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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
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FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the 13 week and 26 week periods Commission File Number 1-4947-1
ended July 27, 2002
J. C. PENNEY FUNDING CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 51-0101524
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6501 Legacy Drive, Plano, Texas 75024-3698
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 972-431-1000
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
500,000 shares of Common Stock of $100 par value, as of July 27, 2002.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1) (a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
The following interim financial information of J. C. Penney Funding Corporation
("Funding"), a wholly owned subsidiary of J. C. Penney Corporation, Inc.
("JCPenney"), is unaudited; however, in the opinion of Funding, it includes all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation. The financial information should be read in conjunction with the
audited financial statements included in Funding's Annual Report on Form 10-K
for the 52 weeks ended January 26, 2002.
Statements of Income and Reinvested Earnings
(Dollars in millions)
13 weeks ended 26 weeks ended
-------------- --------------
July 27, July 28, July 27, July 28,
2002 2001 2002 2001
---- ---- ---- ----
Interest earned from
JCPenney and affiliates $ 0 $ 0 $ 0 $ 0
Interest expense 0 0 0 0
----- ----- ----- -----
Income before income taxes 0 0 0 0
Income taxes 0 0 0 0
----- ----- ----- -----
Net income 0 0 0 0
Reinvested earnings at 1,093 1,093 1,093 1,093
beginning of period ------- ------- ------- -------
Reinvested earnings at
end of period $1,093 $1,093 $1,093 $1,093
====== ====== ======= =======
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Balance Sheets
(Dollars in millions)
July 27, July 28, Jan.26,
2002 2001 2002
-------- -------- ------
ASSETS
Loans to JCPenney and affiliates $1,238 $1,240 $1,238
------ ------ ------
$1,238 $1,240 $1,238
====== ====== ======
LIABILITIES AND EQUITY OF JCPENNEY
Short-term debt $ 0 $ 0 $ 0
Due to JCPenney 0 2 0
------ ------ ------
Total liabilities $ 0 $ 2 $ 0
Equity of JCPenney:
Common stock (including
contributed capital), par
value $100:
Authorized, 750,000 shares
Issued, 500,000 shares
$145 $145 $145
Reinvested earnings $1,093 $1,093 $1,093
------ ------ ------
Total equity of JCPenney $1,238 $1,238 $1,238
------ ------ ------
$1,238 $1,240 $1,238
====== ====== ======
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Consolidated Statements of Cash Flows
(Dollars in millions)
26 weeks ended
--------------------
July 27, July 28,
2002 2001
-------- --------
Operating Activities
Net Income $ 0 $ 0
(Increase) decrease in loans to
JCPenney
0 0
(Decrease) increase in amount due
to JCPenney 0 0
----- -----
0 0
----- -----
Financing Activities
Increase (decrease) in short-term
Debt 0 0
----- -----
Increase (decrease) in cash 0 0
Cash at beginning of year 0 0
------ ------
Cash at end of second quarter $ 0 $ 0
======= =======
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Notes to the Unaudited Interim Financial Statements
1) Background
Historically, Funding has provided short-term financing for JCPenney.
Principally, Funding issued commercial paper to finance JCPenney's working
capital needs. In 1999, JCPenney sold its credit card operation and the related
accounts receivable to an unrelated third party. The result of this transaction
coupled with JCPenney's other sources of liquidity eliminated the need for
Funding to issue commercial paper for short-term borrowing requirements. In
addition, with Funding's current credit ratings, it is assumed that Funding
would have little or no current access to commercial paper borrowing.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Funding derives earnings on loans to JCPenney under the terms of the Loan
Agreement which provides for unsecured loans to be made by Funding to JCPenney.
Additionally, in order to maintain Funding's income at defined coverage ratios,
Funding's income is supplemented by charges to JCPenney. The income of Funding
is designed to cover Funding's fixed charges (interest expense) at a coverage
ratio mutually agreed upon by Funding and JCPenney. The earnings to fixed
charges coverage ratio has historically been at least one and one-half times.
Funding from time to time issues commercial paper through Credit Suisse First
Boston Corporation, J.P. Morgan Securities Inc., Merrill Lynch Money Markets
Inc., and Morgan Stanley Dean Witter to corporate and institutional investors in
the domestic market. The commercial paper is guaranteed by JCPenney on a
subordinated basis. The commercial paper is rated "A3" by Standard & Poor's
Ratings Services and "Not Prime" by Moody's Investors Service, Inc.
Funding had no short-term debt outstanding as of July 27, 2002 nor as of July
28, 2001.
After paying off $920 million of debt that matured in the first half of 2002,
JCPenney's liquidity remains strong with approximately $2.0 billion in cash and
short-term investments as of July 27, 2002.
Given JCPenney's current favorable liquidity position, it is not anticipated
that there is a need for short-term borrowing during fiscal 2002. If a need for
short-term funding were to arise, JCPenney has access to funding via its $1.5
billion revolving credit facility maturing in May 2005. No borrowings, other
than the issuance of trade and stand-by letters of credit, which totaled $323
million as of the end of the second quarter 2002, have been made under either
the new or previous credit facilities.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
J. C. PENNEY FUNDING CORPORATION
By: /s/ W. J. Alcorn
---------------------------------
W. J. Alcorn
Controller
(Principal Accounting Officer)
Date: September 6, 2002
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CERTIFICATIONS
I, Michael P. Dastugue, Chairman of the Board, certify that:
1. I have reviewed this quarterly report on Form 10-Q of J. C. Penney Funding
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 6, 2002.
/s/ Michael P. Dastugue
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Michael P. Dastugue
Chairman of the Board
J. C. Penney Funding Corporation
CERTIFICATIONS
I, William J. Alcorn, Controller, certify that:
1. I have reviewed this quarterly report on Form 10-Q of J. C. Penney Funding
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 6, 2002.
/s/ William J. Alcorn
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William J. Alcorn
Controller
J. C. Penney Funding Corporation
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