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 Execution and clearance fees increased 4.7% to $117.5 million in 2001, from $112.2 million in 2000. Execution and clearance fees increased due to the increase in U.S. options contracts executed and the expansion of our international businesses in Europe and Japan, offset by the decrease in U.S. equity trades executed. Payments for order flow decreased 53.1% to $81.9 million in 2001, from $174.6 million in 2000.The decrease was primarily due to changes in our payment for order flow policy initiated in 2001.The decrease was partially offset by increased volumes for U.S. equity shares traded and U.S. options contracts executed. Communications and data processing expense increased 54.0% to $50.9 million in 2001, from $33.0 million in 2000.This increase was generally attributable to our investments in technology, the growth of our options business and our international expansion in Europe and Japan. Depreciation and amortization expense increased 68.8% to $42.8 million in 2001, from $25.3 million in 2000. This increase was primarily due to the purchase of approximately $50.2 million of additional fixed assets and leasehold improvements during 2001 and the amortization of goodwill and intangible assets primarily related to the acquisition of various options related specialists posts. Occupancy and equipment rentals expense increased 9.6% to $20.5 million in 2001, from $18.7 million in 2000.This increase was primarily attributable to additional leased office space. Professional fees decreased 30.1% to $15.1 million in 2001, from $21.5 million in 2000.This decrease was primarily due to our investments in technology and our international businesses in Europe and Japan during 2000. Business development expense decreased 21.5% to $11.6 million in 2001, from $14.8 million in 2000. This decrease was primarily the result of decreased advertising and lower travel and entertainment costs. During 2001, charges of $20.5 million were incurred relating to our domestic businesses.The charges consist of $10.7 million related to the writedown of strategic investments, $6.8 million related to the writedown of fixed assets that are no longer actively used, $1.4 million related to the writedown of excess real estate capacity and $1.6 million related to a writedown of exchange seats. Other expenses increased 13.2% to $19.6 million in 2001, from $17.3 million in 2000.This was primarily the result of increased administrative expenses and other operating costs in connection with our options business growth as well as our European and Japanese expansion. Our effective tax rates of 46.9% and 38.1% for 2001 and 2000, respectively, differ from the federal statutory rate of 35% due primarily to state income taxes, non-deductible foreign losses and the amortization of goodwill. Liquidity Historically, we have financed our business primarily through cash generated by operations, as well as the proceeds from our stock offerings. As of December 31, 2002, we had $3.2 billion in assets, 88% of which consisted of cash or assets readily convertible into cash, principally receivables from clearing brokers and securities owned. Receivables from clearing brokers include interest-bearing cash balances held with clearing brokers, including, or net of, amounts related to securities transactions that have not yet reached their contracted settlement date, which is generally within three business days of the trade date. Securities owned principally consist of equity securities that trade in Nasdaq and on the NYSE and AMEX markets and listed options contracts that trade on national exchanges. At December 31, 2002, the Company had net current assets, which consists of net assets readily convertible into cash, of approximately $366.0 million. Additionally, our investment in the Deephaven Fund was $153.8 million at December 31, 2002. This investment can be liquidated upon request subject to a ninety-day written notification period and monthly redemption limits, or immediately by invoking our rights as the general partner of the Deephaven Fund. (Loss)/income before income taxes and minority interest plus depreciation and amortization and net non-cash writedowns was ($395,000), $109.4 million and $443.9 million during 2002, 2001 and 2000, respectively. Depreciation expense was $35.1 million, $33.8 million and $18.8 million during 2002, 2001 and 2000, respectively. Amortization expense, which related to intangible assets and, prior to 2002, goodwill, was $2.5 million, $8.9 million and $6.5 million during 2002, 2001 and 2000, respectively. Net non-cash writedowns consisted of $35.8 million and $12.3 million during 2002 and 2001, respectively, primarily related to fixed assets no longer actively being used and strategic investments.