Aarons 2014 Annual Report Download - page 28

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• Possibly different regulatory risks than apply to Aaron’s sales and lease ownership business, whether arising from the
offer by third party retailers of Progressive’s lease-purchase solution alongside traditional cash, check or credit
payment options or otherwise;
• Reliance on automatic bank account drafts for lease payments, which may become disfavored as a payment method
for these transactions by regulators; and
• Potential that regulators may target the virtual lease-to-own transaction and/or new regulations or legislation could be
adopted that negatively impact Progressive’s ability to offer virtual lease-to-own programs through third party retail
partners.
These risks could have a material negative effect on Progressive’s business. Moreover, because these risks depart from those
normally encountered by Aaron’s sales and lease ownership business, Aaron’s management may not be familiar with all of their
dimensions, which could interfere with the smooth integration of Progressive and/or hamper the recognition of synergies. Any
of these consequences could result in a material adverse effect on the entire business.
We have incurred significant indebtedness. This substantial indebtedness, including the restrictive and financial
covenants contained in the related agreements, could adversely affect the Company’s financial position and its ability to
obtain financing in the future, and could limit its flexibility to react to changes in its business.
We have incurred approximately $491 million in new indebtedness under privately placed senior notes, term loans and our
revolving credit facility to finance a portion of the purchase price of Progressive and related fees and expenses. Prior to the
Progressive acquisition, the Company had relatively little debt and significant cash balances.
Because of this significant indebtedness:
• our ability to obtain additional financing for working capital, capital expenditures, other acquisitions, debt service
requirements or general corporate purposes, and our ability to satisfy our obligations with respect to its indebtedness,
may be impaired in the future;
• a substantial portion of our cash flow from operations must be dedicated to the payment of principal and interest on
our indebtedness, thereby reducing the funds available to us for other purposes;
• we may be at a disadvantage compared to any competitors with less debt, or comparable debt at more favorable
interest rates; and
• our flexibility to adjust to changing market conditions and our ability to withstand competitive pressures could be
limited, and we may be more vulnerable to a downturn in general economic conditions or our business, or be unable to
carry out capital spending that is necessary or important to our strategy.
Furthermore, our various debt instruments contain restrictive and financial covenants that limit our activities. The financial
covenants include requirements that we maintain specified ratios at the end of each fiscal quarter, calculated on a consolidated
basis for the Company and our consolidated subsidiaries, of EBITDA plus lease expense to fixed charges and total debt to
EBITDA. Refer to “Management’s Discussion and Analysis of Financial Condition-Liquidity and Capital Resources” for
further information on the financial covenants.
We are also subject to various restrictive covenants that, among other things, limit our ability to:
• incur additional indebtedness;
• pledge collateral to secure indebtedness;
• make certain investments or extend certain loans;
• declare or make certain dividends or other payments; or
• sell assets, or sell and leaseback assets
These limitations on our activities could limit our flexibility to react to future business changes.