<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
_______________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
_______________
For the 13 and 39 week periods Commission file number 1-777
ended October 31, 1998
J. C. PENNEY COMPANY, INC.
___________________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 13-5583779
___________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6501 Legacy Drive, Plano, Texas 75024 - 3698
___________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 431-1000
________________________
___________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X . No .
_______ _______
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
254,309,645 shares of Common Stock of 50c par value, as of October 31,
1998.
<PAGE>
-1-
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements.
The following interim financial information is unaudited but, in the
opinion of the Company, includes all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation. Certain prior
period amounts have been reclassified to conform with the current period
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 53 weeks ended January 31, 1998.
Statements of Income
(Amounts in millions except per share data)
13 weeks ended 39 weeks ended
_____________________ _____________________
Oct. 31, Oct. 25, Oct. 31, Oct 25,
1998 1997 1998 1997
_________ _________ _________ _________
Retail sales $ 7,297 $ 7,208 $ 20,613 $ 20,109
Direct marketing revenue 252 233 749 686
________ ________ ________ _______
Total revenue 7,549 7,441 21,362 20,795
________ ________ ________ _______
Costs and expenses
Cost of goods sold, occupancy,
buying,and warehousing costs 5,282 5,171 15,065 14,559
Selling, general, and
administrative expenses 1,618 1,554 4,670 4,539
Costs and expenses of direct
marketing operations 194 182 578 529
Other (6) (6) (2) (35)
Net interest expense and credit
operations 142 152 350 355
Amortization of intangible assets
and minority interest 15 14 68 72
Business acquisition and
consolidation expenses, net -- 190 -- 217
______ ________ ________ ________
Total costs and expenses 7,245 7,257 20,729 20,236
______ ________ ________ ________
Income before income taxes 304 184 633 559
Income taxes 118 71 246 217
______ ________ ________ ________
Net income $ 186 $ 113 $ 387 $ 342
====== ======== ======== ========
Earnings per common share:
Net income $ 186 $ 113 $ 387 $ 342
Less: preferred stock dividend (10) (10) (28) (30)
______ ________ ________ ________
Earnings for Basic EPS 176 103 359 312
Stock options and convertible
preferred stock 10 10 27 28
_______ ________ ________ ________
Earnings for Diluted EPS $ 186 $ 113 $ 386 $ 340
Shares
Average shares outstanding (used
for Basic EPS) 254 250 253 246
Common stock equivalents 18 20 19 21
______ ________ ________ ________
Average diluted shares
outstanding 272 270 272 267
Earnings per share
Basic $ 0.69 $ 0.42 $ 1.42 $ 1.27
Diluted 0.68 0.40 1.42 1.25
<PAGE>
-2-
Balance Sheets
(Amounts in millions)
Oct. 31, Oct. 25, Jan. 31,
1998 1997 1998
________ ________ ________
ASSETS
Current assets
Cash and short term investments
of $552, $172, and $208 $ 552 $ 208 $ 287
Retained interest in JCP Master
Credit Card Trust 1,032 862 1,073
Receivables, net 3,573 3,572 3,819
Merchandise inventory (LIFO reserves
of $252, $227, and $225) 7,017 7,249 6,162
Prepaid expenses 147 78 143
________ ________ ________
Total current assets 12,321 12,149 11,484
Properties, net of accumulated
depreciation of $3,267, $3,148,
and $2,945 5,332 5,130 5,329
Investments, primarily direct marketing
operations 1,896 1,737 1,774
Deferred direct marketing policy
acquisition costs 810 728 752
Goodwill and other intangible assets
net of accumulated amortization
of $176, $64, and $108 2,923 3,061 2,940
Other assets 1,247 1,387 1,214
________ ________ ________
$ 24,529 $ 24,192 $ 23,493
======== ======== ========
<PAGE>
-3-
Balance Sheets
(Amounts in millions)
Oct. 31, Oct. 25, Jan. 31,
1998 1997 1998
________ ________ ________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and
accrued expenses $ 4,000 $ 3,859 $ 4,155
Short term debt 2,518 2,218 1,417
Current maturities of
long term debt 625 -- 449
Deferred taxes 123 92 116
_______ _______ _______
Total current liabilities 7,266 6,169 6,137
Long term debt 6,737 7,487 6,986
Deferred taxes 1,388 1,500 1,325
Insurance policy and claims reserves 919 849 872
Other liabilities 798 981 816
_______ _______ _______
Total liabilities 17,108 16,986 16,136
Stockholders' equity
Preferred stock, without par value:
Authorized, 25 million shares -
issued, 1 million shares of
Series B ESOP
convertible preferred 483 535 526
Guaranteed ESOP obligation -- (96) (49)
Common stock, par value 50c:
Authorized, 1,250 million shares -
issued, 254, 250, and 251 million
shares 2,877 2,727 2,766
_______ _______ _______
Total capital stock 3,360 3,166 3,423
_______ _______ _______
Reinvested earnings and other
comprehensive income at
beginning of year 4,114 4,110 4,110
Comprehensive income
Net income 387 342 566
Net unrealized change in debt
and equity securities, and foreign
currency translation adjustments,
net of tax (7) 7 11
______ _______ _______
Total comprehensive income 380 349 577
Common stock dividends declared (414) (399) (533)
Preferred stock dividends
declared, net of taxes (19) (20) (40)
______ _______ _______
Reinvested earnings and other
comprehensive income at
end of period 4,061 4,040 4,114
_______ _______ _______
Total stockholders' equity 7,421 7,206 7,357
_______ _______ _______
$24,529 $24,192 $23,493
======= ======= =======
The accumulated balances for net unrealized changes in debt and equity
securities were $70, $57, and $66, and for foreign currency translation
adjustments were ($29), ($14), and ($18) as of the respective dates shown.
<PAGE>
-4-
Statements of Cash Flows
(Amounts in millions)
39 weeks ended
___________________________
Oct. 31, Oct. 25,
1998 1997
________ _________
Operating activities
Net income $ 387 $ 342
Gain on the sale of bank assets -- (52)
Depreciation and amortization, including
intangibles 459 410
Deferred taxes 70 177
Change in cash from:
Customer receivables 517 384
Inventories, net of trade payables (469) (1,039)
Current taxes payable (113) 25
Other assets and liabilities, net (679) (587)
________ ________
172 (340)
________ ________
Investing activities
Capital expenditures (508) (581)
Proceeds from the sale of bank assets, net -- 276
Purchases of investment securities (511) (339)
Proceeds from sales of investment securities 382 215
Changes in Retained Interest in
JCP Master Credit Card Trust 41 249
________ ________
(596) (180)
________ ________
Financing activities
Increase/(decrease) in short term debt 1,101 (1,732)
Net proceeds from the issuance
of long term debt -- 2,979
Payment of long term debt (50) (295)
Common stock issued, net 110 82
Preferred stock retired (42) (33)
Dividends paid, preferred and common (430) (404)
________ ________
689 597
________ ________
Net increase/(decrease) in cash and short term
investments 265 77
Cash and short term investments at beginning
of year 287 131
________ ________
Cash and short term investments at end of
third quarter $ 552 $ 208
======== ========
Non-cash transaction
____________________
On February 27, 1997, the Company completed 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.
<PAGE>
-5-
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Financial Condition
___________________
Merchandise inventory for JCPenney department stores and catalog totaled
$5,112 million at the end of the third quarter, a decline of 1.2 per cent
compared with $5,174 million at the end of last year's third quarter.
Eckerd merchandise inventories totaled $2,157 million at the end of the
third quarter, a 6.3 per cent decline compared with $2,302 million at the
end of last year's third quarter. Last year's inventory levels were higher
than normal in anticipation of grand reopenings of converted drugstores in
the northeastern United States.
Properties, net of accumulated depreciation, totaled $5,332 million at
October 31, 1998 compared with $5,130 million a year earlier. As of the end
of the third quarter, the Company operated 1,165 JCPenney stores comprising
116.0 million gross square feet compared with 1,220 stores comprising 119.3
million gross square feet at the end of 1997's third quarter. The decline
is principally related to the closing of underperforming stores. In
addition, the Company operated 2,738 Eckerd drugstores at the end of the
quarter, a net decline from 2,769 at the end of last year's third quarter.
The net decline in drugstores is primarily related to the conversion of the
Company's multiple drugstore chains to the Eckerd format. Eckerd's new
store opening activity continues to be focused on relocating existing
stores to more productive, free-standing locations. During the first nine
months of 1998, Eckerd has relocated 121 drugstores compared with the
relocation of 94 stores in the comparable 1997 period.
Capital expenditures for the first nine months of 1998 totaled $508 million
compared with $581 million in the comparable 1997 period. Drugstore
expenditures accounted for $165 million in 1998 compared with $254 million
in 1997 which included significant transition related costs. The balance
of the spending related primarily to JCPenney stores and catalog.
There have been no significant changes in the Company's long term debt
during the first nine months of fiscal 1998. Long term debt totaled $6,737
million at the end of the third quarter compared with $6,986 million at the
end of fiscal 1997 and $7,487 million at the end of third quarter 1997. The
decrease from both year end and third quarter 1997 balances is comprised of
the reclassification of certain amounts to current maturities and normal
debt retirements.
Results of Operations
_____________________
Consolidated operating results
Net income for the quarter totaled $186 million or 68 cents per diluted
share compared with income before business acquisition and consolidation
expenses, net of tax, of $229 million, or 85 cents per share, and net
income of $113 million or 40 cents per share, in last year's period. Last
year's third quarter net income reflected charges of $190 million, or 45
cents per share, related principally to the Company's early retirement
program. For the 39 weeks ended October 31, 1998, income before drugstore
integration charges and business acquisition and consolidation expenses,
net of tax, totaled $457 million, or $1.67 per share, compared with $474
million, or $1.76 per share, in last year's comparable period. Net income
for the nine months totaled $387 million or $1.42 per diluted share
compared with $342 million or $1.25 per share last year. Charges in 1998
were principally related to the Company's drugstore operation
<PAGE>
-6-
while 1997 charges were principally related to the Company's early
retirement program.
Segment Operating Results
Department Stores and Catalog
_____________________________
13 weeks ended 39 weeks ended
___________________ _________________
Oct. 31, Oct. 25, Oct. 31, Oct 25,
1998 1997 1998 1997
_______ _________ _______ ________
($ in millions)
Retail sales $ 4,807 $ 4,927 $ 13,109 $ 13,213
Cost of goods sold (3,299) (3,358) (9,055) (9,133)
LIFO charge/(credit) -- -- -- --
SG&A expenses (1,179) (1,149) (3,336) (3,342)
_________ _________ _________ ________
Operating profit (1) $ 329 $ 420 $ 718 $ 738
Sales per cent increase/(decrease)
Total department stores (5.0) (1.5) (2.1) 2.2
Comparable stores (4.0) (2.5) (1.7) 1.2
Catalog 8.0 2.6 4.4 2.7
Ratios as a per cent of sales
FIFO gross margin 31.4 31.8 30.9 30.9
SG&A expenses 24.5 23.3 25.4 25.3
FIFO operating profit (1) 6.9 8.5 5.5 5.6
FIFO EBITDA 9.7 11.0 9.3 9.1
(1) Operating profit excludes net interest expense and credit operations,
amortization of intangible assets and minority interest, business
acquisition and consolidation expenses, net, and income taxes.
Sales for department stores were soft throughout the third quarter,
totaling $3,749 million, a decline of 5.0 per cent from last year's third
quarter. Sales for comparable stores, those stores open at least a year,
declined 4.0 per cent. Catalog sales totaled $1,058 million, an 8.0 per
cent increase from last year. Catalog sales benefitted from the
participation in coordinated marketing programs with department stores.
Stores and catalog FIFO gross margin totaled $1,508 million compared with
$1,569 million in last year's third quarter. Selling, general, and
administrative (SG&A) expenses increased $30 million, or 2.6 per cent, in
the quarter from the prior year. Expense increases were principally related
to advertising. Both the gross margin and SG&A ratios during the quarter
were negatively impacted by low sales volume in department stores. Gross
margin declined by 40 basis points in this year's third quarter, while
SG&A expenses increased by 120 basis points. Operating profit was $329
million in the third quarter compared with $420 million in last year's
period.
Sales for department stores for the 39 weeks ended October 31, 1998 totaled
$10,409 million, down approximately two per cent on both a total stores and
comparable store basis from last year's period. Catalog sales for the nine
months totaled $2,700 million, an increase of 4.4 per cent from the prior
year. Stores and catalog FIFO gross margin was $4,054 million for the nine
months, down slightly from last year as a result of weak sales. SG&A
expenses were $3,336 million for the first nine months, a slight decline
from the comparable period last year. As a per cent of sales, gross margin
was flat with last year while SG&A expenses were 10 basis points higher
than last year. Operating
<PAGE>
-7-
profit totaled $718 million compared with $738 million in last year's
comparable period, and has been negatively impacted by sales volumes in
department stores, particularly in the second and third quarters.
Eckerd Drugstores
_________________
13 weeks ended 39 weeks ended
___________________ _________________
Oct. 31, Oct. 25, Oct. 31, Oct 25,
1998 1997 1998 1997
_______ _________ _______ ________
($ in millions)
Retail sales $ 2,490 $ 2,281 $ 7,504 $ 6,896
Cost of goods sold (1,973) (1,805) (5,983)(1) (5,411)
LIFO charge (10) (8) (27) (15)
SG&A expenses (439) (405) (1,334)(1) (1,197)
_________ _________ _________ ________
Operating profit (2) $ 68 $ 63 $ 160 $ 273
Sales per cent increase
Total drugstores 9.2 10.6 (3) 8.8 11.7 (3)
Comparable stores 10.0 7.2 8.9 7.5
Ratios as a per cent of sales
FIFO gross margin 20.8 20.9 21.6 (4) 21.6
SG&A expenses 17.7 17.8 17.5 (4) 17.4
FIFO operating profit 3.1 3.1 4.1 (4) 4.2
FIFO EBITDA 5.9 5.3 6.7 (4) 6.3
LIFO gross margin 20.4 20.5 21.2 (4) 21.3
LIFO operating profit 2.7 2.7 3.7 (4) 3.9
LIFO EBITDA 5.5 4.9 6.3 (4) 6.1
(1) Cost of goods sold and SG&A expenses include drugstore integration
charges of $98 million and $16 million, respectively (see discussion
on page 8).
(2) Operating profit excludes net interest expense and credit operations,
amortization of intangible assets and minority interest, business
acquisition and consolidation expenses, net, and income taxes.
(3) The percentage shown has been calculated using 1996 pro forma data,
assuming the Company's drugstore acquisitions had occurred at
the beginning of fiscal 1996.
(4) Excludes the effects of drugstore integration charges. Including
these charges, 1998 gross margin would have declined by 1.3
percentage points, SG&A expenses would have increased by 0.2
percentage points, and operating profit and EBITDA would have each
declined by 1.5 percentage points for the 39 weeks.
Sales were $2,490 million for the 13 weeks ended October 31, 1998, a 9.2
per cent increase over third quarter 1997. On a comparable store basis,
sales increased by 10.0 per cent. Sales for comparable stores improved in
both pharmacy, which increased by 15.3 per cent during the quarter, and
non-pharmacy merchandise. FIFO gross margin totaled $517 million compared
with $476 million in last year's third quarter, an increase of 8.6 per
cent. As a per cent of sales, gross margin declined by 10 basis points.
Margin ratio improvement for non-pharmacy merchandise was offset by the mix
of sales which continue to shift
<PAGE> -8-
toward lower margin pharmacy sales. During the quarter, Eckerd recorded a
$10 million LIFO charge compared with an $8 million charge in last year's
quarter. SG&A expenses were well managed during the quarter and improved
10 basis points as a per cent of sales. FIFO operating profit for the
quarter totaled $78 million compared with $71 million in last year's
quarter.
Sales for the 39 weeks totaled $7,504 million compared with $6,896 million
in last year's period, an increase of 8.8 per cent; comparable store sales
increased 8.9 per cent. Sales gains were led by a 14.7 per cent increase in
pharmacy sales. The balance of the discussion addresses drugstore results
before the 1998 drugstore charges, net (see below). FIFO gross margin for
the first nine months totaled $1,619 million compared with $1,485 million
last year, an increase of 9.0 per cent. FIFO gross margin ratio was flat
compared with last year and reflects improvement for both pharmacy and
front-end merchandise; however, sales were more heavily weighted towards
pharmacy which carries lower margins. Eckerd recorded a LIFO charge of $27
million in the first nine months of 1998 compared with a $15 million charge
in last year's comparable period. SG&A expenses were higher than last year
and as a per cent of sales increased by 10 basis points. FIFO operating
profit for drugstores totaled $301 million compared with $288 million in
last year's period, and declined by 10 basis points compared with last
year.
During 1998's second quarter, the Company recorded pre-tax charges of $114
million, net, for its drugstore operation. The charges consisted of $98
million in gross profit adjustments and $16 million of additional costs
incurred in support of the drugstore integration activities which were
reported as SG&A expenses. Gross profit adjustments were principally
related to higher than anticipated losses on the liquidation of merchandise
categories that were eliminated or replaced during the integration process
as well as higher than expected shrinkage rates.
Direct Marketing Services
_________________________
13 weeks ended 39 weeks ended
___________________ _________________
Oct. 31, Oct. 25, Oct. 31, Oct 25,
1998 1997 1998 1997
_______ _________ _______ ________
($ in millions)
Revenue $ 252 $ 233 $ 749 $ 686
Costs and expenses (194) (182) (578) (529)
_______ _______ _______ ______
Operating profit (1) $ 58 $ 51 $ 171 $ 157
Revenue, per cent increase 8.2 12.0 9.2 14.1
Operating profit as a
per cent of revenue 23.0 21.9 22.8 22.9
(1) Operating profit excludes net interest expense and credit operations,
amortization of intangible assets and minority interest, business
acquisition and consolidation expenses, net, and income taxes.
Revenue increased by 8.2 per cent in the third quarter compared with last
year's period. Revenue growth was led by non-insurance products, which
increased by 38.5 per cent, and health insurance products, which increased
by 8.4 per cent. Operating profit for the period was $58 million, an
increase of $7 million, or 13.7 per cent. For the nine months, direct
marketing generated an 8.9 per cent increase in operating profit on a 9.2
per cent increase in revenue.
<PAGE>
-9-
Other Corporate Items
Net Interest Expense and Credit Operations
__________________________________________
Net interest expense and credit operations for the third quarter was $142
million compared with $152 million in last year's third quarter. The
decrease was primarily related to reductions in bad debt. Both bankruptcy
and delinquency rates continued to show positive trends during the quarter.
As of October 31, 1998, delinquencies were 3.7 per cent of customer
receivables compared with 4.8 per cent a year ago. For the first nine
months, net interest expense and credit operations totaled $350 million
compared with $355 million in last year's period. The decline was
principally related to improvement in bad debt expense, which was $26
million, or 13.5 per cent, better than last year, offset by higher interest
costs associated with the Eckerd acquisition. Total customer receivables
serviced at October 31, 1998 totaled $3,893 million, a decline of $482
million, or 11.0 per cent, from the comparable period last year. The
decrease is principally related to the continued shift of credit purchases
to third party credit cards.
Income Taxes
____________
The Company's effective income tax rate was 38.8 per cent in the third
quarter, up 20 basis points from last year. For the first nine months, the
effective income tax rate was 38.8 per cent compared with 38.9 per cent
last year.
Year 2000
_________
The Year 2000 issue exists because many computer systems store and process
dates using only the last two digits of the year. Such systems, if not
changed, may interpret "00" as "1900" instead of the year "2000." The
Company has been working to identify and address Year 2000 issues since
January 1995. The scope of this effort includes internally developed
information technology systems, purchased and leased software, embedded
systems, and electronic data interchange transaction processing.
In October 1996, a companywide task force was formed to provide guidance to
the Company's operating and support departments and to monitor the progress
of efforts to address Year 2000 issues. The Company has also consulted
with various third parties, including, but not limited to, outside
consultants, outside service providers, infrastructure suppliers, industry
groups, and other retail companies and associations to develop industrywide
approaches to the Year 2000 issue, to gain insights to problems, and to
provide additional perspectives on solutions. It is expected that
compliance work will be substantially completed by the end of 1998.
Beginning in January 1999, all systems critical to the Company's core
businesses will be retested. The Company has also focused on the Year 2000
compliance status of its suppliers, and is participating in a National
Retail Federation survey of suppliers and service providers to determine
their Year 2000 readiness.
Despite the significant efforts to address Year 2000 concerns, the Company
could potentially experience disruptions to some of its operations,
including those resulting from noncompliant systems used by third party
business and governmental entities. The Company has developed contingency
plans to address potential Year 2000 disruptions. These plans include
business continuity plans that address accessibility and functionality of
Company facilities as well as steps to be taken if an event causes failure
of a system critical to the Company's core business activities.
<PAGE>
-10-
Through October 31, 1998, the Company has incurred approximately $25
million on a cumulative basis to achieve Year 2000 compliance. The
Company's projected cost for Year 2000 remediation is currently estimated
to be $46 million. Total costs have not had, and are not expected to have,
a material impact on the Company's financial results.
New Accounting Rules
____________________
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
__________________________________________
Hedging Activities", which is effective for quarters beginning after June
-------------------
15, 1999. The Company has a limited exposure to derivative products and
does not expect these new rules to have a material impact on reported
results.
The American Institute of Certified Public Accountants has issued
Statements of Position (SOP) No. 98-1, "Accounting for the Costs of
___________________________
Computer Software Developed or Obtained for Internal Use" and No. 98-5,
__________________________________________________________
"Reporting on the Costs of Start-Up Activities." The new accounting rules,
________________________________________________
which have been adopted, did not have a material impact on the Company's
results of operations.
Subsequent Events
_________________
On November 23, 1998, the Company entered into a definitive agreement to
acquire Genovese Drug Stores, Inc. (Genovese). Genovese operates 141
drugstores in New York, New Jersey, and Connecticut. Under terms of the
agreement, Genovese shareholders will receive J. C. Penney Company, Inc.
common stock valued at $30 for each share of Genovese common stock they
own. The transaction is valued at approximately $432 million, plus the
assumption of approximately $60 million of Genovese debt. The acquisition,
which will be accounted for as a purchase, is expected to close during the
first quarter of 1999.
On November 25, 1998, the Company's indirect, wholly owned, special purpose
subsidiary, JCP Receivables, Inc., completed a public offering of $650
million principal amount of 5.50 per cent Class A Asset-Backed
Certificates, Series E issued by the JCP Master Credit Card Trust. Proceeds
of the offering will be used for general corporate purposes.
The Company's business depends to a great extent on the last quarter of the
year. Historically, sales for that period have averaged approximately one
third of annual sales. Accordingly, the results of operations for the 13
and 39 weeks ended October 31, 1998 are not necessarily indicative of
results for the entire year.
<PAGE>
-11-
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Not Required.
This report may contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements, which reflect the Company's current views of future events and
financial performance, involve known and unknown risks and uncertainties
that may cause the Company's actual results to be materially different from
planned or expected results. Those risks and uncertainties include but are
not limited to competition, consumer demand, seasonality, economic
conditions, government activity, and the year 2000 compliance readiness of
the Company's suppliers and service providers as well as government
agencies. Investors should take such risks and uncertainties into account
when making investment decisions.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.
The Company has no material legal proceedings pending against it.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
________
The following documents are filed as exhibits to this report:
10 Eckerd Corporation Loan Agreement, dated as of September
28, 1998, between J. C. Penney Company, Inc., as Lender,
and Eckerd Corporation, as Borrower.
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(a) Financial Data Schedule for the nine months ended
October 31, 1998.
27(b) Restated Financial Data Schedule for the nine months ended
October 25, 1997.
(b) Reports on Form 8-K
___________________
None.
<PAGE>
-12-
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: December 14, 1998
<PAGE>
EXHIBIT 10
ECKERD CORPORATION LOAN AGREEMENT
_________________________________
Agreement made as of the 28th day of September, 1998 to be effective
on that date ("Effective Date"), between the lender, J. C. Penney Company,
Inc. ("JCPenney"), a Delaware corporation with its principal place of
business at 6501 Legacy Drive, Plano, Texas 75024-3698 and the borrower,
Eckerd Corporation ("Borrower"), a Delaware corporation with its principal
place of business at 8333 Bryan Dairy Road, Largo, FL 33777.
BORROWING AMOUNTS, TERMS AND PROCEDURES
_______________________________________
Between the Effective Date and September 28, 2003 (the "Borrowing
Period"), JCPenney will make available the sum of Three Billion, Five
Hundred Million Dollars ($3,500,000,000) ("Borrowing Amount") for borrowing
by Borrower. The Borrowing Amount includes (1) the $1,595,000,000 open
account indebtedness between JCPenney and Eckerd at the Interest Rate
defined herein, and (2) the $100,000,000 open account indebtedness between
JCPenney and Eckerd at the Short-Term Borrowings Rate shown on the Analysis
of Average Borrowings and Interest Expense as calculated monthly by
JCPenney's Controller's Department. This Agreement formalizes such
previous loans from JCPenney to Eckerd. During the Borrowing Period,
subject to the following terms and conditions, Borrower may borrow, repay,
and borrow again under this Loan Agreement and Borrower agrees to repay
interest and principal as provided herein.
<PAGE>
During the Borrowing Period, Borrower may from time to time request
one or more loans (an "Advance" or "Advances") from JCPenney up to the
limit of the Borrowing Amount, and JCPenney will lend to Borrower such sum
or sums, each borrowing with a maturity no later than September 9, 2003, as
Borrower requests, provided that the total of Advances at any one time
outstanding shall not exceed the Borrowing Amount.
By noon Eastern time, Borrower will notify JCPenney of the amount it
intends to borrow or repay the next day. JCPenney will transfer the amount
or credit such amount, as the case may be, of an Advance or repayment to or
from Borrower by no later than 3 o'clock p.m. Eastern time of the next day
for which such amount is due or has been paid.
Except as JCPenney and Borrower otherwise agree in writing, Borrower
agrees to pay as interest an amount on any sum borrowed hereunder computed
at an interest rate, which is a rate equivalent to the average interest
rate on total borrowings as shown on the Analysis of Average Borrowings and
Interest Expense as calculated monthly by JCPenney's Controller's
Department during the time of any Advance hereunder ("Interest Rate").
Interest is to be calculated on the weighted daily average of unpaid
balances during the fiscal month. The interest amount applicable to
outstanding balances of Advances shall be determined
2
<PAGE>
each month calculated on the prior month's Interest Rate. The Interest
Rate shall change effective as of the first day of each month of
JCPenney's fiscal year and any such change shall be made without notice.
Interest shall be computed on the basis of the actual number of days
elapsed over the fiscal year of 364 or 371 days, as the case may be.
Interest shall be payable monthly in arrears and at maturity by credit to
such account of JCPenney as JCPenney shall specify. Payments of interest
shall be made by the fiscal month end following the borrowing month.
Interest paid or payable shall not exceed the maximum amount permissible
under applicable law and, if such amount is exceeded, the excessive amount
of interest shall be refunded to Borrower.
JCPenney shall have the right at any time to demand payment of all or
any part of any Advance or Advances outstanding, and interest thereon.
Upon such demand such Advance, Advances or portions thereof and interest
thereon, as the case may be, shall be immediately due and payable.
Advances may be repaid in whole or in part without penalty at any time
prior to maturity by telephone notice to JCPenney by 10 o'clock a.m.
Eastern time by an individual duly authorized by Borrower.
3
<PAGE>
Borrower's promise to repay indebtedness hereunder, at JCPenney's
option, may be evidenced by (1) a wire transfer request from Eckerd to
JCPenney's Treasurer's Department, stating the requested loan amount,
effective date, and the name of the bank to which JCPenney should transfer
the funds, (2) Exhibit "A" standing alone, or (3) a promissory note or
notes for Advances in the same form as Exhibit "B". Exhibits "A" and "B"
are attached hereto and incorporated herein by reference for all purposes.
JCPenney's books and records shall be prima facie evidence of all sums due
JCPenney.
REPRESENTATIONS
_______________
A. Good Standing. Borrower is a corporation, duly organized and in good
standing, under the laws of the State of Delaware and has the power to
own its property and to carry on its business in each jurisdiction in
which Borrower operates.
B. Authority and Compliance. Borrower has full power and authority to
enter into this Loan Agreement, to make the borrowings hereunder, to
execute and deliver evidences of Advances and to incur the obligations
provided for herein, all of which has been duly authorized by all
proper and necessary corporate action. No consent or approval of any
public authority is required as a condition to the validity of this
Loan Agreement or the evidences of Advances, and Borrower is in
compliance in all material respects with all applicable laws and
regulatory requirements to which it is subject.
4
<PAGE>
C. Binding Agreement. This Loan Agreement constitutes, and the evidences
of Advances when issued and delivered pursuant hereto for value
received will constitute, valid and legally binding obligations of
Borrower in accordance with their terms.
D. Litigation. There are no proceedings pending or, to the knowledge of
Borrower, threatened before any court or administrative agency which
will or may have a material adverse effect on the financial condition
or operations of Borrower or any subsidiary, except as disclosed to
JCPenney.
E. Taxes. All income taxes and other taxes due and payable through the
date of this Loan Agreement have been paid prior to becoming
delinquent or are being contested in good faith.
F. Place of Business. Borrower's principal place of business is in
Largo, Florida.
EVENTS OF DEFAULT
_________________
If one or more of the following events of default shall occur, all
outstanding principal plus unpaid interest on all Advances shall be due and
payable immediately:
5
<PAGE>
A. Default shall be made in the payment of any installment of principal
or interest upon an Advance when due and payable, whether at maturity
or otherwise within 5 days; or
B. Default shall be made in the performance of any term, covenant or
agreement contained herein which shall remain uncured for thirty (30)
days after written notice; or
C. Any representation or warranty herein contained or in any financial
statement, certificate, report or opinion submitted to JCPenney in
connection with this Loan Agreement or pursuant to the requirements of
this Loan Agreement shall prove to have been incorrect in any material
respect when made; or
D. Any judgment against Borrower or any attachment or other levy against
the property of Borrower with respect to a claim remains unpaid,
unstayed on appeal, undischarged, not bonded or not dismissed for a
period of sixty (60) days; or
E. Borrower makes an assignment for the benefit of creditors, files a
petition in bankruptcy, is adjudicated insolvent or bankrupt,
petitions or applies to any tribunal for any receiver or any trustee
of Borrower or any substantial part of its property, commences any
action relating to Borrower under any reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction,
6
<PAGE>
whether now or hereafter in effect, or if there is
commenced against Borrower any such action, or Borrower by an act
indicates its consent to or approval of any trustee for Borrower or
any substantial part of its property, or suffers any such receivership
or trustee to continue undischarged for a period of forty-five (45)
days; then upon the happenings of any of the foregoing events of
default which shall be continuing, the Advances shall become and be
immediately due and payable upon declaration to that effect by
JCPenney.
F. Indebtedness of the Borrower or any subsidiary of the Borrower in an
aggregate principal amount in excess of $25,000,000 shall have become
due (by acceleration, mandatory prepayment or repurchase, or
otherwise) before its otherwise stated maturity after or as a result
of a default in the performance or observance of any obligation or
condition with respect to such Indebtedness or shall fail to have been
paid at its stated maturity or when otherwise due.
MISCELLANEOUS
_____________
A. Amendments. The terms of this Loan Agreement may not be waived,
altered, modified, amended or terminated in any manner except by
written instrument signed by JCPenney and Borrower.
7
<PAGE>
B. Cumulative Rights and No Waiver. Each and every right granted to
JCPenney hereunder or under any other document delivered hereunder or
in connection herewith, or allowed it by law or equity shall be
cumulative of and may be exercised in addition to any and all other
rights of JCPenney, and no delay in exercising any right shall operate
as a waiver thereof, nor shall any single or partial exercise by
JCPenney of any right preclude any other or future exercise thereof or
the exercise of any other right. Borrower expressly waives any
presentment, demand, protest or other notice of any kind.
C. Notices. All notices hereunder shall be in writing or by telephone
(with written confirmation) and, if to JCPenney, mailed or delivered
to it at 6501 Legacy Drive, Plano, Texas 75024-3698, Attention:
Treasurer; or to Borrower, mailed or delivered to it at 8333 Bryan
Dairy Road, Largo, FL 33777, Attention: President, with a copy to
Treasurer.
D. Governing Law. THIS LOAN AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be executed on the date first above written.
J. C. PENNEY COMPANY, INC.
By /s/ R. B. Cavanaugh
________________________________
R. B. Cavanaugh
Vice President and Treasurer
ECKERD CORPORATION
By /s/ F. A. Newman
________________________________
F. A. Newman
President and Chief Executive
Officer
9
<PAGE>
EXHIBIT "A"
DATE
J. C. PENNEY COMPANY, INC.
ADDRESS
ADDRESS
CITY, STATE ZIP
ATTN:
WE CONFIRM AND AGREE TO REPAY THE FOLLOWING BORROWING AS INDICATED
BELOW AND AS SET FORTH IN THE LOAN AGREEMENT WITH YOU DATED AS OF
___________ __, 1998:
DATE PRINCIPAL
TRANS. OF AMOUNT OF MATURITY NO. INTEREST INTEREST AMOUNT DUE
NO. LOAN LOAN DATE DAYS RATE RATE INTEREST AT MATURITY
BASIS
TYPE OF BORROWING:
SETTLEMENT INSTRUCTIONS:
CREDIT PROCEEDS IN SAME DAY FUNDS TO:
ACCOUNT NAME:
BANK NAME:
CITY, STATE:
ACCOUNT NUMBER:
MATURITY INSTRUCTIONS:
CHARGE: ACCOUNT NAME:
BANK NAME:
ACCOUNT NUMBER:
OR
WIRE TRANSFER TO: J. C. PENNEY COMPANY, INC.
CITY, STATE:
ACCOUNT NUMBER:
SINCERELY,
AUTHORIZED SIGNER
<PAGE>
EXHIBIT "B"
PROMISSORY NOTE
For value received, on demand, or if prior demand is not made then on
Maturity Date, Eckerd Corporation a Delaware corporation ("Borrower"), with
its principal place of business at 8333 Bryan Dairy Road, Largo, Florida
33777, promises to pay to the order of J. C. Penney Company, Inc., a
Delaware corporation, ("JCPenney"), the unpaid principal amount of each
borrowing made by the Borrower advanced by JCPenney pursuant to the Eckerd
Corporation Loan Agreement referred to below, together with interest
thereon from the date of such borrowing at the rate or rates specified in
the Eckerd Corporation Loan Agreement, as specified in the Eckerd
Corporation Loan Agreement. All such payments of principal shall be made
in lawful money of the United States in same day funds at JCPenney's
address as set forth below.
Each borrowing made by the Borrower from JCPenney, the maturity thereof,
interest rate basis and rate, and amounts due at maturity, shall be
recorded on Exhibit "A" and, prior to any transfer hereof, endorsed on
such exhibit which may be attached hereto as a part of this Promissory
Note, provided that the failure of JCPenney to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or
under the Eckerd Corporation Loan Agreement. The Borrower shall be
notified of any such transfers or borrowing participations, which shall be
limited only to indebtedness which has been created through actual funding.
The Borrower hereby waives demand, presentment, notice of dishonor,
protest and diligence in collecting sums due hereunder. Borrower will
reimburse JCPenney for its expense, including reasonable attorneys' fees,
in connection with collection of any sums due to JCPenney hereunder.
This Promissory Note is one of the Promissory Notes referred to in the
Eckerd Corporation Loan Agreement dated as of _______ __, 1998 between
Borrower and JCPenney and terms defined in such Agreement are used herein
with the same meanings. Reference is made to the Eckerd Corporation Loan
Agreement for provisions for the prepayment hereof.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
Lender Name: J. C. Penney Company, Inc. Eckerd Corporation
__________________________ __________________________
("Borrower")
Address for Payment:
6501 Legacy Drive By:
______________________________________ _______________________
(Signature)
Plano, Texas 75024-3698
_____________________________________
__________________________
(Title)
Date:
_________________________________
<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)
39 Weeks Ended
___________________________________________
October 31, 1998 October 25, 1997
-------------------- --------------------
Shares Income Shares Income
_______ ________ _______ ________
Basic
Net income $ 387 $ 342
Dividend on Series B ESOP
convertible preferred stock
(after-tax) (28) (30)
_______ _______
Adjusted net income 359 312
Weighted average number of
shares outstanding 253.3 246.3
_____ _______ _____ _______
253.3 $ 359 246.3 $ 312
===== ======= ===== =======
Net income per common share $ 1.42 $ 1.27
======= =======
Diluted
Net income $ 387 $ 342
Tax benefit differential on ESOP
dividend assuming stock is
fully converted - -
Assumed additional contribution
to ESOP if preferred stock is
fully converted (1) (2)
_______ _______
Adjusted net income 386 340
Weighted average number of
shares outstanding (basic) 253.3 246.3
Common stock equivalents:
Stock options and other
dilutive effect 2.0 2.4
Convertible preferred stock 16.7 18.4
_____ _______ _____ _______
272.0 $ 386 267.1 $ 340
===== ======= ===== =======
Net income per common share $ 1.42 $ 1.25
======= =======
<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
53 weeks 52 weeks
ended ended
Oct. 31, Oct. 25,
($ Millions) 1998 1997
__________ __________
Income from continuing operations $ 963 $ 665
(before income taxes, before
capitalized interest, but after
preferred stock dividend)
Fixed charges
Interest (including capitalized
interest) on:
Operating leases 180 110
Short term debt 106 122
Long term debt 555 473
Capital leases 6 7
Credit facility - 19
Other, net - (14)
_________ _________
Total fixed charges 847 717
Preferred stock dividend, before taxes 32 46
Combined fixed charges and preferred _________ ___________
stock dividend requirement 879 763
_________ ___________
Total available income $ 1,842 $ 1,428
========= ===========
Ratio of available income to combined
fixed charges and preferred stock
dividend requirement 2.1 1.9
========= ===========
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 or 53 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
53 weeks 52 weeks
ended ended
Oct. 31, Oct. 25,
($ Millions) 1998 1997
__________ __________
Income from continuing operations $ 995 $ 711
(before income taxes and
capitalized interest)
Fixed charges
Interest (including capitalized
interest) on:
Operating leases 180 110
Short term debt 106 122
Long term debt 555 473
Capital leases 6 7
Credit facility - 19
Other, net - (14)
_________ _________
Total fixed charges 847 717
_________ _________
Total available income $ 1,842 $ 1,428
========= =========
Ratio of available income to
fixed charges 2.2 2.0
========= =========
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 or 53 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 OCTOBER 31, 1998, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> OCT-31-1998
<CASH> 552
<SECURITIES> 1,032
<RECEIVABLES> 3,658
<ALLOWANCES> 85
<INVENTORY> 7,017
<CURRENT-ASSETS> 12,321
<PP&E> 8,599
<DEPRECIATION> 3,267
<TOTAL-ASSETS> 24,529
<CURRENT-LIABILITIES> 7,266
<BONDS> 6,737
<COMMON> 2,877
0
483
<OTHER-SE> 4,061
<TOTAL-LIABILITY-AND-EQUITY> 24,529
<SALES> 20,613
<TOTAL-REVENUES> 21,362
<CGS> 15,065
<TOTAL-COSTS> 19,735
<OTHER-EXPENSES> 375
<LOSS-PROVISION> 167
<INTEREST-EXPENSE> 452
<INCOME-PRETAX> 633
<INCOME-TAX> 246
<INCOME-CONTINUING> 387
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 387
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
</TABLE>
<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 OCTOBER 25, 1997, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-25-1997
<CASH> 208
<SECURITIES> 862
<RECEIVABLES> 3,653
<ALLOWANCES> 81
<INVENTORY> 7,249
<CURRENT-ASSETS> 12,149
<PP&E> 8,278
<DEPRECIATION> 3,148
<TOTAL-ASSETS> 24,192
<CURRENT-LIABILITIES> 6,169
<BONDS> 7,487
<COMMON> 2,727
0
535
<OTHER-SE> 3,944
<TOTAL-LIABILITY-AND-EQUITY> 24,192
<SALES> 20,109
<TOTAL-REVENUES> 20,795
<CGS> 14,559
<TOTAL-COSTS> 19,098
<OTHER-EXPENSES> 520
<LOSS-PROVISION> 193
<INTEREST-EXPENSE> 425
<INCOME-PRETAX> 559
<INCOME-TAX> 217
<INCOME-CONTINUING> 342
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 342
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.25
</TABLE>
