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CONFORMED COPY
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 29, 1994 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: (214) 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 stock 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 March 21, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's 1993 Annual Report ("1993 Annual Report") are
incorporated into Parts I, II, and IV. Portions of J. C. Penney Company,
Inc.'s 1993 Annual Report to Stockholders ("JCPenney's 1993 Annual Report") are
incorporated into Part I.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
J(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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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 Company, 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, the
purchase of customer receivable balances that arise from the retail credit
sales of JCPenney, or a combination of both. No receivables have been
purchased by Funding since 1985.
JCPenney is a major department store retailer with stores in all 50
states and Puerto Rico. The dominant portion of JCPenney's business consists
of providing merchandise and services to consumers through department stores
that include catalog departments. JCPenney markets predominantly family
apparel, shoes, jewelry, accessories, and home furnishings. JCPenney's total
revenues for the 52 weeks ended January 29, 1994 were $19.6 billion and net
income was $940 million. Pursuant to the terms of financing agreements between
Funding and JCPenney, payments from JCPenney to Funding are designed 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" and "Receivables Agreement", below.) The
earnings to fixed charges coverage ratio has historically been, and in fiscal
1993 was, at least 1.5 to 1.
Operations of Funding. To finance the operations of JCPenney as
described under "Business" above, Funding 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. Prior to April 3, 1992, Funding issued commercial paper and
master notes to investors on a direct issue basis. Funding also has in place
arrangements for short-term bank borrowings. Short-term debt in fiscal 1993
averaged $1,347 million compared to $1,146 million in fiscal 1992 and $754
million in fiscal 1991. Short-term debt rates averaged 3.2 percent in fiscal
1993, compared to 3.7 percent in fiscal 1992 and 5.6 percent in fiscal 1991.
Interest expense decreased in fiscal 1993 compared to fiscal 1992 and 1991
largely due to lower short-term interest rates.
Credit Operations of JCPenney. Virtually all types of merchandise and
services sold by JCPenney in the United States and Puerto Rico may be purchased
on JCPenney's revolving credit card. In addition, JCPenney accepts American
Express, Discover, MasterCard, and Visa at JCPenney stores, catalog, and drug
stores
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throughout the 50 states and in Puerto Rico. For additional information
respecting the credit card operations of JCPenney, see "Net interest expense
and credit costs" (page 11) and "Financial position" (page 12) which appear in
the section of JCPenney's 1993 Annual Report entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations", "Receivables"
(page 19), which appear in the section of JCPenney's 1993 Annual Report
entitled "Notes to the Financial Statements", and "Credit Operations", "Pre-tax
cost of JCPenney credit card", "Credit sales", and "Key JCPenney credit card
information" (page 30), which appear in the section of JCPenney's Annual Report
entitled "Supplemental Information (Unaudited)", on the pages indicated in the
parenthetical references, which are incorporated by reference herein.
Funding has never incurred any losses from JCPenney's retail credit
operation since, pursuant to the Receivables Agreement, JCPenney itself
administers the customer receivables when sold to Funding, receives all finance
charge revenue on those customer receivables, and bears all related costs.
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 $4 billion in the aggregate for all loans and $500
million in the aggregate for all subordinated loans. The terms 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 was 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, that 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.
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Receivables Agreement. Since December 1, 1985, JCPenney has not sold
an undivided interest in any of its customer receivables to Funding. The
Receivables Agreement between Funding and JCPenney, as amended ("Receivables
Agreement"), continues to be in full force and effect and while no purchases of
JCPenney customer receivables by Funding are presently contemplated, JCPenney
may again commence sales of its customer receivables to Funding.
The Receivables Agreement sets forth the terms and provisions
governing sales of customer receivables (other than specified types of customer
receivables immaterial in amount) by JCPenney to Funding. At the end of each
monthly accounting period, JCPenney may sell to Funding an undivided interest
in its undefaulted customer receivables which are not sold or contracted to be
sold by JCPenney to anyone other than Funding. Settlements are made as of the
end of each such monthly accounting period with respect to collections,
defaults, and other adjustments to customers' accounts occurring during that
month.
The purchase price for the customer receivables acquired by Funding
from JCPenney is equal to the aggregate dollar amount of such customer
receivables. JCPenney pays to Funding at the end of each monthly accounting
period a discount in an amount agreed upon from time to time. In the event of
a failure to agree as to the amount of the discount, the amount to be paid is
one-half of one percent of the average daily closing balance of conveyed
customer receivables held by Funding during such monthly accounting period less
the average daily closing balance of the Contract Reserve Account during such
period.
In addition, at the time of purchase of customer receivables from
JCPenney, Funding withholds from the purchase price, and adds to the Contract
Reserve Account, the lesser of (i) five percent of the amount of customer
receivables then being purchased, or (ii) the amount, if any, by which the
amount in the Contract Reserve Account is less than five percent of the total
amount of customer receivables then owned by Funding. If the amount in the
Contract Reserve Account should exceed five percent of the total amount of
customer receivables owned by Funding at the end of any monthly accounting
period, such excess is to be paid to JCPenney in accordance with the
Receivables Agreement. If any portion of a customer receivable becomes more
than 180 days past due or if the customer is, in the judgment of JCPenney,
unable to make further payment, such customer receivable is considered to be in
default for the purposes of the Receivables Agreement and is charged against
the Contract Reserve Account. Collections with respect to any such defaulted
customer receivable are credited to the Contract Reserve Account. As described
above, all bad debts written off to date have been covered by the Contract
Reserve Account.
Funding acquires all of JCPenney's right, title, and interest in and
to the undivided portion of the customer receivables being
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conveyed to it. All sales of customer receivables to Funding are without
recourse to JCPenney. However, in the event of returned, rejected, or
repossessed merchandise to which any previously conveyed undefaulted customer
receivable relates, or in the event of a breach of a warranty made by JCPenney
in the Receivables Agreement to which any previously conveyed undefaulted
customer receivable relates, JCPenney is obligated to pay to Funding the amount
by which Funding has been damaged. Either party has the right at any time to
terminate the further sale or purchase, as the case may be, of customer
receivables under the Receivables Agreement.
Certain state laws provide for recording or other notice formalities
in connection with the assignment of accounts receivable. Funding does not
deem it appropriate to utilize such procedures in connection with customer
receivables purchased from JCPenney. In the event of the bankruptcy or
receivership of JCPenney, it is possible that creditors of JCPenney might be
deemed to have superior rights to some or all of the customer receivables
previously purchased by Funding.
Committed Bank Credit Facilities. Committed bank credit facilities
available to Funding as of January 29, 1994, amounted to $1.25 billion. In
1993, Funding entered into two syndicated revolving credit facility agreements.
These facilities include a $450 million, one-year revolver and an $800 million,
five-year revolver with a group of 39 domestic and international banks. These
facilities, which replaced the $500 million confirmed lines of credit and the
$750 million International Revolving Credit Facility, support commercial paper
borrowing arrangements. Neither of the borrowing facilities was in use as of
January 29, 1994. (See page 8 of Funding's 1993 Annual Report which is
incorporated herein by reference.)
Employment. Funding has had no employees since April 30, 1992.
General. Legislation regulating consumer credit has been enacted in
all states and federally. Funding's operations have not been affected by such
legislation since Funding does not deal directly with consumers.
2. PROPERTIES.
Funding owns no physical properties.
3. LEGAL PROCEEDINGS.
Funding has no material legal proceedings pending against it.
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PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
JCPenney owns all of Funding's outstanding common stock. Funding's
common stock is not traded, and no dividends have been, or are currently
intended to be, declared by Funding on its common stock.
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Balance Sheets of Funding as of January 29, 1994, January 30,
1993, and January 25, 1992, and the related statements of income, reinvested
earnings, and cash flows for the years then ended, appearing on pages 3 through
5 of Funding's 1993 Annual Report, together with the related notes and the
Independent Auditors' Report of KPMG Peat Marwick, independent certified public
accountants, appearing on page 6 of Funding's 1993 Annual Report, the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing on page 2 thereof, the section of Funding's 1993 Annual
Report entitled "Five Year Financial Summary" appearing on page 7 thereof, and
the unaudited quarterly financial highlights ("Quarterly Data") appearing on
page 8 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.
Funding has had no change in or disagreements with its independent
certified public accountants on accounting and financial disclosure.
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 1993 Annual Report.
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(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 and related material incorporated by
reference to Funding's 1993 Annual Report.
(a)(3) Exhibits.
See separate Exhibit Index on pages G-1 through G-4.
(b) Reports on Form 8-K filed during the fourth quarter of fiscal
1993.
None.
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/ D. A. MCKAY
D. A. McKay
Chairman of the Board
Dated: April 6, 1994
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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/ D. A. MCKAY
- ------------------
D. A. McKay Chairman of the Board April 6, 1994
(principal executive
officer); Director
S. F. Walsh* President April 6, 1994
(principal financial
officer); Director
L. A. Gispanski* Controller (principal April 6, 1994
accounting officer);
Director
R. B. Cavanaugh* Director April 6, 1994
R. E. Northam* Director April 6, 1994
*By /s/ D. A. MCKAY
----------------
D. A. McKay
Attorney-in-fact
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EXHIBIT INDEX
Exhibit
3. Articles of Incorporation and By-laws
(a) Copy of Certificate of Incorporation of Funding, effective April 13,
1964.
(b) Copy of Certificate of Amendment of Certificate of Incorporation,
effective January 1, 1969.
(c) Copy of Certificate of Amendment of Certificate of Incorporation,
effective August 11, 1987.
(d) Copy of Certificate of Amendment of Certificate of Incorporation,
effective April 10, 1988.
(e) Copy of By-laws of Funding, as amended to September 1, 1976.
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) Guaranty dated as of February 13, 1992, executed by J. C. Penney
Company, Inc. (incorporated by reference to Exhibit 4(b) to Funding's
Current Report on Form 8-K, Date of Report - April 3, 1992*).
G-1
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EXHIBIT INDEX
Exhibit
(c) Conformed copies of Revolving Credit Agreements, dated as of December
16, 1993, among J. C. Penney Company, Inc., J. C. Penney Funding
Corporation, Morgan Guaranty Trust Company of New York, as Agent, and
Bankers Trust Company, Chemical Bank, and Credit Suisse, as
Co-Agents, and Bank of America National Trust and Savings Association
and NationsBank of Texas, N.A., as Lead Managers.
(d) 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*).
(e) 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*).
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-2
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EXHIBIT INDEX
Exhibit
10. Material Contracts
THE CORPORATION HAS NO COMPENSATORY PLANS OR ARRANGEMENTS REQUIRED TO
BE FILED AS EXHIBITS TO THIS REPORT PURSUANT TO ITEM 14(c) OF THIS
REPORT.
(a) Conformed copy of Amended and Restated Receivables Agreement dated as
of January 29, 1980 between J. C. Penney Company, Inc. and J. C.
Penney Financial Corporation.
(b) Conformed copy of Amendment No. 1 to Amended and Restated Receivables
Agreement dated as of January 25, 1983 between J. C. Penney Company,
Inc. and J. C. Penney Financial Corporation.
(c) Conformed copy of 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*).
(d) Conformed copy of 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*).
* SEC file number 1-4947-1
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EXHIBIT INDEX
Exhibit
13. Annual Report to Security Holders
Excerpt from Funding's 1993 Annual Report.
23. Consent of Independent Certified Public Accountants
24. Powers of Attorney
99. Additional Exhibits
Excerpt from JCPenney's 1993 Annual Report to Stockholders.
G-4