Jack In The Box 2005 Annual Report Download - page 27

Risks Associated with Growth. Our plans to increase our franchising activities, and accelerate development of Qdoba
and our convenience store/gas station/restaurant co-brand will require the implementation of enhanced operational and financial
systems and will require additional management, operational, and financial resources. For example, we will be required to recruit
franchise sales and administrative personnel; and to recruit and train managers and other personnel for each new company-owned
restaurant, as well as additional development and accounting personnel. We cannot assure you that we will be able to manage our
expanding operations effectively to continue to recognize value from franchising and co-branding. The failure to implement such
systems and add such resources on a cost-effective basis could have a material adverse effect on our results of operations and
financial condition.
Reliance on Certain Geographic Markets. Because our business is regional, with nearly 65% of our restaurants located
in the states of California and Texas, the economic conditions, state and local government regulations and weather conditions
affecting those states may have a material impact upon our results.
Risks Related to Entering New Markets. We cannot assure you that we will be able to successfully expand or acquire
critical market presence for our brands in new geographical markets, as we may encounter well-established competitors with
substantially greater financial resources. We may be unable to find attractive locations, acquire name recognition, successfully
market our products and attract new customers. Competitive circumstances and consumer characteristics in new market segments
and new geographical markets may differ substantially from those in the market segments and geographical markets in which we
have substantial experience. We cannot assure you that we will be able to profitably operate new company-operated or franchised
restaurants in new geographical markets. Management decisions to curtail or cease investment in certain locations or markets
may result in impairment charges.
Competition. The restaurant industry is highly competitive with respect to price, service, location, personnel and the
type and quality of food, and there are many well-established competitors. Each of our restaurants competes directly and
indirectly with a large number of national and regional restaurant chains, as well as with locally-owned quick–service restaurants,
fast-casual restaurants, sandwich shops and similar types of businesses. The trend toward convergence in grocery, deli and
restaurant services may increase the number of our competitors. Such increased competition could have a material adverse effect
on our financial condition and results of operations. Some of our competitors have substantially greater financial, marketing,
operating and other resources than we have, which may give them a competitive advantage. Certain of our competitors have
introduced a variety of new products and engaged in substantial price discounting in recent years and may continue to do so in
the future. We plan to take various steps in connection with our “brand reinvention” strategy, including introducing new, higher
quality products, discontinuing certain menu items, testing new service and training initiatives, and making improvements to
facility image at our restaurants. However, there can be no assurance of the success of our new products, initiatives or our overall
strategies or that competitive product offerings, pricing and promotions will not have an adverse effect upon our results of
operations and financial condition.
Risks Related to Increased Labor Costs. We have a substantial number of employees who are paid wage rates at or
slightly above the minimum wage. As federal and state minimum wage rates increase, we may need to increase not only the
wages of our minimum wage employees but also the wages paid to the employees at wage rates which are above minimum wage.
If competitive pressures or other factors prevent us from offsetting the increased costs by increases in prices, our profitability
may decline. In addition, various proposals that would require employers to provide health insurance for all of their employees
are being considered from time-to-time in Congress and various states. We offer access to healthcare benefits to our restaurant
crew members. If our crew members do not find the opportunity to obtain this insurance attractive, we may not see the reductions
in turnover, training costs and workers’ compensation claims that we expect. The imposition of any requirement that we provide
health insurance to all employees on terms materially different from our existing programs would have a material adverse impact
on the results of operations and financial condition of the Company.
Risks Related to Advertising. Some of our competitors have greater financial resources which enable them to purchase
significantly more television and radio advertising than we are able to purchase. Should our competitors increase spending on
advertising and promotion, should the cost of television or radio advertising increase, or our advertising funds decrease for any
reason, including implementation of reduced spending strategies, or should our advertising and promotion be less effective than
our competitors’ , there could be a material adverse effect on our results of operations and financial condition.
Taxes. Our income tax provision is sensitive to expected earnings and, as expectations change, our income tax
provisions may vary from quarter-to-quarter and year-to-year. In addition, from time-to-time, we may take positions for filing our
tax returns, which differ from the treatment for financial reporting purposes. The ultimate outcome of such positions could have
an adverse impact on our effective tax rate. Our effective tax rate for fiscal 2006 is expected to be higher than our fiscal 2005
rate.
Risks Related to Franchise Operations. At October 2, 2005, approximately 25% of the Jack in the Box restaurants were
franchised. Our plan is to increase the percentage of franchised restaurants. Our ability to sell franchises and to realize gains from
such sales is uncertain. The opening and success of franchised restaurants depends on various factors, including the demand for
our franchises and the selection of appropriate franchisee candidates, the availability of suitable sites, the negotiation of
acceptable lease or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction
schedules, the availability of financing, and the financial and other capabilities of our franchisees and developers. We cannot
assure you that developers planning the opening of franchised restaurants will have the business abilities or sufficient access to
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