TAUBMAN CENTERS INC, 10-K filed on 2/25/2011
Annual Report
CONSOLIDATED BALANCE SHEET (USD $)
In Thousands
Year Ended
Dec. 31,
2010
2009
Assets:
 
 
Properties (Notes 3 and 7)
$ 3,528,297 
$ 3,496,853 
Accumulated depreciation and amortization
(1,199,247)
(1,100,610)
Properties, net
2,329,050 
2,396,243 
Investment in Unconsolidated Joint Ventures (Note 4)
77,122 
89,804 
Cash and cash equivalents
19,291 
16,176 
Accounts and notes receivable, less allowance for doubtful accounts of $7,966 and $6,894 in 2010 and 2009 (Note 5)
49,906 
44,503 
Accounts receivable from related parties (Note 11)
1,414 
1,558 
Deferred charges and other assets (Note 6)
70,090 
58,569 
Total Assets
2,546,873 
2,606,853 
Liabilities:
 
 
Notes payable (Note 7)
2,656,560 
2,691,019 
Accounts payable and accrued liabilities
247,895 
230,276 
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures (Note 4)
170,329 
160,305 
Liabilities
3,074,784 
3,081,600 
Commitments and contingencies (Notes 3, 7, 8, 9, 10, 12, and 14)
 
 
Equity:
 
 
Series B Non-Participating Convertible Preferred Stock, $0.001 par and liquidation value, 40,000,000 shares authorized, 26,233,126 and 26,359,235 shares issued and outstanding at December 31, 2010 and 2009
26 
26 
Common Stock, $0.01 par value, 250,000,000 shares authorized, 54,696,054 and 54,321,586 shares issued and outstanding at December 31, 2010 and 2009
547 
543 
Additional paid-in capital
589,881 
579,983 
Accumulated other comprehensive income (loss) (Note 9)
(14,925)
(24,443)
Dividends in excess of net income
(939,290)
(884,666)
Taubman Centers, Inc. Shareowners' Equity:
(363,761)
(328,557)
Noncontrolling interests (Note 8)
(164,150)
(146,190)
Stockholders' Equity, including Portion Attributable to Noncontrolling Interest
(527,911)
(474,747)
Total Liabilities and Equity
$ 2,546,873 
$ 2,606,853 
PARENTHETICAL DATA TO THE CONSOLIDATED BALANCE SHEET (USD $)
In Thousands, except Share data
Dec. 31, 2010
Dec. 31, 2009
Assets:
 
 
Allowance for doubtful accounts
$ 7,966 
$ 6,894 
Equity:
 
 
Common stock, par value
0.01 
0.01 
Common stock, shares authorized
250,000,000 
250,000,000 
Common stock, shares issued
54,696,054 
54,321,586 
Common stock, shares outstanding
54,696,054 
54,321,586 
Series B Non-Participating Convertible Preferred Stock, par value
0.001 
0.001 
Series B Non-Participating Convertible Preferred Stock, liquidation value
0.001 
0.001 
Series B Non-Participating Convertible Preferred Stock, shares authorized
40,000,000 
40,000,000 
Series B Non-Participating Convertible Preferred Stock, shares issued
26,233,126 
26,359,235 
Series B Non-Participating Convertible Preferred Stock, shares outstanding
26,233,126 
26,359,235 
Series G Preferred Stock [Member]
 
 
Equity:
 
 
Preferred stock, no par value
Preferred stock, liquidation preference
100,000,000 
100,000,000 
Preferred stock, shares authorized
4,000,000 
4,000,000 
Preferred stock, shares issued
4,000,000 
4,000,000 
Preferred stock, shares outstanding
4,000,000 
4,000,000 
Series H Preferred Stock [Member]
 
 
Equity:
 
 
Preferred stock, no par value
Preferred stock, liquidation preference
$ 87,000,000 
$ 87,000,000 
Preferred stock, shares authorized
3,480,000 
3,480,000 
Preferred stock, shares issued
3,480,000 
3,480,000 
Preferred stock, shares outstanding
3,480,000 
3,480,000 
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (USD $)
In Thousands, except Share data
Year Ended
Dec. 31,
2010
2009
2008
Revenues:
 
 
 
Minimum rents
$ 341,727 
$ 341,914 
$ 353,200 
Percentage rents
13,167 
10,818 
13,764 
Expense recoveries
237,415 
246,377 
248,555 
Management, leasing, and development services
16,109 
21,179 
15,911 
Other
46,140 
45,816 
40,068 
Total Revenue
654,558 
666,104 
671,498 
Expenses:
 
 
 
Maintenance, taxes, and utilities
179,234 
189,061 
189,162 
Other operating
75,401 
67,182 
79,595 
Management, leasing, and development services
8,258 
7,862 
8,710 
General and administrative
30,234 
27,858 
28,110 
Impairment charges (Note 3)
 
166,680 
117,943 
Restructuring charge (Note 11)
 
2,512 
 
Interest expense
152,708 
145,670 
147,397 
Depreciation and amortization
153,876 
147,316 
147,441 
Total Expenses
599,711 
754,141 
718,358 
Nonoperating income
2,802 
711 
4,569 
Impairment loss on marketable securities (Note 16)
 
(1,666)
 
Income (loss) before income tax expense and equity in income of Unconsolidated Joint Ventures
57,649 
(88,992)
(42,291)
Income tax expense (Note 2)
(734)
(1,657)
(1,117)
Equity in income of Unconsolidated Joint Ventures (Note 4)
45,412 
11,488 
35,356 
Net income (loss)
102,327 
(79,161)
(8,052)
Net (income) loss attributable to noncontrolling interests (Note 8)
(38,459)
25,649 
(62,527)
Net income (loss) attributable to Taubman Centers, Inc.
63,868 
(53,512)
(70,579)
Distributions to participating securities of TRG (Note 12)
(1,635)
(1,560)
(1,446)
Preferred stock dividends (Note 13)
(14,634)
(14,634)
(14,634)
Net income (loss) attributable to Taubman Centers, Inc. common shareowners
47,599 
(69,706)
(86,659)
Net income (loss)
102,327 
(79,161)
(8,052)
Other comprehensive income:
 
 
 
Unrealized gain (loss) on interest rate instruments and other
18,240 
8,227 
(22,377)
Impairment loss on marketable securities
 
1,666 
 
Other
1,260 
1,262 
1,260 
Comprehensive income (loss)
121,827 
(68,006)
(29,169)
Comprehensive (income) loss attributable to noncontrolling interests
(48,490)
19,829 
(62,549)
Comprehensive income (loss) attributable to Taubman Centers, Inc.
73,337 
(48,177)
(91,718)
Basic earnings (loss) per common share (Note 15)
0.87 
(1.31)
(1.64)
Diluted earnings (loss) per common share (Note 15)
$ 0.86 
$ (1.31)
$ (1.64)
Weighted average number of common shares outstanding - basic
54,569,618 
53,239,279 
52,866,050 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (USD $)
In Thousands, except Share data
Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Dividends in Excess of Net Income [Member]
Noncontrolling Interest [Member]
Total
Balance, shares at Dec. 31, 2007
34,004,235 
52,624,013 
 
 
 
 
 
Balance at Dec. 31, 2007
$ 27 
$ 526 
$ 543,333 
$ (8,639)
$ (551,089)
$ 2,379 
$ (13,463)
Issuance of stock pursuant to Continuing Offer (Notes 12, 13, and 14)
(1)
 
 
 
 
 
Issuance of stock pursuant to Continuing Offer, shares
(95,000)
95,004 
 
 
 
 
 
Share-based compensation under employee and director benefit plans (Note 12)
 
12,812 
 
 
 
12,815 
Share-based compensation under employee and director benefit plans, shares
 
299,970 
 
 
 
 
 
Purchase of additional interest in subsidiary
 
 
 
 
 
(8,467)
(8,467)
Dividend equivalents (Note 12)
 
 
 
 
(560)
 
(560)
Dividends and distributions
 
 
 
 
(103,869)
(117,495)
(221,364)
Net income (loss)
 
 
 
 
(70,579)
62,527 
(8,052)
Unrealized gain (loss) on interest rate instruments and other
 
 
 
(22,399)
 
22 
(22,377)
Other
 
 
 
1,260 
 
 
1,260 
Balance, shares at Dec. 31, 2008
33,909,235 
53,018,987 
 
 
 
 
 
Balance at Dec. 31, 2008
26 
530 
556,145 
(29,778)
(726,097)
(61,034)
(260,208)
Issuance of stock pursuant to Continuing Offer (Notes 12, 13, and 14)
 
(484)
 
 
483 
 
Issuance of stock pursuant to Continuing Offer, shares
(70,000)
84,762 
 
 
 
 
 
Share-based compensation under employee and director benefit plans (Note 12)
 
12 
24,322 
 
 
 
24,334 
Share-based compensation under employee and director benefit plans, shares
 
1,217,837 
 
 
 
 
 
Dividend equivalents (Note 12)
 
 
 
 
(345)
 
(345)
Dividends and distributions
 
 
 
 
(104,712)
(65,810)
(170,522)
Net income (loss)
 
 
 
 
(53,512)
(25,649)
(79,161)
Unrealized gain (loss) on interest rate instruments and other
 
 
 
3,372 
 
4,855 
8,227 
Impairment loss on marketable securities
 
 
 
1,117 
 
549 
1,666 
Other
 
 
 
846 
 
416 
1,262 
Balance, shares at Dec. 31, 2009
33,839,235 
54,321,586 
 
 
 
 
 
Balance at Dec. 31, 2009
26 
543 
579,983 
(24,443)
(884,666)
(146,190)
(474,747)
Issuance of stock pursuant to Continuing Offer (Notes 12, 13, and 14)
 
(989)
49 
 
939 
 
Issuance of stock pursuant to Continuing Offer, shares
(126,109)
126,116 
 
 
 
 
 
Share-based compensation under employee and director benefit plans (Note 12)
 
10,887 
 
 
 
10,890 
Share-based compensation under employee and director benefit plans, shares
 
248,352 
 
 
 
 
 
Dividend equivalents (Note 12)
 
 
 
 
(306)
 
(306)
Dividends and distributions
 
 
 
 
(118,186)
(67,468)
(185,654)
Net income (excluding $79 of net loss attributable to redeemable noncontrolling interests) (Note 8)
 
 
 
 
63,868 
38,538 
102,406 
Unrealized gain (loss) on interest rate instruments and other
 
 
 
8,617 
 
9,623 
18,240 
Other
 
 
 
852 
 
408 
1,260 
Balance, shares at Dec. 31, 2010
33,713,126 
54,696,054 
 
 
 
 
 
Balance at Dec. 31, 2010
$ 26 
$ 547 
$ 589,881 
$ (14,925)
$ (939,290)
$ (164,150)
$ (527,911)
CONSOLIDATED STATEMENT OF CASH FLOWS (USD $)
In Thousands
Year Ended
Dec. 31,
2010
2009
2008
Cash Flows From Operating Activities:
 
 
 
Net income (loss)
$ 102,327 
$ (79,161)
$ (8,052)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
153,876 
147,316 
147,441 
Provision for bad debts
3,363 
2,081 
6,088 
Impairment Of Investments
 
1,666 
 
Gains on sales of land and land-related rights
(2,218)
 
(2,816)
Impairment charges
 
166,680 
117,943 
Other
11,216 
11,281 
10,770 
Increase (decrease) in cash attributable to changes in assets and liabilities:
 
 
 
Receivables, deferred charges, and other assets
(21,805)
5,087 
(7,183)
Accounts payable and other liabilities
17,849 
(19,304)
(12,358)
Net Cash Provided By Operating Activities
264,608 
235,646 
251,833 
Cash Flows From Investing Activities:
 
 
 
Additions to properties
(72,152)
(54,592)
(99,964)
Acquisition of interests in The Mall at Partridge Creek (Note 3)
 
 
11,838 
Refund (funding) of The Mall at Studio City escrow (Note 4)
 
54,334 
(54,334)
Proceeds from sales of land and land-related rights
3,060 
 
6,268 
Issuances of notes receivable (Note 5)
(2,948)
(7,160)
 
Repayments of notes receivable (Note 5)
1,623 
4,500 
223 
Contributions to Unconsolidated Joint Ventures
(7,261)
(28,718)
(12,111)
Distributions from Unconsolidated Joint Ventures in excess of income
32,836 
36,903 
63,269 
Other
 
985 
(2,655)
Net Cash Provided By (Used In) Investing Activities
(44,842)
6,252 
(111,142)
Cash Flows From Financing Activities:
 
 
 
Debt proceeds
213,500 
978 
335,665 
Debt payments
(243,885)
(106,026)
(239,072)
Debt issuance costs
(2,943)
 
(3,419)
Issuance of common stock and/or partnership units in connection with incentive plans (Notes 12 and 14)
2,532 
14,737 
3,809 
Distributions to noncontrolling interests (Note 8)
(67,468)
(65,810)
(117,495)
Distributions to participating securities of TRG
(1,635)
(1,560)
(1,446)
Cash dividends to preferred shareowners
(14,634)
(14,634)
(14,634)
Cash dividends to common shareowners
(101,890)
(110,492)
(87,679)
Other
(228)
(2,103)
(3,047)
Net Cash Used In Financing Activities
(216,651)
(284,910)
(127,318)
Net Increase (Decrease) In Cash and Cash Equivalents
3,115 
(43,012)
13,373 
Cash and Cash Equivalents at Beginning of Period
16,176 
59,188 
45,815 
Cash and Cash Equivalents at End of Period
$ 19,291 
$ 16,176 
$ 59,188 
Summary of Significant Accounting Policies
Accounting Policies and Organization
Note 1 – Summary of Significant Accounting Policies

Organization and Basis of Presentation

General

Taubman Centers, Inc. (the Company or TCO) is a Michigan corporation that operates as a self-administered and self-managed real estate investment trust (REIT). The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG) is a majority-owned partnership subsidiary of TCO that owns direct or indirect interests in all of the company’s real estate properties. In this report, the term “Company" refers to TCO, the Operating Partnership, and/or the Operating Partnership's subsidiaries as the context may require. The Company engages in the ownership, management, leasing, acquisition, disposition, development, and expansion of regional and super-regional retail shopping centers and interests therein. The Company’s owned portfolio as of December 31, 2010 included 23 urban and suburban shopping centers in ten states.

Taubman Properties Asia LLC and its subsidiaries (Taubman Asia), which is the platform for the Company’s expansion into the Asia-Pacific region, is headquartered in Hong Kong.

Dollar amounts presented in tables within the notes to the financial statements are stated in thousands, except share data or as otherwise noted. Certain reclassifications have been made to prior year amounts to conform with current year classifications.

Consolidation

The consolidated financial statements of the Company include all accounts of the Company, the Operating Partnership, and its consolidated subsidiaries, including The Taubman Company LLC (the Manager) and Taubman Asia. In September 2008, the Company acquired the interests of the owner of The Mall at Partridge Creek (Partridge Creek) (Note 3). Prior to the acquisition, the Company consolidated the accounts of the owner of Partridge Creek, which qualified as a variable interest entity for which the Operating Partnership was considered to be the primary beneficiary. All intercompany transactions have been eliminated.

Investments in entities not controlled but over which the Company may exercise significant influence (Unconsolidated Joint Ventures or UJVs) are accounted for under the equity method. The Company has evaluated its investments in the Unconsolidated Joint Ventures under guidance for determining whether an entity is a variable interest entity, including amendments to ASC Topic 810 "Consolidation" that became effective January 1, 2010, and has concluded that the ventures are not variable interest entities. Accordingly, the Company accounts for its interests in these entities under general accounting standards for investments in real estate ventures (including guidance for determining effective control of a limited partnership or similar entity). The Company’s partners or other owners in these Unconsolidated Joint Ventures have substantive participating rights including approval rights over annual operating budgets, capital spending, financing, admission of new partners/members, or sale of the properties and the Company has concluded that the equity method of accounting is appropriate for these interests. Specifically, the Company’s 79% investment in Westfarms is through a general partnership in which the other general partners have approval rights over annual operating budgets, capital spending, refinancing, or sale of the property.

The Operating Partnership

At December 31, 2010, the Operating Partnership’s equity included three classes of preferred equity (Series F, G, and H) and the net equity of the partnership unitholders (Note 13). Net income and distributions of the Operating Partnership are allocable first to the preferred equity interests, and the remaining amounts to the general and limited partners in the Operating Partnership in accordance with their percentage ownership. The Series G and Series H Preferred Equity are owned by the Company and are eliminated in consolidation. The Series F Preferred Equity is owned by an institutional investor and accounted for as a noncontrolling interest of the Company (Note 8).

The partnership equity of the Operating Partnership and the Company's ownership therein are shown below:

Year
 
TRG units outstanding at December 31
  
TRG units owned by TCO at December 31 (1)
  
TRG units owned by noncontrolling interests at December 31
  
TCO's % interest in TRG at December 31
 
TCO's average interest in TRG
2010
  80,947,630   54,696,054   26,251,576      68%     67%
2009
  80,699,271   54,321,586   26,377,685   67  67
2008
  79,481,431   53,018,987   26,462,444   67  67

(1)  
There is a one-for-one relationship between TRG units owned by TCO and TCO common shares outstanding; amounts in this column are equal to TCO’s common shares outstanding as of the specified dates.

Outstanding voting securities of the Company at December 31, 2010 consisted of 26,233,126 shares of Series B Preferred Stock (Note 13) and 54,696,054 shares of Common Stock.

Revenue Recognition

Shopping center space is generally leased to tenants under short and intermediate term leases that are accounted for as operating leases. Minimum rents are recognized on the straight-line method. Percentage rent is accrued when lessees' specified sales targets have been met. Expense recoveries are recognized as revenue in the period applicable costs are chargeable to tenants. Management, leasing, and development revenue is recognized as services are rendered, when fees due are determinable, and collectibility is reasonably assured. Fees for management, leasing, and development services are established under contracts and are generally based on negotiated rates, percentages of cash receipts, and/or actual costs incurred. Fixed-fee development services contracts are generally accounted for under the percentage-of-completion method, using cost to cost measurements of progress. Profits on real estate sales are recognized whenever (1) a sale is consummated, (2) the buyer has demonstrated an adequate commitment to pay for the property, (3) the Company’s receivable is not subject to future subordination, and (4) the Company has transferred to the buyer the risks and rewards of ownership. Other revenues, including fees paid by tenants to terminate their leases, are recognized when fees due are determinable, no further actions or services are required to be performed by the Company, and collectibility is reasonably assured. Taxes assessed by government authorities on revenue-producing transactions, such as sales, use, and value-added taxes, are primarily accounted for on a net basis on the Company’s income statement.

Allowance for Doubtful Accounts and Notes

The Company records a provision for losses on accounts receivable to reduce them to the amount estimated to be collectible. The Company records a provision for losses on notes receivable to reduce them to the present value of expected future cash flows discounted at the loans’ effective interest rates or the fair value of the collateral if the loans are collateral dependent.

Depreciation and Amortization

Buildings, improvements and equipment are primarily depreciated on straight-line bases over the estimated useful lives of the assets, which generally range from 3 to 50 years. Capital expenditures that are recoverable from tenants are depreciated over the estimated recovery period. Intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets. Tenant allowances are depreciated on a straight-line basis over the shorter of the useful life of the leasehold improvements or the lease term. Deferred leasing costs are amortized on a straight-line basis over the lives of the related leases. In the event of early termination of such leases, the unrecoverable net book values of the assets are recognized as depreciation and amortization expense in the period of termination.

Capitalization

Direct and indirect costs that are clearly related to the acquisition, development, construction and improvement of properties are capitalized. Compensation costs are allocated based on actual time spent on a project. Costs incurred on real estate for ground leases, property taxes, insurance, and interest costs for qualifying assets are capitalized during periods in which activities necessary to get the property ready for its intended use are in progress.

The viability of all projects under construction or development, including those owned by Unconsolidated Joint Ventures, are regularly evaluated on an individual basis under the accounting for abandonment of assets or changes in use. To the extent a project, or individual components of the project, are no longer considered to have value, the related capitalized costs are charged against operations. Additionally, all properties are reviewed for impairment on an individual basis whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Impairment of a shopping center owned by consolidated entities is recognized when the sum of expected cash flows (undiscounted and without interest charges) is less than the carrying value of the property. Other than temporary impairment of an investment in an Unconsolidated Joint Venture is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value, including the results of discounted cash flow and other valuation techniques. To the extent impairment has occurred, the excess carrying value of the asset over its estimated fair value is charged to income. In the third quarter of 2009, the Company recognized impairment charges on its investments in The Pier Shops at Caesars (The Pier Shops) and Regency Square (Note 3). In the fourth quarter of 2008, the Company recognized impairment charges on its Oyster Bay project (Note 3) and its Sarasota joint venture project (Note 4).

In leasing a shopping center space, the Company may provide funding to the lessee through a tenant allowance. In accounting for a tenant allowance, the Company determines whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership, for accounting purposes, of such improvements. If the Company is considered the owner of the leasehold improvements for accounting purposes, the Company capitalizes the amount of the tenant allowance and depreciates it over the shorter of the useful life of the leasehold improvements or the lease term. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements for accounting purposes, the allowance is considered to be a lease incentive and is recognized over the lease term as a reduction of rental revenue. Factors considered during this evaluation usually include (1) who holds legal title to the improvements, (2) evidentiary requirements concerning the spending of the tenant allowance, and (3) other controlling rights provided by the lease agreement (e.g. unilateral control of the tenant space during the build-out process). Determination of the accounting for a tenant allowance is made on a case-by-case basis, considering the facts and circumstances of the individual tenant lease. Substantially all of the Company’s tenant allowances have been determined to be leasehold improvements.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with a maturity of 90 days or less at the date of purchase. Included in cash equivalents is $9.0 million at December 31, 2010 invested in a single investment company's money market funds, which are not insured or guaranteed by the FDIC or any other government agency.

Acquisition of Interests in Centers

The cost of acquiring an ownership interest or an additional ownership interest (if not already consolidated) in a center is allocated to the tangible assets acquired (such as land and building) and to any identifiable intangible assets based on their estimated fair values at the date of acquisition. The fair value of the property is determined on an “as-if-vacant” basis. Management considers various factors in estimating the "as-if-vacant" value including an estimated lease up period, lost rents and carrying costs. The identifiable intangible assets would include the estimated value of “in-place” leases, above and below market “in-place” leases, and tenant relationships. The portion of the purchase price that management determines should be allocated to identifiable intangible assets is amortized in depreciation and amortization or as an adjustment to rental revenue, as appropriate, over the estimated life of the associated intangible asset (for instance, the remaining life of the associated tenant lease). Acquisition-related costs, including due diligence costs, professional fees, and other costs to effect an acquisition, are expensed as incurred.

Deferred Charges and Other Assets

Direct financing costs are deferred and amortized on a straight-line basis, which approximates the effective interest method, over the terms of the related agreements as a component of interest expense. Direct costs related to successful leasing activities are capitalized and amortized on a straight-line basis over the lives of the related leases. Cash expenditures for leasing costs are recognized in the Statement of Cash Flows as operating activities. All other deferred charges are amortized on a straight-line basis over the terms of the agreements to which they relate.
 
Share-Based Compensation Plans

The cost of share-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized over the requisite employee service period which is generally the vesting period of the grant. The Company recognizes compensation costs for awards with graded vesting schedules on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.

Interest Rate Hedging Agreements

All derivatives, whether designated in hedging relationships or not, are recorded on the balance sheet at fair value. If a derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (OCI) and are recognized in the income statement when the hedged item affects income. Ineffective portions of changes in the fair value of a cash flow hedge are recognized in the Company’s income as interest expense.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various hedge transactions. The Company assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged items.

Income Taxes

The Company operates in such a manner as to qualify as a REIT under the applicable provisions of the Internal Revenue Code; therefore, REIT taxable income is included in the taxable income of its shareowners, to the extent distributed by the Company. To qualify as a REIT, the Company must distribute at least 90% of its REIT taxable income prior to net capital gains to its shareowners and meet certain other requirements. Additionally, no provision for federal income taxes for consolidated partnerships has been made, as such taxes are the responsibility of the individual partners. There are certain state income taxes incurred which are provided for in the Company’s financial statements.

In connection with the Tax Relief Extension Act of 1999, the Company made Taxable REIT Subsidiary elections for all of its corporate subsidiaries pursuant to section 856(I) of the Internal Revenue Code. The Company’s Taxable REIT Subsidiaries are subject to corporate level income taxes, including certain foreign income taxes for foreign operations, which are provided for in the Company’s financial statements.

Deferred tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. Deferred tax assets are reduced by a valuation allowance to the amount where realization is more likely than not assured after considering all available evidence, including expected taxable earnings. The Company’s temporary differences primarily relate to deferred compensation, depreciation and net operating loss carryforwards.

Noncontrolling Interests

Accounting Requirements - Background

On January 1, 2009, the Company adopted the requirements of ASC 810 as it relates to noncontrolling interests (formerly Statement of Financial Accounting Standards (SFAS) No. 160 "Noncontrolling Interests in Consolidated Financial Statements – an amendment of Accounting Research Bulletin (ARB) No. 51”). The requirements amended prior accounting and reporting standards for the noncontrolling interest (previously referred to as a minority interest) in a subsidiary. The requirements generally require noncontrolling interests to be treated as a separate component of equity (not as a liability or other item outside of permanent equity) and consolidated net income and comprehensive income to include the noncontrolling interest’s share. The calculation of earnings per share continues to be based on income amounts attributable to the parent. The requirements also contain a single method of accounting for transactions that change a parent's ownership interest in a subsidiary by requiring that all such transactions be accounted for as equity transactions if the parent retains its controlling financial interest in the subsidiary.

Presentation

Noncontrolling interests in the Company are comprised of the ownership interests of (1) noncontrolling interests in the Operating Partnership and (2) the noncontrolling interests in joint ventures controlled by the Company through ownership or contractual arrangements. On January 1, 2009, balances attributable to these noncontrolling interests, including amounts previously included in Deferred Charges and Other Assets, were reclassified to become a separate component of equity for all dates presented. Also, consolidated net income and comprehensive income were reclassified to include the amounts attributable to the noncontrolling interests. These noncontrolling interests reported in equity are not subject to any mandatory redemption requirements or other redemption features outside of the Company's control that would result in presentation outside of permanent equity pursuant to general accounting standards regarding the classification and measurement of the redeemable equity instruments.

Measurement

Prior to adoption of the requirements for noncontrolling interests, the net equity of the Operating Partnership noncontrolling unitholders was less than zero. The net equity balances of the noncontrolling partners in certain of the consolidated joint ventures were also less than zero. Therefore, under previous accounting standards for noncontrolling interests, the interests of the noncontrolling unitholders of the Operating Partnership and outside partners with net equity balances in the consolidated joint ventures of less than zero were recognized as zero balances within the Company’s Consolidated Balance Sheet. As a result of the need to present these noncontrolling interests as zero balances, it was previously required that income be allocated to these interests equal, at a minimum, to their share of distributions. The net equity balances of the Operating Partnership and certain of the consolidated joint ventures were less than zero because of accumulated operating distributions in excess of net income and not as a result of operating losses. Operating distributions to partners are usually greater than net income because net income includes non-cash charges for depreciation and amortization.

Upon adoption of the requirements for noncontrolling interests, the interests of the noncontrolling unitholders of the Operating Partnership and the outside partners with net equity balances in the consolidated joint ventures of less than zero generally no longer need to be carried at zero balances in the Company’s Consolidated Balance Sheet and this previous income allocation methodology described above is generally no longer applicable. However, as the new measurement provisions of ASC 810 are applicable beginning with the January 1, 2009 adoption date, the interests of these noncontrolling interests for prior periods have not been remeasured.

Noncontrolling interests in certain consolidated ventures of the Company qualify as redeemable noncontrolling interests (Note 8). To the extent such noncontrolling interests are currently redeemable or it is probable that they will eventually become redeemable, these interests will be adjusted to their maximum redemption value at each balance sheet date. The redemption values of the Company’s redeemable noncontrolling interests were zero at December 31, 2010.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Segments and Related Disclosures

The Company has one reportable operating segment: it owns, develops, and manages regional shopping centers. The Company has aggregated its shopping centers into this one reportable segment, as the shopping centers share similar economic characteristics and other similarities. The shopping centers are located in major metropolitan areas, have similar tenants (most of which are national chains), are operated using consistent business strategies, and are expected to exhibit similar long-term financial performance. Earnings before interest, income taxes, depreciation, and amortization (EBITDA) is often used by the Company's chief operating decision makers in assessing segment operating performance. EBITDA is believed to be a useful indicator of operating performance as it is customary in the real estate and shopping center business to evaluate the performance of properties on a basis unaffected by capital structure.

No single retail company represents 10% or more of the Company's revenues. Although the Company operates a subsidiary headquartered in Hong Kong, there are not yet any material revenues from customers or long-lived assets attributable to a country other than the United States of America.
Income Taxes
Income Taxes
Note 2 – Income Taxes

Income Tax Expense

The Company’s income tax expense for the years ended December 31, 2010, 2009 and 2008 is as follows:

   
2010
  
2009
  
2008
 
State current
 $907  $1,017  $775 
State deferred
  (183)  385   342 
Federal current
  45         
Foreign current
  (35)  255     
Total income tax expense
 $734  $1,657  $1,117 

Net Operating Loss Carryforwards

As of December 31, 2010, the Company has a total federal net operating loss carryforward of $9.8 million, expiring as follows:

Tax Year
 
Expiration
 
Amount
 
2004
 
2024
 $345 
2005
 
2025
  380 
2006
 
2026
  176 
2007
 
2027
  3,304 
2008
 
2028
  5,326 
2009
 
2029
  297 

The Company also has a foreign net operating loss carryforward of $8.4 million, $4.1 million of which has an indefinite carryforward period, $0.9 million expires in 2013, and $3.4 million expires in 2019.

Deferred Taxes

Deferred tax assets and liabilities as of December 31, 2010 and 2009 are as follows:

   
2010
  
2009
 
Deferred tax assets:
      
Federal
 $8,589  $8,697 
Foreign
  2,361   1,513 
State
  6,786   6,467 
Total deferred tax assets
 $17,736  $16,677 
Valuation allowances
  (10,199)  (9,090)
Net deferred tax assets
 $7,537  $7,587 
Deferred tax liabilities:
        
Federal
 $607  $615 
State
  4,171   4,396 
Total deferred tax liabilities
 $4,778  $5,011 

The Company believes that it is more likely than not the results of future operations will generate sufficient taxable income to recognize the net deferred tax assets. These future operations are primarily dependent upon the Manager’s profitability, the timing and amounts of gains on land sales, the profitability of the Company’s Asian operations, the future profitability of the Company’s unitary filing group for Michigan Business Tax purposes, and other factors affecting the results of operations of the Taxable REIT Subsidiaries. The valuation allowances relate to net operating loss carryforwards and tax basis differences where there is uncertainty regarding their realizability.

Tax Status of Dividends

Dividends declared on the Company’s common and preferred stock and their tax status are presented in the following tables. The tax status of the Company’s dividends in 2010, 2009, and 2008 may not be indicative of future periods. The portion of dividends paid in 2010 and 2008 shown below as capital gains are designated as capital gain dividends for tax purposes.

Year
 
Dividends per common share declared
  
Return of capital
  
Ordinary income
  
15% Rate long term capital gain
  
Unrecaptured Sec. 1250 capital gain
 
2010
 $1.8659(1) $0.0780  $1.2732  $0.5147  $0.0000 
2009
  1.660   0.6467   1.0133   0.0000   0.0000 
2008
  1.660   0.0000   1.3324   0.3011   0.0265 
  
(1) Includes a special dividend of $0.1834 per share, which was declared as a result of the taxation of capital gain incurred from the restructuring of the company’s ownership in International Plaza, including the liquidation of the Operating Partnership’s private REIT.
 

Year
 
Dividends per Series G Preferred share declared
  
Ordinary income
  
15% Rate long term capital gain
  
Unrecaptured Sec. 1250 capital gain
 
2010
 $2.000  $1.4483  $0.5517  $0.0000 
2009
  2.000   2.0000   0.0000   0.0000 
2008
  2.000   1.6053   0.3628   0.0319 

Year
 
Dividends per Series H Preferred share declared
  
Ordinary income
  
15% Rate long term capital gain
  
Unrecaptured Sec. 1250 capital gain
 
2010
 $1.90625  $1.38045  $0.5258  $0.0000 
2009
  1.90625   1.90625   0.0000   0.0000 
2008
  1.90625   1.53025   0.3457   0.0303 

Uncertain Tax Positions

The Company had no unrecognized tax benefits as of or during the three year period ended December 31, 2010. The Company expects no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within one year of December 31, 2010. The Company has no material interest or penalties relating to income taxes recognized in the Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2010, 2009, and 2008 or in the Consolidated Balance Sheet as of December 31, 2010 and 2009. As of December 31, 2010, returns for the calendar years 2007 through 2010 remain subject to examination by U.S. and various state and foreign tax jurisdictions.

Properties
Properties
Note 3 – Properties

Properties at December 31, 2010 and December 31, 2009 are summarized as follows:

   
2010
  
2009
 
Land
 $271,662  $254,994 
Buildings, improvements, and equipment
  3,194,309   3,173,724 
Construction in process
  15,626   4,040 
Development pre-construction costs
  46,700   64,095 
   $3,528,297  $3,496,853 
Accumulated depreciation and amortization
  (1,199,247)  (1,100,610)
   $2,329,050  $2,396,243 

Depreciation expense for 2010, 2009, and 2008 was $144.9 million, $139.7 million, and $138.7 million, respectively.

The charge to operations in 2010, 2009, and 2008 for domestic and non-U.S. pre-development activities was $16.0 million, $12.3 million, and $18.5 million, respectively.

Regency Square

In September 2010, the Board of Directors concluded that it is in the best interest of the Company to discontinue its financial support of Regency Square, including not funding the mortgage debt that is due in November 2011. As a result, the Company has begun discussions with the lender about the center’s future ownership. At the current time, subject to decisions by the lender, the Company will continue to manage the shopping center. The Regency Square loan was not in default as of December 31, 2010.

In 2009, the Company concluded that the carrying value (book value) of the investment in Regency Square was impaired and recognized a non-cash charge of $59.0 million, representing the excess book value of the investment over its fair value of approximately $29 million. The Company’s conclusion was based on estimates of future cash flows for the property, which were negatively impacted by necessary capital expenditures and declining net operating income. The book value of the investment in Regency Square as of December 31, 2010 was approximately $30 million, which includes additional capital spending that was anticipated in determining the fair value in 2009.

The Pier Shops at Caesars

In 2009, the Company concluded that the carrying value of the investment in the consolidated joint venture that owns The Pier Shops was impaired and recognized a non-cash charge of $107.7 million, representing the excess of The Pier Shops’ book value of the investment over its fair value of approximately $52 million. The Operating Partnership’s share of the charge was $101.8 million. The Company’s conclusion was based on a decision by its Board of Directors, in connection with a review of the Company’s capital plan, to discontinue the Company’s financial support of The Pier Shops. The $135 million loan encumbering The Pier Shops is currently in default. The administration of the loan has been turned over to the special servicer. The book value of the investment in The Pier Shops as of December 31, 2010 was approximately $44 million. See Note 7 for more information on the loan and Note 14 for more information on related litigation.

Regarding both Regency Square and The Pier Shops, a non-cash accounting gain will be recognized for each center when its loan obligation is extinguished upon transfer of title of the respective center. The gain will represent the difference between the book value of the debt, interest payable and other obligations extinguished over the net book value of the property and any other assets transferred. The transition processes are not in the Company’s control and the timing of transfer of title for each of the centers is uncertain. The Company will continue to record the operations of the centers and interest on the loans in its results until ownership of the centers has been transferred.

Oyster Bay

In 2008, the Company recognized an impairment charge to income of $117.9 million for the Oyster Bay project. The determination to recognize this charge was reached after an overall assessment of the probability of the development of the mall as designed and as a result of the delay in obtaining a special use permit. The charge included the costs of previous development activities as well as holding and other costs that management believes will likely not benefit the development if and when the Company obtains the rights to build the center. The Company is expensing costs relating to Oyster Bay until it is probable that it will be able to successfully move forward with a project. The Company’s remaining capitalized investment in the project as of December 31, 2010 is $39.8 million, which is classified in “development pre-construction costs” and consists of land and site improvements. If the Company is ultimately unsuccessful in obtaining the right to build the center, it is uncertain whether the Company would be able to recover the full amount of this capitalized investment through alternate uses of the land.

The Mall at Partridge Creek

In May 2006, the Company engaged the services of a third-party investor to acquire certain property associated with Partridge Creek, in order to facilitate a Section 1031 like-kind exchange to provide flexibility for disposing of assets in the future. The Company provided approximately 45% of the project funding and the owner provided $9 million in equity. Funding for the remaining project costs was provided by the owner’s third-party recourse construction loan. In September 2008, the Company exercised its option to purchase the third-party owner’s interests in Partridge Creek. The purchase price of $11.8 million included the original owner's equity contribution of $9 million plus a 12% cumulative return. The excess of the purchase price over the book value of the interests acquired was approximately $3.8 million and was allocated principally to building and improvements.

Other

One shopping center pays annual special assessment levies of a Community Development District (CDD), for which the Company has capitalized the related infrastructure assets and improvements (Note 16).
Investments in Unconsolidated Joint Ventures
Investments in Unconsolidated Joint Ventures
Note 4 – Investments in Unconsolidated Joint Ventures

General Information

The Company owns beneficial interests in joint ventures that own shopping centers. The Operating Partnership is the direct or indirect managing general partner or managing member of these Unconsolidated Joint Ventures, except for the ventures that own Arizona Mills, The Mall at Millenia, and Waterside Shops.

Shopping Center
Ownership as of
December 31, 2010 and 2009
Arizona Mills
   50%
Fair Oaks
50
The Mall at Millenia
50
Stamford Town Center
50
Sunvalley
50
Waterside Shops
25
Westfarms
79

The Company's carrying value of its Investment in Unconsolidated Joint Ventures differs from its share of the partnership or members equity reported in the combined balance sheet of the Unconsolidated Joint Ventures due to (i) the Company's cost of its investment in excess of the historical net book values of the Unconsolidated Joint Ventures and (ii) the Operating Partnership’s adjustments to the book basis, including intercompany profits on sales of services that are capitalized by the Unconsolidated Joint Ventures. The Company's additional basis allocated to depreciable assets is recognized on a straight-line basis over 40 years. The Operating Partnership’s differences in bases are amortized over the useful lives of the related assets.

In its Consolidated Balance Sheet, the Company separately reports its investment in Unconsolidated Joint Ventures for which accumulated distributions have exceeded investments in and net income of the Unconsolidated Joint Ventures. The net equity of certain Unconsolidated Joint Ventures is less than zero because distributions are usually greater than net income, as net income includes non-cash charges for depreciation and amortization.

Westfarms

In 2009, West Farms Associates and West Farms Mall, LLC (together, “Westfarms”) and The Taubman Company LLC (together with Westfarms, the “WFM Parties”) entered into a settlement agreement (the “Settlement Agreement”) with three developers of a project called Blue Back Square in West Hartford, Connecticut. Pursuant to the Settlement Agreement, the lawsuit was withdrawn with prejudice upon payment by Westfarms of $34 million to the developers. The Company has a 79% investment in Westfarms Associates, an unconsolidated joint venture which owns Westfarms mall, and the Company’s share of the settlement was $26.8 million. In January 2010, the WFM Parties executed a settlement agreement with the Town of West Hartford, which provided for a full and general release for the benefit of the WFM Parties upon payment by Westfarms of $4.5 million, or $3.6 million at the Company’s share, which was recorded in 2009.

University Town Center

In May 2008, the Company entered into agreements to jointly develop University Town Center, a regional mall in Sarasota, Florida. Under the agreements, the Company would have owned a noncontrolling 25% interest in the project. Due to the economic and retail environment, in December 2008 the Company announced that the project had been put on hold. The Company does not know if or when it will acquire an interest in the land and move forward with the project. Due to this uncertainty, the Company recognized an $8.3 million charge to income in the fourth quarter of 2008. This charge is included in Equity in Income of Unconsolidated Joint Ventures on the Consolidated Statement of Operations and Comprehensive Income and represents the Company’s share of project costs and its total investment in the project.

The Mall at Studio City

In 2008, Taubman Asia entered into agreements to own a noncontrolling 25% interest in, and provide services to, The Mall at Studio City, the retail component of a major mixed-use project in Macao, China. In 2009, the Company’s Macao agreements were terminated and an initial $54 million cash payment was returned because the financing for the project was not completed.

Combined Financial Information

Combined balance sheet and results of operations information is presented in the following table for the Unconsolidated Joint Ventures, followed by the Operating Partnership's beneficial interest in the combined information. Beneficial interest is calculated based on the Operating Partnership's ownership interest in each of the Unconsolidated Joint Ventures.
 
   
December 31
 
   
2010
  
2009
 
Assets:
      
Properties
 $1,092,916  $1,094,963 
Accumulated depreciation and amortization
  (417,712)  (396,518)
   $675,204  $698,445 
Cash and cash equivalents
  21,339   18,544 
Accounts and notes receivable, less allowance for doubtful accounts of $1,471 and $1,703 in 2010 and 2009
  26,288   26,982 
Deferred charges and other assets
  18,891   22,310 
   $741,722  $766,281 
          
Liabilities and accumulated deficiency in assets:
        
Notes payable
 $1,125,618  $1,092,806 
Accounts payable and other liabilities
  37,292   50,615 
TRG's accumulated deficiency in assets
  (224,636)  (205,566)
Unconsolidated Joint Venture Partners' accumulated deficiency in assets
  (196,552)  (171,574)
   $741,722  $766,281 
          
TRG's accumulated deficiency in assets (above)
 $(224,636) $(205,566)
TRG basis adjustments, including elimination of intercompany profit
  68,682   70,371 
TCO's additional basis
  62,747   64,694 
Net Investment in Unconsolidated Joint Ventures
 $(93,207) $(70,501)
Distributions in excess of investments in and net income of Unconsolidated Joint Ventures
  170,329   160,305 
Investment in Unconsolidated Joint Ventures
 $77,122  $89,804 


   
Year Ended December 31
 
   
2010
  
2009
  
2008
 
Revenues
 $270,391  $272,535  $271,813 
Maintenance, taxes, utilities, and other operating expenses
 $90,680  $95,775  $93,218 
Litigation charges (Note 14)
      38,500     
Interest expense
  63,835   64,405   65,002 
Depreciation and amortization
  37,234   38,396   39,756 
Total operating costs
 $191,749  $237,076  $197,976 
Nonoperating income
  2   87   683 
Net income
 $78,644  $35,546  $74,520 
              
Net income attributable to TRG
 $45,092  $10,748  $41,857 
Realized intercompany profit, net of depreciation on TRG’s basis adjustments
  2,266   2,686   3,770 
Depreciation of TCO's additional basis
  (1,946)  (1,946)  (1,948)
Impairment charge
          (8,323)
Equity in income of Unconsolidated Joint Ventures
 $45,412  $11,488  $35,356 
              
Beneficial interest in Unconsolidated Joint Ventures’ operations:
            
Revenues less maintenance, taxes, utilities, and other operating expenses
 $100,682  $67,815  $101,089 
Interest expense
  (33,076)  (33,427)  (33,777)
Depreciation and amortization
  (22,194)  (22,900)  (23,633)
Impairment charge
          (8,323)
Equity in income of Unconsolidated Joint Ventures
 $45,412  $11,488  $35,356 

Other

The provision for losses on accounts receivable of the Unconsolidated Joint Ventures was $0.5 million, $0.9 million, and $1.0 million for the years ended December 31, 2010, 2009, and 2008, respectively.

Deferred charges and other assets of $18.9 million at December 31, 2010 were comprised of leasing costs of $30.9 million, before accumulated amortization of $(18.9) million, net deferred financing costs of $2.8 million, and other net charges of $4.1 million. Deferred charges and other assets of $22.3 million at December 31, 2009 were comprised of leasing costs of $26.6 million, before accumulated amortization of $(13.7) million, net deferred financing costs of $2.6 million, and other net charges of $6.7 million.

The estimated fair value of the Unconsolidated Joint Ventures’ notes payable was $1.2 billion and $1.1 billion at December 31, 2010 and 2009, respectively.

Depreciation expense on properties for 2010, 2009, and 2008 was $32.3 million, $33.8 million, and $36.1 million, respectively.
Accounts and Notes Receivable
Accounts and Notes Receivable
Note 5 – Accounts and Notes Receivable

Accounts and notes receivable at December 31, 2010 and December 31, 2009 are summarized as follows:

   
2010
  
2009
 
Trade
 $24,515  $21,767 
Notes
  10,517   9,175 
Straight-line rent and recoveries
  22,840   20,455 
   $57,872  $51,397 
Less: Allowance for doubtful accounts and notes
  (7,966)  (6,894)
   $49,906  $44,503 

Notes receivable as of December 31, 2010 provide interest at a range of interest rates from 2.9% to 10.0% (with a weighted average interest rate of 5.1%) and mature at various dates through December 2019. The balances at December 31, 2010 and 2009 included $4.0 million and $2.0 million, respectively, of notes receivable from certain tenants at The Pier Shops. The Company has recorded a provision of $1.4 million against these notes, which was charged to income in 2008. The balance of notes receivable at December 31, 2010 and 2009 included $6.5 million and $7.2 million, respectively, related to the joint venture partners at Westfarms for their share of the litigation charges that were paid in 2009 (Note 4).
Deferred charges and other assets
Deferred Charges and Other Assets
Note 6 – Deferred Charges and Other Assets

Deferred charges and other assets at December 31, 2010 and December 31, 2009 are summarized as follows:

   
2010
  
2009
 
Leasing costs
 $37,780  $33,991 
Accumulated amortization
  (17,282)  (15,286)
   $20,498  $18,705 
Deferred financing costs, net
  5,399   5,679 
Restricted cash
  7,599   3,464 
Intangibles, net
  252   1,247 
Insurance deposit (Note 16)
  10,135   9,689 
Investments (Note 16)
  2,061   1,665 
Interest rate contract (Note 9)
  4,856     
Deferred tax asset, net
  7,537   7,587 
Prepaid expenses
  3,487   3,302 
Other, net
  8,266   7,231 
   $70,090  $58,569 
Notes Payable
Notes Payable
Note 7 – Notes Payable

Notes payable at December 31, 2010 and December 31, 2009 consist of the following:

 
2010
 
2009
  
Stated Interest Rate
 
Maturity Date
 
Balance Due on Maturity
 
Facility Amount
 
Beverly Center
$322,700 $328,365  5.28% 
02/11/14
 $303,277   
Cherry Creek Shopping Center
 280,000  280,000  5.24% 
06/08/16
  280,000   
Dolphin Mall
 10,000  64,000  
LIBOR + 0.70%
 
   02/14/11(1)
  10,000 (1)
Fairlane Town Center
 80,000  80,000  
LIBOR + 0.70%
 
   02/14/11(1)
  80,000 (1)
Great Lakes Crossing Outlets
 132,262  135,144  5.25% 
03/11/13
  125,507   
International Plaza
 325,000  325,000  
LIBOR +1.15% (2)
 
   01/08/11(2)
  325,000   
MacArthur Center
 131,000     
LIBOR + 2.35% (3)
 
09/01/20
  117,234   
MacArthur Center
    129,358  7.59%        
Northlake Mall
 215,500  215,500  5.41% 
02/06/16
  215,500   
The Mall at Partridge Creek
 82,140     6.15% 
07/06/20
  70,433   
The Mall at Partridge Creek
    73,770  
LIBOR + 1.15%
      81,000 
The Pier Shops at Caesars  (Note 3)
 135,000  135,000  (4) (4)      
Regency Square (Note 3)
 72,690  74,085  6.75% (5) 
   11/01/11(5)
  71,569(5)  
The Mall at Short Hills
 540,000  540,000  5.47% 
12/14/15
  540,000   
Stony Point Fashion Park
 105,484  107,237  6.24% 
06/01/14
  98,585   
Twelve Oaks Mall
       
LIBOR + 0.70%
 
   02/14/11(1)
    (1)
The Mall at Wellington Green
 200,000  200,000  5.44% 
05/06/15
  200,000   
Line of Credit
 24,784  3,560  
Variable Bank Rate
 
02/14/12
  24,784 40,000(6)
  $2,656,560 $2,691,019           

(1)  
Dolphin, Fairlane, and Twelve Oaks are the borrowers and collateral for the $550 million revolving credit facility. The unused borrowing capacity at December 31, 2010 was $394 million. Sublimits may be reallocated quarterly but not more often than twice a year. In February 2011, the maturity date was extended for one year.
(2)  
Stated interest rate was swapped to an effective rate of 5.01%, until January 2011. In January 2011, the loan was extended for one year, at a new principal amount of $272.4 million, and has a one-year extension option remaining. The loan floats at LIBOR + 1.15% during the extension period.
(3)  
Stated interest rate is swapped to an effective rate of 4.99%.
(4)  
The Pier Shops’ loan is in default. Interest accrues at the default rate of 10.01% rather than the original stated rate of 6.01% (Note 3).
(5)  
The Company has announced that it will discontinue financial support of Regency Square. As a result the Company is in discussions with the lender about the center's future ownership. As of December 31, 2010 the loan was not in default.
(6)  
The unused borrowing capacity at December 31, 2010 was $12 million.

Notes payable are collateralized by properties with a net book value of $2.0 billion at December 31, 2010.

The following table presents scheduled principal payments on notes payable as of December 31, 2010:

2011
 $499,510(1)
2012
  37,613 
2013
  137,223 
2014
  405,935 
2015
  742,766 
Thereafter
  698,513 
Debt in Default
  135,000 
   $2,656,560 

(1)  
Includes $90 million with a one-year extension option and $325 million with two one-year extension options. Both loans were extended for one year to February 2012.

2011 Maturities

In January 2011, the International Plaza loan was extended to a maturity of January 2012. The principal balance on the loan was required to be paid down by $52.6 million. The Company funded its $26.4 million beneficial share of the paydown with funds from the revolving lines of credit. The principal on the loan is now $272.4 million at 100%, and $136.5 million at the Company’s beneficial share. The rate on the loan had been fixed at 5.01% due to an interest rate swap that also matured in January. The loan has now reverted to a floating rate at LIBOR plus 1.15%. The extended loan is prepayable at any time and has an additional one-year extension option.

The $250 million loan at Fair Oaks, a 50% owned Unconsolidated Joint Venture (Note 4), matures in April 2011 and has two one-year extension options. Currently the loan is fixed at 4.22% due to an interest rate swap that also matures in April. Notice has been given to the lender to exercise the option to extend the maturity to April 2012. When the loan is extended the loan will revert to a floating rate at LIBOR plus 1.40%. However the loan is prepayable, and the Company believes it can fully refinance the principal balance, if it chooses to do so.

In December 2010, the Company extended its $40 million line of credit and in February 2011, extended the $550 million line of credit. Both lines were extended for one year.

The Company had $406 million of availability on its lines of credit as of December 31, 2010. In connection with the extension of the $550 million line of credit, the borrowing limits attributable to each of the three centers securing the line were reallocated. Considering the facilities as adjusted, $447 million would have been available as of December 31, 2010. There are outstanding letters of credit of $28.2 million that reduce the availability of the lines of credit as of December 31, 2010.

The loan on Regency Square matures in November 2011, see Note 3 for more information.

Loan in Default

The $135 million loan encumbering The Pier Shops is currently in default (see Notes 3 and 14 regarding additional information on the center and the default on this loan).

Debt Covenants and Guarantees

Certain loan agreements contain various restrictive covenants, including a minimum net worth requirement, a maximum payout ratio on distributions, a minimum debt yield ratio, a maximum leverage ratio, minimum interest coverage ratios and a fixed charges coverage ratio, the latter being the most restrictive. Other than The Pier Shops’ loan, which is in default, the Company is in compliance with all of its covenants and loan obligations as of December 31, 2010. The default on The Pier Shops’ loan did not trigger, and a default on the Regency Square loan will not trigger, any cross defaults on the Company’s other indebtedness. The maximum payout ratio on distributions covenant limits the payment of distributions generally to 95% of funds from operations, as defined in the loan agreements, except as required to maintain the Company's tax status, pay preferred distributions, and for distributions related to the sale of certain assets.

Payments of principal and interest on the loans in the following table are guaranteed by the Operating Partnership as of December 31, 2010.

Center
 
Loan Balance as of 12/31/10
  
TRG's Beneficial Interest in Loan Balance as of 12/31/10
  
Amount of Loan Balance Guaranteed by TRG as of 12/31/10
  
% of Loan Balance Guaranteed by TRG
  
% of Interest Guaranteed by TRG
 
   
(in millions)
       
Dolphin Mall
 $10.0  $10.0  $10.0   100%  100%
Fairlane Town Center
  80.0   80.0   80.0   100   100 
Twelve Oaks Mall
           100   100 

The Company is required to escrow cash balances for specific uses stipulated by its lenders. As of December 31, 2010 and December 31, 2009, the Company’s cash balances restricted for these uses were $7.6 million and $3.5 million, respectively. Such amounts are included within Deferred Charges and Other Assets in the Company’s Consolidated Balance Sheet.

Beneficial Interest in Debt and Interest Expense

The Operating Partnership's beneficial interest in the debt, capitalized interest, and interest expense of its consolidated subsidiaries and its Unconsolidated Joint Ventures is summarized in the following table. The Operating Partnership's beneficial interest in the consolidated subsidiaries excludes debt and interest related to the noncontrolling interests in Cherry Creek (50%), International Plaza (49.9%), The Pier Shops (22.5%), The Mall at Wellington Green (10%), and MacArthur Center (5%).

   
At 100%
  
At Beneficial Interest
 
   
Consolidated Subsidiaries
  
Unconsolidated Joint Ventures
  
Consolidated Subsidiaries
  
Unconsolidated Joint Ventures
 
Debt as of:
            
December 31, 2010
 $2,656,560  $1,125,618  $2,297,460  $575,103 
December 31, 2009
  2,691,019   1,092,806   2,332,030   559,817 
                  
Capitalized interest:
                
Year ended December 31, 2010
 $319      $319     
Year ended December 31, 2009
  1,257  $23   1,246  $11 
                  
Interest expense:
                
Year ended December 31, 2010
 $152,708  $63,835  $131,484  $33,076 
Year ended December 31, 2009
  145,670   64,405   125,823   33,427 
Noncontrolling Interests
Noncontrolling Interests
Note 8 – Noncontrolling Interests

Redeemable Noncontrolling Interests

In October 2010, the Company's new president of Taubman Asia (the Asia President) obtained an ownership interest in Taubman Asia, a consolidated subsidiary. The Asia President is entitled to 10% of Taubman Asia's dividends, with 85% of his dividends being withheld as contributions to capital. These withholdings will continue until he contributes and maintains his capital consistent with a 10% ownership interest, including all capital funded by the Operating Partnership for Taubman Asia's operating and investment activities subsequent to the Asia President obtaining his ownership interest. The Operating Partnership will have a preferred investment in Taubman Asia to the extent the Asia President has not yet contributed capital commensurate with his ownership interest. This preferred investment will accrue an annual preferential return equal to the Operating Partnership's average borrowing rate (with the preferred investment and accrued return together being referred to herein as the preferred interest). Taubman Asia has the ability to call, and the Asia President has the ability to put, the Asia President’s ownership interest, subject to certain conditions including the termination of the Asia President’s employment and the expiration of certain required holding periods. The redemption price for the ownership interest is a nominal amount through 2013 and subsequently 50% (increasing to 100% in May 2015) of the fair value of the ownership interest less the amount required to return the Operating Partnership’s preferred interest. The Company has determined that the Asia President's ownership interest in Taubman Asia qualifies as an equity award, considering its specific redemption provisions, and accounts for it as a contingently redeemable noncontrolling interest, with a redemption value of zero at December 31, 2010. Adjustments to the redemption value will be recorded through equity.
 
In July 2010, the Company formed a joint venture that will focus on developing and owning outlet shopping centers. The Company owns a 90% controlling interest and consolidates the venture, while the joint venture partner owns a 10% interest. The amount of capital that the joint venture partner is required to contribute is capped. The Company will have a preferred investment to the extent it contributes capital in excess of the amount commensurate with its ownership interest. At any time after June 2012, the Company will have the right to purchase the joint venture partner's entire interest and the joint venture partner will have the right to require the Company to purchase the joint venture partner's entire interest. Additionally, the parties each have a one-time put and/or call on the joint venture partner’s interest in any stabilized centers, while still maintaining the ongoing joint venture relationship. The purchase price of the joint venture partner's interest will be based on fair value. Considering the redemption provisions, the Company accounts for the joint venture partner’s interest as a contingently redeemable noncontrolling interest with a redemption value of zero at December 31, 2010. Adjustments to the redemption value will be recorded through equity.

Reconciliation of redeemable noncontrolling interests:
 
2010
 
Balance January 1, 2010
 $- 
Contributions
  79 
Allocation of net loss
  (79)
Balance December 31, 2010
 $- 

Equity Balances and Income (Loss) Allocable to Noncontrolling Interests

The net equity balance of the noncontrolling interests as of December 31, 2010 and December 31, 2009 includes the following:

   
2010
  
2009
 
Non-redeemable noncontrolling interests:
      
Noncontrolling interests in consolidated joint ventures
 $(100,355) $(100,014)
Noncontrolling interests in partnership equity of TRG
  (93,012)  (75,393)
Preferred equity of TRG
  29,217   29,217 
   $(164,150) $(146,190)

Income attributable to the noncontrolling interests for the year ended December 31, 2010, 2009, and 2008 includes the following:

   
2010
  
2009
  
2008
 
Net income (loss) attributable to noncontrolling interests:
         
Non-redeemable noncontrolling interests:
         
Noncontrolling share of income of consolidated joint ventures
 $9,859  $3,115  $7,441 
Distributions in excess of noncontrolling share of income of consolidated joint ventures
          8,594 
TRG Series F preferred distributions
  2,460   2,460   2,460 
Noncontrolling share of income (loss) of TRG
  26,219   (31,224)  (11,338)
Distributions in excess of noncontrolling share of income of TRG
          55,370 
    38,538   (25,649)  62,527 
Redeemable noncontrolling interests
  (79)        
   $38,459  $(25,649) $62,527 

Equity Transactions

The following schedule presents the effects of changes in Taubman Centers, Inc.’s ownership interest in consolidated subsidiaries on Taubman Centers, Inc.’s equity:

   
Year Ended December 31,
 
   
2010
  
2009
  
2008
 
Net income (loss) attributable to Taubman Centers, Inc. common shareowners
 $47,599  $(69,706) $(86,659)
Transfers (to) from the noncontrolling interest –
            
Increase (Decrease) in Taubman Centers, Inc.’s paid-in capital for the acquisition of additional units of TRG under the Continuing Offer
  (989)  (484)    
Net transfers (to) from noncontrolling interests
  (989)  (484)    
Change from net income (loss) attributable to Taubman Centers, Inc. and transfers (to) from noncontrolling interests
 $46,610  $(70,190) $(86,659)

In 2008, there was no impact to the equity of Taubman Centers, Inc. common shareowners resulting from the acquisition of additional units under the Continuing Offer because the equity balance of the noncontrolling partners was maintained at zero.

International Plaza Refinancing

In January 2008, International Plaza refinanced its debt and distributed a portion of the excess proceeds to its partners. The noncontrolling partner’s share of the distributions was $51.3 million.

Finite Life Entities

ASC Topic 480, “Distinguishing Liabilities from Equity” establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. At December 31, 2010, the Company held controlling majority interests in consolidated entities with specified termination dates in 2081 and 2083. The noncontrolling owners’ interests in these entities are to be settled upon termination by distribution or transfer of either cash or specific assets of the underlying entity. The estimated fair value of these noncontrolling interests were approximately $175.1 million at December 31, 2010, compared to a book value of $(99.1) million, which was classified as Noncontrolling Interests in the Company’s Consolidated Balance Sheet.
Derivative and Hedging Activities
Derivative and Hedging Activities
Note 9 – Derivative and Hedging Activities

Risk Management Objective and Strategies for Using Derivatives

The Company uses derivative instruments, such as interest rate swaps and interest rate caps, primarily to manage exposure to interest rate risks inherent in variable rate debt and refinancings. The Company may also enter into forward starting swaps or treasury lock agreements to set the effective interest rate on a planned fixed-rate financing. The Company’s interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. In a forward starting swap or treasury lock agreement that the Company cash settles in anticipation of a fixed rate financing or refinancing, the Company will receive or pay an amount equal to the present value of future cash flow payments based on the difference between the contract rate and market rate on the settlement date.

The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedging instruments under the accounting requirements for derivatives and hedging.
 
As of December 31, 2010, the Company had the following outstanding interest rate derivatives that were designated and are expected to be effective as cash flow hedges of the interest payments on the associated debt.

Instrument Type
Ownership
Notional Amount
Swap Rate
Credit Spread on Loan
Total Swapped Rate on Loan
Maturity Date
Consolidated Subsidiaries:
           
Receive variable (LIBOR) /pay-fixed swap
   50.1%
$325,000
   3.86%
   1.15%
   5.01%
January 2011
Receive variable (LIBOR) /pay-fixed swap (1)
95.0
131,000
2.64
2.35
4.99
September 2020
Unconsolidated Joint Ventures:
           
Receive variable (LIBOR) /pay-fixed swap
50.0
250,000
2.82
1.40
4.22
April 2011
Receive variable (LIBOR) /pay-fixed swap
50.0
30,000
5.05
0.90
5.95
November 2012

(1)
The notional amount of the swap is equal to the outstanding principal balance on the loan, which begins amortizing in September 2012.

Cash Flow Hedges of Interest Rate Risk

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the unrealized gain or loss on the derivative is reported as a component of Other Comprehensive Income (OCI). The ineffective portion of the change in fair value is recognized directly in earnings. Net realized gains or losses resulting from derivatives that were settled in conjunction with planned fixed-rate financings or refinancings continue to be included in Accumulated Other Comprehensive Income (loss) (AOCI) during the term of the hedged debt transaction.

Amounts reported in AOCI related to currently outstanding derivatives are recognized as an adjustment to income as interest payments are made on the Company’s variable-rate debt. Realized gains or losses on settled derivative instruments included in AOCI are recognized as an adjustment to income over the term of the hedged debt transaction.

The Company expects that approximately $6.0 million of the AOCI of Taubman Centers, Inc. and the noncontrolling interests will be reclassified from AOCI and recognized as a reduction of income in the following 12 months.

As of December 31, 2010, the Company had $2.6 million of net realized losses included in AOCI resulting from discontinued cash flow hedges related to settled derivative instruments that are being recognized as a reduction of income over the term of the hedged debt.

The following tables present the effect of derivative instruments on the Company’s Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2010, 2009, and 2008. The tables include the location and amount of unrealized gains and losses on outstanding derivative instruments in cash flow hedging relationships and the location and amount of realized losses reclassified from AOCI into income resulting from settled derivative instruments associated with hedged debt.
 
During the years ended December 31, 2010, 2009, and 2008 the Company did not have any hedge ineffectiveness or amounts that were excluded from the assessment of hedge effectiveness recorded in earnings.

 
Amount of Gain or (Loss)
 Recognized in OCI on Derivative
 (Effective Portion)
 
Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
 
2010
 
2009
 
2008
    
2010
 
2009
 
2008
 
Derivatives in cash flow hedging relationships:
               
Interest rate contracts – consolidated subsidiaries
$15,351 $6,402 $(16,138)
Interest Expense
 $(12,876)$(11,474)$(3,267)
Interest rate contracts – UJVs
 2,494  1,516  (5,309)
Equity in Income of UJVs
  (3,945) (3,761) (383)
Total derivatives in cash flow hedging relationships
$17,845 $7,918 $(21,447)   $(16,821)$(15,235)$(3,650)
                       
Realized losses on settled cash flow hedges:
                     
Interest rate contracts – consolidated subsidiaries
         
Interest Expense
 $(886)$(886)$(885)
Interest rate contract – UJVs
         
Equity in Income of UJVs
  (376) (376) (375)
Total realized losses on settled cash flow hedges
            $(1,262)$(1,262)$(1,260)

The Company records all derivative instruments at fair value in the Consolidated Balance Sheet. The following table presents the location and fair value of the Company’s derivative financial instruments as reported in the Consolidated Balance Sheet as of December 31, 2010 and 2009.

     
Fair Value
 
 
Consolidated Balance Sheet Location
 
December 31 2010
  
December 31 2009
 
Derivatives designated as hedging instruments:
        
Asset derivatives-
        
Interest rate contract – consolidated subsidiaries
Deferred Charges and Other Assets
 $4,856    
Liability derivatives:
         
Interest rate contract – consolidated subsidiaries
Accounts Payable and Accrued Liabilities
 $(291) $(10,786)
Interest rate contracts – UJVs
Investment in UJVs
  (1,964)  (4,458)
Total liabilities designated as hedging instruments
   $(2,255) $(15,244)
 
Contingent Features

As of December 31, 2010 and 2009, all four of the Company's outstanding derivatives contain provisions that state if the hedged entity defaults on any of its indebtedness in excess of $1 million, then the derivative obligation could also be declared in default. In addition, one of the four outstanding derivatives contains a provision that if the Company defaults on an obligation in excess of $1 million on its $40 million line of credit, then the derivative obligation could also be declared in default. Although the Company is currently in default on the debt relating to The Pier Shops, the Company is not in default on any debt obligations that would trigger a credit risk related default on its current outstanding derivatives. The Regency Square loan was not in default as of December 31, 2010, and a default on this loan would not trigger a credit-risk related default on the Company’s current outstanding derivatives.

As of December 31, 2010 and 2009, the fair value of derivative instruments with credit-risk-related contingent features that are in a liability position was $2.3 million and $15.2 million, respectively. As of December 31, 2010 and 2009, the Company was not required to post any collateral related to these agreements. If the Company breached any of these provisions it would be required to settle its obligations under the agreements at their fair value. See Note 16 for fair value information on derivatives.
Leases
Leases
Note 10Leases

Shopping center space is leased to tenants and certain anchors pursuant to lease agreements. Tenant leases typically provide for minimum rent, percentage rent, and other charges to cover certain operating costs. Future minimum rent under operating leases in effect at December 31, 2010 for operating centers assuming no new or renegotiated leases or option extensions on anchor agreements, is summarized as follows:

2011
 $310,819 
2012
  283,564 
2013
  259,245 
2014
  232,750 
2015
  202,294 
        Thereafter
  653,240 

The table above excludes $9.5 million in 2011 and $55.8 million thereafter for The Pier Shops and Regency Square.

Certain shopping centers, as lessees, have ground and building leases expiring at various dates through the year 2107. In addition, one center has the option to extend the lease term for five 10-year periods and another center has an option to extend the term for three 10-year periods. Ground rent expense is recognized on a straight-line basis over the lease terms. The Company also leases its office facilities and certain equipment. Office facility leases expire at various dates through the year 2015. Additionally, two of the leases have 5-year extension options and one lease has a 3-year extension option. The Company’s U.S. headquarters is rented from an affiliate of the Taubman family under a 10-year lease, with a 5-year extension option. Rental expense on a straight-line basis under operating leases was $10.2 million in 2010, $9.9 million in 2009, and $10.8 million in 2008. Included in these amounts are related party office rental expense of $2.3 million in 2010 through 2008. Payables representing straightline rent adjustments under lease agreements were $37.8 million and $36.7 million as of December 31, 2010 and 2009, respectively.

The following is a schedule of future minimum rental payments required under operating leases, excluding the ground lease at The Pier Shops:

2011
 $8,685 
2012
  9,639 
2013
  9,564 
2014
  8,734 
2015
  6,335 
          Thereafter
  358,468 

The table above includes $2.6 million in each year from 2011 through 2014 and $0.7 in 2015 of related party amounts. The Pier Shops is subject to a ground lease with base rentals of $1.0 million plus percentage rent until 2081. The ground lease obligation will be transferred along with the title to The Pier Shops upon extinguishment of the loan obligation (Note 3).

In 2010, the Company finalized agreements regarding City Creek Center, a mixed-use project in Salt Lake City, Utah. The Company is currently providing development and leasing services and will be the manager for the retail space, which the Company will own under a long-term participating lease. City Creek Reserve, Inc. (CCRI), an affiliate of the LDS Church, is the participating lessor and is providing all of the construction financing. The Company owns 100% of the leasehold interest in the retail buildings and property. In addition to the minimum rent included in the table above, the Company will pay contingent rent based on the performance of the center. CCRI has an option to purchase the Company’s interest at fair value at various points in time over the term of the lease. Under the agreements, the Company will pay $75 million to CCRI upon opening of the retail center in March 2012. As required, the Company has issued to CCRI a $25 million letter of credit, which will remain in place until the $75 million is paid.
The Manager
The Manager
Note 11 – The Manager

The Taubman Company LLC (the Manager), which is 99% beneficially owned by the Operating Partnership, provides property management, leasing, development, and other administrative services to the Company, the shopping centers, Taubman affiliates, and other third parties. Accounts receivable from related parties include amounts due from Unconsolidated Joint Ventures or other affiliates of the Company, primarily relating to services performed by the Manager. These receivables include certain amounts due to the Manager related to reimbursement of third party (non-affiliated) costs.

A. Alfred Taubman and certain of his affiliates receive various management services from the Manager. For such services, Mr. Taubman and affiliates paid the Manager approximately $2.1 million, $1.6 million, and $2.2 million in 2010, 2009, and 2008, respectively. These amounts are classified in Management, Leasing, and Development Services revenues within the Consolidated Statement of Operations and Comprehensive Income.

Other related party transactions are described in Notes 10, 12, and 14.

In 2009, in response to the decreased level of active projects due to the downturn in the economy, the Company reduced its workforce by about 40 positions, primarily in areas that directly or indirectly affect its development initiatives in the U.S. and Asia. A restructuring charge of $2.5 million was recorded in 2009, which primarily represents the cost of terminations of personnel.
Share-Based Compensation
Share-Based Compensation and Other Plans
Note 12 – Share-Based Compensation and Other Employee Plans

In 2008, the Company’s shareowners approved The Taubman Company 2008 Omnibus Long-Term Incentive Plan (2008 Omnibus Plan). The 2008 Omnibus Plan provides for the award to directors, officers, employees, and other service providers of the Company of restricted shares, restricted units of limited partnership in the Operating Partnership, options to purchase shares or Operating Partnership units, unrestricted shares or Operating Partnership units, and other awards to acquire Company common shares or Operating Partnership units. In addition, non-employee directors have the option to defer their compensation, other than their meeting fees, under a deferred compensation plan.

In May 2010, the Company’s shareowners approved an amendment to the 2008 Omnibus Plan to increase the Company common shares or Operating Partnership units available for awards by 2.4 million from an aggregate of 6.1 million to 8.5 million. This amendment also revised the methodology used to determine the amount of Company common shares or Operating Partnership units available for future grants. Under the 2008 Omnibus Plan (as amended) non-option awards granted after the May 2010 amendment are deducted at a ratio of 1.85 Company common shares or Operating Partnership units while non-option awards granted prior to the amendment continue to be deducted at a ratio of 2.85. Options are deducted on a one-for-one basis. The amount available for future grants is adjusted when the number of contingently issuable shares or units are settled, for grants that are forfeited, and for options that expire without being exercised.

Prior to the adoption of the 2008 Omnibus Plan, the Company provided share-based compensation through an incentive option plan, a long-term incentive plan, and non-employee directors' stock grant and deferred compensation plans.

The compensation cost charged to income for the Company’s share-based compensation plans was $7.7 million, $8.7 million, and $7.6 million for the years ended December 31, 2010, 2009, and 2008, respectively. Compensation cost capitalized as part of properties and deferred leasing costs was $0.3 million, $0.3 million, and $0.9 million for the years ended December 31, 2010, 2009, and 2008, respectively.

The Company currently recognizes no tax benefits from the recognition of compensation cost or tax deductions incurred upon the exercise or vesting of share-based awards. Allocations of compensation cost or deduction to the Company’s corporate taxable REIT subsidiaries from the Company's Manager, which is treated as a partnership for federal income tax purposes, have not resulted in the recognition of tax benefits due to the Company’s current income tax position (Note 2).

The Company estimated the values of options, performance share units, and restricted share units using the methods discussed in the separate sections below for each type of grant. Expected volatility and dividend yields are based on historical volatility and yields of the Company’s common stock, respectively, as well as other factors. The risk-free interest rates used are based on the U.S. Treasury yield curves in effect at the times of grants. The Company assumes no forfeitures of options or performance share units due to the small number of participants and low turnover rate.

Options

Options are granted to purchase units of limited partnership interest in the Operating Partnership, which are exchangeable for new shares of the Company’s stock under the Continuing Offer (Note 14). The options have ten-year contractual terms.

In the first quarter of 2009, 1.4 million options were granted that vested during the third quarter of 2009 due to the satisfaction of the vesting condition of the closing price of the Company’s common stock, as quoted on the New York Stock Exchange, being $30 or greater for ten consecutive trading days. The entire compensation cost was recognized in 2009 due to the satisfaction of the vesting condition.

In addition, the Company granted 40,000 options in the second quarter of 2009. These options vest one third each year over three years, if continuous service has been provided or upon retirement or certain other events if earlier.

The Company estimated the value of the options granted during the first quarter 2009 using a Monte Carlo simulation due to the market-based vesting condition. The Company estimated the values of the options issued during the second quarter of 2009 and the year ended December 31, 2008 using a Black-Scholes valuation model. Significant assumptions employed include the following:

   
1st Quarter
  
2nd Quarter
   
   
2009
  
2009
  
2008
Expected volatility
 29.61%  40.65%  24.33%
Expected dividend yield
   8.00%    7.00%    3.50%
Expected term (in years)
 N/A  6  6
Risk-free interest rate
  2.83%   2.57%     3.08%
Weighted average grant-date fair value
        $1.35         $5.04          $9.31
 
A summary of option activity for the years ended December 31, 2010, 2009, and 2008 is presented below:

   
Number of Options
  
Weighted Average
 Exercise Price
  
Weighted Average Remaining Contractual Term (in years)
  
Range of Exercise Prices
 
              
Outstanding at January 1, 2008
 1,330,646  $36.54   7.8  $29.38 - $55.90 
Granted
 230,567   50.65        
Exercised
 (210,736)  31.55        
                
Outstanding at December 31, 2008
 1,350,477  $39.73   7.2  $29.38 - $55.90 
Granted
 1,439,135   14.13        
Exercised
 (1,140,003)  13.98        
Forfeited
 (20,000)  31.31        
                
Outstanding at December 31, 2009
 1,629,609  $35.24   6.8  $13.83 - $55.90 
Exercised
 (176,828)  20.75        
Outstanding at December 31, 2010
 1,452,781  $37.00   5.7  $13.83 – $55.90 
                
Fully vested options at December 31, 2010
 1,154,265  $37.31   5.8    

There were 0.4 million options that vested during the year ended December 31, 2010.

Of the 1.5 million total options outstanding excluding 0.2 million granted in the first quarter of 2009, 0.9 million have vesting schedules with one-third vesting at each of the first, second, and third years of the grant anniversary, if continuous service has been provided or upon retirement or certain other events if earlier. Substantially all of the other 0.4 million options outstanding have vesting schedules with one-third vesting at each of the third, fifth, and seventh years of the grant anniversary, if continuous service has been provided and certain conditions dependent on the Company’s market performance in comparison to its competitors have been met, or upon retirement or certain events if earlier.

The aggregate intrinsic value (the difference between the period end stock price and the option exercise price) of in-the-money options outstanding and in-the-money fully vested options as of December 31, 2010 was $20.8 million and $16.4 million, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2010, 2009, and 2008 was $4.0 million, $22.6 million, and $4.1 million, respectively. Cash received from option exercises for the years ended December 31, 2010, 2009, and 2008 was $3.7 million, $15.9 million, and $6.6 million, respectively.

As of December 31, 2010 there were 0.3 million nonvested options outstanding, and $0.2 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.0 years.

Under both the prior option plan and the 2008 Omnibus Plan, vested unit options can be exercised by tendering mature units with a market value equal to the exercise price of the unit options. In 2002, Robert S. Taubman, the Company’s chief executive officer, exercised options for 3.0 million units by tendering 2.1 million mature units and deferring receipt of 0.9 million units under the unit option deferral election. As the Operating Partnership pays distributions, the deferred option units receive their proportionate share of the distributions in the form of cash payments. Beginning with the ten year anniversary of the date of exercise (unless Mr. Taubman retires earlier), the deferred partnership units will be issued in ten annual installments. The deferred units are accounted for as participating securities of the Operating Partnership. In January 2011, an amendment was made to extend the issuance of the deferred units to begin in December 2017.

Performance Share Units

In 2010 and 2009, the Company granted performance share units (PSU) under the 2008 Omnibus Plan (as amended). Each PSU represents the right to receive, upon vesting, shares of the Company’s common stock ranging from 0-300% of the PSU based on the Company’s market performance relative to that of a peer group. The vesting date is March 2013 and March 2012 for the 2010 and 2009 grants, respectively, if continuous service has been provided or upon retirement or certain other events if earlier. No dividends accumulate during the vesting period.

The Company estimated the value of the PSU granted in 2010 and 2009 using a Monte Carlo simulation, considering historical returns of the Company and the peer group of companies, a risk-free interest rate of 1.1% and 1.3% in 2010 and 2009, respectively, and measurement periods of 2.78 and 3.00 years for the 2010 and 2009 grants, respectively. When used in the simulation, the value of the Company's stock was reduced by the discounted present value of expected dividends during the vesting period. The resulting weighted average grant-date fair values were $63.54 and $15.60 in 2010 and 2009, respectively.

A summary of PSU activity for the years ended December 31, 2010 and 2009 is presented below:

 
Number of Performance Stock Units
  
Weighted Average Grant Date Fair Value
 
Outstanding at January 1, 2009
-    
Granted
196,943  $15.60 
Outstanding at December 31, 2009
196,943  $15.60 
Granted
75,413  $63.54 
Outstanding at December 31, 2010
272,356  $28.88 

None of the PSU outstanding at December 31, 2010 were vested. No PSU were granted in 2008. As of December 31, 2010, there was $4.7 million of total unrecognized compensation cost related to nonvested PSU outstanding. This cost is expected to be recognized over an average period of 1.9 years.

Restricted Share Units

In 2010 and 2009, restricted share units (RSU) were issued under the 2008 Omnibus Plan (as amended) and represent the right to receive upon vesting one share of the Company’s common stock. The vesting date is March 2013 and March 2012 for the 2010 and 2009 grants, respectively, if continuous service has been provided through that period, or upon retirement or certain other events if earlier. No dividends accumulate during the vesting period.

The Company estimated the value of the RSU granted in 2010 and 2009 using the Company’s common stock at the grant date deducting the present value of expected dividends during the vesting period using a risk-free rate of 1.1% and 1.3%, respectively. The result of the Company’s valuation was a weighted average grant-date fair value of $35.37 and $8.99 for 2010 and 2009, respectively.

In 2008, RSU were issued under the Taubman Company 2005 Long-Term Incentive Plan (LTIP), which was shareowner approved. Each of these RSU represents the right to receive upon vesting one share of the Company’s common stock plus a cash payment equal to the aggregate cash dividends that would have been paid on such share of common stock from the date of grant of the award to the vesting date. These RSU vest three years from the grant date if continuous service has been provided for that period, or upon retirement or certain other events if earlier. Each of these RSU were valued at the closing price of the Company’s common stock on the grant date.

A summary of RSU activity for the years ended December 31, 2010, 2009, and 2008 is presented below:

 
Number of Restricted Stock Units
  
Weighted average Grant Date Fair Value
 
Outstanding at January 1, 2008
358,297  $41.63 
Granted
121,037   50.65 
Forfeited
(8,256)  48.69 
Redeemed
(136,200)  32.15 
Outstanding at December 31, 2008
334,878   48.57 
Granted
368,588   8.99 
Forfeited
(17,532)  37.00 
Redeemed
(118,824)  40.38 
Outstanding at December 31, 2009
567,110   24.92 
Granted
144,588   35.37 
Forfeited
(2,057)  56.44 
Redeemed
(91,757)  14.71 
Outstanding at December 31, 2010
617,884  $22.72 

Based on an analysis of historical employee turnover, the Company has made an annual forfeiture assumption of 2.4% of grants when recognizing compensation costs relating to the RSU.

The total intrinsic value of RSU redeemed during the years ended December 31, 2010, 2009, and 2008 was $3.6 million, $1.9 million, and $6.7 million, respectively.

All of the RSU outstanding at December 31, 2010 were nonvested. As of December 31, 2010, there was $4.8 million of total unrecognized compensation cost related to nonvested RSU outstanding. This cost is expected to be recognized over an average period of 1.8 years.

Non-Employee Directors’ Stock Grant and Deferred Compensation Plans

The Non-Employee Directors’ Stock Grant Plan (SGP), which was shareowner approved, provided for the annual grant to each non-employee director of the Company shares of the Company’s common stock based on the fair value of the Company's common stock on the last business day of the preceding quarter. Quarterly grants beginning in July 2008 were made under the 2008 Omnibus Plan. The annual fair market value of the grant was $50,000 in 2010, 2009, and 2008. As of December 31, 2010, 2,875 shares have been issued under the SGP and 3,813 shares have been issued under the 2008 Omnibus Plan. Certain directors have elected to defer receipt of their shares as described below.

The Non-Employee Directors’ Deferred Compensation Plan (DCP), which was approved by the Company’s Board of Directors, allows each non-employee director of the Company the right to defer the receipt of all or a portion of his or her annual director retainer until the termination of his or her service on the Company’s Board of Directors and for such deferred compensation to be denominated in restricted stock units, representing the right to receive shares of the Company’s common stock at the end of the deferral period. During the deferral period, when the Company pays cash dividends on its common stock, the directors’ deferral accounts will be credited with dividend equivalents on their deferred restricted stock units, payable in additional restricted stock units based on the then-fair market value of the Company’s common stock. There were 56,051 restricted stock units outstanding under the DCP at December 31, 2010.

Other Employee Plans

As of December 31, 2010 and 2009, the Company had fully vested awards outstanding for 18,572 and 17,803 notional shares of stock, respectively, under a previous long-term performance compensation plan. These awards will be settled in cash based on a twenty day average of the market value of the Company's common stock. The liability for the eventual payout of these awards is marked to market quarterly based on the twenty day average of the Company's stock price. The Company recorded compensation costs of $0.3 million, $0.2 million, and $(1.9) million relating to this plan for the years ended December 31, 2010, 2009, and 2008, respectively. The majority of the awards under this plan were paid out in early 2009. No payments were made in 2010 or 2008.

The Company has a voluntary retirement savings plan established in 1983 and amended and restated effective January 1, 2001 (the Plan). The Plan is qualified in accordance with Section 401(k) of the Internal Revenue Code (the Code). The Company contributes an amount equal to 2% of the qualified wages of all qualified employees and matches employee contributions in excess of 2% up to 7% of qualified wages. In addition, the Company may make discretionary contributions within the limits prescribed by the Plan and imposed in the Code. The Company’s contributions and costs relating to the Plan were $2.7 million in 2010, $2.6 million in 2009, and $2.0 million in 2008.
Common and Preferred Stock and Equity of TRG
Common and Preferred Stock and Equity of TRG
Note 13Common and Preferred Stock and Equity of TRG

Outstanding Preferred Stock and Equity

The Company is obligated to issue to the noncontrolling partners of TRG, upon subscription, one share of Series B Non-Participating Convertible Preferred Stock (Series B Preferred Stock) for each of the Operating Partnership units held by the noncontrolling partners. Each share of Series B Preferred Stock entitles the holder to one vote on all matters submitted to the Company's shareowners. The holders of Series B Preferred Stock, voting as a class, have the right to designate up to four nominees for election as directors of the Company. On all other matters, including the election of directors, the holders of Series B Preferred Stock will vote with the holders of common stock. The holders of Series B Preferred Stock are not entitled to dividends or earnings of the Company. The Series B Preferred Stock is convertible into common stock at a ratio of 14,000 shares of Series B Preferred Stock for one share of common stock. During the years ended December 31, 2010, 2009, and 2008, 126,109 shares, 70,000 shares, and 95,000 shares of Series B Preferred Stock, respectively, were converted to 7 shares, 3 shares, and 4 shares of the Company’s common stock, respectively, as a result of tenders of units under the Continuing Offer (Note 14).

The Operating Partnership’s $30 million 8.2% Cumulative Redeemable Preferred Partnership Equity (Series F Preferred Equity) is owned by institutional investors, and has no stated maturity, sinking fund, or mandatory redemption requirements. Distributions are cumulative and are payable in arrears on or before the last day of each calendar quarter. All accrued distributions have been paid. As of May 2009, the Company can redeem the Series F Preferred Equity. The holders of Series F Preferred Equity have the right, beginning in 2014, to exchange $100 in liquidation value of such equity for one share of Series F Preferred Stock. The terms of the Series F Preferred Stock are substantially similar to those of the Series F Preferred Equity. The Series F Preferred Stock is non-voting.

The 8.0% Series G Cumulative Redeemable Preferred Stock (Series G Preferred Stock), which was issued in 2004, has no stated maturity, sinking fund, or mandatory redemption requirements and is not convertible into any other security of the Company. The Series G Preferred Stock has liquidation preferences of $100 million ($25 per share). Dividends are cumulative and are payable in arrears on or before the last day of each calendar quarter. All accrued dividends have been paid. As of November 2009, the Series G Preferred Stock can be redeemed by the Company at $25 per share, plus accrued dividends. The Company owns corresponding Series G Preferred Equity interests in the Operating Partnership that entitle the Company to income and distributions (in the form of guaranteed payments) in amounts equal to the dividends payable on the Company's Series G Preferred Stock. The Series G Preferred Stock is non-voting.

The $87 million 7.625% Series H Cumulative Redeemable Preferred Stock (Series H Preferred Stock), which was issued in 2005, has no stated maturity, sinking fund, or mandatory redemption requirements and is not convertible into any other security of the Company. Dividends are cumulative and are payable in arrears on or before the last day of each calendar quarter. All accrued dividends have been paid. As of July 2010, the Series H Preferred Stock can be redeemed by the Company at $25 per share, plus accrued dividends. The Company owns corresponding Series H Preferred Equity interests in the Operating Partnership that entitle the Company to income and distributions (in the form of guaranteed payments) in amounts equal to the dividends payable on the Company’s Series H Preferred Stock. The Series H Preferred Stock is non-voting.
Commitments and Contingencies
Commitments and Contingencies
Note 14Commitments and Contingencies

Cash Tender

At the time of the Company's initial public offering and acquisition of its partnership interest in the Operating Partnership in 1992, the Company entered into an agreement (the Cash Tender Agreement) with A. Alfred Taubman, who owns an interest in the Operating Partnership, whereby he has the annual right to tender to the Company partnership units in the Operating Partnership (provided that the aggregate value is at least $50 million) and cause the Company to purchase the tendered interests at a purchase price based on a market valuation of the Company on the trading date immediately preceding the date of the tender. At A. Alfred Taubman's election, his family may participate in tenders. The Company will have the option to pay for these interests from available cash, borrowed funds, or from the proceeds of an offering of the Company's common stock. Generally, the Company expects to finance these purchases through the sale of new shares of its stock. The tendering partner will bear all market risk if the market price at closing is less than the purchase price and will bear the costs of sale. Any proceeds of the offering in excess of the purchase price will be for the sole benefit of the Company. The Company accounts for the Cash Tender Agreement between the Company and Mr. Taubman as a freestanding written put option. As the option put price is defined by the current market price of the Company's stock at the time of tender, the fair value of the written option defined by the Cash Tender Agreement is considered to be zero.

Based on a market value at December 31, 2010 of $50.48 per common share, the aggregate value of interests in the Operating Partnership that may be tendered under the Cash Tender Agreement was approximately $1.2 billion. The purchase of these interests at December 31, 2010 would have resulted in the Company owning an additional 30% interest in the Operating Partnership.

Continuing Offer

The Company has made a continuing, irrevocable offer to all present holders (other than certain excluded holders, including A. Alfred Taubman), permitted assignees of all present holders, those future holders of partnership interests in the Operating Partnership as the Company may, in its sole discretion, agree to include in the continuing offer, all existing optionees under the previous option plan, and all existing and future optionees under the 2008 Omnibus Plan (as amended) to exchange shares of common stock for partnership interests in the Operating Partnership (the Continuing Offer). Under the Continuing Offer agreement, one unit of the Operating Partnership interest is exchangeable for one share of the Company's common stock. Upon a tender of Operating Partnership units, the corresponding shares of Series B Preferred Stock, if any, will automatically be converted into the Company’s common stock at a rate of 14,000 shares of Series B Preferred Stock for one common share.

Indemnification

The disposition of Woodland in 2005 by one of the Company's Unconsolidated Joint Ventures was structured in a tax efficient manner to facilitate the investment of the Company's share of the sales proceeds in a like-kind exchange in accordance with Section 1031 of the Internal Revenue Code and the regulations thereunder. The structuring of the disposition has included the continued existence and operation of the partnership that previously owned the shopping center. In connection with the disposition, the Company entered into a tax indemnification agreement with the Woodland joint venture partner, a life insurance company. Under this tax indemnification agreement, the Company has agreed to indemnify the joint venture partner in the event an unfavorable tax determination is received as a result of the structuring of the sale in the tax efficient manner described. The maximum amount that the Company could be required to pay under the indemnification is equal to the taxes incurred by the joint venture partner as a result of the unfavorable tax determination by the IRS within the six year statutory assessment limitation period, in excess of those that would have otherwise been due if the Unconsolidated Joint Venture had sold Woodland, distributed the cash sales proceeds, and liquidated the owning entities. The Company cannot reasonably estimate the maximum amount of the indemnity, as the Company is not privy to or does not have knowledge of its joint venture partner's tax basis or tax attributes in the Woodland entities or its life insurance-related assets. However, the Company believes that the probability of having to perform under the tax indemnification agreement is remote. The Company and the Woodland joint venture partner have also indemnified each other for their shares of costs or revenues of operating or selling the shopping center in the event additional costs or revenues are subsequently identified.

Litigation

In April 2009, two restaurant owners, their two restaurants, and their principal filed a lawsuit in United States District Court for the Eastern District of Pennsylvania (Case No. CV01619) against Atlantic Pier Associates LLC ("APA", the owner of the leasehold interest in The Pier Shops), the Operating Partnership, Taubman Centers, Inc., the Manager, the owners of APA and certain affiliates of such owners, and a former employee of one of such affiliates. The plaintiffs are alleging the defendants misrepresented and concealed the status of certain tenant leases at The Pier Shops and that such status was relied upon by the plaintiffs in making decisions about their own leases. The plaintiffs are seeking damages exceeding $20 million, rescission of their leases, exemplary or punitive damages, costs and expenses, attorney’s fees, return of certain rent, and other relief as the court may determine. The lawsuit is in its early legal stages and the defendants are vigorously defending it. The outcome of this lawsuit cannot be predicted with any certainty and management is currently unable to estimate an amount or range of potential loss that could result if an unfavorable outcome occurs. While management does not believe that an adverse outcome in this lawsuit would have a material adverse effect on the Company's financial condition, there can be no assurance that an adverse outcome would not have a material effect on the Company's results of operations for any particular period.

In April 2010, the holder of the loan on The Pier Shops filed a mortgage foreclosure complaint in the United States District Court for the District of New Jersey (Case No. CV01755) against APA. The plaintiff seeks to establish the amounts due under The Pier Shops’ mortgage loan agreement, foreclose all right, title, and lien which APA has in The Pier Shops’ leasehold interest, obtain possession of the property, and order a foreclosure sale of the property to satisfy the amounts due under the loan. The foreclosure process is not in the Company’s control and the timing of transfer of title is uncertain. Upon completion of the foreclosure sale, the ownership of The Pier Shops will be transferred in satisfaction of the obligations under the debt.

See Note 7 for the Operating Partnership's guarantees of certain notes payable and other obligations, Note 9 for contingent features relating to derivative instruments, and Note 12 for obligations under existing share-based compensation plans.
Earnings Per Share
Earnings (Loss) Per Share
Note 15 – Earnings (Loss) Per Share

Basic earnings per share amounts are based on the weighted average of common shares outstanding for the respective periods. Diluted earnings per share amounts are based on the weighted average of common shares outstanding plus the dilutive effect of potential common stock. Potential common stock includes outstanding partnership units exchangeable for common shares under the Continuing Offer (Note 14), outstanding options for units of partnership interest, RSU, PSU, and deferred shares under the Non-Employee Directors’ Deferred Compensation Plan (Note 12), and unissued partnership units under unit option deferral election. In computing the potentially dilutive effect of potential common stock, partnership units are assumed to be exchanged for common shares under the Continuing Offer, increasing the weighted average number of shares outstanding. The potentially dilutive effects of partnership units outstanding and/or issuable under the unit option deferral elections are calculated using the if-converted method, while the effects of other potential common stock are calculated using the treasury stock method. Contingently issuable shares are included in diluted EPS based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period.

As of December 31, 2010, there were 8.5 million partnership units outstanding and 0.9 million unissued partnership units under unit option deferral elections that may be exchanged for common shares of the Company under the Continuing Offer (Note 14). These outstanding partnership units and unissued units were excluded from the computation of diluted earnings per share as they were anti-dilutive in all periods presented. Also, there were out-of-the-money options for 0.5 million shares for the year ended December 31, 2010 that were excluded from the computation of diluted EPS because they were anti-dilutive. There were 0.7 million and 0.5 million shares representing the potentially dilutive effect of potential common stock under share-based compensation plans (Note 12) excluded from the computation of diluted EPS for the years ended December 31, 2009 and 2008, respectively, because they were anti-dilutive due to net losses in 2009 and 2008.
 
   
Year Ended December 31
 
   
2010
  
2009
  
2008
 
Net income (loss) attributable to Taubman Centers, Inc. common shareowners (Numerator):
         
Basic
 $47,599  $(69,706) $(86,659)
Impact of additional ownership of TRG
  337         
Diluted
 $47,936  $(69,706) $(86,659)
              
Shares (Denominator) – basic
  54,569,618   53,239,279   52,866,050 
Effect of dilutive securities
  1,133,195         
Shares (Denominator) – diluted
  55,702,813   53,239,279   52,866,050 
              
Earnings (loss) per common share – basic
 $0.87  $(1.31) $(1.64)
Earnings (loss) per common share – diluted
 $0.86  $(1.31) $(1.64)
Fair Value Disclosures
Fair Value Disclosures
Note 16 – Fair Value Disclosures

This note contains required fair value disclosures for assets and liabilities remeasured at fair value on a recurring basis and financial instruments carried at other than fair value, as well as assumptions employed in deriving these fair values.

Recurring Valuations

Derivative Instruments

The fair value of interest rate hedging instruments is the amount that the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the reporting date. The Company’s valuations of its derivative instruments are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative, and therefore fall into Level 2 of the fair value hierarchy. The valuations reflect the contractual terms of the derivatives, including the period to maturity, and use observable market-based inputs, including forward curves. The fair values of interest rate hedging instruments also incorporate credit valuation adjustments to appropriately reflect both the Company’s own nonperformance risk and the respective counterparty's nonperformance risk.

Marketable Securities

The Company's valuations of marketable securities, which are considered to be available-for-sale, and an insurance deposit utilize unadjusted quoted prices determined by active markets for the specific securities the Company has invested in, and therefore fall into Level 1 of the fair value hierarchy.

For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of the fair value for each major category of assets and liabilities is presented below:

 
Fair Value Measurements as of December 31, 2010 Using
  
Fair Value Measurements as of December 31, 2009 Using
 
Description
Quoted Prices in Active Markets for Identical Assets
(Level 1)
  
Significant Other Observable Inputs
(Level 2)
  
Quoted Prices in Active Markets for Identical Assets
(Level 1)
  
Significant Other Observable Inputs
(Level 2)
 
Available-for-sale securities
$2,061     $1,665    
Derivative interest rate contract
    $4,856        
Insurance deposit
 10,135       9,689    
Total assets
$12,196  $4,856  $11,354    
                
Derivative interest rate contract (Note 9)
    $(291)     $(10,786)
Total liabilities
    $(291)     $(10,786)
 
The insurance deposit shown above represents an escrow account maintained in connection with a property and casualty insurance arrangement for the Company’s shopping centers, and is classified within Deferred Charges and Other Assets. The corresponding deferred revenue relating to amounts billed to tenants for this arrangement is classified within Accounts Payable and Other Liabilities.

The available-for-sale securities shown above consist of shares in a Vanguard REIT fund that were purchased to facilitate a tax efficient structure for the 2005 disposition of Woodland mall. In 2009, the Company concluded that a decrease in value was other than temporary, and therefore recognized a $1.7 million impairment loss.

Nonrecurring Valuations

The Pier Shops, Regency Square, and Oyster Bay investments represent the remaining book values after recognizing non-cash impairment charges to write the investments to their fair values. The fair values of the investments were determined based on discounted future cash flows, using management's estimates of cash flows from operations, necessary capital expenditures, the eventual disposition of the investments, and appropriate discount and capitalization rates (Note 3).

For these assets measured at fair value on a nonrecurring basis, quantitative disclosure of the fair value for each major category of assets is presented below:

   
2009
  
2008
 
Description
 
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
  
Total Impairment
Losses
  
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
  
Total Impairment
Losses
 
The Pier Shops investment
 $52,300  $(107,652)      
Regency Square investment
  28,800   (59,028)      
Oyster Bay investment
         $39,778  $(117,943)
Total assets
 $81,100  $(166,680) $39,778  $(117,943)

Financial Instruments Carried at Other Than Fair Values

Community Development District Obligation

The owner of one shopping center pays annual special assessment levies of a Community Development District (CDD), which provided certain infrastructure assets and improvements. As the amount and period of the special assessments were determinable, the Company capitalized the infrastructure assets and improvements and recognized an obligation for the future special assessments to be levied. At December 31, 2010 and 2009, the book value of the infrastructure assets and improvements, net of depreciation, was $43.7 million and $45.8 million, respectively. The related obligation is classified within Accounts Payable and Accrued Liabilities and had a balance of $62.6 million and $63.3 million at December 31, 2010 and 2009, respectively. The fair value of this obligation, derived from quoted market prices, was $56.8 million at December 31, 2010 and $59.8 million at December 31, 2009.
 
Notes Payable

The fair value of notes payable is estimated based on quoted market prices, if available. If no quoted market prices are available, the fair value of notes payable are estimated using cash flows discounted at current market rates. When selecting discount rates for purposes of estimating the fair value of notes payable at December 31, 2010 and 2009, the Company employed the credit spreads at which the debt was originally issued. Excluding 2010 refinancings, an additional 1.5% credit spread was added to the discount rate at December 31, 2010 and 2.0% credit spread at December 31, 2009, to account for current market conditions. This additional spread is an estimate and is not necessarily indicative of what the Company could obtain in the market at the reporting date. The Company does not believe that the use of different interest rate assumptions would have resulted in a materially different fair value of notes payable as of December 31, 2010 or 2009. To further assist financial statement users, the Company has included with its fair value disclosures an analysis of interest rate sensitivity. The fair values of the loans on The Pier Shops and Regency Square, at December 31, 2010 and 2009, have been estimated at the fair value of the centers, which are collateral for the loans (Note 3).

The estimated fair values of notes payable at December 31, 2010 and 2009 are as follows:

 
2010
 
2009
 
Carrying Value
Fair Value
 
Carrying Value
Fair Value
Notes payable
$2,656,560
$2,616,986
 
$2,691,019
$2,523,759

The fair values of the notes payable are dependent on the interest rates employed used in estimating the values. An overall 1% increase in rates employed in making these estimates would have decreased the fair values of the debt shown above at December 31, 2010 by $77.0 million or 2.9%.

See Note 4 regarding the fair value of the Unconsolidated Joint Ventures’ notes payable, and Note 9 regarding additional information on derivatives.
Cash Flow Disclosures and Non-Cash Investing and Financing Activities
Cash Flow Disclosures and Non-Cash Investing Activities
Note 17 – Cash Flow Disclosures and Non-Cash Investing Activities

Interest paid in 2010, 2009, and 2008, net of amounts capitalized of $0.3 million, $1.3 million, and $8.0 million, respectively, approximated $134.6 million, $141.8 million, and $144.3 million, respectively. The following non-cash investing activities occurred during 2010, 2009, and 2008:

 
2010
2009
2008
Non-cash additions to properties
$28,678
$14,138
$14,820

Non-cash additions to properties primarily represent accrued construction and tenant allowance costs.
Quarterly Financial Data (Unaudited)
Quarterly Financial Data (Unaudited)
Note 18 – Quarterly Financial Data (Unaudited)

The following is a summary of quarterly results of operations for 2010 and 2009:

   
2010
 
   
First Quarter
  
Second Quarter
  
Third Quarter
  
Fourth Quarter
 
Revenues
 $151,489  $154,082  $155,263  $193,724 
Equity in income of Unconsolidated Joint Ventures
  9,735   9,505   9,973   16,199 
Net income
  16,813   18,484   8,458   58,572 
N Net income attributable to TCO common shareowners
  6,283   7,453   722   33,141 
    Earnings per common share – basic
 $0.12  $0.14  $0.01  $0.61 
    Earnings per common share – diluted
 $0.11  $0.14  $0.01  $0.60 

   
2009 (1)
 
   
First Quarter
  
Second Quarter
  
Third Quarter
  
Fourth Quarter
 
Revenues
 $157,690  $158,939  $163,200