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Net purchases and proceeds from strategic investments and acquisitions
were $1.7 million, $15.7 million and $58.9 million during 2002, 2001
and 2000, respectively. Strategic investments and acquisition expenditures
primarily relate to outside investments and acquisitions of option
specialist posts in support of the development and growth of our business.
We increased our investment in the Deephaven Fund by $102.9 million
and $38.3 million during 2002 and 2001, respectively. Additionally,
on February 1, 2003, we invested an additional $25.0 million in the
Deephaven Fund. Capital expenditures were $16.3 million, $50.2 million
and $71.0 million during 2002, 2001 and 2000, respectively. Capital expenditures primarily relate to the purchase of data processing and communications equipment, capitalized software and leasehold improvements. In acquiring fixed assets, particularly technology equipment, we make a decision about whether to lease such equipment or purchase it outright based on a number of factors including its estimated useful life, obsolescence and cost. On April 4, 2002, the Company’s Board of Directors announced the authorization of a stock repurchase program, which allowed for the purchase of Class A Common Stock up to a total amount of $35 million. At its July 16, 2002 meeting, the Board of Directors authorized an increase in the size of this repurchase program from $35 million to $70 million. Through December 31, 2002, under the $70 million stock repurchase program, the Company had repurchased 7,960,000 shares for $41.2 million.The Company may repurchase shares in the open market or through privately negotiated transactions, depending on prevailing market conditions, alternative use of capital and other factors. Knight Trading Group had approximately 117.9 million shares of common stock outstanding as of December 31, 2002. On February 28, 2003, the Company announced that it had utilized $69.1 million of its previously announced $70 million share repurchase program. As of such date, the Company had repurchased approximately 13,767,000 shares.The repurchase activity during the first quarter of 2003 included open market purchases, as well as a privately negotiated block transaction for 4,775,000 shares that was effected with a dealer on behalf of Ameritrade Holding Corporation.The Company cautions that there are no assurances that any further repurchases may actually occur. No determination has been made at this time as to whether the Company will extend or close out the current repurchase program. As registered broker-dealers, Knight Securities, L.P. (“KS”), Knight Capital Markets LLC (“KCM”), KFP and KEP are subject to regulatory requirements intended to ensure the general financial soundness and liquidity of broker-dealers and requiring the maintenance of minimum levels of net capital, as defined in SEC Rule 15c3-1.These regulations also prohibit a broker-dealer from repaying subordinated borrowings, paying cash dividends, making loans to its parent, affiliates or employees, or otherwise entering into transactions which would result in a reduction of its total net capital to less than 120.0% of its required minimum capital. Moreover, broker-dealers, including KS, KCM, KFP and KEP, are required to notify the SEC prior to repaying subordinated borrowings, paying dividends and making loans to its parent, affiliates or employees, or otherwise entering into transactions, which, if executed, would result in a reduction of 30.0% or more of its excess net capital (net capital less minimum requirement). The SEC has the ability to prohibit or restrict such transactions if the result is detrimental to the financial integrity of the broker-dealer. At December 31, 2002, KS had net capital of $142.4 million, which was $139.3 million in excess of its minimum net capital requirement of $3.1 million, KCM had net capital of $32.5 million which was $31.5 million in excess of its minimum net capital requirement of $1.0 million, KFP had net capital of $34.3 million which was $34.0 million in excess of its minimum net capital requirement of $250,000 and KEP had net capital of $2.9 million which was $2.6 million in excess of its minimum net capital requirement of $300,000. Additionally, Knight Securities International Ltd. (“KSIL”) and Knight Securities Japan Ltd. (“KSJ”) are subject to capital adequacy requirements of the Financial Services Authority in the United Kingdom and the Financial Supervisory Agency in Japan, respectively. KSIL had net capital of $2.7 million, which was $0.8 million in excess of its minimum net capital requirement of $1.9 million, and KSJ had net capital of approximately $22.7 million, which was $18.6 million in excess of its minimum net capital requirement of approximately $4.1 million. We have no long-term debt at December 31, 2002 nor do we currently have any debt commitments for 2003. We do not anticipate that we will need to incur long-term debt to meet our 2003 capital expenditure and operating needs. We currently anticipate that available cash resources and credit facilities will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. |
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