-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L7k/6piKmjsV0x08GRSL3UnKQfv/+pjwmnzgleALPyx1RLarBPuqjQhBaslX1Qr+ NzbXUpKyZ5PqMVdtGJsHoQ== 0000930661-97-001497.txt : 19970611 0000930661-97-001497.hdr.sgml : 19970611 ACCESSION NUMBER: 0000930661-97-001497 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970426 FILED AS OF DATE: 19970610 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00777 FILM NUMBER: 97621741 BUSINESS ADDRESS: STREET 1: 6501 LEGACY DR CITY: PLANO STATE: TX ZIP: 75024-3698 BUSINESS PHONE: 2144311000 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 --------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------- For the 13 week period Commission file number 1-777 ended April 26, 1997 J. C. PENNEY COMPANY, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-5583779 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6501 Legacy Drive, Plano, Texas 75024 - 3698 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (972) 431-1000 ------------------------- ------------------- 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 247,908,369 shares of Common Stock of 50 cent par value, as of May 16, 1997. -1- PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS. The following interim financial information is unaudited but, in the opinion of the Company, includes all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation. Certain prior year amounts have been restated to conform with the current year presentation. The financial information should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the 52 weeks ended January 25, 1997. Statements of Income (Amounts in millions except per share data) 13 weeks ended --------------------------- Apr. 26, Apr. 27, 1997 1996 ---------- ---------- Retail sales $6,481 $4,452 Insurance revenue 224 192 ------ ------ Total revenue 6,705 4,644 ------ ------ Costs and expenses Cost of goods sold, occupancy, buying, and warehousing costs 4,677 3,112 Selling, general, and administrative expenses 1,514 1,154 Costs and expenses of insurance operations 172 150 Other (10) (22) Net interest expense and credit operations 81 23 Amortization of intangible assets and minority interest 41 -- Business acquisition and consolidation expenses, net 2 -- ------ ------ Total costs and expenses 6,477 4,417 ------ ------ Income before income taxes 228 227 Income taxes 89 85 ------ ------ Net income $ 139 $ 142 ====== ====== Net income per common share Primary $ .53 $ .58 ====== ====== Fully diluted $ .53 $ .57 ====== ====== Weighted average common shares outstanding Primary 242.4 227.2 ====== ====== Fully diluted 261.2 247.2 ====== ====== -2- Balance Sheets (Amounts in millions) Apr. 26, Apr. 27, Jan. 25, 1997 1996 1997 ------- ------- -------- ASSETS Current assets Cash and short term investments of $2,468, $103, and $131 $ 2,553 $ 145 $ 131 Receivables, net 4,481 4,756 5,757 Merchandise inventories 5,830 3,992 5,722 Prepaid expenses 62 92 102 ------- ------- ------- Total current assets 12,926 8,985 11,712 Properties, net of accumulated depreciation of $2,970, $2,036, and $2,701 5,024 4,245 5,014 Investments, primarily insurance operations 1,593 1,637 1,605 Deferred insurance policy acquisition costs 682 603 666 Goodwill and other intangible assets 2,972 -- 1,861 Other assets 1,339 1,312 1,230 ------- ------- ------- $24,536 $16,782 $22,088 ======= ======= ======= -3- Balance Sheets (Amounts in millions) Apr. 26, Apr. 27, Jan. 25, 1997 1996 1997 --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 3,210 $ 2,129 $ 3,738 Short term debt 2,597 1,385 3,950 Current maturities of long term debt 250 -- 250 Deferred taxes 78 107 28 ------- ------- ------- Total current liabilities 6,135 3,621 7,966 Long term debt 7,538 4,077 4,565 Deferred taxes 1,464 1,236 1,362 Insurance policy and claims reserves 799 711 781 Other liabilities 1,424 1,247 1,383 ------- ------- ------- Total liabilities 17,360 10,892 16,057 Minority interest in Eckerd -- -- 79 Stockholders' equity Preferred stock, without par value: Authorized, 25 million shares - issued, 1 million shares of Series B ESOP convertible preferred 558 589 568 Guaranteed LESOP obligation (142) (228) (142) Common stock, par value 50c: Authorized, 1,250 million shares - issued, 248, 225, and 224 million shares 2,667 1,140 1,416 ------- ------- ------- Total capital stock 3,083 1,501 1,842 ------- ------- ------- Reinvested earnings at beginning of year 4,110 4,397 4,397 Net income 139 142 565 Net unrealized change in debt and equity securities and foreign currency translation adjustments (24) (33) (21) Retirement of common stock -- -- (320) Common stock dividends declared (132) (117) (471) Preferred stock dividends declared, net of taxes -- -- (40) ------- ------- ------- Reinvested earnings at end of period 4,093 4,389 4,110 ------- ------- ------- Total stockholders' equity 7,176 5,890 5,952 ------- ------- ------- $24,536 $16,782 $22,088 ======= ======= ======= -4- Statements of Cash Flows (Amounts in millions) 13 weeks ended ------------------------- Apr. 26, Apr. 27, 1997 1996 ------- -------- Operating activities Net income $ 139 $ 142 Depreciation and amortization, including intangibles 149 82 Deferred taxes 128 48 Change in cash from: Customer receivables 516 476 Inventories, net of trade payables (143) (97) Other assets and liabilities, net (358) (307) ------- ----- 431 344 ------- ----- Investing activities Capital expenditures (195) (123) Proceeds from the sale of bank receivables 684 -- Purchases of investment securities (140) (165) Proceeds from sales of investment securities 114 131 ------- ----- 463 (157) ------- ----- Financing activities Decrease in short term debt (1,353) (124) Net proceeds from the issuance of long term debt 2,988 -- Common stock issued, net 21 28 Preferred stock retired (10) (14) Dividends paid, preferred and common (118) (105) ------- ----- 1,528 (215) ------- ----- Net increase/(decrease) in cash and short term investments 2,422 (28) Cash and short term investments at beginning of year 131 173 ------- ----- Cash and short term investments at end of first quarter $ 2,553 $ 145 ======= ===== Non-cash transaction - -------------------- On February 27, 1997, the Company completed the second step of the acquisition of Eckerd Corporation through the exchange of 23.2 million shares of JCPenney common stock for the remaining 49.9 per cent of the outstanding common stock of Eckerd. The value of the non-cash portion of the acquisition was approximately $1.3 billion. -5- ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Financial Condition - ------------------- The Company completed the acquisition of Eckerd Corporation (Eckerd) on February 27, 1997. The acquisition was accomplished through a two step transaction consisting of a cash tender offer for 50.1 per cent of the outstanding Eckerd common stock (completed in December 1996), followed by the exchange of approximately 23.2 million shares of JCPenney common stock for the remaining 49.9 per cent of Eckerd common stock in February 1997. The total value of the acquisition, including Eckerd debt assumed by the Company, was approximately $3.3 billion. The pro forma effects of the Company's drugstore acquisitions, including Fay's Incorporated which was acquired in October, 1996, would have been as follows:
Historical Pro Forma ---------- --------- ($ in millions) Retail sales $4,452 $6,055 Net income $ 142 $ 139 Earnings per share (fully diluted) $ 0.57 $ 0.52
During the first quarter of 1997, the Company completed the sale of the credit card portfolio of JCPenney National Bank. In addition, the Company has announced the pending sale of the remaining assets of the bank in a transaction that is expected to close by the end of the year. Merchandise inventories on a FIFO basis totaled $6,042 million at the end of the first quarter compared with $4,218 million at the end of last year's first quarter, with the majority of the increase related to the Company's recent drugstore acquisitions. Inventories for JCPenney stores and catalog totaled $4,309 million as compared with $3,817 million last year, a 12.9 per cent increase. Stores and catalog inventory levels were above plan at the end of the quarter and the Company believes it has taken the necessary steps to bring inventories in line with expected sales levels over the next several months. Eckerd drugstore inventories totaled $1,733 million compared with $401 million last year. The current cost of inventories exceeded the LIFO basis amount carried on the balance sheet by approximately $212 million at April 26, 1997, $265 million at January 25, 1997, and $226 million at April 27, 1996. Properties, net of accumulated depreciation, totaled $5,024 million at April 26, 1997 compared with $4,245 million at the end of last year's first quarter. The increase from last year is principally related to the opening of 35 new and relocated JCPenney stores since April 1996, as well as the drugstore acquisitions. During the first quarter of 1997, Eckerd opened 110 new, relocated, and acquired drugstores. In addition, Eckerd announced on May 30, 1997 that it had entered into a definitive agreement to acquire 114 Revco drugstores in the Norfolk and Richmond, Virginia markets from CVS Corporation. The transaction is expected to be completed by the end of July 1997. Goodwill and other intangible assets, net, recorded as of April 26, 1997 was $2,972 million and reflected the Company's drugstore acquisitions. During the first quarter of 1997, the Company issued $3.0 billion of debt, which lowered the average interest rate and extended the average maturity for its aggregate outstanding long term debt. The proceeds from these borrowings were used principally to fund the Eckerd acquisition. In addition, during the first quarter of 1997, the Company retired its two revolving "Acquisition" credit facilities, leaving its customary $3.0 billion in revolving credit facilities, which are used to support its short term borrowing requirements, at the end of the first quarter. Total debt, both on and off-balance-sheet, was $10.8 billion at April 26, 1997, up $4.2 billion compared with April 27, 1996 levels. It is expected that the Company's debt to capital ratio will approximate 60.0 per cent for the year. -6- Cash and short term investments increased substantially in the first quarter of 1997 compared with last year's first quarter and year end 1996 as a result of the temporary investment of funds generated from the debt issues described above and the sale of bank receivables. On March 12, 1997, the Board of Directors increased the quarterly dividend to 53.5 cents per share, or an indicated annual rate of $2.14. The regular quarterly dividend of 53.5 cents per share on the Company's outstanding common stock was paid on May 1, 1997, to stockholders of record on April 10, 1997. Results of Operations - --------------------- Ratios useful in analyzing the results of operations are as follows: 13 weeks ended ------------------------ Apr. 26, Apr. 27, 1997 1996 -------- -------- Sales and revenue, per cent increase JCPenney stores 5.8 0.6 Eckerd drugstores 11.2 (1) 12.5 Catalog 0.8 1.3 Insurance 16.7 23.2 Comparable store sales, per cent increase/(decrease) JCPenney stores 4.5 (0.8) Eckerd drugstores 7.7 5.3 FIFO gross margin, per cent of sales JCPenney stores and catalog 31.0 31.2 Eckerd drugstores 22.2 22.2 (1) Selling, general, and adminis- trative expenses, per cent of sales JCPenney stores and catalog 27.1 26.9 Eckerd drugstores 16.7 17.5 (1) Operating profit, per cent of revenue (2) JCPenney stores and catalog 3.9 4.3 Eckerd drugstores 5.5 4.7 (1) Insurance 23.2 21.9 Effective income tax rate 39.1 37.7 (1) The percentage shown has been calculated using 1996 pro forma data, assuming the Company's drugstore acquisitions had occurred at the beginning of 1996. (2) Operating profit by segment excludes interest, amortization, business acquisition expenses, and taxes. Operating profit, excluding interest, amortization, business acquisition expenses, and taxes (EBIT) for the quarter totaled $352 million, an increase of 40 per cent from last year's first quarter. Income before income taxes for the 13 weeks ended April 26, 1997 was $228 million, up slightly from the first quarter of 1996. Net income totaled $139 million, or 53 cents per share, as -7- compared with $142 million, or 57 cents per share in last year's first quarter. JCPenney Stores and Catalog Sales of JCPenney stores for the first quarter were $3,332 million, an increase of 5.8 per cent (4.5 per cent on a comparable store basis) compared with first quarter 1996. Catalog sales, which totaled $810 million, increased 0.8 per cent during the period. FIFO gross margin dollars for stores and catalog increased $50 million to $1,284 million in the first quarter compared to last year, a decline of 20 basis points as a per cent of sales. The margin ratio was impacted by higher inventory levels entering the quarter. Selling, general, and administrative expenses totaled $1.1 billion, an increase of $60 million from first quarter 1996. Expense levels were impacted by increases in selling salaries, and national and preprint advertising programs. Eckerd Drugstores The following discussion of drugstore operations compares 1997 results with 1996 pro forma results which assume that recent drugstore acquisitions had occurred at the beginning of 1996. Sales of drugstores totaled $2,339 million for the first quarter of 1997, an 11.2 per cent increase from $2,103 million in last year's first quarter. Drugstore sales benefited from significant increases in prescription sales volumes. The increase in prescription sales, which account for more than 50 per cent of total drugstore sales volume, was primarily a result of higher volumes of managed care sales. FIFO gross margin as a per cent of sales was even with last year. Selling, general, and administrative expenses were well leveraged during the quarter. Expense dollars improved 80 basis points as a per cent of sales. Operating profit (EBIT) for drugstores was 5.5 per cent of sales compared with 4.7 per cent last year. Integration of the drugstore operations is proceeding according to plan and is expected to be completed by the end of September. Insurance Premium income and other revenues totaled $224 million in the first quarter, an increase of 16.7 per cent compared with a year ago. During the first quarter of 1997, Insurance generated operating profits of $52 million compared with $42 million a year ago, a 23.8 per cent increase. These results continue the strong growth that has been experienced over the past five years during which both premiums and operating profits have grown at an annual rate of approximately 20 per cent. The increases are primarily related to successful programs with business partners which offer credit cards, principally banks, oil companies, and retailers. Net Interest Expense and Credit Operations Net interest expense and credit operations for the first quarter of 1997 was $81 million compared with $23 million in the comparable period last year, and is primarily related to higher interest costs. Net interest expense was $135 million in the first quarter, up $60 million from last year's first quarter. The increase is principally related to higher costs associated with the drugstore acquisitions and working capital requirements for JCPenney stores and catalog. Finance charge revenue of $184 million in the first quarter was up $16 million, or 9.5 per cent, from 1996 levels. This increase is primarily -8- related to modifications which have recently been made to credit terms in selected states. Increased finance charge revenue offset increases in operating expenses. Credit operating costs were $130 million in first quarter 1997 compared with $116 million in first quarter 1996. Net bad debt expense, which represents the largest single component of credit costs, increased $7 million, or 14 per cent, from a year ago. Acquisitions and Divestitures The Company recorded a net $2 million charge for business acquisition and consolidation expenses. This charge consisted principally of costs related to the consolidation and integration of the recent drugstore acquisitions, offset by a $28 million gain on the sale of the Company's consumer banking credit card portfolio. Also in connection with the drugstore acquisitions, the Company recorded a $27 million charge in the first quarter of 1997 for amortization of intangible assets and a $14 million charge for the minority interest in Eckerd prior to completion of the acquisition. The Company's effective income tax rate was 39.1 per cent in the first quarter compared with 37.7 per cent in last year's first quarter. The increase is principally related to amortization of goodwill which provides no tax benefit. The Company's business depends to a great extent on the last quarter of the year. Historically, sales for that period have averaged approximately one third of annual sales. Accordingly, the results of operations for the 13 weeks ended April 26, 1997 are not necessarily indicative of the results for the entire year. New Accounting Rules - -------------------- The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" in February 1997. The new rules will replace primary and fully diluted earnings per share (EPS) with basic and diluted EPS. The new rules, which are effective for periods ending after December 15, 1997, are not expected to have a material impact on the Company. -9- PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS. The Company has no material legal proceedings pending against it. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits -------- The following documents are filed as exhibits to this report: 10(a) J. C. Penney Company, Inc. Deferred Compensation Plan for Directors, as amended effective April 9, 1997. 10(b) J. C. Penney Company, Inc. Retirement Plan for Non-Associate Directors. 11 Computation of net income per common share. 12(a) Computation of ratios of available income to combined fixed charges and preferred stock dividend requirement. 12(b) Computation of ratios of available income to fixed charges. 27 Financial Data Schedule for the three months ended April 26, 1997. (b) Reports on Form 8-K ------------------- The Company filed the following reports on Form 8-K during the period covered by this report: Current Report on Form 8-K dated February 20, 1997 (Item 5 - Other Events, Item 7 - Financial Statements and Exhibits). Current Report on Form 8-K dated February 21, 1997 (Item 7 - Financial Statements and Exhibits). Current Report on Form 8-K dated March 28, 1997 (Item 7 - Financial Statements and Exhibits). Current Report on Form 8-K dated April 9, 1997 (Item 5 - Other Events, Item 7 - Financial Statements and Exhibits). -10- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. J. C. PENNEY COMPANY, INC. By /S/ W. J. Alcorn ------------------------------- W. J. Alcorn Vice President and Controller (Principal Accounting Officer) Date: June 9, 1997 EX-10.(A) 2 DEFERRED COMPENSATION PLAN Exhibit 10(a) - -------------------------------------------------------------------------------- J. C. Penney Company, Inc. Deferred Compensation Plan for Directors AS AMENDED EFFECTIVE APRIL 9, 1997 ================================================================================ 1. PURPOSE OF PLAN The purpose of the J. C. Penney Company, Inc. Deferred Compensation Plan for Directors ("Plan") is to provide a procedure whereby a member of the Board of Directors of J. C. Penney Company, Inc. ("Company") who is not an associate of the Company or any of its subsidiaries ("Director") may defer the payment of all or a specified portion of the compensation payable to the Director for services as a Director, including the annual retainer, meeting fees, and fees payable to a Director for services above and beyond those services in connection with his or her Board and committee responsibilities ("Fees"). Deferred Fees will be subject to Social Security Self-Employment tax in the year the Fees are paid irrespective of when such Fees are earned. A Director who elects to defer the payment of Fees will be eligible to make a deductible Keogh Plan contribution with respect to such Fees in the year such Fees are actually paid to the Director. 2. ADMINISTRATION The Plan shall be administered by a committee ("Committee") consisting of one or more persons appointed from time to time by the Board of Directors out of those members of the Board of Directors who have never been participants under the Plan. The Committee shall have plenary authority in its discretion, but subject to the express provisions of the Plan, to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, and to make all other determinations deemed necessary or advisable for the administration of the Plan. The determinations of the Committee on the foregoing matters shall be conclusive and binding on all interested parties. 3. ELECTION TO DEFER A Director may elect, at any time, to defer payment of all or a specified portion of any unearned Fees. Such election shall be effective on the first day of the month following receipt by the Secretary of the Company of written notice thereof. 4. DIRECTORS' ACCOUNTS There shall be established for each Director participating in the Plan an account on the books of the Company, to be designated as such Director's deferred compensation account ("Account"). Unless and until a Change of Control (as defined hereinafter) shall be deemed to have occurred, all amounts deferred pursuant to the Plan, together with any further amounts accrued thereon, as hereinafter provided, shall be held in the general funds of the Company and shall be credited to the Director's Account. The Company shall furnish quarterly or upon request to each participating Director a statement of such Director's Account. In the event a Change of Control (as defined hereinafter) shall be deemed to have occurred, the Company's liability for benefits under the Plan shall be funded under an irrevocable trust which shall be subject to the claims of the Company's general creditors so that Eligible Directors will not be currently taxed upon the funding of such benefits. For purposes of this Section 4, a Change of Control shall be deemed to have occurred if (a) any person or "group" (as determined for purposes of Securities and Exchange Commission Regulation 13D-G), except any majority-owned subsidiary or any Company employee benefit plan or any trust or investment manager thereunder, shall have acquired "beneficial ownership" (as determined for purposes of Securities and Exchange Commission Regulation 13D-G) of shares of Company common stock having 40% or more of the voting power of all outstanding shares of Company capital stock; 1 or (b) a merger or consolidation occurs to which the Company is a party, whether or not the Company is the surviving corporation in which outstanding shares of Company common stock are converted into shares of another company (other than a conversion into shares of voting common stock of the successor corporation or a holding company thereof) or other securities or cash or other property (excluding payments made solely for fractional shares); or (c) the sale of all, or substantially all, of the Company's assets occurs. If a Director should make the one-time election under the J. C. Penney Company, Inc. Retirement Plan for Non-Associate Directors to cease participation in that plan and to transfer his or her accrued benefit under that plan to this Plan, the amount so transferred, together with any further amounts accrued thereon ("Retirement Transfer"), shall be a part of the Director's Account, but segregated for purposes of the payment limitation under Section 5 with respect to the Retirement Transfer. Effective with respect to calendar quarters ending before July 1, 1984, on the first business day following the end of each such quarter, interest shall have been accrued and credited to each such Account on the basis of the average balance in such Account during the quarter at an annual rate which shall be equal to the lesser of (i) three percent below the average Prime Lending Rate in effect during the quarter or (ii) the average short-term interest rate on borrowed funds paid by the Company and its subsidiary, J. C. Penney Financial Corporation, during the quarter. "Prime Lending Rate" shall mean the rate that The Chase Manhattan Bank, N.A. charges from time to time at its principal domestic office on 90-day loans to responsible and substantial commercial borrowers. Effective with respect to calendar quarters ending after June 30, 1984, but ending before December 31, 1988, a Director may elect that all but not a part of the balance in his or her Account be determined by reference to one of the following factors ("Factors"): (1) the addition of interest, to be accrued during each such quarter and to be credited to such Account on the first business day following the end of such quarter on the basis of the average balance in such Account during such quarter, at a rate equal, also at such Director's election, to either (a) the average annual rate payable for one-year United States Treasury Notes issued during such quarter, or (b) the guaranteed annual rate in effect for such quarter under the Interest Income Account of the J.C. Penney Company, Inc. Savings and Profit-Sharing Retirement Plan ("Guaranteed Rate")*; or (2) a number of units ("Units"), to be determined and valued in accordance with the fair market value of shares of the Company's Common Stock of 50 cents par value ("Common Stock"), the method of such determination and valuation being set forth in Attachment A to the Plan. Effective with respect to calendar quarters ending after December 31, 1988, Directors' elections as to Factors shall remain the same as those of the previous paragraph, except that clause (b) of the first Factor be, and it hereby is, changed to read as follows: (b) the guaranteed annual rate in effect for such quarter under the Interest income Account of the (i) J. C. Penney Company, Inc. Savings and Profit-Sharing Retirement Plan, or (ii) J. C. Penney Company, Inc. Savings, Profit-Sharing, and Stock Ownership Plan, whichever is higher ("Guaranteed Rate")*. ******************************************************************************** *Note: In 1992, a change was made to the Company's Savings Plans with respect to the Interest Income Accounts. A new investment vehicle called "Structured Income Contracts" was added to these accounts to replace the contracts commonly known as "Guaranteed Interest Contracts." As a result, a fixed rate is no longer available at the beginning of a quarterly period; the rate is determined at the end of the quarter based on the aggregate interest income realized by the investments held in the Interest Income Accounts. An administrative change has been made to the Directors' Deferred Compensation Plan with respect to the interest rate factor to continue the intent of conforming this interest rate factor to the corresponding interest rate factor in the Savings Plans. 2 Effective with respect to calendar quarters ending after June 30, 1997, in addition to the Factors provided in the two immediately preceding paragraphs, a Director may elect that all but not a part of the balance in his or her Account be determined by reference to the average interest rate in effect for such quarter under the J. C. Penney Company, Inc. 1995 Deferred Compensation Plan. The Director's election as to the Factor to be referenced to determine the balance in his or her Account and any change in such election, shall be effective on the first day of the calendar quarter following receipt by the Secretary of the Company of written notice thereof; provided, however, that in the absence of any such election, the Factor for a Director's Account shall be deemed to be the Guaranteed Rate. 5. PAYMENT FROM DIRECTORS' ACCOUNTS At the time a Director elects to participate in the Plan, he or she shall also make an election, which election shall be irrevocable, except as hereinafter provided, as to his or her deferral payment date, which shall be the first business day of a calendar year selected by the Director ("Deferral Payment Date"); provided, however, that such year shall in no event be later than the fifth calendar year following the calendar year in which the Director shall have become ineligible for election or re-election as a Director under the Company's Bylaws. With respect to a Director's Retirement Transfer, in no event may the Deferral Payment Date commence before the later of the Director's attainment of age 65 or the Director's separation from Board service. In no event may a Deferral Payment Date be changed except as provided in Section 6. If an election to defer was made prior to September 25, 1984, payment of the balance in a Director's Account shall be made in the number of annual installments elected by such Director, and if an election to defer is made on or after September 25, 1984, payment of the balance in a Director's Account shall be made in 10 annual installments. In either event, the Committee may, with the consent of a Director, subsequently on a one-time basis reduce the number of annual installments (including a reduction to a lump sum payment) payable to such Director, provided that any such reduction is made no later than 30 days prior to such Director's Deferral Payment Date. The first installment or the lump sum, as the case may be, shall be paid on the Deferral Payment Date, and subsequent installments, if any, shall be paid on the first business day of each succeeding calendar year until the entire remaining balance in a Director's Account shall have been paid. During any period in which a balance remains in a Director's Account, such remaining balance shall continue to be determined by the Factor which is then in effect for such Director until further changed by such Director. When a Director is to receive the balance of his or her Account in annual installments, each such annual installment shall be a fraction of the balance in such Account on the date such annual installment is to be paid, the numerator of which is one and the denominator of which is the total number of installments then remaining to be paid. Any payments from a Director's Account shall be made in cash, and in no event shall shares of Company Stock be issued to a Director, even if such Director shall have elected to have the value of his or her Account determined by reference to the Unit Factor. 6. PAYMENT IN EVENT OF DEATH OR HARDSHIP If a Director should die before the balance in his or her Account shall have been paid in full, the balance then remaining shall be paid promptly in a lump sum to such Director's estate or to his or her designated beneficiary or beneficiaries. A Director may designate one or more beneficiaries (which may be an entity other than a natural person) to receive any payments to be made upon the Director's death. At any time, and from time to time, any such designation may be changed or canceled by the Director without notice to or the consent of any beneficiary. Any such designation, change, or cancellation shall be effective upon receipt by the Secretary of the Company of written 3 notice thereof. If a Director designates more than one beneficiary, any payments to such beneficiaries shall be made in equal shares unless the Director has designated otherwise. If no beneficiary has been named by the Director, or if the designated beneficiary or beneficiaries shall have predeceased him or her, or shall no longer exist, the balance shall be paid to the Director's estate. The Committee may, at any time, under rules which it may prescribe, direct the Company to pay in a lump sum to a Director all or any portion of the balance then in the Director's Account, if the Committee finds, in its sole discretion, that continued deferral of all or any portion of such balance shall result in a financial hardship to such Director or that such Director has become disabled. In the case of a then existing election to defer, the Committee's determination to pay all or any portion of such balance shall immediately operate as a termination of such election to defer. 7. TERMINATION OF ELECTION TO DEFER A Director may at any time terminate his or her election to defer payment of Fees. Such termination shall become effective on the last day of the month in which written notice thereof is received by the Secretary of the Company; provided, however, that any balance in the Account of a Director prior to the effective date of termination of an election to defer shall not be affected thereby and shall be paid only in accordance with Sections 5 and 6. A Director who has filed a termination of election to defer or whose election to defer has been terminated in accordance with Section 6 may thereafter again file an election to defer in accordance with Section 3. 8. NONASSIGNABILITY During a Director's lifetime, the right to the balance in his or her Account shall not be transferable or assignable. Nothing contained in the Plan shall create, or be deemed to create, a trust, actual or constructive, for the benefit of a Director or his or her beneficiary, or shall give, or be deemed to give, to any Director or his or her beneficiary any interest in any specific assets of the Company. 9. AMENDMENT The Board of Directors of the Company may, at any time, without the consent of the participants, amend, suspend, or terminate the Plan. Subject to any applicable laws and regulations, no amendment, suspension, or termination of the Plan shall operate to annul an election already in effect for the then current calendar year or for any preceding calendar year and Fees shall continue to be deferred until the end of such current calendar year in accordance with a Director's then current election; and the balance in the Director's Account shall continue to be payable in accordance with a Director's then current election and, until paid, to be measured by a factor to be determined from time to time by the Committee. 10. GOVERNING LAW The Plan shall be construed and enforced according to the laws of the State of New York, and all the provisions thereof shall be administered according to the laws of said State. 11. SEVERABILITY OF PROVISIONS If any of the provisions of the Plan or the application thereof to any Director shall be held invalid, neither the remainder of the Plan nor its application to any other Director shall be affected thereby. 12. EFFECTIVE DATE The Plan shall become effective on August 28, 1979; and was amended on September 25, 1984; June 28, 1988; February 28, 1989; July 8, 1992; and April 9, 1997. 4 Attachment A GENERAL Units shall be measured by reference to the fair market value of a share of Company Stock. FAIR MARKET VALUE For purposes of the Plan, the fair market value ("Fair Market Value") of a share of Company Stock shall be the closing market price for that date as reported in the composite transaction table covering transactions of New York Stock Exchange listed-securities or such other amount as the Plan Committee shall ascertain reasonably to represent such Fair Market Value. CALCULATION OF UNITS The number of Units, to be calculated to the nearest thousandth of a Unit, shall be determined (1) on the effective date of the election of the Unit Factor, by dividing (a) the balance, if any, then in a Director's account by (b) the Fair Market Value of a Share of Company Stock on the last trading day prior to the date of election of such Factor and (2) as to Fees deferred thereafter, by dividing (a) the amount of such deferred Fees on any date on which such Fees would otherwise have been paid by (b) the Fair Market Value of a share of Company Stock on the last trading day prior to the date such deferred Fees would otherwise have been paid. CASH DIVIDENDS Whenever a cash dividend is paid on a share of Company Stock, the number of Units in a Director's Account shall be increased by a number determined by dividing (1) the product of (a) the number of such Units times (b) an amount equal to the amount of the cash dividend paid on a share of Company Stock by (2) the Fair Market Value of a share of Company Stock on the last trading date prior to the appropriate dividend payment date. ADJUSTMENTS In the event of any change in the outstanding Company Stock by reason of a stock dividend, stock split, recapitalization, merger, consolidation, combination or exchange of shares, spin-off, distribution to holders of Company Stock (other than cash dividends), or the like, the Plan Committee shall adjust appropriately the number of Units credited to a Director's Account. VALUATION OF ACCOUNT BALANCE REFERENCED TO UNITS If a Director has elected to have his or her Account balance determined by reference to the Unit Factor, then the value at any time of the balance in such Account shall be determined by multiplying (1) the number of Units in such Account by (2) the Fair Market Value of a share of Company Stock on the last trading day prior to the date such value is determined. EX-10.(B) 3 RETIREMENT PLAN FOR NON-ASSOCIATE DIRECTORS Exhibit 10(b) J. C. Penney Company, Inc. Retirement Plan For Non-Associate Directors - ------------------------------------------------------------------------------- ARTICLE I PURPOSE OF PLAN The purpose of the J. C. Penney Company, Inc. Retirement Plan for Non-Associate Directors is to provide retirement benefits for members of the Board of Directors who have not been Associates, to provide competitive compensation for such members of the Board of Directors, and to enable the Company to attract and retain directors who are not Associates. ARTICLE II DEFINITIONS For the purpose of this Plan the following terms shall have the following meanings: ASSOCIATE: Used in the Company's organization interchangeably with the word "employee" and, for purposes of the Plan, means an employee of the Company or of any Subsidiary, including an officer who may or may not be a director, but excluding a director serving only in that capacity. BOARD OF DIRECTORS: The Board of Directors of the Company. BOARD SERVICE: The aggregate number of full years plus any fraction of a year (expressed as 1/12 of a year for each full month or fraction thereof) of active service as a director of the Company commencing on the date fixed by the Board of Directors or the stockholders of the Company as the date of election of a director. CODE: The Internal Revenue Code of 1986, as amended from time to time. COMMITTEE: The committee appointed by the Board of Directors to administer the Plan provided for in Article V. COMPANY: J. C. Penney Company, Inc., a Delaware corporation. EARLY RETIREMENT DATE: The date on which an Eligible Director ceases to be a director of the Company (prior to his Normal Retirement Date) provided that the director has at least five years of Board Service. ELIGIBLE DIRECTOR: Subject to paragraph (4) of Article III and paragraph (2) of Article VII, any person who, after the effective date of the Plan, has at least five years of Board Service, and who is not entitled to receive benefits under the Company's Pension Plan for its Associates with the following exceptions: (1) any person elected or appointed to the Board of Directors after February 12, 1997 and (2) any otherwise eligible Director who makes a one-time election on or about May 1, 1997, to cease participation in the Plan. MANDATORY RETIREMENT DATE: The first day of the month next following the date of the Annual Meeting of Stockholders of the Company at which an Eligible Director becomes ineligible for reelection pursuant to the Company's Bylaws. NORMAL RETIREMENT DATE: The first day of the month next following the date of the Annual Meeting of Stockholders of the Company on which an Eligible Director ceases to be a director next following his attainment of age 70. PLAN: This Retirement Plan for Non-Associate Directors. 1 SUBSIDIARY: Any corporation of which the Company owns directly or indirectly at least 50 percent of the outstanding common stock. SURVIVING SPOUSE: The person to whom an Eligible Director is legally married at the time of his death, under the laws of the State in which he is domiciled, or if he is domiciled outside the United States, under the laws of the State of New York, and who is living at the date benefits are payable under paragraph (3), (4), or (5) of Article IV of this Plan. ARTICLE III PARTICIPATION (1) An Eligible Director shall participate in the Plan and shall be entitled to receive benefits under the Plan as provided in Article IV upon reaching his or her Normal Retirement Date or Mandatory Retirement Date, as the case may be, or such earlier date as provided in paragraph (3) of this Article III. (2) Determination of whether an Eligible Director has sustained a permanent disability sufficient to entitle him to receive benefits under the Plan shall be made in the sole discretion of the Committee. (3) Benefits under the Plan shall not be paid to any Eligible Director, whether or not permanently disabled, prior to such Eligible Director having attained age 65. Benefits under the Plan may be paid to an Eligible Director on the First day of any month following his Early Retirement Date and after his having attained age 65 but prior to his Normal Retirement Date in the sole discretion of the Committee. (4) Except in the case of permanent disability, benefits under the Plan shall not be paid to an Eligible Director who does not make himself available to provide consulting advice to the Company, as the Company may reasonably request. (5) Eligible Directors shall not be required or permitted to make any contributions pursuant to the Plan. ARTICLE IV BENEFITS (1) The annual amount of benefit payable under the Plan in monthly installments to an Eligible Director commencing on or after his or her Normal Retirement Date, or an earlier date as provided in paragraph (3) of Article III, as the case may be, shall be: (a) if an Eligible Director retires on or after his or her Normal Retirement Date, 100 percent of the annual retainer amount in effect at the time payment is made, or (b) if an Eligible Director retires at an Early Retirement Date, 0.833 percent of the annual retainer amount in effect at the time payment is made for each full month or portion thereof of Board Service, such benefit not to exceed 100 percent of said annual retainer amount. (2) If an Eligible Director retires on or after his or her Normal Retirement Date, or at an Early Retirement Date due to becoming permanently disabled, such benefits shall be payable for his life. If an Eligible Director retires at an Early Retirement Date for any reason other than becoming permanently disabled, such benefits shall be payable for the lesser of his or her life or term of Board Service. (3) If an Eligible Director who retires on or after his or her Normal Retirement Date or who is deemed permanently disabled is receiving benefits under the Plan at the date of his death but has not received such benefits for a period of 10 years (120 months), a Surviving Spouse shall receive upon the death of such Eligible Director 100 percent of the benefits payable to him according to section 2 (A) of paragraph (1) of this Article IV for the remainder of such 10 year (120 months) period. The benefits under the Plan shall be paid to the Surviving Spouse in monthly installments commencing on the first day of the month following such Eligible Director's death and terminating with the installment payable on the earlier of (a) the expiration of the remainder of such 10 year (120 months) period, or (b) on the first day of the month in which such Surviving Spouse dies. (4) If an Eligible Director dies while in active service as a member of the Board of Directors or after having retired at an Early Retirement Date but has not received any benefits under the Plan, a Surviving Spouse shall receive 100 percent of such Eligible Director's benefit which he would have been entitled to if he had retired on the date of his death pursuant to paragraph (1) of this Article IV for a 10 year (120 months) period, payable in monthly installments, commencing on the later of the first day of the month in which such Eligible Director would have attained age 65 or the first day of the month following such Eligible Director's death, and terminating with the installment payable on the earlier of (a) the expiration of such 10 year (120 month) period or (b) on the first day of the month in which such Surviving Spouse dies. (5) If an Eligible Director who retires at an Early Retirement Date is receiving benefits under the Plan at the date of his death but has not received such benefit for a period equal to the lesser of (a) his Board Service or (b) 10 years (120 months), a Surviving Spouse shall receive upon the death of such Eligible Director 100 percent of the benefits paid to him according to section (b) of paragraph (1) of this Article IV for the remainder of his Board Service or 10 years (120 months), whichever shall be less. The benefits under the Plan shall be paid to the Surviving Spouse in monthly installments commencing on the first day of the month following such Eligible Director's death and terminating with the installment payable on the earlier of (a) the expiration of the period equal to such Service or 10 year (120 months) period, as the case may be, or (b) on the first day of the month in which such Surviving Spouse dies. (6) If an eligible Director makes the election provided in Article II to cease participation in the Plan, the lump sum present value of his or her benefit as of May 1, 1997 shall be transferred to the J. C. Penney Company, Inc., Deferred Compensation Plan for Directors and no benefit will be paid to such Director under this Plan. ARTICLE V ADMINISTRATION The Plan shall be administered by a committee ("Committee") consisting of one or more persons appointed from time to time by the Board of Directors out of those members of the Board of Directors who have never been eligible to participate in the Plan. The Committee shall have plenary authority in its discretion, but subject to the express provisions of the Plan, to interpret the Plan, to prescribe, amend, and rescind, rules and regulations relating to it, and to make all other determinations deemed necessary or advisable for the administration of the Plan. The determinations of the Committee on the foregoing matters shall be conclusive and binding on all interested parties. ARTICLE VI FUNDING OF BENEFITS The Plan shall be unfunded, unless and until a Change of Control (as defined hereinafter) shall be deemed to have occurred, in which event the Company's liability for benefits under the Plan shall be funded under an irrevocable trust which shall, to the extent possible, be subject to the claims of the Company's general creditors so that Eligible Directors will not be currently taxed upon the funding of such benefits. For purposes of this Article VI, a Change of Control shall be deemed to have occurred if (a) any person or "group" (as determined for purposes of Securities and Exchange Commission Regulation 13D-G), except any majority-owned subsidiary or any Company employee benefit plan or any trust or 3 investment manager thereunder, shall have acquired "beneficial ownership" (as determined for purposes of Securities and Exchange Commission Regulation 13D-G) of shares of Company common stock having 40% or more of the voting power of all outstanding shares of Company capital stock, or (b) a merger or consolidation occurs to which the Company is a party, whether or not the Company is the surviving corporation in which outstanding shares of Company common stock are converted into shares of another company (other than a conversion into shares of voting common stock of the successor corporation or a holding company thereof) or other securities or cash or other property (excluding payments made solely for fractional shares); or (c) the sale of all, or substantially all, of the Company's assets occurs. ARTICLE VII MISCELLANEOUS (1) AMENDMENT AND TERMINATION: The Board of Directors of the Company may amend, modify, suspend, or terminate the Plan at any time, without the consent of the participants but, in the event of any such amendment, modification, suspension, or termination, benefit payments which have already accrued, are payable in the future, or are being paid, will continue in accordance with the Plan as in effect prior to such amendment, modification, suspension, or termination. (2) RIGHTS OF DIRECTORS: Neither the establishment of the Plan nor any action hereafter taken by the Company or by any Subsidiary or the Committee shall be construed as giving to any director any vested right to a benefit from the Plan beyond the terms of the Plan. Nothing in the Plan shall confer on any director any right to be retained as a director, and the Company retains the right upon the removal of a director, or a resignation in lieu of removal as determined by the Committee, to terminate any benefits accrued for the account of or payable to such director under the Plan. (3) MISTAKEN INFORMATION: If any information upon which an Eligible Director's benefit under the Plan is calculated has been misstated by the Eligible Director or is otherwise mistaken, such benefit shall not be invalidated (unless upon the basis of the correct information he would not have been entitled to a benefit), but the amount of the benefit shall be adjusted to the proper amount determined on the basis of the correct information and any overpayments shall be charged against future payments to the Eligible Director or his Surviving Spouse, as the case may be. (4) LIABILITY: Neither the Board of Directors of the Company or of any Subsidiary, nor any member of the Committee, nor any person to whom any of them may delegate any duty or power in connection with administering the Plan shall be personally liable for any action or failure to act with respect to the Plan. (5) NONASSIGNABILITY: Benefits payable under the Plan shall not be subject in any manner to anticipation, assignment, pledge, alienation, or charge by an Eligible Director or his Surviving Spouse; nor shall any such benefits be in any manner liable for or subject to the debts or any other liabilities of the Eligible Director or his Surviving Spouse; nor shall any interest of any Eligible Director or his Surviving Spouse under the Plan be subject to garnishment, attachment, lien, or levy of any kind. (6) CONSTRUCTION: In determining the meaning of any provision of the Plan, words imparting the masculine gender shall include the feminine and the singular shall include the plural, unless the context requires otherwise. Headings of paragraphs and Articles in the Plan are for the convenience only and are not intended to modify or affect the meaning of the substantive provisions of the Plan. (7) EFFECTIVE DATE: The Plan shall become effective on January 31, 1982; and was amended on June 28, 1988; November 28, 1989; July 8, 1992; February 14, 1996; and April 9, 1997. 4 EX-11 4 COMPUTATION OF NET INCOME PER COMMON SHARE 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)
13 Weeks Ended ---------------------------------------------------------------- April 26, 1997 April 27, 1996 ----------------------------- ------------------------------ Shares Income Shares Income ----------- ----------- ------------ ----------- Primary: - -------- Net income $139 $142 Dividend on Series B ESOP convertible preferred stock (after-tax) (10) (11) ---- ---- Adjusted net income 129 131 Weighted average number of shares outstanding 240.4 224.6 Common stock equivalents: Stock options and other dilutive effect 2.0 2.6 ----- ---- ----- ---- 242.4 $129 227.2 $131 ===== ==== ===== ==== Net income per common share $0.53 $0.58 ===== ===== Fully diluted: - -------------- Net income $139 $142 Tax benefit differential on ESOP dividend assuming stock is fully converted -- -- Assumed additional contribution to ESOP if preferred stock is fully converted (1) (1) ---- ---- Adjusted net income 138 141 Weighted average number of shares outstanding (primary) 242.4 227.2 Maximum dilution 0.0 0.2 Convertible preferred stock 18.8 19.8 ----- ---- ----- ---- 261.2 $138 247.2 $141 ===== ==== ===== ==== Net income per common share $0.53 $0.57 ===== =====
EX-12.(A) 5 AVAILABLE INCOME TO COMBINED FIXED CHARGES Exhibit 12(a) J. C. Penney Company, Inc. and Consolidated Subsidiaries Computation of Ratios of Available Income to Combined Fixed Charges and Preferred Stock Dividend Requirement
52 weeks ended ---------------------------- Apr. 26, Apr. 27, ($ Millions) 1997 1996 -------- -------- Income from continuing operations $ 857 $1,256 (before income taxes, before capitalized interest, but after preferred stock dividend) Fixed charges Interest (including capitalized interest) on: Operating leases 110 102 Short term debt 127 120 Long term debt 341 268 Capital leases 7 5 Credit facility 19 - Other, net 2 1 ------ ------ Total fixed charges 606 496 Preferred stock dividend, before taxes 46 48 Combined fixed charges and preferred ------ ------ stock dividend requirement 652 544 Total available income $1,509 $1,800 ====== ====== Ratio of available income to combined fixed charges and preferred stock dividend requirement 2.3 3.3 ====== ======
The interest cost of the LESOP notes guaranteed by the Company is not included in fixed charges above. The Company believes that, due to the seasonal nature of its business, ratios for a period of time other than a 52 week period are inappropriate. EX-12.(B) 6 AVAILABLE INCOME TO FIXED CHARGES Exhibit 12(b) J. C. Penney Company, Inc. and Consolidated Subsidiaries Computation of Ratios of Available Income to Fixed Charges
52 weeks ended ------------------------------------ Apr. 26, Apr. 27, ($ Millions) 1997 1996 ------------- -------------- Income from continuing operations $ 903 $1,304 (before income taxes and capitalized interest) Fixed charges Interest (including capitalized interest) on: Operating leases 110 102 Short term debt 127 120 Long term debt 341 268 Capital leases 7 5 Credit facility 19 - Other, net 2 1 ------ ------ Total fixed charges 606 496 ------ ------ Total available income $1,509 $1,800 ====== ====== Ratio of available income to combined fixed charges and preferred stock dividend requirement 2.5 3.6 ====== ======
The interest cost of the LESOP notes guaranteed by the Company is not included in fixed charges above. The Company believes that, due to the seasonal nature of its business, ratios for a period of time other than a 52 week period are inappropriate. EX-27 7 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 APRIL 26, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 3-MOS JAN-31-1998 APR-26-1997 2,553 0 4,575 94 5,830 12,926 7,994 2,970 24,536 6,135 7,538 0 558 2,667 3,951 24,536 6,481 6,705 4,677 6,191 98 53 135 228 89 139 0 0 0 139 .53 .53
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