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, 2002
[ ] 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 45-0491516
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

5700 TENNYSON PARKWAY
THIRD FLOOR
PLANO, TEXAS 75024
972-801-1100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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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. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

AGGREGATE MARKET VALUE OF THE 33,631,901 SHARES OF COMMON STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT AT THE CLOSING SALES PRICE ON
MARCH 24, 2003......................................... $1,854,799,340

NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF THE CLOSE OF
BUSINESS ON MARCH 24,
2003:.......................................................34,853,773

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive proxy statement relating to the 2003 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

Unless the context indicates otherwise, references to "we," "us" and "our"
refers to the consolidated business operations of Rent-A-Center, Inc., the
parent, and all of its direct and indirect subsidiaries.

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, 2002, we
operated 2,407 company-owned stores nationwide and in Puerto Rico, including 23
stores in Wisconsin operated by our subsidiary Get It Now, LLC under the name
"Get It Now." Another of our subsidiaries, ColorTyme, Inc., is a national
franchisor of rent-to-own stores. At December 31, 2002, ColorTyme had 318
franchised stores in 40 states, 306 of which operated under the ColorTyme name
and 12 of which operated under the Rent-A-Center name. These franchise stores
represent a further 4% market share based on store count.

Our stores generally offer high quality, durable products such as home
electronics, appliances, computers and furniture and accessories under flexible
rental purchase agreements that generally allow the customer to obtain ownership
of the merchandise at the conclusion of an agreed upon rental period. These
rental purchase agreements are designed to appeal to a wide variety of customers
by allowing them to obtain merchandise that they might otherwise be unable to
obtain due to insufficient cash resources or a lack of access to credit. These
agreements also cater to customers who only have a temporary need or who simply
desire to rent rather than purchase the merchandise. Get It Now offers our
merchandise on an installment sales basis in Wisconsin. We offer well known
brands such as Philips, Sony, JVC, Toshiba and Mitsubishi home electronics,
Whirlpool appliances, Dell, IBM, Compaq and Hewlett-Packard computers and
Ashley, England, Berkline and Standard 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 at no charge, including 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.

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. We do not intend for information
contained on our website to be part of this Form 10-K. We make available free of
charge on or through our website our annual report on Form 10-K, our quarterly
reports on Form 10-Q, our current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act as soon as reasonably practicable after we electronically file such material
or furnish it to the SEC. Additionally, we voluntarily will provide electronic
or paper copies of our filings free of charge upon request.

CORPORATE REORGANIZATION

Effective as of December 31, 2002, we completed a tax-free internal
reorganization of our corporate structure. The reorganization was effected
through an inversion merger whereby Rent-A-Center, Inc. became a wholly-owned
subsidiary of Rent-A-Center Holdings, Inc., a newly formed Delaware holding
company, which was incorporated as a Delaware corporation on November 26, 2002.
Upon the merger, Rent-A-Center, Inc. changed its name to "Rent-A-Center East,
Inc.," and Rent-A-Center Holdings, Inc. adopted the name "Rent-A-Center, Inc."
The newly formed parent company, Rent-A-Center, Inc., is deemed the "successor
issuer" to Rent-A-Center East, Inc. Rent-A-Center East was originally
incorporated as a Delaware corporation on September 16, 1986.

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INDUSTRY OVERVIEW

According to industry sources and our estimates, the rent-to-own industry
consists of approximately 8,300 stores, and provides approximately 7.0 million
products to over 2.8 million households each year. We estimate the six largest
rent-to-own industry participants account for approximately 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."

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, in the later part of 2001, we 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 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, IBM, Compaq and Hewlett-Packard computers and Ashley, England,
Berkline and Standard 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.

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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 2,407
at December 31, 2002, primarily through acquisitions. During this period, we
acquired over 2,200 company-owned stores and over 350 franchised stores in more
than 120 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.

Having successfully integrated the Thorn Americas and Central Rents
acquisitions, we resumed our strategy of increasing our store base. The table
below summarizes the store growth activity over the last three fiscal years.

In February 2003, we acquired substantially all of the assets of 295 stores
located throughout the United States from Rent-Way, Inc. and certain of its
subsidiaries for approximately $100.4 million in cash. Of the 295 stores, 176
were merged with existing locations. For more details on the Rent-Way
transaction, please read the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Recent
Developments." Furthermore, since December 31, 2002, we acquired additional
accounts from one store location for approximately $100,000 in cash and opened
an additional 20 new stores. We also closed three stores, merging them with
existing stores, resulting in a total store count of 2,543 at March 24, 2003.

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 strategies to increase our name recognition and enhance
our national brand. As part of that strategy, we utilize television and radio
commercials, print, direct response and in-store signage, all of which are
designed to increase our name recognition among our customers and potential
customers. 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 customer about the rent-to-own alternative to merchandise purchases
as well as solidify our reputation as a leading provider of high quality branded
merchandise.

4

OUR STORES

At December 31, 2002, we operated 2,407 stores nationwide and in Puerto
Rico. In addition, our subsidiary ColorTyme franchised 318 stores in 40 states.
This information is illustrated by the following table:

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* Represents stores operated by Get It Now, LLC, one of our subsidiaries.

Our stores average approximately 4,400 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. 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

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December 31, 2002, home electronic products accounted for approximately 42% of
our store rental revenue, furniture and accessories for 32%, appliances for 16%
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 high definition and
wide-screen 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 and laptop computers from Dell, IBM, 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, Berkline and Standard and
other top brand manufacturers. Accessories include pictures, 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 6 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 the store in cash, by money order or debit card.
Approximately 85% of our customers pay 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

On average, 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 23 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 covering the
particular loss. Most of the products we offer are covered by a
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manufacturer's warranty for 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 management information system to track collections
on a daily basis. Our goal is to have no more than 6.50% of our rental
agreements past due one day or more each Saturday evening. For fiscal years
2002, 2001 and 2000, the average week ending past due percentages were 5.95%,
5.74% and 5.83%, respectively. 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 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 each of 2002, 2001 and 2000.

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, store management is required to count the store's
inventory on hand and compare the count to the accounting records, with the
market manager performing a similar audit at least bi-monthly. 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 ensuring 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, 2002, we had 328 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 store managers are following the operational guidelines,
particularly those involving store presentation, collections, inventory levels
and order verification. The regional directors report to eight senior vice
presidents at our headquarters. The regional directors receive a significant
amount of their compensation based on the profitability of the stores under
their management.

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 management information and control system. Each store is equipped
with a computer system utilizing point of sale software developed

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by High Touch. This system tracks individual components of revenue, each item in
idle and rented inventory, total items on rent, delinquent accounts, items in
service and other account information. We electronically gather each day's
activity report, which provides our executive management with access to all
operating and financial information concerning 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 1.5 million rental purchase
agreements, which often include more than one unit of merchandise. In addition,
our bank reconciliation 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 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 our 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. Additionally, we have predetermined levels of inventory allowed in
each store which restrict levels of merchandise that may be purchased. All
merchandise is shipped by vendors directly to each store, where it is held for
rental. We do not utilize any distribution centers. 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 16.3%, 14.0%, and 10.0%, respectively,
of merchandise purchased in 2002. 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 that obligate us to meet certain minimum
purchasing levels. 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 years ended December 31, 2002, 2001 and 2000 was approximately 3.2%, 4.0%
and 4.0%, respectively. 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.

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 8,300 rent-to-own stores in the United States. We are
the largest operator in the rent-to-own industry with 2,407 stores and 318
franchised locations

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as of December 31, 2002. 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, 2002, ColorTyme franchised 318 rent-to-own stores in 40 states. These
rent-to-own stores offer high quality durable products such as home electronics,
appliances, computers and furniture and accessories. During 2002, 16 new
locations were added, four were closed and 36 were sold, of which 35 were sold
to us.

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 2.0% 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 retrieve data and information from the franchised stores' computer
systems. The franchise agreements also limit the ability of the franchisees to
compete against other franchisees.

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. ColorTyme negotiates purchase arrangements
with various suppliers it has approved. ColorTyme's largest supplier is
Whirlpool, which accounted for approximately 14.9% of merchandise purchased by
ColorTyme in 2002.

ColorTyme is a party to an agreement with Textron Financial Corporation,
who provides $40.0 million in aggregate 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. An
additional $10.0 million of financing is provided by Texas Capital Bank,
National Association under an arrangement similar to the Textron financing. We
guarantee the obligations of ColorTyme under these agreements up to a maximum
amount of $50.0 million, of which $33.8 million was outstanding as of December
31, 2002. Mark E. Speese, our Chairman of the Board and Chief Executive Officer,
is a passive investor in Texas Capital Bank, owning less than 1% of its
outstanding equity.

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. ColorTyme also has the right to
require franchisees 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.

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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 stores.

The ColorTyme franchise agreement provides us a right of first refusal to
purchase the franchise location of a ColorTyme franchisee that wishes to exit
the business or that goes into default under their financing agreement.

GET IT NOW OPERATIONS

On September 30, 2002, we transferred all of our Wisconsin store operations
to a newly formed wholly-owned subsidiary, Get It Now, LLC. On October 1, 2002,
Get It Now began operations in the state of Wisconsin under a retail operation
which generates installment credit sales through a retail transaction. As of
December 31, 2002, we operated 23 company-owned stores within Wisconsin, all of
which operate under the name "Get It Now."

TRADEMARKS

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

EMPLOYEES

As of March 21, 2003, we had approximately 14,300 employees, of whom 255
are assigned to our headquarters and the remainder are directly involved in the
management and operation of our stores and service centers. As of the same date,
we had approximately 20 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. However, we have not entered into a collective bargaining agreement
covering these employees. We believe relationships with our employees and
ColorTyme's relationships with its employees are generally good.

In connection with the settlement of the Wilfong matter finalized in
December 2002, we entered into a four-year consent decree, which can be extended
by the Wilfong court for an additional one year upon a showing of good cause. We
also 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 settlement of
the Wilfong matter.

GOVERNMENT REGULATION

STATE REGULATION

Currently 47 states, the District of Columbia 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

10

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, generally do not
become applicable unless the total rental payments required under an agreement
exceed 2.0 times to 2.4 times the disclosed cash price or the retail value of
the rental product.

Minnesota, which has a rental purchase statute, and New Jersey and
Wisconsin, 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 utilized a separate
rental agreement in Minnesota which does not provide customers with an option to
purchase rented merchandise. In New Jersey, we have provided increased
disclosures and longer grace periods. In Wisconsin, our Get It Now customers are
provided an opportunity to purchase our merchandise through an installment sale
transaction. We operate four stores in Minnesota and 40 stores in New Jersey.
Our subsidiary Get It Now operates 23 stores in Wisconsin. Please read 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 97
stores in North Carolina.

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.

FEDERAL LEGISLATION

To date, 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, we have supported legislation introduced in Congress
that would regulate the rental purchase transaction by establishing a national
standard relating to the various disclosures, procedures and rent-to-own
transaction structures with which we must comply. While both beneficial and
adverse legislation may be introduced in Congress in the future, 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. We believe these are all the material risks currently
facing our business. Our business, financial condition or results of operations
could be materially adversely affected by 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. You should also refer to the other information included
or incorporated by reference in this report, including our financial statements
and related notes.

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

As part of our growth strategy, we intend to increase our total number of
stores in both existing markets and new markets through a combination of new
store openings and store acquisitions. We increased our store base by 83 stores
in 2000, 123 stores in 2001 and 126 stores in 2002. We also recently completed
the acquisition of 295 stores from Rent-Way and certain of its subsidiaries. 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 our 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.

Our continued growth also depends on our ability to increase sales in our
existing stores. Our same store sales increased by 12.6%, 8.0% and 6.0% for
2000, 2001 and 2002, respectively. As a result of new store openings in existing
markets and because mature stores will represent an increasing proportion of our
store base over time, our same store sale increases in future periods may be
lower than historical levels.

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 a class
action lawsuit alleging we violated the securities laws and lawsuits alleging we
violated state wage and hour laws. 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 indenture governing Rent-A-Center East's 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 indenture governing
Rent-A-Center East's outstanding subordinated notes restrict our ability to pay
dividends, engage in various operational matters, as well as
12

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 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
accelerate 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 Rent-A-Center East's outstanding
subordinated notes, as well as limiting the 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 a
third party became the beneficial owner of 33.33% or more of our voting stock or
upon certain changes in the constitution of our Board of Directors. As of
December 31, 2002, we were required to make principal payments under our senior
credit facilities of $1.1 million in 2003, $13.0 million in 2004, $49.1 million
in 2005, $114.1 million in 2006, and $72.2 million after 2006. These payments
reduce our cash flow. If the lenders under our debt instruments accelerate these
obligations, we may not have sufficient liquid assets to repay amounts
outstanding under these agreements.

Under the indenture governing Rent-A-Center East's outstanding subordinated
notes, in the event that a change in control occurs, Rent-A-Center East may be
required to offer to purchase all of its 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.

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.

13

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.

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
Chief Operating Officer, and Dana F. Goble our Executive Vice President --
Operations. We do not have employment contracts with or maintain key-person
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
OVER THE OUTCOME OF CERTAIN CORPORATE TRANSACTIONS AFFECTING US, INCLUDING
POTENTIAL MERGERS OR ACQUISITIONS, THE CONSTITUTION OF OUR BOARD OF DIRECTORS
AND SALES OR CHANGES IN CONTROL.

Affiliates of Apollo Management IV, L.P. hold all of our outstanding Series
A preferred stock. Under the terms of our Series A preferred stock, the holders
of Series A preferred stock generally have the right to elect two members to our
board of directors. In addition, pursuant to the terms of a stockholders
agreement entered into among us, Apollo, Mark E. Speese and certain other
parties, Apollo has the right to designate a third person to be nominated to our
board of directors. The terms of our Series A preferred stock as well as the
stockholders agreement also contain provisions requiring Apollo's approval to
effect certain transactions involving us, including repurchasing shares of our
common stock, declaring or paying any dividend on our common stock, increasing
the size of our board of directors, selling all or substantially all of our
assets and entering into any merger or consolidation or other business
combination.

These documents also provide that one member of each of our audit
committee, compensation committee and finance committee must be a director who
was elected by Apollo. In addition, the terms of our Series A preferred stock
and the stockholders agreement restrict our ability to issue debt or equity
securities with a value in excess of $10 million without the majority
affirmative vote of our finance committee, and in most cases, require the
unanimous vote of our finance committee for the issuance of our equity
securities with a value in excess of $10 million.

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 indenture governing Rent-A-Center East's 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.

14

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, changes in same store sales and when and how many
stores we acquire or open;

- quarterly variations in our competitors' results of operations;

- 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. Store
sizes range from approximately 1,800 to 25,000 square feet, and average
approximately 4,400 square feet. Approximately 80% of each store's space is
generally used for showroom space and 20% for offices and storage space. Our
headquarters, including Get It Now, and ColorTyme's headquarters are each
located at 5700 Tennyson Parkway, Plano, Texas, and consist of approximately
78,536 and 5,116 square feet devoted to our operations and ColorTyme's
operations, respectively.

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 material 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 plaintiff 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 plaintiff
acknowledges that rent-to-own transactions in New York are subject to the
provisions of New York's Rental Purchase Statute but contends the Rental
Purchase Statute does not provide Thorn Americas immunity from suit for other
statutory violations. The plaintiff alleges 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 relating to excessive and unconscionable pricing, late
fees, harassment, undisclosed charges, and the ease of use and accuracy of its
payment records. In the prayer for relief, the plaintiff requested class
certification, injunctive relief requiring Thorn Americas to cease certain
marketing practices and price their rental purchase contracts in certain ways,
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 plaintiff has not
alleged a specific monetary amount with respect to the request for damages.

The proposed class includes all New York residents who were party to Thorn
Americas' rent-to-own contracts from November 26, 1994. In November 2000,
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 the plaintiff's claims based on the alleged
failure to disclose an effective interest rate. The plaintiff's other claims
were not dismissed. The plaintiff moved to certify a state-wide class in
December 2000. The plaintiff's class certification motion was heard by the court
on November 7, 2001 and, on September 12, 2002, the court issued an opinion
denying in part and granting in part the plaintiff's requested certification.
The opinion grants certification as to all of the plaintiff's claims except the
plaintiff's pricing claims pursuant to the Rental Purchase Statute, as to which
certification was denied. The parties have differing views as to the effect of
the court's opinion, and accordingly, the court has granted the parties
permission to submit competing orders as to the effect of the opinion on the
plaintiff's specific claims. We anticipate submitting our proposed order to the
court in the near future, but in any event intend to pursue an interlocutory
appeal of the court's certification order.

We believe these claims are without merit and will continue to vigorously
defend ourselves in this case. However, we cannot assure you that we will be
found to have no liability in this matter.
16

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, coupled with the opportunity afforded our rental customers to
purchase the rented merchandise under what we believed was a separate
transaction, was a disguised credit sale subject to the Wisconsin Consumer Act.
Accordingly, the Attorney General alleged that we failed to disclose credit
terms, misrepresented the terms of the transaction and engaged in unconscionable
practices. The Attorney General sought 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.

On October 1, 2002, in anticipation of the settlement of this matter, we
changed our business practices in Wisconsin to a retail sale model. Accordingly,
our 23 Wisconsin stores now offer credit sale transactions and operate under our
subsidiary Get It Now, which is subject to regulation under the Wisconsin
Consumer Act.

On November 12, 2002, we signed a settlement agreement for this suit with
the Attorney General, which was approved by the court on the same day. Under the
terms of the settlement, we created a restitution fund in the amount of $7.0
million for our eligible Wisconsin customers who had completed or active
transactions with us as of September 30, 2002. In addition, we paid $1.4 million
to the State of Wisconsin for fines, penalties, costs and fees. A portion of the
restitution fund is allocated for customers with completed transactions as of
September 30, 2002, and the balance is allocated for restitution on active
transactions as of September 30, 2002, which will be allowed to terminate
according to their terms when customers either acquire or return the
merchandise. Restitution will be offered on the active transactions when all
such active transactions have terminated, which we anticipate will occur by the
fall of 2004. Any unclaimed restitution funds at the conclusion of the
restitution period will be returned to us. To the extent the amount in the
restitution fund is insufficient to pay the required amount of restitution, we
are obligated to provide additional funds to do so. However, we believe the
amount in the restitution fund allocated for the active transactions, together
with the amount of funds we anticipate will remain unclaimed by customers with
completed transactions, will be sufficient to pay the required amount of
restitution on all eligible active transactions. Any customer accepting a
restitution check will be required to release us and our subsidiary ColorTyme
from all claims related to their transaction or transactions with us. We,
together with ColorTyme, also agreed to enter into an injunction requiring each
of us to comply with the Wisconsin Consumer Act in any transaction in Wisconsin
in which the customer can become the owner of merchandise other than through a
single lump sum payment.

Terry Walker, 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 Sections 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. Similar complaints were consolidated by
the court with the Walker matter in October 2002.

On November 25, 2002, the lead plaintiffs in the Walker matter filed an
amended consolidated complaint which added certain of our outside directors as
defendants to the Exchange Act claims. The amended complaint also added
additional claims that we, and certain of our current and former officers and
directors, violated various provisions of the Securities Act of 1933 as a result
of alleged misrepresentations and omissions in connection with an offering in
May 2001 and also added the managing underwriters in that offering as
defendants.

On February 7, 2003, we, along with the officer and director defendants,
filed a motion to dismiss the matter as well as a motion to transfer venue. On
February 19, 2003, the underwriter defendants also filed a motion to dismiss.
The court has scheduled a hearing for June 26, 2003 to hear each of these
motions.

We believe the plaintiff's claims in this matter 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.

Gregory Griffin, et. al. v. Rent-A-Center, Inc. On June 25, 2002, a suit
originally filed by Gregory Griffin in state court in Philadelphia, Pennsylvania
was amended to seek relief both individually and on behalf of a class of
customers in Pennsylvania, alleging that we violated the Pennsylvania Goods and
Services Installment

17

Sales Act and the Pennsylvania Unfair Trade Practices and Consumer Protection
Law. The amended complaint asserts that our rental purchase transactions are, in
fact, retail installment sales transactions, and as such, are not governed by
the Pennsylvania Rental-Purchase Agreement Act, which was enacted after the
adoption of the Pennsylvania Goods and Services Installment Sales Act and the
Pennsylvania Unfair Trade Practices Act. Griffin's suit seeks class-wide
remedies, including injunctive relief, unspecified statutory, actual and treble
damages, as well as attorney's fees and costs.

In July 2002, we filed preliminary objections to the complaint in Griffin.
On December 13, 2002, the court granted our preliminary objections and dismissed
the plaintiffs' claims. On January 6, 2003, the plaintiffs filed a notice of
appeal. We believe the plaintiffs' claims in this matter 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.

State Wage and Hour Class Actions. On August 20, 2001, a putative class
action was filed against us in state court in Multnomah County, Oregon entitled
Rob Pucci, et. al. v. Rent-A-Center, Inc. alleging violations of Oregon state
law regarding overtime, lunch and work breaks and failure to timely pay all
wages due our Oregon employees, as well as contract claims that we promised but
failed to pay overtime. Pucci seeks to represent a class of all present and
former executive assistants, inside/outside managers and account managers
employed by us within the six year period prior to the filing of the complaint
as to the contract claims, and three years as to the statutory claims, and seeks
class certification, payments for all unpaid wages under Oregon law, statutory
and civil penalties, costs and disbursements, pre- and post-judgment interest in
the amount of 9% per annum and attorneys fees. As of March 24, 2003, we operated
23 stores in Oregon. On July 25, 2002, the plaintiffs filed a motion for class
certification and on July 31, 2002, we filed our motion for summary judgment. On
January 15, 2003, the court orally granted our motion for summary judgment in
part, ruling that the plaintiffs were prevented from recovering overtime
payments at the rate of "time and a half," but stated that the plaintiffs may
recover "straight-time" to the extent plaintiffs could prove purported class
members worked in excess of forty hours in a work week but were not paid for
such time worked. The court denied our motion for summary judgment on the
remaining claims and granted plaintiff's motion for class certification with
respect to the remaining claims. We strongly disagree with the court's rulings
against our positions and have requested that the court grant us interlocutory
appeal on those matters. Although we believe the claims remaining in this case
are without merit, we cannot assure you we will be found to have no liability in
this matter.

We are subject to a similar suit pending in Clark County, Washington
entitled Kevin Rose, et al. v. Rent-A-Center, Inc., et al. and two similar suits
pending in Los Angeles, California entitled Jeremy Burdusis, et al. v.
Rent-A-Center, Inc., et al. and Israel French, et al. v. Rent-A-Center, Inc.,
each of which allege similar violations of the wage and hour laws of those
respective states. As of March 24, 2003, we operated 41 stores in Washington and
151 stores in California. The same law firm seeking to represent the purported
class in Pucci is seeking to represent the purported class in two of the three
similar suits. Although the wage and hour laws and class certification
procedures of Oregon, Washington and California contain certain differences that
could cause differences in the outcome of the pending litigation in these
states, we believe the claims of the purported classes involved in each are
without merit. We cannot assure you, however, that we will be found to have no
liability in these matters.

Gender Discrimination Actions. In June 2002, we agreed to settle the
Wilfong and Tennessee EEOC gender discrimination matters for an aggregate of
$47.0 million, including attorneys fees. Such settlement contemplated dismissal
of the Bunch proceeding, a similar suit for gender discrimination pending in a
separate federal district court, and provided for a separate $2.0 million
dispute resolution fund for the Bunch plaintiffs, which was subsequently
approved by the Bunch court. On October 4, 2002, the court in the Wilfong matter
approved the settlement we had reached with the Wilfong plaintiffs and entered a
final judgment. Only 50 individuals opted out of the settlement and no timely
objections were filed with the court. No party filed an appeal of the court's
order, and we funded the settlement as provided for in the settlement agreement
in December 2002. As contemplated by the Wilfong settlement, the Tennessee EEOC
action was dismissed in December 2002, and the Bunch matter will be dismissed in
the near future.

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 24, 2003, there were approximately 52 record holders of our
common stock.

We have not paid any cash dividends on our common stock since the time of
our initial public offering.

Under the terms of the certificate of designations governing our Series A
preferred stock, dividends on our Series A preferred stock may be paid in cash
or additional shares of Series A preferred stock, at our option, until August 5,
2003, after which time the dividends must be paid in cash. From the time of the
issuance of our Series A preferred stock in August 1998 until December 2002, we
paid the required dividends in additional shares of Series A preferred stock due
to restrictions under our senior credit facility. These additional shares were
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 were convertible into
our common stock at a conversion price of $27.935.

On August 5, 2002, the first date on which we had the right to optionally
redeem the shares of Series A preferred stock, the holders of our Series A
preferred stock converted all but two shares of our Series A preferred stock
held by them into 7,281,548 shares of our common stock, thereby substantially
eliminating the Series A preferred stock dividend requirements. In December
2002, we amended our senior credit facility to, among other things, allow for
payments of dividends in cash, subject to certain restrictions.

Cash dividend payments are also subject to the restrictions in the
indenture governing Rent-A-Center East's subordinated notes. These restrictions
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, 2002 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 settlement of $52.0 million
associated with the 2001 settlement of class action lawsuits 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 1999 settlement of three class action lawsuits in the
state of New Jersey.

(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, 2002, we
operated 2,407 company-owned stores nationwide and in Puerto Rico, including 23
stores located in Wisconsin and operated by our subsidiary Get It Now, LLC under
the name "Get It Now." Another of our subsidiaries, ColorTyme, is a national
franchisor of rent-to-own stores. At December 31, 2002, ColorTyme had 318
franchised stores in 40 states, 306 of which operated under the ColorTyme name
and 12 stores of which operated under the Rent-A-Center name. Our stores
generally offer high quality durable products such as home electronics,
appliances, computers, and furniture and accessories under flexible rental
purchase agreements that generally allow the customer to obtain ownership of the
merchandise at the conclusion of an agreed-upon rental period. These rental
purchase agreements are designed to appeal to a wide variety of customers by
allowing them to obtain merchandise that they might otherwise be unable to
obtain due to insufficient cash resources or a lack of access to credit. These
agreements also cater to customers who only have a temporary need, or who simply
desire to rent rather than purchase the merchandise.

We have pursued an aggressive growth strategy since 1989. We have sought to
acquire underperforming stores to which we could apply our operating model as
well as open new stores. As a result, the acquired stores have generally
experienced more significant revenue growth during the initial periods following
their acquisition than in subsequent periods. Because of significant growth
since our formation, particularly 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, Rent-A-Center East may be required to offer
to repurchase all of its outstanding subordinated notes at 101% of their
principal amount, plus accrued interest to the date of repurchase. Our senior
credit facility restricts our ability to repurchase the 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. In the event a change in control
occurs, we cannot be sure we would have enough funds to immediately pay our
accelerated senior credit facility obligations and all of the subordinated
notes, 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 generally can
be identified by the use of forward-looking terminology, such as "may," "will,"
"would," "expect," "intend," "could," "estimate," "should," "anticipate" or
"believe." We believe 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 our 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;

- 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;

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

- the other risks detailed from time to time in our SEC 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 ACCOUNTING POLICIES INVOLVING 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 accounting principles, we must often
make individual estimates and assumptions regarding expected outcomes or
uncertainties. As you might expect, the actual results or outcomes are generally
different than the estimated or assumed amounts. These differences are usually
minor and are included in our consolidated financial statements as soon as they
are known. Our estimates, judgments and assumptions are continually evaluated
based on available information and experience. Because of the use of estimates
inherent in the financial reporting process, actual results could differ from
those estimates.

Actual results related to the estimates and assumptions made by us in
preparing our consolidated financial statements will emerge over periods of
time, such as estimates and assumptions underlying the determination of our
self-insurance liabilities. These estimates and assumptions are closely
monitored by us and periodically adjusted as circumstances warrant. For
instance, our liability for our self-insured retentions related to our workers
compensation, general liability, medical and auto liability may be adjusted
based on

23

higher or lower actual loss experience. Although there is greater risk with
respect to the accuracy of these estimates and assumptions because of the period
over which actual results may emerge, such risk is mitigated by our ability to
make changes to these estimates and assumptions over the same period.

In preparing our financial statements at any point in time, we are also
periodically faced with uncertainties, the outcomes of which are not within our
control and will not be known for prolonged periods of time. As discussed in
Part 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
violations of wage and hour laws in our employment practices, as well as claims
we violated the federal securities laws. We, together with our counsel, make
estimates, if determinable, of our probable liabilities and record such amounts
in our consolidated financial statements. These estimates represent our best
estimate, or may be the minimum range of probable loss when no single best
estimate is determinable. We, together with our counsel, monitor developments
related to these legal matters and, when appropriate, adjustments are made to
liabilities to reflect current facts and circumstances.

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

Based on an assessment of our accounting policies and the underlying
judgments and uncertainties affecting the application of those policies, we
believe that our consolidated financial statements fairly present in all
material respects the financial condition, results of operations and cash flows
of our company as of, and for, the periods presented in this report. However, 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. On July 1,
2002, we began accelerating the depreciation on computers that are 21 months old
or older and which have become idle using the straight-line method for a period
of at least six months. The purpose for this change is to better reflect the
depreciable life of a computer in our stores and to encourage the sale of older
computers. Though this method will accelerate the depreciation expense on the
affected computers, we do not expect it to have a material effect on our
financial position, results of operations or cash flows in future periods.

24

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

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

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

Amortization of Intangibles. Amortization of intangibles consists
primarily of the amortization of the excess of purchase price over the fair
market value of acquired assets and liabilities. Effective January 1, 2002,
under SFAS 142 all goodwill and intangible assets with indefinite lives are no
longer subject to amortization. SFAS 142 requires that an impairment test be
conducted annually and in the event of an impairment indicator. We conducted our
transition test in 2002 which showed no impairment of our goodwill. Following
the adoption of SFAS 142, our primary source of amortization comes from customer
relationships and non-compete agreements.

RECENT DEVELOPMENTS

Rent-Way Acquisition. In February 2003, we completed the acquisition of
substantially all of the assets of 295 rent-to-own stores from Rent-Way, Inc.
for an aggregate purchase price of $100.4 million in cash. Of the aggregate
purchase price, we held back $10.0 million to pay for various indemnified
liabilities and expenses, if any. We funded the acquisition entirely from cash
on hand. Of the 295 stores, 176 were merged with our existing stores.

Stock Repurchases. From January 1, 2003 through March 24, 2003, we
repurchased 276,000 shares of our common stock pursuant to our common stock
repurchase program for approximately $13.5 million.

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, 2002 AND 2001

Store Revenue. Total store revenue increased by $203.6 million, or 11.6%,
to $1,952.7 million for 2002 from $1,749.1 million for 2001. The increase in
total store revenue was primarily attributable to growth in same store revenues
during 2002 as well as incremental revenues from the opening of 70 stores and
the acquisition of 83 stores and accounts from another 126 stores in 2002.

Same store revenues represent those revenues earned in 1,834 stores that
were operated by us for each of the entire years ending December 31, 2002 and
2001. Same store revenues increased by $88.9 million, or 6.0%, to $1,570.7
million for 2002 from $1,481.8 million in 2001. This improvement was primarily
attributable to an increase in the number of customers served (approximately 401
per day per store as of December 31, 2002 versus approximately 395 per day per
store as of December 31, 2001 in same stores open), as well as revenue earned
per customer (approximately $2,136 per customer for the year ending December 31,
2002 versus approximately $2,045 per customer for 2001). Merchandise sales
increased $20.8 million, or 21.9%, to $115.5 million for 2002 from $94.7 million
in 2001. The increase in merchandise sales was primarily attributable to an
increase in the number of items sold in 2002 (approximately 875,000) as compared
to the number of items sold in 2001 (approximately 761,000), which was primarily
the result of an increase in the number of customers exercising early purchase
options.

Franchise Revenue. Total franchise revenue decreased by $2.2 million, or
3.6%, to $57.3 million for 2002 from $59.5 million in 2001. This decrease was
primarily attributable to a decrease in merchandise sales to franchise locations
during 2002 as compared to 2001 resulting from a decrease in the number of
franchised locations from 342 at December 31, 2001 to 318 at December 31, 2002.

Depreciation of Rental Merchandise. Depreciation of rental merchandise
increased by $40.2 million, or 11.7%, to $383.4 million for 2002 from $343.2
million for 2001. This increase was primarily attributable to an increase in
rental and fee revenue of $177.6 million, or 10.7%, to $1,828.5 million for 2002
from $1,650.9 for 2001, as well as $2.4 million of the additional depreciation
recognized on computers in 2002 relating to our revised depreciation policy on
computers. Depreciation of rental merchandise expressed as a percentage of store
rentals and fees revenue increased to 21.0% in 2002 from 20.8% in 2001. This
slight increase in 2002 is primarily a result of in-store promotions and pricing
changes made during the third quarter of 2001, which included a reduction in the
rates and terms on certain rental agreements, causing depreciation to be a
greater percentage of store rentals and fees revenue on those promotional items
rented through 2002.

Cost of Merchandise Sold. Cost of merchandise sold increased by $12.1
million, or 16.7%, to $84.6 million for 2002 from $72.5 million in 2001. This
increase was a result of an increase in the number of items sold in 2002, as
compared to 2001, resulting from an increase in early purchase options exercised
in 2002 as compared to 2001.

Salaries and Other Expenses. Salaries and other expenses expressed as a
percentage of total store revenue decreased to 54.8% for 2002 from 58.3% for
2001. This decrease was primarily attributable to an increase in store revenues
during the year ended December 31, 2002 as compared to 2001, coupled with the

26

realization of our margin enhancement initiatives and reductions in store level
costs in 2002, including our regional pay plan we implemented in 2002.

Franchise Cost of Merchandise Sold. Franchise cost of merchandise sold
decreased by $2.1 million, or 4.0%, to $49.2 million for 2002 from $51.3 in
2001. This decrease is a direct result of a decrease in merchandise sales to
franchise locations in 2002 as compared to 2001, offset by a slight increase in
gross profit on these sales, to 4.7% in 2002 as compared to 4.6% in 2001.

General and Administrative Expenses. General and administrative expenses
expressed as a percent of total revenue increased slightly to 3.2% in 2002 from
3.1% in 2001. This increase is primarily attributable to an increase in home
office labor and other overhead expenses for 2002 as compared to 2001.

Amortization of Intangibles. Amortization of intangibles decreased by
$25.2 million, or 83.3%, to $5.0 million for 2002 from $30.2 million in 2001.
This decrease was directly attributable to the implementation of SFAS 142, which
requires that goodwill and other intangibles with indefinite lives no longer be
amortized.

Operating Profit. Operating profit increased by $165.8 million, or 89.9%,
to $350.4 million for 2002 from $184.6 million for 2001. 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, operating profit increased by $113.9 million, or 48.1%, for the year ended
December 31, 2002 from $236.6 million for the year ended December 31, 2001.
Operating profit as a percentage of total revenue increased to 17.4% for the
year ended December 31, 2002 from 13.1% for the year ended December 31, 2001
before the pre-tax class action litigation settlement charges of $52.0 million.
This increase was primarily attributable to an increase in store revenues during
the year ended December 31, 2002 as compared to 2001, coupled with the
realization of our margin enhancement initiatives, reduction of store level
costs and the reduction of intangible amortization expense as discussed above.
After adjusting reported results for the year ended December 31, 2001 to exclude
the effects of goodwill amortization and the non-recurring legal charges,
operating profit increased by $85.9 million, or 32.5% on a comparable basis.

Net Earnings. Net earnings were $172.2 million for the year ended December
31, 2002 and $66.2 million for the year ended December 31, 2001. Before the
after-tax effect of the $52.0 million class action litigation settlement charges
recorded in 2001, net earnings increased by $74.7 million, or 76.6%, for the
year ended December 31, 2002, from $97.5 million for the year ended December 31,
2001. This increase is primarily attributable to growth in operating profit as
discussed above. After adjusting reported results for the year ended December
31, 2001 to exclude the effects of goodwill amortization and the non-recurring
legal charges, net earnings increased by $52.7 million, or 43.1% on a comparable
basis.

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 decreased by $5.2 million, or 33.7%, to $10.2 million for the year
ended December 31, 2002 as compared to $15.4 million in 2001. This decrease is a
direct result of the conversion of 97,197 shares of preferred stock into
3,500,000 shares of our common stock in May 2002 and the conversion in August
2002 of all but two shares of our outstanding Series A preferred stock into
approximately 7,281,548 shares of our common stock, resulting in less preferred
shares outstanding in 2002, following the conversions, as compared to 2001.

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 1,854 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

27

number of agreements on rent (approximately 624 per store as of December 31,
2001 vs. approximately 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 acquisitions made through the date
of this report.

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
28

76 new stores in 2001 and losses incurred for those stores in their initial
months of operations, increases in 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.

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 fourth 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.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities increased by $118.8 million to $294.5
million in 2002 from $175.7 million in 2001. This increase primarily resulted
from an increase in net earnings, a decrease in the amount of rental merchandise
purchased during 2002 and an increase in deferred income taxes offset by a
reduction in accrued liabilities.

Cash used in investing activities decreased by $10.0 million to $96.7
million in 2002 from $106.7 million in 2001. This decrease is primarily
attributable to a decrease in the amount of capital expenditures made in 2002
versus 2001, offset by an increase in the amount spent on new store acquisitions
in 2002 versus 2001.

Cash used in financing activities increased by $222.4 million to $220.0
million in 2001, compared to net cash provided of $2.4 million in 2001. This
increase is a result of our purchase of $65.6 million in treasury stock, the
repurchase of $2.8 million of our subordinated notes and an increase in debt
prepayments of $40.4 million during the year ended December 31, 2002 as compared
to 2001. In addition, there were no proceeds from the issuance of common stock
or debt in 2002, as compared to proceeds of approximately $145.1 million in
2001.

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 programs during 2003. Our
revolving credit facilities provide us with revolving loans in an aggregate
principal amount not exceeding $130.0 million, of which $124.3 million was
available at March 24, 2003. At March 24, 2003, we had $80.9 million in cash.
While our

30

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.

On March 9, 2002, President Bush signed into law the Job Creation and
Worker Assistance Act of 2002, which provides for accelerated tax depreciation
deductions for qualifying assets placed in service between September 11, 2001
and September 10, 2004. Under these provisions, 30 percent of the basis of
qualifying property is deductible in the year the property is placed in service,
with the remaining 70 percent of the basis depreciated under the normal tax
depreciation rules. Accordingly, our cash flow will benefit from having a lower
current cash tax obligation, which in turn will provide additional cash flows
from operations until the deferred tax liabilities begin to reverse. We estimate
that our operating cash flow will increase by approximately $60.0 million
through 2004 before the deferred tax liabilities begin to reverse over a three
year period beginning in 2005.

Rental Merchandise Purchases. We purchased $494.9 million, $526.9 million
and $462.1 million of rental merchandise during the years 2002, 2001 and 2000,
respectively.

Capital Expenditures. We make capital expenditures in order to maintain
our existing operations as well as for new capital assets in new and acquired
stores. We spent $37.6 million, $57.5 million and $37.9 million on capital
expenditures in the years 2002, 2001 and 2000, respectively, and expect to spend
approximately $40.0 million in 2003.

Acquisitions and New Store Openings. During 2002, we continued our
strategy of increasing our store base through opening new stores, as well as
through opportunistic acquisitions. We spent approximately $59.5 million
acquiring stores and accounts for the year ended December 31, 2002. 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.

In February 2003, we completed the acquisition of substantially all of the
assets of 295 rent-to-own stores from Rent-Way, Inc. for an aggregate purchase
price of $100.4 million in cash. Of the aggregate purchase price, we held back
$10.0 million to pay for various indemnified liabilities and expenses, if any.
We funded the acquisition entirely from cash on hand. Of the 295 stores
acquired, 176 store were merged with our existing store locations.

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, 2002.

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 Rent-A-Center East's outstanding subordinated
notes or repurchase our common stock under our common stock repurchase program
to the extent we have available cash that is not

31

necessary for store openings or acquisitions. However, we cannot assure you that
we will have excess cash for these purposes.

Senior Credit Facilities. The senior credit facilities are provided by a
syndicate of banks and other financial institutions led by JPMorgan Chase Bank,
as administrative agent. At December 31, 2002, we had a total of $249.5 million
outstanding under the senior credit facility related to our term loans and
$114.3 million of availability under the revolving credit line portion of the
senior credit facility.

On December 31, 2002, we amended and restated our senior credit facility to
account for our internal corporate reorganization, to restate previous
amendments increasing the amounts of our common stock we are permitted to
re-purchase and to provide for a new Tranche D LC Facility in an aggregate
amount at closing equal to $80.0 million to support our outstanding letters of
credit. Under this new Tranche D LC Facility, in the event that a letter of
credit is drawn upon, we have the right to either repay the Tranche D LC
Facility lenders the amount withdrawn or request a loan in that amount. Interest
on any requested Tranche D LC Facility loan accrues at an adjusted prime rate
plus 1.75% or, at our option, at the Eurodollar base rate plus 2.80%, with the
entire amount of the Tranche D LC Facility due on December 31, 2007.

Borrowings under the senior credit facilities bear interest at varying
rates equal to 1.50% to 3.00% over the Eurodollar rate, which was 1.38% at
December 31, 2002. We also have a prime rate option under the facilities, but
have not exercised it to date. For the year ended December 31, 2002, the average
effective rate on outstanding borrowings under the senior credit facilities was
4.94%, before considering the interest rate swap agreements as described below,
and 7.77%, after giving effect to the interest rate swap agreements in effect
during 2002.

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 agreements, the Eurodollar rate used to calculate the interest rate charged
on our $250.0 million outstanding senior term debt has been fixed at an average
rate of 5.60%. Of the $250.0 million under protection, $140.0 million expires in
August 2003 and the remaining $110.0 million expires in September 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, including without
limitation, covenants that generally limit our ability to:

- incur additional debt (including subordinated debt) in excess of $25
million at any one time outstanding;

- 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 in the ordinary course of business;

- 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 consolidated leverage ratio, a minimum
consolidated interest coverage ratio and a minimum fixed charge coverage ratio.
At December 31, 2002, the maximum consolidated leverage ratio was 3.75:1, the
minimum consolidated interest coverage ratio was 3.00:1, and the minimum fixed
charge coverage ratio was 1.30:1. On that date, our actual ratios were 1.25:1,
6.35:1 and 2.64:1, respectively.

32

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 a third party becomes the beneficial owner of 33.33% or more of our
voting stock or certain changes in our Board of Directors occur.

Subordinated Notes. In August 1998, Rent-A-Center East issued $175.0
million of senior subordinated notes, maturing on August 15, 2008, under an
indenture dated as of August 18, 1998 among Rent-A-Center East, its subsidiary
guarantors and the trustee, which is now The Bank of New York, as successor to
IBJ Schroder Bank & Trust Company. In December 2001, Rent-A-Center East 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
Rent-A-Center East, its subsidiary guarantors and The Bank of New York, as
trustee. On May 2, 2002, Rent-A-Center East closed an exchange offer for, among
other things, all of the notes issued by it under the 1998 indenture, such that
all of the senior subordinated notes are now governed by the terms of the 2001
indenture.

The 2001 indenture contains covenants that limit Rent-A-Center East's
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 2001 indenture 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.

The notes may be redeemed on or after August 15, 2003, at our option, in
whole or in part, at a premium declining from 105.5%. The subordinated notes
also require that upon the occurrence of a change of control (as defined in the
2001 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 Rent-A-Center East 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.

ColorTyme Guarantee. ColorTyme is a party to an agreement with Textron
Financial Corporation, who generally provides $40.0 million in aggregate
financing to qualifying franchisees of ColorTyme of up to five times their
average monthly revenues. Under this agreement, upon an event of default by the
franchisee under agreements governing this financing and upon the occurrence of
certain other events, Textron may assign the loans and the collateral securing
such loans to ColorTyme, with ColorTyme then succeeding to the rights of Textron
under the debt agreements, including the rights to foreclose on the collateral.
An additional $10.0 million of financing is provided by Texas Capital Bank,
National Association under an arrangement similar to the Textron financing. We
guarantee the obligations of ColorTyme under these agreements up to a maximum
amount of $50.0 million, of which $33.8 million was outstanding as of December
31, 2002. Mark E. Speese, our Chairman of the Board and Chief Executive Officer,
is a passive investor in Texas Capital Bank, owning less than 1% of its
outstanding equity.

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, 2002, we have paid
approximately $124.5 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.
33

On November 12, 2002, we signed a settlement agreement settling the
Wisconsin Attorney General matter, which was approved by the court on the same
day. Under the terms of the settlement, we created a restitution fund in the
amount of $7.0 million for our eligible Wisconsin customers who had completed or
active transactions with us as of September 30, 2002. In addition, we paid $1.4
million to the State of Wisconsin for fines, penalties, costs and fees. The
settlement of this matter was fully reserved for in our financial statements. A
portion of the restitution fund is allocated for customers with completed
transactions as of September 30, 2002, and the balance is allocated for
restitution on active transactions as of September 30, 2002, which will be
allowed to terminate according to their terms when customers either acquire or
return the merchandise. Restitution will be offered on the active transactions
when all such active transactions have terminated, which we anticipate will
occur by the fall of 2004. Any unclaimed restitution funds at the conclusion of
the restitution period will be returned to us. To the extent the amount in the
restitution fund is insufficient to pay the required amount of restitution, we
are obligated to provide additional funds to do so. However, we believe the
amount in the restitution fund allocated for the active transactions, together
with the amount of funds we anticipate will remain unclaimed by customers with
completed transactions, will be sufficient to pay the required amount of
restitution on all eligible active transactions.

In June 2002, we agreed to settle the Wilfong and Tennessee EEOC gender
discrimination matters for an aggregate of $47.0 million, including attorneys
fees. Such settlement contemplated dismissal of the Bunch proceeding, a similar
suit for gender discrimination pending in a separate federal district court, and
provided for a separate $2.0 million dispute resolution fund for the Bunch
plaintiffs, which was subsequently approved by the Bunch court. On October 4,
2002, the court in the Wilfong matter approved the settlement we had reached
with the Wilfong plaintiffs and entered a final judgment. Only 50 individuals
opted out of the settlement and no timely objections were filed with the court.
No party filed an appeal of the court's order, and we funded the settlement as
provided for in the settlement agreement in December 2002. As contemplated by
the Wilfong settlement, the Tennessee EEOC action was dismissed in December
2002, and the Bunch matter will be dismissed in the near future.

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 herein.

Sales of Equity Securities. 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. Prior to the conversion of all but two
shares of our Series A preferred stock in August 2002, we paid these dividends
in additional shares of Series A preferred stock because of restrictive
provisions in our senior credit facilities. We have the ability to pay the
dividends in cash and may do so under our senior credit facilities so long as we
are not in default.

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 that 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.

In connection with the issuance of our Series A preferred stock in August
1998, we entered into a registration rights agreement with Apollo which, among
other things, granted them two rights to request that their shares be
registered, and a registration rights agreement with an affiliate of Bear
Stearns, which granted them the right to participate in any company-initiated
registration of shares, subject to certain exceptions. In May 2002, Apollo
exercised one of their two rights to request that their shares be registered and
an affiliate of Bear Stearns elected to participate in such registration. In
connection therewith, Apollo and an affiliate of Bear Stearns converted 97,197
shares of our Series A preferred stock held by them into 3,500,000 shares of our
common stock, which they sold in the May 2002 public offering that was the
subject of Apollo's request. We did not receive any of the proceeds from this
offering.

On August 5, 2002, the first date on which we had the right to optionally
redeem the shares of Series A preferred stock, the holders of our Series A
preferred stock converted all but two shares of our Series A preferred stock
held by them into 7,281,548 shares of our common stock. As a result, the
dividend on our Series A preferred stock has been substantially eliminated for
future periods. In connection with Apollo's conversion of all but two of the
shares of Series A preferred stock held by them on August 5, 2002, we granted
34

Apollo an additional right to effect a demand registration under the existing
registration rights agreement we entered into with them in 1998, such that
Apollo now has two demand rights.

Contractual Cash Commitments. The table below summarizes debt, lease and
other minimum cash obligations outstanding as of December 31, 2002:

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

(1) Excludes obligations under the ColorTyme guarantee, 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 Rent-A-Center East's subordinated notes.

(2) Includes interest payments of $14.97 million on each of February 15 and
August 15 of each year.

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

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 $25.0 million of
our common stock. In October 2002, our board of directors increased our
authority to effect repurchases of our outstanding common stock under our common
stock repurchase program from $25.0 million to $50.0 million, and in March 2003
they increased the authority from $50.0 million to $100.0 million. Through
December 31, 2002, we have repurchased approximately 661,000 shares of our
common stock under this program for approximately $30.9 million, all of which
was effected in the year ended December 31, 2002. Since December 31, 2002, we
repurchased an additional 276,000 shares of our common stock under this program,
for approximately $13.5 million.

As of December 31, 2002, we had repurchased $2.8 million of our
subordinated notes for approximately $3.0 million, which included a loss of
approximately $179,000. Since December 31, 2002, we have not made any additional
repurchases of our 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. Furthermore, we
tend to

35

experience slower growth in the number of rental purchase agreements on rent in
the third quarter of each fiscal year when compared to other quarters throughout
the year. As a result, we would expect revenues for the third quarter of each
fiscal year to remain relatively flat with the prior quarter. We expect this
trend to continue in future periods unless we add significantly to our store
base during the third quarter of future fiscal years as a result of new store
openings or opportunistic acquisitions.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

Accounting for Costs Associated with Exit or Disposal Activities. In June
2002, the FASB issued Statement 146, Accounting for Costs Associated with Exit
or Disposal Activities. This statement requires entities to recognize costs
associated with exit or disposal activities when liabilities are incurred rather
than when the entity commits to an exit or disposal plan, as currently required.
Examples of costs covered by this guidance include one-time employee termination
benefits, costs to terminate contracts other than capital leases, costs to
consolidate facilities or relocate employees, and certain other exit or disposal
activities. This statement is effective for fiscal years beginning after
December 31, 2002 and will impact any exit or disposal activities we initiate
after that date.

Stock-Based Employee Compensation. In December 2002, the FASB issued
Statement 148 (SFAS 148), Accounting for Stock-Based Compensation -- Transition
and Disclosure: an amendment of FASB Statement 123 (SFAS 123), to provide
alternative transition methods for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require prominent
disclosures in annual financial statements about the method of accounting for
stock-based employee compensation and the pro forma effect on reported results
of applying the fair value based method for entities that use the intrinsic
value method of accounting. The pro forma effect disclosures are also required
to be prominently disclosed in interim period financial statements. This
statement is effective for financial statements for fiscal years ending after
December 15, 2002 and is effective for financial reports containing condensed
financial statements for interim periods beginning after December 15, 2002, with
earlier application permitted. We do not plan to change to the fair value based
method of accounting for stock-based employee compensation at this time and have
included the disclosure requirements of SFAS 148 in the accompanying financial
statements.

Accounting for Guarantees. In November 2002, the FASB issued FASB
Interpretation 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45).
FIN 45 requires a guarantor entity, at the inception of a guarantee covered by
the measurement provisions of the interpretation, to record a liability for the
fair value of the obligation undertaken in issuing the guarantee. We previously
did not record a liability when guaranteeing obligations unless it became
probable that we would have to perform under the guarantee. FIN 45 applies
prospectively to guarantees we issue or modify subsequent to December 31, 2002,
but has certain disclosure requirements effective for interim and annual periods
ending after December 15, 2002. We have historically issued guarantees related
to our Colortyme franchisees and other limited purposes and do not anticipate
FIN 45 will have a material effect on our 2003 financial statements. Disclosures
required by FIN 45 are included in the accompanying financial statements.

In January 2003, the FASB issued FASB Interpretation 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46 clarifies the application of
Accounting Research Bulletin 51, Consolidated Financial Statements, for certain
entities that do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support from other
parties or in which equity investors do not have the characteristics of a
controlling financial interest ("variable interest entities"). Variable interest
entities within the scope of FIN 46 will be required to be consolidated by their
primary beneficiary. The primary beneficiary of a variable interest entity is
determined to be the party that absorbs a majority of the entity's expected
losses, receives a majority of its expected returns, or both. FIN 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. We are in the process of
determining what impact, if any, the adoption of the provisions of FIN 46 will
have upon our financial condition or results of operations.
36

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

INTEREST RATE SENSITIVITY

As of December 31, 2002, we had $272.3 million in subordinated notes
outstanding at a fixed interest rate of 11.0% and $249.5 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, 2002 was $292.7 million, which
is $20.9 million above their carrying value. Unlike the subordinated notes, the
$249.5 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,
of which $140.0 million will expire on August 5, 2003 and the remaining $110.0
million will expire on September 5, 2003. The swap agreements had an aggregate
negative fair value of $6.7 million and $10.2 million at December 31, 2002 and
2001, respectively. A hypothetical 1.0% change in the LIBOR rate would have
affected the fair value of the swaps by approximately $1.6 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 15 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 2003 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.

ITEM 14. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures within 90 days before the filing of this
annual report. Based on that evaluation, our management, including our Chief
Executive Officer and our Chief Financial Officer, concluded that our disclosure
controls and procedures were effective. There have been no significant changes
in our internal controls or in other factors that could significantly affect
internal controls subsequent to their evaluation.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS

Report of Independent Certified Public Accountants.......... F-2
Consolidated Financial Statements
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-7

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 November 12, 2002

Current Report on Form 8-K filed on December 31, 2002

Current Report on Form 8-K filed on December 31, 2002

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 26, 2003

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

I, Mark E. Speese, certify that:

1. I have reviewed this annual report on Form 10-K of Rent-A-Center, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 26, 2003

/s/ MARK E. SPEESE
--------------------------------------
Mark E. Speese
Chairman of the Board
and Chief Executive Officer

40

I, Robert D. Davis, certify that:

1. I have reviewed this annual report on Form 10-K of Rent-A-Center, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 26, 2003

/s/ ROBERT D. DAVIS
--------------------------------------
Robert D. Davis
Senior Vice President-Finance,
Treasurer and Chief Financial Officer

41

EXHIBIT INDEX

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

* Filed herewith.

+ Management contract or company plan or arrangement

(1) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current
Report on Form 8-K dated as of December 31, 2002

(2) Incorporated herein by reference to Exhibit 3.1 to the registrant's Current
Report on Form 8-K dated as of December 31, 2002

(3) Incorporated herein by reference to Exhibit 3.2 to the registrant's Current
Report on Form 8-K dated as of December 31, 2002

(4) Incorporated herein by reference to Exhibit 4.1 to the registrant's Form
S-4 filed on January 11, 1999

(5) Incorporated herein by reference to Exhibit 3.1 to the registrant's Current
Report on Form 8-K dated as of December 31, 2002

43

(6) Incorporated herein by reference to Exhibit 4.5 to the registrant's
Registration Statement Form S-4 filed on January 11, 1999

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

(8) Incorporated herein by reference to Exhibit 4.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002

(9) Incorporated herein by reference to Exhibit 4.7 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002

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

(11) Incorporated herein by reference to Exhibit 99.1 to the registrant's
Post-Effective Amendment No. 1 to Form S-8 dated as of December 31, 2002

(12) Incorporated herein by reference to Exhibit 10.7 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001

(13) Incorporated herein by reference to Exhibit 10.8 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002

(14) 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

(15) Incorporated herein by reference to Exhibit 10.10 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002

(16) 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

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

(18) Incorporated herein by reference to Exhibit 10.13 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002

(19) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002

(20) Incorporated herein by reference to Exhibit 10.15 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002

(21) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002

44

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, 2002 and 2001, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2002. 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, 2002 and 2001, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note D to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142") on January 1, 2002.

GRANT THORNTON LLP

Dallas, Texas
February 10, 2003

F-2

RENT-A-CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.
F-3

RENT-A-CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

See accompanying notes to consolidated financial statements.
F-4

RENT-A-CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 2002

See accompanying notes to consolidated financial statements.
F-5

RENT-A-CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

During 2002, 2001 and 2000, the Company paid Series A preferred dividends
of approximately $8.2 million, $10.7 million and $10.3 million by issuing 8,151,
10,678 and 10,330 shares of Series A preferred stock, respectively.

See accompanying notes to consolidated financial statements.
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

Effective as of December 31, 2002, the Company completed a tax-free
internal reorganization of its corporate structure. The reorganization was
effected through an inversion merger whereby Rent-A-Center, Inc. became a
wholly-owned subsidiary of Rent-A-Center Holdings, Inc., a newly formed Delaware
holding company. Upon the merger, Rent-A-Center, Inc. changed its name to
Rent-A-Center East, Inc. ("Rent-A-Center East") and Rent-A-Center Holdings, Inc.
adopted the name Rent-A-Center, Inc.

At December 31, 2002, the Company operated 2,407 company-owned stores
nationwide and in Puerto Rico, including 23 stores in Wisconsin operated by a
subsidiary, Get It Now, LLC, under the name "Get It Now." These financial
statements include the accounts of Rent-A-Center, Inc. ("Rent-A-Center") and its
direct and indirect wholly-owned subsidiaries (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated.
Rent-A-Center's primary operating segment consists of leasing household durable
goods to customers on a rent-to-own basis. Get It Now offers merchandise on an
installment sales basis in Wisconsin.

ColorTyme, Inc. ("ColorTyme"), an indirect wholly-owned subsidiary of
Rent-A-Center, is a nationwide franchisor of 318 franchised rent-to-own stores
operating in 40 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 for all merchandise 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 6 to 30 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. On July 1, 2002, the Company began
accelerating the depreciation on computers that are 21 months old or older and
which have become idle using the straight-line method for a period of at least
six months. As of December 31, 2002, the Company has recognized an additional
$2.4 million in depreciation expense due to this accelerated method on
computers. The purpose for this change is to better reflect the depreciable life
of a computer and to encourage the sale of older computers. Though this method
will accelerate the depreciation expense on the affected computers, the Company
does not expect it to have a material effect on its financial position, results
of operations or cash flows in future periods.

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.
F-7

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

Get It Now's revenue from the sale of merchandise through an installment
credit sale is recognized at the time of the sale, as is the cost of the
merchandise sold, net of a provision for uncollectable accounts.

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

The Company adopted SFAS 142, "Goodwill and Other Intangible Assets,"
effective January 1, 2002 and has identified one reporting unit. In accordance
with SFAS 142, the Company discontinued recording goodwill amortization
effective January 1, 2002. Non-compete agreements, franchise network and
customer relationships are amortized over two to five years, ten years and 18 to
24 months, respectively.

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.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company's objective in managing its exposure to fluctuations in
interest rates is to decrease the volatility of earnings and cash flows
associated with changes in the applicable rates. To achieve this objective, the
Company has entered into interest-rate swap agreements. The interest-rate swaps
are derivative instruments related to forecasted transactions and are considered
to hedge future cash flows. The effective portion of any gains or losses are
included in accumulated other comprehensive income (loss) until earnings are
affected by the variability of cash flows. Any ineffective portion is recognized
currently into earnings. The cash flows of the interest-rate swaps are expected
to be effective in achieving offsetting cash flows attributable to fluctuations
in the cash flows of the floating-rate senior credit facility. If it becomes
probable a forecasted transaction will no longer occur, the interest-rate swap
will continue to be carried on the balance sheet at fair value, and gains or
losses that were deferred in accumulated other comprehensive income (loss) will
be recognized immediately into earnings. If the interest-rate swaps are
terminated prior to their expiration dates, any cumulative gains and losses will
be deferred and recognized into earnings over the remaining life of the
underlying exposure. If the hedged liabilities are to be sold or extinguished,
the Company will recognize the gain or loss on the designated financial
instruments currently into earnings.

F-8

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Changes in the fair value of the effective cash flow hedges are recorded in
accumulated other comprehensive income (loss). The effective portion that has
been deferred in accumulated other comprehensive income (loss) will be
reclassified to earnings when the hedged items impact earnings.

The Company's 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.

The interest-rate swaps were and are based on the same index as their
respective underlying debt. The interest-rate swaps have been effective in
achieving offsetting cash flows attributable to the fluctuations in the cash
flows of the hedged risk, and no amount has been required to be reclassified
from accumulated other comprehensive income (loss) into earnings for hedge
ineffectiveness during the years ended December 31, 2002 and 2001. The
interest-rate swap resulted in an increase of interest expense of $9.4 million
and $3.9 million for the years ended December 31, 2002 and 2001, respectively.
The fair value of the interest-rate swaps increased by $2.6 million, net of tax,
during the year ended December 31, 2002, and decreased by $6.3 million, net of
tax, during the year ended December 31, 2001, which have been recorded in
accumulated other comprehensive income. The estimated net amount of existing
loss expected to be reclassified into earnings during 2003 is approximately $3.7
million. During the year ended December 31, 2002, the amount of cash flow loss
reclassified to earnings because it became probable that the original forecasted
transaction would not occur was not material.

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 $62.7 million, $69.1 million, and $61.2
million in 2002, 2001 and 2000, respectively.

STOCK-BASED COMPENSATION

The Company has in place a long-term incentive plan for the benefit of
certain key employees, consultants and directors, which is described more fully
in Note K. The Company accounts for this plan under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based employee compensation
cost is reflected in net earnings, as all options granted under those plans had
an exercise price equal to the market value of the underlying common stock on
the date of grant. The following table illustrates the effect on net earnings
and

F-9

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

earnings per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation,
to stock-based employee compensation.

The fair value of these options was estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions: expected volatility of 55.8% to 57.3%; risk-free interest rates of
3.5% to 5.5%, 4.2% to 5.3% and 6.5% in 2002, 2001, and 2000, respectively; no
dividend yield; and expected lives of seven years.

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.

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
swap agreements, net of tax.

NEW ACCOUNTING PRONOUNCEMENTS

Accounting for Costs Associated with Exit or Disposal Activities. In June
2002, the FASB issued Statement 146, Accounting for Costs Associated with Exit
or Disposal Activities. This statement requires entities to recognize costs
associated with exit or disposal activities when liabilities are incurred rather
than when the entity commits to an exit or disposal plan, as currently required.
Examples of costs covered by this guidance include one-time employee termination
benefits, costs to terminate contracts other than capital leases, costs to
consolidate facilities or relocate employees, and certain other exit or disposal
activities. This statement is effective for fiscal years beginning after
December 31, 2002, and will impact any exit or disposal activities the Company
initiates after that date.

F-10

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock-Based Employee Compensation. In December 2002, the FASB issued
Statement 148 (SFAS 148), Accounting for Stock-Based Compensation -- Transition
and Disclosure: an amendment of FASB Statement 123 (SFAS 123), to provide
alternative transition methods for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require prominent
disclosures in annual financial statements about the method of accounting for
stock-based employee compensation and the pro forma effect on reported results
of applying the fair value based method for entities that use the intrinsic
value method of accounting. The pro forma effect disclosures are also required
to be prominently disclosed in interim period financial statements. This
statement is effective for financial statements for fiscal years ending after
December 15, 2002 and is effective for financial reports containing condensed
financial statements for interim periods beginning after December 15, 2002, with
earlier application permitted. The Company does not plan to change to the fair
value based method of accounting for stock-based employee compensation at this
time and have included the disclosure requirements of SFAS 148 in these
financial statements.

Accounting for Guarantees. In November 2002, the FASB issued FASB
Interpretation 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45).
FIN 45 requires a guarantor entity, at the inception of a guarantee covered by
the measurement provisions of the interpretation, to record a liability for the
fair value of the obligation undertaken in issuing the guarantee. The Company
previously did not record a liability when guaranteeing obligations unless it
became probable that the Company would have to perform under the guarantee. FIN
45 applies prospectively to guarantees the Company issues or modifies subsequent
to December 31, 2002, but has certain disclosure requirements effective for
interim and annual periods ending after December 15, 2002. The Company has
historically issued guarantees related to ColorTyme franchisees and other
limited purposes and does not anticipate FIN 45 will have a material effect on
its 2003 financial statements. Disclosures required by FIN 45 are included in
these financial statements.

Consolidation of Variable Interest Entities. In January 2003, the FASB
issued FASB Interpretation 46 (FIN 46), Consolidation of Variable Interest
Entities. FIN 46 clarifies the application of Accounting Research Bulletin 51,
Consolidated Financial Statements, for certain entities that do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties or in which equity
investors do not have the characteristics of a controlling financial interest
("variable interest entities"). Variable interest entities within the scope of
FIN 46 will be required to be consolidated by their primary beneficiary. The
primary beneficiary of a variable interest entity is determined to be the party
that absorbs a majority of the entity's expected losses, receives a majority of
its expected returns, or both. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. The Company is in the process of determining
what impact, if any, the adoption of the provisions of FIN 46 will have upon its
financial condition or results of operations.

F-11

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE B -- RENTAL MERCHANDISE

RECONCILIATION OF RENTAL MERCHANDISE

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

(1) Other inventory deletions includes LDW claims and unrepairable and missing
merchandise, as well as acquisition write-offs.

NOTE C -- PROPERTY ASSETS

F-12

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE D -- INTANGIBLE ASSETS AND ACQUISITIONS

Intangibles consist of the following (in thousands):

Aggregate Amortization Expense
Year ended December 31, 2002.............................. $ 5,045
Year ended December 31, 2001.............................. $30,194

SUPPLEMENTAL INFORMATION REGARDING INTANGIBLE ASSETS AND AMORTIZATION.

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

Changes in the carrying amount of goodwill for the year ended December 31,
2002 are as follows (in thousands):

Balance as of January 1, 2002............................... $707,362
Additions from acquisitions............................... 31,278
Tax benefit not recorded from previous acquisition........ (6,125)
Post purchase price allocation adjustments................ 3,880
--------
Balance as of December 31, 2002............................. $736,395
========

There were no impairment losses to goodwill for the year ended December 31,
2002.

In contrast to accounting standards in effect during 2001 and 2000, SFAS
142, Goodwill and Other Intangible Assets, which became effective beginning in
2002, provides that goodwill should not be amortized. Accordingly, with the
adoption of SFAS 142 in 2002, the Company discontinued the amortization of
goodwill.

F-13

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The information presented below reflects adjustments to information reported in
2001 and 2000 as if SFAS 142 had been applied in those years.

Net earnings and earnings per common share, excluding the after tax effect
of amortization expense related to goodwill, for the years ending December 31,
2002, 2001 and 2000 are as follows:

ACQUISITIONS

The following table provides information concerning the acquisitions made
during the years ended December 31, 2002, 2001 and 2000:

Acquisitions during 2002 were not significant, individually or in the
aggregate, to the Company's consolidated financial position or statement of
operations as of December 31, 2002 and for the year then ended. 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.

F-14

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE E -- SENIOR CREDIT FACILITY

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) On May 3, 2002, the Company amended the Facility to provide for a new
Tranche D LC Facility in an aggregate amount at closing equal to $80.0
million to support its outstanding letters of credit. Under this new Tranche
D LC Facility, in the event that a letter of credit is drawn upon, the
Company has the right to either repay the Tranche D LC lenders the amount
withdrawn or request a loan in that amount. Interest on any requested
Tranche D LC loan accrues at an adjusted prime rate plus 1.75% or, at the
Company's option, at the Eurodollar Rate plus 2.80%, with the entire amount
of the Tranche D LC Facility due on December 31, 2007.

(2) At December 31, 2002 and 2001, the amounts available under the Company's
revolving facility were reduced by approximately $5.7 million and $63.6
million, respectively, for outstanding letters of credit used to support the
Company's insurance obligations. The Company provides assurance to its
insurance providers that if they are not be able to draw funds from the
Company for claims paid, they have the ability to draw against the Company's
letters of credit. At that time, the Company would then owe the drawn amount
to the financial institution providing the letter of credit. One of the
Company's letters of credit is renewed automatically every year unless the
Company notifies the institution not to renew. The other letter of credit
expires in August 2003, but is automatically renewed each year for a one
year period unless the institution notifies the Company no later than thirty
days prior to the applicable expiration date that such institution does not
elect to renew the letter of credit for such additional one year period.

Borrowings under the Facility bear interest at varying rates equal to 0.50%
to 2.00% over the designated prime rate (4.25% per annum at December 31, 2002)
or 1.50% to 3.0% over LIBOR (1.38% at December 31, 2002) at the Company's
option, and are subject to quarterly adjustments based on certain leverage
ratios. For the year ended December 31, 2002, the average effective rate on
outstanding borrowings under the senior credit facilities was 4.94%, before
considering the interest rate swap agreements as described below, and 7.77%,
after giving effect to the interest rate swap agreements in effect during 2002.
A commitment fee equal to 0.25% to 0.50% of the unused portion of the revolving
credit 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 and parent corporation. In addition, the Facility
contains several financial covenants as defined therein, including a maximum
consolidated leverage ratio, a minimum consolidated interest coverage ratio, and
a minimum consolidated 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-15

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following are scheduled maturities of senior debt at December 31, 2002:

To reduce its risk of greater interest expense because of floating-rate
interest obligations under the Facility, the Company entered into three
interest-rate swap agreements. One expired in 2001. The two remaining, with an
aggregate notional amount of $250 million, expire in August ($140.0 million) and
September ($110.0 million) of 2003. Those agreements effectively converted a
portion of the Company's floating-rate interest obligations to fixed-rate
interest obligations. The fixed Eurodollar Rate applicable to the $250 notional
amount was 5.60% at December 31, 2002 and 2001. The interest-rate swaps had
negative a fair value of $3.7 million, net of tax, at December 31, 2002.

NOTE F -- SUBORDINATED NOTES PAYABLE

Rent-A-Center East has $271.8 million, net of discount, 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 (the
"Parent") and certain of Rent-A-Center East's direct and wholly-owned
subsidiaries, consisting of ColorTyme, Rent-A-Center West, Inc., Get It Now,
Rent-A-Center Texas, L.L.C. and Rent-A-Center Texas, L.P. (collectively, the
"Subsidiary Guarantors" and, together with the Parent, the "Guarantors"). The
notes are redeemable at Rent-A-Center East's option, at any time on or after
August 15, 2003, at a set redemption price that varies depending upon the
proximity of the redemption date to final maturity. Upon a change of control,
the holders of the subordinated notes have the right to require Rent-A-Center
East to redeem the notes.

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

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

F-16

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Set forth below is certain condensed consolidating financial information as
of December 31, 2002 and 2001, and for each of the three years in the period
ended December 31, 2002. The financial information includes the Subsidiary
Guarantors from the dates they were acquired or formed by Rent-A-Center and
Rent-A-Center East and is presented using the push-down basis of accounting.

CONDENSED CONSOLIDATING BALANCE SHEETS

F-17

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

F-18

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

F-19

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 cost in 2001 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

In connection with the issuance of Rent-A-Center's Series A preferred stock
in August 1998, Rent-A-Center entered into a registration rights agreement with
affiliates of Apollo Management IV, L.P. ("Apollo") which, among other things,
granted them two rights to request that their shares be registered, and a
registration rights agreement with an affiliate of Bear Stearns, which granted
them the right to participate in any company-initiated registration of shares,
subject to certain exceptions. In May 2002, Apollo exercised one of their two
rights to request that their shares be registered and an affiliate of Bear
Stearns elected to participate in such registration. In connection therewith,
Apollo and the affiliate of Bear

F-20

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stearns converted 97,197 shares of Rent-A-Center's Series A preferred stock held
by them into 3,500,000 shares of Rent-A-Center's common stock, which they sold
in the May 2002 public offering that was the subject of Apollo's request.
Rent-A-Center did not receive any of the proceeds from this offering.

On August 5, 2002, the first date on which Rent-A-Center had the right to
optionally redeem the shares of Series A preferred stock, the holders of
Rent-A-Center's Series A preferred stock converted all but two shares of
Rent-A-Center's Series A preferred stock held by them into 7,281,548 shares of
Rent-A-Center's common stock. As a result, the dividend on Rent-A-Center's
Series A preferred stock has been substantially eliminated for future periods.

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. Rent-A-Center accounts 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. During
2002 and 2001, Rent-A-Center paid approximately $8.2 million and $10.7 million
in Series A preferred dividends by issuing 8,151 and 10,678 shares of Series A
preferred stock, respectively. At December 31, 2002 and 2001, Rent-A-Center had
two and 292,434 shares, respectively, of its Series A preferred stock
outstanding.

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.

NOTE I -- INCOME TAXES

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

F-21

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of the income tax provision are as follows:

Deferred tax assets and liabilities consist of the following:

The Company has no alternative minimum tax credit carryforwards, but does
have various state net operating loss carryforwards.

NOTE J -- COMMITMENTS AND CONTINGENCIES

The Company leases its office and store facilities and most delivery
vehicles. Rental expense was $138.0 million, $127.6 million and $105.6 million
for 2002, 2001, and 2000, respectively. Future minimum

F-22

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

rental payments under operating leases with remaining noncancelable lease terms
in excess of one year at December 31, 2002 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 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.

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, as well as Sections 11, 12(a)(2) and 5 of the
Securities Act of 1933 as a result of alleged misrepresentations and omissions
in connection with an offering in May 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.

Gregory Griffin, et. al. v. Rent-A-Center, Inc. On June 25, 2002, a suit
originally filed by Gregory Griffin in state court in Philadelphia, Pennsylvania
was amended to seek relief both individually and on behalf of a class of
customers in Pennsylvania, alleging that the Company violated the Pennsylvania
Goods and Services Installment Sales Act and the Pennsylvania Unfair Trade
Practices and Consumer Protection Law. The amended complaint asserts that the
Company's rental purchase transactions are, in fact, retail installment sales
transactions, and as such, are not governed by the Pennsylvania Rental-Purchase
Agreement Act, which was enacted after the adoption of the Pennsylvania Goods
and Services Installment Sales Act and the Pennsylvania Unfair Trade Practices
Act. Griffin's suit seeks class-wide remedies, including injunctive relief,
unspecified statutory, actual and treble damages, as well as attorney's fees and
costs. The Company intends to vigorously defend itself in this case. However,
the Company cannot assure you that it will be found to have no liability in this
matter.

State Wage and Hour Class Actions. On August 20, 2001, a putative class
action was filed against the Company in state court in Multnomah County, Oregon
entitled Rob Pucci, et. al. v. Rent-A-Center, Inc. alleging violations of Oregon
state law regarding overtime, lunch and work breaks and failure to timely pay
all wages due to Company employees in Oregon. The Company is subject to a
similar suit pending in Clark County, Washington entitled Kevin Rose, et al. v.
Rent-A-Center, Inc., et al. and two similar suits pending in

F-23

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Los Angeles, California entitled Jeremy Burdusis, et al. v. Rent-A-Center, Inc.,
et al. and Israel French, et al. v. Rent-A-Center, Inc., each of which allege
similar violations of the wage and hour laws of those respective states. The
Company intends to vigorously defend itself in these matters. However, given the
early stage of these proceedings, there can be no assurance that the Company
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.

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. On November 12,
2002, Rent-A-Center and ColorTyme signed a settlement agreement for this suit
with the Attorney General, which was approved by the court on the same day.
Under the terms of the settlement, Rent-A-Center created a restitution fund in
the amount of $7.0 million and paid $1.4 million to the state of Wisconsin for
fines, penalties, costs and fees.

Gender Discrimination Actions. In June 2002, the Company agreed to settle
the Wilfong and Tennessee EEOC gender discrimination matters for an aggregate of
$47.0 million, including attorneys fees. The settlement contemplated dismissal
of the Bunch proceeding, a similar suit for gender discrimination pending in a
separate federal district court, and provided for a separate $2.0 million
dispute resolution fund for the Bunch plaintiffs, which was subsequently
approved by the Bunch court. On October 4, 2002, the court in the Wilfong matter
approved the settlement the Company had reached with the Wilfong plaintiffs and
entered a final judgment. The Company funded the settlement as provided for in
the settlement agreement in December 2002. As contemplated by the Wilfong
settlement, the Tennessee EEOC action was dismissed in December 2002, and the
Bunch matter will be dismissed in the near future.

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 Textron Financial Corporation,
who provides $40.0 million in financing to qualifying franchisees of ColorTyme
of up to five times their average monthly revenues. Under this on going
agreement, upon an event of default by the franchisee under agreements governing
this financing and upon the occurrence of certain other events, Textron may
assign the loans and the collateral securing such loans to ColorTyme, with
ColorTyme then succeeding to the rights of Textron under the debt agreements,
including the rights to foreclose on the collateral. An additional $10.0 million
of financing is provided by Texas Capital Bank, National Association under an
agreement similar to the Textron financing. Rent-A-Center guarantees the
obligations of ColorTyme under these agreements, excluding the effects of any
amounts that could be recovered under collateralization provisions, up to a
maximum amount of $50.0 million, of which $33.8 million was outstanding as of
December 31, 2002. Mark E. Speese, Rent-A-Center's Chairman of the Board and
Chief Executive Officer, is a passive investor in Texas Capital Bank, owning
less than 1% of its outstanding equity.

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

F-24

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

grants of stock appreciation rights and all options have been granted with fixed
prices. At December 31, 2002, there were 1,565,189 shares available for issuance
under the Plan. However, pursuant to the terms of the Plan, when an optionee
leaves the Company's employ, unvested options granted to that employee terminate
and become available for re-issuance under the Plan. Vested options not
exercised within 90 days from the date the optionee leaves the Company's employ
terminate and become available for re-issuance under the Plan.

Information with respect to stock option activity is as follows:

The weighted average fair value per share of options granted during 2002,
2001 and 2000 was $29.10, $20.34, and $14.97, respectively, all of which were
granted at market value. Information about stock options outstanding at December
31, 2002 is summarized as follows:

F-25

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 2001 and 2000, Rent-A-Center issued 12,500 and 25,000 options,
respectively, to a non-employee for services. The options were valued at
$168,378 and $65,000. No options were issued to non-employees during 2002. The
expense related to these option agreements is recognized over the service
period.

NOTE L -- 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 at
least 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 2002, 2001 and 2000, Rent-A-Center made matching cash contributions of
$3.7 million, $3.3 million, and $2.5 million, 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. Since March 15, 2000, employees
have been permitted to elect to purchase Rent-A-Center common stock as part of
their 401(k) plan. As of December 31, 2002 and 2001, respectively, 14.0% and
10.8% of the total plan assets consisted of the Company's common stock.

NOTE M -- FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include cash and cash equivalents,
senior debt, subordinated notes payable and interest rate swap agreements. The
carrying amount of cash and cash equivalents approximates fair value at December
31, 2002 and 2001, 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 discounted cash flow analysis using interest rates currently offered
for loans with similar terms to borrowers of similar credit quality. At December
31, 2002, the fair value of the subordinated notes was $292.7 million, which is
$20.9 million above their carrying value of $271.8 million. Information relating
to the fair value of the Company's interest rate swap agreements is set forth in
Note E.

F-26

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE N -- EARNINGS PER COMMON SHARE

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

For 2002, 2001, and 2000, 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 874,500, 628,000 and 1,485,118,
respectively.

NOTE O -- UNAUDITED QUARTERLY DATA

Summarized quarterly financial data for 2002 and 2001 is as follows:

F-27

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.

NOTE P -- 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 beneficially
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 beneficially held by 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 beneficially held
by 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 beneficially 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 $10.7 million participant in Rent-A-Center's senior credit facility
as of December 31, 2002. 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, 2002. 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.

On August 5, 1998, affiliates of 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-28

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In connection with the issuance of Rent-A-Center's Series A preferred stock
in August 1998, Rent-A-Center entered into a registration rights agreement with
Apollo which, among other things, granted them two rights to request that their
shares be registered, and a registration rights agreement with an affiliate of
Bear Stearns, which granted them the right to participate in any
company-initiated registration of shares, subject to certain exceptions. In May
2002, Apollo exercised one of their two rights to request that their shares be
registered and an affiliate of Bear Stearns elected to participate in such
registration. In connection therewith, Apollo and the affiliate of Bear Stearns
converted 97,197 shares of Rent-A-Center's Series A preferred stock held by them
into 3,500,000 shares of Rent-A-Center's common stock, which they sold in the
May 2002 public offering that was the subject of Apollo's request. Rent-A-Center
did not receive any of the proceeds from this offering.

On August 5, 2002, the first date on which Rent-A-Center had the right to
optionally redeem the shares of Series A preferred stock, the holders of
Rent-A-Center's Series A preferred stock converted all but two shares of the
Company's Series A preferred stock held by them into 7,281,548 shares of
Rent-A-Center's common stock. In connection with Apollo's conversion of all but
two of the shares of Series A preferred stock held by them, Rent-A-Center
granted Apollo an additional right to effect a demand registration under the
existing registration rights agreement Rent-A-Center entered into with them in
1998, such that Apollo now has two demand rights.

NOTE Q -- SUBSEQUENT EVENT

On February 8, 2003, the Company completed the acquisition of substantially
all of the assets of 295 rent-to-own stores from Rent-Way, Inc. for an aggregate
purchase price of $100.4 million in cash. Of the aggregate purchase price, the
Company held back $10.0 million to pay for various indemnified liabilities and
expenses, if any. The Company funded the acquisition entirely from cash on hand.
Of the 295 stores, 176 were subsequently merged with the Company's existing
store locations. The Company entered into this transaction seeing it as an
opportunistic acquisition that would allow it to expand its store base in
conjunction with the Company's strategic growth plans. The acquisition price was
determined by evaluating the average monthly rental income of the acquired
stores and applying a multiple to the total. The purchase price will be
allocated to rental merchandise, property assets and various intangible
accounts, which include goodwill, customer relationships and non-compete
agreements. The Company is still assessing the value of the tangible assets and
the Company is utilizing a third party to review the valuation of certain
intangible assets; thus, the allocation of the purchase price is subject to
refinement. The table below summarizes the allocation of the purchase price
based on the estimated fair values of the assets acquired:

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

F-29

EXHIBIT INDEX

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

* Filed herewith.

+ Management contract or company plan or arrangement

(1) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current
Report on Form 8-K dated as of December 31, 2002

(2) Incorporated herein by reference to Exhibit 3.1 to the registrant's Current
Report on Form 8-K dated as of December 31, 2002

(3) Incorporated herein by reference to Exhibit 3.2 to the registrant's Current
Report on Form 8-K dated as of December 31, 2002

(4) Incorporated herein by reference to Exhibit 4.1 to the registrant's Form
S-4 filed on January 11, 1999

(5) Incorporated herein by reference to Exhibit 3.1 to the registrant's Current
Report on Form 8-K dated as of December 31, 2002

(6) Incorporated herein by reference to Exhibit 4.5 to the registrant's
Registration Statement Form S-4 filed on January 11, 1999

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

(8) Incorporated herein by reference to Exhibit 4.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002

(9) Incorporated herein by reference to Exhibit 4.7 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002

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

(11) Incorporated herein by reference to Exhibit 99.1 to the registrant's
Post-Effective Amendment No. 1 to Form S-8 dated as of December 31, 2002

(12) Incorporated herein by reference to Exhibit 10.7 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001

(13) Incorporated herein by reference to Exhibit 10.8 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002

(14) 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

(15) Incorporated herein by reference to Exhibit 10.10 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002

(16) 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

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

(18) Incorporated herein by reference to Exhibit 10.13 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002

(19) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002

(20) Incorporated herein by reference to Exhibit 10.15 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002

(21) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002