Public Storage 2003 Annual Report Download - page 41

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Results of Operations
Net income: Net income for 2003 was $336,653,000 compared to $318,738,000 for 2002, representing an
increase of $17,915,000 or 5.6%. This increase in net income is primarily a result of an increase in the operations of
our newly developed and expansion self-storage facilities, reduced losses from discontinued containerized storage
operations, improved operations of our continuing containerized storage business, a net gain from the sale of real
estate assets versus a net loss recorded in 2002 and lower interest expense resulting primarily from lower average
debt balances. The effect of these increases were partially offset by a reduction in our Consistent Group operating
results (as discussed below), increased depreciation expense resulting primarily from new property additions, and a
decrease in equity in earnings of real estate entities. The decrease in equity in earnings of real estate entities is
primarily due to a reduction in our pro-rata share of the earnings of PS Business Parks, Inc. (PSB) caused by the
impact of gains on sale of real estate and asset impairment charges during 2003 and 2002.
Net income was $318,738,000 for 2002 compared to $324,208,000 for 2001, representing a decrease of
$5,470,000 or 1.7%. The decrease in net income was caused primarily by a decrease in the operating results of our
Consistent Group of self-storage properties, increased depreciation expense resulting primarily from new property
additions, and charges relating to the closure of several containerized storage facilities. The impact of these items
was partially offset by increased earnings generated by the acquisition of additional real estate investments during
2001 and 2002, the earnings generated by the tenant reinsurance business that was acquired at the end of 2001,
reduced general and administrative expense, and a decrease in income allocated to minority interests.
Allocations of Income among Shareholders: In computing the net income allocable to common
shareholders for each period, we have deducted from net income i) distributions paid to the holders of the Equity
Stock, Series A totaling $21,501,000 in 2003, $21,501,000 in 2002, and $19,455,000 in 2001, ii) distributions paid
to our preferred shareholders totaling $146,196,000 in 2003, $148,926,000 in 2002, and $117,979,000 in 2001, and
iii) amounts allocated to preferred shareholders in connection with preferred stock redemption activities as described
below, totaling $7,120,000 in 2003, $6,888,000 in 2002 and $14,835,000 in 2001.
In July, 2003, the Securities and Exchange Commission clarified an accounting standard (EITF Topic D-
42), which we implemented in 2003, with restatements for 2002 and 2001 to conform to the 2003 presentation.
EITF Topic D-42 requires that the original issuance costs of redeemed preferred stock (in the case of the Company,
approximately 3.2% of the liquidation preference, representing the underwriting discount and other issuance costs)
as an additional allocation of income to the preferred shareholders, in determining the allocation of income to the
common shareholders and earnings per share. For the years ended December 31, 2003, 2002, and 2001, such
original issuance costs and resultant allocations of income to the preferred shareholders total $7,120,000,
$6,888,000, and $14,835,000, respectively.
In the first quarter of 2004, we called for redemption our Series L Cumulative Preferred stock and,
accordingly, an additional allocation of income to the preferred shareholders will be recorded of approximately
$3,723,000 in the first quarter of 2004. Future allocations of income pursuant to EITF Topic D-42 will depend upon
how much preferred stock we redeem and the original issuance costs.
Net income per share: Net income was $1.28 per common share, on a diluted basis, for 2003 compared to
$1.14 per common share for 2002. This increase was attributable to the factors denoted above with respect to net
income and a reduction in income allocated to preferred shareholders described above, partially offset by an increase
in diluted shares outstanding from 124,571,000 in 2002 to 126,517,000 in 2003. The increase in shares outstanding
was due to the exercise of employee stock options and the issuance of common shares in connection with the
acquisition of partnership interests.
Net income was $1.14 per common share, on a diluted basis, for 2002 compared to $1.39 per common
share for 2001. In addition to those factors denoted above with respect to the reduction in net income in 2002, net
income per share, on a diluted basis, decreased due to an increase in net income allocated to holders of the Equity
Stock, Series A, an increase in net income allocated to preferred shareholders with respect to distributions paid as
described above, and an increase in weighted average diluted common shares outstanding. These factors were offset
partially by a decrease in income allocated to preferred shareholders, in accordance with the SEC Observers