Public Storage 2003 Annual Report Download - page 58

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31, 2003, and we expect the annual depreciation expense with respect to these facilities for 2003 and forward will
approximate $2,705,000.
General and administrative expense: General and administrative expense was $17,127,000 in 2003,
$15,619,000 in 2002, and $21,038,000 in 2001. General and administrative costs for each year principally consist of
state income taxes, investor relation expenses, and corporate and executive salaries. In addition, general and
administrative expense includes expenses that vary depending upon the Companys activity levels in certain areas,
such as overhead associated with the acquisition and development of real estate facilities, employee severance, and
product research and development expenditures.
The increase in general and administrative expense from 2002 to 2003 is primarily due to higher stock-
based compensation expense. Included in general and administrative expense for 2003 is $2,685,000 with respect to
stock-based compensation expense, including $530,000 in stock option expense, $970,000 in restricted stock
expense, and $1,185,000 in payroll taxes and other costs associated with employees exercise of 2,743,000 stock
options in 2003. Stock-based compensation expense totaled $543,000 for 2002, which is comprised of $163,000 in
stock option expense and $380,000 in payroll taxes and other costs associated with employees exercise of 949,000
stock options during 2002.
Restricted stock expense, based upon restricted stock units outstanding and the market price of our
common stock at December 31, 2003, should approximate $2,592,000 in 2004, while stock option expense should
approximate $600,000 in 2004, exclusive of payroll taxes on exercises of options. Future grants of restricted stock
units and stock options could further increase our future stock-based compensation expense. The future level of
payroll taxes and other costs associated with employees exercise of stock options will depend upon the timing of
employees exercise of approximately 3,088,618 remaining stock options outstanding at December 31, 2003, the
Companys stock price at the time of exercise, and the level of future grants of stock options.
General and administrative expense decreased in 2002 as compared to 2001, due primarily to a reduction in
expenditures for product research, development overhead, consulting fees, lease termination costs relating to our
PSPUD business, and employee severance costs, all of which totaled $5,630,000 in 2001.
Interest expense: Interest expense was $1,121,000 in 2003, $3,809,000 in 2002, and $3,227,000 in 2001.
Debt and related interest expense remain relatively low compared to our overall asset base. The decrease in interest
expense in 2003 compared to 2002 and 2001 is principally the result of lower average debt balances, offset partially
by decreased capitalized interest due to lower average in-process development balances. Capitalized interest
expense totaled $6,010,000 in 2003, $6,513,000 in 2002, and $8,992,000 in 2001 in connection with our
development activities.
Interest paid, including capitalized interest, was $7,131,000 in 2003, $10,322,000 in 2002, and $12,219,000
in 2001.
We expect that our aggregate interest cost (interest expensed and capitalized interest combined) during
fiscal 2004 will continue to decline as a result of principal amortization. During fiscal 2004, scheduled principal
amortization approximates $40.0 million, of which approximately $28.0 million should be paid in the first half of
2004.
In 2004, we expect that our average in-process development balances will exceed our average debt
balances, and therefore we believe that virtually all of our interest will be capitalized in 2004. Accordingly, we
expect that interest expense, net of capitalization, will be nominal.