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## Non-Interest Expense 

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million, or 36%, to $1.4 billion in 2001. The decrease in the salaries and associate benefit growth rate as well as a decrease in marketing expenses of $12.4 million compared to 2001, was the result of the Company’s efforts to slow loan growth to more historical levels. All other non-interest expenses increased $374.1 million, or 24%, to $2.0 billion for the year ended December 31, 2002, from $1.6 billion in 2001. This increase was the result of a 23% increase in the average number of accounts as compared to the prior year and $110.0 million of one-time charges incurred in 2002. Of the $110.0 million: $38.8 million related to unused facility capacity, early termination of facility leases, and the accelerated depreciation of fixed assets; $14.5 million related to the accelerated vesting of restricted stock issued in connection with the PeopleFirst, Inc. (“PeopleFirst”) acquisition; and $12.5 million related to the realignment of certain aspects of its European operations. The remaining amounts related to investment company valuation adjustments, increases in associate related costs and accruals for contingent liabilities. 

Non-interest expense for the year ended December 31, 2001, increased $910.4 million, or 29%, to $4.1 billion from $3.1 billion for the year ended December 31, 2000. Contributing to the increase in non-interest expense were marketing expenses, which increased $176.8 million, or 20%, to $1.1 billion in 2001, from $906.1 million in 2000. The increase in marketing expenses during 2001 reflected the Company’s continued identification of and investments in opportunities for growth, as well as its marketing extension into television advertisements. Salaries and associate benefits increased $368.7 million, or 36%, to $1.4 billion in 2001, from $1.0 billion in 2000, as the Company added approximately 2,400 net new associates to its staffing levels to manage the growth in the Company’s accounts. All other non-interest expenses increased $364.8 million, or 30%, to $1.6 billion for the year ended December 31, 2001, from $1.2 billion in 2000. The increase in other non-interest expenses was primarily composed of increased depreciation expense due to premises and equipment growth, increased collections costs as a result of increased collection and recovery efforts, and non-recurring expenses such as the write-off of an investment in an ancillary business as well as costs associated with the mailing of amendments to customer account agreements. The increase was also driven by the 39% increase in average accounts. 

Non-interest expense for the year ended December 31, 2002, increased $527.6 million, or 13%, to $4.6 billion from $4.1 billion for the year ended December 31, 2001. Contributing to the increase was salaries and associate benefits, which increased $165.8 million, or 12%, to $1.6 billion in 2002, from an increase of $368.7 

## Income Taxes 

The Company’s income tax rate was 38% for the years ended December 31, 2002, 2001 and 2000, respectively. The effective rate includes both state and federal income tax components. 

## MANAGED CONSUMER LOAN PORTFOLIO 

The Company’s managed consumer loan portfolio is comprised of reported and off-balance sheet loans. Off-balance sheet loans are those which have been securitized and accounted for as sales in accordance with SFAS 140, and are not assets of the Company. 

The Company analyzes its financial performance on a managed consumer loan portfolio basis. Managed consumer loan data adds back the effect of off- balance sheet consumer loans. The managed consumer loan portfolio includes securitized loans for which the Company has retained significant risks and rewards. 

