-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UY5gt6QTyNlVIMiTWFknF2EXiEIvUt1h6g6PBhM1RX4jcTKEUfiu+rUV8JmjhMb3 22mK1R0BYsw+bjgqkkFe2w== 0000077182-97-000002.txt : 19971209 0000077182-97-000002.hdr.sgml : 19971209 ACCESSION NUMBER: 0000077182-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971025 FILED AS OF DATE: 19971208 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENNEY J C CO INC CENTRAL INDEX KEY: 0000077182 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 135583779 STATE OF INCORPORATION: DE FISCAL YEAR END: 0126 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00777 FILM NUMBER: 97734203 BUSINESS ADDRESS: STREET 1: 6501 LEGACY DR CITY: PLANO STATE: TX ZIP: 75024-3698 BUSINESS PHONE: 2144311000 10-Q 1 FORM 10Q (CONFORMED COPY) SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 -------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 -------------- For the 13 and 39 week periods Commission file number 1-777 ended October 25, 1997 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. 249,941,785 shares of Common Stock of 50c par value, as of October 25, 1997. -1- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements. The following interim financial information is unaudited but, in the opinion of the Company, includes all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation. Certain amounts have been reclassified to conform with the current period presentation. The financial information should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the 52 weeks ended January 25, 1997. Statements of Income (Amounts in millions except per share data) 13 weeks ended 39 weeks ended ------------------- ------------------- Oct. 25, Oct. 26, Oct. 25, Oct. 26, 1997 1996 1997 1996 -------- -------- -------- -------- Retail sales $ 7,207 $ 5,537 $ 20,109 $ 14,496 Insurance revenue 233 208 686 601 -------- -------- -------- -------- Total revenue 7,440 5,745 20,795 15,097 -------- -------- -------- -------- Costs and expenses Cost of goods sold, occupancy, buying, and warehousing costs 5,169 3,837 14,558 10,144 Selling, general, and administrative expenses 1,554 1,251 4,539 3,565 Costs and expenses of insurance operations 182 161 529 465 Other (5) (7) (34) (42) Net interest expense and credit operations 152 92 355 177 Amortization of intangible assets and minority interest 14 -- 72 -- Restructuring and business integration expenses, net 190 34 217 34 -------- -------- -------- -------- Total costs and expenses 7,256 5,368 20,236 14,343 -------- -------- -------- -------- Income before income taxes 184 377 559 754 Income taxes 71 141 217 283 -------- -------- -------- -------- Net income $ 113 $ 236 $ 342 $ 471 ======== ======== ======== ======== Net income per common share Primary $ .40 $ .98 $ 1.25 $ 1.93 ======== ======== ======== ======== Fully diluted $ .40 $ .95 $ 1.25 $ 1.89 ======== ======== ======== ======== Weighted average common shares outstanding Primary 251.9 229.2 248.7 228.3 ======== ======== ======== ======== Fully diluted 270.7 248.8 267.6 248.1 ======== ======== ======== ======== -2- Balance Sheets (Amounts in millions) Oct. 25, Oct. 26, Jan. 25, 1997 1996 1997 -------- -------- -------- ASSETS Current assets Cash and short term investments of $172, $180, and $131 $ 208 $ 180 $ 131 Receivables, net 4,614 4,987 5,757 Merchandise inventory (LIFO reserves of $227, $226, and $265) 7,249 5,748 5,722 Prepaid expenses 78 118 102 -------- -------- -------- Total current assets 12,149 11,033 11,712 Properties, net of accumulated depreciation of $3,148, $2,320, and $2,701 5,130 4,450 5,014 Investments, primarily insurance operations 1,737 1,711 1,605 Deferred insurance policy acquisition costs 728 644 666 Goodwill and other intangible assets 3,061 -- 1,861 Other assets 1,387 1,532 1,230 -------- -------- -------- $ 24,192 $ 19,370 $ 22,088 ======== ======== ======== -3- Balance Sheets (Amounts in millions) Oct. 25, Oct. 26, Jan. 25, 1997 1996 1997 -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 3,859 $ 2,968 $ 3,738 Short term debt 2,218 2,120 3,950 Current maturities of long term debt -- -- 250 Deferred taxes 92 96 28 -------- -------- -------- Total current liabilities 6,169 5,184 7,966 Long term debt 7,487 4,663 4,565 Deferred taxes 1,500 1,259 1,362 Insurance policy and claims reserves 849 744 781 Other liabilities 981 1,223 1,383 -------- -------- -------- Total liabilities 16,986 13,073 16,057 Minority interest in Eckerd -- -- 79 Stockholders' equity Preferred stock, without par value: Authorized, 25 million shares - issued, 1 million shares of Series B ESOP convertible preferred 535 574 568 Guaranteed ESOP obligation (96) (186) (142) Common stock, par value 50c: Authorized, 1,250 million shares - issued, 250, 226, and 224 million shares 2,727 1,446 1,416 -------- -------- -------- Total capital stock 3,166 1,834 1,842 -------- -------- -------- Reinvested earnings at beginning of year 4,110 4,397 4,397 Net income 342 471 565 Net unrealized change in debt and equity securities, and currency translation adjustments 7 (34) (21) Retirement of common stock -- -- (320) Common stock dividends declared (399) (351) (471) Preferred stock dividends declared, net of taxes (20) (20) (40) -------- -------- -------- Reinvested earnings at end of period 4,040 4,463 4,110 -------- -------- -------- Total stockholders' equity 7,206 6,297 5,952 -------- -------- -------- $ 24,192 $ 19,370 $ 22,088 ======== ======== ======== -4- Statements of Cash Flows (Amounts in millions) 39 weeks ended ------------------- Oct. 25, Oct. 26, 1997 1996 -------- -------- Operating activities Net income $ 342 $ 471 Gain on the sale of bank assets (52) -- Depreciation and amortization, including intangibles 410 363 Deferred taxes 177 63 Change in cash from: Customer receivables 633 399 Inventories, net of trade payables (1,039) (1,100) Other assets and liabilities, net (562) (288) -------- -------- (91) (92) -------- -------- Investing activities Capital expenditures (581) (592) Proceeds from the sale of bank assets, net 276 -- Purchases of investment securities (339) (353) Proceeds from sales of investment securities 215 247 -------- -------- (429) (698) -------- -------- Financing activities Increase/(decrease) in short term debt (1,732) 571 Net proceeds from the issuance of long term debt 2,979 599 Payment of long term debt (295) (42) Common stock issued, net 82 56 Preferred stock retired (33) (29) Dividends paid, preferred and common (404) (358) -------- -------- 597 797 -------- -------- Net increase in cash and short term investments 77 7 Cash and short term investments at beginning of year 131 173 -------- -------- Cash and short term investments at end of third quarter $ 208 $ 180 ========= ======== Non-cash transaction - -------------------- On February 27, 1997, the Company completed the acquisition of Eckerd Corporation through the exchange of 23.2 million shares of JCPenney common stock for the remaining 49.9 per cent of the outstanding common stock of Eckerd. The value of the non-cash portion of the acquisition was approximately $1.3 billion. -5- ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Financial Condition - ------------------- The Company completed the acquisition of Eckerd Corporation (Eckerd) on February 27, 1997. The acquisition was accomplished through a two step transaction consisting of a cash tender offer for 50.1 per cent of the outstanding Eckerd common stock (December 1996), followed by the exchange of approximately 23.2 million shares of JCPenney common stock for the remaining 49.9 per cent of Eckerd common stock (February 1997). The total value of the acquisition, including Eckerd debt assumed by the Company, was approximately $3.3 billion. The pro forma effects of the Company's recent drugstore acquisitions, assuming the acquisitions had occurred at the beginning of fiscal 1996, for the 13 and 39 weeks ended October 26, 1996 would have been as follows: ($ in millions, except per share information) 13 weeks ended 39 weeks ended ------------------ ------------------ Oct. 26, 1996 Oct. 26, 1996 ----------------------- ----------------------- Historical Pro forma Historical Pro forma ---------- --------- ---------- --------- Retail sales $ 5,537 $ 7,031 $ 14,496 $ 19,099 FIFO operating profit 508 542 965 1,139 Net income 236 208 471 430 Earnings per share fully diluted .95 .77 1.89 1.59 Merchandise inventory for JCPenney stores and catalog totaled $5,174 million at the end of the 1997 third quarter, a decrease of $143 million, or 2.7 per cent, compared with third quarter 1996 levels. Inventories have been reduced through management of purchases, and inventory positions are now in line with current sales estimates for the holiday season. Drugstore merchandise inventories totaled $2,302 million at the end of the third quarter compared with $657 million at the end of last year's third quarter. The increase in drugstore inventories is primarily a result of the Eckerd acquisition. In total, merchandise inventory on a FIFO basis was $7,476 million at October 25, 1997 compared with $5,974 million a year earlier. Properties, net of accumulated depreciation, totaled $5,130 million at October 25, 1997 compared with $4,450 million a year earlier. The increase is principally related to the addition of 31 new and relocated JCPenney stores and the expansion of its drugstore operations. As of the end of the third quarter the Company operated 1,220 JCPenney stores and 2,769 drugstores. Goodwill and other intangible assets, net, which is principally related to the Company's drugstore acquisitions, totaled $3,061 million at October 25, 1997. -6- Long term debt totaled $7,487 million at the end of the third quarter compared with $4,663 million a year earlier. The Company issued $3.0 billion of debt securities in the first quarter of 1997, with the proceeds used principally to fund the Eckerd acquisition. The new debt lowered the average interest rate and extended the average maturity for the Company's aggregate outstanding long term debt. Total debt, both on and off-balance sheet, was $11.7 billion at October 25, 1997, up $3.9 billion from a year earlier. Results of Operations - --------------------- Ratios useful in analyzing the results of operations are as follows: 13 weeks ended 39 weeks ended ------------------- ------------------- Oct. 25, Oct. 26, Oct. 25, Oct. 26, 1997 1996 1997 1996 -------- -------- -------- -------- Sales and revenue, per cent increase/(decrease) JCPenney stores (1.5) 8.2 2.2 3.7 Eckerd drugstores (1) 10.6 11.0 11.7 10.7 Catalog 2.6 (0.8) 2.7 (1.4) Insurance 12.0 17.8 14.1 21.1 Comparable store sales, per cent increase/(decrease) JCPenney stores (2.5) 6.2 1.2 2.1 Eckerd drugstores 7.2 6.8 7.5 8.1 FIFO gross margin, per cent of sales JCPenney stores and catalog 31.9 31.7 30.9 31.0 Eckerd drugstores 21.0 20.9 (1) 21.6 21.6 (1) LIFO gross margin, per cent of sales Eckerd drugstores 20.6 20.6 (1) 21.3 21.4 (1) Selling, general, and administrative expenses, per cent of sales JCPenney stores and catalog 23.3 23.0 25.3 25.3 Eckerd drugstores 17.8 18.2 (1) 17.4 18.0 (1) FIFO operating profit, per cent of revenue (2) JCPenney stores and catalog 8.6 8.7 5.6 5.7 Eckerd drugstores 3.2 2.7 (1) 4.2 3.6 (1) Insurance 21.9 22.6 22.9 22.6 Effective income tax rate 38.6 37.4 38.9 37.5 (1) The percentage shown has been calculated using 1996 pro forma data, assuming the Company's drugstore acquisitions had occurred at the beginning of fiscal 1996. (2) FIFO operating profit by segment excludes net interest and credit operations, amortization of intangible assets and minority interest, LIFO adjustments, restructuring and business integration expenses, net, and income taxes. -7- Operating profit, which represents net income excluding net interest and credit operations, amortization of intangible assets and minority interest, restructuring and business integration expenses, net, and income taxes, totaled $540 million for the 13 weeks ended October 25, 1997, an increase of $37 million, or 7.4 per cent compared with the prior year's third quarter. Operating earnings before restructuring and business integration expenses, net, totaled $229 million, or 85 cents per share, in the third quarter compared with $257 million, or $1.03 per share last year, and net income totaled $113 million, or 40 cents per share compared with $236 million, or 95 cents per share in last year's third quarter. For the 39 weeks ended October 25, 1997 operating profit totaled $1,203 million compared with $965 million in the prior year, a 24.7 per cent increase. Operating earnings before restructuring and business integration expenses, net, totaled $474 million, or $1.76 per share compared with $492 million, or $1.97 per share, last year, and net income totaled $342 million, or $1.25 per share, compared with $471 million, or $1.89 per share, in last year's comparable period. The average number of fully diluted shares increased by 21.9 million shares for the third quarter, and 19.5 million shares for the first nine months compared with the prior year, principally as a result of the exchange of common stock in the Eckerd acquisition. JCPenney Stores and Catalog Sales of JCPenney stores totaled $3,946 million for the third quarter, a decrease of 1.5 per cent compared with third quarter 1996. On a comparable store basis, including only those stores open at least a year, sales decreased 2.5 per cent for the period. Catalog sales totaled $980 million in the third quarter, an increase of 2.6 per cent over last year's comparable period. FIFO gross margin for JCPenney stores and catalog totaled $1,569 million, down slightly from last year's third quarter as a result of lower sales volumes. FIFO gross margin as a per cent of sales improved by 20 basis points for the quarter compared with last year. SG&A expenses in the third quarter were at about the same level as last year. For the nine months ended October 25, 1997 sales of JCPenney stores totaled $10,628 million, an increase of 2.2 per cent (1.2 per cent for comparable stores), and Catalog sales totaled $2,585 million, an increase of 2.7 per cent compared with the comparable 1996 period. On a year to date basis, FIFO gross margin increased by $73 million to $4,080 million, but as per cent of sales, declined by 10 basis points compared with last year. Gross margin for the nine months has been impacted by a higher volume of clearance activities in the first half of 1997 compared with last year, which has been partially offset by improvement in mark-up. SG&A expenses as a per cent of sales were unchanged for the first nine months of 1997 compared with 1996 levels. Eckerd Drugstores The following discussion of operations compares 1997 results with 1996 pro forma results, assuming the drugstore acquisitions had occurred at the beginning of fiscal 1996. Drugstore sales totaled $2,281 million for the third quarter, an increase of 10.5 per cent compared with last year's third quarter. The increase is primarily related to increases in prescription sales, in particular managed care sales, store acquisitions and new store expansion, and increased sales productivity from stores which have been relocated to free standing locations. On a comparable store basis, sales increased by 7.2 per cent for the quarter. -8- Sales in the northeast were below total drugstore results due to transition activities related to the conversion to the Eckerd name and format. FIFO gross margin totaled $477 million for the third quarter, an increase of $46 million, or 10.7 per cent compared with the 1996 period. As a per cent of sales, FIFO gross margin improved by 10 basis points for the quarter, reflecting some of the synergy savings anticipated in the Eckerd acquisition. Drugstore results reflect an $8 million LIFO charge in the third quarter. LIFO adjustments are being recorded on a quarterly basis for Eckerd to reflect the inflationary environment for prescription drugs. SG&A expenses continued to be well managed and leveraged during the quarter, improving as a per cent of sales by 40 basis points. These results were achieved during a period of significant transition and integration activities. By the end of the quarter, all stores had been converted to the Eckerd format. Drugstore sales for the first nine months totaled $6,896 million, an increase of 11.6 per cent over the comparable period last year, with comparable store sales increasing by 7.5 per cent. For the first nine months, FIFO gross margin totaled $1,485 million, an increase of $149 million, or 11.1 per cent over the comparable period in 1996. As a per cent of sales, FIFO gross margin for the first nine months of the year was even with last year. SG&A expenses were leveraged through the third quarter, improving by 60 basis points as a per cent of sales. Insurance Revenue totaled $233 million in the third quarter, an increase of $25 million, or 12.0 per cent, over the comparable 1996 period. Operating profit for the quarter totaled $51 million, an increase of 8.5 per cent, compared with $47 million in last year's third quarter. Third quarter results were impacted by adverse claims activity in the early part of the quarter. For the first nine months, revenue was $686 million, an increase of 14.1 per cent over the prior year, and operating profit was $157 million, an increase of 15.4 per cent over 1996 levels. These results continue the strong performance that has been experienced over the past five years, and are primarily attributable to successful marketing programs with businesses which offer credit cards, principally banks, oil companies, and retailers. Other Other unallocated operating profits, a category which consists principally of real estate and investment activities, totaled $5 million in the third quarter compared with $7 million last year. For the 39 weeks ended October 25, 1997, the Company had recognized unallocated gains of $34 million, including $20 million in gains on the sale of securities held by the Company's insurance companies, compared with $42 million in last year's first half. Net Interest Expense and Credit Operations Net interest expense and credit operations increased for both the third quarter and for the first nine months of 1997 compared with last year's periods. The increase for both periods was principally attributable to higher interest costs associated with the drugstore acquisitions. Finance charge revenue has increased in 1997 compared with 1996 levels as a result of modifications made to credit terms in selected states, and has generally offset increases in credit operating expenses, including bad debt. Net bad debt, which is the largest single component of credit costs, increased by $20 million, or 28 per cent, for the quarter and $30 million, or 15 per cent, through the October -9- period compared with the comparable 1996 periods. The 90-day delinquency rate for customer receivables at the end of the third quarter was 4.8 per cent, up from 4.1 per cent for the comparable period in 1996. Delinquencies and personal bankruptcies continue to be above expected levels. Restructuring and Business Integration Expenses, net Restructuring and business integration expenses, net, totaled $190 million in the third quarter. These expenses included $158 million in costs associated with the Company's previously announced voluntary early retirement program. Approximately 1,250 of the 1,575 eligible management associates accepted early retirement under the program. The Company expects to realize annual benefits of approximately $85 to $90 million as a result of the retirements. In addition, the Company recorded $50 million of other integration expenses, principally related to the drugstore operations, which were partially offset by an $18 million gain realized on the sale of the remaining assets of the Company's consumer banking operation. The Company's business depends to a great extent on the last quarter of the year. Historically, sales for that period have averaged approximately one third of annual sales. Accordingly, the results of operations for the 13 and 39 weeks ended October 25, 1997 are not necessarily indicative of the results for the entire year. New Accounting Rules - -------------------- The Financial Accounting Standards Board (FASB) has issued several Statements of Financial Accounting Standards (SFAS's) in 1997 which may impact the Company's accounting treatment and/or disclosure. None of these new standards are expected to have a material impact on the Company. The new standards are as follows: SFAS No. 128, "Earnings Per Share" was issued in February 1997 and supersedes Accounting Principles Board Opinion No. 15, "Earnings Per Share". The new rules will replace primary and fully diluted earnings per share with basic and diluted earnings per share. SFAS No. 128 is effective for periods ending after December 15, 1997. Previously reported per share amounts will be restated upon adoption. SFAS No. 130, "Reporting Comprehensive Income" was issued in June 1997. The new rules establish standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" was issued in June 1997 and supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise". The new rules change the manner in which operating segments are defined and reported externally to be consistent with the basis on which they are reported and evaluated internally. SFAS No. 131 is effective for periods beginning after December 15, 1997. -10- PART II - OTHER INFORMATION Item 1 - Legal Proceedings. The Company has no material legal proceedings pending against it. Item 6 - Exhibits and Reports on Form 8-K. (a) Exhibits -------- The following documents are filed as exhibits to this report: 10(a) J. C. Penney Company, Inc. 1997 Equity Compensation Plan (incorporated by reference to Exhibit A to the Company's definitive Proxy Statement for its Annual Meeting of Stockholders held on May 16, 1997). 10(b) July 1997 Amendment to Supplemental Retirement Program for Management Profit-Sharing Associates of J. C. Penney Company, Inc. 10(c) July 1997 Amendment to J. C. Penney Company, Inc. Benefit Restoration Plan. 10(d) April 1997 Amendment to J. C. Penney Company, Inc. Deferred Compensation Plan. 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 Financial Data Schedule for the nine months ended October 25, 1997. (b) Reports on Form 8-K ------------------- None. -11- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. J. C. PENNEY COMPANY, INC. By /S/W. J. Alcorn ------------------------------- W. J. Alcorn Vice President and Controller (Principal Accounting Officer) Date: December 5, 1997 EX-10.(B) 2 SUP. RET. PRGM. FOR MGT. PS ASSOCIATES AMENDMENTS Exhibit 10(b) AMENDMENTS TO SUPPLEMENTAL RETIREMENT PROGRAM FOR MANAGEMENT PROFIT-SHARING ASSOCIATES OF J. C. PENNEY COMPANY, INC. Adopted by Benefit Plans Review Commitee July 9, 1997 RESOLVED that pursuant to Paragraph (2) of Article VIII of the Supplemental Retirement Program for Management Profit-Sharing Associates of J. C. Penney Company, Inc. ("Program"), the Program be, and it hereby is, amended as follows: 1. Subparagraph (b)(ii) of paragraph (1) (At Early, Traditional, or Delayed Retirement Date) of Article IV (Benefits) shall be amended effective September 15, 1997 to delete the words "as of the Valuation Date which is the Eligible Management Associate's date of Separation from Service" and to substitute the words "as of the Valuation Date which is the next trading date of the New York Stock Exchange following the Associate's Separation from Service" therefor. 2. Paragraph (1) (Additional Credited Service and other Adjustments) of Article VIII (Miscellaneous) shall be amended effective January 1, 1997 to add three sentences to the last paragraph as follows: For the purpose of determining life insurance coverage under paragraph (5) of Article IV, an Eligible Management Associate deemed to have attained Traditional Retirement Age in the event of a unit closing described in (a) of the preceding subparagraph shall be entitled to coverage effective on the first day of the month following his Separation from Service. The amount of such coverage shall be equal to 100% of the amount being provided to him at Company expense immediately prior to his Separation from Service. Said amount shall be reduced in accordance with paragraph (5) of Article IV starting with the first day of the month following his attainment of age 61. 3. Paragraph (6) (Cessation and Recalculation of Benefits) of Article VIII (Miscellaneous) shall be amended effective January 1, 1998 to retitle the paragraph, to delete sentence one and to substitute a new sentence one therefor as follows: (6) Benefits for Reemployed Eligible Management ___________________________________________ Associates: If a retired Eligible Management Associate __________ subsequently is reemployed by a Participating Employer, the payment of benefits hereunder shall continue. RESOLVED that, in order to carry out the intent and effectuate the purposes of the Amendments, the appropriate officers of the Company, with the approval of counsel for the Company, be, and they hereby are, authorized to make such technical changes, corrections, and amendments to the Program as they deem necessary and the Vice President and Director of Personnel is authorized to approve amendments necessary because 1 of the outsourcing of benefits administration to Hewitt Associates; provided, however, that no such change, correction, or amendment may substantially increase the cost of the Program to the Company or diminish substantially the payments and benefits provided for in the Program, and that any such change, correction, or amendment be reported, as soon as reasonably possible, to the Personnel Committee of the Management Committee of the Company; and RESOLVED that officers of the Company and its counsel be, and they hereby are, authorized to take all such action and to execute and deliver all such instruments and documents, in the name and on behalf of the Company, and under its corporate seal or otherwise, as shall in their judgment be necessary, proper, or advisable in order fully to carry out the intent and to effectuate the purposes of the foregoing resolutions and each of them. 2 EX-10.(C) 3 BENEFIT RESTORATION PLAN AMENDMENTS Exhibit 10(c) AMENDMENTS TO J. C. PENNEY COMPANY, INC. BENEFIT RESTORATION PLAN Adopted by Benefit Plans Review Committee July 9, 1997 RESOLVED that, pursuant to Article VIII, Paragraph 1 of the J. C. Penney Company, Inc. Benefit Restoration Plan, ("Plan"), the Plan be, and it hereby is, amended as follows: 1. Paragraph (3) (Death Benefits) of Article IV (Benefits) is amended effective January 1, 1997 to revise sentence two as follows: Notwithstanding the preceding sentence, if the Participant at the time of his death (a) was 55 years of age or more, (b) had 15 years or more of service, as defined by the Pension Plan, and (c) Separates from Service by reason of death, the joint and survivor annuity payable to the Spouse will be in the form of a 100% (75% if death occurs prior to January 1, 1996) joint and survivor annuity without payment certain. 2. Paragraph (1) (Optional Forms and Commencement of Benefit Payments) is amended effective January 1, 1997 to delete the following sentence two: For purposes of the benefit provided by Paragraph (1) of Article IV, a Participant shall receive the annual benefit payable under Paragraph (1) of Article IV in such form and at such time and actuarially adjusted in such a manner as the benefit payable under the Supplemental Retirement Program. And to revise sentence three and to add a new sentence four as follows: For purposes of the benefit provided by Paragraph (1) of Article IV, the Participant shall receive the annual benefit payable under Paragraph (1) of Article IV in such a form and at such time and actuarially adjusted in such a manner as the benefit payable under the Pension Plan. Payment of such benefit may be deferred to a date no later than the Participant's attainment of age 65 only if the Participant has elected to defer receipt of benefits under the Pension Plan. RESOLVED that, in order to carry out the intent and effectuate the purposes of the Amendments, the appropriate officers of the Company, with the approval of counsel for the Company, be, and they hereby are, authorized to make such technical changes, corrections, and amendments to the Plan as they deem necessary and the Vice President and Director of Personnel is authorized to approve amendments necessary because of the outsourcing of benefits administration to Hewitt Associates; provided, however, that no such change, correction, or amendment may substantially increase the cost of the Plan to 1 the Company or diminish substantially the payments and benefits provided for in the Plan, and that any such change, correction, or amendment be reported, as soon as reasonably possible, to the Personnel Committee of the Management Committee of the Company; and RESOLVED that the officers of the Company and its counsel be, and they hereby are, authorized to take all such further actions, and to execute and deliver all such further instruments and documents in the name and on behalf of the Company, and under its corporate seal or otherwise, and to pay all such expenses as shall in their judgment be necessary, proper, or advisable in order fully to carry out the intent and effectuate the purposes of the foregoing resolutions and each of them. 2 EX-10.(D) 4 1995 DEF. COMPENSATION PLAN AMENDMENTS Exhibit 10(d) AMENDMENTS TO J. C. PENNEY COMPANY, INC. 1995 DEFERRED COMPENSATION PLAN Adopted April 4, 1997 1. The definition of Eligible Associate in Section 2 shall be __________________ amended effective January 1, 1998 in its entirety as follows: Eligible Associate means any associate of an Employer whose __________________ Earnings in the preceding Plan Year (or in the calendar year ended December 31, 1994, in the case of the first Plan Year) equalled or exceeded the applicable Earnings Dollar Limit. 2. Section 5 shall be amended effective January 1, 1998 to revise sentence one of paragraph two as follows: The Election to Defer shall be stated as a whole percentage of the total of Base Salary, COMP, and PUP, and the deferral percentage shall be the same for each such form of compensation. 3. Section 7 shall be amended effective August 1, 1997 to revise the paragraph entitled Interest as follows: ________ Each Participant's Account shall be credited with interest on a daily basis using an interest rate equal to the Moody's Single A Corporate Bond Yield in effect as of the last day of a month, except as otherwise provided in Section 10 hereof. The interest rate determined as of the last day of a month shall be used to credit interest to each Participant's Account for the period beginning on the fifth business day of the next month through the fourth business day of the next following month. Interest at the applicable rate, as stated above, shall continue to accrue and be credited to a Participant's Account in accordance with the above provisions until the Account is fully distributed. The Personnel and Compensation Committee may amend or change the annual effective interest rate at any time and from time to time. 2 EX-11 5 COMPUTATION OF NET INCOME PER COMMON SHARE Exhibit 11 J. C. PENNEY COMPANY, INC. and Consolidated Subsidiaries Computation of Net Income Per Common Share __________________________________________ (Amounts in millions except per common share data) 39 Weeks Ended ______________________________________________ October 25, 1997 October 26, 1996 ___________________ ___________________ Shares Income Shares Income ________ _______ ________ ________ Primary: ________ Net income $ 342 $ 471 Dividend on Series B ESOP convertible preferred stock (after-tax) (30) (30) _______ _______ Adjusted net income 312 441 Weighted average number of shares outstanding 246.3 225.5 Common stock equivalents: Stock options and other dilutive effect 2.4 2.8 _____ _____ 248.7 $ 312 228.3 $ 441 ===== ====== ===== ====== Net income per common share $ 1.25 $ 1.93 ====== ====== Fully diluted: ______________ Net income $ 342 $ 471 Tax benefit differential on ESOP dividend assuming stock is fully converted (1) (2) Assumed additional contribution to ESOP if preferred stock is fully converted (1) (1) ______ _______ Adjusted net income 340 468 Weighted average number of shares outstanding (primary) 248.7 228.3 Maximum dilution 0.5 0.3 Convertible preferred stock 18.4 19.5 _____ ______ _____ ______ 267.6 340 248.1 $ 468 ===== ====== ===== ====== Net income per common share $ 1.25 $ 1.89 ====== ====== EX-12.A 6 COMP. RATIOS - AVAIL. INC. TO FI & PREF. STCK. DIV 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 ended ________________________________ Oct. 25 Oct. 26 ($ Millions) 1997 1996 _________ ____________ Income from continuing operations $ 665 $ 1,212 (before income taxes, before capitalized interest, but after preferred stock dividend) Fixed charges Interest (including capitalized interest) on: Operating leases 110 102 Short term debt 122 101 Long term debt 473 298 Capital leases 7 5 Credit facility 19 - Other, net (14) 4 ____________ ___________ Total fixed charges 717 510 Preferred stock dividend, before taxes 46 47 Combined fixed charges and preferred ____________ ___________ stock dividend requirement 763 557 Total available income $ 1,428 $ 1,769 ============ ============ Ratio of available income to combined fixed charges and preferred stock dividend requirement 1.9 3.2 ============ ============ The interest cost of the LESOP notes guaranteed by the Company is not included in fixed charges above. The Company believes that, due to the seasonal nature of its business, ratios for a period of time other than a 52 week period are inappropriate. EX-12.B 7 COMP. RATIO OF AVAIL. INCOME TO FIXED CHARGES Exhibit 12 (b) J. C. Penney Company, Inc. and Consolidated Subsidiaries Computation of Ratios of Available Income to Fixed Charges 52 weeks ended ________________________________ Oct. 25 Oct. 26 ($ Millions) 1997 1996 _________ ____________ Income from continuing operations $ 711 $ 1,259 (before income taxes and capitalized interest) Fixed charges Interest (including capitalized interest) on: Operating leases 110 102 Short term debt 122 101 Long term debt 473 298 Capital leases 7 5 Credit facility 19 - Other, net (14) 4 ___________ ___________ Total fixed charges 717 510 ____________ ___________ Total available income $ 1,428 $ 1,769 ========== ============ Ratio of available income to combined fixed charges and preferred stock dividend requirement 2.0 3.5 =========== =========== 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. EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENT OF INCOME OF J. C. PENNEY COMPANY, INC. AND SUBSIDIARIES AS OF OCTOBER 25, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS JAN-31-1998 OCT-25-1997 208 0 4,721 107 7,247 12,149 8,278 3,148 24,192 6,169 7,487 2,727 0 535 3,944 24,192 20,109 20,795 14,558 19,097 496 218 425 559 217 342 0 0 0 342 1.25 1.25
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