PENNEY J C CO INC, 10-K, 1995-04-18

PENNEY J C CO INC
10-K, 1995-04-18
DEPARTMENT STORES

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the 52 weeks ended January 28, 1995 Commission file number 1-777

J. C. PENNEY COMPANY, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)

DELAWARE 13-5583779
------------------------ ------------------------
(State of incorporation) (I.R.S. Employer ID No.)

6501 LEGACY DRIVE, PLANO, TEXAS 75024-3698
------------------------------- ----------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (214) 431-1000
- -------------------------------------------------- --------------

Securities registered pursuant to Section 12(b) of the Act:
- ----------------------------------------------------------

Name of each exchange on
Title of each class which registered
- ---------------------------------- ------------------------

Common Stock of 50c par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
- ----------------------------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___.
---

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
-
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $11,000,854,396 as of March 20, 1995.

<PAGE>

Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date: 228,336,507 shares of
Common Stock of 50c par value, as of March 20, 1995.

DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
<TABLE>
<CAPTION>

Documents from which portions Parts of the Form 10-K
are incorporated by reference into which incorporated
----------------------------- -----------------------
<S> <C> <C>
1. J. C. Penney Company, Inc. Part I, Part II, and
1994 Annual Report to Stockholders Part IV

2. J. C. Penney Company, Inc. Part III
1995 Proxy Statement

3. J. C. Penney Funding Corporation Part I and Part IV
Form 10-K for fiscal year 1994
</TABLE>
<PAGE>

PART I
------

1. Business.
--------

J. C. Penney Company, Inc. ("Company") was founded by James Cash Penney in
1902. Incorporated in Delaware in 1924, the Company has grown to be a major
retailer. The dominant portion of the Company's business consists of providing
merchandise and services to consumers through department stores that include
catalog departments. The Company markets predominantly family apparel, jewelry,
shoes, accessories, and home furnishings.

The business of marketing merchandise and services is highly competitive.
Although the Company is one of the largest department store retailers in the
United States, it has numerous competitors. Many factors enter into the
competition for the consumer's patronage, including price, quality, style,
service, product mix, convenience, and credit availability. The Company's
annual earnings depend to a significant extent on the results of operations for
the last quarter of its fiscal year. Sales for that period average
approximately one-third of annual sales.

Information about certain aspects of the business of the Company included
under the captions of "Receivables" (page 30), "Merchandise inventories" (page
30), "Properties" (page 30), "Capital expenditures" (page 30), and "Investments"
(page 31), which appear in the section of the Company's 1994 Annual Report to
Stockholders entitled "Notes to Financial Statements", "Supplemental Information
(Unaudited)" (pages 41 and 42), "Five Year Financial Summary" (page 43), and
"Five Year Operations Summary" (page 44), which appear in the Company's 1994
Annual Report to Stockholders on the pages indicated in the parenthetical
references, is incorporated herein by reference and filed hereto as Exhibit 13
in response to Item 1 of Form 10-K.

In addition, information about J. C. Penney Funding Corporation, a wholly-
owned consolidated subsidiary of the Company, which appears in Item 1 of its
separate Annual Report on Form 10-K for the fiscal year ended January 28, 1995,
is incorporated herein by reference and filed hereto as Exhibit 99(a) in
response to Item 1 of Form 10-K.

Suppliers. The Company purchases its merchandise from over 6,000 domestic and
---------
foreign suppliers, most of whom have done business with the Company for many
years. In addition to its Plano, Texas home office, the Company, through its
international purchasing subsidiary, maintains buying offices in Brazil,
Guatemala, Hong Kong, India, Italy, Japan, Korea, Mexico, Singapore, Taiwan and
Thailand.

Employment. The Company and its consolidated subsidiaries employed
----------
approximately 202,000 persons as of January 28, 1995.

-1-
<PAGE>

Environment. While environmental protection requirements did not have a
-----------
material effect upon the Company's operations during fiscal 1994, it is possible
that compliance with such requirements will lengthen lead time in expansion
plans and increase construction, and therefore operating costs, due, in part, to
the expense and time required to conduct environmental and ecological studies.

2. Properties.
----------

At January 28, 1995, the Company operated 1,759 retail stores, comprised of
1,233 JCPenney department stores and 526 drug stores, in all 50 states and
Puerto Rico, of which 233 JCPenney department stores and 18 drug stores were
owned. The Company also operated six catalog distribution centers, of which
four were owned, and owned one store distribution center and the insurance
company corporate offices. The Company also owns its home office facility and
approximately 244 acres of property in Plano, Texas, adjacent to the facility.
Information relating to certain of the Company's facilities included under the
captions of "Five Year Financial Summary" and "Five Year Operations Summary,"
which appear on pages 43 and 44, respectively, of the Company's 1994 Annual
Report to Stockholders, is incorporated herein by reference and filed hereto as
Exhibit 13 in response to Item 2 of Form 10-K.

Additional information relating to certain aspects of the Company's properties
included under the caption "Properties" (page 30), which appears in the section
of the Company's 1994 Annual Report to Stockholders entitled "Notes to Financial
Statements", on the page indicated in the parenthetical reference, is also
incorporated herein by reference and filed hereto as Exhibit 13 in response to
Item 2 of Form 10-K.

3. Legal Proceedings.
-----------------

The Company has no material legal proceedings pending against it.

4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------

No matter was submitted to a vote of stockholders during the fourth quarter of
fiscal 1994.

-2-
<PAGE>

PART II
-------

5. Market for Registrant's Common Equity
and Related Stockholder Matters.
-------------------------------------

The Company's Common Stock is traded principally on the New York Stock
Exchange. It is also traded on other exchanges in the United States and is
listed and traded on the Brussels and Antwerp Stock Exchanges. In addition, the
Company has issued approximately 1.2 million shares of Series B ESOP Convertible
Preferred Stock pursuant to a leveraged employee stock ownership plan.
Additional information relating to the Common Stock and Preferred Stock of the
Company included under the captions of "Preferred stock" (page 35), "Common
stock" (page 35), "Changes in outstanding common stock" (page 35), and
"Quarterly Data (Unaudited)" (page 40), which appear in the Company's 1994
Annual Report to Stockholders on the pages indicated in the parenthetical
references, is incorporated herein by reference and filed hereto as Exhibit 13
in response to Item 5 of Form 10-K.

6. Selected Financial Data.
-----------------------

Information for the fiscal years 1990-1994 included in the "Five Year
Financial Summary" on page 43 of the Company's 1994 Annual Report to
Stockholders is incorporated herein by reference and filed hereto as Exhibit 13
in response to Item 6 of Form 10-K.

7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
---------------------------------------------

The discussion and analysis included under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations", which
appears in the Company's 1994 Annual Report to Stockholders on pages 22 through
24 thereof, is incorporated herein by reference and filed hereto as Exhibit 13
in response to Item 7 of Form 10-K.

8. Financial Statements and Supplementary Data.
-------------------------------------------

The Consolidated Balance Sheets of the Company and subsidiaries as of January
28, 1995, January 29, 1994, and January 30, 1993, and the related Consolidated
Statements of Income, Reinvested Earnings, and Cash Flows for the years then
ended, appearing on pages 26 through 28 of the Company's 1994 Annual Report to
Stockholders, together with the Independent Auditors' Report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing on page 25 of
the Company's 1994 Annual Report to Stockholders, the "Summary of Accounting
Policies" appearing on page 29, the Notes to Financial Statements on pages 30
through 39, and the quarterly financial highlights ("Quarterly Data
(Unaudited)") appearing on page 40 thereof, are incorporated herein by reference
and filed hereto as Exhibit 13 in response to Item 8 of Form 10-K. The

-3-
<PAGE>

Independent Auditors' Report of KPMG Peat Marwick LLP covering the
aforementioned consolidated financial statements of the Company refers to the
adoption by the Company (a) in 1993 of the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, and (b) in 1994 of the provisions of the
---------------------------
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
-----------------------------------------------------
Securities.
- ----------

9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
---------------------------------------

The Company has had no change in, or disagreements with, its independent
certified public accountants on accounting and financial disclosure.

PART III*
--------

10. Directors and Executive Officers of the Registrant.*
--------------------------------------------------

The following is a list, as of January 28, 1995, of the names and ages of the
executive officers of the Company and of the offices and other positions held by
each such person with the Company. The terms of all executive officers will
expire on May 19, 1995. There is no family relationship between any of the
named persons.

<TABLE>
<CAPTION>
Offices and other positions
Name held with the Company Age
----------------- --------------------------------- ---
<S> <C> <C>

William R. Howell........ Chairman of the Board; Director 59
James E. Oesterreicher... Vice Chairman of the Board and
Chief Executive Officer; Director 53
W. Barger Tygart......... President and Chief Operating Officer;
Director 59
John T. Cody, Jr......... President of JCPenney Stores 55
Gale Duff-Bloom.......... Senior Executive Vice President and
Director of Personnel and
Company Communications 55
David V. Evans........... Senior Vice President and Director of
Planning and Information Systems 51
Thomas D. Hutchens....... President of Merchandising Worldwide 54
Charles R. Lotter........ Executive Vice President, Secretary
and General Counsel 57
William E. McCarthy...... President of Catalog and Distribution 53
Robert E. Northam........ Executive Vice President and
Chief Financial Officer 64
Terry S. Prindiville..... Executive Vice President and
Director of Support Services 59
Ted L. Spurlock.......... Senior Vice President and Director
of Financial Services and
Government Relations 56

</TABLE>

-4-
<PAGE>

- -------------

Mr. Howell was elected Chairman of the Board in 1983. He served as the
Company's Chief Executive Officer from 1983 to January 1, 1995.

Mr. Oesterreicher was elected Vice Chairman of the Board and Chief Executive
Officer effective January 1, 1995. He served as President of JCPenney Stores
and Catalog from 1992 to January 1995. He was elected an Executive Vice
President in 1988 and served as Director of JCPenney Stores from 1988 to 1992.

Mr. Tygart was elected President and Chief Operating Officer, and a Director
of the Company, effective January 1, 1995. He was elected a Senior Executive
Vice President and was named Director of Merchandising, Quality Assurance and
Distribution in 1992. In 1993, he was appointed Director of Merchandising and
Support Operations, and served in that capacity until January 1995. He served
as an Executive Vice President and Director of Merchandising from 1987 to 1992.

Mr. Cody was elected President of JCPenney Stores effective January 1, 1995.
He was elected an Executive Vice President in 1992 and served as Director of
JCPenney Stores from 1992 to January 1995. He served as a Senior Vice President
and Director of Real Estate, Construction Services and Specialty Retailing from
1991 to 1992. From 1987 to 1990, he served as President of the Northwestern
Region.

Ms. Duff-Bloom was elected Senior Executive Vice President and was appointed
Director of Personnel and Company Communications effective January 1, 1995.
She was elected an Executive Vice President in 1993 and served as Director of
Administration from 1993 to January 1995. She served as Senior Vice President
and Associate Director of Merchandising from 1990 to 1993.

Mr. Evans was elected a Senior Vice President and was appointed Director of
Planning and Information Systems effective January 1, 1995. He was elected a
Vice President in 1987 and served as Director of Information Systems from 1987
to January 1995.

Mr. Hutchens was elected President of Merchandising Worldwide effective
January 1, 1995. He was elected an Executive Vice President in 1992 and served
as Director of Merchandising from 1992 to January 1995. He served as President
of the Men's Division from 1987 to 1992.

Mr. Lotter was elected an Executive Vice President in 1993. He was elected
Senior Vice President, General Counsel and Secretary in 1987.

-5-
<PAGE>

Mr. McCarthy was elected President of Catalog and Distribution effective
January 1, 1995. He was elected President, Catalog Division in 1992, and served
in that capacity until January 1995. He was elected President, Northwestern
Region in 1991 and served in that capacity until 1992. In 1988, he was elected
a Divisional Vice President, and in 1990 served as Director of Women's
Merchandising.

Mr. Northam was elected an Executive Vice President in 1990. He was elected a
Senior Vice President in 1981 and has served as the Chief Financial Officer
since 1982.

Mr. Prindiville was elected an Executive Vice President and was appointed
Director of Support Services in 1988.

Mr. Spurlock was elected a Senior Vice President and was named Director of
Financial Services and Company Communications in 1992. He was appointed
Director of Financial Services and Government Relations effective January 1,
1995. He served as Director of Credit and Financial Services from 1989 to 1992.

- -------------

11. Executive Compensation.*
----------------------

12. Security Ownership of Certain Beneficial
Owners and Management.*
---------------------

13. Certain Relationships and Related Transactions.*
----------------------------------------------

- -------------

* Pursuant to General Instruction G to Form 10-K, the information called for
by Items 10, with respect to directors of the Company (to the extent not set
forth herein), 11, 12, and 13 is incorporated by reference to the Company's 1995
Proxy Statement, which involves the election of directors, the final copy of
which the Company filed with the Securities and Exchange Commission, pursuant to
Regulation 14A, on April 4, 1995.

-6-
<PAGE>

PART IV
-------

14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
-------------------

(a)(1) All Financial Statements. See Item 8 of this Annual Report on Form
10-K for financial statements incorporated by reference to the Company's 1994
Annual Report to Stockholders.

(a)(2) Financial Statement Schedules. The following schedule is attached on
Page F-1.

II. Valuation and Qualifying Accounts and Reserves

See Independent Auditors' Report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing on page 10 of this Annual Report on Form
10-K.

All other schedules have been omitted as they are inapplicable or not required
under the rules, or the information has been submitted in the consolidated
financial statements and related material to the Company's 1994 Annual Report to
Stockholders incorporated herein by reference and filed hereto as Exhibit 13.

Separate financial statements are filed for J. C. Penney Funding Corporation,
a wholly-owned consolidated subsidiary, in its separate Annual Report on Form
10-K for the 52 weeks ended January 28, 1995, which financial statements,
together with the Independent Auditors' Report of KPMG Peat Marwick LLP thereon,
are incorporated herein by reference and filed hereto as Exhibit 99(b).

(a)(3) Exhibits. See separate Exhibit Index on pages G-1 through G-7.

(b) No Current Reports on Form 8-K were filed by the Company during the
last quarter of the period covered by this Annual Report on Form 10-K.

(c) Each management contract or compensatory plan or arrangement required
to be filed as an exhibit to this form is filed as part of the separate Exhibit
Index on pages G-1 through G-7 and specifically identified as such beginning on
page G-4.

-7-
<PAGE>

SIGNATURES
----------

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

J. C. PENNEY COMPANY, INC.
--------------------------
(Registrant)

By /s/ C. R. Lotter
-----------------------------------
C. R. Lotter
Executive Vice President,
Secretary and General Counsel

Dated: April 17, 1995

-8-
<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signatures Title Date
- ---------------------- ------------------------------- --------------
<S> <C> <C>

W. R. Howell* Chairman of the Board; Director April 17, 1995
- ----------------------
W. R. Howell

J. E. Oesterreicher* Vice Chairman of the Board April 17, 1995
- ---------------------- and Chief Executive Officer
J. E. Oesterreicher (principal executive officer);
Director

W. B. Tygart* President and Chief Operating April 17, 1995
- ---------------------- Officer; Director
W. B. Tygart

R. E. Northam* Executive Vice President and April 17, 1995
- ---------------------- Chief Financial Officer
R. E. Northam (principal financial officer)

D. A. McKay* Vice President and Controller April 17, 1995
- ---------------------- (principal accounting officer)
D. A. McKay

M. A. Burns* Director April 17, 1995
- ----------------------
M. A. Burns

C. H. Chandler* Director April 17, 1995
- ----------------------
C. H. Chandler

V. E. Jordan, Jr.* Director April 17, 1995
- ----------------------
V. E. Jordan, Jr.

George Nigh* Director April 17, 1995
- ----------------------
George Nigh

J. C. Pfeiffer* Director April 17, 1995
- ----------------------
J. C. Pfeiffer

C. S. Sanford, Jr.* Director April 17, 1995
- ----------------------
C. S. Sanford, Jr.

J. D. Williams* Director April 17, 1995
- ----------------------
J. D. Williams
</TABLE>

*By /s/ C. R. Lotter
----------------------------
C. R. Lotter
Attorney-in-fact

-9-
<PAGE>

INDEPENDENT AUDITORS' REPORT
----------------------------

To the Stockholders and Board of Directors of
J. C. Penney Company, Inc.:

Under date of February 23, 1995, we reported on the consolidated balance sheets
of J. C. Penney Company, Inc. and subsidiaries as of January 28, 1995, January
29, 1994, and January 30, 1993, and the related consolidated statements of
income, reinvested earnings, and cash flows for the years then ended, as
contained in the 1994 Annual Report to Stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
Company's Annual Report on Form 10-K for the 1994 fiscal year. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule listed in Item
14(a)(2) of the Annual Report on Form 10-K. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

/s/ KPMG Peat Marwick LLP

KPMG PEAT MARWICK LLP

Dallas, Texas
February 23, 1995

-10-
<PAGE>

SCHEDULE II

J. C. PENNEY COMPANY, INC.
AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in millions)

- --------------------------------------------------------------------------------
52 Weeks 52 Weeks 53 Weeks
Ended Ended Ended
January 28, January 29, January 30,
Description 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>

Reserve deducted from assets
- ----------------------------

Allowance for doubtful accounts
Balance at beginning of period.. $ 59 $ 69 $ 79
Additions charged to costs and
expenses...................... 177 95 122
Deductions - write-offs, less
recoveries.................... (162) (105) (132)
----- ----- -----

Balance at end of period........ $ 74 $ 59 $ 69
===== ===== =====

Allowance for loan losses -
JCPenney National Bank
Balance at beginning of period.. $ 35 $ 32 $ 33
Additions charged to costs
and expenses.................. 44 38 40
Deductions - write-offs, less
recoveries.................... (38) (35) (41)
----- ----- -----

Balance at end of period........ $ 41 $ 35 $ 32
===== ===== =====

</TABLE>

F-1
<PAGE>

EXHIBIT INDEX
-------------

Exhibit
-------

3. (i) Articles of Incorporation
-------------------------

(a) Restated Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit (c)(1) to Company's Current
Report on Form 8-K, Date of Report -May 26, 1994*).

(b) Certificate of Change of Location of Registered Office, effective
July 27, 1984 (incorporated by reference to Exhibit (c)(2) to
Company's Current Report on Form 8-K, Date of Report - May 26,
1994*).

(c) Certificate of Amendment of Restated Certificate of Incorporation of
Company (incorporated by reference to Exhibit (c)(3) to Company's
Current Report on Form 8-K, Date of Report - May 26, 1994*).

(d) Certificate of Amendment of Restated Certificate of Incorporation of
Company (incorporated by reference to Exhibit (c)(4) to Company's
Current Report on Form 8-K, Date of Report - May 26, 1994*).

(e) Certificate of Designations of Series B ESOP Convertible Preferred
Stock of Company (incorporated by reference to Exhibit (c)(5) to
Company's Current Report on Form 8-K, Date of Report - May 26,
1994*).

(f) Amended Certificate of Designations of Series A Junior Participating
Preferred Stock of Company (incorporated by reference to Exhibit
(c)(6) to Company's Current Report on Form 8-K, Date of Report - May
26, 1994*).

(g) Certificate of Amendment of Restated Certificate of Incorporation of
Company (incorporated by reference to Exhibit (c)(7) to Company's
Current Report on Form 8-K, Date of Report - May 26, 1994*).

G-1
<PAGE>

(ii) (a) Bylaws Bylaws of Company, as amended to January 11, 1995.
------

4. Instruments defining the rights of security holders, including indentures
-------------------------------------------------------------------------

(a) Indenture, dated as of October 1, 1982, between the Company and Bank
of America National Trust and Savings Association, Trustee
(incorporated by reference to Exhibit 4(a) to Company's Annual
Report on Form 10-K for the 52 week period ended January 29, 1994*).

(b) First Supplemental Indenture, dated as of March 15, 1983, between
the Company and Bank of America National Trust and Savings
Association, Trustee (incorporated by reference to Exhibit 4(b) to
Company's Annual Report on Form 10-K for the 52 week period ended
January 29, 1994*).

(c) Second Supplemental Indenture, dated as of May 1, 1984, between the
Company and Bank of America National Trust and Savings Association,
Trustee (incorporated by reference to Exhibit 4(c) to Company's
Annual Report on Form 10-K for the 52 week period ended January 29,
1994*).

(d) Third Supplemental Indenture, dated as of March 7, 1986, between the
Company and Bank of America National Trust and Savings Association,
Trustee (incorporated by reference to Exhibit 4(d) to Company's
Registration Statement on Form S-3, SEC File No.33-3882).

(e) Fourth Supplemental Indenture, dated as of June 7, 1991, between the
Company and Bank of America National Trust and Savings Association,
Trustee (incorporated by reference to Exhibit 4(e) to Registrant's
Registration Statement on Form S-3, SEC File No. 33-41186).

(f) Indenture, dated as of April 1, 1994, between the Company and Bank
of America National Trust and Savings Association, Trustee
(incorporated by reference to Exhibit 4(a) to Company's Registration
Statement on Form S-3, SEC File No. 33-53275).

G-2
<PAGE>

(g) Rights Agreement dated as of February 14, 1990 between Company and
First Chicago Trust Company of New York, as Rights Agent
(incorporated by reference to Exhibit 1 to Company's Current Report
on Form 8-K, Date of Report - February 6, 1990*).

(h) Amendment to Rights Agreement, dated as of February 14, 1990,
between Company and First Chicago Trust Company of New York, as
Rights Agent, effective as of January 13, 1992, among Company, First
Chicago Trust Company of New York, and Manufacturers Hanover Trust
Company of New York (now Chemical Bank), as successor Rights Agent
(incorporated by reference to Exhibit 4(b) to Company's Annual
Report on Form 10-K for the 52 week period ended January 25, 1992*).

(i) Letter to Company stockholders dated May 1, 1993 explaining
adjustments to Rights and to underlying Series A Junior
Participating Preferred Stock, including exercise price of such
Rights, and the voting rights and participating dividend on such
Preferred Stock as a result of the two-for-one stock split payable
May 1, 1993 to stockholders of record on April 12, 1993
(incorporated by reference to Exhibit 4(c) to Company's Annual
Report on Form 10-K for the 53 week period ended January 30, 1993*).

(j) Explanation of adjustments to Rights and to underlying Series A
Junior Participating Preferred Stock and changes to shares of Series
B Convertible Preferred Stock held by Trustee of Company's Savings,
Profit-Sharing and Stock Ownership Plan on behalf of Plan
participants as a result of the two-for-one stock split payable May
1, 1993 to stockholders of record on April 12, 1993 (incorporated by
reference to Item 5 of Company's Current Report on Form 8-K dated
March 10, 1993*).

Other instruments evidencing long-term debt have not been filed as exhibits
hereto because none of the debt authorized under any such instrument exceeds
10 percent of the total assets of the Registrant and its consolidated
subsidiaries. The Registrant agrees to furnish a copy of any of its long-term
debt instruments to the Securities and Exchange Commission upon request.

G-3
<PAGE>

10. Material contracts
------------------

(i) Other than Compensatory Plans or
--------------------------------
Arrangements
------------

(a) Amended and Restated Receivables Agreement dated as of January 29,
1980 between Company and J. C. Penney Funding Corporation
(incorporated by reference to Exhibit 10(i)(a) to Company's Annual
Report on Form 10-K for the 52 week period ended January 29, 1994*).

(b) Amendment No. 1 to Amended and Restated Receivables Agreement dated
as of January 25, 1983 between Company and J. C. Penney Funding
Corporation (incorporated by reference to Exhibit 10(i)(b) to
Company's Annual Report on Form 10-K for the 52 week period ended
January 29, 1994*).

(c) Loan Agreement dated as of January 28, 1986 between Company and J.
C. Penney Funding Corporation (incorporated by reference to Exhibit
4 to Company's Current Report on Form 8-K, Date of Report - January
28, 1986*).

(d) Amendment No. 1 to Loan Agreement dated as of January 28, 1986
between Company and J. C. Penney Funding Corporation (incorporated
by reference to Exhibit 1 to Company's Current Report on Form 8-K,
Date of Report - December 31, 1986*).

(ii) Compensatory Plans or Arrangements required to be filed as Exhibits to
----------------------------------------------------------------------
this Report pursuant to Item 14 (c) of this Report.
---------------------------------------------------

(a) J. C. Penney Company, Inc. 1989 Management Incentive Compensation
Program as amended through March 27, 1990 (incorporated by reference
to Exhibit 10(e) to Company's Annual Report on Form 10-K for the 52
week period ended January 27, 1990*).

(b) Supplemental Retirement Program for Management Profit-Sharing
Associates of J. C. Penney Company, Inc., as amended through March
15, 1993 (incorporated by reference to Exhibit 10(ii)(b) to
Company's Annual Report on Form 10-K for the 53 week period ended
January 30, 1993*).

G-4
<PAGE>

(c) J. C. Penney Company, Inc. 1980 Stock Option and Performance Unit
Plan, as amended through January 31, 1989 (incorporated by reference
to Exhibit 10(i) to Company's Annual Report on Form 10-K for the 52
week period ended January 28, 1989*).

(d) J. C. Penney Company, Inc. Retirement Plan for Non-Associate
Directors, as amended through July 8, 1992 (incorporated by
reference to Company's Quarterly Report on Form 10-Q for the 13 and
26 week periods ended July 25, 1992*).

(e) J. C. Penney Company, Inc. Directors' Equity Program Tandem
Restricted Stock Award/Stock Option Plan (incorporated by reference
to Exhibit 10(k) to Company's Annual Report on Form 10-K for the 52
week period ended January 28, 1989*).

(f) J. C. Penney Company, Inc. 1984 Equity Compensation Plan, as amended
through January 31, 1989 (incorporated by reference to Exhibit 10(l)
to Company's Annual Report on Form 10-K for the 52 week period ended
January 28, 1989*).

(g) J. C. Penney Company, Inc. 1989 Equity Compensation Plan
(incorporated by reference to Exhibit A to Company's definitive
Proxy Statement for its Annual Meeting of Stockholders held on May
19, 1989).

(h) J. C. Penney Company, Inc. 1993 Equity Compensation Plan
(incorporated by reference to Exhibit A to Company's definitive
Proxy Statement for its Annual Meeting of Stockholders held on May
21, 1993).

(i) J. C. Penney Company, Inc. 1993 Non-Associate Directors' Equity Plan
(incorporated by reference to Exhibit B to Company's definitive
Proxy Statement for its Annual Meeting of Stockholders held on May
21, 1993).

G-5
<PAGE>

(j) February 1995 Amendment to J. C. Penney Company, Inc. 1984 Equity
Compensation Plan, as amended.

(k) February 1995 Amendment to J. C. Penney Company, Inc. 1989 Equity
Compensation Plan.

(l) February 1995 Amendment to J. C. Penney Company, Inc. 1993 Equity
Compensation Plan.

(m) February 1995 Amendment to J. C. Penney Company, Inc. 1993 Non-
Associate Directors' Equity Plan.

(n) J. C. Penney Company, Inc. 1984 Performance Unit Plan (incorporated
by reference to Exhibit B to Company's definitive Proxy Statement
for its Annual Meeting of Stockholders held on May 22, 1984).

(o) J. C. Penney Company, Inc. Deferred Compensation Plan as amended
through July 14, 1993 (incorporated by reference to Exhibit 10(a) to
Company's Report on Form 10-Q for the 13 and 26 week periods ended
July 31, 1993*).

(p) J. C. Penney Company, Inc. Deferred Compensation Plan for Directors,
as amended through July 8, 1992 (incorporated by reference to
Exhibit 10(c) to Company's Quarterly Report on Form 10-Q for the 13
and 26 week periods ended July 25, 1992*).

(q) J. C. Penney Company, Inc. 1995 Deferred Compensation Plan
(incorporated by reference to Exhibit 10 to Company's Registration
Statement on Form S-8, SEC File No. 33-56993).

(r) Directors' Charitable Award Program (incorporated by reference to
Exhibit 10(r) to Company's Annual Report on Form 10-K for the 52
week period ended January 27, 1990*).

(s) Form of Indemnification Trust Agreement between Company and Chemical
Bank dated as of July 30, 1986, as amended (incorporated by
reference to Exhibit 1 to Exhibit B to Company's definitive Proxy
Statement for its Annual Meeting of Stockholders held on May 29,
1987).

G-6
<PAGE>

(t) Form of Indemnification Agreement between Company and individual
Indemnitees (incorporated by reference to Exhibit B to Company's
definitive Proxy Statement for its Annual Meeting of Stockholders
held on May 29, 1987).

* SEC file number 1-777

11. Statement re: Computation of per share earnings
-----------------------------------------------

Computation of Net Income Per Common Share.

12. Statement re: Computation of ratios
-----------------------------------

(a) Computation of Ratios of Available Income to Combined Fixed Charges
and Preferred Stock Dividend Requirement.
(b) Computation of Ratios of Available Income to Fixed Charges.

13. Annual report to security holders
---------------------------------

Excerpt from Company's 1994 Annual Report to Stockholders.

21. Subsidiaries of the registrant
------------------------------

List of certain subsidiaries of the Company at January 28, 1995.

23. Consent of Independent Certified Public Accountants
---------------------------------------------------

24. Power of Attorney
-----------------

27. Financial Data Schedule
-----------------------

Financial Data Schedule for the 52 week period ended January 28, 1995.

99. Additional Exhibits
-------------------

(a) Item 1 of J. C. Penney Funding Corporation Annual Report on Form
10-K for the 52 weeks ended January 28, 1995 (incorporated by
reference to J. C. Penney Funding Corporation Annual Report on
Form 10-K for the 52 weeks ended January 28, 1995 filed
concurrently herewith, SEC File No. 1-4947-1).

(b) Excerpt from J. C. Penney Funding Corporation Annual Report.

G-7

<PAGE>

EXHIBIT 3(ii)(a)
================================================================================

J. C. PENNEY COMPANY, INC.

(A Delaware Corporation)

-------------------------------

BYLAWS

As amended to January 11, 1995

-------------------------------

================================================================================
<PAGE>

TABLE OF CONTENTS
-----------------

Article Title Pages
------- ------------------------------- -----
<S> <C> <C>

I Offices 1

II Meetings of Stockholders 2-11

III Board of Directors 11-19

IV Committees 19-23

V Officers 23-28

VI Contracts, Loans, Checks,
Drafts, Bank Accounts, Etc. 29-30

VII Books and Records 31-32

VIII Shares of Stock and Their
Transfer 32-33

IX Dividends and Reserves 33

X Indemnification of Directors,
Officers, Employees, and Agents 34-35

XI Ratification 35-36

XII Seal 36

XIII Fiscal Year 36

XIV Waiver of Notice 36-37

XV Emergency Bylaws 37-40

XVI Amendments 40
</TABLE>
<PAGE>

J. C. PENNEY COMPANY, INC.

(A Delaware Corporation)

BYLAWS

--------------------------

ARTICLE I

OFFICES

SECTION 1. Registered Office. The registered office of J. C. Penney
-----------------
Company, Inc. (hereinafter called the Company) in the State of Delaware shall be
at 1209 Orange Street, City of Wilmington, County of New Castle. The name of
the registered agent in charge thereof is The Corporation Trust Company.

SECTION 2. Other Offices. The Company may also have an office or
-------------
offices at such other place or places either within or without the State of
Delaware as from time to time the Board of Directors may determine or the
business of the Company may require.
<PAGE>

ARTICLE II

MEETINGS OF STOCKHOLDERS

SECTION 1. Annual Meetings. The annual meeting of stockholders for the
---------------
election of directors and for the transaction of such other business as may come
before the meeting shall be held at such place and time as shall be fixed by the
Board of Directors and specified in the notice of the meeting, on the third
Tuesday in May in each year, or on such other day as shall be fixed by the Board
of Directors and specified in the notice of the meeting. If the election of
directors shall not be held on the day designated herein or the day fixed by the
Board, as the case may be, for any annual meeting, or on the day of any
adjourned session thereof, the Board of Directors shall cause the election to be
held at a special meeting as soon thereafter as convenient. At such special
meeting, the stockholders may elect the directors and transact other business
with the same force and effect as at an annual meeting duly called and held.

SECTION 2. Special Meetings. Any action required or permitted to be
----------------
taken by the holders of the Common Stock of the Company must be effected at a
duly called annual or special meeting of such holders and may not be effected by
any consent in writing by such holders. A special meeting of stockholders for

any purpose or purposes, unless otherwise prescribed by the laws of the State of
Delaware or by the certificate of incorporation, may be called at
<PAGE>

any time only by the Board of Directors pursuant to a resolution approved by a
majority of the Board of Directors. Special meetings of stockholders may be
held at such place, on such date, and at such time as shall be designated by
resolution of the Board of Directors.

SECTION 3. Notice of Meetings. Except as otherwise required by the laws
------------------
of the State of Delaware or the certificate of incorporation, notice of each
annual or special meeting of stockholders shall be given not less than 10 nor
more than 60 days before the day on which the meeting is to be held to each
stockholder of record entitled to vote at the meeting by delivering a written
notice thereof to him or her personally, or by depositing a copy of the notice
in the United States mail, postage prepaid, directed to him or her at his or her
address as it appears on the records of the Company, or by transmitting the
notice thereof to him or her at such address by telegram, cable, radiogram,
telephone facsimile, or other appropriate written communication. Except when
expressly required by the laws of the State of Delaware, no publication of any
notice of a meeting of stockholders shall be required. Every such notice shall
state the place, date, and time of the meeting, and in the case of a special
meeting, the purpose or purposes thereof. Notice of any adjourned session of a
meeting of stockholders shall not be required to be given if the place, date,
and time thereof are announced at the meeting at which the
<PAGE>

adjournment is taken. If, however, the adjournment is for more than 30 days, or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.

SECTION 4. List of Stockholders. It shall be the duty of the officer
--------------------
who shall have charge of the stock ledger of the Company to prepare and make, at
least 10 days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the meeting, either at
a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected, for any purpose germane to the meeting, by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine such list or to vote in person or by proxy at
the meeting.
<PAGE>

SECTION 5. Quorum. At each meeting of stockholders, the holders of a
------
majority of the issued and outstanding shares of stock of the Company entitled
to vote at the meeting, present in person or represented by proxy, shall
constitute a quorum for the transaction of business. In the absence of a quorum
at any meeting, or any adjourned session thereof, the stockholders of the
Company present in person or represented by proxy and entitled to vote, by
majority vote, or in the absence of all the stockholders, any officer entitled
to preside or act as secretary at the meeting, may adjourn the meeting from time
to time until a quorum shall be present. At any such adjourned meeting at which
a quorum shall be present, any business may be transacted which might have been
transacted at the meeting as originally called.

SECTION 6. Organization and Conduct of Meeting. At each meeting of
-----------------------------------
stockholders, the Chairman of the Board or in his or her absence a Vice Chairman
of the Board or in his or her absence a chairman chosen by the vote of a
majority in interest of the stockholders present in person or represented by
proxy and entitled to vote thereat, shall act as chairman. The Secretary or in
his or her absence an Assistant Secretary or in the absence of the Secretary and
all Assistant Secretaries a person whom the chairman of the meeting shall
appoint shall act as secretary of the meeting and keep a record of the
proceedings thereof. The date and time of the opening and the closing of the
polls for each matter upon which the
<PAGE>

stockholders will vote at a meeting shall be announced at the meeting by the
person presiding over the meeting. The Board of Directors may adopt by
resolution such rules and regulations for the conduct of the meeting of
stockholders as it shall deem necessary, appropriate, or convenient. Except to
the extent inconsistent with such rules and regulations as adopted by the Board
of Directors, the chairman of any meeting of stockholders shall have the right
and authority to prescribe such rules, regulations, and procedures and to do all
such acts as, in the judgment of such chairman, are necessary, appropriate, or
convenient for the proper conduct of the meeting. Such rules, regulations, or
procedures, whether adopted by the Board of Directors or prescribed by the
chairman of the meeting, may include, without limitation, the following: (i) the
establishment of an agenda or order of business for the meeting, (ii) rules and
procedures for maintaining order at the meeting and the safety of those present,
(iii) limitations on attendance at or participation in the meeting to
stockholders of record of the Company, their duly authorized and constituted
proxies, or such other persons as the chairman of the meeting shall determine,
(iv) restrictions on entry to the meeting after the time fixed for the
commencement thereof, and (v) limitations on the time allotted to questions or
comments by participants. Unless, and to the extent determined by the Board of
Directors or the chairman of the meeting, meetings of
<PAGE>

stockholders shall not be required to be held in accordance with the rules of
parliamentary procedure.

SECTION 7. Notification of Stockholder Business. At a meeting of the
------------------------------------
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before a meeting, business
must be (i) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (ii) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(iii) in the case of an annual meeting of stockholders, otherwise properly
requested to be brought before the meeting by a stockholder of record entitled
to vote at the meeting and otherwise a proper subject to be brought before such
meeting. For business to be properly requested to be brought before an annual
meeting of stockholders, any stockholder who desires to bring any matter (other
than the election of directors, which is provided for in Section 15 of Article
III of these Bylaws) before such meeting and who is entitled to vote on such
matter must give timely written notice of such stockholder's desire to bring
such matter before the meeting, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Company not later than 90 days in
advance of such meeting. A stockholder's notice to the Secretary in this regard
shall set forth: (1) the name and address of the stockholder proposing such
business, (2) a
<PAGE>

representation that such stockholder is a record owner of stock of the Company
entitled to vote at the meeting and intends to appear in person at the meeting
to present the described business, (3) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting, and (4) any material interest of the stockholder in
such business. Notwithstanding anything in these Bylaws to the contrary, no
business may be conducted at a meeting except in accordance with the procedures
set forth in this Article II of these Bylaws. The chairman of a meeting may, if
the facts warrant, or if not in accordance with applicable law, determine and
declare to the meeting that business proposed to be brought before a meeting was
not a proper subject therefor or was not properly brought before the meeting in
accordance with the provisions of this Section 7, and if he should so determine,
he may so declare to the meeting, and any such business not a proper subject
matter or not properly brought before the meeting shall not be transacted.

SECTION 8. Voting; Proxies; Ballots. Except as otherwise provided in the
------------------------
laws of the State of Delaware or the certificate of incorporation, at every
meeting of stockholders, each stockholder of the Company shall be entitled to
one vote at the meeting in person or by proxy for each share of stock having
voting rights registered in his or her name on the books of the Company on the
date fixed pursuant to Section 3 of Article VII of these Bylaws as
<PAGE>

the record date for the determination of stockholders entitled to vote at the
meeting. Shares of its own stock belonging to the Company shall not be voted
directly or indirectly (except for shares of stock held by the Company in a
fiduciary capacity). The vote of any stockholder entitled thereto may be cast
in person or by his or her proxy appointed by an instrument in writing, or by a
telegram, cablegram, or other means of electronic transmission, to the full
extent permitted by the laws of the State of Delaware; provided, however, that
no proxy shall be voted after three years from its date, unless the proxy
provides for a longer period. At all meetings of stockholders, each question
(except where other provision is made in the laws of the State of Delaware, in
the certificate of incorporation, or in these Bylaws) shall be decided by the
vote of the holders of shares of stock having a majority of the votes which
could be cast by the holders of all shares of stock outstanding and entitled to
vote thereon. All elections of directors and all votes on matters set forth in
the notice of meeting shall be by written ballot stating the number of shares
voted, but except as otherwise provided in the laws of the State of Delaware,
the vote on any other matter need not be by ballot unless directed by the
chairman of the meeting. On a vote by ballot, each ballot shall be signed by
the stockholder voting, or by his or her proxy, if there be such proxy, and
shall state the number of shares voted.
<PAGE>

SECTION 9. Inspectors of Election. The Company shall, in advance of any
----------------------
meeting of stockholders, appoint one or more inspectors of election, who may be
employees of the Company, to act at the meeting or any adjournment thereof and
to make a written report thereof. The Company may designate one or more persons
as alternate inspectors to replace any inspector who fails to act. In the event
that no inspector so appointed or designated is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath to execute
faithfully the duties of inspector with strict impartiality and according to the
best of his or her ability.

The inspector or inspectors so appointed or designated shall (i) ascertain the
number of shares of stock of the Company outstanding and the voting power of
each such share, (ii) determine the shares of stock of the Company represented
at the meeting and the validity of proxies and ballots, (iii) count all votes
and ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares of stock of the Company
represented at the meeting and such inspectors' count of all votes and ballots.
Such certification and report shall specify such other information as may be
required by
<PAGE>

law. In determining the validity and counting of proxies and ballots cast at
any meeting of stockholders of the Company, the inspectors may consider such
information as is permitted by applicable law. No person who is a candidate for
an office at an election may serve as an inspector at such election.

ARTICLE III

BOARD OF DIRECTORS

SECTION 1. General Powers. The business, property, and affairs of the
--------------
Company shall be managed by or under the direction of the Board of Directors.
In addition to the powers and authorities expressly conferred upon the Board of
Directors by the certificate of incorporation and these Bylaws, the Board of
Directors may exercise all such powers of the Company and do all such lawful
acts and things as are not by the laws of the State of Delaware, the certificate
of incorporation, or these Bylaws directed or required to be exercised or done
by the stockholders.

SECTION 2. Eligibility and Retirement. No person may serve as a
--------------------------
director unless he or she is a stockholder of the Company. Notwithstanding the
expiration of a director's term as set forth in Section 3 of this Article III,
no person may continue to serve as a director after the Company's annual meeting
of its stockholders in the calendar year in which, at any time during such year,
such person has attained age 72.
<PAGE>

SECTION 3. Number and Classification of Directors. Except as otherwise
--------------------------------------
provided for or fixed by or pursuant to the provisions of Article Fourth of the
certificate of incorporation relating to the rights of the holders of any class
or series of stock having a preference over the Common Stock as to dividends or
upon liquidation to elect additional directors under specified circumstances,
the number of directors of the Company which shall constitute the whole Board of
Directors shall be such number, not less than three, as from time to time shall
be fixed by the Board of Directors. The directors, other than those who may be
elected pursuant to the aforesaid provisions of said Article Fourth, shall be
classified by the Board of Directors, with respect to the duration of the term
for which they severally hold office, into three classes as nearly equal in
number as possible. Such classes shall originally consist of a first class of
four directors who shall be elected at the annual meeting of stockholders held
in 1985 for a term expiring at the annual meeting of stockholders to be held in
1986, and election and qualification of their respective successors; a second
class of five directors who shall be elected at the annual meeting of
stockholders held in 1985 for a term expiring at the annual meeting of
stockholders to be held in 1987, and election and qualification of their
respective successors; and a third class of five directors who shall be elected
at the annual meeting of stockholders held in 1985 for a term expiring at the
<PAGE>

annual meeting of stockholders to be held in 1988, and election and
qualification of their respective successors. At each annual meeting of
stockholders beginning in 1986, the successors of the class of directors whose
term expires at that meeting shall be elected for a term expiring at the annual
meeting of stockholders held in the third year following the year of election of
such directors and election and qualification of their respective successors.
The Board of Directors shall increase or decrease the number of directors in one
or more classes as may be appropriate whenever it increases or decreases the
number of directors pursuant to this Section 3, in order to ensure that the
three classes shall be as nearly equal in number as possible. Each director of
the Company shall hold office as provided above and until his or her successor
shall have been duly elected and qualified.

SECTION 4. Quorum and Manner of Acting. A majority of the directors at
---------------------------
the time in office shall constitute a quorum for the transaction of business at
any meeting, which in no case shall be less than one third of the total number
of directors. Except as otherwise provided in the laws of the State of
Delaware, the certificate of incorporation, or these Bylaws, the affirmative
vote of a majority of the directors present at any meeting at which a quorum is
present shall be required for the taking of any action by the Board of
Directors. In the absence of a quorum at any meeting of the Board, the meeting
need not be held, or a majority of the
<PAGE>

directors present thereat or if no director be present, the Secretary, may
adjourn the meeting from time to time until a quorum shall be present. Notice
of any adjourned meeting need not be given. At any adjourned meeting at which a
quorum shall be present, any business may be transacted which might have been
transacted at the meeting as originally called. Members of the Board of
Directors may participate in a meeting of the Board by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in the
meeting by such means shall constitute presence in person at the meeting.

SECTION 5. Offices; Places of Meetings. The Board of Directors may hold
---------------------------
meetings and have an office or offices at such place or places within or without
the State of Delaware as the Board may from time to time determine, and in the
case of meetings, as shall be specified or fixed in the respective notices or
waivers of notice thereof, except where other provision is made in the laws of
the State of Delaware, the certificate of incorporation, or these Bylaws.

SECTION 6. Annual Meeting. The Board of Directors shall meet for the
--------------
purpose of organization, the election of officers, and the transaction of other
business, at the time of each annual election of directors. Such meeting may be
held prior to the stockholders' meeting, if deemed necessary and appropriate,
and if so held, would
<PAGE>

be held subject to the election of directors at the upcoming stockholders'
meeting; provided, however, that no individual not then a director may act as a
director prior to his or her election at the upcoming stockholders' meeting.
Such meeting shall be called and held at the place and time specified in the
notice or waiver and held at the place and time specified in the notice or
waiver of notice thereof as in the case of a special meeting of the Board of
Directors.

SECTION 7. Regular Meetings. Regular meetings of the Board of Directors
----------------
shall be held as the Board of Directors shall determine, at such times and
places as shall from time to time be determined by the Board, except that in
May, the regular meeting shall be held immediately following the adjournment of
the annual meeting of the Board. Notice of regular meetings need not be given.

SECTION 8. Special Meetings; Notice. Special meetings of the Board of
------------------------
Directors shall be held whenever called by the Chairman of the Board or a Vice
Chairman of the Board or by any two of the directors. Notice of each such
meeting shall be mailed to each director, addressed to such director at his or
her residence or usual place of business, at least two days before the day on
which the meeting is to be held, or shall be sent to such director at his or her
residence or such place of business by telegram, cable, radiogram, telephone
facsimile, or other appropriate written communication, or delivered personally
or by telephone, not later
<PAGE>

than the day before the day on which the meeting is to be held. Each such
notice shall state the time and place of the meeting but need not state the
purposes thereof except as otherwise herein expressly provided.

SECTION 9. Organization. At each meeting of the Board of Directors, the
------------
Chairman of the Board or in his or her absence, a Vice Chairman of the Board or
in his or her absence, a director chosen by a majority of the directors present,
shall act as chairman. The Secretary or in his or her absence, an Assistant
Secretary or in the absence of the Secretary and all Assistant Secretaries, a
person whom the chairman of the meeting shall appoint, shall act as secretary of
the meeting and keep a record of the proceedings thereof.

SECTION 10. Order of Business. At all meetings of the Board of
-----------------
Directors, business shall be transacted in the order determined by the Board.

SECTION 11. Resignation. Any director may resign at any time by giving
-----------
written notice of his or her resignation to the Board of Directors or to the
Chairman of the Board, a Vice Chairman of the Board, or the Secretary. Such
resignation shall take effect at the date of receipt of the notice or at any
later time specified therein; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
<PAGE>

SECTION 12. Removal of Directors. Any director may be removed, either
--------------------
with or without cause, at any time, by the affirmative vote of at least 80% of
the combined voting power of the then-outstanding shares of all classes and
series of stock of the Company entitled to vote generally in the election of
directors, voting together as a single class, at a special meeting of
stockholders duly called and held for the purpose or at an annual meeting of
stockholders.

SECTION 13. Vacancies. Any vacancy in the Board of Directors caused by
---------
death, resignation, removal, disqualification, increase in the number of
directors, or any other cause, shall be filled by a majority vote of the
remaining directors, even though less than a quorum, or by the stockholders at a
special meeting duly called and held for the purpose or at an annual meeting,
and each director so elected shall hold office for the remainder of the full
term of the class in which the new directorship was created or the vacancy
occurred.

SECTION 14. Remuneration. Directors and members of any committee may
------------
receive such fixed sum per meeting attended, or such annual sum or sums, and
such reimbursement for expenses of attendance at meetings, as may be determined
from time to time by resolution of the Board of Directors. Nothing herein
contained shall be construed to preclude any director from serving the
<PAGE>

Company in any other capacity and receiving proper compensation therefor.

SECTION 15. Notification of Nominations. Nominations for the election
---------------------------
of directors may be made by the Board of Directors or by any stockholder
entitled to vote for the election of directors. Any stockholder entitled to
vote for the election of directors at a meeting may nominate persons for
election as directors only if written notice of such stockholder's intent to
make such nomination is given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Company, not later than (i) with
respect to an election to be held at an annual meeting of stockholders, 90 days
in advance of such meeting, and (ii) with respect to an election to be held at a
special meeting of stockholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given to stockholders. Each such notice shall set forth: (a) the name
and address of the stockholder who intends to make the nomination and of the
person or persons to be nominated, (b) a representation that such stockholder is
a holder of record of stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice, (c) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or
<PAGE>

persons) pursuant to which the nomination or nominations are to be made by such
stockholder, (d) such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
each nominee been nominated, or intended to be nominated by the Board of
Directors, and (e) the consent of each nominee to serve as a director of the
Company if so elected. The chairman of the meeting may refuse to acknowledge
the nomination of any person not made in compliance with the foregoing
procedures.

SECTION 16. Action of the Board of Directors by Consent. Any action
-------------------------------------------
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or of such committee, as the case may be, consent thereto in writing and the
writing or writings are filed with the minutes of proceedings of the Board or
such committee.

ARTICLE IV

COMMITTEES

SECTION 1. Executive Committee. The Board of Directors may, by
-------------------
resolution passed by a majority of the whole Board, designate directors of the
Company, in such number as the Board shall see fit, but not less than two, as an
Executive Committee which shall have and may exercise, during intervals between
meetings of the
<PAGE>

Board, the powers and authority of the Board of Directors in the management of
the business and affairs of the Company, and may authorize the seal of the
Company to be affixed to all papers which may require it; but the Executive
Committee shall not have the power or authority in reference to filling
vacancies in its membership, amending the certificate of incorporation (except
that the Executive Committee (or any committee designated pursuant to Section 6
of this Article IV) may, to the full extent permitted by the laws of the State
of Delaware, make determinations with respect to the issuance of stock of the
Company), adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease, or exchange of all or substantially all the
Company's property and assets, recommending to the stockholders a dissolution of
the Company or a revocation of a dissolution, amending these Bylaws, or
declaring a dividend. The Executive Committee (or any committee designated
pursuant to Section 6 of this Article IV) shall have the power or authority to
authorize the issuance of stock of the Company. The Board of Directors shall
designate one of the members of the Executive Committee to be the Chairman of
the Committee. Each member of the Executive Committee shall continue to act as
such only so long as he or she shall be a director of the Company and only
during the pleasure of a majority of the whole Board of Directors.
<PAGE>

SECTION 2. Meetings. Regular meetings of the Executive Committee, of
--------
which no notice shall be necessary, shall be held on such days and at such
places, within or without the State of Delaware, as shall be fixed by resolution
adopted by a majority of, and communicated to all, the members of the Executive
Committee. Special meetings of the Committee may be called at the request of
any member. Notice of each special meeting of the Committee shall be mailed to
each member thereof, addressed to such member at his or her residence or usual
place of business, at least two days before the day on which the meeting is to
be held, or shall be sent to such member at his or her residence or such place
of business by telegram, cable, radiogram, telephone facsimile, or other
appropriate written communication, or delivered personally or by telephone, not
later than the day before the day on which the meeting is to be held. Each such
notice shall state the time and place of the meeting but need not state the
purposes thereof except as otherwise herein expressly provided. Subject to the
provisions of this Article IV, the Executive Committee, by resolution of a
majority of all its members, shall fix its own rules of procedure. The
Executive Committee shall keep a record of its proceedings and report them to
the Board of Directors at the next regular meeting thereof after such
proceedings shall have been taken.

SECTION 3. Quorum and Manner of Acting. Not less than a majority of the
---------------------------
members of the Executive Committee then in office
<PAGE>

shall constitute a quorum for the transaction of business, and the act of a
majority of those present at a meeting thereof at which a quorum is present
shall be the act of the Executive Committee. The directors comprising the
Committee shall act only as a committee, and such directors, individually, shall
have no power as such. Members of the Executive Committee, or any committee
designated by the Board of Directors, may participate in a meeting of such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in the meeting by such means shall constitute presence in
person at the meeting.

SECTION 4. Vacancies. The Board of Directors, by vote of a majority of
---------
the whole Board, shall have power to fill any vacancy in the Executive Committee
due to death, resignation, removal, disqualification, or any other cause.

SECTION 5. Resignation. Any director may resign from the Executive
-----------
Committee at any time by giving written notice of his or her resignation to the
Board of Directors or to the Chairman of the Board, the Chairman of the
Executive Committee, a Vice Chairman of the Board, or the Secretary. Such
resignation shall take effect at the date of receipt of the notice or at any
later time specified therein; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
<PAGE>

SECTION 6. Other Committees. The Board of Directors may, by resolution
----------------
or resolutions passed by a majority of the whole Board, designate one or more
other committees, each such committee to consist of one or more directors of the
Company, which shall have and may exercise such powers and authority (subject to
the limitations specified in Section 1 of this Article IV) as the Board of
Directors may determine and specify in such resolution or resolutions, such
committee or committees to have such name or names as may be determined from
time to time by the Board of Directors. A majority of all the members of any
such committee may fix its rules of procedure, determine its actions, and fix
the time and place (whether within or without the State of Delaware) of its
meetings and specify what notice thereof, if any, shall be given, unless the
Board of Directors shall otherwise by resolution provide. The Board of
Directors shall have the power, either with or without cause, at any time, to
change the members of any such committee, to fill vacancies, and to discharge
any such committee.

ARTICLE V

OFFICERS

SECTION 1. Principal Officers. The principal officers of the Company
------------------
shall be a Chairman of the Board and one or more Vice Chairmen of the Board,
each of whom shall be members of the Board of Directors, one or more Presidents
of divisions, regions, or
<PAGE>

other units, functions, or activities, one or more Vice Presidents (the number
thereof to be determined by the Board of Directors), a Treasurer, a Secretary,
and a Controller. In addition, there may be such subordinate officers, agents,
and employees as may be appointed in accordance with the provisions of Section 3
of this Article V. Any two or more offices may be held by the same person.

SECTION 2. Election and Term of Office. The officers of the Company,
---------------------------
except such officers as may be appointed in accordance with the provisions of
Section 3 of this Article V, shall be elected annually by the Board of
Directors. Each officer, except such officers as may be appointed in accordance
with the provisions of Section 3 of this Article V, shall hold office until his
or her successor shall have been duly elected and qualified, or until his or her
earlier death, resignation, removal, or disqualification.

SECTION 3. Subordinate Officers. In addition to the principal officers
--------------------
enumerated in Section 1 of this Article V, the Company may have such other
officers, agents, and employees as the Board of Directors may deem necessary,
including one or more Assistant Treasurers, one or more Assistant Secretaries,
and one or more Assistant Controllers, each of whom shall hold office for such
period, have such authority, and perform such duties as the Board of Directors,
the Chairman of the Board, or a Vice Chairman of the Board may from time to time
determine. The Board of Directors may
<PAGE>

delegate to any principal officer the power to appoint or remove any such
subordinate officers, agents, or employees.

SECTION 4. Removal. Any officer may be removed, either with or without
-------
cause, by the vote of a majority of the whole Board of Directors at a special
meeting called for the purpose or except in case of any officer elected by the
Board of Directors, by any officer upon whom the power of removal may be
conferred by the Board of Directors.

SECTION 5. Resignation. Any officer may resign at any time by giving
-----------
written notice of his or her resignation to the Board of Directors or to the
Chairman of the Board, a Vice Chairman of the Board, or the Secretary. Such
resignation shall take effect at the date of receipt of the notice or at any
later time specified therein; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.

SECTION 6. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification, or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in these Bylaws for
regular election or appointment to such office.

SECTION 7. Chairman of the Board. The Chairman of the Board may be the
---------------------
chief executive officer of the Company. The Chairman of the Board shall preside
at all meetings of the Board of Directors and of the stockholders at which he or
she is present. The
<PAGE>

Chairman of the Board shall have the general supervision of the affairs of the
Company, and perform all such duties as are incident to the office or as are
properly required of him or her by the Board of Directors. The Chairman of the
Board shall have authority to enter into any contract or execute and deliver any
instrument in the name and on behalf of the Company, when authorized by the
Board of Directors, except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors or these Bylaws to some
other officer, agent, or employee of the Company.

SECTION 8. Vice Chairmen of the Board. The Board of Directors may
--------------------------
establish the office of Vice Chairman of the Board. In the absence or
disability of the Chairman of the Board, a Vice Chairman of the Board shall
perform the duties and exercise the powers of the Chairman of the Board. A Vice
Chairman of the Board shall have authority to enter into any contract or execute
and deliver any instrument in the name and on behalf of the Company, when
authorized by the Board of Directors, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or
these Bylaws to some other officer, agent, or employee of the Company. In
addition, a Vice Chairman of the Board shall have such further powers and
perform such further duties as may, from time to time, be assigned to him or her
by the Board of
<PAGE>

Directors or the Chairman of the Board or as may be prescribed by these Bylaws.

SECTION 9. Presidents. The Board of Directors may establish the office
-----------
of President of a division, region, or other unit, function, or activity of the
Company. A President shall have such powers and perform such duties as may,
from time to time, be assigned to him or her by the Board of Directors, the
Chairman of the Board, or a Vice Chairman of the Board.

SECTION 10. Vice Presidents. The Board of Directors may establish
---------------
several classifications of Vice Presidents, such as Executive Vice Presidents,
Senior Vice Presidents, Regional Vice Presidents, and Divisional Vice
Presidents. Each Vice President shall have such powers and perform such duties
as shall, from time to time, be assigned to him or her by the Board of
Directors, the Chairman of the Board, or a Vice Chairman of the Board.

SECTION 11. The Treasurer. The Treasurer shall have charge and custody
-------------
of, and be responsible for, all funds and securities of the Company, and shall
deposit or cause to be deposited all such funds in the name of the Company in
such banks, trust companies, and other depositories as shall be selected in
accordance with the provisions of these Bylaws; shall render to the Board of
Directors, whenever the Board may require him or her so to do, a report of all
his or her transactions as Treasurer; and in general, shall perform all duties
as may, from time to time, be assigned to him or her by
<PAGE>

the Board of Directors, the Chairman of the Board, or a Vice Chairman of the
Board.

SECTION 12. The Secretary. The Secretary shall record or cause to be
-------------
recorded in books kept for the purpose the proceedings of the meetings of the
stockholders, the Board of Directors, and all committees, if any; shall see that
all notices are duly given in accordance with the provisions of these Bylaws and
as required by law; shall be custodian of the seal of the Company; and in
general, shall perform all duties incident to the office of Secretary and such
other duties as may, from time to time, be assigned to him or her by the Board
of Directors, the Chairman of the Board, or a Vice Chairman of the Board.

SECTION 13. The Controller. The Controller shall have charge of the
--------------
books and records of account of the Company; shall keep or cause to be kept, and
shall be responsible for the keeping of, correct and adequate records of the
assets, liabilities, business, and transactions of the Company; shall at all
reasonable times exhibit his or her books and records of account to any director
of the Company upon application at the office of the Company where such books
and records are kept; shall be responsible for the preparation and filing of all
reports and returns relating to or based upon the books and records of the
Company kept by him or her or under his or her direction; and in general, shall
perform all duties incident to the office of Controller and such other duties
<PAGE>

as may, from time to time, be assigned to him or her by the Board of Directors,
the Chairman of the Board, or a Vice Chairman of the Board.

ARTICLE VI

CONTRACTS, LOANS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.

SECTION 1. Execution of Contracts. The Board of Directors, except as
----------------------
otherwise provided in these Bylaws, may authorize any officer or officers or
other person or persons to enter into any contract or execute and deliver any
instrument in the name and on behalf of the Company, and such authority may be
general or confined to specific instances, and unless so authorized by the Board
of Directors or by the provisions of these Bylaws, no officer or other person
shall have any power or authority to bind the Company by any contract or
engagement or to pledge its credit or to render it liable pecuniarily for any
purpose or to any amount.

SECTION 2. Loans. No loan shall be contracted on behalf of the Company,
-----
and no negotiable papers shall be issued in its name, except by such officer or
officers or other person or persons as may be designated by the Board of
Directors from time to time. If and to the extent authorized by the Board of
Directors, the power to contract loans or issue negotiable papers may be
delegated by any such officer or officers or other person or persons.

SECTION 3. Checks, Drafts, etc. All checks, drafts, bills of exchange,
--------------------
and other orders for the payment of money, letters of
<PAGE>

credit, acceptances, obligations, notes, and other evidences of indebtedness,
bills of lading, warehouse receipts, and insurance certificates of the Company
shall be signed or endorsed by such officer or officers or other person or
persons as may be designated by the Board of Directors from time to time. If
and to the extent authorized by the Board of Directors, the power to sign or
endorse any such instrument may be delegated by any such officer or officers or
other person or persons.

SECTION 4. Bank Accounts. The Board of Directors may from time to time
-------------
authorize the opening and maintenance of general and special bank and custodial
accounts with such banks, trust companies, and other depositories as it may
select. Rules, regulations, and agreements applicable to such accounts may be
made, and changed from time to time, by the Board of Directors, including, but
without limitation, rules, regulations, and agreements with respect to the use
of facsimile and printed signatures. Any of such powers of the Board of
Directors with respect to bank and custodial accounts may be delegated by the
Board of Directors to any officer or officers or other person or persons as may
be designated by the Board of Directors, and if and to the extent authorized by
the Board of Directors, any such power may be further delegated by any such
officer or officers or other person or persons.
<PAGE>

ARTICLE VII

BOOKS AND RECORDS

SECTION 1. Location. The books and records of the Company may be kept
--------
at such place or places within or without the State of Delaware as the Board of
Directors or the respective officers in charge thereof may from time to time
determine. The stock record books shall be kept by such officer or agent as
shall be designated by the Board of Directors.

SECTION 2. Addresses of Stockholders. Notices of meetings and all other
-------------------------
corporate notices may be delivered personally or mailed to each stockholder at
his or her address as it appears on the records of the Company.

SECTION 3. Fixing Date for Determination of Stockholders of Record. In
-------------------------------------------------------
order that the Company may determine the stockholders entitled to notice of or
to vote at any meeting of stockholders or any adjournment thereof, or entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any other change,
conversion, or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than 60 nor less than 10 days before the date of such meeting, nor more
than 60 days prior to any other action. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to
<PAGE>

any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.

ARTICLE VIII

SHARES OF STOCK AND THEIR TRANSFER

SECTION 1. Certificates of Stock. Every holder of stock of the Company
---------------------
shall be entitled to have a certificate in such form as the Board of Directors
shall prescribe certifying the number of shares owned by him or her in the
Company. Each such certificate shall be signed by, or in the name of the
Company by, the Chairman of the Board, a Vice Chairman of the Board, a
President, or a Vice President and the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Company. Any or all of the
signatures on the certificate may be facsimile. In case any officer, transfer
agent, or registrar who has signed, or whose facsimile signature has been placed
upon, a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, the certificate may, nevertheless,
be issued by the Company with the same effect as if such person were such
officer, transfer agent, or registrar at the date of issue.

SECTION 2. Record, etc. A record shall be kept of the name of the
------------
person, firm, or corporation owning the stock represented by each certificate of
stock of the Company issued, the number of shares represented by each such
certificate, and the date thereof,
<PAGE>

and in the case of cancellation, the date of cancellation. The person in whose
name shares of stock stand on the books of the Company shall be deemed the owner
of record thereof for all purposes as regards the Company.

SECTION 3. Transfer of Stock. Transfers of shares of the stock of the
-----------------
Company shall be made only on the books of the Company by the owner of record
thereof, or by his or her attorney thereunto authorized by power of attorney
duly executed and filed with such officer or agent as shall be designated by the
Board of Directors or with the transfer agent of the Company, and on the
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon.

ARTICLE IX

DIVIDENDS AND RESERVES

The Board of Directors may, from time to time, determine whether any, and if
any, what part, of the net profits of the Company or of its surplus, available
therefor pursuant to law and to the certificate of incorporation, shall be
declared as dividends on the stock of the Company. The Board of Directors may,
in its discretion, set apart out of any of such net profits or surplus a reserve
or reserves for any proper purpose and may abolish any such reserve.
<PAGE>

ARTICLE X

INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS

The Company may indemnify, in accordance with and to the full extent permitted
by the laws of the State of Delaware as in effect at the time of the adoption of
this Article X or as such laws may be amended from time to time, and shall so
indemnify to the full extent required by such laws, any person (and the heirs
and legal representatives of such person) made or threatened to be made a party
to any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, by reason of the fact that
such person is or was a director, officer, employee, or agent of the Company or
any constituent corporation absorbed in a consolidation or merger, or serves or
served as such with another corporation, partnership, joint venture, trust, or
other enterprise at the request of the Company or any such constituent
corporation. Notwithstanding any other provision of this Article X or the laws
of the State of Delaware to the contrary, no such person shall be entitled to
indemnification or the advancement of expenses pursuant to this Article X with
respect to any action, suit, or proceeding, or part thereof, brought or made by
such person against the Company, unless such indemnification or advancement of
expenses (i) is due to such person pursuant to the specific provisions of any
agreement in writing between such person and the Company approved by the
<PAGE>

Company's Board of Directors or (ii) has been approved in writing in advance of
the commencement of such action, suit, or proceeding, or part thereof, by or at
the direction of the Company's Board of Directors. Any indemnification or
advancement of expenses pursuant to this Article X shall only be made in the
specific case by a separate determination made (i) by a majority vote of the
directors who are not parties to such action, suit, or proceeding, even though
less than a quorum, or (ii) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (iii) by the
Company's stockholders, as to entitlement to advancement of expenses and/or
indemnification, as the case may be.

ARTICLE XI

RATIFICATION

Any transaction, questioned in any stockholders' derivative suit on the ground
of lack of authority, defective or irregular execution, adverse interest of
director, officer, or stockholder, non-disclosure, miscomputation, or the
application of improper principles or practices of accounting, may be ratified,
before or after judgment, by the Board of Directors or by the stockholders in
case less than a quorum of directors are qualified, and if so ratified, shall
have the same force and effect as if the questioned transaction had been
originally duly authorized. Such ratification shall be binding upon the Company
and its stockholders and shall
<PAGE>

constitute a bar to any claim or execution of any judgment in respect of such
questioned transaction.

ARTICLE XII

SEAL

The Board of Directors shall provide a corporate seal, which shall be in the
form of a circle and shall bear the name of the Company and the words and
figures "Corporate Seal 1924 Delaware".

ARTICLE XIII

FISCAL YEAR

The fiscal year of the Company shall end at the close of business on the last
Saturday in January and shall, in each case, begin at the opening of business on
the day next succeeding the last day of the preceding fiscal year.

ARTICLE XIV

WAIVER OF NOTICE

Whenever notice is required to be given under any provision of these Bylaws,
the certificate of incorporation, or the laws of the State of Delaware, a
written waiver thereof, whether in the form of a writing signed by, or a
telegram, cable, radiogram, telephone facsimile, or other appropriate written
communication from, the person entitled to notice and whether before or after
the time
<PAGE>

stated therein, shall be deemed equivalent to notice. Attendance of a person at
a meeting shall constitute a waiver of notice of the meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any meeting of the stockholders or directors or a committee of
directors need be specified in any written waiver of notice.

ARTICLE XV

EMERGENCY BYLAWS

SECTION 1. General. Notwithstanding any other provisions of the
-------
certificate of incorporation and these Bylaws, the emergency bylaws (hereinafter
called Emergency Bylaws) provided in this Article XV shall be operative during
any emergency resulting from an attack on the United States or on any locality
in which the Company conducts its business or customarily holds meetings of its
Board of Directors or its stockholders, or during any nuclear or atomic
disaster, or during the existence of any catastrophe, or other similar emergency
condition (any such condition being hereinafter called an Emergency), as a
result of which a quorum of the Board of Directors or the Executive Committee
cannot readily be convened for action. To the extent not inconsistent with
these Emergency Bylaws, the Bylaws of the Company shall remain in effect
<PAGE>

during any Emergency. Upon termination of the Emergency, these Emergency Bylaws
shall cease to be operative unless and until another Emergency shall occur.

SECTION 2. Meetings and Notice of Meetings. During any Emergency any
-------------------------------
meeting of the Board of Directors or of the Executive Committee may be called by
any director or officer of the Company. Notice of the meeting shall be given by
the person calling the meeting, shall state the time and place of the meeting,
and shall be required to be given only to such of the directors or members of
the Executive Committee, as the case may be, and the persons referred to in
Section 3 of this Article XV as it may be feasible to reach at the time and by
any means as may then be feasible at the time.

SECTION 3. Quorum, Emergency Directors, and Manner of Acting. The
-------------------------------------------------
directors and members of the Executive Committee, as the case may be, in
attendance at a meeting pursuant to Section 2 of this Article XV, which in no
case shall be less than two, shall constitute a quorum of the Board of Directors
or the Executive Committee, as the case may be, and they may take any action at
the meeting, by majority vote, as they shall, in their sole discretion, deem to
be in the best interests of the Company. Notwithstanding the foregoing, if the
number of directors or members of the Executive Committee, as the case may be,
available to constitute a quorum at any such meeting, shall be less than two,
additional
<PAGE>

directors, or additional members of the Executive Committee, as the case may be,
in whatever number shall be necessary to constitute a Board or Executive
Committee, as the case may be, of at least two members, shall be deemed selected
automatically from the officers or other persons designated on a list approved
by the Board of Directors before the Emergency, all in such order of priority
and subject to such conditions and for such period or periods as may be provided
in the resolution approving the list. The Board of Directors or Executive
Committee, as the case may be, as so constituted shall continue until the
termination of the Emergency. The Board of Directors, either before or during
any Emergency, may provide, and from time to time modify, lines of succession in
the event that during such Emergency any or all officers of the Company shall
for any reason be rendered incapable of discharging their duties. Any
additional director or additional member of the Executive Committee, as the case
may be, may be removed, either with or without cause, by a majority vote of the
remaining directors or members of the Executive Committee, as the case may be,
then in office.

SECTION 4. Offices; Places of Meeting. The Board of Directors, either
--------------------------
before or during any Emergency, may, effective during the Emergency, change the
head office of the Company or designate several alternative head offices or
regional offices of the Company or authorize the officers to do so.
<PAGE>

SECTION 5. Liability during an Emergency. No officer, director, or
-----------------------------
employee shall be personally liable for acting in accordance with these
Emergency Bylaws, except for wilful misconduct.

ARTICLE XVI

AMENDMENTS

Subject to the provisions of the certificate of incorporation, all Bylaws of
the Company shall be subject to alteration, amendment, or repeal, in whole or in
part, and new bylaws not inconsistent with the laws of the State of Delaware or
any provision of the certificate of incorporation may be made, either by the
affirmative vote of a majority of the whole Board of Directors at any regular or
special meeting of the Board, or by the affirmative vote of the holders of
record of a majority of the issued and outstanding stock of the Company entitled
to vote in respect thereof, given at an annual meeting or at any special meeting
at which a quorum shall be present, provided that in each case notice of the
proposed alteration, amendment, or repeal or the proposed new bylaws be included
in the notice of the meeting of the Board or the stockholders, or the form of
consent thereof, as the case may be.
<PAGE>

INDEX
-----
<TABLE>
<CAPTION>

Article Pages
---------- -----
<S> <C> <C>

Amendments . . . . . . . . . . . . . . . . . XVI 40

Board of Directors . . . . . . . . . . . . . III 11-19

Books and Records . . . . . . . . . . . . . . VII 31-32

Committees . . . . . . . . . . . . . . . . . IV 19-23

Contracts, Loans, Checks, Drafts,
Bank Accounts, etc. . . . . . . . . . . . . VI 29-30

Dividends and Reserves . . . . . . . . . . . IX 33

Emergency Bylaws . . . . . . . . . . . . . . XV 37-40

Fiscal Year . . . . . . . . . . . . . . . . .XIII 36

Indemnification of Directors,
Officers, Employees, and Agents . . . . . . X 34-35

Meetings of Stockholders . . . . . . . . . . II 2-11

Officers. . . . . . . . . . . . . . . . . . . V 23-28

Offices . . . . . . . . . . . . . . . . . . . I 1

Ratification . . . . . . . . . . . . . . . . XI 35-36

Seal . . . . . . . . . . . . . . . . . . . . XII 36

Shares of Stock and Their Transfer . . . . .VIII 32-33

Waiver of Notice . . . . . . . . . . . . . . XIV 36-37
</TABLE>

<PAGE>

Exhibit 10(ii)(j)

Section 10 of the J. C. Penney Company, Inc. 1984 Equity Compensation Plan
("1984 Plan") is hereby deleted in its entirety and the following substituted
therefor:

10. Nontransferability. Any stock award not earned in full or grant under the
Plan shall not be assignable or transferable otherwise than by will or the
laws of descent and distribution, pursuant to a qualified domestic relations
order as defined by the Internal Revenue Code of 1986, as amended, or Title
I of the Employee Retirement Income Security Act, or the rules thereunder,
or any successor statutes thereto, or as permitted pursuant to any rule,
regulation, or interpretation of the Securities and Exchange Commission
applicable thereto, and any attempt to do so shall be void. No stock option,
SAR, or TBR will be exercisable during the Participant's lifetime except by
the Participant or the Participant's guardian or legal representative, or by
a permitted transferee pursuant to this Section, or other third party, as
the Committee may determine.

The following Section is hereby added to the 1984 Plan:

21. Severability of Provisions. If any provision of this Plan becomes or is
deemed invalid, illegal, or unenforceable in any jurisdiction, or if any
such provision would disqualify the Plan or any grant or award under any
law, such provision will be construed or deemed amended to conform to
applicable law or, if such provision cannot be so construed or so deemed
amended without materially altering the intent of the Plan, such provision
shall be stricken and the remainder of the Plan shall remain in force and
effect.

With respect to Participants subject to Section 16 of the Securities
Exchange Act of 1934 ("Exchange Act"), as amended, transactions under the
Plan are intended to comply with all applicable conditions of Rule 16b-3, as
in effect from time to time, or any successor rule thereto ("Rule 16b-3").
To the extent any provision of the Plan, or any action in administering the
Plan, fails to so comply, such provision or action will, without further
action by any person, be deemed to be automatically amended to the extent
necessary to effect compliance with Rule 16b-3; provided, however, that if
such provision or action cannot be amended to effect such compliance, such
provision or action will be deemed null and void, to the extent permitted by
law and deemed advisable by the relevant authority. Each award to a
Participant subject to Section 16 of the Exchange Act under this Plan will
be deemed issued subject to the foregoing qualification.

<PAGE>

Exhibit 10(ii)(k)

Section 15 of the J. C. Penney Company, Inc. 1989 Equity Compensation Plan
("1989 Plan") is hereby deleted in its entirety and the following substituted
therefor:

15. Nontransferability. No stock award not named in full, stock option, SAR, or
TBR granted under the Plan shall be assignable or transferable other than by
will or the laws of descent and distribution, pursuant to a qualified
domestic relations order as defined by the Internal Revenue Code of 1986, as
amended, or Title I of the Employee Retirement Income Security Act, or the
rules thereunder, or any successor statutes thereto, or as permitted
pursuant to any rule, regulation, or interpretation of the Securities and
Exchange Commission applicable thereto, and any attempt to do so shall be
void. No stock option, SAR, or TBR will be exercisable during the Associate
Participant's or Non-Associate Director Participant's (together
"Participant's" or "Participant") lifetime except by him or her or by
his or her guardian or legal representative, or by a permitted transferee
pursuant to this Section, or other third party, as the Committee may
determine. The restrictions on transfer, sale, assignment, pledge,
encumbrance or disposition contained in subsection 14(b) above shall not
apply to a permitted transferee pursuant to this subsection.

The following paragraph is hereby added to Section 21 of the 1989 Plan:

With respect to Participants subject to Section 16 of the Exchange Act,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3, as in effect from time to time, or any successor
rule thereto ("Rule 16b-3"). To the extent any provision of the Plan, or
any action in administering the Plan, fails to so comply, such provision or
action will, without further action by any person, be deemed to be
automatically amended to the extent necessary to effect compliance with Rule
16b-3; provided, however, that if such provision or action cannot be amended
to reflect such compliance, such provision or action will be deemed null and
void, to the extent permitted by law and deemed advisable by the relevant
authority. Each award to a Participant subject to Section 16 of the Exchange
Act under this Plan will be deemed issued subject to the foregoing
qualification.

<PAGE>

Exhibit 10(ii)(l)

Section 13 of the J. C. Penney Company, Inc. 1993 Equity Compensation Plan
is hereby deleted in its entirety and the following substituted therefor:

13. Nontransferability. No unearned Stock Award or any portion thereof, Stock
Option, or SAR granted under the Plan may be assigned or transferred other
than by will or the laws of descent and distribution, pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code
of 1986, as amended, or Title I of the Employee Retirement Income Security
Act, or the rules thereunder, or any successor statutes thereto, or as
permitted pursuant to any rule, regulation, or interpretation of the
Securities and Exchange Commission applicable thereto, and any attempt to do
so will be void. No Stock Option or SAR will be exercisable during the
Participant's lifetime except by the Participant or the Participant's
guardian or legal representative, or by a permitted transferee pursuant to
this Section, or other third party, as the Committee may determine.

<PAGE>

Exhibit 10(ii)(m)

Subsection 2(b) of the J. C. Penney Company, Inc. 1993 Non-Associate
Directors' Equity Plan is hereby deleted in its entirety and the following
substituted therefor:

2(b) Nontransferability. No Stock Option or Restricted Stock Award (prior to the
time the restrictions lapse) granted under the Plan will be assignable or
transferable other than by will or the laws of descent and distribution,
pursuant to a qualified domestic relations order as defined by the Internal
Revenue Code of 1986, as amended, or Title I of the Employee Retirement
Income Security Act, or the rules thereunder, or any successor statutes
thereto, or as permitted pursuant to any rule, regulation, or
interpretation of the Securities and Exchange Commission applicable
thereto, and any attempt to do so will be void. No Stock Option will be
exercisable during the Participant's lifetime except by the Participant or
the Participant's guardian or legal representative, or by a permitted
transferee pursuant to this subsection. The restrictions on transfer, sale,
assignment, pledge, encumbrance or disposition contained in subsection
2(c)(i) below shall not apply to a permitted transferee pursuant to this
subsection.

<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>

52 Weeks Ended 52 Weeks Ended 53 Weeks Ended
----------------- ---------------- -----------------
January 28, 1995 January 29, 1994 January 30, 1993
----------------- ---------------- -----------------
Shares Income Shares Income Shares Income
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Primary:
- --------

Income before extraordinary
charge and cumulative effect
of accounting change $1,057 $944 $777
Dividend on Series B ESOP
convertible preferred stock
(after-tax) (40) (40) (33)
------ ---- ----
Adjusted income before extra-
ordinary charge and cumulative
effect of accounting change 1,017 904 744
Weighted average number of
shares outstanding 233.9 235.7 234.0
Common stock equivalents:
Stock options and other
dilutive effects 3.2 3.3 2.0
------ ------ ------ ---- ----- ----
237.1 1,017 239.0 904 236.0 744
Income per common share before
extraordinary charge and
cumulative effect of
accounting change $ 4.29 $ 3.79 $3.15
Extraordinary charge on debt
redemption, net of income
taxes -- -- (0.23) (55) -- --
Cumulative effect of accounting
change -- -- 0.21 51 -- --
------ ------ ------ ------ ------- ---- ----- ----- ----
237.1 239.0 236.0
====== ====== =====
Net income $1,017 $900 $744
====== ==== ====
Net income per common share $ 4.29 $ 3.77 $3.15
====== ====== =====

Fully diluted:
- --------------

Income before extraordinary
charge and cumulative effect
of accounting change $1,057 $944 $777
Tax benefit differential on ESOP
dividend assuming stock is
fully converted (3) (4) --
Assumed additional contribution
to ESOP if preferred stock is
fully converted (9) (12) (14)
------ ---- ----
Adjusted income before extra-
ordinary charge and cumulative
effect of accounting change 1,045 928 763
Weighted average number of
shares outstanding (primary) 237.1 239.0 236.0
Maximum dilution 0.0 0.6 0.2
Convertible preferred stock 21.3 21.9 22.4
------ ------ ------ ---- ----- ----
258.4 1,045 261.5 928 258.6 763
Income per common share before
extraordinary charge and
cumulative effect of
accounting change $ 4.05 $ 3.55 $2.95
Extraordinary charge on debt
redemption, net of income
taxes -- -- (0.21) (55) -- --
Cumulative effect of accounting
change -- -- 0.19 51 -- --
------ ------ ------ ------ ------- ---- ----- ----- ----
258.4 261.5 258.6
====== ====== =====
Net income $1,045 $924 $763
====== ==== ====
Net income per common share $ 4.05 $ 3.53 $2.95
====== ====== =====

</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

53 Weeks
52 Weeks Ended Ended 52 Weeks Ended
-------------------- -------- --------------------
01/28/95 01/29/94 01/30/93 01/25/92 01/26/91
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>

($ Millions)

Income from continuing operations $1,646 $1,498 $1,192 $402 $ 765
(before income taxes, before -------- -------- -------- -------- --------
capitalized interest, but after
preferred stock dividend)

Fixed charges

Interest (including capitalized
interest)

On operating leases 95 97 96 95 92
On short term debt 92 43 43 42 103
On long term debt 225 246 281 288 228
On capital leases 7 9 10 11 12
Other, net (1) 0 16 (3) (7)
-------- -------- -------- -------- --------

Total fixed charges 418 395 446 433 428

Preferred stock dividend, before taxes 50 52 53 54 55
-------- -------- -------- -------- --------

Combined fixed charges and preferred
stock dividend requirement 468 447 499 487 483
-------- -------- -------- -------- --------

Total available income $2,114 $1,945 $1,691 $889 $1,248
======== ======== ======== ======== ========

Ratio of available income to combined
fixed charges and preferred stock
dividend requirement 4.5 4.3 3.4 1.8 2.6
======== ======== ======== ======== ========

</TABLE>
The interest cost of the LESOP notes guaranteed by the Company is not included
in fixed charges above.

<PAGE>

Exhibit 12 (b)

J. C. PENNEY COMPANY, INC.
(the Company and all subsidiaries)

Computation of Ratios of Available Income to Fixed Charges

($ Millions)

Income from continuing operations $1,696 $1,550 $1,245 $456 $ 820
(before income taxes and -------- -------- -------- -------- --------
capitalized interest)

Fixed charges

Interest (including capitalized
interest)

Total fixed charges 418 395 446 433 428
-------- -------- -------- -------- --------

Total available income $2,114 $1,945 $1,691 $889 $1,248
======== ======== ======== ======== ========

Ratio of available income to fixed charges 5.1 4.9 3.8 2.1 2.9
======== ======== ======== ======== ========

</TABLE>

The interest cost of the LESOP notes guaranteed by the Company is not included
in fixed charges above.

<PAGE>

Exhibit 13

- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
($ in millions except per share data) 1994 1993 1992
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Retail sales, per cent increase 7.4 5.4 11.2
Comparative store sales,
per cent increase 6.8 5.3 9.7
Gross margin, per cent of retail sales
FIFO 31.5 31.3 31.5
LIFO 31.5 31.5 31.7
Selling, general, and administrative
expenses, per cent of retail sales 23.5 23.7 24.7
Pre-tax income of other businesses $ 165 $ 149 $ 125
Effective income tax rate 37.8 39.3 38.3
Net income $1,057 $ 940 $ 777
Per share $ 4.05 $ 3.53 $ 2.95
- ----------------------------------------------------------------------------
</TABLE>

NET INCOME. The Company recorded its third consecutive year of outstanding
profits in 1994, with net income exceeding $1 billion for the first time in
the Company's history. Net income in 1994 was $1,057 million, an increase of
12.5 per cent from $940 million in 1993. Fully diluted earnings per share
improved 14.7 per cent to $4.05 per share from $3.53 per share in 1993.
Increased sales volume in both stores and catalog was largely responsible for
the improvement in each of the last three years. Contributing to increased
profits were well managed selling, general, and administrative expenses.
These expenses, as a per cent of retail sales, continued to decline in 1994
following significant reductions in 1993 and 1992.

Net income was $940 million in 1993, an increase of 20.9 per cent from
$777 million in 1992. Fully diluted earnings per share improved to $3.53 per
share from $2.95 per share in 1992. Net income was $777 million in 1992, an
increase of 47.2 per cent from $528 million in 1991, excluding the impact in
1991 of nonrecurring items and the cumulative effect of an accounting change.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
REVENUE (In millions) 1994 Per cent increase 1993 Per cent increase 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JCPenney stores $ 15,023 6.9 $ 14,056 4.4 $ 13,460
Catalog 3,817 8.6 3,514 11.0 3,166
Drug stores 1,540 9.0 1,413 2.2 1,383
-------- -------- --------
Total retail sales* 20,380 7.4 18,983 5.4 18,009
-------- -------- --------
JCPenney Insurance 571 20.2 475 22.5 388
JCPenney National Bank 131 9.5 120 2.0 118
-------- -------- --------
Total revenue $ 21,082 7.7 $ 19,578 5.7 $ 18,515
</TABLE>

1994 and 1993 comprised 52 weeks, and 1992 comprised 53 weeks.
*On a comparable 52-week basis, total retail sales increased 6.9 per cent in
1993; JCPenney stores sales increased 5.8 per cent; Catalog sales increased
12.8 per cent; and Drug store sales increased 4.2 per cent.
- --------------------------------------------------------------------------------

The sales gains in JCPenney stores over the last three years were primarily the
result of the Company's strategy of offering fashion and quality merchandise to
its customers at competitive, affordable prices; the aggressive national
advertising campaign which began in 1993; and the emphasis on developing its
private brands. Catalog sales increases have been fueled by the growth in the
number of new customers, gains from specialty catalogs, and improved synergy
with the JCPenney stores' merchandise mix. Drug store sales increases were due
primarily to the growth in store and institutional pharmacy sales.

GROSS MARGIN dollars, on a FIFO basis, increased $461 million or 7.7 per cent in
1994, reflecting the favorable sales performance of both stores and catalog and
improved inventory management. As a per cent of retail sales, gross margin was
31.5 per cent in 1994, compared with 31.3 per cent in 1993 and 31.5 per cent in
1992. The level of the Company's LIFO index in 1994 was about the same as the
level in 1993, resulting in a pre-tax LIFO charge of $1 million. Because of a
decline in retail prices, there was deflation in the Company's index in 1993 and
1992, resulting in a pre-tax LIFO credit of $36 million and $32 million,
respectively.

SG&A EXPENSES, as a per cent of retail sales, declined in 1994 to 23.5 per cent
from 23.7 per cent in 1993 and 24.7 per cent in 1992, as a result of the
Company's continuing efforts to control costs across all operating and support
areas. SG&A expenses increased in 1994 from 1993's level, reflecting planned
increases in store and catalog advertising.

NET INTEREST EXPENSE AND CREDIT OPERATIONS

<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense, net $ 270 $ 241 $ 258
Finance charge revenue (624) (523) (509)
Credit costs
Bad debt expense 177 95 122
Operating expenses
(including third party
credit costs) 270 260 261
-----------------------------------
Net interest expense
and credit operations $ 93 $ 73 $ 132
- ---------------------------------------------------------------------------
</TABLE>

22
<PAGE>

- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------

NET INTEREST EXPENSE AND CREDIT OPERATIONS increased 27.0 per cent in 1994 to
$93 million. Finance charge revenue rose $101 million in 1994, while bad debt
expense increased $82 million from the low levels last year, due to the
higher level of customer receivables. Interest expense increased $29 million
compared with 1993, primarily due to higher working capital requirements and
the stock purchase programs. Interest expense was also impacted by higher
short term interest rates in 1994, which were offset by lower average
borrowing rates on the Company's long term debt as a result of the debt
restructuring program in 1993 and 1992.

Net interest expense and credit operations declined in 1993, primarily
as a result of lower bad debt and interest expense. Interest expense declined
as a result of the Company's debt restructuring program in 1993 and 1992
initiated to take advantage of declining interest rates.

THE EFFECTIVE INCOME TAX RATE for 1994 was 37.8 per cent as compared with
39.3 per cent in 1993 and 38.3 per cent in 1992. The effective tax rate
declined in 1994 due to greater utilization of the available targeted jobs
tax credit. The 1993 rate included a one-time, non-cash charge of $14 million
for the revaluation of deferred taxes, as required by Statement No. 109,
Accounting for Income Taxes. Excluding the adjustment for deferred taxes, the
1993 effective income tax rate was 38.3 per cent.

PRE-TAX INCOME OF OTHER BUSINESSES

<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
JCPenney Insurance $ 138 $ 120 $ 101
JCPenney National Bank 27 29 24
-----------------------------------
Total $ 165 $ 149 $ 125
- ---------------------------------------------------------------------------
</TABLE>

JCPENNEY INSURANCE, which markets life, accident and health, and credit
insurance, continued its growth trend. During the past three years, JCPenney
Insurance has expanded its market share through relationships with credit
card issuers other than the Company, in both the United States and Canada to
solicit their customers. Pre-tax income was $138 million in 1994, an increase
of $18 million or 14.6 per cent over 1993. This growth resulted from
favorable trends in both premiums and lower loss ratios. Premium income for
1994 was $508 million, an increase of $92 million or 22 per cent over 1993.
The growth in premium income resulted from an increase of 1.7 million
policies and certificates, 30 per cent more than in 1993. Renewal premiums
increased as a result of greater sales over the past four years coupled with
favorable policy retention. Pre-tax income was $120 million in 1993, an
increase of 19.3 per cent over 1992, primarily due to increased premiums.

JCPENNEY NATIONAL BANK is a consumer bank, having no commercial lending
activity. The Bank offers Visa and MasterCard credit cards to consumers, and
generates funds primarily through certificates of deposit. At the end of the
year, about 497 thousand credit cards were active. Pre-tax income was $27
million in 1994, down from $29 million in 1993, due to higher average
interest rates on deposits. Pre-tax income improved in both 1993 and 1992, as
a result of lower interest rates and a reduction in bad debt expense.

FINANCIAL CONDITION. The Company's goal is to continue to maintain a strong
balance sheet. Outstanding earnings for the last three years and consistent
cash flows have contributed to our strong financial condition. This provides
the Company flexibility to capitalize on attractive opportunities for growth,
increase its dividends, and to purchase shares of stock - all leading toward
enhanced stockholder value.

Return on stockholders' equity is a key measure for evaluating the
Company's performance. Our return on equity in 1994 was 19.7 per cent compared
to 20.1 per cent in 1993 and 18.6 per cent in 1992. This performance placed the
Company in the top quartile of our key retail competitors and the S&P 500.

The Company's credit ratings on its long term debt and commercial paper are
among the highest in the retail industry. In October 1994, Moody's Investors
Service upgraded the Company's long term debt rating to A1. Currently, the
Company's long term debt is rated A+ by Standard & Poor's Corporation, A1 by
Moody's Investors Service, and A+ by Fitch Investors Service, Inc. Our
commercial paper is rated A1, P1 and F1, by Standard & Poor's, Moody's, and
Fitch, respectively.

CASH FLOW. In 1994, the Company continued to generate sufficient cash flows
internally to meet the major portion of its cash requirements to finance its
operations. Cash flow generated internally in 1994, which consisted of net
income plus depreciation and amortization and deferred taxes, was $1,414
million. At this level, cash flow covered substantially all of the Company's
cash requirements for working capital, capital expenditures, and dividends.
In addition, the Company used debt financing to complete its stock purchase
program of 10 million shares at a total cost of $475 million.

During the next few years, the Company expects to generate internally
sufficient cash flow to meet substantially all of its cash requirements for
operations, capital expenditures, and dividends. Capital expenditures are
expected to be approximately $600 million in each of the next three years.

23
<PAGE>

- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------

DEBT TO CAPITAL. The Company's debt to capital ratio is based on an asset mix
which is significantly influenced by customer receivables from the Company's
proprietary credit card. Debt includes both on and off balance sheet
financing. Over the last several years, the Company's debt capacity has
increased as a result of its strong earnings and cash flows. This has
permitted the Company to enhance stockholder value through a stock purchase
program and dividend increases. At the end of 1994, after the completion of
the first stock purchase program, the debt to capital ratio was 53.1 per
cent. A second purchase program, for the purchase of up to an additional 10
million shares of the Company's common stock, was authorized and begun in
January 1995.

DIVIDENDS. On March 8, 1995, the Board of Directors increased the quarterly
common dividend to 48 cents per share, or an indicated annual rate of $1.92
per share. The regular quarterly dividend on the Company's outstanding common
stock is payable on May 1, 1995, to stockholders of record on April 10, 1995.
The quarterly common dividend was 42 cents per share in 1994, 36 cents per
share in 1993, and 33 cents per share in 1992, or an indicated annual rate of
$1.68 per share in 1994, $1.44 per share in 1993, and $1.32 per share in
1992.

IMPACT OF INFLATION AND CHANGING PRICES. The impact of inflation on the
Company has not been significant in recent years due to the low levels of
inflation. Inflation causes increases in the cost of doing business,
including capital expenditures. By striving to control costs, the Company
attempts to minimize the effects of inflation on its operations.

24
<PAGE>

- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------

To the Stockholders and Board of Directors
of J.C. Penney Company, Inc.:

We have audited the accompanying consolidated balance sheets of J.C. Penney
Company, Inc. and Subsidiaries as of January 28, 1995, January 29, 1994, and
January 30, 1993, and the related consolidated statements of income, reinvested
earnings, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of J.C. Penney
Company, Inc. and Subsidiaries as of January 28, 1995, January 29, 1994, and
January 30, 1993, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.

As discussed on page 39, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, in 1993. Also, as discussed on
page 29, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, in 1994.

/s/ KPMG Peat Marwick LLP

KPMG Peat Marwick LLP
200 Crescent Court, Dallas, Texas 75201
February 23, 1995

- --------------------------------------------------------------------------------
COMPANY STATEMENT ON FINANCIAL
INFORMATION
- --------------------------------------------------------------------------------

The Company is responsible for the information presented in this Annual
Report. The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and are considered to present
fairly in all material respects the Company's results of operations, financial
position, and cash flows. Certain amounts included in the consolidated financial
statements are estimated based on currently available information and judgment
of the outcome of future conditions and circumstances. Financial information
elsewhere in this Annual Report is consistent with that in the consolidated
financial statements.

The Company's system of internal controls is supported by written policies
and procedures and supplemented by a staff of internal auditors. This system is
designed to provide reasonable assurance, at suitable costs, that assets are
safeguarded and that transactions are executed in accordance with appropriate
authorization and are recorded and reported properly. The system is continually
reviewed, evaluated, and where appropriate, modified to accommodate current
conditions. Emphasis is placed on the careful selection, training, and
development of professional managers.

An organizational alignment that is premised upon appropriate delegation of
authority and division of responsibility is fundamental to this system.
Communication programs are aimed at assuring that established policies and
procedures are disseminated and understood throughout the Company.

The consolidated financial statements have been audited by independent
auditors whose report appears to the left. This audit was conducted in
accordance with generally accepted auditing standards, which includes the
consideration of the Company's internal controls to the extent necessary to form
an independent opinion on the consolidated financial statements prepared by
management.

The Audit Committee of the Board of Directors is composed solely of
directors who are not officers or employees of the Company. The Audit
Committee's responsibilities include recommending to the Board for stockholder
approval the independent auditors for the annual audit of the Company's
consolidated financial statements. The Committee also reviews the independent
auditors' audit strategy and plan, scope, fees, audit results, and non-audit
services and related fees; internal audit reports on the adequacy of internal
controls; the Company's ethics program; status of significant legal matters; the
scope of the internal auditors' plans and budget and results of their audits;
and the effectiveness of the Company's program for correcting audit findings.
The independent auditors and Company personnel, including internal auditors,
meet periodically with the Audit Committee to discuss auditing and financial
reporting matters.

/s/ Robert E. Northam

Robert E. Northam
Executive Vice President and Chief Financial Officer

25
<PAGE>

- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
J.C. PENNEY COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEAR (In millions except per share data) 1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Retail sales $ 20,380 $ 18,983 $ 18,009
Other revenue 702 595 506
----------------------------------
Total revenue 21,082 19,578 18,515
----------------------------------

Costs and expenses
Cost of goods sold, occupancy, buying, and warehousing costs 13,970 12,997 12,297
Selling, general, and administrative expenses 4,783 4,508 4,446
Costs and expenses of other businesses 537 446 381
Net interest expense and credit operations 93 73 132
----------------------------------
Total costs and expenses 19,383 18,024 17,256
----------------------------------

Income before income taxes, extraordinary charge, and
cumulative effect of accounting change 1,699 1,554 1,259
Income taxes 642 610 482
----------------------------------

Income before extraordinary charge and cumulative effect
of accounting change 1,057 944 777
Extraordinary charge on debt redemption,
net of income taxes of $35 -- (55) --
Cumulative effect of accounting change
for income taxes -- 51 --
----------------------------------
Net income $ 1,057 $ 940 $ 777
==================================

Earnings per common share
Primary
Income before extraordinary charge and
cumulative effect of accounting change $ 4.29 $ 3.79 $ 3.15
Extraordinary charge on debt redemption, net -- (.23) --
Cumulative effect of accounting change for income taxes -- .21 --
----------------------------------
Net income $ 4.29 $ 3.77 $ 3.15
==================================

Fully diluted
Income before extraordinary charge and
cumulative effect of accounting change $ 4.05 $ 3.55 $ 2.95
Extraordinary charge on debt redemption, net -- (.21) --
Cumulative effect of accounting change for income taxes -- .19 --
----------------------------------
Net income $ 4.05 $ 3.53 $ 2.95
==================================
</TABLE>

See Summary of Accounting Policies and Notes to Financial Statements on pages
29 through 39.
- --------------------------------------------------------------------------------

26
<PAGE>

- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------

J.C. Penney Company, Inc. and Subsidiaries

<TABLE>
<CAPTION>
ASSETS (In millions) 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets
Cash and short term investments of $207, $156, and $405 $ 261 $ 173 $ 426
Receivables, net 5,159 4,679 3,750
Merchandise inventories 3,876 3,545 3,258
Prepaid expenses 172 168 157
----------------------------------------
Total current assets 9,468 8,565 7,591
Properties, net 3,954 3,818 3,755
Investments, primarily insurance operations 1,359 1,182 991
Deferred insurance policy acquisition costs 482 426 372
Other assets 939 797 758
----------------------------------------
$ 16,202 $ 14,788 $ 13,467
========================================
</TABLE>

<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (In millions except share data)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current liabilities
Accounts payable and accrued expenses $ 2,274 $ 2,139 $ 2,038
Short term debt 2,092 1,284 907
Current maturities of long term debt -- 348 --
Deferred taxes 115 112 64
----------------------------------------
Total current liabilities 4,481 3,883 3,009
Long term debt 3,335 2,929 3,171
Deferred taxes 1,039 1,013 1,012
Bank deposits 702 581 538
Insurance policy and claims reserves 568 540 462
Other liabilities 462 477 570
Stockholders' equity
Preferred stock, without par value:
Authorized, 25 million shares -- issued, 1 million shares
of Series B LESOP convertible preferred 630 648 666
Guaranteed LESOP obligation (307) (379) (447)
Common stock, par value 50c:
Authorized, 1,250 million shares --
issued, 227, 236, and 235 million shares 1,030 1,003 955
Reinvested earnings 4,262 4,093 3,531
----------------------------------------
Total stockholders' equity 5,615 5,365 4,705
----------------------------------------
$ 16,202 $ 14,788 $ 13,467
========================================
</TABLE>

See Summary of Accounting Policies and Notes to Financial Statements on pages
29 through 39.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF REINVESTED EARNINGS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
(In millions)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reinvested earnings at beginning of year $ 4,093 $ 3,531 $ 3,156
Net income 1,057 940 777
Net unrealized change in debt and equity securities (21) 1 (1)
Retirement of common stock (435) -- --
Common stock dividends declared (392) (339) (309)
Preferred stock dividends declared, net of taxes (40) (40) (33)
Two-for-one stock split -- -- (59)
--------------------------------------
Reinvested earnings at end of year $4,262 $ 4,093 $ 3,531
======================================
</TABLE>

See Summary of Accounting Policies and Notes to Financial Statements on pages
29 through 39.
- --------------------------------------------------------------------------------

27
<PAGE>

- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
J.C. Penney Company, Inc. and Subsidiaries

<TABLE>
<CAPTION>
FOR THE YEAR (In millions) 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 1,057 $ 940 $ 777
Extraordinary charge, net of income taxes -- 55 --
Cumulative effect of accounting change for income taxes -- (51) --
Depreciation and amortization 323 316 310
Amortization of original issue discount 5 48 58
Deferred taxes 29 100 48
Change in cash from:
Customer receivables (326) (352) 411
Securitized customer receivables amortized -- (425) (36)
Inventories, net of trade payables (352) (196) (27)
Other assets and liabilities, net 2 (149) 33
---------------------------------------------
738 286 1,574
---------------------------------------------
Investing activities
Capital expenditures (550) (480) (454)
Purchases of investment securities (476) (351) (325)
Proceeds from sales of investment securities 287 215 195
Investment in asset-backed certificates -- (12) (419)
---------------------------------------------
(739) (628) (1,003)
---------------------------------------------
Financing activities
Increase in short term debt 808 377 436
Issuance of long term debt 500 1,015 280
Payments of long term debt (350) (875) (677)
Premium on debt retirement -- (76) --
Common stock issued, net 45 37 39
Common stock purchased and retired (475) -- --
Preferred stock retired (18) (18) (18)
Dividends paid, preferred and common (421) (371) (342)
---------------------------------------------
89 89 (282)
---------------------------------------------
Net increase (decrease) in cash and short term investments 88 (253) 289
Cash and short term investments at beginning of year 173 426 137
---------------------------------------------
Cash and short term investments at end of year $ 261 $ 173 $ 426
=============================================

Supplemental cash flow information
Interest paid $ 301 $ 253 $ 265
Interest received $ 55 $ 51 $ 71
Income taxes paid $ 509 $ 486 $ 322
</TABLE>

See Summary of Accounting Policies and Notes to Financial Statements on pages
29 through 39.
- --------------------------------------------------------------------------------

28
<PAGE>

- --------------------------------------------------------------------------------
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------

BASIS OF CONSOLIDATION. The consolidated financial statements present the
results of J.C. Penney Company, Inc. and all of its wholly-owned and
majority-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.

DEFINITION OF FISCAL YEAR. The Company's fiscal year ends on the last
Saturday in January. Fiscal year 1994 ended January 28, 1995, 1993 ended
January 29, 1994, and 1992 ended January 30, 1993. They comprised 52 weeks,
52 weeks, and 53 weeks, respectively. The accounts of JCPenney Insurance and
JCPenney National Bank are on a calendar year basis.

RETAIL SALES. Retail sales include merchandise and services, net of returns,
and exclude sales taxes.

EARNINGS PER COMMON SHARE. Primary earnings per share are computed by
dividing net income less dividend requirements on the Series B LESOP
convertible preferred stock, net of tax, by the weighted average common stock
and common stock equivalents outstanding. Fully diluted earnings per share
also assume conversion of the Series B LESOP convertible preferred stock into
the Company's common stock. Additionally, it assumes adjustment of net income
for the additional cash requirements, net of tax, needed to fund the LESOP
debt service resulting from the assumed replacement of the preferred
dividends with common stock dividends. The number of shares used in the
computation of fully diluted earnings per share was 258 million in 1994, 261
million in 1993, and 258 million in 1992.

CASH AND SHORT TERM INVESTMENTS. Cash invested in instruments with remaining
maturities of three months or less from time of investment is reflected as
short term investments.

MERCHANDISE INVENTORIES. Substantially all merchandise inventories are valued
at the lower of cost (last-in, first-out) or market, determined by the retail
method.

DEPRECIATION. The cost of buildings and equipment is depreciated on a
straight line basis over the estimated useful lives of the assets. The
principal annual rates of depreciation are 2 per cent for buildings, 5 per
cent for warehouse fixtures and equipment, 10 per cent for selling fixtures
and equipment, and 20 per cent for data center equipment. Improvements to
leased premises are amortized on a straight line basis over the expected term
of the lease or their estimated useful lives, whichever is shorter.

DEFERRED CHARGES. Expenses associated with the opening of new stores are
written off in the year of the store opening, except those of stores opened
in January, which are written off in the following fiscal year. Deferred
policy acquisition costs, principally marketing costs and commissions
incurred by JCPenney Insurance to secure new insurance policies, are
amortized over the expected premium-paying period of the related policies.

INVESTMENTS. Effective January 30, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. This statement requires that
securities be classified as trading, held-to-maturity, or available-for-sale.
The Company's investments, which consist of fixed income securities
(principally bonds) held by JCPenney Insurance, marketable equity securities,
and JCP Receivables, Inc. asset-backed certificates held by the Company, are
classified as available-for-sale and are carried at fair value. Changes in
unrealized gains and losses are recorded directly to stockholders' equity,
net of applicable income taxes. Adoption of this statement had no material
effect on the Company's investments, deferred taxes, and stockholders'
equity, as reflected on the consolidated balance sheet at January 28, 1995,
and had no impact on net income. In 1993 and 1992, fixed income securities
and asset-backed certificates were carried at amortized cost on the
consolidated balance sheets.

INSURANCE POLICY AND CLAIMS RESERVES. Liabilities established by JCPenney
Insurance for future policy benefits are computed using a net level premium
method including assumptions as to investment yields, mortality, morbidity,
and persistency based on the Company's experience. Liabilities for unpaid
claims are charged to expense in the period that the claims are incurred.

ADVERTISING. Costs for newspaper, television, radio, and other media are
expensed as incurred. Direct response advertising consists primarily of
catalog preparation and printing costs, which are charged to expense over the
period during which the benefits of the catalogs are expected, not to exceed
six months.

DERIVATIVE FINANCIAL INSTRUMENTS. The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 119, Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments, in 1994. This statement
requires certain disclosures about derivative financial instruments, which
are defined in the statement as futures, forward, swap, and option contracts,
and other financial instruments with similar characteristics. The Company's
current derivative positions consist of off-balance-sheet interest rate swaps.
The accounting treatment for these interest rate swaps is to record the net
interest received or paid as an adjustment to interest expense on a current
basis. Gains or losses resulting from market movements are not recognized.

29
<PAGE>

- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. RECEIVABLES
2. MERCHANDISE INVENTORIES
3. PROPERTIES
4. CAPITAL EXPENDITURES
5. INVESTMENTS
6. DERIVATIVE FINANCIAL INSTRUMENTS
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
9. SHORT TERM DEBT
10. LONG TERM DEBT
11. PREFERRED STOCK
12. COMMON STOCK
13. FINANCE CHARGE REVENUE AND BAD DEBT EXPENSE
14. INTEREST EXPENSE
15. RENT EXPENSE
16. RETIREMENT PLANS
17. TAXES
18. SEGMENT REPORTING
- --------------------------------------------------------------------------------

1. RECEIVABLES

<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Customer receivables serviced $ 4,751 $ 4,410 $ 4,068
Customer receivables sold 725 725 1,150
------------------------------------
Customer receivables owned 4,026 3,685 2,918
Less allowance for doubtful accounts 74 59 69
------------------------------------
Customer receivables, net 3,952 3,626 2,849
JCPenney National Bank receivables 729 587 538
Other receivables 478 466 363
------------------------------------
Receivables, net $ 5,159 $ 4,679 $ 3,750
- --------------------------------------------------------------------------------
</TABLE>

The Company's policy is to write off accounts when the scheduled minimum
payment has not been received for six consecutive months, if any portion of the
balance is more than 12 months past due, or if it is otherwise determined that
the customer is unable to pay. Collection efforts continue subsequent to write
off, and recoveries are applied as a reduction of bad debt losses.

During the period 1988 to 1990, the Company transferred portions of its
customer receivables to a trust which, in turn, sold certificates representing
undivided interests in the trust in public offerings. Certificates sold during
this period totaled $1,400 million. No gain or loss was recognized at the date
of sale. $675 million of the certificates sold were amortized in 1993 and 1992.
As of January 28, 1995, $725 million of the certificates were outstanding and
the balance of the receivables in the trust was $1,768 million. The Company owns
the remaining undivided interest in the trust not represented by the
certificates and will continue to service all receivables for the trust.

Cash flows generated from receivables in the trust are dedicated to payment
of interest on the outstanding certificates with stated rates of 8.95% and
9.625%, absorption of defaulted accounts in the trust, and payment of servicing
fees to the Company. Reserve funds (fully funded at $91 million) are available
if cash flows from the receivables become insufficient to make such payments.
None of the reserve funds has been utilized as of January 28, 1995.
Additionally, the Company has made available to the trust irrevocable letters of
credit of $87 million that may be drawn upon should the reserve funds be
exhausted. None of the letters of credit was in use as of January 28, 1995.

2. MERCHANDISE INVENTORIES

<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Merchandise inventories, at lower
of cost (FIFO) or market $ 4,123 $ 3,791 $ 3,540
LIFO reserve (247) (246) (282)
---------------------------------
Merchandise inventories, at LIFO cost $ 3,876 $ 3,545 $ 3,258
- --------------------------------------------------------------------------------
</TABLE>

Substantially all of the Company's inventories are measured using the
last-in, first-out (LIFO) method of inventory valuation. The Company applies
internally developed indices to measure increases and decreases in its own
retail prices.

3. PROPERTIES

<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 213 $ 213 $ 212
Buildings
Owned 2,178 2,119 2,016
Capital leases 186 219 237
Fixtures and equipment 2,763 2,693 2,703
Leasehold improvements 611 575 544
--------------------------------
5,951 5,819 5,712
Less accumulated depreciation
and amortization 1,997 2,001 1,957
--------------------------------
Properties, net $ 3,954 $3,818 $3,755
- --------------------------------------------------------------------------------
</TABLE>

At January 28, 1995, the Company owned 251 retail stores, four catalog
distribution centers, one store distribution center, its home office
facility, and the insurance company corporate offices.

4. CAPITAL EXPENDITURES

Capital expenditures, primarily for new and relocated JCPenney stores and for
modernizations and updates of existing stores, were as follows:

<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
JCPenney stores:
New and relocated stores $ 197 $ 162 $ 130
Modernizations and updates 136 130 76
Technology and other store
improvements 78 44 32
--------------------------------
411 336 238
Catalog 21 21 11
Drug stores 59 40 27
Other* 53 62 218
--------------------------------
Total capital expenditures $ 544 $ 459 $ 494
- --------------------------------------------------------------------------------
</TABLE>

*1992 includes $173 million for home office construction costs.

<PAGE>

- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

5. INVESTMENTS

Investments at year end 1994 were carried at fair value on the consolidated
balance sheet and totaled $1,359 million. In 1993 and 1992, fixed income
securities held by JCPenney Insurance and asset-backed certificates held by the
Company were carried at amortized cost on the consolidated balance sheets. The
amortized cost and fair values of investments were as follows:

<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair
INVESTMENTS (In millions) Cost Value Cost Value Cost Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed income securities
JCPenney Insurance
U.S. Government obligations $ 111 $ 107 $ 139 $ 153 $ 138 $ 142
Corporate securities 278 266 280 302 210 224
Mortgage-backed securities 216 199 158 164 148 159
Other investments 100 89 93 91 45 44
----------------------------------------------------------------------------------
705 661 670 710 541 569
JCPenney Company
Asset-backed certificates 431 453 431 510 419 465
Other cash investments 149 148 1 1 2 1
----------------------------------------------------------------------------------
$1,285 $1,262 $1,102 $1,221 $ 962 $1,035
Equity securities
JCPenney Insurance $ 35 $ 37 $ 28 $ 33 $ 22 $ 29
JCPenney Company 58 60 43 47 -- --
----------------------------------------------------------------------------------
$ 93 $ 97 $ 71 $ 80 $ 22 $ 29
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Unrealized capital gains and losses on fixed income and equity securities
included in stockholders' equity at year end 1994 were as follows:

<TABLE>
<CAPTION>
Gross
Cost or Unrealized Net
Amortized Fair -------------------- Unrealized
(In millions) Cost Value Gains (Losses) Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JCPenney Insurance fixed income securities $ 705 $ 661 $ 6 $ (50) $ (44)
Asset-backed certificates 431 453 22 0 22
Other cash investments 149 148 0 (1) (1)
Equity securities 93 97 9 (5) 4
------------------------------------------------------------------------
$1,378 $1,359 $ 37 $ (56) $ (19)
Deferred income taxes 7
--------------
Total $ (12)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The scheduled maturities for fixed income securities at year end 1994 were as
follows:

<TABLE>
<CAPTION>
Amortized Fair
(In millions) Cost Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 16 $ 16
Due after one year through five years 339 331
Due after five years through ten years 519 539
Due after ten years 176 158
---------------------
1,050 1,044
Mortgage-backed securities 216 199
Other 19 19
---------------------
Total $1,285 $1,262
- --------------------------------------------------------------------------------
</TABLE>

Realized gains and losses on investment transactions are determined on a
first-in, first-out basis and are included in income on the trade date, and
other revenue on the consolidated statements of income. These gains were $7
million in 1994, $14 million in 1993, and $12 million in 1992.

<PAGE>

6. DERIVATIVE FINANCIAL INSTRUMENTS

The Company selectively uses off-balance-sheet derivative financial
instruments to manage market and interest rate risk, and reduce costs
associated with financings. The Company uses derivatives for purposes other
than trading activities, and derivatives which are leveraged or speculative
by nature are not used. Current derivative positions consist of
off-balance-sheet interest rate swaps which management believes present no
significant financial risk to the Company.

CURRENT DERIVATIVE POSITIONS. In connection with the sale of $375 million of
asset-backed certificates in 1990, the Company entered into two offsetting
interest rate swaps. The swaps help to protect the investors of the
certificates by reducing the possibility of an early amortization of the
principal. Currently, the Company has no interest rate exposure from these
swaps due to their offsetting nature.

The Company has in place interest rate swap contracts that were entered
into in connection with the issuance of $250 million principal amount of 8.25
per cent sinking fund debentures in August 1992. These are four year agreements
with a notional principal amount totaling $250 million. Under the swap
agreements, the Company converted its fixed rate obligation to a floating rate
obligation based on the six month London Interbank (LIBOR) rate. Since the
inception of these interest rate swaps in 1992, interest expense has been
reduced by approximately $10 million, and the interest cost of the 8.25 per cent
fixed rate coupon has been effectively lowered to 6.25 per cent. The cumulative
benefit of these swaps will be impacted by fluctuations in short term interest
rates over the remaining 18 months of the swap contracts.

The counter parties to these contracts are high credit quality commercial
banks. Consequently, credit risk, which is inherent in all swaps, has been
minimized to a large extent.

The impact of these interest rate swaps on both interest expense and the
Company's average long term borrowing rate for 1994, 1993, and 1992 was
immaterial.

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

Estimates of fair value are made at a specific point in time, based on
relevant market prices and information about the financial instrument. The
estimated fair values of financial instruments presented below are not
necessarily indicative of the amounts the Company might realize in actual
market transactions. The carrying amount and fair value for the financial
assets and liabilities on the consolidated balance sheet at each year end
were:

<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------------------------------------------------
Carrying Fair Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial assets
JCPenney Insurance fixed income securities $ 661 $ 661 $ 670 $ 710 $ 541 $ 569
Asset-backed certificates 453 453 431 510 419 465
Other cash investments 148 148 1 1 2 1
Equity securities 97 97 80 80 29 29
Receivables, net 5,159 5,159 4,679 4,679 3,750 3,750
Cash and short term investments 261 261 173 173 426 426
Financial liabilities
Long term debt (excluding capital leases)* $ 3,231 $ 3,124 $ 2,802 $ 3,021 $ 3,030 $ 3,295
Bank deposits 702 698 581 584 538 541
Short term debt 2,092 2,092 1,284 1,284 907 907
Current maturities of long term debt -- -- 348 348 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

*The fair value of the off-balance-sheet interest rate swaps at the end of 1994,
1993, and 1992 was $(8) million, $13 million, and $4 million, respectively.

32
<PAGE>

Fair values for fixed income securities, asset-backed certificates, and
equity securities are based on quoted market prices. Fixed income securities and
asset-backed certificates were carried at fair value on the consolidated balance
sheet at year end 1994, and were carried at amortized cost in 1993 and 1992. The
Company believes that the carrying value of existing customer and bank
receivables is the best estimate of fair value because of their short average
maturity and bad debt losses can be reasonably estimated and have been reserved.
The carrying amount for the Company's cash and short term investments, short
term debt, and current maturities of long term debt approximates fair value due
to their short maturities. The fair value for long term debt, excluding capital
leases, was determined based on the interest rate environment and the Company's
credit rating. The fair value of bank deposits was based on the discounted value
of contractual cash flows. The fair value of interest rate swaps is estimated
based on quotes from brokers, and reflects the estimated amount that the Company
would receive or pay to terminate the contracts at the reporting date.

CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of customer
accounts receivable and investments. Concentrations of credit risk for the
Company's customer accounts receivable are limited due to the large number of
customers comprising the Company's credit card base and their dispersion
across the country. With respect to investments held by JCPenney Insurance,
the Company limits the credit risk by diversifying its investments by
industry sector and by investing primarily in high grade fixed income
securities. The result has been a conservative portfolio having an average
rating of AA.

8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trade payables $ 1,014 $ 1,034 $ 944
Accrued salaries, vacations, profit-sharing, and bonuses 336 311 308
Taxes, including income taxes 358 234 238
Workers' compensation and public liability insurance 123 126 116
Common dividend payable 96 85 77
Other 347 349 355
------------------------------------
Total $ 2,274 $ 2,139 $ 2,038
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

9. SHORT TERM DEBT

<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial paper $ 2,074 $ 1,284 $ 887
Other 18 -- 20
----------------------------------
Total $ 2,092 $ 1,284 $ 907
Average interest rate at year end 5.9% 3.2% 3.4%
- --------------------------------------------------------------------------------
</TABLE>

COMMITTED BANK CREDIT FACILITIES available to the Company as of January 28,
1995, amounted to $2.5 billion. In 1994, the Company completed two syndicated
revolving credit facility agreements. These facilities comprise a $1.5
billion, 364-day revolver and a $1.0 billion, five-year revolver with a group
of domestic and international banks. These facilities support the Company's
short term borrowing program and replaced the Company's existing credit
lines. None of the borrowing facilities was in use as of January 28, 1995.

Also, the Company had $880 million of uncommitted credit lines in the form of
letters of credit with seven banks to support its direct import merchandise
program. At January 28, 1995, $370 million of letters of credit issued by the
Company were outstanding.

<PAGE>

10. LONG TERM DEBT

<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Original issue discount
Zero coupon notes and 6% debentures, due 1994
and 2006, $550 at maturity, yields 14.6% to 14.9%,
effective rates 13% to 13.2% $ 104 $ 101 $ 401
Debentures and notes
5.375% to 7.375%, due 1998 to 2023 1,500 1,000 --
8.25% to 8.375%, due 1996 to 2022 250 250 366
9% to 10%, due 1997 to 2021 1,000 1,000 1,750
Guaranteed LESOP notes, 8.17%, due 1998* 307 379 447
Present value of commitments under capital leases 104 127 141
Other 70 72 66
-------------------------------------
Long term debt $3,335 $2,929 $3,171
Average long term debt outstanding $2,754 $2,471 $2,683
Average interest rates 8.2% 9.9% 10.5%
- -----------------------------------------------------------------------------------------------------------
</TABLE>

*For further discussion, see LESOP on page 37.

<TABLE>
<CAPTION>
CHANGES IN LONG TERM DEBT (In millions) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increases
5.375% to 9.75% notes, due 1998 to 2023 $ 500 $ 1,000 $ 250
Amortization of original issue discount 3 48 43
Other -- 16 30
-------------------------------------------
503 1,064 323
-------------------------------------------
Decreases
Transfers to current maturities of long term debt -- 348 --
8.375% to 12.75% debentures, bonds, and notes,
due 1995 to 2021, retired in 1992 and 1993 -- 872 423
Other, including LESOP amortization 97 86 83
-------------------------------------------
97 1,306 506
-------------------------------------------
Net increase (decrease) in long term debt $ 406 $ (242) $ (183)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
MATURITIES OF LONG TERM DEBT (In millions) Long Term Debt Capital Leases
- --------------------------------------------------------------------------------
<S> <C> <C>
1995 $ 2 $ 17
1996 6 18
1997 256 14
1998 587 14
1999 232 13
2000 to 2004 1,116 38
Thereafter 821 17
-----------------------
Total $3,020 131
======
Less future interest and executory expenses 27
-----
Present value $ 104
=====
- --------------------------------------------------------------------------------
</TABLE>

34
<PAGE>

11. PREFERRED STOCK

In 1988, a leveraged employee stock ownership plan (LESOP) was adopted (see page
37 for further discussion). The LESOP purchased approximately 1.2 million shares
of a new issue of Series B convertible preferred stock from the Company. These
shares are convertible into shares of the Company's common stock at a conversion
rate equivalent to 20 shares of common stock for each share of preferred stock.
The conversion price is $30 per common share. The convertible preferred stock
may be redeemed at the option of the Company or the LESOP, under certain limited
circumstances. The redemption price may be satisfied in cash or common stock or
a combination of both at the Company's sole discretion. The dividends are
cumulative, are payable semi-annually on January 1 and July 1, and yield 7.9 per
cent. The convertible preferred stock issued to the LESOP has been recorded in
the stockholders' equity section of the consolidated balance sheet, and the
"Guaranteed LESOP obligation," representing borrowings by the LESOP, has been
recorded as a reduction of stockholders' equity. As of January 28, 1995,
approximately 710 thousand shares had been allocated to participants' accounts
since 1988, and approximately 467 thousand shares were committed-to-be released
in the next four years.

THE PREFERRED DIVIDEND is payable semi-annually at an annual rate of $2.37
per common equivalent share. Preferred dividends declared were $50 million in
1994, $52 million in 1993, and $53 million in 1992; on an after tax basis,
the dividends amounted to $31 million in 1994, $31 million in 1993, and $33
million in 1992.

In 1990, the Board of Directors declared a dividend distribution of one new
preferred stock purchase right on each outstanding share of common stock and
authorized the redemption of the old preferred stock purchase rights for five
cents per share totaling $12 million. The preferred stock purchase rights, in
accordance with the rights agreement, entitle the purchase, for each right held,
of 1/400 of a share of Series A junior participating preferred stock at a price
of $140. The rights are exercisable upon the occurrence of certain events and
are redeemable by the Company under certain circumstances, all as described in
the rights agreement.

12. COMMON STOCK

The quarterly common dividend was 42 cents per share in 1994, 36 cents per
share in 1993, and 33 cents per share in 1992, or an indicated annual rate of
$1.68 per share in 1994, $1.44 per share in 1993, and $1.32 per share in
1992. Common dividends declared were $392 million in 1994, $339 million in
1993, and $309 million in 1992.

On March 9, 1994, the Board of Directors approved the purchase of up to 10
million shares of the Company's common stock. This purchase program was
completed in January 1995 at a cost of $475 million. All shares were retired and
returned to the status of authorized but unissued shares of common stock. A
second purchase program, for up to an additional 10 million shares of the
Company's common stock, was approved by the Board of Directors on January 23,
1995, and was begun in late January 1995.

On March 10, 1993, the Board of Directors declared a two-for-one stock
split in the form of a stock dividend, which was payable May 1, 1993, to
stockholders of record on April 12, 1993.

At the Company's 1994 Annual Meeting, stockholders approved the increase in
the authorized number of shares of common stock from 500 million to 1.25 billion
shares.

There were approximately 53,000 stockholders of record at year end 1994. In
addition, the Company's savings plans, including the LESOP, had 116,000
participants and held 38.7 million shares of the Company's common stock. The
savings plans also held 1.05 million shares of preferred stock, convertible into
21.0 million shares of common stock. On a combined basis, these plans held
approximately 24 per cent of the Company's common shares after giving effect to
the conversion of the preferred stock at the end of fiscal year 1994.

<TABLE>
<CAPTION>
Shares Paid-in Capital
--------------------------------------------------------------------------
CHANGES IN OUTSTANDING (In thousands) (In millions)
COMMON STOCK 1994 1993 1992 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 236,086 234,778 233,302 $1,003 $ 955 $ 857
Common stock issued 1,455 1,308 1,476 70 48 39
Common stock purchased and retired (10,100) -- -- (43) -- --
Two-for-one stock split -- -- -- -- -- 59
--------------------------------------------------------------------------
Balance at end of year 227,441 236,086 234,778 $1,030 $1,003 $ 955
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

1993 EQUITY COMPENSATION PLAN AND 1993 NON-ASSOCIATE DIRECTORS' EQUITY PLAN.
In May 1993, stockholders approved the 1993 Equity Compensation Plan (1993
Plan), which replaced the expiring 1989 Equity Compensation Plan. Under the
1993 Plan, 11.6 million shares of common stock were reserved for issuance
upon the exercise of options and stock appreciation rights and for the
payment of stock awards over the five-year term of the 1993 Plan. No discount
options nor tax benefit rights may be issued under the 1993 Plan.
Participants in the 1993 Plan are generally to be selected management
associates of the Company and its subsidiaries and affiliates as determined
by the committee administering the 1993 Plan. It is anticipated that
approximately 2,000 associates will be eligible to participate. No awards may
be made under the 1993 Plan after May 31, 1998. In May 1993, stockholders
also approved the 1993 Non-Associate Directors' Equity Plan (Directors'
Plan). Under the Directors' Plan, 90,000 shares of common stock were reserved
for issuance upon the exercise of stock options and the payment of stock
awards over the five-year term of the Directors' Plan. Each director who is
presently not an active employee of the Company will automatically be granted
annually an option to purchase 800 shares, in tandem with an award of 200
restricted shares of common stock. An initial grant/award in this same amount
will also automatically be granted to each new Non-Associate Director upon
his or her first being elected as a director. Such stock options will become
exercisable six months from the date of grant, but shares acquired upon such
exercise will not be transferable until a director terminates service.

<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Option Shares Option Shares Option
STOCK OPTIONS (In thousands) Price (In thousands) Price (In thousands) Price
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 8,235 $ 27.96 8,844 $ 27.42 9,490 $ 26.31
Granted 997 55.31 159 41.24 574 35.10
Exercised (865) 26.51 (752) 24.49 (974) 21.02
Expired and cancelled (20) 32.68 (16) 26.89 (246) 27.66
----- ----- -----
Balance at end of year 8,347 $31.36 8,235 $ 27.96 8,844 $ 27.42
</TABLE>

At year end 1994, options covering 7.3 million shares were exercisable and 10.4
million shares were reserved for future grants.
- --------------------------------------------------------------------------------

13. FINANCE CHARGE REVENUE AND BAD DEBT EXPENSE, on customer accounts
receivable owned by the Company, are included in the "Net interest expense
and credit operations" line of the consolidated statements of income. Finance
charge revenue was $624 million in 1994, $523 million in 1993, and $509
million in 1992. Bad debt expense was $177 million in 1994, $95 million in
1993, and $122 million in 1992.

14. INTEREST EXPENSE

<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Short term debt $ 92 $ 43 $ 43
Long term debt 225 246 281
Income on short term investments (16) (14) (48)
Interest capitalized (3) (4) (14)
Other, net* (28) (30) (4)
------------------------------
Interest expense, net $270 $ 241 $ 258
</TABLE>

*Includes $34 million, $34 million and $28 million, respectively, of interest
income from the Company's investment in asset-backed certificates.
- --------------------------------------------------------------------------------

15. RENT EXPENSE

The Company conducts the major part of its operations from leased premises
which include retail stores, distribution centers, warehouses, offices, and
other facilities. Almost all leases will expire during the next 20 years;
however, most leases will be renewed or replaced by leases on other premises.
Rent expense for real property operating leases was:

<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rents $ 235 $ 236 $ 244
Contingent rents based on sales 37 37 35
------------------------------
Total $ 272 $ 273 $ 279
- --------------------------------------------------------------------------------
</TABLE>

The Company also leases data processing equipment and other personal property
under operating leases of primarily three to five years. Rent expense for
personal property leases was $92 million in 1994, $90 million in 1993, and
$107 million in 1992.

<PAGE>

Future minimum lease payments for noncancelable real and personal property
operating leases and subleases as of January 28, 1995 were:

<TABLE>
<CAPTION>
(In millions) Operating Leases
- --------------------------------------------------------------------------------
<S> <C>
1995 $ 230
1996 194
1997 160
1998 139
1999 121
Thereafter 597
--------
Total minimum lease payments $1,441
========
Present value $1,000
Weighted average interest rate 10%
- --------------------------------------------------------------------------------
</TABLE>

The minimum lease payments are shown net of estimated executory costs, which
are principally real estate taxes, maintenance, and insurance.

16. RETIREMENT PLANS

<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pension
Service cost $ 57 $ 50 $ 46
Interest cost 134 123 122
Actual (return) loss on assets (22) (236) (90)
Net amortization and deferral (181) 59 (90)
------------------------------
Pension credit (12) (4) (12)
------------------------------
Postretirement health care
Service cost 3 3 6
Interest cost 25 24 27
------------------------------
Total 28 27 33
------------------------------
LESOP expense 53 50 49
------------------------------
Total retirement plans $ 69 $ 73 $ 70
- --------------------------------------------------------------------------------
</TABLE>

PENSION PLAN. JCPenney's principal pension plan, which is noncontributory,
covers substantially all United States employees who have completed 1,000 or
more hours of service within a period of 12 consecutive months and have
attained 21 years of age. In addition, the Company has an unfunded,
noncontributory, supplemental retirement program for certain management
employees. In general, benefits payable under the principal pension plan are
determined by reference to a participant's final average earnings and years
of credited service up to 35 years.

In 1994, the Company increased its discount rate to 8.75 per cent,
reflecting the higher interest rate environment. The impact of this change
reduced the Company's obligation at year end 1994. Pension plan assumptions are
reviewed and modified as necessary on an annual basis. The Company made a $99
million contribution to the plan in 1994 and a $65 million contribution in 1993.

POSTRETIREMENT HEALTH CARE BENEFITS

The Company's retiree health care plan (Retiree Plan) covers medical and
dental services and eligibility for benefits is based on age and years of
service. The Retiree Plan is contributory and the amounts paid by retired
employees have increased in recent years and are expected to continue to do
so. For certain groups of employees, Company contributions toward the cost of
retiree coverage will be based on a fixed dollar amount which will vary with
years of service, age, and dependent coverage. The Retiree Plan is funded on
a pay-as-you-go basis by the Company and retiree contributions.

The Company uses the same discount rate for both its pension plan and
Retiree Plan. The health care trend rate was lowered from 10 per cent to 9.5 per
cent for 1995 with gradual reductions to 6 per cent by 2003 and beyond. The
health care trend rate change represents a modification from previous
assumptions because of favorable experience and a lower inflation environment.
The changes in plan assumptions had no significant impact on the Company's
obligation at year end 1994. A one per cent increase in the health care trend
rate would increase the amount reported for the accumulated obligation by $27
million and would result in $2 million additional expense for 1994.

LESOP. The Company's LESOP, adopted in 1988, is a defined contribution plan
which covers substantially all United States employees who have completed at
least 1,000 hours of service within a period of 12 consecutive months, and if
hired on or after January 1, 1988, have attained 21 years of age.

The LESOP borrowed $700 million at an interest rate of 8.17 per cent
through a 10 year loan guaranteed by the Company. The LESOP used the proceeds of
the loan to purchase a new issue of convertible preferred stock from the
Company. The Company used the proceeds from the issuance of preferred stock to
the LESOP to purchase 28 million common shares of the Company in the open
market.

The Company has reflected the guaranteed LESOP borrowing as long term debt
on the consolidated balance sheet. A like amount of "Guaranteed LESOP
obligation" was recorded as a reduction of stockholders' equity. The convertible
preferred stock issued to the LESOP for cash was recorded in the stockholders'
equity section. As the Company makes contributions to the LESOP, these
contributions, plus the dividends paid on the Company's preferred stock held by
the LESOP, will be used to repay the loan. As the principal amount of the loan
is repaid, the "Guaranteed LESOP obligation" is reduced accordingly.

The amount of LESOP expense recorded by the Company represents its cash
contribution to the LESOP.

37
<PAGE>

The following table sets forth the status of the Company's retirement plans:

<TABLE>
<CAPTION>
December 31
---------------------------------------------
RETIREMENT PLANS (In millions) 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pension
Present value of accumulated benefits
Vested $ 1,368 $ 1,367 $ 1,227
Non-vested 75 80 73
---------------------------------------------
$ 1,443 $ 1,447 $ 1,300
=============================================
Present value of actuarial benefit obligation $ (1,661) $ (1,781) $ (1,694)
Net assets at fair market value 1,825 1,800 1,585
Unrecognized transition asset, net of unrecognized losses 200 216 259
---------------------------------------------
Net prepaid pension cost $ 364 $ 235 $ 150
=============================================
Postretirement health care benefits
Accumulated benefit obligation
Retirees $ 217 $ 246 $ 205
Fully eligible active participants 43 51 82
Other active participants 40 41 43
---------------------------------------------
300 338 330
Unrecognized net gain (loss) 32 (10) (7)
---------------------------------------------
Net liability $ 332 $ 328 $ 323
=============================================
Key assumptions
Rate of return on pension plan assets 9.5% 9.5% 9.5%
Discount rate 8.75% 7.25% 8.0%
Salary progression rate 4.0% 4.0% 4.0%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Savings Plans Pension
--------------------------------------------------------------------------
December 31 December 31
TOTAL ASSETS AND EQUITY (In millions) 1994 1993 1992 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JCPenney preferred and common stock $2,662 $3,030 $2,200 $ -- $ -- $ --
Equity securities 120 117 103 1,288 1,424 1,232
Fixed income investments 1,048 1,091 1,061 473 302 275
LESOP loan obligation, including accrued
interest of $14, $17, and $20 (358) (431) (498) -- -- --
Other assets, net 63 47 37 64 74 78
--------------------------------------------------------------------------
Net assets $3,535 $3,854 $2,903 $1,825 $1,800 $1,585
==========================================================================

<CAPTION>
Savings Plans Pension
--------------------------------------------------------------------------
CHANGES IN FAIR VALUE OF December 31 December 31
NET ASSETS (In millions) 1994 1993 1992 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net assets at beginning of year $3,854 $2,903 $2,173 $1,800 $1,585 $1,561
Company contribution 53 50 49 99 65 --
Participants' contributions 203 184 169 -- -- --
Gains (losses) (280) 984 794 22 236 93
LESOP interest expense (30) (35) (40) -- -- --
Benefits paid (265) (232) (242) (96) (86) (69)
--------------------------------------------------------------------------
Net assets at end of year $3,535 $3,854 $2,903 $1,825 $1,800 $1,585
==========================================================================
</TABLE>

<PAGE>

17. TAXES

The Company adopted Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes, effective January 31, 1993. This statement
requires an asset and liability approach to accounting for differences
between the tax basis of an asset or liability and its reported amount in the
financial statements (temporary differences). Deferred taxes are determined
by applying the provisions of enacted tax laws, and adjustments are required
for changes in tax laws and rates. Deferred taxes reflected on the balance
sheet were reduced by $51 million, and a cumulative adjustment was recorded
to increase net income by the same amount, using current tax rates in effect
at the beginning of fiscal 1993.

The Omnibus Budget Reconciliation Act of 1993, which was signed into law on
August 10, 1993, included an increase in the statutory Federal income tax
rate from 34 per cent to 35 per cent, retroactive to January 1, 1993. This
change in the tax rate resulted in higher taxes on operating income in 1993
as well as a one-time, non-cash tax expense totaling $14 million for the
revaluation of deferred taxes on the balance sheet as required by Statement
No. 109.

Deferred tax assets and liabilities reflected on the Company's consolidated
balance sheet at January 28, 1995, were measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The major components of
deferred tax liabilities (assets) at January 28, 1995, were as follows:

<TABLE>
<CAPTION>
Net
TEMPORARY Deferred Deferred (Asset)
DIFFERENCES (In millions) (Asset) Liability Liability
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retirement plans $(192) $ 204 $ 12
Restructuring reserve (18) -- (18)
Workers' compensation/public liability (100) -- (100)
Leases (31) 369 338
Accounts receivable (29) -- (29)
Inventories (30) 124 94
Depreciation -- 757 757
Deferred policy acquisition costs -- 160 160
Other (200) 140 (60)
---------------------------------------------
Total $(600) $1,754 $1,154
- ------------------------------------------------------------------------------------------------------
</TABLE>

No valuation allowances were considered necessary as of January 31, 1993,
January 29, 1994, or January 28, 1995. The Company believes that the existing
deductible temporary differences will be offset by future reversals of
differences generating taxable income.

Deferred taxes, under APB Opinion No. 11 in 1992, consisted principally of
accumulated depreciation and accounting for leases.

<TABLE>
<CAPTION>
INCOME TAX EXPENSE (In millions) 1994 1993 1992
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 521 $ 443 $ 372
State and local 92 67 62
--------------------------------------
613 510 434
--------------------------------------
Deferred
Federal 25 80 29
State and local 4 20 19
--------------------------------------
29 100 48
--------------------------------------
Total $ 642 $ 610 $ 482
Effective tax rate 37.8% 39.3% 38.3%
- ---------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Per cent of
Amounts (In millions) Pre-tax Income
---------------------------------------------------------------
RECONCILIATION OF TAX RATES 1994 1993 1992 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at statutory rate $ 594 $ 544 $ 428 35.0 35.0 34.0
State and local income taxes, less federal income tax benefit 65 58 53 3.8 3.7 4.2
Revaluation of deferred taxes -- 14 -- -- .9 --
Tax effect of dividends on allocated LESOP shares (9) (9) -- (.5) (.5) --
Tax credits and other (8) 3 1 (.5) .2 .1
---------------------------------------------------------------
Total $ 642 $ 610 $ 482 37.8 39.3 38.3
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

18. SEGMENT REPORTING

The Company operates predominantly in one industry segment consisting of
selling merchandise and services to consumers through retail department
stores that include catalog departments. Total assets for that industry
segment at the end of the last three years were $14,103 million, $12,888
million, and $11,820 million, respectively.

<PAGE>

- --------------------------------------------------------------------------------
QUARTERLY DATA (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
First Second Third Fourth
----------------------------------------------------------------------------------------------
(In millions except per share data) 1994 1993 1992 1994 1993 1992 1994 1993 1992 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retail sales $4,350 3,964 3,793 4,242 3,963 3,789 5,149 4,735 4,342 6,639 6,321 6,085
Per cent increase 9.7 4.5 10.5 7.1 4.6 9.6 8.7 9.1 10.3 5.0 3.9 13.2
Total revenue $4,519 4,106 3,918 4,412 4,106 3,912 5,328 4,888 4,472 6,823 6,478 6,213
Per cent increase 10.0 4.8 10.7 7.4 5.0 9.7 9.0 9.3 10.4 5.3 4.3 13.1
LIFO gross margin $1,395 1,280 1,233 1,282 1,191 1,164 1,661 1,530 1,395 2,072 1,985 1,920
LIFO gross margin, per cent of
retail sales 32.1 32.3 32.5 30.2 30.1 30.7 32.2 32.3 32.1 31.2 31.4 31.6
Selling, general, and
administrative expenses, per cent
of retail sales 25.1 25.9 26.7 25.5 25.8 27.1 23.4 24.2 25.0 21.2 20.8 21.7
Income before extraordinary charge
and cumulative effect of
accounting change $ 223 172 136 132 112 80 274 221 186 428 439 375
Net income $ 223 206 136 132 112 80 274 185 186 428 437 375
Income per share before
extraordinary charge and
cumulative effect of accounting
change
Primary $ .88 .68 .54 .52 .43 .31 1.11 .88 .75 1.78 1.80 1.55
Fully diluted $ .84 .65 .52 .51 .42 .31 1.04 .83 .70 1.66 1.65 1.42
Net income per common share
Primary $ .88 .82 .54 .52 .43 .31 1.11 .73 .75 1.78 1.79 1.55
Fully diluted $ .84 .78 .52 .51 .42 .31 1.04 .69 .70 1.66 1.64 1.42
Dividends per common share $ .42 .36 .33 .42 .36 .33 .42 .36 .33 .42 .36 .33
Common stock price range
High $ 59 45 34 54 49 36 54 52 38 52 56 40
Low $ 50 36 27 47 41 32 47 39 33 39 49 36
Close $ 54 43 33 49 45 35 51 52 37 41 52 36
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

40
<PAGE>

- --------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------

GENERAL. The following information is provided as a supplement to the
Company's audited financial statements. Its purpose is to facilitate an
understanding of the Company's credit operations, capital structure, and cash
flows.

CREDIT OPERATIONS. The following table presents the results of the Company's
proprietary credit card operation, measuring on an all-inclusive basis the
costs of granting, operating, and financing credit, net of finance charge
revenue. This presentation does not include any profits derived from
merchandise and services purchased by customers. Revenue, costs, and expenses
contained in the table below relate to all customer accounts receivable
generated and serviced by the Company, including those recorded as sold under
asset securitization transactions. This presentation is designed to measure
on an "economic basis" the total pre-tax cost of providing the JCPenney
credit card to customers.

<TABLE>
<CAPTION>
PRE-TAX COST OF JCPENNEY CREDIT CARD (In millions) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance charge revenue
On receivables owned $ (624) $ (523) $ (509)
On receivables sold (105) (129) (166)
-----------------------------------------
Total (729) (652) (675)
Bad debt expense 208 128 171
Operating expenses (including in-store costs) 268 265 270
Cost of capital 403 399 417
-----------------------------------------
Total 879 792 858
-----------------------------------------
Pre-tax cost of JCPenney credit $ 150 $ 140 $ 183
Per cent of JCPenney credit sales 1.6% 1.6% 2.2%
- ------------------------------------------------------------------------------------------------------------
</TABLE>

The cost of capital shown above represents the cost of financing both
Company-owned accounts receivable and securitized accounts receivable. The
cost of the sold receivables is the actual interest paid to certificate
holders. The owned accounts receivables are financed with both debt and
equity capital. The debt component uses the total Company weighted average
interest rate, while the equity component uses the Company's minimum return
on equity objective of 16 per cent. On a combined basis, for both owned and
sold receivables, the debt and equity components of the total capital
requirements were 88 per cent debt and 12 per cent equity, which approximates
the finance industry standard debt to equity ratio.

<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------------------------
Per cent Per cent Per cent
Amounts of Eligible Amounts of Eligible Amounts of Eligible
CREDIT SALES (JCPenney stores and catalog) (In billions) Sales (In billions) Sales (In billions) Sales
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JCPenney credit card $ 9.4 49.6 $ 8.7 49.6 $ 8.3 49.8
American Express, Discover, MasterCard, and Visa 3.4 17.9 2.8 16.1 2.3 13.8
------------------------------------------------------------------------------
Total $ 12.8 67.5 $ 11.5 65.7 $10.6 63.6
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
KEY JCPENNEY CREDIT CARD INFORMATION (In millions) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of accounts serviced with balances 17.6 17.2 17.5
Total customer receivables serviced $ 4,751 $ 4,410 $ 4,068
Average customer receivables financed $ 4,197 $ 3,767 $ 3,901
Average account balances (in dollars) $ 269 $ 256 $ 231
Average account maturity (months) 4.2 4.0 4.1
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

Capital structure. The Company's objective is to maintain a capital structure
that will assure continuing access to financial markets so that we can, at
reasonable cost, provide for future needs and capitalize on attractive
opportunities for growth.

<PAGE>

- --------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------

The debt to capital ratio shown in the table below includes both debt recorded
on the Company's consolidated balance sheet as well as off-balance-sheet debt
related to operating leases and the securitization of a portion of the Company's
customer accounts receivable (asset-backed certificates).

<TABLE>
<CAPTION>
DEBT TO CAPITAL (In millions) 1994 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short term debt,
net of cash investments $ 1,738 $ 1,128 $ 502
Long term debt,
including current maturities 3,335 3,277 3,171
------------------------------------------
5,073 4,405 3,673
Off-balance-sheet debt
Present value of operating leases 1,000 900 950
Securitization of accounts
receivable, net 272 294 731
------------------------------------------
Total debt $ 6,345 $ 5,599 $ 5,354
Consolidated equity $ 5,615 $ 5,365 $ 4,705
Total capital $11,960 $10,964 $10,059
Per cent of total debt to capital 53.1% 51.1% 53.2%
- ---------------------------------------------------------------------------------------------
</TABLE>

The Company builds its capital base according to the different needs and
credit characteristics of its customer receivables and its other core retail
assets. Customer receivables are highly diversified and predictable financial
assets, very different from the core assets of a retailer, which include
fixed assets and inventories for stores and catalog. Accordingly, the Company
finances receivables with more leverage, much like a finance company. The
standards for these assets are a debt ratio of approximately 88 per cent, and
interest coverage of about 1.5 times. Core assets are financed with less
leverage and more comparable to the leverage of non-retail industrial
companies with strong credit ratings. The Company's capital structure at the
end of fiscal year 1994 was:

<TABLE>
<CAPTION>
Customer Core
(In millions) Receivables Assets Combined
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt $ 4,092 $2,253 $ 6,345
Equity 585 5,030 5,615
--------------------------------------
Total capital $ 4,677 $7,283 $11,960
Debt to capital per cent 87.5% 30.9% 53.1%
- --------------------------------------------------------------------------------
</TABLE>

The historical debt to capital per cent and fixed charge coverage for the prior
three years, on a separate and combined basis, was:

<TABLE>
<CAPTION>
DEBT TO CAPITAL PER CENT
1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Combined 53.1 51.1 53.2
Core assets 30.9 27.1 30.6
Customer receivables 87.5 87.5 87.5
- --------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
FIXED CHARGE COVERAGE
1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Combined 4.5 4.3 3.4
Core assets 9.1 8.7 6.4
Customer receivables 1.5 1.5 1.4
- --------------------------------------------------------------------------------
</TABLE>

FINANCING COSTS incurred by the Company to finance its operations, including
those costs related to off-balance-sheet liabilities were as follows:

<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense, net $270 $241 $258
Interest portion of LESOP debt payment 30 35 40
Off-balance-sheet financing costs
Interest imputed on operating leases 95 97 96
Asset-backed certificates interest 67 87 105
----------------------------
Total $462 $460 $499
- --------------------------------------------------------------------------------
</TABLE>

CREDIT RATINGS. Over the years, the Company has maintained one of the highest
credit ratings in the retail industry. The Company's objective is to maintain
a strong investment grade rating on its senior long term debt, and A1/P1/F1
ratings on commercial paper. In October 1994, Moody's Investors Service
upgraded the Company's long term debt rating to A1. Currently, the credit
ratings for the Company are as follows:

<TABLE>
<CAPTION>
Long Term Commercial
Debt Paper
- --------------------------------------------------------------------------------
<S> <C> <C>
Standard & Poor's Corporation A+ A1
Moody's Investors Service A1 P1
Fitch Investors Service, Inc. A+ F1
- --------------------------------------------------------------------------------
</TABLE>

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA).
Management believes that a key measure of cash flow generated is earnings before
interest, taxes, depreciation and amortization (EBITDA). EBITDA is not intended
to represent cash flow or any other measure of performance in accordance with
generally accepted accounting principles, but is included as a tool for
analyzing the Company's financial condition. The following schedule shows the
calculation of EBITDA and EBITDA margin as a per cent of total revenue.

<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes,
extraordinary charge, and cumulative
effect of accounting change $ 1,699 $ 1,554 $ 1,259
Financing costs 462 460 499
Depreciation and amortization,
including operating leases 449 416 382
----------------------------------------
EBITDA $ 2,610 $ 2,430 $ 2,140
Total revenue $21,082 $19,578 $18,515
EBITDA per cent of total revenue 12.4% 12.4% 11.6%
- ------------------------------------------------------------------------------------------------
</TABLE>

42
<PAGE>

- --------------------------------------------------------------------------------
FIVE YEAR FINANCIAL SUMMARY
- --------------------------------------------------------------------------------

J.C. Penney Company, Inc. and Subsidiaries

<TABLE>
<CAPTION>
(In millions except per share data) 1994 1993/1/ 1992 1991/2/ 1990
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results for the year
Total revenue $ 21,082 19,578 18,515 16,648 16,736
Retail sales $ 20,380 18,983 18,009 16,201 16,365
Per cent increase (decrease) 7.4 5.4 11.2 (1.0) 1.6
LIFO gross margin, per cent of retail sales 31.5 31.5 31.7 31.5 31.4
FIFO gross margin, per cent of retail sales 31.5 31.3 31.5 30.9 31.7
Selling, general, and administrative
expenses, per cent of retail sales 23.5 23.7 24.7 25.6 26.2
Depreciation and amortization $ 323 316 310 316 299
Income taxes $ 642 610 482 204 255
Income before extraordinary charge
and cumulative effect of accounting changes $ 1,057 944 777 264 577
Net income $ 1,057 940 777 80 577
Earnings per common share
Primary
Before extraordinary charge and cumulative
effect of accounting changes $ 4.29 3.79 3.15 .99 2.30
Net income $ 4.29 3.77 3.15 .20 2.30
Fully diluted
Before extraordinary charge and cumulative
effect of accounting changes $ 4.05 3.55 2.95 .99 2.16
Net income $ 4.05 3.53 2.95 .20 2.16
Per common share
Dividends $ 1.68 1.44 1.32 1.32 1.32
Stockholders' equity $ 23.45 21.53 19.17 17.33 18.38
Return on stockholders' equity 19.7 20.1 18.6 12.0 13.3

Financial position
Receivables, net $ 5,159 4,679 3,750 4,131 4,303
Merchandise inventories $ 3,876 3,545 3,258 2,897 2,657
Properties, net $ 3,954 3,818 3,755 3,633 3,532
Capital expenditures $ 544 459 494 506 601
Total assets $ 16,202 14,788 13,467 12,444 12,256
Total debt $ 5,427 4,561 4,078 4,062 4,114
Stockholders' equity $ 5,615 5,365 4,705 4,188 4,394

Number of common shares
outstanding at year end 227 236 235 233 234
Weighted average common shares
Primary 237 239 236 234 236
Fully diluted 258 261 258 234 260
Number of employees at year end
(In thousands) 202 193 192 185 196
</TABLE>

/1/ Excluding the impact of the tax rate increase on deferred taxes, after tax
income was $958 million, or $3.60 per share, on a fully diluted basis.

/2/ Excluding the effect of nonrecurring items and the cumulative effect of an
accounting change, after tax income was $528 million, or $2.00 per
share, on a fully diluted basis.
- --------------------------------------------------------------------------------

43
<PAGE>

- --------------------------------------------------------------------------------
FIVE YEAR OPERATIONS SUMMARY
- --------------------------------------------------------------------------------

J.C. Penney Company, Inc. and Subsidiaries

<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JCPenney stores
Number of stores
Beginning of year 1,246 1,266 1,283 1,312 1,328
Openings 29 24 33 38 46
Closings (42) (44) (50) (67) (62)
End of year 1,233 1,246 1,266 1,283 1,312
Gross selling space (In million sq. ft.) 113.0 113.9 114.4 114.5 114.4
Sales including catalog desks (In millions) $ 18,048 16,846 15,698 14,277 14,616
Sales per gross square foot/1/ $ 159 146 137 125 127

Catalog
Number of catalog units
JCPenney stores 1,233 1,246 1,266 1,283 1,312
Freestanding sales centers and merchants 552 543 640 697 626
Drug stores 94 101 128 134 136
Other, principally outlet stores 16 14 14 16 16
Total 1,895 1,904 2,048 2,130 2,090
Number of distribution centers 6 6 6 6 6
Distribution space (In million sq. ft.) 11.4 11.4 11.4 11.4 11.4
Sales (In millions) $ 3,817 3,514 3,166 3,002 3,220

Drug stores
Number of stores
Beginning of year 506 548 530 487 471
Openings 46 35 30 46 22
Closings (26) (77) (12) (3) (6)
End of year 526 506 548 530 487
Gross selling space (In million sq. ft.) 4.5 4.6 5.2 5.0 4.8
Sales (In millions) $ 1,540 1,413 1,383 1,192 1,097
Sales per gross square foot/1/ $ 243 235 211 201 198

JCPenney Insurance (In millions)
Revenue $ 571 475 388 328 255
Policies and certificates in force 7.5 5.8 4.6 4.3 4.1
Amount of life insurance in force $ 8,780 7,627 6,552 5,419 5,268
Total assets $ 1,360 1,246 1,033 857 764
</TABLE>

/1/ 1992 is presented on a 52 week basis.
- --------------------------------------------------------------------------------

<PAGE>

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT
------------------------------

Set forth below is a list of certain subsidiaries of the Company at January
28, 1995. All of the voting securities of each named subsidiary are owned by
the Company or by another subsidiary of the Company.

Subsidiaries
- ------------

JCPenney Business Services, Inc. (Delaware)
J. C. Penney Financial Services, Inc.(Delaware)
J. C. Penney Funding Corporation (Delaware)
J. C. Penney Life Insurance Company (Vermont)
JCPenney National Bank (National Association)
JCPenney Card Bank (National Association)
J. C. Penney Properties, Inc. (Delaware)
JCP Realty, Inc. (Delaware)
JCP Receivables, Inc. (Delaware)
Thrift Drug, Inc. (Delaware)

Separate financial statements are filed for J. C. Penney Funding Corporation,
a consolidated subsidiary, in its separate Annual Report on Form 10-K.

The names of other subsidiaries have been omitted because these unnamed
subsidiaries, considered in the aggregate as a single subsidiary, do not
constitute a significant subsidiary.

<PAGE>

EXHIBIT 23

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------

To the Stockholders and Board of Directors of
J. C. Penney Company, Inc.

We consent to incorporation by reference in: (1) the Registration Statement
(No. 33-28390) on Form S-8;(2) the Registration Statement (No. 33-59666) on Form
S-8; (3)the Registration Statement (No. 33-59668) on Form S-8; (4) the
Registration Statement (No. 33-66070) on Form S-8; (5) the Registration
Statement (No. 33-66072) on Form S-8; (6) the Registration Statement (No. 33-
53275) on Form S-3; (7) the Registration Statement (No. 33-56993) on Form S-8;
and (8) the Registration Statement (No. 33-56995) on Form S-8 of J. C. Penney
Company, Inc. of our report dated February 23, 1995 relating to the consolidated
balance sheets of J. C. Penney Company, Inc. and subsidiaries as of January 28,
1995, January 29, 1994, and January 30, 1993, and the related consolidated
statements of income, reinvested earnings, and cash flows for the years then
ended, which report appears in the 1994 Annual Report to Stockholders of J. C.
Penney Company, Inc., which Annual Report is incorporated by reference in the
Annual Report on Form 10-K of J. C. Penney Company, Inc. for the year ended
January 28, 1995, and to our report dated February 23, 1995, relating to the
financial statement schedule of J. C. Penney Company, Inc. and subsidiaries for
each of the years in the three-year period ended January 28, 1995, which report
appears in the Annual Report on Form 10-K of J. C. Penney Company, Inc. for the
year ended January 28, 1995.

Our report refers to the adoption of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, Accounting for Certain
----------------------
Investments in Debt and Equity Securities, in 1994, and to the adoption of the
- -----------------------------------------
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, in 1993.
---------------------------

/s/ KPMG Peat Marwick LLP

KPMG PEAT MARWICK LLP

Dallas, Texas
April 13, 1995

<PAGE>

Exhibit 24
POWER OF ATTORNEY
-----------------

KNOW ALL MEN BY THESE PRESENTS, THAT each of the undersigned directors and
officers of J. C. PENNEY COMPANY, INC., a Delaware corporation, which is about
to file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, its Annual Report on Form 10-
K for the 52 weeks ended January 28, 1995, hereby constitutes and appoints R. E.
Northam, C. R. Lotter, and D. A. McKay, and each of them, his or her true and
lawful attorneys-in-fact and agents, with full power to act without the others,
for him or her and in his or her name, place, and stead, in any and all
capacities, to sign said Annual Report, which is about to be filed, and any and
all subsequent amendments to said Annual Report, and to file said Annual Report
and each subsequent amendment so signed, with all exhibits thereto, and any and
all documents in connection therewith, and to appear before the Securities and
Exchange Commission in connection with any matter relating to said Annual Report
and any subsequent amendments, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform any and all
acts and things requisite and necessary to be done in and about the premises as
fully and to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney as of
the 8th day of March, 1995.

/S/W. R. Howell /S/R. E. Northam
- ------------------------------ --------------------------
W. R. Howell R. E. Northam
Chairman of the Board; Executive Vice President and
Director Chief Financial Officer
(principal financial officer)

/S/J. E. Oesterreicher /S/D. A. McKay
- ------------------------------ ---------------------------
J. E. Oesterreicher D. A. McKay
Vice Chairman of the Board and Vice President and Controller
Chief Executive Officer (principal (principal accounting officer)
executive officer); Director

/S/W. B. Tygart
- ------------------------------
W. B. Tygart
President and Chief Operating
Officer; Director
<PAGE>

/S/M. A. Burns /S/C. H. Chandler
- ---------------------------- ---------------------------
M. A. Burns C. H. Chandler
Director Director

/S/V. E. Jordan, Jr. /S/George Nigh
- ------------------------------ ---------------------------
V. E. Jordan, Jr. George Nigh
Director Director

/S/J. C. Pfeiffer /S/C. S. Sanford, Jr.
- ------------------------------ --------------------------
J. C. Pfeiffer C. S. Sanford, Jr.
Director Director

/S/J. D. Williams
- ---------------------------
J. D. Williams
Director

<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 JANUARY 28, 1995, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> JAN-28-1995
<CASH> 261
<SECURITIES> 0
<RECEIVABLES> 5,233
<ALLOWANCES> 74
<INVENTORY> 3,876
<CURRENT-ASSETS> 9,468
<PP&E> 5,951
<DEPRECIATION> 1,997
<TOTAL-ASSETS> 16,202
<CURRENT-LIABILITIES> 4,481
<BONDS> 3,335
<COMMON> 1,030
0
630
<OTHER-SE> 3,955
<TOTAL-LIABILITY-AND-EQUITY> 16,202
<SALES> 20,380
<TOTAL-REVENUES> 21,082
<CGS> 13,970
<TOTAL-COSTS> 18,753
<OTHER-EXPENSES> 183
<LOSS-PROVISION> 177
<INTEREST-EXPENSE> 270
<INCOME-PRETAX> 1,699
<INCOME-TAX> 642
<INCOME-CONTINUING> 1,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,057
<EPS-PRIMARY> 4.29
<EPS-DILUTED> 4.05

</TABLE>

<PAGE>

EXHIBIT 99(b)

Management's Discussion and Analysis of 1994 Annual Report
Financial Condition and Results of Operations

J. C. Penney Funding Corporation ("Funding") is a wholly-owned consolidated
subsidiary of J. C. Penney Company, Inc. ("JCPenney"). The business of Funding
consists of financing a portion of JCPenney's operations through loans to
JCPenney, the purchase of customer receivable balances that arise from the
retail credit sales of JCPenney, or a combination of both. No receivables have
been purchased by Funding since 1985. The loan agreement between Funding and
JCPenney provides for unsecured loans to be made by Funding to JCPenney. Each
loan is evidenced by a revolving promissory note and is payable upon demand in
whole or in part as may be required by Funding. Copies of our loan and
receivables agreements with JCPenney are available upon request.

Funding issues commercial paper through CS First Boston Corporation, J.P. Morgan
Securities Inc., Merrill Lynch Money Markets Inc., and Morgan Stanley & Co.,
Incorporated to corporate and institutional investors in the domestic market.
The commercial paper is guaranteed by JCPenney on a subordinated basis. Funding
has, from time to time, issued long term debt in public and private markets in
the United States and abroad. The commercial paper is rated "A1" by Standard &
Poor's Corporation, "P1" by Moody's Investors Service, Inc., and "F1" by Fitch
Investors Service, Inc.

Income is derived primarily from earnings on loans to JCPenney and is designed
to produce earnings sufficient to cover its interest expense at a coverage ratio
of at least one and one-half times.

In 1994, net income increased to $32 million from $16 million in 1993 and $17
million in 1992. The increase in 1994 is attributed to higher borrowing levels
and higher interest rates, the decrease in 1993 is attributed to lower interest
rates and lower earnings on loans. Interest expense was $94 million in 1994
compared with $47 million in 1993 and $50 million in 1992. Interest earned from
JCPenney was $143 million in 1994 compared to $71 million in 1993 and $75
million in 1992.

Commercial paper borrowings averaged $1,990 million in 1994 compared to $1,347
million in 1993 and $1,146 million in 1992. The average interest rate on
commercial paper was 4.6 per cent in 1994, up from 3.2 per cent in 1993 and
3.7 per cent in 1992.

Total debt averaged $1,990 million in 1994, compared with $1,347 million in 1993
and $1,185 million in 1992. During 1992, JCPenney initiated a program to
restructure its debt portfolio to take advantage of declining interest rates.
Under the debt restructure program, Funding exercised its option to prepay all
of its long term debt, totalling $177 million.

Committed bank credit facilities available to Funding and JCPenney as of January
28, 1995, amounted to $2.5 billion. These facilities include a $1.5 billion,
364-day revolver, and a $1.0 billion, five-year revolver with a group of 42
domestic and international banks. These facilities support commercial paper
borrowing arrangements. Neither of the borrowing facilities was in use as of
January 28, 1995. See page 8 for a complete list of committed bank credit
facilities.

We would like to express our appreciation to the institutional investment
community, as well as to our credit line participants and commercial paper
dealers for their continued support during 1994.

Donald A. McKay
Chairman of the Board
March 27, 1995

2
<PAGE>

Statements of Income J. C. Penney Funding Corporation
(In millions)

<TABLE>
<CAPTION>
For the Year 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest Income $143 $ 71 $ 77
Expenses
Interest on short term debt.......... 94 47 46
Interest on long term debt........... -- -- 4
Other expenses....................... -- -- 1
---- ---- ----
Total expenses....................... 94 47 51
---- ---- ----

Income before income taxes.............. 49 24 26
Income taxes......................... 17 8 9
---- ---- ----
Net income.............................. $ 32 $ 16 $ 17
==== ==== ====

Statements of Reinvested Earnings
(In millions)
1994 1993 1992
---- ---- ----
Balance at beginning of year............ $851 $835 $818
Net income.............................. 32 16 17
---- ---- ----
Balance at end of year.................. $883 $851 $835
==== ==== ====
</TABLE>

See Notes to Financial Statements on page 6.

3
<PAGE>

Balance Sheets J. C. Penney Funding Corporation
(In millions except share data)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>

Current Assets
Loans to JCPenney.............................. $3,114 $2,323 $1,912
------ ------ ------
Total Current Assets........................... $3,114 $2,323 $1,912
====== ====== ======

Liabilities and Equity of JCPenney
Current Liabilities
Short term debt................................ $2,074 $1,284 $ 887
Due to JCPenney................................ 12 43 45
------ ------ ------
Total Current Liabilities................. 2,086 1,327 932

Equity of JCPenney
Common stock (including contributed
capital), par value $100:
Authorized, 750,000 shares -
issued and outstanding, 500,000 shares.... 145 145 145
Reinvested earnings............................ 883 851 835
------ ------ ------
Total Equity of JCPenney.................. 1,028 996 980
------ ------ ------
Total Liabilities and Equity of JCPenney.. $3,114 $2,323 $1,912
====== ====== ======
</TABLE>

See Notes to Financial Statements on page 6.

4
<PAGE>

Statements of Cash Flows J. C. Penney Funding Corporation
(In millions)

Operating Activities
Net income................................... $ 32 $ 16 $ 17
Increase in loans to JCPenney................ (791) (411) (303)
Decrease in amount due to JCPenney........... (31) (2) (6)
----- ----- -----
(790) (397) (292)
----- ----- -----

Financing Activities
Increase in short term debt.................. 790 397 416
Payments of long term debt................... -- -- (177)
----- ----- -----
790 397 239
----- ----- -----

Decrease in short term investments........... -- -- (53)
Short term investments at beginning of year.. -- -- 53
----- ----- -----
Short term investments at end of year........ $ -- $ -- $ --
===== ===== =====

Supplemental Cash Flow Information
Interest paid................................ $ 94 $ 47 $ 55
Interest received............................ $ -- $ -- $ 2
Income taxes paid............................ $ 10 $ 4 $ 11
</TABLE>

See Notes to Financial Statements on page 6.

5
<PAGE>

Independent Auditors' Report J. C. Penney Funding Corporation

To the Board of Directors of
J. C. Penney Funding Corporation:

We have audited the accompanying balance sheets of J. C. Penney Funding
Corporation as of January 28, 1995, January 29, 1994, and January 30, 1993, and
the related statements of income, reinvested earnings, and cash flows, appearing
on pages 3 through 5, for the years then ended. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of J. C. Penney Funding
Corporation as of January 28, 1995, January 29, 1994, and January 30, 1993, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP
200 Crescent Court, Dallas, Texas 75201
February 23, 1995

Notes to Financial Statements

General
- -------

J. C. Penney Funding Corporation ("Funding") is a wholly-owned consolidated
subsidiary of J. C. Penney Company, Inc. ("JCPenney"). The principal business
of Funding consists of financing a portion of JCPenney's operations through
loans to JCPenney. To finance its operations, Funding issues commercial paper,
which is guaranteed by JCPenney on a subordinated basis, to corporate and
institutional investors in the domestic market. Funding has, from time to time,
issued long term debt in public and private markets in the United States and
abroad.

Definition of Fiscal Year

Funding's fiscal year ends on the last Saturday in January. Fiscal year 1994
ended January 28, 1995, Fiscal 1993 ended January 29, 1994, and Fiscal 1992
ended January 30, 1993. Fiscal years 1994 and 1993 each comprised 52 weeks and
fiscal year 1992 comprised 53 weeks.

Commercial Paper Placement

Funding began placing commercial paper solely through dealers, rather than as a
direct issuer, on April 3, 1992. The average interest rate on commercial paper
at year end 1994, 1993, and 1992 was 5.9%, 3.2% and 3.4%, respectively.

Summary Of Accounting Policies
- ------------------------------

Income Taxes

Funding's taxable income is included in the consolidated federal income tax
return of JCPenney. Income taxes in Funding's statement of income are computed
as if Funding filed a separate federal income tax return.

Loans to JCPenney
- -----------------

Funding and JCPenney are parties to a Loan Agreement which provides for
unsecured loans, payable on demand, to be made from time to time by Funding to
JCPenney for the general business purposes of JCPenney, subject to the terms
and conditions of the Loan Agreement. Under the terms of the Agreement, Funding
and JCPenney agree upon a mutually-acceptable earnings coverage of Funding's
interest and other fixed charges. The earnings to fixed charges ratio has
historically been at least one and one-half times.

Committed Bank Credit Facilities
- --------------------------------

In 1994, committed bank credit facilities available to Funding and JCPenney as
of January 28, 1995, amounted to $2.5 billion. These facilities include a $1.5
billion, 364-day revolver, and a $1.0 billion, five-year revolver with a group
of 42 domestic and international banks. These facilities support commercial
paper borrowing arrangements. See page 8 for a complete list of committed bank
credit facilities. In addition a number of minority-owned banks participate in
a $5 million credit line for which First Texas Bank acts as agent. None of the
borrowing facilities were in use as of January 28, 1995.

Fair Value of Financial Instruments
- -----------------------------------

The fair value of short term debt (commercial paper) at January 28, 1995,
January 29, 1994, and January 30, 1993, approximates the amount as reflected on
the balance sheet due to its short average maturity.

The fair value of loans to JCPenney at January 28, 1995, January 29, 1994, and
January 30, 1993, also approximates the amount reflected on the balance sheet
because the loan is payable on demand and the interest charged on the loan
balance is adjusted to reflect current market interest rates.

6
<PAGE>

Five Year Financial Summary J. C. Penney Funding Corporation
(In millions)

<TABLE>
<CAPTION>
At Year End 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Capitalization
Short term debt
Commercial paper................... $2,074 1,284 887 414 842
Master notes....................... -- -- -- 57 62
------ ----- ----- ----- -----
Total short term debt............ 2,074 1,284 887 471 904
------ ----- ----- ----- -----

Current maturities of long term debt.. -- -- -- -- 75
------ ----- ----- ----- -----

Long term debt
7.875% to 9.25% due 1991 to 1998... -- -- -- 177 196
------ ----- ----- ----- -----
Total long term debt............. -- -- -- 177 196
------ ----- ----- ----- -----

Total debt............................ 2,074 1,284 887 648 1,175
------ ----- ----- ----- -----

Equity of JCPenney.................... 1,028 996 980 963 940
------ ----- ----- ----- -----

Total capitalization..................... $3,102 2,280 1,867 1,611 2,115
====== ===== ===== ===== =====

Committed bank credit facilities......... $2,500 1,250 1,250 1,250 2,000

For the Year

Income................................... $ 143 71 77 101 200
Expenses................................. $ 94 47 51 67 132
Net income............................... $ 32 16 17 23 45
Fixed charges - times earned............. 1.52 1.52 1.52 1.52 1.52

Peak short term debt..................... $2,649 2,327 1,665 1,489 1,665

Average debt
Short term............................ $1,990 1,347 1,146 754 1,277
Long term............................. $ -- -- 39 232 281
Total................................. $1,990 1,347 1,185 986 1,558

Average interest rates
Short term debt....................... 4.6 % 3.2% 3.7% 5.6% 8.1%
Long term debt........................ -- % --% 8.9% 8.7% 8.6%
Total................................. 4.6 % 3.2% 3.9% 6.3% 8.2%

</TABLE>

7
<PAGE>

Quarterly Data J. C. Penney Funding Corporation
($ in millions) (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
----------------- ---------------- ---------------- ----------------
1994 1993 1992 1994 1993 1992 1994 1993 1992 1994 1993 1992
----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income....................... $ 24 13 22 32 15 19 38 22 18 49 21 18

Expenses..................... $ 16 9 15 21 10 12 25 14 12 32 14 12

Income before taxes.......... $ 8 4 7 11 5 7 13 8 6 17 7 6

Net income................... $ 5 3 5 7 3 4 9 5 4 11 5 4

Fixed charges -
times earned............... 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52

</TABLE>

Committed Revolving Credit Facilities
as of January 28, 1995

ABN-AMRO Bank N.V.
Bank of America NT & SA
Bank of Hawaii
Bank of New York
Bank One, Texas, N.A.
Bankers Trust Company
The Bank of Tokyo, Ltd.
Banque Nationale de Paris
Chemical Bank
Citibank, N.A.
Credit Lyonnais
Credit Suisse
Dai-Ichi Kangyo Bank
First Interstate Bank of California
The First National Bank of Boston
The First National Bank of Chicago
First Security Bank of Utah, N.A.
First Union National Bank of
North Carolina
Firstar Bank Milwaukee, N.A.
The Fuji Bank, Limited
The Industrial Bank of Japan
Trust Company
The Long Term Credit Bank of
Japan, Ltd.
Mellon Bank, N.A.
Mitsubishi Bank
Morgan Guaranty Trust Company
of New York
National Westminster Bank PLC
NationsBank of Texas, N.A.
NBD Bank, N.A.
The Northern Trust Company
Norwest Bank Minnesota, N.A.
PNC Bank, N.A.
The Royal Bank of Canada
The Sanwa Bank Limited
San Paolo Bank
Societe Generale
The Sumitomo Bank, Limited
SunBank, N.A.
Swiss Bank Corporation
Union Bank of Switzerland
United Missouri Bank, N.A.
United States National Bank
of Oregon
Wachovia Bank of North Carolina, N.A.