-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DQjaewBwMWopUMQVbccaF/jsuZy/MhnGuMpVwNIHOR0NWax9DHeUNtcTajcdwo5d Kn7+VIvILRizFqrS4n+KQw== 0000950144-98-009594.txt : 19980814 0000950144-98-009594.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950144-98-009594 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CATALINA MARKETING CORP/DE CENTRAL INDEX KEY: 0000883977 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING AGENCIES [7311] IRS NUMBER: 330499007 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11008 FILM NUMBER: 98684836 BUSINESS ADDRESS: STREET 1: 11300 9TH ST NORTH CITY: ST PETERSBURG STATE: FL ZIP: 33716 BUSINESS PHONE: 8135795000 MAIL ADDRESS: STREET 1: 11300 9TH STREET NORTH CITY: ST PETERSBURG STATE: FL ZIP: 33716-2329 10-Q 1 CATALINA MARKETING CORPORATION FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From ______ to _______ Commission File Number 1-11008 CATALINA MARKETING CORPORATION - -------------------------------------------------------------------------------- (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) 11300 9th Street North St. Petersburg, Florida 33716-2329 - ------------------------------------------------- --------------------------------------------------
(813) 579-5000 - -------------------------------------------------------------------------------- (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 10, 1998, Registrant had outstanding 18,502,127 shares of Common Stock. 2 CATALINA MARKETING CORPORATION INDEX
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Income for the three month periods ended June 30, 1998 and 1997 3 Condensed Consolidated Balance Sheets at June 30, 1998 and March 31, 1998 4 Condensed Consolidated Statements of Cash Flow for the three month periods ended June 30, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION 10 SIGNATURES 11
2 3 CATALINA MARKETING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data) (unaudited)
Three Months Ended June 30, 1998 1997 --------- --------- Revenues $ 56,834 $ 46,659 Costs and Expenses: Direct operating expenses 23,550 18,033 Selling, general and administrative 15,305 12,896 Depreciation and amortization 6,404 5,691 -------- -------- Total costs and expenses 45,259 36,620 -------- -------- Income From Operations 11,575 10,039 Interest Expense and Other (28) (393) -------- -------- Income Before Income Taxes 11,547 9,646 -------- -------- Income Taxes (4,809) (4,009) -------- -------- Net Income $ 6,738 $ 5,637 ======== ======== Diluted: Net Income Per Common Share $ 0.35 $ 0.30 Weighted Average Common Shares Outstanding 19,033 19,072 Basic: Net Income Per Common Share $ 0.36 $ 0.31 Weighted Average Common Shares Outstanding 18,530 18,330
The accompanying Notes are an integral part of these consolidated financial statements. 3 4 CATALINA MARKETING CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands)
(unaudited) June 30, March 31, ASSETS 1998 1998 ----------- --------- Current Assets: Cash and cash equivalents $ 24,674 $ 18,434 Accounts receivable, net 22,689 20,251 Deferred tax asset 10,819 9,666 Prepaid expenses and other current assets 17,507 15,216 --------- --------- Total current assets 75,689 63,567 --------- --------- Property and Equipment: Property and equipment 164,892 160,186 Accumulated depreciation and amortization (93,558) (89,673) --------- --------- Property and equipment, net 71,334 70,513 --------- --------- Purchased intangible assets, net 19,128 19,112 Other assets 4,392 3,874 --------- --------- Total Assets $ 170,543 $ 157,066 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 8,245 $ 8,348 Accrued expenses 34,318 27,520 Deferred revenue 20,055 20,116 Short term borrowings 5,089 5,537 --------- --------- Total current liabilities 67,707 61,521 --------- --------- Deferred tax liability 4,733 5,073 Long term debt 398 430 --------- --------- Commitments and Contingencies Stockholders' Equity: Preferred stock; $0.01 par value; 5,000,000 authorized shares; none issued and outstanding -- -- Common stock; $0.01 par value; 50,000,000 authorized shares and 18,430,593 and 18,379,153 shares issued and outstanding at June 30, 1998 and March 31, 1998, respectively 184 184 Paid-in capital 2,347 685 Cumulative translation adjustment (872) (135) Retained earnings 96,046 89,308 --------- --------- Total stockholders' equity 97,705 90,042 --------- --------- Total Liabilities and Stockholders' Equity $ 170,543 $ 157,066 ========= =========
The accompanying Notes are an integral part of these consolidated financial statements. 4 5 CATALINA MARKETING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (dollars in thousands) (unaudited)
Three Months Ended June 30, -------------------------- 1998 1997 ---------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,738 $ 5,637 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,441 5,751 Other (573) (1,192) Changes in operating assets and liabilities 2,164 10,811 -------- -------- Net cash provided by operating activities 14,770 21,007 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (8,242) (3,512) Purchase of investments (761) (2,087) -------- -------- Net cash used in investing activities (9,003) (5,599) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on credit facility -- 11,500 Proceeds from debt obligations 7,838 10,927 Principal payments on debt obligations (8,322) (10,867) Proceeds from issuance of common and subsidiary stock 1,203 2,375 Tax benefit from exercise of non-qualified options 376 76 Payment for repurchase of company common stock -- (40,000) -------- -------- Net cash provided by (used in) financing activities 1,095 (25,989) -------- -------- NET INCREASE (DECREASE) IN CASH 6,862 (10,581) Effect of exchange rate changes on cash (622) (100) CASH, at end of prior period 18,434 13,698 -------- -------- CASH, at end of current period $ 24,674 $ 3,017 ======== ========
The accompanying Notes are an integral part of these consolidated financial statements. 5 6 CATALINA MARKETING CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Condensed Consolidated Financial Statements: In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Company as of June 30, 1998 and March 31, 1998, and the results of operations and cash flows for the three month periods ended June 30, 1998 and 1997. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. The first quarter balances and results of the majority owned foreign subsidiaries are included as of and for the three month periods ended March 31, 1998 and 1997. All material intercompany profits, transactions and balances have been eliminated. The Company's investment in a non-majority owned company is accounted for on the equity method. These financial statements, including the condensed consolidated balance sheet as of March 31, 1998, which has been derived from audited financial statements, are presented in accordance with the requirements of Form 10-Q and consequently may not include all disclosures normally required by generally accepted accounting principles or those normally made in the Company's Annual Report on Form 10-K. The accompanying condensed consolidated financial statements and related notes should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998. Note 2. Net Income Per Common Share: The following is a reconciliation of the denominator of basic EPS to the denominator of diluted EPS (in thousands):
THREE MONTHS ENDED JUNE 30, ---------------------- 1998 1997 ---------------------- Basic weighted average common shares outstanding 18,530 18,330 Dilutive effect of options outstanding 503 742 ---------------------- Diluted weighted average common shares outstanding 19,033 19,072
6 7 Options to purchase 553,710 shares of common stock at prices ranging from $51.31 to $53.50 per share were outstanding at June 30, 1998, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of common stock. Note 3: Accounting Changes: In June 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130) and accordingly, comprehensive income is as follows:
THREE MONTHS ENDED JUNE 30, ------------------------ 1998 1997 ------------------------ (in thousands) Net income $ 6,738 $ 5,637 Other comprehensive income, net of tax: Currency translation adjustment (453) 253 ------------------------ Comprehensive Income $ 6,285 $ 5,890
In June 1998, the Company adopted Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). The effect of implementing SOP 98-1 was immaterial to the financial statements for the quarter ended June 30, 1998. 7 8 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: FISCAL 1999 COMPARED TO FISCAL 1998 The Company's revenues for the first quarter of fiscal 1999 increased 22 percent, compared with the same period in fiscal 1998. The increase in revenues is primarily due to growth in new programs such as Checkout Direct(R). Catalina Marketing Services, constituting the Company's base business in the U.S., contributed approximately $46.7 million of revenues in the first quarter of fiscal 1999, up 17 percent over revenues of $40.0 million in the comparable fiscal 1998 period. In the U.S., the Catalina Marketing Network was in 11,432 stores at June 30, 1998, which reach 153 million shoppers each week as compared to 10,832 stores reaching 147 million shoppers each week at June 30, 1997 and 11,164 stores reaching 143 million shoppers each week at March 31, 1998. The Health Resources Network was in 2,256 pharmacies at June 30, 1998 as compared to 1,394 pharmacies at June 30, 1997 and 1,920 pharmacies at March 31, 1998. Outside the U.S., the Catalina Marketing Network was in 1,456 stores at June 30, 1998, which reach 23 million shoppers each week as compared to 1,057 stores reaching 20 million shoppers each week at June 30, 1997 and 1,372 stores reaching 20 million shoppers each week at March 31, 1998. In the first quarter of fiscal 1999 the Company installed its Catalina Marketing Network in 268 stores (net of deinstallations) in the U.S. as compared to 87 stores in the comparable fiscal 1998 period. Deinstallation activity can and does occur primarily due to the consolidation and business combination of supermarket chains as well as store closures made by retailers in the ordinary course of business. The Company also installed its Health Resources Network in 336 pharmacies (net of deinstallations) in the first quarter of fiscal 1999 as compared to 199 stores in the comparable fiscal 1998 period. Outside the U.S., the Company installed 84 stores (net of deinstallations) in the first quarter of fiscal 1999 as compared to 116 stores in the comparable fiscal 1998 period. Direct operating expenses consist of retailer fees, paper, sales commissions and the expenses of operating and maintaining the Catalina Marketing Network (primarily expenses relating to operations personnel and service offices), provision for doubtful accounts and the direct expenses associated with operating the outdoor media business in a majority-owned subsidiary in Japan. Direct operating expenses increased in absolute terms to $23.6 million for the first quarter of fiscal 1999 from $18.0 million in the comparable period of fiscal 1998. Direct operating expenses in the first quarter of fiscal 1999 as a percentage of revenues increased to 41.4 percent from 38.6 percent in the comparable period of fiscal 1998. This increase in fiscal 1999 is principally attributable to the Company's increase in loyalty marketing programs which by their nature have a higher percentage of direct costs to revenue than the Company's other base business products. 8 9 Selling, general and administrative expenses include personnel-related costs of selling and administrative staff, overhead and new product development expenses. Selling, general and administrative expenses for the first quarter of fiscal 1999 were $15.3 million, compared to $12.9 million for the comparable period of fiscal 1998, an increase of 18.7 percent or $2.4 million. The increase relates primarily to higher costs associated with a larger sales force, and administrative expenses of new business ventures and products. As a percentage of revenues, selling, general and administrative expenses in the first quarter of fiscal 1999 decreased to 26.9 percent from 27.6 percent for the comparable period of fiscal 1998. This decrease is attributable to fiscal 1999 savings related to the closure of the Company's operations in Mexico in the second quarter of fiscal 1998. Depreciation and amortization increased to $6.4 million for the first quarter of fiscal 1999 from $5.7 million for the comparable period in fiscal 1998. Depreciation increased due to the investment in capital expenditures associated with new business ventures and data processing equipment and the increase in stores installed. Interest expense and other decreased to $28,000 for the first quarter of fiscal 1999 from $393,000 for the comparable period in fiscal 1998. The decrease is primarily due to the Company incurring interest expense on borrowings from its credit facility for the repurchase of $40 million of its common stock in the first quarter of fiscal 1998. The provision for income taxes increased to $4.8 million (41.6 percent of income before income taxes) for the first quarter of fiscal 1999, compared to $4.0 million (41.6 percent of income before income taxes) for the same period in fiscal 1998. The Company's effective tax rate is higher than the expected federal statutory tax rate due to state and foreign income taxes and the inability to currently utilize losses of majority owned foreign subsidiaries for tax purposes. LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital expenditures are store equipment and third-party store installation costs, as well as data processing equipment for the Company's central data processing facilities. Total store equipment and third-party store installation costs range from $5,000 to $13,000 per store. During the first quarter of fiscal 1999 and 1998, the Company made capital expenditures of $8.2 million and $3.5 million, respectively. The pace of installations varies depending on the timing of contracts entered into with retailers and the scheduling of store installations by mutual agreement. During the first quarter of fiscal 1999, the Company had a faster pace of U.S. store installations and spent $1.9 million more in data processing equipment and furniture and fixtures compared to the comparable fiscal 1998 period. Management believes that expenditures for capital equipment will remain between $20 and $35 million annually for the foreseeable future. 9 10 In July 1998, the Company acquired Market Logic, a full service targeted marketing organization that specializes in the development and fulfillment of highly sophisticated, personalized direct marketing programs for retailers. In July 1998, the Company made a $2.9 million payment in accordance with terms of the purchase agreement for Market Logic. The agreement calls for the Company to make a series of four additional annual cash payments, which are contingent upon the financial performance of Market Logic for the fiscal 1999, 2000, 2001 and 2002 calendar years. The Company believes working capital generated by operations along with existing credit facilities are sufficient for its overall capital requirements. The Company is aware of the Year 2000 issue and the effects it may have on its business systems. In response, the Company has developed a detailed plan to address the issue. This plan includes a campaign which began in fiscal 1998 and will be completed in fiscal 1999 and includes spending of approximately $1.0 million for testing and upgrading hardware and software. The Company believes that it will be Year 2000 compliant without a material impact on its operations or financial results. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a. Exhibits 15 Acknowledgment Letter 27 Financial Data Schedule (for SEC use only) 99 Review Report of Independent Certified Public Accountants b. Reports of Form 8-K Report dated April 24, 1998 was filed with the Commission regarding the Company's press release communicating its fiscal 1998 fourth quarter earnings. 10 11 CATALINA MARKETING CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, Registrant's principal financial officer, thereunto duly authorized. August 13, 1998 CATALINA MARKETING CORPORATION ------------------------------ (Registrant) /s/ Philip B. Livingston -------------------------------- Philip B. Livingston Senior Vice President and Chief Financial Officer (Authorized officer of Registrant and principal financial officer) 11 EX-15 2 ACKNOWLEDGMENT LETTER 1 Exhibit 15 August 13, 1998 Catalina Marketing Corporation 11300 9th Street North St. Petersburg, Florida 33716 Catalina Marketing Corporation: We are aware that Catalina Marketing Corporation has incorporated, by reference in its Registration Statement File Nos. 33-46793, 33-77100, 33-82456, 333-07525 and 333-13335, its Form 10-Q for the quarter ended June 30, 1998, which includes our report dated July 14, 1998, covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933 (the Act), that report is not considered a part of the registration statement prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, ARTHUR ANDERSEN LLP By: /s/ WILLIAM J. MEURER ---------------------------- William J. Meurer NNK EX-27 3 FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY)
5 1,000 3-MOS MAR-31-1998 APR-01-1998 JUN-30-1998 24,674 0 22,689 0 0 75,689 164,892 93,558 170,543 67,707 398 0 0 184 97,521 170,543 56,834 56,834 23,550 45,259 28 0 0 11,547 4,809 6,738 0 0 0 6,738 .36 .35
EX-99 4 REVIEW REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCT 1 Exhibit 99 REVIEW REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To Catalina Marketing Corporation: We have reviewed the accompanying condensed consolidated balance sheet of Catalina Marketing Corporation (a Delaware corporation) as of June 30, 1998, and the related condensed consolidated statements of income and cash flows for the three-month periods ended June 30, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above, for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Catalina Marketing Corporation as of March 31, 1998, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended (not presented separately herein), and, in our report dated April 23, 1998, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 1998, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ ARTHUR ANDERSEN LLP Tampa, Florida, July 14, 1998 -----END PRIVACY-ENHANCED MESSAGE-----