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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)



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

For the Quarterly Period Ended March 31, 2007

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



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CATALINA MARKETING CORPORATION

(Exact Name of Registrant as Specified in its Charter)



|                                                                                                                                                               |  |                                                                      
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------
|Delaware (State or Other Jurisdiction of Incorporation or Organization) 200 Carillon Parkway, St. Petersburg, Florida (Address of Principal Executive
Offices) |  | 33-0499007 (IRS Employer Identification Number) 33716-2325 (Zip Code)

(727) 579-5000

(Registrants Telephone Number, Including Area Code)

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 checkmark 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. (Check one):

Large accelerated filer  x            Accelerated
filer ̈Non-accelerated filer ̈

Indicate by checkmark whether the Registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ̈No  x

At May 3, 2007, the Registrant had outstanding 47,016,369 shares of common stock.



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##### Table of Contents

CATALINA MARKETING CORPORATION

INDEX



|              |  |                                                                                                                                                                                    |  |                                                                                                                                                 |  |     
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|              |  |                                                                                                                                                                                    |  |                                                                                                                                                 |  | Page
|Part I.       |  | Financial Information                                                                                                                                                              |  |                                                                                                                                                
|              |  |                                                                                                                                                                                    | 
|              |  | Item 1.                                                                                                                                                                            |  | Financial Statements                                                                                                                            |  |     
|              |  |                                                                                                                                                                                    | 
|              |  |                                                                                                                                                                                    |  | Unaudited Condensed Consolidated Statements of Income for the three months endedMarch 31, 2007 and 2006                                         |  | 3   
|              |  |                                                                                                                                                                                    | 
|              |  |                                                                                                                                                                                    |  | Unaudited Condensed Consolidated Balance Sheets at March 31, 2007 and December 31, 2006                                                         |  | 4   
|              |  |                                                                                                                                                                                    | 
|              |  |                                                                                                                                                                                    |  | Unaudited Condensed Consolidated Statement of Changes in Stockholders Equity andComprehensive Income for the three months ended March 31, 2007 |  | 5   
|              |  |                                                                                                                                                                                    | 
|              |  |                                                                                                                                                                                    |  | Unaudited Condensed Consolidated Statements of Cash Flows for the three months endedMarch 31, 2007 and 2006                                     |  | 6   
|              |  |                                                                                                                                                                                    | 
|              |  |                                                                                                                                                                                    |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                                                  |  | 7   
|              |  |                                                                                                                                                                                    | 
|              |  | Item 2.                                                                                                                                                                            |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                           |  | 13  
|              |  |                                                                                                                                                                                    | 
|              |  | Item 3.                                                                                                                                                                            |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                      |  | 19  
|              |  |                                                                                                                                                                                    | 
|              |  | Item 4.                                                                                                                                                                            |  | Controls and Procedures                                                                                                                         |  | 20  
|              |  |                                                                                                                                                                                   
|Part II.      |  | Other Information                                                                                                                                                                  |  |                                                                                                                                                
|              |  |                                                                                                                                                                                    | 
|              |  | Item 1.                                                                                                                                                                            |  | Legal Proceedings                                                                                                                               |  | 20  
|              |  |                                                                                                                                                                                    | 
|              |  | Item 1A.                                                                                                                                                                           |  | Risk Factors                                                                                                                                    |  | 21  
|              |  |                                                                                                                                                                                    | 
|              |  | Item 6.                                                                                                                                                                            |  | Exhibits                                                                                                                                        |  | 22  
|              | 
|Signatures    |  | 23                                                                                                                                                                                
|              | 
|Exhibit Index |  | 24                                                                                                                                                                                
|              |  |                                                                                                                                                                                   
|              |  | Exhibit 31.1 Certification of Chief Executive Officer 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 |  |                                                                                                                                                
|              |  |                                                                                                                                                                                   
|              |  | Exhibit 31.2 Certification of Chief Financial Officer 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 |  |                                                                                                                                                
|              |  |                                                                                                                                                                                   
|              |  | Exhibit 32.1 Certification of Chief Executive Officer Pursuant to U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002                        |  |                                                                                                                                                
|              |  |                                                                                                                                                                                   
|              |  | Exhibit 32.2 Certification of Chief Financial Officer Pursuant to U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002                        |  |                                                                                                                                                
|              |  |                                                                                                                                                                                   
|              |  | Exhibit 99.1 Updated Risk Factors from the Annual Report on Form 10-KT for the nine months ended
December 31, 2006                                                                 |  |                                                                                                                                                



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##### Table of Contents

Part I. Financial Information

Item 1. Financial Statements

CATALINA MARKETING CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)



|                                                                                   |  |                             |         |   |      |   |         |  
|---------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                   |  | Three Months EndedMarch 31, |        
|                                                                                   |  | 2007                        |         |   | 2006 |  
|Revenues                                                                           |  | $                           | 123,801 |   |      | $ | 125,913 |  
|                                                                                   |  |                            
|Costs and expenses:                                                                |  |                             |         |   |      |   |         |  
|Direct operating expenses (exclusive of depreciation and amortization shown below) |  |                             | 42,696  |   |      |   | 38,829  |  
|Selling, general and administrative expenses                                       |  |                             | 40,091  |   |      |   | 40,822  |  
|Depreciation and amortization                                                      |  |                             | 11,557  |   |      |   | 9,306   |  
|                                                                                   |  |                             |         |   |      |   |         |  
|Total costs and expenses                                                           |  |                             | 94,344  |   |      |   | 88,957  |  
|                                                                                   |  |                             |         |   |      |   |         |  
|                                                                                   |  |                            
|Income from operations                                                             |  |                             | 29,457  |   |      |   | 36,956  |  
|                                                                                   |  |                            
|Interest expense                                                                   |  |                             | (1,472  | ) |      |   | (351    | )
|Other income, net                                                                  |  |                             | 982     |   |      |   | 291     |  
|                                                                                   |  |                             |         |   |      |   |         |  
|Income before income taxes                                                         |  |                             | 28,967  |   |      |   | 36,896  |  
|                                                                                   |  |                            
|Provision for income taxes                                                         |  |                             | 11,471  |   |      |   | 12,884  |  
|                                                                                   |  |                             |         |   |      |   |         |  
|Net income                                                                         |  | $                           | 17,496  |   |      | $ | 24,012  |  
|                                                                                   |  |                             |         |   |      |   |         |  
|                                                                                   |  |                            
|Earnings per share:                                                                |  |                             |         |   |      |   |         |  
|Basic                                                                              |  | $                           | 0.38    |   |      | $ | 0.51    |  
|Diluted                                                                            |  | $                           | 0.37    |   |      | $ | 0.51    |  
|Weighted average common shares outstanding:                                        |  |                             |         |   |      |   |         |  
|Basic                                                                              |  |                             | 46,089  |   |      |   | 47,225  |  
|Diluted                                                                            |  |                             | 46,756  |   |      |   | 47,429  |  



See accompanying Notes to
Unaudited Condensed Consolidated Financial Statements.



  3  



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CATALINA MARKETING CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



|                                                                                                                                                                               |  |               |          |   |                  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                                                                               |  | March 31,2007 |          |   | December 31,2006 |  
|ASSETS                                                                                                                                                                         |  |               |          |   |                  |   |          |  
|Current Assets:                                                                                                                                                                |  |               |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                                                                      |  | $             | 59,208   |   |                  | $ | 62,882   |  
|Accounts receivable, net                                                                                                                                                       |  |               | 87,366   |   |                  |   | 81,586   |  
|Insurance recovery receivable                                                                                                                                                  |  |               | 8,200    |   |                  |   | 8,200    |  
|Inventory                                                                                                                                                                      |  |               | 5,518    |   |                  |   | 5,615    |  
|Deferred tax asset                                                                                                                                                             |  |               | 8,732    |   |                  |   | 9,367    |  
|Prepaid expenses and other current assets                                                                                                                                      |  |               | 12,632   |   |                  |   | 10,950   |  
|                                                                                                                                                                               |  |               |          |   |                  |   |          |  
|Total current assets                                                                                                                                                           |  |               | 181,656  |   |                  |   | 178,600  |  
|Property and equipment:                                                                                                                                                        |  |               |          |   |                  |   |          |  
|Property and equipment                                                                                                                                                         |  |               | 481,276  |   |                  |   | 459,150  |  
|Lessaccumulated depreciation and amortization                                                                                                                                 |  |               | (270,680 | ) |                  |   | (263,824 | )
|                                                                                                                                                                               |  |               |          |   |                  |   |          |  
|Property and equipment, net                                                                                                                                                    |  |               | 210,596  |   |                  |   | 195,326  |  
|                                                                                                                                                                               |  |              
|Patents, net                                                                                                                                                                   |  |               | 8,365    |   |                  |   | 8,717    |  
|Goodwill                                                                                                                                                                       |  |               | 83,992   |   |                  |   | 83,992   |  
|Other assets                                                                                                                                                                   |  |               | 1,830    |   |                  |   | 1,857    |  
|                                                                                                                                                                               |  |               |          |   |                  |   |          |  
|Total assets                                                                                                                                                                   |  | $             | 486,439  |   |                  | $ | 468,492  |  
|                                                                                                                                                                               |  |               |          |   |                  |   |          |  
|                                                                                                                                                                               |  |              
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                           |  |               |          |   |                  |   |          |  
|Current Liabilities:                                                                                                                                                           |  |               |          |   |                  |   |          |  
|Accounts payable                                                                                                                                                               |  | $             | 23,725   |   |                  | $ | 24,967   |  
|Income taxes payable                                                                                                                                                           |  |               | 21,829   |   |                  |   | 9,720    |  
|Accrued litigation settlement                                                                                                                                                  |  |               | 8,200    |   |                  |   | 8,200    |  
|Accrued expenses                                                                                                                                                               |  |               | 47,329   |   |                  |   | 67,874   |  
|Deferred revenue                                                                                                                                                               |  |               | 35,861   |   |                  |   | 36,678   |  
|                                                                                                                                                                               |  |               |          |   |                  |   |          |  
|Total current liabilities                                                                                                                                                      |  |               | 136,944  |   |                  |   | 147,439  |  
|                                                                                                                                                                               |  |              
|Long-term deferred tax liability                                                                                                                                               |  |               | 27       |   |                  |   | 5,605    |  
|Long-term debt                                                                                                                                                                 |  |               | 131,073  |   |                  |   | 127,710  |  
|Other long-term liabilities                                                                                                                                                    |  |               | 4,885    |   |                  |   | 3,567    |  
|                                                                                                                                                                               |  |               |          |   |                  |   |          |  
|Total liabilities                                                                                                                                                              |  |               | 272,929  |   |                  |   | 284,321  |  
|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 46,982,440 and 46,463,762 shares issued and outstanding at March 31,
2007 and December 31, 2006, respectively |  |               | 470      |   |                  |   | 464      |  
|Additional paid-in capital                                                                                                                                                     |  |               | 23,295   |   |                  |   | 11,535   |  
|Accumulated other comprehensive income                                                                                                                                         |  |               | 5,954    |   |                  |   | 5,610    |  
|Retained earnings                                                                                                                                                              |  |               | 183,791  |   |                  |   | 166,562  |  
|                                                                                                                                                                               |  |               |          |   |                  |   |          |  
|Total stockholders' equity                                                                                                                                                     |  |               | 213,510  |   |                  |   | 184,171  |  
|                                                                                                                                                                               |  |               |          |   |                  |   |          |  
|Total liabilities and stockholders' equity                                                                                                                                     |  | $             | 486,439  |   |                  | $ | 468,492  |  
|                                                                                                                                                                               |  |               |          |   |                  |   |          |  

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.



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##### Table of Contents

CATALINA MARKETING CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS

EQUITY AND COMPREHENSIVE INCOME

(in thousands)



|                                                                                 |  |                      |        |                  |        |                           |   |                            |  |                                        |        |                   |   |       |                            |   |         |   |  |   |         |  
|-------------------------------------------------------------------------------- |  | -------------------- | ------ | ---------------- | ------ | ------------------------- | - | -------------------------- |  | -------------------------------------- | ------ | ----------------- | - | ----- | -------------------------- | - | ------- | - |  | - | ------- | -
|                                                                                 |  | Comprehensive Income |        | Number of Shares |        | Par Value of Common Stock |   | Additional Paid-in Capital |  | Accumulated Other Comprehensive Income |        | Retained Earnings |   |       | Total Stockholders' Equity |  
|BALANCE AT DECEMBER 31, 2006                                                     |  |                      |        |                  | 46,464 |                           | $ | 464                        |  | $                                      | 11,535 |                   | $ | 5,610 |                            | $ | 166,562 |   |  | $ | 184,171 |  
|Issuance of common stock                                                         |  |                      |        |                  | 518    |                           |   | 6                          |  |                                        | 6,892  |                   |   |      |                            |   |        |   |  |   | 6,898   |  
|Excess tax benefit on the exercise of stock options                              |  |                      |        |                  |       |                           |   |                           |  |                                        | 526    |                   |   |      |                            |   |        |   |  |   | 526     |  
|Deferred compensation plan common stock units and Directors' common stock grants |  |                      |        |                  |       |                           |   |                           |  |                                        | 203    |                   |   |      |                            |   |        |   |  |   | 203     |  
|Stock based compensation                                                         |  |                      |        |                  |       |                           |   |                           |  |                                        | 4,139  |                   |   |      |                            |   |        |   |  |   | 4,139   |  
|Cumulative effect of adopting FIN 48                                             |  |                      |        |                  |       |                           |   |                           |  |                                        |       |                   |   |      |                            |   | (267    | ) |  |   | (267    | )
|Net income                                                                       |  | $                    | 17,496 |                  |       |                           |   |                           |  |                                        |       |                   |   |      |                            |   | 17,496  |   |  |   | 17,496  |  
|Foreign currency translation adjustment                                          |  |                      | 344    |                  |       |                           |   |                           |  |                                        |       |                   |   | 344   |                            |   |        |   |  |   | 344     |  
|                                                                                 |  |                      |        |                  |        |                           |   |                            |  |                                        |        |                   |   |       |                            |   |         |   |  |   |         |  
|Comprehensive income                                                             |  | $                    | 17,840 |                  |        |                           |   |                            |  |                                        |        |                   |   |       |                            |   |         |   |  |   |         |  
|                                                                                 |  |                      |        |                  |        |                           |   |                            |  |                                        |        |                   |   |       |                            |   |         |   |  |   |         |  
|BALANCE AT MARCH 31, 2007                                                        |  |                      |        |                  | 46,982 |                           | $ | 470                        |  | $                                      | 23,295 |                   | $ | 5,954 |                            | $ | 183,791 |   |  | $ | 213,510 |  
|                                                                                 |  |                      |        |                  |        |                           |   |                            |  |                                        |        |                   |   |       |                            |   |         |   |  |   |         |  





See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.



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##### Table of Contents

CATALINA MARKETING CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                  |  |                             |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Three Months EndedMarch 31, |        
|                                                                                  |  | 2007                        |         |   | 2006 |  
|Cash Flows from Operating Activities:                                             |  |                             |         |   |      |   |         |  
|Net income                                                                        |  | $                           | 17,496  |   |      | $ | 24,012  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                             |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |                             | 11,557  |   |      |   | 9,306   |  
|Provision for doubtful accounts                                                   |  |                             |        |   |      |   | 108     |  
|Amortization of deferred financing fees                                           |  |                             | 40      |   |      |   | 38      |  
|Deferred income taxes                                                             |  |                             | (5,195  | ) |      |   | 670     |  
|Loss on disposals of equipment                                                    |  |                             | 355     |   |      |   | 203     |  
|Stock-based compensation expense                                                  |  |                             | 4,139   |   |      |   |        |  
|Other non-cash operating activities                                               |  |                             | 192     |   |      |   | 114     |  
|Changes in operating assets and liabilities:                                      |  |                             |         |   |      |   |         |  
|Accounts receivable                                                               |  |                             | (5,096  | ) |      |   | (3,665  | )
|Inventory, prepaid expenses and other assets                                      |  |                             | (1,555  | ) |      |   | (112    | )
|Accounts payable                                                                  |  |                             | (1,734  | ) |      |   | 5,232   |  
|Taxes payable                                                                     |  |                             | 13,170  |   |      |   | 586     |  
|Accrued expenses                                                                  |  |                             | (24,559 | ) |      |   | 10,830  |  
|Deferred revenue                                                                  |  |                             | (859    | ) |      |   | (7,673  | )
|                                                                                  |  |                             |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                             | 7,951   |   |      |   | 39,649  |  
|                                                                                  |  |                             |         |   |      |   |         |  
|                                                                                  |  |                            
|Cash Flows from Investing Activities:                                             |  |                             |         |   |      |   |         |  
|Capital expenditures                                                              |  |                             | (22,471 | ) |      |   | (20,758 | )
|Purchase of patents                                                               |  |                             | (75     | ) |      |   |        |  
|                                                                                  |  |                             |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |                             | (22,546 | ) |      |   | (20,758 | )
|                                                                                  |  |                             |         |   |      |   |         |  
|                                                                                  |  |                            
|Cash Flows from Financing Activities:                                             |  |                             |         |   |      |   |         |  
|Proceeds from the Corporate Facility                                              |  |                             | 12,000  |   |      |   | 58,000  |  
|Payments on the Corporate Facility                                                |  |                             | (9,000  | ) |      |   | (46,000 | )
|Proceeds from Japan borrowings                                                    |  |                             |        |   |      |   | 3,273   |  
|Payments on Japan borrowings                                                      |  |                             |        |   |      |   | (33     | )
|Repurchase of Company common stock                                                |  |                             |        |   |      |   | (39,139 | )
|Excess tax benefit on the exercise of stock options                               |  |                             | 526     |   |      |   |        |  
|Proceeds from issuance of common stock                                            |  |                             | 6,898   |   |      |   | 517     |  
|                                                                                  |  |                             |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                               |  |                             | 10,424  |   |      |   | (23,382 | )
|                                                                                  |  |                             |         |   |      |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                      |  |                             | 497     |   |      |   | 52      |  
|                                                                                  |  |                             |         |   |      |   |         |  
|Net change in cash and cash equivalents                                           |  |                             | (3,674  | ) |      |   | (4,439  | )
|Cash and cash equivalents at end of prior period                                  |  |                             | 62,882  |   |      |   | 32,556  |  
|                                                                                  |  |                             |         |   |      |   |         |  
|Cash and cash equivalents at end of current period                                |  | $                           | 59,208  |   |      | $ | 28,117  |  
|                                                                                  |  |                             |         |   |      |   |         |  



See accompanying Notes to
Unaudited Condensed Consolidated Financial Statements.



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##### Table of Contents

CATALINA MARKETING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Description of the Business
and Basis for Presentation

Catalina Marketing Corporation, a Delaware corporation, and its subsidiaries, provide behavior-based
communications, developed and distributed for consumer packaged goods (CPG) manufacturers, pharmaceutical manufacturers and marketers and retailers. Our primary business was developed to provide consumers with in-store coupons delivered
based on 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, 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 target consumers at the retail checkout counter and prescription medication
users at the pharmacy checkout counters, primarily through the use of Universal Product Code-based scanner technology and National Drug Code information, to deliver customized communications to retail and pharmaceutical consumers.

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).

CMS services domestic retailers and consumer product
manufacturers. Using the Catalina Marketing Network®, this operating segment specializes in behavior-based marketing communications. The primary service line of CMS is the in-store delivery of communications at the checkout counter of a retailer. 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 triggered 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.

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
primary service offerings employ an in-store, prescription based technology to provide targeted, direct-to-patient communications on behalf of our clients. These communication services include messages and educational information delivered to
healthcare patients at pharmacies participating in the Health Resource Network. The Health Resource Network is a proprietary software system with built-in targeted response capabilities. Communications are 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.

The unaudited condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial
statements and notes thereto included in our Annual Report on Form 10-KT for the nine months ended December 31, 2006.

In August
2006, our Board of Directors approved a change in our fiscal year end from March 31st to December 31st. In conjunction with this change, we eliminated the three-month reporting lag previously used for reporting the results of CMI. As of
December 31, 2006, all of our consolidated subsidiaries had the same balance sheet date. Beginning January 1, 2007, all subsidiaries have the same fiscal reporting period.

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



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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 our financial position, the results of our operations and cash flows, and the changes in stockholders equity
have been included in these Unaudited Condensed Consolidated Financial Statements.

Operating results for the three month period ended
March 31, 2007 are not necessarily indicative of the results that may be expected for the remainder of the year.

The Unaudited
Condensed Consolidated Financial Statements include our accounts and the accounts of our wholly owned subsidiaries. All significant intercompany transactions are eliminated in consolidation.

Note 2. Stock Based Compensation

We adopted the
provisions of Statement of Financial Accounting Standard No. 123R, Share-Based Payment, (SFAS 123R) for share-based compensation plans effective April 1, 2006. The effect of adoption of SFAS 123R on our financial
results for the three months ended March 31, 2007 was as follows (in thousands, except per share data):



|                                                                    |  |                                   |      
|------------------------------------------------------------------- |  | --------------------------------- | -----
|                                                                    |  | Three Months Ended March 31, 2007
|Decrease in income from operations before income taxes              |  | $                                 | 4,139
|Tax benefit                                                         |  |                                   | 910  
|Decrease in net income                                              |  |                                   | 3,229
|Excess tax benefit reclassed to financing from operating activities |  |                                   | 526  
|Decrease in basic and diluted earnings per share                    |  | $                                 | 0.07 

Weighted average assumptions used to determine the grant-date fair value of options and SARs
granted during the three months ended March 31, 2007 were:



|                        |  |                                   |  
|----------------------- |  | --------------------------------- | -
|                        |  | Three Months Ended March 31, 2007 |  
|Risk free interest rate |  | 4.52                              | %
|Dividend yield          |  | 0.96                              | %
|Expected life (years)   |  | 5.00                              |  
|Volatility              |  | 40.95                             | %

The weighted average grant date fair value of options and SARs granted during the three months
ended March 31, 2007 was $12.27.

The following table summarizes options and SARs activity from January 1, 2007 through March 31, 2007:



|                                 |  |                            |   |  |                                  |       |                                                        |     |                                     |   |       
|-------------------------------- |  | -------------------------- | - |  | -------------------------------- | ----- | ------------------------------------------------------ | --- | ----------------------------------- | - | ------
|                                 |  | Outstanding Options / SARs |   |  | Weighted Average Exercise Prices |       | Weighted Average Remaining Contractual
Life (in years) |     | Aggregate Intrinsic Value ($
000's)
|December 31, 2006                |  | 7,624,747                  |   |  | $                                | 26.25 |                                                        |     |                                     |   |       
|Activity:                        |  |                            |   |  |                                  |       |                                                        |     |                                     |   |       
|Options / SARs granted           |  | 497,210                    |   |  | $                                | 31.30 |                                                        |     |                                     |   |       
|Exercised                        |  | (272,505                   | ) |  | $                                | 25.54 |                                                        |     |                                     |   |       
|Canceled or expired              |  | (127,572                   | ) |  | $                                | 31.73 |                                                        |     |                                     |   |       
|                                 |  |                            |   |  |                                  |       |                                                        |     |                                     |   |       
|March 31, 2007                   |  | 7,721,880                  |   |  | $                                | 26.51 |                                                        | 7.1 |                                     | $ | 42,879
|                                 |  |                            |   |  |                                  |       |                                                        |     |                                     |   |       
|Exercisable as of March 31, 2007 |  | 4,459,807                  |   |  | $                                | 27.69 |                                                        | 6.0 |                                     | $ | 21,115
|                                 |  |                            |   |  |                                  |       |                                                        |     |                                     |   |       



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The following table summarizes restricted stock activity from January 1, 2007 through March 31,
2007:



|                                       |  |         |   |  |                                        |      
|-------------------------------------- |  | ------- | - |  | -------------------------------------- | -----
|                                       |  | Shares  |   |  | Weighted Average Grant Date Fair Value
|Nonvested balance at December 31, 2006 |  | 586,147 |   |  | $                                      | 23.03
|Granted                                |  | 255,610 |   |  | $                                      | 31.30
|Vested                                 |  |        |   |  | $                                      |     
|Forfeited / Cancelled                  |  | (9,437  | ) |  | $                                      | 22.85
|Nonvested balance at March 31, 2007    |  | 832,320 |   |  | $                                      | 25.57

In accordance with the modified prospective transition application, our Consolidated Financial
Statements for periods ending prior to April 1, 2006 have not been restated to reflect, and do not include, the impact of SFAS 123R. Had compensation cost for our equity awards for the three months ended March 31, 2006 been determined
based on the fair value at the grant dates as prescribed by SFAS 123R, our net income and net income per share on a pro forma basis would have been (in thousands, except per share data):



|                                                                                                                          |  |                                   |        |  
|------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------ | -
|                                                                                                                          |  | Three Months Ended March 31, 2006 |       
|Net income:                                                                                                               |  |                                   |        |  
|As reported                                                                                                               |  | $                                 | 24,012 |  
|Add stock-based employee compensation expense included in reported net income, net of tax                                 |  |                                   | 86     |  
|Deduct total stock based employee compensation expense determined under fair value based method for all awards net of tax |  |                                   | (427   | )
|                                                                                                                          |  |                                   |        |  
|Pro forma net income                                                                                                      |  | $                                 | 23,671 |  
|                                                                                                                          |  |                                   |        |  
|Basic earnings per common share:                                                                                          |  |                                   |        |  
|As reported                                                                                                               |  | $                                 | 0.50   |  
|Pro forma                                                                                                                 |  | $                                 | 0.49   |  
|Diluted earnings per common share:                                                                                        |  |                                   |        |  
|As reported                                                                                                               |  | $                                 | 0.50   |  
|Pro forma                                                                                                                 |  | $                                 | 0.49   |  

For those options awarded during the three months ended March 31, 2006, the following
weighted average assumptions were used to determine the fair value of the awards:



|                        |  |                                   |  
|----------------------- |  | --------------------------------- | -
|                        |  | Three Months Ended March 31, 2006 |  
|Risk free interest rate |  | 4.57                              | %
|Dividend yield          |  | 1.34                              | %
|Expected life (years)   |  | 5.00                              |  
|Volatility              |  | 41.72                             | %

The total intrinsic value of options exercised during the three months ended March 31, 2007
was $1.6 million. We received cash from options exercised and shares purchased of approximately $6.9 million for the three months ended March 31, 2007. As of March 31, 2007, there was $40.1 million of unrecognized compensation expense
related to



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unvested awards that is expected to be recognized over a weighted average period of 1.8 years. The total fair value of awards vested during the three months
ended March 31, 2007 was $3.2 million.

Note 3. 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 by the plan. Benefits paid during the three months ended March 31, 2007 and 2006 were not material. Our funding of the cost of healthcare benefits is at the discretion of management. Our net periodic expense is comprised
solely of interest cost and was $29,000 for both the three months ended March 31, 2007 and March 31, 2006.

SFAS No. 132(R),
Employers Disclosures about Pensions and Other Postretirement Benefits, (SFAS No. 132(R)) also requires additional disclosures on an annual basis. The annual disclosures required under SFAS No. 132(R) as they
related to the our postretirement healthcare plan were provided in Note 17 to our Consolidated Financial Statements as filed in our Annual Report on Form 10-KT for the nine months ended December 31, 2006.

Note 4. Recently Issued Accounting Standards

Recent
Accounting Pronouncements  In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) No. 48 Accounting for Uncertainty in Income Taxes an interpretation of FASB
Statement 109. FIN 48 establishes a single model to address accounting for uncertain tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement classification, interest and penalties, accounting in interim periods, disclosure and transition.

We file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer
subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for fiscal years before March 31, 2004. The Company changed its fiscal year end to December 31, as of the nine month period ended
December 31, 2006.

We adopted the provisions of FASB Interpretation No. 48 on January 1, 2007. As a result of the
implementation of FIN 48, the Company recognized approximately a $4.4 million increase in the liability for unrecognized tax benefits, of which $4.1 million was accounted for as an increase to deferred tax assets and $0.3 million was accounted for
as a reduction to retained earnings at January 1, 2007. The beginning amount of unrecognized tax benefits is as follows:



|                           |  |               
|-------------------------- |  | --------------
|                           |  | (in thousands)
|Balance at January 1, 2007 |  | $8,808        

Included in the balance at January 1, 2007 are $4.1 million of tax positions for which the
ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility
period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. The remaining $4.7 million of unrecognized tax benefits, if recognized, would affect the annual effective
tax rate.

We recognize interest accrued related to unrecognized tax benefits and penalties in income tax expense. We had approximately
$1.3 million of interest and penalties accrued at January 1, 2007 and recognized approximately $0.1 million in interest and penalties during each of the quarters ended March 31, 2007 and 2006. We have approximately $1.4 million and $1.0 million of
interest and penalties accrued at March 31, 2007 and March 31, 2006 respectively.

We estimate that it is reasonably possible that a range
of approximately $0.0 to $6.7 million in unrecognized tax benefits could decrease within the next twelve months. The nature of the uncertainty pertains to possible audit settlement or the expiration of the statute of limitations.



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Note 5. Net Income Per Common Share

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



|                                                            |  |                              |  |       
|----------------------------------------------------------- |  | ---------------------------- |  | ------
|                                                            |  | Three Months Ended March 31,
|                                                            |  | 2007                         |  | 2006  
|Basic weighted average common shares outstanding            |  | 46,089                       |  | 47,225
|Dilutive effect of outstanding options and restricted stock |  | 667                          |  | 204   
|                                                            |  |                              |  |       
|Diluted weighted average common shares outstanding          |  | 46,756                       |  | 47,429
|                                                            |  |                              |  |       

The following table presents the number of options and SARs excluded from the calculation of
diluted weighted average common shares outstanding, due to their anti-dilutive impact on earnings per share, and the related exercise price ranges for those awards for each of the periods presented:



|                                  |  |  |  |                                     |  |              
|--------------------------------- |  |  |  | ----------------------------------- |  | -------------
|Period Presented                  |  |  |  | Number of Excluded Options and SARs |  | Price Range  
|Three months ended March 31, 2007 |  |  |  | 4,899,867                           |  | $22.85-$36.82
|Three months ended March 31, 2006 |  |  |  | 5,914,257                           |  | $24.10-$36.82

In accordance with the contingently issuable shares provision of SFAS 128, 522,413 shares of
performance-based restricted stock were not included in the calculation of earnings per share for the current quarter because the necessary conditions for vesting have not been satisfied.

Note 6. Comprehensive Income (in thousands)



|                                |  |                              |        |      |   |       
|------------------------------- |  | ---------------------------- | ------ | ---- | - | ------
|                                |  | Three Months Ended March 31,
|                                |  | 2007                         |        | 2006
|Net income                      |  | $                            | 17,496 |      | $ | 24,012
|Other comprehensive income:     |  |                              |        |      |   |       
|Currency translation adjustment |  |                              | 344    |      |   | 1,054 
|                                |  |                              |        |      |   |       
|Comprehensive Income            |  | $                            | 17,840 |      | $ | 25,066
|                                |  |                              |        |      |   |       

Note 7. Segment Information

We are organized and managed by segments, as described in the following table:



|                                 |  |                                                                                                                                                                  
|-------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 France, Italy, the United Kingdom, Germany, Japan, Belgium, and the
Netherlands.                     
|Corporate                        |  | Provides executive and administrative oversight and centralized functions such as information technology, accounting, client services, and
store systems support.



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Financial information for each of our reportable segments is presented in the following tables (in
thousands):



|                                                  |  |                                  |         |                       |   |         |  |   |      |   |  |   |        |  
|------------------------------------------------- |  | -------------------------------- | ------- | --------------------- | - | ------- |  | - | ---- | - |  | - | ------ | -
|                                                  |  | Revenues from External Customers |         | Intersegment Revenues |  
|                                                  |  | Three Months Ended March 31,     |        
|                                                  |  | 2007                             |         | 2006                  |   | 2007    |  |   | 2006 |  
|Segments:                                         |  |                                  |         |                       |   |         |  |   |      |  
|CMS                                               |  | $                                | 77,633  |                       | $ | 78,115  |  | $ |     |   |  | $ |       |  
|CHR                                               |  |                                  | 26,742  |                       |   | 27,026  |  |   |     |   |  |   |       |  
|CMI                                               |  |                                  | 19,426  |                       |   | 20,772  |  |   |     |   |  |   |       |  
|                                                  |  |                                  |         |                       |   |         |  |   |      |   |  |   |        |  
|                                                  |  |                                  | 123,801 |                       |   | 125,913 |  |   |     |   |  |   |       |  
|Reconciliation of segments to consolidated amount |  |                                  |         |                       |   |         |  |   |      |   |  |   |        |  
|Corporate                                         |  |                                  |        |                       |   |        |  |   | 949  |   |  |   | 1,034  |  
|Eliminations                                      |  |                                  |        |                       |   |        |  |   | (949 | ) |  |   | (1,034 | )
|                                                  |  |                                  |         |                       |   |         |  |   |      |   |  |   |        |  
|                                                  |  | $                                | 123,801 |                       | $ | 125,913 |  | $ |     |   |  | $ |       |  
|                                                  |  |                                  |         |                       |   |         |  |   |      |   |  |   |        |  



| |  |           |  |                             |        |   |      |   |        |  
| |  | --------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
| |  |           |  | Net Income (Loss)           |       
| |  |           |  | Three Months EndedMarch 31, |       
| |  |           |  | 2007                        |        |   | 2006 |  
| |  | Segments: |  |                             |        |   |      |  
| |  | CMS       |  | $                           | 17,613 |   |      | $ | 22,622 |  
| |  | CHR       |  |                             | 6,137  |   |      |   | 5,534  |  
| |  | CMI       |  |                             | 1,105  |   |      |   | 1,888  |  
| |  | Corporate |  |                             | (7,359 | ) |      |   | (6,032 | )
| |  |           |  |                             |        |   |      |   |        |  
| |  |           |  | $                           | 17,496 |   |      | $ | 24,012 |  
| |  |           |  |                             |        |   |      |   |        |  



|                                                   |  |                |          |   |                   |   |          |  
|-------------------------------------------------- |  | -------------- | -------- | - | ----------------- | - | -------- | -
|                                                   |  | Total Assets   |         
|Segments:                                          |  | March 31, 2007 |          |   | December 31, 2006 |  
|CMS                                                |  | $              | 88,829   |   |                   | $ | 78,185   |  
|CHR                                                |  |                | 103,478  |   |                   |   | 89,869   |  
|CMI                                                |  |                | 158,325  |   |                   |   | 158,852  |  
|Reconciliation of segments to consolidated amount: |  |                |          |   |                   |   |          |  
|Eliminations                                       |  |                | (183,155 | ) |                   |   | (164,438 | )
|Corporate                                          |  |                | 318,962  |   |                   |   | 306,024  |  
|                                                   |  |                |          |   |                   |   |          |  
|                                                   |  | $              | 486,439  |   |                   | $ | 468,492  |  
|                                                   |  |                |          |   |                   |   |          |  



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Note 8. Patents

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



|                                                                                    |  |                |                        |   |                   |   |         |  
|----------------------------------------------------------------------------------- |  | -------------- | ---------------------- | - | ----------------- | - | ------- | -
|                                                                                    |  | March 31, 2007 |                        |   | December 31, 2006 |  
|Purchased Patents                                                                   |  | $              | 23,729                 |   |                   | $ | 23,744  |  
|Accumulated amortization                                                            |  |                | (15,364                | ) |                   |   | (15,027 | )
|                                                                                    |  |                |                        |   |                   |   |         |  
|Patents, net                                                                        |  | $              | 8,365                  |   |                   | $ | 8,717   |  
|                                                                                    |  |                |                        |   |                   |   |         |  
|                                                                                   
|Estimated amortization of patents through 2012 as of March 31, 2007 (in thousands): | 
|                                                                                    | 
|Fiscal Year                                                                         |  |                | Estimated Amortization |  
|2007 - remainder of current year                                                    |  |                |                        |   |                   | $ | 1,279   |  
|2008                                                                                |  |                |                        |   |                   |   | 1,655   |  
|2009                                                                                |  |                |                        |   |                   |   | 1,644   |  
|2010                                                                                |  |                |                        |   |                   |   | 1,643   |  
|2011                                                                                |  |                |                        |   |                   |   | 1,260   |  
|2012                                                                                |  |                |                        |   |                   |   | 795     |  

We recognized amortization expense of $0.4 million for both the three months ended March 31,
2007 and 2006, respectively which is included in the Unaudited Condensed Consolidated Statements of Income withinDepreciation and Amortization.

Note 9. Long-Term Debt

Our long-term debt of $131.1 million as of March 31, 2007 represents $94.0 million borrowed in
the United States under our revolving credit facility as well as $37.1 million borrowed by our Japanese subsidiary.

Note 10. Shareholder Litigation

In March, 2007, the Company, its board of directors and ValueAct Capital, were named as defendants in a complaint purporting to be a
class action captioned Brad Wind, Individually and On Behalf of All Others Similarly Situated v. Catalina Marketing Corporation, Frederick W. Beinecke, Eugene P. Beard, Robert Gray Tobin, Evelyn V. Follit, Jeffrey W. Ubben, Edward S. Dunn, Jr.,
Peter T. Tattle, L. Dick Buell, and ValueAct Capital which was filed in The Circuit Court of the Sixth Circuit in and for Pinellas County, Florida alleging claims of breach of fiduciary duty of due care, loyalty and good faith and breach of the duty
of candor against the members of our board of directors and ValueAct, and a claim against the Company for aiding and abetting the board members breach of fiduciary duty. The plaintiffs seek, among other things, an injunction against the
consummation of the merger and reimbursement of the plaintiffs attorneys fees and expenses. We intend to vigorously defend against this lawsuit. We cannot currently predict the impact or resolution of this litigation. The resolution of
this lawsuit may harm our business and have a material adverse impact on our financial condition and results of operations.

Note 11. Subsequent Events

On April 17, 2007, we issued a press release announcing that we had entered into a definitive merger agreement to be acquired by
private equity firm Hellman & Friedman Capital Partners VI, L.P. and its related funds (H&F) pursuant to which H&F will acquire the Company in an all-cash merger at a price of $32.50 per share, $0.40 per share higher
than under the terms of the agreement signed on March 8, 2007 with affiliates of ValueAct Capital Master Fund L.P. We have terminated our merger agreement with ValueAct Capital and paid the $8.4 million termination fee as required by the terms
of that agreement. Under the terms of the merger agreement with H&F, the Company has agreed to pay a termination fee of $50.6 million in the event it chooses to accept a competing bid prior to the vote of the stockholders with regard to the
H&F agreement.

On April 26, 2007, the court granted final approval of the settlement reached by the parties in the consolidated class
action pending in the United States District Court for the Middle District of Florida, Tampa captioned In re Catalina Marketing Corporation Securities Litigation. The actions were originally brought on behalf of those who purchased our common stock
between January 17, 2002 and August 25, 2003, inclusive.

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

During the first quarter we remained focused on long-term growth. We have continued to invest significantly in our color printer
initiative with the roll out of our next generation of printers, which provide full color, full graphic communications at the point-of-sale for our domestic retail grocery channel. Additionally, we are pursuing opportunities to expand our CMS
business into other channels, principally drug-store and mass market retail chains. Accordingly, depreciation and amortization expense will continue to increase in future periods due to these and additional future capital expenditures. The timing of
depreciation and other expenses associated with the color printer initiative is



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expected to precede the related anticipated revenue growth, which will continue to impact operating income during 2007.

In conjunction with the change in our fiscal year end, we eliminated the three month reporting lag previously used for reporting the results of
CMI. The results for the quarter ended March 31, 2007 include the results for CMI for that period whereas results for CMI for the quarter ended March 31, 2006 were reported on a three month lag.

Results of Operations

Three Months Ended March 31, 2007
Compared with the Three Months Ended March 31, 2006

The following tables include the revenues and income (loss) from
operations for each of our significant reportable segments for the three months ended March 31, 2007 compared with the three months ended March 31, 2006:



|                              |  |                    |         |   |                |   |         |               |  |   |                   |   |  |       |   
|----------------------------- |  | ------------------ | ------- | - | -------------- | - | ------- | ------------- |  | - | ----------------- | - |  | ----- | --
|                              |  | Three Months Ended |        
|                              |  | March 31, 2007     |         |   | March 31, 2006 |   |         | Dollar Change |  |   | Percentage Change |  
|Revenues                      |  |                    |         |   |                |   |         |               |  |   |                   |  
|CMS                           |  | $                  | 77,633  |   |                | $ | 78,115  |               |  | $ | (482              | ) |  | (0.6  | )%
|CHR                           |  |                    | 26,742  |   |                |   | 27,026  |               |  |   | (284              | ) |  | (1.1  | ) 
|CMI                           |  |                    | 19,426  |   |                |   | 20,772  |               |  |   | (1,346            | ) |  | (6.5  | ) 
|Corporate                     |  |                    | 949     |   |                |   | 1,034   |               |  |   | (85               | ) |  | (8.2  | ) 
|Eliminations                  |  |                    | (949    | ) |                |   | (1,034  | )             |  |   | 85                |   |  | 8.2   |   
|                              |  |                    |         |   |                |   |         |               |  |   |                   |   |  |       |   
|Total Revenues                |  | $                  | 123,801 |   |                | $ | 125,913 |               |  | $ | (2,112            | ) |  | (1.7  | )%
|                              |  |                    |         |   |                |   |         |               |  |   |                   |   |  |       |   
|                              | 
|                              |  | Three Months Ended |        
|                              |  | March 31, 2007     |         |   | March 31, 2006 |   |         | Dollar Change |  |   | Percentage Change |  
|Income (Loss) from Operations |  |                    |         |   |                |   |         |               |  |   |                   |  
|CMS                           |  | $                  | 29,602  |   |                | $ | 38,022  |               |  | $ | (8,420            | ) |  | (22.1 | )%
|CHR                           |  |                    | 10,315  |   |                |   | 9,300   |               |  |   | 1,015             |   |  | 10.9  |   
|CMI                           |  |                    | 3,296   |   |                |   | 3,670   |               |  |   | (374              | ) |  | (10.2 | ) 
|Corporate                     |  |                    | (13,756 | ) |                |   | (14,036 | )             |  |   | 280               |   |  | 2.0   |   
|                              |  |                    |         |   |                |   |         |               |  |   |                   |   |  |       |   
|Total Income from Operations  |  | $                  | 29,457  |   |                | $ | 36,956  |               |  | $ | (7,499            | ) |  | (20.3 | )%
|                              |  |                    |         |   |                |   |         |               |  |   |                   |   |  |       |   
|                              | 
|                              |  | Three Months Ended |        
|                              |  | March 31, 2007     |         |   | March 31, 2006 |   |         | Dollar Change |  |   | Percentage Change |  
|Net Income (Loss)             |  |                    |         |   |                |   |         |               |  |   |                   |  
|CMS                           |  | $                  | 17,613  |   |                | $ | 22,622  |               |  | $ | (5,009            | ) |  | (22.1 | )%
|CHR                           |  |                    | 6,137   |   |                |   | 5,534   |               |  |   | 603               |   |  | 10.9  |   
|CMI                           |  |                    | 1,105   |   |                |   | 1,888   |               |  |   | (783              | ) |  | (41.5 | ) 
|Corporate                     |  |                    | (7,359  | ) |                |   | (6,032  | )             |  |   | (1,327            | ) |  | (22.0 | ) 
|                              |  |                    |         |   |                |   |         |               |  |   |                   |   |  |       |   
|Net Income                    |  | $                  | 17,496  |   |                | $ | 24,012  |               |  | $ | (6,516            | ) |  | (27.1 | )%
|                              |  |                    |         |   |                |   |         |               |  |   |                   |   |  |       |   

Consolidated Results of Operations

For the first quarter of 2007, our revenues decreased $2.1 million compared with the same period in the prior year to $123.8 million. While all segments
were down slightly, the total change in revenue was less than 2.0%.

We adopted the provisions of Statement of Financial Accounting
Standard No. 123R, Share-Based Payment, (SFAS 123R) on April 1, 2006 for our domestic operations and on January 1, 2006 for our international subsidiaries. The adoption of SFAS 123R resulted in a pretax expense of
$4.1 million in the first quarter of 2007 for which there was no corresponding expense in the prior year.

Direct operating expenses
increased by approximately $3.9 million to $42.7 million including $0.6 million associated with stock based compensation expense. The remaining $3.3 million increase was due primarily to ink



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expense associated with the introduction of color printers. This was partially offset by a reduction in retailer fees of approximately $1.7 million and lower
paper expense of $1.0 million associated with fewer prints in the quarter.

Selling, general and administrative (SG&A)
expenses decreased by approximately $0.7 million to $40.1 million and included $3.5 million associated with stock based compensation expense in the quarter for which there was no corresponding amount in the prior year quarter. The remaining $4.2
million reduction was the result of lower executive administrative expense of $3.6 million, lower new business development expense of $1.2 million and lower marketing expense of approximately $1.0 million. This was partially offset by $1.4 million
in costs associated with the pending private equity transaction. In April, we terminated our agreement with ValueAct Capital and paid an $8.4 million termination fee as required by the terms of the agreement. We anticipate other substantial fees and
closing costs which are expected to be paid by the third quarter.

Depreciation and amortization expense increased $2.3 million in the
first quarter of 2007 as compared with the same period in the prior year, primarily as a result of significant capital expenditures associated with our color printer initiative and the installation of additional stores during the last twelve months.

Income from operations for the first quarter of 2007 decreased $7.5 million, $4.1 million of which was related to stock based compensation
expense.

Interest expense increased $1.1 million for the three months ended March 31, 2007 versus March 31, 2006 due primarily
to increased borrowings in the current quarter.

The consolidated effective tax rate increased to 39.6% for the three months ended
March 31, 2007 compared with the prior year rate of 34.9%. The increase was primarily related to the recognition of stock based compensation expense associated with the adoption of SFAS 123R, as well as an increase in state income tax expense
due to a favorable settlement in the prior year. Excluding the effect of SFAS 123R, the consolidated effective tax rate was 37.4% for the three months ended March 31, 2007.

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 number of 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 and the number of transactions accessed by the Catalina Marketing Network®, the number of communications printed, and the ability
to attract and retain CPG manufacturers and retailers 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 weekly shoppers reach at quarter end and the number of manufacturer promotions printed for the three months ended March 31, 2007 and 2006:



|                                                  |  |           |  |       
|------------------------------------------------- |  | --------- |  | ------
|                                                  |  | March 31,
|                                                  |  | 2007      |  | 2006  
|Retailer stores installed                         |  | 22,362    |  | 21,048
|Weekly shopper reach at quarter end (in millions) |  | 248       |  | 232   
|Number of promotions printed (in millions)        |  | 801       |  | 948   

The year over year increase in retail stores installed was driven primarily by the installation of
additional stores in Walgreens and K-Mart. The reduction in the number of promotions printed was related to several factors including significant spending by key customers in the March 31, 2006 quarter and a decline in our Direct Response
business.

Revenues at CMS decreased by $0.5 million, or 0.6%, in the first quarter of 2007 as compared with the same period in the prior
year. The decrease was due primarily to a slight decrease in manufacturing revenue due to lower print volume offset by higher price per print. The manufacturing revenue was partially offset by an increase in retail revenue.

Direct operating expenses increased by $3.9 million due primarily to ink expense associated with the introduction of color printers. This was partially
offset by a reduction in retailer fees of approximately $2.1 million



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associated with a reduction in the number of prints as well as lower commission expense of $0.5 million associated with the lower revenue in the quarter.

SG&A expenses increased $1.8 million in the first quarter of 2007 as compared with the same period in the prior year including $0.9
million associated with stock based compensation expense. The remaining $0.9 million increase was driven primarily by increased sales force expense due to increased headcount to support our channel expansion and color printing initiatives. IT
development also increased in the quarter and was partially offset by lower executive administrative expense.

Depreciation and
amortization expense increased by $2.2 million, due primarily to capital expenditures associated with our color printer initiative as well as our expansion into Walgreens and K-Mart.

Net income, for CMS, decreased $5.0 million to $17.6 million for the three months ended March 31, 2007 as compared with the same period in the prior
year including stock based compensation expense of $0.6 million net of taxes.

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 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 revenue producing
patient communications as a percent of total communications. These metrics provide a framework for evaluating current performance, as well as acting as a measure of the reach and utilization of the network.

The following table presents the pharmacy installation base and the percent of revenue producing patient communications as of and for the three months
ended March 31, 2007 and 2006:



|                                              |  |           |   |  |        |  
|--------------------------------------------- |  | --------- | - |  | ------ | -
|                                              |  | March 31, |  
|                                              |  | 2007      |   |  | 2006   |  
|Pharmacies installed                          |  | 13,307    |   |  | 12,780 |  
|% of revenue producing patient communications |  | 30        | % |  | 31     | %

Revenues for CHR decreased by $0.3 million, or 1.1%, for the three months ended March 31,
2007, compared with the three months ended March 31, 2006. The decrease was attributable to a decrease in the number of revenue-producing newsletters which was partially offset by an increase in average price per print.

Direct operating expenses increased $0.3 million for the three months ended March 31, 2007 as compared with the same period in the prior year. The
increase was principally due to higher retailer fees in the current year quarter.

SG&A expenses decreased $1.6 million in the first
quarter of 2007 as compared with the same period in the prior year. The decrease was driven primarily by lower executive administrative expense of $0.7 million as well as lower marketing and sales force expense of $0.6 million and $0.3 million
respectively. These amounts were partially offset by SFAS 123R expense of $0.3 million.

Depreciation and amortization expense was
relatively unchanged for the three months ended March 31, 2007 as compared with the same period in the prior year.

Net income, for
CHR, increased $0.6 million to $6.1 million for the three months ended March 31, 2007 as compared with the same period in the prior year including stock based compensation expense of $0.2 million net of taxes.

Catalina Marketing International

CMI
provides services for clients that operate in France, Italy, the United Kingdom, Germany, Japan, Belgium, and the Netherlands, in a similar manner to the services provided by the domestic CMS business. In conjunction with the change in our fiscal
year end, we eliminated the three month reporting lag previously used for reporting the results of



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CMI. The effect of the elimination of the reporting lag is reflected in the operating results for the quarter ended March 31, 2007. The results for the
quarter ended March 31, 2007 include the results for CMI for that period whereas results for CMI for the quarter ended March 31, 2006 were reported on a three month lag.

The following table presents CMIs retail installation base and the average weekly shoppers reached as of and for the three months ended
March 31, 2007 and 2006:



|                                              |  |           |  |      
|--------------------------------------------- |  | --------- |  | -----
|                                              |  | March 31,
|                                              |  | 2007      |  | 2006 
|Retail stores installed                       |  | 7,956     |  | 7,316
|Average weekly shoppers reached (in millions) |  | 82        |  | 86   

Revenues, as reported, for CMI decreased by $1.3 million, or 6.5%, for the three months ended
March 31, 2007, compared with the three months ended March 31, 2006. The decrease was primarily attributable to the previously announced client losses in France. This decrease was partially offset by a favorable foreign currency exchange
rate. Revenues will continue to be affected by the client losses, but we expect increases in other countries to partially offset these losses.

Direct operating expenses, as reported, decreased $0.3 million for the three months ended March 31, 2007 as compared with the same period in the prior year. The decrease was due primarily to lower prints in the current quarter
associated with lower revenues.

SG&A expenses, as reported, decreased $0.8 million for the three months ended March 31, 2007 as
compared with the same period in the prior year. The decrease was driven primarily by lower facilities expense of $0.7 million and lower executive administrative expense of $0.5 million. These were partially offset by stock based compensation
expense of $0.6 million in the current year quarter.

Net income, as reported, for CMI decreased $0.8 million to $1.1 million for the three
months ended March 31, 2007 as compared with the same period in the prior year. Excluding stock based compensation expense of $0.6 million net of taxes, net income year over year was relatively unchanged.

Corporate

Expenses for our corporate
group (Corporate) include costs for procurement, retail store support, information technology, corporate accounting, client services, new business development, marketing, human resources, and executive management. These costs are
included in direct operating costs, SG&A expenses, and depreciation and amortization expense in the accompanying unaudited condensed consolidated statements of income included in Item 1  Financial Statements for the three
months ended March 31, 2007 and 2006. 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 and data communications costs are allocated based upon revenues. Of the total Corporate group operating expenses, 68.2% and
65.9% were allocated to the operating segments during the quarters ended March 31, 2007 and 2006 respectively.

The Corporate loss
from operations decreased $0.3 million for the three months ended March 31, 2007 compared to the three months ended March 31, 2006, including stock based compensation expense of $2.1 million. The remaining difference was attributable
primarily to lower direct operating and SG&A expenses in the current year quarter which included $1.4 million in costs associated with the pending private equity transaction.

Foreign Currency Translation and Its Effect on Revenues

Consolidated revenues for the
three months ended March 31, 2007 were $123.8 million, which included $19.4 million in revenues from foreign operations. The local currencies of the countries in which we maintain foreign operations are the euro, British pound sterling, and the
Japanese yen. The dollar weakened in value against the euro and pound versus prior year rates and resulted in a $1.7 million increase in revenue versus the reported prior year quarter. Revenue growth in local currency was down 14.8% versus the
reported prior year quarter, while revenues of our foreign operations was down by 6.5% when taking into account the effect of changes in foreign currency exchange rates.



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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 United States dollars and Japanese yen.
See Other Sources of Liquidity for further details. Our primary liquidity requirements will be for investments in the color printer project and other future growth initiatives, working capital, and the repayment of debt. Additional
requirements may include dividend payments and repurchases of our common stock. We expect to continue to invest in our Catalina Marketing Network® and other support technology, new business development, sales and marketing, employee development and retention, and enhanced systems of reporting and
controls.

Our existing cash and cash equivalents, combined with cash generated from operations and available borrowings under our credit
facility, 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

Net cash provided by operating activities was $8.0 million for the three months ended March 31,
2007, compared with $39.6 million for the three months ended March 31, 2006. Cash flow provided by operating activities was lower in the first quarter of 2007 as compared with the first quarter of 2006 due primarily to unfavorable changes in
other operating assets and liabilities. These changes related primarily to the bonus and commission payments made during the quarter ended March 31, 2007 due to our change in fiscal year end from March 31st to December 31st. These
payments were made in the quarter ended June 30, 2006 for the fiscal year ended March 31, 2006.

Net cash used in investing
activities increased by $1.7 million to $22.5 million for the three months ended March 31, 2007 compared with $20.8 million for the three months ended March 31, 2006. The increase was attributable to an increase in capital expenditures for
our continued investment in our color printer initiative.

Net cash provided by financing activities was $10.4 million for the three months
ended March 31, 2007 compared with cash used in financing activities of $23.4 million during the three months ended March 31, 2006. The $33.8 million increase was due primarily to the repurchases of company common stock of $39.1 million in
the first quarter of 2006 and no repurchases in the first quarter of 2007. Proceeds associated with the exercise of stock options were also $6.4 million higher in the first quarter of 2007. These amounts were partially offset by lower borrowing in
the current year quarter of $12.2 million.

Overall, as of March 31, 2007, cash and cash equivalents was $59.2 million, an increase of
$31.1 million as compared to March 31, 2006.

Other Sources of Liquidity

In addition to our cash flows generated from operations, our access to a revolving credit facility provides an additional source of liquidity. For a
discussion of our credit facility, see Note 8 to the Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-KT for the nine months ended December 31, 2006. We had borrowings of $131.1 million as of
March 31, 2007, including $94.0 million borrowed in the United States with an interest rate of 5.8% and $37.1 million borrowed by our Japanese subsidiary with an interest rate of 1.0%.

Capital Requirements

Capital Expenditures.Our primary capital expenditures are for store equipment and third-party store installation and upgrade costs, as well as data processing equipment for our central data processing facilities. Total store equipment and third-party store
installation costs for the Catalina Marketing Network® range from $3,000 to $19,000 per store, depending primarily on the number of lanes in each store. Capital expenditures were slightly higher for the three months ended March 31, 2007 as compared with the three
months ended March 31, 2006 due primarily to increased purchases of store equipment. We expect that our cash flow from operations combined with borrowings under our existing revolving credit facility will be sufficient to finance these
investments.

Contingent Earnout Payment. As part of the Restructuring and Amendment Agreement executed in 1999 between us and
former joint venture partners in our Japanese operations (the Restructuring Agreement), we have a



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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.

Critical Accounting Estimates

Please refer to the discussion of our Critical Accounting Estimates as disclosed in our Annual Report on Form 10-KT for the nine months ended December 31, 2006.

Recent Accounting Pronouncements

See Note 4 of Notes to Financial Statements for a discussion of
recent accounting pronouncements, including a discussion of the impact of adopting FIN 48: Uncertain Tax Positions on January 1, 2007 as well as the discussion of Accounting Standards Not Yet Adopted as disclosed in our Annual
Report on Form 10-KT for the nine months ended December 31, 2006.

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. 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.

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 IIItem 1ARisk Factors.

Important factors that we believe
might cause results to differ from any results expressed or implied by these forward-looking statements are discussed in the cautionary statements contained in Exhibit 99.1 to this Form 10-Q, which are incorporated herein by reference. In assessing
forward-looking statements contained herein, readers are urged to read carefully all cautionary statements contained in this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our principal market risks are interest
rates on our revolving credit facility and foreign exchange rates in our international operations.

Interest Rate Risk

We centrally manage our bank debt and consider investment opportunities and risks, tax consequences and overall financing strategies. Interest on bank
debt is payable at interest rates based on the Prime Rate, the Eurodollar Rate or the Federal Funds Rate. We estimate that a 10% change in interest rates would not have had a material effect on our results of operations or financial position for the
three month period ended March 31, 2007 and March 31, 2006.



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Foreign Operations

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

The aggregate foreign currency exchange transaction effects included in determining consolidated results of operations include a gain of $0.1 million for
the three months ended March 31, 2007, compared with a $0.3 million loss for the three months ended March 31, 2006. We have not utilized derivative financial instruments to reduce the effect of fluctuating foreign currencies. We estimate
that, based upon our net income in local currency for the three months ended March 31, 2007 and 2006, a 10% change in foreign currency exchange rates would not have resulted in a material impact to net income in either three month period. 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.

Item 4. Controls and Procedures

Disclosure controls and procedures.An evaluation was carried out
under the supervision and with the participation of our management, including the Principal Executive Officer and the Principal Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. Based upon this evaluation, these officers have concluded that our disclosure controls and procedures are effective as of March 31, 2007.

Changes in internal control over financial reporting.During the fiscal quarter to which this report relates, there have been no
significant changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

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, that 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. 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 contained 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. On April 26, 2007,
the Court granted final approval of the settlement reached by the parties.

In March, 2007, the Company, its board of directors and
ValueAct Capital, were named as defendants in a complaint purporting to be a class action captioned Brad Wind, Individually and On Behalf of All Others Similarly Situated v. Catalina Marketing Corporation, Frederick W. Beinecke, Eugene P. Beard,
Robert Gray Tobin, Evelyn V. Follit, Jeffrey W. Ubben, Edward S. Dunn, Jr., Peter T. Tattle, L. Dick Buell, and ValueAct Capital (Case No. UCN.52200-CA00 2380 xx CICL 07-2380-CI 20) which was filed in The Circuit Court of the Sixth Circuit in and
for Pinellas County, Florida alleging claims of breach of fiduciary duty of due care, loyalty and good faith and breach of the duty of candor against the members of our board of directors and ValueAct, and a claim against the Company for aiding and
abetting the board members breach of fiduciary duty. The plaintiffs seek, among other things, an injunction against the consummation of the merger and reimbursement of the plaintiffs attorneys fees and expenses. The parties have
initiated preliminary discovery and plaintiff has agreed to extend the defendants time to respond to the complaint until some time after the filing of the Companys proxy statement in connection with the pending acquisition of the
Company. We intend to vigorously defend against this lawsuit. We cannot currently predict the impact or resolution of this litigation. The resolution of this lawsuit may harm our business and have a material adverse impact on our financial condition
and results of operations.



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Item 1A. Risk Factors

In addition to the other information discussed in this quarterly report on
Form 10-Q, please consider the risk factors provided in our updated risk factors attached as Exhibit 99.1 which could materially affect our business, financial condition or future results. Material changes to the risk factors previously disclosed in
our Annual Report on Form 10-KT for the nine months ended December 31, 2006, are noted below but these are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also
may adversely affect our business, financial condition or operating results.

Risks Related to Shareholder Lawsuits

The Company and certain of our current and former directors and former officers are defendants in several stockholder class action and derivative lawsuits.

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 have
agreed in principle to settle the derivative litigation actions and have received preliminary approval from the Court on the settlement. While the terms of the settlement relative to the two pending derivative actions are on terms that do not
adversely affect the Company and involve no admission of liability by the Company or any of the current and former directors and former officers named in the lawsuit, the settlement is not final and is subject to various conditions including court
approval and other customary conditions.

In addition, in March, 2007, the Company, its board of directors and ValueAct Capital, were named
as defendants in a complaint purporting to be a class action captioned Brad Wind, Individually and On Behalf of All Others Similarly Situated v. Catalina Marketing Corporation, Frederick W. Beinecke, Eugene P. Beard, Robert Gray Tobin, Evelyn V.
Follit, Jeffrey W. Ubben, Edward S. Dunn, Jr., Peter T. Tattle, L. Dick Buell, and ValueAct Capital (Case No. UCN.52200-CA00 2380 xx CICL 07-2380-CI 20) which was filed in The Circuit Court of the Sixth Circuit in and for Pinellas County, Florida
alleging claims of breach of fiduciary duty of due care, loyalty and good faith and breach of the duty of candor against the members of our board of directors and ValueAct, and a claim against the Company for aiding and abetting our board
members breach of fiduciary duty.

To the extent that we do not settle these lawsuits, we intend to vigorously defend against them.
Furthermore, to the extent any of these lawsuits proceed in litigation, we cannot currently predict the impact or resolution of these litigations or reasonably estimate a range of possible loss, which could be material, and the resolution of these
lawsuits may harm our business, delay, change the terms or result in the termination of the merger agreement with H&F or otherwise have a material adverse impact on our financial condition. In addition, 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.

Risks Related to the Acquisition of the Company

The Company
entered into a definitive merger agreement to be acquired by the private equity firm Hellman & Friedman Capital Partners VI, L.P.

On March 8, 2007, we entered into a definitive agreement to be acquired by an affiliate of ValueAct Capital whereby ValueAct Capital would acquire by merger 100% of the outstanding equity interests of the company that it does not
already own for $32.10 per share in cash. Jeffrey W. Ubben, who has served as a director of Catalina since May 2006, is the co-founder, managing partner and principal owner of ValueAct Capital. Thereafter, on April 17, 2007, we announced that
we had entered into a definitive merger agreement to be acquired by the private equity firm H&F in an all-cash transaction valued at $1.7 billion, including the assumption of approximately $136 million of current indebtedness pursuant to which
H&F will acquire by merger 100% of the outstanding equity interests of the Company for $32.50 per share in cash. Prior to entering into the merger agreement with H&F, the Company terminated its merger agreement with ValueAct Capital and paid
the $8.4 million termination fee as required by the terms of that agreement. Under the terms of the merger agreement with H&F, the Company has agreed to pay a termination fee of $50.6 million in the event it chooses to accept a competing bid
prior to the vote of the stockholders with regard to the H&F agreement.

There is no assurance that our shareholders will approve the
merger agreement or that other closing conditions will be satisfied. We are subject to several risks as a result of this merger agreement, including the following:



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| |  |  | the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | if the proposed merger is not completed, the share price of our common stock may change to the extent that the current market price of our common stock reflects an
assumption that the proposed merger will be completed;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the outcome of any legal proceedings that have been or may be instituted against the Company and others relating to the merger agreement;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the inability to complete the merger due to the failure to obtain stockholder approval or the failure to satisfy other conditions to consummation of the merger;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the failure to obtain the necessary financing arrangements set forth in commitment letters received by H&F, Parent or Merger Sub in connection with the merger
agreement and the risk that the terms of the financing for the proposed merger may change;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the failure of the merger to close for any reason;
| | - |  | --------------------------------------------------



| |  |  | the risk that the proposed transaction disrupts current plans and operations and that our management and employees attention may be diverted from day-to-day
operations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the potential difficulties in employee retention as a result of the pending merger;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the effect of the announcement of the merger on our client and retailer relationships, operating results and business generally;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability to recognize the benefits of the merger;
| | - |  | ----------------------------------------------------



| |  |  | the amount of the costs, fees, expenses and charges related to the merger and the actual terms of certain financings that will be obtained for the merger and the
risk that certain costs related to the proposed merger, including the fees and/or expenses of our legal, accounting and financial advisors, must be paid even if the proposed merger is not completed;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | under circumstances defined in the merger agreement, we may be required to pay a termination fee of up to $50.6 million and reimburse out-of-pocket fees and
expenses incurred with respect to the transactions contemplated by the merger agreement, up to a maximum of $7,500,000, if the merger agreement is terminated;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a failed merger may result in unfavorable publicity and/or a negative impression of us in the investment community.
| | - |  | -------------------------------------------------------------------------------------------------------------------

Item 6. Exhibits

See Exhibit index on page 24 of this quarterly report on Form 10-Q.



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##### Table of Contents

CATALINA MARKETING CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, Registrants principal financial officer, thereunto duly authorized.



|            |  |  |  |                                             |  |  |  |                                                                                                                                                     
|----------- |  |  |  | ------------------------------------------- |  |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|May 9, 2007 |  |  |  | CATALINA MARKETING CORPORATION (Registrant)
|            |  |  |  |                                            
|            |  |  |  |                                             |  |  |  | /s/ Rick P. Frier                                                                                                                                   
|            |  |  |  |                                             |  |  |  | Rick P. Frier Executive Vice President and Chief
Financial Officer (Authorized officer of Registrant and principal financial and accounting officer)



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##### Table of Contents

|           |  |                                                                                                                                                                      
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description of Exhibit                                                                                                                                               
|           | 
|31.1       |  | Certification of Chief Executive Officer 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
|           | 
|31.2       |  | Certification of Chief Financial Officer 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
|           | 
|32.1       |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                    
|           | 
|32.2       |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                    
|           | 
|99.1       |  | Updated Risk Factors from the Companys Annual Report on Form 10-KT for the nine months ended December 31, 2006                                                      



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