JC Penney Results

JCPenney Reports 21% Increase in Fourth Quarter Earnings

— Earnings before one-time charges reach $365 million, or $1.36 per share in the quarter

— JCPenney Stores and Catalog operating profit up over 40 per cent

— Eckerd conversion completed

— Direct marketing insurance sets new record for revenue and profit

J. C. Penney Company, Inc. today reported earnings before one-time charges, net of tax, of $365 million, or $1.36 per share, for the quarter ended January 31, 1998, as compared with $301 million, or $1.20 per share, in last year’s fourth quarter, an increase of 21.3 per cent.  Including the previously announced one-time charges for restructuring and business integration costs, net income for the quarter was $224 million, or 85 cents per share compared with $94 million, or 36 cents per share last year, which also included one-time charges.

Earnings before one-time charges, net of tax, for the fiscal year ended January 31, 1998, were $839 million, or $3.12 per share, compared with $793 million, or $3.17 per share, last year.  Net income was $566 million, or $2.10 per share for fiscal 1997 compared with $565 million, or $2.25 per share, for fiscal 1996.  In 1997, the Company had approximately 20 million more shares outstanding.  Under the Company’s fiscal calendar, 1997 contained 53 weeks.

James E. Oesterreicher, chairman and chief executive officer said, “This was a year of transition for our Company.  The conversion of all drugstores to the Eckerd nameplate and format was completed by the fourth quarter.  We initiated several programs to lower the Company’s cost structure and change processes to focus merchandise offerings and improve customer service within JCPenney Stores and Catalog.

“Our results, especially during the fourth quarter, demonstrate that we are on the right track.  Lower inventory levels in the third and fourth quarters helped us hold the line on markdowns, and gross margin in JCPenney Stores and Catalog showed substantial improvement.  Catalog had a good year, particularly with its Christmas and specialty media.  The JCPenney Insurance direct marketing business again turned in record revenues and profits.  Eckerd is now positioned for improved financial performance.  As we enter 1998, we believe that these positive trends will continue.  These factors should help generate a higher level of profitability.  We fully intend to leverage every improvement to enhance value for our customers and stockholders.”

JCPenney Stores and Catalog

Operating profit on a FIFO basis posted a strong recovery, increasing 42.2 per cent from last year.  Operating profit was $633 million in the fourth quarter of 1997 compared with $445 million in the same period a year ago. This strong performance was the result of substantial improvement in gross margins and well managed expenses.  FIFO gross margin as a per cent of sales increased by 240 basis points compared with last year’s fourth quarter.  The improvement came primarily from reduced markdown activity as a result of inventory management initiatives.  Selling, general, and administrative (SG&A) expenses were well managed and leveraged during the quarter.  This resulted in an operating profit margin of 9.4 per cent versus 6.7 per cent in last year’s fourth quarter.  The Company recorded a $20 million LIFO credit in both 1997 and 1996.

Eckerd Drugstores

Operating profit on a FIFO basis was $135 million in the fourth quarter, essentially flat with the comparable 1996 period on a pro forma basis, assuming the Company’s drugstore acquisitions had occurred at the beginning of 1996.  Eckerd recorded a LIFO charge of $17 million in 1997 compared with a pro forma charge of $13 million in the 1996 fourth quarter.  During the fourth quarter, both gross margin and expense levels, particularly in the converted regions, were impacted by significant conversion and integration activities. With the conversion completed, we believe Eckerd is in a position to deliver the expected synergy savings of $100 million per year in 1998.


Operating profit in the fourth quarter was $57 million for the Company’s direct marketing insurance operation, an increase of 14.0 per cent over last year’s period.  Revenue increased 11.5 per cent.  The primary contributors to this growth were a strong increase in health insurance revenues as well as a 30 per cent revenue increase for membership services and other non-insurance products compared with last year’s fourth quarter.

Net Interest Expense and Credit Operations

Net interest expense and credit costs increased in the fourth quarter principally as a result of higher interest expenses and bad debt losses.  As expected, interest expense increased by $41 million in the fourth quarter compared with last year.  Substantially all of the increase is associated with the acquisition of Eckerd.

Net bad debt expense increased $46 million to $124 million compared with last year’s comparable period.  This included an additional $21 million provision for future losses.  The Company is taking steps to better manage the credit card portfolio and its exposure to future losses by adjusting its credit granting policies, managing credit lines, and focusing on collection efforts.  At the end of the fourth quarter, receivables totaled $4,721 million, down $285 million, or 5.7 per cent from the prior year.

Restructuring and Business Integration Expenses, net

As previously announced, the Company recorded a one-time, pre-tax charge of $230 million in the fourth quarter of 1997, principally related to initiatives which are designed to improve processes and future profitability. The charge was comprised principally of $127 million associated with closing underperforming JCPenney stores and other support facilities, $66 million for performance enhancing initiatives, and $37 million for drugstore integration activities, net of a gain on the sale of a business unit.  The Company expects to realize pre-tax savings of $50 million from these initiatives in 1998, and approximately $105 million per year once the initiatives have been fully implemented.  This is in addition to the $85 million in savings expected from the previously announced early retirement program.

                            J. C. PENNEY COMPANY, INC.
                                 and Subsidiaries
                           SUMMARY OF OPERATING RESULTS
                   (Amounts in millions except per share data)

                        14 Weeks  13 Weeks        53 Weeks  52 Weeks
                           ended    ended    Per    ended    ended    Per
                          Jan. 31, Jan. 25,  Inc.  Jan. 31, Jan. 25,  Inc.
                            1998     1997   (Dec.)   1998     1997   (Dec.)

    Operating segment

    JCPenney stores
     & catalog           $ 6,742  $ 6,584    2.4%  $ 19,955  $ 19,506    2.3%
    Eckerd drugstores      2,767    1,573   75.9%     9,663     3,147 +100.0%
    Insurance                242      217   11.5%       928       818   13.4%
    Total sales
     & revenue             9,751    8,374   16.4%    30,546    23,471   30.1%

    Margins and expenses
    LIFO gross margin
    JCPenney stores
     & catalog             2,092    1,885   11.0%     6,172     5,892    4.8%
    Eckerd drugstores        596      358   66.5%     2,067       703 +100.0%
                           2,688    2,243   19.8%     8,239     6,595   24.9%

    Selling, general
     & administra-
     tive expenses
    JCPenney stores
     & catalog             1,439    1,420    1.3%     4,781     4,689    2.0%
    Eckerd drugstore         478      277   72.6%     1,675       573 +100.0%
                           1,917    1,697   13.0%     6,456     5,262   22.7%

    Operating profit
    JCPenney stores
     & catalog (FIFO)        633      445   42.2%     1,371     1,183   15.9%
    JCPenney stores
     & catalog (LIFO)        653      465   40.4%     1,391     1,203   15.6%
    Eckerd drugstores
     (FIFO)                  135       94   43.6%       424       153 +100.0%
    Eckerd drugstores
     (LIFO)                  118       81   45.7%       392       130 +100.0%
    Insurance                 57       50   14.0%       214       186   15.1%
    Other unallocated          5        3    N/A         39        45    N/A
    Total operating
     profit                  833      599   39.1%     2,036     1,564   30.2%

    Net interest
     expense & credit
     operations             (192)    (101)  90.1%      (547)     (278)  96.8%
    Amortization of
     goodwill &
     intangible assets
     & minority interest     (45)     (23)   N/A       (117)      (23)   N/A
    Restructuring &
     business integration
     expenses, net          (230)    (320)   N/A       (447)     (354)   N/A
    Income before income
     taxes                   366      155  136.1%       925       909    1.8%

    Income taxes            (142)     (61) 132.8%      (359)     (344)   4.4%

    Net income             $ 224     $ 94  138.3%     $ 566     $ 565    0.2%

    Earnings before
     restructuring &
     business integration
     expenses, net         $ 365    $ 301   21.3%     $ 839     $ 793    5.8%

    Per share-diluted     $ 1.36   $ 1.20   13.3%    $ 3.12    $ 3.17   (1.6)%

    Net income per
     share-diluted        $ 0.85   $ 0.36  136.1%    $ 2.10    $ 2.25   (6.7)%
                                   14 Weeks    13 Weeks   53 Weeks  52 Weeks
                                     ended      ended      ended     ended
                                    Jan. 31,   Jan. 25,    Jan. 31,   Jan. 25,
                                     1998        1997        1998     1997

    Comp stores sales
    JCPenney stores                  (2.8)%(A)    5.6%     (0.3)%(A)  3.4%
    Eckerd drugstores                 6.9%(A)     6.7%      7.4%(A)   7.8%

    FIFO gross margin as
     a percent of sales
    JCPenney stores
     & catalog                       30.7%       28.3%     30.8%     30.1%
    Eckerd drugstores                22.2%       22.7%(B)  21.7%     21.9(B)%

    LIFO gross margin as
     a percent of sales
    JCPenney stores
     & catalog                       31.0%       28.6%     30.9%     30.2%
    Eckerd drugstores                21.6%       22.2%(B)  21.4%     21.7(B)%

    SG&A expenses as
     a percent of sales
    JCPenney stores
     & catalog                       21.3%       21.6%     24.0%     24.0%
    Eckerd drugstores                17.3%       16.9%(B)  17.3%     17.7(B)%

    Operating profit as
     a percent of revenue
    JCPenney stores
     & catalog (FIFO)                 9.4%        6.7%      6.8%      6.1%
    JCPenney stores
     & catalog (LIFO)                 9.7%        7.0%      6.9%      6.2%
    Eckerd drugstores
     (FIFO)                           4.9%        5.8%(B)   4.4%      4.2(B)%
    Eckerd drugstores
     (LIFO)                           4.3%        5.3%(B)   4.1%      4.0(B)%
    Insurance                        23.6%       23.0%     23.1%     22.7%

    LIFO (charge)/
    JCPenney stores
     & catalog                      $  20       $  20     $  20     $  20
    Eckerd drugstores                 (17)        (13)(B)   (32)      (23)(B)

    EBITDA (FIFO)as a
     percent of revenue
    JCPenney stores
     & catalog                       10.8%        8.9%      9.7%      9.0%
    Eckerd drugstores                 7.1%        7.8%(B)   6.6%      6.4(B)%

    Average shares
      – diluted                     270.3       250.8     268.1     248.5
      – basic                       250.6       229.3     247.4     226.4

    Basic earnings
     per share
    Earnings before
     one-time charges              $ 1.43      $ 1.27    $ 3.23    $ 3.32
    Net income                     $ 0.86      $ 0.36    $ 2.13    $ 2.32

    Net interest
     expense & credit
    Finance charge revenue          $ 172       $ 176     $ 673     $ 641
    Credit costs                     (208)       (162)     (639)     (560)
    Interest expense, net            (156)       (115)     (581)     (359)
    Net                            $ (192)     $ (101)   $ (547)   $ (278)

    Delinquency rate                  —         —       3.9%      3.7%

    Effective income tax rate        38.7%       39.6%     38.8%     37.9%

    Customer receivables
     serviced                         —         —   $ 4,721   $ 5,006

    FIFO inventory JCPenney
     stores & catalog                 —         —   $ 4,232   $ 4,311
    Eckerd drugstores                 —         —   $ 2,148   $ 1,676

    (A)  Based on 13 weeks and 52 weeks, respectively
    (B)  Pro forma results assuming the drugstore acquisitions
         occurred effective January 28, 1996.


Duques Joins Unisys Board

Unisys Corp. Thursday announced that Henry C. “Ric” Duques has been elected to its board of directors.

Duques, 54, is chairman and chief executive officer of First Data Corp., an electronic payments and information management company headquartered in Hackensack, N.J. First Data had revenue of $5.2 billion in 1997.

Duques assumed his current post in 1992, when American Express spun off First Data as an independent company. Duques joined American Express in 1987 as president and chief executive officer of the Data Based Services Group, a unit of American Express Travel Related Services Inc. He was a member of the American Express Planning and Policy Committee from 1987 to 1993.

Before joining American Express, Duques served as group president, Financial Services, and a member of the board of directors of Automated Data Processing Inc. (ADP). From 1973, he held a series of increasingly senior management positions at ADP.

Duques holds an MBA in accounting and finance from The George Washington University.

About Unisys

Unisys is an information technology solutions provider that has a portfolio of information services, technologies and third-party alliances needed to help clients capitalize on their information asset to enhance their competitiveness and responsiveness to customers.

Unisys expertise is founded on the strengths of three global businesses Information Services, providing consulting, application solutions, systems integration and outsourcing; Computer Systems, providing industry-leading technologies; and Global Customer Services, delivering comprehensive services and products supporting distributed computing environments.

Access the Unisys home page on the World Wide Web — — for further information.


JCB Digital Certificates

GTE CyberTrust Solutions Incorporated today announced that JCB Co., Ltd., the largest credit card issuer in Japan, has selected CyberTrust Japan, Inc. to issue digital certificates compatible with version 1.0 of the Secure Electronic Transaction protocol.

The SET protocol is an open industry standard developed for the secure transmission of payment information over the Internet and other electronic networks. SET is designed to keep order and payment information confidential, increase integrity for transmitted data, and provide authentication to cardholders, merchants and banks. SET uses the best security practices and system design techniques to protect all legitimate parties in an electronic commerce transaction. SET 1.0 is the latest SET specification, released in May 1997.

“Digital certificates are an important component in SET, providing security to cardholders and merchants alike,” added Masaaki Ikeuchi, president of JCB Co., Ltd. “CTJ, working in conjunction with GTE, is providing the digital certificates that bring us one step closer to realizing the promise of secure electronic commerce.”

JCB is the leading credit card company in Japan with 37 million cardholders, premier transaction volume, and a range of establishments worldwide where JCB cards are accepted. JCB also operates the “J-Mall” (http//www.j-mall.ne.jp), an online mall with premier merchants. Committed to creating its own international network of services, JCB*s customer-focus and emphasis on high-value services distinguishes the JCB brand from other credit cards and payment systems.

“JCB is leading the way to secure electronic commerce in Japan using SET 1.0,” said Akihiko Kawashima, president of CyberTrust Japan. “As the largest credit card issuer in Japan, JCB can provide payment solutions to consumers and merchants that set the trend for others to follow. CTJ is pleased to be working with JCB to make these solutions a reality.”

“With a large base of customers and merchants prepared to support online payments protected by SET, JCB and CTJ are making SET a reality in Japan,” said Peter Hussey, president of GTE CyberTrust Solutions Inc. “CyberTrust Japan is making a substantial contribution to secure electronic commerce.”

CyberTrust Japan, Inc. was established in April of 1997 to provide digital certificates and certificate authority services to banks, credit card companies and other organizations for use in secure electronic payment and access control applications on the Internet in Japan. Based in Sapporo, Japan, CTJ uses the GTE CyberTrust Certificate Management System to provide flexible, scalable security solutions to its customers, including JCB Co., Ltd. CyberTrust Japan was formed in April 1997 by GTE CyberTrust Solutions, in conjunction with B.U.G., Inc., Nomura Research Institute, Ltd. and NTT Mobile Communications Network Inc. In addition to the four core investors, 24 distinguished Japanese corporations are general investors in CTJ. More information about CyberTrust Japan can be found at .

GTE CyberTrust Solutions Incorporated provides flexible certification authority (CA) solutions to secure a wide range of network-based applications. GTE CyberTrust Solutions offers both products and services to meet the varying security requirements of corporate enterprises, financial institutions and government agencies. The industry*s most experienced provider of digital certificates, GTE CyberTrust creates the strongest solutions by partnering with customers and leading technology providers. More information about GTE CyberTrust products and services can be found on the World Wide Web at .


Acquisition Completed

BankAmerica finalized the transfer yesterday of the card portfolios of First Omni and Dauphin Deposit. Both institutions are part of First Maryland Bancorp. BofA has also signed First Maryland to its agent program. The acquisition of the $614 million portfolio will boost BofA’s portfolio to $11 billion in receivables. At year- end 1997, BofA had $10,444,000,000 in receivables, $21,842,000,000 in year-to-date volume, 10,455,000 gross accounts, and 14,427,900 cards-in-force.


ET Picks Up Partner & Loan

IDT Corporation and Executive TeleCard, announced Wednesday the signing of a strategic agreement under which IDT will lend Executive TeleCard $7.5 million for the purpose of retiring existing indebtedness.

IDT will leverage Executive TeleCard’s contacts with carriers and PTTs to develop relationships with telcos worldwide.  IDT will also receive low cost access to Executive TeleCard’s worldwide telecom network for routing its own traffic as well as 500,000 warrants at market for Executive TeleCard stock. Through its World Direct global communications network, Executive TeleCard has secured ongoing partnerships and service relationships with over 40 international carriers and PTTs around the world with the Company’s proprietary CAVIAR technology.  The CAVIAR is a unique billing, validation and call routing system which taps into the local PTTs public voice networks to directly connect intra/intercountry calls to virtually anywhere in the world. Executive TeleCard provides PTTs with an opportunity to increase call traffic and revenue.

As part of the arrangement, Chris Vizas, Chairman of Executive TeleCard, will become ex-officio advisor to IDT’s Board of Directors and Howard Jonas, CEO of IDT, will be doing the same for Executive TeleCard.

This agreement will enable IDT to rapidly expand the number of operating agreements that it has with PTTs worldwide as well as strengthen Executive TeleCard’s position in the market.  In Europe, IDT already has established a strong presence in the UK with its facilities-based switch, and has purchased more than 12,000 km of undersea cable connecting the US, Canada, and UK.  The Company already has numerous operating agreements with carriers worldwide, and plans to continue the worldwide network expansion as well as joint partnerships and operating agreements.  Through recent equity and debt offerings, IDT raised over $200 million for its worldwide telecom expansion.

“We believe that Executive TeleCard’s strategic partnerships and switching capabilities will strengthen IDT’s existing position in the worldwide telco market,” said IDT’s CEO Howard Jonas. “We are excited about working closely with Executive TeleCard and its highly respected new management team, and look forward to a long, successful ad highly profitable relationship.”

“We are delighted with the confidence that IDT senior management has expressed in our new partnership and in Executive TeleCard.  We look forward to building this relationship into a strong business combination,” said Christopher Vizas, Chairman of Executive TeleCard.

IDT is a leading emerging multinational carrier that combines its position as an international telecommunications operator, its experience as an Internet service provider and its leading position in Internet telephony to provide a broad range of telecommunications services to its wholesale and retail customers worldwide.  The Company provides its customers with integrated and competitively priced international and domestic long distance, Internet access and, through its Net2Phone product offerings and Internet telephony services.

Executive TeleCard is an international telecommunications service company, providing network-based global billing, validation and payment services in the calling card and Internet sub-markets of telecommunications.  Executive TeleCard operates at one of the key meeting points of global commerce with services that combine telecommunications, credit cards, and real-time validation, billing and payment systems.

Except for historical information, all of the expectations and assumptions contained in the foregoing are forward-looking statements involving risks and uncertainties.  Important factors that could cause actual results to differ materially from such forward-looking statements, include, but are not limited to, the competitive environment for Internet telephony, changes of rates of all related telco rates and services, legislation that may affect the Internet Telephony industry, IDT’s ability to operate the services described on a large scale commercial level.  For additional information regarding these and other risks associated with the Company’s business refer to the Company’s reports filed with the SEC.

Executive TeleCard, founded in 1987, is an international communications service company providing voice and data services via its World Direct global network to major corporate and carrier partners worldwide and providing enhancements to its partners’ global calling cards.  Executive TeleCard’s products and services include  global calling card services, national calling card platform services, global Internet access (eGlobe), international and domestic toll-free service (Service 800) and multi-currency, detailed billing.


E-Scribe Service

Maagnum E-Commerce Services, a global electronic commerce company, yesterday announced a new web site subscription management and billing service called Maagnum E-Scribe. The new service simplifies the process of managing web site subscription member databases, security, credit card processing, recurring billing, and activity reporting.

The new E-Scribe service will include

-Plug and play management program for web site merchants and ISPs

-Secure credit card processing service

-Credit card fraud screening

-Daily, weekly, bi-weekly, monthly, and annual billing periods


-Multiple web server and authentication methods support

E-Scribe is designed for businesses selling access to information, chat rooms, personal advertisements, discussion groups, interactive games, and other content sold on a subscription basis. The service comes bundled with customer service, technical support, payment, and back-office services and runs on new and existing web sites.

E-Scribe will be generally available in March of 1998.

For more information on how to take advantage of proven electronic commerce outsourcing solutions from a reputable industry leader, call Maagnum E-Commerce Services at 1-203-699-8225.

About Maagnum E-Commerce Services

Maagnum E-Commerce Service is a division of the Maagnum Internet Group, a global provider of comprehensive electronic commerce services. More than 250 companies from around the world have turned to Maagnum for secure Internet order management, transaction processing, bill presentment and payment, business-to-business catalog development, electronic software distribution, customer support, web site development, warehousing, call-center, consulting, and Internet banking services. Founded in 1994, Maagnum is a privately held company headquartered in Cheshire, Connecticut.


Another Health Charge Card

Health Charge Corporation and Clarian Health System announced the execution of a contract to provide the Health Charge credit card program to Clarian’s patients. The program will begin in March.

“We are excited that Clarian Health System has selected Health Charge as its patient financing partner,” said Christopher L. Gillock, Chief Executive Officer of Health Charge Corporation. “Clarian is one of the premier integrated healthcare delivery systems in the United States, and has elected to implement the Health Charge credit card program as part of its effort to implement best practices in healthcare business management. Our program will help Clarian Health System improve patient relations and reduce bad debts.”

“We view Health Charge as an important tool in the collection of self-pay balances,” said Debbie Winkle, Director of Patient Accounts. “The Health Charge credit card program will allow us to assist patients and reduce our operating costs.”

Clarian Health System is a large, integrated healthcare delivery network. Clarian owns and operates Indiana University Medical Center, Methodist Hospital of Indiana, and Riley Hospital for Children.

Health Charge Corporation, founded in 1979, provides private label credit card programs to hospitals and other healthcare providers that enable those providers to better manage patient pay obligations and receivables. In addition, Health Charge also provides business office consulting services and proprietary receivables management software to hospitals. For more information, please contact our WEB SITE at [www.healthcharge.com][1].

[1]: http://www.healthcharge.com


PMT Swallows Another

PMT Services, Inc. announced the acquisition Wednesday of Money Transfer Systems, Inc., an independent service organization headquartered in Clearwater, Florida. MTSI provides electronic credit card transaction processing services to a portfolio of approximately 5,000 merchant accounts, which currently generates annualized charge volume of approximately $200 million. In addition, its field sales force produces between 400 to 500 new merchant accounts each month.

“We are pleased to be formally joining forces with MTSI,” remarked Mr. Roberts, “a company from which we have previously purchased several account portfolios. >From these prior relationships, we have come to know the MTSI management team very well, and we welcome them to PMT confident of their skills and entrepreneurial drive.

“This transaction, which is the fourth completed in fiscal 1998, highlights PMT’s dual strategies for growth through internal development and acquisition. While we are again acquiring a high quality merchant portfolio from MTSI, the primary focus of this transaction was to bring the company’s people – its management and seasoned sales force – into PMT. MTSI benefits from having access to PMT’s buying power in pricing and purchasing, as well as from utilizing PMT’s service platform, which is one of the best in the market place. PMT benefits from the expansion of its ability to generate internal sales by increasing its sales and marketing infrastructure to achieve its future growth targets. This acquisition represents the ninth transaction in the last 20 months through which we have increased PMT’s internal account generation capabilities from an average of approximately 600 per month to approximately 3,500 per month.

“It is also representative of the ongoing opportunities we have to pursue the further consolidation of our markets. PMT continues to enjoy one of the strongest financial positions in its industry and has built an outstanding record of successfully completing and integrating acquisitions into its business. As a result, we expect industry consolidation pressures to continue to favor PMT. As one of the largest and lowest cost providers among its peers, PMT remains well positioned to pursue appropriate acquisition opportunities aggressively.”

Investors are cautioned that this release contains forward-looking statements, such as those relating to the benefits of the MTSI acquisition, that are based upon current expectations and involve a number of risks and uncertainties. Actual operations and results may differ materially from those expressed in the forward-looking statements made by the Company. The factors that could cause actual results to vary include PMT’s ability to retain the field sales force and the ongoing performance of the field sales force; the Company’s ability to integrate the acquisition successfully with its processing systems and products; the attrition of merchants from the acquired portfolio; and other trends or uncertainties as noted in PMT’s periodic filings with the SEC.

PMT Services, Inc. is an independent service organization which markets and services electronic credit card authorization and payment systems to small retail and professional businesses located throughout the United States. PMT’s account portfolio has grown through the internal development of accounts using telemarketing and a field sales force as well as through the purchase of account portfolios. PMT is one of the largest independent service organizations in the country.


IVI Earnings Up 300%

International Verifact reported, for the fourth quarter, revenues of $17.9 million – a 13% increase over the $15.8 million recorded in the same period in 1996. Net earnings was $1.0 million or $0.11 per share, a 293% increase in comparison with an operating profit in 1996 (before unusual items) of $258,000 or $0.03 per share. Unusual items recorded in the fourth quarter of 1996 consisted of a $1.7 million product writedown after the Company’s alliance with Ingenico S.A. f Paris, France, and a loss of $201,000 which represented the Company’s share of losses in a discontinued company.

Revenues for the year of $71.2 million were at record levels, an increase of 49% over the $47.8 million recorded in the previous fiscal year. Net earnings which also reached an all-time high of $3.7 million or $0.42 per share, was a significant turnaround from last year’s operating loss (before unusual items) of $755,000 or $0.11 per share. In addition to unusual items recorded in the fourth quarter of 1996 as mentioned above, the Company had also written off in 1996 goodwill of $9.3 million.

Commenting on the Company’s results, IVI’s President and CEO Barry Thomson said that he was extremely pleased with the successes in 1997 and how these accomplishments were consistent with the Company’s long term objectives.

Since late 1996, the Company focused on several objectives to expand its product portfolio; to be recognized as one of the leading providers of smart card solutions in North America; to expand its software expertise through the growth of National Transaction Network; and to increase its U.S. marketshare such that at least 50% of the Company’s total revenues were derived from non-Canadian sources.

Fourth Quarter 1997 Highlights

Accomplishments in the fourth quarter further the Company towards these objectives

–  Expand product portfolio. The Company filled an industry void through the development of its CheckManager 3000, a first-of-its-kind dial checkreader which can be easily installed without modifying the retailers’ existing payment terminals. Market interest in the product is high and IVI has already received several significant contracts.

–  Recognized as smart card leader. IVI is now participating in its third North American smart card pilot. The Company’s Elite 730T is the only portable payment terminal to be used in the joint Mondex/Visa Cash project in New York City, and was the first payment terminal to be certified by both Mondex and Visa Cash. Capable of handling credit, debit and EBT transactions, as well as other smart card platforms, the Elite 730T is the terminal most widely used during this trial.

–  Expand software expertise. IVI announced that its subsidiary, NTN, has signed a letter of intent to purchase the assets of BancTec Open Payment Systems Group, which will complement NTN’s existing software capabilities. This purchase was subsequently completed in January 1998.

–  Increased U.S. marketshare. Approximately 44% of fourth quarter revenues came from non-Canadian sources. As a result, revenues for the year from non-Canadian sources accounted for 42% of total revenues, compared with 34% in 1996 and 26% in 1995.


The Company believes that continued focus on these objectives in 1998 will enable the Company to continue its long term growth, and become a major industry player in the Americas. As a major step towards achieving this success, the Company announced in January 1998 that it has entered into an agreement to merge with one of its U.S. competitors, Checkmate Electronics Inc. of Roswell, Georgia. The merger is expected to close in May 1998, subject to regulatory and shareholder approval.

The Company believes that such a merger will allow the two companies to combine their individual resources to enhance their ability to more effectively compete in the U.S. market for electronic payment automation equipment. More specifically, there would be substantial synergy opportunities through broader product offerings which would create a stronger competitive position; increased purchasing power and cross-selling opportunities; and significant cost savings through the elimination of redundancy, product rationalization and improved manufacturing efficiencies.

IVI is engaged in the design, development and sale of electronic payments solutions for retailers, financial institutions, governments and other businesses. IVI’s hardware and software products include point-of-sale debit/credit/EFT/EBT terminals, check readers, smart card readers, POS printers and secure PIN entry devices. Additional Company information is available on the Company’s website at .

    as at December 31, 1997 and 1996
    (unaudited in thousands of Canadian dollars)

                                                     1997         1996
                                                 ———-   ———-
    Current assets
    Cash and marketable securities                $ 16,090     $ 14,443
    Accounts receivable                             12,098        9,463
    Inventories                                      8,408        9,529
    Other                                              604          411
                                                 ———-   ———-
                                                    37,200       33,846

    Capital assets                                   3,451        3,214
    Other assets                                     8,845        6,209
    Goodwill                                           917        1,021
                                                 ———-   ———-

                                                  $ 50,413     $ 44,290
                                                 ———-   ———-
                                                 ———-   ———-

    Current liabilities
    Accounts payable and accrued liabilities      $ 11,852     $ 12,055
    Deferred revenue                                   298        1,100
    Current portion of capital lease obligations        54           35
                                                 ———-   ———-
                                                    12,204       13,190

    Long term capital lease obligations                 33           26
    Minority interest                                   75          126
                                                 ———-   ———-
                                                    12,312       13,342

    Shareholders’ equity                            38,101       30,948
                                                 ———-   ———-

                                                  $ 50,413     $ 44,290
                                                 ———-   ———-
                                                 ———-   ———-

    for the three months and year ended December 31
    (unaudited in thousands of Canadian dollars,
      except per share amounts)

                                         Three Months             Year
                                     ——————-  ——————-
                                        1997      1996       1997      1996
                                     ——————-  ——————-

    Revenue                          $ 17,863  $ 15,837   $ 71,208  $ 47,801
    Cost of sales                      11,615    10,733     47,193    32,388
                                     ——— ———  ——— ———
    Gross margin                        6,248     5,104     24,015    15,413
                                     ——— ———  ——— ———

    Selling, administration and
     general                            3,931     3,554     14,576    11,524
    Research and development            1,003       926      4,612     3,248
    Depreciation and amortization         523       442      2,019     1,626
                                     ——— ———  ——— ———
                                        5,457     4,922     21,207    16,398
                                     ——— ———  ——— ———

    Earnings (loss) before interest,
     minority interest and
     unusual items                        791       182      2,808      (985)

    Interest income                        37        60        264       203
    Minority interest                     187        16        620        27
    Share of losses of associated
     company                                –      (201)         –      (201)
    Write-off of goodwill                   –         –          –    (9,285)
    Ingenico alliance product
     writedown                              –    (1,660)         –    (1,660)
                                     ——— ———  ——— ———

    Net earnings (loss) for the year $  1,015  $ (1,603)  $  3,692  $(11,901)
                                     ——— ———  ——— ———
                                     ——— ———  ——— ———

    Net earnings (loss) per share    $   0.11  $  (0.19)  $   0.42  $  (1.67)
                                     ——— ———  ——— ———
                                     ——— ———  ——— ———

    Weighted average common shares
     Outstanding (thousands)                                 8,803     7,120
                                                          ——— ———
                                                          ——— ———

    for the year ended December 31
    (unaudited in thousands of Canadian dollars)

                                                     1997         1996
                                                 ———-   ———-

    Cash provided by (used in)
     operating activities
    Net earnings (loss) for the year              $  3,692     $(11,901)
    Non-cash items
      Depreciation and amortization                  2,019        1,626
      Minority interest                               (620)         (27)
      Loss on disposal of capital assets                 –           29
      Share of losses of associated company              –          201
      Write-off of goodwill                              –        9,285
      Ingenico alliance product writedown                –        1,660
                                                 ———-   ———-
    Cash from operations                             5,091          873

    Change in non-cash working capital              (2,712)         613
                                                 ———-   ———-
                                                     2,379        1,486
                                                 ———-   ———-

    Cash provided by (used in)
     financing activities
    Issuance of common shares                        3,461       12,952
    Received from minority shareholder                 569            –
    Change in capital lease obligations                 26          (38)
                                                 ———-   ———-
                                                     4,056       12,914
                                                 ———-   ———-

    Cash used in investment activities
    Purchase of capital assets                      (1,344)      (1,537)
    Capitalization of development costs             (3,444)      (2,470)
    Purchase of technology licensing rights              –       (1,351)
    Acquisition of
     National Transaction Network, Inc.                  –         (817)
                                                 ———-   ———-
                                                    (4,788)      (6,175)
                                                 ———-   ———-

    Net change in cash and marketable securities     1,647        8,225

    Cash and marketable securities
      – beginning of year                           14,443        6,218
                                                 ———-   ———-

    Cash and marketable securities
      – end of year                               $ 16,090     $ 14,443
                                                 ———-   ———-
                                                 ———-   ———-


Smart Health Card Pilot

For years, healthcare professionals have heard how smart cards will streamline processes, boost profitability and improve patient care.  Now, thanks to DataCard Corporation, they’ll have evidence to support those claims.

Officials from DataCard’s newly formed Healthcare Solutions Group discussed a pilot program currently underway with Catholic Healthcare Partners (CHP) today at the 1998 Healthcare Information and Management Systems Society (HIMSS) Annual Conference and Exhibition in Orlando.

Woody Frost, general manager of DataCard’s Healthcare Solutions Group, said a test group of CHP employees and physician’s patients will test DataCard’s new portable patient information solutions at hospitals, physician’s offices and pharmacies at selected CHP facilities.

The new DataCard® SmartRec™ portable information solution will allow CHP members to carry critical medical information on a personalized smart card, which can be read anywhere they go for service—including hospitals, clinics, pharmacies and ambulances.

“SmartRec will measurably improve the quality of patient care for those participating in the pilot,” Frost said.  “Any time they access a CHP facility, the care provider will be able to insert the patient’s personalized smart card into a reader and instantly retrieve accurate, up-to-date medical information, such as allergies, current medications, immunization records and other critical data.”

Sister Marjorie Bosse, RSM, vice-president for CHP, said customer satisfaction, patient loyalty and quality care are the driving forces behind the pilot program.

“We’ve been watching smart card technology and waiting for a solution that can help us make the patient-provider relationship more satisfying for the healthcare consumers we serve,” Sister Marjorie said.  “We believe DataCard’s solutions will help us accomplish that objective and help us reduce our operating costs.”

If Sister Marjorie deems the pilot program a success, CHP will extend smart card use to all of its eight regions in a five state area.

“We’re a forward-thinking organization.  We are always looking for ways to improve the quality of care we provide—and smarter ways to run our business,” Sister Marjorie said.  “We’re excited about our application design for the pilot and we’re looking forward to making even greater strides in the coming months.”

DataCard Corporation, a privately held company based in Minneapolis, Minn., provides customers around the world with fully integrated solutions for a variety of healthcare, financial and identification applications.  In addition to turnkey solutions, the company offers complete lines of digital photo ID systems and printers, card personalization systems and transaction systems.  ([www.datacard.com][1])

[1]: http://www.datacard.com


Potential Cyberbankers

The potential users of home banking services has soared to nearly a quarter of U.S. households, however the actual number of users remains at fairly low levels. According to a report released this morning by SRI Consulting, the potential home banking market is comprised of 27 million households while the number of households who have ever used online banking services is about 7.5 million. SRI found a significant upward shift in the number of households with high familiarity in the use of computers/online services and a stronger willingness to use alternative financial delivery options such as ATMs, debit cards and telephone banking. The two-year analytical study shows while financial institutions have had little problems marketing to “early adopters”, attracting the next layer of users, the “market followers”, remains a challenge.


Multi-Currency Mondex

MasterCard CEO Robert Selander made the first successful international e-cash transaction yesterday as he used a Mondex smart card, issued by Hongkong Bank and carrying Hongkong dollars, to pay for breakfast in NYC with U.S. dollars. The Mondex card was loaded with U.S. dollars at a Chase Manhattan ATM. The multi- currency capability of Mondex was heralded as a breakthrough by MasterCard as the world’s first truly global chip card solution for smart cards. The ‘Mondex’ card is capable of handling up to five different currencies on a single card. Mondex also reported it has issued 110,000 cards in Hongkong, within a two month period, and has signed 6,000 Hongkong merchants to the program.