<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
------ ------
Commission File Number 1-11008
CATALINA MARKETING CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 33-0499007
- -------------------------------------------------------------------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
11300 9th Street North
St. Petersburg, Florida 33716-2329
- ------------------------------------- --------------------------------------
</TABLE>
(813) 579-5000
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether 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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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At November 12, 1996, Registrant had outstanding 19,731,292 shares of
----------
Common Stock.
<PAGE>
CATALINA MARKETING CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Income
for the three month and six month periods ended
September 30, 1996 and 1995 3
Condensed Consolidated Balance Sheets at
September 30, 1996 and March 31, 1996 4
Condensed Consolidated Statements of Cash Flow
for the six month periods ended
September 30, 1996 and 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
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CATALINA MARKETING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ---------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
------- ------- ------ -------
Revenues $41,618 $30,942 $79,745 $61,555
------- ------- ------- -------
Costs and Expenses:
Direct operating expenses 14,863 11,142 27,999 22,084
Selling, general and administrative 11,658 8,140 22,812 15,801
Depreciation and amortization 4,090 3,582 7,754 7,477
------- ------- ------- -------
Total costs and expenses 30,611 22,864 58,565 45,362
------- ------- ------- -------
Income From Operations 11,007 8,078 21,180 16,193
Other Income, net 341 435 573 644
------- ------- ------- -------
Income Before Income Taxes
and Minority Interest 11,348 8,513 21,753 16,837
Income Taxes (4,371) (3,277) (8,642) (6,642)
Minority Interest 212 98 372 277
------- ------- ------- -------
Net Income $ 7,189 $ 5,334 $13,483 $10,472
======= ======= ======= =======
Net Income Per Common and
Common Equivalent Share $ 0.35 $ 0.27 $ 0.66 $ 0.53
======= ======= ======= =======
Weighted Average Shares Outstanding 20,608 19,728 20,580 19,816
======= ======= ======= =======
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
3
<PAGE>
CATALINA MARKETING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 30, March 31
1996 1996
------------ ---------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 25,894 $ 25,778
Accounts receivable, net 25,174 26,725
Prepaid and other assets 6,570 5,352
Deferred tax asset 7,970 7,436
------- -------
Total current assets 65,608 65,291
------- -------
Property and Equipment:
Property and equipment 126,800 110,475
Accumulated depreciation and amortization (71,807) (64,222)
------- -------
Total property and equipment 54,993 46,253
------- -------
Purchased intangible assets, net 14,101 -
Other assets 1,689 2,643
------- -------
Total Assets $136,391 $114,187
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 8,725 $ 10,832
Taxes payable 3,990 620
Accrued expenses 17,881 17,049
Deferred revenue 14,518 11,960
------- -------
Total current liabilities 45,114 40,461
------- -------
Deferred tax liability 2,983 2,504
------- -------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock; $.01 par value; 5,000,000
authorized shares; none issued and outstanding - -
Common stock; $0.01 par value; 50,000,000 and
30,000,000 authorized shares and 20,623,814 and
20,459,728 shares issued at September 30, 1996 and
March 31, 1996, respectively 206 205
Paid-in capital 38,124 34,079
Cumulative translation adjustment 542 501
Retained earnings 70,456 36,973
Less common stock in treasury, at cost (975,300 and
963,800 shares at September 30, 1996 and March 31,
1996, respectively) (21,034) (20,536)
------- -------
Total stockholders' equity 88,294 71,222
------- --------
Total Liabilities and Stockholders' Equity $136,391 $114,187
======== ========
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
4
<PAGE>
CATALINA MARKETING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $13,483 $10,472
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 7,754 7,477
Minority interest (372) (277)
Other 673 24
Changes in operating assets and liabilities 5,024 (4,619)
------- -------
Net cash provided by operating activities 26,562 13,077
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (16,408) (6,303)
Proceeds from sale of fixed assets 79 170
Purchase of minority interest in subsidiary (11,915) -
------- -------
Net cash used in investing activities (28,244) (6,133)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,697 1,386
Proceeds from issuance of subsidiary stock 459 78
Purchase of minority interest (133) (314)
Tax benefit from exercise of non-qualified options 276 143
Common stock repurchases (498) (10,518)
------- -------
Net cash provided by (used in) financing activities 1,801 (9,225)
------- -------
NET INCREASE (DECREASE) IN CASH 119 (2,281)
Effect of exchange rate changes on cash (3) 130
CASH, at end of prior period 25,778 30,729
------- -------
CASH, at end of current period $25,894 $28,578
======= =======
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
5
<PAGE>
CATALINA MARKETING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Condensed Consolidated Financial Statements
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position of the
Company as of September 30, 1996 and March 31, 1996 and the results of
operations for the three month and six month periods ended September 30, 1996
and 1995 and cash flows for the six month periods ended September 30, 1996 and
1995.
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. The second
quarter results of the majority owned foreign subsidiaries are included as of
and for the three and six month periods ended June 30, 1996 and 1995,
respectively. All material intercompany profits, transactions and balances have
been eliminated.
These financial statements, including the condensed consolidated balance sheet
as of March 31, 1996, which has been derived from audited financial statements,
are presented in accordance with the requirements of Form 10-Q and consequently
may not include all disclosures normally required by generally accepted
accounting principles or those normally made in the Company's Annual Report on
Form 10-K. The accompanying condensed consolidated financial statements and
related notes should be read in conjunction with the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1996.
Note 2. Net Income Per Common and Common Equivalent Share
Net Income per common and common equivalent share is based on the weighted
average number of shares of common stock outstanding and dilutive common
equivalent shares using the treasury stock method, effected for the two-for-one
stock split (see Note 4).
6
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Note 3. Acquisitions
On April 10, 1996, the Company purchased from its minority shareholders the
remaining 46% of Catalina Marketing UK, Inc. not owned by it for $11.9 million
cash consideration and 41,672 newly issued shares of Company common stock.
Catalina Marketing UK, Inc. owns all of the outstanding stock of Catalina
Marketing UK, Ltd., the United Kingdom operating company. The Company also
chose to replace existing options in the Catalina Marketing UK, Ltd. stock
option plan by issuing 12,845 shares of Company common stock to the Catalina
Marketing UK, Ltd. plan participants. The April 10, 1996 purchase has been
accounted for on the purchase method. The intangible assets resulting from the
transaction, primarily related to patent license and retailer relationships, are
being amortized on the straight line basis over a weighted average life of 22
years.
If Catalina Marketing UK, Inc. had been 100% owned by the Company during the
quarter ended September 30, 1995, there would have been no effect on net income
or net income per common and common equivalent share.
On October 10, 1996, the Company purchased 51% of Pacific Media, K.K. (PMK), a
Japanese outdoor media company, for $3.0 million in initial cash consideration.
As part of the transaction, the Company contributed its PMK shares, and the
selling shareholders contributed their remaining PMK shares, to a newly
established Delaware limited liability holding company, Catalina-Pacific Media,
L.L.C., which is now owned 51% by a subsidiary of the Company. Terms of the
purchase agreement call for the Company to make a series of three annual
payments, which are contingent upon the future financial performance of PMK for
the calendar years ended 1996, 1997 and 1998, respectively. The joint venture
will introduce Checkout Coupon (R) and other electronic marketing programs to
Japan through a division to be called Catalina Marketing Japan (CMJ), and is
part of the continued international expansion of the Catalina Marketing(R)
Network.
Note 4. Two-for-One Stock Split
On June 10, 1996 the Company's board of directors declared a two-for-one common
stock split effected in the form of a stock dividend. The record date for the
stock dividend was June 24, 1996, and the payment date was July 15, 1996. The
financial statements for the periods ended September 30, 1996 and 1995 and all
other information provided herein have been restated to include the effects of
the stock split.
7
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
FISCAL 1997 COMPARED TO FISCAL 1996
The Company's revenues for the second quarter and first six months of fiscal
1997 increased 35% and 30%, respectively, compared with the same periods in
fiscal 1996. The increase in revenues is primarily due to a greater
distribution of Checkout Coupon incentives. In the U.S., the Catalina Marketing
Network printed 574 million and 1,095 million promotions during the second
quarter and first six months of fiscal 1997, respectively, up 22% and 16%
compared to the comparable fiscal 1996 periods (471 and 941 million promotions).
The greater distribution of Checkout Coupon promotions is attributable to
additional sales of category cycles and the broader reach of the Catalina
Marketing Network. In the current quarter and first six months of fiscal 1997,
foreign consolidated subsidiaries, Catalina Electronic Clearing Services (CECS)
and Health Resource Publishing Company contributed approximately $3.9 million
and $6.7 million of revenues, respectively. CECS continues to experience
slower adoption in the market place than expected, greater than anticipated
working capital requirements, operational difficulties, and therefore continues
to incur operating losses.
In the U.S., the Catalina Marketing Network was in 10,470 stores at September
30, 1996, which reach 136 million shoppers each week as compared to 9,197 stores
reaching 122 million shoppers each week at September 30, 1995 and 9,766 stores
reaching 127 million shoppers each week at March 31, 1996. The Health Resources
Network was in 715 pharmacies at September 30, 1996 as compared to 40 pharmacies
at September 30, 1995 and 237 pharmacies at March 31, 1996. Outside the U.S.,
the Catalina Marketing Network was in 690 stores at September 30, 1996, which
reach 14 million shoppers each week as compared to 283 stores reaching 7 million
shoppers each week at September 30, 1995 and 558 stores reaching 12.6 million
shoppers each week at March 31, 1996. The Company installed its Catalina
Marketing Network in 704 stores in the U.S. and also installed its Health
Resources Network in 478 pharmacies in the first six months of fiscal 1997 as
compared to 193 stores and 31 pharmacies in the comparable fiscal 1996 period.
Outside the U.S., the Company installed 132 stores in the first six months of
fiscal 1997 as compared to 115 stores in the comparable fiscal 1996 period.
Direct operating expenses consist of retailer fees, paper and sales commissions
and the expenses of operating and maintaining the Catalina Marketing Network
(primarily expenses relating to operations personnel and service offices) and
provision for doubtful accounts. Direct operating expenses increased in absolute
terms to $14.9 million and $28.0 million for the second quarter and first six
months of fiscal 1997, respectively, from $11.1 and $22.0 million in comparable
periods of fiscal 1996. Direct operating expenses for the first six months of
fiscal 1997 as compared to the first six months of fiscal 1996 remained
consistently 35% to 36% of revenues.
Selling, general and administrative expenses include personnel-related costs of
selling and administrative staff, overhead and new product development expenses.
Selling, general and administrative expenses for the second quarter and first
six months of fiscal 1997, respectively, increased as a percent of revenues to
28% and 29% from 26% for the
8
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comparable periods of fiscal 1996. In absolute terms, these expenses increased
to $11.6 million and $22.8 million for the second quarter and first six months
of fiscal 1997, respectively from $8.1 and $15.8 million in comparable periods
of fiscal 1996. The increase relates primarily to higher costs associated with a
larger sales force, and administrative expenses of new business ventures and
products.
Depreciation and amortization increased to $4.1 million and $7.8 million for the
second quarter and first six months of fiscal 1997 from $3.6 million and $7.5
million for the comparable periods in fiscal 1996. Depreciation increased due
to the increase in capital expenditures associated with new business ventures
partially offset by an increase in fully depreciated U.S. store equipment in
fiscal 1997. Amortization in the second quarter of fiscal 1997 includes
approximately $.2 million in amortization of the intangible assets originated
when the Company purchased the remaining 46% of its U.K. operation from its
minority shareholders.
The provision for income taxes increased to $8.6 million (39.7% of income before
income taxes and minority interest) for the six month period of fiscal 1997
compared to $6.6 million (39.5% of income before income taxes and minority
interest) for the same period in fiscal 1996. The Company's effective tax rate
is higher than the expected federal statutory tax rate due to state and foreign
income taxes and the inability to offset losses of majority owned foreign
subsidiaries against U.S. income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital expenditures are store equipment and third-party
store installation costs. These amounts generally range from $5,000 to $13,000
per installed store. During the first six month periods of fiscal 1997 and 1996,
the Company made capital expenditures of $16.4 million and $6.3 million,
respectively. The pace of installations vary depending on the timing of
contracts entered into with retailers and the scheduling of store installations
by mutual agreement. During the first six months of fiscal 1997 the Company
increased expenditures for data processing equipment and had a much greater pace
of store installations compared to the comparable fiscal 1996 period. On October
10, 1996, the Company purchased 51% of Pacific Media, K.K. (PMK), a Japanese
outdoor media company, for $3.0 million in initial cash consideration. Terms of
the purchase agreement call for the Company to make a series of three annual
payments, which are contingent upon the future financial performance of PMK for
the calendar years ended 1996, 1997 and 1998, respectively. Catalina Marketing
finances capital expenditures from internally generated cash flows. Management
believes that expenditures for equipment and research and development will
remain between $25 and $35 million annually for the foreseeable future.
Management has been authorized to purchase up to $10 million of Company common
stock subject to market conditions. During the second quarter of fiscal 1997,
management purchased 11,500 shares of its common stock for $498,000 so that the
Company has spent $1.0 million on such purchases since such authorization.
The Company has an unsecured revolving bank credit facility under which it may
borrow up to $30 million. There have been no borrowings under this credit
facility to date.
9
<PAGE>
In accordance with coupon industry practice, the Company generally pre-bills
manufacturers prior to the commencement of the purchased category cycle. The
Company recognizes revenue as promotions are printed, and the amounts collected
prior to printing are reflected as deferred revenue, which is classified as
current liabilities. The Company believes working capital generated by
operations is sufficient for its capital requirements, although the Company may
choose to utilize debt or lease financing if available on acceptable terms.
CATALINA MARKETING CORPORATION
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on July 23, 1996. The
following members were elected as Class II members of the Company's Board of
Directors for the period ending as of the annual meeting of stockholders in
1999:
Fredrick W. Beinecke
Tommy D. Greer
Helene Monat
Thomas W. Smith
The terms of the other directors of the Company continued after the meeting.
These directors are: George W. Off, Frank H. Barker, Patrick W. Collins, Stephen
I. D'Agostino, Thomas G. Mendell, and Michael B. Wilson.
With regard to the proposal to approve an amendment to the Company's 1992
Director Stock Grant Plan to provide for the grant of 1,000 shares of Common
Stock to each director upon election or reelection to the Board of Directors and
an amendment to the 1992 Director Stock Grant Plan permitting deferral of stock
grants under the terms of the Company's Deferred Compensation Plan, 8,975,239
votes were cast in Favor, 279,042 were cast Against and there were 36,410
Abstentions.
With regard to the proposal to approve various amendments to the Company's
Deferred Compensation Plan, 8,972,370 votes were cast in Favor, 19,020 were cast
Against and there were 299,301 Abstentions.
With regard to the proposal to approve an amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock to 50,000,000 from 30,000,000, 8,966,924 votes were cast in Favor,
307,886 were cast Against and there were 15,881 Abstentions.
10
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With regard to the proposal to ratify and approve the Company's independent
public accountants for fiscal 1997, 9,273,396 votes were cast in Favor, 3,740
were cast Against and there were 13,555 Abstentions.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
99 Review Report of Independent Certified Public Accountants
15 Acknowledgment Letter
11
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CATALINA MARKETING CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, Registrant's principal financial officer, thereunto duly
authorized.
November 13, 1996 CATALINA MARKETING CORPORATION
------------------------------
(Registrant)
/s/ Philip B. Livingston
-------------------------------------
Philip B. Livingston
Senior Vice President and Chief
Financial Officer (Authorized officer
of Registrant and principal financial
officer)
12
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October 11, 1996
Catalina Marketing Corporation
11300 9/th/ Street North
St. Petersburg, Florida 33716
Catalina Marketing Corporation:
We are aware that Catalina Marketing Corporation has incorporated by reference
in its Registration Statement File Nos. 33-46793, 33-77100, 33-82456, 333-
07525, and 333-13335 its Form 10-Q for the three month and six month periods
ended September 30, 1996, which includes our report dated October 11, 1996,
covering the unaudited interim financial information contained therein. Pursuant
to Regulation C of the Securities Act of 1933 (the Act), that report is not
considered a part of the registration statement prepared or certified by our
firm or a report prepared or certified by our firm within the meaning of
Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
By /s/ William J. Meurer
----------------------
William J. Meurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 25,894
<SECURITIES> 0
<RECEIVABLES> 25,174
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 65,608
<PP&E> 126,800
<DEPRECIATION> 71,807
<TOTAL-ASSETS> 136,391
<CURRENT-LIABILITIES> 45,114
<BONDS> 0
0
0
<COMMON> 206
<OTHER-SE> 88,088
<TOTAL-LIABILITY-AND-EQUITY> 136,391
<SALES> 79,745
<TOTAL-REVENUES> 79,745
<CGS> 27,999
<TOTAL-COSTS> 58,565
<OTHER-EXPENSES> (573)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21,753
<INCOME-TAX> 8,642
<INCOME-CONTINUING> 13,483
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,483
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
</TABLE>
<PAGE>
REVIEW REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Catalina Marketing Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
Catalina Marketing Corporation (a Delaware corporation) as of September 30,
1996, and the related condensed consolidated statements of income for the three
month and six month periods then ended and the condensed consolidated statement
of cashflows for the six month period then ended. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of March 31, 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended (not presented separately herein), and in our report dated April
24, 1996, we expressed an unqualified opinion on those financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of March 31, 1996, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
ARTHUR ANDERSEN LLP
Tampa, Florida,
October 11, 1996
