Abercrombie &Fitch STORES AND GROSS SQUARE FEET Store count and gross square footage by concept were as follows: CAPITAL EXPENDITURES Capital expenditures, net of con- struction allowances, totaled $93.0 million, $126.5 million and $153.5 million for 2002, 2001 and 2000, respectively. Additionally, the noncash accrual for construction in progress decreased $12.7 million in 2002 and increased $1.0 million and $9.5 million in 2001 and 2000, respectively. Capital expenditures in 2002 related to new store construction with approximately $20 million invested in information technology and distribution center projects. Capital expenditures in 2001 and 2000 related to the construction of a new office and distribution center, including the noncash accrual for construction in progress, which, accounted for approximately $17 million and $92 million of total capital expenditures in 2001 and 2000 respectively. The office and distribution center were completed in 2001. The balance of capital expenditures related primarily to new stores. The Company anticipates spending $120 to $130 million in 2003 for capital expenditures, of which $70 to $80 million will be for new stores construction. The balance of expenditures primarily relates to improving the in-store information technology structure, which should be complete for back-to-school and distribution cen- ter expansion. In addition, the Company has begun construction planning for additional home office space to accommodate the growth of Hollister. The Company intends to add approximately 726,000 gross square feet for the three concepts in 2003, which will represent a 17% increase over year-end 2002. It is anticipated the increase will result from the addition of approximately 30 new Abercrombie & Fitch stores, 10 new abercrombie stores and 70 new Hollister Co. stores. Additionally, the Company plans to remodel 10 Abercrombie & Fitch stores. The Company estimates that the average cost for leasehold improvements and furniture and fixtures for Abercrombie & Fitch stores opened in 2003 will approximate $630,000 per store, after giving effect to landlord allowances. In addition, inventory pur- chases are expected to average approximately $330,000 per store. The Company estimates that the average cost for leasehold improvements and furniture and fixtures for abercrombie stores opened in 2003 will approximate $485,000 per store, after giving effect to landlord allowances. In addition, inventory purchases are expected to average approximately $130,000 per store. The Company estimates that the average cost for leasehold improvements and furniture and fixtures for Hollister Co. stores opened in 2003 will approximate $650,000 per store, after giving effect to landlord allowances. In addition, inventory purchases are expected to average approximately $230,000 per store. The Company expects that substantially all future capital expenditures will be funded with cash from operations. In addi- tion, the Company has $250 million available (less outstanding letters of credit) under its credit agreement to support operations. CRITICAL ACCOUNTING POLICIES AND ESTIMATES  The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consol- idated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires the Company to make estimates and assump- tions that affect the reported amounts of assets, liabilities, revenues and expenses. Since actual results may differ from those estimates, the Company revises its estimates and assumptions as new infor- mation becomes available. The Company’s significant accounting policies can be found in the Notes to Consolidated Financial Statements (see note 2). The Company believes that the following policies are most crit- ical to the portrayal of the Company’s financial condition and results of operations. Revenue Recognition – The Company recognizes retail sales at the time the customer takes possession of the merchandise and purchases are paid for, primarily with either cash or credit card. Catalogue and e-commerce sales are recorded upon customer receipt of merchandise. Amounts relating to shipping and han- dling billed to customers in a sale transaction are classified as revenue and the related costs are classified as cost of goods sold. 10 February 1, 2003 February 2, 2002 Number Gross Square Number Gross Square of Stores Feet (millions) of Stores Feet (millions) Abercrombie & Fitch 340 3,036 309 2,798 abercrombie 164 727 148 662 Hollister Co. 93 595 34 213 Total 597 4,358 491 3,673