Jack In The Box 2006 Annual Report Download - page 30

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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 errors or 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.
Risks Related to Leverage. The Company has received commitments for a new $625 million credit facility,
which will be comprised of a $150 million revolving credit facility and a $475 million term loan. The Company
expects to close the new credit facility no later than December 19, 2006. Increased leverage could have certain
material adverse effects on the Company, including, but not limited to the following: (i) our credit rating may be
reduced; (ii) our ability to obtain additional financing in the future for acquisitions, working capital, capital
expenditures, and general corporate or other purposes could be impaired, or any such financing may not be available
on terms favorable to us; (iii) a substantial portion of our cash flow could be required for debt service and, as a
result, might not be available for our operations or other purposes; (iv) any substantial decrease in net operating cash
flows or any substantial increase in expenses could make it difficult for us to meet our debt service requirements or
force us to modify our operations or sell assets; (v) our ability to withstand competitive pressures may be decreased;
and (vi) our level of indebtedness may make us more vulnerable to economic downturns, and reduce our flexibility
in responding to changing business, regulatory and economic conditions. Our ability to repay expected borrowings
under the Credit Facilities, and to meet our other debt or contractual obligations (including compliance with
applicable financial covenants) will depend upon our future performance and our cash flow from operations, both of
which arc subject to prevailing economic conditions and financial, business and other known and unknown risks and
uncertainties, certain of which are beyond our control.
Other Risks include:
•Weather conditions and related events such as floods or other natural disasters which may adversely affect
the level of customer traffic, damage our restaurants, or otherwise disrupt operations.
•Changes in accounting standards policies and practices or related interpretations by auditors or regulatory
entities may negatively impact our results.
•Changes in assumptions relating to pension costs may increase our pension expense and contributions.
•The Company has an on-going “profit improvement program” under which it seeks to improve efficiencies
and lower costs in all aspects of operations. Although the Company has been successful in improving efficiency and
reducing costs in the past, there is no assurance that it will be able to continue to do so in the future.
•The risks associated with information security and the use of cashless payments, such as increased
investment in technology, the costs of compliance with privacy, consumer protection and other laws, and the
expenses associated with cashless payment, may negatively impact our results.