Sally Beauty Supply 2013 Annual Report Download - page 42

We may have to defend our rights in intellectual property that we use in certain of our products, and we could be
found to infringe the intellectual property rights of others, which could be disruptive and expensive to our business.
The industry in which we operate is characterized by the need for a large number of copyrights, trade
secrets and trademarks and by frequent litigation based on allegations of infringement or other violations
of intellectual property rights. A third party may at any time assert that our products violate such party’s
intellectual property rights. Successful intellectual property claims against us could result in significant
financial liabilities and/or prevent us from selling certain of our products. In addition, the resolution of
infringement claims may require us to redesign our products, to obtain licenses to use intellectual property
belonging to third parties, which may not be attainable on reasonable terms, or to cease using the
intellectual property altogether. Moreover, any intellectual property claim, regardless of its merits, could
be expensive and time-consuming to defend against and could divert the attention of management. As a
result, claims based on allegations of infringement or other violations of intellectual property rights,
regardless of outcome, could have a material adverse effect on our business, financial condition and results
of operations.
Our ability to conduct business in international marketplaces may be affected by legal, regulatory and economic
risks.
Our ability to capitalize on growth in new international marketplaces and to grow or maintain our current
level of operations in our existing international marketplaces is subject to risks associated with our
international operations. These risks include: unexpected changes in regulatory requirements, trade
barriers to some international marketplaces, economic and foreign currency fluctuations, potential
difficulties in enforcing contracts, increasing levels of violence or terrorism, an inability to properly protect
assets (including intellectual property), an inability to collect receivables, 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
(caused by us, by our service providers or others) or by computer viruses, physical or electronic break-ins
and similar disruptions affecting the internet. Such delays, problems or costs may have a material adverse
effect on our business, financial condition and results of operations.
As our operations grow in both size and scope, we continuously need to improve and upgrade our systems
and infrastructure while maintaining their reliability and integrity. 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. For
example, we are in the process of designing and implementing a standardized ERP system internationally
over the next few years. In addition, we are currently implementing new point-of-sale systems in a number
of our divisions, which we anticipate will provide significant benefits, including enhanced tracking of
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 meeting implementation objectives. Many of our systems are proprietary, and as a
result our options are limited in seeking third-party help with the operation and upgrade of those systems.
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