<PAGE>
UNITED STATES
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 27, 1996 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. [x]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $12,370,959,918 as of March 18, 1996.
<PAGE>
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date: 224,628,036 shares of
Common Stock of 50c par value, as of March 18, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Documents from which portions Parts of the Form 10-K
are incorporated by reference into which incorporated
----------------------------- -----------------------
1. J. C. Penney Company, Inc. Part I, Part II, and
1995 Annual Report to Stockholders Part IV
2. J. C. Penney Company, Inc. Part III
1996 Proxy Statement
3. J. C. Penney Funding Corporation Part I and Part IV
Form 10-K for fiscal year 1995
<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 major 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 26), "Merchandise Inventory" (page
26), "Properties" (page 27), "Capital Expenditures" (page 27), "Investments"
(pages 27 and 28), and "Segment Reporting" (page 36), which appear in the
section of the Company's 1995 Annual Report to Stockholders entitled "Notes to
Consolidated Financial Statements", "Supplemental Information (Unaudited)"
(pages 37 and 38), "Five Year Financial Summary" (page 39), and "Five Year
Operations Summary" (page 40), which appear in the Company's 1995 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 27, 1996,
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 6,600 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, the Philippines,
Singapore, Taiwan and Thailand.
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<PAGE>
Employment. The Company and its consolidated subsidiaries employed
----------
approximately 205,000 persons as of January 27, 1996.
Environment. While environmental protection requirements did not have a
-----------
material effect upon the Company's operations during fiscal 1995, 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 27, 1996, the Company operated 1,883 retail stores, comprised of
1,238 JCPenney department stores and 645 drug stores, in all 50 states, Puerto
Rico, Mexico, and Chile, of which 249 JCPenney department stores and 18 drug
stores were owned. In addition, the Company owns twelve store locations that
are leased to other tenants and not operated as units of the Company. 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 39 and 40, respectively, of the Company's 1995 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 27), which appears in the section
of the Company's 1995 Annual Report to Stockholders entitled "Notes to
Consolidated 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 1995.
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<PAGE>
PART II
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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, as well as on other exchanges in the United States. 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" (pages 30 and 31),
"Common Stock" (pages 31 and 32), "Changes in outstanding common stock" (page
31), and "Quarterly Data (Unaudited)" (page 36), which appear in the Company's
1995 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 1991-1995 included in the "Five Year
Financial Summary" on page 39 of the Company's 1995 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 1995 Annual Report to Stockholders on pages 17 through
20 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
27, 1996, January 28, 1995, and January 29, 1994, and the related Consolidated
Statements of Income, Reinvested Earnings, and Cash Flows for the years then
ended, appearing on pages 22 through 24 of the Company's 1995 Annual Report to
Stockholders, together with the Independent Auditors' Report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing on page 21 of
the Company's 1995 Annual Report to Stockholders, the Notes to Consolidated
Financial Statements on pages 25 through 36, and the quarterly financial
highlights ("Quarterly Data (Unaudited)") appearing on page 36 thereof, are
incorporated herein by reference and filed hereto as Exhibit 13 in response to
Item 8 of Form 10-K. The Independent Auditors' Report of KPMG Peat Marwick LLP
covering
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<PAGE>
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, (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, and (c) in 1995 the provisions of the Financial Accounting Standards
- ----------
Board's Statement of Financial Accounting Standards No. 121, Accounting for the
------------------
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
- ---------------------------------------------------------------------------
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 February 1, 1996, 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 17, 1996. 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 60
James E. Oesterreicher...Vice Chairman of the Board and
Chief Executive Officer; Director 54
W. Barger Tygart.........President and Chief Operating Officer;
Director 60
John T. Cody, Jr.........President of JCPenney Stores 56
Gary L. Davis............Senior Vice President and Director
of Personnel and Administration 53
Gale Duff-Bloom..........President of Marketing and Company
Communications 56
David V. Evans...........Senior Vice President and Director of
Planning and Information Systems 51
John E. Fesperman........Senior Vice President and Director of
Support Services and Subsidiary
Operations 50
Thomas D. Hutchens.......President of Merchandising Worldwide 55
Charles R. Lotter........Executive Vice President, Secretary
and General Counsel 58
William E. McCarthy......President of Catalog and Distribution 54
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C>
Donald A. McKay..........Senior Vice President and
Chief Financial Officer 50
Ted L. Spurlock..........Senior Vice President and Director
of Financial Services and
Government Relations 57
</TABLE>
- -------------
Mr. Howell was elected Chairman of the Board in 1983. He served as the
Company's Chief Executive Officer from 1983 to 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 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 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 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.
Mr. Davis was elected Senior Vice President and Director of Personnel and
Administration effective February 1, 1996. He was elected President of the
Northwestern Region in 1992 and served in that capacity until 1996. From 1990
to 1992, he served as Director of Coordination for JCPenney Stores and Catalog.
Ms. Duff-Bloom was elected President of Marketing and Company Communications
effective February 1, 1996. She was elected Senior Executive Vice President and
served as Director of Personnel and Company Communications from January 1, 1995
to February 1, 1996. She was elected an Executive Vice President in 1993 and
served as Director of Administration from 1993 to 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 1995.
-5-
<PAGE>
Mr. Fesperman was elected Senior Vice President and Director of Support
Services and Subsidiary Operations effective January 1, 1996. He was elected a
Vice President in 1993 and served as Director of Insurance from 1991 to 1996.
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 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.
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 1995. He was elected President, Northwestern Region in
1991 and served in that capacity until 1992.
Mr. McKay was elected Senior Vice President and Chief Financial Officer
effective February 1, 1996. From 1994 to 1996, he served as the Company's
Controller. He was elected Vice President and Treasurer in 1985 and served in
that capacity until 1994.
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 1996
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 8, 1996.
-6-
<PAGE>
PART IV
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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 1995
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 1995 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 27, 1996, 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 15, 1996
-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.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
W. R. Howell* Chairman of the Board; Director April 15, 1996
- ------------
W. R. Howell
J. E. Oesterreicher* Vice Chairman of the Board and April 15, 1996
- ------------------- Chief Executive Officer (principal
J. E. Oesterreicher executive officer); Director
W. B. Tygart* President and Chief Operating
- ------------ Officer; Director
W. B. Tygart April 15, 1996
D. A. McKay* Senior Vice President and April 15, 1996
- ----------- Chief Financial Officer
D. A. McKay (principal financial officer)
W. J. Alcorn* Vice President and Controller April 15, 1996
- ------------ (principal accounting officer)
W. J. Alcorn
M. A. Burns* Director April 15, 1996
- -----------
M. A. Burns
C. H. Chandler* Director April 15, 1996
- --------------
C. H. Chandler
V. E. Jordan, Jr.* Director April 15, 1996
- -----------------
V. E. Jordan, Jr.
George Nigh* Director April 15, 1996
- -----------
George Nigh
J. C. Pfeiffer* Director April 15, 1996
- --------------
J. C. Pfeiffer
A. W. Richards* Director April 15, 1996
- --------------
A. W. Richards
C. S. Sanford, Jr.* Director April 15, 1996
- ------------------
C. S. Sanford, Jr.
R. G. Turner* Director April 15, 1996
- ------------
R. G. Turner
J. D. Williams* Director April 15, 1996
- --------------
J. D. Williams
*By /s/ C. R. Lotter
--------------------------
C. R. Lotter
Attorney-in-fact
</TABLE>
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<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders and Board of Directors of
J. C. Penney Company, Inc.:
Under date of February 22, 1996, we reported on the consolidated balance sheets
of J. C. Penney Company, Inc. and subsidiaries as of January 27, 1996, January
28, 1995, and January 29, 1994, and the related consolidated statements of
income, reinvested earnings, and cash flows for the years then ended, as
contained in the 1995 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 1995 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 22, 1996
-10-
<PAGE>
SCHEDULE II
J. C. PENNEY COMPANY, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in millions)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 27, January 28, January 29,
Description 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserve deducted from assets
- ----------------------------
Allowance for doubtful accounts
Balance at beginning of period.... $ 74 $ 59 $ 69
Additions charged to costs and
expenses......................... 219 177 95
Deductions - write-offs, less
recoveries....................... (209) (162) (105)
----- ----- -----
Balance at end of period.......... $ 84 $ 74 $ 59
===== ===== =====
Allowance for loan losses -
JCPenney National Bank
Balance at beginning of period.... $ 44 $ 35 $ 32
Additions charged to costs and
expenses......................... 45 45 38
Deductions - write-offs, less
recoveries....................... (42) (36) (35)
----- ----- -----
Balance at end of period.......... $ 47 $ 44 $ 35
===== ===== =====
</TABLE>
F-1
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
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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*).
(ii) (a) Bylaws Bylaws of Company, as amended to January 11, 1995
------
(incorporated by reference to Exhibit 3(ii)(a) to Company's
Annual
G-1
<PAGE>
Report on Form 10-K for the 52 week period ended January 28,
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) January 1996 Amendment to J. C. Penney Company, Inc. Supplemental
Retirement Program for Management Profit-Sharing Associates, as
amended.
(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) February 1996 Amendment to J. C. Penney Company, Inc. Retirement
Plan for Non-Associate Directors, as amended.
(f) 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*).
(g) 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*).
(h) February 1995 Amendment to J. C. Penney Company, Inc. 1984 Equity
Compensation Plan, as amended (incorporated by reference to
Exhibit 10(ii)(j) to Company's Annual Report on Form 10-K for the
52 week period ended January 28, 1995*).
(i) 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).
(j) February 1995 Amendment to J. C. Penney Company, Inc. 1989 Equity
Compensation Plan (incorporated by reference to Exhibit 10(ii)(k)
to Company's Annual Report on Form 10-K for the 52 week period
ended January 28, 1995*).
(k) February 1996 Amendment to J. C. Penney Company, Inc. 1989 Equity
Compensation Plan, as amended.
G-5
<PAGE>
(l) 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).
(m) February 1995 Amendment to J. C. Penney Company, Inc. 1993 Equity
Compensation Plan (incorporated by reference to Exhibit 10(ii)(l)
to Company's Annual Report on Form 10-K for the 52 week period
ended January 28, 1995*).
(n) November 1995 Amendment to J. C. Penney Company, Inc. 1993 Equity
Compensation Plan, as amended.
(o) 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).
(p) February 1995 Amendment to J. C. Penney Company, Inc. 1993 Non-
Associate Directors' Equity Plan (incorporated by reference to
Exhibit 10(ii)(m) to Company's Annual Report on Form 10-K for the
52 week period ended January 28, 1995*).
(q) 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).
(r) 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*).
(s) 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*).
(t) J. C. Penney Company, Inc. 1995 Deferred Compensation Plan
(incorporated by reference to Exhibit 10 to Company's
Registration
G-6
<PAGE>
Statement on Form S-8, SEC File No. 33-56993).
(u) November 1995 amendment to J. C. Penney Company, Inc. 1995
Deferred Compensation Plan.
(v) 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*).
(w) 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).
(x) 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).
(y) J. C. Penney Company, Inc. Benefit Restoration Plan.
* 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 1995 Annual Report to Stockholders.
21. SUBSIDIARIES OF THE REGISTRANT
------------------------------
List of certain subsidiaries of the Company at January 27, 1996.
23. CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
24. POWER OF ATTORNEY
-----------------
G-7
<PAGE>
27. FINANCIAL DATA SCHEDULE
-----------------------
Financial Data Schedule for the 52 week period ended January 27, 1996.
99. ADDITIONAL EXHIBITS
-------------------
(a) Item 1 of J. C. Penney Funding Corporation Annual Report on
Form 10-K for the 52 weeks ended January 27, 1996 (incorporated
by reference to J. C. Penney Funding Corporation Annual Report on
Form 10-K for the 52 weeks ended January 27, 1996 filed
concurrently herewith, SEC File No. 1-4947-1).
(b) Excerpt from J. C. Penney Funding Corporation Annual Report.
G-8
<PAGE>
Exhibit 10(ii)(c)
Article II of the Supplemental Retirement Program for Management Profit-
Sharing Associates of J. C. Penney Company, Inc. ("Program") is amended,
effective January 1, 1996 to read as follows:
"Each Eligible Management Associate shall participate in the Plan.
Notwithstanding the preceding sentence, effective on and after January
1, 1996, any Associate who, on December 31, 1995, was not an Eligible
Management Associate shall not participate in the Plan."
<PAGE>
Exhibit 10(ii)(e)
The J. C. Penney Company, Inc. Retirement Plan for Non-Associate Directors
("Plan") hereby is amended as follows:
in Article II, the following definition is added:
"MANDATORY RETIREMENT DATE: The first day of the month next following the
date of the Annual Meeting of Stockholders of the Company at which an
Eligible Director becomes ineligible for reelection pursuant to the
Company's Bylaws.";
in Article III, in paragraph (1), the phrase "his Normal Retirement Date"
is deleted and the phrase "his or her Normal Retirement Date or Mandatory
Retirement Date, as the case may be," is substituted therefor;
in Article IV, in paragraphs (1) (a), (2), and (3), the phrases "at his"
and "or his" are deleted and the phrase "on or after his or her" is
substituted therefor; and
in Article VII, Section (7), the word "and" is deleted and the phrase "and
February 14, 1996" added to follow the phrase "1989".
<PAGE>
Exhibit 10(ii)(k)
Section 14(c) of the J. C. Penney Company, Inc. 1989 Equity Compensation Plan
("Plan") is hereby deleted and the following substituted therefor:
"NON-ASSOCIATE DIRECTOR PARTICIPANT'S TERMINATION. If a Non-Associate
Director Participant's service as a director of the Company terminates on
account of any act of (i) fraud or intentional misrepresentation, or
(ii) embezzlement, misappropriation, or conversion of assets or opportunities of
the Company or any subsidiary of the Company, such termination will be
considered a "Non-Qualifying Termination". All other terminations, including
termination by reason of death, will be considered "Qualifying Terminations". In
the event of a Non-Qualifying Termination, all outstanding Restricted Stock
Awards and all unexercised Stock Options granted pursuant to this Section will
be forfeited or canceled, as the case may be."
<PAGE>
EXHIBIT 10(ii)(n)
In the second paragraph of Section 14 of the J.C. Penney Company, Inc.
1993 Equity Compensation Plan, the phrase "not subject to Section 16 of the
Exchange Act" is deleted in its entirety.
<PAGE>
Exhibit 10(ii)(u)
Section 5 ("Election to Defer") of the J. C. Penney Company, Inc. 1995
Deferred Compensation Plan ("Plan") is hereby amended by adding after the first
sentence of the first paragraph the following sentence:
The maximum percentage of that portion of Base Salary, COMP, and PUP which
may be deferred by an Eligible Associate for a Plan Year shall be
determined from time to time by the Personnel Committee; provided, however,
that such determination shall be uniformly and consistently applied with
respect to all Eligible Associates;
The first sentence of the second paragraph ("Normal Benefits: Distribution
Upon Retirement or Other Separation from Service") of Section 8 of the Plan is
hereby amended to read as follows:
Except as otherwise provided in the Plan, a Participant's benefits shall be
paid in 15 substantially equal annual installments commencing on the
Payment Commencement Date or as soon thereafter as administratively
feasible, but in no event later than 30 days following the Payment
Commencement Date;
The first sentence of the second paragraph of Section 17 ("Termination and
Amendment") of the Plan is hereby amended to read as follows:
The Personnel and Compensation Committee may amend the Plan at any time and
from time to time, without prior notice to any Participant or Beneficiary;
provided that the Personnel Committee also may make amendments that relate
primarily to the administration of the Plan, are applied in a uniform and
consistent manner to all Eligible Associates, and are reported at least
annually to the Personnel and Compensation Committee.
<PAGE>
Exhibit 10(ii)(y)
J. C. PENNEY COMPANY, INC.
BENEFIT RESTORATION PLAN
ADOPTED EFFECTIVE AUGUST 1, 1995
<PAGE>
J. C. PENNEY COMPANY, INC.
BENEFIT RESTORATION PLAN
Adopted Effective August 1, 1995
TABLE OF CONTENTS
Article Page
------- ----
ARTICLE I. INTRODUCTION............................................ 1
ARTICLE II. DEFINITIONS............................................ 1
ARTICLE III. PARTICIPATION......................................... 4
(1) Pension Plan Benefit........................................ 4
(2) Annual Benefit Limit Make-Up Account Benefit................ 5
ARTICLE IV. BENEFITS............................................... 5
(1) Pension Plan Participant Benefit............................ 5
(2) Annual Benefit Limit Make-Up Account........................ 5
(3) Death Benefit............................................... 6
(4) Vesting..................................................... 7
(5) Effect of Certain Payments Made in December 1992............ 7
ARTICLE V. FORM AND COMMENCEMENT OF BENEFIT PAYMENTS............... 7
(1) Optional Forms and Commencement of Benefit Payments......... 7
(2) Small Annuities............................................. 8
ARTICLE VI. ADMINISTRATION......................................... 8
ARTICLE VII. TYPE OF PLAN.......................................... 9
ARTICLE III. MISCELLANEOUS......................................... 9
(1) Amendment and Termination................................... 9
(2) Rights of Associates........................................ 10
(3) Mistaken Information........................................ 10
(4) Liability................................................... 11
(5) Cessation and Recalculation of Benefits..................... 11
(6) Construction................................................ 11
(7) Non-assignability of Benefits............................... 11
(8) Governing Law............................................... 11
ARTICLE IX. CLAIMS PROCEDURES...................................... 12
<PAGE>
J. C. PENNEY COMPANY, INC.
BENEFIT RESTORATION PLAN
Adopted Effective August 1, 1995
ARTICLE I. INTRODUCTION
The J. C. Penney Company, Inc. Benefit Restoration Plan is a plan
maintained by the Company primarily for the purpose of providing benefits for
eligible Associates in excess of the limit on benefits and contributions imposed
by Internal Revenue Code Section 415 and the compensation limit under section
401(a)(17) of the Internal Revenue Code. This document amends and completely
restates the portion of the Supplemental Retirement Program for Management
Profit-Sharing Associates of J. C. Penney Company, Inc. that provided benefits
that would have been payable under the J. C. Penney Company, Inc. Pension Plan
and the J. C. Penney Company, Inc. Savings, Profit-Sharing and Stock Ownership
Plan but for the limits on benefits, contributions, and compensation imposed on
retirement plans qualified under the Internal Revenue Code. With respect to
Associates who terminated employment prior to August 1, 1995, benefits payable
to such Associates are determined pursuant to the terms and conditions of the
Supplemental Retirement Program for Management Profit-Sharing Associates of J.
C. Penney Company, Inc. in effect as of July 31, 1995.
ARTICLE II. DEFINITIONS
For the purpose of this Plan the following terms shall have the
following meanings:
Annual Benefit Limit Make-Up Account: The account established and
------------------------------------
maintained pursuant to Paragraph (2) of Article IV of this Plan.
Associate: Any person who is employed by a Controlled Group Member
---------
if the relationship between a Controlled Group Member and such person would
constitute the legal relationship of employer and employee, including an officer
who may or may not be a director, but excluding a director serving only in that
capacity, and excluding any employee of a Controlled Group Member substantially
all the operations of which are outside the United States unless United States
Social Security contributions are made on behalf of such employee.
Beneficiary: For purposes of the benefit provided in Paragraph (1) of
-----------
Article IV, the Participant's Spouse, if any. For purposes of the benefit
provided in Paragraph (2) of Article IV, the person or persons designated by
the Participant as a
<PAGE>
beneficiary under the Savings, Profit-Sharing and Stock Ownership Plan.
Benefit Plans Review Committee: The Benefit Plans Review Committee of
------------------------------
the Board of Directors of the Company.
Benefits Administration Committee: The committee appointed by the
---------------------------------
Personnel Committee and authorized by Article VI to administer the Plan.
Board of Directors: Board of Directors of the Company.
------------------
Code: The Internal Revenue Code of 1986, as amended from time to
----
time. References to "regulations" are to regulations published by the Secretary
of the Treasury under applicable provisions of the Code, unless otherwise
expressly indicated.
Company: J. C. Penney Company, Inc., a Delaware corporation. The
-------
term "Company" will also include any successor employer, if the successor
employer expressly agrees in writing as of the effective date of succession to
continue the Plan.
Company Account(s): The account(s) of that name established and
------------------
maintained pursuant to the Savings, Profit-Sharing and Stock Ownership Plan in
which are reflected all Company contributions allocated to an Associate together
with all assets attributable thereto.
Compensation: An Associate's compensation as that term is defined in
------------
the Savings, Profit-Sharing and Stock Ownership Plan without regard to the
Earnings Dollar Limit.
Controlled Group: The Company and all other corporations, trades,
----------------
and businesses, the employees of which, together with employees of the Company,
are required by the first sentence of subsection (b), by subsection (c), by
subsection (m), or by subsection (o) of Code section 414 to be treated as if
they were employed by a single employer.
Controlled Group Member: Each corporation or unincorporated trade or
-----------------------
business that is or was a member of a Controlled Group, but only during such
period as it is or was such a member.
Earnings Dollar Limit: The limitation on Compensation taken into
---------------------
account for purposes of the Savings, Profit-Sharing and Stock Ownership Plan
under Section 401(a)(17) of the Code, as indexed for cost-of-living adjustments
pursuant to Section 401(a)(17) of the Code.
Effective Date: August 1, 1995.
--------------
2
<PAGE>
ERISA: Employee Retirement Income Security Act of 1974, as amended
-----
from time to time.
Interest Income Account: The account of that name established and
------------------------
maintained pursuant to the Savings, Profit-Sharing and Stock Ownership Plan.
Participant: An eligible Associate of a Participating Employer who
-----------
has satisfied the conditions for participating in the Plan as set forth in
Article III and who has not received a complete distribution of benefits.
Participating Employer: The Company and any other Controlled Group
----------------------
Member or organizational unit of the Company or a Controlled Group Member which
is designated as a Participating Employer under the Plan by the Board of
Directors, excluding, however, any division of the Company or of a Controlled
Group Member that is designated by the Board of Directors or the Personnel
Committee as ineligible to participate in the Plan. The current Participating
Employers are set forth on Appendix I to the Plan.
Pension Benefit: The monthly benefit that is payable to a Participant
---------------
pursuant to the provisions of the Pension Plan in the form of a single-life,
no-death-benefit annuity, assuming the Participant's benefit commencement date
under the Pension Plan is the first day of the month immediately following the
date of the Participant's Separation from Service.
Pension Plan: J. C. Penney Company, Inc. Pension Plan, as amended
------------
from time to time.
Pension Plan Participant: An Associate or former Associate who is
------------------------
treated as a participant under the Pension Plan.
Performance Unit Plan: J. C. Penney Company, Inc. 1984 Performance
---------------------
Unit Plan, as amended from time to time.
Personnel Committee: The Personnel Committee of the Management
-------------------
Committee of the Company.
Plan: J. C. Penney Company, Inc. Benefit Restoration Plan, as amended
----
from time to time.
Plan Year: The twelve month period beginning on January 1 and ending
---------
on December 31 of each calendar year.
Prior Plan: The Supplemental Retirement Program for Management
----------
Profit-Sharing Associates of J. C. Penney Company, Inc. as in effect on
July 31, 1995.
3
<PAGE>
Profit Incentive Compensation: The share of store profits to which an
-----------------------------
Associate is entitled as a store manager or as a member of a store's management
staff; the management incentive compensation to which a management Associate is
entitled; the regional or district incentive compensation to which a regional or
district office Associate is entitled; and, if so determined by the Personnel
Committee, any other compensation based on profits (excluding any Company
contributions to and benefits under the Savings, Profit-Sharing and Stock
Ownership Plan) to which an Associate of a Participating Employer, is entitled.
Savings, Profit-Sharing and Stock Ownership Plan: J. C. Penney
------------------------------------------------
Company, Inc. Savings, Profit-Sharing and Stock Ownership Plan, as amended from
time to time.
Separation from Service or Separates from Service: Termination of
-------------------------------------------------
service by reason of disability, discharge, retirement (including
resignation), or death. Termination of service due to a disability is deemed to
occur upon the later of termination of sick pay or the end of any leave of
absence granted the Participant.
Spouse: The individual to whom an Associate is legally married under
------
the laws of the State (within the meaning of section 3(10) of ERISA) in which
the Associate is domiciled, or if domiciled outside the United States, under the
laws of the State of Texas.
Supplemental Retirement Program: The Supplemental Retirement
-------------------------------
Program for Management Profit-Sharing Associates of J. C. Penney Company, Inc.,
as amended and restated August 1, 1995, and as further amended from time to
time.
Unrestricted Benefit: The monthly benefit that would be payable to a
--------------------
Participant pursuant to the provisions of the Pension Plan in the form of a
single-life, no-death-benefit annuity, assuming the Participant's benefit
commencement date under the Pension Plan is the first day of the month
immediately following the date of the Participant's Separation from Service, if
the Participant's benefit under the Pension Plan were determined without
applying the provisions of the Pension Plan relating to the limitation on
compensation under Section 401(a)(17) of the Code or the limitation on benefits
under Section 415 of the Code.
ARTICLE III. PARTICIPATION
(1) Pension Plan Benefit: For purposes of Paragraph (1) of Article
--------------------
IV, any Associate of a Participating Employer who is a Pension Plan Participant
on or after the Effective Date and whose retirement pension benefit payable
pursuant to the terms of the
4
<PAGE>
Pension Plan is limited by operation of the annual benefit limits under Section
415 of the Code or the compensation limits under Section 401(a)(17) of the Code
shall be a Participant in the Plan. In addition an active or former Associate
for whom a benefit was accrued under Paragraph (2) of Article III of the Prior
Plan and whose benefit under Paragraph (2) of Article III under the Prior Plan
had not been completely distributed to such Associate at July 31, 1995, will
also be a Participant in the Plan.
(2) Annual Benefit Limit Make-Up Account Benefit: For purposes of
--------------------------------------------
Paragraph (2) of Article IV, any Associate of a Participating Employer (i) whose
Compensation equals or exceeds the applicable Earnings Dollar Limit in a Plan
Year or (ii) whose allocation of the Company's annual contribution to the
Savings, Profit-Sharing and Stock Ownership Plan is limited because of Section
415(c)(1) of the Code shall be a Participant in the Plan. In addition, an
Associate for whom an annual benefit limit make-up account was maintained under
Paragraph (6) of Article III of the Prior Plan, and whose annual benefit limit
make-up account balance under the Prior Plan had not been completely distributed
to such Associate at July 31, 1995, will also be a Participant in the Plan.
ARTICLE IV. BENEFITS
(1) Pension Plan Participant Benefit: A Participant shall be
--------------------------------
entitled to a monthly benefit equal in amount to his Unrestricted Benefit less
his Pension Benefit. Additionally, a benefit shall be accrued for each
Participant for whom a benefit was accrued under Paragraph (2) of Article III of
the Prior Plan at July 31, 1995, and whose accrued benefit had not been
completely distributed from the Prior Plan. The value of the Participant's Prior
Plan benefit under Paragraph (2) of Article III determined as of July 31, 1995,
will become an accrued benefit under this Plan and will be distributed to the
Participant pursuant to the terms of this Plan. The distribution to a
Participant from this Plan of such Prior Plan accrued benefit will completely
discharge the Company and each other Participating Employer from any further
liability for such benefit.
(2) Annual Benefit Limit Make-Up Account: If a Participant is
------------------------------------
participating in the Savings, Profit-Sharing and Stock Ownership Plan and such
Participant's allocation of the Company's annual contribution (including any
contribution made for partial years) is limited or eliminated under such plan
for any Plan Year because it would exceed the limit on "annual additions" under
Section 415(c)(1) of the Code, or the limitation on compensation under Section
401(a)(17) of the Code, an individual account, called an Annual Benefit Limit
Make-up Account, shall be established under this Plan and credited with an
unfunded balance
5
<PAGE>
equal to the difference between the amount of the Company's matching
contribution allocated to the Participant's Company Accounts in the Savings,
Profit-Sharing and Stock Ownership Plan and the full share of the amount of the
Company's matching contribution which would have been allocated to his Company
Accounts in the Savings, Profit-Sharing and Stock Ownership Plan but for Section
415(c)(1) of the Code and/or the limitation on compensation under Section
401(a)(17) of the Code, provided the Participant makes the maximum legally
permissible deposits subject to the Company matching contributions to the
Savings, Profit-Sharing and Stock Ownership Plan. However, the Benefits
Administration Committee may, in its discretion, waive the proviso in the
preceding sentence if it determines that the Participant's failure to make the
maximum permissible deposits was excusable.
An Annual Benefit Limit Make-up Account shall also be established for
each Participant for whom an annual benefit limit make-up account was maintained
under the Prior Plan at July 31, 1995, and whose annual benefit limit make-up
account balance had not been completely distributed from the Prior Plan. The
value of each Participant's Prior Plan annual benefit limit make-up account will
be credited to such Participant's Annual Benefit Limit Make-up Account under
this Plan and will be distributed to the Participant pursuant to the terms of
this Plan. The distribution to a Participant from this Plan of the Participant's
Prior Plan annual benefit limit make-up account balance will completely
discharge the Company and each other Participating Employer from any further
liability for such benefit.
For purposes of this Plan, the balance of each Participant's Annual
Benefit Limit Make-up Account will be deemed invested in the Interest Income
Account under the Savings, Profit-Sharing and Stock Ownership Plan. The
Participant's Annual Benefit Limit Make-up Account will be credited with
unfunded interest at the rate, from time to time, applicable to such Interest
Income Account and at the same time interest is credited to such Interest Income
Account.
(3) Death Benefit: For purposes of the benefit provided by Paragraph
-------------
(1) of this Article IV, if a Participant is married at the time such Participant
Separates from Service by reason of death, or if a Participant who has Separated
from Service and who is married at the time of his death, dies before payment
has begun under the Plan, the Participant's Spouse will receive the benefit, at
the time the Participant would have attained age 55, that would have been
payable if the Participant had a Separation from Service immediately prior to
such Participant's death (if he was an active Participant on the date of death),
had survived to age 55, and had begun to receive benefits immediately prior to
his death in the form of a 50% joint and survivor annuity without payment
certain with the Spouse as the Beneficiary. Notwithstanding the preceding
6
<PAGE>
sentence, if the Participant was 55 years of age or more and had 15 years or
more of service, as defined by the Pension Plan, at the time of his death, the
joint and survivor annuity payable to the Spouse will be in the form of a 100%
(75% if death occurs prior to January 1, 1996) joint and survivor annuity
without payment certain.
For purposes of the benefit provided by Paragraph (2) of this Article
IV, if a Participant Separates from Service by reason of death, or if a
Participant who has Separated from Service dies before payment is made under the
Plan, benefits payable under this Plan shall be payable to the Participant's
Beneficiary. Payment of benefits shall be in a lump sum payment and shall be
made as soon as practicable after the Benefits Administration Committee, or its
delegate receives notification and proof of the Participant's death.
(4) Vesting: For purposes of the benefit provided by Paragraph (1)
-------
of this Article IV, a Participant will have the same degree of vested and
nonforfeitable interest in his benefit under this Plan as the Participant has in
his Pension Benefit under the Pension Plan.
For purposes of the benefit provided by Paragraph (2) of this Article
IV, the Participant shall have, from time to time, the same degree of
nonforfeitable interest in all unfunded credits in his Annual Benefit Limit
Make-up Account attributable to the Savings, Profit-Sharing and Stock Ownership
Plan as such Participant has in the value of his Company Accounts under the
Savings, Profit-Sharing and Stock Ownership Plan.
(5) Effect of Certain Payments Made in December 1992: In the event
------------------------------------------------
the Company made payments to a current or former Participant on or before
December 31, 1992 under the Company's Profit Incentive Compensation program and
under the Performance Unit Plan and such payments were attributable to the
Company's fiscal year ending on January 30, 1993, this Paragraph shall apply.
The effect of such payments on the benefits payable to such individual under the
Savings, Profit-Sharing and Stock Ownership Plan and under the Pension Plan
shall be determined with respect to whether an increase or decrease in benefits
resulted. Benefits payable under this Plan to such current or former
Participants shall be adjusted (a) to offset any such increase in benefits
and/or (b) to restore any such decrease in benefits so that no advantage or
detriment, as the case may be, shall be experienced by any such current or
former Participant with respect to total retirement benefits under the Pension
Plan and Savings, Profit-Sharing and Stock Ownership Plan and this Plan.
ARTICLE V. FORM AND COMMENCEMENT OF BENEFIT PAYMENTS
(1) Optional Forms and Commencement of Benefit Payments: Except as
---------------------------------------------------
otherwise provided in this Plan and subject to such rules and regulations as the
Benefits Administration Committee may
7
<PAGE>
establish from time to time with respect to time and manner of payment, benefits
provided by this Plan shall be payable as follows. For purposes of the benefit
provided by Paragraph (1) of Article IV, a Participant shall receive the annual
benefit payable under Paragraph (1) of Article IV in such form and at such time
and actuarially adjusted in such a manner as the benefit payable under the
Supplemental Retirement Program. If the Participant is not entitled to a benefit
under the Supplemental Retirement Program, the Participant shall receive the
annual benefit payable under Paragraph (1) of Article IV in such a form and at
such time and actuarially adjusted in such a manner as the benefit payable under
the Pension Plan.
For purposes of the benefit provided by Paragraph (2) of Article IV,
if a Participant Separates from Service, such Participant shall be entitled to
receive from the Company an amount equal to the balance of such Annual Benefit
Limit Make-up Account as of the date of his Separation from Service to the
extent nonforfeitable and payment shall be made in a single lump sum cash
payment or such other form as the Benefits Administration Committee, in its
discretion, shall approve.
(2) Small Annuities: If the total benefit payable with respect to a
---------------
Participant under Paragraph (1) of Article IV plus the benefits payable pursuant
to Paragraph (1) or (2) of Article IV of the Supplemental Retirement Program
would not provide monthly payments exceeding $100, the benefit shall be
converted into an actuarially equivalent lump sum payment (applying the
actuarial factors utilized in the Pension Plan).
ARTICLE VI. ADMINISTRATION
The Benefits Administration Committee will administer the Plan and
will have the full authority and discretion to accomplish that purpose,
including without limitation, the authority and discretion to (i) interpret the
Plan and correct any defect, supply any omission or reconcile any inconsistency
or ambiguity in the Plan in the manner and to the extent that the Benefits
Administration Committee deems desirable to carry on the purpose of the Plan,
(ii) resolve all questions relating to the eligibility of Associates to become
or continue as Participants, (iii) determine the amount of benefits payable to
Participants and authorize and direct the Company with respect to the payment of
benefits under the Plan, (iv) make all other determinations and resolve all
questions of fact necessary or advisable for the administration of the Plan, and
(v) make, amend, and rescind such rules as it deems necessary for the proper
administration of the Plan. The Benefits Administration Committee will keep a
written record of its actions and proceedings regarding the Plan and all
8
<PAGE>
dates, records, and documents relating to its administration of the Plan.
Any action taken or determination made by the Benefits Administration
Committee will be conclusive on all parties. No member of the Benefits
Administration Committee will vote on any matter relating specifically to such
member. In the event that a majority of the members of the Benefits
Administration Committee will be specifically affected by any action proposed to
be taken (as opposed to being affected in the same manner as each other
Participant in the Plan), such action will be taken by the Personnel Committee.
ARTICLE VII. TYPE OF PLAN
The Plan is a plan which is unfunded. Benefits under the Plan are
paid from the general assets of the Company. The portion of this Plan in (i)
Paragraph (1) of Article IV which comprises the benefit determined due to the
limit on annual benefits under the Pension Plan imposed by Code Section 415 and
(ii) Paragraph (2) of Article IV which comprises the benefit determined due to
the limit on annual contributions under the Savings, Profit-Sharing and Stock
Ownership Plan imposed by Code Section 415 constitutes a separable part of this
Plan which is maintained by the Company solely for the purpose of providing
benefits for certain Associates in excess of the limitations on benefits and
contributions imposed by Section 415 of the Code. This separable portion of the
Plan shall be construed according to the provisions of ERISA applicable to such
Plans. The remaining portion of the Plan is maintained by the Company primarily
for the purpose of providing deferred compensation for a select group of
management or highly compensated employees. The Plan shall be construed
according to the provisions of ERISA applicable to such plans. In the event that
it should subsequently be determined by statute or by regulation or ruling that
the Plan is not "a plan which is unfunded and is maintained primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees" within the meaning of sections 201(2), 301(a)(3),
401(a)(1), and 4021(b)(6) of ERISA, participation in the Plan shall be
restricted by the Benefits Administration Committee to the extent necessary to
assure that it will be such a plan within the meaning of such sections.
ARTICLE VIII. MISCELLANEOUS
(1) Amendment and Termination: The Benefit Plans Review Committee may
-------------------------
amend or modify the Plan at any time, without prior notice; provided, however,
that any such amendment or modification which would substantially increase the
cost of the Plan to the
9
<PAGE>
Company shall require approval of the Board of Directors of the Company. The
Board of Directors of the Company may suspend, discontinue, or terminate the
Plan at any time without prior notice or approval.
Notwithstanding the foregoing, however, for purposes of the benefit
provided by Paragraph (2) of Article IV, no amendment, modification, suspension,
discontinuance, or termination shall deprive Participants of any benefits under
Paragraph (2) of Article IV to which they would otherwise be entitled by reason
of vested amounts, pursuant to Paragraph (4) of Article IV, credited to their
accounts up to the effective date of the amendment, modification, suspension,
discontinuance, or termination. Additionally, in no event will any amendment,
modification, suspension, discontinuance, or termination adversely affect the
Plan benefit payable pursuant to Paragraph (1) of Article IV for any Participant
for whom benefit payments have already begun in accordance with the Plan as in
effect prior to the effective date of the amendment, modification, suspension,
discontinuance, or termination unless otherwise required to comply with
applicable law.
Each amendment to the Plan by the Benefit Plans Review Committee or
the Board of Directors will be made only pursuant to unanimous written consent
or by majority vote at a meeting. Upon such action by the Benefit Plans Review
Committee or the Board of Directors, the Plan will be deemed amended as of the
date specified as the effective date by such action or in the instrument of
amendment. The effective date of any amendment may be before, on, or after the
date of such action of the Benefit Plans Review Committee or the Board of
Directors.
(2) Rights of Associates: Except for the Associate's non-forfeitable
--------------------
interest in the value of the Annual Benefit Limit Make-up Account established in
accordance with Paragraph (2) of Article IV, neither the establishment of the
Plan nor any action thereafter taken by the Company or any Controlled Group
Member or by the Benefits Administration Committee shall be construed as giving
to any Associate any vested right to a benefit from the Plan or a right to be
retained in employment or any specific position or level of employment with the
Company or any Controlled Group Member. Moreover, no Associate shall have any
right or claim to any benefits under this Plan if the Associate is summarily
discharged, as defined by the Company (including resignation in lieu thereof)
unless the Benefits Administration Committee, in its discretion, determines that
such Associate shall be eligible for such benefits notwithstanding such summary
discharge.
(3) Mistaken Information: If any information upon which a
--------------------
Participant's benefit under the Plan is calculated has been misstated by the
Participant or is otherwise mistaken, such benefit shall not be invalidated
(unless upon the basis of the
10
<PAGE>
correct information the Participant would not have been entitled to a benefit),
but the amount of the benefit shall be adjusted to the proper amount determined
on the basis of the correct information and any overpayments shall be charged
against future payments to the Participant or his Beneficiary.
(4) Liability: Neither the Board of Directors (including any
---------
committees thereof) of the Company or of any Participating Employer nor any
member of the Benefits Administration Committee or the Personnel Committee nor
any person to whom any of them may delegate any duty or power in connection with
administering the Plan shall be personally liable for any action or failure to
act with respect to the Plan.
(5) Cessation and Recalculation of Benefits: If a theretofore retired
---------------------------------------
Participant again becomes an Associate of a Participating Employer and is
participating in a Profit Incentive Compensation program, the payment of
benefits hereunder shall cease on the date he so becomes such an Associate. Upon
such Associate's Separation from Service he shall be entitled to receive
applicable benefits, if any, under Article IV pursuant to uniform rules approved
by the Benefits Administration Committee.
(6) Construction: In determining the meaning of any provision of the
------------
Plan, words imparting the masculine gender shall include the feminine and the
singular shall include the plural, unless the context requires otherwise.
Headings of paragraphs and Articles in the Plan are for convenience only and are
not intended to modify or affect the meaning of the substantive provisions of
the Plan.
(7) Non-assignability of Benefits: The benefits payable hereunder or
-----------------------------
the right to receive future benefits under the Plan may not be anticipated,
alienated, pledged, encumbered, or subjected to any charge or legal process, and
if any attempt is made to do so, or a person eligible for any benefits becomes
bankrupt, the interest under the Plan of the person affected may be terminated
by the Benefits Administration Committee which, in its sole discretion, may
cause the same to be held or applied for the benefit of one or more of the
dependents of such person or make any other disposition of such benefits that it
deems appropriate.
(8) Governing Law: Except to the extent that the Plan may be subject
-------------
to the provisions of ERISA, the Plan will be construed and enforced according to
the laws of the State of Texas, without giving effect to the conflict of laws
principles thereof. Except as otherwise required by ERISA, every right of action
by a Participant, former Participant, or Beneficiary with respect to the Plan
shall be barred after the expiration of three years from the date of Separation
from Service of the Participant or the date
11
<PAGE>
of receipt of the notice of denial of a claim for benefits, if earlier. In the
event ERISA's limitations on legal actions do not apply, the laws of the State
of Texas with respect to limitations of legal actions shall apply and the cause
of action must be brought no later than four years after the date the action
accrues.
ARTICLE IX. CLAIMS PROCEDURES
If an Associate does not receive the benefits which he believes he is
entitled to receive under the Plan, he may file a claim for benefits with the
Benefits Administration Manager. All claims will be made in writing and will be
signed by the claimant. If the claimant does not furnish sufficient information
to determine the validity of the claim, the Benefits Administration Manager will
indicate to the claimant any additional information which is required.
Each claim will be approved or disapproved by the Benefits
Administration Manager within 90 days following the receipt of the information
necessary to process the claim. In the event the Benefits Administration Manager
denies a claim for benefits in whole or in part, the Benefits Administration
Manager will notify the claimant in writing of the denial of the claim. Such
notice by the Benefits Administration Manager will also set forth, in a manner
calculated to be understood by the claimant, the specific reasons for such
denial, the specific Plan provisions on which the denial is based, a description
of any additional material or information necessary to perfect the claim with an
explanation of the Plan's claim review procedure as set forth below. If no
action is taken by the Benefits Administration Manager on a claim within 90
days, the claim will be deemed to be denied for purposes of the review
procedure.
A claimant may appeal a denial of his claim by requesting a review of
the decision by the Benefits Administration Committee or a person designated by
the Committee, which person will be a named fiduciary under Section 402(a)(2) of
ERISA for purposes of this Article IX. An appeal must be submitted in writing
within 60 days after the denial and must (i) request a review of the claim for
benefits under the Plan, (ii) set forth all of the grounds upon which claimant's
request for review is based and any facts in support thereof, and (iii) set
forth any issues or comments which the claimant deems pertinent to the appeal.
The Benefits Administration Committee or the named fiduciary designated by the
Benefits Administration Committee will make a full and fair review of each
appeal and any written materials submitted in connection with the appeal. The
Benefits Administration Committee or the named fiduciary designated by the
Benefits Administration Committee will act upon each appeal within 60 days after
receipt
12
<PAGE>
thereof unless special circumstances require an extension of the time for
processing, in which case a decision will be rendered as soon as possible but
not later than 120 days after the appeal is received. The claimant will be given
the opportunity to review pertinent documents or materials upon submission of a
written request to the Benefits Administration Committee or named fiduciary,
provided the Benefits Administration Committee or named fiduciary finds the
requested documents or materials are pertinent to the appeal. On the basis of
its review, the Benefits Administration Committee or named fiduciary will make
an independent determination of the claimant's eligibility for benefits under
the Plan. The decision of the Benefits Administration Committee or named
fiduciary on any claim for benefits will be final and conclusive upon all
parties thereto. In the event the Benefits Administration Committee or named
fiduciary denies an appeal in whole or in part, it will give written notice of
the decision to the claimant, which notice will set forth in a manner calculated
to be understood by the claimant the specific reasons for such denial and which
will make specific reference to the pertinent Plan provisions on which the
decision was based.
13
<PAGE>
APPENDIX I
Participating Employers
-----------------------
J. C. Penney Company, Inc.
JCPenney Business Services, Inc.
J. C. Penney National Bank
JCPenney Portfolio, Inc.
JCPenney Puerto Rico, Inc.
JCP Receivables, Inc.
14
<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 52 Weeks Ended
-------------------------- -------------------------- --------------------------
January 27, 1996 January 28, 1995 January 29, 1994
-------------------------- -------------------------- --------------------------
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 $ 838 $1,057 $ 944
Dividend on Series B ESOP
convertible preferred stock
(after-tax) (41) (40) (40)
------ ------ ------
Adjusted income before extra-
ordinary charge and cumulative
effect of accounting change 797 1,017 904
Weighted average number of
shares outstanding 226.1 233.9 235.7
Common stock equivalents:
Stock options and other
dilutive effects 2.6 3.2 3.3
------ ------ ------ ------ ------ ------
228.7 797 237.1 1,017 239.0 904
Income per common share before
extraordinary charge and
cumulative effect of
accounting change $ 3.48 $ 4.29 $ 3.79
Extraordinary charge on debt
redemption, net of income
taxes -- -- -- -- (0.23) (55)
Cumulative effect of accounting
change -- -- -- -- 0.21 51
------ ------ ------ ------ ------ ------ ------ ------ ------
228.7 237.1 239.0
====== ====== ======
Net income $ 797 $1,017 $ 900
====== ====== ======
Net income per common share $ 3.48 $ 4.29 $ 3.77
====== ====== ======
Fully diluted:
- --------------
Income before extraordinary
charge and cumulative effect
of accounting change $ 838 $1,057 $ 944
Tax benefit differential on ESOP
dividend assuming stock is
fully converted (2) (3) (4)
Assumed additional contribution
to ESOP if preferred stock is
fully converted (6) (9) (12)
------ ------ ------
Adjusted income before extra-
ordinary charge and cumulative
effect of accounting change 830 1,045 928
Weighted average number of
shares outstanding (primary) 228.7 237.1 239.0
Maximum dilution 0.2 0.0 0.6
Convertible preferred stock 20.6 21.3 21.9
------ ------ ------ ------ ------ ------
249.5 830 258.4 1,045 261.5 928
Income per common share before
extraordinary charge and
cumulative effect of
accounting change $ 3.33 $ 4.05 $ 3.55
Extraordinary charge on debt
redemption, net of income
taxes -- -- -- -- (0.21) (55)
Cumulative effect of accounting
change -- -- 0.19 51
------ ------ ------ ------ ------ ------ ------ ------ ------
249.5 258.4 261.5
====== ====== ======
Net income $ 830 $1,045 $ 924
====== ====== ======
Net income per common share $ 3.33 $ 4.05 $ 3.53
====== ====== ======
</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>
53 Weeks 52 Weeks
52 Weeks Ended Ended Ended
-------------------------------- --------- ---------
01/27/96 01/28/95 01/29/94 01/30/93 01/25/92
--------- --------- --------- --------- ---------
($ Millions)
<S> <C> <C> <C> <C> <C>
Income from continuing operations $ 1,285 $ 1,646 $ 1,498 $ 1,192 $ 402
(before income taxes, before ----- ----- ----- ----- ---
capitalized interest, but after
preferred stock dividend)
Fixed charges
Interest (including capitalized
interest)
On operating leases 102 95 97 96 95
On short term debt 129 92 43 43 42
On long term debt 254 225 246 281 288
On capital leases 6 7 9 10 11
Other, net 1 (1) 0 16 (3)
--- --- --- --- ---
Total fixed charges 492 418 395 446 433
Preferred stock dividend,
before taxes 48 50 52 53 54
--- --- --- --- ---
Combined fixed charges and preferred
stock dividend requirement 540 468 447 499 487
--- --- --- --- ---
Total available income $ 1,825 $ 2,114 $ 1,945 $ 1,691 $ 889
===== ----- ===== ===== ===
Ratio of available income to combined
fixed charges and preferred stock
dividend requirement 3.4 4.5 4.3 3.4 1.8
=== === ==== === ===
</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
<TABLE>
<CAPTION>
53 Weeks 52 Weeks
52 Weeks Ended Ended Ended
-------------------------------- --------- ---------
01/27/96 01/28/95 01/29/94 01/30/93 01/25/92
--------- --------- --------- --------- ---------
($ Millions)
<S> <C> <C> <C> <C> <C>
Income from continuing operations $ 1,333 $ 1,696 $ 1,550 $ 1,245 $ 456
(before income taxes and -------- -------- -------- -------- --------
capitalized interest)
Fixed charges
Interest (including capitalized
interest)
On operating leases 102 95 97 96 95
On short term debt 129 92 43 43 42
On long term debt 254 225 246 281 288
On capital leases 6 7 9 10 11
Other, net 1 (1) 0 16 (3)
-------- -------- -------- -------- --------
Total fixed charges 492 418 395 446 433
-------- -------- -------- -------- --------
Total available income $ 1,825 $ 2,114 $ 1,945 $ 1,691 $ 889
======== ======== ======== ======== ========
Ratio of available income to fixed
charges 3.7 5.1 4.9 3.8 2.1
======== ======== ======== ======== ========
</TABLE>
The interest cost of the LESOP notes guaranteed by the Company is not included
in fixed charges above.
<PAGE>
EXHIBIT 13
J.C.Penney Company, Inc.
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
While results for 1995 fell short of expectations, the Company's profits and
earnings per share achieved the third highest level in the Company's history.
The Company's financial condition remained strong. Cash flow generated from
operations exceeded $1 billion, capital investment was at an all time high, and
the Company's debt ratio improved and remained better than the Company's target.
Also in 1995, to further enhance stockholder value, the Company purchased 7.5
million shares of its common stock and increased the dividend by over 14 per
cent.
Over the next three years, the Company plans to continue with an aggressive
capital expenditures program currently planned at over $2 billion. Most of the
capital investment will be devoted to opening new and relocated JCPenney stores
and to remodeling existing store facilities.
In the area of expense management, the Company has made significant
progress in the last five years. The ratio of selling, general and
administrative (SG&A) expenses to sales has declined 240 basis points during
that time. This improvement has more than offset the impact of generally flat
gross margins experienced by the Company and throughout the retail industry over
the same period. In 1995, the Company continued to control expenses across all
operating areas; however, with sales volume at about the same level as last
year, the SG&A ratio increased slightly. Expense management will continue to be
a priority.
Looking to 1996 and beyond, the Company remains focused on its commitment
to achieving its long term financial goals and to adding value for its
stockholders.
<TABLE>
<CAPTION>
1995 1994 1993 1992/(1)/ 1991
-----------------------------------------------------------------------------------------------------
Revenue (In millions) $ % Change $ % Change $ % Change $ % Change $ % Change
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JCPenney stores 14,973 (0.3) 15,023 6.9 14,056 4.4 13,460 12.1 12,007 (.3)
Comparative store sales
per cent increase/(decrease) (1.4) 6.8 5.3 9.7 (1.5)
Catalog 3,738 (2.1) 3,817 8.6 3,514 11.0 3,166 5.5 3,002 (6.8)
Drug stores/(2)/ 1,851 20.2 1,540 9.0 1,413 2.2 1,383 16.0 1,192 8.6
Comparative store sales
per cent increase 5.5 5.5 6.5 10.9 6.1
-----------------------------------------------------------------------------------------------------
Total retail sales 20,562 0.9 20,380 7.4 18,983 5.4 18,009 11.2 16,201 (1.0)
JCPenney Insurance 697 22.1 571 20.2 475 22.5 388 18.3 328 28.6
JCPenney National Bank 160 21.7 131 9.5 120 2.0 118 (1.1) 119 2.6
-----------------------------------------------------------------------------------------------------
Total revenue 21,419 1.6 21,082 7.7 19,578 5.7 18,515 11.2 16,648 (1.0)
=====================================================================================================
</TABLE>
/(1)/ Comprised 53 weeks.
/(2)/ 1995 includes sales for Kerr Drug, acquired in February 1995.
17
JCP
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations continued
- --------------------------------------------------------------------------------
Results of operations
Net income for fiscal 1995 totaled $838 million after three successive years of
record Company earnings. Earnings in 1994 were $1,057 million and in 1993 were
$940 million. 1995 results were adversely impacted by the softness in consumer
demand and the continuing consolidation within the retail industry, both of
which contributed to a highly promotional retail environment. On a fully diluted
basis, 1995 earnings per share totaled $3.33 compared with $4.05 in 1994 and
$3.53 in fiscal 1993. In 1994, net income increased over the prior year as a
result of higher sales volumes in both JCPenney stores and catalog.
Net Income
($ in Millions)
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Year $ (millions)
---- ------------
<S> <C>
1991 80
1992 777
1993 940
1994 1,057
1995 838
</TABLE>
Retail sales in 1995 increased by 0.9 per cent, to $20.6 billion compared to
$20.4 billion in 1994 and $19.0 billion in 1993. Sales levels in 1995 were weak
throughout the year and particularly during the fourth quarter. Sales were soft
across most merchandise lines in JCPenney stores and catalog, reflecting the
continuing pressure in the retail sector of the economy.
Sales for JCPenney stores were relatively unchanged in 1995 at $15.0 billion,
about the same level as in 1994 and up from $14.1 billion in 1993. On a
comparable store basis, sales decreased 1.4 per cent in 1995, after posting an
increase of 6.8 per cent in 1994. Catalog sales decreased 2.1 per cent to $3.7
billion compared to $3.8 billion in 1994 and $3.5 billion
Retail Sales
($ in Millions)
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Year $ (millions)
---- ------------
<S> <C>
1991 16,201
1992 18,009
1993 18,983
1994 20,380
1995 20,562
</TABLE>
in 1993. Sales for drug stores, which include sales from the 97 Kerr Drug stores
acquired in February 1995, increased by 20.2 per cent to $1.9 billion, compared
to $1.5 billion in 1994 and $1.4 billion in 1993. Excluding Kerr Drug, drug
store sales continued their growth trend, increasing 7.1 per cent in fiscal
1995. On a comparable store basis, drug store sales increased by 5.5 per cent
over the prior year in both 1995 and 1994.
Gross margin on retail sales totaled $6.2 billion in 1995 compared to $6.4
billion in 1994 and $6.0 billion in 1993. The decrease in 1995 was principally
attributable to weak sales volume and higher markdowns due to the highly
competitive and promotional retail environment, particularly in the fourth
quarter of the year. In 1994, gross margin increased as a result of favorable
sales performance and improved inventory management. As a per cent of sales,
gross margin decreased to 30.3 per cent in 1995 from 31.5 per cent in 1994 and
1993. Included in the 1995 gross margin was a last-in, first-out (LIFO) credit
of $21 million. The LIFO benefit was a result of declines in inventory levels.
In 1994, the Company recorded a LIFO charge of $1 million, and in 1993 recorded
a $36 million LIFO credit due to declines in retail prices.
LIFO Gross Margin
(Per cent to Sales)
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Year Percent of Retail Sales
---- -----------------------
<S> <C>
1991 31.5
1992 31.7
1993 31.5
1994 31.5
1995 30.3
</TABLE>
Selling, general, and administrative (SG&A) expenses continued to be well
managed and totaled $4.9 billion in 1995, compared to $4.8 billion in 1994, and
$4.5 billion in 1993. These expenses increased $112 million, or 2.3 per cent,
over 1994 levels, resulting in part from increases in paper costs and postal
rates, which impact catalog and the retail advertising program. Also
contributing to the SG&A increase was the acquisition of Kerr Drug. Included in
1995 SG&A expenses was a reduction of $18 million for non-recurring items. At
the end of the year, the Company sold JCPenney Business Services, Inc., a
subsidiary which provided authorization, billing,
18
JCP
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations continued
- --------------------------------------------------------------------------------
and other services to third party credit-card issuers, for a pre-tax gain of $67
million. The Company also recorded a $49 million charge, principally related to
the early adoption of The Financial Accounting Standards Board's Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Excluding the
effects of paper and postage increases, the Kerr Drug acquisition, and non-
recurring charges, SG&A expenses increased by approximately one percent.
As a per cent of sales, SG&A expenses rose by 30 basis points to 23.8 per
cent in 1995 compared to 23.5 per cent in 1994 and 23.7 per cent in 1993. In
1994, SG&A expenses increased due to planned increases in store and catalog
advertising.
SG&A Expenses
(Per cent to Sales)
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Year Percent of Retail Sales
---- -----------------------
<S> <C>
1991 25.6
1992 24.7
1993 23.7
1994 23.5
1995 23.8
</TABLE>
Net interest expense and credit operations totaled $183 million in 1995 compared
with $93 million in 1994 and $73 million in 1993. The increase is principally
attributable to two factors: higher interest costs related to the Company's
stock buy-back program and capital expenditures, and higher bad debt costs
resulting from unfavorable trends in delinquency rates and consumer
bankruptcies.
Net interest expense and credit operations increased in 1994 primarily as a
result of higher finance charge revenue offset by higher bad debt expense
associated with higher levels of customer receivables, and higher interest
expense to support the increase in working capital requirements and the stock
buy-back program.
The effective income tax rate for 1995 was 37.5 per cent, down from 37.8 per
cent in 1994. In 1993, the effective income tax rate was 39.3 per cent, and
included a $14 million charge for the revaluation of deferred taxes.
The JCPenney insurance companies continued to show strong growth in operating
performance as a result of successful efforts to establish relationships with
third party business partners. Pre-tax income was $161 million in 1995, an
increase of $23 million, or 16.7 per cent, over 1994's income of $138 million
and $120 million in 1993. This growth resulted primarily from favorable trends
in premiums and policy retention. Total revenue for 1995 was $697 million,
compared with $571 million in 1994 and $475 million in 1993. At year end 1995,
the insurance companies had 9.0 million policies and certificates in force, as
compared with 7.5 million and 5.8 million in 1994 and 1993, respectively.
Consumer banking, which offers Visa and MasterCard credit cards to consumers,
generated pre-tax income of $29 million in 1995 compared with $27 million in
1994 and $29 million in 1993. While results improved in 1995, they were
adversely impacted by trends in bad debt. Income in 1994 decreased as a result
of higher interest rates on deposits. At the end of 1995, approximately 470
thousand credit cards were active.
Financial condition. The Company's goal is to maintain a strong balance sheet.
Solid earnings and consistent cash flow over the past several years have
contributed to the Company's strong financial condition. This provides the
Company with the flexibility to capitalize on attractive opportunities for
growth, increase its dividends, and to periodically purchase its stock -- all of
which enhance stockholder value.
Total debt, both on and off balance sheet, was $6.5 billion at January 27,
1996, up $176 million from $6.4 billion at January 28, 1995, and $5.6 billion at
January 29, 1994. During 1995, the Company issued $1 billion of medium term
notes with an average maturity of 10 years and an average coupon rate of
approximately 6.7 per cent. Additionally, in April 1995 the Company retired, at
par, $165 million of its 9.45 per cent Notes due in 1998. During the course of
the year, short term debt, net, decreased by $569 million.
Currently the Company's long term debt is rated A+ by Standard and Poor's
Corporation, A1 by Moody's Investors Service and A+ by Fitch Investors Service,
Inc. The Company's commercial paper is rated A1, P1, and F1 by the three
organizations, respectively. These ratings, which are among the highest in the
retail industry, reflect the Company's strong balance sheet.
Cash flow generated by operations in 1995 more than met the Company's operating
cash requirements. Cash flow generated internally, consisting of net income plus
depreciation and amortization, and deferred taxes, totaled $1.3 billion in 1995,
which covered the Company's needs for record capital expenditures and dividends.
In addition
19
JCP
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations continued
- --------------------------------------------------------------------------------
the Company used debt financing to continue its stock buy-back program.
The Company expects to continue generating sufficient cash flow internally to
meet substantially all of its cash requirements for working capital, capital
expenditures, and dividends.
Capital expenditures, on a cash basis, for fiscal 1995 were the highest in
Company history at $717 million, and include the $173 million acquisition cost
of seven Woodward & Lothrop stores in the Washington, D.C., area. These stores
are scheduled to open in mid-1996 after improvements have been completed.
Capital expenditures in fiscal years 1994 and 1993 totaled $550 million and $480
million, respectively. The Company currently expects to spend approximately $700
million per year over the next three years, a significant portion of which will
be devoted to new store openings and the modernization of existing stores.
Debt to capital. Over the last several years, the Company's debt capacity has
increased as a result of its strong earnings and cash flow. As a measure of the
Company's strong balance sheet, the debt to capital ratio improved to 52.6 per
cent in 1995, compared to 53.1 per cent in 1994. In 1993, the debt to capital
ratio was 51.1 per cent. Debt includes both on and off-balance-sheet financing,
as discussed on pages 37 and 38. In 1995, the Company's strong balance sheet
provided the opportunity to purchase approximately 7.5 million shares under its
current stock buy-back program at a cost of $335 million. Over the past two
years, the Company has purchased 17.5 million shares at a cost of $810 million.
Debt to Capital Ratio
(Per cent)
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
Year Percent
---- -------
<S> <C>
1991 59.0
1992 53.2
1993 51.1
1994 53.1
1995 52.6
</TABLE>
Dividends. On March 13, 1996, the Board of Directors increased the quarterly
common dividend by 8.3 per cent to 52 cents per share, or an indicated annual
rate of $2.08. Dividends on common shares were paid at a quarterly rate of 48
cents per share in 1995, an increase of 14 per cent compared to 42 cents per
share in 1994, and 36 cents per share in 1993, for an annual indicated rate of
$1.92 per share in 1995, $1.68 per share in 1994, and $1.44 per share in 1993.
Dividends per Share
(Dollars)
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
Year $
---- -----
<S> <C>
1991 1.32
1992 1.32
1993 1.44
1994 1.68
1995 1.92
</TABLE>
Inflation and changing prices have not had a significant impact on the Company
in recent years due to low levels of inflation.
20
JCP
<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 27, 1996, January 28, 1995, and
January 29, 1994, 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 27, 1996, January 28, 1995, and
January 29, 1994, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
As discussed in notes 2, 19, and 20 to the consolidated financial statements,
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, Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities, in 1994, and Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of, in 1995.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
200 Crescent Court, Dallas, Texas 75201
February 22, 1996
- --------------------------------------------------------------------------------
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 include 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/ Donald A. McKay
Donald A. McKay
Senior Vice President and Chief Financial Officer
21
JCP
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements of Income
- --------------------------------------------------------------------------------
J.C. Penney Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the Year (In millions except per share data) 1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Retail sales $20,562 $20,380 $18,983
Revenue of insurance and bank 857 702 595
---------------------------------
Total revenue 21,419 21,082 19,578
---------------------------------
Costs and expenses
Cost of goods sold, occupancy, buying, and
warehousing costs 14,333 13,970 12,997
Selling, general, and administrative
expenses 4,895 4,783 4,508
Costs and expenses of insurance and bank 667 537 446
Net interest expense and credit operations 183 93 73
---------------------------------
Total costs and expenses 20,078 19,383 18,024
---------------------------------
Income before income taxes, extraordinary
charge, and cumulative effect of accounting
change 1,341 1,699 1,554
Income taxes 503 642 610
---------------------------------
Income before extraordinary charge and
cumulative effect of accounting change 838 1,057 944
Extraordinary charge on debt redemption,
net of income taxes of $35 - - (55)
Cumulative effect of accounting change for
income taxes - - 51
---------------------------------
Net income $ 838 $ 1,057 $ 940
=================================
Earnings per common share
Primary
Income before extraordinary charge and
cumulative effect of accounting change $ 3.48 $ 4.29 $ 3.79
Extraordinary charge on debt redemption, net - - (.23)
Cumulative effect of accounting change for
income taxes - - .21
---------------------------------
Net income $ 3.48 $ 4.29 $ 3.77
=================================
Fully diluted
Income before extraordinary charge and
cumulative effect of accounting change $ 3.33 $ 4.05 $ 3.55
Extraordinary charge on debt redemption, net - - (.21)
Cumulative effect of accounting change for
income taxes - - .19
---------------------------------
Net income $ 3.33 $ 4.05 $ 3.53
=================================
</TABLE>
See Notes to Consolidated Financial Statements on pages 25 through 36.
22
JCP
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
J.C. Penney Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Assets (In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets
Cash and short term investments of $173,
$207, and $156 $ 173 $ 261 $ 173
Receivables, net 5,207 5,159 4,679
Merchandise inventory 3,935 3,876 3,545
Prepaid expenses 94 73 80
--------------------------------
Total current assets 9,409 9,369 8,477
Properties, net 4,281 3,954 3,818
Investments, primarily insurance operations 1,651 1,359 1,182
Deferred insurance policy acquisition costs 582 482 426
Other assets 1,179 1,038 885
--------------------------------
$17,102 $16,202 $14,788
================================
<CAPTION>
Liabilities and Stockholders' Equity (In millions)
- --------------------------------------------------------------------------------
Current liabilities
<S> <C> <C> <C>
Accounts payable and accrued expenses $ 2,404 $ 2,274 $2,139
Short term debt 1,509 2,092 1,284
Current maturities of long term debt - - 348
Deferred taxes 107 115 112
--------------------------------
Total current liabilities 4,020 4,481 3,883
Long term debt 4,080 3,335 2,929
Deferred taxes 1,188 1,039 1,013
Bank deposits 767 702 581
Insurance policy and claims reserves 691 568 540
Other liabilities 472 462 477
Stockholders' equity
Preferred stock, without par value:
Authorized, 25 million shares - issued, 1
million shares
of Series B LESOP convertible preferred 603 630 648
Guaranteed LESOP obligation (228) (307) (379)
Common stock, par value 50c:
Authorized, 1,250 million shares - issued,
224, 227, and 236 million shares 1,112 1,030 1,003
Reinvested earnings 4,397 4,262 4,093
--------------------------------
Total stockholders' equity 5,884 5,615 5,365
--------------------------------
$17,102 $16,202 $14,788
================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Consolidated Statements of Reinvested Earnings
- --------------------------------------------------------------------------------
(In millions)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Reinvested earnings at beginning of year $ 4,262 $ 4,093 $3,531
Net income 838 1,057 940
Net unrealized change in debt and equity
securities and currency translation adjustments 72 (21) 1
Retirement of common stock (301) (435) -
Common stock dividends declared (434) (392) (339)
Preferred stock dividends declared, net of taxes (40) (40) (40)
Reinvested earnings at end of year --------------------------------
$ 4,397 $ 4,262 $4,093
================================
</TABLE>
See Notes to Consolidated Financial Statements on pages 25 through 36.
23
JCP
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
J.C. Penney Company, Inc. and Subsidiaries
For the Year (In millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 838 $1,057 $ 940
Extraordinary charge, net of income taxes -- -- 55
Cumulative effect of accounting change for
income taxes -- -- (51)
Depreciation and amortization 341 323 316
Amortization of original issue discount 4 5 48
Deferred taxes 144 29 100
Change in cash from:
Customer receivables 73 (326) (352)
Securitized customer receivables amortized -- -- (425)
Inventory, net of trade payables (55) (352) (196)
Other assets and liabilities, net 58 2 (149)
--------------------------------
1,403 738 286
--------------------------------
Investing activities
Capital expenditures (717) (550) (480)
Purchases of investment securities (583) (476) (351)
Proceeds from sales of investment securities 420 287 215
Acquisition of Kerr Drug (74) -- (12)
--------------------------------
(954) (739) (628)
--------------------------------
Financing activities
Change in short term debt (583) 808 377
Issuance of long term debt 991 500 1,015
Payments of long term debt (244) (350) (875)
Premium on debt retirement -- -- (76)
Common stock issued, net 124 45 37
Common stock purchased and retired (335) (475) --
Preferred stock retired (27) (18) (18)
Dividends paid, preferred and common (463) (421) (371)
--------------------------------
(537) 89 89
--------------------------------
Net increase/(decrease) in cash and
short term investments (88) 88 (253)
Cash and short term investments at
beginning of year 261 173 426
--------------------------------
Cash and short term investments at end of year $ 173 $ 261 $ 173
================================
Supplemental cash flow information
Interest paid $ 355 $ 301 $ 253
Interest received $ 54 $ 55 $ 51
Income taxes paid $ 409 $ 509 $ 486
</TABLE>
See Notes to Consolidated Financial Statements on pages 25 through 36.
24
JCP
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Nature of Operations
2. Summary of Accounting Policies
3. Receivables
4. Merchandise Inventory
5. Properties
6. Capital Expenditures
7. Investments
8. Derivative Financial Instruments
9. Fair Value of Financial Instruments
10. Accounts Payable and Accrued Expenses
11. Short Term Debt
12. Long Term Debt
13. Preferred Stock
14. Common Stock
15. Net Interest Expense and Credit Operations
16. Rent Expense
17. Advertising Costs
18. Retirement Plans
19. Non-Recurring Items
20. Taxes
21. Segment Reporting
1 Nature of Operations
J.C. Penney Company, Inc. is a major retailer with stores located in all 50
states, Puerto Rico, Mexico, and Chile. The major portion of the Company's
business is conducted domestically, and consists of providing merchandise and
services to consumers through department stores that include catalog
departments. The Company's merchandise offerings consist predominantly of family
apparel, jewelry, shoes, accessories, and home furnishings. In addition, the
Company operates Thrift Drug, Inc. (Thrift Drug). Thrift Drug consists
principally of retail drug stores which sell pharmaceuticals and related
products as well as general merchandise. Thrift Drug stores are located
primarily in the northeastern and southeastern United States.
In addition to its retail operations, the Company operates several insurance
companies, the principal of which is J.C. Penney Life Insurance Company, Inc.
(collectively, JCPenney Insurance), and consumer banking, which consists
principally of JCPenney National Bank (JCPenney National Bank). JCPenney
Insurance markets life, health, accident, and credit policies through direct
response solicitations throughout the United States and Canada to JCPenney
customers and customers of third party credit-card issuers. JCPenney National
Bank offers VISA and MasterCard credit cards to consumers; it does not engage in
commercial lending activities.
2 Summary of Accounting Policies
Basis of presentation. Certain prior year amounts have been restated to conform
with the presentation for 1995.
Basis of consolidation. The consolidated financial statements present the
results of J.C. Penney Company, Inc. and its 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 1995 ended January 27, 1996, 1994 ended January 28,
1995, and 1993 ended January 29, 1994. 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 249 million in 1995, 258 million in 1994, and 261 million
in 1993.
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 inventory. Substantially all merchandise inventory is valued at the
lower of cost (last-in, first-out) or market, determined by the retail method.
The Company applies internally developed indices to measure increases and
decreases in its own retail prices.
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 two to 10 per cent for buildings and building
improvements, five per cent for warehouse fixtures and equipment, 10 per cent
for selling fixtures and equipment, and 20 to 33 per cent for computer
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.
25
JCP
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements continued
- --------------------------------------------------------------------------------
Investments. Effective January 30, 1994, the Company adopted SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, issued by the
Financial Accounting Standards Board. Adoption of this statement had no material
effect on the Company. 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. In 1993, 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 advertising
are expensed as incurred. Catalog book preparation and printing costs, which are
considered direct response advertising, are charged to expense over the life of
the catalog, not to exceed six months.
Derivative Financial Instruments. The Company's current derivative positions
consist of non-leveraged off-balance-sheet interest rate swaps. These interest
rate swaps are accounted for by recording 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.
Use of Estimates. The Company's consolidated financial statements have been
prepared in conformity with generally accepted accounting principles. Certain
amounts included in the consolidated financial statements are estimated based on
currently available information and management's judgment as to the outcome of
future conditions and circumstances. While every effort is made to ensure the
integrity of such estimates, including the use of third party specialists where
appropriate, actual results could differ from these estimates.
Impairment of long-lived assets. The Financial Accounting Standards Board issued
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of, in March 1995. This statement, which requires
that economically impaired long-lived assets, such as property, plant and
equipment, be written down to fair value if certain criteria are met, was
adopted at the beginning of the 1995 fourth quarter. Consequently, the Company
will review its long-lived assets to be held and used, whenever events or
circumstances indicate that the carrying value of those assets may not be
recoverable. An impairment loss is indicated if the sum of the expected future
cash flows is less than the carrying amount of the assets. In this circumstance,
the Company recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the fair value of the asset. The Company accounts
for long-lived assets to be disposed of at the lower of their carrying amount or
fair value less cost to sell once management has committed to a plan to dispose
of the assets.
3 Receivables
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- ------------------------------------------------------------------
<S> <C> <C> <C>
Customer receivables serviced $4,688 $4,751 $4,410
Customer receivables sold 725 725 725
--------------------------
Customer receivables owned 3,963 4,026 3,685
Less allowance for doubtful accounts 84 74 59
--------------------------
Customer receivables, net 3,879 3,952 3,626
JCPenney National Bank receivables 776 729 587
Other receivables 552 478 466
--------------------------
Receivables, net $5,207 $5,159 $4,679
==========================
</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. As of January 27, 1996, $725 million of the certificates were
outstanding and the balance of the receivables in the trust was $1,737 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 per cent
and 9.625 per cent, 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 27,
1996. 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 27, 1996.
4 Merchandise Inventory
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- ------------------------------------------------------------------
<S> <C> <C> <C>
Merchandise inventory, at lower
of cost (FIFO) or market $4,161 $4,123 $3,791
LIFO reserve (226) (247) (246)
----------------------------
Merchandise inventory, at LIFO cost $3,935 $3,876 $3,545
============================
</TABLE>
26
JCP
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements continued
- --------------------------------------------------------------------------------
5 Properties
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- ---------------------------------------------------------
<S> <C> <C> <C>
Land $ 216 $ 213 $ 213
Buildings
Owned 2,410 2,178 2,119
Capital leases 182 186 219
Fixtures and equipment 2,978 2,763 2,693
Leasehold improvements 622 611 575
-------------------------
6,408 5,951 5,819
Less accumulated depreciation
and amortization 2,127 1,997 2,001
-------------------------
Properties, net $4,281 $3,954 $3,818
=========================
</TABLE>
At January 27, 1996, the Company owned 279 retail stores and other units,
four catalog distribution centers, one store merchandise distribution center,
its home office facility, and the JCPenney Insurance corporate offices.
6 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) 1995 1994 1993
- -----------------------------------------------------------
<S> <C> <C> <C>
JCPenney stores:
New and relocated stores* $ 399 $ 197 $ 162
Modernizations and updates 134 136 130
Technology and other store
improvements 54 78 44
--------------------------
587 411 336
Catalog 28 21 21
Drug stores 53 59 40
Other 81 53 62
--------------------------
Total capital expenditures $ 749 $ 544 $ 459
==========================
</TABLE>
* 1995 total includes $173 million for the purchase of seven Woodward &
Lothrop stores in the Washington, D.C., area.
7 Investments
Investments at year end 1995 and 1994 were carried at fair value on the
consolidated balance sheets. In 1993, 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>
1995 1994 1993
---------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair
(In millions) Cost Value Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed income securities
JCPenney Insurance
U.S. Government obligations $ 96 $ 104 $ 111 $ 107 $ 139 $ 153
Corporate bonds 349 376 278 266 280 302
Mortgage-backed securities 309 311 216 199 158 164
Other investments 94 97 100 89 93 91
------------------------------------------------------------------
848 888 705 661 670 710
JCPenney Company
Asset-backed certificates 431 488 431 453 431 510
Other cash investments 166 168 149 148 1 1
------------------------------------------------------------------
$1,445 $1,544 $1,285 $1,262 $1,102 $1,221
Equity securities
JCPenney Insurance $ 37 $ 49 $ 35 $ 37 $ 28 $ 33
JCPenney Company 58 58 58 60 43 47
------------------------------------------------------------------
$ 95 $ 107 $ 93 $ 97 $ 71 $ 80
------------------------------------------------------------------
Total investments $1,540 $1,651 $1,378 $1,359 $1,173 $1,301
==================================================================
</TABLE>
27
JCP
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements continued
- --------------------------------------------------------------------------------
Unrealized capital gains and losses on fixed income and equity securities
included in stockholders' equity at year end 1995 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 $ 848 $ 888 $ 46 $ (6) $40
Asset-backed certificates 431 488 57 -- 57
Other cash investments 166 168 2 -- 2
Equity securities 95 107 15 (3) 12
------------------------------------------------------
$1,540 $1,651 $120 $(9) $111
Deferred income taxes 41
--------
Total $ 70
========
</TABLE>
At January 28, 1995, the Company had recorded net unrealized losses of $12
million, net of income taxes, on investments having a fair value of $1,359
million and an amortized cost of $1,378 million.
The scheduled maturities for fixed income securities at year end 1995 were as
follows:
<TABLE>
<CAPTION>
Amortized Fair
(In millions) Cost Value
- --------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 44 $ 45
Due after one year through five years 332 341
Due after five years through 10 years 569 635
Due after 10 years 171 192
---------------------------
1,116 1,213
Mortgage-backed securities 309 311
Other 20 20
---------------------------
Total $1,445 $1,544
===========================
</TABLE>
Realized gains and losses on investment transactions are determined on a first-
in, first-out basis, are included in income on the trade date, and are reported
as revenue of insurance and bank on the consolidated statements of income. These
gains were $4 million in 1995, $7 million in 1994, and $14 million in 1993.
8 Derivative Financial Instruments
The Company selectively uses non-leveraged, off-balance-sheet derivative
instruments to manage its market and interest rate risk, and does not hold
derivatives for trading purposes. Current derivative positions consist of off-
balance-sheet interest rate swaps which management believes present no
significant risk to the Company.
Current derivative positions. In connection with the sale of asset-backed
certificates in 1990, the Company entered into two offsetting interest rate
swaps, each with a notional principal amount of $375 million. The swaps help to
protect certificate holders by reducing the possibility of an early amortization
of the principal.
In addition, 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. To date, these swaps,
which combined have a notional principal amount equal to the face amount of the
debentures, have lowered the effective interest rate on the debentures to
approximately seven per cent and have reduced interest expense by about $10
million. These swaps terminate in August 1996.
The counterparties 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 1995, 1994, and 1993 was not
material.
9 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 on the following page 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 sheets at each year end were:
28
JCP
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------------------------
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 $ 888 $ 888 $ 661 $ 661 $ 670 $ 710
Asset-backed certificates 488 488 453 453 431 510
Other cash investments 168 168 148 148 1 1
Equity securities 107 107 97 97 80 80
Receivables, net 5,207 5,207 5,159 5,159 4,679 4,679
Cash and short term investments 173 173 261 261 173 173
Financial liabilities
Long term debt (excluding capital leases)* $3,989 $4,185 $3,231 $3,124 $2,802 $3,021
Bank deposits 767 696 702 698 581 584
Short term debt 1,509 1,509 2,092 2,092 1,284 1,284
Current maturities of long term debt -- -- -- -- 348 348
</TABLE>
*The fair value of the off-balance-sheet interest rate swaps at the end of 1995,
1994, and 1993 was $2 million, $(8) million, and $13 million, respectively.
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
sheets at year end 1995 and 1994, and were carried at amortized cost in 1993.
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 was 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.
10 Accounts Payable and Accrued
Expenses
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- -----------------------------------------------------------------
<S> <C> <C> <C>
Trade payables $ 979 $1,014 $1,034
Accrued salaries, vacations,
profit-sharing, and bonuses 309 336 311
Taxes, including income taxes 362 358 234
Workers' compensation and
public liability insurance 132 123 126
Common dividend payable 107 96 85
Other 515 347 349
--------------------------
Total $2,404 $2,274 $2,139
==========================
</TABLE>
11 Short Term Debt
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- -----------------------------------------------------------------
<S> <C> <C> <C>
Commercial paper $1,482 $2,074 $1,284
Other 27 18 --
----------------------------
Total $1,509 $2,092 $1,284
Average interest rate at year end 5.7% 5.9% 3.2%
============================
</TABLE>
Committed bank credit facilities available to the Company as of January 27,
1996, amounted to $3.0 billion. In 1995, the Company amended its two syndicated
revolving credit facilities totaling $3.0 billion with a group of domestic and
international banks. These facilities consist of a $1.5 billion, 364-day
revolver, and a $1.5 billion, five-year revolver. The 364-day revolver includes
a $500 million seasonal credit line for the August to January period, thus
allowing the Company to match its seasonal borrowing requirements. These
facilities support the Company's short term borrowing program. None of the
borrowing facilities was in use as of January 27, 1996.
Also, the Company had $955 million of uncommitted credit lines in the form of
letters of credit with seven banks to support its direct import merchandise
program. At January 27, 1996, $317 million of letters of credit issued by the
Company were outstanding.
29
JCP
<PAGE>
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements Continued
- --------------------------------------------------------------------------------
12 Long Term Debt
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Original issue discount
6% debentures, due 2006, $200 at
maturity, effective rate 13.2% $ 108 $ 104 $ 101
Debentures and notes
5.375% to 7.375%, due 1998 to
2023 2,500 1,500 1,000
8.25% to 8.375%, due 1996 to 2022 250 250 250
9% to 10%, due 1997 to 2021 835 1,000 1,000
Guaranteed LESOP notes, 8.17%,
due 1998* 228 307 379
Present value of commitments
under capital leases 91 104 127
Other 68 70 72
------------------------------------------
Long term debt $4,080 $3,335 $2,929
Average long term debt outstanding $3,241 $2,754 $2,471
Average interest rates 7.9% 8.2% 9.9%
==========================================
</TABLE>
*For further discussion, see LESOP on page 33.
<TABLE>
<CAPTION>
Changes in long term debt
(In millions) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Increases
5.375% to 7.375% notes, due 1998
to 2023 $1,000 $ 500 $1,000
Amortization of original issue
discount 4 3 48
Other -- -- 16
-----------------------------------------
1004 503 1,064
-----------------------------------------
Decreases
Transfers to current maturities
of long term debt -- -- 348
8.375% to 10.625% debentures,
bonds, and notes, due 1996 to 2021,
retired in 1993 and 1995 165 -- 872
Other, including LESOP
amortization 94 97 86
-----------------------------------------
259 97 1,306
-----------------------------------------
Net increase/(decrease) in long
term debt $ 745 $ 406 $ (242)
=========================================
</TABLE>
<TABLE>
<CAPTION>
Maturities of long term debt
(In millions) Long Term Debt Capital Leases
- --------------------------------------------------------------------------------
<S> <C> <C>
1996 $ 6 $ 18
1997 257 15
1998 422 13
1999 232 13
2000 307 12
2001 to 2005 1,536 25
Thereafter 1,093 15
---------------------------
Total $3,853 $ 111
======
Less future interest and
executory expenses 20
--------
Present value $ 91
</TABLE>
13 Preferred Stock
In 1988, a leveraged employee stock ownership plan (LESOP) was adopted (see page
33 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
30
JCP
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements continued
- --------------------------------------------------------------------------------
stockholders' equity section of the consolidated balance sheets, and the
"Guaranteed LESOP obligation," representing borrowings by the LESOP, has been
recorded as a reduction of stockholders' equity. As of January 27, 1996,
approximately 827 thousand shares had been allocated to participants' accounts
since 1988, and approximately 350 thousand shares were committed to be released
in the next three years.
Preferred stock dividends. The preferred dividend is payable semi-annually at an
annual rate of $2.37 per common equivalent share. Preferred dividends declared
were $48 million in 1995, $50 million in 1994, and $52 million in 1993; on an
after tax basis, the dividends amounted to $29 million in 1995, $31 million in
1994, and $31 million in 1993.
Preferred stock purchase rights. 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 holder to purchase, for each right held, 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.
14 Common Stock
The quarterly common dividend was 48 cents per share in 1995, 42 cents per share
in 1994, and 36 cents per share in 1993, or an indicated annual rate of $1.92
per share in 1995, $1.68 per share in 1994, and $1.44 per share in 1993. Common
dividends declared were $434 million in 1995, $392 million in 1994, and $339
million in 1993.
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. As of January 27, 1996, the Company
had purchased 7.5 million shares for $335 million.
There were approximately 54,000 stockholders of record at year end 1995. In
addition, the Company's savings plans, including the LESOP, had 115,000
participants and held 36.1 million shares of the Company's common stock. The
savings plans also held 1.0 million shares of preferred stock, convertible into
20.1 million shares of common stock. On a combined basis, these plans held
approximately 23 per cent of the Company's common shares after giving effect to
the conversion of the preferred stock at the end of fiscal year 1995.
<TABLE>
<CAPTION>
Shares Paid-in Capital
(In thousands) (In millions)
Changes in outstanding ---------------------------------- -----------------------------
common stock 1995 1994 1993 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 227,441 236,086 234,778 $1,030 $1,003 $ 955
Common stock issued 3,858 1,455 1,308 113 70 48
Common stock purchased and retired (7,374) (10,100) -- (31) (43) --
--------------------------------------------------------------------
Balance at end of year 223,925 227,441 236,086 $1,112 $1,030 $1,003
====================================================================
</TABLE>
Equity Compensation Plan and Non-Associate Directors' Equity Plan. Under the
1993 Equity Compensation Plan (Plan), approved by stockholders in May 1993,
which replaced the expiring 1989 Equity Compensation 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 Plan. No discount options or tax benefit rights may be issued under
the Plan. Participants in the Plan are generally to be selected management
associates of the Company and its subsidiaries and affiliates as determined by
the committee administering the Plan. It is anticipated that approximately 2,000
associates will be eligible to participate. No awards may be made under the Plan
after May 31, 1998. Under the 1993 Non-Associate Directors' Equity Plan
(Directors' Plan), which was also approved by stockholders in May 1993, 90,000
shares of common stock were reserved for issuance upon the exercise of stock
options and the payment of stock awards over its five-year term. 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.
31
JCP
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------------------------------------------
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 8,347 $31.36 8,235 $27.96 8,844 $27.42
Granted 1,230 43.00 997 55.31 159 41.24
Exercised (689) 25.67 (865) 26.51 (752) 24.49
Expired and cancelled (21) 38.63 (20) 32.68 (16) 26.89
-------------- ----------- ------------
Balance at end of year 8,867 $33.40 8,347 $31.36 8,235 $27.96
==========================================================================
</TABLE>
At year end 1995 and 1994, options covering 7.6 million shares and 7.3 million
shares, respectively, were exercisable and 8.7 million shares and 10.4 million
shares, respectively, were reserved for future grants.
15 Net Interest Expense and Credit Operations
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Short term debt $ 129 $ 92 $ 43
Long term debt 254 225 246
Income on short term investments (18) (16) (14)
Interest capitalized (8) (3) (4)
Other, net* (32) (28) (30)
---------------------------
Interest expense, net 325 270 241
Finance charge revenue (631) (624) (523)
Credit costs
Bad debt expense, net 219 177 95
Operating expenses (including third party credit
costs) 270 270 260
---------------------------
Net interest expense and credit operations $ 183 $ 93 $ 73
---------------------------
</TABLE>
* Includes $34 million in each year for interest income from the Company's
investment in asset-backed certificates.
16 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) 1995 1994 1993
- ------------------------------------------------------
<S> <C> <C> <C>
Minimum rents $ 245 $ 235 $ 236
Contingent rents based on sales 36 37 37
---------------------
Total $ 281 $ 272 $ 273
=====================
</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 $106 million in 1995, $92 million in 1994, and $90
million in 1993.
Future minimum lease payments for noncancelable real and personal property
operating leases and subleases as of January 27, 1996, were:
<TABLE>
<CAPTION>
(In millions) Operating Leases
- ---------------------------------------------------
<S> <C>
1996 $ 259
1997 213
1998 183
1999 160
2000 144
Thereafter 706
---------
Total minimum lease payments $1,665
=========
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.
32
JCP
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements continued
- --------------------------------------------------------------------------------
17 Advertising Costs
Advertising costs consist principally of newspaper, television, radio, and
catalog book costs. In 1995, the total cost of advertising charged to expense
was $969 million, compared with $912 million in 1994, and $818 million in 1993.
The consolidated balance sheets included deferred catalog book costs of $111
million at January 27, 1996, $99 million at January 28, 1995, and $88 million at
January 29, 1994, and are included in other assets.
<TABLE>
<CAPTION>
18 Retirement Plans
(In millions) 1995 1994 1993
- ------------------------------------------------------------
<S> <C> <C> <C>
Pension
Service cost $ 44 $ 57 $ 50
Interest cost 148 134 123
Actual return on assets (464) (22) (236)
Net amortization and deferral 302 (181) 59
-----------------------
Pension charge/(credit) 30 (12) (4)
-----------------------
Post retirement health care
Service cost 3 3 3
Interest cost 23 25 24
Net amortization and deferral (2) --- ---
-----------------------
Post retirement health care charge 24 28 27
LESOP expense 53 53 50
-----------------------
Total retirement plans $ 107 $ 69 $ 73
=======================
</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 1995, the Company reduced its discount rate to 7.25 per cent, reflecting
the lower interest rate environment. The impact of this change increased the
Company's obligation at year end 1995. Pension plan assumptions are reviewed and
modified as necessary on an annual basis. The Company made a $104 million
contribution to the plan in 1995, $99 million contribution in 1994, and a $65
million contribution in 1993.
Post retirement 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 9.5 per cent to 9.0 per cent
for 1996 with gradual reductions to five per cent by 2004 and beyond. A one per
cent increase in the health care trend rate would increase the amount reported
for the accumulated obligation by $24 million and would result in $2 million
additional expense for 1995.
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 sheets. 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.
33
JCP
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements continued
- --------------------------------------------------------------------------------
The following table sets forth the status of the Company's retirement plans:
<TABLE>
<CAPTION>
December 31
-------------------------------------------------
Retirement plans (In millions) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pension
Present value of accumulated benefits
Vested $ 1,817 $ 1,368 $ 1,367
Non-vested 94 75 80
----------------------------------------------
$ 1,911 $ 1,443 $ 1,447
==============================================
Present value of projected benefit obligation $(2,183) $(1,661) $(1,781)
Net assets at fair market value 2,292 1,825 1,800
Unrecognized transition asset, net of unrecognized losses 345 200 216
----------------------------------------------
Net prepaid pension cost $ 454 $ 364 $ 235
==============================================
Post retirement health care benefits
Accumulated benefit obligation
Retirees $ 249 $ 217 $ 246
Fully eligible active participants 30 43 51
Other active participants 39 40 41
-----------------------------------------------
318 300 338
Unrecognized net gain/(loss) 19 32 (10)
-----------------------------------------------
Net liability $ 337 $ 332 $ 328
===============================================
Key assumptions
Rate of return on pension plan assets 9.5% 9.5% 9.5%
Discount rate 7.25% 8.75% 7.25%
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) 1995 1994 1993 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JCPenney preferred and common stock $2,714 $ 2,662 $ 3,030 $ --- $ --- $ ---
Equity securities 203 120 117 1,661 1,288 1,424
Fixed income investments 1,199 1,048 1,091 574 473 302
LESOP loan obligation, including accrued
interest of $11, $14, and $17 (279) (358) (431) --- --- ---
Other assets, net 77 63 47 57 64 74
-------------------------------------------------------------
Net assets $3,914 $ 3,535 $ 3,854 $ 2,292 $1,825 $1,800
=============================================================
<CAPTION>
Savings Plans Pension
------------------------------- ---------------------------
December 31 December 31
Changes in fair value of net assets (In millions) 1995 1994 1993 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net assets at beginning of year $3,535 $3,854 $2,903 $1,825 $1,800 $1,585
Company contribution 53 53 50 104 99 65
Participants' contributions 209 203 184 --- --- ---
Gains/(losses) 425 (280) 984 464 22 236
LESOP interest expense (23) (30) (35) --- --- ---
Benefits paid (285) (265) (232) (101) (96) (86)
-------------------------------------------------------------
Net assets at end of year $3,914 $ 3,535 $ 3,854 $ 2,292 $1,825 $1,800
=============================================================
</TABLE>
19 Non-Recurring Items
For 1995, non-recurring items generated a pre-tax reduction in expenses of $18
million; the reduction is reported as a component of SG&A expenses in the
consolidated statements of income. The net reduction consisted of two items. In
the fourth quarter of 1995, the Company sold JCPenney Business Services, Inc., a
subsidiary which provided credit authorization, billing, and other services to
third party credit-card issuers for a cash purchase price of $96 million. The
sale generated a pre-tax gain of $67 million. Also in fourth quarter 1995, the
Company recorded a $49 million charge, or 12 cents per share, for the early
adoption of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. The charge related primarily to the
write down of buildings and improvements for JCPenney stores. Fair value for
these assets was based on discounted future cash flows.
34
JCP
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements continued
- --------------------------------------------------------------------------------
20 Taxes
The Company adopted SFAS 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.
Deferred tax assets and liabilities reflected on the Company's consolidated
balance sheet at January 27, 1996, 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 27, 1996, were as follows:
<TABLE>
<CAPTION>
Temporary differences (In millions) 1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Assets:
Workers' compensation/public liability $(101) $(100)
Accounts receivable (33) (29)
Restructuring reserve (16) (18)
Other --- (60)
Liabilities:
Retirement plans 51 12
Leases 332 338
Inventory 104 94
Depreciation 774 757
Deferred acquisition costs 174 160
Other 10 ---
-----------------
Total $1,295 $1,154
=================
</TABLE>
No valuation allowances have been considered necessary for any year. The
Company believes that the existing deductible temporary differences will be
offset by future reversals of differences generating taxable income.
<TABLE>
<CAPTION>
Income tax expense (In millions) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 306 $ 521 $ 443
State and local 56 92 67
-----------------------------
362 613 510
-----------------------------
Deferred
Federal 124 25 80
State and local 17 4 20
-----------------------------
141 29 100
-----------------------------
Total $ 503 $ 642 $ 610
Effective tax rate 37.5% 37.8% 39.3%
=============================
</TABLE>
<TABLE>
<CAPTION>
Per cent of
Amounts (In millions) Pre-tax Income
------------------------------ -----------------------
Reconciliation of tax rates 1995 1994 1993 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at statutory rate $ 469 $ 594 $ 544 35.0 35.0 35.0
State and local income taxes, less federal
income tax benefit 49 65 58 3.6 3.8 3.7
Revaluation of deferred taxes --- --- 14 --- --- .9
Tax effect of dividends on
allocated LESOP shares (11) (9) (9) (.8) (.5) (.5)
Tax credits and other (4) (8) 3 (.3) (.5) .2
--------------------------------------------------------
Total $ 503 $ 642 $ 610 37.5 37.8 39.3
========================================================
</TABLE>
35
JCP
<PAGE>
------------------------------------------------------------
Notes To Consolidated Financial Statements Continued
------------------------------------------------------------
21 Segment Reporting
The Company operates predominantly in two business segments, retail and
insurance. Banking operations are shown in the table below only for purposes of
reconciling to total Company consolidated amounts.
<TABLE>
<CAPTION>
Depreciation
Pre-tax Total and Capital
(In millions) Revenue Income* Assets Amortization Expenditures
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Retail 1995 $20,562 $1,151 $14,525 $338 $742
1994 20,380 1,534 14,057 320 534
1993 18,983 1,405 12,888 313 452
Insurance 1995 $ 697 $ 161 $ 1,741 $ 3 $ 7
1994 571 138 1,360 3 10
1993 475 120 1,246 3 7
Banking 1995 $ 160 $ 29 $ 836 --- ---
1994 131 27 785 --- ---
1993 120 29 654 --- ---
Total Company 1995 $21,419 $1,341 $17,102 $341 $749
1994 21,082 1,699 16,202 323 544
1993 19,578 1,554 14,788 316 459
* Income before income taxes, extraordinary charge, and cumulative
effect of accounting change.
</TABLE>
------------------------------------------------------------
Quarterly Data (Unaudited)
------------------------------------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth
----------------------------------------------------------------------------------------
(In millions except per share data) 1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retail sales 4,367 4,350 3,964 4,435 4,242 3,963 5,128 5,149 4,735 6,632 6,639 6,321
Per cent increase/(decrease) 0.4 9.7 4.5 4.6 7.1 4.6 (0.4) 8.7 9.1 (0.1) 5.0 3.9
Total revenue 4,564 4,519 4,106 4,643 4,412 4,106 5,352 5,328 4,888 6,860 6,823 6,478
Per cent increase 1.0 10.0 4.8 5.3 7.4 5.0 0.4 9.0 9.3 0.5 5.3 4.3
LIFO gross margin 1,370 1,395 1,280 1,292 1,282 1,191 1,592 1,661 1,530 1975 2,072 1,985
LIFO gross margin, per cent of retail sales 31.4 32.1 32.3 29.1 30.2 30.1 31.0 32.2 32.3 29.8 31.2 31.4
Selling, general, and administrative
expenses, per cent of retail sales 26.3 25.1 25.9 25.0 25.5 25.8 23.4 23.4 24.2 21.7 21.2 20.8
Income before extraordinary charge
and cumulative effect of
accounting change 156 223 172 116 132 112 240 274 221 326 428 439
Net income 156 223 206 116 132 112 240 274 185 326 428 437
Income per share before extraordinary
charge and cumulative effect of
accounting change
Primary .63 .88 .68 .46 .52 .43 1.00 1.11 .88 1.39 1.78 1.80
Fully diluted .61 .84 .65 .46 .51 .42 .95 1.04 .83 1.31 1.66 1.65
Net income per common share
Primary .63 .88 .82 .46 .52 .43 1.00 1.11 .73 1.39 1.78 1.79
Fully diluted .61 .84 .78 .46 .51 .42 .95 1.04 .69 1.31 1.66 1.64
Dividends per common share .48 .42 .36 .48 .42 .36 .48 .42 .36 .48 .42 .36
Common stock price range
High 47 59 45 50 54 49 50 54 52 49 52 56
Low 41 50 36 43 47 41 43 47 39 42 39 49
Close 44 54 43 49 49 45 44 51 52 46 41 52
</TABLE>
36
JCP
<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) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance charge revenue
On receivables owned $ (631) $ (624) $ (523)
On receivables sold (112) (105) (129)
--------------------------------------
Total (743) (729) (652)
--------------------------------------
Bad debt expense 256 208 128
Operating expenses
(including in-store costs) 255 268 265
Cost of capital 415 404 400
--------------------------------------
Total 926 880 793
--------------------------------------
Pre-tax cost of JCPenney credit $ 183 $ 151 $ 141
Per cent of JCPenney credit sales 2.0% 1.6% 1.6%
======================================
</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>
1995 1994 1993
Credit sales Per cent Per cent Per cent
(JCPenney stores Amounts of Eligible Amounts of Eligible Amounts of Eligible
and catalog) (In billions) Sales (In billions) Sales (In billions) Sales
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JCPenney
credit card $ 9.0 48.4 $ 9.4 49.6 $ 8.7 49.6
American
Express,
Discover,
MasterCard,
and Visa 3.7 19.8 3.4 17.9 2.8 16.1
-------------------------------------------------------------------------------------
Total $12.7 68.2 $ 12.8 67.5 $11.5 65.7
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Key JCPenney credit card information
(In millions) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of accounts
serviced with balances 17.0 17.6 17.2
Total customer
receivables serviced $4,688 $4,751 $4,410
Average customer
receivables financed $4,258 $4,197 $3,767
Average account
balances (in dollars) $ 275 $ 269 $ 256
Average account
maturity (months) 4.3 4.2 4.0
=======================================
</TABLE>
Capital structure. The Company's objective is to maintain a capital structure
that will assure continuing access to financial markets so that it can, at
reasonable cost, provide for future needs and capitalize on attractive
opportunities for growth.
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) 1995 1994 1993
- ----------------------------------------------------------------
<S> <C> <C> <C>
Short term debt,
net of cash investments $ 1,168 $ 1,737 $ 1,127
Long term debt,
including current maturities 4,080 3,335 3,277
------------------------------
5,248 5,072 4,404
Off-balance-sheet debt
Present value of operating leases 1,000 1,000 900
Securitization of accounts
receivable, net 294 294 294
------------------------------
Total debt 6,542 6,366 5,598
Consolidated equity 5,884 5,615 5,365
------------------------------
Total capital $12,426 $11,981 $10,963
Per cent of total debt to capital 52.6% 53.1% 51.1%
==============================
</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 are
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 1995
was :
37
JCP
<PAGE>
------------------------------------------------------------
Supplemental Information (unaudited) continued
------------------------------------------------------------
<TABLE>
<CAPTION>
Customer Core
(In millions) Receivables Assets Combined
- -------------------------------------------------------------
<S> <C> <C> <C>
Debt $4,029 $2,513 $ 6,542
Equity 575 5,309 5,884
-----------------------------------
Total capital $4,604 $7,822 $12,426
Debt to capital per cent 87.5% 32.1% 52.6%
===================================
</TABLE>
The historical debt to capital per cent and fixed charge coverage for the
prior three years, on a separate and combined basis, was:
Debt to capital per cent
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------
<S> <C> <C> <C>
Combined 52.6 53.1 51.1
Core assets 32.1 31.1 27.1
Customer receivables 87.5 87.5 87.5
==================
</TABLE>
Fixed charge coverage
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------
<S> <C> <C> <C>
Combined 3.4 4.5 4.3
Core assets 6.0 9.1 8.7
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) 1995 1994 1993
- -------------------------------------------------
<S> <C> <C> <C>
Interest expense, net $325 $270 $241
Interest portion of LESOP
debt payment 23 30 35
Off-balance-sheet
financing costs
Interest imputed on
operating leases 102 95 97
Asset-backed certificates
interest 68 68 88
----------------------
Total $518 $463 $461
======================
</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) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes,
extraordinary charge, and cumulative
effect of accounting change $ 1,341 $ 1,699 $ 1,554
Financing costs 518 463 461
Depreciation and amortization,
including operating leases 481 449 416
-----------------------------
EBITDA $ 2,340 $ 2,611 $ 2,431
Total revenue $21,419 $21,082 $19,578
EBITDA per cent of total revenue 10.9% 12.4% 12.4%
=============================
</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. 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>
38
JCP
<PAGE>
------------------------------------------------------------
Five Year Financial Summary
------------------------------------------------------------
<TABLE>
<CAPTION>
J.C. Penney Company, Inc. and Subsidiaries
(In millions except per share data) 1995 1994 1993/(1)/ 1992 1991/(2)/
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results for the year
Total revenue $21,419 $21,082 $19,578 $18,515 $16,648
Retail sales $20,562 $20,380 $18,983 $18,009 $16,201
Per cent increase/(decrease) 0.9 7.4 5.4 11.2 (1.0)
LIFO gross margin, per
cent of retail sales 30.3 31.5 31.5 31.7 31.5
FIFO gross margin, per
cent of retail sales 30.2 31.5 31.3 31.5 30.9
Selling, general, and administrative
expenses, per cent of retail sales 23.8 23.5 23.7 24.7 25.6
Depreciation and amortization $ 341 $ 323 $ 316 $ 310 $ 316
Income before income taxes,
extraordinary charges, and
cumulative effect
of accounting changes $ 1,341 $ 1,699 $ 1,554 $ 1,259 $ 468
Percent to total revenue 6.3 8.1 7.9 6.8 2.8
Income taxes $ 503 $ 642 $ 610 $ 482 $ 204
Income before extraordinary charge
and cumulative effect of
accounting changes $ 838 $ 1,057 $ 944 $ 777 $ 264
Net income $ 838 $ 1,057 $ 940 $ 777 $ 80
Percent to total revenue 3.9 5.0 4.8 4.2 .5
Earnings per common share
Primary
Before extraordinary
charge and cumulative
effect of accounting changes $ 3.48 $ 4.29 $ 3.79 $ 3.15 $ .99
Net income $ 3.48 $ 4.29 $ 3.77 $ 3.15 $ .20
Fully diluted
Before extraordinary charge
and cumulative effect of
accounting changes $ 3.33 $ 4.05 $ 3.55 $ 2.95 $ .99
Net income $ 3.33 $ 4.05 $ 3.53 $ 2.95 $ .20
Per common share
Dividends $ 1.92 $ 1.68 $ 1.44 $ 1.32 $ 1.32
Stockholders' equity $ 24.76 $ 23.45 $ 21.53 $ 19.17 $ 17.33
Return on stockholders' equity 14.9 19.7 20.1 18.6 12.0
Financial position
Receivables, net $ 5,207 $ 5,159 $ 4,679 $ 3,750 $ 4,131
Merchandise inventories $ 3,935 $ 3,876 $ 3,545 $ 3,258 $ 2,897
Properties, net $ 4,281 $ 3,954 $ 3,818 $ 3,755 $ 3,633
Capital expenditures $ 749 $ 544 $ 459 $ 494 $ 506
Total assets $17,102 $16,202 $14,788 $13,467 $12,444
Total debt $ 5,589 $ 5,427 $ 4,561 $ 4,078 $ 4,062
Stockholders' equity $ 5,884 $ 5,615 $ 5,365 $ 4,705 $ 4,188
Number of common shares
outstanding at year end 224 227 236 235 233
Weighted average common shares
Primary 229 237 239 236 234
Fully diluted 249 258 261 258 234
Number of employees at
year end (In thousands) 205 202 193 192 185
</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.
39
JCP
<PAGE>
------------------------------------------------------------
Five Year Operations Summary
------------------------------------------------------------
<TABLE>
<CAPTION>
J.C. Penney Company, Inc. and Subsidiaries
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JCPenney stores
Number of stores
Beginning of year 1,233 1,246 1,266 1,283 1,312
Openings 43 29 24 33 38
Closings (38) (42) (44) (50) (67)
----------------------------------------------------
End of year 1,238 1,233 1,246 1,266 1,283
Gross selling space (In million sq. ft.) 114.3 113.0 113.9 114.4 114.5
Sales including catalog desks (In millions) $17,930 $18,048 $16,846 $15,698 $14,277
Sales per gross square foot/(1)/ $ 156 $ 159 $ 146 $ 137 $ 125
Catalog
Number of catalog units
JCPenney stores 1,228 1,233 1,246 1,266 1,283
Freestanding sales centers and merchants 548 552 543 640 697
Drug stores 106 94 101 128 134
Other, principally outlet stores 17 16 14 14 16
----------------------------------------------------
Total 1,899 1,895 1,904 2,048 2,130
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) $ 3,738 $ 3,817 $ 3,514 $ 3,166 $ 3,002
Drug stores
Number of stores
Beginning of year 526 506 548 530 487
Openings 37 46 35 30 46
Kerr Drug acquisition 97 - - - -
Closings (15) (26) (77) (12) (3)
----------------------------------------------------
End of year 645 526 506 548 530
Gross selling space (In million sq. ft.) 6.2 4.5 4.6 5.2 5.0
Sales (In millions) $ 1,851 $ 1,540 $ 1,413 $ 1,383 $ 1,192
Sales per gross square foot/(1)/ $ 253 $ 243 $ 235 $ 211 $ 201
JCPenney Insurance (In millions)
Revenue $ 697 $ 571 $ 475 $ 388 $ 328
Policies and certificates in force 9.0 7.5 5.8 4.6 4.3
Amount of life insurance in force $ 9,559 $ 8,780 $ 7,627 $ 6,552 $ 5,419
Total assets $ 1,741 $ 1,360 $ 1,246 $ 1,033 $ 857
</TABLE>
/(1)/1992 is presented on a 52 week basis.
40
JCP
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Set forth below is a list of certain subsidiaries of the Company at January
27, 1996. All of the voting securities of each named subsidiary are owned by
the Company or by another subsidiary of the Company.
SUBSIDIARIES
- ------------
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 22, 1996 relating to the
consolidated balance sheets of J. C. Penney Company, Inc. and subsidiaries as of
January 27, 1996, January 28, 1995, and January 29, 1994, and the related
consolidated statements of income, reinvested earnings, and cash flows for the
years then ended, which report appears in the 1995 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 27, 1996, and to our report dated February 22, 1996, 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 27, 1996, which
report appears in the Annual Report on Form 10-K of J. C. Penney Company, Inc.
for the year ended January 27, 1996.
Our report refers to the adoption of (1) the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 121, Accounting for the
------------------
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of in
- ---------------------------------------------------------------------------
1995, (2) 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 (3) 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 15, 1996
<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 27, 1996, hereby constitutes and
appoints C. R. Lotter, D. A. McKay, and W. J. Alcorn, 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 13th day of March, 1996.
/S/W. R. Howell /S/D. A. McKay
- ------------------------------ -------------------------
W. R. Howell D. A. McKay
Chairman of the Board; Senior Vice President and
Director Chief Financial Officer
(principal financial officer)
/S/J. E. Oesterreicher /S/W. J. Alcorn
- ------------------------------ ----------------------------
J. E. Oesterreicher W. J. Alcorn
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/A. W. Richards
- ---------------------------- ---------------------------
J. C. Pfeiffer A. W. Richards
Director Director
/S/C. S. Sanford, Jr. /S/R. G. Turner
- ---------------------------- ---------------------------
C. S. Sanford, Jr. R. G. Turner
Director Director
/S/J. D. Williams
- ---------------------------
J. D. Williams
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENT OF INCOME OF J. C.
PENNEY COMPANY, INC. AND SUBSIDIARIES AS OF JANUARY 27, 1996, 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-27-1996
<PERIOD-END> JAN-27-1996
<CASH> 173
<SECURITIES> 0
<RECEIVABLES> 5,291
<ALLOWANCES> 84
<INVENTORY> 3,935
<CURRENT-ASSETS> 9,409
<PP&E> 6,408
<DEPRECIATION> 2,127
<TOTAL-ASSETS> 17,102
<CURRENT-LIABILITIES> 4,020
<BONDS> 4,080
<COMMON> 1,112
0
603
<OTHER-SE> 4,169
<TOTAL-LIABILITY-AND-EQUITY> 17,102
<SALES> 20,562
<TOTAL-REVENUES> 21,419
<CGS> 14,333
<TOTAL-COSTS> 19,228
<OTHER-EXPENSES> 306
<LOSS-PROVISION> 219
<INTEREST-EXPENSE> 325
<INCOME-PRETAX> 1,341
<INCOME-TAX> 503
<INCOME-CONTINUING> 838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 838
<EPS-PRIMARY> 3.48
<EPS-DILUTED> 3.33
</TABLE>
<PAGE>
EXHIBIT 99(b)
1995 Annual Report
Management's Discussion and Analysis of
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 Funding's 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 1995, net income increased to $43 million from $32 million in 1994 and $16
million in 1993. The increases in 1995 and 1994 are attributed to higher
borrowing levels and higher interest rates. Interest expense was $128 million in
1995 compared with $94 million in 1994 and $47 million in 1993. Interest earned
from JCPenney was $194 million in 1995 compared to $143 million in 1994 and $71
million in 1993.
Commercial paper borrowings averaged $2,145 million in 1995 compared to $1,990
million in 1994 and $1,347 million in 1993. The average interest rate on
commercial paper was 5.9 per cent in 1995, up from 4.6 per cent in 1994 and 3.2
percent in 1993.
Committed bank credit facilities available to Funding and JCPenney as of January
27, 1996, amounted to $3.0 billion. In 1995, JCPenney and Funding amended the
two syndicated revolving credit facilities totaling $3.0 billion with a group of
domestic and international banks. These facilities consist of a $1.5 billion,
364-day revolver, and a $1.5 billion, five-year revolver. The 364-day revolver
includes a $500 million seasonal credit line for the August to January period
thus allowing JCPenney to match its seasonal borrowing requirements. These
facilities support JCPenney's short term borrowing program. None of the
borrowing facilities were in use as of January 27, 1996. See page 8 for a
complete list of committed bank credit facilities.
We would like to express our appreciation to the institutional investment
community, as well as to our credit line participants and commercial paper
dealers for their continued support during 1995.
/s/ Donald A. McKay
Donald A. McKay
Chairman of the Board
April 5, 1996
-----------
2
<PAGE>
Statements of Income J.C. Penney Funding Corporation
($ in millions)
<TABLE>
<CAPTION>
For the Year 1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
Interest Income From JCPenney............ $ 194 $ 143 $ 71
Interest Expense......................... 128 94 47
------ ------ ------
Income before income taxes............... 66 49 24
Income taxes........................ 23 17 8
------ ------ ------
Net income............................... $ 43 $ 32 $ 16
====== ====== ======
<CAPTION>
Statements of Reinvested Earnings
($ in millions)
1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
Balance at beginning of year............. $ 883 $ 851 $ 835
Net income............................... 43 32 16
------ ------ ------
Balance at end of year................... $ 926 $ 883 $ 851
====== ====== ======
</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>
1995 1994 1993
----------------------------
<S> <C> <C> <C>
Assets
Loans to JCPenney............................... $2,563 $3,114 $2,323
====== ====== ======
Liabilities and Equity of JCPenney
Current Liabilities
Short term debt................................. $1,482 $2,074 $1,284
Due to JCPenney................................. 10 12 43
------ ------ ------
Total Current Liabilities................... 1,492 2,086 1,327
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............................. 926 883 851
------ ------ ------
Total Equity of JCPenney.................... 1,071 1,028 996
------ ------ ------
Total Liabilities and Equity of JCPenney.... $2,563 $3,114 $2,323
====== ====== ======
</TABLE>
-----------
4
See Notes to Financial Statements on page 6
<PAGE>
Statements of Cash Flows J.C.Penney Funding Corporation
($ in millions)
<TABLE>
<CAPTION>
For the Year 1995 1994 1993
----------------------------
<S> <C> <C> <C>
Operating Activities
Net income...................................... $ 43 $ 32 $ 16
(Increase)Decrease in loans to JCPenney......... 551 (791) (411)
Increase(Decrease) in amount due to JCPenney.... (2) (31) (2)
------ ------ ------
$ 592 $ (790) $ (397)
Financing Activities
Increase(Decrease) in short term debt........... $ (592) $ 790 $ 397
Supplemental Cash Flow Information
Interest paid................................... $ 128 $ 94 $ 47
Income taxes paid............................... $ 26 $ 10 $ 4
</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 27, 1996, January 28, 1995, and January 29, 1994, 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.
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 financial statements referred to above present fairly, in
all material respects, the financial position of J.C. Penney Funding Corporation
as of January 27, 1996, January 28, 1995, and January 29, 1994, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Dallas, Texas
February 22, 1996
- --------------------------------------------------------------------------------
Notes to Financial Statements
Nature of Operations
- --------------------
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 1995
ended January 27, 1996, 1994 ended January 28, 1995, and 1993 ended January 29,
1994.
Commercial Paper Placement
Funding places commercial paper solely through dealers. The average interest
rate on commercial paper at year end 1995, 1994, and 1993 was 5.7%, 5.9%, and
3.2%, 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.
Use of Estimates
Funding's consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. Certain amounts included in the
consolidated financial statements are estimated based on currently available
information and management's judgment as to the outcome of future conditions and
circumstances. While every effort is made to ensure the integrity of such
estimates, including the use of third party specialists where appropriate,
actual results could differ from these estimates.
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
- --------------------------------
Committed bank credit facilities available to Funding and JCPenney as of January
27, 1996, amounted to $3.0 billion. In 1995, JCPenney and Funding amended the
two syndicated revolving credit facilities totaling $3.0 billion with a group of
domestic and international banks. These facilities consist of a $1.5 billion,
364-day revolver, and a $1.5 billion, 5 year revolver. The 364-day revolver
includes a $500 million seasonal credit line for the August to January period
thus allowing JCPenney to match its seasonal borrowing requirements. These
facilities support JCPenney's short term borrowing program. None of the
borrowing facilities were in use as of January 27, 1996.
Fair Value of Financial Instruments
- -----------------------------------
The fair value of short term debt (commercial paper) at January 27, 1996,
January 28, 1995, and January 29, 1994 approximates the amount as reflected on
the balance sheet due to its short average maturity.
The fair value of loans to JCPenney at January 27, 1996, January 28, 1995, and
January 29, 1994, also approximates the amount reflected on the balance sheet
because the loan is payable on demand and the interest charged on the loan
balance is adjusted to reflect current market interest rates.
--------
6
<PAGE>
Five Year Financial Summary J.C. Penney Funding Corporation
($ in millions)
<TABLE>
<CAPTION>
At Year End 1995 1994 1993 1992 1991
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capitalization
Short term debt
Commercial paper.................... $ 1,482 $2,074 $ 1,284 $ 887 $ 414
Master notes........................ -- -- -- -- 57
------- ------ ------- -------- -------
Total short term debt............ 1,482 2,074 1,284 887 471
Long term debt
7.875% to 9.25% due 1996 to 1998.... -- -- -- -- 177
------- ------ ------- -------- -------
Total debt.............................. 1,482 2,074 1,284 887 648
------- ------ ------- -------- -------
Equity of JCPenney...................... 1,071 1,028 996 980 963
------- ------ ------- -------- -------
Total capitalization........................ $ 2,553 $3,102 $ 2,280 $ 1,867 $ 1,611
======= ====== ======= ======== =======
Committed bank credit facilities............ $ 3,000 $2,500 $ 1,250 $ 1,250 $ 1,250
For the Year
Income...................................... $ 194 $ 143 $ 71 $ 77 $ 101
Expenses.................................... $ 128 $ 94 $ 47 $ 51 $ 67
Net income.................................. $ 43 $ 32 $ 16 $ 17 $ 23
Fixed charges - times earned................ 1.52 1.52 1.52 1.52 1.52
Peak short term debt........................ $ 2,771 $2,649 $ 2,327 $ 1,665 $ 1,489
Average debt
Short term.............................. $ 2,145 $1,990 $ 1,347 $ 1,146 $ 754
Long term............................... $ -- $ -- $ -- $ 39 $ 232
Total................................... $ 2,145 $1,990 $ 1,347 $ 1,185 $ 986
Average interest rates
Short term debt......................... 5.9% 4.6% 3.2% 3.7% 5.6%
Long term debt.......................... --% --% --% 8.9% 8.7%
Total................................... 5.9% 4.6% 3.2% 3.9% 6.3%
</TABLE>
_________
7
<PAGE>
Quarterly Data J.C. Penney Funding Corporation
($ in millions)(Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
------------------- -------------------- -------------------- ---------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income ...................... $ 48 24 13 48 32 15 52 38 22 46 49 21
Expenses .................... $ 31 16 9 32 21 10 34 25 14 31 32 14
Income before taxes ......... $ 17 8 4 16 11 5 18 13 8 15 17 7
Net income .................. $ 11 5 3 10 7 3 12 9 5 10 11 5
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 27, 1996
ABN-AMRO Bank N.V. The Long Term Credit Bank of
Bank of America NT & SA Japan, Ltd.
Bank of Hawaii Mellon Bank, N.A.
Bank of New York Mitsubishi Bank
Bank One, Texas, N.A. Morgan Guaranty Trust Company
Bankers Trust Company of New York
The Bank of Tokyo, Ltd. NationsBank of Texas, N.A.
Banque Nationale de Paris The Northern Trust Company
Chemical Bank Norwest Bank Minnesota, N.A.
Citibank, N.A. PNC Bank, N.A.
Credit Lyonnais The Royal Bank of Canada
Credit Suisse The Sanwa Bank Limited
Dai-Ichi Kangyo Bank San Paolo Bank
Deutsche Bank A.G. Societe Generale
First Interstate Bank of California The Sumitomo Bank, Limited
The First National Bank of Boston SunBank, N.A.
The First National Bank of Chicago Swiss Bank Corporation
First Security Bank of Utah, N.A. Union Bank of Switzerland
First Union National Bank of United Missouri Bank, N.A.
North Carolina United States National Bank
Firstar Bank, Milwaukee, N.A. of Oregon
The Fuji Bank, Limited Wachovia Bank of North Carolina, N.A.
The Industrial Bank of Japan
Trust Company
________________
8
