Jack In The Box 2005 Annual Report Download - page 28

financial resources necessary to open the restaurants required by their agreements. We cannot assure you that franchisees will
successfully participate in our strategic initiatives or operate their restaurants in a manner consistent with our concept and
standards. In addition, certain federal and state laws govern our relationships with our franchisees. See “Risks Related to
Government Regulations” below.
Risks Related to Government Regulations. See “Business - Regulation”. The restaurant industry is subject to extensive
federal, state and local governmental regulations, including those relating to the preparation and sale of food and those relating to
building and zoning requirements. We and our franchisees are also subject to licensing and regulation by state and local
departments relating to health, sanitation and safety standards, and liquor licenses and to laws governing our relationships with
employees, including minimum wage requirements, overtime, working conditions and citizenship requirements. See “Risks
Related to Increased Labor Costs” above. 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. We are also subject to federal regulation
and certain state laws, which govern the offer and sale of franchises. Many state franchise laws impose substantive requirements
on franchise agreements, including limitations on noncompetition provisions and on provisions concerning the termination or
nonrenewal of a franchise. Some states 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 our franchisees. Changes
in, and the cost of compliance with, government regulations could have a material adverse effect on our operations.
Risks Related to the Failure of Internal Controls. The Company maintains a documented system of internal controls
which is reviewed and monitored by an Internal Controls Committee and tested by the Company’ s full time Internal Audit
Department. The Internal Audit Department reports to the Audit Committee of the Board of Directors. The Company believes it
has a well-designed system to maintain adequate internal controls on the business. However, there can be no assurance that there
won’ t be any control deficiencies in the future. Should we become aware of any significant control deficiencies, the Internal
Controls Committee would recommend prompt remediation and report them to the Audit Committee. We have devoted
significant resources to document, test, monitor and improve our internal controls and will continue to do so; however, we cannot
be certain that these measures will ensure that our controls are adequate in the future or that adequate controls will be effective in
preventing fraud. If we fail to maintain an effective system of internal controls, we may not be able to accurately report our
financial results or prevent fraud. Any failures in the effectiveness of our internal controls could have a material adverse effect on
our operating results or cause us to fail to meet reporting obligations.
Environmental Risks and Regulations. As is the case with any owner or operator of real property, we are subject to a
variety of federal, state and local governmental regulations relating to the use, storage, discharge, emission and disposal of
hazardous materials. Failure to comply with environmental laws could result in the imposition of severe penalties or restrictions
on operations by governmental agencies or courts of law, which could adversely affect operations. We do not have environmental
liability insurance; nor do we maintain a reserve to cover such events. We have engaged and may engage in real estate
development projects and own or lease several parcels of real estate on which our restaurants are located. We are unaware of any
significant hazards on properties we own or have owned, or operate or have operated, the remediation of which would result in
material liability for the Company. In the event of the determination of contamination on such properties, the Company, as owner
or operator, could be held liable for severe penalties and costs of remediation. We also operate motor vehicles and warehouses
and handle various petroleum substances and hazardous substances, and are not aware of any current material liability related
thereto.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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