10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2005

or

¨ 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 or other Jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

200 Carillon Parkway, St. Petersburg, FL	33716-2325
(Address of principal executive offices)	(Zip Code)

(727) 579-5000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $0.01 Par Value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the 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 (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2 of the Act).    Yes  x No  ¨

As of September 30, 2004, the last business day of our most recently completed second fiscal quarter, the aggregate market value of the common stock held by non-affiliates of the registrant (based on the last sales price on that date of $23.08 as reported by the New York Stock Exchange, Inc.) was $1,131,459,172. The number of shares of registrant’s common stock, par value $0.01 per share, outstanding as of May 31, 2005, was 50,567,596.

Documents Incorporated by Reference

Certain portions of registrant’s Definitive Proxy Statement for 2005 are incorporated by reference in Parts II and III of this report.

TABLE OF CONTENTS

FORM 10-K

		Page No.
	PART I
Item 1.	Business	3
Item 2.	Properties	8
Item 3.	Legal Proceedings	9
Item 4.	Submission of Matters to a Vote of Security Holders	9
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	10
Item 6.	Selected Financial Data	11
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 8.	Consolidated Financial Statements and Supplementary Data	31
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	69
Item 9A.	Controls and Procedures	69
Item 9B.	Other Information	69
	PART III
Item 10.	Directors and Executive Officers of the Registrant	70
Item 11.	Executive Compensation	70
Item 12.	Security Ownership of Certain Beneficial Owners and Management	70
Item 13.	Certain Relationships and Related Transactions	70
Item 14.	Principal Accounting Fees and Services	70
	PART IV
Item 15.	Exhibits, Financial Statement Schedules	70

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PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

References herein to “Catalina Marketing,” the “Company,” “we,” “us” or “our” refer to Catalina Marketing Corporation and its subsidiaries unless the context specifically states or implies otherwise.

Certain information included in this Annual Report on Form 10-K, including Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by the use of words such as “anticipate,” “estimates,” “should,” “expect,” “guidance,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning, in connection with any discussion of the Company’s future business, results of operations, liquidity and operating or financial performance. Such forward-looking statements involve significant material known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. We cannot assure you that any future results, performance or achievements will be achieved.

Factors that may cause such differences include, but are not limited to, the changing market for promotional activities, especially as it relates to policies and programs of consumer packaged goods and pharmaceutical products manufacturers, marketers and retailers; general business and economic conditions; acquisitions and divestitures; risks associated with our growth and finances; government and regulatory policies affecting us and our clients; potential adverse federal, state or local legislation or regulation or adverse determinations subjecting us to additional taxes; the pricing and availability of alternative forms of advertising; our ability to execute on our various business plans and to test, expand and install our networks in new markets; risks associated with reliance on the performance and financial condition of manufacturers, marketers and retailers; technological developments; changes in the competitive and regulatory environments in which we and our clients operate including, without limitation, shifts in consumer purchase patterns and habits such as the channels through which consumers purchase certain types of products; seasonal variations; actual promotional activities and programs with our clients; the success of new services and businesses and the pace of their implementation; our ability to maintain favorable client relationships; our ability to avoid or mitigate material adverse judgments against, or other adverse results affecting, us in the existing United States Securities and Exchange Commission (“SEC”) investigation and shareholder and derivative litigation described in Item 3 — “Legal Proceedings,” or any additional regulatory action, litigation or other proceeding that may be commenced; our ability to maintain effective disclosure controls and procedures and internal control structure; our ability to attract, motivate and/or retain key employees. For a further discussion of certain of these risks, uncertainties and other factors, see Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Factors.”

We undertake no obligation to make public indication of changes in, update or revise any of our forward-looking statements, whether as a result of new information, future events or otherwise.

INTRODUCTORY NOTE

In this Annual Report on Form 10-K, words such as “today,” “current” or “currently,” or phrases such as “as of the date hereof” or “as of the date of this report,” refer to the date we are filing this Annual Report on Form 10-K with the SEC.

Item 1. Business

General

Catalina Marketing Corporation, a Delaware corporation, and its subsidiaries, provide behavior-based communications, developed and distributed for consumer packaged goods manufacturers, pharmaceutical manufacturers and marketers and retailers. Our primary business was developed to provide consumers with in-store coupons delivered based upon purchase behavior and distributed primarily in supermarkets. Today, we offer behavior-based, targeted-marketing services and programs globally through a variety of distribution channels. These marketing solutions, including discount coupons, loyalty marketing programs, pharmacist and patient education newsletters, compliance mailings, in-store instant-win games and other consumer communications, are delivered directly to shoppers by various means. By specifying how a particular consumer transaction will “trigger” a promotion to print, manufacturers and retailers can deliver customized incentives and messages to only the consumers they wish to reach. We track actual purchase behavior and primarily use Universal Product Code-based scanner technology to target consumers at the retail checkout counter and National Drug Code information to trigger delivery of customized communications to consumers during pharmacy prescription checkout transactions.

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We are organized and managed by segments, which include the following operations: Catalina Marketing Services (“CMS”), Catalina Health Resource (“CHR”) and our international operations (“International”), which provides services similar to those provided by CMS in the United States. Our domestic operations include CMS and CHR.

In the United States, as of March 31, 2005, the Catalina Marketing Network^®, which supports CMS, was installed in approximately 17,600 retail stores, primarily supermarkets, and reached approximately 216 million shoppers weekly. As of the same date, the Health Resource Network, which supports CHR, was installed in approximately 12,400 pharmacy outlets and reached more than 21 million prescription medication users weekly. Internationally, our network was installed in approximately 5,900 retail locations, primarily supermarkets in Europe and Japan, and reached more than 66 million shoppers weekly.

As of March 31, 2005, we employed approximately 1,100 people in offices throughout the United States, Europe and Japan.

Recent Developments

Significant Business Developments and Events for the Fiscal Year Ended March 31, 2005

• We sold our Direct Marketing Services (“DMS”), Catalina Marketing Research Solutions (“CMRS”) and Japan Billboard business units. See “Business Segment Information — Discontinued Operations.”

• During fiscal year 2005, there were changes to our senior management team and to our Board of Directors. Information about our senior management team and our Board of Directors is included in the Company’s definitive Proxy Statement for the 2005 Annual Meeting of Stockholders.

• Effective April 1, 2004, we combined our Manufacturer Services and Retail Services operating segments to create a new segment, Catalina Marketing Services, or CMS. See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 1.”

• On August 25, 2004, we purchased our corporate headquarters facility. See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 8.”

• On August 27, 2004, we entered into a new, five-year $125.0 million revolving credit facility. See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 8.”

• On September 1, 2004, our Board of Directors authorized $100.0 million of funds to be available for the repurchase of our common stock. We repurchased 1.7 million shares of our common stock during the fourth quarter of fiscal year 2005 for a total of $44.2 million. See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 15.”

• On October 1, 2004, we paid an annual cash dividend of $0.30 per common share. See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 16.”

Business Segment Information

General

Financial information regarding segment revenues, net income and total assets and geographic information for fiscal years 2005, 2004 and 2003 is presented in Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 18.”

Catalina Marketing Services

CMS serves the needs of domestic retailers and consumer product manufacturers, primarily within the consumer packaged goods industry. Using the Catalina Marketing Network^®, this operating segment specializes in behavior-based marketing communications that are delivered at the point-of-sale. The primary service line of the Catalina Marketing Network^® is the in-store delivery of incentives at the checkout counter of a retailer of consumer packaged goods, typically a supermarket. We link our proprietary software, computers, central databases and printers with a retailer’s point-of-sale controller and scanning equipment. The network prints customized promotions and communications at the point of sale based on product Universal Product Codes, historical purchase behavior or other scanned information. The printed promotions and communications are handed to consumers by the cashier at the end of the shopping transaction.

Effective April 1, 2004, we restructured the Retail Services and Manufacturer Services units by combining Retail Services and Manufacturer Services and renaming the segment Catalina Marketing Services. We previously reported the activities of Retail Services and CMRS in a segment called “Other.” The restructuring was part of our strategy to optimize our selling and administrative efforts. As a result of the restructuring and the sale of CMRS, the “Other” segment is no longer a reported segment. Segment information for fiscal years 2004 and 2003 for Retail Services has been reclassified to CMS to reflect the new segment reporting.

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Our clients contract with us to deliver promotions for them and typically pay us a fee for each print delivered. The primary focus of CMS’ sales efforts is assisting consumer packaged goods manufacturers and retailers with the design of programs that deliver results that achieve their brand and marketing objectives. Our sales and client service teams consult with current and prospective clients to develop and implement customized, targeted marketing programs that meet specific brand strategies and objectives.

CMS generates revenues primarily by providing in-store, electronic marketing delivery services via the Catalina Marketing Network^®. In general, CMS recognizes revenue at the time a promotion is delivered at the checkout counter of the retail store. The amount of revenue recognized is based on the total incentives delivered multiplied by a per-print fee. We generally bill our clients a minimum category fee in advance of the actual delivery. Contracts for delivery include a minimum number of targeted promotions or messages for a specified category, or categories, within a four-week period referred to as a “cycle.” CMS divides the calendar into thirteen cycles. The delivery of messages or promotions is based upon particular triggering transactions that are registered at the point of sale (i.e., the checkout counter of a retail store). The majority of our contracts cover multiple cycles.

The methods for consumers to redeem promotions distributed by the Catalina Marketing Network^® are similar to the redemption methods of traditional manufacturer coupons. In this regard, retailers provide discounts to consumers who present the coupons. The retailers send redeemed coupons to clearinghouses and receive reimbursements from the manufacturers for the discounts provided, including handling fees.

The two primary programs of CMS are Checkout Coupon^® and Checkout Direct^®. Through our Checkout Coupon^® service, we deliver marketing communications to consumers at checkout, based on the products included in their current shopping basket. Through our Checkout Direct^® service, we deliver marketing communications to consumers at the checkout counter using past purchase behavior, which is collected using “frequent shopper” or similar consumer identification methods. Catalina Category Marketing, (“CCM”), a new service offered to clients during fiscal year 2005, is a behavior-based marketing program that drives more efficient volume for the manufacturer, increases loyalty to the retailer and provides value to the consumer. The typical four-week window for a CCM program provides a focal point for trade merchandising collaboration between the manufacturer and retailer. CCM enables consumers who purchase promoted products to receive incentives redeemable during their next shopping trip that can only be used at the participating retailer.

The services provided to retailers by CMS include in-store promotional prints and analytical services that enable retailers to focus on changing consumer shopping patterns with targeted communications, motivate consumers to visit a retailer more frequently, increase the size of purchase transactions, purchase specific products and develop retailer loyalty.

We typically enter into agreements with retail chains to install our network in the retail stores of the chain for an initial specified term. Generally, the retailer pays a one-time fee as a partial reimbursement for the cost of the installation. In general, we pay retailer fees to, and exchange services with, the retailer based on the number of promotions and communications printed. Because of the concentration of ownership in the retail grocery industry, we are dependent on a limited number of retailers that supply the points of distribution for the printed promotions and communications of our manufacturer clients. Approximately 57.1% of the printed in-store promotional incentives provided by CMS for our clients during the fiscal year ended March 31, 2005, were generated from within the stores belonging to five retail chains. If any of these retail chains were to decide to not renew their contract with the Company to provide our services, or if they materially reduce the number of point-of-sale locations included on our network, a material reduction in our revenues could result if we were unable to replace these point-of-sale locations or the number of transactions processed by these locations.

In April 2005, the Company signed an agreement with Walgreens to install the Catalina Marketing Network^® at the checkout counters in the drug chain’s approximately 4,700 stores in the United States. The Company anticipates that the installation of the Walgreens stores will be completed during fiscal year 2006. This agreement with Walgreens is in addition to the current relationship between the Company’s CHR business segment and Walgreens, under which CHR distributes a customized patient education communication with each prescription dispensed in the pharmacies.

We own the equipment installed in each retail store, including a printer at each checkout lane linked by a computer on the retailer’s premises to the retailer’s point-of-sale controller and scanning equipment. We operate two data processing facilities in the United States that employ various technologies to transmit instructions to computers installed in retail stores and retrieve program data. All of the equipment and supplies, including computers, printers and paper, used in a retail installation are purchased by us from outside sources. The store equipment and supplies used by our network generally are managed, installed and maintained by our corporate support staff. We outsource certain aspects of the installation and maintenance of our network in retail locations to third- party contractors. While we currently use a limited number of primary suppliers, we believe that alternate sources of supply are available without material interruption to our business.

CMS had a single client, Nestlé, which accounted for approximately 18.9%, 16.1% and 15.1% of revenues generated by CMS for the fiscal years ended March 31, 2005, 2004 and 2003, respectively. We believe that if the Company lost Nestlé as a client it could have a material adverse effect on CMS as well as the Company taken as a whole.

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CHR

CHR provides services that assist pharmaceutical and consumer packaged goods manufacturers, as well as retail pharmacies, in providing consumers with condition-specific health information and direct-to-patient communications. CHR’s programs and services enable our clients to inform, acquire and retain patients by providing educational information about their treatment along with the benefits of compliance, and by encouraging dialogue between patients and their healthcare professionals while preserving patient privacy.

CHR’s primary service offerings employ an in-store, prescription information-based technology to provide targeted, direct-to-patient communications on behalf of our pharmaceutical manufacturer and consumer packaged goods clients. These communication services include messages and educational information delivered to healthcare patients at pharmacies participating in the Health Resource Network. The Health Resource Network utilizes a proprietary software system that gives our clients the opportunity to effectively communicate with patients and assists patients in making more informed healthcare decisions.

CHR primarily generates revenues by printing messages for pharmaceutical and consumer packaged goods manufacturers in PATIENTLink^™, formerly known as the Health Resource^® Newsletter. Distribution of PATIENTLink^™ is generated by proprietary technology that can target the consumer based on a variety or combination of factors, including demographic data such as age and gender information, transactional data, primarily the National Drug Codes found on all prescription drugs, and de-identified patient prescription history and information. Importantly, CHR does not receive or retain personally identifiable data or trigger distribution of PATIENTLink^™ based on a consumer’s name, address or other personally identifiable information. When a prescription is processed via the Health Resource Network, a customized PATIENTLink^™ print with prescription information, therapeutically relevant editorial content and product information is printed in the pharmacy and given to the consumer by their pharmacist along with that consumer’s medication.

CHR enters into agreements with retail pharmacy chains to install the Health Resource Network in pharmacies within the chain. Upon installation, the retailer generally agrees to use the Health Resource Network in its pharmacy for a minimum period of time. CHR pays retailer fees to, and exchanges services with, the retail pharmacy based primarily on the number of PATIENTLink^™ prints. Approximately 87.2% of the newsletters printed during the fiscal year ended March 31, 2005, were generated from within the stores belonging to three retail pharmacy chains. If any of these retail pharmacy chains were to decide to not renew their contract with us, or if they materially reduce the number of pharmacy locations participating in our network, a material reduction in CHR’s revenues could result if we were unable to either replace these pharmacy locations or the number of transactions processed by the retail pharmacy chain.

CHR operates the Health Resource Network through a data processing facility that communicates via various technologies with the computer systems of retail pharmacies or computers installed in the pharmacies to send promotional instructions and retrieve program data. The Health Resource Network primarily uses software installed on a retail pharmacy’s point-of sale system which eliminates the need for a separate CHR-operated, on-premises computer in each location. In certain installations, however, CHR’s network and/or printer is connected to the retail pharmacy’s point-of-sale controller by an on-premises computer. In the majority of circumstances, the equipment is owned by the retail pharmacy, however, in some cases, CHR owns the equipment. All of the equipment owned by us is generic and purchased from third-party vendors. Typically, pharmacies are contractually obligated to provide supplies, including toner and paper. The Company believes that alternate sources of equipment and supplies can be secured without significant interruption to CHR’s business.

CHR’s client base varies from year to year and as such a client may be significant in one year and not in another. CHR’s top five clients accounted for 51.8%, 52.9% and 52.1% of its revenues in fiscal years 2005, 2004 and 2003, respectively.

International

The Catalina Marketing Network^® operates internationally in a manner similar to that in which CMS operates the network domestically. Our international operations offer a full range of targeted marketing solutions to many of the top consumer packaged goods manufacturers and maintains relationships with major supermarket, hypermarket and other retailers based primarily on a syndicated platform. All financial and statistical results of our wholly owned foreign subsidiaries are included for the twelve month period ending December 31 which is the fiscal year end of our foreign subsidiaries. As of the end of fiscal year 2005, we provided in-store electronic targeted marketing services for retailers in France, Italy, the United Kingdom, Germany and Japan. At the end of fiscal year 2005, the network was installed in approximately 5,900 retail locations in Europe and Japan and reached more than approximately 66 million consumers each week.

International had a single client that accounted for approximately 19.8%, 26.1% and 12.4% of revenues generated by this segment for the fiscal years ended March 31, 2005, 2004 and 2003, respectively. We believe that if this client were lost it could have a material adverse effect on this business segment, but not on the Company taken as a whole.

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In fiscal year 2005, International revenues accounted for approximately 15.6% of our total revenues from continuing operations. Our international operations are subject to the normal risks of foreign operations, including: changes in local business and economic conditions, political uncertainties, adapting to different regulatory requirements, interest rate movements, increasing consolidation of retailers and consumer packaged goods manufacturers, competition, pricing pressure, seasonality and changing customer and client preferences. Certain of these risks have affected our business in the past and may also have a material adverse effect on our business, results of operations and financial condition in the future. In addition, sales in our international operations are billed in foreign currencies and are subject to currency exchange fluctuations as are intercompany royalties and financing activities. In prior years, including fiscal year 2005, changes in the value of the U.S. dollar compared with foreign currencies have had an impact on our revenues and margins. We cannot predict the direction or magnitude of currency fluctuations. Where practical, we purchase goods and services in local currencies. We borrow locally to meet our financing requirements in Japan to obtain certain natural and economic hedges, but otherwise do not engage in currency hedge transactions.

In all jurisdictions in which we operate, we are also subject to the laws and regulations that govern foreign investment, foreign trade and currency exchange transactions. These laws and regulations may limit our ability to repatriate cash as dividends or otherwise to the United States and may limit our ability to convert foreign currency cash flows into U.S. dollars.

Discontinued Operations

In November 2003, we announced our intention to divest DMS, CMRS and Japan Billboard, all of which were determined not to be strategically aligned with our current core businesses. Aggregate revenues generated by DMS, CMRS and Japan Billboard accounted for 5.1%, 13.6% and 18.5% of our total revenues, including discontinued operations, for the fiscal years ended March 31, 2005, 2004 and 2003, respectively.

DMS was sold on September 17, 2004. DMS provided targeted direct mail programs designed to market to consumers in their homes. CMRS was sold on November 29, 2004. CMRS provided a range of traditional marketing research services. The sale of Japan Billboard closed on August 31, 2004, with an effective sale date of July 31, 2004. Japan Billboard operated a billboard and outdoor media business in Japan. The results of operations for these segments are reflected as discontinued operations in our Consolidated Financial Statements. For a complete discussion of the operating results of our discontinued operations, see Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Discontinued Operations.”

Competition

We compete for consumer packaged goods and pharmaceutical manufacturer advertising and consumer promotion budgets with a wide range of alternative media, including television, radio, print and direct mail advertising, as well as several alternative in-store and point-of-sale programs. Our business segments compete with various traditional coupon delivery methods including free-standing inserts, newspapers, direct mail, magazines and in- or on-product packaging, as well as other in-store marketing companies that use a variety of coupon, promotion or other advertising delivery methods. We could experience increased competition from changes and advances in technology. Furthermore, as sales of certain grocery products, particularly in certain specialized consumer product categories, shift from traditional grocery retailers to mass merchandisers and value-chains and other retail channels, our ability to reach shoppers through our existing retail network of traditional grocery stores and pharmacies may be impacted in certain consumer product categories.

We compete for advertising and promotional dollars based on the efficiencies afforded by a unique kind of targeting based on consumer shopping behavior, called behavior-based marketing. Our method of behavior-based marketing requires an efficient network of retail point-of-sale systems and proprietary software and database systems which target individual consumers based on shopping behavior exhibited at the point-of-sale. Our competitive advantages in the practice of behavior-based marketing are achieved through the number of shoppers reached through our networks, the number of household IDs and associated purchase histories available in the database and our ability to deliver consumer insights and influence consumer buying behavior.

Research and Development

Our research and development efforts are generally for pilot-project execution to create, test and support new applications for the Catalina Marketing Network^® and Health Resource Network, market research, software development and system upgrades. For the fiscal years ended March 31, 2005, 2004 and 2003, expenditures for research and development were $2.0 million, $1.2 million and $1.0 million, respectively.

Intellectual Property

We currently hold, and have applications pending for, numerous United States and foreign patents relating to our products and services. These patents include certain remaining targeted incentive patents as well as improvements and additional inventions related to our current and contemplated business, programs and services. In addition, we regard certain computer software utilized by the

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Company as proprietary and subject to copyright protection. We also hold, and have pending, numerous service marks and trademarks related to our entities, businesses, products and services that have associated goodwill in the relevant marketplace. We believe that certain intellectual property owned or licensed by us gives us a competitive advantage in certain geographic regions in which we operate. While we continue to pursue protection for intellectual property rights that we have developed, certain of our patents, over time, have and will expire and there is no guarantee that we will be able to secure additional patent rights. The expiration of a patent or loss of patent protection resulting from a legal challenge may result in significant competition from third parties with respect to the covered product or service in a short period of time. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the relevant country. Although we believe that our intellectual property provides us with a competitive advantage, we believe that we are not dependent upon a single patent, or a specific series of patents, the loss of which would have a material adverse effect on our business. In appropriate situations, we seek to protect our proprietary intellectual property rights vigorously.

Government Regulation

Our operations are subject to regulation in the United States and in other countries in which we do business. We are subject to federal and state laws governing privacy and the use of consumer information collected by us. In the United States, various federal agencies including the Federal Trade Commission, the Department of Treasury’s Alcohol and Tobacco Tax and Trade Bureau and various state agencies have promulgated regulations that restrict the advertising of tobacco, dairy and alcohol beverage products. These regulations vary from state to state and can restrict a manufacturer and/or a retailer’s ability to issue coupons for tobacco, dairy and alcohol beverage products. Other state and federal laws also restrict the content and sponsorship of regulated product coupons and messages.

CHR operates in a highly regulated business environment. The United States Food and Drug Administration of the Department of Health and Human Services (“HHS”) regulates the form and content of prescription drug promotions, such as the messaging distributed in PATIENTLink^™. In addition, federal privacy regulations, administered by the Office of Civil Rights of HHS, affect the ability of CHR and its retail pharmacy partners to use patient-specific pharmacy information to provide customized PATIENTLink^™ prints. Some states have adopted, or are considering adopting, state medical privacy requirements that could be interpreted more stringently than federal medical privacy requirements. Federal antikickback requirements, administered by the HHS Office of the Inspector General, could be interpreted as restricting drug manufacturer-sponsored programs such as PATIENTLink^™. State antikickback and consumer protection statutes could also be interpreted to impose similar restrictions.

For a discussion of government regulations related to our international operations, see “Business Segment Information — International.”

Available Information

We are subject to the information requirements of the Exchange Act. Therefore, we file periodic reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 450 Fifth Street, NW, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

Our website address is www.catalinamarketing.com. We make available, free of charge, on or through our website, our annual, quarterly and current reports and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the SEC. Information posted on our website is not part of this Annual Report on Form 10-K or any other report filed with the SEC in satisfaction of the requirements of the Exchange Act.

Item 2. Properties

Our headquarters is located in St. Petersburg, FL. This 143,000 square foot facility houses our principal administrative, marketing, information technology and product development offices. We previously leased this facility from a variable interest entity, but purchased it from this entity during fiscal year 2005.

During fiscal year 2005, we closed 6 sales and support offices in the United States, primarily in conjunction with the sale of our discontinued business segments. As of March 31, 2005, we leased 12 sales and support offices in the United States, consisting of approximately 160,000 square feet in the aggregate, and 5 offices for our foreign operations. We believe that the headquarters facility and the existing sales and support offices are adequate to meet our current requirements and that suitable additional space will be available as needed to accommodate growth of our operations and sales and support office requirements for the foreseeable future.

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Item 3. Legal Proceedings

Government Investigations

As previously disclosed, on March 4, 2004, the SEC issued a formal order of private investigation that made formal an informal investigation previously initiated by the SEC. The informal investigation was initiated by the SEC after representatives of the Company contacted the SEC on June 30, 2003, to inform the Staff of certain revenue recognition timing issues that management identified at CHR. We believe that the SEC inquiry is focused primarily on the revenue recognition timing issues at CHR during fiscal years 2003, 2002 and 2001, which fiscal years were the subject of the various adjustments and restatements described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2003. Since the initiation of the informal investigation and through the date of the filing of this Annual Report on Form 10-K, we have been cooperating with the SEC in connection with its investigation, including in-person meetings between our representatives and the SEC Staff, and the provision to the SEC of information and numerous documents. In addition, we have made available as witnesses those individuals under our control in response to the SEC inquiries and requests. Other than the SEC investigation, as of the date hereof, we are not aware of any additional inquiry or investigation having been commenced against us related to these matters, but we cannot predict whether or not any such regulatory inquiry or investigation will be commenced or, if it is, the outcome of any such inquiry or investigation. If the investigation was to result in a regulatory proceeding or action against us, our business and financial condition could be harmed.

Securities Actions and Derivative Actions

The Company, and certain present and former officers and directors of the Company and CHR, were named as defendants in numerous complaints purporting to be class actions which were filed in the United States District Court for the Middle District of Florida, Tampa Division, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The actions were originally brought on behalf of those who purchased our common stock between January 17, 2002 and August 25, 2003, inclusive. The complaints contain various allegations, including that, during the alleged class period, the defendants issued false and misleading statements concerning our business and operations with the result of artificially inflating our share price and maintained inadequate internal controls. The complaints seek unspecified compensatory damages and other relief. In October 2003, the complaints were consolidated in the United States District Court for the Middle District of Florida and given the caption In re Catalina Marketing Corporation Securities Litigation, Case No. 8:03-CV-1582-T-27TBM. In December 2003, Virginia P. Anderson and the Alaska Electric Pension Fund were named as co-lead plaintiffs (the “Lead Plaintiffs”). On June 21, 2004, the Lead Plaintiffs served their Consolidated Amended Class Action Complaint on behalf of those who purchased our stock between August 14, 1999 and August 25, 2003, inclusive. The Company and other defendants subsequently moved to dismiss the Consolidated Amended Class Action Complaint which motion was denied by the court on March 31, 2005. Plaintiffs filed a motion for class certification in May 2005. Full briefing on class certification should be completed and submitted to the court by September 2005. In compliance with the applicable rules of civil procedure, the parties have exchanged preliminary information about the witnesses and documents each intends to use in support of their respective positions. The Company anticipates that the parties will engage in more extensive class certification and merits discovery in the near future. We intend to vigorously defend against these lawsuits. We cannot currently predict the impact or resolution of this litigation or reasonably estimate a range of possible loss, which could be material. The resolution of these lawsuits may harm our business and have a material adverse impact on our financial condition.

Certain present and former officers and directors of the Company and CHR, and Catalina Marketing, as a nominal defendant, have been named in two shareholder derivative actions entitled The Booth Family Trust v. Frank H. Barker, et al., Case No. 20510-NC, commenced in the Court of Chancery for the State of Delaware in and for New Castle County, and Craig Deeds v. Frank H. Barker, et al., Case No. 04-000862 commenced in the Circuit Court of the Sixth Judicial Circuit in and for Pinellas County, Florida. These shareholder derivative lawsuits allege that the defendants breached various fiduciary duties based upon the same general set of alleged facts and circumstances as the federal shareholder suits. The plaintiffs seek unspecified compensatory damages, restitution of improper salaries, insider trading profits and payments from the Company, and disgorgement under the Sarbanes-Oxley Act of 2002. In December 2003, these actions were stayed pending a ruling by the district court on the anticipated motion to dismiss the Consolidated Amended Class Action Complaint in the federal securities action. In response to the parties’ request for an additional stay, the respective courts stayed each of the actions through August 22, 2005. We cannot currently predict the impact or resolution of this litigation or reasonably estimate a range of possible loss, which could be material. The resolution of these lawsuits may harm our business and have a material adverse impact on our financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2005 or through the date of the filing of this Annual Report on Form 10-K.

9

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information. 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, for each quarter of the last two fiscal years, the high and low closing prices as reported by the NYSE for the common stock, and dividends declared per common share, for the quarters ended as follows:

	High		Low		Dividends Declared per Common share
Fiscal Year 2004:
June 30, 2003	$	19.49	$	15.51		—
September 30, 2003		17.53		12.58		—
December 31, 2003		20.99		15.20		—
March 31, 2004		21.11		17.12		—
Fiscal Year 2005:
June 30, 2004	$	19.87	$	16.43		—
September 30, 2004		23.88		17.36	$	0.30
December 31, 2004		30.52		23.48		—
March 31, 2005		28.70		25.13		—

Holders. As of March 31, 2005, there were approximately 760 registered holders of the Company’s common stock.

Dividends. During fiscal year 2005, the Company paid its first annual dividend of $0.30 per share. The Company expects to pay similar dividends in the future. However, the payment and rate of dividends on the Company’s common stock is subject to several factors including operating results, availability of cash and financial requirements of the Company.

Securities Authorized for Issuance Under Equity Compensation Plans. The information called for by Item 5 will be contained in the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders under the caption Equity Compensation Plan Information and is incorporated herein by reference. The definitive Proxy Statement will be filed with the Commission on or about the time of the filing of the Company’s Annual Report on Form 10-K for fiscal year ended March 31, 2005.

The following table sets forth information relating to the Company’s purchases of its equity securities during the three months ended March 31, 2005:

Period (Month of)	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)
					(in thousands)
Fiscal Year 2005:
January 2005	—		NA	NA	$	100,000
February 2005	1,018,400	$	26.80	1,018,400	$	72,703
March 2005	633,700	$	26.63	633,700	$	55,825

⁽¹⁾ On September 1, 2004, the Company announced that its Board of Directors had authorized $100.0 million of funds to be available for the repurchase of the Company’s common stock. This authorization replaced the $44.0 million unused portion of the previous $100.0 million common stock repurchase program authorized by the Board of Directors in July 2002. The Company intends to use cash flows from operations and funds available under the August 2004 Credit Facility to finance the remaining authorized repurchases of its common stock. Factors governing the future repurchase of the Company’s common stock will include consideration of the market price of the common stock at the time of the contemplated repurchase.

10

Item 6. Selected Financial Data

SELECTED CONSOLIDATED FINANCIAL DATA

The information set forth below should be read in conjunction with Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8 — “Consolidated Financial Statements and Supplementary Data.” The following selected consolidated financial data for each fiscal year presented is derived from our audited Consolidated Financial Statements. Previously reported amounts for fiscal years 2001 through 2004 have been adjusted to reflect the reclassification of the results of certain discontinued operations that were sold during fiscal year 2005.

	Fiscal Year Ended March 31,
	2005			2004			2003		2002			2001
	(In thousands, except per share amounts)
Statement of operations data:
Revenues	$	410,062		$	408,632		$	383,849	$	367,861		$	339,977
Income from continuing operations		68,596			60,397			51,564		66,645			55,642
Cumulative effect of accounting change, net-of-tax(1)		—			(770	)		—		—			—
Income (loss) from discontinued operations		(3,144	)		(78,900	)		3,534		(8,095	)		(8,482	)
Net income (loss)		65,452			(19,273	)		55,098		58,550			47,160
Diluted income (loss) per common share (2):
From continuing operations	$	1.31		$	1.15		$	0.94	$	1.17		$	0.96
From discontinued operations (3)		(0.06	)		(1.50	)		0.06		(0.14	)		(0.15	)
Cumulative effect of accounting change, net-of-tax(1)		—			(0.02	)		—		—			—
Net income (loss)	$	1.25		$	(0.37	)	$	1.00	$	1.03		$	0.81
Diluted weighted average common shares outstanding		52,356			52,324			54,885		57,104			57,919
Balance sheet data:
Cash and cash equivalents	$	116,191		$	72,704		$	1,715	$	13,656		$	5,373
Total assets		392,738			386,809			422,421		415,902			396,424
Long-term debt		34,324			29,908			49,926		46,035			68,330
Total stockholders’ equity		196,374			184,662			215,995		223,263			183,045
Cash dividend declared per common share	$	0.30		$	—		$	—	$	—		$	—
Other data:
Installed retail store base at end of period – CMS		17,609			17,604			17,498		16,488			15,475
Installed pharmacy base at end of period – CHR		12,423			11,929			17,827		17,716			12,578
Installed retail store base at end of period – International		5,907			5,545			4,069		3,338			2,547
Capital expenditures	$	22,527		$	26,427		$	42,555	$	30,813		$	54,540
Payments for repurchases of common stock	$	44,174		$	13,307		$	71,973	$	46,529		$	15,842

⁽¹⁾ See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 2” regarding the cumulative effect of an accounting change related to the Company’s adoption of Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations.”

⁽²⁾ As of April 1, 2001, goodwill is no longer amortized but instead is subject to impairment testing at least annually. In fiscal year 2001, goodwill amortization expense reduced diluted earnings per common share by $0.07.

⁽³⁾ See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 19” regarding discontinued operations.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain information included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. These statements may be identified by the use of words, such as “anticipate,” “estimates,” “should,” “expect,” “guidance,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning, in connection with any discussion of our future business, results of operations, liquidity and operating or financial performance. Such forward-looking statements involve significant material known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risk factors should be considered in connection with any written or oral forward-looking statement that we or any person acting on our behalf may issue in this document or otherwise, now or in the future. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. We cannot assure you that any future results, performance or achievements will be achieved. For a discussion of certain of these risks, uncertainties and other factors, see “Risk Factors” and Part I — “Special Note Regarding Forward-Looking Statements.” Further, certain information contained in this document is a reflection of our intention as of the date of this filing and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, the economy in general and our assumptions as of such date. We may change our intentions based upon any changes in such factors, in our assumptions or otherwise.

Overview

For a description of our operations and business segments, please refer to Item 1 — “Business – General.” The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related Notes included in Item 8 — “Consolidated Financial Statement and Supplementary Data.”

CMS is the result of a combination of our Manufacturer Services and Retail Services segments that was effective on April 1, 2004. See Item 1 — “Business — Business Segment Information” for a further discussion of this combination. Segment information for fiscal year 2004 and fiscal year 2003 for Retail Services has been reclassified to CMS to reflect the new segment reporting.

Fiscal year 2005 was a successful year for Catalina Marketing Corporation. During fiscal year 2005, Catalina returned to its core skills and strengths. We divested four non-strategic business units; three of which, DMS, CMRS and Japan Billboard, are included in discontinued operations. The fourth, our loyalty card business, was sold on March 31, 2004. Catalina achieved consolidated sales and profit growth despite the approximately $30.0 million revenue challenge faced by CMS due primarily to the reduction of spending by a large manufacturer client and the sale of the loyalty card business. Earnings per share from continuing operations grew from $1.15 per diluted share in fiscal year 2004 to $1.31 for fiscal year 2005. In evaluating our business, management focuses on the Company’s core continuing operations: CMS, CHR and International.

CMS

CMS finished fiscal year 2005 with total revenues of $269.6 million, a $12.5 million decline from the prior year. This result was accomplished despite an approximately $30.0 million net decrease in revenues attributed to the reduced promotional spending activity on our network by a large manufacturer client of approximately $20.4 million and an additional $9.6 million decrease as a result of the March 2004 disposition of the Company’s loyalty card business. During fiscal year 2005, CMS improved income from operations by almost 2% and had a solid year with renewals of both key manufacturer clients and retailer relationships.

In fiscal year 2005, CMS introduced CCM, a new behavior-based marketing program that drives more efficient volume for manufacturers, increases loyalty to retailers and provides value to the consumer. CCM enables consumers who purchase promoted products to receive incentives redeemable during their next shopping trip that can only be used at the participating retailer. CMS recognized approximately $9.0 million in revenues from this new service in fiscal year 2005, and management expects revenues generated by this service to increase in future periods.

CMS significantly solidified its distribution network with the renewal of multiple significant retail contracts in fiscal year 2005. Eleven retail chains renewed multi-year contracts, representing nearly a third of our installed retail store base. We believe that these renewals demonstrate retailers’ continued confidence in a partnership with Catalina and the value the Catalina Marketing Network^® brings to them and their valued customers. CMS recently signed a new multi-year agreement with Walgreens to install and operate the Catalina Marketing Network^® at the checkout counters in the chain’s 4,700-plus U.S. stores. The Company anticipates that this agreement will extend the consumer reach opportunities across our syndicated network. Capital expenditures required to fund this project are estimated to be approximately $20.0 million, with installation scheduled to be complete by the end of fiscal year 2006. Although this relationship is expected to provide long-term growth opportunities, the Company does not expect revenues and expenses to be significantly affected in fiscal year 2006.

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CHR

CHR achieved record-setting income from operations in fiscal year 2005. Excluding an $11.6 million adjustment for revenues deferred from a prior year and recognized in fiscal year 2004, CHR revenues increased $10.0 million to $76.2 million in fiscal year 2005. Income from operations grew from $12.2 million in fiscal year 2004 to $15.7 million in fiscal year 2005, a $3.5 million, or a 29% increase. The Company attributes CHR’s improved results in fiscal year 2005 to increased pharmaceutical account penetration, ongoing cost control and innovative new service offerings. As of March 31, 2005, our penetration represented approximately 34% of all prescriptions processed nationwide. We believe that there is opportunity for expansion of the Health Resource Network in the retail pharmacy and chain drug store space.

International

International’s revenues were $64.1 million, up 29% over prior year. While favorable currency exchange rates played a significant role, meaningful growth was achieved. Catalina Marketing International revenue growth in local, or constant, currency was approximately 19% for the year. In the UK, growth was achieved due to an increase in the number of retail stores. Results in France were strong; in Italy, business growth continues, with fiscal year 2005 revenues up 44% in local currency over the prior year. Germany successfully completed three retail pilot tests and is now preparing for the fiscal year 2006 rollout of two major supermarket chains in that country. Finally, Japan continues to capitalize on manufacturer sales opportunities, with revenues up 57% on a local currency basis. The increase in revenues, combined with its business restructuring, helped Catalina Marketing Japan approach a break-even operating profit in fiscal year 2005.

Due to the diversity of our business operations, management does not rely on any single or series of overriding metrics to measure or manage the performance of the Company’s businesses in the aggregate. While management does not use overriding metrics, we do monitor certain metrics specific or unique to the nature of each business segment’s operations. For example, we analyze and manage the performance of CMS based on a series of metrics including, but not limited to, store installation base and shopper reach. Management also analyzes the performance of CHR using similar metrics such as pharmacy installation base and the average weekly prescription medication users reached; however, due to numerous factors, including the complexity and limited predictability of product mix at CHR, store/pharmacy installation base and the average weekly prescription medication users reached can not be viewed as reliable indicators of the Company’s performance in the aggregate. Please refer to Segment Results-Continuing Operations for a discussion of the metrics used by management to evaluate each of its segments.

Results of Operations

The following table includes the revenues, income (loss) from operations and net income (loss) for each of our reportable segments included in continuing operations for the fiscal years ended March 31, 2005, 2004 and 2003. The accounts of our wholly- owned foreign subsidiaries are included for the twelve months ended December 31, which is their fiscal year end. In general, we expect our revenues to be greater during periods of higher promotional activity by manufacturers. The pattern of promotion distribution is irregular and may change from period to period depending on various factors, including the economy, competition, the timing of new product introductions and the timing of manufacturers’ promotion planning and implementation. In addition, this pattern may be affected by seasonal factors such as holiday-related promotions and annual budgeting processes affecting when our clients use promotional and consumer-related expenditure budgets. The seasonality of our international operations may be different than that of our domestic operations for many reasons, but the impact of seasonality on our reporting may also be affected by the difference in fiscal years. These factors, as well as the overall changes in the number of retailer and manufacturer contracts with the Company, the timing of changes of the installed store base and access to revenue producing transactions, may impact our revenues and profits in any particular period. See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 18” for additional segment financial information.

13

	Year Ended March 31,
	2005			% Change(1)		2004			% Change(1)		2003
	(in thousands)
Revenues
CMS	$	269,612		(4.4	)%	$	282,128		(3.2	)%	$	291,466
CHR		76,167		(2.1	)		77,765		23.4			63,016
International		64,116		29.3			49,580		65.3			29,991
Corporate		3,613		19.4			3,027		9.5			2,764
Eliminations		(3,446	)	(10.9	)		(3,868	)	14.2			(3,388	)
Total Revenues	$	410,062		0.3	%	$	408,632		6.5	%	$	383,849
Income (Loss) from Operations
CMS	$	124,283		1.7	%	$	122,224		(4.1	)%	$	127,471
CHR		15,729		28.7			12,224		NM			(8,496	)
International		15,503		181.2			5,513		NM			(1,177	)
Corporate		(46,713	)	11.7			(41,829	)	32.1			(31,665	)
Total Income from Operations	$	108,802		10.9	%	$	98,132		13.9	%	$	86,133
Net Income (Loss)
CMS	$	73,879		1.6	%	$	72,724		(4.1	)%	$	75,847
CHR		9,356		28.6			7,273		NM			(5,080	)
International		7,395		NM			462		NM			(3,242	)
Corporate		(22,034	)	9.8			(20,062	)	25.7			(15,961	)
Net income from continuing operations		68,596		13.6			60,397		17.1			51,564
Discontinued operations		(3,144	)	NM			(79,670	)	NM			3,534
Net Income (Loss)	$	65,452		NM		$	(19,273	)	NM		$	55,098
Consolidated Effective Tax Rate		37.8	%				38.1	%				38.1	%

⁽¹⁾ NM - Not Meaningful

The consolidated effective tax rate was 37.8%, 38.1% and 38.1% for fiscal years 2005, 2004 and 2003, respectively. The decrease in the effective tax rate for fiscal year 2005 as compared with 2004 and 2003 was primarily due to the benefit of utilizing tax loss carryforwards on income recognized in certain foreign jurisdictions.

Segment Results - Continuing Operations

CMS

CMS generates revenues primarily by providing in-store, electronic marketing delivery services via the Catalina Marketing Network^®. The amount of revenue recognized is based on the total incentives or communications delivered multiplied by a per-print fee. The delivery of incentives or communications is based upon particular triggering transactions that are registered at the point of sale (i.e., the checkout counter of a retail store). The success of CMS depends upon, among other factors, the installation base of and number of transactions accessed by the Catalina Marketing Network^® and the ability to attract and retain consumer packaged goods manufacturers to use the targeted communication capabilities offered by the network. The following table presents the number of stores in which the network was installed and the average number of shoppers reached each week as of March 31, 2005, 2004 and 2003:

	March 31,
	2005	2004	2003
Retailer stores installed	17,609	17,604	17,498
Average weekly shoppers reached (in millions)	216	209	207

14

Year Ended March 31, 2005 Compared with the Year Ended March 31, 2004

Revenues decreased by $12.5 million, or 4.4%, to $269.6 million in fiscal year 2005 from $282.1 million, primarily due to a decline in revenues of $9.6 million attributable to the sale of the Company’s loyalty card business on March 31, 2004.

As previously reported, CMS had a significant consumer packaged goods (“CPG”) manufacturer client that accounted for 8.3% and 8.5% of its revenues for the fiscal years 2004 and 2003, respectively. This client notified the Company in fiscal year 2004 that, beginning in fiscal year 2005, it did not intend to purchase the Company’s services at the same levels it had in prior years. Although this client represented a significant portion of CMS’ revenues in prior years, revenues from manufacturers were relatively unchanged at a $0.4 million increase in fiscal year 2005 as compared with fiscal year 2004. During fiscal year 2005, CMS was able to replace the $20.4 million net decline in revenues from this client with revenues from new and existing CPG manufacturer clients. For fiscal year 2005, the volume of paid promotions printed increased by 5.8% (including the effects of the reduction in revenue from the previously mentioned client), but was partially offset by a 5.3% decline in the average price per print primarily due to a shift in the mix of services sold to lower-priced services.

Income from operations increased $2.1 million, or 1.7%, to $124.3 million in fiscal year 2005, from $122.2 million in fiscal year 2004, primarily due to a $14.6 million decline in operating expenses, partially offset by a $12.5 million decrease in revenues. Decreased operating expenses resulted primarily from declines in direct operating and selling, general and administrative (“SG&A”) expenses of $6.1 million and $7.1 million, respectively. The reduction in direct operating expenses was primarily due to an $11.4 million reduction in expenses resulting from the March 31, 2004 sale of the loyalty card business, partially offset by a $5.0 million increase in retailer fees. The current year increase in retailer fee expense was primarily attributable to changes in certain retailer fee contracts. During fiscal year 2005, the Company renegotiated several significant retailer contracts resulting in increased retailer fees in fiscal year 2005. Since the increased fees have been established during the entire term of these specific retailer contracts, the Company expects retailer fees in fiscal year 2006 to exceed retailer fees in fiscal year 2005. However, due to a variety of factors including the volume of prints to be distributed at these retailers during fiscal year 2006, the Company is not able to predict the impact of these contracts on retailer fees with any certainty.

The $7.1 million decline in SG&A expenses was primarily due to a $3.8 million decline in sales force expenses attributable to reduced headcount and relocation expenses as compared with the prior year. In addition, SG&A expenses in fiscal year 2004 include a $1.0 million loss on the sale of the loyalty card business.

Net income increased by $1.2 million, or 1.6%, for the year ended March 31, 2005 compared with the year ended March 31, 2004 primarily due to the factors affecting operating results.

Year Ended March 31, 2004 Compared with Year Ended March 31, 2003

Revenues were $282.1 million in fiscal year 2004, down 3.2% from revenues of $291.5 million in fiscal year 2003, primarily due to a $5.5 million decrease in revenues from retailers, resulting from a decrease in loyalty card programs, and due to a $4.2 million reduction in revenues from manufacturers, resulting from a decrease in the volume of promotions printed.

Income from operations was $122.2 million in fiscal year 2004, down 4.1% from income from operations of $127.5 million in fiscal year 2003. The decrease in income from operations was primarily due to the $9.4 million decrease in revenues, described above, partially offset by a $4.1 million decrease in operating expenses. Direct operating expenses decreased $8.6 million in fiscal year 2004, or 9.8%, compared with fiscal year 2003, primarily due to a $3.1 million decrease directly related to the decrease in loyalty card revenues, and a $2.5 million decrease in sales commissions expense. The decrease in direct operating expense was partially offset by increases in SG&A and depreciation and amortization expenses. SG&A increased $2.3 million to $52.7 million in fiscal year 2004 from $50.4 million in fiscal year 2003. Depreciation and amortization increased $2.2 million to $28.1 million in fiscal year 2004 from $25.9 million in fiscal year 2003. Both of these increases were due to increased corporate costs which were allocated to CMS.

Net income was $72.7 million in fiscal year 2004, down 4.1% from net income of $75.8 million in fiscal year 2003. The decrease in net income was due primarily to the decrease in income from operations discussed above.

CHR

CHR’s primary service offerings use in-store, prescription-based technology to provide targeted, direct-to-patient communications on behalf of its clients. These communication services include messages and educational information to healthcare patients at retail pharmacies participating in the Health Resource Network. CHR primarily generates revenues by printing messages for pharmaceutical and CPG manufacturers.

15

Management analyzes the performance of CHR through a review of the pharmacy installation base and the average weekly prescription medication users reached. These metrics provide a framework for evaluating current performance, as well as acting as measure of the reach of the network, which is important in attracting additional pharmaceutical and CPG manufacturers to utilize the services of the Health Resource Network. The following table presents the pharmacy installation base and the average weekly prescription medication users reached as of and for the periods ended March 31, 2005, 2004 and 2003:

	March 31,
	2005	2004	2003
Pharmacies installed	12,423	11,929	17,827
Average weekly prescription medication users reached (in millions)	21	20	18

In fiscal year 2004, the Health Resource Network was deinstalled in two retail pharmacy chains, Eckerd and CVS, which represented approximately 6,500 stores in the Health Resource Network. Revenues generated from newsletters delivered at Eckerd and CVS were approximately $9.9 million, or 12.7%, of total CHR revenue in fiscal year 2004 and $10.4 million, or 16.5%, of total CHR revenue in fiscal year 2003. Although these pharmaceutical chains represented a significant portion of the installation base, revenues and expenses at CHR for fiscal year 2005 were not significantly affected. Furthermore, management does not expect the deinstallation of Eckerd and CVS to have a significant effect on future results of operations.

Year Ended March 31, 2005 Compared with Year Ended March 31, 2004

CHR revenues declined by $1.6 million, or 2.1%, to $76.2 million for fiscal year 2005 as compared with $77.8 million for fiscal year 2004. Revenues for fiscal year 2004 include an $11.6 million adjustment for revenues deferred from a prior year. Excluding the impact of the prior year deferred revenue adjustment, revenues increased by $10.0 million, or 15.1%. The increase was attributable to a 24.1% increase in the average price per revenue-producing newsletter, which was attributable to a change in program mix. The increase in revenues from the shift in mix was partially offset by a 5.5% decrease in the number of revenue-producing newsletters, which was primarily due to the loss of Eckerd and CVS in fiscal year 2004.

Income from operations increased by $3.5 million, or 28.7%, to $15.7 million for fiscal year 2005 as compared with $12.2 million for fiscal year 2004 due to lower operating expenses, partially offset by a $1.6 million decline in revenues. Direct operating expenses declined by $2.2 million in fiscal year 2005 as compared with fiscal year 2004 due primarily to a $2.7 million decrease in retailer fees, which resulted from (i) a change in product mix, (ii) renegotiated contracts with certain retailers and (iii) changes in the method of reimbursement to retailers for certain printing expenses. SG&A expenses declined by $1.2 million due primarily to decreases in sales force expenses and costs savings from the reorganization of information technology development functions to provide for more efficiency. Finally, depreciation and amortization expense declined by $1.7 million due to current equipment, primarily printers installed in pharmacies, reaching the end of its depreciable life and not requiring replacement.

Net income increased by $2.1 million, or 28.6%, for the year ended March 31, 2005 compared with the year ended March 31, 2004 primarily due to the factors affecting income from operations.

Year Ended March 31, 2004 Compared with Year Ended March 31, 2003

Revenues were $77.8 million in fiscal year 2004, up 23.4% from revenues of $63.0 million in fiscal year 2003. The increase in revenues was due in part to the recognition of approximately $11.6 million in revenue deferred from prior years. Such revenue was not recognized by CHR prior to fiscal year 2004 because it did not meet the necessary revenue recognition criteria. In addition, revenues increased approximately $3.2 million due to the delivery of additional revenue generating newsletters driven by an increase in pharmaceutical manufacturer spending in our Health Resource Network.

Income from operations was $12.2 million in fiscal year 2004, a $20.7 million improvement over a loss from operations of $8.5 million in fiscal year 2003. The increase in operating results was due primarily to the increase in revenues described above and a reduction in direct operating and SG&A expenses. Direct operating expenses decreased $3.8 million in fiscal year 2004, or 7.7% over fiscal year 2003, primarily due to a net $3.2 million reduction in retailer fees and store-related expenses as a result of our renegotiation of contracts with key retail pharmacy chains. CHR’s field operations personnel costs were also reduced. SG&A expenses decreased $2.1 million, or 12.4%, compared with fiscal year 2003 due to a reduction in marketing, selling and other administrative expenses. The field operations and SG&A expense reductions were achieved through restructuring during fiscal year 2004.

Primarily as a result of the revenues and expense improvements described above, net income was approximately $7.3 million in fiscal year 2004, up $12.4 million from a net loss of $5.1 million in fiscal year 2003.

International

The Company operates internationally in a similar manner to the domestic CMS business for clients in France, Italy, the United Kingdom, Germany and Japan.

16

The following table presents the International retail installation base, the number of retail chains across which the Catalina Marketing Network^® is installed internationally and the average weekly shoppers reached as of March 31, 2005, 2004 and 2003:

	March 31,
	2005	2004	2003
Retail stores installed	5,907	5,545	4,069
Retail chains	40	30	21
Average weekly shoppers reached (in millions)	66	65	44

Year Ended March 31, 2005 Compared with the Year Ended March 31, 2004

Revenues for International increased by $14.5 million, or 29.3%, to $64.1 million for fiscal year 2005 as compared with $49.6 million for fiscal year 2004. Of this increase, $5.2 million was attributable to the favorable effect of foreign currency exchange movements. Also contributing to the increase in revenues was a $0.9 million fee that was paid to the Company’s operations in Japan due to a retailer’s early contract termination. The remaining increase of $8.4 million was primarily due to increased manufacturer and retail revenues of $5.9 million and $2.8 million, respectively. The increase in manufacturer revenue was due to growth in France, Italy and Japan of 6%, 44% and 55%, respectively. The increases in France and Italy were due, to some extent, to the growth of the installation base and average shopper reach in those countries, as well as continued penetration of CPG manufacturers. As noted above, Japan lost a retail client in the current year, which resulted in a reduction of its installation base and shopper reach during fiscal year 2005. However, the loss did not occur until the third quarter and Japan was able to benefit from revenue growth from manufacturer clients. The Company does not expect the loss of this retailer to have a significant affect on revenues and expenses in fiscal year 2006. The increase in retailer revenues was attributable to operations in the United Kingdom, where the Company expanded its network into additional retail stores during fiscal year 2005.

Income from operations increased by $10.0 million, or 181%, to $15.5 million for fiscal year 2005 as compared with $5.5 million for fiscal year 2004. The improvement in income from operations was due to current year revenue growth partially offset by volume-related increases in direct costs of $1.5 million, increased SG&A expenses of $2.5 million, primarily due to the addition of sales personnel, and increased depreciation expense of $0.6 million due to the acquisition of additional store equipment in the current year.

Net income for International increased by $6.9 million for fiscal year 2005 as compared with fiscal year 2004. The increase was due to the factors affecting operating results, partially reduced by an increase in the provision for income taxes of $3.0 million.

Year Ended March 31, 2004 Compared with Year Ended March 31, 2003

Revenues were $49.6 million in fiscal year 2004, up 65.3% from revenues of $30.0 million in fiscal year 2003. The increase in revenues was due primarily to an increase in manufacturer and retail promotions printed by retail and manufacturer clients in France. Revenue growth was also generated from a full year of participation in the Catalina Marketing Network^® of a French retailer that was added to the network during the latter part of fiscal year 2003.

Income from operations was $5.5 million in fiscal year 2004, up $6.7 million from an operating loss of $1.2 million in fiscal year 2003. The increase in operating results was due primarily to the increase in revenues from France described above and was partially offset by an increase in direct operating and SG&A expenses in fiscal year 2004. International direct operating expenses increased $5.0 million, or 49.9%, in 2004, primarily due to an increase in the number of stores installed on the network and a corresponding increase in printer and store-related expenses and staffing related costs. SG&A expenses also increased by $5.3 million, or 30.7%, primarily due to the addition of sales personnel. Depreciation and amortization expense for fiscal year 2004 increased by $2.6 million, or 67.5%, primarily due to growth in the store base.

Net income was $0.5 million in fiscal year 2004, compared with a net loss of $3.2 million in fiscal year 2003. The $3.7 million increase in net income was due primarily to the increase in operating results discussed above.

Corporate

Direct operating expenses for our corporate group included costs for procurement, retail store support, information technology, corporate accounting, client services, analytical services, marketing, human resources and executive management. These costs were included in direct operating expenses, SG&A expense and depreciation and amortization expense in the accompanying Consolidated Statements of Operations included in Item 8 — “Consolidated Financial Statements and Supplementary Data” for the fiscal years ended March 31, 2005, 2004 and 2003. For purposes of segment reporting, these corporate costs were allocated to the CMS and CHR business segments in fiscal year 2005, 2004 and 2003 using methods considered reasonable by management and which provide management with a measure of utilization of corporate services by the respective business segments. Costs that could be directly attributed to the business segments were allocated to that business segment. Costs that were indirectly attributed to the business segments were allocated proportionately based on the business segment’s revenues, number of printed incentives, square feet of space

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used, headcount or other relevant statistics, depending on the type of cost. For example, the cost to maintain the Company’s corporate headquarters is allocated to the domestic business segments based on the estimated square footage each business unit occupies; paper and store maintenance costs are allocated to the domestic business segments based upon the number of printed incentives; data communications costs are allocated based upon revenues. Of the total corporate group operating expenses, 63.8%, 66.6% and 76.2% were allocated to the operating segments during the fiscal years ended March 31, 2005, 2004 and 2003, respectively. Amounts previously allocated to DMS and CMRS were reversed when those two business units were reclassified to discontinued operations. There were no allocations of corporate costs and expenses to Japan Billboard.

Year Ended March 31, 2005 Compared with the Year Ended March 31, 2004

The Corporate loss from operations increased by $4.9 million for the year ended March 31, 2005 compared with the year ended March 31, 2004. The increase was primarily attributable to (i) $7.3 million of increased incentive compensation expense due to current year performance, (ii) $2.8 million of increased consulting fees for special business development-related consulting projects and (iii) $3.3 million for costs related to the implementation of Section 404 of the Sarbanes-Oxley Act in the current year. These costs increases were partially offset by the reversal of a liability for a sales tax assessment of approximately $4.4 million. See further discussion regarding such reversal in Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 9.” Net loss for Corporate increased by $2.0 million for the year ended March 31, 2005 compared with the year ended March 31, 2004 primarily due to the factors affecting loss from operations, partially offset by lower interest expense and a lower consolidated effective tax rate, which was reflected as a favorable adjustment to Corporate for the year ended March 31, 2005.

Year Ended March 31, 2004 Compared with the Year Ended March 31, 2003

The Corporate loss from operations increased by $10.2 million for the year ended March 31, 2004 compared with the year ended March 31, 2003, primarily due to increased SG&A expenses. In fiscal year 2004, SG&A expenses included $7.3 million related to costs incurred in connection with the completion of our Annual Report on Form 10-K for fiscal year 2003, including the restatement of our financial statements for fiscal years 2002 and 2001, for legal fees, external audit fees, director meeting fees and other related costs. Net loss for Corporate increased by $4.1 million for the year ended March 31, 2004 compared with the year ended March 31, 2003 primarily due to the factors affecting loss from operations, partially offset by increased interest income.

Foreign Currency Translation and Its Effect on Revenues

Our consolidated revenues from continuing operations for the fiscal year ended March 31, 2005 were $410.1 million, which included $64.1 million from our foreign operations. The local currencies of the countries in which we maintain foreign operations are the euro, British pound sterling and Japanese Yen. These currencies strengthened against the United States Dollar during our fiscal year ended 2005. Accordingly, revenues in United States Dollars for our foreign operations would have been 8.2% lower for fiscal year 2005, if translated using the weighted average currency translation rates for fiscal year 2004.

Segment Results – Discontinued Operations

As noted above and in previous filings, in November 2003, we announced our intent to divest DMS, Japan Billboard and CMRS because they were deemed not to be strategically aligned with our current core businesses. Aggregate revenues generated by DMS, Japan Billboard and CMRS accounted for 5.1%, 13.6% and 18.5% of the Company’s total revenues, including discontinued operations, for the fiscal years ended March 31, 2005, 2004 and 2003, respectively. Aggregate net loss generated by DMS, Japan Billboard and CMRS for fiscal year 2005 totaled $3.1 million. In fiscal years 2004 and 2003, these businesses generated aggregate net income (loss) of ($78.9) million and $3.5 million, respectively.

DMS

We sold DMS on September 17, 2004. As such, the results of operations for the periods in fiscal years 2005, 2004 and 2003 are reported net of taxes on one line, Income (loss) from discontinued operations. See further discussion in Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 19.”

Year Ended March 31, 2005 Compared with Year Ended March 31, 2004

Revenues for DMS decreased by $26.8 million to $10.3 million for the year ended March 31, 2005 compared with revenues of $37.1 million for the fiscal year ended March 31, 2004. The decrease was primarily attributable to fewer operating days in fiscal year 2005 as a result of the sale on September 17, 2004 and due to lower sample mailings as a result of a significant decrease in DMS’ sales personnel after the announcement in November 2003 of our intent to divest DMS.

Loss from operations for DMS was $1.4 million for the year ended March 31, 2005 compared with a loss from operations of $29.8 million for the year ended March 31, 2004. The improvement in operating results was primarily due to a goodwill impairment charge of $29.8 million recognized in fiscal year 2004. In addition, the results for fiscal year 2005 include an additional goodwill impairment charge of $1.6 million. See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 3” for a discussion of the goodwill impairment charges.

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Net income for DMS was $1.8 million for the year ended March 31, 2005, which included a gain of $3.3 million recognized upon the sale of the business. Net loss for DMS for the year ended March 31, 2004 was $29.8 million.

Year Ended March 31, 2004 Compared with Year Ended March 31, 2003

Revenues were $37.1 million in fiscal year 2004, down 26.2% from revenues of $50.3 million in fiscal year 2003. The decrease in revenues was due primarily to an $8.6 million decline in Sample Logic^® sales and a $5.4 million reduction in revenues year-over-year due to the suspension of One-to-One Direct^® services in December of 2003.

Loss from operations was $29.8 million in fiscal year 2004, down from an operating profit of $3.3 million in fiscal year 2003. In addition to the decline in revenues described above, the decrease in operating results was primarily due to a $29.8 million goodwill impairment charge.

Net loss was $29.8 million in fiscal year 2004, down from net income of $2.0 million in fiscal year 2003. The decrease in net income was due mainly to the decrease in loss from operations described above.

Japan Billboard

We sold Japan Billboard on August 31, 2004. As such, the results of operations for Japan Billboard for the periods in fiscal years 2005, 2004 and 2003 have been reported net of taxes on one line, Income (loss) from discontinued operations. See further discussion in Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 19.”

Year Ended March 31, 2005 Compared with Year Ended March 31, 2004

Revenues for Japan Billboard were $6.7 million for the year ended March 31, 2005 compared with $14.7 million for the year ended March 31, 2004. Revenues at this business unit continued to decline through the date it was sold as a result of the effect of the Voluntary Global Tobacco Marketing Initiative (the “Initiative”). See our Annual Report on Form 10-K for the fiscal year ended March 31, 2004 for a more detailed description of the Initiative.

Loss from operations for Japan Billboard was $0.2 million for fiscal year 2005 compared with an operating loss of $35.3 million for fiscal year 2004. The operating loss for fiscal year 2004 included charges of $30.5 million and $4.1 million related to the impairment of goodwill and the impairment of long-lived assets, respectively. See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 3” for a discussion of the impairment charges.

Net loss for Japan Billboard was $0.7 million for fiscal year 2005, which included a loss of $0.5 million recognized upon the sale of the business. Net loss for Japan Billboard for fiscal year 2004 was $37.0 million, which included the impairment charges for goodwill and long-lived assets.

Year Ended March 31, 2004 Compared with Year Ended March 31, 2003

Revenues were $14.7 million in fiscal year 2004, down 30.2% compared with revenues of $21.1 million in fiscal year 2003. The decrease in revenues was due mainly to a continued reduction in spending from one tobacco producing client related to the Initiative.

Loss from operations was $35.3 million in fiscal year 2004, a $35.8 million decline from an operating profit of $0.5 million in fiscal year 2003. In addition to the decline in revenues described above, the decrease in operating results was primarily the result of a $30.5 million goodwill impairment charge, a $4.1 million billboard asset impairment charge and a $0.3 million increase in depreciation expense due to the effect of the adoption of SFAS No. 143 to record disposal and retirement obligations on its long-lived billboard assets. The reduction in revenue was offset in part by a $3.8 million, or 24.6%, reduction in operating expenses associated with fewer billboards.

Net loss was $37.0 million in fiscal year 2004, as compared with net income of $0.1 million in fiscal year 2003. The decrease in net income was due mainly to the decrease in operating profit discussed above and, to a lesser extent, a $1.3 million increase in the tax provision associated primarily with the recording of a valuation allowance on the segment’s net deferred tax assets.

CMRS

We sold CMRS on November 29, 2004. As such, the results of operations for CMRS for the periods in fiscal years 2005, 2004 and 2003 have been reported net of taxes on one line, Income (loss) from discontinued operations. See further discussion in Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 19.”

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Year Ended March 31, 2005 Compared with Year Ended March 31, 2004

Revenues for CMRS were $5.1 million for fiscal year 2005, compared with revenues of $12.5 million for fiscal year 2004. Revenues declined during fiscal 2005 as compared with fiscal 2004 primarily due to the announcement in November 2003 of the decision to sell the business, which resulted in the loss of key sales personnel, and due to less operating days during fiscal year 2005 as a result of the sale on November 29, 2004.

CMRS had a loss from operations of $4.1 million for fiscal year 2005 as compared with a loss from operations of $20.3 million for fiscal year 2004. The improvement was primarily attributable to a $21.2 million goodwill impairment charge recorded during the prior year, partially offset by a $2.6 million goodwill impairment charge recorded during the current year and due to the further decline in revenues. See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 3” for a discussion of the goodwill impairment charges.

Net loss for CMRS for fiscal year 2005 was $4.2 million and was attributable to the loss from operations of $4.1 million and the loss on the sale of CMRS of $1.7 million, partially offset by a current year tax benefit of $1.5 million.

Year Ended March 31, 2004 Compared with Year Ended March 31, 2003

Revenues for CMRS were $12.5 million for fiscal year 2004, compared with revenues of $15.5 million for fiscal year 2004. Revenues declined during fiscal 2004 as compared with fiscal 2003 primarily due to the announcement in November 2003 of the decision to sell the business, which resulted in the loss of key sales personnel.

CMRS had a loss from operations of $20.3 million for fiscal year 2004 as compared with income from operations of $2.4 million for fiscal year 2003. The decrease in operating results was primarily attributable to a $21.2 million goodwill impairment charge recorded during fiscal year 2004. See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 3” for a discussion of the goodwill impairment charges.

Net loss for CMRS for fiscal year 2004 was $12.1 million as compared with net income for fiscal year 2003 of $1.4 million. The decline was primarily attributable to the loss from operations noted above.

Liquidity and Capital Resources

Our primary sources of liquidity have been cash flows generated from operations, a credit agreement with a syndicate of commercial banks, various credit agreements entered into by our Japan subsidiary and the indebtedness under a lease arrangement. There were several changes to our non-operational sources of cash during fiscal year 2005. These changes are discussed below in Other Sources of Liquidity. Our primary liquidity requirements continue to be for working capital, capital expenditures in the ordinary course of business and the repayment of debt. Our sources of liquidity may also be used for cash dividends and repurchases of our common stock. We will continue to invest in new business development, sales and marketing, in our Catalina Marketing Network^® and other support technology, employee development and retention and enhanced systems of reporting and controls.

Cash flows from operations in fiscal year 2005 and through the current date have been sufficient to meet our liquidity needs and should be sufficient to meet our projected cash requirements for at least the next twelve months. Cash on hand as of March 31, 2005 was $116.2 million. Of the total amount on hand, approximately $19.3 million was held by our subsidiary in France and can not be transferred to the United States without incurring applicable income taxes.

The current portion of our long-term debt of $30.3 million as of March 31, 2005 consisted of a $30.0 million Eurodollar-based tranche that we repaid in April 2005 and $0.3 million of current portion of installment debt in Japan. Our long-term debt outstanding as of March 31, 2005 was $34.3 million. See Capital Requirements – Contractual Obligations for a discussion of our contractual commitments, which include our bank indebtedness as well as contractual obligations related to our operations.

We believe that our policy regarding the availability of sufficient amounts of cash gives us the opportunity to invest in our business as we believe is necessary for items such as research and development, creation and expansion of markets, share repurchases, acquisitions, investments, legal risks and challenges to our business model. Our existing cash and cash equivalents, combined with cash generated from operations and available borrowings under our credit facilities, should be sufficient to fund our operating activities as well as other opportunities for the short term and over our forecasted long-range plan of three years. If during that period or thereafter we are not successful in generating sufficient cash flows from operations, raising additional capital when required or being able to borrow in sufficient amounts, our business could suffer.

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Cash Flow Analysis

Fiscal Year Ended March 31, 2005 Compared with the Fiscal Year Ended March 31, 2004.

Net cash provided by operating activities was $118.0 million for the fiscal year ended March 31, 2005 compared with $138.1 million for the fiscal year ended March 31, 2004. The decrease in net cash provided by operating activities for the year ended March 31, 2005, as compared with the same period in the prior year, was primarily due to a decrease in cash flows provided from changes in net operating assets and liabilities. Cash provided from changes in operating assets and liabilities during fiscal year 2004 was $16.5 million as compared with cash used by changes in operating assets and liabilities for fiscal year 2005 of $1.5 million. The $18.0 million reduction in cash provided from net operating assets and liabilities was primarily due to a $23.6 million unfavorable change in accounts receivable and a $14.6 million unfavorable change in accrued expenses, partially offset by a $19.8 million favorable change in accounts and taxes payable. The unfavorable change in accounts receivable year-over-year was primarily due to the timing of customer billings and collections. The unfavorable change in accrued expenses year-over-year was primarily due to the timing of payroll-related payments, including sales commissions, a decrease in accrued professional fees and, with respect to fiscal year 2005, the reversal of a $4.4 million sales tax contingency. The favorable change in accounts and taxes payable year-over-year was primarily due to the timing and amounts of purchases from our trade creditors and increased earnings resulting in increased income taxes payable for fiscal year 2005.

Net cash used in investing activities decreased to $17.6 million for fiscal year 2005 compared with $49.8 million for fiscal year 2004. Cash used in investing activities for fiscal year 2004 included $22.9 million related to the purchase of the remaining 49% ownership interest in Japan Billboard from the minority shareholder. No similar payment was made in fiscal year 2005. Additionally, capital expenditures declined from $26.4 million for fiscal year 2004 to $22.5 million for fiscal year 2005. Capital expenditure levels vary during the year depending upon the timing and size of contracts entered into with retailers, the scheduling of store installations and investments in technology. Investing activities for fiscal year 2005 also includes cash inflows of $5.5 million and $0.4 million for the sale of DMS and CMRS, respectively.

Net cash used in financing activities was $58.4 million for fiscal year 2005 compared with $17.8 million used in financing activities for fiscal year 2004. Cash used in financing activities for fiscal year 2005 included a cash dividend of $0.30 per share on common stock for a total payment of $15.7 million and payments for the repurchase of the Company’s common stock of $44.2 million. Net payments on indebtedness during fiscal year 2005 were $2.8 million, and included amounts borrowed on the corporate facility to repay the indebtedness related to the purchase of the Company’s headquarters facility, as well as borrowings under the August 2004 Credit Facility that were used to repay amounts due in Japan under the Prior Facility. Scheduled payments were also made on the installment debt at the Company’s Japan subsidiary. During fiscal year 2004, the Company repurchased common stock for $13.3 million and made net repayments on debt of $5.1 million.

Cash and cash equivalents increased by $43.5 million to $116.2 million for fiscal year 2005.

Fiscal Year Ended March 31, 2004 Compared with the Fiscal Year Ended March 31, 2003.

During fiscal year 2004, we generated cash flows from operating activities of $138.1 million compared with cash flows generated from operating activities of $118.5 million in fiscal year 2003. Cash flows generated from operations increased $19.6 million primarily due to a decrease in our accounts receivable, which was a source of cash of $19.5 million in fiscal year 2004. Cash flows generated from operating activities in fiscal year 2004 include non-cash charges for depreciation of $45.9 million and impairment charges of $85.6 million. The cash flows provided by operating activities were used to make capital expenditures, purchase the minority interest of Japan Billboard, to repurchase our common stock and to make payments on our external borrowings. Overall, our cash increased $71.0 million as a result of these net sources of cash.

Fiscal Year 2004 Minority Interest Purchase of Japan Billboard. On October 10, 1996, we purchased 51% of Japan Billboard. Terms of the purchase agreement provided a call option whereby we had the right, beginning in May 2002, to purchase the remaining 49% of Japan Billboard, at a price calculated based upon an earnings multiple pursuant to the call formula, as defined in the purchase agreement. The terms of the purchase agreement also provided for a put option whereby the minority shareholders, effective May 2003, had the right to require us to purchase the remaining 49% of Japan Billboard at a price calculated based upon an earnings multiple pursuant to the put formula as defined in the purchase agreement. In May 2003, we exercised, through one of our wholly- owned subsidiaries, our call option provided in the Japan Billboard purchase agreement to acquire the remaining 49% from the minority interest shareholders for $23.2 million in cash consideration, based on foreign exchange rates as of the payment date in July 2003. We exercised the call option to reduce the adverse financial impact that would have resulted from the exercise of the put option by the minority shareholders.

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Other Sources of Liquidity

In addition to our cash flows generated from operations, the Company’s access to its revolving credit facility provides an additional source of liquidity. For a discussion of our credit facilities, see Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 8.”

Capital Requirements

Contractual Obligations. We have contractual obligations associated with ongoing business and financing activities, which will result in cash payments in future periods. Some of these obligations, such as short-term borrowings and long-term debt and related interest payments, are reflected in our Consolidated Financial Statements. In addition, we have entered into long-term contracts to acquire goods or services in the future which are not currently reflected in our Consolidated Financial Statements and will be reflected in future periods as the goods are received or services are rendered. A summary of our contractual cash obligations and commitments at March 31, 2005 follows (in thousands):

			Payments Due by Period
Contractual cash obligations	Total		Before March 31, 2006		Between April 1, 2006 and March 31, 2008		Between April 1, 2008 and March 31, 2010		After March 31, 2010
Long-term debt(1)	$	65,831	$	30,633	$	538	$	34,660	$	—
Postretirement medical benefit costs		1,304		86		209		265		744
Operating leases		14,123		4,151		6,006		3,680		286
CHR tender offer		3,497		3,497		—		—		—
Purchase obligations for in-store equipment and paper		12,079		6,500		5,579		—		—
Total	$	96,834	$	44,867	$	12,332	$	38,605	$	1,030

⁽¹⁾ Long-term debt includes principal and interest due under the August 2004 Credit Facility, and principal and interest due for the long-term portion of installment loans due in Japan.

CHR Tender Offer. On September 15, 2004, the Company notified holders of common stock and options to purchase common stock of Catalina Health Resource, Inc., which operates the CHR business, that it was tendering an offer to purchase shares of CHR not held by the Company. The tender offer period began on January 3, 2005 and closed on March 31, 2005. All remaining outstanding shares of CHR not held by the Company were tendered by March 31, 2005. Generally, CHR stockholders that owned their shares for a period of at least six months and one day prior to the day that the shares were purchased by the Company were eligible to tender their shares under this offer. The Company paid $12.50 per share for 279,786 shares tendered by CHR shareholders, or $3.5 million, on April 8, 2005.

Purchase Obligations. The Company has a purchase commitment to a vendor for the purchase of certain customized store equipment, which is used in the normal course of business, pursuant to a contract which extends through November 2007. The outstanding balance under this purchase commitment as of March 31, 2005 was $9.1 million. The Company also has contractual commitments to purchase the safety stock of paper stored at the suppliers’ warehouses for future use by the Company. As of March 31, 2005, there were approximately $3.0 million of paper stock for which the Company was committed to purchase in the event the suppliers’ services are terminated by the Company.

Capital Expenditures. Our primary capital expenditures are for store equipment and third-party store installation and upgrade costs, as well as data processing equipment for our central data processing facilities. Total store equipment and third-party store installation costs for the Catalina Marketing Network^® range from $3,000 to $13,000 per store. Capital expenditures were $22.5 million for fiscal year 2005 compared with $26.4 million for fiscal year 2004. Capital expenditures were lower in fiscal year 2005 as compared with fiscal year 2004 primarily because of fewer installations of retail point-of-sale equipment. The pace of retail point-of-sale installations varies depending on the timing of contracts entered into with retailers and the scheduling of store installations by mutual agreement. We typically finance our capital expenditures for in-store equipment with cash generated from operations.

The Company currently expects to spend approximately $40 million to $50 million for capital expenditures in fiscal year 2006. However, the amount of such capital expenditures could vary significantly depending upon the timing of execution of certain Company initiatives. The increase in capital expenditures expected for fiscal year 2006 is primarily due to increased purchases for store equipment, including approximately $20 million attributable to the expected installation of the Catalina Marketing Network^® in

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Walgreens, as noted above. In addition, the Company expects to increase spending for store equipment and software development related to our initiative to enhance our network’s interface with consumers, which is expected to include enhanced print quality with full graphic and color capabilities (“color printers”). We are currently working on a project to deploy color printers to replace certain existing printers and expect the implementation of this project to begin in fiscal year 2006 and extend into future periods. The total expected capital requirement for this initiative can not yet be determined, but we anticipate it will exceed the average annual capital investments expended for store equipment during the last three years. The Company expects that our cash flow from operations combined with borrowings under our existing revolving credit facility will be sufficient to finance these capital investments. The color printer project is in the initial stages of development and there can be no certainty that the amount or timing of the capital requirements will proceed as expected.

Contingent Earnout Payment. As part of the Restructuring and Amendment Agreement executed in 1999 between the Company and the joint venture partners in the Company’s Japanese coupon operations, the Company is obligated to pay the joint venture partners a final deferred earnout payment based on the future operating results of the Catalina Marketing Japan coupon business. The contingency stipulates a potential earn-out payment based on a predetermined formula. The Company is not able to estimate the amount, or a range of the possible amount, of the contingent payment because the Company is not able to reasonably estimate the future earnings of its Japan coupon business over four consecutive quarters during a time period ending between 2006 and 2007, which is the basis of the calculation of the contingent payment. The ultimate amount of this payment, if any, could be material.

Stock Repurchases. On September 1, 2004, the Company announced that its Board of Directors had authorized $100.0 million of funds to be available for the repurchase of the Company’s common stock. This authorization replaced the $44.0 million unused portion of the previous $100.0 million common stock repurchase program authorized by the Board of Directors in July 2002.

The Company repurchased 1.7 million shares of its common stock during the fourth quarter of fiscal year 2005 for a total of $44.2 million. During fiscal year 2004, the Company repurchased 749,200 shares of our common stock for a total of $13.3 million. During fiscal year 2003, the Company repurchased 3.1 million shares of our common stock for a total of $72.0 million.

Prior to the purchase of shares during the fourth quarter of 2005, the Company had not purchased shares since June 2003. Subsequent to June 2003, the Company was precluded from stock repurchases under the terms of the Prior Facility until that facility was replaced on August 27, 2004 with the August 2004 Credit Facility which does not contain this restriction. The Company intends to use cash flows from operations and funds available under the August 2004 Credit Facility to finance the remaining authorized repurchases of its common stock.

As of March 31, 2005, there was $55.8 million remaining under the September 1, 2004 authorization to repurchase shares. Factors governing the future repurchase of the Company’s common stock will include consideration of the market price of the common stock at the time of the contemplated repurchase. This authorization will expire when the total dollar amount authorized by the Company’s Board of Directors has been expended.

Sales Tax Assessment

A sales and use tax audit for the period January 1, 1991 to June 30, 1993 was conducted by a state taxing authority resulting in an assessment of sales tax on the revenue generated from our electronic marketing delivery service conducted within that state. We subsequently appealed this assessment to the relevant state tax tribunal. The tax tribunal held that our electronic marketing delivery activities were taxable in their entirety. In March 2002, the state’s intermediate court of appeals affirmed the decision of the tax tribunal. We appealed the case to the state’s Supreme Court and, in May 2004, the state’s Supreme Court vacated the prior decision, remanded the case back to the tax tribunal and directed the tax tribunal to apply a different legal test. In July 2004, the state’s tax tribunal ruled in our favor. In October 2004, the state’s Supreme Court affirmed the decision of the tax tribunal. As a result, we reversed a liability related to the sales tax assessment of approximately $4.4 million, recognized as a reduction to direct operating expenses during the third quarter of fiscal year 2005.

Critical Accounting Estimates

We have identified certain financial areas that require estimates and judgments such that, if these estimates and judgments were to change, results of operations could materially differ. Management makes these estimates and judgments in the normal course of business as required pursuant to U.S. GAAP. The impact and any associated risks related to these estimates on our results of operations are discussed throughout Management’s Discussion and Analysis and Results of Operations where such changes in estimates affected our reported financial results. A detailed discussion of the related accounting policies, and other significant accounting policies, can be found in Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 2.”

Impairment Testing of Goodwill. In accordance with SFAS No. 142, we are required to test goodwill for impairment at least annually. Changes in management’s judgments and estimates could significantly affect our analysis of the impairment of goodwill. To test goodwill for impairment, we are required to estimate the fair value of each of its reporting units. Since quoted market prices in an active market are not available for our reporting units, we use other valuation techniques. We have developed a model to estimate

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the fair value of the reporting units, primarily incorporating a discounted cash flow valuation technique. This model incorporates our estimates of future cash flows, allocations of certain assets and cash flows among reporting units, future growth rates and management’s judgment regarding the applicable discount rates to use to discount those estimated cash flows. We estimate a corporate-wide weighted average cost of capital to use as the discount rate. This rate is applied to our reporting units until such time that we decide to divest those units. At such time, we apply an entity-specific discount rate to the cash flows of the reporting units. Changes to these judgments and estimates could result in a significantly different estimate of the fair value of the reporting units which could result in an impairment of goodwill. For example, a one percentage point increase in the discount rate used would have increased the goodwill impairment charge recognized in fiscal year 2004 by $4.2 million, such that goodwill for DMS and CMRS would have been reduced to $0 during fiscal year 2004. Goodwill assigned to the operating segments of CMS, CHR and International are not highly sensitive to changes in assumptions due to the fact that the estimated fair value of the reporting units in these operating segments significantly exceeds the amount of goodwill attributed to the reporting units.

Impairment Testing of Long-Lived Assets. In accordance with SFAS No. 144, we review our long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When testing for impairment, we are required to estimate the specific cash inflows and outflows expected to be generated from the long-lived asset during its remaining useful life. Changes to management’s judgments and estimates used in determining the timing of testing, the specific net cash flows related to the asset, the asset’s remaining useful life or the projected amount of future net cash flows could materially affect the outcome of the impairment analysis. In addition, if the undiscounted cash flows are less than the asset’s net book value, then management must determine the fair market value of the asset. Generally, quoted market prices in active markets are not available for our significant long-lived assets. As such, management generally uses a discounted cash flow technique to determine the fair value. Management’s assumptions regarding the discount rate used to apply to the forecasted future net cash flows can also materially affect the outcome of the impairment analysis. During fiscal year 2005, there were no significant long-lived asset groups for which we identified a triggering event requiring impairment testing.

Deferred Tax Asset Valuation. We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. We regularly review our deferred tax assets for recoverability and, if necessary, establish a valuation allowance based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of tax-planning strategies. If we are unable to generate sufficient future taxable income in certain tax jurisdictions, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we may be required to increase our valuation allowance against our deferred tax assets resulting in an increase in our effective tax rate and an adverse impact on operating results.

Tax Contingencies. Despite our belief that our tax positions are consistent with applicable tax laws, we believe that certain positions are likely to be challenged by taxing authorities. Settlement of any challenge can result in no change, a complete disallowance or some partial adjustment reached through negotiations or litigation. Significant judgment is required in evaluating our tax contingencies. Our contingencies are adjusted in light of changing facts and circumstances, such as the progress of our tax audits as well as evolving case law. Our income tax expense includes the impact of contingency provisions and changes to our contingencies that we consider appropriate. Unfavorable settlement of any particular issue would require use of our cash. Favorable resolution would be recognized as a reduction to income tax expense at the time of resolution. We have incorporated historical experience and the previously mentioned factors into the determination of each of these estimates and historically we have not, except for the sales tax assessment discussed above, experienced significant adjustments.

Accounting Standards Not Yet Adopted

FAS No. 151. In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (“SFAS No. 151”). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “. . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight and rehandling costs may be so abnormal as to require treatment as current period charges. . . ..” SFAS No. 151 requires that those items be recognized as current period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 151 to have a material effect on its results of operations or financial condition.

SFAS No. 153. In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets – an amendment of APB Opinion No. 29” (“SFAS No. 153”). SFAS No. 153 amends Accounting Principles Board Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 153 to have a material effect on its results of operations or financial condition.

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SFAS No. 123R. In December 2004, the FASB issued Statement No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R replaces SFAS No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“Opinion No. 25”). SFAS No. 123 established, as preferable, a fair-value-based method of accounting for share-based payment transactions with employees, but permitted the continued application of the guidance in Opinion No. 25, as long as the notes to the financial statements disclosed what net income would have been had the fair-value-based method been used. The Company elected to record the effect of share-based payments in accordance with Opinion No. 25 and disclosed the effect of SFAS No. 123 in its notes to the financial statements. SFAS No. 123R will require compensation cost relating to share-based payment transactions to be recognized in financial statements.

The cost of equity instruments will generally be measured based on the fair value of the instruments at the date of issue using an option-pricing model. Companies can adopt one of two transition methods for options issued prior to the effective date of SFAS No. 123R; either the “modified-prospective transition” or the “modified-retrospective transition.” Under the modified-prospective transition approach, companies recognize expense for stock options that were granted subsequent to the adoption of SFAS No. 123R and recognize expense for any unvested stock options that vest subsequent to the adoption of SFAS No. 123R. Under the modified-retrospective approach, companies will be allowed to show prior period financial statements as if SFAS No. 123R had been in effect for all of the years presented.

SFAS No. 123R is effective for the Company as of April 1, 2006. The Company has not determined the amount of compensation expense that will result from the adoption of SFAS No. 123R, but expects the amount to have a material effect on its results of operations.

RISK FACTORS

Risk Factors Relating to Our Business

Increased competition could reduce the demand for our services, which could have a material adverse effect on our business, financial condition, results of operations and business prospects.

Competition in the promotions and marketing services business is intense and includes many competitors. We compete for consumer packaged goods and pharmaceutical manufacturer 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. While we believe we provide unique, cost-effective targeted marketing services, there are many parameters on which a consumer packaged goods manufacturer, pharmaceutical manufacturer or retailer may base its decision to allocate advertising or promotional expenditures, and there can be no assurance that our services will continue to compete effectively against other formats or that consumer packaged goods and pharmaceutical manufacturers and retailers will continue to use our marketing services. We also expect our competitors to continue to improve the performance of their current products or services, to reduce sales prices of their existing products and services and to introduce new products or services that may offer greater performance and improved pricing. In addition, changes in technology may enable merchants and retail companies to implement or install their own proprietary point-of-sale systems or provide other solutions for the distribution of incentives and messages. See Item 1 — “Business — Competition.”

A shift in consumer purchasing trends for certain categories of products from traditional retail supermarkets may cause a decrease in the utilization of our services.

Significant retailers including mass marketers and value chains do not use us for their marketing services for the distribution of coupons, incentives and messages. Many retailers utilize our competitors for such services and some conduct such services in-house or otherwise allocate their marketing dollars to other channels. Mass marketers and value chains have significantly increased their presence in the grocery business and retail industry over the last several years. Many mass marketers and value chains, including Wal-Mart, are not our clients. As mass marketers and value chains such as Wal-Mart increase their presence in the grocery business, the percentage of retail grocery purchases that occur in stores where our networks are installed may decrease. The impact of the increased presence of mass marketers and value chains is particularly pronounced in certain product categories. In addition, if consumers continue to shift to alternative shopping channels, like club stores, mass merchandisers and value chains, the ability and effectiveness of the Catalina Marketing Network^® to reach retail shoppers may decline. Any such change in shopping behavior could have a material adverse effect on our results of operations or financial condition.

Our success depends on our relationships with retailers and pharmacies that provide access to consumers in their retail locations and pharmacies.

We depend on retail stores and pharmacies to provide access to transactions with consumers and allow us to install the Catalina Marketing Network^® and Health Resource Network on their premises. We believe that our relationships with our current retail and pharmacy clients are strong, however, in the past, some retailers and pharmacies have required us to remove our network from their stores or negotiate significantly different or less advantageous terms in order for us to maintain networks in their stores. Should any of

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our significant retailers or pharmacy chains reduce in size, cease to exist, not renew our agreements, require us to remove our network equipment or negotiate terms with us which are less advantageous than our current agreements, the ability and effectiveness of the Catalina Marketing Network^® or Health Resource Network to reach retail shoppers and access transactions and/or the profitability of our operations could be reduced.

Consolidations between our current retail and pharmacy base and companies that do not utilize our networks may decrease the installation base of our network and reduce the utilization of our services. Internationally, certain value chains and mass marketers continue to make acquisitions in the grocery industry. Further significant acquisitions and consolidations could have a material impact on our ability to maintain and expand our international operations.

We may fail to develop new services and achieve future growth.

A key element of our growth strategy is the development and sale of new services. While new services are currently under development, there can be no assurance that we will be able to successfully develop and market new services. Our inability or failure to devise new marketing services or to complete the development or implementation of particular services for use on a large scale, or the failure of such services to achieve market acceptance, could adversely affect our ability to achieve a significant part of its growth strategy and the absence of such growth could have a material adverse effect on our business, results of operations and financial condition. To retain and attract manufacturers, retailers and pharmacies, we believe that we must continue to introduce additional successful services. The development and deployment of new services may require significant capital expenditures on development and client education.

Our proposed enhanced and expanded service offerings will require significant capital expenditures in areas in which we have not established a track record.

We have announced that we anticipate deploying color printers in our existing retail network in place of our existing black-and-white printers, and that we have and continue to pursue agreements to install our networks in new retail channels, including retail drug stores. These efforts will require a substantial increase in our capital expenditures. In addition, these efforts differ to some degree from our historical business and, as a result, carry additional risks.

The deployment of color printers in our existing retail network will require substantial capital expenditures to acquire and install such printers and, in some instances, will replace existing black-and-white printers that may not have reached the end of their useful lives, but which we may attempt to redeploy elsewhere. Color printers will require new and additional efforts and potential costs to be expended by our retailers, including logistics and other steps not required by our current black-and-white printers. While we are working with printer vendors to try to simplify the use and servicing of such printers, we cannot assure you that difficulties will not be encountered in installing, using and servicing such printers. In addition, while we expect color printing to enhance the effectiveness of our clients’ marketing efforts, a track record verifying such goal has not yet been established. Hence, the deployment of color printers will involve the use of a substantial amount of capital with a risk that difficulties will be encountered in installing and using them and that they may not gain the acceptance we desire from retailers and our manufacturer clients. Such outcome could have a material adverse effect on our results of operations and financial condition.

The deployment and expansion of our existing networks in new retail channels and markets that we have not historically served, including the retail drug store market will require a significant amount of capital expenditures. Manufacturer clients using our services for new retail channels may differ, to some extent, from our historical client base due to the nature and quantity of items carried in these retail channels. While we expect the deployment of our network in new retail channels to enhance the effectiveness of our clients’ marketing efforts, a track record verifying such goal has not yet been established. As a result, the deployment of our network in new retail channels will involve the use of a substantial amount of capital with a risk that it may not gain the acceptance we desire from our clients. Such result could have a material adverse effect on our results of operations and financial condition.

Loss of data center capacity or interruption of telecommunication links could adversely affect our business.

Our ability to protect our data centers against damage from fire, power loss, telecommunications failure or other disasters is critical to our future. We believe we have taken reasonable precautions to protect our data centers and telecommunication links from events that could interrupt our operations. Any damage to our data centers or any failure of our telecommunications links that causes interruptions in our operations could materially adversely affect our ability to meet our clients’ requirements, which could result in decreased revenues, income and earnings per share.

A breach of our network security could result in liability to us and deter customers from using our services.

Our networks may be vulnerable to unauthorized access, computer viruses and other disruptive problems. Any of the foregoing problems could result in liability to us and deter customers from using our services. Unauthorized access could jeopardize the security of confidential information related to our Company stored in our computer systems. Eliminating computer viruses and alleviating other security problems may require interruptions, delays or cessation of service, cause us to incur significant costs to remedy the

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problem and divert management’s attention. We can provide no assurance that the security measures we have implemented will not be circumvented or that any failure of these measures will not have a material adverse effect on our ability to obtain and retain customers. Any of these factors could have a material adverse effect on our business and prospects.

Our failure to protect our intellectual property rights may harm our competitive position, and litigation to protect our intellectual property rights may be costly.

We hold United States and foreign patents on various aspects of the process of promotion and communication distribution, and have applied for additional patents. In addition, we regard certain computer software and each service application as proprietary and attempt to protect them through copyright and trade secret laws and internal non-disclosure agreements and similar safeguards. Certain aspects of our services may not be adequately protected from infringement or copying. Further, there can be no assurance that our patents or trademarks would be upheld if challenged or that competitors might not develop similar or superior processes or services outside the protection of any patents issued to us.

Third parties may infringe or misappropriate our patents or other intellectual property rights, which could have a material adverse effect on our business, financial condition or operating results. The actions we take to protect our patents and other proprietary rights may not be adequate. Litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. We cannot assure you that we will be able to prevent infringement of our intellectual property rights or misappropriation of our proprietary information. In addition, litigation is time-consuming and expensive to defend and could result in the diversion of our time and resources. Any claims from third parties may also result in limitations on our ability to use the intellectual property subject to these claims. See Item 1 — “Business — Intellectual Property.”

Intellectual property litigation against us may be costly and could result in the loss of significant rights.

We expect that, as we continue to expand our service offerings and the number of competitors in targeted marketing grows, we may be increasingly subject to intellectual property infringement, unfair competition and related claims against us. Third parties may also seek to invalidate certain of our patents. In addition, competitors and third parties may, in the future, name our clients as defendants in lawsuits, which may cause these clients to terminate their relationships with us. Our efforts to defend these actions may not be successful. Our failure to prevail in this type of litigation could result in our paying monetary damages (which could be tripled if the infringement is found to have been willful); an injunction requiring us to stop offering our services in their current form; our having to redesign our technology and business methods, which could be costly and time-consuming, even where a redesign is feasible; or our having to pay fees to license intellectual property rights, which may result in unanticipated or higher operating costs. Any third-party claims, with or without merit, could be time consuming, result in costly litigation and damages, cause us to reduce or alter our services, delay or prevent service enhancements or require us to enter into royalty or licensing agreements.

Legislation relating to consumer privacy and changes in government regulations may affect our ability to deliver messages and incentives and collect data that we use in providing our marketing services, which could negatively affect our ability to satisfy our clients’ needs.

The enactment of legislation arising from public concern over consumer privacy issues could have a material adverse impact on our marketing services. Any such legislation could place restrictions upon the collection and use of information that is currently legally available, which could materially increase our cost of managing or collecting some data. Legislation or industry regulation could also prohibit us from collecting or disseminating certain types of data, coupons, promotions, messages or newsletters, which could adversely affect our ability to meet our clients’ requirements.

With respect to CHR’s Health Resource Network, our ability to provide consumers with condition-specific health information and direct-to-patient communications may be adversely affected by concerns over heath regulatory guidelines and publicity regarding a patient’s rights to privacy. Regulatory changes in some jurisdictions have increased manufacturer and retailer sensitivity and selectiveness as to what types of messages they will distribute in these jurisdictions. While we are currently working with our manufacturer and retailer clients to find an adequate solution to these concerns, there is no guarantee that we will be able to continue to distribute prints for these clients or that there will not be additional changes in the laws and regulations in these and other jurisdictions that will further impact our operations. See Item 1 — “Government Regulation.”

Ongoing review of our public filings by the SEC may result in the further amendment or restatement of our periodic reports. If any of the foregoing occurred, there could be a material adverse effect on the trading price of our common stock and our ability to access the capital markets.

The SEC may provide us with comments on these filings or any of our previous filings, which would require us to amend or restate previously filed periodic reports. If we are required to amend or restate our periodic filings, investor confidence may be reduced and our stock price may substantially decrease.

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Compliance with recently enacted changes in the securities laws and regulations, including the Sarbanes-Oxley Act of 2002, is likely to increase our costs.

The Sarbanes-Oxley Act of 2002 that became law in July 2002 (the “Act”) has required changes in some of our corporate governance, securities disclosure and compliance practices. In response to the requirements of that Act, the SEC and the NYSE have promulgated new rules. Compliance with these new rules has increased our legal and financial and accounting costs, and we expect these increased costs to continue indefinitely. We also expect these developments to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be forced to accept reduced coverage or incur substantially higher costs to maintain or obtain coverage. In addition, these developments may make it more difficult for us to attract and retain qualified members of our board of directors or qualified executive officers.

Due to inherent limitations, there can be no assurance that our system of disclosure and internal controls and procedures will be successful in preventing all errors or fraud, or in informing management of all material information in timely manner.

Our management, including our CEO and CFO, does not expect that our disclosure controls and internal controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with U. S. GAAP. Any changes in estimates, judgments and assumptions could have a material adverse effect on our business, financial position and results of operations.

The consolidated and condensed consolidated financial statements included in the periodic reports we file with the SEC are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues, expenses and income. Estimates, judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts of assets, liabilities, revenues, expenses and income. Any such changes could have a material adverse effect on our financial position and results of operations.

Changes to financial accounting standards may affect our reported results of operations.

A change in accounting standards could have a significant effect on our reported results and may affect our reporting of transactions before the change is effective. New pronouncements and varying interpretations of existing pronouncements have occurred and may occur in the future. Changes to existing accounting rules or the application of existing U. S. GAAP may adversely affect our reported financial results, which could result in a decrease in the value of your shares.

Risks Related to the Investigations and Shareholder Lawsuits

We are the subject of a formal investigation by the SEC. If the investigation was to result in a regulatory proceeding or action against us, then our business and financial condition could be harmed.

On March 4, 2004, the SEC issued a formal order of private investigation of the Company. This action follows an SEC informal investigation initiated by the SEC after our representatives contacted the SEC on June 30, 2003, to inform the SEC of certain revenue recognition timing issues that our management identified at CHR. We believe that the SEC inquiry is focused primarily on the revenue recognition timing issues at CHR during fiscal years 2003, 2002 and 2001, which fiscal years were the subject of the various adjustments and restatements described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2003. We are cooperating with the SEC. As of the date hereof, we are not aware of any additional inquiry or investigation having been commenced against us related to these matters, but we cannot predict whether or not any such regulatory inquiry or investigation will be commenced or, if it is, the outcome of any such inquiry or investigation. If the current or any future investigation was to result in action against the Company, our business and financial condition could be harmed. See Item 3 — “Legal Proceedings — Government Investigations.”

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We, and certain of our current and former officers and directors, are defendants in several stockholder class action lawsuits.

The Company, and certain present and former officers and directors of the Company and CHR, were named as defendants in numerous complaints purporting to be class actions which were consolidated in the United States District Court for the Middle District of Florida. The complaints seek unspecified compensatory damages and other relief. In addition, certain present and former officers and directors of the Company and CHR, and Catalina Marketing, as a nominal defendant, have been named in two shareholder derivative actions. The plaintiffs seek unspecified compensatory damages, restitution of improper salaries, insider trading profits and payments from us, and disgorgement under the Sarbanes-Oxley Act of 2002.

We intend to vigorously defend against these lawsuits. We cannot currently predict the impact or resolution of this litigation or reasonably estimate a range of possible loss, which could be material, and the resolution of these lawsuits may harm our business and have a material adverse impact on our financial condition. Securities lawsuits may result in substantial costs, divert management’s attention and other resources, and have a material and adverse effect on our financial condition and the results of our operations in the future.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our principal market risks are interest rates on various debt instruments and foreign exchange rates in the Company’s international operations.

Interest Rates

We centrally manage our domestic debt and consider investment opportunities and risks, tax consequences and overall financing strategies. This domestic debt consists of a line of credit with interest rates based on the Prime Rate, the Eurodollar Rate or the Federal Funds Rate. International debt relates to our Japan subsidiary and is used to fund the purchases of coupon equipment and for day-to-day operations. A 100 basis point change in interest rates, based on the average outstanding indebtedness for fiscal year 2005, would have resulted in a corresponding change in interest expense of approximately $0.6 million.

Foreign Operations

Our operations outside of the United States expose us to movements in currency exchange rates, which can be volatile at times. The economic impact of currency exchange rate movements on us is complex because such changes are often linked to variances in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, could cause us to change our financing and operating strategies.

The aggregate foreign currency exchange transaction effects included in determining consolidated results of operations include a gain of $1.1 million in our consolidated net income in fiscal year 2005, a $0.6 million gain in our consolidated net income in fiscal year 2004 and a $1.3 million gain in fiscal year 2003. We have not utilized derivative financial instruments to reduce the effect of fluctuating foreign currencies. We estimate that, based upon our fiscal year 2005 and fiscal year 2004 net income in local currency, a 10% change in foreign currency exchange rates would not have resulted in a material impact to net income in either fiscal year 2005 or fiscal year 2004. We believe that this quantitative measure has inherent limitations because it does not take into account the impact of macroeconomic factors or changes in either results of operations or our financing and operating strategies.

Our revenues from continuing foreign operations represented approximately 15.6% of our total revenues from continuing operations in fiscal year 2005, 12.1% in fiscal year 2004 and 7.8% in fiscal year 2003. For a discussion on the effect of changes in foreign currency exchange rates on the Company’s revenues for fiscal year 2005, see in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Foreign Currency Translation and Its Effect on Revenues.”

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Item 8. Consolidated Financial Statements and Supplementary Data

INDEX TO FINANCIAL INFORMATION

	Page
Management’s Report on Internal Control Over Financial Reporting	32
Report of Independent Registered Certified Public Accounting Firm	33
Consolidated Statements of Operations, Years Ended March 31, 2005, 2004 and 2003	34
Consolidated Balance Sheets at March 31, 2005 and 2004	35
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss), Years Ended March 31, 2005, 2004 and 2003	36
Consolidated Statements of Cash Flows, Years Ended March 31, 2005, 2004 and 2003	37
Notes to the Consolidated Financial Statements	38

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2005, based on criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on its assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of March 31, 2005.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of March 31, 2005, has been audited by PricewaterhouseCoopers LLP, an independent registered certified public accounting firm, as stated in their report which appears herein.

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REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Catalina Marketing Corporation:

We have completed an integrated audit of Catalina Marketing Corporation’s 2005 consolidated financial statements and of its internal control over financial reporting as of March 31, 2005 and audits of its 2004 and 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Catalina Marketing Corporation and its subsidiaries at March 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2005 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 8, that the Company maintained effective internal control over financial reporting as of March 31, 2005 based on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2005, based on criteria established in Internal Control- Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

Tampa, Florida

June 10, 2005

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CATALINA MARKETING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended March 31,
	2005			2004			2003
	(In thousands, except per share data)
Revenues	$	410,062		$	408,632		$	383,849
Costs and expenses:
Direct operating expenses (exclusive of depreciation and amortization shown below)		129,449			140,401			147,502
Selling, general and administrative		129,365			124,856			109,345
Depreciation and amortization		42,446			45,243			40,869
Total costs and expenses		301,260			310,500			297,716
Income from operations		108,802			98,132			86,133
Interest (expense)		(1,490	)		(2,935	)		(1,849	)
Other income (expenses), net		2,940			2,399			(1,012	)
Income before income taxes		110,252			97,596			83,272
Provision for income taxes		41,656			37,199			31,708
Income from continuing operations		68,596			60,397			51,564
Discontinued operations:
Income (loss) of discontinued operations		(4,272	)		(78,900	)		3,534
Gain on dispositions of discontinued operations, net		1,128			—			—
Income (loss) from discontinued operations		(3,144	)		(78,900	)		3,534
Cumulative effect of accounting change, net of $0.6 million tax benefit		—			(770	)		—
Net income (loss)	$	65,452		$	(19,273	)	$	55,098
Earnings per share – basic:
Income per common share from continuing operations	$	1.31		$	1.15		$	0.95
Income (loss) from discontinued operations		(.06	)		(1.50	)		0.06
Cumulative effect of accounting change		—			(0.02	)		—
Net income (loss) per common share	$	1.25		$	(0.37	)	$	1.01
Weighted average common shares outstanding		52,167			52,304			54,474
Earnings per share – diluted:
Income per common share from continuing operations	$	1.31		$	1.15		$	0.94
Income (loss) from discontinued operations		(.06	)		(1.50	)		0.06
Cumulative effect of accounting change		—			(0.02	)		—
Net income (loss) per common share	$	1.25		$	(0.37	)	$	1.00
Weighted average common shares outstanding		52,356			52,324			54,885

See accompanying Notes to the Consolidated Financial Statements.

34

CATALINA MARKETING CORPORATION

CONSOLIDATED BALANCE SHEETS

	As of March 31,
	2005			2004
	(In thousands, except share data)
ASSETS
Current Assets
Cash and cash equivalents	$	116,191		$	72,704
Accounts receivable, net		58,708			56,963
Inventory		4,703			5,836
Investments held in trust		4,633			5,356
Deferred tax asset		6,108			8,536
Prepaid billboard rental		—			3,296
Prepaid expenses and other current assets		4,925			6,306
Total current assets		195,268			158,997
Property and equipment
Store equipment		222,897			231,070
Furniture and office equipment		57,191			59,420
Building		22,296			22,296
Billboards		—			14,556
Building and other improvements		8,926			9,573
Software		38,507			40,974
Land		4,110			4,110
		353,927			381,999
Less: accumulated depreciation		(250,591	)		(255,156	)
Property and equipment, net		103,336			126,843
Goodwill		80,495			84,743
Patents, net		11,681			13,472
Other assets		1,958			2,754
Total assets	$	392,738		$	386,809
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	21,032		$	15,372
Income taxes payable		6,810			3,127
Accrued expenses		62,137			65,778
Deferred revenue		28,457			35,730
Current portion of long-term debt		30,299			37,016
Total current liabilities		148,735			157,023
Long-term deferred tax liability		9,738			9,827
Long-term debt		34,324			29,908
Other long-term liabilities		3,567			4,475
Total liabilities		196,364			201,233
Commitments and contingencies
Minority interest		—			914
Stockholders’ Equity:
Preferred stock, $.01 par value; 5,000,000 authorized shares; none issued and outstanding		—			—
Common stock, $.01 par value; 150,000,000 authorized shares; 50,760,666 and 52,134,462 shares issued and outstanding at March 31, 2005 and 2004, respectively		508			521
Paid-in capital		—			2,485
Accumulated other comprehensive income (loss)		251			(312	)
Retained earnings		195,615			181,968
Total stockholders’ equity		196,374			184,662
Total liabilities and stockholders’ equity	$	392,738		$	386,809

See accompanying Notes to the Consolidated Financial Statements.

35

CATALINA MARKETING CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME (LOSS)

	Comprehensive Income (Loss)			Number of Shares		Par Value of Common Stock			Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Stockholders’ Equity
	(In thousands)
BALANCE AT MARCH 31, 2002				55,336		$	553		$	7,667		$	(634	)	$	215,677		$	223,263
Issuance of common stock				430			5			7,358			—			—			7,363
Increase in investment in subsidiary, net of tax				—			—			243			—			—			243
Tax benefit from exercise of non-qualified stock options and disqualified dispositions				—			—			1,951			—			—			1,951
Repurchase, retirement and cancellation of common stock				(3,132	)		(31	)		(14,819	)		—			(57,123	)		(71,973	)
Deferred compensation plan common stock units and Directors’ common stock grants				121			1			(874	)		—			—			(873	)
Net income	$	55,098		—			—			—			—			55,098			55,098
Foreign currency translation adjustment		923		—			—			—			923			—			923
Comprehensive income	$	56,021		—			—			—			—			—			—
BALANCE AT MARCH 31, 2003				52,755			528			1,526			289			213,652			215,995
Issuance of common stock				89			1			1,430			—			—			1,431
Increase in investment in subsidiary, net of tax				—			—			25			—			—			25
Tax benefit from exercise of non-qualified stock options and disqualified dispositions				—			—			271			—			—			271
Repurchase, retirement and cancellation of common stock				(749	)		(8	)		(888	)		—			(12,411	)		(13,307	)
Deferred compensation plan common stock units and Directors’ common stock grants				39			—			121			—			—			121
Net loss	$	(19,273	)	—			—			—			—			(19,273	)		(19,273	)
Foreign currency translation adjustment		(601	)	—			—			—			(601	)		—			(601	)
Comprehensive loss	$	(19,874	)	—			—			—			—			—			—
BALANCE AT MARCH 31, 2004				52,134			521			2,485			(312	)		181,968			184,662
Issuance of common stock				230			2			4,682			—			—			4,684
Increase in investment in subsidiary, net of tax				—			—			238			—			—			238
Tax benefit from exercise of non-qualified stock options and disqualified dispositions				—			—			258			—			—			258
Repurchase, retirement and cancellation of common stock				(1,652	)		(16	)		(8,023	)		—			(36,135	)		(44,174	)
Deferred compensation plan common stock units and Directors’ common stock grants				49			1			343			—			—			344
Dividends				—			—			17			—			(15,670	)		(15,653	)
Net income	$	65,452		—			—			—			—			65,452			65,452
Foreign currency translation adjustment		563		—			—			—			563			—			563
Comprehensive income	$	66,015		—			—			—			—			—			—
BALANCE AT MARCH 31, 2005				50,761		$	508		$	—		$	251		$	195,615		$	196,374

See accompanying Notes to the Consolidated Financial Statements.

36

CATALINA MARKETING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended March 31,
	2005			2004			2003
	(In thousands)
Cash Flows from Operating Activities:
Net income (loss)	$	65,452		$	(19,273	)	$	55,098
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		41,763			45,852			41,570
Amortization		1,926			1,785			1,698
Impairment charges		4,907			85,565			1,225
Provision for (recoveries of) doubtful accounts		(297	)		1,075			1,103
Cumulative effect of accounting change, net-of-tax		—			770			—
Amortization of deferred financing fees		276			909			—
Deferred income taxes		2,394			2,177			(350	)
Loss on sale of equipment and businesses		1,994			2,488			564
Contribution of common stock to deferred compensation plan and directors		344			121			(873	)
Tax benefit from exercise of non-qualified stock options and disqualified dispositions		258			271			1,951
Other		456			(151	)		2,110
Changes in operating assets and liabilities:
Accounts receivable		(4,101	)		19,531			4,261
Inventory, prepaid expenses and other assets		3,786			535			5,226
Accounts payable		6,226			(3,754	)		929
Taxes payable		4,602			(5,169	)		1,200
Accrued expenses		(7,375	)		7,241			2,335
Deferred revenue		(4,620	)		(1,840	)		456
Net cash provided by operating activities		117,991			138,133			118,503
Cash Flows from Investing Activities:
Capital expenditures		(22,527	)		(26,427	)		(42,555	)
Proceeds from the sale of property, equipment and businesses		5,850			451			126
Business acquisition payments		(914	)		(23,787	)		(29,146	)
Net cash used in investing activities		(17,591	)		(49,763	)		(71,575	)
Cash Flows from Financing Activities:
Proceeds from (payments on) the Corporate Facility, net		30,000			(12,000	)		2,000
Payments on VIE indebtedness		(29,565	)		—			—
Proceeds from Japan borrowings		33,831			10,591			26,864
Payments on Japan borrowings		(37,042	)		(3,718	)		(23,600	)
Financing fees paid		(714	)		(1,082	)		—
Proceeds from issuance of common and subsidiary stock		4,922			1,684			7,928
Payment for repurchase of the Company’s common stock		(44,174	)		(13,307	)		(71,973	)
Dividends paid		(15,653	)		—			—
Other		—			—			(324	)
Net cash used in financing activities		(58,395	)		(17,832	)		(59,105	)
Effect of exchange rate changes on cash		1,482			451			236
Net change in cash and cash equivalents		43,487			70,989			(11,941	)
Cash and cash equivalents, at beginning of year		72,704			1,715			13,656
Cash and cash equivalents, at end of year	$	116,191		$	72,704		$	1,715
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for
Interest	$	1,827		$	1,787		$	1,967
Income taxes	$	31,666		$	33,263		$	31,405

See accompanying Notes to the Consolidated Financial Statements.

37

CATALINA MARKETING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Description of the Business and Basis for Presentation

Description of the Business. Catalina Marketing Corporation, a Delaware corporation, and its subsidiaries (the “Company”), provide behavior-based communications, developed and distributed for consumer packaged goods manufacturers, pharmaceutical manufacturers and marketers and retailers. The Company’s primary business was developed to provide consumers with in-store coupons delivered based upon purchase behavior and distributed primarily in supermarkets. Today, the Company offers behavior-based, targeted-marketing services and programs globally through a variety of distribution channels. These marketing solutions, including discount coupons, loyalty marketing programs, pharmacist and patient education newsletters, compliance mailings, in-store instant-win games and other consumer communications, are delivered directly to shoppers by various means. By specifying how a particular consumer transaction will “trigger” a promotion to print, manufacturers and retailers can deliver customized incentives and messages to only the consumers they wish to reach. The Company tracks actual purchase behavior and uses Universal Product Code-based scanner technology to target consumers at the checkout counter and National Drug Code information to trigger delivery of customized communications to consumers during pharmacy prescription checkout transactions.

The Company is organized and managed by segments which include the following operations: Catalina Marketing Services (“CMS”), Catalina Health Resource (“CHR”) and the international operations (“International”), which provides marketing services similar to those services provided by CMS in the United States.

In November 2003, the Company announced its intent to divest Japan Billboard, Direct Marketing Services (“DMS”) and Catalina Marketing Research Solutions (“CMRS”) which were deemed not to be strategically aligned with the Company’s current core businesses. Japan Billboard operated a billboard and outdoor media business in Japan. DMS provided targeted direct mail programs designed to market to consumers in their homes. CMRS provided a range of traditional marketing research services. These three business units were sold during fiscal year 2005. Their results of operations are shown as discontinued operations in the accompanying Consolidated Statements of Operations. See Note 19.

The Company previously reported the activities of Retail Services and CMRS in a segment called “Other.” Effective April 1, 2004, the Company restructured the Retail Services and Manufacturer Services units by combining Retail Services and Manufacturer Services and renaming the segment Catalina Marketing Services. The combination was part of the Company’s strategy to optimize its selling and administrative efforts. As a result of the combination and the sale of CMRS, the “Other” segment is no longer a reported segment. Segment information for fiscal years 2004 and 2003 for Retail Services has been reclassified to CMS to reflect the new segment reporting.

CMS serves the needs of domestic retailers and consumer product manufacturers, primarily within the consumer packaged goods industry. Using the Catalina Marketing Network^®, this operating segment specializes in behavior-based marketing communications that are delivered at the point of sale. The primary service line of CMS is the in-store delivery of incentives and communications at the checkout lane of a retailer, typically a supermarket. CMS links its proprietary software, computers, central databases and printers with a retailer’s point-of-sale controllers and scanners. The network prints customized promotions and communications at the point of sale based on product Universal Product Codes or other scanned information. The printed promotions and communications are handed to consumers by the cashier at the end of the shopping transaction.

CHR services allow pharmaceutical and consumer packaged goods manufacturers, as well as retail pharmacies, to provide consumers with condition-specific health information and direct-to-patient communications. CHR’s primary service offerings use an in-store, prescription-based targeting technology to provide targeted, direct-to-patient communications on behalf of the Company’s clients. These communication services include messages and educational information to healthcare patients at the pharmacy level throughout the Health Resource Network. The Health Resource Network is a proprietary software system with built-in targeted response capabilities. Communications are primarily delivered to consumers based on a variety or combination of factors including demographic data such as age and gender information, transactional data, primarily the National Drug Codes found on all prescription drugs and de-identified prescription history and information. CHR clients are able to use these communications to provide information on a wide variety of products such as over-the-counter medicines, prescription medications and other healthcare remedies and merchandise.

International operations include in-store electronic targeted marketing services for consumers in France, Italy, the United Kingdom, Germany and Japan. The Catalina Marketing Network^® operates internationally in a similar manner as the domestic CMS business in offering a full range of targeted marketing solutions to many of the top consumer packaged goods manufacturers and maintains relationships with major supermarket, hypermarket and other retailers based primarily on a syndicated platform.

38

Basis of Presentation. These Consolidated Financial Statements were prepared in conformity with Accounting Principles Generally Accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes. Actual results could differ from those estimates. Estimates and assumptions which, in the opinion of management, are significant to the underlying amounts included in the consolidated financial statements and for which it would be reasonably possible that future events or information could change those estimates include impairment of long-lived assets, the realization of deferred income tax assets and the resolution of tax and legal contingencies.

The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions are eliminated in consolidation. The accounts of the wholly owned foreign subsidiaries are included for the twelve months ended December 31, which is their fiscal year end, to facilitate the timing of the Company’s closing process.

The results of operations from the Company’s divested business units and the related net gain on disposition are reflected in the accompanying statement of operations as discontinued operations. The results of operations of the discontinued business units for fiscal years 2004 and 2003 have been reclassified to conform to the current year’s presentation.

In addition, the Consolidated Financial Statements for fiscal years 2004 and 2003 include the accounts of a variable interest entity from which the Company leased its headquarters facility in St. Petersburg, FL. The Company determined that it was the primary beneficiary of this entity and, thus, consolidated the accounts of this entity pursuant to the requirements of Financial Accounting Standards Board’s (“FASB”) Interpretation (“FIN”) No. 46 (revised 2003), “Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51.” The headquarters facility was purchased by the Company in fiscal year 2005. See Note 8.

Certain reclassifications have been made to the property and equipment section of the consolidated balance sheet at March 31, 2004 to conform to the current year presentation.

Note 2. Summary of Significant Accounting Policies

Revenue Recognition and Deferred Revenue. The Company delivers its targeted marketing services through various channels. The following revenue recognition policies are followed for the Company’s significant revenue-generating segments and transactions:

Catalina Marketing Services and International

The Company’s CMS and International segments generate revenue primarily by providing in-store, electronic marketing delivery services via the Catalina Marketing Network^®. The amount of revenue recognized is based on the total incentives delivered multiplied by a per-print fee. Delivered incentives include targeted promotions, messages and sweepstakes. The Company generally bills clients a minimum category fee in advance of the actual delivery. Contracts for delivery include a minimum number of targeted incentives or messages for a specified category, or categories, within a four-week period referred to as a “cycle.” The delivery is based upon particular triggering transactions that are registered at the point of sale (i.e., the checkout counter of a retail store). The majority of CMS contracts cover multiple cycles. The client is given the exclusive right to have incentives delivered for a particular product category during the applicable cycle.

The Company has concluded that recognizing revenue as the incentives are delivered is a systematic and rational method that represents the pattern over which the revenue is earned and the Company’s obligations to clients are fulfilled. Furthermore, the Company believes that the exclusivity feature is not a separate deliverable apart from the delivery of the targeted incentive. Therefore, the Company recognizes in-store electronic marketing service revenue as the incentives are delivered, provided collection of the resulting receivable is reasonably assured. Amounts collected prior to delivery are reflected as deferred revenue and subsequently recognized when (1) the incentives are delivered or (2) in full in the eighteenth month after the end of the last cycle if the minimum number of incentives have not been delivered by the end of the last cycle specified in the contract. Occasionally, if the minimum number of program incentives is not delivered within the applicable cycles, the remaining allotment of incentives may be transferred to future cycles in order to permit the client to reach the contracted minimums.

In certain fixed-fee program arrangements where a fixed number of targeted incentives are not required, revenue is deferred and recognized ratably over the particular cycle or cycles, regardless of the number of incentives delivered.

The Company engages in certain barter transactions with some of its retail clients, exchanging primarily in-store, electronic marketing delivery services (“retail incentives”) for access to the retail client’s shoppers at the checkout. Access to the retail client occurs when a manufacturer incentive is delivered. The barter transactions do not result in revenue recognition because the fair value of the consideration received and the value of the retail marketing services delivered are not determinable within the criteria established under U.S. GAAP. The retailers can defer the delivery of the Company’s retail incentives up to twelve months after the initial exchange of consumer access. However, the Company estimates and accrues the projected costs to be expended for the delivery of the retail incentives when access to the retail shopper is provided.

39

Catalina Health Resource

CHR generates revenues by providing targeted direct-to-patient communications in retail pharmacies, referred to as PATIENTLink^™, via the Health Resource Network. PATIENTLink^™ includes prescription information, therapeutically relevant editorial content and product information. The Company generally bills clients a minimum fee in advance of the delivery of a fixed number of customized prints or “messages” within specified time periods, typically 6 to 15 months. Delivery is triggered by transactions that are registered at the retail pharmacy’s point of sale. For particular triggers, the client is given the exclusive right to have their messages delivered based upon a particular product category trigger during the applicable time period.

The Company has concluded that recognizing revenue as a PATIENTLink^™ print is delivered is a systematic and rational method that represents the pattern over which the revenue is earned and its obligations to clients are fulfilled. Furthermore, the Company believes that the exclusivity feature is not a separate deliverable apart from the delivery of the customized print. CHR recognizes revenue when the print is delivered, provided collection of the resulting receivable is reasonably assured. Amounts collected prior to delivery are deferred and recognized as revenue (1) when delivery occurs or (2) in full in the twelfth month after the end of the last cycle specified in the contract. Occasionally, if the minimum number of customized newsletters is not printed, the remaining allotment of messages may be extended or transferred to future periods in order to permit the client to reach the contracted print minimums.

In certain fixed-fee program arrangements where a fixed number of messages are not required, revenue is deferred and recognized ratably over the particular period of the related contract, regardless of the number of customized prints delivered.

In some cases, a guaranteed level of performance on a direct-to-patient communication program is required, such as a required minimum return on the client’s investment. When such an uncertainty about the client’s acceptance of program performance exists, revenue is not recognized until such time that the client accepts the level of program performance.

Research and Development. The Company’s research and development efforts are generally for pilot-project execution to create, test and support new applications for the Catalina Marketing Network^® and Health Resource Network, market research, software development, and system upgrades. For each of the fiscal years ended March 31, 2005, 2004 and 2003, expenditures for research and development which are included in selling, general and administrative expenses, were $2.0 million, $1.2 million and $1.0 million, respectively. These expenditures include internal and external labor primarily for the development of the Company’s networks.

Advertising Costs. Advertising costs are expensed as incurred and amounted to $0.6 million, $0.9 million and $2.3 million in the years ended March 31, 2005, 2004 and 2003, respectively.

Foreign Currency Translation. Balance sheet accounts are translated at exchange rates in effect at the end of the subsidiaries’ fiscal year and income statement accounts are translated at weighted average exchange rates for the year. Translation gains and losses are included as a separate component of stockholders’ equity in accumulated other comprehensive income (loss).

Foreign Currency Transactions. Net realized and unrealized gains and losses from foreign currency transactions are included in Other income (expenses), net in the Company’s Consolidated Statements of Operations, and were a $1.1 million gain, a $0.6 million gain and a $1.3 million gain for the fiscal years ended March 31, 2005, 2004 and 2003, respectively.

Net Income (Loss) Per Common Share. For purposes of calculating the basic and diluted earnings per share, no adjustments have been made to the reported amounts of net income (loss). The following is a reconciliation of the denominator of basic and diluted earnings per share (“EPS”) computations shown on the face of the accompanying Consolidated Financial Statements (in thousands):

	Year Ended March 31,
	2005	2004	2003
Basic weighted average common shares outstanding	52,167	52,304	54,474
Dilutive effect of options outstanding	189	20	411
Diluted weighted average common shares outstanding	52,356	52,324	54,885

40

The following outstanding options were not included in the computation of diluted EPS because their effect would have been anti-dilutive (in thousands except price per share data):

	Year Ended March 31,
	2005	2004	2003
Outstanding options	5,113	4,305	5,767
Range of prices	$26.31-$36.82	$18.13-$36.82	$26.31-$36.82

The Company repurchased 1.7 million, 0.7 million and 3.1 million shares of the Company’s common stock during fiscal years 2005, 2004 and 2003, respectively.

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 recorded at fair value. Of the total amount of cash and cash equivalents as of March 31, 2005, $19.3 million is held by our France subsidiary and can not be transferred to the United States without incurring applicable income taxes. See Accounting Standards Adopted in Fiscal Year 2005 - FASB Staff Position No. FAS 109-2 (“FAS 109-2”); FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” below for additional information regarding the Company’s policy on its reinvestment of the earnings of its foreign subsidiaries.

Accounts Receivable. Accounts receivable are recorded on a gross basis less the allowance for doubtful accounts. The Company estimates the allowance for doubtful accounts based on existing economic factors, known information about the financial condition of the clients and the amount and age of the accounts. The accounts are generally written off after all collection attempts have been exhausted. The Company records a provision for estimated doubtful accounts as part of direct operating expenses. The following is a detail of the activity in the Company’s allowance for doubtful accounts for the years indicated (in thousands):

	Year Ended March 31,
Allowance for Doubtful Accounts	2005			2004			2003
Beginning balance	$	3,674		$	3,911		$	4,154
Increase (decrease) in provision		(297	)		1,075			1,103
Account write-offs, net of recoveries		(934	)		(1,312	)		(1,346	)
Ending balance	$	2,443		$	3,674		$	3,911

The Company’s decrease in the provision for doubtful accounts in fiscal year 2005 is primarily due to the change in the status of the collectibility of certain retail customer accounts for which a specific provision for uncollectibility had been recorded during fiscal year 2004.

Inventory. Inventory consists primarily of paper used for promotion printing and is located at clients’ locations, primarily in supermarkets and retailers’ warehouses. The Company records paper usage primarily based on actual print length at the time the promotion is delivered and uses the first-in, first-out method of costing. Inventory is stated at the lower of cost or market.

Property and Equipment. Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method based on the estimated useful lives of the related assets, as follows: store equipment — five years; furniture and office equipment — five to ten years; building — thirty-nine and one-half years; building and other improvements — generally seven to 10 years, but not to exceed the lease period; and software — amortized over the length of the software agreement, not to exceed 5 years. Prior to the sale of the Company’s Japan Billboard business, billboards were depreciated using the straight-line method over an estimated useful life of eight years. Third-party installation costs for store equipment, net of amounts reimbursed by the retailer, are capitalized and amortized using the straight-line method over the estimated useful lives of the related store equipment. Maintenance and repair costs are expensed as incurred.

Capitalized Software Development Costs. Costs for software developed for internal use are capitalized in accordance with AICPA Statement of Position 98-1 (“SOP 98-1”), “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” and are amortized over five years. Computer software is internally developed to meet the Company’s internal requirements, and no substantive plan exists or is being developed to externally market internally developed software. Computer software costs that are incurred by the Company in the preliminary project stage are expensed as incurred. Certain other costs that meet the criteria of SOP 98-1 are capitalized. These costs include external direct costs of materials, external services consumed in developing internal-use computer software, and specifically identifiable payroll and payroll-related costs for employees who are directly associated with the development of internal-use computer software. Training costs and data conversion costs are expensed by the Company as incurred.

41

Goodwill. Goodwill represents the excess of the purchase price paid over the fair value of the tangible and identifiable intangible assets, net of the fair value of liabilities assumed in a business combination. Pursuant to Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (“SFAS No. 142”), as of April 1, 2001, goodwill is no longer amortized but instead is subject to impairment tests to be performed at least annually, and more frequently if events and circumstances indicate that impairment is likely. Impairment is indicated when the fair market value is less than the carrying value of the reporting unit. Asset values determined to be impaired are expensed in the period when impairment is determined. To determine fair market value, the Company uses a discounted cash flow approach, using the same assumptions as those used to develop the Company’s three-year, long-range plan, updated as necessary based on the Company’s internally-generated monthly forecasts. The Company incorporates a terminal value cash flow based upon an estimated future growth rate. During the fiscal years 2005, 2004 and 2003, the Company performed the required impairment testing. See additional discussion in Note 3.

Patents, Net. The amount capitalized to patents includes only those patents acquired from others, primarily arising from the Company’s acquisitions of businesses. Patents are amortized over their estimated useful lives which range from 5 to 20 years, using the straight-line method.

Impairment Testing of Long-Lived Assets. The Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If this review indicates that the carrying value of the long-lived assets will not be recoverable, as determined based on the expected undiscounted future cash flows of the long-lived assets, the Company’s carrying value of the long-lived assets is reduced by the amount by which the carrying value exceeds fair value. For most instances, the Company uses a discounted cash flow approach to determine fair value. Cash flows utilized in these analyses include the same assumptions as those used in the Company’s three-year, long-range plan, updated as necessary based on the Company’s internally-generated monthly forecasts. During fiscal years 2005, 2004 and 2003, the Company performed the required impairment testing. See additional discussion in Note 5.

Stock Based Compensation. The Company accounts for option, stock grant and stock purchase plans under APB Opinion No. 25, “Accounting for Stock Issued to Employees,” under which approximately $0.2 million, $0.3 million and $0.4 million in compensation expense has been recognized for fiscal years 2005, 2004 and 2003, respectively. The Company follows SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” for disclosure purposes only. Under SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. During fiscal years 2005, 2004 and 2003, the Company used the following weighted average assumptions in its fair value calculations for those grants issued in the respective years:

	Year Ended March 31,
	2005		2004		2003
Volatility	45.1	%	49.3	%	42.0	%
Risk-free rate (based on date of grant)	3.6	%	3.0	%	3.7	%
Expected dividend yield (1)	1.3	%	0	%	0	%
Expected life	5 years		6 years		6 years
(1)      The expected dividend yield is determined as of the date of the grant. The Company did not pay dividends prior to fiscal year 2005. The dividend yield component of the option pricing model for the grants made in fiscal year 2005 was based on management’s expectation of future dividends to be paid over the life of the option.

The per share weighted average fair values of options granted in fiscal years 2005, 2004 and 2003 were $9.56, $8.04 and $11.63, respectively.

42

Had compensation expense for these plans been recognized in accordance with SFAS No. 123, the Company’s net income (loss) and earnings (loss) per share would have been reduced to the following pro forma amounts (in thousands, except per share data):

	Year Ended March 31,
	2005			2004			2002
Net income (loss):
As reported	$	65,452		$	(19,273	)	$	55,098
Add stock-based employee compensation expense included in reported net income, net of tax		238			262			417
Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of tax (1)		(6,696	)		(10,706	)		(18,514	)
Pro forma net income (loss)		58,994		$	(29,717	)	$	37,001
Basic EPS:
As reported	$	1.25		$	(0.37	)	$	1.01
Pro forma	$	1.13		$	(0.57	)	$	0.68
Diluted EPS:
As reported	$	1.25		$	(0.37	)	$	1.00
Pro forma	$	1.13		$	(0.57	)	$	0.67
(1) Includes the following amounts for the purchase discount offered under the Company’s employee stock purchase plan	$	26		$	387		$	755

In fiscal year 2005, the Company reversed $5.6 million, net of income taxes, of previously reported pro forma stock compensation expense due to forfeitures, as well as revisions to the estimated timing for actual vesting for performance-based options as compared with the original period over which the Company believed the performance conditions would be met.

In fiscal year 2004, several of the Company’s executives left the Company prior to exercising their options and, as a result, their unexercised options were forfeited. The pro forma compensation expense for fiscal year 2004 shown in the table above includes a reversal of previously reported pro forma compensation expense of $10.1 million, net of income taxes, related to these forfeited options.

On March 15, 2005, the Company’s Board of Directors approved the acceleration of vesting of all unvested options held by current employees to purchase the Company’s common stock having an exercise price of $33.46 or greater. Options with respect to 316,220 shares of the Company’s common stock were subject to the acceleration, which was effective on March 31, 2005. Because these options had exercise prices in excess of the market value of the Company’s common stock on the date of the approval of the acceleration (were “underwater”), the Company’s Board of Directors determined that the acceleration would serve the best interests of the shareholders by reducing future compensation expense of the Company. As a result of the acceleration of vesting of these options, the Company expects to avoid compensation expense of approximately $4.6 million, net of income taxes, that would have otherwise been recognized under SFAS No. 123 (Revised 2004), “Share-Based Payment”, which the Company intends to adopt effective April 1, 2006.

Fair Value of Financial Instruments. At March 31, 2005 and 2004, the carrying value of cash, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of these financial instruments. The carrying value of the Company’s short-term borrowings and long-term debt approximate fair value and are based on current interest rate and credit spread assumptions.

Concentration of Risk. Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of trade accounts receivable. The Company’s revenue and related trade receivables are derived primarily from the sale of in-store electronic marketing and direct-to-patient communications. Accounts receivable are due primarily from companies located throughout the United States, Europe and Japan. Credit is extended based on an evaluation of the client’s financial condition and, generally, collateral is not required. At March 31, 2005, approximately 22.0% of Accounts receivable, net related to three clients. The Company’s three largest clients accounted for approximately 22.2% of consolidated revenue for fiscal year 2005.

The Company relies on retail stores and pharmacies to provide access to their premises and consumers for the Catalina Marketing Network^® and Health Resource Network to be successful. The Company believes the impact to the networks with respect to a loss of a single retail chain or pharmacy chain may be limited due to the diversity of participation. However, approximately 57.1% of the delivered in-store promotional and communications incentives provided by CMS for its clients during the fiscal year

ended March 31, 2005, were generated from within the stores belonging to five retail chains. Also, over 87.2% of the delivered promotional materials the Company provided for pharmaceutical clients during the fiscal year ended March 31, 2005 were generated from within the pharmacies belonging to three retail pharmacy chains. If any of these five retail chains or three pharmacy chains were to decide not to renew their contract with the Company, or if they reduce the number of point-of-sale locations, a material reduction in revenues could result if these point-of-sale locations, or the transactions accessed at these locations, are not replaced.

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During fiscal year 2004, the Health Resource Network was deinstalled in two retail pharmacy chains, Eckerd and CVS, which represented approximately 6,500 stores in the Health Resource Network. Revenues generated from prints delivered at Eckerd and CVS were approximately $9.9 million or 12.7% of total CHR revenue in fiscal year 2004, compared with $10.4 million or 16.5% of total CHR revenue in fiscal year 2003. At March 31, 2004, the Health Resource Network was installed in approximately 11,900 retail pharmacy outlets. At March 31, 2005, the Health Resource Network was installed in approximately 12,400 retail pharmacy outlets.

New Accounting Standards

Accounting Standards Adopted in Fiscal Year 2005

FASB Staff Position No. 106-2 (“FSP 106-2”). FSP 106-2 “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “MMA”),” was issued in response to a new law regarding prescription drug benefits under Medicare Part D, as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. FSP 106-2, which supercedes FSP 106-1, provides guidance related to the accounting for the effect of the subsidy on the Company’s postretirement health care plan at such time that a conclusion has been reached that prescription drug benefits available under the plan to some or all participants for some or all future years are “actuarially equivalent” to Medicare Part D and thus qualify for the subsidy under the MMA, and accounting guidance for those circumstances in which the expected subsidy will offset or reduce the Company’s share of the cost of the underlying postretirement prescription drug coverage on which the subsidy is based. The Company has determined the effect of the subsidy on net periodic post-retirement benefit cost for future periods. See Note 17.

FASB Staff Position No. FAS. 109-1 (“FAS 109-1”). FAS 109-1, “Application of FASB Statement No. 109 Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004 (the “Act”)” was issued and effective in December 2004, and provides guidance on the accounting for a special tax deduction created under the Act for qualified production activities. The Company’s business activities do not meet the criteria and do not qualify for the special tax deduction. Accordingly, the provisions of this accounting pronouncement are not applicable to the Company.

FASB Staff Position No. FAS. 109-2. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” was issued and effective in December 2004, and allows additional time for the evaluation of the effect of the Act on plans for reinvesting or repatriating foreign earnings for purposes of applying SFAS No. 109, “Accounting for Income Taxes.” Based upon its evaluation, the Company has determined that it will not utilize the Act’s special one-time dividend received deduction on the repatriation of certain foreign earnings, which is consistent with management’s decision that the earnings of foreign subsidiaries have been and will continue to be indefinitely reinvested in foreign operations. Accordingly, since no amounts have been recognized under the Act, there is no effect on income tax expense in the accompanying Consolidated Financial Statements.

EITF 03-13. At its November 2004 meeting, the FASB’s Emerging Issues Task Force (“EITF”) reached a consensus on EITF 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations” (“EITF 03-13”). This pronouncement provides guidance for (a) determining which cash flows should be considered when assessing whether the cash flows of the disposed component have been eliminated from the ongoing operations of the company and (b) determining the definition of “continuing involvement” for purposes of evaluating the appropriateness of the accounting for discontinued operations treatment pursuant to SFAS No. 144. The Company applied the guidance provided in EITF 03-13 in accounting for the sale of its discontinued CMRS business segment during the third quarter of fiscal year 2005.

Accounting Standards Adopted in Fiscal Year 2004

SFAS No. 143. On April 1, 2003, the Company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”), which requires the recognition of the fair value of obligations associated with the retirement of tangible long-lived assets when there is a legal obligation to incur such costs. Upon initial recognition of a liability, the cost is capitalized as part of the related asset and depreciated over the corresponding asset’s useful life.

Upon adoption, the Company recorded a net increase in property and equipment of $0.7 million and recognized an asset retirement obligation of $2.1 million. This resulted in the recognition of a non-cash charge of $0.8 million, net of an income tax benefit of $0.6 million, which is reported as a cumulative effect of an accounting change for the fiscal year ended March 31, 2004. The effect of the adoption of SFAS No. 143 is associated with Japan Billboard’s contractual obligation to remove certain billboards upon termination or cancellation of the related financing agreement.

If SFAS No. 143 had been adopted on April 1, 2001, the liabilities recorded on the Consolidated Balance Sheets would have been $2.0 million, $1.8 million and $2.0 million higher as of April 1, 2001, March 31, 2002 and March 31, 2003, respectively.

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Additional pro forma information, assuming the adoption of SFAS No. 143 on April 1, 2001, is as follows for the year ended March 31 (in thousands, except per share data):

	2005		2004			2003
Reported net income (loss)	$	65,452	$	(19,273	)	$	55,098
Additional income, assuming the adoption of SFAS No. 143 on April 1, 2001		—		—			67
Pro forma net income	$	65,452	$	(19,273	)	$	55,165
Reported diluted earnings (loss) per share	$	1.25	$	(0.37	)	$	1.00
Additional income, assuming the adoption of SFAS No. 143 on April 1, 2001		—		—			.01
Pro forma diluted earnings (loss) per share	$	1.25	$	(0.37	)	$	1.01

Reconciliation of the beginning and ending amount of asset retirement obligation is as follows:

Balance as of April 1, 2003	$	2,048
Liabilities recorded for billboards newly installed		46
Reduction in liabilities for billboards removed		(731	)
Accretion expense		47
Increase in liabilities for changes in estimates due to the timing of future obligations, teardown costs and future cash flows		365
Currency translation adjustment		237
Balance as of March 31, 2004	$	2,012
Reduction in liabilities for billboards removed		(766	)
Accretion expense		27
Currency translation adjustment		(59	)
Elimination of obligation upon sale of Japan Billboard		(1,214	)
Balance as of March 31, 2005	$	—

The Company’s asset retirement obligations and the related capitalized asset retirement costs at March 31, 2004 were reassessed in accordance with SFAS No. 143, resulting in an additional liability of approximately $0.4 million. The reassessment made by the Company included the anticipated impact from decisions made by the Japan Ministry of Health’s intention to adopt and ratify its involvement in the World Health Organization’s (“WHO”) recently adopted international Framework Convention on Tobacco Control (“FCTC”) passage in January 2004. This event also required an assessment of any potential impairment with respect to the capitalized asset retirement costs. This adoption severely limited Japan Billboard’s tobacco clients in their ability to advertise tobacco products on billboards in Japan. The asset retirement obligations for billboards were eliminated in conjunction with the sale of Japan Billboard during fiscal year 2005.

Revised SFAS No. 132. In December 2003, the FASB issued a revision to SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (“SFAS No. 132”). This revision to SFAS No. 132 is intended to improve financial statement disclosures for defined benefit plans and was initiated in 2003 in response to concerns raised by investors and other users of financial statements about the need for greater transparency of pension information. In particular, the standard requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant quantitative and qualitative information. The guidance is effective for fiscal years ended after December 15, 2003. The information provided in Note 17 regarding the Company’s Other Postretirement Benefits includes the additional disclosures required under the revision to SFAS No. 132.

SFAS No. 150. In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity in its balance sheet. It requires that a company classify a financial instrument that is within the standard’s scope as a liability or as an asset in some circumstances. Many of those instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and, for financial instruments entered into prior to May 31, 2003, it is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this Statement by the Company did not have a material effect on its operating results, financial position or cash flows.

45

Accounting Standards Adopted in Fiscal Year 2003

EITF 00-21. In January 2003, the EITF issued EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). EITF 00-21 provides guidance on when to account for multiple elements in an arrangement as separate units of accounting and requires that revenue arrangements with multiple deliverables be divided into separate units of accounting if the deliverables in the arrangement meet specific criteria. In addition, arrangement consideration must be allocated among the separate units of accounting based on their relative fair values, with certain limitations. In certain cases, the sale of retail in-store electronic marketing services was accompanied by the sale of loyalty cards, thus constituting a revenue arrangement with multiple deliverables. The Company elected to apply EITF 00-21 for the fiscal year ended March 31, 2003. The application of the provisions of EITF 00-21 did not have a material impact on the Company’s results of operations, financial position or cash flows.

SAB 104. In December 2003, the Staff of the SEC issued SAB No. 104, “Revenue Recognition” (“SAB 104”). SAB 104 revises or rescinds portions of the interpretative guidance included in SAB 101 in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. SAB 101, “Revenue Recognition in Financial Statements,” which was issued in December 1999, provides guidance to SEC registrants on the recognition, presentation and disclosure of revenues in the financial statements. The provisions of SAB 104 did not have a material impact on the Company’s financial position or results of operations.

FIN 45. In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 addresses the accounting and disclosures to be made by a guarantor about obligations under certain guarantees that it has issued. It clarifies that a guarantor is required to recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing those guarantees on a prospective basis for guarantees issued or modified after December 31, 2002. FIN 45 requires disclosure in all financial statement presentations issued after December 15, 2002. The Company has no guarantees required to be either recorded or disclosed under FIN 45 as of March 31, 2005.

SFAS No. 146. In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”), which addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS No. 146 generally requires that costs associated with an exit or disposal activity be recognized as liabilities when incurred, rather than the date of commitment to an exit plan, and it establishes that fair value is the standard for initial measurement of such liabilities. SFAS No. 146 applies to exit or disposal activities that are initiated after December 31, 2002. During fiscal years 2004 and 2003, the Company did not have any exit or disposal activities that were required to be accounted for pursuant to this new standard. During fiscal year 2005, the Company applied the provisions of SFAS No. 146 to certain exit and disposal activities, including the sale of its CMRS business.

SFAS No. 148. In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS No. 148”). SFAS No. 148 amends SFAS No. 123 to provide three alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, “Interim Financial Reporting.” SFAS No. 148 is effective for fiscal years ended after December 15, 2002, with certain disclosure requirements effective for interim periods beginning after December 15, 2002. Accordingly, the Company has provided the required disclosures in its Notes to the Consolidated Financial Statements for the year ended March 31, 2005. The Company has elected to follow APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its employee stock options through March 31, 2005. Pro forma information regarding net income and earnings per share is required by SFAS No. 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. See Stock Based Compensation as discussed in this Note 2, and SFAS No. 123R in Accounting Standards Not Yet Adopted, below.

FIN 46 and FIN 46R. In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51” (“FIN 46”), which requires the consolidation of certain variable interest entities in which the equity holders do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. For variable interest entities created before February 1, 2003, FIN 46 requires measurement of the assets and liabilities of the variable interest entity at their carrying amounts. The provisions of FIN 46 regarding implementation date were revised by FIN 46 (revised) (“FIN 46R”). The additional provisions of FIN 46R did not have a material impact on the Company’s financial position or results of operations.

The Company adopted FIN 46 in fiscal year 2003 and accounted for the obligation under a lease agreement on its headquarters facility in accordance with the provisions of FIN 46. The Company leased its headquarters facility through a variable interest entity that was created in fiscal year 2001 and was partially funded by a third-party financial institution. The variable interest entity’s sole function was the leasing of the headquarters facility to the Company. The accompanying Consolidated Balance Sheet as of March 31, 2004 reflects the carrying amount of the consolidated assets of the variable interest entity that served as collateral, and is presented in the following table (in thousands):

Land	$	4,110
Building		19,757
Building and other improvements		762
Furniture and office equipment		819
	$	25,448

46

Minority interest of $0.9 million as of March 31, 2004 represents the equity ownership of the variable interest entity not held by the Company.

The following pro forma income statement for fiscal year 2003 reflects the effect of the application of FIN 46 to the Company (in thousands, except per share data):

	Prior to the Adoption of FIN 46			Consolidation of Variable Interest Entity(1)			As Restated for the Adoption of FIN 46
Revenues	$	383,849		$	—		$	383,849
Costs and expenses		296,921			795			297,716
Income from operations		86,928			(795	)		86,133
Interest (expense)		(1,172	)		(677	)		(1,849	)
Other income (expenses), net		(1,012	)		—			(1,012	)
Income (loss) before income taxes		84,744			(1,472	)		83,272
Provision (benefit) for income taxes		32,282			(574	)		31,708
Income from continuing operations		52,462			(898	)		51,564
Income from discontinued operations		3,534			—			3,534
Net income (loss)	$	55,996		$	(898	)	$	55,098
Net income (loss) per common share:
Basic	$	1.03		$	(.02	)	$	1.01
Diluted	$	1.02		$	(.02	)	$	1.00

(1) The pro forma adjustments reflect an increase in depreciation expense of $1.5 million, a reduction of rent expense and a corresponding increase to interest expense of $0.7 million and an income tax benefit of $0.6 million.

The Company purchased its headquarters facility from the variable interest entity in fiscal year 2005. Accordingly, the accounts of the Variable Interest Entity, which was terminated in conjunction with the purchase, are no longer included in the Company’s Consolidated Financial Statements. See Note 8.

SFAS No. 144. In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets” (“SFAS No. 144”). This pronouncement provides guidance for (a) recognition of an impairment loss related to long-lived assets to be held and used, (b) accounting for long-lived assets to be disposed of other than by sale and (c) accounting for long-lived assets to be disposed of by sale. The Company applies the provisions of SFAS No. 144 when testing its long-lived assets for impairment.

The Company applied the guidance provided by SFAS No. 144 in accounting for the sale and the financial reporting of its discontinued business segments for fiscal year 2005.

Accounting Standards Not Yet Adopted

FAS No. 151. In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (“SFAS No. 151”). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “. . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight and rehandling costs may be so abnormal as to require treatment as current period charges. . . ..” SFAS No. 151 requires that those items be recognized as current period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 151 to have a material effect on its results of operations or financial condition.

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SFAS No. 153. In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets – an amendment of APB Opinion No. 29” (“SFAS No. 153”). SFAS No. 153 amends Accounting Principles Board Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 153 to have a material effect on its results of operations or financial condition.

SFAS No. 123R. In December 2004, the FASB issued Statement No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R replaces SFAS No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“Opinion No. 25”). SFAS No. 123 established, as preferable, a fair-value-based method of accounting for share-based payment transactions with employees, but permitted the continued application of the guidance in Opinion No. 25, as long as the notes to the financial statements disclosed what net income would have been had the fair-value-based method been used. The Company elected to record the effect of share-based payments in accordance with Opinion No. 25 and disclosed the effect of SFAS No. 123 in its notes to the financial statements. SFAS No. 123R will require compensation cost relating to share-based payment transactions to be recognized in financial statements.

The cost of equity instruments will generally be measured based on the fair value of the instruments at the date of issue using an option-pricing model. Companies can adopt one of two transition methods for options issued prior to the effective date of SFAS No. 123R; either the “modified-prospective transition” or the “modified-retrospective transition.” Under the modified-prospective transition approach, companies recognize expense for stock options that were granted subsequent to the adoption of SFAS No. 123R and recognize expense for any unvested stock options that vest subsequent to the adoption of SFAS No. 123R. Under the modified-retrospective approach, companies will be allowed to show prior period financial statements as if SFAS No. 123R had been in effect for all of the years presented.

SFAS No. 123R is effective for the Company as of April 1, 2006. The Company has not determined the amount of compensation expense that will result from the adoption of SFAS No. 123R, but expects the amount to have a material effect on its results of operations. See discussion of Stock Based Compensation above.

Note 3. Acquisitions, Disposition and Goodwill

The Company has historically made acquisitions based on various factors including client relationships, service offerings, competitive position, reputation, experience and specialized know-how. The Company’s acquisition strategy was to build upon the capabilities of its various strategic business platforms through the expansion of service capabilities. In executing the acquisition strategy, one of the primary drivers in identifying and executing a specific transaction is the existence of, or the ability to, expand the Company’s existing client relationships. Due to the nature of the Company’s business, the companies it acquired frequently had minimal tangible net assets or identifiable intangible assets. The acquisition price was frequently determined by the future projected revenue and cash flow of the entity being acquired. Accordingly, a substantial portion of the purchase price was allocated to goodwill. The Company performs an annual impairment test to assess whether the fair value of goodwill has been impaired.

On March 31, 2004, the Company sold its loyalty card and data-entry services business to an unrelated third party for $0.5 million in cash, resulting in a loss on sale of approximately $1.1 million. The loss on the sale of this business, which was not a separately reportable business segment, is included in Selling, General and Administrative expenses in the Consolidated Statement of Operations for fiscal year 2004.

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The following tables present the changes in the carrying amount of goodwill during fiscal years ended March 31, 2005, 2004 and 2003 (in thousands):

	Year Ended March 31, 2005
	CMS		CHR		DMS			Int’l		Japan Billboard			CMRS			Total Consolidated
Beginning balance	$	20,210	$	36,132	$	1,609		$	24,153	$	—		$	2,639		$	84,743
Impairment		—		—		(1,609	)		—		—			(2,639	)		(4,248	)
Ending balance	$	20,210	$	36,132	$	—		$	24,153	$	—		$	—		$	80,495
	Year Ended March 31, 2004
	CMS		CHR		DMS			Int’l		Japan Billboard			CMRS			Total Consolidated
Beginning balance	$	20,210	$	36,132	$	30,531		$	24,153	$	7,572		$	23,818		$	142,416
Goodwill acquired		—		—		866			—		22,921			—			23,787
Impairment		—		—		(29,788	)		—		(30,493	)		(21,179	)		(81,460	)
Ending balance	$	20,210	$	36,132	$	1,609		$	24,153	$	—		$	2,639		$	84,743
	Year Ended March 31, 2003
	CMS		CHR		DMS			Int’l		Japan Billboard			CMRS			Total Consolidated
Beginning balance	$	20,210	$	11,978	$	29,867		$	24,112	$	7,572		$	23,618		$	117,357
Goodwill acquired		—		24,154		664			—		—			200			25,018
Other		—		—		—			41		—			—			41
Ending balance	$	20,210	$	36,132	$	30,531		$	24,153	$	7,572		$	23,818		$	142,416

Fiscal Year 2005 Activity

In November 2003, the Company announced its intent to divest CMRS, DMS and Japan Billboard. As a result, the Company tested the goodwill of these reporting units for impairment during fiscal year 2004, resulting in partial impairment of goodwill. See Fiscal Year 2004 Activity below.

The Company tested the goodwill at CMRS for impairment again during fiscal year 2005 due to a further decline in CMRS’ forecasted cash flows. Based upon this testing, the Company determined that an additional impairment of goodwill had occurred and recorded an impairment charge of $2.6 million within discontinued operations, thereby eliminating the goodwill attributable to this business unit.

Goodwill related to DMS of $1.6 million was also eliminated during fiscal year 2005 due to an additional decline in DMS’ forecasted cash flows. The Company did not expect to recover this goodwill. However, subsequent to the write-off of goodwill within discontinued operations, the Company sold the business for an amount in excess of the net book value of the remaining net assets, resulting in a gain on sale.

Fiscal Year 2004 Activity

Increases to Goodwill

In fiscal year 2004, DMS goodwill increased $0.9 million due to the final contingent purchase price payment made to the former owner.

Also in fiscal year 2004, Japan Billboard goodwill increased $22.9 million related to the purchase of the remaining 49% ownership interest in Japan Billboard from the minority shareholders. In May 2003, the Company, through one of its wholly owned subsidiaries, exercised the call option provided in the Japan Billboard purchase agreement to acquire the remaining 49% from the minority interest shareholders. The exercise of this call option resulted in a net cash payment of $22.9 million in July 2003, based on foreign exchange

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rates at the payment date. Using the purchase method of accounting, this transaction created additional goodwill of $22.9 million. The Company exercised the call option to reduce the adverse financial impact that would have resulted from the exercise of a put option available to the minority interest shareholders.

Impairment of Goodwill

Charges for impairment of goodwill of $81.5 million were recorded during fiscal year 2004 and are reflected in Income (loss) from discontinued operations in the accompanying Consolidated Statements of Operations. These impairment charges resulted from certain triggering events during the year, including the Japan Billboard 49% minority purchase and an intent to sell certain reporting units.

The purchase of the remaining 49% of Japan Billboard in the second quarter of fiscal year 2004 and the announcement of the intention to divest of this business during the third quarter of fiscal year 2004 were both triggering events requiring impairment testing. The Company calculated impairment charges of $30.5 million, which eliminated Japan Billboard’s goodwill, based on the estimated fair value of the business. The purchase price of the 49% minority interest was based on a pre-determined formula of enterprise value based on Japan Billboard’s performance during the previous four quarters. Subsequent to the purchase of the remaining interest of Japan Billboard, the Company determined that the carrying value of the Japan Billboard business had been impaired primarily because the purchase price paid under the predetermined formula described above was in excess of the fair value of the Japan Billboard business. Fair value was estimated based on a discounted future cash flow model. In addition, the Voluntary Global Tobacco Marketing Initiative (the “Initiative”), described below, had a significant negative impact on the Japan Billboard business.

The passage and adoption of the Initiative in fiscal year 2002 significantly affected the manner in which tobacco companies in Japan could market, promote and advertise their products. As a result of the implementation of this Initiative, Japan Billboard’s primary client, from which it derived approximately 70% of its revenues, began to reduce its advertising expenditures for billboards significantly, as well as most other media and promotional spending. The Initiative, as it relates to outdoor advertising, mandated that the maximum visual dimension of any billboard advertisement be limited to 35 square meters. As a result, a significant number of Japan Billboard’s sales contracts covering a broad network of large-sized billboards with this client were either terminated or not renewed during fiscal year 2003. This trend continued during fiscal year 2004 and the Company’s forecasted cash flows for Japan Billboard continued to decline, such that, during the third quarter of fiscal year 2004, the estimated fair value of the business was significantly less than the carrying value, reducing the goodwill to $0. In addition to the impairment charge for goodwill, the Company recognized an impairment charge for certain billboards, as discussed in Note 5.

The Company also tested the goodwill of CMRS and DMS after announcing its intent to divest these reporting units. The initial testing of the goodwill of these reporting units resulted in partial impairment of goodwill due to the decline in these businesses’ forecasted cash flows. Additional subsequent testing of these business units in fiscal year 2004, based upon purchase offers received from prospective buyers, resulted in further impairment of goodwill. Goodwill impairment charges for CMRS and DMS, included in Income (loss) from discontinued operations, were $21.2 million and $29.8 million, respectively, for fiscal year 2004.

Fiscal Year 2003 Activity

DMS and CMRS goodwill increased $0.7 million and $0.2 million, respectively, due to contingent purchase price payments made during the year.

In fiscal year 2003, CHR goodwill increased $24.2 million due to the Company’s June 2002 tender offer to purchase the minority shares in the business. As of March 31, 2002, the Company owned 87.1% of the outstanding common stock of CHR. In June 2002, the Company commenced a tender offer to purchase the outstanding minority interest common stock of CHR, at a purchase price of $33.00 per share. Certain current and former employees and directors of CHR owned the outstanding shares that were purchased in the tender offer. During the fiscal year ended March 31, 2003, the Company purchased 731,921 of the outstanding shares of CHR common stock for approximately $24.2 million. As of March 31, 2003, the Company held 5,771,921 of the total 5,954,047 outstanding shares, or 97% of CHR common stock. The June 2002 tender offer expired on October 16, 2002. The acquisition of the CHR common stock purchased under the June 2002 tender offer was accounted for using the purchase method of accounting.

See Note 14 for information regarding an additional tender offer made in fiscal year 2005 for the remaining outstanding shares of CHR common stock.

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Note 4. Patents

The gross and accumulated amortization balances relating to patents were as follows (in thousands):

	Weighted Avg. Useful Life As of March 31, 2005 (In years)	As of March 31,
		2005			2004
Purchased patents	14.7	$	23,590		$	23,552
Accumulated amortization			(11,909	)		(10,080	)
Patents, net		$	11,681		$	13,472

Estimated future amortization of patents is as follows as of March 31, 2005 (in thousands):

Fiscal Year	Estimated Amortization
2006	1,684
2007	1,641
2008	1,641
2009	1,639
2010	1,629

The Company recognized amortization expense of $1.9 million, $1.8 million and $1.7 million for fiscal years 2005, 2004 and 2003, respectively, which is included on the Consolidated Statements of Operations within Depreciation and Amortization.

Note 5. Impairment Charges

The Company recorded impairment charges during fiscal year 2005 of $0.4 million and $0.3 million at CMRS and Corporate, respectively, because the estimated fair value of certain depreciable assets exceeded their carrying value. The impairment charge related to those assets of CMRS is included in Income (loss) from of discontinued operations. The impairment charge related to those assets of Corporate are included in selling, general and administrative expenses.

During fiscal years 2004 and 2003, Japan Billboard recognized impairment charges of $4.1 million and $1.2 million, respectively, to write down billboards and related fixtures to fair value. These charges are included in Income (loss) from discontinued operations. Fair value was determined using discounted forecasted future cash flows. In both years, the undiscounted cash flows expected to be generated from the billboards were less than the carrying amount. In fiscal year 2003, this is primarily attributed to the effects of the Initiative (see further discussion of the Initiative in Note 3). In fiscal year 2004, this is attributed to both the effects of the Initiative and the anticipated effects of an announcement by Japan’s Ministry of Health in January 2004 of its intention to sign and ratify the international Framework Convention on Tobacco Control (“FCTC”), an international treaty negotiated by the World Health Organization that sets minimum standards for tobacco control policies. The adoption of FCTC was expected to further limit the ability of tobacco companies to advertise tobacco products on billboards in Japan.

See Note 3 for a discussion of impairment charges related to goodwill.

The following table summarizes the impairment charges related to goodwill and other long-lived assets recorded by the Company (in thousands):

	Year ended March 31,
	2005		2004		2003
DMS	$	1,609	$	29,788	$	—
CMRS		3,010		21,179		—
Japan Billboard		—		34,598		1,225
Total for discontinued operations	$	4,619	$	85,565	$	1,225
Corporate		288		—		—
	$	4,907	$	85,565	$	1,225

During fiscal year 2003, the Company recorded an impairment charge of $1.0 million to write off an investment, accounted for

using the cost method, due to an other-than-temporary decline in the carrying value. Factors leading to the impairment included the investment’s history of negative cash flows from operations, lack of earnings performance longer than originally anticipated and the current business prospects of the investee. Management’s rationale for asserting that the impairment was other-than-temporary

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include the speculative nature of the start-up investment, the requests for additional financing sooner than expected, the rate at which the investee was using cash and the lack of any foreseeable viable market for the product being developed by this investee. This charge is included as a component of Other income (expenses), net on the accompanying Consolidated Statements of Operations for fiscal year 2003. This investment was included in the corporate group and had not been allocated to any operating segment.

Note 6. Detail of Accrued Expenses

Accrued expenses include (in thousands):

	As of March 31,
	2005		2004
Payroll related	$	24,356	$	17,333
Accrued retailer fees		9,842		9,899
Deferred compensation plans (see Note 12)		4,746		6,901
Sales commissions		10,712		7,728
Accrued operating expenses		3,515		9,369
Business taxes		4,901		7,915
Other		4,065		6,633
Total accrued expenses	$	62,137	$	65,778

Note 7. Income Taxes

The components of income before income taxes and the income tax provision (benefit) consisted of the following (in thousands):

	Year Ended March 31,
	2005			2004			2003
Income before income taxes:
Domestic	$	93,335		$	86,787		$	76,746
Foreign		16,917			10,809			6,526
	$	110,252		$	97,596		$	83,272
Income tax provision (benefit)
Current taxes:
Federal	$	34,437		$	22,572		$	27,765
State		5,255			1,819			811
Foreign		5,790			4,492			3,108
		45,482			28,883			31,684
Deferred taxes:
Federal		(3,442	)		7,553			(165	)
State		(377	)		1,139			125
Foreign		(7	)		(376	)		64
		(3,826	)		8,316			24
Provision for income taxes	$	41,656		$	37,199		$	31,708

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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 (in thousands):

	Year Ended March 31,
	2005			2004			2003
Expected federal statutory taxes at 35%	$	38,588		$	34,158		$	29,145
State and foreign income taxes, net of federal benefit		3,022			2,478			2,914
Tax benefit of foreign branches		(3,991	)		(2,767	)		(4,515	)
Increase in valuation allowance		3,798			3,227			4,082
Other		239			103			82
Provision for income taxes	$	41,656		$	37,199		$	31,708

Deferred income tax assets or liabilities are computed based on the temporary differences between the financial statement and income tax basis 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 from 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):

	As of March 31,
	2005			2004
Deferred Tax Assets:
Payroll related	$	1,248		$	1,882
Deferred revenue		1,663			402
Provision for doubtful accounts		814			1,373
Accrued expenses		2,383			4,638
Net operating loss carryforwards		15,882			14,767
Investments in unconsolidated equity securities		990			1,060
Capital loss carryforward		11,969			799
Other		267			282
		35,216			25,203
Valuation allowance		(31,116	)		(17,653	)
Net deferred tax assets		4,100			7,550
Deferred Tax Liabilities:
Depreciation and amortization		(7,730	)		(8,258	)
Prepaid expenses		—			(583	)
Net deferred tax assets (liabilities)	$	(3,630	)	$	(1,291	)
Net deferred tax assets (liabilities) consist of:
	As of March 31,
	2005			2004
Deferred tax asset (current)	$	6,108		$	8,536
Long-term deferred tax asset		—			—
Deferred tax liability (current)		—			—
Long-term deferred tax liability		(9,738	)		(9,827	)
Net deferred tax assets (liabilities)	$	(3,630	)	$	(1,291	)

The Company periodically reviews the need for a valuation allowance against deferred tax assets and recognizes these deferred tax assets to the extent that realization is more likely than not. Based upon a review of earnings history and trends, forecasted earnings and the relevant expiration of carryforwards, the Company believes that the valuation allowances provided are appropriate. The valuation allowance increased by $13.5 million during fiscal year 2005 and $4.7 million during fiscal year 2004. The increase in the valuation allowance of $13.5 million in fiscal year 2005 as compared with fiscal year 2004 is due to a $9.7 million increase included in discontinued operations and a $3.8 million increase included in continuing operations. The increase in the valuation allowance related to discontinued operations is primarily due to an increase in the deferred tax assets recognized at Japan Billboard, primarily for the capital loss incurred on the sale of Japan Billboard. The increase in the valuation allowance on continuing operations in fiscal year

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2005 is primarily due to an increase in the foreign deferred tax assets during the fiscal year. The increase in the valuation allowance in fiscal year 2004 was also primarily related to an increase in the foreign deferred tax assets during the fiscal year. Management has reserved against these foreign deferred tax assets because the Company believes that it is more likely than not that the deferred tax assets will not be realized.

As of March 31, 2005, the Company had cumulative U.S. federal taxable net operating loss (“NOL”) carryforwards of $0.6 million, which expire between 2012 and 2019. These NOLs were acquired through various Company acquisitions and are limited by Internal Revenue Code Section 382 to an annual deduction of $0.5 million. In addition, various foreign subsidiaries of the Company had aggregate foreign taxable NOL carryforwards of $40.7 million. Approximately $8.8 million of the foreign NOLs can be carried forward indefinitely, while the remaining $31.9 million expire between 2005 and 2010. Foreign pre-tax losses represented by NOLs of approximately $34.9 million have already been deducted in the consolidated U.S. Corporation income tax return.

The Company does not provide for deferred taxes on certain unremitted foreign earnings. Management has decided that earnings of foreign subsidiaries have been and will be indefinitely reinvested in foreign operations and; therefore, the recording of deferred tax liabilities for unremitted foreign earnings is not required. As of March 31, 2005, the cumulative unremitted foreign earnings of the Company’s foreign subsidiaries are $22.2 million. It is impractical to determine the amount of unrecognized deferred taxes with respect to these earnings; however, a foreign tax credit may be available to partially reduce U.S. income taxes in the event of a distribution.

Note 8. Short-Term Borrowings and Long-Term Debt

The Company’s short-term borrowings and long-term debt consisted of the following (in thousands) ⁽¹⁾:

	As of March 31,
	2005		2004
Corporate Facility, interest from 0.695% to 3.475%	$	64,263	$	—
Short-term borrowings with several Japanese banks and financing agents, interest from 1.88% to 6.13% as of March 31, 2004 (payable in Yen)		—		37,016
Long-term obligation associated with variable interest entity, interest rate of 3.11% as of March 31, 2004		—		29,566
Long-term installment debt in Japan, interest from 4.65% to 5.68% as of March 31, 2005 and 2004, maturing through August 2006 (payable in Yen)		360		342
Total debt obligations		64,623		66,924
Less current portion of long-term debt		30,299		37,016
Long-term debt	$	34,324	$	29,908

Maturities of long-term debt are as follows as of March 31, 2005 (in thousands):

	Amount
2006	$	30,299
2007		61
2008		—
2009		—
2010		34,263
2011 and after		—
Total long-term debt	$	64,623

⁽¹⁾ Amounts owed to Japanese banks for short- and long-term debt are as of December 31, 2004 and 2003, due to the consolidation of the Company’s foreign subsidiaries on a three-month lag.

The August 2004 Credit Facility

        On August 27, 2004, the Company entered into a new, five-year revolving credit facility with a group of lenders, led by Bank One, NA, as Agent (the “August 2004 Credit Facility” or the “Credit Facility”), which replaced the Prior Facility (described below). The Credit Facility provides available borrowings of up to $125.0 million, but has a feature that allows the Company to increase the revolving credit line to up to $175.0 million, under certain conditions. The Credit Facility also provides, within the maximum commitment, up to the U.S. dollar equivalent of $50.0 million in available borrowings in Japanese yen by Catalina Marketing Japan K.K., $25.0 million for U.S. dollar-only commercial and standby letters of credit and a maximum U.S. dollar-only “Swing Line” (i.e.,

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an overnight facility), as that term is defined in the Credit Facility, of $10.0 million. The Credit Facility is used for general corporate purposes including, but not limited to, refinancing of existing indebtedness, share repurchases, capital expenditures and acquisitions, as such terms are defined in the Credit Facility.

The interest rate on advances under the Credit Facility is based on (a) the greater of the Prime Rate or the Federal Funds Effective Rate plus one-half percent or, (b) the Eurocurrency Base Rate, as those terms are defined in the Credit Facility. A percentage margin, ranging from 0.625% to 1.125% and determined based upon the Company’s Leverage Ratio, as that ratio is defined in the Credit Facility, is added to the Eurocurrency Base Rate. Amounts due under the Credit facility as of March 31, 2005 included a margin of 0.625%.

The Company pays a quarterly commitment fee ranging from 0.15% to 0.25% of the unused portion of the Credit Facility, which is determined based upon the Company’s Leverage Ratio, as that ratio is defined in the Credit Facility. The commitment fee as of March 31, 2005 was payable at a rate of 0.15%. Usual and customary fees are payable for letters of credit that are issued under the agreement. The Company may, at its option, reduce the maximum commitment amount of the Credit Facility and generally may prepay any amounts outstanding without penalty. The Credit Facility is unsecured, with a negative pledge on all material assets, and is guaranteed by all material U.S. subsidiaries of the Company.

Financing fees paid through March 31, 2005 in conjunction with the August 2004 Credit Facility were $0.7 million. These fees will be amortized as interest expense over the term of the Credit Facility.

In accordance with the terms of the Credit Facility, the Company provides customary, ongoing representations, warranties and covenants, and is subject to quarterly financial covenant compliance. These representations, warranties and covenants include timely submission of financial statements, compliance with income tax, pension and other laws, limitations on liens and incurrence of debt, investments, mergers, consolidations and sales of assets and limitations on transactions with affiliates. Financial compliance covenants include Interest Expense Coverage and Leverage Ratios, as those terms are defined in the agreement. Events of default under the Credit Facility include, but are not limited to, failure to make payments of principal, interest or fees within the applicable cure period, violation of covenants or a change in control of the Company. The Company was in compliance with all Credit Facility covenants as of March 31, 2005.

The Company repaid amounts outstanding under the prior Japan credit facility (described below) with proceeds from the August 2004 Credit Facility on the date the agreement was executed. The total amount borrowed for payment on the prior Japan credit facility was approximately $31.8 million. Due to changes in the currency exchange rates between the U. S. dollar and the Yen, the amount outstanding under the Japan borrowings was $34.3 million as of March 31, 2005.

In addition, the Company borrowed $30.0 million on the Credit Facility on September 1, 2004, and used the proceeds to replenish the cash used to purchase the corporate headquarters facility. See Long-Term Debt of Variable Interest Entity, below. Since the Company’s consolidated accounts previously included the accounts of the lessor, the purchase of the headquarters facility resulted in the refinancing of debt and purchase of the lessor’s equity interest.

There was $64.3 million outstanding under the Credit Facility as of March 31, 2005, with interest payable at rates ranging from 0.695% for the outstanding tranche due in Yen, to 3.475% due under a Eurodollar-based tranche due in U. S. dollars. During April 2005, the Company repaid $30.0 million on the Credit Facility.

The Prior Facility and the Amended Prior Facility

On September 25, 2000, the Company entered into a credit agreement (the “Prior Facility”) with a syndicate of commercial banks including Bank One, NA as the Administrative Agent, and Wachovia Bank, NA as the Syndication Agent and Documentation Agent. Prior to the extension and subsequently amended agreement discussed below, the Prior Facility provided for a revolving loan credit facility of up to $150 million. The Prior Facility was guaranteed by several of the Company’s subsidiaries and contained certain financial covenants, including maintenance of an interest coverage and maximum leverage ratios and other terms and conditions, including a subjective acceleration clause which could require immediate repayment in the event of Default, as defined in the Prior Facility.

As a result of the delay in completing audited financial statements for fiscal year 2003, the Company was unable to complete its covenant compliance certificates as required per the terms of the Prior Facility for the periods ended March 31, 2003 and June 30, 2003. Waivers were obtained from the bank group on June 30, 2003 and September 3, 2003, respectively, to waive the Unmatured Default and the Default, as such terms are defined in the Prior Facility, created by such non-compliance. In conjunction with the September 3, 2003 waiver, available borrowings were reduced from $150 million to $60 million. On September 25, 2003, the expiration date of the Prior Facility, the Company entered into an agreement with its bank group to extend the Prior Facility for 60 days through November 24, 2003. Significant changes to the Prior Facility resulting from the extension included a reduction in availability from $60 million to $30 million, an increase in interest rate pricing, an increase in the unused facility fee and restrictions on cash and investments.

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At the expiration of the extension on November 24, 2003, the Company reached an agreement with its bank group to extend the Prior Facility through August 31, 2004 (the “Amended Prior Facility”). Availability under the Amended Prior Facility remained at $30.0 million. Borrowings under the Amended Prior Facility accrued interest at rates based upon either (i) the British Bankers’ Association Interest Settlement Rate plus 200 basis points, or (ii) the higher of 100 basis points over the Federal Funds Rate or Bank One’s prime rate of interest, as defined in the agreement. In addition, the Prior Facility provided for unused facility fees to accrue at 50 basis points per annum multiplied by the unused portion of the revolving credit facility. This pricing remained effective until such time that the Company’s audited financial statements for fiscal year 2003 were filed with the SEC on May 17, 2004. Subsequent to that date, borrowings under the Amended Prior Facility accrued interest at rates based upon either (i) the British Bankers’ Association Interest Settlement Rate plus an applicable margin ranging from 50 to 150 basis points (Eurodollar Rate) or (ii) the higher of a range of zero to 50 basis points over the Federal Funds Rate or Bank One’s prime rate of interest, as defined in the agreement. In addition, the Amended Prior Facility provided for unused facility fees to accrue at a range of 25 to 35 basis points per annum multiplied by the unused portion of the revolving credit facility. There were no outstanding loans as of March 31, 2004. The stated interest rate on the facility was 3.1% on March 31, 2004.

The Company incurred financing fees of approximately $1.0 million for the credit line extensions, which were deferred and were fully amortized as of August 27, 2004.

Long-Term Debt of Variable Interest Entity

Prior to August 25, 2004, the Company leased its corporate headquarters, in St. Petersburg, FL, from a variable interest entity (“VIE”) that was created in fiscal year 2001 and was partially funded by a third-party financial institution. The Company accounted for the VIE in accordance with FIN 46R. Because the Company was the primary beneficiary of the VIE, the Company had been consolidating the accounts of the VIE, and included the accounts of the VIE in its Consolidated Balance Sheet as of March 31, 2004.

On August 25, 2004, the Company purchased the corporate headquarters facility for $30.5 million. The lease for the corporate headquarters facility, which was scheduled to expire in October 2005, was terminated in conjunction with the purchase. The accounts of the VIE, which included long-term debt of $29.6 million and equity of $0.9 million to fund the facility, were liquidated upon the sale of the facility to the Company and, as such, are no longer consolidated in the Company’s accounts as of March 31, 2005.

Prior Japan Borrowings

On March 26, 2002, Catalina Marketing Japan, KK, a Japan corporation and majority-owned subsidiary of Catalina Marketing Corporation, (the “Japan Subsidiary”) entered into a credit agreement (the “Prior Japan Agreement”) with Bank One, NA.

The Prior Japan Agreement originally provided for a revolving credit facility of up to 500 million Yen, increased to 1.5 billion Yen as of July 31, 2003. The Prior Japan Agreement also provided for a term credit facility of up to 2.0 billion Yen for long-term funding of the Japan Subsidiary. An additional Japan credit facility provided up to 600 million Yen, of which 250 million Yen ($2.3 million) expired during fiscal year 2005.

In conjunction with the extension of the Prior Corporate Facility, the Japan Subsidiary’s credit facility with Bank One, NA was renegotiated (the “Amended Prior Japan Facility”). The Amended Prior Japan Facility consisted of a 1.5 billion yen ($14.4 million as of March 31, 2004) revolving commitment extended through August 31, 2004 and a term loan commitment of 2.0 billion Yen ($19.2 million as of March 31, 2004) that matured March 31, 2005. The Amended Prior Japan Facility was guaranteed by the Company and certain of its domestic subsidiaries, and a pledge of substantially all of the assets of the Company and certain of its domestic subsidiaries, except for the corporate headquarters facility in St. Petersburg, FL.

Borrowings under the Amended Prior Japan Facility accrued interest at rates based upon either (i) the three-year JPY/ JPY Interest Rate Swap market rate against LIBOR plus 2.0% for the term loan or (ii) the Yen TIBOR rate plus 2.0% for the revolving commitment, until such time that the Company’s audited financial statements for fiscal year 2003 were filed with the SEC on May 17, 2004. Subsequent to that date, pricing on the term loan returned to the three-year JPY/ JPY Interest Rate Swap market rate against LIBOR plus 1.25% per annum. Pricing on the revolver was determined based on a grid that ranged from TIBOR plus 1.0% to TIBOR plus 2.0% per annum, dependent upon certain of the Company’s financial covenants.

The Company repaid amounts outstanding under the Prior Amended Japan Facility with proceeds from the August 2004 Credit Facility on the date the August 2004 Credit Facility was executed. The total amount borrowed for payment on the Prior Amended Japan Facility was approximately $31.8 million.

The remaining short- and long-term borrowings outstanding in Japan at March 31, 2005 consist of installment loans payable related to certain equipment purchased by the Company’s coupon operations in Japan.

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Note 9. Commitments and Contingencies

Lease Commitments. The Company leases certain office space and equipment under noncancellable operating leases that expire at various dates through fiscal year 2011. Rental expense under operating leases was $5.8 million, $5.8 million and $5.1 million, in fiscal years 2005, 2004 and 2003, respectively. Future minimum operating lease commitments as of March 31, 2005, are as follows (in thousands):

Fiscal Year
2006	$	4,151
2007		3,088
2008		2,918
2009		2,023
2010		1,657
Thereafter		286
Total minimum lease payments	$	14,123

Contingent Earn-Out Payment. As part of the Restructuring and Amendment Agreement executed in 1999 between the Company and the joint venture partners in the Company’s Japanese coupon operations, the Company is obligated to pay these joint venture partners a final deferred earn-out payment based on the future operating results of the Catalina Marketing Japan coupon business. The contingency stipulates a potential earn-out payment based on a predetermined formula. The Company is not able to estimate the amount, or a range of the possible amounts, of the contingent payment because the Company is not able to reasonably estimate the future earnings of its Japan coupon business over four consecutive quarters during a time period ending between 2006 and 2007, which is the basis of the calculation of the contingent payment. The ultimate amount of this payment, if any, could be material.

Purchase Commitments. The Company has a purchase commitment to a vendor for the purchase of certain customized store equipment, which is used in the normal course of business, pursuant to a contract which extends through November 2007. The outstanding balance under this purchase commitment as of March 31, 2005 was $9.1 million. The Company also has commitments to purchase the safety stock of paper supplies stored at the suppliers’ warehouses on the Company’s behalf. As of March 31, 2005, there was approximately $3.0 million of paper stock for which the Company was committed to purchase in the event the suppliers’ services are terminated by the Company.

The Company’s annual obligation for purchases of the customized store equipment and its obligation for suppliers’ paper stock as of March 31, 2005, are as follows (dollars in thousands):

Fiscal Year
2006	$	6,500
2007		3,524
2008		2,055
Total	$	12,079

Sales Tax Assessment. A sales and use tax audit for the period January 1, 1991 to June 30, 1993 was conducted by a state taxing authority resulting in an assessment of sales tax on the Company’s revenue generated from its electronic marketing delivery service conducted within that state. The Company subsequently appealed this assessment to the relevant state tax tribunal. The tax tribunal held that the Company’s electronic marketing delivery activities were taxable in their entirety. In March 2002, the state’s intermediate court of appeals affirmed the decision of the tax tribunal. The Company appealed the case to the state’s supreme court and, in May 2004, the state’s supreme court vacated the prior decision, remanded the case back to the tax tribunal and directed the tax tribunal to apply a different legal test. In July 2004, the state’s tax tribunal ruled in favor of the Company. In October 2004, the state’s Supreme Court affirmed the decision of the tax tribunal. As a result, the Company reversed a liability related to the sales tax assessment of approximately $4.4 million, recognized as a reduction to direct operating expenses during the third quarter of fiscal year 2005.

Income Tax Contingency. Despite the Company’s belief that its income tax return positions are consistent with applicable tax laws, the Company believes that certain positions are likely to be challenged by taxing authorities. The Company is party to various claims and matters of litigation and tax assessments incidental to the normal course of its business. The Company records contingencies for these potential losses once they are deemed probable and estimable. Management believes that the final resolution of these tax matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Government Investigations. On March 4, 2004, the SEC issued a formal order of private investigation that made formal an informal investigation previously initiated by the SEC. The informal investigation was initiated by the SEC after representatives of the Company contacted the SEC on June 30, 2003 to inform the Staff of certain revenue recognition timing issues that management of the Company identified at CHR. The Company believes that the SEC’s inquiry is focused primarily on the revenue recognition timing

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issues at CHR during fiscal years 2001, 2002 and 2003. Since the initiation of the informal investigation and through the date of the filing of this Annual Report on Form 10-K, the Company has been cooperating with the SEC in connection with its investigation, including in-person meetings between Company representatives and the SEC Staff, and the provision to the SEC of information and numerous documents. In addition, the Company has made available as witnesses those individuals under its control in response to the SEC’s inquiries and requests. Other than the SEC investigation, as of the date hereof, the Company is not aware of any additional inquiry or investigation having been commenced against the Company related to these matters, but it cannot predict whether or not any such regulatory inquiry or investigation will be commenced or, if it is, the outcome of any such inquiry or investigation. If the investigation was to result in a regulatory proceeding or action against the Company, the Company’s business and financial condition could be harmed.

Other Legal Matters. In addition, the Company is involved in claims and litigation arising out of the Company’s business, including claims and litigation brought against the Company, and litigation initiated by the Company to protect its intellectual property. The Company records accruals for losses arising from these claims and litigation once they are deemed probable and estimable.

The Company, and certain present and former officers and directors of the Company and CHR, were named as defendants in numerous complaints purporting to be class actions which were filed in the United States District Court for the Middle District of Florida, Tampa Division, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The actions were originally brought on behalf of those who purchased our common stock between January 17, 2002 and August 25, 2003, inclusive. The complaints contain various allegations, including that, during the alleged class period, the defendants issued false and misleading statements concerning our business and operations with the result of artificially inflating our share price and maintained inadequate internal controls. The complaints seek unspecified compensatory damages and other relief. In October 2003, the complaints were consolidated in the United States District Court for the Middle District of Florida and given the caption In re Catalina Marketing Corporation Securities Litigation, Case No. 8:03-CV-1582-T-27TBM. In December 2003, Virginia P. Anderson and the Alaska Electric Pension Fund were named as co-lead plaintiffs (the “Lead Plaintiffs”). On June 21, 2004, the Lead Plaintiffs served their Consolidated Amended Class Action Complaint on behalf of those who purchased our stock between August 14, 1999 and August 25, 2003, inclusive. The Company and other defendants subsequently moved to dismiss the Consolidated Amended Class Action Complaint which motion was denied by the court on March 31, 2005. Plaintiffs filed a motion for class certification in May, 2005. Full briefing on class certification should be completed and submitted to the court by September 2005. In compliance with the applicable rules of civil procedure, the parties have exchanged preliminary information about the witnesses and documents each intends to use in support of their respective positions. The Company anticipates that the parties will engage in more extensive class certification and merits discovery in the near future. The Company intends to vigorously defend against these lawsuits. The Company cannot currently predict the impact or resolution of this litigation or reasonably estimate a range of possible loss, which could be material.

Certain present and former officers and directors of the Company and CHR, and Catalina Marketing, as a nominal defendant, have been named in two shareholder derivative actions entitled The Booth Family Trust v. Frank H. Barker, et al., Case No. 20510-NC, commenced in the Court of Chancery for the State of Delaware in and for New Castle County, and Craig Deeds v. Frank H. Barker, et al., Case No. 04-000862 commenced in the Circuit Court of the Sixth Judicial Circuit in and for Pinellas County, Florida. These shareholder derivative lawsuits allege that the defendants breached various fiduciary duties based upon the same general set of alleged facts and circumstances as the federal shareholder suits. The plaintiffs seek unspecified compensatory damages, restitution of improper salaries, insider trading profits and payments from the Company, and disgorgement under the Sarbanes-Oxley Act of 2002. In December 2003, these actions were stayed pending a ruling by the district court on the anticipated motion to dismiss the Consolidated Amended Class Action Complaint in the federal securities action. In response to the parties’ request for an additional stay, the respective courts stayed each of the actions through August 22, 2005. The Company cannot currently predict the impact or resolution of this litigation or reasonably estimate a range of possible loss, which could be material.

Note 10. Stock-Based Compensation Plans

The Company administers the following plans which were approved by the Company’s Board of Directors and Stockholders: The 1989 Stock Option Plan (the “1989 Plan”), which expired on April 26, 1999 and was replaced with the Amended and Restated 1999 Stock Award Plan (the “1999 Plan”, previously known as the 1999 Stock Option Plan); a stock grant plan, the Catalina Marketing Corporation 1992 Director Stock Grant Plan (the “1992 Grant Plan”), which expired on October 27, 2002 and was replaced with the Catalina Marketing Corporation 2002 Director Stock Grant Plan (the “2002 Grant Plan”); and an employee stock purchase plan, the 2004 Employee Payroll Deduction Stock Purchase Plan (the “2004 Purchase Plan”), which replaced the Catalina Marketing Corporation Employee Payroll Deduction Stock Purchase Plan that expired on April 19, 2004.

1989 Stock Option Plan. Pursuant to the 1989 Plan, 17,250,000 shares of the Company’s common stock were reserved for issuance upon the exercise of options granted under the 1989 Plan. Through March 31, 2005, options to purchase an aggregate of 12,436,754 shares were granted, net of cancellations, of which options to purchase 179,790 shares were outstanding as of March 31, 2005.

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The 1989 Plan provided for grants of Incentive Stock Options (“ISOs”) to employees (including employee directors). Options granted under the 1989 Plan generally became exercisable at a rate of 25% per year (20% per year for initial grants to new employees), commencing one year after the date of grant and generally had granted options to up to ten years. Certain options under the 1989 Plan, which were granted to certain executives of the Company, vested after eight years and had an accelerated vesting schedule based upon the Company reaching specified earnings per share targets, have all been cancelled. The exercise price of all ISOs granted under the 1989 Plan was required to be at least equal to the fair market value of the shares on the date of grant.

1999 Stock Option Plan. Pursuant to the 1999 Plan, 9,900,000 shares of the Company’s common stock are reserved for issuance upon the exercise of options granted under the 1999 Plan. Through March 31, 2005, options to purchase an aggregate of 7,284,922 shares have been granted, net of cancellations, under the 1999 Plan, of which options to purchase 6,912,951 shares were outstanding as of March 31, 2005.

The 1999 Plan provides for grants of ISOs to employees (including employee directors). For non-sales employees, options granted under the 1999 Plan generally become exercisable at a rate of 25% per year (20% per year for initial grants to new employees), commencing one year after the date of grant. For options granted prior to July 2004 to sales employees, initial grants to new sales employees vest at 20% in years 2 and 3, and 30% in years 4 and 5. Annual grants vest at 15% in years 1 and 2, 20% in year 3 and 25% in years 4 and 5. Generally, options have terms of up to ten years. Certain options under the 1999 Plan vest after eight years and provide for accelerated vesting based upon reaching specified earnings per share targets. The exercise price of all ISOs granted under the 1999 Plan must be at least equal to the fair market value of the shares on the date of grant.

Aggregate Stock Option Activity. As of March 31, 2005, options to purchase an aggregate of 12,688,935 shares had been exercised, including options to purchase 60,000 shares granted outside of any plan; options to purchase an aggregate of 7,092,741 shares were outstanding; and 2,615,078 shares remained available for future grants under the 1999 Plan. Of the options outstanding as of fiscal years 2005, 2004 and 2003, options to purchase 2,707,717, 1,920,355 and 2,372,198 shares respectively, were immediately exercisable, with weighted average exercise prices of $30.32, $31.08 and $27.10, respectively.

Stock option activity for fiscal years 2005, 2004 and 2003 for the 1989 and 1999 Stock Option Plans is as follows:

	Number of Shares		Weighted Average Exercise Prices
Options outstanding as of March 31, 2002	8,578,265		$	28.11
Option activity:
Granted	1,910,872			25.43
Exercised	(451,800	)		17.07
Canceled or expired	(1,553,351	)		27.64
Options outstanding as of March 31, 2003	8,483,986			28.18
Option activity:
Granted	351,000			16.80
Exercised	(42,856	)		18.16
Canceled or expired	(4,218,790	)		24.89
Options outstanding as of March 31, 2004	4,573,340			30.44
Option activity:
Granted	3,961,903			24.03
Exercised	(224,312	)		20.38
Canceled or expired	(1,218,190	)		28.36
Options outstanding as of March 31, 2005	7,092,741			27.50
Options available for future issuance as of March 31, 2005	2,615,078

Information on stock options is as follows:

Options Outstanding					Options Exercisable
Range of Exercise Prices	Outstanding as of March 31, 2005	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Exercisable as of March 31, 2005	Weighted Average Exercise Price
$16.01-$25.00	1,980,122	8.5	$	20.04	536,092	$	20.04
$25.01-$33.00	4,264,027	6.9	$	29.27	1,323,033	$	30.82
$33.01-$41.00	848,592	6.0	$	36.04	848,592	$	36.04
	7,092,741				2,707,717

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1992 Director Stock Grant Plan. The 1992 Grant Plan provides for grants of common stock to non-employee members of the Board of Directors. A total of 300,000 shares of the Company’s common stock were authorized for issuance under the 1992 Grant Plan. As of March 31, 2005, 137,930 shares had been granted, net of cancellations. Stock granted under the 1992 Grant Plan vests ratably in annual installments over each director’s remaining term. The 1992 Grant Plan expired on October 27, 2002; therefore, no shares are available for future grants under the 1992 Grant Plan. In fiscal years 2003 and 2002, the Company granted common stock pursuant to this plan in the amounts of 16,500 shares at a weighted average grant-date fair value of $24.56 per share and 12,000 shares at a weighted average grant-date fair value of $33.46 per share, respectively.

2002 Director Stock Grant Plan. The 2002 Grant Plan, which replaced the 1992 Grant Plan, provides for grants of common stock to non-employee members of the Board of Directors. A total of 250,000 shares of the Company’s common stock were authorized for issuance under the 2002 Grant Plan. As of March 31, 2005, 19,833 have been granted from the 2002 Grant Plan leaving 230,167 shares available for future grants under the 2002 Grant Plan. Stock granted under the 2002 Grant Plan vests ratably in annual installments over each director’s remaining term.

Employee Stock Purchase Plan. Pursuant to the 2004 Purchase Plan, 1,300,000 shares of the Company’s common stock were reserved for issuance. During fiscal year 2005, there were 5,150 shares at a weighted average fair value of $29.63 issued to employees. Shares available for future grant total 1,294,850 as of March 31, 2005.

Under the 2004 Purchase Plan, employees may purchase Company common stock at 85% of the lower of the market price on the first or last day of an offering period. The maximum each employee may purchase in an offering period is $12,500 in market value of the Company’s common stock. The Company will typically have two, six-month offering periods each year. The 2004 Purchase Plan qualifies under Section 423 of the Internal Revenue Code of 1986.

Under the Catalina Marketing Corporation Employee Payroll Deduction Stock Purchase Plan, which expired on April 19, 2004, there were 49,293 shares issued to employees during fiscal year 2004 at a weighted average fair value of $17.65, and 92,679 shares issued to employees during fiscal year 2003 at a weighted average fair value of $22.55.

Note 11. Stockholder Protection Plan

The Company has adopted a Stockholder Protection Plan (the “Protection Plan”). To implement this Protection 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% or more of the Company’s common stock or announces or commences a tender offer for 15% or more of the common stock, except for certain instances defined in the Protection Plan.

Note 12. Employee Benefit Plans

The Company maintains a 401(k) Savings Plan, which provides benefits for substantially all employees of the Company who meet minimum age and length-of-service requirements. Amounts charged to expense for this plan totaled $1.1 million in fiscal year 2005, $1.0 million in fiscal year 2004 and $1.2 million in fiscal year 2003.

The Company maintains a non-qualified deferred compensation plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan is designed to permit certain employees and directors of the Company to defer a portion of their compensation. The Deferred Compensation Plan allows participants to elect deferral of certain types of compensation, including directors fees, stock grants under the 1992 and 2002 Grant Plans and shares issuable upon the exercise of stock options, into stock units in the Deferred Compensation Plan, each of which represents a share of the Company’s common stock, and creates the Catalina Marketing Corporation Deferred Compensation Trust (the “Trust”). Amounts deposited in stock unit accounts are distributed in the form of shares of the Company’s common stock upon a payment event. Through the Trust, investment options such as mutual funds and money market funds are available to participants.

The Company follows the accounting guidance in EITF Issue No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested.” As such, the accounts of the rabbi trust have been included in the Consolidated Financial Statements of the Company. The investment in assets other than stock units of the Company and the related liability in the Deferred Compensation Plan are included in Investments held in trust and Accrued expenses in the Company’s Consolidated Balance Sheets, respectively. The Company determined that 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 years 2005, 2004 and 2003 were a $0.3 million increase to compensation expense, a $1.6 million increase to compensation expense and a $1.2 million decrease to compensation expense, respectively. Participants’ elections to invest in Company stock units are irrevocable. These stock units are initially recorded at fair value in the Statement of Stockholders’ Equity and are not subsequently marked to market.

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Note 13. Subsidiary Stock Option Plan

Catalina Health Resource, Inc. (“CHR”) administered the Health Resource Publishing Company 1995 Stock Option Plan (the “1995 Plan”), which was approved by the Board of Directors and stockholders of CHR. The 1995 Plan expired on March 31, 2005.

Pursuant to the 1995 Plan, 1,250,000 shares of CHR’s common stock were reserved for issuance upon the exercise of options granted under the 1995 Plan. As of March 31, 2005, options to purchase an aggregate of 1,058,360 shares had been granted, net of cancellations, options to purchase an aggregate of 1,057,860 shares had been exercised, and options to purchase an aggregate of 500 shares were outstanding. Of the options outstanding as of fiscal years 2005, 2004 and 2003, options to purchase 500, 44,405 and 104,158 shares, respectively, were immediately exercisable, at weighted average exercise prices of $6.53, $9.12 and $6.41, respectively.

The 1995 Plan provided for grants of ISOs to employees (including employee directors) and non-qualified options to non-employee directors. Options granted under the 1995 Plan generally became exercisable at a rate of 25% per year or 20% per year for initial grants to new employees, commencing one year after the date of grant. Generally, options had terms of up to six years. Certain options under the 1995 Plan vested at a rate of 33% per year for the first two years and then vested 33% after six months, commencing one year after the date of grant. The exercise price of all ISOs granted under the 1995 Plan were at least equal to the fair market value of the shares on the date of grant.

Stock option activity for fiscal years 2005, 2004 and 2003 is as follows:

	Number of Shares		Weighted Average Exercise Prices
Options outstanding as of March 31, 2002	412,855		$	5.68
Option activity:
Granted	—			—
Exercised	(166,863	)		3.08
Canceled or expired	(67,239	)		9.22
Options outstanding as of March 31, 2003	178,753			6.79
Option activity:
Granted	—			—
Exercised	(58,051	)		4.58
Canceled or expired	(57,438	)		7.29
Options outstanding as of March 31, 2004	63,264			8.35
Granted	—			—
Exercised	(43,187	)		6.53
Canceled or expired	(19,577	)		12.40
Options outstanding as of March 31, 2005	500			6.53
Options available for future issuance as of March 31, 2005	—			—

See Note 14 for information about the tender offer to purchase CHR shares.

Note 14. Subsidiary Stock Issuances

The Company accounts for gains and losses on the issuances of its subsidiaries’ stock as changes to paid-in capital. The Company’s subsidiary, CHR, has issued stock to employees and non-employee directors during the fiscal years ended March 31, 2005, 2004 and 2003. Information on CHR stock issuances and the resulting change in the Company’s ownership of this subsidiary is included in the following table. Discussion of the Company’s purchase of CHR shares in fiscal year 2003 is included in Note 3. (Amounts in thousands, except per share and percentage data.)

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	Year Ended March 31
	2005			2004			2003
Beginning ownership percentage		96.0	%		96.9	%		87.1	%
Number of shares issued		43			58			167
Average price per share on new share issues	$	6.53		$	4.58		$	3.08
Total cash proceeds received from share issues	$	238		$	266		$	514
Number of subsidiary shares purchased by the Company		—			—			732
Total amount paid by the Company for the share purchases	$	—		$	—		$	24,153
Ending ownership percentage		95.4	%		96.0	%		96.9	%

On September 15, 2004, the Company notified holders of common stock and options to purchase common stock of CHR that it was tendering an offer to purchase the shares of CHR not held by the Company. The tender offer period began on January 3, 2005 and closed on March 31, 2005. All remaining outstanding shares of CHR not held by the Company were tendered by March 31, 2005. Generally, CHR stockholders that owned their shares for a period of at least six months and one day prior to the day the shares were purchased by the Company were eligible to tender their shares under this offer. The Company paid $12.50 per share for 279,786 shares tendered by CHR shareholders, or $3.5 million, on April 8, 2005.

Note 15. Share Repurchase Authorization and Share Repurchases

On September 1, 2004, the Company announced that its Board of Directors had authorized $100.0 million of funds to be available for the repurchase of the Company’s common stock. This authorization replaced the $44.0 million unused portion of the previous $100.0 million common stock repurchase program authorized by the Board of Directors in July 2002. The Company repurchased 1.7 million shares of its common stock during the fourth quarter of fiscal year 2005 for a total of $44.2 million. Prior to the purchase of shares during the fourth quarter of 2005, the Company had not purchased shares since June 2003. Subsequent to June 2003, the Company was precluded from stock repurchases under the terms of the Prior Facility until that facility was replaced on August 27, 2004 with the August 2004 Credit Facility, after which time the Company was no longer restricted from repurchases of its common stock pursuant to the terms of the August 2004 Credit Facility.

As of March 31, 2005, there was $55.8 million remaining under the September 1, 2004 authorization to repurchase shares. This authorization will expire when the total dollar amount authorized by the Company’s Board of Directors has been expended.

Note 16. Cash Dividend

On September 1, 2004, the Company announced that the Board of Directors declared an annual cash dividend of $0.30 per share to common stockholders of record as of September 15, 2004, which was paid to stockholders on October 1, 2004, and totaled $15.7 million.

Note 17. Other Postretirement Benefits

In fiscal year 2002, the Company implemented a plan to provide healthcare benefits to certain eligible retirees and active employees and their eligible dependents. The plan contains no assets, and the Company does not anticipate making contributions to the plan, other than for current benefit payments. Benefits are funded from the Company’s assets on a current basis. Plan benefits are subject to co-payments, deductibles and other limits as defined. The Company’s funding of the cost of healthcare benefits is at the discretion of management. A detail of the net periodic expense is as follows (in thousands):

	Year Ended March 31
	2005		2004		2003
Service cost	$	—	$	13	$	16
Interest cost		124		127		121
Amortization of unrecognized prior service costs		—		442		663
	$	124	$	582	$	800

The amortization of unrecognized prior service costs of $0.4 million and $0.7 million recognized in 2004 and 2003, respectively, represents the effect of the plan implementation in 2002 and the related benefits attributed to the participants’ service provided in prior years, which were amortized on a straight-line basis over the average remaining years of service to full eligibility for benefits of the active plan participants, of 2.7 years. The amortization of unrecognized prior service cost was completed in fiscal year 2004.

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The following table represents the Company’s accumulated postretirement benefit obligation and funded status for the fiscal years ended March 31, 2005 and 2004 (in thousands):

	Year Ended March 31
	2005			2004
Change in accumulated postretirement benefit obligation:
Beginning of year accumulated postretirement benefit obligation	$	2,032		$	1,992
Service cost		—			13
Interest cost		124			127
Actuarial (gain) loss		387			(33	)
Benefits paid		(85	)		(67	)
End of year accumulated postretirement benefit obligation	$	2,458		$	2,032
Change in fair value of plan assets	$	—		$	—
Net amount recognized:
Obligation in excess of plan assets	$	2,458		$	2,032
Unrecognized prior service cost		—			—
Unrecognized actuarial net loss		(433	)		(46	)
Accrued benefit cost	$	2,025		$	1,986

The impact of the MMA was a $0.2 million reduction of the accumulated postretirement benefit obligation for fiscal year 2005. See “Accounting Standards Adopted in Fiscal Year 2005, FASB Staff Position No. 106-2” in Note 2.

The Company uses a December 31 measurement date. For the fiscal year ended March 31, 2005, a weighted average discount rate of 5.75% and annual rate of increase in the per capita cost of healthcare benefits of 12.0% was assumed. The per capita cost of healthcare benefits rate was assumed to decrease gradually to 6.0% for the fiscal year ending March 31, 2018 and remain at that level thereafter. For the fiscal year ended March 31, 2004, a weighted average discount rate of 6.25% and an annual rate of increase in the per capita cost of healthcare benefits of 12.0% was assumed, and the per capita cost of healthcare benefits rate was assumed to decrease gradually to 5.5% for the fiscal year ending March 31, 2011 and remain at that level thereafter. For the fiscal year ended March 31, 2003, a weighted average discount rate of 6.5% and an annual rate of increase in the per capital cost of healthcare benefits of 14.0% was assumed, and the per capita cost of healthcare benefits rate was assumed to decrease gradually to 5.5% for the fiscal year ending March 31, 2011 and remain at that level thereafter.

Assumed healthcare cost trend rates may have a significant effect on the amounts reported for healthcare plans. A one-percentage-point change in the assumed healthcare cost trend rate would have the following effects (in thousands):

	1% Increase		1% Decrease
Effect on service and interest cost for the year ended March 31, 2005	$	22	$	(17	)
Effect on accumulated postretirement benefit obligation at March 31, 2005	$	375	$	(307	)

The gross benefits expected to be paid and gross subsidies expected to be received in each of the next five fiscal years and the aggregate amounts for the five years thereafter as of March 31, 2005, are as follows (in thousands):

Fiscal Year	Benefit		Subsidy
2006	$	86	$	—
2007		99		2
2008		114		2
2009		131		2
2010		139		3
2011–2015		779		35

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Note 18. Segment and Geographic Disclosures

Description of Segments. See the discussion of the Company’s segments in Note 1. Summarized information related to the reportable segments for Catalina Marketing Corporation is shown below. These segments are reported in a manner consistent with the way management evaluates the businesses.

Segment	Business Activity
Catalina Marketing Services	Provides point-of-sale, printed promotions to consumers for consumer packaged goods manufacturers and retailers.
Catalina Health Resource	Provides point-of-sale, direct-to-patient communications for pharmaceutical and consumer packaged goods manufacturers and retailers.
International	Provides services similar to Catalina Marketing Services in the United Kingdom, France, Italy, Germany and Japan.
Corporate	Provides executive and administrative oversight and centralized functions such as information technology, client services and store systems support.
Discontinued operations	Includes Japan Billboard, DMS and CMRS

Basis for Presentation. In general, results of the operating segments are reported based on U.S. GAAP and the accounting policies are consistent with those described in Note 2. However, certain costs generated by the corporate group are allocated to the operating segments as discussed below. Furthermore, all of the significant domestic property and equipment is recorded by Corporate, but the associated depreciation and amortization is allocated to the domestic operating segments.

Allocation of Corporate Group Operating Expenses. The Company’s Corporate group operating expenses include costs for procurement, retail store support, information technology, corporate accounting, client services, analytical services, marketing, human resources, and executive management, and are included in direct operating expenses, selling, general and administrative costs and depreciation and amortization expense in the accompanying Consolidated Statements of Operations for the years ended March 31, 2005, 2004 and 2003. For purposes of segment reporting, these corporate costs are allocated to the Catalina Marketing Services and Catalina Health Resource business segments using methods considered reasonable by management and which provide management with a realistic measure of utilization of corporate services by the respective business segments. Costs that can be directly attributed to the business unit are allocated to that business unit. Costs that are indirectly attributed to the business units are allocated proportionately based on the business unit’s revenues, number of printed incentives, square feet of space used, headcount or other relevant statistics, depending on the type of cost. For example, the cost to maintain the Company’s corporate headquarters is allocated to the domestic business segments based on the estimated square footage each business unit occupies; paper and store maintenance costs are allocated to the domestic business segments based upon the number of printed incentives; data communications costs are allocated based upon revenues. Of the total Corporate group operating expenses, 63.8%, 66.6% and 76.2% were allocated to operating segments during the fiscal years ended March 31, 2005, 2004 and 2003, respectively. Because general corporate overhead cannot be allocated to discontinued operations, Corporate expenses previously allocated to the segments now classified as discontinued operations were re-allocated to Corporate.

Segment Financial Data. A disaggregation of the Company’s consolidated data for each of the three most recent years is presented in the tables which follow (in thousands).

	Revenues from External Customers								Intersegment Revenues
Segments:	2005		2004			2003			2005			2004			2003
Catalina Marketing Services	$	269,608	$	282,126		$	291,413		$	4		$	2		$	53
Catalina Health Resource		76,167		77,765			63,016			—			—			—
International		64,116		49,580			29,991			—			—			—
		409,891		409,471			384,420			4			2			53
Reconciliation of segments to consolidated amount
Corporate		171		(839	)		(571	)		3,442			3,866			3,335
Eliminations		—		—			—			(3,446	)		(3,868	)		(3,388	)
	$	410,062	$	408,632		$	383,849		$	—		$	—		$	—

Revenues from a single client represented approximately 13.7%, 12.0% and 12.2% of consolidated revenues from continuing operations of the Company for fiscal years 2005, 2004 and 2003, respectively. Revenues from this client are included in Catalina Marketing Services and International.

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	Interest Expense(1)
Segments:	2005			2004			2003
Catalina Marketing Services	$	—		$	—		$	—
Catalina Health Resource		—			—			—
International		3,067			2,568			1,928
Corporate		917			2,409			1,435
Eliminations		(2,494	)		(2,042	)		(1,514	)
	$	1,490		$	2,935		$	1,849

(1) Interest income is not significant at any of the Company’s reportable segments.

	Income Taxes Provision (Benefit)
Segments:	2005			2004			2003
Catalina Marketing Services	$	50,288		$	49,501		$	51,629
Catalina Health Resource		6,368			4,951			(3,415	)
International		3,725			689			202
Corporate		(18,725	)		(17,942	)		(16,708	)
	$	41,656		$	37,199		$	31,708
	Net Income (Loss)
Segments:	2005			2004			2003
Catalina Marketing Services	$	73,879		$	72,724		$	75,847
Catalina Health Resource		9,356			7,273			(5,080	)
International		7,395			462			(3,242	)
Corporate		(22,034	)		(20,062	)		(15,961	)
Income from continuing operations		68,596			60,397			51,564
Discontinued operations		(3,144	)		(78,900	)		3,534
Cumulative effect of accounting change		—			(770	)		—
	$	65,452		$	(19,273	)	$	55,098
	Total Assets
Segments:	2005			2004			2003
Catalina Marketing Services	$	1,243,719		$	1,514,933		$	1,115,702
Catalina Health Resource		55,651			68,284			67,786
International		116,483			98,040			73,643
Reconciliation of segments to consolidated amount:
Eliminations		(1,351,484	)		(2,279,816	)		(1,619,864	)
Corporate		327,965			919,257			661,026
Total assets-continuing operations		392,334			320,698			298,293
Total assets-discontinued operations		404			66,111			124,128
	$	392,738		$	386,809		$	422,421
	Capital Expenditures
Segments:	2005			2004			2003
Catalina Marketing Services	$	52		$	2,297		$	1,089
Catalina Health Resource		1,133			1,011			1,666
International		7,175			9,864			9,256
Corporate		13,914			12,558			29,467
Discontinued operations		253			697			1,077
	$	22,527		$	26,427		$	42,555

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	Depreciation and Amortization
Segments:	2005		2004		2003
Catalina Marketing Services	$	26,836	$	28,137	$	25,926
Catalina Health Resource		3,676		5,380		5,502
International		7,042		6,453		3,854
Corporate		4,892		5,273		5,587
	$	42,446	$	45,243	$	40,869

Capital expenditures for the domestic segments are generally made by Corporate. Depreciation expense is allocated to the domestic segments from corporate.

Information about Geographic Areas

	Year Ended March 31,
	2005		2004		2003
Revenues
United States	$	345,946	$	359,052	$	353,858
France		44,289		39,206		24,544
Other International		19,827		10,374		5,447
Total	$	410,062	$	408,632	$	383,849
Long-Lived Assets
United States	$	77,066	$	99,824	$	123,408
France		13,709		11,426		9,425
Other International		12,561		15,593		15,910
Total	$	103,336	$	126,843	$	148,743

Note 19. Discontinued Operations

In November 2003, the Company announced its intent to divest Japan Billboard, DMS and CMRS, which were deemed not to be strategically aligned with the Company’s current core businesses. These businesses were sold during fiscal year 2005. As such, their results of operations have been reflected as discontinued operations in the accompanying Consolidated Financial Statements.

On August 31, 2004, the Company sold the stock of Japan Billboard for 100 Japanese yen to an employee of the Company who was acting as the local General Manager of Japan Billboard until the date of the sale. The transaction was effective as of July 31, 2004. The loss on the disposition of Japan Billboard of $0.5 million includes a gain of $0.5 million relating to the recognition of foreign currency translation effects previously recorded in the cumulative translation adjustment in the balance sheet.

Discontinued operations information relating to Japan Billboard is as follows (dollars in thousands):

	For the Year Ended March 31,
	2005			2004			2003
Revenues	$	6,653		$	14,718		$	21,077
Operating income (loss)		(181	)		(35,286	)		528
Income (loss) before income tax expense		(233	)		(35,546	)		242
Income tax expense		—			1,470			125
Income (loss) from operations		(233	)		(37,016	)		117
Loss on disposition of Japan Billboard, before income tax benefit		(508	)		—			—
Income tax benefit		—			—			—
Loss on disposition of Japan Billboard		(508	)		—			—
Income (loss) from Japan Billboard discontinued operations	$	(741	)	$	(37,016	)	$	117

66

On September 17, 2004, the Company sold DMS and received cash proceeds of $5.5 million. Discontinued operations information relating to DMS is as follows (dollars in thousands):

	For the Year Ended March 31,
	2005			2004			2003
Revenues	$	10,313		$	37,120		$	50,296
Operating income (loss)		(1,372	)		(29,779	)		3,349
Income (loss) before income tax expense		(1,372	)		(29,775	)		3,362
Income tax expense		89			5			1,353
Income (loss) from operations		(1,461	)		(29,780	)		2,009
Gain on disposition of DMS, before income tax benefit		3,291			—			—
Income tax benefit		—			—			—
Gain on disposition of DMS		3,291			—			—
Income (loss) from DMS discontinued operations	$	1,830		$	(29,780	)	$	2,009

The Company sold CMRS on November 29, 2004. Certain assets and liabilities of this business were not transferred to the buyer, including a lease obligation for CMRS’ main office facility in Kentucky. The Company vacated this office facility during the fourth quarter of fiscal year 2005.

Discontinued operations information relating to CMRS is as follows (dollars in thousands):

	For the Year Ended March 31,
	2005			2004			2003
Revenues	$	5,120		$	12,480		$	15,487
Operating income (loss)		(4,125	)		(20,342	)		2,374
Income (loss) before income taxes		(4,125	)		(20,342	)		2,374
Income tax expense (benefit)		(1,547	)		(8,238	)		966
Income (loss) from operations		(2,578	)		(12,104	)		1,408
Loss on disposition of CMRS, before income tax benefit		(2,646	)		—			—
Income tax (benefit)		(991	)		—			—
Loss on disposition of CMRS		(1,655	)		—			—
Income (loss) from CMRS discontinued operations	$	(4,233	)	$	(12,104	)	$	1,408

Combined discontinued operations information for Japan Billboard, DMS and CMRS is as follows (dollars in thousands):

	For the Year Ended March 31,
	2005			2004			2003
Revenues	$	22,086		$	64,318		$	86,860
Operating income (loss)		(5,678	)		(85,407	)		6,251
Income (loss) from discontinued operations before income tax benefit		(5,730	)		(85,663	)		5,978
Income tax expense (benefit)		(1,458	)		(6,763	)		2,444
Income (loss) from operations of discontinued businesses		(4,272	)		(78,900	)		3,534
Gain on disposition of discontinued operations, net, before income tax benefit		137			—			—
Income tax (benefit)		(991	)		—			—
Gain on disposition of discontinued operations		1,128			—			—
Income (loss) from discontinued operations	$	(3,144	)	$	(78,900	)	$	3,534

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Note 20. Unaudited Quarterly Results

The following table presents certain unaudited quarterly results for fiscal years 2005 and 2004 (in thousands, except per share amounts):

	Three Months Ended
	Mar 31,						Dec 31,						Sep 30,					Jun 30,
	2005			2004			2004			2003			2004		2003			2004			2003
Revenues	$	111,969		$	119,560		$	100,319		$	101,885		$	102,372	$	104,322		$	95,402		$	82,865
Direct operating expenses		37,446			40,676			26,200			32,479			32,015		34,292			33,788			32,954
Selling, general and administrative		40,660			32,377			31,365			31,676			28,517		30,034			28,823			30,769
Depreciation and amortization		10,086			11,739			10,202			11,168			10,604		11,074			11,554			11,262
Income from operations		23,777			34,768			32,552			26,562			31,236		28,922			21,237			7,880
Income from continuing operations		15,977			23,738			20,403			15,146			18,853		16,363			13,363			5,150
Income (loss) from discontinued operations		(701	)		(32,514	)		(1,432	)		(18,795	)		1,426		(27,474	)		(2,437	)		(117	)
Cumulative effect of accounting change		—			—			—			—			—		—			—			(770	)
Net income (loss)	$	15,276		$	(8,776	)	$	18,971			(3,649	)	$	20,279	$	(11,111	)	$	10,926		$	4,263
Earnings per share – diluted:
Income (loss) per common share from continuing operations	$	0.30		$	0.44		$	0.39		$	0.29		$	0.36	$	0.32		$	0.26		$	0.10
Income (loss) per share from discontinued operations		(0.01	)		(0.61	)		(0.03	)		(0.36	)		0.03		(0.53	)		(0.05	)		—
Loss per share for the cumulative effect of accounting change		—			—			—			—			—		—			—			(0.02	)
Net income (loss) per share		0.29			(0.17	)		0.36			(0.07	)		0.39		(0.21	)		0.21			0.08
Diluted weighted average common shares outstanding		52,180			52,264			52,720			52,255			52,311		52,221			52,245			52,569

Previously reported amounts for each of the quarters in fiscal year 2004 and for the first two quarters of fiscal year 2005 have been adjusted to reflect the reclassification of the results of certain discontinued operations that were sold during fiscal year 2005. See Note 19.

Note 21. Related Party Transactions

In fiscal years 2005, 2004 and 2003, the Company committed to make donations totaling $0.8 million, $0.4 million and $0.4 million, respectively, to the Catalina Marketing Charitable Foundation (“the Foundation”), a not-for-profit charitable organization for each of these years. The board of directors of the Foundation is comprised of certain management employees of the Company.

During each of the years ended March 31, 2005, 2004 and 2003, the Company made lease payments of $0.4 million to a lessor for the use of an office building. The lessor was an affiliate of the former president of CMRS, who resigned from the Company during 2003. The lease for this office building was terminated in fiscal year 2005, prior to its contractual expiration date in 2009. The Company paid $1.0 million in fiscal year 2005 for the early termination of the lease.

In February 2003, the Company paid an executive officer $0.1 million in exchange for the cancellation of options to purchase 104,603 shares of common stock held by the executive officer.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

Disclosure controls and procedures. An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Interim Chief Financial Officer (who is the Principal Financial Officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on that evaluation, these officers have concluded that the Company’s disclosure controls and procedures were effective at March 31, 2005.

Changes in internal control over financial reporting. During our most recent fiscal quarter, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s report on internal control over financial reporting and attestation of public accounting firm. The report of management on the effectiveness of our internal control over financial reporting and the associated attestation report of our independent registered certified public accounting firm are set forth in Item 8.

Item 9B. Other Information

Not applicable.

69

PART III

Items 10, 11, 12, 13 and 14. Directors and Executive Officers of the Registrant; Executive Compensation; Security Ownership of Certain Beneficial Owners and Management; Certain Relationships and Related Transactions; Principal Accounting Fees and Services.

The information called for by Items 10, 11, 12, 13 and 14 will be contained in the Company’s definitive Proxy Statement for the 2005 Annual Meeting of Stockholders under the captions Compensation of Executive Officers and Non–Employee Directors, Compensation Committee Interlocks and Insider Participation, Report of the Compensation Committee, Share Ownership of Certain Beneficial Owners and Management, Nomination and Election of Directors, and Audit Compensation Information and is incorporated herein by reference. The definitive Proxy Statement will be filed with the Commission on or about the time of the filing of this Annual Report on Form 10-K for fiscal year ended March 31, 2005.

PART IV

Item 15. Exhibit, Financial Statement Schedules.

(a)1. Financial Statements. The following is a list of the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

	Page
Management’s Report on Internal Control Over Financial Reporting	32
Report of Independent Registered Certified Public Accounting Firm	33
Consolidated Statements of Operations, Years Ended March 31, 2005, 2004 and 2003	34
Consolidated Balance Sheets at March 31, 2005 and 2004	35
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss), Years Ended March 31, 2005, 2004 and 2003	36
Consolidated Statements of Cash Flows, Years Ended March 31, 2005, 2004 and 2003	37
Notes to the Consolidated Financial Statements	38

(a)2. Financial Statement Schedules (EDGAR only). All other schedules are omitted because they are not applicable or not required or because the required information is included in the Consolidated Financial Statements or Notes thereto.

(a)3. Index to Exhibits.

Exhibit No.	Description of Document
*3.1	Restated Certificate of Incorporation.
**3.1.1	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.
**3.1.2	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.
3.2	Amended and Restated Bylaws, as amended October 25, 2002, November 3, 2003, November 21, 2003 and December 31, 2004.
**10.1	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.
**10.2	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.
**10.3	2002 Director Stock Grant 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, 2002.
**10.4	2004 Employee Payroll Deduction Stock Purchase Plan, a copy of which is attached as an exhibit to Form S-8 filed on December 2, 2004.
**10.5	Stockholder Protection Agreement dated May 8, 1997, between the Company and ChaseMellon Shareholder Services, LLC, 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, 1997.
10.6	Catalina Marketing Corporation Amended and Restated 1999 Stock Award Plan.
10.7	Catalina Marketing Corporation Deferred Compensation Plan, as amended and restated (November 18, 2004).
10.8	Catalina Marketing Corporation Deferred Compensation Plan Exhibit B 2005 Sub-Plan Applicable to Compensation Deferred or Vested after December 31, 2004.
**10.9	Form of Change of Control/ Severance Agreement, a copy of which is attached to the Company’s Annual Report on Form 10-K for the year ended March 31, 2003.
**10.10	Employment agreement, dated March 3, 2004, between Catalina Marketing Corporation and L. Dick Buell, Chief Executive Officer and included as an exhibit to Form 10-Q for the quarter ended December 31, 2004.

70

**10.11	Amendment, dated October 25, 2004, to the employment agreement between Catalina Marketing Corporation and L. Dick Buell, Chief Executive Officer, dated March 3, 2004 and included as an exhibit to Form 10-Q for the quarter ended December 31, 2004.
**10.12	Employment agreement with Mr. Edward C. Kuehnle and included as an exhibit to Form 8-K filed on January 27, 2005.
**10.13	Letter of offer to Mr. Rick Frier dated February 11, 2005 and included as an exhibit to Form 8-K filed on February 15, 2005.
**10.14	Credit Facility Agreement with Bank One dated August 27, 2004 and included as an exhibit to Form 10-Q for the quarter ended September 30, 2004 filed on November 9, 2004.
**10.15	Agreement to purchase headquarters facility in St. Petersburg, FL, included as an exhibit to Form 8-K filed on August 30, 2004.
21	List of subsidiaries of Company.
23	Consent of independent registered certified public accounting firm.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* 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.

71

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 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Petersburg, State of Florida, on June 13, 2005.

CATALINA MARKETING CORPORATION
(Registrant)
By:	/s/ Robert D. Woltil
	Robert D. Woltil
	Interim Chief Financial Officer (Principal Financial and Accounting 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.

Signature	Capacity	Date
/s/ FREDERICK W. BEINECKE Frederick W. Beinecke	Director and Chairman of the Board	June 13, 2005
/s/ L. DICK BUELL L. Dick Buell	Director and Chief Executive Officer	June 13, 2005
/s/ EUGENE P. BEARD Eugene P. Beard	Director	June 13, 2005
/s/ EDWARD S. (NED) DUNN Edward S. (Ned) Dunn	Director	June 13, 2005
/s/ EVELYN V. FOLLIT Evelyn V. Follit	Director	June 13, 2005
/s/ PETER T. TATTLE Peter T. Tattle	Director	June 13, 2005
/s/ ROBERT D. WOLTIL Robert D. Woltil	Interim Chief Financial Officer	June 13, 2005

72

EX-3.2

Exhibit 3.2

AMENDED & RESTATED BYLAWS

of

CATALINA MARKETING CORPORATION

a Delaware corporation

*Amended to include all amendments to the Bylaws through December 31, 2004.

ARTICLE I

OFFICES

Section 1.01 REGISTERED OFFICE. The registered office of Catalina Marketing Incorporated (hereinafter referred to as the “Corporation”) shall be at such place in the State of Delaware as shall be designated by the Board of Directors (hereinafter referred to as the “Board”).

Section 1.02 PRINCIPAL OFFICE. The principal office for the transaction of the business of the Corporation shall be at such location, within or without the State of Delaware, as shall be designated by the Board.

Section 1.03 OTHER OFFICES. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings may be held at such time, date and place as the Board shall determine by resolution.

Section 2.02 SPECIAL MEETINGS. Except as otherwise required by law and subject to any provision fixed by, or pursuant to, the Certificate of Incorporation of the Corporation, special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors, or by the Chairman of the Board of Directors or the President of the Corporation or by a committee of the Board of Directors (duly authorized and empowered by the Board of Directors to call such meetings), but such special meetings shall not be called by any other person or persons.

Section 2.03 PLACE OF MEETINGS. All meetings of the stockholders shall be held at such places, within or without the State of Delaware, as may from time to time be designated by the person or persons calling the respective meetings and specified in the respective notices or waivers of notice thereof.

Section 2.04 NOTICE OF MEETINGS. Except as otherwise required by law, notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting by delivering a typewritten or printed notice thereof to such stockholder personally, or by depositing such notice in the United States mail, in a postage prepaid envelope, directed to such stockholder at the address furnished by such stockholder to the Secretary of the Corporation for such purpose or, if such stockholder shall not have furnished to the Secretary such stockholder’s address for such purpose, then at such stockholder’s address last known to the Secretary, or by transmitting a notice thereof to such stockholder at such address by telegraph, cable or wireless. Except as otherwise expressly required by law, no publication of any notice of a meeting of the stockholders shall be required. Every notice of a meeting of the stockholders shall state the place, date and hour of the meeting, and, in the case of a special meeting shall also state the purpose or purposes for which the meeting is called. Except as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken.

Whenever notice is required to be given to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve month period, have been mailed addressed to such person at such person’s address as shown on the records of the Corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall have been taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the Corporation a written notice setting forth such person’s then current address, the requirement that notice be given to such person shall be reinstated.

No notice need be given to any person with whom communication is unlawful, nor shall there be any duty to apply to any governmental authority or agency for any permit or license to give notice to any such person.

Section 2.05 QUORUM. Except as provided by law or by the Certificate of Incorporation, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at or to act as secretary of such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called.

Section 2.06 VOTING.

(a) At each meeting of the stockholders, each stockholder shall be entitled to vote in person or by proxy each share or fractional share of the stock of the Corporation which has voting rights on the matter in question and which shall have been held by such stockholder and registered in such stockholder name on the books of the Corporation:

(i) on the date fixed pursuant to Section 2.10 of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or

(ii) if no such record date shall have been so fixed, then (A) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (B) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held.

(b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation such stockholder shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware (the “GCL”).

(c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by such stockholder’s proxy appointed by an instrument in writing, subscribed by such stockholder or by such stockholder’s attorney thereunto authorized and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless such stockholder shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of the stockholders, all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. The vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by such stockholder’s proxy if there be such proxy, and it shall state the number of shares voted.

Section 2.07 LIST OF STOCKHOLDERS. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the entire duration thereof, and may be inspected by any stockholder who is present.

Section 2.08 INSPECTOR OF ELECTION. If at any meeting of the stockholders a vote by written ballot shall be taken on any question, the chairman of such meeting may appoint an inspector or inspectors of election to act with respect to such vote. Each inspector so appointed shall first subscribe an oath faithfully to execute the duties of an inspector at such meeting with strict impartiality and according to the best of his ability. Such inspectors shall decide upon the qualification of the voters and shall report the number of shares represented at the meeting and entitled to vote on such question, shall conduct and accept the votes, and, when the voting is completed, shall ascertain and report the number of shares voted respectively for and against the question. Reports of the inspectors shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. Inspectors need not be stockholders of the Corporation, and any officer of the Corporation may be an inspector on any question other than a vote for or against a proposal in which such stockholder shall have a material interest.

Section 2.09 ADVANCE NOTICE OF STOCKHOLDER PROPOSALS BEFORE ANY MEETING OF STOCKHOLDERS. To be properly brought before any meeting of stockholders, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors or (c) otherwise properly brought before the meeting by a stockholder. In addition, for business to be properly brought before any meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than fifty (50) days nor more than seventy-five (75) days prior to the meeting; provided, however, that in the event less than sixty (60) days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice or the date of the meeting was mailed or such public disclosure was made. A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting: (i) a brief description of the business desired to be brought and the reasons for conducting such business at the meeting, (ii) the name and record address of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder and by any other stockholders known by such stockholder to be supporting such proposal, and (iv) any material or financial interest of the stockholder in such business.

Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any meeting of the stockholders except in accordance with the procedures set forth in this Section 2.09. The Chairman of the Board of Directors or other presiding officer shall, if the facts warrant, determine and declare at any meeting of the stockholders that business was not properly brought before the meeting in accordance with the provisions of this Section 2.09, and if the Chairman should so determine, shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

Section 2.10 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.

(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next

preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

(b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose or any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution related thereto.

ARTICLE III

BOARD OF DIRECTORS

Section 3.01 GENERAL POWERS. The property, business and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all of the powers of the Corporation, except such as are by the Certificate of Incorporation, by these Bylaws or by law conferred upon or reserved to the stockholders.

Section 3.02 NUMBER AND TERM. The authorized number of directors of the Corporation shall be established from time to time by the Board. Until changed by an amendment to this Section 3.02, the authorized number of directors of the Corporation shall be six (6). Directors need not be stockholders of the Corporation. Each director shall hold office until a successor is elected and qualified or until the director resigns or is removed.

Section 3.03 ELECTION OF DIRECTORS.

(a) The directors shall be elected by the stockholders of the Corporation, and at each election the persons receiving the greatest number of votes, up to the number of directors then to be elected, shall be the persons then elected. The election of directors is subject to any provisions contained in the Certificate of Incorporation relating thereto, including any provision for a classified Board of Directors. Each stockholder shall be permitted to vote one vote per share for each director to be elected, however, Shareholders shall not be entitled to cumulate their votes toward the election of any director.

(b) Nomination of persons for election to the Board of Directors, other than those made by or at the direction of the Board of Directors or by any nominating committee or person appointed by the Board of Directors, shall be made by a stockholder only if timely written notice of such nomination or nominations has been given to the Secretary of the Corporation. To be timely, such notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than fifty (50) days nor more than seventy-five (75) days prior to the annual meeting; provided, however, that in the event that less than sixty (60) days’ notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. Each such notice to the Secretary shall set forth: (i) the name and address of record of the stockholder who intends to make the nomination or nominations; (ii) the class and

number of shares of capital stock of the Corporation that are beneficially owned by the stockholder and a representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) the name, age, business address and residence address, and principal occupation or employment of each nominee; (iv) the class and number of shares of capital stock of the Corporation that are beneficially owned by each nominee; (v) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons pursuant to which the nomination or nominations are to be made by the stockholder; (vi) such other information regarding each nominee as would be required to be disclosed and included in a proxy statement pursuant to the proxy rules then in effect promulgated by the Securities and Exchange Commission under Section 14 of the Securities Exchange Act of 1934, as amended; and (vii) the consent of each nominee to serve as a director of the Corporation if so elected. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation.

The Board of Directors may reject any nomination by a stockholder not timely made or otherwise not in accordance with the terms of paragraph (b) of this Section 3.03. If the Board of Directors reasonably determines that the information provided in the stockholder’s notice does not satisfy the informational requirements of this paragraph (b) in any material respect, the Secretary of the Corporation shall promptly notify such stockholder of the deficiency in writing. The stockholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within such period of time, not to exceed ten (10) days from the date such deficiency notice is given to the stockholder, as the Board of Directors shall reasonably determine. If the deficiency is not cured within such period, or if the Board of Directors reasonably determines that the additional information provided by the stockholder, together with the information previously provided, does not satisfy the requirements of this paragraph (b) in any material respect, then the Board of Directors may reject such stockholder’s nomination. The Secretary of the Corporation shall notify a stockholder in writing whether such stockholder’s nomination has been made in accordance with the requirements of this paragraph (b).

Section 3.04 RESIGNATION AND REMOVAL. Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time is not specified, it shall take effect immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Except as and to the extent provided in the Corporation’s Certificate of Incorporation or any resolution or resolutions of the Board incorporated into one or more certificates of designation in accordance with the GCL, any or all of the directors of the Corporation may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of eighty percent (80%) of the outstanding voting stock of the Corporation, voting as a single class.

Section 3.05 VACANCIES. Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of death, resignation, disqualification, an increase in the number of directors, or any other cause, may be filled by vote of the majority of the remaining directors, although less than a quorum, or by a sole remaining director. Each director so chosen to fill a vacancy shall hold office until such director’s successor shall have been elected and shall qualify or until he shall resign or shall have been removed. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office.

Upon the resignation of one or more directors from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided hereinabove in the filling of other vacancies.

Section 3.06 PLACE OF MEETING; TELEPHONE CONFERENCE MEETING. The Board may hold any of its meetings at such place or places within or without the State of Delaware as the Board may from time to time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board or any meeting of a committee thereof by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting.

Section 3.07 FIRST MEETING. The Board shall meet as soon as practicable after each annual election of directors and notice of such first meeting shall not be required.

Section 3.08 REGULAR MEETINGS. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day which is not a legal holiday. Except as provided by law, notice of regular meetings need not be given.

Section 3.09 SPECIAL MEETINGS. Special meetings of the Board may be called at any time by the Chairman of the Board, the Chief Executive Officer, the President, or by any two (2) directors, to be held at the principal office of the Corporation, or at such other place or places, within or without the State of Delaware, as the person or persons calling the meeting may designate.

Notice of the time and place of special meetings shall be given to each director either (i) by mailing or otherwise sending to him a written notice of such meeting, charges prepaid, addressed to him at his address as it is shown upon the records of the Corporation, or if it is not so shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held, at least seventy-two (72) hours prior to the time of the holding of such meeting; or (ii) by orally communicating the time and place of the special meeting to him at least twenty-four (24) hours prior to the time of the holding of such meeting. Either of the notices as above provided shall be due, legal and personal notice to such director.

Section 3.10 QUORUM AND ACTION. Except as otherwise provided in these Bylaws or by law, the presence of a majority of the authorized number of directors shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. The directors shall act only as a Board, and the individual directors shall have no power as such.

Section 3.11 ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or such committee. Such action by written consent shall have the same force and effect as the unanimous vote of such directors.

Section 3.12 COMPENSATION. No stated salary need be paid to directors, as such, for their services but, as fixed from time to time by resolution of the Board, the directors may receive directors’ fees, compensation and reimbursement for expenses for attendance at directors’ meetings, for serving on committees and for discharging their duties; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

Section 3.13 COMMITTEES. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and provided in the resolution of the Board establishing such committees, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except as provided by law), adopting agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation’s property and assets, recommending to the stockholders the dissolution of the Corporation or revocation of a dissolution, or amending these Bylaws; and unless the resolution of the Board expressly so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger.

Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to these Bylaws. Any such committee shall keep written minutes of its meetings and report the same to the Board when required.

Section 3.14 OFFICERS OF THE BOARD. The Board shall have a Chairman of the Board and may, at the discretion of the Board, have a Vice Chairman. The Chairman of the Board or the Vice Chairman shall be appointed from time to time by the Board and shall have such powers and duties as shall be designated by the Board or as prescribed in these Bylaws. The Chairman of the Board shall preside at the meetings of the Board and of the stockholders, provided that, at the Chairman’s option, the Chairman may delegate these duties, or either of them, to the Chief Executive Officer.

ARTICLE IV

OFFICERS

Section 4.01 OFFICERS. The officers of the Corporation shall be a Chairman of the Board, a President, a Secretary and a Chief Financial Officer. The Corporation may also have, at the discretion of the Board, a Chief Executive Officer, one or more Vice Presidents (including Senior, Executive and Assistant Vice Presidents), one or more Assistant Secretaries, and such other officers as may be appointed in accordance with the provisions of Section 4.03 of these Bylaws. One person may hold two or more offices, except that the Secretary may not also hold the office of President or Chief Executive Officer. The salaries of all officers of the Corporation shall be fixed from time to time by the Board.

Section 4.02 ELECTION AND TERM. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 4.03 or Section 4.05 of these Bylaws, shall be chosen annually by the Board, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or until his successor shall be elected and qualified.

Section 4.03 SUBORDINATE OFFICERS. The Board may appoint, or may authorize the Chief Executive Officer to appoint, any officers at the level of Vice President and less senior, and such other officers as the business of the Corporation may require, each of whom shall have such authority and perform such duties as are provided in these Bylaws or as the Board or the Chief Executive Officer from time to time may specify, and shall hold office until he shall resign or shall be removed or otherwise disqualified to serve.

Section 4.04 REMOVAL AND RESIGNATION. Any officer may be removed, with or without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.

Any officer may resign at any time by giving written notice to the Board, the Chairman of the Board, the President or the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 4.05 VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for the regular appointments to such office.

Section 4.06 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the Corporation, if any, shall, subject to the control of the Board, have general supervision, direction and control of the business and affairs of the Corporation. The Chief Executive Officer shall have the general powers and duties of management usually vested in the chief executive officer of a corporation, and shall have such other powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned to such officer by the Board or as prescribed by these Bylaws. In the absence or disability of the President, the Chief Executive Officer, in addition to such officer’s assigned duties and powers, shall perform all the duties of the President and when so acting shall have all the powers and be subject to all the restrictions upon the President.

Section 4.07 PRESIDENT. The President shall exercise and perform such powers and duties with respect to the administration of the business and the affairs of the Corporation as may from time to time be assigned to the President by the Chief Executive Officer (unless the President is also the Chief Executive Officer) or by the Board or as is prescribed in these Bylaws. In the absence or disability of the Chief Executive Officer, the President shall perform all of the duties of the Chief Executive Officer and when so acting shall have all the powers and be subject to all of the restrictions upon the Chief Executive Officer.

Section 4.08 VICE PRESIDENT. The Vice President(s), if any, shall exercise and perform such powers and duties with respect to the administration of the business and affairs of the Corporation as from time to time may be assigned to each of them by the President, the Chief Executive Officer, the Board or as is prescribed by these Bylaws. In the absence or disability of both the Chief Executive Officer and the President or as may be directed by the Board from time to time, the Vice Presidents, in order of their rank as fixed by the Board, or if not ranked, the Vice President designated by the Board, shall perform all of the duties of the President and when so acting shall have all of the powers of and be subject to all the restrictions upon the President.

Section 4.09 SECRETARY. The Secretary shall keep, or cause to be kept, a book of minutes at the principal office for the transaction of the business of the Corporation, or such other place as the Board may order, of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and if special, how authorized and the notice thereof given, the names of those present at directors’ meetings, the number of shares present or represented at stockholders’ meetings and the proceedings thereof.

The Secretary shall keep, or cause to be kept, at the principal office for the transaction of the business of the Corporation or at the office of the Corporation’s transfer agent, a share register, or a duplicate share register, showing the names of the stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.

The Secretary shall give, or cause to be given, notice of all the meetings of the stockholders and of the Board required by these Bylaws or by law to be given, and he shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board or these Bylaws. If for any reason the Secretary shall fail to give notice of any special meeting of the Board called by one or more of the persons identified in Section 3.09 of these Bylaws, or if the Secretary shall fail to give notice of any special meeting of the stockholders called by one or more of the persons identified in Section 2.02 of these Bylaws, then any such person or persons may give notice of any such special meeting.

Section 4.10 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. Any surplus, including earned surplus, paid in surplus and surplus arising from a reduction of capital, shall be classified according to source and shown in a separate account. The books of account at all reasonable times shall be open to inspection by any director.

The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board. The Chief Financial Officer shall disburse the funds of the Corporation as may be ordered by the Board, shall render to the President, to the Chief Executive Officer and to the directors, whenever they request it, an account of all of such officer’s transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board or these Bylaws.

ARTICLE V

CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.

Section 5.01 EXECUTION OF CONTRACTS. The Board, except as otherwise provided in these Bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by these Bylaws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount.

Section 5.02 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such person shall give such bond, if any, as the Board may require.

Section 5.03 DEPOSIT. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, attorney or attorneys, of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the President, the Chief Executive Officer, any Vice President or the Chief Financial Officer (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall be determined by the Board from time to time) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation.

Section 5.04 GENERAL AND SPECIAL BANK ACCOUNTS. The Board from time to time may authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by an officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient.

ARTICLE VI

SHARES AND THEIR TRANSFER

Section 6.01 CERTIFICATES FOR STOCK. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, in such form as the Board shall prescribe, certifying the number and class of shares of the stock of the Corporation owned by him. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman of the Board, the President or a Vice President and by the Secretary or an Assistant Secretary or by the Chief Financial Officer. Any or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any such certificate shall thereafter have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be cancelled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so cancelled, except in cases provided for in Section 6.04 of these Bylaws.

Section 6.02 TRANSFER OF STOCK. Transfer of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.03 of these Bylaws, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be stated expressly in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so.

Section 6.03 REGULATIONS. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. The Board may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them.

Section 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sums as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper to do so.

Section 6.05 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The President or any Vice President and the Secretary or any Assistant Secretary of this Corporation are authorized to vote, represent and exercise on behalf of this Corporation all rights incident to all shares of any other corporation or corporations standing in the name of this Corporation. The authority herein granted to said officers to vote or represent on behalf of this Corporation any and all shares held by this Corporation in any other corporation or corporations may be exercised either by such officers in person or by any person authorized so to do by proxy or power of attorney duly executed by said officers.

ARTICLE VII

INDEMNIFICATION

Section 7.01 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that such person’s conduct was unlawful.

Section 7.02 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or as a

member of any committee or similar body, against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

Section 7.03 DETERMINATION OF RIGHT OF INDEMNIFICATION. Any indemnification under Section 7.01 or 7.02 of these Bylaws (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Sections 7.01 and 7.02 of these Bylaws. Such determination shall be made (i) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders.

Section 7.04 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article VII, to the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 7.01 or 7.02 of these Bylaws, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case under Section 7.03 of these Bylaws.

Section 7.05 ADVANCE OF EXPENSES. Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board upon receipt of an undertaking by or on behalf of the director or officer, to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VII. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate.

Section 7.06 OTHER RIGHTS AND REMEDIES. The indemnification and advancement of expenses provided by, or granted pursuant to, the other Sections of this Article VII shall not be deemed exclusive and are declared expressly to be nonexclusive of any other rights to which those seeking indemnification or advancements of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.

Section 7.07 INSURANCE. Upon resolution passed by the Board, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partner-ship, joint venture, trust or other enterprise or as a member of any committee or similar body against any liabi-lity asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article VII.

Section 7.08 CONSTITUENT CORPORATIONS. For the purposes of this Article VII, references to “the Corp-oration” include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body shall stand in the same position under the provisions of this Article VII with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.

Section 7.09 EMPLOYEE BENEFIT PLANS. For the purposes of this Article VII, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article VII.

Section 7.10 BROADEST LAWFUL INDEMNIFICATION. In addition to the foregoing, the Corporation shall, to the broadest and maximum extent permitted by Delaware law, as the same exists from time to time (but, in case of any amendment to or change in Delaware law, only to the extent that such amendment or change permits the Corporation to provide broader rights of indemnification than is permitted to the Corporation prior to such amendment or change), indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. In addition, the Corporation shall, to the broadest and maximum extent permitted by Delaware law, as the same may exist from time to time (but, in case of any amendment to or change in Delaware law, only to the extent that such amendment or change permits the Corporation to provide broader rights of payment of expenses incurred in advance of the final disposition of an action, suit or proceeding than is permitted to the Corporation prior to such amendment or change), pay to such person any and all expenses (including attorneys’ fees) incurred in defending or settling any such action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer, to repay such amount if it shall ultimately be determined by a final judgment or other final adjudication that such person is not entitled to be indemnified by the Corporation as authorized in this Section 7.10. The first sentence of this Section 7.10 to the contrary notwithstanding, the Corporation shall not indemnify any such person with respect to any of the following matters: (i) remuneration paid to such person if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; or (ii) any accounting of profits made from the purchase or sale by such person of the Corporation’s securities within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or (iii) actions brought about or contributed to by the dishonesty of such person, if a final judgment or other final adjudication adverse to such person establishes that acts of active and deliberate dishonesty were committed or attempted by such person with actual dishonest purpose and intent and were material to the adjudication; or (iv) actions based on or attributable to such person having gained any personal

profit or advantage to which such person was not entitled, in the event that a final judgment or other final adjudication adverse to such person establishes that such person in fact gained such personal profit or other advantage to which such person was not entitled; or (v) any matter in respect of which a final decision by a court with competent jurisdiction shall determine that indemnification is unlawful; provided, however, that the Corporation shall perform its obligations under the second sentence of this Section 7.10 on behalf of such person until such time as it shall be ultimately determined by a final judgment or other final adjudication that such person is not entitled to be indemnified by the Corporation as authorized by the first sentence of this Section 7.10 by virtue of any of the preceding clauses (i), (ii), (iii), (iv) or (v).

Section 7.11 TERM. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 7.12 SEVERABILITY. If any part of this Article VII shall be found, in any action, suit or proceeding or appeal therefrom or in any other circumstances or as to any particular officer, director, employee or agent to be unenforceable, ineffective or invalid for any reason, the enforceability, effect and validity of the remaining parts or of such parts in other circumstances shall not be affected, except as otherwise required by applicable law.

Section 7.13 AMENDMENTS. The foregoing provisions of this Article VII shall be deemed to constitute an agreement between the Corporation and each of the persons entitled to indemnification hereunder, for as long as such provisions remain in effect. Any amendment to the foregoing provisions of this Article VII which limits or otherwise adversely affects the scope of indemnification or rights of any such persons hereunder shall, as to such persons, apply only to claims arising, or causes of action based on actions or events occurring, after such amendment and delivery of notice of such amendment is given to the person or persons so affected. Until notice of such amendment is given to the person or persons whose rights hereunder are adversely affected, such amendment shall have no effect on such rights of such persons hereunder. Any person entitled to indemnification under the foregoing provisions of this Article VII shall, as to any act or omission occurring prior to the date of receipt of such notice, be entitled to indemnification to the same extent as had such provisions continued as Bylaws of the Corporation without such amendment.

ARTICLE VIII

MISCELLANEOUS

Section 8.01 SEAL. The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that the Corporation was incorporated in the State of Delaware and showing the year of incorporation.

Section 8.02 WAIVER OF NOTICES. Whenever notice is required to be given under any provision of these Bylaws, the Certificate of Incorporation or by law, a written waiver, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when a person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless required by the Certificate of Incorporation. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.

Section 8.03 LOANS AND GUARANTIES. Except as otherwise prohibited by law, the Corporation may lend money to, or guarantee any obligation of, and otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer who is a director, whenever, in the judgment of the Board, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty, or other assistance may be with or without interest, and may be unsecured or secured in such manner as the Board shall approve, including, without limitation, a pledge of shares of stock of the Corporation.

Section 8.04 GENDER. All personal pronouns used in these Bylaws shall include the other genders, whether used in the masculine, feminine or neuter gender, and the singular shall include the plural, and vice versa, whenever and as often as may be appropriate.

Section 8.05 AMENDMENTS. These Bylaws, or any of them, may be rescinded, altered, amended or repealed, and new Bylaws may be made (i) by the Board of Directors, by vote of a majority of the number of directors then in office as directors, acting at any meeting of the Board of Directors, or (ii) by the stockholders, by the vote of the holders of eighty (80%) percent of the outstanding voting stock of the Corporation, at any annual or special meeting of stockholders, provided that notice of such proposed amendment, modification, repeal or adoption is given in the notice of the annual or special meeting; provided, however, that these Bylaws can only be amended if such amendment would not conflict with the Certificate of Incorporation. Any Bylaw made or altered by the requisite number of stockholders may be altered or repealed by the Board of Directors or may be altered or repealed by the requisite number of stockholders.

EX-10.6

Exhibit 10.6

CATALINA MARKETING CORPORATION

AMENDED AND RESTATED 1999 STOCK AWARD PLAN

1. Purpose.

The Plan is intended to provide incentives to key Employees, directors and consultants of the Corporation and its Subsidiaries, to encourage proprietary interest in the Corporation, and to attract new Employees, directors and consultants with outstanding qualifications through providing select current and prospective key Employees, directors and consultants of the Corporation and its Subsidiaries with the opportunity to acquire Shares.

2. Definitions.

Whenever the following terms are used in this Plan, they shall have the meaning specified below unless the context clearly indicates otherwise.

(a) “Act” shall mean the Securities Act of 1933, as amended.

(b) “Administrator” shall mean the Board or the Committee, whichever shall be administering the Plan from time to time in the discretion of the Board, as described in Section 4 of the Plan.

(c) “Award” shall mean any award made pursuant to this Plan, including Options, Restricted Shares and Performance Units.

(d) “Award Agreement” shall mean any written document setting forth the terms and conditions of an Award, as prescribed by the Administrator.

(e) “Board” shall mean the Board of Directors of the Corporation.

(f) “Cause” in respect of a Participant shall mean dishonesty, fraud, misconduct, unauthorized use or disclosure of confidential information or trade secrets, conviction or confession of a crime punishable by law (except misdemeanor violations), or engaging in practices contrary to stock “insider trading” policies of the Corporation, by such Participant, in each case as determined by the Administrator, with such determination to be conclusive and binding on such affected Participant and all other persons.

(g) “Change of Control” shall mean the occurrence of any of the following: (i) the acquisition, directly or indirectly, by any individual or entity or group (as such term is used in Section 13(d)(3) of the Exchange Act) of beneficial ownership (as defined in Rule 13d-3 under the Exchange Act, except that such individual or entity shall be deemed to have beneficial ownership of all shares that any such individual or entity has the right to acquire without the happening or failure to happen of a material condition or contingency, other than the passage of time) of more than 50% of the aggregate outstanding voting power of capital stock of the Corporation in respect of the general power to elect directors; (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board (together with individuals elected to the Board with the approval of at least 66 2/3% of the directors of the Corporation then still in office who were either directors at the beginning of such period, or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board then in office; and (iii) (A) the Corporation consolidates with or merges into another entity or sells all or substantially all of its assets to any individual or entity, or (B) any corporation consolidates with or merges into the Corporation, which in either event (A) or (B) is pursuant to a transaction in which the holders of the Corporation’s voting capital stock in respect of the general power to elect directors immediately prior to such transaction do not own, immediately

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following such transaction, at least a majority of the voting capital stock in respect of the general power to elect directors of the surviving corporation or the person or entity which owns the assets so sold.

(h) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(i) “Committee” shall mean the committee appointed by the Board in accordance with Section 4 of the Plan.

(j) “Common Stock” shall mean the Common Stock, par value $.01 per share, of the Corporation.

(k) “Corporation” shall mean Catalina Marketing Corporation, a Delaware corporation, or any successor hereunder.

(l) “Disability” shall mean the condition of a Participant who is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months. The determination of whether a Participant is disabled shall be made in the Administrator’s sole discretion.

(m) “Employee” shall mean an individual who is employed (within the meaning of Section 3401 of the Code and the regulations thereunder) by the Corporation or a Subsidiary.

(n) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(o) “Exercise Price” shall mean the price per Share of Common Stock, determined by the Administrator, at which an Option may be exercised.

(p) “Fair Market Value” shall mean the value of one (1) Share of Common Stock, determined as follows, without regard to any restriction other than a restriction which, by its terms, will never lapse:

(1) If the Shares are traded on a nationally recognized exchange or the National Market System (the “NMS”) of the National Association of Securities Dealers, Inc. Automated Quotation System (“NASDAQ”), the closing price as reported for composite transactions on the date of valuation or, if no sales occurred on that date, then the average of the highest bid and lowest ask prices on such exchange or the NMS at the end of the day on such date;

(2) If the Shares are not traded on an exchange or the NMS but are otherwise traded over-the-counter, the average of the highest bid and lowest asked prices quoted in the NASDAQ system as of the close of business on the date of valuation, or, if on such day such security is not quoted in the NASDAQ system, the average of the representative bid and asked prices on such date in the domestic over-the-counter market as reported by the National Quotation Bureau, Inc., or any similar successor organization; and

(3) If neither (1) nor (2) applies, the fair market value as determined by the Administrator in good faith. Such determination shall be conclusive and binding on all persons.

(q) “Good Reason” in respect of a Participant shall mean the occurrence of any of the following events or conditions following a Change of Control:

(1) A change in the Participant’s status, title, position or responsibilities (including reporting responsibilities) that represents a substantial reduction of the status, title, position or responsibilities in respect of the Corporation’s business as in effect immediately prior thereto; the assignment to the Participant of substantial duties or responsibilities that are inconsistent with such status, title, position or responsibilities; or any removal of the Participant from or failure to reappoint or reelect the Participant to any of such positions, except in connection with the termination of the Participant’s service for Cause, for Disability or as a result of his or her death, or by the Participant other than for Good Reason;

(2) A reduction in the Participant’s annual base salary;

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(3) The Corporation’s requiring the Participant (without the Participant’s consent) to be based at any place outside a 35-mile radius of his or her place of employment immediately prior to a Change of Control, except for reasonably required travel on the Corporation’s business that is not materially greater than such travel requirements prior to such Change of Control;

(4) The Corporation’s failure to (i) continue in effect any material compensation or benefit plan (or a reasonable replacement therefor) in which the Participant was participating immediately prior to a Change of Control, including, but not limited to the Plan, or (ii) provide the Participant with compensation and benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit plan, program and practice as in effect immediately prior to a Change of Control (or as in effect following the Change of Control, if greater); or

(5) Any material breach by the Corporation of any provision of the Plan.

(r) “Incentive Stock Option” shall mean an option described in Section 422(b) of the Code.

(s) “Non-Employee Director” shall have the meaning assigned to this phrase in Rule 16b-3 of the Securities and Exchange Commission adopted under the Exchange Act.

(t) “Nonstatutory Stock Option” shall mean an option not described in Section 422(b) or 423(b) of the Code.

(u) “Option” shall mean any stock option granted pursuant to the Plan.

(v) “Option Profit” shall mean the amount (not less than zero) by which the Fair Market Value of a share of Common Stock subject to a Nonstatutory Stock Option on the date of a Participant’s exercise of a Nonstatutory Stock Option exceeds the exercise price of such Nonstatutory Stock Option.

(w) “Participant” shall mean any person who receives an Award pursuant to Sections 5(a), 8(a), 9(a) or 9(b) hereof.

(x) “Performance Units” shall mean Awards granted pursuant to Section 9(a) or 9(b) hereof.

(y) “Plan” shall mean this Catalina Marketing Corporation Amended and Restated 1999 Stock Award Plan, as it may be amended from time to time.

(z) “Purchase Price” shall mean the Exercise Price times the number of Shares with respect to which an Option is exercised.

(aa) “Restricted Shares” shall mean Shares awarded pursuant to Section 8 of this Plan.

(bb) “Retirement” shall mean the voluntary cessation of employment by an Employee at such time as may be specified in the then current personnel policies of the Corporation, in the sole discretion of the Administrator or, in lieu thereof, upon the attainment of age sixty-five (65) and the completion of not less than twenty (20) years of service with the Corporation or a Subsidiary.

(cc) “Share” shall mean one (1) share of Common Stock, adjusted in accordance with Section 11 of the Plan (if applicable).

(dd) “Subsidiary” shall mean any subsidiary corporation as defined in Section 424(f) of the Code, and shall include any entity as to which the Corporation directly or indirectly owns more than a forty percent (40%) interest.

3. Effective Date.

The Plan was adopted by the Board effective April 29, 1999, and received the approval of the Corporation’s stockholders on July 20, 1999. The Board subsequently amended the Plan on April 26, 2001 and April 25, 2002, subject to stockholder approval that such amendments received on July 26, 2001 and July 25, 2002, respectively. The Board approved further amendments to the Plan and this restatement of the Plan on July 22, 2004, subject to the approval of the Corporation’s stockholders pursuant to Section 17 of the Plan.

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4. Administration.

The Plan shall be administered, in the discretion of the Board from time to time, by the Board or by the Committee. The Committee shall be appointed by the Board and shall consist of not less than three (3) members of the Board. The Board may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, however caused, shall be filled by the Board. The Board shall appoint one of the members of the Committee as Chairman. The Administrator shall hold meetings at such times and places as it may determine. Acts of a majority of the Administrator at which a quorum is present, or acts reduced to or approved in writing by a unanimous consent of the members of the Administrator, shall be the valid acts of the Administrator.

The Administrator shall from time to time at its discretion select the Participants who are to be granted Awards, determine the form of Award Agreements, determine the number of Shares to be subject to Awards to be granted to each Participant, designate an Award of Options as Incentive Stock Options or Nonstatutory Stock Options and determine to what extent the Award shall be transferable. The interpretation and construction by the Administrator of any provisions of the Plan or of any Award granted thereunder shall be final. No member of the Administrator shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted thereunder.

So long as the Common Stock is registered under Section 12 of the Exchange Act, then notwithstanding the first or second sentences of the immediately preceding paragraph, selection of officers and directors for participation and decisions concerning the timing, pricing and amount of an Award shall be made solely by the Board, or by the Committee, each of the members of which shall be a Non-Employee Director. If the Committee grants an Award to a person subject to Code Section 162(m), each member of the Committee shall be an “outside director” within the meaning of that section.

5. Participation.

(a) Eligibility.

The Participants shall be such Employees (who may be officers, whether or not they are directors) and directors of or consultants to the Corporation or a Subsidiary (whether or not they are Employees) as the Administrator may select subject to the terms and conditions of Section 5(b) below; provided that directors or consultants who are not also Employees shall not be eligible to receive Incentive Stock Options.

(b) Ten-Percent Stockholders.

A Participant who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of the Corporation, its parent or any of its Subsidiaries shall not be eligible to receive an Incentive Stock Option unless (i) the Exercise Price of the Shares subject to such Option is at least one hundred ten percent (110%) of the Fair Market Value of such Shares on the date of grant and (ii) in the case of an Incentive Stock Option, such Option by its terms is not exercisable after the expiration of five (5) years from the date of grant.

(c) Stock Ownership.

For purposes of Section 5(b) above, in determining stock ownership, a Participant shall be considered as owning the stock owned, directly or indirectly, by or for his or her brothers and sisters (by whole or half blood), spouse, ancestors and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its shareholders, partners or beneficiaries. Stock with respect to which such Participant holds an Option or any other option if (as of the time the Option or such other option is granted) the terms of such Option or other option provide that it will not be treated as an Incentive Stock Option, shall not be counted.

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(d) Outstanding Stock

For purposes of Section 5(b) above, “outstanding stock” shall include all stock actually issued and outstanding immediately after the grant of the Option to the Participant. “Outstanding stock” shall not include shares authorized for issuance under outstanding Options held by the Participant or by any other person.

6. Stock.

The stock subject to Awards granted under the Plan shall be Shares of the Corporation’s authorized but unissued or reacquired Common Stock. The aggregate number of Shares as to which Awards may be granted shall not exceed nine million nine hundred thousand (9,900,000) (reflecting adjustment for the three-for-one stock split that occurred in 2000 and the amendments increasing the number of Shares available for issuance under the Plan in 2001 and 2002). The number of Shares subject to Awards outstanding at any time shall not exceed the number of Shares remaining available for issuance under the Plan. In the event that any outstanding Award for any reason expires or is terminated, or Shares are reacquired by the Corporation pursuant to the terms of an Award Agreement, the Shares allocable to the Award or the Shares so reacquired may again be made subject to an Award. Notwithstanding anything herein to the contrary, during the term of the Plan no Person shall receive Awards under the Plan relating to in excess of 1,800,000 Shares (reflecting adjustment for the three-for-one stock split that occurred in 2000). The limitations established by this Section 6 shall be subject to adjustment in the manner provided in Section 11 hereof upon the occurrence of an event specified therein.

7. Terms and Conditions of Options.

(a) Award Agreements.

Options shall be evidenced by written Award Agreements in such form as the Administrator shall from time to time determine. Such agreements need not be identical but shall comply with and be subject to the terms and conditions set forth below. No Option shall be effective until the applicable Award Agreement is executed by both parties thereto.

(b) Participant’s Undertaking.

Each Participant shall agree to remain in the employ or service of the Corporation or a Subsidiary and to render services for a period as shall be determined by the Administrator, from the date of the granting of the Option, but such agreement shall not impose upon the Corporation or its Subsidiaries any obligation to retain the Participant in their employ or service for any period.

(c) Number of Shares.

Each Option shall state the number of Shares to which it pertains and shall provide for the adjustment thereof in accordance with the provisions of Section 11 hereof.

(d) Exercise Price.

Each Option shall state the Exercise Price. The Exercise Price shall not be less than the Fair Market Value on the date of grant and, in the case of an Incentive Stock Option granted to a Participant described in Section 5(b) hereof, shall not be less than one hundred ten percent (110%) of the Fair Market Value on the date of grant.

(e) Medium and Time of Payment.

The Purchase Price shall be payable in full in United States dollars upon the exercise of the Option; provided, however, that if the applicable Award Agreement so provides, or the Administrator, in its sole discretion otherwise approves therefor, the Purchase Price may be paid by the surrender of Shares in good form for transfer, owned by the person exercising the Option for at least six months (subject to the

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Administrator’s discretion to waive this six-month requirement) and having a Fair Market Value on the date of exercise equal to the Purchase Price, or in any combination of cash and Shares, as long as the sum of the cash so paid and the Fair Market Value of the Shares so surrendered equals the Purchase Price.

Payment of any tax withholding requirements may be made, in the discretion of the Administrator, (i) in cash, (ii) by delivery of Shares registered in the name of the Participant, or by the Corporation not issuing such number of Shares subject to the Option, having a Fair Market Value at the time of exercise equal to the amount to be withheld or (iii) any combination of (i) and (ii) above. If the Corporation is required to register under Section 207.3 of Regulation G of the Board of Governors of the Federal Reserve System (Title 12 Code of Federal Regulations Part 207), then so long as such registration is in effect, the credit extended by the Corporation to a Participant for the purpose of paying the Purchase Price shall conform to the requirements of such Regulation G.

Upon a duly made deferral election by a Participant eligible to participate under the Corporation’s Deferred Compensation Plan, Shares otherwise issuable to the Participant upon the exercise of a Nonstatutory Stock Option and payment of the Purchase Price by the surrender of Shares (or by the payment of cash if an Award Agreement so provides or if the Administrator exercises its discretion to accept cash) in accordance with the first paragraph of this Section 7(e), will not be delivered to the Participant. In lieu of delivery of such Shares, the Common Stock Account (as defined in the Corporation’s Deferred Compensation Plan) of the Participant maintained pursuant to the Corporation’s Deferred Compensation Plan shall be credited with a number of stock units having a value, calculated pursuant to such plan, equal to the Option Profit associated with the exercised Nonstatutory Stock Option. Such deferral of Option Profit under the Corporation’s Deferred Compensation Plan is available to Participants only if the Shares surrendered in payment of the Purchase Price upon the exercise of a Nonstatutory Stock Option have been held by the Participant for at least six months (or by the payment of cash if an Award Agreement so provides or if the Administrator exercises its discretion to accept cash).

(f) Term of Options.

Each Option shall state the time or times when all or part thereof becomes exercisable. No Option shall be exercisable after the expiration of ten (10) years (or less, in the discretion of the Administrator) from the date it was granted, and no Incentive Stock Option granted to a Participant described in Section 5(b) hereof shall be exercisable after the expiration of five (5) years (or less, in the discretion of the Administrator) from the date it was granted.

(g) Cessation of Service (Except by Death, Disability or Retirement).

Except as otherwise provided in this Section 7, an Option may only be exercised by Participants who have remained continuously in service as an Employee, director or consultant with the Corporation or any Subsidiary since the date of grant of the Option. If a Participant ceases to be an Employee, director or consultant for any reason other than his or her death, Disability or Retirement, such Participant shall have the right, subject to the restrictions referred to in Section 7(f) above, to exercise the Option at any time within three (3) months (or such shorter period as the Administrator may determine) after cessation of service, but, except as otherwise provided in the applicable Award Agreement, only to the extent that, at the date of cessation of service, the Participant’s right to exercise such Option had accrued pursuant to the terms of the applicable Award Agreement and had not previously been exercised. The foregoing notwithstanding, an Award Agreement may, in the sole discretion of the Administrator, but need not, provide that the Option shall cease to be exercisable on the date of such cessation of service if such cessation arises by reason of termination for Cause or if the Participant following cessation becomes an employee, director or consultant of a person or entity that the Administrator, in its sole discretion, determines is in direct competition with the Corporation or a Subsidiary.

For purposes of this Section 7(g) the service relationship shall be treated as continuing intact while the Participant is on military leave, sick leave or other bona fide leave of absence (to be determined in the sole discretion of the Administrator). The foregoing notwithstanding, service shall not be deemed to continue

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beyond the last day of the third (3rd) month after the Participant ceased active service, unless the Participant’s reemployment rights are guaranteed by statute or by contract.

(h) Death of Participant.

If a Participant dies while a Participant, or after ceasing to be a Participant but during the period in which he or she could have exercised the Option under this Section 7, and has not fully exercised the Option, then the Option may be exercised in full, subject to the restrictions referred to in Section 7(f) above, at any time within twelve (12) months (or such shorter period as the Administrator may determine) after the Participant’s death by the executor or administrator of his or her estate or by any person or persons who have acquired the Option directly from the Participant by bequest or inheritance, but, except as otherwise provided in the applicable option agreement, only to the extent that, at the date or death, the Participant’s right to exercise such Option had accrued and had not been forfeited pursuant to the terms of the applicable Award Agreement and had not previously been exercised.

(i) Disability of Participant.

If a Participant ceases to be an Employee, director or consultant by reason of Disability, such Participant shall have the right, subject to the restrictions referred to in Section 7(f) above, to exercise the Option at any time within twelve (12) months (or such shorter period as the Administrator may determine) after such cessation of service, but, except as provided in the applicable Award Agreement, only to the extent that, at the date of such cessation of service, the Participant’s right to exercise such Option had accrued pursuant to the terms of the applicable Award Agreement and had not previously been exercised.

(j) Retirement of Participant.

If a Participant ceases to be an Employee by reason of Retirement, such Participant shall have the right, subject to the restrictions referred to in Section 7(f) above, to exercise the Option at any time within three (3) months (or such longer or shorter period as the Administrator may determine) after cessation of employment, but only to the extent that, at the date of cessation of employment, the Participant’s right to exercise such Option had accrued pursuant to the terms of the applicable option agreement and had not previously been exercised.

(k) Limitation on Incentive Stock Options.

If the aggregate Fair Market Value (determined as of the date an Option is granted) of the stock with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year under this Plan and all other plans maintained by the Corporation, its parent or its Subsidiaries, exceeds $100,000, the Option shall be treated as a Nonstatutory Stock Option with respect to the stock having an aggregate Fair Market Value exceeding $100,000.

(l) Other Provisions.

The Award Agreements authorized under the Plan may contain such other provisions not inconsistent with the terms of the Plan (including, without limitation, restrictions upon the exercise of the Option or the transfer of Shares of stock following exercise of the Option) as the Administrator shall deem advisable.

8. Restricted Share Awards

(a) Grants.

The Administrator shall have the discretion to grant Restricted Shares to Participants. As promptly as practicable after a determination is made that an Award of Restricted Shares is to be made, the Administrator shall notify the Participant in writing of the grant of the Award, the number of Shares covered by the Award, and the terms upon which the Shares subject to the Award may be earned. The date on which the

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Administrator so notifies the Participant shall be considered the date of grant of the Restricted Shares. The Administrator shall maintain records as to all grants of Restricted Shares under the Plan.

(b) Earning Shares.

Each Award Agreement for Restricted Shares shall state the time or times, and the conditions or circumstances under which, all or part of the Restricted Shares shall be earned and become nonforfeitable by a Participant.

(c) Accrual of Dividends.

Unless otherwise provided in an Award Agreement, effective as of the record date for the payment thereof or, in lieu of such record date, effective on the date of payment, the Administrator shall credit to the Participant’s Restricted Share account under the Plan a number of Restricted Shares having a Fair Market Value, on that date, equal to the sum of any cash and stock dividends paid on Restricted Shares held in the Participant’s account on such date. The Administrator shall hold each Participant’s Restricted Shares until distribution is required pursuant to subsection (d) hereof.

(d) Distribution of Restricted Shares.

(1) Timing of Distributions; General Rule. Except as otherwise expressly stated in this Plan, the Administrator shall distribute Restricted Shares and any Restricted Shares attributable to accumulated cash or stock dividends thereon to the Participant or his or her beneficiary, as the case may be, as soon as practicable after they have been earned (i.e., when the criteria for earning such shares have been achieved). No fractional shares shall be distributed.

(2) Form of Distribution. The Administrator shall distribute all Restricted Shares, together with any Shares representing dividends, in the form of Common Stock. One Share shall be given for each Restricted Share earned.

(e) Deferral Elections.

Upon a duly made deferral election by a Participant eligible to participate under the Corporation’s Deferred Compensation Plan, Shares otherwise issuable to the Participant upon the vesting of a Restricted Share Award hereunder (or Performance Unit Award pursuant to Section 9 hereof) will not be delivered to the Participant. In lieu of delivery of such Shares, the Common Stock Account (as defined in the Corporation’s Deferred Compensation Plan) of the Participant maintained pursuant to the Corporation’s Deferred Compensation Plan shall be credited with a number of stock units having a value, calculated pursuant to such plan, equal to the Fair Market Value of the Restricted Shares (or Performance Units) associated with the Participant’s deferral election.

9. Performance Units

(a) Performance Units. A Performance Unit is an Award denominated in cash, the amount of which may be based on the achievement of specific goals with respect to Corporation, Subsidiary or individual performance over a specified period of time. The maximum amount of such compensation that may be paid to any one Participant with respect to any one Performance Period (hereinafter defined) shall be $3,400,000. Performance Units may be settled in Shares (based on their Fair Market Value at the time of settlement, unless an Award Agreement provides otherwise) or cash or both, and may be awarded by the Administrator to Employees, directors or consultants to the Corporation or its Subsidiaries.

(b) Performance Compensation Awards.

(1) The Administrator may, at the time of grant of a Performance Unit or Restricted Share Award, designate such Award as a “Performance Compensation Award” in order that such Award constitutes qualified performance-based compensation under Code Section 162(m), in which event the Administrator

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shall have the power to grant such Awards upon terms and conditions that qualify such awards as “qualified performance-based compensation” within the meaning of Code Section 162(m). With respect to each such Performance Compensation Award, the Administrator shall establish, in writing, a Performance Period, Performance Measure(s) (hereinafter defined), and Performance Formula(s) (hereinafter defined). Once established for a Performance Period, such items shall not be amended or otherwise modified to the extent such amendment or modification would cause the compensation payable pursuant to the Award to fail to constitute qualified performance-based compensation under Code Section 162(m).

(2) A Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the extent that the Performance Measure(s) for such Award are achieved and the Performance Formula as applied against such Performance Measure(s) determines that all or some portion of such Participant’s Award has been earned for the Performance Period. As soon as practicable after the close of each Performance Period, the Administrator shall review and certify in writing whether, and to what extent, the Performance Measure(s) for the Performance Period have been achieved and, if so, determine and certify in writing the amount of the Performance Compensation Award to be paid to the Participant and, in so doing, may use negative discretion to decrease, but not increase, the amount of the Award otherwise payable to the Participant based upon such performance. The maximum Performance Compensation Award for any one Participant for any one Performance Period shall be 130,000 performance Restricted Shares or $3,400,000.

(c) Definitions.

(1) “Performance Formula” means, for a Performance Period, one or more objective formulas or standards established by the Administrator for purposes of determining whether or the extent to which an Award has been earned based on the level of performance attained or to be attained with respect to one or more Performance Measure(s). Performance Formulas may vary from Performance Period to Performance Period and from Participant to Participant and may be established on a stand-alone basis, in tandem or in the alternative.

(2) “Performance Measure” means one or more of the following selected by the Administrator to measure Corporation, Subsidiary and/or business unit performance for a Performance Period, whether in absolute or relative terms (including, without limitation, terms relative to a peer group or index): basic or diluted earnings per share; sales or revenue; earnings before interest and taxes (in total or on a per share basis); net income; returns on equity, assets, capital, revenue or similar measure; economic value added; working capital; total shareholder return; and product development, product market share, research, licensing, litigation, human resources, information services, mergers, acquisitions, sales of assets or subsidiaries. Each such measure shall be to the extent applicable, determined in accordance with generally accepted accounting principles as consistently applied by the Corporation (or such other standard applied by the Administrator) and, if so determined by the Administrator, and in the case of a Performance Compensation Award, to the extent permitted under Code Section 162(m), adjusted to omit the effects of extraordinary items, gain or loss on the disposal of a business segment, unusual or infrequently occurring events and transactions and cumulative effects of changes in accounting principles. Performance Measures may vary from Performance Period to Performance Period and from Participant to Participant and may be established on a stand-alone basis, in tandem or in the alternative.

(3) “Performance Period” means one or more periods of time (of not less than one fiscal year of the Corporation), as the Administrator may designate, over which the attainment of one or more Performance Measure(s) will be measured for the purpose of determining a Participant’s rights in respect of an Award.

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10. Term of Plan.

Awards may be granted pursuant to the Plan until the expiration of the Plan on April 29, 2009.

11. Recapitalizations; Change of Control.

(a) Adjustments in Respect of Recapitalizations.

The number of Shares covered by the Plan as provided in Section 6 hereof, the number of Shares covered by each outstanding Award and the Exercise Price of Options shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a subdivision or consolidation of Shares or a stock split or the payment of a stock dividend (but only of Common Stock) or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Corporation.

If the Corporation shall merge with another corporation and the Corporation is the surviving corporation in such merger and under the terms of such merger the shares of Common Stock outstanding immediately prior to the merger remain outstanding and unchanged, each outstanding Award shall continue to apply to the Shares subject thereto and shall also pertain and apply to any additional securities and other property, if any, to which a holder of the number of Shares subject to the Award would have been entitled as a result of the merger. If the Corporation sells all, or substantially all, of its assets, or the Corporation merges (other than a merger of the type described in the immediately preceding sentence) or consolidates with another corporation, this Plan and each Award shall terminate; provided that in such event (i) each Participant to whom no replacement Award has been tendered by the surviving or acquiring corporation (or the parent corporation of the surviving or acquiring corporation) in accordance with all of the terms of clause (ii) or (iii) immediately below, shall receive immediately before the effective date of such sale, merger or consolidation, unrestricted Shares equal to the number of Restricted Shares and the value of any Performance Units to which the Participant is then entitled (regardless of any vesting condition), and shall have the right, for a period of at least thirty days, until five days before the effective date of such sale, merger or consolidation, to exercise, in whole or in part (in the discretion of the Participant), any unexpired Option or Options issued to him or her, without regard to the installment or vesting provisions of any option agreement, or (ii) in its sole and absolute discretion, the surviving or acquiring corporation (or the parent corporation of the surviving or acquiring corporation) may, but shall not be obligated to, (I) tender to all Participants with then Restricted Shares, an award of restricted shares of the surviving or acquiring corporation (or the parent corporation of the surviving or acquiring corporation), tender to all Participants with then Performance Units, an award of performance units of the surviving or acquiring corporation (or the parent corporation of the surviving or acquiring corporation), and tender to Participants with outstanding Options under the Plan an option or options to purchase shares of the surviving or acquiring corporation (or of the parent corporation of the surviving or acquiring corporation), in which each new award or awards contain such terms and provisions as shall be required substantially to preserve the rights and benefits of all Awards then held by such Participants or, (II) permit Participants to receive unrestricted Shares with respect to any Restricted Shares (regardless of any vesting condition) immediately before the effective date of the transaction, permit Participants to receive cash with respect to value of any Performance Units (regardless of any vesting condition) immediately before the effective date of the transaction, honor deferral elections that Participants make pursuant to Section 8(e), and grant the choice to all Participants with then outstanding Options of (A) exercising the Options in full as described in clause (i) above or (B) receiving a replacement Option as set forth in clause (ii)(I). A dissolution or liquidation of the Corporation, other than a dissolution or liquidation immediately following a sale of all or substantially all of the assets of the Corporation, which shall be governed by the immediately preceding sentence, shall cause each Award to terminate. In the event a Participant receives any unrestricted Shares in satisfaction of Restricted Shares, any payment in satisfaction of Performance Units, or exercises any unexpired Option or Options prior to the effectiveness of a sale of all or substantially all of the Corporation’s assets or a merger or consolidation of the Corporation with another corporation in accordance with clause (i) of this Section 11, such receipt of unrestricted Shares, such payment, or exercise of any Option or Options shall be subject to the consummation of such sale, merger or consolidation. If such sale, merger or consolidation is not consummated, any otherwise unearned Restricted Shares shall be deemed not to have been distributed to the Participant, any payment made to satisfy Performance Units shall be returned to the

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Corporation, and any otherwise unexpired Option or Options shall be deemed to have not been exercised, and the Participant and the Corporation shall take all steps necessary to achieve this effect including, without limitation, the Participant delivering to the Corporation the stock certificate representing the Shares issued with respect to Restricted Shares, the return to the Corporation of any payments made to the Participant, or upon the exercise of the Option, endorsed in favor of the Corporation, and the Corporation returning to the Participant the consideration representing the Purchase Price paid by the Participant upon the exercise of the Option.

To the extent that the foregoing adjustments relate to securities of the Corporation, such adjustments shall be made by the Administrator, whose determination shall be conclusive and binding on all persons.

Except as expressly provided in this Section 11, the Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or stock of another corporation, and any issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option or the number or type of Shares subject to an Award of Restricted Shares

The grant of an Award pursuant to the Plan shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

(b) Acceleration Under Certain Circumstances Following a Change of Control.

Notwithstanding any other provision of the Plan to the contrary and except as otherwise expressly provided in the applicable Award Agreement, the restrictions relating to any Restricted Shares, the vesting of any Performance Units, the vesting or similar installment provisions relating to the exercisability of any Option, and the restrictions, vesting or installment provisions relating to any replacement award tendered to a Participant pursuant to or as a result of, or relating to, a transaction described in the second paragraph of Section 11(a) hereof shall be waived or accelerated, as the case may be, and the Participant shall receive unrestricted Shares with respect to any Restricted Shares, a payment with respect to the value of any Performance Units, or a similar replacement award, and shall have the right, for a period of at least thirty days, to exercise such an Option or replacement option in the event the Participant’s employment with or services for the Corporation should terminate within two years following a Change of Control, unless such employment or services are terminated by the Corporation for Cause or by the Participant voluntarily without Good Reason, or such employment or services are terminated due to the death or Disability of the Participant. Notwithstanding the foregoing, no Incentive Stock Option shall become exercisable pursuant to the foregoing without the Participant’s consent, if the result would be to cause such option not to be treated as an Incentive Stock Option.

12. Rights As a Stockholder; Nontransferability.

(a) A Participant or a transferee of an Award shall have no rights as a stockholder with respect to any Shares covered by such Award until the date of the issuance of a stock certificate to such Participant or transferee for such Shares. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 8(c) or Section 11 hereof.

(b) Awards are nontransferable except as provided in this paragraph and as the Administrator may otherwise provide. Awards may be transferred by will or by the laws of descent and distribution. Unless otherwise provided in an Award Agreement, a Participant may give an Award that is not an Incentive Stock Option to an immediate family member, to a partnership or trust solely benefiting the Participant or immediate family members, or to an inter vivos trust or testamentary trust from which the Award (or the Award proceeds) will be transferred after the Participant’s death. An immediate family member is a

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Participant’s natural or adopted child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law. A transfer shall not relieve a Participant from his or her obligations under this Plan or the applicable Award Agreement with respect to the transferred Award or Award proceeds.

13. Agreement by Participant Regarding Withholding Taxes

(a) No later than the date of exercise of any Option, the distribution of Shares to a Participant pursuant to a Restricted Share Award, or the payment of any Performance Units, the Participant shall pay to the Corporation or make arrangements satisfactory to the Administrator regarding payment of any federal, state or local taxes of any kind required by law to be withheld, and may satisfy minimum withholding consequences through the surrender of shares subject to the Award; and

(b) The Corporation shall, to the extent permitted or required by law, have the right to deduct from any payment of any kind otherwise due to the Participant any federal, state or local taxes of any kind required by law to be withheld with respect to an Award.

14. Securities Law Requirements.

(a) Legality of Issuance.

No Shares shall be issued pursuant to any Award unless and until the Corporation has determined that:

1. it and the Participant have taken all actions required to register the offer and sale of the Shares under the Act, or to perfect an exemption from the registration requirements thereof;

2. any applicable listing requirement of any stock exchange on which the Common Stock is listed has been satisfied; and

3. any other applicable provision of state or Federal law has been satisfied.

(b) Restrictions on Transfer; Representations of Participant; Legends.

Regardless of whether the offering and sale of Shares under the Plan has been registered under the Act or has been registered or qualified under the securities laws of any state, the Corporation may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Corporation and its counsel, such restrictions are necessary or desirable in order to achieve compliance with the provisions of the Act, the securities laws of any state or any other law. In the event that the sale of Shares under the Plan is not registered under the Act but an exemption is available which requires an investment representation or other representation, each Participant shall be required to represent that any Shares being acquired by the Participant are being acquired for investment, and not with a view to the sale or distribution thereof, and to make such other representations as are deemed necessary or appropriate by the Corporation and its counsel. Stock certificates evidencing Shares acquired under the Plan pursuant to an unregistered transaction shall bear the following restrictive legend (or similar legend in the discretion of the Administrator) and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.”

Any determination by the Corporation and its counsel in connection with any of the matters set forth in this Section 13 shall be conclusive and binding on all persons.

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(c) Registration or Qualification of Securities.

The Corporation may, but shall not be obligated to, register or qualify the sale of Shares under the Act or any other applicable law. The Corporation shall not be obligated to take any affirmative action in order to cause the sale of Shares under the Plan to comply with any law.

(d) Exchange of Certificates.

If, in the opinion of the Corporation and its counsel, any legend placed on a stock certificate representing Shares sold under the Plan is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but without such legend.

15. Amendment of the Plan; Modification of Awards.

The Board may from time to time, with respect to any Shares at the time not subject to Awards, suspend or discontinue the Plan or revise or amend it in any respect whatsoever, except that, without the approval of the Corporation’s stockholders, no such revision or amendment shall:

(a) Increase the number of Shares which may be issued under the Plan;

(b) Change the designation in Section 5 hereof with respect to the classes of persons eligible to receive Options; or

(c) Modify the Plan such that it fails to meet the requirements of Rule 16b-3 of the Securities and Exchange Commission for the exemption of the acquisition, cancellation, expiration or surrender of Options from the operation of Section 16(b) of the Exchange Act.

Within the limitations of the Plan, the Administrator may modify any Award, accelerate the vesting of any Restricted Share Award or the rate at which an Option may be exercised, or extend or renew outstanding Options. The foregoing notwithstanding, no modification of an Award shall, without the consent of the Participant, alter or impair any rights or obligations under any Award previously granted.

16. Application of Funds.

The proceeds received by the Corporation from the sale of Common Stock pursuant to the exercise of an Option will be used for general corporate purposes.

17. Approval of Stockholders.

The adoption of Section 8 and 9 of this amended and restated Plan is subject to approval by the affirmative vote of the holders of a majority of the outstanding shares present and entitled to vote at the first annual meeting of stockholders of the Corporation following the adoption of the amended and restated Plan and any Restricted Share Award or Performance Unit that the Administrator grants before stockholder approval is received shall be contingent on such approval. In the event stockholders do not approve Section 8 or 9 of this amended and restated Plan at their annual meeting in 2004, Section 8 and 9 shall be ineffective and the Plan as otherwise amended and restated shall remain in full force and effect (without any effect on outstanding Options, and with any ancillary references to Restricted Shares and Performance Units being null and void).

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18. Execution.

To record the adoption of the amended and restated Plan by the Board on July 22, 2004, the Corporation has caused its authorized officers to affix the corporate name and seal hereto.

Catalina Marketing Corporation
By:	/s/ Frederick W. Beinecke
	Frederick W. Beinecke, Chairman
By:	/s/ Barry A. Brooks
	Barry A. Brooks, Secretary
	[Seal]

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EX-10.7

Exhibit 10.7

CATALINA MARKETING CORPORATION

DEFERRED COMPENSATION PLAN

AS AMENDED AND RESTATED

EFFECTIVE NOVEMBER 18, 2004

PURPOSE

Catalina Marketing Corporation (the “Company”) hereby amends and restates the Catalina Marketing Corporation Deferred Compensation Plan (the “Plan”) effective as of November 18, 2004 in order to establish that all amounts deferred after December 31, 2004 shall be governed by the sub-plan attached as Exhibit B hereto. The Plan was originally effective as of January 1, 1992, was previously amended and restated effective July 1, 1996, and was most recently amended effective September 30, 2002. The Plan has been established for the benefit of a select group of management personnel and directors to ensure that the overall effectiveness of the Company’s and its Related Employers’ compensation program will attract, retain and motivate qualified individuals. The Plan is intended to provide certain key employees and directors who substantially

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contribute to the success of the Company and its Related Employers the opportunity to defer the receipt of compensation and potentially receive a matching contribution thereon after they have maximized their deferrals and associated matching contributions under the Company’s qualified 401(k) plan, known as the Catalina Marketing Corporation 401(k) Savings and Retirement Plan (the “Savings Plan”).

The Plan is a non-qualified deferred compensation plan and is designed to permit select employees and directors of the Company to defer a portion of their compensation to provide retirement, death and disability benefits. The Company intends to match participants’ contributions.

The Company intends to make contributions to the Catalina Marketing Corporation Deferred Compensation Trust (the “Trust”) in amounts necessary to fund the benefits provided in the Plan. The assets of the Trust shall be general assets of the Company and shall be subject to the claims of the general creditors of the Company.

While the Company intends to continue the Plan, it reserves the right to terminate the Plan, in whole or in part, at any time. Benefits under the Plan shall at all times be subject to the claims of the Company’s general creditors. Therefore, neither participation in the Plan nor eligibility therefore shall entitle any employee or director to have the Plan or any of its provisions continued for his or her benefit in the future.

The Plan systematically operates to defer the income of employees and directors for periods extending to termination of employment or beyond, and therefore, is subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Accordingly, federal law shall govern this Plan. However, the Plan is not intended to qualify under Section 401(a) of the Internal Revenue Code and similar provisions of state law. Finally, the Plan is unfunded and is maintained by the Company primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, and therefore, is exempt from the participation, vesting, funding and fiduciary responsibility requirements of parts 2, 3 and 4 of Title I of ERISA.

ARTICLE I

DEFINITIONS

For purposes hereof, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated earnings:

1.1 “ACCOUNT OR ACCOUNTS” shall mean, with respect to a Participant other than a Director, the (i) the Deferred Compensation Account, (ii) Common Stock Account, (iii) Matching Contribution Account and (iv) Discretionary Contribution Account established pursuant to Article VI and, with respect to a Participant who is a Director, the (i) Deferred Compensation Account and (ii) Common Stock Account. These Accounts shall be bookkeeping entries only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant pursuant to this Plan. The Deferred Compensation and Common Stock

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Accounts shall be fully vested at all times and the Matching Contribution Account and the Discretionary Contribution Account shall vest in accordance with Article XII.

1.2 “ANNUAL MEETING” shall mean the annual meeting of the Company’s stockholders.

1.3 “ANNUAL MEETING YEAR” shall mean the one year period beginning on the date of an Annual Meeting.

1.4 “BENEFICIARY” shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article XI to receive benefits under this Plan upon the death of a Participant.

1.5 “BENEFICIARY DESIGNATION FORM” shall mean the form established from time to time by the Plan Administrator that a Participant completes, signs and returns to the Plan Administrator to designate one or more Beneficiaries, which shall be in the form provided by the Plan Administrator.

1.6 “BOARD” shall mean the Board of Directors of the Company.

1.7 “BONUS” shall mean bonuses and commissions paid in the calendar year in question to a Participant for employment services rendered to the Company, before reduction for compensation contributed to or deferred under any Company benefit plan.

1.8 “CAUSE” shall mean the following (i) the Participant’s refusal to follow written, lawful directions or his or her material failure to perform his or her duties, in either case, after the Participant has been given notice and a reasonable opportunity to cure his or her default; (ii) the Participant’s material failure to comply with Company policies, such as those set forth in the Catalina Marketing Corporation Handbook, as amended from time to time, and any confidentiality agreement executed by the Participant and the Company; or (iii) the Participant’s engaging in conduct which is or may be unlawful or disreputable, to the possible detriment of the Company, any of its affiliates, or the Participant’s own reputation.

1.9 “CHANGE IN CONTROL” shall mean a change in control of the Company, which shall be deemed to have occurred if the conditions set forth in any one of the following four paragraphs shall have been satisfied:

(i) any corporation, person, other entity or group, (other than the trustee of any qualified retirement plan maintained by the Company) becomes the “beneficial owner” (as defined in Rule 13(d)-3 of the Exchange Act), directly or indirectly, of securities representing twenty five percent (25%) or more of the combined voting power of the Company’s then outstanding securities; or (ii) during any period of twenty-four consecutive months, individuals who at the beginning of such consecutive twenty-four month period constitute the Board cease for any reason (other than retirement upon reaching normal retirement age, disability or death) to constitute at least a majority thereof, unless the election or the nomination for election by the

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Company’s shareholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such twenty-four month period; (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan or complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets; (iv) there shall occur a transaction or series of transactions which the Board shall determine to have the effect of a Change in Control.

1.10 “CLAIMANT” shall have the meaning set forth in Section 15.1, below.

1.11 “CODE” shall mean the Internal Revenue Code of 1986, as amended from time to time.

1.12 “COMMON STOCK” shall mean the Common Stock, par value $0.01 of the Company or any security of the Company issued in substitution, exchange or lieu thereof.

1.13 “COMMITTEE” shall mean the administrative committee appointed to manage and administer the Plan in accordance with the provisions of Article XIII.

1.14 “COMPANY” shall mean Catalina Marketing Corporation and its successors.

1.15 “DEFERRAL” shall mean the Salary, Bonus and Director Fees that a Participant defers in accordance with Article III for the deferral period in question.

1.16 “DIRECTOR” shall mean a member of the Board.

1.17 “DIRECTOR FEES” shall mean cash meeting fees or retainers paid to Directors for services to the Company.

1.18 “DISABILITY” shall mean a period of disability that commences while a Participant is employed by the Company or a Related Employer and during which the Participant qualifies for benefits under a long-term disability plan of the Company or the Related Employer, or, if the Participant does not participate in such a plan, a period of disability during which the Participant would have qualified for benefits under such a plan, as determined in the sole discretion of the Plan Administrator, had the Participant been a participant in such a plan. A Disability shall be deemed to have occurred on the date on which it is determined that the Participant qualifies (or would have qualified) for such benefits. The significance under this Plan of a Participant suffering a Disability is

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that the Participant (i) shall be deemed to have had a Termination of Employment, which shall cause his or her Account to be distributed pursuant to Article IX and (ii) the Participant’s Account shall become fully Vested pursuant to Article XII.

1.19 “DIVIDEND” shall mean a dividend declared and paid by the Company on the Common Stock.

1.20 “EARNINGS” shall mean the amount credited to a Participant’s Account based on the earnings attained by the Trustee on the investment of the amounts held by the Trust, and any amount credited to the Common Stock Account pursuant to Section 6.2 which is attributable to a Dividend. Until distributed to the Participant, Earnings are solely the property of the Company and shall be subject to the rights of the Company’s general creditors.

1.21 “EFFECTIVE DATE” of the Plan shall mean, as amended and restated, July 1, 1996, and with respect to Article IV and Sections 3.3, 3.4, 3.5 and 3.6, July 1, 1996 subject to approval by the Company’s shareholders at the 1996 Annual Meeting.

1.22 “ELECTION FORM” shall mean the form established from time to time by the Plan Administrator that a Participant completes, signs and returns to the Plan Administrator to make a deferral election under the Plan.

1.23 “EMPLOYEE” shall mean an individual who renders services to the Company or a Related Employer as a common law employee (I.E., a person whose wages from the Company are subject to federal income tax withholding).

1.24 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

1.25 “EXCHANGE ACT” shall mean the Securities Exchange Act of 1934, as amended and in effect from time to time, or any successor statute.

1.26 “FAIR MARKET VALUE” shall mean the closing price on the New York Stock Exchange - Composite Tape of the Common Stock on the date(s) in question, or, if the Common Stock shall not have been traded on any such date(s), the closing price on the New York Stock Exchange - Composite Tape on the first day prior thereto on which the Common Stock was so traded or if the Common Stock is not traded on the New York Stock Exchange, such other amount as may be determined by the Committee by any fair and reasonable means. Fair Market Value determined by the Committee in good faith shall be final, binding and conclusive on all parties.

1.27 “NON-QUALIFIED STOCK OPTION” shall mean an award to purchase shares of Common Stock that is not an incentive stock option under Section 422 of the Code and is granted pursuant to the provisions of any of the Company’s stock option plans which grant the optionee the ability to elect to defer the Spread under this Plan.

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1.28 “NORMAL RETIREMENT DATE” shall mean the date a Participant attains age 65.

1.29 “OPTION PROFIT” shall mean the amount (not less than zero) by which the Fair Market Value of a share of Common Stock subject to the Non-Qualified Stock Option on the date of the Participant’s exercise of the Non- Qualified Stock Option exceeds the exercise price of a Non-Qualified Stock Option.

1.30 “PARTICIPANT” shall mean any Employee or Director who is covered by this Plan as provided in Article II.

1.31 “PLAN” shall mean the Catalina Marketing Corporation Deferred Compensation Plan hereby created and as it may be amended form time to time.

1.32 “PLAN ADMINISTRATOR” shall mean the Committee or Plan Administrator, if appointed pursuant to Section 13.2.

1.33 “PLAN AGREEMENT” shall mean a written agreement, as amended from time to time, which is entered into by and between the Company and a Participant, which shall be in a form provided by the Plan Administrator. Each such Agreement incorporates the Plan by reference and each such Agreement is hereby incorporated into the Plan by reference with respect to the Participant who is a party thereto.

1.34 “PLAN RULES” shall mean rules adopted by the Company in accordance with Section 13.1(g) for the administration, interpretation or application of the Plan. See Exhibit “A” for details on Plan Rules.

1.35 “PLAN YEAR” shall mean the 12-month period ending on December 31.

1.36 “RELATED EMPLOYER” shall mean an affiliate (and its successors) of the Company, related to the Company in the manner described in Sections 414(b) or (c) of the Code, that the Plan Administrator in its sole discretion allows to participate in the Plan.

1.37 “RULE 16B-3” shall mean Rule 16b-3 of the General Rules and Regulations of the Exchange Act (or any successor rule or regulation).

1.38 “SALARY” shall mean base salary paid in the calendar year in question to a Participant for services rendered to the Company, before reduction for compensation contributed to or deferred under any Company benefit plan. In no event shall severance benefits of any type be taken into account in computing a Participant’s Salary.

1.39 “SAVINGS PLAN” shall mean the Catalina Marketing Corporation 401(k) Savings and Retirement Plan, as amended from time to time.

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1.40 “STOCK GRANTS” shall mean an award of Common Stock granted to a Director pursuant to the 1992 Director Stock Grant Plan or any successor plan that allows the Director to elect to defer the receipt of the stock grant under this Plan.

1.41 “STOCK UNITS” shall mean units in the Plan each of which represent a share of Common Stock.

1.42 “TERMINATION OF EMPLOYMENT” shall mean a Participant’s cessation of both employment and service with the Company and all Related Employers voluntarily or involuntarily, for any reason other than death.

1.43 “TRUST” shall mean the one (1) or more grantor, or “rabbi”, trusts, within the meaning of Code Section 671 that may be established between the Company and the trustee (or trustees) named therein. Despite the existence of such a trust, this Plan is technically an unfunded plan for tax purposes and for purposes of Title I of ERISA.

1.44 “UNFORESEEABLE FINANCIAL EMERGENCY” shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant’s property due to casualty, or (iii) other such extraordinary and unforeseeable circumstances, all as determined in the sole discretion of the Plan Administrator.

1.45 “VALUATION DATE” shall mean any date for which the balance to the credit of the Account maintained for a Participant is determined.

1.46 “VESTED” shall mean nonforfeitable.

1.47 “YEAR OF SERVICE” shall mean the 12-consecutive month period beginning with a Participant’s date of hire by the Company or a Related Employer, or in the case of a Director, the date he or she was appointed to the Board, and each 12-consecutive month period that begins with the anniversary of the Participant’s date of hire or Board appointment.

ARTICLE II

ELIGIBILITY AND PARTICIPATION

2.1 SELECTION. Participation in the Plan shall be limited to (i) a select group of management or highly compensated Employees and (ii) the Directors. From the select group of Employees, the Plan Administrator, in its sole discretion, shall determine those Employees eligible to participate in the Plan. Accordingly, an Employee who, in the opinion of the Plan Administrator based upon its then current guidelines, has contributed significantly to the growth and successful operations of the Company or a Related Employer and who meets any additional criteria for eligibility that the Plan

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Administrator, in its sole discretion, may adopt from time to time, will be eligible to become a Participant.

2.2 PARTICIPATION. Once a selected Employee or Director has filed with the Plan Administrator (within the time it requires) an executed copy of the Plan Agreement prescribed by the Plan Administrator, the Employee or Director shall become a Participant on the latest of the date set forth in the Plan Agreement, the date on which his or her Plan Agreement is filed with the Plan Administrator or the date upon which a deferral is first credited to his or her Account.

ARTICLE III

DEFERRAL ELECTIONS

3.1 CASH DEFERRAL AMOUNT. A Participant may elect to defer all or any part of his or her anticipated Salary, Bonus and Directors Fees; however, cash deferrals shall not commence until after the Participant has made the maximum elective deferrals permitted by Code Section 402(g) or permitted by the terms of the Savings Plan to the Savings Plan. A Participant who is not eligible to participate in the Savings Plan shall be deemed to have made the maximum elected deferrals permitted by the terms of the Savings Plan to the Savings Plan.

3.2 ELECTIONS TO DEFER CASH. In connection with a Participant’s commencement of participation in the Plan, the Participant may make a deferral election by delivering to the Plan Administrator a completed and signed Election Form at the same time the Participant files his or her completed and signed Plan Agreement with the Plan Administrator. Thereafter, if the Participant wishes to commence or discontinue making a Deferral, or to change the amount of his or her Deferral, the Participant must file a new Election Form with the Plan Administrator 30 days before the beginning of the (a) Plan Year for changes to the Deferral of a Participant’s Bonus, (b) calendar quarter (i.e. January 1, April 1, July 1 or October 1) for changes to the Deferral of a Participant’s Salary, (c) Board meeting or Board committee meeting with respect to which the election is made for changes to the Deferral of that portion of Director Fees which relate to meeting fees, or (d) fiscal quarter with respect to which the election is made for changes to the Deferral of that portion of Director Fees which relate to a retainer for such quarter, which shall supersede any prior Election Form.

3.3 STOCK GRANTS DEFERRALS. A Director may elect to defer all or any part of his or her anticipated Stock Grants.

3.4 STOCK GRANTS ELECTIONS. A Director may commence or discontinue making a Stock Grants deferral, or change the amount of his or her deferral by filing an Election Form with the Plan Administrator prior to any Annual Meeting at which his or her election or reelection to the Board will be considered (at which the Stock Grant would be made), which shall supersede any prior Election Form. Elections to defer Stock Grants shall be effective only with respect to Stock Grants made to a Director following the Effective Date. Notwithstanding anything to the contrary contained in this Section, a Stock Grants deferral and election shall be subject to any additional

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requirements, such as vesting, imposed by the plan under which the Stock Grant is granted to the Director.

3.5 OPTION PROFIT DEFERRALS. A Participant may elect to defer all or any part of his or her Option Profit on the exercise of a Non-Qualified Stock Option, but only if the Participant paid the exercise price of the Non-Qualified Stock Option with Common Stock that, as of the date of exercise, the Participant had held for at least six months.

3.6 OPTION PROFIT ELECTIONS. A Participant may make an Option Profit deferral by filing an Election Form with the Plan Administrator at least one year prior to the date the Non-Qualified Stock Option vests. With respect to Non-Qualified Stock Options that are vested as of the Effective Date or will become vested within one year after the Effective Date, a Participant may make an Option Profit deferral within sixty days of the Effective Date. Notwithstanding anything to the contrary contained in this Section, an Option Profit deferral and election shall be subject to any additional requirements imposed by the plan under which the Non-Qualified Stock Option is granted to the Participant.

3.7 WITHHOLDING OF DEFERRAL AMOUNTS. A Participant’s deferrals shall be withheld as specified in the Participant’s Election Form, subject to any rules established by the Plan Administrator limiting or prescribing how deferrals are to be withheld, such as rules requiring that deferrals first be made out of commission or incentive compensation.

3.8 IRREVOCABLE ELECTIONS. Except as provided in Section 3.9, any election by a Participant pursuant to Section 3.1 shall be irrevocable for any Plan Year or Annual Meeting Year once the Plan Year or Annual Meeting Year has begun. Any deferral election will continue until revoked or modified in a writing delivered by the Participant to the Plan Administrator, which revocation or modification shall only apply to compensation payable to the Participant after the end of the Plan Year or Annual Meeting Year in which such election is delivered to the Plan Administrator. Except as provided in Section 3.9, any election by a Participant made pursuant to Sections 3.3 and 3.5 shall be irrevocable.

3.9 UNFORESEEABLE FINANCIAL EMERGENCY. If a Participant suffers an Unforeseeable Financial Emergency, the Participant will be permitted to revoke his deferral election for the remainder of the Plan Year in which it is determined by the Plan Administrator that the Unforeseeable Financial Emergency has occurred.

3.10 ELECTION FORMS. Any election by a Participant under this Article shall be made on an Election Form (the terms of which are incorporated herein by reference).

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ARTICLE IV

COMMON STOCK ACCOUNT

4.1 DEFERRAL AMOUNTS. The amount of deferrals made pursuant to Article III which may be credited to the Common Stock Account will be determined in the sole discretion of the Plan Administrator in accordance with Plan Rules it establishes. Unless modified by subsequent Plan Rules, a Participant may elect to defer up to 50% of his or her Bonus (not to exceed $100,000 in any Plan Year) and a Director may elect to defer up to 100% of his or her Director Fees into the Common Stock Account. Unless modified by subsequent Plan Rules, the entire amount of the Stock Grants and the Option Profit subject to a Participant’s deferral election shall be credited to the Common Stock Account.

4.2 CREDITED AMOUNTS. The Participant’s Common Stock Account will be credited with a number of Stock Units equal to the following amounts:

Bonus	the amount of the Bonus deferral divided by the average Fair Market Value on the five business days preceding the date the Participant’s Bonus is otherwise payable
Director Fees	the amount of the Director Fees deferral divided by the Fair Market Value on the five business days preceding the date the Director Fees are otherwise payable
Stock Grants	the number of shares of Common Stock deferred by a Participant from a Stock Grants award when the shares are otherwise payable (I.E., on the date of vesting)
Option Profit	the amount of the Option Profit deferral divided by the Fair Market Value on the date of exercise of the Non-Qualified Stock Option The amounts shall be credited on the date the Bonus, Director Fees, Stock Grants and Option Profit would otherwise be payable to the Participant.

4.3 IRREVOCABLE CHOICE. Amounts credited to the Common Stock Account will remain in this Account until distribution is made to the Participant or Beneficiary pursuant to this Plan.

4.4 ELECTIONS BY CERTAIN OFFICERS AND DIRECTORS. With respect to persons subject to Section 16 of the Exchange Act, and to the extent required by such section, such individuals must make any election under this Article pursuant to an irrevocable election at least six (6) months in advance of the effective date of the transaction.

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ARTICLE V

COMPANY MATCHING CONTRIBUTIONS

5.1 MATCHING CONTRIBUTIONS. The Company will credit each Participant’s Matching Contribution Account with a matching contribution based upon his Salary and Bonus Deferrals as provided in Plan Rules. The Plan Administrator may increase or decrease the matching contribution amounts set forth in the Plan Rules by amending the Plan Rules from time to time. Any reduction in the amount of matching contributions shall become effective on or after the first day of the calendar quarter that falls at least 30 days after the change has been communicated to Participants.

5.2 DISCRETIONARY CONTRIBUTIONS. As of each Plan Year, the Company may, in its sole discretion, credit a Participant’s Discretionary Contribution Account with a discretionary contribution in an amount to be determined by the Company in its sole discretion.

5.3 LIMITATIONS. Matching contributions shall not be made on deferrals of Option Profit, Stock Grants or Director Fees.

ARTICLE VI

PARTICIPANT ACCOUNTS AND INVESTMENT OF DEFERRED AMOUNTS

6.1 DEFERRED COMPENSATION ACCOUNT. Deferrals pursuant to this Plan shall be recorded by the Plan Administrator in a Deferred Compensation Account maintained in the name of the Participant. The Deferred Compensation Account shall be credited with all amounts that have been deferred by the Participant during the Plan Year, plus Earnings and such account shall be charged from time to time with all amounts that are distributed to the Participant.

6.2 COMMON STOCK ACCOUNT.

(a) Deferrals made pursuant to Article IV and Sections 3.3, 3.4, 3.5 and 3.6 shall be recorded by the Plan Administrator in the Common Stock Account which shall be invested solely in Stock Units. The Common Stock Account shall be credited with all amounts that have been deferred by the Participant and Earnings thereon. In addition, in the event the Company declares and pays a Dividend, the Common Stock Account shall be credited with a number of Stock Units equal to (a) the amount of the Dividend paid on the number of shares of Common Stock equal to the number of Stock Units in the Participant’s Vested Common Stock Account, divided by (b) the Fair Market Value of the Common Stock on the date the Dividend is declared. Finally, the Common Stock Account shall be charged from time to time with all amounts that are distributed to the Participant.

(b) In the event of any change in the outstanding shares of Common Stock by reason of an issuance of additional shares, recapitalization, reclassification, reorganization, stock split, reverse stock split, combination of shares, stock dividend or similar transaction, the Committee shall proportionately adjust, in an equitable manner, the number of Stock Units in each Participant’s Common Stock

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Account. The foregoing adjustment shall be made in a manner that will cause the relationship between the aggregate appreciation in outstanding Common Stock and earnings per share of the Company and the increase in value of each Stock Unit in the Common Stock Account to remain unchanged as a result of the applicable transaction.

6.3 MATCHING CONTRIBUTION ACCOUNT. Company matching contributions credited to a Participant pursuant to this Plan shall be recorded by the Plan Administrator in a Matching Contribution Account maintained in the name of the Participant. The Matching Contribution Account shall be credited with all amounts that have been contributed by the Company during the Plan Year and such account shall be charged from time to time with all amounts that are distributed to the Participant.

6.4 DISCRETIONARY CONTRIBUTION ACCOUNT. Company discretionary contributions, if any, credited to a Participant pursuant to this Plan shall be recorded by the Plan Administrator in a Discretionary Contribution Account maintained in the name of the Participant. The Discretionary Contribution Account shall be credited with all amounts that have been contributed by the Company during the Plan Year and such account shall be charged from time to time with all amounts that are distributed to the Participant.

6.5 EARNINGS. A Participant’s Account shall be credited with Earnings daily, except that additional Stock Units credited to the Common Stock Account attributable to a Dividend (pursuant to Section 6.2) shall be credited on the date the Dividend is paid.

6.6 INVESTMENT. The Plan Administrator may permit a Participant (or Beneficiary) to have the right to direct the investment of all or any part of the Trust allocable to his or her Accounts, excluding amounts credited to the Participant’s Common Stock Account, provided that such amounts are currently available for investment purposes subject to the Plan Administrator’s final determination. Such directions to invest are subject to all of the following:

(a) All directions to invest must be made in writing, or in accordance with procedures established by the Plan Administrator for telephone direction.

(b) All directions to invest are limited to investment options selected by the Plan Administrator.

(c) All directions to invest are subject to the approval of the Plan Administrator.

(d) All interest and other income earned on investments directed by the Participant shall be accumulated and added to the principal for the Participant’s benefit.

(e) The Plan Administrator and Trustee shall not be responsible for any loss incurred as the result of the Participant’s direction to invest.

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6.7 VALUATION OF ACCOUNTS. As of each Valuation Date, a Participant’s Account shall consist of the balance of the Participant’s Account as of the last preceding Valuation Date, plus the Participant’s deferrals and contributions by the Company credited to the Account, plus Earnings on the Account, minus the amount of any distributions made since the immediately preceding Valuation Date.

6.8 STATEMENT OF ACCOUNTS. The Plan Administrator shall submit to each Participant, within ninety (90) days after the close of each Plan Year and at such other time as determined by the Plan Administrator, a statement setting forth the balance to the credit of the Account maintained for a Participant.

ARTICLE VII

IN SERVICE DISTRIBUTIONS

7.1 DISTRIBUTIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES. If the Participant experiences an Unforeseeable Financial Emergency, the Participant may, with the approval of the Plan Administrator, receive a partial or full distribution from the Plan of the Vested amounts in his or her Accounts. The distribution shall not exceed the lesser of the Vested balance then credited to the Participant’s Account or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency.

7.2 WITHDRAWAL ELECTION. A Participant may at any time elect to withdraw all of the balance then credited to his or her Account, less a ten (10) percent withdrawal penalty. Thereafter, the Participant shall never again be eligible to participate in the Plan.

ARTICLE VIII

[reserved]

ARTICLE IX

DISTRIBUTIONS FOLLOWING TERMINATION OF EMPLOYMENT

9.1 DISTRIBUTION. Upon Termination of Employment, a Participant’s Vested Account shall be distributed in accordance with this Article.

9.2 ELECTIONS. A Participant, on his or her initial Election Form, shall elect to receive distributions following Termination of Employment in a lump sum or in installment payments, not more frequently than quarterly, over a period of not more than ten years. A Participant may change this election on any subsequent Election Form filed at least one (1) year prior to the Participant’s Termination of Employment; if made within one (1) year of Termination of Employment, such a new election shall be invalid.

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9.3 TIME FOR PAYMENT. The lump sum payment shall be made, or installment payment shall commence, not later than one hundred twenty (120) days after the Participant’s Termination of Employment and any annual payment thereafter shall be made during each subsequent January.

9.4 SMALL PAYMENTS. The minimum annual installment payment shall be $5,000 (before withholding of taxes) and the minimum quarterly installment payment shall be $2,000 (before withholding of taxes). If annual or quarterly installment payments to a Participant would be less than these amounts, the Participant’s Account shall be distributed over the longest installment period available under Section 9.2 under which the annual payment would be at least $5,000 (before withholding of taxes), or the quarterly payments would be at least $2,000 (before withholding of taxes) or, if no such period exists, in a lump sum.

9.5 CASHOUT OF INSTALLMENT PAYMENTS. A Participant who has elected to receive installment payments may, at the time installments are to commence or thereafter, elect to receive, in lieu of any future installment payments, a lump sum payment of the balance then credited to his or her Account, less a ten (10) percent early withdrawal penalty. The ten (10) percent early withdrawal penalty shall be used to reduce the Company’s obligation to make matching contributions under Section 5.1.

9.6 FORM OF PAYMENT. All payments made pursuant to this Article shall be made in cash, except that distributions made from the Common Stock Account shall be made in Common Stock.

9.7 RESTRICTIONS ON COMMON STOCK. Common Stock distributions pursuant to this Article shall only be distributed to a Participant upon delivery to the Company of such representations and warranties as the Company deems necessary or advisable with respect to the investment intent of the Participant as required by the Securities Act of 1933, as amended, and any other federal or state securities laws. The Company shall not be required to distribute shares of Common Stock to a Participant before such shares become listed for trading on any stock exchange on which the Common Stock may then be listed, if any, and the completion of such registration or other qualification of such shares under any state or federal law, rule or regulation, as the Plan Administrator shall determine to be necessary or advisable.

ARTICLE X

DISTRIBUTIONS FOLLOWING DEATH

10.1 DEATH WHILE EMPLOYED BY EMPLOYER GROUP. If a Participant dies while employed by the Company or a Related Employer, the Participant’s Beneficiary shall receive the Participant’s Account in the form of death benefit payments elected by the Participant on his or her last Election Form. The Participant may elect to have such payments made in a lump sum or in installment payments over a period of not more than ten years. The minimum annual installment payment shall be $5,000 (before withholding of taxes). If annual installment payments to a Beneficiary would be less than

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this amount, the Participant’s Account shall be distributed over the longest installment period available under this Section under which the annual payment would be at least $5,000 (before withholding of taxes) or, if no such period exists, in a lump sum. Death benefit payments shall commence within sixty (60) days after the date the Plan Administrator is provided with proof of the Participant’s death satisfactory to it.

10.2 DEATH AFTER TERMINATION OF EMPLOYMENT. If a Participant dies after Termination of Employment but before his or her Account has been fully distributed, unpaid amounts due under Article 9 shall be paid to the Participant’s Beneficiary in the same amount and at the same time as they would have been paid to the Participant.

10.3 LUMP SUM ELECTION. While a Beneficiary may not select the manner of payment, if requested by a Beneficiary and allowed in the sole discretion of the Plan Administrator, the Beneficiary shall be paid a lump sum calculated in accordance with Section 9.5 but without the ten (10) percent early withdrawal penalty.

10.4 FORM OF PAYMENT. All payments made pursuant to this Article shall be made in cash, except that distributions made from the Common Stock Account shall be made in Common Stock.

10.5 RESTRICTIONS ON COMMON STOCK. Common Stock distributions pursuant to this Article shall only be distributed to a Participant upon delivery to the Company of such representations and warranties as the Company deems necessary or advisable with respect to the investment intent of the Participant as required by the Securities Act of 1933, as amended, and any other federal or state securities laws. The Company shall not be required to distribute shares of Common Stock to a Participant before such shares become listed for trading on any stock exchange on which the Common Stock may then be listed, if any, and the completion of such registration or other qualification of such shares under any state or federal law, rule or regulation, as the Plan Administrator shall determine to be necessary or advisable.

ARTICLE XI

BENEFICIARY DESIGNATION

11.1 BENEFICIARY. Each Participant shall have the right, at any time, to designate his or her Beneficiary (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the beneficiary designated under any other plan in which the Participant participates.

11.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Plan Administrator or its designated agent. A Participant shall have the right to change a Beneficiary by completing and signing a new Beneficiary Designation Form, or such other form approved by the Plan Administrator, and filing it with the Plan Administrator. If the

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Participant names someone other than his or her spouse as a Beneficiary, a spousal consent, in the form designated by the Plan Administrator, must be signed by that Participant’s spouse and returned to the Plan Administrator. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Plan Administrator shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Plan Administrator prior to his or her death.

11.3 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a Beneficiary as provided in Sections 11.1 and 11.2 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant’s benefits, then the Participant’s designated Beneficiary shall be deemed to be his or her surviving spouse or, if none the Participant’s estate.

11.4 DOUBT AS TO BENEFICIARY. If the Plan Administrator has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Plan Administrator shall have the right, exercisable in its discretion, to withhold such payments until this matter is resolved to the Plan Administrator’s satisfaction.

ARTICLE XII

VESTING

12.1 VESTING SCHEDULES. A Participant shall become vested in his or her Accounts in accordance with the Vesting Schedules described in this Article.

12.2 DEFERRED COMPENSATION ACCOUNT. All Deferred Compensation Common Stock Accounts shall be fully Vested at all times.

12.3 VESTING SCHEDULE FOR PRE-JANUARY 1, 1997 ADDITIONS TO THE MATCHING CONTRIBUTION AND DISCRETIONARY CONTRIBUTION ACCOUNTS. The Vested portion of a Participant’s Matching Contribution and Discretionary Contribution Accounts with respect to additions made to these accounts prior to January 1, 1997 shall be the percentage of such Account shown on the following table:

YEARS OF SERVICE	VESTED PERCENTAGE
Less than one year	0	%
1	25	%
2 (or more)	100

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12.4 VESTING SCHEDULE FOR ADDITIONS TO THE MATCHING CONTRIBUTION AND DISCRETIONARY CONTRIBUTION ACCOUNTS ON OR AFTER JANUARY 1, 1997. The Vested portion of a Participant’s Matching Contribution and Discretionary Contribution Accounts with respect to additions made to these accounts on or after January 1, 1997 shall be the percentage of such Account shown on the following table:

YEARS OF SERVICE	VESTED PERCENTAGE
Less than one year	0	%
1	20	%
2	40	%
3	60	%
4	80	%
5	(or more) 100	%

12.5 ACCELERATED VESTING. A Participant’s Matching Contribution and Discretionary Contribution Accounts shall become fully Vested upon the earliest to occur of:

(a) the individual’s attaining Normal Retirement Age while employed by the Company or a Related Employer,

(b) the individual’s death (or presumed death) while employed by the Company or a Related Employer,

(c) the individual’s suffering a Disability while employed by the Company or a Related Employer, and

(d) the individual’s Termination of Employment other than for Cause during the two (2) years following a Change in Control.

12.6 FORFEITURES UPON TERMINATION OF EMPLOYMENT. The unvested portion of the Accounts of a Participant whose employment terminates shall be forfeited on the date of his or her Termination of Employment. Forfeitures shall be used to reduce the Company’s obligation to make matching contributions under Section 5.1.

ARTICLE XIII

ADMINISTRATION

13.1 PLAN ADMINISTRATOR. Except as provided in Section 15.6, the Plan Administrator shall have complete control and discretion to manage the operation and administration of the Plan. Not in limitation, but in amplification of the foregoing, the Plan Administrator shall have the following powers:

(a) To determine all questions relating to the eligibility of Employees to participate or continue to participate;

(b) To maintain all records and books of account necessary for the administration of the Plan;

(c) To interpret the provisions of the Plan and to make and to publish such interpretive or procedural rules as are not inconsistent with the Plan and applicable law;

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(d) To compute, certify and arrange for the payment of benefits which any Participant or beneficiary is entitled;

(e) To process claims for benefits under the Plan by Participants or beneficiaries;

(f) To engage agents and professionals to assist the Plan Administrator in carrying out its duties under this Plan;

(g) To adopt or modify Plan Rules for the regulation or application of the Plan (see Exhibit E); such Rules may establish administrative procedures or requirements which modify the terms of this Plan but Plan Rules shall not substantially alter significant requirements or provisions of the Plan; and

(h) To develop and maintain such instruments as may be deemed necessary from time to time by the Plan Administrator to facilitate payment of benefits under the Plan.

13.2 COMMITTEE. The Plan Administrator may designate a committee to administer the Plan and perform the duties required of the Plan Administrator hereunder.

13.3 PLAN ADMINISTRATOR’S AUTHORITY. The Plan Administrator may consult with Company officers, legal and financial advisers to the Company and others, but nevertheless the Plan Administrator shall have the full authority and discretion to act, and the Plan Administrator’s actions shall be final and conclusive on all parties.

ARTICLE XIV

AMENDMENT AND TERMINATION

14.1 AMENDMENTS. The Company reserves the right to amend the Plan prospectively or retroactively, at any time. No amendment shall significantly reduce the value of a Participant’s Vested Account prior to such amendment.

14.2 TERMINATION OF PLAN. The Company shall have the right at any time to declare the Plan terminated completely as to it or as to any of its divisions, facilities, operational units or job classifications. Upon termination of the Plan, the Company may, but shall not be required, to accelerate distribution of the amounts in each Participant’s Vested Account.

14.3 FOLLOWING A CHANGE IN CONTROL. Upon the occurrence of a Change in Control, this Plan no longer shall be subject to alteration, amendment, change, suspension, substitution, deletion, revocation or termination in any manner adverse to the Participants and Beneficiaries. In addition, if required by the terms of a Trust, upon a potential change in control (as defined in such Trust), the Company shall cause a number of shares of Common Stock to be registered in the name of the Trust equal to the aggregate number of Stock Units held in all Participant Accounts under the

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Plan. Further, for each Participant’s Common Stock Account, the number of Stock Units shall be converted to an equal number of shares of Common Stock, with fractional Stock Units being converted to cash.

ARTICLE XV

CLAIMS PROCEDURES

15.1 PRESENTATION OF CLAIM. If any person (a “Claimant”) does not believe that he or she will receive the benefits to which the person is entitled or believes that fiduciaries of the Plan have breached their duties or that the Plan is not being operated properly or that his or her legal rights have been or are being violated with respect to the Plan, the Claimant must file a formal claim with the Plan Administrator under the procedures set forth in this Article. The procedures in this Article shall apply to all claims that any person has with respect to the Plan, including claims against fiduciaries and former fiduciaries, unless the Plan Administrator determines, in its sole discretion, that it does not have the power to grant, in substance, all relief reasonably being sought by the Claimant. A claims official appointed by the Plan Administrator shall, within a reasonable time, consider the claim and shall issue his or her determination thereon in writing. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within sixty (60) days after such notice was received by the Claimant. All other claims must be made within one hundred-eighty (180) days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.

15.2 NOTIFICATION OF DECISION. Written notice of the disposition of a claim shall be furnished to the Claimant within thirty (30) days after the claim is filed with the Plan Administrator. In the event the claim denied, the reasons for the denial shall be specifically set forth in writing, pertinent provisions of the Plan shall be cited and, where appropriate, an explanation as to how the claim can be perfected will be provided.

15.3 REVIEW OF A DENIED CLAIM. Within ninety (90) days after receiving a notice from the Plan Administrator that a claim has been denied in whole or in part, a Claimant may appeal the denial of his or her claim by filing a written statement of the Claimant’s position with the review official designated by the Plan Administrator. The review official shall schedule and give the Claimant an opportunity for a full and fair hearing before the review official of the issue within thirty (30) days after the appeal is requested. The review official’s decision following such hearing shall be made within thirty (30) days and shall be communicated in writing to the Claimant.

15.4 ARBITRATION. If a Claimant’s claim described in Section 15.1 (an “Arbitrable Dispute”) is denied pursuant to Section 15.3, the Claimant’s only further recourse shall be to submit the claim to final and binding arbitration in the County of Pinellas, State of Florida, before an experienced employment arbitrator selected in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association. Except as otherwise provided in Section 16.11, each party shall pay the fees of their respective attorneys, the expenses of their witnesses and any other expenses

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connected with the arbitration, but all other costs of the arbitration, including the fees of the arbitrator, cost of any record or transcript of the arbitration, administrative fees and other fees and costs shall be paid in equal shares by each party (or, if applicable, each group of parties) to the arbitration. Except as otherwise provided in Section 16.11, in any dispute involving a Claimant or the trustee of a Trust in which the Claimant or the trustee prevails, the Company shall reimburse the Claimant’s or the trustee’s reasonable attorneys fees and related expenses. Arbitration in this manner shall be the exclusive remedy for any Arbitrable Dispute. The arbitrator’s decision or award shall be fully enforceable and subject to an entry of judgement by a court of competent jurisdiction. Should any party attempt to resolve an Arbitrable Dispute by any method other than arbitration pursuant to this Section, the responding party shall be entitled to recover from the initiating party all damages, expenses and attorneys fees incurred as a result.

15.5 LEGAL ACTION. Prior to a Change in Control, except to enforce an arbitrator’s award, no actions may be brought by a Claimant in any court with respect to an Arbitrable Dispute.

15.6 FOLLOWING A CHANGE IN CONTROL. Upon the occurrence of a Change in Control, an independent party selected by the Committee prior to a Change in Control shall assume all duties and responsibilities of the Plan Administrator under this Article and actions may be brought by a Claimant in any appropriate court with respect to an Arbitrable Dispute.

ARTICLE XVI

TRUST

16.1 ESTABLISHMENT OF TRUST. The Company may establish a Trust and shall at least annually transfer over to the Trust such assets, if any, as the Plan Administrator, in its sole discretion, determines to be appropriate. The assets of the Trust shall be considered part of the general assets of the Company subject to the claims of its general creditors.

16.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan and the Plan Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of any Trust shall govern the rights of the Participant and the creditors of the Company to the assets transferred to such Trust. The Company shall at all times remain liable to carry out its obligations under the Plan. The Company’s obligations under the Plan shall be deemed satisfied to the extent met with assets distributed pursuant to the terms of the Trust.

ARTICLE XVII

MISCELLANEOUS

17.1 UNSECURED GENERAL CREDITOR/UNFUNDED PLAN. The Plan constitutes an unsecured promise by the Company or a Related Employer to pay benefits in the future and the Participants employed by the Company shall have the status of general unsecured creditors of the Company and Participants employed by a Related

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Employer. The Plan is unfunded for Federal tax purposes and for purposes of Title I of ERISA. All amounts credited to the Participants’ accounts will remain the general assets of the Company and shall remain subject to the claims of the Company’s and the Related Employers’ general creditors until such amounts are distributed to the Participants.

17.2 PAYMENTS TO MINORS AND INCOMPETENTS. If the Plan Administrator receives satisfactory evidence that a person who is entitled to receive any benefit under the Plan, at the time such benefit becomes available, is a minor or is physically unable or mentally incompetent to receive such benefit and to give a valid release therefor, and that another person or an institution is then maintaining or has custody of such person, and that no guardian committee, or other representative of the estate of such person shall have been duly appointed, the Plan Administrator may authorize payment of such benefit otherwise payable to such person to such other person or institution; and the release of such other person or institution shall be a valid and complete discharge for the payment of such benefit.

17.3 PLAN NOT A CONTRACT OF EMPLOYMENT. The Plan shall not be deemed to constitute a contract between the Company and any Participant, nor to be consideration for the employment of any Participant. Nothing in the Plan shall give a Participant the right to be retained in the employ of the Company; all Participants shall remain subject to discharge or discipline as Employees to the same extent as if the Plan had not been adopted.

17.4 NO INTEREST IN ASSETS. Nothing contained in the Plan shall be deemed to give any Participant any equity or other interest in the assets, business or affairs of the Company or a Related Employer. No Participant in the Plan shall have a security interest in assets of the Company used to make contributions or pay benefits.

17.5 RECORDKEEPING. Appropriate records shall be maintained for the purpose of the Plan by the officers and Employees of the Company at the Company’s expense and subject to the supervision and control of the Plan Administrator.

17.6 NOTICE. Any notice or filing required or permitted to be given to the Plan Administrator under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail or by telefax (with a hard copy sent by mail), to the address or telefax number shown below (or such other address or telefax number specified in notice given pursuant to this Section):

Chief Financial Officer

Catalina Marketing Corporation

200 Carillon Parkway

St. Petersburg, Florida 33716

Telefax: 727-579-5327

Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

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Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant.

17.7 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns and the Participant, his or her Beneficiary and their permitted successors and assigns.

17.8 SPOUSE’S INTEREST. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse’s will, nor shall such interest pass under the laws of intestate succession.

17.9 TAXES AND WITHHOLDING. For each Plan Year in which Deferrals are being withheld, the Company shall ratably withhold from that portion of the Participant’s Salary and Bonus that is not being deferred, the Participant’s share of FICA and other employment taxes on the deferral. If necessary, the Plan Administrator shall reduce a Participant’s Deferrals in order to comply with this Section. The Company (or the trustee of the Trust) shall withhold from benefits distributed under the Plan all federal, state and local income, employment and other taxes required to be withheld by applicable law.

17.10 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. After a Change in Control, if any person or entity has failed to comply (or is threatening not to comply) with any of its obligations under the Plan, any Trust or any related agreement, or takes or threatens to take any action to deny, diminish or to recover from any Participant the benefits intended to be provided thereunder, the Company shall reimburse the Participant for reasonable attorneys fees and related costs incurred in the successful pursuance or defense of the Participant’s rights. If the Participant does not prevail, attorneys fees shall also be payable under the preceding sentence to the extent the Participant had reasonable justification for retaining counsel, but only to the extent that the scope of such representation was reasonable.

17.11 COURT ORDER. The Plan Administrator is authorized to make any payments directed by court order in any action in which the Plan or the Plan Administrator has been named as a party.

17.12 FURNISHING INFORMATION. A Participant will cooperate with the Company by furnishing any and all information requested by the Company and take such other actions as may be requested in order to facilitate the administration of the Plan and the payment of benefits hereunder, including but not limited to taking such physical examinations as the Company may deem necessary.

17.13 NON-ALIENATION OF BENEFITS. No benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. No benefit under

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the Plan shall in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to any such benefit, except as specifically provided in the Plan, then such benefits shall cease and terminate at the discretion of the Plan Administrator. The Plan Administrator may then hold or apply the same or any part thereof to or for the benefit of such person or any dependent or beneficiary of such person in such manner and proportions as it shall deem proper.

17.14 GOVERNING LAW. Except to the extent preempted by ERISA, this Plan shall be construed in accordance with the laws of Florida without regard to its conflicts of laws principles.

17.15 SECTION 16. With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision under the Plan or action by the Committee fails to so comply, it shall be deemed null and void to the extent permitted by law and deemed advisable by the Committee.

17.16 LIABILITY LIMITED. In administering the Plan neither the Plan Administrator nor any officer, Director or Employee thereof, shall be liable for any act or omission performed or omitted, as the case may be, by such person with respect to the Plan; provided, that the foregoing shall not relieve any person of liability for gross negligence, fraud or bad faith. The Plan Administrator, its officers, Directors and Employees shall be entitled to rely conclusively on all tables, valuations, certificates, opinions and reports that shall be furnished by any actuary, accountant, trustee, insurance company, consultant, counsel or other expert who shall be employed or engaged by the Plan Administrator in good faith.

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17.17

EXHIBIT A

PLAN RULES

FOR THE

CATALINA MARKETING CORPORATION

DEFERRED COMPENSATION PLAN

PLAN RULE NO. 1: MATCHING CONTRIBUTIONS

Effective July 1, 1997, the Company will credit each Participant’s Matching Contribution Account with a matching contribution based upon his Salary and Bonus Deferrals, as described in this Plan Rule.

The aggregate matching percentage for this Plan and the Savings Plan combined shall be as follows:

Percentage of Compensation Deferred	Matching Percentage
The first 2% of Salary and Bonus	100	%
The next 2% of Salary and Bonus	25	%

The amount credited to a Participant’s Matching Contribution Account pursuant to this Plan shall be the amount the matching contribution determined in accordance with the formula stated above exceeds the amount of the matching contribution made by the Company to the Savings Plan for the Participant for the current Plan Year.

EXAMPLE:

The Savings Plan limits a Participant’s elective deferrals to 3% of compensation or $3,600, whichever is less. A participant receives annual compensation of $200,000 and elects to defer 10% into the Savings Plan and the Plan.

Savings Plan Match. The maximum contribution to the Savings Plan will be $3,600 based on the dollar limit. Since $3,600 is 3% of $120,000, only the first $120,000 of compensation will be matched in the Savings Plan. The Savings Plan match would be $2,700 calculated as follows:

100% of the first 2% (1.0 x .02 x $120,000 = $2,400), plus

25% of the next 1% (0.25 x .01 x $120,000 = $300).

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This Plan’s Match. This Plan’s match would be $2,300, which is the difference between the Company’s aggregate matching contribution of $5,000 and the Savings Plan match, calculated as follows:

100% of the first 2% (1.0 x .02 x $200,000 = $4,000), plus

25% of the next 2% (0.25 x .01 x $200,000 = $1,000)

which equals $5,000, less $2,700 equals $2,300.

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EX-10.8

Exhibit 10.8

EXHIBIT B

2005 Sub-Plan

Applicable to Compensation Deferred or

Vested After December 31, 2004

Catalina Marketing Corporation

Deferred Compensation Plan

TABLE OF CONTENTS

		Page
ARTICLE I	DEFINITIONS	1
1.1	“CHANGE IN CONTROL”	1
1.2	“DISABILITY”	1
1.3	“KEY EMPLOYEE”	2
1.4	“TRUST”	2
1.5	“UNFORESEEABLE FINANCIAL EMERGENCY”	2
ARTICLE II	DEFERRAL ELECTIONS	2
2.1	ELECTIONS TO DEFER CASH	2
2.2	STOCK GRANTS DEFERRALS	2
2.3	OPTION PROFIT ELECTIONS	3
2.4	IRREVOCABLE ELECTIONS	3
2.5	401(k) COORDINATION	3
ARTICLE III	IN SERVICE DISTRIBUTIONS	3
3.1	DISTRIBUTIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES	3
3.2	WITHDRAWAL ELECTION	4
ARTICLE IV	DISTRIBUTIONS FOLLOWING TERMINATION OF EMPLOYMENT	4
4.1	DISTRIBUTION	4
4.2	ELECTIONS	4
4.3	TIME FOR PAYMENT	4
4.4	SMALL PAYMENTS	4
4.5	CASHOUT OF INSTALLMENT PAYMENTS	4
ARTICLE V	DISTRIBUTIONS FOLLOWING DEATH	4
5.1	DEATH WHILE EMPLOYED BY EMPLOYER GROUP	4

EXHIBIT B

2005 Sub-Plan

Applicable to Compensation Deferred or

Vested After December 31, 2004

Catalina Marketing Corporation

Deferred Compensation Plan

PURPOSE AND SCOPE

This sub-plan (the “Sub-plan”) hereby incorporates the terms of the Catalina Marketing Corporation Deferred Compensation Plan (the “Plan”) by reference, subject to the limited modifications set forth below. Terms within the Sub-plan that begin with initial capital letters shall have the particular defined meaning set forth herein or in the Plan, unless the context clearly indicates otherwise. This Sub-plan shall apply to compensation that is deferred pursuant to the terms below or that vests on or after January 1, 2005. No provision of this Sub-plan shall apply to Compensation that was deferred and vested on or before December 31, 2004. References within the Plan to Accounts shall not apply to amounts deferred under this Sub-plan or vested after December 31, 2004, and references herein to Accounts shall not apply to Accounts under the Plan.

ARTICLE I

DEFINITIONS

For purposes hereof, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings:

1.1 “CHANGE IN CONTROL” shall have the meaning set forth in Section 1.9 of the Plan, subject to such refinements as the Plan Administrator shall deem necessary or appropriate in order to satisfy regulations issued by the Secretary of the Treasury pursuant to Section 409A(e) of the Code.

1.2 “DISABILITY” shall mean a Participant’s condition such that he or she is (a) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (b) is, by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident or health plan covering employees of the participant’s employer.

1.3 “KEY EMPLOYEE” shall mean a key employee, as defined in Section 416(i) of the Code (without regard to paragraph (5) thereof), of the Company or any affiliate during any period when the stock of the Company or its affiliate, as the case may be, is publicly traded on an established securities market or otherwise.

1.4 “TRUST” shall mean the one (1) or more grantor, or “rabbi”, trusts, within the meaning of Code Section 671 that may be established within the United States between the Company and the trustee (or trustees) named therein. Despite the existence of such a trust, this Plan is technically an unfunded plan for tax purposes and for purposes of Title I of ERISA.

1.5 “UNFORESEEABLE FINANCIAL EMERGENCY” shall mean a severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant, the Participant’s spouse, or a dependent (as defined in section 152(a) of the Code) of the Participant, (ii) a loss of the Participant’s property due to casualty, or (iii) other such extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Plan Administrator.

ARTICLE II

DEFERRAL ELECTIONS

2.1 ELECTIONS TO DEFER CASH. In connection with a Participant’s commencement of participation in the Plan, the Participant may make a deferral election by delivering to the Plan Administrator a completed and signed Election Form at the same time the Participant files his or her completed and signed Plan Agreement with the Plan Administrator. In order for a Participant’s Election Form to be valid with respect to compensation earned after the effective date of such Election Form during his or her first year of eligibility in the Plan, the Plan Administrator must receive such Election Form within thirty (30) days after the date the Participant becomes eligible to participate in the Plan. Thereafter, if the Participant wishes to commence making a Deferral, or to change the amount of his or her Deferral, with respect to Salary, Bonus, or Director Fees earned following the close of the current Plan Year, the Participant must file a new Election Form with the Plan Administrator before the end of the Plan Year that immediately precedes the Plan Year in which such new Election Form will become effective. Such new Election Form shall supersede any prior Election Form. A Participant may discontinue making Deferrals by filing a written notice with the Plan Administrator, who shall thereupon suspend the Participant’s future Deferrals as soon as administratively practicable after receiving the Participant’s notice.

2.2 STOCK GRANTS ELECTIONS. A Director may commence or discontinue making a Stock Grants deferral, or change the amount of his or her deferral by filing an Election Form with the Plan Administrator prior to the close of the Plan Year preceding any Annual Meeting (at which the Stock Grant would be made), which shall

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supersede any prior Election Form. Notwithstanding anything to the contrary contained in this Section, a Stock Grants deferral and election shall be subject to any additional requirements, such as vesting, imposed by the plan under which the Stock Grant is granted to the Director.

2.3 OPTION PROFIT ELECTIONS. To the extent allowable under terms and conditions that the Plan Administrator may establish in its discretion (including terms and conditions that are designed to conform with the requirements of Section 409A of the Code), a Participant may make an Option Profit deferral by filing an Election Form with the Plan Administrator prior to the close of the Plan Year preceding the Plan Year in which the Non-Qualified Stock Option vests. Notwithstanding anything to the contrary contained in this Section, an Option Profit deferral and election shall be subject to any additional requirements imposed by the plan under which the Non-Qualified Stock Option is granted to the Participant.

2.4 IRREVOCABLE ELECTIONS. Except as provided in Section 3.9 of the Plan or herein, any election by a Participant pursuant to Section 2.1 of this Sub-plan shall be irrevocable for any Plan Year once the Plan Year has begun. Any deferral election will continue until revoked or modified in a writing delivered by the Participant to the Plan Administrator in accordance with Section 2.1 of this Sub-plan. Any modification shall only apply to compensation payable to the Participant after the end of the Plan Year in which such election is delivered to the Plan Administrator, and any revocation shall only apply to compensation payable to the Participant after the date that is as soon as practicable after the Participant has given a written revocation to the Plan Administrator. Except as provided in Section 3.9 of the Plan, any election by a Participant made pursuant to Sections 2.2 and 2.3 of this Sub-plan shall be irrevocable.

2.5 401(k) COORDINATION. Section 3.1 of the Plan shall be modified to provide as follows: “A Participant may elect to defer all or part of his or her anticipated Salary, Bonus and Director Fees regardless of 401(k) participation”.

ARTICLE III

IN SERVICE DISTRIBUTIONS

3.1 DISTRIBUTIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES. If the Participant experiences an Unforeseeable Financial Emergency, the Participant may, with the approval of the Plan Administrator, receive a partial or full distribution from the Plan of the Vested amounts in his or her Accounts. The distribution shall not exceed the lesser of the Vested balance then credited to the Participant’s Account or the amounts needed to satisfy the Unforeseeable Financial Emergency, plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the

-3-

Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).

3.2 WITHDRAWAL ELECTION. A Participant shall not be permitted to make an election pursuant to Section 7.2 of the Plan with respect to compensation deferred or vested after December 31, 2004.

ARTICLE IV

DISTRIBUTIONS FOLLOWING TERMINATION OF EMPLOYMENT

4.1 DISTRIBUTION. Upon Termination of Employment, a Participant’s Vested Account under this Sub-plan shall be distributed in accordance with this Article.

4.2 ELECTIONS. A Participant, on his or her initial Election Form, shall elect to receive distributions following Termination of Employment in a lump sum or in installment payments, not more frequently than quarterly, over a period of not more than ten years. A Participant may not change this election on any subsequent Election Form.

4.3 TIME FOR PAYMENT. The lump sum payment shall be made, or installment payment shall commence, not later than one hundred twenty (120) days after the Participant’s Termination of Employment and any annual payment thereafter shall be made during each subsequent January. Notwithstanding the foregoing, a lump sum payment or first installment payable to a Key Employee pursuant to this Article shall not be made before the date that is six (6) months after the Key Employee’s Termination of Employment.

4.4 CASHOUT OF INSTALLMENT PAYMENTS. A Participant shall not be permitted to make an election pursuant to Section 9.5 of the Plan with respect to compensation deferred or vested after December 31, 2004.

ARTICLE V

DISTRIBUTIONS FOLLOWING DEATH

5.1 DEATH WHILE EMPLOYED BY EMPLOYER GROUP. If a Participant dies while employed by the Company or a Related Employer, the Participant’s Beneficiary shall receive the Participant’s Account in the form of death benefit payments elected by the Participant on his or her last Election Form. The Participant may elect to have such payments made in a lump sum or in installment payments over a period of not more than ten years. The minimum annual installment payment shall be $5,000 (before withholding of taxes). If annual installment payments to a Beneficiary would be less than this amount, the Participant’s Account shall be distributed over the longest installment period available under this Section under which the annual payment would be at least

-4-

$5,000 (before withholding of taxes) or, if no such period exists, in a lump sum. Death benefit payments shall commence within sixty (60) days after the date the Plan Administrator is provided with proof of the Participant’s death satisfactory to it.

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EX-21

EXHIBIT 21

CATALINA MARKETING CORPORATION

SUBSIDIARIES OF REGISTRANT

Catalina Marketing International, Inc.,

a Delaware corporation

Catalina Marketing Manufacturer Services, Inc. (f/k/a Catalina Marketing Sales Corporation),

a Delaware corporation

Catalina Electronic Clearing Services, Inc.,

a Delaware corporation

Catalina Health Resource, Inc. (f/k/a Health Resource Publishing Company),

a Delaware corporation

Supermarkets Online Holdings, Inc.,

a Delaware corporation

Supermarkets Online, Inc.,

a Delaware corporation

Catalina Marketing Worldwide, Inc.,

a Delaware corporation

Catalina Marketing of France, Inc.,

a Delaware corporation

Catalina Marketing France, S.A.S.,

a French corporation

Catalina Marketing U.K., Inc.,

a Delaware corporation

Catalina Marketing U.K., LTD.,

a United Kingdom corporation

Catalina Marketing Italia s.r.l.,

an Italian corporation

Savings4Me LTD.,

a United Kingdom corporation

Catalina Marketing of Iberia, Inc.,

a Delaware corporation

Catalina Marketing of Belgium, Inc.,

a Delaware corporation

Catalina-Pacific Media, LLC,

a Delaware limited liability corporation

Pacific Media KK,

a Japanese corporation

CMJ Investments, LLC,

a Delaware limited liability corporation

Catalina Marketing Japan KK,

a Japanese corporation

Catalina Marketing Research Solutions, Inc. (f/k/a Alliance Research, Inc.),

a Delaware corporation

Compuscan Marketing, Inc.,

a Pennsylvania corporation

Catalina Marketing Loyalty Holdings, Inc.,

a Delaware corporation

Dynamic Controls, Inc.,

a Delaware corporation

Catalina Marketing Direct Marketing Services, Inc. (f/k/a Market Logic, Inc.),

a California corporation

Market Intelligence, Inc.,

an Illinois corporation

Catalina Marketing Deutschland GmbH,

a German corporation

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 33-82456, 33-46793, 333-07525, 333-86905, 333-103631, 333-103632 and 333-120940) of Catalina Marketing Corporation of our report dated June 10, 2005 relating to the financial statements, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Tampa, Florida

June 10, 2005

EX-31.1

Exhibit 31.1

Officer Certification

I, L. Dick Buell, certify that:

1. I have reviewed this Annual Report on Form 10-K of Catalina Marketing Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 13, 2005

By:	/s/ L. Dick Buell
	L. Dick Buell
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Officer Certification

I, Robert D. Woltil, certify that:

1. I have reviewed this Annual Report on Form 10-K of Catalina Marketing Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 13, 2005

By:	/s/ Robert D. Woltil
	Robert D. Woltil
	Interim Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

Certificate Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

For this Annual Report on Form 10-K of Catalina Marketing Corporation (the “Company”) for the fiscal year ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, L. Dick Buell, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ L. Dick Buell

L. Dick Buell

Chief Executive Officer

(Principal Executive Officer)

June 13, 2005

EX-32.2

Exhibit 32.2

Certificate Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

For this Annual Report on Form 10-K of Catalina Marketing Corporation (the “Company”) for the fiscal year ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert D. Woltil, Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Robert D. Woltil

Interim Chief Financial Officer

(Principal Financial and Accounting Officer)

June 13, 2005