RENT A CENTER INC DE - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NO. 0-25370
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RENT-A-CENTER, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 48-1024367
(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)

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
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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 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. [ ]

AGGREGATE MARKET VALUE OF THE 22,694,926 SHARES OF COMMON STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT AT THE CLOSING SALES PRICE ON
MARCH 22, 2002..........................................$1,150,178,850

NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF THE CLOSE OF
BUSINESS ON MARCH 22,
2002:.......................................................24,086,397

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive proxy statement relating to the 2002 Annual
Meeting of Stockholders of Rent-A-Center, Inc. are incorporated by reference
into Part III of this report.
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TABLE OF CONTENTS

1

PART I

ITEM 1. BUSINESS

OVERVIEW

We are the largest operator in the United States rent-to-own industry with
an approximate 29% market share based on store count. At December 31, 2001, we
operated 2,281 company-owned stores in 50 states, the District of Columbia and
Puerto Rico. Our subsidiary, ColorTyme, Inc., is a national franchisor of
rent-to-own stores. At December 31, 2001, ColorTyme had 342 franchised stores in
42 states, 330 of which operated under the ColorTyme name and 12 stores of which
operated under the Rent-A-Center name. These franchise stores represent a
further 4% market share based on store count.

Our stores offer high quality, durable products such as home electronics,
appliances, computers, and furniture and accessories under flexible rental
purchase agreements that typically 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 offer well known brands
such as Philips, Sony, JVC, Toshiba and Mitsubishi home electronics, Whirlpool
appliances, Dell, Compaq and Hewlett Packard computers and Ashley, England and
Benchcraft furniture.

Our customers often lack access to conventional forms of credit. We offer
products such as big screen televisions, computers and sofas, and well known
brands that might otherwise be unavailable without credit. We also offer high
levels of customer service, including free repair, pick-up and delivery. Our
customers benefit from the ability to return merchandise at any time without
further obligation and make payments that build toward ownership. We estimate
that approximately 62% of our business is from repeat customers.

We were incorporated as a Delaware corporation on September 16, 1986. Our
principal executive offices are located at 5700 Tennyson Parkway, Third Floor,
Plano, Texas 75024. Our telephone number is (972) 801-1100 and our company
website is www.rentacenter.com.

INDUSTRY OVERVIEW

According to industry sources and our estimates, the rent-to-own industry
consists of approximately 8,000 stores, and provides approximately 7.0 million
products to over 3.0 million households each year. We estimate the six largest
rent-to-own industry participants account for 4,700 of the total number of
stores, and the majority of the remainder of the industry consists of operations
with fewer than 20 stores. The rent-to-own industry is highly fragmented and,
due primarily to the decreased availability of traditional financing sources,
has experienced, and we believe will continue to experience, increasing
consolidation. We believe this consolidation trend in the industry presents
opportunities for us to continue to acquire additional stores on favorable
terms.

The rent-to-own industry serves a highly diverse customer base. According
to the Association of Progressive Rental Organizations, 92% of rent-to-own
customers have incomes between $15,000 and $50,000 per year. Many of the
customers served by the industry do not have access to conventional forms of
credit and are typically cash constrained. For these customers, the rent-to-own
industry provides access to brand name products that they would not normally be
able to obtain. The Association of Progressive Rental Organizations also
estimates that 93% of customers have high school diplomas. According to a
Federal Trade Commission study, 75% of rent-to-own customers were satisfied with
their experience with rent-to-own transactions. The study noted that customers
gave a wide variety of reasons for their satisfaction, "including the ability to
obtain merchandise they otherwise could not, the low payments, the lack of a
credit check, the convenience and flexibility of the transaction, the quality of
the merchandise, the quality of the maintenance, delivery, and other services,
the friendliness and flexibility of the store employees, and the lack of any
problems or hassles."

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STRATEGY

We are currently focusing our strategic efforts on:

- enhancing the operations and profitability in our store locations;

- opening new stores and acquiring existing rent-to-own stores; and

- building our national brand.

ENHANCING STORE OPERATIONS

We continually seek to improve store performance through strategies
intended to produce gains in operating efficiency and profitability. For
example, we recently implemented programs to refocus our operational personnel
to prioritize store profit growth, including the effective pricing of rental
merchandise and the management of store level operating expenses. Similarly, we
have instituted a transitional duty program to maintain store level productivity
as well as to minimize costs related to the workers compensation component of
our insurance programs.

We believe we will achieve further gains in revenues and operating margins
in both existing and newly acquired stores by continuing to:

- use focused advertising to increase store traffic;

- expand the offering of upscale, higher margin products, such as Philips,
Sony, JVC, Toshiba and Mitsubishi home electronics, Whirlpool appliances,
Dell, Compaq and Hewlett Packard computers and Ashley, England and
Benchcraft furniture to increase the number of product rentals;

- employ strict store-level cost control;

- closely monitor each store's performance through the use of our
management information system to ensure each store's adherence to
established operating guidelines; and

- use a revenue and profit based incentive pay plan.

OPENING NEW STORES AND ACQUIRING EXISTING RENT-TO-OWN STORES

We intend to expand our business both by opening new stores in targeted
markets and by acquiring existing rent-to-own stores. We will focus new market
penetration in adjacent areas or regions that we believe are underserved by the
rent-to-own industry, which we believe represents a significant opportunity for
us. In addition, we intend to pursue our acquisition strategy of targeting
under-performing and under-capitalized chains of rent-to-own stores. We have
gained significant experience in the acquisition and integration of other
rent-to-own operators and believe the fragmented nature of the rent-to-own
industry will result in ongoing consolidation opportunities. Acquired stores
benefit from our administrative network, improved product mix, sophisticated
management information system and purchasing power. In addition, we have access
to our franchise locations, which we have the right of first refusal to
purchase.

Since March 1993, our company-owned store base has grown from 27 to 2,281
at December 31, 2001, primarily through acquisitions. During this period, we
acquired over 2,100 company-owned stores and over 350 franchised stores in more
than 80 separate transactions, including six transactions where we acquired in
excess of 70 stores. In May 1998, we acquired substantially all of the assets of
Central Rents, Inc., which operated 176 stores, for approximately $100 million
in cash. In August 1998, we acquired Thorn Americas, Inc. for approximately $900
million in cash, including the repayment of certain debt of Thorn Americas.
Prior to this acquisition, Thorn Americas was our largest competitor, operating
1,409 company-owned stores and franchising 65 stores in 49 states and the
District of Columbia.

In the second half of 2000, having successfully integrated the Thorn
Americas and Central Rents acquisitions, we resumed our strategy of increasing
our store base. For the year ended December 31, 2000, we opened 36 new stores,
acquired 74 stores, purchased accounts from 73 competitors locations and closed
27 stores. Of the 27 stores closed, 22 were merged with existing stores, four
were sold and one was closed with no
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surviving store. For the year ended December 31, 2001, we opened 76 new stores,
acquired 95 stores, purchased accounts from 90 competitors' locations and closed
48 existing stores. Of the 48 stores closed, 42 were merged with existing stores
and six were sold. The 95 acquired stores and acquired accounts were the result
of 52 separate transactions for an aggregate purchase price of approximately
$49.8 million in cash. Through March 22, 2002, we acquired an additional three
stores and accounts from 14 competitors' locations for approximately $2.7
million in cash in 13 separate transactions and opened an additional six new
stores. We also closed four stores, merging three with existing stores and
selling one store, resulting in a total store count of 2,286 at March 22, 2002.

We continue to believe there are attractive opportunities to expand our
presence in the rent-to-own industry. We intend to increase the number of stores
in which we operate by an average of approximately 5% to 10% per year over the
next several years. We plan to accomplish our future growth through both
selective and opportunistic acquisitions and new store development.

BUILDING OUR NATIONAL BRAND

We have implemented a strategy to increase our name recognition and enhance
our national brand. As a part of a branding strategy, in April 2000 we launched
a national advertising campaign featuring John Madden as our advertising
spokesperson. Mr. Madden appears in our advertising media used in the campaign,
including television and radio commercials, print, direct response and in-store
signage. We believe Mr. Madden possesses a unique balance of multi-cultural
appeal, a strong image identification among both men and women, and a
personality that people of all ages enjoy. We believe that as the Rent-A-Center
name gains in familiarity and national recognition through our advertising
efforts, we will continue to educate the consumer about the rent-to-own
alternative to merchandise purchases as well as solidify our reputation as a
leading provider of high quality branded merchandise. Mr. Madden's agreement
with us expires on March 31, 2003.

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OUR STORES

At December 31, 2001, we operated 2,281 stores in 50 states, Puerto Rico
and the District of Columbia. In addition, our subsidiary ColorTyme franchised
342 stores in 42 states. This information is illustrated by the following table:

Our stores average approximately 4,300 square feet and are located
primarily in strip malls. Because we receive merchandise shipments directly from
vendors, we are able to dedicate approximately 80% of the store space to
showroom floor, and also eliminate warehousing costs.

RENT-A-CENTER STORE OPERATIONS

PRODUCT SELECTION

Our stores offer merchandise from four basic product categories: home
electronics, appliances, computers and furniture and accessories. Our stores
typically have available at any one time approximately 100 of the 150 different
items we offer. Although we seek to ensure our stores maintain sufficient
inventory to offer customers a wide variety of models, styles and brands, we
generally limit inventory to prescribed levels to ensure strict inventory
controls. We seek to provide a wide variety of high quality merchandise to our
customers, and we emphasize high-end products from brand-name manufacturers. For
the year ended December 31, 2001, home

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electronic products accounted for approximately 41% of our store rental revenue,
furniture and accessories for 32%, appliances for 17% and computers for 10%.
Customers may request either new merchandise or previously rented merchandise.
Previously rented merchandise is offered at the same weekly or monthly rental
rate as is offered for new merchandise, but with an opportunity to obtain
ownership of the merchandise after fewer rental payments.

Home electronic products offered by our stores include televisions, DVD
players, home entertainment centers, video cassette recorders and stereos from
top brand manufacturers such as Philips, Sony, JVC, Toshiba and Mitsubishi. We
rent major appliances manufactured by Whirlpool, including refrigerators,
washing machines, dryers, microwave ovens, freezers and ranges. We offer
personal computers from Dell, Compaq and Hewlett Packard. We rent a variety of
furniture products, including dining room, living room and bedroom furniture
featuring a number of styles, materials and colors. We offer furniture made by
Ashley, England and Benchcraft and other top brand manufacturers. Accessories
include pictures, plants, lamps and tables and are typically rented as part of a
package of items, such as a complete room of furniture. Showroom displays enable
customers to visualize how the product will look in their homes and provide a
showcase for accessories.

RENTAL PURCHASE AGREEMENTS

Our customers generally enter into weekly or monthly rental purchase
agreements, which renew automatically upon receipt of each payment. We retain
title to the merchandise during the term of the rental purchase agreement.
Ownership of the merchandise generally transfers to the customer if the customer
has continuously renewed the rental purchase agreement for a period of 12 to 30
months, depending upon the product type, or exercises a specified early purchase
option. Although we do not conduct a formal credit investigation of each
customer, a potential customer must provide store management with sufficient
personal information to allow us to verify their residence and sources of
income. References listed by the customer are contacted to verify the
information contained in the customer's rental purchase order form. Rental
payments are generally made in cash, by money order or debit card. Approximately
85% of our customers pay in the store on a weekly basis. Depending on state
regulatory requirements, we charge for the reinstatement of terminated accounts
or collect a delinquent account fee, and collect loss/damage waiver fees from
customers desiring product protection in case of theft or certain natural
disasters. These fees are standard in the industry and may be subject to
government-specified limits. Please read the section entitled "Government
Regulation."

PRODUCT TURNOVER

A minimum rental term of 18 months is generally required to obtain
ownership of new merchandise. We believe that only approximately 25% of our
initial rental purchase agreements are taken to the full term of the agreement,
although the average total life for each product is approximately 22 months,
which includes the initial rental period, all re-rental periods and idle time in
our system. Turnover varies significantly based on the type of merchandise
rented, with certain consumer electronics products, such as camcorders and video
cassette recorders, generally rented for shorter periods, while appliances and
furniture are generally rented for longer periods. To cover the relatively high
operating expenses generated by greater product turnover, rental purchase
agreements require higher aggregate payments than are generally charged under
other types of purchase plans, such as installment purchase or credit plans.

CUSTOMER SERVICE

We offer same day or 24-hour delivery and installation of our merchandise
at no additional cost to the customer. We provide any required service or repair
without additional charge, except for damage in excess of normal wear and tear.
Repair services are provided through our national network of 22 service centers,
the cost of which may be reimbursed by the vendor if the item is still under
factory warranty. If the product cannot be repaired at the customer's residence,
we provide a temporary replacement while the product is being repaired. The
customer is fully liable for damage, loss or destruction of the merchandise,
unless the customer purchases an optional loss/damage waiver. Most of the
products we offer are covered by a manufacturer's warranty for

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varying periods, which, subject to the terms of the warranty, is transferred to
the customer in the event that the customer obtains ownership.

COLLECTIONS

Store managers use our computerized management information system to track
collections on a daily basis. If a customer fails to make a rental payment when
due, store personnel will attempt to contact the customer to obtain payment and
reinstate the agreement, or will terminate the account and arrange to regain
possession of the merchandise. We attempt to recover the rental items as soon as
possible following termination or default of a rental purchase agreement,
generally by the seventh to tenth day. Collection efforts are enhanced by the
numerous personal and job-related references required of first-time customers,
the personal nature of the relationships between the stores' employees and
customers and the fact that, following a period in which a customer is
temporarily unable to make payments on a piece of rental merchandise and must
return the merchandise, that customer generally may re-rent a piece of
merchandise of similar type and age on the terms the customer enjoyed prior to
that period. Charge-offs due to lost or stolen merchandise, expressed as a
percentage of store revenues, were approximately 2.5% in 2001, 2.5% in 2000,
2.3% in 1999 and 2.5% in 1998.

MANAGEMENT

We organize our network of stores geographically with multiple levels of
management. At the individual store level, each store manager is responsible for
customer and credit relations, delivery and collection of merchandise, inventory
management, staffing, training store personnel and certain marketing efforts.
Three times each week, the store manager is required to audit the idle inventory
on hand and compare the audit to our computer report, with the market manager
performing a similar audit at least once a month. In addition, our individual
store managers track their daily store performance for revenue collected as
compared to the projected performance of their store. Each store manager reports
to a market manager within close proximity who typically oversees six to eight
stores. Typically, a market manager focuses on developing the personnel in his
or her market and on ensuring that all stores meet our quality, cleanliness and
service standards. In addition, a market manager routinely audits numerous areas
of the stores operations, including gross profit per rental agreement, petty
cash, and customer order forms. A significant portion of a market manager's and
store manager's compensation is dependent upon store revenues and profits, which
are monitored by our management reporting system and our tight control over
inventory afforded by our direct shipment practice.

At December 31, 2001, we had 326 market managers who, in turn, reported to
55 regional directors. Regional directors monitor the results of their entire
region, with an emphasis on developing and supervising the market managers in
their region. Similar to the market managers, regional directors are responsible
for ensuring that store managers are following the operational guidelines,
particularly those involving store presentation, collections, inventory levels,
and order verification. The regional directors report to nine senior vice
presidents at our headquarters. The regional directors receive a significant
amount of their compensation based on the profits the stores under their
management generate.

Our executive management team at the home office directs and coordinates
purchasing, financial planning and controls, employee training, personnel
matters and new store site selection. Our executive management team also
evaluates the performance of each region, market and store, including the use of
on-site reviews. All members of our executive management team receive a
significant amount of their total compensation based on the profits generated by
the entire company. As a result, our business strategy emphasizes strict cost
containment.

MANAGEMENT INFORMATION SYSTEMS

Through a licensing agreement with High Touch, Inc., we utilize an
integrated computerized management information and control system. Each store is
equipped with a computer system utilizing point of sale software developed by
High Touch. This system tracks individual components of revenue, each item in
idle and rented inventory, total items on rent, delinquent accounts and other
account information. We electroni-

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cally gather each day's activity report, which provides our executive management
with access to all operating and financial information about any of our stores,
markets or regions and generates management reports on a daily, weekly,
month-to-date and year-to-date basis for each store and for every rental
purchase transaction. The system enables us to track each of our approximately
2.3 million units of merchandise and each of our approximately 1.4 million
rental purchase agreements, which often include more than one unit of
merchandise. In addition, the system performs a daily sweep of available funds
from our stores' depository accounts into our central operating account based on
the balances reported by each store. Our system also includes extensive
management software and report-generating capabilities. The reports for all
stores are reviewed on a daily basis by executive management and unusual items
are typically addressed the following business day. Utilizing the management
information system, our executive management, regional directors, market
managers and store managers closely monitor the productivity of stores under
their supervision according to our prescribed guidelines.

The integration of the management information system developed by High
Touch with our accounting system, developed by Lawson Software, Inc.,
facilitates the production of our financial statements. These financial
statements are distributed monthly to all stores, markets, regions and our
executive management team for their review.

PURCHASING AND DISTRIBUTION

Our executive management determines the general product mix in our stores
based on analyses of customer rental patterns and the introduction of new
products on a test basis. Individual store managers are responsible for
determining the particular product selection for their store from the list of
products approved by executive management. Store and market managers make
specific purchasing decisions for the stores, subject to review by executive
management. All merchandise is shipped by vendors directly to each store, where
it is held for rental. We do not maintain any warehouse space. These practices
allow us to retain tight control over our inventory and, along with our
selection of products for which consistent historical demand has been shown,
reduces the number of obsolete items in our stores.

We purchase the majority of our merchandise from manufacturers, who ship
directly to each store. Our largest suppliers include Ashley, Whirlpool, and
Philips, who accounted for approximately 15.2%, 13.4%, and 11.5% respectively,
of merchandise purchased in 2001. No other supplier accounted for more than 10%
of merchandise purchased during this period. We do not generally enter into
written contracts with our suppliers. Although we expect to continue
relationships with our existing suppliers, we believe that there are numerous
sources of products available, and we do not believe that the success of our
operations is dependent on any one or more of our present suppliers.

MARKETING

We promote the products and services in our stores through direct mail
advertising, radio, television and secondary print media advertisements. Our
advertisements emphasize such features as product and brand-name selection,
prompt delivery and the absence of initial deposits, credit investigations or
long-term obligations. Advertising expense as a percentage of store revenue for
the year ended December 31, 2001 and 2000 was approximately 4.0%. As we obtain
new stores in our existing market areas, the advertising expenses of each store
in the market can be reduced by listing all stores in the same market-wide
advertisement.

Mr. John Madden serves as our national advertising spokesman for the
advertising campaign we launched in April 2000. Mr. Madden appears in our
advertising media used in the campaign, including television and radio
commercials, print, direct response and in-store signage. We believe his
involvement in this campaign assists us in capturing new customers and
establishes a stronger national identity for Rent-A-Center. Mr. Madden's
agreement with us expires on March 31, 2003.

COMPETITION

The rent-to-own industry is highly competitive. According to industry
sources and our estimates, the six largest industry participants account for
approximately 4,700 of the 8,000 rent-to-own stores in the United
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States. We are the largest operator in the rent-to-own industry with 2,281
stores and 342 franchised locations as of December 31, 2001. Our stores compete
with other national and regional rent-to-own businesses, as well as with rental
stores that do not offer their customers a purchase option. With respect to
customers desiring to purchase merchandise for cash or on credit, we also
compete with department stores, credit card companies and discount stores.
Competition is based primarily on store location, product selection and
availability, customer service and rental rates and terms.

COLORTYME OPERATIONS

ColorTyme is our nationwide franchisor of rent-to-own stores. At December
31, 2001, ColorTyme franchised 342 rent-to-own stores in 42 states. These
rent-to-own stores offer high quality durable products such as home electronics,
appliances, computers, and furniture and accessories. During 2001, 31 new
locations were added, 48 were sold, including 45 that we purchased, and five
were closed. During that same period, the number of franchisees operating stores
under the ColorTyme name increased by six.

All but 12 of the ColorTyme franchised stores use ColorTyme's tradenames,
service marks, trademarks, logos, emblems and indicia of origin. These 12 stores
are franchises acquired in the Thorn Americas acquisition and continue to use
the Rent-A-Center name. All stores operate under distinctive operating
procedures and standards. ColorTyme's primary source of revenue 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. As franchisor,
ColorTyme receives royalties of 2.1% to 4.0% of the franchisees' monthly gross
revenue and, generally, an initial fee of between $7,500 per location for
existing franchisees and up to $25,000 per location for new franchisees.

The ColorTyme franchise agreement generally requires the franchised stores
to utilize specific computer hardware and software for the purpose of recording
rentals, sales and other record keeping and central functions. ColorTyme retains
the right to upload and download data, troubleshoot, and retrieve data and
information from the franchised stores' computer systems.

The franchise agreement also requires the franchised stores to exclusively
offer for rent or sale only those brands, types, and models of products that
ColorTyme has approved. The franchised stores are required to maintain an
adequate mix of inventory that consists of approved products for rent as
dictated by ColorTyme policy manuals, and must maintain on display such products
as specified by ColorTyme. ColorTyme negotiates purchase arrangements with
various suppliers it has approved. ColorTyme's largest supplier is Whirlpool,
which accounted for approximately 12.8% of merchandise purchased by ColorTyme in
2001.

ColorTyme is a party to an agreement with Textron Financial Corporation,
who provides financing to qualifying franchisees of ColorTyme. Under this
agreement, in the event of default by the franchisee under agreements governing
this financing and upon the occurrence of certain 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. We guarantee the obligations of ColorTyme
under this agreement.

ColorTyme has established a national advertising fund for the franchised
stores, whereby ColorTyme has the right to collect up to 3% of the monthly gross
revenue from each franchisee as contributions to the fund. Currently, ColorTyme
has set the monthly franchisee contribution at $250 per store per month.
ColorTyme directs the advertising programs of the fund, generally consisting of
advertising in print, television and radio. The franchisees are also required to
expend 3% of their monthly gross revenue on local advertising.

ColorTyme licenses the use of its trademarks to the franchisees under the
franchise agreement. ColorTyme owns the registered trademarks ColorTyme(R),
ColorTyme-What's Right for You(R), and FlexTyme(R), along with certain design
and service marks.

Some of ColorTyme's franchisees may be in locations where they directly
compete with our company-owned stores, which could negatively impact the
business, financial condition and operating results of our company-owned store.

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The ColorTyme franchise agreement provides us a right of first refusal to
purchase the franchise location of a ColorTyme franchisee wishing to exit the
business.

TRADEMARKS

We own various registered trademarks, including Rent-A-Center(R), Renters
Choice(R) and Remco(R). The products held for rent also bear trademarks and
service marks held by their respective manufacturers.

EMPLOYEES

As of March 22, 2002, we had approximately 12,700 employees, of whom 243
are assigned to our headquarters and the remainder of whom are directly involved
in the management and operation of our stores. As of the same date, we had
approximately 19 employees dedicated to ColorTyme, all of whom were employed
full-time. The employees of the ColorTyme franchisees are not employed by us.
None of our employees, including ColorTyme employees, are covered by a
collective bargaining agreement. However, in June 2001 the employees of six of
our stores in New York, New York elected to be represented by the Teamsters
union. We are contesting the validity of this election. We believe relationships
with our employees and ColorTyme's relationships with its employees are
generally good.

GOVERNMENT REGULATION

STATE REGULATION

Currently 47 states and Puerto Rico have legislation regulating rental
purchase transactions. We believe this existing legislation is generally
favorable to us, as it defines and clarifies the various disclosures, procedures
and transaction structures related to the rent-to-own business with which we
must comply. With some variations in individual states, most related state
legislation requires the lessor to make prescribed disclosures to customers
about the rental purchase agreement and transaction, and provides time periods
during which customers may reinstate agreements despite having failed to make a
timely payment. Some state rental purchase laws prescribe grace periods for
non-payment, prohibit or limit certain types of collection or other practices,
and limit certain fees that may be charged. Nine states limit the total rental
payments that can be charged. These limitations, however, do not become
applicable in general unless the total rental payments required under agreements
exceed 2.0 times to 2.4 times of the disclosed cash price or the retail value.

Minnesota, which has a rental purchase statute, and Wisconsin and New
Jersey, which do not have rental purchase statutes, have had court decisions
which treat rental purchase transactions as credit sales subject to consumer
lending restrictions. In response, we have developed and utilize separate rental
agreements which do not provide customers with an option to purchase rented
merchandise in both Minnesota and Wisconsin. In Wisconsin, customers are
provided an opportunity to purchase the rented merchandise in a separate
transaction. In New Jersey, we have provided increased disclosures and longer
grace periods. We operate four stores in Minnesota, 26 stores in Wisconsin and
40 stores in New Jersey. See the section entitled "-- Legal Proceedings."

North Carolina has no rental purchase legislation. However, the retail
installment sales statute in North Carolina recognizes that rental purchase
transactions which provide for more than a nominal purchase price at the end of
the agreed rental period are not credit sales under such statute. We operate 86
stores in North Carolina.

The District of Columbia has recently passed rental purchase legislation
which becomes effective April 2002. We operate 4 stores in the District of
Columbia.

There can be no assurance that new or revised rental purchase laws will not
be enacted or, if enacted, that the laws would not have a material and adverse
effect on us.

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FEDERAL LEGISLATION

No comprehensive federal legislation has been enacted regulating or
otherwise impacting the rental purchase transaction. We do, however, comply with
the Federal Trade Commission recommendations for disclosure in rental purchase
transactions. From time to time, legislation has been introduced in Congress
that would regulate the rental purchase transaction, including legislation that
would subject the rental purchase transaction to interest rate, finance charge
and fee limitations, as well as the Federal Truth in Lending Act. Any adverse
federal legislation, if enacted, could have a material and adverse effect on us.

11

RISK FACTORS

You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing us.
Additional risks not presently known to us or that we currently deem immaterial
may also impair our business operations. Our business, financial condition,
results of operations or cash flows could be materially adversely affected by
any of these risks. The trading price of our common stock could decline due to
any of these risks, and you may lose all or part of your investment.

WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR GROWTH STRATEGY, WHICH COULD
CAUSE OUR FUTURE EARNINGS TO GROW MORE SLOWLY OR EVEN DECREASE.

Our growth strategy could place a significant demand on our management and
our financial and operational resources. This growth strategy is subject to
various risks, including uncertainties regarding the ability to open new stores
and our ability to acquire additional stores on favorable terms. We may not be
able to continue to identify profitable new store locations or underperforming
competitors as we currently anticipate. If we are unable to implement our growth
strategy, our earnings may grow more slowly or even decrease.

IF WE FAIL TO EFFECTIVELY MANAGE OUR GROWTH AND INTEGRATE NEW STORES, OUR
FINANCIAL RESULTS MAY BE ADVERSELY AFFECTED.

The benefits we anticipate from our growth strategy may not be realized.
The addition of new stores, both through store openings and through
acquisitions, requires the integration of our management philosophies and
personnel, standardization of training programs, realization of operating
efficiencies and effective coordination of sales and marketing and financial
reporting efforts. In addition, acquisitions in general are subject to a number
of special risks, including adverse short-term effects on our reported operating
results, diversion of management's attention and unanticipated problems or legal
liabilities. Further, a newly opened store generally does not attain positive
cash flow during its first year of operations.

THERE ARE LEGAL PROCEEDINGS PENDING AGAINST US SEEKING MATERIAL DAMAGES. THE
COSTS WE INCUR IN DEFENDING OURSELVES OR ASSOCIATED WITH SETTLING ANY OF THESE
PROCEEDINGS, AS WELL AS A MATERIAL FINAL JUDGMENT OR DECREE AGAINST US, COULD
MATERIALLY ADVERSELY AFFECT OUR FINANCIAL CONDITION BY REQUIRING THE PAYMENT OF
THE SETTLEMENT AMOUNT, A JUDGMENT OR THE POSTING OF A BOND.

Some lawsuits against us involve claims that our rental agreements
constitute installment sales contracts, violate state usury laws or violate
other state laws enacted to protect consumers. We are also defending class
action lawsuits alleging we violated the securities laws and have entered into a
proposed settlement covering claims associated with three alleged class actions
asserting gender discrimination in our employment practices. Because of the
uncertainties associated with litigation, we cannot estimate for you our
ultimate liability for these matters, if any. The failure to pay any judgment
would be a default under our senior credit facilities and the indentures
governing our outstanding subordinated notes.

OUR DEBT AGREEMENTS IMPOSE RESTRICTIONS ON US WHICH MAY LIMIT OR PROHIBIT US
FROM ENGAGING IN CERTAIN TRANSACTIONS. IF A DEFAULT WERE TO OCCUR, OUR LENDERS
COULD ACCELERATE THE AMOUNTS OF DEBT OUTSTANDING, AND HOLDERS OF OUR SECURED
INDEBTEDNESS COULD FORCE US TO SELL OUR ASSETS TO SATISFY ALL OR A PART OF WHAT
IS OWED.

Covenants under our senior credit facilities and the indentures governing
our outstanding subordinated notes restrict our ability to engage in various
operational matters as well as require us to maintain specified financial ratios
and satisfy specified financial tests. Our ability to meet these financial
ratios and tests may be affected by events beyond our control. These
restrictions could limit our ability to obtain future financing, make needed
capital expenditures or other investments, repurchase our outstanding debt or
equity, withstand a future downturn in our business or in the economy, dispose
of operations, engage in mergers, acquire additional stores or otherwise conduct
necessary corporate activities. Various transactions that we may view as
important opportunities, such as specified acquisitions, are also subject to the
consent of lenders under the

12

senior credit facilities, which may be withheld or granted subject to conditions
specified at the time that may affect the attractiveness or viability of the
transaction.

If a default were to occur, the lenders under our senior credit facilities
could accelerate the amounts outstanding under the credit facilities and our
other lenders could declare immediately due and payable all amounts borrowed
under other instruments that contain certain provisions for cross-acceleration
or cross-default. In addition, the lenders under these agreements could
terminate their commitments to lend to us. If the lenders under these agreements
accelerated the repayment of borrowings, we may not have sufficient liquid
assets at that time to repay the amounts then outstanding under our indebtedness
or be able to find additional alternative financing. Even if we could obtain
additional alternative financing, the terms of the financing may not be
favorable or acceptable to us.

The existing indebtedness under our senior credit facilities is secured by
substantially all of our assets. Should a default or acceleration of this
indebtedness occur, the holders of this indebtedness could sell the assets to
satisfy all or a part of what is owed. Our senior credit facilities also contain
provisions prohibiting the modification of our outstanding subordinated notes,
as well as limiting our ability to refinance such notes.

A CHANGE OF CONTROL COULD ACCELERATE OUR OBLIGATION TO PAY OUR OUTSTANDING
INDEBTEDNESS, AND WE MAY NOT HAVE SUFFICIENT LIQUID ASSETS TO REPAY THESE
AMOUNTS.

Under our senior credit facilities, an event of default would result if
Apollo Management IV, L.P. and its affiliates cease to own at least 50% of the
amount of our voting stock that they owned on August 5, 1998. An event of
default would also result under the senior credit facilities if a third party
became the beneficial owner of 33.33% or more of our voting stock at a time when
certain permitted investors owned less than the third party or Apollo owned less
than 35% of the voting stock owned by the permitted investors. As of December
31, 2001, we are required to pay under our senior credit facilities $1.9 million
in each of 2002 and 2003, $26.4 million in 2004, $100.0 million in 2005 and
$297.9 million after 2005. These payments reduce our operating cash flow. If the
lenders under our debt instruments accelerated these obligations, we may not
have sufficient liquid assets to repay amounts outstanding under these
agreements.

Under the indentures governing our outstanding subordinated notes, in the
event that a change in control occurs, we may be required to offer to purchase
all of our outstanding subordinated notes at 101% of their original aggregate
principal amount, plus accrued interest to the date of repurchase. A change in
control also would result in an event of default under our senior credit
facilities, which could then be accelerated by our lenders, and would require us
to offer to redeem our Series A preferred stock.

RENT-TO-OWN TRANSACTIONS ARE REGULATED BY LAW IN MOST STATES. ANY ADVERSE CHANGE
IN THESE LAWS OR THE PASSAGE OF ADVERSE NEW LAWS COULD EXPOSE US TO LITIGATION
OR REQUIRE US TO ALTER OUR BUSINESS PRACTICES.

As is the case with most businesses, we are subject to various governmental
regulations, including specifically in our case, regulations regarding
rent-to-own transactions. There are currently 47 states that have passed laws
regulating rental purchase transactions and another state that has a retail
installment sales statute that excludes rent-to-own transactions from its
coverage if certain criteria are met. These laws generally require certain
contractual and advertising disclosures. They also provide varying levels of
substantive consumer protection, such as requiring a grace period for late fees
and contract reinstatement rights in the event the rental purchase agreement is
terminated. The rental purchase laws of nine states limit the total amount of
rentals that may be charged over the life of a rental purchase agreement.
Several states also effectively regulate rental purchase transactions under
other consumer protection statutes. We are currently subject to outstanding
judgments and other litigation alleging that we have violated some of these
statutory provisions.

Although there is no comprehensive federal legislation regulating
rental-purchase transactions, adverse federal legislation may be enacted in the
future. From time to time, legislation has been introduced in Congress seeking
to regulate our business. In addition, various legislatures in the states where
we currently do business may adopt new legislation or amend existing legislation
that could require us to alter our business practices.
13

OUR BUSINESS DEPENDS ON A LIMITED NUMBER OF KEY PERSONNEL, WITH WHOM WE DO NOT
HAVE EMPLOYMENT AGREEMENTS. THE LOSS OF ANY ONE OF THESE INDIVIDUALS COULD
DISRUPT OUR BUSINESS.

Our continued success is highly dependent upon the personal efforts and
abilities of our senior management, including Mark E. Speese, our Chairman of
the Board and Chief Executive Officer, Mitchell E. Fadel, our President, and
Dana F. Goble and David A. Kraemer, our Executive Vice-Presidents of Operations.
We do not have employment contracts with or maintain key-man insurance on the
lives of any of these officers and the loss of any one of them could disrupt our
business.

A SMALL GROUP OF OUR DIRECTORS AND THEIR AFFILIATES HAVE SIGNIFICANT INFLUENCE
ON ALL STOCKHOLDER VOTES. AS A RESULT, THEY WILL CONTINUE TO HAVE THE ABILITY TO
EXERCISE EFFECTIVE CONTROL OVER THE OUTCOME OF ACTIONS REQUIRING THE APPROVAL OF
OUR STOCKHOLDERS, INCLUDING POTENTIAL ACQUISITIONS, ELECTIONS OF OUR BOARD OF
DIRECTORS AND SALES OR CHANGES IN CONTROL.

Mr. Speese, our Chairman and Chief Executive Officer, Apollo Investment
Fund IV, L.P. and Apollo Overseas Partners IV, L.P. are parties to a
stockholders agreement relating to the voting of our securities held by them at
meetings of our stockholders. Approximately 30.4% of our voting stock on a fully
diluted basis, assuming the conversion of our Series A preferred stock and all
outstanding options, is controlled by Mr. Speese and Apollo.

OUR ORGANIZATIONAL DOCUMENTS, SERIES A PREFERRED STOCK AND DEBT INSTRUMENTS
CONTAIN PROVISIONS THAT MAY PREVENT OR DETER ANOTHER GROUP FROM PAYING A PREMIUM
OVER THE MARKET PRICE TO OUR STOCKHOLDERS TO ACQUIRE OUR STOCK.

Our organizational documents contain provisions that classify our board of
directors, authorize our board of directors to issue blank check preferred stock
and establish advance notice requirements on our stockholders for director
nominations and actions to be taken at annual meetings of the stockholders. In
addition, as a Delaware corporation, we are subject to Section 203 of the
Delaware General Corporation Law relating to business combinations. Our senior
credit facilities, the indentures governing our subordinated notes and our
Series A preferred stock certificate of designations each contain various change
of control provisions which, in the event of a change of control, would cause a
default under those provisions. These provisions and arrangements could delay,
deter or prevent a merger, consolidation, tender offer or other business
combination or change of control involving us that could include a premium over
the market price of our common stock that some or a majority of our stockholders
might consider to be in their best interests.

IF WE ARE REQUIRED TO ACCELERATE THE WRITE OFF OF SOME OR ALL OF OUR GOODWILL,
OUR ASSETS, AS WELL AS THE FINANCIAL OPERATING RESULTS IN THE PERIOD WE WRITE
OFF THE GOODWILL, WILL BE SUBSTANTIALLY REDUCED, WHICH COULD RESULT IN A LOWER
MARKET PRICE FOR OUR STOCK.

As of December 31, 2001, we had approximately $708.7 million in goodwill on
our balance sheet, representing approximately 44.1% of our total assets as of
that date. Under new accounting rules relating to purchase accounting, we no
longer amortize goodwill and are required to periodically conduct an impairment
review and write down goodwill to the extent of any impairment. A write down of
goodwill would decrease our earnings or result in an accounting loss, which
could cause our stock price to decline.

OUR STOCK PRICE IS VOLATILE, AND YOU MAY NOT BE ABLE TO RECOVER YOUR INVESTMENT
IF OUR STOCK PRICE DECLINES.

The stock price of our common stock has been volatile and can be expected
to be significantly affected by factors such as:

- quarterly variations in our results of operations, which may be impacted
by, among other things, when and how many stores we acquire or open;

- quarterly variations in our competitors' results of operations;

- announcements of new product offerings by us or our competitors;
14

- changes in earnings estimates or buy/sell recommendations by financial
analysts;

- the stock price performance of comparable companies; and

- general market conditions or market conditions specific to particular
industries.

15

ITEM 2. PROPERTIES

We lease space for all of our stores, as well as our corporate and regional
offices, under operating leases expiring at various times through 2010. Most of
these leases contain renewal options for additional periods ranging from three
to five years at rental rates adjusted according to agreed-upon formulas. Both
our headquarters and ColorTyme's headquarters are located at 5700 Tennyson
Parkway, Plano, Texas, and consist of approximately 77,158 and 5,116 square feet
devoted to our operations and ColorTyme's operations, respectively. Store sizes
range from approximately 1,400 to 17,000 square feet, and average approximately
4,300 square feet. Approximately 80% of each store's space is generally used for
showroom space and 20% for offices and storage space.

We believe that suitable store space generally is available for lease and
we would be able to relocate any of our stores without significant difficulty
should we be unable to renew a particular lease. We also expect additional space
is readily available at competitive rates to open new stores. Under various
federal and state laws, lessees may be liable for environmental problems at
leased sites even if they did not create, contribute to, or know of the problem.
We are not aware of and have not been notified of any violations of federal,
state or local environmental protection or health and safety laws, but cannot
guarantee that we will not incur material costs or liabilities under these laws
in the future.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we, along with our subsidiaries, are party to various
legal proceedings arising in the ordinary course of business. Except as
described below, we are not currently a party to any material litigation.

Colon v. Thorn Americas, Inc. The plaintiffs filed this class action in
November 1997 in New York state court. This matter was assumed by us in
connection with the Thorn Americas acquisition, and appropriate purchase
accounting adjustments were made for such contingent liabilities. The plaintiffs
acknowledge that rent-to-own transactions in New York are subject to the
provisions of New York's Rental Purchase Statute but contend the Rental Purchase
Statute does not provide Thorn Americas immunity from suit for other statutory
violations. Plaintiffs allege Thorn Americas has a duty to disclose effective
interest under New York consumer protection laws, and seek damages and
injunctive relief for Thorn Americas' failure to do so. This suit also alleges
violations related to excessive and unconscionable pricing, late fees,
harassment, undisclosed charges, and the ease of use and accuracy of its payment
records. In their prayers for relief, the plaintiffs have requested the
following:

- class certification;

- injunctive relief requiring Thorn Americas to (A) cease certain marketing
practices, (B) price their rental purchase contracts in certain ways, and
(C) disclose effective interest;

- unspecified compensatory and punitive damages;

- rescission of the class members contracts;

- an order placing in trust all moneys received by Thorn Americas in
connection with the rental of merchandise during the class period;

- treble damages, attorney's fees, filing fees and costs of suit;

- pre- and post-judgment interest; and

- any further relief granted by the court.

The plaintiffs have not alleged a specific monetary amount with respect to
their request for damages.

The proposed class originally included all New York residents who were
party to Thorn Americas' rent-to-own contracts from November 26, 1991 through
November 26, 1997. In her class certification briefing, Plaintiff acknowledged
her claims under the General Business Law in New York are subject to a three
year statute of limitations, and is now requesting a class of all persons in New
York who paid for rental merchandise from us since November 26, 1994. We are
vigorously defending this action. In November 2000,
16

following interlocutory appeal by both parties from the denial of cross-motions
for summary judgment, we obtained a favorable ruling from the Appellate Division
of the State of New York, dismissing Plaintiff's claims based on the alleged
failure to disclose an effective interest rate. Plaintiff's other claims were
not dismissed. Plaintiff moved to certify a state-wide class in December 2000.
Plaintiff's class certification motion was heard by the court on November 7,
2001, at which time the court took the motion under advisement. We are
vigorously opposing class certification. Although there can be no assurance that
our position will prevail, or that we will be found not to have any liability,
we believe the decision by the Appellate Division regarding interest rate
disclosure to be a significant and favorable development in this matter.

Wisconsin Attorney General Proceeding. On August 4, 1999, the Wisconsin
Attorney General filed suit against us and our subsidiary ColorTyme in the
Circuit Court of Milwaukee County, Wisconsin, alleging that our rent-to-rent
transaction violates the Wisconsin Consumer Act and the Wisconsin Deceptive
Advertising Statute. The Attorney General claims that our rent-to-rent
transaction, coupled with the opportunity afforded our customers to purchase
rental merchandise under what we believe is a separate transaction, is a
disguised credit sale subject to the Wisconsin Consumer Act. Accordingly, the
Attorney General alleges that we have failed to disclose credit terms,
misrepresented the terms of the transaction and engaged in unconscionable
practices. We currently operate 26 stores in Wisconsin.

The Attorney General seeks injunctive relief, restoration of any losses
suffered by any Wisconsin consumer harmed and civil forfeitures and penalties in
amounts ranging from $50 to $10,000 per violation. The Attorney General's claim
for monetary penalties applies to at least 9,060 transactions through September
30, 2001. On October 31, 2001, the Attorney General filed a motion for summary
judgment on several counts in the complaint, including the principal claim that
our rent-to-rent transaction is governed by the Wisconsin Consumer Act. Our
response was filed on December 17, 2001. A pre-trial conference and hearing on
the motion for summary judgment took place on January 22, 2002, at which time
the court ruled in favor of the Attorney General's motion for summary judgment
on the liability issues and set the case for trial on damages for February 2003.

Since the filing of this suit, we have attempted to negotiate a mutually
satisfactory resolution of these claims with the Wisconsin Attorney General's
office, including the consideration of possible changes in our business
practices in Wisconsin. To date, we have not been successful, but our efforts
are ongoing. If we are unable to negotiate a settlement with the Attorney
General, we intend to litigate the suit. We cannot assure you, however, that the
outcome of this matter will not have a material adverse impact on our financial
condition, results of operations or cash flows.

Gender Discrimination Actions. We are subject to three class action
lawsuits claiming gender discrimination. As described below, we have settled in
principle all of the claims covered by these three actions.

In September 1999, an action was filed against us in federal court in the
Western District of Tennessee by the U.S. Equal Employment Opportunity
Commission, alleging that we engaged in gender discrimination with respect to
four named females and other unnamed female employees and applicants within our
Tennessee and Arkansas region. The allegations underlying this EEOC action
involve charges of wrongful termination and denial of promotion, disparate
impact and failure to hire. The group of individuals on whose behalf EEOC seeks
relief is approximately seventy individuals.

In August 2000, a putative nationwide class action was filed against us in
federal court in East St. Louis, Illinois by Claudine Wilfong and eighteen other
plaintiffs, alleging that we engaged in class-wide gender discrimination
following our acquisition of Thorn Americas. The allegations underlying Wilfong
involve charges of wrongful termination, constructive discharge, disparate
treatment and disparate impact. In addition, the EEOC filed a motion to
intervene on behalf of the plaintiffs, which the court granted on May 14, 2001.
On December 27, 2001, the court granted the plaintiff's motion for class
certification.

In December 2000, similar suits filed by Margaret Bunch and Tracy Levings
in federal court in the Western District of Missouri were amended to allege
class action claims similar to those in Wilfong. In November 2001, we announced
that we had reached an agreement in principle for the settlement of the Bunch
matter, which is subject to court approval. Under the terms of the proposed
settlement, we agreed to pay an

17

aggregate of $12.25 million to the agreed upon class, plus plaintiffs' attorneys
fees as determined by the court and costs to administer the settlement subject
to an aggregate cap of $3.15 million. On November 29, 2001, the court in Bunch
granted preliminary approval of the settlement and set a fairness hearing on
such settlement for March 6, 2002.

In early March 2002, we reached an agreement in principle with the
plaintiffs attorneys in Wilfong and the EEOC to resolve the Wilfong suit and the
Tennessee EEOC action. Under the terms of the proposed settlement, while not
admitting any liability, we would pay an aggregate of $47.0 million to
approximately 5,300 female employees and a yet to be determined number of female
applicants who were employed by or applied for employment with us for a period
commencing no later than April 19, 1998 through the future date of the notice to
the applicable class, plus up to $375,000 in settlement administrative costs.
The $47.0 million payment includes the $12.25 million payment discussed in
connection with the Bunch settlement. Attorney fees for class counsel in Wilfong
would be paid out of the $47.0 million settlement fund in an amount to be
determined by the court. Members of the class who do not wish to participate in
the settlement would be given the opportunity to opt out of the settlement.

The proposed agreement contemplates the settlement would be subject to a
four-year consent decree, which could be extended by the court for an additional
one year upon a showing of good cause. Also, under the proposed settlement, we
agreed to augment our human resources department and our internal employee
complaint procedures; enhance our gender anti-discrimination training for all
employees; hire a consultant mutually acceptable to the parties for two years to
advise us on employment matters; provide certain reports to the EEOC during the
period of the consent decree; seek qualified female representation on our board
of directors; publicize our desire to recruit, hire and promote qualified women;
offer to fill job vacancies within our regional markets with qualified class
members who reside in those markets and express an interest in employment by us
to the extent of 10% of our job vacancies in such markets over a fifteen month
period; and to take certain other steps to improve opportunities for women. We
initiated many of the above programs prior to entering into the proposed
settlement.

Under the proposed agreement, we have the right to terminate the settlement
under certain circumstances, including in the event that more than sixty class
members elect to opt out of the settlement.

The proposed settlement contemplates that the Bunch case will be dismissed
with prejudice once such settlement becomes final. At the parties' request, the
court in the Bunch case stayed the proceedings in that case, including
postponing the fairness hearing previously scheduled for March 6, 2002. We
anticipate the Memphis federal court will stay the Tennessee EEOC action as
well.

The terms of the proposed settlement are subject to the parties entering
into a definitive settlement agreement and court approval. While we believe the
proposed settlement is fair, we cannot assure you that the settlement will be
approved by the court in its present form.

Terry Walker, et. al. v. Rent-A-Center, Inc., et. al.; Chaim Klein, et. al.
v. Rent-A-Center, Inc., et. al.; John Farrar, et. al. v. Rent-A-Center, Inc.,
et. al. On January 4, 2002, a putative class action was filed against us and
certain of our current and former officers and directors by Terry Walker in
federal court in Texarkana, Texas. The complaint alleges that the defendants
violated Section 10(b) and/or Section 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder by issuing false and misleading
statements and omitting material facts regarding our financial performance and
prospects for the third and fourth quarters of 2001. The complaint purports to
be brought on behalf of all purchasers of our common stock from April 25, 2001
through October 8, 2001 and seeks damages in unspecified amounts. Complaints
have also been filed by Chaim Klein and John Farrar in Texarkana, Texas alleging
similar claims. We believe that these claims are without merit and intend to
vigorously defend ourselves. However, we cannot assure you that we will be found
to have no liability in this matter.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

18

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock has been listed on the Nasdaq Stock Market(R) under the
symbol "RCII" since January 25, 1995, the date we commenced our initial public
offering. The following table sets forth, for the periods indicated, the high
and low sales price per share of the common stock as reported.

As of March 22, 2002, there were approximately 47 record holders of our
common stock.

We have not paid any cash dividends since the time of our initial public
offering. Our senior credit facility currently prohibits the payment of cash
dividends on our common stock and preferred stock and the indentures governing
our subordinated notes place restrictions on our ability to do so. We do not
anticipate paying cash dividends on our common stock in the foreseeable future.

We have not paid any cash dividends on our Series A preferred stock to
date. Under the terms of the certificate of designations governing our Series A
preferred stock, we may pay dividends on our Series A preferred stock, at our
option, in cash or additional shares of Series A preferred stock until August
2003, after which time the dividends are payable in cash. Since the time of the
issuance of our Series A preferred stock, we have paid the required dividends in
additional shares of Series A preferred stock. These additional shares are
issued under the same terms and with the same conversion ratio as were the
shares of our Series A preferred stock issued in August 1998. Accordingly, the
shares of Series A preferred stock issued as a dividend are convertible into our
common stock at a conversion price of $27.935. Based on a liquidation preference
of $292,434,000 as of December 31, 2001, the Series A preferred stock was
convertible into 10,468,373 shares of common stock. Our senior credit facilities
agreement allows us to pay cash dividends on our Series A preferred stock
beginning in August 2003 so long as we are not in default under that agreement.
Cash dividend payments are also subject to the restrictions in the indentures
governing our subordinated notes. These restrictions in the indentures would not
currently prohibit the payment of cash dividends.

Any change in our dividend policy, including our dividend policy on our
Series A preferred stock, will be made at the discretion of our Board of
Directors and will depend on a number of factors, including future earnings,
capital requirements, contractual restrictions, financial condition, future
prospects and any other factors our Board of Directors may deem relevant. You
should read the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" discussed later in this report.

19

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data presented below for the five years ended
December 31, 2001 have been derived from our consolidated financial statements
as audited by Grant Thornton LLP, independent certified public accountants. The
historical financial data are qualified in their entirety by, and should be read
in conjunction with, the financial statements and the notes thereto, the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and other financial information included in this report.

In May and August 1998, we completed the acquisitions of Central Rents and
Thorn Americas, respectively, both of which affect the comparability of the 1998
historical financial and operating data for the periods presented.

- ---------------

(1) Includes the effects of a pre-tax legal reversion of $22.4 million
associated with the 1999 settlement of three class action lawsuits in the
state of New Jersey.

(2) Includes the effects of a pre-tax legal settlement of $52.0 million
associated with the 2001 settlement of class action lawsuits in the states
of Missouri, Illinois, and Tennessee.

(3) Comparable store revenue for each period presented includes revenues only of
stores open throughout the full period and the comparable prior period.

21

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

We are the largest rent-to-own operator in the United States with an
approximate 29% market share based on store count. At December 31, 2001, we
operated 2,281 company-owned stores in 50 states, the District of Columbia and
Puerto Rico. Our subsidiary, ColorTyme, is a national franchisor of rent-to-own
stores. At December 31, 2001, ColorTyme had 342 franchised stores in 42 states,
330 of which operated under the ColorTyme name and 12 stores of which operated
under the Rent-A-Center name. Our stores offer high quality durable products
such as home electronics, appliances, computers, and furniture and accessories
under flexible rental purchase agreements that 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 significant growth
since our formation, particularly due to the Thorn Americas acquisition, 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.

If a change in control occurs, we may be required to offer to repurchase
all of our outstanding senior subordinated notes at 101% of their principal
amount, plus accrued interest to the date of repurchase. Our senior credit
facilities restrict our ability to repurchase our senior subordinated notes,
including in the event of a change in control. In addition, a change in control
would result in an event of default under our senior credit facilities, which
could then be accelerated by our lenders, and would require us to offer to
redeem our Series A preferred stock. 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, all of our senior subordinated
notes and for the redemption of our Series A preferred stock, or that we would
be able to obtain financing to do so on favorable terms, if at all.

22

FORWARD-LOOKING STATEMENTS

The statements, other than statements of historical facts, included in this
report are forward-looking statements. Forward-looking statements 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 such expectations
will occur. Our actual future performance could differ materially from such
statements. Factors that could cause or contribute to such differences include,
but are not limited to:

- uncertainties regarding the ability to open new stores;

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

- our ability to enhance the performance of these acquired stores;

- our ability to control store level costs and implement our margin
enhancement initiatives;

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

- the results of our litigation;

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

- interest rates;

- our ability to collect on our rental purchase agreements;

- our ability to effectively hedge interest rates on our outstanding debt;

- changes in our effective tax rate; and

- the other risks detailed from time to time in our Securities and Exchange
Commission reports.

Additional factors that could cause our actual results to differ materially
from our expectations are discussed under the section entitled "Risk Factors"
and elsewhere in this report. 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.

CRITICAL ESTIMATES, UNCERTAINTIES OR ASSESSMENTS IN OUR FINANCIAL STATEMENTS

The preparation of our financial statements in conformity with generally
accepted accounting principles 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 our 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 monitored by us
and periodically adjusted as circumstances warrant. For instance, our liability
for self-insurance 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.

23

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 I, Item 3 "Legal Proceedings" and the notes to our consolidated financial
statements, 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
gender discrimination 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. Disclosure is made, when determinable, of the additional possible
amount of loss on these claims, or if such estimate cannot be made, that fact is
disclosed. 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. We do not suggest that other general risk factors,
such as those discussed elsewhere in this report 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.

SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are summarized below and in Note A to
our consolidated financial statements included elsewhere herein.

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.

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.

24

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 the excess of purchase price over the fair
market value of acquired assets and liabilities. In July 2001, the Financial
Accounting Standards Board issued SFAS 142, Goodwill and Intangible Assets,
which revises the accounting for purchased goodwill and intangible assets. Under
SFAS 142, goodwill and intangible assets with indefinite lives acquired after
June 30, 2001 will not be amortized. Effective January 1, 2002, all previously
recognized goodwill and intangible assets with indefinite lives will no longer
be subject to amortization. Also, effective January 1, 2002, goodwill and
intangible assets with indefinite lives will be tested for impairment annually,
and in the event of an impairment indicator.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, historical
Consolidated Statements of Earnings data as a percentage of total store and
franchise revenues.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2001 AND 2000

Store Revenue. Total store revenue increased by $205.2 million, or 13.3%,
to $1,749.1 million for 2001 from $1,543.9 million for 2000. The increase in
total store revenue was primarily attributable to growth in same store revenues
during 2001 as well as incremental revenues from the opening of 76 stores and
the acquisition of 95 stores in 2001. Same store revenues represent those
revenues earned in stores that were operated by us for the entire years ending
December 31, 2001 and 2000. Same store revenues increased by $111.6 million, or
8.0%, to $1,501.7 million for 2001 from $1,390.1 million in 2000. This
improvement was primarily attributable to an increase in the number of customers
served (approximately 407 per store as of December 31, 2001 vs. approximately
391 per store as of December 31, 2000 in same stores open), the number of
agreements on rent (approximately 624 per store as of December 31, 2001 vs.
approximately

25

597 per store as of December 31, 2000 in same stores open), as well as revenue
earned per agreement on rent (approximately $95 per month per agreement for 2001
vs. approximately $92 per month per agreement for 2000). This increase in
revenue was partially offset by loss of revenues associated with the divestiture
or consolidation of 48 stores in 2001.

Franchise Revenue. Total franchise revenue increased by $1.7 million, or
2.9%, to $59.5 million for 2001 from $57.8 million in 2000. This increase was
primarily attributable to an increase in merchandise sales to franchise
locations during 2001 as compared to 2000, partially offset by a decrease in the
number of franchised locations in 2001 as compared to 2000.

Depreciation of Rental Merchandise. Depreciation of rental merchandise
increased by $43.9 million, or 14.7%, to $343.2 million for 2001 from $299.3
million for 2000. This increase was primarily attributable to an increase in
rental and fee revenue of $191.2 million, or 13.1%, to $1,650.9 million for 2001
from $1,459.7 for 2000. Depreciation of rental merchandise expressed as a
percentage of store rentals and fees revenue increased to 20.8% in 2001 from
20.5% in 2000. This increase is a result of an increase in the number of stores
acquired in 2001 of 95 from 74 in 2000, and in-store promotions made during the
third quarter of 2001, which included a reduction in the rates and terms on
certain rental agreements. These in-store promotions caused depreciation to be a
greater percentage of store rentals and fees revenue on those promotional items
rented.

Cost of Merchandise Sold. Cost of merchandise sold increased by $7.2
million, or 11.0%, to $72.5 million for 2001 from $65.3 million in 2000. This
increase was a result of an increase in the number of items sold in 2001,
primarily in the third and fourth quarters, as compared to 2000, resulting from
a reduction in the rates and terms on certain rental agreements beginning in the
third quarter of 2001.

Salaries and Other Expenses. Salaries and other expenses expressed as a
percentage of total store revenue increased to 58.3% for 2001 from 56.1% for
2000. This increase was primarily attributable to the infrastructure expenses
and costs associated with the opening of new stores under our store growth
initiatives, such as labor and recruiting costs for training centers as well as
additional middle and senior management personnel, and increases in advertising,
store level labor, insurance, and other operating expenses in 2001 over 2000.

Franchise Cost of Merchandise Sold. Franchise cost of merchandise sold
increased by $1.5 million, or 3.1%, to $51.2 million for 2001 from $49.7 in
2000. This increase is a direct result of an increase in merchandise sales to
franchise locations in 2001 as compared to 2000.

General and Administrative Expenses. General and administrative expenses
expressed as a percent of total revenue increased slightly to 3.1% in 2001 from
3.0% in 2000. This increase is primarily attributable to an increase in home
office labor and other overhead expenses for 2001 as compared to 2000.

Amortization of Intangibles. Amortization of intangibles increased by $1.9
million, or 6.7%, to $30.2 million for 2001 from $28.3 million in 2000. This
increase was primarily attributable to the amortization of additional goodwill
associated with the acquisition of 95 stores acquired in 2001. Under SFAS 142
discussed later, amortization of goodwill ceased effective January 1, 2002.
Amortization expense for other intangible assets, however, is expected to be
approximately $2.2 million for 2002, based on intangible assets other than
goodwill as of December 31, 2001.

Operating Profit. Operating profit decreased by $82.4 million, or 30.9%,
to $184.6 million for 2001 from $267.0 million for 2000. Excluding the pre-tax
effect of the class action litigation settlements of $16.0 million recorded in
the third quarter of 2001 and $36.0 million recorded in the fourth quarter of
2001, as well as the class action litigation settlement refund of $22.4 million
received in the second quarter of 2000, operating profit decreased by $8.0
million, or 3.3%, to $236.6 million for the year ended December 31, 2001 from
$244.6 million for the year ended December 31, 2000. Operating profit as a
percentage of total revenue decreased to 13.1% for the year ended December 31,
2001 before the pre-tax class action litigation settlement charges of $52.0
million, from 15.3% for the year ended December 31, 2000 before the pre-tax
class action litigation settlement refund of $22.4 million. The decrease in
operating profit before the effects of the class action litigation as a
percentage of total revenue is primarily attributable to costs incurred with the
opening of 76 new stores in 2001 and losses incurred for those stores in their
initial months of operations, increases in
26

advertising, store level labor, insurance, utility, and other operating expenses
in 2001 as compared to 2000, and lower gross profit margins in the third and
fourth quarter of 2001 resulting from in store promotions whereby rates and
terms were reduced on certain rental agreements. These costs were partially
offset by an increase in overall store revenue for 2001 and the implementation
of expense management efforts in the fourth quarter of 2001.

Net Earnings. Net earnings were $66.2 million for the year ended December
31, 2001, and $103.0 million for the year ended December 31, 2000. Before the
after-tax effect of the $52.0 million class action litigation settlement charges
recorded in 2001 and the $22.4 million class action litigation settlement refund
received in the second quarter of 2000, net earnings increased by $6.2 million,
or 6.8%, to $97.5 million for the year ended December 31, 2001, from $91.3
million for the year ended December 31, 2000. This increase, excluding the after
tax effect of the class action litigation settlement adjustments, is primarily
attributable to growth in total revenues and reduced interest expenses resulting
from a reduction in outstanding debt from our May 2001 equity offering and
December 2001 debt offering, partially offset by the increased expenses incurred
in connection with the opening of 76 new stores in 2001, increases in operating
expenses and lower gross profit margins in the third and fourth quarters of
2001.

Preferred Dividends. Dividends on our Series A preferred stock are payable
quarterly at an annual rate of 3.75%.

We account for shares of preferred stock distributed as dividends in-kind
at the greater of the stated value or the value of the common stock obtainable
upon conversion on the payment date. Preferred dividends increased by $5.0
million, or 47.9%, to $15.4 million for the year ended December 31, 2001 as
compared to $10.4 million for the year ended December 31, 2000. This increase is
a result of more shares of Series A Preferred stock outstanding in 2001 as
compared to 2000.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2000 AND 1999

Store Revenue. Total store revenue increased by $182.3 million, or 13.4%,
to $1,543.9 million for 2000 from $1,361.6 million for 1999. The increase in
total store revenue is directly attributable to the success of our efforts on
improving store operations through:

- increasing the average price per agreement on rent by upgrading our
rental merchandise, primarily at newly acquired stores;

- increasing the number of agreements on rent;

- increasing the customer base; and

- incremental revenues through acquisitions.

Same store revenues increased by $161.2 million, or 12.6%, to $1,444.1
million for 2000 from $1,282.9 million in 1999. Same store revenues represent
those revenues earned in stores that were operated by us for the entire years
ending December 31, 2000 and 1999. This improvement was primarily attributable
to an increase in the number of customers served, the number of agreements on
rent, as well as revenue earned per agreement on rent.

Franchise Revenue. Total franchise revenue increased by $2.2 million, or
3.9%, to $57.8 million for 2000 from $55.6 million in 1999. This increase was
primarily attributable to an increase in the sale of rental merchandise to
franchisees resulting from growth in the franchise store operations.

Depreciation of Rental Merchandise. Depreciation of rental merchandise
increased by $33.8 million, or 12.7%, to $299.3 million for 2000 from $265.5
million for 1999. Depreciation of rental merchandise expressed as a percentage
of store rentals and fees revenue decreased from 20.9% in 1999 to 20.5% in 2000.
This decrease is primarily attributable to the successful implementation of our
pricing strategies and inventory management practices in newly acquired stores.

Cost of Merchandise Sold. Cost of merchandise sold decreased by $8.7
million, or 11.7%, to $65.3 million for 2000 from $74.0 million in 1999. This
decrease was a direct result of fewer cash sales of product in
27

2000 as compared to 1999. During 1999, we focused our efforts on increasing the
amount of merchandise sales to reduce certain items acquired in the Thorn
Americas and Central Rents acquisitions that were not components of our normal
merchandise strategy.

Salaries and Other Expenses. Salaries and other expenses expressed as a
percentage of total store revenue decreased to 56.1% for 2000 from 56.6% for
1999. This decrease is a result of the leveraging of our fixed and semi-fixed
costs such as labor, advertising and occupancy over a larger revenue base.
Expenses included in the salaries and other category are items such as labor,
delivery, service, utility, advertising, and occupancy costs.

Franchise Cost of Merchandise Sold. Franchise cost of merchandise sold
increased by $1.8 million, or 3.8%, to $49.7 million for 2000 from $47.9 in
1999. This increase is a direct result of an increase in merchandise sold to
franchisees in 2000 as compared to 1999.

General and Administrative Expenses. General and administrative expenses
expressed as a percent of total revenue remained level at 3.0% in 2000 from 3.0%
in 1999. In the future, we expect general and administrative expenses to remain
relatively stable at 3.0% of total revenue.

Amortization of Intangibles. Amortization of intangibles increased by $1.2
million, or 4.4%, to $28.3 million for 2000 from $27.1 million in 1999. This
increase was primarily attributable to the additional goodwill amortization
associated with the acquisition of 74 stores acquired in 2000.

Operating Profit. Operating profit increased by $77.0 million, or 40.5%,
to $267.0 million for 2000 from $190.0 million for 1999. In the second quarter
of 2000, we received a pre-tax class action litigation settlement refund of
$22.4 million associated with the settlement of three class action lawsuits in
the state of New Jersey. Operating profit stated before the effects of this
settlement refund increased by $54.6 million, or 28.7%. Operating profit as a
percentage of total revenue increased to 15.3% in 2000 from 13.4% in 1999,
calculated before the effects of the non-recurring settlement refund. This
increase is attributable to our efforts in improving the efficiency and
profitability of our stores.

Net Earnings. Net earnings increased by $43.7 million, or 73.6%, to $103.0
million in 2000 from $59.3 million in 1999. Excluding the effects of the
settlement refund discussed above, net earnings increased by $31.8 million, or
53.6%.

Preferred Dividends. Dividends on our Series A preferred stock are payable
quarterly at an annual rate of 3.75%. Dividends can be paid at our option in
cash or in additional shares of Series A preferred stock. Preferred dividends
increased by $381,000, or 3.8%, to $10.4 million for 2000 as compared to $10.0
million in 1999. This increase is a result of more shares of Series A preferred
stock outstanding in 2000 as compared to 1999.

28

QUARTERLY RESULTS

The following table contains certain unaudited historical financial
information for the quarters indicated.

- ---------------

(1) Includes the effects of a pre-tax legal settlement of $16.0 million in the
third quarter and $36 million in the forth quarter of 2001 associated with
the settlement of a class action lawsuit in the states of Missouri,
Illinois, and Tennessee.

(2) Includes the effects of a pre-tax legal reversion of $22.4 million
associated with the settlement of three class action lawsuits in the state
of New Jersey.

(3) During 1999, we did not acquire nor sell any stores. However, we did
consolidate 51 stores into existing locations.

29

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities decreased by $15.8 million to $175.7
million in 2001 from $191.5 million in 2000. This decrease resulted from a
decrease in net earnings, an increase in taxes paid or payable as a result of
the utilization of net operating loss carryforwards and an increase in the
amount of rental merchandise purchased during 2001 as a result of strong
consumer demand, offset by increased depreciation of rental merchandise and
increases in accrued liabilities primarily related to self-insurance liabilities
and litigation.

Cash used in investing activities increased by $27.6 million to $106.7
million in 2001 from $79.1 million in 2000. This increase is primarily
attributable to an increase in the amount of maintenance capital expenditures
made in 2001 versus 2000, the acquisition of more new store locations in 2001
and increases in purchases of property assets related to our store expansion
program.

Cash provided by financing activities increased by $100.1 million to $2.4
million in 2001, compared to net cash used of $97.7 million in 2000. This
increase is primarily related to the net proceeds of approximately $45.6 million
from the issuance of our common stock in May 2001, the net proceeds of
approximately $99.5 million from the issuance of our senior subordinated notes
in December 2001, as well as an increase in the amount of stock options
exercised during 2001 as compared to 2000. This increase was partially offset by
the repurchase of $25.0 million of our common stock from Mr. Talley and debt
repayments under our senior credit facilities of approximately $138.0 million
from the proceeds from the May 2001 offering, the December 2001 offering, and
from available cash flow from operations.

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 debt and 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 intentions during 2002. Our
revolving credit facilities provide us with revolving loans in an aggregate
principal amount not exceeding $130.0 million, of which $66.4 million was
available at March 22, 2002. At March 22, 2002, we had $142.0 million in cash.
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.

Rental Merchandise Purchases. We purchased $532.5 million, $462.1 million
and $513.9 million of rental merchandise during 2001, 2000 and 1999,
respectively. During 1999, we made a one time net investment in rental inventory
in order to remerchandise the stores acquired in the Thorn Americas and Central
Rents acquisitions.

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 $57.5 million, $37.9 million and $36.2 million on capital
expenditures in 2001, 2000 and 1999, respectively, and expect to spend
approximately $45 million in 2002.

Acquisitions and New Store Openings. During 2001, we continued our
strategy of increasing our store base through opening new stores, as well as
through opportunistic acquisitions. We spent approximately $49.8 million on
acquiring stores and accounts from competitors for the year ended December 31,
2001. It is our intention to increase the number of stores we operate by an
average of approximately 5-10% per year over the next several years.

30

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 underperforming stores on
favorable terms. There can be no assurance we will be able to acquire or open
new stores at the rates we expect, or at all. We cannot assure you 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 December 31, 2001.

Under our senior credit facilities, we are required to use 25% of the net
proceeds from any equity offering to repay our term loans. In addition, we
intend to continue to make prepayments of debt under our senior credit
facilities, repurchase some of our outstanding subordinated notes or repurchase
our common stock under our common stock repurchase program to the extent we have
available cash that is not necessary for store openings or acquisitions. We
cannot, however, assure you that we will have excess cash available for these
purposes.

Senior Credit Facilities. The senior credit facilities are provided by a
syndicate of banks and other financial institutions led by JP Morgan Chase Bank,
as administrative agent. At December 31, 2001, we had a total of $428.0 million
outstanding under these facilities, all of which was under our term loans. At
December 31, 2001, we had $56.4 million of availability under this revolving
credit facility.

Borrowings under the senior credit facilities bear interest at varying
rates equal to 1.50% to 3.00% over LIBOR, which was 1.88% at December 31, 2001.
We also have a prime rate option under the facilities, but have not exercised it
to date. At December 31, 2001, the average rate on outstanding senior debt
borrowings was 8.76%.

During 1998, we entered into interest rate protection agreements with two
banks, one of which expired in 2001. Under the terms of the current interest
rate protection agreements, the LIBOR rate used to calculate the interest rate
charged on $250.0 million of the outstanding senior term debt has been fixed at
an average rate of 5.60%. The protection on the $250 million expires in 2003.

The senior credit facilities are secured by a security interest in
substantially all of our tangible and intangible assets, including intellectual
property and real property. The senior credit facilities are also secured by a
pledge of the capital stock of our subsidiaries.

The senior credit facilities contain covenants that limit our ability to:

- incur additional debt (including subordinated debt) in excess of $25
million, excluding the subordinated notes we issued in 2001;

- repurchase our capital stock and senior subordinated notes;

- incur liens or other encumbrances;

- merge, consolidate or sell substantially all our property or business;

- sell assets, other than inventory;

31

- make investments or acquisitions unless we meet financial tests and other
requirements;

- make capital expenditures; or

- enter into a new line of business.

The senior credit facilities require us to comply with several financial
covenants, including a maximum leverage ratio, a minimum interest coverage ratio
and a minimum fixed charge coverage ratio. At December 31, 2001, the maximum
leverage ratio was 4.25:1, the minimum interest coverage ratio was 2.50:1, and
the minimum fixed charge coverage ratio was 1.30:1. On that date, our actual
ratios were 2.26:1, 5.10:1 and 2.12:1, respectively.

Events of default under the senior credit facilities include customary
events, such as a cross-acceleration provision in the event that we default on
other debt. In addition, an event of default under the senior credit facilities
would occur if we undergo a change of control. This is defined to include the
case where Apollo ceases to own at least 50% of the amount of our voting stock
that they owned on August 5, 1998, or a third party becomes the beneficial owner
of 33.33% or more of our voting stock at a time when certain permitted investors
own less than the third party or Apollo entities own less than 35% of the voting
stock owned by the permitted investors. We do not have the ability to prevent
Apollo from selling its stock, and therefore would be subject to an event of
default if Apollo did so and its sales were not agreed to by the lenders under
the senior credit facilities. This could result in the acceleration of the
maturity of our debt under the senior credit facilities, as well as under our
subordinated notes through their cross-acceleration provision.

Senior Subordinated Notes. In August 1998, we issued $175.0 million of
senior subordinated notes, maturing on August 15, 2008, under an indenture dated
as of August 18, 1998 among us, our subsidiary guarantors and the trustee, which
is now The Bank of New York, as successor to IBJ Schroder Bank & Trust Company.
In December 2001, we issued an additional $100.0 million of 11% senior
subordinated notes, maturing on August 15, 2008, under a separate indenture
dated as of December 19, 2001 among us, our subsidiary guarantors and The Bank
of New York, as trustee. Although issued pursuant to a separate indenture, the
2001 notes have substantially identical terms as the 1998 notes, except for
certain transfer restrictions and registration rights relating to the 2001
notes. The indenture governing the 2001 notes is substantially similar to the
indenture which governs the 1998 notes, including the restrictive covenants,
events of default and change of control and redemption provisions.

The indentures contain covenants that limit our ability to:

- incur additional debt;

- sell assets or our subsidiaries;

- grant liens to third parties;

- pay dividends or repurchase stock; and

- engage in a merger or sell substantially all of our assets.

Events of default under the indentures include customary events, such as a
cross-acceleration provision in the event that we default in the payment of
other debt due at maturity or upon acceleration for default in an amount
exceeding $25 million.

We may redeem the notes after August 15, 2003, at our option, in whole or
in part.

The subordinated notes also require that upon the occurrence of a change of
control (as defined in the indenture), the holders of the notes have the right
to require us to repurchase the notes at a price equal to 101% of the original
aggregate principal amount, together with accrued and unpaid interest, if any,
to the date of repurchase. If we did not comply with this repurchase obligation,
this would trigger an event of default under our senior credit facilities.

Store Leases. We lease space for all of our stores as well as our
corporate and regional offices under operating leases expiring at various times
through 2010.

32

ColorTyme Guarantee. ColorTyme is a party to an agreement with Textron
Financial Corporation, who provides financing to qualifying franchisees of
ColorTyme. Under this agreement, in the event of default by the franchisee under
agreements governing this financing and upon the occurrence of certain 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. We
guarantee the obligations of ColorTyme under this agreement.

Litigation. In 1998, we recorded an accrual of approximately $125.0
million for estimated probable losses on litigation assumed in connection with
the Thorn Americas acquisition. As of December 31, 2001, we have paid
approximately $118.0 million of this accrual in settlement of most of these
matters and legal fees. These settlements were funded primarily from amounts
available under our senior credit facilities, including the revolving credit
facility and the multidraw facility, as well as from cash flow from operations.

On November 1, 2001, we announced that we reached an agreement in principle
for the settlement of the Margaret Bunch, et al. v. Rent-A-Center, Inc. matter
pending in federal court in Kansas City, Missouri, which is subject to court
approval. Under the terms of the proposed settlement, while not admitting
liability, we would pay an aggregate of $12.25 million to the agreed upon class,
plus plaintiff's attorneys' fees as determined by the court and costs to
administer the settlement process. Accordingly, to account for the
aforementioned costs, as well as our own attorneys' fees, we recorded a
non-recurring charge of $16.0 million in the third quarter of 2001.

In early March 2002, we reached an agreement in principle with the
plaintiffs attorneys in the Wilfong matter pending in St. Louis, Missouri and
the EEOC to resolve the Wilfong suit and an EEOC action in Tennessee. Under the
terms of the proposed settlement, while not admitting any liability, we would
pay an aggregate of $47.0 million to female employees and certain female
applicants who were employed by or applied for employment with us for a period
commencing no later than April 19, 1998 through the future date of the notice to
the applicable class, plus up to $375,000 in settlement administrative costs.
The class members in Wilfong include all of the Bunch class members. The $47.0
million payment includes the $12.25 million payment discussed in connection with
the Bunch settlement and attorney fees for class counsel in Wilfong. Members of
the class who do not wish to participate in the settlement would be given the
opportunity to opt out of the settlement.

The proposed settlement contemplates the settlement would be subject to a
four-year consent decree, which could be extended by the court for an additional
one year upon a showing of good cause. Also, under the proposed settlement, we
agreed to augment our human resources department and our internal employee
complaint procedures; enhance our gender anti-discrimination training for all
employees; hire a consultant mutually acceptable to the parties for two years to
advise us on employment matters; provide certain reports to the EEOC during the
period of the consent decree; seek qualified female representation on our board
of directors; publicize our desire to recruit, hire and promote qualified women;
offer to fill job vacancies within our regional markets with qualified class
members who reside in those markets and express an interest in employment by us
to the extent of 10% of our job vacancies in such markets over a fifteen month
period; and to take certain other steps to improve opportunities for women. We
initiated many of the above programs prior to entering into the proposed
settlement. Under the proposed agreement, we have the right to terminate the
settlement under certain circumstances, including in the event that more than 60
class members elect to opt out of the settlement.

The proposed settlement contemplates that the Bunch case will be dismissed
with prejudice once such settlement becomes final. At the parties' request, the
court in the Bunch case stayed the proceedings in that case, including
postponing the fairness hearing previously scheduled for March 6, 2002. We
anticipate the Memphis federal court will stay the Tennessee EEOC action as
well. The terms of the proposed settlement are subject to the parties entering
into a definitive settlement agreement and court approval. While we believe the
proposed settlement is fair, we cannot assure you that the settlement will be
approved by the court in its present form.

33

To account for the aforementioned costs, as well as our own attorney's
fees, we recorded an additional non-recurring charge of $36.0 million in the
fourth quarter of 2001 in connection with the Wilfong matter for a total
non-recurring charge of $52.0 million.

Additional settlements or judgments against us on our existing litigation
could affect our liquidity. Please refer to Note J of our consolidated financial
statements included elsewhere in this report.

Sales of Equity Securities. On May 31, 2001, we completed an offering of
3,680,000 shares of our common stock at an offering price of $42.50 per share.
In this offering, 1,150,000 shares were offered by us and 2,530,000 shares were
offered by some of our stockholders. Net proceeds to us were approximately $45.6
million.

During 1998, we issued 260,000 shares of our Series A preferred stock at
$1,000 per share, resulting in aggregate proceeds of $260.0 million. Dividends
on our Series A preferred stock accrue on a quarterly basis, at the rate of
$37.50 per annum, per share, and are currently paid in additional shares of
Series A preferred stock because of restrictive provisions in our senior credit
facilities. Beginning in 2003, we will be required to pay the dividends in cash
and may do so under our senior credit facilities so long as we are not in
default.

The Series A preferred stock is not redeemable until August 2002, after
which time we may, at our option, redeem the shares at 105% of the $1,000 per
share liquidation preference plus accrued and unpaid dividends.

Contractual Cash Commitments. The table below summarizes debt, lease and
other minimum cash obligations outstanding as of December 31, 2001:

- ---------------

(1) Excludes obligations under the ColorTyme guarantee, our Series A preferred
stock, the change in control and acceleration provisions under the senior
credit facilities, and the optional redemption, change in control and
acceleration provisions under the indentures governing our subordinated
notes.

(2) Includes interest payments of $15.13 million on each of February 15 and
August 15 of each year, except with respect to the interest payment for
February 2002, which was for $11.34 million.

Talley Repurchase. In connection with Mr. Talley's retirement, we entered
into an agreement to repurchase $25.0 million worth of shares of our common
stock 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 from 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 from 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
held by Mr. Talley at $20.258 per share, for $34.7 million. We repurchased those
remaining shares on January 30, 2002.

Our senior credit facilities contain covenants that generally limit our
ability to repurchase our capital stock and senior subordinated notes. In
addition, the indentures governing our subordinated notes contain covenants
limiting our ability to repurchase our capital stock. Under these agreements, we
had the ability to effect the repurchases of our common stock from Mr. Talley.
However, as a result of those repurchases, our

34

ability to make further repurchases of our common stock, including pursuant to
our common stock repurchase program, and to repurchase any outstanding notes is
limited.

Common Stock Repurchase Program. In April 2000, we announced that our
board of directors had authorized a program to repurchase in the open market up
to an aggregate of $25 million of our common stock. To date, no shares of common
stock have been purchased by us under this share repurchase program. However, we
may begin repurchasing shares of our common stock at any time, subject to the
limitations in our senior credit facilities and the indentures governing our
senior subordinated notes.

Economic Conditions. Although our performance has not suffered in previous
economic downturns, we cannot assure you that demand for our products,
particularly in higher price ranges, will not significantly decrease in the
event of a prolonged recession.

Seasonality. Our revenue mix is moderately seasonal, with the first
quarter of each fiscal year generally providing higher merchandise sales than
any other quarter during a fiscal year, primarily related to federal income tax
refunds. Generally, our customers will more frequently exercise their early
purchase option on their existing rental purchase agreements or purchase
pre-leased merchandise off the showroom floor during the first quarter of each
fiscal year. We expect this trend to continue in future periods.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

SFAS 133. Effective January 1, 2001, we adopted SFAS 133, which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and hedging
activities. All derivatives, whether designated in hedging relationships or not,
are required to be recorded on the balance sheet at fair value. If the
derivative is designated as a fair value hedge, the changes in the fair value of
the derivative and of the hedged item attributable to the hedged risk are
recognized in earnings. If the derivative is designated as a cash flow hedge,
the effective portions of changes in the fair value of the derivative are
recorded in other comprehensive income and are recognized in the income
statement when the hedged item affects earnings. Ineffective portions of changes
in the fair value of cash flow hedges are recognized in earnings.

The adoption of SFAS 133 on January 1, 2001 resulted in a cumulative
pre-tax increase to other comprehensive income of $2.6 million, or $1.4 million
after taxes. As a result of a decline in interest rates for the year ended
December 31, 2001, accumulated comprehensive loss at the end of the period was
$6.3 million after taxes.

SFAS 141 and SFAS 142. On July 20, 2001, the Financial Accounting
Standards Board issued SFAS No. 141, Business Combinations and SFAS No. 142,
Goodwill and Intangible Assets. SFAS No. 141 is effective for all business
combinations completed after June 30, 2001. SFAS No. 142 is effective for fiscal
years beginning after December 15, 2001. Certain provisions of this statement,
however, applied to goodwill and other intangible assets acquired between July
1, 2001 and the effective date of SFAS No. 142.

Major provisions of these statements and their effective dates for us are
as follows:

- all business combinations initiated after June 30, 2001 must use the
purchase method of accounting;

- intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as
part of a related contract, asset or liability;

- goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized;

- effective January 1, 2002, all previously recognized goodwill and
intangible assets with indefinite lives will no longer be subject to
amortization;

- effective January 1, 2002, goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an
impairment indicator; and
35

- all acquired goodwill must be assigned to reporting units for purposes of
impairment testing and segment reporting.

We amortized goodwill and intangible assets recognized prior to July 1,
2001 under our current method through December 31, 2001. Beginning January 1,
2002, annual goodwill amortization of approximately $28.4 million will no longer
be recognized. We intend to complete a transitional impairment test of all
intangible assets by March 31, 2002 and a transitional fair value based
impairment test of goodwill as of January 1, 2002 by June 30, 2002. Impairment
losses, if any, resulting from the transitional testing will be recognized in
the quarter ended March 31, 2002, as a cumulative effect of a change in
accounting principle.

SFAS 143. In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement is effective
for fiscal years beginning after June 15, 2002. The Company does not believe
that the implementation of this standard will have a material effect on its
financial position, results of operations, or cash flows

SFAS 144. On October 3, 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001. We do not believe that the
implementation of this standard will have a material effect on our financial
position, results of operations, or cash flows.

36

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

INTEREST RATE SENSITIVITY

As of December 31, 2001, we had $275.0 million in subordinated notes
outstanding at a fixed interest rate of 11.0% and $428.0 million in term loans
outstanding at interest rates indexed to the LIBOR rate. The subordinated notes
mature on August 15, 2008. The fair value of the subordinated notes is estimated
based on discounted cash flow analysis using interest rates currently offered
for loans with similar terms to borrowers of similar credit quality. The fair
value of the subordinated notes at December 31, 2001 was $277.1 million, which
is $2.1 million above their carrying value. Unlike the subordinated notes, the
$428.0 million in term loans have variable interest rates indexed to current
LIBOR rates. Because the variable rate structure exposes us to the risk of
increased interest cost if interest rates rise, in 1998 we entered into $500.0
million in interest rate swap agreements that lock in a LIBOR rate of 5.59%,
thus hedging this risk. Of the $500.0 million in agreements, $250.0 million
expired in September 2001 and the remaining $250.0 million will expire in 2003.
Given our current capital structure, including our interest rate swap
agreements, we have $178.0 million, or 25.3% of our total debt, in variable rate
debt. A hypothetical 1.0% change in the LIBOR rate would affect pre-tax earnings
by approximately $1.8 million. The swap agreements had an aggregate fair value
of $(10.2) million and $14.5 million at December 31, 2001 and 2000,
respectively. A hypothetical 1.0% change in the LIBOR rate would have affected
the fair value of the swaps by approximately $5.0 million.

MARKET RISK

Market risk is the potential change in an instrument's value caused by
fluctuations in interest rates. Our primary market risk exposure is fluctuations
in interest rates. Monitoring and managing this risk is a continual process
carried out by the Board of Directors and senior management. We manage our
market risk based on an ongoing assessment of trends in interest rates and
economic developments, giving consideration to possible effects on both total
return and reported earnings.

INTEREST RATE RISK

We hold long-term debt with variable interest rates indexed to prime or
LIBOR that exposes us to the risk of increased interest costs if interest rates
rise. To reduce the risk related to unfavorable interest rate movements, we have
entered into certain interest rate swap contracts on $250.0 million of debt to
pay a fixed rate of 5.60%.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements required to be included in Item 8 are
set forth in Item 14 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

37

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT(*)

ITEM 11. EXECUTIVE COMPENSATION(*)

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT(*)

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS(*)
- ---------------

* The information required by Items 10, 11, 12 and 13 is or will be set forth in
the definitive proxy statement relating to the 2002 Annual Meeting of
Stockholders of Rent-A-Center, Inc. which is to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended. This definitive proxy statement relates to a
meeting of stockholders involving the election of directors and the portions
therefrom required to be set forth in this Form 10-K by Items 10, 11, 12 and
13 are incorporated herein by reference pursuant to General Instruction G(3)
to Form 10-K.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS

Report Of Independent Certified Public Accountants
Consolidated Financial Statements........................... F-2
Balance Sheets............................................ F-3
Statements Of Earnings.................................... F-4
Statement Of Stockholders' Equity......................... F-5
Statements Of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements................ F-8

SCHEDULES SUPPORTING FINANCIAL STATEMENTS

Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are either not required
under the related instructions or inapplicable.

CURRENT REPORTS ON FORM 8-K

Current Report on Form 8-K filed on October 11, 2001

Current Report on Form 8-K filed on December 4, 2001

Current Report on Form 8-K filed on December 19, 2001

EXHIBITS

See attached Exhibit Index incorporated herein by reference.

38

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned duly authorized.

RENT-A-CENTER, INC.

By: /s/ ROBERT D. DAVIS
------------------------------------
Robert D. Davis
Senior Vice President-Finance
Chief Financial Officer

Date: March 27, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
date indicated.

39

EXHIBIT INDEX

- ---------------

* Filed herewith.

+ Management contract or company plan or arrangement

(1) Incorporated herein by reference to Exhibit 3.2 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 1994

(2) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996

(3) Incorporated herein by reference to Exhibit 3.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001

(4) Incorporated herein by reference to Exhibit 3.4 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002

(5) Incorporated herein by reference to Exhibit 4.1 to the registrant's Form
S-4 filed on January 19, 1999.

(6) Incorporated herein by reference to Exhibit 4.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998

(7) Incorporated herein by reference to Exhibit 4.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998

(8) Incorporated herein by reference to Exhibit 4.4 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999

(9) Incorporated herein by reference to Exhibit 4.5 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999

(10) Incorporated herein by reference to Exhibit 4.6 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999

(11) Incorporated herein by reference to Exhibit 4.7 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999

(12) Incorporated herein by reference to Exhibit 4.6 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002

(13) Incorporated herein by reference to Exhibit 4.7 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002

(14) Incorporated herein by reference to Exhibit 10.1 to the registrant's
Registration Statement of Form S-4 filed on January 22, 2002 (File No.
333-81160)

(15) Incorporated herein by reference to Exhibit 10.4 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000

(16) Incorporated herein by reference to Exhibit 10.5 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001

(17) Incorporated herein by reference to Exhibit 10.4 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002

(18) Incorporated herein by reference to Exhibit 10.19 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998

(19) Incorporated herein by reference to Exhibit 10.21 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998

41

(20) Incorporated herein by reference to Exhibit 10.22 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998

(21) Incorporated herein by reference to Exhibit 10.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001

(22) Incorporated herein by reference to Exhibit 10.9 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002

(23) Incorporated herein by reference to Exhibit 21.1 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999

42

INDEX TO FINANCIAL STATEMENTS

F-1

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
Rent-A-Center, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of
Rent-A-Center, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Rent-A-Center,
Inc. and Subsidiaries as of December 31, 2001 and 2000, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

GRANT THORNTON LLP

Dallas, Texas
February 11, 2002

F-2

RENT-A-CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

F-3

RENT-A-CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

F-4

RENT-A-CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 2001

F-5

RENT-A-CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

During 2001 and 2000, the Company paid Series A preferred dividends of
approximately $10.7 million and $10.3 million by issuing 10,678 and 10,330
shares of Series A preferred stock, respectively.

F-6

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- SUMMARY OF ACCOUNTING POLICIES AND NATURE OF OPERATIONS

A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements follows:

PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS

The accompanying financial statements include the accounts of
Rent-A-Center, Inc. ("Rent-A-Center"), and its wholly-owned subsidiaries
(collectively, the "Company"). All significant intercompany accounts and
transactions have been eliminated. Rent-A-Center's sole operating segment
consists of leasing household durable goods to customers on a rent-to-own basis.
At December 31, 2001, Rent-A-Center operated 2,281 stores which were located
throughout the 50 United States, the District of Columbia and the Commonwealth
of Puerto Rico.

ColorTyme, Inc. ("ColorTyme"), Rent-A-Center's only subsidiary with
substantive operations, is a nationwide franchisor of 342 franchised rent-to-own
stores operating in 42 states. These rent-to-own stores offer high quality
durable products such as home electronics, appliances, computers, and furniture
and accessories. 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 are generated primarily from royalties based on
franchisees' monthly gross revenues.

RENTAL MERCHANDISE

Rental merchandise is carried at cost, net of accumulated depreciation.
Depreciation is provided using the income forecasting method, which is intended
to match as closely as practicable the recognition of depreciation expense with
the consumption of the rental merchandise, and assumes no salvage value. The
consumption of rental merchandise occurs during periods of rental and directly
coincides with the receipt of rental revenue over the rental-purchase agreement
period, generally 12 to 36 months. Under the income forecasting method,
merchandise held for rent is not depreciated, and merchandise on rent is
depreciated in the proportion of rents received to total rents provided in the
rental contract, which is an activity based method similar to the units of
production method.

Rental merchandise which is damaged and inoperable, or not returned by the
customer after becoming delinquent on payments, is written-off when such
impairment occurs.

CASH EQUIVALENTS

For purposes of reporting cash flows, cash equivalents include all highly
liquid investments with an original maturity of three months or less.

RENTAL REVENUE AND FEES

Merchandise is rented to customers pursuant to rental-purchase agreements
which provide for weekly or monthly rental terms with non-refundable rental
payments. Generally, the customer has the right to acquire title either through
a purchase option or through payment of all required rentals. Rental revenue and
fees are recognized over the rental term. No revenue is accrued because the
customer can cancel the rental contract at any time and Rent-A-Center cannot
enforce collection for non-payment of rents.

ColorTyme's revenue from the sale of rental merchandise is recognized upon
shipment of the merchandise to the franchisee.

F-7

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY ASSETS AND RELATED DEPRECIATION

Furniture, equipment and vehicles are stated at cost less accumulated
depreciation. Depreciation is provided over the estimated useful lives of the
respective assets (generally five years) by the straight-line method. Leasehold
improvements are amortized over the term of the applicable leases by the
straight-line method.

INTANGIBLE ASSETS AND AMORTIZATION

Intangible assets are stated at cost less accumulated amortization
calculated by the straight-line method.

ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS

The Company evaluates all long-lived assets, including all intangible
assets and rental merchandise, for impairment whenever events or changes in
circumstances indicate that the carrying amounts may not be recoverable.
Impairment is recognized when the carrying amounts of such assets cannot be
recovered by the undiscounted net cash flows they will generate.

INCOME TAXES

The Company provides deferred taxes for temporary differences between the
tax and financial reporting bases of assets and liabilities at the rate expected
to be in effect when taxes become payable.

EARNINGS PER COMMON SHARE

Basic earnings per common share are based upon the weighted average number
of common shares outstanding during each period presented. Diluted earnings per
common share are based upon the weighted average number of common shares
outstanding during the period, plus, if dilutive, the assumed exercise of stock
options and the assumed conversion of convertible securities at the beginning of
the year, or for the period outstanding during the year for current year
issuances.

ADVERTISING COSTS

Costs incurred for producing and communicating advertising are expensed
when incurred. Advertising expense was $69.1 million, $61.2 million, and $55.8
million in 2001, 2000 and 1999, respectively.

STOCK-BASED COMPENSATION

The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire that stock. Option grants to
non-employees are expensed over the service period.

USE OF ESTIMATES

In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues during the reporting period. Actual
results could differ from those estimates.

F-8

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

OTHER COMPREHENSIVE INCOME

Other comprehensive income refers to revenues, expenses, gains and losses
that under generally accepted accounting principles are included in
comprehensive income but are excluded from net income as these amounts are
recorded directly as an adjustment to stockholders' equity. The Company's other
comprehensive income is attributed to changes in the fair value of interest rate
protection agreements, net of tax. See Note E for further discussion of
accounting for interest rate swap agreements.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Intangible Assets. SFAS No.
141 is effective for all business combinations completed after June 30, 2001.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001.
Certain provisions of this statement, however, applied to goodwill and other
intangible assets acquired between July 1, 2001 and December 31, 2001.

Major provisions of these statements and their effective dates are as
follows:

- all business combinations initiated after June 30, 2001 must use the
purchase method of accounting;

- intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as
part of a related contract, asset or liability;

- goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized;

- effective January 1, 2002, all previously recognized goodwill and
intangible assets with indefinite lives will no longer be subject to
amortization;

- effective January 1, 2002, goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an
impairment indicator; and

- all acquired goodwill must be assigned to reporting units for purposes of
impairment testing and segment reporting.

The Company amortized goodwill and intangible assets acquired prior to July
1, 2001 until December 31, 2001. Beginning January 1, 2002, annual goodwill
amortization of approximately $28.4 million will no longer be recognized. The
Company intends to complete a transitional impairment test of all intangible
assets by March 31, 2002 and a transitional fair value based impairment test of
goodwill as of January 1, 2002 by June 30, 2002. Impairment losses, if any,
resulting from the transitional testing will be recognized in the quarter ended
March 31, 2002, as a cumulative effect of a change in accounting principle.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. This
statement is effective for fiscal years beginning after June 15, 2002. The
Company does not believe that the implementation of this standard will have a
material effect on its financial position, results of operations, or cash flows.

In August 2001, the Financial Accounting Standards Board issued SFAS No.
144 Accounting for Impairment or Disposal of Long-Lived Assets. SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement is effective for fiscal years beginning after
December 15, 2001. The Company does not believe that the implementation of this
standard will have a material effect on its financial position, results of
operations, or cash flows.

F-9

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE B -- RENTAL MERCHANDISE

NOTE C -- PROPERTY ASSETS

NOTE D -- INTANGIBLE ASSETS

F-10

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE E -- SENIOR DEBT

The Company has a Senior Credit Facility (the "Facility") with a syndicate
of banks. The Company also has other debt facilities. These facilities consist
of the following:

- ---------------

(1) At December 31, 2001 and 2000, the amounts available under the Company's
revolving facility were reduced by approximately $63.6 million and $43.7
million, respectively, for outstanding letters of credit used to support the
Company's insurance obligations.

(2) On June 29, 2000, the Company refinanced a portion the Facility by adding a
new $125 million Term tranche. No significant mandatory principal repayments
are required on the Term D facility until the tranche becomes due in 2007.

Borrowings under the Facility bear interest at varying rates equal to 0.50%
to 2.00% over the designated prime rate (4.75% per annum at December 31, 2001)
or 1.50% to 3.0% over LIBOR (1.88% at December 31, 2001) at the Company's
option, and are subject to quarterly adjustments based on certain leverage
ratios. At December 31, 2001, the average rate on outstanding borrowings was
8.15%, before considering the interest rate swap agreements as described below,
and 8.76% after giving effect to the interest rate swap agreements in effect at
December 31, 2001. A commitment fee equal to 0.25% to 0.50% of the unused
portion of the Facility is payable quarterly.

The Facility is collateralized by substantially all of the Company's
tangible and intangible assets, and is unconditionally guaranteed by each of the
Company's subsidiaries. In addition, the Facility contains several financial
covenants as defined therein, including a maximum leverage ratio, a minimum
interest coverage ratio, and a minimum fixed charge coverage ratio, as well as
restrictions on capital expenditures, additional indebtedness, and the
disposition of assets not in the ordinary course of business.

F-11

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following are scheduled maturities of senior debt at December 31, 2001:

Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activities and SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133. These Standards establish accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and hedging activities. All derivatives, whether designated in hedging
relationships or not, are required to be recorded on the balance sheet at fair
value. If the derivative is designated as a fair value hedge, the changes in the
fair value of the derivative and of the hedged item attributable to the hedged
risk are recognized in earnings. If the derivative is designated as a cash flow
hedge, the effective portions of changes in the fair value of the derivative are
recorded in other comprehensive income and are recognized in the income
statement when the hedged item affects earnings. Ineffective portions of changes
in the fair value of cash flow hedges are recognized in earnings. The Company
has designated its interest rate swap agreements as a cash flow hedge.

The adoption of SFAS No. 133 on January 1, 2001 resulted in the recognition
of approximately $2.6 million, or $1.4 million after taxes, of derivative assets
on the Company's consolidated balance sheet and $1.4 million of hedging gains
included in accumulated other comprehensive income as the cumulative effect of a
change in accounting principle. During the year ended December 31, 2001, the
Company recognized $3.9 million, net of tax, in additional interest expense
attributable to the difference in the variable interest on the debt and fixed
interest under the interest rate protection agreements. No gain or loss from
hedge ineffectiveness was required to be recognized. At December 31, 2001, the
fair value of the interest rate protection agreements was a cumulative loss of
$6.3 million, net of tax.

At December 31, 2001, the Company had two interest rate swap agreements to
limit the effect of increases in interest rates. These agreements both expire in
2003, and have an aggregate notional principal amount of $250.0 million. The
effect of these agreements is to limit the Company's interest rate exposure by
fixing the LIBOR rate at 5.60%. The Company had another $250.0 million interest
rate swap agreement which expired in September 2001. The agreements had no cost
to the Company.

NOTE F -- SUBORDINATED NOTES PAYABLE

Rent-A-Center has $275.0 million of subordinated notes outstanding,
maturing on August 15, 2008, including $100.0 million which were issued in
December 2001 at 99.5% of par. The notes require semi-annual interest-only
payments at 11%, and are guaranteed by Rent-A-Center's two principal
subsidiaries. The notes are redeemable at Rent-A-Center'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 to redeem the notes.

The notes contain restrictive covenants, as defined therein, including a
consolidated interest coverage ratio and limitations on incurring additional
indebtedness, selling assets of Rent-A-Center's subsidiaries,

F-12

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

granting liens to third parties, making restricted payments and engaging in a
merger or selling substantially all of Rent-A-Center's assets.

Rent-A-Center's direct and wholly-owned subsidiaries, consisting of
ColorTyme and Advantage Companies, Inc. (collectively, the "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 Guarantors are inconsequential
subsidiaries. There are no restrictions on the ability of any of the Guarantors
to transfer funds to Rent-A-Center in the form of loans, advances or dividends,
except as provided by applicable law.

Set forth below is certain condensed consolidating financial information as
of December 31, 2001 and 2000, and for each of the three years in the period
ended December 31, 2001. The financial information includes the Guarantors from
the dates they were acquired or formed by Rent-A-Center and is presented using
the push-down basis of accounting.

CONDENSED CONSOLIDATING BALANCE SHEETS

F-13

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

F-14

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

F-15

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE G -- ACCRUED LIABILITIES

Included in the $59.0 million of accrued litigation costs is approximately
$52.0 million related to the gender discrimination class action litigation
settlements as more fully described in Note J.

NOTE H -- REDEEMABLE CONVERTIBLE VOTING PREFERRED STOCK

Rent-A-Center's Series A preferred stock is convertible, at any time, into
shares of Rent-A-Center's common stock at a conversion price equal to $27.935
per share, and has a liquidation preference of $1,000 per share, plus all
accrued and unpaid dividends. No distributions may be made to holders of common
stock until the holders of the Series A preferred stock have received the
liquidation preference. Dividends accrue on a quarterly basis, at the rate of
$37.50 per annum, per share. A restriction under the Facility requires
Rent-A-Center to pay the dividends with additional shares of Series A preferred
stock until August 2003, after which Rent-A-Center must pay the dividends in
cash. During 2001 and 2000, Rent-A-Center paid approximately $10.7 million and
$10.3 million in Series A preferred dividends by issuing 10,678 and 10,330
shares of Series A preferred stock, respectively. At December 31, 2001 and 2000,
Rent-A-Center had 292,434 and 281,756 shares, respectively, of its Series A
preferred stock outstanding.

The Series A preferred stock is not redeemable until August 2002, after
which time Rent-A-Center may, at its option, redeem the shares at 105% of the
liquidation preference plus accrued and unpaid dividends. Holders of the Series
A preferred stock have the right to require Rent-A-Center to redeem the Series A
preferred stock upon a change of control, if Rent-A-Center ceases to be listed
on a United States national securities exchange or the NASDAQ National Market
System, or upon the eleventh anniversary of the issuance of the Series A
preferred stock, at a price equal to the liquidation preference value.

Holders of the Series A preferred stock are entitled to two seats on
Rent-A-Center's Board of Directors, and are entitled to vote on all matters
presented to the holders of Rent-A-Center's common stock. The number of votes
per Series A preferred share is equal to the number of votes associated with the
underlying voting common stock into which the Series A preferred stock is
convertible.

F-16

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE I -- INCOME TAXES

The income tax provision reconciled to the tax computed at the statutory
Federal rate is:

The components of the income tax provision are as follows:

F-17

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred tax assets and liabilities consist of the following:

The Company has alternative minimum tax credit carryforwards of
approximately $5.8 million and various state net operating loss carryforwards.

During 1999, the Company completed its analysis of the tax bases of assets
and liabilities acquired in the Thorn Americas, Inc. acquisition in 1998,
resulting in a decrease in its deferred tax asset of $3.8 million and a
corresponding increase in goodwill.

NOTE J -- COMMITMENTS AND CONTINGENCIES

Rent-A-Center leases its office and store facilities and most delivery
vehicles. Rental expense was $127.6 million, $105.6 million and $96.8 million
for 2001, 2000, and 1999, respectively. Future minimum rental payments under
operating leases with remaining noncancelable lease terms in excess of one year
at December 31, 2001 are as follows:

From time to time, Rent-A-Center, along with its subsidiaries, is party to
various legal proceedings arising in the ordinary course of business.
Rent-A-Center is currently a party to the following material litigation:

Colon v. Thorn Americas, Inc. In November 1997, the plaintiffs filed this
statutory compliance class action lawsuit in New York alleging various statutory
violations of New York consumer protection laws. The plaintiffs are seeking
damages compensatory, punitive damages, interest, attorney's fees and certain
injunctive

F-18

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

relief. Although Rent-A-Center intends to vigorously defend itself in this
action, the ultimate outcome cannot presently be determined, and there can be no
assurance that Rent-A-Center will prevail without liability.

Wisconsin Attorney General Proceeding. In August 1999, the Wisconsin
Attorney General filed suit against Rent-A-Center and its subsidiary ColorTyme
in Wisconsin, alleging that its rent-to-rent transaction violates the Wisconsin
Consumer Act and the Wisconsin Deceptive Advertising Statute. The Attorney
General seeks injunctive relief, restoration of any losses suffered by any
Wisconsin consumer harmed and civil forfeitures and penalties. In January 2002,
the court granted summary judgment in favor of the Wisconsin Attorney General on
the liability issues and set the case for trial on damages for February 2003.
Rent-A-Center intends to vigorously defend itself in this matter. However, there
can be no assurance that the outcome of this matter will not have a material
adverse effect on Rent-A-Center's financial position, results of operations or
cash flows.

Walker, et. al. v. Rent-A-Center, Inc. In January 2002, a putative class
action was filed against Rent-A-Center and certain of its current and former
officers alleging that the defendants violated Section 10(b) and/or Section
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder by issuing false and misleading statements and omitting material
facts regarding Rent-A-Center's financial performance and prospects for the
third and fourth quarters of 2001. The complaint purports to be brought on
behalf of all purchasers of Rent-A-Center's common stock from April 25, 2001
through October 8, 2001 and seeks damages in unspecified amounts. Rent-A-Center
intends to vigorously defend itself in this matter. However, there can be no
assurance that Rent-A-Center will prevail without liability.

An adverse ruling in one or more of the aforementioned cases could have a
material and adverse effect on the Company's consolidated financial statements.

Wilfong, et. al. v. Rent-A-Center, Inc./Margaret Bunch, et. al. v.
Rent-A-Center, Inc. In August 2000, a putative nationwide class action was
filed against Rent-A-Center in federal court in East St. Louis, Illinois by
Claudine Wilfong and sixteen plaintiffs, alleging that it engaged in class-wide
gender discrimination following its acquisition of Thorn Americas. In December
2000, a similar suit filed by Margaret Bunch in federal court in the Western
District of Missouri was amended to allege similar class action claims. The
allegations underlying these matters involve charges of wrongful termination,
constructive discharge, disparate treatment and disparate impact.

In November 2001, Rent-A-Center announced that it had reached an agreement
in principle to settle the Bunch matter for an aggregate of $12.25 million, plus
attorneys fees and costs to administer the settlement. Accordingly,
Rent-A-Center recorded a charge of $16.0 million related to the proposed
settlement of Bunch in the third quarter of 2001. On March 7, 2002,
Rent-A-Center announced an agreement in principle to settle the Wilfong matter,
the Bunch matter, as well as an EEOC action in Tennessee for approximately $47.0
million. Accordingly, Rent-A-Center recorded an additional charge of $36.0
million in the fourth quarter of 2001 to reflect the total settlement of these
matters. The terms of the proposed settlement are subject to the parties
entering into a definitive settlement agreement and court approval.

During 1999, Rent-A-Center funded the $11.5 million settlement of its two
class action lawsuits in New Jersey, together with the $48.5 million settlement
of Robinson v. Thorn Americas, Inc. The settlement of Rent-A-Center's existing
litigation resulted in a charge to earnings in 1998, classified as class action
legal settlements. In addition, Rent-A-Center settled and funded Anslono v.
Thorn Americas, Inc. during 2000. Both the Robinson and Anslono cases were
acquired in the Thorn Americas acquisition, and Rent-A-Center made appropriate
purchase accounting adjustments for liabilities associated with this litigation.
During 2000, Rent-A-Center received refunds of approximately $22.4 million for
unlocated class members which are presented as class action litigation
settlements.

In addition, Fogie v. Thorn Americas, Inc., was acquired in the Thorn
Americas acquisition; however, Rent-A-Center received full indemnification from
the seller for any incurred losses. In December 1991, the
F-19

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

plaintiffs filed this class action in Minnesota alleging that Thorn's
rent-to-own contracts violated Minnesota's Consumer Credit Sales Act and the
Minnesota General Usury Statute. In April 1998, the court entered a final
judgment against Thorn Americas for approximately $30.0 million. Following an
unsuccessful appeal in August 1999, Thorn plc deposited the judgment amount in
an escrow account supervised by plaintiff's counsel and the court in October
1999.

The Company is also involved in various other legal proceedings, claims and
litigation arising in the ordinary course of business. Although occasional
adverse decisions or settlements may occur, the Company believes that the final
disposition of such matters will not have a material adverse effect on the
financial position or results of operations of the Company.

ColorTyme is a party to an agreement with a lender, who provides financing
to qualifying franchisees of ColorTyme. Under this agreement, in the event of
default by the franchisee under agreements governing this financing and upon the
occurrence of certain events the lender may assign the loans and the collateral
securing such loans to ColorTyme, with ColorTyme then succeeding to the rights
of the lender under the debt agreements, including the rights to foreclose on
the collateral. Rent-A-Center guarantees the obligations of ColorTyme under this
agreement.

NOTE K -- STOCK BASED COMPENSATION

Rent-A-Center's 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
employees under the Plan become exercisable over a period of one to five 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 December 31, 2001, there were approximately
2,095,814 shares available for issuance under the Plan.

Information with respect to stock option activity is as follows:

F-20

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The weighted average fair value per share of options granted during 2001,
2000 and 1999 was $20.34, $14.97, and $14.38, respectively, all of which were
granted at market value. Information about stock options outstanding at December
31, 2001 is summarized as follows:

During 2001 and 2000, Rent-A-Center issued 12,500 and 25,000 options,
respectively, to a non-employee for services. The options are valued at $168,378
and $65,000, respectively. The expense related to these option agreements is
recognized over the service period.

The Company has adopted only the disclosure provisions of SFAS 123 for
employee stock options and continues to apply APB 25 for stock options granted
under the Plan. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of Rent-A-Center's common stock
at the date of grant over the amount an employee must pay to acquire the common
stock. Compensation costs for all other stock-based compensation is accounted
for under SFAS 123. If Rent-A-Center had elected to recognize compensation
expense based upon the fair value at the grant date for options under the Plan
consistent with

F-21

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the methodology prescribed by SFAS 123, the Company's 2001, 2000 and 1999 net
earnings and earnings per common share would be reduced to the pro forma amounts
indicated as follows:

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 53% to 57%; risk-free interest rates of 4.2%
to 5.3%, 6.50% and 5.55% in 2001, 2000, and 1999, respectively; no dividend
yield; and expected lives of seven years.

NOTE L -- ACQUISITIONS

For the year ending December 31, 2001, Rent-A-Center acquired 95 stores.
The acquired stores were the result of 21 separate transactions for an aggregate
of approximately $43.1 million in cash. One of the transactions, which took
place in June 2001, consisted of 54 stores, for approximately $21.0 million in
cash. All acquisitions have been accounted for as purchases, and the operating
results of the acquired businesses have been included in the financial
statements since their date of acquisition.

For the year ending December 31, 2000, Rent-A-Center acquired 74 stores.
The 74 acquired stores were the result of 19 separate transactions for an
aggregate of approximately $42.5 million in cash.

NOTE M -- EMPLOYEE BENEFIT PLAN

Rent-A-Center sponsors a defined contribution pension plan under Section
401(k) of the Internal Revenue Code for all employees who have completed three
months of service. Employees may elect to contribute up to 20% of their eligible
compensation on a pre-tax basis, subject to limitations. Rent-A-Center may make
discretionary matching contributions to the 401(k) plan. During 2001, 2000, and
1999, Rent-A-Center made matching cash contributions of $3,297,940, $2,453,639,
and $2,283,575, respectively, which represents 50% of the employees'
contributions to the 401(k) plan up to an amount not to exceed 4% of each
employee's respective compensation. As of March 15, 2000, employees may elect to
purchase Rent-A-Center common stock as part of their 401(k) plan. As of December
31, 2001 and 2000, respectively, 10.8% and 5.0% of the total plan assets
consisted of Rent-A-Center common stock.

NOTE N -- FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include cash and cash equivalents,
senior debt and subordinated notes payable. The carrying amount of cash and cash
equivalents approximates fair value at December 31, 2001 and 2000, because of
the short maturities of these instruments. The Company's senior debt is variable
rate debt that reprices frequently and entails no significant change in credit
risk, and as a result, fair value approximates carrying value. The fair value of
the subordinated notes payable is estimated based on

F-22

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

discounted cash flow analysis using interest rates currently offered for loans
with similar terms to borrowers of similar credit quality. At December 31, 2001,
the fair value of the subordinated notes was $277.1 million, which is $2.6
million above their carrying value of $274.5 million. Information relating to
the fair value of the Company's interest rate swap agreements is set forth in
Note E.

NOTE O -- EARNINGS PER COMMON SHARE

Summarized basic and diluted earnings per common share were calculated as
follows:

For 2001, 2000, and 1999, 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 the common
stock and, therefore anti-dilutive, was 628,000, 1,485,118, and 1,707,947,
respectively.

NOTE P -- UNAUDITED QUARTERLY DATA

Summarized quarterly financial data for 2001 and 2000 is as follows:

F-23

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- ---------------

(1) Includes the effects of a pre-tax legal settlement of $52.0 million
associated with a 2001 settlement of a class action lawsuit in the state of
Missouri, Illinois and Tennessee.

(2) Includes the effects of a pre-tax legal reversion of $22.4 million
associated with the 1999 settlement of three class action lawsuits in the
state of New Jersey.

NOTE Q -- RELATED PARTY TRANSACTIONS

On October 8, 2001, Rent-A-Center announced the retirement of J. Ernest
Talley as its Chairman and Chief Executive Officer, and the appointment of Mark
E. Speese as its new Chairman and Chief Executive Officer. In connection with
Mr. Talley's retirement, Rent-A-Center's Board of Directors approved the
repurchase of $25.0 million worth of shares of its common stock held by Mr.
Talley at a purchase price equal to the average closing price of its 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 Rent-A-Center repurchased 493,632 shares of its
common stock from Mr. Talley at $20.258 per share for a total purchase price of
$10.0 million and on November 30, 2001, repurchased an additional 740,448 shares
of its common stock from Mr. Talley at $20.258 per share, for a total purchase
price of an additional $15.0 million. Rent-A-Center also had the option to
repurchase all of the remaining 1,714,086 shares of its common stock held by Mr.
Talley at $20.258 per share for $34.7 million by February 5, 2002. Rent-A-Center
exercised this option on January 25, 2002 and repurchased the remaining shares
on January 30, 2002.

One of Rent-A-Center's directors serves as Vice Chairman of the Board of
Directors of Intrust Bank, N.A., one of Rent-A-Center's lenders. Intrust Bank,
N.A. was a $10.4 million participant in Rent-A-Center's senior credit facility
as of December 31, 2001. Rent-A-Center also maintains a $10.0 million revolving
line of credit with Intrust Bank, N.A. Although from time to time Rent-A-Center
may draw funds from the revolving line of credit, no funds were advanced as of
December 31, 2001. In addition, Intrust Bank, N.A. serves as trustee of
Rent-A-Center's 401(k) plan.

In June 2000, Rent-A-Center purchased stores from Portland II RAC, Inc. and
Wilson Enterprises of Maine, Inc., each of which were ColorTyme franchisees, for
$19.4 million in cash based upon a purchase formula established at the time of
the Thorn Americas acquisition. Rent-A-Center's current president held
approximately 15% of the stock of each of the franchisees and received
$1,833,046 in cash as a result of the purchase. In July 2000, partners of
Rent-A-Center's President purchased his 33 1/3% interest in CTME, LLC, another
of the ColorTyme's franchisees, for $37,500. Rent-A-Center's President no longer
owns an interest in any ColorTyme franchisees.

F-24

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On August 5, 1998, affiliates of Apollo Management IV, L.P. ("Apollo")
purchased $250.0 million of Rent-A-Center's Series A preferred stock. Under the
terms of the Series A preferred stock, the holders of the Series A preferred
stock have the right to elect two members of Rent-A-Center's Board of Directors.
Apollo has voting control over 100% of the issued and outstanding Series A
preferred stock. In addition, pursuant to the terms of a stockholders agreement
entered into between Apollo, Rent-A-Center and Mark E. Speese, Apollo has the
right to nominate a third person to Rent-A-Center's Board of Directors.

F-25

EXHIBIT INDEX

- ---------------

* Filed herewith.

+ Management contract or company plan or arrangement

(1) Incorporated herein by reference to Exhibit 3.2 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 1994

(2) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996

(3) Incorporated herein by reference to Exhibit 3.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001

(4) Incorporated herein by reference to Exhibit 3.4 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002

(5) Incorporated herein by reference to Exhibit 4.1 to the registrant's Form
S-4 filed on January 19, 1999.

(6) Incorporated herein by reference to Exhibit 4.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998

(7) Incorporated herein by reference to Exhibit 4.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998

(8) Incorporated herein by reference to Exhibit 4.4 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999

(9) Incorporated herein by reference to Exhibit 4.5 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999

(10) Incorporated herein by reference to Exhibit 4.6 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999

(11) Incorporated herein by reference to Exhibit 4.7 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999

(12) Incorporated herein by reference to Exhibit 4.6 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002

(13) Incorporated herein by reference to Exhibit 4.7 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002

(14) Incorporated herein by reference to Exhibit 10.1 to the registrant's
Registration Statement of Form S-4 filed on January 22, 2002 (File No.
333-81160)

(15) Incorporated herein by reference to Exhibit 10.4 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000

(16) Incorporated herein by reference to Exhibit 10.5 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001

(17) Incorporated herein by reference to Exhibit 10.4 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002

(18) Incorporated herein by reference to Exhibit 10.19 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998

(19) Incorporated herein by reference to Exhibit 10.21 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998

(20) Incorporated herein by reference to Exhibit 10.22 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998

(21) Incorporated herein by reference to Exhibit 10.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001

(22) Incorporated herein by reference to Exhibit 10.9 to the registrant's
Registration Statement on Form S-4 filed on January 22, 2002

(23) Incorporated herein by reference to Exhibit 21.1 to the registrant's
Registration Statement on Form S-4 filed on January 19, 1999