JCPenney 2002 Annual Report Download - page 5

J. C. Penney Company, Inc. 2002 annual report2
second to none. In the photo processing business, we have
achieved a very competitive position in our industry by invest-
ing in new equipment and providing highly trained personnel to
capture market share in the film-based side of the business.
Eckerd is positioned to provide one-hour on-site digital photo
processing service in nearly all of our labs by the end of 2003.
This is a unique capability shared by no drugstore competitor.
We are now price competitive in all areas of the store and
have created a consistent week-to-week value message to our
customers through our promotional programs. We have made
substantial improvements by in-sourcing our information tech-
nology function and have reduced SG&A expenses by 190 basis
points during the past two years.
We are making our customers and our stores the single focus
of all our actions. We have adopted an internal motto of “Clean
Stores, Full Shelves, Great Service,” a simple way to describe our
store refresh and reconfiguration program that has been under-
way for the past two years. We are proud to say that we are on
plan with approximately 1,500 of our 2,686 stores completed by
year-end 2002. We plan to remodel or reconfigure an additional
550 stores in 2003.
Our solid foundation now allows us to move forward with an
aggressive new and relocated store plan starting in 2003. Two
new markets, Phoenix/Tucson and Denver, offer favorable cus-
tomer demographics. They are: low ratios of pharmacies to pop-
ulation, good income levels and high future growth potential. In
existing markets, our plans are to add new store locations that
will give us a stronger market share position in areas of high pop-
ulation growth. By the end of 2003 we will add 250 new and relo-
cated stores to our store base bringing our total of stores in the
updated format to 2,300 stores, or 80% of our locations.
FINANCIAL CONDITION
The Company’s financial position improved during 2002 and
now provides increased resources to accomplish our business
objectives. As we continue to meet our financial performance
targets, the Company’s financing strategy remains on track.
For 2002, free cash flow from operations exceeded $500 mil-
lion and we finished the year with cash investments of about
$2.5 billion. Our liquidity position is even more impressive when
you consider that we retired over $920 million of debt that
matured during 2002 and contributed $300 million to our pen-
sion plan.
Our strong financial position was validated in October when
the Company received the highest possible liquidity rating from
Moody’s Investors Service, Inc. This is a new rating, developed by
Moody’s and designed to measure a company’s ability to meet
its obligations through internal resources and available commit-
ted sources of financing.
The Company’s liquidity position was further strengthened in
February 2003 with the completion of a $600 million unsecured
public debt offering.
The Company remains committed to maintaining financial
flexibility and the strong liquidity position necessary to accom-
plish our business strategies.
THE FUTURE
Our turnaround has made good progress, but we must do
more. We are not changing our focus or redefining our goals.
The challenge now becomes more difficult as we progress on
the journey.
During a recent Company-wide meeting I described our jour-
ney as being similar to climbing a mountain. I suggested that we
might think of ourselves now as farther from base camp and
higher up the mountain, where the air and the crowd are thin-
ner. The challenge is to continue to place one steady foot in
front of the other, something that becomes more difficult in the
elevated environment. But that is what we must do. A great deal
of the hard work is behind us. Now we must sharpen our focus
on improved execution and a continued passion to transform
our Company.
None of us can predict the future in such uncertain times. But
I do know that we have the ability to shape our own destiny. The
successes of this past year convince me that this organization
possesses the ability to achieve our goals. When we couple that
ability with an unbridled desire to win and a relentless focus on
the customer, we can be certain of our future success.
Finally, a few words about business ethics seem in order
because much of the past year has been played out against the
backdrop of profoundly negative news reports about corporate
ethical lapses. The public impression of business has been nega-
tively affected by these incidents, even though they are clearly
the exception and not the rule. For more than 100 years,
JCPenney and Eckerd have demonstrated the highest degree of
ethical behavior. We will continue to do so. Perhaps James Cash
Penney gave the best guidance in his 1931 book, “The Man With
a Thousand Partners,” when he wrote:
“The measure of our progress in civilization is the degree to
which we bring our economic motivation into harmony
with our ethical aspirations.”
Allen Questrom
Chairman of the Board and
Chief Executive Officer