JCPenney 2015 Annual Report Download - page 34

Table of Contents
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In December 2015, we prepaid and retired the outstanding $494 million principal amount of the term loan under the 2014 Credit Facility and recognized a
loss on extinguishment of debt of $10 million for the write off of the related unamortized debt issuance costs.
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Net interest expense consists principally of interest expense on long-term debt, net of interest income earned on cash and cash equivalents. Net interest
expense was $405 million, a decrease of $1 million, or 0.2%, from $406 million in 2014.
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Our net deferred tax assets, which include the future tax benefits of our net operating loss carryforwards, are subject to a valuation allowance. At January 30,
2016, the federal and state valuation allowances were $789 million and $236 million, respectively. Future book pre-tax losses will require additional
valuation allowances to offset the deferred tax assets created. Until such time that we achieve sufficient profitability to allow removal of most of our
valuation allowance, utilization of our loss carryforwards will result in a corresponding decrease in the valuation allowance and offset our tax provision
dollar for dollar.
Each period we are required to allocate our income tax expense or benefit to continuing operations and other items such as other comprehensive income and
stockholder’s equity. In accordance with these rules when we have a loss in continuing operations and a gain in other comprehensive income, as arose in
2013, we are required to recognize a tax benefit in continuing operations up to the amount of tax expense that we are required to report in other
comprehensive income. In 2015, we experienced losses in both continuing operations and other comprehensive income. Under the allocation rules we are
required to recognize the valuation allowance allocable to the tax benefit attributable to these losses in each component of comprehensive income.
Accordingly, included in the total valuation allowance of $1,025 million noted above is $244 million of valuation allowance which offsets the deferred tax
benefit attributable to the actuarial loss reported in other comprehensive income.
For 2015, we recorded a net tax expense of $9 million. The net tax expense included $7 million related to the amortization of certain indefinite-lived
intangible assets, $12 million for state and foreign jurisdictions where loss carryforwards are limited or unavailable offset by net tax benefits of $2 million for
state audit settlements and $8 million to adjust the valuation allowance.
For 2014, we recorded a net tax expense of $23 million. The net tax expense included $7 million related to the amortization of certain indefinite-lived
intangible assets, $10 million for state and foreign jurisdictions where loss carryforwards are limited or unavailable and $6 million for federal and state audit
settlements.
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In 2015, EBITDA was $527 million, an improvement of $150 million from EBITDA of $377 million in the prior year corresponding period. Excluding
restructuring and management transition charges, the impact of our Primary Pension Plan expense/(income), the net gain on the sale of non-operating assets,
the proportional share of net income from the Home Office Land Joint Venture and certain net gains, adjusted EBITDA was $715 million, improving $435
million for 2015 compared to adjusted EBITDA of $280 million for the prior year corresponding period.
Overall, EBITDA and adjusted EBITDA improved significantly in 2015 as compared to the corresponding prior year periods as we were able to improve sales,
achieve higher margins and reduce our operating costs.
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In 2015, we reported a loss of $513 million, or $1.68 per share, compared with a loss of $717 million, or $2.35 per share, last year. Excluding the impact of
restructuring and management transition charges, the impact of our Primary Pension Plan expense, the loss on extinguishment of debt, the net gain on sale of
non-operating assets, the proportional share of net income from joint venture and certain net gains, adjusted net income/(loss) (non-GAAP) went from a loss
of $778 million, or $2.55 per share, in 2014 to a loss of $315 million, or $1.03 per share, in 2015.
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