JCPenney 2004 Annual Report Download - page 40

J.C. PENNEY COMPANY, INC.2 004 ANNUAL REPORT
Notes to the Consolidated Financial Statements
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calculated at each quarter end. As of year-end 2004, the actual
leverage ratio was 2.14 to 1.0, well within the prescribed limit of
3.75 to 1.0.
Effective June 2, 2004, this credit facility was amended to permit
the sale of Eckerd Corporation and its affiliates and assets, to per-
mit a broader range of cash investments and to permit issuing
banks to extend maturities of certain letters of credit past the expi-
ration of the credit facility as long as they are collateralized with
cash at that time.
As discussed in Note 21, this credit facility is expected to be
replaced with a new $1.2 billion credit facility in April 2005.
11 LONG-TERM DEBT
($ in millions) 2004 2003
Issue:
6.9% to 9.0% Notes, due 2004 to 2097 $ 1,857 $ 2,165
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
8.25% to 9.75% Sinking fund
debentures, due 2021 to 2022 –– 313
6.0% Original issue discount
debentures, due 2006(1) –– 167
6.35% to 7.33% Equipment
financing notes, due 2007 15 21
Total notes and debentures 3,890 5,334
Capital lease obligations and other 33 22
Total long-term debt, including
current maturities 3,923 5,356
Less: current maturities 459 242
Total long-term debt $ 3,464 $ 5,114
(1) The face amount of these original issue discount debentures was $200 million.
As a part of the Company’s planned $2.3 billion debt reduction
program discussed in Note 3, approximately $1.7 billion of on- and
off-balance sheet obligations were eliminated during 2004 as fol-
lows:
• JCP’s 7.375% Notes in the amount of $208 million matured and
were paid.
•JCP retired its 9.75% Debentures Due 2021. Of the total
balance of $117.2 million, $25 million was retired at par, and the
remaining $92.2 million was redeemed at a price of 103.2%
plus accrued interest.
•JCP retired the entire $195.7 million balance of its 8.25%
Debentures Due 2022. $37.5 million of the balance was retired
at par, with the remaining $158.2 million being redeemed at a
price of 103.096% plus accrued interest.
•JCP redeemed its $200 million face amount 6.0% Original
Issue Discount Debentures Due 2006. At the date of
redemption, these debentures had a recorded balance of $175
million, due to the unamortized discount of $25 million.
•The Company purchased approximately $100 million of JCP’s
7.6% Notes Due 2007 in the open market.
•The Company called all of JCP’s outstanding $650 million 5.0%
Convertible Subordinated Notes Due 2008. Holders of the
Notes had the option to convert the Notes into shares of the
Company’s common stock at a conversion price of $28.50. All
but $0.7 million of the Notes were converted into approximately
22.8 million shares, and the remaining Notes were redeemed at
102.5% plus accrued interest.
•As reflected in Cash (Paid to)/Received from Discontinued
Operations on the Consolidated Statements of Cash Flows,
Eckerd’s managed care receivables securitization program
was paid off for a total of $221 million and the program was
terminated.
During 2003, borrowings and repayments of debt included the
following:
•On February 28, 2003, the Company issued $600 million
principal amount of 8.0% Notes Due 2010. These 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 values of the remaining scheduled payments, dis-
counted 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.
•In August 2003, bondholders exercised their option to redeem
approximately $117 million of the $119 million 6.9%
Debentures Due 2026.
•During 2003, the Company retired $62 million of JCP’s sinking
fund debentures through mandatory payments totaling $25
million and optional sinking fund payments totaling $37 million.
•The Company purchased approximately $17 million of JCP’s
8.25% Sinking Fund Debentures Due 2022.
•In November 2003, the outstanding amount of JCP’s 6.125%
Notes Due 2003, totaling $246 million, matured and
was paid in full.
Debt Covenants
The Company has indentures covering approximately $275 million
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 respective indentures).
These indentures permit the Company to issue additional long-term
debt if it is in compliance with the covenant. At year-end 2004, the
Company’s percentage of net tangible assets to senior funded
indebtedness was 302%.
7.4% Debentures Due 2037
JCP’s $400 million 7.4% Debentures Due 2037 contained put
options whereby the investors could elect to have the debentures
redeemed at par on April 1, 2005. On March 1, 2005, the put option
expired, and virtually all of the debentures were extended, with only
$0.3 million put to the Company. Accordingly, $399.7 million was
reclassified to Long-Term Debt on the January 29, 2005
Consolidated Balance Sheet and is included in the 2010-2097 cat-
egory in the scheduled annual principal payments presented below.
Scheduled Annual Principal Payments on Long-Term Debt:
($ in millions)
2005 2006 2007 2008 2009 2010-2097
$459 $21 $433 $203 $–– $2,807