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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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<C> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 1-11008
CATALINA MARKETING CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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<S> <C>
DELAWARE 33-0499007
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
11300 9TH STREET NORTH, ST. PETERSBURG, 33716-2329
FLORIDA (Zip Code)
(Address of Principal Executive Offices)
</TABLE>
Registrant's Telephone Number, Including Area Code: (813) 579-5000
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH
EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $0.01 Par Value New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark 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, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing price of such stock as of June 1, 1998, as
reported by the New York Stock Exchange, Inc., was $832,572,548. The number of
shares of Registrant's common stock, par value $0.01 per share, outstanding as
of June 1, 1998, was 18,424,842.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Registrant's Definitive Proxy Statement for 1998 -- are
incorporated by reference in Part III of this report.
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TABLE OF CONTENTS
FORM 10-K
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PAGE
NO.
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PART I
Item 1 Business.................................................... 1
Item 2 Properties.................................................. 4
Item 3 Legal Proceedings........................................... 4
Item 4 Submission of Matters to a Vote of Security Holders......... 4
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder
Matters..................................................... 4
Item 6 Selected Financial Data..................................... 5
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 5
Item 7A Quantitative and Qualitative Disclosures About Market
Risk........................................................ 10
Item 8 Consolidated Financial Statements and Supplementary Data.... 10
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 25
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 25
Item 11 Executive Compensation...................................... 25
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 25
Item 13 Certain Relationships and Related Transactions.............. 25
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 25
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Catalina Marketing Corporation and subsidiaries ("Catalina Marketing", or
the "Company"), through its Catalina Marketing Network(R), provide manufacturers
of consumer and pharmaceutical products and retailers with a cost-effective
method of delivering advertising messages and promotional incentives directly to
"targeted" consumers based on their purchasing behavior. The Company assists
manufacturers and retailers execute long-term marketing strategies to build
consumer loyalty, promote products, and increase brand awareness and sales. The
Company's principal operating units are Catalina Marketing Services, Catalina
Marketing International, Health Resource Publishing Company, and SuperMarkets
Online. As of March 31, 1998, Catalina Marketing employed 751 employees
principally in the U.S. as well as in the United Kingdom, France, and Japan.
THE CATALINA MARKETING NETWORK
Catalina Marketing, founded in 1983, developed and is continuously refining
and upgrading a proprietary Electronic Marketing Network designed to utilize the
Universal Product Code ("UPC") labeling convention and the widespread use of UPC
scanning technology in retail stores. The Company has developed the
technological capability to make coupon and related promotion delivery more
responsive to consumer behavior while maintaining an advantage in terms of cost
efficiency relative to alternative methods. The Catalina Marketing Network
provides manufacturers and retailers with a high level of consumer targeting
precision previously unavailable.
The Company's primary business is the delivery of promotions at the
checkout stand through the Catalina Marketing Network, which links the Company's
software, personal computers, central data bases and specially designed thermal
printers to point of sale controllers and scanning equipment. The system prints
promotion incentives based upon information generated at the point of sale, from
the purchased products' UPC. The Company's system evaluates scanner data,
matches it with manufacturer or retailer programmed promotions and directs the
thermal printer, which is located near the cash register, to print the
appropriate promotion or message. Printing occurs throughout the checkout
process and the promotions are handed directly to the shopper at the end of the
shopping transaction.
The Company enters into agreements with retail chains to install the
Catalina Marketing Network in all or selected stores, either regionally or
nationally. Upon installation, the retailer pays a one-time charge for each
installation and generally agrees to use the Catalina Marketing Network in its
stores for a minimum of five years. The Company pays distribution fees to the
retailer based upon the number of manufacturer promotions printed. The equipment
installed in each retail store includes a thermal printer at each checkout lane
linked by a central personal computer on premises to the retailer's point of
sale controller and scanning equipment. One of the Company's two U.S. hub data
processing facilities communicates via modem with the personal computer
installed in each store to send new promotional instructions and to retrieve
performance data. The Company contracts with manufacturers and retailers to
print promotions and receives a fee for each promotion printed.
All of the equipment and supplies necessary for operation of the Catalina
Marketing Network, including computer hardware, printers and paper, are
purchased by the Company from outside sources. The Company currently obtains
most or all of its requirements from two suppliers for each of these items,
except printers, for which there is one primary supplier. The Company believes
that, as required, alternate sources of supply are available for these items
without material interruptions of the Company's business.
The Catalina Marketing Network's design is flexible and upgradable, and
supports new applications being developed and implemented by the Company on a
continuous basis. The Network is driven by proprietary software, and its
flexibility permits the Network to expand and to evolve as industry or customer
requirements change.
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SERVICES
The majority of services executed on the Catalina Marketing Network are
linked to the core Checkout Coupon(R) application. These include manufacturers'
coupons or other incentives delivered directly to targeted shoppers based on
their purchases of competitive products, the same products or complimentary
products. By specifying exactly which UPCs will trigger the printing of
promotions, manufacturers and retailers develop promotions bearing customized
messages and target them directly to shoppers they want to reach. The Company
offers manufacturers and retailers 13 four-week cycles annually for more than
500 product categories. These product categories are generally based on standard
industry classifications of household and consumer products available in
supermarkets, such as coffee, baby food and frozen entrees. The purchaser of a
particular category is given the exclusive right to have Checkout Coupons
printed for that category for each cycle purchased. The Company's policy
generally is to offer its manufacturer clients a right of first acceptance, for
a limited period of time, to purchase a national category cycle for each year
with respect to the identical category cycle which was purchased for the
immediately preceding year.
The Company has developed several additional proprietary electronic
marketing products and program enhancements for the Catalina Marketing Network
(for example, Checkout Callcard(TM), Checkout Rebate(R), Checkout Sample(R))
that, combined with the Checkout Coupon programs, offer a broad range of
products that can satisfy all of the marketing objectives of a consumer goods
company and enable the Company's clients to impact every phase of the purchase
cycle -- before, during and after the purchase. In addition, the Checkout
Direct(R) program links the Catalina Marketing Network with a retailer's
check-cashing or other card-based shopper program allowing marketers to monitor
the buying patterns of specific households over time and issue promotions based
on those patterns. The Company's Loyalty Marketing Services include frequent
shopper card design and issuance functions, consumer maintenance, list appending
and cleansing, data warehousing and reporting, and customer communications.
Also, the Company actively assists, implements or otherwise encourages retailer
support to supplement manufacturer Checkout Coupon programs with "tie-ins," such
as newspaper advertising, posters and on-shelf signs.
The Company's main revenue source is a function of total promotions
distributed based on a per-promotion charge, with a minimum category fee
determined with reference to the shopper reach of the Catalina Marketing
Network, and category unit volume. Redemption processing of Checkout Coupon
incentives is similar to that of regular manufacturer coupons. Retailers provide
discounts to consumers who present coupons, then send redeemed coupons to
clearinghouses and receive reimbursements for the discounts provided, plus
handling fees, from the manufacturers.
Catalina Marketing Services, constituting the Company's base business in
the U.S., contributed approximately 83 percent of the Company's revenues in
fiscal 1998, 89 percent in fiscal 1997, and 94 percent in fiscal 1996.
The Company's international operations provide in-store electronic
marketing services for consumers in the United Kingdom, France and Japan. As of
March 31, 1998, the Company's network was in 1,372 retail stores throughout
these countries. Also, through its joint venture in Japan, the Company provides
outdoor media services.
In fiscal 1995, the Company formed Health Resource Publishing Company
("HRP") to develop a new application of the Company's patented, in-store
scanner-based technology. This application includes customized newsletters
targeted to pharmacy customers based on their individual prescription purchases.
The laser-printed publication offers medical condition-specific health
information and savings on related products. The Health Resource Publishing
Company newsletter is triggered by the National Drug Code found on all
prescription drugs. When a prescription is processed, a customized newsletter
with therapeutically relevant editorials and product advertising is printed at
the pharmacy counter on a standard laser printer and handed to the customer
along with the customer's filled prescription. As of March 31, 1998, the HRP
system was in 1,920 stores in the United States.
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SALES AND MARKETING
Sales Force. The primary focus of the Company's marketing effort is to
attract national consumer product manufacturers to purchase category cycles. The
Company's sales and client service force focuses its services on current and
prospective customers by working with them on a consultative basis to develop
and implement customized, targeted marketing programs that fit each brand's
strategy and objectives.
Retailer Marketing. The Company's strategy has been to focus its retail
marketing efforts on installing its Network under contracts with the chain
retailers which have stores in major markets through the Company's retail sales
and service force. The Company encourages retailers to use Network-generated
incentives to promote private label brands or high margin departments, and
incorporate third-party "tie-ins."
At March 31, 1998, the Catalina Marketing Network was installed in 11,164
U.S. Checkout Coupon stores, which reach approximately 143 million shoppers each
week. At March 31, 1998, outside the United States, the Catalina Marketing
Network was installed in 1,372 stores, which reach approximately 20 million
shoppers each week.
RESEARCH AND DEVELOPMENT
The Company's expenditures for research and development are generally for
market research, software development, system upgrades and pilot-project
execution in order to create, test, and support new applications for the
Catalina Marketing Network. The Company believes that new service and
application development along with market expansion are vital to maintain the
Company's continued growth.
COMPETITION
The Company competes for manufacturers' advertising and promotional budgets
with a wide range of alternative media, including television, radio, print and
direct mail advertising, as well as with several alternative in-store and
point-of-sale programs. Within the coupon industry, the Company competes with
various traditional coupon delivery methods that are more widely accepted and
less expensive per delivered coupon, including free standing inserts (FSIs),
newspapers, direct mail, magazines and in or on-product packaging, as well as
other "in-store" marketing companies using a variety of coupon delivery methods.
The Company competes for promotional dollars based on the efficiency of the
Catalina Marketing Network, its ability to accurately and effectively target
potential customers, the shopper "reach" of its network and its general ability
to influence consumer buying behavior, thereby enabling a manufacturer or
retailer to meet its strategic objectives and measure results based on units
moved versus number of coupons printed.
EMPLOYEES
The Company employed 751 persons (633 in the U.S.) as of March 31, 1998,
substantially all of whom were full-time employees, and none of whom were
covered by a collective bargaining arrangement. Approximately 30 percent of the
Company's employees are located in the St. Petersburg, Florida headquarters.
PATENTS, PROPRIETARY INFORMATION AND TRADEMARKS
The Company currently holds several United States and foreign patents on
certain aspects of the Catalina Marketing Network and its services and has
several patent applications pending. The Company believes that its patents
provide it with a competitive advantage and plans to defend its proprietary
rights vigorously in all appropriate circumstances. While the Company believes
that its patent position is important, it also believes that its ability to
market its services to retailers and manufacturers, and to develop new products
will be the major factor affecting its future performance.
The Company believes that product recognition is an important competitive
factor in the electronic marketing and promotion industry. Accordingly, the
Company promotes its service marks and trademarks in connection with its product
and marketing activities and has registered, and is in the process of
registering, several marks. The Company also regards certain computer software
included in the Catalina Marketing
3
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Network and each additional service application as proprietary and seeks to
protect it with copyrights, trade secret laws and internal non-disclosure
agreements and safeguards, as well as by other means. Such methods may not
afford complete protection and there can be no assurance that others will not
independently develop such know-how, concepts or ideas.
ITEM 2. PROPERTIES
The Company's headquarters facility, which includes its principal
administrative, marketing, management information systems and product
development offices, is located in 65,207 square feet of leased space in St.
Petersburg, Florida. The Company leases an additional 17 sales and support
offices across the United States, consisting of approximately 181,130 square
feet in the aggregate, and 3 offices for its foreign operations. The Company
believes that its existing facilities are adequate to meet current requirements
and that suitable additional space will be available as needed to accommodate
growth of its operations and additional sales and support offices for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Catalina Marketing is often involved in litigation arising out of the
Company's business, including litigation initiated by the Company to protect its
intellectual property or to defend itself against claims brought on by others.
In the opinion of management of Catalina Marketing, the ultimate outcome of this
litigation will not have a material adverse effect on the Company's financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NOT APPLICABLE
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
A. MARKET PRICES OF STOCK
The Company's Common Stock, par value $0.01 per share ("Common Stock"), is
traded on the New York Stock Exchange ("NYSE") under the symbol "POS". The
following table sets forth the high and low closing prices as reported by the
NYSE for the Common Stock for the quarters ended as follows:
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HIGH LOW
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Fiscal 1998:
March 31, 1998............................................ $53 9/16 $42 1/16
December 31, 1997......................................... 54 11/16 44 3/4
September 30, 1997........................................ 53 3/4 41 1/2
June 30, 1997............................................. 48 1/8 25 3/8
Fiscal 1997:
March 31, 1997............................................ $59 3/8 $39
December 31, 1996......................................... 55 1/8 46
September 30, 1996........................................ 53 7/8 42 1/8
June 30, 1996............................................. 45 3/4 36 3/16
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B. STOCKHOLDERS
As of March 31, 1998, there were approximately 553 registered holders of
shares of Common Stock.
C. DIVIDENDS
The Company has not paid any cash dividends to date, and there are no
current plans to pay a cash dividend in the future.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The selected Income Statement Data and Balance Sheet Data set forth below
are derived from the audited Consolidated Financial Statements of the Company
and the related notes thereto. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
to the Consolidated Financial Statements included elsewhere in this Annual
Report.
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FISCAL YEAR ENDED MARCH 31,
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1998 1997 1996 1995 1994
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Income Statement Data:
Revenues................................... $217,150 $172,143 $134,155 $113,254 $91,448
Costs and expenses:
Direct operating expenses............... 84,191 62,482 47,661 41,389 35,383
Selling, general and administrative..... 56,364 48,379 37,358 28,616 26,093
Depreciation and amortization........... 23,703 17,939 14,328 15,073 11,428
-------- -------- -------- -------- -------
Total costs and expenses................... 164,258 128,800 99,347 85,078 72,904
-------- -------- -------- -------- -------
Income from operations..................... 52,892 43,343 34,808 28,176 18,544
Net income................................. $ 32,871 $ 27,241 $ 22,028 $ 17,229 $12,670
Diluted net income per common share........ $ 1.73 $ 1.33 $ 1.11 $ 0.86 $ 0.62
Diluted weighted average common shares
outstanding............................. 19,026 20,491 19,922 20,128 20,388
Other Data:
U.S. Checkout Coupon stores installed at
end of period........................... 11,164 10,745 9,766 9,004 7,481
International Checkout Coupon stores
installed at end of period.............. 1,372 941 558 168 137
Capital expenditures, net.................. $ 24,250 $ 34,605 $ 23,121 $ 19,048 $23,425
Balance Sheet Data:
Cash and cash equivalents.................. $ 18,434 $ 13,698 $ 25,778 $ 30,729 $26,863
Property and equipment, net................ $ 70,513 $ 69,578 $ 46,253 $ 37,440 $32,944
Total assets............................... $157,066 $154,696 $114,187 $ 96,556 $82,504
Long term debt (including current portion
of long term debt)...................... $ 1,340 $ 2,178 $ -- $ -- $ --
Total stockholders' equity................. $ 90,042 $ 96,938 $ 71,222 $ 55,494 $44,858
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements in the following paragraphs may be forward looking, and
actual results may differ materially. Statements not based on historical facts
involve risks and uncertainties, including, but not limited to, the changing
market for promotional activities, especially as it relates to policies and
programs of packaged goods manufacturers for the issuance of certain product
coupons, the effect of economic and competitive conditions and seasonal
variations, the success and timing of growth of the Company's international and
other ventures outside its core business, actual promotional activities and
programs with the Company's customers, the pace of installation of the Company's
Network, the timing and success of the introduction of new product and program
offerings by the Company, and the Company's ability to maintain favorable client
relationships with packaged goods manufacturers and retailers.
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OVERVIEW
The Company provides in-store electronic marketing services. Through its
proprietary network, the Company provides manufacturers of consumer and
pharmaceutical products and retailers with cost-effective methods of delivering
promotional incentives and advertising messages directly to consumers based on
their purchasing behavior. As part of the Company's core domestic consumer
packaged goods service delivered over the Catalina Marketing Network, these
programs offer manufacturers and retailers 13 four-week cycles each year which
offer highly targeted product promotions or advertisements directly to
consumers. Manufacturers and retailers may utilize the Catalina Marketing
Network to create and deliver ads and promotions on an exclusive basis within
any one of more than 500 product categories. Revenues from the Checkout Coupon
program vary directly with the total number of coupons printed, subject to
minimum category fees which are set based on the reach of the Catalina Marketing
Network and the level of unit sales within each category. Outside its core
domestic business, the Company's activities include HRP, which prints customized
newsletters targeted to pharmacy customers based on their individual
prescription purchases; SuperMarkets Online, which is the Company's internet
initiative, and Catalina Marketing International, which has operations in the
United Kingdom, France and Japan. In connection with its international
activities, in October 1996, the Company purchased a 51% interest in a Japanese
outdoor media company as part of the planned commencement of electronic
marketing services on a joint venture basis in Japan.
RESULTS OF OPERATIONS
Year Ended March 31, 1998 compared to Year Ended March 31, 1997
Revenues were $217.1 million in fiscal 1998, up 26 percent over revenues of
$172.1 in fiscal 1997. The increase in revenues is primarily due to a greater
distribution of Checkout Coupon(R) incentives worldwide, growth in new programs
such as Checkout Direct(R) and, to a lesser extent, revenues added by an
acquisition by the Company on October 10, 1996 of a 51 percent interest in a
Japanese based outdoor media business. In the U.S., the Catalina Marketing
Network printed 2.56 billion promotions during fiscal 1998, up 10.9 percent
compared to fiscal 1997 (2.31 billion promotions). Catalina Marketing Services,
constituting the Company's base business in the U.S., contributed approximately
$179.9 million of revenues in fiscal 1998, up 17 percent over revenues of $153.8
million in fiscal 1997.
In the U.S., the Catalina Marketing Network was in 11,164 stores at March
31, 1998, which reach 143 million shoppers each week as compared to 10,745
stores reaching 144 million shoppers each week at March 31, 1997. The Company
believes that the shopper reach statistic, which represents the average of the
total transactions observed on the Company's Network for the three week period
immediately preceding the fiscal year end period, was lower at March 31, 1998
than the March 31, 1997 level due to the timing of the Easter holiday. Easter
occurred on April 10, 1998 as compared to March 30, 1997 in the prior year. As
such, the heightened seasonal shopping activity associated with the holiday was
captured by the prior year statistic, but is not reflected in the statistic as
of March 31, 1998. Had the seasonal activity been reflected in the fiscal 1998
statistic, the Company believes the shopper reach statistic would have been
approximately 146 million.
The Health Resources Network was in 1,920 pharmacies at March 31, 1998 as
compared to 1,195 pharmacies at March 31, 1997. Outside the U.S., the Catalina
Marketing Network was in 1,372 stores at March 31, 1998, which reach 20 million
shoppers each week as compared to 941 stores reaching 18 million shoppers each
week at March 31, 1997. In fiscal 1998, the Company installed its Catalina
Marketing Network in 419 stores (net of deinstallations) in the U.S. as compared
to 979 stores in fiscal 1997. Deinstallation activity can and does occur
primarily due to the consolidation and business combination of supermarket
chains as well as store closures made by retailers in the ordinary course of
business. The Company also installed its Health Resources Network in 725
pharmacies (net of deinstallations) in fiscal 1998 as compared to 958 pharmacies
in fiscal 1997. Outside the U.S., the Company installed 431 stores (net of
deinstallations) in fiscal 1998 as compared to 383 stores in fiscal 1997. During
fiscal 1998, the Company ceased operations in 300 stores in and around Mexico
City.
Direct operating expenses consist of retailer fees, paper, sales
commissions and the expenses of operating and maintaining the Catalina Marketing
Network (primarily expenses relating to operations personnel and
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service offices), provision for doubtful accounts and the direct expenses
associated with operating the outdoor media business in a majority-owned
subsidiary in Japan (purchased in October 1996). Direct operating expenses
increased in absolute terms to $84.2 million in fiscal 1998 from $62.5 million
in fiscal 1997. Direct operating expenses in fiscal 1998 as a percentage of
revenues increased to 38.8 percent from 36.3 percent in fiscal 1997. This
increase in fiscal 1998 is principally attributable to the addition of the
direct costs associated with running the outdoor media business in Japan.
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 in fiscal 1998 were $56.4
million compared to $48.4 million in fiscal 1997, an increase of 16.5 percent or
$8.0 million. The increase relates primarily to higher costs associated with a
larger sales force, and administrative expenses of new business ventures and
products. As a percentage of revenues, selling, general and administrative
expenses decreased 2.1 percent in fiscal 1998, to 26.0 percent from 28.1 percent
in fiscal 1997. This decrease is due to the outdoor media business in Japan,
which typically has a higher percentage of direct costs (as indicated above) and
a smaller percentage of selling, general and administrative expenses than the
Company's other businesses, as well as the fiscal 1997 period including the
electronic clearing business which ceased operations on March 31, 1997. This
decrease was partially offset by a $3.5 million one time expense incurred
related to the shutdown of the Mexican operations in the third quarter of fiscal
1998.
Depreciation and amortization increased to $23.7 million for fiscal 1998
from $17.9 million for fiscal 1997. Depreciation increased due to the increase
in fiscal 1997 capital expenditures associated with new business ventures and
data processing equipment.
Interest income (expense) and other decreased to $1.0 million expense for
fiscal 1998 from $1.2 million income for fiscal 1997. The decrease is primarily
due to the Company incurring interest expense on borrowings from its credit
facility during fiscal 1998.
The provision for income taxes increased to $19.1 million (36.7 percent of
income before income taxes and minority interest) for fiscal 1998 compared to
$17.9 million (40 percent of income before income taxes and minority interest)
for fiscal 1997. The decrease in the provision as a percent of income before
income tax and minority interest for fiscal 1998 is due to a $3.1 million
federal and state tax benefit arising from the shutdown of the Mexican
operations in fiscal 1998. Excluding the effect of the Mexican operations
shutdown, 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
currently utilize losses of other majority owned foreign subsidiaries for tax
purposes.
Year Ended March 31, 1997 compared to Year Ended March 31, 1996
Revenues were $172.1 million in fiscal 1997, up 28 percent over revenues of
$134.2 million in fiscal 1996. The increase in revenues is primarily due to a
greater distribution of Checkout Coupon incentives worldwide. In the U.S., the
Catalina Marketing Network printed 2.31 billion promotions during fiscal 1997,
up 18 percent compared to fiscal 1996 (1.95 billion promotions). Catalina
Marketing Services contributed approximately $153.8 million of revenues in
fiscal 1997, up 22.4 percent over revenues of $125.6 million in fiscal 1996. 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 U.S., the Catalina Marketing Network was in 10,745 stores at
March 31, 1997, which reach 144 million shoppers each week, as compared to 9,766
stores reaching 127 million shoppers each week at March 31, 1996.
Direct operating expenses increased in absolute terms to $62.5 million in
fiscal 1997 from $47.7 million in fiscal 1996. Direct operating expenses in
fiscal 1997 as a percentage of revenues increased to 36.3 percent from 35.5
percent in fiscal 1996. This increase in fiscal 1997 is principally attributable
to the addition of the direct costs associated with running the outdoor media
business in Japan, expansion of the HRP operating unit and costs associated with
the discontinuance of the electronic clearing business.
Selling, general and administrative expenses in fiscal 1997 were $48.4
million, compared to approximately $37.4 million for fiscal 1996, an increase of
29.5 percent or $11 million. The increase relates primarily to
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higher costs associated with a larger sales force, and administrative expenses
of new business ventures and products. As a percentage of revenues, selling,
general and administrative expenses increased 0.3 percent in fiscal 1997, to
28.1 percent from 27.8 percent for the comparable period of fiscal 1996.
Depreciation and amortization increased to $17.9 million for fiscal 1997
from $14.3 million for fiscal 1996. Depreciation increased due to the increase
in capital expenditures associated with new business ventures and was partially
offset by a decrease in depreciation expense on U.S. installed store equipment.
Amortization in fiscal 1997 includes approximately $0.5 million in amortization
of intangible assets arising from the purchase in the first quarter of fiscal
1997 by the Company of the remaining 46 percent of its U.K. operation from its
minority stockholders.
The provision for income taxes increased to $17.9 million, 40% of income
before income taxes and minority interest, for fiscal 1997 compared to $14.9
million, 41% 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
federal statutory tax rate due to state and foreign income taxes and the
inability to currently utilize losses of majority owned foreign subsidiaries for
tax purposes.
QUARTERLY RESULTS
The following table presents certain unaudited quarterly results for the
last eight quarters (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------
MAR 31, DEC 31, SEPT 30, JUNE 30, MAR 31, DEC 31, SEPT 30, JUNE 30,
1998 1997 1997 1997 1997 1996 1996 1996
------- ------- -------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................................... $54,061 $63,703 $52,727 $46,659 $46,054 $46,344 $41,618 $38,127
Direct operating expenses.................. 21,999 23,752 20,407 18,033 18,428 16,055 14,863 13,136
Selling, general and administrative........ 12,486 18,561 12,421 12,896 13,372 12,195 11,658 11,154
Depreciation and amortization.............. 6,476 5,613 5,923 5,691 5,737 4,448 4,090 3,664
------- ------- ------- ------- ------- ------- ------- -------
Income from operations..................... 13,100 15,777 13,976 10,039 8,517 13,646 11,007 10,173
Interest income (expense) and other........ 28 (208) (390) (393) 378 273 341 232
Income taxes............................... (5,001) (4,706) (5,342) (4,009) (3,631) (5,607) (4,371) (4,271)
Minority interest in losses of
subsidiaries............................. -- -- -- -- 182 -- 212 160
------- ------- ------- ------- ------- ------- ------- -------
Net income................................. $8,127 $10,863 $ 8,244 $ 5,637 $5,446 $8,312 $ 7,189 $ 6,294
======= ======= ======= ======= ======= ======= ======= =======
Diluted net income per common share........ $ .43 $ .57 $ .43 $ .30 $ .27 $ .40 $ .35 $ .31
Diluted weighted average common shares
outstanding.............................. 19,107 19,118 19,146 19,072 20,539 20,635 20,608 20,432
U.S. Checkout Coupon Business:
Stores at quarter end...................... 11,164 10,979 10,801 10,832 10,745 10,741 10,470 10,085
Net stores installed during quarter........ 185 178 (31) 87 4 271 385 319
Promotions printed (in millions)........... 543 764 660 597 581 634 574 521
Weekly shopper reach at quarter end (in
millions)................................ 143 145 142 147 144 141 136 135
</TABLE>
The Company expects its revenues to fluctuate in accordance with periods of
higher promotional activity by manufacturers. The pattern of coupon
distribution, however, is irregular and may change from period to period
depending on many factors, including the economy, competition, the timing of new
product introductions and the timing of manufacturers' promotion planning and
implementation. These factors, as well as the overall growth in the number of
retailer and manufacturer contracts with the Company, tend to influence the
Company's revenues and profits.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital expenditures are store equipment and
third-party store installation costs, as well as data processing equipment for
the Company's central data processing facilities. Total store equipment and
third-party store installation costs range from $5,000 to $13,000 per store.
During fiscal 1998 and fiscal 1997, the Company made net capital expenditures of
$24.2 million and $34.6 million, respectively. The pace of installations varies
depending on the timing of contracts entered into with retailers and the
8
<PAGE> 11
scheduling of store installations by mutual agreement. During fiscal 1998, the
Company had a slower pace of U.S. store installations and spent $6.5 million
less in data processing equipment and furniture and fixtures compared to fiscal
1997. Management believes that expenditures for capital equipment will remain
between $20 million and $35 million annually for the foreseeable future.
During fiscal 1998, the Company purchased 1,628,477 shares of its common
stock for $50.8 million. Management is authorized to purchase an additional
$19.2 million of Company common stock subject to market conditions. The Company
may consider additional share repurchases from time to time. The Company expects
share repurchases to be an ongoing and regular part of its financial strategy.
During fiscal 1998 the Company borrowed approximately $27 million against
its $40 million credit facility, $22 million of which was in connection with the
common stock repurchase referenced above, and $5 million of which was used to
fund operations. On September 30, 1997 the Company terminated its existing $40
million credit facility and entered into a new credit agreement (the Credit
Agreement) with a syndicate of banks under which it may borrow up to $150
million, at variable rates calculated with reference to the London Interbank
Offering Rate (LIBOR) or the higher of the bank prime rate or the Federal Funds
rate plus 50 basis points for certain advances. The Credit Agreement expires on
September 30, 2000. The Company repaid $27 million during fiscal 1998, leaving
no outstanding balance on this facility at March 31, 1998.
The Company believes working capital generated by operations along with
existing credit facilities are sufficient for its overall capital requirements.
The Company is aware of the Year 2000 issue and the effects it may have on
its business systems. In response, the Company has developed a detailed plan to
address the issue. This plan includes a campaign which began in fiscal 1998 and
will be completed in fiscal 1999 and includes spending of approximately $1.0
million for testing and upgrading hardware and software. The Company believes
that it will be Year 2000 compliant without a material impact on its operations
or financial results.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130) and No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131).
SFAS No. 130 requires that an enterprise classify items of other
comprehensive income by their nature on the face of its financial statements and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
balance sheet. SFAS No. 130 is effective for financial statements relating to
fiscal years beginning after December 15, 1997.
SFAS No. 131 requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. SFAS No.
131 is effective for financial statements relating to fiscal years beginning
after December 15, 1997.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides
guidance for capitalizing and expensing the costs of computer software developed
or obtained for internal use. SOP 98-1 is effective for financial statements
relating to fiscal years beginning after December 15, 1998. Earlier adoption is
allowed.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 provides guidance for
expensing start-up costs and organization costs as incurred. SOP 98-5 is
effective for financial statements relating to fiscal years beginning after
December 15, 1998.
The effects of SFAS No. 130, SFAS No. 131, SOP 98-1 and SOP 98-5 on the
Company have not been considered at this time.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosure about Pension
and Other Post Retirement Benefits" (SFAS No. 132). SFAS No. 132 revises
employers' disclosures about pension and other post retirement benefit plans.
9
<PAGE> 12
SFAS No. 132 is effective for financial statements relating to fiscal years
beginning after December 15, 1997; earlier application is encouraged. Management
has implemented SFAS No. 132 for the year ended March 31, 1998.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... 11
Consolidated Income Statements, Years ended March 31, 1998,
1997 and 1996............................................. 12
Consolidated Balance Sheets at March 31, 1998 and 1997...... 13
Consolidated Statements of Stockholders' Equity, Years ended
March 31, 1998, 1997 and 1996............................. 14
Consolidated Statements of Cash Flows, Years ended March 31,
1998, 1997 and 1996....................................... 15
Notes to the Consolidated Financial Statements.............. 16
</TABLE>
10
<PAGE> 13
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Catalina Marketing Corporation:
We have audited the accompanying consolidated balance sheets of Catalina
Marketing Corporation (a Delaware corporation) and subsidiaries as of March 31,
1998 and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Catalina
Marketing Corporation and subsidiaries as of March 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida,
April 23, 1998
11
<PAGE> 14
CATALINA MARKETING CORPORATION
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... $217,150 $172,143 $134,155
Costs and Expenses:
Direct operating expenses................................. 84,191 62,482 47,661
Selling, general and administrative....................... 56,364 48,379 37,358
Depreciation and amortization............................. 23,703 17,939 14,328
-------- -------- --------
Total costs and expenses.......................... 164,258 128,800 99,347
-------- -------- --------
Income From Operations...................................... 52,892 43,343 34,808
Interest Income (Expense) and Other......................... (963) 1,224 1,409
-------- -------- --------
Income Before Income Taxes and Minority Interest............ 51,929 44,567 36,217
Income Taxes................................................ 19,058 17,880 14,855
Minority Interest in Losses of Subsidiaries................. -- 554 666
-------- -------- --------
Net Income........................................ $ 32,871 $ 27,241 $ 22,028
======== ======== ========
Diluted:
Net Income Per Common Share............................... $ 1.73 $ 1.33 $ 1.11
Weighted Average Common Shares Outstanding................ 19,026 20,491 19,922
Basic:
Net Income Per Common Share............................... $ 1.78 $ 1.39 $ 1.14
Weighted Average Common Shares Outstanding................ 18,417 19,650 19,344
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
12
<PAGE> 15
CATALINA MARKETING CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 18,434 $ 13,698
Accounts receivable, net.................................... 20,251 28,367
Inventory................................................... 2,506 935
Deferred tax asset.......................................... 9,666 7,467
Prepaid expenses and other current assets................... 12,710 11,282
-------- --------
Total current assets.............................. 63,567 61,749
-------- --------
Property and Equipment:
Store equipment............................................. 125,624 112,546
Furniture and office equipment.............................. 24,743 19,597
Billboards.................................................. 5,654 6,107
Leasehold improvements...................................... 4,165 3,913
-------- --------
160,186 142,163
Less: accumulated depreciation.............................. (89,673) (72,585)
-------- --------
Property and equipment, net....................... 70,513 69,578
Purchased intangible assets, net............................ 19,112 18,805
Other assets................................................ 3,874 4,564
-------- --------
Total Assets...................................... $157,066 $154,696
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................ $ 8,348 $ 12,674
Taxes payable............................................... 1,380 928
Accrued expenses............................................ 26,140 22,433
Deferred revenue............................................ 20,116 11,611
Short term borrowings....................................... 5,537 5,820
-------- --------
Total current liabilities......................... 61,521 53,466
-------- --------
Deferred tax liability...................................... 5,073 3,423
Long term debt.............................................. 430 869
Commitments and contingencies...............................
Stockholders' Equity:
Preferred stock; $.01 par value; 5,000,000 authorized
shares; none issued and outstanding....................... -- --
Common stock; $.01 par value; 50,000,000 authorized shares,
and 18,379,153 and 20,778,557 shares issued at March 31,
1998 and 1997, respectively............................... 184 208
Paid-in capital............................................. 685 41,770
Cumulative translation adjustment........................... (135) 749
Retained earnings........................................... 89,308 84,214
Less common stock in treasury, at cost (1,172,408 shares at
March 31, 1997)........................................... -- (30,003)
-------- --------
Total stockholders' equity........................ 90,042 96,938
-------- --------
Total Liabilities and Stockholders' Equity........ $157,066 $154,696
======== ========
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
13
<PAGE> 16
CATALINA MARKETING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------- CUMULATIVE TREASURY STOCK TOTAL
PAR PAID-IN TRANSLATION RETAINED ----------------- STOCKHOLDERS'
SHARES VALUE CAPITAL ADJUSTMENT EARNINGS SHARES AMOUNT EQUITY
------ ----- -------- ----------- -------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1995....... 20,048 $200 $ 29,681 $ 145 $ 34,945 (448) $ (9,477) $ 55,494
Proceeds from issuance of common
stock......................... 412 5 2,652 -- -- -- -- 2,657
Amortization of option-related
compensation.................. -- -- 133 -- -- -- -- 133
Tax benefit from exercise of
non-qualified stock options
and disqualified
dispositions.................. -- -- 1,613 -- -- -- -- 1,613
Common stock repurchase......... -- -- -- -- -- (516) (11,059) (11,059)
Translation adjustment.......... -- -- -- 356 -- -- -- 356
Net income...................... -- -- -- -- 22,028 -- -- 22,028
------ ---- -------- ----- -------- ------ -------- --------
BALANCE AT MARCH 31, 1996....... 20,460 $205 $ 34,079 $ 501 $ 56,973 (964) $(20,536) $ 71,222
Proceeds from issuance of common
stock......................... 266 3 4,628 -- -- -- -- 4,631
Amortization of option-related
compensation.................. -- -- 202 -- -- -- -- 202
Tax benefit from exercise of
non-qualified stock options
and disqualified
dispositions.................. -- -- 884 -- -- -- -- 884
Common stock repurchase......... -- -- -- -- -- (208) (9,467) (9,467)
Deferred compensation plan
common stock units............ -- -- 189 -- -- -- -- 189
Issuance of common stock to
replace Catalina Marketing
U.K., Ltd. options............ 11 -- 157 -- -- -- -- 157
Issuance of common stock in
purchase of minority
shareholders of Catalina
Marketing U.K., Inc. ......... 42 -- 1,631 -- -- -- -- 1,631
Translation adjustment.......... -- -- -- 248 -- -- -- 248
Net income...................... -- -- -- -- 27,241 -- -- 27,241
------ ---- -------- ----- -------- ------ -------- --------
BALANCE AT MARCH 31, 1997....... 20,779 $208 $ 41,770 $ 749 $ 84,214 (1,172) $(30,003) $ 96,938
Proceeds from issuance of common
stock......................... 401 4 8,739 -- -- -- -- 8,743
Amortization of option-related
compensation.................. -- -- 231 -- -- -- -- 231
Tax benefit from exercise of
non-qualified stock options
and disqualified
dispositions.................. -- -- 2,842 -- -- -- -- 2,842
Repurchase, retirement and
cancellation of treasury
stock......................... (2,801) (28) (53,013) -- (27,777) 1,172 30,003 (50,815)
Deferred compensation plan
common stock units............ -- -- 116 -- -- -- -- 116
Translation adjustment.......... -- -- -- (884) -- -- -- (884)
Net income...................... -- -- -- -- 32,871 -- -- 32,871
------ ---- -------- ----- -------- ------ -------- --------
BALANCE AT MARCH 31, 1998....... 18,379 $184 $ 685 $(135) $ 89,308 -- $ -- $ 90,042
====== ==== ======== ===== ======== ====== ======== ========
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
14
<PAGE> 17
CATALINA MARKETING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.................................................. $ 32,871 $ 27,241 $ 22,028
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest......................................... -- (554) (666)
Depreciation and amortization............................. 23,934 18,264 14,461
Provision for doubtful accounts........................... 1,389 1,197 1,307
Deferred income tax....................................... (549) 1,677 1,733
Other..................................................... 1,182 193 (20)
Changes in operating assets and liabilities, net of effects
from acquisitions:
Accounts receivable....................................... 5,398 (4,180) (11,460)
Inventory, prepaid expenses and other assets.............. (3,152) (3,681) (3,698)
Accounts payable.......................................... (3,079) 2,451 7,674
Taxes payable............................................. 790 180 408
Accrued expenses.......................................... 2,699 4,090 (33)
Deferred revenue.......................................... 8,790 (2,611) (6,382)
-------- -------- --------
Net cash provided by operating activities......... 70,273 44,267 25,352
-------- -------- --------
Cash Flows From Investing Activities:
Capital expenditures, net................................... (24,250) (34,605) (23,121)
Purchase of investments, net of cash acquired............... (2,087) (18,028) (725)
-------- -------- --------
Net cash used in investing activities............. (26,337) (52,633) (23,846)
-------- -------- --------
Cash Flows From Financing Activities:
Proceeds from debt obligations............................ 40,427 1,138 --
Principal payments on debt obligations.................... (40,487) (1,458) --
Proceeds from issuance of common and subsidiary stock..... 8,543 5,090 2,990
Tax benefit from exercise of non-qualified stock options
and disqualified dispositions.......................... 2,842 884 1,613
Payment for repurchase of company common stock............ (50,815) (9,467) (11,059)
-------- -------- --------
Net cash used in financing activities............. (39,490) (3,813) (6,456)
-------- -------- --------
Net Change in Cash and Cash Equivalents..................... 4,446 (12,179) (4,950)
Effect of Exchange Rate Changes on Cash..................... 290 99 (1)
Cash and Cash Equivalents, at beginning of year............. 13,698 25,778 30,729
-------- -------- --------
Cash and Cash Equivalents, at end of year................... $ 18,434 $ 13,698 $ 25,778
======== ======== ========
Supplemental Schedule of Other Transactions:
Cash paid during the year for:
Interest............................................... $ 616 $ 70 $ --
Income taxes........................................... $ 17,174 $ 11,463 $ 14,906
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
15
<PAGE> 18
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summarizes the significant accounting and financial policies
of Catalina Marketing Corporation and Subsidiaries (the "Company") which have
been followed in preparing the accompanying consolidated financial statements.
Certain prior balances have been reclassified to conform with the current year
presentation.
Description of the Business. The Company provides in-store electronic
marketing services. Through its proprietary network, the Company provides
consumer and pharmaceutical product manufacturers and retailers with
cost-effective methods of delivering promotional incentives and advertising
messages directly to consumers based on their purchasing behavior. Additionally,
a majority-owned subsidiary of the Company operates an outdoor media business in
Japan. As of March 31, 1998, the Company's network was installed in 11,164
retail stores and 1,920 pharmacies throughout the United States and 1,372 retail
stores throughout the United Kingdom, France and Japan.
Principles of Consolidation and Preparation. The consolidated financial
statements include the accounts of the Company and its wholly-owned and
majority-owned subsidiaries. The preparation of financial statements in
conformity with generally accepted accounting principles requires the use of
management's estimates.
The accounts of the wholly-owned and majority-owned foreign subsidiaries
are included as of December 31, which is their fiscal year end. All material
intercompany profits, transactions and balances have been eliminated. The
Company's investment in non-majority owned companies is accounted for on the
equity method.
Fair Value of Financial Instruments. The book value of all financial
instruments approximates their fair value.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash and
short-term investments. The short-term investments can be immediately converted
to cash and are held at their market value.
Allowance for Doubtful Accounts. The Company records a provision for
estimated doubtful accounts as part of direct operating expenses. As of March
31, 1998 and 1997, the allowance for doubtful accounts was $703,000 and
$1,613,000, respectively.
Inventory. Inventory consists of paper used for promotion printing.
Inventory is stated at the lower of cost, as determined by the first-in,
first-out method, or market.
Property and Equipment. Property and equipment are stated at cost.
Depreciation of store equipment, billboards and furniture and office equipment
is computed using the straight-line method based on the estimated useful lives
of the related assets (generally three to eight years). Third party installation
costs, net of amounts reimbursed by the retailer, are capitalized and amortized
using the straight-line method over the estimated useful lives of the related
assets. Leasehold improvements are amortized using the straight-line method over
the shorter of the estimated useful lives of the assets or the remaining term of
the related lease. Maintenance and repair costs are expensed as incurred.
Foreign Currency Translation. For foreign subsidiaries whose functional
currency is the local foreign currency, balance sheet accounts are translated at
exchange rates in effect at the end of the subsidiaries' year and income
statement accounts are translated at average exchange rates for the year.
Translation gains and losses are included as a separate component of
stockholders' equity.
Revenue Recognition and Deferred Revenue. In accordance with coupon
industry practice, the Company generally pre-bills manufacturers for purchased
category cycles. The purchase of a category cycle gives a manufacturer the
exclusive right to have promotions printed for a particular product category
during the
16
<PAGE> 19
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
applicable period. The Company recognizes in-store electronic marketing service
revenues as promotions are printed. Amounts collected prior to printing are
reflected as deferred revenue until printing occurs.
Income Taxes. Provision for income taxes includes federal, state and
foreign income taxes currently payable. Deferred income taxes are provided for
temporary differences between the recognition of income and expenses for
financial reporting purposes and income tax purposes.
Research and Development. Research and development costs relating to the
development and testing of new service applications are expensed as incurred.
Net Income Per Common Share. In fiscal 1998, the Company adopted Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128).
Accordingly, diluted and basic earnings per share (EPS) are shown on the face of
the accompanying consolidated income statements. The following is a
reconciliation of the denominator of basic EPS to the denominator of diluted EPS
(in thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Basic weighted average common shares outstanding............ 18,417 19,650 19,344
Dilutive effect of options outstanding...................... 609 841 578
------ ------ ------
Diluted weighted average common shares outstanding.......... 19,026 20,491 19,922
====== ====== ======
</TABLE>
Options to purchase 215,000 shares of common stock at prices ranging from
$51.31 to $53.50 per share were outstanding at March 31, 1998, but were not
included in the computation of diluted EPS because the options' exercise prices
were greater than the average market price of common stock.
NOTE 2: SUPPLEMENTAL BALANCE SHEET INFORMATION
Prepaid expenses and other current assets include (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Prepaid billboard rental.................................... $ 2,223 $ 3,972
Investments in deferred compensation plan................... 6,723 4,923
Other....................................................... 3,764 2,387
------- -------
Total prepaid expenses and other current assets... $12,710 $11,282
======= =======
</TABLE>
Purchased intangible assets, net include (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-----------------
USEFUL LIFE 1998 1997
----------- ------- -------
(IN YEARS)
<S> <C> <C> <C>
Patent license and retailer relationships in the United
Kingdom................................................ 20 $12,691 $12,691
Goodwill................................................. 20-40 7,721 6,661
Purchased patents........................................ 7-8 150 --
Accumulated amortization................................. (1,450) (547)
------- -------
Purchased intangible assets, net............... $19,112 $18,805
======= =======
</TABLE>
17
<PAGE> 20
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Accrued expenses include (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Payroll related............................................. $ 6,133 $ 6,262
Deferred compensation plan.................................. 6,927 4,832
Sales commissions........................................... 3,215 1,798
Other....................................................... 9,865 9,541
------- -------
Total accrued expenses............................ $26,140 $22,433
======= =======
</TABLE>
NOTE 3: INCOME TAXES
Deferred income tax assets or liabilities are computed based on the
temporary differences between the financial statement and income tax bases of
assets and liabilities using the enacted marginal income tax rate in effect for
the year in which the differences are expected to reverse. Deferred income tax
expenses or credits are based on the changes in the deferred income tax assets
or liabilities from period to period.
Temporary differences for financial statement and income tax purposes
result primarily from charges to operations for financial statement reporting
purposes which are not currently tax deductible and revenues deferred for
financial statement reporting purposes which are currently taxable. The
components of the deferred tax asset and liability were as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
DEFERRED TAX ASSETS
Payroll related............................................. $ 3,495 $ 2,904
Deferred revenue............................................ 2,845 1,158
Provision for doubtful accounts............................. 216 670
Accrued expenses............................................ 1,796 1,655
Other....................................................... 2,299 2,091
------- -------
$10,651 $ 8,478
------- -------
DEFERRED TAX LIABILITIES
Depreciation and amortization............................... $ 5,051 $ 3,423
Accrued expenses............................................ 783 842
Other....................................................... 224 169
------- -------
$ 6,058 $ 4,434
------- -------
NET DEFERRED TAX ASSET...................................... $ 4,593 $ 4,044
======= =======
</TABLE>
18
<PAGE> 21
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current taxes:
Federal................................................. $16,696 $13,678 $11,516
State................................................... 2,033 1,877 1,236
Foreign................................................. 878 648 370
------- ------- -------
19,607 16,203 13,122
------- ------- -------
Deferred taxes:
Federal................................................. 377 1,629 1,555
State................................................... 77 187 178
Foreign................................................. (1,003) (139) --
------- ------- -------
(549) 1,677 1,733
------- ------- -------
Provision for income taxes................................ $19,058 $17,880 $14,855
======= ======= =======
</TABLE>
Taxes credited to stockholders' equity for the 1998, 1997 and 1996 fiscal
years were $2,842,000, $884,000 and $1,613,000, respectively.
The reconciliation of the provision for income taxes based on the U.S.
federal statutory income tax rate to the Company's provision for income taxes is
as follows (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Federal statutory rate.................................... 35% 35% 35%
Expected federal statutory tax............................ $18,175 $15,792 $12,909
State and foreign income taxes, net of federal benefit.... 1,346 1,829 1,257
Effect of foreign subsidiary losses and their tax rates... 1,731 744 522
Effect of shutdown of Mexican operation................... (2,566) -- --
Tax free municipal bonds.................................. (8) (245) (332)
Other..................................................... 380 (240) 499
------- ------- -------
Provision for income taxes...................... $19,058 $17,880 $14,855
======= ======= =======
</TABLE>
NOTE 4: SHORT TERM BORROWINGS AND LONG TERM DEBT
As of March 31, 1998, the Company's short term borrowings and long term
debt consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------
1998 1997
------ ------
<S> <C> <C>
Short term borrowings with several Japanese banks and
agents, interest from 1.625% to 4.5% as of March 31, 1998,
maturing through December, 2000........................... $4,627 $4,511
Long term debt (including current portion of long term debt)
with several Japanese banks, interest from 2.125% to
3.375% as of March 31, 1998, maturing through November,
2000...................................................... $1,340 $2,178
</TABLE>
19
<PAGE> 22
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Maturities of long term debt are as follows as of March 31, 1998 (in
thousands):
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
2000........................................................ $364
2001........................................................ 66
----
$430
====
</TABLE>
On September 30, 1997, the Company terminated its existing $40 million
credit facility and entered into a new $150 million credit agreement (the Credit
Agreement) with a syndicate of commercial banks led by NationsBank, National
Association with Fleet National Bank as co-agent. The Credit Agreement makes
available (i) a $100 million revolving credit facility expiring September 30,
2000, (ii) a $10 million swing line facility expiring September 30, 2000, and
(iii) a $50 million 364 day line of credit facility expiring September 29, 1998
under which, the Company, at its option, may convert outstanding borrowings upon
expiration into a term loan with a maturity of September 30, 2000. The Company
may alternatively request, and the lenders have the option to provide, a renewal
of the line of credit on a revolving basis for additional periods of up to 364
days each. At no time may the aggregate principal balance exceed $150 million
under the Credit Agreement. As of March 31, 1998, there were no borrowings
outstanding thereunder.
The Credit Agreement provides that borrowings accrue interest on a variable
basis at (i) the London Interbank Offering Rate (LIBOR) (adjusted for any
reserve requirements in force) plus an applicable margin ranging from 50 to
162.5 basis points, or (ii) the base rate, defined in the Credit Agreement as
the greater of (a) the prime rate or (b) 50 basis points plus the federal funds
rate as defined in the Credit Agreement. In addition, the Credit Agreement
provides for unused facilities fees to accrue at a range of 12.5 to 37.5 basis
points per annum multiplied by the unused portions of the revolving credit and
line of credit facilities. The Credit Agreement is secured by the common stock
or equivalent of several Company subsidiaries, is guaranteed by several Company
subsidiaries, and contains certain financial covenants, some of which include
limitations on certain indebtedness, maintenance of a certain fixed charge and
leverage ratio and other terms and conditions. As of March 31, 1998 the Company
is in compliance with all financial covenants, thereto.
NOTE 5: COMMITMENTS AND CONTINGENCIES
Rental expense under operating leases was $2,466,000, $1,622,000 and
$1,372,000 for the years ended March 31, 1998, 1997 and 1996, respectively.
Future minimum rental commitments under operating leases with non-cancelable
terms of more than one year (the longest of which expires in 2008) as of March
31, 1998, are as follows: $2,198,000 in 1999, $1,917,000 in 2000, $641,000 in
2001, $649,000 in 2002, $485,000 in 2003 and $859,000 thereafter.
NOTE 6: STOCK-BASED COMPENSATION PLANS
The Company has a stock option plan, the 1989 Stock Option Plan (the "1989
Plan"); a stock grant plan, the Catalina Marketing Corporation 1992 Director
Stock Grant Plan (the "Grant Plan"); and an employee stock purchase plan, the
Employee Payroll Deduction Stock Purchase Plan (the "Purchase Plan").
1989 Incentive Stock Option Plan. The 1989 Plan was approved by the Board
of Directors in April 1989, and approved by the stockholders in July 1989.
Pursuant to the 1989 Plan, 5,750,000 shares of the Company's common stock are
reserved for issuance upon the exercise of options granted under the 1989 Plan.
Options to purchase an aggregate of 4,751,112 shares have been granted under the
1989 Plan, of which options to purchase 1,693,970 shares were outstanding on
March 31, 1998.
The 1989 Plan provides for grants of Incentive Stock Options ("ISOs") to
employees (including employee directors). Options granted under the 1989 Plan
generally become exercisable at a rate of 25 percent per year (20 percent per
year for initial grants to new employees), commencing one year after the date of
grant
20
<PAGE> 23
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
and generally have terms of five to ten years. In 1994, the 1989 Plan was
amended to limit the term to six years. The exercise price of all ISOs granted
under the 1989 Plan must be equal to the fair market value of the shares on the
date of grant.
Aggregate Stock Option Activity. As of March 31, 1998, options to purchase
an aggregate of 2,143,555 shares had been exercised, including options to
purchase 5,000 shares granted outside of the 1989 Plan; options to purchase an
aggregate of 1,708,970 shares were outstanding, including options to purchase
15,000 shares outside of the 1989 Plan; and 1,917,475 shares remained available
for future grants under the 1989 Plan. Of the options outstanding at March 31,
1998 and at March 31, 1997, options to purchase 602,835 and 887,756 shares were
immediately exercisable, with weighted average exercise prices of $25.76 and
$19.89, respectively.
Stock option activity for the years ended March 31, 1996, 1997 and 1998 is
as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES OPTION PRICES
--------- ----------------
<S> <C> <C>
Options outstanding at March 31, 1995...................... 1,830,534 $16.37
Option activity:
Granted.................................................. 760,632 25.59
Exercised................................................ (404,792) 6.38
Canceled or expired...................................... (157,286) 21.78
---------
Options outstanding at March 31, 1996...................... 2,029,088 21.48
Option activity:
Granted.................................................. 653,260 44.02
Exercised................................................ (251,668) 15.93
Canceled or expired...................................... (295,260) 26.29
---------
Options outstanding at March 31, 1997...................... 2,135,420 28.37
Option activity:
Granted.................................................. 462,220 28.78
Exercised................................................ (549,187) 20.02
Canceled or expired...................................... (339,483) 32.07
---------
Options outstanding at March 31, 1998...................... 1,708,970 30.43
</TABLE>
Stock Grant Plan. The Grant Plan provides for grants of common stock to
non-employee board members. As of March 31, 1998, 30,454 shares have been
granted and 2,200 have been canceled leaving 71,746 shares available for future
grants under the Grant Plan. Stock granted under the Grant Plan vests ratably in
annual installments over each Director's remaining term.
Employee Stock Purchase Plan. In July 1994, the Purchase Plan was adopted
by the Board of Directors and approved by the stockholders. Pursuant to the
Purchase Plan, 300,000 shares of the Company's common stock were reserved for
issuance. For the fiscal years ended March 31, 1998, 1997 and 1996, 28,709,
28,375, and 22,464 shares were purchased, respectively.
Under the Purchase Plan, employees may purchase Company common stock at 85%
of the market price on the first or last day of an offering period. The maximum
each employee may purchase in an offering period shall not exceed $12,500 in
market value of Company common stock. The Company will typically have two
six-month offering periods each year. The Purchase Plan qualifies under Section
423 of the Internal Revenue Code of 1986.
The Company accounts for the option and stock purchase plans under APB
Opinion No. 25, under which no compensation cost has been recognized. The
Company adopted Statement of Financial Accounting Standards No. 123 (SFAS No.
123) for disclosure purposes in fiscal 1997. For SFAS No. 123 purposes, the
21
<PAGE> 24
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 in fiscal 1996, 1997 and 1998: risk-free interest
rates ranging from 5.26 to 6.86 percent depending on the date of grant; expected
dividend yield of zero percent; expected life of five years; and expected
volatility of 33.68 percent. The fair values of options granted in fiscal 1996,
1997 and 1998 are $6,859,229, $10,289,789, and $4,877,647, respectively, which
would be amortized as compensation over the vesting period of the options.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------- ---------------------------------
OUTSTANDING WEIGHTED AVERAGE EXERCISABLE
RANGE OF AS OF REMAINING WEIGHTED AVERAGE AS OF WEIGHTED AVERAGE
EXERCISE PRICES MARCH 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE MARCH 31, 1998 EXERCISE PRICE
- --------------- -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$15.50 - $25.50 703,740 2.2 $22.08 459,178 $21.35
$25.87 - $53.50 1,005,230 3.8 $36.43 143,657 $39.83
--------- ------- ------
1,708,970 602,835 $25.76
</TABLE>
Had compensation cost for these plans been determined consistent with SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the following pro forma amounts (in thousands, except per share data):
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net Income:
As Reported............................................. $32,871 $27,241 $22,028
Pro Forma............................................... $28,410 $24,351 $20,953
Diluted EPS:
As Reported............................................. $ 1.73 $ 1.33 $ 1.11
Pro Forma............................................... $ 1.49 $ 1.19 $ 1.05
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to April 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
Additionally, the pro forma amounts include approximately $358,000, $257,000,
and $142,000 related to the purchase discount offered under the Purchase Plan
for fiscal 1998, 1997 and 1996, respectively.
NOTE 7: EQUITY TRANSACTIONS
On May 8, 1997, the Company announced that it had adopted a Stockholder
Protection Plan. To implement this plan, the Company declared a dividend of one
Preferred Share Purchase Right on each outstanding share of the Company's common
stock. The dividend distribution was payable to stockholders of record on May
12, 1997. The rights will be exercisable for fractions of a share of the
Company's Series X Junior Participating Preferred Stock only if a person or
group acquires 15 percent or more of the Company's common stock or announces or
commences a tender offer for 15 percent or more of the common stock, except for
certain instances defined in the Stockholder Protection Plan.
In fiscal 1998, the Company repurchased, retired and cancelled 1,628,477
shares of its common stock and retired and cancelled 1,172,408 shares of common
stock previously held in treasury.
NOTE 8: SAVINGS PLANS
On June 1, 1992, the Company adopted a 401(k) Savings Plan. The Company's
contributions during fiscal 1998 and 1997 were $635,000 and $349,000,
respectively.
On January 1, 1992, the Company adopted a non-qualified deferred
compensation plan (the "Deferred Compensation Plan"). The Deferred Compensation
Plan is designed to permit select employees and directors
22
<PAGE> 25
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
of the Company to defer a portion of their compensation. Effective July 1, 1996,
the Deferred Compensation Plan was amended and restated allowing participants to
elect deferral of certain types of compensation, including directors fees, stock
grants under the Grant Plan and shares issuable upon the exercise of stock
options, into stock units (units in the Deferred Compensation Plan each of which
represents a share of Company common stock) and creating the Catalina Marketing
Corporation Deferred Compensation Trust (the "Trust"). Amounts deposited in
stock unit accounts are distributed in the form of shares of Company common
stock upon a payment event. Through the Trust, investment options such as mutual
funds and money market funds are available to participants.
The investment in the Deferred Compensation Plan and related liability are
included in prepaid expenses and other current assets and accrued expenses of
the consolidated balance sheets, respectively. The Company determined all of its
Deferred Compensation Plan investments currently held in mutual funds and money
market funds are trading securities and as such are reported at fair value.
Realized and unrealized holding gains and losses related to these investments,
as well as the offsetting compensation expense, recognized in net income during
fiscal 1998 and 1997 were not significant. Stock units are initially recorded at
fair value.
NOTE 9: DOMESTIC AND FOREIGN INFORMATION
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 31,
------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
United States............................................. $187,367 $158,105 $126,744
United Kingdom............................................ 10,925 7,797 6,022
Japan..................................................... 12,544 2,909 --
Other Foreign............................................. 8,435 5,036 2,519
Foreign Eliminations...................................... (2,121) (1,704) (1,130)
-------- -------- --------
$217,150 $172,143 $134,155
Income (loss) from Operations:
United States............................................. $ 59,274 $ 46,359 $ 36,449
United Kingdom............................................ 2,121 1,159 847
Japan..................................................... (3,221) (539) --
Other Foreign............................................. (5,282) (3,636) (2,488)
-------- -------- --------
$ 52,892 $ 43,343 $ 34,808
Identifiable Assets at fiscal year end:
United States, net of foreign intercompany receivables.... $111,966 $106,430 $101,885
United Kingdom............................................ 21,144 20,703 6,162
Japan..................................................... 17,310 16,354 --
Other Foreign............................................. 6,646 11,209 6,140
-------- -------- --------
$157,066 $154,696 $114,187
</TABLE>
NOTE 10: EFFECT OF SFAS NO. 130, 131, 132, SOP 98-1 AND SOP 98-5:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130) and No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131).
SFAS No. 130 requires that an enterprise classify items of other
comprehensive income by their nature on the face of its financial statements and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
balance sheet. SFAS No. 130 is effective for financial statements relating to
fiscal years beginning after December 15, 1997.
23
<PAGE> 26
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SFAS No. 131 requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. SFAS No.
131 is effective for financial statements relating to fiscal years beginning
after December 15, 1997.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides
guidance for capitalizing and expensing the costs of computer software developed
or obtained for internal use. SOP 98-1 is effective for financial statements
relating to fiscal years beginning after December 15, 1998. Earlier adoption is
allowed.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 provides guidance for
expensing start-up costs and organization costs as incurred. SOP 98-5 is
effective for financial statements relating to fiscal years beginning after
December 15, 1998.
The effects of SFAS No. 130, SFAS No. 131, SOP 98-1 and SOP 98-5 on the
Company have not been considered at this time.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosure about Pension
and Other Post Retirement Benefits" (SFAS No. 132). SFAS No. 132 revises
employers' disclosures about pension and other post retirement benefit plans.
SFAS No. 132 is effective for financial statements relating to fiscal years
beginning after December 15, 1997; earlier application is encouraged. Management
has implemented SFAS No. 132 for the year ended March 31, 1998.
24
<PAGE> 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Items 10, 11, 12 and 13 will be contained in
the Company's definitive Proxy Statement for the Annual Meeting of Stockholders
under the captions "Compensation of Executive Officers and Non-Employee
Directors," "Share Ownership of Certain Beneficial Owners and Management" and
"Nomination and Election of Directors" and is incorporated herein by reference.
The definitive Proxy Statement will be filed with the Commission prior to August
30, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(a)1. Financial Statements. The following is a list of the
Consolidated Financial Statements included in Item 8 of Part
II.
Report of Independent Certified Public Accountants.......... 11
Consolidated Income Statements, Years Ended March 31, 1998,
1997 and 1996............................................... 12
Consolidated Balance Sheets at March 31, 1998 and 1997...... 13
Consolidated Statements of Stockholders' Equity, Years Ended
March 31, 1998, 1997 and 1996............................... 14
Consolidated Statements of Cash Flows, Years Ended March 31,
1998, 1997 and 1996......................................... 15
Notes to the Consolidated Financial Statements.............. 16
(a)2. Financial Statement Schedules (EDGAR only).
All other schedules are omitted because they are not
applicable or not required, or because the required
information is included in the Consolidated Financial
Statements or notes thereto.
</TABLE>
(a)3. Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- --------- -----------------------
<C> <S> <C>
*3.3 -- Restated Certificate of Incorporation
**3.3.1 -- Certificate of Amendment of Certificate of Incorporation, a
copy of which is attached as an exhibit to the Company's
Annual Report on Form 10-K for the year ended March 31, 1997
**3.3.2 -- Certificate of Designation, Preferences and Rights setting
forth the terms of the Company's Series X Junior
Participating Preferred Stock, par value $.01 per share, a
copy of which is attached as an exhibit to the Company's
Annual Report on Form 10-K for the year ended March 31, 1997
*3.4 -- Restated Bylaws
**10.4 -- Amended and Restated 1989 Stock Option Plan, a copy of which
is attached as an exhibit to the Company's Annual Report on
Form 10-K for the year ended March 31, 1994
**10.4.1 -- Second Amended and Restated 1989 Stock Option Plan, a copy
of which is attached as an exhibit to the Company's Report
on Form 10Q for the quarter ended June 30, 1997
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- --------- -----------------------
<C> <S> <C>
*10.12 -- Form of Director and Officer Indemnification Agreement
**10.18 -- Lease Agreement dated as of June 30, 1993 by and between QP
One Corporation, a Minnesota corporation, as landlord, and
Registrant, as tenant, a copy of which is attached as an
exhibit to the Company's Annual Report on Form 10-K for the
year ended March 31, 1994
**10.18.1 -- First Amendment dated as of December 20, 1993, to the Lease
Agreement dated as of June 30, 1993, by and between QP One
Corporation, a Minnesota corporation, as landlord, and
Registrant, as tenant, a copy of which is attached as an
exhibit to the Company's Annual Report on Form 10-K for the
year ended March 31, 1994
**10.21 -- 1992 Director Stock Grant Plan, as amended on July 23, 1996,
a copy of which is attached as an exhibit to the Company's
Annual Report on Form 10-K for the year ended March 31, 1997
**10.22 -- Employee Payroll Deduction Stock Purchase Plan, a copy of
which is attached as an exhibit to the Company's Annual
Report on Form 10-K for the year ended March 31, 1995
**10.24 -- Lease Agreement dated as of September 5, 1996 by and between
Interior Design Services, Inc., a Florida corporation, as
landlord, and Registrant, as tenant, a copy of which is
attached as an exhibit to the Company's Annual Report on
Form 10-K for the year ended March 31, 1997
**10.25 -- Stockholder Protection Agreement, dated May 8, 1997, between
the Registrant and ChaseMellon Shareholder Services, L.L.C.,
as rights agent, a copy of which is attached as an exhibit
to the Company's Current Report on Form 8-K filed on May 8,
1997
**10.26 -- Credit Agreement dated as of September 30, 1997, by and
between the Registrant and NationsBank, National
Association, as agent and lender, and the other lenders
party thereto, a copy of which is attached as an exhibit to
the Company's Report on Form 10Q for the quarter ended
September 30, 1997
21 -- List of subsidiaries
23 -- Consent of independent certified public accountants
27 -- Financial Data Schedule (For SEC use only)
</TABLE>
- ---------------
* Incorporated by reference to the Company's Registration Statement on Form S-1
Registration No. 33-45732, originally filed with the Securities and Exchange
Commission on February 14, 1992, and declared effective (as amended) on March
26, 1992.
** Previously filed as indicated.
(b) Reports on Form 8-K:
Report dated January 20, 1998 was filed with the Commission regarding
the Company's press release communicating its fiscal 1998 third quarter
earnings.
26
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of St.
Petersburg, State of Florida, on June 3, 1998.
CATALINA MARKETING CORPORATION
(Registrant)
By: /s/ PHILIP B. LIVINGSTON
------------------------------------
Philip B. Livingston,
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ TOMMY D. GREER Chairman of the Board June 3, 1998
- -----------------------------------------------------
Tommy D. Greer
/s/ GEORGE W. OFF Chief Executive Officer and June 3, 1998
- ----------------------------------------------------- Director
George W. Off
/s/ DANIEL D. GRANGER President and Chief Operating June 3, 1998
- ----------------------------------------------------- Officer, President, Catalina
Daniel D. Granger Marketing Services Division,
and Director
/s/ FRANK H. BARKER Director June 3, 1998
- -----------------------------------------------------
Frank H. Barker
/s/ FREDERICK W. BEINECKE Director June 3, 1998
- -----------------------------------------------------
Frederick W. Beinecke
/s/ PATRICK W. COLLINS Director June 3, 1998
- -----------------------------------------------------
Patrick W. Collins
/s/ STEPHEN I. D'AGOSTINO Director June 3, 1998
- -----------------------------------------------------
Stephen I. D'Agostino
/s/ HELENE MONAT Director June 3, 1998
- -----------------------------------------------------
Helene Monat
/s/ THOMAS W. SMITH Director June 3, 1998
- -----------------------------------------------------
Thomas W. Smith
/s/ MICHAEL B. WILSON Director June 3, 1998
- -----------------------------------------------------
Michael B. Wilson
/s/ PHILIP B. LIVINGSTON Senior Vice President and Chief June 3, 1998
- ----------------------------------------------------- Financial Officer
Philip B. Livingston
/s/ TAMARA L. ZEPH Corporate Controller (Principal June 3, 1998
- ----------------------------------------------------- Accounting Officer)
Tamara L. Zeph
</TABLE>
27
<PAGE> 1
EXHIBIT 21
CATALINA MARKETING CORPORATION
SUBSIDIARIES OF REGISTRANT
MARCH 31, 1998
Catalina Marketing Sales Corporation,
a Delaware corporation
Catalina Marketing Retail Sales Corporation,
a Delaware corporation
Catalina Marketing International, Inc.,
a Delaware corporation
Catalina Marketing Worldwide, Inc.,
a Delaware corporation
Catalina Electronic Clearing Services, Inc.,
a Delaware corporation
Catalina Marketing of Mexico, Inc.,
a Delaware corporation
Catalina Marketing de Mexico, S.A. de C.V.,
a Mexican corporation
Reembolsos Promocionales de Mexico, S.A. de C.V.,
a Mexican corporation
Catalina Marketing of France, Inc.,
a Delaware corporation
Catalina Marketing de France, S.A.,
a French corporation
Catalina Marketing U.K., Inc.,
a Delaware corporation
Catalina Marketing U.K., Ltd.,
a United Kingdom corporation
Catalina Marketing of Iberia, Inc.,
a Delaware corporation
Health Resources Publishing Company,
a Delaware corporation
SuperMarkets Online, Inc.,
a Delaware corporation
Catalina-Pacific Media, L.L.C.,
a Delaware limited liability company
Pacific Media, K.K.,
a Japanese corporation
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K into the Company's
previously filed Registration Statement File Nos. 33-46793, 33-77100, 33-82456,
333-07525 and 333-13335.
/s/ ARTHUR ANDERSEN LLP
Tampa, Florida,
June 2, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 18,434
<SECURITIES> 0
<RECEIVABLES> 20,251
<ALLOWANCES> 0
<INVENTORY> 2,506
<CURRENT-ASSETS> 63,567
<PP&E> 160,186
<DEPRECIATION> 89,673
<TOTAL-ASSETS> 157,066
<CURRENT-LIABILITIES> 61,521
<BONDS> 430
0
0
<COMMON> 184
<OTHER-SE> 89,858
<TOTAL-LIABILITY-AND-EQUITY> 157,066
<SALES> 217,150
<TOTAL-REVENUES> 217,150
<CGS> 84,191
<TOTAL-COSTS> 164,258
<OTHER-EXPENSES> 963
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 51,929
<INCOME-TAX> 19,058
<INCOME-CONTINUING> 32,871
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,871
<EPS-PRIMARY> 1.78<F1>
<EPS-DILUTED> 1.73
<FN>
<F1>Primary EPS represents Basic EPS as of March 31, 1998.
</FN>
</TABLE>
