x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 26-0037077 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
6501 Legacy Drive, Plano, Texas | 75024 - 3698 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer x | Accelerated filer ¨ |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company ¨ |
Emerging growth company ¨ |
Page | |
Three Months Ended | Six Months Ended | ||||||||||||||
(In millions, except per share data) | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||
As Adjusted | As Adjusted | ||||||||||||||
Total net sales | $ | 2,762 | $ | 2,985 | $ | 5,346 | $ | 5,686 | |||||||
Credit income and other | 67 | 83 | 154 | 166 | |||||||||||
Total revenues | 2,829 | 3,068 | 5,500 | 5,852 | |||||||||||
Costs and expenses/(income): | |||||||||||||||
Cost of goods sold (exclusive of depreciation and amortization shown separately below) | 1,831 | 1,932 | 3,543 | 3,657 | |||||||||||
Selling, general and administrative (SG&A) | 880 | 935 | 1,706 | 1,873 | |||||||||||
Depreciation and amortization | 140 | 144 | 281 | 289 | |||||||||||
Real estate and other, net | 12 | (19 | ) | (6 | ) | (137 | ) | ||||||||
Restructuring and management transition | 2 | 23 | 9 | 123 | |||||||||||
Total costs and expenses | 2,865 | 3,015 | 5,533 | 5,805 | |||||||||||
Operating income/(loss) | (36 | ) | 53 | (33 | ) | 47 | |||||||||
Other components of net periodic pension cost/(income) | (19 | ) | (14 | ) | (38 | ) | 92 | ||||||||
(Gain)/loss on extinguishment of debt | — | 35 | 23 | 35 | |||||||||||
Net interest expense | 79 | 79 | 157 | 166 | |||||||||||
Income/(loss) before income taxes | (96 | ) | (47 | ) | (175 | ) | (246 | ) | |||||||
Income tax expense/(benefit) | 5 | 1 | 4 | (11 | ) | ||||||||||
Net income/(loss) | $ | (101 | ) | $ | (48 | ) | $ | (179 | ) | $ | (235 | ) | |||
Earnings/(loss) per share: | |||||||||||||||
Basic | $ | (0.32 | ) | $ | (0.15 | ) | $ | (0.57 | ) | $ | (0.76 | ) | |||
Diluted | $ | (0.32 | ) | $ | (0.15 | ) | $ | (0.57 | ) | $ | (0.76 | ) | |||
Weighted average shares – basic | 315.7 | 310.8 | 314.8 | 310.2 | |||||||||||
Weighted average shares – diluted | 315.7 | 310.8 | 314.8 | 310.2 |
Three Months Ended | Six Months Ended | ||||||||||||||
($ in millions) | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||
As Adjusted | As Adjusted | ||||||||||||||
Net income/(loss) | $ | (101 | ) | $ | (48 | ) | $ | (179 | ) | $ | (235 | ) | |||
Other comprehensive income/(loss), net of tax: | |||||||||||||||
Retirement benefit plans | |||||||||||||||
Net actuarial gain/(loss) arising during the period (1) | — | — | — | 5 | |||||||||||
Reclassification for amortization of prior service (credit)/cost (2) | 1 | 1 | 2 | 2 | |||||||||||
Net curtailment gain (3) | — | — | — | 20 | |||||||||||
Cash flow hedges | |||||||||||||||
Gain/(loss) on interest rate swaps (4) | — | (3 | ) | 5 | (6 | ) | |||||||||
Reclassification for periodic settlements (5) | — | 2 | — | 4 | |||||||||||
Foreign currency translation | |||||||||||||||
Unrealized (gain)/loss | — | 2 | — | 2 | |||||||||||
Total other comprehensive income/(loss), net of tax | 1 | 2 | 7 | 27 | |||||||||||
Total comprehensive income/(loss), net of tax | $ | (100 | ) | $ | (46 | ) | $ | (172 | ) | $ | (208 | ) |
(1) | Net of $(4) million in tax in the six months ended July 29, 2017. |
(2) | Net of $(1) million and $(2) million in tax in each of the three and six months ended August 4, 2018 and July 29, 2017, respectively. Pre-tax amounts of $2 million and $4 million in the three and six months ended August 4, 2018 and July 29, 2017, respectively, were recognized in Other components of net periodic pension cost/(income) in the Consolidated Statements of Operations. |
(3) | Net of $(11) million in tax in the six months ended July 29, 2017. Pre-tax prior service cost of $5 million related to the curtailment is included in Other components of net periodic pension cost/(income) in the Consolidated Statements of Operations in the six months ended July 29, 2017. |
(4) | Net of $(1) million of tax in the six months ended August 4, 2018 and net of $2 million and $3 million of tax in the three and six months ended July 29, 2017, respectively. |
(5) | Net of $(1) million and $(2) million of tax in the three and six months ended July 29, 2017, respectively, and $3 million and $6 million in pre-tax amounts for the three and six months ended July 29, 2017, respectively, were recognized in Net interest expense in the Consolidated Statements of Operations. |
August 4, 2018 | July 29, 2017 | February 3, 2018 | |||||||||
(In millions, except per share data) | (Unaudited) | (Unaudited) | |||||||||
As Adjusted | |||||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash in banks and in transit | $ | 171 | $ | 186 | $ | 116 | |||||
Cash short-term investments | 11 | 128 | 342 | ||||||||
Cash and cash equivalents | 182 | 314 | 458 | ||||||||
Merchandise inventory | 2,824 | 2,820 | 2,803 | ||||||||
Prepaid expenses and other | 221 | 223 | 190 | ||||||||
Total current assets | 3,227 | 3,357 | 3,451 | ||||||||
Property and equipment (net of accumulated depreciation of $3,293, $3,610 and $3,500) | 4,058 | 4,390 | 4,281 | ||||||||
Prepaid pension | 87 | — | 61 | ||||||||
Other assets | 686 | 622 | 661 | ||||||||
Total Assets | $ | 8,058 | $ | 8,369 | $ | 8,454 | |||||
Liabilities and Stockholders’ Equity | |||||||||||
Current liabilities: | |||||||||||
Merchandise accounts payable | $ | 910 | $ | 950 | $ | 973 | |||||
Other accounts payable and accrued expenses | 1,025 | 1,121 | 1,156 | ||||||||
Current portion of capital leases, financing obligation and note payable | 7 | 9 | 8 | ||||||||
Current maturities of long-term debt | 42 | 232 | 232 | ||||||||
Total current liabilities | 1,984 | 2,312 | 2,369 | ||||||||
Long-term capital leases, financing obligation and note payable | 208 | 216 | 212 | ||||||||
Long-term debt | 3,960 | 3,836 | 3,780 | ||||||||
Deferred taxes | 144 | 202 | 143 | ||||||||
Other liabilities | 546 | 635 | 567 | ||||||||
Total Liabilities | 6,842 | 7,201 | 7,071 | ||||||||
Stockholders’ Equity | |||||||||||
Common stock(1) | 157 | 155 | 156 | ||||||||
Additional paid-in capital | 4,709 | 4,694 | 4,705 | ||||||||
Reinvested earnings/(accumulated deficit) | (3,297 | ) | (3,235 | ) | (3,118 | ) | |||||
Accumulated other comprehensive income/(loss) | (353 | ) | (446 | ) | (360 | ) | |||||
Total Stockholders’ Equity | 1,216 | 1,168 | 1,383 | ||||||||
Total Liabilities and Stockholders’ Equity | $ | 8,058 | $ | 8,369 | $ | 8,454 |
(1) | 1,250 million shares of common stock are authorized with a par value of $0.50 per share. The total shares issued and outstanding were 314.8 million, 310.3 million and 312.0 million as of August 4, 2018, July 29, 2017 and February 3, 2018, respectively. |
Six Months Ended | |||||||
($ in millions) | August 4, 2018 | July 29, 2017 | |||||
As Adjusted | |||||||
Cash flows from operating activities | |||||||
Net income/(loss) | $ | (179 | ) | $ | (235 | ) | |
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: | |||||||
Restructuring and management transition | (3 | ) | 73 | ||||
Asset impairments and other charges | 52 | 3 | |||||
Net gain on sale of operating assets | (57 | ) | (118 | ) | |||
(Gain)/loss on extinguishment of debt | 23 | 35 | |||||
Depreciation and amortization | 281 | 289 | |||||
Benefit plans | (37 | ) | 96 | ||||
Stock-based compensation | 6 | 16 | |||||
Deferred taxes | (1 | ) | (19 | ) | |||
Change in cash from: | |||||||
Inventory | (21 | ) | 76 | ||||
Prepaid expenses and other | (21 | ) | (64 | ) | |||
Merchandise accounts payable | (63 | ) | (27 | ) | |||
Income taxes | — | 3 | |||||
Accrued expenses and other | (115 | ) | (72 | ) | |||
Net cash provided by/(used in) operating activities | (135 | ) | 56 | ||||
Cash flows from investing activities | |||||||
Capital expenditures | (221 | ) | (192 | ) | |||
Net proceeds from sale of operating assets | 121 | 146 | |||||
Joint venture return of investment | — | 9 | |||||
Net cash provided by/(used in) investing activities | (100 | ) | (37 | ) | |||
Cash flows from financing activities | |||||||
Proceeds from issuance of long-term debt | 400 | — | |||||
Proceeds from borrowings under the credit facility | 2,258 | 272 | |||||
Payments of borrowings under the credit facility | (2,081 | ) | (272 | ) | |||
Premium on early retirement of debt | (20 | ) | (30 | ) | |||
Payments of capital leases, financing obligation and note payable | (4 | ) | (12 | ) | |||
Payments of long-term debt | (586 | ) | (541 | ) | |||
Financing costs | (7 | ) | (9 | ) | |||
Proceeds from stock issued under stock plans | 2 | 3 | |||||
Tax withholding payments for vested restricted stock | (3 | ) | (3 | ) | |||
Net cash provided by/(used in) financing activities | (41 | ) | (592 | ) | |||
Net increase/(decrease) in cash and cash equivalents | (276 | ) | (573 | ) | |||
Cash and cash equivalents at beginning of period | 458 | 887 | |||||
Cash and cash equivalents at end of period | $ | 182 | $ | 314 | |||
Supplemental cash flow information | |||||||
Income taxes received/(paid), net | $ | (5 | ) | $ | (5 | ) | |
Interest received/(paid), net | (145 | ) | (163 | ) | |||
Supplemental non-cash investing and financing activity | |||||||
Increase/(decrease) in other accounts payable related to purchases of property and equipment and software | (20 | ) | 6 |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
July 29, 2017 | July 29, 2017 | ||||||||||||||||||||||
($ in millions, except per share data) | Previously Reported | As Adjusted | Effect of Change | Previously Reported | As Adjusted | Effect of Change | |||||||||||||||||
Total net sales | $ | 2,962 | $ | 2,985 | $ | 23 | $ | 5,668 | $ | 5,686 | $ | 18 | |||||||||||
Credit income and other | — | 83 | 83 | — | 166 | 166 | |||||||||||||||||
Cost of goods sold (exclusive of depreciation and amortization) | 1,923 | 1,932 | 9 | 3,646 | 3,657 | 11 | |||||||||||||||||
Selling, general and administrative (SG&A) | 842 | 935 | 93 | 1,685 | 1,873 | 188 | |||||||||||||||||
Pension | (4 | ) | — | 4 | (6 | ) | — | 6 | |||||||||||||||
Restructuring and management transition | 23 | 23 | — | 243 | 123 | (120 | ) | ||||||||||||||||
Operating income/(loss) | 53 | 53 | — | (52 | ) | 47 | 99 | ||||||||||||||||
Other components of net periodic pension cost/(income) | — | (14 | ) | (14 | ) | — | 92 | 92 | |||||||||||||||
Income/(loss) before income taxes | (61 | ) | (47 | ) | 14 | (253 | ) | (246 | ) | 7 | |||||||||||||
Net income/(loss) | $ | (62 | ) | $ | (48 | ) | $ | 14 | $ | (242 | ) | $ | (235 | ) | $ | 7 | |||||||
Basic earnings/(loss) per common share | $ | (0.20 | ) | $ | (0.15 | ) | $ | 0.05 | $ | (0.78 | ) | $ | (0.76 | ) | $ | 0.02 | |||||||
Diluted earnings/(loss) per common share | $ | (0.20 | ) | $ | (0.15 | ) | $ | 0.05 | $ | (0.78 | ) | $ | (0.76 | ) | $ | 0.02 |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
July 29, 2017 | July 29, 2017 | ||||||||||||||||||||||
($ in millions) | Previously Reported | As Adjusted | Effect of Change | Previously Reported | As Adjusted | Effect of Change | |||||||||||||||||
Net income/(loss) | $ | (62 | ) | $ | (48 | ) | $ | 14 | $ | (242 | ) | $ | (235 | ) | $ | 7 |
July 29, 2017 | February 3, 2018 | ||||||||||||||||||||||
($ in millions) | Previously Reported | As Adjusted | Effect of Change | Previously Reported | As Adjusted | Effect of Change | |||||||||||||||||
Merchandise inventory | $ | 2,777 | $ | 2,820 | $ | 43 | $ | 2,762 | $ | 2,803 | $ | 41 | |||||||||||
Other accounts payable and accrued expenses | 1,091 | 1,121 | 30 | 1,119 | 1,156 | 37 | |||||||||||||||||
Reinvested earnings/(accumulated deficit) | (3,248 | ) | (3,235 | ) | 13 | (3,122 | ) | (3,118 | ) | 4 |
Six Months Ended | |||||||||||
July 29, 2017 | |||||||||||
($ in millions) | Previously Reported | As Adjusted | Effect of Change | ||||||||
Cash flows from operating activities: | |||||||||||
Net income/(loss) | $ | (242 | ) | $ | (235 | ) | $ | 7 | |||
Inventory | 77 | 76 | (1 | ) | |||||||
Accrued expenses and other | (66 | ) | (72 | ) | (6 | ) |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||
($ in millions) | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||||||||||||||
As Adjusted | As Adjusted | ||||||||||||||||||||||||||
Women’s apparel | $ | 694 | 25 | % | $ | 748 | 25 | % | $ | 1,308 | 25 | % | $ | 1,426 | 25 | % | |||||||||||
Men’s apparel and accessories | 563 | 20 | % | 618 | 21 | % | 1,063 | 20 | % | 1,147 | 20 | % | |||||||||||||||
Home | 361 | 13 | % | 415 | 14 | % | 716 | 13 | % | 790 | 14 | % | |||||||||||||||
Women’s accessories, including Sephora | 345 | 13 | % | 365 | 12 | % | 700 | 13 | % | 722 | 13 | % | |||||||||||||||
Children’s, including toys | 241 | 9 | % | 246 | 8 | % | 448 | 8 | % | 473 | 8 | % | |||||||||||||||
Footwear and handbags | 227 | 8 | % | 251 | 8 | % | 440 | 8 | % | 483 | 8 | % | |||||||||||||||
Jewelry | 151 | 5 | % | 149 | 5 | % | 312 | 6 | % | 308 | 6 | % | |||||||||||||||
Services and other | 180 | 7 | % | 193 | 7 | % | 359 | 7 | % | 337 | 6 | % | |||||||||||||||
Total net sales | $ | 2,762 | 100 | % | $ | 2,985 | 100 | % | $ | 5,346 | 100 | % | $ | 5,686 | 100 | % |
(in millions) | August 4, 2018 | July 29, 2017 | February 3, 2018 | ||||||||
Gift cards | $ | 116 | $ | 118 | $ | 144 | |||||
Loyalty rewards | 62 | 76 | 73 | ||||||||
Total contract liability | $ | 178 | $ | 194 | $ | 217 |
(in millions) | 2018 | 2017 | |||||
Beginning balance | $ | 217 | $ | 228 | |||
Current period gift cards sold and loyalty reward points earned | 148 | 209 | |||||
Net sales from amounts included in contract liability opening balances | (59 | ) | (68 | ) | |||
Net sales from current period usage | (128 | ) | (175 | ) | |||
Ending balance | $ | 178 | $ | 194 |
Three Months Ended | Six Months Ended | ||||||||||||||
(in millions, except per share data) | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||
Earnings/(loss) | |||||||||||||||
Net income/(loss) | $ | (101 | ) | $ | (48 | ) | $ | (179 | ) | $ | (235 | ) | |||
Shares | |||||||||||||||
Weighted average common shares outstanding (basic shares) | 315.7 | 310.8 | 314.8 | 310.2 | |||||||||||
Adjustment for assumed dilution: | |||||||||||||||
Stock options, restricted stock awards and warrant | — | — | — | — | |||||||||||
Weighted average shares assuming dilution (diluted shares) | 315.7 | 310.8 | 314.8 | 310.2 | |||||||||||
EPS | |||||||||||||||
Basic | $ | (0.32 | ) | $ | (0.15 | ) | $ | (0.57 | ) | $ | (0.76 | ) | |||
Diluted | $ | (0.32 | ) | $ | (0.15 | ) | $ | (0.57 | ) | $ | (0.76 | ) |
Three Months Ended | Six Months Ended | ||||||||||
(Shares in millions) | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||
Stock options, restricted stock awards and warrant | 25.6 | 33.5 | 27.2 | 33.3 |
($ in millions) | August 4, 2018 | July 29, 2017 | February 3, 2018 | |||||||||
Issue: | ||||||||||||
5.75% Senior Notes Due 2018 (1) | $ | — | $ | 190 | $ | 190 | ||||||
8.125% Senior Notes Due 2019 (1) | 50 | 175 | 175 | |||||||||
5.65% Senior Notes Due 2020 (1) | 110 | 400 | 360 | |||||||||
2017 Credit Facility (Matures in 2022) | 177 | — | — | |||||||||
2016 Term Loan Facility (Matures in 2023) | 1,604 | 1,646 | 1,625 | |||||||||
5.875% Senior Secured Notes Due 2023 (1) | 500 | 500 | 500 | |||||||||
7.125% Debentures Due 2023 | 10 | 10 | 10 | |||||||||
8.625% Senior Secured Second Priority Notes Due 2025 (1) | 400 | — | — | |||||||||
6.9% Notes Due 2026 | 2 | 2 | 2 | |||||||||
6.375% Senior Notes Due 2036 (1) | 388 | 388 | 388 | |||||||||
7.4% Debentures Due 2037 | 313 | 313 | 313 | |||||||||
7.625% Notes Due 2097 | 500 | 500 | 500 | |||||||||
Total debt | 4,054 | 4,124 | 4,063 | |||||||||
Unamortized debt issuance costs | (52 | ) | (56 | ) | (51 | ) | ||||||
Less: current maturities | (42 | ) | (232 | ) | (232 | ) | ||||||
Total long-term debt | $ | 3,960 | $ | 3,836 | $ | 3,780 |
(1) | These debt issuances contain a change of control provision that would obligate us, at the holders’ option, to repurchase the debt at a price of 101%. |
Asset Derivatives at Fair Value | Liability Derivatives at Fair Value | ||||||||||||||||||||||||||
($ in millions) | Balance Sheet Location | August 4, 2018 | July 29, 2017 | February 3, 2018 | Balance Sheet Location | August 4, 2018 | July 29, 2017 | February 3, 2018 | |||||||||||||||||||
Derivatives designated as hedging instruments: | |||||||||||||||||||||||||||
Interest rate swaps | Prepaid expenses and other | $ | 1 | $ | — | $ | — | Other accounts payable and accrued expenses | $ | — | $ | 2 | $ | 1 | |||||||||||||
Interest rate swaps | Other assets | 16 | — | 9 | Other liabilities | — | 13 | — | |||||||||||||||||||
Total derivatives designated as hedging instruments | $ | 17 | $ | — | $ | 9 | $ | — | $ | 15 | $ | 1 |
• | Home office and stores — charges for actions to reduce our store and home office expenses including employee termination benefits, store lease termination and impairment charges; |
• | Management transition — charges related to implementing changes within our management leadership team for both incoming and outgoing members of management; and |
• | Other — charges related primarily to contract termination costs and costs related to the closure of certain supply chain locations. |
Three Months Ended | Six Months Ended | Cumulative Amount From Program Inception Through August 4, 2018 | |||||||||||||||||
($ in millions) | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||||||
Home office and stores | 2 | 23 | $ | 9 | $ | 121 | $ | 482 | |||||||||||
Other | — | — | — | 2 | 185 | ||||||||||||||
Total | $ | 2 | $ | 23 | $ | 9 | $ | 123 | $ | 667 |
($ in millions) | Home Office and Stores | Other | Total | ||||||||
February 3, 2018 | $ | 34 | $ | 7 | $ | 41 | |||||
Charges | 12 | — | 12 | ||||||||
Cash payments | (25 | ) | (1 | ) | (26 | ) | |||||
August 4, 2018 | $ | 21 | $ | 6 | $ | 27 |
• | Level 1 — Quoted prices in active markets for identical assets or liabilities. |
• | Level 2 — Significant observable inputs other than quoted prices in active markets for similar assets and liabilities, such as quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
• | Level 3 — Significant unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. |
August 4, 2018 | July 29, 2017 | February 3, 2018 | |||||||||||||||||||||
($ in millions) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||
Total debt, excluding unamortized debt issuance costs, capital leases, financing obligation and note payable | $ | 4,054 | $ | 3,385 | $ | 4,124 | $ | 3,817 | $ | 4,063 | $ | 3,607 |
(in millions) | Number of Common Shares | Common Stock | Additional Paid-in Capital | Reinvested Earnings/ (Accumulated Deficit) | Accumulated Other Comprehensive Income/(Loss) | Total Stockholders’ Equity | ||||||||||||||||
February 3, 2018 | 312.0 | $ | 156 | $ | 4,705 | $ | (3,118 | ) | $ | (360 | ) | $ | 1,383 | |||||||||
Net income/(loss) | — | — | — | (179 | ) | — | (179 | ) | ||||||||||||||
Other comprehensive income/(loss) | — | — | — | — | 7 | 7 | ||||||||||||||||
Stock-based compensation and other | 2.8 | 1 | 4 | — | — | 5 | ||||||||||||||||
August 4, 2018 | 314.8 | $ | 157 | $ | 4,709 | $ | (3,297 | ) | $ | (353 | ) | $ | 1,216 |
($ in millions) | Net Actuarial Gain/(Loss) | Prior Service Credit/(Cost) | Gain/(Loss) on Cash Flow Hedges | Accumulated Other Comprehensive Income/(Loss) | |||||||||||
February 3, 2018 | $ | (330 | ) | $ | (26 | ) | $ | (4 | ) | $ | (360 | ) | |||
Other comprehensive income/(loss) before reclassifications | — | — | 5 | 5 | |||||||||||
Amounts reclassified from accumulated other comprehensive income | — | 2 | — | 2 | |||||||||||
August 4, 2018 | $ | (330 | ) | $ | (24 | ) | $ | 1 | $ | (353 | ) |
Three Months Ended | Six Months Ended | ||||||||||||||
($ in millions) | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||
Service cost | $ | 10 | $ | 10 | $ | 19 | $ | 21 | |||||||
Other components of net periodic pension cost/(income): | |||||||||||||||
Interest cost | 35 | 37 | 70 | 76 | |||||||||||
Expected return on plan assets | (56 | ) | (53 | ) | (112 | ) | (107 | ) | |||||||
Amortization of prior service cost/(credit) | 2 | 2 | 4 | 4 | |||||||||||
Settlement expense | — | — | — | — | |||||||||||
Curtailment (gain)/loss recognized | — | — | — | 7 | |||||||||||
Special termination benefit recognized | — | — | — | 112 | |||||||||||
(19 | ) | (14 | ) | (38 | ) | 92 | |||||||||
Net periodic pension expense/(income) | $ | (9 | ) | $ | (4 | ) | $ | (19 | ) | $ | 113 |
Three Months Ended | Six Months Ended | ||||||||||||||
($ in millions) | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||
Investment income from Home Office Land Joint Venture | $ | (1 | ) | $ | (19 | ) | $ | (1 | ) | $ | (20 | ) | |||
Net gain from sale of operating assets | (40 | ) | (1 | ) | (57 | ) | (118 | ) | |||||||
Impairments | 52 | — | 52 | — | |||||||||||
Other | 1 | 1 | — | 1 | |||||||||||
Total expense/(income) | $ | 12 | $ | (19 | ) | $ | (6 | ) | $ | (137 | ) |
• | Beauty; |
• | Home refresh; |
• | Women's apparel business; and |
• | Omnichannel. |
▪ | Total net sales were $2,762 million with a total net sales decrease of 7.5% compared to the second quarter of 2017 and a comparable store sales increase of 0.3%. |
▪ | Credit income and other was $67 million compared to $83 million in last year's second quarter. |
▪ | Cost of goods sold, which excludes depreciation and amortization, as a percentage of Total net sales increased to 66.3% compared to 64.7% in the same period last year. The increase as a rate of sales was primarily driven by markdown and pricing actions taken in the quarter to clear slow-moving seasonal inventory due to lower than planned sales. |
▪ | Selling, general and administrative (SG&A) expenses as a percentage of Total net sales increased to 31.9% for the second quarter of 2018 as compared to 31.3% for the same period last year. The net increase in SG&A expenses as a percentage of Total net sales for the quarter was primarily driven by the decrease in net sales and by higher controllable costs and marketing spend relative to our sales volume, offset by a reduction in lease expense associated with the amortization of gains on the sales of leasehold interests. |
▪ | Our net loss was $101 million, or ($0.32) per share, compared to a net loss of $48 million, or ($0.15) per share, for the corresponding prior year quarter. Results for this quarter included the following amounts that are not directly related to our ongoing core business operations: |
▪ | $2 million, or ($0.01) per share, of restructuring and management transition charges; |
▪ | $19 million, or $0.06 per share, for other components of net periodic pension income; |
▪ | $1 million for our proportional share of net income from our joint venture formed to develop the excess property adjacent to our home office facility in Plano, Texas (Home Office Land Joint Venture); and |
▪ | $1 million for the tax benefit resulting from other comprehensive income allocation related to pension and interest rate swap activity. |
▪ | Adjusted net loss was $120 million, or ($0.38) per share, compared to an adjusted net loss of $23 million, or ($0.07) per share, in last year's second quarter. See the reconciliation of net income/(loss) and diluted EPS, the most directly comparable generally accepted accounting principles (GAAP) financial measures, to adjusted net income/(loss) and adjusted diluted EPS on page 26. |
▪ | Adjusted earnings before interest expense, income tax (benefit)/expense and depreciation and amortization (Adjusted EBITDA) (non-GAAP) was $105 million, a $96 million decline from the same period last year. See the reconciliation of net income/(loss), the most directly comparable GAAP financial measure, to Adjusted EBITDA on page 25. |
▪ | During the second quarter of 2018, we completed the sale of our Manchester, Connecticut distribution facility for a net sale price of $68 million and recorded a net gain of $38 million. |
▪ | During the second quarter of 2018, we recorded an impairment charge of $52 million related to the expected sale of three airplanes. Two of the airplanes were sold during the second quarter of 2018 at their fair value of $12 million. Subsequent to the second quarter of 2018, the third airplane was sold at its fair value of $8 million. |
Three Months Ended | Six Months Ended | |||||||||||||||
($ in millions, except EPS) | August 4, 2018 | July 29, 2017 | (1) | August 4, 2018 | July 29, 2017 | (1) | ||||||||||
Total net sales | $ | 2,762 | $ | 2,985 | $ | 5,346 | $ | 5,686 | ||||||||
Credit income and other | 67 | 83 | 154 | 166 | ||||||||||||
Total revenues | 2,829 | 3,068 | 5,500 | 5,852 | ||||||||||||
Total net sales increase/(decrease) from prior year | (7.5 | )% | 1.5 | % | (6.0 | )% | (1.1 | )% | ||||||||
Comparable store sales increase/(decrease) (2) | 0.3 | % | (1.3 | )% | 0.2 | % | (2.4 | )% | ||||||||
Costs and expenses/(income): | ||||||||||||||||
Cost of goods sold (exclusive of depreciation and amortization shown separately below) | 1,831 | 1,932 | 3,543 | 3,657 | ||||||||||||
Selling, general and administrative | 880 | 935 | 1,706 | 1,873 | ||||||||||||
Depreciation and amortization | 140 | 144 | 281 | 289 | ||||||||||||
Real estate and other, net | 12 | (19 | ) | (6 | ) | (137 | ) | |||||||||
Restructuring and management transition | 2 | 23 | 9 | 123 | ||||||||||||
Total costs and expenses | 2,865 | 3,015 | 5,533 | 5,805 | ||||||||||||
Operating income/(loss) | (36 | ) | 53 | (33 | ) | 47 | ||||||||||
Other components of net periodic pension cost/(income) | (19 | ) | (14 | ) | (38 | ) | 92 | |||||||||
(Gain)/loss on extinguishment of debt | — | 35 | 23 | 35 | ||||||||||||
Net interest expense | 79 | 79 | 157 | 166 | ||||||||||||
Income/(loss) before income taxes | (96 | ) | (47 | ) | (175 | ) | (246 | ) | ||||||||
Income tax expense/(benefit) | 5 | 1 | 4 | (11 | ) | |||||||||||
Net income/(loss) | $ | (101 | ) | $ | (48 | ) | $ | (179 | ) | $ | (235 | ) | ||||
Adjusted EBITDA (non-GAAP) (3) | $ | 105 | $ | 201 | $ | 256 | $ | 439 | ||||||||
Adjusted net income/(loss) (non-GAAP) (3) | $ | (120 | ) | $ | (23 | ) | $ | (189 | ) | $ | (21 | ) | ||||
Diluted EPS | $ | (0.32 | ) | $ | (0.15 | ) | $ | (0.57 | ) | $ | (0.76 | ) | ||||
Adjusted diluted EPS (non-GAAP) (3) | $ | (0.38 | ) | $ | (0.07 | ) | $ | (0.60 | ) | $ | (0.07 | ) | ||||
Ratios as a percent of total net sales: | ||||||||||||||||
Cost of goods sold | 66.3 | % | 64.7 | % | 66.3 | % | 64.3 | % | ||||||||
SG&A | 31.9 | % | 31.3 | % | 31.9 | % | 32.9 | % | ||||||||
Operating income/(loss) | (1.3 | )% | 1.8 | % | (0.6 | )% | 0.8 | % |
(1) | Reflects the retrospective application of the changes in accounting for revenue recognition and retirement-related benefits. See Note 2 of Notes to unaudited Interim Consolidated Financial Statements for a discussion of the changes and related impacts. |
(2) | Comparable store sales are presented on a 52-week basis and include sales from all stores, including sales from services, that have been open for 12 consecutive full fiscal months and Internet sales. Stores closed for an extended period are not included in comparable store sales calculations, while stores remodeled and minor expansions not requiring store closure remain in the calculations. Certain items, such as sales return estimates and store liquidation sales, are excluded from the Company’s calculation. Our definition and calculation of comparable store sales may differ from other companies in the retail industry. |
(3) | See “Non-GAAP Financial Measures” for a discussion of this non-GAAP measure and reconciliation to its most directly comparable GAAP financial measure and further information on its uses and limitations. |
Three Months Ended | Six Months Ended | ||||||||||||||
($ in millions) | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||
Total net sales | $ | 2,762 | $ | 2,985 | $ | 5,346 | $ | 5,686 | |||||||
Sales percent increase/(decrease): | |||||||||||||||
Total net sales | (7.5 | )% | 1.5 | % | (6.0 | )% | (1.1 | )% | |||||||
Comparable store sales | 0.3 | % | (1.3 | )% | 0.2 | % | (2.4 | )% |
Three Months Ended | Six Months Ended | ||||||
($ in millions) | August 4, 2018 | August 4, 2018 | |||||
Comparable store sales increase/(decrease) | $ | 8 | $ | 13 | |||
Closed stores and other | (231 | ) | (353 | ) | |||
Total net sales increase/(decrease) | $ | (223 | ) | $ | (340 | ) |
• | Stores increase Internet sales by providing customers opportunities to view, touch and/or try on physical merchandise before ordering online. |
• | Our website increases store sales as in-store customers have often pre-shopped online before shopping in the store, including verification of which stores have online merchandise in stock. |
• | Most Internet purchases are easily returned in our stores. |
• | JCPenney Rewards can be earned and redeemed online or in stores. |
• | In-store customers can order from our website with the assistance of associates in our stores or they can shop our website from the JCPenney app while inside the store. |
• | Customers who utilize our mobile application can receive mobile coupons to use when they check out both online or in our stores. |
• | Internet orders can be shipped from a dedicated jcpenney.com fulfillment center, a store, a store merchandise distribution center, a regional warehouse, directly from vendors or any combination of the above. |
• | Certain categories of store inventory can be accessed and purchased by jcpenney.com customers and shipped directly to the customer's home from the store. |
• | Internet orders can be shipped to stores for customer pick up. |
• | "Buy online and pick up in store" is now available in all of our stores. |
Three Months Ended | Six Months Ended | ||||||||||
August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | ||||||||
JCPenney department stores | |||||||||||
Beginning of period | 871 | 1,013 | 872 | 1,013 | |||||||
Stores opened | 1 | — | 1 | — | |||||||
Closed stores | (7 | ) | (2 | ) | (8 | ) | (2 | ) | |||
End of period (1) | 865 | 1,011 | 865 | 1,011 |
(1) | Gross selling space, including selling space allocated to services and licensed departments, was 95 million square feet as of August 4, 2018 and 103 million square feet as of July 29, 2017. |
Three Months Ended | Six Months Ended | ||||||||||||||
($ in millions) | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||
Home office and stores | 2 | 23 | $ | 9 | $ | 121 | |||||||||
Other | — | — | — | 2 | |||||||||||
Total | $ | 2 | $ | 23 | $ | 9 | $ | 123 |
Three Months Ended | Six Months Ended | ||||||||||||||
($ in millions) | August 4, 2018 | July 29, 2017 | August 4, 2018 | July 29, 2017 | |||||||||||
Investment income from Home Office Land Joint Venture | $ | (1 | ) | $ | (19 | ) | $ | (1 | ) | $ | (20 | ) | |||
Net gain from sale of operating assets | (40 | ) | (1 | ) | (57 | ) | (118 | ) | |||||||
Impairments | 52 | — | 52 | — | |||||||||||
Other | 1 | 1 | — | 1 | |||||||||||
Total expense/(income) | $ | 12 | $ | (19 | ) | $ | (6 | ) | $ | (137 | ) |
Three Months Ended | Six Months Ended | |||||||||||||||
($ in millions) | August 4, 2018 | July 29, 2017 | (1) | August 4, 2018 | July 29, 2017 | (1) | ||||||||||
Net income/(loss) | $ | (101 | ) | $ | (48 | ) | $ | (179 | ) | $ | (235 | ) | ||||
Add: Net interest expense | 79 | 79 | 157 | 166 | ||||||||||||
Add: (Gain)/loss on extinguishment of debt | — | 35 | 23 | 35 | ||||||||||||
Add: Income tax expense/(benefit) | 5 | 1 | 4 | (11 | ) | |||||||||||
Add: Depreciation and amortization | 140 | 144 | 281 | 289 | ||||||||||||
Add: Restructuring and management transition charges | 2 | 23 | 9 | 123 | ||||||||||||
Add: Other components of net periodic pension cost/(income) | (19 | ) | (14 | ) | (38 | ) | 92 | |||||||||
Less: Proportional share of net income from joint venture | (1 | ) | (19 | ) | (1 | ) | (20 | ) | ||||||||
Adjusted EBITDA (non-GAAP) | $ | 105 | $ | 201 | $ | 256 | $ | 439 |
(1) | Reflects the retrospective application of the changes in accounting for revenue recognition and retirement-related benefits. See Note 2 of Notes to unaudited Interim Consolidated Financial Statements for a discussion of the changes and related impacts. For the three months ended July 29, 2017, the retrospective application of the changes in accounting for revenue recognition and retirement-related benefits increased Adjusted EBITDA (non-GAAP) by $5 million. For the six months ended July 29, 2017, the retrospective application of the changes in accounting for revenue recognition and retirement-related benefits decreased Adjusted EBITDA (non-GAAP) by $12 million. |
Three Months Ended | Six Months Ended | |||||||||||||||
($ in millions, except per share data) | August 4, 2018 | July 29, 2017 | (1) | August 4, 2018 | July 29, 2017 | (1) | ||||||||||
Net income/(loss) | $ | (101 | ) | $ | (48 | ) | $ | (179 | ) | $ | (235 | ) | ||||
Diluted EPS | $ | (0.32 | ) | $ | (0.15 | ) | $ | (0.57 | ) | $ | (0.76 | ) | ||||
Add: Restructuring and management transition charges (2) | 2 | 23 | 9 | 123 | ||||||||||||
Add: Other components of net periodic pension cost/(income) (2) | (19 | ) | (14 | ) | (38 | ) | 92 | |||||||||
Add: (Gain)/loss on extinguishment of debt (2) | — | 35 | 23 | 35 | ||||||||||||
Less: Proportional share of net income from joint venture (2) | (1 | ) | (19 | ) | (1 | ) | (20 | ) | ||||||||
Less: Tax impact resulting from other comprehensive income allocation (3) | (1 | ) | — | (3 | ) | (16 | ) | |||||||||
Adjusted net income/(loss) (non-GAAP) | $ | (120 | ) | $ | (23 | ) | $ | (189 | ) | $ | (21 | ) | ||||
Adjusted diluted EPS (non-GAAP) | $ | (0.38 | ) | $ | (0.07 | ) | $ | (0.60 | ) | $ | (0.07 | ) |
(1) | Reflects the retrospective application of the changes in accounting for revenue recognition and retirement-related benefits. See Note 2 of Notes to unaudited Interim Consolidated Financial Statements for a discussion of the changes and related impacts. For the three months ended July 29, 2017, the retrospective application of the changes in accounting for revenue recognition and retirement-related benefits increased Adjusted net income/(loss) (non-GAAP) by $5 million. For the six months ended July 29, 2017, the retrospective application of the changes in accounting for revenue recognition and retirement-related benefits decreased Adjusted net income/(loss) (non-GAAP) by $12 million. |
(2) | Adjustments reflect no tax effect due to the impact of the Company's tax valuation allowance. |
(3) | Represents the net tax benefit that resulted from our other comprehensive income allocation between our Operating loss and Accumulated other comprehensive income. |
Six Months Ended | |||||||
($ in millions) | August 4, 2018 | July 29, 2017 | |||||
Cash and cash equivalents | $ | 182 | $ | 314 | |||
Merchandise inventory | 2,824 | 2,820 | |||||
Property and equipment, net | 4,058 | 4,390 | |||||
Total debt and other financing obligations (1) | 4,217 | 4,293 | |||||
Stockholders’ equity | 1,216 | 1,168 | |||||
Total capital | 5,433 | 5,461 | |||||
Maximum capacity under our Revolving Credit Facility | 2,350 | 2,350 | |||||
Cash flow from operating activities | (135 | ) | 56 | ||||
Free cash flow (non-GAAP) (2) | (235 | ) | 10 | ||||
Capital expenditures (3) | 221 | 192 | |||||
Ratios: | |||||||
Total debt-to-total capital (4) | 78 | % | 79 | % | |||
Cash-to-total debt (5) | 4 | % | 7 | % |
(1) | Includes long-term debt, net of unamortized debt issuance costs, including current maturities, capital leases, financing obligation, note payable and any borrowings under our revolving credit facility. |
(2) | See “Free Cash Flow” below for a reconciliation of this non-GAAP financial measure to its most directly comparable GAAP financial measure and further information on its uses and limitations. |
(3) | As of the end of the second quarters of 2018 and 2017, we had accrued capital expenditures of $38 million and $39 million, respectively. |
(4) | Total debt and other financing obligations divided by total capital. |
(5) | Cash and cash equivalents divided by total debt and other financing obligations. |
Six Months Ended | |||||||
($ in millions) | August 4, 2018 | July 29, 2017 | |||||
Net cash provided by/(used in) operating activities (GAAP) | $ | (135 | ) | $ | 56 | ||
Add: | |||||||
Proceeds from sale of operating assets | 121 | 146 | |||||
Less: | |||||||
Capital expenditures (1) | (221 | ) | (192 | ) | |||
Free cash flow (non-GAAP) | $ | (235 | ) | $ | 10 | ||
Net cash provided by/(used in) investing activities (2) | $ | (100 | ) | $ | (37 | ) | |
Net cash provided by/(used in) financing activities | $ | (41 | ) | $ | (592 | ) |
(1) | As of the end of the second quarters of 2018 and 2017, we had accrued capital expenditures of $38 million and $39 million, respectively. |
(2) | Net cash provided by investing activities includes capital expenditures and proceeds from sale of operating assets, which are also included in our computation of free cash flow. |
Corporate | Outlook | ||
Fitch Ratings | B | Stable | |
Moody’s Investors Service, Inc. | B3 | Stable | |
Standard & Poor’s Ratings Services | B- | Negative |
• | our ability to gather accurate and relevant data and effectively utilize that data in our strategic planning and decision making; |
• | our ability to respond to any unanticipated changes in expected cash flows, liquidity and cash needs, including our ability to obtain any additional financing or other liquidity enhancing transactions, if and when needed; |
• | our ability to access an adequate and uninterrupted supply of merchandise from suppliers at expected levels and on acceptable terms; |
• | counterparty credit risk; |
• | the risk that the duration or amount of the hedge may not match the duration or amount of the related liability; |
• | the hedging transactions may be adjusted from time to time in accordance with accounting rules to reflect changes in fair values, downward adjustments or “mark-to-market losses,” which would affect our stockholders’ equity; and |
• | the risk that we may not be able to meet the terms and conditions of the hedging instruments, in which case we may be required to settle the instruments prior to maturity with cash payments that could significantly affect our liquidity. |
• | potential disruptions in manufacturing, logistics and supply; |
• | changes in duties, tariffs, quotas and voluntary export restrictions on imported merchandise; |
• | strikes and other events affecting delivery; |
• | consumer perceptions of the safety of imported merchandise; |
• | product compliance with laws and regulations of the destination country; |
• | product liability claims from customers or penalties from government agencies relating to products that are recalled, defective or otherwise noncompliant or alleged to be harmful; |
• | concerns about human rights, working conditions and other labor rights and conditions and environmental impact in foreign countries where merchandise is produced and raw materials or components are sourced, and changing labor, environmental and other laws in these countries; |
• | local business practice and political issues that may result in adverse publicity or threatened or actual adverse consumer actions, including boycotts; |
• | compliance with laws and regulations concerning ethical business practices, such as the U.S. Foreign Corrupt Practices Act; and |
• | economic, political or other problems in countries from or through which merchandise is imported. |
Incorporated by Reference | ||||||||||||
Exhibit No. | Exhibit Description | Form | SEC File No. | Exhibit | Filing Date | Filed (†) Herewith (as indicated) | ||||||
3.1 | 10-Q | 001-15274 | 3.1 | 6/8/2011 | ||||||||
3.2 | 8-K | 001-15274 | 3.1 | 7/21/2016 | ||||||||
3.3 | 8-K | 001-15274 | 3.1 | 8/22/2013 | ||||||||
10.1 | † | |||||||||||
10.2 | † | |||||||||||
10.3 | † | |||||||||||
31.1 | † | |||||||||||
31.2 | † | |||||||||||
31.3 | † | |||||||||||
32.1 | † | |||||||||||
32.2 | † | |||||||||||
32.3 | † | |||||||||||
101.INS | XBRL Instance Document | † | ||||||||||
101.SCH | XBRL Taxonomy Extension Schema Document | † | ||||||||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | † | ||||||||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | † | ||||||||||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | † | ||||||||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | † |
J. C. PENNEY COMPANY, INC. | ||
By | /s/Andrew S. Drexler | |
Andrew S. Drexler Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) |
To: | |
From: | Board of Directors |
Date: | |
Subject: | Cash Bonus Award |
Name [Participant Name] | Employee ID [Employee ID] |
Date of Grant [Grant Date] | Number of Restricted Stock Units Granted [Shares Granted] |
1. | Restricted Stock Unit Grant. You have been granted the number of Restricted Stock Units listed above in recognition of your expected future contributions to the success of J. C. Penney Company, Inc. (“Company”). Each Restricted Stock Unit shall at all times be deemed to have a value equal to the then-current fair market value of one share of J. C. Penney Company, Inc. Common Stock of 50¢ par value (“Common Stock”). This grant is subject to all the terms, rules, and conditions of the J. C. Penney Company, Inc. 2018 Long-Term Incentive Plan (“Plan”) and the implementing resolutions (“Resolutions”) approved by the Human Resources and Compensation Committee (“Committee”) of the Company’s Board of Directors (“Board”). For purposes of this Restricted Stock Unit Grant Agreement (“Agreement”), “Employer” means the entity (the Company or the Subsidiary) that employs you on the applicable date. Capitalized terms not otherwise defined herein shall have the respective meanings assigned to them in the Plan and the Resolutions. You have 90 days from the date this Agreement is made available to you, either physically or electronically, to accept the terms of this Agreement. If you do not accept the terms of this Agreement in the applicable 90-day period, you will forfeit the Restricted Stock Units that are the subject of this Agreement. |
2. | Vesting of Your Restricted Stock Units. The Restricted Stock Units shall vest and the restrictions on your Restricted Stock Unit shall lapse on [VESTING DATE] (“Vest Date”), provided you remain continuously employed by the Company or a Subsidiary through the Vest Date (unless your Employment terminates due to your Retirement, Disability, death, job restructuring, reduction in force, mutual consent, or unit closing); otherwise the Restricted Stock Units granted will be forfeited. |
3. | Dividend Equivalents. You shall not have any rights as a stockholder until your Restricted Stock Units vest and you are issued shares of Common Stock in settlement of the vested Restricted Stock Units. If the Company declares a dividend, you will accrue dividend equivalents on the unvested Restricted Stock Units in the amount of any quarterly dividend declared on the Common Stock. Dividend equivalents shall continue to accrue until your Restricted Stock Units vest and you receive actual shares of Common Stock in settlement of the vested Restricted Stock Units. The dividend equivalents shall be credited as additional Restricted Stock Units in your account to be paid in shares of Common Stock on the Vest Date along with the Restricted Stock Units to which they relate. The number of additional Restricted Stock Units to be credited to your account shall be determined by dividing the aggregate dividend payable with respect to the number of Restricted Stock Units in your account by the closing price of the Common Stock on the New York Stock Exchange on the dividend payment date. The additional Restricted Stock Units credited to your account are subject to all of the terms and conditions of this Restricted Stock Unit award and the Plan and you shall forfeit any dividend equivalent Restricted Stock Units in the event that you forfeit the Restricted Stock Units to which they relate. |
4. | Employment Termination. If your Employment terminates due to Retirement, Disability, death, job restructuring, reduction in force, mutual consent, or unit closing prior to the Vest Date, you shall be entitled to a prorated number of Restricted Stock Units. The pro-rata number of Restricted Stock Units that will vest will be determined by multiplying the “Number of Restricted Stock Units Granted” from above by a fraction, the numerator of which is the number of months from the date of grant to the effective date of your termination of service, inclusive, and the denominator of which is [VESTING MONTHS]. The number of restricted stock units that have already vested according to the terms herein, if any, will be subtracted from the prorated amount and the remaining prorated restricted stock units to which you are entitled will be distributed as provided in Section 2 above. Any Restricted Stock Units for which vesting is not accelerated shall be cancelled on such Employment termination. |
5. | Covenants and Representations. By accepting this award, you hereby acknowledge that your duties to the Company or Employer require access to and creation of the Company’s confidential or proprietary information and trade secrets (collectively, the “Proprietary Information”). The Proprietary Information has been and will continue to be developed by the Company and its Subsidiaries and affiliates at substantial cost and constitutes valuable and unique property of the Company. You further acknowledge that due to the nature of your position, you will have access to Proprietary Information affecting plans and operations in every location in which the Company (and its Subsidiaries and affiliates) does business or plans to do business throughout the world, and your decisions and recommendations on behalf of the Company (or its Subsidiaries and affiliates) may affect its operations throughout the world. Accordingly, by accepting this award you acknowledge that the foregoing makes it reasonably necessary for the protection of the Company’s business interests that you agree to the following covenants in connection with (i) your involuntary separation from service, as defined under United States Treasury Regulation §1.409A-1(n), other than for Cause, or (ii) your voluntary separation from service: |
(a) | Confidentiality. You hereby covenant and agree that you shall not, without the prior written consent of the Company, during your employment with the Company or its Subsidiaries at any time thereafter disclose to any person not employed by the Company, or use in connection with engaging in competition with the Company, any Proprietary Information of the Company. |
i. | It is expressly understood and agreed that the Company’s Proprietary Information is all nonpublic information relating to the Company’s business, including but not limited to information, plans and strategies regarding suppliers, pricing, marketing, customers, hiring and terminations, employee performance and evaluations, internal reviews and investigations, short term and long range plans, acquisitions and divestitures, advertising, information systems, sales objectives and performance, as well as any other nonpublic information, the nondisclosure of which may provide a competitive or economic advantage to the Company. Proprietary Information shall not be deemed to have become public for purposes of this Agreement where it has been disclosed or made public by or through anyone acting in violation of a contractual, ethical, or legal responsibility to maintain its confidentiality. |
ii. | In the event you receive a subpoena, court order, or other summons that may require you to disclose Proprietary Information, on pain of civil or criminal penalty, you will promptly give notice to the Company of the subpoena or summons and provide the Company an opportunity to appear at the Company’s expense and challenge the disclosure of its Proprietary Information, and you shall provide reasonable cooperation to the Company for purposes of affording the Company the opportunity to prevent the disclosure of the Company’s Proprietary Information. |
(b) | Nonsolicitation of Employees. You hereby covenant and agree that during your employment with the Company or its Subsidiaries and, in the event you, as noted above, (i) have a voluntary separation from service, or (ii) have an involuntary separation from service other than for Cause, that for a period equal to (x) 18 months, if you are an Executive Vice President on the date of your separation from service, or (y) 12 months, if you are a Senior Vice President, thereafter, you shall not, without the prior written consent of the Company, on your own behalf or on the behalf of any person, firm or company, directly or indirectly, attempt to influence, persuade or induce, or assist any other person in so persuading or inducing, any of the employees of the Company (or any of its Subsidiaries or affiliates) to give up his or her employment with the Company (or any of its Subsidiaries or affiliates), and you shall not directly or indirectly solicit or hire employees of the Company (or any of its Subsidiaries or affiliates) for employment with any other employer, without regard to whether that employer is a Competing Business, as defined below. |
(c) | Noninterference with Business Relations. You hereby covenant and agree that during your employment with the Company and, in the event you, as noted above, (i) have a voluntary separation from service, or (ii) have an involuntary separation from service other than for Cause, that for a period equal to (x) 18 months, if you are an Executive Vice President on the date of your separation from service, or (y) 12 months, if you are a Senior Vice President, thereafter, you shall not, without the prior written consent of the Company, on your own behalf or on the behalf of any person, firm or company, directly or indirectly, attempt to influence, persuade or induce, or assist any other person in so persuading or inducing, any person, firm or company to cease doing business with, reduce its business with, or decline to commence a business relationship with, the Company (or any of its Subsidiaries or affiliates). |
(d) | Noncompetition. |
i. | You hereby covenant and agree that during your employment with the Company or its Subsidiaries and, in the event you, as noted above, (i) have a voluntary separation from service, or (ii) have an involuntary separation from service other than for Cause, that for a period equal to (x) 18 months, if you are an Executive Vice President on the date of your separation from service, or (y) 12 months, if you are a Senior Vice President, (the “Severance Period”) thereafter, you will not, except as otherwise provided for below, undertake any work for a Competing Business, as defined in subsection 5(d)ii. |
ii. | As used in this Agreement, the term “Competing Business” shall specifically include, but not be limited to: |
A. | Kohl’s Corporation, Macy’s, Inc., Target Corporation, The TJX Companies, Inc., Ross Stores, Inc., Walmart Inc., Amazon.com, Inc., and any of their respective subsidiaries or affiliates, o |
B. | any business (1) that, at any time during the Severance Period, competes directly with the Company through sales of merchandise or services in the United States or another country or commonwealth in which the Company, including its divisions, affiliates and licensees, operates, and (2) where you perform services, whether paid or unpaid, in any capacity, including as an officer, director, owner, consultant, employee, agent, or representative, where such services involve the performance of (x) substantially similar duties or oversight responsibilities as those you performed at any time during the 12-month period preceding your termination from the Company or a Subsidiary for any reason, or (y) greater duties or responsibilities that include such substantially similar duties or oversight responsibilities as those referred to in (x); or |
C. | any business that provides buying office or sourcing services to any business of the types referred to in this subsection 5(d). |
iii. | For purposes of this section, the restrictions on working for a Competing Business shall include working at any location within the United States, Puerto Rico or Hong Kong. You acknowledge that the Company is a national retailer with operations throughout the United States and Puerto Rico and that the duties and responsibilities that you perform, or will perform, for the Company directly impact the Company’s ability to compete with a Competing Business in a nationwide marketplace. You further acknowledge that you have, or will have, access to sensitive and confidential information of the Company that relates to the Company’s ability to compete in a nationwide marketplace. |
(e) | Non-Disparagement. You covenant that you will not make any statement or representation, oral or written, that could adversely affect the reputation, image, goodwill or commercial interests of the Company. This provision will be construed as broadly as state or federal law permits, but no more broadly than permitted by state or federal law. This provision is not intended to and does not prohibit you from participating in a governmental investigation concerning the Company, or providing truthful testimony in any lawsuit, arbitration, mediation, negotiation or other matter. You agree not to incur any expenses, obligations or liabilities on behalf of the Company. |
(f) | Enforcement and Injunctive Relief. In addition to any other remedies to which the Company is entitled, on the Company’s becoming aware that you have breached, or potentially have breached, any of the Covenants and Representations set forth in this Agreement, above, the Company shall have a right to seek recoupment of the portion of any award under the Plan, or any plan or program that is a successor to the Plan, that (i) vested within the 12 months prior to the date of your voluntary separation from service or your involuntary separation from service other than for cause, each under and as defined in your termination agreement, and (ii) includes and is subject to these Covenants and Representations, including any proceeds or value received from the settlement or sale of that portion of any such awards. Further, if you shall breach any of the covenants contained herein, the Company may recover from you all such damages as it may be entitled to under the terms of this Agreement, any other agreement between the Company and you, at law, or in equity. In addition, you acknowledge that any such breach of the Covenants and Representations in the Agreement is likely to result in immediate and irreparable harm to the Company for which money damages are likely to be inadequate. Accordingly, you consent to injunctive and other appropriate equitable relief without the necessity of bond in excess of USD 500 upon the institution of proceedings therefore by the Company in order to protect the Company’s rights hereunder. |
6. | Recoupment. As provided in Section 12.19 of the Plan, this Award is subject to any compensation recoupment policy adopted by the Board or the Committee prior to or after the effective date of the Plan, and as such policy may be amended from time to time after its adoption. |
7. | Responsibility for Taxes. |
(a) | Liability for Tax-Related Items. You acknowledge that regardless of any action the Company or Employer takes with respect to any or all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to your participation in the Plan and legally applicable to you (“Tax-Related Items”), the ultimate liability for all Tax-Related Items is and remains your responsibility and may exceed the amount actually withheld by the Company or the Employer. You further acknowledge that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, including the grant, vesting or settlement of the Restricted Stock Units, the subsequent sale of any shares of Common Stock acquired as a result of such settlement and/or the receipt of any dividends after settlement; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate the your liability for Tax-Related Items or achieve any particular tax result. Furthermore, you acknowledge that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction. |
(b) | Tax-Related Items Withholding Procedures. You authorize the use of the withholding procedures set forth below in this subsection 7(b) to satisfy all Tax-Related Items obligations of the Company and/or the Employer that may arise upon the vesting of the Restricted Stock Units or any other taxable or tax withholding event. The Company shall not be required to issue or deliver the shares of Common Stock if you fail to comply with your obligations in connection with the Tax-Related Items. Further, the Company may withhold or account for Tax-Related Items by considering minimum statutory withholding or such other rate that will not cause adverse accounting consequences. |
8. | Nature of Grant. In accepting the Restricted Stock Units, you acknowledge that: |
(a) | the Plan is established voluntarily by the Company, is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan; |
(b) | the grant of the Restricted Stock Units is exceptional, discretionary, voluntary and occasional and does not create any contractual or other right to receive future grants of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been granted in the past; |
(c) | all decisions with respect to future Restricted Stock Unit grants, if any, will be at the sole discretion of the Company; |
(d) | you are voluntarily participating in the Plan; |
(e) | the Restricted Stock Units and any shares of Stock that may be received in settlement of the Restricted Stock Units, and the income and value of same, (i) are an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or the Employer, and which is outside the scope of your employment contract, if any, (ii) are not intended to replace any pension rights or compensation, and (iii) are not part of normal or expected compensation or salary for any purpose, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, holiday pay, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments; |
(f) | the Restricted Stock Unit grant will not be interpreted to form an employment contract or relationship with the Company or any Subsidiary, nor does it amend any legal relationship or legal entitlement between you and the Employer; |
(g) | this Agreement, the transactions contemplated hereunder and the vesting schedule set forth herein do not constitute an express or implied promise of your further employment for the vesting period, for any period, or at all, and will not interfere with your right or the right of the Employer to terminate your employment relationship at any time; |
(h) | unless otherwise determined by the Company in its sole discretion, for purposes of this Agreement, a termination of Employment shall be effective from the date on which active employment ends and shall not be extended by any statutory or common law notice of termination period; |
(i) | unless otherwise agreed with the Company, the Restricted Stock Units and the shares of Common Stock underlying the Restricted Stock Units, and the income and value of same, are not granted as consideration for, or in connection with, the service you may provide as a director of a Subsidiary; |
(j) | the future value of the underlying shares of Common Stock is unknown, indeterminable and cannot be predicted with certainty; |
(k) | neither the Company, the Employer nor any Subsidiary shall be liable for any foreign exchange rate fluctuation between your local currency and the United States Dollar that may affect the value of the Restricted Stock |
(l) | no claim or entitlement to compensation or damages shall arise from forfeiture of the Restricted Stock Units or the recoupment of any shares of Stock acquired pursuant to the Restricted Stock Units resulting from (i) termination of Employment (regardless of the reason for termination and whether or not the termination is later found to be invalid or in breach of employment laws in the jurisdiction where you are employed or the terms of your employment agreement, if any), and/or (ii) the application of any recoupment/forfeiture policy, as described herein; and in consideration of the grant of the Restricted Stock Units, you agree not to institute any claim against the Company or the Employer; and |
(m) | the Restricted Stock Units and the benefits evidenced by this Agreement do not create any entitlement, not otherwise specifically provided for in the Plan or provided by the Company in its discretion, to have the Restricted Stock Units or any such benefits transferred to, or assumed by, another company or to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the shares of Common Stock. |
9. | No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding your participation in the Plan, or your acquisition or sale of the underlying shares of Common Stock. You should consult your own personal tax, legal and financial advisors regarding your participation in the Plan before taking any action related to the Plan. |
10. | Data Privacy. You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Employer, the Company, and its Subsidiaries and affiliates for the exclusive purpose of implementing, administering and managing your participation in the Plan. |
11. | Imposition of Other Requirements. The Company reserves the right to impose other requirements on your participation in the Plan, on the Restricted Stock Units and on any shares of Common Stock acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing. |
12. | Addendum to Agreement. Notwithstanding any provision of this Agreement to the contrary, the Restricted Stock Units shall be subject to any special terms and conditions for your country of residence (and country of employment, if different) as set forth in the addendum to this Agreement (the “Addendum”). Further, if you transfer your residence and/or employment to a country reflected in the Addendum, the special terms and conditions for such country will apply to you to the extent the Company determines, in its sole discretion, that the application of such terms and conditions is necessary or advisable to comply with local laws, rules and/or regulations or to facilitate the operation and administration of the Restricted Stock Units and the Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate your transfer). The Addendum shall constitute part of this Agreement. |
13. | Language. If you have received the Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control. |
14. | Not a Public Offering. If you are resident outside the United States, the grant of the Restricted Stock Units is not intended to be a public offering of securities in your country of residence (or country of employment, if different). The Company has not submitted any registration statement, prospectus or other filings with the local securities authorities (unless otherwise required under local law), and the grant of the Restricted Stock Units is not subject to the supervision of the local securities authorities. |
15. | Insider Trading/Market Abuse Laws. You acknowledge that you may be subject to insider trading restrictions and/or market abuse laws in applicable jurisdictions, including the United States and your country, which may affect your ability to acquire or sell shares of Common Stock or rights to shares of Common Stock (e.g., Restricted Stock Units) under the Plan during such times as you are considered to have “inside information” regarding the Company (as defined by the laws in your country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. You acknowledge that it is your responsibility to be informed of and compliant with such regulations, and should speak to your personal advisor on this matter. |
16. | Foreign Asset/Account Reporting; Exchange Controls; Compliance with Law. Your country may have certain foreign asset and/or account reporting requirements and/or exchange controls which may affect your ability to acquire or hold shares of Common Stock under the Plan or cash received from participating in the Plan (including from any dividends received or sale proceeds arising from the sale of shares of Common Stock) in a brokerage or bank account outside your country. You may be required to report such accounts, assets or transactions to the tax or other authorities in your country. You also may be required to repatriate sale proceeds or other funds received as a result of your participation in the Plan to your country through a designated bank or broker and/or within a certain time after receipt. You acknowledge that it is your responsibility to be compliant with such regulations, and you should consult your personal legal advisor for any details. In addition, you agree to take any and all actions, and consent to any and all actions taken by the Company and its Subsidiaries, as may be required to allow the Company and its Subsidiaries to comply with local laws, rules and/or regulations in your country of residence (and country of employment, if different). Finally, you agree to take any and all actions as may be required to comply with your personal obligations under local laws, rules and/or regulations in your country of residence and country of employment, if different). |
17. | Electronic Delivery. The Company may, in its sole discretion, deliver by electronic means any documents related to the Award or your future participation in the Plan. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company. |
18. | Governing Law. This Agreement is governed by the substantive and procedural laws of the state of Delaware, without regard to Delaware’s conflict-of-laws principles. |
19. | Severability. If any provision of this Agreement is determined to be illegal, invalid, or unenforceable for any reason, under present or future law, the illegal, invalid, or unenforceable provision will be fully severable and severed, and |
1. | Settlement of RSUs. The Restricted Stock Units do not provide any right for you to receive a cash payment and the Restricted Stock Units will be settled only in shares of Common Stock. |
2. | Restrictions on Sale and Transferability. Shares of Common Stock acquired upon vesting of the Restricted Stock Units are accepted as a personal investment. In the event the Restricted Stock Units vest within six months of the Grant Date, you hereby agree that any shares of Common Stock acquired pursuant to the Restricted Stock Units may not be offered to the public in Hong Kong or otherwise disposed of prior to the six-month anniversary of the Grant Date. |
3. | Securities Warning. The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of the Agreement, the Plan or any Plan prospectus, you should obtain independent professional advice. The Restricted Stock Units and any shares of Common Stock issued thereunder do not constitute a public offering of securities under Hong Kong law and are available only to employees of the Company or its Subsidiaries. The Agreement, including any Addendum to the Agreement, the Plan, any Plan prospectus and any other incidental communication materials have not been prepared in accordance with and are not intended to constitute a “prospectus” for a public offering of securities under the applicable securities legislation in Hong Kong. The Restricted Stock Units and any related documentation are intended only for your personal use and may not be distributed to any other person. |
4. | Occupational Retirement Schemes Ordinance Notification. The Company specifically intends that the Plan will not be an occupational retirement scheme for purposes of the Occupational Retirement Schemes Ordinance. |
1. | Exchange Control Notice. You must repatriate any dividends and proceeds from the sale of shares of Common Stock to India within the time period prescribed under applicable local law. You should obtain evidence of the repatriation of funds in the form of a foreign inward remittance certificate (“FIRC”) from the bank where you deposit the foreign currency. You should maintain the FIRC as evidence of the repatriation of funds in the event the Reserve Bank of India or the Employer requests proof of repatriation. You also are responsible for complying with any other exchange control laws in India that may apply to the Restricted Stock Units or the shares of Common Stock acquired under the Plan. |
1. | I have reviewed this quarterly report on Form 10-Q of J. C. Penney Company, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Jeffrey A. Davis | |
Jeffrey A. Davis | |
Executive Vice President and Chief Financial Officer and Member of the Office of the CEO |
1. | I have reviewed this quarterly report on Form 10-Q of J. C. Penney Company, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Therace Risch | |
Therace Risch | |
Executive Vice President, Chief Information Officer and Chief Digital Officer and Member of the Office of the CEO |
1. | I have reviewed this quarterly report on Form 10-Q of J. C. Penney Company, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Michael Robbins | |
Michael Robbins | |
Executive Vice President, Private Brands and Supply Chain and Member of the Office of the CEO |
/s/ Jeffrey A. Davis | |
Jeffrey A. Davis | |
Executive Vice President and Chief Financial Officer and Member of the Office of the CEO |
/s/ Therace Risch | |
Therace Risch | |
Executive Vice President, Chief Information Officer and Chief Digital Officer and Member of the Office of the CEO |
/s/ Michael Robbins | |
Michael Robbins | |
Executive Vice President, Private Brands and Supply Chain and Member of the Office of the CEO |
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6 Months Ended
Document and Entity Information [Abstract]
Entity Registrant Name
J C PENNEY CO INC
Entity Central Index Key
0001166126
Current Fiscal Year End Date
--02-02
Entity Filer Category
Large Accelerated Filer
Document Type
10-Q
Document Period End Date
Aug. 04, 2018
Document Fiscal Year Focus
2018
Document Fiscal Period Focus
Q2
Amendment Flag
false
Entity Common Stock, Shares Outstanding
314,895,764
Trading Symbol
jcp
$ in Millions3 Months Ended
6 Months Ended
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, Tax
$ (1)
$ (2)
Net income/(loss)
$ (101)
(48)
[1]
$ (179)
(235)
[1]
Other comprehensive income/(loss), net of tax:
Net actuarial gain/(loss) arising during the period (1)
0
0
[1]
0
5
[1]
Reclassification for amortization of prior service (credit)/cost (2)
1
1
[1]
2
2
[1]
Net curtailment gain (3)
0
0
[1]
0
20
[1]
Gain/(loss) on interest rate swaps (4)
0
(3)
[1]
5
(6)
[1]
Reclassification for periodic settlements (5)
0
2
[1]
0
4
[1]
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax
0
2
[1]
0
2
Total other comprehensive income/(loss), net of tax
1
2
[1]
7
27
Total comprehensive income/(loss), net of tax
(100)
(46)
[1]
(172)
(208)
[1]
Net actuarial gain/(loss) arising during the period, tax
(4)
Other Comprehensive (Income) Loss, Defined Benefit Plan, Prior Service Cost (Credit), Reclassification Adjustment from AOCI, Tax
$ (1)
(1)
(2)
(2)
Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans Reclassification of Prior Service (Credit)/Cost from a Curtailment, Tax
(11)
Other Comprehensive Income (Loss), Unrealized Gain (Loss) on Derivatives Arising During Period, Tax
2
$ (1)
3
Interest Expense [Member]
Other comprehensive income/(loss), net of tax:
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, before Tax
$ 3
$ 6
[1]
As Adjusted
$ in Millions3 Months Ended
6 Months Ended
Other Comprehensive (Income) Loss, Defined Benefit Plan, Prior Service Cost (Credit), Reclassification Adjustment from AOCI, Tax
$ (1)
$ (1)
$ (2)
$ (2)
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Gain (Loss) Due to Settlement
0
0
0
0
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, Tax
(1)
(2)
Other components of net periodic pension cost/(income) [Member]
Other Comprehensive (Income) Loss, Defined Benefit Plan, Prior Service Cost (Credit), Reclassification Adjustment from AOCI, before Tax
$ 2
2
$ 4
4
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Gain (Loss) Due to Settlement
5
Interest Expense [Member]
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, before Tax
$ 3
$ 6
$ in Millions[1]
[1]
Current assets:
Cash in banks and in transit
$ 171
$ 116
$ 186
Cash short-term investments
11
342
128
Cash and cash equivalents
182
458
314
Merchandise inventory
2,824
2,803
2,820
Prepaid expenses and other
221
190
223
Total current assets
3,227
3,451
3,357
Property and equipment (net of accumulated depreciation of $3,293, $3,610 and $3,500)
4,058
4,281
4,390
Prepaid pension
87
61
0
Other assets
686
661
622
Total Assets
8,058
8,454
8,369
Current liabilities:
Merchandise accounts payable
910
973
950
Other accounts payable and accrued expenses
1,025
1,156
1,121
Current portion of capital leases, financing obligation and note payable
7
8
9
Current maturities of long-term debt
42
232
232
Total current liabilities
1,984
2,369
2,312
Long-term capital leases, financing obligation and note payable
208
212
216
Long-term debt
3,960
3,780
3,836
Deferred taxes
144
143
202
Other liabilities
546
567
635
Total Liabilities
6,842
7,071
7,201
Stockholders’ Equity
Common stock
[2]
157
156
155
Additional paid-in capital
4,709
4,705
4,694
Reinvested earnings/(accumulated deficit)
(3,297)
(3,118)
(3,235)
Accumulated other comprehensive income/(loss)
(353)
(360)
(446)
Total Stockholders’ Equity
1,216
1,383
1,168
Total Liabilities and Stockholders’ Equity
$ 8,058
$ 8,454
$ 8,369
[1]
As Adjusted
[2]
1,250 million shares of common stock are authorized with a par value of $0.50 per share. The total shares issued and outstanding were 314.8 million, 310.3 million and 312.0 million as of August 4, 2018, July 29, 2017 and February 3, 2018, respectively.
$ in Millions
Statement of Financial Position [Abstract]
Accumulated depreciation
$ (3,293)
$ (3,500)
$ (3,610)
Common stock, shares authorized
1,250,000,000
1,250,000,000
1,250,000,000
Common stock, par value per share
$ 0.50
$ 0.50
$ 0.5
Common stock, shares issued
314,800,000
312,000,000
310,300,000
Common stock, shares outstanding
314,800,000
312,000,000
310,300,000
$ in Millions6 Months Ended
Cash flows from operating activities
Net income/(loss)
$ (179)
$ (235)
[1]
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Restructuring and management transition
(3)
73
[1]
Asset impairments and other charges
52
3
[1]
Net gain on sale of operating assets
(57)
(118)
[1]
(Gain)/loss on extinguishment of debt
23
35
[1]
Depreciation and amortization
281
289
[1]
Benefit plans
(37)
96
[1]
Stock-based compensation
6
16
[1]
Deferred taxes
(1)
(19)
[1]
Change in cash from:
Inventory
(21)
76
[1]
Prepaid expenses and other
(21)
(64)
[1]
Merchandise accounts payable
(63)
(27)
[1]
Income taxes
0
3
[1]
Accrued expenses and other
(115)
(72)
[1]
Net Cash Provided by (Used in) Operating Activities
(135)
56
[1]
Cash flows from investing activities
Capital expenditures
(221)
(192)
[1]
Net proceeds from sale of operating assets
121
146
[1]
Joint venture return of investment
0
9
[1]
Net Cash Provided by (Used in) Investing Activities
(100)
(37)
[1]
Cash flows from financing activities
Proceeds from issuance of long-term debt
400
0
[1]
Proceeds from borrowings under the credit facility
2,258
272
[1]
Payments of borrowings under the credit facility
(2,081)
(272)
[1]
Premium on early retirement of debt
20
30
[1]
Payments of capital leases, financing obligation and note payable
(4)
(12)
[1]
Payments of long-term debt
(586)
(541)
[1]
Financing costs
(7)
(9)
[1]
Proceeds from stock issued under stock plans
2
3
[1]
Tax withholding payments for vested restricted stock
(3)
(3)
[1]
Net Cash Provided by (Used in) Financing Activities
(41)
(592)
[1]
Net increase/(decrease) in cash and cash equivalents
(276)
(573)
[1]
Cash and cash equivalents at beginning of period
[1]
458
887
Cash and cash equivalents at end of period
182
314
[1]
Supplemental cash flow information
Income taxes received/(paid), net
(5)
(5)
[1]
Interest received/(paid), net
(145)
(163)
[1]
Supplemental non-cash investing and financing activity
Increase/(decrease) in other accounts payable related to purchases of property and equipment and software
$ (20)
$ 6
[1]
[1]
As Adjusted
6 Months Ended
Basis of Presentation and Consolidation [Abstract]
Basis of Presentation and Consolidation
6 Months Ended
Change in Accounting for Revenue Recognition and Retirement-Related Benefits [Abstract]
Accounting Changes [Text Block]
6 Months Ended
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]
Effect of New Accounting Standards
6 Months Ended
Revenue from Contract with Customer [Abstract]
Revenue from Contract with Customer [Text Block]
6 Months Ended
Earnings Per Share [Abstract]
Earnings/(Loss) per Share
2018
2017
2018
2017
2018
2017
2018
2017
6 Months Ended
Debt Disclosure [Abstract]
Long-Term Debt
6 Months Ended
Derivative [Line Items]
Derivative Instruments and Hedging Activities Disclosure [Text Block]
6 Months Ended
Restructuring and Related Activities [Abstract]
Restructuring and Management Transition
2018
2017
2018
2017
6 Months Ended
Fair Value Disclosures [Abstract]
Fair Value Disclosures
6 Months Ended
Stockholders' Equity Note [Abstract]
Stockholders' Equity
of
Common
Paid-in
Earnings/
(Accumulated
Other
Comprehensive
Stockholders’
Comprehensive
6 Months Ended
Retirement Benefit Plans [Abstract]
Retirement Benefit Plans
2018
2017
2018
2017
6 Months Ended
Real Estate and Other, Net [Abstract]
Real Estate and Other, Net
2018
2017
2018
2017
6 Months Ended
Income Tax Disclosure [Abstract]
Income Taxes
6 Months Ended
Litigation, Other Contingencies and Guarantees [Abstract]
Litigation, Other Contingencies and Guarantees
6 Months Ended
Basis of Presentation and Consolidation [Abstract]
Consolidation, Policy
Fiscal Period, Policy
Reclassification, Policy
6 Months Ended
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Schedule of Prior Period Adjustments Made to Consolidated Statements of Operations [Table Text Block]
Schedule of Prior Period Adjustments Made to Consolidated Statements of Comprehensive Income Loss [Table Text Block]
Schedule of Prior Period Adjustments Made to Consolidated Balance Sheet [Table Text Block]
Schedule of Prior Period Adjustments Made to Consolidated Statements of Cash Flows [Table Text Block]
6 Months Ended
Disaggregation of Revenue [Line Items]
Disaggregation of Revenue [Table Text Block]
6 Months Ended
Revenue from Contract with Customer [Abstract]
Contract with Customer, Liability [Table Text Block]
Change in Contract with Customer, Liability Rollforward [Table Text Block]
6 Months Ended
Earnings Per Share [Abstract]
Earnings/(Loss) per Share
2018
2017
2018
2017
Antidilutive common stock
2018
2017
2018
2017
6 Months Ended
Debt Instrument [Line Items]
Schedule of Debt [Table Text Block]
6 Months Ended
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Schedule of Derivative Liabilities at Fair Value [Table Text Block]
6 Months Ended
Restructuring Reserve [Abstract]
Composition of Restructuring and Management Transition Charges
2018
2017
2018
2017
Restructuring and Management Transition Charges
6 Months Ended
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Instruments Not Carried at Fair Value, Carrying Value and Fair Value
6 Months Ended
Stockholders' Equity Note [Abstract]
Schedule of Components in Stockholders' Equity
of
Common
Paid-in
Earnings/
(Accumulated
Other
Comprehensive
Stockholders’
Schedule of Changes in Accumulated Other Comprehensive Income (Loss)
Comprehensive
6 Months Ended
Retirement Benefit Plans [Abstract]
Schedule of Pension Plan Expense/(Income)
2018
2017
2018
2017
6 Months Ended
Real Estate and Other, Net [Abstract]
Schedule of Other Operating Cost and Expense, by Component [Table Text Block]
2018
2017
2018
2017
6 Months Ended
Entity Information [Line Items]
State of incorporation
Delaware
J. C. Penney Corporation, Inc. [Member]
Entity Information [Line Items]
Year Incorporated
1924
J. C. Penney Company, Inc. [Member]
Entity Information [Line Items]
Year Incorporated
2002
$ / shares in Units, $ in Millions3 Months Ended
6 Months Ended
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Total net sales
$ 2,762
$ 2,985
[1]
$ 5,346
$ 5,686
[1]
Merchandise inventory
2,824
2,820
[1]
2,824
2,820
[1]
$ 2,803
[1]
Other accounts payable and accrued expenses
1,025
1,121
[1]
1,025
1,121
[1]
1,156
[1]
Credit income and other
67
83
[1]
154
166
[1]
Cost of goods sold (exclusive of depreciation and amortization shown separately below)
1,831
1,932
[1]
3,543
3,657
[1]
Selling, general and administrative (SG&A)
880
935
[1]
1,706
1,873
[1]
Defined Benefit Plan, Net Periodic Benefit Cost (Credit)
(9)
(4)
(19)
113
Restructuring and management transition
2
23
[1]
9
123
[1]
Operating Income (Loss)
(36)
53
[1]
(33)
47
[1]
Other components of net periodic pension cost/(income)
(19)
(14)
[1]
(38)
92
[1]
Income/(loss) before income taxes
(96)
(47)
[1]
(175)
(246)
[1]
Net income/(loss)
(101)
(48)
[1]
(179)
(235)
[1]
Increase (Decrease) in Retail Related Inventories
(21)
76
[1]
Reinvested earnings/(accumulated deficit)
$ (3,297)
$ (3,235)
[1]
(3,297)
(3,235)
[1]
(3,118)
[1]
Accrued expenses and other
$ (115)
$ (72)
[1]
Earnings Per Share, Basic
$ (0.32)
$ (0.15)
[1]
$ (0.57)
$ (0.76)
[1]
Earnings Per Share, Diluted
$ (0.32)
$ (0.15)
[1]
$ (0.57)
$ (0.76)
[1]
Previously Reported [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Total net sales
$ 2,962
$ 5,668
Merchandise inventory
2,777
2,777
2,762
Other accounts payable and accrued expenses
1,091
1,091
1,119
Credit income and other
0
0
Cost of goods sold (exclusive of depreciation and amortization shown separately below)
1,923
3,646
Selling, general and administrative (SG&A)
842
1,685
Defined Benefit Plan, Net Periodic Benefit Cost (Credit)
(4)
(6)
Restructuring and management transition
23
243
Operating Income (Loss)
53
(52)
Other components of net periodic pension cost/(income)
0
0
Income/(loss) before income taxes
(61)
(253)
Net income/(loss)
(62)
(242)
Increase (Decrease) in Retail Related Inventories
(77)
Reinvested earnings/(accumulated deficit)
$ (3,248)
(3,248)
(3,122)
Accrued expenses and other
$ (66)
Earnings Per Share, Basic
$ (0.20)
$ (0.78)
Earnings Per Share, Diluted
$ (0.20)
$ (0.78)
As Adjusted [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Defined Benefit Plan, Net Periodic Benefit Cost (Credit)
[1]
$ 0
$ 0
Operating Income (Loss)
[1]
53
47
Income/(loss) before income taxes
[1]
$ (47)
$ (246)
Earnings Per Share, Basic
[1]
$ (0.15)
$ (0.76)
Earnings Per Share, Diluted
[1]
$ (0.15)
$ (0.76)
Effect of Change [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Total net sales
$ 23
$ 18
Merchandise inventory
43
43
41
Other accounts payable and accrued expenses
30
30
37
Credit income and other
83
166
Cost of goods sold (exclusive of depreciation and amortization shown separately below)
9
11
Selling, general and administrative (SG&A)
93
188
Defined Benefit Plan, Net Periodic Benefit Cost (Credit)
4
6
Restructuring and management transition
0
(120)
Operating Income (Loss)
0
99
Other components of net periodic pension cost/(income)
(14)
92
Income/(loss) before income taxes
14
7
Net income/(loss)
14
7
Increase (Decrease) in Retail Related Inventories
1
Reinvested earnings/(accumulated deficit)
$ 13
13
$ 4
Accrued expenses and other
$ (6)
Earnings Per Share, Basic
$ 0.05
$ 0.02
Earnings Per Share, Diluted
$ 0.05
$ 0.02
[1]
As Adjusted
$ in Millions3 Months Ended
6 Months Ended
[1]
[1]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Net income/(loss)
$ (101)
$ (48)
$ (179)
$ (235)
Accounting Standards Update 2016-05 [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
New accounting pronouncement or change in accounting principle, description
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force) (ASU 2016-15). ASU 2016-15 clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods therein. Entities should apply the guidance retrospectively, but if it is impracticable to do so for an issue, the amendments related to that issue may be applied prospectively. We have adopted ASU 2016-15 on February 4, 2018 and it did not have a significant impact on our accounting and disclosures.
Accounting Standards Update 2016-02 [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
New accounting pronouncement or change in accounting principle, description
In February 2016, the FASB issued ASC Topic 842, Leases (Topic 842), a replacement of Leases (Topic 840) and updated by various targeted improvements, which will require lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. While many aspects of lessor accounting would remain the same, the new standard would make some changes, such as eliminating today’s real estate-specific guidance. As a globally converged standard, lessees and lessors would be required to classify most leases using a principle generally consistent with that of International Accounting Standards. The standard also would change what would be considered the initial direct costs of a lease. The standard would be effective for annual periods beginning after December 15, 2018 and interim periods within that year and must be adopted by a modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented, or by an optional transition method, which would allow the application of current legacy guidance, including its disclosure requirements, in the comparative periods presented in the year of adoption. The Company plans to use the optional transition method when adopting the new standard.
We have developed a project team to analyze the impacts of the new standard on our current accounting policies and internal controls and the changes required to be made by our leasing software provider. With almost 70% of our store locations involved in an operating lease, the new standard will have a significant impact on our financial statements due to the recognition of lease liabilities and right-of-use assets that are not required by the current accounting requirements for operating leases. Given the magnitude of the project to implement the new standard, we are still evaluating the effect that the new accounting guidance will have on our financial condition, results of operations and cash flows.
[1]
As Adjusted
$ in Millions3 Months Ended
6 Months Ended
[1]
[1]
Disaggregation of Revenue [Line Items]
Total net sales
$ 2,762
$ 2,985
$ 5,346
$ 5,686
Women's apparel [Member]
Disaggregation of Revenue [Line Items]
Percent of Total Net Sales
25.00%
25.00%
25.00%
25.00%
Total net sales
$ 694
$ 748
$ 1,308
$ 1,426
Men's apparel and accessories [Member]
Disaggregation of Revenue [Line Items]
Percent of Total Net Sales
20.00%
21.00%
20.00%
20.00%
Total net sales
$ 563
$ 618
$ 1,063
$ 1,147
Home [Member]
Disaggregation of Revenue [Line Items]
Percent of Total Net Sales
13.00%
14.00%
13.00%
14.00%
Total net sales
$ 361
$ 415
$ 716
$ 790
Women's accessories, including Sephora [Member]
Disaggregation of Revenue [Line Items]
Percent of Total Net Sales
13.00%
12.00%
13.00%
13.00%
Total net sales
$ 345
$ 365
$ 700
$ 722
Children's, including toys [Member]
Disaggregation of Revenue [Line Items]
Percent of Total Net Sales
9.00%
8.00%
8.00%
8.00%
Total net sales
$ 241
$ 246
$ 448
$ 473
Footwear and handbags [Member]
Disaggregation of Revenue [Line Items]
Percent of Total Net Sales
8.00%
8.00%
8.00%
8.00%
Total net sales
$ 227
$ 251
$ 440
$ 483
Jewelry [Member]
Disaggregation of Revenue [Line Items]
Percent of Total Net Sales
5.00%
5.00%
6.00%
6.00%
Total net sales
$ 151
$ 149
$ 312
$ 308
Services and other [Member]
Disaggregation of Revenue [Line Items]
Percent of Total Net Sales
7.00%
7.00%
7.00%
6.00%
Total net sales
$ 180
$ 193
$ 359
$ 337
Total [Member]
Disaggregation of Revenue [Line Items]
Percent of Total Net Sales
100.00%
100.00%
100.00%
100.00%
[1]
As Adjusted
$ in Millions6 Months Ended
Revenue from Contract with Customer [Abstract]
Contract with Customer, Liability
$ 217
$ 228
Contract with Customer Liability [Roll Forward]
Beginning Balance
217
228
Current Period Gift Cards Sold and Reward Points Earned
148
209
Net Sales From Amounts Included in Contract Liability Opening Balances
(59)
(68)
Net Sales from Current Period Usage
(128)
(175)
Ending Balance
178
194
Gift Cards [Member]
Revenue from Contract with Customer [Abstract]
Contract with Customer, Liability
144
118
Contract with Customer Liability [Roll Forward]
Beginning Balance
144
Ending Balance
116
118
Loyalty Rewards [Member]
Revenue from Contract with Customer [Abstract]
Contract with Customer, Liability
73
76
Contract with Customer Liability [Roll Forward]
Beginning Balance
73
Ending Balance
62
76
Total [Member]
Revenue from Contract with Customer [Abstract]
Contract with Customer, Liability
217
194
Contract with Customer Liability [Roll Forward]
Beginning Balance
217
Ending Balance
$ 178
$ 194
$ / shares in Units, shares in Millions, $ in Millions3 Months Ended
6 Months Ended
Earnings Per Share [Abstract]
Net income/(loss)
$ (101)
$ (48)
[1]
$ (179)
$ (235)
[1]
Weighted average common shares outstanding (basic shares)
315.7
310.8
[1]
314.8
310.2
[1]
Weighted average shares assuming dilution (diluted shares)
315.7
310.8
[1]
314.8
310.2
[1]
Basic (in dollars per share)
$ (0.32)
$ (0.15)
[1]
$ (0.57)
$ (0.76)
[1]
Diluted (in dollars per share)
$ (0.32)
$ (0.15)
[1]
$ (0.57)
$ (0.76)
[1]
Stock options, restricted stock awards and warrant
25.6
33.5
27.2
33.3
[1]
As Adjusted
$ in Millions3 Months Ended
6 Months Ended
Debt Instrument, Face Amount
$ 400
Less: current maturities
$ (42)
$ (232)
[1]
$ (42)
$ (232)
[1]
$ (232)
[1]
Unamortized debt issuance costs
(52)
(56)
(52)
(56)
(51)
Total debt
4,054
4,124
4,054
4,124
4,063
Total long-term debt
3,960
3,836
[1]
3,960
3,836
[1]
3,780
[1]
(Gain)/loss on extinguishment of debt
$ 0
35
[1]
23
35
[1]
Premium on early retirement of debt
20
$ 20
30
[1]
Payment for Debt Extinguishment or Debt Prepayment Cost
1
Write off of Deferred Debt Issuance Cost
2
Senior Notes 5.65% Due 2020 [Member]
Debt Instrument, Interest Rate, Stated Percentage
5.65%
5.65%
Unsecured Long-term Debt, Noncurrent
[2]
$ 110
400
$ 110
400
360
Senior Notes 5.75% Due 2018 [Member]
Debt Instrument, Interest Rate, Stated Percentage
5.75%
5.75%
Unsecured Long-term Debt, Noncurrent
[2]
$ 0
190
$ 0
190
190
Senior Secured Notes Five Point Eight Seven Five Percent Due2023 [Member]
Debt Instrument, Interest Rate, Stated Percentage
5.875%
5.875%
Secured Long-term Debt, Noncurrent
[2]
$ 500
500
$ 500
500
500
Senior Notes 6.375% Due 2036 [Member]
Debt Instrument, Interest Rate, Stated Percentage
6.375%
6.375%
Unsecured Long-term Debt, Noncurrent
[2]
$ 388
388
$ 388
388
388
Notes 6.9% Due 2026 [Member]
Debt Instrument, Interest Rate, Stated Percentage
6.90%
6.90%
Unsecured Long-term Debt, Noncurrent
$ 2
2
$ 2
2
2
Debentures 7.125% Due 2023 [Member]
Debt Instrument, Interest Rate, Stated Percentage
7.125%
7.125%
Unsecured Long-term Debt, Noncurrent
$ 10
10
$ 10
10
10
Senior Secured Second Priority Notes 8.625% due 2025 [Member]
Debt Instrument, Interest Rate, Stated Percentage
8.625%
8.625%
Secured Long-term Debt, Noncurrent
[2]
$ 400
0
$ 400
0
0
Debentures 7.4% Due 2037 [Member]
Debt Instrument, Interest Rate, Stated Percentage
7.40%
7.40%
Unsecured Long-term Debt, Noncurrent
$ 313
313
$ 313
313
313
Notes 7.625% Due 2097 [Member]
Debt Instrument, Interest Rate, Stated Percentage
7.625%
7.625%
Unsecured Long-term Debt, Noncurrent
$ 500
500
$ 500
500
500
2017 Credit Facility [Member]
Secured Long-term Debt, Noncurrent
$ 177
0
$ 177
0
0
Senior Notes 8.125% due 2019 [Member]
Debt Instrument, Interest Rate, Stated Percentage
8.125%
8.125%
Unsecured Long-term Debt, Noncurrent
[2]
$ 50
175
$ 50
175
175
2016 Term Loan Facility [Member]
Secured Long-term Debt, Noncurrent
1,604
1,646
1,604
1,646
1,625
Notes And Debentures Including Current Maturities [Member]
Total debt
$ 4,054
$ 4,124
$ 4,054
$ 4,124
$ 4,063
Senior Notes 5.65% Due 2020 [Member]
Debt repurchase, aggregate consideration paid
250
Senior Notes 8.125% due 2019 [Member]
Debt repurchase, aggregate consideration paid
125
Portions of Senior Notes due 2018 and Senior Notes due 2019 [Member]
(Gain)/loss on extinguishment of debt
$ (23)
[1]
As Adjusted
[2]
These debt issuances contain a change of control provision that would obligate us, at the holders’ option, to repurchase the debt at a price of 101%.
$ in Millions3 Months Ended
Derivative Instruments, Gain (Loss) [Line Items]
Discussion of Objectives for Using Interest Rate Derivative Instruments
Fix a portion of our variable LIBOR-based interest payments
Interest Rate Cash Flow Hedge Liability at Fair Value
$ 0
$ 1
$ 15
Interest Rate Cash Flow Hedge Asset at Fair Value
$ 17
9
Derivative, Notional Amount
$ 1,250
Derivative, Average Fixed Interest Rate
2.04%
Description of Reclassification of Interest Rate Cash Flow Hedge Gain (Loss)
Amounts in Accumulated other comprehensive income/(loss) are reclassified into net income/(loss) when the related interest payments affect earnings
Description of Location of Interest Rate Cash Flow Hedge Derivative on Balance Sheet
The fair value of our interest rate swaps are recorded on the unaudited Interim Consolidated Balance Sheets as an asset or a liability (see Note 9).
Description of Location of Gain (Loss) on Interest Rate Cash Flow Hedge Derivative in Financial Statements
The effective portion of the interest rate swaps' changes in fair values is reported in Accumulated other comprehensive income/(loss) (see Note 10), and the ineffective portion is reported in Net income/(loss).
Description of Interest Rate Derivative Activities
We have entered into interest rate swap agreements with notional amounts totaling $1,250 million to fix a portion of our variable LIBOR-based interest payments. The interest rate swap agreements have a weighted-average fixed rate of 2.04%, mature on May 7, 2020 and have been designated as cash flow hedges.
Effectiveness of interest rate swaps
100.00%
Prepaid Expenses and Other Current Assets [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Interest Rate Cash Flow Hedge Asset at Fair Value
$ 1
Other Liabilities [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Interest Rate Cash Flow Hedge Liability at Fair Value
0
0
13
Other Accounts Payable and Accrued Expenses [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Interest Rate Cash Flow Hedge Liability at Fair Value
0
1
$ 2
Other Assets [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Interest Rate Cash Flow Hedge Asset at Fair Value
$ 16
$ 9
$ in Millions3 Months Ended
6 Months Ended
Restructuring Cost and Reserve [Line Items]
Severance Costs
$ 14
Number of employees eligible for VERP | employee
6,000
Number of employees accepted VERP | employee
2,800
Defined Benefit Plan, Benefit Obligation, Special and Contractual Termination Benefits
$ 0
$ 0
$ 112
$ 0
$ (112)
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Gain (Loss) Due to Curtailment
0
0
$ 7
0
(7)
Defined Benefit Plan, Assumptions Used Calculating Benefit Obligation, Discount Rate | Rate
4.34%
4.40%
Number of stores announced closing | stores
138
Asset Impairment Charges
52
0
$ 77
52
0
Home Office And Stores [Member]
Restructuring Cost and Reserve [Line Items]
Charges
2
23
9
121
Cumulative Amount
482
482
Other Restructuring And Management Transition [Member]
Restructuring Cost and Reserve [Line Items]
Charges
0
0
0
2
Cumulative Amount
185
185
Total [Member]
Restructuring Cost and Reserve [Line Items]
Charges
2
$ 23
9
$ 123
Cumulative Amount
$ 667
$ 667
Pension Plan [Member]
Restructuring Cost and Reserve [Line Items]
Defined benefit plan increase (decrease) due to special retirement benefits
88
Defined Benefit Plan, Funded Status of Plan, Percent | Rate
98.00%
Defined benefit plan incr (decr) in FV of assets due to remeasurement and curtailment
34
Defined benefit plan obligation increase (decrease) due to remeasurement and curtailment
3
Supplemental Employee Retirement Plan [Member]
Restructuring Cost and Reserve [Line Items]
Defined benefit plan increase (decrease) due to special retirement benefits
24
Defined benefit plan obligation increase (decrease) due to remeasurement and curtailment
$ (3)
$ in Millions3 Months Ended
6 Months Ended
Home Office And Stores [Member]
Restructuring Reserve [Roll Forward]
February 3, 2018
$ 34
Charges
$ 2
$ 23
9
$ 121
Restructuring and Related Cost, Incurred Cost
12
Cash payments
(25)
August 4, 2018
21
21
Other Restructuring And Management Transition [Member]
Restructuring Reserve [Roll Forward]
February 3, 2018
7
Charges
0
0
0
2
Restructuring and Related Cost, Incurred Cost
0
Cash payments
(1)
August 4, 2018
6
6
Total [Member]
Restructuring Reserve [Roll Forward]
February 3, 2018
41
Charges
2
$ 23
9
$ 123
Restructuring and Related Cost, Incurred Cost
12
Cash payments
(26)
August 4, 2018
$ 27
$ 27
$ in Millions3 Months Ended
6 Months Ended
Fair Value Disclosures [Abstract]
Total debt, excluding unamortized debt issuance costs, capital leases, financing obligation and note payable, Fair Value
$ 3,385
$ 3,817
$ 3,385
$ 3,817
$ 3,607
Total debt, excluding unamortized debt issuance costs, capital leases, financing obligation and note payable, carrying amount
4,054
4,124
4,054
4,124
4,063
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Carrying value of long-lived assets impaired, fair value disclosure
72
$ 86
72
Asset Impairment Charges
52
0
77
52
0
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Asset
16
16
$ 9
Derivative Liability
$ (13)
(13)
Assets, Fair Value Disclosure
$ 20
$ 9
$ 20
Restructuring and management transition [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset Impairment Charges
$ 77
shares in Millions, $ in Millions3 Months Ended
6 Months Ended
Increase (Decrease) in Stockholders' Equity [Roll Forward]
February 3, 2018, shares
312.0
February 3, 2018
$ 1,383
Net income/(loss)
$ (101)
$ (48)
[1]
(179)
$ (235)
[1]
Other comprehensive income/(loss)
$ 1
$ 2
[1]
7
$ 27
Stock-based compensation and other
$ 5
August 4, 2018, shares
314.8
310.3
314.8
310.3
August 4, 2018
$ 1,216
$ 1,216
Common Stock [Member]
Increase (Decrease) in Stockholders' Equity [Roll Forward]
February 3, 2018, shares
312.0
February 3, 2018
$ 156
Stock-based compensation, shares
2.8
Stock-based compensation and other
$ 1
August 4, 2018, shares
314.8
314.8
August 4, 2018
$ 157
$ 157
Additional Paid-in Capital [Member]
Increase (Decrease) in Stockholders' Equity [Roll Forward]
February 3, 2018
4,705
Stock-based compensation and other
4
August 4, 2018
4,709
4,709
Reinvested Earnings/(Accumulated Deficit) [Member]
Increase (Decrease) in Stockholders' Equity [Roll Forward]
February 3, 2018
(3,118)
Net income/(loss)
(179)
August 4, 2018
(3,297)
(3,297)
Accumulated Other Comprehensive Income/(Loss) [Member]
Increase (Decrease) in Stockholders' Equity [Roll Forward]
February 3, 2018
(360)
Other comprehensive income/(loss)
7
August 4, 2018
$ (353)
$ (353)
[1]
As Adjusted
$ in Millions3 Months Ended
6 Months Ended
Stockholders' Equity Note [Abstract]
Total, net of tax
$ 1
$ 2
[1]
$ 7
$ 27
[1]
As Adjusted
$ in Millions3 Months Ended
6 Months Ended
[1]
Changes in Accumulated Other Comprehensive Income (Loss) [Roll Forward]
February 3, 2018
[1]
$ (360)
Amounts reclassified from accumulated other comprehensive income, Prior Service Credit/(Cost), net of tax
$ (1)
$ (1)
(2)
$ (2)
[1]
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, Net of Tax
0
2
0
4
[1]
Net current-period other comprehensive income
1
2
7
27
August 4, 2018
(353)
$ (446)
(353)
$ (446)
[1]
Net Actuarial Gain/(Loss) [Member]
Changes in Accumulated Other Comprehensive Income (Loss) [Roll Forward]
February 3, 2018
(330)
Other comprehensive income (loss) before reclassifications, gain (loss) on cash flow hedges, net of tax
0
Reclassification for net actuarial (gain)/loss (x)
0
August 4, 2018
(330)
(330)
Prior Service Credit/(Cost) [Member]
Changes in Accumulated Other Comprehensive Income (Loss) [Roll Forward]
February 3, 2018
(26)
Other comprehensive income (loss) before reclassifications, gain (loss) on cash flow hedges, net of tax
0
Amounts reclassified from accumulated other comprehensive income, Prior Service Credit/(Cost), net of tax
2
August 4, 2018
(24)
(24)
Accumulated Net Gain (Loss) from Cash Flow Hedges Attributable to Parent [Member]
Changes in Accumulated Other Comprehensive Income (Loss) [Roll Forward]
February 3, 2018
(4)
Other comprehensive income (loss) before reclassifications, gain (loss) on cash flow hedges, net of tax
5
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, Net of Tax
0
August 4, 2018
1
1
Accumulated Other Comprehensive Income/(Loss) [Member]
Changes in Accumulated Other Comprehensive Income (Loss) [Roll Forward]
February 3, 2018
(360)
Other comprehensive income (loss) before reclassifications, gain (loss) on cash flow hedges, net of tax
5
Amounts reclassified from accumulated other comprehensive income, Accumulated Other Comprehensive Income/(Loss)
2
Net current-period other comprehensive income
7
August 4, 2018
$ (353)
$ (353)
[1]
As Adjusted
$ in Millions3 Months Ended
6 Months Ended
Other Comprehensive Income (Loss), Net of Tax [Abstract]
Total, net of tax
$ 1
$ 2
[1]
$ 7
$ 27
[1]
As Adjusted
$ in Millions3 Months Ended
6 Months Ended
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Number of employees eligible for VERP | employee
6,000
Defined Benefit Plan, Assumptions Used Calculating Benefit Obligation, Discount Rate | Rate
4.34%
4.40%
Service cost
$ 10
$ 10
$ 19
$ 21
Interest cost
35
37
70
76
Expected return on plan assets
(56)
(53)
(112)
(107)
Amortization of prior service cost/(credit)
2
2
4
4
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Gain (Loss) Due to Settlement
0
0
0
0
Defined Benefit Plan, Net Periodic Benefit Cost (Credit), Gain (Loss) Due to Curtailment
0
0
$ (7)
0
7
Net periodic pension expense/(income)
(9)
(4)
(19)
113
Number of employees accepted VERP | employee
2,800
Defined Benefit Plan, Benefit Obligation, Special and Contractual Termination Benefits
0
0
$ (112)
0
112
Other components of net periodic pension cost/(income)
$ (19)
$ (14)
[1]
$ (38)
$ 92
[1]
[1]
As Adjusted
$ in Millions3 Months Ended
6 Months Ended
Net gain from sale of operating assets [Line Items]
Fair value of third airplane sold
$ 8
$ 8
Joint venture land (in acres) | a
220
Real estate and other (income)/expense, net
12
$ (19)
[1]
(6)
$ (137)
[1]
Investment income from Home Office Land Joint Venture
1
19
1
20
(Gain) Loss on Disposition of Property Plant Equipment
(40)
(1)
(57)
(118)
[1]
Other Asset Impairment Charges
52
0
$ 77
52
0
Assets, Fair Value Disclosure
12
12
Home Office Land Joint Venture, aggregate cash distribution
1
20
1
28
Net sale price of Milwaukee WI distribution facility
$ 30
Net gain on sale of Milwaukee WI distribution facility
$ (12)
Net sale price of Manchester CT distribution facility
68
Net gain on sale of Manchester CT distribution facility
(38)
Net gain from sale of operating assets
(111)
Net sale price of Buena Park CA distribution facility
$ 131
Other Cost and Expense, Operating
$ 1
$ 1
$ 0
$ 1
[1]
As Adjusted
$ in Millions3 Months Ended
6 Months Ended
[1]
[1]
Income Tax Contingency [Line Items]
Income tax expense/(benefit)
$ 5
$ 1
$ 4
$ (11)
Increase to tax valuation allowance for deferred tax assets
21
$ 34
Valuation allowance, methodologies and assumptions
In assessing the need for the valuation allowance, we considered both positive and negative evidence related to the likelihood of realization of the deferred tax assets. As a result of our periodic assessment, our estimate of the realization of deferred tax assets is solely based on the future reversals of existing taxable temporary differences and tax planning strategies that we would make use of to accelerate taxable income to utilize expiring NOL and tax credit carryforwards.
Other Comprehensive Income Tax Benefit
1
$ 3
State Audit Settlement
1
1
Enacted state law changes
1
(1)
Net operating loss carryforwards
2,300
2,300
State and foreign [Member]
Income Tax Contingency [Line Items]
State and foreign tax expenses
(3)
(5)
Amortization of certain indefinite lived intangible assets [Member]
Income Tax Contingency [Line Items]
State and foreign tax expenses
(1)
(2)
Federal [Member]
Income Tax Contingency [Line Items]
Tax credit carryforwards
58
58
Federal tax authority [Member]
Income Tax Contingency [Line Items]
Valuation allowance
560
560
State Tax Authority [Member]
Income Tax Contingency [Line Items]
Valuation allowance
$ 240
$ 240
[1]
As Adjusted
$ in Millions
Loss Contingencies [Line Items]
Recorded Best Estimate Environmental Liabilities
$ 20
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