<PAGE>
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 29, 1995
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 (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 .
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
227,310,838 shares of Common Stock of 50c par value, as of April 29, 1995.
<PAGE>
-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. 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 28, 1995.
Statements of Income
(Amounts in millions except per share data)
<TABLE>
<CAPTION>
13 weeks ended
-------------------
April 29, April 30,
1995 1994
--------- ---------
<S> <C> <C>
Retail sales $4,367 $4,350
Revenue of insurance and bank operations 197 169
------ ------
Total revenue 4,564 4,519
------ ------
Costs and expenses
Cost of goods sold, occupancy, buying, and
warehousing costs 2,997 2,955
Selling, general, and administrative expenses 1,148 1,092
Costs and expenses of insurance and bank operations 149 126
Net interest expense and credit operations 17 (17)
------ ------
Total costs and expenses 4,311 4,156
------ ------
Income before income taxes 253 363
Income taxes 97 140
------ ------
Net income $ 156 $ 223
====== ======
Net income per common share
Primary $.63 $ .88
====== ======
Fully diluted $.61 $ .84
====== ======
Weighted average common shares outstanding
Primary 231.9 240.3
====== ======
Fully diluted 253.0 261.8
====== ======
</TABLE>
<PAGE>
-2-
<TABLE>
<CAPTION>
Balance Sheets
(Amounts in millions)
April 29, April 30, Jan. 28,
1995 1994 1995
--------- --------- --------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short term investments
of $135, $296, and $207 $ 255 $ 371 $ 261
Receivables, net 4,668 4,399 5,159
Merchandise inventories 3,994 3,573 3,876
Prepaid expenses 143 129 172
------- ------- -------
Total current assets 9,060 8,472 9,468
Properties, net of accumulated
depreciation of $1,927, $1,924,
and $1,997 3,957 3,801 3,954
Investments, primarily insurance operations 1,469 1,340 1,359
Deferred insurance policy acquisition costs 500 441 482
Other assets 1,073 845 939
------- ------- -------
$16,059 $14,899 $16,202
======= ======= =======
</TABLE>
<PAGE>
-3-
<TABLE>
<CAPTION>
Balance Sheets
(Amounts in millions)
April 29, April 30, Jan. 28,
1995 1994 1995
--------- --------- --------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 2,086 $ 2,191 $ 2,274
Short term debt 2,160 1,709 2,092
Deferred taxes 115 111 115
------- ------- -------
Total current liabilities 4,361 4,011 4,481
Long term debt 3,167 2,925 3,335
Deferred taxes 1,100 1,017 1,039
Bank deposits 709 584 702
Insurance policy and claims reserves 587 560 568
Other liabilities 466 462 462
------- ------- -------
Total liabilities 10,390 9,559 10,587
Stockholders' equity
Preferred stock, without par value:
Authorized, 25 million shares -
issued, 1 million shares of
Series B ESOP convertible preferred 624 643 630
Guaranteed LESOP obligation (307) (379) (307)
Common stock, par value 50c:
Authorized, 1,250 million shares -
issued, 227, 236, and 227 million
shares 1,112 1,020 1,030
------- ------- -------
Total capital stock 1,429 1,284 1,353
------- ------- -------
Reinvested earnings at beginning
of year 4,262 4,093 4,093
Net income 156 223 1,057
Net unrealized change in debt
and equity securities 19 24 (21)
Retirement of common stock (87) (66) (435)
Common stock dividends declared (110) (198) (392)
Preferred stock dividends
declared, net of taxes -- (20) (40)
------- ------- -------
Reinvested earnings at end of
period 4,240 4,056 4,262
------- ------- -------
Total stockholders' equity 5,669 5,340 5,615
------- ------- -------
$16,059 $14,899 $16,202
======= ======= =======
</TABLE>
<PAGE>
-4-
<TABLE>
<CAPTION>
Statements of Cash Flows
(Amounts in millions)
13 weeks ended
------------------
April 29, April 30,
1995 1994
-------- --------
<S> <C> <C>
Operating activities
Net income $ 156 $ 223
Depreciation and amortization 80 65
Amortization of original issue discount 1 3
Deferred taxes 62 3
Change in cash from:
Customer receivables 533 311
Inventories, net of trade payables (123) (46)
Other assets and liabilities, net (260) (88)
-------- --------
449 471
-------- --------
Investing activities
Capital expenditures (109) (106)
Purchases of investment securities (191) (161)
Proceeds from sales of investment securities 121 59
Acquisition of Kerr Drug (74) --
-------- --------
(253) (208)
-------- --------
Financing activities
Increase in short term debt 68 425
Payments of long term debt (165) (350)
Common stock issued, net 84 19
Common stock purchased and retired (88) (71)
Preferred stock retired (6) (5)
Dividends paid, preferred and common (95) (83)
-------- --------
(202) (65)
-------- --------
Net increase (decrease) in cash and short term
investments (6) 198
Cash and short term investments at beginning
of year 261 173
-------- --------
Cash and short term investments at end of
first quarter $ 255 $ 371
======== ========
</TABLE>
<PAGE>
-5-
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Financial Condition
- -------------------
The Company's financial condition remains strong, providing the Company
flexibility to continue its capital plans and take advantage of future
opportunities as they arise.
During the 1995 first quarter, the Company completed the acquisition of Kerr
Drug Stores, Inc. ("Kerr Drug"), a 97-store chain. Under the terms of the
acquisition agreement, the shareholders of Kerr Drug received an aggregate of
1,764,705 shares of JCPenney common stock, valued at approximately $74 million,
in exchange for all of the outstanding shares of Kerr Drug common stock. This
transaction was accounted for as a purchase.
Merchandise inventories, on a FIFO basis, were $4,241 million at the end of the
first quarter, an increase of 11.0 per cent from the level in the prior year.
Total inventories were impacted by the acquisition of the Kerr Drug stores.
Inventories for JCPenney stores and catalog were up 9.0 per cent, and are being
managed and adjusted in response to the lower than expected sales level in the
1995 first quarter. The current cost of inventories exceeded the LIFO basis
amount carried on the balance sheet by approximately $247 million at both April
29, 1995 and January 28, 1995, and $246 million at April 30, 1994.
Capital expenditures for property, plant and equipment were $109 million in the
1995 first quarter, compared with $106 million in the comparable period last
year.
In the 1995 first quarter, the Company made a $104 million contribution to its
pension plan, which increased other assets.
Total debt, both on and off the balance sheet, was $6.3 billion at April 29,
1995, up $832 million compared with the April 30, 1994 level, principally due to
the Company's stock purchase program and working capital requirements. In April
1995, the Company redeemed $165 million of its 9.45 per cent Notes due 1998.
The Company's debt to capital ratio was 52.5 per cent at the end of the 1995
first quarter, compared with 50.5 per cent at the end of the first quarter last
year.
On May 23, 1995, the Company issued $193 million of 10 year Notes under its
Series A Medium-Term Note program. The Notes were priced at 100 per cent of
face value with an interest rate of 7.05 per cent.
As of May 31, 1995, the Company had purchased approximately 3.2 million shares
of its common stock at a cost of $139 million under its 1995 stock purchase
program. Since March 1994, the Company has purchased a total of 13.2 million
shares at a cost of $614 million. All shares were retired and returned to the
status of authorized but unissued shares of common stock.
<PAGE>
-6-
On March 8, 1995, the Board of Directors increased the quarterly common dividend
14.3 per cent to 48 cents per share, or an indicated annual rate of $1.92, as
compared with $1.68 per share in 1994 and $1.44 per share in 1993. The regular
quarterly dividend on the Company's outstanding common stock was payable on
May 1, 1995, to stockholders of record on April 10, 1995.
Results of Operations
- ---------------------
Ratios useful in analyzing the results of operations are as follows:
<TABLE>
<CAPTION>
13 Weeks Ended
--------------------
April 29, April 30,
1995 1994
---------- ---------
<S> <C> <C>
Retail sales, per cent increase 0.4 9.7
JCPenney stores sales, per cent
increase (decrease) (0.5) 7.6
Gross margin, per cent of retail
sales
FIFO 31.4 32.1
LIFO 31.4 32.1
Selling, general, and administrative
expenses, per cent of retail sales 26.3 25.1
Effective income tax rate 38.3 38.7
</TABLE>
For the 13 weeks ended April 29, 1995, fully diluted net income per share
declined 27.4 per cent to 61 cents, compared with 84 cents per share in the same
period last year. Net income totaled $156 million, a 29.9 per cent decline from
the Company record $223 million in the 1994 first quarter.
First quarter total retail sales increased 0.4 per cent to $4,367 million from
$4,350 million in last year's comparable period. Sales from JCPenney stores
decreased 0.5 per cent, and catalog sales declined 4.3 per cent from the
comparable 1994 period, reflecting the consumers' response to a slowing economy.
Sales of the Thrift Drug store operation, including sales from the newly
acquired Kerr Drug stores, increased 18.4 per cent over the same period in 1994.
Gross margin dollars for both stores and catalog declined due to the weak sales
volume and increased promotional activity. As a per cent of retail sales, gross
margin was 31.4 per cent, as compared with 32.1 per cent in the same period last
year.
Selling, general, and administrative ("SG&A") expenses increased 5.2 per cent
from last year's level. The acquisition of Kerr Drug and higher costs of
producing and distributing the Company's catalogs impacted SG&A expenses in the
quarter. As a per cent of retail sales, SG&A expenses were 26.3 per cent
compared with 25.1 per cent in the same 1994 period.
<PAGE>
-7-
Net interest expense and credit operations for the first quarter was a charge of
$17 million compared with a credit of $17 million in the comparable period last
year. Finance charge revenue was $171 million, up $9 million over the same
period last year due to higher customer receivables. Total customer
receivables, at $4.1 billion, were about $100 million higher than last year's
level. Credit operating costs were $111 million, an increase of $22 million
over last year, primarily due to higher bad debt expense. Net interest expense
was $77 million, up $21 million compared with last year's first quarter,
reflecting higher borrowing levels for working capital requirements and the
stock purchase program. Higher short term interest rates also impacted interest
expense in the quarter.
The Company's life and health insurance business continued its strong growth in
premium income and profitability in the 1995 first quarter. Total revenue was
$159 million, an increase of $21 million or 15.8 per cent over the comparable
period in the prior year. Pretax income was $39 million, an increase of $4
million or 13.0 per cent over last year. However, last year's first quarter
included realized gains of $6 million from the investment portfolio. Excluding
these gains, operating profit in the quarter was up $10 million or 37.8 per
cent.
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 29, 1995 are not necessarily indicative of the results for the entire
year.
<PAGE>
-8-
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.
27 Financial Data Schedule for the three months ended April 29,
1995.
(b) Reports on Form 8-K
-------------------
None.
<PAGE>
-9-
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/ D. A. McKay
--------------------------
D. A. McKay
Vice President and Controller
(Principal Accounting Officer)
Date: June 7, 1995
<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 29, 1995 April 30, 1994
---------------- ----------------
Shares Income Shares Income
------ ------ ------ ------
Primary:
- -------
<S> <C> <C> <C> <C>
Net income $ 156 $ 223
Dividend on Series B ESOP convertible
preferred stock (after-tax) (10) (10)
------- -------
Adjusted net income 146 213
Weighted average number of shares
outstanding 229.5 236.5
Common stock equivalents:
Stock options and other dilutive effects 2.4 3.8
------- ------- ------- -------
231.9 $ 146 240.3 $ 213
======= ======= ======= =======
Net income per common share $ 0.63 $ 0.88
======= =======
Fully diluted:
- -------------
Net income $ 156 $ 223
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) (1)
------- -------
Adjusted net income 154 221
Weighted average number of shares
outstanding (primary) 231.9 240.3
Maximum dilution 0.2 0.0
Convertible preferred stock 20.9 21.5
------- ------- ------- -------
253.0 $ 154 261.8 $ 221
======= ======= ======= =======
Net income per common share $0.61 $0.84
======= =======
</TABLE>
<PAGE>
Exhibit 12(a)
J. C. Penney Company, Inc.
(the Company and all subsidiaries)
Computation of Ratios of Available Income to Combined Fixed Charges
and Preferred Stock Dividend Requirement
<TABLE>
<CAPTION>
52 weeks 52 weeks
ended ended
-------- --------
April 29, April 30,
1995 1994
-------- --------
($ Millions)
<S> <C> <C>
Income from continuing operations
(before income taxes,
before capitalized interest,
but after preferred stock dividend) $1,537 $1,585
------ ------
Fixed charges
Interest (including capitalized
interest)
On operating leases 95 97
On short term debt 108 51
On long term debt 232 232
On capital leases 7 9
Other, net (1) 0
------ ------
Total fixed charges 441 389
Preferred stock dividend, before taxes 49 52
------ ------
Combined fixed charges and preferred stock
dividend requirement 490 441
------ ------
Total available income $2,027 $2,026
====== ======
Ratio of available income to combined
fixed charges and preferred stock
dividend requirement 4.1 4.6
====== ======
</TABLE>
The interest cost of the LESOP notes guaranteed by the Company is not included
in fixed charges above.
The Company believes that, due to the seasonal nature of its business, ratios
for a period other than a 52 week period are inappropriate.
<PAGE>
Exhibit 12(b)
J. C. Penney Company, Inc.
(the Company and all subsidiaries)
Computation of Ratios of Available Income to Fixed Charges
52 weeks 52 weeks
ended ended
-------- --------
April 29, April 30,
1995 1994
-------- --------
<TABLE>
<CAPTION>
($ Millions)
<S> <C> <C>
Income from continuing operations
(before income taxes and
before capitalized interest) $1,586 $1,637
------ ------
Fixed charges
Interest (including capitalized
interest)
On operating leases 95 97
On short term debt 108 51
On long term debt 232 232
On capital leases 7 9
Other, net (1) 0
------ ------
Total fixed charges 441 389
------ ------
Total available income $2,027 $2,026
====== ======
Ratio of available income to fixed charges 4.6 5.2
====== ======
</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 week period are inappropriate.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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 29, 1995, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-END> APR-29-1995
<CASH> 255
<SECURITIES> 0
<RECEIVABLES> 4,742
<ALLOWANCES> 74
<INVENTORY> 3,994
<CURRENT-ASSETS> 9,060
<PP&E> 5,884
<DEPRECIATION> 1,927
<TOTAL-ASSETS> 16,059
<CURRENT-LIABILITIES> 4,361
<BONDS> 3,167
<COMMON> 1,112
0
624
<OTHER-SE> 3,933
<TOTAL-LIABILITY-AND-EQUITY> 16,059
<SALES> 4,367
<TOTAL-REVENUES> 4,564
<CGS> 2,997
<TOTAL-COSTS> 4,145
<OTHER-EXPENSES> 43
<LOSS-PROVISION> 46
<INTEREST-EXPENSE> 77
<INCOME-PRETAX> 253
<INCOME-TAX> 97
<INCOME-CONTINUING> 156
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.61
</TABLE>
