JCPenney 2015 Annual Report Download - page 16

Table of Contents
government enforcement action and class action civil litigation that could disrupt our operations and increase our costs of doing business. Changes in the
regulatory environment regarding topics such as privacy and information security, product safety, environmental protection, including regulations in
response to concerns regarding climate change, collective bargaining activities, minimum wage, wage and hour, and health care mandates, among others, as
well as changes to applicable accounting rules and regulations, such as changes to lease accounting standards, could also cause our compliance costs to
increase and adversely affect our business, financial condition and results of operations.

Our Company is subject to various legal and regulatory proceedings relating to our business, certain of which may involve jurisdictions with reputations for
aggressive application of laws and procedures against corporate defendants. We are impacted by trends in litigation, including class action litigation brought
under various consumer protection, employment, and privacy and information security laws. In addition, litigation risks related to claims that technologies
we use infringe intellectual property rights of third parties have been amplified by the increase in third parties whose primary business is to assert such claims.
Reserves are established based on our best estimates of our potential liability. However, we cannot accurately predict the ultimate outcome of any such
proceedings due to the inherent uncertainties of litigation. Regardless of the outcome or whether the claims are meritorious, legal and regulatory proceedings
may require that we devote substantial time and expense to defend our Company. Unfavorable rulings could result in a material adverse impact on our
business, financial condition or results of operations.

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Our earnings may be positively or negatively impacted by the amount of income or expense recorded for our qualified pension plan. Generally accepted
accounting principles in the United States of America (GAAP) require that income or expense for the plan be calculated at the annual measurement date using
actuarial assumptions and calculations. The most significant assumptions relate to the capital markets, interest rates and other economic conditions. Changes
in key economic indicators can change the assumptions. Two critical assumptions used to estimate pension income or expense for the year are the expected
long-term rate of return on plan assets and the discount rate. In addition, at the measurement date, we must also reflect the funded status of the plan (assets and
liabilities) on the balance sheet, which may result in a significant change to equity through a reduction or increase to other comprehensive income. We may
also experience volatility in the amount of the annual actuarial gains or losses recognized as income or expense because we have elected to recognize
pension expense using mark-to-market accounting. Although GAAP expense and pension contributions are not directly related, the key economic factors that
affect GAAP expense would also likely affect the amount of cash we could be required to contribute to the pension plan. Potential pension contributions
include both mandatory amounts required under federal law and discretionary contributions to improve a plan’s funded status.

The market price of our common stock has fluctuated substantially and may continue to fluctuate significantly. Future announcements or disclosures
concerning us or any of our competitors, our strategic initiatives, our sales and profitability, our financial condition, any quarterly variations in actual or
anticipated operating results or comparable sales, any failure to meet analysts’ expectations and sales of large blocks of our common stock, among other
factors, could cause the market price of our common stock to fluctuate substantially. In addition, the stock market has experienced price and volume
fluctuations that have affected the market price of many retail and other stocks that have often been unrelated or disproportionate to the operating
performance of these companies. This volatility could affect the price at which you could sell shares of our common stock.
Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a
company’s securities. The Company and certain of our current and former members of the Board of Directors and executives are defendants in a consolidated
class action lawsuit and two related stockholder derivative actions that were filed following our announcement of an issuance of common stock on September
26, 2013. Such litigation could result in substantial costs, divert our management’s attention and resources and have an adverse effect on our business, results
of operations and financial condition.
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