ITEM 1. BUSINESS
GENERAL
Catalina Marketing Corporation ("Catalina Marketing" or the "Company") provides a multi-functional communications network that provides a wide range of strategic targeted marketing solutions for manufacturers and retailers. The Company's unique capability is to be able to offer precision targeted marketing in a way in which no other medium, such as television or radio, can perform. Catalina Marketing Corporation delivers strategic marketing solutions for retailers and manufacturers through a variety of product lines. The evolution of the Company's product lines has resulted in a single Targeted Marketing Services organization with interrelated operating groups, which engages consumers to facilitate their purchase decisions. As of March 31, 1999, the Company employed 1,001 people reporting into 22 offices throughout the United States, Europe and Asia.
TARGETED MARKETING SERVICES THROUGH THE CATALINA MARKETING NETWORK(R)
Catalina Marketing Corporation was founded in 1983 to provide consumers with in-store targeted coupons. Employing data mining technology from the Company's in-store Network ("the Catalina Marketing Network"), Catalina Marketing now offers in-store, online, and at-home reach to provide its strategic marketing solutions. These solutions are purchase-based, individually customized communications and promotions for manufacturers and retailers that increase sales through incentives, loyalty programs, sampling, and advertising messages. The Company's services enable retailers and manufacturers to impact purchase decisions before, during and after the purchase using a variety of strategic, targeted programs.
At present, the primary product line of the Catalina Marketing Network is the in-store delivery of incentives at the checkout. Catalina Marketing links its proprietary software, personal computers, central databases and specially designed thermal printers with a retailer's point-of-sale controllers and scanners. The system prints customized promotion certificates at the point of sale based on product Uniform Product Codes (UPCs) or other scanned information. The printed promotions are handed to consumers by the cashier at the end of the shopping transaction. Catalina Marketing contracts with manufacturers and retailers to print promotions and receives a fee for each promotion printed.
Catalina Marketing enters into agreements with retail chains to install the Catalina Marketing Network in all or selected stores within the chain, either regionally or nationally. Upon installation, the retailer pays a one-time fee for each installation and generally agrees to use the Network in its store for a minimum of five years. Catalina Marketing pays distribution fees to the retailer based on the number of manufacturer promotions printed.
The equipment installed in each retail store consists of a thermal printer at each checkout lane linked by a personal computer on premises to the retailer's point-of-sale controller and scanning equipment. Catalina Marketing operates two United States data processing facilities that communicate via modem with the personal computers installed in the stores to send promotional instructions and retrieve performance data. All of the equipment and supplies, including computers, printers and paper, used in a retail installation are purchased through outside sources. While there are currently a few primary suppliers, Catalina Marketing believes that alternate sources of supply are available without material interruptions of the Company's business.
The services of the Catalina Marketing Network are driven by proprietary software. The software design is flexible and upgradable, supporting new applications that are developed and implemented on a continuous basis. This flexibility allows the network to expand and evolve as industry or customer requirements change.
SERVICES
Catalina Marketing offers its core programs and services through the Catalina Marketing Network, which is operated mainly in supermarkets. These targeted marketing solutions, including discount coupons, loyalty
marketing programs, sampling, advertising, in-store instant-win games and other incentives, are delivered directly to shoppers based on their actual purchase behavior. By specifying which purchases will "trigger" a promotion to print, manufacturers and retailers can deliver customized incentives and messages to only the consumers they wish to reach. An integrated program of applications is designed to reach shoppers before, during and after the purchase.
Each application is designed to meet specific objectives of consumer packaged goods manufacturers and supermarket retailers. Loyalty Programs allow manufacturers and retailers to target specific households based on 52 weeks of past purchase data. For retailers, loyalty programs include frequent shopper card production and data management. Sampling programs target consumers based on either current purchase behavior or through a household-level database and deliver samples upon request. Samples can be full or trial-sized and delivered in-store or at home. Advertising programs allow manufacturers to reach a captive audience through a toll-free number, announcement or message delivered at the checkout stand. In-store instant-win games are tied-in with the retailer by offering a chance to win instantly at the checkout stand based on products that are purchased. Couponing programs, such as Checkout Coupon(R) and Checkout Direct(R), use patented UPC-based scanner technology to target consumers and distribute coupons at checkout based on actual purchase behavior.
Catalina Marketing services can offer up to 13 four-week cycles of time on the network each year for more than 500 product categories, such as coffee, baby food and frozen entrees. Exclusive rights to product categories are generally given to the purchasers of specific cycle or cycles in particular product categories, and for national programs, a right of first acceptance to purchase the same cycles in the subsequent year is given to the manufacturer who purchased the earlier cycles.
The primary revenue source of the Catalina Marketing Network is a function of total promotions printed based on a promotion charge, with a minimum category fee based on shopper reach of the network and category unit volume. Redemption processing of these promotions is similar to that of traditional manufacturer coupons. Retailers provide discounts to consumers who present the coupons, send redeemed coupons to clearinghouses, and receive reimbursements for the discounts provided and handling fees from the manufacturers.
Loyalty marketing services offer targeted direct mail marketing services through Market Logic, acquired in July 1998, and loyalty card production services through Dynamic Controls Inc. (DCI or DCI Cardmarketing), acquired in January 1999.
Catalina Marketing's core domestic product lines, described above, contributed approximately 80 percent of the Company's revenues in fiscal 1999, 83 percent in fiscal 1998, and 89 percent in fiscal 1997. As of March 31, 1999, the Catalina Marketing Network was installed in 12,092 United States supermarkets reaching more than 152 million shoppers in the United States weekly.
The international operations of Catalina Marketing provide in-store electronic marketing services for consumers in Europe and Asia. The Company's current presence in Europe is in the United Kingdom and France. In Asia, the Company currently operates in Japan. As of March 31, 1999, Europe had reached more than 1,700 supermarket retailers, and weekly shopper reach was approximately 22 million. In Asia, where the Company provides outdoor media services, in addition to in-store electronic marketing services, two of the top five general merchandise stores have partnered with Catalina Marketing, including Jusco and Seiyu, for a weekly shopper reach now totaling nearly 7 million as of March 31, 1999.
Developing product lines include Health Resource Publishing (HRP) and SuperMarkets Online (SMO). Health Resource Publishing, formed in fiscal 1995, uses an in-store prescription-based technology to provide direct-to-consumer advertising to pharmacy customers based on their individual pharmacy purchases or other related patient information. The Health Resource(R) newsletter is triggered by the National Drug Code found on all prescription drugs. When a prescription is processed, a customized newsletter with prescription information, therapeutically relevant editorial and product advertising material is printed and handed to the customer along with the prescription. As of March 31, 1999, the HRP system was installed in 3,861 pharmacy outlets. SuperMarkets Online (SMO), originally tested in fiscal 1996, provides the industry's only online secure coupon format through its ValuPage(SM) service at www.valupage.com. The ValuPage service was rolled
out nationally in January 1998 and makes use of a bar code that, when printed at home and presented at the checkout lane of more than 9,300 participating supermarkets, along with the promoted items, issues Web Bucks, cash rewards that consumers use to save on their next visit to the store. SMO also offers a ValuPage e-mail service that delivers ValuPage coupons and other consumer packaged goods promotions directly to a shopper's e-mail in-box.
SALES AND MARKETING
The Company has a manufacturer sales force and a retail sales and marketing force, both working on providing the Company's targeted marketing services to its customers. The combined manufacturer and retail sale forces provide a coordinated sale approach to each client in order to offer a tailored targeted marketing solution.
Manufacturer Sales Force: The primary focus of the Company's marketing effort is to attract national consumer packaged goods manufacturers to purchase category cycles. The sales and client service force of Catalina Marketing focus on current and prospective customers, and work with them on a consultative basis to develop and implement customized, targeted marketing programs that fit each brand's strategies and objectives.
Retail Sales and Marketing Force: Catalina Marketing has two goals for its retail force. The first is to continue to expand the Catalina Marketing Network by installing stores in major markets that are not currently part of the Catalina Marketing Network. The second is to encourage currently installed retailers to use the Company's full-service loyalty marketing services, as well as Network-generated incentives to promote private label brands or high-margin departments.
RESEARCH AND DEVELOPMENT
The Company's expenditures for research and development are generally for market research, software development, system upgrades and pilot-project execution to create, test and support new applications for the Catalina Marketing Network. Catalina Marketing believes that new service and application development, along with market expansion, are vital to maintain its continued growth.
COMPETITION
Catalina Marketing competes for manufacturers' advertising and consumer promotion budgets with a wide range of media, including television, radio, print and direct mail advertising, as well as several alternative in-store and point-of-sale programs. Within the coupon industry, the Company competes with various traditional coupon delivery methods that are 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 that use a variety of coupon delivery methods. Catalina Marketing competes for promotional dollars based on the efficiency of the Catalina Marketing Network, its ability to accurately and effectively target potential customers, the number of shoppers reached, and the general ability to influence consumer buying behavior. The end result is a lower cost per unit moved rather than number of coupons printed, enabling manufacturers and retailers to meet their strategic objectives.
EMPLOYEES
Catalina Marketing employed 1,001 people as of March 31, 1999, substantially all of whom were full-time employees, and none of whom were covered by a collective bargaining arrangement. More than 840 are employed in the U.S. Approximately 28 percent of which are employed in the St. Petersburg, Florida headquarters.
PATENTS, PROPRIETARY INFORMATION AND TRADEMARKS
Catalina Marketing currently holds several United States and foreign patents on certain aspects of the Catalina Marketing Network and has several patent applications pending. These patents provide a competitive
advantage; accordingly the Company will vigorously defend its proprietary rights in all appropriate circumstances. While patent position is important, Catalina Marketing believes its ability to market its services to retailers and manufacturers, and to develop new products, will be the major factor affecting its future performance.
Catalina Marketing also 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. It also regards certain computer software in the Catalina Marketing 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. 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.
ITEM 2. PROPERTIES
The Company's headquarters facility, which includes its principal administrative, marketing, information technology and product development offices, is located in 65,207 square feet of leased space in St. Petersburg, Florida. The Company leases an additional 18 sales and support offices across the United States, consisting of approximately 157,000 square feet in the aggregate, and three 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.
ITEM 3. LEGAL PROCEEDINGS
Catalina Marketing is involved in certain 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.
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:
B. STOCKHOLDERS
As of March 31, 1999, there were approximately 526 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.
ITEM 6.
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.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Catalina Marketing Corporation ("Catalina Marketing" or the "Company") provides a multi-functional communications network that provides a wide range of strategic targeted marketing solutions for manufactur-
ers and retailers. The Company's unique capability is to be able to offer precision targeted marketing in a way in which no other medium, such as television or radio, can perform. Catalina Marketing Corporation delivers strategic marketing solutions for retailers and manufacturers through a variety of product lines. The evolution of the Company's product lines has resulted in a single Targeted Marketing organization with interrelated operating groups, which engages consumers to facilitate purchase decisions. As of March 31, 1999, the Company employed 1,001 people reporting into 22 offices throughout the United States, Europe and Asia.
RESULTS OF OPERATIONS
Year Ended March 31, 1999 compared to Year Ended March 31, 1998
Revenues were $264.8 million in fiscal 1999, up 21.9 percent over revenues of $217.1 in fiscal 1998. The increase in revenues is due to both a growth in Checkout Direct(R) programs as well as increases in loyalty and other direct mail marketing programs. Loyalty and direct mail marketing programs include, among others, the revenues added by the acquisition of Market Logic, which was acquired on July 13, 1998 and DCI, which was acquired on January 4, 1999.
In the United States, the Catalina Marketing Network was in 12,092 stores at March 31, 1999, which reach approximately 152 million shoppers each week as compared to 11,164 stores reaching approximately 143 million shoppers each week at March 31, 1998. The Health Resource Network was in 3,861 pharmacies at March 31, 1999 as compared to 1,920 pharmacies at March 31, 1998. Outside the U.S., the Catalina Marketing Network was in 1,935 stores at March 31, 1999, which reach approximately 29 million shoppers each week as compared to 1,372 stores reaching approximately 20 million shoppers each week at March 31, 1998. In fiscal 1999, the Company installed its Catalina Marketing Network in 928 stores (net of deinstallations) in the United States as compared to 419 stores in fiscal 1998. 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 1,941 pharmacies (net of deinstallations) in fiscal 1999 as compared to 725 pharmacies in fiscal 1998. Outside the United States, the Company installed 563 stores (net of deinstallations) in fiscal 1999 as compared to 731 stores (with respect to continuing operations, net of deinstallations) in fiscal 1998. 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, loyalty and direct mail marketing expenses, marketing expenses, 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 Asia. Direct operating expenses increased in absolute terms to $110.2 million in fiscal 1999 from $84.2 million in fiscal 1998. Direct operating expenses in fiscal 1999 as a percentage of revenues increased to 41.6 percent from 38.8 percent in fiscal 1998. This increase in fiscal 1999 is principally attributable to the Company's increase in loyalty and direct marketing programs, including Market Logic and DCI 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 in fiscal 1999 were $59.4 million compared to $56.4 million in fiscal 1998, an increase of 5.3 percent or $3.0 million. The increase relates primarily to administrative expenses of new business ventures and products which were partially offset by the $3.5 million one time expense incurred in the third quarter of fiscal 1998 associated with the shutdown of the Company's Mexican operations. As a percentage of revenues, selling, general and administrative expenses decreased 3.6 percent in fiscal 1999, to 22.4 percent from 26.0 percent in fiscal 1998. This decrease is primarily attributable to the $3.5 million charge referred to above. Additionally, the Company was successful in lowering and limiting certain categories of overhead expenses during the fiscal 1999 periods.
Depreciation and amortization increased to $27.3 million for fiscal 1999 from $23.7 million for fiscal 1998. 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 related to the Company's acquisitions.
Interest income (expense) and other was $2.3 million net expense for fiscal 1999 compared to $1.0 million net expense for fiscal 1998. The increase in expense is principally attributable to the Company writing off its $3.0 million investment in Intelledge Corporation in the second quarter of fiscal 1999. As a partial offset, the Company incurred interest expense on borrowings from its credit facility during the fiscal 1998 and had no borrowings on this facility in fiscal 1999.
The provision for income taxes increased to $28.0 million, or 42.7 percent of income before income taxes, for fiscal 1999 compared to $19.1 million, or 36.7 percent of income before income taxes, for fiscal 1998. The increase is primarily due to the valuation allowance recorded against the $3.0 million deferred tax benefit for the Intelledge investment write off in the second quarter of fiscal 1999 and the $3.1 million tax benefit arising due to the shutdown of the Mexican operations in the third quarter of fiscal 1998. Excluding the effect of the Mexican operations shutdown, the Company's effective tax rate is higher than the federal statutory income tax rate due to state and foreign income taxes, the inability to currently utilize losses of a majority owned foreign subsidiary for tax purposes and, in the case of fiscal 1999, the valuation allowance referred to in the previous sentence.
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 incentives worldwide, growth in new programs such as Checkout Direct and, to a lesser extent, revenues added by an acquisition by the Company on October 10, 1996 of a 51 percent interest in an Asian based outdoor media business. In the United States, the Catalina Marketing Network printed 2.56 billion promotions during fiscal 1998, up 10.9 percent compared to 2.31 billion promotions fiscal 1997.
In the U.S., the Catalina Marketing Network was in 11,164 stores at March 31, 1998, which reach approximately 143 million shoppers each week as compared to 10,745 stores reaching approximately 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 Resource Network was in 1,920 pharmacies at March 31, 1998 as compared to 1,195 pharmacies at March 31, 1997. Outside the United States, the Catalina Marketing Network was in 1,372 stores at March 31, 1998, which reach approximately 20 million shoppers each week as compared to 941 stores reaching approximately 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 Resource Network in 725 pharmacies, net of deinstallations, in fiscal 1998 as compared to 958 pharmacies in fiscal 1997. Outside the United States, 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 service offices, provision for doubtful accounts and the direct expenses associated with operating the outdoor media business in a majority-owned subsidiary in Asia. The majority owned Asian subsidiary was 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 Asia.
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 Asia, 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 net expense for fiscal 1998 from $1.2 million net 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, or 36.7 percent of income before income taxes and minority interest, for fiscal 1998 compared to $17.9 million, or 40.0 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 federal statutory income 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.
QUARTERLY RESULTS
The following table presents certain unaudited quarterly results for the last eight quarters (dollars in thousands, except per share data):
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 1999 and fiscal 1998, the Company made net capital expenditures of $39.9 million and $24.2 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 fiscal 1999, the Company spent $5.6 million more on store equipment and spent $5.8 million more on data processing equipment and furniture and fixtures compared to fiscal 1998.
Effective July 13, 1998, the Company acquired 100 percent of the outstanding common shares of Market Logic, a full service targeted marketing company that specializes in the development and fulfillment of highly sophisticated, personalized, direct marketing programs for retailers, for $1.8 million in initial cash consideration, net of cash acquired. Terms of the purchase agreement call for the Company to make a series of payments, which are contingent upon the future operating performance of Market Logic.
Effective December 30, 1998, the Company purchased from its minority stockholders the remaining ownership of Catalina Marketing of France, Inc. Catalina Marketing of France, Inc. owns substantially all of the outstanding stock of Catalina Marketing de France, S.A., the French operating company. Terms of the purchase agreement call for the Company to make an initial down payment and a series of payments to the minority stockholders, which are contingent upon the future operating performance of Catalina Marketing de France, S.A.
Effective January 4, 1999, the Company acquired 100 percent of the outstanding common shares of Dynamic Controls, Inc., which offers card-based loyalty marketing programs for retailers, for $4.6 million in initial cash consideration, net of cash acquired. Terms of the purchase agreement call for the Company to make an initial down payment and a series of payments, which are based upon specified future revenue growth targets.
Effective October 1998, the Board of Directors authorized management to repurchase $50 million of the Company's common stock. This authorization replaced the $30 million repurchase authorization, which had been in place since November 1997. During fiscal 1999, the Company purchased 371,100 shares of its common stock for $18.2 million. Of the shares repurchased in fiscal 1999, 101,000 shares were purchased under the $50 million authorization for $6.5 million, and the balance of 270,100 shares were purchased under the $30 million authorization for $11.7 million. Under the $30 million authorization, a total of 495,100 shares were purchased for $22.6 million. The remaining availability under the $30 million authorization was replaced by the $50 million authorization. As of March 31, 1999, $43.5 million is available for repurchase under the $50 million authorization.
The Company believes working capital generated by operations along with existing credit facilities are sufficient for its overall capital requirements.
OTHER
Year 2000 Readiness Disclosure
This year 2000 disclosure is the most current information available and replaces all previous disclosures made by the Company in its filings on Form 10-Q and Form 10-K, and in its Annual Report of shareholders.
In the next year, many companies will face potentially serious risks associated with the inability of existing business systems to appropriately recognize calendar dates beginning in the year 2000. 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, was revised to consider acquired companies' business systems, and has a goal for completion in October 1999. The plan currently includes spending of approximately $1.5 million for testing and upgrading hardware and software. The Company has spent approximately $1.0 million on the year 2000 issue. Progress towards completion of the plan is within management's expectations to meet the October 1999 goal.
In addition, the Company has contacted substantially all of its hardware and software vendors, suppliers and financial institution partners to evaluate their compliance efforts. Those that have been deemed noncompliant have been evaluated and corrective action has been or will be taken to ensure the vendors' year 2000 efforts or lack thereof will not adversely impact the Company's operations.
The Company's manufacturer clients and retailers may also encounter year 2000 issues and are in various states of readiness. If these manufacturers or retailers encounter serious problems related to the year 2000 issue, those problems could have a material adverse impact on the operations of the Company. The Company believes the manufacturers and retailers are addressing the year 2000 issue and is closely monitoring the status of their readiness.
In the event that the Company's year 2000 compliance efforts are unsuccessful and/or one or more of the Company's critical internal systems are not year 2000 compliant by December 31, 1999, the following could occur, any of which could have a material adverse impact on the operations of the Company:
(a) Customer service could deteriorate to the point that a substantial number of the Company's customers move their account relationships to another organization;
(b) The Company may be unable to provide manufacturer and retail clients with timely and accurate information about program execution; or
(c) The Company may be unable to fulfill various contractual obligations
The Company believes substantially all of its internally developed applications and purchased applications used internally will be Year 2000 compliant by October 1, 1999. The Company has therefore focused its efforts on contingency planning for business systems outside of those applications.
FORWARD LOOKING STATEMENTS
The statements in this Form 10-K 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 product lines outside its core business, the level and timing of any acquisition activity, actual promotional activities and programs with the Company's customers, the pace of installation of the Company's store network, the timing and success of new services and businesses and the pace of their implementation, and the Company's ability to maintain favorable client relationships.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL INFORMATION
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, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1999. 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, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida April 29, 1999
CATALINA MARKETING CORPORATION
CONSOLIDATED INCOME STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA)
The accompanying Notes are an integral part of these consolidated financial statements.
CATALINA MARKETING CORPORATION
CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
The accompanying Notes are an integral part of these consolidated financial statements.
CATALINA MARKETING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
The accompanying Notes are an integral part of these consolidated financial statements.
CATALINA MARKETING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
The accompanying Notes are an integral part of these consolidated financial statements.
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999
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 targeted 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, 1999, the Company's network was installed in 12,092 retail stores and 3,861 pharmacies throughout the United States and 1,935 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. All intercompany transactions are eliminated in consolidation. 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. The Company's investment in a non-majority owned company was 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, 1999 and 1998, the allowance for doubtful accounts was $1,197,000 and $703,000, respectively.
Inventory. Inventory consists of paper used for promotion printing, as well as card processing inventory for loyalty operations. 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. Office equipment includes EDP equipment and software bought and developed for internal use. 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. 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.
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Purchased Intangible Assets, net. Purchased intangible assets include purchased patents and other intangibles arising out of the Company's acquisitions. Purchased intangible assets are amortized over their useful lives using the straight line method.
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 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. Loyalty services revenue is recognized when the loyalty cards or mailings are shipped.
Income Taxes. Provision for income taxes includes federal, state and foreign income taxes. 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):
Options to purchase 1,161,800 shares of common stock at prices ranging from $61 5/8 to $66 per share were outstanding at March 31, 1999, 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):
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Purchased intangible assets, net include (dollars in thousands):
Accrued expenses include (in thousands):
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):
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The valuation allowance increased by $1,220,000 during fiscal 1999, as it is more likely than not that net operating loss carryforwards generated by certain foreign subsidiaries and losses of unconsolidated equity investments will not be realized.
As of March 31, 1999, various foreign subsidiaries of the Company had aggregate cumulative net operating loss carryforwards for foreign income tax purposes of approximately $5,500,000, which are subject to various income tax provisions of each respective entity. The net operating losses expire in the calendar years 1999 through 2003.
The provision for income taxes consisted of the following (in thousands):
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):
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: SHORT TERM BORROWINGS AND LONG TERM DEBT
As of March 31, 1999 and March 31, 1998, the Company's short term borrowings and long term debt, payable in yen, consisted of the following (dollars in thousands):
Maturities of long term debt are as follows as of March 31, 1999 (in thousands):
Certain debt held by the Company's Asian subsidiary is guaranteed by certain minority shareholders.
On September 30, 1997 the Company entered into a $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 line of credit facility expiring September 28, 1999 under which, the Company, at its option, may convert outstanding borrowings upon expiration into a term loan with a maturity of September 29, 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, 1999, 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, 1999 the Company is in compliance with all such financial covenants.
NOTE 5: COMMITMENTS AND CONTINGENCIES
Rental expense under operating leases was $2,941,000, $2,466,000 and $1,622,000 for the years ended March 31, 1999, 1998 and 1997, respectively. Future minimum rental commitments under operating leases
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
with non-cancelable terms of more than one year (the longest of which expires in 2006) as of March 31, 1999, are as follows: $3,828,000, in 2000, $3,495,000 in 2001, $2,840,000 in 2002, $2,013,000 in 2003, $1,122,000 in 2004, and $355,000 thereafter.
The Company is involved in certain 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, the ultimate outcome of this litigation will not have a material adverse effect on the Company's financial condition.
NOTE 6: STOCK-BASED COMPENSATION PLANS
The Company has a stock option plan, the 1989 Incentive 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 5,251,873 shares have been granted, net of cancellations, under the 1989 Plan, of which options to purchase 2,601,155 shares were outstanding on March 31, 1999.
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 and generally have terms of five to ten years. In 1999, the 1989 Plan was amended to change the term to ten years. Certain options under the 1989 Plan, which have been granted to certain executives of the Company, have an accelerated vesting schedule based upon the Company reaching specified earnings per share targets. 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.
The 1989 Plan expired in April 1999. A new plan, the 1999 Incentive Stock Option Plan (the "1999 Plan") was approved by the Board of Directors in April 1999, and is subject to shareholder approval in July 1999 at the Company's annual meeting.
Aggregate Stock Option Activity. As of March 31, 1999, options to purchase an aggregate of 2,660,718 shares had been exercised, including options to purchase 10,000 shares granted outside of the 1989 Plan; options to purchase an aggregate of 2,611,155 shares were outstanding, including options to purchase 10,000 shares outside of the 1989 Plan; and 498,127 shares remained available for future grants under the 1989 Plan. Of the options outstanding at March 31, 1999 and at March 31, 1998, options to purchase 450,202 and 602,835 shares respectively, were immediately exercisable, with weighted average exercise prices of $32.34 and $25.76, respectively.
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Stock option activity for the years ended March 31, 1997, 1998 and 1999 is as follows:
1992 Director Stock Grant Plan. The Grant Plan provides for grants of common stock to non-employee board members. As of March 31, 1999, 34,454 shares have been granted and 5,534 shares have been canceled leaving 71,080 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 as a director.
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, 1999, 1998 and 1997, 24,516, 28,709 and 28,375 shares were purchased, respectively.
Under the Purchase Plan, employees may purchase Company common stock at 85 percent 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 fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in fiscal 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 assumptions used for grants in fiscal 1999 are: risk-free interest rates ranging from 4.43 to 5.65 percent depending on the date of grant; expected dividend yield of zero percent; expected life of five years to eight years; and expected volatility of 39.99 percent. The fair values of
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
options granted in fiscal 1999, 1998 and 1997 are, $37,193,274, $4,877,647 and $10,289,789 respectively, which would be amortized as compensation over the vesting period of the options.
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):
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 $303,000, $358,000 and $257,000 related to the purchase discount offered under the Purchase Plan for fiscal 1999, 1998 and 1997, respectively.
NOTE 7: STOCKHOLDER PROTECTION PLAN
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.
NOTE 8: SAVINGS PLANS
On June 1, 1992, the Company adopted a 401(k) Savings Plan. The Company's contributions during fiscal 1999 and 1998 were $840,000 and $635,000, 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 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 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
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 1999, 1998 and 1997 were not significant. Stock units are initially recorded at fair value.
NOTE 9: SEGMENT INFORMATION:
In fiscal 1999 the Company adopted the provisions of Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131). This statement establishes new standards for reporting information about operating segments and related disclosures. All prior period information has been restated to conform to this statement.
The Company operates through individual operating units which share similar economic characteristics, customers, distribution channels, products and services and production processes. As a result, the Company has aggregated its operating units and product lines into a single reporting segment of Targeted Marketing Services. The Company's accounting policies for segments are the same as those described in Note 1. Management evaluates segment performance based on net income(loss).
Reportable segment information is as follows:
Revenue and long lived assets by geographic area are as follows:
CATALINA MARKETING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 NOTE 10: ACQUISITIONS:
Effective July 13, 1998, the Company acquired 100 percent of the outstanding common shares of Market Logic, a full service targeted marketing company that specializes in the development and fulfillment of highly sophisticated, personalized, direct marketing programs for retailers, for $1.8 million in initial cash consideration, net of cash acquired. Terms of the purchase agreement call for the Company to make a series of payments, which are contingent upon the future operating performance of Market Logic.
Effective December 30, 1998, the Company purchased from its minority stockholders the remaining ownership of Catalina Marketing of France, Inc. Catalina Marketing of France, Inc. owns substantially all of the outstanding stock of Catalina Marketing de France, S.A., the French operating company. Terms of the purchase agreement call for the Company to make an initial down payment and a series of payments to the minority stockholders, which are contingent upon the future operating performance of Catalina Marketing de France, S.A.
Effective January 4, 1999, the Company acquired 100 percent of the outstanding common shares of Dynamic Controls Inc., which offers card-based loyalty marketing programs for retailers for $4.6 million in initial cash consideration, net of cash acquired. Terms of the purchase agreement call for the Company to make an initial down payment and a series of payments, which are based upon specified future revenue growth targets.
The above referenced acquisitions have been accounted for using the purchase method of accounting for acquisitions and, accordingly, the results of operations of each acquisition have been included in the fiscal 1999 consolidated financial statements since the date of such acquisition.
NOTE 11: SUBSEQUENT EVENT:
Effective April 21, 1999, the Company, through one of its wholly owned subsidiaries, entered into a merger agreement with one of its vendors, CompuScan Marketing, Inc. CompuScan Marketing, Inc. provides the intellectual property and backroom processing for the Company's Checkout Prizes product.
Effective April 5, 1999 the Tribune Company made an investment in Supermarkets Online.
NOTE 12: 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 is effective for financial statements relating to fiscal years beginning after June 15, 1999. The Company expects SFAS No. 133 to have no effect on its financial statements.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13.
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, 1999.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
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* 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.
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 18, 1999.
CATALINA MARKETING CORPORATION (Registrant)
By: /s/ JOSEPH P. PORT ------------------------------------ Joseph P. Port, 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.