Core Lbo Model

WALL ST.
TRAINING
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Illustrative JC Penney Company, Inc. Leveraged Buyout Summary
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No Refinance Existing Debt Remains

Check Balance
($ in millions, except per share data)
Illustrative Transaction Assumptions
Transaction Date
End of Fiscal 2004
Accounting method
PurchaseAccounting
LIBOR Assumption
3.75%
Illustrative Valuation Summary
Enterprise Value
Current
Share price
4/20/2005
$ 44.88
Transaction premium
Diluted shares outstanding
273.747
Equity value
$ 12,286
Plus: Existing debt and preferred stock
3,945
Plus: Minority Interest
Less: Cash
(4,687)
Enterprise value
$ 11,544
2005
Enterprise value as a Multiple of:
2005E Revenue
18,792
18,792
0.6x
2006P Revenue
19,168
19,168
0.6x
2005E EBITDA
1,806
1,806
6.4x
2006P EBITDA
1,918
1,918
6.0x
2005E PE Ratio
1.68
3.61
12.4x
2006P PE Ratio
1.98
3.85
11.7x
Transaction
$ 53.86
20.0%
276.120
$ 14,871
3,945
(4,687)
$ 14,129
0.8x
0.7x
7.8x
7.4x
14.9x
14.0x
Additional Debt Capacity Analysis

2005E EBITDA
Debt / EBITDA leverage ratio
Implied debt capacity
Less: Current debt (ignore minority interest)
Plus: Refinanced current debt
Maximum additional new debt capacity
$ 1,806
6.0x
$ 10,835
(3,945)
$ 6,890
Summary Credit / Leverage Statistics

2004PF
2005P
EBIT Interest Coverage
EBITDA Interest Coverage
Total Debt / EBITDA
Total Debt / Total Capital
Cumulative % of Initial Debt Paid
340925880.xls<LBO Summary>
1.78x
2.27
6.38
71.8%
1.92x
2.42
5.92
69.4%
1.4%
2006P
2.13x
2.66
5.27
65.7%
7.3%
Management
Rollover equity
Financial sponsor
Total equity sources
Sources of Funds
Cash on balance sheet
Less: Minimum cash balance
Revolver ($1500MM Facility)
Term Loans
Senior Notes
Subordinated Notes
Equity sources
Total Sources of Funds
Uses of Funds
Purchase Equity
Refinance Existing Debt:
Existing revolver and CP
Debt Tranche 1
Debt Tranche 2
Preferred Debt
Total Transaction Costs
Tender Costs + Accrued Interest
Total Financing Fees
Total Uses of Funds
Exit EBITDA multiple

7.0x
8.0x
9.0x
Purchase Price of Equity

Plus: Transaction Costs
Less: Tangible book value
Post-transaction goodwill
JC Penney Company, Inc.
Equity Sources
% Rollover
0.0%
0.0%
Sources and Uses of Funds

Amount
$ 4,687
$ (750)
(750)
390
L + 125
2,000
3,000
1,500
4,260
$ 15,087
Amount
$ 14,870.72
3,945
-
Amount
$ 4,260
$ 4,260
Rate
4.0%
5.0%
6.5%
9.0%
Rate
141
75
$ 15,087
Financial Sponsor IRR

Exit Year:
2007
9.4%
21.3%
31.3%
Ownership
0.0%
0.0%
100.0%
100.0%
Percent
31.1%
(5.0)%
2.6%
13.3%
19.9%
9.9%
28.2%
100.0%
Percent
98.6%
0.0%
0.0%
0.0%
0.0%
0.9%
0.0%
0.5%
100.0%
2008
14.1%
21.8%
28.2%
Goodwill Calculation
goodwill only applies in LBO, purchase
accounting. Recap accounting does not
create goodwill
2009
16.1%
21.5%
26.0%
$ 14,871
141
(4,856)
$ 10,156
Hamilton Lin, CFA, www.wallst-training.com
WALL ST. TRAINING

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WALL ST. TRAINING

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AA
AB
LBO
No Transaction
LBO
0 PurchaseAccounting
2 No Refinance Existing Debt Remains
2 Medium Interest
1
1
1
0
2
2
Common Stock Dividends

Share Repurchase Program
0
0
1
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0
0
Revolver Capacity
Term Loans
Senior Notes
Subordinated Notes
Recap Accounting = 1, No = 0
Refinancing Case
Interest Rate Scenario
Revolver
Term Loans
Senior Notes
Subordinated Notes
1500
2000
3000
1500
Interest Rate Scenarios

High Interes Medium Intere Low Interest
4.0%
4.0%
4.0%
6.0%
5.0%
4.0%
7.5%
6.5%
5.5%
10.0%
9.0%
8.0%
Refinancing Scenarios
Fees
No Transaction No Refinance Refinance All
0.50%
$ $ 1,500
$ 1,500
0.75%
2,000
3,000
1.00%
3,000
5,000
1.50%
1,500
2,500
100% % Equity Repurchased
0.0%
100.0%
100.0%
Tender Costs
0
Existing revolver and CP
0.50%
0
Debt Tranche 1
1.00%
0
Debt Tranche 2
1.00%
0
Preferred Debt
1.50%
1.0% Transaction Costs
0.0%
1.0%
1
1
1
1
1.0%
Capital Structure
Existing Debt
Revolver
Debt Tranche 1
Debt Tranche 2
Total Existing Debt
New Debt
Revolver
Term Loans
Senior Notes
Subordinated Notes
Total New Debt
Total Debt
Preferred Debt
Equity
Total Capital
AC
Actual
Pro Forma
$ 3,945
$ 3,945
$ 3,945
$ 3,945
$ $ $ 3,945
4,856
$ 8,801
$ 390
2,000
3,000
1,500
$ 6,890
$ 10,835
4,260
$ 15,095
Term
5.0
6.0
7.0
10.0
Fees
$8
15
30
23
$ 75
Amortization
$2
3
4
2
$ 11
36609633
34615924
3332373960
Tender Costs
$ $ -
Options & Shares Outstanding

Exercisable
Outstanding
Strike Price
Amount
Strike Price
Amount
$ 18.00
21.00
36.00
46.00
71.00
Shares
Basic
Diluted @ $44.88
Diluted @ $53.86
3.249
1.603
2.864
1.977
1.087
-
$ 18.00
21.00
33.00
46.00
71.00
-
Current
270.381
273.747
274.760
Deal
270.381
274.771
276.120
3.384
1.620
5.668
2.072
1.087
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WALL ST. TRAINING

W2:
home:
main driviner of our assumptions
W6:
home:
hit F4
340925880.xls<Comments>
WALL ST. TRAINING

A B
2002
Actual
2003
2004
Estimated
2005
2006
$ 17,633
(11,299)
$ 6,334
(5,634)
(59)
$ 641
(226)
$ 415
(130)
$ 285
$ 17,786
(11,166)
$ 6,620
(5,809)
17
$ 828
(261)
$ 567
(189)
$ 378
$ 18,424
(11,285)
$ 7,139
(5,827)
17
$ 1,329
(233)
$ 1,096
(380)
$ 716
$ 18,792
(11,436)
$ 7,357
(5,944)
17
$ 1,430
(724)
$ 707
(247)
$ 459
$ 19,168
(11,588)
$ 7,581
(6,062)
17
$ 1,535
(699)
$ 836
(293)
$ 544
$ 19,552
(11,741)
$ 7,811
(6,184)
17
$ 1,644
(672)
$ 972
(340)
$ 632
$ 19,943
(11,896)
$ 8,047
(6,307)
17
$ 1,756
(626)
$ 1,130
(395)
$ 734
293.0
297.0
307.0
273.9
273.9
273.9
273.9
273.9 Less Share Repurchases
$ 0.96
$ 1.26
$ 2.39
$ 1.68
$ 1.98
$ 2.31
$ 2.68
$ 3.06 Net Income / Diluted S/O
$ 1,010
$ 1,222
6.9%
$ 1,697
9.2%
$ 1,806
9.6%
$ 1,918
10.0%
$ 2,034
10.4%
$ 2,155
10.8%
Net Revenue Growth
(2.5)%
0.9%
3.6%
2.0%
2.0%
2.0%
2.0%
COGS, % of Revenue
SG&A Expenses, % of Revenue
64.1%
32.0%
62.8%
32.7%
61.3%
31.6%
60.9%
31.6%
60.5%
31.6%
60.1%
31.6%
59.7%
31.6%
59.3% Decrease 40 bps

31.6% Constant
Effective Tax Rate
31.3%
33.4%
34.6%
35.0%
35.0%
35.0%
35.0%
35.0% Assume normalized tax rate
Depreciation & Amortization

D&A, % of Revenue
$ 369
2.1%
$ 394
2.2%
$ 368
2.0%
$ 375
2.0%
$ 383
2.0%
$ 391
2.0%
$ 398
2.0%
$ 406
2.0%
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Income Statement
(All figures in millions, except per share data)
Fiscal
Net Revenue
Cost of Sales
Gross Profit
SG&A Expenses
Real Estate and Other
Operating Income
Net Interest Expense
Pre-Tax Income
Income Taxes
Net Income
18,092
Diluted Shares Outstanding

Diluted Earnings per Share
EBITDA
EBITDA Margin
Projected
2007
2008
2009
Projection Notes
$ 20,342
(12,053)
$ 8,289
(6,433)
17
$ 1,872
(584)
$ 1,288
(451)
$ 837
% Growth
% of Net Sales
Sum
% of Revenue
Assumption
Sum
Debt Sweep
Sum
Tax Rate
Sum
$ 2,279 Op. Inc + Depr + Amort

11.2% EBITDA / Revenue
Income Statement Assumptions

2.0% Assumption
Note: Fiscal year ends January 31 of the next year.
340925880.xls<IS>
WALL ST. TRAINING

H12:
home:
we hav e subtracted the management transition because it is a non recurring activity so we will adjust
H21:
home:
we will adjust for prefereed dividend
WALL ST. TRAINING

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Balance Sheet
2004
Transaction
Adjustm.
Pro Forma
2004
Estimated
2005
2006
($ in millions)
Actual
Projected
2007
2008
Fiscal
ASSETS
Current Assets
Cash & Equivalents
Accounts Receivables, net
Inventories
Prepaid Assets
Total Current Assets
2003
$ 2,994
233
3,156
207
$ 6,590
$ 4,687
404
3,169
167
$ 8,427
$ (3,937)
$ (3,937)
$ 750
404
3,169
167
$ 4,490
$ 750
412
3,211
170
$ 4,544
$ 750
420
3,254
174
$ 4,598
$ 750
429
3,297
177
$ 4,653
$ 750
437
3,341
181
$ 4,709
$ 750
446
3,385
184
$ 4,765
Net PPE
Transaction Debt Financing Fees
Goodwill
Prepaid Pension
Other assets
Discontinued Operations
TOTAL ASSETS
$ 3,515
1,320
521
6,354
$ 18,300
$ 3,638
1,538
524
$ 14,127
$ 75
10,156
$ 6,294
$ 3,638
75
10,156
1,538
524
$ 20,421
$ 3,963
64
10,156
1,538
524
$ 20,789
$ 3,930
54
10,156
1,538
524
$ 20,800
$ 3,889
43
10,156
1,538
524
$ 20,804
$ 3,841
33
10,156
1,538
524
$ 20,800
$ 3,785
22
10,156
1,538
524
$ 20,790
$ 1,167
1,384
943
260
$ 3,754
$ 1,200
1,766
$ 2,966
$ 390
$ 390
$ 1,200
1,766
390
$ 3,356
$ 1,219
1,801
1,036
354
$ 4,411
$ 1,238
1,837
803
766
$ 4,644
$ 1,257
1,874
885
536
$ 4,553
$ 1,277
1,912
627
333
$ 4,148
$ 1,296
1,950
55
$ 3,301
$ 5,114
1,217
804
1,986
$ 12,875
$ 3,945
1,318
1,042
$ 9,271
$ 6,500
$ 6,890
$ 10,445
1,318
1,042
$ 16,161
$ 9,298
1,318
1,042
$ 16,069
$ 8,532
1,318
1,042
$ 15,536
$ 7,996
1,318
1,042
$ 14,908
$ 7,662
1,318
1,042
$ 14,171
$ 7,662
1,318
1,042
$ 13,323
$ 304
3,531
1,728
(138)
$ 5,425
$ 4,176
812
(132)
$ 4,856
$ 84
(812)
132
$ (596)
$ 4,260
$ 4,260
$ 4,260
459
$ 4,720
$ 4,260
1,003
$ 5,263
$ 4,260
1,635
$ 5,895
$ 4,260
2,369
$ 6,630
$ 4,260
3,207
$ 7,467
$ 18,300
$ 14,127
$ 6,294
$ 20,421
$ 20,789
$ 20,800
$ 20,804
$ 20,800
$ 20,790
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ 17,786
11,166
5,809
$ 18,424
11,285
5,827
$ 18,792
11,436
5,944
$ 19,168
11,588
6,062
$ 19,552
11,741
6,184
$ 19,943
11,896
6,307
$ 20,342
12,053
6,433
4.8
103.2
1.2%
25.1
7.8%
8.0
102.5
0.9%
25.6
9.6%
8.0
102.5
0.9%
25.6
9.6%
8.0
102.5
0.9%
25.6
9.6%
8.0
102.5
0.9%
25.6
9.6%
8.0
102.5
0.9%
25.6
9.6%
8.0
102.5
0.9%
25.6
9.6%
LIABILITIES
Current Liabilities
Accounts Payable
Accrued Expenses
Deferred Taxes
Revolver
Short Term & Current Portion of Long-Term Debt
Total Current Liabilities
Long-Term Debt
Deferred Taxes
Other Non-Current Liabilities
Non-Current Liabilities, Disc. Ops
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Preferred Stock
Common Stock & APIC
Retained Earnings
Accumulated Other Comp. Income
TOTAL SHAREHOLDERS' EQUITY
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY
Check
Net Revenue
Cost of Sales
SG&A Expenses
Days Receivable Outstanding
Days Inventories Outstanding
Prepaid Assets, % of Revenue
Days Payable Outstanding
Accrued Expenses, % of Revenue
2009

340925880.xls<BS>
Hamilton Lin, www.wallst-training.com
WALL ST. TRAINING

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Notes
From CF statement
365 Days A/R: Revenue * No. Days / 365
365 Days Inv: COGS * No. Days / 365
% of Revenue
Sum
Beg Bal - negative CapEx - Depr
Amortize fees
Constant, equal to year before
Constant
Constant
Zero
Sum
365 Days A/P: Expenses * No. Days / 365

% of Revenue
Constant
From Debt Sweep
From Debt Sweep
Sum
From Debt Sweep
Constant
Constant
Zero
Sum
From Debt Sweep

Beg Bal + Stock Issued - Repurchases
Beg Bal + Net Inc - Dividends
Constant
Sum
Sum
Calculation
From Income Statement
A/R * 365 / Revenue
Inventory * 365 / COGS
Other Current Assets / Revenue
A/P * 365 / Total Expenses
Accrued Liability / Revenue
340925880.xls<BS>
WALL ST. TRAINING

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Cash Flow Statement
Estimated
2005
2006
($ in millions)
Fiscal
Projected
2007
2008
2009
Cash From Operating Activities:

Net Income
Plus: Depreciation & Amortization
Amortization of Transaction Debt Financing Fees
$ 459
375
11
$ 544
383
11
$ 632
391
11
$ 734
398
11
Changes in Working Capital:

(Increase)/Decrease in Accounts Receivables, net
(Increase)/Decrease in Inventories
(Increase)/Decrease in Prepaid Assets
Increase/(Decrease) in Accounts Payable
Increase/(Decrease) in Accrued Expenses
Total Change in Working Capital
Total Cash From Operating Activities
$ (8)
$ (42)
$ (3)
19
35
$0
$ 846
$ (8)
$ (43)
$ (3)
19
36
$1
$ 938
$ (8)
$ (43)
$ (3)
19
37
$1
$ 1,034
$ (9)
$ (44)
$ (4)
20
37
$1
$ 1,145
$ (700)
$ (700)
$ (350)
$ (350)
$ (350)
$ (350)
$ (350)
$ (350)
$ -
$ -
$ -
$ -
$ 146
$ 588
$ 684
$ 795
(146)
$ (146)
(588)
$ (588)
(684)
$ (684)
(795)
$ (795)
$ 750
$ 750
750
$ 750
$ 750
750
$ 750
$ 750
750
$ 750
$ 750
750
$ 750
$ 750
750
Cash From Investing Activities:

(Increase)/Decrease in Capital Expenditures
Total Cash From Investing Activities
Cash From Financing Activities:
Issuance of Common Stock
Common Stock Dividends
$ (412)
Active?
0
Net (Purchase) / Reissuance of Treasury Stock

Cash Available / (Required) Before Debt
Debt Borrowing / (Repayment)

Total Cash From Financing Activities
Beginning Cash Balance
Change in Cash
Ending Cash Balance
Average Cash Balance
Calculation
$ 837 From Income Statement

406 From Income Statement
11 Prior Year less Current Year
$ (9)
$ (44)
$ (4)
20
38
$2
$ 1,256
Prior Year less Current Year

Current Year less Prior Year
Current Year less Prior Year
Sum
Sum
$ (350) Assumption, MD&A / p.11, 5 yr summary

$ (350) Sum
$ - Assumption
- Calculation
- Assumption
$ 906 Sum of CFO, CFI and CFF items
(906) From Debt schedule
$ (906) Sum of all CFF items, exclude row 30 !!
From Balance Sheet
Sum of CFO, CFI and CFF
Sum => This goes to BS
Average of Beg and End Balance
Dividends Estimate
Dividends per Share
Dividends per Share Growth
$ 0.50
$ 0.50
0.0%
$ 0.50
0.0%
$ 0.50
0.0%
$ 0.50
0.0%
$ 0.50
0.0% Historical Dividend Growth
Basic Shares Outstanding

Total Dividends
271.0
271.0
$ 136
271.0
$ 136
271.0
$ 136
271.0
$ 136
271.0 Beg less share repurchases, p.11-12

$ 136 Dividends per Share * Shares Out
$ 1,750
$ 2.39
17.0x
$ 40.61
$ $ 1.68
17.0x
$ 28.52
$ $ 1.98
17.0x
$ 33.74
$ $ 2.31
17.0x
$ 39.23
Share Repurchase
Share Repurchase Program
Projected EPS (Trailing basis)
Implied PE Ratio
Implied Share Price
340925880.xls<CF>
Active?
$ $ 2.68
17.0x
$ 45.59
Per announcements
From Income Statement (lagging)
Assumption
EPS * PE
WALL ST. TRAINING

52
53
A B C D
E
F
G
Number Shares Repurchased (back to IS)
H
0
J
-
K
-
L
-
M
-
N
- Repurchase Amount / Share Price
340925880.xls<CF>
WALL ST. TRAINING

A B
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
32
33
34
35
36
37
38
39
40
Debt Schedule
Estimated
2005
2006
($ in millions)
Fiscal
Cash Available/(Required) Before Debt
Plus: Beginning Cash on Balance Sheet
Less: Minimum Cash Balance
Mandatory Debt Repayment
Cash Before Discretionary Debt Repayment / (Borrowing)
New Senior Debt
Term Loans
Beginning Balance
Discretionary Debt Repayment
Ending Balance
Average Balance
Senior Notes
Beginning Balance
Ending Balance
Average Balance
Existing Debt
Tranche 1
Beginning Balance
Ending Balance
Average Balance
Tranche 2
Beginning Balance
Ending Balance
Average Balance
340925880.xls<Debt Sweep>
Amortization
Assumptions
Cash Flow Recapture?
1
$ 2,000
$ 3,000
$ 3,945
$ -
Projected
2007
2008
2009
$ 146
750
(750)
(792)
$ (647)
$ 588
750
(750)
(354)
$ 233
$ 684
750
(750)
(766)
$ (82)
$ 795
750
(750)
(536)
$ 258
$ 906
750
(750)
(333)
$ 572
16.7%
333
$ 2,000
(333)
$ 1,667
$ 1,833
16.7%
333
$ 1,667
(333)
$ 1,333
$ 1,500
16.7%
333
$ 1,333
(333)
$ 1,000
$ 1,167
16.7%
333
$ 1,000
(333)
$ 667
$ 833
16.7%
333
$ 667
(333)
$ 333
$ 500
$ 3,000
$ 3,000
$ 3,000
$ 3,000
$ 3,000
$ 3,000
$ 3,000
$ 3,000
$ 3,000
$ 3,000
$ 3,000
$ 3,000
$ 3,000
$ 3,000
$ 3,000
$ 3,945
(459)
$ 3,486
$ 3,716
$ 3,486
(21)
$ 3,465
$ 3,476
$ 3,465
(433)
$ 3,032
$ 3,249
$ 3,032
(203)
$ 2,829
$ 2,931
$ 2,829
$ 2,829
$ 2,829
$ $ $ -
$ $ $ -
$ $ $ -
$ $ $ -
$ $ $ -
WALL ST. TRAINING

41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
A B
C
D
E
New Debt
Subordinated Notes
Beginning Balance
Ending Balance
Average Balance
Existing Debt
Preferred Debt
Beginning Balance
Ending Balance
Average Balance
Revolver
Beginning Balance
Discretionary Sweep
Ending Balance
Average Balance
Total Debt, Beginning Balance
Less: Mandatory Debt Repayment
Term Loan Discretionary (Repayment)
Revolver Debt Borrowing / (Repayment)
Total Debt, Ending Balance
Less: Current Portion
Less: Preferred
Less: Revolver
Total Debt, less Current Portion
Beginning Cash Balance
Ending Cash Balance
Average Cash Balance
$ 1,500
$ -
$ 390
$ 1,500
$ 1,500
$ 1,500
$ 1,500
$ 1,500
$ 1,500
$ 1,500
$ 1,500
$ 1,500
$ 1,500
$ 1,500
$ 1,500
$ 1,500
$ 1,500
$ 1,500
$ $ $ -
$ $ $ -
$ $ $ -
$ $ $ -
$ $ $ -
$ 390
647
$ 1,036
$ 713
$ 1,036
(233)
$ 803
$ 920
$ 803
82
$ 885
$ 844
$ 885
(258)
$ 627
$ 756
$ 627
(572)
$ 55
$ 341
$ 10,835
(792)
647
$ 10,689
(354)
(1,036)
$ 9,298
$ 10,689
(354)
(233)
$ 10,101
(766)
(803)
$ 8,532
$ 10,101
(766)
82
$ 9,417
(536)
(885)
$ 7,996
$ 9,417
(536)
(258)
$ 8,623
(333)
(627)
$ 7,662
$ 8,623
(333)
(572)
$ 7,717
(55)
$ 7,662
$ 750
750
750
$ 750
750
750
$ 750
750
750
$ 750
750
750
$ 750
750
750
WALL ST. TRAINING

A B
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
Interest Schedule
Estimated
2005
2006
($ in millions)
Fiscal Year Ending October 31,

Interest Rates
Cash & Cash Equivalents
Term Loans
Senior Notes
Tranche 1
Tranche 2
Subordinated Notes
Revolver
Projected
2007
2008
2009
3.0%
5.0%
6.5%
7.4%
8.0%
9.0%
4.0%
3.0%
5.0%
6.5%
7.4%
8.0%
9.0%
4.0%
3.0%
5.0%
6.5%
7.4%
8.0%
9.0%
4.0%
3.0%
5.0%
6.5%
7.4%
8.0%
9.0%
4.0%
3.0%
5.0%
6.5%
7.4%
8.0%
9.0%
4.0%
$ 23
$ 23
$ 23
$ 23
$ 23
Interest Expense
Term Loans
Senior Notes
Tranche 1
Tranche 2
Subordinated Notes
Revolver
Transaction Debt Financing Fees
Total Interest Expense
$ 100
195
290
135
16
11
$ 746
$ 83
195
256
135
41
11
$ 722
$ 67
195
255
135
32
11
$ 694
$ 50
195
223
135
35
11
$ 649
$ 33
195
208
135
25
11
$ 607
$ 724
$ 699
$ 672
$ 626
$ 584
Interest Income
Cash & Cash Equivalents
(1 = Beginning balance
2 = Average Balance)
WALL ST. TRAINING

N
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
32
33
34
35
36
37
38
39
40
Calculation
From CF statement
Balance Sheet
Assumption
Sum of mandatory pmts below
Sum
1 / Term of Loan from LBO Summary
Principal repayment required
Equal to prior year's end balance
Assumption
If cash left, pay off debt?
Sum

Assumption
Sum
Given, Debt Footnote

Given, Debt Footnote
Sum

Assumption
Sum
WALL ST. TRAINING

N
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76

Assumption
Sum

Assumption
Sum

Balancing equation
Sum
Sum of prior year's end balances
Sum of mandatory pmts, to CF
Term loan sweep, to CF
Reference revolver sweep, to CF
Sum
From CF statement
From CF statement
From CF statement
WALL ST. TRAINING

N
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
Calculation
Assumption
From LBO Summary
From LBO Summary
Estimate
Assumption
From LBO Summary
Assumption
If switch = 1, take interest rate *

beginning balance, else rate *
average balance
Interest Expense - Interest Income
WALL ST. TRAINING

I88:
home:
this is my 2004 interest pmt divided by 2003 debt balance or 2003 beg debt balance
WALL ST. TRAINING

A B
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
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
Credit and Leverage Statistics
Pro Forma
2004
Estimated
2005
2006
2007
2008
2009
Calculation
From Debt schedule
From Debt schedule
From Debt schedule
From Debt schedule
From Debt schedule
From Debt schedule
Sum (no minority interest!!)
From Balance Sheet
Sum
From Debt schedule
From Balance Sheet
Sum (net debt + equity sources)
Sum (total debt + equity sources)
($ in millions)
Fiscal
Term Loans
Senior Notes
Tranche 1
Tranche 2
Subordinated Notes
Revolver
Total Debt
Less: Cash
Total Net Debt
Preferred Debt
Total S/H Equity
Total Net Capital
Total Capital
Projected
$ 2,000
3,000
3,945
1,500
390
$ 10,835
(750)
$ 10,085
4,260
$ 14,345
15,095
$ 1,667
3,000
3,486
1,500
1,036
$ 10,689
(750)
$ 9,939
4,720
$ 14,659
15,409
$ 1,333
3,000
3,465
1,500
803
$ 10,101
(750)
$ 9,351
5,263
$ 14,615
15,365
$ 1,000
3,000
3,032
1,500
885
$ 9,417
(750)
$ 8,667
5,895
$ 14,563
15,313
$ 667
3,000
2,829
1,500
627
$ 8,623
(750)
$ 7,873
6,630
$ 14,502
15,252
$ 333
3,000
2,829
1,500
55
$ 7,717
(750)
$ 6,967
7,467
$ 14,434
15,184
$ 1,697
1,329
412
746
724
792
20,421
$ 1,806
1,430
700
746
724
792
20,789
$ 1,918
1,535
350
722
699
354
20,800
$ 2,034
1,644
350
694
672
766
20,804
$ 2,155
1,756
350
649
626
536
20,800
$ 2,279
1,872
350
607
584
333
20,790
RATIOS
Total Debt / EBITDA
Net Debt / EBITDA
Total Debt / (EBITDA - Total Capex)
(Total Debt + Preferred Stock) / EBITDA
(Total Debt + Preferred Stock) / (EBITDA-Total capex)
6.4x
5.9x
8.4x
6.4x
8.4x
5.9x
5.5x
9.7x
5.9x
9.7x
5.3x
4.9x
6.4x
5.3x
6.4x
4.6x
4.3x
5.6x
4.6x
5.6x
4.0x
3.7x
4.8x
4.0x
4.8x
3.4x
3.1x
4.0x
3.4x
4.0x
EBITDA / Total Interest Expense

(EBITDA-Total Capex) / Total Interest Expense
(EBITDA-Total Capex) / (Principal + Total Interest Expense)
2.3x
1.7x
0.8x
2.4x
1.5x
0.7x
2.7x
2.2x
1.5x
2.9x
2.4x
1.2x
3.3x
2.8x
1.5x
3.8x Calculated ratio

EBIT / Total Interest Expense

(EBIT-Total Capex) / Total Interest Expense
(EBIT-Total Capex) / (Principal + Total Interest Expense)
1.8x
1.2x
0.6x
1.9x
1.0x
0.5x
2.1x
1.6x
1.1x
2.4x
1.9x
0.9x
2.7x
2.2x
1.2x

71.8%
71.8%
69.4%
69.4%
65.7%
65.7%
61.5%
61.5%
56.5%
56.5%
50.8% Calculated ratio

8.3%
8.7%
9.2%
9.8%
10.4%
70.3%
70.3%
67.8%
67.8%
64.0%
64.0%
59.5%
59.5%
54.3%
54.3%

EBITDA
EBIT
Total Capex
Total Interest Expense
Mandatory Principal Payments
Total Assets
Total Debt / Total Capitalization

(Total Debt + Preferred) / Total Capitalization
EBITDA / Total Assets
Net Debt / Net Capitalization
(Net Debt + Preferred) / Net Capitalization
340925880.xls<Ratios>

From CF statement
From Debt Sweep
From IS
From Debt Sweep
From Balance Sheet
Calculated ratio
Calculated ratio
Calculated ratio
Calculated ratio
Calculated ratio
WALL ST. TRAINING

A B
52
WALL ST. TRAINING

A B
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
$ 9,939
146
1.4%
$ 9,351
733
7.3%
$ 8,667
1,417
14.1%
$ 7,873
2,212
21.9%
$ 6,967
3,118
30.9%
Note: Excludes future lease payments.
Net Debt (End of Period)

Cumulative Debt Paydown
Cumulative % of Initial Debt Paid
$ 10,085
AAA
EBIT Interest Coverage
EBITDA Interest Coverage
Total Debt / EBITDA
Total Debt / Total Capital
2005
1.9x
2.4x
5.9x
69.4%
23.8x
25.3x
0.2x
6.2%
AA
13.6x
17.1x
1.1x
34.8%
S&P Median Industrial Rating Statistics ('01-'03)

A
BBB
BB
6.9x
9.4x
1.7x
39.8%
4.2x
5.9x
2.4x
45.6%
2.3x
3.1x
3.8x
57.2%
CCC
0.9x
1.6x
5.6x
74.2%
0.4x
0.9x
7.4x
101.2%
WALL ST. TRAINING

H25:
Interest breakdown, Note 12, p. 39
WALL ST. TRAINING

A B C
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
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
Illustrative Financial Sponsor Returns
Estimated
2005
2006
2007
2008
2009
($ in millions)
Fiscal
Sponsor Equity Investment
Ownership
340925880.xls<IRR>
Projected
$ 4,260
100.0%
EBITDA
$ 1,806
Exit EBITDA Multiple

7.0x
8.0x
9.0x
Less: Net Debt & Preferred
$ 1,918
$ 2,034
$ 2,155
$ 2,279
$ 12,640
14,446
16,252
Implied Total Enterprise Value

$ 13,428
$ 14,241
$ 15,082
15,346
16,276
17,237
17,264
18,310
19,391
$ 15,951
18,229
20,508
$ (9,939)
$ (9,351)
$ (7,873)
$ (6,967)
$ (8,667)

7.0x
8.0
9.0
$ 2,701
4,507
6,313
Implied Total Equity Value

$ 4,076
$ 5,574
$ 7,209
5,994
7,608
9,364
7,913
9,643
11,519
$ 8,984
11,263
13,541

7.0x
8.0
9.0
$ 2,701
4,507
6,313
Implied Equity Value to Financial Sponsor

$ 4,076
$ 5,574
$ 7,209
5,994
7,608
9,364
7,913
9,643
11,519
$ 8,984
11,263
13,541
1
7.0x
8.0
9.0
7.0x
8.0
9.0
(36.6)%
5.8%
48.2%
2
3
4
Implied IRR to Financial Sponsor
(2.2)%
9.4%
14.1%
18.6%
21.3%
21.8%
36.3%
31.3%
28.2%
5
16.1%
21.5%
26.0%
0.6x
1.1x
1.5x
Financial Sponsor Multiple of Capital

1.0x
1.3x
1.7x
1.4x
1.8x
2.2x
1.9x
2.3x
2.7x
2.1x
2.6x
3.2x

Core Lbo Model

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WALL ST.

Illustrative JC Penney Company, Inc. Leveraged Buyout Summary

No Refinance Existing Debt Remains

Additional Debt Capacity Analysis

Summary Credit / Leverage Statistics

Exit EBITDA multiple

Purchase Price of Equity

JC Penney Company, Inc.

Sources and Uses of Funds

Financial Sponsor IRR

Hamilton Lin, CFA, www.wallst-training.com

WALL ST. TRAINING

Hamilton Lin, CFA, www.wallst-training.com

WALL ST. TRAINING

Hamilton Lin, CFA, www.wallst-training.com

WALL ST. TRAINING

Common Stock Dividends

Interest Rate Scenarios

100% % Equity Repurchased

Options & Shares Outstanding

Hamilton Lin, CFA, www.wallst-training.com

WALL ST. TRAINING

Hamilton Lin, CFA, www.wallst-training.com

WALL ST. TRAINING

Hamilton Lin, CFA, www.wallst-training.com

WALL ST. TRAINING

Hamilton Lin, CFA, www.wallst-training.com

WALL ST. TRAINING

273.9 Less Share Repurchases

$ 3.06 Net Income / Diluted S/O

Net Revenue Growth

59.3% Decrease 40 bps

Effective Tax Rate

35.0% Assume normalized tax rate

Depreciation & Amortization

JC Penney Company, Inc.

(All figures in millions, except per share data)

Diluted Shares Outstanding

$ 2,279 Op. Inc + Depr + Amort

Income Statement Assumptions

Note: Fiscal year ends January 31 of the next year.

Hamilton Lin, CFA, www.wallst-training.com

WALL ST. TRAINING

Hamilton Lin, CFA, www.wallst-training.com

WALL ST. TRAINING

JC Penney Company, Inc.

Note: Fiscal year ends January 31 of the next year.

Hamilton Lin, www.wallst-training.com

WALL ST. TRAINING

365 Days A/P: Expenses * No. Days / 365

From Debt Sweep

Hamilton Lin, www.wallst-training.com

WALL ST. TRAINING

JC Penney Company, Inc.

Cash Flow Statement

Cash From Operating Activities:

Changes in Working Capital:

Cash From Investing Activities:

Net (Purchase) / Reissuance of Treasury Stock

Debt Borrowing / (Repayment)

$ 837 From Income Statement

Prior Year less Current Year

$ (350) Assumption, MD&A / p.11, 5 yr summary

Basic Shares Outstanding