Jack In The Box 2010 Annual Report Download - page 14

Table of Contents
improve efficiencies and lower costs in all aspects of operations. Although we have been successful in improving efficiencies and reducing
costs in the past, there is no assurance that we will be able to continue to do so in the future.
 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, the Patient
Protection and Affordable Care Act (the healthcare reform act) passed by Congress and signed into law in early 2010 imposes several new
and costly mandates upon us, including the requirement that we offer health insurance to all full time employees beginning in 2014. It is
our belief that our expenses incurred in providing such insurance will be substantially higher than our current expenses and could
negatively affect our results of operations.
 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.
 Our income tax provision is sensitive to expected earnings and, as those 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.
  At October 3, 2010, approximately
57% 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 franchise
restaurants at the 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.
 The opening and success of franchise 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 franchise 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 and rents at franchise restaurants will increase, as will the risk that earnings could be negatively impacted by defaults in
the payment of royalties and rents. 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
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