RENT A CENTER INC DE - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

----------

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

Commission File Number 0-25370

RENT-A-CENTER, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 45-0491516
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

5700 Tennyson Parkway, Third Floor
Plano, Texas 75024
(972) 801-1100
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)

NONE
(Former name, former address and former
fiscal year, if changed since last report)

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 [X] NO [ ]

Indicate by check mark whether the registrant is an accelerated filed (as
defined in Rule 12b-2 of the Exchange Act).

YES [X] NO [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 1, 2003:

TABLE OF CONTENTS

PAGE NO.
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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002 3

Consolidated Statements of Earnings for the six months ended
June 30, 2003 and 2002 4

Consolidated Statements of Earnings for the three months ended
June 30, 2003 and 2002 5

Consolidated Statements of Cash Flows for the six months ended
June 30, 2003 and 2002 6

Notes to Consolidated Financial Statements 8

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18

Item 3. Quantitative and Qualitative Disclosure About Market Risk 29

Item 4. Controls and Procedures 30

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 30

Item 4. Submission of Matters to a Vote of Security Holders 33

Item 6. Exhibits and Reports on Form 8-K 33

SIGNATURES

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RENT-A-CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

See accompanying notes to consolidated financial statements

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RENT-A-CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

See accompanying notes to consolidated financial statements.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

Supplemental cash flow information Cash paid during the year for:

Interest ..................................................... $ 32,773 $ 26,345
Income taxes ............................................... $ 41,141 $ 17,609

Supplemental schedule of non-cash investing and financing
activities
Fair value of assets acquired ................................... $106,240 $ 27,179
Cash paid ....................................................... $106,240 $ 27,179
Liabilities assumed ............................................. $ -- $ --

During the first six months of 2003, the Company paid dividends on its
Series A preferred stock of approximately $39.00 in cash. During the
first six months of 2002, the Company paid dividends on its Series A
preferred stock of approximately $5.5 million by issuing 5,494 shares
of Series A preferred stock.

See accompanying notes to consolidated financial statements.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The interim financial statements of Rent-A-Center, Inc. included herein
have been prepared by us pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to the
Commission's rules and regulations, although we believe that the
disclosures are adequate to make the information presented not
misleading. We suggest that these financial statements be read in
conjunction with the financial statements and notes included in our
Annual Report on Form 10-K for the year ended December 31, 2002, and
our Quarterly Report on Form 10-Q for the three months ended March 31,
2003. In our opinion, the accompanying unaudited interim financial
statements contain all adjustments, consisting only of those of a
normal recurring nature, necessary to present fairly our results of
operations and cash flows for the periods presented. The results of
operations for the periods presented are not necessarily indicative of
the results to be expected for the full year.

2. Principles of Consolidation and Nature of Operations. Unless the
context indicates otherwise, references to "Rent-A-Center" refer only
to Rent-A-Center, Inc., the parent, and references to "we," "us" and
"our" refer to the consolidated business operations of Rent-A-Center
and all of its direct and indirect subsidiaries. These financial
statements include the accounts of Rent-A-Center and its direct and
indirect wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

At June 30, 2003, we operated 2,567 company-owned stores nationwide and
in Puerto Rico, including 23 stores in Wisconsin operated by a
subsidiary, Get It Now, LLC, under the name "Get It Now."
Rent-A-Center's primary operating segment consists of leasing household
durable goods to customers on a rent-to-own basis. Get It Now offers
merchandise on an installment sales basis in Wisconsin.

ColorTyme, Inc., an indirect wholly-owned subsidiary of Rent-A-Center,
is a nationwide franchisor of rent-to-own stores. At June 30, 2003,
ColorTyme had 321 franchised stores operating in 40 states. ColorTyme's
primary source of revenues is the sale of rental merchandise to its
franchisees, who, in turn, offer the merchandise to the general public
for rent or purchase under a rent-to-own program. The balance of
ColorTyme's revenues is generated primarily from royalties based on
franchisees' monthly gross revenues.

3. Reconciliation of Rental Merchandise.

- ----------

(1) Other inventory deletions include loss/damage waiver claims and
unrepairable and missing merchandise, as well as acquisition
write-offs.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

4. Intangibles.

Amortization of intangibles consists primarily of the amortization of
customer relationships and non-compete agreements. Effective January 1,
2002, under SFAS 142 all goodwill and intangible assets with indefinite
lives are no longer subject to amortization. We conducted the required
transition test, which showed no impairment of our goodwill.

Intangibles consist of the following (in thousands):

The estimated amortization expense, assuming current intangible
balances and no new acquisitions, for each of the years ending December
31, is as follows:

Changes in the carrying amount of goodwill for the six months ended
June 30, 2003 are as follows (in thousands):

Balance as of January 1, 2003 $ 736,395
Additions during first six months 38,525
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Balance as of June 30, 2003 $ 774,920
================

5. Stock Based Compensation.

Rent-A-Center's Amended and Restated Long-Term Incentive Plan (the
"Plan") for the benefit of certain key employees, consultants and
directors provides the Board of Directors broad discretion in creating
equity incentives. Under the Plan, 7,900,000 shares of Rent-A-Center's
common stock are reserved for issuance under stock options, stock
appreciation rights or restricted stock grants. Options granted to our
employees under the Plan generally become exercisable over a period of
one to four years from the date of grant and may be exercised up to a
maximum of 10 years from date of grant. Options granted to directors
are exercisable immediately. There have been no grants of stock
appreciation rights and all options have been granted with fixed
prices. At June 30, 2003, there were 4,623,775 shares available for
issuance under the Plan, of which 2,974,586 shares were allocated to
options currently outstanding. However, pursuant to the terms of the
Plan, when an optionee leaves our employ, unvested options granted to
that employee terminate and become available for re-issuance under the
Plan. Vested options not exercised within 90 days from the date the
optionee leaves the Company's employ terminate and become available for
re-issuance under the Plan.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

Rent-A-Center accounts for the Plan under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations. No stock-based
employee compensation cost is reflected in net earnings, as all options
granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The
following table illustrates the effect on net earnings and earnings per
share if Rent-A-Center had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.

The fair value of these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions: expected volatility of 54.6% to 55.2% and
55.8% to 57.3% and risk-free interest rates of 3.3% to 3.7% and 3.5% to
5.5% in 2003 and 2002, respectively, no dividend yield and expected
lives of seven years.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

6. Earnings Per Share.

Basic and diluted earnings per common share is computed based on the
following information:

For the six months ended June 30, 2003 and 2002, the number of stock
options that were outstanding but not included in the computation of
diluted earnings per common share because their exercise price was
greater than the average market price of our common stock, and
therefore anti-dilutive, was 5,000 and 276,500, respectively. For the
three months ended June 30, 2003 and 2002, the number of stock options
that were outstanding but not included in the computation of diluted
earnings per common share because their exercise price was greater than
the average market price of our common stock, and therefore
anti-dilutive, was 0 and 5,000, respectively.

Dividends on our Series A preferred stock are payable quarterly at an
annual rate of 3.75%. We accounted for shares of preferred stock
distributed as dividends in-kind in 2002 at the greater of the stated
value or the value of the common stock obtainable upon conversion on
the payment date. In 2003, we began paying dividends on our Series A
preferred stock in cash and paid approximately $19.00 in the second
quarter of 2003.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

7. Subsidiary Guarantors.

11% Notes. At June 30, 2003, Rent-A-Center East, Inc., one of our
subsidiaries, had $84.5 million, net of discount, of 11% senior
subordinated notes outstanding, maturing on August 15, 2008. The notes
require semi-annual interest-only payments at 11%, and are guaranteed
by Rent-A-Center and certain of Rent-A-Center East's direct and
indirect wholly-owned subsidiaries, consisting of ColorTyme,
Rent-A-Center West, Inc., Get It Now, Rent-A-Center Texas, L.L.C. and
Rent-A-Center Texas, L.P. (collectively, the "2001 Subsidiary
Guarantors"). The notes are redeemable at Rent-A-Center East's option,
at any time on or after August 15, 2003, at a set redemption price that
varies depending upon the proximity of the redemption date to final
maturity. Upon a change of control, the holders of the subordinated
notes have the right to require Rent-A-Center East to redeem the notes.

The 11% notes contain restrictive covenants, as defined therein,
including a consolidated interest coverage ratio and limitations on
incurring additional indebtedness, selling assets of the 2001
Subsidiary Guarantors, granting liens to third parties, making
restricted payments and engaging in a merger or selling substantially
all of Rent-A-Center East's assets.

Rent-A-Center and the 2001 Subsidiary Guarantors have fully, jointly
and severally, and unconditionally guaranteed the obligations of
Rent-A-Center East with respect to these notes. The only direct or
indirect subsidiaries of Rent-A-Center that are not Guarantors are
minor subsidiaries. There are no restrictions on the ability of any of
the Guarantors to transfer funds to Rent-A-Center East in the form of
loans, advances or dividends, except as provided by applicable law.

On May 6, 2003, Rent-A-Center East repurchased approximately $183.0
million of its outstanding 11% senior subordinated notes pursuant to a
tender offer announced in April 2003. On June 17, 2003, we announced
that, in accordance with the 2001 indenture, we intended to optionally
redeem on August 15, 2003 all of the 11% notes then outstanding at the
applicable redemption price. See "Recent Developments" discussed later
in this report.

7 1/2% Notes. On May 6, 2003, Rent-A-Center issued $300.0 million
aggregate principal amount of 7 1/2% senior subordinated notes,
maturing on May 1, 2010. The notes require semi-annual interest-only
payments at 7 1/2%, and are guaranteed by certain of Rent-A-Center's
direct and indirect wholly-owned subsidiaries, consisting of ColorTyme,
Rent-A-Center East, Get It Now, Rent-A-Center Texas, L.L.C.,
Rent-A-Center Texas, L.P. and Rent-A-Center West, Inc. (collectively,
the "2003 Subsidiary Guarantors" and together with the 2001 Subsidiary
Guarantors, the "Subsidiary Guarantors"). The notes are redeemable at
Rent-A-Center's option, at any time on or after May 1, 2006, at a set
redemption price that varies depending upon the proximity of the
redemption date to final maturity. Upon a change of control, the
holders of the 7 1/2% subordinated notes have the right to require
Rent-A-Center to redeem the notes.

The notes contain restrictive covenants, as defined therein, including
a consolidated coverage ratio and limitations on incurring additional
indebtedness, selling assets of the 2003 Subsidiary Guarantors,
granting liens to third parties, making restricted payments and
engaging in a merger or selling substantially all of Rent-A-Center's
assets.

The 2003 Subsidiary Guarantors have fully, jointly and severally, and
unconditionally guaranteed the obligations of Rent-A-Center with
respect to these notes. The only direct or indirect subsidiaries of
Rent-A-Center that are not 2003 Subsidiary Guarantors are minor
subsidiaries.

Set forth below is certain condensed consolidating financial
information as of June 30, 2003 and December 31, 2002, and for the six
months ended June 30, 2003 and 2002. The financial information includes
the Subsidiary Guarantors from the dates they were acquired or formed
by Rent-A-Center and Rent-A-Center East and is presented using the
push-down basis of accounting.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

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RENT-A-CENTER, INC. AND SUBSIDIARIES

7. Subsidiary Guarantors - (continued)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

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RENT-A-CENTER, INC. AND SUBSIDIARIES

8. Comprehensive Income.

Comprehensive income includes net earnings and items of other
comprehensive income or loss. The following table provides information
regarding comprehensive income, net of tax:

9. Common and Preferred Stock Transactions.

In connection with the retirement of J. Ernest Talley, our former
Chairman of the Board and Chief Executive Officer, we entered into an
agreement to repurchase $25.0 million worth of shares of our common
stock beneficially held by Mr. Talley at a purchase price equal to the
average closing price of our common stock over the 10 trading days
beginning October 9, 2001, subject to a maximum of $27.00 per share and
a minimum of $20.00 per share. Under this formula, the purchase price
for the repurchase was calculated at $20.258 per share. Accordingly, on
October 23, 2001 we repurchased 493,632 shares of our common stock
beneficially held by Mr. Talley at $20.258 per share for a total
purchase price of $10.0 million, and on November 30, 2001, we
repurchased an additional 740,448 shares of our common stock
beneficially held by Mr. Talley at $20.258 per share, for a total
purchase price of an additional $15.0 million. On January 25, 2002, we
exercised the option to repurchase all of the remaining 1,714,086
shares of common stock beneficially held by Mr. Talley at $20.258 per
share. We repurchased those remaining shares on January 30, 2002.

On April 25, 2003, we announced that we entered into an agreement with
Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P.
which provided for the repurchase of a number of shares of our common
stock sufficient to reduce Apollo's aggregate record ownership to
19.00% after consummation of our planned tender offer at the price per
share paid in the tender offer. On April 28, 2003, we commenced a
tender offer to purchase up to 2.2 million shares of our common stock
pursuant to a modified "Dutch Auction." On June 25, 2003, we closed the
tender offer and purchased 1,769,690 shares of our common stock at $73
per share for approximately $129.2 million. On July 11, 2003, we closed
the Apollo transaction and purchased 774,457 shares of our common stock
at $73 per share for approximately $56.5 million. As contemplated by
the Apollo agreement, Apollo exchanged their shares of Series A
preferred stock for shares of Series C preferred stock. The terms of
the Series A preferred stock and Series C preferred stock are
substantially similar, except the Series C preferred stock does not
have the right to directly elect any members of our Board of Directors.

In April 2000, we announced that our Board of Directors had authorized
a program to repurchase in the open market and in privately negotiated
transactions up to an aggregate of $25.0 million of our common stock.
In October 2002, our Board of Directors increased the amount of
repurchases authorized under our common stock repurchase program from
$25.0 million to $50.0 million. In March 2003, our Board of Directors
again increased such amount from $50.0 million to $100.0 million.
Through June 30, 2003, we have repurchased approximately 937,000 shares
of our common stock under this program for approximately $44.3 million.
On August 1, 2003, we agreed to repurchase under this program an
aggregate of 440,000 shares of our common stock at $73 per share,
200,000 of which will be repurchased from Mark E. Speese, our Chairman
of the Board and Chief Executive Officer, 200,000 of which will be
repurchased from Apollo Investment Fund IV, L.P. and Apollo Overseas
Partners IV, L.P., and 40,000 of which will be repurchased from
Mitchell E. Fadel, our President and Chief Operating Officer. We have
purchased an additional 99,000 shares of our common stock under this
program for approximately $7.0 million during the third quarter of
2003. Following such repurchases, approximately $16.6 million will be
available for additional repurchases under this program.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

10. Rent-Way Acquisition.

On February 8, 2003, we completed the acquisition of substantially all
of the assets of 295 rent-to-own stores from Rent-Way, Inc. for an
aggregate purchase price of $100.4 million in cash. Of the aggregate
purchase price, we held back $10.0 million to pay for various
indemnified liabilities and expenses, if any, of which $5.0 million was
remitted in the second quarter of 2003. We funded the acquisition
entirely from cash on hand. Of the 295 stores, 176 were subsequently
merged with our existing store locations. We entered into this
transaction seeing it as an opportunistic acquisition that would allow
us to expand our store base in conjunction with our strategic growth
plans. The acquisition price was determined by evaluating the average
monthly rental income of the acquired stores and applying a multiple to
the total. We utilized a third party to review the valuation of certain
intangible assets, which resulted in a $4.0 million decrease in the
value assigned to customer relationships and a $4.0 increase in the
value placed on the non-compete agreement as compared to our original
estimates as disclosed in our 2002 annual report on Form 10-K. The
table below summarizes the allocation of the purchase price based on
the fair values of the assets acquired:

Customer relationships are amortized over an 18 month period. The
non-compete agreement is for four years and, in accordance with SFAS
142, the goodwill associated with the acquisition will not be
amortized.

11. Guarantees.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirement for Guarantees, Including
Guarantees of Indebtedness of Others." FIN 45 requires a liability be
recorded in the guarantor's balance sheet upon issuance of a guarantee.
In addition, FIN 45 requires disclosures about the guarantees that an
entity has issued. We have applied the recognition provisions of FIN 45
prospectively to guarantees issued after December 31, 2002, and have
adopted the quarterly disclosure provisions of FIN 45 for the quarter
ended June 30, 2003. The adoption of FIN 45 did not have a material
impact on our results of operations, financial condition or cash flows.

We provide assurance to our insurance providers that if they are not
able to draw funds from us for claims paid, they have the ability to
draw against our letters of credit. One of our letters of credit is
renewed automatically every year unless we notify the institution not
to renew. The other letter of credit expires in August 2004.

At June 30, 2003, we had $85.9 million to support our outstanding
letters of credit. Of the $85.9 million, $80.0 million is supported by
our additional term loan facility. Under this additional term loan
facility, in the event that a letter of credit is drawn upon, we have
the right to either repay the additional term loan facility lenders the
amount withdrawn or request a loan in that amount. Interest on any
requested additional term loan facility accrues at an adjusted prime
rate plus 1.75% or, at our option, at the Eurodollar Rate plus 2.80%,
with the entire amount of the additional term loan facility due on
December 31, 2007. The remaining $5.9 million reduces the amount
available under our $120.0 million revolving facility.

ColorTyme is a party to an agreement with Textron Financial
Corporation, who provides $40.0 million in financing to qualifying
franchisees of ColorTyme of up to five times their average monthly
revenues. Under this agreement, upon an event of default by the
franchisee under agreements governing this financing and upon the
occurrence of certain other events, Textron may assign the loans and
the collateral securing such loans to ColorTyme, with ColorTyme then
succeeding to the rights of Textron under the debt agreements,
including the rights to foreclose on the collateral. An additional
$12.0 million of financing is provided by Texas Capital Bank, National
Association under an agreement similar to the Textron financing.
Rent-A-Center guarantees the obligations of ColorTyme under these
agreements, excluding the effects of any amounts that could be
recovered under collateralization provisions, up to a maximum amount of
$52.0 million, of which $30.4 million was outstanding as of June 30,
2003. Mark E. Speese, Rent-A-Center's Chairman of the Board and Chief
Executive Officer, is a passive investor in Texas Capital Bank, owning
less than 1% of its outstanding equity.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

12. Recapitalization.

Commencing in April 2003, we recapitalized a portion of our financial
structure in a series of transactions. The recapitalization consisted
of the tender offer for all of our $272.25 million principal amount of
11% notes, the notice of optional redemption of the remaining 11%
notes, the issuance of $300.0 million principal amount of 7 1/2% notes,
the refinancing of our senior debt and the repurchase of shares of our
common stock.

On April 23, 2003, we announced a tender offer for all of our $272.25
million principal amount of 11% notes. On May 6, 2003, we repurchased
approximately $183 million principal amount of 11% notes pursuant to
the tender offer. This tender offer expired at 12:00 midnight, New York
City time, on Tuesday, May 20, 2003. On June 17, 2003, we announced
that, in accordance with the terms of the underlying indenture, we
intended to optionally redeem on August 15, 2003 all of the 11% notes
then outstanding at the applicable redemption price. On June 17, 2003,
the trustee provided formal notice to the holders of the 11% notes that
the 11% notes would be redeemed at 105.5% of the principal amount, plus
accrued and unpaid interest on August 15, 2003. Under the terms of our
senior credit facilities, we are required to redeem our 11% notes no
later than August 15, 2003.

On April 25, 2003, we announced that we entered into an agreement with
Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P.
which provided for the repurchase of a number of shares of our common
stock sufficient to reduce Apollo's aggregate record ownership to
19.00% after consummation of our planned tender offer at the price per
share paid in the tender offer. On April 28, 2003, we commenced a
tender offer to purchase up to 2.20 million shares of our common stock
pursuant to a modified "Dutch Auction." On June 25, 2003, we closed the
tender offer and purchased 1,769,960 shares of our common stock at $73
per share. On July 11, 2003, we closed the Apollo transaction and
purchased 774,547 shares of our common stock at $73 per share. As
contemplated by the Apollo agreement, Apollo exchanged their shares of
Series A preferred stock for shares of Series C preferred stock. The
terms of the Series A preferred stock and Series C preferred stock are
substantially similar, except the Series C preferred stock does not
have the right to directly elect any members of our Board of Directors.

On May 6, 2003, we issued $300.0 million in senior subordinated notes
due 2010, bearing interest at 7 1/2%, the proceeds of which were used,
in part, to fund the repurchase and redemption of the 11% notes.

On May 28, 2003, we refinanced our then existing senior debt by
entering into a new $600.0 million senior credit facility, consisting
of a $400.0 million term loan, a $120.0 million revolving credit
facility and an $80.0 million additional term loan.

During the second quarter of 2003, we recorded $27.7 million in
non-recurring financing charges in connection with the foregoing
recapitalization.

13. Subsequent Events.

Repurchase of Common Stock. On July 11, 2003, we repurchased a total of
774,547 shares of our common stock at $73 per share pursuant to the
previously announced agreement with Apollo Investment Fund IV, L.P. and
Apollo Overseas Partners IV, L.P. We funded this transaction with the
proceeds of our recently completed senior credit financing. On August
1, 2003, we agreed to repurchase an aggregate of 440,000 shares of our
common stock at $73 per share, 200,000 of which will be repurchased
from Mark E. Speese, our Chairman of the Board and Chief Executive
Officer, 200,000 of which will be repurchased from Apollo Investment
Fund IV, L.P. and Apollo Overseas Partners IV, L.P., and 40,000 of
which will be repurchased from Mitchell E. Fadel, our President and
Chief Operating Officer. We have repurchased an additional 99,000
shares of our common stock under this program for approximately $7.0
million during the third quarter of 2003. Following such repurchases,
approximately $16.6 million will be available for additional
repurchases under our stock repurchase program.

Stock Split. On July 28, 2003, we announced that our Board of Directors
had approved a 5 for 2 stock split on our common stock to be paid in
the form of a stock dividend. Each common stockholder of record on
August 15, 2003 will receive 1.5 additional shares of common stock for
each share of common stock held on that date. No fractional shares will
be issued in connection with the stock dividend. Each stockholder who
would otherwise receive a fractional share will receive an additional
share of common stock. The distribution date for the stock dividend
will be August 29, 2003.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The statements, other than statements of historical facts, included in this
report are forward-looking statements. Forward-looking statements generally can
be identified by the use of forward-looking terminology such as "may," "will,"
"would", "expect," "intend," "could", "estimate," "should," "anticipate" or
"believe." We believe that the expectations reflected in such forward-looking
statements are accurate. However, we cannot assure you that these expectations
will occur. Our actual future performance could differ materially from such
statements. Factors that could cause or contribute to these differences include,
but are not limited to:

o uncertainties regarding the ability to open new stores;

o our ability to acquire additional rent-to-own stores on favorable
terms;

o our ability to enhance the performance of these acquired stores,
including the stores acquired in the Rent-Way acquisition;

o our ability to control store level costs;

o our ability to realize benefits from our margin enhancement
initiatives;

o the results of our litigation;

o the passage of legislation adversely affecting the rent-to-own
industry;

o interest rates;

o our ability to collect on our rental purchase agreements;

o changes in our effective tax rate;

o factors that may restrict our ability to redeem our outstanding 11%
senior subordinated notes on August 15, 2003, including our financial
situation at that time;

o changes in our stock price and the number of shares of common stock
that we may or may not repurchase; and

o the other risks detailed from time to time in our SEC reports.

Additional important factors that could cause our actual results to differ
materially from our expectations are discussed under Risk Factors in our Annual
Report on Form 10-K for our fiscal year ended December 31, 2002. You should not
unduly rely on these forward-looking statements, which speak only as of the date
of this report. Except as required by law, we are not obligated to publicly
release any revisions to these forward-looking statements to reflect events or
circumstances occurring after the date of this report or to reflect the
occurrence of unanticipated events.

OUR BUSINESS

We are the largest rent-to-own operator in the United States with an approximate
31% market share based on store count. At June 30, 2003, we operated 2,567
company-owned stores nationwide and in Puerto Rico, including 23 stores located
in Wisconsin and operated by our subsidiary Get It Now, LLC under the name "Get
It Now." Another of our subsidiaries, ColorTyme, is a national franchisor of
rent-to-own stores. At June 30, 2003, ColorTyme had 321 franchised stores in 40
states, 309 of which operated under the ColorTyme name and 12 stores of which
operated under the Rent-A-Center name. Our stores generally offer high quality
durable products such as home electronics, appliances, computers, and furniture
and accessories under flexible rental purchase agreements that generally allow
the customer to obtain ownership of the merchandise at the conclusion of an
agreed-upon rental period. These rental purchase agreements are designed to
appeal to a wide variety of customers by allowing them to obtain merchandise
that they might otherwise be unable to obtain due to insufficient cash resources
or a lack of access to credit. These agreements also cater to customers who only
have a temporary need or who simply desire to rent rather than purchase the
merchandise.

We have pursued an aggressive growth strategy since 1989. We have sought to
acquire underperforming stores to which we could apply our operating model as
well as open new stores. As a result, the acquired stores have generally
experienced more significant revenue growth during the initial periods following
their acquisition than in subsequent periods. Because of

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RENT-A-CENTER, INC. AND SUBSIDIARIES

significant growth since our formation our historical results of operations and
period-to-period comparisons of such results and other financial data, including
the rate of earnings growth, may not be meaningful or indicative of future
results.

We plan to accomplish our future growth through selective and opportunistic
acquisitions, with an emphasis on new store development. Typically, a newly
opened store is profitable on a monthly basis in the ninth to twelfth month
after its initial opening. Historically, a typical store has achieved cumulative
break-even profitability in 18 to 24 months after its initial opening. Total
financing requirements of a typical new store approximate $450,000, with roughly
70% of that amount relating to the purchase of rental merchandise inventory. A
newly opened store historically has achieved results consistent with other
stores that have been operating within the system for greater than two years by
the end of its third year of operation. As a result, our quarterly earnings are
impacted by how many new stores we opened during a particular quarter and the
quarters preceding it. There can be no assurance that we will open any new
stores in the future or as to the number, location or profitability thereof.

In addition, to provide any additional funds necessary for the continued pursuit
of our operating and growth strategies, we may incur from time to time
additional short or long-term bank indebtedness and may issue, in public or
private transactions, equity and debt securities. The availability and
attractiveness of any outside sources of financing will depend on a number of
factors, some of which will relate to our financial condition and performance,
and some of which are beyond our control, such as prevailing interest rates and
general economic conditions. There can be no assurance additional financing will
be available, or if available, will be on terms acceptable to us.

RECENT DEVELOPMENTS

Store Growth. We are actively seeking to increase our store base and annual
revenues and profits through opportunistic acquisitions and new store openings.
On February 8, 2003, we acquired substantially all of the assets of 295 stores
located throughout the United States from Rent-Way, Inc. and certain of its
subsidiaries for approximately $100.4 million in cash. Of the 295 stores, 176
were merged with existing locations. Furthermore, during the first six months of
2003, we acquired 11 additional stores, accounts from 14 additional locations,
opened 38 new stores, and closed eight stores. All of the closed stores were
merged with existing store locations. The additional stores and acquired
accounts were the result of 18 separate transactions for an aggregate price of
approximately $5.8 million in cash. As of August 4, 2003, we have acquired two
additional stores, accounts from four additional locations, opened 10 new stores
and closed two stores, merging them both with existing locations during the
third quarter of 2003. It is our intention to increase the number of stores we
operate by an average of approximately 5 to 10% per year over the next several
years.

Recapitalization. Commencing in April 2003, we recapitalized a portion of our
financial structure in a series of transactions. The recapitalization consisted
of the tender offer for all of our $272.25 million principal amount of 11%
notes, the notice of optional redemption of the remaining 11% notes, the
issuance of $300.0 million principal amount of 7 1/2% notes, the refinancing of
our senior debt and the repurchase of shares of our common stock.

On April 23, 2003, we announced a tender offer for all of our $272.25 million
principal amount of 11% notes. On May 6, 2003, we repurchased approximately $183
million principal amount of 11% notes pursuant to the tender offer. This tender
offer expired at 12:00 midnight, New York City time, on Tuesday, May 20, 2003.
On June 17, 2003, we announced that, in accordance with the terms of the
underlying indenture, we intended to optionally redeem on August 15, 2003 all of
the 11% notes then outstanding at the applicable redemption price. On June 17,
2003, the trustee provided formal notice to the holders of the 11% notes that
the 11% notes would be redeemed at 105.5% of the principal amount, plus accrued
and unpaid interest on August 15, 2003. Under the terms of our senior credit
facilities, we are required to redeem our 11% notes no later than August 15,
2003.

On April 25, 2003, we announced that we entered into an agreement with Apollo
Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P. which provided
for the repurchase of a number of shares of our common stock sufficient to
reduce Apollo's aggregate record ownership to 19.00% after consummation of our
planned tender offer at the price per share paid in the tender offer. On April
28, 2003, we commenced a tender offer to purchase up to 2.20 million shares of
our common stock pursuant to a modified "Dutch Auction." On June 25, 2003, we
closed the tender offer and purchased 1,769,960 shares of our common stock at
$73 per share. On July 11, 2003, we closed the Apollo transaction and purchased
774,547 shares of our common stock at $73 per share. As contemplated by the
Apollo agreement, Apollo exchanged their shares of Series A preferred stock for
shares of Series C preferred stock. The terms of the Series A preferred stock
and Series C preferred stock are substantially similar, except the Series C
preferred stock does not have the right to directly elect any members of our
Board of Directors.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

On May 6, 2003, we issued $300.0 million in senior subordinated notes due 2010,
bearing interest at 7 1/2%, the proceeds of which were used, in part, to fund
the repurchase and redemption of the 11% notes.

On May 28, 2003, we refinanced our then existing senior debt by entering into a
new $600.0 million senior credit facility, consisting of a $400.0 million term
loan, a $120.0 million revolving credit facility and an $80.0 million additional
term loan.

During the second quarter of 2003, we recorded $27.7 million in non-recurring
financing charges in connection with the forgoing recapitalization.

CRITICAL ACCOUNTING POLICIES INVOLVING CRITICAL ESTIMATES, UNCERTAINTIES OR
ASSESSMENTS IN OUR FINANCIAL STATEMENTS

The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. In applying accounting principles, we must often make
individual estimates and assumptions regarding expected outcomes or
uncertainties. As you might expect, the actual results or outcomes are generally
different than the estimated or assumed amounts. These differences are usually
minor and are included in our consolidated financial statements as soon as they
are known. Our estimates, judgments and assumptions are continually evaluated
based on available information and experience. Because of the use of estimates
inherent in the financial reporting process, actual results could differ from
those estimates.

Actual results related to the estimates and assumptions made by us in preparing
our consolidated financial statements will emerge over periods of time, such as
estimates and assumptions underlying the determination of our self-insurance
liabilities. These estimates and assumptions are closely monitored by us and
periodically adjusted as circumstances warrant. For instance, our liability for
our self-insured retentions related to our workers compensation, general
liability, medical and auto liability may be adjusted based on higher or lower
actual loss experience. Although there is greater risk with respect to the
accuracy of these estimates and assumptions because of the period over which
actual results may emerge, such risk is mitigated by our ability to make changes
to these estimates and assumptions over the same period.

In preparing our financial statements at any point in time, we are also
periodically faced with uncertainties, the outcomes of which are not within our
control and will not be known for prolonged periods of time. As discussed in
Part II, Item 1 "Legal Proceedings" and the notes to our consolidated financial
statements included in our Annual Report on Form 10-K, we are involved in
actions relating to claims that our rental purchase agreements constitute
installment sales contracts, violate state usury laws or violate other state
laws enacted to protect consumers, claims asserting violations of wage and hour
laws in our employment practices, as well as claims we violated the federal
securities laws. We, together with our counsel, make estimates, if determinable,
of our probable liabilities and record such amounts in our consolidated
financial statements. These estimates represent our best estimate, or may be the
minimum range of probable loss when no single best estimate is determinable. We,
together with our counsel, monitor developments related to these legal matters
and, when appropriate, adjustments are made to liabilities to reflect current
facts and circumstances.

We periodically review the carrying value of our goodwill and other intangible
assets when events and circumstances warrant such a review. One of the methods
used for this review is performed using estimates of future cash flows. If the
carrying value of our goodwill or other intangible assets is considered
impaired, an impairment charge is recorded for the amount by which the carrying
value of the goodwill or intangible assets exceeds its fair value. We believe
that the estimates of future cash flows and fair value are reasonable. Changes
in estimates of such cash flows and fair value, however, could affect the
evaluation.

Based on an assessment of our accounting policies and the underlying judgments
and uncertainties affecting the application of those policies, we believe that
our consolidated financial statements provide a meaningful and fair perspective
of our company. However, we do not suggest that other general risk factors, such
as those discussed in our Annual Report on Form 10-K as well as changes in our
growth objectives or performance of new or acquired stores, could not adversely
impact our consolidated financial position, results of operations and cash flows
in future periods.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

OTHER SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are summarized below and in Note A to our
consolidated financial statements included in our Annual Report on Form 10-K.

Revenue. We collect non-refundable rental payments and fees in advance,
generally on a weekly or monthly basis. This revenue is recognized over the term
of the agreement. Rental purchase agreements generally include a discounted
early purchase option. Upon exercise of this option, and upon sale of used
merchandise, revenue is recognized as these payments are received.

Franchise Revenue. Revenue from the sale of rental merchandise is recognized
upon shipment of the merchandise to the franchisee. Franchise fee revenue is
recognized upon completion of substantially all services and satisfaction of all
material conditions required under the terms of the franchise agreement.

Depreciation of Rental Merchandise. We depreciate our rental merchandise using
the income forecasting method. The income forecasting method of depreciation we
use does not consider salvage value and does not allow the depreciation of
rental merchandise during periods when it is not generating rental revenue. The
objective of this method of depreciation is to provide for consistent
depreciation expense while the merchandise is on rent. On July 1, 2002, we began
accelerating the depreciation on computers that are 21 months old or older and
which have become idle using the straight-line method for a period of at least
six months. The purpose for this change is to better reflect the depreciable
life of a computer in our stores and to encourage the sale of older computers.

Cost of Merchandise Sold. Cost of merchandise sold represents the book value net
of accumulated depreciation of rental merchandise at time of sale.

Salaries and Other Expenses. Salaries and other expenses include all salaries
and wages paid to store level employees, together with market managers'
salaries, travel and occupancy, including any related benefits and taxes, as
well as all store level general and administrative expenses and selling,
advertising, insurance, occupancy, fixed asset depreciation and other operating
expenses.

General and Administrative Expenses. General and administrative expenses include
all corporate overhead expenses related to our headquarters such as salaries,
taxes and benefits, occupancy, administrative and other operating expenses, as
well as regional directors' salaries, travel and office expenses.

Amortization of Intangibles. Amortization of intangibles consists primarily of
the amortization of customer relationships and non-compete agreements resulting
from acquisitions. Effective January 1, 2002, under SFAS 142 all goodwill and
intangible assets with indefinite lives are no longer subject to amortization.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002

Store Revenue. Total store revenue increased by $130.7 million, or 13.5%, to
$1,095.3 million for the six months ended June 30, 2003 from $964.6 million for
the six months ended June 30, 2002. The increase in total store revenue is
primarily attributable to growth in same store revenues, an increase in cash
sales and early purchase options, new stores, incremental revenues related to
all acquisitions, including the 295 Rent-Way stores acquired in February 2003,
as well as installment sales in our Get It Now stores.

Same store revenues represent those revenues earned in stores that were operated
by us for each of the entire six month periods ending June 30, 2003 and 2002.
Same store revenues increased by $34.9 million, or 4.2%, to $857.3 million for
the six months ended June 30, 2003 from $822.4 million in 2002. The increase in
same store revenues was primarily attributable to an increase in the total
revenue earned per customer including all rentals, fees and cash sales
(approximately $1,109 per customer for the six months ending June 30, 2003
versus approximately $1,063 per customer for the six months ending June 30,
2002). Merchandise sales for all stores increased $21.6 million, or 34.0%, to
$85.2 million for 2003 from $63.6 million in 2002. The increase in merchandise
sales was primarily attributable to an increase in the number of items sold in
the first six months of 2003 (approximately 570,000) from the number of items
sold in 2002 (approximately 446,000). This increase in the number of items sold
in 2003 versus the same period in 2002 was primarily the result of an increase
in the amount of customers exercising early purchase options.

Franchise Revenue. Total franchise revenue decreased by $4.2 million, or 14.8%,
to $24.4 million for the six months ended June 30, 2003 from $28.6 million in
2002. This decrease was primarily attributable to a decrease in merchandise
sales to franchise locations as a result of fewer franchised locations, many of
which where acquired by us, during the first six months of 2003 as compared to
the first six months of 2002.

Depreciation of Rental Merchandise. Depreciation of rental merchandise increased
by $29.4 million, or 15.8%, to $216.0 million for the six months ended June 30,
2003 from $186.6 million in 2002. Depreciation of rental merchandise expressed
as a percentage of store rentals and fees revenue increased to 21.6% in 2003
from 20.7% for the same period in 2002. These increases were primarily
attributable to an increase in rental and fee revenue, a different pricing mix
in 2003 versus 2002 and higher depreciation associated with the Rent-Way
inventory acquired in February 2003.

Cost of Merchandise Sold. Cost of merchandise sold increased by $16.3 million,
or 36.7%, to $60.8 million for the six months ended June 30, 2003 from $44.5
million in 2002. This increase was primarily a result of an increase in the
number of items sold during the first six months of 2003 as compared to the
first six months of 2002, as well as the additional sales of inventory gained
through the acquisition of 295 Rent-Way stores. The gross margin percent on
merchandise sales decreased to 28.6% in 2003 from 30.1% in 2002. This percentage
decrease was primarily attributable to the sale of merchandise acquired from
Rent-Way in February 2003.

Salaries and Other Expenses. Salaries and other expenses expressed as a
percentage of total store revenue decreased to 53.3% for the six months ended
June 30, 2003 from 54.6% for the six months ended June 30, 2002. This decrease
was primarily attributable to an increase in store revenues in the first six
months of 2003 as compared to 2002 coupled with the continued realization of our
margin enhancement initiatives and reductions in store level costs.

Franchise Cost of Merchandise Sold. Franchise cost of merchandise sold decreased
by $4.0 million, or 16.5%, to $20.5 million for the six months ended June 30,
2003 from $24.5 million in 2002. This decrease was primarily attributable to a
decrease in merchandise sales to franchise locations as a result of fewer
franchised locations, many of which were acquired by us, during the first six
months of 2003 as compared to the first six months of 2002.

General and Administrative Expenses. General and administrative expenses
expressed as a percentage of total revenue decreased to 3.0% for the six months
ending June 30, 2003 as compared to 3.3% for the six months ending June 30,
2002. This decrease is primarily attributable to the effect of a $2.0 million
legal charge associated with the settlement of class action gender
discrimination lawsuits in the second quarter of 2002.

Amortization of Intangibles. Amortization of intangibles increased by $4.6
million, or 275.7%, to $6.2 million for the six months ended June 30, 2003 from
$1.6 for the six months ended June 30, 2002. This increase was primarily
attributable to the Rent-Way acquisition and the number of acquisitions made
during the later part of 2002 versus 2001. As a result of these acquisitions,
amortization of intangibles is higher in the first six months of 2003 versus
2002.

Operating Profit. Operating profit increased by $17.0 million, or 9.6%, to
$193.5 million for the six months ended June 30, 2003 from $176.5 million in
2002. Operating profit as a percentage of total revenue decreased to 17.3% for
the six months ended June 30, 2003, from 17.8% in 2002. This percentage decrease
was primarily attributable to the increase in amortization of intangibles during
the first six months of 2003 versus 2002, as well as the effect of the Rent-Way
acquisition.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

Net Earnings. Net earnings increased by $753,000, or 0.9%, to $86.3 million for
the six months ended June 30, 2003 from $85.5 million in 2002. Before the
after-tax effect of the $27.7 million non-recurring recapitalization charges
recorded in the second quarter of 2003, the $2.0 million non-recurring charge
associated with the settlement of class action gender discrimination lawsuits
and $2.9 million associated with the early retirement of debt in the second
quarter of 2002, net earnings increased by $14.8 million, or 16.8%, to $103.2
million for the six months ended June 30, 2003 from $88.4 million in 2002. This
increase is primarily attributable to growth in total revenues, a decrease in
interest expense, a lower tax rate and the improvements in salaries and other
expenses under our cost control programs offset by an increase in amortization
of intangibles.

Preferred Dividends. Dividends on our Series A preferred stock are payable
quarterly at an annual rate of 3.75%. Preferred dividends decreased by $8.9
million, or nearly 100%, for the six months ended June 30, 2003, due to the
conversion of all but two shares of outstanding Series A preferred stock in
August 2002.

THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002

Store Revenue. Total store revenue increased by $61.7 million, or 12.8%, to
$542.4 million for the three months ended June 30, 2003 from $480.7 million for
the three months ended June 30, 2002. The increase in total store revenue is
primarily attributable to growth in same store revenues, an increase in cash
sales and early purchase options, new stores, incremental revenues related to
all acquisitions, including the 295 Rent-Way stores acquired in February 2003,
as well as installment sales in our Get It Now stores.

Same store revenues represent those revenues earned in stores that were operated
by us for each of the entire three month periods ending June 30, 2003 and 2002.
Same store revenues increased by $11.3 million, or 2.7%, to $427.4 million for
the three months ended June 30, 2003 from $416.1 million in 2002. The increase
in same store revenues was primarily attributable to an increase in the total
revenue earned per customer including all rentals, fees and cash sales
(approximately $546 per customer for the quarter ending June 30, 2003 versus
approximately $530 per customer for the quarter ending June 30, 2002).
Merchandise sales for all stores increased $8.5 million, or 35.6%, to $32.5
million for 2003 from $24.0 million in 2002. The increase in merchandise sales
was primarily attributable to an increase in the number of items sold in the
second quarter of 2003 (approximately 252,000) from the number of items sold in
2002 (approximately 188,000). This increase in the number of items sold in 2003
versus the same period in 2002 was primarily the result of an increase in the
amount of customers exercising early purchase options.

Franchise Revenue. Total franchise revenue decreased by $3.1 million, or 22.4%,
to $10.8 million for the three months ended June 30, 2003 from $13.9 million in
2002. This decrease was primarily attributable to a decrease in merchandise
sales to franchise locations as a result of a decrease in the number of
franchised locations, many of which were acquired by us, in the second quarter
of 2003 as compared to the second quarter of 2002.

Depreciation of Rental Merchandise. Depreciation of rental merchandise increased
by $15.0 million, or 15.9%, to $109.3 million for the three months ended June
30, 2003 from $94.3 million in 2002. Depreciation of rental merchandise
expressed as a percentage of store rentals and fees revenue increased to 21.7%
in 2003 from 20.7% for the same period in 2002. These increases were primarily
attributable to an increase in rental and fee revenue, a different pricing mix
in 2003 versus 2002 and higher depreciation associated with the Rent-Way
inventory acquired in February 2003.

Cost of Merchandise Sold. Cost of merchandise sold increased by $6.7 million, or
38.5%, to $24.2 million for the three months ended June 30, 2003 from $17.5
million in 2002. This increase was primarily a result of an increase in the
number of items sold during the second quarter of 2003 as compared to the second
quarter 2002, as well as the additional sales of inventory gained through the
acquisition of 295 Rent-Way stores. The gross margin percent on merchandise
sales decreased to 25.5% in 2003 from 27.1% in 2002. This percentage decrease
was primarily attributable to the sale of merchandise acquired from Rent-Way in
February 2003.

Salaries and Other Expenses. Salaries and other expenses expressed as a
percentage of total store revenue decreased to 53.8% for the three months ended
June 30, 2003 from 55.0% for the three months ended June 30, 2002. This decrease
was primarily attributable to an increase in store revenues in the second
quarter of 2003 as compared to 2002 coupled with the continued realization of
our margin enhancement initiatives and reductions in store level costs.

Franchise Cost of Merchandise Sold. Franchise cost of merchandise sold decreased
by $2.9 million, or 24.7%, to $9.0 million for the three months ended June 30,
2003 from $11.9 million in 2002. This decrease was primarily attributable to a
decrease in merchandise sales to franchise locations as a result of fewer
franchised locations, many of which were acquired by us, in the second quarter
of 2003 as compared to the second quarter of 2002.

General and Administrative Expenses. General and administrative expenses
expressed as a percentage of total revenue decreased to 3.0% for the three
months ending June 30, 2003 as compared to 3.5% for the three months ending June
30, 2002. This decrease is primarily attributable to the effect of a $2.0
million legal charge associated with the settlement of class action gender
discrimination lawsuits in the second quarter of 2002.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

Amortization of Intangibles. Amortization of intangibles increased by $2.4
million, or 257.5%, to $3.3 million for the three months ended June 30, 2003
from $900,000 for the three months ended June 30, 2002. This increase was
primarily attributable to the Rent-Way acquisition.

Operating Profit. Operating profit increased by $9.0 million, or 10.2%, to $97.2
million for the three months ended June 30, 2003 from $88.2 million in 2002.
Operating profit as a percentage of total revenue decreased to 17.6% for the
three months ended June 30, 2003, from 17.8% in 2002. This percentage decrease
was primarily attributable to the increase in amortization of intangibles during
the second quarter of 2003 versus 2002, as well as the effect of the Rent-Way
acquisition.

Net Earnings. Net earnings decreased by $6.6 million, or 15.8%, to $35.3 million
for the three months ended June 30, 2003 from $41.9 million in 2002. Before the
after-tax effect of the $27.7 million non-recurring recapitalization charges
recorded in the second quarter of 2003, the $2.0 million non-recurring charge
associated with the settlement of class action gender discrimination lawsuits
and $2.9 million associated with the early retirement of debt in the second
quarter of 2002, net earnings increased by $7.4 million, or 16.6%, to $52.3
million for the six months ended June 30, 2003 from $44.9 million in 2002. This
increase is primarily attributable to growth in total revenues, a decrease in
interest expense, a lower tax rate and the improvements seen in salaries and
other expenses under our cost control programs offset by an increase in
amortization of intangibles.

Preferred Dividends. Dividends on our Series A preferred stock are payable
quarterly at an annual rate of 3.75%. Preferred dividends decreased by $3.9
million, or nearly 100%, for the three months ended June 30, 2003, due to the
conversion of all but two shares of outstanding Series A preferred stock in
August 2002.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities increased by $10.5 million to $183.4
million for the six months ending June 30, 2003 from $172.9 million in 2002.
This increase resulted primarily from an increase in depreciation as well as a
decrease in prepaid expenses during the first six months of 2003 as compared to
2002 and the non-recurring finance charges in the second quarter of 2003 offset
by a decrease in accrued liabilities and increased inventory purchases during
the first six months of 2003 as compared to 2002.

Cash used in investing activities increased by $85.4 million to $128.8 million
during the six month period ending June 30, 2003 from $43.4 million in 2002.
This increase is primarily attributable to the acquisition of 295 stores from
Rent-Way in February 2003.

Cash provided by financing activities increased by $251.5 million to $107.9
million during the six month period ending June 30, 2003 from $143.6 million
used in financing activities in 2002. This increase is a result of the $300.0
million received from our issuance of the 7 1/2% notes as well as the new $400.0
million term loan under our senior credit facilities entered into in May 2003,
offset by our repurchase of $187.8 million of our 11% notes, the repayment of
our old senior credit facilities and repurchase of $142.6 million of our common
stock.

Liquidity Requirements. Our primary liquidity requirements are for debt service,
rental merchandise purchases, capital expenditures, litigation and our store
expansion program. Our primary sources of liquidity have been cash provided by
operations, borrowings and sales of equity securities. In the future, we may
incur additional debt, or may issue debt or equity securities to finance our
operating and growth strategies. The availability and attractiveness of any
outside sources of financing will depend on a number of factors, some of which
relate to our financial condition and performance, and some of which are beyond
our control, such as prevailing interest rates and general economic conditions.
There can be no assurance that additional financing will be available, or if
available, that it will be on terms we find acceptable.

We believe that the cash flow generated from operations, together with amounts
available under our senior credit facilities, will be sufficient to fund our
debt service requirements, rental merchandise purchases, capital expenditures,
litigation and our store expansion programs during 2003. Our existing revolving
credit facilities provide us with revolving loans in an aggregate principal
amount not exceeding $130.0 million, of which $124.1 million was available at
August 4, 2003. At August 1, 2003, we had in excess of $210.0 million in cash,
$93.7 million of which will be used for the redemption of our 11% notes and
approximately $39.1 million of which will be used for the repurchase of 539,000
shares of our common stock. To the extent we have available cash that is not
necessary for store openings or acquisitions, we intend to repurchase additional
shares of our common stock as well as make payments to service our existing
debt. While our operating cash flow has been strong and we expect this strength
to continue, our liquidity could be negatively impacted if we do not remain as
profitable as we expect.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

Our senior credit facilities and the indentures governing our senior
subordinated notes contain certain change in control provisions. A change in
control would result in an event of default under our senior credit facilities,
and, pursuant to the underlying indentures, would also require us to offer to
repurchase all of our senior subordinated notes at 101% of their principal
amount, plus accrued interest to the date of repurchase. Provisions of our
senior credit facilities restrict the repurchase of all of our senior
subordinated notes. In the event a change in control occurs, we cannot be sure
that we would have enough funds to immediately pay our accelerated senior credit
facility obligations and all of the senior subordinated notes, or that we would
be able to obtain financing to do so on favorable terms, if at all.

Deferred Taxes. On March 9, 2002, President Bush signed into law the Job
Creation and Worker Assistance Act of 2002, which provides for accelerated tax
depreciation deductions for qualifying assets placed in service between
September 11, 2001 and September 10, 2004. Under these provisions, 30 percent of
the basis of qualifying property is deductible in the year the property is
placed in service, with the remaining 70 percent of the basis depreciated under
the normal tax depreciation rules. For assets placed in service between May 6,
2003 and December 31, 2004, the Jobs and Growth Tax Relief Reconciliation Act of
2003 increased the percent of the basis of qualifying property deductible in the
year the property is placed in service from 30% to 50%. Accordingly, our cash
flow will benefit from having a lower current cash tax obligation, which in turn
will provide additional cash flows from operations until the deferred tax
liabilities begin to reverse. We estimate that our operating cash flow will have
increased by approximately $105.6 million through 2004 before the deferred tax
liabilities begin to reverse over a three year period beginning in 2005.

Rental Merchandise Purchases. We purchased $305.1 million and $252.3 million of
rental merchandise during the six month periods ending June 30, 2003 and 2002,
respectively.

Capital Expenditures. We make capital expenditures in order to maintain our
existing operations as well as for new capital assets in new and acquired
stores. We spent $22.9 million and $16.8 million on capital expenditures during
the six month periods ending June 30, 2003 and 2002, respectively, and expect to
spend approximately $25.0 million for the remainder of 2003.

Acquisitions and New Store Openings. For the first six months of 2003, we spent
approximately $106.2 million on acquiring stores and accounts, of which $100.4
million was for the Rent-Way acquisition. For the entire year ending December
31, 2003, we intend to add approximately 10% to our store base by opening
approximately 80 new store locations as well as continuing to pursue
opportunistic acquisitions.

The profitability of our stores tends to grow at a slower rate approximately
five years from the time we open or acquire them. As a result, in order for us
to show improvements in our profitability, it is important for us to continue to
open stores in new locations or acquire under-performing stores on favorable
terms. There can be no assurance that we will be able to acquire or open new
stores at the rates we expect, or at all. We cannot assure you that the stores
we do acquire or open will be profitable at the same levels that our current
stores are, or at all.

Borrowings. The table below shows the scheduled maturity dates of our senior
debt outstanding at June 30, 2003.