JCPenney 2002 Annual Report Download - page 33

J. C. Penney Company, Inc. 2002 annual report30
Notes to the Consolidated Financial Statements
9SHORT-TERM DEBT
The Company’s Brazilian subsidiary, Renner, had short-term debt
outstanding of $13 million at January 25, 2003 and $15 million at
January 26, 2002.
In May 2002, JCP and J. C. Penney Company, Inc. entered into a
three-year, $1.5 billion revolving bank line of credit (credit facility)
with a syndicate of banks with JPMorgan Chase Bank as adminis-
trative agent. This credit facility replaced a $1.5 billion facility that
was scheduled to expire in November 2002 and a $630 million let-
ter of credit facility. The credit facility may be used for general cor-
porate purposes, including the issuance of letters of credit. No bor-
rowings, other than the issuance of trade and standby letters of
credit, which totaled $206 million as of the end of 2002, have been
made under this credit facility.
Key terms of this credit facility include a financial performance
covenant, which consists of a maximum ratio of total debt to con-
solidated EBITDA (as defined in the credit agreement) as measured
on a trailing four quarters basis, calculated at the end of each fiscal
quarter. In addition, the amount of outstanding indebtedness
under the agreement is subject to a limitation based on the value
of collateral to total indebtedness, as defined in the credit facility
agreement. At January 25, 2003, the Company was in compliance
with all financial covenants of the credit agreement.
Any indebtedness incurred by JCP under the credit facility is col-
lateralized by all eligible domestic department store and catalog
inventory, as defined in the credit facility agreement, which can be
released as performance improvements are achieved and credit
ratings by the rating agencies improve. Pricing is tiered based on
the corporate credit ratings for JCP by Moody’s and Standard &
Poor’s. Obligations under the credit facility are guaranteed by
J. C. Penney Company, Inc. and JCP Real Estate Holdings, Inc., which
is a wholly owned subsidiary of JCP.
10 LONG-TERM DEBT
($ in millions) 2002 2001
Issue
6.125% to 9.0% Notes, due 2002 to 2097 $ 1,928 $ 2,625
7.125% to 8.125% Debentures,
due 2016 to 2037 1,525 1,525
6.5% to 7.05% Medium-term notes,
due 2002 to 2015 493 700
5.0% Convertible subordinated
notes, due 2008 650 650
8.25% to 9.75% Sinking fund
debentures, due 2021 to 2022 392 405
6.0% Original issue discount
debentures, due 2006 156 146
6.35% to 7.33% Equipment
financing notes, due 2007 25 —
Total notes and debentures 5,169 6,051
Capital lease obligations and other 46 48
Less: current maturities (275) (920)
Total long-term debt $ 4,940 $ 5,179
Two of the Company’s debenture series contain put options where
the investor may elect to have the debenture redeemed at par prior
to its stated maturity date. These include the 6.9% Notes Due 2026,
principal amount $119 million, which may be redeemed August 15,
2003 and the 7.4% Debentures Due 2037, principal amount $400 mil-
lion, which may be redeemed April 1, 2005. Assuming debenture
holders exercise their repayment options, required principal payments
on long-term debt and notes payable over the next five years, exclud-
ing capital lease obligations, are (in millions) $394 in 2003, $238 in 2004,
$624 in 2005, $187 in 2006, $554 in 2007 and $3,172 thereafter.
During 2002, $920 million principal amount of notes matured and
was paid. During 2001, $250 million principal amount of notes
matured and was paid.
The $650 million of 5% Convertible Subordinated Notes Due
2008 were issued in October 2001. These notes are convertible at
any time prior to maturity, unless previously redeemed, at the
option of the holders into shares of the Company’s common
stock at a conversion price of $28.50 per share, subject to certain
adjustments. The notes are subordinated to the Company’s sen-
ior indebtedness. The notes will not be subordinated to JCP’s
trade payables or other general creditors of JCP. The notes are
structurally subordinated to all indebtedness and other liabilities
of the Company and its subsidiaries. JCP may redeem the notes
on or after October 20, 2004.
In 2002, JCP borrowed approximately $27 million from Lombard
US Equipment Finance Corporation in three separate notes to
finance the purchase of equipment for certain department store
support centers. The notes, which are secured by the equipment
being purchased, mature in 2007, bear interest at rates from 6.35% to
7.33% and are payable in monthly installments. Principal payments
of $2 million were made during 2002, resulting in a year-end 2002
balance of $25 million.
See Note 21 for discussion regarding issuance in February 2003 of
$600 million principal amount of 8% Notes Due 2010.
Debt Exchange
JCP issued, pursuant to a private placement, 9.0% Notes Due
2012 with an aggregate principal amount of $230.2 million and a
fair value of approximately $225 million in exchange for $227.2
million of old notes tendered in response to a June 2002
exchange offer. Approximately $79.4 million principal amount of
6.125% Notes Due 2003, $67.0 million principal amount of
7.375% Notes Due 2004 and $80.8 million principal amount of
6.9% Debentures Due 2026 were tendered in response to the
exchange offer. The Company paid total consent fees of $2.2 mil-
lion for such tendered notes. In accordance with SFAS No. 145,
the net loss of approximately $0.4 million was recorded in inter-
est expense in income from continuing operations for the year.
No amendments were made to the indentures governing the
old notes.
The Company subsequently filed a registration statement with
the Securities and Exchange Commission in order to offer to
exchange registered notes for the $230.2 million of notes that were
issued in the prior private placement exchange. The registered