JCPenney 2003 Annual Report Download - page 36

J. C. Penney Company, Inc.34
Notes to the Consolidated Financial Statements
ues of the remaining scheduled payments, discounted to the
redemption date on a semi-annual basis at the "treasury yield"
plus 50 basis points, together in either case with accrued interest
to the date of redemption.
Payments Related to Put Bonds and Sinking Fund Debt
In August 2003, bondholders exercised their option to redeem
approximately $117 million of the $119 million 6.9% Debentures
Due 2026. During the year, the Company retired $62 million of
its sinking fund debentures through mandatory payments total-
ing $25 million and available optional sinking fund payments
totaling $37 million. Also in 2003, the Company purchased
approximately $17 million of the 8.25% Sinking Fund Debentures
Due 2022 and will apply them to unspecified future mandatory
sinking fund payments.
Payment of Notes Due
In November 2003, the outstanding amount of the Company’s
6.125% Notes Due 2003, totaling $246 million, matured and was
paid in full.
Debt Covenants
The Company has indentures covering approximately $755 mil-
lion of long-term debt that contain a financial covenant requiring
the Company to have a minimum of 200% net tangible assets to
senior funded indebtedness (as defined in the indenture, which
includes Eckerd). These indentures permit the Company to issue
additional long-term debt if it is in compliance with the covenant.
At year-end 2003 the Company’s percentage of net tangible assets to
senior funded indebtedness was 245%.
Other
The $650 million of 5% Convertible Subordinated Notes Due
2008 are convertible at any time prior to maturity, unless previ-
ously 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 senior indebtedness. The notes will not be sub-
ordinated to the Company’s trade payables or other general cred-
itors of the Company. The notes are structurally subordinated to
all indebtedness and other liabilities of the Company and its sub-
sidiaries. The Company may redeem the notes on or after
October 20, 2004.
The 7.4% Debentures Due 2037, principal amount of $400 mil-
lion, contain put options where the investor may elect to have
the debenture redeemed at par on April 1, 2005. Assuming these
debenture holders exercise their repayment options, required
principal payments on long-term debt over the next five years are
as follows:
($ in millions)
2004 2005 2006 2007 2008 2009-2097
$242 $629 $236 $559 $878 $2,845
10 INTEREST EXPENSE, NET
($ in millions) 2003 2002 2001
Short-term debt $6$4$—
Long-term debt 429 403 426
Short-term investments (30) (41) (50)
Other, net 20 22 10
Less: Interest expense of
discontinued operations(1)(2) (164) (162) (155)
Tot al $261 $226 $ 231
(1) Includes interest expense from Mexico Department Stores of $1 million, $1 million
and $2 million in 2003, 2002 and 2001, respectively.
(2) See Note 2 for explanation of interest expense allocated to Eckerd.
11 CAPITAL STOCK
The Company had 46,524 stockholders of record as of January
31, 2004. On a combined basis, the Company’s savings plans,
including the Company’s employee stock ownership plan
(ESOP), held 44 million shares of common stock or 15.5% of the
Company’s common shares after giving effect to the conversion
of preferred stock.
Preferred Stock
The Company has authorized 25 million shares of preferred
stock; 505,759 and 554,426 shares of Series B ESOP Convertible
Preferred Stock were issued and outstanding as of January 31,
2004 and January 25, 2003, respectively. Each share is convertible
into 20 shares of the Company’s common stock at a guaranteed
minimum price of $30 per common share. Dividends are cumu-
lative and are payable semi-annually at an annual rate of $2.37 per
common share equivalent, a yield of 7.9%. Shares may be
redeemed at the option of the Company or the ESOP under cer-
tain circumstances. The redemption price may be satisfied in
cash or common stock or a combination of both, at the
Company’s sole discretion.
Preferred Stock Purchase Rights
In January 2002, in connection with the Holding Company for-
mation, the Board of Directors issued one preferred stock pur-
chase right on each outstanding and future share of common
stock. JCP’s then-existing rights plan, which was established in
March 1999 with terms substantially similar to those of the
Company’s 2002 plan, was simultaneously amended so that it
expired. The new rights entitle the holder to purchase, for each
right held, 1/1000 of a share of Series A Junior Participating
Preferred Stock at a price of $140. The rights are exercisable by the
holder upon the occurrence of certain events and are
redeemable by the Company under certain circumstances as
described by the rights agreement. The rights agreement con-
tains a three-year independent director evaluation (TIDE) provi-
sion. This TIDE feature provides that a committee of the
Company’s independent directors will review the rights agree-
ment at least every three years and, if they deem it appropriate,
may recommend to the Board a modification or termination of
the rights agreement.