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, 2006

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 is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated Filer  x Accelerated Filer  ¨ Non-accelerated Filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

As of September 30, 2005, 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 $22.74 as reported by the New York Stock Exchange, Inc.) was $1,019,421,443. The number of shares of registrant’s common stock, par value $0.01 per share, outstanding as of May 22, 2006, was 46,163,236.

Documents Incorporated by Reference

Certain portions of registrant’s Definitive Proxy Statement for 2006 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 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	12
Item 2.	Properties	12
Item 3.	Legal Proceedings	13
Item 4.	Submission of Matters to a Vote of Security Holders	13
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6.	Selected Financial Data	15
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 8.	Consolidated Financial Statements and Supplementary Data	28
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	62
Item 9A.	Controls and Procedures	62
Item 9B.	Other Information	62
PART III
Item 10.	Directors and Executive Officers of the Registrant	62
Item 11.	Executive Compensation	62
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	62
Item 13.	Certain Relationships and Related Transactions	62
Item 14.	Principal Accounting Fees and Services	62
PART IV
Item 15.	Exhibits, Financial Statement Schedules	62

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PART I

INTRODUCTORY NOTE

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In this Annual Report on Form 10-K 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. 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 Securities and Exchange Commission (“SEC”).

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 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 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 provide assurance 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 (“CPG”) and pharmaceutical products manufacturers, marketers and retailers; general business and economic conditions; acquisitions and investments; 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 and retail channels; the pace of installation of our networks including as it relates to the installation of color printers and our other networks in existing and future retail channels, the acceptance by our manufacturer clients and retailers of color printers and related new and additional terms and conditions, the success of new services and businesses and the pace of their implementation, 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 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 1A — “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.

Item 1. Business

General

Catalina Marketing Corporation, a Delaware corporation, and its subsidiaries, provide behavior-based communications, developed and distributed for CPG 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, 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 communication to print, manufacturers and retailers can deliver customized communications and messages to only the consumers they wish to reach. We track actual purchase behavior and, primarily through the use of Universal Product Code-based scanner technology and National Drug Code information, target consumers at the retail checkout counter and prescription medication users at the pharmacy checkout counters to deliver customized communications to retail and pharmaceutical consumers.

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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 Catalina Marketing International (“CMI”).

In the United States, as of March 31, 2006, the Catalina Marketing Network^®, which supports CMS, was installed in over 21,000 retail stores, primarily supermarkets and retail drug stores, and reached approximately 223 million shoppers weekly. As of the same date, the Health Resource Network, which supports CHR, was installed in approximately 12,800 pharmacy outlets and reached more than 22 million prescription medication users weekly. CMI’s networks were installed in approximately 7,300 retail locations, primarily supermarkets and hypermarkets in Europe and Japan, and reached approximately 86 million shoppers weekly.

As of March 31, 2006, we employed approximately 1,200 people in offices throughout the United States, Europe and Japan.

Business Segment Information

For a summary of the financial results of our reportable segments see Item 8 – “Consolidated financial Statements and Supplementary Data – Note 18 – Segment and Geographic Disclosures”.

Catalina Marketing Services

CMS services domestic retailers and consumer product manufacturers, primarily within the CPG 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 communications at the checkout counter of a retailer of CPG manufacturers. 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 communications at the point-of-sale based on product Universal Product Codes, historical purchase behavior or other scanned information. The printed communications are handed to consumers by the cashier at the end of the shopping transaction.

CMS generates revenues primarily by providing in-store, electronic marketing delivery services via the Catalina Marketing Network^®. Our clients contract with us to deliver printed communications at the point-of-sale and typically pay us a fee for each print delivered. In general, CMS recognizes revenue at the time a communication is delivered at the checkout counter of the retail store. The amount of revenue recognized is based on the total number of communications 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 communications for a specified category, or categories, within a four-week period referred to as a “cycle.” CMS divides the calendar year into thirteen cycles. The delivery of 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 majority of our contracts cover multiple cycles.

The methods for consumers to redeem manufacturer coupons distributed by the Catalina Marketing Network^® are similar to traditional redemption methods. Retailers provide discounts to consumers at the time the coupons are presented. The retailers send coupons redeemed by consumers to clearinghouses and receive reimbursement from the manufacturers sponsoring the promotion for the discounts provided plus 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 identification methods. Catalina Category Marketing (“CCM”) 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.

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. In general, we pay retailer fees to, and exchange services with, the retailer based on the number of manufacturer sponsored communications printed. Because of the concentration of ownership in the retail grocery industry,

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we are dependent on a limited number of retailers that supply the primary points of distribution for the communications of our manufacturer clients. Approximately 59.2% of the printed in-store communications provided by CMS for our clients during the fiscal year ended March 31, 2006, 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 us 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, we signed an agreement with Walgreens Co. (“Walgreens”) to install the Catalina Marketing Network^® at the checkout counters in the drug chain’s stores. We anticipate that the installations in Walgreen’s approximately 5,200 current stores will be complete in the first quarter of fiscal year 2007.

CMS is planning to install approximately 145,000 color inkjet printers, which will be supplied by Epson America, Inc. (“Epson”), in retailers on the Catalina Marketing Network^®. The installation of the new color printers and associated software is expected to begin in late June 2006 and be complete by the end of 2007. When the color printer installation is complete, we estimate that color communications will account for more than 85% of CMS distribution. We anticipate investing approximately $100 million, primarily in capital expenditures, through the completion of the initial installation of those color printers.

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. With the addition of color ink jet printers, we will also purchase ink from Epson. 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, with the exception of the new color printer which is supplied by Epson, 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 17.6%, 18.9% and 16.1% of revenues generated by CMS for the fiscal years ended March 31, 2006, 2005 and 2004, respectively. We believe that if we lost Nestlé as a client it could have a material effect on CMS as well as the Company taken as a whole.

Catalina Health Resource

CHR provides services that assist pharmaceutical and CPG 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 CPG clients. These communication services include messages and educational information delivered to healthcare patients at pharmacies participating in the Health Resource Network. Our 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 CPG 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. 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 87.8% of the newsletters printed during the fiscal year ended March 31, 2006, were generated from within the stores belonging to three retail pharmacy chains. If any of these retail pharmacy chains

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were to decide to not renew their contract with us, or if they were to 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 programming 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 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. 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. We believe 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 58.1%, 51.8% and 52.9% of its revenues in fiscal years 2006, 2005 and 2004, respectively.

Catalina Marketing International

The Catalina Marketing Network^® operates internationally in a manner similar to the domestic CMS business. CMI offers a full range of targeted marketing solutions to many of the top CPG manufacturers and maintains relationships with major supermarket, hypermarket and other retailers. In addition, in certain European markets, we work with clients using a business model we refer to as “retail centric” in that we derive revenue from the retailers for managing loyalty programs and in-store promotions.

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 2006, we provided in-store electronic targeted marketing services for manufacturers and retailers in France, Italy, the United Kingdom, Belgium, the Netherlands, Germany and Japan. At the end of fiscal year 2006, the network was installed in approximately 7,300 retail locations in Europe and Japan and reached more than approximately 86 million consumers each week.

CMI had a single client that accounted for approximately 13.0%, 19.8% and 26.1% of revenues generated by this segment for fiscal years 2006, 2005 and 2004, respectively. We believe that if this client were lost it could have a material effect on this business segment, but not on the Company taken as a whole.

In fiscal year 2006, CMI revenues accounted for approximately 17.7% of our consolidated 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 CPG 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, CMI sales are billed in foreign currencies and are subject to currency exchange fluctuations as are intercompany royalties, management fees and financing activities. Changes in the value of the U.S. dollar compared with foreign currencies may have an impact on our revenues and margins. We cannot predict the direction or magnitude of currency fluctuations. In general, we purchase goods and services in local currencies. In Japan, we borrow locally to meet our financing requirements, which provides certain natural and economic hedges, but otherwise have not engaged in currency hedge transactions.

Discontinued Operations

In November 2003, we announced our intent to divest our outdoor billboard business in Japan, Direct Marketing Services and Catalina Marketing Research Solutions which we refer to herein as Japan Billboard, DMS, and CMRS, respectively. These entities, which were deemed not to be strategically aligned with our core businesses, were subsequently sold in fiscal 2005. 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 CPG 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

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companies and retail solution providers 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 spending 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, proprietary software and database systems that target individual consumers based on shopping behavior exhibited at the point-of-sale. Our competitive advantages in 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 our 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, 2006, 2005 and 2004, expenditures for research and development were $0.9 million, $2.0 million and $1.2 million, respectively.

Intellectual Property

We currently hold, and have applications pending for, numerous United States and foreign patents relating to our products and services including patents related to the delivery of targeted communications as well as improvements and additional inventions related to our current and contemplated businesses, programs and services. In addition, we regard certain computer software 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 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 vigorously protect our proprietary intellectual property rights.

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, state and foreign 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 federal, state and foreign laws also restrict the content and sponsorship of regulated product coupons and messages.

CHR operates in a highly regulated business environment. In the United States, the 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.

In all jurisdictions in which CMI operates, 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. Furthermore, in foreign jurisdictions we are subject to laws and regulations which govern the type or design of programs that we can run on our network or the content of communications.

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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 1A. 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 CPG 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 CPG 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 CPG 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 communications 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 and communications. Many retailers utilize our competitors for such services and some conduct such services in-house or otherwise allocate their marketing dollars to other media outlets. 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 business is dependent on the promotional spending of our manufacturer and retail partners, which may be effected by seasonal, economic and other factors over which we have no control.

In general, we expect our revenues to be greater during periods of increased promotional activity by manufacturers. As a result, the pattern of promotion distribution can be 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. These factors, as well as the overall changes in the number of contracts we have with retailer and manufacturer clients, 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.

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Our success depends on our relationships with retailers and pharmacies that provide access to consumers in their retail locations and we rely on data provided from retailers and pharmacies to trigger and report on the delivery of our services.

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 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 could be reduced and/or the profitability of our operations could be reduced.

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

In addition, we rely on data provided by our retailers and pharmacies to trigger and report on the delivery of our services on behalf of our manufacturer clients as well as provide a database to target transactions based on purchase history. Any change, interruption or inaccuracy of the data provided by our retailers and pharmacies could impact the services we offer to our clients as well as the data we utilize to report on transactions.

We may not succeed in our effort to develop new services or enter new retail channels and achieve future growth.

A key element of our growth strategy is the development and sale of new services and entry into new retail channels. While new services are currently under development, there can be no assurance that we will be able to successfully develop and market new services. In addition, while we have dedicated significant resources to expanding our CMS business into new retail channels beyond our foundation in the grocery channel, including installations in drug stores and mass merchandisers and pilot tests in convenience stores, there is no guaranty that we will be able to successfully operate in these retail channels, or that we will achieve revenue growth from these channels. Our inability or failure to enter new retail channels, 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 our growth strategy. 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 expenditures.

Our proposed enhanced and expanded service offerings, including the deployment of color printers, will require significant capital expenditures.

We have announced that we are currently working on the deployment of color ink jet printers in our existing retail network in place of certain of our existing thermal 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 and mass merchandisers. 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 ink jet printers in our existing retail network will require substantial expenditures to acquire and install such printers and, in some instances, will replace existing thermal black-and-white printers that may not have reached the end of their useful lives, which we plan to redeploy elsewhere. Color printers will require new and additional efforts and potential costs to be expended by our retailers, including the use and management of additional consumables, such as ink and non-thermal paper, changes in software, hardware and wiring and other logistics steps not required by our current network of thermal black-and-white printers. While we are working with Epson and other vendors to try to simplify the use, servicing and supply of such printers and the required consumables, we cannot provide assurance that difficulties will not be encountered in installing, using and servicing such printers and the consumables. In addition, while we believe the design of the printers and consumables will operate effectively and efficiently when deployed and operated in the field, due to the fact that the printers are highly customized and have not been tested in mass production, there can be no assurance that the timing of manufacture and delivery of the printers and consumables will move forward as currently planned, that the printers and consumables will operate in accordance with specifications, that we will experience operating

9

reliability consistent with our current thermal black-and-white printers or that we will not experience a significant number of failures resulting from design, manufacture, operation or other causes. Furthermore, while we expect color printing to enhance the effectiveness of our clients’ marketing efforts or increase the redemption rates of incentives printed on our network, 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.

Significant anticipated new initiatives, including the deployment of color printers, will impact our resources and management.

We have announced that we are currently working on several significant initiatives including the deployment of color printers in our CMS grocery network and pursuit of new retail channels. As a result of these initiatives, subject to the timing and success of these initiatives, we will experience an increased demand on our resources and management.

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, hurricanes 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 a material adverse effect on our results of operations and financial condition.

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, decrease the confidence of our manufacturer and retail client base 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 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.

Failure to defend our intellectual property rights may harm our competitive position, and litigation to protect our intellectual property rights could 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 provide assurance 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.”

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Intellectual property litigation against us could 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 could affect our ability to deliver targeted communications 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 related to 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. In addition, changes in the laws and regulations or manner of enforcement of such laws and regulations could negatively impact our business and cause us to change our services or systems. 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.”

Compliance with 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 these inherent limitations, misstatements due to error or fraud may occur and may not be detected.

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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 previously reported transactions. 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 our stock price.

Risks Related to Shareholder Lawsuits

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

We, and certain current and former directors and former officers 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 current and former directors and former officers 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.

Item 1B. Unresolved Staff Comments.

None

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.

As of March 31, 2006, we leased sales and support offices throughout the United States, consisting of approximately 186,000 square feet in aggregate, and offices for our foreign operations in five countries. 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 SEC Staff of certain revenue recognition timing issues that management identified at CHR. On April 4, 2006, we issued a press release to announce that we had received notification from the SEC that the SEC had completed its investigation of us and that the SEC did not intend to recommend enforcement action against us.

Securities Actions and Derivative Actions

We, and certain current and former directors and former officers 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, as amended 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. We 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 which was subsequently granted by the court on February 16, 2006. The parties are currently engaged in discovery, including the production of documents. 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 and results of operations.

Certain current and former directors and former officers of the Company and CHR, and Catalina Marketing, as a nominal defendant, have been named in two shareholder derivative actions captioned The Booth Family Trust v. Frank H. Barker, et al., Case No. 20510-NC, pending 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 pending 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 us, 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 to extend the stay, the court in the Florida derivative action has stayed the action through October 30, 2006. The parties to the Delaware derivative action have also agreed to extend the stay in that action until October 30, 2006, and approval by the court is pending. 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 2006 or through the date of the filing of this Annual Report on Form 10-K.

PART II

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

Market Information. Our 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 share of common stock, for the quarters ended as follows:

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	High		Low		Dividends Declared per share of Common stock
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		—
Fiscal Year 2006:
June 30, 2005	$	26.33	$	22.85	$	—
September 30, 2005		26.97		22.52		0.30
December 31, 2005		27.54		22.36		—
March 31, 2006		26.28		21.71		—

Holders. As of May 22, 2006, there were approximately 787 registered holders of our common stock.

Dividends. During fiscal years 2006 and 2005, we paid an annual dividend of $0.30 per share. We expect to pay similar dividends in the future. However, the payment and rate of dividends on our common stock is subject to several factors including operating results, availability of cash and our financial requirements.

Securities Authorized for Issuance Under Equity Compensation Plans. The information called for by Item 5 will be contained in our 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 SEC no later than 120 days after fiscal year end of March 31, 2006.

The following table sets forth information relating to our purchase of our equity securities during the twelve months ended March 31, 2006:

Period (Month of)	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)
					(in thousands)
Fiscal 2006
April 2005	—		NA	—	$	55,825
May 2005	262,000	$	24.09	262,000	$	49,514
June 2005	1,431,300	$	24.82	1,431,300	$	13,992
July 2005	193,600	$	25.30	193,600	$	9,094
August 2005	560,700	$	24.10	560,700	$	95,582
September 2005	417,600	$	23.63	417,600	$	85,713
October 2005	—		NA	—	$	85,713
November 2005	105,700	$	26.63	105,700	$	82,898
December 2005	86,700	$	25.96	86,700	$	80,647
January 2006	—		NA	—	$	80,647
February 2006	1,164,600	$	22.55	1,164,600	$	54,389
March 2006	559,000	$	23.04	559,000	$	41,508

⁽¹⁾ On August 9, 2005, our board of directors authorized $100 million of funds to be available for the repurchase of our common stock. This authorization replenished the $100 million our board of directors authorized in September 2004. We intend to use cash flows from operations and funds available under our revolving credit facility to finance the remaining authorized repurchases of our common stock. Factors governing the future repurchase of our common stock include consideration of the market price of our common stock at the time of the contemplated repurchase.

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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 2002 through 2005 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,
	2006		2005			2004			2003		2002
	(In thousands, except per share amounts)
Statement of operations data:
Revenues	$	417,746	$	410,062		$	408,632		$	383,849	$	367,861
Income from continuing operations		71,616		68,596			60,397			51,564		66,645
Cumulative effect of accounting change, net-of-tax(1)		—		—			(770	)		—		—
Income (loss) from discontinued operations		—		(3,144	)		(78,900	)		3,534		(8,095	)
Net income (loss)		71,616		65,452			(19,273	)		55,098		58,550
Diluted income (loss) per common share:
From continuing operations	$	1.46	$	1.31		$	1.15		$	0.94	$	1.17
From discontinued operations (2)		—		(0.06	)		(1.50	)		0.06		(0.14	)
Cumulative effect of accounting change, net-of-tax(1)		—		—			(0.02	)		—		—
Net income (loss)	$	1.46	$	1.25		$	(0.37	)	$	1.00	$	1.03
Diluted weighted average common shares outstanding		48,925		52,356			52,324			54,885		57,104
Balance sheet data:
Cash and cash equivalents	$	28,117	$	116,191		$	72,704		$	1,715	$	13,656
Total assets		337,095		392,738			386,809			422,421		415,902
Long-term debt		61,803		34,324			29,908			49,926		46,035
Total stockholders’ equity		143,157		196,374			184,662			215,995		223,263
Cash dividend declared per common share	$	0.30	$	0.30		$	—		$	—	$	—
Other data:
Installed retail store base at end of period – CMS		21,048		17,609			17,604			17,498		16,488
Installed pharmacy base at end of period – CHR		12,780		12,423			11,929			17,827		17,716
Installed retail store base at end of period – CMI		7,316		5,907			5,545			4,069		3,338
Capital expenditures	$	60,254	$	22,527		$	26,427		$	42,555	$	30,813
Payments for repurchases of common stock	$	114,317	$	44,174		$	13,307		$	71,973	$	46,529

⁽¹⁾ See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 19 — Discontinued Operations — Japan Billboard” regarding the cumulative effect of an accounting change related to our adoption of Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations.”

⁽²⁾ 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

Overview

Fiscal year 2006 was a successful year for Catalina Marketing Corporation. We faced challenges during the second and third quarters of the year that were attributable to a general reduction in spending by certain of our CPG clients in our CMS segment. These challenges were partially offset by strong performance in the fourth quarter during which each of our segments experienced solid revenue growth. CMS revenue increased by 4.7% over the same quarter in the prior fiscal year, a result of a return to more normal spending levels by our CPG clients and the early impacts of our channel expansion efforts into Walgreens. CHR revenues increased 39.9% compared to the fourth quarter of fiscal 2005. Although part of this increase was attributable to opportunistic sales to certain of our pharmaceutical manufacturer clients, it is indicative of the value of CHR’s PATIENTLink^™ product. Finally, CMI experienced revenue growth of 15.6% over the prior year quarter despite the negative impact of foreign currency exchange rates. In local currencies, CMI’s revenue grew 26.7% over the prior year quarter, primarily resulting from store installations in the current year.

During fiscal year 2006, CMS grew the installation base of the Catalina Marketing Network^® to include over 21,000 stores and achieved strong manufacturer and retailer renewals. Additionally, as of March 31, 2006, we have completed the installation of over 4,000 Walgreens stores, or approximately 80% of their store count. We will continue to make investments we believe will provide for long-term revenue and income growth. Our investments include channel expansion, new product development, and the color printing initiative. The expansion of the Catalina Marketing Network^® into retail drug stores provides us the opportunity to sell our services to CPG manufacturers that we have not recently serviced through the grocery retail channel, such as manufacturers of health and beauty products, personal care products, and over-the-counter medications. The color printer pilot has recently been expanded to stores across multiple geographies and chains in the United States. The full rollout of color printers is expected to begin in late June 2006 and continue through December 2007.

CHR and CMI continued to grow in fiscal 2006 and, on a combined basis, accounted for 39% of both revenues and income from operations. CHR’s business model provides good operating leverage, as evidenced by revenue growth of 17.5% for the current year that resulted in a 75.5% increase in income from operations. CHR’s PATIENTLink^™ product is now distributed with approximately one-third of all U.S. prescriptions. We continue to explore opportunities with new drugs and pharmaceutical companies, and will consider expanding the CHR network into new retail drug chains when those opportunities are consistent with our business model and provide the ability to maintain solid operating leverage. CMI continues to grow its retailer base and is now installed in over 7,300 stores across seven countries.

Results of Operations

Due to the diversity of our business operations, we do not rely on any single or series of overriding metrics to measure or manage the performance of our businesses in the aggregate. While we do 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. We analyze 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 our 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.

The following tables include the revenues and income (loss) from operations for each of our reportable segments included in continuing operations for the fiscal years ended March 31, 2006, 2005 and 2004. Net income (loss) is presented for the same periods for our reportable segments and discontinued operations. Discontinued operations include the operating results of Japan Billboard, DMS and CMRS through the date each entity was divested. The accounts of our wholly-owned foreign subsidiaries are included for the twelve months ended December 31, which is their fiscal year end.

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	Year Ended March 31,
	2006			% Change (1)		2005			% Change (1)		2004
Revenues
CMS	$	254,393		(5.6	)%	$	269,612		(4.4	)%	$	282,128
CHR		89,527		17.5			76,167		(2.1	)		77,765
CMI		73,817		15.1			64,116		29.3			49,580
Corporate		3,667		1.5			3,613		19.4			3,027
Eliminations		(3,658	)	6.2			(3,446	)	(10.9	)		(3,868	)
Total Revenues	$	417,746		1.9	%	$	410,062		0.3	%	$	408,632
Income (Loss) from Operations
CMS	$	113,802		(8.4	)%	$	124,283		1.7	%	$	122,224
CHR		27,609		75.5			15,729		28.7			12,224
CMI		16,588		7.0			15,503		181.2			5,513
Corporate		(43,812	)	(6.2	)		(46,713	)	11.7			(41,829	)
Total Income from Operations	$	114,187		4.9	%	$	108,802		10.9	%	$	98,132
Net Income (Loss)
CMS	$	67,712		(8.3	)%	$	73,879		1.6	%	$	72,724
CHR		16,427		75.6			9,356		28.6			7,273
CMI		6,896		(6.7	)		7,395		NM			462
Corporate		(19,419	)	(11.9	)		(22,034	)	9.8			(20,062	)
Net Income from Continuing Operations		71,616		4.4			68,596		13.6			60,397
Discontinued Operations		—		NM			(3,144	)	NM			(79,670	)
Net Income	$	71,616		9.4	%	$	65,452		NM		$	(19,273	)
Consolidated Effective Tax Rate		37.0	%				37.8	%				38.1	%

⁽¹⁾ NM - Not Meaningful

Segment Results - Continuing Operations

Catalina Marketing Services

CMS generates revenues primarily by providing in-store, electronic marketing delivery services via the Catalina Marketing Network^®. The amount of revenue recognized is generally based on the total communications delivered multiplied by a per-print fee. The delivery of communications is based upon particular triggering transactions that occur at the point-of-sale (i.e., the checkout counter of a retail store). The success of CMS depends upon, among other factors, the store installation base, the number of transactions accessed by the Catalina Marketing Network^®, the number of communications printed, and the ability to attract and retain CPG manufacturers to use the targeted communication capabilities offered by our network.

The following table presents the number of stores in which the Catalina Marketing Network^® was installed, the average number of shoppers reached during the fiscal years ended March 31, and the number of manufacturer communications printed as of and for the fiscal years ended March 31, 2006, 2005, and 2004:

	March 31,
	2006	2005	2004
Retailer stores installed	21,048	17,609	17,604
Average weekly shoppers reached (in millions)	222.5	218.0	208.5
Number of promotions printed (in millions)	3,117.1	3,278.6	3,118.2

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Year Ended March 31, 2006 Compared with the Year Ended March 31, 2005

Revenues at CMS declined by $15.2 million to $254.4 million in fiscal year 2006 from $269.6 million in fiscal year 2005 due to declines in revenue from CPG manufacturer and retailer clients of $12.7 million and $2.5 million, respectively. The decrease in manufacturer revenue was attributable primarily to a 7.2% decrease in the volume of communications printed, principally due to a general reduction in spending by our CPG clients during the second and third quarters of the fiscal year, as well as the discontinuance of specific product lines by certain of our CPG clients. The reduction in the volume of printed communications was partially offset by a 2.3% increase in the average price per communication printed, a function of a favorable shift in mix to higher-priced services. The decline in retailer revenue was primarily attributable to transitional sales in the first quarter of fiscal year 2005 related to the loyalty card business, which was sold on March 31, 2004.

Direct operating expenses declined by $0.5 million primarily due to declines in paper expense and costs associated with the loyalty card business of $2.0 million and $2.2 million, respectively. The decrease in paper expense was principally attributable to an unfavorable adjustment to paper expense in the prior year of $1.2 million combined with fewer communications printed and lower contractual cost for paper in the current year. Partially offsetting these decreases, retailer fees increased $3.8 million in the current year, a result of changes in certain retailer contracts. The majority of these contracts were renegotiated in fiscal year 2005 and resulted in increased retailer fees on a per print basis.

SG&A expenses increased $1.3 million for fiscal 2006 as compared with fiscal 2005. The increase was driven primarily by increases in sales force personnel and consulting expenses due primarily to our increased focus on new business development opportunities and channel expansion.

Depreciation and amortization expense declined by $5.5 million primarily due to the reduction in capital spending over the previous two years which resulted in lower depreciation and amortization expense as compared with the prior fiscal year. With the installation of the Catalina Marketing Network^® in Walgreens and K-Mart Corporation (“K-Mart”), as well as the investment in the color printer initiative, we have increased, and will continue to increase, our level of capital expenditures, which will result in increased depreciation and amortization expense in future periods.

Net income for CMS decreased by $6.2 million, or 8.3%, due to the factors affecting operating results described above.

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

Revenues decreased by $12.5 million 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 our loyalty card business on March 31, 2004.

CMS had a significant CPG manufacturer client that accounted for 8.3% of its revenues for fiscal year 2004. This client notified us in fiscal year 2004 that, beginning in fiscal year 2005, it did not intend to purchase our 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 communications 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.

Direct operating expenses declined by $6.1 million in fiscal 2005, 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 increase in retailer fee expense in fiscal year 2005 was primarily attributable to changes in certain retailer fee contracts, which were renegotiated during fiscal 2005.

SG&A expenses decreased $7.1 million for fiscal 2005 as compared with fiscal 2004. The decline was primarily due to a $3.8 million decline in sales force expenses attributable to reduced headcount and relocation expenses as compared with fiscal 2004. 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.

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Catalina Health Resource

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 the delivery of 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.

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 a measure of the reach of the network, which is important in attracting additional pharmaceutical and CPG manufacturers to utilize the services of CHR.

The following table presents the pharmacy installation base and the average weekly prescription medication users reached as of and for the fiscal years ended March 31, 2006, 2005, and 2004:

	March 31,
	2006	2005	2004
Pharmacies installed	12,780	12,423	11,929
Average weekly prescription medication users reached (in millions)	22.0	20.9	20.6

Year Ended March 31, 2006 Compared with Year Ended March 31, 2005

Revenues for CHR increased by $13.4 million for the fiscal year ended March 31, 2006, compared with the fiscal year ended March 31, 2005. The increase was attributable to a 29.4% increase in the number of revenue-producing newsletters, which was primarily attributable to certain client programs that triggered a high volume of revenue-producing newsletters during the current fiscal year. These programs, which generated lower revenue per newsletter, contributed to an overall shift in program mix that resulted in a 7.7% decline in the average price per revenue-producing newsletter. Because the increase in revenue producing newsletters in the current year was the result of certain specific client programs, this increase is not indicative of expected future growth rates in the volume of revenue producing newsletters.

Direct operating expenses were relatively unchanged from the prior year at $43.5 million. Within direct operating expenses, retailer fees increased by $1.1 million, a result of increased volume of newsletters printed, but were offset by declines in bad debt expense and sales commissions. Commission expense decreased due to current year changes in individual performance measures. As a percentage of revenue, direct operating expenses declined from 57.0% for fiscal year 2005 to 48.5% for fiscal year 2006, exhibiting the operating leverage within this segment.

SG&A expenses increased by $2.7 million for the fiscal year ended March 31, 2006 as compared with fiscal year ended March 31, 2005. This increase was primarily due to increased marketing expense, a result of our focus on growing the CHR business and the PATIENTLink^TM brand, and higher personnel and incentive compensation cost, due to the current year financial performance.

Depreciation and amortization expense decreased by $1.3 million for the fiscal year, a result of current equipment, primarily printers installed in pharmacies, reaching the end of its depreciable life and not requiring replacement. As this equipment primarily became fully depreciated during fiscal 2005, we do not expect this trend to continue.

For the fiscal year ended March 31, 2006, net income for CHR increased by $7.1 million, or 75.6%. The increase was due to those factors described above.

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

CHR revenues declined by $1.6 million 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, a result of our restatement in fiscal year 2003. 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 favorable 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 the Eckerd and CVS chains in fiscal year 2004.

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Direct operating expenses declined by $2.2 million in fiscal year 2005 as compared with fiscal year 2004. The decrease was attributable to a decrease in retailer fees, resulting from renegotiated contracts with certain retailers and changes in the method of reimbursement to retailers for certain printing expenses.

SG&A expenses declined by $1.2 million for the fiscal year ended March 31, 2005 as compared with fiscal year ended March 31, 2004. The decline was primarily attributable to decreases in sales force expenses and costs savings from the reorganization of information technology development functions to provide for additional efficiency.

Depreciation and amortization expense decreased by $1.7 million for the fiscal year, a result of 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 for the year ended March 31, 2005 compared with the year ended March 31, 2004 primarily due to the factors affecting operating results.

Catalina Marketing International

CMI provides services for clients that operate in France, Italy, the United Kingdom, Belgium, the Netherlands, Germany, and Japan, in a similar manner to the services provided by the domestic CMS business.

The following table presents CMI’s retail installation base, the number of retail chains across which the Catalina Marketing Network^® was installed internationally, and the average weekly shoppers reached as of and for the fiscal years ended March 31, 2006, 2005 and 2004:

	March 31,
	2006	2005	2004
Retail stores installed	7,316	5,907	5,545
Average weekly shoppers reached (in millions)	85.8	66.0	65.3

The increase in the number of stores in which the Catalina Marketing Network^® was installed was primarily driven by the installation of the network throughout our European operations, primarily in France, Italy, and Germany.

Year Ended March 31, 2006 Compared with the Year Ended March 31, 2005

Revenues, as reported, for CMI increased by $9.7 million for the fiscal year ended March 31, 2006, compared with the fiscal year ended March 31, 2005. The increase was primarily attributable to increased manufacturer and retailer revenue of $2.6 million and $7.5 million, respectively. Manufacturer revenue increased principally due to growth in Italy. Retailer revenue was up primarily due to operations in France, which increased due to the completion of the installation of the network in two significant retailers in the current year. For a discussion of foreign currency exchange rates and their effect on revenue see “Foreign Currency Translation and Its Effect on Revenues” below.

Direct operating expense, as reported, increased $2.7 million for fiscal year 2006 as compared with fiscal year 2005. The increase was due primarily to the growth of the business and costs associated with the increased volume of communications printed in the current year.

SG&A expenses, as reported, increased $5.3 million for fiscal year 2006. The increase was due primarily to the addition of sales force personnel, facility expenses, primarily in France, increased information technology expense, and compensation costs associated with the strengthening of the management team for CMI.

Depreciation expense, as reported, increased $0.6 million due to the acquisition of additional store equipment resulting from continued store growth in the current fiscal year.

Net income, as reported, for CMI decreased $0.5 million to $6.9 million for the fiscal year ended March 31, 2006 as compared with the fiscal year ended March 31, 2005. The decrease was primarily due to increased foreign exchange transaction losses due to the unfavorable movement in exchange rates during the current year partially offset by the factors described above.

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

Revenues, as reported, for CMI increased by $14.5 million 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 our operations in

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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. 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 fiscal 2005, which resulted in a reduction of its installation base and shopper reach during the fiscal year. However, the loss did not occur until the third quarter and Japan was able to benefit from revenue growth from manufacturer clients. The increase in retailer revenues was attributable to operations in the United Kingdom, where we expanded our network into additional retail stores during fiscal year 2005.

Direct operating expense, as reported, increased $1.5 million, primarily due to volume related costs associated with the increase in manufacturer and retailer revenue.

SG&A expenses, as reported, increased $2.5 million for fiscal year 2005, primarily due to the addition of sales personnel.

Depreciation expense, as reported, increased $0.6 million due to the acquisition of additional store equipment resulting from continued store growth in fiscal 2005.

Net income, as reported, for CMI 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.

Corporate

Expenses for our corporate group (“Corporate”) include costs for retail store support, information technology, corporate accounting, client services, analytical services, marketing, human resources, procurement, and executive management. These costs are included in direct operating costs, SG&A expenses, 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, 2006, 2005 and 2004. For purposes of segment reporting, these Corporate costs are allocated to the CMS and CHR business segments 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 can be directly attributed to the business segments are allocated to that business segment. Costs that are indirectly attributed to the business segments are allocated proportionately based on the business segment’s revenues, number of printed communications, square feet of space used, headcount, or other relevant statistics, depending on the type of cost. For example, the cost to maintain our 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 communications; and data communications costs are allocated based upon revenues. Of the total Corporate group operating expenses, 63.2%, 63.8% and 66.6% were allocated to the operating segments during the fiscal years ended March 31, 2006, 2005 and 2004, respectively. Amounts previously allocated to DMS and CMRS were reallocated 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, 2006 Compared with the Year Ended March 31, 2005

For the fiscal year ended March 31, 2006 the Corporate loss from operations decreased $2.9 million as compared with the fiscal year ended March 31, 2005. The decrease was driven primarily by lower consulting and legal fees of $3.4 million and $2.2 million, respectively, combined with a decline in incentive compensation of approximately $1.0 million. These decreases were partially offset by the reversal into income of a $4.4 million sales tax accrual in fiscal 2005. Net loss for Corporate decreased by $2.6 million for the year ended March 31, 2006 compared with the year ended March 31, 2005 primarily due to the factors affecting loss from operations combined with an increase in royalty income from CMI and a lower consolidated effective tax rate.

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, (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. These costs increases were partially offset by the reversal of a liability for a sales tax assessment of approximately $4.4 million. 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.

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Foreign Currency Translation and Its Effect on Revenues

Our consolidated revenues from continuing operations for the fiscal year ended March 31, 2006 were $417.7 million, which included $73.8 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 were relatively stable in aggregate against the United States dollar during our fiscal year ended March 31, 2006. Revenue growth in local currency was 15.9% versus fiscal year 2005, while the reported revenues of our foreign operations, which take into account the effect of changes in foreign currency exchange rates, grew by 15.1% compared to the prior fiscal year.

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. There was no activity associated with DMS, Japan Billboard and CMRS in fiscal year 2006. These businesses accounted for 5.1% and 13.6% of the our total revenues, including discontinued operations, for the fiscal years ended March 31, 2005 and 2004, respectively. These businesses generated aggregate net income of $3.1 million and a net loss of $78.9 million for the fiscal years ended March 31, 2005 and 2004, respectively.

Direct Marketing Services

We sold DMS on September 17, 2004. There was no activity (or corresponding revenue or expenses) associated with DMS in fiscal year 2006. The results of operations for the periods in fiscal years 2005 and 2004 are reported net of taxes on one line, Income (loss) from discontinued operations in the Consolidated Statement of 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.

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.

Japan Billboard

We sold Japan Billboard on August 31, 2004. There was no activity (or corresponding revenue or expenses) associated with Japan Billboard in fiscal year 2006. The results of operations for Japan Billboard for the periods in fiscal years 2005 and 2004 have been reported net of taxes on one line, Income (loss) from discontinued operations in the Consolidated Statement of 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.

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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.

Catalina Marketing Research Services

We sold CMRS on November 29, 2004. There was no activity (or corresponding revenue or expenses) associated with CMRS in fiscal year 2006. The results of operations for CMRS for the periods in fiscal years 2005 and 2004 have been reported net of taxes on one line, Income (loss) from discontinued operations in the Consolidated Statement of 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 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 fiscal 2005 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.

Liquidity and Capital Resources

Our primary sources of liquidity have been cash flows generated from operations and a credit agreement with a syndicate of commercial banks that provides for borrowings in both U.S. dollars and Japanese yen. Our primary liquidity requirements will be driven by our color printer initiative, working capital and the repayment of debt. Our sources of liquidity may also be used for cash dividends and repurchases of our common stock. We plan to continue to invest in new business development, sales and marketing, our Catalina Marketing Network^® and other support technology, employee development and retention and enhanced systems of reporting and controls.

Cash flows from operations combined with borrowings on our credit facilities in fiscal year 2006 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, 2006 was $28.1 million, of which approximately $22.4 million was held by our subsidiary in France.

Our long-term debt outstanding as of March 31, 2006 was $61.8 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 including our color printer initiative, research and development, creation and expansion of markets, share repurchases, acquisitions, investments, legal risks and challenges to our business model. In addition, we believe 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.

Cash Flow Analysis

Fiscal Year Ended March 31, 2006 Compared with the Fiscal Year Ended March 31, 2005

Net cash provided by operating activities decreased $16.3 million to $101.7 million for the fiscal year ended March 31, 2006 from $118.0 million for the fiscal year ended March 31, 2005. The decrease in net cash provided by operating activities, was primarily due to higher net income more than offset by adjustments for non-cash impacting items including

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depreciation and amortization, impairment charges and deferred income taxes. Net income adjusted for non-cash impacting items decreased $12.6 million to $106.9 million in fiscal 2006 from $119.5 million in fiscal 2005. Net income increased $6.2 million in fiscal 2006, but was offset by reductions in depreciation and amortization of $7.7 million, impairment charges of $4.9 million and deferred income tax activity of $5.7 million. The lower depreciation in fiscal 2006 was associated with an increase in fully depreciated assets. The $4.9 million reduction attributed to impairment charges was the result of 2005 impairments with no corresponding activity in fiscal 2006. Cash used by changes in operating assets and liabilities increased by $3.7 million in fiscal 2006 versus fiscal 2005. The increased use of cash was associated with changes in accounts receivable, prepaid and other assets and taxes payable which were partially offset by changes in accounts payable, other accrued expenses and deferred revenues.

Net cash used in investing activities increased $46.2 million to $63.8 million for fiscal year 2006 compared with $17.6 million for fiscal year 2005. Capital expenditures increased $37.8 million to $60.3 for fiscal year and was consistent with anticipated increases associated with the installation of the Catalina Marketing Network^® in Walgreens. Additional expenditures of $3.5 million for the purchase of the remaining common stock of CHR in fiscal 2006 and $5.4 of proceeds from the sale of DMS in fiscal 2005 added to the year over year increase.

Net cash used in financing activities increased $65.6 million to $124.0 million for fiscal year 2006 compared with $58.4 million used in financing activities for fiscal year 2005. Cash used for the repurchase of common stock increased $70.1 million in fiscal 2006 to $114.3 million versus $44.2 million in fiscal 2005. In fiscal 2006 we paid dividends of $14.5 million versus $15.7 million in fiscal 2005. The decrease was attributable to a lower number of shares outstanding in the current year. Our total debt decreased by $2.7 million from $64.6 million in fiscal 2005 to $61.9 million in fiscal 2006 due to slight increases in borrowings offset by foreign currency translation.

Cash and cash equivalents decreased by $88.1 million to $28.1 million for fiscal year 2006.

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

During fiscal year 2005, we generated cash flows from operating activities of $118.0 million compared with cash flows generated from operating activities of $138.1 million in fiscal year 2004. Cash flows generated from operations decreased $20.1 million primarily due to changes in our accounts receivable due to the timing of customer billing and collections. The cash flows provided by operating activities were used to make capital expenditures, repurchase our common stock and to make dividend payments. Overall, our cash increased $43.5 million as a result of these net sources of cash.

Other Sources of Liquidity

In addition to our cash flows generated from operations, access to our 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, 2006 follows (in thousands):

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			Payments Due by Period
	Total		Before March 31, 2007		Between April 1, 2007 March 31, 2009		Between April 1, 2009 March 31, 2011		After March 31, 2011
Short and long-term debt (1)	$	68,844	$	1,865	$	3,622	$	63,357	$	—
Postretirement medical benefit costs		1,204		95		223		238		648
Operating leases		19,109		4,734		8,922		5,295		158
Purchase obligations for in-store equipment and paper		91,303		31,403		39,900		20,000		—
Total	$	180,460	$	38,097	$	52,667	$	88,890	$	806

⁽¹⁾ Short and long-term debt includes principal and interest due under the August 2004 Credit Facility.

Purchase Obligations. We have a purchase commitment to Epson for the purchase of color printers and related consumables for use by our Catalina Marketing Services and Catalina Marketing International business segments. The commitment provides for the purchase of printers over a period of approximately six years for a minimum of $88.2 million. We plan to begin purchasing printers under this commitment in late June 2006. As of March 31, 2006, we also had approximately $3.1 million of paper stock which we were committed to purchase in connection with an agreement with one of our vendors.

Capital Expenditures. Our primary capital expenditures have been 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 $19,000 per store, depending primarily on the number of lanes in each store. Capital expenditures were $60.3 million for fiscal year 2006 compared with $22.5 million for fiscal year 2005. Capital expenditures were higher in fiscal year 2006 as compared with fiscal year 2005 primarily due to the installation of the Catalina Marketing Network^® in Walgreens and K-Mart.

We expect to increase spending for store equipment and software development related to our initiative to enhance the 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 late June 2006 and extend into future periods. The total expected capital requirement for this initiative is expected to be approximately $100 million. We expect that our cash flow from operations combined with borrowings under our existing revolving credit facility will be sufficient to finance these capital investments.

Contingent Earnout Payment. As part of the Restructuring and Amendment Agreement executed in 1999 between us and the former joint venture partners in our Japanese operations (the “Restructuring Agreement”), we have a contingent obligation to pay these former joint venture partners a final deferred earnout payment based on the future operating results of Japan. For further discussion of the contingent earnout payment refer to Item 8—“Consolidated Financial Statements and Supplementary Data – Note 9 – Commitments and Contingencies”.

Stock Repurchases. On August 9, 2005, our Board of Directors authorized $100 million of funds to be available for the repurchase of our common stock. This authorization replenished the $100 million the Board of Directors authorized in September 2004. We repurchased 4.8 million shares of our common stock during fiscal year 2006 for a total of $114.3 million. During fiscal years 2005 and 2004, we repurchased 1.7 million and 0.7 million shares of our common stock for $44.2 million and $13.3 million respectively.

Prior to the purchase of shares during the fourth quarter of 2005, we had not purchased shares since June 2003. Subsequent to June 2003, we were precluded from stock repurchases under the terms of our previous credit facility until that facility was replaced on August 27, 2004 with the August 2004 Credit Facility (as defined in Item 9 – Note 8 – “Short Term Borrowings and Long Term Debt”), which does not contain this restriction. We intend to use cash flows from operations and funds available under the August 2004 Credit Facility to finance the remaining authorized repurchases of our common stock.

As of March 31, 2006, there was $41.5 million remaining under the August 9, 2005 authorization to repurchase shares. Factors governing the future repurchase of our 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 our Board of Directors has been expended.

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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, “Goodwill and Other Intangible Assets”, 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 our 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 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. 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. Goodwill assigned to the operating segments of CMS, CHR and CMI is 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, “Accounting for the Impairment or Disposal of Long-Lived Assets”, 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 2006, there were no 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

26

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, except for the sales tax assessment discussed above, have not experienced significant adjustments.

Recent Accounting Pronouncements

See Item 8 – Note 2 – “Summary of Significant Accounting Policies – Accounting Standards Not Yet Adopted” for a discussion of recent accounting pronouncements.

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, as amended. 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 Part I — “Special Note Regarding Forward-Looking Statements” and Item 1A – “Risk Factors.” 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.

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 our 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 purchases of equipment and for ongoing operations. A 100 basis point change in interest rates, based on the average outstanding indebtedness for fiscal year 2006, would have resulted in a corresponding change in interest expense of approximately $0.4 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 loss of $1.4 million in our consolidated net income in fiscal year 2006, a $1.1 million gain in our consolidated net income in fiscal year 2005 and a $0.6 million gain in fiscal year 2004. We have not utilized derivative financial instruments to reduce the effect of fluctuating foreign currencies. We estimate that, based upon our fiscal year 2006 and fiscal year 2005 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 2006 or fiscal year 2005. 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.

27

Our revenues from continuing foreign operations represented approximately 17.7% of our total revenues from continuing operations in fiscal year 2006, 15.6% in fiscal year 2005 and 12.1% in fiscal year 2004. For a discussion on the effect of changes in foreign currency exchange rates on our revenues for fiscal year 2006, see in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Foreign Currency Translation and Its Effect on Revenues.”

Item 8. Consolidated Financial Statements and Supplementary Data

INDEX TO FINANCIAL INFORMATION

	Page
Management’s Report on Internal Control Over Financial Reporting	29
Report of Independent Registered Certified Public Accounting Firm	30
Consolidated Statements of Operations, Years Ended March 31, 2006, 2005 and 2004	31
Consolidated Balance Sheets at March 31, 2006 and 2005	32
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss), Years Ended March 31, 2006, 2005 and 2004	33
Consolidated Statements of Cash Flows, Years Ended March 31, 2006, 2005 and 2004	34
Notes to the Consolidated Financial Statements	35

28

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, as amended. Our 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 our internal control over financial reporting as of March 31, 2006, 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 we maintained effective internal control over financial reporting as of March 31, 2006.

Management’s assessment of the effectiveness of our internal control over financial reporting as of March 31, 2006, has been audited by PricewaterhouseCoopers LLP, an independent registered certified public accounting firm, as stated in its report which appears herein.

29

REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

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

We have completed integrated audits of Catalina Marketing Corporation’s 2006 and 2005 consolidated financial statements and of its internal control over financial reporting as of March 31, 2006 and an audit of its 2004 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, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2006 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, 2006 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, 2006, based on criteria established in Internal Control- Integrated Framework issued by 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

May 26, 2006

30

CATALINA MARKETING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended March 31,
	2006			2005			2004
	(In thousands except per share data)
Revenues	$	417,746		$	410,062		$	408,632
Costs and expenses:
Direct operating expenses (exclusive of depreciation and amortization shown below) amortization shown below)		135,475			129,449			140,401
Selling, general and administrative expense		132,098			129,365			124,856
Depreciation and amortization		35,986			42,446			45,243
Total costs and expenses		303,559			301,260			310,500
Income from operations		114,187			108,802			98,132
Interest (expense)		(1,006	)		(1,490	)		(2,935	)
Other income, net		495			2,940			2,399
Income from continuing operations before income taxes		113,676			110,252			97,596
Provision for income taxes		42,060			41,656			37,199
Income from continuing operations		71,616			68,596			60,397
Discontinued operations:
Loss from discontinued operations		—			(4,272	)		(78,900	)
Gain on dispositions of discontinued operations, net		—			1,128			—
Loss from discontinued operations		—			(3,144	)		(78,900	)
Cumulative effect of accounting change, net of $.6 million tax benefit		—			—			(770	)
Net income (loss)	$	71,616		$	65,452		$	(19,273	)
Earnings per share – basic:
Income per common share from continuing operations	$	1.47		$	1.31		$	1.15
Loss per common share from discontinued operations		—			(0.06	)		(1.50	)
Cumulative effect of accounting change		—			—			(0.02	)
Net income (loss) per common share	$	1.47		$	1.25		$	(0.37	)
Weighted average common shares outstanding		48,629			52,167			52,304
Earnings per share – diluted:
Income per common share from continuing operations	$	1.46		$	1.31		$	1.15
Loss per common share from discontinued operations		—			(0.06	)		(1.50	)
Cumulative effect of accounting change		—			—			(0.02	)
Net income (loss) per common share	$	1.46		$	1.25		$	(0.37	)
Weighted average common shares outstanding		48,925			52,356			52,324

See accompanying Notes to the Consolidated Financial Statements.

31

CATALINA MARKETING CORPORATION

CONSOLIDATED BALANCE SHEETS

	As of March 31,
	2006			2005
	(In thousands except share data)
ASSETS
Current Assets:
Cash and cash equivalents	$	28,117		$	116,191
Accounts receivable, net		63,092			58,708
Inventory		4,579			4,703
Deferred tax asset		6,386			6,108
Prepaid expenses and other current assets		10,978			9,558
Total current assets		113,152			195,268
Property and equipment:
Store equipment		248,621			222,897
Furniture and office equipment		55,469			57,191
Building		22,296			22,296
Building and other improvements		8,983			8,926
Software		36,655			38,507
Land		4,110			4,110
		376,134			353,927
Less - accumulated depreciation and amortization		(247,633	)		(250,591	)
Property and equipment, net		128,501			103,336
Patents, net		9,977			11,681
Goodwill		83,992			80,495
Other assets		1,473			1,958
Total assets	$	337,095		$	392,738
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	29,245		$	21,032
Income taxes payable		4,988			6,810
Accrued expenses		58,421			62,137
Deferred revenue		28,989			28,457
Current portion of long-term debt		53			30,299
Total current liabilities		121,696			148,735
Long-term deferred tax liability		6,817			9,738
Long-term debt		61,803			34,324
Other long-term liabilities		3,622			3,567
Total liabilities	$	193,938		$	196,364
Commitments and contingencies
Stockholders' Equity:
Preferred stock; $0.01 par value; 5,000,000 authorized shares; none issued and outstanding		—			—
Common stock; $0.01 par value; 150,000,000 authorized shares and 46,138,208 and 50,760,666 shares issued and outstanding at March 31, 2006 and March 31, 2005, respectively		461			508
Additional paid-in capital		14			—
Accumulated other comprehensive income		509			251
Retained earnings		142,173			195,615
Total stockholders' equity		143,157			196,374
Total liabilities and stockholders' equity	$	337,095		$	392,738

See accompanying Notes to the Consolidated Financial Statements.

32

CATALINA MARKETING CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME (LOSS)

	Comprehensive Income (Loss)			Number of Shares		Par Value of Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income / (Loss)			Retained Earnings			Total Stockholders' Equity
	(In thousands)
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 in investment of 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 unit and Directors' common stock grants				39			—			121			—			—			121
Net loss	$	(19,273	)	—			—			—			—			(19,273	)		(19,273	)
Foreign currency translation adjustment		(601	)	—			—			—			(601	)		—			(601	)
Comprehensive income	$	(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 unit and Directors' common stock grants				49			1			343			—			—			344
Dividends on common stock				—			—			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
Issuance of common stock				139			1			2,771			—			—			2,772
Tax benefit from exercise of non-qualified stock options and disqualified dispositions				—			—			345			—			—			345
Repurchase, retirement and cancellation of common stock				(4,780	)		(48	)		(3,689	)		—			(110,580	)		(114,317	)
Deferred compensation plan common stock unit and Directors' common stock grants				18			—			560			—			—			560
Dividends				—			—			27			—			(14,478	)		(14,451	)
Net income	$	71,616		—			—			—			—			71,616			71,616
Foreign currency translation adjustment		258		—			—			—			258			—			258
Comprehensive income	$	71,874		—			—			—			—			—			—
BALANCE AT MARCH 31, 2006				46,138		$	461		$	14		$	509		$	142,173		$	143,157

See accompanying Notes to the Consolidated Financial Statements.

33

CATALINA MARKETING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended March 31,
	2006			2005			2004
	(In thousands)
Cash Flows from Operating Activities:
Net income (loss)	$	71,616		$	65,452		$	(19,273	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		35,986			43,689			47,637
Provision for (recoveries of) doubtful accounts		181			(297	)		1,075
Amortization of deferred financing fees		144			276			909
Impairment charges		—			4,907			85,565
Cumulative effect of accounting change, net-of-tax		—			—			770
Loss on sale of equipment and businesses		1,275			1,994			2,488
Deferred income taxes		(3,303	)		2,394			2,177
Other non-cash operating activities		995			1,058			241
Changes in operating assets and liabilities:
Accounts receivable		(7,158	)		(4,101	)		19,531
Inventory, prepaid expenses and other assets		(1,560	)		3,786			535
Accounts payable		8,747			6,226			(3,754	)
Taxes payable		(1,765	)		4,602			(5,169	)
Accrued expenses		(5,075	)		(7,375	)		7,241
Deferred revenue		1,591			(4,620	)		(1,840	)
Net cash provided by operating activities		101,674			117,991			138,133
Cash Flows from Investing Activities:
Capital expenditures		(60,254	)		(22,527	)		(26,427	)
Proceeds from sale of property, equipment and businesses		—			5,850			451
Business acquisition payments		(3,497	)		(914	)		(23,787	)
Net cash used in investing activities		(63,751	)		(17,591	)		(49,763	)
Cash Flows from Financing Activities:
Proceeds from the Corporate Facility		75,000			30,000			47,000
Payments on the Corporate Facility		(76,000	)		—			(59,000	)
Payments on VIE indebtedness		—			(29,565	)		—
Proceeds from Japan borrowings		3,273			33,831			10,591
Payments on Japan borrowings		(278	)		(37,042	)		(3,718	)
Repurchase of Company common stock		(114,317	)		(44,174	)		(13,307	)
Proceeds from issuance of common and subsidiary stock		2,772			4,922			1,684
Cash dividends paid		(14,451	)		(15,653	)
Financing fees paid		—			(714	)		(1,082	)
Net cash used in financing activities		(124,001	)		(58,395	)		(17,832	)
Effect of exchange rate changes on cash and cash equivalents		(1,996	)		1,482			451
Net change in cash and cash equivalents		(88,074	)		43,487			70,989
Cash and cash equivalents at beginning of year		116,191			72,704			1,715
Cash and cash equivalents at end of year	$	28,117		$	116,191		$	72,704
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for
Interest	$	774		$	1,827		$	1,787
Income taxes	$	46,780		$	31,666		$	33,263

See accompanying Notes to the Consolidated Financial Statements

34

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 CPG 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 communication to print, manufacturers and retailers can deliver customized communications to only the consumers they wish to reach. We track actual purchase behavior and use 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.

We are organized and managed by segments which include the following operations: Catalina Marketing Services (“CMS”), Catalina Health Resource (“CHR”) and Catalina Marketing International (“CMI”).

In November 2003, we announced our intent to divest Japan Billboard, Direct Marketing Services (“DMS”) and Catalina Marketing Research Solutions (“CMRS”) which were deemed not to be strategically aligned with our 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. For further information regarding our discontinued operations see Note 19.

We previously reported the activities of Retail Services and CMRS in a segment called “Other.” 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. The combination was part of our strategy to optimize our 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 year 2004 for Retail Services was reclassified to CMS to reflect the new segment reporting.

CMS services domestic retailers and consumer product manufacturers, primarily within the CPG 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 communications at the checkout lane of a retailer. CMS links its proprietary software, computers, central databases and printers with a retailer’s point-of-sale controllers and scanners. The network prints customized communications at the point-of-sale based on product Universal Product Codes or other scanned information. The printed communications are handed to consumers by the cashier at the end of the shopping transaction.

CHR services allow pharmaceutical and CPG 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 our clients. These communication services include messages and educational information provided to healthcare patients at the pharmacy 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, 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.

CMI operations include in-store electronic targeted marketing services for consumers in France, Italy, the United Kingdom, Belgium, the Netherlands, 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 CPG manufacturers and maintains relationships with major supermarket, hypermarket and other retailers. In addition, in certain European markets, we work with clients using a business model we refer to as “retail centric” in that we derive revenue from the retailers for managing loyalty programs and in-store promotions.

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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 required 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, were 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 included our accounts as well as the accounts of our wholly-owned subsidiaries. All intercompany transactions were eliminated in consolidation. The accounts of the wholly-owned foreign subsidiaries were included for the twelve months ended December 31, which was their fiscal year end, to facilitate the timing of our closing process.

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

In addition, the Consolidated Financial Statements for fiscal year 2004 included the accounts of a variable interest entity from which we leased our headquarters facility in St. Petersburg, FL. We determined that we were 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 us in fiscal year 2005.

Note 2. Summary of Significant Accounting Policies

Revenue Recognition and Deferred Revenue. We deliver targeted marketing services through various channels. The following revenue recognition policies are followed for our significant revenue-generating segments and transactions:

Catalina Marketing Services and Catalina Marketing International

Our CMS and CMI segments generate revenue primarily by providing in-store, electronic marketing delivery services via the Catalina Marketing Network^®. The amount of revenue recognized is generally based on the total communications delivered multiplied by a per-print fee. Delivered communications include targeted promotions, messages and sweepstakes. We generally bill clients a minimum category fee in advance of the actual delivery. Contracts for delivery include a minimum number of targeted communications or messages for a specified category, or categories, within a specified period of time 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 communications delivered for a particular product category during the applicable cycle.

We have concluded that recognizing revenue as the communications are delivered is a systematic and rational method that represents the pattern over which the revenue is earned and our obligations to clients are fulfilled. Furthermore, we believe that the exclusivity feature is not a separate deliverable apart from the delivery of the targeted communication. Therefore, we recognize in-store electronic marketing service revenue as the communications 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 communications are delivered or (2) in full in the eighteenth month after the end of the last cycle if the minimum number of communications have not been delivered by the end of the last cycle specified in the contract. Occasionally, if the minimum number of program communications is not delivered within the applicable cycles, the remaining allotment of communications 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 communications are not required, revenue is deferred and recognized ratably over the particular cycle or cycles, regardless of the number of incentives delivered.

We engage in certain barter transactions with some of our retail clients, exchanging primarily in-store, electronic marketing delivery services (“retail communications”) for access to the retail client’s shoppers at the checkout. Access to the retail client occurs when a manufacturer communication 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

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not determinable within the criteria established under U.S. GAAP. The retailers can defer the delivery of our retail communications up to eighteen months after the initial exchange of consumer access. However, we estimate and accrue the projected costs to be expended for the delivery of the retail communications when access to the retail shopper is provided.

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. We generally bill clients a 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 its messages delivered based upon a particular product category trigger during the applicable time period.

We have 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 obligations to clients are fulfilled. Furthermore, we believe 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 when delivery occurs or 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 is not required, revenue is 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. 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 each of the fiscal years ended March 31, 2006, 2005 and 2004, expenditures for research and development, which are included in selling, general and administrative expenses, were $0.9 million, $2.0 million and $1.2 million, respectively. These expenditures include internal and external labor primarily for the development of our networks.

Advertising Costs. Advertising costs are expensed as incurred and amounted to $1.4 million, $0.6 million and $0.9 million in the years ended March 31, 2006, 2005 and 2004, respectively.

Foreign Currency Translation. Balance sheet accounts are translated at exchange rates in effect at the end of the foreign subsidiaries’ fiscal year and income statement accounts are translated at weighted average exchange rates for the year. Translation adjustments 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 our Consolidated Statements of Operations, and were a $1.4 million loss, a $1.1 million gain and a $0.6 million gain for the fiscal years ended March 31, 2006, 2005 and 2004, 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 was 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,
	2006	2005	2004
Basic weighted average common shares outstanding	48,629	52,167	52,304
Dilutive effect of options outstanding	296	189	20
Diluted weighted average common shares outstanding	48,925	52,356	52,324

We repurchased 4.8 million, 1.7 million and 0.7 million shares of our common stock during fiscal years 2006, 2005 and 2004, respectively.

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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,
	2006	2005	2004
Outstanding options	4,102	5,113	4,305
Range of prices	$26.31 - $36.82	$26.31 - $36.82	$18.13 - $36.82

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, 2006 and 2005, $22.4 million and $19.3 million, respectively, was held by our France subsidiary.

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

	Year Ended March 31,
Allowance for Doubtful Accounts	2006			2005			2004
Beginning balance	$	2,443		$	3,674		$	3,911
Increase (decrease) in provision		181			(297	)		1,075
Account write-offs, net of recoveries		(829	)		(934	)		(1,312	)
Ending balance	$	1,795		$	2,443		$	3,674

Inventory. Inventory consists primarily of paper used for printing communications and is located at clients’ locations, primarily in supermarkets and retailers’ warehouses. We record paper usage primarily based on actual print length at the time the communication is delivered and use the first-in, first-out method of costing. The paper inventory balance is adjusted periodically based on our physical inventory observation. 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 — currently five years although printers to be purchased in conjunction with our color printer initiative will be depreciated over seven years; furniture and office equipment — five to ten years; building — thirty-nine and one-half years; building and other improvements — generally seven to ten years, but not to exceed the lease period; and purchased software — amortized over the length of the software agreement, not to exceed five years. Prior to the sale of our 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 our internal requirements, and no substantive plan exists or is being developed to externally market internally developed software. Computer software costs that are incurred by us 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 as incurred.

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. Goodwill 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

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values determined to be impaired are expensed in the period when impairment is determined. To determine fair market value, we use a discounted cash flow approach, using the same assumptions as those used to develop our three-year, long-range plan, updated as necessary based on our internally-generated monthly forecasts. We incorporate a terminal value cash flow based upon an estimated future growth rate. See additional discussion in Note 3.

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

Impairment Testing of Long-Lived Assets. We review 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, our carrying value of the long-lived assets is reduced by the amount by which the carrying value exceeds fair value. We use a discounted cash flow approach to determine fair value. Cash flows utilized in these analyses include the same assumptions as those used in our three-year, long-range plan, updated as necessary based on our internally-generated monthly forecasts. See additional discussion in Note 5.

Stock Based Compensation. We account for option, stock grant and stock purchase plans under APB Opinion No. 25, “Accounting for Stock Issued to Employees,” under which approximately $0.3 million, $0.2 million and $0.3 million in compensation expense has been recognized for fiscal years 2006, 2005 and 2004, respectively. We follow 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 2006, 2005 and 2004, we used the following weighted average assumptions in our fair value calculations for those grants issued in the respective years:

	Year Ended March 31,
	2006		2005		2004
Volatility	42.9	%	45.1	%	49.3	%
Risk-free rate (based on date of grant)	4.3	%	3.6	%	3.0	%
Expected dividend yield (1)	1.2	%	1.3	%	0.0	%
Expected life	5 years		5 years		6 years

⁽¹⁾ The expected dividend yield is determined as of the date of the grant. We 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 2006 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, including those shares issued under the employee stock purchase plan, in fiscal years 2006, 2005 and 2004 were $9.51, $9.56 and $8.04, respectively.

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Had compensation expense for these plans been recognized in accordance with SFAS No. 123, our 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,
	2006			2005			2004
Net income:
As reported	$	71,616		$	65,452		$	(19,273	)
Add stock-based employee compensation expense included in reported net income, net of tax		300			238			262
Deduct total stock based employee compensation expense determined under fair value based method for all awards net of tax(1)		(6,635	)		(6,696	)		(10,706	)
Pro forma net income (loss)	$	65,281		$	58,994		$	(29,717	)
Basic earnings (loss) per common share:
As reported	$	1.47		$	1.25		$	(0.37	)
Pro forma	$	1.34		$	1.13		$	(0.57	)
Diluted earnings (loss) per common share:
As reported	$	1.46		$	1.25		$	(0.37	)
Pro forma	$	1.34		$	1.13		$	(0.57	)
(1) Includes the following amounts for the purchase discount offered under the Company’s employee stock purchase plan	$	281		$	26		$	387

In fiscal year 2006, we reduced pro forma stock compensation expense by $19.3 million, net of income taxes, due to the reversal of expense related to forfeited options and changes to the estimated number of shares expected to vest for certain performance-based options. Conversely, our pro forma stock compensation expense for fiscal 2006 was increased by approximately $8.2 million, net of income taxes, due to the accelerated vesting of certain options. Effective February 23, 2006, our Board of Directors approved the acceleration of vesting of all unvested options held by certain employees and having an exercise price of $26.31 or greater. Options with respect to 836,618 shares of our common stock were subject to the acceleration.

In fiscal year 2005, we reduced pro forma stock compensation expense by $5.6 million, net of income taxes, due to the reversal of expense related to forfeited options and changes to the estimated number of shares expected to vest for certain performance-based options. Conversely, our pro forma stock compensation expense for fiscal 2005 was increased by approximately $4.6 million, net of income taxes, due to the accelerated vesting of certain options. Effective March 31, 2005, our Board of Directors approved the acceleration of vesting of all unvested options held by employees to purchase our common stock and having an exercise price of $33.46 or greater. Options with respect to 316,220 shares of our common stock were subject to the acceleration.

In fiscal year 2004, several of our executives left the Company prior to the vesting of their options and, as a result, their 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.

With regards to the acceleration of options in fiscal years 2006 and 2005, those options that were accelerated had exercise prices in excess of the market value of our common stock on the date of the approval of the acceleration. The Board of Directors determined that the acceleration would serve the best interests of the shareholders by reducing our future compensation expense. As a result of the accelerated vesting of these options, we expect to avoid total compensation expense of approximately $12.8 million, net of income taxes, that we would otherwise have to recognize as an expense under SFAS No. 123 (Revised 2004), “Share-Based Payment,” (“SFAS No. 123R”), which we are required to adopt effective April 1, 2006.

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Fair Value of Financial Instruments. At March 31, 2006 and 2005, 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 our 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 us to concentration of credit risk, consist principally of trade accounts receivable. Our 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, 2006, approximately 32.1% of Accounts receivable, net related to three clients. These three clients accounted for approximately 20.7% of consolidated revenue for fiscal year 2006.

We rely 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. We believe 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 59.2% of the delivered in-store communications provided by CMS for its clients during the fiscal year ended March 31, 2006, were generated from within the stores belonging to five retail chains. Also, over 87.8% of the delivered communications we provided for pharmaceutical clients during the fiscal year ended March 31, 2006 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 us, 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.

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. At March 31, 2006 and 2005, the Health Resource Network was installed in approximately 12,800 and 12,400 retail pharmacy outlets, respectively.

Accounting Standards Adopted in Fiscal Year 2006

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 adoption of SFAS No. 153 did not have a material effect on our results of operations or financial condition.

Accounting Standards Not Yet Adopted

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 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. We elected to record the effect of share-based payments in accordance with Opinion No. 25 and disclosed the effect of SFAS No. 123 in our 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 us as of April 1, 2006 and we expect the adoption of SFAS No. 123R to have a material effect on our results of operations. See discussion of Stock Based Compensation above.

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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. We do not expect the adoption of SFAS No. 151 to have a material effect on our results of operations or financial condition.

SFAS No. 154. In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS No. 154”). SFAS No. 154 replaces Accounting Principles Board Opinion No. 20, “Accounting Changes” (“APB No. 20”) and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS No. 154 applies to all voluntary changes in accounting principles and also applies to changes required by an accounting pronouncement that may not include specific transition provisions. SFAS No. 154 generally requires retrospective application of a change in accounting principle to prior periods’ financial statements, or, in the event that such a retrospective application is impracticable, application of the change in accounting principle to the balances of assets, liabilities and, usually, retained earnings, of the earliest period for which retrospective application is practicable. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not anticipate that the adoption of SFAS No. 154 will have a material impact on our financial position or results of operations.

SFAS No. 155. In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS No. 155”), an amendment of FASB statements No. 133, “Accounting for Derivative Instruments and Hedging Activities” and 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 155 eliminates the exemption from applying SFAS No. 133 to interests in securitized financial assets and allows the election of fair value measurement on an instrument-by-instrument basis. SFAS No. 155 is effective for fiscal years beginning after September 15, 2006. We do not expect the adoption of SFAS No. 155 to have a material effect on our results of operations or financial condition.

Note 3. Acquisitions, Dispositions and Goodwill

We have historically made acquisitions based on various factors including client relationships, service offerings, competitive position, reputation, experience and specialized know-how. Our acquisition strategy was to build upon the capabilities of our various strategic business platforms through the expansion of service capabilities. In executing our acquisition strategy, one of the primary drivers in identifying and executing a specific transaction is the existence of, or the ability to, expand our existing client relationships. Due to the nature of our business, the companies we 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. We performed an annual impairment test to assess whether the fair value of goodwill had been impaired.

The following tables present the changes in the carrying amount of goodwill during fiscal years ended March 31, 2006 and 2005 (in thousands):

	Year Ended March 31, 2006
	CMS		CHR		DMS			CMI		CMRS			Total Consolidated
Beginning Balance	$	20,210	$	36,132	$	—		$	24,153	$	—		$	80,495
Goodwill acquired		—		3,497		—			—		—			3,497
Ending Balance	$	20,210	$	39,629	$	—		$	24,153	$	—		$	83,992
	Year Ended March 31, 2005
	CMS		CHR		DMS			CMI		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

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Fiscal Year 2006 Activity

On September 15, 2004, we notified holders of common stock and options to purchase common stock of CHR that we were tendering an offer to purchase the shares of CHR not held by us. The tender offer period began on January 3, 2005 and closed on March 31, 2005. All remaining outstanding shares of CHR not held by us 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 us were eligible to tender their shares under this offer. We paid $12.50 per share for 279,786 shares tendered by CHR shareholders, or $3.5 million, on April 8, 2005. In accordance with the purchase method of accounting, the $3.5 million was allocated to goodwill.

Fiscal Year 2005 Activity

In November 2003, we announced our intent to divest CMRS, DMS and Japan Billboard. As a result, we tested the goodwill of these reporting units for impairment during fiscal year 2004, resulting in partial impairment of goodwill.

We 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, we 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. We did not expect to recover this goodwill. However, subsequent to the write-off of goodwill within discontinued operations, we sold the business for an amount in excess of the net book value of the remaining net assets, resulting in a gain on the sale.

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, 2006 (In years)	As of March 31,
		2006			2005
Purchased Patents	6.75	$	23,679		$	23,590
Accumulated amortization			(13,702	)		(11,909	)
Patents, net		$	9,977		$	11,681

Estimated future amortization of patents was as follows as of March 31, 2006 (in thousands):

Fiscal Year	Estimated Amortization
2007	$	1,656
2008		1,641
2009		1,639
2010		1,629
2011		1,547

We recognized amortization expense of $ 1.8 million, $1.9 million and $1.8 million for fiscal years 2006, 2005 and 2004, respectively, which is included on the Consolidated Statements of Operations within Depreciation and Amortization.

Note 5. Impairment Charges

There were no impairment charges in fiscal year 2006. In fiscal years 2005 and 2004, we recorded impairment charges 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 discontinued operations. The impairment charge related to those assets of Corporate was included in selling, general and administrative expenses.

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During fiscal year 2004, Japan Billboard recognized impairment charges of $4.1 million 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. The undiscounted cash flows expected to be generated from the billboards were less than the carrying amount. This was 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 the 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 we recorded (in thousands):

	Year Ended March 31,
	2006		2005		2004
DMS	$	—	$	1,609	$	29,788
CMRS		—		3,010		21,179
Japan Billboard		—		—		34,598
Total for discontinued operations	$	—	$	4,619	$	85,565
Corporate		—		288		—
	$	—	$	4,907	$	85,565

Note 6. Detail of Accrued Expenses

Accrued expenses included (in thousands):

	As of March 31,
	2006		2005
Payroll related	$	23,375	$	24,356
Accrued retailer fees		9,811		9,842
Deferred compensation plans		5,096		4,746
Sales commissions		9,882		10,712
Accrued operating expenses		2,693		3,515
Business taxes		4,199		4,901
Other		3,365		4,065
Total accrued expenses	$	58,421	$	62,137

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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,
	2006			2005			2004
Income before income taxes:
Domestic	$	97,374		$	93,335		$	86,787
Foreign		16,302			16,917			10,809
	$	113,676		$	110,252		$	97,596
Income tax provision (benefit)
Current taxes:
Federal	$	36,186		$	34,437		$	22,572
State		3,791			5,255			1,819
Foreign		5,282			5,790			4,492
		45,259			45,482			28,883
Deferred taxes:
Current taxes
Federal		(2,960	)		(3,442	)		7,553
State		(338	)		(377	)		1,139
Foreign		99			(7	)		(376	)
		(3,199	)		(3,826	)		8,316
Provision for income taxes	$	42,060		$	41,656		$	37,199

The decrease in the state tax provision in fiscal 2006 is primarily attributable to the reversal of a state income tax contingency due to a favorable settlement in fiscal 2006.

The reconciliation of the provision for income taxes based on the U.S. federal statutory income tax rate to our provision for income taxes was as follows (in thousands):

Expected federal statutory taxes at 35%	$	39,786		$	38,588		$	34,158
State and foreign income taxes, net of federal benefit		2,180			3,022			2,478
Tax expense (benefit) of foreign branches		1,005			(3,991	)		(2,767	)
Increase (decrease) in valuation allowance		(1,327	)		3,798			3,227
Other		416			239			103
Provision for income taxes	$	42,060		$	41,656		$	37,199

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):

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	As of March 31,
	2006			2005
Deferred Tax Assets:
Payroll related items	$	1,273		$	1,248
Deferred revenue		2,205			1,663
Provision for doubtful accounts		581			814
Accrued expenses		2,328			2,383
Net operating loss carryforwards		14,872			15,882
Investments in unconsolidated equity securities		990			990
Capital loss carryforward		11,464			11,969
Other		22			267
		33,735			35,216
Valuation allowance		(29,789	)		(31,116	)
Net deferred tax assets		3,946			4,100
Deferred Tax Liabilities:
Depreciation and amortization		(4,377	)		(7,730	)
Net deferred tax assets (liabilities)	$	(431	)	$	(3,630	)

Net deferred tax assets (liabilities) consisted of:

	As of March 31,
	2006			2005
Deferred tax asset current	$	6,386		$	6,108
Long-term deferred tax asset		—			—
Deferred tax liability current		—			—
Long-term deferred tax liability		(6,817	)		(9,738	)
Net deferred tax assets (liabilities)	$	(431	)	$	(3,630	)

We periodically review the need for a valuation allowance against deferred tax assets and recognize 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, we believe that the valuation allowances provided are appropriate. The valuation allowance decreased by $1.3 million during fiscal year 2006 and increased $13.5 million during fiscal year 2005. The decrease in the valuation allowance of $1.3 million in fiscal year 2006 was primarily due to a decrease in foreign tax assets and utilization of a portion of the capital loss carryforward. The increase in the valuation allowance of $13.5 million in fiscal year 2005 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 2005 is primarily due to an increase in the foreign deferred tax assets during the fiscal year. We have reserved against these foreign deferred tax assets because we believe that it is more likely than not that the deferred tax assets will not be realized.

As of March 31, 2006, we had cumulative U.S. federal taxable net operating loss (“NOL”) carryforwards of $0.1 million, which expire in 2017. These NOLs were acquired through various of our acquisitions and are limited by Internal Revenue Code Section 382 to an annual deduction of $0.5 million. In addition, various foreign subsidiaries had aggregate foreign taxable NOL carryforwards of $38.7 million. Approximately $9.6 million of the foreign NOLs can be carried forward indefinitely, while the remaining $29.1 million expire between 2007 and 2011. 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.

We do not provide for deferred taxes on certain unremitted foreign earnings, as we believe that earnings of our 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, 2006, the cumulative unremitted foreign earnings of our foreign subsidiaries are $31.8 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.

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

Our short-term borrowings and long-term debt consisted of the following (in thousands):

	As of March 31,
	2006			2005
Credit Facility, interest from 0.715% to 5.419%, as of March 31, 2006 and from 0.695% to 3.475%, as of March 31, 2005	$	61,803		$	64,263
Long-term installment debt in Japan, interest from 4.65% to 5.68% as of March 31, 2006 and 2005, maturing through August 2006 (payable in yen)		53			360
Total debt obligations		61,856			64,623
Less current portion of long-term debt		(53	)		(30,299	)
Long-term debt	$	61,803		$	34,324

Maturities of long-term debt were as follows as of March 31, 2006 (in thousands):

	Amount
2007	$	—
2008		—
2009		61,803
2010		—
2011		—
2012 and after		—
Total long-term debt	$	61,803

The August 2004 Credit Facility

On August 27, 2004, we entered into a 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 previous credit facility. The Credit Facility provides available borrowings of up to $125.0 million and has a feature that allows us 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., an overnight facility), as that term is defined in the Credit Facility, of $10.0 million. We use the Credit Facility for general corporate purposes including, but not limited to, refinancing of existing indebtedness, share repurchases, dividends, 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 our 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, 2006 included a margin of 0.625%.

We pay a quarterly commitment fee ranging from 0.15% to 0.25% of the unused portion of the Credit Facility, which is determined based upon our Leverage Ratio. The commitment fee as of March 31, 2006 was payable at a rate of 0.15%. Usual and customary fees are payable for letters of credit that are issued under the agreement. We may, at our 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 of our material U.S. subsidiaries.

In accordance with the terms of the Credit Facility, we provide customary, ongoing representations, warranties and covenants, and are 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. We were in compliance with all Credit Facility covenants as of March 31, 2006.

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We repaid amounts outstanding under a prior Japan credit facility 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, and additional borrowing, the amount outstanding under the Japan borrowings was $32.8 million as of March 31, 2006. This amount has been classified as long-term due to our intent and ability to finance this amount through 2009.

There was $61.8 million outstanding under the Credit Facility as of March 31, 2006, with interest payable at rates ranging from 0.715% for the outstanding tranches due in yen, to 5.419% for the Eurodollar-based tranches due in U.S. dollars.

Note 9. Commitments and Contingencies

Lease Commitments. We lease certain office space and equipment under noncancellable operating leases that expire at various dates through fiscal year 2011. Rental expense under operating leases was $4.5 million, $5.8 million and $5.8 million, in fiscal years 2006, 2005 and 2004, respectively. Future minimum operating lease commitments as of March 31, 2006, were as follows (in thousands):

Fiscal Year	Amount
2007	$	4,734
2008		4,794
2009		4,128
2010		3,694
2011		1,601
Thereafter		158
Total minimum lease payments	$	19,109

Contingent Earnout Payment. As part of the Restructuring and Amendment Agreement executed in 1999 between us and the former joint venture partners in our Japanese operations (the “Restructuring Agreement”), we have a contingent obligation to pay these former joint venture partners a final deferred earnout payment based on the future operating results of Japan. The Restructuring Agreement stipulates a potential earnout payment based on a predetermined formula calculated using financial results during a consecutive four quarter period ending between June 30, 2006 and June 30, 2007. The determination of the applicable four quarter period is contingent upon Japan achieving financial results on certain financial measurements as specified in the Restructuring Agreement. Based on our current estimates, we do not expect the earnout payment to be material; however, due to the fact that the earnout payment is measured based on the actual future financial results of Japan, a change in the results of operations or financial condition of Japan could cause the earnout payment to vary significantly.

Purchase Commitments. We have a purchase commitment to Epson America, Inc. for the purchase of color printers and related consumables (e.g. ink and paper) for use by our Catalina Marketing Services and Catalina Marketing International business segments. The commitment provides for the purchase of printers over a period of approximately six years for a minimum of $88.2 million. We plan to begin purchasing printers under this commitment in late June 2006. As of March 31, 2006, we also had approximately $3.1 million of paper stock which we are committed to purchase in connection with an agreement with one of our vendors.

Our annual obligation for purchases of color printers and related consumables and our obligation for suppliers’ paper stock as of March 31, 2006, were as follows (dollars in thousands):

Fiscal Year	Amount
2007	$	31,403
2008		27,000
2009		12,900
2008		12,000
2009		8,000
Total	$	91,303

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Income Tax Contingency. Despite our belief that our income tax return positions are consistent with applicable tax laws, we believe that certain positions are likely to be challenged by taxing authorities. We are party to various claims and matters of litigation and tax assessments incidental to the normal course of our business. We record contingencies for these potential losses once they are deemed probable and estimable. We believe that the final resolution of these tax matters will not have a material adverse effect on our 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 SEC of certain revenue recognition timing issues that management identified at CHR. On April 4, 2006, we issued a press release to announce that we had received notification from the SEC that the SEC had completed its investigation of us and that the SEC did not intend to recommend enforcement action against us.

Other Legal Matters. In addition, we are involved in claims and litigation arising out of our business, including claims and litigation brought against us, and litigation initiated by us to protect our intellectual property. We record accruals for potential losses arising from these claims and litigation once they are deemed probable and estimable.

We, and certain current and former directors and former officers 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, as amended 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. We 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 which was subsequently granted by the court on February 16, 2006. The parties are currently engaged in discovery, including the production of documents. 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.

Certain current and former directors and former officers of the Company and CHR, and Catalina Marketing, as a nominal defendant, have been named in two shareholder derivative actions captioned The Booth Family Trust v. Frank H. Barker, et al., Case No. 20510-NC, pending 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 pending 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 us, 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 to extend the stay, the court in the Florida derivative action has stayed the action through October 30, 2006. The parties to the Delaware derivative action have also agreed to extend the stay in that action until October 30, 2006, and approval by the court is pending. We 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

We administer the following plans which were approved by our 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 our common stock were reserved for issuance upon the exercise of options granted under the 1989 Plan. Through March 31, 2006, options to purchase an aggregate of 12,407,586 shares were granted, net of cancellations, of which options to purchase 150,622 shares were outstanding as of March 31, 2006.

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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 of our executives, and which, vested after eight years but had an accelerated vesting schedule if we reach 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 our common stock are reserved for issuance upon the exercise of options granted under the 1999 Plan. Through March 31, 2006, options to purchase an aggregate of 7,866,445 shares have been granted, net of cancellations, under the 1999 Plan, of which options to purchase 7,407,234 shares were outstanding as of March 31, 2006.

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 two and three, and 30% in years four and five. Annual grants vest at 15% in years one and two, 20% in year three and 25% in years four and five. Generally, options have terms of up to ten years. Certain options under the 1999 Plan that vested after eight years and provided for accelerated vesting based upon reaching specified earnings per share targets were accelerated as part of our decision to accelerate certain underwater options. 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, 2006, options to purchase an aggregate of 12,796,175 shares had been exercised, including options to purchase 60,000 shares granted outside of any plan; options to purchase an aggregate of 7,557,856 shares were outstanding; and 2,013,555 shares remained available for future grants under the 1999 Plan. Of the options outstanding as of fiscal years 2006, 2005 and 2004, options to purchase 4,152,727, 2,707,717 and 1,920,355 shares, respectively, were immediately exercisable, with weighted average exercise prices of $28.61, $30.32 and $31.08, respectively.

Stock option activity for fiscal years 2006, 2005 and 2004 for the 1989 and 1999 Stock Option Plans was as follows:

	Number of Shares		Weighted Average Exercise Prices
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
Option activity:
Granted	2,143,769			24.28
Exercised	(107,240	)		19.05
Canceled or expired	(1,571,414	)		28.63
Options outstanding as of March 31, 2006	7,557,856		$	26.48
Options available for future issuance as of March 31, 2006	2,013,555

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Information on stock options was as follows:

Options Outstanding					Options Exercisable
Range of Exercise Prices	Outstanding as of March 31, 2006	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Exercisable as of March 31, 2006	Weighted Average Exercise Price
$16.01-$25.00	3,455,656	8.8	$	22.26	811,017	$	20.18
$25.01-$33.00	3,379,625	7.0	$	28.74	2,619,135	$	29.16
$33.01-$41.00	722,575	5.1	$	36.06	722,575	$	36.06
	7,557,856				4,152,727

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 our common stock were authorized for issuance under the 1992 Grant Plan. As of March 31, 2006, 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.

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 our common stock were authorized for issuance under the 2002 Grant Plan. As of March 31, 2006, 41,692 have been granted from the 2002 Grant Plan leaving 208,308 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 our common stock were reserved for issuance. During fiscal years 2006 and 2005, we issued 34,776 shares and 5,150 shares, respectively, to employees under the 2004 Purchase Plan. The weighted average fair market values of the shares issued were $25.38 and $29.63 for fiscal years 2006 and 2005, respectively. Shares available for future grant total 1,260,074 as of March 31, 2006.

Under the 2004 Purchase Plan, employees may purchase our 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 our common stock. We 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, we issued 49,293 shares to employees during fiscal year 2004. The weighted average fair market value of the shares issued to employees was $17.65.

Note 11. Stockholder Protection Plan

We have adopted a Stockholder Protection Plan (the “Protection Plan”). To implement this Protection Plan, we declared a dividend of one Preferred Share Purchase Right on each outstanding share of our 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 our Series X Junior Participating Preferred Stock only if a person or group acquires 15% or more of our 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

We maintain a 401(k) Savings Plan, which provides benefits for substantially all of our employees who meet minimum age and length-of-service requirements. Amounts charged to expense for this plan totaled $1.0 million in fiscal year 2006, $1.1 million in fiscal year 2005, and $1.0 million in fiscal year 2004.

We maintain a non-qualified deferred compensation plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan is designed to permit certain of our employees and directors 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

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units in the Deferred Compensation Plan, each of which represents a share of our 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 our common stock upon a payment event. Through the Trust, investment options such as mutual funds and money market funds are available to participants.

We followed 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 our Consolidated Financial Statements. The investment in assets other than our stock units and the related liability in the Deferred Compensation Plan were included in Prepaid Expenses and Other Current Assets and Accrued Expenses in our Consolidated Balance Sheets, respectively. We determined that all of our 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 2006, 2005, and 2004 were net increases to compensation expense of $0.7 million, $0.3 million, and $1.6 million, respectively. Participants’ elections to invest in our stock units are irrevocable. These stock units were initially recorded at fair value in the Statement of Stockholders’ Equity and were not subsequently marked to market.

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, 2006, options to purchase an aggregate of 1,057,860 shares had been granted, net of cancellations, all of which have been exercised. No options were outstanding as of fiscal years 2006. In 2005 and 2004, options to purchase 500 and 44,405 shares, respectively, were immediately exercisable, at weighted average exercise prices of $6.53 and $9.12 per share, 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.

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Stock option activity for fiscal years 2006, 2005 and 2004 was as follows:

	Number of Shares		Weighted Average Exercise Prices
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
Option activity:
Granted	—			—
Exercised	(43,187	)		6.53
Canceled or expired	(19,577	)		12.40
Options outstanding as of March 31, 2005	500			6.53
Option activity:
Granted
Exercised
Canceled or expired	(500	)		6.53
Options outstanding as of March 31, 2006	—			—
Options available for future issuance as of March 31, 2006	—			—

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

Note 14. Subsidiary Stock Issuances

We account for gains and losses on the issuances of our subsidiaries’ stock as changes to paid-in capital. Our subsidiary, CHR, issued stock to employees and non-employee directors during the fiscal years ended March 31, 2005 and 2004. Information on CHR stock issuances and the resulting change in our ownership of this subsidiary is included in the following table. (Amounts in thousands, except per share and percentage data.)

	Year Ended March 31,
	2006			2005			2004
Beginning ownership percentage		95.4	%		96.0	%		96.9	%
Number of shares issued		—			43			58
Average price per share on new share issues	$	—		$	6.53		$	4.58
Total cash proceeds received from share issues	$	—		$	238		$	266
Number of subsidiary shares purchased by the Company		280			—			—
Total amount paid by the Company for the share purchases	$	3,497		$	—		$	—
Ending ownership percentage		100.0	%		95.4	%		96.0	%

On September 15, 2004, we notified holders of common stock and options to purchase common stock of CHR that we were tendering an offer to purchase the shares of CHR not held by us. The tender offer period began on January 3, 2005 and closed on March 31, 2005. All remaining outstanding shares of CHR not held by us 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 us were eligible to tender their shares under this offer. We paid $12.50 per share for 279,786 shares tendered by CHR shareholders, or $3.5 million, on April 8, 2005.

53

Note 15. Share Repurchase Authorization and Share Repurchases

On August 9, 2005, the Board of Directors authorized $100 million of funds to be available for the repurchase of our common stock. This authorization replenished the $100 million the Board of Directors authorized in September 2004. We repurchased 4.8 million shares of our common stock during fiscal year 2006 for a total of $114.3 million and 1.7 million shares of our common stock for $44.2 million in fiscal year 2005. Prior to the purchase of shares during the fourth quarter of 2005, we had not purchased shares since June 2003. Subsequent to June 2003, we were precluded from stock repurchases under the terms of our prior facility until that facility was replaced on August 27, 2004 with the August 2004 Credit Facility, after which time we were no longer restricted from repurchases of our common stock pursuant to the terms of our August 2004 Credit Facility.

As of March 31, 2006, there was $41.5 million remaining under the August 9, 2005 authorization to repurchase shares. This authorization will expire when the total dollar amount authorized by our Board of Directors has been expended.

Note 16. Cash Dividend

On August 9, 2005 the Board of Directors declared an annual cash dividend of $0.30 per share to common stockholders of record as of September 19, 2005, which was paid to such stockholders on October 3, 2005, and totaled approximately $14.5 million. In fiscal 2005 we also declared an annual cash dividend of $0.30 per share which was paid in October and totaled approximately $15.7 million.

Note 17. Other Postretirement Benefits

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

	Year Ended March 31,
	2006		2005		2004
Service cost	$	—	$	—	$	13
Interest cost		139		124		127
Amortization of unrecognized prior service costs		—		—		442
Recognized actuarial (gain) or loss		9		—		—
	$	148	$	124	$	582

The amortization of unrecognized prior service costs of $0.4 million recognized in 2004 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.

54

The following table represented our accumulated postretirement benefit obligation and funded status for the fiscal years ended March 31, 2006 and 2005 (in thousands):

	As of March 31,
	2006			2005
Change in accumulated postretirement benefit obligation:
Beginning of year accumulated postretirement benefit obligation	$	2,458		$	2,032
Service cost		—			—
Interest cost		139			124
Participant Contributions		2			—
Actuarial (gain) loss		(458	)		387
Benefits paid		(89	)		(85	)
End of year accumulated postretirement benefit obligation	$	2,052		$	2,458
Change in fair value of plan assets	$	—		$	—
Net amount recognized:
Obligation in excess of plan assets	$	2,052		$	2,458
Unrecognized prior service cost		—			—
Unrecognized actuarial net loss		34			(433	)
Accrued benefit cost	$	2,086		$	2,025

The impact of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 was a $0.2 million reduction of the accumulated postretirement benefit obligation for fiscal year 2006.

We use a December 31 measurement date. For the fiscal year ended March 31, 2006, 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, 2015 and remain at that level thereafter. For the fiscal year ended March 31, 2005, a weighted average discount rate of 5.75% 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 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 capital 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.

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, 2006	$	17	$	(14	)
Effect on accumulated postretirement benefit obligation at March 31, 2006	$	296	$	(241	)

55

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, 2006, were as follows (in thousands):

Fiscal Year	Benefit		Subsidy
2007	$	97	$	2
2008		111		2
2009		117		3
2010		122		4
2011		125		5
2012-2016		692		44

Note 18. Segment and Geographic Disclosures

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

Segment	Business Activity
Catalina Marketing Services	Provides point-of-sale, printed communications to consumers for CPG manufacturers and retailers.
Catalina Health Resource	Provides point-of-sale, direct-to-patient communications for pharmaceutical and CPG manufacturers and retailers.
Catalina Marketing International	Provides services similar to Catalina Marketing Services in the United Kingdom, Belgium, the Netherlands, 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 were reported based on U.S. GAAP and the accounting policies were consistent with those described in Note 2. Certain costs generated by the Corporate group (“Corporate”) were allocated to the operating segments as discussed below. Furthermore, all of the significant domestic property and equipment was recorded by Corporate, but the associated depreciation and amortization was allocated to the domestic operating segments.

Allocation of Corporate Group Operating Expenses. Our Corporate group’s operating expenses include costs for retail store support, information technology, corporate accounting, client services, analytical services, marketing, human resources, procurement, and new business development and executive management. These costs 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, 2006, 2005 and 2004. For purposes of segment reporting, these Corporate costs are allocated to the CMS and CHR 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 communications, square feet of space used, headcount or other relevant statistics, depending on the type of cost. For example, the cost to maintain our 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 communications; data communications costs are allocated based upon revenues. Of the total Corporate group operating expenses, 63.2%, 63.8% and 66.6% were allocated to operating segments during the fiscal years ended March 31, 2006, 2005 and 2004, 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.

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Segment Financial Data. A disaggregation of our consolidated data for the fiscal years ended March 31, 2006, 2005, and 2004 is presented in the following tables (in thousands).

	Revenue from External Customers							Intersegment Revenues
	2006		2005		2004			2006			2005			2004
CMS	$	254,393	$	269,608	$	282,126		$	—		$	4		$	2
CHR		89,527		76,167		77,765			—			—			—
CMI		73,817		64,116		49,580			—			—			—
	$	417,737	$	409,891	$	409,471		$	—		$	4		$	2
Reconcilition of segments to consolidated amount Corporate		9		171		(839	)		3,658			3,442			3,866
Eliminations		—		—		—			(3,658	)		(3,446	)		(3,868	)
	$	417,746	$	410,062	$	408,632		$	—		$	—		$	—

Revenues from a single client represented approximately 11.8%, 13.7% and 12.0% of consolidated revenues from our continuing operations for fiscal years 2006, 2005 and 2004, respectively. Revenues from this client were included in CMS and CMI.

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	Interest Expense (1)
Segments	2006			2005			2004
CMS	$	—		$	—		$	—
CHR		—			—			—
CMI		3,033			3,067			2,568
Corporate		769			917			2,409
Eliminations		(2,796	)		(2,494	)		(2,042	)
	$	1,006		$	1,490		$	2,935

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

	Income Taxes Provision (Benefit)
Segments	2006			2005			2004
CMS	$	46,090		$	50,288		$	49,501
CHR		11,182			6,368			4,951
CMI		2,558			3,725			689
Corporate		(17,770	)		(18,725	)		(17,942	)
	$	42,060		$	41,656		$	37,199

	Net Income (Loss)
Segments	2006			2005			2004
CMS	$	67,712		$	73,879		$	72,724
CHR		16,427			9,356			7,273
CMI		6,896			7,395			462
Corporate		(19,419	)		(22,034	)		(20,062	)
Income from continuing operations	$	71,616		$	68,596		$	60,397
Discontinued operations		—			(3,144	)		(78,900	)
Cumulative effect of accounting change		—			—			(770	)
	$	71,616		$	65,452		$	(19,273	)

	Total Assets
Segments	2006			2005			2004
CMS	$	1,415,866		$	1,243,719		$	1,514,933
CHR		67,241			55,651			68,284
CMI		121,685			116,483			98,040
Reconciliation of segments to consolidated amount:
Eliminations		(1,537,843	)		(1,351,484	)		(2,279,816	)
Corporate		270,146			327,965			919,257
Total assets-continuing operations	$	337,095		$	392,334		$	320,698
Total assets-discontinued operations		—			404			66,111
	$	337,095		$	392,738		$	386,809

	Capital Expenditures
Segments	2006		2005		2004
CMS	$	120	$	52	$	2,297
CHR		467		1,133		1,011
CMI		8,641		7,175		9,864
Corporate		51,026		13,914		12,558
Discontinued operations		—		253		697
	$	60,254	$	22,527	$	26,427

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	Depreciation and Amortization
Segments	2006		2005		2004
CMS	$	21,322	$	26,836	$	28,137
CHR		2,410		3,676		5,380
CMI		7,652		7,042		6,453
Corporate		4,602		4,892		5,273
	$	35,986	$	42,446	$	45,243

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,
	2006		2005		2004
Revenues
United States	$	343,929	$	345,946	$	359,052
France		51,330		44,289		39,206
Other International		22,487		19,827		10,374
Total	$	417,746	$	410,062	$	408,632
Long-Lived Assets
United States	$	104,714	$	77,066	$	99,824
France		12,776		13,709		11,426
Other International		11,011		12,561		15,593
Total	$	128,501	$	103,336	$	126,843

Note 19. Discontinued Operations

In November 2003, we announced our intent to divest Japan Billboard, DMS and CMRS, which were deemed not to be strategically aligned with our 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, we sold the stock of Japan Billboard for 100 Japanese yen an employee 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.

Upon the adoption of SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”) in fiscal year 2004, we recognized a net increase in property and equipment of $0.7 million and an asset retirement obligation of $2.1 million. This resulted in 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 charge for the fiscal year ended March 31, 2004. The effect of the adoption of SFAS No. 143 was associated with Japan Billboard’s contractual obligation to remove certain billboards. The remaining asset retirement obligation of $1.2 million was eliminated in fiscal year 2005 in conjunction with the sale of Japan Billboard.

Discontinued operations information related to Japan Billboard was as follows (in thousands):

	For the Year Ended March 31,
	2006		2005			2004
Revenues	$	—	$	6,653		$	14,718
Operating loss	$	—	$	(181	)	$	(35,286	)
Loss before income tax expense		—		(233	)		(35,546	)
Income tax expense		—		—			1,470
Loss from operations		—		(233	)		(37,016	)
Loss on disposition of Japan Billboard, before income tax benefit		—		(508	)		—
Income tax benefit		—		—			—
Loss on disposition of Japan Billboard		—		(508	)		—
Loss from Japan Billboard discontinued operations	$	—	$	(741	)	$	(37,016	)

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On September 17, 2004, we sold DMS and received cash proceeds of $5.5 million. Discontinued operations information related to DMS was as follows (in thousands):

	For the Year Ended March 31,
	2006		2005			2004
Revenues	$	—	$	10,313		$	37,120
Operating loss	$	—	$	(1,372	)	$	(29,779	)
Loss before income tax expense		—		(1,372	)		(29,775	)
Income tax expense		—		89			5
Loss from operations		—		(1,461	)		(29,780	)
Gain on disposition of DMS, before income tax benefit		—		3,291			—
Income tax benefit		—		—			—
Gain on disposition of DMS		—		3,291			—
Income from DMS discontinued operations	$	—	$	1,830		$	(29,780	)

We 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. We vacated this office facility during the fourth quarter of fiscal year 2005.

Discontinued operations information related to CMRS was as follows (in thousands):

	For the Year Ended March 31,
	2006		2005			2004
Revenues	$	—	$	5,120		$	12,480
Operating loss	$	—	$	(4,125	)	$	(20,342	)
Loss before income tax expense		—		(4,125	)		(20,342	)
Income tax benefit		—		(1,547	)		(8,238	)
Loss from operations		—		(2,578	)		(12,104	)
Loss on disposition of CMRS, before income tax benefit		—		(2,646	)		—
Income tax benefit		—		(991	)		—
Loss on disposition of CMRS		—		(1,655	)		—
Loss from CMRS discontinued operations	$	—	$	(4,233	)	$	(12,104	)

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

	For the Year Ended March 31,
	2006		2005			2004
Revenues	$	—	$	22,086		$	64,318
Operating income loss	$	—	$	(5,678	)	$	(85,407	)
Loss from discontinued operations before income tax benefit		—		(5,730	)		(85,663	)
Income tax benefit		—		(1,458	)		(6,763	)
Loss from operations of discontinued businesses		—		(4,272	)		(78,900	)
Gain on disposition of discontinued operations, net, before on disposition of CMRS, before income income tax benefit		—		137			—
Income tax benefit		—		(991	)		—
Gain on disposition of discontinued operations		—		1,128			—
Loss from discontinued operations	$	—	$	(3,144	)	$	(78,900	)

Note 20. Unaudited Quarterly Results

The following table presents certain unaudited quarterly results for fiscal years 2006 and 2005 (in thousands, except per share amounts):

	Three Months Ended
	March 31,					December 31,					September 30,				June 30,
	2006		2005			2005		2004			2005		2004		2005		2004
Revenues	$	125,913	$	111,969		$	97,223	$	100,319		$	102,756	$	102,372	$	91,854	$	95,402
Direct operating expenses		38,829		37,446			33,643		26,200			32,318		32,015		30,685		33,788
Selling, general and administrative		40,822		40,660			31,853		31,365			29,622		28,517		29,801		28,823
Depreciation and amortization		9,306		10,086			8,453		10,202			8,722		10,604		9,505		11,554
Income from operations		36,956		23,777			23,274		32,552			32,094		31,236		21,863		21,237
Income from continuing operations		24,012		15,977			14,193		20,403			19,748		18,853		13,663		13,363
Income (loss) from discontinued operations		—		(701	)		—		(1,432	)		—		1,426		—		(2,437	)
Net income		24,012		15,276			14,193		18,971			19,748		20,279		13,663		10,926
Earnings per share – diluted:
Income per common share from from continuing operations	$	0.51	$	0.30		$	0.30	$	0.39		$	0.41	$	0.36	$	0.27	$	0.26
Income (loss) per share from discontinued operations		—		(0.01	)		—		(0.03	)		—		0.03		—		(0.05	)
Net income per share		0.51		0.29			0.30		0.36			0.41		0.39		0.27		0.21
Diluted weighted average common shares outstanding		47,429		52,180			48,021		52,720			48,709		52,311		50,550		52,245

Previously reported amounts 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 2006, 2005 and 2004, we committed to make donations totaling $0.4 million, $0.8 million and $0.4 million, respectively, to the Catalina Marketing Charitable Foundation (“Foundation”), a not-for-profit charitable organization. The board of directors of the Foundation is comprised of certain of members of our management.

During each of the years ended March 31, 2005 and 2004, we 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 during 2003. The lease for this office building was terminated in fiscal year 2005, prior to its contractual expiration date in 2009. We paid $1.0 million in fiscal year 2005 for the early termination of the lease.

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

None

Item 9A. Controls and Procedures

Conclusion regarding the effectiveness of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2006. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2006, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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 – “Consolidated Financial Statements and Supplementary Data”.

Item 9B. Other Information

Not applicable.

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 our definitive Proxy Statement for the 2006 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 SEC within 120 days of fiscal year ended March 31, 2006.

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 Form 10-K.

	Page
Management’s Report on Internal Control Over Financial Reporting	29
Report of Independent Registered Certified Public Accounting Firm	30
Consolidated Statements of Operations, Years Ended March 31, 2006, 2005 and 2004	31
Consolidated Balance Sheets at March 31, 2006 and 2005	32
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss), Years Ended March 31, 2006, 2005 and 2004	33
Consolidated Statements of Cash Flows, Years Ended March 31, 2006, 2005 and 2004	34
Notes to the Consolidated Financial Statements	35

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(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, December 31, 2004 and May 17, 2006.
**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	Amended and Restated 2002 Director Stock Grant Plan, as amended effective July 1, 2005.
**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, approved on April 14, 2006.
**10.7	Catalina Marketing Corporation Deferred Compensation Plan, as amended and restated (November 18, 2004), 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, 2005.
**10.8	Catalina Marketing Corporation Deferred Compensation Plan, Exhibit B, 2005 Sub-Plan Applicable to Compensation Deferred or Vested After December 31, 2004), 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, 2005.
**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.
**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 for System Supply and Services dated August 29, 2005 by and between Catalina Marketing Corporation and Epson America, Inc. and included as an exhibit to Form 10-Q for the quarter ended September 30, 2005.
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.

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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, on May 26, 2006.

	CATALINA MARKETING CORPORATION (Registrant)
By:	/s/ Rick P. Frier
	Rick P. Frier
	Executive Vice President and 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	May 26, 2006
/s/ L. DICK BUELL L. Dick Buell	Director and Chief Executive Officer	May 26, 2006
/s/ EUGENE P. BEARD Eugene P. Beard	Director	May 26, 2006
/s/ EDWARD S. (NED) DUNN Edward S. (Ned) Dunn	Director	May 26, 2006
/s/ EVELYN V. FOLLIT Evelyn V. Follit	Director	May 26, 2006
/s/ PETER T. TATTLE Peter T. Tattle	Director	May 26, 2006
/s/ ROBERT G. TOBIN Robert G. Tobin	Director	May 26, 2006
/s/ JEFFREY W. UBBEN Jeffrey W. Ubben	Director	May 26, 2006
/s/ RICK P. FRIER Rick P. Frier	Executive Vice President and Chief Financial Officer	May 26, 2006

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EX-3.2

Exhibit 3.2

AMENDED AND RESTATED BYLAWS

of

CATALINA MARKETING CORPORATION

a Delaware corporation

*Amended to include all amendments to the Bylaws through May 17, 2006.

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

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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 eight (8). 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

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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,

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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.

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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.

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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,

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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.

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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.

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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.

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EX-10.3

Exhibit 10.3

AMENDED AND RESTATED¹

CATALINA MARKETING CORPORATION

2002 DIRECTOR STOCK GRANT PLAN

1. PURPOSE.

The Plan is intended to provide incentive to outside directors of the Corporation, to encourage proprietary interest in the Corporation, and to attract new outside directors with outstanding qualifications.

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(a) of the Plan.

(c) “Annual Meeting Date” shall have the meaning assigned to it in Section 6(d) hereof.

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

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

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

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

(h) “Corporation” shall mean Catalina Marketing Corporation, a Delaware corporation.

¹ Amended and Restated to include amendments adopted by the Board of Directors and stockholders in June and August, respectively, 2005.

(i) “Directors” shall mean, collectively, all outside (non-employee) directors, duly elected to the Board by the Corporation’s stockholders or otherwise in accordance with the Corporation’s Bylaws, and all outside (non-employee) directors appointed to fill a vacancy or a newly created directorship position of the Board.

(j) “Disability” shall mean the condition of a Director who is unable to substantially fulfill his responsibilities as a member of the Board 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.

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

(l) “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:

(i) If the Shares are traded on an exchange, the closing price per Share on the principal exchange on which Shares are listed on the date of valuation or, if no sales occurred on that date, then the average of the highest bid and lowest asked prices on such exchange at the end of the day on such date;

(ii) If the Shares are not traded on an exchange but are otherwise traded over-the-counter, the average of the highest bid and lowest asked prices quoted in the National Association of Securities Dealers, Inc. Automated Quotation System (“NASDAQ”) 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

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

(m) “Grant” shall mean any stock award granted pursuant to the Plan.

(n) “Grantee” shall mean a Director who has received a Grant pursuant to Section 4(b) hereof.

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(o) “Plan” shall mean this Catalina Marketing Corporation 2002 Director Stock Grant Plan, as it may be amended from time to time.

(p) “Share” shall mean one (1) share of Common Stock, adjusted in accordance with Section 8 of the Plan (if applicable).

(q) “Term of Directorship” shall have the meaning assigned to it in Section 6(b) hereof.

(r) “Vested Shares” and “Non-Vested Shares” shall have the meanings assigned to such terms in Section 6(d) hereof.

3. EFFECTIVE DATE.

The Plan was adopted by the Board in June 2002 and approved by the Corporation’s stockholders on July 25, 2002, pursuant to Section 11 hereof. The plan became effective October 27, 2002. Amendments to the Plan, effective July 1, 2005, were adopted by the Board in June 2005 and approved by the stockholders on August 9, 2005.

4. ADMINISTRATION AND ELIGIBILITY.

(a) Administrator. 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 two (2) members of the Board who are “Non-Employee Directors” within the meaning of Rule 16b-3 under the Exchange Act. 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 Committee or Board, as the case may be, shall hold meetings at such times and places as it may determine. Acts of a majority of the members of the Committee or the Board, as the case may be, at a meeting at which a quorum is present, or acts reduced to or approved in writing by unanimous consent of the members of the Committee or the Board, as the case may be, shall be the valid acts of the Administrator.

The Administrator or its designee shall maintain a list of the Directors who have been awarded Grants, and determine the number of Shares granted to each Director in accordance with Section 6(b) hereof. Subject to the express provisions of the Plan, the Administrator shall have the authority to construe and interpret the Plan and to define the terms used in the Plan, to prescribe, amend and rescind rules and regulations relating to the administration of the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. The interpretation and construction by the Administrator of any provisions of the Plan or of any Grant granted thereunder shall be final, and shall be upheld on any review unless arbitrary and capricious. No member of the Administrator shall be liable for any action or determination made in good faith with respect to the Plan or any Grant awarded thereunder.

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(b) Participation. The Grantees shall consist exclusively of Directors of the Corporation; provided, however, that no Director shall be eligible to be a Grantee if and to the extent that such Director is prohibited from personally accepting or benefiting from a Grant hereunder due to such Director’s affiliation with a business organization; provided further, however, that if at any time a Director who has not been eligible under the Plan due to the immediately preceding proviso becomes eligible to participate, such Director shall be treated as having been elected to a term of less than three years at the time such Director becomes so eligible, and at such time shall receive a Grant as though such Director had been elected at such time, pursuant to Section 6(b) of the Plan. If a Director is not eligible to be a Grantee due to the first proviso of the immediately preceding sentence, then such Director shall be entitled to cash compensation of $18,750 per quarter, with such compensation to be paid on a quarterly basis or as otherwise directed by the Administrator.

5. STOCK.

The stock subject to Grants awarded under the Plan shall be Shares of the Corporation’s authorized but unissued or reacquired Common Stock. The aggregate number of Shares which may be issued upon exercise of Grants under the Plan shall not exceed two hundred fifty thousand (250,000), subject to the occurrence of any of the events specified in Section 8 hereof. The number of Shares subject to additional Grants at any time shall not exceed the number of Shares remaining available for issuance under the Plan. In the event that any Shares subject to any outstanding grants for any reason are forfeited and returned to the Corporation in accordance with Section 6(e) of the Plan, the Shares so forfeited may again be subject to Grants.

6. TERMS AND CONDITIONS OF GRANTS.

(a) Stock Grant Agreements. Grants shall be evidenced by written stock grant 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.

(b) Award of Grants. A Grant shall be awarded to each Director as of the day that such Director takes office following the election or re-election of such Director by the stockholders or by the Board, as permitted in the Corporation’s Bylaws, in partial consideration for the fulfillment by such Director of such Director’s duties as a director of the Corporation. Subject to the availability of Shares as specified in Section 5 of the Plan, each Grant shall include an aggregate number of Shares (subject to

adjustments in accordance with the provisions of Section 8 hereof) equal to $225,000 divided by the Fair Market Value per Share of the Common Stock as of the effective date of the Grant, ), rounded up to the nearest whole number of Shares, as determined by the Administrator; provided, however, that if the term (the “Term of Directorship”) for which the Director has been elected is not a full three-year term, the number of Shares subject to a Grant shall be the number of Shares calculated as set forth above, multiplied by a fraction, the numerator of which is the number of full months during which the Grantee shall serve as director following the award of the Grant and until the next annual meeting of stockholders (the “Annual Meeting of Stockholders”) at which the class of directors to which the Grantee belongs is to be elected (assuming for purposes of this calculation that the Annual Meeting Date (as hereinafter defined) is July 31 of such fiscal year), and the denominator of which is thirty-six (36), rounded up to the nearest whole number of Shares.

(c) Number of Shares. Each Grant shall state the number of Shares to which it pertains and shall provide for the adjustment thereof in accordance with the provisions of Section 8 hereof.

(d) Vesting. Shares included in Grants shall be subject to the vesting provisions herein set forth. Shares which have vested according to the schedule set forth below shall be considered “Vested Shares” and Shares which have not so vested shall be considered “Non-Vested Shares.” The Shares included in each Grant shall vest on the date of each successive Annual Meeting of Stockholders of the Corporation (the “Annual Meeting Date”) following the effective date of the Grant. The number of Shares subject to a Grant which shall become Vested Shares as of each Annual Meeting Date shall be calculated by multiplying the number of Shares included in the Grant by a fraction, the numerator of which is equal to the number of months which have elapsed since the later of (i) the election or re-election of such Director or (ii) the last Annual Meeting Date, and the denominator of which is the number of full months during which the Grantee shall serve as director following the award of the Grant and until the next Annual Meeting of Stockholders at which the class of directors to which the Grantee belongs is to be elected (assuming for purposes of this calculation that the Annual Meeting Date is July 31 of such fiscal year). If no Annual Meeting of Stockholders shall have occurred in any fiscal year on or before August 30 of such fiscal year, then unless the Board shall have adopted a resolution adopting an alternative date, July 31 shall be considered to be the Annual Meeting Date.

(e) Restrictions on Non-Vested Shares. A Grantee may not assign, sell, pledge, hypothecate or otherwise transfer any Grant or any Non-Vested Shares. If a Grantee ceases to be a Director for any reason or

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no reason, including upon death or Disability, removal (with or without cause) or resignation, the Grant shall be automatically terminated immediately upon the effective date of such cessation and all Shares included in Grants which are Non- Vested Shares as of the effective date of such cessation, shall be forfeited automatically and shall, effective immediately upon such cessation, be returned to the status of authorized to be issued pursuant to Grants under the Plan. In the discretion of the Administrator, the Corporation may devise any mechanism reasonable for the purpose of enforcing the restrictions and limitations on Non-Vested Shares. In the absence of any other such mechanism, the Corporation may retain possession of any certificates representing Non-Vested Shares, but shall cause certificates representing Shares which have become Vested Shares registered in the name of the Grantee to be delivered to the Grantee entitled to the same promptly following the time at which such Shares become Vested Shares as herein described.

(f) Rights as a Stockholder. Except as provided in Section 6(e) of the Plan, a Grantee shall have and enjoy all rights as a stockholder with respect to all Shares included in the Grant, regardless of whether the Shares awarded are Vested or Non-Vested, including, without limitation, the right to vote any such Shares, the right to receive all communications addressed by the Corporation to its stockholders, and the right to receive dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights as provided in the Certificate of Incorporation or Bylaws of the Corporation. Notwithstanding any provision hereof, a Director may not transfer any Shares received pursuant to a Grant for a period of six (6) months immediately following the effective date of the Grant.

(g) Payment of Taxes; Related Matters. In the event the Corporation determines it is required to withhold state, local or Federal income tax as a result of the grant of a Grant or the vesting of any Shares subject to a Grant, the Corporation may require a Grantee to make arrangements satisfactory to the Corporation to enable it to satisfy such withholding requirements. Payment of such 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 Grantee, or by the Corporation not issuing such number of Shares subject to the Grant having a Fair Market Value at the effective date of the Grant or the date of such vesting equal to the amount to be withheld, or (iii) any combination of (i) and (ii) above. An election under the preceding sentence may only be made during the period beginning on the third business day following the date of release of quarterly and annual summary statements of sales and earnings to the extent provided by Rule 16b-3 of the Securities and Exchange Commission and ending on the twelfth business day following such date and only if such

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period occurs before the date the Corporation requires payment of the withholding tax. The election need not be made during the ten-day window if (a) it is made at least six (6) months prior to the date of the Grant or (b) counsel to the Corporation determines that compliance with such requirement is unnecessary.

THE STOCK GRANT AGREEMENTS SHALL APPRISE THE GRANTEE OF THE TAX CONSEQUENCES TO THE GRANTEE OF SECTION 83 OF THE CODE (INCLUDING THE TAX CONSEQUENCES TO THE GRANTEE OF FILING OF AN ELECTION PURSUANT TO SECTION 83(b) OF THE CODE), AND SHALL ALLOCATE THE RESPONSIBILITY FOR RECEIVING APPROPRIATE ADVICE WITH RESPECT THERETO TO THE GRANTEE.

(h) Deferral of Grant. Prior to his or her election or re-election to the Board, each Director may elect to defer, in accordance with the terms of the Corporation’s Deferred Compensation Plan, all or a portion of the grant he or she shall receive if elected or re-elected, pursuant to Section 6(b). In such case, no shares will be issued to the Director and a credit will be made to the Common Stock unit account maintained for such Director under the Deferred Compensation Plan in a number of units equal to the number of shares deferred on the date of Grant.

(i) Other Provisions. The stock grant agreements authorized under the Plan may contain such other provisions not inconsistent with the terms of the Plan (including, without limitation, restrictions upon the transfer of Shares following the award of the Grant) as the Administrator shall deem advisable.

7. TERM OF PLAN.

Grants may be awarded pursuant to the Plan until the expiration of the Plan on October 27, 2012.

8. RECAPITALIZATIONS AND OTHER TRANSACTIONS

Subject to any required action by stockholders, the aggregate number of Shares covered by the Plan as provided in Section 5 hereof and the number of Shares covered by each Grant shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, stock dividend (but only of Common Stock), combination of shares or any other change, by reclassification, reorganization, redesignation, recapitalization or otherwise, or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Corporation. If any such adjustment results in a fractional share, such fraction shall be disregarded.

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Subject to any required action by stockholders, 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 Grant shall continue to apply to the Shares subject thereto, and any Shares awarded pursuant to a Grant prior to a merger, which have yet to fully vest in accordance with the schedule set forth in Section 6(d) of the Plan, shall continue to be subject to the same vesting schedule. In addition, in the event of a merger where the Corporation is the surviving corporation, each outstanding Grant 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 Grant 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 (such event being a “Forfeiture Event”), this Plan and each outstanding Grant shall terminate and each Non-Vested Share awarded hereunder pursuant to a Grant shall be forfeited; provided, however, that unless the consummation of the Forfeiture Event takes place within thirty (30) days following an Annual Meeting Date, in the event of a Forfeiture Event, any shares that would have become Vested Shares at the next succeeding Annual Meeting Date following the consummation of the Forfeiture Event shall be Vested Shares upon and for a period of thirty (30) days preceding the consummation of the Forfeiture Event, but contingent upon the consummation of the Forfeiture Event. 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 also cause this Plan and each Grant hereunder to terminate and each Non- Vested Share under any Grant to be forfeited.

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, the Grantee 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 of Shares subject to a Grant.

The award of a Grant 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.

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9. SECURITIES LAW REQUIREMENTS.

(a) Legality of Issuance. No Shares shall be issued upon the award of any Grant unless and until the Corporation has determined that:

(i) it and the Grantee have taken all actions required to register the award of the Shares under the Act, or to perfect an exemption from the registration requirements thereof;

(ii) any applicable listing requirement of any stock exchange on which the Common Stock is listed has been satisfied; and

(iii) any other applicable provision of state or Federal law has been satisfied.

(b) Restrictions on Transfer; Representations of Grantee; Legends. Regardless of whether the award 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 award 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 Grantee shall be required to represent that such Shares 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

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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 shall be conclusive and binding on all persons.

(c) Registration or Qualification of Securities. The Corporation may, but shall not be obligated to, register or qualify the award of Shares pursuant to the Plan under the Act or any other applicable law. The Corporation shall not be obligated to take any affirmative action in order to cause the award 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 awarded 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.

10. AMENDMENT OF THE PLAN.

The Board may, from time to time, with respect to any Shares at the time not subject to Grants, suspend or discontinue the Plan or, subject to stockholder approval if required pursuant to Section 11, revise or amend it in any respect whatsoever, provided that no amendment or revision shall adversely affect, without the affected Grantee’s written consent, the rights of any Grantee to whom the Shares have been issued pursuant to the Plan.

11. APPROVAL OF STOCKHOLDERS.

The Plan shall be subject to approval by the affirmative vote of the holders of a majority of the outstanding shares present or represented and entitled to vote at the first annual meeting of stockholders of the Corporation following the adoption of the Plan. Any amendment described in Section 10 shall also be subject to approval by the Corporation’s stockholders if and to the extent required by law, the New York Stock Exchange or other regulatory body.

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12. EXECUTION.

To record the adoption of this Amended and Restated Plan by the Board in June 2005 and the approval of the amendments herein incorporated on August 9, 2005 by the stockholders, the Corporation has caused its authorized officers to execute this Plan as set forth below.

CATALINA MARKETING CORPORATION
By	/s/ L. Dick Buell
	L. Dick Buell, Chief Executive Officer
By	/s/ Barry A. Brooks
	Barry A. Brooks, Secretary

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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, Share Appreciation Rights, 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 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 or Share Appreciation Right 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;

(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 therefore) 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) “Share Appreciation Right” or “SAR” means Awards granted pursuant to section 10 of the Plan.

(ee) “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. Most recently, the Board approved this restatement of the Plan on April 14, 2006.

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.

(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 12 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 therefore, 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 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 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 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 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.

10. SHARE APPRECIATION RIGHTs (SARs)

(a) Grants. The Committee may in its discretion grant Share Appreciation Rights to any Eligible Person, in any of the following forms:

(1) SARs related to Options. The Committee may grant SARs either concurrently with the grant of an Option or with respect to an outstanding Option, in which case the SAR shall extend to all or a portion of the Shares covered by the related Option. An SAR shall entitle the Participant who holds the related Option, upon exercise of the SAR and surrender of the related Option, or portion thereof, to the extent the SAR and related Option each were previously unexercised, to receive payment of an amount determined pursuant to Section 10(e) below. Any SAR granted in connection with an ISO will contain such terms as may be required to comply with the provisions of Section 422 of the Code and the regulations promulgated thereunder.

(2) SARs Independent of Options. The Committee may grant SARs which are independent of any Option subject to such conditions that may be based on the achievement of specific goals with respect to Corporation, Subsidiary or individual performance over a specified period of time as the Committee may in its discretion determine, which conditions will be set forth in the applicable Award Agreement.

(3) Limited SARs. The Committee may grant SARs exercisable only upon or in respect of a Change in Control or any other specified event, including those that are performance-based, and such limited SARs may relate to or operate in tandem or combination with or substitution for Options or other SARs, or on a stand-alone basis, and may be payable in cash or Shares based on the spread between the exercise price of the SAR, and (A) a price based upon or equal to the Fair Market Value

of the Shares during a specified period, at a specified time within a specified period before, after or including the date of such event, or (B) a price related to consideration payable to Company’s shareholders generally in connection with the event.

(b) Exercise Price. The per Share exercise price of an SAR shall be determined in the sole discretion of the Committee, shall be set forth in the applicable Award Agreement, and shall be no less than 100% of the Fair Market Value of one Share. The exercise price of an SAR related to an Option shall be the same as the exercise price of the related Option. The exercise price of an SAR shall be subject to the special rules on pricing contained in Sections 5(b) and 7(d) hereof.

(c) Exercise of SARs. Unless the Award Agreement otherwise provides, an SAR related to an Option will be exercisable at such time or times, and to the extent, that the related Option will be exercisable; provided that the Award Agreement shall not, without the approval of the shareholders of the Company, provide for a vesting period for the exercise of the SAR that is more favorable to the Participant than the exercise period for the related Option. An SAR may not have a term exceeding ten years from its Grant Date. An SAR granted independently of any other Award will be exercisable pursuant to the terms of the Award Agreement, but shall not, without the approval of the shareholders of the Company, provide for a vesting period for the exercise of the SAR that is more favorable to the Participant than the exercise period for the related Option. Whether an SAR is related to an Option or is granted independently, the SAR may only be exercised when the Fair Market Value of the Shares underlying the SAR exceeds the exercise price of the SAR.

(d) Effect on Available Shares. All SARs are to be settled in shares of the Company’s stock and shall be counted in full against the number of shares available for award under the Plan, regardless of the number of exercise gain shares issued upon settlement of the SARs.

(e) Payment. Upon exercise of an SAR related to an Option and the attendant surrender of an exercisable portion of any related Award, the Participant will be entitled to receive payment of an amount determined by multiplying –

(1) the excess of the Fair Market Value of a Share on the date of exercise of the SAR over the exercise price per Share of the SAR, by

(2) the number of Shares with respect to which the SAR has been exercised.

Notwithstanding the foregoing, an SAR granted independently of an Option (i) may limit the amount payable to the Participant to a percentage, specified in the Award Agreement but not exceeding one-hundred percent (100%), of the amount determined pursuant to the preceding sentence, and (ii) shall be subject to any payment or other restrictions that the Committee may at any time impose in its discretion, including restrictions intended to conform the SARs with Section 409A of the Code.

(f) Form and Terms of Payment. Subject to Applicable Law, the Committee may, in its sole discretion, settle the amount determined under Section 10(e) above solely in cash, solely in Shares (valued at their Fair Market Value on the date of exercise of the SAR), or partly in cash and partly in Shares. In any event, cash shall be paid in lieu of fractional Shares. Absent a contrary determination by the Committee, all SARs shall be settled in cash as soon as practicable after exercise. Notwithstanding the foregoing, the Committee may, in an Award Agreement, determine the maximum amount of cash or Shares or combination thereof that may be delivered upon exercise of an SAR.

(g) Termination of Employment or Consulting Relationship. The Committee shall establish and set forth in the applicable Award Agreement the terms and conditions on which an SAR shall remain exercisable, if at all, following termination of a Participant’s Continuous Service. The provisions of Section 7(g) above shall apply to the extent an Award Agreement does not specify the terms and conditions upon which an SAR shall terminate when there is a termination of a Participant’s Continuous Service.

11. TERM OF PLAN.

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

12. 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 or SARS issued to him or her, without regard to the installment or vesting provisions of any Award 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 or SARS 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 or SARS of (A) exercising the Options or SAR 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 or SAR 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 12, such receipt of unrestricted Shares, such payment, or exercise of any Option or Options or SAR 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 Corporation, and any otherwise unexpired Option or Options or SAR 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 or SAR, endorsed in favor of the Corporation, and the Corporation returning to the Participant the consideration representing the Exercise Price paid by the Participant upon the exercise of the Option or SAR.

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 12, 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 or SAR, 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 12(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 SAR 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.

13. 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 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.

14. AGREEMENT BY PARTICIPANT REGARDING WITHHOLDING TAXES

(a) No later than the date of exercise of any Option or SAR, 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.

15. 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.

(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.

16. 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 or SAR 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.

17. 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.

18. APPROVAL OF STOCKHOLDERS.

The adoption of Sections 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).

19. EXECUTION.

To record the adoption of the amended and restated Plan by the Board on April 14, 2006, 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]

EX-21

Exhibit 21

CATALINA MARKETING CORPORATION

SUBSIDIARIES OF REGISTRANT

Catalina Health Resource, LLC

a Delaware corporation

Catalina Marketing Worldwide, Inc.,

a Delaware corporation

Catalina Marketing France, S.A.S.,

a French corporation

Catalina Marketing U.K., LTD.,

a United Kingdom corporation

Catalina Marketing Italia s.r.l.,

an Italian corporation

Catalina-Pacific Media, LLC,

a Delaware limited liability corporation

CMJ Investments, LLC,

a Delaware limited liability corporation

Catalina Marketing Japan KK,

a Japanese corporation

Catalina Marketing Deutschland GmbH,

a German corporation

Catalina Marketing C.V.

a Netherlands limited partnership

Catalina Marketing International B.V.

a Netherlands private limited liability company

Catalina Marketing Research Solutions, 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.

a California corporation

Catalina Electronic Clearing Services, Inc.,

a Delaware corporation

Supermarkets Online Holdings, Inc.,

a Delaware corporation

75

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 May 26, 2006 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

May 26, 2006

76

EX-31.1

Exhibit 31.1

Certification Pursuant to

Exchange Act Rules 13a-14(a) and 15d-14(a),

As Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

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 change 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 officer 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: May 26, 2006
By:	/s/ L. Dick Buell
	Chief Executive Officer and Director

EX-31.2

Exhibit 31.2

Certification Pursuant to

Exchange Act Rules 13a-14(a) and 15d-14(a),

As Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Rick P. Frier, 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 change 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 officer 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: May 26, 2006

By:	/s/ Rick P. Frier
	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Catalina Marketing Corporation (the “Company”) for the fiscal year ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, L. Dick Buell, Chief Executive Officer and Director of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(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

and Director (Principal Executive Officer)

May 26, 2006

2

EX-32.2

Exhibit 32.2

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Catalina Marketing Corporation (the “Company”) for the fiscal year ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rick P. Frier, Executive Vice President and 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:

(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/ Rick P. Frier

Rick P. Frier

Executive Vice President and

Chief Financial Officer

(Principal Financial and Accounting Officer)

May 26, 2006