J. C. Penney Company, Inc
Annual Report 2015

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(MarkOne) xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended January 30, 2016oroTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ______________ to ________________Commission File Number: 001-15274 J. C. PENNEY COMPANY, INC. (Exact name of registrant as specified in its charter) Delaware 26-0037077(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 6501 Legacy Drive, Plano, Texas 75024-3698 (Address of principal executive offices) (Zip Code) (972) 431-1000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock of 50 cents par value New York Stock ExchangePreferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post suchfiles). Yes x No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer xAccelerated filer oNon-accelerated filer oSmaller reporting company o (Do not check if a smaller reporting company)Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, orthe average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter (August 1, 2015). $2,512,275,429 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.306,624,828 shares of Common Stock of 50 cents par value, as of March 11, 2016.DOCUMENTS INCORPORATED BY REFERENCEDocuments from which portions are incorporated by reference Parts of the Form 10-K into which incorporatedJ. C. Penney Company, Inc. 2016 Proxy Statement Part IIITable of ContentsINDEX PagePart I Item 1. Business3 Item 1A. Risk Factors7 Item 1B. Unresolved Staff Comments 17 Item 2. Properties18 Item 3. Legal Proceedings20 Item 4. Mine Safety Disclosures20Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities21 Item 6. Selected Financial Data23 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations28 Item 7A. Quantitative and Qualitative Disclosures about Market Risk48 Item 8. Financial Statements and Supplementary Data48 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure48 Item 9A. Controls and Procedures49 Item 9B. Other Information51Part III Item 10. Directors, Executive Officers and Corporate Governance51 Item 11. Executive Compensation51 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters51 Item 13. Certain Relationships and Related Transactions, and Director Independence51 Item 14. Principal Accounting Fees and Services52Part IV Item 15. Exhibits, Financial Statement Schedules53 Signatures54 Index to Consolidated Financial Statements56 Exhibit Index1022Table of ContentsPART I Item 1. Business Business Overview J. C. Penney Company, Inc. is a holding company whose principal operating subsidiary is J. C. Penney Corporation, Inc. (JCP). JCP was incorporated inDelaware in 1924, and J. C. Penney Company, Inc. was incorporated in Delaware in 2002, when the holding company structure was implemented. The newholding company assumed the name J. C. Penney Company, Inc. (Company). The holding company has no independent assets or operations, and no directsubsidiaries other than JCP. Common stock of the Company is publicly traded under the symbol “JCP” on the New York Stock Exchange. The Company is aco-obligor (or guarantor, as appropriate) regarding the payment of principal and interest on JCP’s outstanding debt securities. The guarantee by the Companyof certain of JCP’s outstanding debt securities is full and unconditional. The holding company and its consolidated subsidiaries, including JCP, arecollectively referred to in this Annual Report on Form 10-K as “we,” “us,” “our,” “ourselves,” “Company” or “JCPenney.” Since our founding by James Cash Penney in 1902, we have grown to be a major retailer, operating 1,021 department stores in 49 states and Puerto Rico as ofJanuary 30, 2016. Our fiscal year ends on the Saturday closest to January 31. Unless otherwise stated, references to years in this report relate to fiscal years,rather than to calendar years. Fiscal year 2015 ended on January 30, 2016; fiscal year 2014 ended on January 31, 2015; and fiscal year 2013 ended onFebruary 1, 2014. Each consisted of 52 weeks. Our business consists of selling merchandise and services to consumers through our department stores and our website at jcpenney.com, which utilizes fullyoptimized applications for desktop, mobile and tablet devices. Our department stores and website generally serve the same type of customers, our websiteoffers virtually the same mix of merchandise as our in store assortment along with other extended categories that are not offered in store, and our departmentstores generally accept returns from sales made in stores and via our website. We fulfill online customer purchases by direct shipment to the customer fromour distribution facilities and stores or from our suppliers' warehouses and by in store customer pick up. We sell family apparel and footwear, accessories, fineand fashion jewelry, beauty products through Sephora inside JCPenney and home furnishings. In addition, our department stores provide our customers withservices such as styling salon, optical, portrait photography and custom decorating. Based on how we categorized our divisions in 2015, our merchandise mix of total net sales over the last three years was as follows: 2015 2014 2013Women’s apparel 25% 26% 26%Men’s apparel and accessories 22% 22% 22%Home 12% 12% 11%Women’s accessories, including Sephora 12% 11% 10%Children’s apparel 10% 10% 11%Footwear and handbags 8% 8% 9%Jewelry 6% 6% 6%Services and other 5% 5% 5% 100% 100% 100%Operating StrategyWe have developed our strategic framework to focus on the following three pillars:•private brands;•omnichannel; and•revenue per customer.We believe these three pillars provide the foundation to increase loyalty with our customers and enable the organization to simplify its focus by ensuring thatresources and capital investments are effectively allocated to drive these priorities.3Table of ContentsOur first priority is private brands. We plan to leverage our sourcing and private brand infrastructure to increase our production of private brands with style,quality and value. With an established global network of sourcing offices, along with a team of in-house designers, we plan to grow private brand penetrationand increase our profitability.Our second priority is to become a world-class omnichannel retailer. We have a rich heritage of being a catalog retailer and have much of our omnichannelinfrastructure already in place. We have three large, strategically located dot-com distribution centers with approximately five million square feet of spacewith plans to effectively digitize these centers. Our objective is to create a seamless connection between our digital and brick-and-mortar operations throughinitiatives such as buy-online-pick-up-in-store same day (BOPIS). Our final strategic priority is increasing revenue per customer. We have approximately the same number of active customers as we did in 2011; however,there is an increased opportunity to grow shopping frequency and the amount these customers spend on every transaction. We plan to address thisopportunity by enhancing our cross-merchandising appeal with initiatives to upgrade each store’s center core, which is the area of the store that includesfashion and fine jewelry, handbags, footwear, sunglasses, and accessories, along with accelerating the growth of our Sephora inside JCPenney locations.Competition and Seasonality The business of selling merchandise and services is highly competitive. We are one of the largest department store and e-commerce retailers in the UnitedStates, and we have numerous competitors, as further described in Item 1A, Risk Factors. Many factors enter into the competition for the consumer’spatronage, including price, quality, style, service, product mix, convenience, loyalty programs and credit availability. Our annual earnings depend to a greatextent on the results of operations for the last quarter of the fiscal year, which includes the holiday season, when a significant portion of our sales and profitsare recorded.Trademarks The JCPenney®, JCP®, Liz Claiborne®, Claiborne®, Okie Dokie®, Worthington®, a.n.a®, St. John’s Bay®, The Original Arizona Jean Company®, Ambrielle®,Decree®, Stafford®, J. Ferrar®, Xersion®, Belle + Sky™, Total Girl®, monet®, JCPenney Home®, Studio JCP Home™, Home Collection by JCPenney™, Madefor Life™, The Boutique Plus™, Stylus®, Sleep Chic®, Home Expressions® and Cooks JCPenney Home™ trademarks, as well as certain other trademarks,have been registered, or are the subject of pending trademark applications with the United States Patent and Trademark Office and with the registries of manyforeign countries and/or are protected by common law. We consider our marks and the accompanying name recognition to be valuable to our business. Website Availability We maintain an Internet website at www.jcpenney.com and make available free of charge through this website our annual reports on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K and all related amendments to those reports, as soon as reasonably practicable after the materials areelectronically filed with or furnished to the Securities and Exchange Commission. In addition, our website provides press releases, access to webcasts ofmanagement presentations and other materials useful in evaluating our Company. Suppliers We have a diversified supplier base, both domestic and foreign, and are not dependent to any significant degree on any singlesupplier. We purchase our merchandise from approximately 2,300 domestic and foreign suppliers, many of which have done business with us for many years.In addition to our Plano, Texas home office, we, through our purchasing subsidiary, maintained buying and quality assurance offices in10 foreign countries as of January 30, 2016. Employment The Company and its consolidated subsidiaries employed approximately 105,000 full-time and part-time employees as of January 30, 2016. 4Table of ContentsEnvironmental Matters Environmental protection requirements did not have a material effect upon our operations during 2015. It is possible that compliance with such requirements(including any new requirements) would lengthen lead time in expansion or renovation plans and increase construction costs, and therefore operating costs,due in part to the expense and time required to conduct environmental and ecological studies and any required remediation. As of January 30, 2016, we estimated our total potential environmental liabilities to range from $20 million to $25 million and recorded our best estimate of$23 million in Other accounts payable and accrued expenses and Other liabilities in the Consolidated Balance Sheet as of that date. This estimate coveredpotential liabilities primarily related to underground storage tanks, remediation of environmental conditions involving our former drugstore locations andasbestos removal in connection with approved plans to renovate or dispose of our facilities. We continue to assess required remediation and the adequacy ofenvironmental reserves as new information becomes available and known conditions are further delineated. If we were to incur losses at the upper end of theestimated range, we do not believe that such losses would have a material effect on our financial condition, results of operations or liquidity. 5Table of ContentsExecutive Officers of the Registrant The following is a list, as of March 11, 2016, of the names and ages of the executive officers of J. C. Penney Company, Inc. and of the offices and otherpositions held by each such person with the Company. These officers hold identical positions with JCP. There is no family relationship between any of thenamed persons.Name Offices and Other Positions Held With the Company AgeMyron E. Ullman, III Chairman of the Board 69Marvin R. Ellison Chief Executive Officer 51Edward J. Record Executive Vice President and Chief Financial Officer 47Brynn L. Evanson Executive Vice President, Human Resources 46Janet M. Link Executive Vice President, General Counsel 46Therace M. Risch Executive Vice President, Chief Information Officer 43Andrew S. Drexler Senior Vice President, Chief Accounting Officer and Controller 45Mr. Ullman has served as Chairman of the Board of Directors since August 2015, and as a director of the Company and a director of JCP since 2013. Hepreviously served as Chief Executive Officer of the Company from 2004 to 2011 and from 2013 to 2015 and as Chairman of the Board of Directors of theCompany from 2004 to 2012. He was Directeur General, Group Managing Director, LVMH Moët Hennessy Louis Vuitton (luxury goodsmanufacturer/retailer) from 1999 to 2002. He was President of LVMH Selective Retail Group from 1998 to 1999. From 1995 to 1998, he was Chairman of theBoard and Chief Executive Officer of DFS Group Ltd. (luxury retailer). From 1992 to 1995, he was Chairman of the Board and Chief Executive Officer of R.H. Macy & Company, Inc.Mr. Ellison has served as Chief Executive Officer since August 2015, and as a director of the Company and a director of JCP since 2014. He previously servedas President of the Company from 2014 to 2015. Prior to joining the Company, he served as Executive Vice President - U.S. Stores of The Home Depot, Inc.from 2008 to 2014. His prior roles with The Home Depot, Inc. included President - Northern Division from 2006 to 2008, Senior Vice President - Logisticsfrom 2005 to 2006, Vice President - Logistics from 2004 to 2005, and Vice President - Loss Prevention from 2002 to 2004. Mr. Ellison began his career withTarget Corporation where he served in a variety of operational roles.Mr. Record has served as Executive Vice President and Chief Financial Officer of the Company and as a director of JCP since 2014. Prior to joining theCompany, he served in positions of increasing responsibility with Stage Stores, Inc. (apparel retailer), including Executive Vice President and ChiefOperating Officer from 2010 to 2014, Chief Financial Officer from September 2007 to 2010 and Executive Vice President and Chief Administrative Officerfrom May 2007 to September 2007. Mr. Record also served as Senior Vice President of Finance of Kohl’s Corporation from 2005 to 2007. Prior to that, heserved with Belk, Inc. as Senior Vice President of Finance and Controller from April 2005 to October 2005 and Senior Vice President and Controller from2002 to April 2005.Ms. Evanson has served as Executive Vice President, Human Resources since 2013. Prior to that she served as Vice President, Compensation, Benefits andTalent Operations from 2010 to 2013 and Director of Compensation from 2009 to 2010. Prior to joining the Company, she worked at the Dayton HudsonCorporation from 1991 to 2009 (renamed Target Corporation in 2000). Ms. Evanson began her career with Marshall Field’s where she advanced throughpositions in stores, finance, human resources and merchandising and moved to the Target stores division in 2000, ultimately serving as Director of ExecutiveCompensation and Retirement Plans.Ms. Link has served as Executive Vice President, General Counsel since May 2015. Prior to that, she served as interim General Counsel from March 2015 toMay 2015 and as Vice President, Deputy General Counsel from September 2014 to March 2015. Prior to joining the Company, she served as Vice President,Deputy General Counsel of CC Media Holdings, Inc. (now known as iHeart Media Holdings, Inc.) and Clear Channel Outdoor Holdings, Inc. from 2013 to2014 and as Vice President, Associate General Counsel - Litigation from 2010 to 2013. She also served as Interim General Counsel of Clear Channel Outdoor- Americas from 2010 to 2011. Ms. Link was a partner with Latham & Watkins LLP from 2005 to 2010 where she was the Vice-Chair of the Global LitigationDepartment.Ms. Risch has served as Executive Vice President and Chief Information Officer since December 2015. Prior to joining the Company, she served as ExecutiveVice President and Chief Information Officer of Country Financial (insurance and investment services) from 2014 to 2015. Prior to that, Ms. Risch spent 10years at Target Corporation in a variety of technology roles of increasing responsibility, including Vice President of Technology Delivery Services from2012 to 2014 and Vice President, Business Technology Team from 2009 to 2012.6Table of ContentsMr. Drexler has served as Senior Vice President, Chief Accounting Officer and Controller since June 2015. Prior to joining the Company, he served as SeniorVice President and Chief Financial Officer of Giant Eagle, Inc. (grocery retailer) from 2014 to 2015. He also served as Senior Vice President, Finance, andCorporate Controller for GNC Holdings, Inc. from 2011 to 2014. Prior to that, Mr. Drexler spent 11 years at Wal-Mart Stores, Inc. in roles of increasingresponsibility, including Vice President of Finance for the information systems division from 2010 to 2011. Earlier in his career, he held a variety of roleswith PricewaterhouseCoopers, LLP. Mr. Drexler is a certified public accountant.Item 1A. Risk FactorsThe following risk factors should be read carefully in connection with evaluating our business and the forward-looking information contained in this AnnualReport on Form 10-K. Any of the following risks could materially adversely affect our business, operating results, financial condition and the actual outcomeof matters as to which forward-looking statements are made in this Annual Report on Form 10-K.Our ability to return to profitable growth is subject to both the risks affecting our business generally and the inherent difficulties associated withimplementing our strategic plan.As we position the Company for long-term growth, it may take longer than expected to achieve our objectives, and actual results may be materially less thanplanned. Our ability to improve our operating results depends upon a significant number of factors, some of which are beyond our control, including:•customer response to our marketing and merchandise strategies;•our ability to achieve profitable sales and to make adjustments in response to changing conditions;•our ability to respond to competitive pressures in our industry;•our ability to effectively manage inventory;•the success of our omnichannel strategy;•our ability to benefit from capital improvements made to our store environment;•our ability to respond to any unanticipated changes in expected cash flows, liquidity and cash needs, including our ability to obtain any additionalfinancing or other liquidity enhancing transactions, if and when needed;•our ability to achieve positive cash flow;•our ability to access an adequate and uninterrupted supply of merchandise from suppliers at expected levels and on acceptable terms;•changes to the regulatory environment in which our business operates; and•general economic conditions.There is no assurance that our marketing, merchandising and omnichannel strategies, or any future adjustments to our strategies, will improve our operatingresults.We operate in a highly competitive industry, which could adversely impact our sales and profitability.The retail industry is highly competitive, with few barriers to entry. We compete with many other local, regional and national retailers for customers,employees, locations, merchandise, services and other important aspects of our business. Those competitors include other department stores, discounters,home furnishing stores, specialty retailers, wholesale clubs, direct-to-consumer businesses, including those on the Internet, and other forms of retailcommerce. Some competitors are larger than JCPenney, and/or have greater financial resources available to them, and, as a result, may be able to devotegreater resources to sourcing, promoting, selling their products, updating their store environment and updating their technology. Competition is7Table of Contentscharacterized by many factors, including merchandise assortment, advertising, price, quality, service, location, reputation, credit availability and customerloyalty. We have experienced, and anticipate that we will continue to experience for at least the foreseeable future, significant competition from ourcompetitors. The performance of competitors as well as changes in their pricing and promotional policies, marketing activities, customer loyalty programs,new store openings, store renovations, launches of Internet websites or mobile platforms, brand launches and other merchandise and operational strategiescould cause us to have lower sales, lower gross margin and/or higher operating expenses such as marketing costs and other selling, general and administrativeexpenses, which in turn could have an adverse impact on our profitability.Our sales and operating results depend on our ability to develop merchandise offerings that resonate with our existing customers and help to attract newcustomers.Our sales and operating results depend in part on our ability to predict and respond to changes in fashion trends and customer preferences in a timely mannerby consistently offering stylish, quality merchandise assortments at competitive prices. We continuously assess emerging styles and trends and focus ondeveloping a merchandise assortment to meet customer preferences. There is no assurance that these efforts will be successful or that we will be able to satisfyconstantly changing customer demands. To the extent our decisions regarding our merchandise differ from our customers’ preferences, we may be faced withreduced sales and excess inventories for some products and/or missed opportunities for others. Any sustained failure to identify and respond to emergingtrends in lifestyle and customer preferences and buying trends could have an adverse impact on our business. In addition, merchandise misjudgments mayadversely impact the perception or reputation of our Company, which could result in declines in customer loyalty and vendor relationship issues, andultimately have a material adverse effect on our business, financial condition and results of operations.We may also seek to expand into new lines of business from time to time, such as offering large appliances for sale in our stores and online. There is noassurance that these efforts will be successful. Further, if we devote time and resources to new lines of business and those businesses are not as successful aswe planned, then we risk damaging our overall business results. We also may not be able to develop new lines of business in a manner that improves ouroverall business and operating results and may therefore be forced to close the new lines of business, which may damage our reputation and negativelyimpact our operating results.Our results may be negatively impacted if customers do not maintain their favorable perception of our Company and our private brand merchandise.Maintaining and continually enhancing the value of our Company and our private brand merchandise is important to the success of our business. The valueof our private brands is based in large part on the degree to which customers perceive and react to them. The value of our private brands could diminishsignificantly due to a number of factors, including customer perception that we have acted in an irresponsible manner in sourcing our private brandmerchandise, adverse publicity about our private brand merchandise, our failure to maintain the quality of our private brand products, or the failure of ourprivate brand merchandise to deliver consistently good value to the customer. The growing use of social and digital media by customers, us, and third partiesincreases the speed and extent that information or misinformation and opinions can be shared. Negative posts or comments about us, our private brands, orany of our merchandise on social or digital media could seriously damage our reputation. If we do not maintain the favorable perception of our Company andour private brand merchandise, our business results could be negatively impacted.Our ability to increase sales and store productivity is largely dependent upon our ability to increase customer traffic and conversion.Customer traffic depends upon our ability to successfully market compelling merchandise assortments as well as present an appealing shopping environmentand experience to customers. Our strategies focus on increasing customer traffic and improving conversion in our stores and online; however, there can be noassurance that our efforts will be successful or will result in increased sales. In addition, external events outside of our control, including pandemics, terroristthreats, domestic conflicts and civil unrest, may influence customers' decisions to visit malls or might otherwise cause customers to avoid public places.There is no assurance that we will be able to reverse any decline in traffic or that increases in Internet sales will offset any decline in store traffic. We mayneed to respond to any declines in customer traffic or conversion rates by increasing markdowns or promotions to attract customers, which could adverselyimpact our gross margins, operating results and cash flows from operating activities.8Table of ContentsIf we are unable to manage our inventory effectively, our gross margins could be adversely affected.Our profitability depends upon our ability to manage appropriate inventory levels and respond quickly to shifts in consumer demand patterns. We mustproperly execute our inventory management strategies by appropriately allocating merchandise among our stores and online, timely and efficientlydistributing inventory to stores, maintaining an appropriate mix and level of inventory in stores and online, adjusting our merchandise mix between ourprivate and exclusive brands and national brands, appropriately changing the allocation of floor space of stores among product categories to respond tocustomer demand and effectively managing pricing and markdowns. If we overestimate customer demand for our merchandise, we will likely need to recordinventory markdowns and sell the excess inventory at clearance prices which would negatively impact our gross margins and operating results. If weunderestimate customer demand for our merchandise, we may experience inventory shortages which may result in missed sales opportunities and have anegative impact on customer loyalty.We must protect against security breaches or other unauthorized disclosures of confidential data about our customers as well as about our employees andother third parties.As part of our normal operations, we and third-party service providers with whom we contract receive and maintain information about our customers(including credit/debit card information), our employees and other third parties. Confidential data must at all times be protected against security breaches orother unauthorized disclosure. We have, and require our third-party service providers to have, administrative, physical and technical safeguards andprocedures in place to protect the security, confidentiality and integrity of such information and to protect such information against unauthorized access,disclosure or acquisition. Despite our safeguards and security processes and procedures, there is no assurance that all of our systems and processes, or those ofour third-party service providers, are free from vulnerability to security breaches or inadvertent data disclosure or acquisition by third parties or us. Further,because the methods used to obtain unauthorized access change frequently and may not be immediately detected, we may be unable to anticipate thesemethods or promptly implement safeguards. Any failure to protect confidential data about our business or our customers, employees or other third partiescould materially damage our brand and reputation as well as result in significant expenses and disruptions to our operations, and loss of customer confidence,any of which could have a material adverse impact on our business and results of operations. We could also be subject to government enforcement actionsand private litigation as a result of any such failure.The failure to retain, attract and motivate our employees, including employees in key positions, could have an adverse impact on our results of operations.Our results depend on the contributions of our employees, including our senior management team and other key employees. This depends to a great extent onour ability to retain, attract and motivate talented employees throughout the organization, many of whom, particularly in the stores, are in entry level or part-time positions, which have historically had high rates of turnover. We currently operate with significantly fewer individuals than we have in the past whohave assumed additional duties and responsibilities, which could have an adverse impact on our operating performance and efficiency. Negative mediareports regarding the Company or the retail industry in general could also have an adverse impact on our ability to attract, retain and motivate our employees.If we are unable to retain, attract and motivate talented employees with the appropriate skill sets, we may not achieve our objectives and our results ofoperations could be adversely impacted. Our ability to meet our changing labor needs while controlling our costs is also subject to external factors such asunemployment levels, competing wages, potential union organizing efforts and increased government regulation. An inability to provide wages and/orbenefits that are competitive within the markets in which we operate could adversely affect our ability to retain and attract employees. In addition, the loss ofone or more of our key personnel or the inability to effectively identify a suitable successor to a key role in our senior management could have a materialadverse effect on our business.If we are unable to successfully develop and maintain a relevant and reliable omnichannel experience for our customers, our sales, results of operationsand reputation could be adversely affected.One of the pillars of our strategic framework is to deliver a superior omnichannel shopping experience for our customers through the integration of our storeand digital shopping channels. Omnichannel retailing is rapidly evolving and we must anticipate and meet changing customer expectations. Ouromnichannel initiatives include our ship-from-store and pickup-in-store programs and expansion of our SKU count online. In addition, we continue toexplore ways to enhance our customers’ omnichannel shopping experience. These initiatives involve significant investments in IT systems and significantoperational changes. In addition, our competitors are also investing in omnichannel initiatives, some of which may be more successful than our initiatives. Ifthe implementation of our omnichannel initiatives is not successful or does not meet customer expectations, or we do not realize a return on our omnichannelinvestments, our reputation and operating results may be adversely affected.9Table of ContentsDisruptions in our Internet website or mobile applications, or our inability to successfully execute our online strategies, could have an adverse impact onour sales and results of operations.We sell merchandise over the Internet through our website, www.jcpenney.com, and through mobile applications for smart phones and tablets. Our Internetoperations are subject to numerous risks, including rapid technological change and the implementation of new systems and platforms; liability for online andmobile content; violations of state or federal laws, including those relating to online and mobile privacy and intellectual property rights; credit card fraud;problems associated with the operation and security of our website, mobile applications and related support systems; computer viruses; telecommunicationsfailures; electronic break-ins and similar disruptions; and the allocation of inventory between our online operations and department stores. The failure of ourwebsite or mobile applications to perform as expected could result in disruptions and costs to our operations and make it more difficult for customers topurchase merchandise online. In addition, our inability to successfully develop and maintain the necessary technological interfaces for our customers topurchase merchandise through our website and mobile applications, including user friendly software applications for smart phones and tablets, could result inthe loss of Internet sales and have an adverse impact on our results of operations.Our operations are dependent on information technology systems; disruptions in those systems or increased costs relating to their implementation couldhave an adverse impact on our results of operations.Our operations are dependent upon the integrity, security and consistent operation of various systems and data centers, including the point-of-sale systems inthe stores, our Internet website and mobile applications, data centers that process transactions, communication systems and various software applicationsused throughout our Company to track inventory flow, process transactions, generate performance and financial reports and administer payroll and benefitplans.We have implemented several products from third party vendors to simplify our processes and reduce our use of customized existing legacy systems andexpect to place additional applications into operation in the future. Implementing new systems carries substantial risk, including implementation delays, costoverruns, disruption of operations, potential loss of data or information, lower customer satisfaction resulting in lost customers or sales, inability to delivermerchandise to our stores or our customers, the potential inability to meet reporting requirements and unintentional security vulnerabilities. There can be noassurances that we will successfully launch the new systems as planned, that the new systems will perform as expected or that the new systems will beimplemented without disruptions to our operations, any of which may cause critical information upon which we rely to be delayed, unreliable, corrupted,insufficient or inaccessible.We also outsource various information technology functions to third party service providers and may outsource other functions in the future. We rely onthose third party service providers to provide services on a timely and effective basis and their failure to perform as expected or as required by contract couldresult in disruptions and costs to our operations.Our vendors are also highly dependent on the use of information technology systems. Major disruptions in their information technology systems could resultin their inability to communicate with us or otherwise to process our transactions or information, their inability to perform required functions, or in the loss orcorruption of our information, any and all of which could result in disruptions to our operations. Our vendors are responsible for having safeguards andprocedures in place to protect the confidentiality, integrity and security of our information, and to protect our information and systems against unauthorizedaccess, disclosure or acquisition. Any failure in their systems to operate or in their ability to protect our information or systems could have a material adverseimpact on our business and results of operations.We are in the process of insourcing certain business functions from third party vendors and may seek to relocate certain business functions to internationallocations in an attempt to achieve additional efficiencies, both of which subject us to risks, including disruptions in our business.We are in the process of insourcing certain business functions and may also need to continue to insource other aspects of our business in the future in order toeffectively manage our costs and stay competitive. We may also seek from time to time to relocate certain business functions to countries other than theUnited States to access highly skilled labor markets and further control costs. There is no assurance that these efforts will be successful. Further, these actionsmay cause disruptions that negatively impact our business. If we are ultimately unable to perform insourced functions better than, or at least as well as, ourcurrent third party providers, our operating results could be adversely impacted.10Table of ContentsChanges in our credit ratings may limit our access to capital markets and adversely affect our liquidity.The credit rating agencies periodically review our capital structure and the quality and stability of our earnings. Any future downgrades to our long-termcredit ratings could result in reduced access to the credit and capital markets and higher interest costs on future financings. The future availability offinancing will depend on a variety of factors such as economic and market conditions, the availability of credit and our credit ratings, as well as thepossibility that lenders could develop a negative perception of us. There is no assurance that we will be able to obtain additional financing on favorableterms or at all.Our profitability depends on our ability to source merchandise and deliver it to our customers in a timely and cost-effective manner.Our merchandise is sourced from a wide variety of suppliers, and our business depends on being able to find qualified suppliers and access products in atimely and efficient manner. Inflationary pressures on commodity prices and other input costs could increase our cost of goods, and an inability to pass suchcost increases on to our customers or a change in our merchandise mix as a result of such cost increases could have an adverse impact on our profitability.Additionally, the impact of economic conditions on our suppliers cannot be predicted and our suppliers may be unable to access financing or becomeinsolvent and thus become unable to supply us with products.Our arrangements with our suppliers and vendors may be impacted by our financial results or financial position.Substantially all of our merchandise suppliers and vendors sell to us on open account purchase terms. There is a risk that our key suppliers and vendors couldrespond to any actual or apparent decrease in or any concern with our financial results or liquidity by requiring or conditioning their sale of merchandise tous on more stringent or more costly payment terms, such as by requiring standby letters of credit, earlier or advance payment of invoices, payment upondelivery or other assurances or credit support or by choosing not to sell merchandise to us on a timely basis or at all. Our arrangements with our suppliers andvendors may also be impacted by media reports regarding our financial position. Our need for additional liquidity could significantly increase and oursupply of merchandise could be materially disrupted if a significant portion of our key suppliers and vendors took one or more of the actions describedabove, which could have a material adverse effect on our sales, customer satisfaction, cash flows, liquidity and financial position.Our senior secured real estate term loan credit facility is secured by certain of our real property and substantially all of our personal property, and suchproperty may be subject to foreclosure or other remedies in the event of our default. In addition, the real estate term loan credit facility contains provisionsthat could restrict our operations and our ability to obtain additional financing.We are party to a $2.25 billion senior secured term loan credit facility that is secured by mortgages on certain real property of the Company, in addition toliens on substantially all personal property of the Company, subject to certain exclusions set forth in the credit and security agreement governing the termloan credit facility and related security documents. The real property subject to mortgages under the term loan credit facility includes our headquarters,distribution centers and certain of our stores.The credit and guaranty agreement governing the term loan credit facility contains operating restrictions which may impact our future alternatives bylimiting, without lender consent, our ability to borrow additional funds, execute certain equity financings or enter into dispositions or other liquidityenhancing or strategic transactions regarding certain of our assets, including our real property. Our ability to obtain additional or other financing or todispose of certain assets could also be negatively impacted because a substantial portion of our owned assets have been pledged as collateral for repaymentof our indebtedness under the term loan credit facility.If an event of default occurs and is continuing, our outstanding obligations under the term loan credit facility could be declared immediately due andpayable or the lenders could foreclose on or exercise other remedies with respect to the assets securing the term loan credit facility, including ourheadquarters, distribution centers and certain of our stores. If an event of default occurs, there is no assurance that we would have the cash resources availableto repay such accelerated obligations or refinance such indebtedness on commercially reasonable terms, or at all. The occurrence of any one of these eventscould have a material adverse effect on our business, financial condition, results of operations and liquidity.11Table of ContentsOur senior secured asset-based revolving credit facility limits our borrowing capacity to the value of certain of our assets. In addition, our senior securedasset-based revolving credit facility is secured by certain of our personal property, and lenders may exercise remedies against the collateral in the event ofour default.We are party to a $2.35 billion senior secured asset-based revolving credit facility. Our borrowing capacity under our revolving credit facility variesaccording to the Company’s inventory levels, accounts receivable and credit card receivables, net of certain reserves. In the event of any material decrease inthe amount of or appraised value of these assets, our borrowing capacity would similarly decrease, which could adversely impact our business and liquidity.Our revolving credit facility contains customary affirmative and negative covenants and certain restrictions on operations become applicable if ouravailability falls below certain thresholds. These covenants could impose significant operating and financial limitations and restrictions on us, includingrestrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or necessary for our business.Our obligations under the revolving credit facility are secured by liens with respect to inventory, accounts receivable, deposit accounts and certain relatedcollateral. In the event of a default that is not cured or waived within any applicable cure periods, the lenders’ commitment to extend further credit under ourrevolving credit facility could be terminated, our outstanding obligations could become immediately due and payable, outstanding letters of credit may berequired to be cash collateralized and remedies may be exercised against the collateral, which generally consists of the Company’s inventory, accountsreceivable and deposit accounts and cash credited thereto. If we are unable to borrow under our revolving credit facility, we may not have the necessary cashresources for our operations and, if any event of default occurs, there is no assurance that we would have the cash resources available to repay suchaccelerated obligations, refinance such indebtedness on commercially reasonable terms, or at all, or cash collateralize our letters of credit, which would havea material adverse effect on our business, financial condition, results of operations and liquidity.Our level of indebtedness may adversely affect our business and results of operations and may require the use of our available cash resources to meetrepayment obligations, which could reduce the cash available for other purposes.As of January 30, 2016, we have $4.805 billion in total indebtedness and we are highly leveraged. Our level of indebtedness may limit our ability to obtainadditional financing, if needed, to fund additional projects, working capital requirements, capital expenditures, debt service, and other general corporate orother obligations, as well as increase the risks to our business associated with general adverse economic and industry conditions. Our level of indebtednessmay also place us at a competitive disadvantage to our competitors that are not as highly leveraged.We are required to make quarterly repayments in a principal amount equal to $5.625 million during the five-year term of the real estate term loan creditfacility, subject to certain reductions for mandatory and optional prepayments. In addition, we are required to make prepayments of the real estate term loancredit facility with the proceeds of certain asset sales, insurance proceeds and excess cash flow, which will reduce the cash available for other purposes,including capital expenditures for store improvements, and could impact our ability to reinvest in other areas of our business.There is no assurance that our internal and external sources of liquidity will at all times be sufficient for our cash requirements.We must have sufficient sources of liquidity to fund our working capital requirements, capital improvement plans, service our outstanding indebtedness andfinance investment opportunities. The principal sources of our liquidity are funds generated from operating activities, available cash and cash equivalents,borrowings under our credit facilities, other debt financings, equity financings and sales of non-operating assets. We expect our ability to generate cashthrough the sale of non-operating assets to diminish as our portfolio of non-operating assets decreases. In addition, our recent operating losses have limitedour capital resources. Our ability to achieve our business and cash flow plans is based on a number of assumptions which involve significant judgments andestimates of future performance, borrowing capacity and credit availability, which cannot at all times be assured. Accordingly, there is no assurance that cashflows from operations and other internal and external sources of liquidity will at all times be sufficient for our cash requirements. If necessary, we may need toconsider actions and steps to improve our cash position and mitigate any potential liquidity shortfall, such as modifying our business plan, pursuingadditional financing to the extent available, reducing capital expenditures, pursuing and evaluating other alternatives and opportunities to obtain additionalsources of liquidity and other potential actions to reduce costs. There can be no assurance that any of these actions would be successful, sufficient oravailable on favorable terms. Any inability to generate or obtain sufficient levels of liquidity to meet our cash requirements at the level and times neededcould have a material adverse impact on our business and financial position.12Table of ContentsOur ability to obtain any additional financing or any refinancing of our debt, if needed at any time, depends upon many factors, including our existing levelof indebtedness and restrictions in our debt facilities, historical business performance, financial projections, prospects and creditworthiness and externaleconomic conditions and general liquidity in the credit and capital markets. Any additional debt, equity or equity-linked financing may require modificationof our existing debt agreements, which there is no assurance would be obtainable. Any additional financing or refinancing could also be extended only athigher costs and require us to satisfy more restrictive covenants, which could further limit or restrict our business and results of operations, or be dilutive toour stockholders.Our use of interest rate hedging transactions could expose us to risks and financial losses that may adversely affect our financial condition, liquidity andresults of operations.To reduce our exposure to interest rate fluctuations, we have entered into, and in the future may enter into, interest rate swaps with various financialcounterparties. The interest rate swap agreements effectively convert a portion of our variable rate interest payments to a fixed price. There can be noassurances, however, that our hedging activity will be effective in insulating us from the risks associated with changes in interest rates. In addition, ourhedging transactions may expose us to certain risks and financial losses, including, among other things:•counterparty credit risk;•the risk that the duration or amount of the hedge may not match the duration or amount of the related liability;•the hedging transactions may be adjusted from time to time in accordance with accounting rules to reflect changes in fair values, downwardadjustments or “mark-to-market losses,” which would affect our stockholders’ equity; and•the risk that we may not be able to meet the terms and conditions of the hedging instruments, in which case we may be required to settle theinstruments prior to maturity with cash payments that could significantly affect our liquidity.Further, we have designated the swaps as cash flow hedges in accordance with Accounting Standards Codification Topic 815, Derivatives and Hedging.However, in the future, we may fail to qualify for hedge accounting treatment under these standards for a number of reasons, including if we fail to satisfyhedge documentation and hedge effectiveness assessment requirements or if the swaps are not highly effective. If we fail to qualify for hedge accountingtreatment, losses on the swaps caused by the change in their fair value will be recognized as part of net income, rather than being recognized as part of othercomprehensive income.Operating results and cash flows may cause us to incur asset impairment charges.Long-lived assets, primarily property and equipment, are reviewed at the store level at least annually for impairment, or whenever changes in circumstancesindicate that a full recovery of net asset values through future cash flows is in question. We also assess the recoverability of indefinite-lived intangible assetsat least annually or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. Our impairment reviewrequires us to make estimates and projections regarding, but not limited to, sales, operating profit and future cash flows. If our operating performance reflectsa sustained decline, we may be exposed to significant asset impairment charges in future periods, which could be material to our results of operations.Reductions in income and cash flow from our marketing and servicing arrangement related to our private label and co-branded credit cards couldadversely affect our operating results and cash flows.Synchrony Financial (“Synchrony”) owns and services our private label credit card and co-branded MasterCard® programs. Our agreement with Synchronyprovides for certain payments to be made by Synchrony to the Company, including a share of revenues from the performance of the credit card portfolios. Theincome and cash flow that the Company receives from Synchrony is dependent upon a number of factors including the level of sales on private label and co-branded accounts, the percentage of sales on private label and co-branded accounts relative to the Company’s total sales, the level of balances carried on theaccounts, payment rates on the accounts, finance charge rates and other fees on the accounts, the level of credit losses for the accounts, Synchrony’s ability toextend credit to our customers as well as the cost of customer rewards programs. All of these factors can vary based on changes in federal and state credit card,banking and consumer protection laws, which could also materially limit the availability of credit to consumers or increase the cost of credit to ourcardholders. The factors affecting the income and cash flow that the Company receives from Synchrony can also vary based on a variety of economic,13Table of Contentslegal, social and other factors that we cannot control. If the income or cash flow that the Company receives from our consumer credit card program agreementwith Synchrony decreases, our operating results and cash flows could be adversely affected.We are subject to customer payment-related risks that could increase operating costs, expose us to fraud or theft, subject us to potential liability andpotentially disrupt our business.We accept payments using a variety of methods, including cash, checks, credit and debit cards (including private label credit cards) and gift cards.Acceptance of these payment options subjects us to rules, regulations, contractual obligations and compliance requirements, including payment networkrules and operating guidelines, data security standards and certification requirements, and rules governing electronic funds transfers. These requirements maychange over time or be reinterpreted, making compliance more difficult or costly. The payment card industry set October 1, 2015 as the date on whichliability shifted for certain debit and credit card transactions to retailers who are not able to accept EMV chip technology transactions. Implementation of theEMV chip technology and receipt of final certification is subject to the time availability of third-party service providers. As a result, we bear the chargebackrisk for fraudulent transactions generated through EMV chip enabled cards before our implementation and certification of the EMV chip technology. Further,we may experience a decrease in transaction volume if we cannot process transactions for cardholders whose issuer has migrated entirely from magnetic stripto EMV chip enabled cards. Any prolonged inability to accept EMV chip technology transactions may subject us to increased risk of liability for fraudulenttransactions and may adversely affect our business and operating results.We are subject to risks associated with importing merchandise from foreign countries.A substantial portion of our merchandise is sourced by our vendors and by us outside of the United States. All of our vendors must comply with our supplierlegal compliance program and applicable laws, including consumer and product safety laws. Although we diversify our sourcing and production by countryand supplier, the failure of a supplier to produce and deliver our goods on time, to meet our quality standards and adhere to our product safety requirementsor to meet the requirements of our supplier compliance program or applicable laws, or our inability to flow merchandise to our stores or through the Internetchannel in the right quantities at the right time, could adversely affect our profitability and could result in damage to our reputation.Although we have implemented policies and procedures designed to facilitate compliance with laws and regulations relating to doing business in foreignmarkets and importing merchandise from abroad, there can be no assurance that suppliers and other third parties with whom we do business will not violatesuch laws and regulations or our policies, which could subject us to liability and could adversely affect our results of operations.We are subject to the various risks of importing merchandise from abroad and purchasing product made in foreign countries, such as:•potential disruptions in manufacturing, logistics and supply;•changes in duties, tariffs, quotas and voluntary export restrictions on imported merchandise;•strikes and other events affecting delivery;•consumer perceptions of the safety of imported merchandise;•product compliance with laws and regulations of the destination country;•product liability claims from customers or penalties from government agencies relating to products that are recalled, defective or otherwisenoncompliant or alleged to be harmful;•concerns about human rights, working conditions and other labor rights and conditions and environmental impact in foreign countries wheremerchandise is produced and raw materials or components are sourced, and changing labor, environmental and other laws in these countries;•local business practice and political issues that may result in adverse publicity or threatened or actual adverse consumer actions, including boycotts;14Table of Contents•compliance with laws and regulations concerning ethical business practices, such as the U.S. Foreign Corrupt Practices Act; and•economic, political or other problems in countries from or through which merchandise is imported.Political or financial instability, trade restrictions, tariffs, currency exchange rates, labor conditions, congestion and labor issues at major ports, transportcapacity and costs, systems issues, problems in third party distribution and warehousing and other interruptions of the supply chain, compliance with U.S.and foreign laws and regulations and other factors relating to international trade and imported merchandise beyond our control could affect the availabilityand the price of our inventory. These risks and other factors relating to foreign trade could subject us to liability or hinder our ability to access suitablemerchandise on acceptable terms, which could adversely impact our results of operations.Disruptions and congestion at ports through which we import merchandise may increase our costs and/or delay the receipt of goods in our stores, whichcould adversely impact our profitability, financial position and cash flows.We ship the majority of our private brand merchandise by ocean to ports in the United States. Our national brand suppliers alsoship merchandise by ocean. Disruptions in the operations of ports through which we import our merchandise, including but notlimited to labor disputes involving work slowdowns, lockouts or strikes, could require us and/or our vendors to ship merchandise by air freight or toalternative ports in the United States. Shipping by air is significantly more expensive than shipping by ocean which could adversely affect our profitability.Similarly, shipping to alternative ports in the United States could result in increased lead times and transportation costs. Disruptions at ports through whichwe import our goods could also result in unanticipated inventory shortages, which could adversely impact our reputation and our results of operations.Our Company’s growth and profitability depend on the levels of consumer confidence and spending.Our results of operations are sensitive to changes in overall economic and political conditions that impact consumer spending, including discretionaryspending. Many economic factors outside of our control, including the housing market, interest rates, recession, inflation and deflation, energy costs andavailability, consumer credit availability and terms, consumer debt levels, tax rates and policy, and unemployment trends influence consumer confidence andspending. The domestic and international political situation and actions also affect consumer confidence and spending. Additional events that could impactour performance include pandemics, terrorist threats and activities, worldwide military and domestic disturbances and conflicts, political instability and civilunrest. Declines in the level of consumer spending could adversely affect our growth and profitability.Our business is seasonal, which impacts our results of operations.Our annual earnings and cash flows depend to a great extent on the results of operations for the last quarter of our fiscal year, which includes the holidayseason. Our fiscal fourth-quarter results may fluctuate significantly, based on many factors, including holiday spending patterns and weather conditions. Thisseasonality causes our operating results to vary considerably from quarter to quarter.Our profitability may be impacted by weather conditions.Our merchandise assortments reflect assumptions regarding expected weather patterns and our profitability depends on our ability to timely deliverseasonally appropriate inventory. Unseasonable or unexpected weather conditions such as warm temperatures during the winter season or prolonged orextreme periods of warm or cold temperatures could render a portion of our inventory incompatible with consumer needs. Extreme weather or natural disasterscould also severely hinder our ability to timely deliver seasonally appropriate merchandise, preclude customers from traveling to our stores, delay capitalimprovements or cause us to close stores. A reduction in the demand for or supply of our seasonal merchandise could have an adverse effect on our inventorylevels, gross margins and results of operations.Changes in federal, state or local laws and regulations could increase our expenses and adversely affect our results of operations.Our business is subject to a wide array of laws and regulations. Government intervention and activism and/or regulatory reform may result in substantial newregulations and disclosure obligations and/or changes in the interpretation of existing laws and regulations, which may lead to additional compliance costsas well as the diversion of our management’s time and attention from strategic initiatives. If we fail to comply with applicable laws and regulations we couldbe subject to legal risk, including15Table of Contentsgovernment enforcement action and class action civil litigation that could disrupt our operations and increase our costs of doing business. Changes in theregulatory environment regarding topics such as privacy and information security, product safety, environmental protection, including regulations inresponse to concerns regarding climate change, collective bargaining activities, minimum wage, wage and hour, and health care mandates, among others, aswell as changes to applicable accounting rules and regulations, such as changes to lease accounting standards, could also cause our compliance costs toincrease and adversely affect our business, financial condition and results of operations.Legal and regulatory proceedings could have an adverse impact on our 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 foraggressive application of laws and procedures against corporate defendants. We are impacted by trends in litigation, including class action litigation broughtunder various consumer protection, employment, and privacy and information security laws. In addition, litigation risks related to claims that technologieswe 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 suchproceedings due to the inherent uncertainties of litigation. Regardless of the outcome or whether the claims are meritorious, legal and regulatory proceedingsmay require that we devote substantial time and expense to defend our Company. Unfavorable rulings could result in a material adverse impact on ourbusiness, financial condition or results of operations.Significant changes in discount rates, actual investment return on pension assets, and other factors could affect our earnings, equity, and pensioncontributions in future periods.Our earnings may be positively or negatively impacted by the amount of income or expense recorded for our qualified pension plan. Generally acceptedaccounting principles in the United States of America (GAAP) require that income or expense for the plan be calculated at the annual measurement date usingactuarial assumptions and calculations. The most significant assumptions relate to the capital markets, interest rates and other economic conditions. Changesin key economic indicators can change the assumptions. Two critical assumptions used to estimate pension income or expense for the year are the expectedlong-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 andliabilities) on the balance sheet, which may result in a significant change to equity through a reduction or increase to other comprehensive income. We mayalso experience volatility in the amount of the annual actuarial gains or losses recognized as income or expense because we have elected to recognizepension expense using mark-to-market accounting. Although GAAP expense and pension contributions are not directly related, the key economic factors thataffect GAAP expense would also likely affect the amount of cash we could be required to contribute to the pension plan. Potential pension contributionsinclude both mandatory amounts required under federal law and discretionary contributions to improve a plan’s funded status.Our stock price has been and may continue to be volatile.The market price of our common stock has fluctuated substantially and may continue to fluctuate significantly. Future announcements or disclosuresconcerning us or any of our competitors, our strategic initiatives, our sales and profitability, our financial condition, any quarterly variations in actual oranticipated operating results or comparable sales, any failure to meet analysts’ expectations and sales of large blocks of our common stock, among otherfactors, could cause the market price of our common stock to fluctuate substantially. In addition, the stock market has experienced price and volumefluctuations that have affected the market price of many retail and other stocks that have often been unrelated or disproportionate to the operatingperformance 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 acompany’s securities. The Company and certain of our current and former members of the Board of Directors and executives are defendants in a consolidatedclass action lawsuit and two related stockholder derivative actions that were filed following our announcement of an issuance of common stock on September26, 2013. Such litigation could result in substantial costs, divert our management’s attention and resources and have an adverse effect on our business, resultsof operations and financial condition.16Table of ContentsThe Company’s ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes may be limited.The Company has a federal net operating loss (NOL) of $2.6 billion as of January 30, 2016. These NOL carryforwards (expiring in 2032 through 2035) areavailable to offset future taxable income. The Company may recognize additional NOLs in the future.Section 382 of the Internal Revenue Code of 1986, as amended (the Code) imposes an annual limitation on the amount of taxable income that may be offsetby a corporation's NOLs if the corporation experiences an “ownership change” as defined in Section 382 of the Code. An ownership change occurs when theCompany’s “five-percent shareholders” (as defined in Section 382 of the Code) collectively increase their ownership in the Company by more than 50percentage points (by value) over a rolling three-year period. Additionally, various states have similar limitations on the use of state NOLs following anownership change.If an ownership change occurs, the amount of the taxable income for any post-change year that may be offset by a pre-change loss is subject to an annuallimitation that is cumulative to the extent it is not all utilized in a year. This limitation is derived by multiplying the fair market value of the Company stockas of the ownership change by the applicable federal long-term tax-exempt rate, which was 2.65% at January 30, 2016. To the extent that a company has a netunrealized built-in gain at the time of an ownership change, which is realized or deemed recognized during the five-year period following the ownershipchange, there is an increase in the annual limitation for each of the first five-years that is cumulative to the extent it is not all utilized in a year.The Company has an ongoing study of the rolling three-year testing periods. Based upon the elections the Company has made and the information that hasbeen filed with the Securities and Exchange Commission through January 30, 2016, the Company has not had a Section 382 ownership change throughJanuary 30, 2016.If an ownership change should occur in the future, the Company’s ability to use the NOL to offset future taxable income will be subject to an annuallimitation and will depend on the amount of taxable income generated by the Company in future periods. There is no assurance that the Company will beable to fully utilize the NOL and the Company could be required to record an additional valuation allowance related to the amount of the NOL that may notbe realized, which could impact the Company’s result of operations.We believe that these NOL carryforwards are a valuable asset for us. Consequently, we have a stockholder rights plan in place, which was approved by theCompany’s stockholders, to protect our NOLs during the effective period of the rights plan. Although the rights plan is intended to reduce the likelihood ofan “ownership change” that could adversely affect us, there is no assurance that the restrictions on transferability in the rights plan will prevent all transfersthat could result in such an “ownership change”. The rights plan could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, our Company or a large block of ourcommon stock. A third party that acquires 4.9% or more of our common stock could suffer substantial dilution of its ownership interest under the terms of therights plan through the issuance of common stock or common stock equivalents to all stockholders other than the acquiring person.The foregoing provisions may adversely affect the marketability of our common stock by discouraging potential investors from acquiring our stock. Inaddition, these provisions could delay or frustrate the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contestinvolving us, or impede an attempt to acquire a significant or controlling interest in us, even if such events might be beneficial to us and our stockholders. Item 1B. Unresolved Staff Comments None. 17Table of ContentsItem 2. Properties At January 30, 2016, we operated 1,021 department stores throughout the continental United States, Alaska and Puerto Rico, of which 418 were owned,including 118 stores located on ground leases. The following table lists the number of stores operating by state as of January 30, 2016:Alabama 20 Maine 6 Oklahoma 19Alaska 1 Maryland 18 Oregon 13Arizona 22 Massachusetts 10 Pennsylvania 35Arkansas 16 Michigan 41 Rhode Island 2California 80 Minnesota 25 South Carolina 16Colorado 21 Mississippi 15 South Dakota 7Connecticut 8 Missouri 26 Tennessee 25Delaware 3 Montana 7 Texas 91Florida 55 Nebraska 11 Utah 9Georgia 27 Nevada 7 Vermont 4Idaho 9 New Hampshire 9 Virginia 24Illinois 37 New Jersey 14 Washington 22Indiana 27 New Mexico 10 West Virginia 9Iowa 15 New York 42 Wisconsin 14Kansas 19 North Carolina 29 Wyoming 5Kentucky 22 North Dakota 8 Puerto Rico 7Louisiana 16 Ohio 43 Total square feet 104.7 million In May 2013, we entered into a $2.25 billion five-year senior secured term loan that is secured by mortgages on certain real property of the Company, inaddition to liens on substantially all personal property of the Company, subject to certain exclusions set forth in the credit and security agreement governingthe term loan credit facility and related security documents. The real property subject to mortgages under the term loan credit facility includes ourheadquarters, distribution centers and certain of our stores.18Table of ContentsAt January 30, 2016, our supply chain network operated 13 facilities with multiple types of distribution activities, including store merchandise distributioncenters (stores), regional warehouses (regional), jcpenney.com fulfillment centers (direct to customers) and furniture distribution centers (furniture) asindicated in the following table: Square FootageLocation Leased/Owned Primary Function(s) (in thousands)Manchester, Connecticut Owned stores, furniture 2,120Lenexa, Kansas Owned stores, direct to customers 1,944Columbus, Ohio Owned stores, direct to customers 1,902Milwaukee, Wisconsin Owned stores, furniture 1,869Atlanta, Georgia Owned stores, regional, furniture 1,764Reno, Nevada Owned regional, direct to customers 1,660Buena Park, California Owned stores, regional, furniture 1,082Alliance, Texas Owned regional 1,071Statesville, North Carolina Owned stores, regional 595Lathrop, California Leased regional 436Cedar Hill, Texas Leased stores 420Spanish Fork, Utah Leased stores 400Lakeland, Florida Leased stores 360Total supply chain network 15,62319Table of ContentsItem 3. Legal ProceedingsThe matters under the caption "Litigation" in Note 21 of the Notes to Consolidated Financial Statements attached to this Form 10-K are incorporated hereinby reference. Item 4. Mine Safety Disclosures Not applicable. 20Table of ContentsPART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for Registrant’s Common Equity Our common stock is traded principally on the New York Stock Exchange (NYSE) under the symbol “JCP.” The number of stockholders of record atMarch 11, 2016, was 24,791. In addition to common stock, we have authorized 25 million shares of preferred stock, of which no shares were issued andoutstanding at January 30, 2016. The table below sets forth the quoted high and low intraday sale prices of our common stock on the NYSE for each quarterly period indicated and the quarter-end closing market price of our common stock:Fiscal Year 2015 First Quarter Second Quarter Third Quarter Fourth QuarterMarket price: High $9.50 $9.39 $10.09 $9.34Low $7.01 $8.02 $7.21 $6.00Close $8.43 $8.24 $9.17 $7.26Fiscal Year 2014 First Quarter Second Quarter Third Quarter Fourth QuarterMarket price: High $9.28 $9.93 $11.30 $8.30Low $4.90 $8.03 $6.73 $5.90Close $8.58 $9.63 $7.61 $7.27 Since May 2012, the Company has not paid a dividend. Under our 2013 senior secured term loan and 2014 senior secured asset-based credit facility, we aresubject to restrictive covenants regarding our ability to pay cash dividends. Additional information relating to the common stock and preferred stock is included in this Annual Report on Form 10-K in the Consolidated Statements ofStockholders’ Equity and in Note 13 to the Consolidated Financial Statements. Issuer Purchases of Securities No repurchases of common stock were made during the fourth quarter of 2015 and no amounts are authorized for share repurchases as of January 30, 2016.21Table of ContentsFive-Year Total Stockholder Return Comparison The following presentation compares our cumulative stockholder returns for the past five fiscal years with the returns of the S&P 500 Stock Index and theS&P 500 Retail Index for Department Stores over the same period. A list of these companies follows the graph below. The graph assumes $100 invested at theclosing price of our common stock on the NYSE and each index as of the last trading day of our fiscal year 2010 and assumes that all dividends werereinvested on the date paid. The points on the graph represent fiscal year-end amounts based on the last trading day of each fiscal year. The following graphand related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such informationbe incorporated by reference into any filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent thatwe specifically incorporate it by reference into such filing.S&P Department Stores:JCPenney, Dillard’s, Macy’s, Kohl’s, Nordstrom, Sears 2010 2011 2012 2013 2014 2015JCPenney $100 $131 $63 $19 $23 $23S&P 500 100 105 124 149 170 169S&P Department Stores 100 113 117 135 169 122 The stockholder returns shown are neither determinative nor indicative of future performance.22Table of ContentsItem 6. Selected Financial Data Five-Year Financial Summary($ in millions, except per share data)2015 2014(1) 2013(1) 2012(1) 2011(1) Results for the year Total net sales$12,625 $12,257 $11,859 $12,985 $17,260 Sales percent increase/(decrease): Total net sales3.0 % 3.4 % (8.7)%(2) (24.8)%(2) (2.8)% Comparable store sales(3)4.5 % 4.4 % (7.4)% (25.1)% 0.3 % Operating income/(loss)(89) (254) (1,242) (1,001) (201) As a percent of sales(0.7)% (2.1)% (10.5)% (7.7)% (1.2)% Net income/(loss) from continuing operations(513) (717) (1,278) (795) (274) Net income/(loss) from continuing operations beforenet interest expense, income tax (benefit)/expense anddepreciation and amortization (EBITDA) (non-GAAP)(4)527 377 (641) (458) 317 Adjusted EBITDA (non-GAAP)(4)715 280 (610) (420) 1,042 Adjusted net income/(loss) (non-GAAP) fromcontinuing operations(4)(315) (778) (1,405) (780) 199 Per common share Earnings/(loss) per share from continuing operations,diluted$(1.68) $(2.35) $(5.13) $(3.63) $(1.26) Adjusted earnings/(loss) per share from continuingoperations, diluted (non-GAAP)(4)$(1.03) $(2.55) $(5.64) $(3.56) $0.90(5) Dividends declared(6)— — — 0.20 0.80 Financial position and cash flow Total assets$9,442 $10,309(8) $11,710(8) $9,761(8) $11,402(8) Cash and cash equivalents900 1,318 1,515 930 1,507 Total debt (7)4,805 5,321(8) 5,510(8) 2,962(8) 3,080(8) Free cash flow (non-GAAP)(4)131 57 (2,746) (906) 23 (1)Reflects the retrospective application of the change in our method of recognizing pension expense. See Note 3 of Notes to Consolidated Financial Statements for a discussionof the change and the impact of the change for the years 2014 and 2013. For 2012, the retrospective application of the change in recognizing pension expense increased netincome/(loss) from continuing operations by $190 million and earnings/(loss) per share from continuing operations, diluted by $0.86. For 2011, the retrospective applicationof the change in recognizing pension expense decreased net income/(loss) from continuing operations by $122 million and earnings/(loss) per share from continuingoperations, diluted by $0.56. (2)Includes the effect of the 53rd week in 2012. Excluding sales of $163 million for the 53rd week in 2012, total net sales decreased 7.5% and 25.7% in 2013 and 2012,respectively.(3)Comparable store sales are presented on a 52-week basis and include sales from all stores, including sales from services and commissions earned from our in-storelicensed departments, that have been open for 12 consecutive full fiscal months and Internet sales. Stores closed for an extended period are not included in comparable storesales calculations, while stores remodeled and minor expansions not requiring store closure remain in the calculations. Certain items, such as sales return estimates andstore liquidation sales, are excluded from the Company's calculation. Our definition and calculation of comparable store sales may differ from other companies in the retailindustry.(4)See Non-GAAP Financial Measures herein for additional information and reconciliation to the most directly comparable GAAP financial measure. (5)Weighted average shares–diluted of 220.7 million was used for this calculation as adjusted income/(loss) from continuing operations was positive. 3.3 million shares wereadded to weighted average shares–basic of 217.4 million for assumed dilution for stock options, restricted stock awards and stock warrant. (6)We discontinued the quarterly $0.20 per share dividend following the May 1, 2012 payment.(7)Total debt includes long-term debt, net of unamortized debt issuance costs, including current maturities, capital leases, note payable and any borrowings under our revolvingcredit facility.(8)Reflects the retrospective application of the change in our classification of debt issue costs. See Note 4 of Notes to Consolidated Financial Statements for a discussion of thechange and the impact of the change for 2014. For 2013, the retrospective application of the change in our classification of debt issue costs reduced Total assets by anddecreased Total debt by $91 million. For 2012, the23Table of Contentsretrospective application of the change in our classification of debt issue costs reduced Total assets by and decreased Total debt by $20 million. For 2011, the retrospectiveapplication of the change in our classification of debt issue costs reduced Total assets by and decreased Total debt by $22 million.Five-Year Operations Summary 2015 2014 2013 2012 2011Number of department stores: Beginning of year 1,062 1,094 1,104 1,102 1,106Openings — 1 — 9(1) 3Closings (41) (33) (10) (7)(1) (7)End of year 1,021 1,062 1,094 1,104 1,102Gross selling space (square feet in millions) 104.7 107.9 110.6 111.6 111.2Sales per gross square foot(2) $120 $113 $107 $116 $154Sales per net selling square foot(2) $165 $155 $147 $161 $212 Number of the Foundry Big and Tall Supply Co. stores(3) — — 10 10 10 (1)Includes 3 relocations.(2)Calculation includes the sales, including commission revenue, and square footage of department stores, including selling space allocated to services and licenseddepartments, that were open for the full fiscal year, as well as Internet sales.(3)All stores opened during 2011 and closed during 2014. Gross selling space was 51 thousand square feet as of the end of 2013, 2012 and 2011.Non-GAAP Financial Measures We report our financial information in accordance with generally accepted accounting principles in the United States (GAAP). However, we present certainfinancial measures and ratios identified as non-GAAP under the rules of the Securities and Exchange Commission (SEC) to assess our results. We believe thepresentation of these non-GAAP financial measures and ratios is useful in order to better understand our financial performance as well as to facilitate thecomparison of our results to the results of our peer companies. In addition, management uses these non-GAAP financial measures and ratios to assess theresults of our operations. It is important to view non-GAAP financial measures in addition to, rather than as a substitute for, those measures and ratiosprepared in accordance with GAAP. We have provided reconciliations of the most directly comparable GAAP measures to our non-GAAP financial measurespresented.The following non-GAAP financial measures are adjusted to exclude the impact of markdowns related to the alignment of inventory with our prior strategy,restructuring and management transition charges, the impact of our qualified defined benefit pension plan (Primary Pension Plan), the loss on extinguishmentof debt, the net gain on the sale of non-operating assets, certain net gains, the proportional share of net income from our joint venture formed to develop theexcess property adjacent to our home office facility in Plano, Texas (Home Office Land Joint Venture) and the tax impact for the allocation of income taxes toother comprehensive income items related to our Primary Pension Plan and interest rate swaps. Unlike other operating expenses, the impact of the markdownsrelated to the alignment of inventory with our prior strategy, restructuring and management transition charges, the loss on extinguishment of debt, the netgain on the sale of non-operating assets, certain net gains, the proportional share of net income from the Home Office Land Joint Venture and the tax impactfor the allocation of income taxes to other comprehensive income items related to our Primary Pension Plan and interest rate swaps are not directly related toour ongoing core business operations. Primary Pension Plan expense/(income) is determined using numerous complex assumptions about changes in pensionassets and liabilities that are subject to factors beyond our control, such as market volatility. Accordingly, we eliminate our Primary Pension Planexpense/(income) in its entirety as we view all components of net periodic benefit expense/(income) as a single, net amount, consistent with its presentationin our Consolidated Financial Statements. We believe it is useful for investors to understand the impact of markdowns related to the alignment of inventorywith our prior strategy, restructuring and management transition charges, Primary Pension Plan expense/(income), the loss on extinguishment of debt, the netgain on the sale of non-operating assets, certain net gains, the proportional share of net income from the Home Office Land Joint Venture and the tax impactfor the allocation of income taxes to other comprehensive income items related to our Primary Pension Plan and interest rate swaps on our financial resultsand therefore are presenting the following non-GAAP financial measures: (1) adjusted EBITDA; (2) adjusted net income/(loss); and (3) adjustedearnings/(loss) per share-diluted.24Table of ContentsIn addition, we believe that EBITDA is a useful measure in assessing our operating performance and are therefore presenting this non-GAAP financialmeasure in addition to the non-GAAP financial measures listed above.EBITDA and Adjusted EBITDA. The following table reconciles net income/(loss), the most directly comparable GAAP measure, to EBITDA and adjustedEBITDA, which are non-GAAP financial measures:($ in millions)2015 2014(1) 2013(1) 2012(1) 2011(1) Net income/(loss) from continuing operations$(513) $(717) $(1,278) $(795) $(274) Add: Net interest expense405 406 352 226 227 Add: Loss on extinguishment of debt10 34 114 — — Total interest expense415 440 466 226 227 Add: Income tax expense/(benefit)9 23 (430) (432) (154) Add: Depreciation and amortization616 631 601 543 518 EBITDA (non-GAAP)527 377(1) (641)(1) (458)(1) 317(1) Add: Markdowns - inventory strategy alignment— — — 155 — Add: Restructuring and management transitioncharges84 87 215 298 451 Add: Primary pension plan expense/(income)154 (18) (52) (18) 274 Less: Net gain on the sale of non-operating assets(9) (25) (132) (397) — Less: Proportional share of net income from homeoffice land joint venture(41) (53) — — — Less: Certain net gains— (88)(2) — — — Adjusted EBITDA (non-GAAP)$715 $280(1) $(610)(1) $(420)(1) $1,042(1) (1)Reflects the retrospective application of the change in our method of recognizing pension expense. See Note 3 of Notes to Consolidated Financial Statements for a discussionof the change and related impacts. For 2014, the retrospective application of the change in recognizing pension expense increased EBITDA (non-GAAP) by $54 million andAdjusted EBITDA (non-GAAP) by $38 million. For 2013, the retrospective application of the change in recognizing pension expense increased EBITDA (non-GAAP) by $178million and Adjusted EBITDA (non-GAAP) by $26 million. For 2012, the retrospective application of the change in recognizing pension expense increased EBITDA (non-GAAP) by $309 million and decreased Adjusted EBITDA (non-GAAP) by $24 million. For 2011, the retrospective application of the change in recognizing pension expensedecreased EBITDA (non-GAAP) by $199 million and Adjusted EBITDA (non-GAAP) by $12 million.(2)Represents the net gain on the sale of one department store location and the net gain recognized on a payment received from a landlord to terminate an existing lease prior toits original expiration date.25Table of ContentsAdjusted Net Income/(Loss) and Adjusted Diluted EPS from Continuing Operations. The following table reconciles net income/(loss) and diluted EPS fromcontinuing operations, the most directly comparable GAAP financial measures, to adjusted net income/(loss) and adjusted diluted EPS from continuingoperations, non-GAAP financial measures:($ in millions, except per share data)2015 2014(1) 2013(1) 2012(1) 2011(1) Net income/(loss) (GAAP) from continuing operations$(513) $(717) $(1,278) $(795) $(274) Diluted EPS (GAAP) from continuing operations$(1.68) $(2.35) $(5.13) $(3.63) $(1.26) Add: markdowns - inventory strategy alignment, net of tax of $-,$-, $-, $60 and $-— — — 95(2) — Add: restructuring and management transition charges, net oftax of $-, $-, $28, $116 and $14584(3) 87(3) 187(4) 182(2) 306(5) Add/(deduct): primary pension plan expense/(income), net oftax of $-, $-, $(5), $(7), and $107154(3) (18)(3) (47)(6)(7) (11)(2) 167(2) Add: Loss on extinguishment of debt, net of tax of $-, $-, $-, $-and $-10(3) 34(3) 114(3) — — Less: Net gain on sale or redemption of non-operating assets, netof tax of $-, $-, $1, $146 and $-(9)(3) (25)(3) (131)(8) (251)(5) — Less: Proportional share of net income from home office landjoint venture, net of tax of $-, $-, $-, $- and $-(41)(3) (53)(3) — — — Less: Certain net gains, net of tax of $-, $2, $-, $- and $-— (86)(8) — — — Less: Tax impact resulting from other comprehensive incomeallocation— — (250)(9) — — Adjusted net income/(loss) (non-GAAP) from continuingoperations$(315) $(778)(1) $(1,405)(1) $(780)(1) $199(1) Adjusted diluted EPS (non-GAAP) from continuing operations$(1.03) $(2.55)(1) $(5.64)(1) $(3.56)(1) $0.90(1)(10) (1)Reflects the retrospective application of the change in our method of recognizing pension expense. See Note 3 of Notes to Consolidated Financial Statements for a discussionof the change and related impacts. For 2014, the retrospective application of the change in recognizing pension expense increased Adjusted net income/(loss) (non-GAAP)from continuing operations by $38 million and Adjusted diluted EPS (non-GAAP) from continuing operations by $0.12. For 2013, the retrospective application of the changein recognizing pension expense increased Adjusted net income/(loss) (non-GAAP) from continuing operations by $26 million and Adjusted diluted EPS (non-GAAP) fromcontinuing operations by $0.10. For 2012, the retrospective application of the change in recognizing pension expense decreased Adjusted net income/(loss) (non-GAAP) fromcontinuing operations by $14 million and Adjusted diluted EPS (non-GAAP) from continuing operations by $0.07. For 2011, the retrospective application of the change inrecognizing pension expense decreased Adjusted net income/(loss) (non-GAAP) from continuing operations by $8 million and Adjusted diluted EPS (non-GAAP) fromcontinuing operations by $0.04.(2)Tax effect was calculated using the Company's statutory rate of 38.82%.(3)Reflects no tax effect due to the impact of the Company's tax valuation allowance.(4)Tax effect for the three months ended May 4, 2013 was calculated using the Company's statutory rate of 38.82%. The last nine months of 2013 reflects no tax effect due to theimpact of the Company's tax valuation allowance.(5)Tax effect was calculated using the effective tax rate for the transactions.(6)Tax benefit for the last nine months of 2013 is included in the line item Tax benefit resulting from other comprehensive income allocation. See footnote 9 below.(7)Tax effect for the three months ended May 4, 2013 was calculated using the Company's statutory rate of 38.82%.(8)Tax effect represents state taxes payable in separately filing states related to the sale of assets.(9)Represents the tax benefits related to the allocation of tax expense to other comprehensive income items, including the amortization of actuarial losses and prior service costsrelated to the Primary Pension Plan and the results of our annual remeasurement of our pension plans.(10)Weighted average shares–diluted of 220.7 million was used for this calculation as 2011 adjusted income/(loss) from continuing operations was positive. 3.3 million shareswere added to weighted average shares–basic of 217.4 million for assumed dilution for stock options, restricted stock awards and stock warrant. 26Table of ContentsFree Cash FlowFree cash flow is a key financial measure of our ability to generate additional cash from operating our business. We define free cash flow as cash flow fromoperating activities, less capital expenditures and dividends paid, plus the proceeds from the sale of operating assets. Free cash flow is a relevant indicator ofour ability to repay maturing debt, revise our dividend policy or fund other uses of capital that we believe will enhance stockholder value. Free cash flow isconsidered a non-GAAP financial measure under the rules of the SEC. Free cash flow is limited and does not represent remaining cash flow available fordiscretionary expenditures due to the fact that the measure does not deduct payments required for debt maturities, pay-down of pension debt, and otherobligations or payments made for business acquisitions. Therefore, it is important to view free cash flow in addition to, rather than as a substitute for, ourentire statement of cash flows and those measures prepared in accordance with GAAP.The following table reconciles net cash provided by/(used in) operating activities, the most directly comparable GAAP measure, to free cash flow, a non-GAAP financial measure. ($ in millions)2015 2014 2013 2012 2011Net cash provided by/(used in) operating activities (GAAP)$440 $239 $(1,814) $(10) $820Less: Capital expenditures(320) (252) (951) (810) (634)Dividends paid, common stock— — — (86) (178)Plus: Proceeds from sale of operating assets11 70 19 — 15Free cash flow (non-GAAP)$131 $57 $(2,746) $(906) $23 27Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion, which presents our results, should be read in conjunction with the accompanying Consolidated Financial Statements and notesthereto, along with the Five-Year Financial and Operations Summaries, the risk factors and the cautionary statement regarding forward-looking information.Unless otherwise indicated, all references in this Management’s Discussion and Analysis (MD&A) related to earnings/(loss) per share (EPS) are on a dilutedbasis and all references to years relate to fiscal years rather than to calendar years.Strategic FrameworkOur strategic framework is built upon the three pillars of private brands, omnichannel and revenue per customer.Product differentiation, affordable style and quality and enhanced profitability are critical to the success of our private brands. With our team of designersand our proprietary designs, we believe we can differentiate our private and exclusive brands from our competitors and the overall marketplace. Through ourprivate brand selection, we believe we can provide value to our customers by offering products with style and quality at an attractive price point. Lastly, withour global sourcing infrastructure, we believe we are uniquely positioned to enhance our merchandise margins by managing product development costs andmaintaining flexibility with our price offerings. During 2015, private brand merchandise comprised 44% of total merchandise sales, as compared to 42% and41% in 2014 and 2013, respectively. During 2015, 2014 and 2013, exclusive brand merchandise comprised 8%, 11% and 11%, respectively, of totalmerchandise sales. Our second strategic area of focus is omnichannel. With our heritage of being a catalog retailer, we believe we have the right foundation in place to enhanceour omnichannel capabilities. Today’s customer wants to decide when and how she wants to shop, whether in store or online using multiple personal devices.Improving the omnichannel experience for our customers involves further development of our mobile apps, providing more fulfillment choices to thecustomer and expanding our merchandise assortment. In 2015, we made significant improvements to our mobile app and began testing “buy online and pickup in store same day.” We also intend to continue to expand our online assortment to increase sales and differentiate ourselves from pure e-commercecompetitors.Our final strategic priority is revenue per customer. For 2016, we are focused on three initiatives to increase the frequency and amount customers spend onevery transaction. First, we plan to accelerate our growth of Sephora inside JCPenney locations. In 2015, we opened 28 additional Sephora locations,bringing our total number of locations to 518, and introduced a selection of Sephora makeup, skincare and fragrance products to jcpenney.com. We plan toadd approximately 60 new Sephora locations in 2016. Second, we continue to enhance our salon environment through our rebranding initiative inpartnership with InStyle magazine. Third, for 2016 we plan to redesign the center core area, which includes fashion and fine jewelry, handbags, footwear,sunglasses, and accessories, in approximately one-third of our stores.28Table of Contents2015 Highlights ▪Sales were $12,625 million, an increase of 3.0% as compared to 2014, and comparable store sales increased 4.5%. ▪Gross margin as a percentage of sales was 36.0% compared to 34.8% last year. The increase in gross margin as a percentage of sales is primarily dueto improved margins on our clearance merchandise.▪Selling, general and administrative (SG&A) expenses decreased $218 million, or 5.5%, as compared to 2014.▪Our net loss was $513 million, or $1.68 per share, compared to a net loss of $717 million, or $2.35 per share, in 2014. Results for 2015 included thefollowing amounts that are not directly related to our ongoing core business operations:▪$84 million, or $0.27 per share, of restructuring and management transition charges;▪$180 million, or $0.59 per share, for the impact related to the settlement of a portion of the Primary Pension Plan obligation;▪$10 million, or $0.03 per share, for the loss on extinguishment of debt;▪$9 million, or $0.03 per share, for the net gain on the sale of non-operating assets; and▪$41 million, or $0.13 per share, for our proportional share of net income from our joint venture formed to develop the excess propertyadjacent to our home office facility in Plano, Texas (Home Office Land Joint Venture).▪We elected to change our method of recognizing pension expense. Previously, for the primary and supplemental pension plans, net actuarial gains orlosses in excess of 10% of the greater of the fair value of plan assets or the plans’ projected benefit obligation (the corridor) were recognized over theremaining service period of plan participants (eight years for the Primary Pension Plan). Under the new accounting method, we recognize changes innet actuarial gains or losses in excess of the corridor annually in the fourth quarter each year (Mark-to-market (MTM) Adjustment).▪EBITDA was $527 million for 2015, an improvement of $150 million compared to EBITDA of $377 million in 2014. Adjusted EBITDA was $715million for 2015 compared to adjusted EBITDA of $280 million in 2014.▪On August 1, 2015, Marvin R. Ellison succeeded Myron E. Ullman, III as CEO of the Company. At that time, Mr. Ullman became ExecutiveChairman of the Board of Directors.▪On December 10, 2015, J. C. Penney Company, Inc., JCP and J. C. Penney Purchasing Corporation (Purchasing) amended the Company's seniorsecured asset-based credit facility (2014 Credit Facility) to increase the revolving line of credit under the facility (Revolving Facility) to $2,350million. In connection with upsizing the Revolving Facility, we prepaid and retired the outstanding principal amount of the $500 million term loanunder the facility.29Table of ContentsResults of Operations Three-Year Comparison of Operating Performance(in millions, except per share data)2015 2014(1) 2013(1) Total net sales$12,625 $12,257 $11,859 Percent increase/(decrease) from prior year3.0 % 3.4 % (8.7)%(2) Comparable store sales increase/(decrease)(3)4.5 % 4.4 % (7.4)% Gross margin4,551 4,261 3,492 Operating expenses/(income): Selling, general and administrative3,775 3,993 4,114 Pension162 (48) (41) Depreciation and amortization616 631 601 Real estate and other, net3 (148) (155) Restructuring and management transition84 87 215 Total operating expenses4,640 4,515 4,734 Operating income/(loss)(89) (254) (1,242) As a percent of sales(0.7)% (2.1)% (10.5)% Loss on extinguishment of debt10 34 114 Net interest expense405 406 352 Income/(loss) before income taxes(504) (694) (1,708) Income tax (benefit)/expense9 23 (430) Net income/(loss)$(513) $(717) $(1,278) EBITDA(4)$527 $377 $(641) Adjusted EBITDA(4)$715 $280 $(610) Adjusted net income/(loss) (non-GAAP)(4)$(315) $(778) $(1,405) Diluted EPS$(1.68) $(2.35) $(5.13) Adjusted diluted EPS (non-GAAP)(4)$(1.03) $(2.55) $(5.64) Weighted average shares used for diluted EPS305.9 305.2 249.3 (1)Reflects the retrospective application of the change in our method of recognizing pension expense. See Note 3 of Notes to Consolidated Financial Statements for a discussionof the change and the impact of the change for the years 2014 and 2013.(2)Includes the effect of the 53rd week in 2012. Excluding sales of $163 million for the 53rd week in 2012, total net sales decreased 7.5% in 2013.(3)Comparable store sales are presented on a 52-week basis and include sales from all stores, including sales from services and commissions earned from our in-storelicensed departments, that have been open for 12 consecutive full fiscal months and Internet sales. Stores closed for an extended period are not included in comparable storesales calculations, while stores remodeled and minor expansions not requiring store closure remain in the calculations. Certain items, such as sales return estimates andstore liquidation sales, are excluded from the Company's calculation. Our definition and calculation of comparable store sales may differ from other companies in the retailindustry.(4)See Item 6, Selected Financial Data, for a discussion of this non-GAAP financial measure and reconciliation to its most directly comparable GAAP financial measure.2015 Compared to 2014 Total Net SalesOur year-to-year change in total net sales is comprised of (a) sales from new stores net of closings and relocations, referred to as non-comparable store sales (b)sales of stores opened in both years as well as Internet sales, referred to as comparable store sales and (c) other revenue adjustments such as sales returnestimates and store liquidation sales. We consider comparable store sales to be a key indicator of our current performance measuring the growth in sales andsales productivity of existing stores. Positive comparable store sales contribute to greater leveraging of operating costs, particularly payroll and occupancycosts, while negative comparable store sales contribute to de-leveraging of costs. Comparable store sales also have a direct impact on our total net sales andthe level of cash flow.30Table of Contents 2015 2014Total net sales (in millions)$12,625 $12,257Sales percent increase/(decrease) Total net sales3.0% 3.4%Comparable store sales(1)4.5% 4.4%Sales per gross square foot(2)$120 $113(1)Comparable store sales are presented on a 52-week basis and include sales from all stores, including sales from services and commissions earned from our in-storelicensed departments, that have been open for 12 consecutive full fiscal months and Internet sales. Stores closed for an extended period are not included in comparable storesales calculations, while stores remodeled and minor expansions not requiring store closure remain in the calculations. Certain items, such as sales return estimates andstore liquidation sales, are excluded from the Company's calculation. Our definition and calculation of comparable store sales may differ from other companies in the retailindustry.(2)Calculation includes the sales, including commission revenue, and square footage of department stores, including selling space allocated to services and licenseddepartments, that were open for the full fiscal year, as well as Internet sales. Total net sales increased $368 million in 2015 compared to 2014. The following table provides the components of the net sales increase: ($ in millions)2015Comparable store sales increase/(decrease)$538Sales related to closed stores, net(175)Other revenues and sales adjustments5Total net sales increase/(decrease)$368As our omnichannel strategy continues to mature, it is increasingly difficult to distinguish between a store sale and an Internet sale. Because we no longerhave a clear distinction between store sales and Internet sales, we do not separately report Internet sales. Below is a list of some of our omnichannel activities:•Stores increase Internet sales by providing customers opportunities to view, touch and/or try on physical merchandise before ordering online.•Our website increases store sales as in-store customers have often pre-shopped online before shopping in the store, including verification of whichstores have online merchandise in stock.•Most Internet purchases are easily returned in our stores.•JCP Rewards can be earned and redeemed online or in stores.•In-store customers can order from our website with the assistance of associates in our stores or they can shop our website from the JCPenney appwhile inside the store.•Customers who utilize our mobile application can receive mobile coupons to use when they check out both online or in our stores.•Internet orders can be shipped from a dedicated jcpenney.com fulfillment center, a store, a store merchandise distribution center, a regionalwarehouse, directly from vendors or any combination of the above.•Certain categories of store inventory can be accessed and purchased by jcpenney.com customers and shipped directly to the customer's home fromthe store.•Internet orders can be shipped to stores for customer pick up.•Order online and "pick-up in store same day" began to roll out to select markets in the second half of 2015.Both total net sales and comparable store sales increased during 2015 as we gained market share in a highly competitive environment. Internet sales grew at afaster rate compared to our department stores and were positively impacted by our mobile application that creates an enhanced digital experience. Inaddition, we continue to move closer to a true omnichannel state with our continuation of "ship to stores" and "ship from stores" and our plans to roll out "buy-online-pick-up-in-store same day" chainwide prior to the 2016 Back to School selling season.For 2015, conversion, transaction counts and average unit retail increased, while the units per transaction decreased as compared to the prior year. On ageographic basis, all regions experienced comparable store sales increases for 2015 compared31Table of Contentsto the prior year. During 2015, our Sephora, Footwear and Handbags, Home, and Men's merchandise divisions experienced sales increases. Sephora, whichreflected the addition of 28 Sephora inside JCPenney locations, experienced the highest sales increase.Gross MarginGross margin is a measure of profitability of a retail company at the most fundamental level of buying and selling merchandise. Gross margins not only covermarketing, selling and other operating expenses, but also must include a profit element. Gross margin is the difference between total net sales and cost of themerchandise sold and is typically expressed as a percentage of total net sales. The cost of merchandise sold includes all direct costs of bringing merchandiseto its final selling destination. Gross margin increased to 36.0% of sales in 2015, or 120 basis points, compared to 2014. On a dollar basis, gross margin increased $290 million, or 6.8%, to$4,551 million in 2015 compared to $4,261 million in the prior year. The net 120 basis point increase resulted primarily from improved margins on ourclearance merchandise.SG&A ExpensesSG&A expenses declined $218 million to $3,775 million in 2015 compared to $3,993 million in 2014. As a percent of sales, SG&A expenses were 29.9%compared to 32.6% in the prior year. The net 270 basis point decrease primarily resulted from lower store controllable costs, more efficient advertising spendand improved private label credit card revenue, which is recorded as a reduction of our SG&A expenses. These decreases were partially offset by an increasein incentive compensation.Our private label credit card and co-branded MasterCard® programs are owned and serviced by Synchrony Financial (Synchrony). Under our agreement withSynchrony, we receive cash payments from Synchrony based upon the performance of the credit card portfolio. We participate in the programs by providingmarketing promotions designed to increase the use of each card, including enhanced marketing offers for cardholders. Additionally, we accept payments inour stores from cardholders who prefer to pay in person when they are shopping in our locations. The income we earn under our agreement with Synchrony isincluded as an offset to SG&A expenses. For 2015 and 2014, we recognized income of $367 million and $313 million, respectively, pursuant to ouragreement with Synchrony.PensionPension expense/(income) provided below reflects the retrospective application of the change in our method of recognizing pension expense. See Note 3 ofNotes to Consolidated Financial Statements for a discussion of the change and the impact of the change for 2014.($ in millions) 2015 2014Primary pension plan expense/(income) $154 $(18)Supplemental pension plans expense/(income) 8 (30)Total pension expense/(income) $162 $(48)Total pension expense, which consists of our Primary Pension Plan expense and our supplemental pension plans expense, increased primarily due to the $180million settlement charge of unrecognized actuarial losses as a result of a total transfer of approximately $1.5 billion in Primary Pension Plan assets to settle aportion of the Primary Pension Plan obligation. The transfers included a lump-sum payment of Primary Pension Plan assets as elected by a group of planparticipants and the purchase of an annuity contract from an insurance company that will pay and administer future benefits to select retirees. Additionally,the MTM adjustment was expense of $53 million and $12 million in 2015 and 2014, respectively.Depreciation and Amortization ExpensesDepreciation and amortization expense in 2015 decreased $15 million to $616 million, or 2.4%, compared to $631 million in 2014. This decrease isprimarily a result of closing 74 store locations since the beginning of 2014.Real Estate and Other, NetReal estate and other consists of ongoing operating income from our real estate subsidiaries. Real estate and other also includes net gains from the sale offacilities and equipment that are no longer used in operations, asset impairments, accruals for certain litigation and other non-operating charges and credits.In addition, during the first quarter of 2014, we entered into the Home Office Land Joint Venture in which we contributed approximately 220 acres of excessproperty adjacent to our home office facility in Plano, Texas. The joint venture was formed to develop the contributed property and our proportional share ofthe joint venture's activities is recorded in Real estate and other, net.32Table of ContentsThe composition of real estate and other, net was as follows: ($ in millions) 2015 2014Net gain from sale of non-operating assets $(9) $(25)Investment income from Home Office Land Joint Venture (41) (53)Net gain from sale of operating assets (9) (92)Store and other asset impairments 20 30Other 42 (8)Total expense/(income) $3 $(148)In 2015 and 2014, we sold several non-operating assets for a net gain of $9 million and $25 million, respectively. Investment income from the Home OfficeLand Joint Venture represents our proportional share of net income of the joint venture.In 2015, the net gain from the sale of operating assets related to the sale of a former furniture store location, payments received from landlords to terminatetwo leases prior to the original expiration date and the sale of excess property. In 2014, the net gain from the sale of operating assets related to the sale ofthree department store locations.Store impairments totaled $- million and $30 million in 2015 and 2014, respectively. The 2014 impairments related to 19 underperforming department storesthat continued to operate. Additionally, in 2015, we incurred an impairment charge related to the write-down of internal use software products that will not beimplemented.Included in the other category is a $50 million accrual for the proposed settlement related to a pricing class action lawsuit. Pursuant to the settlement, whichis subject to court approval, class members will have the option of selecting a cash payment or store credit. The amount of the payment or credit will dependon the total amount of certain merchandise purchased by each class member during the class period.See "Restructuring and Management Transition" below for additional impairments related to stores closed in 2015 and stores scheduled to be closed in 2016.Restructuring and Management TransitionThe composition of restructuring and management transition charges was as follows: ($ in millions) 2015 2014Home office and stores $42 $45Management transition 28 16Other 14 26Total $84 $87In 2015 and 2014, we recorded $42 million and $45 million, respectively, of costs to reduce our store and home office expenses. The costs relate to employeetermination benefits, lease termination costs and impairment charges associated with the expected closure of 7 underperforming department stores in 2016and the 2015 closing of 41 such stores. Additionally, the costs include employee termination benefits in connection with the elimination of approximately300 positions in our home office in 2015.We also implemented several changes within our management leadership team during 2015 and 2014 that resulted in management transition costs of $28million and $16 million, respectively, for both incoming and outgoing members of management. Other miscellaneous restructuring charges of $14 millionand $26 million, primarily related to contract termination and other costs associated with our previous shops strategy, were recorded during 2015 and 2014,respectively.Operating Income/(Loss)For 2015, we reported an operating loss of $89 million compared to an operating loss of $254 million in 2014, which is an improvement of $165 million.33Table of ContentsLoss on Extinguishment of DebtIn December 2015, we prepaid and retired the outstanding $494 million principal amount of the term loan under the 2014 Credit Facility and recognized aloss on extinguishment of debt of $10 million for the write off of the related unamortized debt issuance costs.Net Interest ExpenseNet interest expense consists principally of interest expense on long-term debt, net of interest income earned on cash and cash equivalents. Net interestexpense was $405 million, a decrease of $1 million, or 0.2%, from $406 million in 2014. Income TaxesOur net deferred tax assets, which include the future tax benefits of our net operating loss carryforwards, are subject to a valuation allowance. At January 30,2016, the federal and state valuation allowances were $789 million and $236 million, respectively. Future book pre-tax losses will require additionalvaluation allowances to offset the deferred tax assets created. Until such time that we achieve sufficient profitability to allow removal of most of ourvaluation allowance, utilization of our loss carryforwards will result in a corresponding decrease in the valuation allowance and offset our tax provisiondollar for dollar.Each period we are required to allocate our income tax expense or benefit to continuing operations and other items such as other comprehensive income andstockholder’s equity. In accordance with these rules when we have a loss in continuing operations and a gain in other comprehensive income, as arose in2013, we are required to recognize a tax benefit in continuing operations up to the amount of tax expense that we are required to report in othercomprehensive income. In 2015, we experienced losses in both continuing operations and other comprehensive income. Under the allocation rules we arerequired to recognize the valuation allowance allocable to the tax benefit attributable to these losses in each component of comprehensive income. Accordingly, included in the total valuation allowance of $1,025 million noted above is $244 million of valuation allowance which offsets the deferred taxbenefit attributable to the actuarial loss reported in other comprehensive income.For 2015, we recorded a net tax expense of $9 million. The net tax expense included $7 million related to the amortization of certain indefinite-livedintangible assets, $12 million for state and foreign jurisdictions where loss carryforwards are limited or unavailable offset by net tax benefits of $2 million forstate audit settlements and $8 million to adjust the valuation allowance.For 2014, we recorded a net tax expense of $23 million. The net tax expense included $7 million related to the amortization of certain indefinite-livedintangible assets, $10 million for state and foreign jurisdictions where loss carryforwards are limited or unavailable and $6 million for federal and state auditsettlements. EBITDA and Adjusted EBITDA (non-GAAP)In 2015, EBITDA was $527 million, an improvement of $150 million from EBITDA of $377 million in the prior year corresponding period. Excludingrestructuring and management transition charges, the impact of our Primary Pension Plan expense/(income), the net gain on the sale of non-operating assets,the proportional share of net income from the Home Office Land Joint Venture and certain net gains, adjusted EBITDA was $715 million, improving $435million for 2015 compared to adjusted EBITDA of $280 million for the prior year corresponding period.Overall, EBITDA and adjusted EBITDA improved significantly in 2015 as compared to the corresponding prior year periods as we were able to improve sales,achieve higher margins and reduce our operating costs. Net Income/(Loss) and Adjusted Net Income/(Loss)In 2015, we reported a loss of $513 million, or $1.68 per share, compared with a loss of $717 million, or $2.35 per share, last year. Excluding the impact ofrestructuring and management transition charges, the impact of our Primary Pension Plan expense, the loss on extinguishment of debt, the net gain on sale ofnon-operating assets, the proportional share of net income from joint venture and certain net gains, adjusted net income/(loss) (non-GAAP) went from a lossof $778 million, or $2.55 per share, in 2014 to a loss of $315 million, or $1.03 per share, in 2015.34Table of Contents2014 Compared to 2013 Total Net Sales 2014 2013 Total net sales (in millions)$12,257 $11,859 Sales percent increase/(decrease) Total net sales(1)3.4% (8.7)%(1) Comparable store sales(2)4.4% (7.4)% Sales per gross square foot(3)$113 $107 (1)Includes the effect of the 53rd week in 2012. Excluding sales of $163 million for the 53rd week in 2012, total net sales decreased 7.5% in 2013.(2)Comparable store sales are presented on a 52-week basis and include sales from all stores, including sales from services and commissions earned from our in-storelicensed departments, that have been open for 12 consecutive full fiscal months and Internet sales. Stores closed for an extended period are not included in comparable storesales calculations, while stores remodeled and minor expansions not requiring store closure remain in the calculations. Certain items, such as sales return estimates andstore liquidation sales, are excluded from the Company's calculation. Our definition and calculation of comparable store sales may differ from other companies in the retailindustry.(3)Calculation includes the sales, including commission revenue, and square footage of department stores, including selling space allocated to services and licenseddepartments, that were open for the full fiscal year, as well as Internet sales.Total net sales increased $398 million in 2014 compared to 2013. The following table provides the components of the net sales increase:($ in millions)2014Comparable store sales, including Internet$508Sales related to closed (non-comparable) stores, net(90)Other revenues and sales adjustments(20)Total net sales increase/(decrease)$398In 2014, comparable store sales increased 4.4%. Total net sales increased 3.4% to $12,257 million compared with $11,859 million in 2013 and Internet salesincreased 13.4% to $1,225 million.Both total net sales and comparable store sales increased during 2014 as we gained market share in a highly competitive environment. Internet sales grew at afaster rate compared to our department stores and were positively impacted by our new mobile application that creates an enhanced digital experience.For 2014, conversion, average transaction value and average unit retail increased, while the units per transaction decreased as compared to the prior year. Allgeographic regions experienced sales increases for 2014 compared to the prior year. During 2014, most of our divisions experienced a sales increase, with ourHome and Women's Accessories divisions, including Sephora, which reflected the addition of 46 Sephora inside JCPenney locations, experiencing thehighest sales increases. Our Children's and Footwear divisions were the only divisions that experienced sales declines.Gross MarginGross margin increased to 34.8% of sales in 2014, or 540 basis points, compared to 2013. On a dollar basis, gross margin increased $769 million, or 22.0%, to$4,261 million in 2014 compared to $3,492 million in the prior year. The net 540 basis point increase resulted primarily from the change in merchandise mixlargely related to better clearance sales performance as a result of fewer units of clearance merchandise sold at higher clearance margins and higher re-ticketing costs in the prior year as a result of moving back to a promotional strategy. SG&A ExpensesSG&A expenses declined $121 million to $3,993 million in 2014 compared to $4,114 million in 2013. As a percent of sales, SG&A expenses were 32.6%compared to 34.7% in the prior year. The net 210 basis point decrease primarily resulted from lower store expenses, advertising costs and corporate overheadthroughout the period and higher income from the JCPenney private label credit card activities, which is recorded as a reduction of our SG&A expenses.These decreases were slightly offset by an increase in incentive compensation.35Table of ContentsOur private label credit card and co-branded MasterCard® programs are owned and serviced by Synchrony Financial (Synchrony). Under our agreement withSynchrony, we receive cash payments from Synchrony based upon the performance of the credit card portfolio. We participate in the programs by providingmarketing promotions designed to increase the use of each card, including enhanced marketing offers for cardholders. Additionally, we accept payments inour stores from cardholders who prefer to pay in person when they are shopping in our locations. The income we earn under our agreement with Synchrony isincluded as an offset to SG&A expenses. For 2014 and 2013, we recognized income of $313 million and $306 million, respectively, pursuant to ouragreement with Synchrony. Pension ExpensePension expense provided below reflects the retrospective application of the change in our method of recognizing pension expense. See Note 3 of Notes toConsolidated Financial Statements for a discussion of the change and the impact of the change for the years 2014 and 2013.($ in millions) 2014 2013Primary pension plan expense/(income) $(18) $(52)Supplemental pension plans expense/(income) (30) 11Total pension expense/(income) $(48) $(41)Total pension expense, which consists of our Primary Pension Plan expense and our supplemental pension plans expense, resulted in pension income in 2014and 2013 as a result of the expected return on plan assets exceeding the pension costs respectively for each year. Additionally, the MTM Adjustment was $12million in expense in 2014 and $2 million in income in 2013. Depreciation and Amortization ExpenseDepreciation and amortization expense in 2014 increased $30 million to $631 million, or 5.0%, compared to $601 million in 2013. This increase is a resultof our investment and replacement of store fixtures in connection with the implementation of our prior strategy. Depreciation and amortization expense for2013 excluded $37 million of increased depreciation as a result of shortening the useful lives of department store fixtures that were replaced during 2013with the build out of our home department and other attractions. These amounts were included in the line Restructuring and management transition in theConsolidated Statements of Operations.Real Estate and Other, NetThe composition of real estate and other, net was as follows: ($ in millions) 2014 2013Net gain from sale of non-operating assets $(25) $(132)Investment income from Home Office Land Joint Venture (53) —Net gain from sale of operating assets (92) (17)Store and other asset impairments 30 27Other (8) (33)Total expense/(income) $(148) $(155)In 2014, we sold several non-operating assets for a net gain of $25 million. In 2013, we sold REIT investments and three joint venture investments for a totalnet gain of $132 million. Investment income from the Home Office Land Joint Venture represents our proportional share of net income of the joint venture.In 2014, the net gain from the sale of operating assets related to the sale of three department store locations. In 2013, we had a gain on the sale of ourleasehold interest of a former department store location.Store impairments totaled $30 million and $27 million in 2014 and 2013, respectively. The 2014 and 2013 impairments related to 19 and 25underperforming department stores, respectively, that continued to operate. In addition, in 2013, we recorded a $9 million impairment charge for ourownership of the U.S. and Puerto Rico rights of the monet® trade name.See "Restructuring and Management Transition" below for additional impairments related to store closures.36Table of ContentsRestructuring and Management TransitionThe composition of restructuring and management transition charges was as follows: ($ in millions) 2014 2013Home office and stores $45 $48Store fixtures — 55Management transition 16 37Other 26 75Total $87 $215In 2014 and 2013, we recorded $45 million and $48 million, respectively, of costs to reduce our store and home office expenses. The costs relate to employeetermination benefits, lease termination costs and impairment charges associated with the 2015 closing of 40 underperforming department stores and the 2014closing of 33 such stores. Additionally, the costs include employee termination benefits in connection with the elimination of positions in our home office.During 2013, we recorded a total charge of $55 million related to store fixtures which related to increased depreciation as a result of shortening the usefullives of department store fixtures that were replaced throughout 2013, to charges for the impairment of certain store fixtures related to our former shopsstrategy that had been used in our prototype department store, and to an asset write down of store fixtures related to the renovations in our Home department.We also implemented several changes within our management leadership team during 2014 and 2013 that resulted in management transition costs of $16million and $37 million, respectively, for both incoming and outgoing members of management. Other miscellaneous restructuring charges of $26 millionand $75 million recorded during 2014 and 2013, respectively, were primarily related to contract termination costs and other costs associated with ourprevious marketing and shops strategy. The charges in 2013 included a non-cash charge of $36 million related to the return of shares of Martha StewartLiving Omnimedia, Inc. previously acquired by the Company, which was accounted for as a cost investment.Operating Income/(Loss)For 2014, we reported an operating loss of $254 million compared to an operating loss of $1,242 million in 2013, which was an improvement of $988million.Loss on Extinguishment of DebtDuring the third quarter of 2014, we completed an offering of $400 million aggregate principal amount of our 8.125% Senior Unsecured Notes due 2019(2019 Notes). The majority of the net proceeds of the offering were used to pay the tender consideration and related transaction fees and expenses for ourcontemporaneous cash tender offers (2014 Tender Offers) for $327 million aggregate principal amount of our outstanding 6.875% Medium-Term Notes due2015 (2015 Notes), 7.65% Debentures due 2016 (2016 Notes) and 7.95% Debentures due 2017 (2017 Notes) (the Securities). In October 2014, subsequent tothe completion of the 2014 Tender Offers, we used $64 million of available cash to effect a legal defeasance of the remaining outstanding principal amountof the 2015 Notes by depositing funds with the Trustee for the 2015 Notes sufficient to make all payments of interest and principal on the outstanding 2015Notes to the stated maturity of October 15, 2015. These transactions resulted in a loss on extinguishment of debt of $34 million which included the premiumpaid over face value of the accepted Securities of $29 million, $4 million for the portion of the deposited funds for future interest payments on the 2015Notes and reacquisition costs of $1 million.During the second quarter of 2013, we paid $355 million to complete a cash tender offer and consent solicitation with respect to substantially all of ouroutstanding 7.125% Debentures due 2023. In doing so, we also recognized a loss on extinguishment of debt of $114 million, which included the premiumpaid over face value of the debentures of $110 million, reacquisition costs of $2 million and the write-off of unamortized debt issuance costs of $2 million.Net Interest ExpenseNet interest expense was $406 million, an increase of $54 million, or 15.3%, from $352 million in 2013. The increase in net interest expense was primarilyrelated to the increased interest expense associated with the previous borrowings under our former revolving credit facility (2013 Credit Facility), the $2.25billion five-year senior secured term loan that was entered into in May 2013 (2013 Term Loan), the 2014 Term Loan and the additional debt that wasoutstanding during the third quarter of 2014 as a result of the timing of our debt transactions. In addition, during the second quarter of 2014, the Companyexpensed $9 million of capitalized debt issue costs associated with our previous credit facility that was replaced by our 2014 Credit Facility.37Table of ContentsIncome TaxesOur net deferred tax assets, which include the future tax benefits of our net operating loss carryforwards, are subject to a valuation allowance. At January 31,2015, the federal and state valuation allowances were $586 million and $198 million, respectively. Future book pre-tax losses will require additionalvaluation allowances to offset the deferred tax assets created. Until such time that we achieve sufficient profitability to allow removal of most of ourvaluation allowance, utilization of our loss carryforwards will result in a corresponding decrease in the valuation allowance and offset our tax provisiondollar for dollar.Each period we are required to allocate our income tax expense or benefit to continuing operations and other items such as other comprehensive income andstockholder’s equity. In accordance with these rules when we have a loss in continuing operations and a gain in other comprehensive income, as arose in2013, we are required to recognize a tax benefit in continuing operations up to the amount of tax expense that we are required to report in othercomprehensive income. In 2014, we experienced losses in both continuing operations and other comprehensive income. Under the allocation rules we arerequired to recognize the valuation allowance allocable to the tax benefit attributable to these losses in each component of comprehensive income. Accordingly, included in the total valuation allowance of $784 million noted above is $190 million of valuation allowance which offsets the deferred taxbenefit attributable to the actuarial loss reported in other comprehensive income.For 2014, we recorded a net tax expense of $23 million. The net tax expense included $7 million related to the amortization of certain indefinite-livedintangible assets, $10 million for state and foreign jurisdictions where loss carryforwards are limited or unavailable and $6 million for federal and state auditsettlements.For 2013, we recorded a net tax benefit of $430 million resulting in an effective tax rate of (25.2)%. The net tax benefit consisted of net federal, foreign andstate tax benefits of $182 million, a $250 million tax benefit resulting from actuarial gains in other comprehensive income, offset by $2 million of taxexpense related to the amortization of certain indefinite-lived intangible assets. The $250 million tax benefit recorded on the loss in continuing operationswas offset by income tax expense in other comprehensive income of $250 million.EBITDA and Adjusted EBITDA (non-GAAP)In 2014, EBITDA was a positive $377 million, an improvement of $1,018 million compared to a negative EBITDA of $641 million in the prior yearcorresponding period. Excluding restructuring and management transition charges, the impact of our Primary Pension Plan expense/(income), the net gain onthe sale of non-operating assets, the proportional share of net income from the Home Office Land Joint Venture and certain net gains, adjusted EBITDA waspositive, improving $890 million to an adjusted EBITDA of $280 million for 2014 compared to a negative adjusted EBITDA of $610 million for the prioryear corresponding period.Overall, EBITDA and adjusted EBITDA improved significantly in 2014 as compared to the corresponding prior year periods as we were able to improve sales,achieve higher margins and reduce our operating costs. Net Income/(Loss) and Adjusted Net Income/(Loss)In 2014, we reported a loss of $717 million, or $2.35 per share, compared with a loss of $1,278 million, or $5.13 per share, in 2013. Excluding the impact ofrestructuring and management transition charges, the impact of our Primary Pension Plan expense, the loss on extinguishment of debt, the net gain on sale ofnon-operating assets, the proportional share of net income from joint venture, certain net gains and the tax impact resulting from other comprehensive incomeallocation, adjusted net income/(loss) (non-GAAP) went from a loss of $1,405 million, or $5.64 per share, in 2013 to a loss of $778 million, or $2.55 pershare, in 2014.38Table of ContentsFinancial Condition and LiquidityOverviewOur primary sources of liquidity are cash generated from operations, available cash and cash equivalents and access to our revolving credit facility. During2015, we executed the following transactions:•Entered into interest rate swap agreements with notional amounts totaling $1,250 million to fix a portion of our variable LIBOR-based interestpayments. The interest rate swap agreements, which were effective May 7, 2015, have a weighted-average fixed rate of 2.04%, mature on May 7,2020 and have been designated as cash flow hedges.•The amendment to the 2014 Credit Facility. The amendment increased the size of the Revolving Facility to $2,350 million. In connection withupsizing the Revolving Facility, we prepaid and retired the $494 million outstanding principal amount of the term loan under the 2014 CreditFacility.We ended the year with $900 million of cash and cash equivalents, a decrease of $418 million from the prior year. As of the end of 2015, based on ourborrowing base and amounts reserved for outstanding standby and import letters of credit, we had$1,568 million available for future borrowings under theRevolving Facility, providing a total available liquidity of $2.5 billion. The following table provides a summary of our key components and ratios of financial condition and liquidity:($ in millions) 2015 2014 2013Cash and cash equivalents$900 $1,318 $1,515Merchandise inventory2,721 2,652 2,935Property and equipment, net4,816 5,148 5,619Total debt(1)4,805 5,321 5,510Stockholders’ equity1,309 1,914 3,087Total capital6,114 7,235 8,597Maximum capacity under our credit agreement2,350 1,850 1,850Cash flow from operating activities440 239 (1,814)Free cash flow (non-GAAP)(2)131 57 (2,746)Capital expenditures320 252 951Ratios: Debt-to-total capital(3)78.6% 73.5% 64.1% Cash-to-debt(4)18.7% 24.8% 27.5% (1)Total debt includes long-term debt, net of unamortized debt issuance costs, including current maturities, capital leases, note payable and any borrowings under our revolvingcredit facility.(2)See Item 6, Selected Financial Data, for a discussion of this non-GAAP financial measure and reconciliation to its most directly comparable GAAP financial measure.(3)Total debt divided by total capitalization.(4)Cash and cash equivalents divided by total debt.Free Cash Flow (Non-GAAP)During 2015, free cash flow increased $74 million to an inflow of $131 million compared to an inflow of $57 million in 2014. This gain was operationallydriven by significant improvement in the profitability of our business and strong expense control. In addition, free cash flow was impacted by an increase incapital expenditures and a decrease in proceeds from the sale of operating assets during 2015 when compared to 2014. Operating ActivitiesWhile a significant portion of our sales, profit and operating cash flows have historically been realized in the fourth quarter, our quarterly results ofoperations may fluctuate significantly as a result of many factors, including seasonal fluctuations in customer demand, product offerings, inventory levelsand the impact of our strategy to return to profitable growth. In 2015, cash flow from operating activities was an inflow of $440 million, an increase of $201 million compared to an inflow of $239 million during thesame period last year. Our net loss as of the end of 2015 of $513 million included significant charges and credits that did not impact operating cash flow,including depreciation and amortization, certain restructuring and management transition charges, loss on extinguishment of debt, benefit plans, the sale ofoperating and non-operating assets39Table of Contentsand asset impairments. Overall, the generation of cash from operations was driven primarily by the increase in sales and operating performance of theCompany, including higher margins and better expense control. In addition, during 2015 we received an aggregate cash distribution of $36 million from theHome Office Land Joint Venture. Cash flows from operating activities also included construction allowances from landlords of $17 million, which providedadditional cash that was used to fund a portion of our capital expenditures in investing activities.Merchandise inventory increased $69 million to $2,721 million, or 2.6%, as of the end of 2015 compared to $2,652 million as of the end of last year.Inventory turns for 2015, 2014 and 2013 were 2.65, 2.74 and 2.65 respectively. Merchandise accounts payable decreased $72 million at the end of 2015compared to 2014.In 2014, cash flow from operating activities was an inflow of $239 million, an increase of $2,053 million compared to an outflow of $1,814 million duringthe prior year. Our net loss as of the end of 2014 of $717 million included significant charges and credits that did not impact operating cash flow, includingdepreciation and amortization, certain restructuring and management transition charges, loss on extinguishment of debt, the sale of operating and non-operating assets and asset impairments. Overall, the generation of cash from operations was driven primarily by the increase in sales and operatingperformance of the Company, including higher margins and better expense control. In addition, during 2014 we received an aggregate cash distribution of$58 million from the Home Office Land Joint Venture of which $53 million was included in operating activities and $5 million was classified as investingactivities as it was considered a return of investment as the aggregate cash distribution exceeded our proportional share of the cumulative earnings of thejoint venture by this amount. Cash flows from operating activities also included construction allowances from landlords of $4 million, which which providedadditional cash that was used to fund a portion of our capital expenditures in investing activities.Investing ActivitiesIn 2015, investing activities was a cash outflow of $296 million compared to an outflow of $142 million for 2014. The increase in the cash outflow frominvesting activities was primarily a result of an increase in capital expenditures and a decrease in proceeds from the sale of operating assets.For 2015, capital expenditures were $320 million. At the end of the year, we also had an additional $13 million of accrued capital expenditures, which willbe paid in subsequent periods. The capital expenditures for 2015 related primarily to the opening of 28 Sephora inside JCPenney stores, investments ininformation technology in both our home office and stores and investments in our store environment. We received construction allowances from landlords of$17 million in 2015, which are classified as operating activities, to fund a portion of the capital expenditures related to store leasehold improvements. Thesefunds have been recorded as deferred rent credits in the Consolidated Balance Sheets and are amortized as an offset to rent expense.In 2014, investing activities was a cash outflow of $142 million compared to an outflow of $789 million for 2013. The decrease in the cash outflow frominvesting activities was primarily a result of decreased capital expenditures and an increase in proceeds from the sale of operating assets.For 2014, capital expenditures were $252 million. At the end of the year, we also had an additional $12 million of accrued capital expenditures, which werepaid in 2015. The capital expenditures for 2014 related primarily to the opening of 46 Sephora inside JCPenney stores, the opening of a new department storein the third quarter of 2014, investments in information technology in both our home office and stores and investments in our store environment. We alsoreceived construction allowances from landlords of $4 million in 2014. The following provides a breakdown of capital expenditures:($ in millions)2015 2014 2013Store renewals and updates$170 $152 $875Capitalized software93 39 29New and relocated stores— 30 10Technology and other57 31 37Total$320 $252 $951We expect our investment in capital expenditures for 2016 to be approximately $375 million, net of construction allowances from landlords, which willrelate primarily to our store environment, investments in information technology and the continued40Table of Contentsroll-out of approximately 60 new Sephora inside JCPenney locations. Our plan is to fund these expenditures with cash flow from operations and existing cashand cash equivalents. Financing ActivitiesIn 2015, cash flows from financing activities were an outflow of $562 million compared to an outflow of $294 million for the same period last year.During 2015, we prepaid and retired the $494 million outstanding principal amount of the term loan under the 2014 Credit Facility. Through 2015, we repaid$33 million on our capital leases and note payable and $22 million on the 2013 Term Loan. In addition, we incurred $4 million of financing costs relating tothe 2014 Credit Facility.During 2014, we closed on our offering of $400 million aggregate principal amount of 2019 Notes and used the majority of the $393 million of proceedsfrom the offering, net of underwriting discounts, to pay $362 million for the tender consideration and related transaction fees and expenses for ourcontemporaneous tender offers to purchase approximately $327 million aggregate principal amount of our outstanding 2015 Notes, 2016 Notes and 2017Notes. Subsequent to the completion of the tender offers, we used approximately $64 million of available cash to effect a legal defeasance of the remainingoutstanding principal amount of $60 million on our 2015 Notes by depositing funds with the Trustee for the 2015 Notes sufficient to make all payments ofinterest and principal on the outstanding Notes to October 15, 2015, the stated maturity of the 2015 Notes. These transactions resulted in a loss onextinguishment of debt of $34 million which includes the premium paid over face value of the Securities of $29 million, $4 million for the portion of thedeposited funds for future interest payments on the 2015 Notes and reacquisition costs of $1 million.During 2014, in conjunction with entering into our 2014 Credit Facility, we used the $500 million of proceeds from the term loan under the 2014 CreditFacility, in addition to $150 million of cash on hand, to pay down the $650 million cash borrowings that were outstanding under the previous revolvingcredit facility. In addition, we incurred $60 million of financing costs relating to the 2014 Credit Facility. Through 2014, we repaid $26 million on ourcapital leases and note payable, $23 million on our 2013 Term Loan and $2 million on the term loan under the 2014 Credit Facility.Cash Flow and Financing OutlookOur primary sources of liquidity are cash generated from operations, available cash and cash equivalents and access to our revolving credit facility. Our cashflows may be impacted by many factors including the economic environment, consumer confidence, competitive conditions in the retail industry and thesuccess of our strategies. For 2016, we believe that our existing liquidity will be adequate to fund our capital expenditures and working capital needs;however, in accordance with our long-term financing strategy, we may access the capital markets opportunistically.2014 Credit FacilityThe Company has a $2,350 million asset-based senior secured credit facility (2014 Credit Facility) that is comprised of a $2,350 million revolving line ofcredit (Revolving Facility). As of the end of 2015, we had no borrowings outstanding under the Revolving Facility. In addition, as of the end of 2015, basedon our borrowing base, we had $1,848 million available for borrowing under the facility, of which $280 million was reserved for outstanding standby andimport letters of credit, none of which have been drawn on, leaving $1,568 million for future borrowings. The applicable rate for standby and import letters ofcredit were 2.50% and 1.25%, respectively, while the commitment fee was 0.375% for the unused portion of the Revolving Facility.Credit RatingsOur credit ratings and outlook as of March 11, 2016 were as follows: Corporate OutlookFitch RatingsB PositiveMoody’s Investors Service, Inc.B3 PositiveStandard & Poor’s Ratings ServicesCCC+ Positive Credit rating agencies periodically review our capital structure and the quality and stability of our earnings. Rating agencies consider, among other things,changes in operating performance, comparable store sales, the economic environment, conditions in the retail industry, financial leverage and changes in ourbusiness strategy in their rating decisions. Downgrades to our long-term credit ratings could result in reduced access to the credit and capital markets andhigher interest costs on future financings. 41Table of ContentsContractual Obligations and CommitmentsAggregated information about our obligations and commitments to make future contractual payments, such as debt and lease agreements, and contingentcommitments as of January 30, 2016 is presented in the following table.($ in millions)Total Less Than 1Year 1 - 3Years 3 - 5Years More Than 5YearsRecorded contractual obligations: Long-term debt$4,830 $101 $2,692 $800 $1,237Capital leases and note payable37 27 10 — —Unrecognized tax benefits(1)91 3 — — 88Contributions to non-qualified supplemental retirement andpostretirement medical plans(2)188 46 41 30 71 $5,146 $177 $2,743 $830 $1,396Unrecorded contractual obligations: Interest payments on long-term debt(3)$4,803 $319(4) $515 $244 $3,725Operating leases(5)2,687 227 369 275 1,816Standby and import letters of credit(6)280 280 — — —Surety bonds(7)76 76 — — —Contractual obligations(8)195 127 67 1 —Purchase orders(9)2,130 2,130 — — —Guarantees(10)2 1 1 — — $10,173 $3,160 $952 $520 $5,541Total$15,319 $3,337 $3,695 $1,350 $6,937 (1)Represents management’s best estimate of the payments related to tax reserves for uncertain income tax positions. Based on the nature of these liabilities, the actual paymentsin any given year could vary significantly from these amounts. See Note 19 to the Consolidated Financial Statements.(2)Represents expected cash payments through 2025. (3)Includes interest expense related to our 2013 Term Loan of $328 million that was calculated using its interest rate as of January 30, 2016 for the anticipated amountoutstanding each period, which assumes the required principal payments for the loan remain the same each quarter.(4)Includes $88 million of accrued interest that is included in our Consolidated Balance Sheet at January 30, 2016.(5)Represents future minimum lease payments for non-cancelable operating leases, including renewals determined to be reasonably assured. Future minimum lease paymentshave not been reduced for sublease income.(6)Standby letters of credit, which totaled $280 million, are issued as collateral to a third-party administrator for self-insured workers’ compensation and general liabilityclaims and to support our merchandise initiatives. There were no outstanding import letters of credit at January 30, 2016.(7)Surety bonds are primarily for previously incurred and expensed obligations related to workers’ compensation and general liability claims.(8)Consists primarily of (a) minimum purchase requirements for exclusive merchandise and fixtures; (b) royalty obligations; and (c) minimum obligations for professionalservices, energy services, software maintenance and network services.(9)Amounts committed under open purchase orders for merchandise inventory of which a significant portion are cancelable without penalty prior to a date that precedes thevendor’s scheduled shipment date.(10)Relates to third-party guarantees.Off-Balance Sheet Arrangements Management considers all on- and off-balance sheet debt in evaluating our overall liquidity position and capital structure. Other than operating leases, whichare included in the Contractual Obligations and Commitments table, we do not have any material off-balance sheet financing. See detailed disclosureregarding operating leases in Note 15 to the Consolidated Financial Statements.We do not have any additional arrangements or relationships with entities that are not consolidated into the financial statements. 42Table of ContentsImpact of Inflation, Deflation and Changing PricesWe have experienced inflation and deflation related to our purchase of certain commodity products. We do not believe that changing prices for commoditieshave had a material effect on our Net Sales or results of operations. Although we cannot precisely determine the overall effect of inflation and deflation onoperations, we do not believe inflation and deflation have hada material effect on our financial condition or results of operations.Critical Accounting Policies The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires that we make estimatesand use assumptions that in some instances may materially affect amounts reported in the accompanying Consolidated Financial Statements. In preparingthese financial statements, we have made our best estimates and judgments based on history and current trends, as well as other factors that we believe arerelevant at the time of the preparation of our Consolidated Financial Statements. Historically, actual results have not differed materially from estimates;however, future events and their effects cannot be determined with certainty and as a result, actual results could differ from our assumptions and estimates. See Note 2 to the Consolidated Financial Statements for a description of our significant accounting policies.Inventory Valuation under the Retail MethodInventories are valued primarily at the lower of cost (using the first-in, first-out or “FIFO” method) or market, determined under the Retail Inventory Method(RIM) for department stores, store distribution centers and regional warehouses and standard cost, representing average vendor cost, for merchandise we sellthrough the Internet at jcpenney.com. Under RIM, retail values of merchandise groups are converted to a cost basis by applying the specific average cost-to-retail ratio related to each merchandise grouping. RIM inherently requires management judgment and certain estimates that may significantly impact theending inventory valuation at cost, as well as gross margin. The most significant estimates are permanent reductions to retail prices (markdowns) andpermanent devaluation of inventory (markdown accruals) used primarily to clear seasonal merchandise or otherwise slow-moving inventory and inventoryshortage (shrinkage). Permanent markdowns and markdown accruals are designated for clearance activity and are recorded at the point of decision, when the utility of inventoryhas diminished, versus the point of sale. Factors considered in the determination of permanent markdowns and markdown accruals include current andanticipated demand, customer preferences, age of the merchandise and style trends. Under RIM, permanent markdowns and markdown accruals result in thedevaluation of inventory and the corresponding reduction to gross margin is recognized in the period the decision to markdown is made. Shrinkage isestimated as a percent of sales for the period from the last physical inventory date to the end of the fiscal period. Physical inventories are taken at leastannually and inventory records are adjusted accordingly. The shrinkage rate from the most recent physical inventory, in combination with current events andhistorical experience, is used as the standard for the shrinkage accrual rate for the next inventory cycle. Historically, our actual physical inventory countresults have shown our estimates to be reliable. Based on prior experience, we do not believe that the actual results will differ significantly from theassumptions used in these estimates.Valuation of Long-Lived and Indefinite-Lived AssetsLong-Lived AssetsWe evaluate recoverability of long-lived assets, such as property and equipment, whenever events or changes in circumstances indicate that the carryingvalue may not be recoverable, such as historical operating losses or plans to close stores and dispose of or sell long-lived assets before the end of theirpreviously estimated useful lives. Additionally, annual operating performance of individual stores are periodically analyzed to identify potentialunderperforming stores which may require further evaluation of the recoverability of the carrying amounts. If our evaluations, performed on an undiscountedcash flow basis, indicate that the carrying amount of the asset may not be recoverable, the potential impairment is measured as the excess of carrying valueover the fair value of the impaired asset. The impairment calculation requires us to apply estimates for future cash flows and use judgments for qualitativefactors such as local market conditions, operating environment, mall performance and other trends. We estimate fair value based on either a projecteddiscounted cash flow method using a discount rate that is considered commensurate with the risk inherent in our current business model or appraised value,as appropriate. We recognize impairment losses in the earliest period that it is determined a loss has occurred. The carrying value is adjusted to the new carrying value andany subsequent increases in fair value are not recorded. If it is determined that the estimated remaining useful life of the asset should be decreased, theperiodic depreciation expense is adjusted based on the new carrying43Table of Contentsvalue of the asset. Impairment losses totaling $0 million, $30 million and $18 million in 2015, 2014 and 2013, respectively, were recorded in theConsolidated Statement of Operations in the line item Real estate and other, net.While we do not believe there is a reasonable likelihood that there will be a material change in our estimates or assumptions used to calculate long-livedasset impairments, if actual results are not consistent with our current estimates and assumptions, we may be exposed to additional impairment charges, whichcould be material to our results of operations.Indefinite-Lived AssetsWe assess the recoverability of indefinite-lived intangible assets at least annually during the fourth quarter of our fiscal year or whenever events or changes incircumstances indicate that the carrying amount of the indefinite-lived intangible asset may not be fully recoverable. Examples of a change in events orcircumstances include, but are not limited to, a decrease in the market price of the asset, a history of cash flow losses related to the use of the asset or asignificant adverse change in the extent or manner in which an asset is being used. For our 2015 annual impairment test, we tested our indefinite-livedintangible assets utilizing the relief from royalty method to determine the estimated fair value for each indefinite-lived intangible asset. The relief fromroyalty method estimates our theoretical royalty savings from ownership of the intangible asset. Key assumptions used in this model include discount rates,royalty rates, growth rates, sales projections and terminal value rates. Discount rates, royalty rates, growth rates and sales projections are the assumptions mostsensitive and susceptible to change as they require significant management judgment. Discount rates used are similar to the rates estimated by the weightedaverage cost of capital considering any differences in company-specific risk factors. Royalty rates are established by management based on comparabletrademark licensing agreements in the market. Operational management, considering industry and company-specific historical and projected data, developsgrowth rates and sales projections associated with each indefinite-lived intangible asset. Terminal value rate determination follows common methodology ofcapturing the present value of perpetual sales estimates beyond the last projected period assuming a constant weighted average cost of capital and long-termgrowth rates.While we do not believe there is a reasonable likelihood that there will be a material change in our estimates or assumptions used to calculate indefinite-livedasset impairments, if actual results are not consistent with our current estimates and assumptions, we may be exposed to additional impairment charges, whichcould be material to our results of operations.Reserves and Valuation AllowancesInsurance ReservesWe are primarily self-insured for costs related to workers’ compensation and general liability claims. The liabilities represent our best estimate, usinggenerally accepted actuarial reserving methods through which we record a provision for workers’ compensation and general liability risk based on historicalexperience, current claims data and independent actuarial best estimates, including incurred but not reported claims and projected loss development factors.These estimates are subject to the frequency, lag and severity of claims. We target this provision above the midpoint of the actuarial range, and totalestimated claim liability amounts are discounted using a risk-free rate. We do not anticipate any significant change in loss trends, settlements or other coststhat would cause a significant fluctuation in net income. However, a 10% variance in the workers’ compensation and general liability reserves at year-end2015, would have affected our SG&A expenses by approximately $21 million.Valuation of Deferred Tax AssetsWe account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating lossand tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized inincome in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it ismore likely than not such assets will be realized.In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of the realization of the deferredtax assets based on future events. Our accounting for deferred tax consequences represents our best estimate of those future events. If based on the weight ofavailable evidence, it is more likely than not (defined as a likelihood of more than 50%) the deferred tax assets will not be realized, we record a valuationallowance. The weight given to both positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. Assuch, it is generally difficult for positive evidence regarding projected future taxable income, exclusive of reversing taxable temporary differences, tooutweigh objective negative evidence of recent losses. Cumulative losses in recent years is a significant piece of44Table of Contentsnegative evidence that is difficult to overcome in determining that a valuation allowance is not needed against deferred tax assets.This assessment is completed on a taxing jurisdiction basis and takes into account several types of evidence, including the following:•Nature, frequency, and severity of current and cumulative financial reporting losses. A pattern of recent losses is heavily weighted as a source ofnegative evidence. In certain circumstances, historical information may not be as relevant due to a change in circumstances.•Sources of future taxable income. Future reversals of existing temporary differences are heavily weighted sources of objectively verifiable positiveevidence. Projections of future taxable income, exclusive of reversing temporary differences, are a source of positive evidence only when theprojections are combined with a history of recent profits and can be reasonably estimated. Otherwise, these projections are considered inherentlysubjective and generally will not be sufficient to overcome negative evidence that includes cumulative losses in recent years, particularly if theprojected future taxable income is dependent on an anticipated turnaround to profitability that has not yet been achieved. In such cases, wegenerally give these projections of future taxable income no weight for the purposes of our valuation allowance assessment.•Tax planning strategies. If necessary and available, tax-planning strategies would be implemented to accelerate taxable amounts to utilize expiringnet operating loss carryforwards. These strategies would be a source of additional positive evidence and, depending on their nature, could be heavilyweighted.In the second quarter of 2013, our net deferred tax position, exclusive of any valuation allowance, changed from a net deferred tax liability to a net deferredtax asset. In our assessment of the need for a valuation allowance, we heavily weighted the negative evidence of cumulative losses in recent periods and thepositive evidence of future reversals of existing temporary differences. Although a sizable portion of our losses in recent years were the result of chargesincurred for restructuring and other special items, even without these charges we still would have incurred significant losses. Accordingly, we considered ourpattern of recent losses to be relevant to our analysis. Considering this pattern of recent losses and the uncertainties associated with projected future taxableincome exclusive of reversing temporary differences, we gave no weight to projections showing future U.S. taxable income for purposes of assessing the needfor a valuation allowance. As a result of our assessment, we concluded that, beginning in the second quarter of 2013, our estimate of the realization ofdeferred tax assets would be based solely on future reversals of existing taxable temporary differences and tax planning strategies that we would make use ofto accelerate taxable income to utilize expiring carryforwards.Future book pre-tax losses will require additional valuation allowances to offset the deferred tax assets created. A sustained period of profitability is requiredbefore we would change our need for a valuation allowance against our net deferred tax assets.See Note 19 to the Consolidated Financial Statements for more information regarding income taxes and also Risk Factors, Item 1A.Environmental Reserves In establishing our reserves for liabilities associated with underground storage tanks, we maintain and periodically update an inventory listing of potentiallyimpacted sites. The estimated cost of remediation efforts is based on our historical experience, as well as industry and other published data. With respect toour former drugstore operations, we accessed extensive databases of environmental matters, including data from the Environmental Protection Agency, toestimate the cost of remediation. Our experience, as well as relevant data, was used to develop a range of potential liabilities, and a reserve was established atthe time of the sale of our drugstore business. The reserve is adjusted as payments are made or new information becomes known. Reserves for asbestosremoval are based on our known liabilities in connection with approved plans for store modernization, renovations or dispositions of store locations. We believe the established reserves, as adjusted, are adequate to cover estimated potential liabilities.PensionPension AccountingWe maintain a qualified funded defined benefit pension plan (Primary Pension Plan) and smaller non-qualified unfunded supplemental defined benefit plans.The determination of pension expense is the result of actuarial calculations that are based on important assumptions about pension assets and liabilities. Themost important of these are the expected rate of return on45Table of Contentsassets and the discount rate assumptions. These assumptions require significant judgment and a change in any one of them could have a material impact onpension expense reported in our Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income/(Loss), as well as in theassets, liability and equity sections of the Consolidated Balance Sheets.The following table reflects our expected rate of return and discount rate assumptions: 2015 2014 2013 Expected return on plan assets6.75% 7.00% 7.00% Discount rate for pension expense3.87% 4.89% 4.19% Discount rate for pension obligation4.73% 3.87% 4.89% Return on Plan Assets and Impact on EarningsFor the Primary Pension Plan, we apply our expected return on plan assets using fair market value as of the annual measurement date. The fair market valuemethod results in greater volatility to our pension expense than the more commonly used calculated value method (referred to as smoothing of assets). OurPrimary Pension Plan asset base consists of a mix of equities (U.S., non-U.S. and private), fixed income (investment-grade and high-yield), real estate (privateand public) and alternative asset classes. The expected return on plan assets is based on the plan’s long-term asset allocation policy, historical returns for plan assets and overall capital market returns,taking into account current and expected market conditions. The expected return assumption for 2015 was reduced from 7.00% to 6.75% given our new assetallocation targets and updated expected capital markets return assumptions. Discount RateThe discount rate used to measure pension expense each year is the rate as of the beginning of the year (i.e., the prior measurement date). The discount rate, asdetermined by the plan actuary, is based on a hypothetical AA yield curve represented by a series of bonds maturing over the next 30 years, designed tomatch the corresponding pension benefit cash payments to retirees.For 2015, the discount rate to measure pension expense was 3.87% compared to 4.89% in 2014. The discount rate to measure the pension obligationsincreased to 4.73% as of January 30, 2016 from 3.87% as of January 31, 2015. SensitivityThe sensitivity of pension expense to a plus or minus one-half of one percent of expected return on assets is a decrease or increase in pension expense ofapproximately $16 million. An increase in the discount rate of one-half of one percent would increase the 2016 pension expense by approximately $3million and a decrease in the discount rate of one-half of one percent would decrease pension expense by approximately $4 million. Pension FundingFunding requirements for our Primary Pension Plan are determined under Employee Retirement Income Security Act of 1974 (ERISA) rules, as amended bythe Pension Protection Act of 2006. As a result of the funded status of the Primary Pension Plan, we are not required to make cash contributions in 2016.Recent Accounting Pronouncements Refer to Note 4 to the Consolidated Financial Statements.Cautionary Statement Regarding Forward-Looking InformationThis Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, whichreflect our current view of future events and financial performance. Words such as "expect" and similar expressions identify forward-looking statements,which include, but are not limited to, statements regarding sales, gross margin, selling, general and administrative expenses, earnings, cash flows andliquidity. Forward-looking statements are based only on the Company's current assumptions and views of future events and financial performance. They aresubject to known and unknown risks and uncertainties, many of which are outside of the Company's control, that may cause the Company's actual results tobe materially different from planned or expected results. Those risks and uncertainties include, but are not limited to, general economic conditions, includinginflation, recession, unemployment levels, consumer confidence and46Table of Contentsspending patterns, credit availability and debt levels, changes in store traffic trends, the cost of goods, more stringent or costly payment terms and/or thedecision by a significant number of vendors not to sell us merchandise on a timely basis or at all, trade restrictions, the ability to monetize non-core assets onacceptable terms, the ability to implement our strategic plan including our omnichannel initiatives, customer acceptance of our strategies, our ability toattract, motivate and retain key executives and other associates, the impact of cost reduction initiatives, our ability to generate or maintain liquidity,implementation of new systems and platforms including EMV chip technology, changes in tariff, freight and shipping rates, changes in the cost of fuel andother energy and transportation costs, disruptions and congestion at ports through which we import goods, increases in wage and benefit costs, competitionand retail industry consolidations, interest rate fluctuations, dollar and other currency valuations, the impact of weather conditions, risks associated with war,an act of terrorism or pandemic, the ability of the federal government to fund and conduct its operations, a systems failure and/or security breach that resultsin the theft, transfer or unauthorized disclosure of customer, employee or Company information, legal and regulatory proceedings and the Company’s abilityto access the debt or equity markets on favorable terms or at all. There can be no assurances that the Company will achieve expected results, and actual resultsmay be materially less than expectations. While we believe that our assumptions are reasonable, we caution that it is impossible to predict the degree towhich any such factors could cause actual results to differ materially from predicted results. For additional discussion on risks and uncertainties, see Part I,Item 1A, Risk Factors, above. We intend the forward-looking statements in this Annual Report on Form 10-K to speak only as of the date of this report and donot undertake to update or revise these projections as more information becomes available.47Table of ContentsItem 7A. Quantitative and Qualitative Disclosures about Market RiskAll of our outstanding notes and debentures as of January 30, 2016 are at fixed interest rates and would not be affected by interest rate changes. On June 20,2014, J. C. Penney Company, Inc., JCP and J. C. Penney Purchasing Corporation (Purchasing) entered into a $2,350 million senior secured asset-based creditfacility (2014 Credit Facility), comprised of a $1,850 million revolving line of credit (Revolving Facility) and a $500 million term loan (2014 Term Loan).During 2015, the Company amended the 2014 Credit Facility to increase the Revolving Facility from $1,850 million to $2,350 million. In connection withupsizing the Revolving Facility, the Company prepaid and retired the outstanding principal amount of the 2014 Term Loan. Borrowings under theRevolving Facility, to the extent that fluctuating rate loans are used, are affected by interest rate changes. As of January 30, 2016, we had no borrowingsoutstanding under the Revolving Facility.In addition, in May 2013, we entered into a $2.25 billion senior secured term loan facility (2013 Term Loan Facility), which bears interest at a rate of LIBORplus 5.0%. As of January 30, 2016, we had $2.194 billion outstanding under the 2013 Term Loan Facility. During the second quarter of 2015, we entered intointerest rate swap agreements with notional amounts totaling $1,250 million to fix a portion of our variable LIBOR-based interest payments. The interest rateswap agreements, which were effective May 7, 2015, have a weighted-average fixed rate of 2.04%, mature on May 7, 2020 and have been designated as cashflow hedges. Accordingly, a 100 basis point increase in LIBOR interest rates would result in additional annual interest expense of $14 million under the 2013Term Loan Facility and $8 million in less annual interest expense under the interest rate swap agreements. The fair value of long-term debt is estimated by obtaining quotes from brokers or is based on current rates offered for similar debt. As of January 30, 2016,long-term debt, excluding unamortized debt issuance costs and including current maturities, had a carrying value of $4.8 billion and a fair value of $4.2billion. As of January 31, 2015, long-term debt, excluding unamortized debt issuance costs and including current maturities, had a carrying value of $5.4billion and a fair value of $4.8 billion. The effects of changes in the U.S. equity and bond markets serve to increase or decrease the value of assets in our Primary Pension Plan. We seek to manageexposure to adverse equity and bond returns by maintaining diversified investment portfolios and utilizing professional investment managers.Item 8. Financial Statements and Supplementary Data See the Index to Consolidated Financial Statements on Page 56. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 48Table of ContentsItem 9A. Controls and Procedures Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures The management of our Company, under the supervision and with the participation of our principal executive officer and principal financial officer,conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) as of the end of the period covered by this Annual Report on Form 10-K. Based on thisevaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure thatinformation required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reportedwithin the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) is accumulated and communicated to management,including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.Management’s Report on Internal Control over Financial Reporting The management of our Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The management of our Company has assessed the effectiveness of our Company’s internal control overfinancial reporting as of January 30, 2016. In making this assessment, management used criteria set forth by the Committee of Sponsoring Organizations ofthe Treadway Commission (COSO) in Internal Control–Integrated Framework (2013). Based on its assessment, the management of our Company believesthat, as of January 30, 2016, our Company’s internal control over financial reporting is effective based on those criteria. The Company’s independent registered public accounting firm, KPMG LLP, has audited the financial statements included in this Annual Report on Form 10-K and has issued an attestation report on the effectiveness of our Company’s internal control over financial reporting. Their report follows. There were no changes in our Company’s internal control over financial reporting during the fourth quarter ended January 30, 2016, that have materiallyaffected, or are reasonably likely to materially affect, our Company’s internal control over financial reporting.49Table of ContentsReport of Independent Registered Public Accounting Firm The Board of Directors and StockholdersJ. C. Penney Company, Inc.:We have audited J. C. Penney Company, Inc.’s internal control over financial reporting as of January 30, 2016, based on criteria established in InternalControl - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). J. C. Penney Company,Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in the accompanying “Management’s Report on Internal Control Over Financial Reporting.” Our responsibility isto express an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.In our opinion, J. C. Penney Company, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 30, 2016,based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO).We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetsof J. C. Penney Company, Inc. and subsidiaries as of January 30, 2016 and January 31, 2015, and the related consolidated statements of operations,comprehensive income/ (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended January 30, 2016, and our report datedMarch 16, 2016 expressed an unqualified opinion on those consolidated financial statements./s/ KPMG LLP Dallas, TexasMarch 16, 201650Table of ContentsItem 9B. Other InformationNone. PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by Item 10 with respect to executive officers is included within Item 1 in Part I of this Annual Report on Form 10-K under thecaption “Executive Officers of the Registrant.”The information required by Item 10 with respect to directors, audit committee, audit committee financial experts and Section 16(a) beneficial ownershipreporting compliance is included under the captions “Board Committees–Audit Committee,” “Section 16(a) Beneficial Ownership Reporting Compliance”and “Proposal 1 - Election of Directors” in our definitive proxy statement for 2016, which will be filed with the Securities and Exchange Commissionpursuant to Regulation 14A and is incorporated herein by reference. Code of Ethics and Corporate Governance Guidelines We have adopted a code of ethics for officers and employees, which applies to, among others, our principal executive officer, principal financial officer andprincipal accounting officer, and which is known as the “Statement of Business Ethics.” We have also adopted certain ethical principles and policies for ourdirectors, which are set forth in Article V of our Corporate Governance Guidelines. The Statement of Business Ethics and Corporate Governance Guidelinesare available on our website at www.jcpenney.com. Additionally, we will provide copies of these documents without charge upon request made to: J. C. Penney Company, Inc.Office of Investor Relations6501 Legacy DrivePlano, Texas 75024(Telephone 972-431-5500) Our Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to or waiver of any provision of theStatement of Business Ethics that applies to any officer of the Company by posting such information on our website at www.jcpenney.com.Item 11. Executive Compensation The information required by Item 11 is included under the captions “Compensation Committee Interlocks and Insider Participation,” “CompensationDiscussion and Analysis,” “Report of the Human Resources and Compensation Committee,” “Summary Compensation Table,” “Grants of Plan-Based Awardsfor Fiscal 2015,” “Outstanding Equity Awards at Fiscal Year-End 2015,” “Option Exercises and Stock Vested for Fiscal 2015,” “Pension Benefits,”“Nonqualified Deferred Compensation for Fiscal 2015,” “Potential Payments and Benefits on Termination of Employment,” and “Director Compensation forFiscal 2015” in our Company’s definitive proxy statement for 2016, which will be filed with the Securities and Exchange Commission pursuant toRegulation 14A and is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by Item 12 with respect to beneficial ownership of our Company’s common stock is included under the caption “BeneficialOwnership of Common Stock” and with respect to equity compensation plans is included under the caption "Equity Compensation Plan(s) Information" inour Company’s definitive proxy statement for 2016, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A and isincorporated herein by reference.Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by Item 13 is included under the captions “Policies and Procedures with Respect to Related Person Transactions” and “BoardIndependence” in our Company’s definitive proxy statement for 2016, which will be filed with the Securities and Exchange Commission pursuant toRegulation 14A and is incorporated herein by reference.51Table of ContentsItem 14. Principal Accounting Fees and Services The information required by Item 14 is included under the captions “Audit and Other Fees” and “Audit Committee’s Pre-Approval Policies and Procedures”in our Company’s definitive proxy statement for 2016, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A and isincorporated herein by reference.52Table of ContentsPART IV Item 15. Exhibits, Financial Statement Schedules (a) Documents filed as part of this report: 1. Consolidated Financial Statements: The Consolidated Financial Statements of J. C. Penney Company, Inc. and subsidiaries are listed in the accompanying "Index toConsolidated Financial Statements" on page 56.2. Financial Statement Schedules: Schedules have been omitted as they are inapplicable or not required under the rules, or the information has been submitted in theConsolidated Financial Statements and related financial information contained otherwise in this Annual Report on Form 10-K. 3. Exhibits: See separate Exhibit Index beginning on page 102. Each management contract or compensatory plan or arrangement required to be filed asan exhibit to this Annual Report on Form 10-K is specifically identified in the separate Exhibit Index beginning on page 102 and filed withor incorporated by reference in this report.(b) See separate Exhibit Index beginning on page 102. (c) Other Financial Statement Schedules. None. 53Table of ContentsSIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. J. C. PENNEY COMPANY, INC. (Registrant) By /s/ Andrew S. Drexler Andrew S. Drexler Senior Vice President, Chief Accounting Officer and Controller(principal accounting officer) Date:March 16, 2016 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated. Signatures Title Date Myron E. Ullman, III* Chairman of the Board; Director March 16, 2016Myron E. Ullman, III Marvin R. Ellison* Chief Executive Officer; Director(principal executive officer) March 16, 2016Marvin R. Ellison Edward J. Record* Executive Vice President andChief Financial Officer(principal financial officer) March 16, 2016Edward J. Record /s/ Andrew S. Drexler Senior Vice President, Chief Accounting OfficerandController (principalaccounting officer) March 16, 2016Andrew S. Drexler Colleen C. Barrett* Director March 16, 2016Colleen C. Barrett Thomas J. Engibous* Director March 16, 2016Thomas J. Engibous Amanda Ginsberg* Director March 16, 2016Amanda Ginsberg B. Craig Owens* Director March 16, 2016Craig Owens Leonard H. Roberts* Director March 16, 2016Leonard H. Roberts 54Table of ContentsSignatures Title Date Stephen I. Sadove* Director March 16, 2016Stephen I. Sadove Javier G. Teruel* Director March 16, 2016Javier G. Teruel R. Gerald Turner* Director March 16, 2016R. Gerald Turner Ronald W. Tysoe* Director March 16, 2016Ronald W. Tysoe *By: /s/ Andrew S. Drexler Andrew S. Drexler Attorney-in-fact55Table of ContentsJ. C. PENNEY COMPANY, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm57Consolidated Statements of Operations for the Fiscal Years Ended January 30, 2016, January 31, 2015 and February 1, 201458Consolidated Statements of Comprehensive Income/(Loss) for the Fiscal Years Ended January 30, 2016, January 31, 2015 and February 1,201459Consolidated Balance Sheets as of January 30, 2016 and January 31, 201560Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended January 30, 2016, January 31, 2015 and February 1, 201461Consolidated Statements of Cash Flows for the Fiscal Years Ended January 30, 2016, January 31, 2015 and February 1, 201462Notes to Consolidated Financial Statements 1. Basis of Presentation and Consolidation632. Significant Accounting Policies633. Change in Accounting for Retirement-Related Benefits684. Effect of New Accounting Standards705. Earnings/(Loss) per Share716. Other Assets727. Other Accounts Payable and Accrued Expenses728. Other Liabilities729. Derivative Financial Instruments7310. Fair Value Disclosures7411. Credit Facility7512. Long-Term Debt7613. Stockholders’ Equity7814. Stock-Based Compensation7915. Leases and Note Payable8116. Retirement Benefit Plans8317. Restructuring and Management Transition9318. Real Estate and Other, Net9419. Income Taxes9520. Supplemental Cash Flow Information9821. Litigation, Other Contingencies and Guarantees9822. Quarterly Results of Operations (Unaudited)10156Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Stockholders J. C. Penney Company, Inc.: We have audited the accompanying consolidated balance sheets of J. C. Penney Company, Inc. and subsidiaries as of January 30, 2016 and January 31, 2015,and the related consolidated statements of operations, comprehensive income/ (loss), stockholders’ equity, and cash flows for each of the years in thethree‑year period ended January 30, 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility isto express an opinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide 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 30, 2016 and January 31, 2015, and the results of their operations and their cash flows for each of the years in thethree‑year period ended January 30, 2016, in conformity with U.S. generally accepted accounting principles.As discussed in Note 3 to the financial statements, the Company has elected to change its method of accounting for pension and postretirement benefits toimmediately recognize actuarial gains and losses in its operating results in the year in which they occur, to the extent they exceed 10 percent of the greater ofthe fair value of plan assets or the plans’ projected benefit obligation, referred to as the corridor.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), J. C. Penney Company, Inc.’sinternal control over financial reporting as of January 30, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2016 expressed an unqualified opinion on theeffectiveness of the Company’s internal control over financial reporting./s/ KPMG LLP Dallas, Texas March 16, 2016 57Table of ContentsCONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share data) 2015 2014 2013 As AdjustedTotal net sales $12,625 $12,257 $11,859Cost of goods sold 8,074 7,996 8,367Gross margin 4,551 4,261 3,492Operating expenses/(income): Selling, general and administrative (SG&A) 3,775 3,993 4,114Pension 162 (48) (41)Depreciation and amortization 616 631 601Real estate and other, net 3 (148) (155)Restructuring and management transition 84 87 215Total operating expenses 4,640 4,515 4,734Operating income/(loss) (89) (254) (1,242)Loss on extinguishment of debt 10 34 114Net interest expense 405 406 352Income/(loss) before income taxes (504) (694) (1,708)Income tax expense/(benefit) 9 23 (430)Net income/(loss) $(513) $(717) $(1,278)Earnings/(loss) per share: Basic $(1.68) $(2.35) $(5.13)Diluted (1.68) (2.35) (5.13)Weighted average shares – basic 305.9 305.2 249.3Weighted average shares – diluted 305.9 305.2 249.3 See the accompanying notes to the Consolidated Financial Statements.58Table of ContentsCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)($ in millions) 2015 2014 2013 As AdjustedNet income/(loss) $(513) $(717) $(1,278)Other comprehensive income/(loss), net of tax: Real estate investment trusts (REITs) Unrealized gain/(loss) (1) — — (1)Reclassification adjustment for realized (gain)/loss (2) — — (16)Foreign currency translation Unrealized gain/(loss) (3) — (2) —Retirement benefit plans Net actuarial gain/(loss) arising during the period (4) (213) (293) 404Prior service credit/(cost) arising during the period (5) — (12) (4)Reclassification of net actuarial (gain)/loss from a settlement (6) 110 — —Reclassification for net actuarial (gain)/loss (7) 31 7 (2)Reclassification for amortization of prior service (credit)/cost (8) 2 (1) (1)Cash flow hedges Gain/(loss) on interest rate swaps (9) (23) — —Reclassification for periodic settlements (10) 6 — —Deferred tax valuation allowance (54) (190) —Total other comprehensive income/(loss), net of tax (141) (491) 380Total comprehensive income/(loss), net of tax $(654) $(1,208) $(898) See the accompanying notes to the Consolidated Financial Statements.(1)Net of $1 million in tax in 2013.(2)Net of $8 million in tax in 2013 and $(24) million pre-tax gain recognized in Real estate and other, net in the Consolidated Statement of Operations.(3)Net of $1 million in tax in 2014. (4)Net of $136 million in tax in 2015, $186 million in tax in 2014 and $(255) million in tax in 2013. (5)Net of $- million in tax in 2015, $8 million in tax in 2014 and $3 million in tax in 2013. (6)Net of $(70) million in tax in 2015 and $180 million of pre-tax amount recognized in Pension in the Consolidated Statement of Operations.(7)Net of $(22) million in tax in 2015, $(5) million in tax in 2014 and $- million in 2013. Pre-tax amounts of $53 million in 2015, $12 million in 2014 and $(2) million in 2013were recognized in Pension in the Consolidated Statement of Operations.(8)Net of $(1) million of tax in 2015, $- million of tax in 2014 and $- million in tax in 2013. Pre-tax amounts of $8 million in 2015, $7 million in 2014 and $7 million in 2013were recognized in Pension in the Consolidated Statement of Operations. Pre-tax amounts of $(7) million in 2015, $(8) million in 2014 and $(8) million in 2013 wererecognized in SG&A in the Consolidated Statement of Operations.(9)Net of $15 million of tax in 2015.(10)Net of $(4) million of tax in 2015 and $10 million in pre-tax amount recognized in Net interest expense in the Consolidated Statement of Operations.59Table of ContentsCONSOLIDATED BALANCE SHEETS(In millions, except per share data) 2015 2014 As AdjustedAssets Current assets: Cash in banks and in transit $119 $119Cash short-term investments 781 1,199Cash and cash equivalents 900 1,318Merchandise inventory 2,721 2,652Deferred taxes 231 172Prepaid expenses and other 166 189Total current assets 4,018 4,331Property and equipment 4,816 5,148Prepaid pension — 220Other assets 608 610Total Assets $9,442 $10,309Liabilities and Stockholders’ Equity Current liabilities: Merchandise accounts payable $925 $997Other accounts payable and accrued expenses 1,360 1,103Current portion of capital leases and note payable 26 28Current maturities of long-term debt 101 28Total current liabilities 2,412 2,156Long-term capital leases and note payable 10 38Long-term debt 4,668 5,227Deferred taxes 425 363Other liabilities 618 611Total Liabilities 8,133 8,395Stockholders' Equity Common stock(1) 153 152Additional paid-in capital 4,654 4,606Reinvested earnings/(accumulated deficit) (3,007) (2,494)Accumulated other comprehensive income/(loss) (491) (350)Total Stockholders’ Equity 1,309 1,914Total Liabilities and Stockholders’ Equity $9,442 $10,309(1)1,250 million shares of common stock are authorized with a par value of $0.50 per share. The total shares issued and outstanding were 306.1 million and 304.9 million as ofJanuary 30, 2016 and January 31, 2015, respectively.See the accompanying notes to the Consolidated Financial Statements.60Table of ContentsCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in millions) Number ofCommonShares CommonStock AdditionalPaid-inCapital ReinvestedEarnings/(Loss) Accumulated OtherComprehensiveIncome/(Loss) Total Stockholders'EquityFebruary 2, 2013 - as adjusted 219.3 $110 $3,799 $(499) $(239) $3,171Net income/(loss) — — — (1,278) — (1,278)Other comprehensive income/(loss) — — — — 380 380Common stock issued 84.0 42 744 — — 786Stock-based compensation 1.3 — 28 — — 28February 1, 2014 - as adjusted 304.6 $152 $4,571 $(1,777) $141 $3,087Net income/(loss) — — — (717) — (717)Other comprehensive income/(loss) — — — — (491) (491)Stock-based compensation 0.3 — 35 — — 35January 31, 2015 - as adjusted 304.9 $152 $4,606 $(2,494) $(350) $1,914Net income/(loss) — — — (513) — (513)Other comprehensive income/(loss) — — — — (141) (141)Stock-based compensation 1.2 1 48 — — 49January 30, 2016 306.1 $153 $4,654 $(3,007) $(491) $1,309See the accompanying notes to the Consolidated Financial Statements.61Table of ContentsCONSOLIDATED STATEMENTS OF CASH FLOWS($ in millions)2015 2014 2013 As AdjustedCash flows from operating activities Net income/(loss)$(513) $(717) $(1,278)Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: Restructuring and management transition10 32 132Asset impairments and other charges25 39 30Net gain on sale or redemption of non-operating assets(9) (25) (132)Net gain on sale of operating assets(9) (92) (17)Loss on extinguishment of debt10 34 114Depreciation and amortization616 631 601Benefit plans127 (78) (108)Stock-based compensation44 33 28Other comprehensive income tax benefits— — (250)Deferred taxes— 3 (149)Change in cash from: Inventory(69) 283 (594)Prepaid expenses and other assets19 (1) 74Merchandise accounts payable(72) 49 (214)Current income taxes4 (10) 50Accrued expenses and other257 58 (101)Net cash provided by/(used in) operating activities440 239 (1,814)Cash flows from investing activities Capital expenditures(320) (252) (951)Proceeds from sale or redemption of non-operating assets13 35 143Proceeds from sale of operating assets11 70 19Joint venture return of investment— 5 —Net cash provided by/(used in) investing activities(296) (142) (789)Cash flows from financing activities Proceeds from short-term borrowings— — 850Payment on short-term borrowings— (650) (200)Net proceeds from issuance of long-term debt— 893 2,180Premium on early retirement of debt— (33) (110)Payments of capital leases and note payable(33) (26) (29)Payments of long-term debt(520) (412) (256)Financing costs(4) (65) (31)Net proceeds from common stock issued— — 786Proceeds from stock options exercised— — 7Tax withholding payments for vested restricted stock(5) (1) (9)Net cash provided by/(used in) financing activities(562) (294) 3,188Net increase/(decrease) in cash and cash equivalents(418) (197) 585Cash and cash equivalents at beginning of period1,318 1,515 930Cash and cash equivalents at end of period$900 $1,318 $1,515See the accompanying notes to the Consolidated Financial Statements.62Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Basis of Presentation and Consolidation Nature of Operations Our Company was founded by James Cash Penney in 1902 and has grown to be a major national retailer, operating 1,021 department stores in 49 states andPuerto Rico, as well as through our Internet website at jcpenney.com. We sell family apparel and footwear, accessories, fine and fashion jewelry, beautyproducts through Sephora inside JCPenney, and home furnishings. In addition, our department stores provide services, such as styling salon, optical, portraitphotography and custom decorating, to customers.Basis of Presentation and ConsolidationThe Consolidated Financial Statements present the results of J. C. Penney Company, Inc. and our subsidiaries (the Company or JCPenney). All significantinter-company transactions and balances have been eliminated in consolidation. We are a holding company whose principal operating subsidiary is J. C. Penney Corporation, Inc. (JCP). JCP was incorporated in Delaware in 1924, and J. C.Penney Company, Inc. was incorporated in Delaware in 2002, when the holding company structure was implemented. The holding company has no directsubsidiaries other than JCP, and has no independent assets or operations. The Company is a co-obligor (or guarantor, as appropriate) regarding the payment of principal and interest on JCP’s outstanding debt securities. Weguarantee certain of JCP’s outstanding debt securities fully and unconditionally. Fiscal YearOur fiscal year ends on the Saturday closest to January 31. Unless otherwise stated, references to years in this report relate to fiscal years rather than tocalendar years. Fiscal Year Ended Weeks2015 January 30, 2016 522014 January 31, 2015 522013 February 1, 2014 52 Use of Estimates and AssumptionsThe preparation of financial statements, in conformity with generally accepted accounting principles in the United States of America (GAAP), requires us tomake assumptions and use estimates that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions are subject to inherentuncertainties, which may result in actual amounts differing from reported amounts. ReclassificationsCertain reclassifications were made to prior period amounts to conform to the current period presentation. None of the reclassifications affected ournet income/(loss) in any period. 2. Significant Accounting Policies Merchandise and Services Revenue Recognition Total net sales, which exclude sales taxes and are net of estimated returns, are generally recorded when payment is received and the customer takes possessionof the merchandise. Service revenue is recorded at the time the customer receives the benefit of the service, such as salon, portrait, optical or customdecorating. Commissions earned on sales generated by licensed departments are included as a component of total net sales. Shipping and handling feescharged to customers are also included in total net sales with corresponding costs recorded as cost of goods sold. We provide for estimated future returnsbased primarily on historical return rates and sales levels.63Table of ContentsBased on how we categorized our divisions in 2015, our merchandise mix of total net sales over the last three years was as follows: 2015 2014 2013Women’s apparel 25% 26% 26%Men’s apparel and accessories 22% 22% 22%Home 12% 12% 11%Women’s accessories, including Sephora 12% 11% 10%Children’s apparel 10% 10% 11%Footwear and handbags 8% 8% 9%Jewelry 6% 6% 6%Services and other 5% 5% 5% 100% 100% 100% Gift Card Revenue RecognitionAt the time gift cards are sold, no revenue is recognized; rather, a liability is established for the face amount of the card. The liability remains recorded untilthe earlier of redemption, escheatment or 60 months. The liability is relieved and revenue is recognized when gift cards are redeemed for merchandise orservices. We escheat a portion of unredeemed gift cards according to Delaware escheatment requirements that govern remittance of the cost of themerchandise portion of unredeemed gift cards over five years old. After reflecting the amount escheated, any remaining liability (referred to as breakage) isrelieved and recognized as a reduction of SG&A expenses as an offset to the costs of administering the gift card program. Though our gift cards do not expire,it is our historical experience that the likelihood of redemption after 60 months is remote. The liability for gift cards is recorded in other accounts payableand accrued expenses on the Consolidated Balance Sheets. Customer Loyalty ProgramCustomers who spend a certain amount with us using our private label card or registered third party credit cards receive JCP Rewards® certificates,redeemable for merchandise or services in our stores the following two months. We estimate the net cost of the rewards that will be redeemed and record thisas cost of goods sold as rewards points are accumulated. Other administrative costs of the loyalty program are recorded in SG&A expenses as incurred. Cost of Goods SoldCost of goods sold includes all costs directly related to bringing merchandise to its final selling destination. These costs include the cost of the merchandise(net of discounts or allowances earned), sourcing and procurement costs, buying and brand development costs, including buyers’ salaries and relatedexpenses, royalties and design fees, freight costs, warehouse operating expenses, merchandise examination, inspection and testing, store merchandisedistribution center expenses, including rent, and shipping and handling costs incurred on sales via the Internet. Vendor AllowancesWe receive vendor support in the form of cash payments or allowances for a variety of reimbursements such as cooperative advertising, markdowns, vendorshipping and packaging compliance, defective merchandise and the purchase of vendor specific fixtures. We have agreements in place with each vendorsetting forth the specific conditions for each allowance or payment. Depending on the arrangement, we either recognize the allowance as a reduction ofcurrent costs or defer the payment over the period the related merchandise is sold. If the payment is a reimbursement for costs incurred, it is generally offsetagainst those related costs; otherwise, it is treated as a reduction to the cost of merchandise. Markdown reimbursements related to merchandise that has been sold are negotiated and documented by our buying teams and are credited directly to cost ofgoods sold in the period received. Vendor allowances received prior to merchandise being sold are deferred and recognized as a reduction of inventory andcredited to cost of goods sold based on an inventory turnover rate. Vendor compliance credits reimburse us for incremental merchandise handling expenses incurred due to a vendor’s failure to comply with our establishedshipping or merchandise preparation requirements. Vendor compliance credits are recorded as a reduction of merchandise handling costs. Selling, General and Administrative ExpensesSG&A expenses include the following costs, except as related to merchandise buying, sourcing, warehousing or distribution activities: salaries, marketingcosts, occupancy and rent expense, utilities and maintenance, pre-opening expenses, costs related64Table of Contentsto information technology, administrative costs related to our home office and district and regional operations, real and personal property and other taxes(excluding income taxes) and credit/debit card fees. AdvertisingAdvertising costs, which include newspaper, television, Internet search marketing, radio and other media advertising, are expensed either as incurred or thefirst time the advertisement occurs. For cooperative advertising programs offered by national brands that require proof of advertising to be provided to thevendor to support the reimbursement of the incurred cost, we offset the allowances against the related advertising expense. Programs that do not require proofof advertising are monitored to ensure that the allowance provided by each vendor is a reimbursement of costs incurred to advertise for that particularvendor’s label. Total advertising costs, net of cooperative advertising vendor reimbursements of $32 million, $1 million and $4 million for 2015, 2014 and2013, respectively, were $792 million, $886 million and $919 million, respectively. In 2015, a change in certain cooperative advertising programs resultedin more vendor reimbursements being recognized as a reduction of our advertising expense rather than offsetting cost of goods sold. Income TaxesWe account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating lossand tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized inincome in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it ismore likely than not such assets will be realized. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense inour Consolidated Statements of Operations. Earnings/(Loss) per ShareBasic earnings/(loss) per share (EPS) is computed by dividing net income/(loss) by the weighted-average number of common shares outstanding during theperiod. Diluted EPS is computed by dividing net income/(loss) by the weighted-average number of common shares outstanding during the period plus thenumber of additional common shares that would have been outstanding if the potentially dilutive shares had been issued. Potentially dilutive shares includestock options, unvested restricted stock units and awards and a warrant outstanding during the period, using the treasury stock method. Potentially dilutiveshares are excluded from the computations of diluted EPS if their effect would be anti-dilutive. Cash and Cash EquivalentsCash and cash equivalents include cash short-term investments that are highly liquid investments with original maturities of three months or less. Cash short-term investments consist primarily of short-term U.S. Treasury money market funds and a portfolio of highly rated bank deposits and are stated at cost, whichapproximates fair market value due to the short-term maturity. Cash in banks and in transit also include credit card sales transactions that are settled early inthe following period. Merchandise InventoryInventories are valued at the lower of cost (using the first-in, first-out or “FIFO” method) or market. For department stores, regional warehouses and storedistribution centers, we value inventories using the retail method. Under the retail method, retail values of merchandise groups are converted to a cost basisby applying the specific average cost-to-retail ratio related to each merchandise grouping. For Internet, we use standard cost, representing average vendorcost, to determine lower of cost or market. Physical inventories are taken on a staggered basis at least once per year at all store and supply chain locations, inventory records are adjusted to reflectactual inventory counts and any resulting shortage (shrinkage) is recognized. Following inventory counts, shrinkage is estimated as a percent of sales, basedon the most recent physical inventory, in combination with current events and historical experience. We have loss prevention programs and policies in placethat are intended to mitigate shrinkage.65Table of ContentsProperty and Equipment, Net EstimatedUseful Lives ($ in millions) (Years) 2015 2014Land N/A $272 $274Buildings 50 4,877 4,899Furniture and equipment 3-20 2,064 2,175Leasehold improvements(1) 1,244 1,301Capital leases (equipment) 3-5 116 116Accumulated depreciation (3,757) (3,617)Property and equipment, net $4,816 $5,148(1)Leasehold improvements are depreciated over the shorter of the estimated useful lives of the improvements or the term of the lease, including renewals determined to bereasonably assured.Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed primarily by using the straight-line method over theestimated useful lives of the related assets. We expense routine maintenance and repairs when incurred. We capitalize major replacements and improvements. We remove the cost of assets sold or retiredand the related accumulated depreciation or amortization from the accounts and include any resulting gain or loss in net income/(loss). We recognize a liability for the fair value of our conditional asset retirement obligations, which are primarily related to asbestos removal, when incurred if theliability’s fair value can be reasonably estimated. Capitalized Software CostsWe capitalize costs associated with the acquisition or development of major software for internal use in other assets in our Consolidated Balance Sheets andamortize the asset over the expected useful life of the software, generally between three and seven years. We only capitalize subsequent additions,modifications or upgrades to internal-use software to the extent that such changes allow the software to perform a task it previously did not perform. Weexpense software maintenance and training costs as incurred.Impairment of Long-Lived and Indefinite-Lived AssetsWe evaluate long-lived assets such as store property and equipment and other corporate assets for impairment whenever events or changes in circumstancesindicate that the carrying amount of those assets may not be recoverable. Factors considered important that could trigger an impairment review include, butare not limited to, significant underperformance relative to historical or projected future operating results and significant changes in the manner of use of theassets or our overall business strategies. Potential impairment exists if the estimated undiscounted cash flows expected to result from the use of the asset plusany net proceeds expected from disposition of the asset are less than the carrying value of the asset. The amount of the impairment loss represents the excessof the carrying value of the asset over its fair value and is included in Real estate and other, net in the Consolidated Statements of Operations. We estimatefair value based on either a projected discounted cash flow method using a discount rate that is considered commensurate with the risk inherent in our currentbusiness model or appraised value, as appropriate. We also take other factors into consideration in estimating the fair value of our stores, such as local marketconditions, operating environment, mall performance and other trends. We assess the recoverability of indefinite-lived intangible assets at least annually during the fourth quarter of our fiscal year or whenever events or changes incircumstances indicate that the carrying amount of the indefinite-lived intangible asset may not be fully recoverable. Examples of a change in events orcircumstances include, but are not limited to, a decrease in the market price of the asset, a history of cash flow losses related to the use of the asset or asignificant adverse change in the extent or manner in which an asset is being used. We test our indefinite-lived intangible assets utilizing the relief fromroyalty method to determine the estimated fair value for each indefinite-lived intangible asset. The relief from royalty method estimates our theoreticalroyalty savings from ownership of the intangible asset. Key assumptions used in this model include discount rates, royalty rates, growth rates, salesprojections and terminal value rates. 66Table of ContentsLeasesWe use a consistent lease term when calculating amortization of leasehold improvements, determining straight-line rent expense and determiningclassification of leases as either operating or capital. For purposes of recognizing incentives, premiums, rent holidays and minimum rental expenses on astraight-line basis over the terms of the leases, we use the date of initial possession to begin amortization, which is generally when we take control of theproperty. Renewal options determined to be reasonably assured are also included in the lease term. Some leases require additional payments based on salesand are recorded in rent expense when the contingent rent is probable. Some of our lease agreements contain developer/tenant allowances. Upon receipt of such allowances, we record a deferred rent liability in other liabilities onthe Consolidated Balance Sheets. The allowances are then amortized on a straight-line basis over the remaining terms of the corresponding leases as areduction of rent expense. Exit or Disposal Activity CostsCosts associated with exit or disposal activities are recorded at their fair values when a liability has been incurred. Reserves for operating leases areestablished at the time of closure for the present value of any remaining operating lease obligations (PVOL), net of estimated sublease income. Severance isrecorded over the service period required to be rendered in order to receive the termination benefits or, if employees will not be retained to render futureservice, a reserve is established when communication has occurred to the affected employees. Other exit costs are accrued either at the point of decision or thecommunication date, depending on the nature of the item. Retirement-Related BenefitsWe recognize the funded status – the difference between the fair value of plan assets and the plan’s benefit obligation – of our defined benefit pension andpostretirement plans directly on the Consolidated Balance Sheet. Each overfunded plan is recognized as an asset and each underfunded plan is recognized asa liability. We adjust other comprehensive income/(loss) to reflect prior service cost or credits and actuarial gain or loss amounts arising during the periodand reclassification adjustments for amounts being recognized as components of net periodic pension/postretirement cost, net of tax. Prior service cost orcredits are amortized to net income/(loss) over the average remaining service period, a period of about eight years for the primary plan. Pension relatedactuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plan's projected benefit obligation (the corridor) are recognizedannually in the fourth quarter each year (Mark-to-market (MTM) adjustment), and, if applicable, in any interim period in which an interim remeasurement istriggered. See Note 3 for the discussion of the accounting change related to our retirement-related benefits. We measure the plan assets and obligations annually at the adopted measurement date of January 31 to determine pension expense for the subsequent year.The factors and assumptions affecting the measurement are the characteristics of the population and salary increases, with the most important being theexpected return on plan assets and the discount rate for the pension obligation. We use actuarial calculations for the assumptions, which require significantjudgment. Stock-Based CompensationStock options are valued primarily using the binomial lattice option pricing model and are granted with an exercise price equal to the closing price of ourcommon stock on the grant date. Time-based and performance-based restricted stock awards are valued using the closing price of our common stock on thegrant date. For awards that have market conditions, such as attaining a specified stock price or based on total shareholder return, we use a Monte Carlosimulation model to determine the value of the award. Our current plan does not permit awarding stock options below grant-date market value nor does itallow any repricing subsequent to the date of grant.Stock options are valued using the following assumptions:•Valuation Method. We estimate the fair value of stock option awards on the date of grant using primarily the binomial lattice model. We believe thatthe binomial lattice model is a more accurate model for valuing employee stock options since it better reflects the impact of stock price changes onoption exercise behavior.•Expected Term. Our expected option term represents the average period that we expect stock options to be outstanding and is determined based onour historical experience, giving consideration to contractual terms, vesting schedules, anticipated stock prices and expected future behavior ofoption holders.•Expected Volatility. Our expected volatility is based on a blend of the historical volatility of JCPenney stock combined with an estimate of theimplied volatility derived from exchange traded options.67Table of Contents•Risk-Free Interest Rate. Our risk-free interest rate is based on zero-coupon U.S. Treasury yields in effect at the date of grant with the same period asthe expected option life.•Expected Dividend Yield. The dividend assumption is based on our current expectations about our dividend policy.Employee stock options and time-based and performance-based restricted stock awards typically vest over periods ranging from one to three years andemployee stock options have a maximum term of 10 years. Estimates of forfeitures are incorporated at the grant date and are adjusted if actual results aredifferent from initial estimates. For awards that have performance conditions, the probability of achieving the performance condition is evaluated eachreporting period, and if the performance condition is expected to be achieved, the related compensation expense is recorded over the service period. Inaddition, certain performance-based restricted stock awards may be granted where the number of shares may be increased to the maximum or reduced to theminimum threshold based on the results of the performance metrics in accordance with the terms established at the time of the award. In the event thatperformance conditions are not achieved and the awards do not vest, compensation expense is reversed. For market based awards, we record expense over theservice period, regardless of whether or not the market condition is achieved.Awards with graded vesting that only have a time vesting requirement and awards that vest entirely at the end of the vesting requirement are expensed on astraight-line basis for the entire award. Expense for awards with graded vesting that incorporate a market or performance requirement is attributed separatelybased on the vesting for each tranche.3. Change in Accounting for Retirement-Related BenefitsIn 2015, the Company elected to change its method of recognizing pension expense. Previously, for the primary and supplemental pension plans, netactuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plans’ projected benefit obligation (the corridor) were recognizedover the remaining service period of plan participants (eight years for the primary pension plan). Under the Company’s new accounting method, theCompany recognizes changes in net actuarial gains or losses in excess of the corridor annually in the fourth quarter each year (MTM Adjustment). Theremaining components of pension expense, primarily service and interest costs and assumed return on plan assets, will be recorded on a quarterly basis. Whilethe historical policy of recognizing pension expense was considered acceptable, the Company believes that the new policy is preferable as it eliminates thedelay in recognition of actuarial gains and losses outside the corridor.This change has been reported through retrospective application of the new policy to all periods presented. The impacts of all adjustments made to thefinancial statements are summarized below:Consolidated Statements of Operations 2014 2013($ in millions, except per share data)PreviouslyReported As Adjusted Effect ofChange PreviouslyReported As Adjusted Effect ofChangePension$6 $(48) $(54) $137 $(41) $(178)Income/(loss) before income taxes(748) (694) 54 (1,886) (1,708) 178Income tax expense/(benefit)23 23 — (498) (430) 68Net income/(loss)$(771) $(717) 54 $(1,388) (1,278) $110Basic earnings/(loss) per common share$(2.53) $(2.35) $0.18 $(5.57) $(5.13) $0.44Diluted earnings/(loss) per common share$(2.53) $(2.35) $0.18 $(5.57) $(5.13) $0.4468Table of ContentsConsolidated Statements of Comprehensive Income/(Loss) 2014 2013($ in millions)PreviouslyReported As Adjusted Effect ofChange PreviouslyReported As Adjusted Effect ofChangeNet income/(loss)$(771) $(717) $54 $(1,388) $(1,278) $110Reclassifications for amortization of net actuarial(gain)/loss40 7 (33) 108 (2) (110)Deferred tax valuation allowance(169) (190) (21) — — —Total other comprehensive income/(loss), net of tax(437) (491) (54) 490 380 (110)Total comprehensive income/(loss), net of tax$(1,208) $(1,208) $— $(898) $(898) $—Consolidated Balance Sheet 2014($ in millions)PreviouslyReported As Adjusted Effect ofChangeReinvested earnings/(accumulated deficit)$(1,779) $(2,494) $(715)Accumulated other comprehensive income/(loss)(1,065) (350) 715Consolidated Statements of Stockholders' Equity 2014 2013($ in millions)PreviouslyReported As Adjusted Effect ofChange PreviouslyReported As Adjusted Effect ofChangeReinvested earnings/(loss) Beginning balance$(1,008) $(1,777) $(769) $380 $(499) $(879) Net income/(loss)(771) (717) 54 (1,388) (1,278) 110 Ending balance$(1,779) $(2,494) $(715) $(1,008) $(1,777) $(769) Accumulated other comprehensiveincome/(loss) Beginning balance$(628) $141 $769 $(1,118) $(239) $879 Other comprehensive income/(loss)(437) (491) (54) 490 380 (110) Ending balance$(1,065) $(350) $715 $(628) $141 $769Consolidated Statements of Cash Flows 2014 2013($ in millions)PreviouslyReported As Adjusted Effect of Change PreviouslyReported As Adjusted Effect ofChangeCash flows from operating activities: Net income/(loss)$(771) $(717) $54 $(1,388) $(1,278) $110Benefit plans(24) (78) (54) 70 (108) (178)Other comprehensive income tax benefits— — — (303) (250) 53Deferred taxes$3 $3 $— $(164) $(149) $1569Table of Contents4. Effect of New Accounting StandardsIn February 2016, the FASB issued ASC Topic 842, Leases (Topic 842), a replacement of Leases (Topic 840), which will require lessees to recognize mostleases on their balance sheets as lease liabilities with corresponding right-of-use assets. While many aspects of lessor accounting would remain the same, thenew standard would make some changes, such as eliminating today’s real estate-specific guidance. As a globally converged standard, lessees and lessorswould be required to classify most leases using a principle generally consistent with that of International Accounting Standards. The standard also wouldchange what would be considered the initial direct costs of a lease. The standard would be effective for annual periods beginning after December 15, 2018and interim periods within that year and must be adopted by on a modified retrospective method, with elective reliefs, which requires application of the newguidance for all periods presented. We are currently evaluating the effect that adopting this new accounting guidance will have on our financial condition,results of operations or cash flows.In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes, which requires all deferred taxassets and liabilities to be classified as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. The newstandard will also no longer require allocating valuation allowances between current and noncurrent deferred tax assets because those allowances also will beclassified as noncurrent. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periodswithin those annual periods and the guidance can adopt the guidance either prospectively or retrospectively. We do not expect the adoption of this standardto have a material impact on our financial condition, results of operations or cash flows.In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330), Simplifying the Measurement of Inventory, which simplifies the subsequentmeasurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. Under current guidance, net realizable value isone of several calculations an entity needs to make to measure inventory at the lower of cost or market. However, companies will continue to apply theirexisting impairment models to inventories that are accounted for using last-in first-out (LIFO) and the retail inventory method (RIM). The guidance, whichcan be early adopted, is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years and the guidancemust be applied prospectively after the date of adoption. We do not expect the adoption of this standard to have a material impact on our financial condition,results of operations or cash flows.In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s Accounting for FeesPaid in a Cloud Computing Arrangement, which amends its guidance on internal use software to clarify how customers in cloud computing arrangementsshould determine whether the arrangement includes a software license. The guidance also eliminates the existing requirement for customers to account forsoftware licenses they acquire by analogizing to the guidance on leases. Instead, these arrangements are to be accounted for as licenses of intangible assets.The guidance, which can be early adopted, is effective for annual periods, including interim periods within those annual periods, beginning after December15, 2015. We do not expect the adoption of this standard to have a material impact on our financial condition, results of operations or cash flows.In April 2015, the FASB Issued ASU 2015-4, Compensation-Retirement Benefits, to provide a practical expedient related to the measurement date of definedbenefit plan assets and obligations. The practical expedient allows employers with fiscal year-end dates that do not coincide with a calendar month-end (e.g.,companies with a 52/53-week fiscal year) to measure pension and post-retirement benefit plan assets and obligations as of the calendar month-end dateclosest to the fiscal year-end. Companies that choose to apply the expedient are required to adjust the measurement of defined benefit plan assets andobligations for any contributions or significant events (such as a plan amendment, settlement, or curtailment that calls for a remeasurement pursuant toexisting requirements) that occur between the month-end measurement date and an entity’s fiscal year-end (the “intervening period”). The standard iseffective for annual reporting periods beginning after December 15, 2015, including interim periods therein and early adoption is permitted. If elected, thepractical expedients must be applied prospectively. We do not expect the adoption of this standard to have a material impact on our financial condition,results of operations or cash flows.In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-03, Interest - Imputation of Interest(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). ASU 2015-03 requires debt issuance costs related to a recognizeddebt liability to be presented in the balance sheet as a direct deduction from the carrying value of that debt liability, consistent with debt discounts. Therecognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03. The amendments in this ASU are effective retrospectivelyfor fiscal years, and70Table of Contentsinterim periods within those years, beginning after December 15, 2015. Early adoption is permitted. The Company early adopted ASU 2015-03retrospectively in its second quarter ended August 1, 2015. As a result of the retrospective adoption, the Company reclassified unamortized debt issuancecosts of $95 million as of January 31, 2015 from Other assets to a reduction in Long-term debt in the Consolidated Balance Sheets. Adoption of this standarddid not impact results of operations, retained earnings, or cash flows in the current or previous interim and annual reporting periods.In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-15, Presentation of FinancialStatements - Going Concern (Subtopic 205-40): Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU requiresmanagement to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern withinone year after the date that the financial statements are issued or are available to be issued. This ASU also requires management to disclose certaininformation depending on the results of the going concern evaluation. The provisions of this ASU are effective for annual periods ending after December 15,2016, and for interim and annual periods thereafter. Early adoption is permitted. This amendment is applicable to us beginning in the first quarter of 2017.We do not expect the adoption of this standard to have a material impact on our financial condition, results of operations or cash flows.In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation, an amendment to FASB Accounting Standards Codification (ASC) Topic718, Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite ServicePeriod. ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as aperformance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update is effective forannual reporting periods beginning after December 15, 2015, with early adoption permitted. We do not expect the adoption of this standard to have amaterial impact on our financial condition, results of operations or cash flows.In May 2014, the FASB issued ASC Topic 606, Revenue from Contracts with Customers, a replacement of Revenue Recognition (Topic 605). The newrevenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of theguidance is that a Company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects theconsideration to which the entity expects to be entitled in exchange for those goods or services. This standard is effective for us beginning in fiscal 2018 andcan be adopted by the Company either retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently evaluating the effectthat adopting this new accounting guidance will have on our financial condition, results of operations or cash flows.5. Earnings/(Loss) per Share Net income/(loss) and shares used to compute basic and diluted EPS are reconciled below:(in millions, except per share data) 2015 2014 2013Earnings/(loss) Net income/(loss) $(513) $(717) $(1,278)Shares Weighted average common shares outstanding (basic shares) 305.9 305.2 249.3Adjustment for assumed dilution: Stock options, restricted stock awards and warrant — — —Weighted average shares assuming dilution (diluted shares) 305.9 305.2 249.3EPS Basic $(1.68) $(2.35) $(5.13)Diluted $(1.68) $(2.35) $(5.13) The following average potential shares of common stock were excluded from the diluted EPS calculation because their effect would have been anti-dilutive:(Shares in millions) 2015 2014 2013Stock options, restricted stock awards and a warrant 34.1 26.8 24.371Table of Contents6. Other Assets($ in millions)2015 2014Capitalized software, net$232 $230Indefinite-lived intangible assets, net (1)268 268Realty investments (Note 18)31 26Revolving credit facility unamortized costs, net42 49Other35 37Total$608 $610 (1) Amounts are net of an accumulated impairment loss of $9 million which was recorded in 2013 (Note 18) in the line item Real estate andother, net in the Consolidated Statements of Operations.Our indefinite-lived intangible assets consists of our worldwide rights for the Liz Claiborne® family of trademarks and related intellectual property and ourownership of the U.S. and Puerto Rico rights of the monet® trademarks and related intellectual property. In connection with our annual indefinite-livedintangible assets impairment tests performed during the fourth quarter of 2015, we did not record an impairment for our indefinite-lived intangible assets asthe estimated fair values exceeded the carrying values of the underlying assets.7. Other Accounts Payable and Accrued Expenses($ in millions) 2015 2014Accrued salaries, vacation and bonus $326 $212Customer gift cards 222 217Taxes other than income taxes 110 75Occupancy and rent-related 40 54Interest 88 88Advertising 76 91Current portion of workers’ compensation and general liability self-insurance 55 56Restructuring and management transition (Note 17) 46 19Current portion of retirement plan liabilities (Note 16) 46 17Capital expenditures 13 12Unrecognized tax benefits (Note 19) 3 5Other 335 257Total $1,360 $1,1038. Other Liabilities($ in millions) 2015 2014Supplemental pension and other postretirement benefit plan liabilities (Note 16) $138 $185Long-term portion of workers’ compensation and general liability insurance 153 160Deferred developer/tenant allowances 113 107Deferred rent liability 91 85Primary pension plan (Note 16) 40 —Interest rate swaps (Notes 9 and 10) 28 —Unrecognized tax benefits (Note 19) 4 8Restructuring and management transition (Note 17) 5 7Other 46 59Total $618 $61172Table of Contents9. Derivative Financial InstrumentsWe use derivative financial instruments for hedging and non-trading purposes to manage our exposure to changes in interest rates. Use of derivative financialinstruments in hedging programs subjects us to certain risks, such as market and credit risks. Market risk represents the possibility that the value of thederivative instrument will change. In a hedging relationship, the change in the value of the derivative is offset to a great extent by the change in the value ofthe underlying hedged item. Credit risk related to derivatives represents the possibility that the counterparty will not fulfill the terms of the contract. Thenotional, or contractual amount of our derivative financial instruments is used to measure interest to be paid or received and does not represent our exposuredue to credit risk. Credit risk is monitored through established approval procedures, including setting concentration limits by counterparty, reviewing creditratings and requiring collateral (generally cash) from the counterparty when appropriate.When we use derivative financial instruments for the purpose of hedging our exposure to interest rates, the contract terms of a hedged instrument closelymirror those of the hedged item, providing a high degree of risk reduction and correlation. Contracts that are effective at meeting the risk reduction andcorrelation criteria are recorded using hedge accounting. If a derivative instrument is a hedge, depending on the nature of the hedge, changes in the fair valueof the instrument will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or be recognizedin accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of an instrument’s change in fairvalue will be immediately recognized in earnings during the period. Instruments that do not meet the criteria for hedge accounting, or contracts for which wehave not elected hedge accounting, are valued at fair value with unrealized gains or losses reported in earnings during the period of change.Effective May 7, 2015, we entered into interest rate swap agreements with notional amounts totaling $1,250 million to fix a portion of our variable LIBOR-based interest payments. The interest rate swap agreements have a weighted-average fixed rate of 2.04%, mature on May 7, 2020 and have been designated ascash flow hedges.The fair value of our interest rate swaps are recorded in the Consolidated Balance Sheets as an asset or a liability (see Note 10). The effective portion of theinterest rate swaps' changes in fair values is reported in Accumulated other comprehensive income/(loss) (see Note 13), and the ineffective portion is reportedin Net income/(loss). Amounts in Accumulated other comprehensive income/(loss) are reclassified into net income/(loss) when the related interest paymentsaffect earnings. For the periods presented, all of the interest rate swaps were 100% effective.Information regarding the pre-tax changes in the fair value of our interest rate swaps is as follows:($ in millions)2015 2014 Line Item in the Financial StatementsGain/(loss) recognized in othercomprehensive income/(loss)$(38) $— Accumulated other comprehensive incomeGain/(loss) recognized in netincome/(loss)(10) — Interest expenseInformation regarding the gross amounts of our derivative instruments in the Consolidated Balance Sheets is as follows: Asset Derivatives at Fair Value Liability Derivatives at Fair Value($ in millions)Balance SheetLocation 2015 2014 Balance SheetLocation2015 2014Derivatives designated as hedginginstruments: Interest rate swapsN/A $— $— Other accountspayable andaccruedexpenses$2 $—Interest rate swapsN/A — — Other liabilities28 —Total derivatives designated ashedging instruments $— $— $30 $—73Table of Contents10. Fair Value DisclosuresIn determining fair value, the accounting standards establish a three level hierarchy for inputs used in measuring fair value, as follows:•Level 1 — Quoted prices in active markets for identical assets or liabilities.•Level 2 — Significant observable inputs other than quoted prices in active markets for similar assets and liabilities, such as quoted prices foridentical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable marketdata.•Level 3 — Significant unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other marketparticipants. Cash Flow Hedges Measured on a Recurring BasisThe $30 million fair value of our cash flow hedges are valued in the market using discounted cash flow techniques which use quoted market interest rates indiscounted cash flow calculations which consider the instrument's term, notional amount, discount rate and credit risk. Significant inputs to the derivativevaluation for interest rate swaps are observable in the active markets and are classified as Level 2 in the fair value measurement hierarchy.Other Non-Financial Assets Measured on a non-Recurring BasisIn 2014, assets of 19 underperforming department stores that continued to operate with carrying values of $32 million were written down to their estimatedfair values of $2 million resulting in impairment charges of $30 million. Store impairment charges are recorded in the line item Real estate and other, net inthe Consolidated Statements of Operations. Key assumptions used to determine fair values were future cash flows including, among other things, expectedfuture operating performance and changes in economic conditions as well as other market information obtained from brokers. Significant inputs to thevaluing store related assets are classified as Level 3 in the fair value measurement hierarchy.Other Financial InstrumentsCarrying values and fair values of financial instruments that are not carried at fair value in the Consolidated Balance Sheets are as follows: As of January 30, 2016 As of January 31, 2015($ in millions) Carrying Amount Fair Value CarryingAmount Fair ValueTotal debt, excluding unamortized debt issuance costs, capital leasesand notes payable $4,830 $4,248 $5,350 $4,834 The fair value of long-term debt is estimated by obtaining quotes from brokers or is based on current rates offered for similar debt. As of January 30, 2016 andJanuary 31, 2015, the fair values of cash and cash equivalents, accounts payable and short-term borrowings approximate theircarrying values due to the short-term nature of these instruments. In addition, the fair values of the capital lease commitments and the note payableapproximate their carrying values. These items have been excluded from the table above. Concentrations of Credit Risk We have no significant concentrations of credit risk.74Table of Contents11. Credit FacilityThe Company has a $2,350 million senior secured asset-based credit facility (2014 Credit Facility), comprised of a $2,350 million revolving line of credit(Revolving Facility). During 2015, the Company amended the 2014 Credit Facility to increase the Revolving Facility from $1,850 million to $2,350 million,and in connection with upsizing the Revolving Facility, the Company prepaid and retired the $494 million outstanding principal amount of the $500million term loan under the 2014 Credit Facility. The 2014 Credit Facility matures on June 20, 2019.The 2014 Credit Facility is secured by a perfected first-priority security interest in substantially all of our eligible credit card receivables, accounts receivableand inventory. The Revolving Facility is available for general corporate purposes, including the issuance of letters of credit. Pricing under the RevolvingFacility is tiered based on our utilization under the line of credit. JCP’s obligations under the 2014 Credit Facility are guaranteed by J. C. Penney Company,Inc.The borrowing base under the Revolving Facility is limited to a maximum of 85% of eligible accounts receivable, plus 90% of eligible credit cardreceivables, plus 90% of the liquidation value of our inventory, net of certain reserves. Letters of credit reduce the amount available to borrow by their facevalue. In addition, the maximum availability is limited by a minimum excess availability threshold which is the lesser of 10% of the borrowing base or $200million, subject to a minimum threshold requirement of $150 million.As of the end of 2015, we had no borrowings outstanding under the Revolving Facility. In addition, as of the end of 2015, we had $1,848 million availablefor borrowing, of which $280 million was reserved for outstanding standby and import letters of credit, none of which have been drawn on, leaving $1,568million for future borrowings. The applicable rate for standby and import letters of credit was 2.50% and 1.25%, respectively, while the required commitmentfee was 0.375% for the unused portion of the Revolving Facility.75Table of Contents12. Long-Term Debt ($ in millions) 2015 2014Issue: 5.65% Senior Notes Due 2020(1) (2) $400 $4005.75% Senior Notes Due 2018(1) (3) 300 3006.375% Senior Notes Due 2036(1) (4) 400 4006.9% Notes Due 2026 2 27.125% Debentures Due 2023 10 107.4% Debentures Due 2037(5) 326 3267.625% Notes Due 2097 500 5007.65% Debentures Due 2016 78 787.95% Debentures Due 2017 220 2208.125% Senior Notes Due 2019 (6) 400 4002013 Term Loan Facility (7) 2,194 2,2162014 Term Loan (8) — 498Total debt, excluding unamortized debt issuance costs, capital leases and note payable 4,830 5,350Unamortized debt issuance costs (61) (95)Total debt, excluding capital leases and note payable 4,769 5,255Less: current maturities 101 28Total long-term debt, excluding capital leases and note payable $4,668 $5,227Weighted-average interest rate at year end 6.5% 6.4%Weighted-average maturity (in years) 13 years (1)These debt issuances contain a change of control provision that would obligate us, at the holders’ option, to repurchase the debt at a price of 101%. These provisions triggerif there were a beneficial ownership change of 50% or more of our common stock.(2)$4 million and $5 million of unamortized debt issue costs in 2015 and 2014, respectively.(3)$1 million and $1 million of unamortized debt issue costs in 2015 and 2014, respectively.(4)$6 million and $7 million of unamortized debt issue costs in 2015 and 2014, respectively.(5)$1 million and $1 million of unamortized debt issue costs in 2015 and 2014, respectively.(6)$8 million and $10 million of unamortized debt issue costs in 2015 and 2014, respectively.(7)$41 million and $58 million of unamortized debt issue costs in 2015 and 2014, respectively.(8)$13 million of unamortized debt issue costs in 2014.2014 Debt Issuance and Tender OffersIn September 2014, we issued $400 million aggregate principal amount of 8.125% Senior Notes due 2019 and used the majority of the $393 million ofproceeds from the offering, net of underwriting discounts, to pay the tender consideration and related transaction fees and expenses for our contemporaneouscash tender offers (2014 Tender Offers) to purchase approximately $327 million aggregate principal amount of the three outstanding series of debt securitiesdescribed below (collectively, the Securities).Title of Security Principal AmountOutstanding Prior to2014 Tender Offers($ in millions) TenderPremium(1) Principal AmountTendered ($in millions) Principal AmountAccepted forPurchase ($in millions) Principal AmountOutstanding After the2014 Tender Offers($ in millions)6.875% Medium-Term Notes due 2015 $200 $67.50 $140 $140 $607.65% Debentures due 2016 200 105.00 122 122 787.95% Debentures due 2017 285 97.50 194 65 220Total $685 $456 $327 $358(1)Per $1,000 principal amount of Securities.76Table of ContentsWe paid approximately $362 million aggregate consideration, including $6 million of accrued interest, for the accepted Securities in October 2014. The2014 Tender Offers resulted in a loss on extinguishment of debt of $30 million which includes the premium paid over face value of the accepted Securities of$29 million and reacquisition costs of $1 million.2014 Debt DefeasanceIn October 2014, subsequent to the completion of the 2014 Tender Offers, we deposited approximately $64 million with Wilmington Trust, NationalAssociation, as Trustee under the Indenture with respect to our 6.875% Medium-Term Notes due 2015 (2015 Notes), to effect a legal defeasance of theremaining outstanding principal amount of 2015 Notes. As a result of depositing funds with the Trustee sufficient to make all payments of interest andprincipal on the outstanding 2015 Notes through October 15, 2015, the stated maturity of the 2015 Notes, the Company has satisfied and discharged all of itsobligations under the terms of the 2015 Notes and with respect to the 2015 Notes under the Indenture. The defeasance resulted in a loss on extinguishment ofdebt of $4 million which represents the portion of the deposited funds for future interest payments on the 2015 Notes.2013 Term Loan FacilityIn 2013, JCP entered into a $2.25 billion five-year senior secured term loan facility (2013 Term Loan Facility). The 2013 Term Loan Facility is guaranteed byJ. C. Penney Company, Inc. and certain subsidiaries of JCP, and is secured by mortgages on certain real estate of JCP and the guarantors, in addition tosubstantially all other assets of JCP and the guarantors. The 2013 Term Loan Facility bears interest at a rate of LIBOR plus 5.0%. We are required to makequarterly repayments in a principal amount equal to $5.625 million during the five-year term, subject to certain reductions for mandatory and optionalprepayments.Scheduled Annual Principal Payments on Long-Term Debt, Excluding Capital Leases and Note Payable($ in millions) 2016$101201724320182,44920194002020400Thereafter1,237Total$4,83077Table of Contents13. Stockholders’ EquityAccumulated Other Comprehensive Income/(Loss)The following table shows the changes in accumulated other comprehensive income/(loss) balances for 2015 and 2014:($ in millions) Net ActuarialGain/(Loss) Prior ServiceCredit/(Cost) Foreign CurrencyTranslation Gain/(Loss) onCash Flow Hedges Accumulated OtherComprehensiveIncome/(Loss)February 1, 2014 $160 $(19) $— $— $141Current period change (468) (21) (2) — (491)January 31, 2015 $(308) $(40) $(2) $— $(350)Current period change (115) 2 — (28) (141)January 30, 2016 $(423) $(38) $(2) $(28) $(491)Common Stock On a combined basis, our 401(k) savings plan, including our employee stock ownership plan (ESOP), held approximately 14 million shares, or approximately4.7% of outstanding Company common stock, at January 30, 2016. Under our 2013 senior secured term loan, we are subject to restrictive covenantsregarding our ability to pay cash dividends.Issuance of Common StockOn October 1, 2013, we issued 84 million shares of common stock with a par value of $0.50 per share for $9.65 per share for total net proceeds of $786million after $24 million of fees. Preferred Stock We have authorized 25 million shares of preferred stock; no shares of preferred stock were issued and outstanding as of January 30, 2016 or January 31, 2015.Stock Warrant On June 13, 2011, prior to his employment, we entered into a warrant purchase agreement with Ronald B. Johnson pursuant to which Mr. Johnson made apersonal investment in the Company by purchasing a warrant to acquire approximately 7.3 million shares of J. C. Penney Company, Inc. common stock for apurchase price of approximately $50 million at a mutually determined fair value of $6.89 per share. The warrant has an exercise price of $29.92 per share,subject to customary adjustments resulting from a stock split, reverse stock split, or other extraordinary distribution with respect to J. C. Penney Company,Inc. common stock. The warrant has a term of seven and one-half years and was initially exercisable after the sixth anniversary, or June 13, 2017; however,the warrant became immediately exercisable upon the termination of Mr. Johnson’s employment with us in April 2013. The warrant is also subject to transferrestrictions. The proceeds from the sale of the warrant were recorded as additional paid-in capital. Stockholders' Rights AgreementAs authorized by our Company’s Board of Directors (the Board), on January 27, 2014, the Company entered into an Amended and Restated RightsAgreement (Amended Rights Agreement) with Computershare Inc., as Rights Agent (Rights Agent), amending, restating and replacing the Rights Agreement,dated as of August 22, 2013 (Original Rights Agreement), between the Company and the Rights Agent. Pursuant to the terms of the Original RightsAgreement, one preferred stock purchase right (a Right) was attached to each outstanding share of Common Stock of $0.50 par value of the Company(Common Stock) held by holders of record as of the close of business on September 3, 2013. The Company has issued one Right in respect of each new shareof Common Stock issued since the record date. The Rights, registered on August 23, 2013, trade with and are inseparable from our Common Stock and willnot be evidenced by separate certificates unless they become exercisable.The purpose of the Amended Rights Agreement is to diminish the risk that the Company's ability to use its net operating losses and other tax assets to reducepotential future federal income tax obligations would become subject to limitations by reason of the Company's experiencing an "ownership change" asdefined under Section 382 of the Internal Revenue Code of 1986, as amended (the Code). Ownership changes under Section 382 generally relate to thecumulative change in ownership among stockholders with an ownership interest of 5% or more (as determined under Section 382's rules) over a rolling threeyear period. The Amended Rights Agreement is intended to reduce the likelihood of an ownership change under Section 382 by deterring any person orgroup from acquiring beneficial ownership of 4.9% or more of the outstanding Common Stock. The amendments to the Original Rights Agreement alsoextended the expiration date of the Rights from August 20, 2014 to January78Table of Contents26, 2017 and amended certain other provisions, including the definition of "beneficial ownership" to include terms appropriate for the purpose of preservingtax benefits.Each Right entitles its holder to purchase from the Company 1/1000th of a share of a newly authorized series of participating preferred stock at an exerciseprice of $55.00, subject to adjustment in accordance with the terms of the Amended Rights Agreement, once the Rights become exercisable. In general terms,under the Amended Rights Agreement, the Rights become exercisable if any person or group acquires 4.9% or more of the Common Stock or, in the case ofany person or group that owned 4.9% or more of the Common Stock as of January 27, 2014, upon the acquisition of any additional shares by such person orgroup. In addition, the Company, its subsidiaries, employee benefit plans of the Company or any of its subsidiaries, and any entity holding Common Stockfor or pursuant to the terms of any such plan, are excepted. Upon exercise of the Right in accordance with the Amended Rights Agreement, the holder wouldbe able to purchase a number of shares of Common Stock from the Company having an aggregate market value (as defined in the Amended RightsAgreement) equal to twice the then-current exercise price for an amount in cash equal to the then-current exercise price. The Rights will not prevent anownership change from occurring under Section 382 of the Code or a takeover of the Company, but may cause substantial dilution to a person that acquires4.9% or more of our Common Stock.14. Stock-Based CompensationWe grant stock-based compensation awards to employees and non-employee directors under our equity compensation plan. On May 16, 2014, ourstockholders approved the J. C. Penney Company, Inc. 2014 Long-Term Incentive Plan (2014 Plan), which has a fungible share design in which each stockoption will count as one share issued and each stock award will count as two shares issued. The 2014 Plan reserved 16 million shares or 32 million options forfuture grants and will terminate on May 31, 2019. In addition, shares underlying any outstanding stock award or stock option grant canceled prior to vestingor exercise become available for use under the 2014 Plan. Under the terms of the 2014 Plan, all grants made after January 31, 2014 reduce the shares availablefor grant under the 2014 Plan. As of January 30, 2016, a maximum of 11.5 million shares of stock were available for future grant under the 2014 Plan.Our stock option and restricted stock award grants have averaged about 2.3% of outstanding stock over the past three years. Authorized shares of theCompany's common stock are used to settle the exercise of stock options, granting of restricted shares and vesting of restricted stock units. Stock-based Compensation CostThe components of total stock-based compensation costs are as follows:($ in millions)2015 2014 2013Stock awards$32 $20 $14Stock options12 13 14Total stock-based compensation(1)$44 $33 $28 Total income tax benefit recognized for stock-based compensation arrangements$— $— $—(1)Excludes $9 million, $3 million and $18 million for 2015, 2014 and 2013, respectively, of stock-based compensation costs reported in restructuring and managementtransition charges (Note 17).79Table of ContentsStock Options The following table summarizes stock option activity during the year ended January 30, 2016: Shares (inthousands) Weighted - AverageExercise Price PerShare Weighted - AverageRemaining ContractualTerm (in years) AggregateIntrinsic Value ($ inmillions)(1) Outstanding at January 31, 2015 14,575 $32 Granted 5,119 8 Exercised (4) 8 Forfeited/canceled (3,594) 32 Outstanding at January 30, 2016 16,096 24 5.2 $0.1Exercisable at January 30, 2016 9,170 36 2.8 $— (1)The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option at year end.Cash proceeds, tax benefits and intrinsic value related to total stock options exercised are provided in the following table:($ in millions) 2015 2014 2013Proceeds from stock options exercised $— $— $7Intrinsic value of stock options exercised — — 2Tax benefit related to stock-based compensation — — —Excess tax benefits realized on stock-based compensation — — — As of January 30, 2016, we had $11 million of unrecognized and unearned compensation expense, net of estimated forfeitures, for stock options not yetvested, which will be recognized as expense over the remaining weighted-average vesting period of approximately two years. Our weighted-average fair value of stock options at grant date was $3.48 in 2015, $3.78 in 2014 and $7.15 in 2013. We primarily used the binomial latticevaluation model in 2015 and 2013 and the Monte Carlo simulation model in 2014 to determine the fair value of the stock options granted using thefollowing assumptions: 2015 2014 2013Weighted-average expected option term 4.6 years 4.1 years 4.3 yearsWeighted-average expected volatility 51.46% 60.00% 62.00%Weighted-average risk-free interest rate 1.50% 1.60% 0.64%Weighted-average expected dividend yield (1) —% —% —%Expected dividend yield range (1) —% —% —%(1) Following the May 1, 2012 payment, we discontinued the quarterly $0.20 per share dividend. Stock AwardsThe following table summarizes our non-vested stock awards activity during the year ended January 30, 2016: Time-Based Stock Awards Performance-Based Stock Awards(shares in thousands)Number of Units Weighted-AverageGrant Date Fair Value Number of Units Weighted-Average GrantDate Fair ValueNon-vested at January 31, 20156,769 $10 533 $7Granted3,429 8 2,403 8Vested(1,728) 16 (278) 8Forfeited/canceled(772) 9 (101) 8Non-vested at January 30, 20167,698 9 2,557 780Table of Contents As of January 30, 2016, we had $50 million of unrecognized compensation expense related to unearned employee stock awards, which will be recognizedover the remaining weighted-average vesting period of approximately two years. The aggregate market value of shares vested during 2015, 2014 and 2013was $16 million, $4 million and $25 million, respectively, compared to an aggregate grant date fair value of $27 million, $9 million and $42 million,respectively.In addition to the grants above, on March 19, 2015, we granted approximately 2.5 million phantom units as part of our management incentive compensationplan, which are similar to RSUs in that the number of units granted was based on the price of our stock, but the units will be settled in cash based on the valueof our stock on the vesting date, limited to $15.54 per phantom unit. The fair value of the awards is remeasured at each reporting period and was $7.26 pershare as of January 30, 2016. Compensation expense, which is variable, is recognized over the vesting period with a corresponding liability, which isrecorded in Other accounts payable and accrued expenses and Other liabilities in our Consolidated Balance Sheets, of $17 million as of January 30, 2016.Awards granted include approximately 154,000 fully vested RSUs to directors during 2015 with a fair value of $8.64 per RSU award.15. Leases and Note Payable We conduct a major part of our operations from leased premises that include retail stores, store distribution centers, warehouses, offices and other facilities.Almost all leases will expire during the next 20 years; however, most leases will be renewed, primarily through an option exercise, or replaced by leases onother premises. We also lease data processing equipment and other personal property under operating leases of primarily three to five years. Rent expense, netof sublease income, was as follows:($ in millions) 2015 2014 2013Real property base rent and straight-lined step rent expense $221 $233 $237Real property contingent rent expense (based on sales) 7 8 5Personal property rent expense 39 53 65Total rent expense $267 $294 $307Less: sublease income(1) (11) (13) (16)Net rent expense $256 $281 $291(1)Sublease income is reported in Real estate and other, net.As of January 30, 2016, future minimum lease payments for non-cancelable operating leases, including lease renewals determined to be reasonably assuredand capital leases, including our note payable, were as follows: ($ in millions)Operating Leases2016$2272017200201816920191462020129Thereafter1,816Less: sublease income(27)Total minimum lease payments$2,66081Table of Contents($ in millions)Capital Leases and NotePayable2016$272017102018—2019—2020—Thereafter—Less: sublease income—Total minimum lease payments37Less: amounts representing interest(1)Present value of net minimum lease obligations$3682Table of Contents16. Retirement Benefit Plans We provide retirement pension benefits, postretirement health and welfare benefits, as well as 401(k) savings, profit-sharing and stock ownership planbenefits to various segments of our workforce. Retirement benefits are an important part of our total compensation and benefits program designed to retainand attract qualified, talented employees. Pension benefits are provided through defined benefit pension plans consisting of a non-contributory qualifiedpension plan (Primary Pension Plan) and, for certain management employees, non-contributory supplemental retirement plans, including a 1997 voluntaryearly retirement plan. Retirement and other benefits include:Defined Benefit Pension PlansPrimary Pension Plan – fundedSupplemental retirement plans – unfunded Other Benefit PlansPostretirement benefits – medical and dentalDefined contribution plans:401(k) savings, profit-sharing and stock ownership planDeferred compensation plan Defined Benefit Pension PlansPrimary Pension Plan — FundedThe Primary Pension Plan is a funded non-contributory qualified pension plan, initiated in 1966 and closed to new entrants on January 1, 2007. The plan isfunded by Company contributions to a trust fund, which are held for the sole benefit of participants and beneficiaries. Supplemental Retirement Plans — UnfundedWe have unfunded supplemental retirement plans, which provide retirement benefits to certain management employees. We pay ongoing benefits fromoperating cash flow and cash investments. The plans are a Supplemental Retirement Program and a Benefit Restoration Plan. Participation in theSupplemental Retirement Program is limited to employees who were annual incentive-eligible management employees as of December 31, 1995. Benefits forthese plans are based on length of service and final average compensation. The Benefit Restoration Plan is intended to make up benefits that could not bepaid by the Primary Pension Plan due to governmental limits on the amount of benefits and the level of pay considered in the calculation of benefits. TheSupplemental Retirement Program is a non-qualified plan that was designed to allow eligible management employees to retire at age 60 with retirementincome comparable to the age 65 benefit provided under the Primary Pension Plan and Benefit Restoration Plan. In addition, the Supplemental RetirementProgram offers participants who leave between ages 60 and 62 benefits equal to the estimated social security benefits payable at age 62. The SupplementalRetirement Program also continues Company-paid term life insurance at a declining rate until it is phased out at age 70. Employee-paid term life insurancethrough age 65 is continued under a separate plan (Supplemental Term Life Insurance Plan for Management Profit-Sharing Employees). Primary Pension Plan Lump-Sum Payment Offer and Annuity Contract PurchaseIn August 2015, as a result of a plan amendment, we offered approximately 31,000 retirees and beneficiaries in the PrimaryPension Plan who commenced their benefit between January 1, 2000 and August 31, 2012 the option to receive a lump-sumsettlement payment. In addition, we offered approximately 8,000 participants in the Primary Pension Plan who separated fromservice and had a deferred vested benefit as of August 31, 2012 the option to receive a lump-sum settlement payment.Approximately 12,000 retirees and beneficiaries elected to receive voluntary lump-sum payments to settle the Primary PensionPlan's obligation to them. In addition, approximately 1,900 former employees having deferred vested benefits elected toreceive lump-sums. The lump-sum settlement payments totaling $717 million were made by the Company on November 5, 2015 using assets from thePrimary Pension Plan.On December 7, 2015, the Company completed the purchase of a group annuity contract that transferred to The Prudential Insurance Company of Americathe pension benefit obligation of approximately 18,000 retirees totaling $838 million.Actuarial loss of $180 million was recognized as settlement expense as a result of the lump-sum offer payment and the purchase of the group annuitycontract.83Table of ContentsPension Expense/(Income) for Defined Benefit Pension PlansThe components of net periodic benefit expense/(income) for our Primary Pension Plan and our non-contributory supplemental pension plans are as follows:($ in millions) Primary Pension Plan 2015 2014 2013Service cost $69 $61 $78Interest cost 196 211 204Expected return on plan assets (357) (348) (340)Actuarial loss/(gain) 52 — —Amortization of prior service cost/(credit) 8 7 6Settlement expense 180 — —Other 6 — —Loss/(gain) on transfer of benefits — 51 —Net periodic benefit expense/(income) $154 $(18) $(52) Supplemental Pension Plans Service cost $— $— $—Interest cost 7 9 12Actuarial loss/(gain) 1 12 (2)Amortization of prior service cost/(credit) — — 1Loss/(gain) on transfer of benefits — (51) —Net periodic benefit expense/(income) $8 $(30) $11 Primary and Supplemental Pension Plans Total Service cost $69 $61 $78Interest cost 203 220 216Expected return on plan assets (357) (348) (340)Amortization of actuarial loss/(gain) 53 12 (2)Amortization of prior service cost/(credit) 8 7 7Settlement expense 180 — —Other 6 — —Loss/(gain) on transfer of benefits — — —Net periodic benefit expense/(income) $162 $(48) $(41) The defined benefit plan pension expense shown in the above table is included as a separate line item in the Consolidated Statements of Operations.During 2014, we transferred $56 million of supplemental pension plan benefits, as allowed under the Employee Retirement Income Security Act of 1974, outof our supplemental pension plans and into our Primary Pension Plan. The transfer did not have a significant impact on our Consolidated FinancialStatements; however, it did result in a gain of $51 million for our supplemental pension plans and loss of $51 million for our Primary Pension Plan.Assumptions The weighted-average actuarial assumptions used to determine expense were as follows: 2015 2014 2013 Expected return on plan assets6.75% 7.00% 7.00% Discount rate3.87% 4.89% 4.19% Salary increase3.5% 3.5% 4.7% 84Table of ContentsThe expected return on plan assets is based on the plan’s long-term asset allocation policy, historical returns for plan assets and overall capital market returns,taking into account current and expected market conditions. The discount rate used to measure pension expense each year is the rate as of the beginning of the year (i.e., the prior measurement date). The discount rateused, determined by the plan actuary, was based on a hypothetical AA yield curve represented by a series of bonds maturing over the next 30 years, designedto match the corresponding pension benefit cash payments to retirees.The salary progression rate to measure pension expense was based on age ranges and projected forward. Funded StatusAs of the end of 2015, the funded status of the Primary Pension Plan was 99%. The Primary Benefit Obligation (PBO) is the present value of benefits earned todate by plan participants, including the effect of assumed future salary increases. Under the Employee Retirement Income Security Act of 1974 (ERISA), thefunded status of the plan exceeded 100% as of December 31, 2015 and 2014, the qualified pension plan’s year end.85Table of ContentsThe following table provides a reconciliation of benefit obligations, plan assets and the funded status of the Primary Pension Plan and supplemental pensionplans: Primary Pension Plan Supplemental Plans ($ in millions)2015 2014 2015 2014 Change in PBO Beginning balance$5,254$4,477$191$219 Service cost69 61 — — Interest cost196 211 7 9 Amendments— 20 — — Settlements(1,555) — — — Transfer of benefits— 56 — (56) Actuarial loss/(gain)(247) 818 (3) 39 Benefits (paid)(390) (389) (19) (20) Balance at measurement date$3,327 $5,254 $176 $191 Change in fair value of plan assets Beginning balance$5,474 $5,140 $— $— Company contributions— — 19 20 Actual return on assets(1)(242) 723 — — Settlements(1,555) — — — Benefits (paid)(390) (389) (19) (20) Balance at measurement date$3,287 $5,474 $— $— Funded status of the plan$(40)(2) $220(2) $(176)(3) $(191)(3) (1)Includes plan administrative expenses.(2)$40 million in 2015 is included in Other liabilities and $220 million in 2014 is presented as Prepaid pension in the Consolidated Balance Sheets.(3)$46 million in 2015 and $16 million in 2014 were included in Other accounts payable and accrued expenses on the Consolidated Balance Sheets, and the remaining amountswere included in Other liabilities. In 2015, the funded status of the Primary Pension Plan decreased by $260 million primarily due to the performance of plan assets. The actual one-year returnon pension plan assets at the measurement date was a negative 4.7% in 2015, bringing the annualized return since inception of the plan to 8.8%. The following pre-tax amounts were recognized in Accumulated other comprehensive income/(loss) in the Consolidated Balance Sheets as of the end of 2015and 2014: Primary Pension Plan Supplemental Plans($ in millions)2015 2014 2015 2014Net actuarial loss/(gain)$333 $213 $13 $17Prior service cost/(credit)57 65 (4) (4)Total$390(1) $278 $9 $13 (1)In 2016, approximately $8 million for the Primary Pension Plan is expected to be amortized from Accumulated other comprehensive income/(loss) into net periodic benefitexpense/(income) included in Pension in the Consolidated Statement of Operations.Assumptions to Determine ObligationsThe weighted-average actuarial assumptions used to determine benefit obligations for each of the years below were as follows: 2015 2014 2013Discount rate 4.73% 3.87% 4.89%Salary progression rate 3.9% 3.5% 3.5%86Table of ContentsAccumulated Benefit Obligation (ABO)The ABO is the present value of benefits earned to date, assuming no future salary growth. The ABO for our Primary Pension Plan was $3.1 billion and $4.9billion as of the end of 2015 and 2014, respectively. At the end of 2015, plan assets of $3.3 billion for the Primary Pension Plan were above the ABO. TheABO for our unfunded supplemental pension plans was $153 million and $166 million as of the end of 2015 and 2014, respectively. Primary Pension Plan Asset AllocationThe target allocation ranges for each asset class as of the end of 2015 and the fair value of each asset class as a percent of the total fair value of pension planassets were as follows: 2015 Target Plan AssetsAsset Class Allocation Ranges 2015 2014Equity 15% - 35% 16% 29%Fixed income 50% - 60% 54% 58%Real estate, cash and other investments 20% - 40% 30% 13%Total 100% 100% Asset Allocation StrategyIn 2009, we began implementing a liability-driven investment (LDI) strategy to lower the plan’s volatility risk and minimize the impact of interest ratechanges on the plan funded status. The implementation of the LDI strategy is phased in over time by reallocating the plan’s assets more towards fixed incomeinvestments (i.e., debt securities) that are more closely matched in terms of duration to the plan liability.The plan’s asset portfolio is actively managed and primarily invested in fixed income balanced with investments in equity securities and other asset classesto maintain an efficient risk/return diversification profile. The risk of loss in the plan’s equity portfolio is mitigated by investing in a broad range of equitytypes. Equity diversification includes large-capitalization and small-capitalization companies, growth-oriented and value-oriented investments and U.S. andnon-U.S. securities. Investment types, including high-yield debt securities, illiquid assets such as real estate, the use of derivatives and Company securitiesare set forth in written guidelines established for each investment manager and monitored by the plan’s management team. The plan’s asset allocation policyis designed to meet the plan’s future pension benefit obligations. Under the policy, asset classes are periodically reviewed and rebalanced as necessary, toensure that the mix continues to be appropriate relative to established targets and ranges. We have an internal Benefit Plans Investment Committee (BPIC), which consists of senior executives who have established a review process of assetallocation and investment strategies and oversee risk management practices associated with the management of the plan’s assets. Key risk managementpractices include having an established and broad decision-making framework in place, focused on long-term plan objectives. This framework consists of theBPIC and various third parties, including investment managers, an investment consultant, an actuary and a trustee/custodian. The funded status of the plan ismonitored on a continuous basis, including quarterly reviews with updated market and liability information. Actual asset allocations are monitored monthlyand rebalancing actions are executed at least quarterly, if needed. To manage the risk associated with an actively managed portfolio, the plan’s managementteam reviews each manager’s portfolio on a quarterly basis and has written manager guidelines in place, which are adjusted as necessary to ensure appropriatediversification levels. Also, annual audits of the investment managers are conducted by independent auditors. Finally, to minimize operational risk, weutilize a master custodian for all plan assets, and each investment manager reconciles its account with the custodian at least quarterly.87Table of ContentsFair Value of Primary Pension Plan AssetsThe tables below provide the fair values of the Primary Pension Plan’s assets as of the end of 2015 and 2014, by major class of asset. Investments at Fair Value at January 30, 2016($ in millions) Level 1(1) Level 2(1) Level 3 TotalAssets Cash $86 $— $— $86Common collective trusts — 427 — 427Cash and cash equivalents total 86 427 — 513Common collective trusts – domestic — — — —Common collective trusts – international — 166 — 166Equity securities – domestic 192 — — 192Equity securities – international 89 — — 89Private equity — — 248 248Equity securities total 281 166 248 695Common collective trusts — 676 — 676Corporate bonds — 771 5 776Swaps — 787 — 787Government securities — 230 — 230Corporate loans — — — —Municipal bonds — — — —Mortgage backed securities — 4 — 4Other fixed income — 155 3 158Fixed income total — 2,623 8 2,631Public REITs 34 — — 34Private real estate — 14 151 165Real estate total 34 14 151 199Hedge funds — — 214 214Other investments total — — 214 214Total investment assets at fair value $401 $3,230 $621 $4,252Liabilities Swaps $— $(801) $— $(801)Other fixed income — (6) — (6)Fixed income total — (807) — (807)Total liabilities at fair value $— $(807) $— $(807)Accounts payable, net (158)Total net assets $3,287 (1)There were no significant transfers in or out of level 1 or 2 investments.88Table of Contents Investments at Fair Value at January 31, 2015($ in millions) Level 1(1) Level 2(1) Level 3 TotalAssets Cash $10 $2 $— $12Common collective trusts — 38 — 38Cash and cash equivalents total 10 40 — 50Common collective trusts – domestic — 222 — 222Common collective trusts – international — 197 — 197Equity securities – domestic 733 — — 733Equity securities – international 104 — — 104Private equity — — 281 281Equity securities total 837 419 281 1,537Common collective trusts — 1,695 — 1,695Corporate bonds — 1,319 7 1,326Swaps — 415 — 415Government securities — 167 — 167Corporate loans — 69 5 74Municipal bonds — 66 — 66Mortgage backed securities — 5 — 5Other fixed income — 21 — 21Fixed income total — 3,757 12 3,769Public REITs 100 — — 100Private real estate — 20 153 173Real estate total 100 20 153 273Hedge funds — — 314 314Other investments total — — 314 314Total investment assets at fair value $947 $4,236 $760 $5,943Liabilities Swaps $— $(428) $— $(428)Other fixed income (2) (3) — (5)Fixed income total (2) (431) — (433)Total liabilities at fair value $(2) $(431) $— $(433)Accounts payable, net (36)Total net assets $5,474(1)There were no significant transfers in or out of level 1 or 2 investments. Following is a description of the valuation methodologies used for Primary Pension Plan assets measured at fair value. Cash – Cash is valued at cost which approximates fair value, and is classified as level 1 of the fair value hierarchy. Common Collective Trusts – Common collective trusts are pools of investments within cash equivalents, equity and fixed income that are benchmarkedrelative to a comparable index. They are valued on the basis of the relative interest of each participating investor in the fair value of the underlying assets.The underlying assets are valued at net asset value (NAV) and are classified as level 2 of the fair value hierarchy. Equity Securities – Equity securities are common stocks and preferred stocks valued based on the price of the security as listed on an open active exchangeand classified as level 1 of the fair value hierarchy, as well as warrants and preferred stock that are valued at a price, which is based on a broker quote in anover-the-counter market, and are classified as level 2 of the fair value hierarchy.89Table of ContentsPrivate Equity – Private equity is composed of interests in private equity funds valued on the basis of the relative interest of each participating investor in thefair value of the underlying assets and/or common stock of privately held companies. There are no observable market values for private equity funds. Thevaluations for the funds are derived using a combination of different methodologies including (1) the market approach, which consists of analyzing markettransactions for comparable assets, (2) the income approach using the discounted cash flow model, or (3) cost method. Private equity funds also provideaudited financial statements. Private equity investments are classified as level 3 of the fair value hierarchy.Corporate Bonds – Corporate bonds and Corporate loans are valued at a price which is based on observable market information in primary markets or abroker quote in an over-the-counter market, and are classified as level 2 or level 3 of the fair value hierarchy. Swaps – swap contracts are based on broker quotes in an over-the-counter market and are classified as level 2 of the fair value hierarchy. Government, Municipal Bonds and Mortgaged Backed Securities – Government and municipal securities are valued at a price based on a broker quote in anover-the-counter market and classified as level 2 of the fair value hierarchy. Mortgage backed securities are valued at a price based on observable marketinformation or a broker quote in an over-the-counter market and classified as level 2 of the fair value hierarchy. Other fixed income – non-mortgage asset backed securities, collateral held in short-term investments for derivative contract and derivatives composed offutures contracts, option contracts and other fix income derivatives valued at a price based on observable market information or a broker quote in an over-the-counter market and classified as level 2 of the fair value hierarchy. Real Estate – Real estate is comprised of public and private real estate investments. Real estate investments through registered investment companies thattrade on an exchange are classified as level 1 of the fair value hierarchy. Investments through open end private real estate funds that are valued at the reportedNAV are classified as level 2 of the fair value hierarchy. Private real estate investments through partnership interests that are valued based on differentmethodologies including discounted cash flow, direct capitalization and market comparable analysis are classified as level 3 of the fair value hierarchy.Hedge Fund – Hedge funds exposure is through fund of funds, which are made up of over 30 different hedge fund managers diversified over different hedgestrategies. The fair value of the hedge fund is determined by the fund's administrator using valuation provided by the third party administrator for each of theunderlying funds. The following tables set forth a summary of changes in the fair value of the Primary Pension Plan’s level 3 investment assets: 2015($ in millions)Private Equity Real Estate Corporate Loans Corporate Bonds Hedge FundsBalance, beginning of year$281 $153 $5 $7 $314Transfers, net— — — — —Realized gains/(loss)41 (23) — (3) 3Unrealized (losses)/gains(17) 38 — 2 (1)Purchases and issuances18 2 — 1 119Sales, maturities and settlements(75) (19) (2) (2) (221)Balance, end of year$248 $151 $3 $5 $214 90Table of Contents 2014($ in millions)Private Equity Real Estate Corporate Loans Corporate Bonds Hedge FundsBalance, beginning of year$298 $204 $6 $11 $153Realized gains/(loss)57 3 — — 13Unrealized (losses)/gains(8) 17 — (1) (4)Purchases and issuances31 3 4 5 467Sales, maturities and settlements(97) (74) (5) (8) (315)Balance, end of year$281 $153 $5 $7 $314 ContributionsOur policy with respect to funding the Primary Pension Plan is to fund at least the minimum required by ERISA rules, as amended by the Pension ProtectionAct of 2006, and not more than the maximum amount deductible for tax purposes. Due to our past funding of the pension plan and overall positive growth inplan assets since plan inception, there will not be any required cash contribution for funding of plan assets in 2016 under ERISA, as amended by the PensionProtection Act of 2006.Our contributions to the unfunded non-qualified supplemental retirement plans are equal to the amount of benefit payments made to retirees throughout theyear and for 2016 are anticipated to be approximately $45 million. Benefits are paid in the form of five equal annual installments to participants and noelection as to the form of benefit is provided for in the unfunded plans. The following sets forth our estimated future benefit payments:($ in millions) Primary Plan Benefits Supplemental Plan Benefits2016 $199 $452017 202 232018 206 162019 212 152020 216 142020-2025 1,152 66 Other Benefit Plans Postretirement Benefits — Medical and DentalWe provide medical and dental benefits to retirees through a contributory medical and dental plan based on age and years of service. We provide a defineddollar commitment toward retiree medical premiums. Effective June 7, 2005, we amended the medical plan to reduce our subsidy to post-age 65 retirees and spouses by 45% beginning January 1, 2006, and thenfully eliminated the subsidy after December 31, 2006. As disclosed previously, the postretirement benefit plan was amended in 2001 to reduce and cap theper capita dollar amount of the benefit costs that would be paid by the plan. Thus, changes in the assumed or actual health care cost trend rates do notmaterially affect the accumulated postretirement benefit obligation or our annual expense.The net periodic postretirement benefit income of $7 million in 2015, $8 million in 2014 and $8 million in 2013 is included in SG&A expenses in theConsolidated Statements of Operations. The postretirement medical and dental plan has no assets and an accumulated postretirement benefit obligation(APBO) of $8 million at January 30, 2016 and $11 million at January 31, 2015. Defined Contribution Plans The Savings, Profit-Sharing and Stock Ownership Plan (Savings Plan) is a qualified defined contribution plan, a 401(k) plan, available to all eligibleemployees. Effective January 1, 2007, all employees who are age 21 or older are immediately eligible to participate in and contribute a percentage of theirpay to the Savings Plan. Eligible employees, who have completed one year and at least 1,000 hours of service within an eligibility period, are offered a fixedmatching contribution each pay period equal to 50% of up to 6% of pay contributed by the employee. Matching contributions are credited to employees’accounts in accordance with their investment elections and fully vest after three years. We may make additional discretionary matching contributions.91Table of Contents The Savings Plan includes a non-contributory retirement account. Participants who are hired or rehired on or after January 1, 2007 and who have completedat least 1,000 hours of service within an eligibility period receive a Company contribution in an amount equal to 2% of the participants’ annual pay. ThisCompany contribution is in lieu of the primary pension benefit that was closed to employees hired or rehired on or after that date. Participating employees arefully vested after three years. In addition to the Savings Plan, we sponsor the Mirror Savings Plan, which is a non-qualified contributory unfunded defined contribution plan offered tocertain management employees. This plan supplements retirement savings under the Savings Plan for eligible management employees who choose toparticipate in it. The plan’s investment options generally mirror the traditional Savings Plan investment options. Similar to the supplemental retirementplans, the Mirror Savings Plan benefits are paid from our operating cash flow and cash investments. The expense for these plans, which was predominantly included in SG&A expenses in the Consolidated Statements of Operations, was $56 million in 2015,$53 million in 2014 and $52 million in 2013.92Table of Contents17. Restructuring and Management TransitionThe components of Restructuring and management transition include:•Home office and stores -- charges for actions to reduce our store and home office expenses including employee termination benefits, store leasetermination and impairment charges;•Store fixtures -- charges for increased depreciation and impairments of certain store fixtures;•Management transition -- charges related to implementing changes within our management leadership team for both incoming and outgoingmembers of management; and•Other -- charges related primarily to contract termination costs and other costs associated with our previous shops strategy. The composition of restructuring and management transition charges was as follows: Cumulative Amount FromProgram InceptionThrough($ in millions) 2015 2014 2013 2015Home office and stores $42 $45 $48 $289Store fixtures — — 55 133Management transition 28 16 37 252Other 14 26 75 163Total $84 $87 $215 $837 Activity for the restructuring and management transition liability for 2015 and 2014 was as follows:($ in millions) Home Office andStores ManagementTransition Other TotalFebruary 1, 2014 $— $3 $30 $33Charges 45 16 26 87Cash payments (8) (16) (38) (62)Non-cash (28) (3) (1) (32)January 31, 2015 9 — 17 26Charges 42 28 14 84Cash payments (33) (9) (7) (49)Non-cash — (9) (1) (10)January 30, 2016 $18 $10 $23 $51Non-cash amounts represent charges that do not result in cash expenditures including increased depreciation and write-off of store fixtures and stock-basedcompensation.93Table of Contents18. Real Estate and Other, Net Real estate and other consists of ongoing operating income from our real estate subsidiaries. Real estate and other also includes net gains from the sale offacilities and equipment that are no longer used in operations, asset impairments, accruals for certain litigation and other non-operating charges and credits.In addition, during the first quarter of 2014, we formed a joint venture to develop the excess property adjacent to our home office facility in Plano, Texas(Home Office Land Joint Venture) in which we contributed approximately 220 acres of excess property adjacent to our home office facility in Plano, Texas.The joint venture was formed to develop the contributed property and our proportional share of the joint venture's activities will be recorded in Real estateand other, net.The composition of real estate and other, net was as follows: ($ in millions) 2015 2014 2013Net gain from sale of non-operating assets $(9) $(25) $(132)Investment income from Home Office Land Joint Venture (41) (53) —Net gain from sale of operating assets (9) (92) (17)Store and other asset impairments 20 30 27Other 42 (8) (33)Total expense/(income) $3 $(148) $(155) Net Gain from Sale of Non-operating Assets - Sale or Redemption of REIT AssetsIn 2013, we sold 205,000 REIT units at an average price of $151.97 per share for a total price of $31 million, net of fees, and a realized net gain of $24million. Investment Income from Joint VenturesIn 2015, the Company had $41 million in income related to its proportional share of the net income in the Home Office Land Joint Venture and received anaggregate cash distribution of $36 million. In 2014, the Company had $53 million in income related to its proportional share of the net income in the HomeOffice Land Joint Venture and received an aggregate cash distribution of $58 million.Other - Settlement of Class Action LawsuitDuring 2015, the Company accrued $50 million under the proposed settlement related to the pricing class action litigation. Pursuant to the settlement, whichis subject to court approval, class members will have the option of selecting a cash payment or store credit. The amount of the payment or credit will dependon the total amount of certain merchandise purchased by each class member during the class period.94Table of Contents19. Income Taxes The components of our income tax expense/(benefit) were as follows:($ in millions) 2015 2014 2013Current Federal and foreign $5 $12 $(16)State and local 6 8 (8)Total current 11 20 (24)Deferred Federal and foreign (1) 9 (370)State and local (1) (6) (36)Total deferred (2) 3 (406)Total $9 $23 $(430)A reconciliation of the statutory federal income tax rate to our effective rate is as follows:(percent of pre-tax income/(loss)) 2015 2014 2013Federal income tax at statutory rate (35.0)% (35.0)% (35.0)%State and local income tax, less federal income tax benefit (4.2) (4.2) (4.0)Increase in valuation allowance federal and state 36.7 41.7 28.6Tax benefit resulting from OCI allocation — — (14.6)Other, including permanent differences and credits 4.3 0.8 (0.2)Effective tax rate 1.8 % 3.3 % (25.2)%95Table of ContentsOur deferred tax assets and liabilities were as follows:($ in millions) 2015 2014Assets Merchandise inventory $39 $35Accrued vacation pay 22 24Gift cards 90 76Stock-based compensation 77 76Deferred equity adjustment 11 —State taxes 15 25Workers’ compensation/general liability 85 87Accrued rent 37 35Litigation exposure 32 —Mirror savings plan 15 18Pension and other retiree obligations 96 —Net operating loss and tax credit carryforwards 1,072 1,100Other 65 51Total deferred tax assets 1,656 1,527Valuation allowance (1,025) (784)Total net deferred tax assets 631 743Liabilities Depreciation and amortization (741) (851)Pension and other retiree obligations — (3)Tax benefit transfers (56) (59)Long-lived intangible assets (28) (21)Total deferred tax liabilities (825) (934)Total net deferred tax liabilities $(194) $(191)Deferred tax assets and liabilities included in our Consolidated Balance Sheets were as follows:($ in millions) 2015 2014Other current assets $231 $172Other long-term liabilities (425) (363)Total net deferred tax liabilities $(194) $(191)As of January 30, 2016, a valuation allowance of $1,025 million has been recorded against our deferred tax assets. In assessing the need for the valuationallowance, we considered both positive and negative evidence related to the likelihood of realization of the deferred tax assets. As a result of our assessment,we concluded that, beginning in the second quarter of 2013, our estimate of the realization of deferred tax assets would be based solely on the future reversalsof existing taxable temporary differences and tax planning strategies that we would make use of to accelerate taxable income to utilize expiring net operatingloss (NOL) and tax credit carryforwards.In accordance with accounting standards, we are required to allocate a portion of our tax provision between operating losses and Accumulated othercomprehensive income/(loss). As a result, in 2013, we recorded a $250 million tax benefit in the Consolidated Statements of Operations offset by income taxexpense on actuarial gains recorded in Other comprehensive income/(loss). In 2015 and 2014, the company did not benefit any of its operating loss andincurred an actuarial loss in Other comprehensive income/(loss), the tax benefit on which was fully offset by a valuation allowance within Othercomprehensive income/(loss). For U.S. federal income tax purposes, we have $2.6 billion of gross NOL carryforwards that expire in 2032 through 2035 and $62 million of tax creditcarryforwards that expire at various dates through 2035. These NOL carryforwards include an96Table of Contentsunrealized gross tax deduction of $24 million (tax effect $9 million) related to the implementation of share-based compensation accounting guidance thatwill be recorded in equity when realized.These carryforwards have a potential to be used to offset future taxable income and reduce future cash tax liabilities by approximately $1.1 billion. TheCompany’s ability to utilize these carryforwards will depend upon the availability of future taxable income during the carryforward period and, as such, thereis no assurance the Company will be able to realize such tax savings.The Company’s ability to utilize NOL carryforwards could be further limited if it were to experience an “ownership change,” as defined in Section 382 of theCode and similar state provisions. An ownership change can occur whenever there is a cumulative shift in the ownership of a company by more than 50percentage points by one or more “5% stockholders” within a three-year period. The occurrence of such a change generally limits the amount of NOLcarryforwards a company could utilize in a given year to the aggregate fair market value of the company’s common stock immediately prior to the ownershipchange, multiplied by the long-term tax-exempt interest rate in effect for the month of the ownership change.As discussed in Note 13, on January 27, 2014, the Board adopted the Amended Rights Agreement to help prevent acquisitions of the Company’s commonstock that could result in an ownership change under Section 382 which helps preserve the Company’s ability to use its NOL and tax credit carryforwards.The Amended Rights Agreement was ratified by the shareholder vote on May 16, 2014 and remains effective through January 26, 2017. Approval required anaffirmative vote of the shares of common stock present in person or by proxy at the Annual Meeting. At a later date, the Company’s Board of Directors mayconsider resubmitting the Amended Rights Agreement for stockholder approval of a subsequent term.The Amended Rights Agreement is designed to prevent acquisitions of the Company’s common stock that would result in a stockholder owning 4.9% ormore of the Company’s common stock (as calculated under Section 382), or any existing holder of 4.9% or more of the Company’s common stock acquiringadditional shares, by substantially diluting the ownership interest of any such stockholder unless the stockholder obtains an exemption from the Board. A reconciliation of unrecognized tax benefits is as follows:($ in millions) 2015 2014 2013Beginning balance $62 $70 $76Additions for tax positions of prior years 40 10 6Reductions for tax positions of prior years — — (1)Settlements and effective settlements with tax authorities (10) (16) (9)Expirations of statute (1) (2) (2)Balance at end of year $91 $62 $70Unrecognized tax benefits included in our Consolidated Balance Sheets were as follows:($ in millions) 2015 2014Deferred taxes (current assets) $84 $49Accounts payable and accrued expenses (Note 7) 3 5Other liabilities (Note 8) 4 8Total $91 $62As of the end of 2015, 2014 and 2013, the unrecognized tax benefits balance included $33 million, $36 million and $49 million, respectively, that, ifrecognized, would be a benefit in the income tax provision after giving consideration to the offsetting effect of $12 million, $13 million and $17 million,respectively, related to the federal tax deduction of state taxes. The remaining amounts reflect tax positions for which the ultimate deductibility is highlycertain, but for which there is uncertainty about the timing. Accrued interest and penalties related to unrecognized tax benefits included in income taxexpense as of the end of 2015, 2014 and 2013 were $3 million, $3 million and $6 million, respectively. We file income tax returns in U.S. federal and state jurisdictions and certain foreign jurisdictions. Our U.S. federal returns have been examined through 2012.We are audited by the taxing authorities of many states and certain foreign countries and are subject to examination by these taxing jurisdictions for yearsgenerally after 2008. The tax authorities may have the right to97Table of Contentsexamine prior periods where federal and state NOL and tax credit carryforwards were generated, and make adjustments up to the amount of the NOL andcredit carryforward amounts.20. Supplemental Cash Flow Information($ in millions) 2015 2014 2013Supplemental cash flow information Income taxes received/(paid), net $(5) $(30) $81Interest received/(paid), net (369) (401) (414)Supplemental non-cash investing and financing activity Property contributed to joint venture — 30 —Increase/(decrease) in other accounts payable related to purchases of property andequipment 1 (14) (29)Financing costs withheld from proceeds of long-term debt — 7 70Purchase of property and equipment and software through capital leases and a notepayable 1 3 4Issuance costs withheld from proceeds of common stock issued — — 24Return of shares of Martha Stewart Living Omnimedia, Inc. previously acquired by theCompany — — 36 21. Litigation and Other Contingencies Litigation Macy’s LitigationOn August 16, 2012, Macy’s, Inc. and Macy’s Merchandising Group, Inc. (together the Plaintiffs) filed suit against JCP in the Supreme Court of the State ofNew York, County of New York, alleging that the Company tortiously interfered with, and engaged in unfair competition relating to, a 2006 agreementbetween Macy’s and Martha Stewart Living Omnimedia, Inc. (MSLO) by entering into a partnership agreement with MSLO in December 2011. The Plaintiffssought primarily to prevent the Company from implementing our partnership agreement with MSLO as it related to products in the bedding, bath, kitchenand cookware categories. The suit was consolidated with an already-existing breach of contract lawsuit by the Plaintiffs against MSLO, and a bench trialcommenced on February 20, 2013. On October 21, 2013, the Company and MSLO entered into an amendment of the partnership agreement, providing in partthat the Company will not sell MSLO-designed merchandise in the bedding, bath, kitchen and cookware categories. On January 2, 2014, MSLO and Macy'sannounced that they had settled the case as to each other, and MSLO was subsequently dismissed as a defendant. On June 16, 2014, the court issued a rulingagainst the Company on the remaining claim of intentional interference, and held that Macy’s is not entitled to punitive damages. The court referred otherissues related to damages to a Judicial Hearing Officer. On June 30, 2014, the Company appealed the court’s decision, and Macy’s cross-appealed a portion ofthe decision. On February 26, 2015, the appellate court affirmed the trial court's rulings concerning the claim of intentional interference and lack of punitivedamages, and reinstated Macy's claims for intentional interference and unfair competition that had been dismissed during trial. On June 17, 2015, Macy’sappealed the court’s order that the Judicial Hearing Officer proceed with the damages phase of the proceedings on the tortious interference claim. OnNovember 24, 2015, the Judicial Hearing Officer issued a recommendation on the amount of damages to be awarded to Macy’s. Both parties have objected tothe damages recommendation. On December 1, 2015, the appellate court heard oral argument on Macy's appeal of the trial court's order referring issuesrelated to damages to the Judicial Hearing Officer and the parties are awaiting a decision. While no assurance can be given as to the ultimate outcome of thismatter, we believe that the final resolution of this action will not have a material adverse effect on our results of operations, financial position, liquidity orcapital resources.Ozenne Derivative LawsuitOn January 19, 2012, a purported shareholder of the Company, Everett Ozenne, filed a shareholder derivative lawsuit in the 193rd District Court of DallasCounty, Texas, against certain of the Company’s Board of Directors and executives. The Company is a nominal defendant in the suit. The lawsuit allegedbreaches of fiduciary duties, corporate waste and unjust enrichment involving decisions regarding executive compensation, specifically that compensationpaid to certain executive officers from 2008 to 2011 was too high in light of the Company’s financial performance. The suit sought damages includingunspecified compensatory damages, disgorgement by the former officers of allegedly excessive compensation, and equitable relief to reform the Company’scompensation practices. The Company and the named individuals filed an Answer and Special Exceptions to the lawsuit, arguing primarily that the plaintiffcould not proceed with his suit because he failed to make demand98Table of Contentson the Company’s Board of Directors, and that because demand on the Board would not be futile, demand was not excused. The trial court heard argumentson the Special Exceptions on June 25, 2012 and denied them. The Company and named individuals filed a mandamus proceeding in the Fifth District Courtof Appeals challenging the trial court’s decision. The parties then settled the litigation and the appellate court stayed the appeal so that the trial court couldreview the proposed settlement. The trial court approved the settlement at a hearing on October 28, 2013 and, despite objection, awarded the plaintiff $3.1million in attorneys’ fees and costs. The Fifth District Court of Appeals affirmed the award of attorneys' fees and costs on December 19, 2014. The Companyfiled a Petition for Review with the Texas Supreme Court. The Texas Supreme Court requested full briefing on the merits of this petition, which has beencompleted. We believe that the final resolution of this action will not have a material adverse effect on our results of operations, financial position, liquidityor capital resources.Class Action Securities LitigationThe Company, Myron E. Ullman, III and Kenneth H. Hannah are parties to the Marcus consolidated purported class action lawsuit in the U.S. District Court,Eastern District of Texas, Tyler Division. The Marcus consolidated complaint is purportedly brought on behalf of persons who acquired our common stockduring the period from August 20, 2013 through September 26, 2013, and alleges claims for violations of Sections 10(b) and 20(a) of the Securities ExchangeAct of 1934 and Rule 10b-5 promulgated thereunder. Plaintiff claims that the defendants made false and misleading statements and/or omissions regardingthe Company’s financial condition and business prospects that caused our common stock to trade at artificially inflated prices. The consolidated complaintseeks class certification, unspecified compensatory damages, including interest, reasonable costs and expenses, and other relief as the court may deem justand proper. Defendants filed a motion to dismiss the consolidated complaint which was denied by the court on September 29, 2015. Defendants filed ananswer to the consolidated complaint on November 12, 2015. Plaintiff filed a motion for class certification on January 25, 2016.Also, on August 26, 2014, plaintiff Nathan Johnson filed a purported class action lawsuit against the Company, Myron E. Ullman, III and Kenneth H. Hannahin the U.S. District Court, Eastern District of Texas, Tyler Division. The suit is purportedly brought on behalf of persons who acquired our securities otherthan common stock during the period from August 20, 2013 through September 26, 2013, generally mirrors the allegations contained in the Marcus lawsuitdiscussed above, and seeks similar relief. On June 8, 2015, plaintiff in the Marcus lawsuit amended the consolidated complaint to include the members of thepurported class in the Johnson lawsuit, and on June 10, 2015, the Johnson lawsuit was consolidated into the Marcus lawsuit.We believe these lawsuits are without merit and we intend to vigorously defend them. While no assurance can be given as to the ultimate outcome of thesematters, we believe that the final resolution of these actions will not have a material adverse effect on our results of operations, financial position, liquidity orcapital resources.Shareholder Derivative LitigationIn October, 2013, two purported shareholder derivative actions were filed against certain present and former members of the Company’s Board of Directorsand executives by the following parties in the U.S. District Court, Eastern District of Texas, Sherman Division: Weitzman (filed October 2, 2013) andZauderer (filed October 3, 2013). The Company is named as a nominal defendant in both suits. The lawsuits assert claims for breaches of fiduciary duties andunjust enrichment based upon alleged false and misleading statements and/or omissions regarding the Company’s financial condition. The lawsuits seekunspecified compensatory damages, restitution, disgorgement by the defendants of all profits, benefits and other compensation, equitable relief to reform theCompany’s corporate governance and internal procedures, reasonable costs and expenses, and other relief as the court may deem just and proper. On October28, 2013, the Court consolidated the two cases into the Weitzman lawsuit. On January 15, 2014, the Court entered an order staying the derivative suitspending certain events in the class action securities litigation described above. While no assurance can be given as to the ultimate outcome of this matter, webelieve that the final resolution of this action will not have a material adverse effect on our results of operations, financial position, liquidity or capitalresources.ERISA Class Action LitigationJCP and certain present and former members of JCP's Board of Directors have been sued in a purported class action complaint by plaintiffs Roberto Ramirezand Thomas Ihle, individually and on behalf of all others similarly situated, which was filed on July 8, 2014 in the U.S. District Court, Eastern District ofTexas, Tyler Division. The suit alleges that the defendants violated Section 502 of the Employee Retirement Income Security Act (ERISA) by breachingfiduciary duties relating to the J. C. Penney Corporation, Inc. Savings, Profit-Sharing and Stock Ownership Plan (the Plan). The class period is alleged to bebetween November 1, 2011 and September 27, 2013. Plaintiffs allege that they and others who invested in or held Company stock in the Plan during thisperiod were injured because defendants allegedly made false and misleading statements and/or omissions regarding the Company’s financial condition andbusiness prospects that caused the Company’s common stock to trade at artificially inflated prices. The complaint seeks class certification, declaratory relief,a constructive trust, reimbursement of alleged losses to the Plan, actual damages, attorneys’ fees and costs, and other relief. Defendants filed a motion todismiss the99Table of Contentscomplaint which was granted in part and denied in part by the court on September 29, 2015. Defendants filed an answer to the complaint on November 6,2015. We believe the lawsuit is without merit and we intend to vigorously defend it. While no assurance can be given as to the ultimate outcome of thismatter, we believe that the final resolution of this action will not have a material adverse effect on our results of operations, financial position, liquidity orcapital resources.Employment Class Action LitigationJCP is a defendant in a class action proceeding entitled Tschudy v. JCPenney Corporation filed on April 15, 2011 in the U.S. District Court, Southern Districtof California. The lawsuit alleges that JCP violated the California Labor Code in connection with the alleged forfeiture of accrued and vested vacation timeunder its “My Time Off” policy. The class consists of all JCP employees who worked in California from April 5, 2007 to the present. Plaintiffs amended thecomplaint to assert additional claims under the Illinois Wage Payment and Collection Act on behalf of all JCP employees who worked in Illinois fromJanuary 1, 2004 to the present. After the court granted JCP’s motion to transfer the Illinois claims, those claims are now pending in a separate action in theU.S. District Court, Northern District of Illinois, entitled Garcia v. JCPenney Corporation. The lawsuits seek compensatory damages, penalties, interest,disgorgement, declaratory and injunctive relief, and attorney’s fees and costs. Plaintiffs in both lawsuits filed motions, which the Company opposed, tocertify these actions on behalf of all employees in California and Illinois based on the specific claims at issue. On December 17, 2014, the California courtgranted plaintiffs’ motion for class certification. Pursuant to a motion by the Company, the California court decertified the class on December 9, 2015. OnFebruary 12, 2016, Plaintiff and the Company each filed motions for partial summary judgment with the California court. The Illinois court denied withoutprejudice plaintiffs' motion for class certification pending the filing of an amended complaint. Plaintiffs filed their amended complaint in the Illinois lawsuiton April 14, 2015 and the Company has answered. On July 2, 2015, the Illinois plaintiffs renewed their motion for class certification, which the Company hasopposed. We believe these lawsuits are without merit and we intend to continue to vigorously defend these lawsuits. While no assurance can be given as tothe ultimate outcome of these matters, we believe that the final resolution of these actions will not have a material adverse effect on our results of operations,financial position, liquidity or capital resources.Pricing Class Action LitigationJCP is a defendant in a class action proceeding entitled Spann v. J. C. Penney Corporation, Inc. filed on February 8, 2012 in the U.S. District Court, CentralDistrict of California. The lawsuit alleges that JCP violated California’s Unfair Competition Law and related state statutes in connection with its advertisingof sale prices for private label apparel and accessories. The lawsuit seeks restitution, damages, injunctive relief, and attorney’s fees and costs. On May 18,2015, the court granted plaintiff's request for certification of a class consisting of all people who, between November 5, 2010 and January 31, 2012, madepurchases in California of JCP private or exclusive label apparel or accessories advertised at a discount of at least 30% off the stated original or regular price(excluding those who only received such discount by using coupon(s)), and who have not received a refund or credit for their purchases. The parties havereached a settlement agreement, subject to court approval, and in accordance with the term of the settlement, we have established a $50 million reserve tosettle class members' claims.Other Legal ProceedingsWe are subject to various other legal and governmental proceedings involving routine litigation incidental to our business. Accruals have been establishedbased on our best estimates of our potential liability in certain of these matters, including certain matters discussed above, all of which we believe aggregateto an amount that is not material to the Consolidated Financial Statements. These estimates were developed in consultation with in-house and outsidecounsel. While no assurance can be given as to the ultimate outcome of these matters, we currently believe that the final resolution of these actions,individually or in the aggregate, will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources. ContingenciesAs of January 30, 2016, we estimated our total potential environmental liabilities to range from $20 million to $25 million and recorded our best estimate of$23 million in Other accounts payable and accrued expenses and Other liabilities in the Consolidated Balance Sheet as of that date. This estimate coveredpotential liabilities primarily related to underground storage tanks, remediation of environmental conditions involving our former drugstore locations andasbestos removal in connection with approved plans to renovate or dispose of our facilities. We continue to assess required remediation and the adequacy ofenvironmental reserves as new information becomes available and known conditions are further delineated. If we were to incur losses at the upper end of theestimated range, we do not believe that such losses would have a material effect on our financial condition, results of operations or liquidity.100Table of Contents22. Quarterly Results of Operations (Unaudited) The following is a summary of our quarterly unaudited consolidated results of operations for 2015 and 2014: 2015 ($ in millions, except EPS)First Quarter Second Quarter Third Quarter Fourth Quarter Total net sales$2,857 $2,875 $2,897 $3,996 Gross margin1,041 1,065 1,082 1,363 SG&A expenses965 901 947 962 Restructuring and management transition(1)22 17 14 31 Net income/(loss)(2)(150)(4) (117)(4) (115)(4) (131)Diluted earnings/(loss) per share(3)$(0.49)(4) $(0.38)(4) $(0.38)(4) $(0.43) 2014 ($ in millions, except EPS)First Quarter Second Quarter Third Quarter Fourth Quarter Total net sales$2,801 $2,799 $2,764 $3,893 Gross margin926 1,008 1,013 1,314SG&A expenses1,009 964 988 1,032 Restructuring and management transition(5)22 5 12 48 Net income/(loss)(6) (7)(341) (163) (178) (35) Diluted earnings/(loss) per share(3) (7)$(1.12) $(0.53) $(0.58) $(0.11) (1)Restructuring and management transition charges (Note 17) by quarter for 2015 consisted of the following:($ in million)First Quarter Second Quarter Third Quarter Fourth QuarterHome office and stores$14 $15 $9 $4Management transition6 1 3 18Other2 1 2 9Total$22 $17 $14 $31 (2)The first, second, third and fourth quarters of 2015 contained increases to our tax valuation allowance of $44 million, $46 million, $41 million and $110 million, respectively.The first, second and third quarters of 2015 contained gains from non-operating assets sales (Note 18) of $2 million, $6 million and $1 million, respectively.(3)EPS is computed independently for each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of changes in averagequarterly shares outstanding.(4)Reflects the retrospective application of the change in our method of recognizing pension expense. See Note 3 of Notes to Consolidated Financial Statements for a discussionof the change and related impacts. The retrospective application of the change in recognizing pension expense increased net income/(loss) by $17 million in first quarter, $21million in second quarter and $22 million in the third quarter and increased diluted earnings/(loss) per share by $0.06 in first quarter, $0.07 in second quarter and $0.07 inthe third quarter.(5)Restructuring and management transition charges (Note 17) by quarter for 2014 consisted of the following:($ in millions)First Quarter Second Quarter Third Quarter Fourth QuarterHome office and stores$12 $— $3 $30Management transition7 1 7 1Other3 4 2 17Total$22 $5 $12 $48(6)The first, second, third and fourth quarters of 2014 contained increases to our tax valuation allowance of $120 million, $28 million, $107 million, and $225 million,respectively. The first, second, third and fourth quarters of 2014 contained gains from non-operating assets sales (Note 18) of $12 million, $9 million, $2 million and $2million, respectively. The fourth quarter of 2014 included $30 million of store impairments charges recorded in Real estate and other, net (Note 18).(7)Reflects the retrospective application of the change in our method of recognizing pension expense. See Note 3 of Notes to Consolidated Financial Statements for a discussionof the change and related impacts. The retrospective application of the change in recognizing pension expense increased net income/(loss) by $11 million in first quarter, $9million in second quarter, $10 million in the third quarter and $24 million in the fourth quarter and increased diluted earnings/(loss) per share by $0.03 in first quarter,$0.03 in second quarter, $0.04 in the third quarter and $0.08 in the fourth quarter.101Table of ContentsExhibit Index Incorporated by Reference Filed SEC Filing Herewith (†)Exhibit No. Exhibit Description Form File No. Exhibit Date (as indicated)2.1 Agreement and Plan of Merger dated as of January 23, 2002,between JCP and Company 8-K 001-15274 2 1/28/2002 3.1 Restated Certificate of Incorporation of the Company, asamended to May 20, 2011 10-Q 001-15274 3.1 6/8/2011 3.2 Bylaws of the Company, as amended to July 23, 2013 8-K 001-15274 3.1 7/26/2013 3.3 Certificate of Designation, Preferences and Rights of Series CJunior Participating Preferred Stock 8-K 001-15274 3.1 8/22/2013 4.1 Indenture, dated as of October 1, 1982, between JCP and U.S.Bank National Association, Trustee (formerly First Trust ofCalifornia, National Association, as Successor Trustee to Bankof America National Trust and Savings Association) 10-K 001-00777 4(a) 4/19/1994 4.2 First Supplemental Indenture, dated as of March 15, 1983,between JCP and U.S. Bank National Association, Trustee(formerly First Trust of California, National Association, asSuccessor Trustee to Bank of America National Trust andSavings Association) 10-K 001-00777 4(b) 4/19/1994 4.3 Second Supplemental Indenture, dated as of May 1, 1984,between JCP and U.S. Bank National Association, Trustee(formerly First Trust of California, National Association, asSuccessor Trustee to Bank of America National Trust andSavings Association) 10-K 001-00777 4(c) 4/19/1994 4.4 Third Supplemental Indenture, dated as of March 7, 1986,between JCP and U.S. Bank National Association, Trustee(formerly First Trust of California, National Association, asSuccessor Trustee to Bank of America National Trust andSavings Association) S-3 033-03882 4(d) 3/11/1986 4.5 Fourth Supplemental Indenture, dated as of June 7, 1991,between JCP and U.S. Bank National Association, Trustee(formerly First Trust of California, National Association, asSuccessor Trustee to Bank of America National Trust andSavings Association) S-3 033-41186 4(e) 6/13/1991 4.6 Fifth Supplemental Indenture, dated as of January 27, 2002,among the Company, JCP and U.S. Bank National Association,Trustee (formerly First Trust of California, NationalAssociation, as Successor Trustee to Bank of America NationalTrust and Savings Association) to Indenture dated as ofOctober 1, 1982 10-K 001-15274 4(o) 4/25/2002 4.7 Sixth Supplemental Indenture, dated as of May 20, 2013,among J. C. Penney Corporation, Inc., J. C. Penney Company,Inc., as co-obligor, and Wilmington Trust, NationalAssociation, as successor trustee 8-K 001-15274 4.1 5/24/2013 4.8 Indenture, dated as of April 1, 1994, between JCP and U.S.Bank National Association, Trustee (formerly First Trust ofCalifornia, National Association, as Successor Trustee to Bankof America National Trust and Savings Association) S-3 033-53275 4(a) 4/26/1994 4.9 First Supplemental Indenture dated as of January 27, 2002,among the Company, JCP and U.S. Bank National Association,Trustee (formerly Bank of America National Trust and SavingsAssociation) to Indenture dated as of April 1, 1994 10-K 001-15274 4(p) 4/25/2002 Other instruments evidencing long-term debt have not been filed as exhibits hereto because none of the debt authorized under any such instrument exceeds 10% of the total assets of theRegistrant and its consolidated subsidiaries. The Registrant agrees to furnish a copy of any of its long-term debt instruments to the Securities and Exchange Commission upon request.102Table of Contents Incorporated by Reference Filed SEC Filing Herewith (†)Exhibit No. Exhibit Description Form File No. Exhibit Date (as indicated)4.10 Second Supplemental Indenture dated as of July 26, 2002, amongthe Company, JCP and U.S. Bank National Association, Trustee(formerly Bank of America National Trust and Savings Association)to Indenture dated as of April 1, 1994 10-Q 001-15274 4 9/6/2002 4.11 Indenture, dated September 15, 2014, among J. C. PenneyCompany, Inc., J. C. Penney Corporation, Inc. and WilmingtonTrust, National Association 8-K 001-15274 4.1 9/15/2014 4.12 First Supplemental Indenture (including the form of Note), datedSeptember 15, 2014, among J. C. Penney Company, Inc., J. C.Penney Corporation, Inc., and Wilmington Trust, NationalAssociation 8-K 001-15274 4.2 9/15/2014 4.13 Warrant Purchase Agreement dated June 13, 2011 between J. C.Penney Company, Inc. and Ronald B. Johnson 8-K 001-15274 4.1 6/14/2011 4.14 Warrant dated as of June 13, 2011 between J. C. Penney Company,Inc. and Ronald B. Johnson 8-K 001-15274 4.2 6/14/2011 4.15 Amended and Restated Rights Agreement, dated as of January 27,2014, by and between J. C. Penney Company, Inc. andComputershare Inc., as Rights Agent 8-K 001-15274 4.1 1/28/2014 10.1 Credit and Guaranty Agreement, dated as of May 22, 2013, amongJ. C. Penney Company, Inc., J. C. Penney Corporation, Inc., thesubsidiary guarantors party thereto, the financial institutions partythereto as lenders, Goldman Sachs Bank USA, as administrativeagent, collateral agent and lead arranger, the other joint arrangersand joint bookrunners party thereto and the other agents partythereto 10-Q 001-15274 10.3 9/10/2013 10.2 Pledge and Security Agreement, dated as of May 22, 2013, amongJ. C. Penney Company, Inc., J. C. Penney Corporation, Inc., thesubsidiary guarantors party thereto and Goldman Sachs Bank USA,as collateral agent 10-Q 001-15274 10.4 9/10/2013 10.3 Intercreditor and Collateral Cooperation Agreement, dated as of May22, 2013, among JPMorgan Chase Bank, N.A., as representativewith respect to the ABL credit agreement, Goldman Sachs BankUSA, as representative with respect to the term loan agreement,J. C. Penney Company, Inc., J. C. Penney Corporation, Inc. and thesubsidiary guarantors party thereto 10-Q 001-15274 10.5 9/10/2013 10.4 Representative Joinder Agreement No. 1 dated as of June 20, 2014to the Intercreditor and Collateral Cooperation Agreement dated asof May 22, 2013, among JPMorgan Chase Bank, N. A., as existingrepresentative with respect to the ABL credit Agreement, GoldmanSachs Bank USA, as representative with respect to the term loanagreement, J. C. Penney Corporation, Inc. and each of the othergrantors party thereto 10-K 001-15274 10.4 3/25/2015 10.5 Credit Agreement dated as of June 20, 2014 among J. C. PenneyCompany, Inc., J. C. Penney Corporation, Inc., J. C. PenneyPurchasing Corporation, the Lenders party thereto, Wells FargoBank, National Association, as Administrative Agent, RevolvingAgent and Swingline Lender, Bank of America, N.A., as TermAgent, Wells Fargo Bank, National Association and Bank ofAmerica, N.A., as Co-Collateral Agents and Wells Fargo Bank,National Association, as LC Agent 8-K 001-15274 10.1 6/23/2014 10.6 Amendment No. 1 to Credit Agreement dated as of December 10,2015 among J. C. Penney Company, Inc., J. C. Penney Corporation,Inc., J. C. Penney Purchasing Corporation, the guarantors partythereto, Wells Fargo Bank, National Association, as AdministrativeAgent and Revolving Agent, Bank of America, N.A., as TermAgent, Wells Fargo Bank, National Association and Bank ofAmerica, N.A., as co-collateral agents, and the lenders party thereto. 8-K 001-15274 10.1 12/11/2015 Other instruments evidencing long-term debt have not been filed as exhibits hereto because none of the debt authorized under any such instrument exceeds 10% of the total assets of theRegistrant and its consolidated subsidiaries. The Registrant agrees to furnish a copy of any of its long-term debt instruments to the Securities and Exchange Commission upon request.103Table of Contents Incorporated by Reference Filed SEC Filing Herewith (†)Exhibit No. Exhibit Description Form File No. Exhibit Date (as indicated)10.7 Guarantee and Collateral Agreement dated as of June 20, 2014among J. C. Penney Company, Inc., J. C. Penney Corporation, Inc.,J. C. Penney Purchasing Corporation, the Subsidiaries of J. C.Penney Company, Inc. identified therein, and Wells Fargo Bank,National Association, as Administrative Agent 8-K 001-15274 10.2 6/23/2014 10.8 Consumer Credit Card Program Agreement by and between JCP andGE Money Bank, as amended and restated as of November 5, 2009 8-K 001-15274 10.1 11/6/2009 10.9 First Amendment, dated as of October 29, 2010, to Consumer CreditCard Program Agreement by and between J. C. Penney Corporation,Inc. and GE Money Bank, as amended and restated as of November5, 2009 8-K 001-15274 10.1 10/29/2010 10.10 Second Amendment dated as of January 30, 2013 to ConsumerCredit Card Program Agreement by and between J. C. PenneyCorporation, Inc. and GE Capital Retail Bank, as amended andrestated as of November 5, 2009 and as amended by the FirstAmendment thereto dated as of October 29, 2010 8-K 001-15274 10.1 2/4/2013 10.11 Third Amendment dated as of October 11, 2013 to Consumer CreditCard Program Agreement by and between J. C. Penney Corporation,Inc. and GE Capital Retail Bank, as amended and restated as ofNovember 5, 2009, as amended by the First Amendment theretodated as of October 29, 2010 and the Second Amendment theretodated as of January 30, 2013 8-K 001-15274 10.1 10/15/2013 10.12 Fourth Amendment dated February 25, 2014 to Consumer CreditCard Program Agreement by and between J. C. Penney Corporation,Inc. and GE Capital Retail Bank, as amended and restated as ofNovember 5, 2009, as amended by the First Amendment theretodated as of October 29, 2010, the Second Amendment thereto datedas of January 30, 2013 and the Third Amendment thereto datedOctober 11, 2013 10-Q 001-15274 10.1 6/3/2014 10.13 Fifth Amendment dated as of April 6, 2015 to Consumer Credit CardProgram Agreement by and between J. C. Penney Corporation, Inc.and Synchrony Bank, as amended and restated as of November 5,2009, as amended by the First Amendment thereto dated as ofOctober 29, 2010, the Second Amendment thereto dated as ofJanuary 30, 2013, the Third Amendment thereto dated October 11,2013 and the Fourth Amendment thereto dated February 25, 2014 10-Q 001-15274 10.1 6/4/2015 10.14 Sixth Amendment dated as of June 26, 2015 to Consumer CreditCard Program Agreement by and between J. C. Penney Corporation,Inc. and Synchrony Bank, as amended and restated as of November5, 2009, as amended by the First Amendment thereto dated as ofOctober 29, 2010, the Second Amendment thereto dated as ofJanuary 30, 2013, the Third Amendment thereto dated October 11,2013, the Fourth Amendment thereto dated February 25, 2014, andthe Fifth Amendment thereto dated April 6, 2015 †10.15** J. C. Penney Company, Inc. Directors’ Equity Program TandemRestricted Stock Award/Stock Option Plan 10-K 001-00777 10(k) 4/24/1989 10.16** J. C. Penney Company, Inc. 1993 Non-Associate Directors’ EquityPlan Def. ProxyStmt. 001-00777 B 4/20/1993 10.17** February 1995 Amendment to J. C. Penney Company, Inc. 1993Non-Associate Directors’ Equity Plan 10-K 001-00777 10(ii)(m) 4/18/1995 10.18** Directors’ Charitable Award Program 10-K 001-00777 10(r) 4/25/1990 10.19** J. C. Penney Company, Inc. 1997 Equity Compensation Plan Def. ProxyStmt. 001-00777 A 4/11/1997 10.20** J. C. Penney Company, Inc. 2001 Equity Compensation Plan Def. ProxyStmt. 001-00777 B 4/11/2001 10.21** J. C. Penney Company, Inc. 2005 Equity Compensation Plan, asamended through 12/10/2008 10-K 001-15274 10.65 3/31/2009 104Table of Contents Incorporated by Reference Filed SEC Filing Herewith (†)Exhibit No. Exhibit Description Form File No. Exhibit Date (as indicated)10.22** J. C. Penney Company, Inc. 2009 Long-Term Incentive Plan Def. ProxyStmt. 001-15274 Annex A 3/31/2009 10.23** J. C. Penney Company, Inc. 2012 Long-Term Incentive Plan Def. ProxyStmt. 001-15274 Annex A 3/28/2012 10.24** J. C. Penney Company, Inc. 2014 Long-Term Incentive Plan Def. ProxyStmt. 001-15274 Annex A 3/21/2014 10.25** JCP Supplemental Term Life Insurance Plan for Management Profit-Sharing Associates, as amended and restated effective July 1, 2007 10-Q 001-15274 10.1 9/12/2007 10.26** Form of Director’s election to receive all/portion of annual cashretainer in J. C. Penney Company, Inc. common stock (J. C. PenneyCompany, Inc. 2001 Equity Compensation Plan) 8-K 001-15274 10.4 2/15/2005 10.27** Form of Notice of Restricted Stock Award – Non-Associate DirectorAnnual Grant under the J. C. Penney Company, Inc. 2001 EquityCompensation Plan 8-K 001-15274 10.5 2/15/2005 10.28** Form of Notice of Non-Associate Director Restricted Stock UnitAward under the J. C. Penney Company, Inc. 2001 EquityCompensation Plan 8-K 001-15274 10.1 5/24/2005 10.29** Form of Notice of Non-Associate Director Restricted Stock UnitAward under the J. C. Penney Company, Inc. 2005 EquityCompensation Plan 8-K 001-15274 10.1 11/18/2005 10.30** JCP Form of Executive Termination Pay Agreement, as amendedand restated effective September 21, 2007 8-K 001-15274 10.1 9/26/2007 10.31** JCP Form of Executive Termination Pay Agreement, as amendedand restated effective December 3, 2013 10-Q 001-15274 10.3 12/5/2013 10.32** JCP Form of Termination Pay Agreement 8-K 001-15274 10.2 5/21/2015 10.33** JCP Form of Executive Termination Pay Agreement. as amendedand restated effective December 17, 2015 †10.34** Form of Notice of Grant of Stock Options under the J. C. PenneyCompany, Inc. 2005 Equity Compensation Plan 8-K 001-15274 10.4 3/27/2006 10.35** Form of Election to Receive Stock in Lieu of Cash Retainer(s) (J. C.Penney Company, Inc. 2005 Equity Compensation Plan) 8-K 001-15274 10.1 5/19/2006 10.36** Form of Notice of Election to Defer under the J. C. PenneyCompany, Inc. Deferred Compensation Plan for Directors 8-K 001-15274 10.2 5/19/2006 10.37** Form of Notice of Change of Factor for Deferral Account under theJ. C. Penney Company, Inc. Deferred Compensation Plan forDirectors 8-K 001-15274 10.8 2/15/2005 10.38** Form of Notice of Change in the Amount of Fees Deferred under theJ. C. Penney Company, Inc. Deferred Compensation Plan forDirectors 8-K 001-15274 10.3 5/19/2006 10.39** Form of Notice of Termination of Election to Defer under the J. C.Penney Company, Inc. Deferred Compensation Plan for Directors 8-K 001-15274 10.4 5/19/2006 10.40** Form of Notice of Grant of Stock Options under the J. C. PenneyCompany, Inc. 2005 Equity Compensation Plan 8-K 001-15274 10.1 3/15/2007 10.41** 2008 Form of Notice of Grant of Stock Options under the J. C.Penney Company, Inc. 2005 Equity Compensation Plan 8-K 001-15274 10.1 3/7/2008 10.42** JCP 2009 Change in Control Plan 10-K 001-15274 10.60 3/31/2009 10.43** J. C. Penney Corporation, Inc. Change in Control Plan, effectiveJanuary 10, 2011 8-K 001-15274 10.1 6/14/2011 10.44** Form of Indemnification Trust Agreement between JCP andJPMorgan Chase Bank (formerly Chemical Bank) dated as of July30, 1986, as amended March 30, 1987 Def. ProxyStmt. 001-00777 Exhibit 1toExhibit B 4/24/1987 10.45** Second Amendment to Indemnification Trust Agreement betweenJCP and JPMorgan Chase Bank, effective as of January 27, 2002 10-K 001-15274 10.53 3/31/2009 105Table of Contents Incorporated by Reference Filed SEC Filing Herewith (†)Exhibit No. Exhibit Description Form File No. Exhibit Date (as indicated)10.46** Third Amendment to Indemnification Trust Agreement betweenCompany, JCP and JPMorgan Chase Bank, effective as of June 1,2008 10-Q 001-15274 10.2 9/10/2008 10.47** Form of Indemnification Agreement between Company, JCP andindividual Indemnitees, as amended through January 27, 2002 10-K 001-15274 10(ii)(ab) 4/25/2002 10.48** Special Rules for Reimbursements Subject to Code Section 409Aunder Indemnification Agreement between Company, JCP andindividual Indemnitees, adopted December 9, 2008 10-K 001-15274 10.56 3/31/2009 10.49** JCP Mirror Savings Plan, amended and restated effective December31, 2007 and as further amended through December 9, 2008 10-K 001-15274 10.60 3/31/2009 10.50** J. C. Penney Company, Inc. Deferred Compensation Plan forDirectors, as amended and restated effective February 27, 2008 andas further amended through December 10, 2008 10-K 001-15274 10.62 3/31/2009 10.51** Form of Notice of Grant of Stock Options under the J. C. PenneyCompany, Inc. 2009 Long-Term Incentive Plan 10-Q 001-15274 10.2 9/9/2009 10.52** Form of Notice of Restricted Stock Unit Grant under the J. C.Penney Company, Inc. 2009 Long-Term Incentive Plan 10-Q 001-15274 10.3 9/9/2009 10.53** Form of Notice of Non-Associate Director Restricted Stock UnitAward under the J. C. Penney Company, Inc. 2009 Long-TermIncentive Plan 10-Q 001-15274 10.4 9/9/2009 10.54** J. C. Penney Corporation, Inc., Management IncentiveCompensation Program, effective January 30, 2011 8-K 001-15274 10.1 1/10/2011 10.55** Notice of Restricted Stock Unit Grant for Edward J. Record 10-K 001-15274 10.61 3/23/2015 10.56** Form of Executive Termination Pay Agreement between J. C.Penney Company, Inc. and Marvin R. Ellison 8-K 001-15274 10.2 10/14/2014 10.57** Notice of Restricted Stock Unit Grant for Marvin R. Ellison 10-K 001-15274 10.64 3/23/2015 10.58** Form of Notice of Grant of Stock Options under the J. C. PenneyCompany, Inc. 2012 Long-Term Incentive Plan 10-K 001-15274 10.80 3/20/2013 10.59** Form of Notice of Restricted Stock Unit Grant under the J. C.Penney Company, Inc. 2012 Long-Term Incentive Plan 10-K 001-15274 10.81 3/20/2013 10.60** Form of Notice of Non-Associate Director Restricted Stock UnitAward under the J. C. Penney Company, Inc. 2012 Long-TermIncentive Plan 10-K 001-15274 10.82 3/20/2013 10.61** Form of Notice of 2013 Performance Unit Grant under the J. C.Penney Company, Inc. 2012 Long-Term Incentive Plan 8-K 001-15274 10.1 4/4/2013 10.62** Form of Notice of 2014 Performance-Contingent Stock OptionGrant under the J. C. Penney Company, Inc. 2012 Long-TermIncentive Plan for Myron E. Ullman, III 8-K 001-15274 10.1 3/24/2014 10.63** Form of Notice of 2014 Performance-Contingent Stock OptionGrant under the J. C. Penney Company, Inc. 2012 Long-TermIncentive Plan 8-K 001-15274 10.2 3/24/2014 10.64** Form of Notice of 2014 Performance-Based Restricted Stock UnitGrant under the J. C. Penney Company, Inc. 2012 Long-TermIncentive Plan 8-K 001-15274 10.3 3/24/2014 10.65** Form of Notice of 2015 CEO Performance Unit Grant under the J.C. Penney Company, Inc. 2014 Long-Term Incentive Plan 10-Q 001-15274 10.2 6/4/2015 10.66** Form of Notice of 2015 CEO Stock Option Grant under the J. C.Penney Company, Inc. 2014 Long-Term Incentive Plan 10-Q 001-15274 10.3 6/4/2015 10.67** Form of Notice of Restricted Stock Unit Grant under the J. C.Penney Company, Inc. 2014 Long-Term Incentive Plan 10-Q 001-15274 10.4 6/4/2015 10.68** Form of Notice of Stock Option Grant under the J. C. PenneyCompany, Inc. 2014 Long-Term Incentive Plan 10-Q 001-15274 10.5 6/4/2015 106Table of Contents Incorporated by Reference Filed SEC Filing Herewith (†)Exhibit No. Exhibit Description Form File No. Exhibit Date (as indicated)10.69** Form of Notice of Performance Unit Grant under the J. C. PenneyCompany, Inc. 2014 Long-Term Incentive Plan 10-Q 001-15274 10.6 6/4/2015 10.70** Letter Agreement dated May 15, 2015 between J. C. PenneyCompany, Inc. and Andrew S. Drexler 8-K 001-15274 10.1 5/21/2015 10.71** Notice of Restricted Stock Unit Grant for Andrew Drexler †10.72** Notice of Stock Option Grant for Andrew Drexler †10.73** Form of Stock Option Grant Agreement under the J. C. PenneyCompany, Inc. 2014 Long-Term Incentive Plan †10.74** Form of Restricted Stock Unit Grant Agreement under the J. C.Penney Company, Inc. 2014 Long-Term Incentive Plan †12 Computation of Ratios of Earnings to Fixed Charges †18 Preferability Letter of Independent Registered Public AccountingFirm †21 Subsidiaries of the Registrant †23 Consent of Independent Registered Public Accounting Firm †24 Power of Attorney †31.1 Certification by CEO pursuant to 15 U.S.C. 78m(a) or 780(d), asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 †31.2 Certification by CFO pursuant to 15 U.S.C. 78m(a) or 780(d), asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 †32.1 Certification by CEO pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 †32.2 Certification by CFO pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 †101.INS XBRL Instance Document †101.SCH XBRL Taxonomy Extension Schema Document †101.CAL XBRL Taxonomy Extension Calculation Linkbase Document †101.DEF XBRL Taxonomy Extension Definition Linkbase Document †101.LAB XBRL Taxonomy Extension Label Linkbase Document †101.PRE XBRL Taxonomy Extension Presentation Linkbase Document † ** Indicates a management contract or compensatory plan or arrangement.107Exhibit 10.14EXECUTION COPYSIXTH AMENDMENT TOAMENDED AND RESTATED CONSUMER CREDIT CARD PROGRAMAGREEMENTThis Sixth Amendment (“Amendment Number Six”) dated as of June 26, 2015 to that certain Consumer Credit Card ProgramAgreement made as of December 6, 1999, as amended and restated as of November 5, 2009, and as amended as of October 29, 2010,January 30, 2013, October 11, 2013, February 25, 2014, and April 6, 2015 by and between J. C. PENNEY CORPORATION, INC.,formerly known as J. C. Penney Company, Inc., a Delaware corporation, with its principal place of business at Plano, Texas, andSYNCHRONY BANK, assignee of Monogram Credit Card Bank of Georgia and formerly known as GE Capital Retail Bank and GEMoney Bank, with its principal place of business at 170 W. Election Road, Draper, Utah 84020 (the “Agreement”). Capitalized termsused herein without definition shall have the meanings ascribed to them in the Agreement.WITNESSETH:WHEREAS, JCPenney and Bank desire to make certain changes to the Agreement to reflect certain modifications to theProgram that the parties desire to implement.NOW, THEREFORE, in consideration of the terms and conditions stated herein, and for good and valuable consideration thereceipt of which is hereby acknowledged, the parties hereto agree as follows:I. Performance Payments. Schedule 4.7 to the Agreement is hereby deleted and replaced in its entirety with Schedule 4.7 attachedhereto.II. Effective Date. This Amendment Number Six shall become effective as of June 26, 2015.III. Miscellaneous.A. The execution, delivery and performance of this Amendment Number Six has been duly authorized by all requisitecorporate action on the part of JCPenney and Bank and upon execution by all parties, will constitute a legal and bindingobligation of each thereof.B. The Agreement, as amended by this Amendment Number Six, constitutes the entire understanding of the parties withrespect to the subject matter thereof. Except as expressly amended hereby, the terms and conditions of the Agreement shallcontinue and remain in full force and effect. In the event of any conflict between the Agreement and this Amendment NumberSix, the terms and conditions of this Amendment Number Six shall govern.C. The parties hereto agree to execute such other documents and instruments and to do such other and further things as maybe necessary or desirable for the execution and implementation of this Amendment Number Six and the consummation of thetransactions contemplated hereby and thereby.D. This Amendment Number Six may be executed in counterparts, each of which shall constitute an original, but all of which,when taken together, shall constitute but one agreement. A facsimile or other electronic signature is as valid and binding as anoriginal.[SIGNATURE PAGE FOLLOWS] 2IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment Number Six as of the date set forthabove.J. C. PENNEY CORPORATION, INC. SYNCHRONY BANKBy: /s/ Michael D. Porter By: /s/ Tom Quindlen Title: VP, Treasurer Title: EVP Retail Card Exhibit 10.33[Date of Delivery]EXECUTIVE TERMINATION PAY AGREEMENT[INSERT NAME OF EXECUTIVE OFFICER]This Executive Termination Pay Agreement (the “Agreement”), dated as of _______________, 20___ is between J.C. PenneyCorporation, Inc. (“Corporation”) and the undersigned member of the Corporation’s executive team (the “Executive”).WHEREAS, in order to achieve its long-term objectives, the Corporation recognizes that it is essential to attract and retainsuperior executives;WHEREAS, in order to induce the Executive to serve in the Executive’s position with the Corporation, the Corporation desires toprovide the Executive with the right to receive certain benefits in the event the Executive experiences an Involuntary Separation fromService other than for Cause, as defined in this Agreement, on the terms and subject to the conditions hereinafter set forth; andWHEREAS, in return for receiving the benefits provided for in this Agreement in connection with the Executive’s InvoluntarySeparation from Service other than for Cause, the Executive agrees to be bound by certain restrictive covenants, as described inSection 3 of this Agreement, in connection with the Executive’s Voluntary Separation from Service or Involuntary Separation fromService other than for Cause.NOW, THEREFORE, in consideration of the promises and of the mutual covenants herein contained, it is agreed as follows:1.Termination Payments and Benefits.1.1Death or Permanent Disability. In the event of a Separation from Service due to death, or in the event of a Separationfrom Service within 30 days following a determination of Permanent Disability (as defined in Section 2 of thisAgreement) of the Executive, then as soon as practicable or within the period required by law, but in no event later than30 days after Separation from Service, the Corporation shall pay any (a) accrued and unpaid Base Salary (as defined inSection 2 of this Agreement) and vacation to which the Executive was entitled as of the effective date of termination ofthe Executive’s employment with the Corporation (collectively, the “Compensation Payments”) and (b) the targetannual incentive (at $1.00 per unit) under the Corporation’s Management Incentive Compensation Program for thefiscal year in which the date of death or the determination of Permanent Disability occurs, prorated for the actual periodof service for that fiscal year (the “Prorated Bonus”). The payment of any death benefits or disability benefits under anyemployee benefit or compensation plan that is maintained by the Corporation for the Executive’s benefit shall begoverned by the terms of such plan.1.2Involuntary Separation from Service for Cause. In the event of the Involuntary Separation from Service (as defined inSection 2 of this Agreement) of the Executive for Cause (as defined in Section 2 of this Agreement), the Corporationshall pay the Compensation Payments to the Executive as soon as practicable or within the period required by law, andthe Executive shall be entitled to no other compensation, except as otherwise due to the Executive under applicable law,applicable plan or program. The Executive shall not be entitled to the payment of any bonuses for any portion of thefiscal year in which such Separation from Service occurs.1.3Voluntary Separation from Service by the Executive. In the event of a Voluntary Separation from Service by theExecutive (i) the Corporation shall pay the Compensation Payments to the Executive as soon as practicable or withinthe period required by law, and (ii) the Executive agrees to be bound by the terms of the Covenants andRepresentations contained in Section 3 of this Agreement. The Executive shall be entitled to no other compensation,except as otherwise due to the Executive under applicable law or applicable plan or program. The Executive shall notbe entitled to the payment of any bonuses, including any amounts payable under the Management IncentiveCompensation Program for any portion of the fiscal year in which such Separation from Service occurs, except as mayotherwise be expressly provided under the Management Incentive Compensation Program.1.4Involuntary Separation from Service without Cause.(a)Form and Amount. In the event of the Involuntary Separation from Service of the Executive without Cause, theCorporation shall pay the Compensation Payments to the Executive as soon as practicable or within the periodrequired by law. In addition, conditioned upon receipt of the Executive’s written release of claims in such formas may be required by the Corporation and the expiration of any applicable period during which the Executivecan rescind or revoke such release, the Corporation shall pay the Executive in equal installments, no lessfrequently than monthly, during the applicable Severance Period severance pay equal to the Executive’smonthly Base Salary, plus the Executive’s target annual incentive (at $1.00 per unit) under the Corporation’sManagement Incentive Compensation Program for the fiscal year in which the Executive experiences anInvoluntary Separation from Service other than for Cause converted to a monthly amount by dividing that targetannual incentive amount by 12. If the Executive is eligible for continuation coverage under the ConsolidatedOmnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) under the medical and/or dentalcoverage options under the J. C. Penney Corporation, Inc. Health and Welfare Benefit Plan (“Health andWelfare Plan”) and the Executive elects COBRA continuation coverage under the medical and/or dentalcoverage options under the Health and Welfare Plan, the Corporation will continue to pay its portion of thepremium cost of the Executive’s medical and/or dental coverage elections under the Health and Welfare Plan asprovided in Section 1.4(b) of this Agreement. In addition, the Corporation shall pay to the Executive (i) within14 days of the Executive’s Involuntary Separation from Service other than for Cause, but in no later than twoand one-half months after the end of the Executive’s tax year in which the Involuntary Separation from Serviceoccurs, a lump sum equal to, (a) Special Bonus Hours to the extent provided under Section 1.4(c) of thisAgreement, if applicable, and (b) $25,000 to pay for outplacement services and financial counseling services,and (ii) within two and one-half months after the end of the fiscal year in which the Executive experiences anInvoluntary Separation from Service other than for Cause, a lump sum equal to the Severance Bonus.Notwithstanding the foregoing, if the applicable revocation or rescission period described in this Section 1.4(a)with respect to any waiver or release of claims begins in one taxable year and ends in a second taxable year, anypayments and other rights described in this Section 1.4(a) shall not commence until the second taxable year. Inaddition to the payments provided for herein, following an Involuntary Separation from Service other than forCause, the Corporation shall also provide to the Executive Accelerated Vesting as provided in Section 1.4(d) ofthis Agreement.(b)Health and Dental Insurance Continuation. Following an Involuntary Separation from Service other than forCause, the Executive will, as provided in Section 1.4(a) of this Agreement, be eligible to receive COBRAcontinuation coverage under the medical and/or dental option, as applicable, under the Health and Welfare Planat active associate rates if (i) the Executive is enrolled in a full-time medical and/or dental option, as applicable,under the Health and Welfare Plan on the effective date of the Executive’s Involuntary Separation from Serviceother than for Cause and the Corporation currently is paying a portion of the Executive’s premium for themedical and/or dental coverage on the Executive’s behalf, and (ii) the Executive timely elects COBRAcontinuation coverage under the Health and Welfare Plan. If the Executive satisfies these prerequisites, theCorporation will allow the Executive to participate in COBRA continuation coverage under the Health andWelfare Plan at active associate rates until the earlier of (i) the end of the month that coincides with or nextfollows the term of the Severance Period; and (ii) the end of the month prior to the month the Executive fails totimely make any required premium payment under the Health and Welfare Plan in connection with receivingCOBRA continuation coverage under the Health and Welfare Plan or otherwise loses eligibility for COBRAcontinuation coverage under the terms of the medical and/or dental option, as applicable, under the Health andWelfare Plan. Any subsidized COBRA continuation coverage provided under this Section 1.4(b) will beapplied against the Executive’s statutory continuation period under COBRA.(c)Special Bonus Hours. Following an Involuntary Separation from Service, the Corporation shall pay theExecutive a lump sum payment for Special Bonus Hours, if the Executive is a participant in the Corporation’sPaid Time Off Policy (“PTO Policy”). Such payment shall be determined in accordance with the provisions ofthe PTO Policy applicable to an involuntary termination resulting from a reduction in force.(d)Accelerated Vesting. On Executive’s Involuntary Separation from Service other than for Cause, Executive shall:(i)with respect to any equity award that constitutes an Inducement Award, immediately vest in suchInducement Award as provided in the applicable award notice or agreement evidencing the award.(ii)with respect to any award of stock options, stock appreciation rights, or time-based restricted stock orrestricted units, immediately vest in a prorated number of the stock options, stock appreciation rights,and/or time-based restricted stock or restricted stock units based on the Executive’s length ofemployment during the vesting period provided in the applicable award notice or agreement. (iii)with respect to any award of performance-based restricted stock or restricted stock unit awards, vest in aprorated number of such performance-based restricted stock or restricted stock units based on (X)Executive’s length of employment during the performance period, and (Y) the attainment of theperformance goal as of the end of the performance period, all as provided under the terms of therespective award notice or agreement.1.5Section 409A. To the extent applicable, it is intended that portions of this Agreement either comply with or be exemptfrom the provisions of Section 409A of the Code (as defined in Section 2 of this Agreement). Any provision of thisAgreement that would cause this Agreement to fail to comply with or be exempt from Code section 409A shall have noforce and effect until such provision is either amended to comply with or be exempt from Code section 409A (whichamendment may be retroactive to the extent permitted by Code section 409A and the Executive hereby agrees not towithhold consent unreasonably to any amendment requested by the Corporation for the purpose of either complyingwith or being exempt from Code section 409A).1.6Enforcement and Forfeiture. Notwithstanding the foregoing provisions of this Section 1, in addition to any remedies towhich the Corporation is entitled, any right of the Executive to receive termination payments and benefits underSection 1 shall be forfeited to the extent of any amounts payable or benefits to be provided after a breach of anycovenant set forth in Section 3. On the Company’s becoming aware that the Executive has breached, or potentially hasbreached, any covenant set forth in Section 3 of this Agreement, the Corporation shall suspend all future installmentpayments under Section 1.4(a) of this Agreement and may seek recoupment of all amounts previously paid to theExecutive under Section 1.4(a) this Agreement. The forfeiture or recoupment of any equity awards that are subject tocovenants like those contained in Section 3 of this Agreement shall be governed by the terms of the applicable equityaward agreement containing such covenants.1.7Non-Eligibility For Management Incentive Compensation Program benefits and Other Company Separation PayBenefits. The benefits provided for herein are intended to be in lieu of, and not in addition to, benefits under theManagement Incentive Compensation Program the Executive could earn with respect to any incentive compensation orbonus program in place for the fiscal year in which the Executive’s Involuntary Separation from Service other than forCause occurs or other separation pay benefits to which the Executive might be entitled, including those under theCorporation’s Separation Pay Plan, or any successor plan or program offered by the Corporation, which the Executivehereby waives. If the Executive receives benefits under the Corporation’s Change in Control Plan (the “CIC Plan”), inthe event of Employment Termination (as defined in the CIC Plan), the covenants set forth in Section 3 hereof shallautomatically terminate and, if the Executive shall receive all benefits to which the Executive is entitled under the CICPlan, the Executive waives all benefits hereunder.1.8Corporation’s Right of Offset. If the Executive is at any time indebted to the Corporation, or otherwise obligated to paymoney to the Corporation for any reason, to the extent exempt from or otherwise permitted by Code section 409A andthe Treasury Regulations thereunder, including Treasury Regulation section 1.409A-3(j)(4)(xiii) or any successorthereto, the Corporation, at its election, may offset amounts otherwise payable to the Executive under this Agreement,including, but without limitation, Base Salary and incentive compensation payments, against any such indebtedness oramounts due from the Executive to the Corporation, to the extent permitted by law.1.9Mitigation. In the event of the Involuntary Separation from Service of the Executive, the Executive shall not be requiredto mitigate damages by seeking other employment or otherwise as a condition to receiving termination payments orbenefits under this Agreement. No amounts earned by the Executive after the Executive’s Involuntary Separation fromService,whether from self-employment, as a common law employee, or otherwise, shall reduce the amount of any payment orbenefit under any provision of this Agreement.1.10Resignations. Except to the extent requested by the Corporation, upon termination of the Executive’s service with theCorporation for any reason, the Executive shall immediately resign all positions and directorships with the Corporationand each of its subsidiaries and affiliates.2.Certain Definitions.As used in this Agreement, the following terms shall have the following meanings:2.1“Agreement” shall mean this Executive Termination Pay Agreement.2.2“Base Salary” shall mean the Executive’s annual base salary as in effect at the effective date of termination of theExecutive’s termination of employment with the Corporation.2.3“Cause” shall mean (a) an intentional act of fraud, embezzlement, theft or any other material violation of law thatoccurs during or in the course of Executive’s employment with the Corporation; (b) intentional damage to theCorporation’s assets; (c) intentional disclosure of the Corporation’s confidential information contrary to Corporation’spolicies; (d) material breach of Executive’s obligations under this Agreement; (e) intentional engagement in anycompetitive activity which would constitute a breach of Executive’s duty of loyalty or of Executive’s obligations underthis Agreement; (f) the willful and continued failure to substantially perform Executive’s duties for the Corporation(other than as a result of incapacity due to physical or mental illness); provided, however, that termination for Causebased on clause (f) shall not be effective unless the Executive shall have written notice from the Chief Executive Officerof the Corporation (which notice shall include a description of the reasons and circumstances giving rise to such notice)not less than 30 days prior to the Executive’s termination and the Executive has failed after receipt of such notice tosatisfactorily discharge the Executive’s duties.; or (g) intentional breach of any of Corporation’s policies or willfulconduct by Executive that is in either case demonstrably and materially injurious to Corporation, monetarily orotherwise. Failure to meet performance standards or objectives, by itself, does not constitute “Cause.” “Cause” alsoincludes any of the above grounds for dismissal regardless of whether the Corporation learns of it before or afterterminating Executive’s employment.2.4“Code” shall mean the Internal Revenue Code of 1986, as amended, including proposed, temporary or final regulationsor any other guidance issued by the Secretary of the Treasury or the Internal Revenue Service with respect thereto.2.5“CIC Plan” shall have the meaning ascribed thereto in Section 1.7 of this Agreement.2.6“Compensation Payments” shall have the meaning ascribed thereto in Section 1.1 of this Agreement.2.7“Competing Business” shall have the meaning ascribed thereto in Section 3.4 of this Agreement.2.8“Corporation” shall mean J.C. Penney Corporation, Inc.2.9“Executive” shall mean the undersigned member of the Corporation’s executive team.2.10“Inducement Award” shall mean an equity award granted to Executive in consideration of Executive’s (i) employmentwith the Corporation and (ii) forfeiture of equity awards granted by a former employer.2.11“Involuntary Separation from Service” shall mean Separation from Service due to the independent exercise of theunilateral authority of the Service Recipient to terminate the Executive's services, other than due to the Executive’simplicit or explicit request, where the Executive was willing and able to continue performing services, within themeaning of Code section 409A and Treasury Regulation section 1.409A-1(n)(1) or any successor thereto.2.12“Management Incentive Compensation Program” shall mean the Management Incentive Compensation Programapproved by shareholders on May 18, 2012, as such may be amended from time to time, or any successor plan orprogram that replaces the Management Incentive Compensation Program. 2.13“Permanent Disability” means the Executive is unable to engage in any substantial gainful activity by reason of anymedically determinable physical or mental impairment that can be expected to result in death or can be expected to lastfor a continuous period of not less than 12 months, within the meaning of Code section 409A and Treasury Regulationsection 1.409A-3(i)(4)(i)(A) or any successor thereto. A determination of Permanent Disability, for purposes ofpayment under this Agreement, will be made by the Corporation’s disability insurance plan administrator or insurer.2.14“Proprietary Information” shall have the meaning ascribed thereto in Section 3.2.15“Prorated Bonus” shall have the meaning ascribed thereto in Section 1.1 of this Agreement.2.16“PTO Policy” shall have the meaning ascribed thereto in Section 1.4 of this Agreement.2.17“Separation from Service” within the meaning of Code section 409A and Treasury Regulation section 1.409A-1(h) orany successor thereto, shall mean the date an Executive retires, dies or otherwise has a termination of employment withthe Service Recipient. In accordance with Treasury Regulation section 1.409A-1(h) or any successor thereto, if anExecutive is on a period of leave that exceeds six months and the Executive does not retain a right to reemploymentunder an applicable statute or by contract, the employment relationship is deemed to terminate on the first dateimmediately following such six-month period, and also, an Executive is presumed to have separated from service wherethe level of bona fide services performed (whether as an employee or an independent contractor) decreases to a levelequal to 20 percent or less of the average level of services performed (whether as an employee or an independentcontractor) by the Executive during the immediately preceding 36-month period (or the full period of service to theService Recipient if the employee has been providing services for less than the 36-month period). 2.18“Service Recipient” shall mean the person, within the meaning of Treasury Regulation section 1.409A-1(g) or anysuccessor thereto, for whom the services are performed and with respect to whom the legally binding right tocompensation arises, and all persons with whom such person would be considered a single employer under Codesection 414(b) (employees of controlled group of corporations), and all persons with whom such person would beconsidered a single employer under Code section 414(c) (employees of partnerships, proprietorships, etc., undercommon control), using the “at least 50 percent” ownership standard, within the meaning of Code section 409A andTreasury Regulation section 1.409A-1(h)(3) or any successor thereto.2.19“Severance Bonus” shall mean the actual incentive compensation payable to the Executive under the terms of theManagement Incentive Compensation Program for the fiscal year in which the Executive experiences an InvoluntarySeparation from Service other than for Cause, prorated for the Executive’s actual period of service for the fiscal year,less any amounts previously paid to the Executive under the incentive compensation program for that fiscal year. If theincentive compensation formula under the Management Incentive Compensation Program for the fiscal year in whichthe Executive’s Involuntary Separation from Service other than for Cause occurs includes an individual performancecomponent/goal, for purposes of calculating the actual incentive compensation payable to the Executive for that fiscalyear the portion of the incentive compensation attributable to the achievement of the individual performancecomponent/goal will be determined at target for that fiscal year.2.20“Severance Period” shall mean the following period, based on the Executive’s title at the time of termination of theExecutive’s employment with the Corporation:Title Severance PeriodExecutive Vice Presidents and above 18 monthsSenior Vice President 12 months2.21“Voluntary Separation from Service” shall mean a Separation from Service other than as a result of the Executive’sdeath, Permanent Disability, or an Involuntary Separation from Service.3.Covenants and Representations of the Executive. The Executive hereby acknowledges that the Executive’s duties to theCorporation require access to and creation of the Corporation’s confidential or proprietary information and trade secrets(collectively, the “Proprietary Information”). The Proprietary Information has been and will continue to be developed by theCorporation and its subsidiaries and affiliates at substantial cost and constitutes valuable and unique property of theCorporation. The Executive further acknowledges that due to the nature of the Executive’s position, the Executive will haveaccess to Proprietary Information affecting plans and operations in every location in which the Corporation (and its subsidiariesand affiliates) does business or plans to do business throughout the world, and the Executive’s decisions and recommendationson behalf of the Corporation may affect its operations throughout the world. Accordingly, the Executive acknowledges that theforegoing makes it reasonably necessary for the protection of the Corporation’s business interests that the Executive agree tothe following covenants in connection with the Executive’s Involuntary Separation from Service other than for Cause andreceipt of benefits under this Agreement or the Executive’s Voluntary Separation from Service:3.1Confidentiality. The Executive hereby covenants and agrees that the Executive shall not, without the prior writtenconsent of the Corporation, during the Executive’s employment with the Corporation or at any time thereafter disclose toany person not employed by the Corporation, or use in connection with engaging in competition with the Corporation,any Proprietary Information of the Corporation.(a)It is expressly understood and agreed that the Corporation’s Proprietary Information is all nonpublic informationrelating to the Corporation’s business, including but not limited to information, plans and strategies regardingsuppliers, pricing, marketing, customers, hiring and terminations, employee performance and evaluations,internal reviews and investigations, short term and long range plans, acquisitions and divestitures, advertising,information systems, sales objectives and performance, as well as any other nonpublic information, thenondisclosure of which may provide a competitive or economic advantage to the Corporation. ProprietaryInformation shall not be deemed to have become public for purposes of this Agreement where it has beendisclosed or made public by or through anyone acting in violation of a contractual, ethical, or legal responsibilityto maintain its confidentiality.(b)In the event the Executive receives a subpoena, court order or other summons that may require the Executive todisclose Proprietary Information, on pain of civil or criminal penalty, the Executive will promptly give notice tothe Corporation of the subpoena or summons and provide the Corporation an opportunity to appear at theCorporation’s expense and challenge the disclosure of its Proprietary Information, and the Executive shallprovide reasonable cooperation to the Corporation for purposes of affording the Corporation the opportunity toprevent the disclosure of the Corporation’s Proprietary Information.(c)Nothing in this Agreement shall restrict the Executive from, directly or indirectly, initiating communicationswith or responding to any inquiry from, or providing testimony before, the Securities and ExchangeCommission (“SEC”), Financial Industries Regulatory Authority (“FINRA”), or any other self-regulatoryorganization or state or federal regulatory authority.3.2Nonsolicitation of Employees. The Executive hereby covenants and agrees that during the Executive’s employmentwith the Corporation and, in the event the Executive has a Voluntary Separation from Service or will receive or hasreceived the severance benefits provided for in Section 1.4, for a period equal to the Severance Period thereafter, theExecutive shall not, without the prior written consent of the Corporation, on the Executive’s own behalf or on thebehalf of any person, firm or company, directly or indirectly, attempt to influence, persuade or induce, or assist anyother person in so persuading or inducing, any of the employees of the Corporation (or any of its subsidiaries oraffiliates) to give up his or her employment with the Corporation (or any of its subsidiaries or affiliates), and theExecutive shall not directly or indirectly solicit or hire employees of the Corporation (or any of its subsidiaries oraffiliates) for employment with any other employer, without regard to whether that employer is a Competing Business,as defined in section 3.4(b), below.3.3Noninterference with Business Relations. The Executive hereby covenants and agrees that during the Executive’semployment with the Corporation and, in the event the Executive hasa Voluntary Separation from Service or will receive or has received the severance benefits provided for in Section 1.4,for a period equal to the Severance Period thereafter, the Executive shall not, without the prior written consent of theCorporation, on the Executive’s own behalf or on the behalf of any person, firm or company, directly or indirectly,attempt to influence, persuade or induce, or assist any other person in so persuading or inducing, any person, firm orcompany to cease doing business with, reduce its business with, or decline to commence a business relationship with,the Corporation (or any of its subsidiaries or affiliates).3.4Noncompetition.(a)The Executive covenants that during the Executive’s employment with the Corporation and, in the event theExecutive has a Voluntary Separation from Service or will receive or has received the severance benefitsprovided for in Section 1.4, for a period equal to the Severance Period thereafter, the Executive will not, exceptas otherwise provided for in this Section 3.4, undertake any work for a Competing Business, as defined inSection 3.4(b).(b)As used in this Agreement, the term “Competing Business” shall specifically include, but not be limited to:(i)Kohl’s Corporation, Macy’s, Inc., Target Corporation, The TJX Companies, Inc., Ross Stores, Inc.,Wal-Mart Stores, Inc, Amazon.com, Inc., and any of their respective subsidiaries or affiliates, or(ii)any business (A) that, at any time during the Severance Period, competes directly with the Corporationthrough sales of merchandise or services in the United States or another country or commonwealth inwhich the Corporation, including its divisions, affiliates and licensees, operates, and (B) where theExecutive performs services, whether paid or unpaid, in any capacity, including as an officer, director,owner, consultant, employee, agent, or representative, where such services involve the performance of(x) substantially similar duties or oversight responsibilities as those performed by the Executive at anytime during the 12-month period preceding the Executive’s termination from the Corporation for anyreason, or (y) greater duties or responsibilities that include such substantially similar duties or oversightresponsibilities as those referred to in (x); or(iii)any business that provides buying office or sourcing services to any business of the types referred to inthis Section 3.4(b).(c)For purposes of this section, the restrictions on working for a Competing Business shall include working at anylocation within the United States or Puerto Rico. Executive acknowledges that the Corporation is a nationalretailer with operations throughout the United States and Puerto Rico and that the duties and responsibilities thatthe Executive performs, or will perform, for the Corporation directly impact the Corporation’s ability to competewith a Competing Business in a nationwide marketplace. Executive further acknowledges that Executive has, orwill have, access to sensitive and confidential information of the Corporation that relates to the Corporation’sability to compete in a nationwide marketplace.3.5Non-Disparagement. The Executive covenants that the Executive will not make any statement or representation, oral orwritten, that could adversely affect the reputation, image, goodwill or commercial interests of the Corporation. Thisprovision will be construed as broadly as state or federal law permits, but no more broadly than permitted by state orfederal law. This provision is not intended to and does not prohibit the Executive from participating in a governmentalinvestigation concerning the Corporation, or providing truthful testimony in any lawsuit, arbitration, mediation,negotiation or other matter.3.6Injunctive Relief. If the Executive shall breach any of the covenants contained in this Section 3, the Corporation shallhave no further obligation to make any payment to the Executive pursuant to this Agreement and may recover from theExecutive all such damages as it may be entitled to under the terms of this Agreement, any other agreement between theCorporation and the Executive, at law, or in equity. In addition, the Executive acknowledges that any such breach islikely to result in immediate and irreparable harm to the Corporation for which money damages are likely to beinadequate. Accordingly, the Executive consents to injunctive and other appropriate equitable relief without thenecessity of bond in excess of $500.00 upon the institution of proceedings therefor by the Corporation in order to protectthe Corporation’s rights hereunder.4.Employment-at-Will. Notwithstanding any provision in this Agreement to the contrary, the Executive hereby acknowledgesand agrees that the Executive’s employment with the Corporation is for an unspecified duration and constitutes “at-will”employment, and the Executive further acknowledges and agrees that this employment relationship may be terminated at anytime, with or without Cause or for any or no Cause, at the option either of the Corporation or the Executive.5.Miscellaneous Provisions.5.1Execution and Delivery of this Agreement. You will have 90 days following the later of (i) your effective date ofemployment, or (ii) the date you receive a copy of this Agreement, either physically or electronically, to execute andreturn this Agreement evidencing your acceptance of its terms and your agreement to be bound by the restrictivecovenants under Section 3 of this Agreement in connection with your Voluntary Separation from Service or yourInvoluntary Separation from Service other than for Cause in order to receive the benefits under this Agreement inconnection with your Involuntary Separation from Service other than for Cause. Failure to timely deliver an executedversion of this Agreement within the timeframe provided in this Section 5.1 shall be evidence of your waiver of thebenefits under this Agreement.5.2Dispute Resolution. Any dispute between the parties under this Agreement shall be resolved (except as providedbelow) through informal binding mandatory arbitration by an arbitrator selected under the rules of the AmericanArbitration Association for arbitration of employment disputes (located in the city in which the Corporation’s principalexecutive offices are based) and the arbitration shall be conducted in that location under the rules of said Association.Each party shall be entitled to present evidence and argument to the arbitrator. The arbitrator shall have the right only tointerpret and apply the provisions of this Agreement and may not change any of its provisions, except as expresslyprovided in Section 3.4 and only in the event the Corporation has not brought an action in a court of competentjurisdiction to enforce the covenants in Section 3. The arbitrator shall permit reasonable pre-hearing discovery of facts,to the extent necessary to establish a claim or a defense to a claim, subject to supervision by the arbitrator. Thedetermination of the arbitrator shall be conclusive and binding upon the parties and judgment upon the same may beentered in any court having jurisdiction thereof. The arbitrator shall give written notice to the parties stating thearbitrator’s determination, and shall furnish to each party a signed copy of such determination. The expenses ofarbitration shall be borne equally by the Corporation and the Executive or as the arbitrator equitably determinesconsistent with the application of state or federal law; provided, however, that the Executive’s share of such expensesshall not exceed the maximum permitted by law. To the extent applicable, in accordance with Code section 409A andTreasury Regulation section 1.409A-3(i)(1)(iv)(A) or any successor thereto, any payments or reimbursement ofarbitration expenses which the Corporation is required to make under the foregoing provision shall meet therequirements below. The Corporation shall reimburse the Executive for any such expenses, promptly upon delivery ofreasonable documentation, provided, however, all invoices for reimbursement of expenses must be submitted to theCorporation and paid in a lump sum payment by the end of the calendar year following the calendar year in which theexpense was incurred. All expenses must be incurred within a 20 year period following the Separation from Service.The amount of expenses paid or eligible for reimbursement in one year under this Section 5.1 shall not affect theexpenses paid or eligible for reimbursement in any other taxable year. The right to payment or reimbursement underthis Section 5.1 shall not be subject to liquidation or exchange for another benefit.Any arbitration or action pursuant to this Section 5.1 shall be governed by and construed in accordance withthe substantive laws of the State of Texas and, where applicable, federal law, without giving effect to theprinciples of conflict of laws of such State. The mandatory arbitration provisions of this Section 5.1 shallsupersede in their entirety the J.C. Penney Alternative, a dispute resolution program generally applicable toemployment terminations, any existing Binding Mandatory Arbitration Agreement between Executive and theCorporation, and the JCPenney Rules of Employment Arbitration. Executive explicitly waives, and may notlitigate, any multi-party claims or claims available in multi-party litigation, such as class actions.Notwithstanding the foregoing, the Corporation shall not be required to seek or participate in arbitration regarding anyactual or threatened breach of the Executive’s covenants in Section 3, but may pursue its remedies, including injunctiverelief, for such breach in a court of competent jurisdiction in the city in which the Corporation’s principal executiveoffices are based, or in the sole discretion of the Corporation, in a court of competent jurisdiction where the Executivehas committed or is threatening to commit a breach of the Executive’s covenants, and no arbitrator may make any rulinginconsistent with the findings or rulings of such court.5.3Binding on Successors; Assignment. This Agreement shall be binding upon and inure to the benefit of the Executive,the Corporation and each of their respective successors, assigns, personal and legal representatives, executors,administrators, heirs, distributees, devisees, and legatees, as applicable; provided however, that neither this Agreementnor any rights or obligations hereunder shall be assignable or otherwise subject to hypothecation by the Executive(except by will or by operation of the laws of intestate succession) or by the Corporation except that the Corporationmay assign this Agreement to any successor (whether by merger, purchase or otherwise) to all or substantially all of thestock, assets or businesses of the Corporation, if such successor expressly agrees to assume the obligations of theCorporation hereunder.5.4Governing Law. This Agreement shall be governed, construed, interpreted, and enforced in accordance with thesubstantive law of the State of Texas and federal law, without regard to conflicts of law principles, except asexpressly provided herein. In the event the Corporation exercises its discretion under Section 5.1 of thisAgreement to bring an action to enforce the covenants contained in Section 3 of this Agreement in a court ofcompetent jurisdiction where the Executive has breached or threatened to breach such covenants, and in noother event, the parties agree that the court may apply the law of the jurisdiction in which such action ispending in order to enforce the covenants to the fullest extent permissible.5.5Severability. Any provision of this Agreement that is deemed invalid, illegal or unenforceable in any jurisdiction shall,as to that jurisdiction, be ineffective, to the extent of such invalidity, illegality or unenforceability, without affecting inany way the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of this Agreementinvalid, illegal or unenforceable in any other jurisdiction. If any covenant in Section 3 should be deemed invalid, illegalor unenforceable because its time, geographical area, or restricted activity, is considered excessive, such covenant shallbe modified to the minimum extent necessary to render the modified covenant valid, legal and enforceable.5.6Notices. For all purposes of this Agreement, all communications required or permitted to be given hereunder shall be inwriting and shall be deemed to have been duly given when hand delivered or dispatched by electronic facsimiletransmission (with receipt thereof confirmed), or five business days after having been mailed by United States registeredor certified mail, return receipt requested, postage prepaid, or three business days after having been sent by a nationallyrecognized overnight courier service, addressed to the Corporation at its principal executive office, c/o theCorporation’s General Counsel, and to the Executive at the Executive’s principal residence, or to such other address asany party may have furnished to the other in writing and in accordance herewith, except that notices of change ofaddress shall be effective only upon receipt.5.7Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be anoriginal, but all of which together shall constitute one and the same Agreement.5.8Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreementwith respect to the Executive’s employment by the Corporation and may not be contradicted by evidence of any prioror contemporaneous agreement. The parties further intend that this Agreement shall constitute the complete andexclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial,administrative, or other legal proceedings to vary the terms of this Agreement.5.9Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument inwriting, approved by the Corporation and signed by the Executive and the Corporation. Failure on the part of eitherparty to complain of any action or omission, breach or default on the part of the other party, no matter how long thesame may continue, shall never be deemed to be a waiver of any rights or remedies hereunder, at law or in equity. TheExecutive or the Corporation may waive compliance by the other party with any provision of this Agreement that suchother party was or is obligated to comply with or perform onlythrough an executed writing; provided, however, that such waiver shall not operate as a waiver of, or estoppel withrespect to, any other or subsequent failure.5.10No Inconsistent Actions. The parties hereto shall not voluntarily undertake or fail to undertake any action or course ofaction that is inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of theparties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisionsof this Agreement.5.11Headings, Section References, and Recitations. The headings used in this Agreement are intended for convenience orreference only and shall not in any manner amplify, limit, modify or otherwise be used in the construction orinterpretation of any provision of this Agreement. All section references are to sections of this Agreement, unlessotherwise noted. The Recitations contained at the beginning of this Agreement are intended to be a part of thisAgreement.5.12Beneficiaries. The Executive shall be entitled to select (and change, to the extent permitted under any applicable law) abeneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive’s death,and may change such election, in either case by giving the Corporation written notice thereof in accordance withSection 5.5. In the event of the Executive’s death or a judicial determination of the Executive’s incompetence, referencein this Agreement to the “Executive” shall be deemed, where appropriate, to be the Executive’s beneficiary, estate orother legal representative.5.13Withholding. The Corporation shall be entitled to withhold from payment any amount of withholding required by law.IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.J. C. Penney Corporation, Inc.By: Name: Title: Executive____________________________________Exhibit 10.71Noticeof Restricted Stock Unit Grant Name Andrew Drexler Employee ID Date of GrantJune 11, 2015Number of Performance Units Granted31,437Restricted Stock Unit GrantSubject to the terms of this Notice of Restricted Stock Unit Grant(“Notice”), the J. C. Penney Company, Inc. (the “Company”) herebygrants Andrew Drexler (“You” or “Your”) the number of RestrictedStock Units listed above. The number of restricted stock units listedabove was determined by dividing $262,500, the agreed on value ofYour Restricted Stock Unit award, by the Fair Market Value of theCommon Stock on June 11, 2015. Each Restricted Stock Unit will atall times be deemed to have a value equal to the then-current FairMarket Value of one share of Common Stock.DefinitionsFor purposes of this Notice, unless the context requires otherwise, thefollowing terms will have the meanings indicated below:“Board” will mean the Board of Directors of the Company.“Cause” will mean:(a)“cause” or “summary dismissal,” as the case may be, as thatterm may be defined in any written agreement between Youand the Company that may at any time be in effect; or(b)in the absence of a definition in a then-effective agreementbetween You and the Company (as determined by the Board),termination of Your employment with the Company on theoccurrence of one or more of the following events: (i) Your failure to substantially perform Your duties with theCompany as determined by the Board or the Company;(ii) Your willful failure or refusal to perform specific directivesof the Board, or the Company, which directives are consistentwith the scope and nature of Your duties and responsibilities;(iii) Your conviction of a felony; or(iv) A breach of Your fiduciary duty to the Company or any actor omission by You that (A) constitutes a violation of theCompany’s Statement of Business Ethics, (B) results in theassessment of a criminal penalty against the Company, (C) isotherwise in violation of any federal, state, local or foreign lawor regulation (other than traffic violations and other similarmisdemeanors), (D) adversely affects or could reasonably beexpected to adversely affect the business reputation of theCompany, or (E) otherwise constitutes willful misconduct,gross negligence, or any act of dishonesty or disloyalty.“Change in Control” will generally have the meaning specified insection 409A of the Code, and any regulations and guidance issuedthereunder and will include a change of ownership, a change ofeffective control, or a change in ownership of a substantial portion ofthe assets of the Company. Generally, subject to section 409A:(a)A change of ownership occurs on the date that a person orpersons acting as a group acquires ownership of stock of theCompany that together with stock held by such person orgroup constitutes more than 50 percent of the total fair marketvalue or total voting power of the stock of the Company.(b)Notwithstanding whether the Company has undergone achange of ownership, a change of effective control occurs (i)when a person or persons acting as a group acquires within awhen a person or persons acting as a group acquires within a12-month period 30 percent of the total voting power of thestock of the Company, or (ii) a majority of the Board isreplaced within a 12-month period by directors whoseappointment or election is not approved by a majority of themembers of the Board before the appointment or election. Achange in effective control also may occur in any transactionin which either of the two corporations involved in thetransaction has a Change in Control as defined in this Notice(i.e., multiple change in control events). For purposes of thisNotice, any acquisition by the Company of its own stockwithin a 12-month period, either through a transaction orseries of transactions, that, immediately following suchacquisition, results in the total voting power of a person orpersons acting as a group to equal or exceed 30 percent ofthe total voting power of the stock of the Company will notconstitute a change in effective control of the Company.(c)A change in ownership of a substantial portion of theCompany’s assets occurs when a person or persons actingas a group acquires assets that have a total gross fair marketvalue equal to or more than 40 percent of the total gross fairmarket value of all assets of the Company immediately priorto the acquisition. A transfer of assets by the Company is nottreated as a change in the ownership of such assets if theassets are transferred to: (i) A shareholder of the Company (immediately before theasset transfer) in exchange for or with respect to its stock; (ii) An entity, 50 percent or more of the total value or votingpower of which is owned, directly or indirectly, by theCompany;(iii) A person, or more than one person acting as a group, thatowns, directly or indirectly, 50 percent or more of the totalvalue or voting power of all the outstanding stock of theCompany; or(iv) An entity, at least 50 percent of the total value or votingpower of which is owned, directly or indirectly, by a persondescribed in paragraph (iii), immediately above.Persons will not be considered to be acting as a group solely becausethey purchase assets of the Company at the same time, or as a resultof the same public offering; however, persons will be considered to beacting as a group if they are owners of a corporation that enters into amerger, consolidation, purchase or acquisition of assets, or similarbusiness transaction with the Company.“Code” will mean the Internal Revenue Code of 1986, as amended.“Company” will mean J. C. Penney Company, Inc., the Corporation orany successor thereto, for whom the services are performed and withrespect to whom the legally binding right to compensation arises, andall persons with whom the Corporation would be considered a singleemployer under Code section 414(b) (employees of controlled group ofcorporations), and all persons with whom the Corporation would beconsidered a single employer under Code section 414(c) (employeesof partnerships, proprietorships, etc., under common control), usingthe “at least 50 percent” ownership standard, within the meaning ofCode Section 409A and Treasury Regulation section 1.409A-1(h)(3) orany successor thereto.“Common Stock” will mean the $0.50 par value common stock of theCompany.“Corporation” will mean J. C. Penney Corporation, Inc.“Disability” will mean disability as defined in any then effective long-term disability plan maintained by the Company that covers You, or ifsuch a plan does not exist at any relevant time, “Disability” meansYour permanent and total disability within the meaning of section 22(e)(3) of the Code.“Fair Market Value” of the Common Stock on any date will be theclosing price on such date as reported in the composite transactiontable covering transactions of New York Stock Exchange(“Exchange”) listed securities, or if such Exchange is closed, or if theCommon Stock does not trade on such date, the closing pricereported in the composite transaction table on the last trading dateimmediately preceding such date, or such other amount as the Boardmay ascertain reasonably to represent such fair market value;provided however, that such determination will be in accordance withthe requirements of Treasury Regulation section 1.409A-1(b)(5)(iv), orits successor.“Good Reason” will mean, following a Change in Control, a conditionresulting from any of the actions listed below taken by the Companyresulting from any of the actions listed below taken by the Companythat is directed at You without Your consent: (a)a material decrease in Your salary or incentive compensationopportunity (the amount paid at target as a percentage ofsalary under the Corporation’s Management IncentiveCompensation Program or any successor program then ineffect); or(b)failure by the Company to pay You a material portion of Yourcurrent base salary, or incentive compensation within sevendays of its due date; or(c)a material adverse change in reporting responsibilities, duties,or authority; or(d)a material diminution in the authority, duties, orresponsibilities of the supervisor to whom You are required toreport without a corresponding increase in Your authority,duties or responsibilities; or(e)a requirement that You report to a corporate officer oremployee other than the Chief Executive Officer of theCompany; or(f)a material diminution in the budget over which You retainauthority; or(g)the Company requires You to change Your principal locationof work to a location more than 50 miles from the locationthereof immediately prior to such change; or (h)discontinuance of any material paid time off policy, fringebenefit, welfare benefit, incentive compensation, equitycompensation, or retirement plan (without substantiallyequivalent compensating remuneration or a plan or policyproviding substantially similar benefits) in which Youparticipate or any action that materially reduces Your benefitsor payments under such plans;provided, however, that You must provide notice to the Corporation ofthe existence of any condition described above within 90 days of theinitial existence of the condition, upon the notice of which theCorporation will have 30 days during which it or the Company mayremedy the condition. Any separation from service as a result of aGood Reason condition must occur as of the later of (i) two years afterthe Change in Control, or (ii) 180 days after the initial existence of thecondition described in (a) through (h) above that constitutes “GoodReason.”“Involuntary Separation from Service” will mean Your separation fromservice due to the independent exercise of the unilateral authority ofthe Company to terminate Your services, other than due to Yourimplicit or explicit request, where You were willing and able to continueperforming services, within the meaning of Code Section 409A andTreasury Regulation section 1.409A-1(n)(1) or any successor thereto.“Restricted Stock Unit” means an award that represents an unsecuredpromise by the Company to issue a share of Common Stock to Yousubject to restrictions or a substantial risk of forfeiture“Retirement” will mean Your termination of employment with theCompany other than for Cause on or after the date You attain age 55with at least 15 years of service, or on or after You attain age 60 withat least 10 years of service.Vesting of Your Restricted Stock UnitsThe Restricted Stock Units will vest, and the restrictions on YourRestricted Stock Units will lapse, according to the following vestingschedule, PROVIDED YOU REMAIN CONTINUOUSLY EMPLOYEDBY THE COMPANY THROUGH THE VESTING DATE (unless Youremployment terminates due to Your Disability, death, or if You areparty to a Termination Pay Agreement (“TPA”), an InvoluntarySeparation from Service without Cause as defined in the TPA).Vesting DatePercent VestingJune 11, 201633-1/3%June 11, 201733-1/3%June 11, 201833-1/3%Your vested Restricted Stock Units will be paid out in shares ofCommon Stock as soon as practicable on or following the earlier of (i)Your termination of employment as a result of Your Disability or deathor an Involuntary Separation from Service other than for Cause, or (ii)the applicable vesting date provided in the vesting table above. Notwithstanding the foregoing, if You are a specified employee asdefined under Section 409A of the Code and the related Treasuryregulations thereunder and any portion of Your Restricted Stock Unitaward is, or becomes subject to the requirements of section 409A ofthe Code, Your vested Restricted Stock Units will be paid out inshares of Common Stock as soon as practicable following the earlierof (i) the date that is six months following Your termination of servicedue to Your Retirement, (ii) the date of Your death, and (iii) the nextapplicable vesting date provided in the vesting table above. You willapplicable vesting date provided in the vesting table above. You willnot be allowed to defer the payment of Your shares of Common Stockto a later date.Dividend EquivalentsYou will not have any rights as a stockholder until Your RestrictedStock Units vest and You are issued shares of Common Stock incancellation of the vested Restricted Stock Units. You will, however,accrue dividend equivalents on the unvested Restricted Stock Units inthe amount of any quarterly dividend declared on the Common Stock.Dividend equivalents will continue to accrue until Your RestrictedStock Units vest and You receive actual shares of Common Stock incancellation of the vested Restricted Stock Units. The dividendequivalents will be credited as additional Restricted Stock Units inYour account to be paid out in shares of Common Stock on thevesting date along with the Restricted Stock Units to which theyrelate. The number of additional Restricted Stock Units to be creditedto Your account will be determined by dividing the aggregate dividendpayable with respect to the number of Restricted Stock Units in Youraccount by the Fair Market Value of the Common Stock on thedividend record date. The additional Restricted Stock Units credited toYour account are subject to all of the terms and conditions of thisRestricted Stock Unit award and You will forfeit Your additionalRestricted Stock Units in the event that You forfeit the RestrictedStock Units to which they relate.Acceleration of VestingIf prior to June 11, 2018 Your employment is terminated as a result ofYour death or Disability, then the restrictions will lapse with respect toall unvested Restricted Stock Units and all unvested Restricted StockUnits will become fully vested and non-forfeitable on the date of anysuch termination of Your employment. The number of RestrictedStock Units to which You are entitled will be distributed as provided in“Vesting of Your Restricted Stock Units” above.If prior to June 11, 2018 you experience an Involuntary Separationfrom Service other than for Cause, including an Involuntary Separationfrom Service as a result of a job restructuring, reduction in force, orunit closing, you shall be entitled to a prorated number of RestrictedStock Units. The proration shall be equal to a fraction, thedenominator of which is 36 and the numerator of which is the numberof months from the date of grant to the effective date of yourtermination of service. The prorated number of Restricted Stock Unitswill be reduced by the number of Restricted Stock Units, if any, thatby the terms of this Notice have already vested. The prorated numberof Restricted Stock Units to which you are entitled will be distributedas provided in “Vesting of Your Restricted Stock Units” above. AnyRestricted Stock Units for which vesting is not accelerated shall becancelled on such Involuntary Separation from Service.You may designate a beneficiary to receive any shares of CommonStock in which You may vest if Your employment is terminated as aresult of Your death by completing a beneficiary designation form insuch form as may be prescribed from time to time by the Company.The beneficiary listed on Your beneficiary designation form will receivethe vested shares covered by the Restricted Stock Unit award in thecase of termination of employment due to death.If You experience an Involuntary Separation from Service for Cause,or You voluntarily resign, any unvested Restricted Stock Units will becancelled on the effective date of Your employment termination and aresult of the Involuntary Separation from Service for Cause or Yourresignation.Recoupment Equity awards are subject to the Company’s currently effectiverecoupment policy, as that policy may be amended from time to timeby the Board or applicable statute or regulations. Under therecoupment policy, the Human Resources and CompensationCommittee of the Board may require the Company, to the extentpermitted by law, to cancel any of Your outstanding equity awards,including both vested and unvested awards, and/or to recover financialproceeds realized from the exercise of awards in the event of (i) afinancial restatement arising out of the willful actions, including withoutlimitation fraud or intentional misconduct, or gross negligence of anyparticipant in the Company’s compensation plans or programs,including without limitation, cash bonus and stock incentive plans,welfare plans, or deferred compensation plans, or (ii) other events asestablished by applicable statute or regulations.Taxes and WithholdingThe vesting of any Restricted Stock Units and the related issuance ofshares of Common Stock will be subject to the satisfaction of allapplicable federal, state, and local income and employment taxwithholding requirements. Your withholding rate with respect to thisaward may not be higher than the minimum statutory rate. TheCompany will retain and cancel the number of issued shares equal tothe value of the required minimum tax withholding in payment of therequired minimum tax withholding due or will require that You satisfythe required minimum tax withholding, if any, or any other applicablefederal, state, or local income or employment tax withholding by suchother means as the Company, in its sole discretion, deemsreasonable.Changes in Capitalization and Similar ChangesIn the event of any change in the value or number of shares ofCommon Stock outstanding, or the assumption and conversion of thisRestricted Stock Unit award, by reason of any stock dividend, stocksplit, dividend or distribution, whether in cash, shares or other propertysplit, dividend or distribution, whether in cash, shares or other property(other than a normal cash dividend), recapitalization, reorganization,merger, consolidation, split-up, spin-off, combination or exchange ofshares, an equitable and proportionate adjustment will be made to thenumber and class of shares which may be issued on vesting of theRestricted Stock Units in this Notice.Miscellaneous(a)Dispute Resolution. Any dispute between the parties underthis Notice will be resolved (except as provided below)through informal arbitration by an arbitrator selected under therules of the American Arbitration Association for arbitration ofemployment disputes (located in the city in which theCompany’s principal executive offices are based) and thearbitration will be conducted in that location under the rules ofsaid Association. Each party will be entitled to presentevidence and argument to the arbitrator. The arbitrator willhave the right only to interpret and apply the provisions of thisNotice and may not change any of its provisions. Thearbitrator will permit reasonable pre-hearing discovery of facts,to the extent necessary to establish a claim or a defense to aclaim, subject to supervision by the arbitrator. Thedetermination of the arbitrator will be conclusive and bindingupon the parties and judgment upon the same may be enteredin any court having jurisdiction thereof. The arbitrator will givewritten notice to the parties stating the arbitrator’sdetermination, and will furnish to each party a signed copy ofsuch determination. The expenses of arbitration will be borneequally by the Company and You or as the arbitrator equitablydetermines consistent with the application of state or federallaw; provided, however, that Your share of such expenses willnot exceed the maximum permitted by law. To the extentapplicable, in accordance withCode section 409A and Treasury Regulation section 1.409A-3(i)(1)(iv)(A) or any successor thereto, any payments orreimbursement of arbitration expenses which the Company isrequired to make under the foregoing provision will meet therequirements below. The Company will reimburse You for anysuch expenses, promptly upon delivery of reasonabledocumentation, provided, however, all invoices forreimbursement of expenses must be submitted to theCompany and paid in a lump sum payment by the end of thecalendar year following the calendar year in which theexpense was incurred. All expenses must be incurred within a20 year period following Your separation from service asdefined in section 409A of the Code and the applicableTreasury regulations thereunder. The amount of expensespaid or eligible for reimbursement in one year under thisSection governing the resolution of disputes under this Noticewill not affect the expenses paid or eligible for reimbursementin any other taxable year. The right to payment orreimbursement under this Section governing the resolution ofdisputes under this Notice will not be subject to liquidation orexchange for another benefit.Any arbitration or action pursuant to this Sectiongoverning the resolution of disputes under this Noticewill be governed by and construed in accordance with thesubstantive laws of the State of Delaware and, whereapplicable, federal law, without giving effect to theprinciples of conflict of laws of such State. Themandatory arbitration provisions of this Section willsupersede in their entirety the J.C. Penney Alternative, adispute resolution program generally applicable toemployment terminations.(b)No Right to Continued Employment. Nothing in this awardwill confer on You any right to continue in the employ of theCompany or affect in any way the right of the Company toterminate Your employment without prior notice, at any time,for any reason, or for no reason.(b)Unsecured General Creditor. Neither You nor Yourbeneficiaries, heirs, successors, and assigns will have a legalor equitable right, interest or claim in any property or assets ofthe Company. For purposes of the payments under thisNotice, any of the Company's assets will remain assets of theCompany and the Company's obligation under this Notice willbe merely that of an unfunded and unsecured promise toissue shares of Common Stock to You in the future pursuantto the terms of this Notice.(c)Stockholder Rights. You (including for purposes of thisSection, Your legatee, distributee, guardian, legalrepresentative, or other third party, as the Board or itsdesignee may determine) will have no stockholder rights withrespect to any shares of Common Stock subject to the awardunder this Notice until such shares of Common Stock areissued to You. Shares of Common Stock will be deemedissued on the date on which they are issued in Your name.(d)Indemnification. Each person who is or will have been amember of the Board or any committee of the Board will beindemnified and held harmless by the Company against andfrom any loss, cost, liability, or expense that may be imposedon or reasonably incurred by him in connection with orresulting from any claim, action, suit, or proceeding to whichhe may be made party or in which he may be involved byreason of any determination, interpretation, action taken orfailure to act under this Notice and against and from any andall amounts paid by him in settlement thereof, with theCompany’s approval, or paid by him in satisfaction of anyjudgment in any such action, suit or proceeding against him,provided he will give the Company an opportunity, at its ownexpense, to handle and defend the same before heundertakes to handle and defend it on his own behalf. Theforegoing right of indemnification will not be exclusive and willbe independent of any other rights of indemnification to whichbe independent of any other rights of indemnification to whichsuch persons may be entitled under the Company’sCertificate of Incorporation, By-laws, by contract, as a matterof law, or otherwise.(e)Transferability of Your Restricted Stock Units. Nounearned Restricted Stock Unit under this Notice, may besold, assigned, pledged, or transferred other than by will orthe laws of descent and distribution and any attempt to do sowill be void. To the extent and under such terms andconditions as determined by the Board or a subcommitteethereof vested with such authority, You may assign ortransfer the Restricted Stock Units granted under this Noticewithout consideration (i) to Your spouse, children, orgrandchildren (including any adopted and step children orgrandchildren), parents, grandparents, or siblings, (ii) to a trustfor Your benefit or for the benefit of one or more of thepersons referred to in clause (i), (iii) to a partnership, limitedliability company or corporation in which You or the personsreferred to in clause (i) are the only partners, members orshareholders, or (iv) for charitable donations; provided thatany such assignee shall be bound by and subject to all of theterms and conditions of this Notice and will, to the extentnecessary, execute an agreement satisfactory to theCompany evidencing such obligations; and provided furtherthat the assignee will remain bound by the terms andconditions of this Notice. The Company shall cooperate withany assignee and the Company’s transfer agent ineffectuating any transfer permitted herein.(f)Cessation of Obligation. The Company's liability will bedefined only by this Notice. Upon distribution to You of allshares of Common Stock due under this Notice, allresponsibilities and obligations of the Company will be fulfilledand You will have no further claims against the Company forfurther performance under this Notice.(g)Effect on Other Benefits. The value of the shares ofCommon Stock covered by this Restricted Stock Unit awardwill not be included as compensation or earnings for purposesof any other compensation, Retirement, or benefit plan offeredto Company associates.(h)Administration. This Notice will be administered by theBoard, or its designee. The Board, or its designee, has fullauthority and discretion to decide all matters relating to theadministration and interpretation of this Notice. The Board’s,or its designee’s, determinations will be final, conclusive, andbinding on You and Your heirs, legatees and designees.(i)Entire Notice and Governing Law. This Notice constitutesthe entire agreement between You and the Company withrespect to the subject matter hereof and supersedes in itsentirety all prior undertakings and agreements between Youand the Company with respect to the subject matter hereof,and may not be modified adversely to Your interest except bymeans of a writing signed by the You and the Company.Nothing in this Notice (except as expressly provided herein) isintended to confer any rights or remedies on any person otherthan You and the Company. This Restricted Stock Unit awardwill be governed by the internal laws of the State of Delaware,regardless of the dictates of Delaware conflict of lawsprovisions.(j)Interpretive Matters. The captions and headings used in thisNotice are inserted for convenience and will not be deemed apart of the award or this Notice for construction orinterpretation.(k)Notice. For all purposes of this Notice, all communicationsrequired or permitted to be given hereunder will be in writingand will be deemed to have been duly given when handdelivered or dispatched by electronic facsimile transmission(with receipt thereof confirmed), or five business days afterhaving been mailed by United States registered or certifiedmail, return receipt requested, postage prepaid, or threebusiness days after having been sent by a nationallyrecognized overnight courier service, addressed to theCompany at its principal executive office, c/o the Company’sGeneral Counsel, and to You at Your principal residence, or tosuch other address as any party may have furnished to theother in writing and in accordance herewith, except thatnotices of change of address will be effective only on receipt.(l)Severability and Reformation. The Company intends allprovisions of this Notice to be enforced to the fullest extentpermitted by law. Accordingly, should a court of competentjurisdiction determine that the scope of any provision of thisNotice is too broad to be enforced as written, the court shouldreform the provision to such narrower scope as it determinesto be enforceable. If, however, any provision of this Notice isheld to be wholly illegal, invalid, or unenforceable underpresent or future law, such provision will be fully severableand severed, and this Notice will be construed and enforcedas if such illegal, invalid, or unenforceable provision werenever a part hereof, and the remaining provisions of thisNotice will remain in full force and effect and will not beaffected by the illegal, invalid, or unenforceable provision orby its severance.(m)Counterparts. This Notice may be executed in severalcounterparts, each of which will be deemed to be an original,but all of which together will constitute one and the sameNotice.(n)Amendments; Waivers. This Notice may not be modified,amended, or terminated except by an instrument in writing,approved by the Company and signed by You and theCompany. Failure on the part of either party to complain ofany action or omission, breach or default on the part of theother party, no matter how long the same may continue, willnever be deemed to be a waiver of any rights or remediesnever be deemed to be a waiver of any rights or remedieshereunder, at law or in equity. The Executive or the Companymay waive compliance by the other party with any provisionof this Notice that such other party was or is obligated tocomply with or perform only through an executed writing;provided, however, that such waiver will not operate as awaiver of, or estoppel with respect to, any other orsubsequent failure.(o)No Inconsistent Actions. The parties hereto will notvoluntarily undertake or fail to undertake any action or courseof action that is inconsistent with the provisions or essentialintent of this Notice. Furthermore, it is the intent of the partieshereto to act in a fair and reasonable manner with respect tothe interpretation and application of the provisions of thisNotice.(p)No Issuance of Certificates. To the extent this Noticeprovides for issuance of stock certificates to reflect theissuance of shares of Common Stock in connection with thisaward, the issuance may be effected on a non-certificatebasis, to the extent not prohibited by applicable law or theapplicable rules of any stock exchange on which the CommonStock is traded.(q) Compliance with Applicable Legal Requirements.Notwithstanding anything contained herein to the contrary, theCompany will not be required to sell or issue shares ofCommon Stock in connection with the award under this Noticeif the issuance thereof would constitute a violation by You orthe Company of any provisions of any law or regulation of anygovernmental authority or any national securities exchange orinter-dealer quotation system or other forum in which sharesof Common Stock are quoted or traded (including withoutlimitation Section 16 of the Securities Exchange Act of 1934);and, as a condition of any sale or issuance of shares ofCommon Stock under this Notice, the Board or its designeemay require such agreements or undertakings, if any, as theBoard or its designee may deem necessary or advisable toassure compliance with any such law or regulation. The grantand operation of this award, as evidenced by this Notice, andtheobligation of the Company to sell and deliver shares ofCommon Stock, will be subject to all applicable federal andstate laws, rules and regulations and to such approvals byany government or regulatory agency as may be required.Exhibit 10.72 Notice of Stock Option Grant Andrew DrexlerEmployee ID June 11, 2015Option Grant Price Per Share$8.35Number of NSO Shares Granted78,358Non-Qualified Stock Option GrantSubject to the terms of this Notice of Stock Option Grant (“Notice”),the J. C. Penney Company, Inc. (the “Company”) hereby grantsAndrew Drexler (“You” or “Your”) the number of Non-Qualified StockOptions listed above. The number of Non-Qualified Stock Optionslisted above was determined by dividing $262,500, the agreed onvalue of Your Non-Qualified Stock Option award, by the stock optionfair value ($3.35) on June 11, 2015. The stock option fair value isdetermined by using a stock option pricing model that takes intoconsideration a number of factors such as exercise price volatility ofour stock, option term, etc.DefinitionsFor purposes of this Notice, unless the context requires otherwise, thefollowing terms will have the meanings indicated below:“Board” will mean the Board of Directors of the Company.“Cause” will mean:(a)“cause” or “summary dismissal,” as the case may be, as thatterm may be defined in any written agreement between Youand the Company that may at any time be in effect; or(b)in the absence of a definition in a then-effective agreementbetween You and the Company (as determined by the Board),termination of Your employment with the Company on theoccurrence of one or more of the following events: (i) Your failure to substantially perform Your duties with theCompany as determined by the Board or the Company;(ii) Your willful failure or refusal to perform specific directivesof the Board, or the Company, which directives are consistentwith the scope and nature of Your duties and responsibilities;(iii) Your conviction of a felony; or(iv) A breach of Your fiduciary duty to the Company or any actor omission by You that (A) constitutes a violation of theCompany’s Statement of Business Ethics, (B) results in theassessment of a criminal penalty against the Company, (C) isotherwise in violation of any federal, state, local or foreign lawor regulation (other than traffic violations and other similarmisdemeanors), (D) adversely affects or could reasonably beexpected to adversely affect the business reputation of theCompany, or (E) otherwise constitutes willful misconduct,gross negligence, or any act of dishonesty or disloyalty.“Change in Control” will generally have the meaning specified insection 409A of the Code, and any regulations and guidance issuedthereunder and will include a change of ownership, a change ofeffective control, or a change in ownership of a substantial portion ofthe assets of the Company. Generally, subject to section 409A:(a)A change of ownership occurs on the date that a person orpersons acting as a group acquires ownership of stock of theCompany that together with stock held by such person orgroup constitutes more than 50 percent of the total fair marketvalue or total voting power of the stock of the Company.(b)Notwithstanding whether the Company has undergone achange of ownership, a change of effective control occurs (i)when a person or persons acting as a group acquires within a12-month period 30 percent of the totalvoting power of the stock of the Company, or (ii) a majority ofthe Board is replaced within a 12-month period by directorswhose appointment or election is not approved by a majorityof the members of the Board before the appointment orelection. A change in effective control also may occur in anytransaction in which either of the two corporations involved inthe transaction has a Change in Control as defined in thisNotice (i.e., multiple change in control events). For purposesof this Notice, any acquisition by the Company of its ownstock within a 12-month period, either through a transaction orseries of transactions, that, immediately following suchacquisition, results in the total voting power of a person orpersons acting as a group to equal or exceed 30 percent ofthe total voting power of the stock of the Company will notconstitute a change in effective control of the Company.(c)A change in ownership of a substantial portion of theCompany’s assets occurs when a person or persons actingas a group acquires assets that have a total gross fair marketvalue equal to or more than 40 percent of the total gross fairmarket value of all assets of the Company immediately priorto the acquisition. A transfer of assets by the Company is nottreated as a change in the ownership of such assets if theassets are transferred to:(i) A shareholder of the Company (immediately before theasset transfer) in exchange for or with respect to its stock; (ii) An entity, 50 percent or more of the total value or votingpower of which is owned, directly or indirectly, by theCompany;(iii) A person, or more than one person acting as a group, thatowns, directly or indirectly, 50 percent or more of the totalvalue or voting power of all the outstanding stock of theCompany; or(iv) An entity, at least 50 percent of the total value or votingpower of which is owned, directly or indirectly, by a persondescribed in paragraph (iii), immediately above.Persons will not be considered to be acting as a group solely becausethey purchase assets of the Company at the same time, or as a resultof the same public offering; however, persons will be considered to beacting as a group if they are owners of a corporation that enters into amerger, consolidation, purchase or acquisition of assets, or similarbusiness transaction with the Company.“Code” will mean the Internal Revenue Code of 1986, as amended.“Company” will mean J. C. Penney Company, Inc., the Corporation orany successor thereto, for whom the services are performed and withrespect to whom the legally binding right to compensation arises, andall persons with whom the Corporation would be considered a singleemployer under Code section 414(b) (employees of controlled group ofcorporations), and all persons with whom the Corporation would beconsidered a single employer under Code section 414(c) (employeesof partnerships, proprietorships, etc., under common control), usingthe “at least 50 percent” ownership standard, within the meaning ofCode Section 409A and Treasury Regulation section 1.409A-1(h)(3) orany successor thereto.“Common Stock” will mean the $0.50 par value common stock of theCompany.“Corporation” will mean J. C. Penney Corporation, Inc.“Date of Grant” shall mean June 11, 2015.“Disability” will mean disability as defined in any then effective long-term disability plan maintained by the Company that covers You, or ifsuch a plan does not exist at any relevant time, “Disability” meansYour permanent and total disability within the meaning of section 22(e)(3) of the Code.“Exercise Price” means $3.35, which is the Fair Market Value of theCommon Stock on June 11, 2015.“Fair Market Value” of the Common Stock on any date will be theclosing price on such date as reported in the composite transactiontable covering transactions of New York Stock Exchange(“Exchange”) listed securities, or if such Exchange is closed, or if theCommon Stock does not trade on such date, the closing pricereported in the composite transaction table on the last trading dateimmediately preceding such date, or such other amount as the Boardmay ascertain reasonably to represent such fair market value;provided however, that such determination will be in accordance withthe requirements of Treasury Regulation section 1.409A-1(b)(5)(iv), orits successor.“Good Reason” will mean, following a Change in Control, a conditionresulting from any of the actions listed below taken by the Companythat is directed at You without Your consent: (a)a material decrease in Your salary or incentive compensationopportunity (the amount paid at target as a percentage ofsalary under the Corporation’s Management IncentiveCompensation Program or any successor program then ineffect); or(b)failure by the Company to pay You a material portion of Yourcurrent base salary, or incentive compensation within sevendays of its due date; or(c)a material adverse change in reporting responsibilities, duties,or authority; or(d)a material diminution in the authority, duties, orresponsibilities of the supervisor to whom You are required toreport without a corresponding increase in Your authority,duties or responsibilities; or(e)a requirement that You report to a corporate officer oremployee other than the Chief Executive Officer of theCompany; or(f)a material diminution in the budget over which You retainauthority; or(g)the Company requires You to change Your principal locationof work to a location more than 50 miles from the locationthereof immediately prior to such change; or (h)discontinuance of any material paid time off policy, fringebenefit, welfare benefit, incentive compensation, equitycompensation, or retirement plan (without substantiallyequivalent compensating remuneration or a plan or policyproviding substantially similar benefits) in which Youparticipate or any action that materially reduces Your benefitsor payments under such plans;provided, however, that You must provide notice to the Corporation ofthe existence of any condition described above within 90 days of theinitial existence of the condition, upon the notice of which theCorporation will have 30 days during which it or the Company mayremedy the condition. Any separation from service as a result of aGood Reason condition must occur as of the later of (i) two years afterthe Change in Control, or (ii) 180 days after the initial existence of thecondition described in (a) through (h) above that constitutes “GoodReason.”“Involuntary Separation from Service” will mean Your separation fromservice due to the independent exercise of the unilateral authority ofthe Company to terminate Your services, other than due to Yourimplicit or explicit request, where You were willing and able to continueperforming services, within the meaning of Code Section 409A andTreasury Regulation section 1.409A-1(n)(1) or any successor thereto.“Non-Qualified Stock Option” shall mean a right to purchase from theCompany at any time not more than ten years following the Date ofGrant, one share of Common Stock for the Exercise Price, which isnot less than the Fair Market Value of a share of Common Stock onthe Date of Grant, that is not intended to qualify as an “incentive stockoption” that satisfies the requirements of section 422 of the Code. AStock Option that is not intended to qualify as an Incentive StockOption.“Retirement” will mean Your termination of employment with theCompany other than for Cause on or after the date You attain age 55with at least 15 years of service, or on or after You attain age 60 withat least 10 years of service.“Trading Date” shall mean a day on which the Company’s CommonStock trades on the New York Stock Exchange (“NYSE”).Vesting of Your Non-Qualified Stock OptionThis Non-Qualified Stock Option will generally become exercisable(“Vest”) in three (3) equal installments over a three (3) year period onthe first, second, and third anniversaries of the Date of Grant (the“Vest Date”), according to the schedule below. YOU MUST REMAINCONTINUOUSLY EMPLOYED BY THE COMPANY THROUGHEACH VEST DATE (unless Your employment terminates due to YourDisability, death, or if You are party to a Termination Pay Agreement(“TPA”), an Involuntary Separation from Service without Cause asdefined in the TPA) to Vest in in a particular installment of Your Non-Qualified Stock Option award; otherwise any unvested Non-QualifiedStock Options granted will be forfeited. Vest DatePercent VestingJune 11, 201633-1/3%June 11, 201733-1/3%June 11, 201833-1/3%Acceleration of VestingIf Your employment terminates due to Retirement, Disability, or deathor you experience an Involuntary Separation from Service other thanfor Cause as a result of a, job restructuring, reduction in force, or unitclosing before any applicable Vest date of your Non-Qualified StockOption, your Non-Qualified Stock Option will vest on a pro-rata basis.The pro-rata portion of your Non-Qualified Stock Option that will vestwill be determined by multiplying the “Number of Stock OptionsGranted” from above by a fraction, the numerator of which is thenumber of months from the Grant Date to the effective date of yourtermination of employment, inclusive, and the denominator of which is36. The number of Non-Qualified Stock Options that have alreadyvested according to the terms herein, if any, will be subtracted fromthe prorated amount and the remaining prorated Non-Qualified StockOptions will become vested and immediately exercisable. Any Non-Qualified Stock Options that have not already vested or for whichvesting is not accelerated will expire on such employment termination.If you are party to a TPA, and you experience an InvoluntarySeparation from Service without Cause under, and as defined in thatTPA (even if that Involuntary separation from Service without case isa result of a, job restructuring, reduction in force, or unit closing), thenthe number of Non-Qualified Stock Options that will vest and becomeexercisable will be determined according to the terms of the underlyingTPA. If the applicable TPA calls for pro-rata vesting of this Non-Qualified Stock Option then the pro-rata portion of your Non-QualifiedStock Option that will vest will be determined by multiplying the“Number of Stock Options Granted” from above by a fraction, thenumerator of which is the number of months from the Grant Date tothe effective date of your termination of employment, inclusive, andthe denominator of which is 36. The number of Non-Qualified StockOptions that have already vested according to the terms herein, ifany, will be subtracted from the prorated amount and the remainingprorated Non-Qualified Stock Options will become vested andimmediately exercisable.If following a Change in Control You experience an InvoluntarySeparation from Service other than for Cause or You voluntarilyterminate your employment for Good Reason, Your Non-QualifiedStock Option will vest on a pro-rata basis. The pro-rata portion of yourNon-Qualified Stock Option that will vest will be determined bymultiplying the “Number of Stock Options Granted” from above by afraction, the numerator of which is the number of months from theGrant Date to the effective date of your termination of Employment,inclusive, and the denominator of which is 36. The number of Non-Qualified Stock Options that have already vested according to theterms herein, if any, will be subtracted from the prorated amount andthe remaining prorated Non-Qualified Stock Options will becomevested and immediately exercisable. Any Non-Qualified Stock Optionsthat have not already vested or for which vesting is not acceleratedwill expire on such employment termination.In the case of any Involuntary Separation from Service other than forCause, or, following a Change in Control, a voluntary termination ofyour employment for Good Reason, the delivery of any Non-QualifiedStock Options that vest in connection with such termination ofemployment will be subject to (a) the execution and delivery of arelease in such form as may be required by the Company and (b) theexpiration of the applicable revocation period for such release.If You voluntarily terminate your employment, other than a voluntarytermination of your employment for Good Reason following a Changein Control, or You experience an Involuntary Separation from Servicefor Cause then all vested but as yet unexercised and unvested Non-Qualified Stock Options will be cancelled on the effective date of Youremployment termination as a result of the Involuntary Separation fromService for Cause or Your resignation.You may designate a beneficiary to receive any shares of CommonStock in which You may vest if Your employment is terminated as aresult of Your death by completing a beneficiary designation form insuch form as may be prescribed from time to time by the Company.The beneficiary listed on Your beneficiary designation form will receivethe vested portion of Your Non-Qualified Stock Option award in thecase of the termination of employment due to Your death.Expiration DateUnless the right to purchase shares of Common Stock under this Non-Qualified Stock Option expires sooner, as described in the Post-Separation Exercise Period table, below, this Non-Qualified StockOption shall expire and all rights to purchase shares of CommonStock hereunder shall cease on the tenth anniversary of the Date ofGrantExercise of Non-Qualified Stock Options and Issuance of Sharesof Common StockExercise. Your Non-Qualified Stock Option may be exercised only bydelivery to the Company, or its designee, of notice, in such form asshall be permitted by the Company or its designee, stating the numberof shares of Common Stock being purchased, the method of payment,and such other matters as may be considered appropriate by theCompany in connection with the issuance of shares of Non-QualifiedStock Option upon exercise of your Non-Qualified Stock Option,together with payment in full of the Exercise Price for the number ofshares of Common Stock being purchased. The effective date ofexercise of a Non-Qualified Stock Option (which in no event, may bebeyond the expiration date of the Non-Qualified Stock Option) shall be(i) in connection with a sell order for the underlying stock that is a“Sell-to-Cover Order,” a “Same-Day-Sale Exercise Order,” a LimitOrder, a “Good-till” Cancelled Order or the like, the date on which suchsell order is actually executed, or (ii) in connection with an “Exerciseand Hold” (cash exercise) transaction, the date the requisite funds arereceived by the Company at its home office in Plano, Texas or suchother location as the Company may designate, or by a third party dulydesignated by the Company at the offices of such third party, in themanner determined by the Chief Executive Officer or the Chief TalentOfficer, or their respective successors by title or office; provided,however, that if the date of exercise, as otherwise determined aboveis not a Trading Date, the date of exercise shall be deemed to be thenext Trading Date. Further, an exercise instruction received after theclose of the NYSE on a particular day it shall be deemed received asof the opening of the next Trading DatePayment. Payment equal to the aggregate Exercise Price for theshares subject to your Non-Qualified Stock Option and for whichnotice of exercise has been provided by You to the Company, alongwith any applicable withholding taxes as described herein, shall betendered in full, with the notice of exercise, in cash (by check) or by (i)the actual or constructive transfer to the Company of non-forfeitable,non-restricted shares of Common Stock that have been owned by Youfor more than six months prior to the date of exercise; (ii) using thenet proceeds (after paying all selling fees) from the sale of some (the“Sell-to-Cover Exercise Method”) or all (the “Same-Day-Sale ExerciseMethod”), of the shares of Common Stock received on the exercise ofthe Non-Qualified Stock Option, or from any arrangement pursuant towhich You irrevocably instructs a broker-dealer to sell a sufficientportion of such shares to pay the Exercise Price, along with anyapplicable withholding taxes described herein, and related feesthereon and deliver the sale proceeds directly to the Company; (iii)through a “margin” commitment whereby You elect to exercise theNon-Qualified Stock Option and to pledge the shares of CommonStock so purchased to the NASD Dealer in a margin account assecurity for a loan from the NASD Dealer in the amount of theExercise Price, and whereby the NASD Dealer commits upon receiptof such shares of Common Stock to forward the Exercise Pricedirectly to the Company; (iv) by surrender for cancellation of shares ofCommon Stock at the Fair Market Value per share at the time ofexercise under a “net exercise” arrangement; provided, however, thatuse of a “net exercise” arrangement cannot result in the Non-QualifiedStock Option being settled either in whole or in part for cash payableto the Associate Participant; (v) in accordance with such otherprocedures or in such other forms as the Company shall from time totime determine; or (vi) any combination of the above, each as mayfrom time to time be permitted by the Company in its sole discretion.In connection with the Sell-to-Cover Exercise Method or the Same-Day-Sale Exercise Method the value of the shares of Common Stockused in payment of the Exercise Price shall be the price at which theCommon Stock was sold by the broker-dealer functioning under theCommon Stock was sold by the broker-dealer functioning under theSell-to-Cover Exercise Method or the Same-Day-Sale ExerciseMethod on the effective date of exercise. Further, the amount of theproceeds to be delivered to the Company by the broker-dealerfunctioning under the Sell-to-Cover Exercise Method or the Same-Day-Sale Exercise Method shall be credited to the Common Stock accountof the Company as consideration for the shares of Common Stock tobe issued in accordance with the Sell-to-Cover Exercise or the Same-Day-Sale Exercise Method.Issuance. On payment of all amounts due, the Company shall,subject to the provisions of paragraph (p) in the section below titled“Miscellaneous,” cause certificates for the Common Stock then beingpurchased to be delivered as directed by You (or the personexercising Your Non-Qualified Stock Option in the event of Yourdeath) at its principal business office promptly after the ExerciseDate. The obligation of the Company to deliver shares of CommonStock shall, however, be subject to the condition that if at any timethe Company shall determine in its discretion that the listing,registration or qualification of the Non-Qualified Stock Option or theCommon Stock upon any securities exchange or inter-dealer quotationsystem or under any state or federal law, or the consent or approval ofany governmental regulatory body, is necessary or desirable as acondition of, or in connection with, the Non-Qualified Stock Option orthe issuance or purchase of shares of Common Stock thereunder, theNon-Qualified Stock Option may not be exercised in whole or in partunless such listing, registration, qualification, consent or approvalshall have been effected or obtained free of any conditions notacceptable to the Company.Post-Separation Exercise PeriodReason For Separation FromServicePost-Separation Exercise PeriodInvoluntary Separation from Servicefor CauseNoneVoluntary Separation from Service(other than a Voluntary Separationfrom Service for Good Reasonfollowing a Change in Control)90 days following the effective dateof terminationInvoluntary Separation from Servicewithout Cause (but not a jobelimination, job restructuring orreduction in force) or VoluntarySeparation from Service for GoodReason following a Change inControlOne year following the effectivedate of terminationInvoluntary Separation from Servicewithout Cause as a result of a jobelimination, job restructuring orreduction in forceTwo years following the effectivedate of terminationSeparation from Service as a result ofRetirement, death, or DisabilityFive years following the effectivedate of terminationOnce the applicable post-termination exercise period described in thetable above has passed, all unexercised Non-Qualified Stock Optionswill be cancelled and will no longer be exercisable. In all cases thepost-separation exercise period described in the table above will notextend beyond the Non-Qualified Stock Option award’s originalExpiration Date.Recoupment Equity awards are subject to the Company’s currently effectiverecoupment policy, as that policy may be amended from time to timeby the Board or applicable statute or regulations. Under therecoupment policy, the Human Resources and CompensationCommittee of the Board may require the Company, to the extentpermitted by law, to cancel any of Your outstanding equity awards,including both vested and unvested awards, and/or to recover financialproceeds realized from the exercise of awards in the event of (i) afinancial restatement arising out of the willful actions, including withoutlimitation fraud or intentional misconduct, or gross negligence of anyparticipant in the Company’s compensation plans or programs,including without limitation, cash bonus and stock incentive plans,welfare plans, or deferred compensation plans, or (ii) other events asestablished by applicable statute or regulations.Taxes and WithholdingThe exercise of any Non-Qualified Stock Option and the relatedissuance of shares of Common Stock will be subject to thesatisfaction of all applicable federal, state, and local income andemployment tax withholding requirements and any rules andregulations adopted under any of the foregoing and, in the case ofParticipants who are subject to Section 16 of the Exchange Act, anyrestrictions set forth in Section 16 of the Exchange Act. Yourwithholding rate with respect to this award may not be higher than theminimum statutory rate.Changes in Capitalization and Similar ChangesIn the event of any change in the value or number of shares ofCommon Stock outstanding, or the assumption and conversion of thisNon-Qualified Stock Option award, by reason of any stock dividend,stock split, dividend or distribution, whether in cash, shares or otherproperty (other than a normal cash dividend), recapitalization,reorganization, merger, consolidation, split-up, spin-off, combination orexchange of shares, an equitable and proportionate adjustment will bemade to the number and class of shares which may be subject to theNon-Qualified Stock Option in this Notice.MiscellaneousMiscellaneous(a)Dispute Resolution. Any dispute between the parties underthis Notice will be resolved (except as provided below)through informal arbitration by an arbitrator selected under therules of the American Arbitration Association for arbitration ofemployment disputes (located in the city in which theCompany’s principal executive offices are based) and thearbitration will be conducted in that location under the rules ofsaid Association. Each party will be entitled to presentevidence and argument to the arbitrator. The arbitrator willhave the right only to interpret and apply the provisions of thisNotice and may not change any of its provisions. Thearbitrator will permit reasonable pre-hearing discovery of facts,to the extent necessary to establish a claim or a defense to aclaim, subject to supervision by the arbitrator. Thedetermination of the arbitrator will be conclusive and bindingupon the parties and judgment upon the same may be enteredin any court having jurisdiction thereof. The arbitrator will givewritten notice to the parties stating the arbitrator’sdetermination, and will furnish to each party a signed copy ofsuch determination. The expenses of arbitration will be borneequally by the Company and You or as the arbitrator equitablydetermines consistent with the application of state or federallaw; provided, however, that Your share of such expenses willnot exceed the maximum permitted by law. To the extentapplicable, in accordance with Code section 409A andTreasury Regulationsection 1.409A-3(i)(1)(iv)(A) or any successor thereto, anypayments or reimbursement of arbitration expenses which theCompany is required to make under the foregoing provisionwill meet the requirements below. The Company willreimburse You for any such expenses, promptly upon deliveryof reasonable documentation, provided, however, all invoicesfor reimbursement of expenses must be submitted to theCompany and paid in a lump sum payment by the end of thecalendar year following the calendar year in which theexpense was incurred. All expenses must be incurred within a20 year period following Your separation from service asdefined in section 409A of the Code and the applicableTreasury regulations thereunder. The amount of expensespaid or eligible for reimbursement in one year under thisSection governing the resolution of disputes under this Noticewill not affect the expenses paid or eligible for reimbursementin any other taxable year. The right to payment orreimbursement under this Section governing the resolution ofdisputes under this Notice will not be subject to liquidation orexchange for another benefit.Any arbitration or action pursuant to this Sectiongoverning the resolution of disputes under this Noticewill be governed by and construed in accordance with thesubstantive laws of the State of Delaware and, whereapplicable, federal law, without giving effect to theprinciples of conflict of laws of such State. Themandatory arbitration provisions of this Section willsupersede in their entirety the J.C. Penney Alternative, adispute resolution program generally applicable toemployment terminations.(b)No Right to Continued Employment. Nothing in this awardwill confer on You any right to continue in the employ of theCompany or affect in any way the right of the Company toterminate Your employment without prior notice, at any time,for any reason, or for no reason.(b)Unsecured General Creditor. Neither You nor Yourbeneficiaries, heirs, successors, and assigns will have a legalor equitable right, interest or claim in any property or assets ofthe Company. For purposes of the payments under thisNotice, any of the Company's assets will remain assets of theCompany and the Company's obligation under this Notice willbe merely that of an unfunded and unsecured promise toissue shares of Common Stock to You in the future pursuantto the terms of this Notice.(c)Stockholder Rights. You (including for purposes of thisSection, Your legatee, distributee, guardian, legalrepresentative, or other third party, as the Board or itsdesignee may determine) will have no stockholder rights withrespect to any shares of Common Stock subject to the awardunder this Notice until such shares of Common Stock areissued to You. Shares of Common Stock will be deemedissued on the date on which they are issued in Your name.(d)Indemnification. Each person who is or will have been amember of the Board or any committee of the Board will beindemnified and held harmless by the Company against andfrom any loss, cost, liability, or expense that may be imposedon or reasonably incurred by him in connection with orresulting from any claim, action, suit, or proceeding to whichhe may be made party or in which he may be involved byreason of any determination, interpretation, action taken orfailure to act under this Notice and against and from any andall amounts paid by him in settlement thereof, with theCompany’s approval, or paid by him in satisfaction of anyjudgment in any such action, suit or proceeding against him,provided he will give the Company an opportunity, at its ownexpense, to handle and defend the same before heundertakes to handle and defend it on his own behalf. Theforegoing right of indemnification will not be exclusive and willbe independent of any other rights of indemnification to whichsuch persons may be entitled under the Company’ssuch persons may be entitled under the Company’sCertificate of Incorporation, By-laws, by contract, as a matterof law, or otherwise.(e)Transferability of Your Non-Qualified Stock Option. Novested or unvested Non-Qualified Stock Option that is thesubject of this Notice may be assigned or transferred otherthan by will or the laws of descent and distribution or by suchother means and on such terms as the Company, in itsdiscretion, may approve from time to time, and no Non-Qualified Stock Option will be exercisable during Your lifetimeexcept by You or Your guardian or legal representative, orother such third party as the Company may determine.(f)Cessation of Obligation. The Company's liability will bedefined only by this Notice. Upon distribution to You of allshares of Common Stock due under this Notice, allresponsibilities and obligations of the Company will be fulfilledand You will have no further claims against the Company forfurther performance under this Notice.(g)Effect on Other Benefits. The value of the shares ofCommon Stock covered by this Non-Qualified Stock Optionaward will not be included as compensation or earnings forpurposes of any other compensation, Retirement, or benefitplan offered to Company associates.(h)Administration. This Notice will be administered by theBoard, or its designee. The Board, or its designee, has fullauthority and discretion to decide all matters relating to theadministration and interpretation of this Notice. The Board’s,or its designee’s, determinations will be final, conclusive, andbinding on You and Your heirs, legatees and designees.(i)Entire Notice and Governing Law. This Notice constitutesthe entire agreement between You and the Company withrespect to the subject matter hereof and supersedes in itsentirety all prior undertakings and agreements between Youand the Company with respect to the subject matter hereof,and may not be modified adversely to Your interest except bymeans of a writing signed by the You and the Company.Nothing in this Notice (except as expressly provided herein) isintended to confer any rights or remedies on any person otherthan You and the Company. This Non-Qualified Stock Optionaward will be governed by the internal laws of the State ofDelaware, regardless of the dictates of Delaware conflict oflaws provisions.(j)Interpretive Matters. The captions and headings used in thisNotice are inserted for convenience and will not be deemed apart of the award or this Notice for construction orinterpretation.(k)Notice. For all purposes of this Notice, all communicationsrequired or permitted to be given hereunder will be in writingand will be deemed to have been duly given when handdelivered or dispatched by electronic facsimile transmission(with receipt thereof confirmed), or five business days afterhaving been mailed by United States registered or certifiedmail, return receipt requested, postage prepaid, or threebusiness days after having been sent by a nationallyrecognized overnight courier service, addressed to theCompany at its principal executive office, c/o the Company’sGeneral Counsel, and to You at Your principal residence, or tosuch other address as any party may have furnished to theother in writing and in accordance herewith, except thatnotices of change of address will be effective only on receipt.(l)Severability and Reformation. The Company intends allprovisions of this Notice to be enforced to the fullest extentpermitted by law. Accordingly, should a court of competentjurisdiction determine that the scope of any provision of thisNotice is too broad to be enforced as written, the court shouldreform the provision to such narrower scope as it determinesto be enforceable. If, however, any provision of this Notice isheld to be wholly illegal, invalid, or unenforceable underpresent or future law, such provision will be fully severableand severed, and this Notice will be construed and enforcedas if such illegal, invalid, or unenforceable provision werenever a part hereof, and the remaining provisions of thisNotice will remain in full force and effect and will not beaffected by the illegal, invalid, or unenforceable provision orby its severance.(m)Execution and Acknowledgement. This Notice may beexecuted or acknowledged electronically or by such othermeans as may be permitted by the Company.(n)Amendments; Waivers. This Notice may not be modified,amended, or terminated except by an instrument in writing,approved by the Company and signed by You and theCompany. Failure on the part of either party to complain ofany action or omission, breach or default on the part of theother party, no matter how long the same may continue, willnever be deemed to be a waiver of any rights or remedieshereunder, at law or in equity. The Executive or the Companymay waive compliance by the other party with any provisionof this Notice that such other party was or is obligated tocomply with or perform only through an executed writing;provided, however, that such waiver will not operate as awaiver of, or estoppel with respect to, any other orsubsequent failure.subsequent failure.(o)No Inconsistent Actions. The parties hereto will notvoluntarily undertake or fail to undertake any action or courseof action that is inconsistent with the provisions or essentialintent of this Notice. Furthermore, it is the intent of the partieshereto to act in a fair and reasonable manner with respect tothe interpretation and application of the provisions of thisNotice.(p)No Issuance of Certificates. To the extent this Noticeprovides for issuance of stock certificates to reflect theissuance of shares of Common Stock in connection with thisaward, the issuance may be effected on a non-certificatebasis, to the extent not prohibited by applicable law or theapplicable rules of any stock exchange on which the CommonStock is traded.(q) Compliance with Applicable Legal Requirements.Notwithstanding anything contained herein to the contrary, theCompany will not be required to sell or issue shares ofCommon Stock in connection with the award under this Noticeif the issuance thereof would constitute a violation by You orthe Company of any provisions of any law or regulation of anygovernmental authority or any national securities exchange orinter-dealer quotation system or other forum in which sharesof Common Stock are quoted or traded (including withoutlimitation Section 16 of the Securities Exchange Act of 1934);and, as a condition of any sale or issuance of shares ofCommon Stock under this Notice, the Board or its designeemay require such agreements or undertakings, if any, as theBoard or its designee may deem necessary or advisable toassure compliance with any such law or regulation. The grantand operation of this award, as evidenced by this Notice, andthe obligation of the Company to sell and deliver shares ofCommon Stock, will be subject to all applicable federal andstate laws, rules and regulations and to such approvals byany government or regulatory agency as may be required.Exhibit 10.73Stock Option GrantAgreement [Participant Name]Employee ID [Grant Date]Option Grant Price Per Share[Grant Price]Number of NSO Shares Granted[Options Granted]This Non-Qualified Stock Option ("NSO") Grant Agreement(“Agreement”) gives you the right to purchase the total number ofshares of Common Stock of 50 par value ("Common Stock") of J. C.Penney Company, Inc. ("Company") at the Option Grant Price PerShare shown above. This grant is subject to all the terms, rules, andconditions of the 2014 J. C. Penney Company, Inc. Long-TermIncentive Plan (“Plan”) and the implementing resolutions(“Resolutions”) approved by the Human Resources and CompensationCommittee (“Committee”) of the Company’s Board of Directors(“Board”). Capitalized terms not otherwise defined herein shall havethe respective meanings assigned to them in the Plan and theResolutions. In order to receive the benefits under this Agreement,you must affirmatively accept the terms of this Agreement by signingit, whether physically or via alternative electronic means acceptable tothe Company, acknowledging your acceptance of the terms underwhich this Stock Option award is granted. You have 90 days fromthe date this Agreement is made available to you, eitherphysically or electronically to accept the terms of this Agreement.If you do not accept the terms of this Agreement in the applicable 90day period the Stock Options that are the subject of this Agreementwill be forfeited by you.Vesting TermsThis NSO will generally become exercisable (“Vest”) on [VESTINGDATE] (“Vest Date”). You must remain continuously employed by theCompany through the Vest date (unless you experience a separationfrom service due to your Retirement, Disability, death, jobrestructuring, reduction in force, or unit closing) to Vest in your NSO;otherwise the NSOs granted will be forfeited.Separation from ServiceIf you experience a separation from service due to Retirement,Disability, death, job restructuring, reduction in force, or unit closingbefore the Vest date of your NSO, your NSO will vest on a pro-ratabasis. The pro-rata portion of your NSO that will vest will bedetermined by multiplying the “Number of NSO Shares Granted” fromabove by a fraction, the numerator of which is the number of monthsfrom the Grant Date to the effective date of your termination ofEmployment, inclusive, and the denominator of which is [VESTINGMONTHS]. Any NSOs for which vesting is not accelerated will expireon such separation from service.If you experience a separation from service as a result of anEmployment Termination then all unvested NSOs shall become fullyvested on the date of any such Employment Termination.Notwithstanding the foregoing, if you are party to a terminationagreement, and your Employment is terminated due to an involuntaryseparation from service Cause under, and as defined in thattermination agreement, and such separation from service is not anEmployment Termination, then the number of NSOs that will becomeexercisable will be determined according to the terms of the underlyingtermination agreement subject to (a) the execution and delivery of arelease in such form as may be required by the Company and (b) theexpiration of the applicable revocation period for such release.If your Employment terminates for any other reason then all unvestedand unexercised NSOs will expire as of the date of your separationfrom service.  Please see the Plan for all terms, rules, and conditions, including thepost-termination of Employment exercise period applicable to thisNSO.Covenants and RepresentationsBy accepting this award you hereby acknowledge that your duties tothe Company require access to and creation of the Company’sconfidential or proprietary information and trade secrets (collectively,the “Proprietary Information”). The Proprietary Information has beenand will continue to be developed by the Company and its subsidiariesand affiliates at substantial cost and constitutes valuable and uniqueproperty of the Company. You further acknowledge that due to thenature of your position, you will have access to ProprietaryInformation affecting plans and operations in every location in whichthe Company (and its subsidiaries and affiliates) does business orplans to do business throughout the world, and your decisions andrecommendations on behalf of the Company may affect its operationsthroughout the world. Accordingly, by accepting this award youacknowledge that the foregoing makes it reasonably necessaryfor the protection of the Company’s business interests that youagree to the following covenants in connection with (i) yourinvoluntary separation from service, as defined under Treasuryregulation §1.409A-1(n), other than for Cause, or (ii) yourvoluntary separation from service:Confidentiality. You hereby covenant and agree that you shall not,without the prior written consent of the Company, during youremployment with the Company or at any time thereafter disclose toany person not employed by the Company, or use in connection withengaging in competition with the Company, any ProprietaryInformation of the Company.(a)It is expressly understood and agreed that the Company’sProprietary Information is all nonpublic information relating tothe Company’s business, including but not limited toinformation, plans and strategies regarding suppliers,pricing, marketing, customers, hiring and terminations,employee performance and evaluations, internal reviews andinvestigations, short term and long range plans, acquisitionsand divestitures, advertising, information systems, salesobjectives and performance, as well as any other nonpublicinformation, the nondisclosure of which may provide acompetitive or economic advantage to the Company.Proprietary Information shall not be deemed to have becomepublic for purposes of this Agreement where it has beendisclosed or made public by or through anyone acting inviolation of a contractual, ethical, or legal responsibility tomaintain its confidentiality.(b)In the event you receive a subpoena, court order or othersummons that may require you to disclose ProprietaryInformation, on pain of civil or criminal penalty, you willpromptly give notice to the Company of the subpoena orsummons and provide the Company an opportunity toappear at the Company’s expense and challenge thedisclosure of its Proprietary Information, and you shallprovide reasonable cooperation to the Company forpurposes of affording the Company the opportunity toprevent the disclosure of the Company’s ProprietaryInformation.(c)Nothing in this Agreement shall restrict you from, directly orindirectly, initiating communications with or responding toany inquiry from, or providing testimony before, theSecurities and Exchange Commission (“SEC”), FinancialIndustries Regulatory Authority (“FINRA”), or any other self-regulatory organization or state or federal regulatoryauthority.Nonsolicitation of Employees. You hereby covenant and agree thatduring your employment with the Company and, in the event you, asnoted above, (i) have a voluntary separation from service, or (ii) havean involuntary separation from service other than for cause andreceive benefits under your termination agreement, that for a periodequal to (x) 18 months, if you are an Executive Vice President on thedate of your separation from service, or (y) 12 months, if you are aSenior Vice President, thereafter, you shall not, without the priorwritten consent of the Company, on your own behalf or on the behalfof any person, firm or company, directly or indirectly, attempt toinfluence, persuade or induce, or assist any other person in sopersuading or inducing, any of the employees of the Company (or anyof its subsidiaries or affiliates) to give up his or her employment withthe Company (or any of its subsidiaries or affiliates), and you shall notdirectly or indirectly solicit or hire employees of the Company (or anyof its subsidiaries or affiliates) for employment with any otheremployer, without regard to whether that employer is a CompetingBusiness, as defined below.Noninterference with Business Relations. You hereby covenant andagree that during your employment with the Company and, in theevent you, as noted above, (i) have a voluntary separation fromservice, or (ii) have an involuntary separation from service other thanfor cause and receive benefits under your termination agreement, thatfor a period equal to (x) 18 months, if you are an Executive VicePresident on the date of your separation from service, or (y) 12months, if you are a Senior Vice President, thereafter, you shall not,without the prior written consent of the Company, on your own behalfor on the behalf of any person, firm or company, directly or indirectly,attempt to influence, persuade or induce, or assist any other person inso persuading or inducing, any person, firm or company to ceasedoing business with, reduce its business with, or decline tocommence a business relationship with, the Company (or any of itssubsidiaries or affiliates).Noncompetition.(a)You hereby covenant and agree that during youremployment with the Company and, in the event you, asnoted above, (i) have a voluntary separation from service, or(ii) have an involuntary separation from service other thanfor cause and receive benefits under your terminationagreement, that for a period equal to (x) 18 months, if youare an Executive Vice President on the date of yourseparation from service, or (y) 12 months, if you are aSenior Vice President, thereafter, you will not, except asotherwise provided for below, undertake any work for aCompeting Business, as defined in (b).(b)As used in this Agreement, the term “Competing Business”shall specifically include, but not be limited to:(i)Kohl’s Corporation, Macy’s, Inc., Target Corporation,The TJX Companies, Inc., Ross Stores, Inc., Wal-MartStores, Inc., Amazon.com, Inc., and any of theirrespective subsidiaries or affiliates, or(ii)any business (A) that, at any time during theSeverance Period, competes directly with theCorporation through sales of merchandise or services inthe United States or another country or commonwealthin which the Corporation, including its divisions,affiliates and licensees, operates, and (B) where theExecutive performs services, whether paid or unpaid, inany capacity, including as an officer, director, owner,consultant, employee, agent, or representative, wheresuch services involve the performance of (x)substantially similar duties or oversight responsibilitiesas those performed by the Executive at any time duringthe 12-month period preceding the Executive’stermination from the Corporation for any reason, or (y)greater duties or responsibilities that include suchsubstantially similar duties or oversight responsibilitiesas those referred to in (x); or(iii)any business that provides buying office or sourcingservices to any business of the types referred to in thissection (b).(c)For purposes of this section, the restrictions on working fora Competing Business shall include working at any locationwithin the United States or Puerto Rico. You acknowledgethat the Company is a national retailer with operationsthroughout the United States and Puerto Rico and that theduties and responsibilities that you perform, or will perform,for the Company directly impact the Company’s ability tocompete with a Competing Business in a nationwidemarketplace. You further acknowledge that you have, or willhave, access to sensitive and confidential information of theCompany that relates to the Company’s ability to compete ina nationwide marketplace.Non-Disparagement. You covenant that you will not make anystatement or representation, oral or written, that could adversely affectthe reputation, image, goodwill or commercial interests of theCompany. This provision will be construed as broadly as state orfederal law permits, but no more broadly than permitted by state orfederal law. This provision is not intended to and does not prohibit youfrom participating in a governmental investigation concerning theCompany, or providing truthful testimony in any lawsuit, arbitration,mediation, negotiation or other matter. You agree not to incur anyexpenses, obligations or liabilities on behalf of the Company.Enforcement and Injunctive Relief. In addition to any other remediesto which the Company is entitled, on the Company’s becoming awarethat you have breached, or potentially have breached, any of theCovenants and Representations set forth in this Agreement, above,the Company shall have a right to seek recoupment of the portion ofany award under the Plan, or any plan or program that is a successorany award under the Plan, or any plan or program that is a successorto the Plan, that (i) vested within the 12 months prior to the date ofyour voluntary separation from service or your involuntary separationfrom service other than for cause, each under and as defined in yourtermination agreement, and (ii) includes and is subject to theseCovenants and Representations, including any proceeds or valuereceived from the exercise or sale of that portion of any such awards.Further, if you shall breach any of the covenants contained herein, theCompany may recover from you all such damages as it may beentitled to under the terms of this Agreement, any other agreementbetween the Company and you, at law, or in equity. In addition, youacknowledge that any such breach of the Covenants andRepresentations in the Agreement is likely to result in immediate andirreparable harm to the Company for which money damages are likelyto be inadequate. Accordingly, you consent to injunctive and otherappropriate equitable relief without the necessity of bond in excess of$500.00 upon the institution of proceedings therefor by the Companyin order to protect the Company’s rights hereunder.RecoupmentAs provided in Section 12.19 of the Plan this Award is subject to anycompensation recoupment policy adopted by the Board or theCommittee prior to or after the effective date of the Plan, and as suchpolicy may be amended from time to time after its adoption.This stock option grant does not constitute an employmentcontract. It does not guarantee employment for the length of thevesting period or for any portion thereof.Exhibit 10.74 Restricted Stock Unit GrantAgreement [Participant Name] Employee ID Number of Restricted Stock Units Granted[Number of Units Granted]Restricted Stock Unit GrantYou have been granted the number of Restricted Stock Units listedabove in recognition of your expected future contributions to thesuccess of J. C. Penney Company, Inc. (“Company”). EachRestricted Stock Unit shall at all times be deemed to have a valueequal to the then-current fair market value of one share of J. C.Penney Company, Inc. Common Stock of 50¢ par value (“CommonStock”). This grant is subject to all the terms, rules, and conditions ofthe 2014 J. C. Penney Company, Inc. Long-Term Incentive Plan(“Plan”) and the implementing resolutions (“Resolutions”) approved bythe Human Resources and Compensation Committee (“Committee”) ofthe Company’s Board of Directors (“Board”). Capitalized terms nototherwise defined herein shall have the respective meanings assignedto them in the Plan and the Resolutions. In order to receive thebenefits under this Restricted Stock Unit Grant Agreement(“Agreement”), you must affirmatively accept the terms of thisAgreement by signing it, whether physically or via alternativeelectronic means acceptable to the Company, acknowledging youracceptance of the terms under which this Restricted Stock Unit awardis granted. You have 90 days from the date this Agreement ismade available to you, either physically or electronically toaccept the terms of this Agreement. If you do not accept the termsof this Agreement in the applicable 90 day period the Restricted StockUnits that are the subject of this Agreement will be forfeited by you.Vesting of Your Restricted Stock UnitsThe Restricted Stock Units shall vest and the restrictions on yourRestricted Stock Unit shall lapse on [VESTING DATE] (“Vest Date”),provided you remain continuously employed by the Company throughthe Vest Date (unless your Employment terminates due to yourRetirement, Disability, death, job restructuring, reduction in force, orunit closing). Your vested Restricted Stock Units shall be distributed in shares ofCommon Stock as soon as practicable on or following the earlier of (i)your separation from service as a result of (A) your Retirement,Disability, or death, or (B) a job restructuring, reduction in force, or unitclosing, or (ii) the Vest Date provided above. Notwithstanding theforegoing, if you are a specified employee as defined under Section409A of the Code and the related Treasury regulations thereunder,your award is subject to Section 409A of the Code, and youexperience a separation from service as a result of your Retirementyour vested Restricted Stock Units shall be paid in shares of CommonStock as soon as practicable following the earlier of (i) the date that issix months following your separation from service due to Retirement(ii) the date of your death, or (iii) any applicable Vest Date providedabove. You shall not be allowed to defer the payment of your sharesof Common Stock to a later date.Dividend EquivalentsYou shall not have any rights as a stockholder until your RestrictedStock Units vest and you are issued shares of Common Stock incancellation of the vested Restricted Stock Units. If the Companydeclares a dividend, you will accrue dividend equivalents on theunvested Restricted Stock Units in the amount of any quarterlydividend declared on the Common Stock. Dividend equivalents shallcontinue to accrue until your Restricted Stock Units vest and youreceive actual shares of Common Stock in cancellation of the vestedRestricted Stock Units. The dividend equivalents shall be credited asadditional Restricted Stock Units in your account to be paid in sharesof Common Stock on the vesting date along with the Restricted StockUnits to which they relate. The number of additional Restricted StockUnits to be credited to your account shall be determined by dividingUnits to be credited to your account shall be determined by dividingthe aggregate dividend payable with respect to the number ofRestricted Stock Units in your account by the closing price of theCommon Stock on the New York Stock Exchange on the dividendpayment date. The additional Restricted Stock Units credited to youraccount are subject to all of the terms and conditions of thisRestricted Stock Unit award and the Plan and you shall forfeit youradditional Restricted Stock Units in the event that you forfeit theRestricted Stock Units to which they relate.Separation from ServiceIf you experience a separation from service due to (i) Retirement,Disability, or death, or (ii) job restructuring, reduction in force, or unitclosing prior to the Vest Date, you shall be entitled to a proratednumber of Restricted Stock Units. The proration shall be equal to afraction, the numerator of which is the number of months from theDate of Grant to the effective date of your termination of service,inclusive, and the denominator of which is [VESTING MONTHS]. Theresulting number of Restricted Stock Units to which you are entitledwill be distributed as provided in “Vesting of Your Restricted StockUnits” above. Any Restricted Stock Units for which vesting is notaccelerated shall be cancelled on such separation from service.If you experience a separation from service as a result of anEmployment Termination then all unvested Restricted Stock Unitsshall become fully vested on the date of any such EmploymentTermination. Any shares that vest following an EmploymentTermination will be distributed as provided in the “Vesting of YourRestricted Stock Units” section of this Notice.Notwithstanding the foregoing, if you are party to a terminationagreement, and your Employment is terminated due to an involuntaryseparation from service without cause (or summary dismissal) under,and as defined in that termination agreement, and such separationfrom service is not an Employment Termination, then the number ofRestricted Stock Units that will vest will be determined according tothe terms of the underlying termination agreement subject to (i) theexecution and delivery of a release in such form as may be requiredby the Company, (ii) the expiration of the applicable revocation periodfor such release. Any shares that vest under a termination agreementwill be distributed as provided in the “Vesting of Your Restricted StockUnits” section of this Notice.If your employment terminates for any reason other than thosespecified above, any unvested Restricted Stock Units shall beforfeited by you and cancelled on the effective date of termination.Covenants and RepresentationsBy accepting this award you hereby acknowledge that your duties tothe Company require access to and creation of the Company’sconfidential or proprietary information and trade secrets (collectively,the “Proprietary Information”). The Proprietary Information has beenand will continue to be developed by the Company and its subsidiariesand affiliates at substantial cost and constitutes valuable and uniqueproperty of the Company. You further acknowledge that due to thenature of your position, you will have access to ProprietaryInformation affecting plans and operations in every location in whichthe Company (and its subsidiaries and affiliates) does business orplans to do business throughout the world, and your decisions andrecommendations on behalf of the Company may affect its operationsthroughout the world. Accordingly, by accepting this award youacknowledge that the foregoing makes it reasonably necessaryfor the protection of the Company’s business interests that youagree to the following covenants in connection with (i) yourinvoluntary separation from service, as defined under Treasuryregulation §1.409A-1(n), other than for Cause, or (ii) yourvoluntary separation from service:Confidentiality. You hereby covenant and agree that you shall not,without the prior written consent of the Company, during youremployment with the Company or at any time thereafter disclose toany person not employed by the Company, or use in connection withengaging in competition with the Company, any ProprietaryInformation of the Company.(a)It is expressly understood and agreed that the Company’sProprietary Information is all nonpublic information relating tothe Company’s business, including but not limited toinformation, plans and strategies regarding suppliers,pricing, marketing, customers, hiring and terminations,employee performance and evaluations, internal reviews andinvestigations, short term and long range plans, acquisitionsand divestitures, advertising, information systems, salesobjectives and performance, as well as any other nonpublicinformation, the nondisclosure of which may provide acompetitive or economic advantage to the Company.Proprietary Information shall not be deemed to have becomepublic for purposes of this Agreement where it has beendisclosed or made public by or through anyone acting inviolation of a contractual, ethical, or legal responsibility tomaintain its confidentiality.(b)In the event you receive a subpoena, court order or othersummons that may require you to disclose ProprietaryInformation, on pain of civil or criminal penalty, you willpromptly give notice to the Company of the subpoena orsummons and provide the Company an opportunity toappear at the Company’s expense and challenge thedisclosure of its Proprietary Information, and you shallprovide reasonable cooperation to the Company forpurposes of affording the Company the opportunity toprevent the disclosure of the Company’s ProprietaryInformation.(c)Nothing in this Agreement shall restrict you from, directly orindirectly, initiating communications with or responding toany inquiry from, or providing testimony before, theSecurities and Exchange Commission (“SEC”), FinancialIndustries Regulatory Authority (“FINRA”), or any other self-regulatory organization or state or federal regulatoryauthority.Nonsolicitation of Employees. You hereby covenant and agree thatduring your employment with the Company and, in the event you, asnoted above, (i) have a voluntary separation from service, or (ii) havean involuntary separation from service other than for cause andreceive benefits under your termination agreement, that for a periodequal to (x) 18 months, if you are an Executive Vice President on thedate of your separation from service, or (y) 12 months, if you are aSenior Vice President, thereafter, you shall not, without the priorwritten consent of the Company, on your own behalf or on the behalfof any person, firm or company, directly or indirectly, attempt toinfluence, persuade or induce, or assist any other person in sopersuading or inducing, any of the employees of the Company (or anyof its subsidiaries or affiliates) to give up his or her employment withthe Company (or any of its subsidiaries or affiliates), and you shall notdirectly or indirectly solicit or hire employees of the Company (or anyof its subsidiaries or affiliates) for employment with any otheremployer, without regard to whether that employer is a CompetingBusiness, as defined below.Noninterference with Business Relations. You hereby covenant andagree that during your employment with the Company and, in theevent you, as noted above, (i) have a voluntary separation fromservice, or (ii) have an involuntary separation from service other thanfor cause and receive benefits under your termination agreement, thatfor a period equal to (x) 18 months, if you are an Executive VicePresident on the date of your separation from service, or (y) 12months, if you are a Senior Vice President, thereafter, you shall not,without the prior written consent of the Company, on your own behalfor on the behalf of any person, firm or company, directly or indirectly,attempt to influence, persuade or induce, or assist any other person inso persuading or inducing, any person, firm or company to ceasedoing business with, reduce its business with, or decline tocommence a business relationship with, the Company (or any of itssubsidiaries or affiliates).Noncompetition.(a)You hereby covenant and agree that during youremployment with the Company and, in the event you, asnoted above, (i) have a voluntary separation from service, or(ii) have an involuntary separation from service other thanfor cause and receive benefits under your terminationagreement, that for a period equal to (x) 18 months, if youare an Executive Vice President on the date of yourseparation from service, or (y) 12 months, if you are aSenior Vice President, thereafter, you will not, except asotherwise provided for below, undertake any work for aCompeting Business, as defined in (b).(b)As used in this Agreement, the term “Competing Business”shall specifically include, but not be limited to:(i)Kohl’s Corporation, Macy’s, Inc., Target Corporation,The TJX Companies, Inc., Ross Stores, Inc., Wal-MartStores, Inc, Amazon.com, Inc., and any of theirrespective subsidiaries or affiliates, or(ii)any business (A) that, at any time during theSeverance Period, competes directly with theCorporation through sales of merchandise or services inthe United States or another country or commonwealthin which the Corporation, including its divisions,affiliates and licensees, operates, and (B) where theExecutive performs services, whether paid or unpaid, inany capacity, including as an officer, director, owner,consultant, employee, agent, or representative, wheresuch services involve the performance of (x)substantially similar duties or oversight responsibilitiesas those performed by the Executive at any time duringthe 12-month period preceding the Executive’stermination from the Corporation for any reason, or (y)greater duties or responsibilities that include suchsubstantially similar duties or oversight responsibilitiesas those referred to in (x); or(iii)any business that provides buying office or sourcingservices to any business of the types referred to in thissection (b).(c)For purposes of this section, the restrictions on working fora Competing Business shall include working at any locationwithin the United States or Puerto Rico. You acknowledgethat the Company is a national retailer with operationsthroughout the United States and Puerto Rico and that theduties and responsibilities that you perform, or will perform,for the Company directly impact the Company’s ability tocompete with a Competing Business in a nationwidemarketplace. You further acknowledge that you have, or willhave, access to sensitive and confidential information of theCompany that relates to the Company’s ability to compete ina nationwide marketplace.Non-Disparagement. You covenant that you will not make anystatement or representation, oral or written, that could adversely affectthe reputation, image, goodwill or commercial interests of thethe reputation, image, goodwill or commercial interests of theCompany. This provision will be construed as broadly as state orfederal law permits, but no more broadly than permitted by state orfederal law. This provision is not intended to and does not prohibit youfrom participating in a governmental investigation concerning theCompany, or providing truthful testimony in any lawsuit, arbitration,mediation, negotiation or other matter. You agree not to incur anyexpenses, obligations or liabilities on behalf of the Company.Enforcement and Injunctive Relief. In addition to any other remediesto which the Company is entitled, on the Company’s becoming awarethat you have breached, or potentially have breached, any of theCovenants and Representations set forth in this Agreement, above,the Company shall have a right to seek recoupment of the portion ofany award under the Plan, or any plan or program that is a successorto the Plan, that (i) vested within the 12 months prior to the date ofyour voluntary separation from service or your involuntary separationfrom service other than for cause, each under and as defined in yourtermination agreement, and (ii) includes and is subject to theseCovenants and Representations, including any proceeds or valuereceived from the exercise or sale of that portion of any such awards.Further, if you shall breach any of the covenants contained herein, theCompany may recover from you all such damages as it may beentitled to under the terms of this Agreement, any other agreementbetween the Company and you, at law, or in equity. In addition, youacknowledge that any such breach of the Covenants andRepresentations in the Agreement is likely to result in immediate andirreparable harm to the Company for which money damages are likelyto be inadequate. Accordingly, you consent to injunctive and otherappropriate equitable relief without the necessity of bond in excess of$500.00 upon the institution of proceedings therefor by the Companyin order to protect the Company’s rights hereunder.RecoupmentAs provided in Section 12.19 of the Plan this Award is subject to anycompensation recoupment policy adopted by the Board or theCommittee prior to or after the effective date of the Plan, and as suchpolicy may be amended from time to time after its adoption.This Restricted Stock Unit grant does not constitute anemployment contract. It does not guarantee employment for thelength of the vesting period or for any portion thereof.Exhibit 12J.C. Penney Company, Inc.Computation of Ratios of Earnings to Fixed Charges(Unaudited) 52 Weeks 52 Weeks 52 Weeks 53 Weeks 52 Weeks Ended Ended Ended Ended Ended($ in millions)1/30/2016 1/31/2015 2/1/2014 2/2/2013 1/28/2012Income/(loss) from continuing operations before income taxes$(504) $(694) $(1,708) $(1,227) $(428)Fixed charges: Net interest expense405 406 352 226 227Interest income included in net interest— — 1 6 8Loss on extinguishment of debt, bond premiums andunamortized costs10 34 114 — —Estimated interest within rental expense94 98 99 101 104Total fixed charges509 538 566 333 339Total earnings available for fixed charges$5 $(156) $(1,142) $(894) $(89)Ratio of earnings to fixed charges— (0.3) (2.0) (2.7) (0.3)Coverage deficiency504 694 1,708 1,227 428Exhibit 18March 16, 2016J. C. Penney Company, Inc. Plano, TexasLadies and Gentlemen:We have audited the consolidated balance sheets of J. C. Penney Company, Inc. (the Company) as of January 30, 2016 and January 31,2015, and the related consolidated statements of income, comprehensive income/(loss), stockholders’ equity, and cash flows for each ofthe years in the three-year period ended January 30, 2016, and have reported thereon under date of March 16, 2016. Theaforementioned consolidated financial statements and our audit report thereon are included in the Company's annual report on Form 10-K for the year ended January 30, 2016. As stated in Note 3 to the consolidated financial statements, in 2015 the Company changed itsmethod of accounting for pension and postretirement benefits to immediately recognize actuarial gains and losses in its operating resultsin the year in which they occur, to the extent they exceed 10 percent of the greater of the fair value of plan assets or the plans’ projectedbenefit obligation, referred to as the corridor. Note 3 also states that the newly adopted accounting principle is preferable as it eliminatesthe delay in recognition of actuarial gains and losses outside the corridor. In accordance with your request, we have reviewed anddiscussed with Company officials the circumstances and business judgment and planning upon which the decision to make this changein the method of accounting was based.With regard to the aforementioned accounting change, authoritative criteria have not been established for evaluating the preferability ofone acceptable method of accounting over another acceptable method. However, for purposes of the Company's compliance with therequirements of the Securities and Exchange Commission, we are furnishing this letter.Based on our review and discussion, with reliance on management’s business judgment and planning, we concur that the newlyadopted method of accounting is preferable in the Company’s circumstances.Very truly yours,/s/ KPMG LLPEXHIBIT 21SUBSIDIARIES OF THE REGISTRANTSet forth below is a direct subsidiary of the Company as of March 16, 2016. All of the voting securities of this subsidiary are owned by the Company.SubsidiariesJ. C. Penney Corporation, Inc. (Delaware)The names of other subsidiaries have been omitted because these unnamed subsidiaries, considered in the aggregate as a single subsidiary, do not constitute asignificant subsidiary.Exhibit 23Consent of Independent Registered Public Accounting FirmThe Board of DirectorsJ. C. Penney Company, Inc.:We consent to the incorporation by reference in the registration statements on form S-8 (Registration Nos. 33-28390-99, 33-66070-99, 333-33343-99, 333-27329-99, 333-62066-99, 333-159349, 333-182202, 333-182825, 333-125356, 333-196151, and 333-208059) and form S-3 (Registration No. 333-188106-01) of J. C. Penney Company, Inc. of our reports dated March 16, 2016, with respect to the consolidated balance sheets of J. C. Penney Company, Inc. as ofJanuary 30, 2016 and January 31, 2015, and the related consolidated statements of operations, comprehensive income/ (loss), stockholders’ equity, and cashflows for each of the years in the three-year period ended January 30, 2016, and the effectiveness of internal control over financial reporting as of January 30,2016, which reports appear in the January 30, 2016 annual report on Form 10‑K of J. C. Penney Company, Inc.Our report dated March 16, 2016, on the consolidated balance sheets of J. C. Penney Company, Inc. as of January 30, 2016 and January 31, 2015, and therelated consolidated statements of operations, comprehensive income/ (loss), stockholders’ equity, and cash flows for each of the years in the three-yearperiod ended January 30, 2016, contains an explanatory paragraph that states the Company has elected to change its method of accounting for pension andpostretirement benefits to immediately recognize actuarial gains and losses in its operating results in the year in which they occur, to the extent they exceed10 percent of the greater of the fair value of plan assets or the plans’ projected benefit obligation, referred to as the corridor./s/ KPMG LLPDallas, TexasMarch 16, 2016Exhibit 24POWER OF ATTORNEYKNOW ALL MEN BY THESE PRESENTS THAT each of the undersigned directors and officers of J. C. PENNEY COMPANY, INC., a Delaware corporation,which will file with the Securities and Exchange Commission, Washington, D.C. (“Commission”), under the provisions of the Securities Exchange Act of1934, as amended, its Annual Report on Form 10-K for the fiscal year ended January 30, 2016 (“Annual Report”), hereby constitutes and appoints AndrewDrexler, Janet Link, and Edward Record, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power to each of them to actwithout the others, for him or her and in his or her name, place, and stead, in any and all capacities, to sign said Annual Report, which is about to be filed, andany and all subsequent amendments to said Annual Report, and to file said Annual Report so signed, and any and all subsequent amendments thereto sosigned, with all exhibits thereto, and any and all documents in connection therewith, and to appear before the Commission in connection with any matterrelating to said Annual Report, hereby granting to the attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and allacts and things requisite and necessary to be done in and about the premises as fully and to all intents and purposes as he or she might or could do in person,hereby ratifying and confirming all that such attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof.IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney as of the 16th day of March, 2016./s/ Myron E. Ullman, III /s/ Marvin R. EllisonMyron E. Ullman, IIIChairman of the Board; Director Marvin R. EllisonChief Executive Officer; Director (principal executive officer) /s/ Edward J. Record /s/ Andrew S. DrexlerEdward J. RecordExecutive Vice President andChief Financial Officer(principal financial officer) Andrew S. DrexlerSenior Vice President, Chief Accounting Officer and Controller(principal accounting officer) /s/ Colleen C. Barrett /s/ Thomas J. EngibousColleen C. BarrettDirector Thomas J. EngibousDirector /s/ Amanda Ginsberg /s/ B. Craig OwensAmanda GinsbergDirector B. Craig OwensDirector /s/ Leonard H. Roberts /s/ Stephen I. SadoveLeonard H. RobertsDirector Stephen I. SadoveDirector /s/ Javier G. Teruel /s/ R. Gerald TurnerJavier G. TeruelDirector R. Gerald TurnerDirector /s/ Ronald W. Tysoe Ronald W. TysoeDirector Exhibit 31.1 CERTIFICATION I, Marvin R. Ellison, certify that:1.I have reviewed this annual report on Form 10-K of J. C. Penney Company, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting. Date: March 16, 2016 /s/ Marvin R. Ellison Marvin R. Ellison Chief Executive Officer Exhibit 31.2 CERTIFICATION I, Edward J. Record, certify that:1.I have reviewed this annual report on Form 10-K of J. C. Penney Company, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting. Date: March 16, 2016 /s/ Edward J. Record Edward J. Record Executive Vice President and Chief Financial Officer Exhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of J. C. Penney Company, Inc. (the “Company”) on Form 10-K for the period ending January 30, 2016 (the “Report”), I,Marvin R. Ellison, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1)the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.DATED this 16th day of March 2016. /s/ Marvin R. EllisonMarvin R. EllisonChief Executive OfficerExhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of J. C. Penney Company, Inc. (the “Company”) on Form 10-K for the period ending January 30, 2016 (the “Report”), I,Edward J. Record, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1)the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.DATED this 16th day of March 2016. /s/ Edward J. RecordEdward J. RecordExecutive Vice President andChief Financial Officer

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