Management's Discussion and Analysis : 1 of 15 Management's Discussion and Analysis : 2 of 15 Management's Discussion and Analysis : 3 of 15 Management's Discussion and Analysis : 4 of 15 Management's Discussion and Analysis : 5 of 15 Management's Discussion and Analysis : 6 of 15 Management's Discussion and Analysis : 7 of 15 Management's Discussion and Analysis : 8 of 15 Management's Discussion and Analysis : 9 of 15 Management's Discussion and Analysis : 10 of 15 Management's Discussion and Analysis : 11 of 15 Management's Discussion and Analysis : 12 of 15 Management's Discussion and Analysis : 13 of 15 Management's Discussion and Analysis : 14 of 15 Management's Discussion and Analysis : 15 of 15 Occupancy and equipment rentals expense increased 21.8% to $25.0 million in 2002, from $20.5 million in 2001.This increase was primarily attributable to additional leased office space in Jersey City, NJ. We currently have 266,000 square feet of unoccupied office space in Jersey City. Professional fees increased 14.2% to $17.2 million in 2002, from $15.1 million in 2001.The increase in 2002 was primarily due to the payment in 2002 of a one-time asset management consulting fee related to the retirement of Deephaven’s CEO as of the end of 2001, offset in part by a decrease in technology consulting expenses, and professional fees related to our European business. Business development and Other expenses decreased 34.7% and 14.6%, respectively.The primary reasons for the decreases were lower travel and entertainment and administrative costs. International charges were $35.9 million in 2002. During the first half of 2002, after performing a review of its unprofitable European operations, the Company eliminated market-making in French, German and Nasdaq Europe stocks and reduced its European headcount by approximately 47%. In addition, during the fourth quarter of 2002, the Company eliminated market-making in UK stocks and further reduced its European headcount by an additional 40%. The international charges incurred in 2002 included $13.1 million related to the writedown of our investment in Nasdaq Europe, $7.4 million related to the writedown of fixed assets that are no longer actively used, $6.2 million related to contract terminations, $4.2 million related to the writedown of excess real estate and $1.2 million of other charges. The Company also incurred $3.2 million in severance costs related to its European business, which was included in Employee compensation and benefits expense. In addition to the charges taken for our European operations, KSJ incurred a $3.8 million charge related to the writedown of our investment in Nasdaq Japan. During 2002, charges of $16.2 million were incurred related to our domestic businesses.The charges consist of $8.9 million of a lease loss accrual related to the writedown of our excess real estate capacity, $3.6 million related to the writedown of fixed assets that are no longer actively used, $3.0 million related to the writedown of strategic investments and $700,000 related to a writedown of exchange seats. Our effective income tax rates of 29.2% and 46.9% for 2002 and 2001, respectively, differ from the federal statutory income tax rate of 35% due primarily to state income taxes, non-deductible foreign losses and the amortization of goodwill in 2001. YEARS ENDED DECEMBER 31, 2001 AND 2000 The net income for 2001 was $38.5 million, resulting in earnings per share (“EPS”) on a fully diluted basis of $0.31. This compares to net income of $259.9 million and an EPS of $2.05 on a fully diluted basis in 2000. In 2001, total revenues decreased 45.5% to $684.7 million, from $1,257.3 million in 2000, primarily related to decreased average revenue capture per share and contract. Expenses decreased 24.8% to $630.4 million, down from $838.8 million in 2000. Our expenses for 2001 included $20.5 million in writedowns of assets and lease loss accruals. Excluding these charges, expenses in 2001 decreased $228.9 million, or 27.3%, from 2001.This decrease was primarily related to lower employee compensation due to lower profitability and reduced headcount and lower payments for order flow due to reductions in our payment for order flow rates. In 2001, our Equity Markets segment had revenues of $648.0 million, and income before income taxes and minority interest of $27.9 million (income is net of $20.5 million of writedown of assets and lease loss accruals). In 2000, our Equity Markets segment had revenues of $1,236.5 million and income before income taxes and minority interest of $383.8 million. In 2001, our Asset Management segment had revenues of $42.7 million and income before income taxes and minority interest of $26.5 million. In 2000, our Asset Management segment had revenues of $46.1 million and income before income taxes and minority interest of $34.7 million.