Aarons 2012 Annual Report Download - page 29

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Continuation or worsening of current economic conditions could result in decreased revenues or increased costs.
The United States’ and other economies are currently experiencing distress and uncertainty, accompanied by high
unemployment. Although we believe the economic downturn has resulted in increased business in our sales and lease
ownership stores, as consumers increasingly find it difficult to purchase home furnishings, electronics and appliances
from traditional retailers on store installment credit, it is possible that if the conditions continue for a significant period
of time, or get worse, consumers may curtail spending on all or some of the types of merchandise we offer, in which
event our revenues may suffer.
In addition, unemployment may result in increased defaults on lease payments, resulting in increased merchandise
return costs and merchandise losses.
We are subject to laws that regulate franchisor-franchisee relationships. Our ability to develop new franchised
stores and enforce our rights against franchisees may be adversely affected by these laws, which could impair
our growth strategy and cause our franchise revenues to decline.
As a franchisor, we are subject to regulation by the Federal Trade Commission, state laws and certain Canadian
provincial laws regulating the offer and sale of franchises. Because we plan to expand our business in part by selling
more franchises, our failure to obtain or maintain approvals to sell franchises could significantly impair our growth
strategy. In addition, 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. See Item 3,
―Legal Proceedings,‖ for information on some of our pending legal proceedings.
We are subject to legal proceedings from time to time which seek material damages.
We frequently are subject to legal proceedings, including class actions, that seek material damages. Although we do not
presently believe that any of the legal proceedings to which we are currently a party will ultimately have a material
adverse impact upon us, we cannot assure you that we will not incur material damages in a lawsuit or other proceeding
in the future. Significant final judgments, settlement amounts, amounts needed to post a bond pending an appeal or
defense costs could materially and adversely affect our liquidity and capital resources.
If we fail to protect the security of personal information about our customers and employees, we could be subject
to costly private litigation, government enforcement actions or material remedial costs, and our reputation could
suffer.
We collect, transmit and store potentially sensitive information about our employees, franchisees and customers on our
information technology systems. Due to the nature of our business, we may collect, transmit and store more of such
information than other types of retailers. We also serve as an information technology provider to our franchisees and
store and process information related to their customers on our systems. Although we take precautions to protect this
information, it is possible that hackers or other malefactors could attack our systems and attempt to obtain such
information, or such information could be exposed by accident or failure of our systems.
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 cyber security insurance
liability coverage 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 customer or employee information in our possession could result in legal
damages and regulatory penalties. In addition, the costs of defending such actions, or in remediating breaches, could be
material. Security breaches could also harm our reputation with our customers, potentially leading to decreased
revenues.