J. C. Penney Company, Inc. l Annual Report 2006 - Shopic.com

TODAY'S THE DAY TO MAKE FRIENDS INSTEAD OFCUSTOMERS, TO DEVELOP AN EMOTIONAL CON-NECTION THAT IS STRONG AND ENDURING, ANDINSPIRE THEM WITH OUR MERCHANDISE ANDSERVICES. TODAY'S THE DAY TO ENGAGE ANDRETAIN ASSOCIATES BY BECOMING THE PRE-FERRED CHOICE FOR A RETAIL CAREER. TODAY'STHE DAY TO DELIVER INDUSTRY-LEADING FINAN-CIAL PERFORMANCE BY ESTABLISHINGJCPENNEY AS THE GROWTH LEADER IN THERETAIL INDUSTRY. TODAY’S THE DAY TO TRANS-FORM THE FUTURE, TO BUILD ON THE GUIDINGPRINCIPLE OF THE GOLDEN RULE AND CAPTURETHE HEARTS AND MINDS OF OUR CUSTOMERS.TODAY’S THE DAY TO WELCOME OUR CUS-TOMERS, OUR ASSOCIATES AND OUR STOCK-HOLDERS TO JCPENNEY. TO CREATE THE KIND OFMOMENTS THAT SAY: EVERY DAY MATTERS.

TABLE OF CONTENTS03 MESSAGE TO OUR STOCKHOLDERS05 PERFORM07 CONNECT08 GROW12 INSPIRE16 BUILD18 CARE20 FINANCIAL HIGHLIGHTS21 STOCKHOLDER INFORMATION22 BOARD AND EXECUTIVE BOARDpage six l J. C. Penney Company, Inc. l Annual Report 2006

TODAY’S THE DAY TOCONNECTWITH OUR CUSTOMERSAT JCPENNEY,EVERY DAY IS AN OPPORTUNITYTO GROW OUR BUSINESS.TO CONNECT WITH OUR CUSTOMERS.AND TO INSPIRE THEM.TO BUILD A WINNING CULTUREWITH OUR ASSOCIATES.TO SHOW OUR COMMUNITIESTHAT WE CARE.TODAY’S THE DAY TO WELCOMEOUR CUSTOMERS...OUR ASSOCIATES...OUR STOCKHOLDERSTO JCPENNEY.IN RETAIL, AS IN LIFE,Every Day Matters Shown: St. John's Bay ® for her,The Original Arizona Jean Company ® for kids.page seven l J. C. Penney Company, Inc. l Annual Report 2006

TODAY’S THE DAY TOGROWOUR BUSINESSWITH NEW STORES, SERVICES,AND MERCHANDISE THATCREATE AN EXCITINGSHOPPING EXPERIENCE.Flower Mound, Texas; opened March 2007.jcp.com: OUR FASTEST GROWINGSHOPPING CHANNELJCPenney Direct is shifting to an Internet-dominated shoppingchannel supported by print from a print-dominated shoppingchannel. jcp.com continues to lead the industry with approximately$1.3 billion in 2006 sales.WHAT’S IN STOREJCPenney’s new off-mall store format is generating increased customertraffic and higher sales per square foot. In 2007, the Company plans toopen 50 new stores and remodel 65 existing stores.TEAMING WITH THE BEST IN THE BUSINESSA joint initiative with Sephora is providing JCPenney with a dramatic re-entry into thebeauty business, giving new and existing customers another reason to shop with us.page eight l J. C. Penney Company, Inc. l Annual Report 2006

28 NEW STORES OPENED IN 200650 NEW STORES PLANNED TO OPEN IN 2007250 NEW STORES PLANNED OVER THE NEXT 5 YEARSNew Stores in 2006New Stores planned for 20072006 TOTAL NUMBER OF JCPENNEY STORESAlabama 16Alaska 1Arizona 20Arkansas 16California 76Colorado 18Connecticut 10Delaware 3Florida 55Georgia 29Idaho 8Illinois 35Indiana 28Iowa 20Kansas 19Kentucky 22Louisiana 13Maine 6Maryland 17Massachusetts 11Michigan 41Minnesota 25Mississippi 17Missouri 23Montana 9Nebraska 11Nevada 7New Hampshire 10New Jersey 17New Mexico 10New York 42North Carolina 36North Dakota 8Ohio 45Oklahoma 17Oregon 14Pennsylvania 42Rhode Island 3South Carolina 16South Dakota 8Tennessee 24Texas 78Utah 9Vermont 6Virginia 26Washington 22West Virginia 8Wisconsin 24Wyoming 5Puerto Rico 71,033 total number of JCPenney stores 103.1 million total gross square feetpage nine l J. C. Penney Company, Inc. l Annual Report 2006

TODAY’S THE DAY TOGROWOUR BUSINESSTHROUGH THE LAUNCH OF KEYPRIVATE AND EXCLUSIVE DESIGNERBRANDS THAT ESTABLISH JCPENNEYAS THE LIFESTYLE SHOPPINGDESTINATION FOR STYLE ANDQUALITY AT SMART PRICES.EXCEPTIONAL STYLES. EXCLUSIVELY OURS.a.n.a JCPenney’s new modern casual brand exceeded $300 million in sales during itsfirst year. This private brand for women also exemplifies the Company’s improved cycletime reduction: designed, sourced, and offered to customers in 100 days.east 5th Offering women versatile head-to-toe career wardrobe solutions withclassic style, east 5th commands success. The introduction of east 5th demonstratesour unique ability to develop private brands that address the specific lifestyle needs ofour customers.Studio by JCPenney Home Collection Responding to the needs of the moderncustomer, Studio was introduced as a lifestyle solution for casual, relaxed living. Theaddition of Studio furniture and accessories positions JCPenney as a style leader inhome décor.A BRAND NEW PARTNERSHIPLiz Claiborne, Inc. and JCPenney recently joinedforces to target the traditional woman and modernman with refined casual style and quality.Liz & Co. The Company’s new exclusive brandoffers sportswear, handbags, fashion jewelry, andaccessories, designed to address the style andvalue preferences of traditional customers.Concepts By Claiborne Created for the manseeking high-quality, trend-right fashion, this moderncollection is built on the foundation of fashion basics,complemented with related separates.page ten l J. C. Penney Company, Inc. l Annual Report 2006

OUR LARGEST PRIVATEBRAND LAUNCH INCOMPANY HISTORYAmbriellea sensual indulgence for every bodyAmbrielle debuted in spring 2007 as the centerpiece ofJCPenney's redesigned lingerie department. Created forthe modern woman, Ambrielle blends sensual fashion withoutstanding comfort and support — making it the superiorintimate apparel choice. In addition to offering the largestrange of sizes and selection of any department store,customers are ensured the perfect fit by utilizing one ofmore than 14,000 certified bra fit specialists nationwide.page eleven l J. C. Penney Company, Inc. l Annual Report 2006

TODAY’S THE DAY TOINSPIREOUR CUSTOMERSWITH A STRONG BALANCEOF NATIONAL, PRIVATE, ANDEXCLUSIVE BRANDS THATMAKE JCPENNEY THE BESTSHOPPING CHOICE FOREVERY CUSTOMER’S LIFESTYLE:CONSERVATIVE,TRADITIONAL,MODERN, OR TRENDY.DESTINATIONNATIONAL BRANDSHEADQUARTERS FOR THE NATION’S MOSTRECOGNIZED AND DESIRED BRANDSpage twelve l J. C. Penney Company, Inc. l Annual Report 2006

POWERFUL PRIVATE BRANDS ANDEXCLUSIVE DESIGNER BRANDSOUTSTANDING MERCHANDISE THAT DIFFERENTIATES US FROM OURCOMPETITION AND REPRESENTS APPROXIMATELY 50% OF OUR BUSINESSpage thirteen l J. C. Penney Company, Inc. l Annual Report 2006CYCLE TIME REDUCTION –shortening the time from product conceptualization anddesign until goods arrive in stores – allows JCPenney tooffer more timely fashionable merchandise, react tocustomer preferences more quickly, and drive traffic tostores. We are focused on reducing average cycle timefrom 50 weeks to 25 weeks.

BUILDING A RELATIONSHIP THATIS MORE THAN A TRANSACTIONBY INTEGRATING OUR STORES, CATALOGS, AND jcp.com, WE GETTO KNOW OUR CUSTOMERS BETTER AND PROVIDE A SHOPPINGEXPERIENCE THAT EXCEEDS THEIR EXPECTATIONS.SATISFYING CUSTOMER NEEDSTHROUGH INNOVATIVE OPTIONSNATIONWIDE GIFT REGISTRY Providing resources tocelebrate the key moments in life — weddings, births,housewarmings, and more — helps to build enduringrelationships with customers. Our nationwide Gift Registrymakes gifting for any special occasion an efficient andenjoyable experience.GIFT CARDS For holidays, birthdays, and every day, gift cardshave become one of the most desired gift-giving solutions andcontinue to grow in popularity. For online customers, e-Giftcards offer the ultimate in speed and convenience.page fifteen l J. C. Penney Company, Inc. l Annual Report 2006

TODAY’S THE DAY TOBUILDA WINNING CULTUREBY BECOMINGTHE PREFERRED CHOICEFOR A RETAIL CAREER.OUR WINNING TOGETHER PRINCIPLESOur principles focus on making JCPenney a great place to work and createan environment that encourages career development and personal growth.page sixteen l J. C. Penney Company, Inc. l Annual Report 2006

“LIFE’S GREATEST PLEASURE AND SATISFACTIONIS FOUND IN GIVING, AND THE GREATESTGIFT OF ALL IS THAT OF ONE’S SELF.” —-James Cash PenneyJCPENNEY JAM CONCERT FOR AMERICA’S KIDS In orderto bring the critical afterschool issue into the national spotlight,we created the “JCPENNEY JAM...THE CONCERT FORAMERICA’S KIDS,” the largest project ever undertakenin America to raise awareness of the need for qualityafterschool programs. The concert, which was broadcast as aprime-time special on CBS, featured a multi-genre lineup ofmusic icons including renowned artists Jon Bon Jovi, Sting,Mary J. Blige, Kenny Chesney, Andrea Bocelli, and more. TheJAM also earned JCPenney the coveted “Peter Glen for PublicService” award at the 2007 Retail Advertising Conference.UNITED WAY By supporting the United Way, JCPenneyAssociates are able to contribute to lasting, positive changesin their communities and impact the lives of their friends,family, coworkers, and customers. In 2006, JCPenneyAssociates donated more than $11.5 million to United Wayprograms nationwide.CORPORATE SOCIAL RESPONSIBILITYJCPenney is constantly seeking ways to better integrate socialdevelopment, economic progress, and environmental concerns toensure a better quality of life for future generations.JCPenney is the U.S. Environmental Protection Agency’s 2007ENERGY STAR “Retail Partner of the Year” for outstanding energymanagement and reductions in greenhouse gas emissions.SUPPLIER COMPLIANCE JCPenney seeks suppliers who shareour strong commitment to delivering high-quality products to ourcustomers. Through our comprehensive compliance program, wework hard to ensure the merchandise we sell in our stores complieswith applicable laws and that our suppliers operate at the highestdegree of ethical labor standards.ECO-FRIENDLY We are dedicated to promoting long-termenvironmental stewardship — from the operation of our storesto the expectations we set with our suppliers. In addition tomaintaining compliance, JCPenney is exploring more ways toJAMES CASH PENNEY AWARDS JCPenney believesvolunteerism is vital to a healthy community. These awardshonor active and retired Associates who volunteer in theircommunities with cash contributions to the charitableorganizations they serve. In 2006, Associates volunteeredover 225,000 hours and their charitable organizationsreceived over $180,000.reduce our impact on the environment.Go to www.jcpenney.net for more information about the Company’scommunity relations and corporate social responsibility efforts.This summary report is printed using 100% certified renewable wind energyon Forest Stewardship Council (FSC) paper with 10% post-consumer waste(PCW) fiber made and sourced from well-managed forests and othercontrolled-wood sources.page nineteen l J. C. Penney Company, Inc. l Annual Report 2006

THE BOARDOF DIRECTORS(numbers relate to Board Committee assignments described below)Myron E. (Mike) Ullman, IIIChairman of the Board andChief Executive OfficerColleen C. Barrett 2, 3President,Southwest Airlines Co.M. Anthony Burns 1, 3, 4Chairman Emeritus,Ryder System, Inc.Maxine K. Clark 2, 3Founder and Chief Executive Officer,Build-A-Bear Workshop, Inc.Thomas J. Engibous 1, 4Chairman of the Board,Texas Instruments IncorporatedKent B. Foster 1, 4Chairman of the Board,Ingram Micro Inc.Vernon E. Jordan, Jr. 2Senior Managing Director,Lazard Freres & Co., LLC;Of Counsel, Akin, Gump, Strauss,Hauer & Feld, LLPBurl Osborne 2, 3Publisher Emeritus,The Dallas Morning News;Chairman of the Board,The Associated PressLeonard H. Roberts 1, 4Retired Chairman andChief Executive Officer,RadioShack CorporationAnn Marie Tallman 2Founder and Partner,Tallman Homes, LLCR. Gerald Turner 2, 3President,Southern Methodist UniversityMary Beth West 1, 4Group Vice Presidentand President, Kraft FoodsNorth AmericanBeverage SectorThe National Portrait Gallery, 2007JCPenney would like to thankretiring Director, Vernon E. Jordan, Jr.,for 34 years of commitment and service.Mr. Jordan's counsel and dedication playedan instrumental role over the years, includingthe successful completion of our turnaroundand current growth strategies.EXECUTIVEBOARDMyron E. (Mike) Ullman, IIIChairman of the Board andChief Executive OfficerKen C. HicksPresident andChief Merchandising OfficerJeffrey J. AllisonExecutive Vice President,General Merchandise Manager,Home and Custom DecoratingJoanne L. BoberExecutive Vice President,General Counsel and SecretaryMichael J. BoylsonExecutive Vice President,Chief Marketing OfficerLana CainExecutive Vice President,General Merchandise Manager,Men’s and Children’sRobert B. CavanaughExecutive Vice President andChief Financial OfficerThomas A. ClerkinSenior Vice President,Director of Finance forStores, Catalog and InternetMichael P. DastugueSenior Vice President,Director of Property DevelopmentBernard D. FeiwusSenior Vice President,Chief Operating Officer ofJCP DirectJohn W. IrvinExecutive Vice President,President of JCP DirectClarence L. KelleyExecutive Vice President,Director of Planning and AllocationJames W. LaBountySenior Vice President,Director of Supply Chain ManagementPeter M. McGrathExecutive Vice President,Director of Product Developmentand SourcingThomas M. NealonExecutive Vice President andChief Information OfficerBeryl RaffExecutive Vice President,General Merchandise Manager,Fine JewelryElizabeth H. SweneyExecutive Vice President,General Merchandise Manager,Women’s ApparelMichael W. TaxterExecutive Vice President,Director of JCPenney StoresMichael T. TheilmannExecutive Vice President,Chief Human Resources andAdministration Officer1. Member of the Audit Committee.This committee:■ selects and retains the independent auditors for the annual audit of JCPenney'sconsolidated financial statements■ approves audit fees and non-audit services and fees of the independent auditors■ reviews the independent auditors' audit strategy and plan, scope, audit results, performance,and independence■ participates in the certification process for periodic reports filed pursuant to theSecurities Exchange Act of 1934■ reviews internal audit reports on the adequacy of internal controls■ reviews the status of significant legal matters, the Company's ethics program,and the scope of the internal auditors' plans and budget, and results of their audits■ reviews the effectiveness of the Company's program for correcting audit findings.2. Member of the Corporate Governance Committee.This committee:■ considers matters of corporate governance and reviews developments in the governancearea as they affect relations between the Company and its stockholders■ develops and recommends to the Board corporate governance principles andpractices for the Company2. (cont’d)■ makes recommendations to the Board on the size, composition, organization, responsibilities,and functions of the Board and its Directors■ makes recommendations to the Board with respect to the qualifications of Directors, candidatesfor election as Directors, and the compensation of Directors■ makes recommendations to the Board regarding annual independence determinations and theannual performance self-assessment by the Board.3. Member of the Human Resources and Compensation Committee.This committee:■ reviews and administers the Company's annual and long-term incentive compensation plans■ recommends or takes action with respect to senior executive officer compensation■ performs periodic reviews of succession plans for key Company executives, including the CEO■ reviews the annual financial condition and investment performance of the Company'sretirement and welfare plans, including the annual actuarial valuation reports for the plans■ oversees the administration and operation of certain Company retirement and welfare plans.4. Member of the Finance Committee.This committee:■ reviews the Company's financial policies, strategies, and capital structure.page twenty-two l J. C. Penney Company, Inc. l Annual Report 2006

JCPenney®WINNING TOGETHER PrinciplesIn 1913,ur Founderroduced theenney IdeaassociatesWe value, develop, and reward the contributions and talentsof all associatesintegrityWe act only with the highest ethical standardsperformanceWe provide coaching and feedback to perform at the highest levelrecognitionWe celebrate the achievements of othersteamworkWe win together through leadership, collaboration, open andhonest communication, and respectqualityWe strive for excellence in our work, products, and servicesinnovationWe encourage creative thinking and intelligent risk takingcommunityWe care about and are involved in our communitieswe do this for our...customersWe build lasting relationships by offering superior service and valueshareholdersWe aspire to superior financial performanceJ. C. Penney Company, Inc. 6501 Legacy Drive Plano, TX 75024 jcpenney.net or jcp.com