Public Storage 2013 Annual Report Download - page 34

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) should be read in conjunction with our financial statements and notes thereto.
Critical Accounting Policies
Our MD&A discusses our financial statements, which have been prepared in accordance with
United States (“U.S.”) generally accepted accounting principles (“GAAP”). Our financial statements are
affected by our judgments, assumptions and estimates. The notes to our December 31, 2013 financial
statements, primarily Note 2, summarize our significant accounting policies.
We believe the following are our critical accounting policies, because they have a material impact
on the portrayal of our financial condition and results, and they require us to make judgments and estimates
about matters that are inherently uncertain.
Income Tax Expense: We have elected to be treated as a real estate investment trust (“REIT”), as
defined in the Internal Revenue Code. As a REIT, we do not incur federal income tax on our REIT taxable
income (generally, net rents and gains from real property, dividends, and interest) that is fully distributed
each year (for this purpose, certain distributions paid in a subsequent year may be considered), and if we
meet certain organizational and operational rules. We believe we have met these REIT requirements for all
periods presented herein. Accordingly, we have recorded no federal income tax expense related to our
REIT taxable income.
Our evaluation that we have met the REIT requirements could be incorrect, because compliance
with the tax rules requires factual determinations, and circumstances we have not identified could result in
noncompliance with the tax requirements in current or prior years. For any taxable year that we fail to
qualify as a REIT and for which applicable statutory relief provisions did not apply, we would be taxed at
the regular corporate rates on all of our taxable income for at least that year and the ensuing four years, we
could be subject to penalties and interest, and our net income would be materially different from the
amounts estimated in our financial statements.
In addition, our taxable REIT subsidiaries are taxable as regular corporations. To the extent that
amounts paid to us by our taxable REIT subsidiaries are determined by the taxing authorities to be in
excess of amounts that would be paid under similar arrangements among unrelated parties, we could be
subject to a 100% penalty tax on the excess payments. Such a penalty tax could have a material adverse
impact on our net income.
Impairment of Long-Lived Assets: The analysis of impairment of our long-lived assets involves
identification of indicators of impairment, projections of future operating cash flows, and estimates of fair
values, all of which require significant judgment and subjectivity. Others could come to materially
different conclusions. In addition, we may not have identified all current facts and circumstances that may
affect impairment. Any unidentified impairment loss, or change in conclusions, could have a material
adverse impact on our net income.
Accrual for Uncertain and Contingent Liabilities: We accrue for certain contingent and other
liabilities that have significant uncertain elements, such as property taxes, workers compensation claims,
tenant reinsurance claims, as well as other legal claims and disputes involving customers, employees,
governmental agencies and other third parties. Such liabilities we are aware of are estimated based upon
many factors such as assumptions of past and future trends and our evaluation of likely outcomes.
However, the estimates of known liabilities could be incorrect or we may not be aware of all such
liabilities, in which case our accrued liabilities and net income could be misstated.