Annual report pursuant to Section 13 and 15(d)

Stockholders' Equity

v2.4.0.8
Stockholders' Equity
12 Months Ended
Feb. 01, 2014
Stockholders' Equity Note [Abstract]  
Stockholders' Equity
Stockholders’ Equity
 
Other Comprehensive Income/(Loss) 
The tax effects allocated to each component of other comprehensive income/(loss) are as follows:
 
2013
 
2012
 
2011
($ in millions)
Gross Amount
 
Income Tax (Expense)/Benefit
 
Net Amount
 
Gross Amount
 
Income Tax (Expense)/Benefit
 
Net Amount
 
Gross Amount
 
Income Tax (Expense)/Benefit
 
Net Amount
REITs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain/(loss)
$
(2
)
 
$
1

 
$
(1
)
 
$
56

 
$
(20
)
 
$
36

 
$
82

 
$
(29
)
 
$
53

Reclassification adjustment for (gain)/loss
(24
)
 
8

 
(16
)
 
(285
)
(2) 
101

 
(184
)
 

 

 

Retirement benefit plans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net actuarial gain/(loss) arising during the period
659

 
(255
)
(1) 
404

 
60

 
(23
)
 
37

 
(872
)
 
338

 
(534
)
Prior service credit/(cost) arising during the period
(7
)
 
3

(1) 
(4
)
 
(42
)
 
16

 
(26
)
 
(4
)
 
1

 
(3
)
Reclassification of net prior service (credit)/cost from a curtailment

 

 

 
(5
)
 
2

 
(3
)
 
1

 

 
1

Reclassification of net actuarial (gain)/loss from a settlement

 

 

 
148

 
(57
)
 
91

 

 

 

Reclassification for amortization of net actuarial (gain)/loss
175

 
(67
)
(1) 
108

 
242

 
(94
)
 
148

 
154

 
(60
)
 
94

Reclassification for amortization of prior service (credit)/cost
(1
)
 

 
(1
)
 
(13
)
 
5

 
(8
)
 
(24
)
 
9

 
(15
)
Total
$
800

 
$
(310
)
 
$
490

 
$
161

 
$
(70
)
 
$
91

 
$
(663
)
 
$
259

 
$
(404
)
 
(1)
In accordance with accounting standards, we are required to allocate a portion of our tax provision between operating losses and accumulated other comprehensive income. As a result, the Company recorded income tax expense in other comprehensive income/(loss)which is offset by a tax benefit on the loss for the year. See Note 18.
(2)
During the second quarter of 2012, the reclassification adjustment for the Simon Property Group, L.P. (SPG) units of $270 million was calculated by using the closing fair market value per SPG unit of $158.13 on July 19, 2012 for the two million REIT units that were redeemed on July 20, 2012.  The REIT units were redeemed at a price of $124.00 per unit (see Note 17). 

Accumulated  Other Comprehensive Income/(Loss)  
The following table shows the changes in accumulated other comprehensive income/(loss) balances for 2013 and 2012:
($ in millions)
 
Unrealized Gain/(Loss) on REITs
 
Net Actuarial Gain/(Loss)
 
Prior Service Credit/(Cost)
 
Accumulated Other Comprehensive Income/(Loss)
January 28, 2012
 
$
165

 
$
(1,397
)
 
$
23

 
$
(1,209
)
Current period change
 
(148
)
 
276

 
(37
)
 
91

February 2, 2013
 
$
17

 
$
(1,121
)
 
$
(14
)
 
$
(1,118
)
Current period change
 
(17
)
 
512

 
(5
)
 
490

February 1, 2014
 
$

 
$
(609
)
 
$
(19
)
 
$
(628
)


Reclassifications out of accumulated other comprehensive income/(loss) are as follows:
 
Amount Reclassified from Accumulated Other Comprehensive Income/(Loss)
 
Line Item in the Consolidated Statements of Operations
 
 
($ in millions)
2013
 
2012
 
2011
 
Realized (gain)/loss on REITs
 
 
 
 
 
 
 
Sale or redemption of SPG REIT units
$
(24
)
 
$
(270
)
 
$

 
Real estate and other, net
Sale of CBL REIT shares

 
(15
)
 

 
Real estate and other, net
Tax (expense)/benefit
8

 
101

 

 
Income tax expense/(benefit)
Total, net of tax
(16
)
 
(184
)
 

 
 
Retirement benefit plans
 
 
 
 
 
 
 
Amortization of actuarial (gain)/loss(1)
176

 
243

 
155

 
Pension
Amortization of prior service (credit)/cost(1)
7

 
1

 
1

 
Pension
Amortization of actuarial (gain)/loss(1)
(1
)
 
(1
)
 
(1
)
 
SG&A
Amortization of prior service (credit)/cost(1)
(8
)
 
(14
)
 
(25
)
 
SG&A
Prior service (credit)/cost from a curtailment

 
(5
)
 
1

 
Restructuring and management transition (Note 16)
Actuarial (gain)/loss from a settlement(1)

 
148

 

 
Pension
Tax (expense)/benefit
(67
)
 
(144
)
 
(51
)
 
Income tax expense/(benefit)
Total, net of tax
107

 
228

 
80

 
 
Total reclassifications
$
91

 
$
44

 
$
80

 
 

(1)
These accumulated other comprehensive components are included in the computation of net periodic benefits expense/(income). See Note 15 for additional details.

Common Stock 
On a combined basis, our 401(k) savings plan, including our employee stock ownership plan (ESOP), held approximately 13 million shares, or approximately 4.0% of outstanding Company common stock, at February 1, 2014. For the years 2013, 2012 and 2011, we declared dividends of $0.00, $0.20 and $0.80 per share, respectively.

Issuance of Common Stock
On October 1, 2013, we issued 84 million shares of common stock with a par value of $0.50 per share for $9.65 per share for total net proceeds of $786 million after $24 million of fees.
 
Preferred Stock 
We have authorized 25 million shares of preferred stock; no shares of preferred stock were issued and outstanding as of February 1, 2014 or February 2, 2013.
 
Stock Warrant 
On June 13, 2011, prior to his employment, we entered into a warrant purchase agreement with Ronald B. Johnson pursuant to which Mr. Johnson made a personal investment in the Company by purchasing a warrant to acquire approximately 7.3 million shares of J. C. Penney Company, Inc. common stock for a purchase price of approximately $50 million at a mutually determined fair value of $6.89 per share. The warrant has an exercise price of $29.92 per share, subject to customary adjustments resulting from a stock split, reverse stock split, or other extraordinary distribution with respect to J. C. Penney Company, Inc. common stock. The warrant has a term of seven and one-half years and was initially exercisable after the sixth anniversary, or June 13, 2017; however, the warrant became immediately exercisable upon the termination of Mr. Johnson’s employment with us in April 2013. The warrant is also subject to transfer restrictions. The proceeds from the sale of the warrant were recorded as additional paid-in capital and the dilutive effect of the warrant has been included in the EPS calculation from the date of issuance.

The fair value of the warrant was determined on the date of the warrant purchase agreement using a Monte Carlo simulation methodology with the following assumptions:
 
Expected term
7.5 years

Expected volatility
37
%
Risk-free interest rate
2.47
%
Expected dividend yield
2.67
%
 
Valuation Method. The fair value of the stock warrant was determined on the date of the warrant purchase agreement using a Monte Carlo simulation method that reflected the impact of the key features of the warrant using different simulations and probability weighting.
 
Expected Term. The expected term was determined based on the maturity determined period that both parties expect the warrant to be outstanding.
 
Expected Volatility. The expected volatility was based on implied volatility.
 
Risk-free Interest Rate. The risk-free interest rate was based on zero-coupon U.S. Treasury yields in effect at the date of the agreement with the same maturity as the expected warrant term.
 
Expected Dividend Yield. The dividend assumption was based on expectations about the Company’s dividend policy.
 
Common Stock Repurchase Program 
In February 2011, our Board of Directors authorized a program to repurchase up to $900 million of Company common stock using existing cash and cash equivalents. In the first quarter of 2011, through open market transactions, we repurchased approximately 21 million shares for $787 million. In the second quarter of 2011, we purchased an additional three million shares for $113 million and completed the program on May 6, 2011. As a result of this repurchase program, approximately 24 million total shares were purchased for a total of $900 million at an average share price of $36.98, including commission. Repurchased shares were retired on the date of purchase, and the excess of the purchase price over par value was allocated between reinvested earnings and additional paid-in capital.
 
Stockholders' Rights Agreement
As authorized by our Company’s Board of Directors (the Board), on January 27, 2014, the Company entered into an Amended and Restated Rights Agreement (Amended Rights Agreement) with Computershare Inc., as Rights Agent (Rights Agent), amending, restating and replacing the Rights Agreement, dated as of August 22, 2013 (Original Rights Agreement), between the Company and the Rights Agent. Pursuant to the terms of the Original Rights Agreement, one preferred stock purchase right (a Right) was attached to each outstanding share of Common Stock of $0.50 par value of the Company (Common Stock) held by holders of record as of the close of business on September 3, 2013. The Company has issued one Right in respect of each new share of Common Stock issued since the record date. The Rights, registered on August 23, 2013, trade with and are inseparable from our Common Stock and will not be evidenced by separate certificates unless they become exercisable.

The purpose of the Amended Rights Agreement is to diminish the risk that the Company's ability to use its net operating losses and other tax assets to reduce potential future federal income tax obligations would become subject to limitations by reason of the Company's experiencing an "ownership change" as defined under Section 382 of the Internal Revenue Code. Ownership changes under Section 382 generally relate to the cumulative change in ownership among stockholders with an ownership interest of 5% or more (as determined under Section 382's rules) over a rolling three year period. The Amended Rights Agreement is intended to reduce the likelihood of an ownership change under Section 382 by deterring any person or group from acquiring beneficial ownership of 4.9% or more of the outstanding Common Stock. The amendments to the Original Rights Agreement also extended the expiration date of the Rights from August 20, 2014 to January 26, 2017 and amended certain other provisions, including the definition of "beneficial ownership" to include terms appropriate for the purpose of preserving tax benefits. We are submitting the Amended Rights Agreement for stockholder approval at our 2014 annual meeting and the Rights will immediately expire if stockholder approval is not received.

Each Right entitles its holder to purchase from the Company 1/1000th of a share of a newly authorized series of participating preferred stock at an exercise price of $55.00, subject to adjustment in accordance with the terms of the Amended Rights Agreement, once the Rights become exercisable. In general terms, under the Amended Rights Agreement, the Rights become exercisable if any person or group acquires 4.9% or more of the Common Stock or, in the case of any person or group that owned 4.9% or more of the Common Stock as of January 27, 2014, upon the acquisition of any additional shares by such person or group. In addition, the Company, its subsidiaries, employee benefit plans of the Company or any of its subsidiaries, and any entity holding Common Stock for or pursuant to the terms of any such plan, are excepted. Upon exercise of the Right in accordance with the Amended Rights Agreement, the holder would be able to purchase a number of shares of Common Stock from the Company having an aggregate market value (as defined in the Amended Rights Agreement) equal to twice the then-current exercise price for an amount in cash equal to the then-current exercise price. The Rights will not prevent an ownership change from occurring under Section 382 of the Code or a takeover of the Company, but may cause substantial dilution to a person that acquires 4.9% or more of our Common Stock.