<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 30, 1999
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.
260,441,831 shares of Common Stock of 50c par value, as of October 30,
1999.
<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 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 52 weeks ended January 30, 1999.
Statements of Income
(Amounts in millions except per share data)
13 weeks ended 39 weeks ended
____________________ __________________
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
________ _________ ________ ________
Retail sales $ 7,696 $ 7,297 $ 22,024 $ 20,613
Direct Marketing revenue 282 252 832 749
_________ _________ _________ ________
Total revenue 7,978 7,549 22,856 21,362
_________ _________ _________ ________
Costs and expenses
Cost of goods sold,
occupancy, buying,
and warehousing costs 5,639 5,282 16,245 15,065
Selling, general, and
administrative expenses 1,784 1,622 5,114 4,680
Costs and expenses of Direct
Marketing operations 219 194 655 578
Real estate and other (7) (10) (27) (12)
Net interest expense and credit
operations (1) 106 142 243 350
Acquisition amortization 18 15 80 68
_________ _________ _________ ________
Total costs and expenses 7,759 7,245 22,310 20,729
_________ _________ _________ ________
Income before income taxes 219 304 546 633
Income taxes 77 118 198 246
_________ _________ _________ ________
Net income $ 142 $ 186 $ 348 $ 387
========= ========= ========= =========
Earnings per common share:
Net income $ 142 $ 186 $ 348 $ 387
Less:
preferred stock
dividends (9) (10) (27) (28)
_________ _________ _________ ________
Earnings for basic EPS 133 176 321 359
Dilutive stock options and
convertible preferred
stock 9 10 -- 27
_________ _________ _________ ________
Earnings for diluted EPS $ 142 $ 186 $ 321 $ 386
Shares
Average shares outstanding
(used for basic EPS) 260 254 259 253
Dilutive common stock
equivalents 16 18 -- 19
_________ ________ ________ ________
Average diluted shares
outstanding 276 272 259 272
Earnings per share
Basic $ 0.51 $ 0.69 $ 1.24 $ 1.42
Diluted 0.51 0.68 1.24 1.42
(1) Net interest expense and credit operations for the 39 weeks ended
October 30, 1999 includes a $5 million pre-tax gain, or 1 cent per share
after tax, on the early extinguishment of Eckerd Corporation's 9.25 percent
Notes due 2004.
<PAGE>
-2-
Balance Sheets
(Amounts in millions)
Oct. 30, Oct. 31, Jan. 30,
1999 1998 1999
________ __________ ________
ASSETS
Current assets
Cash and short-term investments
of $392, $552, and $95 $ 392 $ 552 $ 96
Retained interest in JCP Master
Credit Card Trust 461 1,032 415
Receivables, net 4,455 3,573 4,415
Merchandise inventories 6,971 7,017 6,031
Prepaid expenses 151 147 168
________ ________ _________
Total current assets 12,430 12,321 11,125
Properties, net of accumulated
depreciation of $3,152, $3,267,
and $2,875 5,434 5,332 5,458
Investments, principally held by
Direct Marketing 1,812 1,896 1,961
Deferred policy acquisition costs 904 810 847
Goodwill and other intangible assets
net of accumulated amortization
of $305, $180, and $225 3,173 2,867 2,933
Other assets 1,359 1,303 1,314
-------- -------- --------
$ 25,112 $ 24,529 $ 23,638
======== ======== ========
<PAGE>
-3-
Balance Sheets
(Amounts in millions)
Oct. 30, Oct. 31, Jan. 30,
1999 1998 1999
________ ________ ________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 3,784 $ 3,903 $ 3,465
Short-term debt 3,223 2,518 1,924
Current maturities of long-term debt 625 625 438
Deferred taxes 155 123 143
________ ________ ________
Total current liabilities 7,787 7,169 5,970
Long-term debt 6,504 6,737 7,143
Deferred taxes 1,545 1,388 1,517
Insurance policy and claims reserves 992 919 946
Other liabilities 917 895 893
________ ________ ________
Total liabilities 17,745 17,108 16,469
Stockholders' equity
Capital stock
Preferred stock, without par value:
Authorized, 25 million shares -
issued and outstanding, 0.8 million
shares for all periods presented of
Series B ESOP convertible preferred 457 483 475
Common stock, par value 50c:
Authorized, 1,250 million shares -
issued and outstanding, 260, 254, and
250 million shares 3,236 2,877 2,850
________ ________ ________
Total capital stock 3,693 3,360 3,325
________ ________ ________
Reinvested earnings
At beginning of year 3,858 4,066 4,066
Net income 348 387 594
Common stock dividends declared (427) (414) (549)
Preferred stock dividends
declared, net of tax (18) (19) (39)
Common stock retired -- -- (214)
________ ________ ________
Reinvested earnings at end of
period 3,761 4,020 3,858
Accumulated other comprehensive income/(loss) (87) 41 (14)
________ ________ ________
Total stockholders' equity 7,367 7,421 7,169
________ ________ ________
$25,112 $24,529 $23,638
======== ======== ========
The accumulated balances for net unrealized changes in debt and equity
securities were ($6), $70, and $65, and for currency translation
adjustments were ($81), ($29), and ($79) as of the respective dates shown.
Net unrealized changes in investment securities are shown net of deferred
taxes of ($3), $40, and $36, respectively. A deferred tax asset has not
been established for currency translation adjustments.
<PAGE>
-4-
Statements of Cash Flows
(Amounts in millions)
39 weeks ended
________________________________
Oct. 30, Oct. 31,
1999 1998
_________ _________
Operating activities
Net income $ 348 $ 387
Depreciation and amortization, including
intangible assets 513 459
Deferred taxes 36 70
Change in cash from:
Customer receivables 215 558
Other receivables (301) (274)
Inventories, net of trade payables (517) (469)
Current taxes payable (51) (113)
Other assets and liabilities, net 68 (405)
_________ _________
311 213
_________ _________
Investing activities
Capital expenditures (429) (508)
Purchases of investment securities (649) (511)
Proceeds from the sale of bank
receivables 22 --
Proceeds from sales of investment
securities 681 382
_________ _________
(375) (637)
_________ _________
Financing activities
Change in short-term debt 1,243 1,101
Payments of long-term debt (455) (50)
Common stock issued, net 13 68
Dividends paid, preferred and common (441) (430)
_________ _________
360 689
_________ __________
Net increase/(decrease) in cash and
short-term investments 296 265
Cash and short-term investments at
beginning of year 96 287
_________ __________
Cash and short-term investments at
end of second quarter $ 392 $ 552
========= =========
Non-cash transactions: On March 1, 1999, the Company issued 9.6 million
shares of common stock to complete the acquisition of Genovese Drug Stores,
Inc. (Genovese). The total value of the transaction, including debt assumed
and conversion of options for Genovese common stock to options for the
Company's common stock, was $414 million.
<PAGE>
-5-
Notes to Interim Financial Information
1. Reserves and Other Charges
During 1996 and 1997, the Company recorded other charges principally
related to drugstore integration activities, department store and drugstore
closings and FAS 121 impairments, and early retirement and reduction in
force programs (collectively other charges, net). The following tables
provide a roll forward of reserves that were established for certain
categories of these charges. These reserves are reviewed for adequacy on a
periodic basis and are adjusted as appropriate based on those reviews.
Except as indicated below, no adjustments were deemed necessary in the
third quarter of 1999. The following schedules, and the accompanying
discussion, provide the status of the reserves as of October 30, 1999.
1996 Charges:
____________
1997 1998 3rd Qtr 1999 YTD
__________________ ___________________
Y/E Cash Y/E Cash Ending
($ in millions) Reserve Outlays Reserve Outlays Reserve
_______ __________________ ____________________
Eckerd drugstores
_________________
Future lease
obligations (1) $ 66 $ (7) $ 59 $ (2) $ 57
Allowance for notes
receivable (2) 25 -- 25 -- 25
Other (1) 4 -- 4 -- 4
__________________________ _____________________
Total $ 95 $ (7) $ 88 $ (2) $ 86
__________________________ ____________________
Amounts are reflected on the consolidated balance sheets as follows:
1) Reserve balances are included as a component of accounts payable and
accrued expenses.
2) The allowance for notes receivable, which was established in connection
with the drugstore divestiture discussed below, is included as a reduction
of other assets.
Future lease obligations - In 1996 the Company identified certain
__________________________
drugstores that would be closed in connection with its acquisition of
Eckerd Corporation, and established a reserve for the present value of
future lease obligations for the closed drugstores. Costs are being charged
against the reserve as incurred; the interest component related to lease
payments is recorded as rent expense in the period incurred with no
corresponding increase in the reserve. Through the third quarter of 1999,
approximately $2 million in lease payments had been charged against the
reserve.
Allowance for notes receivable - In connection with the Eckerd acquisition,
______________________________
the Federal Trade Commission required that the Company divest certain
drugstores in North Carolina and South Carolina. A portion of the proceeds
from the sale of these drugstores was financed by the Company through a
note receivable for $33 million. A reserve for 75 percent of the face value
of the note receivable was established due to the significant constraints
on the Company's ability to collect on the note.
Other - The remaining charges, the majority of which have been expensed as
_____
incurred, were related to integration activities for the Fay's drugstores
acquired by the Company in October 1996, and other activities such as
contract terminations.
<PAGE>
-6-
1997 Charges:
____________
1998 3rd Qtr 1999 YTD
__________________ ___________________
1997 Cash Cash
Y/E Outlays Y/E Outlays Ending
($ in millions) Reserve & Other Reserve & Other Reserve
_______ __________________ ____________________
Department stores
__________________
and catalog
___________
Future lease
obligations (1) $ 55 $ (35) $ 20 $ (3) $ 17
Eckerd drugstores
Future obligations,
primarily
leases (1) 35 (8) 27 (2) 25
_____ _________________ ___________________
Total $ 90 $ (43) $ 47 $ (5) $ 42
_______ _________________ ___________________
1) Reserve balances are included as a component of accounts payable and
accrued expenses.
Department stores and catalog:
Future lease obligations - In 1997, the Company identified 97
___________________________
underperforming stores that did not meet the Company's profit objectives
and several support units (credit service centers and warehouses) which
were no longer needed. All of these facilities had closed by the end of
fiscal 1998. The store closing plan anticipated that the Company would
remain liable for all future lease obligations. The reserve as of the end
of the third quarter of 1999 represents future lease obligations, and costs
are being charged against the reserve as incurred. The reserve has been
reduced by $3 million through the third quarter of 1999.
Eckerd drugstores:
Future obligations, primarily leases - During 1997, the Company established
____________________________________
reserves for the present value of future lease payments for an additional
portfolio of drugstores that were identified for closure. In addition,
reserves were established for pending litigation and other miscellaneous
charges, each individually insignificant. Through the end of the third
quarter of 1999, the reserves had been reduced by $2 million. On a combined
basis, the reserves totaled $25 million at the end of the third quarter.
2. Earnings Per Share
At October 30, 1999, approximately 0.8 million shares of preferred stock,
which were convertible into 15.4 million common shares, were issued and
outstanding. These potential common shares, and the related dividend, were
excluded from the calculation of diluted earnings per share (EPS) for the
39 weeks ended October 30, 1999 because their inclusion would have had an
anti-dilutive effect on EPS. In addition, options to purchase 5.0 million
and 2.2 million common shares for the 13 weeks ended October 30, 1999 and
October 31, 1998, respectively, and options to purchase 5.0 million and 1.5
million common shares for the 39 weeks ended October 30, 1999 and October
31, 1998, respectively, were outstanding and were excluded from the
computation of diluted earnings per share because the option exercise price
was greater than the average market price for the respective periods.
<PAGE>
-7-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Financial Condition
___________________
Merchandise inventories on a FIFO basis totaled $7,234 million at the end
of the third quarter compared with $7,269 million at the end of last year's
third quarter. Current year totals include approximately $164 million of
inventory attributable to Genovese drugstores ($148 million) and Renner
department stores ($16 million). Inventories for department stores and
catalog totaled $4,870 million at October 30, 1999 and were below last year
levels by nearly five percent. Inventories for comparable department stores
declined approximately six percent from the prior year. Eckerd drugstore
inventories totaled $2,363 million compared with $2,157 million last year.
The current cost of inventories exceeded the LIFO basis amount carried on
the balance sheet by approximately $263 million at October 30, 1999 and
$252 million at October 31, 1998.
Total customer receivables serviced were $3,628 million at the end of the
third quarter compared with $3,893 million at the end of last year's third
quarter. The decline is related to a number of factors, principally
tightening the Company's credit-granting policies and reducing the scope of
credit promotions, both of which have taken place over the past two to
three years, the migration of credit sales from the Company's proprietary
credit card to third-party credit cards, and declines in sales volumes.
Properties, net of accumulated depreciation, totaled $5,434 million at
October 30, 1999 compared with $5,332 million at the end of last year's
third quarter.
On March 1, 1999, the Company completed the acquisition of Genovese. The
acquisition was accomplished through an exchange of approximately 9.6
million shares of Company common stock for the outstanding shares of
Genovese. The total value of the transaction, including the assumption of
approximately $60 million of debt and the conversion of outstanding
Genovese options to options for Company common stock, was $414 million. The
acquisition is being accounted for under the purchase method. The purchase
price is being allocated to assets acquired, including intangible assets
(principally prescription files and favorable lease rights), and
liabilities assumed based on their estimated fair value. The excess
purchase price over the fair value of assets acquired and liabilities
assumed, representing goodwill, is being amortized over 40 years.
Goodwill and other intangible assets, net, totaled $3,173 million compared
with $2,867 million at the end of last year's third quarter. Current year
balances include approximately $316 million in intangible assets and
goodwill associated with the Genovese acquisition.
At October 30, 1999, the consolidated balance sheet included reserves
totaling $103 million which are included as a component of accounts payable
and accrued expenses and $25 million which is reflected as a reduction of
other assets. These reserves were established in connection with the
Company's 1996 and 1997 other charges, net, and relate primarily to future
lease obligations on stores and other support facilities closed in
connection with those charges, and a
<PAGE>
-8-
note receivable related to the divestiture of certain drugstores,
respectively. In 1999, these reserves have been reduced by $7 million
through the end of the third quarter. See Note 1 to Interim Financial
Information.
Results of Operations
_____________________
Consolidated operating results
($ in millions)
13 weeks ended 39 weeks ended
____________________ ____________________
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
_________ ________ _________ ________
Operating profit
Department stores
and catalog $ 250 $ 329 $ 556 $ 718
Eckerd drugstores 23 64 109 150
Direct marketing 63 58 177 171
Real estate and other 7 10 27 12
_______ ______ ________ _______
Total operating profit 343 461 869 1,051
Net interest and
credit operations (106) (142) (243) (350)
Acquisition amortization (18) (15) (80) (68)
________ ________ ________ _______
Income before income taxes 219 304 546 633
Income taxes (77) (118) (198) (246)
________ ________ ________ ________
Net income $ 142 $ 186 $ 348 $ 387
======== ======== ======== ========
Operating profit (before net interest expense and credit operations,
acquisition amortization, and income taxes) totaled $343 million compared
with $461 million in last year's third quarter. Department store and
catalog results declined primarily as a result of the effects of lower
department store sales volumes. Eckerd drugstores operating profit declined
as a result of both lower gross margins and higher selling, general and
administrative (SG&A) expenses. Operating profits for J. C. Penney Direct
Marketing Services, Inc. (Direct Marketing) increased in the third quarter
compared with last year's period.
Total Company results reflect continued improvement in net interest expense
and credit operations, primarily due to lower bad debt expense. Net income
totaled $142 million, or 51 cents per share, as compared with $186 million,
or 68 cents per share in last year's third quarter. On a year to date
basis, net income was $348 million, or $1.24 per share, compared with $387
million, or $1.42 per share, last year.
<PAGE>
-9-
Segment Operating Results
-------------------------
Department Stores and Catalog
-----------------------------
13 weeks ended 39 weeks ended
____________________ ____________________
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
_________ ________ _________ ________
($ in millions)
Retail sales, net $ 4,685 $ 4,807 $12,990 $13,109
Cost of goods sold (3,209) (3,299) (8,963) (9,055)
SG&A expenses (1,226) (1,179) (3,471) (3,336)
________ ________ ________ ________
Operating profit (1) $ 250 $ 329 $ 556 $ 718
Sales percent increase
Total department stores (3.2) (5.0) (1.5) (2.1)
Comparable stores (3.0) (4.0) (0.9) (1.7)
Catalog 0.0 8.0 1.5 4.4
Ratios as a percent of sales:
FIFO gross margin 31.5 31.4 31.0 30.9
SG&A expenses 26.2 24.5 26.7 25.4
FIFO operating profit 5.3 6.9 4.3 5.5
FIFO EBITDA (2) 8.6 9.0 8.3 8.5
1) Operating profit represents pre-tax income before net interest expense
and credit operations and amortization of intangible assets.
2) Earnings before interest, income taxes, depreciation and amortization.
EBITDA includes finance revenue, net of credit operating costs and bad debt
expense. EBITDA is provided as an alternative assessment of operating
performance and is not intended to be a substitute for GAAP measurements;
calculations may be different for other companies.
Operating profit for department stores and catalog was $250 million in this
year's third quarter compared with $329 million last year. The decline was
primarily related to the effects of lower sales volumes in department
stores, where sales for comparable stores, those open at least a year,
declined by 3.0 percent. Sales in private brand merchandise were strong for
the period, especially Arizona Jean Co., St. John's Bay, and Delicates, all
of which posted double-digit sales gains for the quarter. Sales for
supplier exclusive brands including Crazy Horse by Liz Claiborne and
Joneswear by Jones New York, also continue to perform very well. Sales of
national brand jeanswear, athletic apparel and athletic footwear were soft
during the quarter. Catalog sales were flat compared with third quarter
last year. Internet sales, while still a small percentage of total sales,
continue to increase at an accelerating rate. Gross margin as a percent of
sales improved by 10 basis points in the third quarter compared to last
year. The increase was principally related to the shift in sales to higher
margin private and supplier exclusive brands and a reduced number of
promotions. SG&A expenses increased as a percent of sales due to planned
customer service initiatives and a decline in sales volume. SG&A expenses
for the quarter reflect $12 million in additional investment for the
expansion of the Company's internet infrastructure.
Operating profit for the 39 weeks ended October 30, 1999 was $556 million
compared with $718 million last year. Department store sales for the 39
weeks declined 0.9 percent on a comparable store basis, and catalog sales
increased by 1.5 percent compared with last year. Gross margin as a percent
of sales was 31.0 percent, up 10 basis points compared with last year. SG&A
expenses for the first nine months increased approximately four percent
compared with last year, principally related to salaries associated with
customer service initiatives, new advertising campaign costs, and spending
on the development
<PAGE>
-10-
of the Company's internet infrastructure. As a percent of sales, SG&A
expenses increased 130 basis points as a result of lower sales volumes.
Eckerd Drugstores (1)
_____________________
13 weeks ended 39 weeks ended
____________________ ____________________
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
_________ ________ _________ ________
($ in millions)
Retail sales, net $ 3,011 $ 2,490 $ 9,034 $ 7,504
Cost of goods sold (2,430) (1,983) (7,282) (6,010)
SG&A expenses (558) (443) (1,643) (1,344)
________ ________ ________ ________
Operating profit (2) $ 23 $ 64 $ 109 $ 150
Sales percent increase
Total 20.9 9.2 20.4 8.8
Comparable stores 9.6 10.0 10.8 8.9
Ratios as a percent of sales:
FIFO gross margin 19.7 20.8 19.8 20.3
SG&A expenses 18.5 17.8 18.2 17.9
FIFO operating profit 1.2 3.0 1.6 2.4
FIFO EBITDA (2) 2.8 4.4 3.1 3.7
LIFO gross margin 19.3 20.4 19.4 19.9
LIFO operating profit 0.8 2.6 1.2 2.0
LIFO EBITDA (3) 2.4 4.0 2.7 3.3
1) Results reflect the inclusion of Genovese drugstores as of the
acquisition date in March 1999. Pro forma results, assuming the Genovese
acquisition occurred at the beginning of the periods reported would not
differ materially from reported results.
2) Operating profit represents pre-tax income before interest and
amortization of intangible assets.
3) Earnings before interest, income taxes, depreciation and amortization.
EBITDA is provided as an alternative assessment of operating performance
and is not intended to be a substitute for GAAP measurements; calculations
may be different for other companies.
Operating profit for Eckerd drugstores was $23 million in the third quarter
compared with $64 million in last year's period. The decline was
attributable to both lower gross margins and higher SG&A expenses.
Operating profit reflects a LIFO charge of $12 million in this year's third
quarter compared with $10 million last year. Eckerd experienced continued
strong sales growth in the third quarter, increasing by 9.6 percent for
comparable stores (including the pro forma results of the Genovese
drugstores acquired on March 1, 1999) which is in addition to a 10.0
percent increase in the third quarter of 1998. Comparable store sales were
led by a 15.1 percent increase in pharmacy sales, which were particularly
strong in the managed care segment. Managed care sales accounted for
approximately 87 percent of pharmacy sales in the third quarter, up from 84
percent last year. Non-pharmacy sales increased by 1.3 percent on a
comparable store basis.
FIFO gross margin totaled $581 million in the third quarter compared with
$507 million in last year's period. FIFO gross margin declined 110 basis
points as a percent of sales as a result of a higher percentage of lower
margin branded drugs and lower generic dispensing rates, coupled with a
higher percentage of managed care and overall pharmacy sales versus a year
ago. In addition, as previously announced, the Eckerd shrinkage rate for
the third quarter was adjusted to reflect higher shrinkage levels, further
reducing gross margin. SG&A expenses increased by 70 basis points as a
percent of sales in the third
<PAGE>
-11-
quarter. The increase was primarily related to normal integration costs for
the Genovese drugstore acquisition and expenses associated with a higher
level of new and relocated store activity.
Operating profit for Eckerd drugstores was $109 million for the 39 weeks
ended October 30, 1999, down from $150 million last year. Operating profit
reflects a $36 million LIFO charge in the first nine months of 1999
compared with a $27 million charge in last year's period. Sales were strong
for the first nine months, increasing 10.8 percent on a comparable store
basis. Same store sales were led by pharmacy sales which increased by 15.8
percent; non-pharmacy merchandise sales increased by 3.1 percent for the
nine months. FIFO gross margin for the nine months declined by 50 basis
points. Excluding the effects of the 1999 and 1998 second quarter charges
related to inventory adjustments, systems upgrades and other items, FIFO
gross margin declined by 100 basis points. The decline in gross margin was
principally related to growth in managed care and mail order pharmacy
sales, which carry lower margins, and to higher shrinkage rates. SG&A
expenses increased by 30 basis points in total and remained unchanged from
the prior year excluding the effects of second quarter charges.
Direct Marketing
13 weeks ended 39 weeks ended
____________________ ____________________
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
_________ ________ _________ ________
($ in millions)
Revenue $ 282 $ 252 $ 832 $ 749
Costs and expenses (1) (219) (194) (655) (578)
_________ ________ ________ ________
Operating profit (2) $ 63 $ 58 $ 177 $ 171
Revenue, percent increase 11.9 8.2 11.1 9.2
Operating profit as a percent
of revenue 22.3 23.0 21.3 22.8
1) Includes amortization of deferred acquisition costs of $59 million and
$47 million for the third quarter and $168 million and $139 million for the
first nine months of 1999 and 1998, respectively.
2) Operating profit represents pre-tax income before amortization of
intangible assets.
Revenue totaled $282 million in the third quarter and $832 million for the
first nine months of 1999, an increase of approximately 11 percent for both
periods compared with last year. The increase was led by a 12 percent
increase in health insurance premiums which account for approximately 62
percent of total revenues. Revenue generated from membership services
products, which account for approximately eight percent of total revenues,
increased by 41 percent and 49 percent compared with last year's third
quarter and nine months, respectively. Operating profit totaled $63
million for the quarter, up 8.6 percent. Operating profit is up $6
million, or 3.5 percent for the year. Current year operating profit has
been impacted by planned expenditures for new product development and
international expansion activities in the United Kingdom and Pacific
Rim.
<PAGE>
-12-
Real Estate and Other
_____________________
Third quarter of 1999 includes losses associated with the Company's exit
from Chile ($19 million) a gain on the sale of an underperforming
department store ($12 million) and realized gains on the sale of investment
securities ($9 million), all of which were over and above normal activity.
Operating losses incurred in Chile up through the date of store closings is
reflected in the operating results of department stores and catalog.
Net Interest Expense and Credit Operations
__________________________________________
13 weeks ended 39 weeks ended
____________________ ____________________
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
_________ ________ _________ ________
($ in millions)
Revenue $ 172 $ 165 $ 536 $ 516
Bad debt expense (31) (69) (66) (167)
Operating expenses (81) (82) (243) (247)
Interest expense, net (166) (156) (470) (452)
________ ________ ________ ________
Total $ (106) $ (142) $ (243) $ (350)
Net interest expense and credit operations totaled $106 million in the
third quarter compared with $142 million in the comparable period last
year. The decline from last year was principally related to improvement in
bad debt levels. Bad debt expense in the third quarter was $38 million
below last year's level principally as a result of significantly lower
delinquency rates, due in part to the Company's previous efforts to tighten
credit underwriting standards to improve portfolio performance. Net
interest expense and credit operations totaled $243 million on a year to
date basis compared with $350 million last year. The improvement was
principally related to increased late fee revenue and significantly lower
bad debt expense. As of the end of the quarter, the 90-day delinquency rate
was 2.6 percent of customer receivables, down from 3.7 percent at the end
of the third quarter of 1998. At October 30, 1999, customer receivables
serviced totaled $3,628 million, a decrease of $265 million, or 6.8
percent, compared with a year ago.
Income Taxes
____________
The Company's effective income tax rate was 35.3 percent in the third
quarter compared with 38.8 percent last year. Several initiatives to reduce
income taxes, coupled with lower income, have resulted in a favorable
effective tax rate, on an annual basis, of approximately 37 percent.
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.
<PAGE>
-13-
In October 1996, a company-wide 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
industry-wide approaches to the Year 2000 issue, to gain insights to
problems, and to provide additional perspectives on solutions. Year 2000
readiness work was more than 99 percent complete as of October 30, 1999.
Since January 1999, the Company has been retesting all systems critical to
the Company's core business. The Company has also focused on the Year 2000
readiness of its suppliers and service providers, both independently and in
conjunction with the National Retail Federation.
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.
Through October 30, 1999, the Company had incurred approximately $45
million to achieve Year 2000 compliance, including approximately $10
million related to capital projects. The Company's remaining cost for Year
2000 remediation is currently estimated to be $4 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 has been amended to be effective for quarters
beginning after June 15, 2000. The Company has a limited exposure to
derivative products and does not expect these new rules to have a material
impact on reported results.
Subsequent Events
_________________
On December 6, 1999, the Company completed the previously announced sale of
its proprietary credit card business to General Electric Capital
Corporation. As a result of the transaction, the Company will reduce debt
by approximately $4 billion.
Also on December 6, 1999, the Company announced that it was cutting the
quarterly dividend on its common stock to $0.2875. The dividend rate
considered the overall performance of the various businesses of the Company
and the need to reinvest earnings in these businesses. The move also takes
into account, on a preliminary basis, the anticipated capital structure
implications of creating the previously announced tracking stock covering
Eckerd drugstores.
<PAGE>
-14-
Seasonality
___________
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 30, 1999 are not necessarily indicative of the
results for the entire year.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company holds an interest rate swap with a notional principal amount of
$375 million entered into in connection with the issuance of asset-backed
certificates in 1990. This swap presents no material risk to the Company's
results of operations.
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, and 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.
<PAGE>
-15-
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:
4 (a) Amended and Restated 364-Day Revolving Credit Agreement
dated as of October 1, 1999, among J. C. Penney
Company, Inc. and J. C. Penney Funding Corporation, the
Lenders party thereto, The Chase Manhattan Bank, as
Administrative Agent, Salomon Smith Barney Inc., as
Syndication Agent, and Bank of America, N.A. and Credit
Suisse First Boston, as Co-Documentation Agents
(incorporated by reference to Exhibit 4 (a) to J. C.
Funding Corporation's Quarterly Report on Form 10-Q for
the 39 weeks ended October 30, 1999, SEC File No. 1-
4971-1).
10(a) J. C. Penney Company, Inc. Mirror Savings Plan III,
effective August 1, 1999.
10(b) Employment Agreement dated as of August 1, 1999.
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 30, 1999.
27(b) Restated Financial Data Schedule for the nine months
ended October 31, 1998.
(b) Reports on Form 8-K
___________________
JCP Receivables, Inc. filed the following report on Form 8-K
during the period covered by this report:
Current Report of Form 8-K dated October 18,1999 (Item 5 - Other
Events, Item 7 - Financial Statements and Exhibits).
<PAGE>
-16-
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, 1999
<PAGE>
Exhibit 10 (a)
J. C. PENNEY COMPANY, INC.
MIRROR SAVINGS PLAN III
Adopted effective August 1, 1999
<PAGE>
J. C. PENNEY COMPANY, INC.
MIRROR SAVINGS PLAN III
INTRODUCTION
____________
The J. C. Penney Company, Inc. Mirror Savings Plan ("Plan") III was
adopted effective August 1, 1999 as part of a program to redesign the
Company's qualified and non-qualified savings plans to optimize the
retirement savings opportunities for certain Associates prior to the date
they became eligible to participate in the J. C. Penney Company, Inc.
Savings, Profit-Sharing and Stock Ownership Plan.
The Plan is maintained by the Company on an unfunded basis primarily
for the purpose of providing deferred compensation to a select group of
management or highly compensated employees.
<PAGE>
J. C. PENNEY COMPANY, INC.
MIRROR SAVINGS PLAN III
TABLE OF CONTENTS
_________________
Article Page
_______ ____
ARTICLE ONE DEFINITIONS............................................ 1
ARTICLE TWO ELIGIBILITY AND PARTICIPATION.......................... 4
2.01 Eligibility Determined for Each Plan Year................ 4
2.02 Eligible Associate....................................... 4
2.03 Participation............................................ 4
2.04 Election to Defer........................................ 4
2.05 Deferral Amounts......................................... 5
2.06 Investment Elections..................................... 5
ARTICLE THREE BENEFITS............................................. 7
3.01 Establishment of Accounts................................ 7
3.02 Personal Accounts........................................ 7
ARTICLE FOUR TRANSFERS............................................. 8
4.01 Personal Accounts........................................ 8
ARTICLE FIVE VESTING............................................... 9
5.01 Personal Accounts........................................ 9
ARTICLE SIX TYPE OF PLAN........................................... 10
6.01 Top Hat Plan............................................. 10
6.02 No Funding............................................... 10
ARTICLE SEVEN DISTRIBUTIONS........................................ 11
7.01 Normal Form of Payment................................... 11
7.02 Separation from Service.................................. 11
7.03 Death.................................................... 11
7.04 Alternate Form of Payment................................ 11
7.05 Hardship Distribution.................................... 12
7.06 Fund-Specific Installments or Hardship Distributions..... 13
7.07 Form of Payments......................................... 13
7.08 Change of Control........................................ 13
<PAGE>
7.09 Reemployed Participants.................................. 15
ARTICLE EIGHT AMENDMENT AND TERMINATION............................ 17
8.01 Plan Amendment........................................... 17
8.02 Plan Termination......................................... 17
8.03 Automatic Plan Termination............................... 17
ARTICLE NINE MISCELLANEOUS......................................... 18
9.01 Plan Administration..................................... 18
9.02 Plan Expenses............................................ 18
9.03 Effect on Other Benefits................................. 19
9.04 No Guarantee of Employment............................... 19
9.05 Disclaimer of Liability.................................. 19
9.06 Severability............................................. 19
9.07 Successors............................................... 19
9.08 Governing Law............................................ 19
9.09 Construction............................................. 19
9.10 Taxes.................................................... 20
9.11 Non-Assignability........................................ 20
9.12 Claims Procedure......................................... 20
<PAGE>
ARTICLE ONE
DEFINITIONS
As used herein, the following words and phrases have the following
respective meanings unless the context clearly indicates otherwise:
1.01 Active Participant: A Participant who defers part of his
__________________
Compensation for a Plan Year (or part thereof) pursuant to an Election to
Defer that satisfies the requirements of Section 2.04.
1.02 Associate: Any person who is classified as an associate and
_________
employed by an Employer if the relationship between the Employer and such
person constitutes the legal relationship of employer and employee.
1.03 Beneficiary: The person or persons designated by the Participant
___________
on a beneficiary form required by the Company for this purpose to receive
benefits payable under the Plan because of the Participant's death.
1.04 Code: The Internal Revenue Code of 1986, as amended from time to
____
time.
1.05 Company: J. C. Penney Company, Inc., a Delaware corporation, or
_______
its successor(s).
1.06 (Reserved)
_________
1.07 Compensation: The total cash remuneration paid to an Associate by
____________
his Employer, that qualifies as wages as the term wages is defined in Code
section 3401(a), determined without regard to any reduction for workers'
compensation and state disability insurance reimbursements, and all other
compensation payments for which his Employer is required to furnish the
Associate a written statement under Code sections 6041(d), 6051(a)(3) and
6052, reduced by any extraordinary items of special pay.
In addition, Compensation includes any contributions made by the
Associate's Employer on behalf of the Associate pursuant to a deferral
election under any employee benefit plan containing a cash or deferred
arrangement under Section 401(k) of the Code, and any amounts that would
have been received as cash but for an election to receive benefits under a
cafeteria plan meeting the requirements of Section 125 of the Code.
Compensation also includes eligible cash incentive payments in the
year paid to the Associate, and amounts deferred by the Active Participant
pursuant to Section 2.05 of the Plan.
Compensation for a Plan Year shall be determined without regard to the
limitations
1
<PAGE>
on annual compensation under Section 401(a)(17) of the Code.
An Associate who is in the service of the armed forces of the United
States during any period in which his reemployment rights are guaranteed by
law will be considered to have received the same rate of Compensation
during his absence that he was receiving immediately prior to his absence,
provided he returns to employment with an Employer within the time such
rights are guaranteed.
1.08 Eligible Associate: An Associate who has satisfied the eligibility
__________________
requirements of the Plan for a Plan Year in accordance with Section 2.02.
1.09 Employer: The Company and any subsidiary company or affiliate of
________
the Company that is a Participating Employer as defined in Article I of the
Savings Plan.
1.10 ERISA: The Employee Retirement Security Act of 1974, as amended
_____
form time to time.
1.11 Exchange Act: The Securities Exchange Act of 1934, as amended from
____________
time to time.
1.12 Human Resources Committee: The Human Resources Committee of the
_________________________
Management Committee of the Company.
1.13 (Reserved)
_________
1.14 Mirror Investment Funds: Phantom funds established as book reserve
_______________________
entries in the books and records of the Company to which a Participant's
deferral amounts under the Plan are credited based on the investment
elections of the Participant. The investment returns of such funds shall
be assumed to match the returns of the same investment funds available to
participants under the Savings Plan which are currently:
(1) Interest Income Fund;
(2) Conservative Fund;
(3) Moderate Fund;
(4) Aggressive Fund; and
(5) Penney Common Stock Fund.
1.15 Participant: An Eligible Associate who participates in the Plan in
___________
accordance with Article Two, and who has not yet received a distribution of
the entire amount of his vested benefits under the Plan.
1.16 Personal Account: A phantom account established in accordance with
________________
Article Three to which a Participant's deferral amounts plus earnings are
credited.
1.17 Personnel and Compensation Committee: The Personnel and
____________________________________
Compensation Committee of the Board of Directors of the Company.
2
<PAGE>
1.18 Plan: The J. C. Penney Company, Inc. Mirror Savings Plan III,
____
effective August 1, 1999, as amended from time to time.
1.19 Plan Year: August 1, 1999 through December 31, 1999, and each
_________
calendar year thereafter.
1.20 Separation from Service: The termination of employment of an
_______________________
Eligible Associate or a Participant because of retirement, resignation,
discharge, disability or death.
1.21 Valuation Date: With respect to all Mirror Investment Funds, each
______________
day of a calendar year on which the New York Stock Exchange is open.
With respect to transactions or distributions initiated by a
Participant or Beneficiary, (a) the date of receipt by the Plan
Administrator of the request if it is received prior to the close of the
New York Stock Exchange, or (b) the next trading day if the request is
received after the close of the New York Stock Exchange.
With respect to distributions not initiated by a Participant, the date
the distribution is processed.
3
<PAGE>
ARTICLE TWO
ELIGIBILITY AND PARTICIPATION
2.01 Eligibility Determined for Each Plan Year
_________________________________________
The eligibility of each Associate to participate in the Plan as an
Active Participant is determined for each Plan Year in accordance with
Section 2.02 below. Eligibility for, or participation in, the Plan for a
Plan Year does not give an Associate the right to defer part of his
Compensation under the Plan for any other Plan Year.
2.02 Eligible Associate
__________________
An Associate shall be eligible to participate in the Plan as an Active
Participant for a Plan Year if the Associate has been designated as an
Eligible Associate by the Vice President and Director of Human Resources in
his sole discretion (or his successor by title or position) and has
received a written offer to participate in the Plan.
An Associate shall not be designated as an Eligible Associate unless
he is employed with the Company at a position responsibility level of 15 or
above, or with an Employer at a comparable position responsibility level as
determined by the Vice President and Director of Human Resources in his
sole discretion (or his successor by title or position).
2.03 Participation
_____________
An Eligible Associate for a Plan Year shall participate in the Plan
for that Plan Year as an Active Participant by making a timely Election to
Defer in accordance with Section 2.04 below. An Eligible Associate who
fails to satisfy the requirements of Section 2.04 below shall not be
allowed to make an Election to Defer and shall not be an Active Participant
for that Plan Year.
A Participant who is not an Active Participant for a Plan Year shall
continue to participate in the Plan in all respects except that such
Participant shall not have the right to defer part of his Compensation
under the Plan for that Plan Year.
2.04 Election to Defer
_________________
An Eligible Associate for a Plan Year may elect to defer a percentage
(as described in Section 2.05 below) of his Compensation for such Plan
Year.
The Election to Defer for a Plan Year must be made in a manner
approved by the Plan Administrator and must be received by the Plan
Administrator
4
<PAGE>
(a) For the Plan Year ending on December 31, 1999, before September 1,
1999 and shall be effective on September 1, 1999, or
(b) For a Plan Year beginning after December 31, 1999, before the last
day of the month in which occurs the Eligible Associate's date of
hire and shall be effective on the first day of the next month, or
(c) For any Plan Year not described in (a) or (b) above, by December 31 of
the preceding Plan Year and shall be effective on January 1 following
such preceding Plan Year.
An Eligible Associate may change his Election to Defer by filing a new
Election to Defer with the Plan Administrator by the applicable deadline.
An Active Participant cannot change his Election to Defer during a
Plan Year for that Plan Year. An Active Participant may terminate his
Election to Defer during a Plan Year for that Plan Year but shall not be
permitted to make another Election to Defer for that Plan Year. Such
termination shall be effective as of the next available payroll period
following receipt of the termination by the Plan Administrator.
An Election to Defer also shall terminate if:
(1) the Eligible Associate is eligible to participate in the J. C. Penney
Company, Inc. Mirror Savings Plan II, or
(2) the Eligible Associate or Participant has a Separation from Service
with an Employer, or
(3) the Plan is terminated, or
(4) upon a Change of Control that occurs before the date that payment of
Compensation would have been made if not deferred.
2.05 Deferral Amounts
________________
An Active Participant for a Plan Year may defer (a) up to 14% of his
Compensation in that Plan Year up to the Earnings Dollar Limit (as defined
below), and (b) up to 75% of his Compensation in that Plan Year that
exceeds the Earnings Dollar Limit provided, however, that for the Plan Year
ending on December 31, 1999 an Active Participant may defer all or part of
his supplemental cash payments and signing bonus. All deferral amounts
shall be in whole percentages and made by payroll deduction. Compensation
in a Plan Year that is paid prior to the effective date of the Active
Participant's Election to Defer cannot be deferred for that Plan Year.
The Earnings Dollar Limit of an Active Participant for a Plan Year
shall be shall be
5
<PAGE>
$160,000, as adjusted for cost-of-living increases in accordance with
Section 401(a)(17) of the Code.
2.06 Investment Elections
____________________
A Participant shall complete an election, in the manner determined by
the Plan Administrator, requesting that all of his future deferral amounts
(in whole percentages) be applied to the purchase for him, as of the
earliest practicable Valuation Date after such amounts are deferred, of
units in his Personal Accounts within any one or more of the Mirror
Investment Funds in each case at a price equal to the value of such units
as of such Valuation Date.
<PAGE>
Such election initially must be made prior to the commencement of his
participation in the Plan and may be changed at any time during the Plan
Year. Each such election or change in election shall be effective as soon
as administratively feasible following receipt by the Plan Administrator or
its delegate of the Participant's election.
In the event that no timely investment election by the Participant is
on file with the Plan Administrator, such Participant shall be deemed to
have elected that all deferral amounts shall be applied to the purchase for
him of units in the Personal Account within the Mirror Investment Fund that
is the Interest Income Fund.
6
<PAGE>
ARTICLE THREE
BENEFITS
3.01 Establishment of Accounts
_________________________
A Personal Account within each Mirror Investment Fund shall be
established for each Participant in the Plan as if assets were invested in
a trust. All amounts credited to the Personal Accounts of a Participant
shall at all times be held in the Company's general funds as part of the
Company's general assets, unless a trust is established pursuant to Section
7.08.
The value, including gains and losses, of such accounts and funds
shall be determined by the Plan Administrator in the same manner that the
value is determined under the Savings Plan. As of each Valuation Date,
the net asset value of a unit shall equal the net asset value of a unit as
determined under the Savings Plan.
No funds shall be allocated by the Company to any Personal Account or
Mirror Investment Fund under the Plan.
3.02 Personal Accounts
_________________
All amounts deferred by an Active Participant pursuant to Article Two
shall be credited to his Personal Accounts within his Mirror Investment
Funds specified in his investment election.
7
<PAGE>
ARTICLE FOUR
TRANSFERS
4.01 Personal Accounts
_________________
A Participant may elect, once in each calendar month of the Plan Year,
to transfer an amount (in whole percentages) equal to the value of all or
part of his units in his Personal Accounts within any one or more of the
Mirror Investment Funds to another one or more of his Personal Accounts
within the Mirror Investment Funds. The value of such units shall be
determined as of the Valuation Date. A transfer is effective only if made
in the manner determined by the Plan Administrator.
8
<PAGE>
ARTICLE FIVE
VESTING
5.01 Personal Accounts
_________________
A Participant shall be 100% vested in the value of his Personal
Accounts within his Mirror Investment Funds at all times without regard to
whether he is a Participant in the Plan for any future Plan Year.
9
<PAGE>
ARTICLE SIX
TYPE OF PLAN
6.01 Top Hat Plan
____________
The Plan is intended to be a "pension plan" as defined in ERISA and is
maintained by the Company on an unfunded basis primarily for the purpose of
providing deferred compensation to a select group of management or highly
compensated employees. As such, the Plan is intended to be construed so as
not to provide income to any Participant or Beneficiary for purposes of the
Internal Revenue Code prior to actual receipt of benefit payments under
the Plan.
In the event that it should subsequently be determined by statute or
by regulation or ruling that the Plan is not "a plan which is unfunded and
is maintained primarily for the purpose of providing deferred compensation
for a select group of management or highly compensated employees" within
the meaning of sections 201(2), 301(a)(3), 401(a)(1), and 4021(b)(6) of
ERISA and section 2520.104-24 of Chapter 29 of the Code of Federal
Regulations, participation in the Plan shall be restricted by the Plan
Administrator to the extent necessary to assure that it will be such a plan
within the meaning of such sections.
Notwithstanding any other provision of the Plan, if the benefits of a
Participant become taxable prior to distribution from the Plan, such
amounts shall be distributed as soon as practicable to the affected
Participant.
6.02 No Funding
__________
Plan benefits shall be payable solely from the general assets of the
Company. The Company shall not be required to, but may at its discretion,
segregate or physically set aside any funds or assets attributable to Plan
benefits. The Company shall retain title to and beneficial ownership of all
assets of the Company, including any assets which may be used to pay Plan
benefits. The cost of the Plan shall be expensed and a book reserve shall
be maintained on the Company's financial statements.
No Participant or Beneficiary shall be deemed to have, pursuant to the
Plan, any legal or equitable interest in any specific assets of the
Company. To the extent that any Participant or Beneficiary acquires any
right to receive Plan benefits, such right shall arise merely as a result
of a contractual obligation and shall be no greater than, nor have any
preference or priority over, the rights of any general unsecured creditor
of the Company.
10
<PAGE>
ARTICLE SEVEN
DISTRIBUTIONS
7.01 Normal Form of Payment
______________________
The normal form of payment of benefits under the Plan shall be 5
substantially equal installments payable in accordance with Section 7.02
below.
7.02 Separation from Service
_______________________
A Participant who has a Separation from Service for a reason other
than death shall be entitled to receive the vested benefits in his Personal
Accounts in 5 substantially equal annual installments.
The first annual installment shall be paid in January following the
year in which occurs his Separation from Service. Each annual installment
thereafter shall be paid in January of each year. Payment dates shall be
determined by the Plan Administrator.
7.03 Death
_____
The Beneficiary of a Participant who (1) has a Separation from Service
because of death, or (2) dies while receiving Plan benefits shall be
entitled to receive the remaining annual installments to which the
Participant was entitled as of the date of death. The first annual
installment payable to the Beneficiary shall be paid in January following
the Participant's date of death, or, if later, after satisfactory proof of
death is received by the Plan Administrator. Each annual installment
thereafter shall be paid in January of each year. Payment dates shall be
determined by the Plan Administrator.
A single-sum distribution shall be paid to the estate of the
Participant if as of the date of death (1) no valid beneficiary designation
by the Participant is on file with the Plan Administrator, or (2) the
Beneficiary has predeceased the Participant.
A single-sum distribution shall be paid to the estate of the
Beneficiary if the Beneficiary dies before receiving all benefits to which
he was entitled under the Plan.
7.04 Alternate Form of Payment
_________________________
A Participant entitled to receive benefits under Section 7.02 above
may make an irrevocable election to receive (1) not more than 15
substantially equal annual installments, or (2) a single-sum distribution.
The election must be made prior to the Participant's Separation from
Service in a manner authorized by the Plan Administrator. If no election
has been made by the Participant, benefits shall be paid in the normal form
of payment in accordance with Section 7.02 above.
11
<PAGE>
The first annual installment or single-sum distribution shall be paid
in January following the year in which occurs his Separation from Service;
provided, however, that the first annual installment or single-sum
distribution shall not be paid until the January following the expiration
of at least one calendar year after the year in which the Participant's
election is made. Each annual installment thereafter shall be paid in
January of each year.
A Participant also may make an irrevocable election to defer payment
of the first installment or single-sum distribution to January of a later
year provided the election is made prior to the Participant's Separation
from Service in a manner authorized by the Plan Administrator. If no
election has been made by the Participant, benefits shall commence in
accordance with Section 7.02 or Section 7.04 above, whichever is
applicable.
A Participant who elects both to change the normal form of payment and
to defer payment must make the elections at the same time.
7.05 Hardship Distribution
_____________________
A Participant or Beneficiary entitled to vested benefits under the
Plan may request a single-sum distribution to satisfy a severe financial
hardship resulting from an unforseen event or emergency (as defined below)
beyond his control. The distribution shall be limited to the amount
necessary to satisfy the severe financial hardship (including any
applicable federal, state or local taxes attributable to such
distribution), and shall not exceed the current value of vested benefits
payable to or on behalf of the Participant or Beneficiary.
An unforeseen event or emergency may include, but is not limited to, a
sudden and unexpected illness or accident of the Participant or Beneficiary
or his dependent, loss of his property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as the result of
events beyond his control, but shall not include the purchase of his home
or the college expenses of his child.
The determination of the existence of a severe financial hardship and
the approval of a hardship distribution shall be made by the Vice President
and Director of Human Resources (or his successor by title or position) or
his delegate except as provided below. Approval shall be given only if,
taking into account all of the facts and circumstances, continued deferral
of benefits or adherence to the Plan's payment schedule would result in a
severe financial hardship to the Participant or Beneficiary. Approval
shall not be granted if such hardship is or may be relieved through
insurance, by liquidation of his assets (to the extent such liquidation
would not itself cause severe financial hardship), or by terminating his
Election to Defer.
With respect to a Participant who is a member of the Management
Committee of the Company or a Participant who is subject to Section 16(b)
of the Exchange Act, the
12
<PAGE>
determination of the existence of a severe financial hardship and the
approval of the hardship distribution shall be made by the Personnel
and Compensation Committee.
In the case of a Participant or Beneficiary who receives a partial
hardship distribution while receiving benefit payments, the regular payment
schedule of the Participant or Beneficiary shall continue following such
distribution.
7.06 Fund-Specific Installments or Hardship Distributions
____________________________________________________
The payment to a Participant or Beneficiary of installments or a
hardship distribution shall reduce the value of his accounts in his Mirror
Investment Fund(s) as designated by the Participant or Beneficiary. In the
event the Participant or Beneficiary fails to designate the Mirror
Investment Funds from which payment is to be made, the value of his Mirror
Investment Funds shall be reduced on a pro-rata basis.
7.07 Form of Payments
________________
Payment of all benefits from the Plan shall be made only by check. No
payments of Company stock shall be permitted.
7.08 Change of Control
_________________
At the time of commencement of participation in the Plan, a
Participant may make an irrevocable election to have his Plan benefits paid
in a single-sum immediately upon a Change of Control (as hereafter
defined). If the Participant makes such an election as described above,
his vested Plan benefits shall be paid in a single-sum upon a Change of
Control.
If the Participant does not make such an election, then, upon a Change
of Control, assets of the Company in an amount sufficient to pay benefits
then due under the Plan shall immediately be transferred to a grantor trust
to be established by the Company for the purpose of paying benefits
hereunder, and the Personal Account and Company Account shall thereafter be
paid to the Participant from such trust in accordance with the terms of the
Plan; provided that at the time of such Change of Control, the Participant
may make an irrevocable election to have his Plan benefits paid in a
single-sum immediately, in which event the Participant's benefits shall be
reduced by 10% as a penalty for early withdrawal, and the Participant shall
receive a single-sum payment of only 90% of his benefits otherwise payable
under the Plan. On each anniversary date of the date of a Change of
Control, the Company shall transfer to the grantor trust an amount
necessary to pay all benefits accrued under the Plan during the preceding
twelve months.
For purposes of this Section 7.08, a Change of Control shall be deemed
to have occurred if the event set forth in any one of the following
paragraphs shall have occurred:
(a) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such
13
<PAGE>
Person any securities acquired directly from the Company or its Affiliates)
representing 50% or more of the combined voting power of the Company's then
outstanding securities; or
(b) during any period of two consecutive calendar years, the
following individuals cease for any reason to constitute a majority of the
number of directors then serving as directors of the Company: individuals,
who on July 14, 1999 constitute the Board of Directors of the Company and
any new director (other than a director whose initial assumption of office
is in connection with the settlement of an actual or threatened election
contest, including but not limited to a consent solicitation, relating to
the election of directors of the Company) whose appointment or election by
the Board of Directors of the Company or nomination for election by the
Company's stockholders was approved or recommended by a vote of at least
two-thirds of the directors then still in office who either were directors
on July 14, 1999 or whose appointment, election or nomination for election
was previously so approved or recommended; or
(c) there is consummated a merger or consolidation of the Company
or any direct or indirect subsidiary of the Company with any other
corporation or entity, other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior to such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or any Parent thereof), in combination with the ownership
of any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any subsidiary of the Company, at least 50%
of the combined voting power of the securities of the Company, such
surviving entity or any Parent thereof outstanding immediately after such
merger or consolidation, or (ii) a merger or consolidation effected solely
to implement a recapitalization of the Company (or similar transaction) in
which no Person is or becomes the Beneficial Owner, directly or indirectly,
of securities of the Company (not including in the securities beneficially
owned by such Person any securities acquired directly from the Company or
its Affiliates) representing 50% or more of the combined voting power of
the Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company, or there is consummated a sale
or disposition by the Company or any of its subsidiaries of any assets
which individually or as part of a series of related transactions
constitute all or substantially all of the Company's consolidated assets,
other than any such sale or disposition to an entity at least 50% of the
combined voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as their
ownership of the voting securities of the Company immediately prior to such
sale or disposition; or
(e) the execution of a binding agreement that if consummated would
result in a Change of Control of a type specified in subparagraphs (a) or
(c) above (an "Acquisition Agreement") or of a binding agreement for the
sale or disposition of assets that, if consummated, would result in a
Change of Control of a type specified in subparagraph (d) above (an "Asset
Sale Agreement") or the adoption by the Board of Directors of the
14
Company of a plan of complete liquidation or dissolution of the Company
that, if consummated, would result in a Change of Control of a type
specified in subparagraph (d) above (a "Plan of Liquidation"), provided,
however, that a Change of Control of the type specified in this
subparagraph (e) shall not be deemed to exist or have occurred as a result
of the execution of such Acquisition Agreement or Asset Sale Agreement,
or the adoption of such a Plan of Liquidation, from and after the
Abandonment Date. As used in this subparagraph (e), the term "Abandonment
Date" shall mean the date on which (i) an Acquisition Agreement, Asset Sale
Agreement or Plan of Liquidation is terminated (pursuant to its terms or
otherwise) without having been consummated, (ii) the parties to an
Acquisition Agreement or Asset Sale Agreement abandon the transactions
contemplated thereby, (iii) the Company abandons a Plan of Liquidation, or
(iv) a court or regulatory body having competent jurisdiction enjoins or
issues a cease and desist or stop order with respect to or otherwise
prevents the consummation of, or a regulatory body notifies the Company
that it will not approve an Acquisition Agreement, Asset Sale Agreement
or Plan of Liquidation or the transactions contemplated thereby and such
injunction, order or notice has become final and not subject to appeal; or
(f) the Board adopts a resolution to the effect that, for purposes
of this Plan, a Change of Control has occurred.
Notwithstanding the foregoing, a Change of Control shall not be deemed
to have occurred by virtue of the consummation of any transaction or series
of integrated transactions immediately following which the record holders
of the common stock of the Company immediately prior to such transaction or
series of transactions continue to have substantially the same
proportionate ownership in an entity (i) which owns all or substantially
all of the assets of the Company immediately following such transaction or
series of transactions, (ii) which is intended to reflect or track the
value or performance of a particular division, business segment or
subsidiary of the Company, or (iii) which is an affiliated company,
subsidiary, or spin-off entity owned by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company on the date of such spin-off.
As used in connection with the foregoing definition of Change of
Control, "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act; "Beneficial Owner" shall
have the meaning set forth in Rule 13d-3 under the Exchange Act; "Exchange
Act" shall mean the Securities Exchange Act of 1934, as amended from time
to time; "Parent" shall mean any entity that becomes the Beneficial Owner
of at least 50% of the voting power of the outstanding voting securities of
the Company or of an entity that survives any merger or consolidation of
the Company or any direct or indirect subsidiary of the Company; and
"Person" shall have the meaning given in Section 3(a)(9) of the Exchange
Act, as modified and used in Sections 13(d) and 14(d) thereof, except that
such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any of its Affiliates, (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities,
or (iv) a corporation or entity owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
15
ownership of stock of the Company.
7.09 Reemployed Participants
_______________________
If the Participant is reemployed, his scheduled payments under Section
7.02 or Section 7.04 shall cease and his election, if any, under Section
7.04 shall be void. The Participant may make a new election under Section
7.04 prior to his subsequent Separation from Service that shall apply to
any unpaid benefits and to any additional benefits payable to or on behalf
of the Participant because of a subsequent Separation from Service.
If no new election is made by the Participant, benefits shall be paid
in the normal form of payment in accordance with Section 7.02 above.
16
<PAGE>
ARTICLE EIGHT
AMENDMENT AND TERMINATION
8.01 Plan Amendment
______________
The Personnel and Compensation Committee may amend the Plan at any
time and from time to time, without prior notice to any Participant or
Beneficiary; provided, however, that the Human Resources Committee also may
make amendments that relate primarily to the administration of the Plan,
are applied in a uniform and consistent manner to all Participants, and are
reported to the Personnel and Compensation Committee.
8.02 Plan Termination
________________
The Board of Directors of the Company may terminate or discontinue the
Plan at any time. If the Plan is terminated, it shall be on such terms and
conditions as the Board of Directors of the Company shall deem appropriate.
8.03 Automatic Plan Termination
__________________________
This Plan is expressly conditioned on the continued deferral of income
tax on amounts deferred by a Participant under the Plan until such amounts
are actually distributed to the Participant. If, as a result of an adverse
determination by the Internal Revenue Service or a change in the tax laws
or applicable income tax regulations, amounts deferred by Participants
under the Plan become subject to income tax prior to the actual
distribution of such amounts, the Plan and each Election to Defer hereunder
shall automatically terminate as of the effective date of such change in
the law without any formal action by the Board of Directors to terminate
the Plan.
17
<PAGE>
ARTICLE NINE
MISCELLANEOUS
9.01 Plan Administration
___________________
The Plan shall be administered under the direction of the Personnel
and Compensation Committee. Except as otherwise provided below, the
Benefits Administration Committee shall be considered the Plan
Administrator for purposes of ERISA.
The Personnel and Compensation Committee may delegate all or some of
the responsibility for the administration of the Plan to the Human
Resources Committee or the Benefits Administration Committee in which case
such Committee shall assume such delegated power and authority in
administering the Plan to that extent; provided, however, that in no event
shall the Human Resources Committee or the Benefits Administration
Committee have any power or authority with respect to matters involving a
Participant who is a member of the Management Committee of the Company or a
Participant who is subject to Section 16(b) of the Exchange Act.
The Plan Administrator has the authority and discretion to construe
and interpret the Plan. As part of this authority, the Plan Administrator
has the discretion to resolve inconsistencies or ambiguities in the
language of the Plan, to supply omissions from or correct deficiencies in
the language of the Plan, and to adopt rules for the administration of the
Plan which are not inconsistent with the terms of the Plan. The Plan
Administrator also has the authority and discretion to resolve all
questions of fact relating to any claim for benefits as to any matter for
which the Plan Administrator has responsibility. All determinations of the
Plan Administrator are final and binding on all parties.
Each person considered to be a fiduciary with respect to the Plan
shall have only those powers and responsibilities as are specifically given
that person under this Plan. It is intended that each such person shall be
responsible for the proper exercise of his or her own powers and
responsibilities, and shall not be responsible for any act or failure to
act of any other person considered to be a fiduciary or any act or failure
to act of any person considered to be a non-fiduciary.
9.02 Plan Expenses
_____________
All Plan administration expenses incurred by the Company or the Plan
Administrator shall be paid by the Company.
9.03 Effect on Other Benefits
________________________
Participation in the Plan shall not reduce any welfare benefits or
retirement benefits offered by the Company, except that the amounts
deferred under the Plan and any Plan
18
benefits shall not be considered "Compensation" for purposes of the
Savings Plan.
19
<PAGE>
9.04 No Guarantee of Employment
__________________________
Neither participation in the Plan nor any action taken under the Plan
shall confer upon a Participant any right to continue in the employ of an
Employer or affect the right of such Employer to terminate the
Participant's employment at any time.
9.05 Disclaimer of Liability
_______________________
The Employer shall be solely responsible for the payment of Plan
benefits hereunder. The members of the Personnel and Compensation Committee
and the Human Resources Committee, and the officers, directors, employees,
or agents of the Company or any other Employer, shall not be liable for
such benefits. Unless otherwise required by law, no such person shall be
liable for any action or failure to act, except where such act or omission
constitutes gross negligence or willful or intentional misconduct.
9.06 Severability
____________
If any provision of the Plan shall be held invalid or unenforceable,
such invalidity or unenforceability shall apply only to that provision, and
shall not affect or render invalid or unenforceable any other provision of
the Plan. In such event, the Plan shall be administered and construed as if
such invalid or unenforceable provision were not contained herein. If the
application of any Plan provision to any Participant or Beneficiary shall
be held invalid or unenforceable, the application of such provision to any
other Participant or Beneficiary shall not in any manner be affected
thereby.
9.07 Successors
__________
The Plan and any Election to Defer shall be binding on (i) the Company
and its successors and assigns, (ii) any Employer and its successors and
assigns, (iii) each Participant, (iv) each Beneficiary, and (v) the heirs,
distributees, and legal representatives of each Participant and
Beneficiary.
9.08 Governing Law
_____________
Except to the extent that the Plan may be subject to the provisions of
ERISA, the Plan shall be construed and enforced according to the laws of
the State of Texas without giving effect to the conflict of laws principles
thereof. In the event limitations imposed by ERISA on legal actions do not
apply, the laws of the State of Texas shall apply, and a cause of action
under the Plan must be brought no later than four years after the date the
action accrues.
9.09 Construction
____________
As used herein, the masculine shall include the feminine, the singular
shall include the plural, and vice versa, unless the context clearly
indicates otherwise. Titles and headings herein are for convenience only
and shall not be considered in construing the
20
<PAGE>
Plan. The words "hereof," "hereunder", and other similar compounds of the
word "here" shall mean and refer to the entire Plan and not to any
particular provision or Section.
9.10 Taxes
_____
Any taxes imposed on Plan benefits shall be the sole responsibility of
the Participant or Beneficiary. The Company shall deduct from Plan benefits
any federal taxes, state taxes, local taxes, or other taxes required to be
withheld. The Company shall, unless the Plan Administrator elects
otherwise, withhold such taxes at the applicable flat rate percentage. The
Company shall also deduct from any payment of Compensation, including any
cash incentive payments, on the date such payment would have been made if
not deferred under this Plan Social Security and Medicare taxes or other
taxes required to be withheld on such date.
9.11 Non-Assignability
_________________
Unless otherwise required by law, and prior to distribution to a
Participant or Beneficiary, Plan benefits shall not be subject to
assignment, transfer, sale, pledge, encumbrance, alienation, or charge by
such Participant or Beneficiary, and any attempt to do so shall be void.
Plan benefits shall not be liable for or subject to garnishment,
attachment, execution, or levy, or liable for or subject to the debts,
contracts, or liabilities of the Participant or Beneficiary; provided,
however, that the Company may offset from the payment of any Plan benefits
to a Participant or Beneficiary amounts owed by the Participant to an
Employer.
9.12 Claims Procedure
________________
If a Participant or Beneficiary ("claimant") does not receive the
benefits which the claimant believes he is entitled to receive under the
Plan, the claimant may file a claim for benefits with the Director of
Personnel (or his successor by title or position). All claims must be made
in writing and must be signed by the claimant. If the claimant does not
furnish sufficient information to determine the validity of the claim, the
Director of Personnel will indicate to the claimant any additional
information which is required.
Each claim will be approved or disapproved by the Director of
Personnel within 90 days following receipt of the information necessary to
process the claim. In the event the Director of Personnel denies a claim
for benefits in whole or in part, the Director of Personnel will notify the
claimant in writing of the denial of the claim. Such notice by the
Director of Personnel will also set forth, in a manner calculated to be
understood by the claimant, the specific reasons for such denial, the
specific Plan provisions on which the denial is based, a description of any
additional material or information necessary to perfect the claim with an
explanation of why such material or information necessary, and an
explanation of the Plan's claim review procedure as set forth below. If no
action is taken by the Director of Personnel on or a claim within 90 days,
the claim will be deemed to be denied for purposes of the review procedure
below.
21
<PAGE>
A claimant may appeal a denial of his or her claim by requesting a
review of the decision by the Plan Administrator. An appeal must be
submitted in writing within six months after the denial and must (i)
request a review of the claim for benefits under the Plan, (ii) set forth
all the grounds upon which the claimant's request for review is based and
any facts in support thereof, and (iii) set forth any issues or comments
which the claimant deems pertinent to the appeal.
The Plan Administrator will make a full and fair review of each appeal
and any written materials submitted in connection with the appeal. The
Plan Administrator will act upon each appeal within 60 days after receipt
thereof, unless special circumstances require an extension of the time for
processing, in which case a decision will be rendered as soon as possible
but not later than 120 days after the appeal is received. The claimant
will be given the opportunity to review pertinent documents or materials
upon submission of a written request to the Plan Administrator, provided
the Plan Administrator finds the requested documents or materials pertinent
to the appeal. On the basis of its review, the Plan Administrator will
make an independent determination of the claimant's eligibility for
benefits under the Plan.
The decision of the Plan Administrator on any claim for benefits will
be final and conclusive upon all parties thereto. In the event the Plan
Administrator denies an appeal in whole or in part, the Plan Administrator
will give written notice of the decision to the claimant, which notice will
set forth, in a manner calculated to be understood by the claimant, the
specific reasons for such denial and specific reference to the pertinent
Plan provisions on which the decision was based.
22
<PAGE>
Exhibit 10 (b)
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), made in the City of
Plano and the State of Texas, dated as of the first day of August, 1999,
between J. C. Penney Company, Inc., a Delaware corporation (hereinafter
called the "Employer"), and Vanessa Castagna (hereinafter called the
"Employee").
1. Employment, Position and Duties
_______________________________
1.1 The Employer hereby agrees to employ Employee and the Employee
hereby agrees to undertake employment with the Employer upon the terms
and conditions herein set forth.
1.2 During the Term (as hereafter defined), the Employee will
serve in the position of Executive Vice President and Chief Operating
Officer of JCPenney Stores, Catalog and Merchandising. Employee shall
faithfully and in conformity with the directions of the Board of
Directors of the Employer (the "Board") or its delegate perform the
duties of her employment and shall devote to the performance of such
duties her full time and attention.
2 Term of Employment. Employee's term of employment under this
__________________
Agreement will commence on August 1, 1999 (the "Start Date") and,
subject to the provisions of this Agreement, will terminate on the
earlier of (i) the fifth anniversary of the Start Date or (ii)
termination of Employee's employment pursuant to Section 7 of this
Agreement (the "Termination Date"). Notwithstanding the termination
date provided in the previous sentence, the term of this Agreement may
be extended by agreement of the parties.
3 Compensation
____________
3.1 Salary. In consideration of her services during the Term,
______
the Employer shall pay the Employee cash compensation at an annual
rate of $550,000 ("Base Salary"). Employee's Base Salary shall be
subject to such increases as may be approved by the Personnel and
Compensation Committee of the Board (the "Committee") or its delegate.
3.2 Annual Incentive Compensation. Employee shall be eligible
_____________________________
to participate in the 1989 Management Incentive Compensation Plan (the
"Comp Plan"). Employee's annual target incentive shall be 48% of Base
Salary unless changed by the Committee; provided however that
Employee's annual incentive award for the 1999 and 2000 fiscal year
will be not less than 48% of Base Salary, which amount for 1999 shall
be prorated to reflect Employee's actual period of service during 1999
after the Start Date. If the Committee authorizes any annual cash
incentive program or approves any other annual management incentive
program or arrangement, Employee will be eligible to participate in
such plan, program, or arrangement on terms commensurate with
Employee's position and level of responsibility.
3.3 Long-Term Incentive Compensation. Employee shall be
________________________________
eligible to participate in the EVA Performance Plan (the "EVAPP").
Employee's annual target
<PAGE>
participation will be at a level of 23.5% of
Employee's Base Salary plus annual incentive at 48% of Base Salary
("Total Earnings"), unless changed by the Committee; provided however,
that Employee's long term incentive award to be credited to her EVAPP
Bonus Bank for the 1999 and 2000 fiscal year will be not less than
23.5% of her Total Earnings, which amount for 1999 shall be prorated
to reflect Employee's actual period of service during 1999 (Total
Earnings plus EVAPP target at $1.00 per unit is defined as "Grand
Total Earnings"). If the Committee authorizes any long-term incentive
compensation plan, program, or arrangement, Employee will be eligible
to participate in such plan, program, or arrangement on terms
commensurate with her position and level of responsibility.
3.4 Supplemental Cash Payment Employee shall be entitled to
_________________________
receive a supplemental cash payment of $2,000,000. This supplemental
cash payment shall be payable in three installments as specified
below, provided that Employee remains employed on each date of payment
subject to Section 7. The supplemental cash payment shall be payable
as follows: $800,000 upon the completion of an initial period of
employment from Start Date to September 3, 1999, $600,000 on the first
anniversary of the Start Date, and $600,000 on the second anniversary
of the Start Date.
4 Expenses. During the Term the Employee shall be allowed
_________
reimbursement of reasonable expenses necessary for the performance of her
duties in accordance with the policies of the Employer.
5 Restricted Stock and Stock Options.
__________________________________
5.1 The Employer will grant to the Employee on the Start Date
43,000 shares of the Employer's common stock (the "Restricted Stock").
The Restricted Stock will be held in escrow and will be subject to
forfeiture upon the termination of Employee's employment for any
reason (subject to Section 7); provided however, that on the third,
fifth, and tenth anniversary of the Start Date 14,333, 14,333, and
14,334 (respectively) shares of Restricted Stock will no longer be
subject to forfeiture and will be released from escrow.
5.2 The Employer will grant to Employee on the Start Date 1,000
restricted stock units. The units will vest three years after the
grant date provided the Employee remains employed by the Employer
(subject to Section 7) on that date. Upon vesting, distribution of
the stock units will be made in shares of J. C. Penney common stock
with no restrictions on the vested shares.
5.3 The Employer will grant to Employee, on the Start Date, an
option to purchase 57,000 shares of Employer's common stock. The
option will have a ten-year term and an exercise price equal to the
fair market value on the Start Date as defined in the 1997 Equity
Compensation Plan (mean of the high and low sales prices on July 30
and August 2). The option will be exercisable on the third
anniversary of the Start Date, provided the Employee remains employed
by the Employer (subject to Section 7) on that date.
5.4 The Employer will grant to the Employee, on the Start Date, an
option to purchase 150,000 shares of Employer's common stock. The
option will have a ten-year term and an exercise price equal to the
fair market value on the Start Date as defined in the 1997 Equity
Compensation Plan (mean of the high and low sales prices on July 30
and August 2). The option will vest at the rate of 20% per year;
beginning on the first anniversary of the Start Date, provided the
Employee remains employed by the Employer (subject to Section 7) on
each date. Vesting may be accelerated if the actual results for the
fiscal year immediately
2
<PAGE>
preceding the vesting date exceed Plan (as determined under the Comp
Plan for all elements of Employee's responsibility) according to the
following schedule:
Exceed plan up to 1% 30% vesting
Exceed Plan more than 1% up to 2% 40% vesting
Exceed Plan more than 2% 50% vesting
Total vesting percentage cannot exceed 100%
5.5 The grants of shares of Restricted Stock and Options will be
made pursuant to and subject to the terms, conditions, and
restrictions in the Employer's 1997 Equity Plan, as amended. The
definitive terms of the grants will be set forth in agreements to be
provided to Employee promptly after the Start Date.
6 Employee Benefits.
__________________
6.1 During the Term, Employer will provide Employee and her eligible
dependents, subject to the terms and conditions of the applicable
plans, participation in all Employer sponsored employee benefit
plans. For 1999, the Employee is entitled to three weeks of
vacation. For the remainder of the Term, the Employee is
entitled to five weeks of vacation.
6.2 For the period from the Start Date until the Employee becomes
eligible for the Employer's Health Care Plan, the Employer will
reimburse the Employee for the difference between the COBRA
premium charged by her former employer and the premium amount she
paid while an active employee of her former employer.
6.3 Employee shall be eligible to participate in the Employer's
Mirror Plan III. She will be given an opportunity to elect to
defer compensation under that Plan during August, 1999 for
compensation to be paid September through December, 1999; and
during December, 1999, for compensation to be paid in 2000.
7 Termination of Employment
_________________________
The termination of the Employee's employment will be governed by the
following provisions:
7.1 Death. In the event of the Employee's death during
_____
the Term, the Employer will pay to the Employee's beneficiaries or
estate, as appropriate, as soon as practicable after the Executive's
death, (I) unpaid Base Salary to the date of death to which the
Employee is entitled and any unpaid vacation, (the "Compensation
Payments"), (ii) the target bonus (at $1.00 per unit) for the Comp
Plan and EVAPP for the fiscal year in which the Employee's death
occurs, prorated for the actual period of service for that fiscal
year, (the "Prorated Bonus"), (iii) any unpaid portion of the
Supplemental Cash Payment and (iv) any other death benefits payable
under any employee benefit or compensation plan that is maintained by
the Employer for the Employee's benefit. Any unvested Stock Options
will vest upon her death and her beneficiary will have the earlier of
five years or the original expiration date of the Option to exercise
all outstanding Options. All restrictions on Restricted Stock will be
removed upon her death. Unless otherwise stated in this Agreement,
this Section 7.1
3
<PAGE>
will not limit the entitlement of the Employee's
estate or beneficiaries to any death or other benefits then available
to the Employee under any life insurance, stock ownership, stock
options, or other benefit plan or policy that is maintained by the
Employer for the Employee's benefit.
7.2 Permanent Disability If the Employee becomes totally and
____________________
permanently disabled (as defined in the Employer's Long-Term
Disability Plan) during the Term, the Employer or Employee may
terminate the Employee's employment on written notice thereof in
accordance with Section 12.5, and the Employer will provide to the
Employee as soon as practicable: (i) amounts payable pursuant to the
terms of any applicable disability plan or program, (ii) the Prorated
Bonus, (iii) the Compensation Payments, (iv) any unpaid portion of the
Supplemental Cash Payment, and (v) such payments under applicable
plans and programs, to which the Employee is entitled pursuant to the
terms of such plans or programs. Any unvested Stock Options will vest
upon her disability and she will have the earlier of five years or the
original expiration date of the Option to exercise all outstanding
Options. All restrictions on Restricted Stock will be removed upon
her disability.
7.3 Voluntary Termination by Employee; Discharge for Cause
_______________________________________________________
(i) In the event that during the Term the Employee's employment is
terminated:
* by the Employer for Cause (as defined below) or
* by the Employee unless for Good Reason (as defined in Section
7.4) or unless as a result of the Employee's death or disability,
The Company will pay the Compensation Payments as soon as practicable
to the Employee and the Employee will be entitled to no other
compensation, except as otherwise due her under applicable law or the
terms of any applicable plan or program. Employee will not be
entitled to the payment of any bonus in respect of all or any portion
of the fiscal year in which such termination occurs.
(ii) For purposes of this Agreement, the Employer will have "Cause" to
terminate the Employee's employment upon a finding that (a) the
Employee has been convicted by a court of competent jurisdiction of
the commission of a felony, (b) the Employee has committed a serious
breach of the Employer's Statement of Business Ethics, or (c) the
Employee materially breached any of the express covenants set forth in
Section 10.1 or 10.3.
7.4 Involuntary Termination
_______________________
(i) In any case of involuntary termination under this section,
Employee will be entitled to payment as described in Section
7.5.
(ii) During the Term, the Employee's employment may be terminated
by the Employer for any reason other than for Cause by
delivery in accordance with Section 12.5 to the Employee of
a notice of termination. The Employee will be treated for
the purposes of this Agreement as having been involuntarily
terminated other than for Cause if, during the Term the
Employee terminates her employment with the Employer prior
to termination for Cause for any of the following reasons
(each, a "Good
4
<PAGE>
Reason"): without the Employee's written
consent, (a) the Employer has breached any material
provision of this Agreement and within 30 days after notice
thereof from the Employee, the Employer fails to cure such
breach; or (b) a successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of
the Employer fails to assume liability under the Agreement.
7.5 Termination Payments and Benefits
_________________________________
(i) Form and Amount. Upon the Employee's involuntary
_______________
termination other than for Cause; (a) the Employer will pay
or provide as soon as practicable to the Employee (1) the
Prorated Bonus, (2) the Compensation Payments, (3) such
payments under applicable plans or programs to which the
Employee is entitled pursuant to the terms of such plans and
programs, (4) a payment equal to two times Grand Total
Earnings, (5) for 24 months (the "Continuation Period") the
continuation of employee welfare benefits set forth in
Section 6 except as offset by benefits paid or provided by
other sources as set forth in Section 8, or as prohibited by
law, and (6) outplacement services by a firm selected by the
Employee at the expense of the Employer, in an amount up to
$30,000, and (b) notwithstanding any provision to the
contrary in the applicable award agreement or in any plan,
(i) all restrictions pertaining to the shares of Restricted
Stock will lapse, (ii) all Options granted shall become
vested and fully exercisable, and (iii) any portion of the
Supplemental Cash Payment not yet paid will be paid. For
purposes of determining the period of continuation coverage
to which the Employee or any of her dependents is entitled
under section 4980B of the Internal Revenue Code of 1986, as
amended, (or any successor provision thereto), under any
group health plan maintained by the Employer or its
affiliates, the Employee will be deemed to have remained
employed until the end of the Continuation Period.
(ii) Time and Manner of Payment. The cash amounts due to the
__________________________
Employee pursuant to Section 7.5(i)(a) will be paid by the
Employer within 20 business days after the Employee's
Termination Date by check payable to the order of the
Employee or by wire transfer to an account specified by the
Employee; provided however, that any earned bonus included
in the Compensation Payment and any payment due under
Section 7.5(i)(a)(3) will be paid in accordance with the
terms of the applicable plan or program.
(iii) Maintenance of Benefits. During the Continuation
________________________
Period, the Employer will use its best efforts to
maintain in full force and effect for the continued
benefit of the Employee all benefits referenced in
Section 7.5(i)(a)(3) or will arrange to make available
to the Employee benefits substantially similar to those
that the Employee would otherwise have been entitled to
receive if her employment had not been terminated.
Such benefits will be provided on the same terms and
conditions
5
<PAGE>
(including employee contributions toward the
premium payments) under which the Employee was entitled
to participate immediately prior to her termination.
(iv) Forfeiture. Notwithstanding the foregoing provisions of
__________
Section 7.5, any right of the Employee to receive
termination payments and benefits under Section 7.5 will be
forfeited to the extent of any amounts payable or benefits
to be provided after a material breach of the covenants set
forth in Section 10.1, 10.2, or 10.3.
7.6 Nonduplication of Benefits. To the extent, and only to the
_____________________________
extent, a payment or benefit that is paid or provided under
this Section 7 would also be paid or provided under the
terms of any applicable plan, program, or arrangement,
including, without limitation, any severance program, such
applicable plan, program, agreement or arrangement will be
deemed to have been satisfied by the payment made or benefit
provided under this Agreement.
8 Mitigation and Offset. The Employee is under no obligation to
______________________
mitigate damages or the amount of any payment or benefit provided for
hereunder by seeking other employment or otherwise; no amounts earned
by the Employee after her termination date, whether from self-
employment, as common law employee, or otherwise, will reduce the
amount of any payment or benefit under any provision of this
Agreement; provided however, the Employee's coverage under the
Employer's welfare benefits as provided in Section 7.5(i)(a)(3) will
terminate as soon as the Employee becomes covered under any comparable
employee benefit plan made available by another employer and covering
the same type of benefits. The Employee will report to the Employer
any such benefits actually earned or received by her.
9 Change-In Control Provisions.
_____________________________
9.1 The Employee will be offered any and all change in control
protections found in any plan, program or agreement
maintained by the Employer as of the Start Date or as
adopted at a subsequent date during the Term.
9.2 If the Employee becomes entitled to payments under Section
7.5 because of a change in control of the Employer and it is
determined that those payments would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue
Code, then the Employee shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such
that, after payment of all taxes (including any interest or
penalties imposed with respect to such taxes), including any
excise tax imposed on the Gross-Up Payment, the Employee
retains an amount of the Gross-Up Payment equal to the
excise tax imposed on the payments.
9.3 The agreements evidencing the grants of the shares of
Restricted Stock and the Options will provide that upon the
occurrence of a Change in Control (as defined in the
agreements), all restrictions pertaining to the shares of
Restricted Stock will lapse and all of the Options will
become fully vested and exercisable.
6
<PAGE>
10 Covenants
_________
10.1 Confidentiality. During the Term, the Employer agrees that
_______________
it will disclose to Employee its confidential or proprietary
information to the extent necessary for Employee to carry
out her obligations under this Agreement. The Employee
hereby covenants and agrees that she will not, without the
prior written consent of the Employer, during the Term or
thereafter disclose to any person not employed by the
Employer, or use in connection with engaging in competition
with the Employer, any confidential or proprietary
information of the Employer.
10.2 Nonsolicitation. The Employee hereby covenants and agrees
________________
that during the Term and for two years thereafter, she will
not, without the prior written consent of the Employer, on
her own behalf or on the behalf of any person, firm or
company, directly or indirectly, attempt to influence,
persuade or induce, or assist any other person in so
persuading or inducing, any employee of Employer or its
affiliates to give up, or to not commence, employment or a
business relationship with the Employer.
10.3 Noncompetition. It is recognized by the Employee and
_______________
Employer that the Employee's duties hereunder will entail
the receipt of trade secrets and confidential information,
which include not only information concerning the Employer's
current operations, procedures, suppliers, and other
contacts, but also its short-range and long-range plans, and
that such trade secrets and confidential information has
been developed by the Employer and its affiliates at
substantial cost and constitute valuable and unique property
of the Employer. Accordingly, the Employee acknowledges
that the foregoing makes it reasonably necessary for the
protection of the Employer's business interests that the
Employee not compete with the Employer or any of its
affiliates during the Term and for a reasonable and limited
period thereafter. Therefor, during the Term and for a
period of one year thereafter, the Employee shall not
acquire an additional direct investment of $100,000 or more
in a Competing Business (as hereinafter defined) and shall
not render personal services to any such Competing Business
in any manner, including, without limitation, as owner,
partner, director, trustee, officer, employee, consultant,
or advisor thereof.
If the Employee shall breach the covenants contained in this
Section 10, the Employer shall have no further obligation to
make any payment to the Employee pursuant to this Agreement
and may recover from the Employee all such damages as it may
be entitled to at law or in equity. In addition, the
Employee acknowledges that any such breach is likely to
result in immediate and irreparable harm to the Employer for
which money damages are likely to be inadequate.
Accordingly, the Employee consents to injunctive and other
appropriate equitable relief upon the institution of
proceedings therefor by the Employer in order to protect
Employer's rights hereunder.
As used in this Agreement, the term "Competing Business"
shall mean any business which:
7
<PAGE>
(a) at the time of the determination, is substantially
similar to the whole or a substantial part of the
business conducted by the Employer or any of its
divisions or affiliates;
(b) at the time of determination, is operating a store or
stores which, during its or their fiscal year preceding
the determination, had aggregate net sales, including
sales in leased and licensed departments, in excess of
$250,000,000, if such store or any of such stores is or
are located in a city or within a radius of 25 miles
from the outer limits of a city where the Employer, or
any of its division's or affiliates, is operating a
store or stores which, during its or their fiscal year
preceding the determination, had aggregate net sales,
including sales in leased and licensed departments, in
excess of $250,000,000; and
(c) had aggregate net sales at all its locations, including
sales in leased and licensed departments and sales by
its divisions and affiliates, during its fiscal year
preceding that in which the Employee made such an
investment therein, or first rendered personal services
thereto, in excess of $500,000,000.
11 Survival. The expiration or termination of the Term will not
_________
impair the rights or obligations of any party hereto that accrue
hereunder prior to such expiration or termination, except to the
extent specifically stated herein. In addition to the foregoing,
the Employee's covenants contained in Section 10 and 12.1 and the
Employer's obligations under Section 7 and 12.1 will survive the
expiration or termination of Employee's employment.
12 Miscellaneous Provisions.
_________________________
12.1 Dispute Resolution. Any dispute between the parties under
__________________
this Agreement will be resolved (except as provided below)
through informal arbitration by an arbitrator selected under
the rules of the American Arbitration Association (located
in the city in which the Employer's principal executive
offices are based) and the arbitration will be conducted in
that location under the rules of said Association. Each
party will be entitled to present evidence and argument to
the arbitrator. The arbitrator will have the right only to
interpret and apply the provisions of this Agreement and may
not change any of its provisions. The arbitrator will
permit reasonable pre-hearing discovery of facts, to the
extent necessary to establish a claim or a defense to a
claim, subject to supervision by the arbitrator. The
determination of the arbitrator will be conclusive and
binding upon the parties and judgment upon the same may be
entered in any court having jurisdiction thereof. The
arbitrator will give written notice to the parties stating
his or their determination, and will furnish to each party a
signed copy of such determination. The expenses of
arbitration will be borne equally by the Employer and
Employee or as the arbitrator otherwise equitably
determines. Notwithstanding the foregoing, the Employer
will not be required to seek or participate in arbitration
regarding any breach of the Employee's covenants in Section
10, but may pursue its remedies for such breach in a court
of competent jurisdiction in the city in which the
Employer's principal executive offices are based. Any
arbitration or action pursuant to this Section 12.1 will be
8
<PAGE>
governed by and construed in accordance with the substantive
laws of the State of Texas, without giving effect to the
principles of conflict of laws of such State.
12.2 Binding on Successors; Assignment. This Agreement will be
_________________________________
binding upon and inure to the benefit of the Employer,
Employee and each of their respective successors, assigns,
personal and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees,
as applicable; provided however, that neither this Agreement
nor any rights or obligations hereunder will be assignable
or otherwise subject to hypothecation by Employee (except by
will or by operation of the laws of intestate succession) or
by the Employer, except that the Employer may assign this
Agreement to any successor (whether by merger, purchase or
otherwise) to all or substantially all of the stock, assets
or businesses of the Employer, if such successor expressly
agrees to assume the obligations of the Employer hereunder.
12.3 Governing Law. This Agreement will be governed, construed,
_____________
interpreted, and enforced in accordance with the substantive
law of the State of Texas, without regard to conflicts of
laws principles.
12.4 Severability. Any provision of this Agreement that is
____________
deemed invalid, illegal or unenforceable in any jurisdiction
will, as to that jurisdiction, be ineffective, to the extent
of such invalidity, illegality or unenforceability, without
effecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provisions of
this Agreement invalid, illegal or unenforceable in any
other jurisdiction. If any covenant should be deemed
invalid, illegal or unenforceable because its scope is
considered excessive, such covenant will be modified so that
the scope of the covenant is reduced only to the minimum
extent necessary to render the modified covenant valid,
legal and enforceable.
12.5 Notices. For all purposes of this Agreement, all
_______
communications required or permitted to be given hereunder
will be in writing and will be deemed to have been duly
given when hand delivered or dispatched by electronic
facsimile transmission (with receipt thereof confirmed), or
five business days after having been mailed by United States
registered or certified mail, return receipt requested,
postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service,
addressed to the Employer at its principal executive office
and to the Employee at her principal residence, or to such
other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices
of change of address will be effective only upon receipt.
12.6 Entire Agreement. The terms of this Agreement are intended
________________
by the parties to be the final expression of their Agreement
with respect to the Employee's employment and may not be
contradicted by evidence of any prior or contemporaneous
agreement. The parties further intend that this Agreement
will constitute the complete and exclusive statement of its
terms and that no extrinsic evidence whatsoever may be
introduced in any judicial, administrative, or other legal
proceedings to vary the terms of this Agreement.
9
<PAGE>
12.7 Amendments; Waivers. This Agreement may not be modified,
____________________
amended, or terminated except by an instrument in writing,
approved by the Employer and signed by the Employee and the
Employer. Failure on the part of either party to complain
of any action or omission, breach or default on the part of
the other party, no matter how long the same may continue,
will never be deemed to be a waiver of any rights or
remedies hereunder, at law or in equity. The Employee or
Employer may waive compliance by the other party with any
provision of this Agreement that such other party was or is
obligated to comply with or perform only through an executed
writing; provided however, that such waiver will not operate
as a waiver of, or estoppel with respect to, any other or
subsequent failure.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
/s/ James E. Oesterreicher
___________________________________
J. C. Penney Co., Inc.
By James E. Oesterreicher
Its Chairman and Chief Executive Officer
/s/ Vanessa Castagna
________________________________
Vanessa Castagna
<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 30, 1999 October 31, 1998
Shares Income Shares Income
______ ______ ______ ______
Basic
_____
Net income $ 348 $ 387
Dividend on Series B ESOP
convertible preferred
stock (after-tax) (27) (28)
_______ _______
Adjusted net income 321 359
Weighted average number of
shares outstanding 259.0 253.3
______ ______ ______ _______
259.0 $ 321 253.3 $ 359
====== ====== ====== ======
Net income per
common share $ 1.24 $ 1.42
====== ======
Diluted
Net income $ 348 $ 387
Dividend on Series B ESOP
convertible preferred stock
(after-tax) (27)
Assumed additional contribution
to ESOP if preferred stock is
fully converted - (1)
_______ ______
Adjusted net income 321 386
Weighted average number of
shares outstanding
(basic) 259.0 253.3
Dilutive common
stock equivalents:
Stock options and other
dilutive effect 0.5 2.0
Convertible
preferred stock - 16.7
______ _______ ______ ______
259.5 $ 321 272.0 $ 386
====== ====== ====== ======
Net income per common share $ 1.24 $ 1.42
===== ======
<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
52 weeks 53 weeks
ended ended
Oct. 30, Oct. 31,
($ Millions) 1999 1998
________ ________
Income from continuing operations $ 827 $ 963
(before income taxes, before
capitalized interest, but after
preferred stock dividend)
Fixed charges
Interest (including capitalized
interest) on:
Operating leases 225 180
Short term debt 133 106
Long term debt 551 555
Capital leases 2 6
Credit facility - -
Other, net (3) -
_________ ________
Total fixed charges 908 847
Preferred stock dividend, before taxes 36 38
Combined fixed charges and preferred _________ ________
stock dividend requirement 944 885
Total available income $ 1,771 $ 1,848
======== ========
Ratio of available income to combined
fixed charges and preferred stock
dividend requirement 1.9 2.1
======== ========
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
52 weeks 53 weeks
ended ended
Oct. 30, Oct. 31,
($ Millions) 1999 1998
_________ _________
Income from continuing operations $ 863 $ 995
(before income taxes and
capitalized interest)
Fixed charges
Interest (including capitalized
interest) on:
Operating leases 225 180
Short term debt 133 106
Long term debt 551 555
Capital leases 2 6
Credit facility - -
Other, net (3) -
_________ ________
Total fixed charges 908 847
-------- --------
Total available income $ 1,771 $ 1,842
======== ========
Ratio of available income to combined
fixed charges and preferred stock
dividend requirement 2.0 2.2
======== ========
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 OCTOBER 30, 1999, 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-29-2000
<PERIOD-END> OCT-30-1999
<CASH> 392
<SECURITIES> 461
<RECEIVABLES> 4,539
<ALLOWANCES> 84
<INVENTORY> 6,971
<CURRENT-ASSETS> 12,430
<PP&E> 8,586
<DEPRECIATION> 3,152
<TOTAL-ASSETS> 25,112
<CURRENT-LIABILITIES> 7,787
<BONDS> 6,504
0
457
<COMMON> 3,236
<OTHER-SE> 3,674
<TOTAL-LIABILITY-AND-EQUITY> 25,112
<SALES> 22,024
<TOTAL-REVENUES> 22,856
<CGS> 16,245
<TOTAL-COSTS> 21,359
<OTHER-EXPENSES> 415
<LOSS-PROVISION> 66
<INTEREST-EXPENSE> 470
<INCOME-PRETAX> 546
<INCOME-TAX> 198
<INCOME-CONTINUING> 348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 348
<EPS-BASIC> 1.24
<EPS-DILUTED> 1.24
</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 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> 7,169
<BONDS> 6,737
0
483
<COMMON> 2,877
<OTHER-SE> 4,061
<TOTAL-LIABILITY-AND-EQUITY> 24,529
<SALES> 20,613
<TOTAL-REVENUES> 21,362
<CGS> 15,065
<TOTAL-COSTS> 19,745
<OTHER-EXPENSES> 365
<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-BASIC> 1.42
<EPS-DILUTED> 1.42
</TABLE>
