Old COPPER (CPPRQ) 10-Q 9 Jun 10 2010 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information (USD $)
	3 Months Ended May. 01, 2010	Jun. 04, 2010	Aug. 01, 2009
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-05-01
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1
Entity Registrant Name	J C PENNEY CO INC
Entity Central Index Key	0001166126
Current Fiscal Year End Date	--01-29
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$6,767,999,610
Entity Common Stock, Shares Outstanding		236,397,100

CONSOLIDATED STATEMENTS of OPER

CONSOLIDATED STATEMENTS of OPERATIONS (Unaudited) (USD $)
In Millions, except Per Share data	3 Months Ended May. 01, 2010	3 Months Ended May. 02, 2009
Total net sales	$3,929	$3,884
Cost of goods sold	2,299	2,310
Gross margin	1,630	1,574
Operating expenses:
Selling, general and administrative (SG&A)	1,289	1,255
Pension	64	90
Depreciation and amortization	125	120
Pre-opening	3	9
Real estate and other, net	(6)	(6)
Total operating expenses	1,475	1,468
Operating income	155	106
Net interest expense	59	63
Income before income taxes	96	43
Income tax expense	36	18
Net income	$60	$25
Earnings per share:
Basic	0.25	0.11
Diluted	0.25	0.11

CONSOLIDATED BALANCE SHEETS (Un

CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $)
In Millions	May. 01, 2010		Jan. 30, 2010		May. 02, 2009
Current assets
Cash in banks and in transit	$220		$163		$220
Cash short-term investments	2,158		2,848		1,918
Cash and cash equivalents	2,378		3,011		2,138
Merchandise inventory	3,214		3,024		3,237
Income taxes receivable	357		395		320
Prepaid expenses and other	199		222		234
Total current assets	6,148		6,652		5,929
Property and equipment (net of accumulated depreciation of $2,806, $2,550 and $2,701)	5,307		5,357		5,335
Other assets	626		572		481
Total Assets	12,081		12,581		11,745
Current liabilities
Merchandise accounts payable	1,303		1,226		1,102
Other accounts payable and accrued expenses	1,350		1,630		1,340
Current maturities of long-term debt	0		393		506
Total current liabilities	2,653		3,249		2,948
Long-term debt	2,999		2,999		2,999
Deferred taxes	833		817		608
Other liabilities	726		738		994
Total Liabilities	7,211		7,803		7,549
Stockholders' Equity
Common stock(1)	118	[1]	118	[1]	111	[1]
Additional paid-in capital	3,881		3,867		3,507
Reinvested earnings	2,036		2,023		1,940
Accumulated other comprehensive (loss)	(1,165)		(1,230)		(1,362)
Total Stockholders' Equity	4,870		4,778		4,196
Total Liabilities and Stockholders' Equity	$12,081		$12,581		$11,745
[1]1,250 million shares of common stock are authorized with a par value of $0.50 per share. The total shares issued and outstanding were 236, 222 and 236 million shares as of May 1, 2010, May 2, 2009 and January 30, 2010, respectively.

CONSOLIDATED BALANCE SHEETS (Pa

CONSOLIDATED BALANCE SHEETS (Parenthetical) (Unaudited) (USD $)
In Millions, except Per Share data	May. 01, 2010	Jan. 30, 2010	May. 02, 2009
Accumulated depreciation	$2,806	$2,701	$2,550
Common stock, authorized	1,250	1,250	1,250
Common stock, par value per share	0.5	0.5	0.5
Common stock, issued and outstanding	236	236	222

CONSOLIDATED STATEMENTS of CASH

CONSOLIDATED STATEMENTS of CASH FLOWS (Unaudited) (USD $)
In Millions	3 Months Ended May. 01, 2010	3 Months Ended May. 02, 2009
Cash flows from operating activities:
Net income	$60	$25
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
Asset impairments and other charges	3	3
Depreciation and amortization	125	120
Benefit plans expense	50	83
Stock-based compensation	12	10
Tax benefits from stock-based compensation	2	2
Deferred taxes	(3)	(1)
Change in cash from:
Inventory	(190)	22
Prepaid expenses and other assets	23	23
Merchandise accounts payable	77	(92)
Current income taxes payable	17	6
Accrued expenses and other	(261)	(135)
Net cash (used in)/provided by operating activities	(85)	66
Cash flows from investing activities:
Capital expenditures	(116)	(156)
Proceeds from sale of assets	4	0
Net cash (used in) investing activities	(112)	(156)
Cash flows from financing activities:
Payments of long-term debt, including capital leases	(393)	0
Financing costs	0	(30)
Dividends paid, common	(47)	(89)
Proceeds from stock options exercised	4	0
Excess tax benefits from stock-based compensation	1	0
Tax withholding payments reimbursed by restricted stock	(1)	(2)
Net cash (used in) financing activities	(436)	(121)
Cash flows from discontinued operations:
Operating cash flows	0	(3)
Investing cash flows	0	0
Financing cash flows	0	0
Total cash (paid for) discontinued operations	0	(3)
Net (decrease) in cash and cash equivalents	(633)	(214)
Cash and cash equivalents at beginning of year	3,011	2,352
Cash and cash equivalents at end of period	$2,378	$2,138

Basis of Presentation and Conso

Basis of Presentation and Consolidation
	3 Months Ended May. 01, 2010
Basis of Presentation and Consolidation	Note 1 Basis of Presentation and Consolidation Basis of Presentation J. C. Penney Company, Inc. is a holding company whose principal operating subsidiary is J. C. Penney Corporation, Inc. (JCP). JCP was incorporated in Delaware in 1924, and J. C. Penney Company, Inc. was incorporated in Delaware in 2002, when the holding company structure was implemented. The holding company has no independent assets or operations, and no direct subsidiaries other than JCP. The holding company and its consolidated subsidiaries, including JCP, are collectively referred to in this quarterly report as we, us, our, ourselves, JCPenney or the Company, unless otherwise indicated. J. C. Penney Company, Inc. is a co-obligor (or guarantor, as appropriate) regarding the payment of principal and interest on JCPs outstanding debt securities. The guarantee of certain of JCPs outstanding debt securities by J. C. Penney Company, Inc. is full and unconditional. These Interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). The accompanying Interim Consolidated Financial Statements are unaudited but, in our opinion, include all material adjustments necessary for a fair presentation and should be read in conjunction with the Consolidated Financial Statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended January 30, 2010 (2009 Form 10-K). We follow substantially the same accounting policies to prepare quarterly financial statements as are followed in preparing annual financial statements. A description of such significant accounting policies is included in the 2009 Form 10-K. The January 30, 2010 financial information was derived from the audited Consolidated Financial Statements, with related footnotes, included in the 2009 Form 10-K. Because of the seasonal nature of the retail business, operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. Fiscal Year Our fiscal year ends on the Saturday nearest to January31. As used herein, three months ended May 1, 2010 and three months ended May 2, 2009 refer to the 13 week periods ending May1, 2010 and May 2, 2009, respectively. Basis of Consolidation All significant intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications were made to prior year amounts to conform to the current period presentation. None of the reclassifications affected our net income in any period.

Earnings per Share

Earnings per Share
	3 Months Ended May. 01, 2010
Earnings per Share	Note 2 Earnings per Share Net income and shares used to compute basic and diluted earnings per share (EPS) are reconciled below: (in millions, except per share data) Three Months Ended May 1, May 2, 2010 2009 Earnings: Net income, basic and diluted $ 60 $ 25 Shares: Average common shares outstanding (basic shares) 236 222 Adjustment for assumed dilution: Stock options and restricted stock awards 2 1 Average shares assuming dilution (diluted shares) 238 223 EPS: Basic $ 0.25 $ 0.11 Diluted $ 0.25 $ 0.11 For the three months ended May 1, 2010 and May 2, 2009, 10 million and 13 million average potential shares of common stock, respectively, were excluded from the EPS calculation because their effect would have been anti-dilutive.

Supplemental Cash Flow Informat

Supplemental Cash Flow Information
	3 Months Ended May. 01, 2010
Supplemental Cash Flow Information	Note 3 Supplemental Cash Flow Information ($ in millions) Three Months Ended May 1, May 2, 2010 2009 Income taxes paid $ 20 $ 9 Interest paid 117 120 Interest received 2 1

Credit Facility

Credit Facility
	3 Months Ended May. 01, 2010
Credit Facility	Note 4 Credit Facility On April 8, 2009, J. C. Penney Company, Inc., JCP and J. C. Penney Purchasing Corporation entered into a three-year, $750 million revolving credit agreement (2009 Credit Facility) with a syndicate of lenders with JPMorgan Chase Bank, N.A., as administrative agent. The facility is secured by our inventory, which security interest can be released upon attainment of certain credit rating levels. The 2009 Credit Facility is available for general corporate purposes, including the issuance of letters of credit. Pricing under the 2009 Credit Facility is tiered based on JCPs senior unsecured long-term credit ratings issued by Moodys Investors Service, Inc. and Standard Poors Ratings Services. JCPs obligations under the 2009 Credit Facility are guaranteed by J. C. Penney Company, Inc. The 2009 Credit Facility requires that we maintain certain financial covenants, which include a leverage ratio, a fixed charge coverage ratio and an asset coverage ratio (each as defined in the 2009 Credit Facility). Under the terms of the 2009 Credit Facility, non-cash charges or credits related to retirement plans are not included in the calculation of EBITDA (consolidated earnings before income taxes less depreciation and amortization), which is used in the leverage ratio and fixed charge coverage ratio. The leverage ratio, which is calculated as of the last day of the quarter and measured on a trailing four-quarter basis, cannot exceed 3.5 to 1 from January31, 2010 through October30, 2010 and 3.0 to 1 thereafter. The fixed charge coverage ratio, which is calculated as of the last day of the quarter and measured on a trailing four-quarter basis, cannot be less than 2.25 to 1 through October30, 2010, 2.5 to 1 from October31, 2010 through October29, 2011; and 3.0 to 1 thereafter. The asset coverage ratio, which is calculated as of the last day of each fiscal month, cannot be less than 3.0 to 1. As of May 1, 2010, we were in compliance with these requirements with a leverage ratio of 2.0 to 1, a fixed charge coverage ratio of3.5 to 1 and an asset coverage ratio of 24 to 1. No borrowings, other than the issuance of standby and import letters of credit totaling $133 million as of the end of the first quarter of 2010, have been made under the 2009 Credit Facility.

Long-Term Debt

Long-Term Debt
	3 Months Ended May. 01, 2010
Long-Term Debt	Note 5 Long-Term Debt On March 1, 2010 we repaid at maturity the remaining $393 million outstanding principal amount of JCPs 8.0% Notes due 2010. On April 26, 2010, we commenced a tender offer to purchase up to $300 million aggregate principal amount of JCPs outstanding debt securities in the priority and upon the terms and subject to the conditions set forth in an Offer to Purchase and related Letter of Transmittal. The tender offer expired on May 21, 2010, subsequent to the first quarter. On May 24, 2010, we accepted for purchase $300 million principal amount of JCPs outstanding 6.375% Senior Notes due 2036 (Notes), which were validly tendered pursuant to the cash tender offer. We paid approximately $314 million aggregate consideration, including accrued and unpaid interest, for the accepted Notes on May 25, 2010. Also subsequent to the quarter, on May 24, 2010, we closed on our offering of $400 million aggregate principal amount of 5.65% Senior Notes due 2020 and used proceeds of the offering, net of underwriting discounts, of approximately $392 million to make a voluntary cash contribution to the J. C. Penney Corporation, Inc. Pension Plan. During the first quarter of 2009, there were no scheduled debt maturities and no issuances of debt.

Fair Value Disclosures

Fair Value Disclosures
	3 Months Ended May. 01, 2010
Fair Value Disclosures	Note 6 Fair Value Disclosures We determined the fair value of our real estate investment trusts (REITs) using quoted market prices. See Note 7 for the net unrealized gain of $30 million in REITs recorded in accumulated other comprehensive income, a component of net equity. Our REIT assets measured at fair value on a recurring basis were as follows: ($ in millions) REIT Assets at Fair Value Quoted Prices in Active Markets of Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total May 1, 2010 $ 225 $ - $ - $ 225 May 2, 2009 117 - - 117 1 January 30, 2010 178 - - 178 Other Financial Instruments Our financial instruments include cash and cash equivalents and long-term debt. The carrying amount of our cash and cash equivalents approximates fair value because of the short maturity of these instruments. The fair value of long-term debt is estimated by obtaining quotes from brokers or is based on current rates offered for similar debt. At May 1, 2010, long-term debt had a carrying value of $3.0 billion and a fair value of $3.2 billion. At January 30, 2010, long-term debt, including current maturities had a carrying value of $3.4 billion and a fair value of $3.3 billion.

Stockholders' Equity

Stockholders' Equity
	3 Months Ended May. 01, 2010
Stockholders' Equity	Note 7 Stockholders Equity The following table shows the change in the components of stockholders equity for the first three months of 2010: (in millions) Number of Common Shares Common Stock Additional Paid-in Capital Reinvested Earnings Accumulated Other Comprehensive (Loss)/Income Total Stockholders Equity January30, 2010 236 $ 118 $ 3,867 $ 2,023 $ (1,230 )(1) $ 4,778 Net income - - - 60 - 60 Other comprehensive income - - - - 65 65 Dividends declared, common - - - (47 ) - (47 ) Vesting of share-based payments - - 14 - - 14 May 1, 2010 236 $ 118 $ 3,881 $ 2,036 $ (1,165 )(2) $ 4,870 (1) Includes an unrealized gain in REITs of $63 million (shown net of a $35 million deferred tax liability) and actuarial (loss) and prior service (cost) for the pension and postretirement plans of $1,293 million (shown net of an $825 million deferred tax asset). (2) Includes an unrealized gain in REITs of $93 million (shown net of a deferred tax liability of $52 million) and actuarial (loss) and prior service (cost) for the pension and postretirement plans of $1,258 million (shown net of an $802 million deferred tax asset). Comprehensive Income Three Months Ended ($ in millions) May 1, 2010 May 2, 2009 Net income $ 60 $ 25 Other comprehensive income net of tax: Amortization of net actuarial gain and prior service cost 35 42 Unrealized gain in REITs 30 10 Total other comprehensive income 65 52 Total comprehensive income $ 125 $ 77

Stock-Based Compensation

Stock-Based Compensation
	3 Months Ended May. 01, 2010
Stock-Based Compensation	Note 8 Stock-Based Compensation We grant stock-based compensation awards to employees (associates) and non-employee directors under our 2009 Long-Term Incentive Plan (2009 Plan). As of May 1, 2010, there were 11.2 million shares of stock available for future grant under the 2009 Plan. The following table presents total stock-based compensation costs and related income tax benefits : ($ in millions) Three Months Ended May 1, May 2, 2010 2009 Stock awards (shares and units) $ 4 $ 3 Stock options 8 7 Total stock-based compensation $ 12 $ 10 Total related income tax benefits $ 5 $ 4 Stock Options On March 16, 2010, we made an annual grant of stock options covering approximately 2.7 million shares to associates at an option price of $30.72, with a fair value of $9.04 per option. The following table summarizes stock options outstanding as of May 1, 2010, as well as activity during the three months then ended: (options in thousands) Stock Options Weighted-Average Exercise Price Outstanding at January 30, 2010 13,561 $ 36 Granted 2,689 31 Exercised (213 ) 17 Forfeited or expired (218 ) 33 Outstanding at May 1, 2010 15,819 36 Exercisable at May 1, 2010 8,917 44 As of May 1, 2010, there was $50 million of unrecognized compensation expense, net of estimated forfeitures, for unvested stock options, which will be recognized over the remaining weighted-average vesting period of approximately one year. Stock Awards On March 16, 2010, we made a grant of approximately 964,000 restricted stock unit awards to associates, representing the annual grant under the 2009 Plan. These awards consisted of approximately 574,000 time-based restricted stock units and approximately 390,000 performance-based stock units. The time-based restricted stock units vest one-third on each of the first three anniversaries of the grant date provided that the associate remains continuously employed with the Company during that time. The performance-based unit grant is a target award with a payout matrix ranging from 0% to 200% based on 2010 EPS (defined as per common share income from continuing operations, excluding any unusual and/or extraordinary items as determined by the Human Resources and Compensation Committee of the Board). A payment of 100% of the target award would be achieved at EPS of $1.58. In addition to the performance requirement, this award also includes a time-based vesting requirement, which is the same as the requirement for the time-based restricted stock unit award. Upon vesting, both the time-based restricted stock units and the performance-based restricted stock units will be paid out in shares of JCPenney common stock. In addition to the annual associate grant, the Company granted approximately 28,000 restricted stock units consisting of ad-hoc awards to associates and dividend equivalents on outstanding awards during the first quarter of 2010. During the first quarter of 2010, in addition to the vesting of individual restr

Retirement Benefit Plans

Retirement Benefit Plans
	3 Months Ended May. 01, 2010
Retirement Benefit Plans	Note 9 Retirement Benefit Plans The components of net periodic benefit costs for our non-contributory qualified defined benefit pension plan (primary plan) and non-contributory supplemental pension plans for the three months ended May 1, 2010 and May 2, 2009 were as follows: Pension Plans Primary Plan Supplemental Total ($ in millions) Three Months Ended Three Months Ended Three Months Ended May 1, May 2, May 1, May 2, May 1, May 2, 2010 2009 2010 2009 2010 2009 Service cost $ 22 $ 18 $ 1 $ 1 $ 23 $ 19 Interest cost 62 63 4 4 66 67 Expected return on plan assets (88 ) (70 ) - - (88 ) (70 ) Net amortization 59 70 4 4 63 74 Net periodic benefit expense $ 55 $ 81 $ 9 $ 9 $ 64 $ 90 The components of the net periodic benefit of our contributory postretirement health and welfare plan were predominantly included in SGA expenses on the Consolidated Statements of Operations and were as follows: Postretirement Health and Welfare Plan ($ in millions) Three Months Ended May 1, May 2, 2010 2009 Service cost $ - $ - Interest cost - - Expected return on plan assets - - Net amortization (6 ) (6 ) Net periodic (income) $ (6 ) $ (6 ) Defined Contribution Plans Our defined contribution plans include a qualified Savings, Profit-Sharing and Stock Ownership Plan, a 401(k) plan, a non-contributory retirement account and a non-qualified contributory unfunded mirror savings plan offered to certain management associates. Total expense for our defined contribution plans for the first quarters of 2010 and 2009 was $14 million and $15 million, respectively, and is predominately included in SGA expense on the Consolidated Statements of Operations. Employer Contributions Our policy with respect to funding the primary plan is to fund at least the minimum required by the Employee Retirement Income Security Act of 1974 (ERISA) rules, as amended by the Pension Protection Act of 2006, and not more than the maximum amount deductible for tax purposes. Based on the funded status of our primary plan, we are not required to make a mandatory cash contribution to the primary plan under ERISA rules in 2010 or 2011; however, on May 24, 2010, we used net proceeds of approximately $392 million from the issuance of $400 million of 5.65% Senior Notes due 2020 to make a voluntarycash contribution to the primary plan.

Real Estate and Other, Net

Real Estate and Other, Net
	3 Months Ended May. 01, 2010
Real Estate and Other, Net	Note 10 Real Estate and Other, Net Three Months Ended ($ in millions) May 1, May 2, 2010 2009 Real estate activities $ (8 ) $ (9 ) Other 2 3 Total (income) $ (6 ) $ (6 ) Real estate and other consists mainly of ongoing operating income from our real estate subsidiaries whose primary investments are in REITs, as well as investments in 14 joint ventures that own regional mall properties. Real estate and other also includes net gains from the sale of facilities and equipment that are no longer used in operations, asset impairments and other non-operating charges and credits.

Litigation, Other Contingencies

Litigation, Other Contingencies and Guarantees
	3 Months Ended May. 01, 2010
Litigation, Other Contingencies and Guarantees	Note 11 Litigation, Other Contingencies and Guarantees We are subject to various legal and governmental proceedings involving routine litigation incidental to our business. Reserves have been established based on our best estimates of our potential liability in certain of these matters. These estimates have been developed in consultation with in-house and outside counsel. While no assurance can be given as to the ultimate outcome of these matters, management currently believes that the final resolution of these actions, individually or in the aggregate, will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources. As of May 1, 2010, we estimated our total potential environmental liabilities to range from $49 million to $60 million and recorded our best estimate of $50 million in other liabilities in the Consolidated Balance Sheet as of that date. This estimate covered potential liabilities primarily related to underground storage tanks, remediation of environmental conditions involving our former Eckerd drugstore locations and asbestos removal in connection with approved plans to renovate or dispose of our facilities. We continue to assess required remediation and the adequacy of environmental reserves as new information becomes available and known conditions are further delineated. If we were to incur losses at the upper end of the estimated range, we do not believe that such losses would have a material effect on our financial condition, results of operations or liquidity. As of May 1, 2010, we had a guarantee totaling $20 million for the maximum exposure on insurance reserves established by a former subsidiary included in the sale of our Direct Marketing Services business.

Effect of New Accounting Standa

Effect of New Accounting Standards
	3 Months Ended May. 01, 2010
Effect of New Accounting Standards	Note 12 Effect of New Accounting Standards Fair Value Measurements In January 2010, we adopted the guidance issued by the Financial Accounting Standards Board on improving annual disclosures about fair value measurements, which requires reporting entities to make new disclosures about recurring or nonrecurring fair value measurements including significant transfers into and out of level 1 and level 2 categories and information on purchases, sales issuances, and settlements on a gross basis in the reconciliation of level 3 measurements. The guidance was effective for us in the beginning of 2010, except for level 3 reconciliation disclosures, which will be effective for our 2010 year-end. Since these are disclosure only requirements, they do not have an impact on our consolidated financial statements.