Aarons 2013 Annual Report Download - page 26

16
In addition, new competitors may emerge or current and potential competitors may establish financial or strategic relationships
among themselves or with third parties. Accordingly, it is possible that new competitors or alliances among competitors could
emerge and rapidly acquire significant market share. The occurrence of any of these events could materially adversely impact
our business.
If our independent franchisees fail to meet their debt service payments or other obligations under outstanding loans
guaranteed by us as part of a franchise loan program, we may be required to pay to satisfy these obligations which
could have a material adverse effect on our business and financial condition.
We have guaranteed the borrowings of certain franchisees under a franchise loan program with several banks with a maximum
commitment amount of $200.0 million. In the event these franchisees are unable to meet their debt service payments or
otherwise experience events of default, we would be unconditionally liable for a portion of the outstanding balance of the
franchisees’ debt obligations, which at December 31, 2013 was $105.0 million.
We have had no significant losses associated with the franchise loan and guaranty program since its inception. Although we
believe that any losses associated with defaults would be mitigated through recovery of lease merchandise and other assets, we
cannot guarantee that there will be no significant losses in the future or that we will be able to adequately mitigate any such
losses. If we fail to adequately mitigate any such future losses, our business and financial condition could be materially
adversely impacted.
The loss of the services of our key executives, or our inability to attract and retain qualified managers, could have a
material adverse impact on our operations.
We believe that we have benefited substantially from our current executive leadership and that the unexpected loss of their
services in the future could adversely affect our business and operations. We also depend on the continued services of the rest
of our management team. The loss of these individuals without adequate replacement could adversely affect our business.
Although we have employment agreements with some of our key executives, they are generally terminable on short notice and
we do not carry key man life insurance on any of our officers. The inability to attract and retain qualified individuals, or a
significant increase in the costs to do so, would materially adversely affect our operations.
We are subject to legal and regulatory proceedings from time to time which seek material damages or seek to place
significant restrictions on our business operations.
We are subject to legal and regulatory proceedings from time to time which may result in material damages or place significant
restrictions on our business operations. Although we do not presently believe that any of our current legal or regulatory
proceedings will ultimately have a material adverse impact on our operations, we cannot assure you that we will not incur
material damages or penalties in a lawsuit or other proceeding in the future. Significant adverse judgments, penalties,
settlement amounts, amounts needed to post a bond pending an appeal or defense costs could materially and adversely affect
our liquidity and capital resources. It is also possible that, as a result of a future governmental or other proceeding or
settlement, that significant restrictions will be place upon, or significant changes made, to our business practices, operations or
methods, including pricing or similar terms. Any such restrictions or changes may adversely affect our profitability or increase
our compliance costs.
Our operations are regulated by and subject to the requirements of various federal and state laws and regulations.
These laws and regulations, which may be amended or supplemented or interpreted by the courts from time to time,
could expose us to significant compliance costs or burdens or force us to change our business practices in a manner that
may be materially adverse to our operations, prospects or financial condition.
Currently, 47 states and the District of Columbia specifically regulate rent-to-own transactions, including states in which we
currently operate Aaron’s Sales & Lease Ownership and HomeSmart stores. At the present time, no federal law specifically
regulates the rent-to-own industry, although federal legislation to regulate the industry has been proposed from time to time.
Any adverse changes in existing laws, or the passage of new adverse legislation by states or the federal government could
materially increase both our costs of complying with laws and the risk that we could be sued or be subject to government
sanctions if we are not in compliance. In addition, new burdensome legislation might force us to change our business model
and might reduce the economic potential of our sales and lease ownership operations.
Most of the states that regulate rent-to-own transactions have enacted disclosure laws which require rent-to-own companies to
disclose to their customers the total number of payments, total amount and timing of all payments to acquire ownership of any
item, any other charges that may be imposed and miscellaneous other items. The more restrictive state lease purchase laws limit
the total amount that a customer may be charged for an item, or regulate the "cost-of-rental" amount that rent-to-own