Aarons 2015 Annual Report Download - page 20

Computer hackers may attempt to penetrate our network security and, if successful, misappropriate confidential customer or employee information. In
addition, one of our employees, contractors or other third parties with whom we do business may attempt to circumvent our security measures in order to
obtain such information, or inadvertently cause a breach involving such information. While we have implemented systems and processes to protect against
unauthorized access to or use of secured data and to prevent data loss, there is no guarantee that these procedures are adequate to safeguard against all data
security breaches or misuse of the data. The regulatory environment related to information security, data collection and use, and privacy is increasingly
rigorous, with new and constantly changing requirements applicable to our business, and compliance with those requirements could result in additional
costs. These costs associated with information security, such as increased investment in technology, the costs of compliance with privacy laws, and costs
incurred to prevent or remediate information security breaches, could adversely impact our business.
We have experienced security incidents in the past, including an incident in which customer information was compromised, although no security incidents
have resulted in a material loss to date. We are in the process of improving our system security, although there can be no assurance that these improvements,
or others that we implement from time to time, will be effective to prevent all security incidents. We maintain network security and private liability insurance
intended to help mitigate the financial risk of such incidents, but there can be no guarantee that insurance will be sufficient to cover all losses related to such
incidents.
A significant compromise of sensitive employee or customer information in our possession could result in legal damages and regulatory penalties. In
addition, the costs of defending such actions or remediating breaches could be material. Security breaches could also harm our reputation with our customers
and retail partners, potentially leading to decreased revenues.

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We rely on our information technology systems to process transactions with our customers, including tracking lease payments on merchandise, and to
manage other important functions of our business. Failures of our systems, such as "bugs," crashes, operator error or catastrophic events, could seriously
impair our ability to operate our business. If our information technology systems are impaired, our business (and that of our franchisees) could be interrupted,
our reputation could be harmed, we may experience lost revenues or sales and we could experience increased costs and expenses to remediate the problem.


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We have guaranteed the borrowings of certain franchisees under a franchise loan program with several banks with a maximum commitment amount of
$175.0 million. In the event these franchisees are unable to meet their debt service payments or otherwise experience events of default, we would be
unconditionally liable for a portion of the outstanding balance of the franchisees’ debt obligations, which at December 31, 2015 was $81.0 million.
We have had no significant losses associated with the franchise loan and guaranty program since its inception. Although we believe that any losses
associated with defaults would be mitigated through recovery of lease merchandise and other assets, we cannot guarantee that there will be no significant
losses in the future or that we will be able to adequately mitigate any such losses. If we fail to adequately mitigate any such future losses, our business and
financial condition could be materially adversely impacted.


As a franchisor, we are subject to regulation by the FTC, state laws and certain Canadian provincial laws regulating the offer and sale of franchises. Our failure
to comply with applicable franchise regulations could cause us to lose franchise fees and ongoing royalty revenues. Moreover, state and provincial laws that
regulate substantive aspects of our relationships with franchisees may limit our ability to terminate or otherwise resolve conflicts with our franchisees.
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