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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2003

For the transition period from                      to                     

Commission File Number 1-7120

HARTE-HANKS, INC.

(Exact name of registrant as specified in its charter)

200 Concord Plaza Drive, San Antonio, Texas 78216

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number including area code — 210/829-9000

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by checkmark whether registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  þ    No  ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock: $1 par value, 88,210,527 shares as of April 30, 2003.

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HARTE-HANKS, INC. AND SUBSIDIARIES

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FORM 10-Q REPORT

March 31, 2003

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Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)

Harte-Hanks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (in thousands, except share amounts)

(Unaudited)

See Notes to Unaudited Condensed Consolidated Financial Statements.

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Harte-Hanks, Inc. and Subsidiaries

Consolidated Statements of Operations (in thousands, except per share amounts)

(Unaudited)

See Notes to Unaudited Condensed Consolidated Financial Statements.

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Harte-Hanks, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (in thousands)

(Unaudited)

See Notes to Unaudited Condensed Consolidated Financial Statements.

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Harte-Hanks, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (in thousands)

(2003 Unaudited)

See Notes to Unaudited Condensed Consolidated Financial Statements.

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Harte-Hanks, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Note A—Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Harte-Hanks, Inc. and subsidiaries (the “Company”).

The statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information, refer to the consolidated financial statements and footnotes included in the Company’s annual report on Form 10-K for the year ended December 31, 2002.

Certain prior period amounts have been reclassified for comparative purposes.

Note B—Recent Accounting Pronouncements

In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure”. SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation prescribed by SFAS No. 123. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 were effective for the Company’s fiscal year ended December 31, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002 and are included in Note G of this report. At this time the Company does not intend to change to the fair value based method of accounting for stock-based employee compensation prescribed by SFAS No. 123, but instead will continue to account for stock-based compensation under Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, as permitted by SFAS No. 123. Therefore the Company’s adoption of SFAS No. 148 did not have a significant impact on its consolidated financial position or results of operations.

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Note C—Income Taxes

The Company’s quarterly income tax provision of $10.7 million was calculated using an effective income tax rate of approximately 39.5%. The Company’s effective income tax rate is derived by estimating pretax income and income tax expense for the year ending December 31, 2003. The effective income tax rate calculated is higher than the federal statutory rate of 35% due to the addition of state taxes and to certain expenses recorded for financial reporting purposes which are not deductible for federal income tax purposes.

Note D—Stock Split

In May 2002, the Company effected a three-for-two stock split in the form of a 50% stock dividend payable to holders of record on May 20, 2002. All share, per share and average share information in the Consolidated Financial Statements and Notes thereto have been restated to reflect the stock split.

Note E—Earnings Per Share

A reconciliation of basic and diluted earnings per share is as follows:

As of March 31, 2003, the Company had 778,000 antidilutive market price options outstanding which have been excluded from the EPS calculations. As of March 31, 2002 there were no antidilutive market price options outstanding.

Note F—Business Segments

Harte-Hanks is a highly focused targeted media company with operations in two segments – Direct Marketing and Shoppers.

Information about the Company’s operations in its two industry segments follows:

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Note G—Stock-Based Compensation

The Company has adopted the disclosure-only provisions of SFAS No. 123. Accordingly, no compensation expense has been recognized for options granted where the exercise price is equal to the market price of the underlying stock at the date of grant. For options issued with an exercise price below the market price of the underlying stock on the date of grant, the Company recognizes compensation expense under the provisions of APB No. 25, as permitted under SFAS No. 123.

Had compensation expense for the Company’s options been determined based on the fair value at the grant date for awards since January 1, 1995, consistent with the provisions of SFAS No. 123, the Company’s net income and diluted earnings per share would have been reduced to the pro forma amounts indicated below:

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants during the three months ended March 31, 2003 and 2002:

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Results of Operations

Operating results were as follows:

Consolidated revenues increased 0.7% to $216.3 million while operating income declined 16.8% to $27.8 million in the first quarter of 2003 when compared to the first quarter of 2002. Overall operating expenses compared to 2002 increased 3.9% to $188.5 million.

Net income declined 19.2% to $16.4 million, while diluted earnings per share declined 14.3% to 18 cents per share. The net income decline was a result of the decline in operating income.

Direct Marketing

Direct Marketing operating results were as follows:

Direct Marketing revenues decreased $2.1 million, or 1.5%, in the first quarter of 2003 compared to 2002. These results reflect double-digit declines in the financial services and pharmaceutical/healthcare industry sectors, two of Direct Marketing’s largest vertical markets. Revenues from the retail and high-tech/telecom industries were up slightly compared to 2002. Direct Marketing’s select markets group had a double-digit increase in revenues, primarily due to increased revenues from the government/not-for-profit and automotive industries. Direct Marketing experienced revenue declines in data processing, fulfillment and data sales, partially offset by increased revenues from personalized direct mail, technical support, telesales and consulting.

Operating expenses increased $3.6 million, or 3.1%, in the first quarter of 2003 compared to 2002. Labor costs were flat in the first quarter of 2003 compared to 2002 as decreased healthcare costs were offset by higher pension expense. Production and distribution costs increased $2.6 million due primarily to higher transportation, temporary labor and repairs and maintenance costs. General and administrative expense increased $1.6 million due to increased bad debt expense, partially offset by decreased insurance costs. Depreciation expense decreased $0.6 million due to lower capital expenditures in 2002 than in recent prior years.

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Shoppers

Shopper operating results were as follows:

Shopper revenues increased $3.5 million, or 4.5%, in the first quarter of 2003 compared to 2002. Revenue increases were the result of improved sales in established markets as well as year-over-year geographic expansions into new neighborhoods in Florida. From a product-line perspective, Shoppers had growth in both run-of-press (ROP, or in-book) advertising, primarily real estate-related advertising, and its distribution products. These increases were partially offset by declines in automotive-related ROP advertising.

Operating expenses increased $3.3 million, or 5.3%, in the first quarter of 2003 compared to 2002. Labor costs increased $1.0 million due to higher benefit costs, mainly increased pension expense, and higher volumes. Production costs increased $1.6 million, including increased postage of $0.8 million due to increased volumes and higher postage rates. Partially offsetting these increased operating expenses were decreased paper costs. General and administrative costs increased $0.7 million due primarily to increased promotion expense. Depreciation expense was flat in the first quarter of 2003 compared to 2002.

Other Income and Expense

Other net expense primarily consists of currency losses, balance-based bank charges and stockholders expenses.

Interest Expense/Interest Income

Interest expense decreased $0.2 million in the first quarter of 2003 compared to the same period in 2002 due primarily to lower average debt levels and lower interest rates in the first quarter of 2003.

Interest income in the first quarter of 2003 was flat compared to the same period in 2002 as higher investment levels were offset by lower interest rates during the first quarter of 2003.

Income Taxes

The Company’s income tax expense decreased $1.9 million in the first quarter of 2003 compared to the first quarter of 2002. This decrease was due primarily to the lower pre-tax income levels. The effective tax rate was 39.5% for the first quarter of 2003 and 38.3% for the first quarter of 2002.

Liquidity and Capital Resources

Cash provided by operating activities for the three months ended March 31, 2003 was $35.6 million, compared to $39.2 million for the first three months of 2002. Net cash outflows from investing activities were $8.0 million for the first three months of 2003, compared to $3.7 million for the first three months of 2002. The cash outflow in both years primarily relate to purchases of fixed assets. Net cash outflows from financing activities were $21.2 million in 2003 compared to $38.4 million in 2002. The difference between cash outflows in 2003 and 2002 is attributable primarily to higher net repayment of borrowings in 2002, partially offset by a higher amount spent for the repurchase of treasury stock and a lower

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amount of cash received from the exercise of stock options in 2003.

Capital resources are available from and provided through the Company’s unsecured credit facility. This credit facility, a three-year $125 million variable-rate, revolving loan commitment, was put in place on October 18, 2002. All borrowings under this credit agreement are to be repaid by October 17, 2005. As of March 31, 2003, the Company had $105 million of unused borrowing capacity under this credit facility. Management believes that its credit facilities, together with cash provided from operating activities, will be sufficient to fund operations and anticipated acquisitions and capital expenditures needs for the foreseeable future.

Factors That May Affect Future Results and Financial Condition

From time to time, in both written reports and oral statements by senior management, the Company may express its expectations regarding its future performance. These “forward-looking statements” are inherently uncertain, and investors should realize that events could turn out to be other than what senior management expected. Set forth below are some key factors which could affect the Company’s future performance, including its revenues, net income and earnings per share; however, the risks described below are not the only ones the Company faces. Additional risks and uncertainties that are not presently known, or that the Company currently considers immaterial, could also impair the Company’s business operations.

Legislation—There could be a material adverse impact on the Company’s Direct Marketing business due to the enactment of legislation or industry regulations arising from public concern over consumer privacy issues. Restrictions or prohibitions could be placed upon the collection and use of information that is currently legally available.

Data Suppliers—There could be a material adverse impact on the Company’s Direct Marketing business if owners of the data the Company uses were to withdraw the data. Data providers could withdraw their data if there is a competitive reason to do so or if legislation is passed restricting the use of the data.

Acquisitions—In recent years the Company has made a number of acquisitions in its Direct Marketing segment, and it expects to pursue additional acquisition opportunities. Acquisition activities, even if not consummated, require substantial amounts of management time and can distract from normal operations. In addition, there can be no assurance that the synergies and other objectives sought in acquisitions will be achieved.

Competition—Direct Marketing is a rapidly evolving business, subject to periodic technological advancements, high turnover of customer personnel who make buying decisions, and changing customer needs and preferences. Consequently, the Company’s Direct Marketing business faces competition in all of its offerings. The Company’s Shopper business competes for advertising, as well as for readers, with other print and electronic media. Competition comes from local and regional newspapers, magazines, radio, broadcast and cable television, shoppers and other communications media that operate in the Company’s markets. The extent and nature of such competition are, in large part, determined by the location and demographics of the markets targeted by a particular advertiser, and the number of media alternatives in those markets. Failure to continually improve the Company’s current processes and to develop new products and services could result in the loss of the Company’s customers to current or future competitors. In addition, failure to gain market acceptance of new products and services could adversely affect the Company’s growth.

Qualified Personnel—The Company believes that its future prospects will depend

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in large part upon its ability to attract, train and retain highly skilled technical, client services and administrative personnel. While dependent on employment levels and general economic conditions, qualified personnel historically have been in great demand and from time to time and in the foreseeable future will likely remain a limited resource.

Postal Rates—The Company’s Shoppers and Direct Marketing services depend on the United States Postal Service (“USPS”) to deliver products. The Company’s Shoppers are delivered by standard mail, and postage is the second largest expense, behind payroll, in the Company’s Shopper business. Standard postage rates increased at the beginning of the third quarter of 2002. Overall Shopper postage costs are expected to grow moderately as a result of this increase as well as anticipated increases in circulation and insert volumes. Postal rates also influence the demand for the Company’s Direct Marketing services even though the cost of mailings is borne by the Company’s customers and is not directly reflected in the Company’s revenues or expenses.

Paper Prices—Paper represents a substantial expense in the Company’s Shopper operations. In recent years newsprint prices have fluctuated widely, and such fluctuations can materially affect the results of the Company’s operations.

Economic Conditions—Changes in national economic conditions can affect levels of advertising expenditures generally, and such changes can affect each of the Company’s businesses. In addition, revenues from the Company’s Shopper business are dependent to a large extent on local advertising expenditures in the markets in which they operate. Such expenditures are substantially affected by the strength of the local economies in those markets. Direct Marketing revenues are dependent on national and international economics.

Interest Rates—Interest rate movements in Europe and the United States can affect the amount of interest the Company pays related to its debt and the amount it earns on cash equivalents. The Company’s primary interest rate exposure is to interest rate fluctuations in Europe, specifically EUROLIBOR rates due to their impact on interest related to the Company’s $125 million credit facility. The Company also has exposure to interest rate fluctuations in the United States, specifically money market, commercial paper and overnight time deposit rates as these affect the Company’s earnings on its excess cash.

War—War or the threat of war involving the United States could have a significant impact on the Company’s operations. War could substantially affect the levels of advertising expenditures by clients in each of the Company’s businesses. In addition each of the Company’s businesses could be affected by operational disruptions and a shortage of supplies and labor related to such a war.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s earnings are affected by changes in short-term interest rates as a result of its revolving credit agreement, which bears interest at floating rates. The Company does not believe that it has significant exposure to market risks associated with changing interest rates as of March 31, 2003. The Company does not use derivative financial instruments in its operations.

The Company’s earnings are also affected by fluctuations in foreign exchange rates as a result of its operations in foreign countries. Due to the level of operations in foreign countries, the impact of fluctuations in foreign exchange rates is not significant to the Company’s overall earnings.

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Item 4. Controls and Procedures

Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that the design and operation of these disclosure controls and procedures were effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. No significant changes were made in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

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CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

I, Richard M. Hochhauser, President and Chief Executive Officer of Harte-Hanks, Inc. (the “Company”) hereby certify that:

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process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

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CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

I, Jacques D. Kerrest, Senior Vice President, Finance and Chief Financial Officer of Harte-Hanks, Inc. (the “Company”) hereby certify that: