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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended December 31, 2004

or

For the Transition Period from              to             

Commission File Number: 1-11008

CATALINA MARKETING CORPORATION

(Exact Name of Registrant as Specified in its Charter)

(727) 579-5000

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

At January 31, 2005, the Registrant had outstanding 52,313,155 shares of Common Stock.

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CATALINA MARKETING CORPORATION

INDEX

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Part I. Financial Information

SPECIAL NOTE

References 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.

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Item 1. Financial Statements

CATALINA MARKETING CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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CATALINA MARKETING CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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CATALINA MARKETING CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’

EQUITY AND COMPREHENSIVE INCOME

(in thousands)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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CATALINA MARKETING CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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CATALINA MARKETING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Description of the Business and Basis for Presentation

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

The Company is organized and managed by segments, which include the following operations, classified in the accompanying unaudited condensed consolidated statements of operations as continuing operations: Catalina Marketing Services (“CMS”), Catalina Health Resource (“CHR”), and the international operations, which includes services similar to those provided in the United States by CMS (“International”). The domestic operations of the Company include CMS and CHR. The international operations of the Company are organized and managed by country.

In November 2003, the Company announced its intent to divest Direct Marketing Services (“DMS”), Catalina Marketing Research Solutions (“CMRS”) and Japan Billboard, which were deemed not to be strategically aligned with the Company’s current core competencies. See further discussion in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2004, filed with the United States Securities and Exchange Commission (“SEC”) on July 15, 2004. DMS and Japan Billboard were sold during the second quarter of fiscal year 2005. CMRS was sold during the third quarter of fiscal year 2005. As such, these segments are reported as discontinued operations in the accompanying unaudited condensed consolidated statements of operations, for all periods presented.

The Company previously reported the activities of Retail Services in the “Other” segment. Effective April 1, 2004, the Company restructured the Retail Services and Manufacturer Services units by merging Retail Services into Manufacturer Services and renaming the segment Catalina Marketing Services. The restructuring was part of the Company’s strategy to optimize its selling and administrative efforts. As a result of the restructuring, Retail Services is no longer reported as a separate business segment. Segment information for the three and nine months ended December 31, 2003 for Retail Services has been reclassified to CMS to reflect the new segment reporting.

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

CHR services allow pharmaceutical and consumer packaged goods manufacturers, as well as retail pharmacies, to provide consumers with condition-specific health information and direct-to-patient communications. CHR’s primary product offerings use an in-store, prescription-based targeting technology to provide targeted, direct-to-patient communications on behalf of the Company’s clients. These communication services include messages and educational information to healthcare patients at the pharmacy level throughout the Health Resource Network. The Health Resource Network is a proprietary software system with built-in targeted response capabilities. Communications are primarily delivered to patients based on prescription medications purchased which are identified by a National Drug Code symbol. Clients are able to use these communications to provide information on a wide variety of products such as over-the-counter medicines, prescription medication and other healthcare remedies and merchandise. Communications provide clinically appropriate information while maintaining patient privacy.

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International operations include in-store electronic targeted marketing services for consumers in France, Italy, the United Kingdom, Germany and Japan. The Catalina Marketing Network^® operates internationally in a similar manner to the domestic CMS business. International offers a full range of targeted marketing solutions to consumer packaged goods manufacturers and enjoys relationships with supermarket, hypermarket and other retailers.

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. See Note 8 for additional information related to these discontinued operations.

The unaudited condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2004.

Basis of Presentation. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, except as disclosed herein, considered necessary for a fair statement of the financial position of the Company as of December 31, 2004, the results of its operations for the three and nine month periods ended December 31, 2004 and 2003, its cash flows for the nine months ended December 31, 2004 and 2003 and the results of its changes in stockholders’ equity for the nine month period ended December 31, 2004, have been included in these unaudited condensed consolidated financial statements.

The balance sheet at March 31, 2004 has been derived from the audited financial statements at that date but does not include all of the information or notes required by accounting principles generally accepted in the United States of America for complete financial statements. Operating results for the three and nine month periods ended December 31, 2004 are not necessarily indicative of the results that may be expected for the remainder of the fiscal year ending March 31, 2005.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. All significant intercompany transactions are eliminated in consolidation. In addition, the balance sheet at March 31, 2004 includes the accounts of a variable interest entity from which the Company leased its headquarters facility in St. Petersburg, Florida. The headquarters facility was purchased by the Company on August 25, 2004. See Note 10. The accounts of our foreign subsidiaries are included on a three month lag, (i.e., for the three and nine month periods ended September 30, 2004 and September 30, 2003), to facilitate the timing of the Company’s closing process.

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Note 2. Stock Based Compensation

The Company applies the recognition and measurement principles of APB Opinion No. 25 and related interpretations in accounting for its stock-based employee compensation plans. Additionally, the Company has adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure,” (“SFAS No. 148”), which amends SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS No. 123”). SFAS No. 148 allows for the continued use of the recognition and measurement principles of APB Opinion No. 25 and related interpretations in accounting for those plans. The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions to stock-based employee compensation. Such disclosure is not necessarily indicative of the fair value of stock options that could be granted by the Company in future fiscal years or of the value of all options currently outstanding. The pro forma results were calculated with the use of the Black-Scholes option-pricing model. If the Company had recognized compensation expense for these plans in accordance with SFAS No. 123, net income and earnings per share would have been changed to the following pro forma amounts (in thousands, except per share data):

During the quarter ended December 31, 2004, the Company reversed $6.5 million, net of a tax benefit of $1.5 million, of previously reported pro forma stock compensation expense due to forfeitures, as well as revisions to the estimated timing for actual vesting for performance-based options as compared with the original period over which the Company believed the performance conditions would be met.

During the nine months ended December 31, 2003, certain of the Company’s executives left the Company and, as a result, all of their unexercised options were forfeited. The pro forma compensation expense for the three and nine months ended December 31, 2003 shown in the table above includes a reversal of previously reported pro forma compensation expense of $3.7 million, net of a tax benefit of $2.2 million, and $10.1 million, net of tax benefit of $6.0 million, respectively, related to these forfeited options.

During the nine months ended December 31, 2004, the Company issued options to purchase 3,644,403 shares of its common stock under its 1999 Stock Award Plan.

See Accounting Standards Not Yet Adopted in Note 3 for a discussion of new accounting standards applicable to stock-based compensation.

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Note 3. New Accounting Standards

Accounting Standards Adopted During the Nine Months Ended December 31, 2004

Revised SFAS No. 132. In December 2003, the Financial Accounting Standards Board (the “FASB”) issued a revision to SFAS No. 132, “Employers Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106,” (“SFAS No. 132”). The intent of the FASB’s revision to SFAS No. 132 was to improve financial statement disclosures for defined benefit plans and was initiated in response to concerns raised by investors and other users of financial statements about the need for greater transparency of pension information. In particular, SFAS No. 132 requires that companies provide more details in their interim financial reports about their net periodic pension expense and amounts expected to be paid to the plan during the current fiscal year.

In fiscal year 2002, the Company implemented a plan to provide healthcare benefits to certain eligible retirees and active employees and their eligible dependents. The plan contains no assets, and the Company does not anticipate making contributions to the plan, other than for current benefit payments. Benefits are funded from the Company’s assets on a current basis. Plan benefits are subject to co-payments, deductibles and other limits as defined by the plan. Benefits paid during the three and nine months ended December 31, 2004 and 2003 were not material. The Company’s funding of the cost of healthcare benefits is at the discretion of management. A detail of net periodic expense for the three and nine months ended December 31, 2004 and 2003 is as follows (in thousands):

The revision to SFAS No. 132 also requires additional disclosures on an annual basis. The annual disclosures required under SFAS No. 132 as they related to the Company’s postretirement healthcare plan have been provided in Note 15 to the Company’s Consolidated Financial Statements as filed in its Annual Report on Form 10-K for fiscal year ended March 31, 2004.

FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” (“FSP 106-2”), was issued in response to a new law regarding prescription drug benefits under Medicare Part D, as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. FSP 106-2 provides guidance related to the accounting for the effect of the subsidy on the Company’s postretirement health care plan at such time that a conclusion has been reached that prescription drug benefits available under the plan to some or all participants for some or all future years are “actuarially equivalent” to Medicare Part D and thus qualify for the subsidy under the Act, and accounting guidance for those circumstances in which the expected subsidy will offset or reduce the Company’s share of the cost of the underlying postretirement prescription drug coverage on which the subsidy is based. The Company has deferred recognition of the effects of the new law until such time as the actuarial equivalency and the effect of the subsidy can be determined. Accordingly, the net periodic expense shown above and reflected in the unaudited condensed consolidated financial statements does not consider any amount associated with the subsidy.

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

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Accounting Standards Not Yet Adopted

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

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

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

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

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

Because of differences between accounting for stock-based payments for financial reporting and income tax accounting purposes, tax deductions generally will arise in different amounts and in different periods from compensation cost recognized in financial statements, creating deferred tax provisions or benefits related to those differences.

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SFAS No. 123R is effective for the Company as of July 1, 2005, its second quarter of fiscal year 2006. The Company has not determined the amount of compensation expense that will result from the adoption of SFAS No. 123R, but expects the amount to have a material effect on its results of operations.

Note 4. Net Income (Loss) Per Common Share

The following is a reconciliation of the denominator of basic earnings per share (EPS) to the denominator of diluted EPS (in thousands):

Due to the net loss for the three and nine months ended December 31, 2003, the assumed net exercise of stock options were excluded in their entirety for those periods as the effect would have been anti-dilutive.

The following table presents the number of excluded options and related exercise price ranges for each of the periods presented:

Note 5. Comprehensive Income (Loss) (in thousands)

Note 6. Segment Information

The Company is organized and managed by segments, as described in following table:

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The Company previously reported the activities of Retail Services in the “Other” segment. Effective April 1, 2004, the Company restructured the Retail Services and Manufacturer Services units by merging Retail Services into Manufacturer Services and renaming the segment Catalina Marketing Services, or CMS. The restructuring was part of the Company’s strategy to optimize its selling and administrative efforts. As a result of the restructuring, Retail Services is no longer reported as a separate business segment. Segment information for the three and nine months ended December 31, 2003 for Retail Services has been reclassified to CMS to reflect the new segment reporting. Segment information previously reported for Japan Billboard, DMS and CMRS is now reported as discontinued operations. See Note 8.

Financial information for each of the Company’s reportable segments is presented in the following tables (in thousands).