JCPenney 2002 Annual Report Download - page 32

2002 annual report J. C. Penney Company, Inc. 29
Notes to the Consolidated Financial Statements
4CASH AND SHORT-TERM INVESTMENTS
Restricted short-term investment balances of $86 million and
$114 million for 2002 and 2001, respectively, were included in the
total cash and short-term investment balances of $2,474 million
and $2,840 million for the same periods. Restricted balances are
pledged as collateral for import letters of credit not included in
the bank credit facility and for a portion of casualty insurance
program liabilities. Cash and short-term investments on the con-
solidated balance sheet include $6 million of cash for both 2002
and 2001.
5ECKERD RECEIVABLES SECURITIZATION
In May 2001, Eckerd securitized certain managed care receiv-
ables by forming a bankruptcy-remote special purpose entity,
ECR Receivables, Inc. (ECR), which in turn entered into a three-
year revolving receivables purchase facility agreement with an
unrelated entity, Three Rivers Funding Corporation (TRFC), an
asset-backed commercial paper conduit sponsored by Mellon
Financial Corporation. Effective February 3, 2003, Bryant Park
Funding LLC (Bryant Park) and HSBC Bank USA were added as
purchasers. Under the facility, Eckerd sells to ECR, on a contin-
uous basis, all of its managed care receivables. ECR then sells to
TRFC or Bryant Park an undivided interest in all eligible receiv-
ables while maintaining a subordinated interest, in the form of
overcollateralization, in a portion of the receivables. JCP,
through Eckerd, received cash proceeds of $200 million in May
2001 from the sale. On February 3, 2003, approximately $50
million of cash proceeds was received. Eckerd has agreed to
continue servicing the sold receivables at market rates; accord-
ingly, no servicing asset or liability has been recorded.
As of January 25, 2003, securitized managed care receivables
totaled $324 million, of which the subordinated retained interest
was $124 million. The portion of the receivables in which third
parties have an undivided ownership interest qualifies as a sale
under the provisions of SFAS No. 140, “Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of
Liabilities,” and has been reflected as a reduction of receivables
in the accompanying consolidated balance sheets. Losses and
expenses related to receivables sold under this agreement in 2002
and 2001 totaled $4 million and $5 million, respectively, and are
included in other unallocated.
6 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in esti-
mating the fair values of financial instruments:
Cash and Short-Term Investments
The carrying amount approximates fair value because of the
short maturity of these instruments.
Short-Term and Long-Term Debt
Carrying value approximates fair value for short-term debt. The
fair value of long-term debt, excluding capital leases, is estimated
by obtaining quotes from brokers or is based on current rates
offered for similar debt. At January 25, 2003, long-term debt,
including current maturities, had a carrying value of $5.2 billion
and a fair value of $4.9 billion. At January 26, 2002, long-term debt,
including current maturities, had a carrying value of $6.1 billion
and a fair value of $5.4 billion.
Concentrations of Credit Risk
The Company has no significant concentrations of credit risk.
7OTHER ASSETS
($ in millions) 2002 2001
Prepaid pension $ 1,172 $ 892
Capitalized software, net 228 229
Leveraged lease investments 131 132
Real estate investments 106 104
Deferred catalog book costs 73 86
Debt issuance costs, net 46 43
Other 59 48
Tot al $ 1,815 $ 1,534
8ACCOUNTS PAYABLE AND ACCRUED EXPENSES
($ in millions) 2002 2001
Accounts payable, primarily trade $ 1,792 $ 1,551
Accrued salaries, vacation and bonus 570 541
Advertising payables 187 136
Customer gift cards/certificates 173 161
Pharmacy payables 131 69
Taxes payable 123 158
Interest payable 122 137
Workers’ compensation and
general liability insurance 99 102
Rent payable 91 90
Restructuring reserves 37 55
Common dividends payable 34 34
Other(1) 432 431
Tot al $ 3,791 $ 3,465
(1) Other includes various components that are individually insignificant such as
general accrued expenses related to operations and fixed asset accruals. Also includ-
ed in other is $3 million at year-end 2002 and $4 million at year-end 2001, which
represents the remaining balance of a $20 million reserve that was originally estab-
lished as part of the Company’s sale of its proprietary credit card receivables to
General Electric Capital Corporation in 1999. This reserve was established to cover
potential bad debts on certain types of accounts.