MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS VORNADO REALTY TRUST 43 New York City Merchandise (AMOUNTS IN THOUSANDS) T otal Office CESCR Retail Mart Other Leasing Commissions: Recurring $ 14,345 $ 8,854 $ 4,416 $ 353 $ 614 $ 108 Non-recurring 4,205 2,067 2,138 — — — $ 18,550 $ 10,921 $ 6,554 $ 353 $ 614 $ 108 Total Capital Expenditures and Leasing  Commissions: Recurring $ 67,073 $ 30,187 $ 23,944 $ 3,968 $ 7,962 $ 1,012 Non-recurring 46,432 11,200 23,257 — 11,975 — $ 113,505 $ 41,387 $ 47,201 $ 3,968 $19,937 $ 1,012 Development and Redevelopment Expenditures: 400 North LaSalle $ 27,600 $ — $ — $ — $ — $ 27,600 Palisades-Fort Lee, NJ 16,750 — — — — 16,750 640 Fifth Avenue 16,749 16,749 — — — — 435 7th Avenue 12,353 — — 12,353 — — 4 Union Square South 2,410 — — 2,410 — — Other 15,337 10,234 1,496 (596) 1,529 2,674 $ 91,199 $ 26,983 $ 1,496 $ 14,167 $ 1,529 $ 47,024 Cash Flows for the Year Ended December 31, 2001 Cash flow provided by operating activities of $387,685,000 was primarily comprised of (i) income of $263,738,000, (ii) adjust- ments for non-cash items of $104,393,000, and (iii) the net change in operating assets and liabilities of $19,554,000. The adjustments for non-cash items wer primarily comprised of (i) a cumulative effect of change in accounting principle of $4,110,000, (ii) the write-off of the Company’s remaining equity investments in technology companies of $16,513,000, (iii) the write-off of its entir net investment of $7,374,000 in the Russian Tea Room, (iv) depreciation and amortization of $123,682,000, (v) minority interest of $112,363,000, partially offset by (vi) the effect of straight-lining of rental income of $27,230,000, and (vii) equity in net income of partially-owned entities and income applicable to Alexander’s of $106,330,000. Net cash used in investing activities of $79,722,000 was primarily comprised of (i) recurring capital expenditures of $41,093,000, (ii) non-recurring capital expenditures of $25,997,000, (iii) development and redevelopment expenditures of $145,817,000, (iv) investment in notes and mortgages r eceivable of $83,879,000, (v) investments in partially-owned entities of $109,332,000, (vi) acquisitions of real estate of $11,574,000, offset by, (vii) proceeds from the sale of real estate of $162,045,000, and (viii) distributions from partially-owned entities of $114,218,000. Net cash used in financing activities of $179,368,000 was primarily comprised of (i) proceeds from borrowings of $554,115,000, (ii) proceeds from the issuance of common shares of $377,193,000, (iii) proceeds from the issuance of preferred units of $52,673,000, offset by, (iv) repayments of borrowings of $835,257,000, (v) dividends paid on common shares of $201,813,000, (vi) dividends paid on preferred shares of $35,547,000, and (vii) distributions to minority partners of $98,594,000. Below are the details of capital expenditures, leasing commissions and development and redevelopment expenditures. Funded by the Company New York City Merchandise CESCR (AMOUNTS IN THOUSANDS) T otal Office Retail Mart Other (34% Interest) Capital Expenditures:  Expenditures to maintain the assets: Recurring $ 14,423 $ 7,684 $1,253 $ 5,287 $ 199 $3,121 Non-recurring 20,751 13,635 — 7,116 — 6,678 $ 35,174 $ 21,319 $1,253 $12,403 $ 199 $9,799 Tenant Improvements: Recurring $ 26,670 $ 21,452 $ 271 $ 4,858 $ 89 $5,979 Non-recurring 5,246 5,246 — — — 190 $ 31,916 $ 26,698 $ 271 $ 4,858 $ 89 $6,169