UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2004

Commission File Number 0-25370

RENT-A-CENTER, INC.

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES [X] NO [  ]

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

YES [X] NO [  ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of July 28, 2004:

TABLE OF CONTENTS

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CONSOLIDATED STATEMENTS OF EARNINGS

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF EARNINGS

See accompanying notes to consolidated financial statements.

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CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements.

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The difference between the fair value of assets acquired and cash paid is due to non-cash consideration, including approximately $23.9 million in common stock issued and the approximately $6.1 million in fair value assigned to the stock options assumed in connection with the acquisition of Rent Rite, Inc.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.		The interim financial statements of Rent-A-Center, Inc. included herein have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the Commission’s rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. We suggest that these financial statements be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K/A for the year ended December 31, 2003, and our Quarterly Report on Form 10-Q for the three months ended March 31, 2004. In our opinion, the accompanying unaudited interim financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary to present fairly our results of operations and cash flows for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
2.		Stock Split. On July 28, 2003, we announced that our Board of Directors had approved a 5 for 2 stock split on our common stock to be paid in the form of a stock dividend. Each common stockholder of record on August 15, 2003 received 1.5 additional shares of common stock for each share of common stock held on that date. No fractional shares were issued in connection with the stock dividend. Each stockholder who would otherwise have received a fractional share received an additional share of common stock. The distribution date for the stock dividend was August 29, 2003. The effect of the stock split has been recognized retroactively in the stockholder’s equity accounts and in all share data in the consolidated statements of earnings, notes to the consolidated financial statements and management’s discussion and analysis, unless otherwise noted.
3.		Principles of Consolidation and Nature of Operations. These financial statements include the accounts of Rent-A-Center, Inc. and its direct and indirect wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Unless the context indicates otherwise, references to “Rent-A-Center” refer only to Rent-A-Center, Inc., the parent, and references to “we,” “us” and “our” refer to the consolidated business operations of Rent-A-Center and all of its direct and indirect subsidiaries.
		At June 30, 2004, we operated 2,846 company-owned stores nationwide and in Canada and Puerto Rico, including 21 stores in Wisconsin operated by a subsidiary, Get It Now, LLC, under the name “Get It Now,” and five stores in Canada operated by a subsidiary, Rent-A-Centre Canada, Ltd., under the name “Rent-A-Centre.” Rent-A-Center’s primary operating segment consists of leasing household durable goods to customers on a rent-to-own basis. Get It Now offers merchandise on an installment sales basis in Wisconsin.
		ColorTyme, Inc., an indirect wholly-owned subsidiary of Rent-A-Center, is a nationwide franchisor of rent-to-own stores. At June 30, 2004, ColorTyme had 319 franchised stores operating in 40 states. ColorTyme’s primary source of revenues is the sale of rental merchandise to its franchisees, who in turn offer the merchandise to the general public for rent or purchase under a rent-to-own program. The balance of ColorTyme’s revenues is generated primarily from royalties based on franchisees’ monthly gross revenues.

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4.

Reconciliation of Rental Merchandise.

5.		Intangibles.
		Amortization of intangibles consists primarily of the amortization of customer relationships and non-compete agreements.
		Intangibles consist of the following (in thousands):

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5.		Intangibles – (continued)
		The estimated remaining amortization expense, assuming current intangible balances and no new acquisitions, for each of the fiscal years ending December 31, is as follows:

Changes in the net carrying amount of goodwill are as follows:

6.		Stock Based Compensation.
		Rent-A-Center’s Amended and Restated Long-Term Incentive Plan (the “Plan”) for the benefit of certain employees, consultants and directors provides the Board of Directors broad discretion in creating equity incentives. Under the Plan, 14,562,865 shares of Rent-A-Center’s common stock were reserved for issuance under stock options, stock appreciation rights or restricted stock grants. Options granted to our employees under the Plan generally become exercisable over a period of one to four years from the date of grant and may be exercised up to a maximum of 10 years from the date of grant. Options granted to directors are immediately exercisable. There have been no grants of stock appreciation rights and all options have been granted with fixed prices. At June 30, 2004, there were 10,050,453 shares available for issuance under the Plan, of which 5,768,950 shares were allocated to options currently outstanding. However, pursuant to the terms of the Plan, when an optionee leaves our employ, unvested options granted to that employee terminate and become available for re-issuance under the Plan. Vested options not exercised within 90 days from the date the optionee leaves the Company’s employ generally terminate and become available for re-issuance under the Plan.
		Rent-A-Center accounts for the Plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net earnings, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. If Rent-A-Center had applied the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation, net earnings and earnings per share would have decreased as illustrated by the following table:

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6.

Stock Based Compensation – (continued)

For all periods prior to April 1, 2004, 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 55.0%, risk-free interest rates of 2.9% and 3.7% and expected lives of four years and seven years in 2004 and 2003, respectively, and no dividend yield. For options granted on or after April 1, 2004, the fair value of the options was estimated at the date of grant using the binomial method pricing model with the following weighted average assumptions: expected volatility of 52.4% to 55.1%, a risk-free interest rate of 2.5% to 2.9%, no dividend yield and an expected life of four years. Had we changed from using the Black-Scholes option pricing model to a binomial method pricing model effective January 1, 2004 rather than April 1, 2004, the impact would not have been significant.

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7.		Earnings Per Share.
		Basic and diluted earnings per common share are computed based on the following information:

		For the six months ended June 30, 2004 and 2003, the number of stock options that were outstanding but not included in the computation of diluted earnings per common share because their exercise price was greater than the average market price of our common stock, and therefore anti-dilutive, was 583,834 and 5,000, respectively
		For the three months ended June 30, 2004 and 2003, the number of stock options that were outstanding but not included in the computation of diluted earnings per common share because their exercise price was greater than the average market price of our common stock, and therefore anti-dilutive, was 583,834 and 0, respectively.
8.		Subsidiary Guarantors.
		11% Senior Subordinated Notes. In December 2001, Rent-A-Center East, Inc., one of our subsidiaries, issued $100.0 million of 11% senior subordinated notes (the “11% Notes”), maturing on August 15, 2008, under an 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, approximately $175.0 million of senior subordinated notes issued by it under a previous indenture, such that, on that date, all senior subordinated notes were governed by the terms of the 2001 indenture. On May 6, 2003, Rent-A-Center East repurchased approximately $183.0 million of its then outstanding 11% Notes. On August 15, 2003, Rent-A-Center East redeemed the remaining outstanding 11% Notes.

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8.		Subsidiary Guarantors – (continued)
		7½% Senior Subordinated Notes. On May 6, 2003, Rent-A-Center issued $300.0 million in senior subordinated notes due 2010, bearing interest at 7½% (the “7½% Notes”), pursuant to an indenture dated May 6, 2003, among Rent-A-Center, Inc., its subsidiary guarantors and The Bank of New York, as trustee. The proceeds of this offering were used to fund the repurchase and redemption of the then outstanding 11% Notes.
		The 2003 indenture contains covenants that limit Rent-A-Center’s ability to:

	•		incur additional debt;
	•		sell assets or its subsidiaries;
	•		grant liens to third parties;
	•		pay dividends or repurchase stock; and
	•		engage in a merger or sell substantially all of its assets.

		Events of default under the 2003 indenture include customary events, such as a cross-acceleration provision in the event that Rent-A-Center defaults in the payment of other debt due at maturity or upon acceleration for default in an amount exceeding $50.0 million, as well as in the event a judgment is entered against us in excess of $50.0 million that is not discharged, bonded, or insured.
		The 7½% Notes may be redeemed on or after May 1, 2006, at our option, in whole or in part, at a premium declining from 103.75%. The 7½% Notes also require that upon the occurrence of a change of control (as defined in the 2003 indenture), the holders of the notes have the right to require Rent-A-Center 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. This would trigger an event of default under our senior credit facility.
		The subsidiary guarantors have fully, jointly and severally, and unconditionally guaranteed the obligations of Rent-A-Center with respect to the 7½% Notes. Each subsidiary guarantor is a wholly owned direct or indirect subsidiary of Rent-A-Center. The only direct or indirect subsidiaries of Rent-A-Center that are not guarantors are minor subsidiaries. Rent-A-Center has no independent assets or operations. There are no restrictions on the ability of any of the subsidiary guarantors to transfer funds to Rent-A-Center in the form of loans, advances or dividends, except as provided by applicable law.
		Set forth below is certain condensed consolidating financial information as of June 30, 2004 and December 31, 2003 and for the six months ended June 30, 2004 and 2003. 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 Statements of Operations – (in thousands)

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8.

Subsidiary Guarantors – (continued)

Condensed Consolidating Statements of Operations – (in thousands)

Condensed Consolidating Balance Sheets – (in thousands)

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8.

Subsidiary Guarantors – (continued)

Condensed Consolidating Statements of Cash Flows – (in thousands)

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

10.		Common and Preferred Stock Transactions.
		In April 2000, we announced that our Board of Directors had authorized a program to repurchase, from time to time, in the open market and in privately negotiated transactions, up to an aggregate of $25.0 million of our common stock. Our Board of Directors increased the amount of repurchases authorized under our common stock repurchase program over a period of time to $100.0 million. We repurchased a total of approximately 1.6 million shares (on a pre-split basis) of our common stock for an aggregate of $91.5 million under this common stock repurchase program through October 24, 2003.
		On October 24, 2003 we announced our Board of Directors had rescinded our old common stock repurchase program and authorized a new common stock repurchase program, permitting us to purchase, from time to time, in the open market and privately negotiated transactions, up to an aggregate of $100.0 million of our common stock. On May 19, 2004, the Board of Directors increased the amount of repurchases authorized under the new stock repurchase program from $100.0 million to $115.0 million. As of June 30, 2004, we had purchased a total of 3,457,000 shares of our common stock for an aggregate of $104.2 million under our new common stock repurchase program. On July 26, 2004, we announced that our Board of Directors increased the authorization for stock repurchases under our new common stock repurchase program to $200.0 million. Please see “Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities” later in this report.

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11.		Acquisitions.
		Rent Rite, Inc.
		On May 7, 2004, we completed the acquisition of Rent Rite, Inc. d/b/a Rent Rite Rental Purchase for an aggregate purchase price of $59.9 million. Rent Rite operated 90 stores in 11 states, of which 26 stores were subsequently merged with our existing store locations. Results of operations have been included since the acquisition date. Approximately 40% of the consideration was paid with 815,592 shares our common stock, with the remaining portion consisting of cash, the assumption of Rent Rite’s stock options and retirement of Rent Rite’s outstanding debt. The common stock paid as well as the assumption of stock options were recorded at the fair value determined at the effective date of the purchase. The table below summarizes the preliminary allocation of the purchase price based on the fair values of the significant assets acquired:

		Rainbow Rentals, Inc.
		On May 14, 2004, we completed the acquisition of Rainbow Rentals, Inc. for an aggregate purchase price of $109.0 million. Rainbow Rentals operated 124 stores in 15 states, of which 29 stores were subsequently merged with our existing store locations. Results of operations have been included since the acquisition date. We funded the acquisition entirely with cash on hand. The table below summarizes the preliminary allocation of the purchase price based on the fair values of the significant assets acquired:

We entered into these transactions seeing them as opportunistic acquisitions that would allow us to expand our store base in conjunction with our strategic growth plans. The prices of the acquisitions were determined by evaluating the average monthly rental income of the acquired stores and applying a multiple to the total. Customer relationships are amortized utilizing the straight-line method over an 18 month period. The non-compete agreements are amortized using the straight-line method over a three year period and, in accordance with SFAS 142, the goodwill associated with the acquisitions will not be amortized.

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12.		Guarantees.
		ColorTyme Guarantee. ColorTyme is a party to an agreement with Wells Fargo Foothill, Inc., who provides $50.0 million in aggregate financing to qualifying franchisees of ColorTyme generally of up to five times their average monthly revenues. Under the Wells Fargo agreement, upon an event of default by the franchisee under agreements governing this financing and upon the occurrence of certain other events, Wells Fargo can assign the loans and the collateral securing such loans to ColorTyme, with ColorTyme then succeeding to the rights of Wells Fargo under the debt agreements, including the right to foreclose on the collateral. An additional $15.0 million of financing is provided by Texas Capital Bank, National Association under an agreement similar to the Wells Fargo financing. Rent-A-Center East guarantees the obligations of ColorTyme under each of these agreements, excluding the effects of any amounts that could be recovered under collateralization provisions, up to a maximum amount of $65.0 million, of which $27.9 million was outstanding as of June 30, 2004.
		We also provide assurance to our insurance providers that if they are not able to draw funds from us for claims paid, they have the ability to draw against our letters of credit. Generally our letters of credit are renewed automatically every year unless we notify the institution not to renew. At June 30, 2004, we had $86.7 million in outstanding letters of credit under our previous senior credit facility. Of the $86.7 million, $55.0 million was supported by our additional term loan facility. The remaining $31.7 million reduced the amount available under the previous $120.0 million revolving facility. On July 14, 2004, we refinanced our senior credit facilities. Under the new senior credit facility, the $86.7 million is supported by our $250.0 million revolving facility. See Note 14, “Subsequent Events” and “Recent Developments” later in this report.
13.		Recapitalization.
		In April 2003, we announced and commenced a program to recapitalize a portion of our financial structure in a series of transactions. The recapitalization consisted of the tender offer for all of Rent-A-Center East’s $272.25 million 11% Notes, the redemption of the 11% Notes, the issuance of $300.0 million 7½% Notes, the refinancing of our senior debt and the repurchase of shares of our common stock.
		On May 6, 2003, we repurchased approximately $183.0 million principal amount of 11% Notes pursuant to a debt tender offer announced on April 23, 2003. On August 15, 2003, we redeemed all of the remaining outstanding 11% Notes in accordance with the terms of the indenture governing the 11% Notes, at the applicable redemption price of 105.5% of the principal amount, plus accrued and unpaid interest to that date. The total aggregate redemption price for the 11% Notes was approximately $93.75 million, including $4.65 million in accrued interest and $4.65 million in redemption premium. Proceeds from the offering of $300.0 million in 7½% Notes were used to pay for the redemption.
		On April 25, 2003, we announced that we had entered into an agreement with Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P. (“Apollo”) which provided for the repurchase of a number of shares of Rent-A-Center’s common stock sufficient to reduce Apollo’s aggregate record ownership to 19.00% after consummation of Rent-A-Center’s planned tender offer at the price per share paid in the tender offer. On April 28, 2003, we commenced a tender offer to purchase up to 2.2 million shares of Rent-A-Center’s common stock (on a pre-split basis) pursuant to a modified “Dutch Auction.” On June 25, 2003, we closed the tender offer and purchased 1,769,960 shares of Rent-A-Center’s common stock (on a pre-split basis) at $73 per share (on a pre-split basis) for approximately $129.2 million. On July 11, 2003, we closed the Apollo transaction and purchased 774,547 shares of Rent-A-Center’s common stock (on a pre-split basis) at $73 per share (on a pre-split basis) for approximately $56.5 million. As contemplated by the Apollo agreement, Apollo also exchanged their shares of Series A preferred stock for shares of Series C preferred stock. As a result, no shares of Series A preferred stock remain outstanding. The terms of the Series A preferred stock and Series C preferred stock are substantially similar, except the Series C preferred stock does not have the right to directly elect any members of Rent-A-Center’s Board of Directors.
		On May 6, 2003, Rent-A-Center issued $300.0 million in 7½% Notes, the proceeds of which were used, in part, to fund the repurchase and redemption of the 11% Notes.
		On May 28, 2003, we refinanced our then existing senior debt by entering into a new $600.0 million senior credit facility, consisting of a $400.0 million term loan, a $120.0 million revolving credit facility and an $80.0 million additional term loan.

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14.		Subsequent Events.
		New Senior Credit Facilities. On July 14, 2004, we announced the completion of the refinancing of our senior secured debt. Our new $600.0 million senior credit facilities consist of a $350.0 million term loan and a $250.0 million revolving credit facility. On that day, we drew down the $350.0 million term loan and $50.0 million of revolving facility and utilized the proceeds to repay our existing senior term debt. In connection with the refinancing, we will record a $4.2 million non-cash charge to write off the remaining unamortized balance of financing costs in the third quarter.
		Increased Stock Repurchase Authorization. On July 26, 2004, we announced that our Board of Directors increased the authorization for stock repurchases under our common stock repurchase program to $200.0 million.

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

Forward-Looking Statements

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

•		uncertainties regarding the ability to open new stores;
•		our ability to acquire additional rent-to-own stores on favorable terms;
•		our ability to enhance the performance of these acquired stores;
•		our ability to control store level costs;
•		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;
•		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; and
•		the other risks detailed from time to time in our SEC reports.

Additional important factors that could cause our actual results to differ materially from our expectations are discussed under Risk Factors in our Annual Report on Form 10-K/A for our fiscal year ended December 31, 2003. You should not unduly rely on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we are not obligated to publicly release any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events.

Our Business

We are the largest rent-to-own operator in the United States with an approximate 32% market share based on store count. At June 30, 2004, we operated 2,846 company-owned stores nationwide and in Canada and Puerto Rico, including 21 stores located in Wisconsin and operated by our subsidiary Get It Now, LLC under the name “Get It Now” and five stores located in Canada and operated by our subsidiary Rent-A-Centre Canada, Ltd., under the name “Rent-A-Centre.” Another of our subsidiaries, ColorTyme, is a national franchisor of rent-to-own stores. At June 30, 2004, ColorTyme had 319 franchised stores in 40 states, 307 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, 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, 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.

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

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

Recent Developments

Appointment of Richard K. Armey to our Board of Directors. On May 24, 2004, we announced that Richard K. “Dick” Armey had been named to our Board of Directors. Congressman Armey served for 18 years in the U.S. House of Representatives, culminating in eight years as Majority Leader. In addition to joining the Board of Directors, Congressman Armey has become a member of the Board’s Audit Committee and Compensation Committee.

New Senior Credit Facility On July 14, 2004, we announced the completion of the refinancing of our senior secured debt. Our new $600.0 million senior credit facilities consist of a $350.0 million term loan and a $250.0 million revolving credit facility. On that day, we drew down the $350.0 million term loan and $50.0 million of revolving facility and utilized the proceeds to repay our existing senior term debt. We will record a $4.2 million non-cash charge to write off the remaining unamortized balance of financing costs in the third quarter.

Increased Stock Repurchase Authorization. On July 26, 2004, we announced that our Board of Directors increased the authorization for stock repurchases under our common stock repurchase program to $200.0 million.

Store Growth. As of July 28, 2004, we have acquired two additional stores and accounts from five additional locations, opened five new stores, merged one store into an existing location and sold one store during the third quarter of 2004. It is our intention to increase the number of stores we operate by an average of approximately 5 to 10% per year.

Critical Accounting Policies Involving Critical Estimates, Uncertainties or Assessments in Our Financial Statements

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In applying accounting principles, we must often make individual estimates and assumptions regarding expected outcomes or uncertainties. 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. We believe the following are areas where the degree of judgment and complexity in determining amounts recorded in our consolidated financial statements make the accounting policies critical.

Self-Insurance Liabilities. We have self-insured retentions with respect to losses under our workers’ compensation, general liability, and auto liability insurance policies. We establish reserves for our liabilities associated with these losses by obtaining forecasts for the ultimate expected losses and estimating amounts needed to pay losses within our self-insured retentions.

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We make assumptions on our liabilities within our self-insured retentions using loss forecasts, which are prepared using methods and assumptions that are in accordance with standard actuarial practice and third party claims administrator loss estimates, which are based on known facts surrounding individual claims. Each quarter, we reevaluate our estimate of liability within our self-insured retentions, including our assumptions related to our loss forecasts, and obtain updated loss forecasts reports using currently valued loss data. We evaluate the adequacy of our accruals by comparing amounts accrued on our balance sheet for anticipated losses to our loss forecasts and to the third party claim administrator loss estimates, and make adjustments to our accruals as needed based upon such review.

Over the previous 10 years, our loss exposure has increased, primarily as a result of our growth. We instituted procedures to manage our loss exposure through a greater focus on the risk management function, a transitional duty program for injured workers, ongoing safety and accident prevention training, and various programs designed to minimize losses and improve our loss experience in our store locations.

As of the quarter ended June 30, 2004, the net amount accrued for losses within our self-insured retentions was $73.5 million, as compared to $54.2 million at June 30, 2003. The increase in the net amount accrued for the 2004 period is a result of store growth, increased number of employees, new claims made during the period and the net effect of prior period claims which have closed or for which additional development or changes in estimates have occurred.

Litigation Reserves. We are the subject of litigation in the ordinary course of our business. Our litigation involves, among other things, actions relating to claims that our rental purchase agreements constitute installment sales contracts, violate state usury laws or violate other state laws 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. In preparing our financial statements at a given point in time, we account for these contingencies pursuant to the provisions of FASB No. 5, which requires that we accrue for losses that are both probable and reasonably estimable.

Each quarter, we make estimates of our probable liabilities, if reasonably estimable, and record such amounts in our consolidated financial statements. These amounts 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 reflect current facts and circumstances. For the quarter ended June 30, 2004 we had accrued $2.5 million for probable litigation costs with respect to our outstanding litigation as compared to $3.6 million for the quarter ended June 30, 2003. The amounts accrued, relating to legal fees and expenses, represent our estimate of the probable liabilities with respect to our litigation. The ultimate outcome of our litigation is uncertain, and the amount of loss we may incur, if any, cannot in our judgment be reasonably estimated. Additional developments in our litigation, such as an adverse or positive development or ruling, could effect our assumptions and thus, our accrual.

If we make changes to our accruals in any of these areas in accordance with the policies described above, these changes would impact our earnings. Increases to our accruals would reduce earnings and similarly, reductions to our accruals would increase our earnings. A $1.3 million change in our estimates would result in a corresponding $.01 change in our earnings per share.

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

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RENT-A-CENTER, INC. AND SUBSIDIARIES

Other Significant Accounting Policies

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

Revenue. 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 as payments are received and merchandise sales revenue is recognized when the customer exercises their purchase option and pays the cash price due. No revenue is accrued because the customer can cancel the rental contract at any time and we cannot enforce collection for non-payment of rents. Because Get It Now makes retail sales on an installment credit basis, Get It Now’s revenue is recognized at the time of such retail sale, as is the cost of the merchandise sold, net of a provision for uncollectable accounts.

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. We accelerate 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, generally not to exceed an aggregate depreciation period of 30 months. The purpose is to better reflect the depreciable life of a computer in our stores and to encourage the sale of older computers.

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

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

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

Amortization of Intangibles. Amortization of intangibles consists primarily of the amortization of customer relationships and non-compete agreements resulting from acquisitions.

Results of Operations

Six Months Ended June 30, 2004 compared to Six Months Ended June 30, 2003

Store Revenue. Total store revenue increased by $38.2 million, or 3.5%, to $1,133.5 million for the six months ended June 30, 2004 as compared to $1,095.3 million for the six months ended June 30, 2003. The increase in total store revenue is primarily attributable to approximately $55.5 million in incremental revenue from new stores and acquisitions during the first six months of 2004 as compared to 2003, offset by a decrease in same store sales of 2.2%.

Same store revenues represent those revenues earned in stores that were operated by us for each of the entire six month periods ending June 30, 2004 and 2003, excluding store locations that received accounts through an acquisition or merger of an existing store location. Same store revenues decreased by $19.5 million, or 2.2%, to $860.2 million for the six months ended June 30, 2004 as compared to $879.7 million in 2003. The decrease in same store revenues was primarily attributable to a decrease in the average number of customers on a per store basis during the first six months of 2004 versus the first six months of 2003, offset by an increase in the average revenue per customer.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

Franchise Revenue. Total franchise revenue increased by $528,000, or 2.2%, to $24.9 million for the six months ended June 30, 2004 as compared to $24.4 million in 2003. This increase was primarily attributable to an increase in merchandise sales to franchise locations as a result of more franchised locations operating in the first six months of 2004 as compared to the first six months of 2003.

Depreciation of Rental Merchandise. Depreciation of rental merchandise increased by $4.4 million, or 2.0%, to $220.4 million for the six months ended June 30, 2004 as compared to $216.0 million in 2003. This increase is a result of an increase in rental revenue for the first six months of 2004 compared to the first six months of 2003. Depreciation of rental merchandise expressed as a percentage of store rentals and fees revenue decreased slightly to 21.5% in 2004 from 21.6% for the same period in 2003. The slight decrease was primarily attributable to a more normalized depreciation rate in the first six months of 2004 as compared to 2003, resulting from the continued integration of the inventory acquired in our acquisition of 295 stores from Rent-Way in February of 2003, offset slightly by the depreciation associated with the Rainbow Rentals and Rent Rite acquisitions in May 2004.

Cost of Merchandise Sold. Cost of merchandise sold increased by $4.2 million, or 6.9%, to $65.0 million for the six months ended June 30, 2004 as compared to $60.8 million in 2003. This increase was primarily a result of an increase in the number of items sold during the first six months of 2004 as compared to the first six months 2003. The gross margin percent of merchandise sales increased to 30.9% in 2004 from 28.6% in 2003. This percentage increase was primarily attributable to the sale of merchandise acquired from Rent-Way in February 2003, which caused a lower gross margin to occur in 2003 versus 2004.

Salaries and Other Expenses. Salaries and other expenses increased by $35.9 million, or 6.1%, to $620.1 million for the six months ended June 30, 2004 as compared to $584.2 million in 2003. The increase was primarily the result of an increase in salaries and wages and occupancy costs due to an increased number of stores in the 2004 period. Salaries and other expenses were also negatively impacted by the increase in gasoline prices, which increases our delivery expense. Salaries and other expenses expressed as a percentage of total store revenue increased to 54.7% for the six months ended June 30, 2004 from 53.3% for the six months ended June 30, 2003. This increase was primarily attributable to the decrease in same store sales coupled with an increase in salaries and other expenses in the first six months of 2004 compared to the first six months of 2003 resulting from an increase in our store base. In the first six months of 2004, there were 24 more new stores and 52 more acquired stores open as compared to 2003, which are not yet performing at the level of a mature store. We expect salaries and other expenses to continue to increase as we implement our new store initiatives.

Franchise Cost of Merchandise Sold. Franchise cost of merchandise sold increased by $609,000 or 3.0%, to $21.1 million for the six months ended June 30, 2004 as compared to $20.5 million in 2003. This increase was primarily attributable to an increase in merchandise sales to franchise locations as a result of more franchised locations operating in the first six months of 2004 as compared to the first six months of 2003.

General and Administrative Expenses. General and administrative expenses expressed as a percentage of total revenue increased to 3.2% for the six months ending June 30, 2004 as compared to 3.0% for the six months ending June 30, 2003. This increase is primarily attributable to the operation of the Rainbow Rentals and Rent Rite headquarters during the integration and transition period pursuant to those acquisitions, as well as the impact of a decrease in our same stores sales for the first six months of 2004.

Amortization of Intangibles. Amortization of intangibles decreased by $523,000, or 8.5%, to $5.6 million for the six months ended June 30, 2004, as compared to $6.2 million for the six months ended June 30, 2003. This decrease was primarily attributable to the completed amortization of some intangibles, offset by the customer relationship and non-compete amortization related to the Rainbow Rentals and Rent Rite acquisitions in May 2004.

Operating Profit. Operating profit decreased by $10.6 million, or 5.5%, to $182.9 million for the six months ended June 30, 2004 as compared to $193.5 million in 2003. Operating profit as a percentage of total revenue decreased to 15.8% for the six months ended June 30, 2004, from 17.3% in 2003. These decreases were primarily attributable to the increase in salaries and other expenses and the decrease in same store sales during the first six months of 2004 versus 2003 as discussed above. In the first six months of 2004, there were 24 more new stores and 52 more acquired stores open as compared to 2003, which are not yet performing at the level of a mature store.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

Net Earnings. Net earnings increased by $17.1 million, or 19.9%, to $103.4 million for the six months ended June 30, 2004 as compared to $86.3 million in 2003. This increase is primarily attributable to growth in total revenues and a decrease in interest expense offset by increases in salaries and other expenses and general and administrative expenses, and the finance charges incurred during the second quarter of 2003 resulting from the recapitalization initiated during the same period. When excluding the effect of the recapitalization finance charges incurred in the second quarter of 2003, our net earnings increased approximately $100,000 in the first six months of 2004 as compared to 2003.

Three Months Ended June 30, 2004 compared to Three Months Ended June 30, 2003

Store Revenue. Total store revenue increased by $19.6 million, or 3.6%, to $562.0 million for the three months ended June 30, 2004 as compared to $542.4 million for the three months ended June 30, 2003. The increase in total store revenue is primarily attributable to approximately $30.0 million in incremental revenue from new stores and acquisitions during the second quarter of 2004 as compared to 2003, offset by a decrease in same store sales of 2.3%.

Same store revenues represent those revenues earned in stores that were operated by us for each of the entire three month periods ending June 30, 2004 and 2003, excluding store locations that received accounts through an acquisition or merger of an existing store location. Same store revenues decreased by $10.4 million, or 2.3%, to $444.7 million for the three months ended June 30, 2004 as compared to $455.1 million in 2003. The decrease in same store revenues was primarily attributable to a decrease in the average number of customers on a per store basis during the second quarter of 2004 versus the second quarter of 2003 offset by an increase in the average revenue per customer.

Franchise Revenue. Total franchise revenue increased by $202,000, or 1.9%, to $11.0 million for the three months ended June 30, 2004 as compared to $10.8 million in 2003. This increase was primarily attributable to an increase in merchandise sales to franchise locations as a result of more franchised locations operating in the second quarter of 2004 as compared to the second quarter of 2003.

Depreciation of Rental Merchandise. Depreciation of rental merchandise increased by $2.8 million, or 2.5%, to $112.1 million for the three months ended June 30, 2004 as compared to $109.3 million in 2003. Depreciation of rental merchandise expressed as a percentage of store rentals and fees revenue decreased to 21.5% in 2004 from 21.7% for the same period in 2003. The slight decrease was primarily attributable to a more normalized depreciation rate in the three month period ending June 30, 2004 as compared to 2003, pursuant to the continued integration of the inventory acquired in the acquisition of Rent-Way in February of 2003, offset slightly by the depreciation associated with the Rainbow Rentals and Rent Rite acquisitions in May 2004.

Cost of Merchandise Sold. Cost of merchandise sold increased by $1.1 million, or 4.6%, to $25.3 million for the three months ended June 30, 2004 as compared to $24.2 million in 2003. This increase was primarily a result of an increase in the number of items sold during the second quarter of 2004 as compared to the second quarter of 2003. The gross margin percent of merchandise sales increased to 26.7% in 2004 from 25.5% in 2003. This percentage increase was primarily attributable to the sale of merchandise acquired from Rent-Way in February 2003, which caused a lower gross margin to occur in 2003 versus 2004.

Salaries and Other Expenses. Salaries and other expenses increased by $19.3 million, or 6.6%, to $311.1 million for the three months ended June 30, 2004 as compared to $291.7 million for the three months ended June 30, 2003. The increase was primarily the result of an increase in salaries and wages and occupancy costs due to an increased number of stores in the 2004 period. Salaries and other expenses were also negatively impacted by the increase in gasoline prices, which increases our delivery expense. Salaries and other expenses expressed as a percentage of total store revenue increased to 55.4% for the three months ended June 30, 2004 from 53.8% for the three months ended June 30, 2003. This increase was primarily attributable to the decrease in same store sales coupled with an increase in salaries and other expenses in the second quarter of 2004 compared to the second quarter of 2003 resulting from an increase in our store base. In the second quarter of 2004, there were 24 more new stores and 52 more acquired stores open as compared to 2003, which are not yet performing at the level of a mature store. We expect salaries and other expenses to continue to increase as we implement our new store initiatives.

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Franchise Cost of Merchandise Sold. Franchise cost of merchandise sold increased by $268,000 or 3.0%, to $9.2 million for the three months ended June 30, 2004 as compared to $9.0 million in 2003. This increase was primarily attributable to an increase in merchandise sales to franchise locations as a result of more franchised locations operating in the second quarter of 2004 as compared to the second quarter of 2003.

General and Administrative Expenses. General and administrative expenses expressed as a percentage of total revenue increased to 3.4% for the three months ending June 30, 2004 as compared to 3.0% for the three months ending June 30, 2003. This increase is primarily attributable to the operation of the Rainbow Rentals and Rent Rite headquarters during the integration and transition period pursuant to those acquisitions, as well as the impact of a decrease in our same stores sales for the three month period ending June 30, 2004.

Amortization of Intangibles. Amortization of intangibles decreased by $138,000, or 4.2%, to $3.2 million for the three months ended June 30, 2004 as compared to $3.3 million for the three months ended June 30, 2003. This decrease was primarily attributable to the completed amortization of some intangibles, offset by the customer relationship and non-compete amortization related to the Rainbow Rentals and Rent Rite acquisitions in May 2004.

Operating Profit. Operating profit decreased by $7.0 million, or 7.2%, to $90.2 million for the three months ended June 30, 2004 as compared to $97.2 million in 2003. Operating profit as a percentage of total revenue decreased to 15.7% for the three months ended June 30, 2004, from 17.6% in 2003. These decreases were primarily attributable to the increase in salaries and other expenses and the decrease in same store sales during the second quarter of 2004 versus 2003 as discussed above. In the second quarter of 2004, there were 24 more new stores and 52 more acquired stores open as compared to 2003, which are not yet performing at the level of a mature store.

Net Earnings. Net earnings increased by $15.9 million, or 45.0%, to $51.2 million for the three months ended June 30, 2004 as compared to $35.3 million in 2003. This increase is primarily attributable to growth in total revenues and a decrease in interest expense, offset by increases in salaries and other expenses and general and administrative expenses, and the finance charges incurred during the second quarter of 2003 resulting from the recapitalization initiated during the same period. When excluding the effect of the recapitalization finance charges incurred in the second quarter of 2003, our net earnings decreased $1.1 million to $51.2 million for the three months ended June 30, 2004 as compared to $52.3 million for the three months ended June 30, 2003. This slight decrease is primarily attributable to the temporary impact of the Rainbow Rentals and Rent Rite acquisitions, our new store initiatives, as well as the decrease in our same store sales.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

Liquidity and Capital Resources

Cash provided by operating activities increased by $16.3 million to $199.7 million for the six months ending June 30, 2004 as compared to $183.4 million in 2003. This increase resulted primarily from an increase in net earnings and an increase in accrued liabilities during the first six months of 2004 as compared to 2003, consisting primarily of income taxes accrued for but not yet due, offset by a decrease in deferred income taxes.

Cash used in investing activities increased by $58.7 million to $187.5 million during the six month period ending June 30, 2004 as compared to $128.8 million in 2003. This increase is primarily attributable to the acquisition of the stores from Rent Rite and Rainbow Rentals in May 2004 coupled with an increase in property assets purchased during the period.

Cash used in financing activities increased by $177.9 million to $70.0 million during the six month period ending June 30, 2004 as compared to $107.9 million provided by financing activities in 2003. This increase is primarily related to the 2003 activity relating to our recapitalization. In 2003, we issued $300.0 million in senior subordinated notes and received the proceeds of a $400.0 million term loan under our previous senior credit facility, offset by the repurchase of $201.9 million of our 11% notes, the repayment of $249.5 million of our then-existing debt and the repurchase of $142.6 million of our common stock, which related to our 2003 recapitalization. In the six month period ending June 30, 2004, we repurchased $77.3 million in aggregate purchase price of our common stock.

Liquidity Requirements. Our primary liquidity requirements are for debt service, rental merchandise purchases, capital expenditures 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 and our store expansion programs into 2005. Our revolving credit facilities provide us with revolving loans in an aggregate principal amount not exceeding $250.0 million, of which $113.3 million was available at July 28, 2004. At July 28, 2004, we had approximately $111.1 million in cash. To the extent we have available cash that is not necessary for working capital, store openings or acquisitions, we intend to repurchase additional shares of our common stock as well as make payments to service our existing debt. While our operating cash flow has been strong and we expect this strength to continue, our liquidity could be negatively impacted if we do not remain as profitable as we expect.

Our senior credit facilities and the indenture governing our 7½% notes contain certain change in control provisions. A change in control would result in an event of default under our senior credit facilities, and, pursuant to the underlying indenture would also require us to offer to repurchase all of our 7½% notes at 101% of their principal amount, plus accrued interest to the date of repurchase. Provisions of our senior credit facilities restrict the repurchase of all of our 7½% notes. In the event a change in control occurs, we cannot be sure that we would have enough funds to immediately pay our accelerated senior credit facility obligations and all of the 7½% notes, or that we would be able to obtain financing to do so on favorable terms, if at all.

Deferred Taxes. On March 9, 2002, President Bush signed into law the Job Creation and Worker Assistance Act of 2002, which provides for accelerated tax depreciation deductions for qualifying assets placed in service between September 11, 2001 and September 10, 2004. Under these provisions, 30 percent of the basis of qualifying property is deductible in the year the property is placed in service, with the remaining 70 percent of the basis depreciated under the normal tax depreciation rules. For assets placed in service between May 6, 2003 and December 31, 2004, the Jobs and Growth Tax Relief Reconciliation Act of 2003 increased the percent of the basis of qualifying property deductible in the year the property is placed in service from 30% to 50%. Accordingly, our cash flow will benefit from having a lower current cash tax obligation, which in turn will provide additional cash flows from operations until the deferred tax liabilities begin to reverse. We estimate that our operating cash flow will have increased by approximately $102.4 million through 2004 before the deferred tax liabilities begin to reverse over a three year period beginning in 2005.

Rental Merchandise Purchases. We purchased $311.7 million and $305.1 million of rental merchandise during the six month periods ending June 30, 2004 and 2003, respectively.

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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 $34.9 million and $22.9 million on capital expenditures during the six month periods ending June 30, 2004 and 2003, respectively, and expect to spend approximately $25.0 million for the remainder of 2004.

Acquisitions and New Store Openings. For the first six months of 2004, we spent approximately $156.0 million on acquiring stores and accounts. For the entire year ending December 31, 2004, we intend to add approximately 5-10% to our store base by opening approximately 80-120 new store locations as well as pursuing opportunistic acquisitions.

On May 7, 2004, we completed the acquisition of Rent Rite for an aggregate purchase price of $59.9 million. Rent Rite operated 90 stores in 11 states, of which we subsequently merged 26 stores with our existing store locations. Approximately 40% of the consideration was paid with our common stock, with the remaining portion consisting of cash, the assumption of Rent Rite’s stock options and retirement of Rent Rite’s outstanding debt.

On May 14, 2004, we completed the acquisition of Rainbow Rentals for an aggregate purchase price of $109.0 million. Rainbow Rentals operated 124 stores in 15 states, of which we subsequently merged 29 stores with our existing store locations. We funded the acquisition entirely with cash on hand.

We entered into these transactions seeing them as opportunistic acquisitions that would allow us to expand our store base in conjunction with our strategic growth plans. The prices of the acquisitions were determined by evaluating the average monthly rental income of the acquired stores and applying a multiple to the total.

Furthermore, during the first six months of 2004, we acquired 20 additional stores, accounts from 28 additional locations, opened 47 new stores, and closed 32 stores. Of the closed stores, 25 were merged with existing store locations, and seven stores were sold. The additional stores and acquired accounts were the result of 22 separate transactions for an aggregate price of approximately $13.6 million in cash. As of July 28, 2004, we have acquired two additional stores and accounts from five additional locations, opened five new stores, merged one store into an existing location and sold one store during the third quarter of 2004. It is our intention to increase the number of stores we operate by an average of approximately 5 to 10% per year.

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

Senior Credit Facilities. On May 28, 2003, we entered into a senior credit facility provided by a syndicate of banks and other financial institutions led by Lehman Commercial Paper Inc., as administrative agent. At June 30, 2004, we had a total of $396.0 million outstanding under these senior credit facilities related to our term loans and $88.3 million of availability under the revolving credit line portion of the senior credit facilities.

The table below shows the scheduled maturity dates of our senior debt outstanding at June 30, 2004.

On July 14, 2004, we announced the completion of the refinancing of our new senior secured debt. Our new $600.0 million senior credit facilities consist of a $350.0 million term loan and a $250.0 million revolving credit facility. On that day, we drew down the $350.0 million term loan and $50.0 million of revolving facility and utilized the proceeds to repay our existing senior term debt. In connection with the refinancing, we will record a $4.2 million non-cash charge to write off the remaining unamortized balance of financing costs in the third quarter.

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The table below shows the scheduled maturity dates of our new term debt outstanding as if it was outstanding on June 30, 2004.

The full amount of the new revolving credit facility may be used for the issuance of letters of credit, of which $86.7 had been utilized as of July 28, 2004. The revolving credit facility expires in July 2009 and the term loan expires in 2010.

Borrowings under our new senior credit facilities bear interest at varying rates equal to 1.75% over the Eurodollar rate, which was 1.48% at July 28, 2004. We also have a prime rate option under the facilities, but have not exercised it to date. We have not entered into any interest rate protection agreements with respect to the term loans under our senior credit facilities.

Our new senior credit facilities are secured by a security interest in substantially all of our tangible and intangible assets, including intellectual property. Our new senior credit facilities are also secured by a pledge of the capital stock of our U.S. subsidiaries, and a portion of the capital stock of our international subsidiaries.

The new senior credit facilities contain covenants, including without limitation, those that generally limit our ability to:

	•		incur additional debt (including subordinated debt) in excess of $50.0 million at any one time outstanding;
	•		repurchase our capital stock and 7½% 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.

Our new 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 June 30, 2004, we were in compliance with our previous covenants and the table below shows the required and actual ratios under our new credit facilities calculated as at June 30, 2004:

Events of default under our new senior credit facilities include customary events, such as a cross-acceleration provision in the event that we default on other debt. An event of default under the senior credit facilities would occur if there is a change of control. This is defined to include the case where a third party becomes the beneficial owner of 35% or more of our voting stock or certain changes in our Board of Directors occurs. An event of default would also occur if one or more judgments were entered against us of $20 million or more and such judgments were not satisfied or bonded pending appeal within 30 days after entry.

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7½% Senior Subordinated Notes. On May 6, 2003, we issued $300.0 million in senior subordinated notes due 2010, bearing interest at 7½%, pursuant to an indenture dated May 6, 2003, among Rent-A-Center, Inc., its subsidiary guarantors and The Bank of New York, as trustee. The proceeds of this offering were used to fund the repurchase and redemption of the 11% senior subordinated notes.

The 2003 indenture contains covenants that limit Rent-A-Center’s ability to:

•		incur additional debt;
•		sell assets or our subsidiaries;
•		grant liens to third parties;
•		pay dividends or repurchase stock; or
•		engage in a merger or sell substantially all of its assets.

Events of default under the 2003 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 $50.0 million, as well as in the event a judgment is entered against us in excess of $50.0 million that is not discharged, bonded or insured.

The 7½% Notes may be redeemed on or after May 1, 2006, at our option, in whole or in part, at a premium declining from 103.75%. The 7½% Notes also require that upon the occurrence of a change of control (as defined in the 2003 indenture), the holders of the notes have the right to require us to repurchase the notes at a price equal to 101% of the original aggregate principal amount, together with accrued and unpaid interest, if any, to the date of repurchase. If we do 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 2011.

ColorTyme Guarantee. ColorTyme is a party to an agreement with Wells Fargo Foothill, Inc., who provides $50.0 million in aggregate financing to qualifying franchisees of ColorTyme generally of up to five times their average monthly revenues. Under the Wells Fargo agreement, upon an event of default by the franchisee under agreements governing this financing and upon the occurrence of certain other events, Wells Fargo can assign the loans and the collateral securing such loans to ColorTyme, with ColorTyme then succeeding to the rights of Wells Fargo under the debt agreements, including the right to foreclose on the collateral. An additional $15.0 million of financing is provided by Texas Capital Bank, National Association under an agreement similar to the Wells Fargo financing. Rent-A-Center East guarantees the obligations of ColorTyme under each of these agreements, not considering the effects of any amounts that could be recovered under collateralization provisions, up to a maximum amount of $65.0 million, of which $27.9 million was outstanding as of June 30, 2004. 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.

Litigation. We are currently a party to litigation pending in California styled Benjamin Griego, et al. v. Rent-A-Center, Inc., et al., alleging we violated various provisions of the California Rental Purchase Act. As discussed later in this report, in the event that a trial court judgment was entered against us in that matter, we would be required to post a cash bond in an amount equal to 1.5 times any damage award to enable us to appeal. We may not have cash immediately available to post a bond in such amount at the required time. To raise such cash, we may be required to raise debt or equity or take other similar actions. Although we believe we would be able to raise sufficient cash to support such a bond, we cannot assure you that we will be able to do so, and the terms of such financing could be less favorable to us than the terms we have obtained on our existing financing.

Any settlements or judgments against us on our existing litigation could affect our liquidity. Please refer to Part II Item 1 later in this report.