<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the 13 week period Commission file number 1-777
ended April 26, 1997
J. C. PENNEY COMPANY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-5583779
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6501 Legacy Drive, Plano, Texas 75024 - 3698
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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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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 .
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
247,908,369 shares of Common Stock of 50 cent par value, as of May 16, 1997.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS.
The following interim financial information is unaudited but, in the opinion of
the Company, includes all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation. Certain prior year amounts have
been restated to conform with the current year presentation. The financial
information should be read in conjunction with the audited consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the 52 weeks ended January 25, 1997.
Statements of Income
(Amounts in millions except per share data)
13 weeks ended
---------------------------
Apr. 26, Apr. 27,
1997 1996
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Retail sales $6,481 $4,452
Insurance revenue 224 192
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Total revenue 6,705 4,644
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Costs and expenses
Cost of goods sold, occupancy, buying,
and warehousing costs 4,677 3,112
Selling, general, and administrative
expenses 1,514 1,154
Costs and expenses of insurance operations 172 150
Other (10) (22)
Net interest expense and credit
operations 81 23
Amortization of intangible assets
and minority interest 41 --
Business acquisition and consolidation
expenses, net 2 --
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Total costs and expenses 6,477 4,417
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Income before income taxes 228 227
Income taxes 89 85
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Net income $ 139 $ 142
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Net income per common share
Primary $ .53 $ .58
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Fully diluted $ .53 $ .57
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Weighted average common shares outstanding
Primary 242.4 227.2
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Fully diluted 261.2 247.2
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Balance Sheets
(Amounts in millions)
Apr. 26, Apr. 27, Jan. 25,
1997 1996 1997
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ASSETS
Current assets
Cash and short term investments
of $2,468, $103, and $131 $ 2,553 $ 145 $ 131
Receivables, net 4,481 4,756 5,757
Merchandise inventories 5,830 3,992 5,722
Prepaid expenses 62 92 102
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Total current assets 12,926 8,985 11,712
Properties, net of accumulated
depreciation of $2,970, $2,036,
and $2,701 5,024 4,245 5,014
Investments, primarily insurance operations 1,593 1,637 1,605
Deferred insurance policy acquisition costs 682 603 666
Goodwill and other intangible assets 2,972 -- 1,861
Other assets 1,339 1,312 1,230
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$24,536 $16,782 $22,088
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Balance Sheets
(Amounts in millions)
Apr. 26, Apr. 27, Jan. 25,
1997 1996 1997
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 3,210 $ 2,129 $ 3,738
Short term debt 2,597 1,385 3,950
Current maturities of long term debt 250 -- 250
Deferred taxes 78 107 28
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Total current liabilities 6,135 3,621 7,966
Long term debt 7,538 4,077 4,565
Deferred taxes 1,464 1,236 1,362
Insurance policy and claims reserves 799 711 781
Other liabilities 1,424 1,247 1,383
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Total liabilities 17,360 10,892 16,057
Minority interest in Eckerd -- -- 79
Stockholders' equity
Preferred stock, without par value:
Authorized, 25 million shares -
issued, 1 million shares of
Series B ESOP convertible preferred 558 589 568
Guaranteed LESOP obligation (142) (228) (142)
Common stock, par value 50c:
Authorized, 1,250 million shares -
issued, 248, 225, and 224 million
shares 2,667 1,140 1,416
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Total capital stock 3,083 1,501 1,842
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Reinvested earnings at beginning
of year 4,110 4,397 4,397
Net income 139 142 565
Net unrealized change in debt
and equity securities and foreign
currency translation adjustments (24) (33) (21)
Retirement of common stock -- -- (320)
Common stock dividends declared (132) (117) (471)
Preferred stock dividends
declared, net of taxes -- -- (40)
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Reinvested earnings at end of
period 4,093 4,389 4,110
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Total stockholders' equity 7,176 5,890 5,952
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$24,536 $16,782 $22,088
======= ======= =======
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Statements of Cash Flows
(Amounts in millions)
13 weeks ended
-------------------------
Apr. 26, Apr. 27,
1997 1996
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Operating activities
Net income $ 139 $ 142
Depreciation and amortization, including
intangibles 149 82
Deferred taxes 128 48
Change in cash from:
Customer receivables 516 476
Inventories, net of trade payables (143) (97)
Other assets and liabilities, net (358) (307)
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431 344
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Investing activities
Capital expenditures (195) (123)
Proceeds from the sale of bank receivables 684 --
Purchases of investment securities (140) (165)
Proceeds from sales of investment securities 114 131
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463 (157)
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Financing activities
Decrease in short term debt (1,353) (124)
Net proceeds from the issuance of long term debt 2,988 --
Common stock issued, net 21 28
Preferred stock retired (10) (14)
Dividends paid, preferred and common (118) (105)
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1,528 (215)
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Net increase/(decrease) in cash and short term
investments 2,422 (28)
Cash and short term investments at beginning
of year 131 173
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Cash and short term investments at end of
first quarter $ 2,553 $ 145
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Non-cash transaction
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On February 27, 1997, the Company completed the second step of the acquisition
of Eckerd Corporation through the exchange of 23.2 million shares of JCPenney
common stock for the remaining 49.9 per cent of the outstanding common stock of
Eckerd. The value of the non-cash portion of the acquisition was approximately
$1.3 billion.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Financial Condition
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The Company completed the acquisition of Eckerd Corporation (Eckerd) on
February 27, 1997. The acquisition was accomplished through a two step
transaction consisting of a cash tender offer for 50.1 per cent of the
outstanding Eckerd common stock (completed in December 1996), followed by the
exchange of approximately 23.2 million shares of JCPenney common stock for the
remaining 49.9 per cent of Eckerd common stock in February 1997. The total value
of the acquisition, including Eckerd debt assumed by the Company, was
approximately $3.3 billion.
The pro forma effects of the Company's drugstore acquisitions, including Fay's
Incorporated which was acquired in October, 1996, would have been as follows:
<TABLE>
<CAPTION>
Historical Pro Forma
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<S> <C> <C>
($ in millions)
Retail sales $4,452 $6,055
Net income $ 142 $ 139
Earnings per share (fully diluted) $ 0.57 $ 0.52
</TABLE>
During the first quarter of 1997, the Company completed the sale of the credit
card portfolio of JCPenney National Bank. In addition, the Company has announced
the pending sale of the remaining assets of the bank in a transaction that is
expected to close by the end of the year.
Merchandise inventories on a FIFO basis totaled $6,042 million at the end of the
first quarter compared with $4,218 million at the end of last year's first
quarter, with the majority of the increase related to the Company's recent
drugstore acquisitions. Inventories for JCPenney stores and catalog totaled
$4,309 million as compared with $3,817 million last year, a 12.9 per cent
increase. Stores and catalog inventory levels were above plan at the end of the
quarter and the Company believes it has taken the necessary steps to bring
inventories in line with expected sales levels over the next several months.
Eckerd drugstore inventories totaled $1,733 million compared with $401 million
last year. The current cost of inventories exceeded the LIFO basis amount
carried on the balance sheet by approximately $212 million at April 26, 1997,
$265 million at January 25, 1997, and $226 million at April 27, 1996.
Properties, net of accumulated depreciation, totaled $5,024 million at April 26,
1997 compared with $4,245 million at the end of last year's first quarter. The
increase from last year is principally related to the opening of 35 new and
relocated JCPenney stores since April 1996, as well as the drugstore
acquisitions. During the first quarter of 1997, Eckerd opened 110 new,
relocated, and acquired drugstores. In addition, Eckerd announced on May 30,
1997 that it had entered into a definitive agreement to acquire 114 Revco
drugstores in the Norfolk and Richmond, Virginia markets from CVS Corporation.
The transaction is expected to be completed by the end of July 1997.
Goodwill and other intangible assets, net, recorded as of April 26, 1997 was
$2,972 million and reflected the Company's drugstore acquisitions.
During the first quarter of 1997, the Company issued $3.0 billion of debt, which
lowered the average interest rate and extended the average maturity for its
aggregate outstanding long term debt. The proceeds from these borrowings were
used principally to fund the Eckerd acquisition. In addition, during the first
quarter of 1997, the Company retired its two revolving "Acquisition" credit
facilities, leaving its customary $3.0 billion in revolving credit facilities,
which are used to support its short term borrowing requirements, at the end of
the first quarter. Total debt, both on and off-balance-sheet, was $10.8 billion
at April 26, 1997, up $4.2 billion compared with April 27, 1996 levels. It is
expected that the Company's debt to capital ratio will approximate 60.0 per cent
for the year.
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Cash and short term investments increased substantially in the first quarter of
1997 compared with last year's first quarter and year end 1996 as a result of
the temporary investment of funds generated from the debt issues described above
and the sale of bank receivables.
On March 12, 1997, the Board of Directors increased the quarterly dividend to
53.5 cents per share, or an indicated annual rate of $2.14. The regular
quarterly dividend of 53.5 cents per share on the Company's outstanding common
stock was paid on May 1, 1997, to stockholders of record on April 10, 1997.
Results of Operations
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Ratios useful in analyzing the results of operations are as follows:
13 weeks ended
------------------------
Apr. 26, Apr. 27,
1997 1996
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Sales and revenue, per cent increase
JCPenney stores 5.8 0.6
Eckerd drugstores 11.2 (1) 12.5
Catalog 0.8 1.3
Insurance 16.7 23.2
Comparable store sales, per cent
increase/(decrease)
JCPenney stores 4.5 (0.8)
Eckerd drugstores 7.7 5.3
FIFO gross margin, per cent
of sales
JCPenney stores and catalog 31.0 31.2
Eckerd drugstores 22.2 22.2 (1)
Selling, general, and adminis-
trative expenses, per cent
of sales
JCPenney stores and catalog 27.1 26.9
Eckerd drugstores 16.7 17.5 (1)
Operating profit, per cent of
revenue (2)
JCPenney stores and catalog 3.9 4.3
Eckerd drugstores 5.5 4.7 (1)
Insurance 23.2 21.9
Effective income tax rate 39.1 37.7
(1) The percentage shown has been calculated using 1996 pro forma data,
assuming the Company's drugstore acquisitions had occurred at the
beginning of 1996.
(2) Operating profit by segment excludes interest, amortization, business
acquisition expenses, and taxes.
Operating profit, excluding interest, amortization, business acquisition
expenses, and taxes (EBIT) for the quarter totaled $352 million, an increase of
40 per cent from last year's first quarter. Income before income taxes for the
13 weeks ended April 26, 1997 was $228 million, up slightly from the first
quarter of 1996. Net income totaled $139 million, or 53 cents per share, as
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compared with $142 million, or 57 cents per share in last year's first quarter.
JCPenney Stores and Catalog
Sales of JCPenney stores for the first quarter were $3,332 million, an increase
of 5.8 per cent (4.5 per cent on a comparable store basis) compared with first
quarter 1996. Catalog sales, which totaled $810 million, increased 0.8 per cent
during the period. FIFO gross margin dollars for stores and catalog increased
$50 million to $1,284 million in the first quarter compared to last year, a
decline of 20 basis points as a per cent of sales. The margin ratio was impacted
by higher inventory levels entering the quarter. Selling, general, and
administrative expenses totaled $1.1 billion, an increase of $60 million from
first quarter 1996. Expense levels were impacted by increases in selling
salaries, and national and preprint advertising programs.
Eckerd Drugstores
The following discussion of drugstore operations compares 1997 results with 1996
pro forma results which assume that recent drugstore acquisitions had occurred
at the beginning of 1996.
Sales of drugstores totaled $2,339 million for the first quarter of 1997, an
11.2 per cent increase from $2,103 million in last year's first quarter.
Drugstore sales benefited from significant increases in prescription sales
volumes. The increase in prescription sales, which account for more than 50 per
cent of total drugstore sales volume, was primarily a result of higher volumes
of managed care sales. FIFO gross margin as a per cent of sales was even with
last year. Selling, general, and administrative expenses were well leveraged
during the quarter. Expense dollars improved 80 basis points as a per cent of
sales. Operating profit (EBIT) for drugstores was 5.5 per cent of sales compared
with 4.7 per cent last year. Integration of the drugstore operations is
proceeding according to plan and is expected to be completed by the end of
September.
Insurance
Premium income and other revenues totaled $224 million in the first quarter, an
increase of 16.7 per cent compared with a year ago. During the first quarter of
1997, Insurance generated operating profits of $52 million compared with $42
million a year ago, a 23.8 per cent increase. These results continue the strong
growth that has been experienced over the past five years during which both
premiums and operating profits have grown at an annual rate of approximately 20
per cent. The increases are primarily related to successful programs with
business partners which offer credit cards, principally banks, oil companies,
and retailers.
Net Interest Expense and Credit Operations
Net interest expense and credit operations for the first quarter of 1997 was $81
million compared with $23 million in the comparable period last year, and is
primarily related to higher interest costs. Net interest expense was $135
million in the first quarter, up $60 million from last year's first quarter. The
increase is principally related to higher costs associated with the drugstore
acquisitions and working capital requirements for JCPenney stores and catalog.
Finance charge revenue of $184 million in the first quarter was up $16 million,
or 9.5 per cent, from 1996 levels. This increase is primarily
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related to modifications which have recently been made to credit terms in
selected states. Increased finance charge revenue offset increases in operating
expenses. Credit operating costs were $130 million in first quarter 1997
compared with $116 million in first quarter 1996. Net bad debt expense, which
represents the largest single component of credit costs, increased $7 million,
or 14 per cent, from a year ago.
Acquisitions and Divestitures
The Company recorded a net $2 million charge for business acquisition and
consolidation expenses. This charge consisted principally of costs related to
the consolidation and integration of the recent drugstore acquisitions, offset
by a $28 million gain on the sale of the Company's consumer banking credit card
portfolio.
Also in connection with the drugstore acquisitions, the Company recorded a $27
million charge in the first quarter of 1997 for amortization of intangible
assets and a $14 million charge for the minority interest in Eckerd prior to
completion of the acquisition.
The Company's effective income tax rate was 39.1 per cent in the first quarter
compared with 37.7 per cent in last year's first quarter. The increase is
principally related to amortization of goodwill which provides no tax benefit.
The Company's business depends to a great extent on the last quarter of the
year. Historically, sales for that period have averaged approximately one third
of annual sales. Accordingly, the results of operations for the 13 weeks ended
April 26, 1997 are not necessarily indicative of the results for the entire
year.
New Accounting Rules
- --------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" in February 1997. The new
rules will replace primary and fully diluted earnings per share (EPS) with basic
and diluted EPS. The new rules, which are effective for periods ending after
December 15, 1997, are not expected to have a material impact on the Company.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS.
The Company has no material legal proceedings pending against it.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
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The following documents are filed as exhibits to this report:
10(a) J. C. Penney Company, Inc. Deferred Compensation Plan for
Directors, as amended effective April 9, 1997.
10(b) J. C. Penney Company, Inc. Retirement Plan for Non-Associate
Directors.
11 Computation of net income per common share.
12(a) Computation of ratios of available income to combined fixed
charges and preferred stock dividend requirement.
12(b) Computation of ratios of available income to fixed charges.
27 Financial Data Schedule for the three months ended April 26,
1997.
(b) Reports on Form 8-K
-------------------
The Company filed the following reports on Form 8-K during the period
covered by this report:
Current Report on Form 8-K dated February 20, 1997 (Item 5 - Other
Events, Item 7 - Financial Statements and Exhibits).
Current Report on Form 8-K dated February 21, 1997 (Item 7 - Financial
Statements and Exhibits).
Current Report on Form 8-K dated March 28, 1997 (Item 7 - Financial
Statements and Exhibits).
Current Report on Form 8-K dated April 9, 1997 (Item 5 - Other Events,
Item 7 - Financial Statements and Exhibits).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
J. C. PENNEY COMPANY, INC.
By /S/ W. J. Alcorn
-------------------------------
W. J. Alcorn
Vice President and Controller
(Principal Accounting Officer)
Date: June 9, 1997
<PAGE>
Exhibit 10(a)
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J. C. Penney Company, Inc.
Deferred Compensation Plan for Directors
AS AMENDED EFFECTIVE APRIL 9, 1997
================================================================================
1. PURPOSE OF PLAN
The purpose of the J. C. Penney Company, Inc. Deferred Compensation Plan for
Directors ("Plan") is to provide a procedure whereby a member of the Board of
Directors of J. C. Penney Company, Inc. ("Company") who is not an associate of
the Company or any of its subsidiaries ("Director") may defer the payment of all
or a specified portion of the compensation payable to the Director for services
as a Director, including the annual retainer, meeting fees, and fees payable to
a Director for services above and beyond those services in connection with his
or her Board and committee responsibilities ("Fees"). Deferred Fees will be
subject to Social Security Self-Employment tax in the year the Fees are paid
irrespective of when such Fees are earned. A Director who elects to defer the
payment of Fees will be eligible to make a deductible Keogh Plan contribution
with respect to such Fees in the year such Fees are actually paid to the
Director.
2. ADMINISTRATION
The Plan shall be administered by a committee ("Committee") consisting of one or
more persons appointed from time to time by the Board of Directors out of those
members of the Board of Directors who have never been participants under the
Plan. The Committee shall have plenary authority in its discretion, but subject
to the express provisions of the Plan, to interpret the Plan, to prescribe,
amend, and rescind rules and regulations relating to it, and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The determinations of the Committee on the foregoing matters shall be conclusive
and binding on all interested parties.
3. ELECTION TO DEFER
A Director may elect, at any time, to defer payment of all or a specified
portion of any unearned Fees. Such election shall be effective on the first day
of the month following receipt by the Secretary of the Company of written notice
thereof.
4. DIRECTORS' ACCOUNTS
There shall be established for each Director participating in the Plan an
account on the books of the Company, to be designated as such Director's
deferred compensation account ("Account"). Unless and until a Change of Control
(as defined hereinafter) shall be deemed to have occurred, all amounts deferred
pursuant to the Plan, together with any further amounts accrued thereon, as
hereinafter provided, shall be held in the general funds of the Company and
shall be credited to the Director's Account. The Company shall furnish
quarterly or upon request to each participating Director a statement of such
Director's Account. In the event a Change of Control (as defined hereinafter)
shall be deemed to have occurred, the Company's liability for benefits under the
Plan shall be funded under an irrevocable trust which shall be subject to the
claims of the Company's general creditors so that Eligible Directors will not be
currently taxed upon the funding of such benefits.
For purposes of this Section 4, a Change of Control shall be deemed to have
occurred if (a) any person or "group" (as determined for purposes of Securities
and Exchange Commission Regulation 13D-G), except any majority-owned subsidiary
or any Company employee benefit plan or any trust or investment manager
thereunder, shall have acquired "beneficial ownership" (as determined for
purposes of Securities and Exchange Commission Regulation 13D-G) of shares of
Company common stock having 40% or more of the voting power of all outstanding
shares of Company capital stock;
1
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or (b) a merger or consolidation occurs to which the Company is a party, whether
or not the Company is the surviving corporation in which outstanding shares of
Company common stock are converted into shares of another company (other than a
conversion into shares of voting common stock of the successor corporation or a
holding company thereof) or other securities or cash or other property
(excluding payments made solely for fractional shares); or (c) the sale of all,
or substantially all, of the Company's assets occurs.
If a Director should make the one-time election under the J. C. Penney Company,
Inc. Retirement Plan for Non-Associate Directors to cease participation in that
plan and to transfer his or her accrued benefit under that plan to this Plan,
the amount so transferred, together with any further amounts accrued thereon
("Retirement Transfer"), shall be a part of the Director's Account, but
segregated for purposes of the payment limitation under Section 5 with respect
to the Retirement Transfer.
Effective with respect to calendar quarters ending before July 1, 1984, on the
first business day following the end of each such quarter, interest shall have
been accrued and credited to each such Account on the basis of the average
balance in such Account during the quarter at an annual rate which shall be
equal to the lesser of (i) three percent below the average Prime Lending Rate in
effect during the quarter or (ii) the average short-term interest rate on
borrowed funds paid by the Company and its subsidiary, J. C. Penney Financial
Corporation, during the quarter. "Prime Lending Rate" shall mean the rate that
The Chase Manhattan Bank, N.A. charges from time to time at its principal
domestic office on 90-day loans to responsible and substantial commercial
borrowers.
Effective with respect to calendar quarters ending after June 30, 1984, but
ending before December 31, 1988, a Director may elect that all but not a part of
the balance in his or her Account be determined by reference to one of the
following factors ("Factors"):
(1) the addition of interest, to be accrued during each such quarter and to
be credited to such Account on the first business day following the end
of such quarter on the basis of the average balance in such Account
during such quarter, at a rate equal, also at such Director's election,
to either (a) the average annual rate payable for one-year United States
Treasury Notes issued during such quarter, or (b) the guaranteed annual
rate in effect for such quarter under the Interest Income Account of the
J.C. Penney Company, Inc. Savings and Profit-Sharing Retirement Plan
("Guaranteed Rate")*; or
(2) a number of units ("Units"), to be determined and valued in accordance
with the fair market value of shares of the Company's Common Stock of 50
cents par value ("Common Stock"), the method of such determination and
valuation being set forth in Attachment A to the Plan.
Effective with respect to calendar quarters ending after December 31, 1988,
Directors' elections as to Factors shall remain the same as those of the
previous paragraph, except that clause (b) of the first Factor be, and it hereby
is, changed to read as follows:
(b) the guaranteed annual rate in effect for such quarter under the
Interest income Account of the (i) J. C. Penney Company, Inc. Savings and
Profit-Sharing Retirement Plan, or (ii) J. C. Penney Company, Inc. Savings,
Profit-Sharing, and Stock Ownership Plan, whichever is higher ("Guaranteed
Rate")*.
********************************************************************************
*Note: In 1992, a change was made to the Company's Savings Plans with respect
to the Interest Income Accounts. A new investment vehicle called "Structured
Income Contracts" was added to these accounts to replace the contracts commonly
known as "Guaranteed Interest Contracts." As a result, a fixed rate is no
longer available at the beginning of a quarterly period; the rate is determined
at the end of the quarter based on the aggregate interest income realized by the
investments held in the Interest Income Accounts. An administrative change has
been made to the Directors' Deferred Compensation Plan with respect to the
interest rate factor to continue the intent of conforming this interest rate
factor to the corresponding interest rate factor in the Savings Plans.
2
<PAGE>
Effective with respect to calendar quarters ending after June 30, 1997, in
addition to the Factors provided in the two immediately preceding paragraphs, a
Director may elect that all but not a part of the balance in his or her Account
be determined by reference to the average interest rate in effect for such
quarter under the J. C. Penney Company, Inc. 1995 Deferred Compensation Plan.
The Director's election as to the Factor to be referenced to determine the
balance in his or her Account and any change in such election, shall be
effective on the first day of the calendar quarter following receipt by the
Secretary of the Company of written notice thereof; provided, however, that in
the absence of any such election, the Factor for a Director's Account shall be
deemed to be the Guaranteed Rate.
5. PAYMENT FROM DIRECTORS' ACCOUNTS
At the time a Director elects to participate in the Plan, he or she shall also
make an election, which election shall be irrevocable, except as hereinafter
provided, as to his or her deferral payment date, which shall be the first
business day of a calendar year selected by the Director ("Deferral Payment
Date"); provided, however, that such year shall in no event be later than the
fifth calendar year following the calendar year in which the Director shall have
become ineligible for election or re-election as a Director under the Company's
Bylaws. With respect to a Director's Retirement Transfer, in no event may the
Deferral Payment Date commence before the later of the Director's attainment of
age 65 or the Director's separation from Board service. In no event may a
Deferral Payment Date be changed except as provided in Section 6.
If an election to defer was made prior to September 25, 1984, payment of the
balance in a Director's Account shall be made in the number of annual
installments elected by such Director, and if an election to defer is made on or
after September 25, 1984, payment of the balance in a Director's Account shall
be made in 10 annual installments. In either event, the Committee may, with the
consent of a Director, subsequently on a one-time basis reduce the number of
annual installments (including a reduction to a lump sum payment) payable to
such Director, provided that any such reduction is made no later than 30 days
prior to such Director's Deferral Payment Date.
The first installment or the lump sum, as the case may be, shall be paid on the
Deferral Payment Date, and subsequent installments, if any, shall be paid on the
first business day of each succeeding calendar year until the entire remaining
balance in a Director's Account shall have been paid. During any period in
which a balance remains in a Director's Account, such remaining balance shall
continue to be determined by the Factor which is then in effect for such
Director until further changed by such Director. When a Director is to receive
the balance of his or her Account in annual installments, each such annual
installment shall be a fraction of the balance in such Account on the date such
annual installment is to be paid, the numerator of which is one and the
denominator of which is the total number of installments then remaining to be
paid.
Any payments from a Director's Account shall be made in cash, and in no event
shall shares of Company Stock be issued to a Director, even if such Director
shall have elected to have the value of his or her Account determined by
reference to the Unit Factor.
6. PAYMENT IN EVENT OF DEATH OR HARDSHIP
If a Director should die before the balance in his or her Account shall have
been paid in full, the balance then remaining shall be paid promptly in a lump
sum to such Director's estate or to his or her designated beneficiary or
beneficiaries. A Director may designate one or more beneficiaries (which may be
an entity other than a natural person) to receive any payments to be made upon
the Director's death. At any time, and from time to time, any such designation
may be changed or canceled by the Director without notice to or the consent of
any beneficiary. Any such designation, change, or cancellation shall be
effective upon receipt by the Secretary of the Company of written
3
<PAGE>
notice thereof. If a Director designates more than one beneficiary, any payments
to such beneficiaries shall be made in equal shares unless the Director has
designated otherwise. If no beneficiary has been named by the Director, or if
the designated beneficiary or beneficiaries shall have predeceased him or her,
or shall no longer exist, the balance shall be paid to the Director's estate.
The Committee may, at any time, under rules which it may prescribe, direct the
Company to pay in a lump sum to a Director all or any portion of the balance
then in the Director's Account, if the Committee finds, in its sole discretion,
that continued deferral of all or any portion of such balance shall result in a
financial hardship to such Director or that such Director has become disabled.
In the case of a then existing election to defer, the Committee's determination
to pay all or any portion of such balance shall immediately operate as a
termination of such election to defer.
7. TERMINATION OF ELECTION TO DEFER
A Director may at any time terminate his or her election to defer payment of
Fees. Such termination shall become effective on the last day of the month in
which written notice thereof is received by the Secretary of the Company;
provided, however, that any balance in the Account of a Director prior to the
effective date of termination of an election to defer shall not be affected
thereby and shall be paid only in accordance with Sections 5 and 6. A Director
who has filed a termination of election to defer or whose election to defer has
been terminated in accordance with Section 6 may thereafter again file an
election to defer in accordance with Section 3.
8. NONASSIGNABILITY
During a Director's lifetime, the right to the balance in his or her Account
shall not be transferable or assignable. Nothing contained in the Plan shall
create, or be deemed to create, a trust, actual or constructive, for the benefit
of a Director or his or her beneficiary, or shall give, or be deemed to give, to
any Director or his or her beneficiary any interest in any specific assets of
the Company.
9. AMENDMENT
The Board of Directors of the Company may, at any time, without the consent of
the participants, amend, suspend, or terminate the Plan. Subject to any
applicable laws and regulations, no amendment, suspension, or termination of the
Plan shall operate to annul an election already in effect for the then current
calendar year or for any preceding calendar year and Fees shall continue to be
deferred until the end of such current calendar year in accordance with a
Director's then current election; and the balance in the Director's Account
shall continue to be payable in accordance with a Director's then current
election and, until paid, to be measured by a factor to be determined from time
to time by the Committee.
10. GOVERNING LAW
The Plan shall be construed and enforced according to the laws of the State of
New York, and all the provisions thereof shall be administered according to the
laws of said State.
11. SEVERABILITY OF PROVISIONS
If any of the provisions of the Plan or the application thereof to any Director
shall be held invalid, neither the remainder of the Plan nor its application to
any other Director shall be affected thereby.
12. EFFECTIVE DATE
The Plan shall become effective on August 28, 1979; and was amended on
September 25, 1984; June 28, 1988; February 28, 1989; July 8, 1992; and April 9,
1997.
4
<PAGE>
Attachment A
GENERAL
Units shall be measured by reference to the fair market value of a share of
Company Stock.
FAIR MARKET VALUE
For purposes of the Plan, the fair market value ("Fair Market Value") of a share
of Company Stock shall be the closing market price for that date as reported in
the composite transaction table covering transactions of New York Stock Exchange
listed-securities or such other amount as the Plan Committee shall ascertain
reasonably to represent such Fair Market Value.
CALCULATION OF UNITS
The number of Units, to be calculated to the nearest thousandth of a Unit, shall
be determined (1) on the effective date of the election of the Unit Factor, by
dividing (a) the balance, if any, then in a Director's account by (b) the Fair
Market Value of a Share of Company Stock on the last trading day prior to the
date of election of such Factor and (2) as to Fees deferred thereafter, by
dividing (a) the amount of such deferred Fees on any date on which such Fees
would otherwise have been paid by (b) the Fair Market Value of a share of
Company Stock on the last trading day prior to the date such deferred Fees would
otherwise have been paid.
CASH DIVIDENDS
Whenever a cash dividend is paid on a share of Company Stock, the number of
Units in a Director's Account shall be increased by a number determined by
dividing (1) the product of (a) the number of such Units times (b) an amount
equal to the amount of the cash dividend paid on a share of Company Stock by (2)
the Fair Market Value of a share of Company Stock on the last trading date prior
to the appropriate dividend payment date.
ADJUSTMENTS
In the event of any change in the outstanding Company Stock by reason of a stock
dividend, stock split, recapitalization, merger, consolidation, combination or
exchange of shares, spin-off, distribution to holders of Company Stock (other
than cash dividends), or the like, the Plan Committee shall adjust appropriately
the number of Units credited to a Director's Account.
VALUATION OF ACCOUNT BALANCE REFERENCED TO UNITS
If a Director has elected to have his or her Account balance determined by
reference to the Unit Factor, then the value at any time of the balance in such
Account shall be determined by multiplying (1) the number of Units in such
Account by (2) the Fair Market Value of a share of Company Stock on the last
trading day prior to the date such value is determined.
<PAGE>
Exhibit 10(b)
J. C. Penney Company, Inc. Retirement Plan For Non-Associate Directors
- -------------------------------------------------------------------------------
ARTICLE I PURPOSE OF PLAN
The purpose of the J. C. Penney Company, Inc. Retirement Plan for Non-Associate
Directors is to provide retirement benefits for members of the Board of
Directors who have not been Associates, to provide competitive compensation for
such members of the Board of Directors, and to enable the Company to attract and
retain directors who are not Associates.
ARTICLE II DEFINITIONS
For the purpose of this Plan the following terms shall have the following
meanings:
ASSOCIATE: Used in the Company's organization interchangeably with the word
"employee" and, for purposes of the Plan, means an employee of the Company or of
any Subsidiary, including an officer who may or may not be a director, but
excluding a director serving only in that capacity.
BOARD OF DIRECTORS: The Board of Directors of the Company.
BOARD SERVICE: The aggregate number of full years plus any fraction of a year
(expressed as 1/12 of a year for each full month or fraction thereof) of active
service as a director of the Company commencing on the date fixed by the Board
of Directors or the stockholders of the Company as the date of election of a
director.
CODE: The Internal Revenue Code of 1986, as amended from time to time.
COMMITTEE: The committee appointed by the Board of Directors to administer the
Plan provided for in Article V.
COMPANY: J. C. Penney Company, Inc., a Delaware corporation.
EARLY RETIREMENT DATE: The date on which an Eligible Director ceases to be a
director of the Company (prior to his Normal Retirement Date) provided that the
director has at least five years of Board Service.
ELIGIBLE DIRECTOR: Subject to paragraph (4) of Article III and paragraph (2) of
Article VII, any person who, after the effective date of the Plan, has at least
five years of Board Service, and who is not entitled to receive benefits under
the Company's Pension Plan for its Associates with the following exceptions: (1)
any person elected or appointed to the Board of Directors after February 12,
1997 and (2) any otherwise eligible Director who makes a one-time election on or
about May 1, 1997, to cease participation in the Plan.
MANDATORY RETIREMENT DATE: The first day of the month next following the date
of the Annual Meeting of Stockholders of the Company at which an Eligible
Director becomes ineligible for reelection pursuant to the Company's Bylaws.
NORMAL RETIREMENT DATE: The first day of the month next following the date of
the Annual Meeting of Stockholders of the Company on which an Eligible Director
ceases to be a director next following his attainment of age 70.
PLAN: This Retirement Plan for Non-Associate Directors.
1
<PAGE>
SUBSIDIARY: Any corporation of which the Company owns directly or indirectly at
least 50 percent of the outstanding common stock.
SURVIVING SPOUSE: The person to whom an Eligible Director is legally married at
the time of his death, under the laws of the State in which he is domiciled, or
if he is domiciled outside the United States, under the laws of the State of New
York, and who is living at the date benefits are payable under paragraph (3),
(4), or (5) of Article IV of this Plan.
ARTICLE III PARTICIPATION
(1) An Eligible Director shall participate in the Plan and shall be entitled to
receive benefits under the Plan as provided in Article IV upon reaching his or
her Normal Retirement Date or Mandatory Retirement Date, as the case may be, or
such earlier date as provided in paragraph (3) of this Article III.
(2) Determination of whether an Eligible Director has sustained a permanent
disability sufficient to entitle him to receive benefits under the Plan shall be
made in the sole discretion of the Committee.
(3) Benefits under the Plan shall not be paid to any Eligible Director, whether
or not permanently disabled, prior to such Eligible Director having attained age
65. Benefits under the Plan may be paid to an Eligible Director on the First
day of any month following his Early Retirement Date and after his having
attained age 65 but prior to his Normal Retirement Date in the sole discretion
of the Committee.
(4) Except in the case of permanent disability, benefits under the Plan shall
not be paid to an Eligible Director who does not make himself available to
provide consulting advice to the Company, as the Company may reasonably request.
(5) Eligible Directors shall not be required or permitted to make any
contributions pursuant to the Plan.
ARTICLE IV BENEFITS
(1) The annual amount of benefit payable under the Plan in monthly installments
to an Eligible Director commencing on or after his or her Normal Retirement
Date, or an earlier date as provided in paragraph (3) of Article III, as the
case may be, shall be:
(a) if an Eligible Director retires on or after his or her Normal Retirement
Date, 100 percent of the annual retainer amount in effect at the time payment is
made, or
(b) if an Eligible Director retires at an Early Retirement Date, 0.833 percent
of the annual retainer amount in effect at the time payment is made for each
full month or portion thereof of Board Service, such benefit not to exceed 100
percent of said annual retainer amount.
(2) If an Eligible Director retires on or after his or her Normal Retirement
Date, or at an Early Retirement Date due to becoming permanently disabled, such
benefits shall be payable for his life. If an Eligible Director retires at an
Early Retirement Date for any reason other than becoming permanently disabled,
such benefits shall be payable for the lesser of his or her life or term of
Board Service.
(3) If an Eligible Director who retires on or after his or her Normal Retirement
Date or who is deemed permanently disabled is receiving benefits under the Plan
at the date of his death but has not received such benefits for a period of 10
years (120 months), a Surviving Spouse shall receive upon the death of such
Eligible Director 100 percent of the benefits payable to him according to
section
2
<PAGE>
(A) of paragraph (1) of this Article IV for the remainder of such 10 year (120
months) period. The benefits under the Plan shall be paid to the Surviving
Spouse in monthly installments commencing on the first day of the month
following such Eligible Director's death and terminating with the installment
payable on the earlier of (a) the expiration of the remainder of such 10 year
(120 months) period, or (b) on the first day of the month in which such
Surviving Spouse dies.
(4) If an Eligible Director dies while in active service as a member of the
Board of Directors or after having retired at an Early Retirement Date but has
not received any benefits under the Plan, a Surviving Spouse shall receive 100
percent of such Eligible Director's benefit which he would have been entitled to
if he had retired on the date of his death pursuant to paragraph (1) of this
Article IV for a 10 year (120 months) period, payable in monthly installments,
commencing on the later of the first day of the month in which such Eligible
Director would have attained age 65 or the first day of the month following such
Eligible Director's death, and terminating with the installment payable on the
earlier of (a) the expiration of such 10 year (120 month) period or (b) on the
first day of the month in which such Surviving Spouse dies.
(5) If an Eligible Director who retires at an Early Retirement Date is receiving
benefits under the Plan at the date of his death but has not received such
benefit for a period equal to the lesser of (a) his Board Service or (b) 10
years (120 months), a Surviving Spouse shall receive upon the death of such
Eligible Director 100 percent of the benefits paid to him according to section
(b) of paragraph (1) of this Article IV for the remainder of his Board Service
or 10 years (120 months), whichever shall be less. The benefits under the Plan
shall be paid to the Surviving Spouse in monthly installments commencing on the
first day of the month following such Eligible Director's death and terminating
with the installment payable on the earlier of (a) the expiration of the period
equal to such Service or 10 year (120 months) period, as the case may be, or (b)
on the first day of the month in which such Surviving Spouse dies.
(6) If an eligible Director makes the election provided in Article II to cease
participation in the Plan, the lump sum present value of his or her benefit as
of May 1, 1997 shall be transferred to the J. C. Penney Company, Inc., Deferred
Compensation Plan for Directors and no benefit will be paid to such Director
under this Plan.
ARTICLE V ADMINISTRATION
The Plan shall be administered by a committee ("Committee") consisting of one or
more persons appointed from time to time by the Board of Directors out of those
members of the Board of Directors who have never been eligible to participate in
the Plan. The Committee shall have plenary authority in its discretion, but
subject to the express provisions of the Plan, to interpret the Plan, to
prescribe, amend, and rescind, rules and regulations relating to it, and to make
all other determinations deemed necessary or advisable for the administration of
the Plan. The determinations of the Committee on the foregoing matters shall be
conclusive and binding on all interested parties.
ARTICLE VI FUNDING OF BENEFITS
The Plan shall be unfunded, unless and until a Change of Control (as defined
hereinafter) shall be deemed to have occurred, in which event the Company's
liability for benefits under the Plan shall be funded under an irrevocable trust
which shall, to the extent possible, be subject to the claims of the Company's
general creditors so that Eligible Directors will not be currently taxed upon
the funding of such benefits.
For purposes of this Article VI, a Change of Control shall be deemed to have
occurred if (a) any person or "group" (as determined for purposes of Securities
and Exchange Commission Regulation 13D-G), except any majority-owned subsidiary
or any Company employee benefit plan or any trust or
3
<PAGE>
investment manager thereunder, shall have acquired "beneficial ownership" (as
determined for purposes of Securities and Exchange Commission Regulation 13D-G)
of shares of Company common stock having 40% or more of the voting power of all
outstanding shares of Company capital stock, or (b) a merger or consolidation
occurs to which the Company is a party, whether or not the Company is the
surviving corporation in which outstanding shares of Company common stock are
converted into shares of another company (other than a conversion into shares of
voting common stock of the successor corporation or a holding company thereof)
or other securities or cash or other property (excluding payments made solely
for fractional shares); or (c) the sale of all, or substantially all, of the
Company's assets occurs.
ARTICLE VII MISCELLANEOUS
(1) AMENDMENT AND TERMINATION: The Board of Directors of the Company may amend,
modify, suspend, or terminate the Plan at any time, without the consent of the
participants but, in the event of any such amendment, modification, suspension,
or termination, benefit payments which have already accrued, are payable in the
future, or are being paid, will continue in accordance with the Plan as in
effect prior to such amendment, modification, suspension, or termination.
(2) RIGHTS OF DIRECTORS: Neither the establishment of the Plan nor any action
hereafter taken by the Company or by any Subsidiary or the Committee shall be
construed as giving to any director any vested right to a benefit from the Plan
beyond the terms of the Plan. Nothing in the Plan shall confer on any director
any right to be retained as a director, and the Company retains the right upon
the removal of a director, or a resignation in lieu of removal as determined by
the Committee, to terminate any benefits accrued for the account of or payable
to such director under the Plan.
(3) MISTAKEN INFORMATION: If any information upon which an Eligible Director's
benefit under the Plan is calculated has been misstated by the Eligible Director
or is otherwise mistaken, such benefit shall not be invalidated (unless upon the
basis of the correct information he 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 Director or his Surviving Spouse, as the
case may be.
(4) LIABILITY: Neither the Board of Directors of the Company or of any
Subsidiary, nor any member of the Committee, nor any person to whom any of them
may delegate any duty or power in connection with administering the Plan shall
be personally liable for any action or failure to act with respect to the Plan.
(5) NONASSIGNABILITY: Benefits payable under the Plan shall not be subject in
any manner to anticipation, assignment, pledge, alienation, or charge by an
Eligible Director or his Surviving Spouse; nor shall any such benefits be in any
manner liable for or subject to the debts or any other liabilities of the
Eligible Director or his Surviving Spouse; nor shall any interest of any
Eligible Director or his Surviving Spouse under the Plan be subject to
garnishment, attachment, lien, or levy of any kind.
(6) CONSTRUCTION: In determining the meaning of any provision of the Plan, words
imparting the masculine gender shall include the feminine and the singular shall
include the plural, unless the context requires otherwise. Headings of
paragraphs and Articles in the Plan are for the convenience only and are not
intended to modify or affect the meaning of the substantive provisions of the
Plan.
(7) EFFECTIVE DATE: The Plan shall become effective on January 31, 1982; and was
amended on June 28, 1988; November 28, 1989; July 8, 1992; February 14, 1996;
and April 9, 1997.
4
<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>
13 Weeks Ended
----------------------------------------------------------------
April 26, 1997 April 27, 1996
----------------------------- ------------------------------
Shares Income Shares Income
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Primary:
- --------
Net income $139 $142
Dividend on Series B ESOP
convertible preferred stock
(after-tax) (10) (11)
---- ----
Adjusted net income 129 131
Weighted average number of
shares outstanding 240.4 224.6
Common stock equivalents:
Stock options and other
dilutive effect 2.0 2.6
----- ---- ----- ----
242.4 $129 227.2 $131
===== ==== ===== ====
Net income per common share $0.53 $0.58
===== =====
Fully diluted:
- --------------
Net income $139 $142
Tax benefit differential on ESOP
dividend assuming stock is
fully converted -- --
Assumed additional contribution
to ESOP if preferred stock is
fully converted (1) (1)
---- ----
Adjusted net income 138 141
Weighted average number of
shares outstanding (primary) 242.4 227.2
Maximum dilution 0.0 0.2
Convertible preferred stock 18.8 19.8
----- ---- ----- ----
261.2 $138 247.2 $141
===== ==== ===== ====
Net income per common share $0.53 $0.57
===== =====
</TABLE>
<PAGE>
Exhibit 12(a)
J. C. Penney Company, Inc.
and Consolidated Subsidiaries
Computation of Ratios of Available Income to Combined Fixed Charges
and Preferred Stock Dividend Requirement
<TABLE>
<CAPTION>
52 weeks ended
----------------------------
Apr. 26, Apr. 27,
($ Millions) 1997 1996
-------- --------
<S> <C> <C>
Income from continuing operations $ 857 $1,256
(before income taxes, before
capitalized interest, but after
preferred stock dividend)
Fixed charges
Interest (including capitalized
interest) on:
Operating leases 110 102
Short term debt 127 120
Long term debt 341 268
Capital leases 7 5
Credit facility 19 -
Other, net 2 1
------ ------
Total fixed charges 606 496
Preferred stock dividend, before taxes 46 48
Combined fixed charges and preferred ------ ------
stock dividend requirement 652 544
Total available income $1,509 $1,800
====== ======
Ratio of available income to combined
fixed charges and preferred stock
dividend requirement 2.3 3.3
====== ======
</TABLE>
The interest cost of the LESOP notes guaranteed by the Company is not included
in fixed charges above.
The Company believes that, due to the seasonal nature of its business, ratios
for a period of time other than a 52 week period are inappropriate.
<PAGE>
Exhibit 12(b)
J. C. Penney Company, Inc.
and Consolidated Subsidiaries
Computation of Ratios of Available Income to Fixed Charges
<TABLE>
<CAPTION>
52 weeks ended
------------------------------------
Apr. 26, Apr. 27,
($ Millions) 1997 1996
------------- --------------
<S> <C> <C>
Income from continuing operations $ 903 $1,304
(before income taxes and
capitalized interest)
Fixed charges
Interest (including capitalized
interest) on:
Operating leases 110 102
Short term debt 127 120
Long term debt 341 268
Capital leases 7 5
Credit facility 19 -
Other, net 2 1
------ ------
Total fixed charges 606 496
------ ------
Total available income $1,509 $1,800
====== ======
Ratio of available income to combined
fixed charges and preferred stock
dividend requirement 2.5 3.6
====== ======
</TABLE>
The interest cost of the LESOP notes guaranteed by the Company is not included
in fixed charges above.
The Company believes that, due to the seasonal nature of its business, ratios
for a period of time other than a 52 week period are inappropriate.
<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 APRIL 26, 1997, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-26-1997
<CASH> 2,553
<SECURITIES> 0
<RECEIVABLES> 4,575
<ALLOWANCES> 94
<INVENTORY> 5,830
<CURRENT-ASSETS> 12,926
<PP&E> 7,994
<DEPRECIATION> 2,970
<TOTAL-ASSETS> 24,536
<CURRENT-LIABILITIES> 6,135
<BONDS> 7,538
0
558
<COMMON> 2,667
<OTHER-SE> 3,951
<TOTAL-LIABILITY-AND-EQUITY> 24,536
<SALES> 6,481
<TOTAL-REVENUES> 6,705
<CGS> 4,677
<TOTAL-COSTS> 6,191
<OTHER-EXPENSES> 98
<LOSS-PROVISION> 53
<INTEREST-EXPENSE> 135
<INCOME-PRETAX> 228
<INCOME-TAX> 89
<INCOME-CONTINUING> 139
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
</TABLE>
