Jack In The Box 2014 Annual Report Download - page 16

The increasing amount and complexity of regulations and their interpretation may increase the costs to us and our franchisees of labor and compliance,
and increase our exposure to regulatory claims which, in turn, could have a material adverse effect on our business. While we strive to comply with all
applicable existing statutory and administrative rules, we cannot predict the effect on operations from issuance of additional requirements in the future.
Risks Related to Computer Systems, Information Technology and Cyber Security. We and our franchisees 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 caused by malware or other
attack could cause reduced efficiency in operations, loss or misappropriation of data or business interruptions, or could impact delivery of food to restaurants
or financial functions such as vendor payment or employee payroll. We have business continuity plans that attempt to anticipate and mitigate such failures,
but it is possible that significant capital investment could be required to rectify these problems, or more likely that cash flows could be impacted, in the
shorter term.
We have instituted controls intended to protect our point of sale (POS) systems and to limit third party access for vendors that require access to our
restaurant networks. However, we cannot control every particular risk, particularly those affecting our franchise locations which are independent businesses.
Our security architecture is decentralized, such that payment card information is primarily confined to the restaurant where the specific transaction took
place. However, a security breach involving our POS, personnel, franchise operations reporting or other systems could result in disclosure or theft of
confidential customer or employee or other proprietary data, and potentially cause loss of consumer confidence or potential costs, fines and litigation,
including costs associated with reputational damage, consumer fraud or privacy breach. These risks may be magnified by the increased use of mobile
communications and other new technologies, and are subject to increased and changing regulation. The costs of compliance and risk mitigation planning,
including increased investment in technology or personnel in order to protect valuable business or consumer information, may negatively impact our
margins.
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 or detecting all error and all fraud. A control system,
no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design
of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions. 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 and Land Risks and Regulations. We own or lease the real properties on which our Jack in the Box company-operated restaurants are
located, and either own or lease (and subsequently sublease to the franchisee) a majority of our Jack in the Box franchised restaurant sites. We also own or
lease the real properties upon which our company-operated Qdoba restaurants are located. We have engaged and continue to engage in real estate
development projects. As is the case with any owner or operator of real property, we are subject to eminent domain proceedings that can impact the value of
investments we have made in real property, and we are subject to other potential liabilities and damages arising out of owning, operating, leasing or
otherwise having interests in real property. In addition, 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 by governmental
agencies or courts of law of severe penalties or restrictions on our operations. We are unaware of any significant hazards on properties we own or have owned,
or operate or have operated. Accordingly, we do not have environmental liability insurance for our restaurants, nor do we maintain a reserve to cover such
events. 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, and this could result in material liability.
Risks Related to Leverage. As of September 28, 2014, the Company has a credit facility comprised of a $600.0 million revolving credit facility and a
$197.5 million term loan. We may also request the issuance of up to $75.0 million in letters of credit. For additional information related to our credit facility,
refer to Note 7, Indebtedness, of the notes to the consolidated financial statements. Increased leverage resulting from borrowings under our credit facility
could have certain material adverse effects on the Company, including but not limited to the following:
• 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;
• a substantial portion of our cash flows could be required for debt service and, as a result, might not be available for our operations or other purposes;
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