Jack In The Box 2008 Annual Report Download - page 22

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.
Risks Related to Government Regulations. See “Business — Regulation”. The restaurant industry is subject
to extensivefederal, state and local governmental regulations. The trend of increasing the amount and complexity of
regulations, including regulations relating to the preparation, labeling, advertising and sale of food and those
relating to building and zoning requirements may increase both our costs of compliance and our exposure to claims
of violation of law. The Company and its franchisees are also subject to licensing and regulation by state and local
departments relating to health, sanitation and safety standards, liquor licenses, and laws governing our relationships
with employees, including work eligibility requirements. Changes in, or failure to comply with these laws and
regulations could subject us to fines or legal actions. See also “Risks Related to Increased Labor Costs” above. 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. Changes in, and the cost of compliance with, government
regulations could have a material adverse effect on our operations.
Risks Related to Computer Systems and Information Technology. We rely on computer systems and
information technology to conduct our business. A material failure or interruption of service or a breach in
security of our computer systems could cause reduced efficiency in operations, loss of data and business
interruptions, and significant capital investment could be required to rectify the problems. In addition, 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.
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 Availability of Credit. To the extent that banks in our revolving credit facility become
insolvent this could limit our ability to borrow to the full level of our facility.
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
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