<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
___________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
__________
For the 13 week and 39 week periods Commission File Number 1-4947-1
ended October 31, 1998
J. C. PENNEY FUNDING CORPORATION
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 51-0101524
_______________________________________________________________________
(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.
500,000 shares of Common Stock of $100 par value, as of October 31, 1998.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)
(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
____________________
The following interim financial information of J. C. Penney Funding
Corporation ("Funding"), a wholly owned subsidiary of J. C. Penney Company,
Inc. ("JCPenney"), is unaudited; however, in the opinion of Funding, it
includes all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation. The financial information should be
read in conjunction with the audited financial statements included in
Funding's Annual Report on Form 10-K for the 53 weeks ended January 31,
1998.
Statements of Income and Reinvested Earnings
(Dollars in millions)
13 weeks ended 39 weeks ended
_____________________ _____________________
Oct. 31, Oct 25, Oct. 31, Oct 25,
1998 1997 1998 1997
________ _______ ________ ________
Interest earned from
JCPenney and affiliates $ 46 $ 34 $113 $ 146
Interest expense 30 23 74 96
____ ____ ____ ____
Income before income taxes 16 11 39 50
Income taxes 6 4 14 18
____ ____ ____ _____
Net income 10 7 25 32
Reinvested earnings at
beginning of period 1,022 989 1,007 964
______ ____ ______ ____
Reinvested earnings at
end of period $1,032 $996 $1,032 $996
====== ==== ====== ====
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Balance Sheets
(Dollars in millions)
Oct. 31, Oct. 25, Jan.31,
1998 1997 1998
________ ________ _______
ASSETS
Loans to JCPenney and affiliates $3,708 $3,378 $2,591
______ ______ ______
$3,708 $3,378 $2,591
====== ====== ======
LIABILITIES AND EQUITY OF JCPENNEY
Short-term debt $2,518 $2,218 $1,416
Due to JCPenney 13 19 23
______ ______ ______
Total liabilities $2,531 $2,237 $1,439
Equity of JCPenney:
Common stock (including
contributed capital), par
value $100:
Authorized, 750,000 shares
Issued, 500,000 shares $145 $145 $145
Reinvested earnings $1,032 $996 $1,007
______ ______ ______
Total equity of JCPenney $1,177 $1,141 $1,152
______ ______ ______
$3,708 $3,378 $2,591
====== ====== ======
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Consolidated Statements of Cash Flows
(Dollars in millions)
39 weeks ended
_________________________
Oct. 31, Oct. 25,
1998 1997
__________ __________
Operating Activities
Net Income $ 25 $ 32
(Increase) Decrease in loans
to JCPenney (1,117) 1,684
(Decrease) Increase in amount due
to JCPenney (10) 18
________ _____
(1,102) 1,734
________ ______
Financing Activities
Increase (Decrease) in short-term
debt 1,102 (1,734)
_____ _______
Increase (Decrease) in cash -0- -0-
Cash at beginning of year -0- -0-
_______ ______
Cash at end of second quarter $ -0- $ -0-
======= ======
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Under the terms of the loan agreement which provides for unsecured loans to
be made by Funding to JCPenney and the receivables agreement pursuant to
which Funding may purchase an undivided interest in certain JCPenney
customer receivables, Funding derives earnings on loans to JCPenney and
income from charges to JCPenney. The income of Funding is designed to
cover Funding's fixed charges (interest expense) at a coverage ratio
mutually agreed upon by Funding and JCPenney. The earnings to fixed
charges coverage ratio has historically been at least one and one-half
times.
Since 1986, Funding has provided financing to JCPenney in accordance with
the loan agreement and no receivable balances have been purchased.
Funding is not and has not been involved in the administration of
JCPenney's retail credit operation and does not bear any expenses or
receive any finance charge revenue connected therewith.
For the third quarter of 1998, income, expenses, and provision for taxes
increased as compared with the third quarter of 1997, as a result of
higher average borrowing levels. Borrowing levels averaged $2,172 million
during the 1998 third quarter as compared with $1,664 million during the
comparable 1997 period. Average interest rates for the third quarter of
1998 decreased 9 basis points as compared with the third quarter of 1997.
For the nine month period ended October 31, 1998, income, expenses, and
provision for taxes decreased as compared to the 1997 comparable period.
These decreases were a result of lower average borrowing levels. Borrowing
levels averaged $1,781 million for the first nine months of 1998 as
compared with $2,330 million in the comparable 1997 period. 1997 higher
borrowing levels were required to fund the JCPenney acquisition of Eckerd.
For the nine month period in 1998, average rates increased 10 basis points
as compared with the same period in 1997. At October 31, 1998 borrowing
levels were $2,518 million as compared with $ 2,218 million at October 25,
1997.
In October 1996, JCPenney formed a companywide task force to provide
guidance to operating and support departments, including Funding, and to
monitor the progress of efforts to address Year 2000 issues. It is
expected that compliance work will be substantially completed by the end of
1998. Total costs associated with these efforts are not expected to have a
material impact on the financial results of either JCPenney or Funding. In
addition, Funding has communicated with its commercial paper dealers to
determine their Year 2000 compliance readiness. However, there can be no
guarantee that the systems of these commercial paper dealers, on which
Funding relies, will be timely converted, or that a failure to convert
would not have a material adverse effect on Funding's
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operations. JCPenney has developed contingency plans to address potential
Year 2000 disruptions. These plans include business continuity plans that
address accessibility and functionality of JCPenney and Funding's
facilities as well as steps to be taken if an event causes failure of a
system.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
________________________________
(a) Exhibits
The following document is filed as an exhibit to this
report:
27 Financial Data Schedule for the nine months ended
Oct. 31, 1998.
(b) Reports on Form 8-K
___________________
None
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 FUNDING CORPORATION
By: /s/ W. J. Alcorn
_________________________
W. J. Alcorn
Controller
(Principal Accounting Officer)
Date: December 14, 1998
<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 FUNDING CORPORATION AS OF OCTOBER 31, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> OCT-31-1998
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<CURRENT-ASSETS> 3,708
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<TOTAL-ASSETS> 3,708
<CURRENT-LIABILITIES> 2,531
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<COMMON> 145
0
0
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