<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 26 week periods Commission File Number 1-4947-1
ended July 31, 1999
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 July 31, 1999.
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 52 weeks ended January 30,
1999.
Statements of Income and Reinvested Earnings
(Dollars in millions)
13 weeks ended 26 weeks ended
____________________ ____________________
July 31, Aug. 1, July 31, Aug. 1,
1999 1998 1999 1998
____ ____ ____ ____
Interest earned from
JCPenney and affiliates $ 47 $ 33 $ 94 $ 67
Interest expense 31 22 62 44
____ ____ ____ ____
Income before income taxes 16 11 32 23
Income taxes 6 4 12 8
____ ____ ____ ____
Net income 10 7 20 15
Reinvested earnings at
beginning of period 1,052 1,015 1,042 1,007
______ ______ ______ ______
Reinvested earnings at
end of period $1,062 $1,022 $1,062 $1,022
====== ====== ====== ======
2
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Balance Sheets
(Dollars in millions)
July 31, Aug. 1, Jan.30,
1999 1998 1999
____ ____ ____
ASSETS
Loans to JCPenney
and affiliates $3,770 $2,738 $3,129
______ ______ ______
$3,770 $2,738 $3,129
====== ====== ======
LIABILITIES AND EQUITY OF JCPENNEY
Short-term debt $2,533 $1,563 $1,924
Due to JCPenney 30 8 18
______ ______ ______
Total liabilities $2,563 $1,571 $1,942
Equity of JCPenney:
Common stock (including
contributed capital),
par value $100:
Authorized, 750,000 shares
Issued, 500,000 shares $ 145 $ 145 $ 145
Reinvested earnings $1,062 $1,022 $1,042
______ ______ ______
Total equity of JCPenney $1,207 $1,167 $1,187
______ ______ ______
$3,770 $2,738 $3,129
====== ====== ======
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Consolidated Statements of Cash Flows
(Dollars in millions)
26 weeks ended
_____________________________
July 31, Aug. 1,
1999 1998
____ ____
Operating Activities
Net Income $ 20 $ 15
(Increase) Decrease in
loans to JCPenney (641) (147)
(Decrease) Increase in
amount due to JCPenney 12 (15)
_______ ________
(609) (147)
_______ ________
Financing Activities
Increase (Decrease) in
short-term debt 609 147
___ ___
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 second quarter of 1999, income, expenses, and provision for taxes
increased as compared with the second quarter of 1998, as a result of
higher average borrowing levels. Borrowing levels averaged $2,327 million
during the 1999 second quarter as compared with $1,586 million during the
comparable 1998 period. At the end of the second quarter of 1999, borrowing
levels were $2,533 million as compared with $1,563 million at the end of
the second quarter of 1998. Average interest rates for the second quarter
of 1999 decreased 34 basis points as compared with the second quarter of
1998. For the six month period ended July 31, 1999, income, expenses, and
provision for taxes increased as compared to the 1998 comparable period.
These increases were a result of higher borrowing levels. Borrowing levels
averaged $2,362 million for the first half of 1999 as compared with $1,585
million in the comparable 1998 period due to an increase in JCPenney's
general capital needs. For the six month period in 1999, average rates
decreased 40 basis points as compared with the same period in 1998.
JCPenney has initiated actions to address the Year 2000 issue relating to
Funding. Year 2000 readiness work was more than 99 per cent complete as of
July 31, 1999. Since January 1999, JCPenney has been retesting all systems
critical to JCPenney's core businesses. JCPenney has also focused on the
Year 2000 readiness of its suppliers and service providers, both
independently and in conjunction with the National Retail Federation. 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 readiness. However, there can be no guarantee
that the systems of these commercial paper dealers on which Funding relies
will be converted in a timely manner, or that a failure to convert would
not have a material adverse effect on Funding's operations.
5
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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 six months ended
July 31, 1999.
(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:
___________________________________
W. J. Alcorn
Controller
(Principal Accounting Officer)
Date: September 14, 1999
6
<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 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> 0
<SECURITIES> 0
<RECEIVABLES> 3,770
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,770
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,770
<CURRENT-LIABILITIES> 2,563
<BONDS> 0
0
0
<COMMON> 145
<OTHER-SE> 1,062
<TOTAL-LIABILITY-AND-EQUITY> 3,770
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (32)
<INCOME-PRETAX> 32
<INCOME-TAX> 12
<INCOME-CONTINUING> 20
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 20
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