<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ______ to _______
Commission File Number 1-11008
CATALINA MARKETING CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C> <C> <C>
Delaware 33-0499007
- ------------------------------------------------- --------------------------------------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
11300 9th Street North
St. Petersburg, Florida 33716-2329
- ------------------------------------------------- --------------------------------------------------
</TABLE>
(813) 579-5000
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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At August 10, 1998, Registrant had outstanding 18,502,127 shares of
Common Stock.
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CATALINA MARKETING CORPORATION
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
for the three month periods ended
June 30, 1998 and 1997 3
Condensed Consolidated Balance Sheets at
June 30, 1998 and March 31, 1998 4
Condensed Consolidated Statements of Cash Flow
for the three month periods ended
June 30, 1998 and 1997 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION 10
SIGNATURES 11
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2
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CATALINA MARKETING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1998 1997
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<S> <C> <C>
Revenues $ 56,834 $ 46,659
Costs and Expenses:
Direct operating expenses 23,550 18,033
Selling, general and administrative 15,305 12,896
Depreciation and amortization 6,404 5,691
-------- --------
Total costs and expenses 45,259 36,620
-------- --------
Income From Operations 11,575 10,039
Interest Expense and Other (28) (393)
-------- --------
Income Before Income Taxes 11,547 9,646
-------- --------
Income Taxes (4,809) (4,009)
-------- --------
Net Income $ 6,738 $ 5,637
======== ========
Diluted:
Net Income Per Common Share $ 0.35 $ 0.30
Weighted Average Common Shares
Outstanding 19,033 19,072
Basic:
Net Income Per Common Share $ 0.36 $ 0.31
Weighted Average Common Shares
Outstanding 18,530 18,330
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
3
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CATALINA MARKETING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
(unaudited)
June 30, March 31,
ASSETS 1998 1998
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<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 24,674 $ 18,434
Accounts receivable, net 22,689 20,251
Deferred tax asset 10,819 9,666
Prepaid expenses and other current assets 17,507 15,216
--------- ---------
Total current assets 75,689 63,567
--------- ---------
Property and Equipment:
Property and equipment 164,892 160,186
Accumulated depreciation and amortization (93,558) (89,673)
--------- ---------
Property and equipment, net 71,334 70,513
--------- ---------
Purchased intangible assets, net 19,128 19,112
Other assets 4,392 3,874
--------- ---------
Total Assets $ 170,543 $ 157,066
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 8,245 $ 8,348
Accrued expenses 34,318 27,520
Deferred revenue 20,055 20,116
Short term borrowings 5,089 5,537
--------- ---------
Total current liabilities 67,707 61,521
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Deferred tax liability 4,733 5,073
Long term debt 398 430
--------- ---------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock; $0.01 par value; 5,000,000
authorized shares; none issued and outstanding -- --
Common stock; $0.01 par value; 50,000,000 authorized
shares and 18,430,593 and 18,379,153 shares issued and
outstanding at June 30, 1998 and March 31, 1998, respectively 184 184
Paid-in capital 2,347 685
Cumulative translation adjustment (872) (135)
Retained earnings 96,046 89,308
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Total stockholders' equity 97,705 90,042
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Total Liabilities and Stockholders' Equity $ 170,543 $ 157,066
========= =========
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
4
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CATALINA MARKETING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(dollars in thousands)
(unaudited)
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<CAPTION>
Three Months Ended June 30,
--------------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,738 $ 5,637
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,441 5,751
Other (573) (1,192)
Changes in operating assets and liabilities 2,164 10,811
-------- --------
Net cash provided by operating activities 14,770 21,007
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (8,242) (3,512)
Purchase of investments (761) (2,087)
-------- --------
Net cash used in investing activities (9,003) (5,599)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on credit facility -- 11,500
Proceeds from debt obligations 7,838 10,927
Principal payments on debt obligations (8,322) (10,867)
Proceeds from issuance of common and subsidiary stock 1,203 2,375
Tax benefit from exercise of non-qualified options 376 76
Payment for repurchase of company common stock -- (40,000)
-------- --------
Net cash provided by (used in) financing activities 1,095 (25,989)
-------- --------
NET INCREASE (DECREASE) IN CASH 6,862 (10,581)
Effect of exchange rate changes on cash (622) (100)
CASH, at end of prior period 18,434 13,698
-------- --------
CASH, at end of current period $ 24,674 $ 3,017
======== ========
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
5
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CATALINA MARKETING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Condensed Consolidated Financial Statements:
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
position of the Company as of June 30, 1998 and March 31, 1998, and the results
of operations and cash flows for the three month periods ended June 30, 1998
and 1997.
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. The first quarter
balances and results of the majority owned foreign subsidiaries are included as
of and for the three month periods ended March 31, 1998 and 1997. All material
intercompany profits, transactions and balances have been eliminated. The
Company's investment in a non-majority owned company is accounted for on the
equity method.
These financial statements, including the condensed consolidated balance sheet
as of March 31, 1998, which has been derived from audited financial statements,
are presented in accordance with the requirements of Form 10-Q and consequently
may not include all disclosures normally required by generally accepted
accounting principles or those normally made in the Company's Annual Report on
Form 10-K. The accompanying condensed consolidated financial statements and
related notes should be read in conjunction with the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1998.
Note 2. Net Income Per Common Share:
The following is a reconciliation of the denominator of basic EPS to the
denominator of diluted EPS (in thousands):
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<CAPTION>
THREE MONTHS ENDED
JUNE 30,
----------------------
1998 1997
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Basic weighted average common
shares outstanding 18,530 18,330
Dilutive effect of options outstanding 503 742
----------------------
Diluted weighted average common shares
outstanding 19,033 19,072
</TABLE>
6
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Options to purchase 553,710 shares of common stock at prices ranging from
$51.31 to $53.50 per share were outstanding at June 30, 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 3: Accounting Changes:
In June 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS No. 130) and accordingly,
comprehensive income is as follows:
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<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------------
1998 1997
------------------------
(in thousands)
<S> <C> <C>
Net income $ 6,738 $ 5,637
Other comprehensive income, net of tax:
Currency translation adjustment (453) 253
------------------------
Comprehensive Income $ 6,285 $ 5,890
</TABLE>
In June 1998, the Company adopted Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" (SOP
98-1). The effect of implementing SOP 98-1 was immaterial to the financial
statements for the quarter ended June 30, 1998.
7
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
FISCAL 1999 COMPARED TO FISCAL 1998
The Company's revenues for the first quarter of fiscal 1999 increased 22
percent, compared with the same period in fiscal 1998. The increase in revenues
is primarily due to growth in new programs such as Checkout Direct(R). Catalina
Marketing Services, constituting the Company's base business in the U.S.,
contributed approximately $46.7 million of revenues in the first quarter of
fiscal 1999, up 17 percent over revenues of $40.0 million in the comparable
fiscal 1998 period.
In the U.S., the Catalina Marketing Network was in 11,432 stores at June 30,
1998, which reach 153 million shoppers each week as compared to 10,832 stores
reaching 147 million shoppers each week at June 30, 1997 and 11,164 stores
reaching 143 million shoppers each week at March 31, 1998. The Health Resources
Network was in 2,256 pharmacies at June 30, 1998 as compared to 1,394
pharmacies at June 30, 1997 and 1,920 pharmacies at March 31, 1998. Outside the
U.S., the Catalina Marketing Network was in 1,456 stores at June 30, 1998,
which reach 23 million shoppers each week as compared to 1,057 stores reaching
20 million shoppers each week at June 30, 1997 and 1,372 stores reaching 20
million shoppers each week at March 31, 1998.
In the first quarter of fiscal 1999 the Company installed its Catalina
Marketing Network in 268 stores (net of deinstallations) in the U.S. as
compared to 87 stores in the comparable fiscal 1998 period. 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 336 pharmacies (net of deinstallations) in the first
quarter of fiscal 1999 as compared to 199 stores in the comparable fiscal 1998
period. Outside the U.S., the Company installed 84 stores (net of
deinstallations) in the first quarter of fiscal 1999 as compared to 116 stores
in the comparable fiscal 1998 period.
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 service offices),
provision for doubtful accounts and the direct expenses associated with
operating the outdoor media business in a majority-owned subsidiary in Japan.
Direct operating expenses increased in absolute terms to $23.6 million for the
first quarter of fiscal 1999 from $18.0 million in the comparable period of
fiscal 1998. Direct operating expenses in the first quarter of fiscal 1999 as a
percentage of revenues increased to 41.4 percent from 38.6 percent in the
comparable period of fiscal 1998. This increase in fiscal 1999 is principally
attributable to the Company's increase in loyalty marketing programs which by
their nature have a higher percentage of direct costs to revenue than the
Company's other base business products.
8
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Selling, general and administrative expenses include personnel-related costs of
selling and administrative staff, overhead and new product development
expenses. Selling, general and administrative expenses for the first quarter of
fiscal 1999 were $15.3 million, compared to $12.9 million for the comparable
period of fiscal 1998, an increase of 18.7 percent or $2.4 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 in the
first quarter of fiscal 1999 decreased to 26.9 percent from 27.6 percent for
the comparable period of fiscal 1998. This decrease is attributable to fiscal
1999 savings related to the closure of the Company's operations in Mexico in
the second quarter of fiscal 1998.
Depreciation and amortization increased to $6.4 million for the first quarter
of fiscal 1999 from $5.7 million for the comparable period in fiscal 1998.
Depreciation increased due to the investment in capital expenditures associated
with new business ventures and data processing equipment and the increase in
stores installed.
Interest expense and other decreased to $28,000 for the first quarter of fiscal
1999 from $393,000 for the comparable period in fiscal 1998. The decrease is
primarily due to the Company incurring interest expense on borrowings from its
credit facility for the repurchase of $40 million of its common stock in the
first quarter of fiscal 1998.
The provision for income taxes increased to $4.8 million (41.6 percent of
income before income taxes) for the first quarter of fiscal 1999, compared to
$4.0 million (41.6 percent of income before income taxes) for the same period
in fiscal 1998. 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 majority owned foreign subsidiaries
for tax purposes.
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 the first quarter of fiscal 1999 and 1998, the Company made capital
expenditures of $8.2 million and $3.5 million, respectively. The pace of
installations varies depending on the timing of contracts entered into with
retailers and the scheduling of store installations by mutual agreement. During
the first quarter of fiscal 1999, the Company had a faster pace of U.S. store
installations and spent $1.9 million more in data processing equipment and
furniture and fixtures compared to the comparable fiscal 1998 period.
Management believes that expenditures for capital equipment will remain between
$20 and $35 million annually for the foreseeable future.
9
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In July 1998, the Company acquired Market Logic, a full service targeted
marketing organization that specializes in the development and fulfillment of
highly sophisticated, personalized direct marketing programs for retailers. In
July 1998, the Company made a $2.9 million payment in accordance with terms of
the purchase agreement for Market Logic. The agreement calls for the Company to
make a series of four additional annual cash payments, which are contingent
upon the financial performance of Market Logic for the fiscal 1999, 2000, 2001
and 2002 calendar years.
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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
15 Acknowledgment Letter
27 Financial Data Schedule (for SEC use only)
99 Review Report of Independent Certified Public
Accountants
b. Reports of Form 8-K
Report dated April 24, 1998 was filed with the Commission
regarding the Company's press release communicating its fiscal 1998
fourth quarter earnings.
10
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CATALINA MARKETING CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, Registrant's principal financial officer, thereunto duly
authorized.
August 13, 1998 CATALINA MARKETING CORPORATION
------------------------------
(Registrant)
/s/ Philip B. Livingston
--------------------------------
Philip B. Livingston
Senior Vice President and
Chief Financial Officer
(Authorized officer of Registrant
and principal financial officer)
11
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Exhibit 15
August 13, 1998
Catalina Marketing Corporation
11300 9th Street North
St. Petersburg, Florida 33716
Catalina Marketing Corporation:
We are aware that Catalina Marketing Corporation has incorporated, by reference
in its Registration Statement File Nos. 33-46793, 33-77100, 33-82456, 333-07525
and 333-13335, its Form 10-Q for the quarter ended June 30, 1998, which
includes our report dated July 14, 1998, covering the unaudited interim
financial information contained therein. Pursuant to Regulation C of the
Securities Act of 1933 (the Act), that report is not considered a part of the
registration statement prepared or certified by our firm or a report prepared
or certified by our firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
By: /s/ WILLIAM J. MEURER
----------------------------
William J. Meurer
NNK
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 24,674
<SECURITIES> 0
<RECEIVABLES> 22,689
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 75,689
<PP&E> 164,892
<DEPRECIATION> 93,558
<TOTAL-ASSETS> 170,543
<CURRENT-LIABILITIES> 67,707
<BONDS> 398
0
0
<COMMON> 184
<OTHER-SE> 97,521
<TOTAL-LIABILITY-AND-EQUITY> 170,543
<SALES> 56,834
<TOTAL-REVENUES> 56,834
<CGS> 23,550
<TOTAL-COSTS> 45,259
<OTHER-EXPENSES> 28
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,547
<INCOME-TAX> 4,809
<INCOME-CONTINUING> 6,738
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,738
<EPS-PRIMARY> .36
<EPS-DILUTED> .35
</TABLE>
<PAGE> 1
Exhibit 99
REVIEW REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Catalina Marketing Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
Catalina Marketing Corporation (a Delaware corporation) as of June 30, 1998,
and the related condensed consolidated statements of income and cash flows for
the three-month periods ended June 30, 1998 and 1997. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above, for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Catalina Marketing Corporation as
of March 31, 1998, and the related consolidated statements of income,
stockholders' equity and cash flows for the year then ended (not presented
separately herein), and, in our report dated April 23, 1998, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of March 31, 1998, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/ ARTHUR ANDERSEN LLP
Tampa, Florida,
July 14, 1998
