<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 DECEMBER 31, 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)
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
----------------------- ----------
(Address of principal (Zip Code)
executive offices)
(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
----- -----
At February 7, 1997, Registrant had outstanding 19,716,543 shares of
Common Stock.
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CATALINA MARKETING CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
for the three month and nine month periods ended
December 31, 1996 and 1995 3
Condensed Consolidated Balance Sheets at
December 31, 1996 and March 31, 1996 4
Condensed Consolidated Statements of Cash Flow
for the nine month periods ended
December 31, 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 9
SIGNATURES 11
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 Nine Months Ended
December 31, December 31,
------------------ -------------------
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues $46,344 $36,546 $126,089 $ 98,101
Costs and Expenses:
Direct operating expenses 16,055 13,033 44,054 35,117
Selling, general and
administrative 12,195 10,635 35,007 26,436
Depreciation and amortization 4,448 3,496 12,202 10,973
------- ------- -------- --------
Total costs and expenses 32,698 27,164 91,263 72,526
------- ------- -------- --------
Income From Operations 13,646 9,382 34,826 25,575
Other Income, net 273 286 846 930
------- ------- -------- --------
Income Before Income Taxes and
Minority Interest 13,919 9,668 35,672 26,505
Income Taxes (5,607) (3,822) (14,249) (10,464)
Minority Interest - 107 372 384
------- ------- -------- --------
Net Income $ 8,312 $ 5,953 $ 21,795 $ 16,425
======= ======= ======== ========
Net Income Per Common and
Common Equivalent Share $0.40 $0.30 $1.06 $0.83
======= ======= ======== ========
Weighted Average Shares Outstanding 20,635 19,840 20,615 19,818
======= ======= ======== ========
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
3
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CATALINA MARKETING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
ASSETS 1996 1996
------------ ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 21,647 $ 25,778
Accounts receivable, net 32,397 26,725
Prepaid and other assets 9,996 5,352
Deferred tax asset 7,389 7,436
-------- --------
Total current assets 71,429 65,291
-------- --------
Property and Equipment:
Property and equipment 138,265 110,475
Accumulated depreciation and
amortization (71,334) (64,222)
-------- --------
Total property and equipment 66,931 46,253
-------- --------
Purchased intangible assets, net 17,841 -
Other assets 4,516 2,643
-------- --------
Total Assets $160,717 $114,187
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 8,582 $ 10,832
Accrued expenses 29,424 17,669
Deferred revenue 16,605 11,960
Short term borrowings 6,139 -
-------- --------
Total current liabilities 60,750 40,461
-------- --------
Deferred tax liability 3,653 2,504
Long term debt 1,214 -
-------- --------
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
20,718,150 and 20,459,728
shares issued at December 31,
1996 and March 31, 1996,
respectively 207 205
Paid-in capital 39,715 34,079
Cumulative translation adjustment 593 501
Retained earnings 78,768 56,973
Less common stock in treasury, at
cost (1,041,968 and 963,800 shares
at December 31, 1996 and March 31,
1996, respectively) (24,183) (20,536)
-------- --------
Total stockholders' equity 95,100 71,222
-------- --------
Total Liabilities and Stockholders' Equity $160,717 $114,187
======== ========
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
4
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CATALINA MARKETING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,795 $ 16,425
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 12,202 10,973
Minority interest (372) (384)
Other 2,409 (2,288)
Changes in operating assets and
liabilities 4,034 (11,013)
-------- --------
Net cash provided by
operating activities 40,068 13,713
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (26,431) (14,283)
Purchase of investments, net of
cash acquired (18,028) (541)
-------- --------
Net cash used in investing
activities (44,459) (14,824)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock 3,235 1,624
Proceeds from issuance of
subsidiary stock 459 142
Tax benefit from exercise of
non-qualified options 276 206
Common stock repurchases (3,647) (10,518)
-------- --------
Net cash provided by (used
in) financing activities 323 (8,546)
-------- --------
NET DECREASE IN CASH (4,068) (9,657)
Effect of exchange rate changes on cash (63) (210)
CASH, at end of prior period 25,778 30,729
-------- --------
CASH, at end of current period $ 21,647 $ 20,862
======== ========
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
5
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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 December 31, 1996 and March 31, 1996 and the results of
operations for the three month and nine month periods ended December 31, 1996
and 1995 and cash flows for the nine month periods ended December 31, 1996 and
1995.
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. The third quarter
results of the majority owned foreign subsidiaries are included as of and for
the three and nine month periods ended September 30, 1996 and 1995. All
material intercompany profits, transactions and balances have been eliminated.
All other investments are accounted for using the cost method.
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 stockholders 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 December 31, 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 stockholders 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 1996, 1997 and 1998 calendar years, 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. The
balance sheet of Catalina-Pacific Media, L.L.C. as of the purchase date, which
includes short term borrowings and long term debt, is included in the Company's
condensed consolidated balance sheet as of December 31, 1996. The October 10,
1996 purchase has been accounted for on the purchase method.
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 December 31, 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 third quarter and first nine months of fiscal
1997 increased 27% and 29%, 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 634 million and 1,729 million promotions during the third
quarter and first nine months of fiscal 1997, respectively, up 15% and 16%
compared to the comparable fiscal 1996 periods (549 million and 1,489 million
promotions). The greater distribution of Checkout Coupon promotions is
attributable to the broader reach of the Catalina Marketing Network and
additional sales of category cycles. In the current quarter and first nine
months of fiscal 1997, foreign consolidated subsidiaries, Catalina Electronic
Clearing Services (CECS) and Health Resource Publishing Company contributed
approximately $4.1 million and $10.8 million of revenues, respectively.
In the U.S., the Catalina Marketing Network was in 10,741 stores at December 31,
1996, which reach 141 million shoppers each week as compared to 9,465 stores
reaching 126 million shoppers each week at December 31, 1995 and 9,766 stores
reaching 127 million shoppers each week at March 31, 1996. The Health Resources
Network was in 977 pharmacies at December 31, 1996 as compared to 55 pharmacies
at December 31, 1995 and 237 pharmacies at March 31, 1996. Outside the U.S.,
the Catalina Marketing Network was in 837 stores at December 31, 1996, which
reach 18 million shoppers each week as compared to 399 stores reaching 10
million shoppers each week at December 31, 1995 and 558 stores reaching 12.6
million shoppers each week at March 31, 1996. The Company installed its
Catalina Marketing Network in 975 stores in the U.S. and also installed its
Health Resources Network in 740 pharmacies in the first nine months of fiscal
1997 as compared to 461 stores and 46 pharmacies in the comparable fiscal 1996
period. Outside the U.S., the Company installed 279 stores in the first nine
months of fiscal 1997 as compared to 231 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 $16.1 million and $44.1 million for the third quarter and
first nine months of fiscal 1997, respectively, from $13.0 million and $35.1
million in comparable periods of fiscal 1996. Direct operating expenses for the
first nine months of fiscal 1997 as compared to the first nine 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 third quarter of fiscal
1997 decreased as a percent of revenues to 26% from 29% for the comparable
period of fiscal 1996, which is principally attributable to the reorganization
of one of the Company's subsidiaries during the second quarter of fiscal 1997,
as previously disclosed. Selling, general and administrative expenses increased
8
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as a percent of revenues to 28% from 27% for the first nine months of fiscal
1997 as compared to the first nine months of fiscal 1996. In absolute terms,
these expenses increased to $12.2 million and $35.0 million for the third
quarter and first nine months of fiscal 1997, respectively from $10.6 million
and $26.4 million in comparable periods of fiscal 1996. The increases relate
primarily to higher costs associated with a larger sales force, and
administrative expenses of new business ventures and products.
Depreciation and amortization increased to $4.4 million and $12.2 million for
the third quarter and first nine months of fiscal 1997 from $3.5 million and
$11.0 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 a decrease in depreciation expense on US installed
store equipment in fiscal 1997. Amortization in the first nine months of fiscal
1997 includes approximately $0.3 million in amortization of intangible assets
arising from the purchase in the first quarter of fiscal 1997 by the Company of
the remaining 46% of its U.K. operation from its minority stockholders.
The provision for income taxes increased to $14.2 million (40% of income before
income taxes and minority interest) for the nine month period of fiscal 1997
compared to $10.5 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 nine month periods of fiscal 1997 and
1996, the Company made capital expenditures of $26.5 million and $14.6 million,
respectively. The pace of installations varies depending on the timing of
contracts entered into with retailers and the scheduling of store installations
by mutual agreement. During the first nine 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 financial performance of PMK for
the 1996, 1997 and 1998 calendar years. 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 and third quarters of fiscal 1997,
management purchased 78,168 shares of its common stock for $3.6 million so that
the Company has spent $4.2 million on such purchases since such authorization.
9
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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.
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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
15 Acknowledgment Letter
27 Financial Data Schedule
99 Review Report of Independent Certified Public Accountants
CATALINA MARKETING CORPORATION
10
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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.
February 11, 1997 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)
11
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EXHIBIT 15
January 10, 1997
Catalina Marketing Corporation
11300 9th 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 nine-month period ended
December 31, 1996, which includes our report dated January 10, 1997, 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
DMS
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 21,647
<SECURITIES> 0
<RECEIVABLES> 32,397
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 71,429
<PP&E> 138,265
<DEPRECIATION> 71,334
<TOTAL-ASSETS> 160,717
<CURRENT-LIABILITIES> 60,750
<BONDS> 1,214
0
0
<COMMON> 207
<OTHER-SE> 94,893
<TOTAL-LIABILITY-AND-EQUITY> 160,717
<SALES> 126,089
<TOTAL-REVENUES> 126,089
<CGS> 44,054
<TOTAL-COSTS> 91,263
<OTHER-EXPENSES> (846)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 35,672
<INCOME-TAX> 14,249
<INCOME-CONTINUING> 21,795
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,795
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
</TABLE>
<PAGE>
EXHIBIT 99
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 December 31, 1996,
and the related condensed consolidated statements of income for the three-month
and nine-month periods then ended, and the condensed consolidated statement of
cash flows for the nine-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,
January 10, 1997
