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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from                  to                 
Commission file Number. 1-13941
 
 AARON’S, INC.
(Exact name of registrant as specified in its charter)
 
Georgia
 
58-0687630
(State or other jurisdiction of
incorporation or organization)
 
(I. R. S. Employer
Identification No.)
 
 
 
400 Galleria Parkway SE
Suite 300
Atlanta
Georgia
 
30339-3182
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (678) 402-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 Trading Symbol
Name of each exchange on which registered
Common Stock, $0.50 Par Value
AAN
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes      No  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes      No  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
ý
 
Accelerated Filer
 
 
 
 
 
 
 
Non-Accelerated Filer
 
Smaller Reporting Company
 
 
 
 
 
 
 
Emerging Growth Company
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  No 
The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2019 was $2,577,569,581 based on the closing price on that date as reported by the New York Stock Exchange. Solely for the purpose of this calculation and for no other purpose, the non-affiliates of the registrant are assumed to be all shareholders of the registrant other than (i) directors of the registrant, (ii) executive officers of the registrant, and (iii) any shareholder that beneficially owns 10% or more of the registrant’s common shares.
As of February 13, 2020, there were 66,744,517 shares of the Company’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the 2020 annual meeting of shareholders, to be filed subsequently with the Securities and Exchange Commission, or SEC, pursuant to Regulation 14A, are incorporated by reference into Part III of this Annual Report on Form 10-K.

1


 
 
 
 
 
 
 
 
 
 

2


CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain oral and written statements made by Aaron’s, Inc. (the "Company") about future events and expectations, including statements in this Annual Report on Form 10-K, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. For those statements we claim the protection of the safe harbor provisions for forward-looking statements contained in such section. Forward-looking statements are not statements of historical facts but are based on management’s current beliefs, assumptions and expectations regarding our future economic performance, taking into account the information currently available to management.
Generally, the words "anticipate," "believe," "could," "estimate," "expect," "intend," "plan," "project," "would," "should," and similar expressions identify forward-looking statements. All statements which address operating performance, events or developments that we expect or anticipate will occur in the future, including the anticipated impacts and outcomes of our strategic plan, with respect to improving our Aaron’s store profitability; accelerating our omnichannel platform; promoting communication, coordination and integration; converting our existing pipeline into Progressive Leasing retail partners; optimizing the economic return of our active lease portfolio; strengthening our relationships with Progressive Leasing’s and Vive’s current retail partners; and championing compliance, as well as the expected impacts and outcomes of closing and consolidating certain of our Company-operated Aaron’s stores; initiatives to grow market share and statements expressing general optimism about future operating results, are forward-looking statements. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and the Company’s present expectations or projections. Factors that could cause our actual results to differ materially from any forward-looking statements include: (i) changes in the enforcement of existing laws and regulations and the adoption of new laws and regulations that may unfavorably impact our businesses; (ii) the effects of our announcement of Progressive Leasing’s proposed settlement with the Federal Trade Commission ("FTC") on our reputation and business; (iii) our strategic plan failing to deliver the benefits and outcomes we expect, with respect to improving our Aaron’s Business in particular; (iv) increased competition from traditional and virtual lease-to-own competitors, as well as from traditional and on-line retailers and other competitors; (v) financial challenges faced by our franchisees; and (vi) other factors discussed in Item 1A. Risk Factors of this Annual Report on Form 10-K. We qualify any forward-looking statements entirely by these cautionary factors.
The above mentioned risk factors are not all-inclusive. Given these uncertainties and that such statements speak only as of the date made, you should not place undue reliance on forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.


3


PART I
ITEM 1. BUSINESS
Unless otherwise indicated or unless the context otherwise requires, all references in this Annual Report on Form 10-K to the "Company," "we," "us," "our" and similar expressions are references to Aaron’s, Inc. and its consolidated subsidiaries.
General Development of Business
Aaron's, Inc. is listed on the New York Stock Exchange under the symbol AAN. The Company is a leading omnichannel provider of lease-purchase solutions primarily to an underserved, credit-challenged segment of the population. Through multiple business segments, the Company primarily provides consumers with lease-purchase solutions for the products they need and want including furniture, appliances, electronics, jewelry and a variety of other products. The Company provides flexible options to help customers towards ownership, including early buyout options, low up-front payments and flexible payment options. Aaron's, Inc. conducts its business through three operating segments. Progressive Leasing, a virtual lease-to-own company, provides lease-purchase solutions through approximately 25,000 retail locations, owned and operated by other companies, in 46 states and the District of Columbia, including e-commerce merchants. The Aaron's Business segment engages in the sales and lease ownership and specialty retailing of furniture, home appliances, consumer electronics and accessories through its approximately 1,500 company-operated and franchised stores in 47 states, Canada and Puerto Rico, as well as its e-commerce platform, Aarons.com. Dent-A-Med, Inc., d/b/a the HELPcard® ("DAMI"), provides a variety of second-look credit products that are originated through federally insured banks. As part of a rebranding effort DAMI merged into a newly created wholly-owned subsidiary of the Company, Vive Financial, LLC (“Vive”), and began operating under the Vive name effective January 1, 2020. We have updated all disclosures and references of Dent-A-Med, Inc. and/or DAMI in this Annual Report on Form 10-K to reflect the change to Vive.
As of December 31, 2019, we had 1,502 Aaron's stores, comprised of 1,167 Company-operated stores in 42 states and Canada, and 335 independently-owned franchised stores in 37 states, Canada and Puerto Rico.
We own, or are otherwise entitled to use, the various trademarks, trade names, service marks, and taglines used in our businesses, including those used with the operations of Aaron’s®, Aaron’s Sales & Lease Ownership®, Progressive Leasing, Dent-A-Med, the HELPcard®, and Woodhaven®. We intend to file for additional trade name and trademark protection when appropriate.
Business Environment and Company Outlook
Like many industries, the lease-to-own industry has been transformed by the internet and virtual marketplaces. We believe that the Progressive Leasing and Vive acquisitions have been strategically transformational in this respect by allowing the Company to diversify its presence in the market and strengthen our business, as demonstrated by Progressive Leasing's significant revenue and profit growth. The Company is also leveraging franchisee acquisition opportunities to expand into new geographic markets, enhance operational control, and benefit more fully from our business transformation initiatives on a broader scale. We believe the traditional store based lease-to-own industry has been negatively impacted in recent periods by: (i) commoditization of pricing in consumer electronics; (ii) the challenges faced by many traditional "brick-and-mortar" retailers, with respect to a decrease in the number of consumers visiting those stores, especially younger consumers; and (iii) increased competition from a wide range of competitors, including national, regional and local operators of lease-to-own stores; virtual lease-to-own companies; traditional and e-commerce retailers; traditional and online sellers of used merchandise; and from a growing number of various types of consumer finance companies that enable our customers to shop at traditional or online retailers. In response to these changing market conditions, we are executing a strategic plan that focuses on the following items and that we believe positions us for success over the long-term:
Champion compliance – Aaron's, Inc. is a large and diverse company with thousands of daily transactions that are extensively regulated and subject to the requirements of various federal, state and local laws and regulations. We continue to believe and set expectations that long-term success requires all associates to behave in an ethical manner and to comply with all laws and regulations governing our Company's behavior.
Strengthen relationships of Progressive Leasing current retail partners – Our Progressive Leasing business has benefited from both long-term and relatively newer, mutually beneficial relationships with our existing retailer base. Our ability to maintain these relationships and address the changing needs of these retailers is critical to the long-term growth strategy of our business.
Focus on converting existing pipeline into Progressive Leasing retail partners – Our Progressive Leasing business segment is continuously focused on establishing new relationships with retailers and identifying solutions that address their business needs. We believe these new relationships are fundamental to continued revenue growth for Progressive Leasing.

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Enhance our virtual offering at Progressive Leasing - In collaboration with our retail partners, Progressive remains committed to providing a seamless, transparent and fair offering to our customers. We continue to invest heavily in technology aimed at improving our customer interactions, and remain dedicated to providing a compliant experience through our contact center.  
Drive omnichannel demand generation at the Aaron's Business – We continue our focus on generating customer demand and driving sales conversion rates through enhanced customer insights, direct response marketing and increased investment in e-commerce at Aaron's Business. We believe Aarons.com represents an opportunity to provide our customers with expanded product selections and shopping convenience in the lease-to-own industry. We are focused on engaging customers in ways that are convenient for them by providing them a seamless, direct-to-door platform through which to shop in store or online across our product offerings.
Repositioning and reinvesting in our real estate at the Aaron's Business – We expect to continue to roll out our next generation store concepts to adapt to our changing competitive environment and reposition and rationalize existing real estate to higher traffic areas.
Manage the Aaron's Business stores with operational excellence – We continue to invest in various Aaron's Business transformation initiatives that are designed to improve the customer experience while lowering our cost to serve. We expect to continue to roll out nationally our Rapid Customer Onboarding, a decisioning tool designed to improve our Aaron's Business customer experience by streamlining and standardizing the decisioning process, shortening transaction times, and establishing appropriate transaction sizes and lease payment amounts, given the customer’s profile. We are also focused on executing a balanced business approach through customer retention and renewals, investing in our leadership talent, and improving our store staffing model to ensure we have our staff available to meet our customers' needs.
Operating Segments
As of December 31, 2019, the Company has three operating and reportable segments: Progressive Leasing, Aaron's Business and Vive, which is consistent with the current organizational structure and how the chief operating decision maker regularly reviews results to analyze performance and allocate resources.
The operating results of our three reportable segments may be found in (i) Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and (ii) Item 8. Financial Statements and Supplementary Data.
Progressive Leasing
Established in 1999 and acquired by the Company in 2014, Progressive Leasing is a leader in the expanding virtual lease-to-own market. Progressive Leasing partners with traditional and e-commerce retailers, primarily in the furniture and appliance, jewelry, mobile phones and accessories, mattress, and automobile electronics and accessories industries to offer a lease-purchase solution for customers who may not have access to traditional credit-based financing options. It does so by offering leases with terms that employ monthly, semi-monthly and weekly payment models.
We offer a proprietary, technology-based application and approval process that does not require Progressive Leasing employees to be staffed in a store. Once a customer is approved, Progressive Leasing purchases the merchandise from the retailer and enters into a lease-to-own transaction with the customer. The contract provides early-buyout options or ownership after a contractually specified amount has been paid. Progressive Leasing provides lease-purchase solutions through approximately 25,000 retail locations in 46 states and the District of Columbia, including e-commerce merchants, and operates under federal regulatory agency oversight and scrutiny, including the FTC, as well as state-and-District specific regulations.
Aaron's Business
Aaron's store-based and e-commerce operations
Our omnichannel platform allows us to engage customers in ways that are convenient for them by providing them a seamless, direct-to-door platform through which to shop in an Aaron's store or through our e-commerce platform across our product offerings. Aaron's store-based operations offer leases with terms that employ monthly, semi-monthly and weekly payment models to provide durable household goods to consumers through our Aaron's stores. Aaron's e-commerce operations employ flexible payment terms through Aarons.com. Over 90% of our lease agreements have monthly payment terms.
Our customer base is comprised primarily of customers with limited access to traditional credit sources such as bank financing, installment credit or credit cards. Customers of our Aaron's Business segment take advantage of our services to acquire consumer goods they might not otherwise be able to without incurring additional debt or long-term obligations. Customer agreements are cancelable at any time by either party without penalty.

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We often re-lease or sell merchandise that customers return to us prior to the expiration of their agreements. We also offer up-front purchase options.
We have developed a distinctive concept for our stores including specific merchandising, store layout, pricing and agreement terms all designed to appeal to our target consumer market. The typical store layout is a combination showroom and warehouse generally comprising 6,000 to 15,000 square feet. Each store usually maintains at least two trucks for delivery, service and return of product. We generally offer same or next day delivery for addresses located within a specified geographic area of the store. Our stores provide a broad selection of brand name electronics, computers, appliances, bedding and furniture, including bedding and furniture manufactured by our Woodhaven manufacturing division.
Franchise
The Company has no current plans to franchise additional Aaron's stores. We have existing agreements with our current franchisees to govern the operations of franchised stores. Our standard agreement is for a term of ten years, with one ten-year renewal option. Franchisees are obligated to remit to us royalty payments of 6% of the weekly cash revenue collections from their stores.
Some qualifying franchisees took part in a financing arrangement we established with several financial institutions to assist our existing franchisees in establishing and operating their store(s). We provide guarantees to the financial institutions that provide the loan facilities for amounts outstanding under this franchise financing program. At December 31, 2019, the maximum amount that the Company would be obligated to repay in the event franchisees defaulted was $29.4 million, all of which would be due within the next two years. However, due to franchisee borrowing limits, we believe any losses associated with defaults would be substantially mitigated through recovery of lease merchandise and other assets. Since the inception of the franchise loan program in 1994, the Company's losses associated with the program have been immaterial. The Company believes that any future amounts to be funded by the Company in connection with these guarantees will be immaterial.
Manufacturing
Woodhaven Furniture Industries ("Woodhaven"), our manufacturing division, was established by the Company in 1982. Integrated manufacturing enables us to control critical features such as the quality, cost, delivery, styling, durability and quantity of our furniture products, and we believe this provides an integration advantage over our competitors. Substantially all produced items continue to be leased or sold through Aaron's stores, including franchised stores. However, we also manufacture and sell furniture products to other retailers.
Woodhaven produces upholstered living-room furniture (including contemporary sofas, chairs and modular sofa and ottoman collections in a variety of natural and synthetic fabrics) and bedding (including standard sizes of mattresses and box springs). The furniture designed and produced by this division incorporates features that we believe result in enhanced durability and improved shipping processes all relative to furniture we would otherwise purchase from third parties. These features include (i) standardized components, (ii) reduced number of parts and features susceptible to wear or damage, (iii) more resilient foam, (iv) durable fabrics and sturdy frames which translate to longer life and higher residual value and (v) devices that allow sofas to stand on end for easier and more efficient transport. The division also provides replacement covers for all styles and fabrics of its upholstered furniture, as well as other parts, for use in reconditioning leased furniture that has been returned.
Woodhaven Furniture Industries consists of five furniture manufacturing plants and seven bedding manufacturing facilities totaling approximately 820,000 square feet of manufacturing capacity.
Vive
Founded in 1983 and acquired by the Company in 2015, Vive primarily serves customers that may not qualify for traditional prime lending who desire to purchase goods and services from participating merchants. Vive offers customized programs, with services that include revolving loans through private label cards. Vive's current network of merchants includes medical and dental markets, furniture, mattresses and fitness equipment. The Company believes the Vive product offerings are complementary to those of Progressive Leasing and is allowing Progressive to expand into the markets and merchants that Vive serves.
We extend or decline credit to an applicant through third-party bank partners based upon the customer's credit rating. Our bank partners originate the loan by providing financing to the merchant at the point of sale and acquiring the receivable at a discount from the face value, which represents a pre-negotiated fee between Vive and the merchant. Vive then acquires the receivable from the bank.
Qualifying customers receive a credit card to finance their initial purchase and to use in subsequent purchases at the merchant or other participating merchants for an initial two-year period, which we will renew if the cardholder remains in good standing. The customer is required to make periodic minimum monthly payments and may pay certain annual and other periodic fees.

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Operations
Operating Strategy
Our operating strategy is based on distinguishing our brands from those of our competitors along with maximizing our operational efficiencies. Our Progressive Leasing and Vive operating strategies are based on providing excellent service to our retail and merchant partners and to our customers, along with continued development of technology-based solutions. This allows us to increase our retail and merchant partners' sales, drive demand for our service, and scale in an efficient manner. Specifically with Progressive Leasing, we believe our ability to service a retailer with limited labor costs allows us to maintain a cost of ownership for leased merchandise lower than that of other options available to our customers.
We execute on our strategy for our Aaron's store-based and e-commerce operations by (i) emphasizing the uniqueness of our sales and lease ownership concept from those in our industry generally; (ii) offering high levels of customer service; (iii) promoting our vendors' and Aaron's brand names; and (iv) managing merchandise through our manufacturing and distribution capabilities.
We believe that the success of our store-based and e-commerce operations is attributable to our distinctive approach to the business that distinguishes us from both our lease-to-own and credit retail competitors. We have pioneered innovative approaches to meeting changing customer needs that we believe differ from many of our competitors. These include (i) offering lease ownership agreements that result in a lower cost to own; (ii) maintaining larger and more attractive store showrooms; (iii) offering a wider selection of higher-quality merchandise; (iv) digital customer onboarding and decisioning; and (v) providing an up-front cash and carry purchase option on select merchandise.
Aaron's Business Operations
The Aaron's Business segment has various levels of executive leadership, area directors, and regional managers that oversee our Aaron's Business operations. At the individual store level, the general store manager is primarily responsible for managing and supervising all aspects of store operations, including (i) customer relations and account management, (ii) deliveries and pickups, (iii) warehouse and inventory management, (iv) partial merchandise selection, (v) employment decisions, including hiring, training and terminating store employees and (vi) certain marketing initiatives. Store managers also administer the processing of lease return merchandise including making determinations with respect to inspection, repairs, sales, reconditioning and subsequent leasing.
Our business philosophy emphasizes safeguarding of Company assets, strict cost containment and financial controls. All personnel are expected to monitor expenses to contain costs. All material Aaron's Business invoices are approved and paid utilizing the Company's centralized accounts payable process to enhance financial accountability. We believe that careful monitoring of lease merchandise as well as operational expenses enables us to maintain financial stability and profitability.
We use management information systems to facilitate customer orders, collections, merchandise returns and inventory monitoring. Each of our stores is network linked directly to corporate headquarters enabling us to monitor single store performance on a daily basis. This network system assists the store manager in (i) tracking merchandise on the showroom floor and warehouse, (ii) minimizing delivery times, (iii) assisting with product purchasing and (iv) matching customer needs with available inventory.
Lease Agreement Approval, Renewal and Collection
Our Progressive Leasing business uses proprietary decisioning algorithms to determine which customers would meet our leasing qualifications. The transaction is completed online or through a point of sale integration with our retail partners. Contractual payments are usually based on a customer's pay frequency and are typically processed through automated clearing house payments. If the payment is unsuccessful, collections are managed in-house through our call center, customer service centers and proprietary lease management system. The call center contacts customers within a few days after the due date to encourage them to keep their agreement current. If the customer chooses to return the merchandise, arrangements are made to receive the merchandise from the customer, either through our retail partners, our Draper, Utah location, our Progressive customer service centers, or our Aaron's operated stores.
We have a proprietary lease approval process with respect to our Aaron's Business store customers, which includes obtaining certain customer data from third-party service providers, verifying employment or other reliable sources of income and using personal references supplied by the customer. In addition, we continue to roll out Rapid Customer Onboarding nationally, which is a decisioning tool designed to improve our customer experience by streamlining and standardizing the decisioning process, shortening transaction times, and establishing appropriate transaction sizes and lease payment amounts, given the customer’s profile. Generally, our Aaron's store operations and e-commerce agreements for merchandise require payments in advance, and the merchandise normally is recovered if a payment is significantly in arrears.
One of the factors in the success of our Aaron's Business operations is timely collections, which are monitored by store managers and our call center associates. Customers are contacted within a few days after their lease payment due dates to

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encourage them to keep their agreement current. Careful attention to collections is particularly important in sales and lease ownership operations, where the customer typically has the option to cancel the agreement at any time and each contractually due payment is generally considered a renewal of the agreement. The Company continues to encourage customers to take advantage of the convenience of enrolling in the Company's automatic payment program, EZPay.
The provision for lease merchandise write-offs as a percentage of consolidated lease revenues was 6.8%, 5.5% and 4.8% in 2019, 2018 and 2017, respectively. We believe that our collection and recovery policies comply with applicable laws, and we discipline any employee we determine to have deviated from such policies.
Credit Agreement Approval and Collection
Vive partners with merchants to provide a variety of revolving credit products originated through third-party federally insured banks to customers that may not qualify for traditional prime lending (called "second-look" financing programs). We believe Vive provides the following strategic benefits when combined with Progressive Leasing's product offerings:
Enhanced product for retail partners - Vive enhances Progressive Leasing's best-in-class product with an integrated solution for below-prime customers. Vive has a centralized, scalable underwriting model with a long operating history, deployed through its established bank partners, and a receivable management system.
Higher consumer credit quality - Vive primarily serves customers with FICO scores between 600 and 700, which make up approximately a quarter of the U.S. population. These customers generally have greater purchasing power with stronger credit profiles than Progressive Leasing's current customers.
Expanded customer base - In addition to complementing Progressive Leasing's traditional offering for existing and prospective retail partners, Vive's strong relationships with merchant partners who provide services offer an additional channel for longer-term growth.
Vive uses an underwriting model that provides standardized credit decisions, including borrowing limit amounts. Credit decisions are primarily based on a proprietary underwriting algorithm. Loans receivable are unsecured, and collections on loans receivable are managed in-house through Vive's call center and proprietary loans receivable management system.
Customer Service
A critical component of the success in our operations is our commitment to developing good relationships with our customers. The Company consistently monitors consumer interests and trends to ensure that our business model is aligned with our customers' needs. The Company believes that building a relationship with the customer that ensures customer satisfaction is critical because customers of Progressive Leasing and Aaron's store-based and e-commerce operations have the option of returning the leased merchandise at any time without penalty. Our goal, therefore, is to develop a positive experience with the Company and our products, service and support in the minds of our customers from the moment they enter our showrooms and the showrooms of our retail partners. We demonstrate our commitment to superior customer service by providing customers with access to product through multiple channels, including Progressive Leasing's and Vive's network of retail and merchant partner locations, Aarons.com, and Aaron's store-based operations. Aaron's store-based operations provide rapid delivery of leased merchandise (often on same or next day delivery) and investments in technology that improve the customer experience.
We believe our strong focus on customer satisfaction generates repeat business and long-lasting relationships with our customers and retail partners. Our customers receive multiple complimentary service benefits. These benefits vary according to applicable state law but generally include early purchase options, reinstatement options, product replacement, and other discounts and benefits. In order to increase leasing transactions, we foster relationships with our retail partners and existing customers to attract recurring business, and many new agreements are attributable to repeat customers. Our Progressive Leasing business offers centralized customer and retailer support through contact centers located in Draper, Utah and Glendale, Arizona.
Our Aaron's store-based operations offers customers the option to obtain a membership in the Aaron's Club Program (the "Club Program"). The benefits to customers of the Club Program are separated into three general categories: (i) product protection benefits; (ii) health & wellness discounts; and (iii) dining, shopping and consumer savings. The product protection benefits provide Club Program members with lease payment waivers for up to four months or a maximum of $1,000 on active customer lease agreements in the event of customer unemployment or illness; replacement of the product in the event the product is stolen or damaged by an act of God; waiver of remaining lease payments on lease agreements in the event of death of any member named on the lease agreement; and/or repair of the product for an extended period after the customer takes ownership.
Our emphasis on customer service at the Aaron's store-based operations requires that we develop skilled, effective employees who value our customers and who possess and project a genuine desire to serve our customers' needs. To meet this requirement, we have created and implemented a comprehensive associate development program for both new and tenured associates.

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Our Aaron's associate development program is designed to train our associates to provide a uniform and enhanced customer service experience. The primary focus of the associate development program is to equip all associates with the knowledge and skills needed to build strong relationships with our customers and to service customers in a manner that complies with applicable laws, regulations and Company policies. Our learning and development coaches provide live, interactive instruction via webinars. In addition, associates are provided training through an Intranet-based learning management system that can be accessed at any time. Additionally, Aaron’s has a management development program that offers development for current and future store managers and a leadership development program for our multi-unit managers. Also, we produce and post video-based communications regarding important Company initiatives on our intranet site.
At Progressive Leasing, developing our leaders is a key priority. We help our leaders achieve their strategic goals by providing a robust leadership development curriculum for all leaders. We also provide an online learning curriculum that includes content around specific business-related needs in multiple delivery formats and includes tools, assessments, videos and digital learning modules, which are available live, in-person and online. 
Purchasing and Retail Relationships
The following table shows the percentage of Progressive Leasing's revenues attributable to different retail partner categories (note that a retail partner is attributed to a single product category even if they may carry products across multiple product categories):
 
Year Ended December 31,
Progressive Leasing Retail Partner Category
2019
 
2018
 
2017
Furniture and appliance
53
%
 
54
%
 
55
%
Jewelry
16
%
 
14
%
 
7
%
Mobile phones and accessories
12
%
 
9
%
 
10
%
Mattress
10
%
 
12
%
 
15
%
Automobile electronics and accessories

7
%
 
9
%
 
11
%
Other
2
%
 
2
%
 
2
%
During 2019, three retailers each individually provided greater than 10% of the lease merchandise acquired by Progressive Leasing and subsequently leased to customers. We derived approximately 12% of our consolidated revenues from customers of one of these retailers, Big Lots Stores, Inc., for the year ended December 31, 2019.
For our Aaron's store-based operations, our merchandise product mix is determined by executive leadership and our merchandising department based on an analysis of customer demands. The following table shows the percentage of our Aaron's Business revenues attributable to different merchandise categories:
 
Year Ended December 31,
Aaron's Business Merchandise Category
2019
 
2018
 
2017
Furniture
44
%
 
44
%
 
45
%
Home appliances
27
%
 
25
%
 
24
%
Consumer electronics
20
%
 
22
%
 
24
%
Computers
6
%
 
6
%
 
5
%
Other
3
%
 
3
%
 
2
%
One of Aaron's Business largest suppliers is our own Woodhaven manufacturing division, which supplies the majority of the bedding and a significant portion of the upholstered furniture we lease or sell through our Aaron's Business segment. We purchase the remaining merchandise directly from manufacturers and local distributors and are generally able to obtain bulk discounts that provide us with cost advantages. Our stores carry well-known brands such as Samsung®, GE®, HP®, LG®, Simmons®, Philips®, and Ashley®. To a lesser extent, we also may sell or re-lease certain merchandise returned by our Progressive Leasing and Aaron's Business customers. We have no long-term agreements for the purchase of merchandise.

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The following table shows the percentage of Vive's revenues attributable to different merchant partner categories:
 
Year Ended December 31,
Vive Merchant Partner Category
2019
 
2018
 
2017
Medical and dental
46
%
 
52
%
 
49
%
Furniture and mattress
31
%
 
23
%
 
23
%
Retail
15
%
 
17
%
 
20
%
Other
8
%
 
8
%
 
8
%
Distribution for Aaron's Store-based Operations
The Aaron's store-based operations utilize our 16 fulfillment centers to control merchandise. These centers average approximately 124,000 square feet, giving us approximately 2.0 million square feet of logistical capacity, outside of our network of stores.
We believe that our network of fulfillment centers provides us with a strategic advantage over our competitors. Our distribution system allows us to deliver merchandise promptly to our stores in order to quickly meet customer demand and effectively manage inventory levels. Most of our continental U.S. stores are within a 250-mile radius of a fulfillment center, facilitating timely shipment of products to the stores and fast delivery of orders to customers.
We realize freight savings from bulk discounts and more efficient distribution of merchandise by using fulfillment centers. We use our own tractor-trailers, local delivery trucks and various contract carriers to make weekly deliveries to individual stores. 
Marketing and Advertising
Progressive Leasing and Vive execute their marketing strategy in partnership with retailers and other merchants. This is typically accomplished through in-store signage and marketing material, direct marketing activities, and the education of sales associates.
The Aaron's Business marketing targets current and previous Aaron's customers and potential new customers. We feature brand name products available through our no-credit-needed lease ownership plans. We reach our customer demographics through a variety of traditional and digital media channels including TV, radio, digital video, direct mail, and search with a combination of brand and promotional messaging. We continue to test new ways to engage potential customers we can serve and find audience segments that are open to rent-to-own.
We continue to refine and grow our overall contact strategy to grow our customer base. By understanding optimal timing, offers and products to promote to current and former customers along with potential prospects we look to continue improvements in marketing return on investment. Direct mail, email and text messages serve as the primary tools we utilize in each of these strategies. We test, analyze and refine our results to determine the optimal mix to drive results.
With our sizeable e-commerce business, we also focus heavily on digital marketing including search, display, and social to help drive traffic to both stores and our e-commerce website. Our e-commerce marketing is dynamically managed on a daily basis and is growing as a share of spend relative to traditional marketing channels.
Competition
The Company competes with national, regional and local operators of lease-to-own stores, virtual lease-to-own companies, traditional and e-commerce retailers (including many that offer layaway programs and title or installment lending), traditional and online sellers of used merchandise, and various types of consumer finance companies that may enable our customers to shop at traditional or online retailers, as well as with rental stores that do not offer their customers a purchase option. We also compete with retail stores for customers desiring to purchase merchandise for cash or on credit. Competition is based primarily on product selection and availability, customer service and lease rates, store location and terms.

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Working Capital
The Progressive Leasing and Aaron's Business sales and lease ownership model results in the Company remaining the owner of merchandise on lease; therefore, the Company's most significant working capital asset is merchandise inventory on lease. The Aaron's Business store-based and e-commerce operations also require the Company to maintain significant levels of merchandise inventory available for lease in order to provide the service demanded by our customers and to ensure timely delivery of our products. Consistent and dependable sources of liquidity are required to maintain such merchandise levels. Failure to maintain appropriate levels of merchandise could materially adversely affect our customer relationships and our business. We believe our cash on hand, operating cash flows, credit availability under our financing agreements and other sources of financing are adequate to meet our normal liquidity requirements.
Raw Materials
The principal raw materials we use in furniture manufacturing at Woodhaven are fabric, foam, fiber, wire-innerspring assemblies, plywood, oriented strand board and hardwood. All of these materials are purchased in the open market from unaffiliated sources. We have a diverse base of suppliers; therefore, we are not dependent on any single supplier. The sourcing of raw materials from our suppliers is not overly dependent on any particular country. None of the raw materials we use are in short supply.
Seasonality
Our revenue mix is moderately seasonal for both our Progressive Leasing and Aaron's Business segments. Adjusting for growth, the first quarter of each year generally has higher revenues than any other quarter. This is primarily due to realizing the full benefit of business that historically gradually increases in the fourth quarter as a result of the holiday season, as well as the receipt by our customers in the first quarter of federal and state income tax refunds. Our customers will more frequently exercise the early purchase option on their existing lease agreements or purchase merchandise off the showroom floor during the first quarter of the year. We expect these trends to continue in future periods.
Industry Overview
The Lease-to-Own Industry
The lease-to-own industry offers customers an alternative to traditional methods of obtaining home furnishings, electronics, appliances, computers and other durable consumer goods. In a standard industry lease-to-own transaction, the customer has the option to acquire ownership of merchandise over a fixed term, usually 12 to 24 months, normally by making weekly, semi-monthly, or monthly lease payments. The customer may cancel the agreement at any time without penalty by returning the merchandise to the lessor. If the customer leases the item through the completion of the full term, he or she then obtains ownership of the item. The customer may also purchase the item at any time by tendering the contractually specified payment.
The lease-to-own model is particularly attractive to customers who are unable to pay the full upfront purchase price for merchandise or who lack the credit to qualify for conventional financing programs. Other individuals who find the lease-to-own model attractive are customers who, despite access to credit, do not wish to incur additional debt, have only a temporary need for the merchandise or desire to field test a particular brand or model before purchasing it.
Aaron's, Inc. versus Traditional Lease-to-Own
We blend elements of lease-to-own and traditional retailing by providing customers with the option to either lease merchandise with the opportunity to obtain ownership or to purchase merchandise outright. We believe our sales and lease ownership program is a more effective method of retailing our merchandise to customers than a typical lease-to-own business or the traditional method of credit installment sales. 
Our model is distinctive from the conventional lease-to-own model in that we encourage our customers to obtain ownership of their leased merchandise. Based upon our own data and industry data, our customers obtain ownership more often (between 50% to 60%) than in the lease-to-own businesses in general (approximately 25%).
Unlike transactions with traditional retailers, in which the customer is committed to purchasing the merchandise, our sales and lease ownership transactions are not credit installment contracts. Therefore, the customer may elect to terminate the transaction after a short, initial lease period, without penalty. Progressive Leasing provides a 90-day buy-out option on lease-purchase solutions offered through traditional retailers. Our Aaron's Business operations offer an up-front "cash and carry" purchase option and generally a same-as-cash option on most merchandise.

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We believe our lease-purchase solutions offer the following distinguishing characteristics when compared to traditional lease-to-own stores:
Lower total cost - Our agreement terms generally provide a lower cost of ownership to the customer than traditional lease-to-own stores.
Wider merchandise selection - Our Progressive Leasing operations allow us to offer a wider selection of merchandise via partnerships with various merchants. Additionally, we also generally offer a larger selection of higher-quality merchandise through our Aaron's e-commerce and store-based operations than others in the lease-to-own industry.
Larger store layout - Aaron's stores currently average 8,000 square feet, which is significantly larger than the average size of our largest competitor's lease-to-own stores.
Fewer payments - Our typical plan offers semi-monthly or monthly payments versus the industry standard of weekly payments.
Flexible payment methods - We offer our customers the opportunity to pay by automated clearing house (ACH), debit card, credit card, cash or check. We also offer an EZPay option which gives customers the ease of using their debit or credit card to set up an automatic payment on the date they select. Our Progressive Leasing operations receive substantially all of their payments from customers by ACH, debit card or credit card. Our Aaron's Business operations currently receive approximately 79% of their payment volume (in dollars) from customers by debit card or credit card.
Government Regulation
Our operations are extensively regulated by and subject to the requirements of various federal, state and local laws and regulations, and are subject to oversight by various government agencies, including the Federal Trade Commission ("FTC"), for example, which may exercise oversight of the advertising and other business practices of our Company. In general, such laws regulate applications for leases, pricing, late charges and other fees, lease disclosures, the content of advertising materials, and certain collection procedures. Violations of certain provisions of these laws may result in material penalties. We are unable to predict the nature or effect on our operations or earnings of unknown future legislation, regulations and judicial decisions or future interpretations of existing and future legislation or regulations relating to our operations, and there can be no assurance that future laws, decisions or interpretations will not have a material adverse effect on our operations, earnings or financial condition.
A summary of certain laws under which we operate follows. This summary does not purport to be a complete summary of the laws referred to below or of all the laws regulating our operations.
Federal regulatory authorities, such as the FTC, are increasingly focused on the subprime financial marketplace in which the lease-to-own industry operates, and any of these agencies may propose and adopt new regulations, or interpret existing regulations, in a manner that could result in significant adverse changes in the regulatory landscape for businesses such as ours. In addition, with increasing frequency, federal and state regulators are holding businesses like ours to higher standards of training, monitoring and compliance. From time to time, federal regulatory agencies and state attorneys general have directed investigations or regulatory initiatives toward our industry, or toward certain companies within the industry. For example, as we have disclosed previously, in July 2018 we received civil investigative demands ("CIDs") from the FTC regarding disclosures related to lease-to-own and other financial products offered by the Company through our traditional, lease-to-own store-based business, including our Aarons.com e-commerce business, and Progressive Leasing, and whether such disclosures are in violation of the FTC Act. Although we believe such disclosures were in compliance with the FTC Act and have not admitted to any wrongdoing, in December 2019, Progressive Leasing reached an agreement in principle with the staff of the FTC with respect to a tentative settlement to resolve the FTC inquiry, with Progressive undertaking to make a lump-sum payment of $175 million to the FTC. In January 2020, Progressive Leasing and FTC staff agreed in principle on the terms of a related consent order which, among other matters, requires Progressive Leasing to undertake certain compliance-related activities, including monitoring, disclosure and reporting requirements. Because Progressive Leasing reached a tentative agreement with respect to the financial terms of the settlement in December 2019, the Company has recognized a charge during the fourth quarter of 2019 of $179.3 million, including $4.3 million of incurred legal fees. The proposed consent order is subject to the approval of both the FTC and the U.S. District Court for the Northern District of Georgia, and there can be no assurance that such approval will be obtained or that the terms of any settlement will be as currently agreed between the parties. Any such settlement and related consent order could lead to investigations and enforcement actions by, and/or consent orders with, state attorneys general and regulatory agencies. We cannot predict whether any state attorneys general or federal regulatory agencies will direct other investigations or regulatory initiatives towards us or our industry in the future, or what the impact of any such future regulatory initiatives may be.

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Additionally, in April 2019, the Aaron’s Business, along with other lease-to-own companies, received an unrelated CID from the FTC focused on certain transactions involving the contingent purchase and sale of customer lease agreements with other lease-to-own companies, and whether such transactions violated the FTC Act. Although we believe those transactions did not violate any laws, in August 2019, the Company reached an agreement in principle with the FTC staff to resolve that CID. The proposed consent agreement, which would prohibit such contingent purchases and sales of customer lease portfolios in the future but would not require any payments to the FTC, remains subject to the approval of the Commission.
In addition to federal regulatory oversight, currently, nearly every state and most provinces in Canada specifically regulate lease-to-own transactions via state or provincial statutes. This includes states in which our Progressive Leasing business has retail partners and also includes states in which we currently operate our Aaron's Business. Most state lease purchase laws require lease-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 retail price for an item, the total amount that a customer may be charged for an item, or regulate the "cost-of-rental" amount that lease-to-own companies may charge on lease-to-own transactions, generally defining "cost-of-rental" as lease fees paid in excess of the "retail" price of the goods. Our long-established policy in all states is to disclose the terms of our lease purchase transactions as a matter of good business ethics and customer service. We believe we are in material compliance with the various state lease purchase laws. At the present time, no federal law specifically regulates the lease-to-own transaction. Federal legislation to regulate the transaction has been proposed from time to time. In addition, certain elements of the business including matters such as collections activity, marketing disclosures to customers and customer contact may be subject to federal laws and regulation.
There has been increased legislative and regulatory attention in the United States, at both the federal and state levels, on financial services products offered to near-prime and subprime consumers in general, which may result in an increase in legislative regulatory efforts directed at the lease-to-own industry. We cannot predict whether any such legislation or regulations will be enacted and what the impact would be on us.
Our sales and lease ownership franchise program is subject to FTC oversight and various state laws regulating the offer and sale of franchises. Several state laws also regulate substantive aspects of the franchisor-franchisee relationship. The FTC requires us to furnish to prospective franchisees a Franchise Disclosure Document ("FDD") containing prescribed information. A number of states in which we might consider franchising also regulate the sale of franchises and, in certain circumstances, require registration of the franchise disclosure document with state authorities. We believe we are in material compliance with all applicable franchise laws in those states in which we do business and with similar laws in Canada.
Vive is subject to various federal and state laws that address lending regulations, consumer information, consumer rights, and certain credit card specific requirements, among other things. In addition, Vive services credit cards issued through third party bank partners and therefore is subject to those banks' Federal Deposit Insurance Corporation regulators. Additional regulations are being developed, as the attention placed on the True Lender Doctrine and consumer debt transactions has grown significantly. We believe we are in material compliance with all applicable laws and regulations. Although we are unable to predict the results of any regulatory initiatives, we do not believe that existing and currently proposed regulations will have a material adverse impact on our Progressive Leasing, Aaron's Business and/or Vive businesses or other operations.
Supply Chain Diligence and Transparency
Section 1502 of the Dodd-Frank Act was adopted to further the humanitarian goal of ending the violent conflict and human rights abuses in the Democratic Republic of the Congo and adjoining countries ("DRC"). This conflict has been partially financed by the exploitation and trade of tantalum, tin, tungsten and gold, often referred to as conflict minerals, which originate from mines or smelters in the region. Securities and Exchange Commission ("SEC") rules adopted pursuant to the Dodd-Frank Act require reporting companies to disclose annually, among other things, whether any such minerals that are necessary to the functionality or production of products they manufactured during the prior calendar year originated in the DRC and, if so, whether the related revenues were used to support the conflict and/or abuses.
Some of the products manufactured by Woodhaven Furniture Industries, our manufacturing division, may contain tantalum, tin, tungsten and/or gold. Consequently, in compliance with SEC rules, we have adopted a policy on conflict minerals, which can be found on our website at investor.aarons.com. We have also implemented a supply chain due diligence and risk mitigation process with reference to the Organisation for Economic Co-operation and Development, or the OECD, guidance approved by the SEC to assess and report annually whether our products are conflict free.
We expect our suppliers to comply with the OECD guidance and industry standards and to ensure that their supply chains conform to our policy and the OECD guidance. We plan to mitigate identified risks by working with our suppliers and may alter our sources of supply or modify our product design if circumstances require.

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Employees
At December 31, 2019, the Company had approximately 12,100 employees. None of our employees are covered by a collective bargaining agreement, and we believe that our relations with employees are good.
Available Information
We make available free of charge on our Internet website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports and the Proxy Statement for our Annual Meeting of Shareholders. Our Internet address is www.aarons.com.
ITEM 1A. RISK FACTORS
The Company’s business is subject to certain risks and uncertainties. Any of the following risk factors could cause our actual results to differ materially from historical or anticipated results. These risks and uncertainties are not the only ones we face, but represent the risks that we believe are material. However, there may be additional risks that we currently consider not to be material or of which we are not currently aware, and any of these risks could cause our actual results to differ materially from historical or anticipated results.
Federal and state regulatory authorities are increasingly focused on our industry, and in addition to being subject to various existing federal and state laws and regulations, we may be subject to new or additional federal and state laws and regulations (or changes in interpretations of existing laws and regulations) that could expose us to government investigations, significant additional costs or compliance-related burdens that could force us to change our business practices in a manner that may be materially adverse to our operations, prospects or financial condition.
As indicated by Progressive Leasing’s proposed settlement with the FTC that we announced on February 20, 2020, federal regulatory authorities such as the FTC are increasingly focused on the subprime financial marketplace in which the lease-to-own industry operates, and any of these federal agencies, as well as state regulatory authorities, may propose and adopt new regulations (or interpret existing regulations) that could result in significant adverse changes in the regulatory landscape for businesses such as ours. In addition, we believe, with increasing frequency, federal and state regulators are holding businesses like ours to higher standards of monitoring, disclosure and reporting, regardless of whether new laws or regulations governing our industry have been adopted. Regulators and courts may apply laws or regulations to our businesses in incorrect, inconsistent or unpredictable ways that may make compliance more difficult, expensive and uncertain. This increased attention at the federal and state levels, as well as the potential for scrutiny by certain municipal governments, could increase our compliance costs significantly and materially and adversely impact the manner in which we operate.
Nearly every state, the District of Columbia, Puerto Rico, and most provinces in Canada specifically regulate lease-to-own transactions. This includes states in which our Progressive Leasing business has retail partners as well as ones in which we currently operate our Aaron’s Business stores. Furthermore, certain aspects of our business, such as the content of our advertising and other disclosures to customers about our lease-to-own transactions; and our collection practices (as well as those of third parties), the manner in which we contact our customers, our decisioning process regarding whether to lease merchandise to customers, our credit reporting practices, and the manner in which we process and store certain customer, employee and other information are subject to federal and state laws and regulatory oversight. For example, the California Consumer Privacy Act of 2018 (the “CCPA”), which became effective on January 1, 2020, has changed the manner in which our transactions with California residents are regulated with respect to the manner in which we collect, store and use consumer data, which will result in increased regulatory oversight and litigation risks and increase our compliance-related costs in California. Moreover, other states may adopt privacy-related laws whose restrictions and requirements differ from those of the CCPA, requiring us to design, implement and maintain different types of state-based, privacy-related compliance controls and programs simultaneously in multiple states, thereby further increasing the complexity and cost of compliance.
Many of these laws and regulations are evolving, unclear and inconsistent across various jurisdictions, and complying with them is difficult, expensive and uncertain. Furthermore, legislative or regulatory proposals regarding our industry, or interpretations of them, may subject our Company to "headline risks" that could negatively impact our business in a particular market or in general and, therefore, may adversely affect our share price. For example, in early February 2020, news reports in California raised concerns that California’s governor is proposing “new rent-to-own oversight” rules for the state. Investors worried that this implied a new, lower cap on the fees rent-to-own companies, like us, would be able to charge in the future, which resulted in significant stock price volatility in our shares.
We have incurred and will continue to incur substantial costs to comply with federal and state laws and regulations. In addition to compliance costs, we may continue to incur substantial expenses to respond to federal and state government investigations and enforcement actions, proposed fines and penalties, criminal or civil sanctions, and private litigation, including those arising out of our or our franchisees’ alleged violations of existing laws and/or regulations.

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Further, certain political candidates for various offices have from time-to-time indicated a desire to increase the level of regulation and regulatory scrutiny applicable to lease-to-own and similar subprime financial services providers. If elected, these candidates may propose new laws and regulations (or appoint individuals who could reinterpret existing regulations) that, if adopted, would adversely impact our current operations and the regulatory landscape for businesses such as ours. Our manufacturing and distribution functions are also subject to various federal, state and municipal laws and regulations, including those regarding environmental, health and safety and transportation. Failure by us to comply with these laws and regulations could result in fines, penalties or limitations on our ability to conduct our business, or federal, state or municipal actions, or private litigation, any of which could significantly harm our reputation, both with consumers as well as with Progressive Leasing’s and Vive’s retail and merchant partners, which could materially and adversely affect our business, prospects and financial condition.
Additionally, as we execute on our strategic plans, we may continue to expand into complementary businesses, such as Vive, that engage in financial, banking or lending services, or rent-to-own or rent-to-rent transactions involving products that we do not currently offer our customers, all of which may be subject to a variety of statutes and regulatory requirements in addition to those regulations currently applicable to our legacy operations, which may impose significant costs, limitations or prohibitions on the manner in which we currently conduct our businesses as well as those we may acquire in the future. Our aarons.com e-commerce business may also be subject to laws and regulatory requirements in addition to those that apply to our legacy store-based operations, and/or existing laws and regulations may apply to our e-commerce business in ways that are different from their application to our legacy store-based operations.
The effects on our business of our announcement of Progressive Leasing’s proposed settlement with the FTC are not certain; it may have a material adverse effect on our reputation, business, and financial results, as could our failure to comply with the settlement.
We announced on February 20, 2020, that Progressive Leasing had reached a proposed settlement with the staff of the FTC to resolve the Civil Investigative Demand that Progressive Leasing received from the FTC in July 2018, regarding whether Progressive Leasing's disclosures to customers violated the FTC Act. Under the proposed agreement, which remains subject to the approval of the FTC Commissioners and the United States District Court for the Northern District of Georgia, Progressive Leasing would make a payment of $175 million to the FTC and enhance certain compliance-related activities, including monitoring, disclosure and reporting requirements.
Our announcement about the proposed settlement may lead to unfavorable media coverage and other negative publicity, Progressive Leasing’s existing retail partners reducing or terminating their relationships with Progressive Leasing, and prospective retail partners refusing to do business with Progressive Leasing. It also creates risks that third-parties may bring actions against Progressive Leasing, whether in the form of state or other federal regulatory investigations or proceedings, or private litigation, any of which could lead to substantial legal fees and costs for extended periods of time, monetary settlements, fines, penalties or injunctions, and distraction to our management team. The loss of retail partners and/or the incurrence of substantial costs to respond to third-party actions and investigations could have an adverse effect on our financial condition and results of operations.
Assuming the proposed settlement agreement with the FTC is finalized, compliance with it will require the cooperation of Progressive Leasing’s retail partners, over whom we do not have the same level of influence or control as we have over our own business, including, for example, with respect to advertising and explaining lease transactions to consumers. In the event Progressive Leasing is found to be in violation of the terms of the FTC settlement, the FTC could, among other things, initiate further enforcement actions, seek an injunction or other restrictive orders and impose civil monetary penalties against Progressive Leasing and its officers, which could harm Progressive Leasing’s financial condition and results of operations.
Progressive Leasing's virtual lease-to-own business, as well as our e-commerce-based business, differs in some potentially significant respects from the risks of the traditional store-based Aaron's Business lease-to-own business. The risks could have a material negative effect on Progressive Leasing, which could result in a material adverse effect on our entire business.
Our Progressive Leasing segment offers its lease-to-own solution through the stores of third-party retailers, which we have historically referred to as “retail partners”. Progressive Leasing consequently faces some different risks than are associated with our traditional store-based sales and lease ownership concept, which our Aaron’s Business segment and its franchisees offer through their own stores. These potential risks include, among others:
Progressive Leasing’s reliance on third-party retailers (over whom Progressive Leasing cannot exercise the degree of control and oversight that the Aaron’s Business and its franchisees can assert over their own respective employees) for many important business functions, from advertising through assistance with lease transaction applications, including, for example, explaining the nature of the lease-to-own transaction when asked to do so by the customer, and that the transaction is with Progressive Leasing and not with its retail partner;

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the potential that, notwithstanding Progressive Leasing’s proposed settlement with the FTC, the FTC and additional federal regulators, such as the CFPB, may continue to target (and state regulators may begin to target and certain municipal governments may begin to scrutinize) the virtual lease-to-own transaction and/or adopt new regulations or legislation (or existing laws and regulations, including those that were adopted before the virtual lease-to-own transaction became available, or that otherwise were never intended to apply to the virtual lease-to-own transaction, may be interpreted in a manner) that negatively impact Progressive Leasing’s ability to offer virtual lease-to-own programs through its retail partners, and/or that regulators and/or courts may attempt to force the application of laws and regulations on Progressive Leasing’s virtual lease-to-own business in inconsistent and unpredictable ways that could increase the compliance-related costs incurred by Progressive Leasing, and negatively impact Progressive Leasing’s financial and operational performance;
indemnification obligations to Progressive Leasing’s retail partners and their service providers for losses stemming from, among other matters, Progressive Leasing’s violation of federal, state or local laws or regulations or failure to take the appropriate steps to protect its retail partners’ and their customers’ data and information from being accessed or stolen by unauthorized third parties through cyber-attacks or “hacking” or similar occurrences;
reliance on automatic bank account drafts for lease payments, which may become disfavored as a payment method for these transactions by regulators and/or providers, or may otherwise become unavailable; and
an increase in the risk of occurrences of consumer fraud with respect to Progressive Leasing’s virtual lease-to-own business and the e-commerce business (and also with the e-commerce business of our Aaron’s Business), as compared to our traditional store-based business.
These risks could have a material negative effect on Progressive Leasing, which could result in a material adverse effect on our entire business.
Progressive Leasing’s loss of operating revenues from key retail partners could materially and adversely affect our business.
Progressive Leasing’s relationship with its largest retail partners will have a significant impact on our operating revenues in future periods. The loss of any key retailers would have a material adverse effect on our business and could be caused by factors beyond our control, such as by any negative publicity or public scrutiny associated with our announcement on February 20, 2020 of Progressive Leasing’s proposed settlement with the FTC. For example, during 2019, three retail partners each individually provided greater than 10% of the lease merchandise acquired by Progressive Leasing and subsequently leased to customers, and the top ten retail partners provided approximately 68% of that merchandise. In addition, the customers that Progressive Leasing obtained through its relationship with one of its retail partners, Big Lots Stores, Inc., accounted for 12% of our consolidated revenues for our 2019 fiscal year. Any extended discontinuance of Progressive Leasing’s relationship with any of those retail partners or other high visibility retailers could have a material adverse impact on our results of operations. In addition, in the event that Progressive Leasing enters into new or amended business or contractual terms or conditions with any of its largest retail partners that are less favorable to Progressive Leasing than its current arrangements with those retail partners, including with respect to the prices Progressive Leasing pays those retail partners for merchandise that Progressive Leasing leases to its customers, our business could be materially and adversely effected.
Any publicity associated with the loss of any of Progressive Leasing’s large retail partners could harm our reputation, making it more difficult to attract and retain consumers and other retail partners, and could lessen Progressive Leasing’s negotiating power with its remaining and prospective retail partners. Our operating revenues and operating results could also suffer if any of Progressive Leasing’s retail partners experiences a significant decline in sales for any reason.
Many of Progressive Leasing’s contracts with its retail partners can be terminated by them on relatively short notice, and all can be terminated in limited circumstances, such as our material breach or insolvency, and certain changes in control of Progressive Leasing. There can be no assurance that Progressive Leasing will be able to continue its relationships with its largest retail partners on the same or more favorable terms in future periods or that its relationships will continue beyond the terms of our existing contracts with them. Our operating revenues and operating results could suffer if, among other things, any of Progressive Leasing’s retail partners renegotiates, terminates or fails to renew, or fails to renew on similar or favorable terms, their agreements with Progressive Leasing or otherwise chooses to modify the level of support they provide for Progressive Leasing’s lease-purchase option.

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We continue to implement an aggressive strategic plan within the Aaron’s Business and there is no guarantee that it will be successful.
Our strategic plan for the Aaron’s Business includes a number of key initiatives to improve profitability, including centralizing key processes, rationalizing and repositioning real estate, and enhancing our e-commerce platform. For example, with respect to centralizing key processes, we expect to implement a centralized customer lease decisioning process for all of our Company-owned Aaron’s stores before the end of 2020. We may not be successful in executing the systems, procedural and operational changes necessary to implement the centralized decisioning initiative, and it is possible that centralized customer lease decisioning will not be as effective or accurate as the decentralized, store-based decisioning process we historically used in our Aaron’s Business. Regarding our real estate strategy, the buildout of our next generation stores includes geographically repositioning a significant number of our store locations into larger buildings and/or into different geographic locations that we believe will be more advantageous. We expect to incur significant capital costs, including build-out costs for these next generation stores and exit costs from the termination of current leases and sale of current properties. There can be no assurance that the real estate component of our strategy will be successful. For example, we may not be successful in transitioning the customers of the Company-operated Aaron’s stores that are closed or repositioned to other Company-operated stores that remain open or to new next generation store locations, and thus, could experience a reduction in revenue and profits associated with such a loss of customers. Our e-commerce platform also is a significant component of our strategic plan for the Aaron’s Business and we believe it will drive future growth of this segment. However, to promote our products and services and allow customers to transact online and reach new customers, we must effectively maintain, improve and grow our e-commerce platform. Many of the traditional, virtual and “big-box” retailers and other companies with whom we compete have more robust e-commerce platforms than ours, and have more resources to dedicate to improving and growing their e-commerce platforms. There can be no assurance that we will be able to effectively compete against those companies’ e-commerce platforms, or maintain, improve or grow our e-commerce platform in a profitable manner.
There can be no guarantee that our current strategy for the Aaron’s Business, and our current or future business improvement initiatives related thereto, will yield the results we currently anticipate (or results that will exceed those that might be obtained under prior or other strategies). We may fail to successfully execute on one or more elements of our current strategy, even if we successfully implement one or more other components. In addition, the estimated costs and charges associated with these initiatives may vary materially and adversely based upon various factors.
If we cannot address these challenges successfully, or overcome other critical obstacles that may emerge as we continue to pursue our current strategy, we may not be able to achieve our profitability goals at the rates we currently contemplate, if at all.
Our Aaron’s Business faces many challenges which could materially and adversely affect our overall results of operations, including the commoditization of certain product categories; increasing competition from a growing variety of sources; a decentralized, high-fixed-cost operating model; adverse consequences to our supply chain function from decreased procurement volumes; increasing costs for labor and transportation; and lower lease volumes on important categories such as consumer electronics.
Our Aaron’s Business currently faces and may face new challenges relating to the commoditization of certain product categories. For example, due to an increasing supply of consumer electronics, and retail strategies that include implementing frequent price-lowering sales and using certain consumer electronics as “loss leaders” to increase customer traffic in stores, there is significant price-based competition or “commoditization” of consumer electronics, particularly for televisions. We do not expect the commoditization of the consumer electronics category to subside and it may expand to other product categories with increasing frequency in the future, including appliances and furniture. Our Aaron’s Business also faces competition from a growing variety of sources, including traditional and on-line rent-to-own and rent-to-rent companies, traditional and “big-box” retailers, the continued expansion of digital retail, which includes a wide array of e-commerce retailers that have established far larger digital operations than our Aarons.com e-commerce platform has been able to achieve to date, traditional and on-line providers of used goods, and indirectly from financing companies, such as pay-day and title loan companies, who provide customers with loans that enable them to shop at traditional retailers. This increasing competition from these sources may reduce the market share held by our Aaron’s Business as well as its operating margins, and may materially and adversely affect our overall results of operations. Many of the competitors discussed above have more advanced and modern e-commerce, logistics and other technology applications and systems that offer them a competitive advantage in attracting and retaining customers for whom our Aaron’s Business competes, especially with respect to younger customers. In addition, those competitors may offer a larger selection of products and more competitive prices than our Aaron’s Business.

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We believe the significant increase in the amount and type of competition, as discussed above, may result in those customers of our Aaron’s Business curtailing entering into sales and lease ownership agreements for the types of merchandise we offer, or entering into agreements that generate less revenue for us, resulting in lower same store sales, revenue and profits. For example, our Company-operated stores experienced flat same store revenue in fiscal year 2019 and a decline of 1.5% in 2018. We calculate same store revenue growth by comparing revenues for comparable periods for stores open during the entirety of those periods. A number of factors have historically affected our same store revenues for our Aaron's Business, including:
changes in competition;
general economic conditions;
economic challenges faced by our customer base;
new product introductions;
consumer trends;
changes in our merchandise mix;
timing of promotional events; and
our ability to execute our business strategy effectively.
Our Aaron’s Business has a decentralized, high fixed cost operating model due to, among other factors, our significant manufacturing operations, our fulfillment centers and related logistics functions, the costs associated with our last-mile delivery, and decentralized store-based decisioning, selling and collections functions. That model may result in negative operating leverage in a declining revenue environment, as we may not be able to reduce or “deleverage” those fixed costs in proportion to any reduction in the revenues of our Aaron’s Business, if at all, and our failure to do so may adversely affect our overall results of operations.
In addition, our supply chain function and financial performance may suffer adverse consequences related to the decreases we have experienced, and may continue to experience, in the volume of merchandise we purchase from third party suppliers, due to, among other factors, our closures of Company-operated Aaron’s stores, declining sales of merchandise to franchisees, and lower lease volumes. Those consequences may include, for example, smaller discounts from our vendors, or the elimination of discount programs previously offered to us, which may have an adverse impact on our results of operations. Declining merchandise purchase volumes have caused us to rationalize and consolidate, and may result in us further rationalizing and consolidating, vendors for certain product categories, and we may not effectively implement those vendor consolidation initiatives, which could lead to disruptions to our supply chain, including delivery delays or unavailability of certain types of merchandise for our Company-operated stores and our franchisees’ stores.
Our Aaron’s Business has experienced and may continue to experience increases in the costs it incurs to purchase certain merchandise that it offers to sale or lease to its customers, due to tariffs, increases in prices for certain commodities and increases in the costs of shipping the merchandise to its distribution centers and store locations. At the same time, it has experienced and may continue to experience significant increases in labor costs, including due to wage inflation for hourly employees in many regions, and increasing competition to recruit and retain both professional and hourly employees as a result of relatively low unemployment rates. The Aaron’s Business has limited or no control over many of these inflationary forces on its costs. In addition, it may not be able to recover all or even a portion of such cost increases by increasing its merchandise prices, fees, or otherwise, and even if it is able to increase merchandise prices or fees, those cost increases to its customers could result in the customers curtailing entering into sales and lease ownership agreements for the types of merchandise we offer, or entering into agreements that generate less revenue for us, resulting in lower same store sales, revenue and profits.
If our Aaron’s Business is unable to successfully address these challenges, its goodwill may become impaired, and our overall business and results of operations may be materially and adversely affected as well.

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The transactions offered to consumers by our businesses may be negatively characterized by consumer advocacy groups, the media and certain federal, state and local government officials, and if those negative characterizations become increasingly accepted by consumers and/or Progressive Leasing’s or Vive’s retail and merchant partners, demand for our goods and the transactions we offer could decrease and our business could be materially adversely affected.
Certain consumer advocacy groups, media reports, federal and state regulators, and certain candidates for political offices have asserted that laws and regulations should be broader and more restrictive regarding lease-to-own transactions. The consumer advocacy groups and media reports generally focus on the total cost to a consumer to acquire an item, which is often alleged to be higher than the interest typically charged by banks or similar lending institutions to consumers with better credit histories. This “cost-of-rental” amount, which is generally defined as lease fees paid in excess of the “retail” price of the goods, is from time to time characterized by consumer advocacy groups and media reports as predatory or abusive without discussing benefits associated with our lease-to-own programs or the lack of viable alternatives for our customers’ needs. Although we strongly disagree with these characterizations, if the negative characterization of these types of lease-to-own transactions becomes increasingly accepted by consumers or Progressive Leasing’s or Vive’s retail and merchant partners, demand for our products and services could significantly decrease, which could have a material adverse effect on our business, results of operations and financial condition. Additionally, if the negative characterization of these types of transactions is accepted by regulators and legislators, or if political candidates who have a negative view of the lease-to-own industry are ultimately elected, we could become subject to more restrictive laws and regulations and more stringent enforcement of existing laws and regulations, any of which could have a material adverse effect on our business, results of operations and financial condition. The vast expansion and reach of technology, including social media platforms, has increased the risk that our reputation could be significantly impacted by these negative characterizations in a relatively short amount of time. If we are unable to quickly and effectively respond to such characterizations, we may experience declines in customer loyalty and traffic and our relationships with our retail partners may suffer, which could have a material adverse effect on our business, results of operations and financial condition. Additionally, any failure by our competitors, including smaller, regional competitors, for example, to comply with the laws and regulations applicable to the traditional and/or virtual lease-to-own models, or any actions by those competitors that are challenged by consumers, advocacy groups, the media or governmental agencies or entities as being abusive or predatory could result in our Aaron’s Business and/or Progressive Leasing being mischaracterized, by implication, as engaging in similar unlawful or inappropriate activities or business practices, merely because we operate in the same general industries as such competitors.
From time to time we are subject to regulatory and legal proceedings which seek material damages or seek to place significant restrictions on our business operations. These proceedings may be negatively perceived by the public and by Progressive Leasing’s existing and prospective retail partners, and materially and adversely affect our business.
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. We cannot assure you that we will not incur material damages or penalties in a lawsuit or other proceeding in the future and/or significant defense costs related to such lawsuits or regulatory proceedings. For example, we operate a fleet of approximately 80 long haul trucks and 1,600 delivery trucks and, in addition to the significant compliance-related costs associated with operating such a fleet, we may incur significant adverse judgments, damages and penalties related to accidents that those trucks may be involved in from time to time. 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 present or future governmental or other proceeding or settlement, significant restrictions will be placed 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.
We are currently subject to settlements with the FTC that we entered into in 2013, as well as the State of California and the Commonwealth of Pennsylvania regarding our business practices and compliance with privacy laws in those states. Those settlements prohibit us from engaging in certain business practices that many of our competitors continue to engage in, and that our competitors have not been prohibited from engaging in, which may place us at a competitive disadvantage. If we violate the terms of those settlements, we may be subject to additional proceedings, further restrictions on our business, or civil or other penalties.

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Certain judicial or regulatory decisions may restrict or eliminate the enforceability of certain types of contractual provisions designed to limit costly litigation, including class actions, as a dispute resolution method.
To attempt to limit costly and lengthy consumer, employee and other litigation, including class actions, the Company requires its customers and employees to sign arbitration agreements and class action waivers, many of which offer opt-out provisions. Recent judicial and regulatory actions have attempted to restrict or eliminate the enforceability of such agreements and waivers. If the Company is not permitted to use arbitration agreements and/or class action waivers, or if the enforceability of such agreements and waivers is restricted or eliminated, the Company could incur increased costs to resolve legal actions brought by customers, employees and others, as it would be forced to participate in more expensive and lengthy dispute resolution processes.
Our competitors could impede our ability to attract new customers, or cause current customers to cease doing business with us.
The industries in which we operate are highly competitive and highly fluid, particularly in light of the sweeping new regulatory environment we are witnessing from regulators such as the FTC, among others, as discussed above.
The competitors of our Aaron’s Business include national, regional and local operators of lease-to-own stores, virtual lease-to-own companies, traditional and on-line providers of used goods and merchandise, traditional, “big-box” and e-commerce retailers (including many retailers who offer layaway programs) and various types of consumer finance companies, including installment, payday and title loan companies, that may enable our customers to shop at traditional or on-line retailers, as well as rental stores that do not offer their customers a purchase option. Our Progressive Leasing segment also faces competition from other virtual lease-to-own companies, traditional store-based lease to own companies and consumer finance companies, including installment, payday and title loan companies, that may enable Progressive Leasing’s customers to shop at traditional or on-line retailers. Our competitors in the traditional and virtual sales and lease ownership and traditional retail markets may have significantly greater financial and operating resources and greater name recognition in certain markets. Greater financial resources may allow our competitors to grow faster than us, including through acquisitions. This in turn may enable them to enter new markets before we can, which may decrease our opportunities in those markets. Greater name recognition, or better public perception of a competitor’s reputation, may help them divert market share away from us, even in our established markets. Some competitors may be willing to offer competing products on an unprofitable basis in an effort to gain market share, which could compel us to match their pricing strategy or lose business. In addition, some competitors of Progressive Leasing may be willing to lease certain types of products that Progressive Leasing will not agree to lease, enter into customer leases that have services, as opposed to goods, as a significant portion of the lease value, or engage in other practices related to pricing, compliance, and other areas that Progressive Leasing will not, in an effort to gain market share at Progressive Leasing’s expense. Our Progressive Leasing business relies heavily on relationships with retail partners. An increase in competition could cause our retail partners to no longer offer the Progressive Leasing product in favor of our competitors, or to offer the Progressive Leasing product and the products of its competitors simultaneously at the same store locations, which could slow growth in the Progressive Leasing business and limit or reduce profitability. Furthermore, Progressive Leasing’s virtual lease to own competitors may deploy different business models, such as direct-to-consumer strategies, that forego reliance on retail partner relationships that may prove to be more successful.
If we do not maintain the privacy and security of customer, retail partner, employee or other confidential information, due to cybersecurity-related “hacking” attacks, intrusions into our systems by unauthorized parties or otherwise, we could incur significant costs, litigation, regulatory enforcement actions and damage to our reputation, any one of which could have a material adverse impact on our business, operating results and financial condition.
Our business involves the collection, processing, transmission and storage of customers’ personal and confidential information, including social security numbers, dates of birth, banking information, credit and debit card information, data we receive from consumer reporting companies, including credit report information, as well as confidential information about our retail partners and employees, among others. Much of this data constitutes confidential personally identifiable information (“PII”) which, if unlawfully accessed, either through a “hacking” attack or otherwise, could subject us to significant liabilities as further discussed below. We also serve as an information technology provider to our franchisees, including by storing and processing PII relating to their customers and potential customers.

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Companies like us that possess significant amounts of PII and/or other confidential information have experienced a significant increase in cyber security risks in recent years from increasingly aggressive and sophisticated cyberattacks, including hacking, computer viruses, malicious or destructive code, ransomware, social engineering attacks (including phishing and impersonation), denial-of-service attacks and other attacks and similar disruptions from the unauthorized use of or access to information technology (“IT”) systems. Our IT systems are subject to constant attempts to gain unauthorized access in order to disrupt our business operations and capture, destroy or manipulate various types of information that we rely on, including PII and/or other confidential information. In addition, various third parties, including employees, contractors or others with whom we do business may attempt to circumvent our security measures in order to obtain such information, or inadvertently cause a breach involving such information. Any significant compromise or breach of our data security, whether external or internal, or misuse of PII and/or other confidential information may result in significant costs, litigation and regulatory enforcement actions and, therefore, may have a material adverse impact on our business, operating results and financial condition. Further, if any such compromise, breach or misuse is not detected quickly, the effect could be compounded.
While we have implemented network security systems and processes to protect against unauthorized access to or use of secured data and to prevent data loss and theft, there is no guarantee that these procedures are adequate to safeguard against all data security breaches or misuse of the data. We maintain private liability insurance intended to help mitigate the financial risks of such incidents, but there can be no guarantee that insurance will be sufficient to cover all losses related to such incidents, and our exposure resulting from any serious unauthorized access to, or use of, secured data, or serious data loss or theft, could far exceed the limits of our insurance coverage for such events. Further, a significant compromise of PII and/or other confidential information could result in regulatory penalties and harm our reputation with our customers, retail partners and others, potentially resulting in a material adverse impact on our business, operating results and financial condition.
The regulatory environment related to information security, data collection and use, and privacy is increasingly rigorous, with new and constantly changing requirements applicable to our business, and compliance with those requirements could result in additional costs. For example, we are currently subject to settlements with the FTC that we entered into in 2013, as well as the State of California and the Commonwealth of Pennsylvania regarding our business practices and compliance with privacy laws in those states, and data breaches of this nature could result in additional penalties under the terms of those settlements. In addition, and as discussed above, the CCPA, which became effective in January 2020, has changed the manner in which our transactions with California residents are regulated with respect to the manner in which we collect, store and use consumer and employee data; expose our operations in California to increased regulatory oversight and litigation risks; and increase our compliance-related costs. These costs, including others relating to increased regulatory oversight and compliance, could be substantial and adversely impact our business.
We also believe successful data breaches or cybersecurity incidents at other companies, whether or not we are involved, could lead to a general loss of customer confidence that could negatively affect us, including harming the market perception of the effectiveness of our security measures or financial technology in general. We believe our exposure to this risk will increase as we expand our use of financial technology to communicate with our customers and retail partners and as we increase the number of retail partners with whom we work.
Our proprietary algorithms and customer lease decisioning tools used to approve customers could no longer be indicative of our customers’ ability to perform under their lease agreements with us.
We believe Progressive Leasing’s proprietary, centralized customer lease decisioning process to be a key to the success of the Progressive Leasing business. That and other decisioning processes and tools are also used to approve customers of Vive and our Aarons.com e-commerce offering, and, as discussed above, we expect to implement that centralized lease decisioning process in all of our Company-operated Aaron’s stores before the end of 2020. We assume behavior and attributes observed for prior customers, among other factors, are indicative of performance by future customers. Unexpected changes in behavior caused by macroeconomic conditions, including, for example, the U.S. economy experiencing a recession and job losses related thereto, increases in interest rates, inflationary pressures, changes in consumer preferences, availability of alternative products or other factors, however, could lead to increased incidence and costs related to defaulted leases and/or merchandise losses. In addition, with respect to our expectation to implement a centralized customer lease decision process in all of the Company-operated stores of our Aaron’s Business, we may not be successful in executing the systems and procedural changes necessary to implement that centralized decisioning initiative, and it is possible that the centralized decisioning process will not be as effective or accurate as the decentralized, store-based decisioning process we historically used in our Aaron’s Business stores.

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We could lose our access to data sources, which could cause us competitive harm and have a material adverse effect on our business, operating results, and financial condition.
We are heavily dependent on data provided by third-party providers. For example, our Progressive Leasing business employs a proprietary customer lease decisioning algorithm when making lease approval decisions for its customers. This algorithm depends extensively upon continued access to and receipt of data from external sources, such as third-party data vendors. In addition, our Aarons.com and Vive businesses are similarly dependent on customer attribute data provided by external sources, and our Company-operated Aaron’s stores will become dependent on the data provided by those external sources as we carry out our expected implementation of a centralized customer lease decisioning process in all of those stores before the end of 2020. Our data providers could stop providing data, provide untimely, incorrect or incomplete data, or increase the costs for their data for a variety of reasons, including a perception that our systems are insecure as a result of a data security breach, regulatory concerns or for competitive reasons. We could also become subject to increased legislative, regulatory or judicial restrictions or mandates on the collection, disclosure or use of such data, in particular if such data is not collected by our providers in a way that allows us to legally use the data. If we were to lose access to this external data or if our access or use were restricted or were to become less economical or desirable, our Progressive Leasing, Aaron’s Business and Vive businesses would be negatively impacted, which would adversely affect our operating results and financial condition. We cannot provide assurance that we will be successful in maintaining our relationships with these external data source providers or that we will be able to continue to obtain data from them on acceptable terms or at all. Furthermore, we cannot provide assurance that we will be able to obtain data from alternative sources if our current sources become unavailable.
If our information technology systems are impaired, our business could be interrupted, our reputation could be harmed and we may experience lost revenues and increased costs and expenses.
We rely on our information technology systems to process transactions with our customers, including tracking lease payments on merchandise, and to manage other important functions of our business. Failures of our systems, such as “bugs,” crashes, internet failures and outages, operator error, or catastrophic events, could seriously impair our ability to operate our business, and our business continuity and contingency plans related to such information technology failures may not be adequate to prevent that type of serious impairment. If our information technology systems are impaired, our business (and that of our franchisees) could be interrupted, our reputation could be harmed, we may experience lost revenues or sales and we could experience increased costs and expenses to remediate the problem.
We may pursue acquisitions or investments of complementary companies or businesses, and the failure of an acquisition or investment to produce the anticipated results or the inability to fully integrate the acquired companies could have an adverse impact on our business.
We may from time to time acquire or invest in complementary companies or businesses, and acquire our franchisees, as we have done in recent years. For example, we acquired the operations of a total of 263 of our former franchisees’ store locations during 2017 and 2018. There can be no assurance that those acquisitions will produce the results we expected at the time we entered into those acquisitions, or that we will be able to successfully integrate the operations of those former franchisee locations, including their customers and personnel. The companies and businesses we may acquire may operate lines of business or offer services and products that we have never operated or offered previously. These companies and businesses may also be subject to regulatory regimes that have not previously applied and may significantly impact our business. The success of any acquisitions or investments we undertake is based on our ability to make accurate assumptions regarding the valuation, operations, growth potential, integration and other factors relating to the respective business.
There can be no assurance that our acquisitions or investments will produce the results that we expect at the time we enter into or complete the transaction. Furthermore, acquisitions may result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or write-offs of goodwill or other intangibles, any of which could harm our financial condition. We also may not be able to successfully integrate operations that we acquire, including their customers, personnel, financial systems, supply chain and other operations, which could adversely affect our business. Acquisitions may also result in the diversion of our capital and our management’s attention from other business issues and opportunities and from our on-going strategic plan to improve the performance of the Aaron’s Business even if we are unable to successfully complete the acquisition.
Our stock price is volatile, and you may not be able to recover your investment if our stock price declines.
The price of our common stock has been volatile and may be significantly affected by factors such as:
Our announcement of Progressive Leasing’s proposed settlement agreement with the FTC and any negative effects to our business associated with that announcement.
our ability to meet market expectations with respect to the growth and profitability of each of our operating segments;

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quarterly variations in our results of operations, which may be impacted by, among other things, changes in same store revenues or when and how many locations we acquire, open or close;
quarterly variations in our competitors’ results of operations;
changes in earnings estimates or buy/sell recommendations by financial analysts;
how our actual financial performance compares to the financial performance outlook we provide;
state or federal legislative or regulatory proposals, initiatives, actions or changes that are, or are perceived to be, adverse to our operations;
the stock price performance of comparable companies; and
continuing unpredictable global and regional economic conditions.
In addition, the stock market as a whole historically has experienced price and volume fluctuations that have affected the market price of many specialty retailers in ways that may have been unrelated to these companies’ operating performance.
We may engage in litigation with our franchisees.
Although we believe we generally enjoy a positive working relationship with 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 documents, including claims based on financial information contained in those documents. Engaging in such litigation may be costly, time-consuming and may distract management and materially adversely affect our relationships with franchisees. Any negative outcome of these or any other claims could materially adversely affect our results of operations 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.
We must successfully order and manage our Aaron’s Business inventory to reflect customer demand and anticipate changing consumer preferences and buying trends or our revenue and profitability will be adversely affected.
The success of our Aaron’s Business depends upon our ability to successfully manage our inventory and to anticipate and respond to merchandise trends and customer demands in a timely manner. We cannot always accurately predict consumer preferences and they may change over time. We must order certain types of merchandise, such as consumer electronics, well in advance of seasonal increases in customer demand for those products. The extended lead times for many of our purchases may make it difficult for us to respond rapidly to new or changing product trends or changes in prices. If we misjudge either the market for our merchandise, our customers’ product preferences or our customers’ leasing habits, our revenue may decline significantly and we may not have sufficient quantities of merchandise to satisfy customer demand or we may be required to mark down excess inventory, either of which would result in lower profit margins. In addition, our level of profitability and success in our Aaron’s Business depends on our ability to successfully re-lease or sale our inventory of merchandise that we take back from the customers of our Aaron’s Business, due to their lease agreements expiring, or otherwise.
We depend on hiring an adequate number of hourly employees to run our business and are subject to government regulations concerning these and our other employees, including wage and hour regulations.
Our workforce is comprised primarily of employees who work on an hourly basis. To grow our operations and meet the needs and expectations of our customers, we must attract, train, and retain a large number of hourly associates, while at the same time controlling labor costs. These positions have historically had high turnover rates, which can lead to increased training, retention and other costs. In certain areas where we operate, there is significant competition for employees, including from retailers and restaurants. The lack of availability of an adequate number of hourly employees, or our inability to attract and retain them, or an increase in wages and benefits to attract and maintain current employees could adversely affect our business, results of operations, cash flows and financial condition. We are subject to applicable rules and regulations relating to our relationship with our employees, including wage and hour regulations, health benefits, unemployment and payroll taxes, overtime and working conditions and immigration status. Accordingly, federal, state or local legislated increases in the minimum wage, as well as increases in additional labor cost components such as employee benefit costs, workers’ compensation insurance rates, compliance costs and fines, would increase our labor costs, which could have a material adverse effect on our business, prospects, results of operations and financial condition.

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The geographic concentration of our Aaron’s stores, as well as those of Progressive Leasing’s retail partners, may magnify the impact of conditions in a particular region, including economic downturns and other occurrences.
The concentration of our Aaron’s stores, and/or those of our retail partners at Progressive Leasing, in one region or a limited number of markets may expose us to risks of adverse economic developments that are greater than if our store portfolio and retail partners were more geographically diverse.
In addition, our store operations, as well as those of our retail partners at Progressive Leasing, are subject to the effects of adverse acts of nature, such as winter storms, hurricanes, hail storms, strong winds, earthquakes and tornadoes, which have in the past caused damage such as flooding and other damage to our stores and those of our retail partners in specific geographic locations, including in Florida and Texas, two of our large markets, and may, depending upon the location and severity of such events, unfavorably impact our business continuity. Additionally, we cannot assure you that the amount of our hurricane, windstorm, earthquake, flood, business interruption or other casualty insurance we maintain from time to time would entirely cover damages caused by any such event.
Vive’s “second-look” credit programs for below-prime consumers differ in significant respects from the risks of Aaron’s store-based lease-to-own business. The risks could have a material negative effect on Progressive Leasing, which could result in a material adverse effect on our entire business.
As discussed above, as we execute on our strategic plans, we may continue to expand into complementary businesses that engage in financial, banking or lending services. For example, Vive, which through its VIVEcard® (previously known as the HELPcard®) and other private label credit products, offers merchant partners one source for a variety of open-end credit programs for below-prime consumers, is a business that differs in significant respects from our sales and lease ownership businesses. Consequently, Vive faces different risks than are associated with Aaron’s sales and lease ownership concept, which Aaron’s and its franchisees offer through their own stores. Because Vive is associated with Progressive Leasing in the view of certain of Progressive Leasing and Vive's retail and merchant partners, the risks Vive faces could have a material negative effect on Progressive Leasing, which could result in a material adverse effect on our entire business. These potential risks include, among others, Vive’s:
reliance on third-party retailers (over whom Vive cannot exercise the degree of control and oversight that Aaron’s Business, including franchisees, can assert over their own respective employees) for many important business functions, from advertising through assistance with finance applications;
reliance on bank partners to issue Vive’s VIVEcard® and other credit products. The banks’ regulators, including the FDIC, could at any time limit or otherwise modify the banks’ ability to continue their relationships with Vive and any significant interruption of those relationships would result in Vive being unable to use exported rates or acquire new receivables without moving to a costly and inefficient state-by-state model, and being unable to provide other credit products. It is possible that a regulatory position or action taken with respect to Vive’s issuing banks might result in the banks’ inability or unwillingness to originate future credit products on Vive’s behalf or in partnership with it, which would adversely affect Vive’s ability to grow its point-of-sale and direct-to-consumer credit products and other consumer credit offerings and underlying receivables. In addition, Vive’s agreements with its issuing bank partners have scheduled expiration dates. Although those expiration dates are several months apart, if Vive is unable to extend or execute new agreements with both of its issuing banks upon the expiration of its current agreements, or if its existing agreements both were terminated or otherwise disrupted, there is a risk that Vive would not be able to enter into an agreement with an alternative bank provider on terms that Vive would consider favorable or in a timely manner without disruption of its business; and
different legal and regulatory risks, and different regulators (including the FDIC, for example), than those applicable to Aaron’s and Progressive Leasing’s sales and lease ownership businesses, including risks arising from the Truth in Lending Act, state credit laws and the offering of open-end credit, the potential that regulators may target Vive’s operating model and the interest rates it charges, and the risk of unfavorable court decisions relating to the True Lender Doctrine, including among other factors, exporting of interest rates and state usury laws.
These risks could have a material negative effect on Progressive Leasing, which could result in a material adverse effect on our entire business.

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The loss of the services of our key executives, or our inability to attract and retain key talent 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. Further, we believe that the unexpected loss of certain key talent in the future could adversely affect our business and operations. We do not carry key man life insurance on any of our personnel. The inability to attract and retain qualified individuals, or a significant increase in the costs to do so, would materially adversely affect our operations.
If we fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results, or report them in a timely manner.
As a public company, we are required to document and test our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 so that our management can certify, on an annual basis, that our internal control over financial reporting is effective. In addition, we are required to, among other things, establish and periodically evaluate procedures with respect to our disclosure controls and procedures.
If we fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results, or report them in a timely manner, which could cause a decline in our stock price and adversely affect our results of operations and financial condition. In addition, if our senior management is unable to conclude that we have effective internal control over financial reporting, or to certify the effectiveness of such controls, or if our independent registered public accounting firm cannot render an unqualified opinion on the effectiveness of our internal control over financial reporting, when required, or if material weaknesses in our internal controls are identified, we could be subject to increased regulatory scrutiny and a loss of public and investor confidence, which could also have a material adverse effect on our business and our stock price.
Operational and other failures by our franchisees may adversely impact us.
Qualified franchisees who conform to our standards and requirements are important to the overall success of our business. Our franchisees, however, are independent businesses and not employees, and consequently we cannot and do not control them to the same extent as our Company-operated stores. Our franchisees may fail in key areas, or experience significant business or financial difficulties, which could slow our growth, reduce our franchise revenues, damage our reputation, expose us to regulatory enforcement actions or private litigation and/or cause us to incur additional costs. If our franchisees experience business or financial difficulties, we could suffer a loss of franchisee fees, royalties, and revenue and profits derived from our sales of merchandise to franchisees, and could suffer write-downs of outstanding receivables those franchisees owe us if they fail to make those payments to us. If we fail to adequately mitigate any such future losses, our business and financial condition could be materially adversely impacted.
We are subject to laws that regulate franchisor-franchisee relationships. Our ability to enforce our rights against our 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 FTC, state laws and certain Canadian provincial laws regulating the offer and sale of franchises. 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 or enforce contractual duties or rights we believe we have with respect to our franchisees.
Changes to 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, 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,

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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 have a material adverse effect on our results of operations.
We are subject to sales, income and other taxes, which can be difficult and complex to calculate due to the nature of our various businesses. A failure to correctly calculate and pay such taxes could result in substantial tax liabilities and a material adverse effect on our results of operations.
The application of indirect taxes, such as sales tax, is a complex and evolving issue, particularly with respect to the lease-to-own industry generally and our virtual lease-to-own Progressive Leasing and Aarons.com businesses more specifically. Many of the fundamental statutes and regulations that impose these taxes were established before the growth of the lease-to-own industry and e-commerce and, therefore, in many cases it is not clear how existing statutes apply to our various businesses. In addition, governments are increasingly looking for ways to increase revenues, which has resulted in discussions about tax reform and other legislative action to increase tax revenues, including through indirect taxes. This also could result in other adverse changes in or interpretations of existing sales, income and other tax regulations. For example, from time to time, some taxing authorities in the United States have notified us that they believe we owe them certain taxes imposed on transactions with our customers, including some state tax authorities suggesting that our Progressive Leasing business may owe certain state taxes based on the locations of Progressive Leasing’s retail partners where Progressive Leasing’s lease-to-own transactions are originated. Although these notifications have not resulted in material tax liabilities to date, there is a risk that one or more jurisdictions may be successful in the future, which could have a material adverse effect on our results of operations.
Employee misconduct or misconduct by third parties acting on our behalf, or third parties to whom our Aaron’s Business previously sold certain of its past due customer accounts for the third parties to attempt to collect, could harm us by subjecting us to monetary loss, significant legal liability, regulatory scrutiny and reputational harm.
Our reputation is critical to maintaining and developing relationships with our existing and potential customers and third parties with whom we do business. There is a risk that our employees or the employees of a third-party retailer with whom our Progressive Leasing business partners, or of a third-party merchant with whom our Vive segment does business, or a third-party to whom our Aaron’s Business previously sold past due customer accounts for the third-party to attempt to collect, a type of transaction we no longer enter into, could engage in misconduct that adversely affects our reputation and business. For example, if one of our employees engages in discrimination or harassment in the workplace, or if an employee or a third-party directly or indirectly associated with our business were to engage in, or be accused of engaging in, illegal or suspicious activities including fraud or theft of our customers’ information, we could suffer direct losses from the activity and, in addition, we could be subject to regulatory sanctions and suffer serious harm to our reputation, financial condition, customer relationships and ability to attract future customers. Employee or third-party misconduct could prompt regulators to allege or to determine based upon such misconduct that we have not established adequate supervisory systems and procedures to inform employees of applicable rules or to detect violations of such rules. Our Company-operated Aaron’s Business stores have experienced employee fraud from time to time, and it is not always possible to deter employee or third-party misconduct. The precautions that we take to detect and prevent misconduct may not be effective in all cases. Misconduct by our employees or third-party contractors or other third parties who are directly or indirectly associated with our business, or even unsubstantiated allegations of misconduct, could result in a material adverse effect on our reputation and our business.
Product safety and quality control issues, including product recalls, could harm our reputation, divert resources, reduce sales and increase costs.
The products we sell and lease in our Aaron’s Business and lease through our Progressive Leasing business are subject to regulation by the U.S. Consumer Product Safety Commission and similar state regulatory authorities. Such products could be subject to recalls and other actions by these authorities. Product safety or quality concerns may require us to voluntarily remove selected products from our Aaron’s stores, or from our customers’ homes. Such recalls and voluntary removal of products can result in, among other things, lost sales, diverted resources, potential harm to our reputation and increased customer service costs, which could have a material adverse effect on our financial condition. In addition, given the terms of our lease agreements with our customers, in the event of such a product quality or safety issue, our customers who have leased the defective merchandise from us could terminate their lease agreements for that merchandise and/or not renew those lease arrangements, which could have a material adverse effect on our financial condition, if we are unable to recover those losses from the vendor who supplied us with the defective merchandise.

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We may be alleged to have infringed upon intellectual property rights owned by others, or may be unable to protect our intellectual property.
Competitors or other third parties may allege that we, or consultants or other third parties retained or indemnified by us, infringe on their intellectual property rights, including with respect to the manner in which our omnichannel platform and aspects of Progressive Leasing’s virtual lease-to-own technology are designed and operate, whether in conjunction with the e-commerce platforms of Progressive Leasing’s retail partners, or otherwise. Given the complex, rapidly changing and competitive technological and business environment in which we operate, and the potential risks and uncertainties of intellectual property-related litigation, an assertion of an infringement claim against us may cause us to spend significant amounts to defend the claim (even if we ultimately prevail); to pay significant money damages; to lose significant revenues; to be prohibited from using the relevant systems, processes, technologies or other intellectual property; to cease offering certain products or services or to incur significant license, royalty or technology development expenses. Even in instances where we believe that claims and allegations of intellectual property infringement against us are without merit, defending against such claims is time consuming and expensive and could result in the diversion of time and attention of our management and employees. Moreover, we rely on a variety of measures to protect our intellectual property and proprietary information. These measures may not prevent misappropriation or infringement of our intellectual property or proprietary information and a resulting loss of competitive advantage, and in any event, we may be required to litigate to protect our intellectual property and proprietary information from misappropriation or infringement by others, which is expensive, could cause a diversion of resources and may not be successful.
Interest rates on certain of our outstanding indebtedness are tied to LIBOR and may be subject to change.
LIBOR and certain other “benchmarks” are the subject of recent national, international, and other regulatory guidance and proposals for reform. These reforms may cause such benchmarks to perform differently than in the past or have other consequences which cannot be predicted. In particular, on July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. It is unclear whether, at that time, LIBOR will cease to exist or if new methods of calculating LIBOR will be established. As of December 31, 2019, approximately $219 million of our outstanding indebtedness had interest rate payments determined based directly or indirectly on LIBOR, including our outstanding indebtedness under our revolving credit and term loan agreement (the “Credit Agreement”). If there is uncertainty as to whether LIBOR will continue to be quoted, if LIBOR ceases to exist or if the methods of calculating LIBOR change from current methods for any reason, the interest rates on this indebtedness may increase substantially from those we have previously experienced. Further, our Credit Agreement contains provisions specifying that, if LIBOR is no longer available and the condition is unlikely to be temporary, then we and the lenders can establish an alternative benchmark rate for indebtedness under our Credit Agreement. Any such alternative benchmark rate would give due consideration to prevailing market convention for determining rates for syndicated loans in the United States. At this point it is not clear what, if any, alternative benchmark measure may be adopted in the marketplace generally to replace LIBOR should it cease to exist, however, any alternative benchmark rate could increase the interest expense we have historically realized on our indebtedness or realize on future indebtedness.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company leases warehouse and retail store space for most of its store-based operations, call center space, and management and information technology space for corporate functions under operating leases expiring at various times through 2033. Most of the leases contain renewal options for additional periods ranging from one to 20 years or provide for options to purchase the related property at predetermined purchase prices that do not represent bargain purchase options. The Company also has leased properties for bedding manufacturing, fulfillment centers, and service centers across the United States. The following table sets forth certain information regarding our furniture manufacturing plants, corporate and segment management, and significant call center facilities as of December 31, 2019:
LOCATION
SEGMENT, PRIMARY USE AND HOW HELD
SQ. FT.
Atlanta, Georgia
Aaron's, Inc.—Executive/Administrative Offices – Leased
72,000

Kennesaw, Georgia
Aaron's, Inc.—Administrative Offices – Leased
115,000

Draper, Utah
Progressive Leasing—Corporate Management/Call Center – Leased
148,000

Glendale, Arizona
Progressive Leasing—Corporate Management/Call Center – Leased
69,000

Various properties in Cairo and Coolidge, Georgia
Aaron's Business—Furniture Manufacturing, Furniture Parts Warehouse, Administration and Showroom – Primarily Owned
738,000

Draper, Utah
Vive—Corporate Management/Call Center – Leased
25,000

We believe that all of our facilities are well maintained and adequate for their current and reasonably foreseeable uses.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are party to various legal proceedings arising in the ordinary course of business. While any proceeding contains an element of uncertainty, we do not currently believe that any of the outstanding legal proceedings to which we are a party will have a material adverse impact on our business, financial position or results of operations. However, an adverse resolution of a number of these items may have a material adverse impact on our business, financial position or results of operations. For further information, see Note 10 in the accompanying consolidated financial statements under the heading "Legal Proceedings," which discussion is incorporated by reference in response to this Item 3.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

27


PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information, Holders and Dividends
Effective December 13, 2010, all shares of the Company's common stock began trading as a single class on the New York Stock Exchange under the ticker symbol "AAN." The CUSIP number of the Company's common stock is 002535300.
The number of shareholders of record of the Company's common stock at February 13, 2020 was 176. The closing price for the common stock at February 13, 2020 was $58.32.
Subject to our ongoing ability to generate sufficient income, any future capital needs and other contingencies, we expect to continue our policy of paying quarterly dividends. Dividends will be payable only when, and if, declared by the Company's Board of Directors. Under our revolving credit agreement, we may pay cash dividends in any year so long as, after giving pro forma effect to the dividend payment, we maintain compliance with our financial covenants and no event of default has occurred or would result from the payment.
Issuer Purchases of Equity Securities
The following table presents our share repurchase activity for the three months ended December 31, 2019:
Period
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs1
October 1, 2019 through October 31, 2019

 

 

 
$
291,843,242

November 1, 2019 through November 30, 2019
513,900

 
$
58.05

 
513,900

 
262,010,238

December 1, 2019 through December 31, 2019

 

 

 
262,010,238

Total
513,900

 
 
 
513,900

 
 
1Share repurchases are conducted under authorizations made from time to time by the Company’s Board of Directors. The most recent authorization, which replaced our previous repurchase program, was publicly announced on February 15, 2018 and authorized the repurchase of shares up to a maximum amount of $500 million. Subject to the terms of the Board's authorization and applicable law, repurchases may be made at such times and in such amounts as the Company deems appropriate. Repurchases may be discontinued at any time.


28


Securities Authorized for Issuance Under Equity Compensation Plans
Information concerning the Company's equity compensation plans is set forth in Item 12 of Part III of this Annual Report on Form 10-K.
Performance Graph
Comparison of 5 Year Cumulative Total Return*
Among Aaron's, Inc., the S&P Midcap 400 Index, and S&P 400 Retailing Index
chart-b7d019c06f115980867.jpg
*$100 invested on 12/31/14 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
The line graph above and the table below compare, for the last five years, the yearly dollar change in the cumulative total shareholder returns (assuming reinvestment of dividends) on the Company's common stock with that of the S&P Midcap 400 Index and the S&P 400 Retailing Index.
December 31,
2014
2015
2016
2017
2018
2019
Aaron's, Inc.
$
100.00

$
73.47

$
105.38

$
131.69

$
139.34

$
189.72

S&P Midcap 400
100.00

97.82

118.11

137.30

122.08

154.07

S&P 400 Retailing Index
100.00

82.82

88.95

92.78

101.71

112.74




29


ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data of Aaron's, Inc., which have been derived from its Consolidated Financial Statements for each of the five years in the period ended December 31, 2019. This historical information may not be indicative of the Company's future performance. The information set forth below should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and the notes thereto. 
 
Year Ended December 31,
(Dollar Amounts in Thousands, Except Per Share Data)
2019
 
2018
 
2017
 
2016
 
2015
OPERATING RESULTS
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
Lease Revenues and Fees3
$
3,698,491

 
$
3,506,418

 
$
3,000,231

 
$
2,780,824

 
$
2,684,184

Retail Sales
38,474

 
31,271

 
27,465

 
29,418

 
32,872

Non-Retail Sales
140,950

 
207,262

 
270,253

 
309,446

 
390,137

Franchise Royalties and Fees
33,432

 
44,815

 
48,278

 
58,350

 
63,507

Interest and Fees on Loans Receivable
35,046

 
37,318

 
34,925

 
24,080

 
2,845

Other
1,263

 
1,839

 
2,556

 
5,598

 
6,211

 
3,947,656

 
3,828,923

 
3,383,708

 
3,207,716

 
3,179,756

Costs and Expenses:
 
 
 
 
 
 
 
 
 
Depreciation of Lease Merchandise
1,972,358

 
1,727,904

 
1,448,631

 
1,304,295

 
1,212,644

Retail Cost of Sales
24,024

 
19,819

 
17,578

 
18,580

 
21,040

Non-Retail Cost of Sales
113,229

 
174,180

 
241,356

 
276,608

 
351,777

Operating Expenses
1,524,849

 
1,618,423

 
1,403,985

 
1,351,785

 
1,357,030

Restructuring Expenses
39,990

 
1,105

 
17,994

 
20,218

 

Legal and Regulatory Expense
179,261

 

 

 

 

Other Operating (Income) Expense, Net
(11,929
)
 
(2,116
)
 
(535
)
 
(6,446
)
 
1,324

 
3,841,782

 
3,539,315

 
3,129,009

 
2,965,040

 
2,943,815

Operating Profit
105,874

 
289,608

 
254,699

 
242,676

 
235,941

Interest Income
1,790

 
454

 
1,835

 
2,699

 
2,185

Interest Expense
(16,967
)
 
(16,440
)
 
(20,538
)
 
(23,390
)
 
(23,339
)
Impairment of Investment

 
(20,098
)
 

 

 

Other Non-Operating Income (Expense), Net
2,091

 
(1,320
)
 
3,581

 
(3,563
)
 
(1,667
)
Earnings Before Income Tax Expense (Benefit)
92,788

 
252,204

 
239,577

 
218,422

 
213,120

Income Tax Expense (Benefit)
61,316

 
55,994

 
(52,959
)
 
79,139

 
77,411

Net Earnings
$
31,472


$
196,210


$
292,536


$
139,283


$
135,709

 
 
 
 
 
 
 
 
 
 
Earnings Per Share
$
0.47

 
$
2.84

 
$
4.13

 
$
1.93

 
$
1.87

Earnings Per Share Assuming Dilution
0.46

 
2.78

 
4.06

 
1.91

 
1.86

Cash Dividends Per Share
$
0.1450

 
$
0.1250

 
$
0.1125

 
$
0.1025

 
$
0.0940

FINANCIAL POSITION
 
 
 
 
 
 
 
 
 
Lease Merchandise, Net
$
1,433,417

 
$
1,318,470

 
$
1,152,135

 
$
999,381

 
$
1,138,938

Property, Plant and Equipment, Net
237,666

 
229,492

 
207,687

 
211,271

 
225,836

Total Assets4
3,297,800

 
2,826,692

 
2,692,264

 
2,615,736

 
2,698,488

Debt
341,030

 
424,752

 
368,798

 
497,829

 
606,746

Shareholders' Equity
1,737,259

 
1,760,708

 
1,728,004

 
1,481,598

 
1,366,618

AT YEAR END (unaudited)
 
 
 
 
 
 
 
 
 
Stores Open:
 
 
 
 
 
 
 
 
 
Company-operated
1,167

 
1,312

 
1,175

 
1,165

 
1,305

Franchised
335

 
377

 
551

 
699

 
734

Lease Agreements in Effect1
2,541,700

 
2,463,400

 
2,263,200

 
2,104,700

 
2,164,200

Progressive Leasing Invoice Volume2
1,747,902

 
1,429,550

 
1,160,732

 
884,812

 
780,038

Number of Employees1
12,100

 
11,800

 
11,900

 
11,500

 
12,700

1 Excludes Franchised operations
2 Invoice volume is defined as the retail price of lease merchandise acquired and then leased to customers during each respective year ended period, net of returns.
3 In accordance with the adoption of ASC 842, Progressive Leasing provision for returns and uncollectible renewal payments are recorded as a reduction to lease revenues and fees within the consolidated financial statements beginning January 1, 2019. Prior to January 1, 2019, Progressive Leasing provision for returns and uncollectible renewal payments were recorded as bad debt expense within operating expenses in the consolidated financial statements.

30


4 In accordance with the adoption of ASC 842, the Company, as a lessee, is required to recognize substantially all of its operating leases on the balance sheet as operating lease right-of-use assets and operating lease liabilities. For periods prior to the year ended December 31, 2019, the Company's operating lease right-of-use assets and liabilities are not included on the Company's balance sheet.

31


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements, including the notes to those statements, appearing elsewhere in this report.
Management's Discussion and Analysis comparing the results for the year ended December 31, 2018 to the results for the year ended December 31, 2017 can be found in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 14, 2019, which is hereby incorporated by reference.
Business Overview
Aaron’s, Inc. ("we," "our," "us," or the "Company") is a leading omnichannel provider of lease-purchase solutions. As of December 31, 2019, the Company’s operating segments are Progressive Leasing, Aaron’s Business and Vive. As discussed above, we have updated all disclosures and references of DAMI in this Annual Report on Form 10-K to reflect the January 1, 2020 name change to Vive.
Progressive Leasing is a virtual lease-to-own company that provides lease-purchase solutions through approximately 25,000 retail locations in 46 states and the District of Columbia, including e-commerce merchants. It does so by purchasing merchandise from third-party retailers desired by those retailers’ customers and, in turn, leasing that merchandise to the customers through a cancellable lease-to-own transaction. Progressive Leasing consequently has no stores of its own, but rather offers lease-purchase solutions to the customers of traditional and e-commerce retailers.
Aaron’s Business offers furniture, home appliances, consumer electronics and accessories to consumers with a lease-to-own agreement with no credit needed through its Company-operated stores in the United States, Canada and Puerto Rico, as well as through its e-commerce platform, Aarons.com. This operating segment also supports franchisees of its Aaron’s stores. In addition, the Aaron’s Business segment includes the operations of Woodhaven, which manufactures and supplies the majority of the bedding and a significant portion of the upholstered furniture leased and sold in Company-operated and franchised stores.
Vive partners with merchants to provide a variety of revolving credit products originated through third-party federally insured banks to customers that may not qualify for traditional prime lending (called "second-look" financing programs).
Business Environment and Company Outlook
Like many industries, the lease-to-own industry has been transformed by the internet and virtual marketplaces. We believe that the Progressive Leasing and Vive acquisitions have been strategically transformational in this respect by allowing the Company to diversify its presence in the market and strengthen our business, as demonstrated by Progressive Leasing's significant revenue and profit growth. The Company is also leveraging franchisee acquisition opportunities to expand into new geographic markets, enhance operational control, and benefit more fully from our business transformation initiatives on a broader scale. We believe the traditional store based lease-to-own industry has been negatively impacted in recent periods by: (i) commoditization of pricing in consumer electronics; (ii) the challenges faced by many traditional "brick-and-mortar" retailers, with respect to a decrease in the number of consumers visiting those stores, especially younger consumers; and (iii) increased competition from a wide range of competitors, including national, regional and local operators of lease-to-own stores; virtual lease-to-own companies; traditional and e-commerce retailers; traditional and online sellers of used merchandise; and from a growing number of various types of consumer finance companies that enable our customers to shop at traditional or online retailers. In response to these changing market conditions, we are executing a strategic plan that focuses on the following items and that we believe positions us for success over the long-term:
Champion compliance;
Strengthen relationships of Progressive Leasing current retail and merchant partners;
Focus on converting existing pipeline into Progressive Leasing retail partners;
Enhance our virtual offering at Progressive Leasing;
Drive omnichannel demand generation at the Aaron's Business;
Reposition and reinvest in our real estate at the Aaron's Business; and
Manage the Aaron's Business stores with operational excellence.
We continue to invest in various Aaron's Business transformation initiatives such as generating customer demand and driving sales conversion rates through enhanced customer insights, direct response marketing and increased investment in e-commerce. We believe Aarons.com represents an opportunity to provide our customers with expanded product selections and shopping convenience in the lease-to-own industry. We are focused on engaging customers in ways that are convenient for them by providing them a seamless, direct-to-door platform through which to shop in store or online across our product offerings.

32


In addition to generating customer demand, we are also focused on executing a balanced business approach through customer retention and renewals, investing in our leadership talent, and improving our store staffing model to ensure we have our staff available to meet our customers' needs. Another key focus for the Aaron's Business includes the roll out of Rapid Customer Onboarding, which is a decisioning tool designed to improve our customer experience by streamlining and standardizing the decisioning process, shortening transaction times, and establishing appropriate transaction sizes and lease payment amounts, given the customer’s profile.
Finally, we also continue to execute on various Aaron's Business store optimization and real estate initiatives, including strategic store consolidations. We continue to roll out our next generation store concepts to adapt to our changing competitive environment.
As a result of store optimization initiatives and other cost-reduction initiatives, the Company initiated a new restructuring program in 2019 to further optimize its Company-operated Aaron's store base portfolio, which resulted in the closure, consolidation or relocation of 155 underperforming Company-operated stores throughout 2019. The Company also further rationalized its home office and field support staff, which resulted in a reduction in employee headcount in those areas to more closely align with current business conditions. The Company closed and consolidated 139 underperforming Company-operated stores throughout 2016, 2017 and 2018 under similar restructuring initiatives. The Company continually evaluates its Company-operated Aaron's Business store portfolio to determine if it will further rationalize its store base to better align with marketplace demand. Additional restructuring charges may result from our strategy to reposition and reinvest in our next generation store concepts to appeal to our target customer market in better, more profitable locations.
During 2017 and 2018, the Company acquired substantially all of the assets of the store operations of 111 and 152 Aaron's-branded franchised stores, respectively. The acquisitions are benefiting the Company's omnichannel platform through added scale, strengthening its presence in certain geographic markets, enhancing operational control, including compliance, and enabling the Company to execute its business transformation initiatives on a broader scale.
Highlights
The following summarizes significant highlights from the year ended December 31, 2019:
The Company reported record revenues of $3.9 billion in 2019 compared to $3.8 billion in 2018. Earnings before income taxes decreased to $92.8 million compared to $252.2 million in 2018. The decrease in earnings before income taxes is primarily due to $179.3 million in regulatory charges and legal expenses incurred related to Progressive Leasing's tentative settlement of the FTC matter discussed in Note 10 in the accompanying consolidated financial statements.
Progressive Leasing reported revenues of $2.1 billion in 2019, an increase of 6.5% over 2018. Calculated on a basis consistent with the January 2019 adoption of ASC 842, Leases (see the "Use of Non-GAAP Financial Information" section below), Progressive Leasing revenues increased 20.2% over 2018. Progressive Leasing's revenue growth is due to a 22.3% increase in total invoice volume, which was generated through an increase in invoice volume per active door. Progressive Leasing's earnings before income taxes decreased to $55.7 million compared to $175.0 million in 2018, due primarily to $179.3 million in regulatory charges and legal expenses incurred related to Progressive's tentative settlement of the FTC matter, partially offset by revenue growth during 2019.
Aaron’s Business revenue growth was nearly flat, reporting revenues of $1.8 billion in 2019 and 2018. Key factors impacting revenue trends year-over-year include the net reduction of 145 Company-operated stores during 2019 as well as the acquisitions of various franchisees in 2018. Same store revenues were flat in 2019 compared to 2018.
Aaron's Business earnings before income taxes decreased to $46.7 million in 2019 compared to $84.7 million in 2018. Earnings before income taxes for the Aaron's Business during 2019 includes restructuring charges of $40.0 million related to the Company's closure and consolidation of underperforming stores, $7.4 million in gains from the sale of various real estate properties and gains on insurance recoveries of $4.5 million. Aaron's Business earnings before income taxes were also impacted by a higher provision for lease merchandise write-offs as a percentage of Aaron's Business lease revenues and fees, which increased to 6.2% in 2019 compared to 4.6% in 2018. That increase was due to the lower collections activity resulting from the redeployment of store labor towards enhanced sales activities, an increase in the number and type of promotional offerings, higher ticket leases, store closure activity and an increasing mix of e-commerce as a percentage of revenues.
The Company generated cash from operating activities of $317.2 million in 2019 compared to $356.5 million in 2018. The decrease in net cash from operating activities was impacted by net income tax refunds of $0.7 million during 2019 compared to net income tax refunds of $63.8 million in 2018. The Company ended 2019 with $57.8 million in cash and $386.2 million available on our revolving credit facility.
The Company returned $78.7 million to our shareholders in 2019 through the repurchase of 1.2 million shares and the payment of our quarterly cash dividends, which we have paid for 32 consecutive years.

33


Key Metrics
Invoice Volume. We believe that invoice volume is a key performance indicator of our Progressive Leasing segment. Invoice volume is defined as the retail price of lease merchandise acquired and then leased to customers during the period, net of returns. The following table presents total invoice volume for the Progressive Leasing segment:
For the Year Ended December 31 (Unaudited and In Thousands)
2019
 
2018
 
2017
Progressive Leasing Invoice Volume
$
1,747,902

 
$
1,429,550

 
$
1,160,732

The increase in invoice volume was driven by a 19.4% increase in invoice volume per active door and a 2.4% increase in active doors.
Active Doors. Progressive Leasing active doors are comprised of both (i) each retail store location where at least one virtual lease-to-own transaction has been completed during the trailing twelve-month period; and (ii) with respect to an e-commerce merchant, each state where at least one virtual lease-to-own transaction has been completed through that e-commerce merchant during the trailing twelve-month period. The following table presents active doors for the Progressive Leasing segment:
Active Doors at December 31 (Unaudited)
2019
 
2018
 
2017
Progressive Leasing Active Doors
24,772

 
24,198

 
26,861

Company-operated and franchised store activity (unaudited) is summarized as follows:
 
2019
 
2018
 
2017
Company-operated Aaron’s stores
 
 
 
 
 
Company-operated Aaron’s stores open at January 1,
1,312

 
1,175

 
1,165

Opened

 

 

Added through acquisition
18

 
152

 
110

Closed, sold or merged
(163
)
 
(15
)
 
(100
)
Company-operated Aaron’s stores open at December 31,
1,167

 
1,312

 
1,175

 
 
 
 
 
 
Franchised stores
 
 
 
 
 
Franchised stores open at January 1,
377

 
551

 
699

Opened

 
2

 
1

Purchased from the Company

 

 

Purchased by the Company
(18
)
 
(152
)
 
(111
)
Closed, sold or merged
(24
)
 
(24
)
 
(38
)
Franchised stores open at December 31,
335

 
377

 
551

Same Store Revenues. We believe that changes in same store revenues are a key performance indicator of the Aaron’s Business. For the year ended December 31, 2019, we calculated this amount by comparing revenues for the year ended December 31, 2019 to revenues for the year ended December 31, 2018 for all stores open for the entire 24-month period ended December 31, 2019, excluding stores that received lease agreements from other acquired, closed or merged stores. Same store revenues were flat during the 24-month period ended December 31, 2019.
Key Components of Earnings Before Income Taxes
In this management’s discussion and analysis section, we review our consolidated results. For the years ended December 31, 2019 and the comparable prior year periods, some of the key revenue, cost and expense items that affected earnings before income taxes were as follows:
Revenues. We separate our total revenues into six components: (i) lease revenues and fees; (ii) retail sales; (iii) non-retail sales; (iv) franchise royalties and fees; (v) interest and fees on loans receivable; and (vi) other. Lease revenues and fees primarily include all revenues derived from lease agreements at retail locations serviced by Progressive Leasing and the Aaron's Business Company-operated stores and e-commerce platform. Retail sales represent sales of both new and returned lease merchandise from our Company-operated stores. Non-retail sales primarily represent new merchandise sales to our franchisees. Franchise royalties and fees represent fees from the sale of franchise rights and royalty payments from franchisees, as well as other related income from our franchised stores. Interest and fees on loans receivable primarily represents merchant fees, finance charges and annual and other fees earned on loans originated by Vive. Other revenues primarily relate to revenues from leasing Company-owned real estate properties to unrelated third parties, as well as other miscellaneous revenues.

34


Depreciation of Lease Merchandise. Depreciation of lease merchandise primarily reflects the expense associated with depreciating merchandise held for lease and leased to customers by Progressive Leasing and our Company-operated Aaron's stores and through our e-commerce platform.
Retail Cost of Sales. Retail cost of sales represents the depreciated cost of merchandise sold through our Company-operated stores.
Non-Retail Cost of Sales. Non-retail cost of sales primarily represents the cost of merchandise sold to our franchisees.
Operating Expenses. Operating expenses include personnel costs, occupancy costs, store maintenance, provision for lease merchandise write-offs, shipping and handling, advertising and marketing, the provision for loan losses, depreciation of property, plant and equipment, intangible asset amortization expense and professional services expense, among other expenses.
Restructuring Expenses, Net. Restructuring expenses, net primarily represent the cost of optimization efforts and cost reduction initiatives related to the Aaron’s Business home office and field support functions. Restructuring expenses, net are comprised principally of closed store operating lease right-of-use asset impairment and operating lease charges, the impairment of vacant store properties, including the closure of one of our store support buildings, workforce reductions, other impairment charges and reversals of previously recorded restructuring charges.
Legal and Regulatory Expense. Legal and regulatory expense includes regulatory charges and legal expenses incurred related to Progressive Leasing's tentative settlement of the FTC matter discussed in Note 10 in the accompanying consolidated financial statements.
Other Operating Income, Net. Other operating income, net consists of gains or losses on sales of Company-operated stores and delivery vehicles, fair value adjustments on assets held for sale, gains or losses on other transactions involving property, plant and equipment, and gains related to property damage and business interruption insurance claim recoveries.
Interest Expense. Interest expense consists primarily of interest incurred on fixed and variable rate debt.
Impairment of Investment. Impairment of investment consists of an other-than-temporary loss to fully impair the Company's investment in PerfectHome.
Other Non-Operating Income (Expense), Net. Other non-operating income (expense), net includes the impact of foreign currency remeasurement, as well as gains and losses resulting from changes in the cash surrender value of Company-owned life insurance related to the Company’s deferred compensation plan.

35


Results of Operations
Results of Operations – Years Ended December 31, 2019 and 2018
 
 
 
Change
 
Year Ended December 31,
 
2019 vs. 2018
(In Thousands)
2019
 
2018
 
$
 
%
REVENUES:
 
 
 
 
 
 
 
       Lease Revenues and Fees
$
3,698,491

 
$
3,506,418

 
$
192,073

 
5.5
 %
Retail Sales
38,474

 
31,271

 
7,203

 
23.0

Non-Retail Sales
140,950

 
207,262

 
(66,312
)
 
(32.0
)
Franchise Royalties and Fees
33,432

 
44,815

 
(11,383
)
 
(25.4
)
Interest and Fees on Loans Receivable
35,046

 
37,318

 
(2,272
)
 
(6.1
)
Other
1,263

 
1,839

 
(576
)
 
(31.3
)
 
3,947,656

 
3,828,923

 
118,733

 
3.1

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Depreciation of Lease Merchandise
1,972,358

 
1,727,904

 
244,454

 
14.1

Retail Cost of Sales
24,024

 
19,819

 
4,205

 
21.2

Non-Retail Cost of Sales
113,229

 
174,180

 
(60,951
)
 
(35.0
)
Operating Expenses
1,524,849

 
1,618,423

 
(93,574
)
 
(5.8
)
Restructuring Expenses
39,990

 
1,105

 
38,885

 
             nmf
Legal and Regulatory Expense
179,261

 

 
179,261

 
             nmf
Other Operating Income, Net
(11,929
)
 
(2,116
)
 
(9,813
)
 
             nmf
 
3,841,782

 
3,539,315

 
302,467

 
8.5

 
 
 
 
 
 
 
 
OPERATING PROFIT
105,874

 
289,608

 
(183,734
)
 
(63.4
)
Interest Income
1,790

 
454

 
1,336

 
             nmf
Interest Expense
(16,967
)
 
(16,440
)
 
(527
)
 
(3.2
)
Impairment of Investment

 
(20,098
)
 
20,098

 
             nmf
Other Non-Operating Income (Expense), Net
2,091

 
(1,320
)
 
3,411

 
             nmf
 
 
 
 
 
 
 
 
EARNINGS BEFORE INCOME TAX EXPENSE
92,788

 
252,204

 
(159,416
)
 
(63.2
)
 
 
 
 
 
 
 
 
INCOME TAX EXPENSE
61,316

 
55,994

 
5,322

 
9.5

 
 
 
 
 
 
 
 
NET EARNINGS
$
31,472

 
$
196,210

 
$
(164,738
)
 
(84.0
)%
nmf—Calculation is not meaningful

36


Revenues
Information about our revenues by reportable segment is as follows:
 
 
 
 
Change
 
Year Ended December 31,
 
2019 vs. 2018
(In Thousands)
2019
 
2018
 
$
 
%
REVENUES:
 
 
 
 
 
 
 
Progressive Leasing
$
2,128,133

 
$
1,998,981

 
$
129,152

 
6.5
 %
Aaron’s Business
1,784,477

 
1,792,624

 
(8,147
)
 
(0.5
)
Vive
35,046

 
37,318

 
(2,272
)
 
(6.1
)
Total Revenues from External Customers
$
3,947,656

 
$
3,828,923

 
$
118,733

 
3.1
 %
The following table presents revenue by source and by segment for the year ended December 31, 2019:
 
Year Ended December 31, 2019
(In Thousands)
Progressive Leasing1
Aaron's Business
Vive
Total
Lease Revenues and Fees
$
2,128,133

$
1,570,358

$

$
3,698,491

Retail Sales

38,474


38,474

Non-Retail Sales

140,950


140,950

Franchise Royalties and Fees

33,432


33,432

Interest and Fees on Loans Receivable


35,046

35,046

Other

1,263


1,263

Total Revenues
$
2,128,133

$
1,784,477

$
35,046

$
3,947,656

1 For the year ended December 31, 2019, the Progressive Leasing provision for returns and uncollectible renewal payments was $274.9 million which was recorded as a reduction to Lease Revenues and Fees as a result of the Company's adoption of ASC 842, Leases. See Note 1 in the accompanying consolidated financial statements for more information regarding the impacts of ASC 842 on the Company's financial results.
The following table presents revenue by source and by segment for the year ended December 31, 2018:
 
Year Ended December 31, 2018
(In Thousands)
Progressive Leasing
Aaron's Business
Vive
Total
Lease Revenues and Fees
$
1,998,981

$
1,507,437

$

$
3,506,418

Retail Sales

31,271


31,271

Non-Retail Sales

207,262


207,262

Franchise Royalties and Fees

44,815


44,815

Interest and Fees on Loans Receivable


37,318

37,318

Other

1,839


1,839

Total Revenues
$
1,998,981

$
1,792,624

$
37,318

$
3,828,923

Progressive Bad Debt Expense
227,813



227,813

Total Revenues, net of Progressive Bad Debt Expense1
$
1,771,168

$
1,792,624

$
37,318

$
3,601,110

1 See the "Use of Non-GAAP Financial Information" section below.
Progressive Leasing. Progressive Leasing segment revenues increased primarily due to an annualized 22.3% increase in total invoice volume, which was driven mainly by an increase in invoice volume per active door. The increase was partially offset by the recognition of a provision for returns and uncollectible renewal payments of $274.9 million as a reduction to lease revenues in accordance with ASC 842 beginning in 2019. Calculated on a basis consistent with the January 2019 adoption of ASC 842, Progressive Leasing revenues increased 20.2% during the year ended December 31, 2019 as compared to the prior year.
Aaron’s Business. The acquisitions of various franchisees throughout 2018 impacted the Aaron's Business in the form of an increase in lease revenues and fees, partially offset by lower non-retail sales and lower franchise royalties and fees during the year ended December 31, 2019 as compared to the prior year.

37


Aaron’s Business segment revenues decreased during 2019 primarily due to a $66.3 million decrease in non-retail sales and an $11.4 million decrease in franchise royalties and fees, partially offset by a $62.9 million increase in lease revenues and fees. The decrease in non-retail sales and franchise royalties and fees is primarily due to the reduction of 42 franchised stores and a net reduction of 174 franchised stores during the years ended December 31, 2019 and 2018, respectively. Lease revenues and fees increased during 2019 primarily due to the franchisee acquisitions during 2018, partially offset by the net reduction of 145 Company-operated stores during 2019 resulting from the Aaron's Business restructuring and store optimization initiatives. Aaron's Business e-commerce revenues were approximately 9% and 7% of the Aaron's Business total lease revenues and fees during the years ended December 31, 2019 and 2018, respectively.
Operating Expenses
Information about certain significant components of operating expenses is as follows:
 
 
 
 
 
Change
 
Year Ended December 31,