Public Storage 1997 Annual Report Download - page 40

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Public Storage, Inc. 1997 Annual Report
Interest expense: Interest expense was $6,792,000 in 1997, $8,482,000 in 1996 and $8,508,000 in 1995. Reflecting the Company’s reluctance
to finance its growth with debt, debt and related interest expense remains relatively low compared to the Company’s overall asset base. The
Company capitalized interest expense of $2,428,000 in 1997, $1,861,000 in 1996 and $307,000 in 1995 in connection with the Company’s
development activities. Interest expense before the capitalization of interest was $9,220,000 in 1997, $10,343,000 in 1996 and $8,815,000
in 1995. The decrease in interest expense in 1997 compared to 1996, is principally due to the retirement of debt in 1997 of approximately
$11.9 million. The increase in interest expense in 1996 compared to 1995, is principally due to the assumption of a $65.5 million, 7.08%
unsecured senior note in connection with the PSMI Merger on November 16, 1995.
Environmental costs: The Company’s policy is to accrue environmental assessments and/or remediation cost when it is probable that such
efforts will be required and the related costs can reasonably be estimated. The majority of the Company’s real estate facilities were acquired prior
to the time when it was customary to conduct environmental assessments. During 1995, the Company and the Consolidated Entities con-
ducted independent environmental investigations of their real estate facilities. As a result of these investigations, the Company recorded an
amount which, in management’s best estimate, will be sufficient to satisfy anticipated costs of known remediation requirements. At December 31,
1995, the Company accrued $2,741,000 for estimated environmental remediation costs. Although there can be no assurance, the Company is
not aware of any environmental contamination of any of its facilities which individually or in the aggregate would be material to the Company’s
overall business, financial condition, or results of operations. The Company believes that amounts accrued in 1995 are sufficient to satisfy
anticipated costs.
Advisory fees: Advisory fees were $6,437,000 in 1995. The advisory fee, which was based on a contractual computation, increased as a
result of increased adjusted net income (as defined) per common share combined with the issuance of additional preferred and common stock
during each of the periods. Advisory fees for fiscal 1995 represent such amounts from the beginning of the year through November 16, 1995,
when the Company became self-advised pursuant to the PSMI Merger. As a result of becoming self-advised, the Company no longer incurs
advisory fees.
Minority interest in income: Minority interest in income represents the income allocable to equity interests in Consolidated Entities which are
not owned by the Company. Since 1990, the Company has acquired portions of these equity interests through its acquisition of limited and gen-
eral partnership interests in the Consolidated Entities. These acquisitions have resulted in reductions to the “Minority interest in income” from
what it would otherwise have been in the absence of such acquisitions, and accordingly, have increased the Company’s share of the Consoli-
dated Entities’ income. However, offsetting the reduction in minority interest in 1997 caused by the acquisition of additional equity interests
are the inclusion of additional partnerships in the Company’s consolidated financial statements as well as improved property operations.
During 1997, the Company acquired sufficient ownership interest and control in 12 partnerships and commenced including the accounts
of these partnerships in the Company’s consolidated financial statements which amounted to an increase in minority interest in income of
approximately $1,961,000 in 1997.
In determining income allocable to the minority interest for 1997, 1996 and 1995 consolidated depreciation and amortization expense of
approximately $9,245,000, $11,490,000 and $11,243,000, respectively, was allocated to the minority interest. The changes in depreciation
allocated to the minority interest was principally the result of the acquisition of limited partnership units in the Consolidated Entities by the
Company throughout fiscal 1995, 1996 and 1997 offset by an increase resulting from the above mentioned consolidation of partnerships.
Impact of Year 2000
The Company has completed an initial assessment of its computer systems. The majority of the computer programs were installed or
upgraded over the past few years and are Year 2000 compliant. Some of the older computer programs utilized by the Company were written
without regard for Year 2000 issues and could cause a system failure or miscalculations with possible disruption of operations. Each of these
computer programs and systems has been evaluated to be upgraded or replaced as part of the Company’s Year 2000 project.
The cost of the Year 2000 project will be allocated to all entities that use the Company computer systems. The cost of the Year 2000
project which is expected to be allocated to the Company is approximately $2.8 million. The cost of new software will be capitalized and the
cost of software maintenance will be expensed as incurred.