Jack In The Box 2009 Annual Report Download - page 15

Table of Contents
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, state and local minimum wage rates increase, our labor costs will increase. 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 currently being considered in Congress
and various states. We offer access to healthcare benefits to our restaurant team members. The imposition of any requirement that we
provide health insurance to all employees on terms materially different from our existing programs could have a material adverse impact
on our results of operations and financial condition.
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. Also, the trend toward fragmentation in the media favored
by our target consumers poses challenges and risks for our marketing and advertising strategies. Failure to effectively tackle these
challenges and risks could also have a materially adverse effect on our results.
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 that differ from
the treatment for financial reporting purposes. The ultimate outcome of such positions could have an adverse impact on our effective tax
rate.
Risks Related to Achieving Increased Franchise Ownership and Reducing Operating Costs. At September 27, 2009,
approximately 46% of the Jack in the Box restaurants were franchised. Our plan to increase the percentage of franchise restaurants and
move towards a level of franchise ownership more closely aligned with that of the quick service restaurant industry is subject to risks
and uncertainties. We may not be able to identify franchisee candidates with appropriate experience and financial resources or to negotiate
mutually acceptable agreements with them. Our franchisee candidates may not be able to obtain financing at acceptable rates and terms.
Current credit market conditions may slow the rate at which we are able to refranchise. We may not be able to increase the percentage of
franchised restaurants at the annual rate we desire or achieve the ownership mix of franchise to company-operated restaurants that we
desire. Our ability to sell franchises and to realize gains from such sales is uncertain. Sales of our franchises and the realization of gains
from franchising may vary from quarter-to-quarter and year-to-year, and may not meet expectations. We anticipate that our operating costs
will be reduced as the number of company-operated restaurants decreases. The ability to reduce our operating costs through increased
franchise ownership is subject to risks and uncertainties, and we may not achieve reductions in costs at the rate we desire.
Risks Related to Franchise Operations. The opening and success of franchised restaurants depends on various factors, including
the demand for our franchises, 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. See “Risks Associated with
Development” and “Risks Related to Achieving Increased Franchise Ownership and Reducing Operating Costs” above. We cannot assure
you that developers planning the opening of franchised restaurants will have the business abilities or sufficient access to financial
resources necessary to open the restaurants required by their agreements. As the number of franchisees increases, our revenues derived
from royalties at franchised restaurants will increase, as will the risk that revenues could be negatively impacted by defaults in the
payment of royalties. In addition, franchisee business obligations may not be limited to the operation of Jack in the Box restaurants,
making them subject to business and financial risks unrelated to the operation of our restaurants. These unrelated risks could adversely
affect a franchisee’s ability to make payments to us or to make payments on a timely basis. 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.
There are significant risks to our business if a franchisee, particularly one who operates a large number of restaurants, fails to adhere to
our standards and projects an image inconsistent with our brand.
14