JCPenney 2004 Annual Report Download - page 41

J.C. PENNEY COMPANY, INC.2 004 ANNUAL REPORT
Notes to the Consolidated Financial Statements
39
12 INTEREST EXPENSE, NET
($ in millions) 2004 2003 2002
Short-term debt $3$6$4
Long-term debt 373 429 403
Short-term investments (63) (30) (41)
Other, net 17 20 22
Less: Interest expense of
discontinued operations(1)(2) (97) (164) (162)
Total $ 233 $ 261 $ 226
(1) Includes interest expense from Mexico Department Stores of $— million, $1 million and $1 million
in 2004, 2003 and 2002, respectively.
(2) See Note 2 for an explanation of interest expense allocated to Eckerd.
13 CAPITAL STOCK
The Company had 43,242 stockholders of record as of January
29, 2005. On a combined basis, the Company’s 401(k) savings
plan, including the Company’s employee stock ownership plan
(ESOP), held 30 million shares of common stock or 11% of the
Company’s outstanding common stock. See Note 3 for a discussion
of the Company’s ongoing common stock repurchase program.
Preferred Stock
The Company has authorized 25 million shares of preferred
stock; no shares of preferred stock were issued and outstanding as
of January 29, 2005. On August 26, 2004, the Company redeemed,
through conversion to common stock, all of its outstanding shares
of Series B ESOP Convertible Preferred Stock (Preferred Stock), all
of which were held by the Company’s Savings, Profit Sharing and
Stock Ownership Plan, a 401(k) savings plan. Each holder of
Preferred Stock received 20 equivalent shares of JCPenney com-
mon stock for each one share of Preferred Stock in their savings
plan account. Preferred Stock shares, which are included in the
diluted earnings per share calculation as appropriate, were con-
verted into approximately nine million shares of common stock on
August 26, 2004. As of January 31, 2004, 505,759 shares were
issued and outstanding. Prior to redemption, cumulative dividends
were paid semi-annually at an annual rate of $2.37 per common
share equivalent, a yield of 7.9%.
Preferred Stock Purchase Rights
In January 2002, the Board of Directors issued one preferred
stock purchase right on each outstanding and future share of com-
mon stock. These 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 contains
a three-year independent director evaluation (TIDE) provision. This
TIDE feature provides that a committee of the Company’s inde-
pendent directors will review the rights agreement at least every
three years and, if they deem it appropriate, may recommend to the
Board a modification or termination of the rights agreement.
14 ACCUMULATED OTHER COMPREHENSIVE (LOSS)/INCOME
2004 2003
Deferred Deferred
Pre-Tax Tax Asset/ Net of Tax Pre-Tax Tax Asset/ Net of Tax
Amount (Liability) Amount Amount (Liability) Amount
Foreign currency translation adjustments(1) $ (104) $ –– $ (104) $ (115) $ –– $ (115)
Non-qualified plan minimum liability adjustment (168) 66 (102) (134) 52 (82)
Net unrealized gains on investments 115 (41) 74 92 (32) 60
Other comprehensive (loss) from
discontinued operations –– –– –– (2) 1 (1)
Accumulated other comprehensive (loss) $ (157) $ 25 $ (132) $ (159) $ 21 $ (138)
(1) A deferred tax asset has not been established due to the historical reinvestment of earnings in the Company’s Brazilian subsidiary.
15 STOCK-BASED COMPENSATION
In May 2001, the Company’s stockholders approved a 2001 Equity Compensation Plan (2001 Plan), which initially reserved 16 million
shares of common stock for issuance, plus 1.2 million shares reserved but not subject to awards under the Company’s 1997 and 2000 equi-
ty plans. No future grants will be made under the 1997 and 2000 plans. The 2001 Plan provides for grants to associates of options to pur-
chase the Company’s common stock, stock awards or stock appreciation rights. At January 29, 2005, 5.7 million shares of stock were avail-
able for future grants. Stock options and awards typically vest over performance periods ranging from one to five years. The number of
option shares is fixed at the grant date, and the exercise price of stock options is generally set at the market price on the date of the grant.