Good morning, and thank you for holding. Welcome to Rent-A-Center's Second Quarter 2012 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, July 24, 2012. Your speakers today are: Mr. Mark Speese, Chairman and Chief Executive Officer of Rent-A-Center; Mr. Mitch Fadel, President and Chief Operating Officer; Mr. Robert Davis, Chief Financial Officer; and Mr. David Carpenter, Vice President of Investor Relations. I'd now like to turn the conference over to Mr. Carpenter. Please go ahead, sir.

Thank you, Tom. Good morning, everyone, and thank you for joining us. You should've received a copy of the earnings release distributed after the market closed yesterday that outlines our operational and financial results that were made in the second quarter. If for some reason you did not receive a copy of the release, you can download it from our website at investor.rentacenter.com. In addition, certain financial and statistical information that will be discussed during the conference call will also be provided on the same website. Also, in accordance with SEC rules concerning non-GAAP financial measures, the reconciliation of EBITDA is provided in our earnings press release under the statement of earnings highlights. Finally, I must remind you that some of the statements made in this call such as forecast growth in revenues, earnings, operating margins, cash flow and profitability and other business or trend information are forward-looking statements. These matters are, of course, subject to many factors that could cause actual results to differ materially from our expectations reflected in the forward-looking statements. These factors are described in the earnings release issued yesterday, as well as our annual report on Form 10-K for the year ended December 31, 2011, and our quarterly report on Form 10-Q for the quarter ended March 31, 2012. Rent-A-Center undertakes no obligation to publicly update or revise any forward-looking statements. I'd now like to turn the call over to Mark. Mark?

Well, thank you, David. Good morning, everyone, and thank you for joining us for a review of our second quarter 2012 results. Let me begin by saying, I am pleased with the overall performance and operating results for the quarter, and I'm also pleased with how we're positioned as we begin the second half of the year. While there continues to be uncertainty in the broader market and while our customer base remains under pressure, the need and demand for our products and services remains steady, and we continue to deliver on our expectations. As was noted in the press release, our second quarter revenues increased 7.4%, supported by a same-store sales comp of 2.8%, and our earnings per share increased nearly 9%. For the first half of the year, we have achieved both revenue and earnings per share growth of approximately 10%. As was also noted, we utilized approximately $16.5 million of our cash on hand to repurchase nearly 500,000 shares of our common stock in the quarter. All the while, our balance sheet remains very healthy and is a strength of the company. I'm especially pleased with the results of the RAC Acceptance business unit. Revenues have nearly doubled year-over-year. And as noted in the segment reporting section of the release, gross profit margins were 58% for the quarter, much like we expected after having been approximately 50% in the first quarter due to the accelerated early purchase options driven by tax refunds, so very much back in line with expectations. And that result, along with the strong revenue growth in RAC Acceptance, led that unit to report operating profits of $7 million in the quarter. So again, very strong performance in RAC Acceptance, and those trends are expected to continue. Those results themselves, coupled with the 1.6% revenue growth in the core business, and the international initiatives continuing to perform in line with our expectations, allows us to reaffirm our original 2012 guidance. So it was a good quarter, a good first half of the year, and as always, I appreciate the hard work of our associates and coworkers, and we appreciate your support as well. And with that, I'm going to ask Mitch to provide you some additional commentary on the results. Mitch?

Thanks, Mark, and good morning, everyone. As Mark mentioned, overall, we are pleased with both our top line and bottom line results for the quarter. Our same-store sales were 2.8%, with the RAC Acceptance impact of 365 comp locations making up about 75% of it, and our core business contributing the balance. This now puts our same-store sales at a very strong 4.5% year-to-date, with about half of that coming from the core business and about half coming from RAC Acceptance on a year-to-date basis. Overall, our revenue grew 7.4%, with the core business growing 1.6%. Pretty good numbers considering a recurring revenue challenge we had to overcome with the strong early purchase activity in the first quarter. Also pretty good, considering consumer sentiment being what it is in this country. Our collections metrics remained in line with expectations, and our customer losses in our core business came in at a historically low 2.2%. Now you'll notice when our 10-Q is filed later this week, our overall losses in dollars are up about $2 million from the same quarter a year ago, primarily the result of our large growth in RAC Acceptance and very much in line with our expectations for that new business. Our inventory Held for Rent in our core business came in right on top of last year at 24.6% in the core segment. You'll notice the dollar amount of the on-rent inventory and the held-for-rent inventory are both down from last year. We get questioned on that a lot. So I wanted to point out that that's due to deflation in electronics, because we actually have more units on rent at the end of June this year than we did last year. So that lower inventory value is from deflation. Fortunately, we don't see the same level of deflation in our revenues as we're able to reduce the term on the rental agreements and not the weekly or monthly rates. Mark mentioned the great growth in our RAC Acceptance segment. Their revenues were almost double what they were in the same quarter last year, and their margins are at the anticipated levels. We ended the quarter with 811 kiosks, and we should end the year at about 950. As he mentioned, things are going really well for us there. On the international growth front, we opened 13 more stores, with 10 of those being in Mexico. We continue to like what we see out of Mexico, and we remain enthused about that 1,000-store opportunity. Overall, a good quarter for us in all segments, and I'd like to thank our 20,000 coworkers for their tremendous efforts and accomplishments. Robert?

Thank you, Mitch. I'm going to spend just a few moments updating everyone on our financial results during the quarter, as well as review our 2012 annual guidance, after which time we'll open the call for questions. And as a reminder, much of the information that I do provide, whether it's historical results or forecasted results, is going to be presented on a recurring and comparable basis, and will, therefore, exclude any nonrecurring charges. As outlined in the press release, our total revenues were $749.7 million during the second quarter of 2012, an increase of $51.4 million or 7.4% as compared to the second quarter of last year. This increase was primarily due to an increase in revenues within the RAC Acceptance segment, leading to our solid same-store sales comp. And a bit of a milestone, with the completion of the last quarter's revenues for the LTM period ended June 30, 2012, the company has now exceeded $3 billion in revenue for the first time, so very, very strong top line growth. Our net earnings in the quarter were $44.2 million, while diluted earnings per share equated to $0.74, an increase of 8.8%. These results do include about an $0.08 drag on earnings in the second quarter due to the continued investment and ramp-up of our international growth initiatives. As expected, these investments had a similar impact on operating margins in the quarter, which were down 70 basis points quarter-over-quarter and equated to 10.5%, although we did have an overall increase in operating profits. Similarly, our second quarter EBITDA increased over 3.6% to $98.8 million and a margin of 13.2%. We generated positive cash flow during the second quarter, and year-to-date, we've now generated over $161 million in operating cash flow. During the quarter, the company, reflecting continued confidence in…

[Operator Instructions] Your first question comes from Budd Bugatch from Raymond James.

This is TJ McConville, filling in for Budd. Guys, if I were -- if I wanted to pick at a couple of line items, I was looking at the gross margin in the core business being down another 150 basis points this quarter. I'm just wondering what the drivers there were. Sort of speculating, is there anything to do with some of the RAC Acceptance merchandise coming back into that business at all?

TJ, this is Mitch. That's a real small part of that, 150 basis points, maybe about 20 basis points is all that is. That is better than the first quarter. We deal with a lower margin on the early purchase options, and those remained above what we anticipated in the second quarter. The tax season is primarily February, March, but we still get a lot of early purchase options in April as well. And so that drove it a little bit or maybe primarily. As we look at where we're at today, we expect to be back to last year's levels by the end of the year, by the fourth quarter, where we'll be on top of 2011 gross margin levels. We might still have a little bit of a deficit in the third quarter, but by the fourth quarter, we should be back on top of it. It's been primarily the early purchase options, little bit from a promotional activity standpoint. But as we look at our promotional calendar the rest of this year, think you'll see by the fourth quarter, we're back on top of last year's gross margin numbers quarter-over-quarter.

Okay. Yes, that's exactly what I was looking for, Mitch. And so the 100 basis points of overall contraction for the year in the guidance, that's where you get the confidence because that does imply a bit of a recovery in the back half of the year, and that's what you're -- that's where you're thinking it comes from. Am I correct there?

Right. You are correct.

Okay. And last quarter -- a question for Robert. Last quarter, I think it was -- you mentioned to us that the seasonality of earnings this year might look a little different than it normally does based on the RAC contribution. So is that still how we ought to be thinking about it with the third quarter earnings number?

I think that's a fair assumption. I think when you think about the way that the quarter came in relative to our expectations, as well as consensus, maybe that moderates a little bit from our comments last quarter.

Okay. Yes, I mean, like I said, excellent performance this quarter. So that's -- to get to 320 at the top, that'll be interesting in the fourth quarter, I guess.

Yes. Certainly, it'll -- it's certainly still a ramp-up. So RAC Acceptance will still add a lot more earnings in the fourth quarter than it did in the third quarter. So we need to keep that in mind as you look at quarterly estimates.

Right.

Okay. And then last one for me, on the balance sheet, excellent condition, guys. Any additional detail you can offer on what the balance of the outlook for repurchase might look like for the rest of the year?

We don't really forecast that in our model or our EPS. That's the comment I was making at the end of the guidance section. But as you know, TJ, we're always very prudent how we manage cash, looking at opportunistic share repurchases, if and when that opportunity presents itself. There's no stated plan other than we have authorization from our board to purchase up to $800 million. We spent $732 million, so we've got $68 million left. There's no restrictions within our credit agreement. And the indenture, our bond indenture is about double what the levels are left authorized by the board. So other than mandatory payments, no specific plans other than being opportunistic when and if the time comes.

Your next question comes from the line of Arvind Bhatia from Sterne Agee.

I wanted to talk a little bit more or get your thoughts a little bit more on the core business. Some of the discussions I've had with investors since yesterday, that's something that people want to kind of hear a little bit more about. Obviously, RAC Acceptance was very strong, and the margins came right back. But I wonder if you can maybe talk about how you view the core business from this point on. I think, Mark, you mentioned initially the customers' challenge. But looking at the RAC Acceptance numbers, I would think that your business there doing really well. So would be very helpful to get some color on the core business.

Well, let me take -- let me start with that, Arvind. This is Mitch. Like I said in my prepared comments, when you think about the year, you got to look at the year more so than either one quarter because the early purchase options in the first quarter certainly pulled some revenue forward. And when we look at the year-to-date comp of 4.5%, that's pretty even between RAC Acceptance and the core business. So to have half of that 4.5% in the core business, pretty strong for us. If you look back over the last 3 or 4 years, somewhere between 2% and 2.5% in the core business from a same-store sales standpoint is pretty good, especially in this economy, I think, was Mark's point. So it was only, as I mentioned, 25% of the 2.8 comp in the second quarter, so that's about 0.7. But again, those early purchase options pulled some revenue forward. We talked about that on the last call that, that would be challenging. But yet, it's still positive in the second quarter, and for the year, in darn good shape, with it being actually, slightly more than half of that 4.5% comp. So it's steady. It's not -- we don't sit around thinking we're going to grow 5% or 6% in our core mature business. It's a couple of percent growth a year in that business. And the growth initiatives, obviously, it funds the growth initiatives with its great cash flow and funds RAC Acceptance and international expansion.

No, I was just going to comment, Arvind, and Mitch summarized it very well. I think, certainly, consumer confidence in the broader markets is at lows and continues to stay there, and that causes pause. As Mitch said, we continue to perform. The demand is there. At the same time, we know the consumers are under pressure. We know the confidence is at historic lows, if you will, and so you've got to temper that a little bit. And I think that's really what our position is.

The other thing I noticed is, you did a great job on the cost control side, certainly, versus our model. They seem to be good leverage. And with the 0.7% comp on the core business, particularly, in light of that, this is impressive. So is -- can you maybe provide some color on how sustainable that is? And how we should view -- where there's some onetime things that maybe we weren't thinking about that helped the cost, or we should expect this to continue?

I think it's fair to say that a couple years ago, Arvind, when RAC Acceptance was in its infancy and international was sort of a dream on a wall, and the core business was challenged, we got very serious about making sure we're able to manage the middle of the P&L, which we focused on the last several years. And you're seeing some of that -- the fruits of that labor continue on and on. I'd be remiss not to just comment that, obviously, the price of gas has helped a little bit. And we expect that to continue based on projections from the Department of Energy. Having said that, there are no onetime items, if you will. But we do have a more disciplined approach and focus around managing all parts of the P&L, from the store-level costs to the back-office costs. And that discipline, we would expect to continue, so...

Well, definitely very impressive. Last question is on the international side of things. Wanted to see if you can maybe talk about what's going on in Mexico, just maybe some more granularity. What's happening to perhaps the bad debt trends there? Are they within projections? And just overall, how should we think about the next 2 years or so? $0.25 to $0.30 EPS drag this year. Are we thinking 2014 when we start to get close to breakeven, perhaps some color there?

I think, as Mitch indicated in the prepared comments, as well as Mark, the international initiatives are in line with our expectations overall. The losses are in line with our expectations. So when you look at all parts of the P&L, things are in line with what we would expect at this point. Having said that, as we think about the continued ramp, I don't -- you're right, Arvind, it's not until you get out to 2014 when you start to see a neutral P&L related to that. So as these stores mature next year, there'll be a continued slight drag based on the stores we'll open in the back half of this year. But then the stores we open in '13 will obviously have an impact. So it's not until '14 when you start to see a breakeven on the P&L. Recognizing that's kind of a high-level commentary, and we haven't given specific guidance related to '13 or '14, but just with a sort of measured approach to rolling out stores, that's what one could expect.

Yes. And operationally, Arvind, Robert said it. I know Mitch -- we are pleased with the overall operating results down there. We continue to believe that, that market has tremendous opportunity or potential. We continue to say 1,000 stores, whatever that exact number. But everything we continue to see reaffirms that the proposition is being embraced and that the market will support it. And then to Robert's comment, our stated openings over the next couple of years, assuming we stay within those ranges, would imply that it's not until '14. Should we choose to open more because of some reason, that could have an adverse effect. And conversely, if you did less. But we continue to be pretty bullish and opportunistic about what we're seeing down there.

Your next question comes from the line of John Baugh from Stifel, Nicolaus.

I'll just jump right in on some questions. I wanted to circle back on the early payout issue, sort of year-to-date, if you will, and maybe segment it between the RAC experience and the core experience. Could you just first maybe address -- because we are in a tough economy and yet people are coming up with all this money, why that happened this year in terms of early payouts being higher in both -- it sounds like both segments?

Well, certainly, the tax returns are where the money is coming from. We did see a slowdown in the -- in May and June, on the early purchase options. But it would still be the tax returns, John. The deflation in electronics can drive some of that in the core business. Remember, we reduced the term, primarily, rather than the rate, so we have shorter terms on electronics than we used to. So that'd be part of it. Think the income tax refunds continue to be a little higher every year for the consumer. And it would just be a combination a little bit on deflation on electronics having shorter terms and then just the income tax money.

The other big driver also, don't lose sight of the fact that we've had several great years now. I say great years, we've grown our business, and you've heard us over the last 10, 12 quarters talk about sequentially and annually comps being up, growth being up, so we've grown the portfolio. If all things remain equal, meaning 75% -- if only 25% go to term, you have a much larger base to begin with. So by default, you're going to have more payouts. So it's not a bad thing, but it does create a headwind that you got to overcome when you get into the comparable period in the future.

And then maybe focusing back on this gross margin, and I'm going to look at the 6 months year-to-date versus the quarter in the core business. I see you're down 170 basis points. So you're saying maybe 20 or 30 of that is the returned merchandise from RAC coming back into the system and the rest is, what, spread between early payout impact and promotions? And if so, kind of what's that spread?

Yes, I think it's certainly about 20 basis points on RAC Acceptance product, but the 150 basis points, I believe it was in the second quarter, I know it's -- the spread would be pretty equal between additional early purchase options and then promotional activity. Like I said earlier, John, we see ourselves closing that gap in the third quarter and being above -- at or above last year's level by the -- during the fourth quarter. So we see us making up that deficit.

And, Mitch, that's simply because now that early payout has -- or declined in May and June, you don't have to be as much promotional?

Primarily, yes.

Okay. And then what is happening precisely when you merge a RAC location, I see you've done, was it close to 50 year-to-date; explain physically what's going on there? And then maybe discuss a little bit how much of that is Best Buy or other situations. And then also, are you having any wins, new account wins in RAC Acceptance? And likewise, any departures?

Sure, John. In RAC Acceptance, the activity so far this year in those mergers, yes, that's certainly the 13 Best Buy kiosks are part of that 47. I think a lot of them were the RoomStore bankruptcy. Those were the primary drivers. As far as other wins, we're having them every day, pretty much adding -- by adding 200 stores. Regional players, no national players, but we continue to talk with the national players. But yes, adding these 200 stores, we're having wins every month with regional players, but not any national players yet to talk about, though we keep talking to the national players.

And are they still primarily furniture-related, furniture maybe and appliances?

There's a few that carry -- we're getting into more that have a mix of product. Babcock's [ph], in the Southeast, is a mix of product. A couple of others are a mix of product more like Kahn's [ph], portfolios. So it's not all furniture. I'd say there's -- it's a mix between just furniture and then stores that carry appliances and electronics as well.

Okay. And last question, investors seem concerned about the CFPB, and I was wondering if you could share with us any discussions you've had with lawmakers or people you speak to, to kind of get a feel for what's going on in Washington about whether this new agency is beating a drum to your doorstep on any -- either the RAC or the core business, or there's no discussion? They've delineated the 90-day term, and that's it?

Well, we certainly are mindful of the CFPB, their authority and just legislation generally speaking. And as you might surmise, we spend a fair amount of time staying connected to it. There is nothing today that we've heard that is inconsistent or different with what we have said in the past or what our belief or expectation is for the future. Meaning that, again, in its current form, and we've said this, that by definition, the transaction is excluded, given the parenthetical. And again, there's nothing to indicate, at this point in time, that we have not heard or seen anything that would give pause that might suggest that, that was going to change. So continue to feel good and believe that's the right outcome anyways.

Your next question comes from the line of Laura Champine from Canaccord Genuity.

This is Jason Smith. I'm on the line for Laura today. I just had a quick question regarding the RAC Acceptance business. How are -- the charge-off rate there in RAC Acceptance, how is that tracking compared to the core business?

Well, a couple different ways of looking at it. It's in line with our expectations. The amount of charge-offs in the second quarter relative to the amount they have on rent ran lower than the core business. The dollar amount on the P&L won't necessarily be lower, because as the stores grow, the percentage might be higher on the P&L. But the actual amount of charge-offs relative to the customer base ran slightly lower than the core business in the second quarter.

Okay. And then another, just a quick question on the kiosk. I know you've discussed this a little bit before, some of those merged kiosks were Best Buy and Rooms To Go. When you look at between the merged and the closed kiosks, are these kiosks that have reached maturity? I mean, where are they along the lines of the store economic spectrum?

The closures were Best Buy and RoomStore? First of all...

No, I'm saying just all the kiosks that you've merged or closed this year so far, I mean, if we're looking at this from a modeling perspective, are we losing year 5 stores, are we losing year 2 stores? Just to get a better idea.

No, we're losing primarily underperforming stores, no matter where they are in the cycle. I was just -- I thought you said Best Buy and Rooms To Go. It's RoomStore that went into bankruptcy, not Rooms To Go. That's all I was correcting. But the underperforming stores, almost all of them, if not every single one.

Best Buy -- why we thought Best Buy may have grown larger, they were only 6 months old. It was a 6-month test. And you can look at our growth -- the model that we have out there, they don't reach maturity until year 2. So none of these were even close to those kind of levels.

And that's a good clarification. Best Buy wasn't underperforming. That was a test in its early stages. The other ones, the other 34, I guess, it'd be 47 minus the 13 were all underperforming. Best Buy wasn't underperforming. It was just early in the test.

And then looking at these, the 950 kiosks you're forecasting for the year, that includes these closures and mergers?

Yes. Yes, that's the net number we'll wind up.

Your next question comes from Brad Thomas from KeyBanc Capital Markets.

Most of my questions have been answered, but just a couple of housekeeping items. In terms of the guidance, full year comp of 2.5% to 4.5%. If we look at the run rate year-to-date, then that full year guidance does imply a pretty wide range for the back half of the year. Should we be thinking of comps in the second half of also being within that range? Or are there things that could come up that might knock it down to the lower end?

So the annual guidance, 2.5% to 4.5%. Maintaining that guidance, and factoring in the fact that year-to-date we're 4.5%, that would imply that you would expect the back half of the year to start to moderate a little bit. Obviously, the first quarter comp of 7.1% had a large impact on the annual comp. And so we would expect the third and fourth quarters to be similar to the second quarter.

Okay, great. And then just a follow-up on the infrastructure that you have in place for RAC Acceptance and international. You've given us, obviously, the unit economics on those growth vehicles. Where do we stand today in terms of some of the infrastructure? Do you have what you need in order to do growth for the next couple of years? Or is it possible we may get some more step up in those costs above and beyond just the unit economics?

We feel like we are sufficiently invested for the near term in both initiatives, being RAC Acceptance and international. Not until you get way further out, would there be any cause for concern related to additional expenses for infrastructure. Obviously, we have invested on the front end in both initiatives, primarily between back office in Mexico and middle management in RAC Acceptance with the growth there. So as we sit here today, we expect no additional step-up charges, if you will, or surprises related to additional costs for those initiatives.

Your next question comes from Bill Mankivsky from Adage Capital Management.

I just wanted to ask, if you look at the year-over-year contribution margin or profit flow-through, however you want to phrase it, for the RAC Acceptance business, the revenue grew just a whisker under $40 million. The EBIT grew closer to $15 million, and I wanted to ask 2 questions. One, is it safe for us to presume that the contribution from the acquired stores that you bought a couple years ago didn't really change much year-over-year, so that in that incremental contribution, it wasn't due to a real change in the acquired stores, it was due to the aging of the company's own stores? And the second part of the question is if that's a reasonable assumption is, do you guys think, when you look at your guidance, second half revenues from RAC last year were probably in the $110 million to $115 million range. We don't have exact breakdown by quarter, but it looks like the back half of this year, if your guidance of over $300 million still holds, might be $50 million, $60 million more revenue than the back half of last year. So the second part of the question is, do you anticipate a sort of a 40% contribution margin on a year-over-year basis for the back-half RAC of revenue growth as compared to the revenue growth last year -- or rather the revenue base last year?

So lot of questions there. I'll try to take them one at a time. But your first question, as it relates to the acquired kiosks from TRS, having an impact in the additional incremental income in the quarter relative to the growth in the revenue, I think, for the most part, slightly but not material. I think what you're seeing mostly is the ramp-up in the age of the stores. As we are continuing to grow the revenue and leveraging the cost structure, that's the impact that you're seeing. You're right, sort of directionally in regards to the revenue assumption for the third and fourth quarter as it relates to RAC Acceptance, just given the overall annual forecast of over $300 million and what we've achieved year-to-date. So I think your thoughts there are directionally correct. As it relates to the flow-through of that incremental revenue in the back half of the year, we would expect that flow-through margin to continue to widen as the stores grow and mature. So I think you're on point with all of your questions.

Your next question comes from John Rowan from Sidoti & Company.

Just quickly on seasonality, I know you guys mentioned that it was going to be slightly different, kind of in the middle part of the year on last quarter's conference call. Just to make sure, you're still looking for a step down in EPS between second and third quarter, correct?

I think where we are year-to-date and what expectations we've given for the year, I think that -- well, it's hard for me to just say what we're expecting by quarter because we don't give quarterly guidance. But you think about seasonality, I think the question earlier was, how does -- is it moderated more this year relative to past years, just given the ramp-up of RAC Acceptance? And the answer is, yes, seasonality is moderated more now than it has been historically. But there is still some seasonality.

Okay, fair enough. And then just to turn to Mexico for a minute. I'm curious what you guys are seeing from the older stores in Mexico? How are they comping? And what are you learning from those stores that are making you bullish on the prospects of getting to 1,000 stores in Mexico?

Well, what we're seeing is they continue to perform generally in line with our model, not every single one. But on average and generally speaking, they're performing in the -- the ones that are in the second year are performing in line with the second year of our model. So as we've said, we haven't seen any in the first year or the second year to discourage us. Everything has been just the opposite, and we remain excited about having 1,000 stores down there.

We should get comfortable in terms of the numbers of stores, John. The 70-or-so that we operate today, I'll remind you, we initial -- we've gone into 7, 8 different distinct markets, some very far in-country. And so we started in the border, but then we, by choice, went in country, Tampico, Guadalajara, Monterey, San Luis, Pocito, with the whole idea that we didn't want to get false-positive reads, if you will, and then extrapolate that into something bigger. And so that's really spread around the country a little bit. We're not in Mexico City. But again, we believe that we went into enough distinct and different VMAs, market states, if you will, that would allow us to test the proposition, test the acceptance of it, the consumer. You think about little bit different culture in each one of those, and throughout all of those, we continue to see the kind of results that suggest that this isn't just a border play, this in fact can run through the country. And then when you take population and all the other stuff, it leads us to believe that, yes, we can in fact do somewhere in that neighborhood.

Okay, fair enough. And then just one last question. Obviously, it seems like there's been a little bit of a diversification for the stores in which you are operating kiosks, I mean, not much, but a little bit of a diversification. Is there any -- has -- the challenge is with a lot of electronic retailers. Has that changed your negotiating ability, if you will, to try to get kiosks set up in non-furniture stores?

It probably has helped our ability to get set up in those stores as they look for ways to add business. Yes, I think it's probably helped, John.

[Operator Instructions] Your next question comes from the line of John Braatz from Kansas City Capital.

If we could look ahead a little bit, you've done a good a job of returning cash to shareholders in the form of dividends and share repurchases. Can you talk a little bit, and I'm not necessarily asking for guidance, but a little bit about maybe your capital spending plans for next year, and then also sort of mandatory debt repayments, and then lastly, the level of cash taxes versus reported taxes for maybe 2013?

So when you think about mandatory payments, I think most of you know we turned out a lot of our senior debt a couple years ago. We've got about $25 million of mandatory payments on an annual basis for the foreseeable future. It's not until several years out that some of that comes due on a bullet maturity. Obviously, our subordinated debt is a note that doesn't mature for several years either. So when you think about debt service, it's primarily the $25 million in mandatory payments. We do have a revolver that is drawn and we have the option to reduce the levels within the revolver if we so choose, just to provide more dry powder liquidity. That's not saying that that's what our focus is on. But obviously, that's an opportunity to reduce indebtedness further beyond the mandatory payments. The CapEx requirements, they've been higher the last couple years, primarily due to buying the TRS stores, not that there's a lot of capital improvements there. But we've also been investing in the back office in technology. I think we've talked about that before. Our CapEx requirements this year, I think we've estimated $105 million. That's down from $130 million or $140 million from last year. And so as we look out beyond this year, we would expect a similar level, maybe slightly less than current levels, when you think about '13 and '14. A lot of that's driven by how quickly we ramp up in Mexico, RAC Acceptance to a lesser degree just because the capital requirements there are much smaller. But obviously, depending on how fast you ramp up new stores will impact that. But as we sit here today, we expect the $100 million plus this year to be similar next year and forward, maybe slightly less than. And then as you think about share repurchases or dividends, obviously, again, just being opportunistic there on the share repurchase side. Dividends, we have no current plans of changing or altering the dividend rate. But obviously, that's always something that we'll review as well. Cash taxes this year are estimated at $110 million. I think that was your last question. We expect that to increase next year about $20 million or $30 million, roughly. Not -- don't have the specific number in front of me, but I think it's going to be disclosed in our 10-Q when we file that later this week. So more to come or more transparency for that, John, when we file later this week.

There are no further questions at this time.

Ladies and gentlemen, as always, we thank you for joining us. We appreciate your support. We remain focused on our business, and we look forward to reporting more to you again after the next quarter. Have a great day.

This concludes today's conference call. You may now disconnect.