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CONFORMED COPY

Form 10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549


|           |                                                                                          |                                           
|---------- | ---------------------------------------------------------------------------------------- | ------------------------------------------
|(Mark One) |                                                                                         
|           |                                                                                          |                                           
|x          | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934    
|           |                                                                                          |                                           
|           |                                                                                          | For the fiscal year ended January 25, 2003
|           |                                                                                          |                                           
|           |                                                                                          | or                                        
|           |                                                                                          |                                           
|o          | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to

Commission File No. 1-4947-1

J. C. PENNEY FUNDING CORPORATION

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 51-0101524
(I.R.S. Employer
Identification No.)

6501 Legacy Drive, Plano, Texas 75024-3698
(Address of principal executive offices)
(Zip Code)

(972) 431-1000
(Registrants telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:

None
(Title of class)

Securities registered pursuant to section 12(g) of the Act:

None
(Title of class)

Indicate by check mark whether the registrant (1) has field all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

x Yes o No





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TABLE OF CONTENTS



|                                                |                                                                                                 |  |  |  |  |  |  | 
|----------------------------------------------- | ----------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                         
|                                                | Item 1. Business.                                                                              
|                                                | Item 2. Properties.                                                                            
|                                                | Item 3. Legal Proceedings.                                                                     
|                                                | Item 5. Market for and Dividends on Registrants Common Equity and Related Stockholder Matters.
|PART II                                        
|                                                | Item 6. Selected Financial Data.                                                               
|                                                | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations. 
|                                                | Item 7A. Quantitative and Qualitative Disclosures About Market Risk.                           
|                                                | Item 8. Financial Statements and Supplementary Data.                                           
|                                                | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.  
|PART III                                       
|                                                | Item 14. Controls and Procedures.                                                              
|PART IV                                        
|                                                | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.                     
|SIGNATURES                                     
|CERTIFICATIONS                                 
|EXHIBIT INDEX                                  
|EX-23 Independent Auditors' Consent            
|EX-99.(a) Excerpt from JCPenny's Annual Report 
|EX-99.(b) Certification Pursuant to 18 USC 1350
|EX-99.(c) Certification Pursuant to 18 USC 1350



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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes  No X

State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant: None

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.
500,000 shares of Common Stock of 50 cents par value, as of April 1, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

|                                                              |  |                        
|------------------------------------------------------------- |  | -----------------------
|Documents from which portions                                 |  | Parts of the Form 10-K 
|are incorporated by reference                                 |  | into which incorporated
|                                                              |  |                        
|J. C. Penney Company, Inc.
2002 Annual Report to Stockholders |  | Part I                 

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
I(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.





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PART I

Item 1. Business.

J. C. Penney Funding Corporation (Funding), which was incorporated in
Delaware in 1964, is a wholly owned subsidiary of J. C. Penney Corporation,
Inc. (JCPenney), also incorporated in Delaware. Fundings executive offices
are located in JCPenneys offices in Plano, Texas. Its business consists of
financing a portion of JCPenneys operations through loans to JCPenney.

JCPenney, a company founded by James Cash Penney in 1902 and incorporated
in 1924, is a major retailer operating 1,049 domestic and international
JCPenney department stores located in 49 states, Puerto Rico, and Mexico. In
addition, JCPenney operates 54 department stores in Brazil under the Renner
name. JCPenneys Department Stores and Catalog business consists of providing
merchandise and services to consumers through department stores, catalog and
the Internet. JCPenney sells family apparel, jewelry, shoes, accessories and
home furnishings. In addition, JCPenney operates a chain of 2,686 drugstores,
under the Eckerd name, located throughout the Southwest, Southeast, Sunbelt and
Northeast regions of the United States.

JCPenneys total revenues for the 52 weeks ended January 25, 2003, were
approximately $32 billion and net income was $405 million. Pursuant to the
terms of financing agreements between Funding and JCPenney, payments from
JCPenney to Funding are set to produce earnings sufficient to cover Fundings
fixed charges, principally interest on borrowings, at a coverage ratio mutually
agreed upon between Funding and JCPenney. (See Loan Agreement below.) The
earnings to fixed charges coverage ratio has historically been at least 1.5 to
1.

Holding Company Establishment. Effective January 27, 2002, J. C. Penney
Company, Inc. changed its corporate structure to a holding company format. As
part of this structure, J. C. Penney Company, Inc. changed its name to J. C.
Penney Corporation, Inc. (JCPenney) and became a wholly owned subsidiary of a
newly formed affiliated holding company (Holding Company). The new Holding
Company assumed the name J. C. Penney Company, Inc. The Holding Company has no
subsidiaries other than JCPenney. The Holding Company has no independent
assets or operations. All outstanding shares of common and preferred stock
were automatically converted into the identical number and type of shares in
the new holding company. Stockholders ownership interests in the business did
not change as a result of the new structure. Shares of the Company remain
publicly traded under the same symbol (JCP) on the New York Stock Exchange.
The Holding Company is a co-obligor (or guarantor, as appropriate) regarding
the payment of principal and interest on JCPenneys outstanding debt
securities. The guarantee by the Holding Company of certain of JCPenneys
outstanding debt securities is full and unconditional.

Operations of Funding. To assist in financing the operations of JCPenney
as described under Business above, Funding from time to time sells its
short-term notes (commercial paper) to investors through dealer-placed
programs. The short-term notes are guaranteed on a subordinated basis by
JCPenney. Historically, Funding has issued long-term debt in public and
private markets in the United States and abroad. In 2001, JCPenney sold the
assets of J. C. Penney Direct Marketing Services, Inc. to an unrelated third
party. The result of this transaction coupled with JCPenneys other sources of
liquidity eliminated the need for Funding to issue commercial paper for
short-term borrowing requirements. Therefore, Funding has not produced any
revenue or income. In addition, with Fundings current credit ratings, it is
assumed that Funding would have little or no current access to commercial paper
borrowing. Funding had no short-term debt outstanding as of January 25, 2003
nor as of January 26, 2002.

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Liquidity of JCPenney. JCPenneys financial condition and liquidity
continued to strengthen during 2002. Cash flow from operating activities was
$1.4 billion in 2002 compared with $1.0 billion in 2001 and $1.5 billion in
2000. Free cash flow, defined as cash flow from operating activities after
subtracting capital expenditures, net of proceeds from the sale of assets, and
dividends, exceeded $500 million for the year compared to $200 million of free
cash flow generated in 2001.

In June 2001, JCPenney closed on the sale of its J. C. Penney Direct Marketing
Services, Inc. (DMS) assets, including its J. C. Penney Life Insurance
subsidiaries and related businesses to a U. S. subsidiary of AEGON, N. V.
(AEGON). JCPenney received cash at closing of approximately $1.3 billion
($1.1 billion after tax). Concurrent with the closing, JCPenney entered into a
15-year strategic licensing and marketing services arrangement with AEGON
designed to offer an expanded range of financial and membership services
products to JCPenney customers. Over the term of this arrangement, JCPenney
will receive fee income related to marketing and sale of certain financial
products and membership services. Such amounts will be recognized as earned in
JCPenneys financial statements. JCPenneys financial statements are presented
to reflect DMS as a discontinued operation. DMS was reflected as a
discontinued operation for 2000 with an estimated net loss on the sale of $296
million. Because the transaction closed earlier than anticipated in 2001,
income from DMS operations was over a shorter time period, and an additional
$16 million loss was recorded on the sale of discontinued operations. JCPenney
recorded a $34 million gain in 2002 on the sale of discontinued operations.
This gain primarily relates to additional capital loss deductions that JCPenney
is entitled to as a result of a 2002 tax regulation change. The final federal
tax liability on the transaction was determined in an agreement between
JCPenney and the Internal Revenue Service.

At year-end 2002, JCPenneys cash and short-term investments were approximately
$2.5 billion. In addition, JCPenney established a new three-year $1.5 billion
revolving credit facility on May, 31, 2002 to further increase JCPenneys
liquidity and financial flexibility.

Until such time as JCPenney regains an investment grade level credit rating,
access to short-term commercial paper markets is limited. As a result,
JCPenneys liquidity goal is to maintain sufficient cash investments to cover
peak inventory requirements and scheduled debt maturities. The cash investment
balance is comprised of cash flow generated from 2000 to 2002 and proceeds from
the 2001 sale of the assets of DMS.

Also, due to JCPenneys strong liquidity position, it is not anticipated that
any external financing will be required in 2003 to fund operating cash needs.

Loan Agreement. Funding and JCPenney are parties to a Loan Agreement,
dated as of January 28, 1986, as amended (Loan Agreement), which provides for
unsecured loans to be made from time to time by Funding to JCPenney for the
general business purposes of JCPenney, subject to the terms and conditions of
the Loan Agreement. The loans may be either senior loans or subordinated
loans, at the election of JCPenney, provided that, without the consent of the
Board of Directors of Funding, the principal amount of loans outstanding at any
time under the Loan Agreement may not exceed specified limits. Currently such
limits may not exceed $8 billion in the aggregate for all loans and $1 billion
in the aggregate for all subordinated loans. The terms of each loan under the
Loan Agreement shall be as agreed upon at the time of such loan by Funding and
JCPenney, provided that Funding may require upon demand that any loan be paid,
and JCPenney may prepay without premium any loan, in whole or in part at any
time. Under the terms of the Loan Agreement, JCPenney and Funding agree from
time to time upon a mutually acceptable

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earnings coverage of Fundings interest and other fixed charges. If at the end
of each fiscal quarter during which a loan is outstanding, the earnings
coverage of Fundings interest and other fixed charges is less than the agreed
upon ratio, JCPenney will pay to Funding an additional amount sufficient to
provide for such coverage to be not less than the agreed upon ratio. In the
event that JCPenney and Funding have not agreed upon a mutually acceptable
ratio for any fiscal quarter, the applicable quarterly payment with respect to
such period will include an amount equal to the excess, if any, of one and
one-half percent of the daily average of the aggregate principal amount
outstanding on all loans during such period, over the aggregate amount of
interest accrued on all such loans during such period.

Employment. Funding has had no employees since April 30, 1992.

Forward-Looking Statements.

This Annual Report on Form 10-K may contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements, which reflect Fundings current views of
future events and financial performance, involve known and unknown risks and
uncertainties that may cause Fundings actual results to be materially
different from planned or expected results. Those risks and uncertainties
include, but are not limited to, competition, consumer demand, seasonality,
economic conditions, and government activity, with respect to both JCPenney and
Funding. Investors should take such risks into account when making investment
decisions.

Item 2. Properties.

Funding owns no physical properties.

Item 3. Legal Proceedings.

Funding has no material legal proceedings pending against it, nor were any
proceedings terminated during the fourth quarter of the fiscal year covered by
this report.

PART II

Item 5. Market for and Dividends on Registrants Common Equity and Related Stockholder Matters.

JCPenney owns all of Fundings outstanding common stock. Fundings common
stock is not traded, and no dividends have been, or are currently intended to
be, declared by Funding on its common stock.

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Item 6. Selected Financial Data.

|                                                       |  |                                 
|------------------------------------------------------ |  | --------------------------------
|Five Year Financial Summary
($in millions) (Unaudited) |  | J. C. Penney Funding Corporation

|                                    |                                  |                     |                       |       |      |   |       |       |      |   |       |       |      |   |       |       |   |     |       |       |   |       | 
|----------------------------------- | -------------------------------- | ------------------- | --------------------- | ----- | ---- | - | ----- | ----- | ---- | - | ----- | ----- | ---- | - | ----- | ----- | - | --- | ----- | ----- | - | ----- | 
|                                    |                                  |                     |                       |       | 2002 |   | 2001  |       | 2000 |   | 1999  |       | 1998
|                                    |                                  |                     |                       |       |      |   |       |       |      |   |       |       |     
|At Year End                         |                                  |                     |                       |       |      |   |       |       |      |   |       |       |      |   |       |       |   |     |       |      
|Capitalization                      |                                  |                     |                       |       |      |   |       |       |      |   |       |       |      |   |       |       |   |     |       |      
|                                    | Short-term debt
Commercial paper |                     | $                     |      |      |   | $     |      |      |   | $     |      |      |   | $     | 330   |   |     | $     | 1,924 |  
|                                    |                                  | Credit line advance |                       |       |     |   |       |       |     |   |       |       |     |   |       |       |  |     |       |       |  |      
|                                    |                                  |                     |                       |       |      |   |       |       |      |   |       |       |      |   |       |       |   |     |       |       |  
|                                    |                                  |                     | Total short term debt |       |      |  |       |       |      |  |       |       |      |  |       |       |   | 330 |       |       |   | 1,924 | 
|                                    | Equity held by JCPenney          |                     |                       | 1,238 |      |   |       | 1,238 |      |   |       | 1,238 |      |   |       | 1,233 |   |     |       | 1,187 |  
|                                    |                                  |                     |                       |       |      |   |       |       |      |   |       |       |      |   |       |       |   |     |       |       |  
|Total capitalization                |                                  | $                   | 1,238                 |       |      | $ | 1,238 |       |      | $ | 1,238 |       |      | $ | 1,563 |       |   | $   | 3,111 |      
|                                    |                                  |                     |                       |       |      |   |       |       |      |   |       |       |      |   |       |       |   |     |       |       |  
|Committed bank credit facilities(1) |                                  | $                   |                      |       |      | $ | 1,500 |       |      | $ | 1,500 |       |      | $ | 3,000 |       |   | $   | 3,000 |      
|                                    |                                  |                     |                       |       |      |   |       |       |      |   |       |       |      |   |       |       |   |     |       |       |   |       | 
|                                    |                                  |                     |                       |       |      |   |       |       |      |   |       |       |      |   |       |       |   |     |       |       |   |       | 
|                                    |                                  |                     |                       |       |      |   |       |       |      |   |       |       |      |   |       |       |   |     |       |       |   |       | 
|For the Year                        |                                  |                     |                       |       |      |   |       |       |      |   |       |       |      |   |       |       |   |     |       |      
|Income                              |                                  | $                   |                      |       |      | $ |      |       |      | $ | 20    |       |      | $ | 208   |       |   | $   | 160   |      
|Expenses                            |                                  | $                   |                      |       |      | $ |      |       |      | $ | 13    |       |      | $ | 137   |       |   | $   | 106   |      
|Net income                          |                                  | $                   |                      |       |      | $ |      |       |      | $ | 5     |       |      | $ | 46    |       |   | $   | 35    |      
|Fixed charges  times earned        |                                  |                     |                      |       |      |   |      |       |      |   | 1.52  |       |      |   | 1.52  |       |   |     | 1.52  |      
|Peak short-term debt                |                                  | $                   |                      |       |      | $ |      |       |      | $ | 842   |       |      | $ | 3,582 |       |   | $   | 3,117 |      
|Average debt                        |                                  | $                   |                      |       |      | $ |      |       |      | $ | 193   |       |      | $ | 2,475 |       |   | $   | 1,938 |      
|Average interest rates              |                                  |                     |                      |       |      |   |      |       |      |   | 6.7   | %     |      |   | 5.5   | %     |   |     | 5.5   | %    

(1)  In May 2002, J. C. Penney Corporation, Inc. and J. C. Penney Company, Inc.
executed a new three-year $1.5 billion revolving credit agreement (credit
facility) which replaced a $1.5 billion revolving credit facility and $630
million letter of credit facility.

Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.

J. C. Penney Funding Corporation (Funding) is a wholly owned subsidiary of J.
C. Penney Corporation, Inc. (JCPenney). The business of Funding consists of
financing a portion of JCPenneys operations through loans to JCPenney. The
loan agreement between Funding and JCPenney provides for unsecured loans to be
made by Funding to JCPenney. Each loan is evidenced by a revolving promissory
note and is payable upon demand in whole or in part as may be required by
Funding. Copies of Fundings loan agreement with JCPenney are available upon request.

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To assist in financing the operations of JCPenney, Funding from time to time
issues commercial paper through Credit Suisse First Boston Corporation, J.P.
Morgan Securities Inc., Merrill Lynch Money Markets Inc., and Morgan Stanley
Dean Witter to corporate and institutional investors in the domestic market.
No commercial paper was issued during 2002. The commercial paper is guaranteed
by JCPenney on a subordinated basis. The commercial paper was rated A3 by
Standard & Poors Ratings Services, Not Prime by Moodys Investors Service,
Inc., and B by Fitch Ratings as of March 21, 2003.

Funding had no short-term debt outstanding as of January 25, 2003 nor as of
January 26, 2002.

Income is derived primarily from earnings on loans to JCPenney and is designed
to produce earnings sufficient to cover interest expense at a coverage ratio of
at least one and one-half times.

Because no commercial paper was issued or outstanding in 2002 or 2001, no
earnings coverage was required resulting in no income or expense for both
years. In 2000, net income was $5 million, interest expense was $13 million,
and interest earned from JCPenney was $20 million.

Also in 2000, commercial paper borrowings averaged $193 million, and the
average interest rate on commercial paper was 6.7%.

At year-end 2002, the balance of the Loan to JCPenney was $1,238 million
unchanged from the balance at the end of the prior year.

JCPenneys financial condition and liquidity continued to strengthen during
2002. Cash flow from operating activities was $1.4 billion in 2002 compared
with $1.0 billion in 2001 and $1.5 billion in 2000. Free cash flow, defined as
cash flow from operating activities after subtracting capital expenditures, net
of proceeds from the sale of assets, and dividends, exceeded $500 million for
the year compared to $200 million of free cash flow generated in 2001.

At year-end 2002, JCPenneys cash and short-term investments were approximately
$2.5 billion. In addition, JCPenney established a new three-year $1.5 billion
revolving credit facility on May 31, 2002 to further increase JCPenneys
liquidity and financial flexibility.

Until such time as JCPenney regains an investment grade level credit rating,
access to short-term commercial paper markets is limited compared to prior
years. As a result, JCPenneys liquidity goal is to maintain sufficient cash
investments to cover peak inventory requirements and scheduled debt maturities.
The cash investment balance is comprised of cash flow generated from 2000 to
2002 and proceeds from the 2001 sale of the assets of J. C. Penney Direct
Marketing Services, Inc.

Also, due to JCPenneys strong liquidity position, it is not anticipated that
any external financing will be required in 2003 to fund operating cash needs.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

As of January 25, 2003, Funding had no investments. If it had short-term
investments they would be in short-term financial instruments with original
maturities of three months or less. Such investments are subject to interest
rate risk and may have a small decline in value if interest rates
6Table of Contents



















increase. Since the financial instruments are of short duration, a change
of 100 basis points in interest rates would not have a material effect on
Fundings financial condition.

As of January 25, 2003, Funding had no long-term debt.

Item 8. Financial Statements and Supplementary Data.

The financial statements of Funding, including the notes to all such
statements are included in this report beginning on page F-1.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

PART III

Item 14. Controls and Procedures.

(a)  Based on their evaluation of Fundings disclosure controls and
procedures (as defined in Rules 13a-14 and 15d-14 under the Securities Exchange
Act of 1934 (the Exchange Act)) as of a date within 90 days of the filing
date of this Annual Report on Form 10-K, Fundings principal executive officer
and principal financial officer have concluded that Fundings disclosure
controls and procedures are effective for the purpose of ensuring that material
information required to be in this Annual Report on Form 10-K is made known to
them by others on a timely basis.

(b)  There were no significant changes in Fundings internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their most recent evaluation.

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.



| | (a) |  | 1. and 2.                                                          
| | --- |  | -------------------------------------------------------------------
|
| |     |  | See financial statements on pages F-1 through F-5.                 
|
| | (a) |  | 3. Exhibits.                                                       
|
| |     |  | See separate Exhibit Index on pages G-1 through G-3.               
|
| | (b) |  | Reports on Form 8-K filed during the fourth quarter of fiscal 2002.
|
| |     |  | None.                                                              

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| | (c) |  | Management contracts or compensatory plans or arrangements required to be filed as exhibits to this report.
| | --- |  | -----------------------------------------------------------------------------------------------------------
|
| |     |  | None.                                                                                                      
|
| | (d) |  | Other Financial Statement Schedules.                                                                       
|
| |     |  | None.                                                                                                      

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

| |  |                                  |  |                                     
| |  | -------------------------------- |  | ------------------------------------
| |  | J. C. PENNEY FUNDING CORPORATION
| |  |                                 
| |  | (Registrant)                    
| |  |                                  |  |                                     
| |  | By:                              |  | /s/ M. P. Dastugue                  
| |  |                                  |  |                                     
| |  |                                  |  | M. P. Dastugue
Chairman of the Board

Dated: April 10, 2003

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Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|                                   |  |                                                               |  |               
|---------------------------------- |  | ------------------------------------------------------------- |  | --------------
|Signatures                         |  | Title                                                         |  | Date          
|                                   |  |                                                               |  |               
|/s/ M. P. Dastugue

M. P. Dastugue |  | Chairman of the Board
(principal executive
officer); Director |  | April 10, 2003
|                                   |  |                                                               |  |               
|/s/ M. D. Porter

M. D. Porter     |  | President
(principal financial
officer)                       |  | April 10, 2003
|                                   |  |                                                               |  |               
|/s/ W. J. Alcorn

W. J. Alcorn     |  | Vice President and
Controller (principal
accounting officer)  |  | April 10, 2003

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CERTIFICATIONS

I, Michael P. Dastugue, Chairman, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of J. C. Penney Funding
Corporation;                                                                                                                                                                                                                                    
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the, registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                   
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                         



|5. |  | The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this annual report whether there
were significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|               |  |                                                                                                   
|-------------- |  | --------------------------------------------------------------------------------------------------
|April 10, 2003 |  | /s/ Michael P. Dastugue
Michael P. Dastugue
Chairman of the Board
J. C. Penney Funding Corporation





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##### Table of Contents



CERTIFICATIONS

I, William J. Alcorn, Vice President and Controller, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of J. C. Penney Funding
Corporation;                                                                                                                                                                                                                                    
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability
to record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this annual report whether there
were significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|               |  |                                                                                                       
|-------------- |  | ------------------------------------------------------------------------------------------------------
|April 10, 2003 |  | /s/ William J. Alcorn
William J. Alcorn
Vice President and Controller
J. C. Penney Funding Corporation





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##### Table of Contents



|                                     |  |                                 
|------------------------------------ |  | --------------------------------
|Statements of Income
($ in millions) |  | J. C. Penney Funding Corporation

|                              |              |   |      |   |      |   |      |   |  |   |    |   | 
|----------------------------- | ------------ | - | ---- | - | ---- | - | ---- | - |  | - | -- | - | 
|                              |              |   | 2002 |   | 2001 |   | 2000
|                              |              |   |      |   |      |   |     
|For the Year                  |              |   |      |   |      |   |      |   |  |   |    |  
|Interest income from JCPenney |              | $ |     |   |      | $ |     |   |  | $ | 20 |  
|Interest expense              |              |   |     |   |      |   |     |   |  |   | 13 |  
|                              |              |   |      |   |      |   |      |   |  |   |    |  
|Income before income taxes    |              |   |     |   |      |   |     |   |  |   | 7  |  
|                              | Income taxes |   |      |  |      |   |      |  |  |   |    | 2 | 
|                              |              |   |      |   |      |   |      |   |  |   |    |  
|Net income                    |              | $ |     |   |      | $ |     |   |  | $ | 5  |  
|                              |              |   |      |   |      |   |      |   |  |   |    |  

Statements of Reinvested Earnings
($ in millions)

|                             |  |      |       |      |  |      |       |  |  |   |       | 
|---------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                             |  | 2002 |       | 2001 |  | 2000
|                             |  |      |       |      |  |     
|Balance at beginning of year |  | $    | 1,093 |      |  | $    | 1,093 |  |  | $ | 1,088 | 
|Net income                   |  |      |      |      |  |      |      |  |  |   | 5     | 
|                             |  |      |       |      |  |      |       |  |  |   |       | 
|Balance at end of year       |  | $    | 1,093 |      |  | $    | 1,093 |  |  | $ | 1,093 | 
|                             |  |      |       |      |  |      |       |  |  |   |       | 

See notes to Financial Statements on pages F-4 and F-5.

F-1



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|                                                 |  |                                 
|------------------------------------------------ |  | --------------------------------
|Balance Sheets
($ in millions except share data) |  | J. C. Penney Funding Corporation

|                                                                        |                                        |                                               |       |      |       |      |       |     |       | 
|----------------------------------------------------------------------- | -------------------------------------- | --------------------------------------------- | ----- | ---- | ----- | ---- | ----- | --- | ----- | 
|                                                                        |                                        |                                               |       | 2002 |       | 2001
|                                                                        |                                        |                                               |       |      |       |     
|Assets                                                                  |                                        |                                               |       |      |       |      |       |    
|Loans to JCPenney                                                       |                                        | $                                             | 1,238 |      |       | $    | 1,238 |    
|                                                                        |                                        |                                               |       |      |       |      |       |    
|Liabilities and Equity held by JCPenney                                 |                                        |                                               |       |      |       |      |       |    
|Liabilities                                                             |                                        |                                               |      |      |       |      |      |    
|Equity held by JCPenney                                                 |                                        |                                               |       |      |       |      |       |    
|Common stock (including contributed
capital), par value $100 per share: |                                        |                                               |       |      |       |      |       |    
|                                                                        | Authorized, 750,000 shares -           |                                               |       |      |       |      |       |     |      
|                                                                        | issued and outstanding, 500,000 shares |                                               |       | 145  |       |      |       | 145 |      
|Reinvested earnings                                                     |                                        |                                               | 1,093 |      |       |      | 1,093 |    
|                                                                        |                                        |                                               |       |      |       |      |       |    
|                                                                        |                                        | Total Equity held by JCPenney                 |       |      | 1,238 |      |       |     | 1,238 | 
|                                                                        |                                        |                                               |       |      |       |      |       |    
|                                                                        |                                        | Total Liabilities and Equity held by JCPenney |       | $    | 1,238 |      |       | $   | 1,238 | 
|                                                                        |                                        |                                               |       |      |       |      |       |    

See notes to Financial Statements on pages F-4 and F-5.

F-2



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|                                         |  |                                 
|---------------------------------------- |  | --------------------------------
|Statements of Cash Flows
($ in millions) |  | J. C. Penney Funding Corporation

|                                   |  |      |   |      |  |      |    |   |  |   |      |  
|---------------------------------- |  | ---- | - | ---- |  | ---- | -- | - |  | - | ---- | -
|                                   |  | 2002 |   | 2001 |  | 2000
|                                   |  |      |   |      |  |     
|Operating Activities               |  |      |   |      |  |      |    |   |  |   |      |  
|Net income                         |  | $    |  |      |  | $    |   |   |  | $ | 5    |  
|Decrease in loans to JCPenney      |  |      |  |      |  |      | 2  |   |  |   | 348  |  
|Decrease in amount due to JCPenney |  |      |  |      |  |      | (2 | ) |  |   | (23  | )
|                                   |  |      |   |      |  |      |    |   |  |   |      |  
|                                   |  | $    |  |      |  | $    |   |   |  | $ | 330  |  
|Financing Activities               |  |      |   |      |  |      |    |   |  |   |      |  
|Decrease in short-term debt        |  | $    |  |      |  | $    |   |   |  | $ | (330 | )
|Supplemental Cash Flow Information |  |      |   |      |  |      |    |   |  |   |      |  
|Interest paid                      |  | $    |  |      |  | $    |   |   |  | $ | 13   |  
|Income taxes paid                  |  | $    |  |      |  | $    | 2  |   |  | $ | 25   |  

See notes to Financial Statements on pages F-4 and F-5.

F-3



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|                                                                                            |  |                                 
|------------------------------------------------------------------------------------------- |  | --------------------------------
|Independent Auditors Report
To the Board of Directors of
J. C. Penney Funding Corporation: |  | J. C. Penney Funding Corporation

We have audited the accompanying balance sheets of J. C. Penney Funding
Corporation as of January 25, 2003 and January 26, 2002, and the related
statements of income, reinvested earnings, and cash flows for each of the years
in the three-year period ended January 25, 2003. These financial statements
are the responsibility of the Corporations management. Our responsibility is
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of J. C. Penney Funding
Corporation as of January 25, 2003 and January 26, 2002, and the results of its
operations and its cash flows for each of the years in the three-year period
ended January 25, 2003, in conformity with accounting principles generally
accepted in the United States of America.

(KPMG SIG)
Dallas, Texas
February 20, 2003

Notes to Financial Statements

Nature of Operations

J. C. Penney Funding Corporation (Funding) is a wholly owned subsidiary of J.
C. Penney Corporation, Inc. (JCPenney). The principal business of Funding
consists of financing a portion of JCPenneys operations through loans to
JCPenney. To finance its operations, Funding issues commercial paper, which is
guaranteed by JCPenney on a subordinated basis, to corporate and institutional
investors in the domestic market. Historically, Funding has issued long-term
debt in public and private markets in the United States and abroad. In 2001,
JCPenney sold the assets of
J. C. Penney Direct Marketing Services, Inc. to an unrelated third party. The
result of this transaction coupled with JCPenneys other sources of liquidity
eliminated the need for Funding to issue commercial paper for short-term
borrowing requirements. Therefore, Funding has not produced any revenue or
income. In addition, with Fundings current credit ratings, it is assumed that
Funding would have little or no current access to commercial paper borrowing.

Definition of Fiscal Year

Fundings fiscal year ends on the last Saturday in January. Fiscal 2002 ended
January 25, 2003, fiscal 2001 ended January 26, 2002, and fiscal 2000 ended
January 27, 2001. All three years contained 52 weeks.

Commercial Paper Placement

Funding places commercial paper solely through dealers. The average interest
rate on commercial paper was 6.7% for fiscal 2000. No commercial paper was
issued during fiscal 2001 and 2002.

Summary Of Accounting Policies

Income Taxes

Fundings taxable income is included in the consolidated federal income tax
return of JCPenney. Income taxes in Fundings statements of income are
computed as if Funding filed a separate federal income tax return.

F-4



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Use of Estimates

Fundings financial statements have been prepared in conformity with generally
accepted accounting principles. Certain amounts included in the financial
statements are estimated based on currently available information and
managements judgment as to the outcome of future conditions and circumstances.
While every effort is made to ensure the integrity of such estimates,
including the use of third party specialists where appropriate, actual results
could differ from these estimates.

Loans to JCPenney

Funding and JCPenney are parties to a Loan Agreement which provides for
unsecured loans, payable on demand, to be made from time to time by Funding to
JCPenney for the general business purposes of JCPenney, subject to the terms
and conditions of the Loan Agreement. Under the terms of the Loan Agreement,
Funding and JCPenney agree upon a mutually acceptable earnings coverage of
Fundings interest and other fixed charges. The earnings to fixed charges
ratio has historically been at least one and one-half times.

Fair Value of Financial Instruments

The fair value of loans to JCPenney at January 25, 2003, and January 26, 2002
approximates the amount reflected on the balance sheets because the loan is
payable on demand.

F-5



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EXHIBIT INDEX

Exhibit



|3. |  | (i) Articles of Incorporation
|-- |  | -----------------------------



| | (a)  |  | Certificate of Incorporation of Funding, effective April 13,
1964 (incorporated by reference to Exhibit 3(a) to Fundings Annual
Report on Form 10-K for the 52 weeks ended January 29, 1994*).                  
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b)  |  | Certificate of Amendment of Certificate of Incorporation,
effective January 1, 1969 (incorporated by reference to Exhibit
3(b) to Fundings Annual Report on Form 10-K for the 52 weeks ended
January 29, 1994*).
|
| | (c)  |  | Certificate of Amendment of Certificate of Incorporation,
effective August 11, 1987 (incorporated by reference to Exhibit
3(c) to Fundings Annual Report on Form 10-K for the 52 weeks ended
January 29, 1994*).
|
| | (d)  |  | Certificate of Amendment of Certificate of Incorporation,
effective April 10, 1988 (incorporated by reference to Exhibit 3(d)
to Fundings Annual Report on Form 10-K for the 52 weeks ended
January 29, 1994*). 
|
| | (ii) |  | Bylaws                                                                                                                                                                                                           
|
| | (a)  |  | Bylaws of Funding, as amended to May 19, 1995 (incorporated by
reference to Exhibit 3(ii) to Fundings Quarterly Report on Form
10-Q for the 13 and 39 weeks ended October 26, 1996*).                           



|4. |  | Instruments defining the rights of security holders, including
indentures
|-- |  | -------------------------------------------------------------------------



| | (a) |  | Issuing and Paying Agency Agreement dated as of March 16,
1992, between J. C. Penney Funding Corporation and Morgan Guaranty
Trust Company of New York (incorporated by reference to Exhibit
4(a) to Fundings Current Report on Form 8-K, Date of Report -
April 3, 1992*).                                                                                
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Issuing and Paying Agency Agreement dated as of February 3,
1997, between J. C. Penney Funding Corporation and The Chase
Manhattan Bank (incorporated by reference to Exhibit 4(b) to
Fundings Annual Report on Form 10-K for the 52 weeks ended
January 25, 1997*).                                                                                       
|
| | (c) |  | Guaranty dated as of February 17, 1997, executed by J. C.
Penney Company, Inc.(incorporated by reference to Exhibit 4(c) to
Fundings Annual Report on Form 10-K for the 52 weeks ended January
25, 1997*).                                                                                                                                                 
|
| | (d) |  | Amendment and Restatement Agreement to Five-Year Revolving
Credit Agreement, dated as of November 21, 1997, among J. C. Penney
Company, Inc., J. C. Penney Funding Corporation, the Lenders party
thereto, Morgan Guaranty Trust Company of New York, as Agent, and
Bank of America National Trust and Savings Association, Bankers
Trust Company, The Chase

G-1



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EXHIBIT INDEX

Exhibit



| |     |  | Manhattan Bank, Citibank, N.A., Credit Suisse First Boston, and
NationsBank of Texas, N.A., as Managing Agents (incorporated by
reference to Exhibit 4(g) to Fundings Annual Report on Form 10-K
for the 53 weeks ended January 31, 1998*).                                
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (e) |  | Commercial Paper Dealer Agreement dated March 16, 1992 between
J. C. Penney Funding Corporation and J.P. Morgan Securities Inc.
(incorporated by reference to Exhibit 10(a) to Fundings Current
Report on Form 8-K, Date of Report  April 3, 1992*).                      
|
| | (f) |  | Commercial Paper Dealer Agreement dated March 16, 1992 between
J. C. Penney Funding Corporation and The First Boston Corporation
(incorporated by reference to Exhibit 10(b) to Fundings Current
Report on Form 8-K, Date of Report  April 3, 1992*).                     
|
| | (g) |  | Commercial Paper Dealer Agreement dated May 3, 1994 between J.
C. Penney Funding Corporation and Merrill Lynch Money Markets Inc.
(incorporated by reference to Exhibit 4(g) to Fundings Annual
Report on Form 10-K for the 52 weeks ended January 28, 1995*).             
|
| | (h) |  | Commercial Paper Dealer Agreement dated January 25, 1995
between J. C. Penney Funding Corporation and Morgan Stanley & Co.
Incorporated (incorporated by reference to Exhibit 4(h) to
Fundings Annual Report on Form 10-K for the 52 weeks ended January
28, 1995*).       
|
| | (i) |  | Commercial Paper Dealer Agreement dated February 7, 1997
between J. C. Penney Funding Corporation and Credit Suisse First
Boston Corporation (incorporated by reference to Exhibit 4(l) to
Fundings Annual Report on Form 10-K for the 52 weeks ended January
25, 1997*).**



| |  | Instruments evidencing long-term debt, previously issued but now fully
prepaid, have not been filed as exhibits hereto because none of the debt
authorized under any such instrument exceeded 10 percent of the total
assets of the Registrant. The Registrant agrees to furnish a copy of
any of its long-term debt instruments to the Securities and Exchange
Commission upon request.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10. |  | Material Contracts
|--- |  | ------------------



| |  | Funding has no compensatory plans or arrangements required to be filed
as exhibits to this Report pursuant to Item 14(c) of this Report.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | Loan Agreement dated as of January 28, 1986 between J. C.
Penney Company, Inc. and J. C. Penney Financial Corporation
(incorporated by reference to Exhibit 1 to Fundings Current
Report on Form 8-K, Date of Report  January 28, 1986*).                    
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Amendment No. 1 to Loan Agreement dated as of January 28,
1986 between J. C. Penney Company, Inc. and J. C. Penney Financial
Corporation (incorporated by reference to Exhibit 1 to Fundings
Current Report on Form 8-K, Date of Report  December 31, 1986*).

G-2



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EXHIBIT INDEX

Exhibit



| | (c) |  | Amendment No. 2 to Loan Agreement dated as of January 28,
1986 between J. C. Penney Company, Inc. and J. C. Penney Funding
Corporation (incorporated by reference to Exhibit 10(e) to
Fundings Annual Report on Form 10-K for the 52 weeks ended
January 25, 1997*).
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23. Independent Auditors Consent

99. Additional Exhibits



| | (a) |  | Excerpt from JCPenneys 2002 Annual Report to Stockholders.                                                            
| | --- |  | -----------------------------------------------------------------------------------------------------------------------
| | (b) |  | Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | (c) |  | Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



|*  |  | SEC file number 1-4947-1                                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Funding has entered into identical Commercial Paper Dealer Agreements
dated February 7, 1997, with each of Merrill Lynch Money Markets Inc.,
J.P. Morgan Securities Inc., and Morgan Stanley & Co. Incorporated,
which agreements are omitted pursuant to Instruction 2 to Item 601 of
Regulation S-K. Funding agrees to furnish a copy of any of such
agreements to the Securities and Exchange Commission upon request.

G-3