Harte-Hanks Reports Fourth Quarter and Full Year Results: Full Year 2005 Results - Revenue up 10%; Operating Income up 15%; EPS up 20%.

SAN ANTONIO -- Harte-Hanks, Inc. (NYSE:HHS):

--Note: Harte-Hanks will hold a fourth quarter earnings conference call on January 31, 2006 at 10AM CST. The number is 800-988-9498 domestic or 210-234-0005 international, passcode 121693. The conference call will also be audio webcast. To access, please go to http://e-meetings.mci.com, conference number 1017893, passcode 121693. There will be an audio replay available shortly after the call through February 10, 2006. To access, please call 888-567-0415 or visit www.harte-hanks.com/earnings_audio/audio_stream.html. Passcode for the replay is 121693.

Harte-Hanks, Inc. (NYSE:HHS) today reported fourth quarter and full year 2005 financial results. Fourth quarter diluted earnings per share were $0.38 on revenues of $301.0 million. These results compare to diluted earnings per share of $0.32 on $277.5 million in revenue for the fourth quarter of 2004.

The following table presents financial highlights of the company's operations for the fourth quarter of 2005. Full financial results are attached.

RESULTS FROM OPERATIONS

(In thousands, except per share
 amounts)                             Three Months Ended December 31,
                                  -----------------------------------
                                       2005         2004    % Change
                                  --------------- --------- ---------
Operating revenues                      $300,955  $277,491       8.5%
Operating income                          51,269    47,333       8.3%
Net income                                31,433    27,580      14.0%
Diluted earnings per share                  0.38      0.32      18.8%
Diluted shares (weighted average
 common and common equivalent
 shares outstanding)                      83,456    86,973      -4.0%

For the year, diluted earnings per share were $1.34, on revenues of $1.13 billion. These 2005 results compare to diluted earnings per share of $1.11, on revenues of $1.03 billion in 2004.

The following table presents financial highlights of the company's operations for 2005. Full financial results are attached.

RESULTS FROM OPERATIONS

(In thousands, except per share
 amounts)                            Twelve Months Ended December 31,
                                 ------------------------------------
                                     2005          2004     % Change
                                 -------------- ----------- ---------
Operating revenues                  $1,134,993  $1,030,461      10.1%
Operating income                       190,013     165,295      15.0%
Net income                             114,458      97,568      17.3%
Diluted earnings per share                1.34        1.11      20.7%
Diluted shares (weighted
 average common and common
 equivalent shares outstanding)         85,406      87,806      -2.7%

In the discussion below the company intends to provide investors a better understanding of the operating results and underlying trends to measure past and future performance and liquidity. Harte-Hanks evaluates operating performance based on several measures, including the non-GAAP measure of free cash flow, defined as net income plus depreciation and amortization less capital expenditures, as Harte-Hanks believes this is an important measure of the operational strength of its business. Since free cash flow is not a measure calculated in accordance with GAAP, it should not be considered as a substitute for net income as an indicator of operating performance.

Commenting on the fourth quarter 2005 performance, Chief Executive Officer Richard Hochhauser said, "We had a solid finish to a very positive year for Harte-Hanks, a year that beat our expectations."

"Direct marketing showed strong operating leverage performance in the fourth quarter, with operating income up 8.7% over the prior year on 4.4% revenue growth -- with these comparisons being against a standout 4th Quarter 2004 -- resulting in a 17.2% operating income margin. Our healthcare/pharma vertical market had very strong growth in the quarter, and our select markets vertical also had double digit revenue growth. Retail had mid-single digit growth against a very strong quarter in 2004, while financial services was down mid-single digits and high tech/telecom, as we discussed in connection with our third quarter earnings release, was down about 10%."

"Shoppers also turned in another solid performance and grew revenue in the fourth quarter over the prior year by 15.9% and operating income by 3.4%. Both revenue and operating income growth rates were positively impacted by the Tampa Flyer acquisition, with this acquisition also contributing to the operating income margin decline. Absent the impact of the Tampa acquisition, revenue growth for the quarter would have been within the 6% to 8% revenue growth range we have targeted for our shopper business. Additionally, shopper results were negatively impacted in the fourth quarter by Hurricane Wilma, which resulted in the loss of one week's publication and the delay of another week's publication in our Miami shopper, as well as expense associated with property damage to our facility."

Commenting on full year 2005 performance, Hochhauser said, "2005 was a very good year from the perspective of virtually any measurement -- revenues grew 10%, operating income grew 15%, and earnings per share grew 20%, with these comparisons against what was also a standout year in 2004. Our people's continuing hard work and dedication delivered these results. Our business continues to be a strong generator of cash with $117.6 million of free cash flow in 2005, up from $91.2 million in 2004. We measure free cash flow as net income plus depreciation and amortization less capital expenditures.

"Direct marketing delivered another strong year in 2005, with solid revenue growth of 8.3% and very strong leverage resulting in operating income growth of 19.0%. Our focus over the last two years has been on the profitability of our direct marketing revenue, and in 2005 our operating income margins improved 140 basis points, our second consecutive year of improving operating income margins by over 100 basis points year-over-year.

"Shoppers had another strong year. Revenue grew 13.2%, and operating income grew 9.8%. Both revenue and operating income growth rates were positively impacted by the Tampa Flyer acquisition, with half of the revenue growth in 2005 attributable to this acquisition. Absent the impact of the Tampa acquisition, 2005 operating income margins in 2005 would have been flat to 2004."

Concluding, Hochhauser said, "2005 was a very successful year. Our people delivered strong operating performance. Earnings per share grew over 20%, our best growth in several years. We feel good about the businesses we are in, and where these businesses are positioned. In 2006 we will begin expensing stock options and other equity compensation, which we estimate will impact EPS by six to seven cents per share. Looking at 2005 and 2006 on a comparable option expense basis, and taking into account what we know today about the upcoming year, our goal is to deliver good EPS growth in 2006 in the high single digit or better range."

Statements contained in this press release that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding management's expectations with respect to the company's future revenues, earnings per share, operating income and expense related to equity compensation. These and all other forward-looking statements in this press release are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those projected or implied in such forward-looking statements. Such factors include, without limitation, overall economic and business conditions, the demand for the company's services by its clients and prospective clients (including the willingness and ability of the company's clients to maintain or expand their spending), the financial condition of its clients, economic and other business factors that impact the industries that the company serves, the timing and ability of the company to manage the level of personnel and capacity in the future, competitive factors in the company's markets, concern over consumer privacy issues, which may lead to enactment of legislation restricting or prohibiting the collection and use of information that is currently legally available, fluctuations in paper prices and postal rates, the number of options and other forms of equity the company may issue to its employees, the number of shares the company repurchases in connection with its repurchase program, and general or regional economic conditions, among other factors. A further list and description of some of the risks and uncertainties potentially impacting the company's business and future performance can be found in the company's filings with the Securities and Exchange Commission.

Highlights of the fourth quarter included:

    --  Harte-Hanks won a contract with a Fortune 100 global
        technology firm to assume responsibility for targeting
        appropriate prospects and customers for the client's
        business-to-business global marketing campaigns. This
        responsibility is for North America, South America,
        Asia-Pacific, and Europe.

    --  Recently Harte-Hanks received validation in four independent
        analyst reports that its e-mail, database and data quality
        solutions have improved markedly from previous analyses.

                --  Regarding e-mail, Forrester Research named
                    Harte-Hanks Postfuture a market "leader" for the
                    first time and rated Postfuture the highest among
                    evaluated vendors for its management team; Jupiter
                    Research categorized Harte-Hanks Postfuture as
                    "high" for market suitability and overall business
                    value among high-volume, newsletter-oriented
                    e-mail service providers.

                --  In the database area, Harte-Hanks received a
                    "strong performer" ranking from Forrester, was one
                    of only a few database service providers that
                    moved upward on Forrester's Wave ranking since its
                    previous analysis in 2003, and was cited "best in
                    class from an industry perspective."

                --  Trillium Software was again cited by Forrester as
                    a market "leader," was rated highest among
                    evaluated vendors for data cleansing, product
                    strategy and installed base, and was among the top
                    two providers in the areas of data profiling,
                    services, technology partners and cost.

    --  Harte-Hanks announced plans to open a marketing operations
        center in Manila, the Philippines, that will provide contact
        center, data entry, mail tracking and data management services
        supporting primarily North American and other English-speaking
        markets. Initially, it is expected that there will be 475
        customer service agents in Manila -- and a capacity of up to
        700 workstations. Specifically, Harte-Hanks will provide
        technical and product support for client engagements, and will
        conduct various back-office functions for clients.

    --  One of the world's leading manufacturers of agricultural,
        industrial and construction equipment signed a renewal
        agreement to implement Harte-Hanks e.Vantage system for an
        enterprise-wide customer marketing and sales database.

    --  Harte-Hanks signed a number of renewals and expansions in the
        fourth quarter with large multi-national hi-tech/telecom
        companies for its CI Technology Database. The CI Technology
        Database is one of the largest and most in-depth business
        technology databases in the world. Hundreds of firms in the
        hi-tech/telecom industry use the CI Technology Database to
        better understand their existing clients, protect their
        existing business from competitive encroachment, analyze
        current market share, and guide planning of new products and
        sales channels.

    --  Harte-Hanks released the Allink(R) Lead Accelerator, a global
        lead optimization solution that is designed to improve lead
        productivity and value and to facilitate the lead-to-sale
        conversion process.

    --  Forbes rated Harte-Hanks as one of the best big companies in
        America.

    --  Jason Cavo has been promoted within Harte-Hanks to the
        position of managing director, direct marketing. He is charged
        with management of the Manila operation. Jason has been a
        Harte-Hanks employee since 2000, serving as a senior account
        manager for technical markets working in the company's Austin,
        TX, office. He has a decade of experience in outsourcing
        management, and holds a Bachelor of Science degree in commerce
        from Niagara University.

    --  Harte-Hanks Direct Marketing named Mike Ortegon as its new
        managing director for direct marketing, Australia. David
        Blythe, who previously held this managing director position,
        has been named senior vice president, business development,
        Asia-Pacific.

    Corporate:

    --  Harte-Hanks paid a regular cash dividend of 5.0 cents per
        share in every quarter of 2005. On January 26, the company
        announced a 20% increase in the quarterly dividend to 6.0
        cents per share effective with the dividend payable March 15,
        2006 to shareholders of record on March 1, which is the
        eleventh dividend increase since the company went public in
        1993 for the second time.

    --  Harte-Hanks purchased 1.5 million shares of its common stock
        in the fourth quarter bringing the year-to-date repurchase
        total to 4.3 million shares. There are approximately 6.4
        million shares remaining from repurchase authorizations at
        December 31, 2005. Since January 1997 the company has acquired
        approximately 43.5 million shares (split adjusted) under its
        repurchase program.

Harte-Hanks, Inc., San Antonio, TX, is a worldwide, direct and targeted marketing company that provides direct marketing services and shopper advertising opportunities to a wide range of local, regional, national and international consumer and business-to-business marketers. Harte-Hanks Direct Marketing improves the return on its clients' marketing investment with a range of services organized around five solution points: Construct and update the database -- Access the data -- Analyze the data -- Apply the knowledge -- Execute the programs. Experts at each element within this process, Harte-Hanks Direct Marketing is highly skilled at tailoring solutions for each of the vertical markets it serves. Harte-Hanks Shoppers is North America's largest owner, operator and distributor of shopper publications, with shoppers that are zoned into more than 1,000 separate editions with circulation in excess of 12 million in California and Florida each week.

For more information, contact: Chief Financial Officer Dean Blythe 210-829-9138 or e-mail at [e-mail].

This release and other information about Harte-Hanks can be found on the World Wide Web at http://www.harte-hanks.com

Harte-Hanks, Inc.
Consolidated Statements of Operations (Unaudited)



                           Three months ended    Twelve months ended
                              December 31,          December 31,
-------------------------- ------------------- -----------------------
In thousands, except per
 share data                  2005      2004       2005        2004
-------------------------- --------- --------- ----------- -----------

Operating revenues         $300,955  $277,491  $1,134,993  $1,030,461
Operating expenses:
  Labor                     105,829   103,242     418,056     394,417
  Production and
   distribution             113,577   100,051     407,512     361,298
  Advertising, selling,
   general and
   administrative            22,193    19,611      88,067      80,682
  Depreciation and
   amortization               8,087     7,254      31,345      28,769
                           --------- --------- ----------- -----------
                            249,686   230,158     944,980     865,166
                           --------- --------- ----------- -----------
Operating income             51,269    47,333     190,013     165,295
                           --------- --------- ----------- -----------
Other expenses (income):
  Interest expense              695       349       1,957       1,020
  Interest income               (39)      (19)       (197)       (341)
  Other, net                    557       720       1,774       1,648
                           --------- --------- ----------- -----------
                              1,213     1,050       3,534       2,327
                           --------- --------- ----------- -----------
Income before income taxes   50,056    46,283     186,479     162,968
Income tax expense           18,623    18,703      72,021      65,400
                           --------- --------- ----------- -----------
Net income                  $31,433   $27,580    $114,458     $97,568
                           ========= ========= =========== ===========


Basic earnings per common
 share                        $0.38     $0.32       $1.37       $1.13
                           ========= ========= =========== ===========

    Weighted-average
     common shares
     outstanding             81,987    85,276      83,734      86,169
                           ========= ========= =========== ===========



Diluted earnings per
 common share                 $0.38     $0.32       $1.34       $1.11
                           ========= ========= =========== ===========

    Weighted-average common
     and common equivalent
     shares outstanding      83,456    86,973      85,406      87,806
                           ========= ========= =========== ===========
Harte-Hanks, Inc.
Business Segment Information (Unaudited)



                                          Three months ended
                                             December 31,
----------------------------------------------------------------------
In thousands                                2005      2004   % Change
----------------------------------------------------------------------

OPERATING REVENUES:
  Direct Marketing                        $187,290  $179,410      4.4%
  Shoppers                                 113,665    98,081     15.9%
                                          --------- ---------
    Total operating revenues              $300,955  $277,491      8.5%
                                          --------- ---------

OPERATING INCOME:
  Direct Marketing                         $32,205   $29,639      8.7%
  Shoppers                                  21,762    21,056      3.4%
  General corporate expense                 (2,698)   (3,362)    19.8%
                                          --------- ---------
    Total operating income                 $51,269   $47,333      8.3%
                                          --------- ---------

DEPRECIATION AND AMORTIZATION
  Direct Marketing                          $6,127    $5,871      4.4%
  Shoppers                                   1,954     1,376     42.0%
  General corporate expense                      6         7    -14.3%
                                          --------- ---------
    Total depreciation and amortization     $8,087    $7,254     11.5%
                                          --------- ---------



                                        Twelve months ended
                                           December 31,
----------------------------------------------------------------------
In thousands                             2005        2004    % Change
----------------------------------------------------------------------

OPERATING REVENUES:
  Direct Marketing                      $694,558    $641,214      8.3%
  Shoppers                               440,435     389,247     13.2%
                                      ----------- -----------
    Total operating revenues          $1,134,993  $1,030,461     10.1%
                                      ----------- -----------

OPERATING INCOME:
  Direct Marketing                      $108,095     $90,856     19.0%
  Shoppers                                94,231      85,857      9.8%
  General corporate expense              (12,313)    (11,418)    -7.8%
                                      ----------- -----------
    Total operating income              $190,013    $165,295     15.0%
                                      ----------- -----------

DEPRECIATION AND AMORTIZATION
  Direct Marketing                       $24,341     $23,118      5.3%
  Shoppers                                 6,981       5,621     24.2%
  General corporate expense                   23          30    -23.3%
                                      ----------- -----------
    Total depreciation and
     amortization                        $31,345     $28,769      9.0%
                                      ----------- -----------


Reconciliation of Net Income to Free Cash Flow


                            Three months ended   Twelve months ended
                               December 31,         December 31,
----------------------------------------------- ---------------------
In thousands                 2005       2004       2005       2004
----------------------------------------------- ---------------------

Net Income                   $31,433   $27,580    $114,458   $97,568
  Add: depreciation and
   amortization                8,087     7,254      31,345    28,769
  Less: capital
   expenditures                5,887    13,031      28,215    35,146
                           ---------- --------- ----------- ---------
Free cash flow               $33,633   $21,803    $117,588   $91,191
                           ---------- --------- ----------- ---------
Harte-Hanks, Inc.
Consolidated Balance Sheets (in thousands, except share amounts)
----------------------------------------------------------------------


                                             (Unaudited)
                                            December 31,  December 31,
                                                2005         2004
                                            ------------- ------------
Assets
 Current Assets
   Cash and cash equivalents                     $24,561      $38,807
   Accounts receivable, net                      184,537      168,755
   Inventory                                       7,947        6,086
   Prepaid expenses                               14,783       16,664
   Current deferred income tax asset              14,158       13,812
   Other current assets                            7,718        6,373
                                            ------------- ------------
      Total current assets                       253,704      250,497

   Property, plant and equipment, net            112,911      113,770
   Goodwill, net                                 502,750      458,171
   Other intangible assets, net                   16,669        2,067
   Other assets                                    3,629        3,848
                                            ------------- ------------
      Total assets                              $889,663     $828,353
                                            ============= ============

Liabilities and Stockholders' Equity
 Current liabilities
   Current maturities of long-term debt               $-      $10,000
   Accounts payable                               62,978       55,632
   Accrued payroll and related expenses           35,735       36,539
   Customer deposits and unearned revenue         54,143       53,707
   Income taxes payable                           12,710       17,239
   Other current liabilities                       9,781        9,075
                                            ------------- ------------
      Total current liabilities                  175,347      182,192

 Long-term debt                                   62,000            -
 Other long-term liabilities                      90,970       74,362
                                            ------------- ------------
      Total liabilities                          328,317      256,554
                                            ------------- ------------

 Stockholders' equity
   Common stock, $1 par value, authorized:
    250,000,000 shares
      Issued at December 31, 2005:
       115,453,416 shares; at December 31,
       2004: 114,505,329 shares;                 115,453      114,505
   Additional paid-in-capital                    269,865      253,515
   Accumulated other comprehensive loss          (21,982)     (15,192)
   Retained Earnings                             980,505      882,750
   Less treasury stock, December 31, 2005:
    33,965,335 shares at cost;
      December 31, 2004:  29,524,064 shares
       at cost;                                 (782,495)    (663,779)
                                            ------------- ------------
      Total stockholders' equity                 561,346      571,799
                                            ------------- ------------
      Total liabilities and stockholders'
       equity                                   $889,663     $828,353
                                            ============= ============