Jack In The Box 2007 Annual Report Download - page 26

closely aligned with that of the QSR 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. 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. 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.
See “Risks Associated with Our Development” 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. 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.
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. The Company and its
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 work eligibility 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, termination and renewal 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. We are subject to
consumer protection and other laws and regulations governing the security of information. The costs of compliance,
including increased investment in technology in order to protect such information, may negatively impact our
margins. Any security breach involving our point of sale or other systems could result in loss of consumer
confidence and potential costs associated with consumer fraud. Changes in, and the cost of compliance with,
government regulations could have a material adverse effect on our operations.
Risks Related to Interest Rates. We have exposure to changes in interest rates based on our financing,
investing and cash management activities. Changes in interest rates could materially impact our profitability.
Risks Related to the Failure of Internal Controls. We maintain 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. We
believe we have a well-designed system to maintain adequate internal controls on the business, however, we cannot
be certain that our controls will be adequate in the future or that adequate controls will be effective in preventing
errors or fraud. If our internal controls are ineffective, 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 have limited environmental liability insurance only covering sites on which we
operate fuel stations. In all other areas, 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
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