|
|
|
Item 2.02
|
Results of Operations and Financial Condition.
|
J. C. Penney Company, Inc. (the “Company”) issued an earnings press release on February 24, 2017, announcing its 2016 fourth quarter and full year results of operations and financial condition. The full text of the press release is attached as Exhibit 99.1.
The press release and accompanying schedules provide certain information regarding (i) earnings before net interest expense, income tax expense/(benefit) and depreciation and amortization (EBITDA), (ii) adjusted EBITDA, (iii) adjusted net income/(loss), (iv) adjusted earnings/(loss) per share - diluted and (v) free cash flow, all of which may be considered non-GAAP financial measures under the rules of the Securities and Exchange Commission. A reconciliation of each such non-GAAP financial measure to the most directly comparable financial measure calculated and presented in accordance with GAAP is included with the release.
The Company defines (i) EBITDA as net income/(loss) excluding net interest expense (including the (gain)/loss on extinguishment of debt), income tax expense/(benefit) and depreciation and amortization, (ii) adjusted EBITDA as EBITDA excluding restructuring and management transition charges, the impact of the Company’s qualified defined benefit pension plan, the mark-to-market adjustment for the Company’s supplemental retirement plans, the net gain on the sale of non-operating assets and the proportional share of net income from the Company’s joint venture formed to develop the excess property adjacent to the Company’s Home Office in Plano, Texas (Home Office Land Joint Venture), (iii) adjusted net income/(loss) as net income/(loss) excluding restructuring and management transition charges, the impact of the Company’s qualified defined benefit pension plan, the mark-to-market adjustment for the Company’s supplemental retirement plans, the (gain)/loss on extinguishment of debt, the net gain on the sale of non-operating assets, the proportional share of net income from the Home Office Land Joint Venture and the tax impact for the allocation of tax benefit to other comprehensive income and (iv) adjusted earnings/(loss) per share - diluted as earnings/(loss) per share - diluted excluding restructuring and management transition charges, the impact of the Company’s qualified defined benefit pension plan, the mark-to-market adjustment for the Company’s supplemental retirement plans, the (gain)/loss on extinguishment of debt, the net gain on the sale of non-operating assets, the proportional share of net income from the Home Office Land Joint Venture and the tax impact for the allocation of tax benefit to other comprehensive income. Unlike other operating expenses, restructuring and management transition charges, the (gain)/loss on extinguishment of debt, the net gain on the sale of non-operating assets, the proportional share of net income from the Home Office Land Joint Venture and the tax impact for the allocation of tax benefit to other comprehensive income are not directly related to the Company’s ongoing core business operations, which consists of selling merchandise and services to consumers through our department stores and our website at jcpenney.com. Pension plan expense/(income) and the mark-to-market adjustment for the Company’s supplemental retirement plans are determined using numerous complex assumptions about changes in pension assets and liabilities that are subject to factors beyond the Company’s control, such as market volatility. Accordingly, the Company eliminates pension plan expense/(income) in its entirety as the Company views all components of net periodic benefit expense/(income) as a single, net amount, consistent with its presentation in the Company’s consolidated financial statements. The Company believes that the presentation of these non-GAAP financial measures, which management uses to assess the Company’s operating results, is useful in order to better understand the Company’s financial performance and facilitate the comparison of the Company’s results to the results of its peer companies.
The Company defines free cash flow as cash flow from operating activities less capital expenditures, plus proceeds from the sale of operating assets. The Company believes that free cash flow is a relevant indicator of its ability to repay maturing debt, revise its dividend policy or fund other uses of capital that the Company believes will enhance stockholder value. Free cash flow is limited and does not represent remaining cash flows available for discretionary expenditures due to the fact that the measure does not deduct payments required for debt maturities, pay-down of off-balance sheet pension debt and other obligations or payments made for business acquisitions.
The Company believes it is important to view each of these non-GAAP financial measures in addition to, rather than as a substitute for, the GAAP measures of net income/(loss), earnings/(loss) per share - diluted, and cash flow from operating activities, respectively.
|
|
|
Item 2.05.
|
Costs Associated with Exit or Disposal Activities.
|
On February 24, 2017, the Company announced a plan to optimize its retail operations by closing approximately 130 to 140 JCPenney department stores and two distribution facilities in fiscal 2017. The Company expects to substantially complete the closings by May 2017.
In connection with these actions, the Company expects to incur estimated pre-tax charges of approximately $225 million during the first half of fiscal 2017. A summary of the major components of these estimated charges (in millions) is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Cash
|
|
Non-Cash
|
Asset impairments
|
$
|
95
|
|
|
$
|
—
|
|
|
|
$
|
95
|
|
|
Lease costs, net of sublease income
|
$
|
110
|
|
|
$
|
110
|
|
|
|
$
|
—
|
|
|
Severance, termination benefits and all other expenses
|
$
|
20
|
|
|
$
|
20
|
|
|
|
$
|
—
|
|
|
Total pre-tax charges
|
$
|
225
|
|
|
$
|
130
|
|
|
|
$
|
95
|
|
|
The above charges are estimates, and the actual charges may vary materially based on various factors, including timing of the closures; factors relating to real estate including sale proceeds and timing and amount of sublease income and other lease expense; actual associate terminations and benefits; changes in management’s assumptions and other plans; and other factors.
A copy of the press release announcing these actions is attached hereto as Exhibit 99.2.
|
|
|
|
|
Item 9.01
|
Financial Statements and Exhibits.
|
|
|
|
|
(d)
|
Exhibit 99.1
|
J. C. Penney Company, Inc. News Release issued February 24, 2017 announcing 2016 fourth quarter and full year results of operations and financial condition
|
|
Exhibit 99.2
|
J. C. Penney Company, Inc. News Release issued February 24, 2017 announcing plan to optimize retail operations
|