===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 15, 2005
J. C. PENNEY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-15274 26-0037077
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation ) Identification 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
==============================================================================
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13d-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
J. C. Penney Company, Inc. issued a news release on November 15, 2005,
announcing its third quarter results of operations and financial condition. This
information is attached as Exhibit 99.1.
The news release referred to above contains the non-GAAP financial measure
of free cash flow. Although it is not a generally accepted accounting principle
(GAAP) measure, it is derived from components of the Company's consolidated GAAP
cash flow statement. Free cash flow from continuing operations is defined as
cash provided by operating activities less dividends and capital expenditures,
net of proceeds from the sale of assets.
Although free cash flow is a non-GAAP financial measure, management
believes it is important in evaluating the Company's financial performance and
measuring the ability to generate cash without incurring additional external
financing. Positive free cash flow generated by a company indicates the amount
of cash available for reinvestment in the business, or cash that can be returned
to investors through increased dividends, stock repurchase programs, debt
retirements, or a combination of these. Conversely, negative free cash flow
indicates the amount of cash that must be raised from investors through new debt
or equity issues, reduction in available cash balances or a combination of
these. Based on the seasonality of the Company's business, cumulative free cash
flow generally runs negative for the first nine months of the year and turns
positive in the fourth quarter. Free cash flow should be considered in addition
to, rather than as a substitute for, cash provided by operating activities. The
Company's calculation of free cash flow may differ from that used by other
companies and therefore comparability may be limited.
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 hereunto duly authorized.
J. C. PENNEY COMPANY, INC.
By: /s/ Robert B. Cavanaugh
------------------------------
Robert B. Cavanaugh
Executive Vice President,
Chief Financial Officer
Date: November 15, 2005
EXHIBIT INDEX
Exhibit Number Description
99.1 J. C. Penney Company, Inc.
News Release issued November 15, 2005
Exhibit 99.1
JCPENNEY REPORTS THIRD QUARTER EARNINGS OF $0.94 PER SHARE
Income From Continuing Operations Increases 58 Percent
Management Raises Fourth Quarter Earnings Guidance to $1.58 Per Share
PLANO, Texas, November 15, 2005 -- J. C. Penney Company, Inc. (NYSE: JCP) third
quarter earnings from continuing operations rose to $0.94 per share from $0.50
per share in last year's third quarter. On a dollar basis, income from
continuing operations increased 58 percent, to $234 million from $148 million
last year. Earnings per share increased primarily as a result of improved
operating performance, lower interest expense and the impact of the company's
ongoing common stock buyback program, which is now substantially complete.
Myron E. (Mike) Ullman, III, Chairman and Chief Executive Officer said, "We are
pleased with our operating performance during the course of 2005, especially in
the third quarter, which was a very challenging retail environment. As we enter
the fourth quarter, we are well positioned for the holiday selling season. While
there are issues impacting the consumer, we know we have a strong and exciting
selection of national and private brand merchandise that is supported by
compelling and creative marketing programs."
Ullman added, "Customers are reacting positively to changes that we are making
to our merchandise, marketing and sales environment, and the performance of our
new stores continues to exceed plan. Looking ahead, we are focused on executing
our long-range plan and believe that JCPenney is in a favorable position to
benefit from industry consolidation. In addition, our financial condition
continues to be very strong and provides the flexibility to capitalize on future
opportunities."
Operating Results
During the third quarter, comparable department store sales increased 2.5
percent on top of a 2.6 percent increase in last year's period. Sales were
positive across the majority of merchandise divisions, and from a regional
perspective, the strongest performance continued to be realized from the
southeastern and western regions of the country. During the quarter, Direct
(catalog/Internet) sales declined 0.9 percent, compared to a 3.6 percent
increase last year. Sales for jcpenney.com increased more than 25 percent in the
third quarter on top of a 30 percent increase last year.
Gross margin improved by 110 basis points to 41.8 percent of sales, reflecting
improvements in inventory management, seasonal transition and overall flow of
merchandise, as well as continued strength in the performance of the company's
private brand merchandise. SG&A expense dollars increased with the higher sales
volume, and were flat as a percent of sales. SG&A expenses in the third quarter
included the previously disclosed one-time credit of approximately $13 million
related to the favorable resolution of the Visa Check/MasterMoney Antitrust
litigation settlement, which was essentially offset by hurricane related costs.
Operating profit was $401 million, or 8.9 percent of sales, compared with $342
million, or 7.8 percent of sales last year. This represents an increase of 17
percent, or 110 basis points as a percent of sales.
Other Charges and Credits
Net interest expense was $41 million in the third quarter, with interest income
benefiting principally from higher short-term interest rates on cash balances.
The effective income tax rate for continuing operations was 36 percent, in line
with previous guidance.
Financial Condition
As of October 29, 2005, the company had cash investments of $2.0 billion and
long-term debt totaled $3.5 billion. Free cash flow is trending higher than
recent guidance, principally as a result of improved operating performance. As a
result, the company currently expects to generate at least $300 million of free
cash flow for the fiscal year.
Capital Structure Repositioning
During the third quarter, the company substantially completed its common stock
repurchase program, repurchasing 23.8 million shares of its common stock in open
market transactions. In total, the company has repurchased approximately 44
million shares in fiscal 2005 for about $2.2 billion. Since initiating the
program in August 2004, the company has repurchased approximately 94 million
shares of common stock for about $4.1 billion.
Earnings Guidance
The company currently expects to generate fourth quarter earnings from
continuing operations of approximately $1.58 per share. This would result in
full year earnings from continuing operations of approximately $3.51 per share,
an increase of more than 50 percent from the $2.20 per share earned in 2004,
with operating profit exceeding 8 percent of sales.
This guidance reflects low single-digit increases for both comparable department
store and Direct (catalog/Internet) sales coupled with improved gross margin and
SG&A expense ratios compared with fourth quarter last year. In addition, the
company expects net interest expense to be about $42 million for the fourth
quarter, based on the current interest rate environment. Average diluted share
counts for EPS calculations are expected to be approximately 235 million shares
for the fourth quarter and 255 million shares for the full year.
Conference Call/Webcast Details
Senior management will host a live conference call and real-time webcast today,
November 15, 2005, beginning at 9:30 a.m. ET. Access to the conference call is
open to the press and general public in a listen only mode. To access the
conference call, please dial 973-935-2035 and reference the JCPenney Quarterly
Earnings Conference Call. The telephone playback will be available for two days
beginning approximately two hours after the conclusion of the call by dialing
973-341-3080, pin code 5717200. The live webcast may be accessed via JCPenney's
Investor Relations page at www.jcpenney.net, or on www.streetevents.com (for
members) and www.earnings.com (for media and individual investors). Replays of
the webcast will be available for up to 90 days after the event.
For further information, contact:
Investor Relations
Bob Johnson; (972) 431-2217; rvjohnso@jcpenney.com
Ed Merritt; (972) 431-8167; emerritt@jcpenney.com
Public Relations
Darcie Brossart; (972) 431-4753; dbrossar@jcpenney.com
Quinton Crenshaw; (972) 431-5581; qcrensha@jcpenney.com
About JCPenney
J. C. Penney Corporation, Inc., the wholly owned operating subsidiary of J. C.
Penney Company, Inc., is one of America's largest department store, catalog, and
e-commerce retailers, employing approximately 150,000 associates. As of October
29, 2005, J. C. Penney Corporation, Inc. operated 1,017 JCPenney department
stores throughout the United States and Puerto Rico. JCPenney is the nation's
largest catalog merchant of general merchandise, and jcpenney.com is one of the
largest apparel and home furnishings sites on the Internet.
This release may contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements, which reflect the company's current views of future events and
financial performance, involve known and unknown risks and uncertainties that
may cause the company'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, including
the price and availability of oil and natural gas, changes in management, retail
industry consolidations, acts of terrorism or war, and government activity.
Please refer to the company's most recent Form 10-K and subsequent filings for a
further discussion of risks and uncertainties. Investors should take such risks
into account when making investment decisions. We do not undertake to update
these forward-looking statements as of any future date. In addition, non-GAAP
terms referenced, such as EBITDA and free cashflow, are defined and presented in
the company's 2004 annual report on Form 10-K.
# # #
J. C. PENNEY COMPANY, INC.
SUMMARY OF OPERATING RESULTS
(Unaudited)
(Amounts in millions except per share data)
13 weeks ended 39 weeks ended
---------------------------------- --------------------------------------
Oct. 29, Oct. 30, % Inc. Oct. 29, Oct. 30, % Inc.
2005 2004 (Dec.) 2005 2004 (Dec.)
----------- ----------- --------- ------------ ----------- ----------
SALES PERCENTAGES:
Comparable department store sales increase 2.5% 2.6% 3.0% 6.0%
Direct (Catalog/Internet) sales (decrease)/increase (0.9)% 3.6% 3.5% 2.9%
STATEMENTS OF OPERATIONS:
Total net sales $4,479 $4,391 2.0% $ 12,578 $ 12,141 3.6%
Gross margin 1,874 1,789 4.8% 5,084 4,782 6.3%
Selling, general and administrative
(SG&A) expenses 1,473 1,447 1.8% 4,162 4,067 2.3%
----------- ----------- ------------ -----------
Operating profit 401 342 17.3% 922 715 29.0%
Net interest expense 41 68 (39.7)% 130 170 (23.5)%
Bond premiums and unamortized costs - 47 N/A 18 47 (61.7)%
Real estate and other income (5) - N/A (41) (13) N/A
----------- ----------- ------------ -----------
Income from continuing operations
before income taxes 365 227 60.8% 815 511 59.5%
Income tax expense 131 79 65.8% 288 178 61.8%
----------- ----------- ------------ -----------
Income from continuing operations $ 234 $ 148 58.1% $ 527 $ 333 58.3%
----------- ----------- ------------ -----------
Discontinued operations, net of income tax
expense/(benefit) of $-, $-, $28 and $(176) - 1 N/A 10 (142) N/A
----------- ----------- ------------ -----------
Net income $ 234 $ 149 57.0% $ 537 $ 191 100.0% +
=========== =========== ============ ===========
Earnings per share from continuing
operations - diluted $ 0.94 $ 0.50 88.0% $ 2.01 $ 1.10 82.7%
Earnings per share - diluted $ 0.94 $ 0.50 88.0% $ 2.05 $ 0.64 100.0% +
FINANCIAL DATA:
Ratios as a % of sales:
Gross margin 41.8% 40.7% 40.4% 39.4%
SG&A expenses 32.9% 32.9% 33.1% 33.5%
Operating profit 8.9% 7.8% 7.3% 5.9%
Depreciation and amortization $ 96 $ 89 $ 271 $ 257
Effective income tax rate for continuing operations 36.0% 34.9% 35.4% 34.9%
COMMON SHARES DATA
Outstanding shares at end of period 232.0 267.0 232.0 267.0
Average shares outstanding (basic shares) 246.3 279.2 259.7 279.8
Average shares used for diluted EPS 248.6 309.0 262.3 307.6
Shares repurchased 23.8 27.6 44.0 27.6
Total cost of shares repurchased $1,162 $ 1,040 $ 2,188 $ 1,040
J. C. PENNEY COMPANY, INC.
SUMMARY BALANCE SHEETS AND STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
Oct. 29, Oct. 30,
2005 2004
----------- ------------
SUMMARY BALANCE SHEETS:
Cash and short-term investments $ 2,044 $ 4,541
Merchandise inventory (net of LIFO reserves of $25 and $43) 4,229 4,207
Other current assets 469 394
Property and equipment, net 3,655 3,439
Other assets 1,996 2,058
Assets of discontinued operations - 250
----------- ------------
Total assets $ 12,393 $ 14,889
=========== ============
Accounts payable and accrued expenses $ 3,079 $ 3,091
Current maturities of long-term debt 15 603
Current income taxes, payable and deferred 119 103
Long-term debt 3,454 3,955
Long-term deferred taxes 1,293 1,291
Other liabilities 1,010 997
Liabilities of discontinued operations - 106
----------- ------------
Total liabilities 8,970 10,146
Stockholders' equity 3,423 4,743
----------- ------------
Total liabilities and stockholders' equity $ 12,393 $ 14,889
=========== ============
39 weeks ended
-----------------------------------------
Oct. 29, Oct. 30,
SUMMARY STATEMENTS OF CASH FLOWS: 2005 2004
----------- ------------
Net cash provided by/(used in):
Total operating activities $ 176 * $ (147)(1)*
----------- ------------
Investing activities
Capital expenditures (395)* (308)*
Proceeds from sale of assets 28 * 28 *
Proceeds from the sale of discontinued operations 283 4,666
----------- ------------
Total investing activities (84) 4,386
----------- ------------
Financing activities
Change in debt (470) (850)
Stock repurchase program (2,161) (1,040)
Other change in stock 171 191
Dividends paid, preferred and common (101)* (116)*
----------- ------------
Total financing activities (2,561) (1,815)
----------- ------------
Cash (paid for) discontinued operations (136) (847)(2)
----------- ------------
Net (decrease)/increase in cash and short-term investments (2,605) 1,577
Cash and short-term investments at beginning of period 4,649 2,964
----------- ------------
Cash and short-term investments at end of period $ 2,044 $ 4,541
=========== ============
(1) Included a voluntary $300 million, or $190 million after tax, contribution to the Company's pension plan.
(2) Included an income tax payment of $624 million relating to the taxable gain on the sale of Eckerd.
* Component of free cash flow, a non-GAAP measure. Free cash flow was $(292)
million and $(543) million for the 39 weeks ended 10/29/05 and 10/30/04,
respectively.