JCPenney Outlines $8 Billion Equity and Debt Reduction Program; Company Commits $3.5 Billion in Eckerd Proceeds and $1.1 Billion of Existing Cash

Business Wire, August 2, 2004

PLANO, Texas -- July Sales Exceed Plan and Management Raises Second Quarter Earnings Guidance

J. C. Penney Company, Inc. (NYSE:JCP) today announced its plan for the implementation of a major repositioning of its capital structure. This program, which will utilize the entire net cash proceeds of approximately $3.5 billion from the sale of Eckerd drugstore operations and $1.1 billion of existing cash balances, consists of:

--Up to $3.0 billion for share repurchases, including up to $650 million contingent on the conversion of the Company's 5% Convertible Subordinated Notes Due 2008 to common shares,

--$2.3 billion for the reduction of outstanding debt, and a

--$3.4 billion elimination of the present value of Eckerd lease obligations.

Allen Questrom, Chairman and Chief Executive Officer said, "Our management team continues to focus on improving the customer experience as well as operating performance. The steps we are taking today reflect the confidence we have in our business and our commitment to further enhance shareholder value."

Robert Cavanaugh, Executive Vice President and Chief Financial Officer said, "The repositioning of JCPenney's capital structure demonstrates our financial strength and significantly enhances our credit profile. This program, coupled with the strong sales and earnings trends seen in the first half of the year, moves us one step closer to restoring the Company to investment grade credit ratings."

The Company's capital structure repositioning is comprised of the
following:

    --  Common Stock Repurchases (Up to $3.0 billion): The Company's
        Board of Directors has authorized a common stock repurchase
        program of $2.35 billion, and up to an additional $650 million
        of stock repurchases contingent upon the conversion of the
        Company's convertible debt. Assuming the closing stock price
        on Friday, July 30, 2004, of $40.00, the Company could
        repurchase up to 75 million common shares, or approximately 23
        percent of its current diluted shares.

        The shares are expected to be acquired as soon as practicable
        through open market purchases and privately negotiated
        transactions, with all shares currently expected to be
        repurchased within the next nine to 12 months. The actual
        number and the timing of share repurchases will be subject to
        market conditions and applicable SEC rules. Credit Suisse
        First Boston has been retained to administer the program.

    --  Convertible Debt ($650 million -- reflected in both share
        repurchases and debt reductions): The Company currently
        anticipates that it will exercise the October 2004 call
        provision of its $650 million aggregate principal amount of
        convertible debt, which is convertible into 22.8 million
        common shares. If the Company's stock price continues to
        exceed the conversion price, it is expected that virtually all
        holders of such notes will convert to common shares.

    --  Debt Reductions ($2.3 billion): The Company's debt reduction
        program consists of the retirement of $2.3 billion of debt in
        2004 and 2005. These debt reductions include the anticipated
        conversion of the convertible debt, early retirements of
        long-term debt, the termination of the off-balance sheet
        Eckerd receivables securitization program, and normal
        long-term debt maturities (see attached schedule). Early
        retirements are expected to occur in the third quarter of
        2004, principally through the exercise of call and sinking
        fund provisions.

        The Company expects to incur approximately $50 million of
        pre-tax charges in the third quarter related to the early
        retirement of debt. These one-time charges will be recorded as
        a separate component of income from continuing operations.

    --  Eckerd Lease Obligations ($3.4 billion): The purchasers of
        Eckerd assumed real property lease obligations as part of the
        sale transaction. Consequently, the Company eliminated $3.4
        billion of the present value of off-balance sheet lease
        obligations, principally related to Eckerd store leases.

Preferred Stock Redemption

The Company has elected to redeem its outstanding preferred shares, all of which are held in its 401(k) savings plan. Preferred shares, which are included in the diluted earnings per share calculation, will be converted into approximately 10 million common shares. The conversion of preferred shares, which will occur in August 2004, will reduce annual net dividends by approximately $11 million, after tax.

Interest Expense

Based on the above actions, interest expense is expected to be in the range of $80 million to $85 million in the third quarter and $70 million to $75 million in the fourth quarter. These amounts exclude the $50 million of one-time charges related to early debt retirements.

Diluted Shares and Weighted Average Share Counts