Aarons 2013 Annual Report Download - page 27

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companies may charge on rent-to-own transactions, generally defining "cost-of-rental" as lease fees paid in excess of the
“retail” price of the goods.
There has been increased legislative attention in the United States, at both the federal and state levels, on consumer debt
transactions in general, which may result in an increase in legislative regulatory efforts directed at the rent-to-own industry. We
cannot guarantee that the federal government or states will not enact additional or different legislation that would be
disadvantageous or otherwise materially adverse to us, nor can we guarantee that Canadian law will not be enacted that would
be materially adverse to our franchisees there.
In addition to the risk of lawsuits related to the laws that regulate rent-to-own and consumer lease transactions, we or our
franchisees could be subject to lawsuits alleging violations of federal and state or Canadian provincial laws and regulations and
consumer tort law, including fraud, consumer protection, information security and privacy laws, because of the consumer-
oriented nature of the rent-to-own industry. A large judgment against the Company could adversely affect our financial
condition and results of operations. Moreover, an adverse outcome from a lawsuit, even one against one of our competitors,
could result in changes in the way we and others in the industry do business, possibly leading to significant costs or decreased
revenues or profitability.
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 awarding 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.
New regulations related to conflict minerals may adversely impact our business.
The Dodd-Frank Act contains provisions to improve transparency and accountability concerning the supply of certain minerals,
known as conflict minerals, originating from the Democratic Republic of Congo and adjoining countries. We must comply
with annual disclosure and reporting rules adopted by the SEC pursuant to the Dodd-Frank Act because of certain materials
used in products manufactured by our manufacturing division, Woodhaven Furniture Industries.
Our supply chain is complex and we do not source our minerals directly from the original mine or smelter. Consequently, we
incur costs in complying with these disclosure requirements, including for due diligence to determine the source of the subject
minerals used in our products and other potential changes to products, processes or sources of supply as a consequence of such
verification activities. The rules may adversely affect the sourcing, supply and pricing of materials used in our products
throughout the supply chain beyond our control, whether or not the subject minerals are conflict free. Also, we may face
reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we
are unable to sufficiently verify the origins for all subject minerals used in our products.
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.
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 including
storing and processing information related to their customers on our systems. Although we take precautions to protect this
information, it is possible that hackers or other unauthorized users could attack our systems and attempt to obtain such
information, or such information could be exposed by accident or the 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 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