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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] 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)
Delaware 33-0499007
------------------------------ ----------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
200 Carillon Parkway
St. Petersburg, Florida 33716
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(727) 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 [ ]
At November 7, 2000, Registrant had outstanding 55,503,608 shares of
Common Stock.
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CATALINA MARKETING CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
for the three and six month periods ended
September 30, 2000 and 1999 3
Condensed Consolidated Balance Sheets at
September 30, 2000 and March 31, 2000 4
Condensed Consolidated Statements of Cash Flows
for the six month periods ended
September 30, 2000 and 1999 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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CATALINA MARKETING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
--------------------- -----------------------
2000 1999 2000 1999
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 101,836 $ 86,828 $ 195,780 $ 159,442
Costs and Expenses:
Direct operating expenses 41,776 36,369 81,032 65,705
Selling, general and administrative 26,172 22,648 51,396 43,288
Depreciation and amortization 10,175 8,577 20,452 16,764
--------- -------- --------- ---------
Total costs and expenses 78,123 67,594 152,880 125,757
--------- -------- --------- ---------
Income From Operations 23,713 19,234 42,900 33,685
Interest Expense, Net and Other (43) (9) (705) (210)
--------- -------- --------- ---------
Income Before Income Taxes and Minority Interest 23,670 19,225 42,195 33,475
Income Taxes (8,999) (7,728) (16,042) (13,458)
Minority Interest in Losses of Subsidiaries 391 175 651 358
--------- -------- --------- ---------
Net Income $ 15,062 $ 11,672 $ 26,804 $ 20,375
Diluted:
Earnings Per Common Share $ 0.26 $ 0.20 $ 0.46 $ 0.35
Weighted Average Common Shares Outstanding 58,348 58,098 57,901 58,278
Basic:
Earnings Per Common Share $ 0.27 $ 0.21 $ 0.48 $ 0.36
Weighted Average Common Shares Outstanding 55,786 55,875 55,586 55,950
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
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CATALINA MARKETING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
(unaudited)
September 30, March 31,
2000 2000
------------ ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,001 $ 13,765
Accounts receivable, net 65,174 59,261
Deferred tax asset 11,022 10,463
Prepaid expenses and other current assets 29,744 31,883
--------- ---------
Total current assets 109,941 115,372
--------- ---------
Property and Equipment:
Property and equipment 284,009 255,216
Accumulated depreciation and amortization (156,983) (140,216)
--------- ---------
Property and equipment, net 127,026 115,000
--------- ---------
Purchased intangible assets, net 85,385 70,400
Other assets 6,317 2,980
--------- ---------
Total Assets $ 328,669 $ 303,752
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 15,949 $ 17,862
Accrued expenses 44,788 54,486
Deferred revenue 46,387 40,444
Short term borrowings 21,288 29,493
--------- ---------
Total current liabilities 128,412 142,285
--------- ---------
Deferred tax liability 10,177 8,380
Minority interest 592 1,228
Long term debt 8,726 10,814
--------- ---------
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; 150,000,000 authorized
shares and 55,497,709 and 54,602,457 shares issued
and outstanding at September 30, 2000 and
March 31, 2000, respectively 554 546
Paid-in capital 14,838 897
Accumulated other comprehensive (loss) income (950) 86
Retained earnings 166,320 139,516
--------- ---------
Total stockholders' equity 180,762 141,045
--------- ---------
Total Liabilities and Stockholders' Equity $ 328,669 $ 303,752
========= =========
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
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CATALINA MARKETING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
---------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 26,804 $ 20,375
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest (651) (358)
Depreciation and amortization 20,452 16,764
Tax benefit from exercise of non-qualified options and
disqualified dispositions 3,640 4,304
Other 152 6,127
Changes in operating assets and liabilities (2,360) 7,798
-------- --------
Net cash provided by operating activities 48,037 55,010
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (30,290) (25,641)
Purchase of investments, net of cash acquired (28,372) (24,689)
-------- --------
Net cash used in investing activities (58,662) (50,330)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on credit facility (9,509) 10,000
Proceeds from debt obligations 0 13,524
Principal payments on debt obligations (7) (8,764)
Proceeds from issuance of common and subsidiary stock 10,731 11,796
Payment for repurchase of company common stock 0 (34,531)
-------- --------
Net cash provided by (used in) financing activities 1,215 (7,975)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS
(9,410) (3,295)
Effect of exchange rate changes on cash and cash equivalents (354) (90)
CASH AND CASH EQUIVALENTS, at end of prior period 13,765 13,942
======== ========
CASH AND CASH EQUIVALENTS, at end of current period $ 4,001 $ 10,557
======== ========
</TABLE>
The accompanying Notes are an integral part of these consolidated financial
statements.
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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 September 30, 2000 and March 31, 2000, the
results of operations for the three and six months ended September 30, 2000 and
1999 and cash flows for the six month periods ended September 30, 2000 and
1999.
The condensed consolidated financial statements include the accounts of the
Company and its wholly and majority-owned subsidiaries. The second quarter
balances and results of the wholly and majority-owned foreign subsidiaries are
included as of September 30, 2000 for the three and six month periods ended
September 30, 2000 and 1999, respectively. All material intercompany profits,
transactions, and balances have been eliminated.
These financial statements, including the condensed consolidated balance sheet
as of March 31, 2000, 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, 2000.
A three-for-one stock split of the Company's outstanding common stock, effected
as a stock dividend and an increase in the authorized common shares were
approved by the Company's Board of Directors, and the increase in the
authorized common shares was approved by the Company's stockholders at the
annual meeting held on July 18, 2000. The stock dividend was paid August 17,
2000 to stockholders of record on July 26, 2000. Common stockholders received
two additional shares of common stock for each registered share as of July 26,
2000. All applicable references to common stock shares, including the
calculations of earnings per share have been adjusted for all periods shown to
reflect the stock split and the increase in authorized shares.
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Note 2. Net Income Per Common Share:
The following is a reconciliation of the denominator of basic earnings per
share (EPS) to the denominator of diluted EPS (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
- ---------------- -----------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic weighted average common
shares outstanding 55,786 55,875 55,586 55,950
Dilutive effect of options outstanding 2,562 2,223 2,315 2,328
------ ------ ------ ------
Diluted weighted average common shares
outstanding 58,348 58,098 57,901 58,278
</TABLE>
Options to purchase 71,400 shares of common stock at an exercise price per
share of $35 5/8 were outstanding at September 30, 2000, and 361,950 shares of
common stock at exercise prices per share ranging from $30 7/16 to $35 5/8 were
outstanding at September 30, 1999, but were not included in the computation of
diluted EPS for the relevant time period because the options' exercise prices
were greater than the average market price of common stock.
Note 3. Comprehensive Income:
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
---------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net income $ 15,062 $ 11,672 $ 26,804 $ 20,375
Other comprehensive income, net of tax:
Currency translation adjustment (725) (695) (1,036) (1,281)
-------- -------- -------- --------
Comprehensive Income $ 14,337 $ 10,977 $ 25,768 $ 19,094
</TABLE>
Note 4. Credit Facility:
On September 25, 2000, the Company entered into a new credit agreement (the
Agreement) with a syndicate of commercial banks including Bank One, NA as the
Administrative Agent (Bank One), First Union National Bank as the Syndication
Agent and Wachovia Bank, N.A. as the Documentation Agent.
The Agreement provides for a revolving loan credit facility of up to $150
million in favor of the Company. The termination date of the revolving loan
credit facility is September 25, 2003.
Borrowings under the Agreement accrue interest at rates based upon either (i)
the British Bankers' Association Interest Settlement Rate (Eurodollar Rate)
plus an applicable margin
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ranging from 50 to 87.5 basis points, or (ii) the higher of 50 basis points
over the Federal Funds Rate or Bank One's prime rate of interest. The Agreement
is guaranteed by several Company subsidiaries, and contains certain financial
covenants and other terms and conditions.
As of September 30, 2000, $7,000,000 was outstanding under the Agreement.
Note 5. Acquisitions:
Effective June 1, 2000, the Company, through one of its wholly-owned
subsidiaries, acquired 100 percent of the outstanding common shares of
HealthCare Data Corporation, a company which provides strategic targeted
marketing solutions for health-related and pharmaceutical manufacturers and
retailers, for $14.2 million in cash, net of cash acquired. The purchase has
been accounted for using the purchase method of accounting for acquisition and,
accordingly, the results of operations of HealthCare Data Corporation have been
included in the fiscal 2001 condensed consolidated financial statements of the
Company since the effective date of such acquisition.
Effective September 1, 2000, the Company, through one of its wholly-owned
subsidiaries, acquired 100% of the outstanding common shares of Market
Intelligence, Inc., an attitudinal research company, for approximately $1.0
million. The terms of the acquisition provide for additional payments of up to
$1.0 million, contingent upon the business unit's performance. The purchase has
been accounted for using the purchase method of accounting and, accordingly,
the results of operations of Market Intelligence, Inc., have been included in
the fiscal 2001 condensed consolidated financial statements of the Company
since the effective date of the acquisition.
Note 6. Segment Information (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
-------------------------------------------------------
2000 1999
------------------------- -------------------------
Targeted Targeted
Marketing Marketing
Services Eliminations Services Eliminations
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Revenue from external customers $101,836 $ 86,828
Revenue from internal sources 5,670 (5,670) 344 (344)
Net income 15,062 11,672
</TABLE>
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<TABLE>
<CAPTION>
For the Six Months Ended September 30,
-------------------------------------------------------
2000 1999
------------------------- -------------------------
Targeted Targeted
Marketing Marketing
Services Eliminations Services Eliminations
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Revenue from external customers $195,780 $ 159,442
Revenue from internal sources 7,287 (7,287) 654 (654)
Net income 26,804 20,375
</TABLE>
Note 7. Effect of SFAS No.133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133, as amended, is effective
for financial statements relating to fiscal years beginning after June 15,
2000. The Company expects SFAS No. 133 to have no effect on its financial
statements.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
FISCAL 2001 COMPARED TO FISCAL 2000
The Company's revenues for the second quarter of fiscal 2001 increased 17.3
percent, compared with the same period in fiscal 2000. The increase in revenues
is due to an increase in promotions printed worldwide, increases in direct mail
marketing programs and the acquisitions of HealthCare Data Corporation and
Market Intelligence, Inc., effective June 1, 2000 and September 1, 2000,
respectively.
In the U.S., the Catalina Marketing Network was in 14,772 stores at September
30, 2000, which reach 183 million shoppers each week as compared to 12,635
stores reaching 160 million shoppers each week at September 30, 1999 and 13,516
stores reaching 165 million shoppers each week at March 31, 2000. The Health
Resource Network was in 14,309 pharmacies, including 7,390 acquired in the
purchase of HealthCare Data Corporation, at September 30, 2000 as compared to
4,706 pharmacies at September 30, 1999 and 6,671 pharmacies at March 31, 2000.
Outside the U.S., the Catalina Marketing Network was in 2,668 stores at
September 30, 2000, which reach 36 million shoppers each week as compared to
2,335 stores reaching 34 million shoppers each week at September 30, 1999 and
2,587 stores reaching 35 million shoppers each week at March 31, 2000.
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During the first six months of fiscal 2001 the Company installed its Catalina
Marketing Network in 1,256 stores in the U.S., net of deinstallations, as
compared to 543 stores in the comparable fiscal 2000 period. Store
installations in the first half of fiscal 2001 in the Catalina Marketing
Network included 453 PETsMart stores. The Company also installed its Health
Resource Network in 248 pharmacies in the first half of fiscal 2001, net of
deinstallations, as compared to 845 stores in the comparable fiscal 2000
period. Outside the U.S., the Company installed 98 stores in the first half of
fiscal 2001, net of deinstallations, as compared to 400 stores in the
comparable fiscal 2000 period.
Deinstallation activity occurs primarily through the consolidation of
supermarket chains and store closures made by retailers in the ordinary course
of business.
Direct operating expenses consist of retailer fees, paper, sales commissions,
loyalty and direct marketing expenses, provision for doubtful accounts, the
expenses of operating and maintaining the Catalina Marketing and Health
Resource Network (primarily expenses relating to operations personnel and
service offices), and the direct expenses associated with operating the outdoor
media business in a majority-owned subsidiary in Asia. Direct operating
expenses increased in absolute terms to $41.8 million and $81.0 million for the
second quarter and first six months of fiscal 2001, respectively, from $36.4
million and $65.7 million in the comparable periods of fiscal 2000. Direct
operating expenses as a percentage of revenues in the second quarter of fiscal
2001 decreased to 41.0 percent from 41.9 percent in the comparable period of
fiscal 2000. Direct operating expenses as a percentage of revenues for the six
month period ended September 30, 2000 increased to 41.4 percent from 41.2
percent in the comparable period of fiscal 2000. The decrease in direct
operating expenses as a percentage of revenues for the second quarter ended
September 30, 2000 is principally attributable to improved pricing on printer
paper and toner supplies.
Selling, general and administrative expenses include personnel-related costs of
selling and administrative staff, overhead, marketing expenses and new product
development expenses. Selling, general and administrative expenses for the
second quarter and first six months of fiscal 2001 were $26.1 million and $51.4
million, respectively, compared to $22.6 million and $43.3 million for the
comparable period of fiscal 2000, increases of 15.6 percent and 18.7 percent,
respectively. As a percentage of revenues, selling, general and administrative
expenses decreased 40 basis points in the second quarter of fiscal 2001, to
25.7 percent from 26.1 percent for the comparable period of fiscal 2000. For
the six months ended September 30, 2000, selling, general and administrative
expenses decreased 80 basis points to 26.3 percent, from 27.1 percent for the
comparable period of fiscal 2000.
Depreciation and amortization increased to $10.2 million for the second quarter
of fiscal 2001 from $8.6 million for the comparable period in fiscal 2000.
Depreciation increased due to the investment in capital expenditures, during
the current and prior periods, associated with new operating units and product
lines, data processing equipment and the increase in stores installed.
Amortization expense also increased due to the increases in goodwill and other
intangible assets arising out of the Company's acquisitions.
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Interest expense, net and other increased to $43,000 for the second quarter of
fiscal 2001 from $9,000 for the comparable period in fiscal 2000. This increase
is primarily attributable to increased short term borrowing balances in the
Company and its Asian subsidiary.
The provision for income taxes increased to $9.0 million, or 38.0 percent of
income before income taxes and minority interest, for the second quarter of
fiscal 2001, compared to $7.7 million, or 40.2 percent of income before income
taxes and minority interest, for the same period in fiscal 2000. The rate
decrease is primarily due to the Company's ability to utilize net operating
loss carry forwards of a majority owned foreign subsidiary and lower state
taxes. The Company's effective tax rate is higher than the federal statutory
income tax rate due to state and foreign income taxes and various nondeductible
expenses, primarily the amortization of goodwill related to the Company's
acquisitions.
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 typically range from $3,000 to $13,000 per
store. During the first six months of fiscal 2001 and 2000, the Company made
capital expenditures of $30.3 million and $25.6 million, respectively. The pace
of installations varies depending on the timing of contracts entered into with
retailers and the scheduling of store installations by mutual agreement. During
the first six months of fiscal 2001, the Company spent $1.6 million more on
store equipment compared to the comparable fiscal 2000 period.
Effective June 1, 2000, the Company, through one of its wholly owned
subsidiaries, acquired 100 percent of the outstanding common shares of
HealthCare Data Corporation for $14.2 million, net of cash acquired.
Additionally, in the first quarter of fiscal 2001, investments were made
totaling $10.5 million which were comprised of earnout payments attributable to
past acquisitions.
Effective September 1, 2000, the Company acquired 100 percent of the
outstanding common shares of Market Intelligence, Inc. for $1.0 million.
The Company believes working capital generated by operations along with
existing credit facilities are sufficient for its overall capital requirements.
Other
Forward Looking Statements
The statements in this Form 10-Q 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, actual
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promotional activities and programs with the Company's customers, the pace of
installation of the Company's store network, the success of new services and
businesses and the pace of their implementation, and the Company's ability to
maintain favorable client relationships.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on July 18, 2000. The
following members were elected as Class III members of the Company's Board of
Directors for the period ending as of the annual meeting of stockholders in
2003:
Daniel D. Granger
Michael B. Wilson
The terms of the other directors of the Company continued after the meeting.
These directors are:
Frank H. Barker
Patrick W. Collins
Frederick W. Beinecke
Evelyn V. Follit
Thomas W. Smith
With regard to the proposal to approve an amendment to the Company's
Certificate of Incorporation to increase the number of shares of common stock,
$.01 par value per share, which the Company is authorized to issue from
50,000,000 to 150,000,000, 16,019,503 votes were cast in favor, 424,468 were
cast against, and there were 90,995 abstentions. Accordingly, the proposal was
approved.
With regard to the proposal to ratify and approve the Company's independent
certified public accountants for fiscal 2001, 16,390,654 votes were cast in
favor, 134,422 votes were cast against and there were 9,890 abstentions.
Accordingly, the proposal was approved.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
10.31 Credit Agreement dated as of September 25, 2000, by
and between the Registrant and Bank One, NA, as agent
and lender, and the other lenders party thereto.
10.32 Amendment No. 1 To Certain Operative Agreements
dated as September 15, 2000, by and between First
Security Bank, National Association, as the owner
trustee under Dolphin Realty Trust 1999-1,
as lessor, and Catalina Marketing Sales Corporation,
as lessee.
15 Acknowledgment Letter
99 Review Report of Independent Certified Public
Accountants
27 Financial Data Schedule (SEC use only)
b. Reports of Form 8-K
None
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CATALINA MARKETING CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, Registrant's principal financial officer, thereunto duly
authorized.
November 8, 2000 CATALINA MARKETING CORPORATION
(Registrant)
/s/ Joseph P. Port
----------------------------------
Joseph P. Port
Senior Vice President and
Chief Financial Officer
(Authorized officer of
Registrant and principal
financial officer)
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