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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

OR

TAUBMAN CENTERS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such report(s)) and (2) has been subject to such filing requirements for the past 90 days.

     Yes X    No

As of March 20, 2003, the aggregate market value of the 51,557,179 shares of Common Stock held by non-affiliates of the registrant was $902 million, based upon the closing price $17.49 on the New York Stock Exchange composite tape on such date. (For this computation, the registrant has excluded the market value of all shares of its Common Stock reported as beneficially owned by executive officers and directors of the registrant and certain other shareholders; such exclusion shall not be deemed to constitute an admission that any such person is an “affiliate” of the registrant.) As of March 20, 2003, there were outstanding 52,270,965 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual shareholders meeting to be held in 2003 are incorporated by reference into Part III.

PART I

Item 1. BUSINESS.

The Company

        Taubman Centers, Inc. (the “Company” or “TCO”) was incorporated in Michigan in 1973 and had its initial public offering (“IPO”) in 1992. The Company owns a 62% managing general partner’s interest in The Taubman Realty Group Limited Partnership (the “Operating Partnership” or “TRG”), through which the Company conducts all its operations. The Company owns, develops, acquires, and operates regional shopping centers and interests therein. The Company’s portfolio, as of December 31, 2002, included 20 urban and suburban centers located in nine states. One new center is under construction in Virginia and will open in September 2003. Construction is scheduled to begin on a second new center in 2003. The center is located in North Carolina and will open in August 2005. The Operating Partnership also owns certain regional retail shopping center development projects and more than 99% of The Taubman Company LLC (the “Manager”), which manages the shopping centers and provides other services to the Operating Partnership and the Company. See the table on pages 12 and 13 of this report for information regarding the centers.

        The Company is a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended (the “Code”). In order to satisfy the provisions of the Code applicable to REITs, the Company must distribute to its shareholders at least 90% of its REIT taxable income and meet certain other requirements. The Operating Partnership’s partnership agreement provides that the Operating Partnership will distribute, at a minimum, sufficient amounts to its partners such that the Company’s pro rata share will enable the Company to pay shareholder dividends (including capital gains dividends that may be required upon the Operating Partnership’s sale of an asset) that will satisfy the REIT provisions of the Code.

Recent Developments

        For a discussion of business developments that occurred in 2002, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A).

The Shopping Center Business

        There are several types of retail shopping centers, varying primarily by size and marketing strategy. Retail shopping centers range from neighborhood centers of less than 100,000 square feet of GLA to regional and super-regional shopping centers. Retail shopping centers in excess of 400,000 square feet of GLA are generally referred to as “regional” shopping centers, while those centers having in excess of 800,000 square feet of GLA are generally referred to as “super-regional” shopping centers. Nineteen of the centers are “super-regional” centers. In this annual report on Form 10-K, the term “regional shopping centers” refers to both regional and super-regional shopping centers. The term “GLA” refers to gross retail space, including anchors and mall tenant areas, and the term “Mall GLA” refers to gross retail space, excluding anchors. The term “anchor” refers to a department store or other large retail store. The term “mall tenants” refers to stores (other than anchors) that are typically specialty retailers and lease space in shopping centers.

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Business of the Company

        The Company, as managing general partner of the Operating Partnership, is engaged in the ownership, management, leasing, acquisition, development, and expansion of regional shopping centers.

      The centers:

        The most important factor affecting the revenues generated by the centers is leasing to mall tenants (primarily specialty retailers), which represents approximately 90% of revenues. Anchors account for less than 10% of revenues because many own their stores and, in general, those that lease their stores do so at rates substantially lower than those in effect for mall tenants.

        The Company’s portfolio is concentrated in highly productive super-regional shopping centers. All 20 centers had annual rent rolls at December 31, 2002 of over $10 million. The Company believes that this level of productivity is indicative of the centers’ strong competitive position and is, in significant part, attributable to the Company’s business strategy and philosophy. The Company believes that large shopping centers (including regional and especially super-regional shopping centers) are the least susceptible to direct competition because (among other reasons) anchors and large specialty retail stores do not find it economically attractive to open additional stores in the immediate vicinity of an existing location for fear of competing with themselves. In addition to the advantage of size, the Company believes that the centers’ success can be attributed in part to their other physical characteristics, such as design, layout, and amenities.

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Business Strategy And Philosophy

        The Company believes that the regional shopping center business is not simply a real estate development business, but rather an operating business in which a retailing approach to the on-going management and leasing of the centers is essential. Thus the Company:

        The centers compete for retail consumer spending through diverse, in-depth presentations of predominantly fashion merchandise in an environment intended to facilitate customer shopping. While some centers include stores that target high-end, upscale customers, each center is individually merchandised in light of the demographics of its potential customers within convenient driving distance.

        The Company’s leasing strategy involves assembling a diverse mix of mall tenants in each of the centers in order to attract customers, thereby generating higher sales by mall tenants. High sales by mall tenants make the centers attractive to prospective tenants, thereby increasing the rental rates that prospective tenants are willing to pay. The Company implements an active leasing strategy to increase the centers’ productivity and to set minimum rents at higher levels. Elements of this strategy include terminating leases of under-performing tenants, renegotiating existing leases, and not leasing space to prospective tenants that (though viable or attractive in certain ways) would not enhance a center’s retail mix.

Potential For Growth

        The Company’s principal objective is to enhance shareholder value. The Company seeks to maximize the financial results of its assets, while pursuing a growth strategy that concentrates primarily on an active new center development program.

Internal Growth

        In mid-2001, the Company underwent a major review of its business strategies, which highlighted that 90% of the Company’s future growth will come from its existing core portfolio and business. Although the Company has always had a culture of intensively managing its assets and maximizing the rents from tenants, the Company committed to review all of the processes that impact the core portfolio in order to drive even better performance.

        First, the Company agreed upon the core business strategy, which is to maintain a portfolio of properties that deliver above-market profitable growth by providing targeted retailers with the best opportunity to do business in each market and targeted shoppers with the best local shopping experience for their needs.

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        The Company decided upon three endeavors that would lead to achievement of the key mission to “deliver above market profitable growth”. The Company’s first endeavor is to become an even more customer centric company than it is today, which will enable the Company to make better decisions driven by fact-based understanding of what retailers and shoppers want. The second endeavor is to become more operationally excellent, which will enable the Company to achieve competitive cost efficiencies, greater discipline, and more timely processes and decision making. This is especially important as the Company’s competitors search for economies of scale in increasingly larger operations. The third endeavor is to achieve profitable growth, which the Company has defined as maintaining the highest tenant sales and sales growth in the industry, and accelerating core Net Operating Income (NOI) growth over time. The Company believes further integrating these basic strategic themes throughout the organization will serve to coordinate and prioritize all of the Company’s efforts to achieve its strategy.

        The Company has identified the key drivers to achieve its core business strategy. These drivers fall into four categories: people drivers, organizational drivers, customer drivers and financial drivers. The Company identified 40 drivers of the core business that served as a basis for seven companywide initiatives to be completed in 2003 that will establish a strong foundation for improved core performance. These initiatives are each being led by teams of approximately 7 to 8 people from all areas of the organization.

        The Company strongly believes that focusing management attention on these initiatives will improve its performance on these drivers and by establishing specific benchmarks and goals for these drivers, which the Company can measure year after year, the Company will have set the stage for strong NOI growth over the near to midterm.

Development of New Centers

        The Company is pursuing an active program of regional shopping center development. The Company believes that it has the expertise to develop economically attractive regional shopping centers through intensive analysis of local retail opportunities. The Company believes that the development of new centers is an important use of its capital and an area in which the Company excels. At any time, the Company has numerous potential development projects in various stages.

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        The Mall at Millenia, a 1.1 million square foot super-regional center located in Orlando, Florida opened on October 18, 2002. The center is anchored by Neiman Marcus, Bloomingdale’s, and Macy’s. Additionally, one new center is currently under construction; Stony Point Fashion Park, a 690 thousand square foot center in Richmond, Virginia, is scheduled to open in September 2003. Construction is scheduled to begin in 2003 on NorthLake Mall, a 1.2 million square foot center in Charlotte, North Carolina. The center is scheduled to open in August 2005.

        The Company’s policies with respect to development activities are designed to reduce the risks associated with development. For instance, the Company previously entered into an agreement to lease a center while the Company investigated the redevelopment opportunities of the center. Also, the Company generally does not intend to acquire land early in the development process. Instead, the Company generally acquires options on land or forms partnerships with landholders holding potentially attractive development sites. The Company typically exercises the options only once it is prepared to begin construction. The pre-construction phase for a regional center typically extends over several years and the time to obtain anchor commitments, zoning and regulatory approvals, and public financing arrangements can vary significantly from project to project. In addition, the Company does not intend to begin construction until a sufficient number of anchor stores have agreed to operate in the shopping center, such that the Company is confident that the projected sales and rents from Mall GLA are sufficient to earn a return on invested capital in excess of the Company’s cost of capital. Having historically followed these principles, the Company’s experience indicates that, on average, less than 10% of the costs of the development of a regional shopping center will be incurred prior to the construction period. However, no assurance can be given that the Company will continue to be able to so limit pre-construction costs. Unexpected costs due to extended zoning and regulatory processes may cause the Company’s investment in a project to exceed this historic experience.

        While the Company will continue to evaluate development projects using criteria, including financial criteria for rates of return, similar to those employed in the past, no assurances can be given that the adherence to these policies will produce comparable results in the future. In addition, the costs of shopping center development opportunities that are explored but ultimately abandoned will, to some extent, diminish the overall return on development projects (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Spending” for further discussion of the Company’s development activities).

Strategic Acquisitions

        The Company’s objective is to acquire existing centers only when they are compatible with the quality of the Company’s portfolio (or can be redeveloped to that level) and that satisfy the Company’s strategic plans and pricing requirements.

        In March 2003, the Company acquired the 15% minority interest in Great Lakes Crossing, bringing its ownership in the shopping center to 100%.

        In October 2002, the Company acquired Swerdlow Real Estate Group’s (Swerdlow’s) 50% interest in Dolphin Mall, bringing its ownership in the shopping center to 100%.

        In May 2002, the Operating Partnership acquired a 50% general partnership interest in SunValley Associates, a California general partnership that owns the Sunvalley shopping center located in Concord, California.

        Also in May 2002, the Company purchased an additional interest in Arizona Mills. The Company has a 50% interest in the center as of the purchase date.

Expansions of the Centers

        Another potential element of growth is the strategic expansion of existing properties to update and enhance their market positions, by replacing or adding new anchor stores or increasing mall tenant space. Most of the centers have been designed to accommodate expansions. Expansion projects can be as significant as new shopping center construction in terms of scope and cost, requiring governmental and existing anchor store approvals, design and engineering activities, including rerouting utilities, providing additional parking areas or decking, acquiring additional land, and relocating anchors and mall tenants (all of which must take place with a minimum of disruption to existing tenants and customers).

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        The following table includes information regarding recent development, acquisition, and expansion activities.

Developments:

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Rental Rates

        As leases have expired in the centers, the Company has generally been able to rent the available space, either to the existing tenant or a new tenant, at rental rates that are higher than those of the expired leases. In a period of increasing sales, rents on new leases will tend to rise as tenants’ expectations of future growth become more optimistic. In periods of slower growth or declining sales, rents on new leases will grow more slowly or will decline for the opposite reason. However, center revenues nevertheless increase as older leases roll over or are terminated early and replaced with new leases negotiated at current rental rates that are usually higher than the average rates for existing leases.

        The following tables contain certain information regarding per square foot minimum rent at centers that have been owned and open for at least two years.

        Excluding tenant spaces greater than 10,000 square feet opened in 2002 or 2001:

Lease Expirations

        The following table shows lease expirations based on information available as of December 31, 2002 for the next ten years for the centers in operation at that date:

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        The Company believes that the information in the table is not necessarily indicative of what will occur in the future because of several factors, but principally because of early lease terminations at the centers. For example, the average remaining term of the leases that were terminated during the period 1997 to 2002 was approximately two years. The average term of leases signed during 2002 and 2001 was approximately eight years.

        In addition, mall tenants at the centers may seek the protection of the bankruptcy laws, which could result in the termination of such tenants’ leases and thus cause a reduction in cash flow. In 2002, approximately 1.7% of leases were so affected compared to 4.5% in 2001. This statistic has ranged from 1.2% to 4.5% since the Company went public in 1992. Since 1991, the annual provision for losses on accounts receivable has been less than 2% of annual revenues.

Occupancy

        For centers owned and open for all of 2002 and 2001, leased space, ending occupancy, and average occupancy were 93.4%, 90.2%, and 88.3%, respectively, in 2002, and 91.6%, 88.6%, and 87.9%, respectively, in 2001. Mall tenant average occupancy, ending occupancy, and leased space rates of all centers are as follows:

Major Tenants

        No single retail company represents 10% or more of the Company’s revenues. The combined operations of The Limited, Inc. accounted for approximately 5.3% of Mall GLA as of December 31, 2002 and of 2002 minimum rent. No other single retail company accounted for more than 3% of Mall GLA or 4% of 2002 minimum rent. The following table shows the ten largest tenants and their square footage as of December 31, 2002.

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General Risks of the Company

Economic Performance and Value of Shopping Centers Dependent on Many Factors

        The economic performance and value of the Company’s shopping centers are dependent on various factors. Additionally, these same factors will influence the Company’s decision whether to go forward on the development of new centers and may affect the ultimate economic performance and value of projects under construction (see other risks associated with the development of new centers under “Business of the Company — Development of New Centers”). Such factors include:

In addition, the value of shopping centers may be adversely affected by:

        Adverse changes in the economic performance and value of shopping centers would adversely affect the Company’s income and cash available to pay dividends.

Third Party Interests in the Centers

        Some of the shopping centers which the Company develops and leases are partially owned by non-affiliated partners through joint venture arrangements. As a result, the Company may not be able to control all decisions regarding those shopping centers and may be required to take actions that are in the interest of the joint venture partners but not the Company’s best interests.

Bankruptcy of Mall Tenants or Joint Venture Partners

        The Company could be adversely affected by the bankruptcy of third parties. The bankruptcy of a mall tenant could result in the termination of its lease which would lower the amount of cash generated by that mall. In addition, if a department store operating an anchor at one of our shopping centers were to go into bankruptcy and cease operating, its closing may lead to reduced customer traffic and lower mall tenant sales which would, in turn, affect the amount of rent our tenants pay the Company. The profitability of shopping centers held in a joint venture could also be adversely affected by the bankruptcy of one of the joint venture partners if, because of certain provisions of the bankruptcy laws, the Company was unable to make important decisions in a timely fashion or became subject to additional liabilities.

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Investments in and Loans to Third Parties

        The Company occasionally extends credit to third parties in connection with the sales of land or other transactions. The Company has occasionally made investments in marketable and other equity securities. The Company is exposed to risk in the event the values of its investments and/or its loans decrease due to overall market conditions, business failure, and/or other nonperformance by the investees or counterparties.

Third Party Contracts

        The Company provides property management, leasing, development, and other administrative services to centers transferred to General Motors pension trusts, other third parties and to certain Taubman affiliates. The contracts under which these services are provided may be canceled or not renewed or may be renegotiated on terms less favorable to the Company. Certain overhead costs allocated to these contracts would not be eliminated if the contracts were to be canceled or not renewed.

Inability to Maintain Status as a REIT

Environmental Matters

        All of the centers presently owned by the Company (not including option interests in certain pre- development projects or any of the real estate managed but not included in the Company’s portfolio) have been subject to environmental assessments. The Company is not aware of any environmental liability relating to the centers or any other property, in which they have or had an interest (whether as an owner or operator) that the Company believes, would have a material adverse effect on the Company’s business, assets, or results of operations. No assurances can be given, however, that all environmental liabilities have been identified or that no prior owner, operator, or current occupant has created an environmental condition not known to the Company. Moreover, no assurances can be given that (1) future laws, ordinances, or regulations will not impose any material environmental liability or that (2) the current environmental condition of the centers will not be affected by tenants and occupants of the centers, by the condition of properties in the vicinity of the centers (such as the presence of underground storage tanks), or by third parties unrelated to the Company.

        There are asbestos containing materials (“ACMs”) at some of the older centers, primarily in the form of floor tiles, roof coatings, and mastics. The floor tiles, roof coatings, and mastics are generally in good condition. The Manager has an operations and maintenance program that details operating procedures with respect to ACMs prior to any renovation and that requires periodic inspection for any change in condition of existing ACMs.

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Personnel

        The Company has engaged the Manager to provide real estate management, acquisition, development, and administrative services required by the Company and its properties.

        As of December 31, 2002, the Manager had 1,045 full-time employees. The following table provides a breakdown of employees by operational areas as of December 31, 2002:

        As of January 1, 2002, certain employees, who previously had been employees of affiliates of the Manager, became direct employees of the Manager. The Manager considers its relations with its employees to be good.

Item 2. PROPERTIES.

Ownership

        The following table sets forth certain information about each of the centers. The table includes only centers in operation at December 31, 2002. Excluded from this table are Stony Point Fashion Park which will open in 2003, and NorthLake Mall which will open in 2005. Centers are owned in fee other than Beverly Center, Cherry Creek, International Plaza, MacArthur Center, and Sunvalley, which are held under ground leases expiring between 2049 and 2083.

        Certain of the centers are partially owned through joint ventures. Generally, the Operating Partnership’s joint venture partners have ongoing rights with regard to the disposition of the Operating Partnership’s interest in the joint ventures, as well as the approval of certain major matters.

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12

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Anchors

        The following table summarizes certain information regarding the anchors at the operating centers (excluding the value centers) as of December 31, 2002.

Mortgage Debt

        The following table sets forth certain information regarding the mortgages encumbering the centers as of December 31, 2002. All mortgage debt in the table below is nonrecourse to the Operating Partnership, except for debt encumbering Great Lakes Crossing, Dolphin Mall, Stony Point Fashion Park, The Mall at Millenia, The Mall at Wellington Green, and The Shops at Willow Bend. The Operating Partnership has guaranteed the payment of all or a portion of the principal and interest on the mortgage debt of these centers. The loan agreements provide for the reduction of the amounts guaranteed as certain center performance and valuation criteria are met. The Great Lakes Crossing loan was refinanced in February 2003 with a non-recourse loan. (See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Covenants and Commitments”). Assessment bonds totaling approximately $2.4 million, which are not included in the table, also encumber Biltmore Fashion Park, Sunvalley, and Twelve Oaks Mall.

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        For additional information regarding the centers and their operations, see the responses to Item 1 of this report.

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Item 3. LEGAL PROCEEDINGS.

        The Company and its directors are parties in several lawsuits related to an unsolicited offer for all of the outstanding shares of common stock of the Company by Simon Property Group, Inc., and its acquisition subsidiary, Simon Property Acquisitions, Inc. (collectively, “Simon”), made public by Simon on November 13, 2002, and a subsequent tender offer for all of the outstanding shares of common stock of the Company. These lawsuits include the following:

        On November 14, 2002, Lionel Z. Glancy (“Glancy”), as plaintiff, commenced a civil action against the Company and its directors, as defendants, in the State of Michigan Circuit Court for the Sixth Judicial Circuit Court (“State Court”). The action purports to assert individual claims as well as class action claims on behalf of all persons (other than defendants) who own securities of the Company. The complaint alleges that the defendants have breached their fiduciary duties by refusing to negotiate a sale of the Company to Simon. The action seeks class certification, injunctive relief, compensatory damages in an unspecified sum, and costs, expenses, and attorneys’ fees. On December 6, 2002, Glancy amended its complaint to add claims that the Company’s 1998 issuance of Series B Non-Participating Convertible Preferred Stock (the “Series B Stock”) to members of the Taubman family was a “control share acquisition” under the Michigan Control Share Acquisitions Act (the “Control Share Act”), and that voting agreements entered into by Robert S. Taubman and others were an unreasonable defensive action and a “control share acquisition” under the Control Share Act.

        On November 15, 2002, Joseph Leone, as plaintiff, filed a civil action against the Company and its directors, as defendants, in State Court. The action purports to assert individual claims as well as class action claims on behalf of all other similarly situated shareholders of the Company. The complaint alleges that (i) the Series B Stock issued to Robert S. Taubman and A. Alfred Taubman was issued without proper disclosure and without a necessary shareholder vote, and (ii) the directors of the Company have failed to seriously evaluate the benefits of the Simon offer or other alternatives, such as negotiating with Simon or other potential suitors. The action seeks class certification, declaratory and injunctive relief, damages in an unspecified sum, and costs, expenses, and attorneys’ fees.

        On November 19, 2002, Judith B. Shiffman Revocable Living Trust, as plaintiff, filed a civil action against the Company and its directors, as defendants, in State Court. The action purports to assert individual claims as well as class action claims on behalf of all other similarly situated shareholders of the Company. The complaint alleges that the directors breached their fiduciary duties and are depriving the plaintiff and other class members of the true value of their investment in the Company, by among other things, refusing to negotiate with Simon. The action seeks class certification, injunctive relief, and costs, expenses, and attorneys’ fees.

        On December 5, 2002, Simon, as plaintiff, filed a civil action against the Company, its directors, and A. Alfred Taubman, as defendants, in the United States District Court for the Eastern District of Michigan, Southern Division (“Federal Court”). The complaint alleges that (i) the Company’s 1998 issuance of Series B Stock to members of the Taubman family was a “control share acquisition” under the Control Share Act, (ii) that the rights granted to Robert S. Taubman by the voting agreements was a “control share acquisition” under the Control Share Act, (iii) the Series B Stock should not be permitted to vote, and (iv) the defendants breached their fiduciary duties by, inter alia, issuing the Series B Stock. The action seeks declaratory and injunctive relief. On December 27, 2002, Simon amended its complaint to add a claim that Robert S. Taubman, the other members of the Taubman family, and the persons who entered into the voting agreements with Robert S. Taubman had formed a “group” in response to the Simon offer, that the “group” had acquired all of the shares of stock held by each alleged member of the “group,” and that the “group’s” acquisition of those shares was a “control share acquisition” subject to the Control Shares Act. On January 31, 2003, Simon filed a second amendment to its complaint, adding as a plaintiff, Randall J. Smith, an executive officer of Westfield America, Inc., a company that joined with Simon in connection with Simon’s tender offer.

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        On December 24, 2002, Glancy filed a second civil action against the Company, its directors, and A. Alfred Taubman, as defendants, in Federal Court. The action purports to assert individual claims as well as class action claims on behalf of all persons (other than defendants) who own securities of the Company. The complaint alleges (i) that the Series B Stock was improperly issued in violation of the Company’s articles of incorporation, (ii) that the voting rights given to Robert S. Taubman under the voting agreements was a “control share acquisition” subject to the Control Share Act, (iii) members of the Taubman family should not be permitted to vote their Series B Stock, and Robert S. Taubman should not be permitted to exercise the voting rights conveyed by the voting agreements, (iv) a breach of fiduciary duty in response to the Simon offer, and (v) breaches of fiduciary duty in connection with the issuance of the Series B Stock. The action seeks class certification, declaratory and injunctive relief, damages in an unspecified sum, and costs, expenses, and attorneys’ fees. On January 31, 2003, Glancy again amended its complaint, to add additional claims of breach of fiduciary duty relating to the Simon offer.

        Neither the Company, its subsidiaries, nor any of the joint ventures is presently involved in any material litigation, except as described in the preceding paragraphs, nor, to the Company's knowledge, is any material litigation threatened against the Company, its subsidiaries, or any of the properties. Except for routine litigation involving present or former tenants (generally eviction or collection proceedings) and the matters noted in the preceding paragraphs, substantially all litigation is covered by liability insurance.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      None.

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

        The common stock of Taubman Centers, Inc. is listed and traded on the New York Stock Exchange (Symbol: TCO). As of March 20, 2003, the 52,270,965 outstanding shares of Common Stock were held by 718 holders of record.

        The following table presents the dividends declared and range of share prices for each quarter of 2002 and 2001.

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Item 6. SELECTED FINANCIAL DATA.

        The following table sets forth selected financial data for the Company and should be read in conjunction with the financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report.

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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Company’s expectations or beliefs concerning future events, including the following: statements regarding future developments and joint ventures, rents and returns, statements regarding the continuation of trends, and any statements regarding the sufficiency of the Company’s cash balances and cash generated from operating and financing activities for the Company’s future liquidity and capital resource needs. The Company cautions that although forward-looking statements reflect the Company’s good faith beliefs and best judgment based upon current information, these statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including those risks, uncertainties, and factors detailed from time to time in reports filed with the SEC, and in particular those set forth under the headings “General Risks of the Company” and “Environmental Matters” in the Company’s Annual Report on Form 10-K. The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements of Taubman Centers, Inc. and the Notes thereto.

General Background and Performance Measurement

        The Company owns a managing general partner’s interest in The Taubman Realty Group Limited Partnership (the Operating Partnership or TRG), through which the Company conducts all of its operations. The Operating Partnership owns, develops, acquires, and operates regional shopping centers nationally. The Consolidated Businesses consist of shopping centers that are controlled by ownership or contractual agreement, development projects for future regional shopping centers, and The Taubman Company LLC (the Manager). Shopping centers that are not controlled and that are owned through joint ventures with third parties (Unconsolidated Joint Ventures) are accounted for under the equity method.

        The operations of the shopping centers are best understood by measuring their performance as a whole, without regard to the Company’s ownership interest. Consequently, in addition to the discussion of the operations of the Consolidated Businesses, the operations of the Unconsolidated Joint Ventures are presented and discussed as a whole.

        The Company opened one new shopping center during 2002 and four new shopping centers during 2001 (Results of Operations – New Center Openings). During 2002, the Company acquired an interest in Sunvalley and sold its interests in La Cumbre Plaza and Paseo Nuevo (Results of Operations – Acquisitions and Dispositions). Additional statistics that exclude the new centers, Sunvalley, La Cumbre Plaza, and Paseo Nuevo are provided to present the performance of comparable centers in the Company’s continuing operations.

Current Operating Trends

        In 2001 and 2002, the regional shopping center industry has been affected by the softening of the national economy. Economic pressures that affect consumer confidence, job growth, energy costs, and income gains can affect retail sales growth and impact the Company’s ability to lease vacancies and negotiate rents at advantageous rates. The impact of a soft economy on the Company’s current results of operations can be moderated by lease cancellation income, which tends to increase in down-cycles of the economy. While the Company’s operating statistics have recently shown some improvement, the sales environment remains challenging and, given the very real geopolitical risks, there is no assurance that these trends will continue.

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Mall Tenant Sales and Center Revenues

        Over the long term, the level of mall tenant sales is the single most important determinant of revenues of the shopping centers because mall tenants provide approximately 90% of these revenues and because mall tenant sales determine the amount of rent, percentage rent, and recoverable expenses (together, total occupancy costs) that mall tenants can afford to pay. However, levels of mall tenant sales can be considerably more volatile in the short run than total occupancy costs.

        The Company believes that the ability of tenants to pay occupancy costs and earn profits over long periods of time increases as sales per square foot increase, whether through inflation or real growth in customer spending. Because most mall tenants have certain fixed expenses, the occupancy costs that they can afford to pay and still be profitable are a higher percentage of sales at higher sales per square foot.

        The following table summarizes occupancy costs, excluding utilities, for mall tenants as a percentage of mall tenant sales.

        Tenant sales per square foot in 2002 decreased by 1.5% compared to 2001. Sales directly impact the amount of percentage rents certain tenants and anchors pay. The effects of declines in sales experienced during 2001 and 2002 on the Company’s operations are moderated by the relatively minor share of total rents (approximately two percent) percentage rents represent. However, if negative sales trends were to continue, the Company’s ability to lease vacancies and negotiate rents at advantageous rates could be adversely affected.

Rental Rates

        As leases have expired in the shopping centers, the Company has generally been able to rent the available space, either to the existing tenant or a new tenant, at rental rates that are higher than those of the expired leases. In a period of increasing sales, rents on new leases will tend to rise as tenants’ expectations of future growth become more optimistic. In periods of slower growth or declining sales, such as the Company is currently experiencing, rents on new leases will grow more slowly or will decline for the opposite reason. However, center revenues nevertheless increase as older leases roll over or are terminated early and replaced with new leases negotiated at current rental rates that are usually higher than the average rates for existing leases. The following table contains certain information regarding per square foot minimum rent at the shopping centers that have been owned and open for at least two years.

        The opening and closing rents statistics are not computed on comparable tenant spaces, and can vary significantly from period to period depending on the total amount, location, and average size of tenant space opening and closing in the period. During 2002, the openings included several large spaces, which typically lease at lower rents.

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        The following table contains information regarding per square foot minimum rent at shopping centers that have been owned and open for at least two years and excluding tenants greater than 10,000 square feet opening during 2001 or 2002.

        Generally, the rent spread between opening and closing stores is in the Company’s historic range of $5.00 to $10.00 per square foot. This statistic is difficult to predict in part because of early lease terminations, which may have actual average closing rents per square foot that vary from the average rent per square foot of scheduled lease expirations.

Occupancy

        Mall tenant average occupancy, ending occupancy, and leased space rates are as follows:

        Occupancy trends showed some improvement in 2002. The lower overall occupancy and leased space in 2002 and 2001 as compared to 2000 reflect the opening of the four centers in 2001 at occupancy levels lower than the average of the existing portfolio. A number of unanticipated early lease terminations and bankruptcies accounted for the majority of the decline in comparable center occupancy in 2001 from 2000. Tenant bankruptcy filings as a percentage of the total number of tenant leases was 1.7% in 2002, compared to 4.5% in 2001 and 2.3% in 2000.

Seasonality

        The regional shopping center industry is seasonal in nature, with mall tenant sales highest in the fourth quarter due to the Christmas season, and with lesser, though still significant, sales fluctuations associated with the Easter holiday and back-to-school events. While minimum rents and recoveries are generally not subject to seasonal factors, most leases are scheduled to expire in the first quarter, and the majority of new stores open in the second half of the year in anticipation of the Christmas selling season. Additionally, most percentage rents are recorded in the fourth quarter. Accordingly, revenues and occupancy levels are generally highest in the fourth quarter.

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        Because the seasonality of sales contrasts with the generally fixed nature of minimum rents and recoveries, mall tenant occupancy costs (the sum of minimum rents, percentage rents, and expense recoveries) relative to sales are considerably higher in the first three quarters than they are in the fourth quarter.

Results of Operations

New Center Openings

        The Mall at Millenia, a 1.1 million square foot regional center in which the Operating Partnership has a 50% interest, opened in October 2002, in Orlando, Florida.

        The Mall at Wellington Green, a 1.1 million square foot regional center, opened in October 2001 in Wellington, Florida. A new anchor, Nordstrom, and additional tenant space will open in 2003. The center is owned by a joint venture in which the Operating Partnership has a 90% controlling interest.

        International Plaza, a 1.2 million square foot regional center, opened in September 2001 in Tampa, Florida. The Company has an approximately 26% ownership interest in the center and accounts for it under the equity method. The Operating Partnership is entitled to a preferred return on approximately $17 million of equity contributions as of December 2002, which were used to fund construction costs.

        The Shops at Willow Bend, a wholly owned 1.3 million square foot regional center, opened in August 2001 in Plano, Texas. A new anchor, Saks Fifth Avenue, will open in September 2004.

        Dolphin Mall, a 1.3 million square foot value regional center, opened in March 2001, in Miami, Florida. In October 2002, the Company acquired the remaining 50% interest in Dolphin Mall (see Results of Operations – Acquisitions and Dispositions).

New Center Results

        The Mall at Millenia was 96% leased at opening and 93% occupied by December 2002. The center is expected to achieve an approximately 11% return in 2003.

        International Plaza and Wellington Green are performing as expected with improving occupancy, leasing progress, and sales performance. The return on Wellington Green was approximately 7% in 2002 and is anticipated to be about 9% in 2003, International Plaza’s return was approximately 9% in 2002 and is anticipated to be approximately 10% in 2003.

        The performance of The Shops at Willow Bend has been adversely affected by local and national economic conditions resulting in lower occupancy and sales levels than expected. In addition, Willow Bend faces significant competition from the large supply of retail space that opened in the area within the last two years. The Company does not expect significant improvements in the fundamentals of Willow Bend until the local economy strengthens.

        As a result of Willow Bend’s current operating performance, a paydown of the construction loan will be required in July 2003, at its first of two, one-year, extension dates. During 2002, the Company paid down $17 million of this facility, principally to take advantage of the lower interest rates under the Company’s line of credit. The return on Willow Bend was approximately 6.5% in 2002 and is expected to be slightly lower in 2003.

        While the performance of Dolphin Mall was adversely affected by slower than expected lease up, rental concessions and lower than expected expense recoveries, Dolphin’s performance is continuing to improve. Vehicle counts are averaging about 500,000 per month and sales at the center are increasing steadily. Tenant collections have also increased, and the leasing environment has improved.

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        Dolphin Mall is subject to annual special tax assessments by a local community development district (CDD) for certain infrastructure improvements on the property. In the first quarter of 2002, the CDD refinanced its outstanding bonds to extend the term from 20 years to 30 years and to reduce the interest rate. In addition, the first annual assessment began in 2002 rather than in 2001, resulting in a reversal of $2.8 million previously expensed. The annual assessments will be based on allocations of the cost of the infrastructure between the properties that benefit. The total allocation of cost to Dolphin Mall based on current assessments is approximately $65.1 million with a 2002 assessment of approximately $3 million. A portion of these assessments is expected to be recovered from tenants.

        The Company’s return on Dolphin Mall, excluding the favorable $2.8 million reversal described above, was approximately 5% in 2002, and is expected to be approximately 6% in 2003. Considering the opportunities for growth, the Company anticipates that the net operating income of Dolphin Mall will double over the next three to five years, which would result in a return of 11% to 12% on the Company’s $97 million incremental investment in Dolphin (Results of Operations-Acquisitions and Dispositions).

        Estimates regarding returns are forward-looking statements and certain significant factors could cause the actual results to differ materially, including but not limited to: (1) actual results of negotiations with tenants, (2) timing of tenant openings, (3) early lease terminations and bankruptcies, (4) sales performance of the centers, and (5) increases in operating costs.

Acquisitions and Dispositions

        In October 2002, the Company acquired Swerdlow Real Estate Group’s (Swerdlow’s) 50% interest in Dolphin Mall, bringing its ownership in the shopping center to 100%. The $97 million purchase price consisted of $94.5 million of debt that encumbered the property and $2.3 million of peripheral property. No cash was exchanged. Concurrently, all lawsuits between the Company and Swerdlow were settled and Swerdlow repaid the $10 million principal balance of a note due the Company that was previously delinquent. The results of Dolphin have been consolidated in the Company’s results subsequent to the acquisition date (prior to that date, Dolphin was accounted for under the equity method as an Unconsolidated Joint Venture).

        In May 2002, the Company acquired a 50% general partnership interest in SunValley Associates, a California general partnership that owns the Sunvalley shopping center located in Concord, California, for $88 million. The purchase price consisted of $28 million of cash and $60 million of existing debt that encumbered the property. The center is also subject to a ground lease that expires in 2061. The Manager has managed the property since its development and is continuing to do so after the acquisition. Although the Company purchased its interest in Sunvalley from an unrelated third party, the other 50% partner in the property is an entity owned and controlled by Mr. A. Alfred Taubman, effectively the Company’s largest shareholder.

        Also in May 2002, the Company purchased an additional 13% interest in Arizona Mills for approximately $14 million in cash plus an additional $19 million share of the debt that encumbers the property. The Company has a 50% interest in the center as of the purchase date.

        In March 2002, the Company sold its interest in La Cumbre Plaza for $28 million. In May 2002, the Company sold its interest in Paseo Nuevo for $48 million. The centers were subject to ground leases and unencumbered by debt. The centers were purchased in 1996 for a total of $59 million. The Company’s $2.3 million and $10.0 million gains on the sale of La Cumbre Plaza and Paseo Nuevo, respectively, differed from the $6.4 million and $13.4 million gains recognized by the Operating Partnership due to the Company’s $4.1 million and $3.4 million additional bases in La Cumbre Plaza and Paseo Nuevo. The results of Paseo Nuevo and La Cumbre Plaza, including the gains on their disposition, have been presented as discontinued operations in the Company’s Statement of Operations for all periods presented.

        The Company used the net proceeds from the sales of Paseo Nuevo and La Cumbre Plaza to fund the acquisitions of Sunvalley and Arizona Mills, and to pay down borrowings under the Company’s lines of credit.

Debt Transactions

        In December 2002, the Company completed a $192 million secured financing on International Plaza, repaying in full the outstanding balance of the construction loan. Also in December 2002, the Company closed on a $135 million secured financing on Sunvalley, which paid off the $110 million senior debt and $10 million mezzanine debt previously encumbering the center. The Company used its $6 million share of the excess proceeds from Sunvalley to pay down existing credit facilities. In October 2002, the Dolphin Mall construction facility was amended, reducing the maximum availability to $165 million and requiring a pay-down of $24 million.

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        In August 2002, Stamford Town Center extended its $76 million loan to August 2004. Also in August, the Company closed on a $105 million construction loan for Stony Point Fashion Park. In July 2002, the Company completed the refinancing of the Westfarms mortgage.

        During October and November 2001, the Company completed an $82.5 million financing secured by Regency Square and closed on a new $275 million line of credit. The net proceeds of these financings were used to pay off $150 million outstanding under loans previously secured by Twelve Oaks Mall and the balance under the expiring revolving credit facility. In May 2001, the Company closed on a $168 million construction loan for The Mall at Wellington Green.

Unsolicited Tender Offer

        In the fall of 2002, the Company received an unsolicited proposal from Simon Property Group, Inc. (SPG) seeking to acquire control of the Company. The proposal was subsequently revised. Thereafter, a tender offer was commenced by SPG and later joined by a subsidiary of Westfield America Trust (Westfield). The Company’s Board of Directors has rejected the proposal and recommended that the Company’s shareholders not tender their shares pursuant to SPG’s and Westfield’s tender offer. SPG has filed suit against the Company to enjoin the voting of the Company’s Series B Non-participating Convertible Preferred Stock based on a variety of legal theories. The Company believes SPG’s claims to be without merit. During 2002, the Company incurred approximately $5.1 million in costs in connection with the unsolicited tender offer and related litigation and expects to continue incurring significant costs until these matters are resolved. The ultimate cost will be dependent upon the outcome and duration of these matters.

Other

        The Company owned an approximately 6.8% interest in MerchantWired, LLC, a service company originally created to provide internet and network infrastructure to shopping centers and retailers, which ceased operations in September 2002. During the years ended December 31, 2002 and 2001, the Company recognized its $1.8 million and $2.4 million share of MerchantWired’s operating losses, respectively. During 2002, the Company invested an additional $4.1 million to satisfy the Company’s guarantees of MerchantWired’s obligations and recorded a charge to write off its remaining $5.8 million balance of its MerchantWired investment.

        The Company has an investment in Fashionmall.com, Inc., an e-commerce company originally organized to market, promote, advertise, and sell fashion apparel and related accessories and products over the internet. In 2002 and 2001, the Company recorded charges of $2.3 million and $1.9 million, respectively, relating to its investment in Fashionmall.com. The Company also received $3.1 million in dividends in 2002. Additionally, the Company recorded an unrealized holding gain of $0.3 million as a component of other comprehensive income (OCI) to mark its investment to its $0.4 million market value at December 31, 2002. Fashionmall.com continues to work on alternatives to liquidation of the company. The Company expects that the net carrying value of its investment as of December 31, 2002 will be recovered in 2003.

        In October 2001, the Operating Partnership committed to a restructuring of its development operations. A restructuring charge of $2.0 million was recorded primarily representing the cost of certain involuntary terminations of personnel. Pursuant to the restructuring plan, 17 positions were eliminated within the development department.

Derivatives

        Effective January 1, 2001, the Company adopted SFAS 133 and its related amendments and interpretations, which establish accounting and reporting standards for derivative instruments. The Company uses derivative instruments primarily to manage exposure to interest rate risks inherent in variable rate debt and refinancings. The Company routinely uses cap, swap, and treasury lock agreements to meet these objectives.

        The initial adoption of SFAS 133 on January 1, 2001 resulted in a reduction to income of approximately $8.4 million as the cumulative effect of a change in accounting principle and a reduction to OCI of $0.8 million. These amounts represented the transition adjustments necessary to mark the Company’s share of interest rate agreements to fair value as of January 1, 2001.

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        In addition to the transition adjustment, the following table contains the effect that derivative instruments had on net income during the years ended December 31, 2002 and 2001:

Comparable Center Operations

        The performance of the Company’s portfolio can be measured through comparisons of comparable centers’ operations. During 2002, revenues (excluding land sales and individual lease cancellations over $500 thousand per center) less operating costs (operating and recoverable expenses) of those centers owned and open for at lease two years increased approximately three percent in comparison to the same centers’ results in 2001. This growth was primarily due to increases in minimum rents, specialty retail income, and decreases in bad debt expense, partially offset by a decrease in percentage rent. The Company expects that comparable center operations will increase annually by two to three percent. This is a forward-looking statement and certain significant factors could cause the actual results to differ materially; refer to the General Risks of the Company in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Other Income

        The Company has certain additional sources of income beyond its rental revenues, recoveries from tenants, and revenues from management, leasing, and development services, as summarized in the following table. Shopping center related revenues increased in 2002 primarily due to a full year of the new centers that opened in 2001. The Company expects that the shopping center-related revenues will grow modestly in 2003. While gains on peripheral land sales in 2002 were greater than in the prior year, the Company expects that 2003 gains on land sales will be about $5 million. Interest income in 2002 decreased primarily due to the settlement of the Swerdlow note; the Company expects that 2003 interest income will range between $1 million and $1.5 million. Lease cancellation income is dependent on the overall economy and performance of particular retailers in specific locations and is difficult to predict; prior to 2001, it has averaged between $2 million and $4 million and the Company currently projects to be at the high end of this range in 2003. However, the Company is currently negotiating with several tenants and this amount may be exceeded. Estimates regarding anticipated 2003 other income are forward-looking statements and certain significant factors could cause the actual results to differ materially, including but not limited to: 1) actual results of negotiations with tenants, counterparties, and potential purchasers of peripheral land, and 2) timing of transactions.

Insurance

        The tragic events of September 11, 2001 had an impact on the Company’s insurance coverage. The Company had coverage for terrorist acts in its policies that expired in April 2002. However, such coverage was excluded from its standard property policies at renewal. The Company obtained a separate policy although with lower limits than the prior coverage for terrorist acts.

        In November 2002, Congress passed the “Terrorism Risk Insurance Act of 2002", which required insurance companies to offer terrorism coverage to all existing insured companies for an additional cost. As a result, the Company’s insurance coverage is now provided without a sub-limit for terrorism in its standard property policy, just as it was prior to April 2002, eliminating the need for separate terrorism insurance policies.

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Subsequent Events

        In February 2003, the Gordon Group committed to invest $50 million in the Operating Partnership in exchange for 2.08 million partnership units at $24 per unit. These operating partnership units will have the same attributes as existing partnership units, except that they will not have voting rights and will have very limited resale rights for a specified period of time. The Gordon Group’s investment is expected to occur in the second quarter of 2003.

        In February 2003, the Company’s Board of Directors authorized the expansion of the existing buyback program to repurchase up to an additional $100 million of the Company’s common shares. The Company plans to repurchase shares from time to time depending on market prices and other conditions. The Company had $3 million remaining under its existing buyback program. Repurchases of common stock would be financed through general corporate funds, including funds anticipated to be received from the Gordon Group’s investment, and/or through borrowings under existing lines of credit.

        In February 2003, the Company completed a $151 million, 10-year fixed-rate non-recourse refinancing of the current $144 million loan on Great Lakes Crossing at an all-in rate of 5.3%. The Company used excess proceeds of $6.2 million to pay down lines of credit.

        In March 2003, the Company acquired the 15% minority interest in Great Lakes Crossing for $3.2 million in cash.

Application of Critical Accounting Policies

        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 financial statements and disclosures. Some of these estimates and assumptions require application of difficult, subjective, and/or complex judgment, often about the effect of matters that are inherently uncertain and that may change in subsequent periods. The Company is required to make such estimates and assumptions when applying the following accounting policies.

Valuation of Shopping Centers

        All properties, including those under construction and/or owned by joint ventures, are reviewed for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. Impairment would be recognized when the sum of expected cash flows (undiscounted and without interest charges) is less than the carrying value of the property. The expected cash flows of a shopping center are dependent on estimates and other factors subject to change, including (1) changes in the national, regional, and/or local economic climates, (2) competition from other shopping centers, stores, clubs, mailings, and the internet, (3) increases in operating costs, and (4) bankruptcy and/or other changes in the condition of third parties, including anchors and tenants. These factors could cause the Company’s expected future cash flows from a shopping center to change, and, as a result, an impairment could be considered to have occurred. To the extent an impairment has occurred, the excess carrying value of the property over its estimated fair value is charged against operations. There were no impairment charges recognized in the periods covered within this Annual Report. As of December 31, 2002, the consolidated net book value of the Company’s properties was $2.1 billion, over 90% of the Company’s consolidated assets; the Company also has varying ownership percentages in the properties of Unconsolidated Joint Ventures with a total combined net book value of $1.0 billion. These amounts include certain development costs that are described in the policy that follows.

Capitalization of Development Costs

        In developing shopping centers, the Company typically obtains land or land options, zoning and regulatory approvals, anchor commitments, and financing arrangements during a process that may take several years and during which the Company may incur significant costs. The Company capitalizes all development costs once it is considered probable that a project will reach a successful conclusion. Prior to this time, the Company expenses all costs relating to a potential development, including payroll, and includes these costs in its Funds from Operations.

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        Many factors in the development of a shopping center are beyond the control of the Company, including (1) changes in the national, regional, and/or local economic climates, (2) competition from other shopping centers, stores, clubs, mailing, and the internet, (3) availability and cost of financing, (4) changes in regulation, laws, and zoning, and (5) decisions made by third parties, including anchors. These factors could cause the Company’s assessment of the probability of a development project reaching a successful conclusion to change. If a project subsequently was considered less than probable of reaching a successful conclusion, a charge against operations for previously capitalized development costs would occur.

        The Company’s $29.9 million balance of development pre-construction costs as December 31, 2002 consists primarily of costs related to a project in Syosset, New York. Both Neiman Marcus and Lord & Taylor have made announcements committing to the project. Although the Company still needs to obtain a special use permit and site plan approval from the Oyster Bay Town Board to move forward with the project, the Company is encouraged that the Appellate Court has recently affirmed the New York State Supreme Court’s decision to annul the unfavorable zoning actions of the Oyster Bay Town Board. While the Company expects to be successful in this effort, the process may still not be resolved in the near future. In addition, if the litigation is unsuccessful, the Company expects to consider its alternatives, including possible other uses for the site, but may ultimately decide to abandon the project.

Valuation of Accounts Receivable

        Rents and expense recoveries from tenants are the Company’s principal source of income; they represent over 90% of the Company’s revenues. In generating this income, the Company will routinely have accounts receivable due from tenants. The collectibility of tenant receivables is affected by bankruptcies, changes in the economy, and the ability of the tenants to perform under the terms of their lease agreements. While the Company estimates potentially uncollectible receivables and provides for them through charges against income, actual experience may differ from those estimates. Also, if a tenant were not able to perform under the terms of its lease agreement, receivable balances not previously provided for may be required to be charged against operations. Bad debt expense was approximately 1% of total revenues in 2002, while bankruptcy filings affected 1.7% of tenant leases during the year.

New Accounting Pronouncements

        In January 2003, the FASB issued Interpretation No. 46 “Consolidation of Variable Interest Entities”. This Interpretation addresses consolidation by business enterprises of certain variable interest entities and the conditions under which they should be included in consolidated financial statements. The Company does not believe that Interpretation No. 46 will change the entities which the Company currently consolidates in its financial statements.

        In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123". This Statement amends FASB Statement No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has determined that it will apply the prospective method of implementing SFAS No. 148, and apply its recognition provisions to all employee awards granted, modified, or settled after January 1, 2003. There were no employee awards granted, modified, or settled in 2002.

        In November 2002, the FASB issued Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” . Interpretation No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Interpretation No. 45 would require the recognition of an obligation by the Company for a guarantee of debt of the Unconsolidated Joint Ventures issued after December 31, 2002; the Company does not have any present intentions of issuing any such guarantee. The disclosure requirements of Interpretation No. 45 were effective for the 2002 financial statements and applied to the Company’s guarantee of the debt of The Mall at Millenia.

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        In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of commitment to an exit or disposal plan. SFAS No. 146 is effective prospectively for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. SFAS No. 146 would affect the timing of recognition costs of any exit or disposal activities. However, the Company does not believe that the adoption of SFAS No. 146 will otherwise have a material impact on its consolidated financial statements.

        In April 2002, the FASB issued SFAS No. 145, “Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS 13, and Technical Corrections”, which is effective for fiscal years beginning after May 15, 2002. SFAS 145 rescinds SFAS 4, SFAS 44 and SFAS 64 and amends SFAS 13 to modify the accounting for sale-leaseback transactions. SFAS 4 required the classification of gains and losses resulting from extinguishment of debt to be classified as extraordinary items. Such gains and losses will now be classified as extraordinary items only if they meet the requirements of APB 30 as being both unusual and infrequent. The Company expects to reclassify extraordinary losses of $9.5 million and $0.5 million for the years ended December 31, 2000 and 1999, respectively, from extraordinary items upon adoption of SFAS 145 on January 1, 2003.

Presentation of Operating Results

        The following tables contain the combined operating results of the Company’s Consolidated Businesses and the Unconsolidated Joint Ventures. Income allocated to the minority partners in the Operating Partnership and preferred interests is deducted to arrive at the results allocable to the Company’s common shareowners. Because the net equity of the Operating Partnership is less than zero, the income allocated to the minority partners is equal to their share of distributions. The net equity of these minority partners is less than zero due to accumulated distributions in excess of net income and not as a result of operating losses. Distributions to partners are usually greater than net income because net income includes non-cash charges for depreciation and amortization, although distributions were less than net income during 2000 due to the gain on the disposition of Lakeside. Also, losses allocable to minority partners in certain consolidated joint ventures are added back to arrive at the net results of the Company. The Company’s average ownership percentage of the Operating Partnership was 62% in both 2002 and 2001, and 63% in 2000.

        The operating results in the following tables include the supplemental earnings measures of EBITDA and Funds from Operations (FFO). EBITDA represents earnings before interest and depreciation and amortization, excluding gains on dispositions of depreciated operating properties. FFO is defined as income before extraordinary items, cumulative effect of change in accounting principle, real estate depreciation and amortization, and the allocation to the minority interest in the Operating Partnership, less preferred dividends and distributions. Gains on dispositions of depreciated operating properties are excluded from FFO.

        FFO is used by the Company in measuring performance, determining the amount of dividends payable to shareowners, and in formulating corporate goals and compensation. Funds from Operations does not represent cash flows from operations, as defined by generally accepted accounting principles, and should not be considered to be an alternative to net income as an indicator of operating performance or to cash flows from operations as a measure of liquidity. However, the National Association of Real Estate Investment Trusts suggests that Funds from Operations is a useful supplemental measure of operating performance for REITs. Funds from Operations as presented by the Company may not be comparable to similarly titled measures of other companies.

        In 2002, an $8.1 million charge related to technology investments and $5.1 million of costs related to the unsolicited tender offer were excluded from EBITDA and FFO and in 2001 a $1.9 million charge related to a technology investment was also excluded.

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Comparison of 2002 to 2001

        The following table sets forth operating results for 2002 and 2001, showing the results of the Consolidated Businesses and Unconsolidated Joint Ventures:

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Consolidated Businesses

        Total revenues for the year ended December 31, 2002 were $373.0 million, a $47.0 million or 14.4% increase over 2001. Minimum rents increased $29.3 million, of which $24.6 million was due to the openings of The Shops at Willow Bend and The Mall at Wellington Green and the consolidation of Dolphin Mall after the acquisition of the additional interest. Minimum rents also increased due to tenant rollovers and increases in occupancy. Expense recoveries increased primarily due to Willow Bend, Wellington Green, and the inclusion of Dolphin Mall. Management, leasing, and development revenue decreased primarily due to the loss of Sunvalley revenue due to its acquisition, and the completion of a short-term contract. Other revenue increased due to increases in gains on sales of peripheral land and income from sponsorship and other retail initiatives, partially offset by a decrease in interest income.

        Total operating costs were $360.1 million, a $63.3 million or 21.3% increase over the comparable period in 2001. Recoverable expenses increased primarily due to Willow Bend, Wellington Green, and the inclusion of Dolphin Mall. Other operating expense increased primarily due to the new centers, partially offset by decreases in MerchantWired losses and bad debt expense. During 2001, a $2.0 million restructuring loss was recognized, which primarily represented the cost of certain involuntary terminations of personnel. During 2002, the Company recognized an $8.1 million charge relating to its investments in MerchantWired and Fashionmall.com, while a $1.9 million charge was recognized relating to the invesment in Fashionmall.com in 2001. During 2002, $5.1 million in costs were incurred in connection with the unsolicited tender offer. Interest expense increased primarily due to an increase in debt and a decrease in capitalized interest upon opening of Willow Bend and Wellington Green, as well as the change in ownership of Dolphin Mall, partially offset by decreases due to lower rates on floating rate debt and the paydown of debt from the proceeds of the sale of Paseo Nuevo and La Cumbre Plaza. Depreciation expense increased primarily due to Willow Bend, Wellington Green, and Dolphin Mall.

Unconsolidated Joint Ventures

        Total revenues for the year ended December 31, 2002 were $292.1 million, a $53.7 million or 22.5% increase from 2001. Minimum rents increased $35.9 million, of which $34.5 million was due to International Plaza, the Mall at Millenia, the acquisition of the interest in Sunvalley, and Dolphin Mall prior to the acquisition of the additional interest. Minimum rents also increased due to tenant rollovers and increases in occupancy. Expense recoveries increased primarily due to International Plaza, Millenia, and Sunvalley. Other revenue decreased primarily due to a decrease in lease cancellation revenue, partially offset by increases in gains on sales of peripheral land and income from sponsorship and other retail initiatives.

        Total operating costs increased by $42.0 million to $238.7 million for the year ended December 31, 2002. Recoverable expenses increased primarily due to International Plaza, Millenia, and Sunvalley. Recoverable expenses in 2002 included the reversal of a $2.8 million special assessment tax accrued during 2001. Other operating expense increased primarily due to these new centers and charges for costs of development activities. Interest expense increased due to the Sunvalley acquisition, increased debt (and decreased capitalized interest upon opening) of International Plaza and Millenia, partially offset by a decrease in the liability for the Dolphin Mall swap agreement recorded under FAS 133 and lower rates on floating rate debt. Depreciation expense increased primarily due to International Plaza, Millenia, and Sunvalley.

        As a result of the foregoing, income of the Unconsolidated Joint Ventures increased by $11.6 million to $53.4 million. The Company’s equity in income of the Unconsolidated Joint Ventures was $27.9 million, a $6.0 million increase from the comparable period in 2001.

Net Income

        As a result of the foregoing, the Company’s income before discontinued operations, cumulative effect of change in accounting principle, and minority and preferred interests decreased $10.2 million to $40.8 million for the year ended December 31, 2002. The discontinued operations of Paseo Nuevo and La Cumbre Plaza include a $12.3 million gain on the dispositions of these centers in 2002. In 2001, a cumulative effect of a change in accounting principle of $8.4 million was recognized in connection with the Company’s adoption of SFAS 133. After allocation of income to minority and preferred interests, the net loss allocable to common shareowners for 2002 was $(2.2) million compared to $(8.9) million in 2001.

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Comparison of 2001 to 2000

        Discussion of significant transactions and openings occurring in 2001 precedes the Comparison of 2002 to 2001. Significant transactions that occurred in 2000 are described below.

        In August 2000, the Company completed a transaction to acquire an additional ownership in one of its Unconsolidated Joint Ventures. Under the terms of the agreement, the Operating Partnership became the 100% owner of Twelve Oaks Mall and the joint venture partner became the 100% owner of Lakeside, subject to the existing mortgage debt. The transaction resulted in a net payment to the joint venture partner of approximately $25.5 million in cash. The results of Twelve Oaks have been consolidated in the Company’s results subsequent to the acquisition date (prior to that date, Twelve Oaks was accounted for under the equity method as an Unconsolidated Joint Venture). A gain of $85.3 million on the transaction was recognized by the Company representing its share of the excess of the fair value over the net book basis of the Company’s interest in Lakeside, adjusted for the $25.5 million paid and transaction costs.

        During 2000, the Operating Partnership recognized its $9.5 million share of extraordinary charges relating to the Arizona Mills and Stamford Town Center refinancings, which consisted of a prepayment premium and the write-off of deferred financing costs.

        In 1996, the Operating Partnership entered into an agreement to lease Memorial City Mall, a 1.4 million square foot shopping center located in Houston, Texas. The lease was subject to certain provisions that enabled the Operating Partnership to explore significant redevelopment opportunities and terminate the lease obligation in the event such redevelopment opportunities were not deemed to be sufficient. The Operating Partnership terminated its Memorial City lease on April 30, 2000.

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Comparison of 2001 to 2000

        The following table sets forth operating results for 2001 and 2000, showing the results of the Consolidated Businesses and Unconsolidated Joint Ventures: