JCPenney - 10-K annual report

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CONFORMED COPY

Form 10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

For the fiscal year ended January 25, 2003

or

For the transition period from      to      

Commission File No. 1-15274

J. C. PENNEY COMPANY, INC.

6501 Legacy Drive, Plano, Texas 75024-3698
(Address of principal executive offices)
(Zip Code)

(972) 431-1000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to section 12(g) of the Act:

None
(Title of class)

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes   o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). x Yes   o No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the price at which the common equity was last sold, as of July 26, 2002: $4,692,668,157.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 271,314,707 shares of Common Stock of 50 cents par value, as of April 1, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

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PART I

1. Business.

     Effective January 27, 2002, J. C. Penney Company, Inc. changed its corporate structure to a holding company format. As part of this structure, J. C. Penney Company, Inc. changed its name to J. C. Penney Corporation, Inc. (“JCP”), and became a wholly-owned subsidiary of a newly formed affiliated holding company (“Holding Company”). The new holding company assumed the name J. C. Penney Company, Inc. (“Company”). The Holding Company has no direct subsidiaries other than JCP. The Holding Company has no independent assets or operations. All outstanding shares of common and preferred stock were automatically converted into the identical number of and type of shares in the new holding company. Stockholders’ ownership interests in the business did not change as a result of the new structure. Shares of the Company remain publicly traded under the same symbol (JCP) on the New York Stock Exchange. The Company is a co-obligor (or guarantor, as appropriate) regarding the payment of principal and interest on JCP’s outstanding debt securities. The guarantee by the Holding Company of certain of JCP’s outstanding debt securities is full and unconditional. The Holding Company and its consolidated subsidiaries, including JCP, are collectively referred to in this Annual Report on Form 10-K as “Company” or “JCPenney”, unless indicated otherwise.

     JCPenney was founded by James Cash Penney in 1902; JCP was incorporated in Delaware in 1924 and the Company was incorporated in Delaware in January 2002. The Company has grown to be a major retailer, operating 1,049 JCPenney department stores in 49 states, Puerto Rico and Mexico. In addition, the Company operates 54 Renner department stores in Brazil. A major portion of the Company’s business consists of providing merchandise and services to consumers through department stores, catalog departments and the Internet. Department stores, catalog and the Internet generally serve the same customers and have virtually the same mix of merchandise. In addition, department stores accept returns from sales initiated in department stores, catalog or via the Internet. The Company markets family apparel, jewelry, shoes, accessories and home furnishings. In addition, the Company operates a chain of 2,686 drugstores, primarily through the Eckerd name, located throughout the Southwest, Southeast, Sunbelt, and Northeast regions of the United States.

     In June 2001, JCP closed on the sale of its J. C. Penney Direct Marketing Services, Inc. (“DMS”) assets, including its J. C. Penney Life Insurance subsidiaries and related businesses to a U.S. subsidiary of AEGON, N.V. (“AEGON”). JCP received cash at closing of approximately $1.3 billion ($1.1 billion after tax). Concurrent with the closing, JCP entered into a 15-year strategic licensing and marketing services arrangement with AEGON designed to offer an expanded range of financial and membership services products to JCPenney customers. Over the term of this arrangement, the Company will receive fee income related to the marketing and sale of certain financial products and membership services. Such amounts will be recognized as earned in the Company’s financial statements. The Company’s financial statements are presented to reflect DMS as a discontinued operation.

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DMS was reflected as a discontinued operation for 2000 with an estimated net loss on the sale of $296 million. Because the transaction closed earlier than anticipated in 2001, income from DMS operations was over a shorter time period, and an additional $16 loss was recorded on the sale of discontinued operations. The Company recorded a $34 million gain in 2002 on the sale of discontinued operations. This gain relates to additional capital loss deductions that the Company is entitled to as a result of a 2002 tax regulation change. The final federal tax liability on the transaction was determined in an agreement between the Company and the Internal Revenue Service.

     The business of marketing merchandise and services is highly competitive. The Company is one of the largest department store and drugstore retailers in the United States and it has numerous competitors. Many factors enter into the competition for the consumer’s patronage, including price, quality, style, service, product mix, convenience and credit availability. The Company’s annual earnings depend to a significant extent on the results of operations for the last quarter of its fiscal year. Fourth quarter segment operating profit for the past two years has averaged about 45% of the full year amount.

     Information about certain aspects of the business of the Company included under the captions of “Discontinued Operations” (page 27), “Other Unallocated” (pages 35 to 36), and “Segment Reporting” (page 38), which appears in the section of the Company’s 2002 Annual Report to Stockholders entitled “Notes to the Consolidated Financial Statements”, “Five-Year Financial Summary (Unaudited)” (page 39), and “Five-Year Operations Summary (Unaudited)” (page 40), which appear in the Company’s 2002 Annual Report to Stockholders on the pages indicated in the parenthetical references, is incorporated herein by reference and filed hereto as Exhibit 13 in response to Item 1 of Form 10-K.

     The Company’s Annual Reports on Form 10-K (since April 13, 1994), quarterly reports on 10-Q (since June 10, 1994), current reports on Form 8-K (since June 22, 1994) and all related amendments are available by accessing the Company’s web site: www.jcpenney.net.

     In addition, information about J. C. Penney Funding Corporation, a wholly owned consolidated subsidiary of JCP, which appears in Item 1 of its separate Annual Report on Form 10-K for the fiscal year ended January 25, 2003, is incorporated herein by reference and filed hereto as Exhibit 99(a) in response to Item 1 of Form 10-K.

     Suppliers. The Company purchases its merchandise from approximately 2,603 domestic and foreign suppliers, many of which have done business with the Company for many years. In addition, Eckerd purchases merchandise and pharmaceuticals from approximately 3,250 suppliers, substantially all of which are domestic. The majority of Eckerd’s suppliers have done business with Eckerd for many years. In addition to its Plano, Texas Home Office, the Company, through its international purchasing subsidiary, maintained buying offices in sixteen foreign countries and quality assurance inspection offices in an additional eight foreign countries as of January 25, 2003.

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     Employment. The Company and its consolidated subsidiaries employed approximately 228,000 persons as of January 25, 2003.

     Environment. Environmental protection requirements did not have a material effect upon the Company’s operations during fiscal 2002. While management believes it unlikely, it is possible that compliance with such requirements will lengthen lead time in expansion plans and increase construction, and therefore, operating costs due in part to the expense and time required to conduct environmental and ecological studies and related remediation.

     Forward-Looking Statements. This Annual Report on Form 10-K may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which reflect the Company’s current views of future events and financial performance, involve known and unknown risks and uncertainties that may cause the Company’s actual results to be materially different from planned or expected results. Those risks and uncertainties include, but are not limited to, competition, consumer demand, seasonality, economic conditions and government activity. Investors should take such risks into account when making investment decisions.

2. Properties.

     At January 25, 2003, the Company operated 3,789 retail stores, comprised of 1,049 JCPenney department stores, 54 Renner department stores and 2,686 drugstores, throughout the United States, Puerto Rico, Brazil, and Mexico, of which 212 JCPenney department stores, four Renner department stores and 53 drugstores were owned. The Company also operated five catalog fulfillment centers, of which four were owned. The Company operated fourteen store distribution centers and outside stockrooms of which four were owned. Eckerd operated and owned nine drugstore distribution centers. The Company owned the Company’s Home Office facility, Eckerd corporate offices, and Renner’s corporate headquarters in Porto Allegre, Brazil. In addition, the Company owned as part of its Home Office approximately 240 acres of property in Plano, Texas, adjacent to the facility. Information relating to certain of the Company’s facilities included under the caption “Five-Year Operations Summary (Unaudited),” which appears on page 40 of the Company’s 2002 Annual Report to Stockholders, is incorporated herein by reference and filed hereto as Exhibit 13 in response to Item 2 of Form 10-K.

3. Legal Proceedings.

     Gayle G. Pitts, et al v. J. C. Penney Company, Inc., J. C. Penney Direct Marketing Services, Inc.(“DMS”), J. C. Penney Life Insurance Company n/k/a Stonebridge Insurance Company(“JCPenney Life”), J. C. Penney International Insurance Group, Inc., AEGON Special Markets Group, Inc., n/k/a AEGON Direct Marketing Services, Inc., and AEGON USA, Inc., No. 01-03395-F, in the 214th Judicial District Court of Nueces County, Texas; and Appellant(s): Stonebridge Life Insurance Company f/k/a J. C. Penney Life Insurance Company; J. C. Penney Direct

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Marketing Services, Inc.; J. C. Penney Company, Inc.; J. C. Penney International Insurance Group, Inc.; AEGON USA, Inc.; and AEGON Special Markets Groups, Inc. n/k/a AEGON Direct Marketing Services, Inc. v. Gayle G. Pitts, et al, No. 13-02540-CV, in the Court of Appeals for the Thirteenth District of Texas.

     This is a national class action lawsuit (“the Lawsuit”) filed against the above named defendants. It involves the sale of J. C. Penney Life Insurance accidental death and dismemberment (“ADD”) insurance over the telephone. The named plaintiffs allege that they did not give permission to defendants to charge their credit cards for ADD insurance premiums. They allege that the scripted questions asked during the telephone sales presentation are inadequate to obtain permission to charge the customer’s credit card, primarily because the customer is not told that the insurance company already has his or her credit card number.

     The Lawsuit originally also included named plaintiffs who did not deny giving permission to charge their credit cards for premiums, but who alleged that they had submitted claims that were wrongfully denied. Those former named plaintiffs and their claims were severed into a separate lawsuit captioned York, et al v. J. C. Penney Company, Inc., J. C. Penney Direct Marketing Services, Inc., J. C. Penney Life Insurance Company, J. C. Penney International Group, Inc., AEGON Direct Marketing Services, Inc., AEGON USA, Inc., and Commonwealth General Corporation, No. 02-2651-F, in the 214th District Court of Nueces County, Texas (“the Severed Lawsuit”).

     The assets of DMS, including the stock of JCPenney Life, were sold to Commonwealth General Corporation (“Commonwealth”), a domestic subsidiary of AEGON, N. V., pursuant to a Stock Purchase Agreement (the “Agreement”) dated as of March 7, 2001, among Commonwealth as Purchaser, DMS as Seller, and JCP as Parent corporation of DMS. Thus, as a matter of law, all of the liabilities of JCPenney Life stayed with that company after the sale. Commonwealth is currently providing defense to JCP and its subsidiary DMS and to DMS’s subsidiary, J. C. Penney International Insurance Group, Inc.

     Under the Agreement, JCP and DMS agreed to indemnify Commonwealth for any liability of JCPenney Life, but only to the extent that such liability arises out of or relates to a breach of a representation and warranty in the Agreement. Commonwealth may claim entitlement to indemnification from JCP and DMS if a final determination in the Lawsuit is adverse to JCPenney Life, and Commonwealth successfully contends that the liability arose out of a breach of a representation or warranty in the Agreement. JCP’s and DMS’s liability for breaches of representations and warranties is subject to both a deductible and a cap.

     In September 2002, the trial court certified the Lawsuit as a national class action. There are approximately 14.6 million class members. Defendants have appealed the certification order to the Texas Court of Appeals in Corpus Christi, Texas. The Severed Lawsuit is also pled as a class action, but no motion to certify has been filed.

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     The Company denies the allegations against it and its current and former subsidiaries in the Lawsuit and the Severed Lawsuit and, along with the other defendants, is vigorously defending the cases and opposing class certification. Although it is too early to predict the outcome of the Lawsuit or the Severed Lawsuit, management is of the opinion that they should not have a material adverse effect on the Company’s consolidated financial position or results of operations.

4. Submission of Matters to a Vote of Security Holders.

     No matter was submitted to a vote of stockholders during the fourth quarter of fiscal 2002.

Executive Officers of the Registrant

     The following is a list, as of April 1, 2003, of the names and ages of the executive officers of J. C. Penney Company, Inc. and of the offices and other positions held by each such person with the Company. These officers hold identical positions with JCP. References to JCPenney positions held during fiscal years 2001 and earlier (prior to the creation of the holding company) are for JCP. There is no family relationship between any of the named persons.

     Mr. Questrom has served as Chairman of the Board and Chief Executive Officer of the Company since September 2000. He has served as a director of J. C. Penney Corporation, Inc. since March 2002. Prior to joining the Company, Mr. Questrom served as Chairman of the Board from 1999 to January 2001, and Chief Executive Officer from 1999 to 2000, of Barney’s New York, Inc., Chairman of the Board and Chief Executive Officer of Federated Department Stores, Inc. from 1990 to 1997, and President and Chief Executive Officer of Neiman Marcus Stores from 1988 to 1990. He was the senior policy maker in these positions. Prior to assuming these positions, Mr. Questrom held executive, senior management, and senior merchandise manager positions at Federated Department Stores.

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     Ms. Castagna has served as Executive Vice President, Chairman and Chief Executive Officer — JCPenney Stores, Catalog and Internet for J. C. Penney Company, Inc. since March 2003, and for JCP since July 2002. Ms. Castagna served as Executive Vice President, President and Chief Operating Officer of JCPenney Stores, Catalog and Internet from May 2001 to March 2003, and from 1999 to May 2001, Ms. Castagna served as Executive Vice President and Chief Operating Officer of JCPenney Stores, Merchandising and Catalog. Prior to joining the Company, Ms. Castagna served as Senior Vice President and General Merchandise Manager for women’s and children’s accessories and apparel at Wal-Mart Stores Division since 1996. Ms. Castagna’s responsibilities at Wal-Mart also included product, trend, and brand development for family apparel. She joined Wal-Mart in 1994 as Senior Vice President and General Merchandising Manager for home decor, furniture, crafts and children’s apparel. Prior to joining Wal-Mart, Ms. Castagna served in several senior level positions in the retailing industry, including Senior Vice President, General Merchandising Manager for women’s and juniors for Marshalls stores, a division of TJX Companies, and Vice President, Merchandising — Women’s at Target Stores, a division of Dayton Hudson Corporation (now known as Target Corporation).

     Mr. Cavanaugh was elected Executive Vice President and Chief Financial Officer of the Company effective January 2, 2001. He was elected Senior Vice President and Chief Financial Officer of Eckerd Corporation, a subsidiary of the Company, in 1999, and served in that position through January 1, 2001. From 1996 to 1999 he served as Vice President and Treasurer of the Company. He has served as a director of Eckerd Corporation since 2001, and a director of J. C. Penney Corporation, Inc. since March 2002.

     Mr. Davis has served as Executive Vice President, Chief Human Resources and Administration Officer, since 1998 and served as Senior Vice President, Director of Human Resources and Administration from 1997 to 1998. From 1996 to 1997, he served as Senior Vice President and Director of Personnel and Administration. He was elected President of the Northwestern Region in 1992 and served in that capacity until 1996.

     Mr. Harris has served as Executive Vice President, Chairman and Chief Executive Officer — Eckerd Drug Stores, since May 2001. Mr. Harris has served as Chairman of the Board and Chief Executive Officer of Eckerd Corporation, a subsidiary of the Company, since October 1, 2000. Prior to joining the Company, Mr. Harris served as Chairman of the Board and Chief Executive Officer of The Grand Union Company from 1997 to 2000, and he served as Chairman of the Board and Chief Executive Officer of Canadian Co./the Great Atlantic & Pacific Company from 1995 to 1997, and held various other executive and senior management positions with the Great Atlantic & Pacific Company, and also The Kroger Co.

     Mr. Lotter was elected an Executive Vice President of the Company in 1993. He was elected Senior Vice President, General Counsel and Secretary in 1987. He has served as a director of Eckerd Corporation since 1996 and a director of J. C. Penney Corporation, Inc. since March 2002.

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     Mr. Raish was elected Executive Vice President and Chief Information Officer of the Company effective January 2, 2001. In 1996 he was named Director of Coordination, JCPenney Stores. He was elected Divisional Vice President in 1997. In 1998 he was elected President, Home and Leisure Division and in 1999 he was named President of the Accelerating Change Together (ACT) initiative, the Company’s centralized merchandising process in department stores and catalog.

PART II

5. Market for and Dividends on Registrant’s Common Equity and Related Stockholder Matters.

     The Company’s Common Stock is traded principally on the New York Stock Exchange, as well as on other exchanges in the United States. In addition, the Company has authorized 25 million shares of Preferred Stock, of which 554,426 shares of Series B ESOP Convertible Preferred Stock were issued and outstanding at January 25, 2003. Additional information relating to the Common Stock and Preferred Stock of the Company included under the captions “Consolidated Statements of Stockholders’ Equity” (page 20), “Capital Stock” (page 31), and “Quarterly Data (unaudited)” (page 37), which appear in the Company’s 2002 Annual Report to Stockholders on the pages indicated in the parenthetical references, is incorporated herein by reference and filed hereto as Exhibit 13 in response to Item 5 of Form 10-K.

6. Selected Financial Data.

     Information for the fiscal years 1998-2002 included in the “Five-Year Financial Summary (Unaudited)” on page 39 of the Company’s 2002 Annual Report to Stockholders is incorporated herein by reference and filed hereto as Exhibit 13 in response to Item 6 of Form 10-K.

7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The discussion and analysis included under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which appears in the Company’s 2002 Annual Report to Stockholders, beginning on page 4 thereof, is incorporated herein by reference and filed hereto as Exhibit 13 in response to Item 7 of Form 10-K.

     Forward-Looking Statements.

     This Annual Report on Form 10-K, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which reflect the Company’s current views of future events and financial performance, involve known and unknown risks and uncertainties that may cause the Company’s actual results to be materially different from planned or expected results. Those risks and uncertainties that could affect the Company’s results include, but are not limited to, competition, consumer

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demand, seasonality, economic conditions and government activity. Investors should take such risks into account when making investment decisions.

7A. Quantitative and Qualitative Disclosures About Market Risk.

     The Company maintains a majority of its cash and cash equivalents in short-term financial instruments with original maturities of three months or less. Such investments are subject to interest rate risk and may have a small decline in value if interest rates increase. Since the financial instruments are of short duration, a change of 100 basis points in interest rates would not have a material effect on the Company’s financial condition.

     The Company’s outstanding long-term debt as of January 25, 2003, is at fixed interest rates and would not be affected by interest rate changes. Future borrowings under the Company’s multi-year revolving credit facility, to the extent that fluctuating rate loans were used, would be affected by interest rate changes. As of January 25, 2003, no cash borrowings were outstanding under the facility, and approximately $206 million in letters of credit were supported by this facility. The Company does not believe that a change of 100 basis points in interest rates would have a material effect on the Company’s financial condition.

     See the discussion and analysis under “Fair Value of Financial Instruments” and “Short-Term Debt” which appear in the Company’s 2002 Annual Report to Stockholders on pages 29 and 30, respectively, and which are incorporated herein by reference and filed hereto as Exhibit 13 in response to Item 7A of Form 10-K.

8. Financial Statements and Supplementary Data.

     The Consolidated Balance Sheets of J. C. Penney Company, Inc. and subsidiaries as of January 25, 2003, and January 26, 2002, and the related Consolidated Statements of Operations, Stockholders’ Equity and Cash Flows for each of the years in the three-year period ended January 25, 2003, appearing on pages 18 through 21 of the Company’s 2002 Annual Report to Stockholders, together with the Independent Auditors’ Report of KPMG LLP, independent certified public accountants, appearing on page 17 of the Company’s 2002 Annual Report to Stockholders, the Notes to the Consolidated Financial Statements on pages 22 through 38, and the quarterly financial highlights (“Quarterly Data (unaudited)”) appearing on page 39 thereof, are incorporated by reference and filed hereto as Exhibit 13 in response to Item 8 of Form 10-K.

9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

     None.

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PART III*

10. Directors and Executive Officers of the Registrant.*

11. Executive Compensation.*

12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

Equity Compensation Plan Information

     The following table provides information, as of January 25, 2003, regarding shares outstanding and available for issuance under existing stock option plans.

The J. C. Penney Company, Inc. 2000 New Associate Equity Plan (the “2000 Plan”) was adopted by the JCP’s Board of Directors in July 2000, as a limited plan designed to create an equity pool to be issued to non-associates as an inducement to their entering into employment contracts with the Company. A total of 5,500,000 shares were authorized for issuance under the 2000 Plan; only one option issuance, of options to purchase 3,500,000 shares, was made pursuant to the 2000 Plan. The 2000 Plan was in effect from September 12, 2000, until June 1, 2001, when the J. C. Penney Company, Inc. 2001 Equity Compensation Plan, which received stockholder approval, took effect. Pursuant to the 2000 Plan, options for 3,500,000 shares remain issued, outstanding and unexpired. The last of these option grants will expire on September 12, 2010.

13. Certain Relationships and Related Transactions.*

     *     Pursuant to General Instruction G to Form 10-K, the information called for by Items 10, with respect to directors of the Company (to the extent not set forth in Part I hereof), 11, 12 (with the exception of Company equity compensation plan information which is described in Item 12 above), and 13 is incorporated by reference to the Company’s 2003 Proxy Statement, which involves the election of directors, the final copy of which the Company filed with the Securities and Exchange Commission, pursuant to Regulation 14A, on April 10, 2003.

14. Controls and Procedures.

     (a)  Based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of a date within 90 days of the filing date of this Annual Report on Form 10-K, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective for the purpose of ensuring that material information required to be in this Annual Report on Form 10-K is made known to them by others on a timely basis.

     (b)  There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation.

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PART IV

15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

     (a)  1. All Financial Statements. See Item 8 of this Annual Report on Form 10-K for financial statements incorporated by reference to the Company’s 2002 Annual Report to Stockholders.

     (a)  2. Financial Statement Schedule. Schedules have been omitted as they are inapplicable or not required under the rules, or the information has been submitted in the consolidated financial statements and related financial information included in the Company’s 2002 Annual Report to Stockholders incorporated herein by reference and filed hereto as Exhibit 13.

     Separate financial statements are filed for J. C. Penney Funding Corporation, a wholly owned consolidated subsidiary of JCP, in its separate Annual Report on Form 10-K for the 52 weeks ended January 25, 2003, which financial statements, together with the Independent Auditors’ Report of KPMG LLP thereon, are incorporated herein by reference and filed hereto as Exhibit 99(b).

     (a)  3. Exhibits. See separate Exhibit Index on pages i through ix.

     (b)  Reports on Form 8-K during the fourth quarter of fiscal 2002. None.

     (c)  Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this form is filed as part of the separate Exhibit Index on pages i through ix and specifically identified as such beginning on page iv.

     (d)  Other Financial statement Schedules. None

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: April 10, 2003

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     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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CERTIFICATIONS

I, Allen I. Questrom, Chairman and Chief Executive Officer, certify that:

1.     I have reviewed this annual report on Form 10-K of J. C. Penney Company, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.     Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

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6.     The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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CERTIFICATIONS

I, Robert B. Cavanaugh, Executive Vice President and Chief Financial Officer, certify that:

1.     I have reviewed this annual report on Form 10-K of J. C. Penney Company, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.     Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

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6.     The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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EXHIBIT INDEX

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Other instruments evidencing long-term debt have not been filed as exhibits hereto because none of the debt authorized under any such instrument exceeds 10 percent of the total assets of the Registrant and its consolidated subsidiaries. The Registrant agrees to furnish a copy of any of its long-term debt instruments to the Securities and Exchange Commission upon request.

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* SEC file number 1-777

11. Statement regarding computation of per share earnings

     See calculation of earnings per share on pages 27 and 28 in the Consolidated Statement of Operations in the Company’s 2002 Annual Report to Stockholders.

12. Statement regarding computation of ratios

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ix