IHOP 2011 Annual Report Download - page 40

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not take actions that could have a material adverse effect on the Applebee's or IHOP intellectual property.
In addition, even if the licensee product suppliers, manufacturers, distributors, or advertisers observe and maintain the quality
and integrity of the intellectual property assets in accordance with the relevant license agreement, any product manufactured by
such suppliers may be subject to regulatory sanctions and other actions by third parties which can, in turn, negatively impact the
perceived quality of our restaurants and the overall goodwill of our brands, regardless of the nature and type of product involved.
Any such actions could reduce restaurant revenues and corresponding franchise payments to us.
We are heavily dependent on information technology and any material failure of that technology could impair our ability
to efficiently operate our business. We rely heavily on information systems across our operations, including, for example, point-
of-sale processing in our restaurants, management of our supply chain, collection of cash, payment of obligations and various
other processes and procedures. Our ability to efficiently manage our business depends significantly on the reliability and capacity
of these systems. The failure of these systems to operate effectively, problems with maintenance, upgrading or transitioning to
replacement systems, fraudulent manipulation of sales reporting from our restaurants, or a breach in security of these systems
could be harmful and cause delays in customer service and reduce efficiency in our operations. Significant capital investments
might be required to remediate any problems.
Failure to protect the integrity and security of individually identifiable data of customers, vendors or employees may
subject us to loss and harm our brands. We might receive and maintain, for varying lengths of time, certain personal or business
information about customers, vendors and employees. The use of this information by us is regulated by foreign, federal and state
laws, as well as by certain third-party agreements. If our security and information systems are compromised or if our employees
or franchisees fail to comply with these laws and regulations, and this information is obtained by unauthorized persons or used
inappropriately, it could adversely affect our reputation and could result in costs to defend or settle litigation, to pay judgments
awarded from litigation, or pay penalties resulting from violation of federal and state laws and payment card industry regulations.
As privacy and information security laws and regulations change, we may incur additional costs to ensure that we remain in
compliance with said laws and regulations.
Our inability or failure to execute on a comprehensive business continuity plan following a major natural disaster such
as an earthquake, tornado or man-made disaster, including terrorism, at our corporate facilities could materially adversely
impact our business. Our corporate systems and processes and corporate support for our restaurant operations are handled primarily
at our two restaurant support centers. We have disaster recovery procedures and business continuity plans in place to address most
events of a crisis nature, including earthquakes, tornadoes and other natural disasters, and back up and off-site locations for recovery
of electronic and other forms of data and information. However, if we are unable to fully implement our disaster recovery plans,
we may experience delays in recovery of data, inability to perform vital corporate functions, tardiness in required reporting and
compliance, failures to adequately support field operations and other breakdowns in normal communication and operating
procedures that could have a material adverse effect on our financial condition, results of operation and exposure to administrative
and other legal claims.
Our business depends on our ability to attract and retain talented employees. Our business is based on successfully
attracting and retaining talented employees. The market for highly skilled workers and leaders in our industry is extremely
competitive. If we are less successful in our recruiting efforts, or if we are unable to retain key employees, our ability to develop
and deliver successful products and services may be adversely affected. Effective succession planning is also important to our
long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder
our strategic planning and execution.
Retail brand development initiatives could negatively impact our IHOP brand. Our business expansion into retail product
licensing could create new risks to our IHOP brand and reputation. During 2011, IHOP launched a line of premium frozen breakfast
entrées and pancake syrups in retail outlets. We believe that this new retail product offering is a growth opportunity that allows
our brand to reach additional customers more often. If customers have negative perceptions or experiences with retail products,
our brand value could suffer which could have an adverse effect on our business.
Failure of our internal controls over financial reporting and future changes in accounting standards may cause adverse
unexpected operating results, affect our reported results of operations or otherwise harm our business and financial results.
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control
over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external
purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations,
internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement
of our financial statements or fraud. Any failure to maintain an effective system of internal control over financial reporting could
limit our ability to report our financial results accurately and timely or to detect and prevent fraud. A significant financial reporting