Jack In The Box 2006 Annual Report Download - page 29

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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. The trend toward fragmentation in the media favored by our target
consumers may dilute the effectiveness of our advertising dollars.
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.
Risks Related to Achieving Increased Franchise Ownership and to Franchise Operations. At October 1, 2006,
approximately 29% of the JACK IN THE BOX restaurants were franchised. Our plan to achieve 35% franchise
ownership by the end of 2008 and to further increase the percentage of franchised restaurants thereafter by
approximately 5% annually and to move towards a range of franchise ownership more closely aligned with that of
the QSR, 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. The goal of 2008 may
not provide sufficient time for us to achieve the ownership mix of franchise to company-operated restaurants that we
desire and we cannot assure you that we will be able to continue to expand our franchising activities thereafter. Sales
of our franchises and the realization of gains from franchising may vary from quarter to quarter and may not meet
expectations. 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 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, labeling,
advertising 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 Interest Rates. The Company has exposure to changes in interest rates based on its financing,
investing and cash management activities. Changes in interest rates could materially impact the Company’ s
profitability.
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