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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 26 week periods Commission file number 1-777
ended July 31, 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.
260,226,967 shares of Common Stock of 50c par value, as of July 31, 1999.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS.
The following interim financial information is unaudited but, in the
opinion of the Company, includes all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation. Certain
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 26 weeks ended
____________________ ____________________
July 31, Aug. 1, July 31, Aug. 1,
1999 1998 1999 1998
____ ____ ____ ____
Retail sales $ 7,033 $ 6,510 $14,328 $13,316
Direct Marketing revenue 276 251 550 497
________ _______ _______ _______
Total revenue 7,309 6,761 14,878 13,813
________ _______ _______ _______
Costs and expenses
Cost of goods sold,
occupancy, buying,
and warehousing costs 5,277 4,881 10,606 9,783
Selling, general, and
administrative expenses 1,660 1,507 3,330 3,058
Costs and expenses of Direct
Marketing operations 216 191 436 384
Real estate and other (11) 4 (20) (2)
Net interest expense and credit
operations (1) 82 115 137 208
Acquisition amortization 25 18 62 53
_______ _______ _______ _______
Total costs and expenses 7,249 6,716 14,551 13,484
_______ _______ _______ _______
Income before income taxes 60 45 327 329
Income taxes 21 18 121 128
_______ _______ _______ _______
Net income $ 39 $ 27 $ 206 $ 201
======= ======= ======= =======
Earnings per common share:
Net income $ 39 $ 27 $ 206 $ 201
Less: preferred stock dividends (9) (8) (18) (18)
_______ _______ _______ _______
Earnings for Basic EPS 30 19 188 183
Dilutive stock options and
convertible preferred stock -- -- -- 17
_______ _______ _______ _______
Earnings for Diluted EPS $ 30 $ 19 $ 188 $ 200
Shares
Average shares outstanding (used
for Basic EPS) 260 254 258 253
Dilutive common stock
equivalents -- -- -- 19
________ _______ _______ _______
Average diluted
shares outstanding 260 254 258 272
Earnings per share
Basic $ 0.12 $ 0.08 $ 0.73 $ 0.73
Diluted 0.12 0.08 0.73 0.72
(1) Net interest expense and credit operations for the 26 weeks ended July
31, 1999 includes a $5 million pre-tax gain, or 1 cent per share after tax,
on the early extinguishment of 9.25 percent Notes due 2004 of Eckerd
Corporation.
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Balance Sheets
(Amounts in millions)
July 31, Aug. 1, Jan.30,
1999 1998 1999
________ ________ ________
ASSETS
Current assets
Cash and short-term investments
of $377, $139, and $95 $ 377 $ 139 $ 96
Retained interest in JCP Master
Credit Card Trust 325 959 415
Receivables, net 4,186 3,358 4,415
Merchandise inventories 6,279 6,244 6,031
Prepaid expenses 139 138 168
________ ________ ________
Total current assets 11,306 10,838 11,125
Properties, net of accumulated
depreciation of $3,013, $3,161,
and $2,875 5,459 5,301 5,458
Investments, prinicipally held by
Direct Marketing 1,880 1,847 1,961
Deferred policy acquisition costs 894 788 847
Goodwill and other intangible assets
net of accumulated amortization
of $287, $165, and $225 3,211 2,899 2,950
Other assets 1,310 1,259 1,297
________ ________ ________
$ 24,060 $ 22,932 $23,638
======== ======== ========
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Balance Sheets
(Amounts in millions)
July 31, Aug. 1, Jan.30,
1999 1998 1999
________ ________ ________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 3,367 $ 3,318 $ 3,465
Short-term debt 2,533 1,563 1,924
Current maturities of long-term debt 325 625 438
Deferred taxes 156 124 143
________ _______ ________
Total current liabilities 6,381 5,630 5,970
Long-term debt 6,817 6,755 7,143
Deferred taxes 1,551 1,355 1,517
Insurance policy and claims reserves 973 909 946
Other liabilities 930 912 893
________ ________ ________
Total liabilities 16,652 15,561 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 457 493 475
Common stock, par value 50c:
Authorized, 1,250 million shares -
issued and outstanding, 260,
254, and 250 million shares 3,232 2,867 2,850
________ ________ ________
Total capital stock 3,689 3,360 3,325
________ ________ ________
Reinvested earnings
At beginning of year 3,858 4,066 4,066
Net income 206 201 594
Common stock dividends declared (284) (275) (549)
Preferred stock dividends
declared, net of tax (18) (19) (39)
Common stock retired -- -- (214)
________ ________ ________
Reinvested earnings at end of period 3,762 3,973 3,858
Accumulated other comprehensive income/(loss) (43) 38 (14)
________ ________ ________
Total stockholders' equity 7,408 7,371 7,169
________ ________ ________
$24,060 $22,932 $23,638
======= ======= =======
The accumulated balances for net unrealized changes in debt and equity
securities were $25, $66, and $65, and for currency translation
adjustments were ($68), ($28), and ($79) as of the respective dates
shown. Net unrealized changes in investment securities are shown net of
deferred taxes of $15, $39, and $36, respectively. A deferred tax asset
has not been established for currency translation adjustments.
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Statements of Cash Flows
(Amounts in millions)
26 weeks ended
_______________________________
July 31, Aug.1,
1999 1998
_________ _________
Operating activities
Net income $ 206 $ 201
Depreciation and amortization,
including intangible assets 351 314
Deferred taxes 43 38
Change in cash from:
Customer receivables 446 655
Other receivables (127) (80)
Inventories, net of trade payables (176) (159)
Current taxes payable (71) (181)
Other assets and liabilities, net 40 (418)
_________ _________
712 370
_________ _________
Investing activities
Capital expenditures (290) (312)
Purchases of investment securities (539) (279)
Proceeds from sales of investment securities 554 201
Proceeds from the sale of bank receivables 22 --
_________ _________
(253) (390)
_________ _________
Financing activities
Change in short-term debt 553 146
Payments of long-term debt (440) (50)
Common stock issued, net 9 67
Dividends paid, preferred and common (300) (291)
_________ _________
(178) (128)
_________ _________
Net increase/(decrease) in cash and
short-term investments 281 (148)
Cash and short-term investments at
beginning of year 96 287
_________ _________
Cash and short-term investments at
end of second quarter $ 377 $ 139
========= =========
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. The total value of the transaction, including debt assumed
and conversion of options for Genovese common stock to options for
JCPenney common stock, was $414 million.
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Notes to Interim Financial Information
1. Reserves and Other Charges
During 1996 and 1997, the Company recorded other charges principally
related to drugstore integration activities, department store and
drugstore closings and FAS 121 impairments, and early retirement and
reduction in force programs (collectively other charges, net). The
following tables provide a roll forward of reserves that were established
for certain categories of these charges. These reserves are reviewed for
adequacy on a periodic basis and are adjusted as appropriate based on
those reviews. Except as indicated below, no adjustments were deemed
necessary in the second quarter of 1999. The following schedules, and
the accompanying discussion, provide the status of the reserves as of
July 31, 1999.
1996 Charges:
____________
1997 1998 2nd Qtr 1999 YTD
__________________ __________________
Y/E Cash Y/E Cash Ending
($ 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. During the second quarter of
1999, approximately $1 million in lease payments were charged against the
reserve. Payments during the next five years are expected to be
approximately $2 million per year.
Allowance for notes receivable - In connection with the Eckerd
_________________________________
acquisition, the Federal Trade Commission required the Company to 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 $33 million. A reserve for 75 percent of
the face value of the note receivable was established due to the
significant constraints on the Company's ability to collect on the note.
No adjustments have been deemed necessary through the second quarter of
1999.
Other - The remaining charges, the majority of which have been expensed
_____
as incurred, were related to integration activities for Fay's drugstores
acquired by the Company in October 1996, and other activities such as
contract terminations. There were no payments or other changes to these
reserves in the second quarter of 1999.
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1997 Charges:
____________
1997 1998 2nd Qtr 1999 YTD
__________________ __________________
Y/E Cash Y/E Cash Ending
($ in millions) Reserve Outlays Reserve Outlays Reserve
& Other & Other
_______ __________________ __________________
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. The store closing plan anticipated that the
Company would remain liable for all future lease obligations. All stores
had been closed by the end of 1998. The reserve as of the end of the
second quarter of 1999 represents future lease obligations, and costs are
being charged against the reserve as incurred. During the second quarter
of 1999, the reserve was reduced by $2 million, which amount was
comprised of $3 million in rental payments offset by $1 million of
interest accretion.
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. During the second
quarter of 1999, $1 million in lease payments were charged against the
reserve. As of the end of the second quarter of 1999, these combined
reserves totaled $25 million.
2. Earnings Per Share
At July 31, 1999 and August 1, 1998, 0.8 million shares of preferred
stock, which were convertible into 15.2 million and 16.6 million common
shares, respectively, 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 13 weeks ended July 31, 1999 and
August 1, 1998 and the 26 weeks ended July 31, 1999, because their
inclusion would have had an anti-dilutive effect on EPS.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Financial Condition
___________________
On March 1, 1999, the Company completed the acquisition of Genovese Drug
Stores, Inc. (Genovese). The acquisition was accomplished through an
exchange of approximately 9.6 million shares of JCPenney 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 JCPenney 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 is being classified as goodwill and
amortized over 40 years.
Merchandise inventories on a FIFO basis totaled $6,530 million at the end
of the second quarter compared with $6,486 million at the end of last
year's second quarter. Current year totals include approximately $149
million of inventory attributable to Genovese drugstores ($131 million)
and Renner department stores ($18 million). Inventories for department
stores and catalog totaled $4,293 million at July 31, 1999 and were below
last year levels as planned. Inventories for comparable department stores
declined approximately 4.5 percent from the prior year. Eckerd drugstore
inventories totaled $2,237 million compared with $2,034 million last
year. The current cost of inventories exceeded the LIFO basis amount
carried on the balance sheet by approximately $251 million at July 31,
1999 and $242 million at August 1, 1998.
Properties, net of accumulated depreciation, totaled $5,459 million at
July 31, 1999 compared with $5,301 million at the end of last year's
second quarter.
Goodwill and other intangible assets, net, totaled $3,211 million
compared with $2,899 million as of August 1, 1998. Approximately $316
million in intangible assets and goodwill associated with the Genovese
acquisition has been recorded in 1999.
At July 31, 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 to other assets. These reserves were established in connection
with the Company's 1996 and 1997 other charges, net, and relate to future
lease obligations on stores and other support facilities closed in
connection with those charges, and a note receivable related to the
divestiture of certain drugstores, respectively. In total, these reserves
were reduced by $4 million in the second quarter of 1999. See Note 1 to
Interim Financial Information.
During the second quarter of 1999, the Company repaid the outstanding
principal amount, $225 million, of its 6.875 percent notes due 1999.
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Results of Operations
_____________________
Consolidated operating results
($ in millions)
13 weeks ended 26 weeks ended
____________________ ____________________
July 31, Aug. 1, July 31, Aug. 1,
1999 1998 1999 1998
____ ____ ____ ____
Operating profit/(loss)
Department stores
and catalog $ 139 $ 155 $ 306 $ 389
Eckerd drugstores (43) (33) 86 86
Direct marketing 60 60 114 113
Real estate and other 11 (4) 20 2
______ ______ ______ _______
Total operating profit 167 178 526 590
Net interest and
credit operations (82) (115) (137) (208)
Acquisition amortization (25) (18) (62) (53)
______ ______ ______ _______
Income before income taxes 60 45 327 329
Income taxes (21) (18) (121) (128)
______ ______ ______ _______
Net income $ 39 $ 27 $ 206 $ 201
====== ====== ====== =======
Operating profit (before net interest expense and credit operations,
acquisition amortization, and taxes) totaled $167 million compared with
$178 million in last year's second quarter. Department store and catalog
results were negatively impacted by the decline in catalog sales volumes,
particularly in the July period. Partially offsetting catalog sales
results was the performance of the Company's private brand merchandise
which posted collective sales gains of 9.4 percent for the quarter.
Eckerd drugstores recorded a loss for the quarter as a result of
inventory adjustments, systems upgrades and other items. Real estate and
other reflects an $8 million real estate gain that was recorded in the
second quarter of 1999.
Income before income taxes for the 13 weeks ended July 31, 1999 was $60
million, compared with $45 million in last year's period. The increase
reflected continued improvement in net interest expense and credit
operations, primarily due to lower bad debt expense. Net income totaled
$39 million, or 12 cents per share, as compared with $27 million, or 8
cents per share in last year's second quarter. On a year to date basis,
net income was $206 million, or 73 cents per share, compared with $201
million, or 72 cents per share, last year.
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Segment Operating Results
Department Stores and Catalog
_____________________________
13 weeks ended 26 weeks ended
____________________ ____________________
July 31, Aug. 1, July 31, Aug. 1,
1999 1998 1999 1998
____ ____ ____ ____
($ in millions)
Retail sales, net $ 4,057 $ 4,060 $ 8,305 $ 8,302
Cost of Goods Sold (2,831) (2,857) (5,754) (5,756)
SG&A expenses (1,087) (1,048) (2,245) (2,157)
_______ _______ ________ _______
Operating Profit (1) $ 139 $ 155 $ 306 $ 389
======= ======= ======= =======
Sales percent increase
Total Department stores 0.5 (2.9) (0.6) (0.3)
Comparable stores 1.0 (2.5) 0.3 (0.2)
Catalog (2.8) 1.8 2.5 2.3
Ratios as a percent of sales:
FIFO gross margin 30.2 29.6 30.7 30.7
SG&A expenses 26.8 25.8 27.0 26.0
FIFO operating profit 3.4 3.8 3.7 4.7
FIFO EBITDA (2) 7.7 7.0 8.1 8.1
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 $139 million in
this year's second quarter compared with $155 million last year. Sales in
private brand merchandise were strong for the period, especially Arizona
Jean Co., St. John's Bay, and Delicates, all of which have posted double-
digit sales gains for both the quarter and first half. Sales for supplier
exclusive brands, in particular Crazy Horse by Liz Claiborne and
Joneswear by Jones New York, also performed well. Sales of national brand
athletic and basic jeans categories did not meet expectations. Catalog
sales declined in the second quarter as a result of weak July sales,
which were affected by a slow start for Fall merchandise. Gross margin as
a percent of sales improved by 60 basis points in the second quarter
compared to last year. The increase was principally related to growth in
higher margin private brand merchandise and a decrease in promotional
events, as planned. Expense levels increased 3.7 percent compared with
last year's second quarter, an increase of 100 basis points as a percent
of sales. Expenses were impacted by planned increases in spending levels
for customer service initiatives in the stores, private brand marketing,
and continued spending for the development of the Company's e-commerce
infrastructure.
Operating profit for the 26 weeks ended July 31, 1999 was $306 million
compared with $389 million last year. Department store sales for the 26
weeks were up slightly on a comparable store basis, and catalog sales
increased by 2.5 percent compared with last year. Gross margin as a
percent of sales was flat with last year at 30.7 percent, and was
negatively impacted by a higher level of promotional
<PAGE>
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activity in the first quarter in an effort to rebalance inventory
positions. SG&A expenses for the first half increased approximately 4
percent compared with last year, an increase of 100 basis points as a
percent of sales due to flat sales volumes.
Eckerd Drugstores (1)
_________________
13 weeks ended 26 weeks ended
____________________ ____________________
July 31, Aug. 1, July 31, Aug. 1,
1999 1998 1999 1998
____ ____ ____ ____
($ in millions)
Retail sales, net $ 2,976 $ 2,450 $ 6,023 $5,014
Cost of Goods Sold (2,446) (2,024) (4,852) (4,027)
SG&A expenses (573) (459) (1,085) (901)
_______ _______ ________ _______
Operating profit/(loss) (2) $ (43) $ (33) $ 86 $ 86
Sales percent increase
Total 21.5 7.6 20.1 8.6
Comparable stores 10.5 9.0 11.4 8.4
Ratios as a percent of sales:
FIFO gross margin 18.2 17.7 19.8 20.0
SG&A expenses 19.2 18.7 18.0 17.9
FIFO operating profit/(loss) (1.0) (1.0) 1.8 2.1
FIFO EBITDA (2) 0.6 0.4 3.3 3.3
LIFO gross margin 17.8 17.4 19.4 19.6
LIFO operating profit/(loss) (1.4) (1.3) 1.4 1.7
LIFO EBITDA (3) 0.2 0.0 2.9 3.0
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.
The Company's drugstore operations experienced an operating loss of $43
million in the second quarter compared with an operating loss of $33
million in last year's second quarter. Results for the second quarter of
1999 reflect $119 million in pre-tax costs related to inventory
adjustments, systems upgrades and other items. Last year's second quarter
was impacted by pre-tax charges of $114 million related to integration
activities. Eckerd experienced continued strong sales growth in the
second quarter, increasing by 10.5 percent for comparable stores
(including the pro forma results of the Genovese drugstores acquired on
March 1, 1999) which is in addition to a 9.0 percent increase in the
second quarter of 1998. Comparable store sales were led by a 15.4 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 second quarter, up from 84 percent last year.
Non-pharmacy sales, which increased by 3.4 percent on a comparable store
basis, benefited from strong sales gains in Express Photo and convenience
goods categories. Total sales in 1999's second quarter included
approximately $222 million attributable to the recently acquired Genovese
drugstores.
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FIFO gross margin totaled $542 million in the second quarter compared
with $434 million in last year's period. Gross margin reflects inventory
adjustments of $74 million and $98 million, in the respective periods. A
gross margin adjustment was required in this year's second quarter,
principally to reflect higher than expected shrinkage that was identified
through physical inventories finalized in the second quarter. Planned
shrinkage rates for 1999 anticipated significant benefits from the many
changes that have been and continue to be made to the inventory
management systems, including the migration from Eckerd's accounts
payable and invoice verification system to the more automated JCPenney
system. While improvement has been realized, to date it has not been as
great as originally expected. Inventory adjustments in 1998's second
quarter were principally related to higher than anticipated losses on the
liquidation of merchandise categories during the conversion to the Eckerd
format and higher than expected shrinkage. Excluding the effects of these
charges, FIFO gross margin declined by 100 basis points as a percent of
sales reflecting a higher proportion of lower gross margin managed care
and mail order pharmacy sales, and an overall decline in pharmacy
margins. Eckerd recorded a $12 million LIFO charge in 1999 compared with
an $8 million charge last year.
SG&A expenses increased by 50 basis points as a percent of sales in the
second quarter. The increase was the result of $45 million of adjustments
that were recorded during the quarter related primarily to the increase
in balance sheet reserves, principally those related to third-party
receivables and insurance claims, based on current information and growth
in the business, and an $18 million charge related to the conversion of
Eckerd's store communications system. Eckerd recorded integration related
charges totaling $16 million in last year's second quarter. Excluding the
effects of the charges taken in both years, SG&A expenses declined by 40
basis points as a percent of sales.
Operating profit was $86 million for the 26 weeks ended July 31, 1999,
even with last year. Sales were strong for the first half, increasing
11.4 percent on a comparable store basis. Same store sales were led by
pharmacy sales which increased by 16.3 percent; non-pharmacy merchandise
sales increased by 4.1 percent for the period. FIFO gross margin for the
first half declined by 20 basis points. Excluding the effects of the
second quarter charges, FIFO gross margin declined by 90 basis points.
The decline in gross margin was principally related to growth in managed
care and mail order pharmacy sales which carry lower margins. Eckerd
recorded a $24 million LIFO charge in the first half of 1999 compared
with a $17 million charge in last year's period. SG&A expenses increased
by 10 basis points in total and declined by 30 basis points excluding the
effects of second quarter charges.
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Direct Marketing
_________________
13 weeks ended 26 weeks ended
____________________ ____________________
July 31, Aug. 1, July 31, Aug. 1,
1999 1998 1999 1998
____ ____ ____ ____
($ in millions)
Revenue $ 276 $ 251 $ 550 $ 497
Costs and expenses (1) (216) (191) (436) (384)
_______ _______ ________ _______
Operating Profit (2) $ 60 $ 60 $ 114 $ 113
Revenue, percent increase 10.0 9.6 10.7 9.7
Operating profit as a percent
of revenue 21.7 23.9 20.7 22.7
1) Includes amortization of deferred acquisition costs of $56 million and
$46 million for the second quarter and $109 million and $92 million for
the first half of 1999 and 1998, respectively.
2) Operating profit represents pre-tax income before amortization of
intangible assets.
Revenue totaled $276 million in the second quarter and $550 million for
the first half, an increase of approximately ten percent for both periods
compared with last year. The increase was principally related to health
insurance premiums which account for approximately 62 percent of total
revenues. Revenue generated from membership services products increased
by 54 percent compared with last year's second quarter and first half.
These products represent a growing business for Direct Marketing and
currently account for approximately eight percent of total revenues.
Operating profit totaled $60 million for the quarter, flat with last
year, and is up slightly for the year. Current year operating profit has
been impacted by planned expenditures for new product development and
international expansion activities in the United Kingdom and Pacific Rim.
Net Interest Expense and Credit Operations
__________________________________________
13 weeks ended 26 weeks ended
____________________ ____________________
July 31, Aug. 1, July 31, Aug. 1,
1999 1998 1999 1998
____ ____ ____ ____
($ in millions)
Revenue $ 172 $ 168 $ 364 $ 351
Bad debt expense (22) (57) (35) (98)
Operating expenses (78) (78) (162) (165)
Interest expense, net (154) (148) (304) (296)
_______ _______ ________ _______
Total $ (82) $ (115) $ (137) $ (208)
Net interest expense and credit operations totaled $82 million in the
second quarter compared with $115 million in the comparable period last
year. The decline from last year reflected improvement in bad debt
levels. Bad debt expense in the second quarter was $35 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 $137 million for the first half
compared with $208 million last year. The improvement for the 26 week
period was principally related to increased
<PAGE>
-13-
late fee revenue and significantly lower bad debt expense. As of the end
of the quarter, the 90-day delinquency rate was 2.7 percent of customer
receivables, down from 4.1 percent at the end of second quarter 1998. As
of the end of the quarter, customer receivables serviced totaled $3,497
million, a decrease of $331 million, or 8.6 percent, compared with a year
ago.
Income Taxes
____________
The Company's effective income tax rate was 37.6 percent in the second
quarter compared with 38.9 percent last year.
Year 2000
_________
The Year 2000 issue exists because many computer systems store and
process dates using only the last two digits of the year. Such systems,
if not changed, may interpret "00" as "1900" instead of the year "2000."
The Company has been working to identify and address Year 2000 issues
since January 1995. The scope of this effort includes internally
developed information technology systems, purchased and leased software,
embedded systems, and electronic data interchange transaction processing.
In October 1996, a 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 July 31, 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 July 31, 1999, the Company had incurred approximately $44 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 $5 million. Total costs have
not had, and are not expected to have, a material impact on the Company's
financial results.
New Accounting Rules
____________________
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
____________________________
Instruments and Hedging Activities", which is effective for quarters
_____________________________________ beginning after June 15, 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.
<PAGE>
-14-
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 26 weeks ended July 31, 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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of the Company was held on May 21,
1999, at which the six matters described below were submitted to a
vote of stockholders with the voting results as indicated.
(1) Election of directors for a three-year term expiring at the
Year 2002 Annual Meeting of the Company's stockholders:
NOMINEE FOR AUTHORITY WITHHELD
_______ ___ __________________
T. J. Engibous 235,174,252 9,421,754
K. B. Foster 235,270,296 9,325,710
A. W. Richards 230,571,731 14,024,275
(2) The Board of Directors' proposal concerning the employment of
KPMG LLP as auditors for the fiscal year ending
January 29, 2000:
FOR AGAINST ABSTAIN
___ _______ _______
240,501,517 2,933,698 1,160,740
(3) A stockholder resolution concerning the elimination of the
classification of the Board of Directors:
BROKER
FOR AGAINST ABSTAIN NON-VOTES
___ _______ _______ _________
123,243,098 99,865,048 2,302,787 19,185,073
(4) A stockholder resolution concerning a bylaw amendment relating
to the submission to a stockholder vote of the Company's
Stockholder Rights Plan:
BROKER
FOR AGAINST ABSTAIN NON-VOTES
___ _______ _______ _________
127,083,509 95,609,316 2,734,961 19,168,220
(5) A stockholder resolution concerning independence of the Board
Chair:
BROKER
FOR AGAINST ABSTAIN NON-VOTES
___ _______ _______ _________
42,830,387 179,922,960 2,652,687 19,189,972
<PAGE>
-16-
(6) A stockholder resolution concerning performance-based stock
option grants:
BROKER
FOR AGAINST ABSTAIN NON-VOTES
___ _______ _______ _________
50,826,035 169,695,534 4,905,651 19,168,786
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
________
The following documents are filed as exhibits to this report:
10(a) J. C. Penney Company, Inc. 1999 Separation
Allowance Program for Profit-Sharing Management
Associates, effective July 14, 1999, as amended
September 8, 1999.
10(b) July 14, 1999 amendment to the Supplemental
Retirement Program for Management Profit-Sharing
Associates of J. C. Penney Company, Inc.
10(c) July 14, 1999 amendment to the J. C. Penney Company,
Inc. Benefit Restoration Plan.
10(d) July 14, 1999 amendment to the J. C. Penney Company,
Inc. Mirror Savings Plan I and the J. C. Penney
Company, Inc. Mirror Savings Plan II.
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 six months ended
July 31, 1999.
27(b) Restated Financial Data Schedule for the six months
ended August 1, 1998.
(b) Reports on Form 8-K
___________________
None.
<PAGE>
-17-
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: September 13, 1999
<PAGE>
Exhibit 10(a)
J. C. PENNEY COMPANY, INC.
1999 SEPARATION ALLOWANCE PROGRAM
FOR
PROFIT-SHARING MANAGEMENT ASSOCIATES
Effective July 14, 1999
This document was adopted by the
Board of Directors of J. C. Penney
Company, Inc. on July 14, 1999
<PAGE>
J. C. PENNEY COMPANY, INC.
1999 SEPARATION ALLOWANCE PROGRAM
FOR
PROFIT-SHARING MANAGEMENT ASSOCIATES
ARTICLE ONE
DESCRIPTION OF PROGRAM
1.01 Establishment of Program
________________________
J. C. Penney Company, Inc. ("Company") hereby establishes this
1999 Separation Allowance Program for Profit-Sharing Management
Associates of the Company and each designated Subsidiary
("Program"). The Program shall become effective as of July 14,
1999.
1.02 Purposes of Program
__________________
The purposes of the Program are to:
(a) fulfill the moral imperative inherent in The Penney Idea,
particularly, the precepts "to improve constantly the human
factor in our business" and "to reward the men and women in
our organization through participation in what the business
produces";
(b) attract and retain key associates;
(c) allay associate job security fears and concerns;
(d) improve associate morale and dedication;
(e) increase associate productivity by eliminating extraneous
distractions and anxieties; and
(f) help ensure that associates receive the benefits they
legitimately earn in the normal course of their employment,
all of which are in the best interest of the Company and its
stockholders.
1
<PAGE>
1.03 Types of Benefits
_________________
The Program is an "employee benefit plan" within the meaning of
Section 3(3) of ERISA. The Program consists primarily of (i)
severance benefits provided under an unfunded "employee welfare
benefit plan" within the meaning of Section 3(1) of ERISA, (ii)
other welfare benefits provided under one or more existing
"employee welfare benefit plans", within the meaning of Section
3(1) of ERISA, maintained by the Company, and (iii) enhanced
pension benefits under the SRP, an existing "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA.
1.04 Administration
______________
The Chairman of the Board of Directors of the Company shall
appoint a committee to administer the Program ("Committee")
consisting of at least three Participants, one of whom shall be
the Executive Vice President and Chief Human Resources and
Administration Officer (or his successor by title or position
prior to a Change of Control), who shall act as Chairman. The
Committee shall have the full authority and discretion to adopt
such rules and procedures as it deems necessary or appropriate
for the implementation of the Program and to interpret the
Program in order to carry out its function of administration.
2
<PAGE>
ARTICLE TWO
DEFINITIONS
2.01 For purposes of this Program the following terms shall have the
following meanings:
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 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 the Effective Date, 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 the Effective Date 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
3
<PAGE>
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
paragraphs (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 paragraph (d) above (an "Asset Sale Agreement") or
the adoption by the Board of Directors of the 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 paragraph (d) above (a "Plan of
4
<PAGE>
Liquidation"), provided, however, that a Change of Control of the
type specified in this paragraph (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 paragraph (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 Program, 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
5
<PAGE>
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 ownership of stock of the Company.
Code shall mean the Internal Revenue Code of 1986, as amended
____
from time to time.
Company shall mean J. C. Penney Company, Inc., a Delaware
_______
corporation and any successor company.
Compensation shall mean the annual base salary rate of a
____________
Participant, plus annual profit incentive or profit-sharing
compensation units, valued at $1.00 per unit, under the Company's
1989 Management Incentive Compensation Program or similar
existing plans for regional, district, and store profit- sharing
management associates (or any successor plans thereto), plus
long-term incentive compensation awards, if any, valued at $1.00
per unit (or, in the case of Eckerd Corporation, at target),
under the J. C. Penney Company, Inc. EVA
6
<PAGE>
Performance Plan (or any successor plan thereto), all as in
effect as of his Employment Termination. As applied to a
Participant employed by a Subsidiary, Compensation shall include
the same elements of pay to the extent the Subsidiary maintains
similar or comparable pay arrangements.
7
<PAGE>
Constructive Termination shall mean a resignation from employment
________________________
with the Company or a Subsidiary (as appropriate) after a Change
of Control on account of an action or actions directed at a
Participant making it reasonable for the Participant to resign,
such as:
(a) demotion, or
(b) decrease in salary or rate of incentive or bonus-type
compensation, or
(c) change in reporting responsibilities, duties, or status
inconsistent with pre-Change of Control responsibilities, duties,
or status, or
(d) involuntary relocation or transfer, or
(e) discontinuance of any employee welfare benefit, incentive
compensation, equity compensation, or retirement plan (without
equivalent compensating remuneration or replacement by a plan
providing substantially similar benefits) or any action that
materially reduces such Participant's benefits or payments under
such plans, or
(f) any other action which has an equivalent adverse economic
effect on such Participant.
Drugstore Associate shall mean an employee of Eckerd Corporation
___________________
or any other Subsidiary that is a retail drugstore company.
Effective Date shall mean July 14, 1999.
______________
Employment Termination shall be deemed to have occurred for a
______________________
Participant when he involuntarily ceases to be an employee of the
Company or a Subsidiary after a Change of Control because of
either an actual termination or Constructive Termination for any
reason other than death, disability, Normal Retirement, or as a
result of a valid Summary Dismissal.
ERISA shall mean the Employee Retirement Income Security Act of
_____
1974, as amended from time to time.
8
<PAGE>
Normal Retirement shall mean retirement at or after a
_________________
Participant's normal retirement date as determined in accordance
with the J. C. Penney Company, Inc. Pension Plan.
Participant shall mean any Profit-Sharing Management Associate of
___________
the Company or of a Subsidiary who has satisfied the eligibility
criteria of Article Three of the Program, and who has not
received all Severance Benefits to which he is entitled under the
Program.
Profit-Sharing Management Associate shall mean
___________________________________
(a) any regular associate of the Company or a Subsidiary
classified under the Company's personnel policy as management and
who is participating in an annual profit incentive or
profit-sharing compensation program (other than the J. C.
Penney Company, Inc. Savings, Profit-Sharing and Stock
Ownership Plan) of the Company on the Effective Date or
thereafter, and
(b) any employee of a Subsidiary classified under the
Subsidiary's personnel policy as management and who is
participating in a bonus or annual profit incentive or profit-
sharing compensation program of the Subsidiary or the Company
(other than a qualified retirement plan of the Subsidiary or the
Company) on the Effective Date or thereafter.
Severance Pay shall mean the cash severance payments payable to a
_____________
Participant under the Program pursuant to the schedule for
Severance Pay benefits set forth in Section 4.01 of the Program.
Severance Benefits shall mean Severance Pay and the other
__________________
benefits described in Article Four of the Program payable to a
Participant.
SRP shall mean the (a) Supplemental Retirement Program for
___
Management Profit-Sharing Associates of J. C. Penney Company,
Inc., (b) Supplemental Retirement Program for Eligible
Management Associates of JCPenney Financial Services, and
(c) Supplemental Retirement Program for Management
9
<PAGE>
Profit-Sharing Associates of Thrift Drug, Inc., as they may be
amended from time to time.
Subsidiary shall mean any corporation that is owned, in whole or
__________
in part, by the Company and is a participating employer in the J.
C. Penney Company, Inc. Pension Plan, unless the Company's Human
Resources Committee, prior to a Change of Control, determines
that any such corporation shall not be a Subsidiary under the
Program.
Summary Dismissal shall mean employment termination on account of
_________________
commission of an act or acts of dishonesty that constitute a
felony and which results in personal enrichment of the
Participant at the expense of the Company or Subsidiary (as
appropriate), including resignation in lieu of such dismissal.
10
<PAGE>
ARTICLE THREE
ELIGIBILITY
3.01 Eligibility on the Effective Date
_________________________________
Each person who is a Profit-Sharing Management Associate on the
Effective Date shall participate in the Program on the Effective
Date.
3.02 Future Eligibility
__________________
Each person who becomes a Profit-Sharing Management Associate
after the Effective Date but prior to a Change of Control shall
participate in the Program on the first day such person becomes a
Profit-Sharing Management Associate.
3.03 Loss of Management Status
_________________________
In the event a Participant prior to a Change of Control ceases to
be a Profit-Sharing Management Associate, his participation in
the Program shall cease on the date he ceases to be a Profit-
Sharing Management Associate. He shall participate in the
Program again prior to a Change of Control on the first day he
again becomes a Profit-Sharing Management Associate.
11
<PAGE>
ARTICLE FOUR
BENEFITS
4.01 Severance Pay
_____________
If a Participant incurs an Employment Termination within a two-
year period following a Change of Control, he shall become
entitled to Severance Pay in accordance with the following
schedule.
Length of Service Severance Pay
_________________ _____________
At Least But Less Than
________ _____________
6 months 2 years 6 months Compensation
2 years 5 years 12 months Compensation
5 years 10 years 18 months Compensation
10 years 24 months Compensation
Severance Pay shall be paid in a lump sum as soon as practicable
after Employment Termination and shall be in lieu of any cash
severance payments otherwise payable to such Participant on
account of his separation from service under any severance pay
program (other than this Program) maintained by the Company or a
Subsidiary.
In the event a Participant is entitled to any cash severance
payments that are payable in the event of termination of
employment pursuant to a written employment contract ("contract
payments") between the Participant and the Company or a
Subsidiary, Severance Pay otherwise payable to the Participant
under this Section 4.01 shall be reduced by the amount of such
contract payments without regard to (a) how such contract
payments are defined in the contract, and (b) whether such
contract payments have been received by the Participant.
4.02 Stock Options
_____________
Notwithstanding any provision of the Company's outstanding stock
option plans, if a Participant becomes entitled to Severance Pay
under this Program and, at that time, holds non-qualified stock
options granted by the Company, he also shall have the right to
exercise any or all of such non-qualified stock options until the
earlier of:
12
<PAGE>
(a) 5 years after the Participant's Employment Termination,
or
(b) the normal termination date of the stock option grant
that would apply without regard to any termination of employment.
The Participant's post-termination right to exercise such stock
options shall be in accordance with rules prescribed by the
Committee similar to the rules applicable to employment
termination by reason of retirement under the Company's
outstanding stock option plans.
4.03 Medical and Dental Coverage
___________________________
A. Subsidized COBRA Premiums: Except as otherwise provided in
__________________________
this Section 4.03, if a Participant becomes entitled to Severance
Pay under this Program, and at that time is covered by a Company-
offered health care plan subject to the Consolidated Omnibus
Budget Reconciliation Act of 1986, as amended ("COBRA"), he shall
be entitled to purchase continued medical (including HMO) and
dental coverage, if any, available under COBRA, and the cost of
such COBRA coverage shall be shared by the Company and the
Participant in the same proportion that exists between the
Company and active participants in the health care plan ("active
rate").
The maximum duration of the Company-provided cost of COBRA
coverage at the active rate shall be 18 months, or such earlier
date when such Participant and/or covered family members become
entitled to other group medical coverage from another employer.
B. Retiree Coverage: For the purposes of determining
_________________
eligibility for retiree coverage under the J. C. Penney Company,
Inc. Voluntary Employees' Beneficiary Association Medical Benefit
Plan and Dental Benefit Plan (collectively "Health Care Plans"),
a Participant who is covered under the Health Care Plans and who
becomes entitled to Severance Pay under this Program shall need
only 70 points (age plus years of service) at his Employment
Termination. The age 55 minimum requirement of the
13
<PAGE>
Health Care Plans shall be waived and 5 years shall be added to
the Participant's medical eligibility service to determine the
Company's contribution toward the premium. Retiree medical and
dental coverage and benefits shall be provided under the terms of
the Health Care Plans, subject to the foregoing modifications of
the eligibility rules.
A Participant who is a Drugstore Associate and becomes entitled
to Severance Pay under this Program shall be eligible for the
retiree coverage described in the preceding paragraph payable
under the medical plan maintained by Eckerd Corporation only if
such person as of December 31, 1997 was
(a) in the active employ of Thrift Drug, Inc. or Fay's
Incorporated, and
(b) age 55 or older and had completed at least 15 years of
service.
C. Limitations: If any Participant qualifies for, and secures,
____________
continued medical and dental coverage at his Employment
Termination (a) under the Health Care Plans or (b) pursuant to
Article IV, paragraph (5) of the SRP, the Company's obligation to
provide continued medical and dental coverage under this Section
4.03 and COBRA shall be deemed satisfied.
D. Subsidiary: The obligations and rights arising under this
___________
Section 4.03 shall apply to a Subsidiary and Participants who are
employed by that Subsidiary under the same conditions and to the
same extent such Subsidiary maintains corresponding coverage for
its employees including continued coverage, if any, after
employment termination and retirement.
E. Funding: The obligations of the Company or Subsidiary (as
________
appropriate) to arrange for, and make available, continued
medical and dental coverage upon a Participant's Employment
Termination under either (a) this Section 4.03, or (b) Article
IV, paragraph (5) of the SRP shall be funded by the Company or
Subsidiary (as appropriate) as soon as practicable after the
Employment Termination. Such funding shall be accomplished by
establishing an irrevocable trust for the deposit of all required
14
<PAGE>
contributions and for the payment of all benefits. The Company or
Subsidiary (as appropriate) shall fund such trust on a sound
actuarial basis so as to guarantee prompt payment of these
benefits to eligible Participants (including covered family
members).
F. Secured Coverage: The continued coverage of a Participant
_________________
(including covered family members) under either (a) this Section
4.03, or (b) Article IV, paragraph (5) of the SRP, or (c) under
the Health Care Plans, once secured, shall not be terminated or
decreased by the Company or Subsidiary (as appropriate) without
the written consent of all of the affected Participants.
4.04 Supplemental Retirement Benefits
________________________________
A. Eligible Participants: Notwithstanding any provision of the
______________________
SRP to the contrary, if a Participant becomes entitled to
Severance Pay under this Program or if the SRP is terminated
within 5 years after a Change of Control, and, at that time, in
either case, he
(a) is an Eligible Management Associate (within the meaning of
the SRP), and
(b) is age 45 or older with at least 5 years of Credited Service
(within the meaning of the SRP), he also shall become entitled to
the same SRP benefits (as adjusted by this Section 4.04) he would
have become vested in under Article VIII, paragraph (2) of the
SRP as if the SRP had been terminated on the day before his
Employment Termination.
B. Enhanced SRP Benefit: In calculating such SRP benefit,
_____________________
the Participant
(a) shall receive credit for an additional 5 years of Credited
Service (provided that total Credited Service under the SRP does
not exceed 40 years), and
(b) shall, if age 55 or less, be deemed to be 5 years older than
his actual age, or if age 56 to 59, be deemed to be age 60, and
15
<PAGE>
(c) shall have his Severance Pay counted as Compensation (within
the meaning of the SRP) as if paid in substantially equal monthly
installments commencing with his Employment Termination, and
(d) for purposes of clause (ii) of subparagraph (b) of paragraph
(1) of Article IV of the SRP, the single life, no-death-benefit
annuity equivalent shall not exceed the equivalent determined by
ascribing to the Company common stock, as of the Valuation Date
(within the meaning of the SRP), a value equal to the average of
the mean of the high and low sales prices (as reported in the
composite transaction table covering transactions of New York
Stock Exchange-listed securities) for each trading day in the two
calendar quarters immediately preceding the calendar quarter in
which a Change of Control occurs, and
(e) the amount payable shall be limited to the amount payable
under the SRP at age 60 assuming such Participant remained in
employment up to age 60 at a Compensation (within the meaning of
the SRP) level equal to that of the calendar year immediately
preceding his Employment Termination.
4.05 Term Life Insurance Coverage for SRP Participants
_________________________________________________
A. Eligible Participants: Notwithstanding any provision of the
______________________
J. C. Penney Company, Inc. Group Life Insurance Plan (the "Life
Insurance Plan") to the contrary, if a Participant becomes
entitled to Severance Pay under this Program, and, at that time,
is an Eligible Management Associate (within the meaning of the
SRP), he shall become entitled to purchase term life insurance
coverage and the Company shall arrange for, and make available
under the Life Insurance Plan, coverage as of his Employment
Termination in accordance with this Section 4.05.
B. Amount and Duration of Coverage: Term life insurance
________________________________
coverage shall be based on a Participant's Annual Earnings for
Benefits (within the meaning of the Life Insurance Plan), and
shall consist in part of coverage paid for entirely by the
Company, and in part of optional additional coverage paid for by
the
16
<PAGE>
Participant at a cost not to exceed a monthly rate of 24c per
$1,000. The amount and duration of coverage shall be limited in
accordance with the following schedule. Any life insurance
benefits to which a Participant may become entitled on account of
Company-paid coverage shall be paid solely from the insurance
policy or policies provided under the Life Insurance Plan, and
any life insurance benefits to which a Participant may become
entitled on account of Associate-paid coverage shall be paid
solely from the insurance policy or policies provided under the
J. C. Penney Company, Inc. Associate-Paid Insured Group Term Life
Insurance Plan.
Age at Employment
Termination Term Life Insurance Coverage
_________________ ____________________________
Company Paid Participant Paid
_____________ ________________
Under age 60 1 x Annual Earnings for 1 x Annual Earnings
Benefits remaining constant up for Benefits remaining
to age 60 with a 10% per year constant until age 65
decrease thereafter on the when this coverage
first day of the month after expires.
each birthday starting at age 61
until age 70 when this coverage
expires. Notwithstanding the
preceding sentence, if at the
end of the first 5 years of
coverage the Participant is
still under age 60, this
coverage expires.
Age 60 to 69 Same as above if age 60 - Same as above if
if over age 60, the initial under age 65 - if
coverage is 10% less for each over age 65, this
year over age 60 and thereafter coverage is not
decreases annually to same available.
level as if coverage
17
<PAGE>
started at age 60 and expired
at age 70.
C. Limitations: If a Participant qualifies for continued term
____________
life insurance coverage at his Employment Termination under
Article Four, paragraph (5) of the SRP, including, if applicable,
enhanced benefits under Article VIII, paragraph (1) of the SRP,
the Company's obligations under this Section 4.05 shall be deemed
satisfied.
18
<PAGE>
4.06 Associate-Paid Retiree Term Life Insurance
__________________________________________
Notwithstanding any provision of the J. C. Penney Company, Inc.
Associate-Paid Group Term Life Insurance Plan to the contrary, if
a Participant becomes entitled to Severance Pay under this
Program, then for purposes of determining the Participant's
eligibility for retiree coverage under such plan (a) the age 55
minimum requirement shall be waived, and (b) the number of points
required based on age at Employment Termination and eligibility
service (within the meaning of said plan) shall be 70. Retiree
life insurance benefits shall be paid solely from the insurance
policy or policies provided under said plan.
A Participant who is a Drugstore Associate shall not be eligible
for the benefits described in this Section 4.06.
4.07 Annual Incentive Compensation Awards
____________________________________
If a Participant becomes entitled to Severance Pay under this
Program, and he
(a) is a participant in the Company's 1989 Management Incentive
Compensation Program (or any successor plan thereto), he shall
receive a pro-rata award of annual incentive compensation valued
at $1.00 per unit for his months of service in the fiscal year in
which occurs his Employment Termination, or
(b) is a Drugstore Associate who is a participant in the Eckerd
Corporation Key Management Bonus Plan (or any successor plan
thereto), he shall receive a pro-rata award of annual bonus
valued at the target payout percentage for his months of service
in the fiscal year in which occurs his Employment Termination.
Such benefit shall be paid to the Participant in a lump sum as
soon as practicable after Employment Termination.
19
<PAGE>
4.08 EVA Awards
__________
If a Participant becomes entitled to Severance Pay under this
Program and is a participant in the J. C. Penney Company, Inc.
1998 EVA Performance Plan, he shall receive his entire bonus
reserve account under said plan and shall receive a pro-rata EVA
award valued at $1.00 per unit (or, in the case of Eckerd
Corporation, at the target payout percentage) for his months of
service in the fiscal year in which occurs his Employment
Termination. Such benefits shall be paid in a lump sum as soon
as practicable after Employment Termination.
4.09 Relocation
__________
If a Participant has relocated himself (including his family)
(a) at the request and authorization of the Company and such
relocation occurs within one year prior to a Change of Control,
and
(b) becomes entitled to Severance Pay under this Program as a
result of a Change of Control occurring within two years after
his Company-authorized relocation date, he also shall become
entitled to relocation benefits (assistance and reimbursements)
to change his domicile, if he wishes. Such benefits shall be
determined in accordance with the procedures in effect at the
time he relocated, but in no event will they exceed the aggregate
cost to the Company of such benefits he received at that time.
4.10 Code Section 280G Gross-Up
__________________________
Anything in the Program to the contrary notwithstanding, if a
Participant becomes entitled to Severance Pay and/or other
benefits under the Program and it shall be determined (as
hereafter provided) that any payment or distribution by the
Company or a Subsidiary to or for the benefit of the Participant,
whether paid or payable or distributed or distributable pursuant
to the terms of the Program or otherwise pursuant to or by reason
of any other agreement, policy, plan, program or
20
<PAGE>
arrangement, including without limitation any stock option, stock
appreciation right or similar right, or the lapse or termination
of any restriction on or the vesting or exercisability of any of
the foregoing (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code (or any successor provision
thereto) by reason of being "contingent on a change in ownership
or control" of the Company, within the meaning of Section 280G of
the Code (or any successor provision thereto) or to any similar
tax imposed by state or local law, or any interest or penalties
with respect to such excise tax (such tax or taxes, together with
any such interest or penalties, are hereafter collectively
referred to as the "Excise Tax"), then the Participant shall be
entitled to receive an additional payment or payments (a "Gross-
Up Payment") in an amount such that, after payment by the
Participant of all taxes (including any interest or penalties
imposed with respect to such taxes other than interest and
penalties imposed by reason of the Employee's failure to timely
file a tax return or pay taxes shown due on his return),
including any Excise Tax, imposed upon the Gross-Up Payment, the
Participant retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments. No Gross-Up Payment
will be made with respect to the Excise Tax, if any, attributable
to (a) any incentive stock option, as defined by Section 422 of
the Code ("ISO") granted prior to the Effective Date of the
Program (unless a comparable Gross-Up Payment has theretofore
been made available with respect to such option), or (b) any
stock appreciation or similar right, whether or not limited,
granted in tandem with any ISO described in clause (a).
Procedures for determining the amount of the Gross-Up Payment and
other matters related to the Gross-Up Payment are set forth in
Exhibit A attached to and made a part of the Program.
21
<PAGE>
ARTICLE FIVE
AMENDMENT AND TERMINATION
5.01 Amendment
_________
The Program may be amended by the Company's Board of Directors
provided, however, that
(a) any amendment which would have an adverse effect on any
Participant's Program benefits and/or rights or
(b) any amendment after a Change of Control,
cannot be approved without the written consent of all of the
affected Participants.
5.02 Termination
___________
The Program shall continue for a term of five years from the
Effective Date, provided, however, that it shall be renewed
automatically for subsequent five- year periods unless the Board
of Directors of the Company shall decide to terminate the Program
by duly adopting a resolution stating that the Program shall not
be renewed. Such resolution shall be adopted at least sixty days
before the end of any of the above five-year periods.
If, however, a Change of Control occurs during the term of the
Program, the Program shall continue until the Company and each
Subsidiary (as appropriate) shall have fully performed all of
their obligations under the Program with respect to all
Participants, and shall have paid all Severance Benefits under
the Program in full to all Participants.
22
<PAGE>
ARTICLE SIX
MISCELLANEOUS
6.01 Participant Rights
__________________
The Company and each Subsidiary intend this Program to constitute
a legally enforceable obligation between (a) the Company or
Subsidiary (as appropriate) and (b) each Participant, and that
said obligation shall be subject to enforcement under Section
502(a) of ERISA.
It is also intended that the Program shall confer vested and non-
forfeitable rights for each Participant to receive benefits to
which the Participant is entitled under the terms of the Program
with Participants being third party beneficiaries.
Nothing in the Program, however, shall be construed to confer on
any Participant any right to continue in the employ of the
Company or a Subsidiary or to affect in any way the right of the
Company or Subsidiary to terminate a Participant's employment
without prior notice at any time for any reason or no reason.
6.02 Claims Procedure
________________
A. Allocation of Claims Responsibility: With respect to any
____________________________________
claim for benefits which are provided exclusively under the
Program (e.g., severance pay), the claim shall be approved or
disapproved by the Committee within 90 days following the receipt
of the information necessary to process the claim. In the event
the Committee denies a claim for benefits in whole or in part,
the Committee shall notify the claimant in writing of the denial
of the claim. Such notice by the Committee shall also set forth,
in a manner calculated to be understood by the claimant, the
specific reason for such denial, the specific Plan provisions on
which the denial is based, a description of any additional
material or information necessary to perfect the claim with an
explanation of why such material or information is necessary, and
an explanation of the Program's appeal and arbitration procedures
as set forth
23
<PAGE>
below. If no action is taken by the Committee on a claim within
90 days, the claim shall be deemed to be denied for purposes of
the appeals and arbitration procedure.
With respect to any claim for benefits which, under the terms of
the Program, are provided under another employee benefit plan
maintained by the Company (i.e., group health, life insurance,
and SRP benefits), the Committee shall determine claims regarding
the Participant's eligibility under the Program in accordance
with the preceding paragraph, but the administration of any other
claim with respect to such benefits (including the amount of such
benefits) shall be subject to the claims procedure specified in
such other employee benefit plan.
B. Appeal or Arbitration: In the event the Committee denies a
______________________
claim for benefits which are provided exclusively under the
Program (e.g., severance pay), or denies a claim regarding the
claimant's eligibility under the Program, the Participant
(including his duly authorized representative) shall have the
option:
(a) to file an appeal of his denied claim with the Committee (or
any successor committee thereto) which shall be the named
fiduciary for review of denied claims under Sections 402(a)(2) of
ERISA, and shall have the same authority and discretion as the
Committee would have with respect to deciding the appeal, or
(b) submit such denied claim to an arbitration panel for binding
and final decision.
If a Participant chooses to prosecute his appeal under (a) above,
his appeal must be submitted in writing 60 days after the claim
is denied by the Committee and must (i) request a review of the
claim for benefits under the Program or regarding eligibility for
Program benefits, (ii) set forth all of the grounds upon which
the claimant's request for review is based and any facts in
support thereof, and (iii) set forth any issues or comments which
the claimant deems pertinent to the appeal. The
24
<PAGE>
Committee (or successor) shall make a full and fair review of
each appeal and any written materials submitted in connection
with the appeal. The Committee (or successor) shall 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 shall be rendered as soon as possible but
not later than 120 days after the appeal is received. The
claimant shall be given the opportunity to review pertinent
documents or materials upon submission of a written request to
the Committee (or successor), provided the Committee
(or successor) finds the requested documents or materials are
pertinent to the appeal. On the basis of its review, the
Committee (or successor) shall make an independent determination
of the claimant's eligibility for benefits under the Program.
In the event the Committee (or successor) denies an appeal in
whole or in part, it shall give written notice of the decision to
the claimant, which notice shall set forth in a manner calculated
to be understood by the claimant the specific reasons for such
denial and which shall make specific reference to the pertinent
Program provisions on which the decision was based. The decision
of the Committee (or successor) on any appeal shall be final and
conclusive upon all parties thereto, subject to any rights of the
claimant to bring a civil action pursuant to Section 502 of
ERISA.
If a Participant chooses to submit his denied claim to an
arbitration panel under (b) above, it shall be heard, promptly,
before a panel of three independent arbitrators, one selected by
the Company or Subsidiary (as appropriate), one selected by the
Participant, and a third selected by the two other arbitrators.
In the event that agreement cannot be reached on the selection of
the third arbitrator, such arbitrator shall be selected by the
American Arbitration Association ("AAA"). All arbitrators shall
be selected from a list provided by the AAA. All matters
presented to a panel shall be decided by majority vote. All
decisions of the arbitration panel shall be conclusive and
binding upon the Company, Subsidiary, Participant, and all
interested parties. These arbitration provisions shall be
25
<PAGE>
binding, valid, enforceable and irrevocable and shall survive the
termination of this Program. Any final decision of the
arbitrator so chosen may be enforced by a court of competent
jurisdiction.
Appeals with respect to any claim for benefits which, under the
terms of the Program, are provided under another employee benefit
plan maintained by the Company (i.e., group health, life
insurance, and SRP benefits), shall be subject to the claims
appeals procedure specified in such other employee benefit plan
in lieu of the appeals and arbitration provisions above.
C. Civil Enforcement Under ERISA: If a Participant believes
______________________________
dispute resolution options described in Section 6.02-B above
would be futile or cause irreparable harm to his rights and/or
benefits under the Program, he may, in his sole discretion, elect
to enforce his rights and/or recover his benefits under the
Program pursuant to Section 502(a) of ERISA. After a Change of
Control, the Company or Subsidiary (as appropriate) shall treat a
Participant who takes such an enforcement action pursuant to
Section 502(a) of ERISA as having exhausted his administrative
remedies under the Program.
6.03 Governing Law
_____________
Except to the extent the Program is subject to the provisions of
ERISA, the Program shall be construed and governed in accordance
with the laws of the State of Delaware (regardless of the law
that might otherwise govern under applicable Delaware principles
of conflict of laws).
6.04 Expenses
________
All Program administration expenses incurred by the Committee
shall be paid by the Company and all other administration
expenses incurred by the Company or Subsidiary shall be paid by
the Company or Subsidiary (as appropriate). All expenses of a
Participant incurred in successfully enforcing his rights and/or
to recover his benefits under Section 6.02 of the Program,
including but not limited to,
26
<PAGE>
attorney's fees, court costs, arbitration costs, and other
expenses shall be paid by the Company. The Company shall pay, or
reimburse the Participant for such fees, costs and expenses,
promptly upon presentment of appropriate documentation.
6.05 Effect on Other Benefits
________________________
Except as otherwise provided herein, the Program shall not affect
any Participant's rights or entitlement under any other
retirement or employee benefit plan offered to him by the Company
or Subsidiary (as appropriate) as of his Employment Termination.
6.06 Successors
__________
The Program shall be binding upon any successor in interest of
the Company or Subsidiary (as appropriate) and shall inure to the
benefit of, and be enforceable by, a Participant's assigns or
heirs.
6.07 Severability
____________
The various provisions of the Program are severable and any
determination of invalidity or unenforceability of any one
provision shall not have any effect on the remaining provisions.
6.08 Construction
____________
In determining the meaning of the Program, words imparting the
masculine gender shall include the feminine and the singular
shall include the plural, unless the context requires otherwise.
Headings of sections and subsections of the Program are for
convenience only and are not intended to modify or affect the
meaning of the substantive provisions of the Program.
6.09 References to Law, Regulations and Other Plans
______________________________________________
Each reference in the Program to the Code or ERISA or regulations
thereunder, or to any plan, program or document of the Company or
Subsidiary, shall include any amendments or successor provisions
27
<PAGE>
thereto without the necessity of amending the Program for such
changes.
28
<PAGE>
Exhibit A
Procedures Relating to Gross-Up Payments
________________________________________
(a) Subject to the provisions of paragraph (e) hereof, all
determinations required to be made under Section 4.10 of the
Program, including whether an Excise Tax is payable by the
Participant and the amount of such Excise Tax and whether a
Gross-Up Payment is required to be paid by the Company to the
Participant and the amount of such Gross-Up Payment, shall be
made by a nationally recognized accounting firm (the "Accounting
Firm") selected by the Participant in his sole discretion. The
Participant shall direct the Accounting Firm to submit its
determination and detailed supporting calculations to both the
Company and the Participant within 15 calendar days after the
date of the Participant's Employment Termination, if applicable,
and any other such time or times as may be requested by the
Company or the Participant. If the Accounting Firm determines
that any Excise Tax is payable by the Participant, the Company
shall pay the required Gross-Up Payment to the Participant within
five business days after the receipt of such determination and
calculations. If the Accounting Firm determines that no Excise
Tax is payable by the Participant, it shall, at the same time as
it makes such determination, furnish the Participant with an
opinion that he has substantial authority not to report any
Excise Tax on his federal, state, local income or other tax
return. As a result of the uncertainty in the application of
Section 4999 and other applicable provisions of the Code (or any
successor provisions thereto) and the possibility of similar
uncertainty regarding applicable state or local tax law at the
time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments that shall not have been made by
the Company should have been made (an "Underpayment"), consistent
with the calculations required to be made hereunder. In the
event that the Company exhausts or fails to pursue its remedies
pursuant to paragraph (e) hereof and the Participant thereafter
is required to make a payment of any Excise Tax, the Participant
shall direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination
and detailed supporting calculations to both the Company and the
Participant as promptly as possible. Any such Underpayment shall
be promptly paid by the Company to, or for the benefit of, the
29
<PAGE>
Participant within five business days after receipt of such
determination and calculations.
(b) The Company and the Participant shall each provide the
Accounting Firm access to and copies of any books, records and
documents in the possession of the Company or the Participant, as
the case may be, reasonably requested by the Accounting Firm, and
otherwise cooperate with the Accounting Firm in connection with
the preparation and issuance of the determination contemplated by
paragraph (a) hereof. Any determination by the Accounting Firm
as the amount of the Gross-Up Payment shall be binding upon the
Company and the Participant.
(c) The federal, state and local income or other tax returns
filed by the Participant shall be prepared and filed on a
consistent basis with the determination of the Accounting Firm
with respect to the Excise Tax payable by the Participant. The
Participant shall make proper payment of the amount of any Excise
Tax, and at the request of the Company, provide to the Company
true and correct copies (with any amendments) of his federal
income tax return as filed with the Internal Revenue Service and
corresponding state and local tax returns, if relevant, as filed
with the applicable taxing authority, and such other documents
reasonably requested by the Company, evidencing such payment. If
prior to the filing of Participant's federal income tax return,
or corresponding state or local tax return, if relevant, the
Accounting Firm determines that the amount of the Gross-Up
Payment should be reduced, the Participant shall within five
business days pay to the Company the amount of such reduction.
(d) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations
contemplated by paragraphs (a) and (c) hereof shall be borne by
the Company. If such fees and expenses are initially paid by the
Participant, the Company shall reimburse the Participant the full
amount of such fees and expenses within five business days after
receipt from the Participant of a statement therefor and
reasonable evidence of this payment thereof.
(e) The Participant shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of a Gross-Up Payment.
Such notification shall be given as
30
<PAGE>
promptly as practicable but no later than 10 business days after
the Participant actually receives notice of such claim and the
Participant shall further apprise the Company of the nature of
such claim and the date on which such claim is requested to be
paid (in each case, to the extent known by the Participant). The
Participant shall not pay such claim prior to the earlier of (a)
the expiration of the 30-calendar-day period following the date
on which he gives such notice to the Company and (b) the date
that any payment of amount with respect to such claim is due. If
the Company notifies the Participant in writing prior to the
expiration of such period that it desires to contest such claim,
the Participant shall:
(1) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(2) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including without limitation accepting legal
representation with respect to such claim by an attorney
competent in respect to the subject matter and reasonably
selected by the Company;
(3) cooperate with the Company in good faith in order
effectively to contest such claim; and
(4) permit the Company to participant in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including interest and penalties)
incurred in connection with such contest and shall indemnify and
hold harmless the Participant, on an after-tax basis, for and
against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without
limiting the foregoing provisions of this paragraph (e), the
Company shall control all proceedings taken in connection with
the contest of any claim contemplated by this paragraph (e) and,
at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim (provided,
however, that the Participant may participate therein at his own
cost and expense) and may, at its option, either
31
<PAGE>
direct the Participant to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the
Participant agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs
the Participant to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the
Participant on a interest-free basis and shall indemnify and hold
the Participant harmless, on an after-tax basis, from any Excise
Tax or income tax or other tax, including interest or penalties
with respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of
the Participant with respect to which the contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of any such contested claim
shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Participant shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing
authority.
(f) If, after the receipt by the Participant of an amount
advanced by the Company pursuant to paragraph (e) hereof, the
Participant receives any refund with respect to such claim, the
Participant shall (subject to the Company's complying with the
requirements of paragraph (e) hereof) promptly pay to the Company
the amount of such refund (together with any interest paid or
credited thereon after any taxes applicable thereto). If, after
the receipt by the Participant of an amount advanced by the
Company pursuant to paragraph (e) hereof, a determination is made
that the Participant shall not be entitled to any refund with
respect to such claim and the Company does not notify the
Participant in writing of its intent to contest such denial or
refund prior to the expiration of 30 calendar days after such
determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid pursuant to Section 4.10 of the Program.
32
<PAGE>
J. C. PENNEY COMPANY, INC.
1999 SEPARATION ALLOWANCE PROGRAM
FOR
PROFIT-SHARING MANAGEMENT ASSOCIATES
TABLE OF CONTENTS
_________________
Article Page
_______ ____
ARTICLE ONE DESCRIPTION OF PROGRAM . . . . . . . . . . . . . . . . 1
1.01 Establishment of Program . . . . . . . . . . . . . . . . . . 1
1.02 Purposes of Program . . . . .. . . . . . . . . . . . . . . . 1
1.03 Types of Benefits . . . . . . . . . . . . . . . . . . . . . 2
1.04 Administration . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE TWO DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE THREE ELIGIBILITY . . . . . . . . . . . . . . . . . . . . 10
3.01 Eligibility on the Effective Date . . . . . . . . . . . . . 10
3.02 Future Eligibility . . . . . . . . . . . . . . . . . . . . 10
3.03 Loss of Management Status . . . . . . . . . . . . . . . . . 10
ARTICLE FOUR BENEFITS . . . . . . . . . . . . . . . . . . . . . . 11
4.01 Severance Pay . . . . . . . . . . . . . . . . . . . . . . . 11
4.02 Stock Options . . . . . . . . . . . . . . . . . . . . . . . 11
4.03 Medical and Dental Coverage . . . . . . . . . . . . . . . . 12
4.04 Supplemental Retirement Benefits . . . . . . . . . . . . . . 14
4.05 Term Life Insurance Coverage for SRP Participants . . . . . 15
4.06 Associate-Paid Retiree Term Life Insurance . . . . . . . . . 17
4.07 Annual Incentive Compensation Awards . . . . . . . . . . . . 17
4.08 EVA Awards . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.09 Relocation . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.10 Code Section 280G Gross-Up . . . . . . . . . . . . . . . . . 18
ARTICLE FIVE AMENDMENT AND TERMINATION . . . . . . . . . . . . . . 20
5.01 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.02 Termination . . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
ARTICLE SIX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 21
6.01 Participant Rights . . . . . . . . . . . . . . . . . . . . . 21
6.02 Claim Procedures . . . . . . . . . . . . . . . . . . . . . . 21
6.03 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 24
6.04 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.05 Effect on Other Benefits . . . . . . . . . . . . . . . . . . 25
6.06 Successors . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.07 Severability . . . . . . . . . . . . . . . . . . . . . . . . 25
6.08 Construction . . . . . . . . . . . . . . . . . . . . . . . . 25
6.09 References to Law, Regulations and Other Plans . . . . . . . 25
EXHIBIT A PROCEDURES RELATING TO GROSS-UP PAYMENTS . . . . . . . . 27
ii
<PAGE>
Exhibit 10(b)
SUPPLEMENTAL RETIREMENT PROGRAM AMENDMENT
_________________________________________
Pursuant to Paragraph (2) (Amendment and Termination) of Article VIII
(Miscellaneous) of the Supplemental Retirement Program for Management
Profit-Sharing Associates of J. C. Penney Company, Inc. ("SRP"), the SRP
shall be amended effective July 14, 1999 to revise Paragraph (11) of
Article VIII in its entirety and to add a new Paragraph (12) to Article
VIII to read as follows:
(11) Change of Control: Solely for the purposes of this Paragraph
_________________
(11), the term Eligible Management Associate shall include all active
associates who upon their retirement would qualify as an Eligible
Management Associate as of the date of a "Change of Control" (as
hereinafter defined).
Upon a Change of Control, assets of the Company in an amount
sufficient to pay benefits that have accrued under the Plan up to that date
shall immediately be transferred to a grantor trust to be established by
the Company for the purpose of paying benefits hereunder. Each Eligible
Management Associate's vested benefits shall thereafter be paid to him from
such trust in accordance with the terms of the Plan; provided that at the
time of such Change of Control, the Eligible Management Associate may make
an irrevocable election to have his Plan benefits paid in a single-sum
immediately upon the later of (i) the date of the Change of Control, or
(ii) the Eligible Management Associate's retirement date; in which event
his benefits shall be reduced by 10% as a penalty for early payment. The
amount transferred to the grantor trust shall include the amount necessary
to pay benefits for Eligible Management Associates who have not yet
retired, determined as if they retired on the date of the Change of
Control. 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 that have accrued under the plan during the preceding twelve
months.
For purposes of this paragraph (11), a Change of Control shall be
deemed to have occurred if the event set forth in any one of the following
subparagraphs 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 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
1
<PAGE>
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 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
2
<PAGE>
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
ownership of stock of the Company.
(12) Separation Allowance Program: If an Eligible Management
____________________________
Associate becomes entitled to Severance Pay under the J. C. Penney Company,
Inc. 1999 Separation Allowance Program for Profit-Sharing Management
Associates ("SAP") or if this Plan is terminated within five years after a
Change of Control (as defined in Paragraph (11) above) and, at that time,
in either case, is age 45 or older with at least five years of Credited
Service, he also shall become entitled to the same Plan benefits
3
<PAGE>
(as adjusted by this Paragraph (12) he would have become vested in under
Article VIII, Paragraph (2) of this Plan as if this Plan had been
terminated on the day before his Employment Termination (within the meaning
of the SAP). In calculating such Plan benefit, an Eligible Management
Associate
(a) shall receive credit for an additional five years of Credited
Service (provided that total Credited Service under the Plan does not
exceed 40 years) and
(b) shall, if age 55 or less, be deemed to be five years older
than his actual age, or if age 56 to 59 be deemed to be age 60, and
(c) shall have his Severance Pay counted as Compensation under
this Plan as if paid in monthly installments commencing with his
Employment Termination (within the meaning of the SAP),
provided that, for purposes of clause (ii) of Subparagraph (b) of Paragraph
(1) of Article IV of this Plan, the single life, no-death-benefit annuity
equivalent shall not exceed the equivalent determined by ascribing to the
Common Stock of the Company, as of the Valuation Date, a value equal to the
average of the mean of the high and low sales prices (as reported in the
composite transaction table covering transactions of New York Stock
Exchange-listed securities) for each trading day in the two calendar
quarters immediately preceding the calendar quarter in which a Change of
Control (as defined in Paragraph (11) above) occurs, and the amount payable
under this Plan at age 60 assuming such Eligible Management Associate
remained in employment up to such age at a Compensation level equal to that
of the calendar year immediately preceding his Employment Termination
(within the meaning of the SAP).
4
<PAGE>
Exhibit 10(c)
BENEFIT RESTORATION PLAN AMENDMENT
__________________________________
Pursuant to Paragraph (1) (Amendment and Termination) of Article VIII
(Miscellaneous) of the J. C. Penney Company, Inc. Benefit Restoration Plan
("BRP"), the BRP shall be amended effective July 14, 1999 to revise
Paragraph (9) of Article VIII in its entirety to read as follows:
(9) Change of Control: Upon a Change of Control (as hereinafter
_________________
defined), assets of the Company in an amount sufficient to pay benefits
that have accrued under the Plan up to that date shall immediately be
transferred to a grantor trust to be established by the Company for the
purpose of paying benefits hereunder, and the Participant's vested benefits
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 upon the later of (i) the date of
the Change of Control, or (ii) the Participant's retirement date, in which
event his benefits shall be reduced by 10% as a penalty for early payment.
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 paragraph (9), a Change of Control shall be
deemed to have occurred if the event set forth in any one of the following
subparagraphs 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 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
1
<PAGE>
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 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
2
<PAGE>
(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
ownership of stock of the Company.
3
<PAGE>
Exhibit 10(d)
MIRROR PLANS AMENDMENT
______________________
Pursuant to Section 8.01 (Plan Amendment) of the J. C. Penney Company,
Inc. Mirror Savings Plan I and the J. C. Penney Company, Inc. Mirror
Savings Plans II ("Mirror Plans"), Section 7.08 of the Mirror Plans shall
be amended effective July 14, 1999 in its entirety to read as follows:
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 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
1
<PAGE>
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 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
2
<PAGE>
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
ownership of stock of the Company.
3
<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)
26 Weeks Ended
_____________________________________________
July 31, 1999 Aug. 1, 1998
______________________ ____________________
Shares Income Shares Income
_________ ________ _______ _________
Basic
-----
Net income $ 206 $ 201
Dividend on Series B ESOP
convertible preferred stock
(after-tax) (18) (18)
_______ _______
Adjusted net income 188 183
Weighted average number of
shares outstanding 258.2 252.9
_____ _______ _____ _______
258.2 $ 188 252.9 $ 183
===== ======= ===== =======
Net income per common share $ 0.73 $ 0.73
======= =======
Diluted
-------
Net income $ 206 $ 201
Dividend on Series B ESOP
convertible preferred stock
(after-tax) (18) -
Assumed additional contribution
to ESOP if preferred stock is
fully converted - (1)
------- -------
Adjusted net income 188 200
Weighted average number of
shares outstanding (basic) 258.2 252.9
Dilutive common stock equivalents:
Stock options and other
dilutive effect 0.6 2.3
Convertible preferred stock - 17.0
_____ _______ _____ _______
258.8 $ 188 272.2 $ 200
===== ======= ===== =======
Net income per common share $ 0.73 $ 0.72
======= =======
<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
July 31, Aug. 1,
($ Millions) 1999 1998
_________ ____________
Income from continuing operations $ 911 $ 842
(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 123 100
Long term debt 556 559
Capital leases 2 6
Credit facility - -
Other, net (5) (9)
_________ _________
Total fixed charges 901 836
Preferred stock dividend, before taxes 36 35
Combined fixed charges and preferred _________ _________
stock dividend requirement 937 871
Total available income $ 1,848 $ 1,713
========= =========
Ratio of available income to combined
fixed charges and preferred stock
dividend requirement 2.0 2.0
========= =========
The interest cost of the LESOP notes guaranteed by the Company is not
included in fixed charges above.
The Company believes that, due to the seasonal nature of its business,
ratios for a period of time other than a 52 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
July 31, Aug. 1,
($ Millions) 1999 1998
__________ ____________
Income from continuing operations $ 947 $ 877
(before income taxes and
capitalized interest)
Fixed charges
Interest (including capitalized
interest) on:
Operating leases 225 180
Short term debt 123 100
Long term debt 556 559
Capital leases 2 6
Credit facility - -
Other, net (5) (9)
_________ _________
Total fixed charges 901 836
_________ _________
Total available income $ 1,848 $ 1,713
========= =========
Ratio of available income to combined
fixed charges and preferred stock
dividend requirement 2.1 2.0
========= =========
The interest cost of the LESOP notes guaranteed by the Company is not
included in fixed charges above.
The Company believes that, due to the seasonal nature of its business,
ratios for a period of time other than a 52 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 JULY 31, 1999, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> JUL-31-1999
<CASH> 377
<SECURITIES> 325
<RECEIVABLES> 4,282
<ALLOWANCES> 96
<INVENTORY> 6,279
<CURRENT-ASSETS> 11,306
<PP&E> 8,472
<DEPRECIATION> 3,013
<TOTAL-ASSETS> 24,060
<CURRENT-LIABILITIES> 6,381
<BONDS> 6,817
0
457
<COMMON> 3,232
<OTHER-SE> 3,719
<TOTAL-LIABILITY-AND-EQUITY> 24,060
<SALES> 14,328
<TOTAL-REVENUES> 14,878
<CGS> 10,606
<TOTAL-COSTS> 13,936
<OTHER-EXPENSES> 276
<LOSS-PROVISION> 35
<INTEREST-EXPENSE> 304
<INCOME-PRETAX> 327
<INCOME-TAX> 121
<INCOME-CONTINUING> 206
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 206
<EPS-BASIC> .73
<EPS-DILUTED> .73
</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 AUGUST 1, 1998, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> AUG-01-1998
<CASH> 139
<SECURITIES> 959
<RECEIVABLES> 3,439
<ALLOWANCES> 81
<INVENTORY> 6,244
<CURRENT-ASSETS> 10,838
<PP&E> 8,462
<DEPRECIATION> 3,161
<TOTAL-ASSETS> 22,932
<CURRENT-LIABILITIES> 5,630
<BONDS> 6,755
0
493
<COMMON> 2,867
<OTHER-SE> 4,011
<TOTAL-LIABILITY-AND-EQUITY> 22,932
<SALES> 13,316
<TOTAL-REVENUES> 13,813
<CGS> 9,783
<TOTAL-COSTS> 12,841
<OTHER-EXPENSES> 249
<LOSS-PROVISION> 98
<INTEREST-EXPENSE> 296
<INCOME-PRETAX> 329
<INCOME-TAX> 128
<INCOME-CONTINUING> 201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201
<EPS-BASIC> .73
<EPS-DILUTED> .72
</TABLE>
