-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ZiNx0OIp56M+qB8fDntM2UR3SImKuqufXPMs3KxFt97jzXe9Q6C4yvLWpIyAmKhO Gj/jWoqR0DJ/UjHkI3nxTg== 0000950109-95-001293.txt : 19950419 0000950109-95-001293.hdr.sgml : 19950419 ACCESSION NUMBER: 0000950109-95-001293 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19950128 FILED AS OF DATE: 19950418 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENNEY J C CO INC CENTRAL INDEX KEY: 0000077182 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 135583779 STATE OF INCORPORATION: DE FISCAL YEAR END: 0126 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00777 FILM NUMBER: 95529410 BUSINESS ADDRESS: STREET 1: 6501 LEGACY DRIVE CITY: PLANO STATE: TX ZIP: 75024-3698 BUSINESS PHONE: 2144311000 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the 52 weeks ended January 28, 1995 Commission file number 1-777 J. C. PENNEY COMPANY, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 13-5583779 ------------------------ ------------------------ (State of incorporation) (I.R.S. Employer ID No.) 6501 LEGACY DRIVE, PLANO, TEXAS 75024-3698 ------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (214) 431-1000 - -------------------------------------------------- -------------- Securities registered pursuant to Section 12(b) of the Act: - ---------------------------------------------------------- Name of each exchange on Title of each class which registered - ---------------------------------- ------------------------ Common Stock of 50c par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None - ---------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___. --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] - State the aggregate market value of the voting stock held by non-affiliates of the registrant: $11,000,854,396 as of March 20, 1995. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 228,336,507 shares of Common Stock of 50c par value, as of March 20, 1995. DOCUMENTS INCORPORATED BY REFERENCE -----------------------------------
Documents from which portions Parts of the Form 10-K are incorporated by reference into which incorporated ----------------------------- ----------------------- 1. J. C. Penney Company, Inc. Part I, Part II, and 1994 Annual Report to Stockholders Part IV 2. J. C. Penney Company, Inc. Part III 1995 Proxy Statement 3. J. C. Penney Funding Corporation Part I and Part IV Form 10-K for fiscal year 1994
PART I ------ 1. Business. -------- J. C. Penney Company, Inc. ("Company") was founded by James Cash Penney in 1902. Incorporated in Delaware in 1924, the Company has grown to be a major retailer. The dominant portion of the Company's business consists of providing merchandise and services to consumers through department stores that include catalog departments. The Company markets predominantly family apparel, jewelry, shoes, accessories, and home furnishings. The business of marketing merchandise and services is highly competitive. Although the Company is one of the largest department store retailers in the United States, it has numerous competitors. Many factors enter into the competition for the consumer's patronage, including price, quality, style, service, product mix, convenience, and credit availability. The Company's annual earnings depend to a significant extent on the results of operations for the last quarter of its fiscal year. Sales for that period average approximately one-third of annual sales. Information about certain aspects of the business of the Company included under the captions of "Receivables" (page 30), "Merchandise inventories" (page 30), "Properties" (page 30), "Capital expenditures" (page 30), and "Investments" (page 31), which appear in the section of the Company's 1994 Annual Report to Stockholders entitled "Notes to Financial Statements", "Supplemental Information (Unaudited)" (pages 41 and 42), "Five Year Financial Summary" (page 43), and "Five Year Operations Summary" (page 44), which appear in the Company's 1994 Annual Report to Stockholders on the pages indicated in the parenthetical references, is incorporated herein by reference and filed hereto as Exhibit 13 in response to Item 1 of Form 10-K. In addition, information about J. C. Penney Funding Corporation, a wholly- owned consolidated subsidiary of the Company, which appears in Item 1 of its separate Annual Report on Form 10-K for the fiscal year ended January 28, 1995, is incorporated herein by reference and filed hereto as Exhibit 99(a) in response to Item 1 of Form 10-K. Suppliers. The Company purchases its merchandise from over 6,000 domestic and --------- foreign suppliers, most of whom have done business with the Company for many years. In addition to its Plano, Texas home office, the Company, through its international purchasing subsidiary, maintains buying offices in Brazil, Guatemala, Hong Kong, India, Italy, Japan, Korea, Mexico, Singapore, Taiwan and Thailand. Employment. The Company and its consolidated subsidiaries employed ---------- approximately 202,000 persons as of January 28, 1995. -1- Environment. While environmental protection requirements did not have a ----------- material effect upon the Company's operations during fiscal 1994, it is possible that compliance with such requirements will lengthen lead time in expansion plans and increase construction, and therefore operating costs, due, in part, to the expense and time required to conduct environmental and ecological studies. 2. Properties. ---------- At January 28, 1995, the Company operated 1,759 retail stores, comprised of 1,233 JCPenney department stores and 526 drug stores, in all 50 states and Puerto Rico, of which 233 JCPenney department stores and 18 drug stores were owned. The Company also operated six catalog distribution centers, of which four were owned, and owned one store distribution center and the insurance company corporate offices. The Company also owns its home office facility and approximately 244 acres of property in Plano, Texas, adjacent to the facility. Information relating to certain of the Company's facilities included under the captions of "Five Year Financial Summary" and "Five Year Operations Summary," which appear on pages 43 and 44, respectively, of the Company's 1994 Annual Report to Stockholders, is incorporated herein by reference and filed hereto as Exhibit 13 in response to Item 2 of Form 10-K. Additional information relating to certain aspects of the Company's properties included under the caption "Properties" (page 30), which appears in the section of the Company's 1994 Annual Report to Stockholders entitled "Notes to Financial Statements", on the page indicated in the parenthetical reference, is also incorporated herein by reference and filed hereto as Exhibit 13 in response to Item 2 of Form 10-K. 3. Legal Proceedings. ----------------- The Company has no material legal proceedings pending against it. 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- No matter was submitted to a vote of stockholders during the fourth quarter of fiscal 1994. -2- PART II ------- 5. Market for Registrant's Common Equity and Related Stockholder Matters. ------------------------------------- The Company's Common Stock is traded principally on the New York Stock Exchange. It is also traded on other exchanges in the United States and is listed and traded on the Brussels and Antwerp Stock Exchanges. In addition, the Company has issued approximately 1.2 million shares of Series B ESOP Convertible Preferred Stock pursuant to a leveraged employee stock ownership plan. Additional information relating to the Common Stock and Preferred Stock of the Company included under the captions of "Preferred stock" (page 35), "Common stock" (page 35), "Changes in outstanding common stock" (page 35), and "Quarterly Data (Unaudited)" (page 40), which appear in the Company's 1994 Annual Report to Stockholders on the pages indicated in the parenthetical references, is incorporated herein by reference and filed hereto as Exhibit 13 in response to Item 5 of Form 10-K. 6. Selected Financial Data. ----------------------- Information for the fiscal years 1990-1994 included in the "Five Year Financial Summary" on page 43 of the Company's 1994 Annual Report to Stockholders is incorporated herein by reference and filed hereto as Exhibit 13 in response to Item 6 of Form 10-K. 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. --------------------------------------------- The discussion and analysis included under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations", which appears in the Company's 1994 Annual Report to Stockholders on pages 22 through 24 thereof, is incorporated herein by reference and filed hereto as Exhibit 13 in response to Item 7 of Form 10-K. 8. Financial Statements and Supplementary Data. ------------------------------------------- The Consolidated Balance Sheets of the Company and subsidiaries as of January 28, 1995, January 29, 1994, and January 30, 1993, and the related Consolidated Statements of Income, Reinvested Earnings, and Cash Flows for the years then ended, appearing on pages 26 through 28 of the Company's 1994 Annual Report to Stockholders, together with the Independent Auditors' Report of KPMG Peat Marwick LLP, independent certified public accountants, appearing on page 25 of the Company's 1994 Annual Report to Stockholders, the "Summary of Accounting Policies" appearing on page 29, the Notes to Financial Statements on pages 30 through 39, and the quarterly financial highlights ("Quarterly Data (Unaudited)") appearing on page 40 thereof, are incorporated herein by reference and filed hereto as Exhibit 13 in response to Item 8 of Form 10-K. The -3- Independent Auditors' Report of KPMG Peat Marwick LLP covering the aforementioned consolidated financial statements of the Company refers to the adoption by the Company (a) in 1993 of the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, and (b) in 1994 of the provisions of the --------------------------- Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity ----------------------------------------------------- Securities. - ---------- 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. --------------------------------------- The Company has had no change in, or disagreements with, its independent certified public accountants on accounting and financial disclosure. PART III* -------- 10. Directors and Executive Officers of the Registrant.* -------------------------------------------------- The following is a list, as of January 28, 1995, of the names and ages of the executive officers of the Company and of the offices and other positions held by each such person with the Company. The terms of all executive officers will expire on May 19, 1995. There is no family relationship between any of the named persons.
Offices and other positions Name held with the Company Age ----------------- --------------------------------- --- William R. Howell........ Chairman of the Board; Director 59 James E. Oesterreicher... Vice Chairman of the Board and Chief Executive Officer; Director 53 W. Barger Tygart......... President and Chief Operating Officer; Director 59 John T. Cody, Jr......... President of JCPenney Stores 55 Gale Duff-Bloom.......... Senior Executive Vice President and Director of Personnel and Company Communications 55 David V. Evans........... Senior Vice President and Director of Planning and Information Systems 51 Thomas D. Hutchens....... President of Merchandising Worldwide 54 Charles R. Lotter........ Executive Vice President, Secretary and General Counsel 57 William E. McCarthy...... President of Catalog and Distribution 53 Robert E. Northam........ Executive Vice President and Chief Financial Officer 64 Terry S. Prindiville..... Executive Vice President and Director of Support Services 59 Ted L. Spurlock.......... Senior Vice President and Director of Financial Services and Government Relations 56
-4- - ------------- Mr. Howell was elected Chairman of the Board in 1983. He served as the Company's Chief Executive Officer from 1983 to January 1, 1995. Mr. Oesterreicher was elected Vice Chairman of the Board and Chief Executive Officer effective January 1, 1995. He served as President of JCPenney Stores and Catalog from 1992 to January 1995. He was elected an Executive Vice President in 1988 and served as Director of JCPenney Stores from 1988 to 1992. Mr. Tygart was elected President and Chief Operating Officer, and a Director of the Company, effective January 1, 1995. He was elected a Senior Executive Vice President and was named Director of Merchandising, Quality Assurance and Distribution in 1992. In 1993, he was appointed Director of Merchandising and Support Operations, and served in that capacity until January 1995. He served as an Executive Vice President and Director of Merchandising from 1987 to 1992. Mr. Cody was elected President of JCPenney Stores effective January 1, 1995. He was elected an Executive Vice President in 1992 and served as Director of JCPenney Stores from 1992 to January 1995. He served as a Senior Vice President and Director of Real Estate, Construction Services and Specialty Retailing from 1991 to 1992. From 1987 to 1990, he served as President of the Northwestern Region. Ms. Duff-Bloom was elected Senior Executive Vice President and was appointed Director of Personnel and Company Communications effective January 1, 1995. She was elected an Executive Vice President in 1993 and served as Director of Administration from 1993 to January 1995. She served as Senior Vice President and Associate Director of Merchandising from 1990 to 1993. Mr. Evans was elected a Senior Vice President and was appointed Director of Planning and Information Systems effective January 1, 1995. He was elected a Vice President in 1987 and served as Director of Information Systems from 1987 to January 1995. Mr. Hutchens was elected President of Merchandising Worldwide effective January 1, 1995. He was elected an Executive Vice President in 1992 and served as Director of Merchandising from 1992 to January 1995. He served as President of the Men's Division from 1987 to 1992. Mr. Lotter was elected an Executive Vice President in 1993. He was elected Senior Vice President, General Counsel and Secretary in 1987. -5- Mr. McCarthy was elected President of Catalog and Distribution effective January 1, 1995. He was elected President, Catalog Division in 1992, and served in that capacity until January 1995. He was elected President, Northwestern Region in 1991 and served in that capacity until 1992. In 1988, he was elected a Divisional Vice President, and in 1990 served as Director of Women's Merchandising. Mr. Northam was elected an Executive Vice President in 1990. He was elected a Senior Vice President in 1981 and has served as the Chief Financial Officer since 1982. Mr. Prindiville was elected an Executive Vice President and was appointed Director of Support Services in 1988. Mr. Spurlock was elected a Senior Vice President and was named Director of Financial Services and Company Communications in 1992. He was appointed Director of Financial Services and Government Relations effective January 1, 1995. He served as Director of Credit and Financial Services from 1989 to 1992. - ------------- 11. Executive Compensation.* ---------------------- 12. Security Ownership of Certain Beneficial Owners and Management.* --------------------- 13. Certain Relationships and Related Transactions.* ---------------------------------------------- - ------------- * Pursuant to General Instruction G to Form 10-K, the information called for by Items 10, with respect to directors of the Company (to the extent not set forth herein), 11, 12, and 13 is incorporated by reference to the Company's 1995 Proxy Statement, which involves the election of directors, the final copy of which the Company filed with the Securities and Exchange Commission, pursuant to Regulation 14A, on April 4, 1995. -6- PART IV ------- 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. ------------------- (a)(1) All Financial Statements. See Item 8 of this Annual Report on Form 10-K for financial statements incorporated by reference to the Company's 1994 Annual Report to Stockholders. (a)(2) Financial Statement Schedules. The following schedule is attached on Page F-1. II. Valuation and Qualifying Accounts and Reserves See Independent Auditors' Report of KPMG Peat Marwick LLP, independent certified public accountants, appearing on page 10 of this Annual Report on Form 10-K. All other schedules have been omitted as they are inapplicable or not required under the rules, or the information has been submitted in the consolidated financial statements and related material to the Company's 1994 Annual Report to Stockholders incorporated herein by reference and filed hereto as Exhibit 13. Separate financial statements are filed for J. C. Penney Funding Corporation, a wholly-owned consolidated subsidiary, in its separate Annual Report on Form 10-K for the 52 weeks ended January 28, 1995, which financial statements, together with the Independent Auditors' Report of KPMG Peat Marwick LLP thereon, are incorporated herein by reference and filed hereto as Exhibit 99(b). (a)(3) Exhibits. See separate Exhibit Index on pages G-1 through G-7. (b) No Current Reports on Form 8-K were filed by the Company during the last quarter of the period covered by this Annual Report on Form 10-K. (c) Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this form is filed as part of the separate Exhibit Index on pages G-1 through G-7 and specifically identified as such beginning on page G-4. -7- SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. J. C. PENNEY COMPANY, INC. -------------------------- (Registrant) By /s/ C. R. Lotter ----------------------------------- C. R. Lotter Executive Vice President, Secretary and General Counsel Dated: April 17, 1995 -8- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures Title Date - ---------------------- ------------------------------- -------------- W. R. Howell* Chairman of the Board; Director April 17, 1995 - ---------------------- W. R. Howell J. E. Oesterreicher* Vice Chairman of the Board April 17, 1995 - ---------------------- and Chief Executive Officer J. E. Oesterreicher (principal executive officer); Director W. B. Tygart* President and Chief Operating April 17, 1995 - ---------------------- Officer; Director W. B. Tygart R. E. Northam* Executive Vice President and April 17, 1995 - ---------------------- Chief Financial Officer R. E. Northam (principal financial officer) D. A. McKay* Vice President and Controller April 17, 1995 - ---------------------- (principal accounting officer) D. A. McKay M. A. Burns* Director April 17, 1995 - ---------------------- M. A. Burns C. H. Chandler* Director April 17, 1995 - ---------------------- C. H. Chandler V. E. Jordan, Jr.* Director April 17, 1995 - ---------------------- V. E. Jordan, Jr. George Nigh* Director April 17, 1995 - ---------------------- George Nigh J. C. Pfeiffer* Director April 17, 1995 - ---------------------- J. C. Pfeiffer C. S. Sanford, Jr.* Director April 17, 1995 - ---------------------- C. S. Sanford, Jr. J. D. Williams* Director April 17, 1995 - ---------------------- J. D. Williams
*By /s/ C. R. Lotter ---------------------------- C. R. Lotter Attorney-in-fact -9- INDEPENDENT AUDITORS' REPORT ---------------------------- To the Stockholders and Board of Directors of J. C. Penney Company, Inc.: Under date of February 23, 1995, we reported on the consolidated balance sheets of J. C. Penney Company, Inc. and subsidiaries as of January 28, 1995, January 29, 1994, and January 30, 1993, and the related consolidated statements of income, reinvested earnings, and cash flows for the years then ended, as contained in the 1994 Annual Report to Stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the Company's Annual Report on Form 10-K for the 1994 fiscal year. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule listed in Item 14(a)(2) of the Annual Report on Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP KPMG PEAT MARWICK LLP Dallas, Texas February 23, 1995 -10- SCHEDULE II J. C. PENNEY COMPANY, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (Amounts in millions)
- -------------------------------------------------------------------------------- 52 Weeks 52 Weeks 53 Weeks Ended Ended Ended January 28, January 29, January 30, Description 1995 1994 1993 - -------------------------------------------------------------------------------- Reserve deducted from assets - ---------------------------- Allowance for doubtful accounts Balance at beginning of period.. $ 59 $ 69 $ 79 Additions charged to costs and expenses...................... 177 95 122 Deductions - write-offs, less recoveries.................... (162) (105) (132) ----- ----- ----- Balance at end of period........ $ 74 $ 59 $ 69 ===== ===== ===== Allowance for loan losses - JCPenney National Bank Balance at beginning of period.. $ 35 $ 32 $ 33 Additions charged to costs and expenses.................. 44 38 40 Deductions - write-offs, less recoveries.................... (38) (35) (41) ----- ----- ----- Balance at end of period........ $ 41 $ 35 $ 32 ===== ===== =====
F-1 EXHIBIT INDEX ------------- Exhibit ------- 3. (i) Articles of Incorporation ------------------------- (a) Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit (c)(1) to Company's Current Report on Form 8-K, Date of Report -May 26, 1994*). (b) Certificate of Change of Location of Registered Office, effective July 27, 1984 (incorporated by reference to Exhibit (c)(2) to Company's Current Report on Form 8-K, Date of Report - May 26, 1994*). (c) Certificate of Amendment of Restated Certificate of Incorporation of Company (incorporated by reference to Exhibit (c)(3) to Company's Current Report on Form 8-K, Date of Report - May 26, 1994*). (d) Certificate of Amendment of Restated Certificate of Incorporation of Company (incorporated by reference to Exhibit (c)(4) to Company's Current Report on Form 8-K, Date of Report - May 26, 1994*). (e) Certificate of Designations of Series B ESOP Convertible Preferred Stock of Company (incorporated by reference to Exhibit (c)(5) to Company's Current Report on Form 8-K, Date of Report - May 26, 1994*). (f) Amended Certificate of Designations of Series A Junior Participating Preferred Stock of Company (incorporated by reference to Exhibit (c)(6) to Company's Current Report on Form 8-K, Date of Report - May 26, 1994*). (g) Certificate of Amendment of Restated Certificate of Incorporation of Company (incorporated by reference to Exhibit (c)(7) to Company's Current Report on Form 8-K, Date of Report - May 26, 1994*). G-1 (ii) (a) Bylaws Bylaws of Company, as amended to January 11, 1995. ------ 4. Instruments defining the rights of security holders, including indentures ------------------------------------------------------------------------- (a) Indenture, dated as of October 1, 1982, between the Company and Bank of America National Trust and Savings Association, Trustee (incorporated by reference to Exhibit 4(a) to Company's Annual Report on Form 10-K for the 52 week period ended January 29, 1994*). (b) First Supplemental Indenture, dated as of March 15, 1983, between the Company and Bank of America National Trust and Savings Association, Trustee (incorporated by reference to Exhibit 4(b) to Company's Annual Report on Form 10-K for the 52 week period ended January 29, 1994*). (c) Second Supplemental Indenture, dated as of May 1, 1984, between the Company and Bank of America National Trust and Savings Association, Trustee (incorporated by reference to Exhibit 4(c) to Company's Annual Report on Form 10-K for the 52 week period ended January 29, 1994*). (d) Third Supplemental Indenture, dated as of March 7, 1986, between the Company and Bank of America National Trust and Savings Association, Trustee (incorporated by reference to Exhibit 4(d) to Company's Registration Statement on Form S-3, SEC File No.33-3882). (e) Fourth Supplemental Indenture, dated as of June 7, 1991, between the Company and Bank of America National Trust and Savings Association, Trustee (incorporated by reference to Exhibit 4(e) to Registrant's Registration Statement on Form S-3, SEC File No. 33-41186). (f) Indenture, dated as of April 1, 1994, between the Company and Bank of America National Trust and Savings Association, Trustee (incorporated by reference to Exhibit 4(a) to Company's Registration Statement on Form S-3, SEC File No. 33-53275). G-2 (g) Rights Agreement dated as of February 14, 1990 between Company and First Chicago Trust Company of New York, as Rights Agent (incorporated by reference to Exhibit 1 to Company's Current Report on Form 8-K, Date of Report - February 6, 1990*). (h) Amendment to Rights Agreement, dated as of February 14, 1990, between Company and First Chicago Trust Company of New York, as Rights Agent, effective as of January 13, 1992, among Company, First Chicago Trust Company of New York, and Manufacturers Hanover Trust Company of New York (now Chemical Bank), as successor Rights Agent (incorporated by reference to Exhibit 4(b) to Company's Annual Report on Form 10-K for the 52 week period ended January 25, 1992*). (i) Letter to Company stockholders dated May 1, 1993 explaining adjustments to Rights and to underlying Series A Junior Participating Preferred Stock, including exercise price of such Rights, and the voting rights and participating dividend on such Preferred Stock as a result of the two-for-one stock split payable May 1, 1993 to stockholders of record on April 12, 1993 (incorporated by reference to Exhibit 4(c) to Company's Annual Report on Form 10-K for the 53 week period ended January 30, 1993*). (j) Explanation of adjustments to Rights and to underlying Series A Junior Participating Preferred Stock and changes to shares of Series B Convertible Preferred Stock held by Trustee of Company's Savings, Profit-Sharing and Stock Ownership Plan on behalf of Plan participants as a result of the two-for-one stock split payable May 1, 1993 to stockholders of record on April 12, 1993 (incorporated by reference to Item 5 of Company's Current Report on Form 8-K dated March 10, 1993*). Other instruments evidencing long-term debt have not been filed as exhibits hereto because none of the debt authorized under any such instrument exceeds 10 percent of the total assets of the Registrant and its consolidated subsidiaries. The Registrant agrees to furnish a copy of any of its long-term debt instruments to the Securities and Exchange Commission upon request. G-3 10. Material contracts ------------------ (i) Other than Compensatory Plans or -------------------------------- Arrangements ------------ (a) Amended and Restated Receivables Agreement dated as of January 29, 1980 between Company and J. C. Penney Funding Corporation (incorporated by reference to Exhibit 10(i)(a) to Company's Annual Report on Form 10-K for the 52 week period ended January 29, 1994*). (b) Amendment No. 1 to Amended and Restated Receivables Agreement dated as of January 25, 1983 between Company and J. C. Penney Funding Corporation (incorporated by reference to Exhibit 10(i)(b) to Company's Annual Report on Form 10-K for the 52 week period ended January 29, 1994*). (c) Loan Agreement dated as of January 28, 1986 between Company and J. C. Penney Funding Corporation (incorporated by reference to Exhibit 4 to Company's Current Report on Form 8-K, Date of Report - January 28, 1986*). (d) Amendment No. 1 to Loan Agreement dated as of January 28, 1986 between Company and J. C. Penney Funding Corporation (incorporated by reference to Exhibit 1 to Company's Current Report on Form 8-K, Date of Report - December 31, 1986*). (ii) Compensatory Plans or Arrangements required to be filed as Exhibits to ---------------------------------------------------------------------- this Report pursuant to Item 14 (c) of this Report. --------------------------------------------------- (a) J. C. Penney Company, Inc. 1989 Management Incentive Compensation Program as amended through March 27, 1990 (incorporated by reference to Exhibit 10(e) to Company's Annual Report on Form 10-K for the 52 week period ended January 27, 1990*). (b) Supplemental Retirement Program for Management Profit-Sharing Associates of J. C. Penney Company, Inc., as amended through March 15, 1993 (incorporated by reference to Exhibit 10(ii)(b) to Company's Annual Report on Form 10-K for the 53 week period ended January 30, 1993*). G-4 (c) J. C. Penney Company, Inc. 1980 Stock Option and Performance Unit Plan, as amended through January 31, 1989 (incorporated by reference to Exhibit 10(i) to Company's Annual Report on Form 10-K for the 52 week period ended January 28, 1989*). (d) J. C. Penney Company, Inc. Retirement Plan for Non-Associate Directors, as amended through July 8, 1992 (incorporated by reference to Company's Quarterly Report on Form 10-Q for the 13 and 26 week periods ended July 25, 1992*). (e) J. C. Penney Company, Inc. Directors' Equity Program Tandem Restricted Stock Award/Stock Option Plan (incorporated by reference to Exhibit 10(k) to Company's Annual Report on Form 10-K for the 52 week period ended January 28, 1989*). (f) J. C. Penney Company, Inc. 1984 Equity Compensation Plan, as amended through January 31, 1989 (incorporated by reference to Exhibit 10(l) to Company's Annual Report on Form 10-K for the 52 week period ended January 28, 1989*). (g) J. C. Penney Company, Inc. 1989 Equity Compensation Plan (incorporated by reference to Exhibit A to Company's definitive Proxy Statement for its Annual Meeting of Stockholders held on May 19, 1989). (h) J. C. Penney Company, Inc. 1993 Equity Compensation Plan (incorporated by reference to Exhibit A to Company's definitive Proxy Statement for its Annual Meeting of Stockholders held on May 21, 1993). (i) J. C. Penney Company, Inc. 1993 Non-Associate Directors' Equity Plan (incorporated by reference to Exhibit B to Company's definitive Proxy Statement for its Annual Meeting of Stockholders held on May 21, 1993). G-5 (j) February 1995 Amendment to J. C. Penney Company, Inc. 1984 Equity Compensation Plan, as amended. (k) February 1995 Amendment to J. C. Penney Company, Inc. 1989 Equity Compensation Plan. (l) February 1995 Amendment to J. C. Penney Company, Inc. 1993 Equity Compensation Plan. (m) February 1995 Amendment to J. C. Penney Company, Inc. 1993 Non- Associate Directors' Equity Plan. (n) J. C. Penney Company, Inc. 1984 Performance Unit Plan (incorporated by reference to Exhibit B to Company's definitive Proxy Statement for its Annual Meeting of Stockholders held on May 22, 1984). (o) J. C. Penney Company, Inc. Deferred Compensation Plan as amended through July 14, 1993 (incorporated by reference to Exhibit 10(a) to Company's Report on Form 10-Q for the 13 and 26 week periods ended July 31, 1993*). (p) J. C. Penney Company, Inc. Deferred Compensation Plan for Directors, as amended through July 8, 1992 (incorporated by reference to Exhibit 10(c) to Company's Quarterly Report on Form 10-Q for the 13 and 26 week periods ended July 25, 1992*). (q) J. C. Penney Company, Inc. 1995 Deferred Compensation Plan (incorporated by reference to Exhibit 10 to Company's Registration Statement on Form S-8, SEC File No. 33-56993). (r) Directors' Charitable Award Program (incorporated by reference to Exhibit 10(r) to Company's Annual Report on Form 10-K for the 52 week period ended January 27, 1990*). (s) Form of Indemnification Trust Agreement between Company and Chemical Bank dated as of July 30, 1986, as amended (incorporated by reference to Exhibit 1 to Exhibit B to Company's definitive Proxy Statement for its Annual Meeting of Stockholders held on May 29, 1987). G-6 (t) Form of Indemnification Agreement between Company and individual Indemnitees (incorporated by reference to Exhibit B to Company's definitive Proxy Statement for its Annual Meeting of Stockholders held on May 29, 1987). * SEC file number 1-777 11. Statement re: Computation of per share earnings ----------------------------------------------- Computation of Net Income Per Common Share. 12. Statement re: Computation of ratios ----------------------------------- (a) Computation of Ratios of Available Income to Combined Fixed Charges and Preferred Stock Dividend Requirement. (b) Computation of Ratios of Available Income to Fixed Charges. 13. Annual report to security holders --------------------------------- Excerpt from Company's 1994 Annual Report to Stockholders. 21. Subsidiaries of the registrant ------------------------------ List of certain subsidiaries of the Company at January 28, 1995. 23. Consent of Independent Certified Public Accountants --------------------------------------------------- 24. Power of Attorney ----------------- 27. Financial Data Schedule ----------------------- Financial Data Schedule for the 52 week period ended January 28, 1995. 99. Additional Exhibits ------------------- (a) Item 1 of J. C. Penney Funding Corporation Annual Report on Form 10-K for the 52 weeks ended January 28, 1995 (incorporated by reference to J. C. Penney Funding Corporation Annual Report on Form 10-K for the 52 weeks ended January 28, 1995 filed concurrently herewith, SEC File No. 1-4947-1). (b) Excerpt from J. C. Penney Funding Corporation Annual Report. G-7 EX-3.II.A 2 AMENDED BYLAWS EXHIBIT 3(ii)(a) ================================================================================ J. C. PENNEY COMPANY, INC. (A Delaware Corporation) ------------------------------- BYLAWS As amended to January 11, 1995 ------------------------------- ================================================================================ TABLE OF CONTENTS -----------------
Article Title Pages ------- ------------------------------- ----- I Offices 1 II Meetings of Stockholders 2-11 III Board of Directors 11-19 IV Committees 19-23 V Officers 23-28 VI Contracts, Loans, Checks, Drafts, Bank Accounts, Etc. 29-30 VII Books and Records 31-32 VIII Shares of Stock and Their Transfer 32-33 IX Dividends and Reserves 33 X Indemnification of Directors, Officers, Employees, and Agents 34-35 XI Ratification 35-36 XII Seal 36 XIII Fiscal Year 36 XIV Waiver of Notice 36-37 XV Emergency Bylaws 37-40 XVI Amendments 40
J. C. PENNEY COMPANY, INC. (A Delaware Corporation) BYLAWS -------------------------- ARTICLE I OFFICES SECTION 1. Registered Office. The registered office of J. C. Penney ----------------- Company, Inc. (hereinafter called the Company) in the State of Delaware shall be at 1209 Orange Street, City of Wilmington, County of New Castle. The name of the registered agent in charge thereof is The Corporation Trust Company. SECTION 2. Other Offices. The Company may also have an office or ------------- offices at such other place or places either within or without the State of Delaware as from time to time the Board of Directors may determine or the business of the Company may require. 2 ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. Annual Meetings. The annual meeting of stockholders for the --------------- election of directors and for the transaction of such other business as may come before the meeting shall be held at such place and time as shall be fixed by the Board of Directors and specified in the notice of the meeting, on the third Tuesday in May in each year, or on such other day as shall be fixed by the Board of Directors and specified in the notice of the meeting. If the election of directors shall not be held on the day designated herein or the day fixed by the Board, as the case may be, for any annual meeting, or on the day of any adjourned session thereof, the Board of Directors shall cause the election to be held at a special meeting as soon thereafter as convenient. At such special meeting, the stockholders may elect the directors and transact other business with the same force and effect as at an annual meeting duly called and held. SECTION 2. Special Meetings. Any action required or permitted to be ---------------- taken by the holders of the Common Stock of the Company must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. A special meeting of stockholders for any purpose or purposes, unless otherwise prescribed by the laws of the State of Delaware or by the certificate of incorporation, may be called at 3 any time only by the Board of Directors pursuant to a resolution approved by a majority of the Board of Directors. Special meetings of stockholders may be held at such place, on such date, and at such time as shall be designated by resolution of the Board of Directors. SECTION 3. Notice of Meetings. Except as otherwise required by the laws ------------------ of the State of Delaware or the certificate of incorporation, notice of each annual or special meeting of stockholders shall be given not less than 10 nor more than 60 days before the day on which the meeting is to be held to each stockholder of record entitled to vote at the meeting by delivering a written notice thereof to him or her personally, or by depositing a copy of the notice in the United States mail, postage prepaid, directed to him or her at his or her address as it appears on the records of the Company, or by transmitting the notice thereof to him or her at such address by telegram, cable, radiogram, telephone facsimile, or other appropriate written communication. Except when expressly required by the laws of the State of Delaware, no publication of any notice of a meeting of stockholders shall be required. Every such notice shall state the place, date, and time of the meeting, and in the case of a special meeting, the purpose or purposes thereof. Notice of any adjourned session of a meeting of stockholders shall not be required to be given if the place, date, and time thereof are announced at the meeting at which the 4 adjournment is taken. If, however, the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 4. List of Stockholders. It shall be the duty of the officer -------------------- who shall have charge of the stock ledger of the Company to prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected, for any purpose germane to the meeting, by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine such list or to vote in person or by proxy at the meeting. 5 SECTION 5. Quorum. At each meeting of stockholders, the holders of a ------ majority of the issued and outstanding shares of stock of the Company entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business. In the absence of a quorum at any meeting, or any adjourned session thereof, the stockholders of the Company present in person or represented by proxy and entitled to vote, by majority vote, or in the absence of all the stockholders, any officer entitled to preside or act as secretary at the meeting, may adjourn the meeting from time to time until a quorum shall be present. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 6. Organization and Conduct of Meeting. At each meeting of ----------------------------------- stockholders, the Chairman of the Board or in his or her absence a Vice Chairman of the Board or in his or her absence a chairman chosen by the vote of a majority in interest of the stockholders present in person or represented by proxy and entitled to vote thereat, shall act as chairman. The Secretary or in his or her absence an Assistant Secretary or in the absence of the Secretary and all Assistant Secretaries a person whom the chairman of the meeting shall appoint shall act as secretary of the meeting and keep a record of the proceedings thereof. The date and time of the opening and the closing of the polls for each matter upon which the 6 stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem necessary, appropriate, or convenient. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations, and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate, or convenient for the proper conduct of the meeting. Such rules, regulations, or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting, (ii) rules and procedures for maintaining order at the meeting and the safety of those present, (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Company, their duly authorized and constituted proxies, or such other persons as the chairman of the meeting shall determine, (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof, and (v) limitations on the time allotted to questions or comments by participants. Unless, and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of 7 stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. SECTION 7. Notification of Stockholder Business. At a meeting of the ------------------------------------ stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (iii) in the case of an annual meeting of stockholders, otherwise properly requested to be brought before the meeting by a stockholder of record entitled to vote at the meeting and otherwise a proper subject to be brought before such meeting. For business to be properly requested to be brought before an annual meeting of stockholders, any stockholder who desires to bring any matter (other than the election of directors, which is provided for in Section 15 of Article III of these Bylaws) before such meeting and who is entitled to vote on such matter must give timely written notice of such stockholder's desire to bring such matter before the meeting, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company not later than 90 days in advance of such meeting. A stockholder's notice to the Secretary in this regard shall set forth: (1) the name and address of the stockholder proposing such business, (2) a 8 representation that such stockholder is a record owner of stock of the Company entitled to vote at the meeting and intends to appear in person at the meeting to present the described business, (3) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, and (4) any material interest of the stockholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business may be conducted at a meeting except in accordance with the procedures set forth in this Article II of these Bylaws. The chairman of a meeting may, if the facts warrant, or if not in accordance with applicable law, determine and declare to the meeting that business proposed to be brought before a meeting was not a proper subject therefor or was not properly brought before the meeting in accordance with the provisions of this Section 7, and if he should so determine, he may so declare to the meeting, and any such business not a proper subject matter or not properly brought before the meeting shall not be transacted. SECTION 8. Voting; Proxies; Ballots. Except as otherwise provided in the ------------------------ laws of the State of Delaware or the certificate of incorporation, at every meeting of stockholders, each stockholder of the Company shall be entitled to one vote at the meeting in person or by proxy for each share of stock having voting rights registered in his or her name on the books of the Company on the date fixed pursuant to Section 3 of Article VII of these Bylaws as 9 the record date for the determination of stockholders entitled to vote at the meeting. Shares of its own stock belonging to the Company shall not be voted directly or indirectly (except for shares of stock held by the Company in a fiduciary capacity). The vote of any stockholder entitled thereto may be cast in person or by his or her proxy appointed by an instrument in writing, or by a telegram, cablegram, or other means of electronic transmission, to the full extent permitted by the laws of the State of Delaware; provided, however, that no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. At all meetings of stockholders, each question (except where other provision is made in the laws of the State of Delaware, in the certificate of incorporation, or in these Bylaws) shall be decided by the vote of the holders of shares of stock having a majority of the votes which could be cast by the holders of all shares of stock outstanding and entitled to vote thereon. All elections of directors and all votes on matters set forth in the notice of meeting shall be by written ballot stating the number of shares voted, but except as otherwise provided in the laws of the State of Delaware, the vote on any other matter need not be by ballot unless directed by the chairman of the meeting. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his or her proxy, if there be such proxy, and shall state the number of shares voted. 10 SECTION 9. Inspectors of Election. The Company shall, in advance of any ---------------------- meeting of stockholders, appoint one or more inspectors of election, who may be employees of the Company, to act at the meeting or any adjournment thereof and to make a written report thereof. The Company may designate one or more persons as alternate inspectors to replace any inspector who fails to act. In the event that no inspector so appointed or designated is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed or designated shall (i) ascertain the number of shares of stock of the Company outstanding and the voting power of each such share, (ii) determine the shares of stock of the Company represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of stock of the Company represented at the meeting and such inspectors' count of all votes and ballots. Such certification and report shall specify such other information as may be required by 11 law. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the Company, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for an office at an election may serve as an inspector at such election. ARTICLE III BOARD OF DIRECTORS SECTION 1. General Powers. The business, property, and affairs of the -------------- Company shall be managed by or under the direction of the Board of Directors. In addition to the powers and authorities expressly conferred upon the Board of Directors by the certificate of incorporation and these Bylaws, the Board of Directors may exercise all such powers of the Company and do all such lawful acts and things as are not by the laws of the State of Delaware, the certificate of incorporation, or these Bylaws directed or required to be exercised or done by the stockholders. SECTION 2. Eligibility and Retirement. No person may serve as a -------------------------- director unless he or she is a stockholder of the Company. Notwithstanding the expiration of a director's term as set forth in Section 3 of this Article III, no person may continue to serve as a director after the Company's annual meeting of its stockholders in the calendar year in which, at any time during such year, such person has attained age 72. 12 SECTION 3. Number and Classification of Directors. Except as otherwise -------------------------------------- provided for or fixed by or pursuant to the provisions of Article Fourth of the certificate of incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of directors of the Company which shall constitute the whole Board of Directors shall be such number, not less than three, as from time to time shall be fixed by the Board of Directors. The directors, other than those who may be elected pursuant to the aforesaid provisions of said Article Fourth, shall be classified by the Board of Directors, with respect to the duration of the term for which they severally hold office, into three classes as nearly equal in number as possible. Such classes shall originally consist of a first class of four directors who shall be elected at the annual meeting of stockholders held in 1985 for a term expiring at the annual meeting of stockholders to be held in 1986, and election and qualification of their respective successors; a second class of five directors who shall be elected at the annual meeting of stockholders held in 1985 for a term expiring at the annual meeting of stockholders to be held in 1987, and election and qualification of their respective successors; and a third class of five directors who shall be elected at the annual meeting of stockholders held in 1985 for a term expiring at the 13 annual meeting of stockholders to be held in 1988, and election and qualification of their respective successors. At each annual meeting of stockholders beginning in 1986, the successors of the class of directors whose term expires at that meeting shall be elected for a term expiring at the annual meeting of stockholders held in the third year following the year of election of such directors and election and qualification of their respective successors. The Board of Directors shall increase or decrease the number of directors in one or more classes as may be appropriate whenever it increases or decreases the number of directors pursuant to this Section 3, in order to ensure that the three classes shall be as nearly equal in number as possible. Each director of the Company shall hold office as provided above and until his or her successor shall have been duly elected and qualified. SECTION 4. Quorum and Manner of Acting. A majority of the directors at --------------------------- the time in office shall constitute a quorum for the transaction of business at any meeting, which in no case shall be less than one third of the total number of directors. Except as otherwise provided in the laws of the State of Delaware, the certificate of incorporation, or these Bylaws, the affirmative vote of a majority of the directors present at any meeting at which a quorum is present shall be required for the taking of any action by the Board of Directors. In the absence of a quorum at any meeting of the Board, the meeting need not be held, or a majority of the 14 directors present thereat or if no director be present, the Secretary, may adjourn the meeting from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. At any adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called. Members of the Board of Directors may participate in a meeting of the Board by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting by such means shall constitute presence in person at the meeting. SECTION 5. Offices; Places of Meetings. The Board of Directors may hold --------------------------- meetings and have an office or offices at such place or places within or without the State of Delaware as the Board may from time to time determine, and in the case of meetings, as shall be specified or fixed in the respective notices or waivers of notice thereof, except where other provision is made in the laws of the State of Delaware, the certificate of incorporation, or these Bylaws. SECTION 6. Annual Meeting. The Board of Directors shall meet for the -------------- purpose of organization, the election of officers, and the transaction of other business, at the time of each annual election of directors. Such meeting may be held prior to the stockholders' meeting, if deemed necessary and appropriate, and if so held, would 15 be held subject to the election of directors at the upcoming stockholders' meeting; provided, however, that no individual not then a director may act as a director prior to his or her election at the upcoming stockholders' meeting. Such meeting shall be called and held at the place and time specified in the notice or waiver and held at the place and time specified in the notice or waiver of notice thereof as in the case of a special meeting of the Board of Directors. SECTION 7. Regular Meetings. Regular meetings of the Board of Directors ---------------- shall be held as the Board of Directors shall determine, at such times and places as shall from time to time be determined by the Board, except that in May, the regular meeting shall be held immediately following the adjournment of the annual meeting of the Board. Notice of regular meetings need not be given. SECTION 8. Special Meetings; Notice. Special meetings of the Board of ------------------------ Directors shall be held whenever called by the Chairman of the Board or a Vice Chairman of the Board or by any two of the directors. Notice of each such meeting shall be mailed to each director, addressed to such director at his or her residence or usual place of business, at least two days before the day on which the meeting is to be held, or shall be sent to such director at his or her residence or such place of business by telegram, cable, radiogram, telephone facsimile, or other appropriate written communication, or delivered personally or by telephone, not later 16 than the day before the day on which the meeting is to be held. Each such notice shall state the time and place of the meeting but need not state the purposes thereof except as otherwise herein expressly provided. SECTION 9. Organization. At each meeting of the Board of Directors, the ------------ Chairman of the Board or in his or her absence, a Vice Chairman of the Board or in his or her absence, a director chosen by a majority of the directors present, shall act as chairman. The Secretary or in his or her absence, an Assistant Secretary or in the absence of the Secretary and all Assistant Secretaries, a person whom the chairman of the meeting shall appoint, shall act as secretary of the meeting and keep a record of the proceedings thereof. SECTION 10. Order of Business. At all meetings of the Board of ----------------- Directors, business shall be transacted in the order determined by the Board. SECTION 11. Resignation. Any director may resign at any time by giving ----------- written notice of his or her resignation to the Board of Directors or to the Chairman of the Board, a Vice Chairman of the Board, or the Secretary. Such resignation shall take effect at the date of receipt of the notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 17 SECTION 12. Removal of Directors. Any director may be removed, either -------------------- with or without cause, at any time, by the affirmative vote of at least 80% of the combined voting power of the then-outstanding shares of all classes and series of stock of the Company entitled to vote generally in the election of directors, voting together as a single class, at a special meeting of stockholders duly called and held for the purpose or at an annual meeting of stockholders. SECTION 13. Vacancies. Any vacancy in the Board of Directors caused by --------- death, resignation, removal, disqualification, increase in the number of directors, or any other cause, shall be filled by a majority vote of the remaining directors, even though less than a quorum, or by the stockholders at a special meeting duly called and held for the purpose or at an annual meeting, and each director so elected shall hold office for the remainder of the full term of the class in which the new directorship was created or the vacancy occurred. SECTION 14. Remuneration. Directors and members of any committee may ------------ receive such fixed sum per meeting attended, or such annual sum or sums, and such reimbursement for expenses of attendance at meetings, as may be determined from time to time by resolution of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the 18 Company in any other capacity and receiving proper compensation therefor. SECTION 15. Notification of Nominations. Nominations for the election --------------------------- of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Any stockholder entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if written notice of such stockholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company, not later than (i) with respect to an election to be held at an annual meeting of stockholders, 90 days in advance of such meeting, and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated, (b) a representation that such stockholder is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (c) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or 19 persons) pursuant to which the nomination or nominations are to be made by such stockholder, (d) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated by the Board of Directors, and (e) the consent of each nominee to serve as a director of the Company if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedures. SECTION 16. Action of the Board of Directors by Consent. Any action ------------------------------------------- required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board or such committee. ARTICLE IV COMMITTEES SECTION 1. Executive Committee. The Board of Directors may, by ------------------- resolution passed by a majority of the whole Board, designate directors of the Company, in such number as the Board shall see fit, but not less than two, as an Executive Committee which shall have and may exercise, during intervals between meetings of the 20 Board, the powers and authority of the Board of Directors in the management of the business and affairs of the Company, and may authorize the seal of the Company to be affixed to all papers which may require it; but the Executive Committee shall not have the power or authority in reference to filling vacancies in its membership, amending the certificate of incorporation (except that the Executive Committee (or any committee designated pursuant to Section 6 of this Article IV) may, to the full extent permitted by the laws of the State of Delaware, make determinations with respect to the issuance of stock of the Company), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease, or exchange of all or substantially all the Company's property and assets, recommending to the stockholders a dissolution of the Company or a revocation of a dissolution, amending these Bylaws, or declaring a dividend. The Executive Committee (or any committee designated pursuant to Section 6 of this Article IV) shall have the power or authority to authorize the issuance of stock of the Company. The Board of Directors shall designate one of the members of the Executive Committee to be the Chairman of the Committee. Each member of the Executive Committee shall continue to act as such only so long as he or she shall be a director of the Company and only during the pleasure of a majority of the whole Board of Directors. 21 SECTION 2. Meetings. Regular meetings of the Executive Committee, of -------- which no notice shall be necessary, shall be held on such days and at such places, within or without the State of Delaware, as shall be fixed by resolution adopted by a majority of, and communicated to all, the members of the Executive Committee. Special meetings of the Committee may be called at the request of any member. Notice of each special meeting of the Committee shall be mailed to each member thereof, addressed to such member at his or her residence or usual place of business, at least two days before the day on which the meeting is to be held, or shall be sent to such member at his or her residence or such place of business by telegram, cable, radiogram, telephone facsimile, or other appropriate written communication, or delivered personally or by telephone, not later than the day before the day on which the meeting is to be held. Each such notice shall state the time and place of the meeting but need not state the purposes thereof except as otherwise herein expressly provided. Subject to the provisions of this Article IV, the Executive Committee, by resolution of a majority of all its members, shall fix its own rules of procedure. The Executive Committee shall keep a record of its proceedings and report them to the Board of Directors at the next regular meeting thereof after such proceedings shall have been taken. SECTION 3. Quorum and Manner of Acting. Not less than a majority of the --------------------------- members of the Executive Committee then in office 22 shall constitute a quorum for the transaction of business, and the act of a majority of those present at a meeting thereof at which a quorum is present shall be the act of the Executive Committee. The directors comprising the Committee shall act only as a committee, and such directors, individually, shall have no power as such. Members of the Executive Committee, or any committee designated by the Board of Directors, may participate in a meeting of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting by such means shall constitute presence in person at the meeting. SECTION 4. Vacancies. The Board of Directors, by vote of a majority of --------- the whole Board, shall have power to fill any vacancy in the Executive Committee due to death, resignation, removal, disqualification, or any other cause. SECTION 5. Resignation. Any director may resign from the Executive ----------- Committee at any time by giving written notice of his or her resignation to the Board of Directors or to the Chairman of the Board, the Chairman of the Executive Committee, a Vice Chairman of the Board, or the Secretary. Such resignation shall take effect at the date of receipt of the notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 23 SECTION 6. Other Committees. The Board of Directors may, by resolution ---------------- or resolutions passed by a majority of the whole Board, designate one or more other committees, each such committee to consist of one or more directors of the Company, which shall have and may exercise such powers and authority (subject to the limitations specified in Section 1 of this Article IV) as the Board of Directors may determine and specify in such resolution or resolutions, such committee or committees to have such name or names as may be determined from time to time by the Board of Directors. A majority of all the members of any such committee may fix its rules of procedure, determine its actions, and fix the time and place (whether within or without the State of Delaware) of its meetings and specify what notice thereof, if any, shall be given, unless the Board of Directors shall otherwise by resolution provide. The Board of Directors shall have the power, either with or without cause, at any time, to change the members of any such committee, to fill vacancies, and to discharge any such committee. ARTICLE V OFFICERS SECTION 1. Principal Officers. The principal officers of the Company ------------------ shall be a Chairman of the Board and one or more Vice Chairmen of the Board, each of whom shall be members of the Board of Directors, one or more Presidents of divisions, regions, or 24 other units, functions, or activities, one or more Vice Presidents (the number thereof to be determined by the Board of Directors), a Treasurer, a Secretary, and a Controller. In addition, there may be such subordinate officers, agents, and employees as may be appointed in accordance with the provisions of Section 3 of this Article V. Any two or more offices may be held by the same person. SECTION 2. Election and Term of Office. The officers of the Company, --------------------------- except such officers as may be appointed in accordance with the provisions of Section 3 of this Article V, shall be elected annually by the Board of Directors. Each officer, except such officers as may be appointed in accordance with the provisions of Section 3 of this Article V, shall hold office until his or her successor shall have been duly elected and qualified, or until his or her earlier death, resignation, removal, or disqualification. SECTION 3. Subordinate Officers. In addition to the principal officers -------------------- enumerated in Section 1 of this Article V, the Company may have such other officers, agents, and employees as the Board of Directors may deem necessary, including one or more Assistant Treasurers, one or more Assistant Secretaries, and one or more Assistant Controllers, each of whom shall hold office for such period, have such authority, and perform such duties as the Board of Directors, the Chairman of the Board, or a Vice Chairman of the Board may from time to time determine. The Board of Directors may 25 delegate to any principal officer the power to appoint or remove any such subordinate officers, agents, or employees. SECTION 4. Removal. Any officer may be removed, either with or without ------- cause, by the vote of a majority of the whole Board of Directors at a special meeting called for the purpose or except in case of any officer elected by the Board of Directors, by any officer upon whom the power of removal may be conferred by the Board of Directors. SECTION 5. Resignation. Any officer may resign at any time by giving ----------- written notice of his or her resignation to the Board of Directors or to the Chairman of the Board, a Vice Chairman of the Board, or the Secretary. Such resignation shall take effect at the date of receipt of the notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 6. Vacancies. A vacancy in any office because of death, --------- resignation, removal, disqualification, or any other cause shall be filled for the unexpired portion of the term in the manner prescribed in these Bylaws for regular election or appointment to such office. SECTION 7. Chairman of the Board. The Chairman of the Board may be the --------------------- chief executive officer of the Company. The Chairman of the Board shall preside at all meetings of the Board of Directors and of the stockholders at which he or she is present. The 26 Chairman of the Board shall have the general supervision of the affairs of the Company, and perform all such duties as are incident to the office or as are properly required of him or her by the Board of Directors. The Chairman of the Board shall have authority to enter into any contract or execute and deliver any instrument in the name and on behalf of the Company, when authorized by the Board of Directors, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or these Bylaws to some other officer, agent, or employee of the Company. SECTION 8. Vice Chairmen of the Board. The Board of Directors may -------------------------- establish the office of Vice Chairman of the Board. In the absence or disability of the Chairman of the Board, a Vice Chairman of the Board shall perform the duties and exercise the powers of the Chairman of the Board. A Vice Chairman of the Board shall have authority to enter into any contract or execute and deliver any instrument in the name and on behalf of the Company, when authorized by the Board of Directors, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or these Bylaws to some other officer, agent, or employee of the Company. In addition, a Vice Chairman of the Board shall have such further powers and perform such further duties as may, from time to time, be assigned to him or her by the Board of 27 Directors or the Chairman of the Board or as may be prescribed by these Bylaws. SECTION 9. Presidents. The Board of Directors may establish the office ----------- of President of a division, region, or other unit, function, or activity of the Company. A President shall have such powers and perform such duties as may, from time to time, be assigned to him or her by the Board of Directors, the Chairman of the Board, or a Vice Chairman of the Board. SECTION 10. Vice Presidents. The Board of Directors may establish --------------- several classifications of Vice Presidents, such as Executive Vice Presidents, Senior Vice Presidents, Regional Vice Presidents, and Divisional Vice Presidents. Each Vice President shall have such powers and perform such duties as shall, from time to time, be assigned to him or her by the Board of Directors, the Chairman of the Board, or a Vice Chairman of the Board. SECTION 11. The Treasurer. The Treasurer shall have charge and custody ------------- of, and be responsible for, all funds and securities of the Company, and shall deposit or cause to be deposited all such funds in the name of the Company in such banks, trust companies, and other depositories as shall be selected in accordance with the provisions of these Bylaws; shall render to the Board of Directors, whenever the Board may require him or her so to do, a report of all his or her transactions as Treasurer; and in general, shall perform all duties as may, from time to time, be assigned to him or her by 28 the Board of Directors, the Chairman of the Board, or a Vice Chairman of the Board. SECTION 12. The Secretary. The Secretary shall record or cause to be ------------- recorded in books kept for the purpose the proceedings of the meetings of the stockholders, the Board of Directors, and all committees, if any; shall see that all notices are duly given in accordance with the provisions of these Bylaws and as required by law; shall be custodian of the seal of the Company; and in general, shall perform all duties incident to the office of Secretary and such other duties as may, from time to time, be assigned to him or her by the Board of Directors, the Chairman of the Board, or a Vice Chairman of the Board. SECTION 13. The Controller. The Controller shall have charge of the -------------- books and records of account of the Company; shall keep or cause to be kept, and shall be responsible for the keeping of, correct and adequate records of the assets, liabilities, business, and transactions of the Company; shall at all reasonable times exhibit his or her books and records of account to any director of the Company upon application at the office of the Company where such books and records are kept; shall be responsible for the preparation and filing of all reports and returns relating to or based upon the books and records of the Company kept by him or her or under his or her direction; and in general, shall perform all duties incident to the office of Controller and such other duties 29 as may, from time to time, be assigned to him or her by the Board of Directors, the Chairman of the Board, or a Vice Chairman of the Board. ARTICLE VI CONTRACTS, LOANS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. SECTION 1. Execution of Contracts. The Board of Directors, except as ---------------------- otherwise provided in these Bylaws, may authorize any officer or officers or other person or persons to enter into any contract or execute and deliver any instrument in the name and on behalf of the Company, and such authority may be general or confined to specific instances, and unless so authorized by the Board of Directors or by the provisions of these Bylaws, no officer or other person shall have any power or authority to bind the Company by any contract or engagement or to pledge its credit or to render it liable pecuniarily for any purpose or to any amount. SECTION 2. Loans. No loan shall be contracted on behalf of the Company, ----- and no negotiable papers shall be issued in its name, except by such officer or officers or other person or persons as may be designated by the Board of Directors from time to time. If and to the extent authorized by the Board of Directors, the power to contract loans or issue negotiable papers may be delegated by any such officer or officers or other person or persons. SECTION 3. Checks, Drafts, etc. All checks, drafts, bills of exchange, -------------------- and other orders for the payment of money, letters of 30 credit, acceptances, obligations, notes, and other evidences of indebtedness, bills of lading, warehouse receipts, and insurance certificates of the Company shall be signed or endorsed by such officer or officers or other person or persons as may be designated by the Board of Directors from time to time. If and to the extent authorized by the Board of Directors, the power to sign or endorse any such instrument may be delegated by any such officer or officers or other person or persons. SECTION 4. Bank Accounts. The Board of Directors may from time to time ------------- authorize the opening and maintenance of general and special bank and custodial accounts with such banks, trust companies, and other depositories as it may select. Rules, regulations, and agreements applicable to such accounts may be made, and changed from time to time, by the Board of Directors, including, but without limitation, rules, regulations, and agreements with respect to the use of facsimile and printed signatures. Any of such powers of the Board of Directors with respect to bank and custodial accounts may be delegated by the Board of Directors to any officer or officers or other person or persons as may be designated by the Board of Directors, and if and to the extent authorized by the Board of Directors, any such power may be further delegated by any such officer or officers or other person or persons. 31 ARTICLE VII BOOKS AND RECORDS SECTION 1. Location. The books and records of the Company may be kept -------- at such place or places within or without the State of Delaware as the Board of Directors or the respective officers in charge thereof may from time to time determine. The stock record books shall be kept by such officer or agent as shall be designated by the Board of Directors. SECTION 2. Addresses of Stockholders. Notices of meetings and all other ------------------------- corporate notices may be delivered personally or mailed to each stockholder at his or her address as it appears on the records of the Company. SECTION 3. Fixing Date for Determination of Stockholders of Record. In ------------------------------------------------------- order that the Company may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion, or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to 32 any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VIII SHARES OF STOCK AND THEIR TRANSFER SECTION 1. Certificates of Stock. Every holder of stock of the Company --------------------- shall be entitled to have a certificate in such form as the Board of Directors shall prescribe certifying the number of shares owned by him or her in the Company. Each such certificate shall be signed by, or in the name of the Company by, the Chairman of the Board, a Vice Chairman of the Board, a President, or a Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent, or registrar who has signed, or whose facsimile signature has been placed upon, a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, the certificate may, nevertheless, be issued by the Company with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue. SECTION 2. Record, etc. A record shall be kept of the name of the ------------ person, firm, or corporation owning the stock represented by each certificate of stock of the Company issued, the number of shares represented by each such certificate, and the date thereof, 33 and in the case of cancellation, the date of cancellation. The person in whose name shares of stock stand on the books of the Company shall be deemed the owner of record thereof for all purposes as regards the Company. SECTION 3. Transfer of Stock. Transfers of shares of the stock of the ----------------- Company shall be made only on the books of the Company by the owner of record thereof, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with such officer or agent as shall be designated by the Board of Directors or with the transfer agent of the Company, and on the surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. ARTICLE IX DIVIDENDS AND RESERVES The Board of Directors may, from time to time, determine whether any, and if any, what part, of the net profits of the Company or of its surplus, available therefor pursuant to law and to the certificate of incorporation, shall be declared as dividends on the stock of the Company. The Board of Directors may, in its discretion, set apart out of any of such net profits or surplus a reserve or reserves for any proper purpose and may abolish any such reserve. 34 ARTICLE X INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS The Company may indemnify, in accordance with and to the full extent permitted by the laws of the State of Delaware as in effect at the time of the adoption of this Article X or as such laws may be amended from time to time, and shall so indemnify to the full extent required by such laws, any person (and the heirs and legal representatives of such person) made or threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that such person is or was a director, officer, employee, or agent of the Company or any constituent corporation absorbed in a consolidation or merger, or serves or served as such with another corporation, partnership, joint venture, trust, or other enterprise at the request of the Company or any such constituent corporation. Notwithstanding any other provision of this Article X or the laws of the State of Delaware to the contrary, no such person shall be entitled to indemnification or the advancement of expenses pursuant to this Article X with respect to any action, suit, or proceeding, or part thereof, brought or made by such person against the Company, unless such indemnification or advancement of expenses (i) is due to such person pursuant to the specific provisions of any agreement in writing between such person and the Company approved by the 35 Company's Board of Directors or (ii) has been approved in writing in advance of the commencement of such action, suit, or proceeding, or part thereof, by or at the direction of the Company's Board of Directors. Any indemnification or advancement of expenses pursuant to this Article X shall only be made in the specific case by a separate determination made (i) by a majority vote of the directors who are not parties to such action, suit, or proceeding, even though less than a quorum, or (ii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (iii) by the Company's stockholders, as to entitlement to advancement of expenses and/or indemnification, as the case may be. ARTICLE XI RATIFICATION Any transaction, questioned in any stockholders' derivative suit on the ground of lack of authority, defective or irregular execution, adverse interest of director, officer, or stockholder, non-disclosure, miscomputation, or the application of improper principles or practices of accounting, may be ratified, before or after judgment, by the Board of Directors or by the stockholders in case less than a quorum of directors are qualified, and if so ratified, shall have the same force and effect as if the questioned transaction had been originally duly authorized. Such ratification shall be binding upon the Company and its stockholders and shall 36 constitute a bar to any claim or execution of any judgment in respect of such questioned transaction. ARTICLE XII SEAL The Board of Directors shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Company and the words and figures "Corporate Seal 1924 Delaware". ARTICLE XIII FISCAL YEAR The fiscal year of the Company shall end at the close of business on the last Saturday in January and shall, in each case, begin at the opening of business on the day next succeeding the last day of the preceding fiscal year. ARTICLE XIV WAIVER OF NOTICE Whenever notice is required to be given under any provision of these Bylaws, the certificate of incorporation, or the laws of the State of Delaware, a written waiver thereof, whether in the form of a writing signed by, or a telegram, cable, radiogram, telephone facsimile, or other appropriate written communication from, the person entitled to notice and whether before or after the time 37 stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of the meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders or directors or a committee of directors need be specified in any written waiver of notice. ARTICLE XV EMERGENCY BYLAWS SECTION 1. General. Notwithstanding any other provisions of the ------- certificate of incorporation and these Bylaws, the emergency bylaws (hereinafter called Emergency Bylaws) provided in this Article XV shall be operative during any emergency resulting from an attack on the United States or on any locality in which the Company conducts its business or customarily holds meetings of its Board of Directors or its stockholders, or during any nuclear or atomic disaster, or during the existence of any catastrophe, or other similar emergency condition (any such condition being hereinafter called an Emergency), as a result of which a quorum of the Board of Directors or the Executive Committee cannot readily be convened for action. To the extent not inconsistent with these Emergency Bylaws, the Bylaws of the Company shall remain in effect 38 during any Emergency. Upon termination of the Emergency, these Emergency Bylaws shall cease to be operative unless and until another Emergency shall occur. SECTION 2. Meetings and Notice of Meetings. During any Emergency any ------------------------------- meeting of the Board of Directors or of the Executive Committee may be called by any director or officer of the Company. Notice of the meeting shall be given by the person calling the meeting, shall state the time and place of the meeting, and shall be required to be given only to such of the directors or members of the Executive Committee, as the case may be, and the persons referred to in Section 3 of this Article XV as it may be feasible to reach at the time and by any means as may then be feasible at the time. SECTION 3. Quorum, Emergency Directors, and Manner of Acting. The ------------------------------------------------- directors and members of the Executive Committee, as the case may be, in attendance at a meeting pursuant to Section 2 of this Article XV, which in no case shall be less than two, shall constitute a quorum of the Board of Directors or the Executive Committee, as the case may be, and they may take any action at the meeting, by majority vote, as they shall, in their sole discretion, deem to be in the best interests of the Company. Notwithstanding the foregoing, if the number of directors or members of the Executive Committee, as the case may be, available to constitute a quorum at any such meeting, shall be less than two, additional 39 directors, or additional members of the Executive Committee, as the case may be, in whatever number shall be necessary to constitute a Board or Executive Committee, as the case may be, of at least two members, shall be deemed selected automatically from the officers or other persons designated on a list approved by the Board of Directors before the Emergency, all in such order of priority and subject to such conditions and for such period or periods as may be provided in the resolution approving the list. The Board of Directors or Executive Committee, as the case may be, as so constituted shall continue until the termination of the Emergency. The Board of Directors, either before or during any Emergency, may provide, and from time to time modify, lines of succession in the event that during such Emergency any or all officers of the Company shall for any reason be rendered incapable of discharging their duties. Any additional director or additional member of the Executive Committee, as the case may be, may be removed, either with or without cause, by a majority vote of the remaining directors or members of the Executive Committee, as the case may be, then in office. SECTION 4. Offices; Places of Meeting. The Board of Directors, either -------------------------- before or during any Emergency, may, effective during the Emergency, change the head office of the Company or designate several alternative head offices or regional offices of the Company or authorize the officers to do so. 40 SECTION 5. Liability during an Emergency. No officer, director, or ----------------------------- employee shall be personally liable for acting in accordance with these Emergency Bylaws, except for wilful misconduct. ARTICLE XVI AMENDMENTS Subject to the provisions of the certificate of incorporation, all Bylaws of the Company shall be subject to alteration, amendment, or repeal, in whole or in part, and new bylaws not inconsistent with the laws of the State of Delaware or any provision of the certificate of incorporation may be made, either by the affirmative vote of a majority of the whole Board of Directors at any regular or special meeting of the Board, or by the affirmative vote of the holders of record of a majority of the issued and outstanding stock of the Company entitled to vote in respect thereof, given at an annual meeting or at any special meeting at which a quorum shall be present, provided that in each case notice of the proposed alteration, amendment, or repeal or the proposed new bylaws be included in the notice of the meeting of the Board or the stockholders, or the form of consent thereof, as the case may be. 41 INDEX -----
Article Pages ---------- ----- Amendments . . . . . . . . . . . . . . . . . XVI 40 Board of Directors . . . . . . . . . . . . . III 11-19 Books and Records . . . . . . . . . . . . . . VII 31-32 Committees . . . . . . . . . . . . . . . . . IV 19-23 Contracts, Loans, Checks, Drafts, Bank Accounts, etc. . . . . . . . . . . . . VI 29-30 Dividends and Reserves . . . . . . . . . . . IX 33 Emergency Bylaws . . . . . . . . . . . . . . XV 37-40 Fiscal Year . . . . . . . . . . . . . . . . .XIII 36 Indemnification of Directors, Officers, Employees, and Agents . . . . . . X 34-35 Meetings of Stockholders . . . . . . . . . . II 2-11 Officers. . . . . . . . . . . . . . . . . . . V 23-28 Offices . . . . . . . . . . . . . . . . . . . I 1 Ratification . . . . . . . . . . . . . . . . XI 35-36 Seal . . . . . . . . . . . . . . . . . . . . XII 36 Shares of Stock and Their Transfer . . . . .VIII 32-33 Waiver of Notice . . . . . . . . . . . . . . XIV 36-37
EX-10.II.J 3 AMD 1984 EQU COMP PLAN Exhibit 10(ii)(j) Section 10 of the J. C. Penney Company, Inc. 1984 Equity Compensation Plan ("1984 Plan") is hereby deleted in its entirety and the following substituted therefor: 10. Nontransferability. Any stock award not earned in full or grant under the Plan shall not be assignable or transferable otherwise than by will or the laws of descent and distribution, pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act, or the rules thereunder, or any successor statutes thereto, or as permitted pursuant to any rule, regulation, or interpretation of the Securities and Exchange Commission applicable thereto, and any attempt to do so shall be void. No stock option, SAR, or TBR will be exercisable during the Participant's lifetime except by the Participant or the Participant's guardian or legal representative, or by a permitted transferee pursuant to this Section, or other third party, as the Committee may determine. The following Section is hereby added to the 1984 Plan: 21. Severability of Provisions. If any provision of this Plan becomes or is deemed invalid, illegal, or unenforceable in any jurisdiction, or if any such provision would disqualify the Plan or any grant or award under any law, such provision will be construed or deemed amended to conform to applicable law or, if such provision cannot be so construed or so deemed amended without materially altering the intent of the Plan, such provision shall be stricken and the remainder of the Plan shall remain in force and effect. With respect to Participants subject to Section 16 of the Securities Exchange Act of 1934 ("Exchange Act"), as amended, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3, as in effect from time to time, or any successor rule thereto ("Rule 16b-3"). To the extent any provision of the Plan, or any action in administering the Plan, fails to so comply, such provision or action will, without further action by any person, be deemed to be automatically amended to the extent necessary to effect compliance with Rule 16b-3; provided, however, that if such provision or action cannot be amended to effect such compliance, such provision or action will be deemed null and void, to the extent permitted by law and deemed advisable by the relevant authority. Each award to a Participant subject to Section 16 of the Exchange Act under this Plan will be deemed issued subject to the foregoing qualification. EX-10.II.K 4 AMD 1989 EQU COMP PLAN Exhibit 10(ii)(k) Section 15 of the J. C. Penney Company, Inc. 1989 Equity Compensation Plan ("1989 Plan") is hereby deleted in its entirety and the following substituted therefor: 15. Nontransferability. No stock award not named in full, stock option, SAR, or TBR granted under the Plan shall be assignable or transferable other than by will or the laws of descent and distribution, pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act, or the rules thereunder, or any successor statutes thereto, or as permitted pursuant to any rule, regulation, or interpretation of the Securities and Exchange Commission applicable thereto, and any attempt to do so shall be void. No stock option, SAR, or TBR will be exercisable during the Associate Participant's or Non-Associate Director Participant's (together "Participant's" or "Participant") lifetime except by him or her or by his or her guardian or legal representative, or by a permitted transferee pursuant to this Section, or other third party, as the Committee may determine. The restrictions on transfer, sale, assignment, pledge, encumbrance or disposition contained in subsection 14(b) above shall not apply to a permitted transferee pursuant to this subsection. The following paragraph is hereby added to Section 21 of the 1989 Plan: With respect to Participants subject to Section 16 of the Exchange Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3, as in effect from time to time, or any successor rule thereto ("Rule 16b-3"). To the extent any provision of the Plan, or any action in administering the Plan, fails to so comply, such provision or action will, without further action by any person, be deemed to be automatically amended to the extent necessary to effect compliance with Rule 16b-3; provided, however, that if such provision or action cannot be amended to reflect such compliance, such provision or action will be deemed null and void, to the extent permitted by law and deemed advisable by the relevant authority. Each award to a Participant subject to Section 16 of the Exchange Act under this Plan will be deemed issued subject to the foregoing qualification. EX-10.II.L 5 AMD 1993 EQU COMP PLAN Exhibit 10(ii)(l) Section 13 of the J. C. Penney Company, Inc. 1993 Equity Compensation Plan is hereby deleted in its entirety and the following substituted therefor: 13. Nontransferability. No unearned Stock Award or any portion thereof, Stock Option, or SAR granted under the Plan may be assigned or transferred other than by will or the laws of descent and distribution, pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act, or the rules thereunder, or any successor statutes thereto, or as permitted pursuant to any rule, regulation, or interpretation of the Securities and Exchange Commission applicable thereto, and any attempt to do so will be void. No Stock Option or SAR will be exercisable during the Participant's lifetime except by the Participant or the Participant's guardian or legal representative, or by a permitted transferee pursuant to this Section, or other third party, as the Committee may determine. EX-10.II.M 6 AMD NON-ASSOC DIR EQU PLAN Exhibit 10(ii)(m) Subsection 2(b) of the J. C. Penney Company, Inc. 1993 Non-Associate Directors' Equity Plan is hereby deleted in its entirety and the following substituted therefor: 2(b) Nontransferability. No Stock Option or Restricted Stock Award (prior to the time the restrictions lapse) granted under the Plan will be assignable or transferable other than by will or the laws of descent and distribution, pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act, or the rules thereunder, or any successor statutes thereto, or as permitted pursuant to any rule, regulation, or interpretation of the Securities and Exchange Commission applicable thereto, and any attempt to do so will be void. No Stock Option will be exercisable during the Participant's lifetime except by the Participant or the Participant's guardian or legal representative, or by a permitted transferee pursuant to this subsection. The restrictions on transfer, sale, assignment, pledge, encumbrance or disposition contained in subsection 2(c)(i) below shall not apply to a permitted transferee pursuant to this subsection. EX-11 7 COMP PER SHARE EARNINGS Exhibit 11 J. C. PENNEY COMPANY, INC. and Consolidated Subsidiaries Computation of Net Income Per Common Share ------------------------------------------ (Amounts in millions except per common share data)
52 Weeks Ended 52 Weeks Ended 53 Weeks Ended ----------------- ---------------- ----------------- January 28, 1995 January 29, 1994 January 30, 1993 ----------------- ---------------- ----------------- Shares Income Shares Income Shares Income ------ ------ ------ ------ ------ ------ Primary: - -------- Income before extraordinary charge and cumulative effect of accounting change $1,057 $944 $777 Dividend on Series B ESOP convertible preferred stock (after-tax) (40) (40) (33) ------ ---- ---- Adjusted income before extra- ordinary charge and cumulative effect of accounting change 1,017 904 744 Weighted average number of shares outstanding 233.9 235.7 234.0 Common stock equivalents: Stock options and other dilutive effects 3.2 3.3 2.0 ------ ------ ------ ---- ----- ---- 237.1 1,017 239.0 904 236.0 744 Income per common share before extraordinary charge and cumulative effect of accounting change $ 4.29 $ 3.79 $3.15 Extraordinary charge on debt redemption, net of income taxes -- -- (0.23) (55) -- -- Cumulative effect of accounting change -- -- 0.21 51 -- -- ------ ------ ------ ------ ------- ---- ----- ----- ---- 237.1 239.0 236.0 ====== ====== ===== Net income $1,017 $900 $744 ====== ==== ==== Net income per common share $ 4.29 $ 3.77 $3.15 ====== ====== ===== Fully diluted: - -------------- Income before extraordinary charge and cumulative effect of accounting change $1,057 $944 $777 Tax benefit differential on ESOP dividend assuming stock is fully converted (3) (4) -- Assumed additional contribution to ESOP if preferred stock is fully converted (9) (12) (14) ------ ---- ---- Adjusted income before extra- ordinary charge and cumulative effect of accounting change 1,045 928 763 Weighted average number of shares outstanding (primary) 237.1 239.0 236.0 Maximum dilution 0.0 0.6 0.2 Convertible preferred stock 21.3 21.9 22.4 ------ ------ ------ ---- ----- ---- 258.4 1,045 261.5 928 258.6 763 Income per common share before extraordinary charge and cumulative effect of accounting change $ 4.05 $ 3.55 $2.95 Extraordinary charge on debt redemption, net of income taxes -- -- (0.21) (55) -- -- Cumulative effect of accounting change -- -- 0.19 51 -- -- ------ ------ ------ ------ ------- ---- ----- ----- ---- 258.4 261.5 258.6 ====== ====== ===== Net income $1,045 $924 $763 ====== ==== ==== Net income per common share $ 4.05 $ 3.53 $2.95 ====== ====== =====
EX-12.A 8 COMP RA INC TO COMB FIXED Exhibit 12 (a) J. C. PENNEY COMPANY, INC. (the Company and all subsidiaries) Computation of Ratios of Available Income to Combined Fixed Charges and Preferred Stock Dividend Requirement
53 Weeks 52 Weeks Ended Ended 52 Weeks Ended -------------------- -------- -------------------- 01/28/95 01/29/94 01/30/93 01/25/92 01/26/91 -------- -------- -------- -------- -------- ($ Millions) Income from continuing operations $1,646 $1,498 $1,192 $402 $ 765 (before income taxes, before -------- -------- -------- -------- -------- capitalized interest, but after preferred stock dividend) Fixed charges Interest (including capitalized interest) On operating leases 95 97 96 95 92 On short term debt 92 43 43 42 103 On long term debt 225 246 281 288 228 On capital leases 7 9 10 11 12 Other, net (1) 0 16 (3) (7) -------- -------- -------- -------- -------- Total fixed charges 418 395 446 433 428 Preferred stock dividend, before taxes 50 52 53 54 55 -------- -------- -------- -------- -------- Combined fixed charges and preferred stock dividend requirement 468 447 499 487 483 -------- -------- -------- -------- -------- Total available income $2,114 $1,945 $1,691 $889 $1,248 ======== ======== ======== ======== ======== Ratio of available income to combined fixed charges and preferred stock dividend requirement 4.5 4.3 3.4 1.8 2.6 ======== ======== ======== ======== ========
The interest cost of the LESOP notes guaranteed by the Company is not included in fixed charges above. EX-12.B 9 COMP RATIO INC TO FIXED Exhibit 12 (b) J. C. PENNEY COMPANY, INC. (the Company and all subsidiaries) Computation of Ratios of Available Income to Fixed Charges
53 Weeks 52 Weeks Ended Ended 52 Weeks Ended -------------------- -------- -------------------- 01/28/95 01/29/94 01/30/93 01/25/92 01/26/91 -------- -------- -------- -------- -------- ($ Millions) Income from continuing operations $1,696 $1,550 $1,245 $456 $ 820 (before income taxes and -------- -------- -------- -------- -------- capitalized interest) Fixed charges Interest (including capitalized interest) On operating leases 95 97 96 95 92 On short term debt 92 43 43 42 103 On long term debt 225 246 281 288 228 On capital leases 7 9 10 11 12 Other, net (1) 0 16 (3) (7) -------- -------- -------- -------- -------- Total fixed charges 418 395 446 433 428 -------- -------- -------- -------- -------- Total available income $2,114 $1,945 $1,691 $889 $1,248 ======== ======== ======== ======== ======== Ratio of available income to fixed charges 5.1 4.9 3.8 2.1 2.9 ======== ======== ======== ======== ========
The interest cost of the LESOP notes guaranteed by the Company is not included in fixed charges above. EX-13 10 EXCERPT CO. 1994 ANNUAL Exhibit 13 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS
($ in millions except per share data) 1994 1993 1992 - ---------------------------------------------------------------------------- Retail sales, per cent increase 7.4 5.4 11.2 Comparative store sales, per cent increase 6.8 5.3 9.7 Gross margin, per cent of retail sales FIFO 31.5 31.3 31.5 LIFO 31.5 31.5 31.7 Selling, general, and administrative expenses, per cent of retail sales 23.5 23.7 24.7 Pre-tax income of other businesses $ 165 $ 149 $ 125 Effective income tax rate 37.8 39.3 38.3 Net income $1,057 $ 940 $ 777 Per share $ 4.05 $ 3.53 $ 2.95 - ----------------------------------------------------------------------------
NET INCOME. The Company recorded its third consecutive year of outstanding profits in 1994, with net income exceeding $1 billion for the first time in the Company's history. Net income in 1994 was $1,057 million, an increase of 12.5 per cent from $940 million in 1993. Fully diluted earnings per share improved 14.7 per cent to $4.05 per share from $3.53 per share in 1993. Increased sales volume in both stores and catalog was largely responsible for the improvement in each of the last three years. Contributing to increased profits were well managed selling, general, and administrative expenses. These expenses, as a per cent of retail sales, continued to decline in 1994 following significant reductions in 1993 and 1992. Net income was $940 million in 1993, an increase of 20.9 per cent from $777 million in 1992. Fully diluted earnings per share improved to $3.53 per share from $2.95 per share in 1992. Net income was $777 million in 1992, an increase of 47.2 per cent from $528 million in 1991, excluding the impact in 1991 of nonrecurring items and the cumulative effect of an accounting change.
- ----------------------------------------------------------------------------------------------------------------------------- REVENUE (In millions) 1994 Per cent increase 1993 Per cent increase 1992 - ----------------------------------------------------------------------------------------------------------------------------- JCPenney stores $ 15,023 6.9 $ 14,056 4.4 $ 13,460 Catalog 3,817 8.6 3,514 11.0 3,166 Drug stores 1,540 9.0 1,413 2.2 1,383 -------- -------- -------- Total retail sales* 20,380 7.4 18,983 5.4 18,009 -------- -------- -------- JCPenney Insurance 571 20.2 475 22.5 388 JCPenney National Bank 131 9.5 120 2.0 118 -------- -------- -------- Total revenue $ 21,082 7.7 $ 19,578 5.7 $ 18,515
1994 and 1993 comprised 52 weeks, and 1992 comprised 53 weeks. *On a comparable 52-week basis, total retail sales increased 6.9 per cent in 1993; JCPenney stores sales increased 5.8 per cent; Catalog sales increased 12.8 per cent; and Drug store sales increased 4.2 per cent. - -------------------------------------------------------------------------------- The sales gains in JCPenney stores over the last three years were primarily the result of the Company's strategy of offering fashion and quality merchandise to its customers at competitive, affordable prices; the aggressive national advertising campaign which began in 1993; and the emphasis on developing its private brands. Catalog sales increases have been fueled by the growth in the number of new customers, gains from specialty catalogs, and improved synergy with the JCPenney stores' merchandise mix. Drug store sales increases were due primarily to the growth in store and institutional pharmacy sales. GROSS MARGIN dollars, on a FIFO basis, increased $461 million or 7.7 per cent in 1994, reflecting the favorable sales performance of both stores and catalog and improved inventory management. As a per cent of retail sales, gross margin was 31.5 per cent in 1994, compared with 31.3 per cent in 1993 and 31.5 per cent in 1992. The level of the Company's LIFO index in 1994 was about the same as the level in 1993, resulting in a pre-tax LIFO charge of $1 million. Because of a decline in retail prices, there was deflation in the Company's index in 1993 and 1992, resulting in a pre-tax LIFO credit of $36 million and $32 million, respectively. SG&A EXPENSES, as a per cent of retail sales, declined in 1994 to 23.5 per cent from 23.7 per cent in 1993 and 24.7 per cent in 1992, as a result of the Company's continuing efforts to control costs across all operating and support areas. SG&A expenses increased in 1994 from 1993's level, reflecting planned increases in store and catalog advertising. NET INTEREST EXPENSE AND CREDIT OPERATIONS
(In millions) 1994 1993 1992 - --------------------------------------------------------------------------- Interest expense, net $ 270 $ 241 $ 258 Finance charge revenue (624) (523) (509) Credit costs Bad debt expense 177 95 122 Operating expenses (including third party credit costs) 270 260 261 ----------------------------------- Net interest expense and credit operations $ 93 $ 73 $ 132 - ---------------------------------------------------------------------------
22 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) - -------------------------------------------------------------------------------- NET INTEREST EXPENSE AND CREDIT OPERATIONS increased 27.0 per cent in 1994 to $93 million. Finance charge revenue rose $101 million in 1994, while bad debt expense increased $82 million from the low levels last year, due to the higher level of customer receivables. Interest expense increased $29 million compared with 1993, primarily due to higher working capital requirements and the stock purchase programs. Interest expense was also impacted by higher short term interest rates in 1994, which were offset by lower average borrowing rates on the Company's long term debt as a result of the debt restructuring program in 1993 and 1992. Net interest expense and credit operations declined in 1993, primarily as a result of lower bad debt and interest expense. Interest expense declined as a result of the Company's debt restructuring program in 1993 and 1992 initiated to take advantage of declining interest rates. THE EFFECTIVE INCOME TAX RATE for 1994 was 37.8 per cent as compared with 39.3 per cent in 1993 and 38.3 per cent in 1992. The effective tax rate declined in 1994 due to greater utilization of the available targeted jobs tax credit. The 1993 rate included a one-time, non-cash charge of $14 million for the revaluation of deferred taxes, as required by Statement No. 109, Accounting for Income Taxes. Excluding the adjustment for deferred taxes, the 1993 effective income tax rate was 38.3 per cent. PRE-TAX INCOME OF OTHER BUSINESSES
(In millions) 1994 1993 1992 - --------------------------------------------------------------------------- JCPenney Insurance $ 138 $ 120 $ 101 JCPenney National Bank 27 29 24 ----------------------------------- Total $ 165 $ 149 $ 125 - ---------------------------------------------------------------------------
JCPENNEY INSURANCE, which markets life, accident and health, and credit insurance, continued its growth trend. During the past three years, JCPenney Insurance has expanded its market share through relationships with credit card issuers other than the Company, in both the United States and Canada to solicit their customers. Pre-tax income was $138 million in 1994, an increase of $18 million or 14.6 per cent over 1993. This growth resulted from favorable trends in both premiums and lower loss ratios. Premium income for 1994 was $508 million, an increase of $92 million or 22 per cent over 1993. The growth in premium income resulted from an increase of 1.7 million policies and certificates, 30 per cent more than in 1993. Renewal premiums increased as a result of greater sales over the past four years coupled with favorable policy retention. Pre-tax income was $120 million in 1993, an increase of 19.3 per cent over 1992, primarily due to increased premiums. JCPENNEY NATIONAL BANK is a consumer bank, having no commercial lending activity. The Bank offers Visa and MasterCard credit cards to consumers, and generates funds primarily through certificates of deposit. At the end of the year, about 497 thousand credit cards were active. Pre-tax income was $27 million in 1994, down from $29 million in 1993, due to higher average interest rates on deposits. Pre-tax income improved in both 1993 and 1992, as a result of lower interest rates and a reduction in bad debt expense. FINANCIAL CONDITION. The Company's goal is to continue to maintain a strong balance sheet. Outstanding earnings for the last three years and consistent cash flows have contributed to our strong financial condition. This provides the Company flexibility to capitalize on attractive opportunities for growth, increase its dividends, and to purchase shares of stock - all leading toward enhanced stockholder value. Return on stockholders' equity is a key measure for evaluating the Company's performance. Our return on equity in 1994 was 19.7 per cent compared to 20.1 per cent in 1993 and 18.6 per cent in 1992. This performance placed the Company in the top quartile of our key retail competitors and the S&P 500. The Company's credit ratings on its long term debt and commercial paper are among the highest in the retail industry. In October 1994, Moody's Investors Service upgraded the Company's long term debt rating to A1. Currently, the Company's long term debt is rated A+ by Standard & Poor's Corporation, A1 by Moody's Investors Service, and A+ by Fitch Investors Service, Inc. Our commercial paper is rated A1, P1 and F1, by Standard & Poor's, Moody's, and Fitch, respectively. CASH FLOW. In 1994, the Company continued to generate sufficient cash flows internally to meet the major portion of its cash requirements to finance its operations. Cash flow generated internally in 1994, which consisted of net income plus depreciation and amortization and deferred taxes, was $1,414 million. At this level, cash flow covered substantially all of the Company's cash requirements for working capital, capital expenditures, and dividends. In addition, the Company used debt financing to complete its stock purchase program of 10 million shares at a total cost of $475 million. During the next few years, the Company expects to generate internally sufficient cash flow to meet substantially all of its cash requirements for operations, capital expenditures, and dividends. Capital expenditures are expected to be approximately $600 million in each of the next three years. 23 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) - -------------------------------------------------------------------------------- DEBT TO CAPITAL. The Company's debt to capital ratio is based on an asset mix which is significantly influenced by customer receivables from the Company's proprietary credit card. Debt includes both on and off balance sheet financing. Over the last several years, the Company's debt capacity has increased as a result of its strong earnings and cash flows. This has permitted the Company to enhance stockholder value through a stock purchase program and dividend increases. At the end of 1994, after the completion of the first stock purchase program, the debt to capital ratio was 53.1 per cent. A second purchase program, for the purchase of up to an additional 10 million shares of the Company's common stock, was authorized and begun in January 1995. DIVIDENDS. On March 8, 1995, the Board of Directors increased the quarterly common dividend to 48 cents per share, or an indicated annual rate of $1.92 per share. The regular quarterly dividend on the Company's outstanding common stock is payable on May 1, 1995, to stockholders of record on April 10, 1995. The quarterly common dividend was 42 cents per share in 1994, 36 cents per share in 1993, and 33 cents per share in 1992, or an indicated annual rate of $1.68 per share in 1994, $1.44 per share in 1993, and $1.32 per share in 1992. IMPACT OF INFLATION AND CHANGING PRICES. The impact of inflation on the Company has not been significant in recent years due to the low levels of inflation. Inflation causes increases in the cost of doing business, including capital expenditures. By striving to control costs, the Company attempts to minimize the effects of inflation on its operations. 24 - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- To the Stockholders and Board of Directors of J.C. Penney Company, Inc.: We have audited the accompanying consolidated balance sheets of J.C. Penney Company, Inc. and Subsidiaries as of January 28, 1995, January 29, 1994, and January 30, 1993, and the related consolidated statements of income, reinvested earnings, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of J.C. Penney Company, Inc. and Subsidiaries as of January 28, 1995, January 29, 1994, and January 30, 1993, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed on page 39, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, in 1993. Also, as discussed on page 29, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, in 1994. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP 200 Crescent Court, Dallas, Texas 75201 February 23, 1995 - -------------------------------------------------------------------------------- COMPANY STATEMENT ON FINANCIAL INFORMATION - -------------------------------------------------------------------------------- The Company is responsible for the information presented in this Annual Report. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and are considered to present fairly in all material respects the Company's results of operations, financial position, and cash flows. Certain amounts included in the consolidated financial statements are estimated based on currently available information and judgment of the outcome of future conditions and circumstances. Financial information elsewhere in this Annual Report is consistent with that in the consolidated financial statements. The Company's system of internal controls is supported by written policies and procedures and supplemented by a staff of internal auditors. This system is designed to provide reasonable assurance, at suitable costs, that assets are safeguarded and that transactions are executed in accordance with appropriate authorization and are recorded and reported properly. The system is continually reviewed, evaluated, and where appropriate, modified to accommodate current conditions. Emphasis is placed on the careful selection, training, and development of professional managers. An organizational alignment that is premised upon appropriate delegation of authority and division of responsibility is fundamental to this system. Communication programs are aimed at assuring that established policies and procedures are disseminated and understood throughout the Company. The consolidated financial statements have been audited by independent auditors whose report appears to the left. This audit was conducted in accordance with generally accepted auditing standards, which includes the consideration of the Company's internal controls to the extent necessary to form an independent opinion on the consolidated financial statements prepared by management. The Audit Committee of the Board of Directors is composed solely of directors who are not officers or employees of the Company. The Audit Committee's responsibilities include recommending to the Board for stockholder approval the independent auditors for the annual audit of the Company's consolidated financial statements. The Committee also reviews the independent auditors' audit strategy and plan, scope, fees, audit results, and non-audit services and related fees; internal audit reports on the adequacy of internal controls; the Company's ethics program; status of significant legal matters; the scope of the internal auditors' plans and budget and results of their audits; and the effectiveness of the Company's program for correcting audit findings. The independent auditors and Company personnel, including internal auditors, meet periodically with the Audit Committee to discuss auditing and financial reporting matters. /s/ Robert E. Northam Robert E. Northam Executive Vice President and Chief Financial Officer 25 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME J.C. PENNEY COMPANY, INC. AND SUBSIDIARIES - --------------------------------------------------------------------------------
FOR THE YEAR (In millions except per share data) 1994 1993 1992 - ------------------------------------------------------------------------------------------------- Revenue Retail sales $ 20,380 $ 18,983 $ 18,009 Other revenue 702 595 506 ---------------------------------- Total revenue 21,082 19,578 18,515 ---------------------------------- Costs and expenses Cost of goods sold, occupancy, buying, and warehousing costs 13,970 12,997 12,297 Selling, general, and administrative expenses 4,783 4,508 4,446 Costs and expenses of other businesses 537 446 381 Net interest expense and credit operations 93 73 132 ---------------------------------- Total costs and expenses 19,383 18,024 17,256 ---------------------------------- Income before income taxes, extraordinary charge, and cumulative effect of accounting change 1,699 1,554 1,259 Income taxes 642 610 482 ---------------------------------- Income before extraordinary charge and cumulative effect of accounting change 1,057 944 777 Extraordinary charge on debt redemption, net of income taxes of $35 -- (55) -- Cumulative effect of accounting change for income taxes -- 51 -- ---------------------------------- Net income $ 1,057 $ 940 $ 777 ================================== Earnings per common share Primary Income before extraordinary charge and cumulative effect of accounting change $ 4.29 $ 3.79 $ 3.15 Extraordinary charge on debt redemption, net -- (.23) -- Cumulative effect of accounting change for income taxes -- .21 -- ---------------------------------- Net income $ 4.29 $ 3.77 $ 3.15 ================================== Fully diluted Income before extraordinary charge and cumulative effect of accounting change $ 4.05 $ 3.55 $ 2.95 Extraordinary charge on debt redemption, net -- (.21) -- Cumulative effect of accounting change for income taxes -- .19 -- ---------------------------------- Net income $ 4.05 $ 3.53 $ 2.95 ==================================
See Summary of Accounting Policies and Notes to Financial Statements on pages 29 through 39. - -------------------------------------------------------------------------------- 26 - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- J.C. Penney Company, Inc. and Subsidiaries
ASSETS (In millions) 1994 1993 1992 - --------------------------------------------------------------------------------------------------------- Current assets Cash and short term investments of $207, $156, and $405 $ 261 $ 173 $ 426 Receivables, net 5,159 4,679 3,750 Merchandise inventories 3,876 3,545 3,258 Prepaid expenses 172 168 157 ---------------------------------------- Total current assets 9,468 8,565 7,591 Properties, net 3,954 3,818 3,755 Investments, primarily insurance operations 1,359 1,182 991 Deferred insurance policy acquisition costs 482 426 372 Other assets 939 797 758 ---------------------------------------- $ 16,202 $ 14,788 $ 13,467 ========================================
LIABILITIES AND STOCKHOLDERS' EQUITY (In millions except share data) - --------------------------------------------------------------------------------------------------------- Current liabilities Accounts payable and accrued expenses $ 2,274 $ 2,139 $ 2,038 Short term debt 2,092 1,284 907 Current maturities of long term debt -- 348 -- Deferred taxes 115 112 64 ---------------------------------------- Total current liabilities 4,481 3,883 3,009 Long term debt 3,335 2,929 3,171 Deferred taxes 1,039 1,013 1,012 Bank deposits 702 581 538 Insurance policy and claims reserves 568 540 462 Other liabilities 462 477 570 Stockholders' equity Preferred stock, without par value: Authorized, 25 million shares -- issued, 1 million shares of Series B LESOP convertible preferred 630 648 666 Guaranteed LESOP obligation (307) (379) (447) Common stock, par value 50c: Authorized, 1,250 million shares -- issued, 227, 236, and 235 million shares 1,030 1,003 955 Reinvested earnings 4,262 4,093 3,531 ---------------------------------------- Total stockholders' equity 5,615 5,365 4,705 ---------------------------------------- $ 16,202 $ 14,788 $ 13,467 ========================================
See Summary of Accounting Policies and Notes to Financial Statements on pages 29 through 39. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF REINVESTED EARNINGS - --------------------------------------------------------------------------------
(In millions) - --------------------------------------------------------------------------------------------------------- Reinvested earnings at beginning of year $ 4,093 $ 3,531 $ 3,156 Net income 1,057 940 777 Net unrealized change in debt and equity securities (21) 1 (1) Retirement of common stock (435) -- -- Common stock dividends declared (392) (339) (309) Preferred stock dividends declared, net of taxes (40) (40) (33) Two-for-one stock split -- -- (59) -------------------------------------- Reinvested earnings at end of year $4,262 $ 4,093 $ 3,531 ======================================
See Summary of Accounting Policies and Notes to Financial Statements on pages 29 through 39. - -------------------------------------------------------------------------------- 27 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- J.C. Penney Company, Inc. and Subsidiaries
FOR THE YEAR (In millions) 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------- Operating activities Net income $ 1,057 $ 940 $ 777 Extraordinary charge, net of income taxes -- 55 -- Cumulative effect of accounting change for income taxes -- (51) -- Depreciation and amortization 323 316 310 Amortization of original issue discount 5 48 58 Deferred taxes 29 100 48 Change in cash from: Customer receivables (326) (352) 411 Securitized customer receivables amortized -- (425) (36) Inventories, net of trade payables (352) (196) (27) Other assets and liabilities, net 2 (149) 33 --------------------------------------------- 738 286 1,574 --------------------------------------------- Investing activities Capital expenditures (550) (480) (454) Purchases of investment securities (476) (351) (325) Proceeds from sales of investment securities 287 215 195 Investment in asset-backed certificates -- (12) (419) --------------------------------------------- (739) (628) (1,003) --------------------------------------------- Financing activities Increase in short term debt 808 377 436 Issuance of long term debt 500 1,015 280 Payments of long term debt (350) (875) (677) Premium on debt retirement -- (76) -- Common stock issued, net 45 37 39 Common stock purchased and retired (475) -- -- Preferred stock retired (18) (18) (18) Dividends paid, preferred and common (421) (371) (342) --------------------------------------------- 89 89 (282) --------------------------------------------- Net increase (decrease) in cash and short term investments 88 (253) 289 Cash and short term investments at beginning of year 173 426 137 --------------------------------------------- Cash and short term investments at end of year $ 261 $ 173 $ 426 ============================================= Supplemental cash flow information Interest paid $ 301 $ 253 $ 265 Interest received $ 55 $ 51 $ 71 Income taxes paid $ 509 $ 486 $ 322
See Summary of Accounting Policies and Notes to Financial Statements on pages 29 through 39. - -------------------------------------------------------------------------------- 28 - -------------------------------------------------------------------------------- SUMMARY OF ACCOUNTING POLICIES - -------------------------------------------------------------------------------- BASIS OF CONSOLIDATION. The consolidated financial statements present the results of J.C. Penney Company, Inc. and all of its wholly-owned and majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. DEFINITION OF FISCAL YEAR. The Company's fiscal year ends on the last Saturday in January. Fiscal year 1994 ended January 28, 1995, 1993 ended January 29, 1994, and 1992 ended January 30, 1993. They comprised 52 weeks, 52 weeks, and 53 weeks, respectively. The accounts of JCPenney Insurance and JCPenney National Bank are on a calendar year basis. RETAIL SALES. Retail sales include merchandise and services, net of returns, and exclude sales taxes. EARNINGS PER COMMON SHARE. Primary earnings per share are computed by dividing net income less dividend requirements on the Series B LESOP convertible preferred stock, net of tax, by the weighted average common stock and common stock equivalents outstanding. Fully diluted earnings per share also assume conversion of the Series B LESOP convertible preferred stock into the Company's common stock. Additionally, it assumes adjustment of net income for the additional cash requirements, net of tax, needed to fund the LESOP debt service resulting from the assumed replacement of the preferred dividends with common stock dividends. The number of shares used in the computation of fully diluted earnings per share was 258 million in 1994, 261 million in 1993, and 258 million in 1992. CASH AND SHORT TERM INVESTMENTS. Cash invested in instruments with remaining maturities of three months or less from time of investment is reflected as short term investments. MERCHANDISE INVENTORIES. Substantially all merchandise inventories are valued at the lower of cost (last-in, first-out) or market, determined by the retail method. DEPRECIATION. The cost of buildings and equipment is depreciated on a straight line basis over the estimated useful lives of the assets. The principal annual rates of depreciation are 2 per cent for buildings, 5 per cent for warehouse fixtures and equipment, 10 per cent for selling fixtures and equipment, and 20 per cent for data center equipment. Improvements to leased premises are amortized on a straight line basis over the expected term of the lease or their estimated useful lives, whichever is shorter. DEFERRED CHARGES. Expenses associated with the opening of new stores are written off in the year of the store opening, except those of stores opened in January, which are written off in the following fiscal year. Deferred policy acquisition costs, principally marketing costs and commissions incurred by JCPenney Insurance to secure new insurance policies, are amortized over the expected premium-paying period of the related policies. INVESTMENTS. Effective January 30, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. This statement requires that securities be classified as trading, held-to-maturity, or available-for-sale. The Company's investments, which consist of fixed income securities (principally bonds) held by JCPenney Insurance, marketable equity securities, and JCP Receivables, Inc. asset-backed certificates held by the Company, are classified as available-for-sale and are carried at fair value. Changes in unrealized gains and losses are recorded directly to stockholders' equity, net of applicable income taxes. Adoption of this statement had no material effect on the Company's investments, deferred taxes, and stockholders' equity, as reflected on the consolidated balance sheet at January 28, 1995, and had no impact on net income. In 1993 and 1992, fixed income securities and asset-backed certificates were carried at amortized cost on the consolidated balance sheets. INSURANCE POLICY AND CLAIMS RESERVES. Liabilities established by JCPenney Insurance for future policy benefits are computed using a net level premium method including assumptions as to investment yields, mortality, morbidity, and persistency based on the Company's experience. Liabilities for unpaid claims are charged to expense in the period that the claims are incurred. ADVERTISING. Costs for newspaper, television, radio, and other media are expensed as incurred. Direct response advertising consists primarily of catalog preparation and printing costs, which are charged to expense over the period during which the benefits of the catalogs are expected, not to exceed six months. DERIVATIVE FINANCIAL INSTRUMENTS. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments, in 1994. This statement requires certain disclosures about derivative financial instruments, which are defined in the statement as futures, forward, swap, and option contracts, and other financial instruments with similar characteristics. The Company's current derivative positions consist of off-balance-sheet interest rate swaps. The accounting treatment for these interest rate swaps is to record the net interest received or paid as an adjustment to interest expense on a current basis. Gains or losses resulting from market movements are not recognized. 29 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1. RECEIVABLES 2. MERCHANDISE INVENTORIES 3. PROPERTIES 4. CAPITAL EXPENDITURES 5. INVESTMENTS 6. DERIVATIVE FINANCIAL INSTRUMENTS 7. FAIR VALUE OF FINANCIAL INSTRUMENTS 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES 9. SHORT TERM DEBT 10. LONG TERM DEBT 11. PREFERRED STOCK 12. COMMON STOCK 13. FINANCE CHARGE REVENUE AND BAD DEBT EXPENSE 14. INTEREST EXPENSE 15. RENT EXPENSE 16. RETIREMENT PLANS 17. TAXES 18. SEGMENT REPORTING - -------------------------------------------------------------------------------- 1. RECEIVABLES
(In millions) 1994 1993 1992 - -------------------------------------------------------------------------------- Customer receivables serviced $ 4,751 $ 4,410 $ 4,068 Customer receivables sold 725 725 1,150 ------------------------------------ Customer receivables owned 4,026 3,685 2,918 Less allowance for doubtful accounts 74 59 69 ------------------------------------ Customer receivables, net 3,952 3,626 2,849 JCPenney National Bank receivables 729 587 538 Other receivables 478 466 363 ------------------------------------ Receivables, net $ 5,159 $ 4,679 $ 3,750 - --------------------------------------------------------------------------------
The Company's policy is to write off accounts when the scheduled minimum payment has not been received for six consecutive months, if any portion of the balance is more than 12 months past due, or if it is otherwise determined that the customer is unable to pay. Collection efforts continue subsequent to write off, and recoveries are applied as a reduction of bad debt losses. During the period 1988 to 1990, the Company transferred portions of its customer receivables to a trust which, in turn, sold certificates representing undivided interests in the trust in public offerings. Certificates sold during this period totaled $1,400 million. No gain or loss was recognized at the date of sale. $675 million of the certificates sold were amortized in 1993 and 1992. As of January 28, 1995, $725 million of the certificates were outstanding and the balance of the receivables in the trust was $1,768 million. The Company owns the remaining undivided interest in the trust not represented by the certificates and will continue to service all receivables for the trust. Cash flows generated from receivables in the trust are dedicated to payment of interest on the outstanding certificates with stated rates of 8.95% and 9.625%, absorption of defaulted accounts in the trust, and payment of servicing fees to the Company. Reserve funds (fully funded at $91 million) are available if cash flows from the receivables become insufficient to make such payments. None of the reserve funds has been utilized as of January 28, 1995. Additionally, the Company has made available to the trust irrevocable letters of credit of $87 million that may be drawn upon should the reserve funds be exhausted. None of the letters of credit was in use as of January 28, 1995. 2. MERCHANDISE INVENTORIES
(In millions) 1994 1993 1992 - -------------------------------------------------------------------------------- Merchandise inventories, at lower of cost (FIFO) or market $ 4,123 $ 3,791 $ 3,540 LIFO reserve (247) (246) (282) --------------------------------- Merchandise inventories, at LIFO cost $ 3,876 $ 3,545 $ 3,258 - --------------------------------------------------------------------------------
Substantially all of the Company's inventories are measured using the last-in, first-out (LIFO) method of inventory valuation. The Company applies internally developed indices to measure increases and decreases in its own retail prices. 3. PROPERTIES
(In millions) 1994 1993 1992 - -------------------------------------------------------------------------------- Land $ 213 $ 213 $ 212 Buildings Owned 2,178 2,119 2,016 Capital leases 186 219 237 Fixtures and equipment 2,763 2,693 2,703 Leasehold improvements 611 575 544 -------------------------------- 5,951 5,819 5,712 Less accumulated depreciation and amortization 1,997 2,001 1,957 -------------------------------- Properties, net $ 3,954 $3,818 $3,755 - --------------------------------------------------------------------------------
At January 28, 1995, the Company owned 251 retail stores, four catalog distribution centers, one store distribution center, its home office facility, and the insurance company corporate offices. 4. CAPITAL EXPENDITURES Capital expenditures, primarily for new and relocated JCPenney stores and for modernizations and updates of existing stores, were as follows:
(In millions) 1994 1993 1992 - -------------------------------------------------------------------------------- JCPenney stores: New and relocated stores $ 197 $ 162 $ 130 Modernizations and updates 136 130 76 Technology and other store improvements 78 44 32 -------------------------------- 411 336 238 Catalog 21 21 11 Drug stores 59 40 27 Other* 53 62 218 -------------------------------- Total capital expenditures $ 544 $ 459 $ 494 - --------------------------------------------------------------------------------
*1992 includes $173 million for home office construction costs. 30 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 5. INVESTMENTS Investments at year end 1994 were carried at fair value on the consolidated balance sheet and totaled $1,359 million. In 1993 and 1992, fixed income securities held by JCPenney Insurance and asset-backed certificates held by the Company were carried at amortized cost on the consolidated balance sheets. The amortized cost and fair values of investments were as follows:
1994 1993 1992 ------------------------------------------------------------------------------------ Amortized Fair Amortized Fair Amortized Fair INVESTMENTS (In millions) Cost Value Cost Value Cost Value - -------------------------------------------------------------------------------------------------------------------------------- Fixed income securities JCPenney Insurance U.S. Government obligations $ 111 $ 107 $ 139 $ 153 $ 138 $ 142 Corporate securities 278 266 280 302 210 224 Mortgage-backed securities 216 199 158 164 148 159 Other investments 100 89 93 91 45 44 ---------------------------------------------------------------------------------- 705 661 670 710 541 569 JCPenney Company Asset-backed certificates 431 453 431 510 419 465 Other cash investments 149 148 1 1 2 1 ---------------------------------------------------------------------------------- $1,285 $1,262 $1,102 $1,221 $ 962 $1,035 Equity securities JCPenney Insurance $ 35 $ 37 $ 28 $ 33 $ 22 $ 29 JCPenney Company 58 60 43 47 -- -- ---------------------------------------------------------------------------------- $ 93 $ 97 $ 71 $ 80 $ 22 $ 29 - --------------------------------------------------------------------------------------------------------------------------------
Unrealized capital gains and losses on fixed income and equity securities included in stockholders' equity at year end 1994 were as follows:
Gross Cost or Unrealized Net Amortized Fair -------------------- Unrealized (In millions) Cost Value Gains (Losses) Gains (Losses) - ----------------------------------------------------------------------------------------------------------------------------------- JCPenney Insurance fixed income securities $ 705 $ 661 $ 6 $ (50) $ (44) Asset-backed certificates 431 453 22 0 22 Other cash investments 149 148 0 (1) (1) Equity securities 93 97 9 (5) 4 ------------------------------------------------------------------------ $1,378 $1,359 $ 37 $ (56) $ (19) Deferred income taxes 7 -------------- Total $ (12) - -----------------------------------------------------------------------------------------------------------------------------------
The scheduled maturities for fixed income securities at year end 1994 were as follows:
Amortized Fair (In millions) Cost Value - -------------------------------------------------------------------------------- Due in one year or less $ 16 $ 16 Due after one year through five years 339 331 Due after five years through ten years 519 539 Due after ten years 176 158 --------------------- 1,050 1,044 Mortgage-backed securities 216 199 Other 19 19 --------------------- Total $1,285 $1,262 - --------------------------------------------------------------------------------
Realized gains and losses on investment transactions are determined on a first-in, first-out basis and are included in income on the trade date, and other revenue on the consolidated statements of income. These gains were $7 million in 1994, $14 million in 1993, and $12 million in 1992. 31 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 6. DERIVATIVE FINANCIAL INSTRUMENTS The Company selectively uses off-balance-sheet derivative financial instruments to manage market and interest rate risk, and reduce costs associated with financings. The Company uses derivatives for purposes other than trading activities, and derivatives which are leveraged or speculative by nature are not used. Current derivative positions consist of off-balance-sheet interest rate swaps which management believes present no significant financial risk to the Company. CURRENT DERIVATIVE POSITIONS. In connection with the sale of $375 million of asset-backed certificates in 1990, the Company entered into two offsetting interest rate swaps. The swaps help to protect the investors of the certificates by reducing the possibility of an early amortization of the principal. Currently, the Company has no interest rate exposure from these swaps due to their offsetting nature. The Company has in place interest rate swap contracts that were entered into in connection with the issuance of $250 million principal amount of 8.25 per cent sinking fund debentures in August 1992. These are four year agreements with a notional principal amount totaling $250 million. Under the swap agreements, the Company converted its fixed rate obligation to a floating rate obligation based on the six month London Interbank (LIBOR) rate. Since the inception of these interest rate swaps in 1992, interest expense has been reduced by approximately $10 million, and the interest cost of the 8.25 per cent fixed rate coupon has been effectively lowered to 6.25 per cent. The cumulative benefit of these swaps will be impacted by fluctuations in short term interest rates over the remaining 18 months of the swap contracts. The counter parties to these contracts are high credit quality commercial banks. Consequently, credit risk, which is inherent in all swaps, has been minimized to a large extent. The impact of these interest rate swaps on both interest expense and the Company's average long term borrowing rate for 1994, 1993, and 1992 was immaterial. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS Estimates of fair value are made at a specific point in time, based on relevant market prices and information about the financial instrument. The estimated fair values of financial instruments presented below are not necessarily indicative of the amounts the Company might realize in actual market transactions. The carrying amount and fair value for the financial assets and liabilities on the consolidated balance sheet at each year end were:
1994 1993 1992 ----------------------------------------------------------------------------- Carrying Fair Carrying Fair Carrying Fair (In millions) Amount Value Amount Value Amount Value - ----------------------------------------------------------------------------------------------------------------------------------- Financial assets JCPenney Insurance fixed income securities $ 661 $ 661 $ 670 $ 710 $ 541 $ 569 Asset-backed certificates 453 453 431 510 419 465 Other cash investments 148 148 1 1 2 1 Equity securities 97 97 80 80 29 29 Receivables, net 5,159 5,159 4,679 4,679 3,750 3,750 Cash and short term investments 261 261 173 173 426 426 Financial liabilities Long term debt (excluding capital leases)* $ 3,231 $ 3,124 $ 2,802 $ 3,021 $ 3,030 $ 3,295 Bank deposits 702 698 581 584 538 541 Short term debt 2,092 2,092 1,284 1,284 907 907 Current maturities of long term debt -- -- 348 348 -- -- - -----------------------------------------------------------------------------------------------------------------------------------
*The fair value of the off-balance-sheet interest rate swaps at the end of 1994, 1993, and 1992 was $(8) million, $13 million, and $4 million, respectively. 32 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- Fair values for fixed income securities, asset-backed certificates, and equity securities are based on quoted market prices. Fixed income securities and asset-backed certificates were carried at fair value on the consolidated balance sheet at year end 1994, and were carried at amortized cost in 1993 and 1992. The Company believes that the carrying value of existing customer and bank receivables is the best estimate of fair value because of their short average maturity and bad debt losses can be reasonably estimated and have been reserved. The carrying amount for the Company's cash and short term investments, short term debt, and current maturities of long term debt approximates fair value due to their short maturities. The fair value for long term debt, excluding capital leases, was determined based on the interest rate environment and the Company's credit rating. The fair value of bank deposits was based on the discounted value of contractual cash flows. The fair value of interest rate swaps is estimated based on quotes from brokers, and reflects the estimated amount that the Company would receive or pay to terminate the contracts at the reporting date. CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of customer accounts receivable and investments. Concentrations of credit risk for the Company's customer accounts receivable are limited due to the large number of customers comprising the Company's credit card base and their dispersion across the country. With respect to investments held by JCPenney Insurance, the Company limits the credit risk by diversifying its investments by industry sector and by investing primarily in high grade fixed income securities. The result has been a conservative portfolio having an average rating of AA. 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
(In millions) 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------- Trade payables $ 1,014 $ 1,034 $ 944 Accrued salaries, vacations, profit-sharing, and bonuses 336 311 308 Taxes, including income taxes 358 234 238 Workers' compensation and public liability insurance 123 126 116 Common dividend payable 96 85 77 Other 347 349 355 ------------------------------------ Total $ 2,274 $ 2,139 $ 2,038 - ---------------------------------------------------------------------------------------------------------------------
9. SHORT TERM DEBT
(In millions) 1994 1993 1992 - -------------------------------------------------------------------------------- Commercial paper $ 2,074 $ 1,284 $ 887 Other 18 -- 20 ---------------------------------- Total $ 2,092 $ 1,284 $ 907 Average interest rate at year end 5.9% 3.2% 3.4% - --------------------------------------------------------------------------------
COMMITTED BANK CREDIT FACILITIES available to the Company as of January 28, 1995, amounted to $2.5 billion. In 1994, the Company completed two syndicated revolving credit facility agreements. These facilities comprise a $1.5 billion, 364-day revolver and a $1.0 billion, five-year revolver with a group of domestic and international banks. These facilities support the Company's short term borrowing program and replaced the Company's existing credit lines. None of the borrowing facilities was in use as of January 28, 1995. Also, the Company had $880 million of uncommitted credit lines in the form of letters of credit with seven banks to support its direct import merchandise program. At January 28, 1995, $370 million of letters of credit issued by the Company were outstanding. 33 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 10. LONG TERM DEBT
(In millions) 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------- Original issue discount Zero coupon notes and 6% debentures, due 1994 and 2006, $550 at maturity, yields 14.6% to 14.9%, effective rates 13% to 13.2% $ 104 $ 101 $ 401 Debentures and notes 5.375% to 7.375%, due 1998 to 2023 1,500 1,000 -- 8.25% to 8.375%, due 1996 to 2022 250 250 366 9% to 10%, due 1997 to 2021 1,000 1,000 1,750 Guaranteed LESOP notes, 8.17%, due 1998* 307 379 447 Present value of commitments under capital leases 104 127 141 Other 70 72 66 ------------------------------------- Long term debt $3,335 $2,929 $3,171 Average long term debt outstanding $2,754 $2,471 $2,683 Average interest rates 8.2% 9.9% 10.5% - -----------------------------------------------------------------------------------------------------------
*For further discussion, see LESOP on page 37.
CHANGES IN LONG TERM DEBT (In millions) 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------- Increases 5.375% to 9.75% notes, due 1998 to 2023 $ 500 $ 1,000 $ 250 Amortization of original issue discount 3 48 43 Other -- 16 30 ------------------------------------------- 503 1,064 323 ------------------------------------------- Decreases Transfers to current maturities of long term debt -- 348 -- 8.375% to 12.75% debentures, bonds, and notes, due 1995 to 2021, retired in 1992 and 1993 -- 872 423 Other, including LESOP amortization 97 86 83 ------------------------------------------- 97 1,306 506 ------------------------------------------- Net increase (decrease) in long term debt $ 406 $ (242) $ (183) - -----------------------------------------------------------------------------------------------------------------
MATURITIES OF LONG TERM DEBT (In millions) Long Term Debt Capital Leases - -------------------------------------------------------------------------------- 1995 $ 2 $ 17 1996 6 18 1997 256 14 1998 587 14 1999 232 13 2000 to 2004 1,116 38 Thereafter 821 17 ----------------------- Total $3,020 131 ====== Less future interest and executory expenses 27 ----- Present value $ 104 ===== - --------------------------------------------------------------------------------
34 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 11. PREFERRED STOCK In 1988, a leveraged employee stock ownership plan (LESOP) was adopted (see page 37 for further discussion). The LESOP purchased approximately 1.2 million shares of a new issue of Series B convertible preferred stock from the Company. These shares are convertible into shares of the Company's common stock at a conversion rate equivalent to 20 shares of common stock for each share of preferred stock. The conversion price is $30 per common share. The convertible preferred stock may be redeemed at the option of the Company or the LESOP, under certain limited circumstances. The redemption price may be satisfied in cash or common stock or a combination of both at the Company's sole discretion. The dividends are cumulative, are payable semi-annually on January 1 and July 1, and yield 7.9 per cent. The convertible preferred stock issued to the LESOP has been recorded in the stockholders' equity section of the consolidated balance sheet, and the "Guaranteed LESOP obligation," representing borrowings by the LESOP, has been recorded as a reduction of stockholders' equity. As of January 28, 1995, approximately 710 thousand shares had been allocated to participants' accounts since 1988, and approximately 467 thousand shares were committed-to-be released in the next four years. THE PREFERRED DIVIDEND is payable semi-annually at an annual rate of $2.37 per common equivalent share. Preferred dividends declared were $50 million in 1994, $52 million in 1993, and $53 million in 1992; on an after tax basis, the dividends amounted to $31 million in 1994, $31 million in 1993, and $33 million in 1992. In 1990, the Board of Directors declared a dividend distribution of one new preferred stock purchase right on each outstanding share of common stock and authorized the redemption of the old preferred stock purchase rights for five cents per share totaling $12 million. The preferred stock purchase rights, in accordance with the rights agreement, entitle the purchase, for each right held, of 1/400 of a share of Series A junior participating preferred stock at a price of $140. The rights are exercisable upon the occurrence of certain events and are redeemable by the Company under certain circumstances, all as described in the rights agreement. 12. COMMON STOCK The quarterly common dividend was 42 cents per share in 1994, 36 cents per share in 1993, and 33 cents per share in 1992, or an indicated annual rate of $1.68 per share in 1994, $1.44 per share in 1993, and $1.32 per share in 1992. Common dividends declared were $392 million in 1994, $339 million in 1993, and $309 million in 1992. On March 9, 1994, the Board of Directors approved the purchase of up to 10 million shares of the Company's common stock. This purchase program was completed in January 1995 at a cost of $475 million. All shares were retired and returned to the status of authorized but unissued shares of common stock. A second purchase program, for up to an additional 10 million shares of the Company's common stock, was approved by the Board of Directors on January 23, 1995, and was begun in late January 1995. On March 10, 1993, the Board of Directors declared a two-for-one stock split in the form of a stock dividend, which was payable May 1, 1993, to stockholders of record on April 12, 1993. At the Company's 1994 Annual Meeting, stockholders approved the increase in the authorized number of shares of common stock from 500 million to 1.25 billion shares. There were approximately 53,000 stockholders of record at year end 1994. In addition, the Company's savings plans, including the LESOP, had 116,000 participants and held 38.7 million shares of the Company's common stock. The savings plans also held 1.05 million shares of preferred stock, convertible into 21.0 million shares of common stock. On a combined basis, these plans held approximately 24 per cent of the Company's common shares after giving effect to the conversion of the preferred stock at the end of fiscal year 1994.
Shares Paid-in Capital -------------------------------------------------------------------------- CHANGES IN OUTSTANDING (In thousands) (In millions) COMMON STOCK 1994 1993 1992 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------- Balance at beginning of year 236,086 234,778 233,302 $1,003 $ 955 $ 857 Common stock issued 1,455 1,308 1,476 70 48 39 Common stock purchased and retired (10,100) -- -- (43) -- -- Two-for-one stock split -- -- -- -- -- 59 -------------------------------------------------------------------------- Balance at end of year 227,441 236,086 234,778 $1,030 $1,003 $ 955 - -------------------------------------------------------------------------------------------------------------------------------
35 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 1993 EQUITY COMPENSATION PLAN AND 1993 NON-ASSOCIATE DIRECTORS' EQUITY PLAN. In May 1993, stockholders approved the 1993 Equity Compensation Plan (1993 Plan), which replaced the expiring 1989 Equity Compensation Plan. Under the 1993 Plan, 11.6 million shares of common stock were reserved for issuance upon the exercise of options and stock appreciation rights and for the payment of stock awards over the five-year term of the 1993 Plan. No discount options nor tax benefit rights may be issued under the 1993 Plan. Participants in the 1993 Plan are generally to be selected management associates of the Company and its subsidiaries and affiliates as determined by the committee administering the 1993 Plan. It is anticipated that approximately 2,000 associates will be eligible to participate. No awards may be made under the 1993 Plan after May 31, 1998. In May 1993, stockholders also approved the 1993 Non-Associate Directors' Equity Plan (Directors' Plan). Under the Directors' Plan, 90,000 shares of common stock were reserved for issuance upon the exercise of stock options and the payment of stock awards over the five-year term of the Directors' Plan. Each director who is presently not an active employee of the Company will automatically be granted annually an option to purchase 800 shares, in tandem with an award of 200 restricted shares of common stock. An initial grant/award in this same amount will also automatically be granted to each new Non-Associate Director upon his or her first being elected as a director. Such stock options will become exercisable six months from the date of grant, but shares acquired upon such exercise will not be transferable until a director terminates service.
1994 1993 1992 ---------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Shares Option Shares Option Shares Option STOCK OPTIONS (In thousands) Price (In thousands) Price (In thousands) Price - ------------------------------------------------------------------------------------------------------------------------- Balance at beginning of year 8,235 $ 27.96 8,844 $ 27.42 9,490 $ 26.31 Granted 997 55.31 159 41.24 574 35.10 Exercised (865) 26.51 (752) 24.49 (974) 21.02 Expired and cancelled (20) 32.68 (16) 26.89 (246) 27.66 ----- ----- ----- Balance at end of year 8,347 $31.36 8,235 $ 27.96 8,844 $ 27.42
At year end 1994, options covering 7.3 million shares were exercisable and 10.4 million shares were reserved for future grants. - -------------------------------------------------------------------------------- 13. FINANCE CHARGE REVENUE AND BAD DEBT EXPENSE, on customer accounts receivable owned by the Company, are included in the "Net interest expense and credit operations" line of the consolidated statements of income. Finance charge revenue was $624 million in 1994, $523 million in 1993, and $509 million in 1992. Bad debt expense was $177 million in 1994, $95 million in 1993, and $122 million in 1992. 14. INTEREST EXPENSE
(In millions) 1994 1993 1992 - -------------------------------------------------------------------------------- Short term debt $ 92 $ 43 $ 43 Long term debt 225 246 281 Income on short term investments (16) (14) (48) Interest capitalized (3) (4) (14) Other, net* (28) (30) (4) ------------------------------ Interest expense, net $270 $ 241 $ 258
*Includes $34 million, $34 million and $28 million, respectively, of interest income from the Company's investment in asset-backed certificates. - -------------------------------------------------------------------------------- 15. RENT EXPENSE The Company conducts the major part of its operations from leased premises which include retail stores, distribution centers, warehouses, offices, and other facilities. Almost all leases will expire during the next 20 years; however, most leases will be renewed or replaced by leases on other premises. Rent expense for real property operating leases was:
(In millions) 1994 1993 1992 - -------------------------------------------------------------------------------- Minimum rents $ 235 $ 236 $ 244 Contingent rents based on sales 37 37 35 ------------------------------ Total $ 272 $ 273 $ 279 - --------------------------------------------------------------------------------
The Company also leases data processing equipment and other personal property under operating leases of primarily three to five years. Rent expense for personal property leases was $92 million in 1994, $90 million in 1993, and $107 million in 1992. 36 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- Future minimum lease payments for noncancelable real and personal property operating leases and subleases as of January 28, 1995 were:
(In millions) Operating Leases - -------------------------------------------------------------------------------- 1995 $ 230 1996 194 1997 160 1998 139 1999 121 Thereafter 597 -------- Total minimum lease payments $1,441 ======== Present value $1,000 Weighted average interest rate 10% - --------------------------------------------------------------------------------
The minimum lease payments are shown net of estimated executory costs, which are principally real estate taxes, maintenance, and insurance. 16. RETIREMENT PLANS
(In millions) 1994 1993 1992 - -------------------------------------------------------------------------------- Pension Service cost $ 57 $ 50 $ 46 Interest cost 134 123 122 Actual (return) loss on assets (22) (236) (90) Net amortization and deferral (181) 59 (90) ------------------------------ Pension credit (12) (4) (12) ------------------------------ Postretirement health care Service cost 3 3 6 Interest cost 25 24 27 ------------------------------ Total 28 27 33 ------------------------------ LESOP expense 53 50 49 ------------------------------ Total retirement plans $ 69 $ 73 $ 70 - --------------------------------------------------------------------------------
PENSION PLAN. JCPenney's principal pension plan, which is noncontributory, covers substantially all United States employees who have completed 1,000 or more hours of service within a period of 12 consecutive months and have attained 21 years of age. In addition, the Company has an unfunded, noncontributory, supplemental retirement program for certain management employees. In general, benefits payable under the principal pension plan are determined by reference to a participant's final average earnings and years of credited service up to 35 years. In 1994, the Company increased its discount rate to 8.75 per cent, reflecting the higher interest rate environment. The impact of this change reduced the Company's obligation at year end 1994. Pension plan assumptions are reviewed and modified as necessary on an annual basis. The Company made a $99 million contribution to the plan in 1994 and a $65 million contribution in 1993. POSTRETIREMENT HEALTH CARE BENEFITS The Company's retiree health care plan (Retiree Plan) covers medical and dental services and eligibility for benefits is based on age and years of service. The Retiree Plan is contributory and the amounts paid by retired employees have increased in recent years and are expected to continue to do so. For certain groups of employees, Company contributions toward the cost of retiree coverage will be based on a fixed dollar amount which will vary with years of service, age, and dependent coverage. The Retiree Plan is funded on a pay-as-you-go basis by the Company and retiree contributions. The Company uses the same discount rate for both its pension plan and Retiree Plan. The health care trend rate was lowered from 10 per cent to 9.5 per cent for 1995 with gradual reductions to 6 per cent by 2003 and beyond. The health care trend rate change represents a modification from previous assumptions because of favorable experience and a lower inflation environment. The changes in plan assumptions had no significant impact on the Company's obligation at year end 1994. A one per cent increase in the health care trend rate would increase the amount reported for the accumulated obligation by $27 million and would result in $2 million additional expense for 1994. LESOP. The Company's LESOP, adopted in 1988, is a defined contribution plan which covers substantially all United States employees who have completed at least 1,000 hours of service within a period of 12 consecutive months, and if hired on or after January 1, 1988, have attained 21 years of age. The LESOP borrowed $700 million at an interest rate of 8.17 per cent through a 10 year loan guaranteed by the Company. The LESOP used the proceeds of the loan to purchase a new issue of convertible preferred stock from the Company. The Company used the proceeds from the issuance of preferred stock to the LESOP to purchase 28 million common shares of the Company in the open market. The Company has reflected the guaranteed LESOP borrowing as long term debt on the consolidated balance sheet. A like amount of "Guaranteed LESOP obligation" was recorded as a reduction of stockholders' equity. The convertible preferred stock issued to the LESOP for cash was recorded in the stockholders' equity section. As the Company makes contributions to the LESOP, these contributions, plus the dividends paid on the Company's preferred stock held by the LESOP, will be used to repay the loan. As the principal amount of the loan is repaid, the "Guaranteed LESOP obligation" is reduced accordingly. The amount of LESOP expense recorded by the Company represents its cash contribution to the LESOP. 37 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- The following table sets forth the status of the Company's retirement plans:
December 31 --------------------------------------------- RETIREMENT PLANS (In millions) 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------- Pension Present value of accumulated benefits Vested $ 1,368 $ 1,367 $ 1,227 Non-vested 75 80 73 --------------------------------------------- $ 1,443 $ 1,447 $ 1,300 ============================================= Present value of actuarial benefit obligation $ (1,661) $ (1,781) $ (1,694) Net assets at fair market value 1,825 1,800 1,585 Unrecognized transition asset, net of unrecognized losses 200 216 259 --------------------------------------------- Net prepaid pension cost $ 364 $ 235 $ 150 ============================================= Postretirement health care benefits Accumulated benefit obligation Retirees $ 217 $ 246 $ 205 Fully eligible active participants 43 51 82 Other active participants 40 41 43 --------------------------------------------- 300 338 330 Unrecognized net gain (loss) 32 (10) (7) --------------------------------------------- Net liability $ 332 $ 328 $ 323 ============================================= Key assumptions Rate of return on pension plan assets 9.5% 9.5% 9.5% Discount rate 8.75% 7.25% 8.0% Salary progression rate 4.0% 4.0% 4.0% - ---------------------------------------------------------------------------------------------------------------------
Savings Plans Pension -------------------------------------------------------------------------- December 31 December 31 TOTAL ASSETS AND EQUITY (In millions) 1994 1993 1992 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------- JCPenney preferred and common stock $2,662 $3,030 $2,200 $ -- $ -- $ -- Equity securities 120 117 103 1,288 1,424 1,232 Fixed income investments 1,048 1,091 1,061 473 302 275 LESOP loan obligation, including accrued interest of $14, $17, and $20 (358) (431) (498) -- -- -- Other assets, net 63 47 37 64 74 78 -------------------------------------------------------------------------- Net assets $3,535 $3,854 $2,903 $1,825 $1,800 $1,585 ========================================================================== Savings Plans Pension -------------------------------------------------------------------------- CHANGES IN FAIR VALUE OF December 31 December 31 NET ASSETS (In millions) 1994 1993 1992 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------- Net assets at beginning of year $3,854 $2,903 $2,173 $1,800 $1,585 $1,561 Company contribution 53 50 49 99 65 -- Participants' contributions 203 184 169 -- -- -- Gains (losses) (280) 984 794 22 236 93 LESOP interest expense (30) (35) (40) -- -- -- Benefits paid (265) (232) (242) (96) (86) (69) -------------------------------------------------------------------------- Net assets at end of year $3,535 $3,854 $2,903 $1,825 $1,800 $1,585 ==========================================================================
38 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 17. TAXES The Company adopted Financial Accounting Standards Board Statement No. 109, Accounting for Income Taxes, effective January 31, 1993. This statement requires an asset and liability approach to accounting for differences between the tax basis of an asset or liability and its reported amount in the financial statements (temporary differences). Deferred taxes are determined by applying the provisions of enacted tax laws, and adjustments are required for changes in tax laws and rates. Deferred taxes reflected on the balance sheet were reduced by $51 million, and a cumulative adjustment was recorded to increase net income by the same amount, using current tax rates in effect at the beginning of fiscal 1993. The Omnibus Budget Reconciliation Act of 1993, which was signed into law on August 10, 1993, included an increase in the statutory Federal income tax rate from 34 per cent to 35 per cent, retroactive to January 1, 1993. This change in the tax rate resulted in higher taxes on operating income in 1993 as well as a one-time, non-cash tax expense totaling $14 million for the revaluation of deferred taxes on the balance sheet as required by Statement No. 109. Deferred tax assets and liabilities reflected on the Company's consolidated balance sheet at January 28, 1995, were measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The major components of deferred tax liabilities (assets) at January 28, 1995, were as follows:
Net TEMPORARY Deferred Deferred (Asset) DIFFERENCES (In millions) (Asset) Liability Liability - ------------------------------------------------------------------------------------------------------ Retirement plans $(192) $ 204 $ 12 Restructuring reserve (18) -- (18) Workers' compensation/public liability (100) -- (100) Leases (31) 369 338 Accounts receivable (29) -- (29) Inventories (30) 124 94 Depreciation -- 757 757 Deferred policy acquisition costs -- 160 160 Other (200) 140 (60) --------------------------------------------- Total $(600) $1,754 $1,154 - ------------------------------------------------------------------------------------------------------
No valuation allowances were considered necessary as of January 31, 1993, January 29, 1994, or January 28, 1995. The Company believes that the existing deductible temporary differences will be offset by future reversals of differences generating taxable income. Deferred taxes, under APB Opinion No. 11 in 1992, consisted principally of accumulated depreciation and accounting for leases.
INCOME TAX EXPENSE (In millions) 1994 1993 1992 - --------------------------------------------------------------------------------------- Current Federal $ 521 $ 443 $ 372 State and local 92 67 62 -------------------------------------- 613 510 434 -------------------------------------- Deferred Federal 25 80 29 State and local 4 20 19 -------------------------------------- 29 100 48 -------------------------------------- Total $ 642 $ 610 $ 482 Effective tax rate 37.8% 39.3% 38.3% - ---------------------------------------------------------------------------------------
Per cent of Amounts (In millions) Pre-tax Income --------------------------------------------------------------- RECONCILIATION OF TAX RATES 1994 1993 1992 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------------- Federal income tax at statutory rate $ 594 $ 544 $ 428 35.0 35.0 34.0 State and local income taxes, less federal income tax benefit 65 58 53 3.8 3.7 4.2 Revaluation of deferred taxes -- 14 -- -- .9 -- Tax effect of dividends on allocated LESOP shares (9) (9) -- (.5) (.5) -- Tax credits and other (8) 3 1 (.5) .2 .1 --------------------------------------------------------------- Total $ 642 $ 610 $ 482 37.8 39.3 38.3 - ----------------------------------------------------------------------------------------------------------------------------------
18. SEGMENT REPORTING The Company operates predominantly in one industry segment consisting of selling merchandise and services to consumers through retail department stores that include catalog departments. Total assets for that industry segment at the end of the last three years were $14,103 million, $12,888 million, and $11,820 million, respectively. 39 - -------------------------------------------------------------------------------- QUARTERLY DATA (UNAUDITED) - --------------------------------------------------------------------------------
First Second Third Fourth ---------------------------------------------------------------------------------------------- (In millions except per share data) 1994 1993 1992 1994 1993 1992 1994 1993 1992 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------------- Retail sales $4,350 3,964 3,793 4,242 3,963 3,789 5,149 4,735 4,342 6,639 6,321 6,085 Per cent increase 9.7 4.5 10.5 7.1 4.6 9.6 8.7 9.1 10.3 5.0 3.9 13.2 Total revenue $4,519 4,106 3,918 4,412 4,106 3,912 5,328 4,888 4,472 6,823 6,478 6,213 Per cent increase 10.0 4.8 10.7 7.4 5.0 9.7 9.0 9.3 10.4 5.3 4.3 13.1 LIFO gross margin $1,395 1,280 1,233 1,282 1,191 1,164 1,661 1,530 1,395 2,072 1,985 1,920 LIFO gross margin, per cent of retail sales 32.1 32.3 32.5 30.2 30.1 30.7 32.2 32.3 32.1 31.2 31.4 31.6 Selling, general, and administrative expenses, per cent of retail sales 25.1 25.9 26.7 25.5 25.8 27.1 23.4 24.2 25.0 21.2 20.8 21.7 Income before extraordinary charge and cumulative effect of accounting change $ 223 172 136 132 112 80 274 221 186 428 439 375 Net income $ 223 206 136 132 112 80 274 185 186 428 437 375 Income per share before extraordinary charge and cumulative effect of accounting change Primary $ .88 .68 .54 .52 .43 .31 1.11 .88 .75 1.78 1.80 1.55 Fully diluted $ .84 .65 .52 .51 .42 .31 1.04 .83 .70 1.66 1.65 1.42 Net income per common share Primary $ .88 .82 .54 .52 .43 .31 1.11 .73 .75 1.78 1.79 1.55 Fully diluted $ .84 .78 .52 .51 .42 .31 1.04 .69 .70 1.66 1.64 1.42 Dividends per common share $ .42 .36 .33 .42 .36 .33 .42 .36 .33 .42 .36 .33 Common stock price range High $ 59 45 34 54 49 36 54 52 38 52 56 40 Low $ 50 36 27 47 41 32 47 39 33 39 49 36 Close $ 54 43 33 49 45 35 51 52 37 41 52 36 - -----------------------------------------------------------------------------------------------------------------------------------
40 - -------------------------------------------------------------------------------- SUPPLEMENTAL INFORMATION (UNAUDITED) - -------------------------------------------------------------------------------- GENERAL. The following information is provided as a supplement to the Company's audited financial statements. Its purpose is to facilitate an understanding of the Company's credit operations, capital structure, and cash flows. CREDIT OPERATIONS. The following table presents the results of the Company's proprietary credit card operation, measuring on an all-inclusive basis the costs of granting, operating, and financing credit, net of finance charge revenue. This presentation does not include any profits derived from merchandise and services purchased by customers. Revenue, costs, and expenses contained in the table below relate to all customer accounts receivable generated and serviced by the Company, including those recorded as sold under asset securitization transactions. This presentation is designed to measure on an "economic basis" the total pre-tax cost of providing the JCPenney credit card to customers.
PRE-TAX COST OF JCPENNEY CREDIT CARD (In millions) 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------ Finance charge revenue On receivables owned $ (624) $ (523) $ (509) On receivables sold (105) (129) (166) ----------------------------------------- Total (729) (652) (675) Bad debt expense 208 128 171 Operating expenses (including in-store costs) 268 265 270 Cost of capital 403 399 417 ----------------------------------------- Total 879 792 858 ----------------------------------------- Pre-tax cost of JCPenney credit $ 150 $ 140 $ 183 Per cent of JCPenney credit sales 1.6% 1.6% 2.2% - ------------------------------------------------------------------------------------------------------------
The cost of capital shown above represents the cost of financing both Company-owned accounts receivable and securitized accounts receivable. The cost of the sold receivables is the actual interest paid to certificate holders. The owned accounts receivables are financed with both debt and equity capital. The debt component uses the total Company weighted average interest rate, while the equity component uses the Company's minimum return on equity objective of 16 per cent. On a combined basis, for both owned and sold receivables, the debt and equity components of the total capital requirements were 88 per cent debt and 12 per cent equity, which approximates the finance industry standard debt to equity ratio.
1994 1993 1992 ------------------------------------------------------------------------------ Per cent Per cent Per cent Amounts of Eligible Amounts of Eligible Amounts of Eligible CREDIT SALES (JCPenney stores and catalog) (In billions) Sales (In billions) Sales (In billions) Sales - --------------------------------------------------------------------------------------------------------------------------------- JCPenney credit card $ 9.4 49.6 $ 8.7 49.6 $ 8.3 49.8 American Express, Discover, MasterCard, and Visa 3.4 17.9 2.8 16.1 2.3 13.8 ------------------------------------------------------------------------------ Total $ 12.8 67.5 $ 11.5 65.7 $10.6 63.6 - ---------------------------------------------------------------------------------------------------------------------------------
KEY JCPENNEY CREDIT CARD INFORMATION (In millions) 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------- Number of accounts serviced with balances 17.6 17.2 17.5 Total customer receivables serviced $ 4,751 $ 4,410 $ 4,068 Average customer receivables financed $ 4,197 $ 3,767 $ 3,901 Average account balances (in dollars) $ 269 $ 256 $ 231 Average account maturity (months) 4.2 4.0 4.1 - ----------------------------------------------------------------------------------------------------------------
Capital structure. The Company's objective is to maintain a capital structure that will assure continuing access to financial markets so that we can, at reasonable cost, provide for future needs and capitalize on attractive opportunities for growth. 41 - -------------------------------------------------------------------------------- SUPPLEMENTAL INFORMATION (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- The debt to capital ratio shown in the table below includes both debt recorded on the Company's consolidated balance sheet as well as off-balance-sheet debt related to operating leases and the securitization of a portion of the Company's customer accounts receivable (asset-backed certificates).
DEBT TO CAPITAL (In millions) 1994 1993 1992 - --------------------------------------------------------------------------------------------- Short term debt, net of cash investments $ 1,738 $ 1,128 $ 502 Long term debt, including current maturities 3,335 3,277 3,171 ------------------------------------------ 5,073 4,405 3,673 Off-balance-sheet debt Present value of operating leases 1,000 900 950 Securitization of accounts receivable, net 272 294 731 ------------------------------------------ Total debt $ 6,345 $ 5,599 $ 5,354 Consolidated equity $ 5,615 $ 5,365 $ 4,705 Total capital $11,960 $10,964 $10,059 Per cent of total debt to capital 53.1% 51.1% 53.2% - ---------------------------------------------------------------------------------------------
The Company builds its capital base according to the different needs and credit characteristics of its customer receivables and its other core retail assets. Customer receivables are highly diversified and predictable financial assets, very different from the core assets of a retailer, which include fixed assets and inventories for stores and catalog. Accordingly, the Company finances receivables with more leverage, much like a finance company. The standards for these assets are a debt ratio of approximately 88 per cent, and interest coverage of about 1.5 times. Core assets are financed with less leverage and more comparable to the leverage of non-retail industrial companies with strong credit ratings. The Company's capital structure at the end of fiscal year 1994 was:
Customer Core (In millions) Receivables Assets Combined - -------------------------------------------------------------------------------- Debt $ 4,092 $2,253 $ 6,345 Equity 585 5,030 5,615 -------------------------------------- Total capital $ 4,677 $7,283 $11,960 Debt to capital per cent 87.5% 30.9% 53.1% - --------------------------------------------------------------------------------
The historical debt to capital per cent and fixed charge coverage for the prior three years, on a separate and combined basis, was:
DEBT TO CAPITAL PER CENT 1994 1993 1992 - -------------------------------------------------------------------------------- Combined 53.1 51.1 53.2 Core assets 30.9 27.1 30.6 Customer receivables 87.5 87.5 87.5 - --------------------------------------------------------------------------------
FIXED CHARGE COVERAGE 1994 1993 1992 - -------------------------------------------------------------------------------- Combined 4.5 4.3 3.4 Core assets 9.1 8.7 6.4 Customer receivables 1.5 1.5 1.4 - --------------------------------------------------------------------------------
FINANCING COSTS incurred by the Company to finance its operations, including those costs related to off-balance-sheet liabilities were as follows:
(In millions) 1994 1993 1992 - -------------------------------------------------------------------------------- Interest expense, net $270 $241 $258 Interest portion of LESOP debt payment 30 35 40 Off-balance-sheet financing costs Interest imputed on operating leases 95 97 96 Asset-backed certificates interest 67 87 105 ---------------------------- Total $462 $460 $499 - --------------------------------------------------------------------------------
CREDIT RATINGS. Over the years, the Company has maintained one of the highest credit ratings in the retail industry. The Company's objective is to maintain a strong investment grade rating on its senior long term debt, and A1/P1/F1 ratings on commercial paper. In October 1994, Moody's Investors Service upgraded the Company's long term debt rating to A1. Currently, the credit ratings for the Company are as follows:
Long Term Commercial Debt Paper - -------------------------------------------------------------------------------- Standard & Poor's Corporation A+ A1 Moody's Investors Service A1 P1 Fitch Investors Service, Inc. A+ F1 - --------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA). Management believes that a key measure of cash flow generated is earnings before interest, taxes, depreciation and amortization (EBITDA). EBITDA is not intended to represent cash flow or any other measure of performance in accordance with generally accepted accounting principles, but is included as a tool for analyzing the Company's financial condition. The following schedule shows the calculation of EBITDA and EBITDA margin as a per cent of total revenue.
(In millions) 1994 1993 1992 - ------------------------------------------------------------------------------------------------ Income before income taxes, extraordinary charge, and cumulative effect of accounting change $ 1,699 $ 1,554 $ 1,259 Financing costs 462 460 499 Depreciation and amortization, including operating leases 449 416 382 ---------------------------------------- EBITDA $ 2,610 $ 2,430 $ 2,140 Total revenue $21,082 $19,578 $18,515 EBITDA per cent of total revenue 12.4% 12.4% 11.6% - ------------------------------------------------------------------------------------------------
42 - -------------------------------------------------------------------------------- FIVE YEAR FINANCIAL SUMMARY - -------------------------------------------------------------------------------- J.C. Penney Company, Inc. and Subsidiaries
(In millions except per share data) 1994 1993/1/ 1992 1991/2/ 1990 - --------------------------------------------------------------------------------------------------------------------------- Results for the year Total revenue $ 21,082 19,578 18,515 16,648 16,736 Retail sales $ 20,380 18,983 18,009 16,201 16,365 Per cent increase (decrease) 7.4 5.4 11.2 (1.0) 1.6 LIFO gross margin, per cent of retail sales 31.5 31.5 31.7 31.5 31.4 FIFO gross margin, per cent of retail sales 31.5 31.3 31.5 30.9 31.7 Selling, general, and administrative expenses, per cent of retail sales 23.5 23.7 24.7 25.6 26.2 Depreciation and amortization $ 323 316 310 316 299 Income taxes $ 642 610 482 204 255 Income before extraordinary charge and cumulative effect of accounting changes $ 1,057 944 777 264 577 Net income $ 1,057 940 777 80 577 Earnings per common share Primary Before extraordinary charge and cumulative effect of accounting changes $ 4.29 3.79 3.15 .99 2.30 Net income $ 4.29 3.77 3.15 .20 2.30 Fully diluted Before extraordinary charge and cumulative effect of accounting changes $ 4.05 3.55 2.95 .99 2.16 Net income $ 4.05 3.53 2.95 .20 2.16 Per common share Dividends $ 1.68 1.44 1.32 1.32 1.32 Stockholders' equity $ 23.45 21.53 19.17 17.33 18.38 Return on stockholders' equity 19.7 20.1 18.6 12.0 13.3 Financial position Receivables, net $ 5,159 4,679 3,750 4,131 4,303 Merchandise inventories $ 3,876 3,545 3,258 2,897 2,657 Properties, net $ 3,954 3,818 3,755 3,633 3,532 Capital expenditures $ 544 459 494 506 601 Total assets $ 16,202 14,788 13,467 12,444 12,256 Total debt $ 5,427 4,561 4,078 4,062 4,114 Stockholders' equity $ 5,615 5,365 4,705 4,188 4,394 Number of common shares outstanding at year end 227 236 235 233 234 Weighted average common shares Primary 237 239 236 234 236 Fully diluted 258 261 258 234 260 Number of employees at year end (In thousands) 202 193 192 185 196
/1/ Excluding the impact of the tax rate increase on deferred taxes, after tax income was $958 million, or $3.60 per share, on a fully diluted basis. /2/ Excluding the effect of nonrecurring items and the cumulative effect of an accounting change, after tax income was $528 million, or $2.00 per share, on a fully diluted basis. - -------------------------------------------------------------------------------- 43 - -------------------------------------------------------------------------------- FIVE YEAR OPERATIONS SUMMARY - -------------------------------------------------------------------------------- J.C. Penney Company, Inc. and Subsidiaries
1994 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------------------------------- JCPenney stores Number of stores Beginning of year 1,246 1,266 1,283 1,312 1,328 Openings 29 24 33 38 46 Closings (42) (44) (50) (67) (62) End of year 1,233 1,246 1,266 1,283 1,312 Gross selling space (In million sq. ft.) 113.0 113.9 114.4 114.5 114.4 Sales including catalog desks (In millions) $ 18,048 16,846 15,698 14,277 14,616 Sales per gross square foot/1/ $ 159 146 137 125 127 Catalog Number of catalog units JCPenney stores 1,233 1,246 1,266 1,283 1,312 Freestanding sales centers and merchants 552 543 640 697 626 Drug stores 94 101 128 134 136 Other, principally outlet stores 16 14 14 16 16 Total 1,895 1,904 2,048 2,130 2,090 Number of distribution centers 6 6 6 6 6 Distribution space (In million sq. ft.) 11.4 11.4 11.4 11.4 11.4 Sales (In millions) $ 3,817 3,514 3,166 3,002 3,220 Drug stores Number of stores Beginning of year 506 548 530 487 471 Openings 46 35 30 46 22 Closings (26) (77) (12) (3) (6) End of year 526 506 548 530 487 Gross selling space (In million sq. ft.) 4.5 4.6 5.2 5.0 4.8 Sales (In millions) $ 1,540 1,413 1,383 1,192 1,097 Sales per gross square foot/1/ $ 243 235 211 201 198 JCPenney Insurance (In millions) Revenue $ 571 475 388 328 255 Policies and certificates in force 7.5 5.8 4.6 4.3 4.1 Amount of life insurance in force $ 8,780 7,627 6,552 5,419 5,268 Total assets $ 1,360 1,246 1,033 857 764
/1/ 1992 is presented on a 52 week basis. - -------------------------------------------------------------------------------- 44 EX-21 11 SUBSIDS OF REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT ------------------------------ Set forth below is a list of certain subsidiaries of the Company at January 28, 1995. All of the voting securities of each named subsidiary are owned by the Company or by another subsidiary of the Company. Subsidiaries - ------------ JCPenney Business Services, Inc. (Delaware) J. C. Penney Financial Services, Inc.(Delaware) J. C. Penney Funding Corporation (Delaware) J. C. Penney Life Insurance Company (Vermont) JCPenney National Bank (National Association) JCPenney Card Bank (National Association) J. C. Penney Properties, Inc. (Delaware) JCP Realty, Inc. (Delaware) JCP Receivables, Inc. (Delaware) Thrift Drug, Inc. (Delaware) Separate financial statements are filed for J. C. Penney Funding Corporation, a consolidated subsidiary, in its separate Annual Report on Form 10-K. The names of other subsidiaries have been omitted because these unnamed subsidiaries, considered in the aggregate as a single subsidiary, do not constitute a significant subsidiary. EX-23 12 CONSENT OF PEAT MARWICK EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS --------------------------------------------------- To the Stockholders and Board of Directors of J. C. Penney Company, Inc. We consent to incorporation by reference in: (1) the Registration Statement (No. 33-28390) on Form S-8;(2) the Registration Statement (No. 33-59666) on Form S-8; (3)the Registration Statement (No. 33-59668) on Form S-8; (4) the Registration Statement (No. 33-66070) on Form S-8; (5) the Registration Statement (No. 33-66072) on Form S-8; (6) the Registration Statement (No. 33- 53275) on Form S-3; (7) the Registration Statement (No. 33-56993) on Form S-8; and (8) the Registration Statement (No. 33-56995) on Form S-8 of J. C. Penney Company, Inc. of our report dated February 23, 1995 relating to the consolidated balance sheets of J. C. Penney Company, Inc. and subsidiaries as of January 28, 1995, January 29, 1994, and January 30, 1993, and the related consolidated statements of income, reinvested earnings, and cash flows for the years then ended, which report appears in the 1994 Annual Report to Stockholders of J. C. Penney Company, Inc., which Annual Report is incorporated by reference in the Annual Report on Form 10-K of J. C. Penney Company, Inc. for the year ended January 28, 1995, and to our report dated February 23, 1995, relating to the financial statement schedule of J. C. Penney Company, Inc. and subsidiaries for each of the years in the three-year period ended January 28, 1995, which report appears in the Annual Report on Form 10-K of J. C. Penney Company, Inc. for the year ended January 28, 1995. Our report refers to the adoption of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, Accounting for Certain ---------------------- Investments in Debt and Equity Securities, in 1994, and to the adoption of the - ----------------------------------------- Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, in 1993. --------------------------- /s/ KPMG Peat Marwick LLP KPMG PEAT MARWICK LLP Dallas, Texas April 13, 1995 EX-24 13 POWER OF ATTORNEY Exhibit 24 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, THAT each of the undersigned directors and officers of J. C. PENNEY COMPANY, INC., a Delaware corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, its Annual Report on Form 10- K for the 52 weeks ended January 28, 1995, hereby constitutes and appoints R. E. Northam, C. R. Lotter, and D. A. McKay, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to act without the others, for him or her and in his or her name, place, and stead, in any and all capacities, to sign said Annual Report, which is about to be filed, and any and all subsequent amendments to said Annual Report, and to file said Annual Report and each subsequent amendment so signed, with all exhibits thereto, and any and all documents in connection therewith, and to appear before the Securities and Exchange Commission in connection with any matter relating to said Annual Report and any subsequent amendments, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney as of the 8th day of March, 1995. /S/W. R. Howell /S/R. E. Northam - ------------------------------ -------------------------- W. R. Howell R. E. Northam Chairman of the Board; Executive Vice President and Director Chief Financial Officer (principal financial officer) /S/J. E. Oesterreicher /S/D. A. McKay - ------------------------------ --------------------------- J. E. Oesterreicher D. A. McKay Vice Chairman of the Board and Vice President and Controller Chief Executive Officer (principal (principal accounting officer) executive officer); Director /S/W. B. Tygart - ------------------------------ W. B. Tygart President and Chief Operating Officer; Director /S/M. A. Burns /S/C. H. Chandler - ---------------------------- --------------------------- M. A. Burns C. H. Chandler Director Director /S/V. E. Jordan, Jr. /S/George Nigh - ------------------------------ --------------------------- V. E. Jordan, Jr. George Nigh Director Director /S/J. C. Pfeiffer /S/C. S. Sanford, Jr. - ------------------------------ -------------------------- J. C. Pfeiffer C. S. Sanford, Jr. Director Director /S/J. D. Williams - --------------------------- J. D. Williams Director EX-27 14 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENT OF INCOME OF J.C. PENNEY COMPANY, INC. AND SUBSIDIARIES AS OF JANUARY 28, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 12-MOS JAN-28-1995 JAN-28-1995 261 0 5,233 74 3,876 9,468 5,951 1,997 16,202 4,481 3,335 1,030 0 630 3,955 16,202 20,380 21,082 13,970 18,753 183 177 270 1,699 642 1,057 0 0 0 1,057 4.29 4.05
EX-99.B 15 EXCERPT PENNEY FUNDING AR EXHIBIT 99(b) Management's Discussion and Analysis of 1994 Annual Report Financial Condition and Results of Operations J. C. Penney Funding Corporation ("Funding") is a wholly-owned consolidated subsidiary of J. C. Penney Company, Inc. ("JCPenney"). The business of Funding consists of financing a portion of JCPenney's operations through loans to JCPenney, the purchase of customer receivable balances that arise from the retail credit sales of JCPenney, or a combination of both. No receivables have been purchased by Funding since 1985. The loan agreement between Funding and JCPenney provides for unsecured loans to be made by Funding to JCPenney. Each loan is evidenced by a revolving promissory note and is payable upon demand in whole or in part as may be required by Funding. Copies of our loan and receivables agreements with JCPenney are available upon request. Funding issues commercial paper through CS First Boston Corporation, J.P. Morgan Securities Inc., Merrill Lynch Money Markets Inc., and Morgan Stanley & Co., Incorporated to corporate and institutional investors in the domestic market. The commercial paper is guaranteed by JCPenney on a subordinated basis. Funding has, from time to time, issued long term debt in public and private markets in the United States and abroad. The commercial paper is rated "A1" by Standard & Poor's Corporation, "P1" by Moody's Investors Service, Inc., and "F1" by Fitch Investors Service, Inc. Income is derived primarily from earnings on loans to JCPenney and is designed to produce earnings sufficient to cover its interest expense at a coverage ratio of at least one and one-half times. In 1994, net income increased to $32 million from $16 million in 1993 and $17 million in 1992. The increase in 1994 is attributed to higher borrowing levels and higher interest rates, the decrease in 1993 is attributed to lower interest rates and lower earnings on loans. Interest expense was $94 million in 1994 compared with $47 million in 1993 and $50 million in 1992. Interest earned from JCPenney was $143 million in 1994 compared to $71 million in 1993 and $75 million in 1992. Commercial paper borrowings averaged $1,990 million in 1994 compared to $1,347 million in 1993 and $1,146 million in 1992. The average interest rate on commercial paper was 4.6 per cent in 1994, up from 3.2 per cent in 1993 and 3.7 per cent in 1992. Total debt averaged $1,990 million in 1994, compared with $1,347 million in 1993 and $1,185 million in 1992. During 1992, JCPenney initiated a program to restructure its debt portfolio to take advantage of declining interest rates. Under the debt restructure program, Funding exercised its option to prepay all of its long term debt, totalling $177 million. Committed bank credit facilities available to Funding and JCPenney as of January 28, 1995, amounted to $2.5 billion. These facilities include a $1.5 billion, 364-day revolver, and a $1.0 billion, five-year revolver with a group of 42 domestic and international banks. These facilities support commercial paper borrowing arrangements. Neither of the borrowing facilities was in use as of January 28, 1995. See page 8 for a complete list of committed bank credit facilities. We would like to express our appreciation to the institutional investment community, as well as to our credit line participants and commercial paper dealers for their continued support during 1994. Donald A. McKay Chairman of the Board March 27, 1995 2 Statements of Income J. C. Penney Funding Corporation (In millions)
For the Year 1994 1993 1992 ---- ---- ---- Interest Income $143 $ 71 $ 77 Expenses Interest on short term debt.......... 94 47 46 Interest on long term debt........... -- -- 4 Other expenses....................... -- -- 1 ---- ---- ---- Total expenses....................... 94 47 51 ---- ---- ---- Income before income taxes.............. 49 24 26 Income taxes......................... 17 8 9 ---- ---- ---- Net income.............................. $ 32 $ 16 $ 17 ==== ==== ==== Statements of Reinvested Earnings (In millions) 1994 1993 1992 ---- ---- ---- Balance at beginning of year............ $851 $835 $818 Net income.............................. 32 16 17 ---- ---- ---- Balance at end of year.................. $883 $851 $835 ==== ==== ====
See Notes to Financial Statements on page 6. 3 Balance Sheets J. C. Penney Funding Corporation (In millions except share data)
1994 1993 1992 ---- ---- ---- Current Assets Loans to JCPenney.............................. $3,114 $2,323 $1,912 ------ ------ ------ Total Current Assets........................... $3,114 $2,323 $1,912 ====== ====== ====== Liabilities and Equity of JCPenney Current Liabilities Short term debt................................ $2,074 $1,284 $ 887 Due to JCPenney................................ 12 43 45 ------ ------ ------ Total Current Liabilities................. 2,086 1,327 932 Equity of JCPenney Common stock (including contributed capital), par value $100: Authorized, 750,000 shares - issued and outstanding, 500,000 shares.... 145 145 145 Reinvested earnings............................ 883 851 835 ------ ------ ------ Total Equity of JCPenney.................. 1,028 996 980 ------ ------ ------ Total Liabilities and Equity of JCPenney.. $3,114 $2,323 $1,912 ====== ====== ======
See Notes to Financial Statements on page 6. 4 Statements of Cash Flows J. C. Penney Funding Corporation (In millions)
For the Year 1994 1993 1992 ----- ------ ------ Operating Activities Net income................................... $ 32 $ 16 $ 17 Increase in loans to JCPenney................ (791) (411) (303) Decrease in amount due to JCPenney........... (31) (2) (6) ----- ----- ----- (790) (397) (292) ----- ----- ----- Financing Activities Increase in short term debt.................. 790 397 416 Payments of long term debt................... -- -- (177) ----- ----- ----- 790 397 239 ----- ----- ----- Decrease in short term investments........... -- -- (53) Short term investments at beginning of year.. -- -- 53 ----- ----- ----- Short term investments at end of year........ $ -- $ -- $ -- ===== ===== ===== Supplemental Cash Flow Information Interest paid................................ $ 94 $ 47 $ 55 Interest received............................ $ -- $ -- $ 2 Income taxes paid............................ $ 10 $ 4 $ 11
See Notes to Financial Statements on page 6. 5 Independent Auditors' Report J. C. Penney Funding Corporation To the Board of Directors of J. C. Penney Funding Corporation: We have audited the accompanying balance sheets of J. C. Penney Funding Corporation as of January 28, 1995, January 29, 1994, and January 30, 1993, and the related statements of income, reinvested earnings, and cash flows, appearing on pages 3 through 5, for the years then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of J. C. Penney Funding Corporation as of January 28, 1995, January 29, 1994, and January 30, 1993, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP 200 Crescent Court, Dallas, Texas 75201 February 23, 1995 Notes to Financial Statements General - ------- J. C. Penney Funding Corporation ("Funding") is a wholly-owned consolidated subsidiary of J. C. Penney Company, Inc. ("JCPenney"). The principal business of Funding consists of financing a portion of JCPenney's operations through loans to JCPenney. To finance its operations, Funding issues commercial paper, which is guaranteed by JCPenney on a subordinated basis, to corporate and institutional investors in the domestic market. Funding has, from time to time, issued long term debt in public and private markets in the United States and abroad. Definition of Fiscal Year Funding's fiscal year ends on the last Saturday in January. Fiscal year 1994 ended January 28, 1995, Fiscal 1993 ended January 29, 1994, and Fiscal 1992 ended January 30, 1993. Fiscal years 1994 and 1993 each comprised 52 weeks and fiscal year 1992 comprised 53 weeks. Commercial Paper Placement Funding began placing commercial paper solely through dealers, rather than as a direct issuer, on April 3, 1992. The average interest rate on commercial paper at year end 1994, 1993, and 1992 was 5.9%, 3.2% and 3.4%, respectively. Summary Of Accounting Policies - ------------------------------ Income Taxes Funding's taxable income is included in the consolidated federal income tax return of JCPenney. Income taxes in Funding's statement of income are computed as if Funding filed a separate federal income tax return. Loans to JCPenney - ----------------- Funding and JCPenney are parties to a Loan Agreement which provides for unsecured loans, payable on demand, to be made from time to time by Funding to JCPenney for the general business purposes of JCPenney, subject to the terms and conditions of the Loan Agreement. Under the terms of the Agreement, Funding and JCPenney agree upon a mutually-acceptable earnings coverage of Funding's interest and other fixed charges. The earnings to fixed charges ratio has historically been at least one and one-half times. Committed Bank Credit Facilities - -------------------------------- In 1994, committed bank credit facilities available to Funding and JCPenney as of January 28, 1995, amounted to $2.5 billion. These facilities include a $1.5 billion, 364-day revolver, and a $1.0 billion, five-year revolver with a group of 42 domestic and international banks. These facilities support commercial paper borrowing arrangements. See page 8 for a complete list of committed bank credit facilities. In addition a number of minority-owned banks participate in a $5 million credit line for which First Texas Bank acts as agent. None of the borrowing facilities were in use as of January 28, 1995. Fair Value of Financial Instruments - ----------------------------------- The fair value of short term debt (commercial paper) at January 28, 1995, January 29, 1994, and January 30, 1993, approximates the amount as reflected on the balance sheet due to its short average maturity. The fair value of loans to JCPenney at January 28, 1995, January 29, 1994, and January 30, 1993, also approximates the amount reflected on the balance sheet because the loan is payable on demand and the interest charged on the loan balance is adjusted to reflect current market interest rates. 6 Five Year Financial Summary J. C. Penney Funding Corporation (In millions)
At Year End 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Capitalization Short term debt Commercial paper................... $2,074 1,284 887 414 842 Master notes....................... -- -- -- 57 62 ------ ----- ----- ----- ----- Total short term debt............ 2,074 1,284 887 471 904 ------ ----- ----- ----- ----- Current maturities of long term debt.. -- -- -- -- 75 ------ ----- ----- ----- ----- Long term debt 7.875% to 9.25% due 1991 to 1998... -- -- -- 177 196 ------ ----- ----- ----- ----- Total long term debt............. -- -- -- 177 196 ------ ----- ----- ----- ----- Total debt............................ 2,074 1,284 887 648 1,175 ------ ----- ----- ----- ----- Equity of JCPenney.................... 1,028 996 980 963 940 ------ ----- ----- ----- ----- Total capitalization..................... $3,102 2,280 1,867 1,611 2,115 ====== ===== ===== ===== ===== Committed bank credit facilities......... $2,500 1,250 1,250 1,250 2,000 For the Year Income................................... $ 143 71 77 101 200 Expenses................................. $ 94 47 51 67 132 Net income............................... $ 32 16 17 23 45 Fixed charges - times earned............. 1.52 1.52 1.52 1.52 1.52 Peak short term debt..................... $2,649 2,327 1,665 1,489 1,665 Average debt Short term............................ $1,990 1,347 1,146 754 1,277 Long term............................. $ -- -- 39 232 281 Total................................. $1,990 1,347 1,185 986 1,558 Average interest rates Short term debt....................... 4.6 % 3.2% 3.7% 5.6% 8.1% Long term debt........................ -- % --% 8.9% 8.7% 8.6% Total................................. 4.6 % 3.2% 3.9% 6.3% 8.2%
7 Quarterly Data J. C. Penney Funding Corporation ($ in millions) (Unaudited)
First Second Third Fourth ----------------- ---------------- ---------------- ---------------- 1994 1993 1992 1994 1993 1992 1994 1993 1992 1994 1993 1992 ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Income....................... $ 24 13 22 32 15 19 38 22 18 49 21 18 Expenses..................... $ 16 9 15 21 10 12 25 14 12 32 14 12 Income before taxes.......... $ 8 4 7 11 5 7 13 8 6 17 7 6 Net income................... $ 5 3 5 7 3 4 9 5 4 11 5 4 Fixed charges - times earned............... 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52
Committed Revolving Credit Facilities as of January 28, 1995 ABN-AMRO Bank N.V. Bank of America NT & SA Bank of Hawaii Bank of New York Bank One, Texas, N.A. Bankers Trust Company The Bank of Tokyo, Ltd. Banque Nationale de Paris Chemical Bank Citibank, N.A. Credit Lyonnais Credit Suisse Dai-Ichi Kangyo Bank First Interstate Bank of California The First National Bank of Boston The First National Bank of Chicago First Security Bank of Utah, N.A. First Union National Bank of North Carolina Firstar Bank Milwaukee, N.A. The Fuji Bank, Limited The Industrial Bank of Japan Trust Company The Long Term Credit Bank of Japan, Ltd. Mellon Bank, N.A. Mitsubishi Bank Morgan Guaranty Trust Company of New York National Westminster Bank PLC NationsBank of Texas, N.A. NBD Bank, N.A. The Northern Trust Company Norwest Bank Minnesota, N.A. PNC Bank, N.A. The Royal Bank of Canada The Sanwa Bank Limited San Paolo Bank Societe Generale The Sumitomo Bank, Limited SunBank, N.A. Swiss Bank Corporation Union Bank of Switzerland United Missouri Bank, N.A. United States National Bank of Oregon Wachovia Bank of North Carolina, N.A. 8 -----END PRIVACY-ENHANCED MESSAGE-----