Back to GetFilings.com
CONFORMED COPY
--------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the 52 weeks ended January 26, 2002 Commission file number 1-4947-1
J. C. Penney Funding Corporation
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 51-0101524
------------------------ ------------------------
(State of incorporation) (I.R.S. Employer ID 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
- -------------------------------------------------- --------------
Securities registered pursuant to Section 12(b) of the Act: None
- ----------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act: None
- ----------------------------------------------------------
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant: None
----
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 500,000 shares of
Common Stock of $100 par value, as of April 1, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of Registrant's 2001 Annual Report ("2001 Annual Report") are
incorporated into Parts I, II, and IV. Portions of J. C. Penney Company, Inc.'s
2001 Annual Report to Stockholders ("JCPenney's 2001 Annual Report") are
incorporated into Part I.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
I(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
PART I
1. Business.
--------
J. C. Penney Funding Corporation ("Funding"), which was incorporated in
Delaware in 1964, is a wholly-owned subsidiary of J. C. Penney Corporation, Inc.
("JCPenney"), also incorporated in Delaware. Funding's executive offices are
located in JCPenney's offices in Plano, Texas. Its business consists of
financing a portion of JCPenney's operations through loans to JCPenney.
JCPenney, a company founded by James Cash Penney in 1902 and incorporated
in 1924, is a major retailer operating 1,075 domestic and international JCPenney
department stores in all 50 states, Puerto Rico, and Mexico. In addition,
JCPenney operates 54 department stores in Brazil under the Renner name. The
major portion of JCPenney's business consists of providing merchandise and
services to consumers through department stores, catalog and the Internet.
JCPenney sells predominantly family apparel, jewelry, shoes, accessories and
home furnishings. In addition, JCPenney, through its subsidiary, Eckerd
Corporation, operates a chain of 2,641 drugstores located throughout the
Southeast, Sunbelt and Northeast regions of the United States.
JCPenney's total revenues for the 52 weeks ended January 26, 2002, were
approximately $32 billion and net income was $98 million. Pursuant to the terms
of financing agreements between Funding and JCPenney, payments from JCPenney to
Funding are set to produce earnings sufficient to cover Funding's fixed charges,
principally interest on borrowings, at a coverage ratio mutually agreed upon
between Funding and JCPenney. (See "Loan Agreement" below.) The earnings to
fixed charges coverage ratio has historically been at least 1.5 to 1.
Holding Company Establishment. Effective January 27, 2002, J. C. Penney
-----------------------------
Company, Inc. changed its corporate structure to a holding company format. As
part of this structure, J. C. Penney Company, Inc. changed its name to J. C.
Penney Corporation, Inc. (JCPenney) and became a wholly owned subsidiary of a
newly formed affiliated holding company (Holding Company). The new holding
company assumed the name J. C. Penney Company, Inc. The Holding Company has no
direct subsidiaries other than JCPenney. The Holding Company has no independent
assets or operations. All outstanding shares of common and preferred stock were
automatically converted into the identical number of and type of shares in the
new holding company. Stockholders' ownership interests in the business did not
change as a result of the new structure. Shares of the Company remain publicly
traded under the same symbol (JCP)
2
on the New York Stock Exchange. The Holding Company is a co-obligor (or
guarantor, as appropriate) regarding the payment of principal and interest on
JCPenney's outstanding debt securities. The guarantee by the Holding Company of
certain of JCPenney's outstanding debt securities is full and unconditional.
Operations of Funding. To assist in financing the operations of
---------------------
JCPenney as described under "Business" above, Funding from time to time sells
its short-term notes (commercial paper) to investors through dealer-placed
programs. The short-term notes are guaranteed on a subordinated basis by
JCPenney. Funding has, from time to time, issued long-term debt in public and
private markets in the United States and abroad. Funding also has in place
arrangements for short-term bank borrowings. Funding had no short-term debt
outstanding as of January 26, 2002 nor as of January 27, 2001.
Liquidity of JCPenney. JCPenney's liquidity continued to strengthen
---------------------
during 2001 with $2.8 billion in cash and short-term investments as of January
26, 2002. The strong liquidity position is a result of the following:
(1) improved profitability of operations, which generated approximately
$200 million of free cash flow (operating cash flow after capital expenditures
and dividends); (2) the sale of the assets of J. C. Penney Direct Marketing
Services, Inc. which netted $1.1 billion in after-tax proceeds; (3) the issuance
of $650 million aggregate principal amount of JCPenney's 5% Convertible
Subordinated Notes, which generated $630 million in cash proceeds, net of
transaction fees; and (4) the establishment of the Eckerd managed care
receivable securitization program, which generated $200 million of proceeds.
Management believes that the current cash position is adequate to cover debt
maturities over the next several years.
As a result of JCPenney's strong liquidity position, it is not anticipated that
any external financing will be required in 2002 to fund JCPenney's operating
cash needs.
Loan Agreement. Funding and JCPenney are parties to a Loan Agreement,
--------------
dated as of January 28, 1986, as amended ("Loan Agreement"), which provides for
unsecured loans to be made from time to time by Funding to JCPenney for the
general business purposes of JCPenney, subject to the terms and conditions of
the Loan Agreement. The loans may be either senior loans or subordinated loans,
at the election of JCPenney, provided that, without the consent of the Board of
Directors of Funding, the principal amount of loans outstanding at any time
under the Loan Agreement may not exceed specified limits. Currently such limits
may not exceed $8 billion in the aggregate for all loans and $1 billion in the
aggregate for all subordinated loans. The terms
3
of each loan under the Loan Agreement shall be as agreed upon at the time of
such loan by Funding and JCPenney, provided that Funding may require upon demand
that any loan be paid, and JCPenney may prepay without premium any loan, in
whole or in part at any time. Under the terms of the Loan Agreement, JCPenney
and Funding agree from time to time upon a mutually-acceptable earnings coverage
of Funding's interest and other fixed charges. If at the end of each fiscal
quarter during which a loan is outstanding, the earnings coverage of Funding's
interest and other fixed charges is less than the agreed upon ratio, JCPenney
will pay to Funding an additional amount sufficient to provide for such coverage
to be not less than the agreed upon ratio. In the event that JCPenney and
Funding have not agreed upon a mutually acceptable ratio for any fiscal quarter,
the applicable quarterly payment with respect to such period will include an
amount equal to the excess, if any, of one and one-half percent of the daily
average of the aggregate principal amount outstanding on all loans during such
period, over the aggregate amount of interest accrued on all such loans during
such period.
Committed Bank Credit Facility. A committed bank credit facility was
------------------------------
available to Funding and JCPenney as of January 27, 2001, in the amount of $1.5
billion. This facility, as amended and restated, supports commercial paper
borrowing arrangements and consists of a $1.5 billion, five-year revolver. (See
page 3 of Funding's 2001 Annual Report which is incorporated herein by
reference.)
Employment. Funding has had no employees since April 30, 1992.
----------
Forward-Looking Statements.
--------------------------
This Annual Report on Form 10-K may contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements, which reflect Funding's current views of future
events and financial performance, involve known and unknown risks and
uncertainties that may cause Funding'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, with respect to both JCPenney and Funding. Investors
should take such risks into account when making investment decisions.
2. Properties.
----------
Funding owned no physical properties.
4
3. Legal Proceedings.
-----------------
Funding had no material legal proceedings pending against it.
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.
---------------------------------------------------------------------
JCPenney owned all of Funding's outstanding common stock. Funding's common
stock was not traded, and no dividends were, or are currently intended to be,
declared by Funding on its common stock.
7A. Quantitative and Qualitative Disclosures About Market Risk. As of January
----------------------------------------------------------
26, 2002, Funding had no investments. If it had short term investments, they
would be in short term financial instruments with original maturities of three
months or less. Such investments are subject to interest rate risk and may have
a small decline in value if interest rates increase. Since the financial
instruments are of short duration, a change of 100 basis points in interest
rates would not have a material effect on Funding's financial condition.
As of January 26, 2002, Funding had no long-term debt. Funding was a
potential borrower under a five-year revolving credit facility with JCPenney. To
the extent that fluctuating rate loans were used, borrowings under the facility
would be affected by interest rate changes. As of January 26, 2002, no
borrowings had been made under this facility. Funding does not believe that a
change of 100 basis points in interest rates would have a material effect on
Funding's financial condition.
8. Financial Statements and Supplementary Data.
-------------------------------------------
The Balance Sheets of Funding as of January 26, 2002, and January 27, 2001,
and the related statements of income, reinvested earnings, and cash flows for
each of the years in the three-year period ended January 26, 2002, appearing on
pages 4 through 6 of Funding's 2001 Annual Report, together with the related
notes and the Independent Auditors' Report of KPMG LLP, independent certified
public accountants, appearing on page 7 of Funding's 2001 Annual Report, the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing on page 3 thereof, the section of Funding's 2001 Annual
Report entitled "Five Year Financial Summary" appearing on page 8
5
thereof, and the unaudited quarterly financial highlights ("Quarterly Data")
appearing on page 9 thereof, are incorporated herein by reference in response to
Item 8 of Form 10-K.
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
----------
None.
PART IV
-------
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
----------------------------------------------------------------
(a) 1. All Financial Statements.
See Item 8 of this Form 10-K for financial statements incorporated by
reference to Funding's 2001 Annual Report.
(a) 2. Financial Statement Schedules.
All schedules have been omitted as they are inapplicable or not
required under the rules, or the information has been submitted in the
financial statements or in the notes to the financial statements
incorporated by reference to Funding's 2001 Annual Report.
(a) 3. Exhibits.
See separate Exhibit Index on pages G-1 through G-5.
(b) Reports on Form 8-K filed during the fourth quarter of fiscal 2001.
None.
6
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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
--------------------------------
(Registrant)
By: /s/ M. P. Dastugue
-----------------------------------
M. P. Dastugue
Chairman of the Board
Dated: April 25, 2002
7
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ M. P. Dastugue Chairman of the Board April 25, 2002
- ---------------------
M. P. Dastugue (principal executive
officer); Director
/s/ M. D. Porter President April 25, 2002
- ---------------------
M. D. Porter (principal financial
officer)
/s/ W. J. Alcorn Vice President and April 25, 2002
- ---------------------
W. J. Alcorn Controller (principal
accounting officer)
8
EXHIBIT INDEX
Exhibit
-------
3. (i) Articles of Incorporation
-------------------------
(a) Certificate of Incorporation of Funding, effective April 13, 1964
(incorporated by reference to Exhibit 3(a) to Funding's Annual Report
on Form 10-K for the 52 weeks ended January 29, 1994*).
(b) Certificate of Amendment of Certificate of Incorporation, effective
January 1, 1969 (incorporated by reference to Exhibit 3(b) to Funding's
Annual Report on Form 10-K for the 52 weeks ended January 29, 1994*).
(c) Certificate of Amendment of Certificate of Incorporation, effective
August 11, 1987 (incorporated by reference to Exhibit 3(c) to Funding's
Annual Report on Form 10-K for the 52 weeks ended January 29, 1994*).
(d) Certificate of Amendment of Certificate of Incorporation, effective
April 10, 1988 (incorporated by reference to Exhibit 3(d) to Funding's
Annual Report on Form 10-K for the 52 weeks ended January 29, 1994*).
(ii) Bylaws
------
(a) Bylaws of Funding, as amended to May 19, 1995 (incorporated by
reference to Exhibit 3(ii) to Funding's Quarterly Report on Form 10-Q
for the 13 and 39 weeks ended October 26, 1996*).
4. Instruments defining the rights of security holders, including indentures
-------------------------------------------------------------------------
(a) Issuing and Paying Agency Agreement dated as of March 16, 1992, between
J. C. Penney Funding Corporation and Morgan Guaranty Trust Company of
New York (incorporated by reference to Exhibit 4(a) to Funding's
Current Report on Form 8-K, Date of Report - April 3, 1992*).
(b) Issuing and Paying Agency Agreement dated as of February 3, 1997,
between J. C. Penney Funding Corporation and The Chase Manhattan Bank
(incorporated by reference to Exhibit 4(b) to Funding's Annual Report
on Form 10-K for the 52 weeks ended January 25, 1997*).
G-1
(c) Guaranty dated as of February 17, 1997, executed by J. C. Penney
Company, Inc.(incorporated by reference to Exhibit 4(c) to Funding's
Annual Report on Form 10-K for the 52 weeks ended January 25, 1997*).
(d) Amended and Restated 364-Day Revolving Credit Agreement dated as of
December 3, 1996, among J. C. Penney Company, Inc., J. C. Penney
Funding Corporation, the Lenders party thereto, Morgan Guaranty Trust
Company of New York, as Agent for the Lenders, and Bank of America
Illinois, Bankers Trust Company, The Chase Manhattan Bank, Citibank,
N.A., Credit Suisse, and NationsBank of Texas, N.A., as Co-Agents for
the Lenders (incorporated by reference to Exhibit 4(d) to Funding's
Annual Report on Form 10-K for the 52 weeks ended January 25, 1997*).
(e) Amended and Restated Five-Year Revolving Credit Agreement dated as of
December 3, 1996, among J. C. Penney Company, Inc., J. C. Penney
Funding Corporation, the Lenders party thereto, Morgan Guaranty Trust
Company of New York, as Agent for the Lenders, and Bank of America
Illinois, Bankers Trust Company, The Chase Manhattan Bank, Citibank,
N.A., Credit Suisse, and NationsBank of Texas, N.A., as Co-Agents for
the Lenders (incorporated by reference to Exhibit 4(e) to Funding's
Annual Report on Form 10-K for the 52 weeks ended January 25, 1997*).
(f) Amendment and Restatement Agreement to 364-Day Revolving Credit
Agreement, dated as of October 1, 1999, among J. C. Penney Company,
Inc., J. C. Penney Funding Corporation, the Lenders party thereto, The
Chase Manhattan Bank, as Administrative Agent, Salomon Smith Barney
Inc., as Syndication Agent, and Bank of America, N.A. and Credit Suisse
First Boston, as Co-Documentation Agents (incorporated by reference to
Exhibit 4(a) to Funding's Quarterly Report on Form 10-Q for the 13 and
39 weeks ended October 30, 1999*).
(g) Amendment and Restatement Agreement to Five-Year Revolving Credit
Agreement, dated as of November 21, 1997, among J. C. Penney Company,
Inc., J. C. Penney Funding Corporation, the Lenders party thereto,
Morgan Guaranty Trust Company of New York, as Agent, and Bank of
America National Trust and Savings Association, Bankers Trust Company,
The Chase Manhattan Bank, Citibank, N.A., Credit Suisse First Boston,
and NationsBank of Texas, N.A., as Managing Agents (incorporated by
reference to Exhibit 4(g) to Funding's Annual Report on Form 10-K for
the 53 weeks ended January 31, 1998*).
G-2
EXHIBIT INDEX
Exhibit
-------
(h) Commercial Paper Dealer Agreement dated March 16, 1992 between J. C.
Penney Funding Corporation and J.P. Morgan Securities Inc.
(incorporated by reference to Exhibit 10(a) to Funding's Current Report
on Form 8-K, Date of Report - April 3, 1992*).
(i) Commercial Paper Dealer Agreement dated March 16, 1992 between J. C.
Penney Funding Corporation and The First Boston Corporation
(incorporated by reference to Exhibit 10(b) to Funding's Current Report
on Form 8-K, Date of Report - April 3, 1992*).
(j) Commercial Paper Dealer Agreement dated May 3, 1994 between J. C.
Penney Funding Corporation and Merrill Lynch Money Markets Inc.
(incorporated by reference to Exhibit 4(g) to Funding's Annual Report
on Form 10-K for the 52 weeks ended January 28, 1995*).
(k) Commercial Paper Dealer Agreement dated January 25, 1995 between J. C.
Penney Funding Corporation and Morgan Stanley & Co. Incorporated
(incorporated by reference to Exhibit 4(h) to Funding's Annual Report
on Form 10-K for the 52 weeks ended January 28, 1995*).
(l) Commercial Paper Dealer Agreement dated February 7, 1997 between J. C.
Penney Funding Corporation and Credit Suisse First Boston Corporation
(incorporated by reference to Exhibit 4(l) to Funding's Annual Report
on Form 10-K for the 52 weeks ended January 25, 1997*).**
(m) Guaranty dated as of December 3, 1996, executed by J. C. Penney
Company, Inc. with respect to the Amended and Restated 364-Day and Five
Year Revolving Credit Agreements, each dated as of December 3, 1996
(incorporated by reference to Exhibit 4(m) to Funding's Annual Report
on Form 10-K for the 52 weeks ended January 25, 1997*).
Instruments evidencing long-term debt, previously issued but now fully
prepaid, have not been filed as exhibits hereto because none of the debt
authorized under any such instrument exceeded 10 percent of the total assets
of the Registrant. The Registrant agrees to furnish a copy of any of its
long-term debt instruments to the Securities and Exchange Commission upon
request.
G-3
EXHIBIT INDEX
Exhibit
-------
10. Material Contracts
------------------
Funding has no compensatory plans or arrangements required to be filed as
exhibits to this Report pursuant to Item 14(c) of this Report.
(a) Loan Agreement dated as of January 28, 1986 between J. C. Penney
Company, Inc. and J. C. Penney Financial Corporation (incorporated by
reference to Exhibit 1 to Funding's Current Report on Form 8-K, Date of
Report - January 28, 1986*).
(b) Amendment No. 1 to Loan Agreement dated as of January 28, 1986 between
J. C. Penney Company, Inc. and J. C. Penney Financial Corporation
(incorporated by reference to Exhibit 1 to Funding's Current Report on
Form 8-K, Date of Report - December 31, 1986*).
(c) Amendment No. 2 to Loan Agreement dated as of January 28, 1986 between
J. C. Penney Company, Inc. and J. C. Penney Funding Corporation
(incorporated by reference to Exhibit 10(e) to Funding's Annual Report
on Form 10-K for the 52 weeks ended January 25, 1997*).
13. Annual Report to Security Holders
---------------------------------
Excerpt from Funding's 2001 Annual Report.
23. Independent Auditors' Consent
-----------------------------
G-4
99. Additional Exhibits
-------------------
Excerpt from JCPenney's 2001 Annual Report to Stockholders.
*SEC file number 1-4947-1
**Funding has entered into identical Commercial Paper Dealer Agreements dated
February 7, 1997, with each of Merrill Lynch Money Markets Inc., J.P. Morgan
Securities Inc., and Morgan Stanley & Co. Incorporated, which agreements are
omitted pursuant to Instruction 2 to Item 601 of Regulation S-K. Funding
agrees to furnish a copy of any of such agreements to the Securities and
Exchange Commission upon request.
G-5