Aarons 2014 Annual Report Download - page 31

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condition and results of operations. Moreover, an adverse outcome from a lawsuit, even one against one of our competitors,
could result in changes in the way we and others in the industry do business, possibly leading to significant costs or decreased
revenues or profitability.
We rely on our retail partners to ensure compliance with applicable regulations in our Progressive business. Lack of adherence
to our policies and procedures by these retail partners could cause us not to be compliant with applicable regulatory
requirements.
We are subject to laws that regulate franchisor-franchisee relationships. Our ability to develop new franchised stores
and enforce our rights against franchisees may be adversely affected by these laws, which could impair our growth
strategy and cause our franchise revenues to decline.
As a franchisor, we are subject to regulation by the Federal Trade Commission, state laws and certain Canadian provincial laws
regulating the offer and sale of franchises. Because we plan to expand our business in part by awarding more franchises, our
failure to obtain or maintain approvals to sell franchises could significantly impair our growth strategy. In addition, our failure
to comply with applicable franchise regulations could cause us to lose franchise fees and ongoing royalty revenues. Moreover,
state and provincial laws that regulate substantive aspects of our relationships with franchisees may limit our ability to
terminate or otherwise resolve conflicts with our franchisees.
We may engage in litigation with our franchisees.
Although we believe we generally enjoy a positive working relationship with the vast majority of our franchisees, the nature of
the franchisor-franchisee relationship may give rise to litigation with our franchisees. In the ordinary course of business, we are
the subject of complaints or litigation from franchisees, usually related to alleged breaches of contract or wrongful termination
under the franchise arrangements. We may also engage in future litigation with franchisees to enforce the terms of our franchise
agreements and compliance with our brand standards as determined necessary to protect our brand, the consistency of our
products and the customer experience. In addition, we may be subject to claims by our franchisees relating to our Franchise
Disclosure Document, or FDD, including claims based on financial information contained in our FDD. Engaging in such
litigation may be costly and time-consuming and may distract management and materially adversely affect our relationships
with franchisees and our ability to attract new franchisees. Any negative outcome of these or any other claims could materially
adversely affect our results of operations as well as our ability to expand our franchise system and may damage our reputation
and brand. Furthermore, existing and future franchise-related legislation could subject us to additional litigation risk in the
event we terminate or fail to renew a franchise relationship.
Changes to the current law with respect to the assignment of liabilities in the franchise business model could adversely
impact our profitability.
One of the legal foundations fundamental to the franchise business model has been that, absent special circumstances, a
franchisor is generally not responsible for the acts, omissions or liabilities of its franchisees. Recently, established law has been
challenged and questioned by the plaintiffs’ bar and certain regulators, and the outcome of these challenges and new regulatory
positions remains unknown. If these challenges and/or new positions are successful in altering currently settled law, it could
significantly change the way we and other franchisors conduct business and adversely impact our profitability.
For example, a determination that we are a joint employer with our franchisees or that franchisees are part of one unified
system with joint and several liability under the National Labor Relations Act, statutes administered by the Equal Employment
Opportunity Commission, Occupational Safety and Health Administration, or OSHA, regulations and other areas of labor and
employment law could subject us and/or our franchisees to liability for the unfair labor practices, wage-and-hour law
violations, employment discrimination law violations, OSHA regulation violations and other employment-related liabilities of
one or more franchisees. Furthermore, any such change in law would create an increased likelihood that certain franchised
networks would be required to employ unionized labor, which could impact franchisors like us through, among other things,
increased labor costs and difficulty in attracting new franchisees. In addition, if these changes were to be expanded outside of
the employment context, we could be held liable for other claims against franchisees. Therefore, any such regulatory action or
court decisions could impact our ability or desire to grow our franchised base and have a material adverse effect on our results
of operations.
Progressive’s proprietary algorithm used to approve customers could no longer be indicative of our customer’s ability to
pay.
We believe Progressive’s proprietary, centralized underwriting process to be a key to the success of the Progressive business.
We assume behavior and attributes observed on prior customers, among other factors, are indicative of performance by future
customers. Unexpected changes in behavior caused by macroeconomic conditions, changes in consumer preferences,