J. C. Penney — Debt Investor Presentation (May 2013)
38 slides from J. C. Penney's debt investor presentation, May 14, 2013
Slide 1: Public Lender Presentation
Exhibit 99.1 Public Lender Presentation May 14, 2013 By accepting this Lender Presentation, the recipient agrees to use any information contained herein in accordance with its compliance policies, contractual obligations, applicable law, including federal, state and foreign securities laws, the prov
Slide 2: Safe Harbor Statement
Safe Harbor Statement This presentation 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
Slide 3: Special Notice Regarding Public Information
Special Notice Regarding Public Information The Company has represented that the information contained in this lender presentation is either publicly available or does not constitute material non-public information concerning the Company, its subsidiaries, affiliates or its or their respective secur
Slide 4: Concerning the Arrangers
Concerning the Arrangers Each of Goldman Sachs Bank USA ("Goldman Sachs"), Barclays Bank PLC, J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and UBS Securities LLC (collectively, the "Arrangers"), together with its affiliates, is a full service financial institution e
Slide 5: Management Presenters
Management Presenters Myron E. (Mike) Ullman, III Chief Executive Officer Ken Hannah Chief Financial Officer Michael D. Porter Treasurer Kristin Hays SVP Investor Relations and Communications -4-
Slide 6: Agenda
Agenda I. Transaction Overview II. Company Overview III. Key Investment Highlights IV. Financial Overview V. Syndication Overview VI. Conclusion / Q&A -5-
Slide 7: I. Transaction Overview
I. Transaction Overview
Slide 8: Executive Summary
Executive Summary J.C. Penney Company, Inc. (the “Company”) is a leading department store retailer that 1 conducts business through its 1,104 stores in 49 states and Puerto Rico, and its website, jcp.com Fiscal year 2012 total net sales of $13 billion Company leadership is focused on stabilizing the
Slide 9: Sources & Uses | Pro Forma Capitalization
Sources & Uses | Pro Forma Capitalization ($ in millions) $1,750 million Senior Secured Term Loan Sources Amount % Total Uses Amount % Total Senior Secured Term Loan $ 1,750 100.0 % Cash to Balance Sheet $ 1,301 74 % Address 2023 Debentures 254 15 % 1 Fees and OID 194 11 % Total Sources $ 1,750 100.
Slide 10: J.C. Penney Pro Forma Organizational Chart
J.C. Penney Pro Forma Organizational Chart Guarantee for New $1.75 J.C. Penney Company, Inc. billion Term Loan and (Holdings) $1.85 billion ABL Term Loan Guarantor ABL Guarantor Extant $2.61 billion Bonds J.C. Penney Corporation, Inc. (OpCo) New $1.75 billion Senior Extant $1.85 billion ABL Secured
Slide 11: Real Estate Collateral Overview
Real Estate Collateral Overview J.C. Penney’s real estate portfolio consists of 306 owned stores, 123 ground leased stores, 675 leased stores, 15 distribution centers (6 leased, 9 owned), the home office and affiliated land in Plano, TX and miscellaneous other real estate assets¹ Cushman & Wakefield
Slide 12: Real Estate Collateral Overview
Real Estate Collateral Overview Owned and ground leased properties that are included as collateral are comprised of approximately 379 sites (including stores, distribution centers and home office) with an appraised value of $3.3 billion and estimated dark value of $1.7 billion Of these 379 sites, ap
Slide 13: II. Company Overview
II. Company Overview
Slide 14: Company Overview
Company Overview Multi-channel retailer with compelling assortment of private and national brands Enterprise Sales FY 2012 Actual: $13.0bn Services/Other: Stores: $11.3bn FY 2012 Sales jcp.com: $1.0bn FY 2012 Sales $639mm FY 2012 Sales - 13 -
Slide 15: Profitable Growth Plan Being Developed
Profitable Growth Plan Being Developed Stabilization Underway CEO with proven track record in turnarounds, strong vendor relationships and understanding of industry and organization returns Generous liquidity from ABL and new Term Loan allows time to address issues Return to promotional pricing stra
Slide 16: J.C. Penney's Established Position with the Consumer
J.C. Penney's Established Position with the Consumer Founded more than a century ago by James Cash Penney, J.C. Penney has a long heritage as a leading U.S. department store brand Nearly half the families in America shop at J.C. Penney each year, which includes a large, loyal customer base 1 Broad g
Slide 17: Re-Connecting with the Customer
Re-Connecting with the Customer Market and message to the customer on key shopping occasions emphasizing key brands and attractions Clearly communicate the style/quality and price offered as a compelling customer proposition Offer compelling promotions that drive traffic to stores and .com as well a
Slide 18: Focus on Merchandise Breadth and Depth
Focus on Merchandise Breadth and Depth Compelling assortment of merchandise with visual clarity and respectful service Balance of best of “national brands,” “private brands” and “attractions/exclusives” In stock on best of seasonal fashion and basic merchandise Fashion authority for moderate custome
Slide 19: An Exciting Destination for Customers
An Exciting Destination for Customers Visual clarity without clutter has been recognized and valued by customers 505 new Home stores to launch June 6th New attractions differentiate from Kohl’s and mass merchants 8 million square feet transformed in 2012, 10 million under construction in 2013 Compel
Slide 20: An Energetic Path to Profitable Growth
An Energetic Path to Profitable Growth Restoring “customer value proposition” Winning with Act based on consumer “insights” and preferences CUSTOMERS Communicate brands, offers on key occasions – a compelling “call to action” Become the leader in associate engagement Winning with Strengthen the lead
Slide 21: III. Key Investment Highlights
III. Key Investment Highlights
Slide 22: Key Investment Highlights
Key Investment Highlights Positioned for Improving Profitability Significant Collateral Coverage Strengthened Liquidity Position - 21 -
Slide 23: Positioned for Improving Profitability
Positioned for Improving Profitability CEO with proven track record in turnarounds, strong vendor relationships and understanding of industry and organization returns Merchandising strategy refocuses on core customer Return to promotional strategy, which has historically delivered consistent gross m
Slide 24: Significant Collateral and Enterprise Value Coverage
Significant Collateral and Enterprise Value Coverage ($ in millions) 3 Hard Collateral New Term Loan Enterprise Value $7,085 $4,248 Residual Value of 1 ABL Collateral Appraised Value of $1,750 2 Real Estate Collateral First lien on high quality, desirable real estate assets Second lien on high value
Slide 25: Strengthened Liquidity Position
Strengthened Liquidity Position Pro forma liquidity of $2.7 billion No near-term debt maturities Fully-funded pension obligations with no required cash contributions Normalized capital expenditures upon completion of Spring 2013 attractions Increased working capital balances ahead of Home launch Sum
Slide 26: IV. Financial Overview
IV. Financial Overview
Slide 27: Financial Overview
Financial Overview Sales Focus on core customer with proven marketing and promotion to stabilize traffic and increase conversion Gross Margin Return to more consistent and historical levels by re-positioning the business to center on a more traditional promotional strategy SG&A Lower run rate driven
Slide 28: Summary of Historical Financial Performance
Summary of Historical Financial Performance ($ in millions) FY ‘09 FY ‘10 FY ‘11 FY ‘12 Sales $ 17,556 $ 17,759 $ 17,260 $ 12,985 Comps (6.3)% 2.5 % 0.2 % (25.2)% Gross Margin % 39.4 % 39.2 % 36.0 % 31.3 % SG&A $ 5,410 $ 5,358 $ 5,109 $ 4,506 Adj. EBITDAP $ 1,497 $ 1,579 $ 1,311 $(306) % of Sales 8.
Slide 29: Gross Margin Review
Gross Margin Review Quarterly Gross Margin FY ‘09 – FY ‘12 FY ‘11 Gross Margin 36.0 % Pricing strategy had significant impact on clearance mix Everyday selling margin impact 2.4% Increased from 14% of sales in Clearance mix impact (3.2)% FY ’11 to 22% in FY ‘12 Clearance selling margin impact (1.4)%
Slide 30: SG&A Savings
SG&A Savings ($ in millions) SG&A expenses declined $603 million to $4,506 million as a result of cost savings initiatives and actions taken in 2012 FY ’11 SG&A $ 5,109 Salaries and benefits (386) Advertising (106) Private label credit card (95) Catalog outlet stores and specialty websites (71) Info
Slide 31: V. Syndication Overview
V. Syndication Overview
Slide 32: Indicative Summary of Terms
Indicative Summary of Terms Senior Secured Term Loan Borrower J.C. Penney Corporation Guarantors J.C. Penney Company, Inc. (“Holdings”) and all material subsidiaries of J.C. Penney Corporation st 1 lien on substantially all tangible and intangible assets (except for ABL collateral) of the Borrower a
Slide 33: Transaction Timetable
Transaction Timetable May 2013 S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Key Syndication Date Bank Holiday Week of Day Key Event Tue May 14 Lender Meeting May 13 st Thu May 16 1 Quarter Earnings Announcement (post-market close) Tue May 21 Commi
Slide 34: VI. Conclusion and Q&A
VI. Conclusion and Q&A
Slide 35: Supplemental Materials
Supplemental Materials
Slide 36: Real Estate Appraisal Methodology
Real Estate Appraisal Methodology Valuation Methodology For owned properties and properties with ground leases with terms > 30 years, Cushman employed a direct capitalization approach For ground leased properties with remaining terms of less than 30 years, Cushman employed a discounted cash flow app
Slide 37: Adjusted EBITDAP Reconciliation
Adjusted EBITDAP Reconciliation ($ in millions) FY ‘09 FY ‘10 FY ‘11 FY ‘12 Net Income (Continuing Operations) $ 249 $ 378 $(152) $(985) Income Tax 154 203 (77) (551) Interest 260 231 227 226 D&A 495 511 518 543 Primary Pension 298 221 87 315 EBITDAP Subtotal $ 1,456 $ 1,544 $ 603 $(452) Impairments
Slide 38: Authorization Letter
Authorization Letter May 13, 2013 Goldman Sachs Bank USA Barclays Bank PLC J.P. Morgan Securities LLC Merrill Lynch, Pierce, Fenner & Smith Incorporated UBS Securities LLC Ladies and Gentlemen: We refer to the proposed $1,750,000,000 Term Loan Facility (the "Facility") for J.C. Penney Corporation, I