VORNADO REALTY TRUST 24 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Expenses The Company’s expenses wer $852,370,000 for the year ended December 31, 2002, compared to $583,002,000 in the year ended December 31, 2001, an increase of $269,368,000 of which $202,852,000 resulted from the acquisition of the remaining 66% of CESCR and the resulting consolidation of its operations. Below are the details of the increase by segment: (1) Results primarily from (i) a $9,725 increase in insurance, security and real estate taxes, largely reimbursed by tenants, and  (ii) $2,639 for an allowance for straight-line rent receivables. (2) Results primarily from (i) increases in insurance costs which are reimbursed by tenants, (ii) a $402 payment of Puerto Rico taxes related to the prior year (iii) $2,280 in bad debt allowances for accounts receivable and receivables arising from the straight-lining of rents in 2002 and (iv) lease termination fees and real estate tax refunds netted against expenses in 2001, which aggregated $1,500. (3) Results primarily from the rescheduling of two trade shows from the fourth quarter in which they were previously held to the first quarter of 2003. (4) Reflects (i) increased insurance costs of $1,366, (ii) a charge of $312 from the settlement of a 1998 utility assessment, and (iii) an increase in real estate taxes of $1,725. (5) Reflects a charge of $954 in connection with the termination of a contract and the write-off of related deferred costs. (6) Reflects a charge in 2002 of $6,874 for the write-off of pre-development costs at the 20 Times Square project and a charge in 2001 of $5,223 in connection with the World Trade Center acquisition not consummated. Income applicable to Alexander’s (interest income, management, leasing, development and commitment fees, and equity in income) was $29,653,000 in the year ended December 31, 2002, compared to $25,718,000 in the year ended December 31, 2001, an increase of $3,935,000. This increase resulted from (i) $6,915,000 of development and commitment fees in connec- tion with Alexander’s Lexington Avenue development project, (ii) the Company’s $3,524,000 share of Alexander’s gain on sale Income Applicable to Alexander’s Merchandise (AMOUNTS IN THOUSANDS) Total Office Retail Mart Other Operating : Acquisitions: CESCR (acquisition of remaining  66% and consolidation vs.  equity method accounting for 34%) $ 114,438 $ 114,438 $ — $ — $ — 715 Lexington Avenue 588 — 588 — — 435 Seventh Avenue 198 — 198 — — 424 Sixth Avenue 50 — 50 — — Las Catalinas (acquisition of  remaining 50% and  consolidation vs. equity method accounting for 50%) 1,341 — 1,341 — — Hotel activity 503 — — — 503 Trade Show activity (2,108) — — (2,108) (3) — Operations 21,511 10,739 (1) 6,748 (2) 5,023 (4) (999) 136,521 125,177 8,925 2,915 (496)  Depreciation and amortization : Acquisitions 68,484 67,470 1,014 — — Operations 9,503 6,825 (275) 1,319 1,634 77,987 74,295 739 1,319 1,634 General and administrative : Acquisitions 20,944 20,944 — — — Other expenses 4,765 821 1,443 2,301 (5) 200 25,709 21,765 1,443 2,301 200 Amortization of officer’s deferred compensation expense 27,500 — — — 27,500 Costs of acquisitions and development  not consummated 1,651 — — — 1,651 (6) Total increase in expenses $ 269,368 $ 221,237 $ 11,107 $ 6,535 $ 30,489