UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~FORM~~

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~~March 31, 2005

Commission File Number 0-25370

~~RENT-A-CENTER, INC.~~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~~Suite 100
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]~~þ NO ~~[ ]~~o

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

YES ~~[X]~~þ NO ~~[ ]~~o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of ~~July 28,~~April 27, 2004:


Class	Outstanding

Common stock, $.01 par value per share	~~79,109,972~~	74,743,061

RENT-A-CENTER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~EARNINGS~~CASH FLOWS

Three months ended June 30,
2004
2003
(In thousands, except per share data) Unaudited
Revenues
Store
Rentals and fees $ 520,593 $ 504,352
Merchandise sales 34,599 32,528
Installment sales 5,801 4,745
Other 967 812
Franchise
Merchandise sales 9,668 9,261
Royalty income and fees 1,357 1,562

572,985 553,260
Operating expenses
Direct store expenses
Depreciation of rental merchandise 112,113 109,341
Cost of merchandise sold 25,350 24,235
Cost of installment sales 2,477 2,090
Salaries and other expenses 311,058 291,726
Franchise cost of merchandise sold 9,214 8,946

460,212 436,338
General and administrative expenses 19,392 16,388
Amortization of intangibles 3,158 3,296

Total operating expenses 482,762 456,022
Operating profit 90,223 97,238
Finance charges from recapitalization — 27,748
Interest expense 10,252 13,070
Interest income (1,488 ) (1,208 )

Earnings before income taxes 81,459 57,628
Income tax expense 30,265 22,328

NET EARNINGS 51,194 35,300
Preferred dividends — —

Net earnings allocable to common stockholders $ 51,194 $ 35,300

Basic earnings per common share $ 0.64 $ 0.40

Diluted earnings per common share $ 0.62 $ 0.39


	Three months ended March 31,
	2005			2004
(In thousands)	Unaudited
Cash flows from operating activities
Net earnings	$	47,669		$	52,209
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation of rental merchandise		110,735			108,315
Depreciation of property assets		13,263			11,249
Amortization of intangibles		2,297			2,488
Amortization of financing fees		395			474
Deferred income taxes		(32,540	)		(24,535	)
Changes in operating assets and liabilities, net of effects of acquisitions
Rental merchandise		(142,216	)		(119,650	)
Accounts receivable, net		(892	)		(557	)
Prepaid expenses and other assets		27,576			28,032
Accounts payable – trade		(9,412	)		23,416
Accrued liabilities		70,684			75,954

Net cash provided by operating activities		87,559			157,395

Cash flows from investing activities

Purchase of property assets		(10,930	)		(13,418	)
Proceeds from sale of property assets		493			3,246
Acquisitions of businesses, net of cash acquired		(3,813	)		(14,101	)

Net cash used in investing activities		(14,250	)		(24,273	)

Cash flows from financing activities

Purchase of treasury stock		—			(8,366	)
Exercise of stock options		3,987			5,694
Repayments of debt		(60,875	)		(1,000	)

Net cash used in financing activities		(56,888	)		(3,672	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		16,421			129,450

Cash and cash equivalents at beginning of period		58,825			143,941

Cash and cash equivalents at end of period	$	75,246		$	273,391


Supplemental cash flow information
Cash paid during the period for:
Interest	$	5,069		$	3,727
Income taxes	$	821		$	592

During the first three months of 2005 and 2004, the Company paid dividends on its preferred stock of approximately $19.00 in cash.

See accompanying notes to consolidated financial statements.

RENT-A-CENTER, INC. AND SUBSIDIARIES

~~CONSOLIDATED STATEMENTS OF EARNINGS~~

Six months ended June 30,
2004
2003
(In thousands, except per share data) Unaudited
Revenues
Store
Rentals and fees $ 1,024,883 $ 997,771
Merchandise sales 94,022 85,192
Installment sales 12,499 10,790
Other 2,047 1,527
Franchise
Merchandise sales 22,132 21,333
Royalty income and fees 2,782 3,053

1,158,365 1,119,666
Operating expenses
Direct store expenses
Depreciation of rental merchandise 220,428 216,001
Cost of merchandise sold 64,961 60,783
Cost of installment sales 5,622 5,321
Salaries and other expenses 620,142 584,222
Franchise cost of merchandise sold 21,106 20,497

932,259 886,824
General and administrative expenses 37,578 33,144
Amortization of intangibles 5,646 6,169

Total operating expenses 975,483 926,137
Operating profit 182,882 193,529
Finance charges from recapitalization — 27,748
Interest expense 20,611 26,593
Interest income (2,991 ) (1,979 )

Earnings before income taxes 165,262 141,167
Income tax expense 61,859 54,908

NET EARNINGS 103,403 86,259
Preferred dividends — —

Net earnings allocable to common stockholders $ 103,403 $ 86,259

Basic earnings per common share $ 1.29 $ 0.99

Diluted earnings per common share $ 1.25 $ 0.96

~~See accompanying notes to consolidated financial statements.~~

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED BALANCE SHEETS~~

June 30, December 31,
2004
2003
(In thousands, except per share data) Unaudited
ASSETS

Cash and cash equivalents $ 86,164 $ 143,941
Accounts receivable, net 14,940 14,949
Prepaid expenses and other assets 57,155 70,702
Rental merchandise, net
On rent 565,977 542,909
Held for rent 169,044 137,792
Merchandise held for installment sale 1,172 1,666
Property assets, net 134,413 121,909
Goodwill, net 888,426 788,059
Intangible assets, net 12,912 9,375

$ 1,930,203 $ 1,831,302

LIABILITIES

Accounts payable – trade $ 69,834 $ 72,708
Accrued liabilities 186,649 132,844
Deferred income taxes 117,500 132,918
Senior debt 396,000 398,000
Subordinated notes payable, net of discount 300,000 300,000
Redeemable convertible voting preferred stock 2 2

1,069,985 1,036,472
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common stock, $.01 par value; 250,000,000 shares authorized; 101,807,748 and 101,148,417 shares issued in 2004 and 2003, respectively 1,018 1,012
Additional paid-in capital 603,632 572,628
Retained earnings 713,337 609,930
Treasury stock, 22,832,099 and 21,020,041 shares at cost in 2004 and 2003, respectively (457,769 ) (388,740 )

860,218 794,830

$ 1,930,203 $ 1,831,302

~~See accompanying notes to consolidated financial statements.~~

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

Six months ended June 30,
2004
2003
(In thousands) Unaudited
Cash flows from operating activities
Net earnings $ 103,403 $ 86,259
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation of rental merchandise 220,428 216,001
Depreciation of property assets 23,083 20,953
Amortization of intangibles 5,646 6,169
Amortization of financing fees 424 419
Deferred income taxes (15,418 ) 291
Finance charges from recapitalization — 17,931
Changes in operating assets and liabilities, net of effects of acquisitions
Rental merchandise (209,329 ) (208,349 )
Accounts receivable, net 9 (3,942 )
Prepaid expenses and other assets 20,508 17,865
Accounts payable – trade (2,875 ) 14,761
Accrued liabilities 53,810 15,045

Net cash provided by operating activities 199,689 183,403
Cash flows from investing activities
Purchase of property assets (34,853 ) (22,923 )
Proceeds from sale of property assets 3,336 410
Acquisitions of businesses, net of cash acquired (155,953 ) (106,240 )

Net cash used in investing activities (187,470 ) (128,753 )
Cash flows from financing activities
Purchase of treasury stock (77,266 ) (142,645 )
Exercise of stock options 9,270 17,841
Issuance of subordinated notes — 300,000
Payment of refinance charges — (15,963 )
Proceeds from debt — 400,000
Repurchase of subordinated notes, including premium paid — (201,856 )
Repayments of debt (2,000 ) (249,500 )

Net cash provided by (used in) financing activities (69,996 ) 107,877
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (57,777 ) 162,527
Cash and cash equivalents at beginning of period 143,941 85,723

Cash and cash equivalents at end of period $ 86,164 $ 248,250

~~See accompanying notes to consolidated financial statements.~~

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Significant Accounting Policies and Nature of Operations.
    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~~10-K 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,~~March 31, 2005, we operated ~~2,846~~2,863 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,~~March 31, 2005, ColorTyme had ~~319~~307 franchised stores operating in 40 states. ColorTyme’s primary source of ~~revenues~~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. The balance of ColorTyme’s ~~revenues~~revenue is generated primarily from royalties based on franchisees’ monthly gross revenues.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

4.
~~Reconciliation~~Cost of ~~Rental Merchandise~~.

Six Months Ended Six Months Ended
June 30, 2004
June 30, 2003
(in thousands)
Beginning merchandise value $ 682,367 $ 631,724
Inventory additions through acquisitions 64,925 52,258
Purchases 311,662 305,130
Depreciation of rental merchandise (220,428 ) (216,001 )
Cost of goods sold (70,583 ) (66,104 )
Skips and stolens (25,182 ) (22,303 )
Other inventory deletions⁽¹⁾
(6,568 ) (8,374 )

Ending merchandise value $ 736,193 $ 676,330

Three Months Ended Three Months Ended
June 30, 2004
June 30, 2003
(in thousands)
Beginning merchandise value $ 697,902 $ 693,324
Inventory additions through acquisitions 60,725 1,894
Purchases 134,401 132,630
Depreciation of rental merchandise (112,113 ) (109,341 )
Cost of goods sold (27,827 ) (26,325 )
Skips and stolens (12,569 ) (11,834 )
Other inventory deletions⁽¹⁾
(4,326 ) (4,018 )

Ending merchandise value $ 736,193 $ 676,330

~~(1)~~

~~Other inventory deletions include loss/damage waiver claims~~Rentals and ~~unrepairable~~Fees.Cost of rentals and ~~missing~~fees has replaced depreciation of rental merchandise ~~as well as acquisition write-offs.~~

5. ~~Intangibles.~~on the Consolidated Statement of Earnings. The additional costs included in this classification relate to our membership programs commenced in 2004. Depreciation of rental merchandise is separately identified in Note 2 in the Notes to the Consolidated Financial Statements later in this report.

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

June 30, 2004
December 31, 2003
Avg. Gross Gross
Life Carrying Accumulated Carrying Accumulated
(years)
Amount
Amortization
Amount
Amortization
Amortizable intangible assets
Franchise network 10 $ 3,000 $ 2,400 $ 3,000 $ 2,250
Non-compete agreements 3 5,332 2,270 5,275 1,788
Customer relationships 1.5 30,002 20,752 20,699 15,561

Total 38,334 25,422 28,974 19,599
Intangible assets not subject to amortization
Goodwill 987,588 99,162 887,221 99,162

Total intangibles $ 1,025,922 $ 124,584 $ 916,195 $ 118,761

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

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:~~

Estimated
Amortization Expense
(in thousands)
2004 $ 4,911
2005 6,627
2006 1,273
2007 101
2008 —

Total $ 12,912

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

At June 30, 2004
At December 31, 2003
(in thousands)
Balance as of January 1, $ 788,059 $ 736,395
Additions from acquisitions 103,406 48,445
Post-purchase price allocation adjustments (3,039 ) 3,219

Balance as of the end of the period $ 888,426 $ 788,059

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 or restricted stock grants and all options have been granted with fixed prices. At ~~June 30, 2004,~~March 31, 2005, there were ~~10,050,453~~9,316,706 shares available for issuance under the Plan, of which ~~5,768,950~~5,163,936 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~~In addition, vested options not exercised within 90 days from the date the optionee leaves ~~the Company’s~~our employ generally terminate and become available for re-issuance under the Plan.

		For all ~~periods~~options granted 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~~weighted average assumptions: expected volatility of ~~55.0%~~55.2%, risk-free interest ~~rates~~rate 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%~~53.5%, a risk-free interest rate of ~~2.5% to 2.9%~~2.8%, 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.

	New Accounting Pronouncements.In December 2004, the FASB enacted Statement of Financial Accounting Standards 123—revised 2004 (“SFAS 123R”),Share-Based Payment,which replaces SFAS 123, and supersedes APB 25.SFAS 123R requires the measurement of all share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in our consolidated statement of earnings. The accounting provisions of SFAS 123R are effective for fiscal years beginning after June 15, 2005.

	We are required to adopt SFAS 123R in the first quarter of 2006. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. See theStock-Based Compensationsection shown above for the pro forma net earnings and earnings per share amounts for the first quarter of 2005 and 2004 as if we had used a fair-value-based method similar to the methods required under SFAS 123 to measure compensation expense for employee stock incentive awards. Although we have not yet determined whether the adoption of SFAS 123R will result in amounts that are different from the current pro forma disclosures under SFAS 123, we are evaluating the requirements under SFAS 123R and expect the adoption to have a significant impact on our consolidated statement of earnings and earnings per share, but no impact on our financial condition or cash flows.

RENT-A-CENTER, INC. AND SUBSIDIARIES

7.2. Reconciliation of Merchandise Inventory.


	Three Months Ended			Three Months Ended
	March 31, 2005			March 31, 2004
	(In thousands)
Beginning merchandise value	$	760,422		$	682,367
Inventory additions through acquisitions		1,275			4,200
Purchases		204,858			177,261
Depreciation of rental merchandise		(110,735	)		(108,315	)
Cost of goods sold		(44,930	)		(42,528	)
Skips and stolens		(13,747	)		(12,613	)
Other inventory deletions⁽¹⁾		(3,965	)		(2,470	)


Ending merchandise value	$	793,178		$	697,902

(1)

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

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


			March 31, 2005				December 31, 2004
	Avg.		Gross				Gross
	Life		Carrying		Accumulated		Carrying		Accumulated
	(years)		Amount		Amortization		Amount		Amortization
Amortizable intangible assets
Franchise network		10	$	3,000	$	2,625	$	3,000	$	2,550
Non-compete agreements		3		5,872		3,503		5,902		3,197
Customer relationships		1.5		30,950		26,733		30,644		24,810

Total				39,822		32,861		39,546		30,557
Intangible assets not subject to amortization
Goodwill				1,014,788		99,162		1,012,577		99,162

Total intangibles			$	1,054,610	$	132,023	$	1,052,123	$	129,719

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


	Estimated
	Amortization Expense
	(In thousands)
2005	$	5,329
2006		1,531
2007		101
2008		—

Total	$	6,961

RENT-A-CENTER, INC. AND SUBSIDIARIES

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


	At March 31, 2005			At December 31, 2004
	(In thousands)
Balance as of January 1,	$	913,415		$	788,059
Additions from acquisitions		2,230			112,209
Post purchase price allocation adjustments		(19	)		13,147

Balance as of the end of the period	$	915,626		$	913,415

The post purchase price allocation adjustments in 2004 of approximately $13.1 million are primarily attributable to inventory charge-offs for unrentable or missing merchandise acquired in acquisitions, reserves put into place for lease buyouts for acquired stores which were closed post acquisition in compliance with executive management’s pre-acquisition plans, and the severance pay for the employees involved in the planned reduction in workforce inherited from some of the acquired companies.

4. Earnings Per Share.

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


	Six months ended June 30, 2004						Three Months Ended March 31, 2005
(In thousands, except per share data)	Net earnings		Shares		Per share		Net earnings		Shares		Per share
Basic earnings per common share	$	103,403		79,874	$	1.29	$	47,669		74,558	$	0.64
Effect of dilutive stock options		—		2,559						1,514

Diluted earnings per common share	$	103,403		82,433	$	1.25	$	47,669		76,072	$	0.63

		For the ~~six~~three months ended ~~June 30,~~March 31, 2005 and 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~~1,871,475 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 0,64,750, respectively.

~~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.

RENT-A-CENTER, INC. AND SUBSIDIARIES

    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.~~million.

    The ~~7½% Notes~~7 1/2% 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~~7 1/2% 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~~Rent-A-Center and 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~~7 1/2% notes. Rent-A-Center has no independent assets or operations, and each Subsidiary Guarantor is ~~a wholly~~100% owned ~~direct~~directly or ~~indirect subsidiary of~~indirectly by 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~~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)~~

Parent Subsidiary
Company
Guarantors
Total
Six Months Ended June 30, 2004 (unaudited)

Total revenues $ — $ 1,158,365 $ 1,158,365
Direct store expenses — 911,513 911,513
Other expenses — 143,449 143,449

Net earnings $ — $ 103,403 $ 103,403

Parent Rent-A- Subsidiary
Company
Center East
Guarantors
Total
Six Months Ended June 30, 2003 (unaudited)

Total revenues $ — $ 792,540 $ 327,126 $ 1,119,666
Direct store expenses — 590,816 275,511 866,327
Other expenses — 114,784 52,296 167,080

Net earnings (loss) $ — $ 86,940 $ (681 ) $ 86,259

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

8. ~~Subsidiary Guarantors~~~~– (continued)~~

Parent Subsidiary
Company
Guarantors
Total
Three Months Ended June 30, 2004 (unaudited)

Total revenues $ — $ 572,985 $ 572,985
Direct store expenses — 450,998 450,998
Other expenses — 70,793 70,793

Net earnings $ — $ 51,194 $ 51,194

Parent Rent-A- Subsidiary
Company
Center East
Guarantors
Total
Three Months Ended June 30, 2003 (unaudited)

Total revenues $ — $ 392,277 $ 160,983 $ 553,260
Direct store expenses — 293,350 134,042 427,392
Other expenses — 64,510 26,058 90,568

Net earnings $ — $ 34,417 $ 883 $ 35,300

~~Condensed Consolidating Statements of Operations – (in thousands)~~

~~Condensed Consolidating Balance Sheets – (in thousands)~~

Parent Subsidiary Consolidating
Company
Guarantors
Adjustments
Totals
June 30, 2004 (unaudited)

Rental merchandise, net $ — $ 736,193 $ — $ 736,193
Intangible assets, net — 901,338 — 901,338
Other assets 870,935 162,308 (740,571 ) 292,672

Total assets $ 870,935 $ 1,799,839 $ (740,571 ) $ 1,930,203

Senior debt $ 396,000 $ — $ — $ 396,000
Other liabilities 300,002 772,812 (398,829 ) 673,985
Stockholders’ equity 174,933 1,027,027 (341,742 ) 860,218

Total liabilities and equity $ 870,935 $ 1,799,839 $ (740,571 ) $ 1,930,203

Parent Subsidiary Consolidating
Company
Guarantors
Adjustments
Totals
December 31, 2003

Rental merchandise, net $ — $ 682,367 $ — $ 682,367
Intangible assets, net — 797,434 — 797,434
Other assets 882,876 231,893 (763,268 ) 351,501

Total assets $ 882,876 $ 1,711,694 $ (763,268 ) $ 1,831,302

Senior debt $ 398,000 $ — $ — $ 398,000
Other liabilities 300,002 759,996 (421,526 ) 638,472
Stockholders’ equity 184,874 951,698 (341,742 ) 794,830

Total liabilities and equity $ 882,876 $ 1,711,694 $ (763,268 ) $ 1,831,302

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

8. ~~Subsidiary Guarantors~~~~– (continued)~~

~~Condensed Consolidating Statements of Cash Flows – (in thousands)~~

Parent Subsidiary
Company
Guarantors
Total
Six months ended June 30, 2004 (unaudited)

Net cash provided by operating activities $ — $ 199,689 $ 199,689

Cash flows from investing activities
Purchase of property assets — (34,853 ) (34,853 )
Acquisitions of businesses, net of cash acquired — (155,953 ) (155,953 )
Proceeds from sale of property assets — 3,336 3,336

Net cash used in investing activities — (187,470 ) (187,470 )
Cash flows from financing activities
Purchase of treasury stock (77,266 ) — (77,266 )
Exercise of stock options 9,270 — 9,270
Repayments of debt (2,000 ) — (2,000 )
Intercompany advances 70,978 (70,978 ) —

Net cash provided by (used in) financing activities 982 (70,978 ) (69,996 )

Net increase (decrease) in cash and cash equivalents 982 (58,759 ) (57,777 )
Cash and cash equivalents at beginning of period 61,006 82,935 143,941

Cash and cash equivalents at end of period $ 61,988 $ 24,176 $ 86,164

Parent Rent-A- Subsidiary
Company
Center East
Guarantors
Total
Six months ended June 30, 2003 (unaudited)

Net cash provided by operating activities $ — $ 112,254 $ 71,149 $ 183,403

Cash flows from investing activities
Purchase of property assets — (16,550 ) (6,373 ) (22,923 )
Acquisitions of businesses, net of cash acquired — (71,372 ) (34,868 ) (106,240 )
Other — 296 114 410

Net cash used in investing activities — (87,626 ) (41,127 ) (128,753 )
Cash flows from financing activities
Purchase of treasury stock (142,645 ) — — (142,645 )
Exercise of stock options 17,841 — — 17,841
Issuance of subordinated notes 300,000 — — 300,000
Payment of refinancing charges — (15,963 ) — (15,963 )
Proceeds from debt 400,000 — — 400,000
Repurchase of subordinated notes, including premium paid — (201,856 ) — (201,856 )
Repayments of debt — (249,500 ) — (249,500 )
Intercompany advances (367,573 ) 379,783 (12,210 ) —

Net provided by (cash used) in financing activities. 207,623 (87,536 ) (12,210 ) 107,877

Net increase (decrease) in cash and cash equivalents 207,623 (62,908 ) 17,812 162,527

Cash and cash equivalents at beginning of period — 85,723 — 85,723

Cash and cash equivalents at end of period $ 207,623 $ 22,815 $ 17,812 $ 248,250

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

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:~~

Six months ended June,
2004
2003
(in thousands)
Net earnings $ 103,403 $ 86,259
Other comprehensive (loss) income:
Unrealized gain on derivatives held as cash flow hedges:
Change in unrealized gain during period — 4,480
Reclassification adjustment for loss included in net earnings — (4,480 )

Other comprehensive income — —

Comprehensive income $ 103,403 $ 86,259

Three months ended June,
2004
2003
(in thousands)
Net earnings $ 51,194 $ 35,300
Other comprehensive (loss) income:
Unrealized gain on derivatives held as cash flow hedges:
Change in unrealized gain during period — 1,869
Reclassification adjustment for loss included in net earnings — (1,869 )

Other comprehensive income — —

Comprehensive income $ 51,194 $ 35,300

~~10.~~ 6. 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~~Over a period 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 thattime, our Board of Directors increased the authorization for stock repurchases under our new common stock repurchase program to ~~$200.0~~$300.0 million. ~~Please see “Changes~~As of March 31, 2005, we had purchased a total of 8,525,300 shares of our common stock for an aggregate of $237.6 million under our new common stock repurchase program. No repurchases were made in ~~Securities, Use~~the first quarter of ~~Proceeds and Issuer Purchases of Equity Securities” later in this report.~~2005.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~11.~~ 7. Acquisitions.

~~Rent Rite, Inc.~~
~~On May 7, 2004,~~During the first quarter of 2005, we ~~completed~~acquired three stores, accounts from 10 additional locations, opened 10 new stores, and closed 25 stores. Of the ~~acquisition~~closed stores, 22 were merged with existing store locations, and three stores were sold. The additional stores and acquired accounts were the result of ~~Rent Rite, Inc. d/b/a Rent Rite Rental Purchase~~nine separate transactions for an aggregate ~~purchase~~ price of ~~$59.9 million. Rent Rite operated 90 stores~~approximately $3.8 million 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:cash.

Fair Values
(in thousands)
Rental merchandise $ 18,644
Property assets 1,262
Customer relationships 3,180
Non-compete agreements 242
Goodwill 36,568

Total assets acquired $ 59,896

~~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:

Fair Values
(in thousands)
Rental merchandise $ 41,337
Property assets 2,864
Customer relationships 4,553
Non-compete agreements 100
Goodwill 60,192

Total assets acquired $ 109,046

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.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~12.~~ 8.   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 paying the outstanding debt to Wells Fargo and 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, Inc., a subsidiary of Rent-A-Center, 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~~$26.6 million was outstanding as of ~~June 30, 2004.~~March 31, 2005.

    Other guarantees.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,~~March 31, 2005, we had ~~$86.7~~$104.6 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 millionfacilities, all of which is supported by our $250.0 million revolving facility. ~~See Note 14, “Subsequent Events” and “Recent Developments” later in this report.~~

RENT-A-CENTER, INC. AND SUBSIDIARIES

~~13.~~ 9. ~~Recapitalization.~~Refinancing of Senior Debt.

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,~~14, 2004, we refinanced our then existing senior secured 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.~~

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~14.~~ ~~Subsequent Events.~~
~~New Senior Credit Facilities.~~~~On July 14, 2004, we announced the completion of the refinancing of our senior secured debt.~~facilities. 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 the revolving facility and utilized the proceeds to repay our existing senior term debt. ~~In connection with~~During the ~~refinancing,~~first quarter of 2005, we ~~will record a $4.2 million non-cash charge to write off the remaining unamortized balance of financing costs in the third quarter.~~repaid all amounts drawn under our revolving credit facility.

10. Subsequent Events.

~~Increased Stock Repurchase Authorization.~~On ~~July 26,~~April 12, 2005, the settlement of theBenjamin Griego, et al. v. Rent-A-Center, Inc., et al/Arthur Carrillo, et al. v. Rent-A-Center, Inc., et allitigation pending in California received final approval from the court. Under the terms of the settlement approved by the court, we agreed to pay the plaintiffs’ attorneys’ fees, as well as an aggregate of up to $37.5 million in cash. This settlement amount is to be distributed to the class of eligible customers who entered into rental-purchase agreements with us anytime from February 1, 1999 through October 31, 2004, with Rent-A-Center being entitled to any undistributed monies in the settlement fund up to an aggregate of $8.0 million, with any additional undistributed funds being paid to non-profit organizations. As a result of the response rate to the notice of the settlement mailed to class members on February 7, 2005, the parties agreed that we ~~announced that~~could retain the $8.0 million reversion, rather than deposit it as part of the settlement fund. Accordingly, on April 22, 2005, we paid $29.5 million to fund the settlement, as well as $9.0 million in attorneys’ fees, for a total of $38.5 million in cash. To account for the retention of the $8.0 million reversion and resulting reduction in our ~~Board~~settlement liability, we recorded an $8.0 million pre-tax credit during the first quarter of ~~Directors increased the authorization for stock repurchases under our common stock repurchase program~~2005. Please refer to ~~$200.0 million.~~“Legal Proceedings” later in this report.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

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

Forward-Looking Statements

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

• uncertainties regarding the ability to open new rent-to-own 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~~identify and successfully market products and services that appeal to our ~~margin enhancement initiatives;~~customer demographic;

• our ability to identify and successfully enter new lines of business offering products and services that appeal to our customer demographic;

• 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 enter into new rental purchase agreements;

• economic pressures affecting the disposable income available to our targeted consumers, such as high fuel and utility costs;

• 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~~10-K for our fiscal year ended December 31, ~~2003.~~2004. 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%~~35% market share based on store count. At ~~June 30, 2004,~~March 31, 2005, we operated ~~2,846~~2,863 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,~~March 31, 2005, ColorTyme had ~~319~~307 franchised stores in 40 states, ~~307~~295 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~~major consumer 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

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

We plan to accomplish our future growth through selective and opportunistic acquisitions of existing rent-to-own stores, and development of new ~~store development.~~rent-to-own stores. Typically, a newly opened rent-to-own 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,~~$500,000, with roughly ~~70%~~75% 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. In addition, we strategically open or acquire stores near market areas served by existing stores (“cannibalize”) to enhance service levels, gain incremental sales and increase market penetration. This planned cannibalization may negatively impact our same store revenue. There can be no assurance that we will open any new rent-to-own 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~~Furthermore, we are evaluating other growth strategies, ~~we may incur, from time~~including offering additional products and services designed 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 relateappeal to our ~~financial condition~~customer demographic, both through our new and ~~performance, and some~~existing rent-to-own stores as well as the entry into additional lines of ~~which are beyond our control, such as prevailing interest rates and general economic conditions.~~business. There can be no assurance ~~additional financing~~that we will be ~~available,~~successful in our efforts to expand our operations to include such complementary financial products or ~~if available,~~services, or that such operations, should they be added, will prove to be ~~on terms acceptable to us.~~profitable.

Recent Developments

~~Appointment~~On April 12, 2005, the settlement of ~~Richard K. Armey~~theBenjamin Griego, et al. v. Rent-A-Center, Inc., et al/Arthur Carrillo, et al. v. Rent-A-Center, Inc., et allitigation pending in California received final approval from the court. Under the terms of the settlement approved by the court, we agreed to ~~our Board~~pay the plaintiffs’ attorneys’ fees, as well as an aggregate of ~~Directors.On May 24,~~up to $37.5 million in cash. This settlement amount is to be distributed to the class of eligible customers who entered into rental-purchase agreements with us anytime from February 1, 1999 through October 31, 2004, ~~we announced that Richard K. “Dick” Armey had been named~~with Rent-A-Center being entitled to ~~our Board of Directors. Congressman Armey served for 18 years~~any undistributed monies in the ~~U.S. House~~settlement fund up to an aggregate of ~~Representatives, culminating in eight years as Majority Leader. In addition~~$8.0 million, with any additional undistributed funds being paid to ~~joining the Board of Directors, Congressman Armey has become~~non-profit organizations. As a ~~member~~result of the ~~Board’s Audit Committee and Compensation Committee.~~

~~New Senior Credit Facility~~~~On July 14, 2004, we announced~~response rate to the ~~completion~~notice of the ~~refinancing~~settlement mailed to class members on February 7, 2005, the parties agreed that we could retain the $8.0 million reversion, rather than deposit it as part of the settlement fund. Accordingly, on April 22, 2005, we paid $29.5 million to fund the settlement, as well as $9.0 million in attorneys’ fees, for a total of $38.5 million in cash. To account for the retention of the $8.0 million reversion and resulting reduction in our ~~senior secured debt. Our new $600.0~~settlement liability, we recorded an $8.0 million ~~senior~~pre-tax credit ~~facilities consist~~during the first quarter 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~~2005. Please refer 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~~“Legal Proceedings” later in ~~the third quarter.~~this report.

~~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,~~April 27, 2005, we have acquired two ~~additional~~ stores and accounts from ~~five~~one additional ~~locations,~~location, opened ~~five~~six new stores ~~merged one store into an existing location~~ and ~~sold one store~~closed six stores during the ~~third~~second quarter of ~~2004.~~2005. Of the closed stores, five were merged with existing locations, and one was sold. It is our intention to increase the number of rent-to-own stores we operate by an average of approximately 5 to 10% per ~~year.~~year over the next several years.

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

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

We make assumptions on our liabilities within our self-insured retentions using actuarial loss forecasts, which are prepared using methods and assumptions ~~that are~~ in accordance with standard actuarial practice, and third party ~~claims~~claim 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~~estimates, using actuarial loss forecasts ~~reports using~~updated during the quarter and currently valued third party claim administrator loss ~~data.~~estimates. We evaluate the adequacy of our accruals by comparing amounts accrued on our balance sheet for anticipated losses to our updated actuarial 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,~~March 31, 2005, the net amount accrued for losses within our self-insured retentions was ~~$73.5~~$90.3 million, as compared to ~~$54.2~~$77.5 million at ~~June 30, 2003.~~March 31, 2004. The increase in the net amount accrued for the ~~2004~~2005 period is a result of store growth, increased number of employees, increases in health care costs, 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~~March 31, 2005, we had accrued ~~$2.5~~$39.0 million in connection with the settlement of theGriego/Carrillomatter, and an additional $1.8 million for probable litigation costs with respect to our other outstanding litigation (other than theGriego/Carrillomatter) as compared to ~~$3.6~~$2.8 million for the quarter ended ~~June 30, 2003.~~March 31, 2004. The amounts accrued, relating to the settlement in theGriego/Carrillomatter, and anticipated legal fees and expenses with respect to our remaining outstanding litigation (other thanGriego/Carrillo), represent our estimate of the probable liabilities with respect to ~~our~~such 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~~or other adverse or positive ~~development~~developments or ~~ruling,~~rulings in our litigation, 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~~pre-tax change of $1.2 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~~10-K as well as changes in our growth objectives or performance of new or acquired stores, could not adversely impact our consolidated financial position, results of operations and cash flows in future periods.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

~~Other~~ Significant Accounting Policies

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

Revenue. Merchandise is rented to customers pursuant to rental-purchase agreements which provide for weekly, semi-monthly 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~~Revenue for the total amount of the rental purchase agreement is not 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~~uncollectible 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. Depreciation of rental merchandise is included in the cost of rentals and fees on our statement of earnings. 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 2124 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~~Three Months Ended ~~June 30, 2004~~March 31, 2005 compared to ~~Six~~Three Months Ended ~~June 30, 2003~~March 31, 2004

Store Revenue. Total store revenue increased by ~~$38.2~~$17.6 million, or ~~3.5%~~3.1%, to ~~$1,133.5~~$589.1 million for the ~~six~~three months ended ~~June 30, 2004~~March 31, 2005 as compared to ~~$1,095.3~~$571.5 million for the ~~six~~three months ended ~~June 30, 2003.~~March 31, 2004. The increase in total store revenue is primarily attributable to approximately ~~$55.5~~$43.1 million in incremental revenue from new stores and acquisitions, net of stores sold and the effects of merged stores, during the first ~~six~~three months of ~~2004~~2005 as compared to ~~2003,~~2004, offset by a decrease in same store sales of ~~2.2%~~5.0%.

Same store revenues represent those revenues earned in stores that were operated by us for each of the entire ~~six~~three month periods ending ~~June 30,~~March 31, 2005 and 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~~$25.5 million, or ~~2.2%~~5.0%, to ~~$860.2~~$486.5 million for the ~~six~~three months ended ~~June 30, 2004~~March 31, 2005 as compared to ~~$879.7~~$512.0 million in ~~2003. The~~2004. This 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~~three months of ~~2004 versus~~2005 as compared to the first ~~six~~three months of ~~2003, offset by an increase in the average revenue per customer.~~2004.

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RENT-A-CENTER, INC. AND SUBSIDIARIES

Franchise Revenue. Total franchise revenue ~~increased~~decreased by ~~$528,000,~~$1.1 million, or ~~2.2%~~8.2%, to ~~$24.9~~$12.8 million for the ~~six~~three months ended ~~June 30, 2004~~March 31, 2005 as compared to ~~$24.4~~$13.9 million in ~~2003.~~2004. This ~~increase~~decrease was primarily attributable to ~~an increase~~a decrease in merchandise sales to franchise locations as a result of ~~more~~19 fewer franchised locations, on a weighted average basis, operating in the first ~~six months~~quarter of ~~2004~~2005 as compared to the first ~~six months~~quarter of ~~2003.~~2004. The number of locations has declined as a result of fewer new franchise stores, together with the purchase of 27 franchise locations by other Rent-A-Center subsidiaries since March 31, 2004.

~~Depreciation~~Cost of ~~Rental Merchandise~~Rentals and Fees. Cost of rentals and fees consists of depreciation of rental merchandise and the costs associated with our membership programs, which began in 2004. Depreciation of rental merchandise, which accounts for 98.5% of the cost of rentals and fees for the three months ended March 31, 2005, increased by ~~$4.4~~$2.4 million, or ~~2.0%~~2.2%, to ~~$220.4~~$110.7 million for the ~~six~~three months ended ~~June 30, 2004~~March 31, 2005 as compared to ~~$216.0~~$108.3 million in ~~2003.~~2004. This increase is a result of an increase in rental revenue for the first ~~six~~three months of ~~2004~~2005 compared to the first ~~six~~three months of ~~2003.~~2004. Depreciation of rental merchandise expressed as a percentage of store rentals and fees revenue decreased slightly to ~~21.5%~~21.4% in ~~2004~~2005 from ~~21.6%~~21.5% 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~~$2.7 million, or ~~6.9%~~6.8%, to ~~$65.0~~$42.1 million for the ~~six~~three months ended ~~June 30, 2004~~March 31, 2005 as compared to ~~$60.8~~$39.4 million in ~~2003.~~2004. This increase was primarily a result of an increase in the number of items sold during the first ~~six months~~quarter of ~~2004~~2005 as compared to the first ~~six months 2003.~~quarter 2004. The gross margin percent of merchandise sales ~~increased~~decreased slightly to ~~30.9%~~33.0% in ~~2004~~2005 from ~~28.6%~~33.7% 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~~$24.9 million, or ~~6.1%~~8.1%, to ~~$620.1~~$334.0 million for the ~~six~~three months ended ~~June 30, 2004~~March 31, 2005 as compared to ~~$584.2~~$309.1 million in ~~2003.~~2004. 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~~2005 period. ~~Salaries and other expenses~~For the three months ended March 31, 2005, there were ~~also negatively impacted by~~216 more stores, on a weighted average basis, operating during the ~~increase in gasoline prices, which increases our delivery expense.~~period as compared to 2004. Salaries and other expenses expressed as a percentage of total store revenue increased to ~~54.7%~~56.7% for the ~~six~~three months ended ~~June 30, 2004~~March 31, 2005 from ~~53.3% for the six months ended June 30, 2003.~~54.1% in 2004. This percentage increase was primarily attributable to the decrease in same store sales ~~coupled with an increase in salaries and other expenses in~~during the first ~~six~~three 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~~2005 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.~~2004.

Franchise Cost of Merchandise Sold. Franchise cost of merchandise sold ~~increased~~decreased by ~~$609,000~~$1.0 million, or ~~3.0%~~8.6%, to ~~$21.1~~$10.9 million for the ~~six~~three months ended ~~June 30, 2004~~March 31, 2005 as compared to ~~$20.5~~$11.9 million in ~~2003.~~2004. This ~~increase~~decrease was primarily attributable to ~~an increase~~a decrease in merchandise sales to franchise locations as a result of ~~more~~19 fewer franchised locations, on a weighted average basis, operating in the first ~~six months~~quarter of ~~2004~~2005 as compared to the first ~~six months~~quarter of ~~2003.~~2004. The number of locations has declined as a result of fewer new franchise stores, together with the purchase of 27 franchise locations by other Rent-A-Center subsidiaries since March 31, 2004.

General and Administrative Expenses. General and administrative expenses increased by $1.0 million, or 5.7%, to $19.2 million for the three months ended March 31, 2005, as compared to $18.2 million for the first three months of 2004. General and administrative expenses expressed as a percentage of total revenue increased to 3.2% for the ~~six~~three months ending ~~June 30, 2004~~March 31, 2005 as compared to ~~3.0%~~3.1% for the ~~six~~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 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 MayMarch 31, 2004.

Operating Profit. Operating profit decreased by ~~$10.6~~$6.7 million, or ~~5.5%~~7.2%, to ~~$182.9~~$86.0 million for the ~~six~~three months ended ~~June 30, 2004~~March 31, 2005 as compared to ~~$193.5~~$92.7 million in ~~2003.~~2004. Excluding the pre-tax litigation reversion of $8.0 million recorded in the first quarter of 2005, operating profit decreased by $14.7 million, or 16.0%, to $78.0 million for the three months ended March 31, 2005 as compared to $92.7 million in 2004. Operating profit as a percentage of total revenue decreased to ~~15.8%~~13.0% for the ~~six~~three months ended ~~June 30, 2004,~~March 31, 2005 before the pre-tax litigation reversion, from ~~17.3%~~15.8% in ~~2003.~~the first quarter of 2004. 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~~quarter of ~~2004~~2005 versus ~~2003~~2004 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.~~

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

Net Earnings. Net earnings ~~increased~~decreased by ~~$17.1~~$4.5 million, or ~~19.9%~~8.7%, 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~~$47.7 million for the three months ended ~~June 30, 2004~~March 31, 2005 as compared to ~~$542.4~~$52.2 million in 2004. Excluding the pre-tax litigation reversion of $8.0 million recorded in the first quarter of 2005, net earnings decreased by $9.5 million, or 18.3%, to $42.7 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~~March 31, 2005 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$52.2 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.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~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~~first quarter of ~~2004~~2005 versus ~~2003~~2004 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~~decreased by ~~$16.3~~$69.8 million to ~~$199.7~~$87.6 million for the ~~six~~three months ending ~~June 30, 2004~~March 31, 2005 as compared to ~~$183.4~~$157.4 million in ~~2003.~~2004. This ~~increase~~decrease resulted primarily from the decrease in net earnings, a decrease in our deferred income taxes related to the reversal of the cash benefit related to the Jobs and Growth Tax Relief Reconciliation Act of 2003 discussed later in this report, an increase in ~~net earnings~~inventory purchases related to our increased store base and ~~an increase~~a decrease in ~~accrued~~the change in our outstanding liabilities during the first ~~six~~three months of ~~2004~~2005 as compared to ~~2003, consisting primarily~~the first three months of ~~income taxes accrued for but not yet due, offset by a decrease in deferred income taxes.~~2004.

Cash used in investing activities ~~increased~~decreased by ~~$58.7~~$10.0 million to ~~$187.5~~$14.3 million during the ~~six~~three month period ending ~~June 30, 2004~~March 31, 2005 as compared to ~~$128.8~~$24.3 million in ~~2003.~~2004. This ~~increase~~decrease is primarily attributable to ~~the acquisition of the stores from Rent Rite and Rainbow Rentals~~a decrease in ~~May 2004 coupled with an increase in property assets purchased~~acquisitions during the ~~period.~~first quarter of 2005 as compared to 2004.

Cash used in financing activities increased by ~~$177.9~~$53.2 million to ~~$70.0~~$56.9 million during the ~~six~~three month period ending ~~June 30, 2004~~March 31, 2005 as compared to ~~$107.9~~$3.7 million ~~provided by financing activities~~ in ~~2003.~~2004. This increase is ~~primarily related to~~a result of the ~~2003 activity relating to our recapitalization. In 2003, we issued $300.0~~repayment of $60.9 million in ~~senior subordinated notes and received~~debt during the ~~proceeds~~first quarter of ~~a $400.0 million term loan under our previous senior credit facility,~~2005 offset by the ~~repurchase~~absence of ~~$201.9~~stock repurchases during the first three months of 2005 as compared to $8.4 million repurchased in the first quarter 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.2004.

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.~~2006. Our revolving credit facilities, including our $10.0 million line of credit at Intrust Bank, provide us with revolving loans in an aggregate principal amount not exceeding ~~$250.0~~$260.0 million, of which ~~$113.3~~$155.4 million was available at ~~July 28, 2004.~~April 27, 2005. At ~~July 28, 2004,~~April 27, 2005, we had approximately ~~$111.1~~$26.2 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%~~7 1/2% 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%~~7 1/2% notes at 101% of their principal amount, plus accrued interest, if any, to the date of repurchase. Provisions of our senior credit facilities restrict the repurchase of all of our ~~7½%~~7 1/2% 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%~~7 1/2% notes, or that we would be able to obtain financing to do so on favorable terms, if at all.

~~Deferred~~Litigation.On April 12, 2005, the settlement of theBenjamin Griego, et al. v. Rent-A-Center, Inc., et al/Arthur Carrillo, et al. v. Rent-A-Center, Inc., et allitigation received final approval from the court. Under the terms of the settlement approved by the court, we agreed to pay the plaintiffs’ attorneys’ fees, as well as an aggregate of up to $37.5 million in cash. The settlement amount is to be distributed to the class of eligible customers who entered into rental-purchase agreements with us anytime from February 1, 1999 through October 31, 2004, with Rent-A-Center being entitled to any undistributed monies in the settlement fund up to an aggregate of $8.0 million, with any additional undistributed funds being paid to non-profit organizations. As a result of the response rate to the notice of the settlement mailed to class members on February 7, 2005, the parties agreed that we could retain the $8.0 million reversion, rather than deposit it as part of the settlement fund. Accordingly, on April 22, 2005, we paid $29.5 million to fund the settlement, as well as $9.0 million in attorneys’ fees, for a total of $38.5 million in cash. To account for the retention of the $8.0 million reversion and resulting reduction in our settlement liability, we recorded an $8.0 million pre-tax credit during the first quarter of 2005.

Additional settlements or judgments against us on our existing litigation could affect our liquidity. Please refer to “Legal Proceedings” later in this report.

RENT-A-CENTER, INC. AND SUBSIDIARIES

Income 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~~benefited from having a lower current cash tax obligation, which in turn ~~will provide~~provided additional cash flows from ~~operations until the deferred tax liabilities begin to reverse.~~operations. We estimate that our operating cash flow ~~will have~~ increased by approximately ~~$102.4~~$106.3 million through 2004 ~~before~~from the accelerated tax depreciation deductions and the associated deferred tax liabilities ~~begin~~have begun to reverse over a three year period beginning in 2005, of which approximately 75% will reverse in 2005, 20% will reverse in 2006 and the remainder will reverse in 2007. We expect to pay approximately $115.0 million in taxes during the remainder of 2005.

Rental Merchandise Purchases. We purchased ~~$311.7~~$204.9 million and ~~$305.1~~$177.3 million of rental merchandise during the ~~six~~three month periods ending ~~June 30,~~March 31, 2005 and 2004, ~~and 2003,~~ respectively.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

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~~$10.9 million and ~~$22.9~~$13.4 million on capital expenditures during the ~~six~~three month periods ending ~~June 30,~~March 31, 2005 and 2004, ~~and 2003,~~ respectively, and expect to spend approximately ~~$25.0~~$49.1 million for the remainder of ~~2004.~~2005.

Acquisitions and New Store Openings.~~For~~During the first ~~six months~~quarter of ~~2004,~~2005, we ~~spent approximately $156.0 million on acquiring~~acquired three stores, accounts from 10 additional locations, opened 10 new stores, and ~~accounts.~~closed 25 stores. Of the closed stores, 22 were merged with existing store locations, and three stores were sold. The acquired stores and accounts were the result of nine separate transactions for an aggregate price of approximately $3.8 million in cash. As of April 27, 2005, we have acquired two stores and accounts from one additional location, opened six new stores and closed six stores during the second quarter of 2005. Of the closed stores, five were merged with existing locations, and one was sold. For the entire year ending December 31, ~~2004,~~2005, we intend to add approximately 5-10% to our store base by opening approximately ~~80-120~~70-80 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.

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.~~

YEAR ENDING
DECEMBER 31,
(IN THOUSANDS)
2004 $ 2,000
2005 4,000
2006 4,000
2007 4,000
2008 192,000
Thereafter 190,000

$ 396,000

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 the revolving facility and utilized the proceeds to repay our ~~existing~~old 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.~~

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

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

YEAR ENDING
DECEMBER 31,
(IN THOUSANDS)
2004 $ 1,750
2005 3,500
2006 3,500
2007 3,500
2008 3,500
Thereafter 334,250

$ 350,000

The full amount of the ~~new~~ revolving credit facility may be used for the issuance of letters of credit, of which ~~$86.7~~$104.6 million had been utilized as of ~~July 28, 2004.~~April 27, 2005. During the first quarter of 2005, we repaid all amounts drawn under our revolving facility and as of April 27, 2005, $145.4 million was available under our revolving facility. The revolving credit facility expires in July 2009 and the term loan expires in 2010.

The table below shows the scheduled maturity dates of our senior debt outstanding at March 31, 2005.


YEAR ENDING
DECEMBER 31,	(IN THOUSANDS)
2005	$	2,625
2006		3,500
2007		3,500
2008		3,500
2009		168,000
Thereafter		166,250

	$	347,375

Borrowings under our ~~new~~ senior credit facilities bear interest at varying rates equal to ~~1.75% over~~ the Eurodollar rate ~~which~~plus 1.75%. The Eurodollar rate was ~~1.48%~~3.04% at ~~July 28, 2004.~~April 27, 2005. 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.

RENT-A-CENTER, INC. AND SUBSIDIARIES

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

•    incur additional debt (including subordinated debt) in excess of ~~$50.0~~$50 million at any one time outstanding;

•    repurchase our capital stock and ~~7½%~~7 1/2% 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~~The table below shows the required and actual ratios under our ~~new~~ credit facilities calculated as at ~~June 30, 2004:~~March 31, 2005:


	Required ratio		Actual ratio
Maximum consolidated leverage ratio	No greater than	2.75:1	~~1.49:~~1.54:1
Minimum consolidated interest coverage ratio	No less than	~~4.0:~~4.00:1	~~9.43:~~9.83:1
Minimum fixed charge coverage ratio	No less than	1.50:1	~~2.62:~~2.40:1

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. AnIn addition, 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~~$20.0 million or more and such judgments were not satisfied or bonded pending appeal within 30 days after entry.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~7½%~~7 1/2% Senior Subordinated Notes.On May 6, 2003, we issued $300.0 million in senior subordinated notes due 2010, bearing interest at ~~7½%~~7 1/2%, 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~~certain outstanding 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; orand

• 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~~7 1/2% 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~~7 1/2% 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

RENT-A-CENTER, INC. AND SUBSIDIARIES

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~~This would trigger an event of default under our new senior credit facilities. We are not required to maintain any financial ratios under the 2003 indenture.

Store Leases. We lease space for all of our stores and service center locations, as well as our corporate and regional offices under operating leases expiring at various times through ~~2011.~~2016. Most of our store leases are five year leases and contain renewal options for additional periods ranging from three to five years at rental rates adjusted according to agreed-upon formulas.

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 paying the outstanding debt to Wells Fargo and 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~~$26.6 million was outstanding as of ~~June 30, 2004.~~March 31, 2005. 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.~~

~~Sales of Equity Securities.~~During 1998, we issued 260,000 shares of our preferred stock at $1,000 per share, resulting in aggregate proceeds of $260.0 million. Dividends on our preferred stock accrue on a quarterly basis at the rate of 3.75%, or $37.50 per annum. Prior to the conversion of all but two shares of our preferred stock in August 2002, we paid these dividends in additional shares of 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.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

In connection with the repurchase of 774,547 shares of our common stock (on a pre-split basis) from Apollo in July 2003, Apollo 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 our Board of Directors.

Repurchases of Outstanding Securities.On April 25, 2003, we announced that we entered into an agreement with Apollo which provided for the repurchase of a number of shares of our common stock sufficient to reduce Apollo’s aggregate record ownership to 19.00% after consummation of our planned tender offer at the price per share paid in the tender offer. On April 28, 2003, we commenced a tender offer to purchase up to 2.2 million shares of our common stock (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 our 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 our 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.

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 that 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~~Over a period 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 thattime, our Board of Directors increased the authorization for stock repurchases under our new common stock repurchase program to ~~$200.0~~$300.0 million. ~~Please see “Changes~~As of March 31, 2005, we had purchased a total of 8,525,300 shares of our common stock for an aggregate of $237.6 million under this common stock repurchase program, none of which were repurchased in ~~Securities, Use~~the first quarter of ~~Proceeds and Issuer Purchases of Equity Securities” later in this report.~~2005.

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. ~~Recent~~Temporary fluctuations in our targeted customers’ monthly disposable income, such as those we believe may have been caused by the recent nationwide increases in fuel and energy costs, ~~may reduce the disposable income of our customers and~~ could adversely impact our results of operations.

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 experience slower ~~demand for our products~~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 or slightly below 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.

31Effect of New Accounting Pronouncements.In December 2004, the Financial Accounting Standards Board (“FASB”) enacted SFAS 123R, which replaces SFAS 123, and supersedes APB 25.SFAS 123R requires the measurement of all share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in our consolidated statement of earnings. The accounting provisions of SFAS 123R are effective for fiscal years beginning after June 15, 2005.

We are required to adopt SFAS 123R in the first quarter of 2006. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. See theStock-Based Compensationsection shown earlier in Note 1 to our consolidated financial statements for the pro forma net earnings and earnings per share amounts for the first quarter of 2005 and 2004 as if we had used a fair-value-based method similar to the methods required under SFAS 123 to measure compensation expense for employee stock incentive awards. Although we have not yet determined whether the adoption of SFAS 123R will result in amounts that are different from the current pro forma disclosures under SFAS 123, we are evaluating the requirements under SFAS 123R and expect the adoption to have a significant impact on our consolidated statement of earnings and earnings per share, but no impact on our financial condition or cash flows.

RENT-A-CENTER, INC. AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Interest Rate Sensitivity

As of ~~June 30, 2004,~~March 31, 2005, we had $300.0 million in subordinated notes outstanding at a fixed interest rate of ~~7½%~~7 1/2% and ~~$396.0~~$347.4 million in term loans outstanding at interest rates indexed to the Eurodollar rate. 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 ~~7½%~~7 1/2% subordinated notes at ~~June 30, 2004~~March 31, 2005 was ~~$304.5 million which is $4.5 million above their carrying value.~~$300.0 million. Unlike the subordinated notes, the ~~$396.0~~$347.4 million in term loans have variable interest rates indexed to current Eurodollar rates. As of ~~June 30, 2004,~~March 31, 2005, we have not entered into any interest rate swap agreements with respect to term loans under our senior credit facilities.

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 our 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 the Eurodollar rate that exposes us to the risk of increased interest costs if interest rates rise.

Item 4. Controls and Procedures

Evaluation of disclosure 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 (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. 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~~

Changes in internal controls.For the quarter ended March 31, 2005, there have been no ~~significant~~ changes in our internal ~~controls or~~control over financial reporting (as defined in ~~other factors~~Rule 13a-15(f) under the Securities Exchange Act of 1934) that have materially affected, or are reasonably likely to materially affect, our internal ~~controls.~~control over financial reporting.

RENT-A-CENTER, INC. AND SUBSIDIARIES

PART II – Other Information

Item 1. 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. The ultimate outcome of our litigation is uncertain and the amount of any loss we may incur, if any, cannot in our judgment be reasonably estimated. Accordingly, other than with respect to the settlement of theGriego/Carrillomatter discussed below and anticipated legal fees and expenses for these matters, no provision has been made in our consolidated financial statements for any such loss.

Colon v. Thorn Americas, ~~Inc~~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 seeks 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.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

The proposed class includes all New York residents who were party to our 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 granted the parties permission to submit competing orders as to the effect of the opinion on the plaintiff’s specific claims. Both proposed orders were submitted to the court on March 27, 2003, and on May 30, 2003, the court held a hearing regarding such orders. No order has yet been entered by the court. ~~Regardless of~~There has been no activity in this case since May 2003, and the ~~determination of~~case is currently dormant. In the event the court does enter a final certification order byand regardless of the ~~court,~~court’s determination of that final certification order, we intend to pursue an interlocutory appeal of ~~the court’s~~such 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.

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 alleged that the defendants violated Sections 10(b) and/or Section 20(a) of the Securities Exchange Act 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 purported to be brought on behalf of all purchasers of our common stock from April 25, 2001 through October 8, 2001 and sought damages in unspecified amounts. Similar complaints were consolidated by the court with theWalkermatter in October 2002.

On November 25, 2002, the lead plaintiffs in theWalkermatter 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 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.

RENT-A-CENTER, INC. AND SUBSIDIARIES

On February 7, 2003, we, along with certain officer and director defendants, filed a motion to dismiss the matter as well as a motion to transfer venue. In addition, our outside directors named in the matter separately filed a motion to dismiss the Securities Act claims on statute of limitations grounds. On February 19, 2003, the underwriter defendants also filed a motion to dismiss the matter. The plaintiffs filed response briefs to these motions, to which we replied on May 21, 2003. A hearing was held by the court on June 26, 2003 to hear each of these motions.

On September 30, 2003, the court granted our motion to dismiss without prejudice, dismissed without prejudice the outside directors’ and underwriters’ separate motions to dismiss and denied our motion to transfer venue. In its order on the motions to dismiss, the court granted the lead plaintiffs leave to replead the case within certain parameters. On October 9, 2003, the lead plaintiffs filed a motion for reconsideration with the court with respect to the Securities Act ~~claims. We filed our response to this motion on October 24, 2003. On June 4, 2004,~~claims, which the court ~~denied the plaintiffs’ motion for reconsideration with respect to the Securities Act claims and required the plaintiffs to replead the case no later than July 7, 2004, should they choose to do so.~~subsequently denied.

On July 7, 2004, the plaintiffs again repled their claims by filing a third amended consolidated complaint, raising allegations of similar violations against the same parties generally based upon alleged facts not previously asserted. ~~Our response~~We, along with certain officer and director defendants and the underwriter defendants, filed motions to dismiss the third amended consolidated complaint ~~is due~~ on August 23, 2004. The plaintiffs filed response briefs to these motions on October 6, 2004, to which we filed a reply brief on November 18, 2004, and the other defendants filed reply briefs on November 17, 2004. A hearing on the pending motions was held on April 14, 2005.

We continue to 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.

Benjamin Griego, et al. v. Rent-A-Center, Inc., et al.This matter is a state-wide class action originally filed in San Diego, California on January 21, 2002 by Benjamin Griego. A similar matter, entitledArthur Carrillo, et al. v. Rent-A-Center, Inc., et al, filed on April 12, 2002 in Los Angeles, California, was coordinated withGriegoin the Superior Court for the County of San Diego on September 10, 2002.

~~On February 28, 2003, the plaintiffs filed a consolidated amended complaint alleging~~ The matter involves claims under various claims, including that our cash sales prices exceed the pricing permitted under the California Rental Purchase Act, that the guaranteed merchandise replacement benefit in the third-party membership program offered by us to our customersconsumer protection laws in California ~~violates the prohibitions in the Rental Purchase Act relating to the sale of loss damage waiver and property insurance, that the~~

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~membership program prematurely offers service contracts to our customers, and that the fee for the membership program is excessive. In addition, the plaintiffs allege that portions~~challenging certain of our ~~form of rental purchase agreement~~business practices in ~~California do not strictly comply with the type-size requirements under the Rental Purchase Act.~~that state. The plaintiffs ~~further~~did not allege that our rental purchase documentation improperly references certain merchandise as “previously rented” rather than “used,” does not contain all of the required disclosures and terms of the transaction, and includes language that the plaintiffs interpret as affording us rights not permitted under the applicable California statutes.

In accordance with a previously issued opinion from the California Legislative Counsel, we believe that the pricing formula utilized by us in California complies with the Rental Purchase Act. In addition, we believe that under California case law, courts have found that arrangements similar to the guaranteed merchandise replacement benefit offered to our customers do not constitute insurance.

Upon notification of the alleged violations, we promptly modified our rental purchase documentation in California, including increasing the type-size in the relevant portion of our rental purchase agreements from 9-point type to 10-point type and modifying the language in our rental purchase documentation to, among other things, refer to “previously rented” merchandise as “used.” In addition, we dispute plaintiffs’ interpretation of the language in our rental purchase agreement and note that the rights the plaintiffs contend were granted to us were never asserted by us. In connection with the revisions described above, we also modified our rental purchase documentation to clarify our disclosures and the disputed language. As part of that process, we promptly communicated to our California customers that their statutory rights remained intact. Accordingly, we believe that no harm to our customers could have occurred as a result of these claims.

~~The plaintiffs have not alleged~~ specific damages, ~~in the amended complaint,~~ but ~~contend~~contended that no proof of actual harm or damage on the part of the individual consumer iswas necessary to establish recovery for these claims, which we vigorously ~~dispute. Under the Rental Purchase Act,~~disputed. The court entered a consumer damaged by a violation of the Rental Purchase Act is entitled to recover actual damages, statutory damages equal to twenty-five percent of an amount equal to the total amount of payments to obtain ownership if all payments were made under the rental purchase agreement (but not less than $100 nor more than $1,000), reasonable attorney’s fees and court costs, exemplary damages for intentional or willful violations, and equitable relief. The Rental Purchase Act also provides that with respect to certain violations, a rental purchase agreement is voidable by the consumer. Furthermore, the statute provides that if a lessor willfully discloses a cash price that exceeds the price permitted under the statute, the contract is void and the consumer is entitled to keep the merchandise and recover a full refund of all payments. A consumer who suffers any damage from a violation of the Consumer Legal Remedies Act is entitled to recover actual damages, injunctive relief, restitution, punitive damages, certain civil penalties and attorneys’ fees and costs.class certification order on March 16, 2004.

On October 17, 2003, the plaintiffs filed their motion for class certification. On October 24, 2003, we filed a motion to dismiss certain of the plaintiffs’ claims and on October 31, 2003, filed our opposition to the plaintiffs’ motion for class certification. The hearing on our motion to dismiss and plaintiffs’ motion for class certification was held on November 14, 2003. On December 4, 2003, the court denied our motion to dismiss and granted the plaintiffs’ motion for class certification. The class definition includes our customers in California from February 1, 1999 through January 31, 2002, and encompasses customers who entered into approximately 407,000 rental purchase agreements. Such customers also purchased approximately 167,000 memberships. With respect to such rental purchase agreements, we believe that twenty-five percent of the total amount of payments to obtain ownership (the maximum percentage applicable to statutory damages) was approximately $600 per agreement on average. On February 20,25, 2004, before the court ruled on various pending matters, we announced that ~~it would enter~~we had reached a prospective settlement with the plaintiffs to resolve these matters. Under the terms of the settlement, we agreed to pay an ~~order certifying the~~aggregate of up to $37.5 million in cash, to be distributed to an agreed-upon class ~~described above and, with respect to the cash price claims, a sub-class~~ of our customers during the same time period who rented electronic appliances and entertainment equipment. We believe this sub-class encompasses customers who entered into approximately 249,000 of the 407,000 rental purchase agreements, with an average revenue of approximately $700 per agreement. On March 16,from February 1999 through October 2004, ~~the court entered the certification order.~~

On February 13, 2004, we filed motions seeking rulings by the court on a series of legal questions applicable to plaintiffs’ claims. The plaintiffs subsequently filed a cross-motion with respect to one of the legal questions. On April 2, 2004, the court ruled with respect to these motions. These rulings include that there is no requirement that class members prove actual damages resulting from violations of the Rental Purchase Act, and that the pricing formula referenced in the Rental Purchase Act is merely evidence of permissible “cash prices” under the Rental Purchase Act as opposed to a statutory determination of permissible “cash prices.” The court also ruled, without prejudice, that our service contracts made available under our membership program are offered and sold in violation of the Rental Purchase Act but agreed to allow us to present evidence to the contrary later in the proceeding. The court also concurred with our position that the contract terms for the membership program need not be contained in the rental purchase agreement.

~~A mediation with~~well as the plaintiffs’ ~~counsel was held on April 23, 2004,~~attorneys’ fees up to $9.0 million and ~~discovery~~costs to administer the settlement in ~~the case is continuing. On May 28, 2004, we petitioned the California Court of Appeal~~amounts to review certain of the April 2004 trial court rulings. On June 24, 2004, the California Court of Appeal denied our petition to hear our appeal at this time, but did not rule on the merits. On July 6, 2004, we petitioned the California Supreme Court to review the Court of Appeal’s denial.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

We intend to file a motion in the trial court to decertify or modify the class on the grounds that the trial court’s rulings, such as that regarding permissible “cash prices,” indicate a predominance of individualized claims. We are continuing through the mediation process to attempt to negotiate a reasonable settlement of the case.be determined. In addition, we ~~anticipate seeking~~agreed to issue vouchers to qualified class members for two weeks free rent on a ~~ruling~~new rental agreement for merchandise of their choice. Under the terms of the settlement, we are entitled to any undistributed monies up to an aggregate of $8.0 million, with any additional undistributed funds paid to non-profit organizations to be determined. In connection with the settlement, we are not admitting liability for our past business practices in California. To account for the aforementioned costs, as well as our own attorneys’ fees, we recorded a pre-tax charge of $47.0 million in the third quarter of 2004.

On April 12, 2005, the settlement received final approval from the ~~trial court at~~court. As a result of the ~~appropriate time that any allowable statutory damages are limited to rental purchase agreements entered into within the one-year period prior~~response rate to the ~~plaintiffs’ January 31, 2002 filing date,~~notice of the settlement mailed to class members on February 7, 2005, the parties agreed that we could retain the $8.0 million reversion, rather than deposit it as part of the ~~three-year period contended by plaintiffs due~~settlement fund. Accordingly, on April 22, 2005, we paid $29.5 million to ~~California law provisions limiting~~fund the ~~imposition~~settlement, as well as $9.0 million in attorneys’ fees, for a total of ~~mandatory civil penalties.~~$38.5 million in cash. To account for the retention of the $8.0 million reversion and resulting reduction in our settlement liability, we recorded an $8.0 million pre-tax credit during the first quarter of 2005.

~~We continue to believe~~During the ~~claims in the plaintiffs’ complaint are unfounded, that~~second quarter of 2004, we have meritorious defenses to the allegations made and that a class should not have been certified by the court. In the event the California appellate courts refuse to hear our interlocutory appeals at this time, we would be unable to present our arguments to them until a trial court judgment is rendered. In the event that a trial court judgment were entered against us, 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 will continue to vigorously defend ourselves in this case, while seeking reasonable opportunities to resolve this matter. Nevertheless, we cannot assure you that we will be found to have no liability in this matter.

~~We recently~~ received an inquiry from the California Attorney General regarding our business practices in California with respect to our cash prices and our membership program. We met with representatives of the Attorney General’s office during the first quarter of 2005 and provided additional information with respect to our membership program as requested. We are ~~cooperating~~continuing to discuss these issues with the Attorney General’s ~~office in this inquiry.~~office.

RENT-A-CENTER, INC. AND SUBSIDIARIES

Carey Duron, et. al. v. Rent-A-Center, Inc.This matter is a putative class action filed on August 29, 2003 in the District Court of Jefferson County, Texas by Carey Duron, who alleges we violated certain provisions of the Texas Business and Commerce Code relating to late fees charged by us under our rental purchase agreements in Texas. In the complaint, Duron alleges that her contract provided for a percentage late fee greater than that permitted by Texas law, that she was charged and paid a late fee in excess of the amount permitted by Texas law and that we had a policy and practice of assessing and collecting late fees in excess of that allowed by Texas law. Duron has not alleged specific damages in the complaint, but seeks to recover actual damages, statutory damages, interest, reasonable attorney’s fees and costs of court.

When this matter was filed, we promptly investigated Duron’s allegations, including the formula we use to calculate late fees in Texas. While we do not believe the formula utilized by us during this time period violated Texas law, in late 2003, we sent written notice to approximately 29,500 of our Texas customers for whom we had records and who were potentially adversely impacted by our calculation. We also refunded approximately $37,000 in the aggregate to the customers we could locate. In taking these measures, we believe we complied with the curative measures provided for under the Texas statute. We also reprogrammed our computer system in Texas to modify the formula by which late fees are calculated.

Under the Texas statute, a consumer damaged by a violation is entitled to recover actual damages, statutory damages equal to twenty-five percent of an amount equal to the total amount of payments required to obtain ownership of the merchandise involved (but not less than $250 nor more than $1,000), reasonable attorney’s fees and court costs. With respect to the approximately 29,500 Texas customers for whom we have records (representing approximately two years of the recently certified class), we believe that twenty-five percent of the total amount of payments to obtain ownership (the maximum percentage applicable to statutory damages) under those rental purchase agreements was approximately $600 per agreement on average.

On November 26, 2003, we filed a motion for summary judgment in this matter. On December 4, 2003, Duron filed her motion for class certification. On March 11, 2004, we were notified that the court denied our summary judgment motion and granted Duron’s motion for class certification. The certified class includes our customers in Texas from August 29, 1999 through March 5, 2004 who were charged and paid a late fee in excess of the amount permitted by Texas law. We appealed the certification order to the Court of Appeals, which we were entitled to do as a matter of right under applicable Texas law. On October 28, 2004, the Court of Appeals reversed the trial court’s certification order and remanded the case back to the trial court. Duron did not perfect an appeal to the Texas Supreme Court, as she was entitled to do, and she has not taken any further action in the case since the decision by the Court of Appeals.

We believe the claims in Duron’s complaint are unfounded and that we have meritorious defenses to the allegations made. We further believe that a class should not have been certified by the court, and have appealed the court’s certification order, which we are entitled to do as a matter of right under applicable Texas law. This matter has been stayed pending the decision on appeal. Although we intend to vigorously defend ourselves in this case, we cannot assure you that we will be found to have no liability in this matter.

State Wage and Hour Class Actions.

We are subject to various actions filed against us in the states of Oregon, California and Washington alleging we violated the wage and hour laws of such states. As of ~~June 30, 2004,~~March 31, 2005, we operated 2427 stores in Oregon, ~~161~~160 stores in California and 4143 stores in Washington.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

Rob Pucci, et. al. v. Rent-A-Center, Inc.On August 20, 2001, this putative class action was filed against us in state court in Multnomah County, Oregon alleging we violated various provisions of Oregon state law regarding overtime, lunch and work breaks, that we failed to pay all wages due to our Oregon employees, and various 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. 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. We strongly disagree with the court’s rulings against our positions and requested that the court grant us interlocutory appeal on those matters. The plaintiffs filed a motion for summary judgment seeking to resolve certain factual issues related to the

RENT-A-CENTER, INC. AND SUBSIDIARIES

purported class, which was denied on July 1, 2003. On October 10, 2003, the court issued an opinion letter stating that it would certify a class and not permit an interlocutory appeal, and issued its written order to that effect on December 9, 2003. We subsequently filed a petition for a writ of mandamus with the Oregon Supreme Court, which was denied on January 24, 2004. On June 15, 2004, notice to the class was distributed advising them of their right to opt out of the class. We have not been advised that any class member has opted out of the class. We intend to continue to challenge the appropriateness of the court’s class certification. ~~Although~~On January 31, 2005, the plaintiffs filed a partial motion for summary judgment regarding their allegation that we ~~believe~~failed to timely pay wages on termination. Our response to this motion is currently due on May 27, 2005. On February 25, 2005, the ~~court’s certification ruling~~court denied our motion to compel arbitration with respect to class members that signed agreements to arbitrate claims against us. In addition, the court rejected our proposal to enter an order permitting interlocutory appeal. No appeal of right is ~~inappropriate~~permitted under Oregon state law and ~~that~~we do not intend to seek a writ of mandamus directing the court to permit an interlocutory appeal.

On March 17, 2005,Pucciclass members Jeremy Chess and Chad Clemmons filed an amended class action complaint entitledJeremy Chess et al. v. Rent-A-Center, Inc. et al, alleging similar claims ~~remaining~~as the plaintiffs inPucciand seeking unspecified statutory and contractual damages and penalties, as well as injunctive relief. TheChessplaintiffs seek 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. On April 15, 2005, we filed pleadings removing the case to the federal court for the District of Oregon under the newly enacted Class Action Fairness Act of 2005. TheChessplaintiffs are represented by the same attorneys as thePucciplaintiffs. We intend to vigorously oppose this ~~case are without merit, we cannot assure you we will be found~~lawsuit, including any attempts by the plaintiffs to ~~have no liability in this matter.~~seek class certification.

Jeremy Burdusis, et al. v. Rent-A-Center, Inc., et al./Israel French, et al. v. Rent-A-Center, ~~Inc.~~Inc. These matters pending in Los Angeles, California were filed on October 23, 2001, and October 30, 2001, respectively, and allege similar violations of the wage and hour laws of California as those inPucci. The same law firm seeking to represent the purported class inPucciis seeking to represent the purported class inBurdusis. TheBurdusisandFrenchproceedings are pending before the same judge in California. On March 24, 2003, theBurdusiscourt denied the plaintiffs’ motion for class certification in that case, which we view as a favorable development in that proceeding. On April 25, 2003, the plaintiffs inBurdusisfiled a notice of appeal of that ruling, and on May 8, 2003, theBurdusiscourt, at our request, stayed further proceedings inBurdusisandFrenchpending the resolution on appeal of the court’s denial of class certification inBurdusis. In June 2004, theBurdusisplaintiffs filed their appellate brief. Our response brief ~~is due~~was filed in September 2004, and theBurdusisplaintiffs filed their reply in October 2004. On February 9, 2005, the California Court of Appeals reversed and remanded the trial court’s denial of class certification inBurdusisand directed the trial court to reconsider its ruling in light of two other recent appellate court decisions, including the opinions of the California Supreme Court inSav-On Drugs Stores, Inc. v. Superior Court, and of the California appeals court inBell v. Farmers Insurance Exchange. No hearing has been scheduled with the trial court with respect to this matter.

On October 30, 2003, the plaintiffs’ counsel inBurdusisandFrenchfiled a new non-class lawsuit in Orange County, California entitledKris Corso, et al. v. Rent-A-Center, ~~Inc.~~Inc. The plaintiffs’ counsel later amended this complaint to add additional plaintiffs, totaling approximately 339 individuals. The claims made are substantially the same as those inBurdusis. On January 16, 2004, we filed a demurrer to the complaint, arguing, among other things, that the plaintiffs inCorsowere misjoined. On February 19, 2004, the court granted our demurrer on the misjoinder argument, with leave for the plaintiffs to replead. On March 8, 2004, the plaintiffs filed an amended complaint inCorso, increasing the number of plaintiffs to approximately 400. The claims in the amended complaint are substantially the same as those inBurdusis. We filed a demurrer with respect to the amended complaint on April 12, 2004, which the court granted on May 6, 2004. However, the court allowed the plaintiffs to again replead the action on a representative basis, which they did on May 26, 2004. We subsequently filed a ~~demurrer. No decision has been entered by the court~~demurrer with respect to ~~our demurrer.~~the newly repled action, which the court granted on August 12, 2004. The court subsequently stayed theCorsomatter pending the outcome of theBurdusismatter. On March 16, 2005, the court lifted the stay and on April 12, 2005, we answered the amended complaint. No discovery has occurred to date, and no deadlines are pending.

Kevin Rose, et al. v. Rent-A-Center, Inc. et al.This matter pending in Clark County, Washington was filed on June 26, 2001, and alleges similar violations of the wage and hour laws of Washington as those inPucci. The same law firm seeking to represent the purported class inPucciis seeking to represent the purported class in this matter. On May 14, 2003, theRosecourt denied the plaintiffs’ motion for class certification in that case, which we view as a favorable development in that proceeding. On June 3, 2003, the plaintiffs inRosefiled a notice of appeal. On September 8, 2003, the Commissioner appointed by the Court of Appeals denied review of theRosecourt decision. On October 10, 2003, theRoseplaintiffs filed a

RENT-A-CENTER, INC. AND SUBSIDIARIES

motion seeking to modify the Commissioner’s ruling, to which we responded on October 30, 2003. The Court of Appeals denied the plaintiffs’ motion on November 26, 2003. Following the denial by the Court of Appeals, the plaintiffs’ counsel filed 14 county-wide putative class actions in Washington with substantially the same claims as inRose. The purported classes in these county-wide class actions range from approximately 20 individuals to approximately 100 individuals. ~~In December 2003,~~Subsequently, we filed motions to dismiss and/or stay the class allegations in each of the county-wide actions, ~~arguing that~~and we also filed motions for summary judgment in various counties with respect to the ~~plaintiffs were collaterally estopped by virtue~~individual claims of some of the ~~previous ruling in~~~~Rose~~~~denying state-wide class certification. Four~~plaintiffs. Following disposition of these motions ~~were subsequently granted. Accordingly, ten~~by the applicable courts, approximately 13 individual plaintiffs and class representatives remain with respect to the claims made in 11 counties. Nine of ~~the~~these county-wide claims are now proceeding as putative county-wide class actions and ~~four~~two are proceeding on an individual plaintiff basis. ~~The~~Certain plaintiffs have ~~not~~appealed some of the orders granting summary judgment. The plaintiff in one of the 11 counties has filed ~~motions~~a motion to certify a ~~class in any of the putative~~ county-wide ~~class actions. In the event they do so, we~~class. We intend to vigorously oppose class certification.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~We also filed motions to compel arbitration with respect to 20 individual purported plaintiffs and class representatives in 10 counties. Nineteen of these motions to compel arbitration have been granted. One is still pending. Certain plaintiffs have appealed one of these orders compelling arbitration. The 19 arbitration plaintiffs filed separate putative nationwide class arbitration demands. In response, we filed motions to clarify the respective county courts’ orders compelling arbitration. Specifically, we asked each county court that previously struck all class allegations to make clear that the arbitration plaintiffs in those counties could not pursue any class claims, and we asked each county court in those counties that allowed plaintiffs to plead putative county-wide class claims, to make clear that such plaintiffs could only pursue county-wide claims. The three courts that granted our motions to compel arbitration and had previously struck all class allegations granted our motions and ruled that the plaintiffs could not pursue any class arbitration claims. Five courts ruled that the arbitration plaintiffs could only pursue county-wide class arbitration claims, and two of the county courts refused to limit the arbitration plaintiffs’ ability to pursue class arbitration demands. We intend to vigorously oppose these class arbitration demands, including vigorously challenging the ability of the plaintiffs to pursue in arbitration, on a putative nation-wide class basis, claims which were previously premised on purported violations of Washington state law.

Although the wage and hour laws and class certification procedures of Oregon, California and Washington 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.~~merit and we intend to vigorously oppose each of these cases. We cannot assure you, however, that we will be found to have no liability in these matters.

Item ~~2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities~~

In October 2003, we eliminated our then current stock repurchase program and adopted a new stock repurchase program which as of June 30, 2004, authorized us to repurchase up to $115.0 million in aggregate purchase price of our common stock. As of June 30, 2004, we had repurchased $104.2 million in aggregate purchase price of our common stock under our new stock repurchase program. In the second quarter of 2004, we effected the following repurchases of our common stock:

Total Number of
Shares Purchased as Maximum Dollar Value
Part of Publicly that May Yet Be
Total Number of Average Price Announced Plans or Purchased Under the
Period
Shares Purchased
Paid per Share
Programs
Plans or Programs (1)
April 1 through April 30 97,700 $ 29.2551 97,700 $ 76,920,680
May 1 through May 31 2,257,400 $ 29.2556 2,257,400 $ 10,879,089
June 1 through June 30 0 $ 0.0000 0 $ 10,879,089

Total 2,355,100 $ 29.5556 2,355,100 $ 10,879,089

~~(1) As of June 30, 2004. On July 26, 2004, we announced that the program was increased by $85 million to $200 million.~~

On May 7, 2004, we completed the acquisition of Rent Rite, pursuant to which, and as partial consideration for, shares of Rent Rite stock held by certain Rent Rite shareholders were converted into the right to receive, in the aggregate, 815,592 shares of our common stock. Under the merger agreement, the market value of these shares was determined to be, in the aggregate, approximately $23.9 million. In addition, in connection with this acquisition, we assumed options of Rent Rite that are convertible into 554,102 shares of our common stock at a weighted average exercise price of $11.05 per share. These securities were not registered under the Securities Act in reliance upon the exemption provided by Section 4(2) of the Securities Act and Rule 506 promulgated thereunder. Each Rent Rite shareholder who received shares of our common stock and each Rent Rite optionholder represented to the Company in writing that he or she is an “accredited investor” as defined in Rule 501 promulgated under the Securities Act.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

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

Our Annual Meeting of Stockholders was held on May 19, 2004. At the meeting, our stockholders voted on two matters: (1) election of three Class I Directors, and (2) a proposal to amend our Certificate of Incorporation to increase the number of shares of our common stock we are authorized to issue.

~~The individuals named below were re-elected to a three-year term as Class I Directors:~~

Nominee
Votes For
Votes Withheld
Mitchell E. Fadel 71,362,492 2,744,648
Peter P. Copses 69,469,193 4,637,947
Mary Elizabeth Burton 71,916,746 2,190,394

~~The following directors’ terms of office as a director continued after the Annual Meeting of Stockholders:~~

~~Mark E. Speese~~
~~Laurence M. Berg~~
~~J.V. Lentell~~
~~Andrew S. Jhawar~~

The proposal to amend our Certificate of Incorporation to increase the number of shares of our common stock authorized to be issued from 125,000,000 to 250,000,000 was approved and adopted with voting on the proposal as follows:

Vote For
Votes Against
Abstentions
Broker Non-Votes
69,435,023 4,611,255 60,862 3,690,730

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

~~Current Reports on Form 8-K~~

~~None.~~

Exhibits

The exhibits required to be furnished pursuant to Item 6 are listed in the Exhibit Index filed herewith, which Exhibit Index is incorporated herein by reference.

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INDEX TO EXHIBITS


~~Exhibit~~
~~Number~~		~~Exhibit Description~~
~~2.1(1)~~		— Asset Purchase Agreement, dated as of December 17, 2002, by and among Rent-A-Center East, Inc. and Rent-Way, Inc., Rent-Way of Michigan, Inc. and Rent-Way of TTIG, L.P. (Pursuant to the rules of the SEC, the schedules and exhibits have been omitted. Upon the request of the SEC, Rent-A-Center, Inc. will supplementally supply such schedules and exhibits to the SEC.)

~~2.2(2)~~
	Exhibit		~~— Letter Agreement, dated December 31, 2002~~

~~2.3(3)~~	No.		~~— Letter Agreement, dated January 7, 2003~~	Description
	2.1
~~2.4(4)~~		~~— Letter Agreement, dated February 7, 2003~~

~~2.5(5)~~		— Letter Agreement, dated February 10, 2003 (Pursuant to the rules of the SEC, the exhibit has been omitted. Upon the request of the SEC, Rent-A-Center, Inc. will supplementally supply such exhibit to the SEC.)

~~2.6(6)~~		— Letter Agreement, dated March 10, 2003 (Pursuant to the rules of the SEC, the exhibit has been omitted. Upon the request of the SEC, Rent-A-Center, Inc. will supplementally supply such exhibit to the SEC.)

~~2.7(7)~~		— Agreement and Plan of Merger, dated as of February 4, 2004, by and between Rent-A-Center, Inc., Eagle Acquisition Sub, Inc. and Rainbow Rentals, Inc. (Pursuant to the rules of the SEC, the schedules and exhibits have been omitted. Upon the request of the SEC, Rent-A-Center, Inc. will supplementally supply such schedules and exhibits to the SEC.) (Incorporated herein by reference to Exhibit 2.7 to the registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2003.)

~~2.8(8)~~2.2		—	Agreement and Plan of Merger, dated as of April 27, 2004, by and between Rent-A-Center, Inc., RAC RR, Inc. and Rent Rite, Inc. d/b/a Rent Rite Rental Purchase (Pursuant to the rules of the SEC, the schedules and exhibits have been omitted. Upon the request of the SEC, Rent-A-Center, Inc. will supplementally supply such schedules and exhibits to the SEC.) (Incorporated herein by reference to Exhibit 2.8 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.)

~~3.1(9)~~3.1		—	Certificate of Incorporation of Rent-A-Center, Inc., as amended (Incorporated herein by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K dated as of December 31, 2002.)

3.2*3.2		—	Certificate of Amendment to the Certificate of Incorporation of Rent-A-Center, Inc., dated May 19, 2004 (Incorporated herein by reference to Exhibit 3.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.)

3.3*3.3		—	Amended and Restated Bylaws of Rent-A-Center, Inc. (Incorporated herein by reference to Exhibit 3.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.)

~~4.1(10)~~4.1		—	Form of Certificate evidencing Common Stock (Incorporated herein by reference to Exhibit 4.1 to the registrant’s Registration Statement on Form S-4/A filed on January 13, 1999.)

~~4.2(11)~~4.2		—	Certificate of Elimination of Series A Preferred Stock (Incorporated herein by reference to Exhibit 4.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.)

~~4.3(12)~~4.3		—	Certificate of Designations, Preferences and relative Rights and Limitations of Series C Preferred Stock of Rent-A-Center, Inc. (Incorporated herein by reference to Exhibit 4.4 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003.)

~~4.4(13)~~4.4		—	Form of Certificate evidencing Series C Preferred Stock (Incorporated herein by reference to Exhibit 4.5 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003.)

~~4.5(14)~~4.5		—	Indenture, dated as of May 6, 2003, by and among Rent-A-Center, Inc., as Issuer, Rent-A-Center East, Inc., ColorTyme, Inc., Rent-A-Center West, Inc., Get It Now, LLC, Rent-A-Center Texas, L.P. and Rent-A-Center Texas, L.L.C., as Guarantors, and The Bank of New York, as Trustee (Incorporated herein by reference to Exhibit 4.9 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.)

~~4.6(15)~~4.6		—	First Supplemental Indenture, dated as of December 4, 2003, between Rent-A-Center, Inc., as Issuer, the Guarantors named therein, as Guarantors, and The Bank of New York, as Trustee (Incorporated herein by reference to Exhibit 4.6 to the registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2003.)

~~4.7(16)~~4.7		—	Second Supplemental Indenture, dated as of April 26, 2004, between Rent-A-Center, Inc., as Issuer, the Guarantors named therein, as Guarantors, and The Bank of New York, as Trustee (Incorporated herein by reference to Exhibit 4.7 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.)

4.8*4.8		—	Third Supplemental Indenture, dated as of May 7, 2004, between Rent-A-Center, Inc., as Issuer, the Guarantors named therein, as Guarantors, and The Bank of New York, as Trustee (Incorporated herein by reference to Exhibit 4.8 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.)

4.9*4.9		—	Fourth Supplemental Indenture, dated as of May 14, 2004, between Rent-A-Center, Inc., as Issuer, the Guarantors named therein, as Guarantors, and The Bank of New York, as Trustee (Incorporated herein by reference to Exhibit 4.9 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.)

~~4.10(17)~~4.10		—	Form of 2003 Exchange Note (Incorporated herein by reference to Exhibit 4.11 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003.)

~~10.1(18)~~ 10.1⁺		—	Amended and Restated Rent-A-Center, Inc. Long-Term Incentive Plan
	(Incorporated herein by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.)
~~10.2(19)~~					— Amended and Restated Credit Agreement, dated as of August 5, 1998, as amended and restated as of December 31, 2002, among Rent-A-Center, Inc., Rent-A-Center East, Inc., Comerica Bank, as Documentation Agent, Bank of America NA, as Syndication Agent, and JP Morgan Chase Bank (formerly known as The Chase Manhattan Bank), as Administrative Agent

~~10.3(20)~~		— First Amendment, dated as of April 22, 2003, to the Amended and Restated Credit Agreement, dated as of August 5, 1998, as amended and restated as of December 31, 2002, among Rent-A-Center, Inc., Rent-A-Center East, Inc., Comerica Bank, as Documentation Agent, Bank of America NA, as Syndication Agent, and JP Morgan Chase Bank (formerly known as The Chase Manhattan Bank), as

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RENT-A-CENTER, INC. AND SUBSIDIARIES


~~Exhibit~~
~~Number~~		~~Exhibit Description~~
		~~Administrative Agent~~

~~10.4(21)~~
	Exhibit		—
	No.			Description
	10.2			Credit Agreement, dated as of May 28, 2003, among Rent-A-Center, Inc., Morgan Stanley Senior Funding Inc., as Documentation Agent, JPMorgan Chase Bank and Bear, Stearns & Co. Inc., each as Syndication Agent, and Lehman Commercial Paper Inc., as Administrative Agent (Incorporated herein by reference to Exhibit 10.4 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003.)
	10.3
~~10.5(22)~~		— Guarantee and Collateral Agreement, dated as of August 5, 1998, as amended and restated as of December 31, 2002, made by Rent-A-Center, Inc., Rent-A-Center East, Inc. and certain of its Subsidiaries in favor of JP Morgan Chase Bank (formerly known as The Chase Manhattan Bank), as Administrative Agent

~~10.6(23)~~		— Guarantee and Collateral Agreement, dated as of May 28, 2003, made by Rent-A-Center, Inc., Rent-A-Center East, Inc. and certain of its Subsidiaries in favor of Lehman Commercial Paper Inc., as Administrative Agent (Incorporated herein by reference to Exhibit 10.6 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003.)

~~10.7(24)~~10.4		—	First Amendment, dated as of May 28, 2003, to the Credit Agreement and the Guarantee and Collateral Agreement, both dated as of May 28, 2003, among Rent-A-Center, Inc., Rent-A-Center East, Inc., ColorTyme, Inc., Rent-A-Center West, Inc., Remco America, Inc., Get It Now LLC, Rent-A-Center Texas, L.P., Rent-A-Center Texas, L.L.C. and Lehman Commercial Paper, Inc., as ~~Administrative Agent~~administrative agent (Incorporated herein by reference to Exhibit 10.7 to the registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2003.)

~~10.8(25)~~10.5		—	Amended and Restated Credit Agreement, dated as of May 28, 2003, as amended and restated as of July 14, 2004, among Rent-A-Center, Inc., the several lenders from time to time parties thereto, Calyon New York Branch, SunTrust Bank and Union Bank of California, N.A., as Documentation Agents, Lehman Commercial Paper Inc., as Syndication Agent, and JPMorgan Chase Bank, as Administrative Agent (Incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated July 15, 2004.)

~~10.9(26)~~10.6		—	Amended and Restated Guarantee and Collateral Agreement, dated as of May 28, 2003, as amended and restated as of July 14, 2004, made by Rent-A-Center, Inc. and certain of its Subsidiaries in favor of JPMorgan Chase Bank, as Administrative Agent (Incorporated herein by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K dated July 15, 2004.)
	10.7
~~10.10(27)~~		— Second Amended and Restated Stockholders Agreement, dated as of August 5, 2002, by and among Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., Mark E. Speese, Rent-A-Center, Inc., and certain other persons

~~10.11(28)~~		— Third Amended and Restated Stockholders Agreement, dated as of December 31, 2002, by and among Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., Mark E. Speese, Rent-A-Center, Inc., and certain other persons

~~10.12(29)~~		— Fourth Amended and Restated Stockholders Agreement, dated as of July 11, 2003, by and among Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., Mark E. Speese, Rent-A-Center, Inc., and certain other persons (Incorporated herein by reference to Exhibit 10.15 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003.)
	10.8			Fifth Amended and Restated Stockholders Agreement, dated as of August 13, 2004, by and among Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., Mark E. Speese, Rent-A-Center, Inc., and certain other persons (Incorporated herein by reference to Exhibit 10.3 to the registrant’s Registration Statement on Form S-3/A filed on September 21, 2004.)
~~10.13(30)~~	10.9		—	Registration Rights Agreement, dated August 5, 1998, by and between Renters Choice, Inc., Apollo Investment Fund IV, L.P., and Apollo Overseas Partners IV, L.P. (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.)
	10.10
~~10.14(31)~~		~~— Second Amendment to Registration Rights Agreement, dated as of August 5, 2002, by and among Rent-A-Center, Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P.~~

~~10.15(32)~~		~~— Third Amendment to Registration Rights Agreement, dated as of December 31, 2002, by and among Rent-A-Center, Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P.~~

~~10.16(33)~~		— Fourth Amendment to Registration Rights Agreement, dated as of July 11, 2003, by and between Rent-A-Center, Inc., Apollo Investment Fund IV, L.P., and Apollo Overseas Partners IV, L.P. (Incorporated herein by reference to Exhibit 10.10 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003.)

~~10.17(34)~~10.11		—	Registration Rights Agreement, dated as of May 6, 2003, by and among Rent-A-Center, Inc., as Issuer, Rent-A-Center East, Inc., ColorTyme, Inc., Rent-A-Center West, Inc., Get It Now, LLC, Rent-A-Center Texas, L.P. and Rent-A-Center Texas, L.L.C., as Guarantors, and Lehman Commercial Paper Inc., J.P. Morgan Securities, Inc., Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., UBS Warburg LLC and Wachovia Securities, Inc., as Initial Purchasers (Incorporated herein by reference to Exhibit 10.19 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.)

~~10.19(35)~~10.12		—	Franchisee Financing Agreement, dated April 30, 2002, but effective as of June 28, 2002, by and between Texas Capital Bank, National Association, ColorTyme, Inc. and Rent-A-Center, Inc. (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.)

~~10.20(36)~~10.13		—	Supplemental Letter Agreement to Franchisee Financing ~~Amendment,~~Agreement, dated May 26, 2003, by and between Texas Capital Bank, National Association, ColorTyme, Inc. and Rent-A-Center, Inc. (Incorporated herein by reference to Exhibit 10.23 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003.)

~~10.21(37)~~10.14		—	Amended and Restated Franchise Financing Agreement, dated October 1, 2003, by and among Wells Fargo Foothill, Inc., ColorTyme, Inc. and Rent-A-Center East, Inc.
	(Incorporated herein by reference to Exhibit 10.22 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.)
~~10.22(38)~~					~~— First Amendment to Amended and Restated Franchisee Financing Agreement, dated December 15,~~

4127

RENT-A-CENTER, INC. AND SUBSIDIARIES


~~Exhibit~~
~~Number~~
	Exhibit		~~Exhibit Description~~

	No.			Description
	10.15			First Amendment to Amended and Restated Franchisee Financing Agreement, dated December 15, 2003, by and among Wells Fargo Foothill, Inc., ColorTyme, Inc. and Rent-A-Center East, Inc. (Incorporated herein by reference to Exhibit 10.23 to the registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2003.)

~~10.23(39)~~10.16		—	Second Amendment to Amended and Restated Franchisee Financing Agreement, dated as of March 1, 2004, by and among Wells Fargo Foothill, Inc., ColorTyme, Inc. and Rent-A-Center East, Inc. (Incorporated herein by reference to Exhibit 10.24 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.)

~~10.24(40)~~10.17		—	Purchase Agreement, dated May 1, 2003, among Rent-A-Center, Inc., Rent-A-Center East, Inc., ColorTyme, Inc., Rent-A-Center West, Inc., Get It Now, LLC, Rent-A-Center Texas, L.P., Rent-A-Center Texas, L.L.C., Lehman Brothers Inc., J.P. Morgan Securities, Inc., Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., UBS Warburg LLC and Wachovia Securities, Inc. (Incorporated herein by reference to Exhibit 10.18 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.)
	10.18⁺			Form of Stock Option Agreement issuable to Directors pursuant to the Amended and Restated Rent-A-Center, Inc. Long-Term Incentive Plan (Incorporated herein by reference to Exhibit 10.20 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2004.)
~~10.25(41)~~	10.19⁺		—	Form of Stock ~~Purchase~~Option Agreement issuable to management pursuant to the Amended and ~~Exchange Agreement, dated April 25, 2003,~~Restated Rent-A-Center, Inc. Long-Term Incentive Plan (Incorporated herein by ~~and among Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P. and Rent-A-Center, Inc.~~reference to Exhibit 10.21 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2004.)
	10.20⁺			Summary of Director Compensation (Incorporated herein by reference to Exhibit 10.22 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2004.)
21.1*	10.21⁺		—	Summary of Named Executive Officer Compensation (Incorporated herein by reference to Exhibit 10.23 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2004.)
	21.1			Subsidiaries of Rent-A-Center, Inc. (Incorporated herein by reference to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.)

31.1* 31.1^*		—	Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002 by Mark E. Speese
	31.2^*
31.2*		— Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002 by Robert D. Davis
	32.1^*
32.1*		— Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Mark E. Speese
	32.2^*
32.2*		— Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Robert D. Davis

*		~~Filed herewith.~~

⁺		Management contract or compensatory plan or arrangement

~~(1)~~ ~~Incorporated herein by reference to Exhibit 2.2 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2002~~

~~(2)~~ ~~Incorporated herein by reference to Exhibit 2.3 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2002~~
~~(3)~~ ~~Incorporated herein by reference to Exhibit 2.4 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2002~~
~~(4)~~ ~~Incorporated herein by reference to Exhibit 2.5 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2002~~
~~(5)~~ ~~Incorporated herein by reference to Exhibit 2.6 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2002~~
~~(6)~~ ~~Incorporated herein by reference to Exhibit 2.7 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2002~~
~~(7)~~ ~~Incorporated herein by reference to Exhibit 2.7 to the registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2003~~
~~(8)~~ ~~Incorporated herein by reference to Exhibit 2.8 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004~~
~~(9)~~ ~~Incorporated herein by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K dated as of December 31, 2002~~
~~(10)~~ ~~Incorporated herein by reference to Exhibit 4.1 to the registrant’s Registration Statement on Form S-4 filed on January 13, 1999~~^*Filed herewith.

4228

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~(11)~~ ~~Incorporated herein by reference to Exhibit 4.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003~~
~~(12)~~ ~~Incorporated herein by reference to Exhibit 4.4 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003~~
~~(13)~~ ~~Incorporated herein by reference to Exhibit 4.5 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003~~
~~(14)~~ ~~Incorporated herein by reference to Exhibit 4.9 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003~~
~~(15)~~ ~~Incorporated herein by reference to Exhibit 4.6 to the registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2003~~
~~(16)~~ ~~Incorporated herein by reference to Exhibit 4.7 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004~~
~~(17)~~ ~~Incorporated herein by reference to Exhibit 4.11 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003~~
~~(18)~~ ~~Incorporated herein by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003~~
~~(19)~~ ~~Incorporated herein by reference to Exhibit 10.2 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2002~~
~~(20)~~ ~~Incorporated herein by reference to Exhibit 10.3 to the registrant’s Quarterly Report on form 10-Q for the quarter ended March 31, 2003~~
~~(21)~~ ~~Incorporated herein by reference to Exhibit 10.4 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003~~
~~(22)~~ ~~Incorporated herein by reference to Exhibit 10.3 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2002~~
~~(23)~~ ~~Incorporated herein by reference to Exhibit 10.6 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003~~
~~(24)~~ ~~Incorporated herein by reference to Exhibit 10.7 to the registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2003~~
~~(25)~~ ~~Incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated July 15, 2004~~
~~(26)~~ ~~Incorporated herein by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K dated July 15, 2004~~
~~(27)~~ ~~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~~
~~(28)~~ ~~Incorporated herein by reference to Exhibit 10.6 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2002~~
~~(29)~~ ~~Incorporated herein by reference to Exhibit 10.15 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003~~
~~(30)~~ ~~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~~

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~(31)~~ ~~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~~
~~(32)~~ ~~Incorporated herein by reference to Exhibit 10.9 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2002~~
~~(33)~~ ~~Incorporated herein by reference to Exhibit 10.10 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003~~
~~(34)~~ ~~Incorporated herein by reference to Exhibit 10.19 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003~~
~~(35)~~ ~~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~~
~~(36)~~ ~~Incorporated herein by reference to Exhibit 10.23 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003~~
~~(37)~~ ~~Incorporated herein by reference to Exhibit 10.22 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003~~
~~(38)~~ ~~Incorporated herein by reference to Exhibit 10.23 to the registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2003~~
~~(39)~~ ~~Incorporated herein by reference to Exhibit 10.24 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004~~
~~(40)~~ ~~Incorporated herein by reference to Exhibit 10.18 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003~~
~~(41)~~ ~~Incorporated herein by reference to Exhibit 99(d)(1) to the registrant’s Schedule TO filed on April 28, 2003~~


			Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Consolidated Statements of Earnings for the three months ended ~~June 30,~~March 31, 2005 and 2004			1
	Consolidated Balance Sheets as of March 31, 2005 and ~~2003~~December 31, 2004			2
	Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004			3
	Notes to Consolidated Financial Statements ~~of Earnings for the six months ended June 30, 2004 and 2003~~			4
~~Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003~~Item 2.		5
~~Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003~~		6
~~Notes to Consolidated Financial Statements~~		8
~~Item 2.~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations		2010
Item 3.	Quantitative and Qualitative Disclosure About Market Risk			3219
Item 4.	Controls and Procedures			3219
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings			32
~~Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities~~		37
~~Item 4. Submission of Matters to a Vote of Security Holders~~		3820
Item 6. ~~Exhibits and Reports on Form 8-K~~	Exhibits			3824
SIGNATURES
~~Certificate of Amendment to the Certificate of Incorporation~~
~~Amendment and Restated Bylaws~~
~~Third Supplemental Indenture~~
~~Fourth Supplemental Indenture~~
~~Subsidiaries~~
Certification Pursuant to Section 302 ~~Certification by~~- Mark E. Speese
Certification Pursuant to Section 302 ~~Certification by~~- Robert D. Davis
Certification Pursuant to Section 906 ~~Certification by~~- Mark E. Speese
Certification Pursuant to Section 906 ~~Certification by~~- Robert D. Davis


	March 31,			December 31,
	2005			2004
(In thousands, except share data)	Unaudited
ASSETS
Cash and cash equivalents	$	75,246		$	58,825
Accounts receivable, net		17,161			16,269
Prepaid expenses and other assets		37,138			65,050
Rental merchandise, net
On rent		610,103			596,447
Held for rent		181,652			162,664
Merchandise held for installment sale		1,423			1,311
Property assets, net		141,991			144,818
Goodwill, net		915,626			913,415
Intangible assets, net		6,961			8,989


	$	1,987,301		$	1,967,788


LIABILITIES
Accounts payable – trade	$	84,987		$	94,399
Accrued liabilities		277,618			207,835
Deferred income taxes		130,490			163,031
Senior debt		347,375			408,250
Subordinated notes payable, net of discount		300,000			300,000
Redeemable convertible voting preferred stock		2			2

		1,140,472			1,173,517

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
Common stock, $.01 par value; 250,000,000 shares authorized; 102,549,899 and 102,297,937 shares issued in 2005 and 2004, respectively		1,026			1,023
Additional paid-in capital		623,353			618,486
Retained earnings		813,473			765,785
Treasury stock, 27,900,399 shares at cost		(591,023	)		(591,023	)

		846,829			794,271


	$	1,987,301		$	1,967,788


	Six months ended June 30,
	2004		2003
	(In thousands, except per share data)
Net earnings allocable to common stockholders
As reported	$	103,403	$	86,259
Deduct: Total stock-based employee compensation under fair value based method for all awards, net of related tax expense		6,399		7,618

Pro forma	$	97,004	$	78,641

Basic earnings per common share
As reported	$	1.29	$	0.99
Pro forma	$	1.21	$	0.90
Diluted earnings per common share
As reported	$	1.25	$	0.96
Pro forma	$	1.18	$	0.87


	Three months ended June 30,				Three Months Ended March 31,
	2004		2003		2005		2004
	(In thousands, except per share data)				(In thousands, except per share data)
Net earnings allocable to common stockholders
As reported	$	51,194	$	35,300	$	47,669	$	52,209
Deduct: Total stock-based employee compensation under fair value based method for all awards, net of related tax expense		3,223		3,914		3,077		3,176

Pro forma	$	47,971	$	31,386	$	44,592	$	49,033


Basic earnings per common share
As reported	$	0.64	$	0.40	$	0.64	$	0.65
Pro forma	$	0.60	$	0.36	$	0.60	$	0.61

Diluted earnings per common share
As reported	$	0.62	$	0.39	$	0.63	$	0.63
Pro forma	$	0.59	$	0.34	$	0.59	$	0.59


	June 30,			December 31,
	2004			2003
(In thousands, except per share data)	Unaudited
ASSETS
Cash and cash equivalents	$	86,164		$	143,941
Accounts receivable, net		14,940			14,949
Prepaid expenses and other assets		57,155			70,702
Rental merchandise, net
On rent		565,977			542,909
Held for rent		169,044			137,792
Merchandise held for installment sale		1,172			1,666
Property assets, net		134,413			121,909
Goodwill, net		888,426			788,059
Intangible assets, net		12,912			9,375

	$	1,930,203		$	1,831,302

LIABILITIES
Accounts payable – trade	$	69,834		$	72,708
Accrued liabilities		186,649			132,844
Deferred income taxes		117,500			132,918
Senior debt		396,000			398,000
Subordinated notes payable, net of discount		300,000			300,000
Redeemable convertible voting preferred stock		2			2

		1,069,985			1,036,472
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common stock, $.01 par value; 250,000,000 shares authorized; 101,807,748 and 101,148,417 shares issued in 2004 and 2003, respectively		1,018			1,012
Additional paid-in capital		603,632			572,628
Retained earnings		713,337			609,930
Treasury stock, 22,832,099 and 21,020,041 shares at cost in 2004 and 2003, respectively		(457,769	)		(388,740	)

		860,218			794,830

	$	1,930,203		$	1,831,302

1.	Significant Accounting Policies and Nature of Operations.

	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~~10-K 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,~~March 31, 2005, we operated ~~2,846~~2,863 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,~~March 31, 2005, ColorTyme had ~~319~~307 franchised stores operating in 40 states. ColorTyme’s primary source of ~~revenues~~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. The balance of ColorTyme’s ~~revenues~~revenue is generated primarily from royalties based on franchisees’ monthly gross revenues.


	Six Months Ended			Six Months Ended
	June 30, 2004			June 30, 2003
	(in thousands)
Beginning merchandise value	$	682,367		$	631,724
Inventory additions through acquisitions		64,925			52,258
Purchases		311,662			305,130
Depreciation of rental merchandise		(220,428	)		(216,001	)
Cost of goods sold		(70,583	)		(66,104	)
Skips and stolens		(25,182	)		(22,303	)
Other inventory deletions⁽¹⁾		(6,568	)		(8,374	)

Ending merchandise value	$	736,193		$	676,330

5.		~~Intangibles.~~on the Consolidated Statement of Earnings. The additional costs included in this classification relate to our membership programs commenced in 2004. Depreciation of rental merchandise is separately identified in Note 2 in the Notes to the Consolidated Financial Statements later in this report.

		~~Amortization of intangibles consists primarily of the amortization of customer relationships and non-compete agreements.~~

		~~Intangibles consist of the following (in thousands):~~


			June 30, 2004				December 31, 2003
	Avg.		Gross				Gross
	Life		Carrying		Accumulated		Carrying		Accumulated
	(years)		Amount		Amortization		Amount		Amortization
Amortizable intangible assets
Franchise network		10	$	3,000	$	2,400	$	3,000	$	2,250
Non-compete agreements		3		5,332		2,270		5,275		1,788
Customer relationships		1.5		30,002		20,752		20,699		15,561

Total				38,334		25,422		28,974		19,599
Intangible assets not subject to amortization
Goodwill				987,588		99,162		887,221		99,162

Total intangibles			$	1,025,922	$	124,584	$	916,195	$	118,761

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:~~


	Estimated
	Amortization Expense
	(in thousands)
2004	$	4,911
2005		6,627
2006		1,273
2007		101
2008		—

Total	$	12,912


	At June 30, 2004			At December 31, 2003
	(in thousands)
Balance as of January 1,	$	788,059		$	736,395
Additions from acquisitions		103,406			48,445
Post-purchase price allocation adjustments		(3,039	)		3,219

Balance as of the end of the period	$	888,426		$	788,059

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 or restricted stock grants and all options have been granted with fixed prices. At ~~June 30, 2004,~~March 31, 2005, there were ~~10,050,453~~9,316,706 shares available for issuance under the Plan, of which ~~5,768,950~~5,163,936 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~~In addition, vested options not exercised within 90 days from the date the optionee leaves ~~the Company’s~~our 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(“APB 25”), 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(“SFAS 123”),to stock-based employee compensation, net earnings and earnings per share would have decreased as illustrated by the following table:

3.	Intangibles.

	Amortization of intangibles consists primarily of the amortization of customer relationships and non-compete agreements.

	Intangibles consist of the following (in thousands):

4.	Earnings Per Share.

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


	Six months ended June 30, 2003
	Net earnings		Shares		Per share
Basic earnings per common share	$	86,259		87,370	$	0.99
Effect of dilutive stock options		—		2,933

Diluted earnings per common share	$	86,259		90,303	$	0.96


	Three months ended June 30, 2004
(In thousands, except per share data)	Net earnings		Shares		Per share
Basic earnings per common share	$	51,194		79,464	$	0.64
Effect of dilutive stock options				2,516

Diluted earnings per common share	$	51,194		81,980	$	0.62


	Three months ended June 30, 2003						Three Months Ended March 31, 2004
	Net earnings		Shares		Per share		Net earnings		Shares		Per share
Basic earnings per common share	$	35,300		87,498	$	0.40	$	52,209		80,285	$	0.65
Effect of dilutive stock options		—		3,270						2,602

Diluted earnings per common share	$	35,300		90,768	$	0.39	$	52,209		82,887	$	0.63

8.		~~Subsidiary Guarantors~~~~– (continued)~~

		~~7½%~~7 1/2% 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”)~~7 1/2%, pursuant to an indenture dated May 6, 2003, among Rent-A-Center, Inc., its subsidiary guarantors (the “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~~certain outstanding ~~11% Notes.~~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.~~million.

		The ~~7½% Notes~~7 1/2% 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~~7 1/2% 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~~Rent-A-Center and 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~~7 1/2% notes. Rent-A-Center has no independent assets or operations, and each Subsidiary Guarantor is ~~a wholly~~100% owned ~~direct~~directly or ~~indirect subsidiary of~~indirectly by 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~~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.


	Parent		Subsidiary
	Company		Guarantors		Total
Six Months Ended June 30, 2004 (unaudited)
Total revenues	$	—	$	1,158,365	$	1,158,365
Direct store expenses		—		911,513		911,513
Other expenses		—		143,449		143,449

Net earnings	$	—	$	103,403	$	103,403


	Parent		Rent-A-		Subsidiary
	Company		Center East		Guarantors			Total
Six Months Ended June 30, 2003 (unaudited)
Total revenues	$	—	$	792,540	$	327,126		$	1,119,666
Direct store expenses		—		590,816		275,511			866,327
Other expenses		—		114,784		52,296			167,080

Net earnings (loss)	$	—	$	86,940	$	(681	)	$	86,259


	Parent		Subsidiary		Consolidating
	Company		Guarantors		Adjustments			Totals
June 30, 2004 (unaudited)
Rental merchandise, net	$	—	$	736,193	$	—		$	736,193
Intangible assets, net		—		901,338		—			901,338
Other assets		870,935		162,308		(740,571	)		292,672

Total assets	$	870,935	$	1,799,839	$	(740,571	)	$	1,930,203

Senior debt	$	396,000	$	—	$	—		$	396,000
Other liabilities		300,002		772,812		(398,829	)		673,985
Stockholders’ equity		174,933		1,027,027		(341,742	)		860,218

Total liabilities and equity	$	870,935	$	1,799,839	$	(740,571	)	$	1,930,203

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:~~


	Six months ended June,
	2004		2003
	(in thousands)
Net earnings	$	103,403	$	86,259
Other comprehensive (loss) income:
Unrealized gain on derivatives held as cash flow hedges:
Change in unrealized gain during period		—		4,480
Reclassification adjustment for loss included in net earnings		—		(4,480	)

Other comprehensive income		—		—

Comprehensive income	$	103,403	$	86,259


	Three months ended June,
	2004		2003
	(in thousands)
Net earnings	$	51,194	$	35,300
Other comprehensive (loss) income:
Unrealized gain on derivatives held as cash flow hedges:
Change in unrealized gain during period		—		1,869
Reclassification adjustment for loss included in net earnings		—		(1,869	)

Other comprehensive income		—		—

Comprehensive income	$	51,194	$	35,300

~~10.~~	6.	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~~Over a period 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 thattime, our Board of Directors increased the authorization for stock repurchases under our new common stock repurchase program to ~~$200.0~~$300.0 million. ~~Please see “Changes~~As of March 31, 2005, we had purchased a total of 8,525,300 shares of our common stock for an aggregate of $237.6 million under our new common stock repurchase program. No repurchases were made in ~~Securities, Use~~the first quarter of ~~Proceeds and Issuer Purchases of Equity Securities” later in this report.~~2005.

~~11.~~	7.	Acquisitions.

		~~Rent Rite, Inc.~~

		~~On May 7, 2004,~~During the first quarter of 2005, we ~~completed~~acquired three stores, accounts from 10 additional locations, opened 10 new stores, and closed 25 stores. Of the ~~acquisition~~closed stores, 22 were merged with existing store locations, and three stores were sold. The additional stores and acquired accounts were the result of ~~Rent Rite, Inc. d/b/a Rent Rite Rental Purchase~~nine separate transactions for an aggregate ~~purchase~~ price of ~~$59.9 million. Rent Rite operated 90 stores~~approximately $3.8 million 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:cash.


	Fair Values
	(in thousands)
Rental merchandise	$	18,644
Property assets		1,262
Customer relationships		3,180
Non-compete agreements		242
Goodwill		36,568

Total assets acquired	$	59,896

		~~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:

~~12.~~	8.	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 paying the outstanding debt to Wells Fargo and 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, Inc., a subsidiary of Rent-A-Center, 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~~$26.6 million was outstanding as of ~~June 30, 2004.~~March 31, 2005.

		Other guarantees.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,~~March 31, 2005, we had ~~$86.7~~$104.6 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 millionfacilities, all of which is supported by our $250.0 million revolving facility. ~~See Note 14, “Subsequent Events” and “Recent Developments” later in this report.~~


~~13.~~	9.	~~Recapitalization.~~Refinancing of Senior Debt.

		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,~~14, 2004, we refinanced our then existing senior secured 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.~~