10-Q 1 d10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 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 December 31, 2001 ( ) 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 (IRS Employer Incorporation or Organization) Identification Number) 200 Carillon Parkway St. Petersburg, Florida 33716 ---------------------------------------- ----------------------- (Address of Principal Executive Offices) (ZIP Code) (727) 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 February 1, 2002, Registrant had outstanding 55,103,699 shares of Common Stock. CATALINA MARKETING CORPORATION INDEX
Page ---- Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Statements of Income for the three and nine month periods ended December 31, 2001 and 2000 3 Condensed Consolidated Balance Sheets at December 31, 2001 and March 31, 2001 4 Condensed Consolidated Statements of Cash Flows for the nine month periods ended December 31, 2001 and 2000 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosure About Market Risk 13 Part II. Other Information Item 4. Exhibits and Reports on Form 8-K 14 Signatures 17
2 CATALINA MARKETING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data) (unaudited)
Three Months Ended Nine Months Ended December 31, December 31, ------------------------ ------------------------ 2001 2000 2001 2000 -------- -------- -------- -------- Revenues $114,730 $108,740 $313,132 $304,521 Costs and Expenses: Direct operating expenses 49,334 44,393 137,453 125,424 Selling, general and administrative 27,384 25,406 80,563 76,801 Depreciation and amortization 10,601 11,240 31,496 31,695 -------- -------- -------- -------- Total costs and expenses 87,319 81,039 249,512 233,920 -------- -------- -------- -------- Income From Operations 27,411 27,701 63,620 70,601 Interest Expense, Net and Other (51) (1,283) (1,921) (1,988) -------- -------- -------- -------- Income Before Income Taxes and Minority Interest 27,360 26,418 61,699 68,613 Income Taxes (9,985) (10,039) (22,521) (26,080) Minority Interest in Losses of Subsidiaries 4 446 20 1,097 -------- -------- -------- -------- Net Income 17,379 16,825 39,198 43,630 Proforma Addback: Goodwill Amortization (Note 5) - 977 - 2,499 -------- -------- -------- -------- Proforma Net Income $ 17,379 $ 17,802 $ 39,198 $ 46,129 Diluted: ------- Net Income Per Common Share $ 0.31 $ 0.29 $ 0.69 $ 0.75 Proforma Addback: Goodwill Amortization - 0.01 - 0.04 -------- -------- -------- -------- Proforma Net Income per Common Share $ 0.31 $ 0.30 $ 0.69 $ 0.79 Weighted Average Common Shares Outstanding 56,370 58,377 57,187 58,042 Basic: ----- Net Income Per Common Share $ 0.31 $ 0.30 $ 0.70 $ 0.78 Proforma Addback: Goodwill Amortization - 0.02 - 0.05 -------- -------- -------- -------- Proforma Net Income per Common Share $ 0.31 $ 0.32 $ 0.70 $ 0.83 Weighted Average Common Shares Outstanding 55,437 55,955 56,078 55,711
The accompanying Notes are an integral part of these consolidated financial statements. 3 CATALINA MARKETING CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands)
(unaudited) December 31, March 31, ASSETS 2001 2001 ------------------- ------------------ Current Assets: Cash and cash equivalents $ 4,562 $ 7,280 Accounts receivable, net 55,515 72,996 Inventory 6,180 5,222 Deferred tax asset 6,822 7,893 Prepaid expenses and other current assets 21,296 24,637 ------------------- ------------------ Total current assets 94,375 118,028 ------------------- ------------------ Property and Equipment: Property and equipment 309,070 292,954 Accumulated depreciation and amortization (185,195) (162,529) ------------------- ------------------ Property and equipment, net 123,875 130,425 ------------------- ------------------ Purchased intangible assets, net 152,498 135,643 Other assets 3,936 3,952 ------------------- ------------------ Total Assets $ 374,684 $ 388,048 =================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 12,807 $ 18,437 Accrued expenses 46,043 57,585 Taxes payable 7,854 4,259 Deferred revenue 22,733 32,924 Short term borrowings 12,485 15,219 ------------------- ------------------ Total current liabilities 101,922 128,424 ------------------- ------------------ Deferred tax liability 11,534 8,968 Minority interest 278 295 Long term debt 35,635 38,764 ------------------- ------------------ 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 54,983,289 and 55,548,864 shares issued and outstanding at December 31, 2001 and March 31, 2001, respectively 550 555 Paid-in capital 542 14,441 Accumulated other comprehensive loss (1,239) (1,050) Retained earnings 225,462 197,651 ------------------- ------------------ Total stockholders' equity 225,315 211,597 ------------------- ------------------ Total Liabilities and Stockholders' Equity $ 374,684 $ 388,048 =================== ==================
The accompanying Notes are an integral part of these consolidated financial statements. 4 CATALINA MARKETING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited)
Nine Months Ended December 31, ------------------------------------- 2001 2000 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 39,198 $ 43,630 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest (20) (1,097) Depreciation and amortization 31,496 31,695 Tax benefit from exercise of non-qualified options and disqualified dispositions 6,903 4,390 Other 3,250 (1,483) Changes in operating assets and liabilities 9,012 (7,069) ------------ ------------ Net cash provided by operating activities 89,839 70,066 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (23,871) (45,530) Purchase of investments, net of cash acquired (32,540) (52,103) ------------ ------------ Net cash used in investing activities (56,411) (97,633) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) borrowings on credit facility (3,000) 10,000 Proceeds from debt obligations 7,324 12,684 Principal payments on debt obligations (9,026) (13,641) Proceeds from issuance of common and subsidiary stock 15,459 19,070 Repurchase of company common stock (46,529) - ------------ ------------ Net cash (used in) provided by financing activities (35,772) 28,113 ------------ ------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,344) 546 Effect of exchange rate changes on cash and cash equivalents (374) 189 CASH AND CASH EQUIVALENTS, at end of prior period 7,280 13,765 ------------ ------------ CASH AND CASH EQUIVALENTS, at end of current period $ 4,562 $ 14,500 ============ ============ Supplemental Schedule of Other Transactions: Cash Paid during the nine month period Interest $ 1,676 $ 1,890 Income Taxes $ 16,524 $ 23,207
The accompanying Notes are an integral part of these consolidated financial statements. 5 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 December 31, 2001 and March 31, 2001, the results of operations for the three and nine months ended December 31, 2001 and 2000, and cash flows for the nine month periods ended December 31, 2001 and 2000. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. The third quarter balances and results of the wholly-owned and majority-owned foreign subsidiaries are included as of September 30, 2001 and December 31, 2000 and for the three and nine month periods ended September 30, 2001 and 2000, respectively. All material intercompany profits, transactions and balances have been eliminated. These financial statements, including the condensed consolidated balance sheet as of March 31, 2001 (which was 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, 2001. 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):
Three months ended Nine months ended December 31, December 31, ---------------------------- ------------------------------ 2001 2000 2001 2000 ---------------------------- ------------------------------ Basic weighted average common shares outstanding 55,437 55,955 56,078 55,711 Dilutive effect of options outstanding 933 2,422 1,109 2,331 ---------------------------- ------------------------------ Diluted weighted average common shares outstanding 56,370 58,377 57,187 58,042
Options to purchase 4,039,573 shares of common stock at exercise prices ranging from $32.55 to $36.82 per share for the nine months ending December 31, 2001 and options to purchase 4,159,723 shares of common stock at exercise prices ranging from $30.98 to $36.82 for the three 6 months ending December 31, 2001 were not included in the computation of diluted EPS because their exercise prices were greater than the average market price of common stock. All outstanding options to purchase shares of common stock for the three month and nine month periods ending December 31, 2000 were included in the computation of diluted EPS. Note 3. Comprehensive Income (in thousands):
Three months ended Nine months ended December 31, December 31, -------------------------- ------------------------- 2001 2000 2001 2000 ------ ------ ------ ------ Net income $17,379 $16,825 $39,198 $43,630 Other comprehensive income, net of tax: Currency translation adjustment 36 (9) (189) (1,045) -------------------------- ------------------------- Comprehensive Income $17,415 $16,816 $39,009 $42,585
Note 4. Segment Information: The Company has aggregated its operating units and product lines into a single reporting segment called Targeted Marketing Services. The Company's results of operations do not include revenue from internal sources in the amounts of approximately $13,031,000 and $13,722,000 for the nine month periods ended, and $5,035,000 and $6,435,000 for the three month periods ended December 31, 2001 and 2000, respectively. Revenue from internal sources is wholly eliminated in the presentation of consolidated results. Note 5. Effect of SFAS No.142 Goodwill and Other Intangible Assets: In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 142 addresses the accounting and reporting for goodwill and other intangibles. SFAS No. 142 is required for financial statements relating to fiscal years beginning after December 15, 2001. As permitted, the Company has chosen to adopt SFAS No. 142 early, effective as of April 1, 2001. In addition, proforma amounts have been presented on the face of the statements of income for the prior periods presented as if SFAS No. 142 had been implemented as of April 1, 2000. Goodwill is no longer amortized but instead is subject to impairment tests at least annually. Impairment is defined as a fair market value less than the carrying value of the asset on the financial statements. SFAS No. 142 requires that the Company test all goodwill for impairment within six months of implementation. The Company has performed the required first step of testing for impairment by utilizing the discounted cash flow method and is not reporting any impairment of goodwill. 7 Purchased intangible assets include (dollars in thousands):
Weighted Avg. Useful Life December 31 March 31 (in years) 2001 2001 ----------- ---- ---- Patent license and retailer relationships in the United Kingdom 20 $ 12,691 $ 12,691 Accumulated amortization (3,490) (3,014) Purchased patents 14.6 26,852 26,550 Accumulated amortization (3,804) (2,071) -------- -------- Identifiable intangible assets, net 32,249 34,156 Goodwill, net 120,249 101,487 -------- -------- Intangible assets, net $152,498 $135,643 ======== ========
The increase in goodwill during the first nine months of fiscal 2002 is primarily a result of earnout payments made per acquisition agreements entered into in previous periods. Amortization for identifiable intangible assets was approximately $2,213,000 in the first nine months of fiscal 2002 and approximately $1,272,000 in the first nine months of fiscal 2001. Estimated amortization of identifiable intangible assets is as follows as of December 31, 2001 (in thousands): Patent License and Retailer Relationships Purchased Fiscal Year in United Kingdom Patents ----------- ------------------ --------- 2002 $635 $2,317 2003 635 2,324 2004 635 2,324 2005 635 2,321 2006 635 2,311 Note 6. Newly Issued Accounting Pronouncements: In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141"). SFAS No. 141 requires that all business combinations after June 30, 2001 be accounted for by using the purchase method of accounting. The implementation of SFAS No. 141 as of December 31, 2001 did not have any effect on the Company's financial statements. In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 establishes accounting standards for recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement cost. SFAS No. 143 is effective for financial statements relating to fiscal years beginning after June 15, 2002. Management does not expect SFAS No. 143 to have a material effect on the Company's financial statements. 8 In September 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. Management does not expect SFAS No. 144 to have a material effect on the Company's financial statements. Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations: Fiscal 2002 Compared to Fiscal 2001 The Company's revenues for the third quarter of fiscal 2002 increased 6% compared with the same period in fiscal 2001. The growth was primarily a result of increased revenues at Health Services Marketing ("HSM") of approximately 101% and, to a lessor extent, increased revenues of approximately 4% in the Company's research operations ("Research", consisting of Alliance Research and Market Intelligence), while domestic core business revenues were consistent with the comparable period of fiscal 2001. Revenues for the Company's first nine months of fiscal 2002 increased approximately 3% compared with the same period in fiscal 2001. Fiscal year to date increase in revenue was due primarily to growth of 102% and 16% in HSM and Research, respectively, while domestic core business revenues declined approximately 3% due to a decreased number of promotions printed. In the U.S., the Catalina Marketing Network was in 16,503 stores on December 31, 2001, which reach 209 million shoppers each week as compared to 15,171 stores reaching 194 million shoppers each week on December 31, 2000 and 15,475 stores reaching 185 million shoppers each week on March 31, 2001. The Health Resource Network was in 17,622 pharmacies on December 31, 2001 as compared to 14,349 pharmacies on December 31, 2000 and 12,578 pharmacies on March 31, 2001. Outside the U.S., the Catalina Marketing Network was in 3,338 stores on December 31, 2001, reaching 37 million shoppers each week, as compared to 2,547 stores reaching 31 million shoppers each week on December 31, 2000 and 2,617 stores reaching 30 million shoppers each week on March 31, 2001. During the first nine months of fiscal 2002 the Company installed its Catalina Marketing Network in 1,028 stores in the U.S., net of deinstallations, as compared to 1,655 stores in the comparable fiscal 2001 period. Deinstallation activity occurs primarily through the consolidation of retail chains and store closures made by retailers in the ordinary course of business. The Company also installed its Health Resource Network in 5,044 pharmacies in the first nine months of fiscal 2002, net of deinstallations, including 2,600 Eckerd locations, as compared to 288 stores in the comparable fiscal 2001 period. Outside the U.S., the Company installed the Catalina Marketing Network in 721 stores in the first nine months of fiscal 2002, net of deinstallations, as compared to decrease of 23 stores in the comparable fiscal 2001 period. Direct operating expenses consist of retailer fees, paper and toner, sales commissions, loyalty and direct marketing expenses, provision for doubtful accounts, the expenses of operating and maintaining the Catalina Marketing and Health Resource Networks, primarily expenses relating 9 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 $49.3 million and $137.5 million for the third quarter and first nine months of fiscal 2002, respectively, from $44.4 million and $125.4 million, respectively, in the comparable periods of fiscal 2001. Direct operating expenses in the third quarter of fiscal 2002 as a percentage of revenues increased to 43.0% from 40.8% in the comparable period of fiscal 2001. Direct operating expenses increased in the first nine months to 43.9% from 41.2% for the comparable period of fiscal 2001. These increases in fiscal 2002 are due to a rise in the Company's retailer fees associated with HSM contract provisions, as well as the fact that HSM revenues, which generally have a higher level of direct operating expenses on a percentage basis than revenues from the core domestic business, constituted a greater percentage of overall revenue. Additionally, Market Logic has experienced higher than historical direct operating expenses associated with its direct marketing program. These increases have been offset by the reduced costs associated with the Company's paper and toner expenses relating to HSM operations and decreased billboard expenses in the Japan subsidiary. 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 third quarter and first nine months of fiscal 2002 were $27.4 million and $80.6 million, respectively, compared to $25.4 million and $76.8 million, respectively, for the comparable periods of fiscal 2001, increases of 7.8% and 4.9 %, respectively. As a percentage of revenues, selling, general and administrative expenses in the third quarter of fiscal 2002 were 23.9%, an increase of .5% over the comparable period of fiscal 2001 of 23.4%. For the first nine months of fiscal 2002, selling general and administrative expenses were 25.7%, an increase of .5% over the comparable period of fiscal 2001 of 25.2%. These increases are primarily attributable to an expanded sales force in the core business mitigated by decreases in legal expenses and new business development expenses. Depreciation expense increased to $9.9 million for the third quarter and $29.3 million for the first nine months of fiscal 2002, respectively, from $9.7 million and $27.8 million for the comparable periods in fiscal 2001. Depreciation expense increased due to continued capital expenditures associated with new operating units and product lines, data processing equipment and the increase in stores installed. Amortization expense decreased due to the change in accounting principle under SFAS No. 142 (see Note 5), to $0.7 million in the third quarter and $2.2 million for the first nine months of fiscal 2002, respectively, from $1.6 million and $3.9 million in comparable periods of fiscal year 2001. Interest expense, net and other decreased to approximately $51,000 net expense for the third quarter of fiscal 2002 from approximately $1,283,000 net expense for the comparable period in fiscal 2001. This decrease in net expense is primarily attributable to favorable fluctuations in exchange rates between U.S. and European currencies during the quarter ended December 31, 2001, as compared to the quarter ended December 31, 2000. Interest expense, net and other for the nine months ended December 31, 2001, was approximately $1,921,000, consistent with the prior fiscal period expense of approximately $1,988,000. The provision for income taxes was $10.0 million, or 36.5 % of income before income taxes and minority interest, for the third quarter of fiscal 2002, compared to $10.0 million, or 38.0% of income before income taxes and minority interest, for the same period in fiscal 2001. The rate 10 decrease is primarily due to the change in accounting principle under SFAS No. 142 pursuant to which the Company's earnings before income tax increased while the actual calculation of tax expense remained constant (see Note 5). The Company's effective tax rate is higher than the federal statutory income tax rate due to state and foreign income taxes and the effect of various nondeductible expenses. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141"). SFAS No. 141 requires that all business combinations completed after June 30, 2001 be accounted for by using the purchase method of accounting. The implementation of SFAS No. 141 as of December 31, 2001 did not have any effect on the Company's financial statements. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 142 addresses the accounting and reporting for goodwill and other intangibles. SFAS No. 142 is required for financial statements relating to fiscal years beginning after December 15, 2001. As permitted, the Company has chosen to adopt SFAS No. 142 early, effective as of April 1, 2001. In addition, proforma amounts have been presented on the face of the statements of income as if SFAS No. 142 had been implemented as of April 1, 2000. Goodwill will no longer be amortized but instead will be subject to impairment tests at least annually. Impairment is defined as a fair market value less than the carrying value of the asset on the financial statements. SFAS No. 142 requires that the Company test all goodwill for impairment within six months of implementation. The Company has performed the required first step of testing for impairment by utilizing the discounted cash flow method and is not reporting any impairment of goodwill. The reduction of goodwill amortization due to the adoption of SFAS No. 142 increased net income by approximately $1.4 million or $.02 diluted earnings per share in the third quarter of fiscal 2002. Pro forma impact on third quarter fiscal 2001 resulted in an increase in net income of approximately $1.0 million or $.01 diluted earnings per share. 11 Set forth below is the proforma SFAS No. 142 effect on results of operations for fiscal year 2001:
1/st/ Quarter 2/nd/ Quarter 3/rd/ Quarter 4/th/ Quarter Total Year --------------- --------------- --------------- --------------- ------------ Net Income $11,743 $15,062 $16,825 $14,505 $58,135 Addback: Goodwill Amortization 628 894 977 1,043 3,542 ------------ --------------- --------------- ---------------- ------------- Adjusted Net Income $12,371 $15,956 $17,802 $15,548 $61,677 Diluted: Net Income Per Common Share $ 0.20 $ 0.26 $ 0.29 $ 0.25 $ 1.00 Addback: Goodwill Amortization 0.02 0.01 0.01 0.02 0.06 ------------ --------------- --------------- ---------------- ------------- Adjusted net Income per Common Share $ 0.22 $ 0.27 $ 0.30 $ 0.27 $ 1.06 Weighted Average Common Shares Outstanding 57,480 58,348 58,377 57,584 57,919 Basic: Net Income Per Common Share $ 0.21 $ 0.27 $ 0.30 $ 0.26 $ 1.04 Addback: Goodwill Amortization 0.01 0.02 0.02 0.02 0.07 ------------ --------------- --------------- ---------------- ------------- Adjusted Net Income per Common Share $ 0.22 $ 0.29 $ 0.32 $ 0.28 $ 1.11 Weighted Average Common Shares Outstanding 55,380 55,786 55,955 55,936 55,767
In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 establishes accounting standards for recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement cost. SFAS No. 143 is effective for financial statements relating to fiscal years beginning after June 15, 2002. Management does not expect SFAS No. 143 to have a material effect on the Company's financial statements. In September 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. Management does not expect SFAS No. 144 to have a material effect on the Company's financial statements. 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 nine months of fiscal 2002 and 2001, the Company made capital expenditures of $23.9 million and $45.5 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. Earnout payments of approximately $30.4 million were made during the first nine months of fiscal 2002 per the terms of the Alliance Research, Market Logic, and Compuscan acquisition 12 agreements of which $14.7 million was accrued as of March 31, 2001. These payments resulted in an increase in goodwill of $29.4 million and an increase in patents of $1.0 million. Additionally, the Company purchased patents in the amount of $.3 million during the first nine months of fiscal 2002. Subsidiary stock repurchases of approximately $1.8 million were made during the first nine months of fiscal year 2002. These payments are accounted for as an increase in goodwill. During the first nine months of fiscal 2002 the Company repurchased 1,621,100 shares of its common stock for a total of $46.5 million. On July 26, 2001, the Board of Directors approved additional repurchases of the Company's common stock to a total of $75.0 million. As of December 31, 2001, $43.6 million was still available for share repurchase under the July 26, 2001 authorization. The Company believes working capital generated by operations along with existing credit facilities is sufficient for its overall capital requirements. 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 13 Part II - Other Information Item 4. Exhibits and Reports on Form 8-K. a. Exhibits Exhibit ------- No. Description of Document --- ----------------------- *3.3 -- Restated Certificate of Incorporation **3.3.1 -- Certificate of Amendment of Certificate of Incorporation, a copy of which is attached as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1997 **3.3.2 -- Certificate of Designation, Preferences and Rights setting forth the terms of the Company's Series X Junior Participating Preferred Stock, par value $.01 per share, a copy of which is attached as an exhibit to the Company's Annual Report on Form 10- K for the year ended March 31, 1997 *3.4 -- Restated Bylaws **10.4 -- Amended and Restated 1989 Stock Option Plan, a copy of which is attached as an exhibit to the Company's Annual Report on Form 10- K for the year ended March 31, 1994 **10.4.1 -- Second Amended and Restated 1989 Stock Option Plan, a copy of which is attached as an exhibit to the Company's Report on Form 10Q for the quarter ended June 30, 1997 **10.4.2 -- Third Amended and Restated 1989 Stock Option Plan, a copy of which is attached as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1999 * 10.12 -- Form of Director and Officer Indemnification Agreement **10.18 -- Lease Agreement dated as of June 30, 1993 by and between QP One Corporation, a Minnesota corporation, as landlord, and Registrant, as tenant, a copy of which is attached as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1994 **10.18.1 -- First Amendment dated as of December 20, 1993, to the Lease Agreement dated as of June 30, 1993, by and between QP One Corporation, a Minnesota corporation, as landlord, and Registrant, as tenant, a copy of which is attached as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1994 **10.21 -- 1992 Director Stock Grant Plan, as amended on July 23, 1996, a copy of which is attached as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1997 **10.22 -- Employee Payroll Deduction Stock Purchase Plan, a copy of which is attached as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1995 **10.24 -- Lease Agreement dated as of September 5, 1996 by and between Interior Design Services, Inc., a Florida corporation, as landlord, and Registrant, as tenant, a copy of which is attached as an exhibit to the Company's Annual Report on Form 10-K for the year ended March 31, 1997 14 Exhibit ------- No. Description of Document --- ----------------------- **10.25 -- Stockholder Protection Agreement, dated May 8, 1997, between the Registrant and ChaseMellon Shareholder Services, L.L.C., as rights agent, a copy of which is attached as an exhibit to the Company's Current Report on Form 8-K filed on May 8, 199 7 **10.26 -- Credit Agreement dated as of September 30, 1997, by and between the Registrant and NationsBank, National Association, as agent and lender, and the other lenders party thereto, a copy of which is attached as an exhibit to the Company's Report on Form 10Q for the quarter ended September 30, 1997 **10.26.1 -- First amendment dated as of August 12, 1998, to the Credit Agreement dated as of September 30, 1997, by and between the Registrant and NationsBank, National Association, as agent and lender, and other lenders party thereto, a copy of which is attached as an exhibit to the Company's Report on Form 10Q for the quarter ended September 30, 1998 **10.26.2 -- Second Amendment dated as of February 19, 1999, to the Credit Agreement dated as of September 30, 1997, by and between the Registrant and Nationsbank, National Association, as agent and lender, and the other lenders party thereto, a copy of which is attached as an exhibit to the Company's Report on Form 10-Q for the quarter ended September 30, 1999 **10.27 -- 1999 Stock Option Plan, a copy of which is attached as an exhibit to the Company's Report on Form 10-Q for the quarter ended June 30, 1999 **10.28 -- Lease Agreement dated as of October 21, 1999 by and between First Security Bank, National Association, as the owner trustee under Dolphin Realty Trust 1999-1, as lessor, and Catalina Marketing Sales Corporation, as lessee, a copy of which is attached as an exhibit to the Company's Report on Form 10-Q for the quarter ended September 30, 1999 **10.29 -- Participation Agreement dated as of October 21, 1999 among Catalina Marketing Sales Corporation, as lessee; the Registrant, as guarantor; First Security Bank, National Association, as the owner trustee under Dolphin Realty Trust 1999-1, as lessor and borrower; the various banks and other lending institutions and First Union National Bank, as the agent for the lenders, a copy of which is attached as an exhibit to the Company's Report on Form 10-Q for the quarter ended September 30, 1999 **10.30 -- Purchase and Sale Agreement dated as of October 21, 1999 by and among 200 Carillon, LLC, as seller, Echelon International Corporation, as developer, and Catalina Marketing Sales Corporation, as buyer, a copy of which is attached as an exhibit to the Company's Report on Form 10-Q for the quarter ended September 30, 1999 **10.31 -- Credit Agreement dated as of September 25, 2000, by and between the Registrant and Bank One, NA, as agent and lender, and the other lenders party thereto, a copy of which is attached as an exhibit to the Company's Report on Form 10-Q for the quarter ended September 30, 2000. **10.32 -- Amendment No. 1 To Certain Operative Agreements dated as September 15, 2000, by and between First Security Bank, National Association, as the owner trustee under Dolphin Realty Trust 1999-1, as lessor, and Catalina Marketing Sales Corporation, as lessee a copy of which is attached as an exhibit to the Company's Report on Form 10-Q for the quarter ended September 30, 2000. 15 Acknowledgment Letter 99 Review Report of Independent Certified Public Accountants 15 * 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. b. Reports of Form 8-K None 16 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. February 13, 2001 CATALINA MARKETING CORPORATION ---------------------------------------- (Registrant) /s/ Joseph P. Port ---------------------------------------- Joseph P. Port Executive Vice President and Chief Financial Officer (Authorized officer of Registrant and principal financial officer) 17