J. C. Penney Company, Inc. : J. C. Penney Company, Inc. Reports 2013 Fiscal Second Quarter Results

 J. C. Penney Company, Inc. : J. C. Penney Company, Inc. Reports 2013 Fiscal
                            Second Quarter Results

                                      

                  Provides Update on Progress of Turnaround

PLANO, Texas, August 20, 2013 -- J. C. Penney Company, Inc. (NYSE: JCP)  today 
announced financial  results for  its fiscal  second quarter  ended August  3, 
2013. The Company also reported on  its initiatives to fix and stabilize  the 
business and return to profitable  growth. Financial results for the  quarter 
include:

  *jcpenney reported net sales of $2.66 billion compared to $3.02 billion  in 
    the fiscal second quarter of  2012. Comparable store sales declined  11.9% 
    in the quarter, and were negatively impacted by the Company's failed prior
    merchandising and promotional strategies, which resulted in unusually high
    markdowns and clearance levels in the second quarter. 

  *In addition, the lengthy renovation and disappointing re-merchandising  of 
    its Home  departments adversely  impacted the  Company's comparable  store 
    sales during the second quarter. Overall, the performance of the Company's
    Home division had a 240 basis  point impact on its comparable store  sales 
    for the quarter. 

  *Despite these challenges, comparable store sales for the quarter  improved 
    sequentially by 470  basis points when  compared to the  first quarter  of 
    fiscal 2013. In addition, sales  results improved sequentially each  month 
    within the second quarter, a trend the Company expects to continue through
    the back half of the year. 

  *Gross margin was 29.6  percent of sales, compared  to 33.2 percent in  the 
    same period last year. Gross margin was negatively impacted by lower  than 
    expected sales, and a higher  level of clearance merchandise sales  during 
    the quarter including merchandise carried over from the first part of  the 
    year.

  *During the quarter, the Company enhanced its liquidity by entering into  a 
    $2.25 billion senior secured term loan facility. In addition, the  Company 
    paid $355 million to complete a cash tender offer and consent solicitation
    with respect to substantially all of its outstanding 7 1/8% Debentures due
    2023. In doing so, the Company also recognized a loss on extinguishment of
    debt of $114 million reducing earnings per share by $0.52.

  *Second quarter results reflect an effective  tax rate of 3.0% compared  to 
    36.4% in the previous quarter. The  lower tax benefit is primarily  driven 
    by a charge of approximately $218 million to record an increase to the tax
    valuation allowance  for  deferred  tax assets  that  negatively  impacted 
    earnings in the quarter by approximately $0.99 per share.

  *For the second quarter, the Company incurred  a net loss in the amount  of 
    $586 million or $2.66 per share. This reflects:

           *($0.99) of loss associated with the tax valuation allowance;

           *($0.52) of loss on retirement of debt associated with the  tender 
             offer;

           *($0.21) of restructuring and management transition charges;

           *($0.04) for primary pension plan expense; and

           *$0.28 of benefit on the net  gain on the sale of a  non-operating 
             asset.

Adjusted net  loss for  the quarter  was  $477 million,  or $2.16  per  share, 
excluding the impact from  the loss on retirement  of debt, restructuring  and 
management transition charges, primary pension plan expense, and the net  gain 
on the sale  of a non-operating  asset. A reconciliation  of GAAP to  non-GAAP 
financial measures is included in the schedules accompanying the  consolidated 
financial statements in  this release.  The adjusted  net loss  of $2.16  per 
share has not been adjusted for,  and therefore does not exclude, the  ($0.99) 
of loss associated with the tax valuation allowance.

  *Cash and cash equivalents were $1.535  billion at the end of the  quarter. 
    Total change in cash  for the second quarter  was $714 million  including 
    the following:

           *$2.18 billion in net proceeds from its senior secured term loan;

           *($357) million increase in  inventory required to re-stock  basic 
             items;

           *($439) million in capital expenditures; and

           *($355) million to repurchase debt.

  *Given the Company's current cash position, along with the undrawn  portion 
    of its credit facility, the Company expects to end the year with in excess
    of $1.5 billion in overall liquidity. 

  *Online sales through jcp.com were $215 million for the quarter, down  just 
    2.2% when  compared to  the  same period  last  year. The  performance  of 
    jcp.com improved  significantly  when compared  to  the first  quarter  of 
    fiscal 2013, and improved each month within the second quarter, with  July 
    sales up over 14% to last year.

Myron E. (Mike) Ullman, III, chief executive officer of jcpenney, said, "Since
I returned to jcpenney four months ago, we have moved quickly to stabilize our
business - both financially  and operationally - and  we have made  meaningful 
progress in  important areas  of the  business. There  are no  quick fixes  to 
correct the errors of the past. That said, we have identified the  challenges, 
put solid plans  in place  to address them  and have  experienced and  capable 
people in key roles to do so."

The Company also  said that the  early weeks  of the Back  to School  shopping 
period were encouraging, especially during the important tax-free holidays and
promotional  weekend  periods.  Customers  are  choosing  jcpenney  as  their 
shopping destination  for private  brands such  as The  Original Arizona  Jean 
Co.®, Xersion(TM) and  Total Girl®, as  well as sought  after national  brands 
like Nike, Levi's and Vans. 

Ullman continued, "Moving  forward, we're  focusing our  efforts on  regaining 
customer loyalty  by  offering  trusted  brands,  award  winning  service  and 
affordability that families  can depend  on. We  are encouraged  by our  early 
performance this  Back to  School season,  which reflects  customers'  growing 
confidence in  the brands  and  styles we  offer.  Our associates  across  the 
country are working tirelessly to serve our customers and I am proud of  their 
efforts."

The Company reported on its progress in the following areas:

  *Driving  Traffic  and  Purchase  Conversion  through  Refined   Marketing: 
    Bringing back promotions  was a critical  first step towards  reconnecting 
    with jcpenney's core customer.  The Company is  now rigorously focused  on 
    continuing to  improve  its marketing  and  messaging in  order  to  drive 
    traffic and  conversion as  it enters  the  second half  of the  year  and 
    prepares for the holiday season. 

  *Restoring Key Merchandise Inventory Levels: Significant progress has  been 
    made,  particularly  in  the  higher-margin  basics  and  private  branded 
    categories, and the  Company expects  to get inventory  up to  appropriate 
    levels throughout its  stores and online  well in advance  of the  holiday 
    season. 

  *Improving Performance of jcp.com: Under the leadership of a new team,  the 
    Company is fast approaching its goal of restoring congruency in store  and 
    .com assortments. This helped to drive improvement in the second quarter.
    Online sales were down 2.2% from the same period last year - a sequential
    improvement of over 1700  basis points when compared  to the first  fiscal 
    quarter of 2013. Women's  and Men's Apparel  were particular bright  spots 
    on-line, with  both  divisions  experiencing double-digit  growth  in  the 
    quarter. Home results also saw significant improvement online,  reflecting 
    customers' preference to shop Home presented by category.

 jcp.com also reclaimed its position among the most visited retail websites,
based  on  aggregated  traffic.  Back  to  School  traffic  online  was   also 
encouraging, with  good  performances from  private  brands like  Arizona  and 
Xersion, and national brands such as Levi's, Nike and Carter's. 

  *Fixing the Home Store:  Getting the new Home  strategy up and running  has 
    been more challenging and is  taking much longer than originally  planned. 
    To date,  the Company  has  re-opened nearly  500 Home  departments,  but 
    previous management's Home strategy has not resonated well with customers.
    For example, early feedback has made it clear that customers would  prefer 
    a  more   balanced  assortment   between  traditional   and  modern   home 
    furnishings, a  better selection  of good,  better and  best price  points 
    across key items, and would prefer to see certain merchandise arranged  by 
    category rather  than  brand.  The  testing  of  this  modified  shopping 
    environment   has   shown   significant   improvement   in    performance. 
    Consequently, the  Company has  begun restaging  its Home  departments  by 
    category and expects to complete this work in the third quarter of  fiscal 
    2013. In addition, several merchandising initiatives are underway to make
    the Home assortments more compelling to customers.

  *Investing in Associates: The Company has a highly experienced and  focused 
    leadership team  in  place,  having  filled most  of  the  key  leadership 
    positions during the quarter.  In addition, the  Company has invested  in 
    store labor at  key selling  periods like Back  to School  to ensure  that 
    customers receive the industry leading service they expect at jcpenney.

  *Re-Affirming  Key  Supplier  Relationships:  The  Company  hosted  both  a 
    domestic  and  international  supplier  summit  during  the  quarter   and 
    continues to receive  strong support  from its  suppliers as  it works  to 
    strengthen its merchandise offering and ensure proper inventory levels. 

  *Strengthening its  Financial Position:  During  the quarter,  the  Company 
    bolstered its financial position by  entering into a $2.25 billion  senior 
    secured term loan. The Company ended  the quarter with $1.535 billion  in 
    cash and cash equivalents. Taking into account additional funds  available 
    under the  credit facility,  the Company's  total available  liquidity  is 
    $1.85 billion. Total use of cash  is expected to be down substantially  in 
    the second half of the  year, compared to the first  half, as a result  of 
    efforts to stabilize  the business  and reduce  capital expenditures.  As 
    noted above, the Company expects to end the year in excess of $1.5 billion
    in overall liquidity.

Operating Performance

For the quarter,  jcpenney reported  net sales  of $2.66  billion compared  to 
$3.02 billion in the  fiscal second quarter of  2012. Comparable store  sales 
declined 11.9% in the quarter, and  were negatively impacted by the  Company's 
failed prior  merchandising  and  promotional strategies,  which  resulted  in 
unusually high  markdowns and  clearance levels  in the  second quarter.  The 
lengthy renovation and disappointing re-merchandising of its Home  departments 
also had an  impact on comparable  store sales for  the quarter. Overall,  the 
performance of the Company's Home division had a 240 basis point impact on its
comparable store sales for the second quarter.

Comparable store sales, however, experienced  a sequential improvement of  470 
basis points compared to the first quarter of fiscal 2013. In addition,  sales 
results improved sequentially each month within the second quarter. This is a
trend the Company  expects to continue  through the second  half of the  year. 
Online sales through jcp.com were $215 million for the quarter.

For the quarter,  gross margin  was 29.6 percent  of sales,  compared to  33.2 
percent in the same period last year. Gross margin was negatively impacted  by 
lower than expected sales,  and a higher level  of clearance sales during  the 
quarter, which included  the clearance  of merchandise carried  over from  the 
first quarter of the  year. SG&A expenses  were approximately $1.02  billion, 
down 4.8% from previous quarter and 2.3% from the second quarter of 2012.

The Company reported an  operating loss of $395  million in the fiscal  second 
quarter of 2013  compared to an  operating loss  of $183 million  in the  same 
period last year.  Primary pension expense  was $25 million  compared to  $48 
million in  second quarter  of 2012.  Depreciation and  amortization was  $143 
million compared to $128 million last year reflecting higher depreciation from
capital investments  in the  stores. Real  estate and  other was  $68  million 
reflecting a net gain on the sale of a partnership interest of $62 million.

The  Company  also  incurred  $47  million  in  restructuring  and  management 
transition charges, as follows:

  *Home office and stores: $4 million;

  *Store fixtures: $24 million; 

  *Management transition: $13 million; and

  *Other: $6 million.

In connection with the cash tender offer and consent solicitation for its 2023
debentures, the Company recognized  a loss on extinguishment  of debt of  $114 
million including  $110  million  in  premium paid  over  face  value  of  the 
debentures and $4 million in other related costs.

In the second quarter,  the Company's recognized tax  benefit was $18  million 
reflecting a significant reduction in  tax benefits typically recognized  from 
federal and  state  loss  carry-forwards  due to  the  recognition  of  a  tax 
valuation allowance of $218  million during the quarter.  This resulted in  an 
effective tax rate of only  3.0% for the second  quarter compared to 39.0%  in 
the second  quarter of  2012 and  negatively impacted  earnings per  share  by 
$0.99.

The net loss for the second quarter  of fiscal 2013 was $586 million or  $2.66 
per share. Excluding the impact from restructuring and management charges  of 
($0.21) per share, primary  pension plan expense of  ($0.04) per share, a  net 
gain on the sale of a non-operating asset  of $0.28 per share and the loss  on 
extinguishment of debt of ($0.52) per share, adjusted net loss for the quarter
was $477 million,  or $2.16 per  share. A reconciliation  of GAAP to  non-GAAP 
financial measures is included in the schedules accompanying the  consolidated 
financial statements in this release.

Cash Flow and Financial Condition

Cash and cash equivalents at the end of the second quarter of 2013 were $1.535
billion, an increase  of $714 million  from the  end of the  first quarter  of 
2013.The Company's  total available  liquidity  is currently  $1.85  billion. 
Total debt at the end of the quarter was $5.82 billion, including $850 million
outstanding on  the Company's  revolving credit  facility, the  $2.25  billion 
senior secured term loan, $2.62 billion of outstanding unsecured debt, and $98
million in capital lease obligations and note payable.

Operating cash flow was a use of $708 million, reflecting net operating losses
and an increase of  $357 million in inventory,  which includes re-stocking  of 
basics and private branded categories, in  anticipation of the Back to  School 
and holiday  season.  Financing cash  flow  was  a source  of  $1.8  billion, 
reflecting the net proceeds of $2.18 billion from its senior secured term loan
facility and the completion of the cash tender offer and consent  solicitation 
with respect to its outstanding 7 1/8% Debentures due 2023 for $355 million.

In the  second  fiscal quarter,  the  Company  paid $439  million  in  capital 
expenditures. For the second half of the year, the Company expects to  expend 
approximately $300  million  in  additional  capital  expenditures,  including 
accrued and  unpaid expenditures  of $156  million at  the end  of the  second 
quarter, primarily related  to the  renovation of its  Home departments.  The 
Company is planning  capital expenditures  of approximately  $300 million  for 
fiscal year 2014.

Second Quarter 2013 Earnings Conference Call Details

At 8:30 a.m. ET today, the Company will host a live conference call  conducted 
by Chief Executive Officer  Myron E. (Mike) Ullman,  III, and Chief  Financial 
Officer Ken Hannah. Management will discuss the Company's performance  during 
the quarter and take  questions from participants.  To access the  conference 
call, please dial (877) 546-5020, or (857) 244-7552 for international callers,
and reference  10998831  participant  code or  visit  the  Company's  investor 
relations website at http://ir.jcpenney.com.

Telephone playback will be available  for 90 days beginning approximately  two 
hours after the conclusion of the meeting by dialing (888) 286-8010, or  (617) 
801-6888 for international callers and referencing 74648757 participant code.

For further information, contact:

Investor Relations: (972) 431-5500
jcpinvestorrelations@jcpenney.com

Media Relations & Corporate Affairs: (972) 431-3400
jcpnews@jcp.com

Corporate Website
ir.jcpenney.com

About jcpenney:
J. C. Penney Company,  Inc. (NYSE: JCP), one  of the nation's largest  apparel 
and home furnishing  retailers, is dedicated  to becoming America's  preferred 
retail destination for unmatched style, quality and value. Across 1,100 stores
and at jcp.com, customers will discover an inspiring shopping environment that
features the most sought after  collection of private, national and  exclusive 
brands and attractions. For more information, please visit jcp.com.

This release 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,  general  economic  conditions,  including  inflation,  recession, 
unemployment levels, consumer spending patterns, credit availability and  debt 
levels,  changes  in  store   traffic  trends,  the   cost  of  goods,   trade 
restrictions, the  impact  of  changes designed  to  transform  our  business, 
customer acceptance  of  our new  strategies,  the impact  of  cost  reduction 
initiatives, implementation of new systems  and platforms, changes in  tariff, 
freight and shipping rates, changes in the  cost of fuel and other energy  and 
transportation costs, increases  in wage  and benefit  costs, competition  and 
retail industry consolidations, interest  rate fluctuations, dollar and  other 
currency valuations, the impact of  weather conditions, risks associated  with 
war, an act of terrorism or pandemic, a systems failure and/or security breach
that results in the  theft, transfer or  unauthorized disclosure of  customer, 
employee or Company information and legal and regulatory proceedings.  Please 
refer to the  Company's most  recent Form 10-K  and subsequent  filings for  a 
further discussion  of risks  and uncertainties.  Investors should  take  such 
risks into account when  making investment decisions. We  do not undertake  to 
update these forward-looking statements as of any future date.

                                   # # #

                             J. C. PENNEY COMPANY, INC.
                            SUMMARY OF OPERATING RESULTS
                                    (Unaudited)
                    (Amounts in millions except per share data)
                                               
                                               
                                               
                           Three months ended                Six months ended
                      August                           August
                        3,        July 28,  % Inc.       3,        July 28,  % Inc.
                       2013         2012    (Dec.)      2013         2012    (Dec.)
STATEMENTS OF
OPERATIONS:                                                                 
Total net sales       $2,663      $3,022  (11.9)%    $5,298      $6,174  (14.2)%
Cost of goods sold     1,876       2,018   (7.0)%     3,699       3,984   (7.2)%
Gross margin             787       1,004  (21.6)%     1,599       2,190  (27.0)%
Operating
expenses/(income):                                                          
  Selling, general
  and
  administrative
  (SG&A)               1,026       1,050   (2.3)%     2,104       2,210   (4.8)%
  Primary pension
  plan                    25          48  (47.9)%        50          97  (48.5)%
  Supplemental
  pension plans            9          10  (10.0)%        18          19   (5.3)%
        Total
        pension           34          58  (41.4)%        68         116  (41.4)%
  Depreciation and
  amortization           143         128    11.7%       279         253    10.3%
  Real estate and
  other, net            (68)       (208)  (67.3)%      (90)       (215)  (58.1)%
  Restructuring and
  management
  transition              47         159  (70.4)%       119         235  (49.4)%
  Total operating
  expenses             1,182       1,187   (0.4)%     2,480       2,599   (4.6)%
Operating
income/(loss)          (395)       (183)   100.0% +   (881)       (409)   100.0% +
Loss on
extinguishment of
debt                     114         -    100.0% +     114         -    100.0% +
Net interest
expense                   95          58    63.8%       156         114    36.8%
Income/(loss)
before income taxes    (604)       (241)   100.0% + (1,151)       (523)   100.0% +
Income tax
expense/(benefit)       (18) (1)    (94)  (80.9)%     (217) (1)   (213)     1.9%
Net income/(loss)     $(586)      $(147)   100.0% +  $(934)      $(310)   100.0% +
                                                                            
Earnings/(loss) per
share - basic and
diluted              $(2.66)     $(0.67)   100.0% + $(4.24)     $(1.42)   100.0% +
                                                                            
                                                                               
                                                                               
FINANCIAL DATA: 
Comparable store
sales
increase/(decrease)   (11.9)%      (21.7)%            (14.3)%      (20.3)%        
                                                                                  
                                                                            
Ratios as a
percentage of
sales:                                                                      
  Gross margin          29.6%        33.2%              30.2%        35.5%  
  SG&A expenses         38.5%        34.7%              39.7%        35.8%  
  Total operating
  expenses              44.4%        39.3%              46.8%        42.1%  
  Operating
  income/(loss)       (14.8)%       (6.1)%            (16.6)%       (6.6)%        
Effective income
tax rate                 3.0%        39.0%              18.9%        40.7%  
                                                                            
COMMON SHARES DATA:
Outstanding shares
at end of period        220.4        218.8               220.4        218.8
Weighted average
shares outstanding
(basic and diluted)     220.6        219.3              220.2        218.9  
                                            
                                            
                                            

(1) In the second quarter of 2013, the Company recognized a valuation
allowance of $218 million against certain federal and state net operating loss
carry forward assets.

                            SUMMARY BALANCE SHEETS
                                 (Unaudited)
                            (Amounts in millions)
                                                        
                                                        
                                                          August 3,  July 28,
                                                            2013       2012
SUMMARY BALANCE SHEETS:                                 
Current assets                                          
  Cash in banks and in transit                              $198     $171
  Cash short-term investments                              1,337      717
   Cash and cash equivalents                                 1,535      888
  Merchandise inventory                                    3,155    2,993
  Income tax receivable                                      -       209
  Deferred income taxes                                      115      407
  Prepaid expenses and other                                 209      239
Total current assets                                         5,014    4,736
Property and equipment, net                                  5,820    5,153
Prepaid pension                                                 22      - 
Other assets                                                   798      923
Total assets                                               $11,654  $10,812
                                                        
                                                        
Liabilities and stockholders'
equity                                                  
Current liabilities                                     
  Merchandise accounts payable                            $1,276   $1,015
  Other accounts payable and
accrued expenses                                             1,346    1,219
  Short-term borrowings                                      850      - 
  Current maturities of capital
leases and note payable                                         27       20
  Current maturities of
long-term debt                                                  23      230
  Current taxes payable                                        4      - 
Total current liabilities                                    3,526    2,484
Long-term capital leases and note
payable                                                         71       33
Long-term debt                                               4,850    2,868
Deferred taxes                                                 242      904
Other liabilities                                              645      852
Total liabilities                                            9,334    7,141
Stockholders' equity                                         2,320    3,671
Total liabilities and
stockholders' equity                                       $11,654  $10,812
                                                        
                                                        
                                                        
                                                        
                       SUMMARY STATEMENTS OF CASH FLOWS
                                 (Unaudited)
                            (Amounts in millions)
                                                        
                                   Three months ended       Six months ended
                                   August 3,  July 28,     August 3,  July 28,
                                     2013       2012         2013       2012
STATEMENTS OF CASH FLOWS:
Cash flows from operating
activities:
  Net income/(loss)               $(586)   $(147)       $(934)   $(310)
  Adjustments to reconcile net
income/(loss) to net cash
   provided by/(used in)
   operating activities:
   Restructuring and management
   transition                            31       78           68       90
   Asset impairments and other
   charges                                7        3            9        4
   Net gain on sale or redemption
   of non-operating assets             (62)    (200)         (62)    (200)
   Net gain on sale of operating
   assets                               (2)      -          (18)      - 
   Loss on extinguishment of debt       114      -           114      - 
   Depreciation and amortization        143      128          279      253
   Benefit plans                         24       41           41       79
   Stock-based compensation              11       14           16       26
   Excess tax benefits from
   stock-based compensation             -      (12)          -      (23)
   Deferred taxes                      (25)    (153)        (189)    (197)
  Change in cash from:
   Inventory                          (357)       91        (814)     (77)
   Prepaid expenses and other
   assets                               (9)     (22)           41     (15)
   Merchandise accounts payable          29       31          114      (7)
   Current income taxes                   5      113           60       34
   Accrued expenses and other          (31)        5        (185)    (264)
        Net cash provided
        by/(used in) operating
        activities                    (708)     (30)      (1,460)    (607)
Cash flows from investing
activities:
   Capital expenditures               (439)    (132)        (653)    (239)
   Proceeds from sale or
   redemption of non-operating
   assets                                55      246           55      246
   Acquisition                          -       -           -       (9)
   Proceeds from sale of
   operating assets                       1      -            19      - 
        Net cash provided
        by/(used in) investing
        activities                    (383)      114        (579)      (2)
Cash flows from financing
activities:
   Proceeds from short-term
   borrowings                           -       -           850      - 
   Net proceeds from issuance of
   long-term debt                     2,180      -         2,180      - 
   Premium on early retirement of
   long-term debt                     (110)      -         (110)      - 
   Payments of capital leases and
   note payable                        (14)      -          (19)      - 
   Payment of long-term debt          (245)      -         (245)      - 
   Financing costs                      (4)      (2)         (12)      (4)
   Proceeds from stock options
   exercised                              2        1            7       69
   Dividends paid                       -      (43)          -      (86)
   Other changes in stockholders'
   equity                               (4)        9          (7)       11
        Net cash provided
        by/(used in) financing
        activities                    1,805     (35)        2,644     (10)
Net increase/(decrease) in cash
and cash equivalents                    714       49          605    (619)
Cash and cash equivalents at
beginning of period                     821      839          930    1,507
Cash and cash equivalents at end
of period                            $1,535     $888       $1,535     $888
                                                        
                                                        

Reconciliation of Non-GAAP Financial Measures
                 (Unaudited)
 (Amounts in millions except per share data)

We report our financial information in accordance with generally accepted
accounting principles in the United States (GAAP). However, we present
certain financial measures and ratios identified as non-GAAP under the rules
of the Securities and Exchange Commission (SEC) to assess our results. We
believe the presentation of these non-GAAP financial measures and ratios is
useful in order to better understand our financial performance as well as to
facilitate the comparison of our results to the results of our peer companies.
In addition, management uses these non-GAAP financial measures and ratios to
assess the results of our operations. It is important to view non-GAAP
financial measures in addition to, rather than as a substitute for, those
measures and ratios prepared in accordance with GAAP. We have provided
reconciliations of the most directly comparable GAAP measures to our non-GAAP
financial measures presented.

The following non-GAAP financial measures are adjusted to exclude the impact
of markdowns related to the alignment of inventory with our 2012 strategy,
restructuring and management transition charges, the impact of our Primary
Pension Plan expense, the loss on extinguishment of debt and the net gain on
sale or redemption of non-operating assets. Unlike other operating expenses,
markdowns related to the alignment of inventory with our 2012 strategy,
restructuring and management transition, loss on extinguishment of debt and
the net gain on the sale or redemption of non-operating assets are not
directly related to our ongoing core business operations. Primary Pension
Plan expense is determined using numerous complex assumptions about changes in
pension assets and liabilities that are subject to factors beyond our control,
such as market volatility. Accordingly, we eliminate our Primary Pension Plan
expense in its entirety as we view all components of net periodic benefit
expense as a single, net amount, consistent with its presentation in our
Consolidated Financial Statements. We believe it is useful for investors to
understand the impact of markdowns related to the alignment of inventory with
our 2012 strategy, restructuring and management transition charges, the impact
of our Primary Pension Plan expense, the loss on extinguishment of debt and
the net gain on the sale or redemption of non-operating assets on our
financial results and therefore are presenting the following non-GAAP
financial measures: (1)adjusted operating income/(loss); (2)adjusted net
income/(loss); and (3)adjusted diluted EPS.

ADJUSTED OPERATING INCOME/(LOSS), NON-GAAP FINANCIAL MEASURE 
The following table reconciles operating income/(loss), the most directly
comparable GAAP measure, to adjusted operating income/(loss), a non-GAAP
financial measure:

                                    Three months ended      Six months ended
                                    August 3,  July 28,    August 3,  July 28,
                                      2013       2012        2013       2012
Operating income/(loss)               $(395)   $(183)      $(881)   $(409)
      As a percent of sales           (14.8)%    (6.1)%      (16.6)%    (6.6)%
      Markdowns - inventory
Add:  strategy alignment                 -       102         -        155
      Restructuring and management
      transition charges                  47      159          119       235
      Primary pension plan expense        25       48           50        97
      Net gain on sale or
      redemption of non-operating
Less: assets                            (62)    (200)        (62)    (200)
Adjusted operating income/(loss)
(non-GAAP)                            $(385)    $(74)      $(774)   $(122)
      As a percent of sales           (14.5)%    (2.4)%      (14.6)%    (2.0)%

ADJUSTED NET INCOME/(LOSS) AND ADJUSTED EARNINGS/(LOSS) PER SHARE - DILUTED,
NON-GAAP FINANCIAL MEASURES

The following table reconciles net income/(loss) and earnings/(loss) per
share-diluted, the most directly comparable GAAP measures, to adjusted net
income/(loss) and adjusted earnings/(loss) per share - diluted, non-GAAP
financial measures:

                             Three months ended            Six months ended
                           August 3,     July 28,       August 3,     July 28,
                             2013          2012           2013          2012
Net income/(loss)            $(586)      $(147)         $(934)      $(310)
Earnings/(loss) per share
- diluted                   $(2.66)     $(0.67)        $(4.24)     $(1.42)
      Markdowns -
      inventory strategy
Add:  alignment, net
        of tax of $-,
      $39, $- and $60           -           63 (1)        -            95
      Restructuring and
      management
      transition charges,
      net
        of tax of $-,
      $61, $28 and $91           47 (2)      98 (1)          91 (2)      144
      Primary pension
      plan expense, net
      of tax of $16, $19,
      $26 and $38                 9 (3)      29 (1)          24 (3)       59
      Loss on
      extinguishment of
      debt, net of tax of
      $-, $-, $-
      and $-                    114 (2)     -              114 (2)     - 
      Net gain on sale or
      redemption of
Less: non-operating
      assets, net of tax
      $1, $76, $1 and $76      (61) (4)   (124) (5)       (61) (4)   (124)
Adjusted net
income/(loss) (non-GAAP)     $(477)       $(81)         $(766)      $(136)
                                       
Adjusted earnings/(loss)
per share - diluted
(non-GAAP)                  $(2.16)     $(0.37)        $(3.48)     $(0.62)

^(1)Tax effect was
calculated using the
Company's statutory rate
of 38.82%.                                                          
^(2)Reflects no tax effect due to the impact of the Company's tax
valuation allowance.
^(3)Tax benefit for the three months ended August 3, 2013 is in accordance
with the requirement that the Company's net zero tax provision be allocated
between its operating loss and accumulated other comprehensive income.  For
the three months ended May 3, 2013, tax effect was calculated using the
Company's statutory rate of 38.82%. 
^(4)Tax effect represents state taxes payable in separately filing states
related to the sale of the non-operating asset.
^(5)Tax effect was
calculated using the
effective tax rate for
the transaction of
37.75%.                                                             

Reconciliation of Non-GAAP Financial Measures
                 (Unaudited)
 (Amounts in millions except per share data)

Free cash flow is a key financial measure of our ability to generate
additional cash from operating our business and in evaluating our financial
performance. We define free cash flow as cash flow from operating activities,
less capital expenditures and dividends paid, plus the proceeds from the sale
of operating assets. Free cash flow is a relevant indicator of our ability to
repay maturing debt, revise our dividend policy or fund other uses of capital
that we believe will enhance stockholder value. Free cash flow is considered a
non-GAAP financial measure under the rules of the SEC. Free cash flow is
limited and does not represent remaining cash flow 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. Therefore, it is
important to view free cash flow in addition to, rather than as a substitute
for, our entire statement of cash flows and those measures prepared in
accordance with GAAP.

FREE CASH FLOW, NON-GAAP FINANCIAL MEASURE
The following table reconciles cash flow from operating activities, the most
directly comparable GAAP measure, to free cash flow, a non-GAAP financial
measure:

                                    Three months ended      Six months ended
                                    August 3,  July 28,    August 3,  July 28,
                                      2013       2012        2013       2012
Net cash provided by/(used in)
operating activities                  $(708)    $(30)    $(1,460)   $(607)
                                                   
        Proceeds from sale of
Add:    operating assets                   1      -           19      - 
                                                   
Less:   Capital expenditures           (439)    (132)       (653)    (239)
        Dividends paid                   -      (43)         -      (86)
Free cash flow (non-GAAP)           $(1,146)   $(205)    $(2,094)   $(932)

Our comparable store sales for the periods presented include sales from new
and relocated stores that have been opened for 12 consecutive full fiscal
months and Internet sales through jcp.com.Stores closed for an extended
period are not included in comparable store sales calculations, while stores
remodeled and minor expansions not requiring store closures remain in the
calculations. We believe that providing comparable store sales excluding our
home department is useful in order to better understand the impact that our
home department had on our comparable store sales. During the first and
second quarter of 2013, our home department was under renovation and was in
the process of being re-merchandised.  

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information contained therein.

Source: J. C. Penney Company, Inc. via Thomson Reuters ONE
HUG#1723856
 
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