Investor Presentation Third Quarter 2005 October 28, 2005
Key Investment Rationale Leading rent-to-own operator in the U.S. Proven business model Multiple growth drivers Predictable revenue stream Strong cash flow generation Solid balance sheet & strong credit statistics Strong internal controls and governance Experienced management team 1
Leading RTO Operator in U.S. Largest rent-to-own operator in the U.S. 34% market share based on 2,780 domestic store count as of 9/30/05 ColorTyme subsidiary represents an additional 3% market share Broad selection of high quality goods through flexible rental agreements Major consumer electronics 34% of rental revenue Furniture and home accessories - 38% of rental revenue Appliances - 16% of rental revenue Personal computers 12% of rental revenue Primarily serves the underbanked consumer Generated $2.34 billion in LTM revenue and $340.5 million in LTM EBITDA as of September 30, 2005 2
Leading Player in Fragmented Marketplace 8,300 Stores (1) Number of Stores 3,500 3,000 2,500 2,000 1,500 1,000 3,067 287 2,780 1,149 795 3 Largest Firms 60% 3,200+ Stores 40% 500 0 72 64 44 35 Rent-A-Center / Aaron Rent-Way (4) Bestway (5) Buddy s Home American Rent One (5) ColorTyme (2) Rents (3) Furnishings (5) Rentals (5) Market Share (1) 37.0% 13.8% 9.6% 0.9% 0.8% 0.5% 0.4% Notes: (1) Based on Association of Progressive Rental Organization (APRO) estimates in 2004 Industry Survey of 8,300 total stores (2) Company data as of September 30, 2005 (3) Company earnings press release of October 27, 2005 (4) Company earnings press release of October 19, 2005 (5) Company website estimates as of October 28, 2005 3
Leading National Footprint 2,780 domestic company-owned stores and 287 franchised stores 7 company-owned stores in Canada Company-owned New Store Openings 2004A 94 Q3 05YTD 2005E 60-70 Acquisitions - Store Fronts 2004A 191 39 Q3 05YTD 39 Acquisitions - Customer Accounts 32 24 15 154 39 6 47 12 63 10 5 26 2 5 11 48 328 56 4 24 78 37 40 21 Get It Now 125 122 107 31 100 64 44 184 22 118 120 51 188 128 65 67 16 147 34 47 18 72 4 29 62 18 41 2004A Q3 05YTD 16 111 35 Favorable State Regulation Developing/Unfavorable State Regulation 4
Rent-to-Own is an Appealing Transaction No Long Term Obligation Lifetime Reinstatement Service Included 90 Days Same as Cash Flexible Rental Agreements Early Purchase Options Same Day Delivery 7 36 Months Term to Ownership No Traditional Credit Check No Down Payment 5
With Attractive Economics Monthly Revenue Stream Total Rental Revenues COGS Gross Margin Buy Upfront $800 400 50.0% Rent-To-Own $1,600 400 75.0% Rent-To-Own (Average Contract Life) $1,780 400 77.5% 0 2 4 6 8 10 12 14 16 18 20 Months 6
and Consistent Industry Growth $ in billions $7 $6 $5 $4 $3 $3.8 $3.9 $4.1 $4.4 5.6% CAGR $4.7 $5.0 $5.3 $5.6 $6.0 $6.2 $2 $1 $0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: APRO 2004 Industry Survey 7
Levers of Growth for Rent-to-Own Open new rent-to-own stores Acquire existing rent-to-own stores Storefronts Customer accounts Grow same store sales Merchandise mix Agreements per customer Customer growth 8
Serves the Underbanked Working Family 75% of customers in the industry have household incomes between $15,000 and $50,000 (1) 45 million households with household incomes between $15,000 and $50,000 (2) Industry is serving only 2.7 million of these households (3) Great market opportunity Note: (1) America s Research Group, August 2004 (2) U.S. Census Bureau - 2001 (3) APRO 2004 Industry Survey 9
Proven Business Model Key Brands and Attractive Stores Systems Employee Training and Development Customer Relationship 10
Rent-A-Center Store Profitability vs. Peers $100,000 $80,000 $60,000 Monthly Revenue $56,300 16.7% $65,700 100% 80% 60% Gross Profit Margin 69.9% 440 bps 74.3% $40,000 40% $20,000 20% $0 Store Operating Margin 35% 30% 25% 20% 15% 10% 5% 16.6% 300 bps 19.6% 0% 25% 20% 15% 10% 5% EBITDA Margin 8.5% 760 bps 16.1% 0% Industry Average (1) 11 0% Average RCII Store (2) Notes: (1) Source: APRO 2004 Industry Survey. (2) Per LTM data for the period ended September 30, 2005 for Rent-A-Center stores (excludes Get It Now, ColorTyme, and Canada) (3) Store Operating Margin is before overhead allocation, EBITDA Margin is after overhead allocation
Easily Accessible, Highly Visible Sites Leased Sites Only 12
Spacious Showroom Interior No Warehouses - Vendors Ship Directly to the Stores 13
High Quality, Brand-Name Merchandise Electronics 34% of Rental Revenue Furniture 38% of Rental Revenue Appliances 16% of Rental Revenue Computers 12% of Rental Revenue Actual data for the twelve months ended September 30, 2005 14
State-of-the-Art Systems Capabilities Inventory Inventory Analysis Analysis BOR BOR & Credit Credit Analysis Analysis Store Store Income Income Analysis Analysis Exceptions Exceptions Report Report Daily reports at all levels of organization from store manager to Chairman/CEO Manage by exception philosophy Systems help enforce strict inventory/cost control 15
Strategic Objectives Enhance store level operations and profitability Open new stores Acquire existing rent-to-own stores Enhance national brand Expand into new businesses that serve our customer demographic 16
Significant Domestic Market Opportunity 16,000 14,000 6,000 Number of Stores 12,000 10,000 8,000 6,000 4,000 3,067 1,944 Top 2 Competitors 3,289 Other Competitors New Store Opportunity 2,000 0 Current Landscape 17
Strong New Store Economics Start-up investment of approximately $500,000 (3/4 for inventory) Begin turning a monthly profit in approximately nine months Cumulative break even within 18 24 months (1) Internal Rate of Return of approximately 50% Year 1 Year 2 Year 3 Year 4 Revenues $425,000 $675,000 $750,000 $800,000 EBITDA (1) ($50,000) $110,000 $140,000 $160,000 EBITDA Margin (1) (12%) 16% 19% 20% Note: (1) Before market and corporate allocation and income tax expense, terminal value of 6.5 x EBITDA in Year 4 18
Enhancing National Brand National and spot media Loyalty program NASCAR sponsorship with Ford Motor Company and the U.S. Air Force Strategic business relationships Sports sponsorships with NFL, NBA, and MLB 19
Experienced Management Team Senior management team is the most experienced in RTO industry CEO Mark Speese has over 26 years of RTO experience President Mitch Fadel has over 22 years of RTO experience Senior executives average over 10 years of RTO experience Attracting the best personnel with industry-leading salary and incentive plans 20
Financial Overview
Strong, Consistent Sales Growth Combined Revenue ($MM) 2,400 2,200 2,000 1,800 1,600 1,400 $1,417 $1,602 10.3% CAGR $1,809 $2,010 $2,228 $2,313 1,200 1,000 1999 2000 2001 2002 2003 2004 Store Revenue Franchise Revenue 22
Q3 05 Review ($MM) $800 $700 $600 $500 $400 $300 Revenue 0.7% $569.6 $573.5 ($MM) $600 $550 $500 $450 $400 $350 Gross Profit $419.3 0.5% $421.5 $200 ($MM) $160 $140 Q3'04 EBITDA (22.1%) Q3'05 $300 ($MM) $50 $45 Q3'04 Net Income (30.9%) Q3'05 $120 $100 $80 $86.6 $67.5 $40 $35 $30 $37.6 $26.0 $60 $25 $40 Q3'04 Q3'05 EBITDA Margin 15.2% 11.8% 23 $20 Net Income Margin Q3'04 Q3'05 6.6% 4.5% 3Q 05 excludes the effects of an $13.0 million pre-tax restructuring expense as part of the store consolidation plan and $7.7 million in pre-tax expenses related to the damage caused by Hurricanes Katrina and Rita. 3Q 04 excludes the effects of $47.0 million in pre-tax charges associated with the Griego/Carrillo litigation and $4.2 million in pre-tax charges associated with refinancing of the Company s senior credit facility.
Current Capital Structure (in millions of dollars) Sept 30 2004 % of Book Capital Sept 30 2005 % of Book Capital Cash & Equivalents $64.5 N/A $52.8 N/A Senior Credit Facilities 399.1 27.0% 406.6 26.6% Subordinated Notes 300.0 20.3% 300.0 19.6% Total Debt 699.1 47.4% 706.6 46.2% Shareholder's Equity 777.2 52.6% 822.0 53.8% Total Capitalization $1,476.3 100.0% $1,528.6 100.0% Consolidated Leverage Ratio 2.12x (Q3 05) Consolidated Interest Coverage Ratio 7.38x (Q3 05) 24
Operating Cash Flow ($MM) $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 $342.4 $331.0 $294.5 $191.6 $175.7 $143.7 2000 2001 2002 2003 2004 Q3'05 YTD 25
Schedule of Free Cash Flow 2006 Estimate EBITDA Net Cash Interest CapEx Net Investment in Rental Merchandise Taxes Free Cash Flow $335MM - $355MM ($45MM) ($70MM) ($10MM) ($90MM) $120MM - $140MM Free Cash Flow Yield of Approximately 10% 26
EBITDA and EBITDA Margin ($MM) $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 $425.9 $393.9 19.1 19.6 $389.3 16.8 $306.1 $304.7 19.1 16.8 $249.5 14.2 2000 2001 2002 2003 2004 Q3'05 YTD EBITDA (1) EBITDA Margin (%) Notes: (1) Excludes nonrecurring charges and credits 27
Key Credit Ratios Consolidated Interest Coverage (LTM EBITDA / LTM Net Interest Expense) Consolidated Leverage Ratio (Total Debt Cash / LTM EBITDA) 10.4x 5.1x 6.4x 6.4x 7.4x 2.26x 1.73x 2.12x 1.25x 1.52x (1) PF 2001 2002 2003 2004 Q3'05 2001 2002 2003 2004 Q3'05 NOTE: (1) Pro forma for a full-year interest expense for the $100 million bonds issued December 2001 28
Guidance (per October 24, 2005 press release) QUARTERLY Q4'04A Q4'05P Total Revenue $585.3 MM $575.0-$583.0 $583.0 MM Diluted EPS $0.55 (1) $0.43 - $0.47 ANNUAL 2004A 2005P 2006P Total Revenue $2.31 BN $2.33-$2.34 $2.34 BN $2.37-$2.40 $2.40 BN Diluted EPS $2.28 (1,2) $1.86-$1.90 $1.90 (3) $2.00-$2.10 $2.10 (4) (1) Excludes the effects of $7.9 million in one-time other income associated with the sale of charged-off accounts. (2) (3) Excludes the effects of $47.0 million in pre-tax charges associated with the Griego/Carrillo litigation and $4.2 million in pre-tax charges associated with refinancing of the Company s senior credit facility. Excludes the effects of an $8.0 million in pre-tax credit in the first quarter associated with the Griego/Carrillo litigation. Also excludes the effects of a $2.0 million tax audit reserve credit associated with the examination and favorable resolution of the Company s 1998 & 1999 federal tax returns. Excludes the effects of an $13.0 million pre-tax restructuring expense as part of the store consolidation plan announced September 6, 2005 and $7.7 million in pre-tax expenses related to the damage caused by Hurricanes Katrina and Rita. (4) Includes stock option expense 29
Key Investment Rationale Leading rent-to-own operator in the U.S. Proven business model Multiple growth drivers Predictable revenue stream Strong cash flow generation Strong balance sheet & strong credit statistics Strong internal controls and governance Experienced management team 30
Safe Harbor Statement This presentation and the guidance above contain forward-looking statements that involve risks and uncertainties. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as may, will, expect, intend, could, estimate, should, anticipate, or believe, or the negative thereof or variations thereon or similar terminology. Although the Company believes that the expectations reflected in such forward-looking statements will prove to be correct, the Company can give no assurance that such expectations will prove to have been correct. The actual future performance of the Company could differ materially from such statements. Factors that could cause or contribute to such differences include, but are not limited to: uncertainties regarding additional costs and expenses that could be incurred in connection with the store consolidation plan, uncertainties regarding the ability to open new rent-toown stores; the Company s ability to acquire additional rent-to-own stores on favorable terms; the Company s ability to enhance the performance of these acquired stores; the Company s ability to control store level costs; the Company s ability to identify and successfully market products and services that appeal to our customer demographic; the Company s ability to identify and successfully enter new lines of business offering products and services that appeal to our customer demographic; the results of the Company s litigation; the passage of legislation adversely affecting the rentto-own industry; interest rates; the Company s ability to collect on its rental purchase agreements; the Company s 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 the Company s effective tax rate; changes in the Company s stock price and the number of shares of common stock that the Company may or may not repurchase; and the other risks detailed from time to time in the Company s SEC filings, including but not limited to, its annual report on Form 10-K for the year ended December 31, 2004 and its quarterly reports on Form 10-Q for the quarter ended March 31, 2005, Form 10-Q for the six month period ended June 30, 2005, and Form 10-Q for the nine month period ended September 30, 2005. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, the Company is not obligated to publicly release any revisions to these forward-looking statements to reflect the events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events. 31