IHOP 2015 Annual Report Download - page 40

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into with a franchisee. Furthermore, a franchisee that is subject to bankruptcy proceedings may reject the franchise agreement
in which case we would be limited to a general unsecured claim against the franchisee's bankruptcy estate on account of
breach-of-contract damages arising from the rejection. Payments previously made to us by a franchisee that is subject to a
bankruptcy proceeding also may be recoverable from us on behalf of the franchisee as a preferential transfer under the United
States Bankruptcy Code.
The number and quality of franchisees is subject to change over time, which may negatively affect our business. We
cannot guarantee the retention of any, including the top performing, franchisees in the future, or that we will maintain the
ability to attract, retain, and motivate sufficient numbers of franchisees of the same caliber. The quality of existing franchisee
operations may be diminished by factors beyond our control, including franchisees' failure or inability to hire or retain qualified
managers and other personnel. Training of managers and other personnel may be inadequate. These and other such negative
factors could reduce the franchisee's restaurant revenues, impact payments to us under the franchise agreements and could have
a material adverse effect on us. In the case of Applebee's, these negative factors would be magnified by the limited number of
existing franchisees.
If franchisees and other licensees do not observe the required quality and trademark usage standards, our brands may
suffer reputational damage, which could in turn adversely affect our business. We license our intellectual property to our
franchisees, product suppliers, manufacturers, distributors, advertisers and other third parties. The franchise agreements and
other license agreements require that each franchisee or other licensee use our intellectual property in accordance with
established or approved quality control guidelines. However, there can be no assurance that the franchisees or other licensees
will use the intellectual property assets in accordance with such guidelines. Franchisee and licensee noncompliance with the
terms and conditions of the governing franchise agreement or other license agreement may reduce the overall goodwill
associated with our brands. Franchisees and other licensees may refer to our intellectual property improperly in
communications, resulting in the weakening of the distinctiveness of our intellectual property. There can be no assurance that
the franchisees or other licensees will 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 our 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 sanctions or actions could reduce restaurant revenues and corresponding franchise
payments to us.
Our inability or failure to execute on a comprehensive business continuity plan following a major natural disaster such
as an earthquake, tornado, flood or man-made disaster, including terrorism or a cyber incident, 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 restaurant support center. We have disaster recovery procedures and business continuity
plans in place to address most events of a crisis nature, including earthquakes, tornadoes, floods and other natural or man-made
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 employees 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.
Development initiatives outside our core business could negatively impact our brands. Our business expansion into non-
traditional restaurant formats, including restaurants with a smaller footprint, restaurants located in non-traditional locations, our
IHOP coffee kiosk and retail product licensing for the IHOP brand could create new risks to our brand and reputation.
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