Aarons 2014 Annual Report Download - page 27

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If we do not maintain the privacy and security of customer, employee, supplier or Company information, we could
damage our reputation, incur substantial additional costs and become subject to litigation.
Our business involves the storage and transmission of customers’ personal information, consumer preferences and credit card
information, as well as confidential information about our customers, employees, our suppliers and our Company. We also
serve as an information technology provider to our franchisees including storing and processing information related to their
customers on our systems. Our information systems are vulnerable to an increasing threat of continually evolving cybersecurity
risks. Any significant compromise or breach of our data security, whether external or internal, or misuse of employee or
customer data, could significantly damage our reputation, cause the disclosure of confidential customer, associate, supplier or
Company information, and result in significant costs, lost sales, fines and lawsuits. 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, potentially leading to decreased revenues.
If our information technology systems are impaired, our business could be interrupted, our reputation could be harmed
and we may experience lost revenues and increased costs and expenses.
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.
The risks in Progressive’s “virtual” lease-to-own business differ in some potentially significant respects from the risks of
Aaron’s store-based lease-to-own business. The risks could have a material negative effect on Progressive or the
expected benefits of the acquisition.
Our recently acquired Progressive segment offers its lease-to-own solution through the stores of third party retailers.
Progressive consequently faces some different risks than are associated with Aaron’s sales and lease ownership concept, which
Aaron’s and its franchisees offer through their own stores. These potential risks include, among others, Progressive’s:
• Reliance on third party retailers (over whom Progressive cannot exercise the degree of control and oversight that
Aaron’s and its franchisees can assert over their own respective employees) for many important business functions,
from advertising through lease transaction closing;
• Revenue concentration in the customers of a relatively small number of retailers;
• Lack of control over, and more product diversity within, its lease merchandise inventory relative to Aaron’s sale and
lease ownership business, which can complicate matters such as merchandise repair and disposition of merchandise
that is not leased to term;