Sally Beauty Supply 2007 Annual Report Download - page 30

If we are unable to protect our intellectual property rights, specifically our trademarks, our ability to compete could be negatively impacted.
The success of our business depends to a certain extent upon the value associated with our intellectual property rights. We own certain trademark and brand
name rights used in connection with our business including, but not limited to, "Sally," "Sally Beauty," "Sally Beauty Supply," "Sally ProCard," "BSG,"
"CosmoProf," "Armstrong McCall," "ion," "Salon Services" and "Beauty Club." We protect our intellectual property rights through a variety of methods,
including trademarks which are registered or legally protected in the U.S., Canada and other countries throughout the world in which our business operates. We
also rely on trade secret laws, in addition to confidentiality agreements with vendors, employees, consultants, and others who have access to our proprietary
information. While we intend to vigorously protect our trademarks against infringement, we may not be successful in doing so. In addition, the laws of certain
foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S. The costs required to protect our intellectual property
rights and trademarks are expected to continue to be substantial.
Our ability to conduct business in international markets may be affected by legal, regulatory, and economic risks.
Our ability to capitalize on growth in new international markets and to grow or maintain our current level of operations in our existing international markets is
subject to risks associated with our international operations. These risks include: unexpected changes in regulatory requirements; trade barriers to some
international markets; economic and currency fluctuations in specific markets; potential difficulties in enforcing contracts, protecting assets, including intellectual
property, and collecting receivables in certain foreign jurisdictions; potential tax liabilities associated with repatriating funds from foreign operations; and
difficulties and costs of staffing, managing and accounting for foreign operations.
We may be adversely affected by any disruption in our information technology systems.
Our operations are dependent upon our information technology systems, which encompass all of our major business functions. We rely upon such information
technology systems to manage and replenish inventory, to fill and ship customer orders on a timely basis, to coordinate our sales activities across all of our
products and services and to coordinate our administrative activities. A substantial disruption in our information technology systems for any prolonged time
period (arising from, for example, system capacity limits from unexpected increases in our volume of business, outages or delays in our service) could result in
delays in receiving inventory and supplies or filling customer orders and adversely affect our customer service and relationships. Our systems might be damaged
or interrupted by natural or man-made events or by computer viruses, physical or electronic break-ins and similar disruptions affecting the global Internet. There
can be no assurance that such delays, problems, or costs will not have a material adverse effect on our financial condition, results of operations and cash flows.
As our operations grow in both size and scope, we will continuously need to improve and upgrade our systems and infrastructure while maintaining the
reliability and integrity of our systems and infrastructure. The expansion of our systems and infrastructure will require us to commit substantial financial,
operational and technical resources before the volume of our business increases, with no assurance that the volume of business will increase. In particular, during
fiscal year 2008 we will be upgrading our financial reporting system, our distribution systems (in connection with our capital spending program to consolidate
warehouses, as discussed below), implementing new warehouse systems at our Armstrong McCall warehouse and implementing a new point-of-sale system for
tracking customer sales. These and any other required upgrades to our systems and information technology, or new technology, now and in the future, will
require that our management and resources be diverted from our core business to assist in compliance with those requirements. Since our systems are proprietary,
our options are limited in seeking third-party help with the operation and upgrade of these systems. There can be no assurance that the time and resources our
management will need to devote to these upgrades, service outages or delays due to the installation of any new or upgraded technology (and customer issues
therewith), or the impact on the
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Source: Sally Beauty Holding, 10-K, November 29, 2007