x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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26-0037077
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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6501 Legacy Drive, Plano, Texas
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75024 - 3698
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
x
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Accelerated filer
¨
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Non-accelerated filer
¨
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Smaller reporting company
¨
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(Do not check if a smaller reporting company)
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Page
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Three Months Ended
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|
Six Months Ended
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||||||||||||
(In millions, except per share data)
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July 30,
2016 |
|
August 1,
2015 |
|
July 30,
2016 |
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August 1,
2015 |
||||||||
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As Adjusted
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As Adjusted
|
||||||||
Total net sales
|
$
|
2,918
|
|
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$
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2,875
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|
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$
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5,729
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|
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$
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5,732
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Cost of goods sold
|
1,834
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1,810
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3,627
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3,626
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|
||||
Gross margin
|
1,084
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|
|
1,065
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2,102
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2,106
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||||
Operating expenses/(income):
|
|
|
|
|
|
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|
||||||||
Selling, general and administrative (SG&A)
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853
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|
901
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1,725
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1,866
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||||
Pension
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2
|
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(16
|
)
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|
4
|
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(35
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)
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||||
Depreciation and amortization
|
153
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|
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153
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|
|
307
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|
|
307
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|
||||
Real estate and other, net
|
(9
|
)
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19
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|
|
(47
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)
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(16
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)
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||||
Restructuring and management transition
|
9
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|
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17
|
|
|
15
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39
|
|
||||
Total operating expenses
|
1,008
|
|
|
1,074
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|
|
2,004
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|
|
2,161
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||||
Operating income/(loss)
|
76
|
|
|
(9
|
)
|
|
98
|
|
|
(55
|
)
|
||||
(Gain)/loss on extinguishment of debt
|
34
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|
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—
|
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30
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|
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—
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||||
Net interest expense
|
93
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|
|
103
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|
|
188
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|
|
201
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|
||||
Income/(loss) before income taxes
|
(51
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)
|
|
(112
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)
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(120
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)
|
|
(256
|
)
|
||||
Income tax expense/(benefit)
|
5
|
|
|
5
|
|
|
4
|
|
|
11
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|
||||
Net income/(loss)
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$
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(56
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)
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$
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(117
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)
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$
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(124
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)
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$
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(267
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)
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Earnings/(loss) per share:
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||||||||
Basic
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$
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(0.18
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)
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$
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(0.38
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)
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$
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(0.40
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)
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$
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(0.87
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)
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Diluted
|
$
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(0.18
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)
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$
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(0.38
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)
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$
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(0.40
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)
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$
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(0.87
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)
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Weighted average shares – basic
|
308.0
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305.9
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307.6
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305.7
|
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Weighted average shares – diluted
|
308.0
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305.9
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307.6
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305.7
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Three Months Ended
|
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Six Months Ended
|
||||||||||||
($ in millions)
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July 30,
2016 |
|
August 1,
2015 |
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July 30,
2016 |
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August 1,
2015 |
||||||||
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As Adjusted
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As Adjusted
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||||||||
Net income/(loss)
|
$
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(56
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)
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$
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(117
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)
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$
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(124
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)
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$
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(267
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)
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Other comprehensive income/(loss), net of tax:
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|
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||||||||
Retirement benefit plans
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Prior service credit/(cost) arising during the period
(1)
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—
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—
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5
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—
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||||
Reclassification for net actuarial (gain)/loss
(2)
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(1
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)
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—
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(2
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)
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—
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Reclassification for amortization of prior service (credit)/cost
(3)
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—
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—
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—
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—
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Cash flow hedges
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||||||||
Gain/(loss) on interest rate swaps
(4)
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(6
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)
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(7
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)
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(9
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)
|
|
(7
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)
|
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Reclassification for periodic settlements
(5)
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2
|
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1
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4
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|
|
1
|
|
||||
Deferred tax valuation allowance
|
(1
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)
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(3
|
)
|
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(1
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)
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|
(3
|
)
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||||
Total other comprehensive income/(loss), net of tax
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(6
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)
|
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(9
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)
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(3
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)
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(9
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)
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||||
Total comprehensive income/(loss), net of tax
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$
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(62
|
)
|
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$
|
(126
|
)
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$
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(127
|
)
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$
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(276
|
)
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(1)
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Net of
$(3) million
in tax in 2016.
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(2)
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Net of
$1 million
and
$2 million
in tax in the three and
six
months ended
July 30, 2016
, respectively. Pre-tax amounts of
$(2) million
and
$(4) million
in the three and
six
months ended
July 30, 2016
, respectively, were recognized in SG&A in the Consolidated Statements of Operations.
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(3)
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Pre-tax amounts of
$2 million
and
$4 million
in the three and
six
months ended
July 30, 2016
, respectively, were recognized in Pension in the Consolidated Statements of Operations. Pre-tax amounts of
$(2) million
and
$(4) million
in the three and
six
months ended
July 30, 2016
were recognized in SG&A in the Consolidated Statements of Operations.
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(4)
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Net of
$3 million
and
$4 million
of tax in the three and
six
months ended
July 30, 2016
, respectively. Net of
$3 million
of tax in the three and
six
months ended
August 1, 2015
, respectively.
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(5)
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Net of
$(1) million
and
$(2) million
of tax in the three and
six
months ended
July 30, 2016
, respectively, and
$3 million
and
$6 million
in pre-tax amounts for the three and
six
months ended
July 30, 2016
, respectively, were recognized in Net interest expense in the Consolidated Statements of Operations. Net of
$(1) million
of tax in the three and
six
months ended
August 1, 2015
, respectively, and
$2 million
in pre-tax amounts for the three and
six
months ended
August 1, 2015
, respectively, were recognized in Net interest expense in the Consolidated Statements of Operations.
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July 30,
2016 |
|
August 1,
2015 |
|
January 30,
2016 |
||||||
(In millions, except per share data)
|
(Unaudited)
|
|
(Unaudited)
|
|
|
||||||
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As Adjusted
|
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|
||||||
Assets
|
|
|
|
|
|
||||||
Current assets:
|
|
|
|
|
|
||||||
Cash in banks and in transit
|
$
|
171
|
|
|
$
|
178
|
|
|
$
|
119
|
|
Cash short-term investments
|
258
|
|
|
795
|
|
|
781
|
|
|||
Cash and cash equivalents
|
429
|
|
|
973
|
|
|
900
|
|
|||
Merchandise inventory
|
2,981
|
|
|
3,005
|
|
|
2,721
|
|
|||
Deferred taxes
|
231
|
|
|
184
|
|
|
231
|
|
|||
Prepaid expenses and other
|
235
|
|
|
200
|
|
|
166
|
|
|||
Total current assets
|
3,876
|
|
|
4,362
|
|
|
4,018
|
|
|||
Property and equipment (net of accumulated depreciation of $3,742, $3,586 and $3,757)
|
4,686
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|
|
4,989
|
|
|
4,816
|
|
|||
Prepaid pension
|
—
|
|
|
266
|
|
|
—
|
|
|||
Other assets
|
604
|
|
|
615
|
|
|
608
|
|
|||
Total Assets
|
$
|
9,166
|
|
|
$
|
10,232
|
|
|
$
|
9,442
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
||||||
Current liabilities:
|
|
|
|
|
|
||||||
Merchandise accounts payable
|
$
|
1,094
|
|
|
$
|
1,122
|
|
|
$
|
925
|
|
Other accounts payable and accrued expenses
|
1,121
|
|
|
1,170
|
|
|
1,360
|
|
|||
Current portion of capital leases and note payable
|
18
|
|
|
27
|
|
|
26
|
|
|||
Current maturities of long-term debt
|
341
|
|
|
28
|
|
|
101
|
|
|||
Total current liabilities
|
2,574
|
|
|
2,347
|
|
|
2,412
|
|
|||
Long-term capital leases and note payable
|
10
|
|
|
18
|
|
|
10
|
|
|||
Long-term debt
|
4,356
|
|
|
5,225
|
|
|
4,668
|
|
|||
Deferred taxes
|
425
|
|
|
378
|
|
|
425
|
|
|||
Other liabilities
|
604
|
|
|
604
|
|
|
618
|
|
|||
Total Liabilities
|
7,969
|
|
|
8,572
|
|
|
8,133
|
|
|||
Stockholders’ Equity
|
|
|
|
|
|
||||||
Common stock
(1)
|
154
|
|
|
153
|
|
|
153
|
|
|||
Additional paid-in capital
|
4,668
|
|
|
4,627
|
|
|
4,654
|
|
|||
Reinvested earnings/(accumulated deficit)
|
(3,131
|
)
|
|
(2,761
|
)
|
|
(3,007
|
)
|
|||
Accumulated other comprehensive income/(loss)
|
(494
|
)
|
|
(359
|
)
|
|
(491
|
)
|
|||
Total Stockholders’ Equity
|
1,197
|
|
|
1,660
|
|
|
1,309
|
|
|||
Total Liabilities and Stockholders’ Equity
|
$
|
9,166
|
|
|
$
|
10,232
|
|
|
$
|
9,442
|
|
(1)
|
1,250 million shares of common stock are authorized with a par value of $0.50 per share. The total shares issued and outstanding were
307.6 million
,
305.5 million
and
306.1 million
as of
July 30, 2016
,
August 1, 2015
and
January 30, 2016
, respectively.
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
($ in millions)
|
July 30,
2016 |
|
August 1,
2015 |
|
July 30,
2016 |
|
August 1,
2015 |
||||||||
|
|
|
As Adjusted
|
|
|
|
As Adjusted
|
||||||||
Cash flows from operating activities
|
|
|
|
|
|
|
|
||||||||
Net income/(loss)
|
$
|
(56
|
)
|
|
$
|
(117
|
)
|
|
$
|
(124
|
)
|
|
$
|
(267
|
)
|
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
|
|
|
|
|
|
|
|
||||||||
Restructuring and management transition
|
—
|
|
|
1
|
|
|
(1
|
)
|
|
4
|
|
||||
Asset impairments and other charges
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
||||
Net gain on sale of non-operating assets
|
—
|
|
|
(6
|
)
|
|
(5
|
)
|
|
(8
|
)
|
||||
Net gain on sale of operating assets
|
(2
|
)
|
|
—
|
|
|
(10
|
)
|
|
(8
|
)
|
||||
(Gain)/loss on extinguishment of debt
|
34
|
|
|
—
|
|
|
30
|
|
|
—
|
|
||||
Depreciation and amortization
|
153
|
|
|
153
|
|
|
307
|
|
|
307
|
|
||||
Benefit plans
|
(15
|
)
|
|
(23
|
)
|
|
(27
|
)
|
|
(48
|
)
|
||||
Stock-based compensation
|
10
|
|
|
11
|
|
|
20
|
|
|
21
|
|
||||
Deferred taxes
|
3
|
|
|
2
|
|
|
—
|
|
|
3
|
|
||||
Change in cash from:
|
|
|
|
|
|
|
|
||||||||
Inventory
|
(56
|
)
|
|
(194
|
)
|
|
(260
|
)
|
|
(353
|
)
|
||||
Prepaid expenses and other
|
(9
|
)
|
|
26
|
|
|
(68
|
)
|
|
(11
|
)
|
||||
Merchandise accounts payable
|
99
|
|
|
59
|
|
|
169
|
|
|
125
|
|
||||
Current income taxes
|
(3
|
)
|
|
2
|
|
|
(4
|
)
|
|
6
|
|
||||
Accrued expenses and other
|
27
|
|
|
127
|
|
|
(237
|
)
|
|
43
|
|
||||
Net cash provided by/(used in) operating activities
|
186
|
|
|
42
|
|
|
(208
|
)
|
|
(184
|
)
|
||||
Cash flows from investing activities
|
|
|
|
|
|
|
|
||||||||
Capital expenditures
|
(121
|
)
|
|
(95
|
)
|
|
(160
|
)
|
|
(141
|
)
|
||||
Net proceeds from sale of non-operating assets
|
—
|
|
|
7
|
|
|
2
|
|
|
13
|
|
||||
Net proceeds from sale of operating assets
|
4
|
|
|
—
|
|
|
16
|
|
|
5
|
|
||||
Joint venture return of investment
|
1
|
|
|
—
|
|
|
15
|
|
|
—
|
|
||||
Net cash provided by/(used in) investing activities
|
(116
|
)
|
|
(88
|
)
|
|
(127
|
)
|
|
(123
|
)
|
||||
Cash flows from financing activities
|
|
|
|
|
|
|
|
||||||||
Proceeds from issuance of long-term debt
|
2,188
|
|
|
—
|
|
|
2,188
|
|
|
—
|
|
||||
Payments of capital leases and note payable
|
(5
|
)
|
|
(18
|
)
|
|
(19
|
)
|
|
(23
|
)
|
||||
Payments of long-term debt
|
(2,188
|
)
|
|
(7
|
)
|
|
(2,250
|
)
|
|
(13
|
)
|
||||
Financing costs
|
(49
|
)
|
|
—
|
|
|
(49
|
)
|
|
—
|
|
||||
Proceeds from stock options exercised
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
||||
Tax withholding payments for vested restricted stock
|
(2
|
)
|
|
—
|
|
|
(7
|
)
|
|
(2
|
)
|
||||
Net cash provided by/(used in) financing activities
|
(56
|
)
|
|
(25
|
)
|
|
(136
|
)
|
|
(38
|
)
|
||||
Net increase/(decrease) in cash and cash equivalents
|
14
|
|
|
(71
|
)
|
|
(471
|
)
|
|
(345
|
)
|
||||
Cash and cash equivalents at beginning of period
|
415
|
|
|
1,044
|
|
|
900
|
|
|
1,318
|
|
||||
Cash and cash equivalents at end of period
|
$
|
429
|
|
|
$
|
973
|
|
|
$
|
429
|
|
|
$
|
973
|
|
|
|
|
|
|
|
|
|
||||||||
Supplemental cash flow information
|
|
|
|
|
|
|
|
||||||||
Income taxes received/(paid), net
|
$
|
(5
|
)
|
|
$
|
(2
|
)
|
|
$
|
(8
|
)
|
|
$
|
(2
|
)
|
Interest received/(paid), net
|
(62
|
)
|
|
(58
|
)
|
|
(184
|
)
|
|
(184
|
)
|
||||
Supplemental non-cash investing and financing activity
|
|
|
|
|
|
|
|
||||||||
Increase/(decrease) in other accounts payable related to purchases of property and equipment and software
|
(9
|
)
|
|
18
|
|
|
32
|
|
|
29
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||||||||||
|
August 1, 2015
|
|
August 1, 2015
|
||||||||||||||||||||
($ in millions, except per share data)
|
Previously Reported
|
|
As Adjusted
|
|
Effect of Change
|
|
Previously Reported
|
|
As Adjusted
|
|
Effect of Change
|
||||||||||||
Pension
|
$
|
13
|
|
|
$
|
(16
|
)
|
|
$
|
(29
|
)
|
|
$
|
23
|
|
|
$
|
(35
|
)
|
|
$
|
(58
|
)
|
Income/(loss) before income taxes
|
(141
|
)
|
|
(112
|
)
|
|
29
|
|
|
(314
|
)
|
|
(256
|
)
|
|
58
|
|
||||||
Income tax expense/(benefit)
|
(3
|
)
|
|
5
|
|
|
8
|
|
|
(9
|
)
|
|
11
|
|
|
20
|
|
||||||
Net income/(loss)
|
$
|
(138
|
)
|
|
(117
|
)
|
|
$
|
21
|
|
|
$
|
(305
|
)
|
|
(267
|
)
|
|
$
|
38
|
|
||
Basic earnings/(loss) per common share
|
$
|
(0.45
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
0.07
|
|
|
$
|
(1.00
|
)
|
|
$
|
(0.87
|
)
|
|
$
|
0.13
|
|
Diluted earnings/(loss) per common share
|
$
|
(0.45
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
0.07
|
|
|
$
|
(1.00
|
)
|
|
$
|
(0.87
|
)
|
|
$
|
0.13
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||||||||||
|
August 1, 2015
|
|
August 1, 2015
|
||||||||||||||||||||
($ in millions)
|
Previously Reported
|
|
As Adjusted
|
|
Effect of Change
|
|
Previously Reported
|
|
As Adjusted
|
|
Effect of Change
|
||||||||||||
Net income/(loss)
|
$
|
(138
|
)
|
|
$
|
(117
|
)
|
|
$
|
21
|
|
|
$
|
(305
|
)
|
|
$
|
(267
|
)
|
|
$
|
38
|
|
Reclassifications for amortization of net actuarial (gain)/loss
|
18
|
|
|
—
|
|
|
(18
|
)
|
|
35
|
|
|
—
|
|
|
(35
|
)
|
||||||
Deferred tax valuation allowance
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
||||||
Total other comprehensive income/(loss), net of tax
|
12
|
|
|
(9
|
)
|
|
(21
|
)
|
|
29
|
|
|
(9
|
)
|
|
(38
|
)
|
||||||
Total comprehensive income/(loss), net of tax
|
$
|
(126
|
)
|
|
$
|
(126
|
)
|
|
$
|
—
|
|
|
$
|
(276
|
)
|
|
$
|
(276
|
)
|
|
$
|
—
|
|
|
August 1, 2015
|
||||||||||
($ in millions)
|
Previously Reported
|
|
As Adjusted
|
|
Effect of Change
|
||||||
Reinvested earnings/(accumulated deficit)
|
$
|
(2,084
|
)
|
|
$
|
(2,761
|
)
|
|
$
|
(677
|
)
|
Accumulated other comprehensive income/(loss)
|
(1,036
|
)
|
|
(359
|
)
|
|
677
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||||||||||
|
August 1, 2015
|
|
August 1, 2015
|
||||||||||||||||||||
($ in millions)
|
Previously Reported
|
|
As Adjusted
|
|
Effect of Change
|
|
Previously Reported
|
|
As Adjusted
|
|
Effect of Change
|
||||||||||||
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Net income/(loss)
|
$
|
(138
|
)
|
|
$
|
(117
|
)
|
|
$
|
21
|
|
|
$
|
(305
|
)
|
|
$
|
(267
|
)
|
|
$
|
38
|
|
Benefit plans
|
6
|
|
|
(23
|
)
|
|
(29
|
)
|
|
10
|
|
|
(48
|
)
|
|
(58
|
)
|
||||||
Deferred taxes
|
$
|
(6
|
)
|
|
$
|
2
|
|
|
$
|
8
|
|
|
$
|
(17
|
)
|
|
$
|
3
|
|
|
$
|
20
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
(in millions, except per share data)
|
July 30,
2016 |
|
August 1,
2015 |
|
July 30,
2016 |
|
August 1,
2015 |
||||||||
Earnings/(loss)
|
|
|
|
|
|
|
|
||||||||
Net income/(loss)
|
$
|
(56
|
)
|
|
$
|
(117
|
)
|
|
$
|
(124
|
)
|
|
$
|
(267
|
)
|
Shares
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares outstanding (basic shares)
|
308.0
|
|
|
305.9
|
|
|
307.6
|
|
|
305.7
|
|
||||
Adjustment for assumed dilution:
|
|
|
|
|
|
|
|
||||||||
Stock options, restricted stock awards and warrant
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Weighted average shares assuming dilution (diluted shares)
|
308.0
|
|
|
305.9
|
|
|
307.6
|
|
|
305.7
|
|
||||
EPS
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
(0.18
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.87
|
)
|
Diluted
|
$
|
(0.18
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.87
|
)
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
(Shares in millions)
|
July 30,
2016 |
|
August 1,
2015 |
|
July 30,
2016 |
|
August 1,
2015 |
||||
Stock options, restricted stock awards and warrant
|
34.8
|
|
|
34.6
|
|
|
35.0
|
|
|
33.2
|
|
($ in millions)
|
|
July 30, 2016
|
|
August 1, 2015
|
|
January 30, 2016
|
||||||
Issue:
|
|
|
|
|
|
|
||||||
5.65% Senior Notes Due 2020
(1)
|
|
$
|
400
|
|
|
$
|
400
|
|
|
$
|
400
|
|
5.75% Senior Notes Due 2018
(1)
|
|
265
|
|
|
300
|
|
|
300
|
|
|||
5.875% Senior Secured Notes Due 2023
(1)
|
|
500
|
|
|
—
|
|
|
—
|
|
|||
6.375% Senior Notes Due 2036
(1)
|
|
388
|
|
|
400
|
|
|
400
|
|
|||
6.9% Notes Due 2026
|
|
2
|
|
|
2
|
|
|
2
|
|
|||
7.125% Debentures Due 2023
|
|
10
|
|
|
10
|
|
|
10
|
|
|||
7.4% Debentures Due 2037
|
|
313
|
|
|
326
|
|
|
326
|
|
|||
7.625% Notes Due 2097
|
|
500
|
|
|
500
|
|
|
500
|
|
|||
7.65% Debentures Due 2016
|
|
78
|
|
|
78
|
|
|
78
|
|
|||
7.95% Debentures Due 2017
|
|
220
|
|
|
220
|
|
|
220
|
|
|||
8.125% Senior Notes Due 2019
|
|
400
|
|
|
400
|
|
|
400
|
|
|||
2016 Term Loan Facility
|
|
1,688
|
|
|
—
|
|
|
—
|
|
|||
2013 Term Loan Facility
|
|
—
|
|
|
2,205
|
|
|
2,194
|
|
|||
2014 Term Loan
|
|
—
|
|
|
495
|
|
|
—
|
|
|||
Total debt, excluding unamortized debt issuance costs, capital leases and note payable
|
|
4,764
|
|
|
5,336
|
|
|
4,830
|
|
|||
Unamortized debt issuance costs
|
|
(67
|
)
|
|
(83
|
)
|
|
(61
|
)
|
|||
Total debt, excluding capital leases and note payable
|
|
4,697
|
|
|
5,253
|
|
|
4,769
|
|
|||
Less: current maturities
|
|
341
|
|
|
28
|
|
|
101
|
|
|||
Total long-term debt, excluding capital leases and note payable
|
|
$
|
4,356
|
|
|
$
|
5,225
|
|
|
$
|
4,668
|
|
(1)
|
These debt issuances contain a change of control provision that would obligate us, at the holders’ option, to repurchase the debt at a price of 101%.
|
|
Asset Derivatives at Fair Value
|
|
Liability Derivatives at Fair Value
|
||||||||||||||||||||||||
($ in millions)
|
Balance Sheet Location
|
|
July 30, 2016
|
|
August 1, 2015
|
|
January 30, 2016
|
|
Balance Sheet Location
|
|
July 30, 2016
|
|
August 1, 2015
|
|
January 30, 2016
|
||||||||||||
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Interest rate swaps
|
N/A
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other accounts payable and accrued expenses
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Interest rate swaps
|
N/A
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other liabilities
|
|
35
|
|
|
9
|
|
|
28
|
|
||||||
Total derivatives designated as hedging instruments
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
37
|
|
|
$
|
11
|
|
|
$
|
30
|
|
•
|
Level 1 — Quoted prices in active markets for identical assets or liabilities.
|
•
|
Level 2 — Significant observable inputs other than quoted prices in active markets for similar assets and liabilities, such as quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
|
•
|
Level 3 — Significant unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.
|
|
July 30, 2016
|
|
August 1, 2015
|
|
January 30, 2016
|
||||||||||||||||||
($ in millions)
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
||||||||||||
Total debt, excluding unamortized debt issuance costs, capital leases and note payable
|
$
|
4,764
|
|
|
$
|
4,530
|
|
|
$
|
5,336
|
|
|
$
|
5,002
|
|
|
$
|
4,830
|
|
|
$
|
4,248
|
|
(in millions)
|
Number
of Common
Shares
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Reinvested
Earnings/ (Accumulated
Deficit)
|
|
Accumulated
Other Comprehensive
Income/(Loss)
|
|
Total
Stockholders’
Equity
|
|||||||||||
January 30, 2016
|
306.1
|
|
|
$
|
153
|
|
|
$
|
4,654
|
|
|
$
|
(3,007
|
)
|
|
$
|
(491
|
)
|
|
$
|
1,309
|
|
Net income/(loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(124
|
)
|
|
—
|
|
|
(124
|
)
|
|||||
Other comprehensive income/(loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
|||||
Stock-based compensation and other
|
1.5
|
|
|
1
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|||||
July 30, 2016
|
307.6
|
|
|
$
|
154
|
|
|
$
|
4,668
|
|
|
$
|
(3,131
|
)
|
|
$
|
(494
|
)
|
|
$
|
1,197
|
|
($ in millions)
|
Net Actuarial
Gain/(Loss)
|
|
Prior Service
Credit/(Cost)
|
|
Foreign Currency Translation
|
|
Gain/(Loss) on Cash Flow Hedges
|
|
Accumulated
Other
Comprehensive
Income/(Loss)
|
||||||||||
January 30, 2016
|
$
|
(423
|
)
|
|
$
|
(38
|
)
|
|
$
|
(2
|
)
|
|
$
|
(28
|
)
|
|
$
|
(491
|
)
|
Other comprehensive income/(loss) before reclassifications
|
—
|
|
|
8
|
|
|
—
|
|
|
(13
|
)
|
|
(5
|
)
|
|||||
Amounts reclassified from accumulated other comprehensive income
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
6
|
|
|
2
|
|
|||||
July 30, 2016
|
$
|
(427
|
)
|
|
$
|
(30
|
)
|
|
$
|
(2
|
)
|
|
$
|
(35
|
)
|
|
$
|
(494
|
)
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
($ in millions)
|
July 30,
2016 |
|
August 1,
2015 |
|
July 30,
2016 |
|
August 1,
2015 |
||||||||
Primary Pension Plan
|
|
|
|
|
|
|
|
||||||||
Service cost
|
$
|
14
|
|
|
$
|
18
|
|
|
$
|
28
|
|
|
$
|
35
|
|
Interest cost
|
38
|
|
|
49
|
|
|
76
|
|
|
98
|
|
||||
Other cost
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
||||
Expected return on plan assets
|
(54
|
)
|
|
(89
|
)
|
|
(108
|
)
|
|
(178
|
)
|
||||
Amortization of prior service cost/(credit)
|
2
|
|
|
2
|
|
|
4
|
|
|
4
|
|
||||
Net periodic benefit expense/(income)
|
$
|
—
|
|
|
$
|
(17
|
)
|
|
$
|
—
|
|
|
$
|
(38
|
)
|
|
|
|
|
|
|
|
|
||||||||
Supplemental Pension Plans
|
|
|
|
|
|
|
|
||||||||
Interest cost
|
2
|
|
|
1
|
|
|
4
|
|
|
3
|
|
||||
Net periodic benefit expense/(income)
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
||||||||
Primary and Supplemental Pension Plans Total
|
|
|
|
|
|
|
|
||||||||
Service cost
|
$
|
14
|
|
|
$
|
18
|
|
|
$
|
28
|
|
|
$
|
35
|
|
Interest cost
|
40
|
|
|
50
|
|
|
80
|
|
|
101
|
|
||||
Other cost
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
||||
Expected return on plan assets
|
(54
|
)
|
|
(89
|
)
|
|
(108
|
)
|
|
(178
|
)
|
||||
Amortization of prior service cost/(credit)
|
2
|
|
|
2
|
|
|
4
|
|
|
4
|
|
||||
Net periodic benefit expense/(income)
|
$
|
2
|
|
|
$
|
(16
|
)
|
|
$
|
4
|
|
|
$
|
(35
|
)
|
•
|
Home office and stores
-- charges for actions to reduce our store and home office expenses including employee termination benefits, store lease termination and impairment charges;
|
•
|
Management transition
-- charges related to implementing changes within our management leadership team for both incoming and outgoing members of management; and
|
•
|
Other
-- charges related primarily to contract termination costs and other costs associated with our previous shops strategy and costs related to the closure of certain supply chain locations.
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Cumulative
Amount From Program Inception Through
July 30, 2016
|
||||||||||||||
($ in millions)
|
July 30,
2016 |
|
August 1,
2015 |
|
July 30,
2016 |
|
August 1,
2015 |
|
|||||||||||
Home office and stores
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
4
|
|
|
$
|
29
|
|
|
$
|
293
|
|
Management transition
|
1
|
|
|
1
|
|
|
3
|
|
|
7
|
|
|
255
|
|
|||||
Other
|
8
|
|
|
1
|
|
|
8
|
|
|
3
|
|
|
171
|
|
|||||
Total
|
$
|
9
|
|
|
$
|
17
|
|
|
$
|
15
|
|
|
$
|
39
|
|
|
$
|
719
|
|
($ in millions)
|
Home Office
and Stores
|
|
Management
Transition
|
|
Other
|
|
Total
|
||||||||
January 30, 2016
|
$
|
18
|
|
|
$
|
10
|
|
|
$
|
23
|
|
|
$
|
51
|
|
Charges
|
4
|
|
|
3
|
|
|
8
|
|
|
15
|
|
||||
Cash payments
|
(15
|
)
|
|
(12
|
)
|
|
(8
|
)
|
|
(35
|
)
|
||||
Non-cash
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
||||
July 30, 2016
|
$
|
8
|
|
|
$
|
1
|
|
|
$
|
23
|
|
|
$
|
32
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
($ in millions)
|
July 30,
2016 |
|
August 1,
2015 |
|
July 30,
2016 |
|
August 1,
2015 |
||||||||
Net gain from sale of non-operating assets
|
$
|
—
|
|
|
$
|
(6
|
)
|
|
$
|
(5
|
)
|
|
$
|
(8
|
)
|
Investment income from Home Office Land Joint Venture
|
(5
|
)
|
|
—
|
|
|
(29
|
)
|
|
(22
|
)
|
||||
Net gain from sale of operating assets
|
(2
|
)
|
|
—
|
|
|
(10
|
)
|
|
(8
|
)
|
||||
Other
|
(2
|
)
|
|
25
|
|
|
(3
|
)
|
|
22
|
|
||||
Total expense/(income)
|
$
|
(9
|
)
|
|
$
|
19
|
|
|
$
|
(47
|
)
|
|
$
|
(16
|
)
|
▪
|
Sales were
$2,918 million
with a comparable store sales
increase
of
2.2%
.
|
▪
|
Gross margin as a percentage of sales
increased
to
37.1%
compared to
37.0%
in the same period last year.
|
▪
|
Selling, general and administrative (SG&A) expenses
decreased
$48 million
, or
5.3%
, for the
second
quarter of
2016
as compared to the same period last year. These savings were primarily driven by lower corporate overhead, incentive compensation, store controllable costs and more efficient advertising spend.
|
▪
|
Our net loss was
$56 million
, or
$0.18
per share, compared to a net loss of
$117 million
, or
$0.38
per share, for the corresponding prior year quarter. Results for this quarter included the following amounts that are not directly related to our ongoing core business operations:
|
▪
|
$9 million, or $0.03 per share, of restructuring and management transition charges;
|
▪
|
$34 million, or $0.11 per share, for the loss on extinguishment of debt;
|
▪
|
$5 million, or $0.02 per share, for our proportional share of net income from our joint venture formed to develop the excess property adjacent to our home office facility in Plano, Texas (Home Office Land Joint Venture); and
|
▪
|
$2 million, or $0.01 per share, of tax expense that resulted from our other comprehensive income allocation between our Operating loss and Accumulated other comprehensive income for the amortization of prior service credits related to our qualified defined benefit pension plan (Primary Pension Plan) and the tax effect for the loss on our interest rate swaps.
|
▪
|
Earnings before interest expense, income tax (benefit)/expense and depreciation and amortization (EBITDA) (non-GAAP) was
$229 million
, an
$85 million
improvement
from the same period last year.
|
▪
|
We completed the refinancing of our $2.25 billion five-year senior secured term loan facility entered into in 2013 (2013 Term Loan Facility) with an amended and restated $1.688 billion seven-year senior secured term loan facility (2016 Term Loan Facility) and the issuance of $500 million of 5.875% Senior Secured Notes due 2023, resulting in a loss on extinguishment of debt of
$34 million
. The 2016 Term Loan Facility has a lower interest rate than the 2013 Term Loan Facility, representing a 75 basis point reduction and an extended maturity from 2018 to 2023.
|
•
|
On July 21, 2016, the Company announced that the Company's Board of Directors (Board) appointed Marvin R. Ellison as Chairman of the Board, effective August 1, 2016, in addition to his position of Chief Executive Officer. Mr. Ellison succeeds Myron E. Ullman, III who retired from the Company on August 1, 2016 in accordance with the transition plan previously outlined by the Company.
|
|
Three Months Ended
|
|
Six Months Ended
|
|
||||||||||||
($ in millions, except EPS)
|
July 30,
2016 |
|
August 1,
2015 |
(1)
|
July 30,
2016 |
|
August 1,
2015 |
(1)
|
||||||||
Total net sales
|
$
|
2,918
|
|
|
$
|
2,875
|
|
|
$
|
5,729
|
|
|
$
|
5,732
|
|
|
Percent increase/(decrease) from prior year
|
1.5
|
%
|
|
2.7
|
%
|
|
(0.1
|
)%
|
|
2.4
|
%
|
|
||||
Comparable store sales increase/(decrease)
(2)
|
2.2
|
%
|
|
4.1
|
%
|
|
0.9
|
%
|
|
3.7
|
%
|
|
||||
Gross margin
|
1,084
|
|
|
1,065
|
|
|
2,102
|
|
|
2,106
|
|
|
||||
Operating expenses/(income):
|
|
|
|
|
|
|
|
|
||||||||
Selling, general and administrative
|
853
|
|
|
901
|
|
|
1,725
|
|
|
1,866
|
|
|
||||
Primary pension plan
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
(38
|
)
|
|
||||
Supplemental pension plans
|
2
|
|
|
1
|
|
|
4
|
|
|
3
|
|
|
||||
Total pension
|
2
|
|
|
(16
|
)
|
|
4
|
|
|
(35
|
)
|
|
||||
Depreciation and amortization
|
153
|
|
|
153
|
|
|
307
|
|
|
307
|
|
|
||||
Real estate and other, net
|
(9
|
)
|
|
19
|
|
|
(47
|
)
|
|
(16
|
)
|
|
||||
Restructuring and management transition
|
9
|
|
|
17
|
|
|
15
|
|
|
39
|
|
|
||||
Total operating expenses
|
1,008
|
|
|
1,074
|
|
|
2,004
|
|
|
2,161
|
|
|
||||
Operating income/(loss)
|
76
|
|
|
(9
|
)
|
|
98
|
|
|
(55
|
)
|
|
||||
(Gain)/loss on extinguishment of debt
|
34
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
||||
Net interest expense
|
93
|
|
|
103
|
|
|
188
|
|
|
201
|
|
|
||||
Income/(loss) before income taxes
|
(51
|
)
|
|
(112
|
)
|
|
(120
|
)
|
|
(256
|
)
|
|
||||
Income tax expense/(benefit)
|
5
|
|
|
5
|
|
|
4
|
|
|
11
|
|
|
||||
Net income/(loss)
|
$
|
(56
|
)
|
|
$
|
(117
|
)
|
|
$
|
(124
|
)
|
|
$
|
(267
|
)
|
|
EBITDA (non-GAAP)
(3)
|
$
|
229
|
|
|
$
|
144
|
|
|
$
|
405
|
|
|
$
|
252
|
|
|
Adjusted EBITDA (non-GAAP)
(3)
|
$
|
233
|
|
|
$
|
138
|
|
|
$
|
386
|
|
|
$
|
223
|
|
|
Adjusted net income/(loss) (non-GAAP)
(3)
|
$
|
(16
|
)
|
|
$
|
(123
|
)
|
|
$
|
(113
|
)
|
|
$
|
(296
|
)
|
|
Diluted EPS
|
$
|
(0.18
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.87
|
)
|
|
Adjusted diluted EPS (non-GAAP)
(3)
|
$
|
(0.05
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.97
|
)
|
|
Ratios as a percent of sales:
|
|
|
|
|
|
|
|
|
||||||||
Gross margin
|
37.1
|
%
|
|
37.0
|
%
|
|
36.7
|
%
|
|
36.7
|
%
|
|
||||
SG&A
|
29.2
|
%
|
|
31.3
|
%
|
|
30.1
|
%
|
|
32.6
|
%
|
|
||||
Total operating expenses
|
34.5
|
%
|
|
37.4
|
%
|
|
35.0
|
%
|
|
37.7
|
%
|
|
||||
Operating income/(loss)
|
2.6
|
%
|
|
(0.3
|
)%
|
|
1.7
|
%
|
|
(1.0
|
)%
|
|
(1)
|
Reflects the retrospective application of the change in our method of recognizing pension expense. See Note 2 of Notes to unaudited Interim Consolidated Financial Statements for a discussion of the change and related impacts.
|
(2)
|
Comparable store sales include sales from all stores, including sales from services and commissions earned from our in-store licensed departments, that have been open for 12 consecutive full fiscal months and Internet sales. Stores closed for an extended period are not included in comparable store sales calculations, while stores remodeled and minor expansions not requiring store closure remain in the
calculations. Certain items, such as sales return estimates and store liquidation sales, are excluded from the Company’s calculation. Our definition and calculation of comparable store sales may differ from other companies in the retail industry.
|
(3)
|
See “Non-GAAP Financial Measures” below for a discussion of this non-GAAP measure and reconciliation to its most directly comparable GAAP financial measure and further information on its uses and limitations.
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
($ in millions)
|
July 30, 2016
|
|
August 1, 2015
|
|
July 30,
2016 |
|
August 1,
2015 |
||||||||
Total net sales
|
$
|
2,918
|
|
|
$
|
2,875
|
|
|
$
|
5,729
|
|
|
$
|
5,732
|
|
Sales percent increase/(decrease):
|
|
|
|
|
|
|
|
||||||||
Total net sales
|
1.5
|
%
|
|
2.7
|
%
|
|
(0.1
|
)%
|
|
2.4
|
%
|
||||
Comparable store sales
|
2.2
|
%
|
|
4.1
|
%
|
|
0.9
|
%
|
|
3.7
|
%
|
|
Three Months Ended
|
|
Six Months Ended
|
||||
($ in millions)
|
July 30, 2016
|
|
July 30, 2016
|
||||
Comparable store sales increase/(decrease)
|
$
|
62
|
|
|
$
|
52
|
|
Closed stores, net
|
(18
|
)
|
|
(54
|
)
|
||
Other revenues and sales adjustments
|
(1
|
)
|
|
(1
|
)
|
||
Total net sales increase/(decrease)
|
$
|
43
|
|
|
$
|
(3
|
)
|
•
|
Stores increase Internet sales by providing customers opportunities to view, touch and/or try on physical merchandise before ordering online.
|
•
|
Our website increases store sales as in-store customers have often pre-shopped online before shopping in the store, including verification of which stores have online merchandise in stock.
|
•
|
Most Internet purchases are easily returned in our stores.
|
•
|
JCP Rewards can be earned and redeemed online or in stores.
|
•
|
In-store customers can order from our website with the assistance of associates in our stores or they can shop our website from the JCPenney app while inside the store.
|
•
|
Customers who utilize our mobile application can receive mobile coupons to use when they check out both online or in our stores.
|
•
|
Internet orders can be shipped from a dedicated jcpenney.com fulfillment center, a store, a store merchandise distribution center, a regional warehouse, directly from vendors or any combination of the above.
|
•
|
Certain categories of store inventory can be accessed and purchased by jcpenney.com customers and shipped directly to the customer's home from the store.
|
•
|
Internet orders can be shipped to stores for customer pick up.
|
•
|
"Buy online and pick up in store same day" is now available in all of our stores.
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
July 30,
2016 |
|
August 1,
2015 |
|
July 30,
2016 |
|
August 1,
2015 |
||||
JCPenney department stores
|
|
|
|
|
|
|
|
||||
Beginning of period
|
1,014
|
|
|
1,027
|
|
|
1,021
|
|
|
1,062
|
|
Closed stores
|
—
|
|
|
(4
|
)
|
|
(7
|
)
|
|
(39
|
)
|
End of period
(1)
|
1,014
|
|
|
1,023
|
|
|
1,014
|
|
|
1,023
|
|
(1)
|
Gross selling space, including selling space allocated to services and licensed departments, was 104 million square feet as of
July 30, 2016
and 105 million square feet as of
August 1, 2015
.
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
($ in millions)
|
July 30,
2016 |
|
August 1,
2015 |
|
July 30,
2016 |
|
August 1,
2015 |
||||||||
Primary Pension Plan
|
$
|
—
|
|
|
$
|
(17
|
)
|
|
$
|
—
|
|
|
$
|
(38
|
)
|
Supplemental pension plans
|
2
|
|
|
1
|
|
|
4
|
|
|
3
|
|
||||
Total pension expense
|
$
|
2
|
|
|
$
|
(16
|
)
|
|
$
|
4
|
|
|
$
|
(35
|
)
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
($ in millions)
|
July 30,
2016 |
|
August 1,
2015 |
|
July 30,
2016 |
|
August 1,
2015 |
||||||||
Home office and stores
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
4
|
|
|
$
|
29
|
|
Management transition
|
1
|
|
|
1
|
|
|
3
|
|
|
7
|
|
||||
Other
|
8
|
|
|
1
|
|
|
8
|
|
|
3
|
|
||||
Total
|
$
|
9
|
|
|
$
|
17
|
|
|
$
|
15
|
|
|
$
|
39
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
($ in millions)
|
July 30,
2016 |
|
August 1,
2015 |
|
July 30,
2016 |
|
August 1,
2015 |
||||||||
Net gain from sale of non-operating assets
|
$
|
—
|
|
|
$
|
(6
|
)
|
|
$
|
(5
|
)
|
|
$
|
(8
|
)
|
Investment income from Home Office Land Joint Venture
|
(5
|
)
|
|
—
|
|
|
(29
|
)
|
|
(22
|
)
|
||||
Net gain from sale of operating assets
|
(2
|
)
|
|
—
|
|
|
(10
|
)
|
|
(8
|
)
|
||||
Other
|
(2
|
)
|
|
25
|
|
|
(3
|
)
|
|
22
|
|
||||
Total expense/(income)
|
$
|
(9
|
)
|
|
$
|
19
|
|
|
$
|
(47
|
)
|
|
$
|
(16
|
)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
||||||||||||
($ in millions)
|
July 30, 2016
|
|
August 1, 2015
|
(1)
|
July 30, 2016
|
|
August 1, 2015
|
(1)
|
||||||||
Net income/(loss)
|
$
|
(56
|
)
|
|
$
|
(117
|
)
|
|
$
|
(124
|
)
|
|
$
|
(267
|
)
|
|
Add: Net interest expense
|
93
|
|
|
103
|
|
|
188
|
|
|
201
|
|
|
||||
Add: (Gain)/loss on extinguishment of debt
|
34
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
||||
Total interest expense
|
127
|
|
|
103
|
|
|
218
|
|
|
201
|
|
|
||||
Add: Income tax expense/(benefit)
|
5
|
|
|
5
|
|
|
4
|
|
|
11
|
|
|
||||
Add: Depreciation and amortization
|
153
|
|
|
153
|
|
|
307
|
|
|
307
|
|
|
||||
EBITDA (non-GAAP)
|
229
|
|
|
144
|
|
|
405
|
|
|
252
|
|
|
||||
Add: Restructuring and management transition charges
|
9
|
|
|
17
|
|
|
15
|
|
|
39
|
|
|
||||
Add: Primary Pension Plan expense/(income)
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
(38
|
)
|
|
||||
Less: Net gain on the sale of non-operating assets
|
—
|
|
|
(6
|
)
|
|
(5
|
)
|
|
(8
|
)
|
|
||||
Less: Proportional share of net income from joint venture
|
(5
|
)
|
|
—
|
|
|
(29
|
)
|
|
(22
|
)
|
|
||||
Adjusted EBITDA (non-GAAP)
|
$
|
233
|
|
|
$
|
138
|
|
|
$
|
386
|
|
|
$
|
223
|
|
|
(1)
|
Reflects the retrospective application of the change in our method of recognizing pension expense. See Note 2 of Notes to unaudited Interim Consolidated Financial Statements for a discussion of the change and related impacts. For the three months ended
August 1,
|
|
Three Months Ended
|
|
Six Months Ended
|
|
||||||||||||
($ in millions, except per share data)
|
July 30,
2016 |
|
August 1,
2015 |
(1)
|
July 30,
2016 |
|
August 1,
2015 |
(1)
|
||||||||
Net income/(loss)
|
$
|
(56
|
)
|
|
$
|
(117
|
)
|
|
$
|
(124
|
)
|
|
$
|
(267
|
)
|
|
Diluted EPS
|
$
|
(0.18
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.87
|
)
|
|
Add: Restructuring and management transition charges
(2)
|
9
|
|
|
17
|
|
|
15
|
|
|
39
|
|
|
||||
Add: Primary Pension Plan expense/(income)
(2)
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
(38
|
)
|
|
||||
Add: (Gain)/loss on extinguishment of debt
(2)
|
34
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
||||
Less: Net gain on sale of non-operating assets
(2)
|
—
|
|
|
(6
|
)
|
|
(5
|
)
|
|
(8
|
)
|
|
||||
Less: Proportional share of net income from joint venture
(2)
|
(5
|
)
|
|
—
|
|
|
(29
|
)
|
|
(22
|
)
|
|
||||
Less: Tax impact resulting from other comprehensive income allocation
(3)
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
||||
Adjusted net income/(loss) (non-GAAP)
|
$
|
(16
|
)
|
|
$
|
(123
|
)
|
|
$
|
(113
|
)
|
|
$
|
(296
|
)
|
|
Adjusted diluted EPS (non-GAAP)
|
$
|
(0.05
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.97
|
)
|
|
(1)
|
Reflects the retrospective application of the change in our method of recognizing pension expense. See Note 2 of Notes to unaudited Interim Consolidated Financial Statements for a discussion of the change and related impacts. For the three months ended
August 1, 2015
, the retrospective application of the change in recognizing pension expense
increased Adjusted net income/(loss) (non-GAAP) by $3 million. For the
six
months ended
August 1, 2015
, the retrospective application of the change in recognizing pension expense increased Adjusted net income/(loss) (non-GAAP) by $5 million.
|
(2)
|
Reflects no tax effect due to the impact of the Company's tax valuation allowance.
|
(3)
|
Represents the net tax expense that resulted from our other comprehensive income allocation between our Operating loss and Accumulated other comprehensive income.
|
|
Six Months Ended
|
||||||
($ in millions)
|
July 30,
2016 |
|
August 1,
2015 |
||||
Cash and cash equivalents
|
$
|
429
|
|
|
$
|
973
|
|
Merchandise inventory
|
2,981
|
|
|
3,005
|
|
||
Property and equipment, net
|
4,686
|
|
|
4,989
|
|
||
|
|
|
|
||||
Total debt
(1)
|
4,725
|
|
|
5,298
|
|
||
Stockholders’ equity
|
1,197
|
|
|
1,660
|
|
||
Total capitalization
|
5,922
|
|
|
6,958
|
|
||
Maximum capacity under our credit agreement
|
2,350
|
|
|
1,850
|
|
||
Cash flow from operating activities
|
(208
|
)
|
|
(184
|
)
|
||
Free cash flow (non-GAAP)
(2)
|
(352
|
)
|
|
(320
|
)
|
||
Capital expenditures
(3)
|
160
|
|
|
141
|
|
||
Ratios:
|
|
|
|
||||
Total debt-to-total capitalization
(4)
|
80
|
%
|
|
76
|
%
|
||
Cash-to-total debt
(5)
|
9
|
%
|
|
18
|
%
|
(1)
|
Total debt includes long-term debt, net of unamortized debt issuance costs, including current maturities, capital leases, note payable and any borrowings under our revolving credit facility.
|
(2)
|
See “Free Cash Flow” below for a reconciliation of this non-GAAP financial measure to its most directly comparable GAAP financial measure and further information on its uses and limitations.
|
(3)
|
As of the end of the
second
quarters of 2016 and 2015, we had accrued capital expenditures of
$45 million
and
$40 million
, respectively.
|
(4)
|
Total debt divided by total capitalization.
|
(5)
|
Cash and cash equivalents divided by total debt.
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
($ in millions)
|
July 30,
2016 |
|
August 1,
2015 |
|
July 30,
2016 |
|
August 1,
2015 |
||||||||
Net cash provided by/(used in) operating activities (GAAP)
|
$
|
186
|
|
|
$
|
42
|
|
|
$
|
(208
|
)
|
|
$
|
(184
|
)
|
Add:
|
|
|
|
|
|
|
|
||||||||
Proceeds from sale of operating assets
|
4
|
|
|
—
|
|
|
16
|
|
|
5
|
|
||||
Less:
|
|
|
|
|
|
|
|
||||||||
Capital expenditures
(1)
|
(121
|
)
|
|
(95
|
)
|
|
(160
|
)
|
|
(141
|
)
|
||||
Free cash flow (non-GAAP)
|
$
|
69
|
|
|
$
|
(53
|
)
|
|
$
|
(352
|
)
|
|
$
|
(320
|
)
|
|
|
|
|
|
|
|
|
||||||||
Net cash provided by/(used in) investing activities
(2)
|
$
|
(116
|
)
|
|
$
|
(88
|
)
|
|
$
|
(127
|
)
|
|
$
|
(123
|
)
|
Net cash provided by/(used in) financing activities
|
$
|
(56
|
)
|
|
$
|
(25
|
)
|
|
$
|
(136
|
)
|
|
$
|
(38
|
)
|
(1)
|
As of the end of the
second
quarters of 2016 and 2015, we had accrued capital expenditures of
$45 million
and
$40 million
, respectively.
|
(2)
|
Net cash provided by investing activities includes capital expenditures and proceeds from sale of operating assets, which are also included in our computation of free cash flow.
|
|
Corporate
|
|
Outlook
|
Fitch Ratings
|
B+
|
|
Stable
|
Moody’s Investors Service, Inc.
|
B3
|
|
Positive
|
Standard & Poor’s Ratings Services
|
B
|
|
Positive
|
•
|
customer response to our marketing and merchandise strategies;
|
•
|
our ability to achieve profitable sales and to make adjustments in response to changing conditions;
|
•
|
our ability to respond to competitive pressures in our industry;
|
•
|
our ability to effectively manage inventory;
|
•
|
the success of our omnichannel strategy;
|
•
|
our ability to benefit from capital improvements made to our store environment;
|
•
|
our ability to respond to any unanticipated changes in expected cash flows, liquidity and cash needs, including our ability to obtain any additional financing or other liquidity enhancing transactions, if and when needed;
|
•
|
our ability to achieve positive cash flow;
|
•
|
our ability to access an adequate and uninterrupted supply of merchandise from suppliers at expected levels and on acceptable terms;
|
•
|
changes to the regulatory environment in which our business operates; and
|
•
|
general economic conditions.
|
•
|
counterparty credit risk;
|
•
|
the risk that the duration or amount of the hedge may not match the duration or amount of the related liability;
|
•
|
the hedging transactions may be adjusted from time to time in accordance with accounting rules to reflect changes in fair values, downward adjustments or “mark-to-market losses,” which would affect our stockholders’ equity; and
|
•
|
the risk that we may not be able to meet the terms and conditions of the hedging instruments, in which case we may be required to settle the instruments prior to maturity with cash payments that could significantly affect our liquidity.
|
•
|
potential disruptions in manufacturing, logistics and supply;
|
•
|
changes in duties, tariffs, quotas and voluntary export restrictions on imported merchandise;
|
•
|
strikes and other events affecting delivery;
|
•
|
consumer perceptions of the safety of imported merchandise;
|
•
|
product compliance with laws and regulations of the destination country;
|
•
|
product liability claims from customers or penalties from government agencies relating to products that are recalled, defective or otherwise noncompliant or alleged to be harmful;
|
•
|
concerns about human rights, working conditions and other labor rights and conditions and environmental impact in foreign countries where merchandise is produced and raw materials or components are sourced, and changing labor, environmental and other laws in these countries;
|
•
|
local business practice and political issues that may result in adverse publicity or threatened or actual adverse consumer actions, including boycotts;
|
•
|
compliance with laws and regulations concerning ethical business practices, such as the U.S. Foreign Corrupt Practices Act; and
|
•
|
economic, political or other problems in countries from or through which merchandise is imported.
|
|
|
|
|
Incorporated by Reference
|
|
|
||||||
Exhibit No.
|
|
Exhibit Description
|
|
Form
|
|
SEC
File No.
|
|
Exhibit
|
|
Filing
Date
|
|
Filed (†)
Herewith
(as indicated)
|
3.1
|
|
Restated Certificate of Incorporation of J. C. Penney Company, Inc., as amended to May 20, 2011
|
|
10-Q
|
|
001-15274
|
|
3.1
|
|
6/8/2011
|
|
|
3.2
|
|
J. C. Penney Company, Inc. Bylaws, as amended to July 20, 2016
|
|
8-K
|
|
001-15274
|
|
3.1
|
|
7/21/2016
|
|
|
3.3
|
|
Certificate of Designation, Preferences and Rights of Series C Junior Participating Preferred Stock
|
|
8-K
|
|
001-15274
|
|
3.1
|
|
8/22/2013
|
|
|
4.1
|
|
Indenture (including the form of Note), dated as of June 23, 2016, among J. C. Penney Company, Inc., J. C. Penney Corporation, Inc., the subsidiary guarantors party thereto and Wilmington Trust, National Association
|
|
8-K
|
|
001-15274
|
|
4.1
|
|
6/24/2016
|
|
|
10.1
|
|
J. C. Penney Company, Inc. 2016 Long-Term Incentive Plan
|
|
Def. Proxy Stmt.
|
|
001-15274
|
|
Annex A
|
|
3/23/2016
|
|
|
10.2
|
|
Form of Notice of Non-Associate Director Restricted Stock Unit Award under the J. C. Penney Company, Inc. 2016 Long-Term Incentive Plan
|
|
|
|
|
|
|
|
|
|
†
|
10.3
|
|
Restatement Agreement, dated as of June 23, 2016, among J. C. Penney Company, Inc., J. C. Penney Corporation, Inc., the subsidiary guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent
|
|
8-K
|
|
001-15274
|
|
10.1
|
|
6/24/2016
|
|
|
10.4
|
|
Amended and Restated Pledge and Security Agreement, dated as of June 23, 2016, among J. C. Penney Company, Inc., J. C. Penney Corporation, Inc., the subsidiary guarantors party thereto and Wilmington Trust, National Association, as collateral agent
|
|
8-K
|
|
001-15274
|
|
10.2
|
|
6/24/2016
|
|
|
10.5
|
|
Intercreditor and Collateral Cooperation Agreement, dated as of June 23, 2016, among Wells Fargo Bank, National Association, as representative for the ABL secured parties, Wilmington Trust, National Association, as representative for the term loan/notes secured parties, J. C. Penney Company, Inc., J. C. Penney Corporation, Inc. and the subsidiary guarantors party thereto
|
|
8-K
|
|
001-15274
|
|
10.3
|
|
6/24/2016
|
|
|
10.6
|
|
Pari Passu Intercreditor Agreement, dated as of June 23, 2016, among Wilmington Trust, National Association, as collateral agent, Wilmington Trust, National Association, as trustee, and JPMorgan Chase Bank, N.A., as administrative agent
|
|
8-K
|
|
001-15274
|
|
10.4
|
|
6/24/2016
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
†
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
†
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
†
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
†
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
|
|
|
|
|
|
†
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
|
|
|
|
|
†
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
|
|
|
|
†
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
|
|
|
|
†
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
|
|
|
|
|
|
†
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
|
|
|
|
|
|
|
†
|
|
J. C. PENNEY COMPANY, INC.
|
|
|
By
|
/s/Andrew S. Drexler
|
|
Andrew S. Drexler
Senior Vice President, Chief Accounting Officer and Controller
(Principal Accounting Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of J. C. Penney Company, Inc.;
|
2.
|
Based on my knowledge, this 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 report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
|
/s/ Marvin R. Ellison
|
|
Marvin R. Ellison
|
|
Chairman and Chief Executive Officer
|
1.
|
I have reviewed this quarterly report on Form 10-Q of J. C. Penney Company, Inc.;
|
2.
|
Based on my knowledge, this 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 report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
|
/s/ Edward J. Record
|
|
Edward J. Record
|
|
Executive Vice President and Chief Financial Officer
|
|
/s/ Marvin R. Ellison
|
|
Marvin R. Ellison
|
|
Chairman and Chief Executive Officer
|
|
/s/ Edward J. Record
|
|
Edward J. Record
|
|
Executive Vice President and Chief Financial Officer
|