IHOP 2011 Annual Report Download - page 37

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conditions, safety standards and immigration status. We expect increases in payroll expenses as a result of federal and state mandated
increases in the minimum wage, and although such increases are not expected to be material, we cannot assure you that there will
not be material increases in the future. Enactment and enforcement of various federal, state and local laws, rules and regulations
on immigration and labor organizations may adversely impact the availability and costs of labor for our restaurants in a particular
area or across the United States. Other labor shortages or increased team member turnover could also increase labor costs. In
addition, our vendors may be affected by higher minimum wage standards or availability of labor, which may increase the price
of goods and services they supply to us. We continue to review the health care reform law enacted by Congress in March of 2010
and regulations issued related to the law to evaluate the potential impact of this new law on our business, and to accommodate
various parts of the law as they take effect. There are no assurances that a combination of cost management and price increases
can accommodate all of the costs associated with compliance.
We are subject to extensive federal, state and local governmental regulations, including those relating to the preparation and
sale of food and alcoholic beverages and those relating to building and zoning requirements. Each of our and our franchisees'
restaurants is also subject to licensing and regulation by alcoholic beverage control, health, sanitation, safety and fire agencies in
the state, county and/or municipality where the restaurant is located. We generally have not encountered any material difficulties
or failures in obtaining and maintaining the required licenses and approvals that could impact the continuing operations of an
existing restaurant, or delay or prevent the opening of a new restaurant. Although we do not, at this time, anticipate any occurring
in the future, we cannot assure you that we or our franchisees will not experience material difficulties or failures that could impact
the continuing operations of an existing restaurant, or delay the opening of restaurants in the future.
In addition, we are subject to laws and regulations, which vary from jurisdiction to jurisdiction, relating to nutritional content
and menu labeling. Compliance with these laws and regulations may lead to increased costs and operational complexity and may
increase our exposure to governmental investigations or litigation. In connection with the continued operation or remodeling of
certain restaurants, we or our franchisees may be required to expend funds to meet federal, state and local and foreign regulations.
The inability to obtain or maintain such licenses or publicity resulting from actual or alleged violations of such laws could have
an adverse effect on our results of operations.
Finally, we are subject to federal regulation and certain state laws which govern the offer and sale of franchises. Many state
franchise laws contain provisions that supersede the terms of franchise agreements, including provisions concerning the termination
or non-renewal of a franchise. Some state franchise laws require that certain materials be registered before franchises can be offered
or sold in that state. The failure to obtain or retain licenses or approvals to sell franchises could adversely affect us and the
franchisees. Changes in, and the cost of compliance with, government regulations could have a material effect on operations.
Restaurant development plans under development agreements may not be implemented effectively. We rely on
franchisees to develop Applebee's and IHOP restaurants. Restaurant development involves substantial risks, including the
following:
• the availability of suitable locations and terms for potential development sites;
• the ability of franchisees to fulfill their commitments to build new restaurants in the numbers and the time frames specified
in their development agreements;
• the availability of financing, at acceptable rates and terms, to both franchisees and third-party landlords, for restaurant
development;
• delays in obtaining construction permits and in completion of construction;
• developed properties not achieving desired revenue or cash flow levels once opened;
• competition for suitable development sites;
• changes in governmental rules, regulations, and interpretations (including interpretations of the requirements of the ADA);
and
• general economic and business conditions.
We cannot assure that the development and construction of facilities will be completed, or that any such development will
be completed in a timely manner. We cannot assure that present or future development will perform in accordance with our
expectations.
The opening and success of Applebee's and IHOP restaurants depend on various factors, including the demand for Applebee's
and IHOP restaurants and the selection of appropriate franchisee candidates, the availability of suitable sites, the negotiation of
acceptable lease or purchase terms for new locations, costs of construction, permit issuance and regulatory compliance, the ability
to meet construction schedules, the availability of financing and other capabilities of franchisees. There is no assurance that
franchisees planning the opening of restaurants will have the business abilities or sufficient access to financial resources necessary