<PAGE>

                                                                     Exhibit 99

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

J. C. PENNEY COMPANY, INC.

<TABLE>
<CAPTION>


---------------------------------------------  52 WEEKS              52 WEEKS              53 WEEKS
  ($ IN MILLIONS EXCEPT EPS)                     1999                  1998                  1997
-------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                   <C>                   <C>
  Segment profit

    Department stores and catalog(1)           $   670               $   920               $ 1,275

    Eckerd drugstores                              183                   254                   347

    Direct Marketing(2)                            247                   237                   217
                                              ---------------------------------------------------------------------

  Total segments                                 1,100                 1,411                 1,839

  Real estate and other                             28                    26                    39

  Net interest expense and credit
    operations(1,2)                               (299)                 (391)                 (457)

  Acquisition amortization                        (129)                 (113)                 (117)

  Other charges and credits, net                  (169)                   22                  (379)
                                              ---------------------------------------------------------------------

  Income before income taxes                       531                   955                   925

  Income taxes                                    (195)                 (361)                 (359)
                                              ---------------------------------------------------------------------

  Net income                                   $   336               $   594               $   566

  Earnings per share (EPS)                     $  1.16               $  2.19               $  2.10
-------------------------------------------------------------------------------------------------------------------
</TABLE>


(1) REFLECTS THE RECLASSIFICATION OF CERTAIN CREDIT COSTS, PRIMARILY THIRD-PARTY
    CREDIT FEES OF $91 MILLION IN 1999 AND $93 MILLION IN BOTH 1998 AND 1997
    FROM NET INTEREST EXPENSE AND CREDIT OPERATIONS TO DEPARTMENT STORES AND
    CATALOG SG&A EXPENSES.

(2) REFLECTS THE RECLASSIFICATION OF INTEREST CHARGES OF $5 MILLION, $4 MILLION
    AND $3 MILLION FOR 1999, 1998 AND 1997, RESPECTIVELY, FROM DIRECT MARKETING
    OPERATING EXPENSES TO NET INTEREST EXPENSE AND CREDIT OPERATIONS.


Net income in 1999 totaled $336 million, or $1.16 per share, compared with $594
million, or $2.19 per share, in 1998, and $566 million, or $2.10 per share, in
1997. Consolidated results reflect non-comparable items as shown below.
Excluding non-comparable items, earnings per share totaled $1.69 in 1999
compared with $2.14 in 1998 and $2.96 in 1997. All references to earnings per
share are on a diluted basis.

<TABLE>
<CAPTION>

                                                   1999                 1998                 1997
-------------------------------------------------------------------------------------------------------------------

  ($, NET OF TAX, IN MILLIONS EXCEPT EPS)   $            EPS       $           EPS      $            EPS
-------------------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>       <C>         <C>      <C>          <C>
  Earnings before non-comparable items   $  474        $  1.69   $ 581       $ 2.14   $  797       $  2.96

  Non-comparable items

    Asset impairment charges               (169)         (0.65)     --           --      (44)        (0.16)

    Gain on the sale of assets               33           0.13      --           --       38          0.14

    Workforce reduction programs             --             --      --           --     (126)        (0.47)

    Store closing costs                      --             --      --           --      (37)        (0.14)

    Drugstore integration costs              --             --      --           --      (62)        (0.23)

    Other                                    (2)(1)      (0.01)     13         0.05       --            --
                                        ---------------------------------------------------------------------------
  Total non-comparable items               (138)         (0.53)     13         0.05     (231)        (0.86)
                                        ---------------------------------------------------------------------------
  Net income                             $  336        $  1.16   $ 594       $ 2.19   $  566       $  2.10
-------------------------------------------------------------------------------------------------------------------
</TABLE>


(1) INCLUDES A $12 MILLION AFTER-TAX CHARGE, OR FIVE CENTS PER SHARE, FOR THE
    IMPACT OF CHANGES IN CERTAIN REVENUE RECOGNITION POLICIES TO COMPLY WITH SAB
    NO. 101 THAT IS INCLUDED AS A COMPONENT OF DEPARTMENT STORES AND CATALOG
    SEGMENT PROFIT. ALL OTHER ITEMS ARE REPORTED AS OTHER CHARGES AND CREDITS,
    NET.

These non-comparable items are discussed in more detail within management's
discussion of Department stores and catalog results and Other charges and
credits, net, as well as in Note 14 to the consolidated financial statements.

16
<PAGE>

Total segment profit was $1,100 million in 1999 compared to $1,411 million in
1998 and $1,839 million in 1997. Segment profit has declined principally as a
result of lower sales volumes in department stores coupled with declining
Department stores and catalog gross profit margins and lower pharmacy gross
profit margins coupled with higher shrinkage rates within the drugstore segment.
Consolidated results reflect continued improvement in proprietary credit
operating costs for both 1999 and 1998 primarily as a result of declining bad
debt expense throughout the three-year period.

The following discussion addresses results of operations on a segment basis.

DEPARTMENT STORES AND CATALOG

<TABLE>
<CAPTION>


-------------------------------- 52 WEEKS   52 WEEKS  53 WEEKS
  ($ IN MILLIONS)                  1999       1998      1997
---------------------------------------------------------------
<S>                              <C>        <C>        <C>
  Retail sales, net              $ 18,964   $ 19,114   $ 19,819
                                 ------------------------------
  FIFO gross margin                 5,607      5,697      6,152

  LIFO credit                           9         35         20
                                 ------------------------------
  Total gross margin                5,616      5,732      6,172

  SG&A expenses                    (4,946)    (4,812)    (4,897)
                                 ------------------------------
  Segment profit                 $    670   $    920   $  1,275
                                 ------------------------------
  Sales percent inc/(dec)

    Department stores(1)           (1.4)%     (3.1)%       0.9%

    Comparable stores              (1.1)%     (1.9)%     (0.3)%

    Catalog(1)                       1.5%       0.3%       3.2%

  Ratios as a percent of sales

    FIFO gross margin               29.6%      29.8%      31.0%

    LIFO gross margin               29.6%      30.0%      31.1%

    SG&A expenses                   26.1%      25.2%      24.7%

    LIFO segment profit              3.5%       4.8%       6.4%

    LIFO EBITDA(2)                   7.2%       8.0%       8.9%
---------------------------------------------------------------
</TABLE>

(1) SALES COMPARISONS ARE SHOWN ON A 52-WEEK BASIS FOR ALL PERIODS PRESENTED.
    INCLUDING 1997'S 53RD WEEK, DEPARTMENT STORE SALES DECLINED BY 4.3 PERCENT
    IN 1998 AND INCREASED 2.2 PERCENT IN 1997, WHILE CATALOG SALES DECREASED BY
    0.6 PERCENT IN 1998 AND INCREASED BY 4.2 PERCENT IN 1997.

(2) EARNINGS BEFORE INTEREST, INCOME TAXES, DEPRECIATION AND AMORTIZATION.
    EBITDA INCLUDES FINANCE REVENUE NET OF CREDIT OPERATING COSTS AND BAD DEBT.
    EBITDA IS PROVIDED AS AN ALTERNATIVE ASSESSMENT OF OPERATING PERFORMANCE AND
    IS NOT INTENDED TO BE A SUBSTITUTE FOR GAAP MEASUREMENTS. CALCULATIONS MAY
    VARY FOR OTHER COMPANIES.


Department stores and catalog operating results have been restated for all years
presented to reflect the following:

a)  In 1999, after giving consideration to guidance provided by SEC Staff
    Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION IN FINANCIAL
    STATEMENTS, the Company changed certain revenue recognition policies,
    primarily those affecting the reporting of sales for licensed departments
    and catalog orders shipped to various Company facilities for customer
    pickup. These changes reduced sales by $152 million, $217 million and $136
    million in 1999, 1998 and 1997, respectively, and resulted in a $67 million
    reduction of reinvested earnings, net of tax, as of January 28, 1995. The
    impact on earnings and cash flows for the intervening periods presented in
    this report is not material. Accordingly, the cumulative effects of the
    changes have been reflected as a $20 million pre-tax charge to cost of goods
    sold in the statement of income for fiscal 1999, the period in which the
    change was made.

b)  Third-party credit fees of $91 million in 1999 and $93 million in both 1998
    and 1997 have been reclassified from Net interest expense and credit
    operations to Department stores and catalog SG&A expenses to reflect these
    costs as operating expenses.

1999 COMPARED WITH 1998. Segment profit for Department stores and catalog
totaled $670 million in 1999 compared with $920 million in 1998. The decline for
the year was attributable primarily to lower sales volumes in department stores.
Total department store sales of $15.0 billion declined 1.4 percent for the year
while sales in comparable department stores (those open at least one year)
declined by 1.1 percent. Sales were strongest in women's casual sportswear,
which benefited from the introduction of additional supplier exclusive product
offerings, primarily Crazy Horse by Liz Claiborne, and window coverings. Sales
were especially soft in athletic apparel and adult athletic shoes. Sales were
led by private brand merchandise; Arizona Jean, the JCPenney Home Collection,
and Delicates-TM- all produced double-digit sales gains. In general, sales of
national brand merchandise were below expectations. Total department store sales
were weak across all regions of the country. Sales in the Company's
international stores totaled $432 million in 1999, an increase of $169 million
compared with the prior year. The increase is predominantly the result of the
acquisition of a majority interest in Lojas Renner S.A. (Renner), a Brazilian
department store chain, in January 1999. Sales were also impacted by the exit of
the Chilean market in 1999's third quarter. Catalog sales were


                                                                              17

<PAGE>

approximately $3.9 billion in both 1999 and 1998. For the year, specialty media,
which includes targeted merchandise offerings like special sizes, enjoyed a
double-digit sales increase. Big book sales were basically flat in 1999 versus
1998. Catalog sales were strongest in merchandise for the home, and were weakest
in apparel. Internet sales, which are reported as a component of catalog sales,
increased from $15 million in 1998 to $102 million in 1999.

Gross margin as a percent of sales declined by 40 basis points compared with
1998 levels, with 20 basis points attributable to a smaller LIFO credit this
year. The margin decline was due primarily to higher levels of promotional and
clearance markdowns in the fourth quarter which were partially offset by the
shift in sales to higher margin private brands. Gross margin included LIFO
credits of $9 million in 1999 and $35 million in 1998. The LIFO credits for both
years resulted from a combination of flat to declining retail prices as measured
by the Company's internally developed inflation index, and improved markup. SG&A
expenses increased by 90 basis points as a percent of sales versus last year.
The increase was principally a function of lower sales volumes coupled with
additional investments in Internet infrastructure and higher selling salaries in
department stores.

1998 COMPARED WITH 1997. Segment profit totaled $920 million in 1998 compared
with $1,275 million in 1997. The decline for the year was primarily
attributable to lower sales coupled with a lower gross margin ratio. Sales in
comparable department stores declined by 1.9 percent in 1998. Department
store sales were strongest in women's apparel, while athletic apparel and
footwear were particularly hard hit by softening sales throughout 1998.
Catalog sales increased by 0.3 percent on a 52-week basis.

Gross margin as a percent of sales for Department stores and catalog declined by
110 basis points compared with 1997, principally as a result of promotional
programs during the fourth quarter. As the fourth quarter progressed, the
Company increased promotions to stimulate sales. While this generated unit sales
and helped to reduce seasonal inventory levels, it had a negative impact on the
gross margin ratio. Markup improved in 1998 as the Company continued to drive
down its merchandise sourcing costs and improved efficiencies with its supplier
base. The improvement in markup partially offset the effects of the higher
markdowns. Gross margin included LIFO credits of $35 million in 1998 and $20
million in 1997. SG&A expenses, while controlled, were not leveraged as a
percent of sales due to sales declines. In 1998 the Company realized savings of
approximately $95 million related to the early retirement and workforce
reduction programs as well as other cost-saving initiatives. These savings were
reinvested in programs designed to enhance customer service in the stores and
into advertising and promotional programs.

ECKERD DRUGSTORES

<TABLE>
<CAPTION>


---------------------------   52 WEEKS    52 WEEKS    53 WEEKS
  ($ IN MILLIONS)              1999         1998        1997
-------------------------------------------------------------
<S>                           <C>         <C>         <C>
  Retail sales, net           $ 12,427    $ 10,325    $ 9,663
                              -------------------------------
  FIFO gross margin              2,453       2,110      2,048

  LIFO charge                      (52)        (45)       (32)
                              -------------------------------
  Total gross margin             2,401       2,065      2,016

  SG&A expenses                 (2,218)     (1,811)    (1,669)
                              -------------------------------
  Segment profit              $    183    $    254    $   347
                              -------------------------------
  Sales percent increase

    Total sales(1)               20.4%        8.9%      11.2%(2)

    Comparable stores            10.7%        9.2%       7.4%

  Ratios as a percent of sales

    FIFO gross margin            19.7%       20.4%      21.2%

    LIFO gross margin            19.3%       20.0%      20.9%

    SG&A expenses                17.8%       17.5%      17.3%

    LIFO segment profit           1.5%        2.5%       3.6%

    LIFO EBITDA(3)                3.0%        3.8%       4.7%
-------------------------------------------------------------
</TABLE>


(1) SALES COMPARISONS ARE SHOWN ON A 52-WEEK BASIS FOR ALL PERIODS PRESENTED.
    INCLUDING 1997'S 53RD WEEK, DRUGSTORE SALES INCREASED BY 6.9 PERCENT AND
    13.3 PERCENT FOR 1998 AND 1997, RESPECTIVELY.

(2) 1997 SALES INCREASE IS CALCULATED BASED UPON 1996 PRO FORMA SALES, ASSUMING
    ECKERD WAS ACQUIRED AT THE BEGINNING OF 1996.

(3) EARNINGS BEFORE INTEREST, INCOME TAXES, DEPRECIATION, AND AMORTIZATION.
    EBITDA IS PROVIDED AS AN ALTERNATIVE ASSESSMENT OF OPERATING PERFORMANCE AND
    IS NOT INTENDED TO BE A SUBSTITUTE FOR GAAP MEASUREMENTS. CALCULATIONS MAY
    VARY FOR OTHER COMPANIES.

1999 COMPARED WITH 1998. Segment profit for the drugstore segment totaled $183
million in 1999 compared with $254 million in 1998. The decline in operating
profit was attributable to both lower gross margins and higher SG&A expense.
Sales growth was strong the entire year. Total sales for 1999 increased by 20.4
percent over the prior year and include approximately $830 million in sales
attributable to the Genovese drugstores acquired in March 1999. Comparable store
sales were strong, increasing 10.7 percent (including the pro forma results of
the Genovese drugstores) compared to a 9.2 percent increase in the prior year.
Comparable store sales growth was led by a 15.6 percent increase in pharmacy
sales, which accounted for 62 percent of total drugstore sales. Pharmacy sales
were particularly strong in the managed care


18

<PAGE>

segment, which accounted for 87 percent of total pharmacy sales. Comparable
non-pharmacy merchandise sales increased 3.0 percent for the year and were
strongest in one-hour photo processing and over-the-counter drugs. 1999 sales
also benefited from the relocation of 208 stores to more convenient freestanding
locations. Relocated stores typically generate sales increases of approximately
30 percent in their first full year of operation.

Gross margin as a percent of sales declined by 70 basis points. The decline was
principally related to (i) a higher proportion of lower gross margin managed
care and mail-order pharmacy sales, (ii) a higher percentage of new,
lower-margin drug introductions and (iii) higher shrinkage. Gross margin
included LIFO charges of $52 million in 1999 and $45 million in 1998.

SG&A expenses as a percent of sales in 1999 increased by 30 basis points over
the prior year. Current year expenses include $45 million of charges recorded in
the second quarter related to systems upgrades and increases in certain balance
sheet reserves. SG&A expenses in 1999 also reflect integration costs for the
Genovese acquisition as well as costs associated with opening more new and
relocated stores in 1999 than in the prior year.

1998 COMPARED WITH 1997. Segment profit totaled $254 million in 1998 compared
with $347 million for the prior year. Total sales increased 8.9 percent over
1997 levels on a 52-week basis and increased 9.2 percent for comparable stores.
Sales growth was fueled by a 15.0 percent gain in comparable pharmacy sales
which accounted for approximately 60 percent of total drugstore sales. Managed
care sales grew at a particularly strong pace, increasing to 85 percent of
pharmacy sales from 80 percent in the prior year. Non-pharmacy merchandise sales
increased 1.5 percent for the year and strengthened as the year progressed.
Sales also benefited from the relocation of 175 stores to more convenient,
freestanding locations during the year.

Gross margin as a percent of sales declined by 90 basis points in 1998. Both
1998 and 1997 included charges related to the liquidation of nonconforming
merchandise resulting from the conversion of the former Thrift, Fay's, Kerr and
certain acquired Rite Aid and Revco drugstores into the Eckerd name and format.
These charges totaled $98 million in 1998 and $45 million in 1997. Excluding
these charges, gross margin declined by 40 basis points in 1998. Gross margin
declines were principally attributable to a higher percentage of pharmacy sales,
especially managed care sales, which carry lower margins. Gross margin for
non-pharmacy merchandise improved for the year. Gross margin included a LIFO
charge of $45 million in 1998 compared with a $32 million charge in 1997.

SG&A expenses as a percent of sales increased by 20 basis points in 1998 and
were negatively impacted by additional staffing costs in connection with the
integration of the various drugstore formats during the first half of the year.

DIRECT MARKETING

<TABLE>
<CAPTION>

------------------------------
  ($ IN MILLIONS)                  1999     1998    1997
--------------------------------------------------------------
<S>                               <C>     <C>     <C>
  Revenue

    Insurance premiums, net       $  937  $  872  $  800

    Membership fees                   93      65      50

    Investment income                 89      85      78
                                ------------------------------

  Total revenue                    1,119   1,022     928

  Claims and benefits               (372)   (340)   (332)

  Deferred acquisition costs        (227)   (195)   (170)

  Other operating expenses(1)       (273)   (250)   (209)
                                ------------------------------

  Segment profit                  $  247  $  237  $  217

  Revenue percent increase          9.5%   10.1%   13.4%

  Segment profit increase           4.2%    9.2%   14.8%

  Segment profit as a percent
  of revenue                       22.1%   23.2%   23.4%
--------------------------------------------------------------
</TABLE>

(1) REFLECTS THE RECLASSIFICATION OF INTEREST CHARGES OF $5 MILLION, $4 MILLION
    AND $3 MILLION FOR 1999, 1998 AND 1997, RESPECTIVELY, FROM OPERATING
    EXPENSES TO NET INTEREST EXPENSE AND CREDIT OPERATIONS.

Results for J. C. Penney Direct Marketing Services, Inc. (Direct Marketing) for
1999 reflect the 12th consecutive year of both revenue and profit improvement.
Segment profit for Direct Marketing was $247 million in 1999 compared with $237
million in 1998 and $217 million in 1997. Total revenue exceeded $1.1 billion in
1999, increasing from $1.0 billion in 1998 and $.9 billion in 1997. Health
insurance premiums account for the majority of the revenue increases in both
1999 and 1998, and represent in excess of 70 percent of total insurance premiums
and 60 percent of total revenue. Revenue growth for the three-year period is
primarily attributable to successfully maintaining and enhancing marketing
relationships with businesses, principally banks, oil companies and retailers,
for the sale of insurance products throughout the United States and Canada.


                                                                              19

<PAGE>

1999 marked the first year that more than 50 percent of total revenue was
generated through non-JCPenney business relationships. Direct Marketing
continued its international expansion in 1999 with active programs with two
United Kingdom banks, programs launched in Australia and activity initiated in
South Korea.

Membership services contributed eight percent of total revenues in 1999 and
continued to be a growing component of the segment, increasing 43 percent and 30
percent in 1999 and 1998, respectively. Memberships include dental, pharmacy,
vision and hearing benefits, as well as auto and travel services.

NET INTEREST EXPENSE AND
CREDIT OPERATIONS

<TABLE>
<CAPTION>

-------------------------------
  ($ IN MILLIONS)                   1999    1998    1997
-----------------------------------------------------------
<S>                               <C>     <C>     <C>
  Finance charge revenue,
  net of operating expenses       $ (313) $ (224) $ (127)

  Interest expense, net              612     615     584
                                ---------------------------
  Net interest expense
  and credit operations           $  299  $  391  $  457
-----------------------------------------------------------
</TABLE>

Net interest expense and credit operations totaled $299 million in 1999 compared
with $391 million in 1998 and $457 million in 1997. 1999 includes the Company's
proprietary credit card operation through December 6, 1999, when the operation
was sold to General Electric Capital Corporation (GE Capital). 1998 and 1997
include the proprietary credit card operation for the full year. As noted
previously, third-party credit costs of $91 million in 1999 and $93 million in
both 1998 and 1997 have been reclassified to Department stores and catalog SG&A
expense.

Declines in Net interest expense and credit operations in both 1999 and 1998 are
related to improvements in credit operating performance, principally bad debt
expense, throughout both years. The improvement was the result of favorable
credit industry trends as well as the Company's efforts to tighten credit
underwriting standards to improve portfolio performance and reduce risk. These
factors resulted in a steady decline in delinquency rates throughout 1999 and
1998. Interest expense declined slightly in 1999 compared with 1998 levels.
Interest expense increased by approximately $30 million in 1998 as a result of
higher borrowing levels.

OTHER CHARGES AND CREDITS, NET

In the fourth quarter of 1999, the Company recorded net pre-tax charges of $169
million comprised of three components. In December, the Company completed the
sale of its proprietary credit card receivables to GE Capital. The total value
of the transaction was $4.0 billion, including debt that was assumed by GE
Capital related to previous receivable securitization transactions. The Company
recognized a pre-tax gain of $55 million on the transaction, net of an allowance
for final settlement. The Company also recorded pre-tax asset impairment charges
of $240 million related to underperforming store locations in both its
department stores ($130 million) and drugstores ($110 million) in accordance
with Statement of Financial Accounting Standards (FAS) No. 121, ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
The impairment charges represent the excess of the carrying values of the
assets, including intangible assets, over estimated fair values. The department
store charge relates to ten stores, with the majority attributable to seven
stores in the Washington, D.C. market that were acquired in 1995. The
Washington, D.C. stores have performed substantially below levels anticipated at
the time of the acquisition, and the impairment charge generally represents
goodwill associated with the acquisition. Drugstore impairment charges represent
the write-off of fixed assets, including intangibles, associated with 289 stores
located throughout Eckerd's operating area, with concentrations in Pennsylvania,
Virginia, New Jersey and New York. The impaired stores generally represent
smaller, low-volume stores that were former independent units and chains
acquired over the last several years that do not meet Eckerd's performance
standards and cannot be relocated. In addition, the Company recorded a pre-tax
credit of $16 million related to restructuring charges recorded in 1996 and
1997.

Other credits in 1998 also related to the reversal of store closing reserves
established in 1997. In 1997, the Company recorded pre-tax charges of $379
million related to early retirement and workforce reduction programs, the
closing of underperforming department stores and drugstore integration charges.

INCOME TAXES

The effective income tax rate before considering the impact of Other charges and
credits, net decreased to 34.3 percent in 1999 compared with 37.8 percent in
1998 and 38.8 percent in 1997. Declines over the three-year period are related
primarily to the effects of tax planning strategies that have significantly
reduced state and local effective income tax rates.


20

<PAGE>

FINANCIAL CONDITION

Cash flow from operating activities was $1,258 million in 1999 compared with
$1,058 million in 1998 and $1,218 million in 1997. Efforts to reduce inventory
levels and declines in capital expenditures had a positive impact on cash flow
for the year. While net income has declined in recent years, cash flow has
remained strong as a result of the impact of declines in customer accounts
receivable and the increases in non-cash charges, primarily related to drugstore
acquisitions, store closings and asset impairments. 1999 cash flow from
operations was sufficient to fund the Company's operating needs - working
capital, capital expenditures and dividends. Management expects cash flow to
cover the Company's operating needs for the foreseeable future. Although its
credit ratings have declined over the past two years, the Company's liquidity
position improved with the sale of its proprietary credit card receivables.
Additionally, the Company continues to have access to the commercial paper
market along with maintaining $3.0 billion in committed bank credit facilities.

MERCHANDISE INVENTORY. Total LIFO inventory was $5,947 million in 1999 compared
with $6,060 million in 1998 and $6,191 million in 1997. FIFO merchandise
inventory for Department stores and catalog was $3,806 million at the end of
1999, a decrease of 7.4 percent on an overall basis and approximately eight
percent for comparable stores. The decline was primarily the result of the
Company's efforts to improve the merchandise procurement process and increase
inventory turnover, coupled with aggressive clearance activities at the end of
the year. Eckerd FIFO merchandise inventory was $2,411 million at the end of
1999, an increase of 10.8 percent compared with the prior year. The increase was
principally related to the acquisition of Genovese and growth in sales volumes.

PROPERTIES. Property, plant and equipment, net of accumulated depreciation,
totaled $5,312 million at January 29, 2000, compared with $5,458 million and
$5,329 million at the ends of fiscal 1998 and 1997, respectively.

At the end of 1999, the Company operated 1,143 JCPenney department stores
(including two stores in Mexico and six in Puerto Rico), 35 Renner department
stores in Brazil and 2,898 Eckerd drugstores, which altogether represented in
excess of 145 million gross square feet of retail space. JCPenney department
store counts have declined recently principally as a result of the closing of
underperforming stores. Eckerd store counts reflect the addition of 141 Genovese
drugstores in March of 1999; the closing of underperforming and overlapping
stores during the conversion of former drugstore formats to Eckerd; and the
addition of 266 new and relocated stores in 1999 and nearly 700 over the past
three years.

CAPITAL EXPENDITURES

<TABLE>
<CAPTION>

------------------------
  ($ IN MILLIONS)         1999     1998    1997
---------------------------------------------------
<S>                        <C>      <C>      <C>
  Department stores
  and catalog            $ 318    $ 420    $ 443

  Eckerd drugstores        283      256      341

  Other corporate            5       20       26
                        ---------------------------
  Total                  $ 606    $ 696     $ 810
---------------------------------------------------
</TABLE>


1999 capital spending levels for property, plant and equipment declined for
Department stores and catalog. In 1999, the Company spent approximately $108
million on existing department store locations compared with $150 million in
1998 and $200 million in 1997. It is expected that capital spending for
Department stores and catalog will approximate $500 million in 2000, with
approximately $120 million dedicated to the improvement of general store
appearance. Capital spending for Eckerd drugstores increased in 1999,
principally in the area of technology to strengthen its financial and operating
systems. It is expected that spending within Eckerd drugstores will be in the
$300 million range, with substantial investments continuing to be made in
systems and technology enhancements. While attention is focused on systems and
technology, Eckerd`s new and relocated store program will be reduced to
approximately 200 stores, including about 150 relocations, for 2000 from the
previous plan of about 300 stores. Total capital spending for 2000 is currently
projected at approximately $850 million.

ACQUISITIONS. The Company has completed several acquisitions in recent years as
noted below. In all cases, the purchase price was allocated to assets acquired
and liabilities assumed based on estimated fair values. The excess of the
purchase price over the fair value of assets acquired, including intangible
assets, and liabilities assumed is accounted for as goodwill and is generally
amortized over 40 years. All acquisitions have been accounted for under the
purchase method. Accordingly, their results of operations are included in the
Company's statements of income as of the date of the acquisition.

On March 1, 1999, the Company completed the acquisition of Genovese Drug Stores,
Inc. (Genovese), a 141-drugstore chain with locations in New York, New Jersey
and Connecticut. The acquisition was accomplished through the exchange of
approximately 9.6 million shares of JCPenney common stock for the outstanding
shares of Genovese, and the conversion of outstanding Genovese stock options
into


                                                                              21

<PAGE>

approximately 550 thousand common stock options of the Company. The total value
of the transaction, including the assumption of $60 million of debt, was $414
million, of which $263 million represented goodwill.

The Company completed the acquisition of a majority interest in Lojas Renner
S.A. (Renner), a 21-store Brazilian department store chain, in January 1999. The
total purchase price was $139 million, of which $67 million represented
goodwill.

During fiscal 1998, Direct Marketing formed Quest Membership Services, Inc. and
acquired Insurance Consultants, Inc., strengthening its access to other business
relationships. The total purchase price was approximately $72 million, of which
$53 million represented goodwill.

INTANGIBLE ASSETS. At the end of 1999, Goodwill and other intangible assets,
net, totaled $3,056 million compared with $2,941 million in 1998 and $2,940
million in 1997. Intangible assets consist principally of favorable lease
rights, prescription files, software, trade name and goodwill, representing the
excess of the purchase price over the fair value of net assets acquired,
including intangible assets.

RESTRUCTURING RESERVES. At the end of 1999, the consolidated balance sheet
included reserves totaling $86 million which are included as a component of
Accounts payable and accrued expenses and $25 million in Other assets. These
reserves consist principally of the present value of future lease obligations
for closed department stores and drugstores. Reserve balances were established
based upon estimated costs to exit the properties. Actual costs were below the
original estimates for certain closed stores. Consequently, reserves were
adjusted in the fourth quarters of 1999 and 1998, resulting in pre-tax credits
of $12 million and $22 million, respectively. Reserve balances were reduced by
$12 million in 1999 for cash payments made during the year. Also, in connection
with the Company's 1997 early retirement program, reserves were established for
the periodic future payments to be made under the Company's pension plans. These
reserves are included in pension liabilities that are discussed in Note 13 to
the consolidated financial statements, Retirement Plans, on page 35. Payments
for both lease obligations and pension benefits will be paid out over an
extended period of time. See Note 15, Restructuring Reserves, on page 37 for
additional information.


DEBT TO CAPITAL

<TABLE>
<CAPTION>

                                 1999    1998     1997
----------------------------------------------------------
<S>                             <C>      <C>      <C>
  Debt to capital percent       54.3%    62.9%*   60.7%
----------------------------------------------------------
</TABLE>


*   UPON COMPLETION OF THE GENOVESE ACQUISITION, THE DEBT TO CAPITAL RATIO
    DECLINED TO 62.1 PERCENT.

Total debt, including the present value of operating leases, was $8,602 million
at the end of 1999 compared with $12,044 million at the end of 1998 and $11,237
million in 1997. In December 1999, the Company received $3.2 billion in proceeds
from the sale of its proprietary credit card receivables. Proceeds from the sale
were used to pay down short-term debt and the balance was invested in short-term
investments, pending the maturity of long-term debt issues. In conjunction with
the sale, GE Capital also assumed $729 million, including $79 million of
off-balance- sheet debt. Also during 1999, the Company retired $225 million of
long-term debt at the normal maturity date and redeemed $199 million of Eckerd
Notes due 2004.

During the fourth quarter of 1998, JCP Receivables, Inc., an indirect wholly
owned subsidiary of the Company, completed a public offering of $650 million
aggregate principal amount of 5.5 percent Series E asset-backed securities of
the JCP Master Credit Card Trust. In addition, the Company retired $449 million
of debt at the normal maturity date during the year, including the debt
associated with the Company's ESOP.

In 1997's first quarter, the Company issued $3.0 billion of long-term debt,
which principally represented a conversion
of short-term debt that had been issued in 1996 in connection with the initial
phase of the Eckerd acquisition. The average effective interest rate on the debt
issued in 1997 was 7.5 percent and the average maturity was 30 years.

During the past three years, the Company has issued 32.8 million shares of
common stock related to its drugstore acquisitions. The Company repurchased five
million shares of its common stock in the fourth quarter of 1998 for $270
million as part of previously approved share repurchase programs. The Company
has the authority to repurchase an additional five million shares under these
programs.

DIVIDENDS. In December 1999, the Company reduced the quarterly dividend rate
from the previous rate of $0.545 per share to $0.2875 per share. The change was
effective for the dividend payable February 1, 2000 to stockholders of record at
the close of business on January 10, 2000. In determining this dividend rate,
the Company considered the overall


22

<PAGE>

performance of its several businesses and the need to reinvest earnings in those
businesses. It also took into account, on a preliminary basis, the potential
balance sheet and financial reporting implications of creating a tracking stock
for the higher-growth Eckerd drugstore operation as discussed below.

TRACKING STOCK. In May 1999, the Company announced a tracking stock initiative
that would create a separate class of stock that will reflect the performance of
Eckerd drugstores and another class of stock that will reflect the performance
of Department stores and catalog and Direct Marketing. The Company currently
anticipates that, subject to performance and market conditions, the initial
public offering of approximately 20 percent of the Eckerd tracking stock will
take place during the third or fourth quarter 2000.

ECONOMIC VALUE ADDED (EVA-Registered Trademark-). The Company uses the
principles of EVA as a tool to evaluate potential investments and other
financing opportunities. The year-to-year change in EVA is used as a component
in calculating amounts to be paid under selected management incentive
compensation plans. Beginning in 2000, EVA measurements will be used as a
component in all incentive compensation plans.

YEAR 2000 READINESS. The Year 2000 issue existed because many computer systems
store and process dates using only the last two digits of the year. Such
systems, if not changed, could have interpreted "00" as "1900" instead of the
year "2000." The Company began working to identify and address Year 2000 issues
in January 1995. The scope of this effort included internally developed
information technology systems, purchased and leased software, embedded systems
and electronic data interchange transaction processing.

The Company did not experience any significant disruptions to its operations.
Based on operations since January 1, 2000, the Company does not expect any
significant impact to its ongoing business as a result of the Year 2000 date
change. However, it is possible that the full impact of the date change has not
been fully recognized. The Company believes that any such problems, however, are
likely to be minor and correctable. In addition, the Company could still be
negatively affected if its customers or suppliers are adversely affected by the
Year 2000 or similar issues. The Company currently is not aware of any
significant Year 2000 or similar problems that have arisen for its customers or
suppliers. Total costs for Year 2000 remediation were $51 million, $19 million
of which was incurred in fiscal 1999, and did not have a material impact on the
Company's financial results.

INFLATION AND CHANGING PRICES. Inflation and changing prices have not had a
significant impact on the Company in recent years due to low levels of
inflation.

SUBSEQUENT EVENT. In February 2000, the Company announced that it was evaluating
underperforming assets and as a result, expected to close 40 to 45 department
stores and 289 drugstores. The majority of department store closings are
expected to occur by July 1, 2000, while the majority of drugstore closings are
expected to occur by May 1, 2000. Charges associated with department store
closings are expected to total approximately $125 million and charges associated
with drugstore closings are expected to total approximately $200 million,
including inventory liquidation costs and store operating costs during the
shut-down period of approximately $80 million which will be reported within
drugstore segment results. Exit costs are expected to consist principally of the
write-off of asset values, the present value of future lease obligations, and
severance and outplacement costs. In addition, the Company expects to finalize
other cost saving initiatives that will result in a first quarter 2000 charge of
$16 million.


                                                                              23

<PAGE>

COMPANY STATEMENT ON FINANCIAL INFORMATION

The Company is responsible for the information presented in this Annual Report.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and present fairly, in all material
respects, the Company's results of operations, financial position, and cash
flows. Certain amounts included in the consolidated financial statements are
estimated based on currently available information and judgment as to the
outcome of future conditions and circumstances. Financial information elsewhere
in this Annual Report is consistent with that in the consolidated financial
statements.

The Company's system of internal controls is supported by written policies and
procedures and supplemented by a staff of internal auditors. This system is
designed to provide reasonable assurance, at suitable costs, that assets are
safeguarded and that transactions are executed in accordance with appropriate
authorization and are recorded and reported properly. The system is continually
reviewed, evaluated and where appropriate, modified to accommodate current
conditions. Emphasis is placed on the careful selection, training and
development of professional managers.

An organizational alignment that is premised upon appropriate delegation of
authority and division of responsibility is fundamental to this system.
Communication programs are aimed at assuring that established policies and
procedures are disseminated and understood throughout the Company.

The consolidated financial statements have been audited by independent auditors
whose report appears below. Their audit was conducted in accordance with
generally accepted auditing standards, which include the consideration of the
Company's internal controls to the extent necessary to form an independent
opinion on the consolidated financial statements prepared by management.

The Audit Committee of the Board of Directors is composed solely of directors
who are not officers or employees of the Company. The Audit Committee's
responsibilities include recommending to the Board for stockholder approval the
independent auditors for the annual audit of the Company's consolidated
financial statements. The Committee also reviews the independent auditors' audit
strategy and plan, scope, fees, audit results, and non-audit services and
related fees; internal audit reports on the adequacy of internal controls; the
Company's ethics program; status of significant legal matters; the scope of the
internal auditors' plans and budget and results of their audits; and the
effectiveness of the Company's program for correcting audit findings. The
independent auditors and Company personnel, including internal auditors, meet
periodically with the Audit Committee to discuss auditing and financial
reporting matters.


/s/ Donald A. McKay
Donald A. McKay
Executive Vice President and Chief Financial Officer

INDEPENDENT AUDITORS' REPORT

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
OF J. C. PENNEY COMPANY, INC.:

We have audited the accompanying consolidated balance sheets of J. C. Penney
Company, Inc. and Subsidiaries as of January 29, 2000 and January 30, 1999, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended January 29, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of J. C. Penney
Company, Inc. and Subsidiaries as of January 29, 2000 and January 30, 1999, and
the results of their operations and their cash flows for each of the years in
the three-year period ended January 29, 2000, in conformity with generally
accepted accounting principles.



/s/ KPMG LLP
KPMG LLP
Dallas, Texas
February 24, 2000


24
<PAGE>

CONSOLIDATED STATEMENTS OF INCOME

J. C. PENNEY COMPANY, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

-------------------------------------------------------
($ IN MILLIONS)                                            1999              1998              1997
-----------------------------------------------------------------------------------------------------------
<S>                                                      <C>               <C>               <C>
  REVENUE

  Retail sales, net                                      $ 31,391          $ 29,439          $ 29,482

  Direct Marketing revenue                                  1,119             1,022               928
                                                        ---------------------------------------------------
  Total revenue                                            32,510            30,461            30,410

  COSTS AND EXPENSES

  Cost of goods sold                                       23,374            21,642            21,294

  Selling, general, and administrative expenses             7,164             6,623             6,566

  Costs and expenses of Direct Marketing                      872               785               711

  Real estate and other                                       (28)              (26)              (39)

  Net interest expense and credit operations                  299               391               457

  Acquisition amortization                                    129               113               117

  Other charges and credits, net                              169               (22)              379
                                                        ---------------------------------------------------
  Total costs and expenses                                 31,979            29,506            29,485

  INCOME BEFORE INCOME TAXES                                  531               955               925

  Income taxes                                                195               361               359
                                                        ---------------------------------------------------
  NET INCOME                                               $  336            $  594            $  566
-----------------------------------------------------------------------------------------------------------
</TABLE>


EARNINGS PER COMMON SHARE

<TABLE>
<CAPTION>

                                                                           AVERAGE
------------------------------------------------------
  (IN MILLIONS, EXCEPT PER SHARE DATA)                    INCOME            SHARES             EPS
------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>               <C>
  1999
  Net income                                                $ 336

  Less: preferred stock dividends                             (36)
                                                      ------------------------------------------------------------
  Basic EPS                                                   300               259               $ 1.16

  Stock options and convertible preferred stock                36                16
                                                      ------------------------------------------------------------
  Diluted EPS                                               $ 336               275              $  1.16(1)
                                                      ------------------------------------------------------------
  1998

  Net income                                                $ 594

  Less: preferred stock dividends                             (38)
                                                      ------------------------------------------------------------
  Basic EPS                                                   556               253               $ 2.20

  Stock options and convertible preferred stock                37                18
                                                      ------------------------------------------------------------
  Diluted EPS                                               $ 593               271               $ 2.19

  1997

  Net income                                                $ 566

  Less: preferred stock dividends                             (40)
                                                      ------------------------------------------------------------
  Basic EPS                                                   526               247               $ 2.13

  Stock options and convertible preferred stock                36                21
                                                      ------------------------------------------------------------
  Diluted EPS                                               $ 562               268               $ 2.10
------------------------------------------------------------------------------------------------------------------
</TABLE>


(1) CALCULATION EXCLUDES THE EFFECTS OF THE POTENTIAL CONVERSION OF OUTSTANDING
    PREFERRED SHARES INTO COMMON SHARES, AND RELATED DIVIDENDS, BECAUSE THEIR
    INCLUSION WOULD HAVE AN ANTI-DILUTIVE EFFECT ON EPS.

See Notes to the Consolidated Financial Statements on pages 29 through 40.


                                                                              25

<PAGE>

CONSOLIDATED BALANCE SHEETS

J. C. PENNEY COMPANY, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

------------------------------------------------------------------------
($ IN MILLIONS)                                                              1999            1998
------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>
  ASSETS

  Current assets

     Cash (including short-term investments of $1,233 and $95)            $   1,233       $       96

     Retained interest in JCP Master Credit Card Trust                           --              415

     Receivables, net (bad debt reserve of $20 and $149)                      1,138            4,268

     Merchandise inventory (including LIFO reserves of $270 and $227)         5,947            6,060

     Prepaid expenses                                                           154              168
                                                                        ------------------------------------------
  Total current assets                                                        8,472           11,007

  Property and equipment

     Land and buildings                                                       3,089            3,109

     Furniture and fixtures                                                   3,955            4,045

     Leasehold improvements                                                   1,151            1,179

     Accumulated depreciation                                                (2,883)          (2,875)
                                                                        ------------------------------------------
  Property and equipment, net                                                 5,312            5,458

  Investments, principally held by Direct Marketing                           1,827            1,961

  Deferred policy acquisition costs                                             929              847

  Goodwill and other intangible assets, net (accumulated
  amortization of $340 and $227)                                              3,056            2,941

  Other assets                                                                1,292            1,294
                                                                        ------------------------------------------
  TOTAL ASSETS                                                             $ 20,888         $ 23,508
------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>

<S>                                                                       <C>             <C>
------------------------------------------------------------------------------------------------------------------
  LIABILITIES AND STOCKHOLDERS' EQUITY

  Current liabilities

     Accounts payable and accrued expenses                                $   3,351        $   3,443

     Short-term debt                                                            330            1,924

     Current maturities of long-term debt                                       625              438

     Deferred taxes                                                             159              107
                                                                          ----------------------------------------
  Total current liabilities                                                   4,465            5,912

  Long-term debt                                                              5,844            7,143

  Deferred taxes                                                              1,461            1,512

  Insurance policy and claims reserves                                        1,017              946

  Other liabilities                                                             873              893
                                                                          ----------------------------------------
  TOTAL LIABILITIES                                                          13,660           16,406

  Stockholders' Equity

     Preferred stock authorized, 25 million shares; issued and outstanding,
     0.7 million and 0.8 million shares Series B ESOP convertible preferred     446              475

     Common stock, par value 50 cents: authorized, 1,250 million shares;
     issued and outstanding 261 million and 250 million shares                3,266            2,850

     Reinvested earnings                                                      3,590            3,791

     Accumulated other comprehensive income/(loss)                              (74)             (14)
                                                                          ----------------------------------------
  TOTAL STOCKHOLDERS' EQUITY                                                  7,228            7,102

  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                               $ 20,888         $ 23,508
------------------------------------------------------------------------------------------------------------------
</TABLE>


See Notes to the Consolidated Financial Statements on pages 29 through 40.


26

<PAGE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

J. C. PENNEY COMPANY, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

                                                                               ACCUMULATED
                                                   GUARANTEED                     OTHER          TOTAL
-----------------------    COMMON      PREFERRED      LESOP      REINVESTED   COMPREHENSIVE  STOCKHOLDERS'
  ($ IN MILLIONS)           STOCK        STOCK     OBLIGATION     EARNINGS   INCOME/(LOSS)(1)   EQUITY
------------------------------------------------------------------------------------------------------------------
<S>                      <C>           <C>          <C>            <C>           <C>           <C>
  JANUARY 25, 1997       $ 1,416       $ 568        $ (142)        $ 4,006(2)    $  37         $ 5,885
                         -----------------------------------------------------------------------------------------
  Net income                  --          --            --            566           --             566

  Net unrealized change
  in investments              --          --            --             --           14              14

  Currency translation
  adjustments                 --          --            --             --           (3)             (3)
                         -----------------------------------------------------------------------------------------
  Total comprehensive
  income                      --          --            --            566           11             577

  Dividends declared          --          --            --           (573)          --            (573)

  Common stock issued      1,350          --            --             --           --           1,350

  Preferred stock retired     --         (42)           --             --           --             (42)

  LESOP payment               --          --            93             --           --              93
                         -----------------------------------------------------------------------------------------
  JANUARY 31, 1998         2,766         526           (49)         3,999           48           7,290
                         -----------------------------------------------------------------------------------------
  Net income                  --          --            --            594           --             594

  Net unrealized change
  in investments              --          --            --             --           (1)             (1)

  Currency translation
  adjustments                 --          --            --             --          (61)(3)         (61)
                         -----------------------------------------------------------------------------------------
  Total comprehensive
  income/(loss)               --          --            --            594          (62)            532

  Dividends declared          --          --            --           (588)          --            (588)

  Common stock issued        140          --            --             --           --             140

  Common stock retired       (56)         --            --           (214)          --            (270)

  Preferred stock retired     --         (51)           --             --           --             (51)

  LESOP payment               --          --            49             --           --              49
                         -----------------------------------------------------------------------------------------
  JANUARY 30, 1999         2,850         475            --          3,791          (14)          7,102
                         -----------------------------------------------------------------------------------------
  Net income                  --          --            --            336           --             336

  Net unrealized change
  in investments              --          --            --             --          (76)            (76)

  Currency translation
  adjustments                 --          --            --             --           16              16
                         -----------------------------------------------------------------------------------------
  Total comprehensive
  income/(loss)               --          --            --            336          (60)            276

  Dividends declared          --          --            --           (537)          --            (537)

  Common stock issued        416          --            --             --           --             416

  Preferred stock retired     --         (29)           --             --           --             (29)
                         -----------------------------------------------------------------------------------------
  JANUARY 29, 2000       $ 3,266       $ 446        $   --        $ 3,590        $ (74)        $ 7,228
                         -----------------------------------------------------------------------------------------
</TABLE>

(1) CUMULATIVE NET UNREALIZED CHANGES IN INVESTMENTS ARE SHOWN NET OF DEFERRED
    TAXES OF $(5) MILLION, $36 MILLION, AND $39 MILLION IN 1999, 1998 AND 1997,
    RESPECTIVELY. A DEFERRED TAX ASSET HAS NOT BEEN ESTABLISHED FOR CURRENCY
    TRANSLATION ADJUSTMENTS.

(2) BEGINNING REINVESTED EARNINGS HAS BEEN REDUCED BY $67 MILLION, NET OF TAX,
    TO REFLECT CHANGES TO CERTAIN REVENUE RECOGNITION POLICIES.

(3) 1998 CURRENCY TRANSLATION ADJUSTMENTS INCLUDE $(49) MILLION ASSOCIATED WITH
    ASSETS ACQUIRED AND LIABILITIES ASSUMED IN THE PURCHASE OF RENNER.

See Notes to the Consolidated Financial Statements on pages 29 through 40.


                                                                              27

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

J. C. PENNEY COMPANY, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

------------------------------------------------------
($ IN MILLIONS)                                            1999              1998              1997
------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>              <C>
  OPERATING ACTIVITIES

  Net income                                            $     336         $     594        $     566

  Gain on the sale of business units                           --                --              (52)

  Other charges and credits, net                              169               (22)             371

  Depreciation and amortization, including
     intangible assets                                        710               637              584

  Deferred taxes                                              (11)              219                1

  Change in cash from:

     Customer receivables                                      13               258              215

     Other receivables                                       (134)             (163)             (94)

     Inventory, net of trade payables                         169                64             (395)

     Current taxes payable                                    (97)             (171)             116

     Other assets and liabilities, net                        103              (358)             (94)
                                                      ------------------------------------------------------------
                                                            1,258             1,058            1,218
                                                      ------------------------------------------------------------
  INVESTING ACTIVITIES

  Capital expenditures                                       (631)             (744)            (824)

  Proceeds from the sale of assets                          3,179                --              276

  Acquisitions(1)                                              --              (247)              --

  Purchases of investment securities                         (860)             (611)            (401)

  Proceeds from the sale of investment securities             874               447              252
                                                      ------------------------------------------------------------
                                                            2,562            (1,155)            (697)
                                                      ------------------------------------------------------------
  FINANCING ACTIVITIES

  Change in short-term debt                                (1,650)              507           (2,533)

  Proceeds from the issuance of long-term debt                 --               644            2,990

  Payment of long-term debt                                  (467)             (478)            (343)

  Common stock issued, net                                     32                89               79

  Common stock purchased and retired                           --              (270)              --

  Dividends paid, preferred and common                       (598)             (586)            (558)
                                                      ------------------------------------------------------------
                                                           (2,683)              (94)            (365)
                                                      ------------------------------------------------------------
  NET INCREASE/(DECREASE) IN CASH AND
  SHORT-TERM INVESTMENTS                                    1,137              (191)             156

  Cash and short-term investments at beginning of year         96               287              131
                                                      ------------------------------------------------------------
  CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR         $  1,233        $       96        $     287
                                                      ------------------------------------------------------------
  SUPPLEMENTAL CASH FLOW INFORMATION

  Interest paid                                         $     673         $     649        $     571

  Interest received                                            61                45               71

  Income taxes paid                                           245               307              225
------------------------------------------------------------------------------------------------------------------
</TABLE>


(1) REFLECTS TOTAL CASH CHANGES RELATED TO ACQUISITIONS.

NON-CASH TRANSACTIONS: IN 1999, THE COMPANY ISSUED 9.6 MILLION SHARES OF COMMON
STOCK HAVING A VALUE OF $354 MILLION TO COMPLETE THE ACQUISITION OF GENOVESE.
ALSO IN 1999, GE CAPITAL ASSUMED $650 MILLION OF BALANCE SHEET DEBT AS PART OF
THE COMPANY'S SALE OF PROPRIETARY CREDIT CARD RECEIVABLES. IN 1997, THE COMPANY
ISSUED 23.2 MILLION SHARES OF COMMON STOCK HAVING A VALUE OF $1.3 BILLION TO
COMPLETE THE ACQUISITION OF ECKERD.

See Notes to the Consolidated Financial Statements on pages 29 through 40.


28

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     SUMMARY OF ACCOUNTING POLICIES     1

                                ACQUISITIONS AND SALE OF RECEIVABLES    2

                   RETAINED INTEREST IN JCP MASTER CREDIT CARD TRUST    3

                 INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS    4

                               ACCOUNTS PAYABLE AND ACCRUED EXPENSES    5

                                                     SHORT-TERM DEBT    6

                                                      LONG-TERM DEBT    7

                                                       CAPITAL STOCK    8

                                            STOCK-BASED COMPENSATION    9

                                               INTEREST EXPENSE, NET   10

                                                   LEASE COMMITMENTS   11

                                                   ADVERTISING COSTS   12

                                                    RETIREMENT PLANS   13

                                      OTHER CHARGES AND CREDITS, NET   14

                                              RESTRUCTURING RESERVES   15

                                                    SUBSEQUENT EVENT   16

                                                               TAXES   17

                                                   SEGMENT REPORTING   18


                                                                              29

<PAGE>

1   SUMMARY OF
    ACCOUNTING POLICIES

BASIS OF PRESENTATION. In 1999, after giving consideration to guidance provided
by SEC Staff Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS, the Company changed certain revenue recognition policies affecting
Department stores and catalog. Changes primarily affected the reporting of sales
for licensed departments and catalog orders shipped to various Company
facilities for customer pickup. These changes reduced sales by $152 million,
$217 million and $136 million in 1999, 1998 and 1997, respectively, and resulted
in a $67 million reduction of reinvested earnings, net of tax, as of January 28,
1995. The impact on earnings and cash flows for the intervening periods
presented in this report is not material. Accordingly, the cumulative effects of
the changes have been reflected as a $20 million pre-tax charge to cost of goods
sold in the statement of income for fiscal 1999, the period in which the change
was made.

Third-party credit fees of $91 million in 1999 and $93 million in both 1998 and
1997 have been reclassified from Net interest expense and credit operations to
Department stores and catalog SG&A expenses to reflect these costs as operating
expenses. Certain other prior year amounts have been reclassified to conform to
the current year presentation.

BASIS OF CONSOLIDATION. The consolidated financial statements present the
results of J. C. Penney Company, Inc. and its subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.

DEFINITION OF FISCAL YEAR. The Company's fiscal year ends on the last Saturday
in January. Fiscal 1999 ended January 29, 2000; fiscal 1998 ended January 30,
1999; and fiscal 1997 ended January 31, 1998. Fiscal 1999 and 1998 were 52-week
years; fiscal 1997 was a 53-week year. The accounts of Direct Marketing and
Renner are on a calendar-year basis.

REVENUE RECOGNITION. Retail sales include merchandise and services, net of
returns, and exclude all taxes. Commissions earned on sales generated by
licensed departments are included as a component of retail sales; layaway sales
and catalog orders delivered to catalog departments located in department stores
and other Company facilities are recorded as sales at the time customers pick up
the merchandise. An allowance has been established to provide for projected
merchandise returns.

Insurance premiums are recognized according to the type of product sold. Revenue
is recognized for life insurance when premiums become due and for credit,
accident and health insurance over the coverage period. Premiums earned but not
paid within 90 days are reversed.

Membership services revenue is recognized over the contract period, less amounts
subject to money back guarantees, if any.

EARNINGS PER COMMON SHARE. Basic earnings per share are computed by dividing net
income less dividend requirements on the Series B ESOP Convertible Preferred
Stock, net of tax, by the weighted average common stock outstanding. Diluted
earnings per share assume the exercise of stock options and the conversion of
the Series B ESOP Convertible Preferred Stock into the Company's common stock.

CASH AND SHORT-TERM INVESTMENTS. The Company's short-term investments are
comprised principally of commercial paper which has a maturity at the
acquisition date of less than three months. All other securities are classified
as investments on the consolidated balance sheet.

MERCHANDISE INVENTORY. Substantially all merchandise inventory is valued at the
lower of cost (last-in, first-out) or market, determined by the retail method.
The Company determines the lower of cost or market on an aggregated basis for
similar types of merchandise. The Company applies internally developed indices
to measure increases and decreases in its own retail prices.

DEPRECIATION AND AMORTIZATION. All long-lived assets are amortized on a
straight-line basis over their respective estimated useful lives. The primary
useful life for buildings is 50 years, and ranges between three and 20 years for
furniture and equipment. Improvements to leased premises are amortized over the
expected term of the lease or their estimated useful lives, whichever is
shorter. Intangible assets, other than trade name, are amortized over periods
ranging from five to seven years. Trade name and goodwill are generally
amortized over 40 years.

ASSET RECOVERABILITY. The Company assesses the recoverability of asset values,
including goodwill and other intangible assets, on a periodic basis by comparing
undiscounted cash flows to carrying value. Impaired assets are written down to
estimated fair value. Fair value is generally determined based on discounted
expected future cash flows.

DEFERRED CHARGES. Deferred policy acquisition and advertising costs, principally
solicitation and marketing costs and commissions, incurred by Direct Marketing
to secure new business, are amortized over the expected premium-paying period of
the related policies and over the expected period of benefits for membership.


30

<PAGE>

CAPITALIZED SOFTWARE COSTS. Expenses associated with the acquisition or
development of software for internal use are capitalized and amortized over the
expected useful life of the software. The amortization period generally ranges
between three and ten years.

INVESTMENTS. The Company's investments, the majority of which are held by Direct
Marketing, are classified as available-for-sale and are carried at fair value.
Changes in unrealized gains and losses are included in other comprehensive
income net of applicable income taxes. Realized gains and losses are determined
on a first-in, first-out basis.

INSURANCE POLICY AND CLAIMS RESERVES. Liabilities established by Direct
Marketing for future policy benefits are computed using a net level premium
method including assumptions as to investment yields, mortality, morbidity, and
persistency based on the Company's experience. The liability for claims includes
estimated unpaid claims that have been reported to the Company and claims
incurred but not yet reported.

ADVERTISING. Costs for newspaper, television, radio, and other media advertising
are expensed as incurred. Catalog book preparation and printing costs, which are
considered direct response advertising, are charged to expense over the life of
the catalog, not to exceed six months.

PRE-OPENING EXPENSES. Costs associated with the opening of new stores are
expensed in the period incurred.

FOREIGN CURRENCY TRANSLATION. Foreign currency assets and liabilities are
translated into U.S. dollars at the exchange rates in effect at the balance
sheet date and revenues and expenses are translated using average currency rates
during the reporting period.

DERIVATIVE FINANCIAL INSTRUMENTS. The Company selectively uses non-leveraged,
off-balance-sheet derivative instruments to manage its market and interest rate
risk, and does not hold derivative positions for trading purposes. The current
derivative position consists of one non-leveraged, off-balance-sheet interest
rate swap which is accounted for by recording the net interest received or paid
as an adjustment to interest expense on a current basis. Gains or losses
resulting from market movements are not recognized.

USE OF ESTIMATES. The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
that management estimate certain amounts that are reported. Actual results may
differ from these estimates.

NEW ACCOUNTING RULES. The Financial Accounting Standards Board issued FAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, in June 1998.
The new rules are effective for quarters beginning after June 15, 2000. The
Company has a limited exposure to derivative products and does not expect these
new rules to have a material impact on reported results.


2   ACQUISITIONS AND
    SALE OF RECEIVABLES

On December 6, 1999, the Company completed the sale of its proprietary credit
card receivables, including its Retained Interest in the JCP Master Credit Card
Trust and its credit facilities, to GE Capital. The total value of the
transaction, including $729 million of debt, $79 million of which was
off-balance-sheet debt, assumed by GE Capital, related to previous receivable
securitization transactions, was $4.0 billion. Proceeds from the sale were used
to pay down short-term debt with the balance invested in short-term investments
pending the maturity of long-term debt issues. The sale resulted in a pre-tax
gain of $55 million, net of an allowance for final settlement, which is included
as a component of Other charges and credits, net, in the consolidated statement
of income. As a part of the overall transaction, the Company also outsourced the
management of its proprietary credit card business to GE Capital.

The Company has completed several acquisitions in recent years as noted below.
In all cases, the purchase price was allocated to assets acquired and
liabilities assumed based on estimated fair values. The excess of the purchase
price over the fair value of assets acquired, including intangible assets, and
liabilities assumed is accounted for as goodwill and is generally amortized over
40 years. All acquisitions have been accounted for under the purchase method.
Accordingly, their results of operations are included in the Company's
statements of income as of the date of the acquisition.

On March 1, 1999, the Company completed the acquisition of Genovese, a
141-drugstore chain with locations in New York, New Jersey and Connecticut. The
acquisition was accomplished through the exchange of approximately 9.6 million
shares of JCPenney common stock for the outstanding shares of Genovese, and the
conversion of outstanding Genovese stock options into approximately 550 thousand
common stock options of the Company. The total value of the transaction,
including the assumption of $60 million of debt, was $414 million, of which $263
million represented goodwill.

The Company completed the acquisition of a majority interest in Renner, a
21-store Brazilian department store chain, in


                                                                              31

<PAGE>

January 1999. The total purchase price was $139 million, of which $67 million
represented goodwill.

During fiscal 1998, Direct Marketing formed Quest Membership Services, Inc. and
acquired Insurance Consultants, Inc., strengthening its access to other business
relationships. The total purchase price was approximately $72 million, of which
$53 million represented goodwill.


3   RETAINED INTEREST IN JCP
    MASTER CREDIT CARD TRUST

The Company previously transferred portions of its customer receivables to a
trust which, in turn, sold certificates in public offerings representing
undivided interests in the trust. The Company owned the remaining undivided
interest not represented by the certificates. The retained interest in the trust
was transferred to GE Capital as part of the sale of the Company's credit card
receivables in the fourth quarter of 1999.

The retained interest in the trust was accounted for as an investment in
accordance with FAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES. The carrying value of $415 million at the end of 1998
included a valuation reserve of $15 million.


(4) INVESTMENTS AND FAIR VALUE
    OF FINANCIAL INSTRUMENTS

<TABLE>
<CAPTION>

                           1999              1998
                    -------------------------------------

------------------- AMORTIZED  FAIR    AMORTIZED   FAIR
  ($ IN MILLIONS)    COST      VALUE      COST     VALUE
---------------------------------------------------------
<S>                 <C>       <C>       <C>       <C>
  Fixed income
  securities        $ 1,433   $ 1,396   $ 1,269   $ 1,322

  Asset-backed
  certificates          267       268       431       449

  Equity securities     143       163       159       190
                    -------------------------------------
  Total             $ 1,843   $ 1,827   $ 1,859   $ 1,961
---------------------------------------------------------
</TABLE>

INVESTMENTS. The Company's investments are recorded at fair value based on
quoted market prices and consist principally of fixed income and equity
securities, substantially all of which are held by Direct Marketing, and
asset-backed certificates. The majority of the fixed income securities mature
during the next ten years.

FINANCIAL LIABILITIES. Financial liabilities are carried in the consolidated
balance sheets at historical cost. At January 29, 2000, long-term debt,
including current maturities, had a carrying value of $6.4 billion and a fair
value of $5.9 billion, and at January 30, 1999, had a carrying value of $7.5
billion and a fair value of $7.8 billion. Carrying value approximates fair value
for short-term debt. These values are not necessarily indicative of actual
market transactions. The fair value of long-term debt, excluding capital leases,
is based on the interest rate environment and the Company's credit ratings. All
long-term debt is fixed rate debt and therefore the Company is not exposed to
fluctuations in market rates except to the extent described in the following
paragraph.

DERIVATIVE FINANCIAL INSTRUMENTS. The Company's current derivative position
consists of one interest rate swap, with a notional principal amount of $375
million, which was entered into in connection with the issuance of asset-backed
certificates with the same principal amount. The purpose of the swap was to lock
in a fixed rate of interest over the life of the financing. Both the swap and
the asset-backed certificates will mature June 15, 2000. The Company's total
exposure resulting from the swap is not material. The cost associated with this
swap is recorded as interest expense.

CONCENTRATIONS OF CREDIT RISK. The Company has no significant concentrations of
credit risk.


5   ACCOUNTS PAYABLE AND
    ACCRUED EXPENSES

<TABLE>
<CAPTION>

----------------------------------
  ($ IN MILLIONS)                    1999       1998
-----------------------------------------------------------
<S>                                <C>       <C>
  Trade payables                   $ 1,480   $ 1,471

  Accrued salaries, vacation,
  and bonus                            463       444

  Taxes payable                        179       232

  Interest payable                     155       165

  Workers' compensation and general
  liability insurance                   90        77

  Common dividends payable              79       140

  Other(1)                             905       914
                                  -------------------------
  Total                            $ 3,351   $ 3,443
-----------------------------------------------------------
</TABLE>

(1) INCLUDES $86 MILLION AND $110 MILLION FOR 1999 AND 1998, RESPECTIVELY,
    RELATED TO OTHER CHARGES AND CREDITS, NET, PRINCIPALLY FUTURE LEASE
    OBLIGATIONS.


6   SHORT-TERM DEBT

<TABLE>
<CAPTION>

---------------------------------------
  ($ IN MILLIONS)                          1999      1998
-------------------------------------------------------------
<S>                                       <C>      <C>
  Commercial paper                        $  330   $  1,924

  Average interest rate at year-end         6.3%       5.1%
-------------------------------------------------------------
</TABLE>


32

<PAGE>

The decline in short-term debt as of the end of 1999 is the result of paying
down commercial paper balances with the proceeds from the sale of the Company's
proprietary credit card receivables in December 1999. Committed bank credit
facilities available to the Company as of January 29, 2000 totaled $3.0 billion.
The facilities, as amended and restated in 1999, support the Company's
short-term borrowing program and are comprised of a $1.5 billion, 364-day
revolver (expires September 29, 2000) and a $1.5 billion, five-year revolver
(expires November 21, 2002). None of the borrowing facilities was in use as of
January 29, 2000.

The Company also has $1 billion of uncommitted credit lines in the form of
letters of credit with seven banks to support its direct import merchandise
program. As of January 29, 2000, $404 million of letters of credit issued by the
Company were outstanding.


7   LONG-TERM DEBT

<TABLE>
<CAPTION>

                          JAN. 29, 2000       JAN. 30, 1999
                      --------------------------------------
----------------------   AVG.                AVG.
  ($ IN MILLIONS)        RATE    BALANCE     RATE    BALANCE
------------------------------------------------------------
<S>                       <C>     <C>         <C>    <C>
  Notes and debentures

   Due: Year 1            6.7%    $  625      8.0%   $  424

        Year 2            9.1%       250      6.7%      625

        Year 3            7.5%     1,100      9.1%      250

        Year 4            6.3%       350      7.5%    1,100

        Year 5            7.5%       300      5.8%    1,000

        Years 6 - 10      8.2%     1,172      8.0%    1,441

        Years 11 - 15     9.0%       117      9.0%      125

        Years 16 - 20     7.6%       763      7.6%      767

        Years 21 - 30     7.5%       862      7.5%      875

        Thereafter        7.5%       900      7.5%      900
                      --------------------------------------------
  Total notes and
  debentures              7.6%     6,439      7.4%    7,507

  Capital lease
  obligations and other    --         30       --        74

  Less current
  maturities               --       (625)      --      (438)
                      --------------------------------------------
  Total long-term debt    --     $ 5,844       --   $ 7,143
------------------------------------------------------------------
</TABLE>

ALL NOTES AND DEBENTURES HAVE SIMILAR CHARACTERISTICS REGARDLESS OF DUE DATE AND
THEREFORE ARE GROUPED BY MATURITY DATE IN THE ABOVE SCHEDULE.

In the first quarter of 1999, the Company redeemed approximately $199 million
principal amount of Eckerd Notes, due 2004, having a coupon rate of 9.25
percent. The Company recognized a pre-tax gain of $5 million on the early
extinguishment of the Notes which is classified as a component of Net interest
expense and credit operations in the consolidated statements of income. In the
fourth quarter of 1999, GE Capital assumed $650 million of debt, described
below, in conjunction with the purchase of the Company's proprietary credit card
receivables. During 1998, JCP Receivables, Inc., an indirect wholly owned
subsidiary of the Company, completed a public offering of $650 million aggregate
principal amount of Series E asset-backed certificates of JCP Master Credit Card
Trust. The certificates had a maturity of five years and an interest rate of 5.5
percent. The transaction did not meet the criteria for sale accounting under FAS
No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES, and accordingly was accounted for as a secured
borrowing.

8   CAPITAL STOCK

At January 29, 2000, there were approximately 55 thousand stockholders of
record. On a combined basis, the Company's savings plans, including the
Company's employee stock ownership plan (ESOP), held 46.5 million shares of
common stock or 16.8 percent of the Company's common shares after giving effect
to the conversion of preferred stock.

COMMON STOCK. The Company has authorized 1,250 million shares, par value $.50;
261 million shares were issued and outstanding as of January 29, 2000, and 250
million shares were issued and outstanding as of January 30, 1999.

PREFERRED STOCK. The Company has authorized 25 million shares; 743 thousand
shares of Series B ESOP Convertible Preferred Stock were issued and outstanding
as of January 29, 2000, and 792 thousand shares were issued and outstanding as
of January 30, 1999. Each share is convertible into 20 shares of the Company's
common stock at a guaranteed minimum price of $30 per common share. Dividends
are cumulative and are payable semi-annually at a rate of $2.37 per common share
equivalent, a yield of 7.9 percent. Shares may be redeemed at the option of the
Company or the ESOP under certain circumstances. The redemption price may be
satisfied in cash or common stock or a combination of both, at the Company's
sole discretion.

PREFERRED STOCK PURCHASE RIGHTS. In March 1999, the Board of Directors declared
a dividend distribution of one preferred stock purchase right on each
outstanding share of common stock in connection with the redemption of the
Company's then existing preferred stock purchase rights program. These rights
entitle the holder to purchase, for each right held, 1/1000 of a


                                                                              33

<PAGE>

share of Series A Junior Participating Preferred Stock at a price of $140. The
rights are exercisable by the holder upon the occurrence of certain events and
are redeemable by the Company under certain circumstances as described by the
rights agreement. The rights agreement contains a three-year independent
director evaluation provision. This "TIDE" feature provides that a committee of
the Company's independent directors will review the rights agreement at least
every three years and, if they deem it appropriate, may recommend to the Board a
modification or termination of the rights agreement.


9   STOCK-BASED
    COMPENSATION

The Company has a stock-based compensation plan which was approved by
stockholders in 1997. The plan reserved 14 million shares of common stock for
issuance to plan participants upon the exercise of options over the ten-year
term of the plan. Approximately 2,000 employees, comprised principally of
selected management employees, are eligible to participate. Both the number of
shares and the exercise price, which is based on the average market price, are
fixed at the date of grant and have a maximum term of ten years. The plan also
provides for grants of stock options and stock awards to outside members of the
Board of Directors. Shares acquired by such directors are not transferable until
a director terminates service. The Company accounts for stock-based compensation
under the provisions of APB No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.
Accordingly, net income and earnings per share shown in the consolidated
statements of income appearing on page 25 do not reflect any compensation cost
for the Company's fixed stock options. In accordance with FAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, the fair value of each fixed option
granted is estimated on the date of grant using the Black-Scholes option pricing
model, as follows:

OPTION ASSUMPTIONS

<TABLE>
<CAPTION>

                                 1999     1998     1997
-----------------------------------------------------------
<S>                              <C>      <C>      <C>
  Dividend yield                 3.8%     3.8%     4.0%

  Expected volatility           25.1%    20.5%    21.3%

  Risk-free interest rate        5.5%     5.7%     6.3%

  Expected option term        7 years  6 years  6 years

  Fair value per share of
  options granted              $ 8.41  $ 13.66   $ 9.76
-----------------------------------------------------------
</TABLE>

Compensation expense recorded under FAS No. 123 would have been approximately
$40 million in 1999, $21 million in 1998 and $11 million in 1997, reducing
earnings per share by approximately 15 cents in 1999, eight cents in 1998 and
four cents in 1997.

-------------------------------------------------------------------------------

The following table summarizes the status of the Company's fixed stock option
plans for the three years ended January 29, 2000, January 30, 1999 and January
31, 1998:

OPTIONS

<TABLE>
<CAPTION>

                                                            1999                  1998                 1997
-------------------------------------------------------------------------------------------------------------------
  (SHARES IN THOUSANDS, PRICE IS WEIGHTED AVERAGE)   SHARES      PRICE     SHARES      PRICE     SHARES     PRICE
-------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>        <C>        <C>        <C>        <C>        <C>
  Outstanding at beginning of year                    6,972      $ 48       7,583      $ 40       8,633      $ 36

  Granted                                             5,619        36       1,643        71       1,413        45

  Exercised                                            (479)       23      (2,100)       36      (2,347)       30

  Expired and cancelled                                (280)       40        (154)       61        (116)       48
                                                   ----------------------------------------------------------------
  Outstanding at end of year                         11,832      $ 43       6,972      $ 48       7,583      $ 40
                                                   ----------------------------------------------------------------
  Exercisable at end of year                          6,913      $ 48       5,418      $ 41       6,428      $ 38
-------------------------------------------------------------------------------------------------------------------
</TABLE>

OPTIONS AS OF JANUARY 29, 2000

<TABLE>
<CAPTION>


                                                              OUTSTANDING                 EXERCISABLE
------------------------------------                 -------------------------------------------------------------
(SHARES IN THOUSANDS, PRICE AND TERM                                      REMAINING
 ARE WEIGHTED AVERAGES)                              SHARES       PRICE   TERM (YRS.)  SHARES   PRICE
-------------------------------------------------------------------------------------------------------------------

<S>                                                   <C>        <C>          <C>     <C>        <C>
  Under $25                                              27      $ 16         5.8        27      $ 16

  $25 - $35                                           1,779        28         1.9     1,768        28

  $35 - $45                                           5,897        37         8.4     1,087        42

  $45 - $55                                           1,828        48         6.6     1,825        48

  Over $55                                            2,301        66         7.3     2,206        66
                                                  -----------------------------------------------------------------
  Total                                              11,832      $ 43         6.9     6,913      $ 48
-------------------------------------------------------------------------------------------------------------------
</TABLE>


34

<PAGE>

10   INTEREST EXPENSE, NET

<TABLE>
<CAPTION>

------------------------
  ($ IN MILLIONS)         1999     1998    1997
------------------------------------------------------
<S>                      <C>      <C>      <C>
  Short-term debt        $ 137    $ 106    $ 121

  Long-term debt           536      557      527

  Other, net *             (61)     (48)     (64)
                        ------------------------------
  Interest expense, net  $ 612    $ 615    $ 584
------------------------------------------------------
</TABLE>


*   INCLUDES $34 MILLION IN BOTH 1999 AND 1997, AND $39 MILLION IN 1998 FOR
    INTEREST INCOME FROM THE COMPANY'S INVESTMENT IN ASSET-BACKED CERTIFICATES.


11   LEASE COMMITMENTS

The Company conducts the major part of its operations from leased premises that
include retail stores, catalog fulfillment centers, warehouses, offices and
other facilities. Almost all leases will expire during the next 20 years;
however, most leases will be renewed or replaced by leases on other premises.
Rent expense for real property operating leases totaled $667 million in 1999,
$585 million in 1998, and $541 million in 1997, including contingent rent, based
on sales, of $64 million, $66 million and $72 million for the three years,
respectively.

The Company also leases data processing equipment and other personal property
under operating leases of primarily three to five years. Rent expense for
personal property leases was $127 million in 1999, $123 million in 1998, and
$126 million in 1997.

Future minimum lease payments for non-cancelable operating and capital leases,
net of executory costs, principally real estate taxes, maintenance and
insurance, and subleases, as of January 29, 2000 were:

<TABLE>
<CAPTION>

----------------------------------------------------------
  ($ IN MILLIONS)                OPERATING   CAPITAL
----------------------------------------------------------
<S>                             <C>          <C>
  2000                          $    620       $ 10

  2001                               568         10

  2002                               521          6

  2003                               492          1

  2004                               454         --

  Thereafter                       3,099         --
                               ---------------------------
  Total minimum lease payments   $ 5,754       $ 27
                               ---------------------------
  Present value                  $ 3,302       $ 24

  Weighted average interest rate    9.7%      10.0%
----------------------------------------------------------
</TABLE>


12   ADVERTISING COSTS

Advertising costs consist principally of newspaper, television, radio and
catalog book costs. In 1999, the total cost of advertising was $1,054 million
compared with $1,077 million in 1998, and $977 million in 1997. The consolidated
balance sheets include deferred advertising costs, primarily catalog book costs,
of $84 million as of January 29, 2000, and $87 million as of January 30, 1999,
classified as Other Assets.


13   RETIREMENT PLANS

The Company's retirement plans consist principally of a noncontributory pension
plan, noncontributory supplemental retirement and deferred compensation plans
for certain management associates, a contributory medical and dental plan, and a
401(k) plan and employee stock ownership plan. In 1998, the Company adopted two
additional non-qualified savings plans. Pension plan assets are invested in a
balanced portfolio of equity and debt securities managed by third party
investment managers. In addition to the above, Eckerd has a noncontributory
pension plan. As of January 1, 1999, all Eckerd retirement benefit plans were
frozen and employees began to accrue benefits under the Company's retirement
plans. The cost of these programs and the December 31 balances of plan assets
and obligations are shown below:

EXPENSE

<TABLE>
<CAPTION>

-------------------------------
  ($ IN MILLIONS)                 1999     1998     1997
--------------------------------------------------------------
<S>                              <C>       <C>      <C>
  PENSION AND HEALTH CARE

  Service cost                   $ 109     $ 76     $ 68

  Interest cost                    220      221      200

  Projected return on assets      (314)    (283)    (488)

  Net amortization                  13       14      248
                               -------------------------------
  Total pension and
  health care                       28       28       28

  SAVINGS PLAN EXPENSE              35       76       71
                               -------------------------------
  TOTAL RETIREMENT PLANS          $ 63    $ 104     $ 99
--------------------------------------------------------------
</TABLE>


                                                                              35

<PAGE>

ASSUMPTIONS

<TABLE>
<CAPTION>

                              1999     1998    1997
-------------------------------------------------------
<S>                           <C>      <C>    <C>
  Discount rate               7.75%    6.75%  7.25%

  Expected return on assets   9.5%     9.5%    9.5%

  Salary progression rate     4.0%     4.0%    4.0%

  Health care trend rate      7.0%     7.0%    7.0%
-------------------------------------------------------
</TABLE>


ASSETS AND OBLIGATIONS

PENSION PLANS*

<TABLE>
<CAPTION>

---------------------------------
  ($ IN MILLIONS)                  1999    1998
-----------------------------------------------------
<S>                              <C>     <C>
  PROJECTED BENEFIT OBLIGATION

  Beginning of year              $ 3,006 $ 2,749

  Service and interest cost          303     273

  Actuarial (gain)/loss             (375)    184

  Benefits paid                     (201)   (200)

  Amendments and other                 4      --
                                 --------------------
  End of year                      2,737   3,006


  FAIR VALUE OF PLAN ASSETS

  Beginning of year                3,393   3,064

  Company contributions               35      32

  Net gains                          560     497

  Benefits paid                     (201)   (200)

  Amendments and other                 4      --
                                 --------------------
  End of year                      3,791   3,393


  Excess of fair value over
  projected benefits               1,054     387

  Unrecognized gains and
  prior service cost                (563)     75
                                 --------------------
  PREPAID PENSION COST             $ 491   $ 462
-----------------------------------------------------
</TABLE>


*   INCLUDES SUPPLEMENTAL RETIREMENT PLAN.

MEDICAL AND DENTAL

<TABLE>
<CAPTION>

------------------------------------
  ($ IN MILLIONS)                     1999     1998
--------------------------------------------------------
<S>                                  <C>      <C>
  Accumulated benefit obligation     $ 322    $ 334

  Net unrecognized losses               17       10
                                    --------------------

  Net medical and dental liability   $ 339    $ 344
--------------------------------------------------------
</TABLE>

A one percent change in the health care trend rate would change the accumulated
benefit obligation and expense by approximately $26 million and $2 million,
respectively.


14   OTHER CHARGES AND
     CREDITS, NET

CHARGES/(CREDITS) BY CATEGORY

<TABLE>
<CAPTION>

------------------------
  ($ IN MILLIONS)         1999     1998    1997
---------------------------------------------------
<S>                      <C>       <C>   <C>
  Asset impairments      $ 240     $ --  $   72

  Gain on the sale of
  business units           (55)      --     (63)

  Workforce reduction
  programs                  --       --     206

  Store closing costs       --       --      61

  Drugstore integration
  costs                     --       --     103

  Other                    (16)     (22)     --
                        ---------------------------
  Total                  $ 169    $ (22) $  379
                        ---------------------------
  Net income impact      $ 126    $ (13) $  231
---------------------------------------------------
</TABLE>

In 1999's fourth quarter the Company recorded items totaling $169 million on a
pre-tax basis that are reported as Other charges and credits, net. This charge
was comprised of three categories: (i) asset impairment charges of $240 million,
(ii) a $55 million gain on the sale of the Company's proprietary credit card
receivables and (iii) reversal of reserves and recognition of gains, together
totaling $16 million, related to 1996 and 1997 store restructuring provisions.

Asset impairments were recognized for underperforming department stores ($130
million) and drugstores ($110 million) in accordance with FAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF. The impairment charges represent the excess of the carrying
values of the assets, including intangible assets, over estimated fair values.
The department store charge relates to ten stores, with the majority
attributable to seven stores in the Washington, D.C. market that were acquired
in 1995. The Washington, D.C. stores have performed substantially below levels
anticipated at the time of the acquisition, and the impairment charge generally
represents goodwill associated with the acquisition. Three of the impaired
department stores had contracts of sale pending as of the end of fiscal 1999 and
are expected to close by the end of the first quarter of 2000. Fair values for
department stores were determined based on the established sales prices for the
three stores, independent appraisals of three other stores and projected cash
flows for the remaining stores. Stores held for sale were written down to net
realizable value. Drugstore impairment charges represent the write-off of fixed


36

<PAGE>

assets, including intangibles, associated with 289 underperforming stores
located throughout Eckerd's operating area, with concentrations in Pennsylvania,
Virginia, New Jersey and New York. The impaired stores generally represent
smaller, low-volume stores that were former independent units and chains
acquired over the years that do not meet Eckerd's performance standards and
cannot be relocated. Subsequent to year end, a plan was approved to close all of
the stores during the first half of fiscal 2000 with the majority closing by May
1. Fair values were based on projected cash flows for the expected remaining
operating periods for the individual stores.

In December 1999, the Company completed the sale of its proprietary credit card
receivables, including its credit facilities, to GE Capital at a gain of $55
million (see Note 2 for further discussion of the sale). The Company also
recorded credits related to restructuring charges recognized in 1996 and 1997.
Gains on the sale of two closed department store locations that had been written
off in 1997 totaled $4 million and reserves for future lease obligations were
reduced by $7 million based on the negotiation of lease terminations that were
lower than the reserves that had been established in 1997. In addition,
drugstore reserves were reduced by $5 million.

In 1998's fourth quarter, the Company recorded a $22 million pre-tax credit for
the reversal of reserves established in 1997 for future obligations for store
closings and workforce reduction programs. The reversals related to the final
settlement of obligations for amounts less than anticipated. In 1997, the
Company recorded pre-tax charges, net of $379 million, comprised of early
retirement and workforce reduction programs ($206 million), the closing of
underperforming department stores ($133 million), drugstore integration
activities ($103 million), and gains on the sale of business units ($63
million). Reserves for future obligations were established for certain
components of the 1997 charges which are discussed in Note 15 below.


15   RESTRUCTURING
     RESERVES

During 1996 and 1997, the Company established reserves for future costs
associated with certain restructuring charges. These reserves were principally
related to future lease obligations for both department stores and drugstores
that were identified for closing. The following tables provide a roll forward of
reserves that were established for these charges. Reserves are reviewed for
adequacy on a periodic basis and are adjusted as appropriate based on those
reviews. The following schedules, and the accompanying discussion, provide the
status of the reserves as of January 29, 2000.

1997 OTHER CHARGES

<TABLE>
<CAPTION>

                                                      1998                          1999
-----------------------------------------------------------------------------------------------------------
                                                       Y/E            CASH          OTHER         Y/E
($ IN MILLIONS)                                      RESERVE         OUTLAYS       CHANGES      RESERVE
-----------------------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>           <C>         <C>
  DEPARTMENT STORES AND CATALOG

  Future lease obligations(1)                         $ 20           $ (5)         $ (7)       $   8

  ECKERD DRUGSTORES

  Future obligations, primarily leases(1)               27             (4)           --           23
                                                 ----------------------------------------------------------

  Total                                               $ 47           $ (9)         $ (7)        $ 31
-----------------------------------------------------------------------------------------------------------
</TABLE>


(1) RESERVE BALANCES ARE INCLUDED AS A COMPONENT OF ACCOUNTS PAYABLE AND ACCRUED
    EXPENSES.


                                                                              37

<PAGE>

DEPARTMENT STORES AND CATALOG

FUTURE LEASE OBLIGATIONS. In 1997, the Company identified 97 underperforming
stores that did not meet the Company's profit objectives and several support
units (credit service centers and warehouses) which were no longer needed. All
of these facilities had closed by the end of fiscal 1998. The store-closing plan
anticipated that the Company would remain liable for all future lease
obligations. The reserve as of the end fiscal 1999 represents future lease
obligations, and costs are being charged against the reserve as incurred. During
fiscal 1999, approximately $5 million in lease payments had been charged against
the reserve. In the fourth quarter of 1999, reserves were reduced by $7 million
as a result of favorable lease termination settlements for certain stores.

ECKERD DRUGSTORES

FUTURE OBLIGATIONS, PRIMARILY LEASES. During 1997, the Company established
reserves for the present value of future lease payments for certain drugstores
that were identified for closure. In addition, reserves were established for
pending litigation and other miscellaneous charges, each individually
insignificant. During fiscal 1999, approximately $4 million in payments were
charged against the reserve. On a combined basis, the reserves totaled $23
million at the end of fiscal 1999.

1996 OTHER CHARGES

<TABLE>
<CAPTION>

                                                      1998                          1999
-------------------------------------------------------------------------------------------------------------------
                                                       Y/E            Cash          Other         Y/E
($ IN MILLIONS)                                      Reserve         Outlays       Changes      Reserve
-------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>          <C>          <C>
  Eckerd Drugstores

  Future lease obligations and severance(1)           $ 59            $ (3)        $ (5)        $ 51

  Allowance for notes receivable(2)                     25              --           --           25

  Other(1)                                               4              --           --            4
-------------------------------------------------------------------------------------------------------------------
  Total                                               $ 88            $ (3)        $ (5)        $ 80
-------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) RESERVE BALANCES ARE INCLUDED AS A COMPONENT OF ACCOUNTS PAYABLE AND ACCRUED
    EXPENSES.

(2) THE ALLOWANCE FOR NOTES RECEIVABLE IS INCLUDED AS A REDUCTION OF OTHER
    ASSETS.


FUTURE LEASE OBLIGATIONS. In 1996 the Company identified certain drugstores that
would be closed in connection with its acquisition of Eckerd Corporation, and
established a reserve for the present value of future lease obligations for the
closed drugstores. Costs are being charged against the reserve as incurred; the
interest component related to lease payments is recorded as rent expense in the
period incurred with no corresponding increase in the reserve. During fiscal
year 1999, approximately $3 million in lease payments were charged against the
reserve. These reserves were reviewed for adequacy in 1999, and consequently,
were reduced by $5 million.

ALLOWANCE FOR NOTES RECEIVABLE. In connection with the Eckerd acquisition, the
Federal Trade Commission required that the Company divest certain drugstores in
North Carolina and South Carolina. The sale of these drugstores was partially
financed by the Company through a note receivable for $33 million. A reserve for
75 percent of the face value of the note receivable was established due to the
significant constraints on the Company's ability to collect on the note.

OTHER. The remaining charges, the majority of which have been expensed as
incurred, were related to integration activities for the Fay's drugstores
acquired by the Company in October 1996, and other activities such as contract
terminations.


38
<PAGE>

16   SUBSEQUENT EVENT

In February 2000, the Company announced that it was evaluating underperforming
assets and as a result, expected to close 40 to 45 department stores and 289
drugstores. The majority of department store closings are expected to occur by
July 1, 2000, while the majority of drugstore closings are expected to occur by
May 1, 2000. Charges associated with department store closings are expected to
total approximately $125 million and charges associated with drugstore closings
are expected to total approximately $200 million, including inventory
liquidation costs and store operating costs during the shut-down period of
approximately $80 million which will be reported within drugstore segment
results. Exit costs are expected to consist principally of the write-off of
asset values, the present value of future lease obligations, and severance and
outplacement costs. In addition, the Company expects to finalize other cost
saving initiatives that will result in a first quarter 2000 charge of $16
million.


17   TAXES

Deferred tax assets and liabilities reflected in the Company's consolidated
balance sheet as of January 29, 2000 were measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The major components of
deferred tax (assets)/liabilities as of January 29, 2000 and January 30, 1999
were as follows:

TEMPORARY DIFFERENCES

<TABLE>
<CAPTION>

--------------------------------
  ($ IN MILLIONS)                  1999    1998
-----------------------------------------------------
<S>                              <C>      <C>
  Depreciation and amortization  $ 1,104  $ 1,084

  Leases                             318      312

  Deferred acquisition costs         224      233

  Retirement benefits                 47       49

  Other, including
  comprehensive income/(loss)        (73)     (59)
                                ---------------------
  Total                          $ 1,620  $ 1,619
-----------------------------------------------------
</TABLE>


INCOME TAX EXPENSE

<TABLE>
<CAPTION>

-------------------------
  ($ IN MILLIONS)         1999     1998    1997
----------------------------------------------------
<S>                       <C>      <C>     <C>
  CURRENT

  Federal and foreign     $ 227    $ 111   $ 319

  State and local           (21)      31      39
                         ---------------------------

  Subtotal                  206      142     358


  DEFERRED

  Federal and foreign        (5)     219       3

  State and local            (6)      --      (2)
                         ---------------------------

  Subtotal                  (11)     219       1
                         ---------------------------
  Total                   $ 195    $ 361   $ 359

  Effective tax rate      36.8%    37.8%   38.8%
----------------------------------------------------
</TABLE>


1999 BALANCES INCLUDE $12 MILLION OF DEFERRED TAXES RELATED TO THE GENOVESE
ACQUISITION.

RECONCILIATION OF TAX RATES

<TABLE>
<CAPTION>

----------------------------------
  (PERCENT OF PRE-TAX INCOME)      1999    1998      1997
-------------------------------------------------------------
<S>                                 <C>      <C>     <C>
  Federal income tax
  at statutory rate                 35.0     35.0    35.0

  State and local income
  taxes, less federal income
  tax benefit                       (3.4)     2.2     2.8

  Tax effect of dividends
  on allocated ESOP shares          (2.8)    (1.4)   (1.3)

  Tax credits and other              8.0      2.0     2.3
                                  ---------------------------
  Total                             36.8     37.8    38.8
-------------------------------------------------------------
</TABLE>

Declines in the effective tax rate over the last three years are related
primarily to the effects of tax planning strategies that have significantly
reduced state and local effective income tax rates.


                                                                              39

<PAGE>

18   SEGMENT REPORTING

The Company operates in three business segments: Department stores and catalog,
Eckerd drugstores, and Direct Marketing. The results of Department stores and
catalog are combined because they generally serve the same customer, have
virtually the same mix of merchandise, and the majority of catalog sales are
completed in department stores. For more detailed descriptions of each business
segment, including products sold, see page 2 and pages 5 through 13 of this
report. Other items are shown in the table below for purposes of reconciling to
total Company consolidated amounts.

<TABLE>
<CAPTION>


----------------------------------------                      Operating    Total      Capital    Depr. &
  ($ IN MILLIONS)                        Year       Revenue   Profit(1)   Assets   Expenditures  Amort.
----------------------------------------------------------------------------------------------------------
<S>                                      <C>      <C>        <C>        <C>           <C>        <C>
  Department stores and catalog(2)       1999     $ 18,964   $    670   $ 10,906      $ 321      $ 386

                                         1998       19,114        920     14,433        439        380

                                         1997       19,819      1,275     14,850        464        366


  Eckerd drugstores                      1999       12,427        183      7,053        283        193

                                         1998       10,325        254      6,361        256        139

                                         1997        9,663        347      6,064        341        112


  Direct Marketing                       1999        1,119        247      2,842          2          2

                                         1998        1,022        237      2,603          1          5

                                         1997          928        217      2,283          5          5


  Total segments                         1999       32,510      1,100     20,801        606        581

                                         1998       30,461      1,411     23,397        696        524

                                         1997       30,410      1,839     23,197        810        483


  Net interest expense and credit
    operations                           1999           --       (299)        --         --         --

                                         1998           --       (391)        --         --         --

                                         1997           --       (457)        --         --         --


  Real estate and other and
    acquisition amortization             1999           --       (101)        87         --        129

                                         1998           --        (87)       111         --        113

                                         1997           --        (78)       166         --        101


  Other charges and credits, net         1999           --       (169)        --         --         --

                                         1998           --         22         --         --         --

                                         1997           --       (379)        --         --         --


  Total Company                          1999       32,510        531     20,888        606        710

                                         1998       30,461        955     23,508        696        637

                                         1997       30,410        925     23,363        810        584
----------------------------------------------------------------------------------------------------------
</TABLE>


(1) TOTAL COMPANY OPERATING PROFIT EQUALS INCOME BEFORE INCOME TAXES AS SHOWN ON
    THE COMPANY'S CONSOLIDATED STATEMENTS OF INCOME.

(2) INCLUDES CERTAIN AMOUNTS FOR CORPORATE DEPARTMENTS.


40

<PAGE>

QUARTERLY DATA (UNAUDITED)

J. C. PENNEY COMPANY, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

                                                   FIRST              SECOND              THIRD                FOURTH
----------------------------------------------------------------------------------------------------------------------------
  ($ IN MILLIONS, EXCEPT PER SHARE DATA)      1999       1998      1999     1998      1999      1998       1999      1998
----------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>        <C>       <C>       <C>       <C>       <C>       <C>       <C>
  Retail sales, net                         $ 7,258    $ 6,755   $ 7,034   $ 6,483   $ 7,552   $ 7,129   $ 9,547   $ 9,072

  Total revenue                               7,532      7,001     7,310     6,734     7,834     7,381     9,834     9,345

  LIFO gross margin                           1,966      1,904     1,756     1,629     2,057     2,015     2,238     2,249

  Net income/(loss)                             167        174        39        27       142       186       (12)      207

  Net income/(loss) per common share,
    diluted                                    0.61       0.64      0.12(1)   0.08(1)   0.51      0.68     (0.08)(1)  0.77

  Dividend per common share                   0.545      0.545     0.545     0.545     0.545     0.545    0.2875     0.545

  Price range

    High                                      48.38      77.88     54.44     78.75     44.88     59.38     27.50     56.13

    Low                                       35.38      64.69     43.75     58.00     25.31     42.63     17.69     38.13

    Close                                     45.63      71.94     43.75     58.69     25.38     47.50     18.31     39.00
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


FIVE YEAR FINANCIAL SUMMARY

J. C. PENNEY COMPANY, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

--------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA)                  1999      1998        1997       1996       1995
------------------------------------------------------------------------------------------------------------
<S>                                                 <C>        <C>        <C>        <C>        <C>
  RESULTS FOR THE YEAR

  Total revenue                                     $ 32,510   $ 30,461   $ 30,410   $ 23,292   $ 21,084

  Retail sales, net                                   31,391     29,439     29,482     22,474     20,404

    Percent increase                                    6.6%     (0.1)%      31.2%      10.1%       1.5%

  Net income                                           $ 336      $ 594      $ 566      $ 565      $ 838

  Return on beginning stockholders' equity              4.7%       8.2%       8.0%(2)    9.7%      15.1%(3)

  Per common share

    Net income, diluted                               $ 1.16(1)  $ 2.19     $ 2.10     $ 2.25     $ 3.33

    Dividends                                           1.92       2.18       2.14       2.08       1.92

    Stockholders' equity                               26.17      26.74      27.31      24.71      24.60

  FINANCIAL POSITION

  Capital expenditures                                   606        696        810        790        749

  Total assets                                        20,888     23,508     23,363     21,958     16,972

  Long-term debt                                       5,844      7,143      6,986      4,565      4,080

  Stockholders' equity                                 7,228      7,102      7,290      5,885      5,817(3)

  OTHER

  Common shares outstanding at end of year               261        250        251        224        224

  Weighted average common shares

    Basic                                                259        253        247        226        226

    Diluted                                              275        271        268        248        249

  Number of employees at end of year (IN THOUSANDS)      291        268        260        252        205
------------------------------------------------------------------------------------------------------------
</TABLE>

(1) CALCULATION EXCLUDES THE EFFECTS OF THE POTENTIAL CONVERSION OF OUTSTANDING
    PREFERRED SHARES INTO COMMON SHARES, AND RELATED DIVIDENDS, BECAUSE THEIR
    INCLUSION WOULD HAVE AN ANTI-DILUTIVE EFFECT ON EPS.

(2) ASSUMES THE COMPLETION OF THE ECKERD ACQUISITION IN BEGINNING EQUITY.

(3) BEGINNING REINVESTED EARNINGS HAS BEEN REDUCED BY $67 MILLION, NET OF TAX,
    TO REFLECT CHANGES TO CERTAIN REVENUE RECOGNITION POLICIES.


                                                                              41

<PAGE>


FIVE YEAR OPERATIONS SUMMARY

J. C. PENNEY COMPANY, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

                                                      1999       1998       1997       1996       1995
------------------------------------------------------------------------------------------------------------
<S>                                                    <C>        <C>        <C>        <C>        <C>
  DEPARTMENT STORES

  Number of stores - JCPenney department stores

    Beginning of year                                  1,148      1,203      1,228      1,238      1,233

    Openings                                              14         12         34         36         43

    Closings                                             (19)       (67)       (59)       (46)       (38)
                                                 -----------------------------------------------------------
    End of year                                        1,143      1,148      1,203      1,228      1,238

  Renner department stores                                35         21         --         --         --
                                                 -----------------------------------------------------------
  Total department stores                              1,178      1,169      1,203      1,228      1,238

  Gross selling space (IN MILLIONS)                    116.4      116.0      118.4      117.2      114.3

  Sales (IN MILLIONS)                               $ 15,016   $ 15,224   $ 15,904   $ 15,568   $ 14,814

  Sales including catalog desks (IN MILLIONS)         17,575     17,991     18,953     18,515     17,771

  Sales per gross square foot                            154        154        156        157        154
                                                 -----------------------------------------------------------
  CATALOG

  Number of catalog units

    Department stores                                  1,142      1,139      1,199      1,226      1,228

    Freestanding sales centers and other                 509        512        554        569        565

    Drugstores                                           410        139        110        107        106
                                                 -----------------------------------------------------------

    Total                                              2,061      1,790      1,863      1,902      1,899

  Sales (IN MILLIONS)                              $   3,948  $   3,890  $   3,915  $   3,759  $   3,739
                                                 -----------------------------------------------------------
  ECKERD DRUGSTORES

  Number of stores

    Beginning of year                                  2,756      2,778      2,699        645        526

    Openings                                             266*       220*       199*        47         37

    Acquisitions                                         163         36        200      2,020         97

    Closings                                            (287)*     (278)*     (320)*      (13)       (15)
                                                 -----------------------------------------------------------
    End of year                                        2,898      2,756      2,778      2,699        645

  Gross selling space (IN MILLIONS)                     29.2       27.6       27.4       26.4        6.2

  Sales (IN MILLIONS)                               $ 12,427   $ 10,325  $   9,663  $   3,147  $   1,851

  Sales per gross square foot                            395        350        314        261        253
                                                 -----------------------------------------------------------
  DIRECT MARKETING

  Revenue (IN MILLIONS)                            $   1,119  $   1,022 $      928 $      818 $      680

  Distribution of revenue

    JCPenney customers                                   48%        50%        53%        56%        65%

    Other business relationships                         52%        50%        47%        44%        35%

  Policies, certificates, and memberships
  in force at year end (IN MILLIONS)                    14.8       14.7       13.2       11.3        9.6
------------------------------------------------------------------------------------------------------------
</TABLE>


*   INCLUDES RELOCATIONS OF 208 DRUGSTORES IN 1999, 175 DRUGSTORES IN 1998 AND
    127 DRUGSTORES IN 1997.


42

<PAGE>

SUPPLEMENTAL DATA (UNAUDITED)

GENERAL. The following information is provided as a supplement to the Company's
audited financial statements. Its purpose is to facilitate an understanding of
credit sales penetration rates, capital structure and cash flows.

The following table presents the sales penetration rates of the Company's
proprietary/private-label and third-party credit cards.

DEPARTMENT STORES AND CATALOG

<TABLE>
<CAPTION>

                                                 1999                  1998                  1997
                                          -------------------------------------------------------------------------
                                                   PERCENT OF            PERCENT OF            PERCENT OF
------------------------------------------          ELIGIBLE              ELIGIBLE              ELIGIBLE
  ($ IN BILLIONS)                          SALES      SALES      SALES      SALES      SALES      SALES
-------------------------------------------------------------------------------------------------------------------
<S>                                        <C>           <C>     <C>           <C>     <C>           <C>
  JCPenney credit card                     $  7.4        37.9%   $   7.6       39.4%   $  8.6        43.4%

  Third-party credit cards                    5.2        27.6%       5.0       26.1%      4.7        23.5%
                                          -------------------------------------------------------------------------
  Total                                    $ 12.6        65.5%    $ 12.6       65.5%   $ 13.3        66.9%
-------------------------------------------------------------------------------------------------------------------
</TABLE>

EBITDA. Earnings before interest, taxes, depreciation, and amortization (EBITDA)
is a key measure of cash flow generated and is provided as an alternative
assessment of operating performance. It is not intended to be a substitute for
GAAP measurements. Following is a calculation of EBITDA by operating segment on
an individual and combined basis; calculations may vary for other companies:

<TABLE>
<CAPTION>

-------------------------------------------      DEPARTMENT       ECKERD        DIRECT           TOTAL
  ($ IN MILLIONS)                             STORES & CATALOG  DRUGSTORES     MARKETING       SEGMENTS
-----------------------------------------------------------------------------------------------------------
<S>                                              <C>            <C>            <C>           <C>
  1999

  Revenue                                        $ 18,964       $ 12,427       $ 1,119       $ 32,510

  Segment profit                                      670            183           247          1,100

  Depreciation and amortization                       386            193             2            581

  Credit operating results                            313             --            --            313
                                          -----------------------------------------------------------------
  EBITDA                                        $   1,369     $      376      $    249      $   1,994

    % of revenue                                     7.2%           3.0%         22.3%           6.1%
                                          -----------------------------------------------------------------
  1998

  Revenue                                        $ 19,114       $ 10,325       $ 1,022       $ 30,461

  Segment profit                                      920            254           237          1,411

  Depreciation and amortization                       380            139             5            524

  Credit operating results                            224             --            --            224
                                          -----------------------------------------------------------------
  EBITDA                                        $   1,524     $      393      $    242        $ 2,159

    % of revenue                                     8.0%           3.8%         23.7%           7.1%
                                          -----------------------------------------------------------------
  1997

  Revenue                                        $ 19,819      $   9,663      $    928       $ 30,410

  Segment profit                                    1,275            347           217          1,839

  Depreciation and amortization                       366            112             5            483

  Credit operating results                            127             --            --            127
                                          -----------------------------------------------------------------
  EBITDA                                        $   1,768     $      459      $    222      $   2,449

    % of revenue                                     8.9%           4.7%         23.9%           8.0%
-----------------------------------------------------------------------------------------------------------
</TABLE>


                                                                              43

<PAGE>

CAPITAL STRUCTURE. The Company's objective is to maintain a capital structure
that will assure continuing access to financial markets so that it can, at
reasonable cost, provide for future needs and capitalize on attractive
opportunities for growth.

The debt to capital percentage shown in the table below includes both debt
recorded on the Company's consolidated balance sheet as well as
off-balance-sheet debt related to operating leases and the securitization of a
portion of the Company's customer accounts receivable (asset-backed
certificates).

DEBT TO CAPITAL

<TABLE>
<CAPTION>
--------------------------
  ($ IN MILLIONS)             1999        1998        1997
--------------------------------------------------------------
<S>                        <C>           <C>        <C>
  Short-term debt,
  net of cash investments  $  (1,170)(1) $ 1,602    $ 1,209

  Long-term debt,
  including current
  maturities                   6,469       7,581      7,435
--------------------------------------------------------------
                               5,299       9,183      8,644

  Off-balance-sheet debt:

    Present value of
    operating leases           3,302       2,715      2,250

    Securitization of
    receivables, net              --         146        343
                          ------------------------------------
  Total debt                   8,601      12,044     11,237

  Consolidated equity          7,228       7,102      7,290
                          ------------------------------------
  Total capital             $ 15,829    $ 19,146   $ 18,527

  Percent of total debt
  to capital                   54.3%       62.9%(2)   60.7%
--------------------------------------------------------------
</TABLE>


(1) INCLUDES ASSET-BACKED CERTIFICATES OF $267 MILLION.

(2) UPON COMPLETION OF THE GENOVESE ACQUISITION, THE COMPANY'S DEBT TO CAPITAL
    RATIO DECREASED TO 62.1%.

The Company's debt to capital percentage improved in 1999 primarily as a result
of the sale of the Company's proprietary credit card receivables. The Company
currently expects the percentage to improve over the next several years.

CREDIT RATINGS. Ratings as of March 13, 2000 were as follows:

<TABLE>
<CAPTION>
                                             LONG-TERM   COMMERCIAL
                                                DEBT       PAPER
---------------------------------------------------------------------
<S>                                             <C>         <C>
  Moody's Investors Service                     Baa2        P2

  Standard & Poor's Corporation                 BBB+(1)     A2(1)

  Fitch Investors Service, Inc.                  A-(1)       F2
---------------------------------------------------------------------
</TABLE>

(1) UNDER REVIEW.

44