JCPenney 2003 Annual Report Download - page 35

J. C. Penney Company, Inc. 33
Notes to the Consolidated Financial Statements
6ACCOUNTS PAYABLE AND ACCRUED EXPENSES
($ in millions) 2003 2002
Trade payables $1,167 $993
Accrued salaries, vacation and bonus 409 413
Customer gift cards/certificates 179 172
Interest payable 132 122
Taxes payable 119 98
Advertising payables 79 72
Workers’ compensation and
general liability insurance 63 63
Common dividends payable 35 34
Other(1) 368 307
Tot al $2,551 $2,274
(1) Other includes various components that are individually insignificant such as
general accrued expenses related to operations and fixed asset accruals.
7FAIR 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 esti-
mated by obtaining quotes from brokers or is based on current
rates offered for similar debt. At January 31, 2004, total notes and
debentures had a carrying value of $5.3 billion and a fair value of
$5.9 billion. At January 25, 2003, total notes and debentures had
a carrying value of $5.2 billion and a fair value of $4.9 billion.
Concentrations of Credit Risk
The Company has no significant concentrations of credit risk.
8SHORT-TERM DEBT
The Company’s Brazilian subsidiary, Renner, had short-term
debt outstanding of $18 million at January 31, 2004 and $13 mil-
lion at January 25, 2003.
Credit Facility
In May 2002, the Company entered into a three-year, $1.5 bil-
lion revolving bank line of credit (credit facility) with a syndicate
of banks with JPMorgan Chase Bank as administrative agent. This
credit facility replaced a $1.5 billion facility that was scheduled to
expire in November 2002 and a $630 million letter of credit facil-
ity. The credit facility may be used for general corporate purpos-
es, including the issuance of letters of credit. No borrowings,
other than the issuance of trade and standby letters of credit,
which totaled $227 million as of the end of 2003, have been
made under this credit facility.
Under the credit facility, the Company must maintain an asset
coverage ratio, which is eligible inventory to total revolving cred-
it exposure, of at least 1.75 to 1.0. Given that there were no bor-
rowings other than the issuance of letters of credit, this ratio was
14.1 to 1.0 at year-end 2003, far exceeding the requirement.
Additionally, the credit facility includes a financial performance
covenant, which consists of a maximum ratio of total debt to
consolidated EBITDA (leverage ratio, as defined in the credit
agreement, which includes Eckerd) as measured on a trailing
four-quarters basis, calculated at each quarter end. As of year-
end 2003, the actual leverage ratio was 3.31 to 1.0, well within the
prescribed limit of 4.25 to 1.0.
Any indebtedness incurred by the Company under the credit
facility is collateralized by all eligible Department Stores and
Catalog/Internet domestic inventory, as defined in the credit
facility agreement. The security interest can be released as per-
formance improvements are achieved and credit ratings by the
rating agencies improve. Pricing is tiered based on the corporate
credit ratings for the Company by Moody’s and Standard &
Poor’s. Obligations under the credit facility are guaranteed by
J. C. Penney Company, Inc. and JCP Real Estate Holdings, Inc.,
which is a wholly owned subsidiary of the Company.
9LONG-TERM DEBT
($ in millions) 2003 2002
Issue
6.125% to 9.0% Notes, due 2003 to 2097 $2,165 $1,928
7.125% to 8.125% Debentures,
due 2016 to 2037 1,525 1,525
6.5% to 7.05% Medium-term notes,
due 2005 to 2015 493 493
5.0% Convertible subordinated
notes, due 2008 650 650
8.25% to 9.75% Sinking fund
debentures, due 2021 to 2022 313 392
6.0% Original issue discount
debentures, due 2006(1) 167 156
6.35% to 7.33% Equipment
financing notes, due 2007 21 25
Tot al note s and debentures 5,334 5,169
Capital lease obligations and other 22 4
Tot al long-term debt, including
current maturities 5,356 5,173
Less: current maturities (242) (276)
Tot al long-term debt $5,114 $4,897
(1) Face amount of these OID debentures is $200 million.
Issuance of $600 Million Debt
On February 28, 2003, the Company issued $600 million princi-
pal amount of 8.0% Notes Due 2010 (“Notes”). The Notes are
redeemable in whole or in part, at the Company’s option at any
time, at a redemption price equal to the greater of (a) 100% of the
principal amount of such Notes or (b) the sum of the present val-