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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 JUNE 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
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(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
11300 9th Street North
St. Petersburg, Florida 33716-2329
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(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 August 8, 2000, Registrant had outstanding 18,442,867 shares of
Common Stock.
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CATALINA MARKETING CORPORATION
INDEX
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<CAPTION>
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, 2000 and 1999 3
Condensed Consolidated Balance Sheets at
June 30, 2000 and March 31, 2000 4
Condensed Consolidated Statements of Cash Flows
for the three month periods ended
June 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 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk 10
PART II. OTHER INFORMATION 11
SIGNATURES 12
</TABLE>
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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,
2000 1999
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<S> <C> <C>
Revenues $ 93,944 $ 72,614
Costs and Expenses:
Direct operating expenses 39,256 30,168
Selling, general and administrative 25,224 19,808
Depreciation and amortization 10,277 8,187
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Total costs and expenses 74,757 58,163
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Income From Operations 19,187 14,451
Interest Expense, Net and Other (662) (201)
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Income Before Income Taxes and Minority Interest 18,525 14,250
Income Taxes (7,043) (5,730)
Minority Interest in Losses of Subsidiaries 260 183
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Net Income $ 11,742 $ 8,703
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Diluted:
Net Income Per Common Share $ 0.20 $ 0.15
Weighted Average Common Shares Outstanding 57,480 58,458
Basic:
Net Income Per Common Share $ 0.21 $ 0.16
Weighted Average Common Shares Outstanding 55,380 56,025
</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)
June 30, March 31,
2000 2000
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 12,697 $ 13,765
Accounts receivable, net 60,081 59,261
Deferred tax asset 14,377 10,463
Prepaid expenses and other current assets 31,843 31,883
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Total current assets 118,998 115,372
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Property and Equipment:
Property and equipment 267,579 255,216
Accumulated depreciation and amortization (148,535) (140,216)
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Property and equipment, net 119,044 115,000
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Purchased intangible assets, net 85,305 70,400
Other assets 5,227 2,980
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Total Assets $ 328,574 $ 303,752
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 13,347 $ 17,862
Accrued expenses 47,672 54,486
Deferred revenue 42,361 40,444
Short term borrowings 41,055 29,493
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Total current liabilities 144,435 142,285
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Deferred tax liability 11,378 8,380
Minority interest 988 1,228
Long term debt 12,198 10,814
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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
55,032,483 and 54,602,457 shares issued and outstanding at June 30,
2000 and March 31, 2000, respectively
550 546
Paid-in capital 7,992 897
Accumulated other comprehensive (loss) income (225) 86
Retained earnings 151,258 139,516
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Total stockholders' equity 159,575 141,045
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Total Liabilities and Stockholders' Equity $ 328,574 $ 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>
Three Months Ended June 30,
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2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,742 $ 8,703
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest (260) (183)
Depreciation and amortization 10,277 8,187
Other (3,080) 1,819
Changes in operating assets and liabilities (835) 3,121
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Net cash provided by operating activities 17,844 21,647
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (12,969) (11,998)
Purchase of investments, net of cash acquired (25,673) (18,011)
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Net cash used in investing activities (38,642) (30,009)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt obligations 19,414 7,608
Principal payments on debt obligations (6,265) (4,321)
Proceeds from issuance of common and subsidiary stock 5,050 10,330
Tax benefit from exercise of non-qualified options and
disqualified dispositions 2,042 3,897
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Net cash provided by financing activities 20,241 17,514
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (557) 9,152
Effect of exchange rate changes on cash and cash equivalents (511) (891)
CASH AND CASH EQUIVALENTS, at end of prior period 13,765 13,942
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CASH AND CASH EQUIVALENTS, at end of current period $ 12,697 $ 22,203
======== ========
</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 June 30, 2000 and March 31, 2000, and the results of operations
and cash flows for the three month periods ended June 30, 2000 and 1999.
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 and wholly owned foreign subsidiaries are
included as of March 31, 2000 and December 31, 1999 and for the three month
periods ended March 31, 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, to be
effected as a stock dividend, and an increase in the authorized common shares to
effect the stock split were approved by the Company's Board of Directors, and
the increase in the authorized common shares was approved by the stockholders at
the annual meeting held on July 18, 2000. The stock dividend will be payable
August 17, 2000 to stockholders of record on July 26, 2000. Common stockholders
will receive two additional shares of common stock for each registered share as
of July 26, 2000. All applicable references to common stock shares, including
the calculation of EPS have been adjusted to reflect the stock split and
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
JUNE 30,
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2000 1999
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<S> <C> <C>
Basic weighted average common
shares outstanding 55,380 56,025
Dilutive effect of options outstanding 2,100 2,433
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Diluted weighted average common shares
outstanding 57,480 58,458
</TABLE>
Options to purchase 1,437,768 shares of common stock at exercise prices ranging
from $98 3/16 to $106 7/8 per share at June 30, 2000, and 90,000 shares at an
exercise price of $91.25 at June 30, 1999 were not included in the computation
of diluted EPS because their exercise prices were greater than the average
market price of common stock.
Note 3. Comprehensive Income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
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2000 1999
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(in thousands)
<S> <C> <C>
Net income $ 11,742 $ 8,703
Other comprehensive income, net of
tax:
Currency translation adjustment (311) (586)
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Comprehensive Income $ 11,431 $ 8,117
</TABLE>
Note 4. Acquisition:
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 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.
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Note 5. Segment Information (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
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2000 1999
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Targeted Targeted
Marketing Marketing
Services Eliminations Services Eliminations
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<S> <C> <C> <C> <C>
Revenue from external
customers $ 93,944 $ 72,614
Revenue from internal sources 1,617 (1,617) 310 (310)
Net income 11,742 8,703
</TABLE>
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 first quarter of fiscal 2001 increased 29.4
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 growth in the Checkout Direct(R) program.
In the U.S., the Catalina Marketing Network was in 14,352 stores at June 30,
2000, which reach 182 million shoppers each week as compared to 12,257 stores
reaching 161 million shoppers each week at June 30, 1999 and 13,516 stores
reaching 165 million shoppers each week at March 31, 2000. The Health Resource
Network was in 6,793 pharmacies at June 30, 2000 as compared to 4,152 pharmacies
at June 30, 1999 and 6,671 pharmacies at March 31, 2000. Outside the U.S., the
Catalina Marketing Network was in 2,623 stores at June 30, 2000, which reach 34
million shoppers each week as compared to 2,249 stores reaching 33 million
shoppers each week at June 30, 1999 and 2,587 stores reaching 35 million
shoppers each week at March 31, 2000.
In the first quarter of fiscal 2001 the Company installed its Catalina Marketing
Network in 836 stores in the U.S., net of deinstallations, as compared to 165
stores in the comparable fiscal 2000 period. Store installations in the first
quarter of fiscal 2001 in the Catalina Marketing Network included 427 PETsMart
stores. 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 Resource Network in 122 pharmacies in the first quarter of
fiscal 2001, net of deinstallations, as compared to 291 stores in the comparable
fiscal 2000 period. These store numbers for Health Resource Network do not
include the stores that were added as part of the purchase of HealthCare Data
Corporation which adds over 10,000 additional stores, and brings the total
installed Health Resource operations storebase to approximately 14,000 stores
and a total under contract to over 20,000 stores. Outside the U.S., the Company
installed 36 stores in the first quarter of fiscal 2001, net of deinstallations,
as compared to 314 stores in the comparable fiscal 2000 period.
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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 $39.3 million for the first quarter of fiscal
2001 from $30.2 million in the comparable period of fiscal 2000. Direct
operating expenses in the first quarter of fiscal 2001 as a percentage of
revenues increased to 41.8 percent from 41.5 percent in the comparable period of
fiscal 2000. This modest increase in fiscal 2001 is principally attributable to
the increase in the Company's loyalty and direct marketing programs, including
the Market Logic and DCI Cardmarketing businesses, which by their nature have a
higher material cost component of direct costs as a function of revenue than the
Company's other core product line services.
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
2001 were $25.2 million, compared to $19.8 million for the comparable period of
fiscal 2000, an increase of 27.3 percent or $5.4 million. As a percentage of
revenues, selling, general and administrative expenses decreased 0.4 percent in
the first quarter of fiscal 2001, to 26.9 percent from 27.3 percent for the
comparable period of fiscal 2000.
Depreciation and amortization increased to $10.3 million for the first quarter
of fiscal 2001 from $8.2 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 increased due to the increases in goodwill and other
intangible assets arising out of the Company's acquisitions.
Interest expense, net and other increased to $662,000 net expense for the first
quarter of fiscal 2001 from $201,000 net expense for the comparable period in
fiscal 2000. This increase in net expense is primarily attributable to lower
average cash balances available for investment, and increased short term
borrowing balances in the Company's Asian subsidiary reported as of June 30,
2000 as compared to June 30, 1999.
The provision for income taxes increased to $7 million, or 38.0 percent of
income before income taxes and minority interest, for the first quarter of
fiscal 2001, compared to $5.7 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.
9
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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 quarters of fiscal 2001 and 2000, the Company made capital expenditures of
$13 million and $12 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 2001, the Company spent $1.3 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.
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
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
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
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15 Acknowledgment Letter
99 Review Report of Independent Certified Public Accountants
3.1 Certificate of Amendment of Certificate of Incorporation of Catalina
Marketing Corporation.
27 Financial Data Schedule (for SEC use only)
</TABLE>
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.
August 14, 2000 CATALINA MARKETING CORPORATION
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(Registrant)
/s/ Joseph P. Port
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Joseph P. Port
Senior Vice President and
Chief Financial Officer
(Authorized officer of Registrant and principal
financial officer)
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