<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------
For the 13 and 39 week periods Commission file number 1-777
ended October 28, 1995
J. C. PENNEY COMPANY, INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-5583779
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6501 Legacy Drive, Plano, Texas 75024 - 3698
- -----------------------------------------------------------------------------
(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.
223,672,251 shares of Common Stock of $0.50 par value, as of October 28, 1995.
<PAGE>
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>
Statements of Income
(Amounts in millions except per share data)
<CAPTION>
13 weeks ended 39 weeks ended
------------------ -----------------
Oct 28, Oct 29, Oct 28, Oct 29,
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Retail sales $ 5,128 $ 5,149 $ 13,930 $ 13,741
Revenue of insurance and bank operations 224 179 629 518
-------- -------- -------- --------
Total revenue 5,352 5,328 14,559 14,259
-------- -------- -------- --------
Costs and expenses
Cost of goods sold, occupancy, buying,
and warehousing costs 3,536 3,488 9,676 9,403
Selling, general, and administrative
expenses 1,201 1,204 3,456 3,375
Costs and expenses of insurance and
bank operations 173 141 481 399
Net interest expense and credit
operations 58 48 123 57
-------- -------- -------- --------
Total costs and expenses 4,968 4,881 13,736 13,234
-------- -------- -------- --------
Income before income taxes 384 447 823 1,025
Income taxes 144 173 311 396
-------- -------- -------- --------
Net income $ 240 $ 274 $ 512 $ 629
======== ======== ======== ========
Net income per common share
Primary $ 1.00 $ 1.11 $ 2.09 $ 2.51
======== ======== ======== ========
Fully diluted $ .95 $ 1.04 $ 2.02 $ 2.39
======== ======== ======== ========
Weighted average common shares outstanding
Primary 228.2 236.8 230.3 238.2
======== ======== ======== ========
Fully diluted 249.0 258.1 250.9 259.6
======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
Balance Sheets
(Amounts in millions)
<CAPTION>
Oct. 28, Oct. 29, Jan. 28,
1995 1994 1995
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short term investments
of $220, $193, and $207 $ 321 $ 314 $ 261
Receivables, net 4,737 4,618 5,159
Merchandise inventories 5,105 4,833 3,876
Prepaid expenses 256 209 172
------- ------- -------
Total current assets 10,419 9,974 9,468
Properties, net of accumulated
depreciation of $2,091, $2,071,
and $1,997 4,202 3,864 3,954
Investments, primarily insurance operations 1,596 1,352 1,359
Deferred insurance policy acquisition costs 559 477 482
Other assets 1,081 911 939
------- ------- -------
$17,857 $16,578 $16,202
======= ======= =======
</TABLE>
<PAGE>
<TABLE>
Balance Sheets
(Amounts in millions)
<CAPTION>
Oct. 28, Oct. 29, Jan. 28,
1995 1994 1995
-------- -------- --------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 2,688 $ 2,610 $ 2,274
Short term debt 2,398 2,253 2,092
Deferred taxes 113 110 115
--------- --------- ---------
Total current liabilities 5,199 4,973 4,481
Long term debt 4,023 3,380 3,335
Deferred taxes 1,130 1,015 1,039
Bank deposits 759 650 702
Insurance policy and claims reserves 624 603 568
Other liabilities 458 462 462
--------- --------- ---------
Total liabilities 12,193 11,083 10,587
Stockholders' equity
Preferred stock, without par value:
Authorized, 25 million shares -
issued, 1 million shares of
Series B ESOP convertible preferred 610 634 630
Guaranteed ESOP obligation (268) (343) (307)
Common stock, par value $0.50:
Authorized, 1,250 million shares -
issued, 224, 232, and 227 million
shares 1,114 1,042 1,030
--------- --------- ---------
Total capital stock 1,456 1,333 1,353
--------- --------- ---------
Reinvested earnings at beginning
of year 4,262 4,093 4,093
Net income 512 629 1,057
Net unrealized change in debt
and equity securities 53 (8) (21)
Retirement of common stock (273) (237) (435)
Common stock dividends declared (325) (295) (392)
Preferred stock dividends
declared, net of taxes (21) (20) (40)
--------- --------- --------
Reinvested earnings at end of
period 4,208 4,162 4,262
--------- --------- --------
Total stockholders' equity 5,664 5,495 5,615
--------- --------- --------
$ 17,857 $ 16,578 $ 16,202
========= ========= =========
</TABLE>
<PAGE>
<TABLE>
Statements of Cash Flows
(Amounts in millions)
<CAPTION>
39 weeks ended
-----------------------
Oct. 28, Oct. 29,
1995 1994
-------- --------
<S> <C> <C>
Operating activities
Net income $ 512 $ 629
Depreciation and amortization 240 215
Amortization of original issue discount 3 4
Deferred taxes 92 --
Change in cash from:
Customer receivables 599 206
Inventories, net of trade payables (827) (862)
Other assets and liabilities, net (264) (102)
--------- ---------
355 90
--------- ---------
Investing activities
Capital expenditures (528) (365)
Purchases of investment securities (461) (432)
Proceeds from sales of investment securities 324 267
Acquisition of Kerr Drug (74) --
--------- ---------
(739) (530)
--------- ---------
Financing activities
Increase in short term debt 306 969
Net proceeds from the issuance
of long term debt 891 500
Payments of long term debt (204) (350)
Common stock issued, net 106 34
Common stock purchased and retired (301) (258)
Preferred stock retired (21) (14)
Dividends paid, preferred and common (333) (300)
--------- ---------
444 581
--------- ---------
Net increase (decrease) in cash and short term
investments 60 141
Cash and short term investments at beginning
of year 261 173
--------- ---------
Cash and short term investments at end of
third quarter $ 321 $ 314
========= =========
</TABLE>
<PAGE>
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 at a total purchase price of
approximately $173 million. The stores are expected to open in mid-1996
after remodeling is complete. This acquisition represents the primary
reason capital expenditures exceed 1994 levels, and 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 $5,352 million at the end
of the third quarter, an increase of 5.4 per cent from the level in the
prior year. Total inventories include the effects of the Kerr Drug
Stores, Inc. ("Kerr Drug") acquisition during the 1995 first quarter.
Inventories for JCPenney stores and catalog combined were up 2.3 per cent
over the prior year. Merchandise inventories are in line with current
sales projections and represent fresh assortments for the holiday season.
The current cost of inventories exceeded the LIFO basis amount carried on
the balance sheet by approximately $247 million at both October 28, 1995
and January 28, 1995, and $246 million at October 29, 1994.
Total debt, both on and off the balance sheet, was $7.3 billion at
October 28, 1995, up $772 million compared with the October 29, 1994
level, principally due to the Company's stock purchase program and
working capital requirements. During the 1995 third quarter, the Company
issued $300 million of five year Notes at 6.375 per cent, and $200
million of twenty year Notes at 6.875 per cent, under its Series A Medium-
Term Note program.
As of December 2, 1995, the Company had purchased approximately 7 million
shares of its common stock at a cost of $313 million under its 1995 stock
purchase program. Since March 1994, the Company has purchased
approximately 17 million shares at a cost of $788 million. All shares
were retired and returned to the status of authorized but unissued shares
of common stock.
The regular quarterly dividend of 48 cents per share on the Company's
outstanding common stock was paid on November 1, 1995, to stockholders of
record on October 10, 1995.
<PAGE>
Results of Operations
- ---------------------
Ratios useful in analyzing the results of operations are as follows:
<TABLE>
<CAPTION>
13 weeks ended 39 weeks ended
------------------ ------------------
Oct. 28, Oct. 29, Oct. 28, Oct. 29,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Retail sales, per cent increase
(decrease) (.4) 8.7 1.4 8.5
JCPenney stores sales, per cent
increase (decrease) (1.8) 8.3 .1 7.5
Gross margin, per cent of retail
sales
FIFO 31.0 32.2 30.5 31.6
LIFO 31.0 32.2 30.5 31.6
Selling, general, and adminis-
trative expenses, per cent of
retail sales 23.4 23.4 24.8 24.6
Effective income tax rate 37.6 38.7 37.8 38.7
</TABLE>
For the 13 weeks ended October 28, 1995, fully diluted net income per
share declined 8.7 per cent to 95 cents, compared with $1.04 per share
in the same period last year. Net income totaled $240 million, a 12.6
per cent decline from $274 million in the 1994 third quarter. For the
nine months ended October 28, 1995, net income totaled $512 million, or
$2.02 per share, as compared with $629 million, or $2.39 per share, in
the comparable 1994 period.
Third quarter total retail sales decreased .4 per cent to $5,128 million
from $5,149 million in last year's comparable period. Sales from
JCPenney stores decreased 1.8 per cent, while catalog sales decreased 3.8
per cent from the comparable 1994 period. Sales from the Thrift Drug
operation during the 1995 third quarter, including sales from the Kerr
Drug stores acquired in the 1995 first quarter, increased 23.2 per cent
over the comparable period in 1994. For the nine months ended October
28, 1995, total retail sales increased 1.4 per cent to $13,930 million
from $13,741 million in the comparable 1994 period.
<PAGE>
Gross margin, as a per cent of retail sales, decreased 120 basis points
in the third quarter to 31.0 per cent from 32.2 per cent in the
comparable 1994 period, as stores and catalog competed in a highly
promotional environment. For the nine months ended October 28, 1995,
gross margin, as a per cent of retail sales, was 30.5 per cent compared
with 31.6 per cent in the comparable 1994 period.
Selling, general, and administrative ("SG&A") expenses continued to be
well managed in the third quarter. On a dollar basis, SG&A expenses were
slightly below 1994 levels and as a per cent of retail sales, were 23.4
per cent in both the 1994 and 1995 third quarters. This reflects the
Company's continuing efforts to reduce costs across all operating and
support areas. For the nine months ended October 28, 1995, SG&A, as a
per cent of retail sales, was 24.8 per cent, compared with 24.6 per cent
in the comparable 1994 period.
Net interest expense and credit operations for the third quarter was $58
million compared with $48 million in the comparable period last year.
Net interest expense was $84 million, up $11 million compared with last
year's third quarter. The increase was due primarily to higher borrowing
levels which support increased investment in capital expenditures, as
well as the Company's stock purchase program. Finance charge revenue of
$145 million in the third quarter 1995 remained unchanged from 1994 third
quarter levels. Total customer receivables, at $4.1 billion, were $67
million lower than last year's level. Credit operating costs were $119
million in third quarter 1995 compared with $120 million in third quarter
1994. For the nine months ended October 28, 1995, net interest expense
and credit operations was $123 million compared with $57 million in last
year's period.
The Company's life and health insurance business continued its strong
growth in premiums and earnings in both the 1995 third quarter and nine
month periods. Total revenue for the third quarter was $183 million, an
increase of $36 million or 24.1 per cent over the comparable period in
the prior year. Pretax income was $43 million, an increase of $11
million or 33.1 per cent over last year. For the nine months, total
revenue increased 20.3 per cent to $510 million, and pretax income was
$123 million compared with $98 million for 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 39 weeks ended October 28, 1995 are not necessarily indicative
of the results for the entire year.
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.
The Company has no material legal proceedings pending against it.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
--------
The following documents are filed as exhibits to this report:
11 Computation of net income per common share.
12(a) Computation of ratios of available income to combined
fixed charges and preferred stock dividend requirement.
12(b) Computation of ratios of available income to fixed
charges.
27 Financial Data Schedule for the nine months ended October
28, 1995.
(b) Reports on Form 8-K
-------------------
None.
<PAGE>
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: December 8, 1995
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)
39 Weeks Ended
------------------------------------
Oct. 28, 1995 Oct. 29, 1994
---------------- ---------------
Shares Income Shares Income
------ ------ ------ ------
Primary:
- -------
Net income $ 512 $ 629
Dividend on Series B ESOP convertible
preferred stock (after-tax) (31) (31)
------ ------
Adjusted net income 481 598
Weighted average number of shares
outstanding 227.6 234.8
Common stock equivalents:
Stock options and other dilutive effects 2.6 3.4
----- ----- ----- -----
230.2 $ 481 238.2 $ 598
===== ===== ===== =====
Net income per common share $2.09 $2.51
===== =====
Fully diluted:
- -------------
Net income $ 512 $ 629
Tax benefit differential on ESOP dividend
assuming stock is fully converted (1) (2)
Assumed additional contribution to ESOP
if preferred stock is fully converted (4) (5)
------ ------
Adjusted net income 507 622
Weighted average number of shares
outstanding (primary) 230.2 238.2
Maximum dilution 0.0 0.0
Convertible preferred stock 20.7 21.4
----- ----- ----- ------
250.9 $ 507 259.6 $ 622
===== ===== ===== ======
Net income per common share $2.02 $2.39
===== ======
<PAGE>
Exhibit 12(a)
J. C. Penney Company, Inc.
(the Company and all subsidiaries)
Computation of Ratios of Available Income to Combined Fixed Charges
and Preferred Stock Dividend Requirement
<TABLE>
52 weeks 52 weeks
ended ended
-------- --------
Oct. 28, Oct. 29,
1995 1994
-------- --------
<S> <C> <C>
($ Millions)
Income from continuing operations
(before income taxes,
before capitalized interest,
but after preferred stock dividend) $ 1,444 $ 1,673
------- -------
Fixed charges
Interest (including capitalized
interest)
On operating leases 95 97
On short term debt 130 73
On long term debt 242 227
On capital leases 6 8
Other, net 1 (1)
------- -------
Total fixed charges 474 404
Preferred stock dividend, before taxes 49 51
------- -------
Combined fixed charges and preferred stock
dividend requirement 523 455
------- -------
Total available income $ 1,967 $ 2,128
======= =======
Ratio of available income to combined
fixed charges and preferred stock
dividend requirement 3.8 4.7
======= =======
</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>
52 weeks 52 weeks
ended ended
-------- --------
Oct. 28, Oct. 29,
1995 1994
-------- --------
<S> <C> <C>
($ Millions)
Income from continuing operations
(before income taxes and
before capitalized interest) $ 1,493 $ 1,724
------- -------
Fixed charges
Interest (including capitalized
interest)
On operating leases 95 97
On short term debt 130 73
On long term debt 242 227
On capital leases 6 8
Other, net 1 (1)
------- -------
Total fixed charges 474 404
------- -------
Total available income $ 1,967 $ 2,128
======= =======
Ratio of available income to fixed charges 4.2 5.3
======= =======
</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 OCTOBER 28, 1995, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-END> OCT-28-1995
<CASH> 321
<SECURITIES> 0
<RECEIVABLES> 4,811
<ALLOWANCES> 74
<INVENTORY> 5,105
<CURRENT-ASSETS> 10,419
<PP&E> 6,293
<DEPRECIATION> 2,091
<TOTAL-ASSETS> 17,857
<CURRENT-LIABILITIES> 5,199
<BONDS> 4,023
<COMMON> 1,114
0
610
<OTHER-SE> 3,940
<TOTAL-LIABILITY-AND-EQUITY> 17,857
<SALES> 13,930
<TOTAL-REVENUES> 14,559
<CGS> 9,676
<TOTAL-COSTS> 13,132
<OTHER-EXPENSES> 211
<LOSS-PROVISION> 153
<INTEREST-EXPENSE> 240
<INCOME-PRETAX> 823
<INCOME-TAX> 311
<INCOME-CONTINUING> 512
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 512
<EPS-PRIMARY> 2.09
<EPS-DILUTED> 2.02
</TABLE>
