Brookfi eld Asset Management
2005 ANNUAL REPORT
In Profile
Brookfi eld is an asset manager. Focused on property, power and infrastructure assets, the company has approximately
$50 billion of assets under management and is co-listed on the New York and Toronto stock exchanges under the
symbol BAM.
OPERATIONS
Real Estate – $16 billion
Power Generation – $4.8 billion
Timber and Infrastructure – $1.2 billion
Specialty / Other – $27.7 billion
CONTENTS
2
6
8
Letter to Shareholders
Investment Principles
Management’s Discussion and Analysis
43
Consolidated Financial Analysis and Information
59
Consolidated Financial Statements
98
Corporate Governance
99
Board of Directors and Management
101 Shareholder Information
Financial Highlights
AS AT AND FOR THE YEARS ENDED DECEMBER 31
MILLIONS, EXCEPT PER SHARE AMOUNTS
2005
2004
2003
Per fully diluted common share
Cash flow from operations
Cash return on equity
Market trading price – NYSE
Net income
Dividends paid
Total
Assets under management
Consolidated balance sheet assets
Revenues
Operating income
Cash flow from operations
Net income
Diluted number of common shares outstanding
$
3.28
21%
$ 50.33
$
$
6.12
0.59
$ 49,700
$ 26,058
$ 5,256
$ 2,355
$
908
$ 1,662
270
$
2.32
19%
$ 36.01
$
$
2.02
0.55
$ 27,146
$ 20,007
$ 3,899
$ 1,825
$
$
626
555
272
$
2.14
18%
$ 20.36
$
$
0.78
0.49
$ 23,108
$ 16,309
$ 3,370
$ 1,532
$
$
590
232
271
Dividends Per Common Share
in dollars
Return on Equity
percentage
Cash Flow Per Share
in dollars
0.59
0.55
0.49
0.43 0.43
21%
3.28
19%
18%
16%
13%
2.32
2.14
1.58
1.37
01
02
03
04
05
01
02
03
04
05
01
02
03
04
05
Brookfi eld Asset Management | 2005 Annual Report
1
Letter to Shareholders
OVERVIEW
In 2005, we reported net income of $1.7 billion or $6.12 per
share. While we are pleased to achieve this result, you will note
that it included a sizable investment gain. As a result, investors
should not expect that we will generate similar results in 2006.
On a more relevant basis, we achieved cash flow from
operations of $908 million or $3.28 per share, an increase of
45% over 2004. The increase achieved during the year exceeds
our long-term goal, as well as our expectations at the start of
the year. This growth was largely due to higher power prices,
an increased contribution from assets under management and
stronger residential property margins.
These higher cash flows, the low interest rate environment and
higher energy prices led to a substantial rise in the underlying
values of many of our operations. The higher intrinsic value of
our business was translated by investors into an increase of
40% in the price of our shares over the year, and a total return
inclusive of dividends of 42%. Below are the results for the past
20 years and we would be pleased if we could come close to
maintaining this level in the future.
YEARS
5
10
20
Brookfield
S&P
TSX
42%
25%
16%
1%
10%
12%
7%
11%
10%
And, while it is very satisfying to see our share price respond
to the growth in our cash flows, shareholders should be
cautioned not to expect stock market growth over the longer
term in excess of the growth in the value of our underlying
operations. We do, however, believe that given the high quality
assets we own, the liquidity we possess for reinvestment at
enhanced returns, and the continued evolution of our business
into a less capital intensive asset manager, we should be able
to increase the value of your investment on a risk adjusted
basis, greater than the underlying assets would themselves
otherwise generate.
From an overall perspective, we achieved a number of our key
goals in 2005. We monetized our last major position in the
cyclical resource industry, and both organically and through
acquisitions added assets to each of our core operating groups.
We also made significant progress in establishing ourselves as
an asset manager of choice for institutional and private investors
seeking property, power and infrastructure investments.
We increased our assets under management to approximately
$50 billion with the successful launch of a number of new
funds. Based on the premise that investors will continue to
look for high quality, long-life cash flow generating assets, our
goal is to expand the assets we have under management in
the next five years, with most of the growth coming from third
parties. And, while this is a strategic goal, we will only expand
our operations to the extent that we can earn appropriate risk
adjusted returns on capital deployed.
In recognition of our evolution to an asset manager and to
ensure we operate world-wide under one unified name, we
recently changed the name of the company to Brookfield Asset
Management Inc. While changing a name that has over 100
years of history operating around the world is not to be done
lightly, this was the most effective way to accomplish our
goal of establishing one common brand name for our entire
operating platform. So far, we are pleased with the results.
GOALS AND STRATEGY
As in the past, we thought it is important to review our
Investment Principles, as well as the key objectives for
achieving our goals. This way, you continue to have a consistent
framework to measure our performance.
Our long-term goal is to achieve a compound 12% growth in
cash flows from operations on a per share basis. This may not
occur consistently each year, but we believe we can achieve
this objective over the longer term by continuing to focus on
four key operating strategies:
• Establish ourselves as an asset manager of choice for
investors seeking exposure to infrastructure type assets.
As we continue to increase the number of assets we
manage for others through funds, co-investments or public
securities, we enhance our returns through performance-
2
Brookfi eld Asset Management | 2005 Annual Report
based management fees, diversify our risk and broaden the
scale of transactions that we can undertake.
• Own, manage and build high quality long-life cash generating
assets that require minimal sustaining capital and have
some form of barrier to entry, which as a result favour
these assets to appreciate in value. Today we are primarily
focussed on property, power and infrastructure assets.
• Maximize the value of existing operations by actively managing
our assets to create operating efficiencies, lower our cost
of capital and enhance cash flows. Given that our assets
generally require high initial capital investment, have
relatively low variable costs and can be leveraged on a low-
risk basis, even a small increase in top-line performance
results in a much higher percentage contribution to the
bottom line.
• Base our investment decisions on disciplined return-on-
capital metrics, measured by their impact to the company
on a per share basis.
SUMMARY OF 2005
Property
In our property operations, we added 11 million square feet and
leased over 4.5 million square feet in our 59 million square foot
portfolio. Occupancy increased to 94%. The announcement of
a two million square foot head office tower by Goldman Sachs,
to be constructed at our World Financial Center complex in
New York, ensures that the World Financial Center remains the
home of many great global companies.
We established a $1.75 billion Canadian Core Property Fund
with the purchase of O&Y Properties. This 10 million square
foot portfolio is comprised of 24 office properties, and includes
the 2.8 million square foot First Canadian Place office tower in
Toronto. Our ownership in the Fund is 25%.
We continued to increase our investment in Opportunistic Property
assets, and in total acquired $400 million of assets in 2005,
including a portfolio of industrial properties totalling approximately
three million square feet in seven major U.S. markets.
We expect to soon close our Brazilian Retail Real Estate
Fund. The Retail Fund will be seeded with selected shopping
centres that we currently own in Brazil and therefore will be
approximately 40% invested on closing. Our interest in the
Fund will be approximately 33%.
In our European operations, we acquired 80% of the 550,000
square foot 20 Canada Square office property at Canary Wharf
in London. This is in addition to our 15% investment in the
overall Canary Wharf Estate, where the demand for high quality
office space continues to improve. Occupancy at Canary
Wharf increased during 2005 and we received two dividend
distributions totalling $183 million.
Our residential operations remain strong. The performance
of these operations reflects the positive market dynamics,
particularly in Alberta where the increased infrastructure
investments of the oil and gas industry are expected to continue
to create significant demand for new homes.
Power
Our power operations delivered positive financial and operating
results in 2005, despite below average hydrology during the
year in Ontario, Quebec and Louisiana. Total generation
increased 34% over last year to 11,500 gigawatt hours, as
a result of operational improvements and acquisitions, partly
offset by the lower water levels. We also benefitted from
a general increase in energy prices and the flexibility inherent
in our water storage capacity which allows us to generate and
dispatch power during higher priced periods.
While 80% of our power revenues are under contract for the next
two years, we benefit in the short term from uncontracted power,
and in the medium to longer term as below market contracts
expire and are renegotiated. In the current environment, spot
prices are much higher than our contracts in most of our
markets. This provides an opportunity for significant top line
growth, largely dependent on the pricing of natural gas which
sets the marginal price for electricity in most North American
markets.
We expanded the capacity of our hydroelectric power operations
during the year to 3,400 megawatts through the acquisition
of nine hydroelectric facilities totalling over 730 megawatts
in the Northeast U.S. and Brazil. Recent acquisitions include
a 50% interest in a 610 megawatt hydroelectric pump
storage generating facility in northern Massachusetts, 50% of
a 30 megawatt hydro facility in Brazil, and two hydro facilities
with 48 megawatts of capacity in the northeast United States.
During the first month of 2006, we acquired six additional hydro
facilities totalling 90 megawatts in Maine and Ontario, and
we continue to pursue further add-on acquisitions to expand
Brookfi eld Asset Management | 2005 Annual Report
3
our power operations, primarily in the markets where we are
currently located.
Timber and Infrastructure
We established the Island Timber Fund early in 2005. This
Fund, 50% owned by us, acquired 635,000 acres of high
quality Canadian west coast timberlands for approximately
$775 million. These operations performed
line with
expectations in our first nine months of ownership, which
facilitated the issue of $410 million of 19-year average 6.0%
debt, with recourse only to the Fund’s timberlands.
in
We merged our East Coast timber assets with those of Fraser
Papers to form the Acadian Timber Income Fund, which was
taken public through the sale of units to retail and institutional
investors in early 2006. We manage the Trust and own
approximately 25%.
We also continue to review opportunities within our timberland
holdings for higher and better uses, and over time expect to
convert some of these lands to residential and recreational
developments, with the assistance of our other real estate
operations.
Our electrical transmission operations performed on plan,
and we successfully completed an expansion of our Northern
Ontario transmission system during 2005. This investment of
approximately $50 million provided an attractive rate base
return for these operations.
Specialty Funds
We added resources to our operations managing real estate
and fixed income securities with an acquisition in early 2005.
As a result, managed assets have increased to $20 billion,
including the completion of a $435 million equity offering for
a closed-end mortgage investment trust established on a private
placement basis to U.S. investors.
Our Real Estate Finance group concluded just under $1 billion
of largely real estate mortgage loans. In addition, the sale of
our investment in Criimi Mae was completed. We generated
first quartile returns in the first three years of this group’s
operation.
will facilitate an industry restructuring. We also completed
a successful operational and financial restructuring of steel
fabricator, Vicwest, and disposed of our interest at over four
times the original invested capital. In addition, the Ontario
Court recently approved Stelco’s emergence from creditor
protection, with Tricap owning a 35% equity interest in the
restructured company.
Our Bridge Lending Group was active during the year. Committed
capital increased to $1 billion and $800 million of bridge loans
were closed in 2005.
We intend to continue to expand the number of specialty fund
offerings and assets under management in these areas during
2006.
INVESTMENT APPROACH
Our investment approach continues to be focussed on high quality
cash producing assets, which by virtue of the type of asset,
location or barriers to entry, should appreciate in value in contrast
to many other assets that generally depreciate over time.
In this regard, we recently came across a paragraph in the book
“The Aggressive Conservative Investor,” co-authored by long-
time value investor Martin J. Whitman. On page 108 it states:
“For example, in certain areas of real estate accounting,
depreciation charges are an economic fiction; much of well-
maintained, well-located real estate does not depreciate over
time, even though for financial accounting and tax purposes,
the property is depreciated.”
We agree fully with Mr. Whitman. In fact, when reviewing the
value of the commercial properties we own, we have generally
found the required depreciation provisions to be substantially
overstated. We also believe this to be true for our hydroelectric
power plants, our timber, and most of our other infrastructure
assets. This is the principal reason why we measure our
performance based on the cash flow generated from the
operations, less sustaining capital expenditures, and add to this
the annual increase in intrinsic value to determine our return on
assets. There are some exceptions, but in general, this applies
across most of our chosen asset classes.
Tricap advanced a number of restructuring initiatives during
the year. Notable transactions included assisting Western
Forest Products acquire the Cascadia timber operations, which
In addition, as a portion of the increase in intrinsic value of our
type of asset results from capital appreciation, the timing of
when taxes are paid is also important to overall returns. Under
4
Brookfi eld Asset Management | 2005 Annual Report
taxation laws, capital appreciation is not taxed until an asset
is sold, but we are able to deduct depreciation against current
income. Accordingly, over time the intrinsic value increase can
be greater for the assets we own, than that of assets which
conversely generate the bulk of their income up front, deplete
in value over time and pay substantial current income taxes.
The challenge for us and other like-minded investors is that
many people look principally at price-earnings multiples, and
therefore do not focus on the cash flows being generated, or
the significant extra returns that accrue from the appreciation
in the value of assets. As we build our asset management
operations, we therefore are continuing to review opportunities
to ensure that the intrinsic value of our operations attracts
appropriate recognition in the market place.
SUMMARY
Our primary objective continues to be generating increased
cash flow, and as a result, higher intrinsic value on a per share
basis. To do this, we aim to establish Brookfield as an asset
manager of choice for institutions and other investors.
We remain committed to investing capital for you and our
partners, in high quality, simple to understand assets which
earn a solid cash-on-cash return on equity, while always
emphasizing downside protection of the capital we employ.
Lastly, while I personally sign this letter, I respectfully do so on
behalf of all of our people, who help to produce the results for
you. Please don’t hesitate to contact any of us, should you have
suggestions, questions or comments.
J. Bruce Flatt
Managing Partner & Chief Executive Officer
February 10, 2006
Brookfi eld Asset Management | 2005 Annual Report
5
Investment Principles
GUIDELINES
Invest in areas where we possess a competitive advantage.
Acquire assets on a value basis with a goal of maximizing return on capital.
Build sustainable cash flows to provide certainty, reduce risk and lower the cost of capital.
Recognize that superior returns involve hard work and often require contrarian thinking.
MEASUREMENT OF OUR SUCCESS
Measure success over the long term by total return on capital on a per share basis.
Seek profitability rather than growth, because size does not necessarily add value.
Encourage taking calculated risks, but compare returns with risk.
Be prepared to sacrifice short-term profit, if necessary, to achieve long-term returns.
PHILOSOPHY
Build the business based on honesty and integrity in order to enhance our reputation.
Attract and retain high calibre individuals who will grow with us over the long term.
Ensure that our people think and act like owners in all their decisions.
Maintain an open exchange of information and strategies among all constituencies.
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Brookfi eld Asset Management | 2005 Annual Report
CONTENTS
Management’s Discussion and Analysis of Financial Results
Financial Results
Introduction
Performance Measurement
Overview of 2005 Performance
Operations Review
Capital Resources and Liquidity
Business Environment and Risks
Outlook
Consolidated Financial Analysis
Supplemental Information
Report of Independent Registered Chartered Accountants
Consolidated Financial Statements
8
9
10
14
33
38
42
43
54
59
60
This section of our annual report includes management’s discussion and analysis of our financial results (“MD&A”), our consolidated
financial statements for the most recent year and the report of the Corporation’s auditors. The MD&A is intended to provide you
with an assessment of our performance over the past two years as well as our financial position, performance objectives and future
prospects.
The information in this section should be read in conjunction with our audited consolidated financial statements, which are included
on pages 59 through 96 of this report. Additional information, including the company’s Annual Information Form, is available on the
company’s web site at www.brookfield.com and on SEDAR’s web site at www.sedar.com. For additional information on each of
the five most recently completed financial years, please refer to the table included on page 97 of this report.
Disclosure Controls
Management, including the Chief Executive Offi cer and Chief Financial Offi cer, has evaluated the effectiveness of our disclosure controls and
procedures (as defi ned in the Canadian Securities Administrators Multilateral Instrument 52-109). Based on that evaluation, the Chief Executive
Offi cer and Chief Financial Offi cer concluded that such disclosure controls and procedures were effective as of December 31, 2005 in providing
reasonable assurance that material information relating to the company and our consolidated subsidiaries would be made known to them within
those entities.
Brian D. Lawson
Managing Partner and Chief Financial Offi cer
Bryan K. Davis
Managing Partner, Finance
February 10, 2006
Brookfi eld Asset Management | 2005 Annual Report
7
Management’s Discussion and Analysis of Financial Results
INTRODUCTION
Brookfield is an asset management company. Our cash flows and earnings are based on the profits generated by our operations,
as well as the fees that we earn by managing these activities on behalf of co-investors. The value of our company will grow to the
extent that we increase the value of our invested capital and the contribution received from asset management fees.
We conduct most of our operations through public and private entities that are owned in partnership with institutional and other
investors. A number of these entities are funds that are managed by us pursuant to contractual arrangements whereby we earn
asset management and other fees. Our ability to earn management fees is important to our success in that it enables us to increase
our returns on invested assets without compromising on quality or our disciplined approach to financing.
We typically commit to invest between 25% and 50% of the capital in our managed funds. We believe that our ability to commit
a meaningful amount of capital to a fund strongly aligns our interests with our co-investors and differentiates us from many of our
competitors. Furthermore, it gives us the opportunity to earn an attractive return on our capital. The fees we earn for managing
these funds typically includes a base fee in respect of ongoing services, a performance fee that represents a portion of the amount
by which investment returns exceed a predetermined threshold, and transaction fees in respect of certain activities.
Funds are established in several ways. Often we establish a fund with co-investors to complete a specific acquisition. This fund
may then, in certain circumstances, serve as a platform to expand the assets and operations within the fund. Alternatively, we may
establish a fund with a specific mandate to seek out investment opportunities. The strength of our balance sheet enables us to establish
a dedicated team, build a portfolio and then market the portfolio and track record to potential investors. Finally, the breadth of our
operating platform provides us the opportunity to seed funds with assets that we have owned and operated for many years, and
which represent attractive investment opportunities for our co-investors.
We prudently finance our operations with debt and other forms of leverage that match the profile of the business and without any
recourse to the Corporation. The leverage employed is reflective of the liquidity and duration of the assets and operations being financed
and varies from fund to fund and operation to operation. Our policy is not to guarantee the obligations of any fund or operating entity
other than our equity commitment. Funds also have the ability to raise additional equity capital from their stakeholders, including
us, from the public capital markets or through private issuances.
To ensure we are able to react to investment opportunities quickly and on a value basis, we typically maintain a high level of liquidity
at the corporate level. This takes the form of financial assets and committed bank term facilities. We also hold a number of direct
investments that are non-core and represent additional sources of liquidity. Finally, our operations generate significant free cash
flows each year, which in 2005 totalled nearly $1 billion. Our liquidity at the end of 2005 is significantly higher than usual due to
the sale of a major investment during the year for proceeds of $2.7 billion.
A key objective for us is to increase assets managed on behalf of others and as a result, increase the contribution from asset
management fees.
Basis of Presentation
The discussion and analysis of our financial results is organized to illustrate how our capital is invested in terms of assets under
management, to show which assets are beneficially owned by us, to present the net capital invested by us in each of our operations,
and to show you the returns that we earn from our invested capital and our fee generating activities. This is reflective of how we
manage the business.
8
Brookfi eld Asset Management | 2005 Annual Report
All financial data included in Management’s Discussion and Analysis have been prepared in accordance with Canadian generally
accepted accounting principles (“GAAP”), with two principal exceptions. First, the assets and liabilities are organized by business
unit; and second, we measure our returns in terms of operating cash flow as opposed to net income. We present the information
in this format because this is consistent with how we manage the business and believe this format is more informative for readers.
We provide a reconciliation between the basis of presentation in this section and our consolidated financial statements in the
Consolidated Financial Analysis commencing on page 43, and we specifically reconcile operating cash flow and net income on page 12.
Note 24 to our Consolidated Financial Statements describes the impact of significant differences between Canadian GAAP and
U.S. GAAP on our consolidated balance sheets and the statements of income, retained earnings and cash flow. Unless the context
indicates otherwise, references in this section of the annual report to the “Corporation” refer to Brookfield Asset Management Inc.,
and references to “Brookfield” or “the company” refer to the Corporation and its direct and indirect subsidiaries. All figures are
presented in U.S. dollars, unless otherwise noted.
PERFORMANCE MEASUREMENT
Our single most important performance measurement is operating cash flow measured on a per share basis. Our principal objective
is to increase operating cash flow per share at a reasonable annualized rate, which we currently consider to be 12%, over the long
term. We believe that this is the most important measure because it reflects the value of our underlying businesses and should
translate into greater intrinsic value for our company over time.
Operating Cash Flow
We define operating cash flow as net income prior to items such as depreciation and amortization, future income tax expense and
certain non-cash items that in our view are not reflective of the underlying operations. Operating cash flow also includes dividends
from our principal equity and cost accounted investments that would not otherwise be included in net income under GAAP, and
excludes any equity accounted earnings from such investments. We discuss each of these items in detail on pages 49 and 50
of this report. Operating cash flow is a non-GAAP measure, and may differ from definitions of operating cash flow used by other
companies.
Return on Invested Capital
We define cash return on capital as the operating cash flow per share as a percentage of the average book value per common share
during the period, and for an individual operation by the operating cash flow as a percentage of the net invested capital.
One of the major opportunities to increase returns is to effectively re-invest our considerable surplus financial liquidity into higher
yielding investments. At year end, we held cash and financial assets of approximately $2.6 billion that earned an average yield of 6%
on equity. We also hold a number of investments and development properties that are not yet generating their full return potential.
Accordingly, a key objective for us is to continually reinvest capital and convert non-income producing assets, that are not earning
a current return, into opportunities that have the potential to earn an appropriate return. Having said that, it is likely that we will
have a meaningful level of liquidity at any point in time to ensure we can capitalize on opportunities as they arise, and given the
dynamic nature of our business there will most often be some component of our asset base that is transitional in nature.
The other opportunity to increase returns is to continue to optimize our existing operations by managing them more effectively and
financing them in a manner that enhances financial returns without taking on an inappropriate level of risk. Our management teams
are charged with the responsibility of doing so, and this is an important component of their own performance assessment. We have
had considerable success in achieving this over the years and will continue to maintain a strong focus on this area.
Contribution from Fee Generating Activities
Fees earned during 2005 totalled $282 million, resulting in a net contribution of $98 million or $0.37 per share, after deducting
directly attributable operating expenses. This is an increase of 34% over the $73 million contributed in 2004 and nearly three
times the contribution in 2003. Nevertheless, we are still in our early stages of building these operations and this represented only
11% of our operating cash flow for 2005. The contribution from these fees represents cash flow above and beyond the investment
Brookfi eld Asset Management | 2005 Annual Report
9
return, and therefore our ability to increase this contribution will have a significant impact on the operating cash flow per share
in the future.
We plan to increase the contribution from fee generating activities by introducing new funds and increasing the capital deployed
within existing funds. Furthermore, as our existing funds mature, we expect to earn performance fees that will also increase returns.
Our ability to increase fees will be dependent on our ability to introduce new funds, leverage our operating base to contain costs
and the achievement of strong returns in order to earn performance fees.
OVERVIEW OF 2005 PERFORMANCE
Our 2005 financial results were the highest in the history of our company. This reflects a number of important accomplishments
within our operations, which we will highlight throughout the next few pages. Results for the past three years are summarized as
follows:
AS AT AND FOR THE YEARS ENDED DE CEM BE R 3 1 (MILLION S, E XCE PT P ER S HARE AMOUNTS)
Revenues
Net income
Per share
Operating cash flow
Per share
Assets under management
1 Revised to conform to current presentation
2005
$ 5,256
$ 1,662
6.12
$
$
$
908
3.28
$ 49,700
2004 1
$ 3,899
$
$
$
$
555
2.02
626
2.32
2003 1
$ 3,370
$
$
$
$
232
0.78
590
2.14
$ 27,146
$ 23,108
Revenues increased to $5.3 billion during 2005, an increase of $1.3 billion over 2004. Property revenues increased by $0.5 billion
relative to 2004, driven in large part by continued growth in residential property operations. Revenues from our power operations
increased by $0.3 billion during the year. Approximately $0.5 billion of the additional revenues were generated by timberland and
associated forest product operations acquired during 2005. The increase in 2004 revenues relative to 2003 was due largely to the
expansion of our power operations and higher prices and volumes in our residential property operations.
Net income totalled $1.7 billion, or $6.12 per share, including an after tax gain of $1.1 billion on the disposition of our investment
in Falconbridge. Operating cash flow, which excludes this gain, increased by 45% to $908 million or $3.28 per share compared
with $626 million or $2.32 per share during 2004. The growth in cash flow is due to improved results within almost all of our
operations.
Our principal financial objective is to increase operating cash flow per share, with a target of 12% annualized growth rate over the
long term. We achieved 41% growth during 2005, and 27% annualized growth over the last three years. These results exceed our
long-term expectations and, accordingly, shareholders should not expect us to generate this rate of growth on an ongoing basis.
Our financial targets and results are set out in the following table:
YEARS ENDED DECEM BER 31
Operating cash flow and gains per share
Annual growth
Cash return on equity per share
Objective
Three Year
Results
12%
20%
27%
19%
2005
41%
21%
Annual Results
2004
8%
19%
2003
35%
18%
Our cash return on equity reached 21% in 2005 as a result of the continued growth in operating cash flow, although the substantial
increase in the book value of our equity due to the net income recorded during the year has increased the level of cash flow required
to meet our 20% objective during 2006 to $3.87 per share based on the book value per common share at year end.
Assets under management nearly doubled to approximately $50 billion due to the continued expansion of our asset management
activities, in particular within our public securities operation and through the formation of several funds during the year, including
two major property and timberlands funds.
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Brookfi eld Asset Management | 2005 Annual Report
SUMMARY OF OPERATING RESULTS
The following is a summary of our financial position and operating results over the past two years:
Assets Under
AS AT AND FOR THE YEARS EN DED DEC EMBER 31 Management
2005
MI LLIONS, EXC EPT PER SHARE AMO UN TS
Invested Capital 1
Total
Net
Operating Cash Flow 2
Total
Net
2005
2004
2005
2004
2005
2004
2005
2004
Return on Capital
Net
Total
2005
2005
Fees earned
Operating assets
Property
Power
Timber and infrastructure
Specialty investment funds
19,927
Investments
Cash and financial assets
Other assets / disposition gains
3,386
2,558
1,791
Financial obligations
Corporate debt / interest
Property specific mortgages / interest
Subsidiary borrowings / interest
Other liabilities / operating expense
Capital securities / interest
$ 282
$ 199 $
98
$
73
$ 16,073 $ 11,859 $ 9,802 $ 4,181 $ 3,988
1,393
4,752
1,213
4,752
3,550
1,197
1,176
1,213
499
215
897
346
499
91
897
3,386
3,606
1,293
2,375
2,558
1,791
985
2,130
952
1,791
646
952
469
64
54
120
193
49
973
268
26
48
124
128
123
811
230
38
54
68
184
49
540
169
21
48
113
124
123
$ 49,700
26,058
20,007
11,437
10,125
2,624
1,889
1,532
1,211
(1,620) (1,675) (1,620)
(8,756) (6,045)
—
(1,675)
(119)
(103)
(119)
(103)
—
(519)
(321)
—
—
(2,510) (2,373)
(605)
(664)
(153)
(4,561) (2,719) (1,386)
(1,097)
(449)
(1,598) (1,548) (1,598)
(1,548)
(90)
(105)
(295)
(79)
(360)
626
(24)
(69)
(103)
(90)
(243)
908
(35)
(61)
(92)
(79)
(250)
626
(24)
Non-controlling interests in net assets
(1,984) (1,780) (1,199)
(1,274)
(386)
Net assets / operating cash flow
Preferred equity / distributions
5,029
3,867
5,029
3,867
(515)
(590)
(515)
(590)
908
(35)
Common equity / operating cash flow
$ 4,514 $ 3,277 $ 4,514 $ 3,277 $ 873
$ 602 $ 873
$ 602
Per share
$ 17.72 $ 12.76 $ 17.72 $ 12.76 $ 3.28
$ 2.32 $ 3.28
$ 2.32
1 Brookfield’s invested capital, at book value
2 Brookfield’s share of operating cash flows
13%
11%
9%
8%
3%
11%
4%
11%
7%
7%
6%
7%
6%
21%
20%
6%
22%
21%
20%
19%
17%
8%
4%
13%
4%
14%
6%
—
10%
6%
6%
20%
20%
6%
22%
21%
Operating Cash Flow
We discuss our operating results in more detail within the Operations Review starting on page 14. The principal highlights are as
follows:
Fees earned increased to $282 million in 2005 with a net contribution of $98 million after associated expenses, up from a net
contribution of $73 million in 2004. The increase is due to the continued expansion of our asset management activities. Highlights
included acquisitions and the formation of new funds which increased assets under management by $20 billion, and provided
$30 million of additional fees during the year.
Property operations contributed net operating cash flow of $811 million, an increase of 50% over 2004. Residential property results
continued to exceed expectations. Core property operations benefitted from $183 million in dividends from Canary Wharf Group,
which represents a 20% yield when measured over the life of our investment. The balance of our core property operations demon-
strated stable growth over last year’s results, due to acquisitions in London, U.K. and Washington, D.C.
The net operating cash flow from our power generation operations increased to $230 million, an increase of 36% over 2004.
We continue to expand these operations through a combination of operational enhancements, acquisitions and select greenfield
developments. Although hydrology conditions during 2005 were below long term averages, we did benefit from significantly higher
prices during 2005. This will become more evident in our results going forward as we renew power sale contracts, assuming prices
continue at these higher levels.
Brookfi eld Asset Management | 2005 Annual Report
11
We expanded our timber and infrastructure operations substantially during the year with the formation of the Island Timberlands
Fund, which owns 635,000 acres of high quality private timberlands on Vancouver Island. More recently, while not included in 2005
results, we established a publicly listed east coast timber fund. Our transmission and distribution operations in northern Ontario
achieved planned results and completed a major upgrade during the year.
Contribution from our investments decreased to $68 million from $113 million in 2004 as a result of a challenging operating
environment for our pulp and paper operations. This was offset in part by an increase in dividends received from our investment
in Norbord.
Specialty funds include our bridge, restructuring, real estate finance and public securities operations. These operations generated
net cash flow of $54 million in 2005, an increase relative to 2004 due to higher levels of invested capital.
The contribution from cash and financial assets increased relative to 2004 whereas the income from investments declined. This
reflects the sale of our investment in Falconbridge during the year and the investment of the proceeds into cash and financial assets
pending redeployment.
Financing charges, which represent carrying charges on debt and capital securities, totalled $278 million in 2005 compared with
$243 million in 2004. The increase reflects the impact of our shift from floating to fixed rates which, despite increased carrying
charges, should provide greater stability and lower cost of capital over the long term.
Operating expenses were higher in 2005, reflecting increased activity within our expanded operating platform. Non-controlling
interest was higher in 2004 reflecting the interests of other shareholders in a higher level of disposition gains recorded by partially
owned subsidiaries than in 2005.
Net Income
Net income increased substantially in 2005, reflecting the gain of $1.4 billion ($1.1 billion net of tax) on the sale of our investment
in Falconbridge. This was offset in part by lower equity accounted earnings from Falconbridge and Norbord following the sale of our
investments, and prior to reinvestment of the capital generated. Net income is reconciled to cash flow as set forth below:
YEARS ENDED DECEM BER 31 (MIL L I ONS )
Operating cash flow and gains
Less: dividends from Falconbridge and Norbord
dividends from Canary Wharf
Non-cash items, net of non-controlling interests
Equity accounted income from investments
Gains on disposition of Falconbridge
Depreciation and amortization
Future income taxes and other provisions
Net income
1 Revised to conform to current presentation
2005
$
908
2004 1
$
626
2003 1
$
590
(86)
(183)
639
219
1,350
(290)
(256)
(64)
—
562
332
—
(169)
(170)
(67)
—
523
43
—
(110)
(224)
$ 1,662
$
555
$
232
Equity accounted income from Falconbridge, Norbord and Fraser Papers contributed $219 million during the year compared to
$332 million for the same period in 2004. The current year included only seven months of equity accounted earnings from our
investment in Falconbridge, due to the monetization of our remaining investment. Norbord continued to benefit from a strong price
environment for their principal products, as well as increases in production volumes, although the contribution was lower than last
year when oriented strandboard prices were particularly strong and our ownership position was higher.
12
Brookfi eld Asset Management | 2005 Annual Report
We recorded a gain of $1.4 billion ($1.1 billion net of tax) on the monetization of our investment in Falconbridge during the year
through the sale of approximately 121 million common shares for aggregate proceeds of approximately $2.7 billion.
Depreciation and amortization increased in 2005 due to the acquisition of additional property, power and timberland assets. We are
required to record depreciation expense in a manner prescribed by GAAP; however we caution that this implies these assets decline
in value on a pre-determined basis over time, whereas we believe that the value of these assets, as long as regular sustaining
capital expenditures are made, will typically increase over time. This increase will inevitably vary based on a number of market and
other conditions that cannot be determined in advance, and may sometimes be negative in a particular period.
Future income taxes and other provisions include non-cash charges in respect of GAAP prescribed tax obligations, including
approximately $250 million related to the Falconbridge gain, as well as the impact of revaluation gains and losses. These items are
discussed further on pages 49 and 50.
Financial Position
The following table summarizes key elements of our consolidated financial position at the end of the past three years:
YEARS ENDED DECEMBER 31 (MIL LIONS )
Total assets
Net invested capital
Non-recourse borrowings
Corporate borrowings
Capital securities
Shareholders’ equity
2005
$ 26,058
11,437
$ 11,266
1,620
1,598
5,029
2004
$ 20,007
10,125
$ 8,418
1,675
1,548
3,867
2003
$ 16,309
8,913
$ 6,956
1,213
1,168
3,250
Total assets increased to $26.1 billion at December 31, 2005 from $20.0 billion and $16.3 billion at the end of 2004 and 2003,
respectively. The increase is due to the continued expansion of our operations in 2005. During 2005 and 2004, we acquired additional
property and power assets and also acquired timberland assets in 2005. The sale of our investment in Falconbridge during the year
for proceeds of $2.7 billion generated a $1.1 billion after tax gain which is included in net income. This resulted in a substantial
increase in cash and financial assets, pending redeployment, and a decrease in investments.
The net capital (i.e. assets less associated liabilities) invested in our business increased by $1.3 billion overall during 2005. The
amount of net capital invested in our property operations increased by approximately $200 million, reflecting growth in our opportunity
investments and core office portfolio. Net capital invested in specialty funds declined by approximately $400 million as a number
of larger bridge loans were repaid during the year. The capital in our timber and infrastructure operations increased by $255 million
due principally to the capital invested in the Island Timberlands Fund that we established during the year.
Our corporate financial obligations were relatively unchanged during the year and consist principally of long-term fixed rate debt
and equity securities. Non-recourse borrowings increased in line with the addition of property, power and timberland assets.
We finance our high quality assets with long-term fixed-rate obligations that have no recourse to the Corporation. The book value
of our common equity increased to $4.5 billion from $3.3 billion due to the substantial net income recorded during the year, offset
in part by dividends and share buybacks. The market value of our common equity was $13.0 billion at year end, up from $9.3 billion
at the end of 2004.
Brookfi eld Asset Management | 2005 Annual Report
13
OPERATIONS REVIEW
FEES EARNED
Fee income totalled $282 million during 2005, which contributed $98 million, net of associated expenses, compared with a contribution
of $73 million for 2004.
YEARS ENDED DECEM BER 31 (MIL L I ONS )
Asset management
Property services
Investment
Total Operating Cash Flow
Net Operating Cash Flow
2005
$
63
200
19
$ 282
2004
$ 17
159
23
$ 199
2005
$ 20
59
19
$ 98
2004
$ 7
43
23
$ 73
The increasing contributions from fees enhances our return on capital because in most cases these fees either do not require an
outlay of capital or are in addition to the existing investment. Our expansion of these activities will result in an increasing level
of fees which, over time, should provide a very meaningful and stable component of our overall operating cash flows.
Asset Management Fees
Asset management fees represent an important area of growth for our company and will increase as we expand our assets under
management. These fees typically include a stable base fee for providing regular ongoing services as well as performance fees that
are earned when the performance of a fund exceeds certain predetermined benchmarks. We also earn transaction fees for invest-
ment and financing activities conducted on behalf of our funds and other clients. These fees are relatively modest in the current
period as most of our funds are less than two years old and accordingly our results reflect partial year contributions. Furthermore,
performance fees, which can add considerably to fee revenue, typically arise later in a fund’s life cycle, and are therefore not fully
reflected in these results.
The following table summarizes asset management fees and associated expenses for the past two years:
YEARS ENDED DECEM BER 31 (MIL L I ONS )
Base management fees
Transaction fees
Performance fees
Total operating cash flow
Less: expenses
Net operating cash flow
2005
2004
$
$
46
12
5
63
43
20
$
$
13
—
4
17
10
7
As at December 31, 2005, the base management fees on established funds represent $55 million on an annualized basis.
Property Services Fees
Property services include property and facilities management, leasing and project management, as well as investment banking
advisory, and a range of residential real estate services.
YEARS ENDED DECEM BER 31 (MIL L I ONS )
Facilities, leasing and project management 1
Residential real estate services
Property advisory
Total operating cash flow
Less: direct operating costs
Net operating cash flow
1
Includes our 40% interest in the net income of a partnership with Johnson Controls
14
Brookfi eld Asset Management | 2005 Annual Report
$
2005
47
100
53
200
141
$
59
2004
42
75
42
159
116
43
$
$
Leasing and project management fees in 2005 include a $30 million fee for assisting in the development of Goldman Sachs’ head-
quarters at the World Financial Center, and in 2004 included $27 million in fees earned for completing subleases on behalf of the
lead tenant at 300 Madison. Residential real estate includes a variety of services relating to residential properties, including home
appraisal services, mortgage processing and executive home relocations.
Property advisory fees include fees earned from investment banking, property management and other related activities. We also earn
transaction fees for investment and finance activities conducted on behalf of our funds and other clients. We sold our Royal LePage
Commercial advisory business to Cushman & Wakefield in the third quarter of 2005 for a gain of $28 million. We will, however,
continue to earn fees from our successful real estate advisory group that we established in 2004, as well as the property relocation,
facilities management and other property related services that provide the majority of these fees.
Investment Fees
Investment fees are earned in respect of financing activities and include commitment fees, work fees and exit fees. These fees
are amortized as income over the life span of the relative investment as appropriate and represent an important return from our
investment activities.
PROPERTY OPERATIONS
We conduct a wide range of property operations in North America as well as in Europe and South America. Core office properties
represent the largest component of our property business, with approximately 70% of net invested capital, and 68% of net operating
cash flows:
Assets Under
AS AT AND FOR THE YEARS EN DED DEC EMBER 31 Management
2005
MI LLIONS
Invested Capital
Operating Cash Flow
Total
Net
Total
Net
2005
2004
2005
2004
2005
2004
2005
2004
Return on Capital
Total
Net
2005
2005
Core office properties
Residential properties
Opportunity investments
Retail properties
Development properties
$ 12,574
$ 8,360 $ 7,177 $ 2,875 $ 2,729
$ 848
$ 641
$ 548
$ 387
2,033
2,033
1,444
468
270
728
468
270
728
83
271
827
245
147
186
728
203
72
157
827
496
305
225
137
19
25
5
3
23
1
13
20
5
2
13
1
11%
29%
7%
9%
1%
Net investment / operating cash flow
$ 16,073
$ 11,859 $ 9,802 $ 4,181 $ 3,988
$ 1,393
$ 973
$ 811
$ 540
13%
20%
100%
12%
12%
1%
20%
Operating cash flow from our property operations in 2005 increased substantially over the prior year, due principally to dividends
received on our Canary Wharf investment during 2005, as well as the continued growth in profits generated by our home building
operations. A portion of this growth accrues to minority shareholders in certain partially-owned operations that are consolidated in
the financial information. The amount of net capital deployed in this sector increased only modestly year over year.
Core Office Properties
We own and manage one of the highest quality core office portfolios in North America, which consists of 66 commercial properties
totalling 48 million square feet of rentable area, as well as 10 developments sites with over 8 million square feet of potential
developable area. Our strategy is to concentrate our operations in high growth, supply-constrained markets that have high barriers
to entry and attractive tenant bases. Our goal is to maintain a meaningful presence in each of our primary markets so as to build
on the strength of our tenant relationships. Currently our primary markets are the financial, energy and government centre cities of
New York, Boston, Washington, D.C., Toronto, Calgary and Ottawa. Our North American operations are conducted through a 51%-
owned subsidiary.
In London, U.K. we own an interest in 16 high quality commercial properties comprising 8.3 million square feet of rentable area
and a further 5.7 million square feet of development density. The properties are located in the Canary Wharf Estate, one of the
leading core office developments in Europe. We hold a direct 80% ownership interest in the 550,000 square foot 20 Canada Square
property and hold an indirect interest in the balance of the portfolio through our 15% ownership interest in privately-owned Canary
Wharf Group.
Brookfi eld Asset Management | 2005 Annual Report
15
An important characteristic of our portfolio is the strong credit quality of our tenants. We direct special attention to credit quality
in order to ensure the long-term sustainability of rental revenues through economic cycles. On average, the tenant profile exceeds
an “A” credit rating. Major tenants with over 600,000 square feet of space in the portfolio include Merrill Lynch, Government
of Canada, Barclays Bank, CIBC, Clifford Chance, Bank of Montreal, JPMorgan Chase, Lehman Brothers, RBC Financial Group,
Petro-Canada, Target Corporation and Imperial Oil. Our strategy is to sign long-term leases in order to mitigate risk and reduce our
overall retenanting costs. We typically commence discussions with tenants regarding their space requirements well in advance of
the contractual expiration, and while each market is different, the majority of our leases, when signed, extend between 10 and 20
year terms. As a result of this strategy, approximately 5% of our leases mature annually. The long-term nature of our leases enable
us to finance these properties on a long-term basis with no recourse to us.
As at December 31, 2005, the average term of our in-place leases in North America was nine years and expiries average 5.6%
during each of the next five years. The average term of property specific financings was also in excess of 10 years. In our European
portfolio, the average lease term is 20 years and the average term of property specific debt exceeds 20 years.
The following table summarizes our core office portfolio and related cash flows:
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MIL LIONS
Assets Under
Management
2005
Invested Capital
Operating Cash Flow
Total
Net
Total
Net
2005
2004
2005
2004
2005
2004
2005
2004
North America
New York, New York
Boston, Massachusetts
Toronto, Ontario
Calgary, Alberta
Washington, D.C.
Ottawa, Ontario
Denver, Colorado
Minneapolis, Minnesota
Other North America
Total North America
United Kingdom
Canary Wharf Group, plc
20 Canada Square
$ 4,795
$ 3,885
$ 3,576
$ 3,885
$ 3,576
$ 348
$ 371
650
3,090
1,384
395
400
344
429
289
325
328
325
328
1,400
1,068
1,400
1,068
570
395
100
344
429
114
448
439
—
370
414
84
570
395
100
344
429
114
32
96
56
36
34
85
53
22
448
439
—
—
—
370
414
84
34
22
15
32
20
24
11,776
7,562
6,727
7,562
6,727
639
641
$ 639
$ 641
267
531
267
531
450
—
267
492
450
—
183
26
—
—
183
26
—
—
12,574
8,360
7,177
8,321
7,177
848
641
848
641
Property specific mortgages / interest
(5,446)
(4,448)
(300)
(254)
Net investment / operating cash flow
$ 12,574
$ 8,360
$ 7,177
$ 2,875
$ 2,729
$ 848
$ 641
$ 548
$ 387
Operating Results
Operating cash flow increased to $848 million during 2005, a significant increase over the $641 million generated by the portfolio
during 2004 and $585 million generated in 2003. After deducting interest expense associated with property specific financings,
the net operating cash flow was $548 million in 2005, representing a 20% return on net invested capital and a 42% increase over
the $387 million generated in 2004.
The increase was due to a substantial contribution from our U.K. operations which included $183 million in dividends received
from our 15% investment in Canary Wharf, as well as operating cash flow of $26 million from our 20 Canada Square property. The
Canary Wharf dividends, which are the first received since our initial investment in 2003, represent a 20% annualized return on our
invested capital over that period.
16
Brookfi eld Asset Management | 2005 Annual Report
Our North American portfolio produced operating cash flow of $639 million, which was slightly lower than 2004 due principally to
acquisitions, offset in part by vacancies in higher rent space within our portfolio. The stable occupancy levels in our portfolio and
our emphasis on long-term leases tends to moderate fluctuations in net operating income from existing properties.
Interest expense incurred on property specific financings increased from $254 million during 2004 to $300 million during 2005.
Carrying charges on the U.K. property acquired during the year accounted for $21 million of the increase and the balance was
due principally to financing associated with the acquisition of the Canadian core portfolio and the Washington properties acquired
during 2004.
Portfolio Activity
During 2005, we expanded our core office portfolio by 11 million square feet and increased our net effective interest by 4.6 million
square feet with the acquisition of a major Canadian portfolio and an acquisition in Europe. We also completed the redevelopment of
Three World Financial Center, which was previously included in development properties. As a result, total core office assets increased
to $8.4 billion at the end of 2005 compared with $7.2 billion at the end of 2004.
The Canadian portfolio acquisition enabled us to establish a Canadian core property fund that is 25% owned by Brookfield with two
institutional investors owning the balance. The total cost of the portfolio was $1.8 billion, including the assumption of $1.3 billion
of property specific debt. The Canadian core fund comprises 24 high quality office properties and one development site totalling
11.6 million square feet in five Canadian markets, principally Toronto, Calgary and Ottawa. The flagship property is the 2.8 million
square foot First Canadian Place Tower in Toronto. The portfolio was 96% leased at year end.
In London, we acquired an 80% interest in 20 Canada Square located in the Canary Wharf Estate, which we acquired from Canary
Wharf Group in the first quarter of 2005. The remaining 20% is owned by an institutional investment partner. The acquisition is
consistent with our strategy of increasing our presence in London, which is an attractive base for us to expand our European asset
management operations. This 12 floor property contains 550,000 square feet which was 100% leased at year end. Three properties
within the Canary Wharf Estate, including 20 Canada Square, were sold by Canary Wharf Group during 2005 for proceeds totalling
nearly £900 million ($1.6 billion).
Property specific debt, which is comprised principally of long-term mortgages secured by the underlying properties with no recourse
to the Corporation, increased to $5.4 billion from $4.4 billion in 2004. The increase represented financing associated with the
properties acquired during the year as well as financing put in place on the Washington properties acquired in 2004. As a result,
the book value of the net capital deployed in core office properties increased to $2.9 billion during the year from $2.7 billion at the
end of 2004.
Our core office property debt is primarily fixed-rate and non-recourse. These investment-grade financings typically reflect up to
70% loan-to-appraised value. In addition, in certain circumstances when a building is leased almost exclusively to a high-credit
quality tenant, a higher loan-to-value financing, based on the tenant’s credit quality, is put in place at rates commensurate with the
cost of funds for the tenant. This reduces our equity requirements to finance core office properties, and as a result, enhances equity
returns. Core office property debt at December 31, 2005 had an average interest rate of 6.5% and an average term to maturity of
ten years.
Property valuations continued to increase in North America and the U.K., driven by the continued low interest rate environment,
improving leasing fundamentals and strong investor demand.
Brookfi eld Asset Management | 2005 Annual Report
17
Occupancy Levels
Our total portfolio occupancy rate at December 31, 2005 was 95% in our core North American markets, and 94% overall, as shown
in the following table:
YEARS ENDED DECEM BER 31 (THOU SAND S)
New York, New York
Boston, Massachusetts
Toronto, Ontario
Calgary, Alberta
Washington, D.C.
Ottawa, Ontario
Core North American markets
Denver, Colorado
Minneapolis, Minnesota
Other North America
Total North America
London, United Kingdom
Total 1
1 Excludes development sites
Gross
Leasable
Area
12,453
2,163
12,278
8,936
1,557
2,935
40,322
2,605
3,008
2,095
48,030
10,556
58,586
2005
Net
Leasable
Area
10,738
1,103
6,147
3,816
1,557
734
24,095
2,605
3,008
1,219
30,927
2,173
33,100
Percentage
Leased
95%
92%
93%
99%
99%
99%
95%
87%
88%
92%
94%
90%
94%
Gross
Leasable
Area
12,453
2,163
7,882
6,331
1,557
—
30,386
3,017
3,008
926
37,337
10,000
47,337
2004
Net
Leasable
Area
9,506
1,103
4,777
3,166
1,557
—
20,109
2,811
3,008
926
26,854
1,617
28,471
Percentage
Leased
92%
97%
93%
98%
93%
—
94%
85%
86%
91%
92%
90%
92%
We leased 3.8 million square feet in our North American portfolio during 2005, approximately three times the amount of space
contractually expiring. This included 2.2 million square feet of new leases and 1.6 million square feet of renewals. Leasing fundamentals
have improved in most of our markets with particular strength in Calgary and New York where markets are tightening. Boston has
been weak recently but appears to have stabilized. Average net rents in our markets were $25 per square foot compared with
an average in-place net rent in our portfolio of $23 per square foot, indicating that we should be able to maintain or increase net
operating income as leases mature and are replaced, even if market rents do not increase.
Leasing fundamentals in London also continued to improve, and 900,000 square feet was leased during the year in properties
in which we have an interest, bringing total occupancy across the portfolio to over 90%. Nearly 80% of the tenant rating profile
is A+ or better.
Residential Property
We conduct residential property operations in the United States, Canada and Brazil.
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MIL LIONS
Assets Under
Management
2005
Invested Capital
Operating Cash Flow
Total
Net
Total
Net
2005
2004
2005
2004
2005
2004
2005
2004
United States
Canada
Brazil
Cash taxes
Borrowings / interest 1
Non-controlling interest in net assets
$ 1,335
$ 1,335
$
166
532
166
532
967
132
345
$ 1,063
166
396
2,033
2,033
1,444
1,625
—
(1,238)
(142)
$ 769
132
297
1,198
—
(858)
(137)
$ 350
106
40
$ 238
42
25
496
305
$ 496
$ 305
(141)
(21)
(109)
(71)
(13)
(84)
Net investment / operating cash flow
$ 2,033
$ 2,033
$ 1,444
$ 245
$ 203
$ 496
$ 305
$ 225
$ 137
1 Portion of interest expressed through cost of sales
18
Brookfi eld Asset Management | 2005 Annual Report
Operating cash flow has more than doubled over the past two years as a result of strong growth in our U.S. operations and more
recently in Canada, where our Alberta operations are benefitting from strong energy markets. Total assets and net capital invested
in the business have increased with the level of activity. We focus on optioning lots and acquiring land that is well advanced through
the entitlement process to minimize capital at risk, and sell lots to other builders on a bulk basis to capture appreciation in values
and recover capital.
United States
Our U.S. residential operations are conducted through a 52%-owned subsidiary that had a $1.5 billion market capitalization at
year end. These operations are concentrated in four major supply constrained markets: San Francisco, Los Angeles and San Diego
in California, and the Washington, D.C. area. In these operations, we own or control 30,000 lots through direct ownership, options
and joint ventures. We focus on the mid- to upper-end of the home building market and rank as one of the twenty largest home
builders in the United States.
We have experienced substantial growth in margins in each of our U.S. markets and, although conditions remain favourable, it is
unlikely that this pace of growth will continue. We are optimistic that, with orders representing approximately 35% of planned 2006
closings in hand, these operations should continue to provide solid returns in 2006.
Canada
Our Canadian operations are concentrated in Calgary, Edmonton and Toronto. We own over 36,000 lots in three operations of which
approximately 4,100 were under development at December 31, 2005. We build and sell homes on our lots and we are a major
supplier of lots to other homebuilders. These operations are conducted through a 51%-owned subsidiary.
Operating cash flow in the Canadian operations increased significantly in 2005 as our Alberta operations benefitted from the continued
expansion of activity in the oil and gas industry. Most of the land holdings were purchased in the mid-1990’s or earlier, and as
a result have an embedded cost advantage today. This has led to particularly strong margins, although the high level of activity
is creating some upward pressure on building costs and production delays. Nonetheless, unless the market environment changes,
we expect another very strong year in 2006.
Brazil
Our Brazilian operations, which are focussed on building residential condominiums, produced strong growth in operating cash
flow when converted to U.S. dollars as the Brazilian currency appreciated substantially in 2005. As discussed under development
properties on pages 20 and 21, we own substantial density rights that will provide the basis for continued growth.
Home and Lot Sales
The following table summarizes home and lot sales over the past three years.
YEARS ENDED DECEMBER 31 (UNIT S)
United States
California
Washington, D.C. area
Other
Canada
Ontario
Alberta
Brazil
Rio de Janeiro and São Paulo
1
Including lots associated with home sales
2005
1,040
614
—
391
556
528
3,129
Home Sales
2004
2003
2005
Lot Sales 1
2004
1,357
523
—
339
496
606
3,321
1,023
505
—
318
479
406
2,731
2,103
1,065
—
391
3,173
528
7,260
1,415
864
468
339
2,433
606
6,125
2003
1,044
745
448
318
2,191
406
5,152
Brookfi eld Asset Management | 2005 Annual Report
19
Opportunity Investments
We established a dedicated team in 2003 to invest in commercial properties other than core office. Our objective is to acquire
property which, through our management, leasing and capital investment expertise, can be enhanced to provide a superior return
on capital.
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MIL LIONS
Assets Under
Management
2005
Invested Capital
Operating Cash Flow
Total
Net
Total
Net
2005
2004
2005
2004
2005
2004
2005
2004
Commercial properties
$
468
$ 468
$
83
Property specific mortgages / interest
$ 458
(311)
$ 83
$ 19
$
3
$ 19
$ 3
(11)
(6)
(1)
Net investment / operating cash flow
$
468
$ 468
$
83
$ 147
$ 72
$ 19
$
3
$ 13
$ 2
Assets now exceed $500 million due to acquisitions in early 2006, and include office portfolios in Washington, Toronto and Indianapolis,
and a 3.3 million square foot industrial, showroom and commercial portfolio located across the United States. The scale of our
operating platform in the property sector increases the pipeline of investments for these operations and enables us to participate
in a broad range of opportunities.
Opportunity investments tend to be more dynamic and typically have strong early stage value enhancement potential. Accordingly,
financing tends to be shorter term in nature to enhance flexibility, and leverage for the portfolio as a whole tends to vary between
70% and 80% of loan to value.
Retail Properties
The following table summarizes our retail office property operations:
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MIL LIONS
Assets Under
Management
2005
Invested Capital
Operating Cash Flow
Total
Net
Total
Net
2005
2004
2005
2004
2005
2004
2005
2004
Retail properties
Borrowings / interest
$
270
$ 270
$ 271
$ 270
$ 271
$ 25
$ 23
$ 25
$ 23
(84)
(114)
(5)
(10)
Net investment / operating cash flow
$
270
$ 270
$ 271
$ 186
$ 157
$ 25
$ 23
$ 20
$ 13
The portfolio consists of three shopping centres and associated office space totalling 1.6 million square feet of net leasable area,
located in Rio de Janeiro and São Paulo, and includes the one million square foot Rio Sul Centre, which is one of Brazil’s premier
shopping centres.
Development Properties
The composition of our development properties at December 31, 2005 and 2004, together with associated cash flows, was as follows:
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MIL LIONS
Potential
Developments
Invested Capital
Operating Cash Flow
Total
Net
Total
Net
2005
2004
2005
2004
2005
2004
2005
2004
Core office properties
15.4 million sq. ft.
$ 296
$ 449
$
296
$ 449
Residential lots
United States 1
Canada
Brazil
Rural development
Brazil
Canada 2
23,000 lots
—
—
—
32,000 lots
5.5 million sq. ft.
225
157
185
154
225
157
—
185
154
177,000 acres
32,000 acres
209,000 acres
50
—
39
—
50
—
39
—
1 Book values included in United States residential, see page 18
2 Book values included as higher and better use land in western North American timber operations, see page 25
20
Brookfi eld Asset Management | 2005 Annual Report
$ 728
$ 827
$
728
$ 827
$
5 $
1 $
5
$
1
Development properties consist predominantly of core office property development sites, density rights and related infrastructure;
residential lots owned and under operation; and rural land held pending development into income producing properties or for sale
to other users. We expect to enhance the value of these assets through the attainment of building entitlements and conversion into
cash flow generating real estate.
The total book value of development properties, including those reflected in other business units, was relatively unchanged during
2005. Our Three World Financial Center and Hudson’s Bay Centre core office properties reached the operational stage during the
year and were transferred to our core office portfolio. This decrease was offset by the acquisition of the remaining 50% interest in
the Bay-Adelaide Centre in Toronto as well as rural development land acquired in connection with the purchase of North American
timberlands. This land will be developed into higher and better use, including residential properties.
We do not typically record ongoing cash flow in respect of development properties as the associated development costs are
capitalized until the property is sold, at which time any disposition gain or loss is realized, or until the property is transferred into
operations.
Core Office Properties
We maintain an in-house development capability to undertake development of the 15.4 million square feet of commercial density
when the risk-adjusted returns are adequate and significant pre-leasing has been achieved. Development projects include our
Penn Station development in midtown New York, which recently received increased permitting for 2.5 million square feet of office
density. The Bay-Adelaide Centre development property, now 100%-owned, is located in Toronto’s downtown financial district
and zoned for up to 2.5 million square feet of office and residential use. We also own expansion rights for a third office tower at
BCE Place, our flagship Toronto office complex, which would add approximately 800,000 square feet of density, and similar rights
to develop 500,000 square feet of office space at Bankers Hall in Calgary. At Canary Wharf in London, we own our proportionate
share of development density which totals approximately 6 million square feet of commercial space.
Residential Development Properties
Residential development properties include land, both owned and optioned, which is in the process of being converted to residential
lots, but not expected to enter the home building process for more than three years.
We have elected to increase our use of options to control lots for future years in our most active markets in order to reduce risk. To
that end, we have acquired options on approximately 17,000 lots in our U.S. markets in return for providing planning and development
expertise to obtain the required entitlements. In Brazil, we own rights to build residential and office condominium space of a further
9.0 million square feet, to be developed over the next 15 years in São Paulo, and a further 4.0 million square feet of condominium
density in Rio de Janeiro which will be built over the next 10 years.
Rural Development Properties
We acquired 65,000 acres of additional rural land in Mato Grosso State and now own 177,000 acres of prime rural development
land in the States of São Paulo, Minas Gerais and Mato Grosso in Brazil. These properties are being used to harvest sugar cane for
its use in the production of ethanol as a gasoline substitute. A substantial increase in the world-wide consumption of ethanol for use
as a substitute for gasoline has resulted in a significant increase in the value of lands which are suitable for sugar cane growing.
During the past two years we completed leases with an average term of 20 years on approximately 35,000 acres to operators of
large sugar cane processing facilities and expect to earn growing annual cash flows significantly in excess of those previously
received. The leases have floor payments plus participations on a combination of sugar and ethanol prices.
We also hold 32,000 acres of potentially higher and better use land adjacent to our western North American timberlands acquired
during 2005, which we intend to convert into residential and other purpose land over time.
Brookfi eld Asset Management | 2005 Annual Report
21
POWER GENERATING OPERATIONS
Our power generating operations are predominantly hydroelectric facilities located on river systems in North America. As at
December 31, 2005, we owned and managed approximately 130 power generating stations with a combined generating capacity
of 3,400 megawatts. All of our existing stations are hydroelectric facilities located on river systems in seven geographic regions,
specifically Ontario, Quebec, British Columbia, New York, New England, Louisiana and southern Brazil, with the exception of two
natural gas-fired facilities. This geographic distribution provides diversification of water flows to minimize the overall impact of
fluctuating hydrology. Our storage reservoirs contain sufficient water to produce approximately 20% of our total annual generation
and provide partial protection against short-term changes in water supply. The reservoirs also enable us to optimize selling prices
by generating and selling power during higher-priced peak periods. Our facilities produced nearly 11,000 gigawatt hours of electricity
in 2005, more than double our annual generation of five years ago.
The capital invested in our power generating operations and the associated cash flows are as follows:
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MIL LIONS
Capacity
2005
2004
Hydroelectric generation
(MW)
Assets Under
Management
2005
Invested Capital
Operating Cash Flow
Total
Net
Total
Net
2005
2004
2005
2004
2005
2004
2005
2004
Ontario
Quebec
British Columbia
New England
New York
Louisiana
Brazil
847
277
127
201
730
192
205
847
266
127
174
674
192
102
$
944
374
131
259
889
497
220
$
944 $
374
131
259
889
497
220
914
359
127
262
839
243
60
$
944
374
131
259
889
497
220
$ 914
$
359
127
262
839
243
60
Total hydroelectric generation
2,579 2,382
3,314
3,314
2,804
3,314
2,804
Other operations
815
240
254
254
147
254
147
Total power generation
Other assets, net
3,394 2,622
3,568
1,184
3,568
1,184
2,951
3,568
2,951
599
693
503
Property specific and subsidiary debt / interest
Minority interests of others in net assets
(2,839)
(2,084)
(225)
(194)
83
54
13
38
123
112
30
453
16
469
$
82
47
11
32
17
26
14
229
39
268
$ 469
—
$ 268
—
(215)
(24)
(78)
(21)
Net investment / operating cash flow 3,394 2,622
$ 4,752
$ 4,752 $ 3,550
$ 1,197
$ 1,176
$ 469
$ 268
$ 230
$ 169
Operating cash flow from our power generating assets increased to $469 million in 2005, compared with $268 million in 2004, due
to expanded capacity and higher prices, offset by lower hydrology. After deducting interest expense and distributions to owners
of partial interests in our business, these operations generated $230 million of cash flow on net invested capital of $1.2 billion,
representing a 19% return. The book value of invested capital was largely unchanged as the acquisition of power facilities during
the year was funded largely by long-term property specific debt financing. Property specific debt totalled $2.3 billion at year end
and corporate unsecured debt issued by our power generating operations totalled $0.5 billion.
Operating Results
The following table illustrates the components of the change in operating cash flows from our power generating operations, prior
to interest expense and distributions, during the past two years:
YEARS ENDED DECEMBER 31 (MILLIONS)
Prior year’s net operating cash flow
Hydrology variations within existing capacity
Variations in prices and operational improvements
Capacity additions
Louisiana HydroElectric Power
Current year’s net operating cash flow
2005
$
268
(23)
11
129
84
469
$
2004
$
154
27
53
34
—
$
268
22
Brookfi eld Asset Management | 2005 Annual Report
Acquisitions and selective development of additional capacity added $129 million of cash flow during 2005. The most significant
step in this regard was the acquisition of our New York operations in late 2004, which contributed meaningfully during 2005. The
additional facilities furthered the diversification of our watersheds, thereby reducing hydrology risk, and position us as an important
participant in the Ontario, New York and New England electricity markets.
The continued increase in fossil fuel prices has led to an increase in power prices as most of the price setting capacity in our
operating regions is primarily natural gas. This increases our revenues and our operating margins as hydroelectric generation
requires minimal fuel costs. To date, the impact of price increases has been somewhat muted by our policy of forward selling
a significant amount of our production, but we expect to benefit from higher prices as these contracts expire. The total benefit from
price and operational improvements in 2005 was $11 million and more details on this are set out on pages 24 and 25.
Generation increased to 10,930 gigawatt hours during the year, from the 8,796 gigawatt hours generated in 2004. The increase
of 2,134 gigawatt hours is comprised of approximately 3,000 gigawatt hours of generation from facilities acquired during the past
two years, partially offset by a reduction in generation of 900 gigawatt hours on facilities owned throughout those two years due
to below average hydrology in Quebec and Ontario following above average water flows in 2004. As a result, cash flows were
$23 million lower during 2005 on a relative basis. Water conditions have improved substantially in recent months and, as a result,
our facilities are currently operating at approximately 15% above average generation levels. The following table summarizes
generation over the past two years:
YEARS ENDED DECEMBER 31 (GIGAWATT HOURS)
Existing capacity
Ontario
Quebec
New England
Other
Louisiana
Acquisitions – during 2005
Acquisitions – during 2004
Total
2005
Long-term
Average
Actual
Production
Variance
Long-term
Average
2004
Actual
Production
Variance
3,262
1,639
1,010
732
6,643
903
7,546
885
3,268
2,562
1,475
1,172
716
5,925
813
6,738
751
3,441
11,699
10,930
(700)
(164)
162
(16)
(718)
(90)
(808)
(134)
173
(769)
3,262
1,639
1,010
667
6,578
903
7,481
—
1,261
8,742
3,190
1,661
953
725
6,529
1,099
7,628
—
1,168
8,796
(72)
22
(57)
58
(49)
196
147
—
(93)
54
The following table illustrates revenues and operating costs for our hydroelectric facilities:
YEARS ENDED DECEMBER 31 (GWH AND $ MILLIONS)
Production
Revenues
Costs Cash Flows
Production
Revenues
Costs Cash Flows
2005
2004
Actual
Realized
Operating
Operating
Actual
Realized
Operating
Operating
Ontario
Quebec
New England
New York
Other
Total
Per MWh
1,764
1,475
1,275
3,089
2,217
9,820
$ 118
$
75
63
195
195
35
21
25
72
40
$ 646
$ 193
$
66
$
20
$ 83
54
38
123
155
$ 453
$ 46
2,311
1,661
1,056
687
2,201
7,916
$ 127
$ 45
$ 82
71
51
39
55
24
19
22
4
47
32
17
51
$ 343
$ 43
$ 114
$ 14
$ 229
$ 29
Brookfi eld Asset Management | 2005 Annual Report
23
Realized prices, which include ancillary revenues and the impact of peak hour pricing in addition to contracted prices, increased
to $66 per megawatt hour due to improved pricing and the acquisition of facilities in higher price regions. Generating costs per
megawatt hour increased due to acquisitions of facilities with higher cost structures.
Portfolio Activity
We added 12 stations during 2005 with capacity of 736 megawatts that are capable of generating 885 gigawatt hours of annual
production. The acquired stations are located in northeastern United States and Brazil and have been integrated into our current
operations in these regions. The total acquisition cost was approximately $300 million and, together with the consolidation of our
operations in Louisiana, resulted in a $700 million increase in the book value of our power generating assets to $3.6 billion from
$2.9 billion at the end of 2004. We raised approximately $700 million of additional financing to fund acquisitions and establish
appropriate leverage on existing assets and, as a result, the net capital invested in our portfolio was relatively unchanged year
over year.
We finance our power generation facilities in the same manner as our core office properties with long-term debt that is recourse
only to the assets being financed. We typically achieve approximately 50% loan to value before taking into account any power con-
tract arrangements, which may enable significantly higher loan-to-value ratios to be achieved. At December 31, 2005, the average
term of this debt was 11 years and the average interest rate was 7.9%.
We have expanded our power operations significantly since 2001, at which time the book value was less than $1 billion and capacity
was less than 1,000 megawatts. We will continue our efforts to expand the portfolio and are pursuing a number of opportunities in
this regard, including the development of wind power facilities in northern Ontario during 2006.
We believe the intrinsic value of our power assets is much higher than the book value because the assets have either been held for
many years and therefore depreciated for accounting purposes which, in our view, is inconsistent with the nature of hydroelectric
generating assets. In addition, we have been successful in acquiring, developing and upgrading many of our facilities on an attractive
basis. In addition, higher fossil fuel prices have resulted in significantly expanded operating margins for hydroelectric facilities,
which have minimal fuel costs.
Contract Profile
We endeavour to maximize the stability and predictability of our power generating revenues by contracting future power sales
to minimize the impact of price fluctuations, by diversifying watersheds, and by utilizing water storage reservoirs to minimize
fluctuations in annual generation levels.
Approximately 70% of our projected 2006 revenue is currently subject to long-term bilateral power sales agreements or shorter-
term financial contracts. The remaining revenue is generated through the sale of power in wholesale electricity markets. Our
long-term sales contracts, which cover approximately 45% of projected 2006 revenue, have an average term of 13 years and the
counterparties are almost exclusively customers with long-standing favourable credit histories or have investment grade ratings.
The financial contracts typically have a term of between one and three years.
All power that is produced and not otherwise sold under a contract is sold in wholesale electricity markets, and due to the low variable
cost of hydroelectric power and the ability to concentrate generation during peak pricing periods, we are often able to generate
highly attractive margins on power which is otherwise uncontracted. This approach provides an appropriate level of revenue stability,
without exposing the company to undue risk of contractual shortfalls, and also provides the flexibility to enhance profitability
through the production of power during peak price periods.
24
Brookfi eld Asset Management | 2005 Annual Report
The following table sets out the profile of our contracts over the next five years from our existing facilities, assuming long-term
average hydrology:
YEARS ENDED DECEMBER 31
Generation (GWh)
Contracted
Power sales agreements
Financial contracts
Uncontracted
Contracted generation
Revenue ($millions)
Price ($/MWh)
2006
2007
2008
2009
2010
5,589
3,684
2,600
11,873
597
64
5,783
2,886
3,417
12,086
583
67
5,712
497
5,877
12,086
446
72
4,428
293
6,911
11,632
375
80
4,412
287
6,933
11,632
375
80
The increase in the average selling price for contracted power over the next five years reflects contractual step-ups in long duration
contracts with attractive locked-in prices and the expiry of lower priced contracts during the period. The recontracting of this
power at market rates should result in increased revenues based on current electricity prices and the assumption that fossil fuels,
particularly natural gas, continue to sell at higher prices than historical norms.
TIMBER AND INFRASTRUCTURE
We own and manage timber and infrastructure assets which have investment characteristics that are similar to our property and
power operations. Our current operations consist of the following:
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
$ MI LLIONS
Timber
Western North America
Timberlands
Higher and better use lands
Eastern North America
Brazil
Electrical transmission
Other assets, net
Assets Under
Management
2005
Acres
Invested Capital
Total
Net
Operating Cash Flow
Total
Net
2005
2004
2005
2004
2005
2004
2005
2004
$ 801
$ 801
$ — $ 801
$ —
$ 27
113
—
113
—
—
635,000
32,000
311,000
140,000
113
48
39
48
39
1,118,000
1,001
1,001
130
82
130
82
50
37
87
97
31
48
39
1,001
130
17
$ —
—
7
4
11
15
50
37
87
97
8
5
40
24
(6)
—
—
Project specific financing and other borrowings
Minority interests of others in net assets
(547)
(87)
(255)
—
(19)
(5)
(7)
—
Net investment / operating cash flow
$ 1,213
$ 1,213
$ 215 $ 346
$ 91
$ 64
$ 26
$ 38
$ 21
1,213
1,213
215
1,148
178
64
26
$ 64
$ 26
We have significantly expanded our timberland operations with the formation of the Island Timberland Fund in 2005 and the
Acadian Timber Income Fund early in 2006, which acquired the eastern North America timberlands that were previously 100%
owned by us. Our goals are to continue to prudently invest additional capital in our timber operations when opportunities are available,
and to further expand our transmission operations to serve the needs of the underserviced electrical infrastructure sector in our
geographic markets.
Brookfi eld Asset Management | 2005 Annual Report
25
Timberland Operations
Western North America
We established the Island Timberlands Fund in 2005 with the purchase of 635,000 acres of high quality private timberlands on
the west coast of Canada. We own 50% of the fund with the balance owned by institutional investors. The acquisition was funded
in part by a $410 million 19-year average 6% term financing, completed during the year.
Timber operations performed in line with expectations and the prospects for 2006 are promising. Demand for high quality timber
exported to the U.S. and Japan remains strong, although this continues to be offset somewhat by weak Canadian sales.
Eastern North America
We have owned and managed timberlands in Maine and New Brunswick for a number of years, both directly and through Fraser
Papers. In early 2006, we established the Acadian Timber Income Fund, a publicly listed income fund that acquired the 311,000
acres of private timberlands previously owned by us as well as a further 765,000 acres held by Fraser Papers. Acadian, in which we
hold a 27% interest, is managed by our timber management group and recently completed a C$85 million initial public offering.
Brazil
We hold 140,000 acres of timberlands located in the State of Paraná in Brazil and are actively pursuing acquisition opportunities
to expand our timberland operations in this country, which benefit from rapid rates of growth for trees.
Electrical Transmission
We own and operate an electrical transmission system in northern Ontario. As a regulated rate base business, the operations
produce stable and predictable cash flows and provide attractive returns for future investment. During the year we invested
$50 million of capital to upgrade our system, thereby increasing its rate base. We are actively pursuing the further expansion of
these operations in our current geographic areas of operation.
SPECIALTY FUNDS
We conduct bridge financing, real estate finance and restructuring activities through specialty investment funds. Our public securities
operations manage funds with specific mandates to invest in public and private securities on behalf of institutional and retail
investors. Although our primary industry focus is on property and power and long-life infrastructure assets, our mandates include
other industries which have tangible assets and cash flows, and particularly where we have expertise as a result of previous
investments.
We typically invest between 25% and 50% of the capital committed to our specialty funds, with institutional investors committing
the balance. We earn fees for managing the activities on behalf of our co-investors, which include base administration fees, per-
formance fees to the extent returns exceed predetermined thresholds, and we often earn transaction fees for specific activities.
We also earn base management and performance fees in many of our public securities operations. We typically do not own interests
in the funds being managed in our public securities operations, as they are either widely held publicly listed funds or securities
portfolios managed on behalf of their beneficial owners pursuant to specific mandates.
26
Brookfi eld Asset Management | 2005 Annual Report
The following table shows the assets currently under management and the invested capital at December 31, 2005 and 2004,
together with the associated operating cash flows:
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MI LLIONS
Assets Under
Management 1
2005
Invested Capital
Operating Cash Flow
Total
Net
Total
Net
2005
2004
2005
2004
2005
2004
2005
2004
Bridge Lending
Real Estate Finance
Restructuring
Public securities
$
900
627
400
$ 268
$ 698
149
82
103
96
$ 268
149
82
$ 698
$ 31
$ 25
103
96
14
9
11
12
18,000
—
—
—
—
—
—
Net investment / operating cash flow
$ 19,927
$ 499
$ 897
$ 499
$ 897
$ 54
$ 48
$ 54
$ 48
1 Represents capital committed or pledged by Brookfield and co-investors, including the book value of our invested capital
Operating cash flows, which represent the investment returns from our capital deployed in these activities, totalled $54 million in
2005, an increase of 13% over 2004, which was in turn higher than 2003. In addition, these operations generated net fee income
of $26 million in 2005, which is included in Fees Earned. The contribution from fees is similar to the same period in 2004 but up
significantly from 2003, as a result of acquisitions and a higher level of activity. Higher investment income reflects higher average
levels of interest bearing securities and loans held during the year.
Bridge Lending
We provide bridge loans to entities operating in industries where we have operating expertise, leveraging our 20-year history
of offering tailored lending solutions to companies in need of short-term financing.
Our portfolio declined from $698 million to $268 million during the year. Loans to Atlas Cold Storage and Uniboard, the two largest
positions at the end of 2004, were repaid in full towards the end of 2005, as both these companies executed their business plans
as contemplated. We continued to be active in 2005, reviewing many financing opportunities and issuing funding commitments
totalling $900 million to 11 clients. Our portfolio at year end was comprised of 15 loans, and the largest single exposure at that
date was $42 million. The portfolio has an average term of nine months excluding extension privileges and an average yield of
approximately 10%. We do not employ any direct financial leverage, although loans may be structured with senior and junior
tranches, and may be subordinate to other debt in the borrower’s capital structure.
Operating cash flows, which represent the return on our capital and exclude management fees, increased during the year due to
the higher level of invested capital during the year compared to 2004.
Real Estate Finance
Our real estate finance operations were established in 2002 to finance the ownership of real estate properties on a basis which
is senior to traditional equity, but subordinate to traditional first mortgages or investment grade debt. Our investments typically
represent financing at levels between 65% and 85% of the value of the property.
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MI LLIONS
Assets Under
Management 1
2005
Invested Capital
Operating Cash Flow
Total
Net
Total
Net
2005
2004
2005
2004
2005
2004
2005
2004
Real estate finance investments
$
600
$ 366
$ 228
Less: Co-investor interests
Directly held
(244)
(152)
600
27
122
27
76
27
$ 366
(244)
122
27
$ 228
$ 36
$ 33
$
36
$ 33
(152)
(24)
(22)
76
27
12
2
(24)
12
2
$
14
(22)
11
—
$ 11
11
—
$ 11
Net investment / cash flow
$
627
$ 149
$ 103
$ 149
$ 103
$ 14
1 Represents capital committed or pledged by Brookfield and co-investors, including the book value of our invested capital
Brookfi eld Asset Management | 2005 Annual Report
27
During 2005, we acquired 35 loan positions with an aggregate investment of $436 million. The portfolio continues to perform in
line with expectations. We also entered into an agreement to sell our interests in Criimi Mae, a U.S. public mortgage REIT, which
closed in the first quarter of 2006.
We maintain credit facilities that provide financing for these investments on a non-recourse basis and we have also established
two collateralized debt obligation facilities. These facilities represent $700 million of low cost debt funding for a seven-year term to
finance the acquisition of mortgage loan securities within the collateralized debt obligation funds. This financing provides a stable,
lower-risk source of funding that is intended to enhance investment returns. The quality and diversification of the portfolio enabled
us to apply leverage of approximately 70% at year end.
Restructuring
Tricap was launched in 2002 to invest long-term capital for ourselves and other investors in companies facing financial or opera-
tional difficulties in industries which have tangible assets and cash flows, and in particular where we have expertise resulting
from prior operating experience. Tricap benefits from our 20 year record of restructuring companies experiencing financial and
operational difficulties. We currently have less than $100 million invested; however we expect the amount of capital invested
to increase during 2006 as a result of current initiatives. Operating cash flow declined slightly during the year relative to 2004,
which included realization gains.
Major initiatives during the year included the restructuring of Western Forest Products, a western Canadian forest products company
in which Tricap owns an 18% interest. Western continued to rationalize its operations, including the shutdown of a pulp mill and
agreed to merge with Cascadia Forest Products, another Vancouver Island lumber company that we acquired in connection with the
purchase of timberlands from Weyerhaeuser in early 2005.
We continue to work with wholly owned Concert Industries, a leading manufacturer of air woven consumer tissue products, and
in early 2006 Tricap sold its interests in Vicwest, a steel fabrication company, for a substantial gain. Tricap also facilitated the
restructuring of Stelco, one of the two major Canadian integrated steel companies, that is expected to be completed in early
2006.
Public Securities
We manage a number of publicly listed and private portfolios of securities on behalf of institutions and retail investors with a particular
emphasis on fixed income real estate securities. We also manage a number of structured products developed for retail and institutional
investors.
While included separately in this report, fee revenues increased to $20 million in 2005, partly due to the acquisition of a New York-
based asset manager. In addition, during 2005 we launched a private mortgage REIT in the United States raising $435 million
of equity capital; a mortgage-backed offering in Canada that raised C$78 million; and two retail product offerings under the names
of Brascan SoundVest Rising Distribution Split Trust and Brascan SoundVest Focused Business Trust, that invest in income trust
securities.
We earn base management fees that vary from fund to fund depending on the mandate, and earn performance fees in respect
of certain funds based on investment returns.
28
Brookfi eld Asset Management | 2005 Annual Report
INVESTMENTS
We own direct interests in a number of investments which will be sold once value has been maximized, integrated into our core
operations or used to seed new funds. Within our areas of expertise, we continue to seek new investments of this nature and dispose
of more mature assets.
The following table sets out these investments, together with associated cash flows and gains:
AS AT AND FOR THE YEARS ENDED DE CE MBE R 3 1
MI LLIONS
Location
Shares
Interest
Assets Under
Management
2005
Invested Capital
Total
Net
Operating Cash Flow
Total
Net
2005
2004
2005
2004
2005
2004
2005
2004
197
285
495
69
133
49
204
122
345
59
172
27
6
32
77
—
Forest products
Norbord Inc.
North America / UK 33.8
Fraser Papers Inc.
North America
13.4
Privately held
North America
23%
46%
100%
Business services
$ 199
$ 199 $
177 $
(12) $
(18) $ 62
197
428
197
428
204
174
$ 19
—
$ 37
—
$ 19
—
—
(35)
(1)
(41)
(1)
Insurance
Various
80-100%
2,028
2,028
1,172
51%
100%
—
69
304
84
69
304
84
59
299
107
Banco Brascan, S.A. Rio de Janeiro
Privately held
Publicly listed
Mining and metals
Coal lands
Falconbridge
Various
Canada
Alberta
Various
100%
—
77
—
77
70
— 1,344
77
70
— 1,344
4
24
32
4
17
4
4
45
20
6
20
(2)
4
24
28
4
11
3
4
45
Net investment / operating cash flows
$ 3,386
$ 3,386 $ 3,606 $ 1,293 $ 2,375
$ 120
$ 124
$ 68
$ 113
We account for our non-controlled public investments such as Norbord and Fraser Papers using the equity method, and include
dividends received from these investments in cash flow and our proportional share of their earnings in net income. We consolidate
the results of our majority owned private companies and accordingly include our proportional share of their results in the operating
cash flow shown above.
Forest Products
Norbord Inc.
We control 37% and own a net beneficial interest in approximately 23% or 34 million shares of Norbord Inc. (“Norbord”). Our net
investment had a market value of approximately $360 million at year end.
AS AT AND FOR THE YEARS ENDED DE CE MBE R 3 1
MI LLIONS
Common shares owned
Exchangeable debenture
Shares
Interest
53.8
(20.0)
37%
(14%)
Assets Under
Management
2005
Invested Capital
Total
Net
Operating Cash Flow
Total
Net
2005
2004
2005
2004
2005
2004
2005
2004
$ 199
$ 199 $
177 $
199 $
177
$ 62
$ 19
$ 62
$ 19
—
— —
(211)
(195)
(25)
—
Net investment / operating cash flows
33.8
23%
$ 199
$ 199 $
177 $
(12) $
(18) $ 62
$ 19
$ 37
$ 19
Norbord is an international producer of wood panels with operations in the United States, Canada and Europe. The company’s
principal product is oriented strandboard. Norbord contributed $62 million of dividends to our cash flow during the current year
resulting in a net contribution of $37 million after deducting exchangeable debenture interest. Norbord is traded on the Toronto
Stock Exchange. Further information on Norbord is available through its web site at www.norbord.com.
Brookfi eld Asset Management | 2005 Annual Report
29
Fraser Papers Inc.
We own approximately 13 million common shares of Fraser Papers, which we received on the distribution of this business from
Norbord during 2004. These shares represent a 46% equity interest in the company. Fraser Papers produces a wide range of specialty
paper products from its operations which are located principally in Maine and New Brunswick. Fraser Papers is traded on the
Toronto Stock Exchange. Further information on Fraser Papers is available through its web site at www.fraserpapers.com.
Privately Held
We own two private forest products companies that we acquired in connection with the purchase of core timberland and power
generation operations. Cascadia is a coastal British Columbia lumber producer that operates five sawmills and two remanufacturing
facilities, together with crown rights for 3.6 million cubic metres of annual timber harvesting. We acquired these operations from
Weyerhaeuser in connection with the purchase of private timberlands by our timber fund. We recently reached agreement to merge
Cascadia with Western Forest Products, which is 18%-owned by our restructuring fund.
Katahdin Paper owns a 280,000 ton per year directory paper mill and a 185,000 ton per year super-calender fine paper mill. These
operations, located in Maine, were acquired out of bankruptcy in April 2003. Katahdin faced a difficult operating environment during
2005, which resulted in $30 million of operating and restructuring charges, but we believe its results will improve in 2006.
Business Services
Insurance Operations
Our insurance operations are conducted through 80%-owned Imagine Insurance, a specialty reinsurance business which operates
internationally, and Hermitage Insurance, a property and casualty insurer which operates principally in the northeast United States.
We manage the securities portfolios of these companies, which total $1.8 billion and consist primarily of highly rated government
and corporate bonds, through our public securities operations. Imagine is rated A (strong) and A- (excellent) by Fitch and AM Best,
respectively and Hermitage is rated B++ (very good) by AM Best. These operations continued to generate attractive returns despite
larger than expected underwriting losses during 2005. We continue to explore a variety of options to surface the value of our insur-
ance business, which could result in a reduced ownership interest in the future.
Banco Brascan, S.A.
We own a 51% interest in Banco Brascan, which is a Brazilian investment bank based in Rio de Janeiro and São Paulo. The balance
of the company is owned 40% by Mellon Financial Group and 9% by management. Banco Brascan advises, lends to and provides
asset management services to domestic and foreign companies in Brazil.
Other Privately Held
Privately held business service investments include a joint venture with the Accor Group of France which owns and manages the
Accor Group hotel brands in Brazil, including Novotel, Sofitel, Ibis and Formula One, and a voucher services business in Brazil, which
provides paper and electronic vouchers to corporations which utilize them in their compensation programs for employees and for
the purchase of motor fuel and other purposes.
Other Publicly Listed
Publicly listed business service investments include controlling interests in NBS Technologies Inc. and MediSolution Ltd. NBS provides
secure identification solutions, financial transaction services and operates a commerce gateway that facilitates electronic payment
processing. MediSolution develops and manages medical human resources management software and systems for the health
industry, primarily in Canada.
30
Brookfi eld Asset Management | 2005 Annual Report
Mining and Metals
Coal Lands
Brookfield owns the coal rights under approximately 475,000 acres of freehold lands in central Alberta. These lands supply approximately
11% of Alberta’s coal-fired power generation through the production of approximately 12 million tonnes of coal annually. Royalties
from this production generate $4 million of operating cash flow and provide a stable source of income as they are free of crown
royalties and require no holdings costs. In addition, we own a 3.5% net profit interest in 75 million tonnes of proven reserves, and
25 million tonnes of potential reserves of high quality metallurgical coal in British Columbia.
Falconbridge
We monetized our investment in Falconbridge during 2005 for proceeds of $2.7 billion and an after tax gain of $1.1 billion. Operating
cash flow during the past two years from this investment consisted of dividend receipts.
CASH AND FINANCIAL ASSETS
Although we generate substantial amounts of cash flow within our operations, we generally carry modest cash balances and
instead utilize excess cash to repay contractual revolving credit lines and invest in shorter term financial assets which generate
higher returns while still providing a source of liquidity to fund investment initiatives. The market value of our financial assets
approximates their realizable value. The following table shows the composition of these assets and associated cash flow:
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MI LLIONS
Financial assets
Government bonds
Corporate bonds – Xstrata convertible
– Other
Asset backed securities
High yield bonds
Preferred shares – Falconbridge
– Other
Common shares
Total financial assets
Cash and cash equivalents
Deposit and other liabilities
Assets Under
Management
2005
Invested Capital
Operating Cash Flow
Total
Net
Total
Net
2005
2004
2005
2004
2005
2004
2005
2004
$
59
375
247
69
220
570
107
494
$
59
$
42
$
375
247
69
220
570
107
494
—
338
—
150
—
92
224
846
139
59
375
247
69
220
570
107
494
2,141
417
(428)
$ 42
—
338
—
150
—
92
224
846
139
(339)
$ 188
$ 126
$ 188
$ 126
5
2
5
(9)
2
(4)
2,141
417
2,141
417
Net investment / operating cash flow
$ 2,558
$ 2,558
$ 985
$ 2,130
$ 646
$ 193
$ 128
$ 184
$ 124
Invested capital increased substantially during the year due to the receipt of proceeds from the sale of Falconbridge. The increase
in operating cash flow reflects the higher level of invested assets.
We invest surplus liquidity in a range of securities ranging from government securities to common shares. The composition of the
portfolios varies depending on our assessment of risk adjusted returns and liquidity requirements. Our investing activities, which
utilize the knowledge and experience gained from our operating activities, rely on careful due diligence and a value based invest-
ment philosophy. We tend to invest our Financial Assets in more senior instruments to maximize liquidity and capital preservation.
From time to time, however, we take positions in equity and high yield securities in our areas of industry expertise which we believe
to be under-valued. In the same regard, we will also sell short securities that we believe to be over valued or to protect the value of
existing positions, although in such circumstances our position is typically partially hedged to contain downside risk.
Deposit and other liabilities include broker deposit liabilities associated with our securities portfolio and borrowed securities sold
short with a value of $182 million at December 31, 2005.
Brookfi eld Asset Management | 2005 Annual Report
31
OTHER ASSETS AND DISPOSITION GAINS
Other Assets
The following is a summary of other assets:
YEARS ENDED DECEM BER 31 (MIL L I ON S)
Accounts receivable
Restricted cash
Goodwill and intangible assets
Prepaid and other assets
Invested Capital
$
2005
605
367
160
659
$ 1,791
2004
$ 538
29
177
208
$ 952
Operating Cash Flow
2005
2004
$ —
$ —
Other assets include working capital balances employed in our business that are not directly attributable to specific operating units.
These include accounts receivable in respect of contracted revenues owing but not yet collected, dividend, interest and fees owing
to the company and the straight-lining of long-term contracted revenues in accordance with accounting guidelines. The magnitude
of these balances varies somewhat based on seasonal variances and increased year-over-year with overall growth in business
activity and expansion of our operating base.
Property and Disposition Gains
The following table sets out property and disposition gains over the past three years. While these events are opportunistic and
difficult to predict, the dynamic nature of our asset base should generate varying levels of disposition gains in the future.
YEARS ENDED DECEM BER 31 (MIL L I ONS )
Property and disposition gains
2005
$
49
2004
$
123
2003
$
157
During 2005, we earned disposition gains of $49 million, including the sale of our Royal LePage Commercial advisory business to
Cushman & Wakefield, and the sale of a small tin mining operation in Brazil.
During 2004, we earned a $63 million gain on the partial monetization of our investment in Norbord and lease termination income of
$60 million from the cancellation of an existing lease and replacement with a new 20-year 460,000 square foot lease at One World
Financial Center. Disposition gains during 2003 included $100 million related to the sale of a 49% interest in 245 Park Avenue and
a $57 million gain on the sale of an investment in a gold-copper mining company in western Canada.
32
Brookfi eld Asset Management | 2005 Annual Report
CAPITAL RESOURCES AND LIQUIDITY
The following sections describe our capitalization and liquidity profile. The strength of our capital structure and the liquidity that
we maintain enables us to achieve a low cost of capital for our shareholders and at the same time provides us with the flexibility
to react quickly to potential investment opportunities.
CAPITALIZATION
We maintain a strong and flexible capitalization structure that is comprised largely of long-term financings and permanent equity.
We believe this is the most appropriate method of financing our long-term assets, and the high quality of the assets and the associated
cash flows enable us to raise long-term financing in a cost effective manner.
Brookfield makes judicious use of debt and preferred equity to enhance returns to common shareholders. We arrange our financial
affairs so as to maintain strong investment grade ratings, which lower our cost of borrowing and broadens our access to capital.
We also endeavour to minimize liquidity and refinancing risks to the company by issuing long-dated securities and spreading out
maturities.
Credit Profile
The credit ratings for the company at December 31, 2005, and at the time of the printing of this report were as follows:
Commercial paper
Term debt
Preferred shares
DBRS
R-1(low)
A(low)
Pfd-2(low)
S&P
A-1 (low)
A–
P2 (mid)
Moody’s
—
Baa3
—
We endeavour to ensure that our principal operations maintain investment grade ratings in order to provide continuous access to
a wide range of financings and to enhance borrowing flexibility, a low cost of capital and access to various forms of financing that
are not available to non-investment grade borrowers.
The following outlines our targeted debt to capitalization levels:
Debt to capitalization
Corporate borrowings and subsidiary obligations
20% to 30%
Objective
2005
20%
2004
22%
2003
20%
Our deconsolidated capitalization, which totalled $11.4 billion at year end, includes corporate debt, subsidiary obligations, capital
securities and preferred equity, as well as our common equity. These obligations are typically unsecured and have minimal covenants
and operating requirements. The following table details our deconsolidated liabilities and shareholders’ interests at the end of 2005
and 2004 and the related cash costs:
Brookfi eld Asset Management | 2005 Annual Report
33
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MIL LIONS
Cost of Capital 1
2005
2004
Corporate borrowings
Subsidiary obligations 3
Other liabilities
Capital securities
Non-controlling interest in net assets
Preferred equity
Common equity
7%
10%
7%
6%
22%
6%
21%
16%
6%
10%
6%
6%
22%
6%
18%
16%
Book Value
2005
2004
$ 1,620
605
$ 1,675
664
1,386
1,598
1,199
515
4,514
5,029
1,097
1,548
1,274
590
3,277
3,867
Operating Cash Flow 2
2005
2004
$
119
69
103
90
243
35
873
908
$ 103
61
92
79
250
24
602
626
1 Based on operating cash flows as a percentage of average book value
2
Interest expense in the case of borrowings. Attributable operating cash flows in the case of minority and equity interests, including cash distributions. Current taxes and
9.5%
9.5%
$ 11,437
$ 10,125
$ 1,532
$ 1,211
operating expenses in the case of accounts payable and other liabilities
3 Represents obligations of subsidiaries that are guaranteed by the Corporation
The principal components of our capitalization were relatively unchanged at the end of 2005 as compared with 2004, with the
exception of the book value of our common equity which increased to $4.5 billion from $3.3 billion. The increase in common equity
was due to the substantial net income recorded during the year, offset in part by dividends and share repurchases. We have been
locking in longer term fixed rates and closing out floating rate swap positions since 2003. This resulted in a modest increase in our
cost of capital during recent years, but should protect our returns over the longer term. Our financial obligations are almost entirely
comprised of long-term fixed rate debt and equity securities.
Our consolidated capitalization, which includes obligations and equity interests held by others in entities that are consolidated in
our statutory financial statements, totalled $26.1 billion as detailed on page 45. This includes long-term property specific debt
which is secured by operating assets, typically core office properties and power generating stations, with no recourse to Brookfield
as well as debt of subsidiaries which also has no recourse to Brookfield.
Corporate Borrowings
Corporate borrowings represent long-term and short-term obligations of the Corporation. Long-term corporate borrowings are in
the form of bonds and debentures issued in the Canadian and U.S. capital markets both on a public and private basis. Short-term
financing needs are typically met by issuing commercial paper that is backed by long-term fully committed lines of credit from
a group of international banks.
The following table summarizes Brookfield’s corporate credit facilities:
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MIL LIONS
Commercial paper and bank borrowings
Publicly traded term debt
Privately held term debt 3
1 As a percentage of average book value of debt
2
Interest expense
3 $43 million is secured by our coal assets
Cost of Capital 1
2005
2004
Book Value
2005
2004
Operating Cash Flow 2
2005
2004
4%
7%
6%
7%
3%
5%
8%
6%
$ —
$
249
$
1,574
46
1,413
13
8
110
1
$
5
90
8
$ 1,620
$ 1,675
$
119
$ 103
We issued C$300 million ($259 million) of 30-year debt during the year at an interest rate of 5.95% to capitalize on historically
low interest rates and strong market liquidity. On December 31, 2004, we assumed C$375 million ($323 million) of public term
debt previously issued by a subsidiary upon the amalgamation of our funds management business. As a result of these events, our
average corporate term debt levels were higher than 2004, giving rise to higher carrying charges. During the year, we repaid all
of our commercial paper following the sale of our investment in Falconbridge, and redeemed C$125 million ($108 million) of term
debt on maturity.
34
Brookfi eld Asset Management | 2005 Annual Report
The average interest rate on our term debt was 7% during 2005, compared with 6% during 2004, and the average term was
12 years (2004 – 9 years).
The Corporation has approximately $900 million of committed corporate credit facilities which are utilized principally as back-up
credit lines to support commercial paper issuance. At December 31, 2005, none of these facilities were drawn, although approxi-
mately $95 million of the facilities were utilized (2004 – $31 million) for letters of credit issued principally on behalf of our power
operations to support power sale contracts.
Principal repayments on corporate borrowings due over the next five years and thereafter are as follows:
YEARS ENDED DECEMBER 31 (MIL LIONS )
2006
Commercial paper and bank borrowings
$ —
Publicly traded term debt
Privately held term debt
Total
Percentage of total
108
2
$ 110
7%
2007
$ —
108
—
$ 108
7%
2008
$ —
300
—
$ 300
18%
2009
$ —
—
—
$ —
—%
2010
$ —
200
—
$ 200
12%
Beyond
$ —
858
44
Total
$ —
1,574
46
$ 902
$ 1,620
56%
100%
Subsidiary Obligations
Subsidiary obligations include retractable preferred shares issued by corporate subsidiaries as well as financial obligations that are
guaranteed by the Corporation as set forth in the following table:
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MI LLIONS
Retractable preferred shares
Subsidiary debt
1 As a percentage of average book value
2
Interest expense
Cost of Capital 1
Book Value
2005
7%
11%
10%
2004
7%
11%
10%
$
2005
172
433
$
2004
271
393
$
605
$
664
Operating Cash Flow 2
2005
2004
$
$
17
52
69
$
$
15
46
61
The retractable preferred shares are to be redeemed no later than 2007 and earlier if requested by the holders. We redeemed
C$125 million of these shares during 2005. The company does not typically guarantee the debts of subsidiaries, with the principal
exception being a guarantee of subsidiary debt originally issued in 1990 that was assumed by the Corporation upon amalgamating
with the original guarantor. The increase in the carrying amount during 2005 reflects accrued interest and advances that will be
repaid on maturity of the underlying debt in 2015.
Capital Securities
Capital securities represent long-term preferred shares and preferred securities that can be settled by issuing, solely at our option,
a variable number of our common shares and, as a result of new accounting guidelines, are no longer classified as equity in our
financial statements. The following table summarizes capital securities issued by the company:
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MI LLIONS
Corporate preferred shares and preferred securities
Subsidiary preferred shares
Cost of Capital 1
2005
2004
6%
6%
6%
6%
6%
6%
Book Value
$
2005
669
929
$
2004
647
901
$ 1,598
$ 1,548
Operating Cash Flow 2
2005
2004
$
$
41
49
90
$
$
40
39
79
1 As a percentage of average book value
2
Interest expense
Brookfi eld Asset Management | 2005 Annual Report
35
The increase in distributions paid on subsidiary preferred shares relates to additional securities issued during 2004. Distributions
paid on these securities are recorded as interest expense, even though the legal form for all but two of the issues are dividends.
Principal repayments due on capital securities are as follows:
YEARS ENDED DECEM BER 31 (MIL L I ONS )
Corporate preferred shares and preferred securities
Subsidiary preferred shares
Total
Percentage of total
2006
to 2010
$ —
—
$ —
—
2011
to 2015
$ 303
800
$ 1,103
69%
2016
to 2020
$ 151
129
$ 280
18%
2021
to 2025
$ —
—
$ —
—%
Beyond
$ 215
—
$
Total
669
929
$ 215
$ 1,598
13%
100%
The average distribution yield on the capital securities at December 31, 2005 was 6% (2004 – 6%) and the average term was
13 years (2004 – 14 years). We did not issue or redeem any capital securities during the year and changes in the book value are
due to the impact of currency fluctuations on capital securities denominated in Canadian dollars.
Non-Controlling Interests in Net Assets
Non-controlling interests in net assets consist principally of the 49% equity ownership in Brookfield Properties Corporation held
by shareholders other than us, as well as preferred share obligations issued by subsidiary companies that are consolidated in our
segmented basis of presentation.
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MIL LIONS
Brookfield Properties common shares
Subsidiary preferred shares
1 As a percentage of average book value
2 Dividends
Cost of Capital 1
Book Value
2005
23%
6%
22%
2004
23%
6%
22%
$
2005
999
200
2004
$ 1,024
250
Operating Cash Flow 2
2005
2004
$
230
$ 235
13
15
$ 1,199
$ 1,274
$
243
$ 250
The book value of common equity interests in Brookfield Properties declined during 2005 as a result of common shares repur-
chased by Brookfield Properties. Preferred share interests declined due to redemptions.
Other Liabilities and Operating Costs
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MIL LIONS
Invested Capital
Operating Cash Flow
Total
Net
Total
Net
2005
2004
2005
2004
2005
2004
2005
2004
Accounts payable
Insurance liabilities
Deferred tax liability / (asset)
Other liabilities
Asset management
Other operating costs
Cash taxes
$ 2,037
$ 1,365
$ 1,001
1,433
767
—
$ 516
—
14
—
(51)
—
1,077
587
436
581
$ 184
103
162
$ 126
$ —
$ —
83
86
92
11
82
10
$ 4,561
$ 2,719
$ 1,386
$ 1,097
$ 449
$ 295
$ 103
$ 92
Accounts payable and other liabilities increased during the year due to the assumption of working capital balances on the acquisi-
tion of additional operating assets, as well as overall growth in the level of business activity. Insurance liabilities include claims
and deposit liabilities within our insurance operations. These liabilities increased during the year due to the expansion of these
operations which resulted in a corresponding increase in the securities held within these operations. Other liabilities includes
$211 million representing the debentures exchangeable into 20 million Norbord common shares.
36
Brookfi eld Asset Management | 2005 Annual Report
Asset management expenses, which reflect direct attributable costs, increased from $126 million in 2004 to $184 million in 2005,
consistent with the expansion of our business. We are continuing to build out our platform and expect to earn higher margins
in the future. Other operating costs are those which are not directly attributable to specific business units and have increased in
line with the overall level of business activity.
Cash taxes relate principally to the taxable income generated within our U.S. home building operations. This income cannot be
sheltered with tax losses elsewhere in the business due to the separate public ownership of this operation.
Preferred Equity
Preferred equity represents perpetual floating rate preferred shares that provide an attractive form of permanent equity leverage
to our common shares.
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MI LLIONS
Preferred equity
1 As a percentage of average book value
2 Dividends
Cost of Capital 1
2005
6%
2004
6%
Book Value
2005
2004
Operating Cash Flow 2
2005
2004
$
515
$
590
$
35
$
24
On December 31, 2004, we issued $237 million of perpetual preferred shares in exchange for preferred shares issued previously by
our funds management subsidiary. This, together with the impact of the higher Canadian dollar on preferred share dividends, resulted
in an increase in distributions during 2005. We also redeemed $75 million of floating rate preferred shares during the year.
Common Equity
On a diluted basis, Brookfield had 270.2 million common shares outstanding at year end, a decrease of 1.5 million shares from
December 31, 2004. During 2005, we repurchased 4.0 million common shares under issuer bids at an average price of $40.63
per share and issued 2.7 million options at an average price of $38.28 per share. During 2004, 0.8 million common shares and
equivalents were repurchased at a price of $23.35 per share.
Brookfield has two classes of common shares outstanding: Class A and Class B. Each class of shares elects one-half of the Corpo-
ration’s Board of Directors. The Class B shares are held by Partners Limited, a private company owned by 45 individuals, including
a number of the senior executive officers of Brookfield, who collectively hold direct and indirect beneficial interests in approximately
45 million Class A shares representing an approximate 17% equity interest in the company. Further details on Partners Limited can
be found in the company’s management information circular.
LIQUIDITY
We strive to maintain sufficient financial liquidity at all times in order to participate in attractive investment opportunities as they
arise, as well as to withstand sudden adverse changes in economic circumstances. Our principal sources of liquidity are financial
assets, undrawn committed credit facilities, free cash flow and the turnover of assets on our balance sheet. We structure the ownership
of our assets to enhance our ability to monetize their embedded value to provide additional liquidity if necessary.
Our financial assets and committed bank facilities are described further on pages 31, 34 and 35 of this report and represent ag-
gregate liquidity of $3.6 billion as at December 31, 2005.
Our free cash flow represents the operating cash flow retained in the business after operating costs and cash taxes, interest
payments, dividend payments to other shareholders of consolidated entities, preferred equity distributions and sustaining capital
expenditures. This cash flow is available to pay common share dividends, invest for future growth, reduce borrowings or repurchase
equity.
Brookfi eld Asset Management | 2005 Annual Report
37
The following table summarizes our free cash flow on a consolidated basis:
YEARS ENDED DECEM BER 31 (MIL L I ONS )
Cash flow from operations
Disbursements
Brookfield’s share of sustaining capital investments
Preferred share dividends
Free cash flow before the following
Cash flow retained in operations, net of minority share of dividends and sustaining capital investments
Brookfield Properties
Brookfield Homes
Consolidated free cash flow
2005
$
908
2004
$
626
2003
$
590
(55)
(35)
818
120
103
(55)
(24)
547
175
83
$ 1,041
$
805
$
(45)
(24)
521
156
61
738
Corporate Guarantees, Commitments and Contingent Obligations
Our policy is to not guarantee liabilities of subsidiaries or affiliates. We do, however, provide limited guarantees and indemnities
when required from time-to-time to further the growth of our power marketing and asset management businesses. The Corporation
has guaranteed $434 million of subsidiary debt previously guaranteed by a company with which the Corporation amalgamated. The
Corporation has also guaranteed obligations under power purchase agreements which amounted to $19 million at year end. Certain
of these obligations, together with $229 million of obligations included in accounts payable and other liabilities, are subject to credit
rating provisions and are supported by financial assets of the principal obligor. We also provide normal course commitments, none
of which are material at the current time.
The company may be contingently liable with respect to regulatory proceedings, litigation and claims that arise in the normal course
of business. The company does not believe it has any material exposure in this regard and has provided for any expected claims
in its accounts. In addition, the company may execute agreements that provide indemnifications and guarantees to third parties.
Disclosure of commitments, guarantees and contingencies can be found in the Notes to the Consolidated Financial Statements.
Off Balance Sheet Arrangements
We conduct our operations primarily through entities that are fully or proportionately consolidated in our financial statements. We
do hold non-controlling interests in investment companies such as Norbord and Fraser Papers which are accounted for on an equity
basis, as are interests in some of our funds, however we do not guarantee any financial obligations of these entities other than our
contractual commitments to provide capital to a fund which are limited to predetermined amounts.
We utilize various financial instruments in our business to manage risk and make better use of our capital. The mark-to-notional
values of these instruments that are not reflected on our balance sheet are disclosed in Note 15 to our Consolidated Financial State-
ments and discussed on page 41 under Financial Risk Management.
BUSINESS ENVIRONMENT AND RISKS
Brookfield’s financial results are impacted by: the performance of each of our operations and various external factors influencing
the specific sectors and geographic locations in which we operate; macro-economic factors such as economic growth, changes
in currency, inflation and interest rates; regulatory requirements and initiatives; and litigation and claims that arise in the normal
course of business.
Our strategy is to invest in high quality long-life assets which generate sustainable streams of cash flow. While high quality assets
may initially generate lower returns on capital, we believe that the sustainability and future growth of their cash flows is more
assured over the long term, and as a result, warrant higher valuation levels. We also believe that the high quality of our asset base
protects the company against future uncertainty and enables us to invest with confidence when opportunities arise.
The following is a review of the material factors and the potential impact these factors may have on the company’s business
operations. A more detailed discussion of the business environment and risks is contained in our Annual Information Form which
is posted on our web site.
38
Brookfi eld Asset Management | 2005 Annual Report
PROPERTY OPERATIONS
Core Office Properties
Our strategy is to invest in high quality core office properties as defined by the physical characteristics of the assets and, more
importantly, the certainty of receiving rental payments from large corporate tenants which these properties attract. Nonetheless,
we remain exposed to certain risks inherent in the core office property business.
Core office property investments are generally subject to varying degrees of risk depending on the nature of the property. These
risks include changes in general economic conditions (such as the availability and cost of mortgage funds), local conditions (such
as an oversupply of space or a reduction in demand for real estate in the markets in which we operate), the attractiveness of the
properties to tenants, competition from other landlords with competitive space and our ability to provide adequate maintenance
at an economical cost.
Certain significant expenditures, including property taxes, maintenance costs, mortgage payments, insurance costs and related
charges, must be made regardless of whether or not a property is producing sufficient income to service these expenses. Our core
office properties are subject to mortgages which require substantial debt service payments. If we become unable or unwilling to meet
mortgage payments on any property, losses could be sustained as a result of the mortgagee’s exercise of its rights of foreclosure
or of sale. We believe the stability and long-term nature of our contractual revenues is an effective mitigant to these risks.
Our core office properties generate a relatively stable source of income from contractual tenant rent payments. We endeavour
to stagger our lease expiry profile so that we are not faced with a disproportionate amount of space expiring in any one year.
Continued growth of rental income is dependent on strong leasing markets to ensure expiring leases are renewed and new tenants
are found promptly to fill vacancies. While we believe the outlook for commercial office rents is positive for both 2006 and in the longer
term, it is possible that rental rates could decline or that renewals may not be achieved. The company is, however, substantially
protected against short-term market conditions, since most of our leases are long-term in nature with an average term of 10 years.
A protracted disruption in the economy, such as the onset of a severe recession, could place downward pressure over time on overall
occupancy levels and net effective rents.
Our core office property operations have insurance covering certain acts of terrorism for up to $500 million of damage and business
interruption costs. We continue to seek additional coverage equal to the full replacement cost of our assets; however, until this
type of coverage becomes commercially available on a reasonably economic basis, any damage or business interruption costs as
a result of uninsured acts of terrorism could result in a material cost to the company.
Residential Properties
In our residential land development and home building operations, markets have been favourable over the past five years with
strong demand for well located building lots, particularly in the United States and Alberta. Our operations are concentrated in high
growth areas which we believe have positive demographic and economic conditions.
Nonetheless, the residential home building and land development industry is cyclical and may be significantly affected by changes
in general and local economic conditions such as consumer confidence, job stability, availability of financing for home buyers and
higher interest rates due to their impact on home buyers’ decisions. These conditions can affect the outlook of consumers and,
in particular, the price and volume of home purchases. Furthermore, we are subject to risks related to the availability and cost
of materials and labour, supply and cost of building lots, and adverse weather conditions that can cause delays in construction
schedules and cost overruns.
In particular, interest rates in North America have supported robust housing sales. Should a substantial interest rate increase occur,
potentially resulting in reduced consumer demand for residential property, both income and the intrinsic value of our land holdings
could be negatively affected. On a book value basis, as our historical cost is well below intrinsic values, it would be remote that
writedowns would occur.
Brookfi eld Asset Management | 2005 Annual Report
39
POWER GENERATING OPERATIONS
Our strategy is to own primarily hydroelectric generating facilities, which have operating costs significantly below that of most
competing forms of generation. As a result, there is a high level of assurance that we will be able to deliver power on a profitable
basis. In addition, we sell most of our generation pursuant to long-term contracts that protect us from variations in future prices.
Nonetheless, we are subject to certain risks, the most significant of which are hydrology and price.
The revenues generated by our power facilities are proportional to the amount of electricity generated, which is dependent upon
available water flows. Although annual deviations from long-term average water flows can be significant, we strive to mitigate this
risk by increasing the geographic diversification of our facilities which assists in balancing the impact of generation fluctuations in
any one geographic region.
Demand for electricity varies with economic activity. Accordingly, an economic slow down could have an adverse impact on prices.
In addition, oversupply in our markets may result from excess generating capacity. Pricing risk is mitigated through fixed-price contracts,
forward sales of electricity, and the regulated revenues we earn from our transmission and distribution business. Continued growth
in pricing is dependent on favourable economic and supply conditions and the renewal of contracts on favourable terms.
Our power operations are typically financed with long-term debt. A prolonged decline in operating income due to unusually poor
hydrology or extremely low pricing could impact our ability to meet our obligations to mortgagees and could result in losses as
a result of the mortgagee’s right of foreclosure or sale.
The operation of hydroelectric generating facilities and associated sales of electricity are regulated to varying degrees in most
regions. Changes in regulation can affect the quantity of generation and the manner in which we produce it, which could impact
revenues.
Lastly, electricity prices in North America are affected by fossil fuel prices, particularly natural gas. A sustained downward movement
in fossil fuel prices could have an adverse impact on future cash flows and asset values.
TIMBERLANDS, INFRASTRUCTURE AND SPECIALTY FUNDS OPERATIONS
Our specialty funds operations are focussed on the ownership and management of assets, the majority of which are long life physi-
cal assets, as well as debt and similar obligations, that are supported by underlying tangible assets and cash flows. The principal
risks in this business are potential loss of invested capital as well as insufficient investment or fee income to cover operating
expenses and cost of capital.
Unfavourable economic conditions could have a significant impact on our assets, which could negatively impact their ability to satisfy
their obligations to us on a timely basis. This could reduce the value and liquidity of our investments and the level of investment
income. Since most of our investments are in our areas of expertise and given that we strive to maintain adequate supplemental
liquidity at all times, we are well positioned to assume ownership of and operate most of the assets and businesses that we finance.
Furthermore, if this situation does arise, we typically acquire the assets at a discount to the underwritten value, which protects us
from loss.
Timberlands, transmission and distribution operations are subject to various forms of regulatory oversight that can impact operating
policies and, as a result, profitability. We address this risk by endeavouring to operate well within prescribed requirements and by
maintaining a full understanding of the regulatory environment.
We finance many of our fund investments with debt capital, typically on a matched basis reflecting maturity and interest rate profiles.
Nonetheless, a contraction of available credit could result in an increase in financing costs which would impact our profitability
or cause us to dispose of assets sooner than otherwise planned and thereby reduce returns or result in a loss of capital. This risk
is mitigated through the structuring of our financing arrangements and by maintaining adequate liquidity to refinance obligations
if necessary.
40
Brookfi eld Asset Management | 2005 Annual Report
FINANCIAL RISK MANAGEMENT
Our business is impacted by changes in currency rates, interest rates, commodity prices and other financial exposures. As a general
policy, we endeavour to maintain balanced positions, although unmatched positions may be taken from time to time within prede-
termined limits. The company’s risk management and derivative financial instruments are more fully described in the notes to our
Consolidated Financial Statements. We selectively utilize financial instruments to manage these exposures.
Our intent is to maintain a hedged position with respect to the carrying value of net assets denominated in currencies other than
the U.S. dollar. Accordingly, fluctuations in the value of the U.S. dollar relative to other currencies have a negligible impact on the
company’s net financial position. The company receives certain cash flows that are denominated in Canadian dollars that are not
hedged. The estimated impact of a C$0.01 change in the Canada/U.S. exchange rate is a corresponding change in operating cash
flow of less than $0.02 per share.
We typically finance assets that generate predictable long-term cash flows with long-term fixed rate debt in order to provide sta-
bility in cash flows and protect returns in the event of changes in interest rates. We also make use of fixed rate preferred equity
financing as well as financial contracts to provide additional protection in this regard. Historically, the company and our subsidiaries
have tended to maintain a net floating rate liability position because we believe that this results in lower financing costs over the
long term.
As at December 31, 2005, our net floating rate liability position was $0.8 billion. As a result, a 100 basis point increase in interest
rates would decrease operating cash flow by $8 million, or $0.03 per share. Our fixed-rate obligations at year end include a notional
amount of $1.2 billion (2004 – $1.6 billion) which we are required to record at market value and any changes in value recorded
as current income, with the result that a 10 basis point increase in long-term interest rates will result in a corresponding increase
in income of $12 million before tax or $0.05 per share and vice versa, based on our year end positions. It is important for shareholders
to keep in mind that these interest rate related revaluation gains or losses are offset by corresponding changes in values of the
assets and cash flow streams that they relate to, which are not reflected in current income.
We selectively utilize credit default swaps and equity derivatives to hedge financial positions and may establish unhedged positions
from time to time. These instruments are typically utilized as an alternative to purchasing or selling the underlying security when
they are more effective from a capital employment perspective.
As at December 31, 2005, we held credit default swaps with an aggregate notional amount of $797 million, with a maximum exposure
to any particular issuer of less than $50 million. We are entitled to receive payment in the event of predetermined credit events
for $775 million of the notional amount, which protects us in the event of a deteriorating credit spread environment, and are
required to make payment in respect of $22 million of the notional amount. We also held equity derivatives with a notional amount
of $604 million as at December 31, 2005. Approximately one-half of the notional amount entitles us to purchase Brookfield common
shares in order to hedge long-term compensation arrangements and the balance represents common equity positions established
in connection with our capital markets investment activities. The replacement values of these instruments are reflected in our year
end consolidated financial statements.
EXECUTION OF STRATEGY
Our strategy for building shareholder value is to develop or acquire high quality assets and businesses that generate sustainable
and increasing cash flows on behalf of ourselves and co-investors, with the objective of achieving higher returns on capital invested
and asset management fees over the long term.
We consider effective capital allocation to be one of the most important components to achieving long-term investment success.
As a result, we apply a rigorous approach towards the allocation of capital among our operations. Capital is invested only when
the expected returns exceed pre-determined thresholds, taking into consideration both the degree and magnitude of the relative
risks and upside potential and, if appropriate, strategic considerations in the establishment of new business activities. We conduct
post-investment reviews on capital allocation decisions to assess the results against anticipated returns.
Brookfi eld Asset Management | 2005 Annual Report
41
We endeavour to maintain an appropriate level of liquidity in order to invest on a value basis when attractive opportunities arise.
Our approach to business entails adding assets to our existing businesses when the competition for assets is lowest, either due to
depressed economic conditions or when concerns exist relating to a particular industry. However, there is no certainty that we will
be able to acquire or develop additional high quality assets at attractive prices to supplement our growth.
The successful execution of a value investment strategy requires careful timing and business judgment, as well as the resources
to complete asset purchases and restructure them as required, notwithstanding difficulties experienced in a particular industry.
Our diversified business base, liquidity and the sustainability of our cash flows provide important elements of strength in executing
this strategy.
Conversely, overly favourable economic conditions can limit the number of attractive investment opportunities and thereby restrict
our ability to increase assets under management and the related income streams. We mitigate this risk by exercising patience and
by maintaining a relatively low level of administrative overhead.
Our ability to successfully expand our asset management business is dependent on our reputation with our current and potential
investment partners. We believe that our track record and recent investments, as well as adherence to operating policies that
emphasize a constructive management culture, will enable us to continue to develop productive relationships with institutional
investors.
The conduct of our business and the execution of our growth strategy rely heavily on teamwork. We believe that co-operation
among our operations and our team-oriented management structure are essential to responding promptly to opportunities and
challenges as they arise. There is, however, no certainty that the ability to retain, or the appointment of, new senior executives will
always be successfully executed.
OUTLOOK
We are optimistic as we review the outlook for our operations in 2006 and believe we are well positioned for growth.
In our core property sector, the leasing markets in which we operate appear to have stabilized and are improving on a measured
basis with positive absorption rates in most markets. Our strong tenant lease profile and low vacancies give us a high level of
confidence that we can achieve our operating targets in 2006.
Residential markets remain exceptionally strong in our core markets. Despite recent signs that sales growth is slowing, we expect
another strong year in these operations based on sales in hand and regional conditions.
Our power operations benefitted from higher prices during 2005 and, although water flows were lower than 2004, current storage
levels are consistent with long-term averages. As a result, we expect cash flows during 2006 to increase compared to 2005 should
the current pricing environment continue and should water flows be consistent with long-term averages.
We continue to build our specialized funds and our timberlands and infrastructure operations by committing additional resources
and launching new funds. During 2006, we are concentrating on investing the capital committed. This should positively impact our
results in 2006.
The investment market continues to be competitive and acquisition prices have increased due in large part to the availability and
the low cost of capital for many investors. The breadth of our operating platform, our disciplined approach to investing, and our
ability to supplement returns with asset management fees should enable us to continue to invest capital on a favourable basis.
Needless to say, there are many factors that could impact our performance in 2006, both positively and negatively. We have described
the principal risks earlier in this report, and we will continue to manage our business with the objective of reducing the impact
of market fluctuations, for example, through the use of long-term revenue contracts and long-term financings. It is this measured
approach to business that provides us with confidence that we will meet our 2006 performance objectives with respect to cash
flow growth and value creation.
42
Brookfi eld Asset Management | 2005 Annual Report
CONSOLIDATED FINANCIAL ANALYSIS
The discussion and analysis of our operating results and financial condition in the foregoing sections of this report is organized
principally on a segmented basis, which is consistent with how we manage our business. As previously discussed, this segmented
basis differs from our Consolidated Financial Statements which begin on page 59. The purpose of this section is to provide an analysis
and discussion of our financial position and operating results as they are presented in our Consolidated Financial Statements, and
to provide a reconciliation between our Consolidated Financial Statements and the segmented basis utilized in the preceding sections
which provide a more detailed review.
To do this, we have provided a summary of our consolidated financial statements for the past two years and a review of the significant
components and variances from a consolidated perspective. Pages 52 and 53 contain a reconciliation between the consolidated
balance sheets and consolidated statements of operations to our segmented results. This is intended to assist the reader to cross
reference the more detailed discussion in the Operations Review.
CONSOLIDATED BALANCE SHEET
Total assets at book value increased to $26.1 billion as at December 31, 2005 from $20.0 billion at the end of the preceding year,
which was accompanied by a commensurate increase in our capitalization. The increase was due to the expansion of our operating
platform in several business segments as reflected in the $3.5 billion increase in property, plant and equipment, as well as the sale
of a major investment. The higher Canadian dollar increased the carrying value of the assets which we own and operate in Canada.
Property specific mortgages, which finance our income producing physical assets without recourse to the Corporation, increased
by $2.7 billion, and common equity increased by $1.3 billion due largely to net income recorded during 2005.
Consolidated Assets
The following is a summary of our consolidated assets for the past two years:
AS AT D ECEMBER 31
MI LLIONS
Assets
Cash and cash equivalents
Financial assets
Investments
Accounts receivable and other
Operating assets
Property, plant and equipment
Securities
Loans and notes receivable
Book Value
2005
2004
$
951
$
404
2,171
595
4,148
1,220
1,944
1,551
15,776
12,231
2,069
348
1,757
900
$ 26,058
$ 20,007
Cash and Cash Equivalents and Financial Assets
Cash and cash equivalents and financial assets, which consist of securities and other financial assets that are not actively deployed
in our operations, increased to $3.1 billion on a consolidated basis at December 31, 2005, compared to an aggregate balance
of $1.6 billion at the end of 2004. The increase over prior years is due principally to the $2.7 billion proceeds received on the sale
of Falconbridge.
Investments
Investments represent equity accounted interests in partially owned companies including Norbord, Fraser Papers and, until 2005,
Falconbridge. The sale of Falconbridge during the year accounts for the decline in Investments from $1.9 billion to $0.6 billion.
Brookfi eld Asset Management | 2005 Annual Report
43
Accounts Receivable and Other
Accounts receivable and other increased to $4.2 billion from $1.6 billion at the end of 2004. The following table is a summary of
consolidated accounts receivable and other assets.
AS AT D ECEMBER 31
MIL LIONS
Accounts receivable
Prepaid expenses and other assets
Restricted cash
Inventory
Future income tax assets
2005
$ 1,709
1,541
651
247
—
Book Value
2004
$ 1,187
263
29
16
56
$ 4,148
$ 1,551
The increase in 2005 is due to the expansion of our operating platform, and includes the consolidated working capital balances of
the various operating companies including several businesses acquired during the year. These include amounts receivable by the
company in respect of contracted revenues owing but not yet collected, and dividends, interest and fees owing to the company.
Prepaid expenses and other assets include amounts accrued to reflect the straight-lining of long-term contracted revenues in
accordance with accounting guidelines, including $470 million in respect of our Louisiana power generating operations which were
consolidated during 2005. Restricted cash represents cash balances placed on deposit in connection with financing arrangements
and insurance contracts, including the defeasement of long-term property specific mortgages.
Property, Plant and Equipment
Property, plant and equipment increased by $3.5 billion during 2005, due to acquisitions of core office properties, timberlands and
power generating facilities. The following table is a summary of property, plant and equipment for the past two years:
AS AT D ECEMBER 31
MIL LIONS
Property
Commercial properties
Residential properties
Development properties
Property services
Power generation
Timberlands and infrastructure
Other plant and equipment
Book Value
2005
2004
$ 8,688
$ 7,089
1,205
942
39
10,874
3,568
1,018
316
818
950
51
8,908
2,951
184
188
$ 15,776
$ 12,231
Commercial property assets include core office, opportunity and retail properties. The net book value of these assets increased
during 2005 with the acquisition of 20 Canada Square, located in the Canary Wharf Estate in London, U.K., and a Canadian office
portfolio consisting of 24 high quality office properties and one development property in which we acquired a 25% interest, with
two institutions owning the balance. More details on these operations are located on pages 15 through 18 of this report. Residential
property assets increased due to the continued build-out of inventory, particularly in the United States market. More detail on our
residential operations is included on pages 18 and 19.
Power generation facilities increased with the continued expansion of our operating platform and the consolidation of our Louisiana
operations. During 2005, we acquired and built 14 stations with a total capacity of 772 megawatts for an aggregate investment
of $300 million. We invested approximately $1 billion in additional hydroelectric facilities during 2004 including 72 power plants
in New York State. More detail on our power generating operations is included on pages 22 through 25.
44
Brookfi eld Asset Management | 2005 Annual Report
The increase in timberlands represents the acquisition of 635,000 acres of high quality private timberlands on the west coast
of Canada as detailed on page 26.
Securities
Securities include $1.6 billion (2004 – $0.9 billion) of largely fixed income securities held through our insurance operations, which
are described under Investments on page 30, as well as our $267 million (2004 – $450 million) common share investment in
Canary Wharf Group, which is included in our core office property operations. We expanded our insurance operations during the
year which gave rise to the increase in Securities, as well as an increase in Other Liabilities. The decrease in the carrying values
for our Canary Wharf investment is due to dividends received during 2005.
Loans and Notes Receivable
Loans and notes receivable consist largely of loans advanced by our bridge lending operations, included in Specialty Funds. The
outstanding balance was lower at the end of 2005 due to repayments and syndications of loan positions during 2005.
Consolidated Capitalization
Our consolidated capitalization, which includes liabilities and shareholders’ equity, increased in line with the growth in our total
assets. This increase is reflected mostly in property specific mortgages, accounts payable and other liabilities, and common equity.
The increase in property specific mortgages reflects the financing associated with the acquisition of additional assets, in particular,
power assets acquired during the year and the consolidation of Louisiana HydroElectric, the financing associated with the acquisition
of our west coast timberland assets, as well as financings associated with our property acquisition in the United Kingdom and the
continued expansion of our opportunity property investments.
Accounts payable increased as a result of the assumption of working capital balances on the acquisition of additional operating
assets as well as the overall growth in the level of business activity, particularly within our insurance operations. Common equity
increased due to the net income generated over the past two years, offset in part by dividends paid and shares repurchased.
The following table details our consolidated capitalization at the end of 2005 and 2004 and the related cash costs:
Cost of Capital 1
2005
2004
Book Value
2005
2004
Operating Cash Flow 2
2004
2005
AS AT AND FOR THE YEARS EN DED DEC EMBER 31
MI LLIONS
Non-recourse borrowings
Property specific mortgages
Subsidiary borrowings
Corporate borrowings
Accounts payable and other liabilities
Capital securities
Non-controlling interest in net assets
22%
22%
Shareholders’ equity
Preferred equity
Common equity
6%
20%
9.5%
6%
18%
9.5%
7%
5%
7%
7%
6%
6%
5%
6%
7%
6%
$ 8,756
$
6,045
$
2,510
1,620
4,561
1,598
1,984
515
4,514
2,373
1,675
2,719
1,548
1,780
590
3,277
519
153
119
449
90
386
35
873
$ 321
105
103
295
79
360
24
602
$ 26,058
$ 20,007
$ 2,624
$ 1,889
1 Based on operating cash fl ows as a percentage of average book value
2
Interest expense in the case of borrowings. Attributable operating cash fl ows in the case of shareholders’ interests, including cash distributions, and current taxes and operating
expenses in the case of accounts payable and other liabilities
Our overall weighted average cash cost of capital, using a 20% return objective for our common equity, is 9.5%, unchanged from
2004. This reflects the low cost of non-participating perpetual preferred equity issued over a number of years, as well as the low
cost of term debt, capital securities and non-recourse investment grade financings, achievable due to the high quality of our core
office properties and power generating plants.
Brookfi eld Asset Management | 2005 Annual Report
45
Property Specific Mortgages
Where appropriate, we finance our operating assets with long-term, non-recourse borrowings such as property specific mortgages
which do not have recourse to the Corporation or our operating entities.
The composition of Brookfield’s consolidated borrowings which have recourse only to the specific assets being financed is as follows:
AS AT AND FOR THE YEARS ENDED D ECE MB ER 31
MIL LIONS
Average
Term
Commercial properties
Power generation
Timberlands and infrastructure
11
10
19
11
1 Based on operating cash fl ows as a percentage of average book value
2
Interest expense
Cost of
Capital 1
2005
7%
8%
6%
7%
Book Value
2005
2004
$ 5,881
$ 4,534
$
2,365
510
1,411
100
Operating Cash Flow 2
2004
2005
312
191
16
$
261
57
3
$ 8,756
$ 6,045
$
519
$
321
These borrowings leverage common shareholders’ equity with long-term lower risk financing, which is largely fixed rate, with an
average consolidated maturity of 11 years and a weighted average interest rate of 7%.
Commercial property borrowings consist primarily of mortgage debt on properties held within our core property and opportunity
investment operations, which are described in more detail on pages 16 and 17 and page 20. Power generation borrowings consist
of financings secured by specific power facilities and include $630 million of debt secured by our Louisiana facilities that were
consolidated with effect from the beginning of 2005. Timber and infrastructure debt includes $410 million of long-term debt issued
from the Island Timberland Fund, formed in 2005, which is secured by the timberlands and has an average maturity of 19 years and
a blended interest rate of 6.0%, as well as $100 million secured by electricity transmission and distribution facilities.
Principal repayments on property specific mortgages due over the next five years and thereafter are as follows:
YEARS ENDED DE CEMBER 31 (MILL IO NS )
Commercial properties
Power generation
Timberlands and infrastructure
Total
Percentage of total
2006
$ 284
30
—
$ 314
3%
2007
$ 674
29
—
$ 703
8%
2008
$ 358
27
—
$ 385
5%
2009
2010
Beyond
Total
$ 841
$ 343
83
—
$ 924
11%
12
—
$ 355
$ 3,381
2,184
510
$ 5,881
2,365
510
$ 6,075
$ 8,756
4%
69%
100%
Other Debt of Subsidiaries
These borrowings are largely corporate debt, issued by way of corporate bonds, bank credit facilities and other types of debt and
financial obligations of subsidiaries. The composition of these borrowings on a consolidated basis is as follows:
AS AT AND FOR THE YEARS ENDED D ECE MB ER 31
MIL LIONS
Average
Term
Residential properties
Power generation
Timberlands and infrastructure
International operations and other
2
4
6
7
3
1 Based on operating cash fl ows as a percentage of average book value
2
Interest expense
Cost of
Capital 1
2005
5%
6%
5%
6%
5%
Book Value
2005
2004
$ 1,137
$
474
37
862
814
617
37
905
Operating Cash Flow 2
2004
2005
$
21
24
3
105
$
14
23
1
67
$ 2,510
$ 2,373
$
153
$
105
46
Brookfi eld Asset Management | 2005 Annual Report
Residential property debt consists primarily of construction financing which is repaid with the proceeds from sales of building
lots, single family houses and condominiums and is generally renewed on a rolling basis as new construction commences. Power
generation debt consists of C$450 million, 4.6% public notes which mature in 2009 and C$100 million floating rate public notes
which mature in 2006. The notes are rated BBB by S&P and BBB(high) by DBRS.
Other subsidiary debt includes C$200 million of retractable preferred shares that will be repaid no later than 2011 and pay dividends
at a rate of 6.1%, as well as debt obligations of various operating companies that are included on a deconsolidated basis as Investments
in our segmented analysis. A portion of the outstanding debt of our international operations is denominated in their domestic
currencies and is utilized to hedge their operating assets against local currency fluctuations, the most significant of which is the
Brazilian real. The Corporation does not typically guarantee the debts of subsidiaries with the exception of $434 million included
in other subsidiary debt.
Principal repayments on other debt of subsidiaries due over the next five years and thereafter are as follows:
YEARS ENDED DE CEMBER 31 (MILL IO NS )
Residential properties
Power generation
Timberlands and infrastructure
International operations and other
Total
Percentage of total
2006
$ 701
86
2
192
$ 981
39%
2007
$ 384
—
—
11
$ 395
16%
2008
$ 41
—
1
47
2009
$
9
388
1
6
$ 89
$ 404
4%
16%
2010
Beyond
Total
$
2
—
2
—
$
4
—%
$ —
$ 1,137
—
31
606
474
37
862
$
637
$ 2,510
25%
100%
Non-controlling Interests in Net Assets
Non-controlling interests in net assets are comprised of two components: participating interests of other shareholders in our
operating assets and subsidiary companies; and non-participating preferred equity issued by the Corporation and its subsidiaries.
Interests of others in our operations at December 31, 2005 and 2004 on a fully consolidated basis were as follows:
AS AT AND FOR THE YEARS ENDED D ECE MB ER 31
MI LLIONS
Participating interests
Property
Brookfi eld Properties Corporation
Brookfi eld Homes Corporation
Retail and other
Power generation
Great Lakes Hydro Income Fund
Louisiana HydroElectric
Timberlands
Other
Non-participating interests
Number of
Shares
2005
115.0
13.2
$
Book Value
2005
2004
Operating Cash Flow 1
2004
2005
999
128
69
180
45
255
133
1,809
175
$ 1,984
$ 1,024
122
80
194
—
—
110
1.530
250
$ 1,780
$
221
108
1
16
6
7
14
373
13
$
238
84
—
21
—
—
2
345
15
$
386
$
360
1 Represents share of operating cash fl ows attributable to the interests of the respective shareholders and includes cash distributions
The majority of our core office and residential property operations are conducted through Brookfield Properties Corporation
and Brookfield Homes Corporation, respectively, in which shareholders other than the company own approximate 50% and 48%
common share interests, respectively. Power generating interests represent the 50% interest of unitholders in the Great Lakes
Hydro Income Fund, through which we own some of our power generating operations, and a 25% residual equity interest held
by others in our Louisiana operations. Institutional partners provided $255 million of capital towards the formation of our Island
Timberland Fund.
Brookfi eld Asset Management | 2005 Annual Report
47
The book values of these interests vary each year, and typically increase with the excess of net income over normal cash distribu-
tions and decrease with share repurchases and special dividends. During 2005, our U.S. core office and residential operations
repurchased common equity held by non-controlling interests for $132 million and $75 million, respectively, resulting in a decrease
in the book value of these interests. Operating cash flow distributed to other non-controlling shareholders in the form of cash
dividends totalled $109 million in 2005 compared with $73 million in 2004. The undistributed cash flows attributable to non-
controlling shareholders are retained in the respective operating businesses and are available to expand their operations, reduce
indebtedness or repurchase equity.
CONSOLIDATED STATEMENT OF INCOME
The following table summarizes our consolidated statement of net income:
YEARS ENDED DE CEMBER 31 (MILL IO NS )
Net operating income
Interest expenses
Operating and current taxes
Non-controlling interests in the foregoing
Other items, net of non-controlling interests
Net income
2005
$ 2,355
(881)
(449)
(386)
639
1,023
2004
$ 1,825
(608)
(295)
(360)
562
(7)
$ 1,662
$
555
Net Operating Income
Net operating income includes the following items from our consolidated statement of income: fees earned; other operating revenues
less direct operating expenses; investment and other income; and disposition gains. These items are described for each business
unit in the Operations Review beginning on page 14. The following table reconciles total operating cash flow in the segmented basis
of presentation presented on page 11 and net operating income:
YEARS ENDED DE CEMBER 31 (MILL IO NS )
Total operating cash fl ow
Less dividends received:
Canary Wharf Group
Falconbridge and Norbord
Net operating income
Business Unit
Core offi ce
Investments
Interest Expenses
The following table summarizes interest expense during each of the past two years:
YEARS ENDED DE CEMBER 31 (MILL IO NS )
Corporate borrowings
Property specifi c mortgages
Subsidiary borrowings
Capital securities
2005
$ 2,624
(183)
(86)
2004
$ 1,889
—
(64)
$ 2,355
$ 1,825
$
2005
119
519
153
90
$
2004
103
321
105
79
$
881
$
608
Further details for the individual components are provided in the Operations Review and Consolidated Capitalization sections.
Operations and Current Taxes
These items include expenses allocated to our asset management activities and other operating costs that are not attributed to
specific business units. Current taxes relate principally to our U.S. home building operations. These items are summarized in the
following table:
48
Brookfi eld Asset Management | 2005 Annual Report
YEARS ENDED DE CEMBER 31 (MILL IO NS )
Asset management expenses
Other operating costs
Current income taxes
$
2005
184
103
162
2004
$
126
83
86
$
449
$
295
These items are discussed further in the Operations Review beginning on page 14.
Non-controlling Interests
The interest of non-controlling parties in the foregoing items aggregated $386 million on a consolidated basis during 2005, compared
with $360 million on a similar basis during 2004. The increase was due primarily to the overall increase in operating cash flows
produced by our partially owned home building operations, offset by a decrease in lease termination gains recorded by our partially
owned core property operations. The composition of non-controlling interests is detailed in the table on page 47.
Other Items
Other items are summarized in the following table, and include items that are either non-cash in nature or not considered by us
to form part of our operating cash flow. Accordingly, they are included in the reconciliation between net income and operating cash
flow presented on page 12.
YEARS ENDED DE CEMBER 31 (MILL IO NS )
Equity accounted income from investments
Gains on disposition of Falconbridge
Depreciation and amortization
Future income taxes and other provisions
Non-controlling interests in the foregoing items
2005
$
219
1,350
(374)
(324)
152
$
2004
332
—
(251)
(260)
172
$ 1,023
$
(7)
Equity accounted income reflects our share of the net income recorded by Falconbridge, Norbord and Fraser Papers. The decline
relative to 2004 is due to the monetization of our interest in Falconbridge during 2005 and a lower ownership interest in Norbord.
In addition, Norbord realized prices in 2005 that, while very favourable, were lower compared to 2004 during which time prices were
particularly strong.
Depreciation and amortization prior to non-controlling interests increased to $374 million from $251 million during 2004. The
increase is due to the acquisition of additional property, power and timber assets during 2004 and 2005, as well as the inclusion of
depreciation on the Louisiana power facilities that were consolidated during 2005.
Future income taxes and other provisions increased to $324 million from $260 million, before taking into account non-controlling
interests, and are summarized in the following table:
YEARS ENDED DECEM BER 31 (MIL LIONS )
Future income taxes
Revaluation gains and losses
Interest rate contracts
Norbord exchangeable debentures
Intangible assets
Foreign exchange on capital securities
Tax effect of revaluation gains and losses
2005
$
285
16
10
33
—
(20)
$
324
2004
$ 151
—
(6)
—
113
2
$ 260
Brookfi eld Asset Management | 2005 Annual Report
49
Our future income tax provision was significantly higher than in the comparable period, due principally to the inclusion of an accounting
tax provision of $251 million associated with the Falconbridge disposition gain. Brookfield has access to significant tax shields as
a result of the nature of our asset base, and we do not expect to incur any meaningful cash tax liability in the near future, other
than in our U.S. home building operations which, because they are owned separately, do not enjoy the benefits of tax shields
from our other U.S. operations. Nonetheless, we record non-cash tax provisions as required under GAAP, which, in addition to the
Falconbridge gain, also reflects any changes in the carrying value of our tax shield during the period, and tax provisions in respect
of the non-cash equity earnings recorded on our investments in Falconbridge and Norbord. The tax provision for 2004 reflects the
impact of property and disposition gains during that period.
Revaluation gains and losses include the impact of revaluing fixed rate financial contracts that we maintain in order to provide an
economic hedge against the impact of possible higher interest rates on the value of our long duration interest sensitive assets.
Accounting rules require that we revalue certain of these contracts each period even if the corresponding assets are not revalued.
Over the course of the year we recorded a revaluation charge of $16 million. It is important to note that the corresponding increase
in the value of our long duration interest sensitive assets is not reflected in earnings.
Provisions also include a revaluation charge of $10 million on debentures issued by us that are exchangeable into 20 million Norbord
common shares, equal to the increase in the Norbord share price during the period, as required by accounting rules. We hold the
20 million shares into which the debentures are exchangeable, but are not permitted to mark the investment to market. In the second
quarter we charged off intangible assets totalling $33 million that would otherwise have been expensed over time as depreciation
and amortization, and in the prior year, provisions included the impact of foreign currency revaluation of capital securities that were
reclassified as liabilities (See Changes in Accounting Policies beginning on page 56).
CONSOLIDATED STATEMENT OF CASH FLOWS
The following table summarizes the company’s cash flows on a consolidated basis as set forth in the consolidated statement of
cash flows on page 62:
YEARS ENDED DE CEMBER 31 (MILL IO NS )
Operating activities
Financing activities
Investing activities
Increase in cash and cash equivalents
2005
$
830
1,013
(1,296)
$
547
2004
$
872
1,731
(2,581)
$
22
Operating Activities
Cash flow from operating activities is reconciled to the operating cash flow measure utilized elsewhere in this report as follows:
YEARS ENDED DE CEMBER 31 (MILL IO NS )
Cash fl ow from operating activities
Less: Net change in working capital balances and other
Norbord special dividend
Add:
Dividends received from Canary Wharf Group
Operating cash fl ow
2005
$
830
(105)
—
183
2004
$
872
(198)
(48)
—
$
908
$
626
The dividends received from Canary Wharf Group are included in investing activities in our consolidated financial statements,
whereas in our segmented basis of presentation we consider the dividends to form part of our operating cash flow. The Norbord
special dividend was not included in operating cash flow during 2004 because a major portion of our investment was monetized
during the same quarter, giving rise to a $63 million gain, which was included in operating cash flow, whereas there were no such
monetizations during 2005.
50
Brookfi eld Asset Management | 2005 Annual Report
Financing Activities
Financing activities generated $1.0 billion of cash during 2005 compared with $1.7 billion during 2004. Approximately $1 billion of
property specific financings were arranged in each year to fund new property, power and timber assets acquired during each year,
as well as increased financings on existing assets to better reflect current values and cash flows.
During 2005, institutional partners invested $263 million in our Island Timberland Fund. We utilized cash resources to repurchase
$162 million (2004 – $19 million) of common shares and our subsidiaries repurchased an additional $187 million (2004 – $33 mil-
lion) of common equity.
During 2004, subsidiaries issued $500 million (2005 – $101 million) of unsecured debt, net of repayments, including C$500 million
of term debt issued by our power generating operations. We also issued $264 million of preferred shares from our core office prop-
erty subsidiary. Our U.S. home building group distributed $280 million by way of a special dividend, which represented an outflow
of $140 million to shareholders other than Brookfield.
We retained $265 million (2004 – $242 million) of operating cash flow within our consolidated subsidiaries in excess of that distrib-
uted by way of dividends and paid shareholder distributions to holders of our common and preferred shares totalling $190 million
(2004 – $160 million).
Investing Activities
We invested net capital of $1.3 billion on a consolidated basis during 2005 compared with $2.6 billion during 2004.
Net investment in property assets totalled $1.0 billion during 2005, compared with $341 million during 2004. The current year’s
investment principally represents our share of the Canadian core office portfolio, offset by proceeds from the sale of a small property
in Denver. During 2004, we acquired three properties in Washington, D.C.
We continued to expand our power generating operations during 2005 with the purchase of several hydroelectric facilities in North
America and Brazil and a pump storage facility in New Hampshire. During 2004, we acquired a large portfolio of hydroelectric
generating facilities in New York for approximately $900 million.
The net investment in securities during 2004 included a net increase in securities of $0.3 billion and loan advances net of repay-
ment totalling $1.0 billion, largely through our bridge lending operations.
Proceeds from the disposition of Investments totalled $1.3 billion during 2005, net of acquisitions. We received $2.7 billion of
proceeds from the sale of our investment in Falconbridge, of which $1.4 billion was received in cash and is reflected as proceeds
from investing activities The balance in the form of preferred shares and exchangeable debentures is reflected as Investments in
Financial Assets.
The dividends received from Canary Wharf Group during 2005 are presented as a reduction in the carrying value of our investment in
our consolidated financial statements, whereas we consider the dividends to form part of our operating cash flow. The dividends, which
are the first received since we acquired this investment, represent a 20% yield when measured over the life of our investment.
Brookfi eld Asset Management | 2005 Annual Report
51
RECONCILIATION OF SEGMENTED DISCLOSURE TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present a reconciliation of our segmented disclosure, which forms the basis of presentation for much of the
discussion and analysis in this annual report, to our consolidated financial statements which are prepared and audited in accordance
with GAAP:
Balance Sheet
MIL LIONS
Assets
Operating assets
Property, plant and equipment
Property
Power generation
Timberlands and infrastructure
Other plant and equipment
Securities
Loans and notes receivable
Cash and cash equivalents
Financial assets
Investments
Accounts receivable and other
Total assets
Liabilities and shareholders’ equity
Corporate borrowings
Property specific financing
Other debt of subsidiaries
Accounts payable and other liabilities
Capital securities
Non-controlling interests in net assets
Preferred equity
Common equity / net invested capital
AS AT DECEMBER 31, 2005
Property
Timber and
Power Infrastructure
Specialty
Funds
Investments
$ 10,722
—
—
—
267
—
253
—
—
617
$ —
3,568
—
—
—
—
115
187
—
882
$
113
—
1,018
—
—
—
23
—
—
59
$ —
—
—
—
134
241
—
—
122
2
$ —
—
—
316
1,571
47
143
—
473
836
Cash and
Financial
Assets
$ —
—
—
—
97
60
417
1,984
—
—
Other
Assets Capitalization Consolidated
$
39
—
—
—
—
—
—
—
—
1,752
$ —
—
—
—
—
—
—
—
—
—
$ 10,874
3,568
1,018
316
2,069
348
951
2,171
595
4,148
$ 11,859
$ 4,752
$ 1,213
$ 499
$ 3,386
$ 2,558
$ 1,791
$ —
$ 26,058
$ —
5,881
1,138
463
—
196
—
4,181
$ —
2,365
474
491
—
225
—
1,197
$ —
510
37
65
—
255
—
346
$ —
—
—
—
—
—
—
499
$ —
—
110
1,874
—
109
—
1,293
$ —
—
146
282
—
—
—
2,130
$ —
—
—
—
—
—
—
1,791
$ 1,620
—
605
1,386
1,598
1,199
515
(6,923)
$ 1,620
8,756
2,510
4,561
1,598
1,984
515
4,514
Total liabilities and shareholders’ equity
$ 11,859
$ 4,752
$ 1,213
$ 499
$ 3,386
$ 2,558
$ 1,791
$ —
$ 26,058
Results from Operations
MIL LIONS
Fees earned
Revenues less direct operating costs
Property
Power generation
Timberlands and infrastructure
Specialty funds
Investment and other income
Disposition gains
Expenses
Interest
Current income taxes
Asset management
Other operating costs
Non-controlling interests
Net income before the following
Dividends from Falconbridge
Dividends from Norbord
Dividends from Canary Wharf
Cash flow from operations
Preferred share dividends
Cash flow to common shareholders
YEAR ENDED DECEMBER 31, 2005
Asset
Management
Services
Property
Timber and
Power Infrastructure
Specialty
Funds
Investment
Income
Investments
and Gains Capitalization Consolidated
$
282
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ 282
—
—
—
—
—
—
282
—
—
184
—
—
98
—
—
—
98
—
$
98
1,210
—
—
—
—
—
1,210
332
141
—
—
109
628
—
—
183
811
—
$ 811
—
469
—
—
—
—
469
215
—
—
2
22
230
—
—
—
230
—
$ 230
—
—
64
—
—
—
64
19
—
—
—
7
38
—
—
—
38
—
$ 38
—
—
—
54
—
—
54
—
—
—
—
—
54
—
—
—
54
—
$
54
—
—
—
—
34
—
—
—
—
—
193
49
—
—
—
—
—
—
1,210
469
64
54
227
49
34
242
—
2,355
28
10
—
9
5
(18)
24
62
—
68
—
$
68
9
—
—
—
—
233
—
—
—
233
—
$ 233
278
11
—
92
243
(624)
—
—
—
(624)
35
881
162
184
103
386
639
24
62
183
908
35
$ (659)
$ 873
52
Brookfi eld Asset Management | 2005 Annual Report
Balance Sheet
MI LLIONS
Assets
Operating assets
Property, plant and equipment
Property
Power generation
Timberlands and infrastructure
Other plant and equipment
Securities
Loans and notes receivable
Cash and cash equivalents
Financial assets
Investments
Accounts receivable and other
Total assets
Liabilities and shareholders’ equity
Corporate borrowings
Property specific financing
Other debt of subsidiaries
Accounts payable and other liabilities
Capital securities
Non-controlling interests in net assets
Preferred equity
Common equity / net invested capital
AS AT DECEMBER 31, 2004
Property
Timber and
Power Infrastructure
Specialty
Funds
Investments
$ 8,856
—
—
—
464
—
75
109
—
298
$ —
2,951
—
—
—
58
83
560
—
(102)
$ —
—
184
—
—
—
6
—
—
25
$ —
—
—
—
106
715
—
—
76
—
$ —
—
—
188
939
64
101
16
1,868
430
Cash and
Financial
Assets
$ —
—
—
—
248
63
139
535
—
—
Other
Assets Capitalization Consolidated
$
52
—
—
—
—
—
—
—
—
900
$ —
—
—
—
—
—
—
—
—
—
$ 8,908
2,951
184
188
1,757
900
404
1,220
1,944
1,551
$ 9,802
$ 3,550
$
215
$ 897
$ 3,606
$
985
$
952
$ —
$ 20,007
$ —
4,534
826
252
—
202
—
3,988
$ —
1,463
621
96
—
194
—
1,176
$ —
48
39
37
—
—
—
91
$ —
—
—
—
—
—
—
897
$ —
—
223
898
—
110
—
2,375
$ —
—
—
339
—
—
—
646
$ —
—
—
—
—
—
—
952
$ 1,675
—
664
1,097
1,548
1,274
590
(6,848)
$ 1,675
6,045
2,373
2,719
1,548
1,780
590
3,277
Total liabilities and shareholders’ equity
$ 9,802
$ 3,550
$
215
$ 897
$ 3,606
$
985
$
952
$ —
$ 20,007
Results from Operations
MI LLIONS
Fees earned
Revenues less direct operating costs
Property
Power generation
Timberlands and infrastructure
Specialty funds
Investment and other income
Disposition gains
Expenses
Interest
Current income taxes
Asset management
Other operating costs
Non-controlling interests
Net income before the following
Dividends from Falconbridge
Dividends from Norbord
Cash flow from operations
Preferred share dividends
Cash flow to common shareholders
YEAR ENDED DECEMBER 31, 2004
Asset
Management
Services
Property
Timber and
Power Infrastructure
Specialty
Funds
Investment
Income
Investments
and Gains Capitalization Consolidated
$
199
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ 199
—
—
—
—
—
—
199
—
—
126
—
—
73
—
—
$
73
—
$
73
973
—
—
—
—
—
973
274
75
—
—
84
540
—
—
$ 540
—
$ 540
—
268
—
—
—
—
268
78
—
—
—
21
169
—
—
$ 169
—
$ 169
—
—
26
—
—
—
26
5
—
—
—
—
21
—
—
$ 21
—
$ 21
—
—
—
48
—
—
48
—
—
—
—
—
48
—
—
$
48
—
$
48
—
—
—
—
60
—
—
—
—
—
128
123
—
—
—
—
—
—
973
268
26
48
188
123
60
251
—
1,825
4
1
—
1
5
49
45
19
$ 113
—
$ 113
4
—
—
—
—
247
—
—
$ 247
—
$ 247
243
10
—
82
250
(585)
—
—
$ (585)
24
608
86
126
83
360
562
45
19
$ 626
24
$ (609)
$ 602
Brookfi eld Asset Management | 2005 Annual Report
53
SUPPLEMENTAL INFORMATION
This supplemental information contains information required by applicable continuous disclosure guidelines and to facilitate
additional analysis.
QUARTERLY RESULTS
The 2005 and 2004 results by quarter are as follows:
MIL LIONS
Total revenues
Fees earned
Revenues less direct operating costs
Property
Power generation
Timberlands and infrastructure
Specialty funds
Investment and other income
Disposition gains
Expenses
Interest
Current income taxes
Asset management
Other operating costs
Non-controlling interest in net income before the following
Net income before the following
Equity accounted income from investments
Gains on disposition of Falconbridge
Depreciation and amortization
Future income taxes and other provisions
Non-controlling interests in the foregoing items
Q4
2005
Q3
Q2
Q1
Q4
Q3
Q2
Q1
20041
$ 1,740
$ 1,368
$ 1,174
$
974
$ 1,299
$ 994
$ 838
$ 768
106
461
128
15
11
8
—
729
229
88
52
35
151
174
9
—
(103)
5
66
70
58
48
54
45
43
57
270
92
19
17
67
28
563
218
28
51
21
74
171
34
785
(102)
(180)
28
257
115
20
13
77
21
561
235
30
43
20
78
155
73
565
(92)
(121)
30
222
134
10
13
75
—
502
199
16
38
27
83
139
103
—
(77)
(28)
28
335
64
10
20
10
—
493
154
46
35
30
112
231
64
7
11
48
63
469
154
16
30
22
74
214
67
5
7
69
60
465
153
16
30
13
100
116
62
—
(79)
(67)
55
173
79
—
(60)
(107)
48
153
95
—
(56)
(42)
40
193
73
4
10
61
—
398
147
8
31
18
74
120
96
—
(56)
(44)
29
Net income
$
151
$
736
$
610
$
165
$
87
$ 133
$ 190
$ 145
1
2004 results have been revised to reflect adoption of new accounting standards which require capital securities to be presented as liabilities and distributions as interest expense,
as well as any associated foreign currency revaluation and to conform to current presentation
The 2005 and 2004 cash flow from operations by quarter are as follows:
MIL LIONS
Net income before the following
Dividends from Falconbridge
Dividends from Norbord
Dividends from Canary Wharf
Cash flow from operations and gains
Preferred share dividends
$
Q4
$
174
—
5
73
252
10
2005
Q3
171
—
5
110
286
8
Q2
$
155
12
48
—
215
9
$
Q1
139
12
4
—
155
8
20041
Q4
Q3
Q2
Q1
$ 116
12
5
—
133
7
$ 173
11
4
—
188
6
$ 153
11
5
—
169
6
$ 120
11
5
—
136
5
Cash flow to common shareholders
$
242
$
278
$
206
$
147
$ 126
$ 182
$ 163
$ 131
Common equity – book value
Common shares outstanding
Per common share
Cash flow from operations
Net income
Dividends
Book value
Market trading price (NYSE)
Market trading price (TSX) – C$
$ 4,514
$ 4,586
$ 3,872
$ 3,411
$ 3,277
$ 3,229
$ 3,079
$ 2,981
257.6
261.1
260.2
259.5
258.7
258.0
258.0
257.7
$ 0.91
0.54
0.15
17.72
50.33
58.61
$ 1.04
2.73
0.15
17.74
46.60
54.14
$ 0.78
2.26
0.15
15.07
38.16
46.80
$ 0.55
0.59
0.14
13.37
37.75
45.70
$ 0.49
0.29
0.14
12.76
36.01
43.15
$ 0.70
0.49
0.14
12.54
30.20
38.13
$ 0.64
0.71
0.14
11.96
28.24
37.42
$ 0.49
0.53
0.13
11.62
26.84
34.87
1
2004 results have been revised to reflect adoption of new accounting standards which require capital securities to be presented as liabilities and distributions as interest expense,
as well as any associated foreign currency revaluation and to conform to current presentation
54
Brookfi eld Asset Management | 2005 Annual Report
For the three months ended December 31, 2005, cash flow from operations and gains totalled $252 million ($0.91 per share)
compared with $133 million ($0.49 per share) in 2004. The 2005 fourth quarter cash flows include a $73 million dividend received
on our investment in Canary Wharf. Net income from the three months ended December 31, 2005 totalled $151 million ($0.54 per
share) compared with $87 million ($0.29 per share) in 2004. This increase was largely due to improved margins in our residential
home building business, as well as the investment of additional capital in our power generation operations. This was partially offset
by a reduction in our equity accounted income as a result of the sale of our investment in Falconbridge during the year.
Core property operations tend to produce consistent results throughout the year due to the long-term nature of the contractual
lease arrangements. Quarterly seasonality does exist in our residential property and power generation operations. With respect to
our residential operations, the fourth quarter tends to be the strongest as this is the period during which most of the construction
is completed and homes are delivered. With respect to our power generation operations, seasonality exists in water inflows and
pricing. During the fall rainy season and spring thaw, water inflows tend to be the highest leading to higher generation during those
periods; however prices tend not to be as strong as the summer and winter seasons due to the more moderate weather conditions
during those periods and associated reductions in demand for electricity. We periodically record property disposition and other
gains, special distributions, as well as gains on losses or any unhedged financial positions throughout our operations and, while
the timing of these items is difficult to predict, the dynamic nature of our asset base tends to result in these items occurring on
a relatively frequent basis.
CONTRACTUAL OBLIGATIONS
The following table presents the contractual obligations of the company by payment periods:
MI LLIONS
Long-term debt
Property specifi c mortgages
Other debt of subsidiaries
Corporate borrowings
Capital securities
Lease obligations
Commitments
Interest expense 1
Long-term debt
Capital securities
Interest rate swaps
Payments Due by Period
1- 3
Years
4 - 5
Years
Less than
One Year
$ 314
981
110
—
1
737
195
89
13
$ 2,012
888
408
—
3
—
1,859
267
39
$ 1,306
207
200
172
2
—
961
169
26
After 5
Years
$ 5,124
434
902
1,426
2
—
3,993
862
39
Total
$ 8,756
2,510
1,620
1,598
8
737
7,008
1,387
117
1 Represents aggregate interest expense expected to be paid over the term of the obligations. Variable interest rate payments have been calculated based on current rates
Contractual obligations include $737 million of commitments by the company and its subsidiaries provided in the normal course
of business, including commitments to provide bridge financing, and letters of credit and guarantees provided in respect of power
sales contracts and reinsurance obligations, of which $81 million is included as liabilities in the consolidated balance sheet and the
balance treated as contingent obligations.
RELATED PARTY TRANSACTIONS
In the normal course of operations, the company enters into various transactions on market terms with related parties which have
been measured at exchange value and are recognized in the consolidated financial statements. There were no transactions, indi-
vidually or in aggregate, that were material to the overall operations, other than the company tendered 48 million common shares
of Falconbridge into an issuer bid in exchange for $950 million of Falconbridge preferred shares.
Brookfi eld Asset Management | 2005 Annual Report
55
CORPORATE DIVIDENDS
The distributions paid by Brookfield on outstanding securities during the past three years are as follows:
Class A Common Shares
Class A Preferred Shares
Series 1 1
Series 2
Series 3 2
Series 4 + Series 7
Series 8
Series 9
Series 10
Series 11
Series 12
Series 13
Series 14
Series 15
Preferred Securities
Due 2050
Due 2051
1 Redeemed July 30, 2004
2 Redeemed November 8, 2005
2005
0.59
$
Distribution per Security
2004
$
0.55
$
—
0.63
2,012.46
0.63
0.74
1.16
1.19
1.14
1.12
0.63
2.25
0.65
1.73
1.71
0.30
0.54
1,744.04
0.54
0.56
1.08
1.11
1.06
1.04
—
—
—
1.61
1.60
2003
0.49
0.54
0.59
2,112.47
0.59
0.81
1.01
1.03
0.98
0.83
—
—
—
1.49
1.48
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to
select appropriate accounting policies to make estimates and assumptions that affect the reported amounts of assets and 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. In particular, critical accounting policies and estimates utilized in the normal course of
preparing the company’s financial statements require the determination of: future cash flows utilized in assessing net recoverable
amounts and net realizable values; depreciation and amortization; value of goodwill and intangible assets; ability to utilize tax
losses; the determination of the primary beneficiary of variable interest activities; effectiveness of financial hedges for accounting
purposes; and fair values for disclosure purposes.
In making estimates, management relies on external information and observable conditions where possible, supplemented by
internal analysis as required. These estimates have been applied in a manner consistent with that in the prior year and there are no
known trends, commitments, events or uncertainties that we believe will materially affect the methodology or assumptions utilized
in this report. The estimates are impacted by, among other things, movements in interest rates and other factors, some of which are
highly uncertain, as described in the analysis of Business Environment and Risks beginning on page 38 and in the section entitled
Financial Risk Management beginning on page 41. The interrelated nature of these factors prevents us from quantifying the overall
impact of these movements on the company’s financial statements in a meaningful way. For further reference on critical accounting
policies, see our significant accounting policies contained in Note 1 and Changes in Accounting Policies as described below.
CHANGES IN ACCOUNTING POLICIES
Effective January 1, 2005, the company adopted the following new accounting policies, none of which individually or collectively
had a material impact on the consolidated financial statements of the company, unless otherwise noted. These changes were the
result of changes to the Canadian Institute of Chartered Accountants (“CICA”) Handbook, Accounting Guidelines (“AcG”) and Emerging
Issues Committee Abstracts (“EIC”).
56
Brookfi eld Asset Management | 2005 Annual Report
Consolidation of variable interest entities, AcG 15
Effective January 1, 2005, the company adopted CICA Accounting Guideline (“AcG”) 15, “Consolidation of Variable Interest Entities”
without restatement of prior periods. AcG 15 provides guidance for applying the principles in handbook section 1590, “Subsidiaries,”
to those entities (defined as Variable Interest Entities (“VIEs”)), in which either the equity at risk is not sufficient to permit that entity
to finance its activities without additional subordinated financial support from other parties, or equity investors lack voting control,
an obligation to absorb expected losses, or the right to share expected residual returns. AcG 15 requires consolidation of VIEs by
the primary beneficiary, which is defined as the party which has exposure to the majority of a VIEs expected losses and/or expected
residual returns. There was no impact on common equity as a result of implementing the new guidelines.
As a result of AcG 15, the company commenced consolidating the accounts of Louisiana HydroElectric, in which the company
holds a 75% residual equity interest. The following table shows the consolidated balances related to Louisiana HydroElectric as at
December 31, 2005 and 2004.
MI LLIONS
Assets
Cash and fi nancial assets
Accounts receivables and other
Property, plant and equipment
Liabilities
Property specifi c mortgages
Accounts payable and other liabilities
Non-controlling interests of others in assets
Net assets
MI LLIONS
Revenue less direct operating expenses
Power generation
Expenses
Property specifi c mortgages
Non-controlling interests in net income before the following
Depreciation, amortization and non-cash taxes
Non-controlling interests in the foregoing items
Net income (loss)
Book Value
December 31
2005
December 31, 2004
If Consolidated
Actual
$
3
545
458
$
52
608
474
1,006
1,134
684
43
37
636
210
44
$ —
—
244
244
—
—
—
$
242
$
244
$
244
Year Ended
December 31
2005
December 31, 2004
If Consolidated
Actual
$
112
$
135
$
26
95
6
11
(18)
5
88
12
35
(13)
4
$
(2)
$
26
$
—
—
26
—
—
26
Liabilities and Equity, CICA Handbook Section 3860
Effective January 1, 2005, the company adopted the amendment to CICA Handbook Section 3860, “Financial Instruments:
Disclosure and Presentation” with retroactive restatement of prior periods. The amendment requires certain obligations that must
or could be settled with a variable number of the issuer’s own equity instruments to be presented as a liability. Accordingly, certain
of the company’s preferred shares and securities that were previously included in equity were reclassified as liabilities under the
caption “Capital Securities,” and the dividends paid on these preferred shares were reclassified as interest expense. As a result of
the reclassification, preferred equity shares have been translated into U.S. dollars at period-end rates whereas they were previously
translated at historical rates of exchange and the resultant impact of changes in the foreign exchange rates have been recorded in
income on a retroactive basis. Similar reclassifications were adopted for the preferred equity securities issued by the company’s
subsidiaries. The retroactive adoption of this amendment resulted in a cumulative adjustment to opening retained earnings at
Brookfi eld Asset Management | 2005 Annual Report
57
January 1, 2004 of $110 million representing the sum of the capital securities issue costs, net of amortization, and the cumulative
impact to that date of changes in the U.S. dollar equivalent of Canadian denominated capital securities. Net income attributable to
common shares for the year ended December 31, 2004 was reduced by $93 million reflecting the foregoing items.
Asset Retirement Obligations, CICA Handbook Section 3110
Obligations associated with the retirement of tangible long-lived assets are recorded as liabilities when those obligations are
incurred, with the amount of the liabilities initially measured at fair value. These obligations are capitalized to the book value of the
related long-lived assets and are depreciated over the useful life of the related asset.
Hedging Relationship, AcG 13
AcG 13 requires the discontinuance of hedge accounting for hedging relationships previously established that do not meet the
criteria at the date it is first applied. AcG 13 does not change the method of accounting for derivatives in hedging relationships, but
EIC 128, “Accounting for Trading, Speculative or Non-Hedging Derivative Financial Instruments,” effective when AcG 13 is adopted,
requires fair value accounting for derivatives that do not qualify for hedge accounting.
Impairment of Long-lived Assets, CICA Handbook Section 3063
Section 3063 provides that an impairment loss be recognized when the carrying value of an asset exceeds the total undiscounted
cash flows expected from its use and eventual disposition. The impairment recognized is measured as the amount by which the
carrying value exceeds its fair value.
ADDITIONAL SHARE DATA
Issued and Outstanding Common Shares
During 2005 and 2004, the number of issued and outstanding common shares changed as follows:
YEARS ENDED DECEM BER 31 (M IL LIONS )
Outstanding at beginning of year
Issued (repurchased)
Dividend reinvestment plan
Management share option plan
Conversion of debentures and minority interests
Issuer bid purchases
Outstanding at end of year
Unexercised options
Reserved for conversion of subordinated notes
Total diluted common shares
Basic and Diluted Earnings Per Share
The components of basic and diluted earnings per share are summarized in the following table:
YEARS ENDED DECEM BER 31 (M IL LIONS )
Net income
Convertible note interest
Preferred share dividends
2005
258.7
—
1.6
1.3
(4.0)
257.6
12.6
—
270.2
2004
256.1
0.1
0.4
2.9
(0.8)
258.7
12.2
0.8
271.7
2005
$ 1,662
—
(35)
2004
$
555
(1)
(24)
Net income available for common shareholders
$ 1,627
$
530
Weighted average
Dilutive effect of the conversion of notes and options using treasury stock method
Common shares and common share equivalents
260
6
266
258
6
264
58
Brookfi eld Asset Management | 2005 Annual Report
Consolidated Financial Statements
MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The accompanying consolidated financial statements and other financial
information in this Annual Report have been prepared by the company’s
management which is responsible for their integrity, consistency, objectivity
and reliability. To fulfill this responsibility, the company maintains policies,
procedures and systems of internal control to ensure that its reporting
practices and accounting and administrative procedures are appropriate
to provide a high degree of assurance that relevant and reliable financial
information is produced and assets are safeguarded. These controls in-
clude the careful selection and training of employees, the establishment
of well-defined areas of responsibility and accountability for performance
and the communication of policies and code of conduct throughout the
company. In addition, the company maintains an internal audit group that
conducts periodic audits of all aspects of the company’s operations. The
Chief Internal Auditor has full access to the Audit Committee.
These consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in Canada, and where appro-
priate, reflect estimates based on management’s judgment. The financial
information presented throughout this Annual Report is generally con sistent
with the information contained in the accompanying consolidated financial
statements.
Deloitte & Touche, LLP, the independent registered chartered accountants
appointed by the shareholders, have examined the consolidated financial
statements set out on pages 60 through 96 in accordance with auditing
standards generally accepted in Canada to enable them to express to the
shareholders their opinion on the consolidated financial statements. Their
report is set out below.
The consolidated financial statements have been further reviewed and
approved by the Board of Directors acting through its Audit Committee,
which is comprised of directors who are not officers or employees of the
company. The Audit Committee, which meets with the auditors and manage-
ment to review the activities of each and reports to the Board of Directors,
oversees management’s responsibilities for the financial reporting and
internal control systems. The auditors have full and direct access to the
Audit Committee and meet periodically with the committee both with and
without management present to discuss their audit and related findings.
Toronto, Canada
February 8, 2006
J. Bruce Flatt
Brian D. Lawson
Chief Executive Officer
Chief Financial Officer
REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
To the Shareholders of Brookfield Asset Management Inc.:
We have audited the consolidated balance sheets of Brookfield Asset
Management Inc. (formerly Brascan Corporation) as at December 31, 2005
and 2004 and the consolidated statements of income, retained earnings
and cash flows for the years then ended. These financial statements are
the responsibility of the company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform
an audit to obtain reasonable assurance whether the financial state-
ments are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at December 31,
2005 and 2004 and the results of its operations and its cash flows for
the years then ended in accordance with Canadian generally accepted
accounting principles.
Toronto, Canada
Deloitte & Touche, LLP
February 8, 2006
Independent Registered Chartered Accountants
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Retained Earnings
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
60
61
61
62
63
Brookfi eld Asset Management | 2005 Annual Report
59
Consolidated Balance Sheet
AS AT D ECEMBER 31
MILLIO NS
Assets
Cash and cash equivalents
Financial assets
Investments
Accounts receivable and other
Operating assets
Property, plant and equipment
Securities
Loans and notes receivable
Liabilities and shareholders’ equity
Non-recourse borrowings
Property specific mortgages
Subsidiary borrowings
Corporate borrowings
Accounts payable and other liabilities
Capital securities
Non-controlling interests in net assets
Shareholders’ equity
Preferred equity
Common equity
On behalf of the Board:
Note
2
3
4
5
6
7
8
8
9
10
11
12
13
14
$
2005
951
2,171
595
4,148
15,776
2,069
348
2004
(Note 1)
$
404
1,220
1,944
1,551
12,231
1,757
900
$ 26,058
$ 20,007
$
8,756
2,510
1,620
4,561
1,598
1,984
515
4,514
$ 6,045
2,373
1,675
2,719
1,548
1,780
590
3,277
$ 26,058
$ 20,007
Robert J. Harding, FCA, Director
Jack M. Mintz, Director
60
Brookfi eld Asset Management | 2005 Annual Report
YEARS END ED D ECEMBER 31
MILLIO NS , EXCEP T P ER SHARE AMO UN TS
Total revenues
Fees earned
Revenues less direct operating costs
Property
Power generation
Timberlands and infrastructure
Specialty funds
Investment and other income
Disposition gains
Expenses
Interest
Current income taxes
Asset management
Other operating costs
Non-controlling interests in net income before the following
Other items
Equity accounted income from investments
Gains on disposition of Falconbridge
Depreciation and amortization
Future income taxes and other provisions
Non-controlling interests in the foregoing items
Net income
Net income per common share
Diluted
Basic
Consolidated Statement of Income
Note
2005
$
5,256
2004
(Note 1)
$ 3,899
16
18
17
19
3
18
17
14
282
1,210
469
64
54
1,797
227
49
2,355
881
162
184
103
386
639
219
1,350
(374)
(324)
152
199
973
268
26
48
1,315
188
123
1,825
608
86
126
83
360
562
332
—
(251)
(260)
172
$
1,662
$
555
$
$
6.12
6.27
$
$
2.02
2.06
Consolidated Statement of Retained Earnings
YEARS END ED D ECEMBER 31
MILLIO NS
Retained earnings, beginning of year
Change in accounting policy
Net income
Shareholder distributions
– Preferred equity
– Common equity
Amount paid in excess of the book value
of common shares purchased for cancellation
Retained earnings, end of year
Note
1
23
23
$
2005
1,944
—
1,662
(35)
(155)
(95)
$
3,321
2004
(Note 1)
$ 1,669
(110)
555
(24)
(136)
(10)
$ 1,944
Brookfi eld Asset Management | 2005 Annual Report
61
Consolidated Statement of Cash Flows
YEARS END ED DECEMBER 31
MILLIO NS
Operating activities
Net income
Adjusted for the following non-cash items
Depreciation and amortization
Future income taxes and other provisions
Gains on disposition of Falconbridge
Non-controlling interest in non-cash items
Excess of equity income over dividends received
Special dividend from Norbord Inc.
Net change in non-cash working capital balances and other
Financing activities
Corporate borrowings, net of repayments
Property specific mortgages, net of repayments
Other debt of subsidiaries, net of repayments
Capital provided by non-controlling interests in funds
Preferred equity redeemed
Preferred equity of subsidiaries issued
Common shares and equivalents repurchased, net of issuances
Common shares of subsidiaries repurchased , net of issuances
Special dividend distributed to minority shareholders
Undistributed non-controlling interests of cash flow
Shareholder distributions
Investing activities
Investment in or sale of operating assets, net
Property
Power generation
Timber and infrastructure
Securities
Financial assets
Investments
Other property, plant and equipment
Dividends from Canary Wharf Group, plc
Cash and cash equivalents
Increase
Balance, beginning of year
Balance, end of year
Note
2005
2004
(Note 1)
$
1,662
$
555
17
22
22
22
22
23
22
22
22
374
324
(1,350)
(152)
(175)
683
42
105
830
(79)
1,057
101
263
(76)
—
(141)
(187)
—
265
(190)
1,013
(1,004)
(431)
(905)
(223)
(33)
1,277
(160)
183
(1,296)
251
260
—
(172)
(268)
626
48
198
872
97
980
493
—
—
264
(12)
(33)
(140)
242
(160)
1,731
(341)
(1,082)
(23)
(1,305)
74
96
—
—
(2,581)
547
404
951
$
22
382
404
$
62
Brookfi eld Asset Management | 2005 Annual Report
Notes to Consolidated Financial Statements
SUMMARY OF ACCOUNTING POLICIES
1.
These consolidated fi nancial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) as
prescribed by the Canadian Institute of Chartered Accountants (“CICA”).
Basis of Presentation
(a)
All currency amounts are in United States dollars (“U.S. dollars”) unless otherwise stated. The consolidated fi nancial statements
include the accounts of Brookfi eld Asset Management Inc. (formerly Brascan Corporation) and the entities over which it has
voting control, as well as Variable Interest Entities (“VIEs”) in which the company is considered to be the primary benefi ciary (see
Note 1(u)(i)).
The company accounts for its investments in Norbord Inc. (“Norbord”), Fraser Papers Inc. (“Fraser Papers”), Falconbridge Limited
(“Falconbridge”) (formerly Noranda Inc.) and other investments over which it has signifi cant infl uence, on the equity basis. Interests
in jointly controlled partnerships and corporate joint ventures are proportionately consolidated. The company sold its investment in
Falconbridge in 2005.
Certain comparative information has been restated due to the adoption of amendments to the Canadian Institute of Chartered
Accountants (“CICA”) Handbook Section 3860, “Financial Instruments – Disclosure and Presentation” See Note 1(u)(ii).
Acquisitions
(b)
The company accounts for business combinations using the purchase method of accounting which establishes specifi c criteria
for the recognition of intangible assets separately from goodwill. The cost of acquiring a company is allocated to its identifi able net
assets on the basis of the estimated fair values at the date of purchase. The excess of acquisition costs over the underlying net book
values of assets acquired is allocated to the underlying tangible and intangible assets with the balance being allocated to goodwill.
The allocated amounts are amortized over the estimated useful lives of the assets. The company periodically evaluates the carrying
values of these amounts based on reviews of estimated future operating income and cash fl ows on an undiscounted basis, and
any impairment is charged against income at that time. Goodwill arising on acquisitions is allocated to reporting units and tested
at least annually for impairment. Signifi cant acquisitions include the following:
During 2005, the company completed the acquisition of a 25% interest in O&Y Properties Corporation and O&Y Real Estate Investment
Trust (collectively “O&Y”). The O&Y portfolio consists of 27 offi ce buildings and one development site totalling 11.6 million square
feet in Toronto, Calgary, Ottawa, Edmonton and Winnipeg.
During 2005, the company completed the acquisition of timberlands on the Canadian west coast for an aggregate purchase price
of $935 million. The acquisition included approximately 600,000 acres of freehold timberlands and 35,000 acres of development
lands for $805 million and $120 million, respectively. The company holds a 50% interest in these assets and the 50% ownership
held by institutional investors is refl ected in non-controlling interests in net assets. In connection with the timberland agreement,
the company also acquired a direct interest in 3.6 million cubic metres of annual crown harvest rights, also with associated
sawmills and remanufacturing facilities for approximately $200 million, including working capital.
During 2005 the company, along with a 50% partner, completed the acquisition of a 610 megawatt hydroelectric generating facility
located in New England for approximately $98 million. The company also completed the acquisition of two hydroelectric generating
stations representing 48 megawatts of capacity for $43 million. These facilities are located in Pennsylvania and Maryland.
During 2004, the company completed the acquisition of 71 hydroelectric power generating plants and one co-generation facility
in upstate New York for approximately $881 million. These assets have a combined generating capacity of 674 megawatts.
Brookfi eld Asset Management | 2005 Annual Report
63
Property
Commercial properties
(c)
(i)
Commercial properties held for investment are carried at cost less accumulated depreciation. For operating properties and properties
held for long-term investment, a write-down to estimated fair value is recognized when a property’s estimated undiscounted future
cash fl ow is less than its carried value. The projections of future cash fl ow take into account the specifi c business plan for each
property and management’s best estimate of the most probable set of economic conditions anticipated to prevail in the market.
Depreciation on buildings is provided during the year ended December 31, 2005 on a straight-line basis over the useful lives of the
properties to a maximum of 60 years. Depreciation is determined with reference to the carried value, remaining estimated useful
life and residual value of each rental property. Tenant improvements and re-leasing costs are deferred and amortized over the lives
of the leases to which they relate.
Development properties consist of properties for which a major repositioning program is being conducted and properties which
are under construction. These properties are recorded at cost, including pre-development expenditures, unless an impairment
is identifi ed requiring a write-down to estimated fair value.
EIC 140 requires that when a company acquires real estate in either an asset acquisition or business combination, a portion of the
purchase price should be allocated to the in-place leases to refl ect the intangible amounts of leasing costs, above or below market
leases and tenant relationship values, if any. These intangible costs are amortized over their respective lease terms.
Residential properties
(ii)
Homes and other properties held for sale, which include properties subject to sale agreements, are recorded at the lower of cost
and estimated fair value. Income received relating to homes and other properties held for sale is applied against the carried value
of these properties.
Development land and infrastructure is recorded at cost unless impairment is identifi ed requiring a write-down to estimated fair
value. Costs are allocated to the saleable acreage of each project or subdivision in proportion to the anticipated revenue.
Power Generation
(d)
Power generating facilities are recorded at cost, less accumulated depreciation. The carried values of facilities are tested for
impairment when appropriate, based on an assessment of net recoverable amounts. A write-down to estimated fair value is
recognized if a facility’s estimated undiscounted future cash fl ow is less than its carried value. The projections of the future cash
fl ow take into account the operating plan for each facility and management’s best estimate of the most probable set of economic
conditions anticipated to prevail in the market. Depreciation on power generating facilities and equipment is provided at various rates
on a straight-line basis over the estimated service lives of the assets, which are up to 60 years for hydroelectric generation assets.
Power generating facilities under development are recorded at cost, including pre-development expenditures, unless impairment
is identifi ed requiring a write-down to estimated fair value.
Timber and Infrastructure
(e)
Timber and infrastructure assets are carried at cost, less accumulated depletion and depreciation. A write-down to estimated fair
value is recognized if the estimated undiscounted future cash fl ow from the timber and infrastructure assets is less than their
carried value. The projections of future cash fl ow take into account the operating plan for the timber and infrastructure assets
and management’s best estimate of the most probable set of economic conditions anticipated to prevail in the market. Depletion
of timber assets is determined based on the number of cubic metres of timber harvested annually at a fi xed rate. Depreciation
on infrastructure transmission and distribution facilities is provided at various rates on a straight-line basis over the estimated
service lives of the assets, which is up to 40 years.
64
Brookfi eld Asset Management | 2005 Annual Report
Investments, Securities and Loans and Notes Receivable
(f)
Investments in securities that are not an active component of the company’s asset management operations are classifi ed as
Financial Assets. Investments in securities that are deployed in the company’s operations are classifi ed as Securities. Investments
in securities that are accounted for under the equity method are classifi ed as Investments.
Securities are carried at the lower of cost and their estimated net realizable value with any valuation adjustments charged to
income. This policy considers the company’s intent to hold an investment through periods where quoted market values may not
fully refl ect the underlying value of that investment. Accordingly, there are periods where the “fair value” or the “quoted market
value” may be less than cost. In these circumstances, the company reviews the relevant security to determine if it will recover its
carrying value within a reasonable period of time and will reduce the carrying value, if necessary. The company also considers
the degree to which estimation is incorporated into valuations and any potential impairment relative to the magnitude of the
related portfolio. Securities held within the company’s trading portfolios, which are designated as trading securities at the time of
acquisition, are recorded at fair value and any valuation adjustments charged to income.
In determining fair values, quoted market prices are generally used where available and, where not available, management
estimates the amounts which could be recovered over time or through a transaction with knowledgeable and willing third parties
under no compulsion to act.
Loans and notes receivable are carried at the lower of cost and estimated net realizable value calculated based on expected future
cash fl ows, discounted at market rates for assets with similar terms and investment risks.
Provisions are established in instances where, in the opinion of management, the repayment of loans or the realization of the
carrying values of portfolio securities or portfolio investments has been impaired.
Inventory
(g)
Lumber and logs associated with the company’s sawmills acquired during the year are carried at the lower of average cost and net
realizable value. Processing materials and supplies are valued at the lower of average cost and replacement cost.
Revenue and Expense Recognition
Commercial property operations
(h)
(i)
Revenue from a commercial property is recognized upon the earlier of attaining a break-even point in cash fl ow after debt servicing,
or the expiration of a reasonable period of time following substantial completion, subject to the time limitation determined when
the project is approved, but no later than one year following substantial completion. Prior to this, the property is categorized as
a property under development, and related revenue is applied to reduce development costs.
The company has retained substantially all of the risks and benefi ts of ownership of its rental properties and therefore accounts for
leases with its tenants as operating leases. The total amount of contractual rent to be received from operating leases is recognized
on a straight-line basis over the term of the lease; a straight-line or free rent receivable, as applicable is recorded for the difference
between the rental revenue recorded and the contractual amount received. Rental revenue includes percentage participating rents
and recoveries of operating expenses, including property, capital and similar taxes. Percentage participating rents are recognized
when tenants’ specifi ed sales targets have been met. Operating expense recoveries are recognized in the period that recoverable
costs are chargeable to tenants.
Revenue from commercial land sales is recognized at the time that the risks and rewards of ownership have been transferred,
possession or title passes to the purchaser, all material conditions of the sales contract have been met, and a signifi cant cash down
payment or appropriate security is received.
Residential property operations
(ii)
Revenue from residential land sales is recognized at the time that the risks and rewards of ownership have been transferred,
possession or title passes to the purchaser, all material conditions of the sales contract have been met, and a signifi cant cash down
payment or appropriate security is received.
Brookfi eld Asset Management | 2005 Annual Report
65
Revenue from the sale of homes is recognized when title passes to the purchaser upon closing and at which time all proceeds are
received or collectibility is assured.
Power generation
(iii)
Revenue from the sale of electricity is recorded at the time power is provided based upon output delivered and capacity provided
at rates as specifi ed under contract terms or prevailing market rates.
Timberlands and infrastructure
(iv)
Revenue from timberlands is derived from the sale of logs and related products. The company recognizes sales to external customers
when the product is shipped and title passes, and collectibility is reasonably assured.
Revenue from infrastructure assets is derived from the transmission and distribution of electricity to industrial and retail customers.
Revenue is recognized at regulated rates when the electricity is delivered, and collectibility is reasonably assured.
Securities and loans and notes receivable
(v)
Revenue from notes receivable, loans and securities, less a provision for uncollectible amounts, is recorded on the accrual basis.
Real estate services
(vi)
Commissions from property brokerage are recognized at the time of the closing of the related real estate transaction.
Fee income
(vii)
Revenues from performance-based incentive fees are recorded on the accrual basis based upon the amount that would be due
under the incentive fee formula as if the relevant management contract was terminated at the relevant reporting date. If actual
performance in a future period results in a decrease in the incentive fee below the amount previously accrued, then the reduction
will be charged against income during the subsequent period.
(viii) Other
Gains on the exchange of assets which do not result from transactions of commercial substance are deferred until realized by sale.
Gains resulting from the exercise of options and other participation rights are recognized when the securities acquired are sold.
The net proceeds recorded under reinsurance contracts are accounted for as deposits when a reasonable possibility that the
company may realize a signifi cant loss from the insurance risk does not exist.
Capitalized Costs
(i)
Capitalized costs on assets under development and redevelopment include all expenditures incurred in connection with the
acquisition, development and construction of the asset until it is available for its intended use. These expenditures consist of costs
and interest on debt that is related to these assets. Ancillary income relating specifi cally to such assets during the development
period is treated as a reduction of costs.
Pension Benefi ts and Employee Future Benefi ts
(j)
The costs of retirement benefi ts for defi ned benefi t plans and post-employment benefi ts are recognized as the benefi ts are earned
by employees. The company uses the accrued benefi t method pro-rated on the length of service and management’s best estimate
assumptions to value its pension and other retirement benefi ts. Assets are valued at fair value for purposes of calculating the
expected return on plan assets. For defi ned contribution plans, the company expenses amounts as paid.
Derivative Financial Instruments
(k)
The company and its subsidiaries selectively utilize derivative fi nancial instruments primarily to manage fi nancial risks, including interest
rate, commodity and foreign exchange risks. Hedge accounting is applied when the derivative is designated as a hedge of a specifi c
exposure and there is reasonable assurance that it will continue to be effective as hedge based on an expectation of offsetting cash fl ows
or fair value. Realized and unrealized gains and losses on foreign exchange forward contracts and currency swaps designated as hedges
of currency risks are included in the cumulative translation adjustment account when the currency risk relates to a net investment in
a self-sustaining subsidiary and are otherwise included in income in the same period as when the underlying asset, liability or anticipated
transaction affects income. The periodic exchanges of payments on interest rate swaps designated as hedges of debt are recorded on
an accrual basis as an adjustment to interest expense. The periodic exchanges of payments on power generation commodity swaps
66
Brookfi eld Asset Management | 2005 Annual Report
designated as hedges are recorded on a settlement basis as an adjustment to power generation revenue. Premiums paid on options
are initially recorded as assets and are amortized into earnings over the term of the option contract. Hedge accounting is discontinued
prospectively when the derivative no longer qualifi es as a hedge or the hedging relationship is terminated. Once discontinued, the
cumulative change in fair value of a derivative that was previously deferred by the application of hedge accounting is recognized
in income over the term of the original hedging relationship.
Derivative fi nancial instruments that are not designated as hedges are carried at estimated fair values, and gains and losses arising
from changes in fair values are recognized in the period the changes occur. Unrealized gains and losses on interest rate swaps
carried to offset corresponding changes in the values of assets and cash fl ow streams that are not refl ected in the consolidated
fi nancial statements at December 31, 2005 and 2004 are recorded in future income taxes and other provisions. Realized and
unrealized gains and losses on equity derivatives used to offset the change in share prices in respect of vested Deferred Share
Units and Restricted Share Appreciation Units are recorded as an adjustment to other operating costs, along with the corresponding
compensation expense. Realized and unrealized gains on other derivatives not designated as hedges are recorded in investment
income and other. The use of non-hedging derivative contracts is governed by documented risk management policies and approved
limits. Derivative fi nancial instruments of a fi nancing nature are recorded at fair value determined on a credit adjusted basis.
Income Taxes
(l)
The company uses the asset and liability method whereby future income tax assets and liabilities are determined based on
differences between the carrying amounts and tax bases of assets and liabilities, and measured using the tax rates and laws that
will be in effect when the differences are expected to reverse.
(m) Reporting Currency and Foreign Currency Translation
The U.S. dollar is the functional currency of the company’s head offi ce operations and the U.S. dollar is the company’s reporting
currency.
The accounts of self-sustaining subsidiaries having a functional currency other than the U.S. dollar are translated using the current
rate method. Gains or losses on translation are deferred and included in the cumulative translation adjustment account. Gains or
losses on foreign currency denominated balances and transactions that are designated as hedges of net investments in these
subsidiaries are reported in the same manner.
Foreign currency denominated monetary assets and liabilities of the company and subsidiaries where the functional currency is
the U.S. dollar, are translated at the rate of exchange prevailing at period-end and revenues and expenses at average rates during
the period. Gains or losses on translation of these items are included in the consolidated statement of income. Gains or losses on
transactions which hedge these items are also included in the consolidated statement of income.
Stock-Based Compensation
(n)
The company and most of its consolidated subsidiaries account for stock options using the fair value method. Under the fair value
method, compensation expense for stock options is determined based on the fair value at the grant date using an option pricing
model and charged to income over the vesting period. The company’s publicly traded U.S. home building subsidiary records the
liability and expense of stock options based on their intrinsic value using variable plan accounting, refl ecting differences in how
this plan operates. Under this method, vested options are revalued each reporting period, and any change in value is included in
earnings.
Carrying Value of Assets
(o)
The company assesses the carrying values of long-lived assets, when events necessitate a review, based on the net recoverable
amounts determined on an undiscounted cash fl ow basis. If the carrying value of an asset exceeds its net recoverable amount, an
impairment loss is recognized to the extent that the fair value is below the asset’s carrying value. Fair value is determined based
on quoted market prices when available, otherwise on the discounted cash fl ows over the life of the asset.
Asset Retirement Obligations, CICA Handbook Section 3110
(p)
Obligations associated with the retirement of tangible long-lived assets are recorded as liabilities when those obligations are
incurred, with the amount of the liabilities initially measured at fair value. These obligations are capitalized to the book value of the
related long-lived assets and are depreciated over the useful life of the related asset.
Brookfi eld Asset Management | 2005 Annual Report
67
Hedging Relationship, AcG 13
(q)
AcG 13 requires the discontinuance of hedge accounting for hedging relationships previously established that do not meet the
criteria at the date it is fi rst applied. AcG 13 does not change the method of accounting for derivatives in hedging relationships, but
EIC 128, “Accounting for Trading, Speculative or Non-Hedging Derivative Financial Instruments,” effective when AcG 13 is adopted,
requires fair value accounting for derivatives that do not qualify for hedge accounting.
Impairment of Long-lived Assets, CICA Handbook Section 3063
(r)
Section 3063 provides that an impairment loss be recognized when the carrying value of an asset exceeds the total undiscounted
cash fl ows expected from its use and eventual disposition. The impairment recognized is measured as the amount by which the
carrying value exceeds its fair value.
Use of Estimates
(s)
The preparation of fi nancial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the fi nancial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates. Signifi cant estimates are required in the determination of cash fl ows and probabilities in assessing net recoverable
amounts and net realizable values, tax and other provisions, hedge effectiveness, and fair values.
Cash and Cash Equivalents
(t)
Cash and cash equivalents include cash on hand, demand deposits and all highly liquid short-term investments with original
maturities less than 90 days.
Changes in Accounting Policies
(u)
Effective January 1, 2005 the company adopted the following new accounting policies, none of which individually or collectively
had a material impact on the consolidated fi nancial statements of the company, unless otherwise noted. These changes were
the result of changes to the Canadian Institute of Chartered Accountants (“CICA”) Handbook, Accounting Guidelines (“AcG”) and
Emerging Issues Committee Abstracts (“EIC”).
Consolidation of variable interest entities, AcG 15
(i)
Effective January 1, 2005, the company adopted CICA Accounting Guideline (“AcG”) 15, “Consolidation of Variable Interest Entities”
without restatement of prior periods. AcG 15 provides guidance for applying the principles in handbook section 1590, “Subsidiaries,”
to those entities (defi ned as Variable Interest Entities (“VIEs”)), in which either the equity at risk is not suffi cient to permit that entity
to fi nance its activities without additional subordinated fi nancial support from other parties, or equity investors lack voting control,
an obligation to absorb expected losses, or the right to share expected residual returns. AcG 15 requires consolidation of VIEs by
the primary benefi ciary, which is defi ned as the party which has exposure to the majority of a VIEs expected losses and/or expected
residual returns. There was no impact on common equity as a result of implementing the new guidelines.
As a result of AcG 15, the company commenced consolidating the accounts of Louisiana HydroElectric, in which the company
holds a 75% residual equity interest. The following table shows the consolidated balances related to Louisiana HydroElectric as at
December 31, 2005 and 2004.
68
Brookfi eld Asset Management | 2005 Annual Report
MI LLIONS
Assets
Cash and fi nancial assets
Accounts receivables and other
Property, plant and equipment
Liabilities
Property specifi c mortgages
Accounts payable and other liabilities
Non-controlling interests of others in assets
Net assets
MI LLIONS
Revenue less direct operating expenses
Power generation
Expenses
Property specifi c mortgages
Non-controlling interests of net income before the following
Depreciation, amortization and non-cash taxes
Non-controlling interests in the foregoing items
Net income (loss)
Book Value
December 31
2005
December 31, 2004
If Consolidated
Actual
$
3
545
458
$
52
608
474
1,006
1,134
684
43
37
636
210
44
$ —
—
244
244
—
—
—
$
242
$
244
$
244
Year Ended
December 31
2005
December 31, 2004
If Consolidated
Actual
$
112
$
135
$
26
95
6
11
(18)
5
(2)
$
88
12
35
(13)
4
26
$
—
—
26
—
—
26
$
Liabilities and Equity, CICA Handbook Section 3860
(ii)
Effective January 1, 2005, the company adopted the amendment to CICA Handbook Section 3860, “Financial Instruments: Disclosure
and Presentation” with retroactive restatement of prior periods. The amendment requires certain obligations that must or could
be settled with a variable number of the issuer’s own equity instruments to be presented as a liability. Accordingly, certain of the
company’s preferred shares and securities that were previously included in equity were reclassifi ed as liabilities under the caption
“Capital Securities,” and the dividends paid on these preferred shares were reclassifi ed as interest expense. As a result of the
reclassifi cation, preferred equity shares have been translated into U.S. dollars at period-end rates whereas they were previously
translated at historical rates of exchange and the resultant impact of changes in the foreign exchange rates have been recorded in
income on a retroactive basis. Similar reclassifi cations were adopted for the preferred equity securities issued by the company’s
subsidiaries. The retroactive adoption of this amendment resulted in a cumulative adjustment to opening retained earnings at
January 1, 2004 of $110 million representing the sum of the capital securities issue costs, net of amortization, and the cumulative
impact to that date of changes in the U.S. dollar equivalent of Canadian denominated capital securities. Net income attributable to
common shares for the year ended December 31, 2004 was reduced by $93 million refl ecting the foregoing items.
Future Accounting Policy Changes
(v)
The following future accounting policy changes may have an impact on the company, although the impact, if any, has not been
determined at this time.
On January 27, 2005, the CICA issued the following three new accounting standards: Handbook Section 1530, “Comprehensive
Income,” Handbook Section 3855, “Financial Instruments – Recognition and Measurement,” and Handbook Section 3865, “Hedges.”
These standards will take effect on January 1, 2007.
Brookfi eld Asset Management | 2005 Annual Report
69
Comprehensive Income, CICA Handbook Section 1530
(i)
As a result of adopting this standard, a new category, Accumulated Other Comprehensive Income, will be added to Shareholders’
Equity on the Consolidated Balance Sheets. Major components for this category will include: unrealized gains and losses on
fi nancial assets classifi ed as available-for-sale; unrealized foreign currency translation amounts, net of hedging, arising from self-
sustaining foreign operations; and changes in the fair value of the effective portion of cash fl ow hedging instruments.
Financial Instruments – Recognition and Measurement, CICA Handbook Section 3855
(ii)
Under the new standard, all fi nancial instruments will be classifi ed as one of the following: Held-to-maturity; Loans and Receivables;
Held-for-trading; or Available-for-sale. Financial assets and liabilities held-for-trading will be measured at fair value with gains and
losses recognized in Net Income. Financial assets held-to-maturity, loans and receivables and fi nancial liabilities other than those
held-for-trading, will be measured at amortized cost. Available-for-sale instruments will be measured at fair value with unrealized
gains and losses recognized in Other Comprehensive Income. The standard also permits designation of any fi nancial instrument as
held-for-trading upon initial recognition.
Hedges, CICA Handbook Section 3865
(iii)
This new standard now specifi es the criteria under which hedge accounting can be applied and how hedge accounting can be
executed for each of the permitted hedging strategies: fair value hedges, cash fl ow hedges and hedges on a foreign currency
exposure of a net investment in a self-sustaining foreign operation. In a fair value hedging relationship, the carrying value of the
hedged item is adjusted by gains or losses attributable to the hedged risk which are recognized in Net Income and are offset by
changes in the fair value of the derivative to the extent that the hedging relationship is effective, which are also recognized in Net
Income. In a cash fl ow hedging relationship, the effective portion of the change in the fair value of the hedging derivative will be
recognized in Other Comprehensive Income. The ineffective portion will be recognized in Net Income. The amounts recognized in
Accumulated Other Comprehensive Income will be recorded in or recognized as Net Income in the periods in which Net Income
is affected by the variability in the cash fl ows of the hedged item. In hedging a foreign currency exposure of a net investment in
a self-sustaining foreign operation, foreign exchange gains and losses on the hedging instruments will be recognized in Other
Comprehensive Income, whereas they are currently recognized in the company’s Cumulative Translation Account.
Implicit Variable Interests, Emerging Issues Committee Abstract 157
(iv)
In October 2005, the Emerging Issues Committee issued Abstract No. 157, “Implicit Variable Interests Under AcG 15” (“EIC 157”).
This EIC clarifi es that implicit variable interests are implied fi nancial interests in an entity that change with changes in the fair value
of the entity’s net assets exclusive of variable interests. An implicit variable interest is similar to an explicit variable interest except
that it involves absorbing and/or receiving variability indirectly from the entity. The identifi cation of an implicit variable interest is
a matter of judgement that depends on the relevant facts and circumstances.
Conditional Asset Retirement Obligations, Emerging Issues Committee Abstract 159
(v)
In December 2005, the Emerging Issues Committee issued Abstract No. 159 “Conditional Asset Retirement Obligations” (“EIC 159”).
This EIC requires an entity to recognize the fair value of a legal obligation to perform asset retirement activities, even though the
timing and/or method of settlement may be uncertain.
(w) Comparative Figures
Certain of the prior year’s fi gures have been reclassifi ed to conform with the 2005 presentation.
2.
FINANCIAL ASSETS
MIL LIONS
Government bonds
Corporate bonds
Asset backed securities
Preferred shares
Common shares
Total
70
Brookfi eld Asset Management | 2005 Annual Report
$
2005
59
916
69
629
498
$ 2,171
2004
42
687
$
—
351
140
$ 1,220
Financial assets represent fi nancial resources which are currently not an active component of the company’s asset management
operations (see Note 6). The fair value of fi nancial assets as at December 31, 2005 was $2,162 million (2004 – $1,255 million).
The portfolio includes $1,517 million (2004 – $344 million) fi xed rate securities with an average yield of 5.7% (2004 – 4.0%) and
$41 million (2004 – $335 million) of securities of affi liates, principally equity accounted investees. Revenue earned during the year
from securities of affi liates amounted to $18 million (2004 – $17 million).
INVESTMENTS
3.
Equity accounted investments include the following:
MI LLIONS
Norbord Inc.
Fraser Papers Inc.
Falconbridge Inc.
Other
Total
Number of Shares
% of Investment
Book Values
2005
53.8
13.4
—
2004
53.8
12.8
122.6
2005
37%
46%
—
2004
36%
42%
42%
2005
$
199
197
—
199
$
595
2004
$ 177
204
1,344
219
$ 1,944
During the second quarter of 2005 there was a substantial reorganization of Falconbridge which involved the repurchase by
Falconbridge (formerly Noranda) of approximately 64 million common shares in exchange for $1.25 billion of preferred shares
and the subsequent issuance of 132.8 million shares to minority shareholders of Falconbridge to effect the privatization. As
a result, Brookfi eld received $950 million retractable preferred shares in exchange for 48 million common shares and the company’s
common share interest in Falconbridge decreased to 20% from 42%. The company subsequently sold 73 million common shares,
or substantially all of its remaining 20% ownership for proceeds of $1.7 billion, consisting of $1.3 billion cash and a $375 million
convertible debenture. These transactions resulted in an aggregate pre-tax gain of $1,350 million. Falconbridge redeemed
$380 million of the $950 million retractable preferred shares previously received by the company as part of the exchange. The
company’s remaining investment in these preferred shares is included in Financial Assets as at December 31, 2005.
4.
ACCOUNTS RECEIVABLE AND OTHER
MI LLIONS
Accounts receivable
Prepaid expenses and other assets
Restricted cash
Inventory
Future income tax assets
Total
(a)
Accounts Receivable
MI LLIONS
Property
Power generation
Timberlands and infrastructure
Other
Total
Note
(a)
(b)
(c)
10(c)
2005
$ 1,709
1,541
651
247
—
2004
$ 1,187
263
29
16
56
$ 4,148
$ 1,551
$
2005
865
345
28
471
$
2004
733
156
13
285
$ 1,709
$ 1,187
Included in accounts receivable are executive share ownership plan loans receivable from executives of the company and
consolidated subsidiaries of $19 million (C$22 million) (2004 – $31 million (C$38 million)). No loans have been made since July
2002.
Brookfi eld Asset Management | 2005 Annual Report
71
Prepaid Expenses and Other Assets
(b)
MIL LIONS
Property
Power generation
Timberlands and infrastructure
Other
Total
$
2005
504
566
7
464
$ 1,541
2004
180
44
14
25
263
$
$
Prepaid expenses and other assets includes $125 million (2004 – $70 million) of intangible assets related to leases and tenant
relationships allocated from the purchase price on the acquisition of commercial properties. The consolidation of Louisiana
HydroElectric included $470 million (2004 – $nil), representing levelized receivables arising from straight-line revenue recognition
for a contract which expires in 2031.
Included in prepaid expenses and other assets is $92 million (2004 – $93 million) of goodwill principally arising from the privatization
of the company’s funds management subsidiary during 2002 and $22 million (2004 – $62 million) of goodwill and other intangibles
associated with Brookfi eld’s business services investments including contracts and intellectual property. In addition, the company
added $40 million of goodwill and other intangibles associated with the acquisition of its asset management operations in New
York during 2005.
(c)
Restricted Cash
MIL LIONS
Property
Power generation
Other
$
2005
355
83
213
$
651
2004
$
29
—
—
$
29
Restricted cash relates primarily to commercial property and power generating fi nancing arrangements including defeasement of
debt obligations, debt service accounts and deposits held by the company’s insurance operations.
5. PROPERTY, PLANT AND EQUIPMENT
MIL LIONS
Property
Power generation
Timberlands and infrastructure
Other plant and equipment
Total
Property
(a)
MIL LIONS
Commercial properties
Residential properties
Development properties
Property services
Total
(i)
MIL LIONS
Commercial Properties
Commercial properties
Less: accumulated depreciation
Total
Note
(a)
(b)
(c)
(d)
Note
(i)
(ii)
(iii)
2005
$ 10,874
3,568
1,018
316
$ 15,776
2005
$ 8,688
1,205
942
39
$ 10,874
2005
$ 9,485
797
$ 8,688
$
2004
8,908
2,951
184
188
$ 12,231
$
2004
7,089
818
950
51
$
8,908
$
2004
7,740
651
$
7,089
72
Brookfi eld Asset Management | 2005 Annual Report
Commercial properties carried at a net book value of approximately $3,545 million (2004 – $2,400 million) are situated on land held
under leases or other agreements largely expiring after the year 2069. Minimum rental payments on land leases are approximately
$22 million (2004 – $22 million) annually for the next fi ve years and $959 million (2004 – $973 million) in total on an undiscounted
basis.
Construction costs of $18 million (2004 – $15 million) were capitalized to the commercial property portfolio for properties undergoing
redevelopment in 2005.
Residential Properties
(ii)
Residential properties include infrastructure, land and construction in progress for single family homes and condominiums.
(iii)
Development Properties
MI LLIONS
Commercial development properties
Residential lots – owned
– optioned
Rural development properties
Total
$
2005
452
264
62
164
$
942
2004
603
263
45
39
950
$
$
Development properties include commercial development land and density rights, residential land owned and under option and
rural lands held for future development in agricultural or residential purposes.
During 2005, the company capitalized construction and related costs of $17 million (2004 – $26 million) and interest costs of
$15 million (2004 – $14 million) to its commercial development sites, and interest costs of $38 million (2004 – $32 million) to its
residential land operations.
The company acquired 35,000 acres of rural development properties during 2005 at a cost of $120 million as further described in
Note 5(c).
Power Generation
(b)
MI LLIONS
Hydroelectric power facilities
Cogeneration facilities
Less: accumulated depreciation
Investment in Louisiana HydroElectric Power
Generating facilities under development
Total
2005
$ 3,830
212
4,042
582
3,460
—
108
$ 3,568
2004
$ 2,730
239
2,969
314
2,655
244
52
$ 2,951
Generation assets includes the cost of the company’s approximately 130 hydroelectric generating stations and two gas-fi red
cogeneration facilities. The company’s hydroelectric power facilities operate under various agreements for water rights which
extend to or are renewable over terms through the years 2006 to 2044.
During 2005 the company, along with a 50% partner, completed the acquisition of a 610 megawatt hydroelectric generating
pump storage facility and related assets located in New England for cash totalling $98 million. The company also completed the
acquisition of two hydroelectric generating stations located in Pennsylvania and Maryland with total capacity of 48 megawatts for
cash totalling $43 million which was allocated to hydroelectric power facilities.
During 2004, the company completed the acquisition of 71 hydroelectric power generating plants and one cogeneration facility in
upstate New York from Reliant Energy for $881 million. These facilities have a combined generating capacity of 674 megawatts.
Effective January 1, 2005, the company consolidated its investment in Louisiana HydroElectric as described in Note 1(u)(i).
Brookfi eld Asset Management | 2005 Annual Report
73
(c)
Timberlands and Infrastructure
MIL LIONS
Timberlands
Infrastructure
Total
2005
888
130
$
$ 1,018
2004
87
97
$
$
184
During 2005, the company completed the acquisition of timberlands on the Canadian west coast for an aggregate purchase price of
$775 million. The acquisition included approximately 600,000 acres of freehold timberlands and 35,000 acres of rural development
lands for $655 million and $120 million, respectively. The company holds a 50% interest in these assets and the 50% ownership
held by institutional investors is refl ected in non-controlling interests in net assets.
The company’s infrastructure assets are comprised of power transmission and distribution networks which are operated under
a regulated rate base arrangement that is applied to the company’s invested capital.
Other Plant and Equipment
(d)
Other plant and equipment includes capital assets of $316 million (2004 – $188 million) associated primarily with the company’s
two private forest products companies, Cascadia and Katahdin Paper. The Cascadia acquisition was completed during 2005 and
included 3.6 million cubic metres of annual crown harvest rights, sawmills and remanufacturing facilities.
6.
SECURITIES
MIL LIONS
Government bonds
Corporate bonds
Asset backed securities
Common shares
Canary Wharf Group common shares
Total
$
2005
930
480
195
197
267
$
2004
684
170
142
311
450
$ 2,069
$ 1,757
Securities represent holdings that are actively deployed in the company’s fi nancial operations and include $1,570 million
(2004 – $917 million) owned through the company’s Insurance operations, as described in Note 15(g).
The securities are carried at the lower of cost and their net realizable value. The fair value of securities at December 31, 2005 was
$2,220 million (2004 – $1,895 million). During 2005, the company received dividends of $183 million from Canary Wharf Group
(2004 – $nil) which were accounted for as a return of investment.
Corporate bonds include fi xed rate securities totalling $284 million (2004 – $172 million) with an average yield of 5.5% (2004 – 6.5%)
and an average maturity of approximately fi ve years. Government bonds and asset backed securities include predominantly fi xed
rate securities.
LOANS AND NOTES RECEIVABLE
7.
Loans and notes receivable include corporate loans, bridge loans and other loans, either advanced directly or acquired in the
secondary market.
The fair value of the company’s loans and notes receivable at December 31, 2005 and 2004 approximated their carrying value
based on expected future cash fl ows, discounted at market rates for assets with similar terms and investment risks.
The loan portfolio matures over the next three years, with an average maturity of approximately one year and includes fi xed rate
loans totalling $39 million (2004 – $67 million) with an average yield of 5.8% (2004 – 6.5%).
74
Brookfi eld Asset Management | 2005 Annual Report
8.
NON-RECOURSE BORROWINGS
(a)
Property Specifi c Mortgages
MI LLIONS
Commercial and residential properties
Power generation
Timberlands and infrastructure
Total
2005
$ 5,881
2,365
510
$ 8,756
2004
$ 4,534
1,411
100
$ 6,045
Property specifi c mortgages include $2,247 million (2004 – $1,786 million) repayable in Canadian dollars equivalent to C$2,606 million
(2004 – C$2,143 million), $194 million (2004 – $113 million) in Brazilian reais equivalent to R$454 million (2004 – R$301 million)
and $404 million (2004 – $nil) in British pounds equivalent to £234 million (2004 – £nil). The weighted average interest rate at
December 31, 2005 was 6.9% (2004 – 6.4%).
Principal repayments on property specifi c mortgages due over the next fi ve years and thereafter are as follows:
Commercial Properties
Power Generation
Timberlands &
Infrastructure
Annual Repayments
$ —
$
MI LLIONS
2006
2007
2008
2009
2010
Thereafter
Total
(b)
Subsidiary Borrowings
MI LLIONS
Residential properties
Power generation
Timberlands and infrastructure
Other
Total
$
284
674
358
841
343
3,381
$ 5,881
$
30
29
27
83
12
2,184
$ 2,365
—
—
—
—
510
$
510
2005
$ 1,137
474
37
862
314
703
385
924
355
6,075
$ 8,756
$
2004
814
617
37
905
$ 2,510
$ 2,373
Subsidiary borrowings include $805 million (2004 – $883 million) repayable in Canadian dollars equivalent to C$934 million
(2004 – C$1,059 million) and $13 million (2004 – $14 million) in Brazilian reais equivalent to R$30 million (2004 – R$38 million).
The weighted average interest rate at December 31, 2005 was 6.9% (2004 – 6.8%).
Residential properties debt represents amounts drawn under construction fi nancing facilities which are typically established on
a project by project basis. Amounts drawn are repaid from the proceeds on the sale of building lots, single family homes and
condominiums and redrawn to fi nance the construction of new homes.
Subsidiary borrowings include obligations pursuant to fi nancial instruments which are recorded as liabilities. These amounts
include $434 million (2004 – $393 million) of subsidiary obligations relating to the company’s international operations subject
to credit rating provisions, which are supported by corporate guarantees.
Brookfi eld Asset Management | 2005 Annual Report
75
Principal repayments on subsidiary borrowings over the next fi ve years and thereafter are as follows:
MILLIO NS
2006
2007
2008
2009
2010
Thereafter
Total
Residential
Properties
Power
Generation
Timberlands &
Infrastructure
$
701
384
41
9
2
—
$ 1,137
$
86
—
—
388
—
—
$ 474
$
2
—
1
1
2
31
37
$
Other
$
192
$
11
47
6
—
606
Total
981
395
89
404
4
637
$
862
$
2,510
The fair value of property specifi c mortgages and subsidiary borrowings exceeds the company’s carrying values by $284 million (2004 –
$205 million), determined by way of discounted cash fl ows using market rates adjusted for credit spreads applicable to the debt.
9.
CORPORATE BORROWINGS
MIL LIONS
Term debt
Commercial paper and bank borrowings
Total
Market
Maturity
Annual Rate
Currency
2005
2004
Public – Canadian
October 5, 2005
Public – Canadian
December 1, 2006
Public – Canadian
June 1, 2007
Public – U.S.
Public – U.S.
Public – U.S.
December 12, 2008
March 1, 2010
June 15, 2012
Private – Canadian
July 16, 2021
Public – U.S.
March 1, 2033
Public – Canadian
June 14, 2035
Private – Canadian
Various
Various
7.35%
8.35%
7.25%
8.13%
5.75%
7.13%
5.50%
7.38%
5.95%
C$
C$
C$
US$
US$
US$
C$
US$
C$
C$
BA-based
C$ / US$
$ —
$ 104
108
108
300
200
350
43
250
258
3
—
104
105
300
200
350
—
250
—
13
249
$ 1,620
$ 1,675
Term debt borrowings have a weighted average interest rate of 7.1% (2004 – 7.3%), and include $520 million (2004 – $326 million)
repayable in Canadian dollars equivalent to C$603 million (2004 – C$390 million).
Commercial paper and bank borrowings is principally commercial paper issued by the company. Commercial paper obligations are
backed by the company’s bank credit facilities, which are in the form of a four year revolving term facility. These borrowings are at
fl oating rates and had a weighted average interest rate of 2.5% as at December 31, 2004.
During 2005, the company issued C$300 million of 5.95% publicly traded term debt due June 2035, and C$50 million of privately
held term debt due July 2021, secured by coal royalty assets held by the company.
Principal repayments on corporate borrowings due over the next fi ve years and thereafter are as follows:
MIL LIONS
2006
2007
2008
2009
2010
Thereafter
Total
Annual Repayments
$
110
108
300
—
200
902
$
1,620
76
Brookfi eld Asset Management | 2005 Annual Report
The fair value of corporate borrowings at December 31, 2005 exceeds the company’s carrying values by $113 million
(2004 – $167 million), determined by way of discounted cash fl ows using market rates adjusted for the company’s credit spreads.
Note
(a)
(b)
(c)
(d)
10. ACCOUNTS PAYABLE AND OTHER LIABILITIES
MI LLIONS
Accounts payable
Other liabilities
Future income tax liability
Exchangeable debentures
Total
(a)
MI LLIONS
Accounts Payable
Property
Power generation
Timberlands and infrastructure
Specialty funds
Insurance deposits, claims and other
Other
Total
2005
2004
$ 2,707
$
1,749
1,629
14
211
970
—
—
$ 4,561
$
2,719
$
2005
708
208
30
30
1,376
355
$
2004
578
100
—
—
717
354
$ 2,707
$
1,749
Other Liabilities
(b)
Other liabilities include the fair value of the company’s obligations to deliver securities it did not own at the time of sale and
obligations pursuant to fi nancial instruments recorded as liabilities. Levelized interest expense balances related to the consolidation
of Louisiana HydroElectric during the year are also included in other liabilities.
Future Income Tax Liabilities / Assets
(c)
MI LLIONS
Tax assets related to operating and capital losses
Tax liabilities related to differences between tax and book base
Future income tax liability
2005
$
(910)
924
$
14
2004
$
(941)
885
$
(56)
The future income tax assets relate primarily to non-capital losses available to reduce taxable income which may arise in the future.
The company and its Canadian subsidiaries have future income tax assets of $694 million (2004 – $739 million) that relate to non-
capital losses which expire over the next seven to ten years, and $72 million (2004 – $52 million) that relate to capital losses which
have no expiry. The company’s U.S. subsidiaries have future income tax assets of $144 million (2004 – $150 million) that relate to net
operating losses which expire over the next 16 years. The amount of non-capital losses and deductible temporary differences for which
no future income tax assets have been recognized is approximately $456 million (2004 – $400 million). The tax liabilities represent
the cumulative amount of tax payable on the differences between the book values and tax values of the company’s assets and
liabilities at the rates expected to be effective at the time differences are anticipated to reverse.
Exchangeable Debentures
(d)
A subsidiary of the company issued debentures that are exchangeable for and secured by 20 million common shares of Norbord
and mature on September 30, 2029. The carrying value of the debentures is adjusted to refl ect the market value of the underlying
Norbord shares, which at December 31, 2005 was $211 million, and any change in value is recorded in income. While the company
was required to deconsolidate the subsidiary that holds the exchangeable debenture under variable interest accounting, and
presents its obligation as a secured demand loan in accounts payable, the underlying obligation remains that of the exchangeable
debenture.
Brookfi eld Asset Management | 2005 Annual Report
77
11. CAPITAL SECURITIES
The company has the following capital securities outstanding:
MIL LIONS
Corporate preferred shares and preferred securities
Subsidiary preferred shares
Total
Note
(a)
(b)
(a)
Corporate Preferred Shares and Preferred Securities
$
2005
669
929
$
2004
647
901
$ 1,598
$
1,548
Shares
Outstanding
Description
Cumulative
Distribution Rate
Currency
2005
2004
Class A Preferred Shares
Preferred Securities
Total
10,000,000
4,032,401
7,000,000
5,000,000
5,000,000
Series 10
Series 11
Series 12
due 2050
due 2051
5.75%
5.50%
5.40%
8.35%
8.30%
C$
C$
C$
C$
C$
$
$
215
87
151
108
108
669
(M ILLIO NS)
$
$
209
84
146
104
104
647
Subject to the Toronto Stock Exchange, the Series 10, 11 and 12 shares, unless redeemed by the company for cash, are convertible
into Class A common shares at a price equal to the greater of 95% of the market price at the time of conversion and C$2.00, at the
option of both the company and the holder, at any time after the following dates:
Class A Preferred Shares
Series 10
Series 11
Series 12
Earliest Permitted
Redemption Date
Company’s
Holder’s
Conversion Option
Conversion Option
September 30, 2008
September 30, 2008
March 31, 2012
June 30, 2009
March 31, 2014
June 30, 2009
March 31, 2014
December 31, 2013
March 31, 2018
The preferred securities are subordinated and unsecured. The company may redeem the preferred securities in whole or in part
fi ve years after the date of issue at a redemption price equal to 100% of the principal amount of the preferred securities plus
accrued and unpaid distributions thereon to the date of such redemption. The company may elect to defer interest payments on the
preferred securities for periods of up to fi ve years and may settle deferred interest and principal payments by way of cash or the
delivery to a trustee for sale of suffi cient preferred shares or common shares of the company.
(b)
Subsidiary Preferred Shares
Shares
Outstanding
Description
Cumulative
Dividend Rate
Currency
2005
2004
Class AAA Preferred Shares
Total
8,000,000
4,400,000
8,000,000
8,000,000
8,000,000
6,000,000
Series F
Series G
Series H
Series I
Series J
Series K
6.00%
5.25%
5.75%
5.20%
5.00%
5.20%
C$
US$
C$
C$
C$
C$
$
$
172
110
173
172
172
130
929
(M ILLIO NS)
$
$
167
110
167
167
166
124
901
78
Brookfi eld Asset Management | 2005 Annual Report
During 2004, the company’s real estate operations issued 8,000,000 Class AAA, Series J preferred shares and 6,000,000 Class AAA,
Series K preferred shares for total cash proceeds of C$350 million.
Class AAA Preferred Shares
Series F
Series G
Series H
Series I
Series J
Series K
Earliest Permitted
Redemption Date
September 30, 2009
June 30, 2011
December 31, 2011
December 31, 2008
June 30, 2010
December 31, 2012
Company’s
Holder’s
Conversion Option
Conversion Option
September 30, 2009
March 31, 2013
June 30, 2011
December 31, 2011
December 31, 2008
June 30, 2010
December 31, 2012
September 30, 2015
December 31, 2015
December 31, 2010
December 31, 2014
December 31, 2016
12. NON-CONTROLLING INTERESTS IN NET ASSETS
Non-controlling interests represent the common and preferred equity in consolidated entities that is owned by other
shareholders.
MI LLIONS
Common equity
Property operations
Power generation
Timberlands and infrastructure
Other
Preferred equity
Total
2005
2004
$ 1,196
$
1,226
213
257
143
1,809
175
194
—
110
1,530
250
$ 1,984
$
1,780
PREFERRED EQUITY
13.
The following Class A preferred shares are issued and outstanding:
Rate
Term
2005
2004
2005
2004
Issued and Outstanding
Class A Preferred Shares
Series 2
Series 3 1
Series 4
Series 8
Series 9
Series 13
Series 15
70% P
B.A. + 40 b.p.
70% P/8.5%
Variable up to P
5.63%
70% P
B.A. + 40 b.p. 2
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
1 Redeemed November 8, 2005
2 Rate determined in a quarterly auction
P – Prime Rate B.A. – Banker’s Acceptance Rate b.p. – Basis Points
10,465,100
10,465,100
—
2,800,000
1,049,792
2,950,208
9,297,700
2,000,000
1,171
2,800,000
1,049,792
2,950,208
9,297,700
2,000,000
$ 169
—
45
17
47
195
42
(MILLIONS)
$ 169
75
45
17
47
195
42
$ 515
$ 590
The company is authorized to issue an unlimited number of Class A preferred shares and an unlimited number of Class AA preferred
shares, issuable in series. No Class AA preferred shares have been issued.
The Class A preferred shares have preference over the Class AA preferred shares, which in turn are entitled to preference over
the Class A and Class B common shares on the declaration of dividends and other distributions to shareholders. All series of the
outstanding preferred shares have a par value of C$25 per share, except the Class A, Series 3 preferred shares which had a par
value of C$100,000 per share.
Brookfi eld Asset Management | 2005 Annual Report
79
During 2005, the company redeemed all of the outstanding Class A, Series 3 preferred shares.
On December 31, 2004, the company issued 9,297,700 Series 13 preferred shares and 2,000,000 Series 15 preferred shares as
a result of the amalgamation of the company and its wholly-owned funds management subsidiary.
14. COMMON EQUITY
The company is authorized to issue an unlimited number of Class A Limited Voting Shares (“Class A common shares”) and 85,120
Class B Limited Voting Shares (“Class B common shares”), together referred to as common shares.
The company’s common shareholders’ equity is comprised of the following:
Rate
Maturity
2005
2004
B.A. + 40 b.p. 2
3.9% 3
2085
2088
$ —
$
MIL LIONS
Convertible Notes
Series I 1
Series II 1
Class A and B common shares
Retained earnings
Cumulative translation adjustment
Common equity
NUM BER OF SH ARES
Class A common shares
Class B common shares
Unexercised options
Reserved for conversion of subordinated notes
Total diluted common shares
1 Fully converted and redeemed in 2005
2 Rate determined in a semi-annual auction, maximum 10%
3 Rate determined as 120% of the current common share dividend
B.A. – Banker’s Acceptance Rate b.p. – Basis Points
—
—
1,199
3,321
(6)
$ 4,514
257,502,448
85,120
257,587,568
12,612,987
—
270,200,555
9
2
11
1,226
1,944
96
$ 3,277
258,620,702
85,120
258,705,822
12,181,392
824,927
271,712,141
Convertible Notes
(a)
The Convertible Notes were subordinate to the company’s senior debt and the company could, at its option, pay principal and
interest due on the notes in Class A common shares of the company.
The Series I and II Convertible Notes which were not otherwise converted were redeemed in 2005.
Class A and Class B Common Shares
(b)
The company’s Class A common shares and its Class B common shares are each, as a separate class, entitled to elect one-half of
the company’s Board of Directors. Shareholder approvals for matters other than for the election of directors must be received from
the holders of the company’s Class A common shares as well as the Class B common shares, each voting as a separate class.
80
Brookfi eld Asset Management | 2005 Annual Report
During 2005 and 2004, the number of issued and outstanding common shares changed as follows:
MI LLIONS
Outstanding at beginning of year
Issued (repurchased):
Dividend reinvestment plan
Management share option plan
Conversion of debentures and other
Fractional shares cancelled in relation to stock split
Issuer bid purchases
Outstanding at end of year
2005
2004
258,705,822
256,120,610
48,356
1,542,880
1,269,122
—
(3,978,612)
72,539
382,430
2,967,334
(12,186)
(824,905)
257,587,568
258,705,822
In 2005, under substantial and normal course issuer bids, the company repurchased 3,978,612 (2004 – 824,905) Class A common
shares at a cost of $162 million (2004 – $19 million). Proceeds from the issuance of common shares pursuant to the company’s
dividend reinvestment plan and management share option plan (“MSOP”), totalled $21 million (2004 – $6 million).
Earnings Per Share
(c)
The components of basic and diluted earnings per share are summarized in the following table:
MI LLIONS
Net income
Convertible note interest
Preferred share dividends
Net income available for common shareholders
Weighted average outstanding common shares
Dilutive effect of the conversion of notes and options using treasury stock method
Common shares and common share equivalents
2005
$ 1,662
—
(35)
$ 1,627
259.6
6.4
266.0
2004
$
555
(1)
(24)
$
530
257.6
6.1
263.7
The holders of Class A Limited Voting Shares and Class B Limited Voting Shares rank on parity with each other with respect to the
payment of dividends and the return of capital on the liquidation, dissolution or winding up of the company or any other distribution
of the assets of the company among its shareholders for the purpose of winding up its affairs. With respect to the Class A and Class
B common shares, there are no dilutive factors, material or otherwise, that would result in different diluted earnings per share. This
relationship holds true irrespective of the number of dilutive instruments issued in either one of the respective classes of common
stock, as both classes of common stock share equally, on a pro rata basis in the dividends, earnings and net assets of the company,
whether taken before or after dilutive instruments, regardless of which class of common stock is diluted.
Stock-Based Compensation
(d)
Options issued under the company’s MSOP typically vest proportionately over fi ve years and expire 10 years after the grant date.
The exercise price is equal to the market price at the grant date. During 2005, the company granted 2,694,150 (2004 – 1,527,545)
options with an average exercise price of C$46.25 (2004 – C$30.07) per share. The cost of the options granted was determined
using the Black-Scholes model of valuation, assuming a 7.5 year term to exercise (2004 – 7.5 year), 12% volatility (2004 – 12%),
a weighted average expected dividend yield of 1.5% (2004 – 2.3%) annually and an interest rate of 3.9% (2004 – 4.0%). The cost
of $13 million (2004 – $5 million) is charged to employee compensation expense on an equal basis over the fi ve-year vesting period
of the options granted.
Brookfi eld Asset Management | 2005 Annual Report
81
The changes in the number of options during 2005 and 2004 were as follows:
Outstanding at beginning of year
Granted
Exercised
Cancelled
Converted
Outstanding at end of year
Exercisable at end of year
2005
2004
Weighted
Average
Exercise
Price
C$
18.70
46.25
15.28
26.84
13.33
C$
25.05
Number of
Options
(000’S)
12,181
2,694
(1,543)
(236)
(483)
12,613
6,793
Number of
Options
(000’S)
11,363
1,527
(382)
(327)
—
12,181
7,069
At December 31, 2005, the following options to purchase Class A common shares were outstanding:
Number Outstanding
(000’S)
1,285
2,710
4,512
1,462
2,644
12,613
Exercise Price
C$8.80 – C$12.80
C$12.87 – C$19.27
C$19.60 – C$27.64
C$30.07 – C$37.42
C$45.94 – C$54.68
Weighted
Average
Remaining Life
3.8 yrs.
4.4 yrs.
4.9 yrs.
8.1 yrs.
9.2 yrs.
Weighted
Average
Exercise
Price
C$ 16.94
30.07
15.13
14.95
—
C$ 18.70
Number
Exercisable
(000’S)
1,285
2,135
3,085
288
—
6,793
A Restricted Share Unit Plan is offered to executive offi cers and non-employee directors of the company. Under this plan, qualifying
offi cers and directors may choose to receive all or a percentage of their annual incentive bonus or directors fees in the form of
Deferred Share Units (“DSUs”) and Restricted Share Appreciation Units (“RSAUs”). The DSUs and RSAUs vest over periods of up
to fi ve years, and DSUs accumulate additional DSUs at the same rate as dividends on common shares. Offi cers and directors
are not allowed to convert DSUs and RSAUs into cash until retirement or cessation of employment. The value of the DSUs, when
converted to cash, will be equivalent to the market value of the common shares at the time the conversion takes place. The value
of the RSAUs when converted into cash will be equivalent to the difference between the market price of equivalent numbers of
common shares at the time the conversion takes place, and the market price on the date the RSAUs are granted. The company uses
equity derivative contracts to match its exposure to the change in share prices in respect of vested DSUs and RSAUs, although its
operating subsidiaries do not. The value of the vested and unvested DSUs and RSAUs as at December 31, 2005 was $189 million
(2004 – $87 million), which is partially offset by the receivable in respect of hedging arrangements.
Employee compensation expense for these plans is charged against income over the vesting period of the DSUs and RSAUs. The
amount payable by the company in respect of vested DSUs and RSAUs changes as a result of dividends and share price movements.
All of the amounts attributable to changes in the amounts payable by the company are recorded as employee compensation
expense in the period of the change, and for the year ended December 31, 2005, including those of operating subsidiaries, totalled
$66 million (2004 – $39 million), net of the impact of hedging arrangements.
15. RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS
The company and its subsidiaries use selectively derivative fi nancial instruments principally to manage risk.
Management evaluates and monitors the credit risk of its derivative fi nancial instruments and endeavours to minimize counterparty
credit risk through collateral and other credit risk mitigation techniques. The credit risk of derivative fi nancial instruments
is limited to the replacement value of the instrument, and takes into account any replacement cost and future credit exposure.
The replacement value or cost of interest rate swap contracts which form part of fi nancing arrangements is calculated by way of
discounted cash fl ows using market rates adjusted for credit spreads.
82
Brookfi eld Asset Management | 2005 Annual Report
The company endeavours to maintain a matched book of currencies and interest rates. However, unmatched positions are carried,
on occasion, within predetermined exposure limits. These limits are reviewed on a regular basis and the company believes the
exposures are manageable and not material in relation to its overall business operations.
The notional amount of the company’s derivative positions at the end of 2005 and 2004 are as follows:
MI LLIONS
Foreign exchange
Interest rates
Credit default swaps
Equity derivatives
Commodity instruments (energy)
Note
(a)
(b)
(c)
(d)
(e)
Units
US$
US$
US$
US$
GWh
$
2005
1,450
1,240
797
604
6.7
$
2004
5,369
2,079
—
106
5.5
Foreign Exchange
(a)
At December 31, 2005, the company held foreign exchange contracts with a notional amount of $1,113 million (2004 – $2,911 million)
at an average exchange rate of $1.280 (2004 – $1.270) to manage its Canadian dollar exposure. At December 31, 2005, the
company held foreign exchange contracts with a notional amount of $337 million (2004 – $574 million) at an average exchange
rate of $1.784 (2004 – $1.904) to manage its British pounds exposure. All of the foreign exchange contracts at December 31, 2005
had a maturity of less than two years.
At December 31, 2004, the company’s Canadian dollar functional subsidiaries held U.S. dollar foreign exchange contracts with
a notional amount of $1,884 million at an average exchange rate of $1.249. All foreign exchange contracts held by the company in
2005 and 2004 were carried in the company’s accounts at market value. No such contracts were held by the company’s Canadian
dollar functional subsidiaries as at December 31, 2005.
Included in 2005 income are net gains on foreign currency amounting to $76 million (2004 – losses of $3 million) and included in the
cumulative translation adjustment account are gains net of taxes in respect of foreign currency contracts entered into for hedging
purposes amounting to $11 million (2004 – losses of $154 million), which offset translation gains on the underlying net assets.
Interest Rates
(b)
At December 31, 2005, the company also held interest rate swap contracts having a notional amount of $840 million (2004 –
$1,300 million) with a replacement value in excess of that recorded in the company’s accounts of $13 million (2004 – $32 million).
These contracts expire over a 10-year period.
At December 31, 2005, the company’s subsidiaries held interest rate swap contracts having a notional amount of $400 million
(2004 – $779 million). These interest rate swap contracts were comprised of contracts with a replacement cost in excess of that
recorded in the company’s accounts of $nil (2004 – $5 million), and contracts with a replacement value in excess of that recorded
in the company’s accounts of $nil (2004 – $5 million).
Credit Default Swaps
(c)
As at December 31, 2005, the company was counterparty to credit default swaps with an aggregate notional amount of $797 million
2004 – $nil). Credit default swaps are over-the-counter contracts which are designed to compensate the purchaser for any
deterioration in value of an underlying reference asset upon the occurrence of predetermined credit events. The company is entitled
to receive payment in the event of a predetermined credit event for up to $775 million of the notional amount and could be required
to make payment in respect of $22 million of the notional amount.
Equity Derivatives
(d)
At December 31, 2005, the company held equity derivatives with a notional amount of $604 million (2004 – $106 million) recorded
in the balance sheet at an amount equal to replacement value. Approximately one-half of the notional amount represents a hedge
of long-term compensation arrangements and the balance represents common equity positions established in connection with
the company’s capital markets investment activities. The replacement values of these instruments were refl ected in the company’s
consolidated fi nancial statements at year end.
Brookfi eld Asset Management | 2005 Annual Report
83
Commodity Instruments
(e)
The company has entered into energy derivative contracts primarily to hedge the sale of generated power. The company endeavours
to link forward electricity sale derivatives to specifi c periods in which it expects to generate electricity for sale. The company also
formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in the fair values or cash fl ows of the hedged items. As at December 31,
2005, the energy derivative contracts were comprised of contracts with a replacement cost in excess of that recorded in the
company’s accounts of $88 million (2004 – $70 million), as well as contracts with a replacement value below that recorded in the
company’s accounts of $32 million (2004 – in excess of that recorded in the company’s accounts of $63 million), which represents
a net payable to the company of $120 million (2004 – $7 million).
Commitments, Guarantees and Contingencies
(f)
The company and its subsidiaries are contingently liable with respect to litigation and claims that arise in the normal course
of business.
In the normal course of business, the company and its subsidiaries enter into fi nancing commitments. At the end of 2005, the
company and its subsidiaries had $737 million (2004 – $445 million) of such commitments outstanding. The company maintains
credit facilities and other fi nancial assets to fund these commitments.
The company has acquired $500 million of insurance for damage and business interruption costs sustained as a result of an act
of terrorism. However, a terrorist act could have a material effect on the company’s assets to the extent damages exceed the
coverage.
The company has reviewed its loan agreements and believes it is in compliance, in all material respects, with the contractual
obligations therein.
The company, through its subsidiaries, is contingently liable for obligations of its associates in its residential development land joint
ventures. In each case, all of the assets of the joint venture are available fi rst for the purpose of satisfying these obligations, with
the balance shared among the participants in accordance with predetermined joint venture arrangements.
In the normal course of operations, the company and its consolidated subsidiaries execute agreements that provide for indemnifi cation
and guarantees to third parties in transactions or dealings such as business dispositions, business acquisitions, sales of assets,
provision of services, securitization agreements, and underwriting and agency agreements. The company has also agreed to
indemnify its directors and certain of its offi cers and employees. The nature of substantially all of the indemnifi cation undertakings
prevents the company from making a reasonable estimate of the maximum potential amount the company could be required to
pay third parties, as in most cases the agreements do not specify a maximum amount, and the amounts are dependent upon the
outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Neither the company
nor its consolidated subsidiaries have made signifi cant payments in the past nor do they expect at this time to make any signifi cant
payments under such indemnifi cation agreements in the future.
Insurance
(g)
The company conducts insurance operations as part of its asset management activities and accounts for the assets and liabilities
associated with such contracts as deposits. As at December 31, 2005, the company held insurances assets of $445 million
(2004 – $532 million) which were offset in each year by an equal amount of reserves and other liabilities. Net underwriting income
earned on reinsurance operations was $3 million (2004 – $15 million) representing $550 million (2004 – $637 million) of premium
and other revenues offset by $547 million (2004 – $622 million) of reserves and other expenses.
84
Brookfi eld Asset Management | 2005 Annual Report
MI LLIONS
Assets
Cash and equivalents
Restricted cash
Securities
Loans and notes receivable
Accounts receivable and other
Liabilities
Accounts payable
Deposit liabilities
Claims and other
Borrowings
Non-controlling interests
Net Assets
$
2005
92
146
1,570
48
171
$
2004
58
95
917
21
131
$ 2,027
$
1,222
$
848
528
57
99
$
495
$
$
483
234
10
100
395
16. REVENUES LESS DIRECT OPERATING COSTS
Direct operating costs include all attributable expenses except interest, depreciation and amortization, non-controlling interest
in income and tax expenses. The details are as follows:
MI LLIONS
Property operations
Power generation
Timberlands and infrastructure
Specialty funds
Investment and other income
2005
2004
Revenue
Expenses
Net
Revenue
Expenses
Net
$ 3,161
$ 1,951
$ 1,210
$ 2,687
$ 1,714
$ 973
800
170
58
785
331
106
4
558
469
64
54
227
469
99
58
387
201
73
10
199
268
26
48
188
$ 4,974
$ 2,950
$ 2,024
$ 3,700
$ 2,197
$ 1,503
17. NON-CONTROLLING INTERESTS
Non-controlling interests of others is segregated into the share of income before certain items and their share of those items, which
include depreciation and amortization and taxes and other provisions attributable to the non-controlling interest.
MI LLIONS
Distributed as recurring dividends
Preferred
Common
Undistributed
Non-controlling interests expense
Non-controlling interests share of income prior to the following
Non-controlling interests share of depreciation and amortization, and future income taxes and other provisions
Non-controlling interests expense
2005
2004
$
$
$
12
109
113
234
386
(152)
$
234
$
$
$
$
15
73
100
188
360
(172)
188
During 2004, the company’s residential home building subsidiary paid a special dividend of $140 million to the holders of non-
controlling interests in addition to recurring dividends as noted above.
Brookfi eld Asset Management | 2005 Annual Report
85
FUTURE INCOME TAXES AND OTHER PROVISIONS
18.
The following table refl ects the company’s effective tax rate at December 31, 2005 and 2004:
Statutory income tax rate
Increase (reduction) in rate resulting from
Dividends subject to tax prior to receipt by the company
Portion of gains not subject to tax
Equity accounted earnings that have been tax effected by the investees
Other
Effective income tax rate
Future income taxes and other provisions include the following:
YEARS ENDED DECEM BER 31 (MIL L I ONS )
Future income taxes
Revaluation (gains) losses
Interest rate contracts
Norbord exchangeable debentures
Intangible assets
Foreign exchange on capital securities
Tax effect of revaluation gains and losses
EQUITY ACCOUNTED INCOME
19.
Equity accounted income (loss) includes the following:
MIL LIONS
Falconbridge
Norbord
Fraser Papers
Total
2005
37 %
(1)
(11)
(2)
(1)
22 %
2004
37 %
(1)
—
(14)
1
23 %
2005
2004
$
285
$
151
16
10
33
—
(20)
$
324
$
—
(6)
—
113
2
260
$
2005
145
87
(13)
$
2004
205
135
(8)
$
219
$
332
JOINT VENTURES
20.
The following amounts represent the company’s proportionate interest in incorporated and unincorporated joint ventures refl ected
in the company’s accounts.
MIL LIONS
Assets
Liabilities
Operating revenues
Operating expenses
Net income
Cash fl ows from operating activities
Cash fl ows from investing activities
Cash fl ows from fi nancing activities
2005
$ 2,947
1,857
573
279
109
157
(136)
(76)
$
2004
2,419
1,456
501
233
116
163
23
(5)
86
Brookfi eld Asset Management | 2005 Annual Report
POST-EMPLOYMENT BENEFITS
21.
The company offers pension and other post employment benefi t plans to its employees. The company’s obligations under its
defi ned benefi t pension plans are determined periodically through the preparation of actuarial valuations. The benefi t plan expense for
2005 was $4 million (2004 – $3 million). The discount rate used was 5% (2004 – 6%) with an increase in the rate of compensation
of 4% (2004 – 4%) and an investment rate of 7% (2004 – 7%).
MI LLIONS
Plan assets
Less: Accrued benefi t obligation
Defi ned benefi t pension plan
Other post unemployment benefi ts
Net liability
Less: Unamortized transitional obligations and net actuarial losses
Accrued benefi t liability
SUPPLEMENTAL CASH FLOW INFORMATION
22.
MI LLIONS
Corporate borrowings
Issuances
Repayments
Net
Property specifi c mortgages
Issuances
Repayments
Net
Other debt of subsidiaries
Issuances
Repayments
Net
Common shares
Issuances
Repurchases
Net
Property
Proceeds of dispositions
Investments
Net
Securities
Securities sold
Securities purchased
Loans collected
Loans advanced
Net
Financial assets
Securities sold
Securities purchased
Net
2005
2004
$
65
$
57
(86)
(19)
(40)
23
(17)
$
2005
$
283
(362)
$
(79)
$ 1,190
(133)
$ 1,057
$
467
(366)
$
101
$
21
(162)
$
(141)
$
159
(1,163)
$ (1,004)
$
36
(469)
291
(81)
(71)
(15)
(29)
11
(18)
2004
207
(110)
97
$
$
$
$
1,192
(212)
$
980
$
$
$
$
$
$
$
726
(233)
493
7
(19)
(12)
222
(563)
(341)
345
(617)
108
(1,141)
$
(223)
$
(1,305)
$
649
(682)
$
(33)
$
$
241
(167)
74
Brookfi eld Asset Management | 2005 Annual Report
87
Cash taxes paid were $172 million (2004 – $93 million) and are included in current income taxes. Cash interest paid totalled
$867 million (2004 – $613 million). Capital expenditures in the company’s power generating operations were $35 million
(2004 – $35 million), and in property operations, were $40 million (2004 – $40 million).
23.
MIL LIONS
SHAREHOLDER DISTRIBUTIONS
Preferred equity
Common equity
Common share dividends
Convertible note interest
Total
2005
2004
$
35
$
24
155
—
155
$
190
$
135
1
136
160
24. DIFFERENCE FROM UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Canadian generally accepted accounting principles (“Canadian GAAP”) differ in some respects from the principles that the company
would follow if its consolidated fi nancial statements were prepared in accordance with accounting principles generally accepted
in the United States (“U.S. GAAP”).
The effects of the signifi cant accounting differences between Canadian GAAP and U.S. GAAP on the company’s balance sheet and
statement of income, retained earnings and cash fl ow for the years then ended are quantifi ed and described in this note.
Income Statement Differences
(a)
The signifi cant differences in accounting principles between the company’s income statement and those prepared under U.S. GAAP
are summarized in the following table:
MIL LIONS, EXCEPT PER SHARE AMO UN TS
Net income as reported under Canadian GAAP
Adjustments
Increase (reduction) of equity accounted income
Change in deferred income taxes
Convertible note distributions
Conversion of convertible notes
Market value adjustments
Increase (decrease) in commercial property income
Decrease in commercial property depreciation
Decrease in residential property income
Falconbridge equity accounted income and gains
Foreign exchange and dividends on convertible preferred shares
Start-up costs and other
Net income under U.S. GAAP
Preferred share dividends
Convertible preferred share dividends
Net income to shareholders under U.S. GAAP
Per share amounts under U.S. GAAP
Basic earnings per share
Diluted earnings per share
Note
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(x)
88
Brookfi eld Asset Management | 2005 Annual Report
2005
2004
(restated - Note x)
$ 1,662
$
555
4
(37)
—
4
18
(17)
8
(26)
41
88
(2)
$ 1,743
(35)
(24)
$ 1,684
$
$
6.49
6.33
(13)
10
(1)
—
1
24
5
—
—
128
(73)
636
(23)
(23)
$
$
590
$ 2.29
$ 2.23
Equity accounted income
(i)
Under U.S. GAAP, the company’s equity accounted income has been adjusted for differences in the accounting treatment by the
underlying company as follows:
Accounting Treatment
Start-up costs
Pension accounting
Canadian GAAP
Defer and amortize
Valuation allowance
Derivative instruments and hedging
See Note 1 and Note 15
U.S. GAAP
Expense as incurred
No valuation allowance /
additional minimum liability
See Note 24(a)(v)
Canadian GAAP requires recognition of a pension valuation allowance for an excess of the prepaid benefi t expense over the
expected future benefi t. Changes in the pension valuation allowance are recognized in the consolidated statement of income. U.S.
GAAP does not specifi cally address pension valuation allowances. In 2002, U.S. regulators determined that such allowances would
not be permitted under U.S. GAAP. In light of these developments, Falconbridge, Norbord and Fraser Papers eliminate the effects of
recognizing pension valuation allowances.
Deferred income taxes
(ii)
The change in deferred income taxes includes the tax effect of the income statement adjustments under U.S. GAAP. Also, under
Canadian GAAP the tax rates applied to temporary differences and losses carried forward are those which are substantively
enacted. Under U.S. GAAP, tax rates are applied to temporary differences and losses carried forward only when they are enacted.
In 2005 and 2004, there were no differences between the substantively enacted rates used under Canadian GAAP and the enacted
rates used under U.S. GAAP.
Convertible note distributions
(iii)
Under Canadian GAAP, the company’s subordinated convertible notes are treated as equity with interest paid thereon recorded as
a distribution from retained earnings. This results from the company’s ability to repay these notes and meet interest obligations by
delivering its common shares to the holders. Under U.S. GAAP, the subordinated convertible notes would be recorded as indebtedness
with the corresponding interest paid recorded as a charge to income. There is no effect on basic or diluted net income per share.
The company redeemed all of its remaining subordinated convertible note obligations during 2005.
Conversion of convertible notes
(iv)
Under Canadian GAAP, the company’s subordinated convertible notes are treated as equity and converted into the company’s
functional currency at historic rates. Under U.S. GAAP, the subordinated convertible notes are recorded as indebtedness and
converted into the company’s functional currency at current rates with the corresponding foreign exchange recorded as a charge
to income.
(v) Market value adjustments
Under Canadian GAAP, the company generally records short-term investments at the lower of cost and net realizable value, with
any unrealized losses in value included in the determination of net income. However, the company has identifi ed certain distinct
portfolios of securities which it has designated to be carried at fair value under Canadian GAAP. Under U.S. GAAP, all trading
securities are carried at market, with unrealized gains losses included in the determination of net income.
Under Canadian GAAP, derivatives that qualify for hedge accounting are generally off balance sheet. Under U.S. GAAP,
all derivative fi nancial instruments are recognized in the fi nancial statements and measured at fair value. Changes in
the fair value of derivative fi nancial instruments are recognized periodically in either income or shareholders’ equity (as
a component of other comprehensive income), depending on whether the derivative is being used to hedge fair value or cash fl ows.
For derivatives designated as cash fl ow hedges, the effective portions of the changes in fair value of the derivative are reported in
other comprehensive income and are subsequently reclassifi ed into net income when the hedged item affects net income. Changes
in the fair value of derivative fi nancial instruments that are not designated in a hedging relationship, as well as the portions of
hedges that are ineffective, are recognized in income.
Brookfi eld Asset Management | 2005 Annual Report
89
Market value adjustments for trading securities and derivative contracts carried at fair value for U.S. GAAP are as follows:
MIL LIONS
Securities designated as Trading for U.S. GAAP
Derivative contracts recognized at fair value for U.S. GAAP
2005
1
17
18
$
$
2004
7
(6)
1
$
$
The effects of accounting for derivatives in accordance with U.S. GAAP for the year ended December 31, 2005 resulted in a
decrease in assets of $98 million (2004 – increase of $112 million), an increase in liabilities of $59 million (2004 – $72 million), a
decrease in other comprehensive income of $156 million (2004 – $30 million) and a decrease in net income of $1 million (2004 –
$8 million) as outlined in the table above. In 2004, there was a $2 million decrease in net income associated with the company’s
equity accounted investments, which was included as a reduction of equity accounted income in note 24(a)(i). During the
year ended December 31, 2005, there were no net derivative gains reclassifi ed from other comprehensive income to income
(2004 – $22 million).
Commercial property income
(vi)
Prior to January 1, 2004, Canadian GAAP permitted the recognition of rental revenue over the term of the lease as it became due
where increases in rent were intended to offset the estimated effects of infl ation, whereas U.S. GAAP required that rental revenue
be recognized on a straight-line basis over the term of the lease. The company adopted straight-line recognition of rental revenue
for all its properties from January 1, 2004 onward, thereby harmonizing this policy with U.S. GAAP. In 2005, the company recorded
a decrease to commercial property income of $15 million (2004 – $18 million) to refl ect the adjustment required if straight-line
rental revenue had been recognized from the outset of the lease as opposed to January 1, 2004 onward. The recognition of lease
termination income can differ between U.S. GAAP and Canadian GAAP, and and resulted in a decrease to commercial property
income in 2005 of $2 million (2004 – increase of $42 million).
(vii) Commercial depreciation
Straight-line depreciation was adopted by the company from January 1, 2004 onward which effectively harmonized Canadian GAAP
with U.S. GAAP. In 2005, the company recorded an increase to U.S. GAAP net income of $8 million (2004 – $5 million) to refl ect the
adjustment required if straight-line depreciation had been recognized from the outset as opposed to January 1, 2004 onward.
(viii) Residential development income
The company’s revenue recognition policy for land sales requires, in part, that the signifi cant risks and rewards of ownership
have passed to the purchaser prior to the recognition of revenue by the vendor. Primarily in the province of Alberta, land sales
transactions substantially transfer the risks and rewards of ownership to the purchaser when both parties are bound to the terms of
the sale agreement and possession passes to the purchaser. In certain instances, title may not have transferred. Under FAS No. 66,
“Sales of Real Estate,” transfer of title is a requirement for recognizing revenue under U.S. GAAP, whereas this is not necessarily
required under Canadian GAAP. Accordingly, residential development income decreases by $26 million for U.S. GAAP purposes.
Falconbridge
(ix)
During 2005, the company sold substantially all of its interest in Falconbridge for proceeds of $2.7 billion. Under U.S. GAAP, the
company’s carrying value of its investment in Falconbridge was $157 million lower than under Canadian GAAP due to U.S. GAAP
adjustments in prior years. As a result, the gain on the disposition of the company’s interest in Falconbridge was increased by
$41 million under U.S. GAAP.
Foreign exchange and dividends on convertible preferred shares
(x)
Effective January 1, 2005, the company adopted the amendment to CICA Handbook Section 3860. The amendment requires
certain of the company’s preferred share obligations that could be settled with a variable number of the company’s common equity
to be classifi ed as liabilities and corresponding distributions as interest expense for Canadian GAAP, whereas under U.S. GAAP,
they continue to be treated as equity and corresponding distributions as dividends. Under Canadian GAAP, these preferred share
liabilities are converted into the company’s functional currency at current rates. Under U.S. GAAP, these preferred shares are treated
90
Brookfi eld Asset Management | 2005 Annual Report
as equity and are converted into the company’s functional currency at historical rates. As a result, the company has recorded the
following adjustments for U.S. GAAP:
MI LLIONS
Decrease to interest expense
Revaluation at historical rates
Other preferred share adjustmens
Equity accounted income
Preferred security distributions
Conversion of preferred securities
Non-controlling interests
Preferred share dividends
$
2005
73
15
88
—
16
15
(49)
(24)
$
2004
62
66
128
12
16
16
(39)
(23)
$
46
$
110
Start-up costs and other
(xi)
Start-up costs and other has been adjusted for the differences between Canadian GAAP and U.S. GAAP and includes $10 million
of income (2004 – $30 million of expense) related to start-up costs which are deferred and amortized under Canadian GAAP and
expensed under U.S. GAAP, and $12 million of expense (2004 – $43 million) related to differences from the company’s operations
in Brazil and non-controlling interests in the company’s property operations.
Comprehensive Income
(b)
U.S. GAAP requires a statement of comprehensive income which incorporates net income and certain changes in equity.
Comprehensive income is as follows:
MI LLIONS
Net income under U.S. GAAP
Market value adjustments
Minimum pension liability adjustment
Foreign currency translation adjustments
Taxes on other comprehensive income
Comprehensive income
Note
(i)
(ii)
(iii)
2005
$ 1,743
(142)
(47)
15
66
2004
$
636
(52)
(7)
30
10
$ 1,635
$
617
Market value adjustments
(i)
Under Canadian GAAP, the company records investments other than specifi cally designated portfolios of securities at cost and
writes them down when other than temporary impairment occurs. Under U.S. GAAP, these investments generally meet the defi nition
of available for sale securities, which includes securities for which the company has no immediate plans to sell but which may be
sold in the future, and are carried at fair value based on quoted market prices. Changes in unrealized gains and losses and related
income tax effects are recorded as other comprehensive income. Realized gains and losses, net of tax and declines in value judged
to be other than temporary, are included in the determination of income.
Under Canadian GAAP, changes in the fair value of derivatives that are designated as cash fl ow hedges are not recognized in income.
Under U.S. GAAP, changes in the fair value of the effective portions of such derivatives are reported in other comprehensive income
whereas the offsetting changes in value of the cash fl ows being hedged are not. The amounts recorded in other comprehensive income
are subsequently reclassifi ed into net income at the same time as the cash fl ows being hedged are recorded in net income.
Brookfi eld Asset Management | 2005 Annual Report
91
Market value adjustments in other comprehensive income in 2005 and 2004 are recorded on the balance sheet as follows:
MIL LIONS
Market value adjustments
Available for sale securities classifi ed as:
Accounts receivable and other
Securities
Derivative power sales contracts designated as cash fl ow hedges classifi ed as:
Accounts receivable and other
Accounts payable and other
Equity accounted investments
2005
2004
$ —
12
(106)
(50)
2
$ (142)
$ 12
(34)
(20)
—
(10)
$
(52)
(ii) Minimum pension liability adjustment
U.S. GAAP requires the excess of any unfunded accumulated benefi t obligation (with certain other adjustments) to be refl ected
as an additional minimum pension liability in the consolidated balance sheet with an offsetting adjustment to intangible assets
to the extent of unrecognized prior service costs, with the remainder recorded in other comprehensive income. The company has
refl ected the adjustment including its proportionate share of adjustments recorded by Falconbridge, Norbord, Fraser Papers and
Brookfi eld Power.
Foreign currency translation adjustments
(iii)
Canadian GAAP provides that the carrying values of assets and liabilities denominated in foreign currencies that are held by self
sustaining operations are revalued at current exchange rates. U.S. GAAP requires that the change in the cumulative translation
adjustment account be recorded in other comprehensive income. The amount recorded by the company represents the change
in the cumulative translation account. The resulting changes in the carrying values of assets which arise for foreign currency
conversion are not necessarily refl ective of changes in underlying value.
Balance Sheet Differences
(c)
The incorporation of the signifi cant differences in accounting principles under Canadian GAAP and U.S. GAAP would result in the
following presentation of the company’s balance sheet:
MIL LIONS
Assets
Cash and cash equivalents
Accounts receivable and other
Securities
Loans and notes receivable
Property, plant and equipment
Equity accounted investments
Total assets under U.S. GAAP
Liabilities and shareholders’ equity
Non-recourse borrowings
Property specifi c mortgages
Other debt of subsidiaries
Corporate borrowings
Accounts and other payables
Convertible and subordinated notes
Non-controlling interests
Preferred equity
Common equity
Total liabilities and equity under U.S. GAAP
Note
(i)
(ii)
(iii)
(iv)
(v)
92
Brookfi eld Asset Management | 2005 Annual Report
2005
2004
$
951
4,449
4,344
332
15,292
552
$ 25,920
$ 8,756
2,764
1,620
4,358
216
2,740
847
4,619
$ 25,920
$
455
3,055
3,278
897
11,621
1,680
$ 20,986
$ 6,890
2,586
1,675
2,806
223
2,566
912
3,328
$ 20,986
Certain balances in 2004 have been adjusted to refl ect the consolidation of variable interest entities (“VIEs”). The adjustments were
primarily a result of the consolidation of the company’s equity interests in Louisiana HydroElectric Power. In 2005, Canadian GAAP
harmonized with U.S. GAAP following the adoption of AcG-15.
The signifi cant difference in each category between Canadian GAAP and U.S. GAAP are as follows:
Deferred income taxes
(i)
The deferred income tax asset under U.S. GAAP is included in accounts receivable and other and is calculated as follows:
MI LLIONS
Tax assets related to operating and capital losses
Tax liabilities related to differences in tax and book basis
Valuation allowance
Deferred income tax asset under U.S. GAAP
2005
$ 1,074
(658)
(164)
$
252
2004
$ 1,085
(653)
(144)
$ 288
Securities
(ii)
Under Canadian GAAP, the company recorded its short-term investments at the lower of cost and net realizable value except for
certain distinct portfolios of securities which it has designated to be carried at fair value and for which unrealized gains and losses
in value are included in the determination of income. Under U.S. GAAP, trading securities, which include all of the company’s short-
term investments, are carried at market, with unrealized gains and losses in income.
Available for sale securities are accounted for as described in this note under (b)(i).
MI LLIONS
Securities and fi nancial assets under Canadian GAAP
Reclassifi cation to equity accounted investments
Consolidation of VIEs
Net unrealized gains (losses) for trading securities
Net unrealized gains on available for sale securities
Securities under U.S. GAAP
2005
$ 4,240
—
—
(17)
121
2004
$ 2,977
(4)
189
(19)
135
$ 4,344
$ 3,278
Joint ventures
(iii)
Under U.S. GAAP, proportionate consolidation of investments in joint ventures is generally not permitted. Under certain rules for
foreign private issuers promulgated by the United States Securities and Exchange Commission (“SEC”), the company has continued
to follow the proportionate consolidation method for investments that would otherwise be equity accounted under U.S. GAAP and
meet certain other requirements. See also Note 20.
Equity accounted investments
(iv)
The company’s equity accounted investments under U.S. GAAP include Norbord, Fraser Papers and other real estate and business
services. During 2005, the company disposed of its investment in Falconbridge. These investments have been adjusted to refl ect
the cumulative impact of calculating equity accounted earnings under U.S. GAAP.
MI LLIONS
Investment under Canadian GAAP
Reclassifi cation from securities and accounts receivable and other
Accumulated other comprehensive income (loss)
Retained earnings adjustment
Equity accounted investments under U.S. GAAP
$
2005
595
—
(134)
91
2004
$ 1,944
(94)
(95)
(75)
$
552
$ 1,680
Brookfi eld Asset Management | 2005 Annual Report
93
Common equity
(v)
MIL LIONS
Common equity under Canadian GAAP
Reversal of Canadian GAAP cumulative translation adjustment
Common shares
Paid in capital
Reclassifi cation of convertible notes
Cumulative adjustments to retained earnings under U.S. GAAP
Accumulated other comprehensive income
Common equity under U.S. GAAP
2005
$
4,514
6
8
28
—
61
2
2004
$ 3,277
(95)
(1)
45
(11)
3
110
$
4,619
$ 3,328
As a result of the above adjustments, the components of common equity under U.S. GAAP are as follows:
MIL LIONS
Common shares
Paid in capital
Accumulated other comprehensive income
Retained earnings
Common equity under U.S. GAAP
Cash Flow Statement Differences
(d)
The summarized cash fl ow statement under U.S. GAAP is as follows:
MIL LIONS
Cash fl ows provided from (used for) the following activities
Operating under Canadian GAAP
Convertible note interest
Operating under U.S. GAAP
Financing
Investing
Net increase in cash and cash equivalents under U.S. GAAP
(e)
Changes in Accounting Policies
2005
$
1,207
28
2
3,382
$
4,619
2004
$ 1,226
45
110
1,947
$ 3,328
2005
2004
$
830
—
830
1,013
(1,296)
$
547
$
872
(1)
871
1,732
(2,581)
$
22
EITF 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share”
(i)
This EITF requires the measurement of the impact of certain securities or other instruments or contracts that entitle their holders
to participate in undistributed earnings of the reporting entity, provided such entitlement is non-discretionary and objectively
determinable in determining earnings per share. EITF 03-6 is effective for the company’s 2005 fi scal year, and requires retroactive
adjustment to earnings per share presented for prior periods. The adoption of this EITF did not have a material impact on the
company.
FASB Interpretation 47, “Accounting for Conditional Asset Retirement Obligations”
(ii)
Effective for December 31, 2005, the company adopted FASB Interpretation 47, “Accounting for Conditional Asset Retirement
Obligations.” This interpretation clarifi es that the term, conditional asset retirement obligation, in FASB statement 143,” Accounting
for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and (or)
method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to
perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement.
Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value
94
Brookfi eld Asset Management | 2005 Annual Report
of the liability can be reasonable estimated. The fair value of the liability for the conditional asset retirement obligation is recognized
as incurred, generally when the asset is acquired, constructed or during the normal operations of the asset. The adoption of this
interpretation did not have a material impact on the company.
(f)
Future Accounting Policy Changes
SFAS 154, “Accounting Changes and Error Corrections”
(i)
In May 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections,” which replaces APB Opinion 20, “Accounting
Changes” and SFAS 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS requires retrospective application
of changes in accounting principle to prior periods’ fi nancial statements unless it is impracticable to determine the period-specifi c
effects or the cumulative effect of the change. This statement is effective for fi scal years beginning after December 15, 2005.
SFAS 123R, “Share-Based Payment”
(ii)
In December 2004, the FASB issued SFAS 123R, “Share-Based Payment” (“SFAS 123R”), which establishes accounting standards
for all transactions in which an entity exchanges its equity instruments for goods or services. SFAS 123R focuses primarily on
accounting for transactions with employees, and carries forward without change prior guidance for share-based payments for
transactions with non-employees.
SFAS 123R eliminates the intrinsic value measurement objective in APB Opinion 25 and generally requires the company to measure
the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on
the date of the grant. The standard requires grant date fair value to be estimated using either an option-pricing model which is
consistent with the terms of the award or a market observed price, if such a price exists. Such cost must be recognized over the
period during which an employee is required to provide service in exchange for the award. The standard also requires the company
to estimate the number of instruments that will ultimately be issued, rather than accounting for forfeitures as they occur.
In March 2005, the SEC issued Staff Accounting Bulletin No. 107, “Share-Based Payment,” which expresses the SEC staff’s views
on SFAS 123R and is effective upon adoption of SFAS 123R. Pursuant to the SEC’s announcement in April 2005, companies are
allowed to implement the standard at the beginning of their next fi scal year, instead of their next reporting period, that begins after
June 15, 2005. SFAS 123R and its related FSPs are effective for the company as of January 1, 2006. The company is assessing
the impact of adopting SFAS 123R on our fi nancial positions and results of operations, but believes that its adoption will not have
a signifi cant impact.
SEGMENTED INFORMATION
25.
The company’s presentation of reportable segments is based on how management has organized the business in making operating
and capital allocation decisions and assessing performance. The company has four reportable segments:
(a)
(b)
(c)
(d)
property operations, which are principally commercial offi ce properties, residential development and home building operations,
located primarily in major North American cities;
power generation operations, which are predominantly hydroelectric power generating facilities on North American river
systems;
timberlands and infrastructure operations, which are predominantly high quality private timberlands on the west coast of
Canada and in Brazil and electrical transmission and distribution systems located in northern Ontario; and
specialty funds, which include the company’s bridge lending, real estate fi nance and restructuring funds along with the
company’s public securities operations and are managed for the company and for institutional partners.
Non-operating assets and related revenue, cash fl ow and income are presented as fi nancial assets and other.
Brookfi eld Asset Management | 2005 Annual Report
95
Revenue, net income and assets by reportable segments are as follows:
MIL LIONS
Property
Core offi ce properties
Residential properties
Development properties
Real estate services
Power generation
Timberlands and infrastructure
Specialty funds
Other
Financial assets and other
Investments
Cash interest and other cash expenses
Depreciation, taxes and other non-cash items
Revenue
$ 1,146
$
1,936
11
68
800
170
58
282
4,471
774
11
$ 5,256
2005
Net
Income
690
496
6
18
469
64
54
147
1,944
216
1,580
3,740
1,532
546
Assets
Revenue
$
8,688
$ 1,070
$
1,205
942
39
3,568
1,018
480
6,523
22,463
3,122
473
1,603
5
9
469
99
58
199
3,512
383
4
$ 26,058
$ 3,899
Net income from continuing operations
$
1,662
$
2004
Net
Income
662
305
1
5
268
26
48
196
1,511
188
332
2,031
1,137
339
555
Revenue and assets by geographic segments are as follows:
MIL LIONS
United States
Canada
International
Revenue / Assets
2005
2004
Revenue
$ 3,484
1,323
449
$ 5,256
Assets
$ 12,633
9,463
3,962
$ 26,058
Revenue
$ 2,374
1,172
353
$ 3,899
Assets
$
7,089
818
950
51
2,951
184
873
3,597
16,513
1,624
1,870
$ 20,007
$
Assets
9,943
6,729
3,335
$ 20,007
96
Brookfi eld Asset Management | 2005 Annual Report
Five Year Financial Review
AS AT AND FOR TH E YE ARS EN DED D ECE MB ER 3 1
MILLIO NS , EXC EP T P ER S HARE A MO UN TS (UN AUD I T ED )
2005
2004
2003
2002
2001
Per Common Share (fully diluted)
Book value
Cash flow from operations
Cash return on book equity
Net income
Market trading price – NYSE
Market trading price – TSX
Dividends paid
Common shares outstanding
Basic
Diluted
Total (millions)
Total assets under management
Consolidated balance sheet assets
Non-recourse borrowings
Property specific mortgages
Other debt of subsidiaries
Corporate borrowings
Common equity
Revenues
Operating income
Cash flow from operations
Net income
$ 17.72
$ 12.76
$ 11.23
$
9.90
$ 10.35
3.28
21%
6.12
$ 50.33
C$ 58.61
$
0.59
257.6
270.2
2.32
19%
2.02
$ 36.01
C$ 43.15
$
0.55
258.7
271.7
2.14
18%
0.78
$ 20.36
C$ 26.49
$
0.49
256.1
271.3
1.58
16%
0.14
$ 13.67
C$ 21.17
$
0.43
1.37
13%
0.65
$ 12.04
C$ 19.17
$
0.43
261.2
275.9
254.7
264.5
$ 49,700
26,058
$ 27,146
20,007
$ 23,108
16,309
$ 19,000
14,422
$ 17,000
13,792
8,756
2,510
1,620
4,514
5,256
2,355
908
1,662
6,045
2,373
1,675
3,277
3,899
1,825
626
555
4,881
2,075
1,213
2,898
3,370
1,532
590
232
4,992
1,867
1,035
2,625
3,064
1,214
469
83
4,503
1,988
826
2,668
3,042
1,163
388
201
Brookfi eld Asset Management | 2005 Annual Report
97
Corporate Governance
The company and our Board of Directors are committed to working together to achieve strong and effective corporate governance,
with the objective of promoting the long term interests of the company and the enhancement of value for all shareholders. We
continue to review and improve our corporate governance policies and practices in relation to evolving legislation, guidelines and
best practices. Our Board of Directors is of the view that our corporate governance policies and practices and our disclosure in this
regard are comprehensive and consistent with the guidelines established by Canadian and U.S. securities regulators.
Our Statement of Corporate Governance Practices is set out in full in the Management Information Circular mailed each year to all our
shareholders along with the Notice of our Annual Meeting. This Statement is also available on our web site, www.brookfield.com,
at “Investor Centre / Corporate Governance.”
We also post on our web site the following documents referred to in this Statement – the Mandate of our Board of Directors,
the Charter of Expectations for Directors, the Charters of the Board’s three Standing Committees (Audit, Governance & Nominating,
and Management Resources & Compensation), Board Position Descriptions, our Corporate Disclosure Policy and our Code of
Business Conduct.
Cautionary Statement Regarding Forward Looking Statements
This Annual Report to shareholders contains “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. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,”
and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-
looking statements. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties
and other factors, which may cause the actual results, performance or achievements of the company to differ materially from anticipated future
results, performance or achievement expressed or implied by such forward-looking statements. Factors that could cause actual results to differ
materially from those set forward in the forward-looking statements include general economic conditions, interest rates, availability of equity and
debt fi nancing and other risks detailed from time to time in the company’s 40-F fi led with the U.S. Securities and Exchange Commission. The
company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise.
This Annual Report to shareholders and accompanying consolidated fi nancial statements make reference to cash fl ow from operations on a total
and per share basis. Management uses cash fl ow from operations as a key measure to evaluate performance and to determine the underlying
value of its businesses. The consolidated statement of cash fl ow from operations provides a full reconciliation between this measure and net
income. Readers are encouraged to consider both measures in assessing the company’s results.
98
Brookfi eld Asset Management | 2005 Annual Report
Brookfield Board of Directors
Board of Directors
Robert J. Harding, FCA
Chairman
The Hon. James J. Blanchard
Partner
Piper Rudnick LLP
Jack L. Cockwell
Group Chairman
Marcel R. Coutu*
President and Chief Executive Officer
Canadian Oil Sands Limited
William A. Dimma, C.M.,O.ONT.
Chairman
Home Capital Group Inc.
The Hon. J. Trevor Eyton, O.C.
Member of the Senate of Canada
J. Bruce Flatt
Chief Executive Officer
James K. Gray, O.C.
Founder and former CEO
Canadian Hunter Exploration Ltd.
David W. Kerr
Corporate Director
Lance M. Liebman
Director
American Law Institute
Philip B. Lind, C.M.
Vice-Chairman,
Rogers Communications Inc.
The Hon. Roy MacLaren, P.C.
Corporate Director and former
High Commissioner to the United Kingdom
G. Wallace F. McCain, O.C., O.N.B.
Chairman, Maple Leaf Foods Inc.
Dr. Jack M. Mintz
President and CEO
C.D. Howe Institute
James A. Pattison, O.C., O.B.C.*
Chief Executive Officer
The Jim Pattison Group
George S. Taylor
Corporate Director
Details on Brookfield’s Directors are provided in the Management Information Circular and on Brookfield’s web site
* Director-elect
Chairmen
Jack L. Cockwell
Group Chairman
Gordon E. Arnell
Commercial Property
Ian G. Cockwell
Residential
Jack Delmar
Brazil
Edward C. Kress
Power Generation
Timothy R. Price
Funds Management
John E. Zuccotti
United States
Affiliate and Advisory Board Members
Alex G. Balogh
Former Chair and CEO
Falconbridge Limited
Lorraine D. Bell
Corporate Director
Rorke B. Bryan
Dean, Faculty of Forestry
University of Toronto
André Bureau, O.C.
Chairman, Astral Media Inc.
William T. Cahill
Deputy Director
Citicorp Real Estate, Inc.
Dian Cohen, C.M.
President, DC Productions Ltd.
The Hon. William G. Davis, P.C., C.C.
Counsel, Torys
Pierre Dupuis
Former Vice President and COO
Dorel Industries Inc.
Joan H. Fallon
Principal
JH Fallon & Associates
Robert A. Ferchat, FCA
Former Chair and CEO
BCE Mobile Communications Inc.
Gordon E. Forward
Former Vice Chairman
Texas Industries Inc.
Roderick D. Fraser, O.C.
President
University of Alberta
Paul Gagné
Former CEO, Avenor Inc.
Kenneth W. Harrigan, O.C.
Former Chair and CEO
Ford Motor Company of Canada, Limited
Allen Karp, O.C.
Chairman Emeritus
Cineplex Odeon Corp.
Brian Kenning
Corporate Director
Marvin Jacob
Partner, Weil Gotshal & Manges LLP
Gail Kilgour
Corporate Director
O. Allan Kupcis
Chairman, Canadian Nuclear Assoc.
John Lacey
Chairman, Alderwoods Group Inc.
Aldéa Landry
President, Landal Inc.
Bruce T. Lehman
Principal, Armada LLC
Sidney A. Lindsay
Corporate Director
John MacIntyre
Independent Financial Advisor
TD Capital Group Limited
Paul D. McFarlane
Corporate Director and
Former Executive, CIBC
Robert J. McGavin
Corporate Director
Margot Northey
Former Dean
Queen’s University School of Business
Michael F.B. Nesbitt
Chairman
Montrose Mortgage Corporation Ltd.
Allan S. Olson
President and CEO
First Industries Corporation
Sam Pollock, O.C.
Former Chair, Toronto Blue Jays
Linda Rabbit
CEO and Founder
Rand Construction Corporation
David M. Sherman
Co-Managing Member
Metropolitan Real Estate Equity Management
Saul Shulman
Partner, Goodman and Carr
Robert L. Stelzl
Former Director and Principal
Colony Capital, LLC
Peter Tanaka
Independent Financial Advisor
Michael D. Young
Principal, Quadrant Capital Partners, Inc.
Don S. Wells
Former Executive Vice-President
Royal Bank Financial Group
William C. Wheaton
Professor of Economics and Director
MIT Center for Real Estate
Brookfi eld Asset Management | 2005 Annual Report
99
Brookfield Management
Managing Partners
Barry Blattman
Business Development
Jeffrey M. Blidner
Infrastructure and Power
Richard B. Clark
Commercial Property
Bryan K. Davis
Finance
Senior Executives
Holly Allen
Bridge Fund
David D. Arthur
Property Opportunity Fund
Richard Bordeleau
Power Generation
Andrea Balkan
Property Finance
James Black
Research
Eric Bonner
Timber
Dominick V. Bonanno
Public Markets
David Boyle
Fund Development
G. Mark Brown
Commercial Property
Reid Carter
Timber Funds
Renato Cavalini
Rural Land
Kevin Charlebois
Public Markets
J. Bruce Flatt
Chief Executive Officer
Harry A. Goldgut
Power Generation
Joseph Freedman
General Counsel
Clifford Lai
Public Markets
Colin L. Clark
Power Generation
Brydon Cruise
Property Advisory
Luis D’Alphonse
International Advisory
John Dolan
Public Markets
Thomas F. Farley
Commercial Property
John Feeney
Marketing
Gary Franko
Restructuring Fund
Dennis H. Friedrich
Commercial Property
Dominic Gammiero
Operations
J. Peter Gordon
Operations
Alexander Greene
Restructuring Fund
Paul G. Kerrigan
Residential Property
Brian D. Lawson
Chief Financial Officer
Richard Legault
Power Generation
Cyrus Madon
Specialty Funds
Marcelo J.S. Marinho
Business Development
Brian W. Kingston
Property Advisory
Stephane Landry
Power Generation
Craig J. Laurie
Commercial Property
Marcos Levy
Residential Property
Julie S. Madnick
Public Markets
Kelly J. Marshall
Corporate Finance
Pierre McNeil
Operations
D. Anthony Molluso
Operations
Alan Norris
Residential Property
Scott Parsons
European Operations
Lori A. Pearson
Human Resources
Bill Powell
Property Finance
George E. Myhal
Chief Operating Officer
Sam J.B. Pollock
Private Equity
Bruce K. Robertson
Public Market Funds
Jim Reid
Energy
Luiz Renha
Power Generation
Michelle Russell-Dowe
Public Markets
J. Barrie Shineton
Operations
Jack S. Sidhu
Treasury
Darshan Sihota
Timber
John Stinebaugh
Power Generation
Joseph G. Syage
Public Markets
John C. Tremayne
Operations
Donald Tremblay
Power Generation
Benjamin M. Vaughan
Power Generation
Katherine C. Vyse
Investor Relations, Communications
100
Brookfi eld Asset Management | 2005 Annual Report
Shareholder Information
Investor Relations and Communications
We are committed to informing our shareholders of our progress
through a comprehensive communications program which includes
publication of materials such as our annual report, quarterly interim
reports and press releases for material information. We also maintain a web
site that provides ready access to these materials, as well as statutory
filings, stock and dividend information and web archived events.
Meeting with shareholders is an integral part of our communications
program. Directors and management meet with Brookfield’s sharehold-
ers at our annual meeting and are available to respond to questions
at any time. Management is also available to investment analysts,
financial advisors and media to ensure that accurate information is
available to investors. All materials distributed at any of these meetings
are posted on the company’s web site.
The text of the company’s 2005 Annual Report is available in French
on request from the company and is filed with and available through
SEDAR at www.sedar.com.
Annual and Special Meeting of Shareholders
The company’s 2006 Annual and Special Meeting of Shareholders
will be held at 10:30 a.m. on Friday, April 28, 2006 at The Design
Exchange, 234 Bay Street, Toronto, Ontario and will be webcast on our
web site at www.brookfield.com.
Dividend Reinvestment Plan
Registered holders of Class A Common Shares who are resident in
Canada may elect to receive their dividends in the form of newly issued
Class A Common Shares at a price equal to the weighted average price
at which the shares traded on the Toronto Stock Exchange during the
five trading days immediately preceding the payment date of such
dividends.
The Dividend Reinvestment Plan allows current shareholders to acquire
additional shares in the company without payment of commissions.
Further details on the Plan and a Participation Form can be obtained
from our administrative head office, our transfer agent or from our
web site.
Shareholder Enquiries
Shareholder enquiries are welcomed and should be directed to Katherine
Vyse, Senior Vice-President, Investor Relations and Communications
at 416-363-9491 or kvyse@brookfield.com. Alternatively shareholders
may contact the company at its administrative head office:
Brookfield Asset Management Inc.
Suite 300, BCE Place, Box 762, 181 Bay Street
Toronto, Ontario M5J 2T3
Telephone: 416-363-9491
Facsimile:
416-365-9642
Web Site: www.brookfield.com
E-Mail:
enquiries@brookfield.com
Shareholder enquiries relating to dividends, address changes and
share certificates should be directed to the company’s Transfer Agent:
CIBC Mellon Trust Company
P.O. Box 7010, Adelaide Street Postal Station
Toronto, Ontario M5C 2W9
Telephone: 416-643-5500 or
1-800-387-0825 (Toll free throughout North America)
416-643-5501
Facsimile:
Web Site: www.cibcmellon.com
Stock Exchange Listings
Class A Common Shares
Class A Preference Shares
Symbol
Stock Exchange
BAM, BAM.LV.A
New York, Toronto
Series 2
Series 4
Series 8
Series 9
Series 10
Series 11
Series 12
Series 13
Series 14
Preferred Securities
8.35%
8.30%
BAM.PR.B
BAM.PR.C
BAM.PR.E
BAM.PR.G
BAM.PR.H
BAM.PR.I
BAM.PR.J
BAM.PR.K
BAM.PR.L
BAM.PR.S
BAM.PR.T
Toronto
Toronto
Toronto
Toronto
Toronto
Toronto
Toronto
Toronto
Toronto
Toronto
Toronto
Dividend Record and Payment Dates
Record Date
Payment Date
Class A Common Shares 1
First day of February, May, August and November
Last day of February, May, August and November
Class A Preference Shares 1
Series 2, 4, 10, 11, 12 and 13 15th day of March, June, September and December
Last day of March, June, September and December
Series 8 and 14
Series 9
Preferred Securities 2
Last day of each month
15th day of January, April, July and October
12th day of following month
First day of February, May, August and November
8.35% and 8.30%
15th day of March, June, September and December
Last day of March, June, September and December
1
All dividend payments are subject to declaration by the Board of Directors
2
Interest payments
Brookfi eld Asset Management | 2005 Annual Report
101
Brookfield Asset Management Inc. www.brookfield.com NYSE/TSX: BAM
Corporate Office Information:
Toronto – Canada
Suite 300, BCE Place
181 Bay Street, Box 762
Toronto, Ontario M5J 2T3
T 416-363-9491
F 416-365-9642
Vancouver – Canada
Box 11179, Royal Centre
1055 West Georgia St., Suite 2050
Vancouver, B.C. V6E 3R5
T 604-669-3141
F 604-687-3419
New York – United States
Three World Financial Center
200 Vesey Street, 11th Floor
New York, New York 10281-0221
T 212-417-7000
F 212-417-7196
Calgary – Canada
Suite 3370, Petro-Canada West
150 – 6th Avenue S.W.
Calgary, Alberta T2P 3Y7
T 403-663-3336
F 403-663-3340
London – United Kingdom
One Canada Square
28th Floor, Canary Wharf
London E14 5DY
T 44 (207) 956-8265
F 44 (207) 956-8654
Brasilia – Brazil
SHIS, Q1 15, Conjunto 05, Casa 02/04
Lago Sul – Brasilia
Distrito Federal CEP: 71.635-250
T 55 (61) 2323-9100
F 55 (61) 2323-9198