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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 26, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transitional period from ______________ to ________________
Commission File No. 1-4947-1
J. C. PENNEY FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0101524
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6501 Legacy Drive, Plano, Texas 75024 - 3698
(Address of principal executive offices)
(Zip Code)
(972) 431-1000
(Registrant's telephone number, including area code)
______________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
500,000 shares of Common Stock of $100 par value, as of October 26, 2002.
1
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 39 weeks ended
Oct. 26, Oct. 27, Oct. 26, Oct. 27,
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
====== ====== ====== ======
2
Balance Sheets
(Dollars in millions)
Oct. 26, Oct. 27, Jan.26,
2002 2001 2002
------ ------ ------
ASSETS
Loans to JCPenney and affiliates $1,238 $1,240 $1,238
Total assets $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
------ ------ ------
Total liabilities and stockholder's equity $1,238 $1,240 $1,238
====== ====== ======
3
Consolidated Statements of Cash Flows
(Dollars in millions)
39 weeks ended
Oct. 26, Oct. 27,
2002 2001
Operating Activities
Net Income $ 0 $ 0
(Increase) decrease in loans to 0 0
JCPenney
(Decrease) increase in amount due 0 0
to JCPenney --- ---
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 third quarter $ 0 $ 0
==== ====
4
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.
Therefore, Funding has not produced any revenue or income. 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.
When applicable, 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 October 26, 2002 nor as of
October 27, 2001.
After paying $920 million of debt in the first half of 2002, JCPenney's
liquidity remains strong with approximately $1.7 billion in cash and short-term
investments as of October 26, 2002.
Given JCPenney's current favorable liquidity position, no short-term borrowings
are expected for the remainder of the year. 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 $258 million as of the end
of the third quarter 2002, have been made under the credit facility.
ITEM 4. Controls and Procedures
Based on their evaluation of Funding's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934) as of a date within 90 days of the filing date of this Quarterly Report on
10-Q, Funding's principal executive officer and principal financial officer have
concluded that Funding's disclosure controls and procedures are effective for
the purpose of ensuring that material information required to be in this
Quarterly Report is made known to them by others on a timely basis. There were
no significant changes in Funding's internal controls or in other factors that
could significantly affect these controls subsequent to the date of their most
recent evaluation.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
________________________________
(a) Exhibits
________
99(i)Certificate of Michael P. Dastugue Pursuant to ss.906 of the
Sarbanes-Oxley Act
99(ii) Certificate of William J. Alcorn Pursuant to ss.906 of the
Sarbanes-Oxley Act
(b) Reports on Form 8-K
___________________
Current Report on Form 8-K dated September 6, 2002
(Item 5 - Other Events and Regulation FD Disclosure)
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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
Vice President and Controller
(Principal Accounting Officer)
Date: December 6, 2002
8
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;
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;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consoliated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons peforming the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls: and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 6, 2002.
/s/ Michael P. Dastugue
--------------------------------
Michael P. Dastugue
Chairman of the Board
J. C. Penney Funding Corporation
9
CERTIFICATIONS
I, William J. Alcorn, Vice President and 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;
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;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consoliated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons peforming the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls: and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 6, 2002.
/s/ William J. Alcorn
---------------------------------
William J. Alcorn
Vice President and Controller
J. C. Penney Funding Corporation
10