<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 25, 1997 Commission file number 1-777
J. C. PENNEY COMPANY, INC.
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 431-1000
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Securities registered pursuant to Section 12(b) of the Act:
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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: $11,910,650,902 as of February 26, 1997.
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Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date: 224,197,904 shares of Common
Stock of 50c par value, as of February 26, 1997.
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
1996 Annual Report to Stockholders Part IV
2. J. C. Penney Company, Inc. Part III
1997 Proxy Statement
3. J. C. Penney Funding Corporation Part I and Part IV
Form 10-K for fiscal year 1996
<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.
On February 27, 1997, the Company completed its acquisition of Eckerd
Corporation ("Eckerd"), an approximately 1,748 store drugstore chain
headquartered in Largo, Florida, pursuant to a cash and stock transaction valued
at $3.3 billion, including the assumption of $760 million of Eckerd debt. The
transaction was effected through a cash tender offer for approximately 50.1
percent of Eckerd's outstanding common stock, followed by a second-step merger,
as a result of which Eckerd stockholders received 0.6604 of a share of the
Company's common stock for each remaining Eckerd share not purchased in the cash
tender offer. The cash tender offer was completed on December 6, 1996 and
resulted in the Company acquiring approximately 35.3 million shares, or 50.1
percent, of the outstanding Eckerd common stock at that date. The merger was
approved by Eckerd stockholders and completed on February 27, 1997. With the
completion of its acquisition of Eckerd, the Company operates a chain of
approximately 2,700 drugstores located throughout the northeast, southeast, and
Sunbelt regions of the United States.
The business of marketing merchandise and services is highly competitive.
Although the Company is one of the largest department store and drugstore
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 24), "Properties" (page 25), "Capital
Expenditures" (page 25), "Financial Instruments and Fair Value" (pages 25 and
26), and "Segment Reporting" (page 34), which appear in the section of the
Company's 1996 Annual Report to Stockholders entitled "Notes to Consolidated
Financial Statements", "Supplemental Information (unaudited)" (pages 36 and 37),
"Five Year Financial Summary" (page
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38), and "Five Year Operations Summary" (page 39), which appear in the Company's
1996 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 25, 1997,
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 approximately 6,000
---------
domestic and foreign suppliers, most of whom have done business with the Company
for many years. In addition to its Plano, Texas home office, the Company,
through its international purchasing subsidiary and as of January 25, 1997,
maintains buying offices in Brazil, Guatemala, Hong Kong, India, Italy, Japan,
Korea, Mexico, the Philippines, Singapore, Taiwan and Thailand.
EMPLOYMENT. The Company and its consolidated subsidiaries employed
----------
approximately 252,000 persons as of January 25, 1997.
ENVIRONMENT. While environmental protection requirements did not have a
-----------
material effect upon the Company's operations during fiscal 1996, 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 25, 1997, the Company operated 3,927 retail stores, comprised of
1,228 JCPenney department stores and 2,699 drugstores, in all 50 states, Puerto
Rico, Mexico, and Chile, of which 275 JCPenney department stores and 17
drugstores were owned. In addition, the Company owns nine store locations that
are leased to other tenants and not operated as units of the Company. The
Company also operated six catalog fulfillment centers, of which four were owned,
and owned one store distribution center, the insurance company corporate
offices, and the Company's 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 38
and 39, respectively, of the Company's 1996 Annual Report to Stockholders, is
incorporated herein by reference and filed hereto as Exhibit 13 in response to
Item 2 of Form 10-K.
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Additional information relating to certain aspects of the Company's properties
included under the caption "Properties" (page 25), which appears in the section
of the Company's 1996 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.
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No matter was submitted to a vote of stockholders during the fourth quarter of
fiscal 1996.
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 27 and 28),
"Common Stock" (page 28), "Changes in outstanding common stock" (page 28), and
"Quarterly Data (Unaudited)" (page 35), which appear in the Company's 1996
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 1992-1996 included in the "Five Year
Financial Summary" on page 38 of the Company's 1996 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 1996 Annual Report to Stockholders on pages 14 through
17 thereof, is
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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
25, 1997, January 27, 1996, and January 28, 1995, and the related Consolidated
Statements of Income, Reinvested Earnings, and Cash Flows for the years then
ended, appearing on pages 19 through 21 of the Company's 1996 Annual Report to
Stockholders, together with the Independent Auditors' Report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing on page 18 of
the Company's 1996 Annual Report to Stockholders, the Notes to Consolidated
Financial Statements on pages 22 through 34, and the quarterly financial
highlights ("Quarterly Data (unaudited)") appearing on page 35 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 the aforementioned consolidated financial statements of the Company
refers to the adoption by the Company (a) 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 (b) in 1995 of 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*
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10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.*
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The following is a list, as of March 1, 1997, 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 16, 1997. There is no family relationship between any of the
named persons.
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<TABLE>
<CAPTION>
OFFICES AND OTHER POSITIONS
NAME HELD WITH THE COMPANY AGE
-------- ----------------------------- ---
<S> <C> <C>
James E. Oesterreicher...Chairman of the Board and
Chief Executive Officer; Director 55
W. Barger Tygart.........President and Chief Operating Officer;
Director 61
John T. Cody, Jr.........President of JCPenney Stores 57
Gary L. Davis............Senior Vice President, Director
of Human Resources and
Administration 54
Gale Duff-Bloom..........President of Marketing and Company
Communications 57
David V. Evans...........Senior Vice President, Director of
Information Systems 52
John E. Fesperman........Senior Vice President, Director of
Planning, Facilities, and
International Development 51
Thomas D. Hutchens.......President of Merchandising Worldwide 56
Charles R. Lotter........Executive Vice President, Secretary
and General Counsel 59
William E. McCarthy......President of Catalog and Distribution 55
Donald A. McKay..........Senior Vice President and
Chief Financial Officer 51
Francis A. Newman........President and Chief Executive
Officer of Eckerd Corporation 48
Ted L. Spurlock..........Senior Vice President and Director
of Financial Services and
Government Relations 58
</TABLE>
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Mr. Oesterreicher was elected Chairman of the Board effective January 8, 1997
and has served as Chief Executive Officer since 1995. He served as Vice
Chairman of the Board from 1995 to 1997. From 1992 to 1995, he served as
President of JCPenney Stores and Catalog. 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. He
has also served as a director of Eckerd Corporation since February 1997.
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
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<PAGE>
served as a Senior Vice President and Director of Real Estate, Construction
Services and Speciality Retailing from 1991 to 1992.
Mr. Davis was elected Senior Vice President and Director of Personnel and
Administration effective February 1, 1996, and since 1997 has served as Senior
Vice President, Director of Human Resources and Administration. 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, and since 1997 has
served as Senior Vice President, Director of Information Systems. He was elected
a Vice President in 1987 and served as Director of Information Systems from 1987
to 1995.
Mr. Fesperman was elected Senior Vice President and Director of Support
Services and Subsidiary Operations effective January 1, 1996, and since 1997 has
served as Senior Vice President, Director of Planning, Facilities, and
International Development. 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. He has also
served as a director of Eckerd Corporation since December 1996.
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. He has also served as a director of Eckerd Corporation
since December 1996.
Mr. Newman has served as Chief Executive Officer of Eckerd Corporation since
February 1996. He is also President and a
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<PAGE>
director of Eckerd Corporation, positions he has held since July 1993. Prior to
joining Eckerd, Mr. Newman served as President, Chief Executive Officer and a
director of F&M Distributors, Inc. ("F&M"), a drugstore chain, since 1986. F&M
filed bankruptcy under Chapter 11 of the United States Bankruptcy Code in
December 1994. Prior to joining F&M, he was the Executive Vice President of
Household Merchandising, Inc., a retail firm, from 1984 to 1986 and the Senior
Vice President of Merchandising for F. W. Woolworth, a retail firm, from 1980 to
1984.
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 1997
Proxy Statement, which involves the election of directors, the final copy of
which the Company will file with the Securities and Exchange Commission,
pursuant to Regulation 14A, on or prior to May 25, 1997.
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 1996
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
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<PAGE>
See Independent Auditors' Report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing on page 11 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 1996 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 25, 1997, 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-10.
(b) Current Reports on Form 8-K. During the last quarter of the period
covered by this Annual Report on Form 10-K the Company filed its Current Report
on Form 8-K dated November 3, 1996.
(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-10 and specifically identified as such
beginning on page G-6.
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<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: March 25, 1997
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<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
J. E. Oesterreicher* Chairman of the Board and March 25, 1997
- ------------------- Chief Executive Officer (principal
J. E. Oesterreicher executive officer); Director
W. B. Tygart* President and Chief Operating March 25, 1997
- --------------------- Officer; Director
W. B. Tygart
D. A. McKay* Senior Vice President and March 25, 1997
- --------------------- Chief Financial Officer
D. A. McKay (principal financial officer)
W. J. Alcorn* Vice President and Controller March 25, 1997
- --------------------- (principal accounting officer)
W. J. Alcorn
M. A. Burns* Director March 25, 1997
- ---------------------
M. A. Burns
C. H. Chandler* Director March 25, 1997
- ---------------------
C. H. Chandler
V. E. Jordan, Jr.* Director March 25, 1997
- ---------------------
V. E. Jordan, Jr.
George Nigh* Director March 25, 1997
- ---------------------
George Nigh
J. C. Pfeiffer* Director March 25, 1997
- ---------------------
J. C. Pfeiffer
A. W. Richards* Director March 25, 1997
- ---------------------
A. W. Richards
C. S. Sanford, Jr.* Director March 25, 1997
- ---------------------
C. S. Sanford, Jr.
R. G. Turner* Director March 25, 1997
- ---------------------
R. G. Turner
J. D. Williams* Director March 25, 1997
- ---------------------
J. D. Williams
*By /s/ C. R. Lotter
-------------------------
C. R. Lotter
Attorney-in-fact
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<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors of
J. C. Penney Company, Inc.:
Under date of February 27, 1997, we reported on the consolidated balance sheets
of J. C. Penney Company, Inc. and subsidiaries as of January 25, 1997, January
27, 1996, and January 28, 1995, and the related consolidated statements of
income, reinvested earnings, and cash flows for the years then ended, as
contained in the 1996 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 1996 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
Dallas, Texas
February 27, 1997
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<PAGE>
SCHEDULE II
J. C. PENNEY COMPANY, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in millions)
<TABLE>
<CAPTION>
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52 Weeks Ended
---------------------------------------
January 25, January 27, January 28,
Description 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserves deducted from assets
- -----------------------------
Allowance for doubtful accounts
Balance at beginning of period $ 84 $ 74 $ 59
Additions charged to costs and
expenses 267 219 177
Deductions of write-offs, less
recoveries (246) (209) (162)
----- ----- -----
Balance at end of period $ 105 $ 84 $ 74
===== ===== =====
Allowance for loan losses -
JCPenney National Bank
Balance at beginning of period $ 47 $ 44 $ 35
Additions charged to costs and
expenses 83 45 45
Deductions of write-offs, less
recoveries (79) (42) (36)
----- ----- -----
Balance at end of period $ 51 $ 47 $ 44
===== ===== =====
</TABLE>
F-1
<PAGE>
EXHIBIT INDEX
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EXHIBIT
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2. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION
---------------------------------------------------------------------------
(a) Amended and Restated Agreement and Plan of Merger, dated as of
November 2, 1996, among J.C. Penney Company, Inc., Omega Acquisition
Corporation, and Eckerd Corporation (incorporated by reference to
Exhibit 2.1 to Company's Registration Statement on Form S-4, SEC
File No. 333-20271).
(b) Amendment dated February 25, 1997 to Amended and Restated Agreement
and Plan of Merger, dated as of November 2, 1996, among J.C. Penney
Company, Inc., Omega Acquisition Corporation, and Eckerd
Corporation.
3. (I) ARTICLES OF INCORPORATION Restated Certificate of Incorporation of
-------------------------
the Company (incorporated by reference to Exhibit (3)(i) to
Company's Quarterly Report on Form 10-Q for the thirteen week period
ended April 27, 1996*).
(II) BYLAWS Bylaws of Company, as amended to January 11, 1995
------
(incorporated by reference to Exhibit 3(ii)(a) to Company's Annual
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
First Trust of California, National Association (as Successor
Trustee to Bank of America National Trust and Savings Association)
(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 First Trust of California, National Association (as
Successor Trustee to Bank of America National Trust and Savings
Association)(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 First Trust of California, National Association (as
Successor Trustee to Bank of America National Trust and Savings
Association)(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 First Trust of California, National Association (as
G-1
<PAGE>
Successor Trustee to Bank of America National Trust and Savings
Association (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 First Trust of California, National Association (as
Successor Trustee to Bank of America National Trust and Savings
Association)(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 First
Trust of California, National Association (as Successor Trustee to
Bank of America National Trust and Savings Association)
(incorporated by reference to Exhibit 4(a) to Company's Registration
Statement on Form S-3, SEC File No. 33-53275).
(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 ChaseMellon Shareholder Services, L.L.C.),
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
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<PAGE>
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*).
(k) Amended and Restated 364-Day Revolving Credit Agreement dated as of
December 3, 1996, among J.C. Penney Company, Inc., J.C. Penney
Funding Corporation, the Lenders party thereto, Morgan Guaranty
Trust Company of New York, as Agent for the Lenders, and Bank of
America Illinois, Bankers Trust Company, The Chase Manhattan Bank,
Citibank, N.A., Credit Suisse, and NationsBank of Texas, N.A., as
Co-Agents for the Lenders (incorporated by reference to Exhibit 4(d)
to J.C. Penney Funding Corporation's Annual Report on Form 10-K for
the 52 weeks ended January 25, 1997, SEC File No. 1-4947-1).
(l) Amended and Restated Five-Year Revolving Credit Agreement dated as
of December 3, 1996, among J.C. Penney Company, Inc., J.C. Penney
Funding Corporation, the Lenders party thereto, Morgan Guaranty
Trust Company of New York, as Agent for the Lenders, and Bank of
America Illinois, Bankers Trust Company, The Chase Manhattan Bank,
Citibank, N.A., Credit Suisse, and NationsBank of Texas, N.A., as
Co-Agents for the Lenders (incorporated by reference to Exhibit 4(e)
to J.C. Penney Funding Corporation's Annual Report on Form 10-K for
the 52 weeks ended January 25, 1997, SEC File No. 1-4947-1).
(m) 364-Day Revolving Credit Agreement dated as of December 3,1996,
among J.C. Penney Company, Inc., J.C. Penney Funding Corporation,
the Lenders party thereto, Bank of America Illinois, Bankers Trust
Company, The Chase Manhattan Bank, Citibank, N.A., Morgan Guaranty
Trust Company of New York, and NationsBank of Texas, N.A., as Co-
Agents for the Lenders, and Credit Suisse, as Administrative Agent
for the Lenders (incorporated by reference to Exhibit 4(f) to J.C.
Penney Funding Corporation's Annual Report on Form 10-K for the 52
weeks ended January 25, 1997, SEC File No. 1-4947-1).
(n) Five-Year Revolving Credit Agreement dated as of December 3, 1996,
among J.C. Penney Company, Inc., J.C. Penney Funding Corporation,
the Lenders party thereto, Bank of America Illinois, Bankers Trust
Company, The Chase Manhattan Bank, Citibank, N.A., Morgan Guaranty
Trust Company of New York, and NationsBank of Texas, N.A., as Co-
Agents for the Lenders and Credit Suisse, as Administrative Agent
for the Lenders (incorporated by reference to Exhibit 4(g) to
J.C. Penney Funding Corporation's Annual Report on Form 10-K for the
52 weeks ended January 25, 1997, SEC File No. 1-4947-1).
(o) Guaranty dated as of February 17, 1997, executed by J.C. Penney
Company, Inc. (incorporated by reference to Exhibit 4(c) to J.C.
Penney Funding Corporation's Annual Report on Form 10-K for the 52
weeks ended January 25, 1997, SEC File No. 1-4947-1).
(p) Guaranty dated as of December 3, 1996, executed by J.C. Penney
Company, Inc. with respect to the Amended and Restated 364-Day and
Five-Year Revolving Credit Agreements, each dated as of December 3,
1996 (incorporated by reference to Exhibit 4(m) to J.C. Penney
Funding Corporation's Annual Report on Form 10-K for the 52 weeks
ended January 25, 1997, SEC File No. 1-4947-1).
(q) Guaranty dated as of December 3, 1996, executed by J.C. Penney
Company, Inc. with respect to the 364-Day and Five-Year Revolving
Credit Agreements, each dated as of December 3, 1996 (incorporated
by reference to Exhibit 4(n) to J.C. Penney Funding Corporation's
Annual Report on Form 10-K for the 52 weeks ended January 25, 1997,
SEC File No. 1-4947-1).
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.
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*).
G-3
<PAGE>
(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*).
(e) Amendment No. 2 to Loan Agreement dated as of January 28, 1986
between Company and J. C. Penney Funding Corporation.
(f) Personal Services Agreement dated as of February 12, 1997 between
Company and W. R. Howell.
(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) September 1995 Amendment to J.C. Penney Company, Inc. 1989
Management Incentive Compensation Program, as amended.
(c) Supplemental Retirement Program for Management Profit-Sharing
Associates of J. C. Penney Company, Inc., as amended through April
1, 1996.
(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 (incorporated by
reference to Exhibit 10(ii)(e) to Company's Annual Report on Form
G-4
<PAGE>
10-K for the 52 week period ended January 27, 1996*).
(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 (incorporated by reference to Exhibit
10(ii)(k) to Company's Annual Report on Form 10-K for the 52 week
period ended January 27, 1996*).
(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
G-5
<PAGE>
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 (incorporated by reference to Exhibit
10(ii)(n) to Company's Annual Report on Form 10-K for the 52 week
period ended January 27, 1996*).
(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
Statement on Form S-8, SEC File No. 33-56993).
(u) November 1995 amendment to J. C. Penney Company, Inc. 1995 Deferred
Compensation Plan (incorporated by reference to Exhibit
G-6
<PAGE>
10(ii)(u) to Company's Annual Report on Form 10-K for the 52 week
period ended January 27, 1996*).
(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 (incorporated by
reference to Exhibit 10(ii)(y) to Company's Annual Report on Form
10-K for the 52 week period ended January 27, 1996*).
(z) February 1996 Amendment to J.C. Penney Company, Inc. Benefit
Restoration Plan.
(aa) Supplemental Term Life Insurance Plan for Management
Profit-Sharing Associates of J.C. Penney Company, Inc.
(ab) January 1995 Amendment to Supplemental Term Life Insurance Plan
for Management Profit-Sharing Associates of J.C. Penney
Company, Inc.
(ac) Employment Agreement dated as of February 4, 1996 between
Eckerd Corporation and Francis A. Newman (incorporated by
reference to Exhibit 10.26 to Eckerd Corporation's Annual
Report on Form 10-K for the fiscal year ended February 3, 1996,
SEC File No. 1-4844).
(ad) Amendment No. 1, dated as of November 2, 1996, to the
Employment Agreement dated as of February 4, 1996, by and
between Eckerd Corpoation and Francis A. Newman (incorporated
by reference to Exhibit (c)(3) to Company's Schedule 14D-1
dated November 2, 1996*).
* 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 1996 Annual Report to Stockholders.
G-7
<PAGE>
21. SUBSIDIARIES OF THE REGISTRANT
------------------------------
List of certain subsidiaries of the Company at March 1, 1997.
23. CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
24. POWER OF ATTORNEY
-----------------
27. FINANCIAL DATA SCHEDULE
-----------------------
Financial Data Schedule for the 52 week period ended January 25, 1997.
99. ADDITIONAL EXHIBITS
-------------------
(a) Item 1 of J. C. Penney Funding Corporation Annual Report on Form 10-
K for the 52 weeks ended January 25, 1997 (incorporated by reference
to J. C. Penney Funding Corporation Annual Report on Form 10-K for
the 52 weeks ended January 25, 1997 filed concurrently herewith, SEC
File No. 1-4947-1).
(b) Excerpt from J. C. Penney Funding Corporation Annual Report.
(C) Eckerd Corporation Selected Historical Consolidated Financial
Information
G-8
<PAGE>
Exhibit 2(b)
February 25, 1997
J. C. Penney Company, Inc.
6501 Legacy Drive
Plano, Texas 75024-3698
Omega Acquisition Corporation
6501 Legacy Drive
Plano, Texas 75024-3698
Eckerd Corporation
8333 Bryan Dairy Road
Largo, Florida 34647
Ladies and Gentlemen:
Reference is hereby made to the Amended and Restated Agreement and
Plan of Merger, dated as of November 2, 1996 (the "Merger Agreement"), between
J. C. Penney Company, Inc., a Delaware corporation ("JCPenney"), Omega
Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of
JCPenney ("Omega"), and Eckerd Corporation, a Delaware corporation ("Eckerd").
Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in the Merger Agreement.
Each of JCPenney, Omega and Eckerd hereby agree as follows:
1. Section 3.2(a) of the Merger Agreement is hereby amended to read
in its entirety as follows:
(a) Each holder of a then outstanding option to purchase Shares
(collectively, "Options") under Company's 1993 Stock Option and Incentive
Plan and 1995 Stock Option and Incentive Plan (collectively, the "Stock
Option Plans"), whether or not then exercisable or fully vested, may elect,
prior to the Effective Time, in settlement thereof, to
<PAGE>
February 25, 1997
Page 2
receive from Parent for each share subject to such Option an amount in cash
equal to the difference between the Offer Consideration and the per share
exercise price of such Option, to the extent the Offer Consideration is
greater than the per share exercise price of such Option (such excess
amount, the "Option Consideration"); provided, however, that with respect
-----------------
to any person subject to Section 16(a) of the Exchange Act, any such amount
shall be paid as soon as practicable after the first date payment can be
made without liability to such person under Section 16(b) of the Exchange
Act.
2. Section 3.2(c) of the Merger Agreement is hereby amended to read
in its entirety as follows:
(c) Not later than 30 days prior to the Effective Time, Company
shall provide each holder of an Option an election form pursuant to which
each such holder may make the election specified in Section 3.2(a). Company
shall also use its best efforts to obtain all necessary waivers, consents
or releases from holders of Options under the Stock Option Plans and take
any such other action as may be reasonably necessary to give effect to the
transactions contemplated by this Section 3.2 and, with respect to the
Options for which an election to receive cash in settlement thereof has
been made, to cause each such Option to be surrendered to Parent and
cancelled, whether or not any Option Consideration is payable with respect
thereto, at the Effective Time. The surrender of an Option to Parent shall
be deemed a release of any and all rights the holder had or may have had in
such Option, other than the right to receive the Option Consideration in
respect thereof.
The Merger Agreement, as amended by this letter agreement, shall
remain in full force and effect in accordance with its terms. No modification of
this letter agreement shall be valid unless in writing and signed by the parties
hereto. In the event of any conflict between the provisions of this letter
agreement and the provisions of the Merger Agreement, the provisions of this
letter agreement shall control.
<PAGE>
February 25, 1997
Page 3
This letter agreement may be executed in one or more counterparts,
each of which shall be an original and all of which, when taken together, shall
constitute one and the same instrument.
Very truly yours,
J. C. PENNEY COMPANY, INC.
By: /s/ JAMES E. OESTERREICHER
----------------------------------
Name: J. E. Oesterreicher
Title: Chairman of the Board and
Chief Executive Officer
OMEGA ACQUISITION CORPORATION
By: /s/ D. A. MCKAY
----------------------------------
Name: D. A. McKay
Title: President
ECKERD CORPORATION
By: /s/ SAMUEL G. WRIGHT
----------------------------------
Name: Samuel G. Wright
Title: Executive Vice President/
Chief Financial Officer
<PAGE>
EXHIBIT 10(i)(e)
CONFORMED COPY
J. C. PENNEY FUNDING CORPORATION
- --------------------------------------------------------------------------------
6501 Legacy Drive
Mail Code 1304
Plano, Texas 75024-3698
(972) 431-2011
November 22, 1996
J. C. Penney Company, Inc.
6501 Legacy Drive
Mail Code 1304
Plano, Texas 75024-3698
Attention: Treasurer
Re: Amendment No. 2 to Loan Agreement, dated as of January 28, 1986,
as amended by Amendment No. 1, dated as of December 26, 1986
("Agreement"), between your company and our company
------------------------------------------------------------------
Dear Sirs:
You and we agree that the Agreement is amended as follows:
FIRST: The name of the Corporation having been changed by filing in the State
of Delaware on April 10, 1988, from "J. C. Penney Financial Corporation"
("Financial") to "J. C. Penney Funding Corporation" ("Funding"), the terms "J.
C. Penney Financial Corporation" and "Financial" are deleted throughout the
Agreement, and the terms, "J. C. Penney Funding Corporation" and "Funding", as
the case may be, are substituted therefor and adopted in lieu thereof.
SECOND: The principal place of business set forth in the preamble of the
Agreement, for both Penney and Funding, is deleted in its entirety and the
following substituted therefor:
6501 Legacy Drive
Plano, Texas 75024-3698
The addresses for Notices set forth in Section 10 of the Agreement are deleted
in their entirety and the following substituted therefor:
(a) for deliveries other than by U.S. Post Office, to the principal place
of business, and
(b) for mailing, to the following address:
P. O. Box 10001
Dallas, Texas 75301-0001
THIRD: Section 1(c) of the Agreement is deleted in its entirety and the
following substituted therefor:
(c) without the approval of the Board of Directors of Funding, shall not
exceed in aggregate principal amount at any one time outstanding
(i) $8,000,000,000, in the case of all senior loans and subordinated
loans considered together, and
(ii) $1,000,000,000, in the case of all subordinated loans.
<PAGE>
In the event of any conflict between the provisions of this Amendment No. 2
and those of the Agreement, the provisions of this Amendment No. 2 shall
govern.
Please sign the acceptance below on both counterparts and return one counterpart
to us, whereupon this Amendment No. 2 will become effective as of the date set
forth above.
Very truly yours,
J. C. PENNEY FUNDING CORPORATION
By /s/ Frank N. Napoli
-------------------------------
Vice President and Treasurer
Accepted and agreed to:
J. C. PENNEY COMPANY, INC.
By /s/ Robert B. Cavanaugh
-----------------------------------
Vice President and Treasurer
<PAGE>
EXHIBIT 10(i)(f)
February 12, 1997
W. R. Howell
4 Saint Andrews Court
Frisco, Texas 75034
Dear W. R.:
In consideration of your agreement to provide services to the Company, the
Company agrees with you as follows:
Services. The personal services to be provided by you shall be such
--------
services as may be requested from time to time by the Chairman of the Board. In
rendering such services the Company will not deem you to be an employee for any
purpose, including entitlement to employment benefits, and accordingly, you
shall be eligible to receive all retiree benefits to which you are entitled
because of your prior employment by JCPenney. In connection with any requested
services your Indemnification Agreement, dated July 29, 1986, will continue in
full force and effect for the term of this agreement.
Compensation. The Company will pay you an annual retainer of $300,000 for
------------
a period of five years, beginning March 1, 1997 and ending March 1, 2002,
payable monthly. The Company's obligation to make these payments will terminate
in the event of your death.
The Company will grant you a stock award of shares of JCPenney Common Stock
having a market value of $5 million with a tax gross up payment sufficient to
assure that the full amount of the grant will be realized. This grant will be
made from the Company's 1993 Equity Compensation Plan on the date on which the
Company will make its regular 1997 stock option grants to management employees
and the shares of JCPenney Common Stock granted to you on that date will fully
vest immediately. The number of shares to be received by you on the grant date
will be $5 million divided by the fair market value (as defined in the Company's
1993 Equity Compensation Plan) of JCPenney Common Stock on the grant date. In
addition, all non-qualified stock option grants which you may hold during the
term of this agreement shall be exercisable until their original expiration
dates.
<PAGE>
W.R. Howell
February 12, 1997
Page 2
Travel and Business Expenses. You will have the use of JCPenney's
----------------------------
corporate aircraft and car and driver when you are performing the requested
services. The scheduling of this use is to be coordinated with the Chairman of
the Board. You shall also be reimbursed for reasonable business expenses,
including spouse's travel expenses if appropriate, when performing any requested
services.
Office and Secretary. You shall also be provided with an office and
--------------------
secretarial services during the term of this agreement as arranged by the
Chairman of the Board.
Non-Competition. While you are no longer an active employee of the Company
---------------
and are free to engage in other activities, you agree that so long as this
agreement is in effect that you will be bound by the Company's Statement of
Business Ethics on the same basis as an employee of JCPenney and that you will
not engage in, or be involved with, directly or indirectly, any investments in
or provide services to any person or entity which may be deemed to be a
competitor of the Company as that term is defined in the Statement of Business
Ethics.
For the Company's records, I would appreciate your acknowledging receipt and
acceptance of the terms of this agreement by signing and returning to me the
enclosed duplicate copy of this letter.
Warm regards,
/s/ Jim Oesterreicher
cc: Colby C. Chandler
Accepted and agreed to this 16th day of February, 1997.
/s/ W. R. Howell
- ---------------------------
W. R. Howell
<PAGE>
EXHIBIT 10(ii)(b)
RESOLVED that pursuant to Section 7 of the Program, effective with
incentive compensation payable with respect to the 1995 fiscal year and
thereafter, the term "5%" contained in Section 5 of the Program be, and it
hereby is, changed to "6%";
<PAGE>
EXHIBIT 10(ii)(c)
SUPPLEMENTAL RETIREMENT PROGRAM FOR
MANAGEMENT PROFIT-SHARING ASSOCIATES OF
J. C. PENNEY COMPANY, INC.
ADOPTED EFFECTIVE JANUARY 1, 1978
AS AMENDED THROUGH APRIL 1, 1996
<PAGE>
SUPPLEMENTAL RETIREMENT PROGRAM FOR
MANAGEMENT PROFIT-SHARING ASSOCIATES OF
J. C. PENNEY COMPANY, INC.
ADOPTED EFFECTIVE JANUARY 1, 1978
AS AMENDED THROUGH APRIL 1, 1996
TABLE OF CONTENTS
Article Page
- ------- ----
ARTICLE I. INTRODUCTION......................................... 1
ARTICLE II. DEFINITIONS.......................................... 1
ARTICLE III. PARTICIPATION........................................ 10
ARTICLE IV. BENEFITS............................................. 11
(1) At Early, Traditional, or Delayed Retirement Date........ 11
(2) Minimum Benefit.......................................... 14
(3) Social Security Make-up.................................. 15
(4) Death Benefit............................................ 15
(5) Life Insurance Coverage.................................. 16
(6) Effect of Certain Payments Made in December 1992......... 16
ARTICLE V. FORM AND COMMENCEMENT OF BENEFIT PAYMENTS............ 17
(1) Delayed Commencement of Benefits......................... 17
(2) Optional Forms of Benefit Payment........................ 17
(3) Small Annuities.......................................... 17
ARTICLE VI. ADMINISTRATION....................................... 18
ARTICLE VII. TYPE OF PLAN......................................... 18
ARTICLE VIII. MISCELLANEOUS........................................ 19
(1) Additional Credited Service and Other Adjustments........ 19
(2) Amendment and Termination................................ 20
(3) Rights of Associates..................................... 22
(4) Mistaken Information..................................... 23
(5) Liability................................................ 23
(6) Cessation and Recalculation of Benefits.................. 23
(7) Construction............................................. 23
(8) Non-assignability of Benefits............................ 23
(9) Governing Law............................................ 24
(10) Transferred Eligible Management Associates............... 24
ARTICLE IX. CLAIMS PROCEDURES.................................... 24
<PAGE>
SUPPLEMENTAL RETIREMENT PROGRAM FOR
MANAGEMENT PROFIT-SHARING ASSOCIATES OF
J. C. PENNEY COMPANY, INC.
ADOPTED EFFECTIVE JANUARY 1, 1978
AS AMENDED THROUGH APRIL 1, 1996
ARTICLE I. INTRODUCTION
The Supplemental Retirement Program for Management Profit-Sharing
Associates of J. C. Penney Company, Inc. is a plan maintained primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated associates. This document amends and restates the Plan,
originally adopted effective January 1, 1978, effective August 1, 1995. With
respect to any Eligible Management Associate who terminated employment prior to
August 1, 1995, benefits payable to such Eligible Management 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:
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.
AVERAGE FINAL COMPENSATION: The average annual Compensation of an
--------------------------
Eligible Management Associate in respect of the three calendar years of his
highest Compensation determined by taking into account (a) the Compensation
attributable to the Eligible Management Associate's Credited Service in the
calendar year in which occurs such Early Retirement Date, Traditional Retirement
Date, or Delayed Retirement Date, as the case may be, and (b) the Compensation
during either of the following, whichever is appropriate: (i) the 9 full
calendar years of Final Service immediately preceding the calendar year in which
occurs the Eligible Management Associate's Early Retirement Date, Traditional
1
<PAGE>
Retirement Date, or Delayed Retirement Date, as the case may be; or (ii) if such
Eligible Management Associate has less than 9 full calendar years of Final
Service, the entire number of full calendar years of such Final Service
immediately preceding the calendar year in which occurs the Eligible Management
Associate's Early Retirement Date, Traditional Retirement Date, or Delayed
Retirement Date, as the case may be. If such Eligible Management Associate has
less than three full calendar years of Final Service prior to the calendar year
in which occurs his Early Retirement Date, Traditional Retirement Date, or
Delayed Retirement Date, Average Final Compensation shall mean the aggregate
Compensation earned with respect to the Eligible Management Associate's Final
Service immediately preceding the calendar year in which occurs his Early
Retirement Date, Traditional Retirement Date or Delayed Retirement Date, divided
by the total number of full months of such Final Service, multiplied by 12.
BENEFIT COMMENCEMENT DATE: The date upon which payment of a Pension Plan
-------------------------
Participant's retirement benefit is scheduled to begin pursuant to the terms of
the Pension Plan.
BENEFIT PLANS REVIEW COMMITTEE: The Benefit Plans Review Committee of the
------------------------------
Board of Directors of the Company.
BENEFIT RESTORATION PLAN: J. C. Penney Company, Inc. Benefit Restoration
------------------------
Plan, as amended from time to time.
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 and any successor
------------------
account(s) and/or fund(s) established and maintained pursuant to the Savings and
Profit-Sharing Retirement Plan and/or the Savings, Profit-Sharing and Stock
Ownership Plan in which are reflected all Company contributions allocated to an
Eligible Management Associate together with all assets attributable thereto.
2
<PAGE>
COMPENSATION: The wages (including Profit Incentive Compensation and
------------
Performance Unit Plan payments whether received or deferred) paid to an
Associate by a Participating Employer, or, for the purpose of determining
Average Final Compensation only, by a Controlled Group Member, as the term wages
is defined in Code section 3401(a), determined without regard to any reduction
for workers' compensation and state disability insurance reimbursements, and all
other compensation payments for which a Participating Employer or other
Controlled Group Member is required to furnish the Associate a written statement
under Code sections 6041(d), 6051(a)(3), and 6052, reduced by the following
items: (i) all expatriate and foreign service allowances, including without
limitation cost-of-living adjustments, (ii) tax gross-up payments, (iii) noncash
prizes, (iv) income attributable to employer-provided group term life insurance,
(v) income recognized with respect to stock options and stock awards, (vi) tax
equalization payments, (vii) taxable and nontaxable relocation payments, (viii)
payments of deferred amounts under the Company's Deferred Performance Unit Plan,
(ix) special payments made to an Associate under the Company's Performance Unit
Plan in the year of death, retirement, or disability, (x) severance pay,
outplacement pay, and/or critical pay, (xi) third-party disability payments,
(xii) home sale bonus payments, (xiii) mortgage interest assistance payments,
(xiv) senior management perquisites, tax preparation fees, and allowances for
travel from Alaska and Hawaii, (xv) legal settlements constituting back pay or
other wage payments, (xvi) non-Associate travel reimbursements and (xvii)
clothing allowances payments. In addition, Compensation includes any
contributions made by the Controlled Group Members on behalf of an Associate
pursuant to a deferral election under any employee benefit plan containing a
cash or deferred arrangement under Code section 401(k) and any amounts that
would have been received as cash but for an election to receive benefits under a
cafeteria plan meeting the requirements of Code section 125 and any amounts
deferred pursuant to the Deferred Compensation Plan. For purposes of the Plan,
each annual Performance Unit Plan payment and Profit Incentive Compensation
payment shall be deemed to have been made in the calendar year immediately
preceding the year in which the payments were actually made. For all purposes
of the Plan, the Benefits Administration Committee, in its discretion, may
exclude additional items from "Compensation" under the Plan.
An Associate who is in the service of the Armed Forces of the United States
during any period in which such Associate's reemployment rights are guaranteed
by law will be considered to have received the same rate of Compensation during
such absence that the Associate was receiving immediately prior to such absence,
provided the Associate returns to employment with a Controlled Group Member
within the time such rights are guaranteed.
3
<PAGE>
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.
CREDITED SERVICE: The years of credited service, up to a total maximum of
----------------
40 years, credited to an Eligible Management Associate (a) under the terms of
the Pension Plan, determined without regard to any yearly limitation imposed by
the terms of the Pension Plan, (excluding any periods of Disability Service),
and (b) under Paragraph (1) of Article VIII.
DEFERRED COMPENSATION PLAN: J. C. Penney Company, Inc. 1995 Deferred
--------------------------
Compensation Plan, as amended from time to time.
DEFERRED PERFORMANCE UNIT PLAN: J. C. Penney Company, Inc. Deferred
------------------------------
Compensation Plan originally effective February 1, 1985 and amended to prohibit
further deferrals effective January 26, 1991.
DELAYED RETIREMENT DATE: The first day of the month immediately following
-----------------------
the date on which an Eligible Management Associate Separates from Service after
having attained Traditional Retirement Age.
DISABILITY SERVICE: The years of disability service credited to an
------------------
Eligible Management Associate under the terms of the Pension Plan.
EARLY RETIREMENT AGE: The first date on which an Eligible Management
--------------------
Associate has attained age 55 and has completed at least 15 years of Service.
EARLY RETIREMENT DATE: The first day of the month immediately following
---------------------
the date on which an Eligible Management Associate Separates from Service after
having attained Early Retirement Age but before attainment of such Eligible
Management Associate's Traditional Retirement Age.
ELIGIBLE MANAGEMENT ASSOCIATE: An Associate (excluding an Associate who
-----------------------------
retired from (i) a Participating Employer before January 1, 1978, (ii) J. C.
Penney Life Insurance Company or J. C. Penney Casualty Insurance Company on or
after January 1, 1990, or (iii) Thrift Drug, Inc. on or after April 1, 1991)
4
<PAGE>
classified under the Company's personnel policy as a management associate and
who is participating in a Profit Incentive Compensation program or other profit
sharing compensation program (other than the Savings and Profit-Sharing
Retirement Plan or the Savings, Profit-Sharing and Stock Ownership Plan) of a
Participating Employer on his Traditional Retirement Date or Early Retirement
Date. Notwithstanding the preceding sentence, the Benefits Administration
Committee reserves the right to waive, in its discretion, one or more of the
requirements of this paragraph on a case by case basis for any Associate age 55
who was participating in a Profit Incentive Compensation program on December 31,
1995.
ERISA: Employee Retirement Income Security Act of 1974, as amended from
-----
time to time.
ESTIMATED SOCIAL SECURITY BENEFIT: (1) For purposes of the benefit
---------------------------------
provided in Paragraph (3) of Article IV the monthly benefit the Eligible
Management Associate would receive under the Social Security Act at age 62 based
on the following assumptions:
(i) All compensation earned (a) prior to the later of 1951 or the year
the Eligible Management Associate attains age 22 or (b) in the year
in which the Eligible Management Associate Separates from Service if
such separation occurs prior to the last day of the calendar year
will be disregarded;
(ii) Earnings for the years prior to the Eligible Management Associate's
employment with the Participating Employer are in the same
proportion to the Taxable Wage Base in effect for the prior years as
that which the first full year of earnings bore to the Taxable Wage
Base in existence at that time;
(iii) Earnings are averaged over a number of full calendar years as
determined by the following:
Year of Birth Number of Full
----------------- --------------
Calendar Years
--------------
1925 31
1926 32
1927 33
1928 34
After 1928 35
If the Eligible Management Associate's total calendar years of
earnings determined under clauses
5
<PAGE>
(i) and (ii) above exceed the number of full years of earnings that
are to be averaged based on the year of such Eligible Management
Associate's birth, one or more of the Eligible Management
Associate's lowest years of earnings will be disregarded until his
total years of earnings equals the number of full years of earnings
that are to be averaged based on the year of such Eligible
Management Associate's birth.
(iv) Social Security indexing factors used are those actually used by the
Social Security Administration in determining the Eligible
Management Associate's social security benefit, and if those factors
are not available, the latest published factors will be used.
(2) For Eligible Management Associates who reach Traditional Retirement Age on
or prior to August 1, 2000, for purposes of clause (iii) of Subparagraph (b) of
Paragraph (1) of Article IV the lesser of the benefit determined under (A) or
(B) below:
(A) The product of (a) multiplied by (b) with (a) being the monthly
benefit the Eligible Management Associate would receive under the
Social Security Act at age 62, or if retirement is later than age 62,
the benefit payable at actual retirement, based on the following
assumptions:
(i) The benefit is based solely on the compensation earned during
the Eligible Management Associate's calendar years of service
and disregarding the Eligible Management Associate's last
calendar year of service if less than a full year and
disregarding completely all other years;
(ii) Earnings are averaged over the number of years of actual
credited service, as defined in the Pension Plan;
(iii) Social Security indexing factors used are those actually used
by the Social Security Administration in determining the
Eligible Management Associate's social security benefit, and if
those factors are not available, the latest published factors
will be used;
and (b) being a fraction, not exceeding one, the numerator of which is
the Eligible Management Associate's
6
<PAGE>
years of credited service, as defined by the Pension Plan and the
denominator of which is 30.
(B) The monthly benefit the Eligible Management Associate would receive
under the Social Security Act at age 62, or if retirement is later
than age 62, the benefit payable at actual retirement, based on the
following assumptions:
(i) All compensation earned (a) prior to the later of 1951 or the
year the Eligible Management Associate attains age 22 or (b) in
the year in which the Eligible Management Associate Separates
from Service if such separation occurs prior to the last day of
the calendar year will be disregarded;
(ii) The Eligible Management Associate earned no compensation for
calendar years before the Eligible Management Associate was
employed by the Participating Employer, which years will be
included in the calculation as years of zero earnings;
(iii) Earnings are averaged over a number of full calendar years as
determined by the following:
Year of Birth Number of Full
----------------- --------------
Calendar Years
--------------
1925 31
1926 32
1927 33
1928 34
After 1928 35
If the Eligible Management Associate's total calendar years of
earnings determined under clauses (i) and (ii) above exceed the
number of full years of earnings that are to be averaged based
on year of such Eligible Management Associate's birth, one or
more of the Eligible Management Associate's lowest years of
earnings will be disregarded until his total years of earnings
equals the number of full years of earnings that are to be
averaged based on the year of such Eligible Management
Associate's birth.
(iv) Social Security indexing factors used are those actually used
by the Social Security
7
<PAGE>
Administration in determining the Eligible Management
Associate's social security benefit, and, if those factors are
not available, the latest published factors will be used.
For Eligible Management Associates who reach Traditional Retirement Age
after August 1, 2000, for purposes of clause (iii) of Subparagraph (b) of
Paragraph (1) of Article IV, Estimated Social Security Benefit shall be
determined under (B) above.
FINAL SERVICE: An Eligible Management Associate's years of Credited
-------------
Service plus, if he becomes an Associate of a Controlled Group Member that is
not a Participating Employer, the years of Service with such Controlled Group
Member that are credited to the Associate after he ceases earning Credited
Service. Calendar years that include a period of Disability Service will not be
included in the determination of Final Service. Calendar years of Service or of
Credited Service that are interrupted by a Separation from Service or by one or
more years in which the Eligible Management Associate did not receive
Compensation for the entire year will be considered to be consecutive for
purposes of determining consecutive years of Final Service.
INTEREST INCOME ACCOUNT(S): The account(s) of that name and any successor
--------------------------
account(s) and/or fund(s) established and maintained pursuant to the Savings and
Profit-Sharing Retirement Plan and/or the Savings, Profit-Sharing and Stock
Ownership Plan.
MATCHED DEPOSITS: An Eligible Management Associate's deposits, not in
----------------
excess of 6% of his compensation (as defined in the Savings and Profit-Sharing
Retirement Plan and the Savings, Profit-Sharing and Stock Ownership Plan), made
pursuant to the Savings and Profit-Sharing Retirement Plan and/or the Savings,
Profit-Sharing and Stock Ownership Plan.
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 Personnel
Committee; provided, however, that if such designation would substantially
increase the cost of the Plan to the Company, such designation shall be subject
to the sole discretion of the Board of Directors.
PENNEY STOCK (COMPANY) ACCOUNT: The account(s) of that name and any
------------------------------
successor account(s) and/or fund(s) established and maintained pursuant to the
Savings and Profit-Sharing Retirement Plan and/or the Savings, Profit-Sharing
and Stock Ownership Plan.
8
<PAGE>
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: Supplemental Retirement Program for Management Profit-Sharing
----
Associates of J. C. Penney Company, Inc., as amended from time to time.
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 and Profit-Sharing Retirement
Plan and Savings, Profit-Sharing and Stock Ownership Plan) to which an Associate
of a Participating Employer, or, for the purpose of determining Average Final
Compensation only, a Controlled Group Member who is not a Participating
Employer, is entitled.
SAVINGS AND PROFIT-SHARING RETIREMENT PLAN: J. C. Penney Company, Inc.
------------------------------------------
Savings and Profit-Sharing Retirement Plan, as amended from time to time.
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
-------------------------------------------------
after having attained age 55 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 the Eligible Management
Associate's sick pay or at the end of any leave of absence granted the Eligible
Management Associate.
SERVICE: The period of time credited to an Eligible Management Associate
-------
as service under the terms of the Pension Plan.
9
<PAGE>
SPOUSE: The individual to whom an Eligible Management Associate is
------
legally married under the laws of the State (within the meaning of section 3(10)
of ERISA) in which the Eligible Management Associate is domiciled, or if
domiciled outside the United States, under the laws of the State of Texas.
TAX DEFERRED DEPOSITS: Deposits made under the Savings and Profit-Sharing
---------------------
Retirement Plan and/or the Savings, Profit-Sharing and Stock Ownership Plan
which were subject to a cash or deferred election under Section 401(k) of the
Code and designated as Tax Deferred Deposits pursuant to the terms of the
Savings and Profit-Sharing Retirement Plan and/or the Savings, Profit-Sharing
and Stock Ownership Plan.
TAXED DEPOSITS: An Eligible Management Associate's after-tax deposits
--------------
made under the Savings and Profit-Sharing Retirement Plan and/or the Savings,
Profit-Sharing and Stock Ownership Plan and designated as Taxed Deposits
pursuant to the terms of the Savings and Profit-Sharing Retirement Plan and/or
the Savings, Profit-Sharing and Stock Ownership Plan.
TRADITIONAL RETIREMENT AGE: The date on which an Eligible Management
--------------------------
Associate attains age 60.
TRADITIONAL RETIREMENT DATE: The first day of the month immediately
---------------------------
following the date an Eligible Management Associate attains Traditional
Retirement Age if such Eligible Management Associate Separates from Service on
such date.
VALUATION DATE: With respect to the Company Accounts, excluding the
--------------
Penney Stock (Company) Account, each day of the calendar year. With respect to
the Penney Stock (Company) Account(s), each day of a calendar year on which the
New York Stock Exchange is open. If the New York Stock Exchange is closed, the
Penney Stock (Company) Account(s) will have the same value as of the last
immediately preceding day the Exchange was open.
ARTICLE III. PARTICIPATION
Each Eligible Management Associate shall participate in the Plan as of such
Eligible Management Associate's Early Retirement Date, Traditional Retirement
Date, or Delayed Retirement Date, as the case may be; provided, however, that
such Eligible Management Associate who has a Separation from Service in December
shall be entitled to participate in the Plan as of the last day of that
December. Notwithstanding the preceding sentence, effective on and after
January 1, 1996, any Associate who, on December 31, 1995, was not classified as
management or who was not participating in a Profit Incentive Compensation
program shall not be considered an
10
<PAGE>
Eligible Management Associate and shall not participate in the Plan.
ARTICLE IV. BENEFITS
(1) AT EARLY, TRADITIONAL, OR DELAYED RETIREMENT DATE: The annual amount
-------------------------------------------------
of benefit payable from the Plan in monthly installments to an Eligible
Management Associate commencing on such Eligible Management Associate's Early
Retirement Date, Traditional Retirement Date, or Delayed Retirement Date, as the
case may be, and terminating with the installment payable on the first day of
the month in which such Eligible Management Associate dies, shall be:
(a) the sum of
(i) 3% of the Eligible Management Associate's Average Final
Compensation multiplied by such Eligible Management
Associate's Credited Service not in excess of 10 years;
plus
(ii) 1% of the Eligible Management Associate's Average Final
Compensation multiplied by such Eligible Management
Associate's Credited Service in excess of 10 years but not
in excess of 30 years;
plus
(iii) 1/2 of 1% of the Eligible Management Associate's Average
Final Compensation multiplied by such Eligible Management
Associate's Credited Service in excess of 30 years but not
in excess of 40 years;
less
(iv) 1/3 of 1% for each month by which the Eligible Management
Associate's Early Retirement Date shall precede such
Eligible Management Associate's Traditional Retirement Date
multiplied by the Eligible Management Associate's Average
Final Compensation;
LESS
(b) the sum of
(i) the single-life, no-death-benefit annuity equivalent of (a)
the annual amount of pension payable pursuant to the Pension
Plan (disregarding Disability Service) assuming that the
Eligible Management Associate's Benefit Commencement Date is
the first day of the month immediately following the date of
11
<PAGE>
such Eligible Management Associate's Separation from
Service, (b) the annual amount payable pursuant to the terms
of a domestic relations order qualified under Code Section
414(p), (A) from the Pension Plan and (B) from benefits
accrued pursuant to Paragraph (1) of Article IV of the
Benefit Restoration Plan and (c) the accrued benefit payable
pursuant to Paragraph (1) of Article IV of the Benefit
Restoration Plan; plus
(ii) the single-life, no-death-benefit annuity equivalent, as of
the Valuation Date which is the Eligible Management
Associate's date of Separation from Service, of (a) the
value of all the assets allocated to the Eligible Management
Associate in the Company Account(s) under the Savings and
Profit-Sharing Retirement Plan and the Savings, Profit-
Sharing and Stock Ownership Plan, (b) the value of any
additional assets which would have been allocated to the
Eligible Management Associate's Company Account(s) under the
Savings and Profit-Sharing Retirement Plan and the Savings,
Profit-Sharing and Stock Ownership Plan had such Eligible
Management Associate made all further permissible Matched
Deposits up to 6% of his compensation (as such term is
defined in each said Plan) under each said Plan and had he
not made any withdrawals of taxed Matched Deposits from the
Plans prior to January 1, 1989 plus the value of any amounts
paid, pursuant to the terms of a domestic relations order
qualified under Code Section 414(p), (A) out of such
Eligible Management Associates' Company Account(s) under the
Savings and Profit-Sharing Retirement Plan and the Savings,
Profit-Sharing and Stock Ownership Plan and (B) out of such
Eligible Management Associates' annual benefit limit make-up
account established pursuant to Paragraph (2) of Article IV
of the Benefit Restoration Plan; and (c) the benefits
payable to the Eligible Management Associate pursuant to
Paragraph (2) of Article IV of the Benefit Restoration Plan;
plus
(iii) 50% (less 1/4 of 1% for each month by which the Eligible
Management Associate's Early
12
<PAGE>
Retirement Date shall precede such Eligible Management
Associate's Traditional Retirement Date) of the Eligible
Management Associate's Estimated Social Security Benefit;
plus
(iv) in the case of an Eligible Management Associate whose
Credited Service is increased pursuant to Paragraph (1) of
Article VIII, the amount of annual retirement benefit (or
any commutations thereof or substitutions therefor) payable
to an Eligible Management Associate from any other employer,
but only to the extent determined by the Benefits
Administration Committee, expressed in the form of a single-
life, no-death-benefit annuity equivalent (as determined by
the Benefits Administration Committee), commencing on such
Eligible Management Associate's Separation from Service.
In determining the amount referred to in clause (ii) of Subparagraph (b) of
this Paragraph (1) of this Article IV, it shall be deemed that (i) an Eligible
Management Associate who has not, at all times when he was eligible to
participate in the Savings and Profit-Sharing Retirement Plan and the Savings,
Profit-Sharing and Stock Ownership Plan, contributed an amount sufficient to
share, to the maximum extent, in the Company contribution to such Plan or such
predecessor plan has so contributed and that an Eligible Management Associate
who did not share, to the maximum extent, in Company contributions for which he
was eligible under the Savings and Profit-Sharing Retirement Plan due to any
withdrawal of taxed Matched Deposits, be deemed not to have any such withdrawal;
(ii) the share of any such Company contribution deemed to have been credited to
an Eligible Management Associate pursuant to this Paragraph for plan years
ending before January 1, 1989 shall be deemed to have experienced the same rate
of dividends, earnings, and change in value as the actual rate of dividends,
earnings, and change in value experienced by the Penney Stock (Company) Account
under the Savings and Profit-Sharing Retirement Plan from the time such share of
a Company contribution is deemed to
13
<PAGE>
have been credited for said plan years and that the value of this said amount as
of December 31, 1988 under the Savings and Profit-Sharing Retirement Plan, plus
the share of any such Company contribution deemed to have been credited to an
Eligible Management Associate pursuant to this Paragraph for plan years
beginning after December 31, 1988 shall be deemed to have experienced the same
rate of earnings and change in value experienced by the Interest Income Account
under the Savings, Profit-Sharing and Stock Ownership Plan from the time such
share of a Company contribution is deemed to have been credited for said plan
years; (iii) the value of the amount of the Company Account(s) and annual limit
make-up account paid out pursuant to a domestic relations order qualified under
Section 414(p) of the Code deemed to have been credited to an Eligible
Management Associate pursuant to this Paragraph shall be deemed to have
experienced the same rate of earnings and change in value experienced by the
Interest Income Account under the Savings, Profit-Sharing and Stock Ownership
Plan from the time such amount is deemed to have been credited; and (iv) the
rates used to determine the single-life, no-death-benefit annuity equivalent
shall be the rates that the Benefits Administration Committee, in its
discretion, shall determine.
(2) MINIMUM BENEFIT: In no event will the amount payable to an Eligible
---------------
Management Associate under Paragraph (1) of this Article IV at such Eligible
Management Associate's Traditional Retirement Date or Delayed Retirement Date,
as the case may be, be less than the difference between (A) the amount of
pension payable pursuant to the early retirement pension benefit provision of
the Pension Plan (determined without regard to any compensation or benefit
limits imposed by the Code) that would be applicable if the Eligible Management
Associate elected to receive benefits pursuant to that provision prior to such
Eligible Management Associate's normal retirement date, as defined in the
Pension Plan (disregarding Disability Service, if any, and including as Credited
Service any increase granted under Article VIII hereof) assuming the Eligible
Management Associate's Benefit Commencement Date is the first day of the month
immediately following the day of such Eligible Management Associate's Separation
from Service under this Plan, and (B) the amount of pension payable pursuant to
the early retirement pension benefit provision of the Pension Plan (determined
without regard to any compensation or benefit limits imposed by the Code) that
would be applicable if the Eligible Management Associate did not elect to
receive benefits pursuant to that provision prior to the Eligible Management
Associate's normal retirement date, as defined in the Pension Plan (disregarding
Disability Service, if any, and including as Credited Service any increase
granted under Article VIII hereof).
In no event will the amount payable under Paragraph (1) of this Article IV
to an Eligible Management Associate who (a) Separates from Service on his Early
Retirement Date within one year prior to his Traditional Retirement Date and who
is granted additional Credited Service pursuant to Paragraph (1) of Article VIII
at his Early Retirement Date, or (b) Separates from Service because of a
reduction in force and is designated as an individual termination by the
Director of Personnel in accordance with Paragraph (1) of Article VIII and who
is granted deemed additional months of Credited Service thereunder be less than
the difference between (A) the amount of pension that would be payable
(determined
14
<PAGE>
without regard to any compensation or benefit limits imposed by the Code) at
such Eligible Management Associate's normal retirement date, as defined by the
Pension Plan (disregarding Disability Service, if any, and including as Credited
Service, as defined by the Pension Plan, any increase granted under Article VIII
hereof) and (B) the amount of pension payable pursuant to the early retirement
pension benefit provision of the Pension Plan (determined without regard to any
compensation or benefit limits imposed by the Code) that would be applicable if
the Eligible Management Associate elected to receive benefits pursuant to that
provision prior to such Eligible Management Associate's normal retirement date,
as defined by the Pension Plan (disregarding Disability Service, if any, and
excluding as Credited Service any increase granted under Article VIII hereof)
assuming the Eligible Management Associate's Benefit Commencement Date is the
later of his Traditional Retirement Date or Delayed Retirement Date, or,
alternatively, his Early Retirement Date (if within one year of his Traditional
Retirement Date), and assuming the early retirement reduction under the Pension
Plan is decreased or waived.
(3) SOCIAL SECURITY MAKE-UP: In addition to any other benefit payable
-----------------------
under this Plan, an annual benefit equal to the Estimated Social Security
Benefit shall be payable in monthly installments to an Eligible Management
Associate commencing on such Eligible Management Associate's Traditional
Retirement Date or Delayed Retirement Date up to age 62, as the case may be,
(or, for an Eligible Management Associate who Separates from Service within one
year prior to his Traditional Retirement Date and who is granted any adjustment
pursuant to either clause (i) or (ii) of Paragraph (1) of Article VIII, on his
Early Retirement Date) and terminating with the installment payable on the first
day of the month in which such Eligible Management Associate dies or with the
installment payable on the first day of the month prior to the month in which
the Eligible Management Associate first becomes eligible for the primary old age
benefit payable under the United States Social Security laws by reason of
disability or attainment of age 62, whichever comes first. An Eligible
Management Associate, who, on his Separation from Service, is entitled to
disability benefits under the United States Social Security laws, shall not be
eligible for any Social Security make-up benefits provided for in this
paragraph.
(4) DEATH BENEFIT: If an Eligible Management Associate has elected a form
-------------
of payment with a guaranteed number of payments and the Eligible Management
Associate dies before receiving all benefits payable under that option,
remaining payments will be made to the person designated by the Eligible
Management Associate as his beneficiary at the time the form of payment was
selected. If an Eligible Management Associate is married at the time such
Eligible Management Associate Separates from Service by reason of
15
<PAGE>
death after attaining Early Retirement Age, or if an Eligible Management
Associate who has Separated from Service after attaining Early Retirement Age
and who is married at the time of his death, dies before payment has begun under
the Plan, such Eligible Management Associate's Spouse will receive the benefit
that would have been payable if the Eligible Management Associate had a
Separation from Service immediately prior to such Eligible Management
Associate's death (if he was an active Associate on the date of his death), and
had begun to receive benefits immediately prior to his death in the form of a
100% (75% if death occurs prior to January 1, 1996) joint and survivor annuity
without payment certain with the Spouse as the beneficiary.
(5) LIFE INSURANCE COVERAGE: Commencing on an Eligible Management
-----------------------
Associate's Traditional Retirement Date or Delayed Retirement Date, as the case
may be, and ending on such Eligible Management Associate's attainment of age 70,
the Company will continue to provide an Eligible Management Associate who has at
least 10 years of uninterrupted employment with a Participating Employer with
term life insurance coverage at Company expense on a decreasing coverage basis.
The amount of coverage to be provided into retirement shall be equal, at such
Eligible Management Associate's Traditional Retirement Date, to 100% of the
amount of coverage being provided to him at Company expense immediately prior to
the attainment of his Traditional Retirement Age reduced to 90%, 80%, 70%, 60%,
50%, 40%, 30%, 20%, and 10% of such amount of coverage on the first day of the
month following his attainment of age 61, 62, 63, 64, 65, 66, 67, 68, and 69,
respectively. The amount of coverage to be provided at a Delayed Retirement
Date shall be the applicable percentage based upon the Eligible Management
Associate's age on such Delayed Retirement Date multiplied by the amount of
coverage being provided to him at Company expense immediately prior to his
Delayed Retirement Date and decreasing thereafter as provided in the preceding
sentence. If, on the Eligible Management Associate's Traditional Retirement
Date or Delayed Retirement Date, as the case may be, such Eligible Management
Associate is already covered by term life insurance under the Company's term
life insurance plan on account of the Eligible Management Associate's total
disability, such Eligible Management Associate shall not be eligible for any
term life insurance coverage provided for in this paragraph. Benefits payable
under this Plan will be paid to the beneficiary designated by the Eligible
Management Associate as soon as practicable after receipt of a properly
submitted claim.
(6) EFFECT OF CERTAIN PAYMENTS MADE IN DECEMBER 1992: In the event the
------------------------------------------------
Company, in its discretion, made payments to a current or former Eligible
Management Associate on or before December 31, 1992 under the Company's Profit
Incentive Compensation program and under the Performance Unit Plan and such
payments were
16
<PAGE>
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 Pension Plan and under the Savings, Profit-
Sharing and Stock Ownership 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 Eligible Management Associate 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 Eligible Management Associate with
respect to total retirement benefits under the above-referenced Plans and this
Plan.
ARTICLE V. FORM AND COMMENCEMENT OF BENEFIT PAYMENTS
(1) DELAYED COMMENCEMENT OF BENEFITS: An Eligible Management Associate
--------------------------------
may elect that the commencement of his annual benefit payable under Paragraph
(1) or (2) of Article IV be delayed to the first day of any month following his
Early Retirement Date, Traditional Retirement Date, or Delayed Retirement Date,
as the case may be (but not beyond the first day of the month in which he
attains age 70). In such a case the amount of annual benefit payable under
Paragraph (1) or (2) of Article IV shall be increased by 1/2 of 1% for each
month that the commencement of such benefits is delayed.
(2) OPTIONAL FORMS OF BENEFIT PAYMENT: Except as otherwise provided in
---------------------------------
this Plan and subject to such rules and regulations as the Benefits
Administration Committee may establish from time to time with respect to time
and manner of election, an Eligible Management Associate may elect, prior to the
commencement of his annual benefit payable under Paragraph (1)or (2) of Article
IV, to receive a benefit of equivalent actuarial value (applying factors
utilized in the Pension Plan) to such benefit, which may be one of the forms of
benefit options described in the Pension Plan. The Benefits Administration
Committee has full authority to revise the forms of benefit options available
under this Plan.
(3) SMALL ANNUITIES: If the total benefit payable to an Eligible
---------------
Management Associate under Paragraph (1) or (2) of Article IV, plus the accrued
benefit, if any, payable pursuant to Paragraph (1) of Article IV of the Benefit
Restoration Plan 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). If an Eligible Management
Associate who has begun to receive payments under the Plan and who has elected a
form of payment with a guaranteed number of payments dies, and if the monthly
benefit that becomes payable to the beneficiaries of the Eligible Management
Associate does not
17
<PAGE>
exceed $100 per beneficiary, the monthly 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
Eligible Management Associates and the eligibility of Eligible Management
Associates to participate in the Plan, (iii) determine the amount of benefits
payable to Eligible Management Associates 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 action and
proceedings regarding the Plan and all 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 Eligible
Management Associate 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. 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.
Benefits under the Plan (other than the life insurance benefits referred to in
Paragraph (5) of Article IV which may be insured) are paid from the general
assets of the Company. In the event that it should subsequently be determined
by statute or by regulation or ruling that the Plan is
18
<PAGE>
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 and section 2520.104-24 of Chapter 29 of the
Code of Federal Regulations, 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) ADDITIONAL CREDITED SERVICE AND OTHER ADJUSTMENTS: For all purposes
-------------------------------------------------
of the Plan, the Credited Service of an Eligible Management Associate may be
increased, and with respect to an Eligible Management Associate whose Early
Retirement Date is within one year prior to his Traditional Retirement Date, (i)
the percentage reduction on account of early retirement referred to in clause
(iv) of Subparagraph (a) of Paragraph (1) of Article IV may be decreased or
waived, and (ii) the entitlement to and the amount of benefits or coverage
referred to in Paragraphs (2), (3), and (5) of Article IV may be accelerated or
increased, as the case may be, in the discretion of:
(a) in the case of an Eligible Management Associate other than an
officer of the Company described in Subparagraphs (b) and (c) of
this Paragraph (1), the Benefits Administration Committee;
(b) in the case of an Eligible Management Associate who is an officer
(other than an assistant officer) but who is not a director of
the Company, the Benefit Plans Review Committee; and
(c) in the case of an Eligible Management Associate who is an officer
and who is also a director of the Company, the Board of Directors
only after considering the recommendations of the Benefit Plans
Review Committee.
For all purposes of the Plan, the Benefits Administration Committee in its
discretion, may make adjustments in Compensation and Credited Service with
respect to payments of severance pay, including, but not limited to,
outplacement pay and critical pay.
An Eligible Management Associate who terminates employment due to a
reduction in force, as defined below, and who does not satisfy the requirements
for Traditional Retirement Age on the date of termination shall receive deemed
additional months of age and/or Service, based on the following:
19
<PAGE>
Years of Service Deemed Additional Months of Age and/or Service
- ---------------- ----------------------------------------------
0 - 9 0
10-14 12
15-19 18
20 or more 24
A reduction in force shall mean the termination of employment of an Eligible
Management Associate because of:
(a) A partial unit closing or complete unit closing ("unit closing") as
determined by the Director of Personnel of the Company in his sole discretion,
or
(b) Other business reasons of the Company ("individual termination") as
determined by the Director of Personnel of the Company in his sole discretion.
With the approval of the Benefits Administration Committee of the Company, the
Director of Personnel may increase such award by up to 24 deemed additional
months of age and/or Service for an individual termination.
For the purposes of determining the benefit payable under Paragraph (1) of
Article IV, such Eligible Management Associate is deemed to have attained
Traditional Retirement Age. The deemed additional months of age and/or Service
shall be added, but only to the extent necessary, to the Eligible Management
Associate's age and/or Service, in such amounts necessary to satisfy the minimum
requirements for Traditional Retirement Age or, with the approval of the
Benefits Administration Committee, an Early Retirement Age on or after age 59.
The deemed additional months of Service shall count as Credited Service for the
purpose of entitlement to benefits under this Plan only in the event of an
individual termination as described in (b) of the preceding subparagraph, and
shall not count as Credited Service in the event of a unit closing described in
(a) of the preceding subparagraph.
(2) 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 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. In no event
will any amendment, modification, suspension, discontinuance, or termination
adversely affect existing life insurance coverage for retirees or the Plan
benefit for any Eligible Management Associate 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.
20
<PAGE>
If the Plan is terminated, any Eligible Management Associate who, as of the
effective date of Plan termination, has reached Traditional Retirement Age but
who has not reached age 65 shall be entitled to receive, at his actual
Separation from Service, the benefits, if any, to which he would have been
entitled under Paragraph (1) or (2) of Article IV had he Separated from Service
on the day before the effective date of Plan termination, reduced by the
percentage derived by dividing the number of months of Credited Service, if any,
from the Plan termination effective date to the date of actual Separation from
Service by the number of months of Credited Service from the Plan termination
effective date to the date the Eligible Management Associate will have reached
age 65. Any such Eligible Management Associate shall also be entitled to
receive at his actual Separation from Service (other than by reason of death) a
benefit, if any, to which he would have been entitled under Paragraph (3) of
Article IV had the Plan not been terminated. If, after Plan termination, such
Eligible Management Associate Separates from Service by reason of death,
Paragraph (4) of Article IV shall apply, if appropriate.
If the Plan is terminated, any Eligible Management Associate who, as of the
effective date of Plan termination, has reached his Early Retirement Date
(assuming a Separation from Service on such date) shall be entitled to receive,
at his actual Separation from Service, the benefits, if any, to which he would
have been entitled under Paragraph (1) or (2) of Article IV calculated as if he
had reached his Traditional Retirement Age and Separated from Service on the day
before the effective date of Plan termination and disregarding the percentage
reduction on account of early retirement referred to in clause (iv) of
Subparagraph (a) of Paragraph (1) of Article IV, reduced by the percentage
derived by dividing the number of months of Credited Service, if any, after his
Traditional Retirement Date by 60. Any such Eligible Management Associate shall
also be entitled to receive at his actual Separation from Service (other than by
reason of death) a benefit, if any, to which he would have been entitled under
Paragraph (3) of Article IV had the Plan not been terminated. If, after Plan
termination, such Eligible Management Associate Separates from Service by reason
of death, Paragraph (4) of Article IV shall apply, if appropriate.
If the Plan is terminated, any Eligible Management Associate who, as of the
effective date of Plan termination (a) has reached age 50, (b) has 10 or more
years of credited service, as defined by the Pension Plan, as an Eligible
Management Associate, and (c) is not otherwise eligible for benefits under this
Paragraph (2) of this Article VIII, shall be entitled to receive, at his actual
Separation from Service but no earlier than his Traditional Retirement Date, a
benefit equal to the difference between the amount of pension which would be
payable pursuant to the early
21
<PAGE>
retirement pension benefit provision of the Pension Plan that would be
applicable if the Eligible Management Associate elected to receive benefits
pursuant to that provision prior to his normal retirement date, as defined in
the Pension Plan (disregarding Disability Service, if any) and the amount of
pension payable pursuant to the early retirement pension benefit provision of
the Pension Plan that would be applicable if the Eligible Management Associate
did not elect to receive benefits pursuant to that provision prior to his normal
retirement date, as defined in the Pension Plan (disregarding Disability
Service, if any) reduced by the percentage derived by dividing the number of
months of Credited Service, if any, after Traditional Retirement Date (assuming
a Separation from Service) by 60.
In no event will any future amendment or modification of the Plan adversely
affect the right to Plan benefits which vest on Plan termination as set forth in
this Paragraph (2) without the consent of at least 75 percent of the affected
Eligible Management Associates unless such amendment or modification is
specifically 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.
(3) RIGHTS OF ASSOCIATES: Except for the Associate's non-forfeitable
--------------------
interest as set forth in Paragraph (2) of this Article VIII, 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 (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.
(4) MISTAKEN INFORMATION: If any information upon which an Eligible
--------------------
Management Associate's benefit under the Plan is calculated has been misstated
by the Eligible Management Associate or is otherwise mistaken, such benefit
shall not be invalidated
22
<PAGE>
(unless upon the basis of the correct information the Eligible Management
Associate 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 Eligible Management Associate or his beneficiary.
(5) 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.
(6) CESSATION AND RECALCULATION OF BENEFITS: If a theretofore retired
---------------------------------------
Eligible Management Associate 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. Any life insurance coverage in effect pursuant to Paragraph (5) of
Article IV shall cease effective on the date a rehired (whether or not
participating in a Profit Incentive Compensation program) Associate becomes
eligible for coverage under the Company's term life insurance plan. 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.
(7) 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.
(8) 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.
(9) GOVERNING LAW: Except to the extent that the Plan may be
-------------
subject to the provisions of ERISA, the Plan will be construed
23
<PAGE>
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 an Associate, former Associate, or beneficiary
with respect to the Plan shall be barred after the expiration of three years
from the date of Separation of Service of the Eligible Management Associate or
the date 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.
(10) TRANSFERRED ELIGIBLE MANAGEMENT ASSOCIATES: In the event of the
------------------------------------------
transfer of an Eligible Management Associate after December 31, 1995 from a
Participating Employer to a "non-participating employer" as defined below, said
Eligible Management Associate shall continue to be eligible to participate in
this Plan in accordance with Article III. In the event of the transfer of an
Eligible Management Associate on or after March 8, 1995 but on or before
December 31, 1995 to a non-participating employer, said Eligible Management
Associate will continue to be eligible to participate in this Plan in accordance
with Article III provided that on December 31, 1995 the Eligible Management
Associate (a) is in the employ of the non-participating employer and (b) is not
eligible to participate in the Supplemental Retirement Program for Eligible
Management Associates of JCPenney Financial Services, or Supplemental Retirement
Program for Management Profit-Sharing Associates of Thrift Drug, Inc. The
Service and Compensation of the Eligible Management Associate with the non-
participating employer shall be recognized as attributable to a Participating
Employer to the extent permitted by the Plan in determining benefits under the
Plan. A non-participating employer shall mean a participating employer in the
(a) Supplemental Retirement Program for Eligible Management Associates of
JCPenney Financial Services, or (b) Supplemental Retirement Program for
Management Profit-Sharing Associates of Thrift Drug, Inc.
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.
24
<PAGE>
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 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
25
<PAGE>
reference to the pertinent Plan provisions on which the decision was based.
26
<PAGE>
APPENDIX I
PARTICIPATING EMPLOYERS
-----------------------
J. C. Penney Company, Inc.
JCP Media Corporation
JCP Overseas Services, Inc.
JCP Receivables, Inc.
JCPenney National Bank
JCPenney Portfolio, Inc.
JCPenney Puerto Rico, Inc.
<PAGE>
EXHIBIT 10(ii)(z)
RESOLVED that, pursuant to Article VIII, Paragraph 1 of the J. C. Penney
Company, Inc. Benefit Restoration Plan, the definition of "Participating
Employer" under the Benefit Restoration Plan be, and it hereby is, amended in
its entirety effective February 1, 1996, to read as follows:
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 Personnel Committee; provided, however, that if any such
designation would substantially increase the cost of the Plan to the
Company, such designation shall be subject to the sole discretion of
the Board of Directors.
<PAGE>
EXHIBIT 10(ii)(aa)
J. C. PENNEY COMPANY, INC.
SUPPLEMENTAL TERM LIFE INSURANCE PLAN
FOR MANAGEMENT PROFIT-SHARING ASSOCIATES
ADOPTED EFFECTIVE JANUARY 1, 1995
<PAGE>
J. C. PENNEY COMPANY, INC.
SUPPLEMENTAL TERM LIFE INSURANCE PLAN
FOR MANAGEMENT PROFIT-SHARING ASSOCIATES
TABLE OF CONTENTS
-----------------
PAGE
----
Article 1 Introduction 1
Article 2 Definitions 2
Article 3 Participation 4
Article 4 Life Insurance Benefits 5
Article 5 Funding of Benefits 6
Article 6 Administration of the Plan 7
Article 7 Adoption By Participating
Employers 12
Article 8 Amendment and Termination 13
Article 9 Conversion Rights 15
Article 10 Miscellaneous Provisions 16
(i)
<PAGE>
ARTICLE 1
INTRODUCTION
------------
J. C. Penney Company, Inc., a Delaware corporation, hereby adopts the J. C.
Penney Company, Inc. Supplemental Term Life Insurance Plan For Management
Profit-Sharing Associates (the "Plan"), effective January 1, 1995. The Plan is
an "employee welfare benefit plan" pursuant to ERISA which permits eligible
retired management Associates of J. C. Penney Company, Inc. and JCPenney
Financial Services to purchase group term life insurance benefits directly from
the Insurer (as hereinafter defined). This document, together with the Policies
(as hereinafter defined) will be construed as a single group term life insurance
plan. Capitalized terms used throughout the Plan have the meanings set forth in
Article 2.
<PAGE>
ARTICLE 2
DEFINITIONS
-----------
2.1 "Administrator" means the Benefits Administration Committee of the
-------------
Company or such other person or committee as may be appointed from time to time
by the Personnel Committee of the Management Committee of the Company (the
"Personnel Committee").
2.2 "Annual Earnings for Benefits" means the greater of (i) the
----------------------------
Participant's "Annual Earnings for Benefits" for purposes of the Company-Paid
Plan on the Participant's retirement date or (ii) for a retired Participant who
is reemployed by a Participating Employer and who becomes eligible for the
Company-Paid Plan and later loses eligibility under the Company-Paid Plan, such
retired Participant's Annual Earnings for Benefits at such time as the
Participant lost eligibility under the Company-Paid Plan.
2.3 "Associate" means each individual employed by a Participating
---------
Employer, other than an individual who is classified as an independent
contractor by the Participating Employer for purposes of federal income tax
reporting and withholding. The term "Associate" does not include any individual
who performs services for a Participating Employer as a "leased employee" within
the meaning of Code section 414(n), or who otherwise performs services through
an agreement with a leasing organization.
2.4 "Associate-Paid Plan" means the J. C. Penney Company, Inc. Voluntary
-------------------
Employees' Beneficiary Association Group Term Life Insurance Plan, as amended
from time to time, and/or the J. C. Penney Company, Inc. Associate-Paid Insured
Group Term Life Insurance Plan, as amended from time to time.
2.5 "Code" means the Internal Revenue Code of 1986, as amended.
----
2.6 "Company" means J. C. Penney Company, Inc., a Delaware corporation, or
-------
any successor corporation.
2.7 "Company-Paid Plan" means the J. C. Penney Company, Inc. Group Term
-----------------
Life Insurance Plan, as amended from time to time.
2.8 "Date of Disability", "Disabled", and "Disability" have the meanings
------------------ -------- ----------
set forth in the Company-Paid Plan.
-2-
<PAGE>
2.9 "ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
2.10 "Insurer" means the insurance company or companies issuing the Policy
-------
or Policies.
2.11 "MSRP Retiree" means a former Associate who retired from a
------------
Participating Employer on or after age 60 and who is eligible to receive
Company-paid life insurance coverage under the terms of the Supplemental
Retirement Program for Management Profit-Sharing Associates of J. C. Penney
Company, Inc., as amended from time to time or the Supplemental Retirement
Program for Eligible Management Associates of JCPenney Financial Services, as
amended from time to time. The term "MSRP Retiree" also includes any additional
former Associate so designated from time to time in the discretion of the Board
of Directors of the Participating Employer or the Benefits Administration
Committee or the Benefit Plans Review Committee of the Company in accordance
with the provisions of each such Supplemental Retirement Program.
2.12 "Participant" means an MSRP Retiree who has satisfied the eligibility
-----------
reguirements of Article 3, has purchased life insurance coverage under the terms
of the Plan, and whose coverage under the Plan has not terminated.
2.13 "Participating Employer" means the Company and any subsidiary or
----------------------
affiliate of the Company which is designated as a Participating Employer under
the Plan by the Personnel Committee, excluding, however, any division of the
Company or of a subsidiary or affiliate that is designated by the Personnel
Committee as ineligible to participate in the Plan. Appendix I contains a list
of the Participating Employers currently participating in the Plan.
2.14 "Plan" means the J. C. Penney Company, Inc. Supplemental Term Life
----
Insurance Plan For Management Profit Sharing Associates, as amended from time to
time.
2.15 "Policy" or "Policies" means the life insurance policies through which
------ --------
Plan benefits are provided, which are incorporated by reference into the Plan.
-3-
<PAGE>
ARTICLE 3
PARTICIPATION
-------------
3.1 Eligibility For Coverage. An Associate who qualifies as an MSRP
------------------------
Retiree will be eligible to purchase coverage under the Plan, effective upon
retirement, provided the MSRP Retiree was a participant in the Associate-Paid
Plan immediately prior to retirement, but only if the MSRP Retiree properly
completes and submits all required enrollment forms within 31 days after
retirement. If the MSRP Retiree has assigned his term life insurance provided by
the Associate-Paid Plan, the assignee may elect the coverage provided by this
Section 3.1. No late enrollment procedures are available for MSRP Retirees.
Notwithstanding the foregoing, an MSRP Retiree who was receiving coverage under
the Associate-Paid or the Company-Paid Plan on account of Disability on the MSRP
Retiree's retirement date will not become eligible to purchase coverage under
this Plan.
3.2 Termination of Coverage. A Participant's coverage under the Plan will
-----------------------
terminate automatically on the earliest to occur of the following: (i) the last
day of the month in which the Participant attains age 65; (ii) subject to
Article 8, the last day of the month in which the Plan is terminated, or amended
to terminate coverage with respect to any group or class of MSRP Retirees that
includes the Participant; (iii) the last day of the month in which the Policy
under which the Participant's benefits are provided is cancelled or terminated
and not replaced; iv) the last day of the month in which the Participant fails
to make any required premium payment; (v) the last day of the month in which the
Participant becomes eligible for coverage under the Company-Paid Plan as an
active Associate; or (vi) the date of the Participant's death. A Participant
whose coverage is terminated pursuant to subsection (v) above, shall again
become eligible to participate in the Plan on the first day of the month on or
after the date he or she ceases to be an active Associate eligible for coverage
under the Company-Paid Plan.
3.3 Enrollment Procedures. The Administrator may from time to time
---------------------
prescribe enrollment procedures and forms that are consistent with the terms of
the Plan.
3.4 Coverage Not Extended by Payment. The duration of a Participant's
--------------------------------
coverage is determined solely by the terms of the Plan, and coverage which has
otherwise terminated will not be extended even if premium payments for the
terminated coverage continue to be made and/or processed on behalf of the
Participant.
-4-
<PAGE>
ARTICLE 4
LIFE INSURANCE BENEFITS
-----------------------
4.1 Amount of Life Insurance. An MSRP Retiree may purchase life insurance
------------------------
coverage under the Policies in an amount equal to 100% of the MSRP Retiree's
Annual Earnings for Benefits. Coverage will be rounded to the next higher $1,000
if it is not already an even multiple of $1,000.
4.2 Evidence of Good Health. To the extent required by the applicable
-----------------------
Policies and/or the Insurer, Participants will be required to provide evidence
of good health as a condition to coverage.
4.3 Payment of Benefits. Benefits payable under the Plan will be paid by
-------------------
the Insurer to the beneficiary or beneficiaries as soon as practicable after
receipt by the Insurer of properly submitted claims. Benefits will be paid in a
single lump sum payment unless the Participant (or the beneficiary, if
applicable) elects a different method of payment offered by the Insurer.
4.4 Designation of Beneficiary. A Participant may designate one or more
--------------------------
beneficiaries to receive the life insurance benefits under the Plan, or may
change a prior beneficiary designation, by completing and delivering a written
beneficiary designation form in accordance with procedures specified by the
Administrator from time to time. If a Participant fails to designate a
beneficiary (or no beneficiary is alive on the date of the Participant's death),
benefits will be paid to the estate of the Participant.
4.5 Benefit Limitation. Benefits under the Plan are subject to the terms
------------------
of the Policies and to applicable state law.
4.6 Recovery of Overpayment. Any amounts paid to any person in excess of
-----------------------
the amount to which he is entitled under the Plan will be repaid by that person
to the Insurer promptly following receipt by the person of a notice of such
excess payments. In the event such repayment is not made, such repayment may be
made, at the discretion of the Insurer, by reducing or suspending any future
payments due under the Plan to the person and by taking such other or additional
action as may be permitted by applicable law.
-5-
<PAGE>
ARTICLE 5
FUNDING OF BENEFITS
-------------------
5.1 Associate-Paid Premiums. The Participants will pay all or a portion of
-----------------------
the cost of premiums with respect to benefits under the Policies as determined
by the Administrator in its discretion from time to time. The Administrator will
have full and exclusive power to determine the cost of coverage to be paid by
each Participant, and to adjust the required cost from time to time. In
establishing the amount of required Participant cost, the Administrator may rely
on tables, appraisals, valuations, projections, opinions, and reports furnished
by agents employed or engaged by the Administrator or the Company, and may take
into account the projected or anticipated costs and expenses relating to the
Plan, including without limitation administrative costs and insurance premiums.
Premiums required of Participants will be treated as fixed premium payments, and
neither the Participants nor any beneficiary will be entitled to any refund or
rebate on account of actual claims experience, investment performance, or
similar factors.
5.2 Participating Employer Obligations. The Participating Employers will
----------------------------------
pay the portion, if any, of the cost of premiums with respect to benefits under
the Policies as determined by the Administrator in its discretion from time to
time. The Participating Employers' obligations under the Plan are limited to the
payment of such portion of applicable premiums due under any Policies in force,
and no Participant or beneficiary will have any claim or cause of action against
any Participating Employer on account of the failure of an Insurer to pay
benefits due under the Policies.
5.3 Source of Benefits. Benefits under the Plan will be paid solely from
------------------
the Policies and only to the extent provided under such Policies. Any payment
for the benefit of a Participant that is made in accordance with the terms of
the Policies will, to the extent of the payment, be in full satisfaction of all
claims under the Plan against the Participating Employers, the Administrator,
and the Insurer, any of whom may require such payee, as a condition precedent to
such payment, to execute a release acknowledging receipt of such payment.
-6-
<PAGE>
ARTICLE 6
ADMINISTRATION OF THE PLAN
--------------------------
6.1 General Powers and Duties of the Administrator. The Administrator will
----------------------------------------------
have the full power, responsibility, and discretion to administer the Plan and
to construe and apply Plan provisions, and will be the named fiduciary with
respect to the operation and administration of the Plan, except with respect to
the specific responsibilities performed by the Insurer pursuant to the Policies
or delegated to the Insurer or another fiduciary pursuant to Section 6.3 or 6.4.
The Administrator, and all other persons with discretionary control respecting
the operation, administration, control, and/or management of the Plan will
perform their duties under the Plan solely in the interests of Participants and
their beneficiaries.
6.2 Specific Powers and Duties of the Administrator. The Administrator
-----------------------------------------------
will administer the Plan and have the full authority and discretion necessary to
accomplish that purpose, including without limitation the authority and
discretion to: (i) resolve all questions relating to the eligibility of
Associates to become or continue as Participants, (ii) engage any
administrative, legal, medical, accounting, clerical, or other services it deems
appropriate in administering the Plan, (iii) construe and interpret the Plan,
supply omissions from, correct deficiencies in and resolve inconsistencies or
ambiguities in the language of the Plan, resolve inconsistencies or ambiguities
between the provisions of this Plan and the provisions of any Policy, and adopt
rules for the administration of the Plan which are not inconsistent with the
terms of the Plan document, (iv) compile and maintain all records it determines
to be necessary, appropriate, or convenient in connection with the
administration of the Plan, and (v) resolve all questions of fact relating to
any matter for which it has administrative responsibility.
6.3 Authority of Insurer. The Insurer will be responsible for the initial
--------------------
review, payment, and/or denial of claims for benefits under the Policies. In
carrying out its responsibilities under the Policies, the Insurer will have the
authority and discretion to (i) determine the amount of benefits, if any,
payable to Participants and beneficiaries under the Policies and determine the
time and manner in which such benefits are to be paid, (ii) construe and
interpret the Policies, and (iii) compile and maintain all records it determines
to be necessary, appropriate, or convenient in connection with the Policies.
-7-
<PAGE>
6.4 Allocation of Fiduciary Responsibility. The Administrator from time
--------------------------------------
to time may delegate to any other persons or organizations any of its rights,
powers, duties, and responsibilities with respect to the operation and
administration of the Plan that are permitted to be delegated under ERISA. Any
such allocation or delegation will be reviewed periodically by the
Administrator, and will be terminable upon such notice as the Administrator in
its discretion deems reasonable and proper under the circumstances. Whenever
the Administrator delegates discretionary authority respecting the
administration of the Plan to another person or organization, the
Administrator's responsibility with respect to such delegation is limited to the
selection of the person to whom authority is delegated and the periodic review
of such person's performance and compliance with applicable law and regulations.
Any breach of fiduciary responsibility by the person to whom authority has been
delegated which is not proximately caused by the Administrator's failure to
properly select or supervise, and in which breach the Administrator does not
otherwise participate, will not be considered a breach by the Administrator.
6.5 Information to be Submitted to the Administrator. To enable the
------------------------------------------------
Administrator to perform its functions, each Participating Employer will supply
full and timely information to the Administrator on all matters relating to
Associates as the Administrator may require and will maintain such other records
required by the Administrator to determine the benefits due under the Plan.
6.6 Expenses and Compensation. The expenses of administering the Plan,
------------------------
including without limitation the expenses of the Administrator properly incurred
in the performance of its duties under the Plan, will be paid by the Company.
The Administrator will not be compensated by the Plan for services as
Administrator.
6.7 Reporting and Disclosure. The Company will be the "administrator" of
------------------------
the Plan as defined in ERISA section 3(16) (A) for purposes of the reporting and
disclosure requirements imposed by ERISA and the Code. The Administrator will
assist the Company, as requested, in complying with such reporting and
disclosure requirements.
6.8 Claims Procedure. Participants and beneficiaries must apply for Plan
----------------
benefits in writing on a form provided by the Administrator and must supply any
supplemental information required by the Administrator or the Insurer. Following
completion of the claim form, the form may be returned to the Administrator for
submission to the Insurer, or may be submitted directly to the Insurer if so
specified by the Administrator.
-8-
<PAGE>
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 Administrator will indicate to the claimant any additional
information which is required. Each claim will be approved or disapproved by
the Insurer within 90 days following the receipt of the information necessary to
process the claim. In the event the Insurer denies a claim for benefits in
whole or in part, the Insurer will notify the claimant in writing of the denial
of the claim. Such notice by the Insurer will also set forth, in a manner
calculated to be understood by the claimant, the specific reason 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 why such material or information is necessary, and an explanation
of the Plan's claim review procedure as set forth below. If no action is taken
by the Insurer on a claim within 90 days, the claim will be deemed to be denied
for purposes of the review procedure.
6.9 Appeals Procedure. A claimant may appeal a denial of his claim with
-----------------
respect to "Procedural Issues" (as hereinafter defined) by requesting a review
of the decision by the Administrator or a person designated by the
Administrator, which person will be a named fiduciary under ERISA section
402(a)(2) for purposes of this Section. A claimant may appeal a denial of his
claim with respect to "Coverage Issues" (as hereinafter defined) by requesting a
review of the decision by the Insurer, which will be a named fiduciary under
ERISA section 402(a)(2) for purposes of this Section. An appeal must be
submitted in writing within one year after the notice of denial is received (or
within 60 days if the notice of denial is received after December 31, 1995) and
must (i) request a review of the claim for benefits under the Plan, (ii) set
forth all of the grounds upon which the 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 Administrator, Insurer, or
other applicable named fiduciary will make a full and fair review of each appeal
and any written materials submitted in connection with the appeal. The
Administrator, Insurer, or other applicable named fiduciary will act upon each
appeal within 60 days after receipt 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
Administrator, Insurer, or other named fiduciary, provided the Administrator,
Insurer, or other named fiduciary finds the requested documents or materials are
pertinent to the appeal. On the basis of its
-9-
<PAGE>
review, the Administrator, Insurer, or other named fiduciary will make an
independent determination of the claimant's eligibility for benefits under the
Plan. The decision of the Administrator, Insurer, or other named fiduciary on
any claim for benefits will be final and conclusive upon all parties thereto.
In the event the Administrator, Insurer, or other 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.
For purposes of this Section, the term "Procedural Issues" means issues
concerning (i) an Associate's eligibility to become or continue as a
Participant, (ii) an Associate's employment status at the time of the claim or
when the claim arose, (iii) a determination of a Participant's Annual Earnings
for Benefits, and (iv) other procedural issues that do not require
interpretation of the Policies.
For purposes of this Section, the term "Coverage Issues" means issues
concerning (i) whether death is covered under the Policy, (ii) the documentation
required by the Insurer, (iii) conversion rights under Article 9, (iv) the
validity of beneficiary designations, (v) determinations regarding Disability,
and (vi) other questions concerning the extent of Plan coverage under the terms
of the Policies.
6.10 Uniform Application of Rules and Policies. The Administrator in
-----------------------------------------
exercising its discretion granted under any of the provisions of the Plan will
do so only in accordance with rules and policies that it establishes, which
rules and policies will be uniformly applicable to all Associates, MSRP Retirees
and their beneficiaries.
6.11 Reliance Upon Information. The Administrator is entitled to rely upon
-------------------------
all tables, valuations, certificates, and reports furnished by any duly
appointed actuary, upon all certificates and reports made by any duly appointed
independent qualified public accountant and upon all opinions given by legal
counsel. The Administrator will be fully protected in respect of any action
taken or suffered by the Administrator in good faith reliance upon all such
tables, valuations, certificates, reports, opinions, or other advice. The
Administrator is also entitled to rely upon any data or information furnished by
a Participating Employer or by an Associate, MSRP Retiree, or beneficiary as to
the age or Annual Earnings for Benefits of any person, or as to any other
information pertinent to any calculation or determination to be made under the
provisions of the Plan, and, as a condition to payment of any benefit under the
Plan, may
-10-
<PAGE>
request an Associate, MSRP Retiree, or beneficiary to furnish such information
as the Administrator deems necessary or desirable in administering the Plan. If
an Associate, MSRP Retiree, or beneficiary does not provide accurate information
in connection with enrollment or coverage under the Plan, the Administrator may,
in its discretion, delay or deny the affected coverage. If any relevant facts
regarding an Associate, MSRP Retiree, or beneficiary are inaccurate or
misstated, the Administrator may make an equitable adjustment of contributions,
and the true facts will be used by the Administrator to determine whether, and
in what amount, coverage is in effect.
-11-
<PAGE>
ARTICLE 7
ADOPTION BY PARTICIPATING EMPLOYERS
-----------------------------------
7.1 Adoption Procedure. Any subsidiary or affiliate of the Company may
------------------
become a Participating Employer under the Plan provided that (i) the Personnel
Committee approves the adoption of the Plan by the subsidiary or affiliate and
designates the subsidiary or affiliate as a Participating Employer in the Plan,
and (ii) by appropriate resolutions of the board of directors or other governing
body of the subsidiary or affiliate, the subsidiary or affiliate agrees to
become a Participating Employer under the Plan and also agrees to be bound by
any other terms and conditions which may be required by the Personnel Committee
or the Administrator, provided that such terms and conditions are not
inconsistent with the purposes of the Plan. A Participating Employer may
withdraw from participation in the Plan by providing written notice to the
Administrator that withdrawal has been approved by the board of directors or
other governing body of the Participating Employer. The Personnel Committee may
at any time remove a Participating Employer from participation in the Plan by
providing written notice to the Participating Employer that removal has been
approved by the Personnel Committee. The Personnel Committee will act in
accordance with this Article pursuant to unanimous written consent or by
majority vote at a meeting.
-12-
<PAGE>
ARTICLE 8
AMENDMENT AND TERMINATION
-------------------------
8.1 Right to Suspend Premium Payments. It is the expectation of the
---------------------------------
Participating Employers that they will continue to pay any employer portion of
premium payments as determined under Article 5, but they do not assume an
individual or collective contractual obligation to do so, and the right is
reserved by the Personnel Committee at any time to reduce, suspend, or
discontinue any such premium payments.
8.2 Right to Amend. The right to amend the Plan at any time in any respect
--------------
is reserved to the Company as provided herein, without prior notice to or
approval by Participants or beneficiaries, provided that no amendment will
adversely affect individuals who are Participants on the effective date of the
amendment unless otherwise required to comply with applicable law. The Personnel
Committee may amend the Plan at any time and from time to time to the extent it
may deem advisable or appropriate. In addition, the Administrator may amend the
Plan at any time and from time to time to the extent the Administrator deems it
advisable or appropriate, provided that such amendment would not significantly
increase the cost of the Plan to the Participating Employers.
8.3 Amendment Procedure. Each amendment to the Plan by the Personnel
-------------------
Committee or the Administrator will be made only pursuant to unanimous written
consent or by majority vote at a meeting, and a copy of any amendment adopted by
the Personnel Committee will be delivered to the Administrator. Upon such action
by the Personnel Committee or the Administrator, 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 Personnel Committee or the
Administrator.
8.4 Termination of the Plan. The Participating Employers expect to
-----------------------
continue the Plan indefinitely, but they do not assume an individual or
collective contractual obligation to do so, and the right is reserved to the
Company, acting through the Personnel Committee, to terminate the Plan or to
completely discontinue premium payments with respect to any Policy at any time,
without prior notice to or approval by Participants or beneficiaries.
Notwithstanding the foregoing, in no event will termination of the Plan
adversely affect individuals who are Participants on the effective date of the
amendment unless otherwise required to comply with applicable law. The authority
-13-
<PAGE>
of the Personnel Committee will be exercised by unanimous written consent or by
majority vote at a meeting.
-14-
<PAGE>
ARTICLE 9
CONVERSION RIGHTS
-----------------
9.1 Conversion to Individual Policy. A Participant whose coverage under
-------------------------------
the Plan terminates under Section 3.2 will have the right to convert his or her
group term life insurance coverage to an individual policy to the extent, and
only to the extent, permitted under the group Policy applicable to the
Participant. Any election to convert to individual coverage must be made within
31 days after the Participant's coverage under the Plan terminates, and must be
made in accordance with all requirements specified in such Policy.
9.2 Death During Conversion Period. If a Participant dies within 31 days
------------------------------
after coverage has terminated under the Plan and while the Participant is
entitled to convert his or her group coverage to an individual policy under the
terms of the applicable Policy, the Participant's beneficiary will be entitled
to a death benefit from the Policy in an amount equal to the amount of term life
insurance the Participant was entitled to convert immediately prior to death.
Any benefit payable during the conversion period will be paid solely from the
Policy and will not constitute a benefit under the Plan.
-15-
<PAGE>
ARTICLE 10
MISCELLANEOUS PROVISIONS
------------------------
10.1 Plan Year. The period with respect to which the records of the Plan
---------
are maintained will be the 12-month period beginning on January 1 and ending on
December 31.
10.2 Alienation and Assignment. The interests of the Participants and their
-------------------------
beneficiaries under the Plan are not in any way subject to their debts or other
obligations, and may be transferred or assigned only to the extent permitted by
the applicable Policy.
10.3 No Right of Employment. Participation in the Plan will not give any
----------------------
Associate or Participant the right to be retained in the employment of the
Company.
10.4 Gender and Number. Whenever used in this Plan, unless the the context
-----------------
indicates otherwise, words in the masculine gender will include the feminine
gender, and words in the plural will include the singular, and the singular will
include the plural.
10.5 Notices. Any notice or document required to be given to a Participant
-------
or beneficiary will be properly given if mailed, postage prepaid, to the
Participant or beneficiary at his last known address as set forth in the
Participating Employer's records. All notices required to be given or any
document required to be filed with the Administrator will be properly given or
filed if mailed postage prepaid, certified mail, to the Administrator at the
addresses as set forth in the Summary Plan Descriptions of the Plan furnished to
Associates or MSRP Retirees from time to time.
10.6 Section Headings. The section headings or head notes are inserted only
----------------
as a matter of convenience and for reference and in no way define, limit, or
describe the scope or intent of the Plan.
10.7 Officers. Any reference to a particular officer of the Company will
--------
also refer to the functional equivalent of such officer in the event the title
or responsibilities of that office change.
-16-
<PAGE>
10.8 Consent to Terms of Plan. By enrolling for coverage under the Plan, a
------------------------
Participant agrees that the terms and conditions of the Plan will be binding on
the Participant and the Participant's beneficiaries.
10.9 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 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.
-17-
<PAGE>
APPENDIX I
Participating Employers
-----------------------
J.C. Penney Company, Inc.
JCPenney Business Services, Inc.
J.C. Penney Casualty Insurance Company
J.C. Penney Life Insurance Company
JCPenney National Bank
JCPenney Puerto Rico, Inc.
JCP Receivables, Inc.
JCPenney Portfolio, Inc.
<PAGE>
EXHIBIT 10(ii)(ab)
AMENDMENT TO
J. C. PENNEY COMPANY, INC.
SUPPLEMENTAL TERM LIFE INSURANCE PLAN
FOR MANAGEMENT PROFIT-SHARING ASSOCIATES
Effective as of January 1, 1995, the last sentence of Section 5.1 of the J.
C. Penney Company, Inc. Supplemental Term Life Insurance Plan for Management
Profit-Sharing Associates is deleted in its entirety and the following two
sentences are substituted in its stead:
Premiums required of Participants will be treated as fixed premium
payments, and neither the Participants nor any beneficiary will be entitled
to any dividend, credit, refund, or rebate under any Policy on account of
actual claims experience, investment performance, or similar factors, but
all such dividends, credits, refunds, and rebates shall be the sole
property of the Company, except to the extent that the aggregate amount of
such dividends, credits, refunds, or rebates exceeds the aggregate payments
made by the Participating Employers for the employer portion of the cost of
premiums under the Policies. The amount of any such excess shall be
applied by the Administrator in its discretion from time to time for the
benefit of Participants or their beneficiaries.
<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
--------------------------------------------------------------------------
January 25, 1997 January 27, 1996 January 28, 1995
--------------------------------------------------------------------------
Shares Income Shares Income Shares Income
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Primary:
- -------
Net income $ 565 $ 838 $ 1,057
Dividend on Series B ESOP
convertible preferred stock
(after-tax) (40) (41) (40)
------ ------ --------
Adjusted net income 525 797 1,017
Weighted average number of
shares outstanding 226.4 226.1 233.9
Common stock equivalents:
Stock options and other
dilutive effect 2.7 2.6 3.2
------- ------ -------- ------ -------- --------
229.1 $ 525 228.7 $ 797 237.1 $ 1,017
======== ====== ======== ====== ======== ========
Net income per common share $2.29 $3.48 $4.29
===== ===== =====
Fully diluted:
- -------------
Net income $ 565 $ 838 $ 1,057
Tax benefit differential on ESOP
dividend assuming stock is
fully converted (2) (2) (3)
Assumed additional contribution
to ESOP if preferred stock is
fully converted (3) (6) (9)
------ ------ --------
Adjusted net income 560 830 1,045
Weighted average number of
shares outstanding (primary) 229.1 228.7 237.1
Maximum dilution 0.0 0.2 0.0
Convertible preferred stock 19.4 20.6 21.3
-------- ------ -------- ------ --------
248.5 $ 560 249.5 $ 830 258.4 $ 1,045
======== ====== ======== ====== ======== ========
Net income per common share $2.25 $3.33 $4.05
===== ===== =====
</TABLE>
<PAGE>
EXHIBIT 12 (a)
J. C. Penney Company, Inc.
and Consolidated Subsidiaries
Computation of Ratios of Available Income to Combined Fixed Charges
and Preferred Stock Dividend Requirement
<TABLE>
<CAPTION>
53 Weeks
52 Weeks Ended Ended
----------------------------------------------------------------------------
($ Millions) 01/25/97 01/27/96 01/28/95 01/29/94 01/30/93
------------- -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Income from continuing operations $ 853 $ 1,285 $ 1,646 $ 1,498 $ 1,192
(before income taxes, before
capitalized interest, but after
preferred stock dividend)
Fixed charges
Interest (including capitalized interest) on:
Operating leases 110 102 95 97 96
Short term debt 102 129 92 43 43
Long term debt 312 254 225 246 281
Capital leases 6 6 7 9 10
Other, net 14 1 (1) 0 16
------- ------- ------- ------- -------
Total fixed charges 544 492 418 395 446
Preferred stock dividend, before taxes 46 48 50 52 53
Combined fixed charges and preferred
------- ------- ------- ------- -------
stock dividend requirement 590 540 468 447 499
Total available income $ 1,443 $ 1,825 $ 2,114 $ 1,945 $ 1,691
======= ======= ======= ======= =======
Ratio of available income to combined
fixed charges and preferred stock
dividend requirement 2.4 3.4 4.5 4.3 3.4
======= ======= ======= ======= =======
</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.
and Consolidated Subsidiaries
Computation of Ratios of Available Income to Fixed Charges
<TABLE>
<CAPTION>
53 Weeks
52 Weeks Ended Ended
----------------------------------------------------------------------------
($ Millions) 01/25/97 01/27/96 01/28/95 01/29/94 01/30/93
------------- -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Income from continuing operations $ 899 $ 1,333 $ 1,696 $ 1,550 $ 1,245
(before income taxes and
capitalized interest)
Fixed charges
Interest (including capitalized interest) on:
Operating leases 110 102 95 97 96
Short term debt 102 129 92 43 43
Long term debt 312 254 225 246 281
Capital leases 6 6 7 9 10
Other, net 14 1 (1) 0 16
------- ------- ------- ------- -------
Total fixed charges 544 492 418 395 446
------- ------- ------- ------- -------
Total available income $ 1,443 $ 1,825 $ 2,114 $ 1,945 $ 1,691
======= ======= ======= ======= =======
Ratio of available income to combined
fixed charges and preferred stock
dividend requirement 2.7 3.7 5.1 4.9 3.8
======= ======= ======= ======= =======
</TABLE>
The interest cost of the LESOP notes guaranteed by the Company is not included
in fixed charges above.
<PAGE>
EXHIBIT 13
[MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS]
JCPenney's financial strength has enabled the Company to continue to seek out
opportunities to enhance stockholder value. In 1996 the Company used its
financial strength to acquire two drugstore operations. Eckerd Corporation
(Eckerd) and Fay's Incorporated (Fay's), which makes the Company a stronger and
more effective competitor in the rapidly consolidating drugstore industry. In
December 1996 JCPenney acquired for cash a 50.1 per cent stake in Eckerd, a
drugstore chain with 1,748 stores operating primarily in the Sunbelt. The Eckerd
acquisition was completed at the end of February 1997, when the Company
exchanged approximately 23 million shares of its common stock for the remaining
49.9 per cent of Eckerd's outstanding common stock. The Company's investment,
including Eckerd debt assumed by the Company, was $3.3 billion. Additionally,
the Company purchased Fay's Incorporated, a chain of 272 drugstores operating
principally in New York state markets not previously served by the Company. The
Company's investment in Fay's was $353 million. These acquisitions were
accounted for by the purchase method of accounting for business combinations,
and accordingly their results of operations are included as of their respective
acquisition date.
The Company also continues to be a leader in the department store segment of
the retail industry. In 1996, the Company opened seven Washington, D. C. stores
acquired in late 1995 from Woodward and Lothrop. In addition, the Company
committed $598 million in capital expenditures to build, modernize, and expand
other JCPenney store locations. In 1996 the Company added approximately three
million square feet of gross selling space.
Over the next three years capital expenditures of $1 billion per year are
currently expected to be used to continue to build and modernize JCPenney
stores, and to aggressively grow our drugstore operations.
The Company was disappointed with 1996 operating results, particularly in the
first half of the year when retail sales in department stores and catalog were
flat with the comparable period of the prior year. However, in the second half
of the year retail sales rebounded, posting an increase of seven per cent. In
support of second half sales, the Company stepped up its marketing programs and
raised the level of its merchandise inventory. This combination led to increased
markdowns and a decline in gross margin, especially in the fourth quarter of the
year.
While gross margin suffered in 1996, the Company continued to manage and
leverage its expense structure. Selling, general and administrative (SG&A)
expenses declined as a per cent of sales by 70 basis points. SG&A expenses were
well managed across all operating divisions and support functions. Over the last
five years, the SG&A ratio has declined 250 basis points.
JCPenney's insurance operations posted another record year for the Company,
marking the seventh consecutive year of increasing premiums and profits. Over
the last five years, both revenue and pre-tax operating earnings have increased
at an annual rate of approximately 20 per cent.
The remainder of Management's Discussion and Analysis will discuss in more
detail the results of operations by business segment - Stores and Catalog,
Drugstores and Insurance.
The Company is committed to maintaining a leadership position in the
businesses it operates, improving its operating performance, and maintaining its
financial strength.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
($ in millions) 1996 1995 1994
- ---------------------------------------------------------
<S> <C> <C> <C>
Earnings before business
acquisition and consolidation
expenses, net of tax $ 793 $ 838 $1,057
Net income 565 838 1,057
- ---------------------------------------------------------
</TABLE>
Earnings before business acquisition and consolidation expenses declined to $793
million compared with $838 million in 1995 and $1,057 million in 1994. Business
acquisition and consolidation expenses recorded in 1996 totaled $354 million
pre-tax and reduced net income by $228 million. These expenses were principally
related to the integration of drugstore acquisitions, costs associated with
closing drugstores and certain support functions, and the write-down of assets.
See footnote 18 for more details. Net income in 1996 was $565 million. While
sales rebounded in the second half of 1996, results were negatively impacted by
softness in gross margins in the Company's retail segments, resulting primarily
from aggressive marketing programs. In addition, the Company experienced higher
costs associated with net interest and credit operations as a result of higher
Company
14
<PAGE>
[MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS] continued
debt levels and high levels of bad debt losses. Income in 1995 declined from
1994 levels and was negatively impacted by softness in consumer demand and the
continuing consolidation within the retail industry.
<TABLE>
<CAPTION>
SALES
($ in millions) 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Stores and Catalog $19,506 $18,711 $18,840
% inc/(dec) 4.2% (0.7%) 7.2%
Comp store % inc/(dec) 3.4% (1.4%) 6.8%
Drugstores $ 3,147 $ 1,851 $ 1,540
% increase 70.0% 20.2% 9.0%
Comp store % inc 7.7% 5.5% 5.5%
- ----------------------------------------------------------------------
</TABLE>
Sales in JCPenney stores were soft in the first half of 1996 and accelerated in
the second half. The Company's strategy was to regain market share lost in 1995
and the first half of 1996. The sales increase in 1996 was primarily driven by a
more fashionable mix of merchandise, particularly Men's and Women's, and
aggressive marketing programs. For 1996 the strongest sales gains were reported
in Children's and Men's, followed by Home and Women's. Men's and Women's had
strong recoveries during the second half of 1996. The best merchandise sales
were experienced in athletic apparel, children's apparel and shoes, furniture,
and cosmetics. The Company's ten largest geographic markets led the sales
performance, partly as a result of new stores in Washington, D. C. and Dallas
which helped to generate sales increases. The West, South and Northeast regions
followed in sales gains. In Catalog, sales were generally weak through November.
In December and January sales accelerated and Catalog recorded a small sales
gain for the year. Catalog's strengths were principally in the specialty media,
led by apparel. Soft sales were recorded by Catalog in the hard line areas,
particularly in electronics and toys. Sales in 1995 were weak after a very
strong sales performance in both Stores and Catalog in 1994 reflecting
continuing pressure in the retail sector of the economy.
Drugstore sales for 1996 showed strong growth, consistent with the overall
results in the drugstore industry. In 1996, total drugstore sales reflect the
addition of the Fay's and Eckerd drugstores in October and December 1996,
respectively, and in 1995, reflect the February acquisition of the Kerr
drugstores.
FIFO GROSS MARGIN
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Stores and Catalog 30.1% 30.8% 31.9%
Drugstores 22.5% 23.3% 23.5%
- ----------------------------------------------------------------------
</TABLE>
Gross margin dollars for Stores and Catalog increased to $5,872 million in 1996
compared with $5,758 million in 1995, an increase of 2.0 per cent. As a per cent
of sales, margins declined 70 basis points primarily as a result of strong
marketing programs designed to boost sales volume and reduce higher levels of
inventory. Gross margin dollars in 1995 declined from $6,001 in 1994, a decrease
of 4.0 per cent. During 1995, margin ratios in Stores and Catalog also declined
primarily as a result of promotional markdowns.
Drugstore gross margin dollars increased to $708 million in 1996 compared with
$431 million in 1995. The majority of the increase was related to the
acquisition of Fay's and Eckerd. Gross margin dollars in 1995 increased from
$362 million in 1994, with both sales and margins increasing about 20 per cent.
Gross margin as a per cent of sales declined in 1996 and 1995. The decline was a
result of increases in managed care prescription drug sales which generally have
lower margins than non-managed care sales.
SELLING, GENERAL, AND
ADMINISTRATIVE (SG&A) EXPENSES
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Stores and Catalog 24.0% 24.4% 23.8%
Drugstores 18.2% 19.6% 20.0%
- ----------------------------------------------------------------------
</TABLE>
SG&A for Stores and Catalog were well managed in 1996, and as a per cent of
sales declined by 40 basis points. SG&A expenses totaled $4,689 million in 1996
compared with $4,560 million in 1995 and $4,492 million in 1994. Expenses in
both 1996 and 1995 increased modestly despite higher paper and postage costs in
both 1995 and most of 1996. As a
15
<PAGE>
[MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS] continued
per cent of sales, SG&A expenses increased bv 60 basis points in 1995 compared
with 1994, primarily as a result of declines in sales.
Drugstores SG&A expenses totaled $573 million in 1996 compared to $364 million
in 1995 and $308 million in 1994. The increases in both years were primarily
related to drugstore acquisitions which occurred in those years. As a per cent
of sales, SG&A expenses were well leveraged, decreasing by 140 basis points in
1996 and 40 basis points in 1995. Drugstores have achieved improvement in SG&A
ratios through increased store productivity and management of expense levels.
The Company expects further improvement in the SG&A ratio in future periods as
the recently acquired drugstores are fully integrated into the drugstore
operation. The Company expects those savings to come from areas such as
reduction of duplicate facilities and consolidation of support activities.
NET INTEREST AND CREDIT OPERATIONS
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Finance charge revenue $(641) $(631) $(624)
Credit costs 560 489 447
Interest expense, net 359 325 270
--------------------------------------
Net interest and credit costs $ 278 $ 183 $ 93
- ----------------------------------------------------------------------
</TABLE>
Net interest and credit costs have increased over the past three years
principally as a result of higher bad debt write-offs and interest expense.
Finance charge revenue has remained relatively constant. Net bad debt losses and
increases in provisions established for future losses totaled $267 million in
1996 compared with $219 million in 1995, and $177 million in 1994. The increase
in both years is primarily related to continued high levels of delinquencies and
consumer bankruptcies. Increases in 1996 interest expense are generally related
to higher debt levels required to finance increases in working capital, the
drugstore acquisitions, and capital spending. Increases in 1995 interest expense
were primarily related to capital spending and debt associated with the
Company's stock purchase program.
JCPENNEY INSURANCE GROUP
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Revenue increase 20.1% 22.9% 22.3%
Profit increase 18.5% 23.6% 18.7%
- ----------------------------------------------------------------------
</TABLE>
JCPenney's Insurance group continues to contribute strong growth in revenue and
operating profits. In 1996, revenues grew to $832 million compared with $693
million in 1995 and $564 million in 1994. The growth is primarily attributable
to continued success in developing marketing relationships with third party
businesses throughout North America, principally banks, oil companies, and
retailers. Pre-tax operating profits increased to $186 million in 1996 compared
with $157 million in 1995 and $127 million in 1994. The increase in operating
profits has been driven by the strong growth in revenues.
Income taxes. The effective income tax rate was 37.9 per cent in 1996 compared
with 37.5 per cent in 1995 and 37.8 per cent in 1994. Tax rates will be
increasing to about 39 per cent beginning in 1997. The increase is a result of
the amortization of goodwill associated with the drugstore acquisitions which
provides no tax benefit.
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Financial measures
($ in millions except
per share data) 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operations $ 382 $1,403 $ 738
Capital expenditures (cash) 704 717 550
Debt to capital 60.1%* 52.6% 53.1%
Dividends per share 2.08 1.92 1.68
- ----------------------------------------------------------------------
*Assumes the completion of the Eckerd transaction.
</TABLE>
16
<PAGE>
[MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS] continued
The Company's goal is to maintain a strong balance sheet to provide financial
flexibility and to increase stockholder value. On February 20, 1997, the Company
completed a public offering of $500 million of 100-year, 7 5/8 per cent
Debentures due March 1, 2097. The Debentures were priced at par. The sale of
these Debentures was the first step in the Company's plan to convert short term
acquisition debt to longer term maturities.
Financial flexibility has permitted the Company to capitalize on attractive
opportunities for growth, as demonstrated by the recent acquisition of Eckerd,
to modernize and update JCPenney retail stores, and to open 20 new large
department stores in 1996 in premier shopping centers across the country.
The Board of Directors increased the dividend on the Company's common stock to
an indicated annual rate of $2.14 from $2.08 per share in March 1997. Including
this increase, the dividend on common stock has risen in excess of 60 per cent
over the last five years. Dividends on common shares were paid at a quarterly
rate of 52 cents per share in 1996, 48 cents per share in 1995, and 42 cents per
share in 1994.
Merchandise inventory in 1996 increased to $5,722 million compared with $3,935
million in 1995 and $3,876 million in 1994 due primarily to the drugstore
acquisitions. In addition, inventory for Department Stores and Catalog increased
by approximately 15 per cent in 1996. This increase is principally due to the
addition of three million square feet of gross selling space, low inventory
levels entering the year, and an acceleration of a marketing program earlier in
1997. Inventory position, however, was above the Company's plan in Department
Stores and Catalog at the end of 1996.
Intangible assets consist principally of intangible assets acquired in the 1996
drugstore acquisitions, comprised of favorable lease rights, prescription files,
software, and trade name, as well as goodwill representing the excess of
purchase price over the fair value of assets acquired.
Debt to capital. The Company's strong balance sheet enabled the strategic
acquisition of Eckerd. As a result of the first step of the acquisition, the
debt to capital ratio, including both on and off-balance-sheet debt, increased
to 64.5 per cent at year end 1996 compared with 52.6 per cent in 1995 and 53.1
per cent in 1994. Upon completion of the acquisition in February 1997, the debt
to capital ratio decreased to 60.1 per cent as a result of the issuance of 23.2
million shares of common stock. In addition to its drugstore acquisitions, the
Company purchased 7.5 million shares of its common stock in 1996 for $366
million. Over the past three years, the Company has purchased 25 million shares
of its common stock at an aggregate purchase price of $1,176 million.
Total debt, both on and off-balance-sheet, was $10,807 million at January
25, 1997 compared with $6,542 million at January 27, 1996, and $6,366 million at
January 28, 1995. The increase in 1996 included $1,235 million related to the
acquisition of 50.1 per cent of the outstanding common stock of Eckerd, the
assumption of $760 million of Eckerd debt, $366 million related to the purchase
of 7.5 million shares of JCPenney common stock, the assumption of $700 million
of Eckerd operating lease obligations, and approximately $500 million related to
working capital requirements. During 1996, the Company issued $600 million of
long term debt with an average coupon rate of approximately 7.3 per cent.
The Company's long term debt is rated A by Standard and Poor's Corporation, A2
by Moody's Investors Service, and A by Fitch Investors Service, Inc., which
continue to be among the highest in the retail industry. The Company's
commercial paper is rated Al, P1, and Fl by the three organizations,
respectively. Short term debt ratings were left unchanged by each of the rating
agencies.
Cash flow. The Company expects to generate sufficient cash flow internally to
meet substantially all of its cash requirements for working capital, capital
expenditures, and dividends in the future.
Inflation and changing prices have not had a significant impact on the Company
in recent years due to low levels of inflation.
17
<PAGE>
[INDEPENDENT
AUDITOR'S 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 25, 1997, January 27, 1996, and
January 28, 1995, 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 25, 1997, January 27, 1996, and
January 28, 1995, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
The Company adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities, in 1994, 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
Dallas, Texas
February 27, 1997
[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
as to 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
18
<PAGE>
[CONSOLIDATED STATEMENTS OF INCOME]
J.C. Penney Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
FOR THE YEAR ($ in millions except per share data) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Retail sales $22,653 $20,562 $20,380
Revenue of insurance and bank 996 857 702
--------------------------
Total revenue 23,649 21,419 21,082
--------------------------
Costs and expenses
Cost of goods sold, occupancy, buying, and
warehousing costs 16,043 14,333 13,970
Selling, general, and administrative expenses 5,239 4,895 4,783
Costs and expenses of insurance and bank 803 667 537
Net interest expense and credit operations 278 183 93
Minority interest and amortization of intangibles 23 -- --
Business acquisition and consolidation expenses 354 -- --
--------------------------
Total costs and expenses 22,740 20,078 19,383
--------------------------
Income before income taxes 909 1,341 1,699
Income taxes 344 503 642
--------------------------
Net income $ 565 $ 838 $ 1,057
--------------------------
Earnings per common share
Primary $ 2.29 $ 3.48 $ 4.29
Fully diluted $ 2.25 $ 3.33 $ 4.05
</TABLE>
See Notes to Consolidated Financial Statements on pages 22 through 34
[CONSOLIDATED STATEMENTS OF REINVESTED EARNINGS]
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Reinvested earnings at beginning of year $ 4,397 $ 4,262 $ 4,093
Net income 565 838 1,057
Net unrealized change in debt and equity securities
and currency translation adjustments (21) 72 (21)
Retirement of common stock (320) (301) (435)
Common stock dividends declared (471) (434) (392)
Preferred stock dividends declared, net of taxes (40) (40) (40)
--------------------------
Reinvested earnings at end of year $ 4,110 $ 4,397 $ 4,262
==========================
</TABLE>
See Notes to Consolidated Financial Statements on pages 22 through 34.
19
<PAGE>
[CONSOLIDATED BALANCE SHEETS]
J.C. Penney Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
ASSETS ($ in millions) 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets
Cash (including short term investments
of $131, $173, and $207) $ 131 $ 173 $ 261
Receivables, net 5,757 5,207 5,159
Merchandise inventory (LIFO reserves of $265,
$226, and $247) 5,722 3,935 3,876
Prepaid expenses 102 94 73
--------------------------
Total current assets 11,712 9,409 9,369
Properties, net 5,014 4,281 3,954
Investments, primarily insurance operations 1,605 1,651 1,359
Deferred insurance policy acquisition costs 666 582 482
Goodwill and other intangible assets 1,861 -- --
Other assets 1,230 1,179 1,038
--------------------------
$22,088 $17,102 $16,202
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY ($ in millions)
- --------------------------------------------------------------------------------------
Current liabilities
Accounts payable and accrued expenses $ 3,738 $ 2,404 $ 2,274
Short term debt 3,950 1,509 2,092
Current maturities of long term debt 250 -- --
Deferred taxes 28 107 115
--------------------------
Total current liabilities 7,966 4,020 4,481
Long term debt 4,565 4,080 3,335
Deferred taxes 1,362 1,188 1,039
Insurance policy and claims reserves 781 691 568
Other liabilities (including bank deposits
of $724, $767, and $702) 1,383 1,239 1,164
Minority interest in Eckerd 79 -- --
Stockholders' equity
Preferred stock, without par value:
Authorized, 25 million shares - issued, 1 million
shares of Series B LESOP convertible preferred 568 603 630
Guaranteed LESOP obligation (142) (228) (307)
Common stock, par value 50 cents:
Authorized, 1,250 million shares - issued,
224, 224, and 227 million shares 1,416 1,112 1,030
Reinvested earnings 4,110 4,397 4,262
--------------------------
Total stockholders' equity 5,952 5,884 5,615
--------------------------
$22,088 $17,102 $16,202
==========================
</TABLE>
See Notes to Consolidated Financial Statements on pages 22 through 34.
20
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
J.C. Penney Company. Inc. and Subsidiaries
<TABLE>
<CAPTION>
FOR THE YEAR ($ in millions) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 565 $ 838 $1,057
Business acquisition and consolidation expenses 310 -- --
Depreciation and amortization, including intangibles 381 341 323
Deferred taxes (18) 144 29
Change in cash from:
Customer receivables (297) 73 (326)
Inventory, net of trade payables (521) (55) (352)
Other assets and liabilities, net (38) 62 7
----------------------------
382 1,403 738
----------------------------
Investing activities
Capital expenditures (704) (717) (550)
Eckerd acquisition (1,776) -- --
Purchases of investment securities (471) (583) (476)
Proceeds from sales of investment securities 493 420 287
----------------------------
(2,458) (880) (739)
----------------------------
Financing activities
Change in short term debt 2,401 (583) 808
Issuance of long term debt 596 991 500
Payments of long term debt (133) (244) (350)
Common stock issued, net 68 50 45
Common stock purchased and retired (366) (335) (475)
Preferred stock retired (35) (27) (18)
Dividends paid, preferred and common (497) (463) (421)
----------------------------
2,034 (611) 89
----------------------------
Net increase/(decrease) in cash and
short term investments (42) (88) 88
Cash and short term investments at beginning of year 173 261 173
----------------------------
Cash and short term investments at end of year $ 131 $ 173 $ 261
============================
Supplemental cash flow information
Interest paid $ 390 $ 355 $ 301
Interest received 60 54 55
Income taxes paid 356 409 509
</TABLE>
Non-Cash Transactions. In October 1996, the Company acquired all of the assets
and liabilities of Fay's Incorporated in a transaction valued at approximately
$353 million. The transaction was accomplished through an exchange of common
stock valued at approximately $278 million and the assumption of approximately
$75 million of Fay's Incorporated debt.
In February 1995, the Company acquired all of the assets and liabilities of
Kerr Drug Stores, Inc. The transaction was accomplished through an exchange of
common stock valued at approximately $74 million.
Pro forma effects of these acquisitions would not differ significantly from
historical results.
See Notes to Consolidated Financial Statements on pages 22 through 34.
21
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS]
- --------------------------------------------------------
1. Nature of Operations
2. Summary of Accounting Policies
3. Business Acquisitions
4. Receivables
5. Properties
6. Capital Expenditures
7. Financial Instruments and Fair Value
8. Accounts Payable and Accrued Expenses
9. Short Term Debt
10. Long Term Debt
11. Preferred Stock
12. Common Stock
13. Stock-Based Compensation
14. Interest Expense, Net
15. Rent Expense
16. Advertising Costs
17. Retirement Plans
18. Business Acquisition and Consolidation Expenses
19. Taxes
20. Segment Reporting
- --------------------------------------------------------
[1] NATURE OF OPERATIONS
The Company operates: Retail Department Stores and Catalog (Stores and
Catalog), Drugstores, and Insurance.
Stores and Catalog is comprised of retail stores located in all 50 states,
Puerto Rico, two stores in Mexico, and one store in Chile, as well as six
catalog fulfillment centers which together provide the consumer multiple
shopping formats. 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.
Drugstores include the Company's former Thrift drugstore operations, and
all of the Eckerd, Fay's, and Kerr drugstores acquired in 1996 and 1995. The
drugstore segment operates 2,699 store locations primarily in the Northeast,
Southeast, and Sunbelt regions of the United States which sell pharmaceuticals
and related products as well as general merchandise.
The Insurance segment consists of several insurance companies, the principal of
which is J.C. Penney Life Insurance Company (collectively, JCPenney Insurance).
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.
[2] SUMMARY OF ACCOUNTING POLICIES
Basis of presentation. Certain prior year amounts may have been reclassified to
conform with the current year presentation.
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 1996 ended January 25, 1997, 1995 ended January 27,
1996, and 1994 ended January 28, 1995. The accounts of JCPenney Insurance are on
a calendar year basis.
Retail sales. Retail sales include merchandise and services, net of returns, and
exclude all 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.
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
22
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
market, determined by the retail method. The Company applies internally
developed indices to measure increases and decreases in its own retail prices.
Depreciation and amortization. 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. Intangible assets, other than trade name,
are being amortized over periods ranging from five to seven years. Trade name
and goodwill are amortized over 40 years.
Deferred charges. Expenses associated with the opening of new stores are written
off in the year of the store opening, except those of stores opened in January,
which are written off in the following fiscal year. Deferred policy acquisition
costs, principally marketing costs and commissions incurred by JCPenney
Insurance to secure new insurance policies, are amortized over the expected
premium-paying period of the related policies.
Investments. The Company's investments 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. Realized gains
and losses are determined on a first-in, first-out basis.
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 which 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.
Stock-based compensation. The Company elected to continue accounting for stock
options under Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees.
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.
New accounting rule. The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, in June 1996.
This standard was effective for transactions occurring after December 31, 1996,
and did not have a material impact on the Company.
[3] BUSINESS ACQUISITIONS
In November 1996 the Company entered into a definitive agreement to acquire
Eckerd Corporation (Eckerd), a 1,748 store drugstore chain with stores located
in 13 states primarily in the Southeast and Sunbelt, in a two-step cash and
stock transaction. The aggregate transaction value, including the assumption of
$760 million of Eckerd debt, was $3.3 billion. The transaction was effected
through a two-step process consisting of: i) a cash tender offer, which was
completed in December 1996, at $35.00 per share for 35.3 million shares of
Eckerd common stock, or 50.1 per cent of the total number of outstanding shares,
for a total consideration of $1,235 million, and ii) the exchange of 23.2
million shares of JCPenney common stock for the remaining 35.1 million shares of
Eckerd common stock at a conversion rate of 0.6604 of a share of JCPenney common
stock for each Eckerd share of common stock, for a consideration valued at
$1,311 million, including the cash out of certain outstanding Eckerd employee
23
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
stock options, in a transaction which was completed in February 1997. The
purchase price was allocated to assets acquired and liabilities assumed based on
their estimated fair value, and accordingly, the Company recognized intangible
assets consisting of favorable lease rights, prescription files, computer
software, and trade name. The excess of the purchase price over the estimated
fair value of assets acquired and liabilities assumed is classified as goodwill
and totaled $2.3 billion at the conclusion of the acquisition, of which $1.2
billion is reflected in the consolidated balance sheet.
In October 1996 the Company completed the acquisition of Fay's
Incorporated (Fay's), a drugstore chain with 272 stores located primarily in New
York state. The transaction was effected through the issuance of 5.2 million
shares of common stock valued at $278 million, and assumption of $75 million of
Fay's debt. The excess of the purchase price over the estimated fair value of
assets acquired and liabilities assumed totaled $220 million, and is classified
as goodwill.
Both the Eckerd and Fay's acquisitions are being accounted for under
the purchase method of accounting for business combinations, and accordingly,
the results of operations of both Eckerd and Fay's are included in the Company's
results of operations since the respective dates of acquisition.
The following unaudited pro forma condensed statements of operations
give effect to the Eckerd and Fay's acquisitions as if the transactions occurred
at the beginning of each of the periods presented.
<TABLE>
<CAPTION>
52 Weeks Ended
------------------------------------------
Jan. 25, 1997 Jan. 27, 1996
($ in millions except share data) Reported Pro forma Reported Pro forma
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail sales $22,653 $28,028 $20,562 $26,442
Earnings before
extraordinary items 565 519 838 766
Earnings per share before
extraordinary items:
Primary 2.29 1.92 3.48 2.88
Fully diluted 2.25 1.91 3.33 2.78
</TABLE>
Pro forma earnings do not reflect cost savings which the Company
believes should be at least $100 million per year once drugstore operations are
fully integrated.
See footnote 18 for a discussion of business acquisition and
consolidation expenses related to these acquisitions.
[4] RECEIVABLES
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
Customer receivables serviced $ 5,006 $ 4,688 $ 4,751
Customer receivables sold (725) (725) (725)
-------------------------
Customer receivables owned 4,281 3,963 4,026
Less allowance for doubtful accounts (105) (84) (74)
-------------------------
Customer receivables, net 4,176 3,879 3,952
Consumer banking receivables 735 776 729
Other receivables 846 552 478
-------------------------
Receivables, net $ 5,757 $ 5,207 $ 5,159
=========================
</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. As of January 25, 1997, $725
million of the certificates were outstanding and the balance of the receivables
in the trust was $1,869 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
25, 1997. Additionally, the Company has made available to the trust irrevocable
letters of credit of $87 million that may be drawn upon should the reserve funds
be exhausted. None of the letters of credit was in use as of January 25, 1997.
24
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
[5] PROPERTIES
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- --------------------------------------------------------
<S> <C> <C> <C>
Land $ 265 $ 216 $ 213
Buildings
Owned 2,666 2,410 2,178
Capital leases 159 182 186
Fixtures and equipment 3,710 2,978 2,763
Leasehold improvements 915 622 611
-------------------------
7,715 6,408 5,951
Less accumulated depreciation
and amortization 2,701 2,127 1,997
-------------------------
Properties, net $ 5,014 $ 4,281 $ 3,954
=========================
</TABLE>
1996 includes $431 million, net, related to the 1996 acquisitions.
At January 25, 1997, the Company owned 301 retail stores and other units, four
catalog distribution centers, one store merchandise distribution center, its
home office facility, and the JCPenney Insurance corporate offices.
[6] CAPITAL EXPENDITURES
Capital expenditures, primarily for new and relocated JCPenney stores and for
modernizations and updates of existing stores, were as follows:
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- ----------------------------------------------------
<S> <C> <C> <C>
JCPenney stores:
New and relocated stores* $ 296 $ 399 $ 197
Modernizations and updates 219 134 136
Technology and other store
improvements 83 54 78
---------------------
598 587 411
Catalog 38 28 21
Drugstores 103 53 59
Other 51 81 53
---------------------
Total capital expenditures $ 790 $ 749 $ 544
=====================
</TABLE>
* 1995 total includes $173 million for the purchase of seven Woodward and
Lothrop stores in the Washington, D.C., area.
[7] FINANCIAL INSTRUMENTS AND FAIR VALUE
Financial Assets. The Company's financial assets are recorded at fair value
based on quoted market prices, and consist principally of fixed income and
equity securities, the majority of which are held by JCPenney Insurance, and
which had a fair value of $1,138 million, $995 million, and $758 million at the
end of 1996, 1995, and 1994, respectively, and asset-backed certificates.
Unrealized gains and losses are included in stockholders' equity, net of tax,
and consisted of net unrealized gains of $52 million on investments having a
fair value of $1,605 million and an amortized cost of $1,523 million at January
25, 1997, net unrealized gains of $70 million on investments having a fair value
of $1,651 million and an amortized cost of $1,540 million at January 27, 1996,
and net unrealized losses of $12 million on investments having a fair value of
$1,359 million and an amortized cost of $1,378 at January 28, 1995.
The scheduled maturities for fixed income securities at year end
1996 were as follows:
<TABLE>
<CAPTION>
Amortized Fair
($ in millions) Cost Value
- -------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 12 $ 12
Due after one year through five years 632 673
Due after five years through 10 years 240 243
Due after 10 years 162 174
---------------------
1,046 1,102
Mortgage-backed securities 359 356
Equity securities 95 124
Other 23 23
---------------------
Total $1,523 $1,605
=====================
</TABLE>
Financial Liabilities are recorded in the consolidated balance sheets at
historical cost which approximate fair value. These values are not necessarily
indicative of actual market transactions.
25
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
The fair value of long term debt, excluding capital leases, is based on
the interest rate environment and the Company's credit rating.
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 two offsetting interest rate swaps, each with a notional
principal amount of $375 million which were entered into in connection with the
sale of asset-backed certificates in 1990. The impact of these interest rate
swaps on both interest expense and the Company's average long term borrowing
rates for 1996, 1995, and 1994 was not material. These swaps help to protect
certificate holders by reducing the possibility of an early amortization of the
principal. The counterparty to these contracts is a high credit quality
commercial bank. Consequently, credit risk, which is inherent in all swaps, has
been minimized to a large extent.
Concentrations of Credit Risk. The Company has no significant concentrations of
credit risk. Individual accounts comprising accounts receivable are widely
dispersed and investments are well diversified.
[8] ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Trade payables $1,558 $ 979 $1,014
Accrued salaries, vacations,
profit-sharing, and bonuses 419 309 336
Taxes, including income taxes 376 362 358
Workers' compensation and
public liability insurance 208 132 123
Common dividend payable 121 107 96
Other 1,056 515 347
------------------------------------
Total $3,738 $2,404 $2,274
====================================
</TABLE>
1996 total includes $835 million related to the 1996 acquisitions.
<TABLE>
<CAPTION>
[9] SHORT TERM DEBT
($ in millions) 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial paper $ 2,050 $ 1,482 $ 2,074
Bank debt 1,900 - -
Other - 27 18
------------------------------------
Total $ 3,950 $ 1,509 $ 2,092
Average interest rate at year end 5.5% 5.7% 5.9%
====================================
</TABLE>
Committed bank credit facilities available to the Company as of January 25,
1997, amounted to $6.0 billion. In 1996, the Company amended its two existing
syndicated revolving credit facilities and entered into two new syndicated
revolving credit facilities totaling $6.0 billion with a group of domestic and
international banks. The "Existing" facilities support the Company's short term
borrowing program, and are comprised of a $1.5 billion 364-day revolver, and a
$1.5 billion, five-year revolver. The 364-day revolver includes a $750 million
seasonal credit line for the August to January period, thus allowing the Company
to match its seasonal borrowing requirements. The "Acquisition" facilities
provided short term funding for the Company's acquisition of Eckerd and are also
comprised of a $1.5 billion, 364-day revolver, and a $1.5 billion, five-year
revolver. As of January 25, 1997, $1.5 billion was borrowed under the five-year
"Acquisition" facility and $400 million was borrowed under the 364-day
"Acquisition" facility. Subsequent to year end, the Company initiated a new
commercial paper program to refinance the total amounts outstanding under the
bank lines at a lower cost.
Also, the Company had $945 million of uncommitted credit lines in the form
of letters of credit with seven banks to support its direct import merchandise
program. At January 25, 1997, $282 million of letters of credit issued by the
Company were outstanding.
26
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
[10] LONG TERM DEBT
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Original issue discount
6% debentures, due 2006, $200 at
maturity, effective rate 13.2% $ 112 $ 108 $ 104
Debentures and notes
5.375% to 7.650%, due 1998 to 2026 3,100 2,500 1,500
8.25%, due 2002 250 250 250
9% to 10%, due 1997 to 2021* 1,045 835 1,000
Guaranteed LESOP notes,
8.17%, due 1998** 142 228 307
Present value of commitments
under capital leases 127 91 104
Other 39 68 70
-------------------------------
Long term debt $4,815 $4,080 $3,335
Average long term debt outstanding $4,053 $3,241 $2,754
Average interest rates 7.7% 7.9% 8.2%
===============================
</TABLE>
1996 includes $278 million related to the 1996 acquisitions.
*Includes current maturities of $250 million.
**For further discussion, see footnote 17.
<TABLE>
<CAPTION>
Changes in long term debt ($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Increases
5.375% to 7.650% notes,
due 1998 to 2026 $ 600 $1,000 $ 500
Amortization of original
issue discount 4 4 3
Eckerd debt outstanding at
end of year 278 -- --
-------------------------------
882 1,004 503
-------------------------------
Decreases
9.375% notes due 1998,
retired in 1995 -- 165 --
Transfers to current maturities 250 -- --
Other, including LESOP amortization 147 94 97
-------------------------------
397 259 97
-------------------------------
Net increase in long term debt $ 485 $ 745 $ 406
===============================
</TABLE>
<TABLE>
<CAPTION>
Maturities of long term debt
Long Capital
($ in millions) Term Debt Leases
- ---------------------------------------------------
<S> <C> <C>
1997 $ 252 $ 17
1998 403 29
1999 228 13
2000 303 12
2001 252 13
2002 to 2006 1,711 12
Thereafter 1,485 46
------ ------
Total $4,634 $ 142
======
Less future interest and
executory expenses 15
------
Present value $ 127
======
</TABLE>
[11] PREFERRED STOCK
In 1988, a leveraged employee stock ownership plan (LESOP) was adopted (see
footnote 17). 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
27
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
common stock or a combination of both at the Company's sole discretion. The
dividends are cumulative, are payable semi-annually on January 1 and July 1, and
yield 7.9 per cent. The convertible preferred stock issued to the LESOP has been
recorded in the stockholders' equity section of the consolidated balance sheets,
and the "Guaranteed LESOP obligation," representing borrowings by the LESOP, has
been recorded as a reduction of stockholders' equity. As of January 25, 1997,
approximately 946 thousand shares had been allocated to participants' accounts
since 1988, and approximately 231 thousand shares were committed to be released
in the next two 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 $46 million in 1996, $48 million in 1995, and $50 million in 1994; on an
after tax basis, the dividends amounted to $28 million in 1996, $29 million in
1995, and $31 million in 1994.
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 $140. The rights are
exercisable upon the occurrence of certain events and are redeemable by the
Company under certain circumstances, all as described in the rights agreement.
<TABLE>
<CAPTION>
Shares Paid-in Capital
(In thousands) ($ in millions)
Changes in outstanding ---------------------------------------------------------------
common stock 1996 1995 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 223,925 227,441 236,086 $ 1,112 $ 1,030 $ 1,003
Common stock issued 7,463 3,858 1,455 350 113 70
Common stock purchased and retired (7,500) (7,374) (10,100) (46) (31) (43)
---------------------------------------------------------------
Balance at end of year 223,888 223,925 227,441 $ 1,416 $ 1,112 $ 1,030
===============================================================
</TABLE>
[12] COMMON STOCK
The quarterly common dividend was 52 cents per share in 1996, 48 cents per share
in 1995, and 42 cents per share in 1994, or an indicated annual per share rate
of $2.08 in 1996, $1.92 in 1995, and $1.68 in 1994. Common dividends declared
were $471 million in 1996, $434 million in 1995, and $392 million in 1994.
The Company issued 1.8 million shares of its common stock in February 1995,
in connection with the Kerr Drug acquisition and 5.2 million shares in October
1996, in connection with the Fay's acquisition. In addition, the Company issued
23.2 million shares of its common stock in connection with the Eckerd
acquisition which will be recorded in the 1997 fiscal year.
Over the past three years the Board has authorized three share purchase
programs. Their status as of January 25, 1997 is as follows:
Common Shares Purchases
-------------------------------
(in millions) Shares Cost
- -------------------------------------------------------
1994 10.0 $ 475
1995 7.5 335
1996 7.5 366
-----------------------
Total 25.0 $1,176
=======================
There were approximately 59,000 stockholders of record at year end 1996. In
addition, the Company's savings plans, including the LESOP, had approximately
117,000 participants and held 34.1 million shares of the Company's common stock.
The savings plans also held 0.9 million shares of preferred stock, convertible
into 18.9 million shares of common stock. On a combined basis, these plans held
approximately 22 per cent of the Company's common shares after giving effect to
the conversion of the preferred stock at the end of fiscal year 1996.
28
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
[13] STOCK-BASED COMPENSATION
At January 25, 1997, the Company had two stock-based compensation plans: the
1993 Equity Compensation Plan (Plan) and the 1993 Non-Associate Directors'
Equity Plan (Directors' Plan), both of which were approved by stockholders in
May 1993. Under the Plan, 11.6 million shares of common stock were reserved for
issuance upon the exercise of options and for the payment of stock awards over
the five-year term of the Plan. Shares acquired through exercise of options
generally have a two year retention requirement. 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. Approximately 2,000 associates are eligible to participate. No awards
may be made under the Plan after May 31, 1998. Under the Directors' Plan,
90,000 shares of common stock were reserved for issuance upon the exercise of
stock options and the payment of stock awards over 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 made 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.
Under the plans, both the number of shares and the exercise price, which is
based on the average market price, are fixed at the date of grant and have a
maximum term of 10 years.
The Board of Directors has approved a new 1997 Equity Compensation Plan
(1997 Plan) subject to stockholder approval at the annual meeting which will be
held May 16, 1997. The 1997 Plan will initially reserve 14 million shares for
issuance, which number may be increased in certain circumstances as set forth in
the 1997 Plan, as more fully described in the Company's 1997 Proxy Statement.
The 1997 Plan also provides for grants of stock options and stock awards to
members of the Board of Directors not otherwise employed by the Company. If the
1997 Plan is approved, no future grants will be made under the existing Plan or
the Directors' Plan.
The Company has elected to continue accounting for stock-based compensation
under the provisions of APB No. 25, Accounting for Stock Issued to Employees.
Accordingly, net income and earnings per share shown in the consolidated
statements of income appearing on page 19 do not reflect any compensation cost
for the Company's fixed stock options. In accordance with SFAS No. 123,
Accounting for Stock-Based Compensation, the fair value of each fixed option
granted is estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Dividend yield 3.9% 3.9%
Expected volatility 22.3% 21.9%
Risk-free interest rate 5.6% 7.0%
Expected option term 5 years 5 years
Fair value per share of
options granted $ 8.88 $ 8.20
SFAS 123 compensation
expense (millions) $ 11 $ 11
</TABLE>
The effect on earnings per share of recording compensation expense under
SFAS No. 123 was a reduction of about four cents per share in 1996 and 1995.
For stock and restricted stock awards granted under the Plan, the Company
records compensation expense at the date of grant or over the vesting period. In
1996 and 1994 stock awards were not material. In 1995, the Company issued 531
thousand shares of its common stock in connection with its Shareholder Value
Award (SVA) program, which was a performance-based stock award plan. The SVA
program awarded shares to approximately 2,000 management associates and vested
over the 1993 to 1995 period. Compensation expense was recorded over the vesting
period based on the end of the year market price, and accordingly the Company
recorded compensation expense of $6 million in 1995 and $25 million in 1994.
The following table summarizes the status of the Company's fixed stock
option plans as of January 25, 1997, January 27, 1996, and January 28, 1995, and
changes for the years then ended:
29
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------------------------------------------------------
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 8,867 $33.40 8,347 $ 3l.36 8,235 $27.96
Granted 1,266 47.51 1,230 43.00 997 55.31
Exercised (1,427) 27.39 (689) 25.67 (865) 26.51
Expired and cancelled (73) 42.49 (21) 38.63 (20) 32.68
-----------------------------------------------------------------------------------------
Balance at end of year 8,633 $36.39 8,867 $ 33.40 8,347 $31.36
Options exercisable at
year-end 7,419 34.54 7,637 31.87 7,354 28.13
=========================================================================================
</TABLE>
[14] INTEREST EXPENSE, NET
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Short term debt $ 102 $ 129 $ 92
Long term debt 312 254 225
Income on short term
investments (22) (18) (16)
Interest capitalized (10) (8) (3)
Other, net* (23) (32) (28)
----------------------------
Interest expense, net $ 359 $ 325 $ 270
============================
</TABLE>
* Includes $34 million in each year for interest income from the Company's
investment in asset-backed certicates.
[15] RENT EXPENSE
The Company conducts the major part of its operations from leased premises which
include retail stores, distribution centers, warehouses, offices, and other
facilities. Almost all leases will expire during the next 20 years; however,
most leases will be renewed or replaced by leases on other premises. Rent
expense for real property operating leases was:
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rents $ 285 $ 245 $ 235
Contingent rents based on
sales 48 36 37
----------------------------------
Total $ 333 $ 281 $ 272
==================================
</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 1996, $106 million in 1995, and
$92 million in 1994.
Future minimum lease payments for noncancelable real and personal property
operating leases and subleases as of January 25, 1997 were:
<TABLE>
<CAPTION>
($ in millions) Operating Leases
- -----------------------------------------------------
<S> <C>
1997 $ 394
1998 356
1999 308
2000 279
2001 232
Thereafter 1,508
-------
Total minimum lease payments $ 3,077
=======
Present value $ 1,800
Weighted average interest rate 10%
=======
</TABLE>
1996 drugstore acquisitions account for $1,458 million of minimum rents having a
present value of $700 million.
The minimum lease payments are shown net of estimated executory costs, which
are principally real estates taxes, maintenance, and insurance.
30
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
[16] ADVERTISING COSTS
Advertising costs consist principally of newspaper, television, radio, and
catalog book costs. In 1996, the total cost of advertising was $988 million,
compared with $969 million in 1995, and $912 million in 1994. The consolidated
balance sheets included deferred catalog book costs of $98 million at January
25, 1997, $111 million at January 27, 1996, and $99 million at January 28,
1995, and are included in other assets.
[17] RETIREMENT PLANS
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Pension
Service cost $ 69 $ 44 $ 57
Interest cost 165 148 134
Actual return on assets (386) (464) (22)
Net amortization and deferral 179 302 (181)
-----------------------------
Pension charge/(credit) 27 30 (12)
-----------------------------
Post-retirement health care
Service cost 4 3 3
Interest cost 21 23 25
Net amortization and
deferral (5) (2) --
-----------------------------
Post-retirement health
care charge 20 24 28
LESOP expense 56 53 53
-----------------------------
Total retirement plans $ 103 $ 107 $ 69
=============================
</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. Eckerd has a pension plan which is noncontributory and covers its
employees who have completed 12 consecutive months of service and have attained
age 21.
In 1996, the Company increased its discount rate to 8.0 per cent,
reflecting a higher interest rate environment. The impact of this change
decreased the Company's obligation at year end 1996. Pension plan assumptions
are reviewed and modified as necessary on an annual basis. The Company made
contributions to the plan in 1996, 1995, and 1994 in the amounts of $119, $104,
and $99 million, respectively. Benefits paid were $110 million in 1996, $101
million in 1995, and $96 million in 1994.
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 group 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 to 7.0 per cent for 1997
with gradual reductions to five per cent over the next several years. A one per
cent increase in the health care trend rate would increase the amount reported
for the accumulated obligation by $22 million and would result in $2 million
additional expense for 1996.
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 $700 million at an interest rate of 8.17 per cent
through a 10 year loan guaranteed by the Company. The LESOP used the proceeds of
the loan to purchase a new issue of convertible preferred stock from the
Company. As the Company makes contributions to the LESOP, these contributions,
plus the dividends paid on the Company's preferred stock held by the LESOP, will
be used to repay the loan. As the principal amount of the loan is repaid, the
"Guaranteed LESOP obligation" is reduced accordingly. The loan will be fully
paid in January 1998.
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
<TABLE>
<CAPTION>
December 31
--------------------------------
Retirement plans ($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pension
Present value of accumulated benefits
Vested $ 1,836 $ 1,817 $ 1,368
Non-vested 59 94 75
----------------------------
$ 1,895 $ 1,911 $ 1,443
============================
Present value of projected benefit obligation $(2,187) $(2,183) $(1,661)
Net assets at fair market value 2,735 2,292 1,825
Unrecognized transition asset, net of
unrecognized losses 23 345 200
----------------------------
Net prepaid pension cost $ 571 $ 454 $ 364
============================
Post-retirement health care benefits
Accumulated benefit obligations
Retirees $ 232 $ 249 $ 217
Fully eligible active participants 27 30 43
Other active participants 32 39 40
----------------------------
291 318 300
Unrecognized net gains 45 19 32
----------------------------
Net liability $ 336 $ 337 $ 332
============================
Key assumptions
Rate of return on pension plan assets 9.5% 9.5% 9.5%
Discount rate 8.0% 7.25% 8.75%
Salary progression rate 4.0% 4.0% 4.0%
============================
</TABLE>
[18] BUSINESS ACQUISITION AND CONSOLIDATION EXPENSES
During the third and fourth quarters of 1996, the Company recorded costs
totaling $354 million on a pre-tax basis, or 92 cents per share, which are
principally related to drugstore acquisitions, and are reported as Business
Acquisition and Consolidation Expenses on the consolidated income statement. The
largest component of such costs are related to the Company's agreement with the
Federal Trade Commission (FTC) to divest certain drugstores in North Carolina
and South Carolina.
These expenses consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Drugstore closings* $ 188
Asset write-downs 104
Other integration costs 62
-----
Total $ 354
Income taxes (126)
-----
Business acquisition and consolidation
expenses, net $ 228
</TABLE>
* Includes the effects of the FTC agreement as well as other overlap and
unproductive stores.
32
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
[19] TAXES
Deferred tax assets and liabilities reflected on the Company's consolidated
balance sheet at January 25, 1997 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. In addition to the amounts shown in the
table, the Company recognized a $48 million deferred tax asset related to Eckerd
operating loss carryforwards for which an offsetting valuation reserve of an
equal amount has been established. No other valuation allowances have been
considered necessary for any year.
The major components of deferred tax (assets)/liabilities at January 25,
1997, January 27, 1996, and January 28, 1995 were as follows:
<TABLE>
<CAPTION>
Income tax expense ($ in millions) 1996 1995 1994
- --------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 321 $ 306 $ 521
State and local 43 56 92
----------------------------
364 362 613
----------------------------
Deferred
Federal (19) 124 25
State and local (l) 17 4
----------------------------
(20) 141 29
----------------------------
Total $ 344 $ 503 $ 642
Effective tax rate 37.9% 37.5% 37.8%
============================
</TABLE>
<TABLE>
<CAPTION>
Per Cent of
Amounts ($ in millions) Pre-tax income
-----------------------------------------------
Reconciliation of tax rates 1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at statutory
rate $318 $469 $594 35.0 35.0 35.0
State and local income taxes,
less federal income tax benefit 27 49 65 3.0 3.6 3.8
Tax effect of dividends on
allocated LESOP shares (12) (11) (9) (1.3) (.8) (.5)
Tax credits and other 11 (4) (8) 1.2 (.3) (.5)
--------------------------------------------
Total $344 $503 $642 37.9 37.5 37.8
============================================
</TABLE>
<TABLE>
<CAPTION>
Temporary differences
($ in millions) 1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Workers' compensation/
public liability $ (92) $ (101) $ (100)
Accounts receivable (44) (33) (29)
Business acquisition and
consolidation expenses (73) -- --
Vacation pay (55) (11) (9)
Other (19) -- (69)
Liabilities:
Retirement plans 93 51 12
Leases 318 332 338
Merchandise inventories 138 104 94
Depreciation and amortization 932 774 757
Deferred acquisition costs 192 174 160
Other -- 5 --
----------------------------------
Total* $1,390 $1,295 $1,154
==================================
</TABLE>
*1996 deferred taxes include amounts related to the Fay's and Eckerd drugstore
acquisitions totaling $115 million.
33
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
[20] SEGMENT REPORTING
The Company operates in three business segments: Stores and Catalog, Drugstores,
and Insurance. Other items are shown in the table below for purposes of
reconciling to total Company consolidated amounts.
<TABLE>
<CAPTION>
Depreciation
Operating Total Capital and
($ in millions) Year Revenue Earnings Assets Expenditures Amortization
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stores and Catalog 1996 $19,506 $1,183 $14,754 $680 $325
1995 18,711 1,199 13,744 689 308
1994 18,840 1,508 13,381 475 298
Drugstores 1996 3,147 135 4,389 103 41
1995 1,851 68 618 53 26
1994 1,540 54 469 59 18
Insurance 1996 832 186 1,986 7 5
1995 693 157 1,741 7 3
1994 564 127 1,360 10 3
Total Segments 1996 23,485 1,504 21,129 790 371
1995 21,255 1,424 16,103 749 337
1994 20,944 1,689 15,210 544 319
Business Acquisition and
Consolidation Expenses 1996 (354)
Net Interest and
Credit Operations 1996 (278)
1995 (183)
1994 (93)
Other 1996 164 37 959 10
1995 164 100 999 4
1994 138 103 992 4
Total Company 1996 23,649 909 22,088 790 381
1995 21,419 1,341 17,102 749 341
1994 21,082 1,699 16,202 544 323
</TABLE>
(1) Total Company operating earnings equals income before income taxes as shown
on the Company's consolidated statements of income.
(2) Other revenue includes bank and insurance capital gains.
(3) Other operating income includes the banking and business services
operations, insurance capital gains, real estate operations, LIFO
adjustments, amortization of goodwill and other intangible assets, and
minority interest.
34
<PAGE>
[QUARTERLY DATA] unaudited
<TABLE>
<CAPTION>
First Second Third Fourth
--------------------------------------------------------------------------------------------
($ in millions except per share data) 1996 1995 1994 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retail sales 4,452 4,367 4,350 4,507 4,435 4,242 5,537 5,128 5,149 8,157 6,632 6,639
per cent inc/(dec) 1.9 0.4 9.7 1.6 4.6 7.1 8.0 (0.4) 8.7 23.0 (0.1) 5.0
Total revenue 4,692 4,564 4,519 4,753 4,643 4,412 5,788 5,352 5,328 8,416 6,860 6,823
per cent increase 2.8 1.0 10.0 2.4 5.3 7.4 8.1 0.4 9.0 22.7 0.5 5.3
LIFO gross margin 1,355 1,370 1,395 1,312 1,292 1,282 1,701 1,592 1,661 2,242 1,975 2,072
per cent of retail sales 30.4 31.4 32.1 29.1 29.1 30.2 30.7 31.0 32.2 27.5 29.8 31.2
FIFO gross margin
per cent of retail sales 30.4 31.4 32.1 29.1 29.1 30.2 30.7 31.0 32.2 27.3 29.5 31.2
Selling, general, and
administrative expenses 1,154 1,148 1,092 1,150 1,107 1,079 1,247 1,201 1,204 1,688 1,439 1,408
per cent of retail sales 25.9 26.3 25.1 25.5 25.0 25.5 22.5 23.4 23.4 20.7 21.7 21.2
Net income 142 156 223 93 116 132 236 240 274 94 326 428
Net income per common share
Primary 0.58 0.63 0.88 0.37 0.46 0.52 0.98 1.00 1.11 0.36 1.39 1.78
Fully diluted 0.57 0.61 0.84 0.37 0.46 0.51 0.95 0.95 1.04 0.36 1.31 1.66
Dividends per common share 0.52 0.48 0.42 0.52 0.48 0.42 0.52 0.48 0.42 0.52 0.48 0.42
Common stock price range
High 52 47 59 53 50 54 57 50 54 54 49 52
Low 46 41 50 47 43 47 49 43 47 46 42 39
Close 50 44 54 50 49 49 53 44 51 48 46 41
</TABLE>
35
<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 presents the results of the Company's
proprietary credit card operation and shows both the net cost of credit in
support of the Company's retail businesses and the net cost of credit measured
on an all-inclusive, economic basis. The "economic basis" of the cost of credit
includes the cost of equity capital in addition to debt used to finance accounts
receivable balances. The cost of equity capital is based on the Company's
minimum return on equity objective of 16 per cent. The results presented below
cover all JCPenney credit card accounts receivable, both owned and those sold
under securitization transactions.
<TABLE>
<CAPTION>
Pre-tax cost of JCPenney credit card
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance charge revenue
On receivables owned $(641) $(631) $(624)
On receivables sold (118) (112) (105)
----------------------------------
Total (759) (743) (729)
----------------------------------
Bad debt expense 311 256 208
Operating expenses
(including in-store costs) 251 255 268
Interest expense on debt financing 281 278 269
----------------------------------
Total costs 843 789 745
----------------------------------
Pre-tax cost of credit -
retail operations 84 46 16
Pre-tax cost of equity capital 138 137 135
----------------------------------
Pre-tax cost of credit -
economic basis 222 183 151
----------------------------------
Per cent of JCPenney credit sales 2.4% 2.0% 1.6%
==================================
</TABLE>
<TABLE>
<CAPTION>
Credit Sales 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
Per cent Per cent Per cent
(Stores and Amounts of Eligible Amounts of Eligible Amounts of Eligible
Catalog) (In billions) Sales (In billions) Sales (In billions) Sales
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JCPenney
credit card $ 9.1 46.9 $ 9.0 48.4 $ 9.4 49.6
Third party
credit cards 4.1 21.2 3.7 19.8 3.4 17.9
---------------------------------------------------------------------------------
Total $13.2 68.1 $12.7 68.2 $12.8 67.5
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
Key JCPenney credit card information
($ in millions) 1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Number of accounts
serviced with balances 17.0 17.0 17.6
Total customer
receivables serviced $5,006 $4,688 $4,751
Average customer
receivables financed 4,322 4,258 4,197
Average account
balances (in dollars) 295 275 269
Average account maturity
(months) 4.5 4.3 4.2
9O-day delinquencies 3.7% 3.3% 2.5%
=================================
</TABLE>
Capital structure. The Company's objective is to maintain a capital structure
that will assure continuing access to financial markets so that it can, at
reasonable cost, provide for future needs and capitalize on attractive
opportunities for growth.
The debt to capital ratio shown in the table below includes both debt recorded
on the Company's consolidated balance sheet as well as off-balance-sheet debt
related to operating leases and the securitization of a portion of the Company's
customer accounts receivable (asset-backed certificates).
<TABLE>
<CAPTION>
Debt to capital ($ in millions) 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Short term debt,
net of cash investments $ 3,818 $ 1,168 $ 1,737
Long term debt,
including current maturities 4,815 4,080 3,335
-----------------------------
8,633 5,248 5,072
Off-balance-sheet debt
Present value of operating leases 1,800 1,000 1,000
Securitization of accounts
receivable, net 374 294 294
-----------------------------
Total debt 10,807 6,542 6,366
Consolidated equity 5,952 5,884 5,615
-----------------------------
Total capital $16,759 $12,426 $11,981
Per cent of total debt to capital 64.5% 52.6% 53.1%
After completion of the
Eckerd transaction 60.1%
=============================
</TABLE>
The Company builds its capital base according to the different needs and
credit characteristics of its customer receivables and its other core retail
assets. Customer receivables are highly diversified and predictable financial
assets, very different from the core assets of a retailer, which include fixed
assets and merchandise inventories for stores
36
<PAGE>
[SUPPLEMENTAL INFORMATION] unaudited, continued
and catalog. Accordingly, the Company finances receivables with more leverage,
much like a finance company. The standards for these assets are a debt ratio of
approximately 88 per cent, and interest coverage of about 1.5 times. Core assets
are financed with less leverage and are more comparable to the leverage of non-
retail industrial companies with strong credit ratings. The Company's capital
structure after completion of the Eckerd transaction in February 1997 was:
<TABLE>
<CAPTION>
Customer Core
($ in millions) Receivables Assets Combined
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Debt $4,288 $ 6,519 $10,807
Equity 613 6,569 7,182
----------------------------------------
Total capital $4,901 $13,088 $17,989
Debt to capital per cent 87.5% 49.8%* 60.1%
========================================
</TABLE>
* Includes acquisition capital. Excluding such capital would reduce the ratio
to 37.1 per cent.
The historical debt to capital per cent and fixed charge coverage for the
prior three years, on a separate and combined basis, was:
<TABLE>
<CAPTION>
Debt to capital per cent 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Combined 60.1 52.6 53.1
Core assets 49.8 32.1 31.1
Customer receivables 87.5 87.5 87.5
===========================================
</TABLE>
<TABLE>
<CAPTION>
Fixed charge coverage 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Combined 2.4 3.4 4.5
Core assets 3.8 6.0 9.1
Customer receivables 1.5 1.5 1.5
===========================================
</TABLE>
Financing costs incurred by the Company to finance its operations, including
those costs related to off-balance-sheet liabilities, were as follows:
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense, net $359 $325 $270
Interest portion of LESOP
debt payment 17 23 30
Off-balance-sheet financing
costs
Interest imputed on
operating leases 110 102 95
Asset-backed certificates
interest 68 68 68
----------------------------------------
Total $554 $518 $463
========================================
</TABLE>
Earnings before interest, taxes, depreciation, and amortization (EBITDA).
Management believes that a key measure of cash flow generated is EBITDA. The
following schedule shows the calculation of EBITDA and EBITDA as a per cent of
total revenue.
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings before business
acquisition and consolidation
expenses and income taxes $ 1,263 $ 1,341 $ 1,699
Financing costs 554 518 463
Depreciation and
amortization 381 341 323
-----------------------------------------
EBITDA $ 2,l98 $ 2,200 $ 2,485
Total revenue $23,649 $21,419 $21,082
EBITDA as a per cent of
total revenue 9.3% 10.3% 11.8%
=========================================
</TABLE>
EBITDA by operating segment *
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Stores and Catalog
EBITDA $1,754 $1,820 $2,161
as a per cent of sales 9.0% 9.7% 11.5%
Drugstores
EBITDA $ 206 $ 116 $ 87
as a per cent of sales 6.5% 6.3% 5.6%
Insurance
EBITDA $ 191 $ 160 $ 130
as a per cent of revenue 23.0% 23.1% 23.0%
=========================================
</TABLE>
* EBITDA for the operating segments differs from operating earnings by
depreciation, amortization, off-balance-sheet financing, and net credit costs.
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 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 Al
Moody's Investors Service A2 P1
Fitch Investors Service, Inc. A F1
============================
</TABLE>
37
<PAGE>
[FIVE YEAR FINANCIAL SUMMARY]
J.C. Penney Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
($ in millions except per share data) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results for the year
Total revenue $23,649 $21,419 $21,082 $19,578 $18,515
Retail sales 22,653 20,562 20,380 18,983 18,009
per cent increase 10.2 0.9 7.4 5.4 11.2
FIFO gross margin as a per cent of retail sales 29.1 30.2 31.5 31.3 31.5
LIFO gross margin as a per cent of retail sales 29.2 30.3 31.5 31.5 31.7
Selling, general, and administrative
expenses as a per cent of retail sales 23.1 23.8 23.5 23.7 24.7
Depreciation and amortization 381 341 323 316 310
Income taxes 344 503 642 610 482
Earnings before business acquisition and
consolidation expenses, net of tax 793 838 1,057 944 777
Return on stockholders' equity 13.5 14.9 19.7 20.1 18.6
Net income 565 838 1,057 940 777
per cent to total revenue per common share 2.4 3.9 5.0 4.8 4.2
Per common share:
Earnings before business acquisition
and consolidation expenses, net of tax
Primary 3.29 3.48 4.29 3.79 3.15
Fully diluted 3.17 3.33 4.05 3.55 2.95
Net income
Primary 2.29 3.48 4.29 3.77 3.15
Fully diluted 2.25 3.33 4.05 3.53 2.95
Dividends 2.08 1.92 1.68 1.44 1.32
Stockholders' equity 25.67 24.76 23.45 21.53 19.17
Financial position
Receivables, net 5,757 5,207 5,159 4,679 3,750
Merchandise inventories 5,722 3,935 3,876 3,545 3,258
Properties, net 5,014 4,281 3,954 3,818 3,755
Capital expenditures 790 749 544 459 494
Total assets 22,088 17,102 16,202 14,788 13,467
Total debt 8,765 5,589 5,427 4,561 4,078
Stockholders' equity 5,952 5,884 5,615 5,365 4,705
Number of common shares
outstanding at year end 224 224 227 236 235
Weighted average common shares
Primary 229 229 237 239 236
Fully diluted 248 249 258 261 258
Number of employees at year end (In thousands) 252 205 202 193 192
</TABLE>
38
<PAGE>
[FIVE YEAR OPERATIONS SUMMARY]
J.C. Penney Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JCPenney stores
Number of stores
Beginning of year 1,238 1,233 1,246 1,266 1,283
Openings 36 43 29 24 33
Closings (46) (38) (42) (44) (50)
------------------------------------------------------------------
End of year 1,228 1,238 1,233 1,246 1,266
Gross selling space (In million sq.ft.) 117.2 114.3 113.0 113.9 114.4
Sales (In millions) $15,734 $14,973 $15,023 $14,056 $13,460
Sales including catalog desks (In millions) 18,694 17,930 18,048 16,846 15,698
Sales per gross square foot 159 156 159 146 137
Catalog
Number of catalog units
JCPenney stores l,226 1,228 1,233 1,246 1,266
Freestanding sales centers and merchants 552 548 552 543 640
Drugstores 107 106 94 101 128
Other, principally outlet stores 17 17 16 14 14
------------------------------------------------------------------
Total 1,902 1,899 1,895 1,904 2,048
Number of fulfillment centers 6 6 6 6 6
Distribution space (In millions sq.ft.) 11.4 11.4 11.4 11.4 11.4
Sales (In millions) $ 3,772 $ 3,738 $ 3,817 $ 3,514 $ 3,166
Drugstores
Number of stores
Beginning of year 645 526 506 548 530
Openings 47 37 46 35 30
Drugstore acquisitions 2,020 97 -- -- --
Closings (13) (15) (26) (77) (12)
------------------------------------------------------------------
End of year 2,699 645 526 506 548
Gross selling space (In millions) 26.4 6.2 4.5 4.6 5.2
Sales (In millions) $ 3,147 $ 1,851 $ 1,540 $ 1,413 $ 1,383
Sales per gross square foot 261 253 243 235 211
JCPenney Insurance (In millions)
Revenue $ 832 $ 693 $ 564 $ 461 $ 376
Policies and certificates in force 10.4 9.0 7.5 5.8 4.6
Amount of life insurance in force 9,990 9,559 8,780 7,627 6,552
Total assets 1,986 1,741 1,360 1,246 1,033
</TABLE>
39
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Set forth below is a list of certain subsidiaries of the Company at March 1,
1997. All of the voting securities of each named subsidiary are owned by the
Company or by another subsidiary of the Company.
SUBSIDIARIES
- ------------
Eckerd Corporation (Delaware)
Fay's Incorporated (New York)
J. C. Penney Insurance Group, 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
---------------------------------------------------
The 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-
56993) on Form S-8;(7) the Registration Statement (No. 33-56995) on Form S-8;
(8) the Registration Statement (No. 333-13949) on Form S-8; (9) the Registration
Statement (No. 333-13951) on Form S-8; (10) the Registration Statement (No. 333-
22627) on Form S-8; (11) the Registration Statement (No. 333-22607) on Form S-8;
(12) the Registration Statement (No. 333-23339) on Form S-3; and (13) the
Registration Statement (No. 333-06883) on Form S-3 of J. C. Penney Company, Inc.
of our report dated February 27, 1997, relating to the consolidated balance
sheets of J. C. Penney Company, Inc. and subsidiaries as of January 25, 1997,
January 27, 1996, and January 28, 1995, and the related consolidated statements
of income, reinvested earnings, and cash flows for the years then ended, which
report appears in the 1996 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 25,
1997, and to our report dated February 27, 1997, 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 25, 1997, which report appears
in the Annual Report on Form 10-K of J. C. Penney Company, Inc. for the year
ended January 25, 1997.
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 and (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.
- -----------------
/s/ KPMG Peat Marwick LLP
Dallas, Texas
March 24, 1997
<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 ("Company") ,
which will file with the Securities and Exchange Commission, Washington,
D.C.("Commission"), (i) under the provisions of the Securities Act of 1933, as
amended, a Registration Statement on Form S-3 (or any appropriate form then in
effect) for the registration of the Company's debt securities (which may include
debt securities, together with warrants or other rights to purchase or otherwise
acquire debt securities), and (ii) under the provisions of the Securities
Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the 52
weeks ended January 25, 1997, hereby constitutes and appoints W. J. Alcorn, R.
B. Cavanaugh, C. R. Lotter, and D. A. McKay, and each of them, his or her true
and lawful attorneys-in-fact and agents, with full power to each of them 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 (x) said Registration Statement and Prospectus
and Prospectus Supplements, which are about to be filed, and any and all
subsequent amendments thereto (including, without limitation, any and all post-
effective amendments thereto ("Registration Statement")), and (y) said Annual
Report, which is about to be filed, and any and all subsequent amendments to
said Annual Report ("Annual Report"), and to file said Registration Statement
and Annual Report so signed, with all exhibits thereto, and any and all
documents in connection therewith, and to appear before the Commission in
connection with any matter relating to said Registration Statement and 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 12th day of March, 1997.
/s/ J. E. Oesterreicher /s/ W. B. Tygart
- ------------------------------ ---------------------------
Chairman of the Board and W. B. Tygart
Chief Executive Officer (principal President and Chief Operating
executive officer); Director Officer; Director
/s/ D. A. McKay /s/ W. J. Alcorn
- ----------------------------- ----------------------------
D. A. McKay W. J. Alcorn
Senior Vice President and Vice President and Controller
Chief Financial Officer (principal accounting officer)
(principal financial officer)
<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 25, 1997, 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-25-1997
<PERIOD-END> JAN-25-1997
<CASH> 131
<SECURITIES> 0
<RECEIVABLES> 5,862
<ALLOWANCES> 105
<INVENTORY> 5,722
<CURRENT-ASSETS> 11,712
<PP&E> 7,715
<DEPRECIATION> 2,701
<TOTAL-ASSETS> 22,088
<CURRENT-LIABILITIES> 7,966
<BONDS> 4,565
0
568
<COMMON> 1,416
<OTHER-SE> 3,968
<TOTAL-LIABILITY-AND-EQUITY> 22,088
<SALES> 22,653
<TOTAL-REVENUES> 23,649
<CGS> 16,043
<TOTAL-COSTS> 21,282
<OTHER-EXPENSES> 832
<LOSS-PROVISION> 267
<INTEREST-EXPENSE> 359
<INCOME-PRETAX> 909
<INCOME-TAX> 344
<INCOME-CONTINUING> 565
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 565
<EPS-PRIMARY> 2.29
<EPS-DILUTED> 2.25
</TABLE>
<PAGE>
EXHIBIT 99(b)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF 1996 ANNUAL REPORT
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
J. C. Penney Funding Corporation ("Funding") is a wholly-owned consolidated
subsidiary of J. C. Penney Company, Inc. ("JCPenney"). The business of Funding
consists of financing a portion of JCPenney's operations through loans to
JCPenney, the purchase of customer receivable balances that arise from the
retail credit sales of JCPenney, or a combination of both. No receivables have
been purchased by Funding since 1985. The loan agreement between Funding and
JCPenney provides for unsecured loans to be made by Funding to JCPenney. Each
loan is evidenced by a revolving promissory note and is payable upon demand in
whole or in part as may be required by Funding. Copies of Funding's loan and
receivables agreements with JCPenney are available upon request.
Funding issues commercial paper through Credit Suisse 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. The commercial paper is rated "A1" by Standard & Poor's
Corporation, "P1" by Moody's Investors Service, Inc., and "F1" by Fitch
Investors Service L.P.
Income is derived primarily from earnings on loans to JCPenney and is designed
to produce earnings sufficient to cover interest expense at a coverage ratio of
at least one and one-half times.
In 1996, net income decreased to $38 million from $43 million in 1995 which
increased from $32 million in 1994. The decrease in 1996 is attributed to lower
borrowing levels and lower interest rates. The increase in 1995 is attributed
to higher borrowing levels and higher interest rates. Interest expense was $111
million in 1996 compared with $128 million in 1995 and $94 million in 1994.
Interest earned from JCPenney was $169 million in 1996 compared to $194 million
in 1995 and $143 million in 1994.
Commercial paper borrowings averaged $1,827 million in 1996 compared to $2,145
million in 1995 and $1,990 million in 1994. The average interest rate on
commercial paper was 5.4 per cent in 1996, down from 5.9 per cent in 1995 and up
from 4.6 percent in 1994.
Committed bank credit facilities available to Funding and JCPenney as of January
25, 1997, amounted to $6 billion. In 1996, JCPenney and Funding amended the two
existing syndicated revolving credit facilities and entered into two new
syndicated revolving credit facilities with a group of domestic and
international banks. The "Existing" facilities support JCPenney's short term
borrowing program, and are comprised of a $1.5 billion, 364-day revolver, and a
$1.5 billion, five-year revolver. The 364-day revolver includes a $750 million
seasonal credit line for the August to January period thus allowing JCPenney to
match its seasonal borrowing requirements. The "Acquisition" facilities
provided short term funding for JCPenney's acquisition of Eckerd Corporation and
are also comprised of a $1.5 billion, 364-day revolver, and a $1.5 billion,
five-year revolver. As of January 25, 1997, $1.5 billion was borrowed under the
five-year "Acquisition" facility and $400 million was borrowed under the 364-day
"Acquisition" facility. See page 8 for a complete list of committed bank credit
facilities.
1996 total short term debt, including commercial paper and the credit facility
borrowings, averaged $2,041 million in 1996 compared to $2,145 million in 1995,
and $1,990 million in 1994. The average interest rate on the total short term
debt was 5.5 per cent in 1996, down from 5.9 per cent in 1995, and up from 4.6
per cent in 1994. The $1.9 billion credit line debt under the "Acquisition"
facilities was paid off on February 18, 1997. Subsequent to year end Funding
established a new Commercial Paper program.
We would like to express our appreciation to the institutional investment
community, as well as to our credit line participants and commercial paper
dealers for their continued support during 1996.
/s/ Robert B. Cavanaugh
Robert B. Cavanaugh
Chairman of the Board
February 27, 1997
2
<PAGE>
STATEMENTS OF INCOME J. C. PENNEY FUNDING CORPORATION
($ in millions)
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994
-----------------------
<S> <C> <C> <C>
INTEREST INCOME FROM JCPENNEY.............. $ 169 $ 194 $ 143
INTEREST EXPENSE........................... 111 128 94
----- ----- -----
INCOME BEFORE INCOME TAXES................. 58 66 49
Income taxes............................ 20 23 17
----- ----- -----
NET INCOME................................. $ 38 $ 43 $ 32
===== ===== =====
STATEMENTS OF REINVESTED EARNINGS
($ in millions)
1996 1995 1994
------------------------
BALANCE AT BEGINNING OF YEAR............... $ 926 $ 883 $ 851
NET INCOME................................. 38 43 32
----- ----- -----
BALANCE AT END OF YEAR..................... $ 964 $ 926 $ 883
===== ===== =====
</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>
1996 1995 1994
------------------------
<S> <C> <C> <C>
ASSETS
Loans to JCPenney.............................. $5,062 $2,563 $3,114
====== ====== ======
LIABILITIES AND EQUITY OF JCPENNEY
CURRENT LIABILITIES
Short term debt................................ $3,952 $1,482 $2,074
Due to JCPenney................................ 1 10 12
------ ------ ------
TOTAL CURRENT LIABILITIES................. 3,953 1,492 2,086
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............................ 964 926 883
------ ------ ------
TOTAL EQUITY OF JCPENNEY.................. 1,109 1,071 1,028
------ ------ ------
TOTAL LIABILITIES AND EQUITY OF JCPENNEY.. $5,062 $2,563 $3,114
====== ====== ======
</TABLE>
________
See Notes to Financial Statements on page 6
4
<PAGE>
STATEMENTS OF CASH FLOWS J. C. PENNEY FUNDING CORPORATION
($ In millions)
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994
------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................... $ 38 $ 43 $ 32
(Increase)Decrease in loans to JCPenney....... (2,499) 551 (791)
Increase(Decrease) in amount due to JCPenney.. (9) (2) (31)
------- ----- -----
$(2,470) $ 592 $(790)
FINANCING ACTIVITIES
Increase(Decrease) in short term debt......... $ 2,470 $(592) $ 790
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid................................. $ 111 $ 128 $ 94
Income taxes paid............................. $ 28 $ 26 $ 10
</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 25, 1997, January 27, 1996, and January 28, 1995, 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 25, 1997, January 27, 1996, and January 28, 1995, 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 27, 1997
- --------------------------------------------------------------------------------
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 1996
ended January 25, 1997, 1995 ended January 27, 1996, and 1994 ended January 28,
1995.
COMMERCIAL PAPER PLACEMENT
Funding places commercial paper solely through dealers. The average interest
rate on commercial paper at year end 1996, 1995, and 1994 was 5.5%, 5.7%, and
5.9%, 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 financial statements have been prepared in conformity with generally
accepted accounting principles. Certain amounts included in the 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 Loan
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
25, 1997, amounted to $6 billion. In 1996, JCPenney and Funding amended the two
existing syndicated revolving credit facilities and entered into two new
syndicated revolving credit facilities with a group of domestic and
international banks. The "Existing" facilities support JCPenney's short term
borrowing program, and are comprised of a $1.5 billion, 364-day revolver, and a
$1.5 billion, five-year revolver. The 364-day revolver includes a $750 million
seasonal credit line for the August to January period thus allowing JCPenney to
match its seasonal borrowing requirements. The "Acquisition" facilities
provided short term funding for JCPenney's acquisition of Eckerd Corporation and
are also comprised of a $1.5 billion, 364-day revolver, and a $1.5 billion,
five-year revolver. As of January 25, 1997, $1.5 billion was borrowed under the
five-year "Acquisition" facility and $400 million was borrowed under the 364-day
"Acquisition" facility.
FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------
The fair value of short term debt (commercial paper) at January 25, 1997,
January 27, 1996, and January 28, 1995, approximates the amount as reflected on
the balance sheet due to its short average maturity.
The fair value of loans to JCPenney at January 25, 1997, January 27, 1996, and
January 28, 1995, also approximates the amount reflected on the balance sheet
because the loan is payable on demand and the interest charged on the loan
balance is adjusted to reflect current market interest rates.
________
6
<PAGE>
FIVE YEAR FINANCIAL SUMMARY J. C. PENNEY FUNDING CORPORATION
($ In millions)
<TABLE>
<CAPTION>
AT YEAR END 1996 1995 1994 1993 1992
-----------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITALIZATION
Short term debt
Commercial paper............ $2,049 $1,482 $2,074 $1,284 $ 887
Credit line advance......... 1,903 - - - -
------ ------ ------ ------ ------
Total short term debt..... 3,952 1,482 2,074 1,284 887
Equity of JCPenney............. 1,109 1,071 1,028 996 980
------ ------ ------ ------ ------
TOTAL CAPITALIZATION.............. $5,061 $2,553 $3,102 $2,280 $1,867
====== ====== ====== ====== ======
COMMITTED BANK CREDIT FACILITIES.. $6,000 $3,000 $2,500 $1,250 $1,250
FOR THE YEAR
INCOME............................ $ 169 $ 194 $ 143 $ 71 $ 77
EXPENSES.......................... $ 111 $ 128 $ 94 $ 47 $ 51
NET INCOME........................ $ 38 $ 43 $ 32 $ 16 $ 17
FIXED CHARGES - TIMES EARNED...... 1.52 1.52 1.52 1.52 1.52
PEAK SHORT TERM DEBT.............. $4,010 $2,771 $2,649 $2,327 $1,665
AVERAGE DEBT...................... $2,041 $2,145 $1,990 $1,347 $1,185
AVERAGE INTEREST RATES............ 5.5% 5.9% 4.6% 3.2% 3.9%
</TABLE>
________
7
<PAGE>
QUARTERLY DATA J. C. PENNEY FUNDING CORPORATION
($ in millions) (Unaudited)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
----------------- ---------------- ---------------- ----------------
1996 1995 1994 1996 1995 1994 1996 1995 1994 1996 1995 1994
----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income....................... $ 32 48 24 33 48 32 36 52 38 68 46 49
Expenses..................... $ 21 31 16 22 32 21 24 34 25 44 31 32
Income before taxes.......... $ 11 17 8 11 16 11 12 18 13 24 15 17
Net income................... $ 7 11 5 7 10 7 8 12 9 16 10 11
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 25, 1997
Bank of America NT & SA
Bank of Hawaii
Bank of New York
Bank One, Texas, N.A.
Bankers Trust Company
The Bank of Tokyo-Mitsubishi, Ltd.
Banque Nationale de Paris
Barclays Bank PLC
Caisse Nationale de Credit Agricole
Canadian Imperial Bank of Commerce
The Chase Manhattan Bank
Citibank, N.A.
Compagnie Financiere de CIC et de l'Union
Europeenne
CoreStates Bank, N.A.
Credit Suisse First Boston
Dai-Ichi Kangyo Bank
The First National Bank of Boston
The First National Bank of Chicago
First Security Bank of Utah, N.A.
First Union National Bank of
North Carolina
Firstar Bank Milwaukee, N.A.
Fleet National Bank
The Fuji Bank, Limited
Hibernia National Bank
The Hong-Kong Shanghai Banking
Corporation, Ltd.
The Industrial Bank of Japan
Trust Company
The Long Term Credit Bank of
Japan, Ltd.
Mellon Bank, N.A.
Morgan Guaranty Trust Company
of New York
National Australia Bank, Limited
NationsBank of Texas, N.A.
The Northern Trust Company
Norwest Bank Minnesota, N.A.
PNC Bank, N.A.
The Royal Bank of Canada
The Sanwa Bank, Limited
Sakura Bank, Limited
San Paolo Bank
The Sumitomo Bank, Limited
SunBank, N.A.
Union Bank of Switzerland
United Missouri Bank, N.A.
United States National Bank
of Oregon
Wachovia Bank of North Carolina, N.A.
Wells Fargo Bank (Texas), N.A.
Yasuda Trust & Banking Company, Ltd.
__________
8
<PAGE>
EXHIBIT 99(c)
Selected Consolidated Financial Information
Set forth below is certain selected historical consolidated financial data
with respect to Eckerd Corporation. As it relates to 1992 through 1995, such
information was excerpted or derived from financial information contained in
Eckerd's Annual Report on Form 10-K for the year ended February 3, 1996
("Eckerd's Form 10-K"). Regarding fiscal 1996, such information, which is
unaudited, is excerpted from Eckerd's financial information for such fiscal
year. The information below represents Eckerd's continuing operations, and
excludes the results of Insta-Care Holdings, Inc. (sold November 15, 1994), the
Vision Group Operations (sold effective January 30, 1994) and any reserves
established for future store closings. In addition, the financial information
for fiscal 1995 is presented on a comparable 52-week basis. More comprehensive
financial information is included in Eckerd's Form 10-K and other documents
filed by Eckerd with the Securities and Exchange Commission. The financial
information that follows is qualified in its entirety by reference to Eckerd's
Form 10-K and such other documents, including the financial statements and
related notes therein.
ECKERD CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales and other operating revenue.... $5,376,221 $4,902,789 $4,446,728 $4,060,614 $3,770,879
Gross profit......................... 1,183,373 1,101,174 1,020,868 955,880 935,478
Earnings before interest expense
and taxes........................ 213,950 196,441 171,615 150,277 128,063
Other Operating and Drugstore Data:
EBITDA(1)............................ 308,136 279,592 247,985 231,280 216,695
Comparable drugstore sales growth.... 7.8% 8.8% 8.1% 6.1% 3.1%
Average sales per selling square
foot (in dollars)................ 383 336 325 302 283
- ---------------------------
</TABLE>
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization. While the Company believes that EBITDA is a key measure of
assessing operating performance and cash flow, EBITDA is not intended as a
substitute for other statement of operations data prepared in accordance
with generally accepted accounting principles.
