flows were discounted at a rate of 14.0%. The results of the Step One analysis, in accordance with ASU 2017-04, indicated that the carrying value exceeded the fair value and the full carrying value of goodwill should be written-off, resulting in an impairment charge of $34.5 million. Our fair value estimates relied on management assumptions including market rates, revenue growth rates, operating margins, and discount rates.
In conjunction with the sale of Trillium on December 23, 2016, the allocated fair value of goodwill of $149.3 million was written-off. This write-off is reflected in the Income (loss) from discontinued operations, net of income taxes line of the Consolidated Statements of Comprehensive Income (Loss) in the Consolidated Financial Statements.
During our annual impairment test in 2016, we performed a Step One analysis. During the first step we used the income-based approach, in which estimated future cash flows were discounted at a rate of 11.5%. The results were combined with results of the market-based approach to determine fair value of the business. The results indicated that the fair value of the reporting unit was less than its carrying amount and a Step Two analysis was warranted.
Under Step Two, the fair value of the reporting unit was estimated for the purpose of deriving an estimate of the implied fair value of goodwill. The fair value of tangible assets along with the estimated fair value of intangible assets including non-compete agreements, trade names, and customer relationships, were taken into consideration for the analysis. Additional assumptions used in measuring the fair value of the assets and liabilities included customer attrition rates, discount rates, and royalty rates used in valuing the intangible assets, and the consideration of the market environment in valuing tangible assets. The resulting implied fair value of the goodwill was then compared to the recorded goodwill to determine the amount of impairment. The results of Step Two indicated that a goodwill write down of $38.7 million was necessary.
During 2015, as a result of a sustained decline in our market capitalization below our book value of equity and recent operating performance, the company determined that a triggering event had occurred. Using the income-based approach and the market-based approach, the fair value of the reporting unit was estimated to be below the carrying value and therefore indicated impairment. The second step of the test indicated that goodwill was impaired by $209.9 million. The impairment charge resulted in a corresponding $36.8 million tax benefit resulting in a net income impact of $173.1 million. Our fair value estimates relied on management assumptions including discount rate, revenue growth rates, operating margins, attrition rates, and royalty rates.
Our accumulated goodwill impairment was $283.1 million, $248.6 million, and $209.9 million for the years ended December 31, 2017, 2016, and 2015, respectively.
We recorded $3.5 million in goodwill in 2016 in connection with the acquisition of the business of Aleutian Consulting, Inc. on March 4, 2016. The residual purchase price methodology used in the calculation relied on management's assumptions, which are considered Level 3 inputs, as they are unobservable. This goodwill will be tax deductible.
On April 14, 2015, we sold our B2B research businesses, Aberdeen Group and Harte Hanks Market Intelligence (the "B2B research business”). As a result, the $11.1 million allocated fair value within the net book value of Customer Interaction goodwill was written off. In addition, $2.3 million of intangible assets with indefinite useful lives related to the Aberdeen Group trade name was written off. These amounts are reflected in the Loss on sale in the Other expenses section of the Consolidated Statements of Comprehensive Income (Loss).
On March 16, 2015, we acquired 3Q Digital. We performed a valuation to estimate of the total purchase consideration and values for the tangible and identifiable intangible assets. As a result, we recorded $41.8 million in goodwill and $4.8 million of identified intangible assets with definite lives for client relationships and non-compete agreements. For further discussion on transactions discussed above, see Note M, Acquisition and Disposition.
The changes in the carrying amount of goodwill are as follows:
|
| | | | |
In thousands | | |
Balance at December 31, 2015 | | $ | 69,699 |
|
Purchase consideration | | 3,480 |
|
Impairment | | (38,669 | ) |
Balance at December 31, 2016 | | $ | 34,510 |
|
Impairment | | (34,510 | ) |
Balance at December 31, 2017 | | $ | — |
|
Other intangibles with definite useful lives relate to contact databases, client relationships, and non-compete agreements. They are amortized on a straight-line basis over their respective estimated useful lives, typically a period of 2 to 10 years, and reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The changes in the carrying amount of other intangibles with definite lives are as follows:
|
| | | | |
In thousands | | |
Balance at December 31, 2015 | | $ | 4,123 |
|
Amortization | | (821 | ) |
Balance at December 31, 2016 | | $ | 3,302 |
|
Amortization | | (713 | ) |
Balance at December 31, 2017 | | $ | 2,589 |
|
Amortization expense related to other intangibles with definite useful lives was $0.7 million, $0.8 million, and 0.7 million for the years ended December 31, 2017, 2016, and 2015, respectively. Expected amortization expense for the next five years is as follows:
|
| | | | |
In thousands | | |
2018 | | $ | 624 |
|
2019 | | 613 |
|
2020 | | 613 |
|
2021 | | 613 |
|
2022 | | 126 |
|
Thereafter | | — |
|
Total | | 2,589 |
|
Note F — Employee Benefit Plans
Prior to January 1, 1999, we provided a defined benefit pension plan in 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.
The overfunded or underfunded status of our defined benefit post-retirement plans is recorded as an asset or liability on our balance sheet. 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. We currently measure the funded status of our defined benefit plans as of December 31, the date of our year-end consolidated balance sheets.
The status of the defined benefit pension plans at year-end was as follows:
|
| | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2017 | | 2016 |
Change in benefit obligation | | |
| | |
|
Benefit obligation at beginning of year | | $ | 179,247 |
| | $ | 178,715 |
|
Interest cost | | 7,347 |
| | 7,802 |
|
Actuarial (gain) loss | | 10,121 |
| | 2,127 |
|
Benefits paid | | (9,679 | ) | | (9,397 | ) |
Benefit obligation at end of year | | $ | 187,036 |
| | $ | 179,247 |
|
| | | | |
Change in plan assets | | |
| | |
|
Fair value of plan assets at beginning of year | | 116,725 |
| | 121,682 |
|
Actual return on plan assets | | 17,292 |
| | 2,883 |
|
Contributions | | 1,675 |
| | 1,557 |
|
Benefits paid | | (9,679 | ) | | (9,397 | ) |
Fair value of plan assets at end of year | | $ | 126,013 |
| | $ | 116,725 |
|
| | | | |
Funded status at end of year | | $ | (61,023 | ) | | $ | (62,522 | ) |
The following amounts have been recognized in the Consolidated Balance Sheets at December 31:
|
| | | | | | | | |
In thousands | | 2017 | | 2016 |
Other current liabilities | | $ | 1,685 |
| | $ | 1,686 |
|
Pensions | | 59,338 |
| | 60,836 |
|
Total | | $ | 61,023 |
| | $ | 62,522 |
|
The following amounts have been recognized in accumulated other comprehensive loss, net of tax, at December 31:
|
| | | | | | | | |
In thousands | | 2017 | | 2016 |
Net loss | | $ | 45,418 |
| | $ | 46,977 |
|
We are not required to make and do not intend to make any contributions to our Qualified Pension Plan in 2018. Based on current estimates we will not be required to make any contributions to our Qualified Pension Plan until 2019.
We are not required to make and do not intend to make any contributions to our Restoration Pension Plan in 2018 other than to the extent needed to cover benefit payments. We expect benefit payments under this supplemental pension plan to total approximately $1.7 million in 2018.
The following information is presented for pension plans with an accumulated benefit obligation in excess of plan assets:
|
| | | | | | | | |
In thousands | | 2017 | | 2016 |
Projected benefit obligation | | $ | 187,036 |
| | $ | 179,247 |
|
Accumulated benefit obligation | | $ | 187,036 |
| | $ | 179,247 |
|
Fair value of plan assets | | $ | 126,013 |
| | $ | 116,725 |
|
The Restoration Pension Plan had an accumulated benefit obligation of $27.6 million and $26.6 million at December 31, 2017 and 2016, respectively.
The following table presents the components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss) for both plans:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2017 | | 2016 | | 2015 |
Net Periodic Benefit Cost (Pre-Tax) | | |
| | |
| | |
|
Interest cost | | 7,347 |
| | 7,802 |
| | 7,724 |
|
Expected return on plan assets | | (7,328 | ) | | (8,245 | ) | | (8,637 | ) |
Recognized actuarial loss | | 2,754 |
| | 2,386 |
| | 6,228 |
|
Net periodic benefit cost | | $ | 2,773 |
| | $ | 1,943 |
| | $ | 5,315 |
|
| | | | | | |
Amounts Recognized in Other Comprehensive Income (Loss) (Pre-Tax) | | |
| | |
| | |
|
Net (gain) loss | | $ | (2,597 | ) | | $ | 5,103 |
| | $ | (9,408 | ) |
| | | | | | |
Net (benefit) cost recognized in net periodic benefit cost and other comprehensive (income) loss | | $ | 176 |
| | $ | 7,046 |
| | $ | (4,093 | ) |
The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2018 is $2.7 million. The period over which the net loss from the Qualified Pension Plan is amortized into net periodic benefit cost was changed in 2016 from the average future service of active participants (approximately 9 years) to the average future lifetime of all participants (approximately 23 years). This change reflects that the Qualified Pension Plan is frozen and that 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:
|
| | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Weighted-average assumptions used to determine net periodic benefit cost | | |
| | |
| | |
|
Discount rate | | 4.21 | % | | 4.49 | % | | 4.13 | % |
Expected return on plan assets | | 6.50 | % | | 7.00 | % | | 7.00 | % |
|
| | | | | | |
| | December 31, |
| | 2017 | | 2016 |
Weighted-average assumptions used to determine benefit obligations | | |
| | |
|
Discount rate | | 3.67 | % | | 4.21 | % |
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, 2017 and 2016, by asset category, are as follows:
|
| | | | | | | | | | | | | | |
In thousands | | 2017 | | % | | 2016 | | % |
Equity securities | | $ | 80,191 |
| | 64 | % | | $ | 61,254 |
| | 52 | % |
Debt securities | | 20,481 |
| | 16 | % | | 21,940 |
| | 19 | % |
Other | | 25,341 |
| | 20 | % | | 33,531 |
| | 29 | % |
Total plan assets | | $ | 126,013 |
| | 100 | % | | $ | 116,725 |
| | 100 | % |
The fair values presented have been prepared using values and information available as of December 31, 2017 and 2016.
The following tables present the fair value measurements of the assets in our funded pension plan:
|
| | | | | | | | | | | | | | | | |
In thousands | | December 31, 2017 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Equity securities | | $ | 80,191 |
| | $ | 80,191 |
| | $ | — |
| | $ | — |
|
Debt securities | | 20,481 |
| | 20,481 |
| | — |
| | — |
|
Total investments, excluding investments valued at NAV | | 100,672 |
| | 100,672 |
| | — |
| | — |
|
Investments valued at NAV (1) | | 25,341 |
| | — |
| | | | — |
|
Total plan assets | | $ | 126,013 |
| | $ | 100,672 |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | |
In thousands | | December 31, 2016 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Equity securities | | $ | 61,254 |
| | $ | 61,254 |
| | $ | — |
| | $ | — |
|
Debt securities | | 21,940 |
| | 21,940 |
| | — |
| | — |
|
Total investments, excluding investments valued at NAV | | 83,194 |
| | 83,194 |
| | — |
| | — |
|
Investments valued at NAV (1) | | 33,531 |
| | — |
| | — |
| | — |
|
Total plan assets | | $ | 116,725 |
| | $ | 83,194 |
| | $ | — |
| | $ | — |
|
(1) Investment valued at 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 Plan 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:
|
| | | | | | | | | | |
| | Target | | Acceptable Range | | Benchmark Index |
Domestic Equities | | 50.0 | % | | 35 | % | - | 75% | | S&P 500 |
Large Cap Growth | | 22.5 | % | | 15 | % | - | 30% | | Russell 1000 Growth |
Large Cap Value | | 22.5 | % | | 15 | % | - | 30% | | Russell 1000 Value |
Mid Cap Value | | 5.0 | % | | 5 | % | - | 15% | | Russell Mid Cap Value |
Mid Cap Growth | | 0.0 | % | | 0 | % | - | 10% | | Russell Mid Cap Growth |
| | | | | | | | |
Domestic Fixed Income | | 35.0 | % | | 15 | % | - | 50% | | LB Aggregate |
International Equities | | 15.0 | % | | 10 | % | - | 25% | | MSC1 EAFE |
The funded pension plan provides 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 the plan. 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.
The expected future benefit payments for both pension plans over the next ten years as of December 31, 2017 are as follows:
|
| | | | |
In thousands | | |
2018 | | $ | 9,922 |
|
2019 | | 9,977 |
|
2020 | | 10,221 |
|
2021 | | 10,476 |
|
2022 | | 10,855 |
|
2023-2027 | | 57,001 |
|
Total | | $ | 108,452 |
|
We also sponsor a 401(k)-retirement plan in which we matched a portion of employees’ voluntary before-tax contributions. Under this plan, both employee and matching contributions vest immediately. Total 401(k) expense for these matching payments recognized was $3.0 million for each of the years ending December 31, 2017, 2016, and 2015
Note G — Stockholders’ Equity
Dividends
We paid a dividend of $0.85 per share in the first quarter of 2016 and did not pay any dividends in 2017
Share Repurchase
Under the stock repurchase program publicly announced in August of 2014, our Board provided authorization to spend up to $20.0 million to repurchase shares of our outstanding common stock. During 2017, no shares of our common stock were purchased. We had $11.4 million remaining under the current authorization as of December 31, 2017. From 1997 through December 2017, we have paid more than $1.2 billion to repurchase 6.8 million shares under this program and previously announced programs.
Awardees of stock-based compensation may elect to have shares of common stock withheld from vested awards to meet tax obligations. These shares are returned to our treasury stock at the time of vesting. During 2017, we received 9,310 shares of our common stock, with an estimated market value of $0.1 million, from such arrangements.
Series A Convertible Preferred Stock
Harte Hanks is authorized to issue one million shares of preferred stock with a par value of $1.00. Each share of our Series A Convertible Preferred Stock (the "Series A Preferred Stock") is convertible at any time at the option of the holder into the number of shares of common stock at the initial conversion price. Dividends on the Series A Preferred Stock are accrued at a rate of 5.0% per year or the rate that cash dividends were paid in respect to shares of common stock if such rate is greater than 5.0%. Holders of Series A Preferred Stock do not have voting rights, subject to certain exceptions.
On January 23, 2018, we issued 9,926 shares of our Series A Preferred Stock to Wipro, LLC for gross proceeds of $9.9 million. Shares are convertible into 16.0% of our outstanding common stock on a pre-closing basis, priced at $9.91 per share of common stock. For so long as Wipro owns at least a majority of the preferred shares originally purchased, or is the beneficial owner of at least 5% of the company's common stock, Wipro has the right to appoint one individual as a non-voting observer to the Board and under certain circumstances Wipro may appoint a board member to the board of directors.
Note H — 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). ForIncome. We recognized $1.4 million and $2.4 million of stock-based compensation expense for the years ended December 31, 2017, 2016,2023 and 2015, we recorded total stock-based compensation expense from continuing operations of $2.7 million, $2.7 million, and $5.4 million,2022, respectively.
We granted equity awards to our Chief Financial Officer in 2017, Chief Operations Officer in 2016, and our Chief Executive Officer and Chief Marketing Officer in 2015 as a material inducement for acceptance of such positions. These option, restricted stock, and performance unit awards were not submitted for stockholder approval, and were separately listed with the NYSE.
In May 2013, our stockholders approved the 2013 Omnibus Incentive Plan ("(“2013 Plan"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"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, 2017,2023 and 2022, there were 0.1 million190,187and 188,582 shares available, respectively, for grant under the 2013 Plan.
In 2020, we established our 2020 Equity Incentive Plan ("2020 Plan") which replaced the 2013 Equity Incentive Plan (“2013 Plan”). Any shares of common stock that remained eligible for issuance under the 2013 Plan are now instead 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, 2023 and 2022, there were 1.3 million and 1.3 million shares available, respectively, for grant under the 2020 Plan.
In August 2023, we established the 2023 Inducement Equity Incentive Plan ("2023 Plan"), pursuant to which the Company issued 240,000 shares of stock option awards, which is the limit of the plan.
Stock Options
Options granted under the 2023 Plan have an exercise price equal to the closing market price of our common stock on the date prior to the grant date. These options become exercisable in 33.3% increments on the first three anniversaries of their date of grant and expire on the tenth anniversary of their date of grant. Options to purchase 240,000 shares granted under 2023 Plan awards were outstanding as of December 31, 2023, with exercise prices ranging from $5.59 to $76.80 per share.
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, 2023 and 2022.
Options to purchase 0.1 million6,663 shares granted as inducementunder 2013 Plan awards were outstanding atas of December 31, 2017,2023, with exercise prices ranging from $10.00$5.59 to $42.60$116.40 per share.
Following the third quarter 2015 resignation Options to purchase 8,268 shares granted under 2013 Plan awards were outstanding as of our former CEO, vesting was accelerated on his unvested stock options (pursuantDecember 31, 2022, with exercise prices ranging from $76.80 to the terms of his employment agreement and inducement award), for which we recognized $0.5 million of accelerated expense in July 2015. These options were not exercised and subsequently expired.
$115.20 per share.
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. There were no options outstanding under the 2005 Plan as of December 31, 2023. Options to purchase 0.1 million4,400 shares were outstanding under the 2005 Plan as of December 31, 2017,2022, with exercise prices ranging from $60.40$76.80 to $159.00$115.20 per share.
Options issued through March 2015 vest in full (to the extent not previously vested) upon a change in control, as defined in the applicable equity plan. 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-tradedpublicly traded successor with an equivalent award (as defined in such officers’ change in control severance agreements). Additionally, 25% of the inducement options granted to the Chief Executive Officer will vest (if not previously vested) in the event her employment is terminated without cause, or if she terminates her employment for good reason (as such terms are defined in her employment agreement).
The following summarizes all stock option activity during the years ended December 31, 2017, 2016,2023 and 2015:2022:
|
| | | | | | | | | | | | | |
In thousands | | Number of Shares | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value (Thousands) |
Options outstanding at December 31, 2014 | | 446,365 |
| | $ | 114.99 |
| | | | |
|
| | | | | | | | |
Granted in 2015 | | 197,318 |
| | 57.26 |
| | | | |
|
Exercised in 2015 | | (3,500 | ) | | 60.40 |
| | | | $ | 67 |
|
Unvested options forfeited in 2015 | | (65,982 | ) | | 79.59 |
| | | | |
|
Vested options expired in 2015 | | (113,988 | ) | | 148.83 |
| | | | |
|
Options outstanding at December 31, 2015 | | 460,213 |
| | $ | 87.36 |
| | | | |
|
| | | | | | | | |
Granted in 2016 | | 15,037 |
| | 26.15 |
| | | | |
|
Exercised in 2016 | | — |
| | — |
| | | | $ | — |
|
Unvested options forfeited in 2016 | | (57,014 | ) | | 75.74 |
| | | | |
|
Vested options expired in 2016 | | (47,689 | ) | | 160.61 |
| | | | |
|
Options outstanding at December 31, 2016 | | 370,547 |
| | $ | 77.23 |
| | | | |
|
| | | | | | | | |
Granted in 2017 | | 33,855 |
| | 10.00 |
| | | | |
|
Exercised in 2017 | | — |
| | — |
| | | | $ | — |
|
Unvested options forfeited in 2017 | | (9,872 | ) | | 73.31 |
| | | | |
|
Vested options expired in 2017 | | (85,563 | ) | | 110.44 |
| | | | |
|
Options outstanding at December 31, 2017 | | 308,967 |
| | $ | 60.80 |
| | 5.86 | | $ | — |
|
| | | | | | | | |
Vested and expected to vest at December 31, 2017 | | 308,967 |
| | $ | 60.80 |
| | 5.86 | | $ | — |
|
| | | | | | | | |
Exercisable at December 31, 2017 | | 201,594 |
| | $ | 75.42 |
| | 4.66 | | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | Number of Shares | | Weighted-Average Exercise Price | | Weighted- Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value (Thousands) |
Options outstanding at December 31, 2021 | | 37,615 | | | $ | 80.21 | | | 1.36 | | $ | — | |
| | | | | | | | |
Adjustment and Correction | | (20,000) | | | | | | | |
Granted in 2022 | | — | | | — | | | — | | | — | |
Exercised in 2022 | | — | | | — | | | — | | | — | |
Unvested options forfeited in 2022 | | — | | | — | | | — | | | — | |
Vested options expired in 2022 | | (4,947) | | | 95.80 | | | — | | | — | |
Options outstanding at December 31, 2022 | | 12,668 | | | $ | 78.88 | | | 1.16 | | $ | — | |
| | | | | | | | |
Granted in 2023 | | 240,000 | | | $ | 5.59 | | | 9.67 | | 288 | |
Exercised in 2023 | | — | | | — | | | — | | | — | |
Unvested options forfeited in 2023 | | — | | | — | | | — | | | — | |
Vested options expired in 2023 | | (6,005) | | | 77.38 | | | — | | | — | |
Options outstanding at December 31, 2023 | | 246,663 | | | $ | 7.61 | | | 9.38 | | $ | 288 | |
| | | | | | | | |
Vested and expected to vest at December 31, 2023 | | 246,663 | | | $ | 7.61 | | | 9.38 | | $ | 288 | |
| | | | | | | | |
Exercisable at December 31, 2023 | | 6,663 | | | $ | 80.24 | | | 0.49 | | $ | — | |
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, 2017.2023. The pre-tax intrinsic value is the difference between the closing price of our common stock on December 31, 20172023, 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, 2017:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Range of Exercise Prices | | Number Outstanding | | Weighted-Average Exercise Price | | Weighted-Average Remaining Life (Years) | | Number Exercisable | | Weighted-Average price per share Outstanding and Vested |
$5.59 - 76.80 | | 242,010 | | $ | 6.18 | | | 9.55 | | 2,010 | | $ | 76.80 | |
$77.60 - 116.40 | | 4,653 | | | $ | 81.72 | | | 0.37 | | 4,653 | | $ | 81.72 | |
|
| | | | | | | | | | | | | | | | | | | | |
Range of Exercise Prices | | Number Outstanding | | Weighted-Average Exercise Price | | Weighted-Average Remaining Life (Years) | | Number Exercisable | | Weighted-Average Exercise Price |
$ | 0.00 |
| - | 29.99 | | 48,892 |
| | $ | 14.97 |
| | 9.39 | | 3,759 |
| | $ | 26.15 |
|
$ | 30.00 |
| - | 54.99 | | 96,866 |
| | 38.39 |
| | 7.73 | | 48,433 |
| | 38.39 |
|
$ | 55.00 |
| - | 79.99 | | 94,903 |
| | 70.27 |
| | 3.96 | | 85,785 |
| | 69.57 |
|
$ | 80.00 |
| - | 104.99 | | 30,941 |
| | 88.28 |
| | 5.34 | | 26,253 |
| | 89.35 |
|
$ | 105.00 |
| - | 129.99 | | 22,900 |
| | 119.73 |
| | 2.23 | | 22,900 |
| | 119.73 |
|
$ | 130.00 |
| - | 159.99 | | 14,465 |
| | 151.51 |
| | 0.70 | | 14,465 |
| | 151.51 |
|
| | | | 308,967 |
| | $ | 60.80 |
| | 5.86 | | 201,595 |
| | $ | 75.42 |
|
The fair value of each option grant is estimated on the date of grant using the Black-Scholes Option-Pricing Model based on the following weighted-average assumptions used for grants during 2017, 2016, and 2015:
|
| | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Expected term (in years) | | 6.25 |
| | 6.25 |
| | 6.24 |
|
Expected stock price volatility | | 53.70 | % | | 44.80 | % | | 40.60 | % |
Risk-free interest rate | | 2.16 | % | | 1.48 | % | | 1.58 | % |
Expected dividend yield | | — | % | | — | % | | 5.69 | % |
Expected term is estimated using the simplified method, which takes into account vesting and contractual term. The simplified method is being used to calculate expected term instead of historical experience due to a lack of relevant historical data resulting from changes in option vesting schedules and changes in the pool of employees receiving option grants. Expected stock price volatility is based on the historical volatility from traded shares of our stock over the expected term. The risk-free interest rate is based on the rate of a zero-coupon U.S. Treasury instrument with a remaining term approximately equal to the expected term. Expected dividend yield is based on historical stock price movement and anticipated future annual dividends over the expected term. Future annual dividends over the expected term are estimated to be nil.
The weighted-average fair value ofThere were 240,000 options granted during 2017, 2016,2023 and 2015 was $5.32, $11.66, and $13.60, respectively.no options were granted during 2022. As of December 31, 2017,2023, there was $0.7$0.8 million of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted average period of approximately 2.18 years.
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.grant and expire after 10 years. Cash stock appreciation rights settle solely in cash and are treated as a liability.
The following summarizes allThere were no cash stock appreciation rights issued during the year ended December 31, 2017:
|
| | | | | | | | | |
| | Number of Units | | Weighted- Average Exercise Price | | Weighted-Average Remaining Contractual Term (Years) |
Cash stock appreciation rights outstanding at December 31, 2016 | | — |
| | $ | — |
| | |
| | | | | | |
Granted in 2017 | | 86,618 |
| | 9.70 |
| | |
Exercised in 2017 | | — |
| | — |
| | |
Forfeited in 2017 | | — |
| | — |
| | |
Cash stock appreciation rights outstanding at December 31, 2017 | | 86,618 |
| | $ | 9.70 |
| | 9.48 |
| | | | | | |
Vested and expected to vest at December 31, 2017 | | 86,618 |
| | $ | 9.70 |
| | 9.48 |
| | | | | | |
Exercisable at December 31, 2017 | | — |
| | $ | — |
| | 0.00 |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes Option-Pricing Model based on the following weighted-average assumptions used for grants during 2017:
|
| | | |
| | 2017 |
Expected term (in years) | | 6.25 |
|
Expected stock price volatility | | 54.45 | % |
Risk-free interest rate | | 2.23 | % |
Expected dividend yield | | — | % |
Expected term is estimated using the simplified method, which takes into account vesting2023 and contractual term. The simplified method is being used to calculate expected term instead of historical experience due to a lack of relevant historical data resulting from changes in cash stock appreciation right vesting schedules and changes in the pool of employees receiving cash stock appreciation right grants. Expected stock price volatility is based on the historical volatility from traded shares of our stock over the expected term. The risk-free interest rate is based on the rate of a zero-coupon U.S. Treasury instrument with a remaining term approximately equal to the expected term. Expected dividend yield is based on historical stock price movement and anticipated future annual dividends over the expected term. Future annual dividends over the expected term are estimated to be nil.
2022.
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 toin the income statement as changes to expense. As of December 31, 2017,2023, there was $0.4 million of totalno unrecognized compensation cost related to unvested cash stock appreciation right grants. This cost is expected to be recognized over a weighted average period of approximately 3.48 years. Changes in our
Restricted Stock Units
Restricted stock price, the volatility of our stock price, and the risk-free rate of interest will result in adjustments to compensation expense and the corresponding liability over the applicable service period
Unvested Shares
Unvested sharesunits 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. UnvestedRestricted stock units settle in treasury stock or newly issued shares settle solely in common stock and are treated as equity. Outstanding unvested sharesrestricted 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-tradedpublicly traded successor with an equivalent award (as such terms are defined in such officers’ change-in-control severance agreements).
Following the third quarter 2015 resignation of our former CEO, vesting was accelerated on his unvested shares (pursuant to the terms of his employment agreement and inducement award), for which we recognized $1.2 million of accelerated expense in July 2015.
The following summarizes all unvested sharerestricted stock units’ activity during 2017, 2016,2023 and 2015:2022:
|
| | | | | | | |
| | Number of Shares | | Weighted- Average Grant Date Fair Value |
Unvested shares outstanding at December 31, 2014 | | 79,007 |
| | $ | 80.89 |
|
| | | | |
Granted in 2015 | | 83,626 |
| | 63.80 |
|
Vested in 2015 | | (50,507 | ) | | 82.27 |
|
Forfeited in 2015 | | (15,911 | ) | | 78.39 |
|
Unvested shares outstanding at December 31, 2015 | | 96,215 |
| | $ | 65.69 |
|
| | | | |
Granted in 2016 | | 74,192 |
| | 26.32 |
|
Vested in 2016 | | (36,492 | ) | | 66.96 |
|
Forfeited in 2016 | | (39,372 | ) | | 57.79 |
|
Unvested shares outstanding at December 31, 2016 | | 94,543 |
| | $ | 37.59 |
|
| | | | |
Granted in 2017 | | 160,962 |
| | 9.81 |
|
Vested in 2017 | | (40,979 | ) | | 41.39 |
|
Forfeited in 2017 | | (13,304 | ) | | 27.84 |
|
Unvested shares outstanding at December 31, 2017 | | 201,222 |
| | $ | 15.23 |
|
| | | | | | | | | | | |
| Number of Shares | | Weighted-Average Grant Date Fair Value |
Unvested shares outstanding at December 31, 2021 | 646,439 | | $4.41 |
| | | |
Adjustment and Correction | 40,000 | | — |
Granted in 2022 | 208,165 | | 8.93 |
Vested in 2022 | (296,161) | | 4.85 |
Forfeited in 2022 | (82,267) | | 3.29 |
Unvested shares outstanding at December 31, 2022 | 516,176 | | $6.43 |
| | | |
Granted in 2023 | 80,225 | | 5.73 |
Vested in 2023 | (308,523) | | 5.53 |
Forfeited in 2023 | (44,437) | | 7.02 |
Unvested shares outstanding at December 31, 2023 | 243,441 | | $7.24 |
The fair value of each unvested sharerestricted stock unit is estimated on the date of grant as the closing market price of our common stock on the date ofprior to the grant. As of December 31, 2017,2023, there was $2.1$1.1 million of total unrecognized compensation cost related to unvested shares.restricted stock units. This cost is expected to be recognized over a weighted average period of approximately 1.941.18 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-tradedpublicly traded successor with an equivalent award (as such terms are defined in such officers’ change-in-control severance agreements).
The following summarizes all phantomThere were no cash stock unit activityappreciation rights issued during 2017:2023 and 2022.
|
| | | | | | | |
| | Number of Units | | Weighted- Average Grant Date Fair Value |
Phantom stock units outstanding at December 31, 2015 | | — |
| | $ | — |
|
| | | | |
Granted in 2016 | | 78,140 |
| | 26.90 |
|
Vested in 2016 | | — |
| | — |
|
Forfeited in 2016 | | (24,976 | ) | | 26.90 |
|
Phantom stock units outstanding at December 31, 2016 | | 53,164 |
| | $ | 26.90 |
|
| | | | |
Granted in 2017 | | 56,000 |
| | 9.70 |
|
Vested in 2017 | | (12,483 | ) | | 26.90 |
|
Forfeited in 2017 | | (14,644 | ) | | 22.63 |
|
Phantom stock units outstanding at December 31, 2017 | | 82,037 |
| | $ | 15.92 |
|
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 ofprior to the 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, 2017,2023, there was $0.7 million of totalno unrecognized compensation cost related to phantom stock units. This cost is expected to be recognized over a weighted average period of approximately 3.06 years.
Performance Stock Units
Under the 2013 Plan and grants of inducement awards, performancePerformance 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-tradedpublicly traded successor with an equivalent award (as such terms are defined in such officers'officers’ change-in-control severance agreements).
Performance Stock Units have been issued under the 2013 Plan, and the 2020 Plan as inducement awards.
The following summarizes all performance stock unit activity during 2017, 2016,2023 and 2015:2022:
|
| | | | | | | |
| | Number of Units | | Weighted- Average Grant-Date Fair Value |
Performance stock units outstanding at December 31, 2014 | | 60,363 |
| | $ | 76.07 |
|
| | | | |
Granted in 2015 | | 66,982 |
| | 43.02 |
|
Settled in 2015 | | — |
| | — |
|
Forfeited in 2015 | | (57,211 | ) | | 75.40 |
|
Performance stock units outstanding at December 31, 2015 | | 70,134 |
| | $ | 45.05 |
|
| | | | |
Granted in 2016 | | 47,300 |
| | 19.00 |
|
Settled in 2016 | | — |
| | — |
|
Forfeited in 2016 | | (33,004 | ) | | 57.59 |
|
Performance stock units outstanding at December 31, 2016 | | 84,430 |
| | $ | 25.56 |
|
| | | | |
Granted in 2017 | | 89,124 |
| | 9.95 |
|
Settled in 2017 | | — |
| | — |
|
Forfeited in 2017 | | (10,494 | ) | | 47.90 |
|
Performance stock units outstanding at December 31, 2017 | | 163,060 |
| | $ | 15.59 |
|
| | | | | | | | | | | |
| Number of Units | | Weighted- Average Grant Date Fair Value |
Performance stock units outstanding as of December 31, 2021 | 94,110 | | $ | 5.41 | |
| | | |
Granted in 2022 | 117,000 | | $ | 7.77 | |
Settled in 2022 | (69,110) | | 5.44 | |
Forfeited in 2022 | — | | — | |
Performance stock units outstanding as of December 31, 2022 | 142,000 | | $ | 7.34 | |
| | | |
Granted in 2023 | — | | | $ | — | |
Settled in 2023 | — | | | — | |
Forfeited in 2023 | (99,000) | | 7.14 | |
Performance stock units outstanding as of December 31, 2023 | 43,000 | | $ | 7.80 | |
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 ofprior to the 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, 2017, there was $1.3 million of2023, the total unrecognized compensation cost related to
performance stock units.units was approximately $29,770. This cost is expected to be recognized over a weighted average period of approximately 1.730.44 years. Future annual dividends over the expected term are estimated to be nil.
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-tradedpublicly traded successor with an equivalent award (as such terms are defined in such officers’ change-in-control severance agreements).
The following summarizes allThere was no cash performance stock unit activityissued during 2017:
|
| | | | | | | |
| | Number of Shares | | Weighted- Average Grant-Date Fair Value |
Cash performance stock units outstanding at December 31, 2015 | | — |
| | $ | — |
|
| | | | |
Granted in 2016 | | 51,209 |
| | 26.90 |
|
Settled in 2016 | | — |
| | — |
|
Forfeited in 2016 | | (6,812 | ) | | 26.90 |
|
Cash performance stock units outstanding at December 31, 2016 | | 44,397 |
| | $ | 26.90 |
|
| | | | |
Granted in 2017 | | 109,887 |
| | 10.10 |
|
Settled in 2017 | | — |
| | — |
|
Forfeited in 2017 | | (3,778 | ) | | 26.90 |
|
Cash performance stock units outstanding at December 31, 2017 | | 150,506 |
| | $ | 14.63 |
|
2023 and 2022.
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 ofprior to the 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, 2017,2023, there was $0.9 million of totalno unrecognized compensation cost related to cash performance stock units. This
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 2021, 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, 2021, in accordance with Internal Revenue Code section 414 (I) and ERISA Section 4044.
In January 2023, the Board of Directors of the Company approved the termination of the Qualified Pension Plan I. The termination process will take approximately eighteen months to complete and will result in the transfer of our obligations pursuant to this pension plan to a third-party provider. We expect to make a cash contribution of $7.6 million to terminate the Qualified Pension Plan I.
The overfunded or underfunded status of our defined benefit post-retirement plans is recorded as an asset or liability on our consolidated 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 in the Consolidated Statements of Comprehensive Income. We currently measure the funded status of our defined benefit plans as of December 31, the date of our year-end Consolidated Balance Sheets.
The status of the defined benefit pension plans at year-end was as follows:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2023 | | 2022 |
Change in benefit obligation | | | | |
Benefit obligation at beginning of year | | $ | 143,521 | | | $ | 186,041 | |
Interest cost | | 7,088 | | | 5,040 | |
Actuarial gain (loss) | | 1,465 | | | (37,014) | |
Benefits paid | | (10,647) | | | (10,546) | |
Benefit obligation at end of year | | $ | 141,427 | | | $ | 143,521 | |
| | | | |
Change in plan assets | | | | |
Fair value of plan assets at beginning of year | | $ | 103,891 | | | $ | 131,741 | |
Actual return on plan assets | | 7,128 | | | (20,358) | |
Contributions | | 3,324 | | | 3,053 | |
Benefits paid | | (10,647) | | | (10,545) | |
Fair value of plan assets at end of year | | $ | 103,696 | | | $ | 103,891 | |
| | | | |
Funded status at end of year | | $ | (37,731) | | | $ | (39,630) | |
The following amounts have been recognized in the Consolidated Balance Sheets as of December 31:
| | | | | | | | | | | | | | |
In thousands | | 2023 | | 2022 |
Current pension liabilities | | $ | 8,561 | | | $ | 1,858 | |
Long term pension liabilities - Qualified plans | | 10,540 | | | 18,674 | |
Long term pension liabilities - Nonqualified plan | | 18,630 | | | 19,098 | |
Total pension liabilities | | $ | 37,731 | | | $ | 39,630 | |
The following amounts have been recognized in accumulated other comprehensive loss, net of tax, as of December 31:
| | | | | | | | | | | | | | |
In thousands | | 2023 | | 2022 |
Net loss | | $ | 42,456 | | | $ | 44,120 | |
Based on current estimates, we will be required to make $2.0 million in cash contributions to our Qualified Pension Plan II, in 2024.
We are not required to make and do not intend to make any contributions to our Restoration Pension Plan in 2023 other than to the extent needed to cover benefit payments. We made benefit payments under this supplemental plan of $1.8 million in 2023.
The following information is presented for pension plans with an accumulated benefit obligation in excess of plan assets:
| | | | | | | | | | | | | | |
In thousands | | 2023 | | 2022 |
Projected benefit obligation | | $ | 141,427 | | | $ | 143,521 | |
Accumulated benefit obligation | | $ | 141,427 | | | $ | 143,521 | |
Fair value of plan assets | | $ | 103,696 | | | $ | 103,891 | |
The Restoration Pension Plan had an accumulated benefit obligation of $20.5 million and $21.0 million as of December 31, 2023, and 2022, respectively.
The following table presents the components of net periodic benefit cost and other amounts recognized in other comprehensive income in the Consolidated Statements of Comprehensive Income for both plans:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2023 | | 2022 |
Net Periodic Benefit Cost | | | | |
Interest cost | | $ | 7,088 | | | $ | 5,040 | |
Expected return on plan assets | | (6,216) | | | (5,872) | |
Recognized actuarial loss | | 2,521 | | | 2,876 | |
Net periodic benefit cost | | 3,393 | | | 2,044 | |
| | | | |
Amounts Recognized in Other Comprehensive Income | | | | |
Adjustment to pension liabilities | | (1,723) | | | (10,274) | |
| | | | |
Net cost recognized in net periodic benefit cost and other comprehensive income | | $ | 1,670 | | | $ | (8,230) | |
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. 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 2024 is $1.5 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 15.7 years for Qualified Pension Plan I and approximately 24.8 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 | Year Ended December 31, |
2023 | | 2022 |
Discount rate | | | |
Qualified Plan I | 5.13 | % | | 2.75 | % |
Qualified Plan II | 5.18 | % | | 2.92 | % |
Restoration Plan | 5.12 | % | | 2.73 | % |
| | | |
Expected return on plan assets | | | |
Qualified Plan I | 5.95 | % | | 4.25 | % |
Qualified Plan II | 7.05 | % | | 5.75 | % |
Restoration Plan | n/a | | n/a |
| | | | | | | | | | | |
Weighted-average assumptions used to determine benefit obligations | December 31, |
2023 | | 2022 |
Discount rate | | | |
Qualified Plan I | 5.64 | % | | 5.13 | % |
Qualified Plan II | 4.99 | % | | 5.18 | % |
Restoration Plan | 4.92 | % | | 5.12 | % |
The discount rate assumptions are based on current yields of investment-grade corporate long-term bonds. The expected to be recognizedlong-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 weighted average periodlong-term horizon. In determining the expected long-term rate of approximately 2.13 years. Future annual dividendsreturn 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, 2023 and 2022, by asset category, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | 2023 | | % | | 2022 | | % |
Equity securities | | $ | 20,635 | | | 20 | % | | $ | 50,090 | | | 48 | % |
Debt securities | | 76,036 | | | 73 | % | | 49,846 | | | 48 | % |
Other | | 7,025 | | | 7 | % | | 3,955 | | | 4 | % |
Total plan assets | | $ | 103,696 | | | 100 | % | | $ | 103,891 | | | 100 | % |
The fair values presented have been prepared using values and information available as of December 31, 2023 and 2022.
The following tables present the fair value measurements of the assets in our funded pension plan:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | December 31, 2023 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Equity securities | | $ | 20,635 | | | $ | 20,635 | | | $ | — | | | $ | — | |
Debt securities | | 76,036 | | | 66,847 | | | 9,189 | | | — | |
Total investments, excluding investments valued at NAV | | 96,671 | | | 87,482 | | | 9,189 | | | — | |
Investments valued at NAV(1) | | 7,025 | | | — | | | — | | | — | |
Total plan assets | | $ | 103,696 | | | $ | 87,482 | | | $ | 9,189 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | December 31, 2022 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Equity securities | | $ | 50,090 | | | $ | 50,090 | | | $ | — | | | $ | — | |
Debt securities | | $ | 49,846 | | | 35,575 | | | 14,271 | | | — | |
Total investments, excluding investments valued at NAV | | 99,936 | | | 85,665 | | | 14,271 | | | — | |
Investments valued at NAV(1) | | $ | 3,955 | | | — | | | — | | | — | |
Total plan assets | | $ | 103,891 | | | $ | 85,665 | | | $ | 14,271 | | | $ | — | |
(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 | Target | Acceptable Range | Benchmark Index |
Equities | —% | 0% - 20% | |
U.S. Large Cap | —% | 0% - 10% | Russell 1000 TR |
U.S. Mid Cap | —% | 0% - 5% | Russell Mid Cap Index TR |
U.S. Small Cap | —% | 0% - 5% | Russell 2000 TR |
International Equity | | | |
Developed | —% | 0% - 5% | MSCI EAFE Net TR USD Index |
Emerging Markets | —% | 0% - 5% | MSCI Emerging Net Total Return |
Fixed Income | 95% | 0% - 100% | |
Investment Grade | 95% | 0% - 100% | BBG BARC US Aggregate Bond Index |
Cash Equivalent | 5% | 0%-100% | ICE BofA US 3-Month Treasury Bill Index TR |
| | | | | | | | | | | |
Qualified Pension Plan II | Target | Acceptable Range | Benchmark Index |
Equities | 77% | 62% - 87% | |
U.S. Large Cap | 28% | 18% - 38% | Russell 1000 TR |
U.S. Mid Cap | 18% | 13% - 23% | Russell Mid Cap Index TR |
U.S. Small Cap | 9% | 4% - 14% | Russell 2000 TR |
International Equity | | | |
Developed | 16% | 11% - 21% | MSCI EAFE Net TR USD Index |
Emerging Markets | 6% | 0% - 9% | MSCI Emerging Net Total Return |
Fixed Income | 21% | 11% - 31% | |
Investment Grade | 21% | 11% - 31% | BBG BARC US Aggregate Bond Index |
Cash Equivalent | 2% | 0%-40% | 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.
The expected future benefit payments for both pension plans over the expected termnext ten years as of December 31, 2023, are estimatedas follows:
| | | | | | | | |
In thousands | | |
2024 | | $ | 89,460 | |
2025 | | 4,017 | |
2026 | | 4,111 | |
2027 | | 4,217 | |
2028 | | 4,327 | |
2029 - 2033 | | 22,809 | |
Total | | $ | 128,941 | |
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 be nil.2018. Under this plan, both employee and matching contributions vest immediately. We stopped this 401(k) match program in 2018 and resumed it in 2023. We incurred $1.2 million in 401k match expense in both 2023 and 2022.
Note I — CommitmentsIncome Taxes
Coronavirus Aid, Relief and ContingenciesEconomic Security Act
AtThe CARES Act, signed in March 2020, 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, 2020 or 2021. 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, 2017,2020, 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, 2022, the Company has received the tax refunds for the tax years 2019 and 2018 and $2.5 million of income tax refunds from the carryback of the loss generated in 2020. We have received the remaining tax refund of $5.3 million in March 2023.
The components of income tax benefit are as follows:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2023 | | 2022 |
Current | | | | |
Federal | | $ | (10) | | | $ | 60 | |
State and local | | 264 | | | 774 | |
Foreign | | 871 | | | 1,546 | |
Total current | | $ | 1,125 | | | $ | 2,380 | |
| | | | |
Deferred | | | | |
Federal | | $ | (1,340) | | | $ | (11,496) | |
State and local | | (216) | | | (8,347) | |
Foreign | | 82 | | | — | |
Total deferred | | $ | (1,474) | | | $ | (19,843) | |
| | | | |
Total income benefit | | $ | (349) | | | $ | (17,463) | |
The U.S. and foreign components of income (loss) before income taxes were as follows:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2023 | | 2022 |
United States | | $ | (7,546) | | | $ | 10,252 | |
Foreign | | 5,627 | | | 9,061 | |
Total (loss) income before income taxes | | $ | (1,919) | | | $ | 19,313 | |
The provision (benefit) for income taxes is based on the various rates set by federal, foreign and local authorities and is affected by permanent and temporary differences between financial accounting and tax reporting requirements. The principal reasons for the difference between the statutory rate and the annual effective rate for 2023 were the state taxes, change in valuation allowance, federal and foreign income tax credits and the benefit of excess stock benefits on vested restricted stock, offset by flow-through partnership income from a United Kingdom affiliate. The principal reasons for the difference between the statutory rate and the annual effective rate for 2022 were the impact of the release of the majority of the U.S. valuation allowance, federal and foreign income tax credits, and the benefit of excess stock benefits on vested restricted stock, offset by flow-through partnership income from a United Kingdom affiliate.
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:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2023 | | 2022 |
Computed expected income tax (benefit) expense | | $ | (403) | | | $ | 4,056 | |
Net effect of state income taxes | | (206) | | | 1,074 | |
Foreign subsidiary dividend inclusions | | 507 | | | 639 | |
Foreign tax rate differential | | (257) | | | (349) | |
Change in valuation allowance | | (562) | | | (18,243) | |
Return to Provision | | 706 | | | (141) | |
Change in Rate | | 165 | | | (2,172) | |
Credits | | (543) | | | (1,126) | |
Adjustments to State Attributes | | (137) | | | (1,330) | |
Other Adjustments, net | | 381 | | | 129 | |
Income tax benefit | | $ | (349) | | | $ | (17,463) | |
Total income tax benefit was allocated as follows:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2023 | | 2022 |
Loss from operations | | $ | (349) | | | $ | (17,463) | |
Stockholders’ equity (deficit) | | — | | | — | |
Total | | $ | (349) | | | $ | (17,463) | |
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2023 | | 2022 |
Deferred tax assets | | | | |
Deferred compensation and retirement plan | | $ | 9,667 | | | $ | 10,246 | |
Accrued expenses not deductible until paid | | 1,177 | | | 33 | |
Lease liability | | 6,979 | | | 5,591 | |
Investment in foreign subsidiaries, outside basis difference | | 1,604 | | | 1,047 | |
Interest Expense limitations | | 971 | | | 913 | |
Other, net | | 1,320 | | | 1,667 | |
Foreign net operating loss carryforwards | | 1,382 | | | 1,623 | |
State net operating loss carryforwards | | 5,309 | | | 5,184 | |
Foreign tax credit carryforwards | | 3,730 | | | 4,212 | |
General Business Credit Carryovers | | 538 | | | 546 | |
Total gross deferred tax assets | | 32,677 | | | 31,062 | |
Less valuation allowances | | (7,091) | | | (7,652) | |
Net deferred tax assets | | $ | 25,586 | | | $ | 23,410 | |
| | | | |
Deferred tax liabilities | | | | |
Property, plant and equipment | | $ | (1,485) | | | $ | (2,024) | |
Right-of-use asset | | (6,144) | | | (4,765) | |
Other, net | | (689) | | | (315) | |
Total gross deferred tax liabilities | | (8,318) | | | (7,104) | |
Net deferred tax assets | | $ | 17,268 | | | $ | 16,306 | |
In assessing the realizability of deferred tax assets, we had lettersconsider whether it is more likely than not that some portion or all of creditthe deferred tax assets will not be realized. After considering the weight of available evidence, both positive and negative (most notably the Company’s sustained growth over the past two years), the Company concluded that it is more-likely-than-not that it will realize the majority of its U.S. deferred tax assets. Certain foreign tax credits as well as certain state net operating loss carryovers will continue to have a valuation allowance until there is substantial evidence that enough future taxable income exists at a more likely than not level in order to utilize those deferred tax assets. The valuation allowance for deferred tax assets was $7.1 million and $7.7 million as of December 31, 2023 and 2022, respectively. The change in the amount of $2.8valuation allowance is $0.6 million backed by cash collateral. No amounts were drawn against these letters of credit atfor the year ended December 31, 2017. These letters of credit exist to support insurance programs relating to workers’ compensation, automobile, and general liability.2023.
In the normal courseWe or one of our business,subsidiaries file income tax returns in the U.S. federal, U.S. state, and foreign jurisdictions. For U.S. state, federal and foreign returns, we are obligated under some agreementsno longer subject to indemnify our clientstax examinations for years prior to 2018.
There is no balance of unrecognized tax benefits as of December 31, 2023 and 2022. Any adjustments to this liability as a result of claims that we infringe on the proprietary rightsfinalization of third parties. The termsaudits or potential settlements would not be material.
We have elected to classify any interest 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 there under; accordingly, our actual aggregate maximum exposurepenalties related to these typesincome taxes within income tax expense in our Consolidated Statements of commitments cannotComprehensive Income (loss).
For U.S. tax return purposes, net operating losses and tax credits are normally available to be reasonably estimated. Historically, wecarried forward to future years, subject to limitations as discussed below. As of December 31, 2023, the Company had no federal net operating loss carryforward. The federal foreign tax carryforward credits of $3.7 million will expire on various dates from 2023 to 2032. Federal general business credit carryforwards of $0.5 million will begin to expire on various dates from 2037 to 2042. The Company has state NOL carryforwards of $109.0 million, and foreign NOL carryforwards of $4.4 million.
Deferred income taxes have not been obligated to make significant payments for obligationsprovided on the undistributed earnings of this nature, and no liabilitiesour foreign subsidiaries as these earnings have been, recorded forand under current plans will continue to be, permanently reinvested in these obligations in our financial statements.subsidiaries. It is not practicable to
We are also currently subject to various other legal proceedingsestimate the amount of additional taxes which may be payable upon the distribution of these earnings. However, because of the provisions in the courseTax Reform Act, the tax cost of conducting our businessesrepatriation is immaterial and from timelimited to time, we may become involved in additional claimsforeign withholding taxes, currency translation and lawsuits incidental to our businesses. In the opinion of management, after consultation with counsel, none of these matters is currently considered to be reasonably possible of resulting in a material adverse effect on our consolidated financial position or results of operations. Nevertheless, we cannot predict the impact of future developments affecting our pending or future claims and lawsuits and any resolution of a claim or lawsuit within a particular fiscal quarter may adversely impact our results of operations for that quarter. 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.state taxes.
Note J — Leases
We lease real estate and certain equipment under numerous lease agreements, most of which contain some renewal options. The total rent expense applicable to operating leases was $13.1 million, $12.4 million, and $13.6 million for the years ended December 31, 2017, 2016, and 2015, respectively.
Step rent provisions and escalation clauses, normal tenant improvements, rent holidays, and other lease concessions are taken into account in computing minimum lease payments. We recognize the minimum lease payments on a straight-line basis over the minimum lease term.
The future minimum rental commitments for all non-cancelable operating leases with terms in excess of one year as of December 31, 2017 are as follows:
|
| | | | |
In thousands | | |
2018 | | $ | 8,753 |
|
2019 | | 8,500 |
|
2020 | | 6,495 |
|
2021 | | 3,889 |
|
2022 | | 2,016 |
|
Thereafter | | 1,823 |
|
Total | | $ | 31,476 |
|
We also lease certain equipment and software under capital leases. Our capital lease obligations at year-end were as follows:
|
| | | | | | | | |
In thousands | | 2017 | | 2016 |
Current portion of capital leases | | $ | 506 |
| | $ | 559 |
|
Long-term portion of capital leases | | 486 |
| | 1,018 |
|
Total capital lease obligation | | $ | 992 |
| | $ | 1,577 |
|
The future minimum lease payments for all capital leases operating as of December 31, 2017 are as follows:
|
| | | | |
In thousands | | |
2018 | | $ | 506 |
|
2019 | | 453 |
|
2020 | | 32 |
|
2021 | | 1 |
|
2022 | | — |
|
Thereafter | | — |
|
Total | | $ | 992 |
|
Note K — Earnings (Loss) Per Share
In periods in which the companyCompany has net income, the companyCompany is required to calculate earnings per share (“EPS”) using the two-class method. The two-class method is required because the company's unvested shares granted prior to 2017 areCompany’s Series A Preferred Stock is considered a participating securities. Participating securitiessecurity with objectively determinable and non-discretionary dividend participation rights. Series A Preferred stockholders have the right to receiveparticipate in dividends above their five percent dividend rate should the companyCompany declare dividends on its common stock.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 restrictedthe preferred stockholders. The weighted-average number of common and restricted sharespreferred stock outstanding during the period is then used to calculate EPS for each class of shares.
In December 2022, we repurchased all 9,926 shares of the Company's Series A Preferred Stock then outstanding.
In periods in which the companyCompany 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 two-class calculation iswould be anti-dilutive.
On January 31, 2018, we affected a 1-for-10 reverse stock split of our common stock. The calculation of basic and diluted earnings (loss) per share, as presented in the consolidated financial statements, have been adjusted to retroactively apply the reverse stock split.
Reconciliations of basic and diluted earnings (loss) per share ("EPS")EPS are as follows:
|
| | | | | | | | | | | | |
In thousands, except per share amounts | | 2017 | | 2016 | | 2015 |
Net Income (Loss) | | |
| | |
| | |
|
Income (loss) from continuing operations | | $ | (41,860 | ) | | $ | (89,778 | ) | | $ | (181,066 | ) |
Income (loss) from discontinued operations | | — |
| | (41,159 | ) | | 10,138 |
|
Net income (loss) | | $ | (41,860 | ) | | $ | (130,937 | ) | | $ | (170,928 | ) |
| | | | | | |
Basic EPS | | |
| | |
| | |
|
Weighted-average common shares outstanding used in earnings per share computations | | 6,192 |
| | 6,149 |
| | 6,164 |
|
| | | | | | |
Basic earnings (loss) per share | | |
| | |
| | |
|
Continuing operations | | $ | (6.76 | ) | | $ | (14.60 | ) | | $ | (29.37 | ) |
Discontinued operations | | — |
| | (6.69 | ) | | 1.64 |
|
Basic earnings (loss) per share | | $ | (6.76 | ) | | $ | (21.29 | ) | | $ | (27.73 | ) |
| | | | | | |
Diluted EPS | | |
| | |
| | |
|
Shares used in diluted earnings per share computations | | 6,192 |
| | 6,149 |
| | 6,164 |
|
| | | | | | |
Basic earnings (loss) per share | | |
| | |
| | |
|
Continuing operations | | $ | (6.76 | ) | | $ | (14.60 | ) | | $ | (29.37 | ) |
Discontinued operations | | — |
| | (6.69 | ) | | 1.64 |
|
Basic earnings (loss) per share | | $ | (6.76 | ) | | $ | (21.29 | ) | | $ | (27.73 | ) |
| | | | | | |
Computation of Shares Used in Earnings Per Share Computations | | |
| | |
| | |
|
Weighted-average common shares outstanding | | 6,192 |
| | 6,149 |
| | 6,164 |
|
Weighted-average common equivalent shares-dilutive effect of stock options and awards | | — |
| | — |
| | — |
|
Shares used in diluted earnings per share computations | | 6,192 |
| | 6,149 |
| | 6,164 |
|
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands, except per share amounts | | 2023 | | 2022 |
Numerator: | | | | |
Net (loss) income | | $ | (1,570) | | $ | 36,776 |
Less: Loss from redemption of Preferred stock | | — | | 1,380 |
Numerator for basic and diluted EPS: income attributable to common stockholders | | (1,570) | | 35,396 |
| | | | |
Denominator: | | | | |
Basic EPS denominator: weighted-average common shares outstanding | | 7,310 | | 7,101 |
Diluted EPS denominator | | 7,310 | | 7,457 |
| | | | |
Basic (loss) income per common share | | $ | (0.21) | | | $ | 4.98 | |
Diluted (loss) income per common share | | $ | (0.21) | | | $ | 4.75 | |
For the purpose of calculating the shares used in the diluted EPS calculations, 0.3 million, 0.4 million, and 0.5 million anti-dilutive options have been excluded from the EPS calculations for the years ended December 31, 2017, 2016,2023 and 2015, respectively. 0.1 million, 0.1 million, and 0.1 million anti-dilutive unvested2022, respectively, the following shares werehave been excluded from the calculation of shares used in the diluted EPS calculation for the years ended December 31, 2017, 2016,calculation: 99,791 and 2015, respectively.13,366 shares of anti-dilutive market price options; 37,653 and 24,918 anti-dilutive unvested shares.
Note LK — 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. Our comprehensive income (loss) was as follows:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2017 | | 2016 | | 2015 |
Net income (loss) | | $ | (41,860 | ) | | $ | (130,937 | ) | | $ | (170,928 | ) |
| | | | | | |
Other comprehensive income (loss): | | |
| | |
| | |
|
Adjustment to pension liability | | 2,597 |
| | (5,103 | ) | | 9,408 |
|
Tax (expense) benefit | | (1,038 | ) | | 2,041 |
| | (3,763 | ) |
Adjustment to pension liability, net of tax | | 1,559 |
| | (3,062 | ) | | 5,645 |
|
Foreign currency translation adjustment | | 316 |
| | 444 |
| | (1,976 | ) |
Total other comprehensive income (loss) | | $ | 1,875 |
| | $ | (2,618 | ) | | $ | 3,669 |
|
| | | | | | |
Total comprehensive income (loss) | | $ | (39,985 | ) | | $ | (133,555 | ) | | $ | (167,259 | ) |
Changes in accumulated other comprehensive income (loss)loss by component arewere as follows:
| | | | | | | | | | | | | | | | | | | | |
In thousands | | Defined Benefit Pension Items | | Foreign Currency Items | | Total |
Balance at December 31, 2021 | | $ | (54,394) | | | $ | 1,066 | | | $ | (53,328) | |
Other comprehensive loss, net of tax, before reclassifications | | — | | | (5,248) | | | (5,248) | |
Amounts reclassified from accumulated other comprehensive loss, net of tax | | 10,274 | | | — | | | 10,274 | |
Net current period other comprehensive income (loss), net of tax | | 10,274 | | | (5,248) | | | 5,026 | |
Balance at December 31, 2022 | | $ | (44,120) | | | $ | (4,182) | | | $ | (48,302) | |
Other comprehensive income, net of tax, before reclassifications | | — | | | 2,548 | | | 2,548 | |
Amounts reclassified from accumulated other comprehensive loss, net of tax | | 1,664 | | | — | | | 1,664 | |
Net current period other comprehensive income, net of tax | | 1,664 | | | 2,548 | | | 4,212 | |
Balance at December 31, 2023 | | $ | (42,456) | | | $ | (1,634) | | | $ | (44,090) | |
|
| | | | | | | | | | | | |
In thousands | | Defined Benefit Pension Items | | Foreign Currency Items | | Total |
Balance at December 31, 2015 | | $ | (43,915 | ) | | $ | 355 |
| | $ | (43,560 | ) |
Other comprehensive loss, net of tax, before reclassifications | | — |
| | 444 |
| | 444 |
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax | | (3,062 | ) | | — |
| | (3,062 | ) |
Net current period other comprehensive income (loss), net of tax | | (3,062 | ) | | 444 |
| | (2,618 | ) |
Balance at December 31, 2016 | | $ | (46,977 | ) | | $ | 799 |
| | $ | (46,178 | ) |
Other comprehensive loss, net of tax, before reclassifications | | — |
| | 316 |
| | 316 |
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax | | 1,559 |
| | — |
| | 1,559 |
|
Net current period other comprehensive income (loss), net of tax | | 1,559 |
| | 316 |
| | 1,875 |
|
Balance at December 31, 2017 | | $ | (45,418 | ) | | $ | 1,115 |
| | $ | (44,303 | ) |
Reclassification amounts related to the defined pension plans are included in the computation of net period pension benefit cost (see Note F, H, Employee Benefit Plans)Plans).
Note MNote L — Acquisition and Dispositionof InsideOut Solutions, LLC
On March 4, 2016,December 1, 2022 (the “Closing Date”), we acquired Aleutian Consulting, Inc. for $3.5 million in cash. The resultspurchased substantially all of the acquired business, which now operates as Harte Hanks Consulting, have been included in continuing operations beginning the dayassets (the “Transaction”) of acquisition. The residual purchase price methodology was usedInsideOut Solutions, LLC, a Florida limited liability company (“InsideOut”), for determination of fair value of the tangible assets and goodwill allocation. The calculation relied on management's assumptions, which are considered Level 3 inputs, as they are unobservable
On March 16, 2015, we acquired 3Q Digital. The results of the acquired entity have been included in continuing operations beginning the day of acquisition. The fair value of the purchase consideration recognized on acquisition was $48.2 million including an initialaggregate purchase price of $30.2approximately $7.5 million (the “Purchase Price”) pursuant to an asset purchase agreement, dated as of December 1, 2022, by and between Harte Hanks and InsideOut (the “Asset Purchase Agreement”). The acquisition of InsideOut further expands our capabilities into premium sales enablement within the customer care segment and strengthens our ability to drive profitable revenue growth within our sales enablement offerings, including: (i) demand generation which creates qualified marketing leads for our clients, and (ii) inside sales offerings to further promote a client’s internal growth objectives.
Pursuant to the Asset Purchase Agreement, $5.75 million of the Purchase Price was paid in cash at closing, $1.0 million in cash was placed in escrow to satisfy indemnification obligations, and earn-outs related to future revenue performance. Separately, $0.75 million of the Purchase Price was paid at closing in 70,956 shares of Harte Hanks common stock. The share amount was based on the volume weighted closing price over the 15 trading days ending on November 28, 2022. In the year ended December 31, 2023, InsideOut didn't meet the performance requirement to earn the 1st installment of $0.5 million of the $1.0 million in escrow. As a $17.9result, $0.50 million liability forwas refunded from the present value of a contingent considerationescrow account and our goodwill amount was decreased by $0.5 million. The remaining $0.5 million cash in escrow account is included in the agreement. The contingent consideration requires us to pay the former owners an additional sum dependent upon achievementother assets in our balance sheet as of certain goals up to $35.0 million in cash. For the year ending December 31, 2017, 3Q Digital had achieved the maximum contingent consideration payout. A portion of the fair value of the purchase consideration is allocated to the tangible and intangible assets transferred based on their estimated fair value at2023.
The acquisition was accounted for under the acquisition date. The acquired intangible assets aremethod of accounting with the Company treated as follows: customer relationships of $4.3 million (amortized over seven years), trade names and trademarks of $0.3 million (amortized over two years), and non-compete agreements of $0.2 million (amortized over three years).
The following tables summarizethe acquiring entity. Accordingly, the consideration paid andby the amounts of estimated fair value ofCompany to complete the acquisition has been recorded to the assets acquired and liabilities assumed atbased upon their estimated fair values as of the date of the acquisition. The carrying values for current assets and liabilities were deemed to approximate their fair values due to the short-term nature of these assets and liabilities. The following table shows the amounts recorded as of their acquisition date.
| | | | | | | | |
in thousands | | Amount |
Accounts receivable | | $1,445 | |
Prepaid expenses | | 148 | |
Property, plant and equipment | | 177 | |
Total assets acquired | | 1,770 | |
Less: Current liabilities assumed | | (761) | |
Net assets acquired | | $1,009 | |
|
| | | | |
In thousands | | |
Cash consideration per purchase agreement | | $ | 30,245 |
|
Estimated fair value of contingent consideration | | 17,940 |
|
Fair value of total consideration | | $ | 48,185 |
|
The Purchase Price was subject to a post-closing net working capital true-up. The true up made was immaterial. |
| | | | |
In thousands | | |
Recognized amounts of tangible assets and liabilities: | | |
Current assets | | $ | 4,135 |
|
Property and equipment | | 164 |
|
Other assets | | 389 |
|
Current liabilities | | (822 | ) |
Other liabilities | | — |
|
Total tangible assets and liabilities | | $ | 3,866 |
|
Identifiable intangible assets | | 4,773 |
|
Goodwill (including deferred tax adjustment of $2,299) | | 41,845 |
|
Total | | $ | 50,484 |
|
We recognized $3.6 million of intangible assets and $2.4 million of goodwill associated with this acquisition. The amount of goodwill recorded reflects expected earning potential and synergies with our Customer Care segment. We are amortizing the intangible assets on a straight-line basis over its useful life of five years. A reconciliationsummary of the beginning and ending accrued balancesCompany’s intangible asset as of the contingent consideration using significant unobservable inputs (Level 3)December 31, 2023, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | Weighted Average Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer Relationships | | 5 years | | $ | 3,600 | | | $ | 780 | | | $ | 2,820 | |
Estimated future amortization expense related to intangible assets as of December 31, 2023, is as follows:
| | | | | | | | |
In thousands | | |
Year Ending December 31, | | Amount |
2024 | | $ | 720 | |
2025 | | 720 | |
2026 | | 720 | |
2027 | | 660 | |
Total | | $ | 2,820 | |
The Company's results of operations for the year ended December 31, 2023 includes revenue of $9.7 million from the InsideOut operation.
Note M — Litigation and Contingencies
|
| | | | |
In thousands | | |
Accrued contingent consideration liability as of December 31, 2015 | | $ | 20,277 |
|
Accretion of interest | | 2,430 |
|
Adjustments to fair value | | 7,018 |
|
Accrued contingent consideration liability as of December 31, 2016 | | 29,725 |
|
Accretion of interest | | 4,162 |
|
Accrued contingent consideration liability as of December 31, 2017 | | $ | 33,887 |
|
In the normal course of our business, we are obligated under some agreements to indemnify our clients as a result of third party claims that we infringe on the proprietary rights of third parties, or third party claims relating to other ad hoc contract obligations. The terms and duration of these commitments vary and, in some cases, may be indefinite, and some of these contractual 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.
AdjustmentsWe are also subject to various claims and legal proceedings in the ordinary course of conducting our business and, from time to time, we may become involved in additional claims and lawsuits incidental to our business. We routinely assess the likelihood of adverse judgments or outcomes to these matters, as well as ranges of probable losses; to the fair value of the contingent considerationextent losses are reasonably estimable. Accruals are recorded within the "Other, net" line in the Consolidated Statements of Comprehensive Income (Loss).
On February 28, 2018, we completed the sale of 3Q Digital to an entity owned by certain former owners of the 3Q Digital business. Consideration for the sale included $5.0 million in cash proceeds, subject to certain working capital adjustments, and up to $5.0 million in additional consideration if the 3Q Digital business is sold again. The contingent consideration that related to Harte Hanks' acquisition of 3Q Digital in 2015 was assignedthese matters to the buyer, therefore relieving Harte Hanksextent 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 obligation. See Note P, Subsequent Events,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 further discussion.
On April 14, 2015, Harte Hanks sold its B2B research business. The sale resulted in a pre-tax loss of $9.5 million incontingencies include, among others: (i) the second quarter of 2015. The related asset group represented less than 5%opinions and views of our total 2014 revenuegeneral counsel and did not meetoutside legal counsel; (ii) our previous experience with similar claims; and (iii) the criteriadecision of our management as to be classified as a component of the entity. As such, the related loss on sale is included in continuing operations of the Consolidated Financial Statements. The sale resulted in write-offs of both goodwill and intangible assets allocatedhow we intend to respond to the B2B research business (see Note E, Goodwill and Other Intangible Assets).complaints.
Note N — Discontinued OperationsRestructuring Activities
OnFor the year ended December 23, 2016,31, 2023, we completed the salerecorded restructuring charges of our Trillium business to Syncsort.$5.7 million. The decision to sell Trillium was largely based on the prioritization of investments in support of optimizing our clients' customer journey across an omni-channel delivery platform, and the determination that the Trillium business is likely to be a better strategic fit and more valuable asset to other parties. The business was sold for gross proceeds of approximately $112.0 million in cash and resulted in a loss on the sale of $39.9 million, net of2023 restructuring charges included $4.6 million of income tax benefit. We believe thatconsulting expenses, $0.8 million in lease impairment expense, $0.2 million of severance charges, and $0.1 million of facility related and other expenses.
The following table summarizes the salerestructuring charges which are recorded in “Restructuring Expense” in the Consolidated Statement of Trillium will allow usComprehensive Income.
| | | | | | | | |
In thousands | | Year Ended December 31, 2023 |
Consulting expense | | $ | 4,579 | |
Severance | | 169 | |
Facility, asset impairment and other expense | | |
Lease impairment and termination expense | | 798 | |
Fixed Asset disposal and impairment charges | | 63 | |
Facility and other expenses | | 78 | |
Total facility, asset impairment and other expense | | 939 | |
| | |
Total | | $ | 5,687 | |
The following table summarizes the changes in liabilities related to better focus onrestructuring activities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2023 |
In thousands | | Consulting | | Severance | | Facility, asset impairment and other expense | | Total |
Beginning balance: | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Additions | | 4,579 | | | 169 | | | 78 | | | 4,826 | |
Payments and adjustment | | (1,005) | | | (25) | | | (40) | | | (1,070) | |
Ending balance: | | $ | 3,574 | | | $ | 144 | | | $ | 38 | | | $ | 3,756 | |
In connection with our core Customer Interaction businessescost-saving and moving towards growth.
Because the salerestructuring initiatives, we expect to incur total restructuring charges of Trillium represents a strategic shift that has a major effect on our operations and financial results, the results of operations, financial position, and cash flows for Trillium are reported separately as discontinued operations for all periods presented. Results of the remaining Harte Hanks business are reported as continuing operations.
Summarized operating results for the Trillium discontinued operations,$10.1 million through the datesend of disposal, are as follows:2024.
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2017 | | 2016 | | 2015 |
Revenue | | $ | — |
| | $ | 45,639 |
| | $ | 51,135 |
|
| | | | | | |
Labor | | — |
| | 18,687 |
| | 22,219 |
|
Production and distribution | | — |
| | 703 |
| | 1,404 |
|
Advertising, selling, general and administrative | | — |
| | 10,255 |
| | 9,951 |
|
Depreciation, software and intangible asset amortization | | — |
| | 2,304 |
| | 1,867 |
|
Interest expense, net | | — |
| | 7,133 |
| | (256 | ) |
Loss on sale | | — |
| | 44,529 |
| | — |
|
Other, net | | — |
| | (1,207 | ) | | 366 |
|
Income (loss) from discontinued operations before income taxes | | — |
| | (36,765 | ) | | 15,584 |
|
Income tax expense | | — |
| | 4,394 |
| | 5,446 |
|
Net income (loss) from discontinued operations | | $ | — |
| | $ | (41,159 | ) | | $ | 10,138 |
|
Note O — Selected Quarterly Data (Unaudited)Segment Reporting
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
In thousands, except per share amounts | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Revenues | | $ | 94,894 |
| | $ | 99,563 |
| | $ | 94,722 |
| | $ | 97,317 |
| | $ | 94,424 |
| | $ | 97,425 |
| | $ | 99,866 |
| | $ | 110,107 |
|
| | | | | | | | | | | | | | | | |
Operating income (loss) from continuing operations | | (6,342 | ) | | (8,547 | ) | | (1,791 | ) | | (6,689 | ) | | 950 |
| | (4,086 | ) | | (33,682 | ) | | (34,514 | ) |
| | | | | | | | | | | | | | | | |
Income (loss) from continuing operations before income taxes | | (8,862 | ) | | (9,278 | ) | | (4,852 | ) | | (8,001 | ) | | (2,098 | ) | | (5,386 | ) | | (35,942 | ) | | (46,483 | ) |
| | | | | | | | | | | | | | | | |
Loss from continuing operations | | (7,386 | ) | | (6,700 | ) | | (2,653 | ) | | (5,902 | ) | | (2,480 | ) | | (4,285 | ) | | (29,341 | ) | | (72,891 | ) |
Discontinued operations, net of tax | | — |
| | 1,097 |
| | — |
| | 1,639 |
| | — |
| | 1,244 |
| | — |
| | (45,139 | ) |
Net income (loss) | | $ | (7,386 | ) | | $ | (5,603 | ) | | $ | (2,653 | ) | | (4,263 | ) | | $ | (2,480 | ) | | $ | (3,041 | ) | | $ | (29,341 | ) | | $ | (118,030 | ) |
| | | | | | | | | | | | | | | | |
Basic earnings (loss) per common share | | | | | | | | | | | | | | | | |
Continuing operations | | $ | (1.20 | ) | | $ | (1.09 | ) | | $ | (0.43 | ) | | $ | (1.12 | ) | | $ | (0.40 | ) | | $ | (0.70 | ) | | $ | (4.73 | ) | | $ | (11.83 | ) |
Discontinued operations | | $ | — |
| | $ | 0.18 |
| | $ | — |
| | $ | 0.40 |
| | $ | — |
| | $ | 0.20 |
| | $ | — |
| | $ | (7.33 | ) |
| | | | | | | | | | | | | | | | |
Diluted earnings (loss) per common share | | | | | | | | | | | | | | | | |
Continuing operations | | $ | (1.20 | ) | | $ | (1.09 | ) | | $ | (0.43 | ) | | $ | (1.12 | ) | | $ | (0.40 | ) | | $ | (0.70 | ) | | $ | (4.73 | ) | | $ | (11.83 | ) |
Discontinued operations | | $ | — |
| | $ | 0.18 |
| | $ | — |
| | 0.40 |
| | $ | — |
| | $ | 0.20 |
| | $ | — |
| | $ | (7.33 | ) |
Earnings per common share amounts are computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share amounts may not equal the quarterly earnings per share amounts or the annual earnings per share amounts due to rounding.
Note P — Subsequent Events
Amendment to Credit Facility
On January 9, 2018, we enteredHarte Hanks is a leading global customer experience company. We have organized our operations into an amendment to the Texas Capital Credit Facility that increased the borrowing capacity to $22 million and extended the maturity by one year to April 17, 2020. The Texas Capital Credit Facility remains secured by substantially all of our assets and continues to be guaranteed by HHS Guaranty, an entity formed by certain members of the descendants of one of our founders. For additional information regarding the amendment to the Texas Capital Credit Facility refer to Note C, Long-Term Debt.
Securities Purchase Agreement
On January 23, 2018, we entered into a Securities Purchase Agreement with Wipro, LLC. The agreement consisted of a $9.9 million investment in exchange for 9,926 shares of Series A Preferred Stock. Dividendsthree business segments based on the Series A Preferred Stocktypes of products and services we provide: Marketing Services, Customer Care, and Fulfillment & Logistics.
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 accrued at a ratehandled 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 segment consists of 5.0% per year or the rate that cash dividends were paid in respect to shares of common stock if such rate is greater than 5.0%. The aggregate shares issued under the Securities Purchase Agreements are convertible into 16% of our common stock on a pre-closing basis, priced at $9.91 per share of common stock.
Along with customary protective provisions, Wipro, LLC will be able to designate an observer or director to the Board.mail and product fulfillment and logistics services. We intend to use the proceeds for general corporate purposes including for working capital purposes.
Since 2016, Wipro, LLC has providedoffer a variety of technology-related serviceproduct 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.
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 and operating income plus depreciation and amortization (“EBITDA”). Operating income for segment reporting, disclosed below, is revenues less operating costs and allocated corporate expenses. Segment operating expenses are generally directly attributed to our segments and also 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 Company, including databaseoperating groups. Interest income and software development, database support and analytics, IT infrastructure support, and digital campaign management. Transactions with Wipro, LLC will be classified and disclosed in 2018 as related party transactions in accordance with ASC 850, Related Party Disclosures, and in accordance with the SEC's Regulation S-X Rule 4-08(k), as applicable.
Reverse Stock Split
On January 31, 2018, we executed a 1-for-10 reverse stock split. Pursuantexpense are not allocated to the reverse stock split, every 10 pre-split shares were exchangedsegments. The Company does not allocate assets to our reportable segments for one post-split shareinternal reporting purposes, nor does our CEO evaluate operating segments using discrete asset information. The accounting policies of Harte Hanks' Common Stock. For additional information regarding the Reverse Stock Split refer tosegments are consistent with those described in the Note A, B, Significant Accounting Policies.Policies.
The following table presents financial information by segment year ended December 31, 2023:
Sale of 3Q Digital | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Marketing Services | | Customer Care | | Fulfillment & Logistics | | Restructuring | | Unallocated Corporate | | Total |
| | | | | | | | | | | | |
Operating revenue | | $ | 43,204 | | | $ | 63,327 | | | $ | 84,961 | | | $ | — | | | $ | — | | | $ | 191,492 | |
Segment operating expense | | 34,795 | | | 49,851 | | | 73,213 | | | — | | | 20,350 | | | 178,209 | |
Restructuring expense | | — | | | — | | | — | | | 5,687 | | | — | | | 5,687 | |
Contribution margin | | $ | 8,409 | | | $ | 13,476 | | | $ | 11,748 | | | $ | (5,687) | | | $ | (20,350) | | | $ | 7,596 | |
Overhead Allocation | | 2,984 | | | 2,774 | | | 2,891 | | | — | | | (8,649) | | | — | |
EBITDA | | $ | 5,425 | | | $ | 10,702 | | | $ | 8,857 | | | $ | (5,687) | | | $ | (11,701) | | | $ | 7,596 | |
Depreciation and amortization expense | | 312 | | | 1,280 | | | 1,143 | | | — | | | 1,502 | | | 4,237 | |
Operating income (loss) | | $ | 5,113 | | | $ | 9,422 | | | $ | 7,714 | | | $ | (5,687) | | | $ | (13,203) | | | $ | 3,359 | |
The following table presents financial information by segment year ended December 31, 2022:
On February 28, 2018, we sold our 3Q Digital, Inc. subsidiary to an entity owned by certain former owners of the 3Q Digital business. Consideration for the sale included $5.0 million in cash proceeds, subject to certain working capital adjustments, and up to $5.0 million in additional consideration if the 3Q Digital business is sold again. The $35.0 million contingent consideration obligation of the company that related to Harte Hanks' acquisition of 3Q Digital in 2015 was assigned to the buyer, therefore relieving Harte Hanks of the obligation.
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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Marketing Services | | Customer Care | | Fulfillment & Logistics | | Restructuring | | Unallocated Corporate | | Total |
| | | | | | | | | | | | |
Operating revenue | | $ | 52,975 | | | $ | 67,205 | | | $ | 86,098 | | | $ | — | | | $ | — | | | $ | 206,278 | |
Segment operating expense | | 41,241 | | | 52,173 | | | 72,180 | | | — | | | 22,849 | | | 188,443 | |
Restructuring expense | | — | | | — | | | — | | | — | | | — | | | — | |
Contribution margin | | $ | 11,734 | | | $ | 15,032 | | | $ | 13,918 | | | $ | — | | | $ | (22,849) | | | $ | 17,835 | |
Overhead allocation | | 4,390 | | | 2,865 | | | 3,325 | | | — | | | (10,580) | | | — | |
EBITDA | | $ | 7,344 | | | $ | 12,167 | | | $ | 10,593 | | | $ | — | | | $ | (12,269) | | | $ | 17,835 | |
Depreciation and amortization expense | | 362 | | | 884 | | | 824 | | | — | | | 658 | | | 2,728 | |
Operating income (loss) | | $ | 6,982 | | | $ | 11,283 | | | $ | 9,769 | | | $ | — | | | $ | (12,927) | | | $ | 15,107 | |
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Exhibit | | |
No. | | Description of Exhibit |
Acquisition and Dispositions
|
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2.1 | | Asset Purchase Agreement, dated September 18, 2013, by and among Harte Hanks Shoppers, Inc., Southern Comprint Co. and Harte Hanks, Inc., on the one hand, and Pennysaver USA Publishing, LLC, Pennysaver USA Printing, LLC, Orbiter Properties, LLC and OpenGate Capital Management, LLC, on the other hand (filed as Exhibit 2.1 to the company’s Form 8-K dated September 19, 2013). |
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2.2 | | Agreement and Plan of Merger, dated March 16, 2015, among Harte Hanks, Inc., Harte Hanks Smart, Inc., 3Q Digital, Inc. and Maury Domengeaux, as representative to the stockholders of 3Q Digital, Inc. (filed as Exhibit 2.1 to the company's Form 10-Q dated May 7, 2015). |
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2.3 | | |
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2.4 | | Stock Purchase Agreement, dated November 29, 2016, by and among Syncsort Incorporated, Syncsort Limited, Syncsort GmbH, Harte Hanks, Inc., Harte-Hanks UK Limited, Harte-Hanks GmbH, Trillium Software, Inc., Harte-Hanks Trillium UK Limited, Harte-Hanks Trillium Software Germany GmbH and Harte Hanks, Inc. as sellers’ representative (filed as Exhibit 2.1 to the company's Form 8-K dated December 30, 2016). |
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2.5 | | |
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2.6 | | |
Charter Documents
Credit Agreements
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10.1(a) | | |
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10.1(b) | | |
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10.1(c) | | |
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10.1(d) | | |
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10.1(e) | | |
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10.1(f) | | |
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10.1(g) | | |
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Management and Director Compensatory Plans and Forms of Award Agreements
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10.2(a) | | |
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10.2(b) | | |
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10.2(c) | | |
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10.2(d) | | |
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10.2(e) | | |
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10.2(f) | | |
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10.2(g) | | |
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10.2(h) | | |
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10.2(i) | | |
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10.2(j) | | |
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10.2(k) | | |
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10.2(l) | | |
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10.2(m) | | |
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10.2(n) | | |
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10.2(o) | | |
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10.2(p) | | |
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10.2(q) | | |
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10.2(r) | | |
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10.2(s) | | |
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10.2(t) | | |
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10.2(u) | | |
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10.2(v) | | |
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10.2(w) | | |
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10.2(x) | | |
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10.2(y) | | |
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10.2(z) | | |
Executive Officer Employment-Related and Separation Agreements
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10.3(a) | | |
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10.3(b) | | |
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10.3 (c) | | |
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10.3 (d) | | |
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10.3 (e) | | |
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10.3 (f) | | |
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10.3 (g) | | |
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10.3 (h) | | |
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10.3(i) | | |
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10.3(j) | | |
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10.3(k) | | |
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10.3(l) | | |
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10.3(m) | | |
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10.3(n) | | |
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10.3(o) | | |
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10.3(p) | | |
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10.3(q) | | |
Material Agreements
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10.4(a) | | 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) |
Other Exhibits
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*10.1 | | |
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*21 | | |
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*23.1 | | |
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*23.2 | | |
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*31.1 | | |
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*31.2 | | |
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*32.1 | | |
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*32.2 | | |
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*101 | | XBRL Interactive Data Files. |
*Filed or furnished herewith, as applicable