<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------
For the 13 and 26 week periods Commission file number 1-777
ended July 29, 1995
J. C. PENNEY COMPANY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-5583779
--------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6501 Legacy Drive, Plano, Texas 75024 - 3698
-------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 431-1000
---------------
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
225,778,420 shares of Common Stock of $0.50 par value, as of July 29, 1995.
<PAGE> 1
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements.
The following interim financial information is unaudited but, in the
opinion of the Company, includes all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation. The
financial information should be read in conjunction with the audited
consolidated financial statements included in the Company's Annual Report
on Form 10-K for the 52 weeks ended January 28, 1995.
<TABLE>
<CAPTION>
Statements of Income
(Amounts in millions except per share data)
13 weeks ended 26 weeks ended
---------------- ----------------
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Retail sales $ 4,435 $ 4,242 $ 8,802 $ 8,592
Revenue of insurance and bank operations 208 170 405 339
------- ------- ------- -------
Total revenue 4,643 4,412 9,207 8,931
------- ------- ------- -------
Costs and expenses
Cost of goods sold, occupancy, buying,
and warehousing costs 3,143 2,960 6,140 5,915
Selling, general, and administrative
expenses 1,107 1,079 2,255 2,171
Costs and expenses of insurance and
bank operations 159 132 308 258
Net interest expense and credit
operations 48 26 65 9
------- ------- ------- -------
Total costs and expenses 4,457 4,197 8,768 8,353
------- ------- ------- -------
Income before income taxes 186 215 439 578
Income taxes 70 83 167 223
------- ------- ------- -------
Net income $ 116 $ 132 $ 272 $ 355
======= ======= ======= =======
Net income per common share
Primary $ .46 $ .52 $ 1.09 $ 1.40
======= ======= ======= =======
Fully diluted $ .46 $ .51 $ 1.07 $ 1.35
======= ======= ======= =======
Weighted average common shares outstanding
Primary 230.2 238.0 231.2 239.0
======= ======= ======= =======
Fully diluted 251.4 259.4 252.6 260.5
======= ======= ======= =======
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Balance Sheets
(Amounts in millions)
July 29, July 30, Jan. 28,
1995 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Current assets
Cash and short term investments
of $156, $382, and $207 $ 260 $ 492 $ 261
Receivables, net 4,426 4,063 5,159
Merchandise inventories 4,398 4,163 3,876
Prepaid expenses 195 175 172
-------- -------- --------
Total current assets 9,279 8,893 9,468
Properties, net of accumulated
depreciation of $2,009, $1,994,
and $1,997 3,993 3,804 3,954
Investments, primarily insurance operations 1,548 1,373 1,359
Deferred insurance policy acquisition costs 539 458 482
Other assets 1,108 906 939
-------- -------- --------
$ 16,467 $ 15,434 $ 16,202
</TABLE> ======== ======== ========
<PAGE> 3
<TABLE>
<CAPTION>
Balance Sheets
(Amounts in millions)
July 29, July 30, Jan. 28,
1995 1994 1995
-------- -------- --------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 2,038 $ 1,960 $ 2,274
Short term debt 2,181 1,937 2,092
Deferred taxes 113 111 115
-------- -------- --------
Total current liabilities 4,332 4,008 4,481
Long term debt 3,526 3,384 3,335
Deferred taxes 1,129 1,019 1,039
Bank deposits 762 594 702
Insurance policy and claims reserves 605 581 568
Other liabilities 459 467 462
-------- -------- --------
Total liabilities 10,813 10,053 10,587
Stockholders' equity
Preferred stock, without par value:
Authorized, 25 million shares -
issued, 1 million shares of
Series B ESOP convertible preferred 616 639 630
Guaranteed ESOP obligation (268) (343) (307)
Common stock, par value $0.50:
Authorized, 1,250 million shares -
issued, 226, 233, and 227 million
shares 1,121 1,022 1,030
-------- -------- --------
Total capital stock 1,469 1,318 1,353
-------- -------- --------
Reinvested earnings at beginning
of year 4,262 4,093 4,093
Net income 272 355 1,057
Net unrealized change in debt
and equity securities 58 5 (21)
Retirement of common stock (169) (173) (435)
Common stock dividends declared (217) (197) (392)
Preferred stock dividends
declared, net of taxes (21) (20) (40)
--------- --------- ---------
Reinvested earnings at end of
period 4,185 4,063 4,262
--------- --------- ---------
Total stockholders' equity 5,654 5,381 5,615
-------- --------- ---------
$16,467 $15,434 $16,202
</TABLE> ======== ========= =========
<PAGE> 4
<TABLE>
<CAPTION>
Statements of Cash Flows
(Amounts in millions)
26 weeks ended
------------------------
July 29, July 30,
1995 1994
--------- ---------
<S> <C> <C>
Operating activities
Net income $ 272 $ 355
Depreciation and amortization 163 138
Amortization of original issue discount 2 3
Deferred taxes 89 5
Change in cash from:
Customer receivables 804 545
Inventories, net of trade payables (485) (552)
Other assets and liabilities, net (430) (232)
---------- ----------
415 262
---------- ----------
Investing activities
Capital expenditures (235) (211)
Purchases of investment securities (335) (362)
Proceeds from sales of investment securities 236 200
Acquisition of Kerr Drug (74) --
---------- ----------
(408) (373)
---------- ----------
Financing activities
Increase in short term debt 89 653
Issuance of long term debt 400 500
Payments of long term debt (165) (350)
Common stock issued, net 95 26
Common stock purchased and retired (189) (188)
Preferred stock retired (14) (9)
Dividends paid, preferred and common (224) (202)
---------- ----------
(8) 430
---------- ----------
Net increase (decrease) in cash and short term
investments (1) 319
Cash and short term investments at beginning
of year 261 173
---------- ----------
Cash and short term investments at end of
second quarter $ 260 $ 492
========== ==========
</TABLE>
<PAGE> 5
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Financial Condition
-------------------
The Company's financial condition remains strong, providing the Company
flexibility to continue its capital plans and take advantage of future
opportunities as they arise.
In August 1995, the Company acquired seven Woodward & Lothrop stores in
the greater Washington, D.C. area. These stores expand the Company's
opportunities in the Washington, D.C. market. The acquired locations are
Tysons Corner Center in McLean, Virginia; Landover Mall in Landover,
Maryland; Montgomery Mall in Bethesda, Maryland; Wheaton Plaza Regional
Shopping Center in Wheaton, Maryland; Landmark Shopping Center in
Alexandria, Virginia; Prince Georges Plaza in Hyattsville, Maryland; and
The Mall in Columbia in Columbia, Maryland. The purchase price for the
land, buildings and fixtures of these seven stores was approximately $173
million. The stores are expected to open in 1996 after remodeling is
complete. This acquisition increases the Company's expected capital
expenditures for fiscal 1995 to approximately $750 million.
The Company has announced plans to accelerate its store remodeling
expenditures over the next three years. Total Company capital
expenditures are expected to approximate $700 million per year in 1996,
1997, and 1998.
Merchandise inventories, on a FIFO basis, were $4,645 million at the end
of the second quarter, an increase of 5.4 per cent from the level in the
prior year. Total inventories were impacted by the acquisition of Kerr
Drug Stores, Inc. ("Kerr Drug") during the 1995 first quarter.
Inventories for JCPenney stores and catalog combined were up 2.8 per cent
over the prior year. Promotional activity was accelerated in the latter
part of the second quarter to clear seasonal merchandise, which
significantly impacted inventory levels. The current cost of inventories
exceeded the LIFO basis amount carried on the balance sheet by
approximately $247 million at both July 29, 1995 and January 28, 1995,
and $246 million at July 30, 1994.
Total debt, both on and off the balance sheet, was $6.6 billion at July
29, 1995, up $642 million compared with the July 30, 1994 level,
principally due to the Company's stock purchase program and working
capital requirements. During the 1995 second quarter, the Company issued
$193 million of ten year Notes at 7.05 per cent, and $207 million of
seven year Notes at 6.50 per cent, under its Series A Medium-Term Note
program. In April 1995, the Company redeemed $165 million of its 9.45
per cent Notes due 1998. The Company's debt to capital ratio was 53.9 per
cent at the end of the 1995 second quarter, compared with 52.6 per cent
at July 30, 1994.
<PAGE> 6
As of August 25, 1995, the Company had purchased approximately 5.9
million shares of its common stock at a cost of $266 million under its
1995 stock purchase program. Since March 1994, the Company has purchased
a total of 15.9 million shares at a cost of $741 million. All shares
were retired and returned to the status of authorized but unissued shares
of common stock.
On March 8, 1995, the Board of Directors increased the quarterly common
dividend 14.3 per cent to 48 cents per share, or an indicated annual rate
of $1.92, as compared with $1.68 per share in 1994 and $1.44 per share in
1993. The regular quarterly dividend on the Company's outstanding common
stock was paid on August 1, 1995, to stockholders of record on July 10, 1995.
Results of Operations
---------------------
Ratios useful in analyzing the results of operations are as follows:
<TABLE>
<CAPTION>
13 weeks ended 26 weeks ended
------------------ ------------------
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Retail sales, per cent increase 4.6 7.1 2.5 8.4
JCPenney stores sales, per cent
increase 3.1 6.3 1.3 6.9
Gross margin, per cent of retail
sales
FIFO 29.1 30.2 30.3 31.2
LIFO 29.1 30.2 30.3 31.2
Selling, general, and adminis-
trative expenses, per cent of
retail sales 25.0 25.5 25.6 25.3
Effective income tax rate 37.6 38.6 38.0 38.6
</TABLE>
For the 13 weeks ended July 29, 1995, fully diluted net income per share
declined 9.8 per cent to 46 cents, compared with 51 cents per share in
the same period last year. Net income totaled $116 million, a 12.1 per
cent decline from the Company record $132 million in the 1994 second
quarter. For the six months ended July 29, 1995, net income totaled $272
million, or $1.07 per share, as compared with $355 million, or $1.35 per
share, in the comparable 1994 period.
Second quarter total retail sales increased 4.6 per cent to $4,435
million from $4,242 million in last year's comparable period. Sales from
JCPenney stores increased 3.1 per cent, while catalog sales increased 3.8
per cent from the comparable 1994 period. Sales from the Thrift Drug
operation during the 1995 second quarter, including sales from the Kerr
Drug stores acquired in the 1995 first quarter, increased 18.2 per cent
over the comparable period in 1994. For the six months ended July 29,
1995, total retail sales increased 2.5 per cent to $8,802 million from
$8,592 million in the comparable 1994 period.
<PAGE> 7
Gross margin, as a per cent of retail sales, decreased in the second
quarter to 29.1 per cent from 30.2 per cent in the comparable 1994
period, as stores and catalog cleared summer merchandise. For the six
months ended July 29, 1995, gross margin, as a per cent of retail sales,
was 30.3 per cent compared with 31.2 per cent in the comparable 1994
period.
Selling, general, and administrative ("SG&A") expenses, as a per cent of
retail sales, were leveraged in the quarter at 25.0 per cent, down from
25.5 per cent in last year's period, reflecting the Company's continuing
efforts to reduce costs across all operating and support areas. For the
six months ended July 29, 1995, SG&A, as a per cent of retail sales, was
25.6 per cent, compared with 25.3 per cent in the comparable 1994 period.
Net interest expense and credit operations for the second quarter was $48
million compared with $26 million in the comparable period last year.
Net interest expense was $79 million, up $15 million compared with last
year's second quarter, due to higher borrowing levels to support the
Company's stock purchase program and higher short term interest rates.
Finance charge revenue was $151 million in the second quarter, up $4
million over the same period last year. Total customer receivables, at
$3.9 billion, were $67 million higher than last year's level. Credit
operating costs were $120 million, an increase of $11 million over last
year, primarily due to higher bad debt expense. For the six months ended
July 29, 1995, net interest expense and credit operations was $65 million
compared with $9 million in last year's period.
The Company's life and health insurance business continued its strong
growth in premium income and profitability in both the 1995 second
quarter and six months. Total revenue for the second quarter was $168
million, an increase of $30 million or 20.8 per cent over the comparable
period in the prior year. Pretax income was $41 million, an increase of
$10 million or 31.5 per cent over last year. For the first six months of
1995, total revenue increased 18.3 per cent to $327 million, and pretax
income was $80 million compared with $65 million in the same period last
year.
The Company's business depends to a great extent on the last quarter of
the year. Historically, sales for that period have averaged approximately
one third of annual sales. Accordingly, the results of operations for
the 13 and 26 weeks ended July 29, 1995 are not necessarily indicative of
the results for the entire year.
<PAGE> 8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.
The Company has no material legal proceedings pending against it.
Item 4 - Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of the Company was held on May
19, 1995, at which the four matters described below were submitted
to a vote of security holders with the voting results indicated.
(1) Election of directors for a three-year term expiring at
the 1998 Annual Meeting of the Company's stockholders:
NOMINEE FOR AUTHORITY WITHHELD
------- --- ------------------
M. Anthony Burns 219,918,898 3,403,188
Colby H. Chandler 219,791,637 3,530,449
James E. Oesterreicher 219,289,785 4,032,301
Charles S. Sanford, Jr. 219,749,109 3,572,977
(2) The Board of Directors' proposal concerning the employment
of KPMG Peat Marwick LLP as auditors for the fiscal year ending
January 27, 1996:
FOR AGAINST ABSTAIN
--- ------- -------
219,955,787 2,208,247 1,158,052
(3) A stockholder resolution concerning the elimination of the
classification of the Board of Directors:
BROKER
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
97,046,645 113,532,554 2,923,917 9,818,970
(4) A stockholder resolution concerning submission to a
stockholder vote of the Company's stockholder rights plan:
BROKER
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
99,938,271 110,208,535 3,366,308 9,808,972
<PAGE> 9
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
--------
The following documents are filed as exhibits to this report:
11 Computation of net income per common share.
12(a) Computation of ratios of available income to combined
fixed charges and preferred stock dividend requirement.
12(b) Computation of ratios of available income to fixed
charges.
27 Financial Data Schedule for the six months ended July 29,
1995.
(b) Reports on Form 8-K
-------------------
None.
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
J. C. PENNEY COMPANY, INC.
By /S/D. A. McKay
---------------------------
D. A. McKay
Vice President and Controller
(Principal Accounting Officer)
Date: September 1, 1995
<PAGE>
Exhibit 11
J. C. PENNEY COMPANY, INC.
and Consolidated Subsidiaries
Computation of Net Income Per Common Share
(Amounts in millions except per common share data)
<TABLE>
<CAPTION>
26 Weeks Ended
July 29, 1995 July 30, 1994
Shares Income Shares Income
Primary:
<S> <C> <C> <C> <C>
Net income $ 272 $ 355
Dividend on Series B ESOP convertible
preferred stock (after-tax) (21) (20)
Adjusted net income 251 335
Weighted average number of shares
outstanding 228.6 236.1
Common stock equivalents:
Stock options and other dilutive effects 2.6 2.9
231.2 $ 251 239.0 $ 335
Net income per common share $1.09 $1.40
Fully diluted:
Net income $ 272 $ 355
Tax benefit differential on ESOP dividend
assuming stock is fully converted (1) (1)
Assumed additional contribution to ESOP
if preferred stock is fully converted (2) (3)
Adjusted net income 269 351
Weighted average number of shares
outstanding (primary) 231.2 239.0
Maximum dilution 0.6 0.0
Convertible preferred stock 20.8 21.5
252.6 $ 269 260.5 $ 351
Net income per common share $1.07 $1.35
</TABLE>
<PAGE>
Exhibit 12(a)
J. C. Penney Company, Inc.
(the Company and all subsidiaries)
Computation of Ratios of Available Income to Combined Fixed Charges
and Preferred Stock Dividend Requirement
<TABLE>
<CAPTION>
52 weeks 52 weeks
ended ended
July 29, July 30,
1995 1994
($ Millions)
<S> <C> <C>
Income from continuing operations
(before income taxes,
before capitalized interest,
but after preferred stock dividend) $ 1,508 $ 1,620
Fixed charges
Interest (including capitalized
interest)
On operating leases 95 97
On short term debt 120 62
On long term debt 236 225
On capital leases 6 9
Other, net 0 0
Total fixed charges 457 393
Preferred stock dividend, before taxes 49 51
Combined fixed charges and preferred stock
dividend requirement 506 444
Total available income $ 2,014 $ 2,064
Ratio of available income to combined
fixed charges and preferred stock
dividend requirement 4.0 4.6
</TABLE>
The interest cost of the LESOP notes guaranteed by the Company is not
included in fixed charges above.
The Company believes that, due to the seasonal nature of its business,
ratios for a period other than a 52 week period are inappropriate.
<PAGE>
Exhibit 12(b)
J. C. Penney Company, Inc.
(the Company and all subsidiaries)
Computation of Ratios of Available Income to Fixed Charges
<TABLE>
<CAPTION>
52 weeks 52 weeks
ended ended
July 29, July 30,
1995 1994
($ Millions)
<S> <C> <C>
Income from continuing operations
(before income taxes and
before capitalized interest) $ 1,557 $ 1,671
Fixed charges
Interest (including capitalized
interest)
On operating leases 95 97
On short term debt 120 62
On long term debt 236 225
On capital leases 6 9
Other, net 0 0
Total fixed charges 457 393
Total available income $ 2,014 $ 2,064
Ratio of available income to fixed charges 4.4 5.2
</TABLE>
The interest cost of the LESOP notes guaranteed by the Company is not
included in fixed charges above.
The Company believes that, due to the seasonal nature of its business,
ratios for a period other than a 52 week period are inappropriate.
<TABLE> <S> <C>
<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 JULY 29, 1995, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-END> JUL-29-1995
<CASH> 260
<SECURITIES> 0
<RECEIVABLES> 4,500
<ALLOWANCES> 74
<INVENTORY> 4,398
<CURRENT-ASSETS> 9,279
<PP&E> 6,002
<DEPRECIATION> 2,009
<TOTAL-ASSETS> 16,467
<CURRENT-LIABILITIES> 4,332
<BONDS> 3,526
<COMMON> 1,121
0
616
<OTHER-SE> 3,917
<TOTAL-LIABILITY-AND-EQUITY> 16,467
<SALES> 8,802
<TOTAL-REVENUES> 9,207
<CGS> 6,140
<TOTAL-COSTS> 8,395
<OTHER-EXPENSES> 116
<LOSS-PROVISION> 101
<INTEREST-EXPENSE> 156
<INCOME-PRETAX> 439
<INCOME-TAX> 167
<INCOME-CONTINUING> 272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 272
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.07
</TABLE>
