<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
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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 30, 1994
J. C. PENNEY COMPANY, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-5583779
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6501 Legacy Drive, Plano, Texas 75024 - 3698
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 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 .
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
235,506,528 shares of Common Stock of $0.50 par value, as of April 30, 1994.
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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.
Statements of Income
(Amounts in millions except per share data)
<TABLE>
<CAPTION>
13 weeks ended
-------------------
April 30, May 1,
1994 1993
--------- --------
<S> <C> <C>
Retail sales $4,350 $3,964
Other revenue 169 142
------ ------
Total revenue 4,519 4,106
------ ------
Costs and expenses
Cost of goods sold, occupancy, buying, and
warehousing costs 2,955 2,684
Selling, general, and administrative expenses 1,092 1,025
Costs and expenses of other businesses 126 107
Net interest expense and credit operations (17) 14
------ ------
Total costs and expenses 4,156 3,830
------ ------
Income before income taxes, extraordinary charge,
and cumulative effect of accounting change 363 276
Income taxes 140 104
------ ------
Income before extraordinary charge and cumulative
effect of accounting change 223 172
Extraordinary charge on debt redemption,
net of income taxes of $10 -- (17)
Cumulative effect of accounting change for
income taxes -- 51
------ ------
Net income $ 223 $ 206
====== ======
Net income per common share
Primary
Income before extraordinary charge and cumulative
effect of accounting change $ .88 $ .68
Extraordinary charge on debt redemption -- (.07)
Cumulative effect of accounting change for
income taxes -- .21
------ ------
Net income $ .88 $ .82
====== ======
Fully diluted
Income before extraordinary charge and cumulative
effect of accounting change $ .84 $ .65
Extraordinary charge on debt redemption -- (.06)
Cumulative effect of accounting change for
income taxes -- .19
------ ------
Net income $ .84 $ .78
====== ======
</TABLE>
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<TABLE>
<CAPTION>
Balance Sheets
(Amounts in millions)
April 30, May 1, Jan. 29,
1994 1993 1994
--------- ------ --------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short term investments
of $296, $528, and $156 $ 371 $ 621 $ 173
Receivables, net 4,399 3,487 4,679
Merchandise inventories 3,573 3,270 3,545
Prepaid expenses 129 145 168
------- ------- -------
Total current assets 8,472 7,523 8,565
Properties, net of accumulated
depreciation of $1,924, $1,883,
and $2,001 3,801 3,708 3,818
Investments 1,340 1,015 1,182
Deferred insurance policy acquisition costs 441 384 426
Other assets 845 818 797
------- ------- -------
$14,899 $13,448 $14,788
======= ======= =======
</TABLE>
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-3-
<TABLE>
<CAPTION>
Balance Sheets
(Amounts in millions)
April 30, May 1, Jan. 29,
1994 1993 1994
--------- ------ --------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 2,191 $ 2,053 $ 2,139
Short term debt 1,709 884 1,284
Current maturities of long term debt -- 664 348
Deferred taxes 111 87 112
------- ------- -------
Total current liabilities 4,011 3,688 3,883
Long term debt 2,925 2,514 2,929
Deferred taxes 1,017 911 1,013
Bank deposits 584 547 581
Insurance policy and claims reserves 560 489 540
Other liabilities 462 573 477
------- ------- -------
Total liabilities 9,559 8,722 9,423
Stockholders' equity
Preferred stock, without par value:
Authorized, 25 million shares -
issued, 1 million shares of
Series B ESOP convertible preferred 643 661 648
Guaranteed ESOP obligation (379) (447) (379)
Common stock, par value $0.50:
Authorized, 500 million shares -
issued, 236, 235, and 236 million
shares 1,020 966 1,003
------- ------- -------
Total capital stock 1,284 1,180 1,272
------- ------- -------
Reinvested earnings at beginning
of year 4,093 3,531 3,531
Net income 223 206 940
Net unrealized change in debt
and equity securities 24 (1) 1
Retirement of common stock (66) -- --
Common stock dividends declared (198) (169) (339)
Preferred stock dividends
declared, net of taxes (20) (21) (40)
------- ------- -------
Reinvested earnings at end of
period 4,056 3,546 4,093
------- ------- -------
Total stockholders' equity 5,340 4,726 5,365
------- ------- -------
$14,899 $13,448 $14,788
======= ======= =======
</TABLE>
<PAGE>
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<TABLE>
<CAPTION>
Statements of Cash Flows
(Amounts in millions)
13 weeks ended
--------------
April 30, May 1,
1994 1993
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<S> <C> <C>
Operating activities
Net income $ 223 $ 206
Extraordinary charge, net of income taxes -- 17
Cumulative effect of accounting change -- (51)
Depreciation and amortization 65 73
Amortization of original issue discount 3 12
Deferred taxes 3 (27)
Change in cash from:
Customer receivables 311 387
Securitized customer receivables amortized -- (85)
Inventories, net of trade payables (46) (39)
Other assets and liabilities, net (88) (90)
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471 403
----- -----
Investing activities
Capital expenditures (106) (90)
Purchases of investment securities (161) (92)
Proceeds from sales of investment securities 59 68
----- -----
(208) (114)
----- -----
Financing activities
Increase (decrease) in short term debt 425 (23)
Payments of long term debt (350) (1)
Common stock issued, net 19 11
Retirement of common stock (71) --
Preferred stock retired (5) (5)
Dividends paid, preferred and common (83) (76)
----- -----
(65) (94)
----- -----
Net increase in cash and short term
investments 198 195
Cash and short term investments at beginning
of year 173 426
----- -----
Cash and short term investments at end of
first quarter $ 371 $ 621
===== =====
</TABLE>
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Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Financial Condition
- - -------------------
Customer receivables at the end of the first quarter were $3,315 million, $768
million or 30.2 per cent higher than the comparable period in the prior year.
Customer receivables increased as a result of the higher sales volume and
greater usage of the JCPenney credit card by customers, which increased
significantly in the 1993 fourth quarter and continued the trend in the 1994
first quarter. Also, receivables increased due to the amortization of the $425
million Series D Trust Certificates in 1993, of which $85 million was amortized
in the 1993 first quarter. Total customer receivables serviced by the Company,
including those sold through a Trust, were $4,040 million, $429 million higher
than the 1993 comparable period.
Merchandise inventories, on a FIFO basis, were $3,819 million at the end of the
first quarter, an increase of 7.5 per cent from the comparable period in the
prior year, and are in line with recent sales volumes. The current cost of
inventories exceeded the amount carried on the balance sheet (valued
substantially at LIFO) by approximately $246 million at April 30, 1994, $246
million at January 29, 1994, and $282 million at May 1, 1993.
Capital expenditures were $106 million in the 1994 first quarter, as compared
with $90 million in the comparable period last year.
Investments, at $1,340 million, were $325 million higher than the comparable
period in the prior year. The increase was primarily due to the growth in
JCPenney Insurance 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 securities. The Company's
marketable investment securities, primarily held by JCPenney Insurance, are
classified as available-for-sale. Securities classified as available-for-sale
are required to be carried at market value, with changes in unrealized gains and
losses recorded directly to stockholders' equity, net of applicable income
taxes. Adoption of SFAS No. 115 increased investments $39 million, deferred
taxes $15 million, and stockholders' equity $24 million, as reflected on the
Company's consolidated balance sheet as of April 30, 1994. This represents a
substantial reduction in unrealized gains from the amount reported at year end
1993 (January 29, 1994). Adoption of this Statement had no impact on net
income.
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Unrealized gains and losses on available-for-sale marketable investment
securities included in stockholders' equity at April 30, 1994 were as follows:
<TABLE>
<CAPTION>
Cost or Gross Net
Amortized Market Unrealized Unrealized
---------------
Investments (in millions) Cost Value Gains (Losses) Gains
- - --------------------------- --------- ------ --------------- ----------
<S> <C> <C> <C> <C> <C>
Fixed income securities 769 770 21 (20) 1
Asset-backed certificates 431 469 38 -- 38
Equity securities 90 101 13 (2) 11
----- ----- -- --- --
1,290 1,340 72 (22) 50
Deferred income taxes 19
--
Total 31
</TABLE>
Other assets were $845 million at the end of the 1994 first quarter, an increase
of $27 million from the comparable period in the prior year. The Company made a
$99 million contribution to its pension plan in the 1994 first quarter, compared
with a $65 million contribution in the 1993 first quarter. These contributions,
which increased prepaid pension assets, were the first contributions to the
pension plan since 1983.
Accounts payable and accrued expenses were $2,191 million on April 30, 1994,
$138 million higher than the comparable period in the prior year. Trade
payables were $1,017 million, $100 million above last year's level due to higher
merchandise inventories. Dividends payable were $220 million, $29 million
higher than last year reflecting the increase in the quarterly dividend rate.
Total debt on April 30, 1994 was $4,634 million as compared with $4,062 million
at May 1, 1993, an increase of $572 million. The increase was primarily due to
higher short term borrowings to finance the higher customer receivables and the
increased investment in merchandise inventories. In February 1994, $350 million
of zero coupon notes yielding 13 per cent matured and were retired.
On June 7, 1994, the Company announced a two part, $500 million public offering
of debt securities with maturities of five and ten years. The securities include
$225 million of 6.875 per cent Notes due June 15, 1999, priced to yield 6.96 per
cent and $275 million of 7.375 per cent Notes due June 15, 2004, priced to yield
7.45 per cent. These debt securities may not be redeemed by the Company prior to
maturity. The Company will use the proceeds for general corporate purposes.
On March 9, 1994, the Board of Directors declared a 16.7 per cent increase in
the regular quarterly dividend to 42 cents per share, or an indicated annual
rate of $1.68 per share, as compared with $1.44 per share in 1993. The regular
quarterly dividend on the Company's outstanding common stock was payable on May
1, 1994, to stockholders of record on April 8, 1994. The Board also approved on
March 9, 1994, the purchase of up to 10 million shares of the Company's common
stock to offset dilution caused by the issuance of common shares under the
Company's equity compensation and benefit plans. During the 1994 first quarter,
the Company purchased approximately 1.3 million shares of common stock at a cost
of $71 million. All shares were retired and returned to the status of
authorized but unissued shares of common stock.
At the Company's Annual Meeting of Stockholders held on May 20, 1994,
stockholders approved an amendment to the Company's Restated Certificate of
Incorporation, as amended, authorizing an increase in the total authorized
number of shares of common stock of the Company from 500,000,000 to
1,250,000,000 and an increase in the total authorized number of shares from
525,000,000 to 1,275,000,000.
<PAGE>
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Results of Operations
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Ratios useful in analyzing the results of operations are as follows:
<TABLE>
<CAPTION>
13 Weeks Ended
-----------------
April 30, May 1,
1994 1993
--------- ------
<S> <C> <C>
Retail sales, per cent increase 9.7 4.5
JCPenney stores sales, per cent
increase 7.6 5.5
Gross margin, per cent of retail
sales
FIFO 32.1 32.3
LIFO 32.1 32.3
Selling, general, and administrative
expenses, per cent of retail sales 25.1 25.9
Effective income tax rate 38.7 37.8
</TABLE>
For the 13 weeks ended April 30, 1994, net income was a Company record for the
first quarter at $223 million, or 84 cents per share, as compared with $206
million, or 78 cents per share in the same period last year. Net income in the
1993 first quarter included an extraordinary charge related to debt redemption,
and the cumulative effect of an accounting change from adopting SFAS No. 109,
"Accounting for Income Taxes." Excluding these items, income in the 1993 first
quarter was $172 million, or 65 cents per share. The improvement in earnings in
the 1994 first quarter reflected the increased sales performance of both
JCPenney stores and catalog and well managed expenses.
First quarter total retail sales increased 9.7 per cent to $4,350 million from
$3,964 million in last year's comparable period. First quarter sales from
JCPenney stores increased 7.6 per cent from the prior year's period. Sales from
the Company's catalog operation increased 19.7 per cent in the first quarter
while sales of the Thrift Drug store operation improved by 8.1 per cent over the
comparable 1993 period.
Gross margin dollars improved $115 million or 8.9 per cent in the first quarter
compared with the same 1993 period, due to increased sales volume from both
stores and catalog. As a per cent of retail sales, gross margin declined 20
basis points from last year's level to 32.1 per cent, reflecting higher
promotional activity.
Selling, general, and administrative (SG&A) expenses, as a per cent of retail
sales, declined to 25.1 per cent in the first quarter from 25.9 per cent in the
1993 comparable period. SG&A expense levels increased 6.4 per cent over last
year's first quarter due to planned increases in store and catalog advertising
and greater sales incentive compensation in stores.
<PAGE>
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Net interest expense and credit operations, which consists of finance charge
revenue from the Company's proprietary credit card, net interest expense, and
credit operating costs, was a credit of $17 million in the first quarter
compared with a charge of $14 million in the comparable period last year.
Finance charge revenue was $162 million, up $31 million over the same period
last year due to higher customer receivables. Net interest expense was $56
million, down $6 million compared with last year's first quarter, reflecting the
benefits from the Company's debt restructuring programs in 1992 and 1993.
Credit operating costs, including bad debt expense, were $89 million in the
first quarter compared with $83 million in the same period last year.
The Company's life and health insurance business recorded a strong increase in
premium income and profitability in the 1994 first quarter. Total revenue,
primarily from premium income, was $138 million, an increase of $26 million or
22.8 per cent over the comparable period in the prior year. Pretax income in
the 1994 first quarter was $35 million, an increase of $6 million or 17.2 per
cent over last year.
The effective income tax rate was 38.7 per cent in the 1994 first quarter
compared with 37.8 per cent in the same period last year, reflecting the one per
cent increase in the statutory Federal corporate tax rate enacted in August
1993.
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 30, 1994 are not necessarily indicative of the results for the entire
year.
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:
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.
(b) Reports on Form 8-K
-------------------
None.
<PAGE>
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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/L. A. Gispanski
------------------------------
L. A. Gispanski
Vice President and Controller
(Principal Accounting Officer)
Date: June 10, 1994
<PAGE>
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)
<TABLE>
<CAPTION>
13 Weeks Ended
---------------------------------------------------------
April 30, 1994 May 1, 1993
---------------------------- ---------------------------
Shares Income Shares Income
------ ------ ------ ------
Primary:
- - -------
<S> <C> <C> <C> <C>
Income before extraordinary charge and
cumulative effect of accounting change $223 $172
Dividend on Series B ESOP convertible
preferred stock (after-tax) (10) (10)
---- ----
Adjusted income before extraordinary
charge and cumulative effect of
accounting change 213 162
Weighted average number of shares
outstanding 236.5 235.2
Common stock equivalents:
Stock options and other dilutive effects 3.8 2.7
----- ---- ----- ----
240.3 213 237.9 162
Income per common share before
extraordinary charge and cumulative
effect of accounting change $0.88 $ 0.68
Extraordinary charge on debt redemption,
net of income taxes -- -- (0.07) (17)
Cumulative effect of accounting change -- -- 0.21 51
----- ----- ---- ----- ------ ----
240.3 237.9
===== =====
Net income $213 $196
==== ====
Net income per common share $0.88 $ 0.82
===== ======
Fully diluted:
- - -------------
Income before extraordinary charge and
cumulative effect of accounting change $223 $172
Tax benefit differential on ESOP dividend
assuming stock is fully converted (1) (1)
Assumed additional contribution to ESOP
if preferred stock is fully converted (1) (2)
---- ----
Adjusted income before extraordinary
charge and cumulative effect of
accounting change 221 169
Weighted average number of shares
outstanding (primary) 240.3 237.9
Maximum dilution 0.0 0.3
Convertible preferred stock 21.5 22.1
----- ---- ----- ----
261.8 221 260.3 169
Income per common share before
extraordinary charge and cumulative
effect of accounting change $0.84 $ 0.65
Extraordinary charge on debt redemption,
net of income taxes -- -- (0.06) (17)
Cumulative effect of accounting change -- -- 0.19 51
----- ----- ---- ----- ------ ----
261.8 260.3
===== =====
Net income $221 $203
==== ====
Net income per common share $0.84 $ 0.78
===== ======
</TABLE>
<PAGE>
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
<TABLE>
<CAPTION>
52 weeks 53 weeks
ended ended
-------- ---------
April 30, May 1,
1994 1993
-------- ---------
($ Millions)
<S> <C> <C>
Income from continuing operations
(before income taxes,
before capitalized interest,
but after preferred stock dividend) $1,585 $1,254
------ ------
Fixed charges
Interest (including capitalized
interest)
On operating leases 97 96
On short term debt 51 41
On long term debt 232 275
On capital leases 9 10
Other, net 0 13
------ ------
Total fixed charges 389 435
Preferred stock dividend, before taxes 52 52
------ ------
Combined fixed charges and preferred stock
dividend requirement 441 487
------ ------
Total available income $2,026 $1,741
====== ======
Ratio of available income to combined
fixed charges and preferred stock
dividend requirement 4.6 3.6
====== ======
</TABLE>
The interest cost of the LESOP notes guaranteed by the Company is not included
in fixed charges above.
The Company believes that, due to the seasonal nature of its business, ratios
for a period other than a 52 or 53 week period are inappropriate.
<PAGE>
Exhibit 12(b)
J. C. Penney Company, Inc.
(the Company and all subsidiaries)
Computation of Ratios of Available Income to Fixed Charges
<TABLE>
<CAPTION>
52 weeks 53 weeks
ended ended
---------- ----------
April 30, May 1,
1994 1993
---------- ----------
<S> <C> <C>
($ Millions)
Income from continuing operations
(before income taxes and
before capitalized interest) $1,637 $1,306
---------- ----------
Fixed charges
Interest (including capitalized
interest)
On operating leases 97 96
On short term debt 51 41
On long term debt 232 275
On capital leases 9 10
Other, net 0 13
---------- ----------
Total fixed charges 389 435
---------- ----------
Total available income $2,026 $1,741
========== ==========
Ratio of available income to fixed charges 5.2 4.0
========== ==========
</TABLE>
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 other than a 52 or 53 week period are inappropriate.
