Public Storage 2010 Annual Report Download - page 42

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ITEM 7. 0DQDJHPHQW¶VDiscussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial
statements and notes thereto.
Critical Accounting Policies
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conformity with GAAP and our discussion and analysis of our financial condition and results of operations requires
management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated
financial statements and accompanying notes. The notes to our December 31, 2010 consolidated financial
statements, primarily Note 2, summarize the significant accounting policies and methods used in the preparation of
our consolidated financial statements and related disclosures.
Management believes the following are critical accounting policies, the application of which has a material
impact on our financial presentation. That is, they are both important to the portrayal of our financial condition and
results, and they require management to make judgments and estimates about matters that are inherently uncertain.
Qualification as a REIT ± Income Tax Expense: We believe that we have been organized and operated,
and we intend to continue to operate, as a qualifying REIT under the Internal Revenue Code and applicable state
laws. A REIT generally does not pay corporate level federal income taxes on its REIT taxable income that is
distributed to its shareholders, and accordingly, we do not pay federal income tax on the share of our REIT taxable
income that is distributed to our shareholders.
We therefore do not estimate or accrue any federal income tax expense for income earned and distributed
related to REIT operations. This estimate could be incorrect, because due to the complex nature of the REIT
qualification requirements, the ongoing importance of factual determinations and the possibility of future changes in
our circumstances, we cannot be assured that we actually have satisfied or will satisfy the requirements for taxation
as a REIT for any particular taxable year. For any taxable year that we fail or have failed to qualify as a REIT and
for which applicable relief provisions did not apply, we would be taxed at the regular corporate rates on all of our
taxable income, whether or not we made or make any distributions to our shareholders. Any resulting requirement
to pay corporate income tax, including any applicable penalties or interest, would have a material adverse impact on
our financial condition and results of operations. Unless entitled to relief under specific statutory provisions, we
also would not be eligible to elect REIT status for any taxable year prior to the fifth taxable year which begins after
the first taxable year for which REIT status was terminated. There can be no assurance that we would be entitled to
any statutory relief.
Impairment of Long-Lived Assets: Substantially all of our assets, consisting primarily of real estate, are
long-lived assets. The evaluation of our long-lived assets for impairment includes determining whether indicators of
impairment exist, which is a subjective process. When any indicators of impairment are found, the evaluation of
such long-lived assets then entails projections of future operating cash flows, which also involves significant
judgment. Future events, or facts and circumstances that currently exist, that we have not yet identified, could cause
us to conclude in the future that our long-lived assets are impaired. Any resulting impairment loss could have a
material adverse impact on our financial condition and results of operations.
Estimated Useful Lives of Long-Lived Assets: Substantially all of our assets consist of depreciable or
amortizable long-lived assets. We record depreciation and amortization expense with respect to these assets based
upon their estimated useful lives. Any change in the estimated useful lives of those assets, caused by functional or
economic obsolescence or other factors, could have a material adverse impact on our financial condition or results of
operations.
Accruals for Contingencies: We are exposed to business and legal liability risks with respect to events that
have occurred, but in accordance with GAAP, we have not accrued for certain potential liabilities because the loss is