-----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, ADpUEfFq3wepLkn6bO55R8B0ZCzzOnQXOk4F91HdchlR3nRR79ZfLUbCGVlQuXFD /7V6Ao4koOFAgxmprJmQgQ== 0000930661-00-003162.txt : 20001213 0000930661-00-003162.hdr.sgml : 20001213 ACCESSION NUMBER: 0000930661-00-003162 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20001028 FILED AS OF DATE: 20001212 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: 787273 BUSINESS ADDRESS: STREET 1: 6501 LEGACY DR CITY: PLANO STATE: TX ZIP: 75024-3698 BUSINESS PHONE: 9724311000 10-Q 1 0001.txt FORM 10-Q 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 28, 2000 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. 262,347,498 shares of Common Stock of 50 cents par value, as of October 28, 2000. -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 29, 2000. Statements of Income (Amounts in millions except per share data)
13 weeks ended 39 weeks ended -------------------- --------------------- Oct. 28, Oct. 30, Oct. 28, Oct. 30, 2000 1999 2000 1999 -------- --------- --------- ---------- Retail sales $ 7,455 $ 7,552 $ 22,027 $ 21,844 Direct Marketing revenue 288 282 869 832 -------- -------- -------- -------- Total revenue 7,743 7,834 22,896 22,676 -------- -------- -------- -------- Costs and expenses Cost of goods sold, occupancy, buying, and warehousing costs 5,633 5,495 16,563 16,065 Selling, general, and administrative expenses 1,804 1,808 5,228 5,181 Costs and expenses of Direct Marketing operations 223 218 678 651 Corporate and other unallocated 3 (7) 19 (27) Net interest expense and credit operations /(1)/ 112 83 329 180 Acquisition amortization 19 18 79 80 Restructuring and other charges, net (3) -- 204 -- -------- -------- -------- -------- Total costs and expenses 7,791 7,615 23,100 22,130 -------- -------- -------- -------- Income/(loss) before income taxes (48) 219 (204) 546 Income tax/(benefit) (18) 77 (79) 198 -------- -------- -------- -------- Net income/(loss) $ (30) $ 142 $ (125) $ 348 ======== ======== ======== ======== Earnings/(loss) per common share: Net income/(loss) $ (30) $ 142 $ (125) $ 348 Less: preferred stock dividends (8) (9) (25) (27) -------- -------- -------- -------- Earnings/(loss) for basic EPS (38) 133 (150) 321 Dilutive convertible preferred stock -- 9 -- -- -------- -------- -------- -------- Earnings/(loss) for diluted EPS $ (38) $ 142 $ (150) $ 321 Shares Average shares outstanding (used for basic EPS) 262 260 262 259 Dilutive common stock equivalents -- 16 -- -- -------- -------- -------- -------- Average diluted shares outstanding 262 276 262 259 Earnings/(loss) per share Basic $ (0.15) $ 0.51 $ (0.57) $ 1.24 Diluted (0.15) 0.51 (0.57) 1.24
(1) Net interest expense and credit operations for the 39 weeks ended October 30, 1999 includes a $5 million pre-tax gain, or 1 cent per share after tax, on the early extinguishment of Eckerd Corporation's 9.25 percent Notes due 2004. -2- Balance Sheets (Amounts in millions)
Oct. 28, Oct. 30, Jan. 29, 2000 1999 2000 -------- -------- -------- ASSETS Current assets Cash and short-term investments of $177, $392, and $1,233 $ 183 $ 392 $ 1,233 Retained interest in JCP Master Credit Card Trust -- 461 -- Receivables, net 1,151 4,308 1,138 Merchandise inventories 6,842 6,999 5,947 Prepaid expenses 143 152 154 ------- ------- ------- Total current assets 8,319 12,312 8,472 Properties, net of accumulated depreciation of $3,211, $3,152, and $2,883 5,153 5,434 5,312 Investments, principally held by Direct Marketing 1,583 1,812 1,827 Deferred policy acquisition costs 992 904 929 Goodwill and other intangible assets net of accumulated amortization of $416, $305, and $340 2,967 3,181 3,056 Other assets 1,399 1,339 1,292 ------- ------- ------- $20,413 $24,982 $20,888 ======= ======= =======
-3- Balance Sheets (Amounts in millions)
Oct. 28, Oct. 30, Jan. 29, 2000 1999 2000 -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 3,840 $ 3,762 $ 3,351 Short-term debt 357 3,223 330 Current maturities of long-term debt 250 625 625 Deferred taxes 166 119 159 -------- -------- -------- Total current liabilities 4,613 7,729 4,465 Long-term debt 5,423 6,504 5,844 Deferred taxes 1,472 1,540 1,461 Insurance policy and claims reserves 1,063 992 1,017 Other liabilities 968 917 873 -------- -------- -------- Total liabilities 13,539 17,682 13,660 Stockholders' equity Capital stock Preferred stock, without par value: Authorized, 25 million shares - issued and outstanding, 0.7, 0.8, and 0.7 million shares of Series B ESOP convertible preferred 407 457 446 Common stock, par value 50 cents: Authorized, 1,250 million shares - issued and outstanding, 262, 260, and 261 million shares 3,288 3,236 3,266 -------- -------- -------- Total capital stock 3,695 3,693 3,712 -------- -------- -------- Reinvested earnings At beginning of year 3,590 3,791 3,791 Net income/(loss) (125) 348 336 Common stock dividends declared (184) (427) (500) Preferred stock dividends declared, net of tax (16) (18) (37) -------- -------- -------- Reinvested earnings at end of period 3,265 3,694 3,590 Accumulated other comprehensive income/(loss) (86) (87) (74) -------- -------- -------- Total stockholders' equity 6,874 7,300 7,228 -------- -------- -------- $ 20,413 $ 24,982 $ 20,888 ======== ======== ========
The accumulated balances for net unrealized changes in debt and equity securities were ($10), ($6), and ($11), and for currency translation adjustments were ($76), ($81), and ($63) as of the respective dates shown. Net unrealized changes in investment securities are shown net of deferred taxes of ($5), ($3), and ($5), respectively. A deferred tax asset has not been established for currency translation adjustments. Total comprehensive income/(loss) was ($39) and $98 for the 13 weeks ended October 28, 2000 and October 30, 1999, respectively and ($137) and $275 for the 39 weeks ended October 28, 2000 and October 30, 1999, respectively. -4- Statements of Cash Flows (Amounts in millions) 39 weeks ended ---------------------------- Oct. 28, Oct. 30, 2000 1999 --------- ---------- Operating activities Net income/(loss) $ (125) $ 348 Restructuring and other charges, net 204 -- Depreciation and amortization, including intangible assets 510 513 Deferred taxes 17 36 Change in cash from: Customer receivables -- 215 Other receivables (13) (301) Inventories, net of trade payables (28) (517) Current taxes payable (117) (51) Other assets and liabilities, net (289) 107 ------- ------- 159 350 ------- ------- Investing activities Capital expenditures/(1)/ (464) (472) Purchases of investment securities (441) (649) Proceeds from the sale of assets 30 22 Proceeds from sales of investment securities 693 681 ------- ------- (182) (418) ------- ------- Financing activities Change in short-term debt 27 1,243 Change in long-term debt (793) (451) Common stock issued, net (16) 13 Dividends paid, preferred and common (245) (441) ------- ------- (1,027) 364 ------- ------- Net increase/(decrease) in cash and short-term investments (1,050) 296 Cash and short-term investments at beginning of year 1,233 96 ------- ------- Cash and short-term investments at end of third quarter $ 183 $ 392 ======== ======= /(1)/ Includes capitalized software costs of $62 million and $43 million previously classified as Other Assets. Non-cash transactions: On March 1, 1999, the Company issued 9.6 million shares of common stock to complete the acquisition of Genovese Drug Stores, Inc. (Genovese). The total value of the transaction, including debt assumed and conversion of options for Genovese common stock to options for the Company's common stock, was $414 million. -5- Notes to Interim Financial Information 1) Restructuring and Other Charges, net During the third quarter of 2000, the Company recorded a pre-tax net credit of $3 million related to restructuring charges and previously established restructuring reserves. The $3 million was comprised of reductions to reserves for future lease obligations of units closed in the current ($3 million) and prior ($1 million) years, reductions to the severance reserve for closed units ($2 million), additional expense for asset write-offs related to closed units ($2 million), and the interest component of lease payments ($1 million) which are charged to expense with a corresponding increase in the reserve. The reserve reductions resulted from favorable actual experience. These adjustments had the effect of reducing first quarter 2000 reserves by $4 million and prior year reserves by $1 million. In the first quarter of 2000, the Company recorded pre- tax charges of $232 million associated with the closing of underperforming department stores ($115 million) and Eckerd drugstores ($106 million), and workforce adjustments ($11 million). Department stores and catalog - In the first quarter of 2000, the Company - ----------------------------- finalized a plan to close 45 underperforming stores. These stores generated sales of approximately $450 million and incurred operating losses of approximately $20 million in fiscal 1999. The charge was comprised of asset write-downs ($60 million), an accrual for the present value of future lease obligations ($45 million), and severance and outplacement ($10 million). Reserves for future lease obligations are calculated net of assumed sublease income. Store closing plans anticipated that approximately 1,800 store employees would be impacted by the store closings. During the third quarter, these reserves were reduced by $4 million as noted above, and are shown in the table in Note 2. Eckerd drugstores - In the first quarter of 2000, the Company finalized a plan - ----------------- to close 289 underperforming drugstores. The number of stores to be closed was lowered to 279 during the second quarter as a result of restrictive lease terms on certain stores. The stores identified for closing were generally smaller, low-volume stores that were former independent stores or parts of chains acquired over the last several years. These stores generated sales and operating losses of approximately $650 million and $30 million, respectively, in fiscal 1999. The first quarter charge of $106 million consisted of an accrual for the present value of future lease obligations ($90 million), severance and outplacement ($4 million), and other exit costs ($16 million), partially offset by a $4 million net gain on the disposal of fixed/intangible assets. An asset impairment charge of $110 million was recorded for these locations in the fourth quarter of 1999 in accordance with FAS No. 121. Store closing plans were expected to impact approximately 600 store employees. Through the end of the third quarter of 2000, these reserves had been reduced by $9 million, and are shown in the table in Note 2. In addition to the store closing costs recorded as restructuring and other charges, net, Eckerd's segment operating results include non-comparable costs of $73 million for the nine months ended October 28, 2000 for other exit related activities. These amounts consist of $61 million of non-comparable costs related to inventory liquidation losses and shrinkage and $12 million of non-comparable costs for incremental store operating costs incurred during the closing process. -6- Other workforce reductions - During the first quarter of 2000, the Company - -------------------------- finalized a plan to eliminate approximately 430 positions company-wide and recorded a charge of $11 million for severance and outplacement benefits. All affected employees were notified by the end of the first quarter. 2) Restructuring Reserves As described in Note 1, the Company has established reserves for the closing of underperforming department stores and drugstores, related exit costs, and workforce adjustment programs over the past few years. The majority of the remaining reserves represent the present value of future lease obligations for closed stores that will be paid out over time. The status of the reserves at the end of the third quarter are shown in the table below:
1999 1/st/ Qtr 3/rd/ Qtr 2000 YTD ---------------------------- Year End 2000 Cash Other Ending ($ in millions) Reserve Expense Outlays Changes Balance ---------------------------------------------------- PRIOR YEAR RESERVES - ------------------- Department stores and catalog - ----------------------------- Future lease obligations $ 8 $ -- $ (2) $ (1) $ 5 Eckerd drugstores - ----------------- Future lease obligations 78 -- (6) (3) 69 Allowance for notes receivable 25 -- -- (25) -- CURRENT YEAR RESERVES - --------------------- Department stores and catalog - ----------------------------- Future lease obligations -- 45 (5) (1) 39 Severance and outplacement -- 10 (7) (2) 1 Eckerd drugstores - ----------------- Future lease obligations -- 90 (14) (3) 73 Severance and outplacement -- 4 (3) (1) -- Other exit costs -- 16 (6) (5) 5 Workforce Reduction Program - --------------------------- Severance and outplacement -- 11 (11) -- -- ------ ------- ----- ------ -------- Total $ 111 $ 176 $ (54) $ (41) $ 192 ------- ------- ----- ------ --------
Department stores and catalog - During the first nine months of fiscal 2000, the - ----------------------------- Company closed 41 of the underperforming stores identified for closing. Approximately 1,875 store employees had been terminated as a result of the store closings as of October 28, 2000. The remaining stores are scheduled to close by the end of fiscal 2000. Through the end of the third quarter, the reserve for future department store lease obligations had been reduced by $6 million as a result of cash payments ($5 million) and reserve adjustments ($1 million), and the reserve for severance and outplacement benefits had been reduced by $9 million for actual benefits paid ($7 million) and reserve adjustments ($2 million). -7- Eckerd drugstores - During the first nine months of fiscal 2000, Eckerd had - ----------------- closed 274 of the underperforming drugstores identified for closing. As of October 28, 2000, approximately 600 employees had been terminated as a result of the store closings. The remaining stores are scheduled to close by the end of the first quarter of fiscal 2001. Through the end of the third quarter, drugstore reserves had been reduced by $29 million as a result of cash payments for lease obligations ($20 million), severance and outplacement benefits ($3 million), and other incremental exit costs ($6 million). Reserves have also been reduced by an additional $12 million ($6 million for lease obligations, $1 million for severance and outplacement, and $5 million for other exit costs) as a result of the assessment of actual versus expected experience and the elimination of certain stores from the closing list. Also during the second quarter, the Company sold a note receivable that was associated with the sale of certain divested drugstore locations. The sale of the note generated cash proceeds of $16 million; the note had a net book value of $3 million, resulting in a gain of $13 million. Other Workforce Reductions - Through the end of the third quarter, the Company - -------------------------- had terminated approximately 300 employees and paid $11 million in severance and outplacement benefits. 3) Earnings Per Share The Company had 679 and 762 thousand shares of preferred stock, which were convertible into 13.6 and 15.2 million common shares, that were issued and outstanding at October 28, 2000 and October 30, 1999, respectively. These potential common shares, and the related dividend, were excluded from the calculation of diluted earnings per share for the 13 and 39 weeks ended October 28, 2000 and the 39 weeks ended October 30, 1999 because their inclusion would have had an anti-dilutive effect on the calculation. In addition, 11 million and 5 million option shares were excluded from the computation of diluted earnings per share for the 13 and 39 weeks ended October 28, 2000 and October 30, 1999, respectively, because the exercise price was greater than the average market price. 4) Revenue Recognition Refer to Note 1 in the Company's Annual Report on Form 10-K for the 52 weeks ended January 29, 2000 for information related to changes made to the Company's accounting policies, and the related financial statement effects, in consideration of guidance provided by SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements". -8- 5) Segment Reporting The Company operates in three business segments: department stores and catalog, Eckerd drugstores, and Direct Marketing. The results of department stores and catalog are combined because they generally serve the same customer, have virtually the same mix of merchandise, and the majority of catalog sales are completed in department stores. Other items are shown in the table below for purposes of reconciling to total Company amounts. 3rd Quarter 3rd Quarter YTD --------------- ------------------- Operating Operating $ in millions Year Revenue Profit Revenue Profit - ------------------------------------------------------------------------------ Department Stores and Catalog 2000 $ 4,319 $ 81 $ 12,425 $ 322 1999 4,541 226 12,810 489 Eckerd Drugstores 2000 3,136 (63) 9,602 (86) 1999 3,011 23 9,034 109 Direct Marketing 2000 288 65 869 191 1999 282 64 832 181 Total segments 2000 7,743 83 22,896 427 1999 7,834 313 22,676 779 Net interest and credit operations 2000 -- (112) -- (329) 1999 -- (83) -- (180) Corporate and other unallocated, and acquisition amortization 2000 -- (22) -- (98) 1999 -- (11) -- (53) Restructuring and other charges, net 2000 -- 3 -- (204) 1999 -- -- -- -- Total Company 2000 7,743 (48) 22,896 (204) 1999 7,834 219 22,676 546 -9- ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Financial Condition - ------------------- Merchandise inventories on a FIFO basis totaled $7,150 million at the end of the third quarter compared with $7,262 million last year. Inventories for department stores and catalog totaled $4,667 million at October 28, 2000 as compared with $4,899 million at the end of last year's third quarter. On a comparable store basis, inventories declined by approximately 7% from last year levels. The overall decline in stores and catalog inventory levels is the result of continued emphasis on reducing the number of weeks of inventory on hand and improving inventory productivity coupled with store closings. Eckerd drugstore inventories totaled $2,483 million compared with $2,363 million last year. The current cost of inventories exceeded the LIFO basis amount carried on the balance sheet by approximately $308 million at October 28, 2000, $270 million at January 29, 2000, and $263 million at October 30, 1999. Properties, net of accumulated depreciation, totaled $5,153 million at October 28, 2000 compared with $5,434 million at the end of last year's third quarter. Balances reflect $60 million in asset impairment charges related to the closing of underperforming JCPenney stores, and $110 million to the closing of underperforming Eckerd drugstores, recorded in the first quarter of 2000 and the fourth quarter of 1999, respectively. Goodwill and other intangible assets, net, totaled $2,967 million this year compared with $3,181 million at the end of 1999's third quarter. At October 28, 2000 the consolidated balance sheet included reserves related to restructuring activities totaling $192 million, including $118 million related to current year activities. These reserves were established in connection with store closing programs and other restructuring activities recorded in the first quarter of 2000 as well as in 1997 and 1996. The reserves are related primarily to future lease obligations, severance and outplacement benefits, and other exit costs associated with store closings. Reserves were reduced by $95 million through the third quarter of 2000 as a result of lease and other payments ($54 million) and reserve adjustments ($41 million). See the discussion under the caption Restructuring and Other Charges, net, in Results of Operations and Note 1 to the interim financial statements for additional discussion about the charges recorded in 2000. As previously announced, the Company has initiated an evaluation of all areas of its operations and currently expects to record charges in the fourth quarter of 2000 related to items such as, but not limited to, the closing of underperforming JCPenney stores, asset impairments, and higher levels of markdowns resulting from the migration to a centralized environment associated with its merchandising process redesign. During the third quarter, the Company redeemed $300 million principal amount of 6.375 percent notes, due September 2000, at par. Through the end of the third quarter of 2000, the Company had retired $805 million of long-term debt. -10- Long-term debt is currently rated Baa3 by Moody's Investors Service and BBB- by Standard and Poor's Corporation as of the end of the third quarter, and the Company's commercial paper was rated P3 and A3 by the respective rating agencies. In the third quarter the Company reduced its quarterly dividend on common stock from 28.75 cents to 12.5 cents per share, and paid such quarterly dividend on November 1, 2000, to stockholders of record on October 10, 2000. Results of Operations - --------------------- Consolidated operating results ($ in millions)
13 weeks ended 39 weeks ended -------------------- ----------------------- Oct. 28, Oct. 30, Oct. 28, Oct. 30, 2000 1999 2000 1999 -------- -------- --------- ---------- Operating profit/(loss) by segment Department stores and catalog $ 81 $ 226 $ 322 $ 489 Eckerd drugstores (63) 23 (86) 109 Direct Marketing 65 64 191 181 -------- -------- --------- --------- Total segments 83 313 427 779 Corporate and other unallocated (3) 7 (19) 27 Net interest and credit operations (112) (83) (329) (180) Acquisition amortization (19) (18) (79) (80) Restructuring and other charges, net 3 -- (204) -- -------- -------- --------- --------- Income/(loss) before income taxes (48) 219 (204) 546 Income taxes 18 (77) 79 (198) -------- -------- --------- --------- Net income/(loss) $ (30) $ 142 $ (125) $ 348 ======== ======== ========= =========
Segment profit totaled $83 million in the third quarter compared with $313 million in last year's period. Current period results were principally impacted by the softness in department store and catalog sales, leading to a more promotional environment, and sales declines for drugstore general merchandise categories coupled with a higher proportion of lower-margin managed care pharmacy sales. The year over year change in corporate and other unallocated, which consists of real estate and investment gains and losses as well as other corporate items, is primarily related to charges in 2000 for the significant process and organizational changes under the ACT initiative. ACT, which represents a fundamental rebuilding of the department store and catalog merchandising process and organization, creating a centralized buying organization, will require process and organizational restructuring throughout the Company's corporate structure. The increase in net interest and credit operations this year is related to the sale of the Company's proprietary credit card portfolio in December 1999. Interest expense declined $55 million from last year; however, proprietary credit generated $84 million of income in last year's third quarter. The Company had a net loss for the quarter of $30 million, or $0.15 per share, in this year's third quarter compared with income of $142 million, or $0.51 per share, in last year's period. Before the effects of non-comparable ACT-related items, the Company had a loss per share of $0.12 for the third quarter. On a year to date basis, the Company had a net loss of $125 million, or $0.57 per share, compared with net income of $348 million, or $1.24 per share, last year. While it is too early to accurately predict results for the balance of the fiscal year, management believes that fourth quarter earnings per share may be adversely affected if the current slowdown in the department store sector continues and it leads to a more promotional holiday season. -11- Segment Operating Results Department Stores and Catalog - -----------------------------
13 weeks ended 39 weeks ended -------------------- --------------------- Oct. 28, Oct. 30, Oct. 28, Oct. 30, 2000 1999 2000 1999 -------- -------- --------- --------- ($ in millions) Retail sales, net $ 4,319 $ 4,541 $ 12,425 $ 12,810 Cost of goods sold (3,042) (3,065) (8,643) (8,783) SG&A expenses (1,196) (1,250) (3,460) (3,538) -------- -------- --------- --------- Operating profit /(1)/ $ 81 $ 226 $ 322 $ 489 Sales percent increase/(decrease): Total department stores (4.5) (2.7) (3.3) (1.3) Comparable stores (3.7) (3.0) (2.9) (0.9) Catalog (6.1) 0.1 (2.0) 3.1 Ratios as a percent of sales: Gross margin 29.6 32.5 30.4 31.4 SG&A expenses 27.7 27.5 27.8 27.6 Operating profit 1.9 5.0 2.6 3.8 EBITDA /(2)/ 3.8 8.9 4.8 8.4
(1) Operating profit represents pre-tax income before net interest expense, corporate and other unallocated, acquisition amortization, and restructuring and other charges, net. Operating profit in 1999 is shown before the effects of credit revenue net of related operating costs. (2) Earnings before interest, income taxes, depreciation and amortization. 1999's EBITDA includes credit revenue, net of related operating costs. 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 $81 million in the third quarter compared with $226 million last year. Sales in department stores declined by 3.7% for comparable stores, those stores open at least twelve months. Sales were strongest in women's apparel, but most other merchandise lines were soft. Despite disappointing sales, merchandise inventories were controlled, declining approximately 7% on a comparable store basis from last year. Catalog sales decreased by 6.1% in this year's third quarter. E-commerce sales, which are included as a component of catalog sales, grew substantially from last year's levels, totaling $73 million this year compared with $20 million last year. Gross margin for the segment totaled $1,277 million in the third quarter compared with $1,476 million last year. Margin in this year's quarter was negatively impacted by sales declines coupled with higher levels of clearance and promotional markdowns. As a percent of sales, margins declined by 290 basis points. SG&A expenses declined on a dollar basis for the quarter despite higher levels of spending on the expansion of the Company's e-commerce business. SG&A expenses were not leveraged as a percent of sales. Operating profit for the nine months ended October 28, 2000 was $322 million versus $489 million in last year's comparable period. Sales for comparable department stores declined by 2.9 percent and catalog sales declined by 2.0 percent compared with last year's levels. Gross margin for the nine months declined by 100 basis points as a percent of sales, primarily as a result of -12- higher levels of markdowns. SG&A expenses decreased from last year but were not leveraged as a percent of sales. Eckerd Drugstores - -----------------
13 weeks ended 39 weeks ended -------------------- --------------------- Oct. 28, Oct. 30, Oct. 28, Oct. 30, 2000 1999 2000 1999 -------- -------- --------- -------- ($ in millions) Retail sales, net $ 3,136 $ 3,011 $ 9,602 $ 9,034 Cost of goods sold (2,591) (2,430) (7,920) (7,282) SG&A expenses (608) (558) (1,768) (1,643) -------- -------- --------- -------- Operating profit/(loss) /(1)/ $ (63) $ 23 $ (86) $ 109 Sales percent increase: Total 4.2 20.9 6.3 20.4 Comparable stores 9.1 9.6 8.6 10.8 Ratios as a percent of sales: FIFO gross margin 17.8 19.7 17.9 19.8 LIFO gross margin 17.4 19.3 17.5 19.4 SG&A expenses 19.4 18.5 18.4 18.2 Operating profit/(loss) (2.0) 0.8 (0.9) 1.2 EBITDA /(2)/ (0.4) 2.4 0.7 2.7 Ratios as a percent of sales, before the effects of non-comparable items: /(3)/ FIFO gross margin 17.8 19.7 18.5 20.6 LIFO gross margin 17.4 19.3 18.2 20.2 SG&A expenses 19.4 18.5 18.3 17.7 Operating profit/(loss) (2.0) 0.8 (0.1) 2.5 EBITDA /(2)/ (0.4) 2.4 1.5 4.1
(1) Operating profit/(loss) represents pre-tax income/(loss) before net interest expense, corporate and other unallocated, acquisition amortization, and restructuring and other charges, net. (2) 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. (3) Non-comparable items consist pricipally of 2000 store closing activities and 1999 inventory adjustments. Eckerd had an operating loss of $63 million in the third quarter compared with operating profit of $23 million in last year's period. Sales for the quarter increased by 9.1 percent for comparable stores. The increase was comprised of a 14.8 percent increase in pharmacy sales and a 1.0 percent decline in general merchandise sales. Gross margin declined by 190 basis points as a percent of sales. The decline was principally related to a reduced level of higher-margin general merchandise sales, coupled with a higher proportion of lower-margin managed care pharmacy sales. Managed care pharmacy sales now account for approximately 89 percent of total pharmacy sales, an increase of approximately 200 basis points from last year's period. Gross margin includes LIFO charges of $13 million and $12 million for the third quarter of 2000 and 1999, respectively. SG&A expenses increased by 90 basis points as a percent of sales and were negatively impacted by the effects of new and relocated stores. These free-standing locations generate higher sales volumes but carry higher expense ratios until they mature. -13- Eckerd had an operating loss of $86 million for the nine months ended October 28, 2000 versus an operating profit of $109 million in last year's comparable period. Sales increased by 8.6 percent on a comparable store basis, led by a 13.8 percent increase in comparable store pharmacy sales. Gross margin on a comparable basis, before the effects of 2000 store closing activities and 1999 inventory adjustments, declined by 200 basis points as a percent of sales. The decline was primarily related to a higher proportion of managed care pharmacy sales and higher shrinkage run rates in this year's period. SG&A expenses increased by 60 basis points as a percent of sales. Eckerd recorded LIFO charges of $38 million this year compared with $36 million last year. Direct Marketing - ----------------
13 weeks ended 39 weeks ended -------------------- -------------------- Oct. 28, Oct. 30, Oct. 28, Oct. 30, 2000 1999 2000 1999 -------- -------- --------- -------- ($ in millions) Revenue $ 288 $ 282 $ 869 $ 832 Costs and expenses /(1)/ (223) (218) (678) (651) -------- -------- -------- -------- Operating profit /(2)/ $ 65 $ 64 $ 191 $ 181 Revenue, percent increase 2.1 11.9 4.4 11.1 Operating profit as a percent of revenue 22.6 22.7 22.0 21.8
(1) Includes amortization of deferred acquisition costs of $68 million and $58 million for the third quarter and $189 million and $165 million for the first nine months of 2000 and 1999, respectively. (2) Operating profit represents pre-tax income before net interest expense, corporate and other unallocated, acquisition amortization, and restructuring and other charges, net. Operating profit totaled $65 million for the quarter and $191 million year to date, increases of 1.6 percent and 5.5 percent from last year's comparable periods. Revenue totaled $288 million in the third quarter, an increase of 2.1 percent compared with a year ago, with the increase principally related to health insurance premiums, which account for approximately 74 percent of total insurance premiums and 61 percent of total revenues. For the first nine months, revenue totaled $869 million, an increase of 4.4 percent versus last year. Corporate and Other Unallocated - ------------------------------- Corporate and other unallocated consists of real estate activities, investment transactions, and other items that are related to corporate initiatives or activities which are not allocated to an operating segment. Third quarter 2000 results include $15 million in pre-tax incremental expenses related to the Company's ACT initiative. -14- Net Interest Expense and Credit Operations - ------------------------------------------
13 weeks ended 39 weeks ended -------------------- --------------------- Oct. 28, Oct. 30, Oct. 28, Oct. 30, 2000 1999 2000 1999 -------- -------- -------- --------- ($ in millions) Credit revenue, net of operating expenses $ -- $ 84 $ -- $ 294 Interest expense, net (112) (167) (329) (474) -------- -------- -------- --------- Total $ (112) $ (83) $ (329) $ (180)
As a result of the sale of its proprietary credit card portfolio to General Electric Capital Corporation in December 1999, the Company no longer generates revenues and expenses for its proprietary credit operation. Accordingly, this category represents interest expense in the current and all future periods. Interest charges for the third quarter and for the year have decreased substantially, declining by $55 million for the quarter and $145 million for the year, as a result of the decline in outstanding debt balances. The proceeds from the sale of credit card receivables were used to repay short- and long-term debt. Restructuring and Other Charges, net - ------------------------------------ During the third quarter of 2000, the Company recorded a pre-tax net credit of $3 million related to restructuring charges and previously established restructuring reserves. Income Taxes - ------------ The Company's effective income tax rate, excluding the effects of non-comparable items, was 32.7 percent through the third quarter compared with 36.8 percent last year. New Accounting Rules - -------------------- The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards (FAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". As amended by FAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133", and FAS No. 138, "Accounting for Certain Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133", FAS No. 133 is effective for all fiscal quarters for fiscal years beginning after June 15, 2000. The Company has reviewed areas impacted by these rules, principally long-term debt, purchase commitments, and real estate leases, and has determined that current instruments do not contain terms or conditions that would be of a derivative nature. Accordingly, the Company does not expect the adoption of these new rules to have a material impact on results of operations or financial condition. The FASB also issued FAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", which is effective for years beginning after December 15, 2000. The Company has not completed its review of these new rules but does not believe that it is a party to any -15- transactions that would be impacted by these rules. The Company does, however, evaluate various financing alternatives and may be impacted in the future. In addition, the Emerging Issues Task Force has reached a consensus on Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs", which is effective for the Company's fourth quarter of 2000. The Company has not completed assessing the impact of these new rules, which relate primarily to its Catalog operations. These new rules will not change net income, but will impact classification of revenues and expenses associated with shipping and handling activities. Prior period amounts will be reclassified to conform with the presentation adopted in the fourth quarter. Seasonality - ----------- The Company's business depends to a great extent on the last quarter of the year. Historically, sales for that period have averaged approximately one-third of annual sales. Accordingly, the results of operations for the 13 and 39 weeks ended October 28, 2000 are not necessarily indicative of the results for the entire year. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has not entered into any transactions using financial derivative instruments and believes that its exposure to market risk associated with other financial instruments, such as investments and borrowings, and interest rate fluctuations is not material. This release 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. Investors should take such risks into account when making investment decisions. -16- PART II - OTHER INFORMATION Item 1 - Legal Proceedings. The Company has no material legal proceedings pending against it. Item 2 - Changes in Securities and Use of Proceeds. (c) On September 13, 2000 the Company sold 39,618 shares of Common Stock, 50 cents par value, to Allen I. Questrom for an aggregate purchase price of $589,317.75. The issuance of such shares was exempt from registration under the Securities Act of 1933, as amended ("the Securities Act"), pursuant to Rule 506 of Regulation D of the Securities Act as an offering to a limited number of individuals. 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. 2000 New Associate Equity Plan. 10(b) Employment Agreement dated as of September 25, 2000. 10(c) Agreement dated as of September 30, 2000. 12(a) Computation of ratios of available income to combined fixed charges and preferred stock dividend requirement. 12(b) Computation of ratios of available income to fixed charges. 27(a) Financial Data Schedule for the nine months ended October 28, 2000. 27(b) Restated Financial Data Schedule for the nine months ended October 30, 1999. (b) Reports on Form 8-K ------------------- The Company filed the following report on Form 8-K during the period covered by this report: Current Report on Form 8-K dated July 21, 2000 (Item 5 - Other Events). -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: December 11, 2000 EX-10.A 2 0002.txt 2000 NEW ASSOCIATE EQUITY PLAN Exhibit 10(a) J. C. PENNEY COMPANY, INC. 2000 NEW ASSOCIATE EQUITY PLAN ------------------------------ 1. Purposes of Plan. The general purposes of this 2000 New Associate ---------------- Equity Plan ("Plan") are to issue equity compensation to persons not previously employed by J. C. Penney Company, Inc. ("Company") as a material inducement to such persons entering into an employment contract with the Company, and to motivate such persons thereafter in connection with their efforts on the Company's behalf to sustain its progress, growth, and profitability. 2. Shares Subject to Plan. The maximum number of shares of the Company's ---------------------- Common Stock, par value $.50 per share ("Common Stock") upon which options to purchase shares of Common Stock ("Stock Options") or awards of Common Stock or share units ("Stock Awards") (together, "Awards") may be issued under the Plan is 5,500,000. In no event may more than 50% of the shares reserved for issuance under the Plan be issued as Stock Awards over the term of the Plan. Common Stock issuable under the Plan may be, in whole or in part, as determined by the Company's Board of Directors ("Board of Directors" or "Board"), authorized but unissued shares, reacquired or treasury shares, or shares available from prior plans. Upon the settlement of an option exercise under the Plan using the "stock-swap" or similar payment method, the number of shares of Common Stock tendered as a result of the exercise will again be available for use under the Plan. If any Stock Option granted under the Plan expires or terminates for any reason without having been exercised in full, or if any Stock Award is not earned in full, the unpurchased or unearned shares will also again be available for use under the Plan. "Common Stock" includes any security issued in substitution, exchange, or in lieu thereof. Any Awards under the Plan may be granted independent of, or in tandem with, each other or with other awards granted outside of the Plan. 3. Eligibility and Bases of Participation. Awards under the Plan may be -------------------------------------- made to a person or persons ("Participant" or "Participants") not previously employed by the Company, as a material inducement to such person's entering into an employment contract with the Company. 4. Administration of Plan. The Plan will be administered by, or under ---------------------- the direction of, a committee ("Committee") of the Board of Directors constituted in such a manner as to comply at all times with Rule 16b-3 or any successor rule ("Rule 16b-3") promulgated by the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as in effect from time to time ("Exchange Act"). The Committee shall administer the Plan so as to comply at all times with the Exchange Act and the Internal Revenue Code of 1986, and any regulations promulgated thereunder, or any similar successor statute or regulation, as in effect from time to time ("Code"), and shall otherwise have plenary authority to interpret the Plan and to make all determinations specified in or permitted by the Plan or deemed necessary or desirable for its administration or for the conduct of the Committee's business. All 2 interpretations and determinations of the Committee may be made on an individual or group basis, and shall be final, conclusive, and binding on all interested parties. The Committee may delegate, to the fullest extent permitted by law, its responsibilities under the Plan, other than the making of grants and awards under the Plan, to persons other than its members, subject to such terms and conditions as it may determine. Notwithstanding the foregoing, however, no stock appreciation or tax benefit rights may be granted under the Plan. Transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3. To the extent any provision of the Plan or any action by the Committee or its delegatee fails to so comply, such provision or action will, without further action by any person, be deemed to be automatically amended to the extent necessary to effect compliance with Rule 16b-3, provided that if such provision or action cannot be amended to effect such compliance, such provision or action will be deemed null and void, to the extent permitted by law and deemed advisable by the relevant authority. Each Award to a Participant under this Plan will be deemed issued subject to the foregoing qualification. 5. Stock Option Grants. The Committee may grant Stock Options (including ------------------- any associated dividend equivalent rights) to Participants on such terms and conditions as the Committee may determine. These Stock Options will be non- qualified stock options within the meaning of the Code. The date of grant of each Stock Option will be the date specified by the Committee; provided, however, that such date of grant may not be prior to the date of such action by the Committee. The option price per share of Common 3 Stock purchasable under a Stock Option will be determined by the Committee at the time of grant, and shall be 100% of the fair market value of the shares of Common Stock covered by the grant on such date, or such other price per share as the Committee, at the time of grant, determines to be reasonable and appropriate. The option price (and, as provided in Section 13 of the Plan, any applicable taxes thereon) of the shares as to which a Stock Option is exercised will be paid in such manner as the Committee may determine in accordance with the Plan's purposes, including: (i) in cash; (ii) in shares of Common Stock; (iii) in services rendered; or (iv) in any combination of (i), (ii), and (iii) above. Each Stock Option will have such terms and conditions for its exercise, including the manner and effective date of such exercise, as the Committee may determine, except as otherwise specifically provided herein. Fair market value of the Common Stock on any date will be the mean of the high and low sales prices on such date as reported in the composite transaction table covering transactions of New York Stock Exchange listed securities, or if such Exchange is closed, or if the Common Stock does not trade on such date, by averaging the mean of the high and low sales prices on the trading dates immediately before and immediately after such date, or such other amount as the Committee may ascertain reasonably to represent such fair market value. The value of the services rendered as payment for all or a portion of the option price of a Stock Option being exercised will be the amount determined by the Board of Directors or the Committee. 4 6. Exercise of Stock Options. Each Stock Option will become exercisable ------------------------- upon such date as the Committee may determine, or as provided in Sections 8 and 9 of the Plan, and may be exercised thereafter at any time during its term, as to any or all full shares which have become purchasable under the provisions of the Stock Option. The term of each Stock Option may not exceed ten years, measured from the date of its grant. Except as provided in Section 9 or 12 of the Plan, a Stock Option may be exercised only by the Participant, and only if the Participant is then an associate of the Company, a subsidiary, or affiliate. 7. Stock Awards. The Committee may grant a Stock Award (including any ------------ associated dividend equivalent rights or share units equal in value to such Stock Award) to Participants on such terms and conditions as the Committee may determine. The Committee may determine the types of Stock Awards made, the number of shares, share units, or dividend equivalent rights covered by such awards, and any other terms and conditions relating to the Stock Awards as it deems appropriate, including any vesting conditions necessary to comply with the laws of the State of Delaware. 8. Change of Control. Upon a Change of Control, each Participant will ----------------- have the right to exercise any or all Stock Options held by the Participant, and all Stock Awards will immediately vest and be deemed to be earned, on such terms and conditions as may be determined by the Committee at the time of grant or award. For these purposes, a "Change of Control" will be deemed to have occurred if (i) at any time during any 24-month period, at least a majority of the Board of Directors will not 5 consist of "Continuing Directors" (meaning directors of the Company at the beginning of such 24-month period and directors who subsequently became such, and whose election, or nomination for election, by the Company's stockholders, was approved by a majority of the then Continuing Directors); or (ii) at any time during any 12-month period, the Company directors in office at the beginning of such period cease to constitute at least a majority of the Board of Directors (disregarding any vacancy occurring during such period by reason of death or disability, but deeming any individual whose election, or nomination for election, by the Company's stockholders, to fill such vacancy was approved by a majority of the directors in office immediately prior to such vacancy, to have been in office at the beginning of such 12-month period); or (iii) any person or "group" (as determined for purposes of SEC Regulation 13D-G or successor regulation), except any majority-owned subsidiary or any Company employee benefit plan or any trust or investment manager thereunder, will have acquired "beneficial ownership" (as determined for purposes of SEC Regulation 13D-G or successor regulation) of shares of Company Common Stock having 20% or more of the voting power of all outstanding shares of Company capital stock, unless such acquisition is approved in advance by a majority of the Board of Directors in office immediately preceding such acquisition; or (iv) a merger or consolidation occurs to which the Company is a party, whether or not the Company is the surviving corporation, in which outstanding shares of Company Common Stock are converted into shares of stock or 6 securities of another company, partnership, or other entity (other than a conversion into shares of voting common stock of the successor corporation or a holding company or entity thereof) or other securities (of either the Company or another company) or cash or other property (excluding payments made solely for fractional shares); or (v) the sale of all, or substantially all, of the Company's assets occurs. 9. Changes in Employment Status, Death. In the event of a Participant's ----------------------------------- termination of employment, transfer or change of duties or position, absence, layoff, incapacity, or death (regardless of whether the deceased was employed at death), the Committee may determine the terms and conditions applicable to any Stock Option or Stock Award previously granted to the Participant and not then exercised or earned in full, as the case may be, including, without limitation, (i) the duration of any exercise period following such event (which may not exceed the original exercise period for the Stock Option), (ii) any necessary or appropriate authorization to the Participant's legatee, distributee, guardian, legal representative, or other third party, as the Committee may determine, or (iii) the circumstances under which all or part of such Stock Options may be terminated and any unearned Stock Awards forfeited. All determinations by the Committee with respect to the foregoing shall be final, conclusive, and binding on all interested parties. 10. Right to Continued Employment. Nothing in the Plan shall confer on a ----------------------------- Participant any right to continue in the employ of the Company or any of its subsidiaries or affiliates or affect 7 in any way the right of the Company or any of its subsidiaries or affiliates to terminate such Participant's employment without prior notice at any time for any reason or for no reason. 11. Deferred Payments. The Committee may permit a Participant to elect to ----------------- defer receipt of all or part of any cash or stock payment under the Plan, or the Committee may determine to defer receipt, by all or some Participants, of all or part of any such payment. Any deferral will be for such period and in accordance with such terms and conditions as the Committee may determine. 12. Transferability. No unearned Stock Award or any portion thereof or --------------- Stock Option granted under the Plan may be assigned or transferred other than by will or the laws of descent and distribution or by such other means as the Committee, in its discretion, may approve from time to time and any attempt to do so will be void. No Stock Option will be exercisable during the Participant's lifetime except by the Participant or the Participant's guardian or legal representative, or other third party, as the Committee may determine. 13. Taxes. The Company has the right to deduct from any cash payment made ----- under the Plan, or otherwise, to any Participant, including a Participant subject to Section 16 of the Exchange Act, any federal, state, or local taxes of any kind required by law to be withheld by it ("Withholding Obligation") with respect to such payment. The Company's obligation to deliver shares of Common Stock pursuant to any Stock Award or Stock Option exercise under the Plan is conditioned on the payment by the Participant to the 8 Company of any Withholding Obligation arising therefrom. The Company may withhold, in satisfaction of all or a portion of such Withholding Obligation referred to in the preceding sentence, that number of shares of Common Stock having an aggregate fair market value sufficient to satisfy the amount of such obligation. The Committee may also permit any Participant, in accordance with any applicable rules established by the Committee, to elect to satisfy all or a portion of any tax liability (including the Withholding Obligation) incurred by such Participant as a result of the Stock Award or Stock Option exercise ("Total Tax Obligation"), by having the Company withhold, or by the Participant making payment to the Company in, shares of Common Stock having an aggregate fair market value sufficient to satisfy the Total Tax Obligation. The Company will refund to the Participant any amount in excess of the Withholding Obligation or Total Tax Obligation, as the case may be. 14. Changes in Capitalization and Similar Changes. In the event of any --------------------------------------------- change in the number of shares of Common Stock outstanding, or the assumption and conversion of outstanding Stock Options or Stock Awards, by reason of a stock dividend, stock split, acquisition, recapitalization, reclassification, merger, consolidation, combination or exchange of shares, spin-off, or distribution to holders of Common Stock (other than normal cash dividends), the Committee shall adjust to the extent appropriate (i) the option price under each unexercised Stock Option and (ii) the number and class of shares which may be issued on exercise of 9 Stock Options granted and for Stock Awards earned, and may make any other related adjustments deemed appropriate and equitable by the Committee. Any adjustment of the number and class of shares which may be issued on exercise of Stock Options granted and for Stock Awards earned must also be approved by the Board of Directors. 15. Stockholder Rights. A Participant (including for purposes of this ------------------ Section, a Participant's legatee, distributee, guardian, legal representative, or other third party, as the Committee may determine) will have no stockholder rights with respect to any shares subject to a Stock Option or a Stock Award until such shares are issued to such Participant. Shares will be deemed issued on the date on which they are registered in the Participant's (as this term is defined in the preceding sentence) name on the Company stock records. 16. Effective Date. The Plan will become effective on September 12, 2000. -------------- 17. Termination and Amendment. No Award may be made under the Plan after ------------------------- September 11, 2003, unless, prior to such Effective Date, the Board shall determine to extend the duration of the Plan for an additional term, the length of such term to be determined and approved by the Board at the time the Board extends the duration of the Plan. The Board of Directors may terminate the Plan or make such amendments as it deems advisable, including, but not limited to, any amendments to conform to or reflect any change in any law, regulation, or ruling applicable to an Award, or the Plan including, without limitation, any change in any applicable tax law, regulation, or ruling. Except as otherwise provided in or 10 permitted by the Plan or by the terms, if any, of an Award under the Plan, no termination or amendment of the Plan or change in the terms of an outstanding Award may adversely affect the rights of the holder of any Award without the consent of the holder. 18. Severability of Provisions. If any provision of this Plan becomes or -------------------------- is deemed invalid, illegal, or unenforceable in any jurisdiction, or if any such provision would, in the sole determination of the Committee, disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision will be construed or deemed amended to conform to applicable law or if, in the sole determination of the Committee, such provision cannot be so construed or so deemed amended without materially altering the intent of the Plan, such provision will be stricken and the remainder of the Plan will remain in full force and effect. 11 EX-10.B 3 0003.txt EMPLOYMENT AGREEMENT Exhibit 10(b) EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (the "Agreement"), made in the City of Plano and the State of Texas, dated as of September 25, 2000, between J. C. Penney ------------ Company Inc., a Delaware corporation (hereinafter called the "Employer"), and J. Wayne Harris (hereinafter called the "Employee"). 1. Employment, Position and Duties. ------------------------------- 1.1 The Employer agrees to employ Employee and the Employee hereby agrees to undertake employment upon the terms and conditions herein set forth. 1.2 During the Term (as hereafter defined), the Employee will serve as Chairman and Chief Executive Officer of Eckerd Corporation, or such other position as may be assigned by the Employer's Chairman and Chief Executive Officer, and shall perform such duties consistent with such position as are determined and directed by the Employer's Chairman and Chief Executive Officer. The Employee shall devote his full working time, attention and ability to the business of the Employer, including, if applicable, its subsidiaries and/or affiliates to which the Employee may have been assigned responsibilities; provided, however, that it shall not be a violation of this Agreement for the Employee to (i) devote reasonable periods of time to charitable and community activities and, with the approval of the Employer, industry or professional activities, and (ii) manage personal business interests and investments, so long as such activities do not materially interfere with the performance of the Employee's responsibilities under this Agreement. 1.3 Unless otherwise agreed by the Employee and the Employer, throughout the term of this Agreement, the Employee's principal offices shall be located in Largo, Florida. 2. Term of Employment. Employee's term of employment under this Agreement ------------------ ("Term") will commence on October 1, 2000 (the "Start Date") and, subject to the provisions of this Agreement, will terminate on the earlier of (i) the fourth anniversary of the Start Date or (ii) termination of Employee's employment pursuant to Section 7 of this Agreement (the "Termination Date"). Notwithstanding the Termination Date provided in the previous sentence, the term of this Agreement may be extended by mutual agreement of the parties. 3. Compensation. 3.1 Salary. In consideration of his services during the Term, the Employer shall pay the Employee cash compensation at an annual rate of $700,000 ("Base Salary") (less applicable withholding for federal taxes) in accordance with the Employer's usual payroll policies. Employee's Base Salary shall be subject to such adjustments as may be approved by the appropriate committee of the Employer's Board of Directors or its delegate (the "Committee"). 3.2 Annual Incentive Compensation. Employee shall be eligible to participate in an annual incentive plan (the "Bonus Plan"), as set out in ANNEX I hereto. 3.3 Grand Total Earnings. The Employee's "Grand Total Earnings" shall mean an amount equal to his Base Salary plus target annual incentive under the Bonus Plan at $1.00 per unit. 3.4 Supplemental Cash Payment. Employee shall be entitled to receive a supplemental cash payment of $600,000. This supplemental cash payment shall be payable in four installments as specified below, provided that Employee remains employed on each date of payment subject to Section 7. The supplemental cash payment shall be payable as follows: $150,000 on the Start Date, and $150,000 on the first, second, and third anniversaries of the Start Date. 4. Expenses. During the Term the Employee shall be allowed reimbursement of -------- reasonable expenses necessary for the performance of his duties in accordance with the policies of the Employer. 5. Stock Options. ------------- 5.1 The Employer will grant to Employee, on the Start Date, an option to purchase 75,000 shares of Employer's Common Stock ("Common Stock") of 50 cents par value. The option will have a ten-year term and an exercise price equal to the fair market value on the Start Date as defined in the Employer's 1997 Equity Compensation Plan or other equity compensation plan of the Employer then in force or effect (mean of the high and low sales prices on Start Date). The option will become exercisable and otherwise be on such terms as are set forth in Exhibit A attached hereto. 5.2 The grants of Options will be made pursuant to and subject to the terms, conditions, and restrictions in the Employer's 1997 Equity Compensation Plan or other equity compensation plan of the Employer then in force or effect. 6. Employee Benefits. ----------------- 6.1 During the Term, Employee shall be entitled to the benefits generally provided or made available to employees of the Employer, including group medical insurance benefits (subject in each case, however, to (i) eligibility and (ii) modification or elimination in accordance with the Employer's standard policies as in effect from 2 time to time). The Employee is entitled to five weeks of vacation each calendar year. 6.2 For the period from the Start Date until the Employee becomes eligible for the Employer's Medical Plan, the Employer will reimburse the Employee for the full cost of the COBRA premium charged by his former employer. 6.3 The Employer will grant to Employee 10 years of service under the Employer's 1999 Separation Allowance Program for Profit-Sharing Management Associates. 6.4 The Employer will grant to the Employee 10 years of credited service under the Employer's Defined Benefit Pension Plan. 6.5 The Employer will provide a car allowance to the Employee consistent with the policy for Eckerd executives. 7. Termination of Employment. ------------------------- The termination of the Employee's employment will be governed by the following provisions: 7.1 Death. In the event of the Employee's death during the Term, the Employer will pay to the Employee's beneficiaries or estate, as appropriate, as soon as practicable after the Employee's death, (i) unpaid Base Salary to which the Employee is entitled and any unpaid vacation, (the "Compensation Payments"), (ii) the target bonus (at $1.00 per unit) for the Bonus Plan for the fiscal year, prorated for the actual period of service for that fiscal year, (the "Prorated Bonus"), (iii) any other death benefits payable under any employee benefit or compensation plan that is maintained by the Employer for the Employee's benefit, and (iv) any unpaid portion of the Supplemental Cash Payment. 7.2 Permanent Disability. If the Employee becomes totally and permanently disabled (as defined in the Employer's Long-Term Disability Plan) during the Term, the Employer or Employee may terminate the Employee's employment on written notice thereof in accordance with Section 12.5, and the Employer will provide to the Employee as soon as practicable: (i) amounts payable pursuant to the terms of any applicable disability plan or program, (ii) the Prorated Bonus, (iii) the Compensation Payments, (iv) such payments under applicable plans and programs, to which the Employee is entitled pursuant to the terms of such plans or programs, and (v) any unpaid portion of the Supplemental Cash Payment. 7.3 Voluntary Termination by Employee; Discharge for Cause. (i) In the event that during the Term the Employee's employment is terminated by the Employer for Cause (as defined below) or by the Employee unless for Good Reason (as defined in Section 7.4) or unless as a result of the Employee's death or disability, the Company will pay the 3 Compensation Payments as soon as practicable to the Employee and the Employee will be entitled to no other compensation, except as otherwise due him under applicable law or the terms of any applicable plan or program. Employee will not be entitled to the payment of any bonus in respect of all or any portion of the fiscal year in which such termination occurs. (ii) For purposes of this Agreement, the Employer will have "Cause" to terminate the Employee's employment upon a finding that (a) the Employee has been convicted by a court of competent jurisdiction of the commission of a felony, (b) the Employee has committed a serious breach of the Employer's Statement of Business Ethics, (c) the Employee materially breached any of the express covenants set forth in Section 9.1 or 9.3, or (d) the Employee has materially breached his duties and obligations under this Agreement; provided, however, that termination for Cause based on this subparagraph (d) shall not be effective unless the Employee shall have received written notice from the Chairman and Chief Executive Officer or such officer(s) or successor in title or responsibility (which notice shall include a description of the reasons and circumstances giving rise to such notice) fifteen (15) days prior to his termination and the Employee has failed after receipt of such notice to satisfactorily discharge his duties. 7.4 Involuntary Termination (i) In any case of involuntary termination under this section, Employee will be entitled to payment as described in Section 7.5. (ii) During the Term, the Employee's employment may be terminated by the Employer for any reason other than for Cause by delivery to the Employee of a notice of termination in accordance with Section 11.5. The Employee will be treated for the purposes of this Agreement as having been involuntarily terminated other than for Cause if, during the Term the Employee terminates his employment with the Employer prior to termination for Cause for any of the following reasons (each, a "Good Reason"): without the Employee's written consent, (a) the Employer has breached any material provision of this Agreement and within 30 days after notice thereof from the Employee, the Employer fails to cure such breach; or (b) a successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer fails to assume liability under the Agreement. 7.5 Termination Payments and Benefits (i) Form and Amount. Upon the Employee's involuntary termination other than for Cause, the Employer will pay the Compensation Payments to the 4 Employee, and will provide such payments under applicable plans or programs to which the Employee is entitled pursuant to the terms of such plans and programs. In addition, conditioned upon receipt of Employee's written release of claims in such form as may be required by the Employer, the Employer will pay or provide to the Employee as soon as practicable (a) the Prorated Bonus, (b) a payment equal to two times Grand Total Earnings, (c) outplacement services by a firm selected by the Employee at the expense of the Employer, in an amount up to $30,000 and (d) for 24 months (the "Continuation Period") the continuation of group medical insurance benefits except as offset by benefits paid or provided by other sources as set forth in Section 8, or as prohibited by law. For purposes of determining the period of continuation coverage to which the Employee or any of his dependents is entitled under section 4980B of the Internal Revenue Code of 1986, as amended, (or any successor provision thereto), the Employee will be deemed to have remained employed until the end of the Continuation Period. (ii) Maintenance of Benefits. During the Continuation Period, the Employer will use its best efforts to maintain its group medical insurance benefits in full force and effect for the continued benefit of the Employee or will arrange to make available to the Employee group medical benefits substantially similar to those that the Employee would otherwise have been entitled to receive if his employment had not been terminated. Such benefits will be provided on the same terms and conditions (including employee contributions toward the premium payments) under which the Employee was entitled to participate immediately prior to his termination. (iii) Forfeiture. Notwithstanding the foregoing provisions of Section 7.5, any right of the Employee to receive termination payments and benefits under Section 7.5 will be forfeited to the extent of any amounts payable or benefits to be provided after a material breach of any covenant set forth in Section 9.1, 9.2, or 9.3. 7.6 Nonduplication of Benefits. To the extent, and only to the extent, a payment or benefit that is paid or provided under this Section 7 would also be paid or provided under the terms of any applicable plan, program, or arrangement, including, without limitation, any severance program, such applicable plan, program, agreement or arrangement will be deemed to have been satisfied by the payment made or benefit provided under this Agreement. 7.7 Employer's Right of Offset. Should Employee at any time be indebted to the Employer, or otherwise obligated to pay money to the Employer for any reason, the Employer, at its election, may offset amounts otherwise payable to Employee under this Agreement, including, but without limitation, salary payments, against any such indebtedness or amounts due from Employee to the Employer. 5 8. Mitigation. The Employee is under no obligation to mitigate damages or the ---------- amount of any payment or benefit provided for hereunder by seeking other employment or otherwise. No amounts earned by the Employee after his termination date, whether from self-employment, as a common law employee, or otherwise, will reduce the amount of any payment or benefit under any provision of this Agreement; provided however, the Employee's coverage under the Employer's group medical insurance as provided in Section 7.5(i) will terminate as soon as the Employee becomes covered under any group medical plan made available by another employer. The Employee will report to the Employer any such coverage actually received by him. 9. Covenants and Representations of Employee. 9.1 Confidentiality. During the Term, the Employer agrees that it will disclose to Employee its confidential or proprietary information to the extent necessary for Employee to carry out his obligations under this Agreement. The Employee hereby covenants and agrees that he will not, without the prior written consent of the Employer, during the Term or thereafter disclose to any person not employed by the Employer, or use in connection with engaging in competition with the Employer, any confidential or proprietary information of the Employer. 9.2 Nonsolicitation. The Employee hereby covenants and agrees that during the Term and for two years thereafter, he will not, without the prior written consent of the Employer, on his own behalf or on the behalf of any person, firm or company, directly or indirectly, attempt to influence, persuade or induce, or assist any other person in so persuading or inducing, any employee of Employer or its affiliates to give up, or to not commence, employment or a business relationship with the Employer. 9.3 Noncompetition. It is recognized by the Employee and Employer that the Employee's duties hereunder will entail the receipt of trade secrets and confidential information, which include not only information concerning the Employer's current operations, procedures, suppliers, and other contacts, but also its short-range and long-range plans, and that such trade secrets and confidential information have been developed by the Employer and its affiliates at substantial cost and constitute valuable and unique property of the Employer. Accordingly, the Employee acknowledges that the foregoing makes it reasonably necessary for the protection of the Employer's business interests that the Employee not compete with the Employer or any of its affiliates during the Term and for a reasonable and limited period thereafter. Therefore, during the Term and for a period of one year thereafter, the Employee shall not acquire a direct investment of $100,000 or more in a Competing Business (as hereinafter defined) and shall not render personal services to any such Competing Business in any manner, including, without limitation, as owner, partner, director, trustee, officer, employee, consultant, or advisor thereof. If the Employee shall breach the covenants contained in this Section 9, the Employer shall have no further obligation to make any payment to the Employee 6 pursuant to this Agreement and may recover from the Employee all such damages as it may be entitled to at law or in equity. In addition, the Employee acknowledges that any such breach is likely to result in immediate and irreparable harm to the Employer for which money damages are likely to be inadequate. Accordingly, the Employee consents to injunctive and other appropriate equitable relief upon the institution of proceedings therefor by the Employer in order to protect Employer's rights hereunder. As used in this Agreement, the term "Competing Business" shall mean any business that, at the time of the determination - (i) operates (a) any retail department store, specialty store, general merchandise store, or drug store; (b) any retail catalog, telemarketing, or direct mail business; (c) any Internet-based or other electronic retailing business; (d) any other retail business that sells goods, merchandise, or services of the types sold by Employer, including its divisions, affiliates, and licensees; or (e) any business that provides buying office or sourcing services to any business of the types referred to in this subparagraph; (ii) conducts any business of the types referred to in subparagraph (i) in the United States or another country in which Employer, including its divisions, affiliates, and licensees, conducts a similar business; and (iii) from any business(es) of the types referred to in subparagraph (i), had aggregate net sales or revenues of $500,000,000 in the fiscal year preceding the determination or is reasonably expected to have aggregate net sales or revenues of $500,000,000 in either the current fiscal year or the next following fiscal year. 9.4 Representations of Employee. The Employee represents and warrants to the Employer that: (i) There are no restrictions, agreements or understandings whatsoever to which the Employee is a party that would prevent or make unlawful the Employee's execution of this Agreement or the Employee's employment under this Agreement, or which is or would be inconsistent, or in conflict with this Agreement or the Employee's employment under this Agreement, or would prevent, limit or impair in any way the performance by the Employee of the obligations under this Agreement; and (ii) The Employee has disclosed to Employer all restraints, confidentiality commitments or other employment restrictions that Employee has with any other employer, person or entity. 7 (iii) Upon and after the Employee's termination or cessation of employment with Employer and until such time as no obligations of the Employee to Employer hereunder exist, the Employee: (a) shall provide a complete copy of this Agreement to any prospective employer or other person, entity or association in a Competing Business with whom or which the Employee proposes to be employed, affiliated, engaged, associated or to establish any business or remunerative relationship prior to the commencement thereof; and (b) shall notify Employer of the name and address of any such person, entity or association prior to the Employee's employment, affiliation, engagement, association or the establishment of any business or remunerative relationship. 8 10. Survival. The expiration or termination of the Term will not impair the --------- rights or obligations of any party hereto that accrue hereunder prior to such expiration or termination, except to the extent specifically stated herein. In addition to the foregoing, the Employee's covenants contained in Section 9 and 11.1 and the Employer's obligations under Section 7 and 11.1 will survive the expiration or termination of Employee's employment. 11. Miscellaneous Provisions. ------------------------ Dispute Resolution. Any dispute between the parties under this Agreement will be resolved (except as provided below) through informal arbitration by an arbitrator selected under the rules of the American Arbitration Association for arbitration of employment disputes (located in the city in which the Employer's principal executive offices are based) and the arbitration will be conducted in that location under the rules of said Association. Each party will be entitled to present evidence and argument to the arbitrator. The arbitrator will have the right only to interpret and apply the provisions of this Agreement and may not change any of its provisions. The arbitrator will permit reasonable pre-hearing discovery of facts, to the extent necessary to establish a claim or a defense to a claim, subject to supervision by the arbitrator. The determination of the arbitrator will be conclusive and binding upon the parties and judgment upon the same may be entered in any court having jurisdiction thereof. The arbitrator will give written notice to the parties stating his or their determination, and will furnish to each party a signed copy of such determination. The expenses of arbitration will be borne equally by the Employer and Employee or as the arbitrator otherwise equitably determines. Any arbitration or action pursuant to this Section 11.1 will be governed by and construed in accordance with the substantive laws of the State of Texas, without giving effect to the principles of conflict of laws of such State. The mandatory arbitration provisions of this Section 11.1 shall supersede in their entirety the J. C. Penney Alternative, a dispute resolution program generally applicable to employment terminations. Notwithstanding the foregoing, the Employer will not be required to seek or participate in arbitration regarding any breach of the Employee's covenants in Section 9, but may pursue its remedies for such breach in a court of competent jurisdiction in the city in which the Employer's principal executive offices are based. 11.1 Binding on Successors; Assignment. This Agreement will be binding upon and inure to the benefit of the Employer, Employee and each of their respective successors, assigns, personal and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable; provided however, that neither this Agreement nor any rights or obligations hereunder will be assignable or otherwise subject to hypothecation by Employee (except by will or by operation of the laws of intestate succession) or by the Employer, except that the Employer may assign this Agreement to any successor (whether by merger, purchase or otherwise) to all or substantially all of the stock, assets or businesses of the Employer, if such successor expressly agrees to assume the obligations of the Employer hereunder. 9 11.2 Governing Law. This Agreement will be governed, construed, interpreted, and enforced in accordance with the substantive law of the State of Texas, without regard to conflicts of law principles. 11.3 Severability. Any provision of this Agreement that is deemed invalid, illegal or unenforceable in any jurisdiction will, as to that jurisdiction, be ineffective, to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal or unenforceable in any other jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such covenant will be modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable. 11.4 Notices. For all purposes of this Agreement, all communications required or permitted to be given hereunder will be in writing and will be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof confirmed), or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three business days after having been sent by a nationally recognized overnight courier service, addressed to the Employer at its principal executive office and to the Employee at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of change of address will be effective only upon receipt. 11.5 Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their Agreement with respect to the Employee's employment and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement will constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceedings to vary the terms of this Agreement. 11.6 Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, approved by the Employer and signed by the Employee and the Employer. Failure on the part of either party to complain of any action or omission, breach or default on the part of the other party, no matter how long the same may continue, will never be deemed to be a waiver of any rights or remedies hereunder, at law or in equity. The Employee or Employer may waive compliance by the other party with any provision of this Agreement that such other party was or is obligated to comply with or perform only through an executed writing; provided however, that such waiver will not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. 10 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. J. C. Penney Company, Inc. By: /s/ ALLEN I. QUESTROM ---------------------------------------- Name: Allen I. Questrom Title: Chairman and Chief Executive Officer /s/ J. WAYNE HARRIS ------------------------------------------- J. Wayne Harris 11 ANNEX I ------- Bonus Plan ---------- Employee's annual target incentive units shall be 88.25% of Base Salary unless changed by the Personnel and Compensation Committee; provided however, that Employee's annual incentive award for the 12 months commencing with the Start Date shall not be less than 88.25% of Base Salary, which amount for 2000 shall be prorated to reflect Employee's actual period of service during 2000 after the Start Date. The performance measures for the Bonus Plan shall be as follows: Sales 40% weighting Profit (EBIT) 40% weighting Gross Margin Return on Investment 20% weighting Performance against plan for these measures produces a unit value that is multiplied by the target incentive units to produce an annual award. The minimum unit value under this Plan shall be 0% and the maximum shall be 300%. 12 EXHIBIT A - --------- Special Stock Option Grant The Employer will grant a special stock option grant for the purchase of 75,000 shares of Common Stock to Employee. The stock option grant will be effective on the Start Date, pending approval of the Committee, with an exercise price per share of the fair market value (mean of the high and the low sales prices as reported in the composite transaction table covering transactions of NYSE listed securities) of JCPenney stock on the effective date of the grant. Form of Grant - ------------- Non-qualified Stock Options (NSOs). Term of the Special Stock Option Grant: - --------------------------------------- The option term is 10 years with the normal expiration date of the option on October 1, 2010. Vesting Provisions - ------------------ The stock option grant will vest 25% per year beginning on October 1, 2001. The grant will be 100% vested on October 1, 2004. Termination of Employment Provisions: - ------------------------------------ If Employee terminates employment due to disability or retirement, any unvested portion of the option will become immediately exercisable and the option will expire five years from the date of termination or the normal expiration date of the option, whichever is earlier. If Employee terminates employment due to death, any unvested portion of the option will become immediately exercisable and the option will expire two years from the date of death or the normal expiration date of the option, whichever is earlier. If Employee terminates employment before the normal expiration date of the option for any reason other than death, disability or retirement, all outstanding vested and unvested portions of the option will expire on the date of termination. Change of Control: - ------------------ The stock option grant becomes immediately exercisable (vested) without regard to the vesting dates listed above upon a Change of Control of the JCPenney Company (as defined in the Employer's 1997 Equity Compensation Plan), or if, as a result of a sale, merger or other disposition, JCPenney Company, Inc. owns less than 51% of the outstanding common stock of Eckerd Corporation, or if JCPenney Company, Inc. sells all or substantially all of the assets of Eckerd Corporation to a person or entity not affiliated with the Employer. 13 EX-10.C 4 0004.txt AGREEMENT DATED AS OF SEPTEMBER 30, 2000 Exhibit 10(c) Agreement This Agreement (the "Agreement") is entered into between J. C. Penney Company, Inc. (the "Company"), and James E. Oesterreicher (the "Associate") as of September 30, 2000. In consideration of the Associate's agreement in March, 2000 to remain as the Company's Chairman of the Board and Chief Executive Officer for a then indefinite period until his successor was in place, Associate's agreement to assist in the subsequent transition, and following his retirement and during the term hereof to be available as needed, and in order to provide Associate with appropriate office and clerical support, and in consideration of the following covenants and mutual promises, the Company and the Associate have agreed to enter into this Agreement. While an executive with the Company, Associate has been entrusted with, acquired, or developed substantial knowledge and expertise of a special nature relating to the business, financial and functional areas of the Company, as well as other information and knowledge concerning the Company and its internal business affairs. As an executive of the Company and in such capacity Associate has obtained highly confidential business, customer, and strategic information, as well as business and other information relating to the internal affairs of the Company. Payments. Following the execution of this Agreement, the Company shall make a lump sum payment to Associate in the amount of $3,000,000. Non-Competition, Nonsolicitation and Confidentiality. For the period beginning on the date hereof and ending on September 29, 2003 (the "Agreement Term") the Associate agrees that he will not become employed by, be or become an officer or director of, agree personally to perform services for, or enter into a consulting arrangement with a company included in the S&P 500 Retail Index for department stores (individually and collectively, the "Competitors"). During the Agreement Term, the Associate further agrees that he will not (i) directly or indirectly seek to employ on behalf of Associate or any other person or entity, any person who is employed at the time by the Company; (ii) be engaged in or be involved with, directly or indirectly, any investments in any Competitor; or (iii) solicit any customer of the Company on behalf of or for the benefit of a Competitor. The Associate further agrees not to disclose, in any manner except to authorized representatives of the Company or when compelled by legal process after notice to the Company (if such notice is feasible by a good faith effort), information about or related to the Company that was obtained by the Associate during his employment with the Company, other than information generally available to the public. Release and Waiver. In consideration of the benefits provided under this Agreement, the Associate has entered into the Release and Waiver which is attached hereto as Exhibit A. This Release and Waiver shall for purposes of this Agreement be treated as incorporated into this Section in the form attached hereto. Severability. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any other portion of this Agreement. Any section or a part of a section declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of the section to the fullest extent possible while remaining lawful and valid. Amendment. This Agreement shall not be altered, amended, or modified except by written instrument executed by the Company and the Associate. A waiver of any portion of this Agreement shall not be deemed a waiver of any other portion of this Agreement. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. Applicable Law. The provisions of this Agreement shall be governed, construed, interpreted and enforced in accordance with the laws of the State of Texas, without regard to its choice of law or conflict of law principles. J. C. Penney Company, Inc. By: /s/ JANE C. PFEIFFER ------------------------------- Title: Chairman of P&C Committee ---------------------------- /s/ JAMES E. OESTERREICHER -------------------------------- James E. Oesterreicher 2 EXHIBIT A WAIVER AND RELEASE - -------------------------------------------------------------------------------- TWO ORIGINALS OF THIS WAIVER AND RELEASE MUST BE SIGNED AFTER TERMINATION OF EMPLOYMENT. AFTERWARDS, BOTH ORIGINALS MUST BE RETURNED TO CHARLES R. LOTTER EXECUTIVE VICE PRESIDENT, SECRETARY, AND GENERAL COUNSEL, AT 6501 LEGACY DRIVE, PLANO, TEXAS 75024-3698 WITHIN 21 DAYS OF TERMINATION OR WITHIN 21 DAYS OF RECEIPT OF THE WAIVER AND RELEASE, WHICHEVER OCCURS LATER. YOU MAY NOT MAKE ANY CHANGES TO THIS FORM. - -------------------------------------------------------------------------------- This Waiver and Release ("Release") is entered into on this 8th day of November, 2000, between James E. Oesterreicher (hereinafter, "Associate") and J.C. Penney Company, Inc., (referred to as the "Company"). James E. Oesterreicher is entering into this Release also on behalf of his heirs, executors, administrators, successors and assigns (collectively referred to for purposes of this Release as "Associate"). The Company is entering into this Release through its designated official also for its past and present subsidiaries and affiliates, its Welfare, Retirement, Pension and Benefit committees and plans including all Voluntary Employee Beneficiary Plans, and its past and present officers, directors, associates, insurers, and agents in their personal or official capacities (collectively referred to for purposes of this Release as the "Company"). For the promises, agreements and other valuable consideration noted herein and in the Agreement, it is agreed as follows: 1. Associate agrees that this Release is an enforceable legal document and that he has been encouraged to review it with his attorney. He has had a period of not less than twenty-one (21) days in which to review the provisions of this Release with his counsel. Associate acknowledges that if he chooses to sign the Release before the expiration of twenty-one (21) days, Associate is doing so knowingly and voluntarily, under no pressure from the Company. He agrees that this Release sets forth his entire understanding with the Company, supersedes all prior agreements or understandings between them, and may not be modified, altered, or changed except upon prior written consent by the Associate and the Company. Associate is entering into this Release of his own free will. 2. Associate, for and in consideration of the benefits set forth in that certain Agreement dated as of September 30, 2000 between Associate and the Company (the "Agreement"), does hereby acknowledge full and complete satisfaction of, and does unconditionally release and forever discharge the Company from any and all claims, demands, liabilities, obligations, causes or causes of action of whatever kind or nature, whether known or unknown, suspected or unsuspected by him, which he now has, or at anytime had, against the Company, including specifically but not exclusively and without limiting the generality of the foregoing, any and all claims i relating to discrimination under any federal, state, or local statute, including the Age Discrimination in Employment Act, as amended, 29 U.S.C. Sec. 621, et seq., including the Older Workers Benefits Protection Act, Title VII of the Civil Rights Act, as amended, 42 U.S.C. Sec. 2000e, et seq., ERISA, or claims in contract or tort including emotional distress which arise out of or in any way relate to his employment with, and separation from, the Company (including this Release and his voluntary election to accept the terms and conditions of the Release, but excluding the parties' performance under the Release). Associate understands that he is releasing claims that he may not know about and this is his intent. Associate expressly waives all rights under any laws that are intended to prevent unknown claims from being released. Associate understands the significance of doing so. 3. Associate also expressly waives any right or claim that he may have, or assert to have, regarding employment or reinstatement to employment with the Company or to any type of benefit which is not outlined herein unless otherwise due him in accordance with Company plans. In furtherance of this Release, Associate agrees that he will not under any circumstances seek personal relief by submitting an Internal Review Process request or Notice of Intent to Arbitrate a Termination Claim under the JCPenney Alternative Program or by filing a charge or lawsuit against the Company for any such claim in any federal, state or local court, or administrative agency, except for those statutory rights which are nonwaivable. 4. Associate will have seven days to revoke this Release after it has been signed by Associate and returned to the Company, such revocation to be effected by means of written memorandum signed by him and delivered to the individual denoted in the box on the first page of this Waiver and Release. If such a signed, written notice of revocation is not actually received by the individual designated above (delivery to any post office or other delivery agent is insufficient) by the close of business on the tenth calendar day following execution, this Release becomes effective and fully enforceable by either Associate or the Company. If Associate violates paragraph 2 of this Release, the Company shall be entitled to an immediate refund of the lump sum payment to Associate described in the Agreement, and to recover reasonable attorneys' fees incurred by the Company because of such violation. 5. Associate expressly agrees to reimburse the Company for any and all damages which the Company may incur as a result of the assertion of any claim by any attorney against the Company for attorney's fees, costs or disbursements for services rendered to or on behalf of Associate in this matter. ii 7. Associate certifies he has made no changes to this Release other than providing his name and the date the Release is entered into in the first two paragraphs above and signing and providing the information required in the signature section below. /s/ JAMES E. OESTERREICHER - ----------------------------- J. C. Penney Company, Inc. Signature of Associate James E. Oesterreicher - ----------------------------- By: /s/ JANE C. PFEIFFER Printed Name of Associate ---------------------------- [omitted] - ----------------------- Date: 11/8/00 Social Security Number -------------------------- iii EX-12.A 5 0005.txt COMPUTATION OF RATIOS PREFERRED STOCK DIVIDEND 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 52 weeks ended ended October 28, October 30, ($ Millions) 2000 1999 ----------- ----------- Income/(loss) from continuing operations $ (255) $ 827 (before income taxes, before capitalized interest, but after preferred stock dividend) Fixed charges Interest (including capitalized interest) on: Operating leases 272 225 Short term debt 46 133 Long term debt 483 551 Capital leases 1 2 Other, net - (3) ----------- ------------ Total fixed charges 802 908 Preferred stock dividend, before taxes 44 36 ----------- ------------ Combined fixed charges and preferred stock dividend requirement 846 944 Total available income $ 591 $ 1,771 =========== ============ Ratio of available income to combined fixed charges and preferred stock dividend requirement 0.7 1.9 =========== ============ The difference between a one to one coverage ratio and the .7 ratio shown above for the 52 weeks ended October 28, 2000 is $255 million. The Company believes that, due to the seasonal nature of its business, ratios for a period of time other than a 52 week period are inappropriate. EX-12.B 6 0006.txt COMPUTATION OF RATIOS FIXED CHARGES Exhibit 12(b) J. C. Penney Company, Inc. and Consolidated Subsidiaries Computation of Ratios of Available Income to Fixed Charges 52 weeks 52 weeks ended ended October 28, October 30, ($ Millions) 2000 1999 ----------- ----------- Income/(loss) from continuing operations $ (221) $ 863 (before income taxes, and capitalized interest) Fixed charges Interest (including capitalized interest) on: Operating leases 272 225 Short term debt 46 133 Long term debt 483 551 Capital leases 1 2 Other, net - (3) ----------- ------------ Total fixed charges 802 908 ----------- ------------ Total available income $ 581 $ 1,771 =========== ============ Ratio of available income to fixed charges 0.7 2.0 =========== ============ The difference between a one to one coverage ratio and the .7 ratio shown above for the 52 weeks ended October 28, 2000 is $221 million. 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.A 7 0007.txt FINANCIAL DATA SCHEDULE 10/28/2000
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 28, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS JAN-27-2001 OCT-28-2000 183 0 1,177 26 6,842 8,319 8,364 3,211 20,413 4,613 5,423 0 407 3,288 3,179 20,413 22,027 22,896 16,563 21,791 980 0 329 (204) (79) (125) 0 0 0 (125) (0.57) (0.57)
EX-27.B 8 0008.txt RESTATED FINANCIAL DATA SCHEDULE 10/30/1999
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 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS JAN-29-2000 OCT-30-1999 392 461 4,392 84 6,999 12,312 8,586 3,152 24,982 7,729 6,504 0 457 3,236 3,607 24,982 21,844 22,676 16,065 21,246 344 66 474 546 198 348 0 0 0 348 1.24 1.24
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